Power plant's filing

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February 6, 2015

VIA ELECTRONIC FILING

Hon. Kathleen H. Burgess

Secretary

NYS Public Service Commission3 Empire State Plaza

Albany, NY 12223

RE: Case 12-E-0577: Proceeding on Motion of the Commission to Examine

Repowering Alternatives to Utility Transmission Reinforcements

Dear Secretary Burgess:

By the September 24, 2013 Notice of Filing Deadline (the “Notice”) in the above-

referenced proceeding (the “Proceeding”), the Secretary to the Public Service Commission (the“Commission”) directed Cayuga Operating Company LLC (“Cayuga”) and New York State

Electric & Gas Corporation (“NYSEG”) to file a revised repowering proposal for the Cayuga

Generating Facility (the “Cayuga Facility”) by October 24, 2013.1

Specifically, the Notice

directs Cayuga and NYSEG to file a revised repowering proposal “that meets the reliability,

economic development, and environmental benefits” identified in the Commission’s January 18,

2013 Order instituting the Proceeding (“Order Instituting Proceeding”).2

Alternatively, if the

parties are unable to identify such a revised repowering proposal, the Notice requests that

Cayuga and NYSEG file, “either jointly or separately, their recommendations for any further action in this proceeding.”3

The deadline for submission of the proposal or recommendations wasmost recently extended by the Secretary to February 6, 2015.

Cayuga is pleased to provide the Commission with its “Revised Repowering Proposal.”

Cayuga’s Revised Repowering Proposal satisfies the Commission’s requirements contained in its

Order Instituting Proceeding and, if approved, would allow NYSEG to continue to providereliable electric service to its customers in central New York and enable the creation and

retention of significant economic benefits in the area. The Cayuga Facility’s continued operation

would also provide beneficial market price effects. Further, adding natural gas capability to the

Cayuga Facility would produce environmental benefits, including reduced emissions. Finally,

adding dual-fuel capability would help meet the goals set by the New York Independent System

Operator to establish fuel assurance from generators and would allow for enhanced reliabilityand potential ratepayer savings in times where natural gas supplies are scarce and/or natural gas

prices are very high. Notably, most, if not all, of the benefits of the Revised Repowering

Proposal cannot be achieved through alternative solutions such as reinforcements or additions to

NYSEG’s transmission system.

1 Case 12-E-0577: Proceeding on Motion of the Commission to Examine Repowering Alternatives to Utility

Transmission Reinforcements, Notice of Filing Deadline (Sep. 24, 2013).2 Id.3 Id.


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Hon. Kathleen H. Burgess

February 6, 2015Page 2

Cayuga respectfully requests that the Commission accept the Revised RepoweringProposal and direct Cayuga and NYSEG to submit a term sheet or agreement incorporating the

Revised Repowering Proposal for the Commission’s subsequent review and acceptance.

Thank you for your continuing attention in this matter.

Very truly yours,

/s/ James Mulligan

James Mulligan

President

Enclosure

cc: Active Parties (via electronic mail )


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Cayuga Repowering Proposal• Increase Efficiency • Reduce Emissions • Create Jobs • Support the Local Economy • Assure System Reliability • Local Generation

