Electric Energy Issues and the Region

Connecticut Business and Industry Association

Stamford, ConnecticutDecember 2, 2004

Kevin KirbyVice 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 Capacity 90/10 Load + Operating Reserves

50/50 Load + Operating Reserves

10,000

15,000

20,000

25,000

30,000

35,000

-

5,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Su

mm

er M

egaw

atts

New England’s Capacity Situation Today’s surplus capacity situation will be short-lived

5

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

6

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

7

Emergency Actions

Southern New England Reinforcement

Current Import Limit

Net Generating Capacity

-

2,000

4,000

6,000

8,000

10,000

12,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Su

mm

er

Me

ga

wa

tts

NOTE: Transmission project in-service dates are subject to delay

Connecticut Capacity Situation

90/10 Peak Load + Reserves

50/50 Peak Load + Reserves

8

-

1,000

2,000

3,000

4,000

5,000

6,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Su

mm

er

Me

ga

wa

tts

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

9

0

250

500

750

1,000

1,250

1,500

>40 31-40 21-30 11-20 0-10

Age of Generators - Years

Ca

pa

cit

y (

MW

)

0%

10%

20%

30%

40%

50%

60%

Pe

rce

nt o

f To

tal C

ap

ac

ity

Megawatt Percent

Age of Generators in Southwest Connecticut

10

Post-Contingency ViolationsCurrent System Thermal Overloads

New Have

n

Stamford

Norwalk

Bridgeport

Milford

11

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

12

Locational Capacity Market

• Purpose: To get new capacity into areas such as Southwest Connecticut that have limited local resources and limited import capability

• Problem: Energy infrastructure won’t be built in areas where market rules don’t allow for recovery of investments

• Fact: Connecticut is paying significant avoidable costs today for an inefficient power system

• Benefits: Locational capacity markets provide greater incentives for alternative resources (distributed generation, demand response, conservation)

13

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