1. LICAP New England Joel S. Gordon PSEG Energy Resources & Trade, LLC
Massachusetts Restructuring Roundtable
March 18, 2005

2. 9,000 MW of Gas & Dual Fuel built since 1999.
New England Capacity
Total Capacity 30,958 MW
9,000 MW of Gas & Dual Fuel built since 1999.
Source: RTEP 04

3. 45% of New Gas/Oil Units have failed in the NE Market.
Capacity by Fuel Type
Total Capacity 30,958 MW
45% of New Gas/Oil Units have failed in the NE Market.

4. New Gas Units
“Results of the wholesale market operations to date show that the price signals from the energy markets alone are not sufficient to support new entry and may not even support continued operation of existing units needed to reliably meet system or local load requirements.”
“Actual revenues available …only support about 30 to 40 percent of the [cost of a peaker]”

5. Return to Cost of Service
Over Half Of the Oil Fleet has Left the Market
Nearly ALL in highly Transmission Constrained Areas.
New Boston: MW Oil/steam
Devon MW Oil/steam
Middletown 770 MW Oil/steam
Montville MW Oil/steam
Kendall MW Oil/steam
New Haven 448 MW Oil/steam
Bridgeport MW Oil/steam
Salem Harbor IV 443 MW Oil/steam
Yarmouth MW Oil/steam
Mystic MW Oil/steam
W. Springfield 101 MW Oil/steam
Total 4,100 MW

6. Other Units Responses
Highly Efficient Units in Constrained Areas are Also Trying to Leave the Market.
Milford I & II MW GCC
Bridgeport Energy 451 MW GCC
Wallingford MW GCT
Salem I-III MW Coal
Mystic 8,9 1,393 MW Gas
Total 2,943 MW

7. It’s The Market Design And we need them all for reliability…..
10 Separate Generating Companies
14 Separate Generating Stations
37 Generating Units
7,043 MW of Capacity
Most Operating in CT and NEMA
23% of the Total Installed Capacity
And we need them all for reliability…..

8. Got Surplus? Certain sub-areas are critically short of capacity
The Long Touted Surplus is Long Gone in New England.
Certain sub-areas are critically short of capacity
In 2006 there are shortages under ISO’s 90/10 case

9. Promise of LICAP Properly Value Existing Resources.
Eliminate the Need for RMR Contracts.
Send Price Signals for New Investment:
When needed
Where needed
Allow Continuation of Price Caps for Energy.
Encourage Bilateral Contracting Activity.

10. New England Circle of Thumbs
Lack of Clarity on Who is Responsible for Long Term Reliability.
We should be in crisis mode now, who is stepping up?
Unwillingness to Recognize Value
Or at least to pay for it.
NYISO, NYSDPS, and NY Stakeholders all Support the NY LICAP design.

11. Proposed Design Capacity as a product: Deliverable?
Disconnect with how units operate.
Disconnect between obligations and payments.
Disconnect between pricing and supply.
Disconnect between need and purchase.
Capacity is infrastructure and should be treated as such.

12. Competition Can Work
Reasonable capacity values do not have large retail rate impact.
Long term contracting for capacity has low risk for stranded costs.
Continued investment improves overall efficiencies.
LICAP will help maintain the benefits of competitive energy markets.