Revised Repowering Proposal

C a y u g a O p e r a t in g C o m p a n y LLC

Lansing, New York

February 6, 2015


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STATE OF NEW YORK

PUBLIC SERVICE COMMISSION

_____________________________________

Proceeding on Motion of the Commission to

Examine Repowering Alternatives to Utility

Transmission Reinforcements _____________________________________

Case 12-E-0577

CAYUGAOPERATINGCOMPANYLLC

REVISED REPOWERINGPROPOSAL

Cayuga Operating Company LLC228 Cayuga DriveLansing, New York 14882

(607) 533-7913

February 6, 2015


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Table of Contents

I. Executive Summary........................................................................................1

II. Background .....................................................................................................3

A. Recognizing the Importance of Repowering ................................3

B. The Commission’s Repowering Proceeding.................................4

1. The Cayuga Facility.................................................................6

2. The Dunkirk Facility................................................................9

III. Cayuga’s Revised Repowering Proposal ......................................................14

IV. Benefits of Repowering the Cayuga Facility................................................16

A. Reliability....................................................................................16

1. Power Quality and Local Generation.....................................16

2. Actual Reliability Need and Proven Performance.................19

3. Need for Fuel Diversity Among Generators ..........................20

B. Economic Development and Community Benefits.....................24

C. Economic and Ratepayer Benefits ..............................................27

1. Price Impacts..........................................................................27

2. Resource and Production Cost Savings .................................28

3. RSS and Transmission Cost Avoidance ................................30

4. Further Measurement of Economic Benefits .........................31

D. Environmental Benefits...............................................................32

V. Summary and Conclusion.............................................................................34

VI. Attachments


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I. EXECUTIVE SUMMARY

Cayuga Operating Company LLC (“Cayuga”) owns and operates the Cayuga Generating

Facility (the “Cayuga Facility”), an approximately 312 megawatt (“MW”) electric generating

facility located in Lansing, New York. Cayuga respectfully submits this “Revised Repowering

Proposal” for the Cayuga Facility pursuant to the New York State Public Service Commission’s

(the “Commission”) Order Instituting Proceeding and Requiring Evaluation of Generation

Repowering in Case 12-E-0577.1

The Revised Repowering Proposal recommends that New York State Electric & Gas

Corporation (“NYSEG”) pay $49.5 million in order to fund construction costs and $9.6 million

per year for 10 years ($104.2 million net present value [“NPV”])2 to Cayuga to (1) add gas-fired

capability to the 2 electric generating units at the Cayuga Facility, and (2) operate these units for

10 years commencing approximately January 1, 2017.

The Revised Repowering Proposal best satisfies the Commission’s and the State’s criteria

for evaluating the repowering of electric generating facilities: reliability, ratepayer costs, the

environment, the economy (e.g., temporary and permanent jobs, economic development, and tax

revenue), and electric market competitiveness. As set forth in detail below, the Revised

Repowering Proposal allows NYSEG to continue to provide reliable electric service to its

customers in central New York and enables the creation and retention of significant economic

benefits in the area. Adding dual-fuel capability also allows for enhanced reliability and potential

ratepayer savings in times where natural gas supplies are scarce and/or natural gas prices are

1 Case 12-E-0577: Proceeding on Motion of the Commission to Examine Repowering Alternatives to UtilityTransmission Reinforcements, Order Instituting Proceeding and Requiring Evaluation of Generation Repowering(Jan. 18, 2013) (the “Repowering Order”).2 See Attachment 1. The NPV was computed using NYSEG’s discount rate of 7.48% and discounted cash flows asof January 1, 2015.


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very high. The overall financial benefits and savings of repowering the Cayuga Facility are

summarized in the following table:3

($ in millions) NPV AmountEconomic Benefits:

Construction $33On-Going Labor 64Materials and Services (Direct) 28Property Taxes 20

RSS Agreement Savings 10Fuel Diversity Benefits 14

Quantified Benefits of Repowering 169

Less: Cost to repower (NYSEG Payments) (104)

Net Benefits of Repowering $65

Having generation continue to operate at the Cayuga Facility also provides beneficial market

price effects. Further, adding natural gas capability to the Cayuga Facility produces

environmental benefits, including reduced emissions compared to the existing coal-fired units.

For all of these reasons and as set forth in detail below, Cayuga respectfully requests that

the Commission accept the Revised Repowering Proposal and direct Cayuga and NYSEG to

submit a term sheet or agreement incorporating the Revised Repowering Proposal for the

Commission’s subsequent review and acceptance.

3See also Attachment 1.


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II. BACKGROUND

A. Recognizing the Importance of Repowering

In October 2012, the New York Energy Highway Task Force (the “Task Force”)

provided its New York Energy Highway Blueprint (the “Blueprint”) to Governor Andrew M.

