1. Benefits of New England’s Proposed Capacity Market
David LaPlante, Vice President, Wholesale Markets Strategy
April 26, 2006

2. Effective Capacity Market Completes Wholesale Market Design
Wholesale markets kicked off in 1999 with single energy clearing price as interim design
Standard Market Design brought locational energy prices and multi-settlement in 2003
Ancillary Services Markets improved in 2006 by adding locational reserve market to encourage quick start facilities and opportunity for demand to bid directly into market
Capacity Market improvements are last major piece of market design
March © 2006 ISO New England Inc.

3. Markets Creating Development Activity: Potential Capacity Additions
March © 2006 ISO New England Inc.

4. Growing Peak Drives Need to Build More Resources
March © 2006 ISO New England Inc.

5. Forward Capacity Market Goals
Induce investment to maintain adequate resources over the long term
Allow new capacity resources to compete and set price
Assure high level of performance from resources when needed
Address market power in capacity market and energy market
Together with other markets, send price signals for both an efficient mix and efficient operation of resources
March © 2006 ISO New England Inc.

6. FCM Encourages Appropriate Investment in All Resources
Holding auction three years in advance of need allows time for new development
New capacity: Option to select five year commitment
Easier to attract investment, reducing risk
Existing capacity: Gets annual auction price
Provides stable revenue stream to support reliable operations
March © 2006 ISO New England Inc.

7. FCM Includes All Resources
Demand recognized as important resource
To meet capacity needs and/or reduce capacity obligation
Opportunity for energy efficiency to participate in FCM market
New programs may be eligible for transition payments
Intermittent resources to be treated as capacity resource
Demand Resources and Intermittent Resources Working Groups formed to develop eligibility details
March © 2006 ISO New England Inc.

8. FCM Protects Consumers
Capacity resources must be available during hours of high prices/operating reserves shortage for full payment
Works to mitigate reliability issues seen during January cold snap
Capacity payments reduced when energy price exceeds a threshold
Consumers don’t pay twice for capacity and energy
March © 2006 ISO New England Inc.

9. FCM Addresses Market Power
Bids from new capacity are assumed to be competitive
Requires existing capacity to offer into the market
New England market is concentrated, especially in smaller zones
Risk that owners of large amounts of generation could withhold capacity and force prices higher
Market Monitor will review bids of existing capacity
Places limits on offers for those that wish to retire or leave the market
March © 2006 ISO New England Inc.

10. Effort to Prepare and Administer FCM
Approve bidder qualifications
Financial assurance interconnection analysis site and schedule for new development
Review and monitor offers
Self supply criteria
Restriction for de-list and export bids
Reports to FERC
Requirements for different zones
Market Monitoring determinations
Determine Installed Capacity Requirement (ICR) for power year by next summer
First FCM auction first quarter of 2008
March © 2006 ISO New England Inc.

11. Overall Action Plan for Reliability, Adequacy, and Cost Control
Complete market improvements to build reserve resources and new capacity
Encourage capacity resources with diverse fuel types
Tackling state siting barriers to the development of non-gas generation
Reduce the growth in peak demand
Time differentiated retail rates for large customers
March © 2006 ISO New England Inc.