ISO New England’s Winter 2005/2006 Assessment & Action Plan “Preparing for Cold Weather Reliability” December 9, 2005 Allison DiGrande, External Affairs Department, ISO/NE Stephen J. Rourke, Director, Reliability and Operations Services

New England Faces a Potential Shortfall in Electricity Supply this Winter Significant risk of unavailability of gas-fired generating units to meet peak electrical demands this winter Shortfall in gas-only generating unit availability would be a system-wide resource issue Not a specific load pocket issue Relative economics of oil vs. natural gas should result in significantly more use of oil than in recent winter periods ISO-NE and regional stakeholders have developed remedial actions to reduce this risk 2005/06 Winter © 2005 ISO New England Inc.

New England Generating Capacity by Fuel Type (Winter 2005/06) Total Capacity: 33,387 MW (Winter 2005/06) Power plants using natural gas as primary fuel 2005: 40% (shown at right) Up from 17% in 1999 Includes gas-only and dual-fuel power plants Dual fuel units subject to permit limits on burning oil Approximately two-thirds of our power plants use natural gas or oil as primary fuel 2005/06 Winter © 2005 ISO New England Inc.

January 2004 Cold Snap Experience During the January 2004 Cold Snap, all of the natural gas pipelines’ firm customers were served in accordance with their tariffs ~ 9,000 MW of generation was out-of-service in New England ~ 7,200 MW of this capacity consisted of gas-only units that were unavailable due to fuel and weather related outages/reductions The damage to the gas and oil production infrastructure inflicted by the recent Gulf hurricanes poses an increased risk to the availability of gas-fired generation this winter 25% of New England’s peak-day natural gas comes from Gulf sources 2005/06 Winter © 2005 ISO New England Inc.

Cold Snap Process Improvements Since 2004, ISO New England has implemented a number of process improvements that should improve the availability of New England generation Increased Coordination Gas/Electric Operations Committee Day Ahead Market timing Improved Availability Timely switching to alternate fuels Improved winterization of generating units Additional dual fuel units 2005/06 Winter © 2005 ISO New England Inc.

2005/06 Winter © 2005 ISO New England Inc.

Summary of Problem Issues New England is subject to great uncertainty/risk in the price, availability and deliverability of natural gas in the winter Majority of the New England generators do not have firm gas supply and transportation Damage by Gulf hurricanes increases uncertainty and risk this winter Gas pipelines have indicated they are well prepared to serve firm customers Natural Gas LDC storage is on track 2005/06 Winter © 2005 ISO New England Inc.

What are the Concerns for Winter 05/06? Increased quantities of gas-only generation are likely to be out of service during a Cold Snap period Expected Winter 2005/06 Peak Load is equal to the extreme winter peak load experienced in January 2004 (22,800 MW) Forecasted Extreme Peak Load is about 1,000 MW greater than January 2004 actual Cold Snap peak (23,800 MW) Concern for additional demand from increased strip heating use is possible if extreme cold and very high gas and oil prices occur Multiple Cold Snap events would exacerbate supply and price issues for New England generators Ability to withstand the loss of a major generating unit during a Cold Snap event without invoking advanced emergency actions may be at risk 2005/06 Winter © 2005 ISO New England Inc.

Impacts to Winter Analysis from Katrina (all Winter 2005/06 Operable Capacity Analysis 90/10 Forecast reflecting the impact of Katrina and Rita Winter Analysis 05/06 Pre-Katrina Impacts to Winter analysis from Katrina (Gas unit outages with a 10% reduction in supply) Impacts to Winter Analysis from Katrina (all Gas-only units Out of service) Total Resources 32,940* Gas Unit Outages 5,700** 7,800 8,700 Other Unit Outages 1,700 Net Available Resources 25,540 23,440 22,540 Peak Load 23,740 24,140*** Reserve Requirement Operable Capacity Margin 100 -2,400 -3,300 * Includes 900 MW of ICAP Sales to NY (currently 640 MW scheduled) ** Assumes only 3,000 MW of the 8,700 MW of gas-only generation has firm pipeline transportation contracts *** Includes increase in 90/10 peak load due to increase in electric heating load (400 MW) 2005/06 Winter © 2005 ISO New England Inc.

