New England ITC March 31, 2008 Bob Ethier, Chief Economist Stephen Rourke, Vice President, System Planning ISO New England Inc. One Sullivan Road Holyoke, Massachusetts 01040 RE: Economic Study Request Dear Mr. Ethier and Mr. Rourke, The New England Independent Transmission Company, LLC (“NEITC”) in accordance with Section II - Attachment K Part 4.1 (b) of ISO-New England’s Open Access Transmission Tariff relating to the Regional System Planning Process, hereby submits a Request for an Economic Study of the Regional Benefits of increased transmission capacity between northern Maine and the northeast Massachusetts market (“NEMA”). NEITC makes this request as qualified stakeholder in ISO-New England based on the following: • NEITC is a New England Power Pool (“NEPOOL”) participant and votes as provisional member in the Transmission Sector. • NEITC meets the independence and capability requirements of ISO-NE under its OATT, as stated in a February 20, 2007, Federal Energy Regulatory Commission (“FERC”) Declaratory Order (Attached). • NEITC has negotiated an “Independent Transmission Company” Agreement with ISO-NE that is currently before the NEPOOL’s Transmission Committee for an advisory vote. NEITC is requesting this study to address problems that, based on studies conducted by ISO-NE and others, will adversely effect the economic and reliable operation of the New England power grid as early as 2015. Problems have been identified in the following areas: New England Independent Transmission Company, LLC 301 Edgewater Place, Suite 220 Wakefield, Massachusetts 01880 Phone: 781-246-9851 New England ITC • lack of fuel diversity in the region, in particular an increased dependence on fossil fuels (particularly natural gas) and the associated high price and volatility connected with continuing and increasing that dependence, • challenges to meeting resource adequacy requirements by 2016 where the lack of transmission transfer capacity limits the development of generating resources in parts of the system, particularly northern Maine where construction prices are likely to be lowest, thus limiting competition amongst generators throughout the region, • failure to meet state environmental regulatory requirements for Renewable Portfolio Standards (“RPS”) and the Regional Greenhouse Gas Initiative (“RGGI”) without the addition of thousands of megawatts of non-fossil generating resources within New England and/or from imports, • operational challenges to the grid that could result from the addition large amounts of intermittent resources to the grid without increasing the robustness of the grid to manage such resources, • transmission congestion between northern and southern New England and the need to increase interface limits in order to economically and reliably incorporate more non-carbon resources that will be developed in northern New England and imported from eastern Canada in order to meet RPS and RGGI goals, • the need for up to 850 MW of new resources in the Boston Import Area by 2016 to meet installed capacity requirements, • the need to increase interface limits across the North/South interface between northern and southern New England and in particular the need to increase the import capability to the Boston Import Area by 2016, • the need for dynamic VAR support within the ISO system, and • the need for fast start resources in the event of extreme contingencies, such as a loss of fuel source in Boston or northern Maine. In making the request for this study, NEITC references the presentation that I gave to the June 2007 NECPUC meeting (and attached to this request) entitled “Using Transmission to Effect a Green Power Paradigm Change: How We Can Get 2,500 MW of Green Power into Massachusetts and Southern New England by 2013”. The presentation provides the general outline of the solution to the problems identified above. Moreover, it references NEITC’s Green Line project as holding particular promise in addressing these problems. Green Line is a 500 kV HVDC system with AC/DC converter stations connected to the 345 kV AC substations located in the Wiscasset, Maine and Boston, Massachusetts that is capable of bi-directionally transferring at least 660 MW of energy between NEMA and northern Maine. (The project could be increased to 1,200 MW, with the delivery of 660 MW of power to two locations within NEMA if the ISO wished to do a sensitivity analysis around that option.). Green Line was described in NEITC’s presentation to the New England Independent Transmission Company, LLC 301 Edgewater Place, Suite 220 Wakefield, Massachusetts 01880 Phone: 781-246-9851 New England ITC ISO’s Planning Advisory Committee (“PAC”) at its “HVDC Day” on December 18, 2007. That presentation, as well as NEITC’s “Introductory Project Proposal to ISO-NE” submitted to ISO-NE on December 5, 2006 as part of our FERC filing on December 10, 2006 are also attached as reference and support to this request. Economic Analysis NEITC is aware that Attachment K of the ISO-NE Tariff stipulates that ISO-NE’s stakeholders may request the ISO to initiate a Needs Assessment to evaluate potential