M A R C H 1 3 , 2 0 1 5 | S T O W E , V T

Anne George V I C E P R E S I D E N T , E X T E R N A L A F F A I R S & C O R P O R A T E C O M M U N I C A T I O N S

ISO New England Update

Consumer Liaison Group Meeting

2014 Report of the Consumer Liaison Group Published This Week

• The 2014 Report of the Consumer Liaison Group summarizes the activities of the CLG in 2014:

– http://www.iso-ne.com/committees/comm_wkgrps/othr/clg/annual_rpts/index.html

• The report also provides an update on ISO activities and initiatives, as well as wholesale electricity costs and retail electricity rates in New England

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Other Recent Publications by ISO New England

• 2015 Regional Electricity Outlook – Provides an in-depth look at New

England’s biggest challenges to power system reliability, the solutions the region is pursuing, and other ISO New England efforts to improve services and performance

• 2015 Wholesale Markets Project Plan – Summarizes over 30 initiatives underway

and planned to enhance the wholesale electricity markets and ensure efficient and reliable power in New England

• Executive Summary of the 2014 Regional System Plan – Gives a synopsis of the Regional System

Plan, a collaborative regional effort to identify transmission upgrades and resource additions needed to maintain a reliable supply of electricity in New England through 2023

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2014/2015 WINTER OPERATIONS SUMMARY

2014/2015 Winter Operations Summary

• Given resource performance challenges and reliability risks to the grid the past two winters, ISO New England implemented another Winter Reliability Program for the 2014/2015 winter to help improve regional fuel adequacy, especially during extreme cold weather conditions

• The 2014/2015 winter program – which drew robust participation – has proven beneficial to power system operations because generators have had the fuel they needed to operate when dispatched

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2014/2015 Winter Reliability Program Update

• Winter Reliability Program Oil Burn – Total program fuel burn during December 2014 through February 2015 is

2,717,500 barrels – For comparison, total program fuel burn during December 2013 through

February 2014 was 2,700,500 barrels

• Winter Reliability Program LNG Burn – December 2014 – 0 MMBtu – January 2015 – 0 MMBtu – February 2015 – 0 MMBtu

• Winter Reliability Program Dual-Fuel Commissioning – 6 units submitted intent to commission dual-fuel capability

• 4 units for 2014/2015 (1,039 MW) • 2 units for 2015/2016 (735 MW)

– Total winter seasonal claimed capability added is 1,774 MW – Of the 4 units commissioned this winter: 3 successful, 1 outstanding

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2014/2015 Winter Operations

• The region’s power grid has been operating well through the cold weather this winter, with sufficient resources available to meet peak demand and provide reserves

• The ISO continues to monitor and coordinate with generators and natural gas pipeline companies to help ensure this continues

• Natural gas pipelines serving New England continue to be utilized at near full capacity, supplemented with injections of Liquefied Natural Gas (LNG) occurring in the eastern portion of the system

• These injections have helped meet the high demand for natural gas for power generation

• In addition, with the extremely cold weather, we have seen an increased use of oil-fired generation to meet demand for electricity

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2014/2015 Winter Operations, continued

• For much of the winter, wholesale electricity prices have been lower than last winter

• The most significant factor in this winter’s lower wholesale power prices is lower fuel prices for natural gas, LNG, and oil

• Oil prices have fallen across the globe, to approximately half what they were a year ago, which has dramatically reduced the cost of operating oil-fired power plants

• LNG has been in much greater supply this winter than last, which has resulted in greater competition with pipeline natural gas from the west

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Month & Year

Average Real-Time

Price of Electricity

(Hub) ($/MWh)

Average Price of

Natural Gas (Algonquin) ($/MMBtu)

December 2013

98.53 13.09

January 2014

162.88 24.19

February 2014

152.84 20.85

December 2014*

42.47 6.13

January 2015*

65.59 9.34

February 2015*

126.70 17.27

*preliminary figures

Natural Gas and Wholesale Electricity Prices are Linked Because of New England’s heavy reliance on natural gas as a fuel source, natural gas typically sets the price for wholesale electricity