Cuomo. The Blueprint recommends a number of immediate actions and makes certain policy

recommendations to modernize the State’s power generation and transmission systems to

achieve “vital safety, reliability, affordability, and sustainability goals on behalf of all New

Yorkers.”4

Among its conclusions, the Blueprint recommends that “priority be given to projects that

would benefit the environment, such as . . . cost effective repowering of inefficient power

plants.”5

The Blueprint states that “[r]epowering power plants can improve system reliability by

replacing aging equipment. Repowering also provides environmental benefits to New York State

through reduced emissions and the use of previously developed land with transmission

infrastructure already in place.”6

To initiate an examination of repowering options in the State, the Blueprint recommends

that the Department of Public Service (“DPS”) “require aff ected electric utilities to perform

analyses of pending or potential power plant retirements specifically focused on the opportunity to

repower the subject plants as an alternative to closure or system upgrade, where a plant is needed

for reliability reasons.”7 The Blueprint specifically identifies the Cayuga Facility and Dunkirk

Generating Facility (the “Dunkirk Facility”) as appropriate candidates for studying the option of

4 Blueprint at 10, available at http://www.nyenergyhighway.com/PDFs/BluePrint/EHBPPT/.5 Id . at 49 (emphasis added). The Blueprint defines “repowering” as “the retirement of a power plant and the

reconstruction of a new and more efficient plant with new equipment on the same property in its place.” Id. at 27,

n.5.6 Id .7 Id . at 77 (emphasis added).


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the local transmission and distribution utility, Niagara Mohawk Power Corporation d/b/a

National Grid (“National Grid”), and the NYISO to perform an analysis to determine the effects

of the proposed mothballing on electric system reliability and local reliability. On March 30,

2012, National Grid advised the Commission that studies indicated that mothballing the Dunkirk

Facility would have adverse impacts on transmission system reliability in western New York

State.13

National Grid filed its Final Report analyzing system impacts associated with retiring the

Dunkirk Facility on September 28, 2012.14

Following these two mothball notices, the identified reliability needs, and consistent with

the Blueprint’s recommendations, the Commission issued the Repowering Order, which directed

NYSEG and National Grid to evaluate repowering as an alternative to mothballing both the

Cayuga and Dunkirk Facilities and constructing transmission reinforcements.15

Specifically, the

Commission directed NYSEG and National Grid “to examine the relative costs and benefits of

repowering the plants at their existing sites, and to compare those costs and benefits to the costs

and benefits of alternative transmission upgrades over the long term.”16

To that end, the

Commission directed that NYSEG and National Grid request bids from Cayuga and Dunkirk and,

after analyzing the submissions, submit reports of their respective repowering analysis that

addressed the following factors: reliability, ratepayer costs, the environment, the economy (e.g.,

temporary and permanent jobs, economic development, and tax revenue), electric market

13 See Case 12-E-0136: Petition of Dunkirk Power LLC and NRG Energy, Inc. for Waiver of Generator Retirement

Requirements, DPS General Counsel Letter to National Grid and NRG (Jun. 11, 2012), p. 2.14

See Case 12-E-0136: Petition of Dunkirk Power LLC and NRG Energy, Inc. for Waiver of Generator Retirement

Requirements, Final Report (Sep. 28, 2012).15 See Case 12-E-0577: Proceeding on Motion of the Commission to Examine Repowering Alternatives to Utility

Transmission Reinforcements, Order Instituting Proceeding and Requiring Evaluation of Generation Repowering

(Jan. 18, 2013).16 Id. at 3.


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competitiveness, and any other factors that the utilities believed should be considered in weighing

the costs and benefits of repowering versus transmission upgrades.17

The Commission’s evaluation criteria in the Repowering Order were subsequently codified

in legislation setting forth the State’s policy on electric generation repowering. This law states, in

part, that:

“Repowering existing power generation facilities can produce significant benefits interms of enhanced system reliability, electric market competitiveness, andemissions reductions. Retiring power plants that are not repowered may leave

behind abandoned or underutilized land that would negatively affect surrounding

communities and impede economic development. In summary, it is in the publicinterest to develop clean power generation near energy demand to meet the needs of ratepayers, support local and state tax revenue stability, promote economicopportunity, and enhance the state’s environment.”18

1. The Cayuga Facility

On March 26, 2013, Cayuga submitted an initial repowering bid/proposal pursuant to the

Repowering Order (the “Initial Proposal”).19 Cayuga’s Initial Proposal detailed four repowering

options with various configurations and technologies, all meeting or exceeding the identified

reliability need of 300 MW. The first option included repowering the existing coal boilers to use

natural gas. Under this option, NYSEG would have paid Cayuga an average of $40.5 million per

year for 20 years as part of a traditional capacity and energy power purchase agreement (“PPA”)

structure. Accordingly, NYSEG would have borne the market risk if the price paid to Cayuga for

electricity and capacity under the proposed PPA exceeded market prices. The second option

included the installation of three new simple-cycle gas peaking units. The third option included

repowering one of the existing coal boilers to use natural gas, while adding a heat recovery boiler

