Department of Energy and Environmental Protection Draft 2020 Integrated Resources Plan: Pathways to achieve a 100% zero carbon electric sector by 2040 February 17, 2021

Comments of ISO

ISO New England submits the following comments in response to the Connecticut Department of Energy and Environmental Protection’s (DEEP) draft 2020 Integrated Resources Plan (IRP).

New England established wholesale markets over twenty years ago to achieve the New England states’ policy objectives of providing reliable electric service at the lowest cost. Most of the New England states, including Connecticut, moved to restructure the electric industry largely because of the high costs of the vertically-integrated model and a desire to shift the risk for bad resource investment decisions from ratepayers to private companies. Because the ISO is an independent, not-for-profit corporation and does not favor one resource over another, we coordinate, evaluate, and oversee these types of power system changes objectively. The interrelated suite of markets – energy, ancillary services, and capacity – along with a regional system planning approach, have provided significant economic, reliability and environmental benefits to consumers in Connecticut as well as the other five New England states.

As we look forward, ISO New England supports Connecticut’s and the other New England states’ efforts to transition to a clean energy future – evidenced by the many changes we have made to our markets, operations and planning processes to integrate new technologies into this rapidly-evolving power system. At the same time, the ISO has a unique role in that we have responsibility for ensuring the reliability of this system across all of the New England states. Our objective is to work with the states and our stakeholders to ensure that the system is reliable throughout this transition.

As the region navigates this transition and evaluates the implications of potential pathways for the region’s wholesale electricity markets, ISO New England is committed to supporting the states and regional stakeholders. In response to the draft IRP, we would like to highlight these partnerships and the ISO’s proactive, collaborative approach to supporting this transition. This includes the many ways that the ISO continues to work with stakeholders to enable clean energy resources to participate in the wholesale energy markets and create a transmission system that both meets reliability needs while preparing for the interconnection of the resources desired by states. Additionally, these comments provide clarification regarding the ISO’s responsibilities, the objective of the regional wholesale markets, market operation, and the development and retirement decisions of individual power system resources. Finally, the ISO would like to highlight the substantial technical support it has provided to DEEP and the Department’s consultant in the development of this IRP.

The ISO notes that the following comments are intended to respond to some of the themes and key points in the draft IRP. These comments are not intended to provide a comprehensive review of all aspects of the draft report nor to endorse the assumptions, findings and conclusions of the underlying studies.

Introduction ISO New England is responsible for ensuring the reliable operation of the New England electric grid, administering the region’s wholesale electricity markets, and conducting regional system planning and ensuring resource adequacy. The ISO is independent of companies in the marketplace and does not own

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transmission or generation assets. The ISO’s employees, officers and directors abide by a code of conduct that prohibits these individuals from having a financial interest in the companies doing business in the region’s wholesale electricity marketplace.

ISO New England, the wholesale markets that it administers, and the power system that it operates are regulated by the Federal Energy Regulatory Commission (FERC) and ultimately governed under the Federal Power Act (FPA). The Federal Power Act also grants states the authority to determine the resource mix within their jurisdictions, as well as set retail electricity prices. The balance created by the FPA among the states and the federally-regulated ISO shapes the electricity landscape that we have in New England today.

These markets were designed through regional collaboration over the past 20 years, and the ISO recognizes that the states’ priorities evolve. Policymakers are implementing new policies to speed the transition to a clean energy future in addition to the original least-cost objective that led to the formation of the competitive wholesale electricity markets. The primary challenge for New England is to align federal and state energy and environmental objectives. Efficiency and resource neutrality are prioritized in the wholesale electricity markets while state policymakers are pursuing clean energy and decarbonization.

Twenty years ago, the states played a key role in designing New England’s wholesale markets. In 2006, the Forward Capacity Market (FCM) was created by a settlement agreement with ISO New England, NEPOOL and a majority of the New England states, among others. The agreement was supported by public utility regulators and consumer advocates from four of the six New England states: Connecticut, , and . The Connecticut Department of Public Utility Control (the predecessor to the Public Utilities Regulatory Authority) and the Connecticut Office of Consumer Counsel were parties to the settlement agreement. In 2006, New England stakeholders worked through the tension that surrounded the development of a regional resource adequacy mechanism, and we are fully engaged with the states and other stakeholders now to identify potential pathways to ensure regional resource adequacy for the future. With this regulatory framework in mind, the ISO would like to provide additional context for topics raised in the IRP.

