LICAP New England

1
LICAP New England

• Joel S. Gordon
• PSEG Energy Resources Trade, LLC
• Massachusetts Restructuring Roundtable
• March 18, 2005

2
New England Capacity
Total Capacity 30,958 MW
9,000 MW of Gas Dual Fuel built since 1999.
Source RTEP 04
3
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 350 MW Oil/steam
• Devon 121 MW Oil/steam
• Middletown 770 MW Oil/steam
• Montville 494 MW Oil/steam
• Kendall 53 MW Oil/steam
• New Haven 448 MW Oil/steam
• Bridgeport 2 130 MW Oil/steam
• Salem Harbor IV 443 MW Oil/steam
• Yarmouth 4 604 MW Oil/steam
• Mystic 7 550 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 593 MW GCC
• Bridgeport Energy 451 MW GCC
• Wallingford 176 MW GCT
• Salem I-III 330 MW Coal
• Mystic 8,9 1,393 MW Gas
• Total 2,943 MW

7
Its The Market Design

• 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?

• The Long Touted Surplus is Long Gone in New
  England.
• Certain sub-areas are critically short of capacity

In 2006 there are shortages under ISOs 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.