17 In the meantime, Cayuga and NRG continue to operate their respective facilities pursuant to Reliability SupportService (“RSS”) Agreements with the affected utilities. In short, the RSS Agreements provide certain monthly

payments to Cayuga and NRG to operate their facilities and provide reliability support services to the utilities.18 Laws of 2013, ch. 57, Part Y.19 Case 12-E-0577: Proceeding on Motion of the Commission to Examine Repowering Alternatives to UtilityTransmission Reinforcements, Cayuga Repowering Proposal (Mar. 26, 2013).


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and combining a new gas turbine with the existing steam turbine to make it a “hybrid” combined

cycle gas turbine (“CCGT”). The fourth option included two new 163 MW CCGT units.

On May 17, 2013, NYSEG submitted a report to the Commission comparing Cayuga’s

Initial Proposal to certain proposed alternative transmission upgrades. In its report, NYSEG opined

that the proposed transmission upgrades are the preferred solution to meet current and future

reliability needs in the affected service area.20

On July 29, 2013, a public hearing concerning Cayuga’s Initial Proposal and NYSEG’s

report was held in Lansing, New York. Numerous members of the community stated at the public

hearing that they favor Cayuga’s repowering proposal over NYSEG’s alternative transmission

upgrades.

On August 16, 2013, Cayuga submitted comments on NYSEG’s report.21

Cayuga’s

comments identified significant deficiencies, misstatements, and non-conformities in NYSEG’s

report compared to what the Commission required in its Repowering Order. Most glaringly,

NYSEG’s report failed to comply with the Repowering Order because it ignored the evaluation

criteria mandated by the Commission, codified in the State’s policy on electric generation

repowering, and recommended in the Blueprint. Specifically, NYSEG’s report focuses solely on

ratepayer costs and utterly ignores the other required criteria such as economic development and

environmental benefits.22 Even with this incomplete singular focus, NYSEG’s report presents a

view of ratepayer costs for repowering versus alternative transmission upgrades that is not

factually supported. For example, NYSEG’s report misrepresents Cayuga’s position regarding


Transmission Reinforcements, Report on Cayuga Repowering Analysis (May 17, 2013).21 Case 12-E-0577: Proceeding on Motion of the Commission to Examine Repowering Alternatives to Utility

Transmission Reinforcements, Cayuga Operating Company - Comments on the NYSEG Report (Aug. 16, 2013).22 At the informational session preceding the public hearing at the Lansing Middle School Auditorium on July 29,

2013, a NYSEG spokesman conceded that the NYSEG report focuses primarily on ratepayer costs.


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carrying costs and the manner in which those costs would impact a repowering project.23

By

altering Cayuga’s analysis, NYSEG’s report double counts capital costs, thereby significantly

overstating Option 1’s costs. NYSEG’s report supporting transmission upgrades was also based on

erroneous assumptions such as an expectation that replacement generation would be built in the

region and an expectation that market price benefits provided by a repowered facility would only

be short-term in nature.24

At a Commission session held on September 19, 2013, DPS Staff provided their analysis

and conclusions of Cayuga’s Initial Proposal and NYSEG’s report. According to Staff, Cayuga’s

and NYSEG’s submissions “indicated that a revised repowering solution could be consistent with

the best interests of the public and ratepayers.”25

In a subsequent Notice issued on September 24,

2013, the Commission directed Cayuga and NYSEG to file a revised repowering proposal that

“meets the reliability, economic development, and environmental benefits identified in the

[Repowering Order].”26

The Commission further directed that, if the parties are unable to agree

on such a proposal, each party should file, jointly or separately, the recommendations for further

action in the Repowering Proceeding.27

NYSEG and Cayuga were unable to agree upon a mutually-acceptable revised repowering

proposal by the Commission’s initial deadline. As a result, the parties advised the Commission of

their continuing efforts and requested an extension of time to file a revised repowering proposal.28

The Commission subsequently approved several additional extensions to the current deadline of

23 See Case 12-E-0577: Proceeding on Motion of the Commission to Examine Repowering Alternatives to Utility

Transmission Reinforcements, Cayuga Operating Company - Comments on the NYSEG Report (Aug. 16, 2013), p.