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Elec

tric

En

ergy

$/M

Wh

Fu

el $/M

MB

tu

$0

$5

$10

$15

$20

$25

$30

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

Wholesale Electricity at New England Hub (Real-Time LMP) Natural Gas

Monthly Average Natural Gas and Wholesale Electricity Prices in New England

2015/2016 Winter and Future Winters

• The ISO and stakeholders have been discussing programs to bridge the gap for the next three winters, before the ISO’s “Pay-for-Performance” design changes become effective in 2018

• On January 20, 2015, FERC issued an order clarifying that if a winter reliability solution is needed for the 2015/2016 winter, and future winters, then the ISO must develop a market-based solution

• On February 19, 2015, the ISO filed a request for rehearing in response to the clarification order

• The ISO has stated that a new market-based solution for the upcoming winters is infeasible, as it would entail the development of an auction mechanism, a penalty structure, and a set of performance criteria, all on an extremely tight time frame

• If FERC does not approve an expanded version of this winter’s reliability program for the upcoming winters, the ISO plans to pursue further increases to the Reserve Constraint Penalty Factors

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FORWARD CAPACITY AUCTION #9

Forward Capacity Auction #9 Results

• The ISO modeled four capacity zones in the auction: – Southeastern Massachusetts/Rhode Island (SEMA/RI) – Connecticut – Northeastern Massachusetts/Boston (NEMA/Boston) – Rest of Pool (included Maine, Western/Central Massachusetts, New

Hampshire and Vermont)

• FCA #9 concluded with sufficient resources for 2018-2019 in most of the region, but with a shortfall in SEMA/RI – 34,695 MW of capacity acquired region-wide

• Installed Capacity Requirement = 34,189 MW – 1,060 MW of new generating resources

• Including a 725 MW dual-fuel unit and two 45 MW units in Connecticut and a 195 MW peaking power plant in SEMA/RI

– 367 MW of new demand-side resources

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Forward Capacity Auction #9 Results, continued

• Clearing prices were higher than in previous auctions, reflecting the need for new resources to ensure a reliable supply of power in New England

• The clearing price in NEMA/Boston, Connecticut and Rest of Pool was $9.55/kW-month

• Administrative pricing rules were triggered because of SEMA/RI’s inadequate supply – Under these rules, the 353 MW of new resources in the zone will

receive the auction starting price of $17.73/kW-month, while 6,632 MW of existing resources in the zone will receive $11.08/kW-month, which is based on the net cost to build a new resource

– While the SEMA/RI zone is short about 238 MW of the 7,479 MW needed in 2018-2019, such resource shortfalls may be filled through periodic reconfiguration auctions held over the next three years

• A preliminary estimate of the total cost of FCA #9 is $4 billion

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RECENT MARKET RULE ENHANCEMENTS

Recent Market Rule Enhancements

• Elective Transmission Upgrade (ETU) Interconnection Process Improvements – In February, the ISO and NEPOOL filed with FERC a joint proposal to

improve the process for evaluating the interconnection of new participant-funded transmission lines to the New England system, otherwise known as elective transmission upgrades (ETUs)

– The rule changes address deficiencies in the existing process, which impede the ability of both the ETU developers and the ISO to make progress on studying and interconnecting these projects

– Approximately 20 proposed ETUs are in the ISO’s Interconnection Queue, ranging from internal New England upgrades to integrate renewable generation, to major new tie lines with neighboring control areas to import capacity and energy into the region

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On- and Off-shore Transmission Proposals are Vying to Move Renewable Energy to New England Load Centers

Note: These projects are NOT reliability projects, but ISO New England’ s role is to ensure the reliable interconnection of these types of projects.

