Connecticut’s Energy Future Connecticut Energy Advisory Board Conference Hartford, Connecticut December 2, 2004 Kevin Kirby Vice President, Market Operations ISO New England Inc.

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

5 Winter Capacity Situation January 14-16, 2004 ‘Cold Snap’ was coldest winter period in New England in 25 years –New England set an all-time winter peak: 22,878 MW Electric and gas industry coordination is critical Electric and gas market trading deadlines are not well aligned Gas pipelines will not build infrastructure without long term contracts Incremental gas supply into New England over the next 10 years expected to be liquefied natural gas (LNG) Market incentives are needed to increase dual-fuel capability

6 Winter 04/05 Improvements Establishment of Electric & Gas Operations Committee –Weekly information sharing Establishment of “Cold Snap” Operating Procedure triggering: –Cancellation of economic outages before cold weather arrives –Request for dual-fuel units to switch to secondary fuel –Advancement of electric system trading deadlines Implementation of remedial actions by asset owners to improve availability during extreme weather Improved ability to import power from New York Improvements could provide approx. 3,000 to 4,000 MW of additional capacity for winter 2004/05 over last year.

7 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

8 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

9 Emergency Actions Southern New England Reinforcement Current Import Limit Net Generating Capacity - 2,000 4,000 6,000 8,000 10,000 12, 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

10 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

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

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

13 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

14 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