Proactive planning for the future grid Over the past two decades, ISO New England has implemented market designs and operational and planning tools and procedures aimed at integrating renewable energy, demand resources and new technologies while ensuring reliability. ISO New England firmly believes that the desire to accelerate state policy goals surrounding decarbonization can be achieved while continuing to embrace the same competitive market forces that have ensured reliable and efficient power system operations over the last two decades. The ISO is proactively working with Connecticut and the region to facilitate the evolution of the clean energy future through the following efforts.

New England Energy Vision participation In October 2020, the New England states adopted a Vision for a Clean Energy Future to align the regional competitive markets with state decarbonization goals, as well as make updates to the ISO’s transmission planning process and governance. The ISO is supporting the states’ efforts and has participated in each of the technical sessions convened by the states.

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Transmission and system planning opportunities and potential market pathways The ISO solicits input from the states and other New England stakeholders on all transmission planning studies through an open stakeholder process at the Planning Advisory Committee (PAC). The process is proactive in identifying reliability needs out to a ten-year horizon. The ISO is continually engaged in proactive planning for the grid of the future – beyond this ten-year horizon – in collaboration with the states and other stakeholders by conducting or supporting multiple studies and analyses of a future power system with large-scale renewable and clean energy resources, and growing levels of distributed energy resources. The ISO also is proactive in soliciting input from the New England states in evaluating public policies that may drive the need for transmission studies and solutions.

Implementation of FERC Order 1000 From December 2019 through July 2020, the ISO ran the region’s first solicitation for competitively developed transmission solutions to address reliability needs pursuant to FERC’s Order 1000. ISO New England identified these reliability needs in its Boston 2028 Needs Assessment Update and Addendum following the announced retirement of Mystic Generating Station in the Boston area. Since a solution to solve reliability needs was more than three years from the time the ISO’s Needs Assessment was completed, the ISO initiated a competitive process to identify solutions.

A separate section of FERC Order 1000 directs regions, such as New England, to establish a process to identify public policy requirements that drive a transmission need and, if necessary, evaluate potential solutions to those needs. In 2017 and 2020, the ISO proactively solicited input from the New England states about potential transmission upgrades to address public policies. On both occasions, the states (including Connecticut) said that a public policy transmission study is not warranted and that there was no need to commence the study process. The states have publically said that this Order 1000 mechanism is not their preferred approach to pursue transmission for public policy.

ISO and stakeholder study of the Future Grid Beginning in 2020, the New England Power Pool’s (NEPOOL) Markets Committee and Reliability Committee initiated a series of joint meetings to scope out a Future Grid Reliability Study, with phase one to begin by the ISO this year. The Study is an analysis, based on stakeholder-defined scenarios and assumptions, to identify potential revenue and reliability gaps in the future power system given the states’ policies. Stakeholders have developed a Framework Document 1 and supporting assumption tables2 which are comprised of twenty-four potential future scenarios for phase one of the study that will be conducted by ISO New England to understand better the implications of a future grid where renewable penetration is high and demand profiles are dramatically different than today. The results of these studies will inform discussions in the future to identify solutions to any issues that may be discovered.

ISO and stakeholder evaluation of alternative market designs Also through NEPOOL, as part of a request by the states, the region is exploring potential new market Pathways to the Future Grid. The Pathways track of New England’s Future Grid Initiative is a regional stakeholder effort to identify, explore, and evaluate potential alternative market designs (“pathways”) that may help support the evolution of the region’s power grid. Potential pathways evaluated in an

1 NEPOOL’s Future Grid Study Draft Proposed Study Framework, https://www.iso-ne.com/static- assets/documents/2021/01/a02_framework_1-19-21_clean.docx 2 NEPOOL’s Future Grid Study Draft Proposed Assumptions, https://www.iso-ne.com/static- assets/documents/2021/01/a02_assumptions_1-12-21.xlsx

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initial Report for NEPOOL include the Forward Clean Energy Market (“FCEM”), Integrated Clean Capacity Market (“ICCM”), Carbon Pricing, Energy-Only Market, and Alternative Reliability Assurance Frameworks. A report 3 published in January 2021 provides high-level observations about each potential pathway and evaluates whether the designs will help to advance the states’ clean energy policy objectives and whether the design promotes market efficiency. The ISO New England Board of Directors has directed ISO Management to further evaluate the net carbon pricing and FCEM concepts. The scope and results of this analysis will be conducted with the assistance of the consulting firm, Analysis Group, and will be discussed with New England stakeholders in 2021.

