1. Electric Energy Issues and the Region Connecticut Business and Industry Association Stamford, Connecticut December 2, 2004 Kevin Kirby Vice President, Market Operations ISO New England Inc.

2. 2 Regional System Planning ISO New England’s role in the restructured electric industry Planning Horizon: 10 Years Geographic Scope: –New England –Connecticut, Southwest CT and Norwalk-Stamford sub-areas –Coordination with neighboring control areas Regional Transmission Expansion Plan for 2004 What are the region’s energy needs today and through 2013?

3. 3 Long-term Planning Long-term planning is important because: –Identifies areas of the system that are projected to have inadequate resources and/or reliability problems –Provides a timetable for when new resources need to be available –Signals where investment in energy infrastructure is most valuable –Short-term fixes are costly “The objective is to have a plan that adequately meets projected system and local needs.” (RTEP 04)

4. 4 Net Generating Capacity90/10 Load + Operating Reserves 50/50 Load + Operating Reserves 10,000 15,000 20,000 25,000 30,000 35,000 - 5,000 2004200520062007200820092010201120122013 Summer Megawatts New England’s Capacity Situation Today’s surplus capacity situation will be short-lived

5. 5 Major Concerns Transmission investment lags –Transmission constraints have created load pockets –Threatens regional reliability Certain resources are critical Even with planned transmission upgrades, additional resources will be needed Existing generation at risk Fuel diversity

6. 6 Connecticut: Overview Capacity is inadequate to serve demand and meet reliability requirements –Special measures (emergency resources and operating procedures) are needed to keep the lights on now in Southwest Connecticut Existing generation is needed to provide bulk power system support More than 2,800 MW projected to be operating under reliability agreements in 2005 Connecticut incurs avoidable costs because of inadequate energy infrastructure

7. 7 Emergency Actions Southern New England Reinforcement Current Import Limit Net Generating Capacity - 2,000 4,000 6,000 8,000 10,000 12,000 2004200520062007200820092010201120122013 Summer Megawatts NOTE: Transmission project in- service dates are subject to delay Connecticut Capacity Situation 90/10 Peak Load + Reserves 50/50 Peak Load + Reserves

8. 8 Southwest Connecticut Capacity Situation Emergency Actions SWCT Phase II Current Import Limit Net Generating Capacity NOTE: Transmission project in- service dates are subject to delay 90/10 Peak Load + Reserves 50/50 Peak Load + Reserves SWCT Phase I

9. 9 0 250 500 750 1,000 1,250 1,500 >4031-4021-3011-200-10 Age of Generators - Years Capacity (MW) 0% 10% 20% 30% 40% 50% 60% Percent of Total Capacity MegawattPercent Age of Generators in Southwest Connecticut

10. 10 Post-Contingency Violations Current System Thermal Overloads New Haven Stamford Norwalk Bridgeport Milford

11. 11 Wholesale Electricity Price Driver Fuel-adjusted wholesale electricity prices in 2003 were the lowest of the last four years –Clearing prices in the wholesale electricity market rise and fall with changes in fuel costs, particularly for natural gas Electricity prices will continue to reflect fuel costs

12. 12 Locational Capacity Market Purpose: To get new capacity into areas such as Southwest Connecticut that have limited local resources and limited import capability Problem: Energy infrastructure won’t be built in areas where market rules don’t allow for recovery of investments Fact: Connecticut is paying significant avoidable costs today for an inefficient power system Benefits: Locational capacity markets provide greater incentives for alternative resources (distributed generation, demand response, conservation)

13. 13 Conclusions and Required Actions Capacity in Connecticut is inadequate to serve demand reliably –Special measures keep the lights on now in Southwest Connecticut Timely approval and operation of transmission infrastructure is needed Market enhancements are needed to encourage investment where it is needed: –New generation resources –Re-powering of older units –Increased demand response and conservation