Alternative ICAP Proposal NSTAR Strategy James Daly Director Electric and Gas Energy Supply (781) 441-8258

What problem are we trying to solve: Reliability NEPOOL reliability standard is 1 day outage in 10 years Translates to Loss Of Load Expectation (LOLE) = 0.1day/year NEPOOL Installed Reserve is 31% of peak load in 2004-2005 NEPOOL Required Reserve is 12.4% of peak load in 2004-2005

NEPOOL Load Growth & LOLE Power Year Peak Load (MW) ICAP Resources Summer (MW) Summer Requirement (MW) LOLE 2004-05 25,735 33,710 28,915 0.0005 2005-06 26,305 29,366 0.0010 2010-11 27,740 31,104 0.0109 2013-14 28,880 32,441 0.0433 Source: ISO Staff “RTEP04 Resource Adequacy Analysis” presentation 03/18/2004

NEPOOL Load Growth: Installed vs. Required Reserves Installed Reserves Required Reserves Power Year MW % 2004-05 7,975 31.0 3,180 12.4 2005-06 7,405 28.2 3,061 11.6 2010-11 5,970 21.5 3,364 12.1 2013-14 4,830 16.7 3,561 12.3 Source: ISO Staff “RTEP04 Resource Adequacy Analysis” presentation 03/18/2004

Boston Area LOLE: Meets criteria over 10 Years So does CT (Jan – Dec) Base case using existing transmission capabilities 2004 0.001 2005 2010 0.011 2013 0.033 Source: ISO Staff “RTEP04 Resource Adequacy Analysis” presentation 03/18/2004

It is not a capacity issue. We have plenty of capacity It is not a capacity issue. We have plenty of capacity. It’s an operating reserves issue!

Coalition Alternative Filed at FERC 03/22/2004 Implement Locational Operating Reserve Market Ensures that units needed for operating reserve are adequately compensated Newly implemented region wide Forward Reserves Market cleared at $4.495/kW-month last January Implement single region-wide ICAP market NEPOOL historically planned for reliability on a pool wide basis Integrates transmission planning and operating realities Compensates all generators for comparable services Demand curve key points set at: 100% of Objective Capability, not 106.7% X-intercept at 112% of Objective Capability, not 118% Same as NYISO

Coalition Alternative (continued) Units compensated in the Locational Operating Reserve Market are units needed for: 2nd contingency reserve coverage Local voltage support Or other local operating needs Existing units receive a transitional payment under cost-of-service type (RMR) agreements Contract forward for new resources needed for Locational Operating Reserve Market under RFP

Coalition Alternative (Continued) ISO/NEPOOL provides 3-year notice prior to changing the price signals established in the ICAP demand curve Participating ICAP resources provide three-year commitment to remain on the system No delisting allowed Liquidated damages for failure to perform ISO approval of maintenance schedule New generation should be fully integrated into the grid

ISO Vs Coalition Alternative Costs Total 5 Year Costs $M ISO No Cap $2,865 ISO W/ Cap $1,591 ISO Adjusted $597 Coalition Alternative $154

Coalition March 22 filing in support at FERC: Attorney General of Massachusetts Attorney General of Rhode Island Associated Industries of Massachusetts Massachusetts Division of Energy Resources New Hampshire Office of Consumer Advocate NSTAR Electric And Gas Corporation National Grid USA Rhode Island Division of Public Utilities and Carriers Strategic Energy LLC (in part) Vermont Electric Power Company (in part) Filed separately but supporting in part: Connecticut Department of Public Utility Control Connecticut Office of Consumer Counsel