regulated transmission solutions if that could result in a net reduction of total production costs to supply load, reduced congestion, and the integration of new resources and/or loads. In addition to responding to these Attachment K provisions, NEITC also understands that ISO-NE, in concert with other New England stakeholders, has formed a Working Group to consider other factors that may be addressed in association with the Economic Studies. This letter comes early in the deliberations of this Working Group, hence the Working Group and ISO-NE have not yet created a specific template for a Request for an Economic Study of the Regional Benefits of a proposed transmission project pursuant to Attachment K. In the absence of such a template, NEITC has reviewed the experience of others ISOs and RTOs, which has been helpful in framing the request that follows. NEITC agrees that the starting point for the Economic Analysis of the effects of a 660/1200MW expansion in transfer capacity between northern Maine the NEMA market are the criteria identified in Attachment N, specifically, “the total production cost to supply the system load.” NEITC further agrees that economic transmission projects should generally be expected to make a positive contribution to regional energy costs, or, as stated in the ISO-NE Tariff, that “the net present value of the net reduction in total cost to supply the system load, as determined by the ISO, exceeds the net present value of the carrying cost of the identified transmission upgrades.” Such analyses of total production cost effects can be conducted with many scenarios of alternative fuel costs and generation assumptions, and as such have been and should remain the starting point of the Economic Analysis. However, as presented in Attachment K, other factors, such as reduced congestion and the integration of new resources and/or loads, should also be considered. The Federal Energy Regulatory Commission, many state governments, and other observers (as well as Attachment K) have recognized and demonstrated that reductions in total regional production costs are the foundation of a larger and more comprehensive analysis, which, for an Economic Study like this, would typically include but are not necessarily be limited to the following additional criteria: New England Independent Transmission Company, LLC 301 Edgewater Place, Suite 220 Wakefield, Massachusetts 01880 Phone: 781-246-9851 New England ITC • The economic benefits of the greater degree of compliance with Regional Portfolio Standards (“RPS”), Regional Greenhouse Gas Initiative (“RGGI”) requirements, and other environmental standards resulting from the 660/1200MW expansion in transfer capacity between northern Maine and the NEMA market 1; • The economic benefits that the 660/1200MW expansion in transfer capacity between northern Maine and the NEMA market would provide by increasing the region’s generation portfolio diversity2; • The economic benefits the 660/1200MW expansion in transfer capacity between northern Maine and the NEMA market confers by enhancing reliability and competition in the NEMA load area, where generation solutions are typically expected to have substantially higher costs than generators located elsewhere. • The economic benefits the 660/1200MW expansion in transfer capacity between northern Maine and the NEMA market creates by enhancing the reliability and operations associated with the Northern New England transmission system; • The economic benefits the 660/1200MW expansion in transfer capacity between northern Maine and the NEMA market creates by increasing the access to the substantial amounts of unused summer exports from New Brunswick and Quebec3; • The economic benefits the 660/1200MW expansion in transfer capacity between northern Maine the NEMA market creates by increasing competition in market areas where reliability-must-run contracts have traditionally been needed, or 1 For example, ISO-NE’s Scenario Planning Analysis shows that RPS and RGGI standards are satisfied only in the “renewables” and “import” scenarios (p. 66). These two scenarios increase fuel diversity by reducing reliance on natural gas, as well as lowering the market price for energy by up to 13% (p.48). 2 In the absence of more North-South transmission, for example, it is expected that New England’s dependence on natural gas, and specifically, Liquified Natural Gas (LNG) imports, will increase. The price outlook for LNG is extremely complex, and stakeholders will benefit from an ISO-NE review of the risk factors of LNG. 3 The Green Line provides market access to currently “bottled-up” NPCC summer generating capacity in Eastern Canada. This includes 1500 MW excess Maritimes summer capacity (mostly New Brunswick) and 4500 MW of excess summer capacity in Quebec (approx. 600 MW accessible from New Brunswick). Access to this generation will help firm up wind capacity and allow the integration of wind and Canadian resources from a resource adequacy and forward capacity market perspective. It will also help avoid construction of “duplicate” capacity (more natural gas) in Southern New England.