1. Energy supply forecast Presentation to Connecticut’s Energy Future Conference by Bridgett Neely, London Economics International LLC December 2, 2004 Hartford, CT

2. 2 www.londoneconomics.com London Economics has extensive experience in the New England power sector Electricity supply, demand, and price forecasting for regions across the US and abroad Electricity supply, demand, and price forecasting for regions across the US and abroad Cost benefit analysis to quantify net economic and social benefits from various infrastructure projects (including generation and transmission) Cost benefit analysis to quantify net economic and social benefits from various infrastructure projects (including generation and transmission) Due diligence support for asset acquisitions and divestitures Due diligence support for asset acquisitions and divestitures Energy procurement and auction design specialists Energy procurement and auction design specialists Support in FERC filings, especially regarding market power issues Support in FERC filings, especially regarding market power issues Expert testimony Expert testimony Examples of New England experience Economic support for acquisition of large NE portfolio, including FERC 203 filings Long term price forecasts for NE market, including cost-based simulation modeling and game theoretic analysis Valuation and regulatory analysis of LNG facilities Assessment of ISO NE market design for securitization of certain hydro-electric assets Assessment of default supply obligations Support to CT DPUC for TSO auction

3. 3 www.londoneconomics.com Connecticut is part of the ISO New England control area; represents 27% of region’s demand

4. 4 www.londoneconomics.com Connecticut faces growing electricity demand – 1.2% p.a. through 2010 Factors that could change demand forecasts actual population growth immigration increase or decrease in industrial activity increase or decrease in economic growth extreme weather (affects peak demand, and load shape) demand response programs

5. 5 www.londoneconomics.com While on a statewide basis, CT has sufficient supply to meet expected peak demand through 2010… CT Supply-Demand Forecast 0 2,000 4,000 6,000 8,000 10,000 12,000 2000 2001 2002 2003 2004 2005 2006 2007200820092010 MW Import Demand Response Other Capacity MW Nuclear Capacity MW Hydro Capacity MW Petroleum Capacity MW Gas Capacity MW Coal Capacity MW Existing power plants and transmission infrastructure in CT Peak demand

6. 6 www.londoneconomics.com …CT has isolated pockets of heavy load where local generation is insufficient to meet demand and transmission highly constrained Issues in SW CT: SWCT transmission system does not meet NEPOOL reliability standards SWCT is short of capacity to meet summer peak load forecast plus operating reserve until the proposed Southwest Connecticut Reliability Project is in service Other potential problems Possible retirement of older, less efficient units Thermal overload and low voltage conditions Short circuit limitations S-D Forecast for Southwest CT 0 1,000 2,000 3,000 4,000 5,000 6,000 2004200520062007200820092010 MW RFP for SWCT Emergency Capability SWCT Reliability Project - Phase 2 SWCT Reliability Project Phase I Additions Current Import Limit Total Net Capacity Peak demand

7. 7 www.londoneconomics.com Additional infrastructure is needed to address CT’s load pockets Average Monthly Day Ahead CT LMP Prices $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 $/MWh Monthly Average Day Ahead LMPNew Entry Trigger Price Average$53.64 Min$0 Max$578.56 Day ahead LMP Prices in CT November 2003 - October 2004 Potential power plant projects: Ridgebury Power (10 MW – 2005) South Norwalk (50 MW 2005) Towantic Energy Center (508 MW – 2007) New Britain (520 MW – 2007) Kleen Energy project (520 MW – 2008) CT has a strict renewable portfolio standard that must also be taken into consideration

8. 8 www.londoneconomics.com Increasing oil prices and dependence on foreign oil imports impact CT’s energy supply issues

9. 9 www.londoneconomics.com Gas is a critical prerequisite for additional supply Gas already supplies almost 25% of US energy needs – and most new power generation capacity Gas production in US and Canada declining Environmental and NIMBY concerns inhibiting opening new land to drilling and development Alaska and other frontier areas would require massive investment – gas not likely to be available until 2010 LNG could help but sufficient infrastructure will not be in place for at least 4-5 years Natural gas forwards at Henry Hub ($/MMBtu) Consensus on sustained high gas prices in near term Potential for even higher prices if colder or hotter than normal

10. 10 www.londoneconomics.com However, even with new (gas-fired) resources, average annual wholesale electricity prices are likely to stay in $60/MWh range given current gas price trends Note: X-axis presents cumulative DNC, i.e. unadjusted for transmission constraints and availability 2010 CT supply curve $- $20 $40 $60 $80 $100 $120 $140 $160 $180 $200 -2,0004,0006,0008,00010,000 Marginal Cost ($/MWh) Avg Demand: 4,144 MW Avg Demand w/Exports: 4,964 MW Peak Demand: 7,129 MW Peak Demand w/Exports: 7,949 MW 2005 CT supply curve $- $20 $40 $60 $80 $100 $120 $140 $160 $180 $200 -2,0004,0006,0008,00010,000 Marginal Cost ($/MWh) Avg Demand: 3,904 MW Avg Demand w/Exports: 4,724 MW Peak Demand: 6,716 MW Peak Demand w/Exports: 7,536 MW