G 200 L 200 ISO NEW ENGLAND T H E P E O P L E B E H I N D N E W E N G L A N D ’ S P O W E R. Southwest Connecticut RFP Markets Committee November 14, 2003 Danielle Powers Principal Analyst, Markets Design

G 200 L 200 G 200 L 200 ISO NEW ENGLAND 2 Anticipated RFP Schedule RFP IssuedNovember 28, 2003 Final Bids SubmittedDecember 30, 2003 Contract NegotiationsMid – Late January 2004 Winning Bidders SelectedJanuary 30, 2004 Contract(s) ExecutedFebruary 6, 2004

G 200 L 200 G 200 L 200 ISO NEW ENGLAND 3 Early Notification of RFP Issuance Letter of Intent sent 10/29/03 to NEPOOL Committee Members –Participants, Markets, Reliability, Tariff Early Interest Letter sent 10/31/03 to NEPOOL Participants and Other Interested Parties –Up to 300 MW or more of quick-start peaking capacity –Intent to have capacity available by June 1, 2004 –Allows for later in service dates –Four year contract term with an option to extend for one year

G 200 L 200 G 200 L 200 ISO NEW ENGLAND 4 Proposed New Generation Capacity in CT NameFuelCapacity–MWIn Service Date–Yr Millstone 3 Upgrade*Nuclear Milford PowerGas Meriden**Gas/Oil Kleen Energy***Gas/Oil Total1696 *Doesn’t have 18.4 approval. **Construction halted but to resume in ***Hasn’t started construction.

G 200 L 200 G 200 L 200 ISO NEW ENGLAND 5 Major CT Transmission Projects Project Cost $ millions Earliest In-Service Date Increase in Area Import Capability 345 Phase I Plumtree to Norwalk 200 Nov MW (SWCT) 345 Phase II Beseck to Norwalk MW (SWCT) Lake Rd. Transmission Reconfiguration TBD2005 Transfers Lake Rd into CT 345 Millbury (MA)–Card St ~800 MW (CT) Haddam None

G 200 L 200 G 200 L 200 ISO NEW ENGLAND 6 Three Scenarios of Uncertainty in Project In-service Dates Scenario 1: – “Best”: Milford in 2004; Phase I 345 in 2006 Scenario 2: – “2 Yr Delay”: Milford in 2006; Phase I 345 in 2008 Scenario 3: – “Worst”: Delay beyond 2008

G 200 L 200 G 200 L 200 ISO NEW ENGLAND 7 Summary of SWCT Needs: Best Case: 200 MW covers max need for 2 years 2 Yr Delay: 300 MW covers average need for , and max need for No need in 2008 Worst Case Delay: 300 MW covers min need through 2008

G 200 L 200 G 200 L 200 ISO NEW ENGLAND 8 RFP Basic Concepts Solicitation for up to 300 MW or more of quick-start capacity Four year contract term with an option to extend for one year –Service to commence on or about June 1, 2004 –Quantity and locational specifics as determined by ISO-NE planning Resource Characteristics –10-minute or 30 –minute quick-start peaking capacity –Can be available as early as June 1, 2004 and as late as May 31, 2008 –Need not be available for the entire contract term

G 200 L 200 G 200 L 200 ISO NEW ENGLAND 9 RFP Basic Concepts (Cont’d) Structured as an RFP – not an auction –Resources selected will be paid as bid –Assumes that locational ICAP is implemented to value existing resources –No additional compensation for existing generators from this process - existing generators will receive revenues from existing markets and the LICAP market Bidders can offer pricing for single or multiple year contract terms Generators must offer a capacity price and an “expected energy price” (for evaluation purposes) Demand Response Resources/Emergency Generators must offer a capacity price only

G 200 L 200 G 200 L 200 ISO NEW ENGLAND 10 Eligible Resources New peaking capacity Incremental peaking capacity at existing resources Demand response resources Emergency generation

G 200 L 200 G 200 L 200 ISO NEW ENGLAND 11 New and Incremental Peaking Capacity Not required to enroll in the ISO-NE LRP Treated as ordinary generating assets in the market Minimum size = 100 kW 10 or 30 minute response time Fully permitted resources –Must be listed as an ICAP resource –Must offer in Day Ahead and Real Time energy markets

G 200 L 200 G 200 L 200 ISO NEW ENGLAND 12 New and Incremental Peaking Capacity (Cont’d) Emergency-only permitted resources –Must enroll in the ISO-NE Demand Response Program – Will be given ICAP credit in accordance with the Demand Response Program

G 200 L 200 G 200 L 200 ISO NEW ENGLAND 13 Demand Response Resources / Emergency Generators Must enroll in the ISO-NE Demand Response Program Will be given ICAP credit in accordance with the Demand Response Program Required to reduce load in 10 or 30 minutes Minimum load reduction = 100 kW

G 200 L 200 G 200 L 200 ISO NEW ENGLAND 14 Anticipated Proposal Pricing Generators – New and Incremental Peaking Capacity –Will be paid for capacity monthly and will be paid the applicable nodal price when dispatched –Any revenues received in the ICAP market will be netted from ICAP revenues due under the contract Demand Response Resources/Emergency Generators –Will be paid for capacity monthly and will be paid for load reductions in accordance with the ISO-NE Demand Response Program –Any revenues received in the ICAP market will be netted from ICAP revenues due under the contract

G 200 L 200 G 200 L 200 ISO NEW ENGLAND 15 Proposal Requirements Bidder Background –Business specifics –NEPOOL participant or arrangements with a NEPOOL participant Financial Viability –Letter of credit or satisfaction of NEPOOL’s financial insurance policy Resource Information

G 200 L 200 G 200 L 200 ISO NEW ENGLAND 16 Proposal Requirements (Cont’d) Proposal pricing –All proposed resources must have an associated capacity price –Generators must submit an expected energy price –Bidders can provide increments of capacity on a yearly basis – not required to submit full bid amounts in all years –Alternative pricing structures are encouraged Model contract exceptions Litigation, penalties and defaults

G 200 L 200 G 200 L 200 ISO NEW ENGLAND 17 Evaluation Criteria Amount procured will reflect a balance of capacity needed, system and market uncertainties, and prices Proposed resources will be evaluated based on the costs associated with technically feasible projects Generating resources with full environmental permits will be evaluated more favorably than those with emergency-only permits Other evaluation criteria: –resource permitting and likelihood –interconnection requirements/transmission upgrades, if any –financial viability –exceptions to the model contract

G 200 L 200 G 200 L 200 ISO NEW ENGLAND 18 Market Rule Changes/Cost Allocation Proposed change to Market Rule 1 Appendix E – Load Response Program –Allows ISO-NE to issue RFPs and enter into contracts to maintain reliability in regions that ISO-NE has determined may have potential critical power supply reliability problems Costs incurred pursuant to RFPs will be allocated and charged to network load in the same manner as fixed RMR Resources –In proportion to monthly network load within the CT reliability region (Sec 6.4.4(c) of Market Rule 1)