WHAT’S AHEAD

Energy-Efficiency and Solar PV Forecasts

• Final 2015 Energy-Efficiency Forecast expected in May – Results of the draft EE forecast show that the region should expect to

average about 1,576 gigawatt-hours (GWh) of energy savings annually in the 2018 to 2024 timeframe

– Peak reduction should amount to about 207 MW per year over the forecast period

– New England states are expected to spend a total of $6 billion on energy-efficiency programs from 2018 to 2024

• Final 2015 Solar PV Forecast expected in May – Results of the draft solar PV forecast show over 900 MW of solar PV

(AC nameplate) installed in New England through 2014 and over 2,100 MW of solar PV (AC nameplate) expected through 2024

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APPENDIX: WHOLESALE ELECTRICITY COSTS

New England Wholesale Electricity Costs(a)

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2008 2009 2010 2011 2012 2013 2014(g)

$ Mil. ¢/kWh $ Mil. ¢/kWh $ Mil. ¢/kWh $ Mil. ¢/kWh $ Mil. ¢/kWh $ Mil. ¢/kWh $ Mil. ¢/kWh

Wholesale market costs

Energy (LMPs)(b) $12,085 9.1 $5,884 4.6 $7,284 5.6 $6,695 4.9 $5,193 3.9 $8,009 6.0 $9,079 6.9

Ancillaries(c) $366 0.3 $190 0.1 $164 0.1 $39 0 $56 0.0 $155 0.1 $326 0.2

Capacity(d) $1,505 1.1 $1,768 1.4 $1,647 1.3 $1,345 1 $1,195 0.9 $1,057 0.8 $1,063 0.8

Subtotal $13,956 10.5 $7,842 6.1 $9,095 7 $8,079 5.9 $6,444 4.8 $9,220 6.9 $10,468 8

Transmission charges(e)

$869 0.7 $1,155 0.9 $1,417 1.1 $1,378 1 $1,532 1.1 $1,806 1.3 $1,820 1.4

RTO costs(f) $125 0.1 $123 0.1 $137 0.1 $130 0.1 $139 0.1 $167 0.1 $165 0.1

Total $14,951 11.3 $9,080 7.1 $10,649 8.2 $9,588 7 $8,115 6.0 $11,193 8.3 $12,453 9.5

(a) Average annual costs are based on the 12 months beginning January 1 and ending December 31. Costs in millions = the dollar value of the costs to New England wholesale market load servers for ISO-administered services. Cents/kWh = the value derived by dividing the dollar value (indicated above) by the real-time load obligation. These values are presented for illustrative purposes only.

(b) Energy values are derived from wholesale market pricing. (c) Ancillaries include first- and second-contingency Net Commitment-Period Compensation (NCPC), forward reserves, real-time reserves, regulation service, and a

reduction for the Marginal Loss Revenue Fund. (d) Capacity charges are those associated with the Forward Capacity Market. (e) Transmission charges reflect the collection for transmission owners’ revenue requirements and tariff-based reliability services, including black-start capability

and voltage support. In 2014, the cost of payments made to these generators for reliability services under the ISO’s tariff was $41.8 million. (f) RTO costs are the costs to run and operate ISO New England Inc. (g) 2014 values are preliminary and subject to reconciliation.

New England Wholesale Electricity Costs Annual wholesale electricity costs have ranged from $8 billion to $15 billion

12.1

5.9

7.3 6.7

5.2

8.0 9.1

1.5

1.8

1.6 1.3

1.2

1.1 1.1

0.9

1.2

1.4 1.4

1.5

1.8

1.8

$0

$2

$4

$6

$8

$10

$12

$14

$16

2008 2009 2010 2011 2012 2013 2014

Bill

ion

s ($

)

Energy Market Capacity Market Ancillary Markets Transmission Charges RTO Costs

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$14.95 billion

$9.08 billion

$10.65 billion

$9.59 billion

$8.12 billion

$11.19 billion

Source: 2014 Report of the Consumer Liaison Group, Appendix C; 2014 values are preliminary and subject to reconciliation

$12.45 billion

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