Contingency Plans

ISO-NE Contingency Plan: Winter 2005/2006 Summary Actions MWs Added Costs (Million $) Operating/Market Procedures 100-400 N/A Communications/Conservation 250-500 DSM/Load Management 100-450 7 – 43 Incremental Dual Fuel Generation 400 – 1000 Participant Funded Emergency Actions Emergency Imports 300-800 Market Voltage Reduction 250-300 2005/06 Winter © 2005 ISO New England Inc.

ISO Winter Action Plan Communications and Conservation New Emergency Assistance Operating Procedure Market Rule Changes Improve availability of existing resources and imports: Start-up and No-load Flexibility Emergency Energy Transactions Posturing of units for multi-day periods Demand Response Winter Supplement Program Market Participant Response 400-1000 MW of incremental dual fuel capability 2005/06 Winter © 2005 ISO New England Inc.

Pre-Winter Actions Protect Reliability Review/Adjust Transmission & Generation Maintenance Schedules Voltage Reduction Test (Tuesday, November 22) Gas-Electric Coordination “Tabletop” Drill Rehearse Winter Load Shedding (ISO/Transmission Owners) Evaluate Lessons Learned: Florida gas supply shortage due to hurricanes California feeder rotation Coordinate with Neighboring Control Areas: Maximize Transmission Transfer Capability Fuel Diversity Minimize/Eliminate Impact of New England Source Contingency Weekly Fuel Surveys Evaluate availability versus expected need Allow Time to React to Mitigate Expected Fuel Shortage/Implementation of OP21 Actions 2005/06 Winter © 2005 ISO New England Inc.

BACKGROUND SLIDES ON CONTINGENCY PLANS

Communications/Conservation State Partnerships Establishment of “winter communications team” to share information throughout the winter season State agencies, gas association and others Collaboration with air regulators on actions to recognize winter emergency conditions in permit constraints on dual fuel units Proactive and ongoing outreach to top policymakers throughout the region on reliability, price, and conservation Gas – Electric Operational Coordination Exercise held in Springfield, MA on November 29 2005/06 Winter © 2005 ISO New England Inc.

New Operating Procedure New Operating Procedure: Action During and Energy Emergency (OP21) Intended to address sustained, wide-scale shortages of fuel for generators in New England and mitigate loss of operating capacity ISO to conduct weekly survey of generators’ fuel availability, current inventory and expected deliveries for the winter peak load season More frequently under severe energy emergency conditions ISO to posture units to improve energy availability and request fuel switching by dual-fuel units ISO to implement OP4 actions as needed; and OP7 under extreme conditions 2005/06 Winter © 2005 ISO New England Inc.

Operating Procedure No. 4 Note: "Public Appeal" does not include posting of Special Notices, or communication with state regulators and other OP4 Contacts 2005/06 Winter © 2005 ISO New England Inc.

Appendix H to Market Rule 1 *ISO may declare OP4 at any time during Appendix H if needed 2005/06 Winter © 2005 ISO New England Inc.

Operating Procedure 21 (Proposed) ** ISO may declare OP4 at any time during OP21 if needed 2005/06 Winter © 2005 ISO New England Inc.

Demand Response Actions ISO Proposes Demand Response Winter Supplement Program 450 MW of incremental capacity Could provide up to 600 MW if resources provide 130% of capacity Resources must enroll in existing 30-min DR program Utilized at Actions 9 & 12 of Operating Procedure No. 4 – Actions During a Capacity Deficiency Eligibility period: December 1 through March 31 2005/06 Winter © 2005 ISO New England Inc.