ISO’s pilot study of future grid scenarios The ISO is also working with New England stakeholders to develop a pilot study that identifies potential transmission needs with an increase in distributed energy resources, offshore wind, HVDC transmission, and battery storage. The ISO is conducting the study, known as Transmission Planning for the Clean Energy Transition, through the Planning Advisory Committee. The pilot study is intended to provide a high-level view of the entire New England system under various load and renewable energy production scenarios to quantify the trade-offs between transmission cost, reliability, and emissions.

ISO’s annual opportunity for stakeholder economic study requests The ISO is proactive in performing scenario analyses that help inform policymakers and other stakeholders, without committing the region to specific transmission projects. Each year, as a part of the regional system planning effort, and as specified in Attachment K of its Open-Access Transmission Tariff (OATT), the ISO conducts economic planning studies when requested by stakeholders. 4 The economic studies provide information on system performance, such as estimated production costs, load-serving entity energy expenses, transmission congestion, and environmental emission levels. Scenario analyses also inform stakeholders about different future systems. In 2019, the ISO performed three studies, two investigating offshore wind expansion scenarios in southern New England and another looking at transmission updates to increase production from constrained onshore renewables in . One of the studies conducted in 2019 was performed by the ISO at the request of the six New England states. It is likely that stakeholders will request phase one of the Future Grid Reliability Study to become the 2021 Economic Study.

Deployment of ISO’s cluster study approach In the beginning of 2017, the ISO was proactive in developing a cluster study methodology to alleviate a backlog of interconnection requests for wind projects in northern and western Maine. FERC approved the ISO’s proposed clustering revisions to its interconnection procedures in July 2017, enabling the consideration of two or more interconnection requests at the same time and allocation of upgrade costs on a cluster basis. Since then, the ISO has run two cluster analyses for wind and elective transmission updates (ETUs) in Maine and, in November of 2020, initiated a cluster study to identify potential transmission infrastructure that would enable the interconnection of queued offshore wind generation off Cape Cod, .

3 NEPOOL’s Pathways to the Future Grid Process Project Report, https://www.iso-ne.com/static- assets/documents/2021/01/npc_20210107_felder_report_on_pathways.pdf 4 ISO New England , ISO New England Inc. Transmission, Markets, and Services Tariff (ISO tariff), Section II, Open Access Transmission Tariff, Attachment K, “Regional System Planning Process,” https://www.iso-ne.com/static- assets/documents/regulatory/tariff/sect_2/oatt/sect_ii.pdf.

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Integration of distributed energy resources Today, distributed energy resources (DERs) provide about 20 percent of total system capacity in New England. In the future as more DERs come online, power flows will become more variable, bi-directional, and less predictable. As a result, real-time operations, market design, and regional planning are becoming more complex. ISO New England has long recognized the role of distributed energy resources in the wholesale electricity markets and has been working for years to enable more dispatchability of DERs. In the last decade, the ISO has adapted its market design to accommodate the transition to the growing level of DERs, including:

• In 2015, the ISO introduced an “energy-neutral” dispatch signal to integrate new energy- storage technologies into the regulation market • In 2016, wind and intermittent hydro resources were included into real-time dispatch, enabling them to set real-time prices for the first time • In 2018, demand response resources were fully integrated into the energy and reserve markets, and • In 2019, enhanced storage participation rules were enacted for storage technologies that recognizes their ability to transition continuously and rapidly between a charging state and a discharging state, and providing a means for simultaneous participation in the energy, reserves, and regulation markets.