15.24 Id.25 Case 12-E-0577: Proceeding on Motion of the Commission to Examine Repowering Alternatives to Utility

Transmission Reinforcements, Notice of Filing Deadline (Sep. 24, 2013), p. 1 (emphasis added).26 Id .27 Id .28 Case 12-E-0577: Proceeding on Motion of the Commission to Examine Repowering Alternatives to Utility

Transmission Reinforcements, Extension Request (Oct. 23, 2013).


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February 6, 2015.29

Since the parties have still not been able to agree upon a mutually-acceptable

proposal, Cayuga now submits this Revised Repowering Proposal, which, as set forth in detail

below, is consistent with (1) the State’s codified policy on electric generation repowering, (2) the

Blueprint, (3) the Commission’s Repowering Order, and (4) the Commission’s recent order

approving the repowering of the Dunkirk Facility. Cayuga respectfully requests that the

Commission accept the Revised Repowering Proposal and direct Cayuga and NYSEG to submit

a term sheet or agreement incorporating the Revised Repowering Proposal for the Commission’s

subsequent review and acceptance.

2. The Dunkirk Facility

While Cayuga and NYSEG were discussing the possibility of a revised repowering

proposal concerning the Cayuga Facility, on December 15, 2013, Governor Cuomo

announced that NRG and National Grid had developed a framework for an agreement that

would permit NRG to repower the Dunkirk Facility.30

The Governor referred to the

announcement as “another example of government working for the people” and lauded the

agreement for “result[ing] in a larger, cleaner power plant at Dunkirk that will meet

reliability needs, reduce costs for consumers, create jobs and stabilize the local property tax

base.”31 The Governor noted that “[t]he repowering provides an environmental benefit by

switching to cleaner-burning natural gas and provides critical local system reliability benefits

for National Grid customers. The project will also help relieve transmission bottlenecks in

the region and will reduce electricity supply costs to consumers.”32


Transmission Reinforcements, Ruling on Extension Request (Nov. 26, 2014).30 Press Release: GOVERNOR CUOMO A NNOUNCES DUNKIRK POWER PLANT TO BE R EPOWERED A ND EXPANDED TO

COST EFFECTIVELY MEET R ELIABILITY NEEDS, R ESTORING PAYMENTS TO LOCAL GOVERNMENT A ND PRESERVING

JOBS (Dec. 15, 2013), available at https://www.governor.ny.gov/press/12152013-dunkirk-power-plant.31 Id.32 Id.


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On December 23, 2013, the Commission issued a Notice directing National Grid to

file the terms of the proposed repowering agreement concerning the Dunkirk Facility.33 The

Notice further directed the parties to provide supporting documentation regarding evaluation

of the costs and benefits of the repowering solution, taking into account the reliability,

economic, and environmental benefits identified in the Repowering Order. 34

On February 13, 2014, NRG and National Grid filed a Term Sheet to repower the

Dunkirk Facility.35 Pursuant to the Term Sheet, National Grid will pay $20.41 million per

year for 10 years ($140 million NPV) to NRG to reconfigure 3 of Dunkirk’s existing coal-

fueled units to burn natural gas, while retaining the flexibility to burn coal, if needed, subject

to the limitations specified in the Dunkirk Facility’s existing air emissions permits.36 NRG

will then operate the reconfigured Dunkirk Facility for an initial 10-year term commencing

approximately September 1, 2015.

On May 16, 2014, DPS Staff issued a “Staff Report on Dunkirk Refueling” (the

“Staff Report”). Consistent with the Repowering Order, the State’s codified policy on electric

generation repowering, and the Blueprint, DPS Staff evaluated the proposed costs of

repowering the Dunkirk Facility “relative to the potential impacts on reliability, economic

development, economics, and the environment.”37

As to reliability, DPS Staff concluded that “[t]here are numerous identifiable

reliability benefits to the electric system resulting from having the refueled Dunkirk units

33 Case 12-E-0577: Proceeding on Motion of the Commission to Examine Repowering Alternatives to UtilityTransmission Reinforcements, Notice of Filing Deadline (Dec. 23, 2013).34 Id.35 Case 12-E-0577: Proceeding on Motion of the Commission to Examine Repowering Alternatives to UtilityTransmission Reinforcements, Term Sheet and Statement in Support (Feb. 13, 2014).36 Id.37 Case 12-E-0577: Proceeding on Motion of the Commission to Examine Repowering Alternatives to UtilityTransmission Reinforcements, Notice Soliciting Comments on Staff Report & Staff Report (May 16, 2014) (“Staff Report”), p. 13.


