ISO New England Provides Details on Initial Agreement for New Capacity Market Design; Majority of Stakeholders Support Forward Auction Approach to Ensure Adequate Electricity Supply; Settlement Talks Continue to Finalize Market Design Specifics

Business Wire, Feb 1, 2006

HOLYOKE, Mass. -- A settlement judge overseeing negotiations between ISO New England Inc. and regional stakeholders today filed a report with the Federal Energy Regulatory Commission (FERC) detailing an agreement in principle to propose changes in New England's wholesale capacity markets. According to the report, the majority of New England stakeholders, including four of the six New England states, have agreed in principle to these changes, which would promote investment in new and existing power resources needed to maintain a reliable power system.

The agreement in principle reached today would establish a Forward Procurement Market (FPM) design under which ISO New England would project the needs of the power system three years in advance and hold an annual auction to purchase power resources, including new and existing power plants, alternative energy sources, and demand-response assets, to satisfy the region's future needs. The FPM model was originally proposed by the New England states last September.

To ensure that power resources purchased during the auction are available to maintain regional reliability, the agreement in principle includes incentives for resource performance during power system emergencies and penalties for those resources that are not available when system conditions are stressed. Additionally, the agreement includes a multi-year transition period that will provide compensation to existing resources.

Stakeholders representing diverse interests, including state officials, utility companies, generating companies, end users, regulators, and other market participants, participated in the settlement discussions and have developed this initial proposal.

While stakeholders have reached broad consensus on the agreement in principle, settlement discussions have been extended until March 6, 2006, to finalize details of the capacity market's design. The specifics of the settlement agreement remain confidential until that time. The FERC must approve a final settlement agreement.

"We are pleased that the majority of states have signed on to the agreement in principle for a capacity market in New England," ISO New England President and Chief Executive Officer Gordon van Welie said. "While work will continue over the next few weeks and the final outcome is still uncertain, we are hopeful the continued development of this market design can achieve what ISO New England has been working toward for some time--a reliable power system supported by robust and efficient wholesale electricity markets."

The reliability of the New England power system faces a significant threat due to a diminishing and aging pool of resources. While electricity use continues to grow--it would take the addition of one new power plant per year to keep pace with demand--investment in new supply has evaporated. ISO New England estimates that as early as 2008, the region may have insufficient supply to meet its electricity needs.

Because electricity cannot be stored, New England needs enough power plants and other resources to meet peak demand on the hottest and coldest days of the year. A functioning capacity market recognizes the value of having assets that can meet the region's needs under all conditions.

"Without changes in the market, the cost of makeshift measures will rise, and system reliability will degrade because investment in new resources will not occur," van Welie said. "Consumers will continue to pay hundreds of millions of dollars a year for costly, band-aid approaches to hold the system together, and the region's economy will suffer as a result of an inefficient and unreliable power system."

Since 1997, ISO New England Inc. has been the not-for-profit corporation responsible for the day-to-day reliable operation of New England's bulk power generation and transmission system with an installed capacity of 32,000 megawatts; oversight and fair administration of the region's $10 billion wholesale electricity marketplace, comprised of more than 260 market participants; and management of a comprehensive regional bulk power system planning process.

For almost eight years, ISO New England Inc. has been the not-for-profit corporation responsible for the day-to-day reliable operation of New England's bulk power generation and transmission system with an installed capacity of 32,000 megawatts; oversight and fair administration of the region's $7.25 billion wholesale electricity marketplace, comprised of more than 260 market participants; and management of a comprehensive regional bulk power system planning process.