Making the Wholesale Market Work for Retail Customers: Connecticut Municipal System Experiences November 11, 2007 Anahe

1. JCDPU Bozrah Light and Power Groton Utilities Jewett City Making the Wholesale Market Work for Retail Customers: Connecticut Municipal System Experiences November 11, 2007 Anaheim, California Presented by: Brian E. Forshaw Connecticut Municipal Electric Energy Cooperative

2. CMEEC • Operating Joint Action Agency since 1979 • Supplies full power requirements of all 6 Municipal Utilities in Connecticut and 2 additional participants • Mission: To meet the electric needs of customers at lowest possible cost • Authorized to own generation, transmission and energy efficiency investments • CMEEC is a Market Participant in ISO-NE • 2007 peak electric load 413 MW representing 5.8% of State of Connecticut

3. CMEEC and Municipal Demand Response Programs • Connecticut Municipals offer two basic types of Demand Response Programs: • Peak Demand Reduction - 66 MW (16% of Peak) • Includes both ISO-NE programs and CMEEC only sponsored programs • Market based pricing – 55 MW (13 % of peak) • Program only offered through CMEEC • Treats customer as if they were purchasing directly from wholesale market • May overlap with Peak Demand Reduction • CMEEC/Municipal role as administrator and/or “honest broker for customer • Full benefits passed along to customer

4. CMEEC Demand Response Experiences • CMEEC represents 1.4% of total New England peak load • During last “reliability event” (Aug. 6 2006), CMEEC performance represented 12% of documented ISO-NE load relief

5. Forward Capacity Market and Demand Resources • New England is implementing Forward Capacity Market (FCM) • First auction in Feb 2008 for delivery in June 2010 • ISO-NE procures sufficient resources to meet Installed Capacity requirements for a future year (2-4 years out) • Capacity price for all resources is set by the bid price of new resources needed to meet Installed Capacity requirement • Existing resources allowed to “delist” if price gets too low • FCM explicitly incorporates Demand Resources as resources to meet Installed Capacity requirements • ISO “qualifies” Demand Resource capacity based on documented marketing and M&V plans

6. Resources Qualified for First Forward Capacity Auction (FCA) • 2010 Installed Capacity requirement is 33,705 MW • Existing Resources total 33,053 MW • Existing supply resources – 32,112 MW • Existing Demand Resources – 941 MW • Qualified New Resources total 6,102 MW • Qualified New Supply Resources – 3,619 MW • Qualified New Demand Resources – 2,483 MW

7. CMEEC Experience with First FCA • Currently CMEEC has 31 customers representing 59 MW participating in ISO-NE Demand Response programs • After consultation with customers, only 3 customers representing about 3 MW were willing to participate in the first Forward Capacity Market • These customers won’t go away • CMEEC will continue to offer similar, shorter-term programs that maximize value to customers outside of formal ISO markets

8. Why were customers reluctant to participate? • We make money selling (air products, pharmaceuticals, drawn steel, etc) not electricity… • This is all way too complicated… • We have enough trouble operating our plant, it’s not worth taking on this additional burden… • We can’t take that kind of risk that far out into the future… • We’d rather just have you do what you can for us…

9. Takeaways from CMEEC Experiences in New England • Customers view electricity as a cost of doing business, not as a profit center • Customers want to keep it as simple as possible • New Demand Resources “qualified” for the FCA are still subject to marketing efforts of Energy Service Companies • Given where electricity costs are going in New England, just because demand response programs are not directly “in the market” doesn’t mean that they aren’t going to continue