Most recently, the ISO has been developing a response to FERC’s September 2020 order, titled, Participation of Distributed Energy Resource Aggregations in Markets Operated by Regional Transmission Organizations and Independent System Operators (Order 2222). The order requires ISOs and RTOs to amend their tariffs (as necessary) to allow DERs to participate in the wholesale markets and to provide all services that they are physically and technically capable of providing through an aggregation. ISO New England initiated its Order 2222 stakeholder process in December 2020 and is working with NEPOOL stakeholders and the New England states to develop an approach to file with FERC by the July 2021 compliance deadline.

Integration of energy storage resources While the region’s wholesale electricity markets have been open to battery storage resources for years, the ISO continues to work to enable more dispatchability of new energy storage technologies and ensure they can fully reflect their physical capabilities to the markets. Most recently, the ISO has implemented tariff revisions under FERC Order 841 (Electric Storage Participation in Markets Operated by Regional Transmission Organizations and Independent System Operators) enable batteries and other emerging storage technologies to more fully participate in the New England wholesale electricity markets. The revisions allow emerging storage technologies to be dispatched in the Real-Time Energy Market in a manner that more fully recognizes their ability to transition continuously and rapidly between a charging state and a discharging state and provides a means for their simultaneous participation in the energy, reserves, and regulation markets.

The wholesale markets have achieved their original goal The wholesale markets were designed to value efficiency, resource-neutrality, and procure required reliability services at least cost – and, in fact, it was essential to not prefer resources or specific technologies. The wholesale markets have achieved what they were designed to do and the region

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continues to see near record-low wholesale electricity prices. 5 As the market has evolved, however, it is important to clarify how the ISO has evolved. In response to the draft IRP, ISO would like to bring to Connecticut’s attention the following points regarding market design and operation.

Market design ensures reliability at a cost-effective price The capacity market design seeks to ensure that prices reflect the true cost of providing the required reliability service. Ensuring proper price formation requires accounting for revenues that resources collect outside of the market; in the FCM, this is achieved by application of a FERC-ordered mechanism known as the minimum offer price rule (MOPR). As stated in the IRP, Connecticut would like to end the mitigation of renewables’ out-of-market revenues as a means of addressing their concerns over excess supply. Yet, ending mitigation of out-of-market revenues via the MOPR would suppress prices and potentially jeopardize cost recovery for the resources that are needed to operate the grid reliably today and into the future.

The ISO agrees with Connecticut’s preference for a wholesale market solution to the challenges related to state-sponsored resources as expressed in the draft IRP. This conversation is underway at the regional level with the active participation of each of the New England states. The ISO is planning to conduct analysis of several potential market pathways suggested by the states and other stakeholders, such as pricing carbon in the wholesale markets, which the ISO has long supported as an approach to address the states’ decarbonization objectives. ISO New England has recommended that one way to alter the costs of resources competing in the regional markets, and in turn alter the market dispatch, is to place a value on the carbon-intensity of the resources, similar to what Connecticut does through the Regional Greenhouse Gas Initiative. To date, Connecticut and the other New England states have chosen not to explore this option in the wholesale markets.

The draft IRP suggests that the region is procuring excess capacity and that consumers are “paying twice” because they pay for the capacity procured by the ISO on behalf of the region and they pay for the resources procured by the states to meet their legislative mandates for clean and renewable energy. This concern about “paying twice” has been mitigated, in part, in the near term because several hundred megawatts of renewable energy procured by the states (to date, mostly in the form of solar energy and some wind power), have actually received credit in the capacity market through an exemption to the MOPR that has been in place for Forward Capacity Auctions through 2021. This concern has the potential to grow in the future when large-scale offshore wind procurements take effect, but those projects have not yet been constructed, so consumers are not “paying twice.”

