ISO New England Regional Update

Wholesale Electricity Markets & State Energy Policy SeminarConnecticut Business & Industry Association

December 14, 2010

About ISO New England

• Not-for-profit corporation created in 1997 to oversee New England’s restructured electric power system– Regulated by the Federal Energy

Regulatory Commission (FERC)

• Independent System Operator– Independent of companies doing

business in the market

– No financial interest in companies participating in the market

• Major responsibilities:– Reliable operation of the electric grid

– Administer wholesale electricity markets

– Plan for future system needs

2CBIA Seminar – December 14, 2010

© 2010 ISO New England Inc.

New England’s Electric Power Grid at a Glance

• 6.5 million households and businesses; population 14 million

• More than 300 generators

• Over 8,000 miles of high-voltage transmission lines

• 13 interconnections to electricity systems in New York and Canada

• Approx. 32,000 megawatts of total supply and 2,500 megawatts of demand resources

• All-time peak demand of 28,130 megawatts, set on August 2, 2006

• More than 400 participants in the marketplace

• $5-11 billion annual energy market value

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© 2010 ISO New England Inc.

ISO New England and Stakeholders

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© 2010 ISO New England Inc.

Federal Energy Regulatory Commission (FERC)

North American Electric Reliability

Corp. (NERC),Electric Reliability

Organization (ERO)

ISO New England,Regional Transmission

Organization (RTO)

New England Stakeholders

Policymakers and Regulators

New England Power Pool (NEPOOL)Participants

Committee, and Technical

Committees

Six Sectors:Generation,

Transmission,Supplier,

Publicly-Owned Entity,

End User,Alternative Resources

States

Governors/NESCOE

Northeast Power Coordinating

Council (NPCC)

Market Participants

Consumer Advocates,

Attorneys General

Environmental Regulators

Energy Boards and Commissions

Operate Bulk Electric Power

System

Administer Regional Transmission Tariff

Administer Wholesale ElectricityMarkets

Public Utility Commissions

Independent Board of Directors

Market MonitoringInternal and

External Market Monitors

Comprehensive planning process with stakeholder

input through Planning Advisory

Committee

Dispatch Resources,

Oversee Six Local Control Centers,Coordinate with Three External Control Areas

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Transmission Projects to Maintain Reliability are Progressing• Major transmission upgrades

completed or underway in all six New England states

• Investments have reduced congestion and reliability costs

– U.S. Department of Energy dropped New England from its transmission congestion report, citing success in developing transmission, generation and demand-side resources

– Congestion costs dropped nearly 80% (~$100 million) from 2008–09

– The need to commit uneconomic generation for reliability dropped 90% (more than $165 million) from 2008–09 • Largely because of transmission

upgrades completed in Southeast Mass (SEMA) and Southwest Connecticut

4

5

12

7

9

8b

3

6

10

In service

Under construction

Under study

8a

1. Southwest CT Phase I2. Southwest CT Phase II3. NSTAR 345 kV Project4. Northwest Vermont5. Northeast Reliability Interconnect6. Monadnock Area7. New England East-West Solution8. Southeast Massachusetts

a. Short-term upgradesb. Long-term Lower SEMA

9. Maine Power Reliability Program10. Vermont Southern Loop

CBIA Seminar – December 14, 2010© 2010 ISO New England Inc.

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New England’s Fuel Mix has Shifted

• New highly efficient natural-gas-fired generators have displaced use of fuel oil

• Generator emissions rates have declined over the past decade

– SO2 rate 67%

– NOX rate 62%

– CO2 rate 12%

• Environmental regulations will further challenge carbon-heavy resources 2000 2009

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

22%

42%

14.8%

0.7%

31%30%

18%12%

Sources of Energy

OtherHydroPumped storageCoalNuclearOilNat. Gas

CBIA Seminar – December 14, 2010© 2010 ISO New England Inc.

Region has Developed DR to Support ReliabilityAdditional DR could be realized by offering dynamic pricing to retail customers

Pre-SMD

2003 2004 2005 2006 2007 2008 2009 May 2010

2010/11

2011/12

2012/13

2013/14

0

500

1,000

1,500

2,000

2,500

3,000

3,500

CT 771 CT 930

VT 81VT 148

MA 679

MA 1,379

NH 105

NH 129

ME 522

ME 444

RI 141

RI 231

Capacity(MW)

FCM

2010/11–2013/14: Total DR cleared in FCAs 1–4 (New and Existing); Real-Time Emergency Generation capped at 600 MW.

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Enrollment in ISO programs prior to start of FCM

CBIA Seminar – December 14, 2010© 2010 ISO New England Inc.

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Wholesale Electricity Prices Track Natural Gas Prices

Jan-

05

Mar

-05

May

-05

Jul-0

5

Sep-0

5

Nov-0

5

Jan-

06

Mar

-06

May

-06

Jul-0

6

Sep-0

6

Nov-0

6

Jan-

07

Mar

-07

May

-07

Jul-0

7

Sep-0

7

Nov-0

7

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep-0

8

Nov-0

8

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep-0

9

Nov-0

9

Jan-

10

Mar

-10

May

-10

Jul-1

0

0

20

40

60

80

100

120

0

2

4

6

8

10

12

14

16

18

20

Wholesale Electricity at New England Hub (RT LMP) Natural Gas

Oil Coal

Electric Energy$/MWh

Fuel$/MMBtu

Prices spike when hur-ricanes hit Gulf

Demand drops with recession;Electric energy costs fell 50% from 2008–09; and congestion costs fell ~80%

Natural gas prices typi-cally peak in winter

CBIA Seminar – December 14, 2010© 2010 ISO New England Inc.

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Forward Capacity Market: Results

• Significant new supply and demand resources committed to be online in New England over the next four years*– New supply: 3,600 MW in New England (1,555 MW in CT)– New DR: 2,500 MW in New England (600 MW in CT)

• FCM resources eliminated need for costly reliability agreements with older, less efficient resources– In 2007, Connecticut paid $300 million for 3,200 MW of capacity

operating under reliability agreements– Reliability agreements ended June 1, 2010

• Capacity prices trending down due to excess supply– Forward Capacity Auction clearing at the floor price

* Resources committed in Forward Capacity Auctions 1–4

CBIA Seminar – December 14, 2010© 2010 ISO New England Inc.

Consumer Liaison Group

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ISO’s Activities Important to Consumers

• 24/7 Reliable electric service throughout the region for residents and businesses

• Operation and development of electric system infrastructure is expensive – and consumers ultimately pay for it

• Opportunities exist to participate in the process that decides the details of how operation and development of infrastructure will occur – Significant transparent information

• For certain consumers, opportunity to participate in the markets, earn revenues

CBIA Seminar – December 14, 2010© 2010 ISO New England Inc.

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Consumer Liaison Group

• Purpose– Inform consumers about complex and important electricity issues– Facilitate consumer involvement on regional electricity issues

and their participation in the process to consider electricity market changes

– Create a forum for dialogue between consumers and ISO New England

• Connecticut has active role– Kevin Hennessy (CBIA) and Richard Steeves (OCC) serve on

CLG Coordinating Committee– Additional participation in CLG activities is welcome

CBIA Seminar – December 14, 2010© 2010 ISO New England Inc.

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Consumer Liaison Group

• Topics– Wholesale electricity pricing– Differences between wholesale and

retail costs – Options for consumer participation

in wholesale electricity markets– Transmission costs and cost

allocation– Issues and challenges associated

with integrating renewable resources

– Discussions with FERC Commissioners Moeller and Spitzer

CBIA Seminar – December 14, 2010© 2010 ISO New England Inc.