The ISO continues to work with the states and stakeholders to address this challenge for the longer term as large-scale state procurements sponsor substantial quantities of resources that may not be competitive to take on obligations (i.e., “clear”) in the Forward Capacity Auction. Furthermore, the idea that the region is procuring excess capacity does not appear to reflect the fact that the renewable resources being procured by the states are variable (i.e., their output depends on the weather). The states are procuring these renewable resources to satisfy mandates for delivering specified quantities of energy with certain environmental attributes, and this may or may not correlate with the times when consumers demand electricity. Through the capacity market, the ISO, on a three-year forward basis, procures capacity to meet consumer demand for electricity, plus reserves, to meet mandatory reliability

5 Average annual wholesale energy prices declined by almost 70 percent from 2008 to 2019, and preliminary data shows that wholesale prices fell further in 2020. https://www.iso-ne.com/static- assets/documents/2020/12/clg_johnson_iso_update_dec_2_2020_final.pdf

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ISO NEW ENGLAND PUBLIC standards. While it may appear that the region is procuring excess resources, the ISO and the states are actually procuring different products, with different operating characteristics, to meet different mandates. If state-sponsored resources seek to enter the capacity market, they need to be eligible for participation (e.g., meet certain requirements to show they will be developed in time to fulfill obligations in the market) and need to be priced competitively to be selected. The pricing aspects of resources participating in the capacity market is under discussion in the region and as state-sponsored resources grow to a larger share of the resource mix in the region, the ISO is actively engaged with the states to find a solution.

ISO New England has no authority over state decisions regarding generator development and siting Contrary to suggestions in the draft IRP, the ISO does not decide what power plants are built in an individual state. Businesses that invest private capital make those decisions based on their assessment of the ability to secure siting and permitting approval from government authorities (including state authorities) and their ability to recover their costs plus a return on investment through the wholesale market and other financial opportunities. Shifting risk-taking to private companies, without ratepayers guaranteeing cost recovery, was a fundamental objective of the move to competitive electricity markets.

The draft IRP asserts that ISO New England’s capacity market has an imbedded preference for natural gas resources over renewables. In reality, the region saw most of the existing natural gas generation (more than 10,000 MW) built between the start of the competitive markets and 2004, preceding the FCM. The development of natural gas plants during this period was facilitated by access to lower-cost gas and the relative ease of permitting compared to other generation technologies. Meanwhile, Connecticut conducted solicitations to develop new natural gas plants in the state and, until not long ago, the state was supportive of gas pipeline expansion in the state and region. The natural gas plants that came online after receiving a capacity supply obligation through the FCM did so because they were economic in the market. They received obligations through the markets because the market functioned as designed, by procuring the lowest-priced resources. The markets are, at their core, driven by cost and there is no preferential treatment for any resource or technology type. New England has transitioned from an electric grid fueled by oil and coal to natural gas not because of a preference for natural gas but because the market rewards the most efficient resources.

ISO New England has no authority over state energy solicitations The ISO does not have the authority to enter into long-term agreements with individual generating resources, whether those are wind, solar, or nuclear-powered resources. To do so would be fundamentally in conflict with our role and mission. The states, however, do have that ability. The ISO’s responsibility as the independent grid operator is to design and operate competitive wholesale electricity markets in a technology-neutral manner so that any qualified resource can compete to deliver electricity to meet the needs of the region’s electricity consumers. The state of Connecticut – or any state – has the power to enter long-term agreements to achieve carbon-reduction, environmental, economic-development, or other objectives, but those costs are not eligible to be socialized across the other New England states through any federally approved ISO-mechanism. That said, two or more states may choose to enter into agreements voluntarily outside of the wholesale market and share those costs.

Markets have specific pathways for resource retirement The ISO cannot force a resource to operate if it seeks to retire. The FCM includes a process for owners of existing generating facilities to submit an application to the ISO to retire a generating resource if the resource is no longer competitive in the marketplace. New England has seen large and small generators

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exit the market through this process, and notably, nuclear and fossil-fueled resources among them. Regarding the draft IRP’s discussion of the state’s actions related to the Millstone Nuclear Power Station, it’s important to point out that the owners of this facility did not submit an application to the ISO to retire the plant through the FCM. The ISO was not directly involved in the negotiations between the owner of Millstone and the State of Connecticut that ultimately led to the long-term agreement with this facility; those deliberations took place outside the structure of the ISO’s wholesale electricity market. The type of long-term, regional funding mechanism that Connecticut seeks is not currently an option. Moreover, the state based its decision to enter this agreement on a variety of factors, notably Millstone’s contribution to achieving the state’s carbon reduction goals that is not currently part of the wholesale market design.

Energy efficiency is a player in, and benefits from, ISO’s markets Throughout the draft IRP, energy efficiency (EE) in Connecticut is highlighted for the benefits it brings to the state. In the wholesale markets, the FCM provides financial incentives and a revenue stream for developers, leveling the playing field for EE and driving its expansion in Connecticut. Participation of energy efficiency in the markets was a major priority in development of the FCM by all New England states; in fact, ISO New England was the first ISO in the country to include energy efficiency in its capacity market.

Regional investments in transmission benefit Connecticut consumers As a Regional Transmission Organization, the ISO is required to identify transmission infrastructure solutions that are essential for maintaining power system reliability in New England. The regional electric grid is a tightly interconnected system and each state shares in the benefits of reliability upgrades. The amount of electricity demand in an area determines its share of the cost of new or upgraded transmission facilities needed for reliability. Connecticut is responsible for about 25 percent of reliability upgrade costs and the state has seen direct benefits from projects paid for by the six New England states. Specifically, the ISO developed transmission upgrades to solve reliability problems in Southwest Connecticut. 6

In addition to the reliability benefits, the upgrades effectively eliminated congestion costs for the region, and primarily for Connecticut consumers. Connecticut consumers had been paying significantly higher wholesale prices for energy because transmission constraints required the ISO to dispatch more expensive in-state generators to serve customers in Connecticut. Today, wholesale energy prices in Connecticut are largely the same as (and often less than) other New England states.

Markets have brought forward lower-emitting sources of energy New England also gains environmental benefits from the region’s wholesale electricity markets. As older fossil fuel units have retired, newer, more efficient generating resources have replaced them. In 2020, most of the region’s energy needs were met by natural gas, nuclear, imported electricity (mostly hydropower from Eastern Canada), and renewables. The last two decades have seen a 98% decrease in sulfur dioxide, a 74% decrease in nitrogen oxide, and a 36% decrease in carbon dioxide emissions.

6 While costs related to reliability are allocated across the region, in the southwest area of the state, Connecticut made the choice to underground sections of transmission upgrades. Because that choice was not tied to system reliability, those additional costs were borne exclusively by consumers in Connecticut.

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ISO New England staff routinely provide technical expertise to CT DEEP ISO New England has always welcomed the opportunity to serve as an information resource to the Department over the years and has provided extensive support to DEEP staff in gathering ISO data and information to inform its Integrated Resource Plans, Comprehensive Energy Strategies, and clean energy solicitations. Examples of that ongoing support are discussed below.

Throughout 2019 and into 2020, ISO staff worked closely with DEEP and its consultants to provide extensive, technical resource-adequacy modeling to inform their ongoing Integrated Resource Planning (IRP) process. The modeling involved complex scenario analysis of various renewable energy resources and battery storage options for Connecticut as a factor of their electricity consumption patterns, among many other sensitivities and scenarios. The ISO provided more than 200 staff-hours to support DEEP and modeling by its consultant, Levitan and Associates.

The ISO also provided testimony to DEEP at a technical conference in January 2020 outlining the benefits to Connecticut for being part of a regional electric system, including the costs that are shared with other New England states, as discussed in detail above. That testimony outlined many considerations for Connecticut if it sought to leave the regional system and take on the responsibility for ensuring the high standards for reliability that are required by FERC and NERC undertaken by the ISO on behalf of the entire six-state region.

Additionally, in support of DEEP’s renewable energy procurements, ISO system planning staff provide technical analysis and expertise regarding interconnection to the power grid, aiding the state in evaluating proposals. The ISO also annually coordinates with DEEP staff in development of the Capacity, Energy, Loads and Transmission (CELT) Report, which provides 10-year projections used in power system planning and reliability studies. ISO system planning staff work with DEEP to ensure the forecast accurately reflects the state’s policies and initiatives. In 2020, this work expanded beyond forecasts for energy efficiency and solar/PV to include electric vehicles and heat pumps.

Final thoughts ISO New England has, and continues to be, a proactive partner with the states in the face of New England’s rapidly changing energy landscape. The ISO is committed to working with stakeholders to assess and explore potential market and reliability issues that may arise in the coming years as the electric industry experiences significant change driven by rapid innovation and state energy and environmental policies intended to decarbonize their economies. The ISO will continue to provide expertise and support to Connecticut as they explore approaches to meet their clean energy goals.

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