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available.”38 According to DPS Staff, although National Grid would need to undertake

certain transmission reinforcements for reliability purposes regardless of whether the

Dunkirk Facility was repowered, National Grid determined that certain upgrades could be

avoided if the Dunkirk Facility was repowered and remained available.39 These avoided

projects would have an approximate annual revenue requirement of $37.7 million to $76.4

million on a 10-year NPV basis.40 Along with savings associated with avoiding these

transmission reinforcements, DPS Staff also concluded that repowering the Dunkirk Facility

would allow National Grid to avoid likely continuation of RSS payments to NRG beyond

expiration of the current RSS Agreement.41

DPS Staff also determined that repowering the Dunkirk Facility would mitigate other

potential reliability risks that could occur between 2015 and 2017, such as reliability impacts

that may result from other generator shut-downs.42 Further, DPS Staff determined that the

additional generation capacity from the Dunkirk Facility’s units would also contribute to

addressing resource adequacy needs identified in the NYISO’s 2012 Comprehensive

Reliability Plan as arising in 2019.43 In addition, the Dunkirk Facility could defer the need

for additional capacity in the future.44 Ultimately, DPS Staff concluded that a repowered

Dunkirk Facility would benefit ratepayers by contributing to transmission security and

resource adequacy in the Western New York load pocket.45

DPS Staff further determined that repowering the Dunkirk Facility would also

address reliability via fuel diversity. Specifically, reconfiguring the three existing coal-fired

38 Id.

39 Id. at 14.

40 Id .

41 Id.

42 Id.

43 Id. at 15.

44 Id. at 15–16.

45 Id. at 17.


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units to natural gas would give the Dunkirk Facility the flexibility to burn coal during times

of natural gas unavailability or shortages.

As to economic development, DPS Staff recommended that the Commission consider

the economic development impacts of repowering the Dunkirk Facility that are unique to the

local community.46 Using this approach, DPS Staff concluded that “avoiding the uniquely

disproportionate harm to the locality has a public interest benefit supporting local tax

revenue stability and promoting local economic opportunity.”47 Although DPS Staff found it

difficult to calculate a net dollar economic development benefit of repowering the Dunkirk

Facility, DPS Staff noted that an indication of the size of the benefit can be appreciated by

considering the direct benefits that the Dunkirk Facility would provide to the local

community.48 For example, for the period from September 2015 through June 2019, DPS

Staff estimated that the NPV of wages and benefits to personnel at the Dunkirk Facility and

material and service expenditures at the Facility is in the range of $21 million to $34

million.49 DPS Staff concluded that “these estimates, along with the share of property taxes

paid by the Dunkirk [Facility], demonstrate the significant value the plant provides to the

local economy.”50

With respect to price impacts, DPS Staff cited National Grid’s projections of lower

installed capacity and Locational Based Marginal Pricing (“LBMP”) resulting from the

Dunkirk Facility’s availability following repowering.51 DPS Staff did note, however, that the

duration and magnitude of such benefits are uncertain.52 Instead, DPS Staff opined that

46 Id. at 20.

47 Id.

48 Id.

49 Id. at 20–21.

50 Id. at 21.

51 Id. at 22–23.

52 Id. at 23.


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resource cost savings presented a better way to assess potential benefits from a generation

resource, such as savings that accrue from reduced congestion and production energy cost

savings associated with the flexibility to burn coal, if needed, during periods of gas price

spikes as occurred during January through March 2014.53 According to DPS Staff, “$50

million in savings would be realized in just one winter where price spikes were experienced

as a result of significant natural gas shortages” 54 and the repowering proposal would ensure

the availability of the Dunkirk Facility for 10 years.55 DPS Staff also noted that the Dunkirk

Facility’s ability to switch to alternate fuels during gas price spikes would reduce natural gas

consumption, thus freeing up gas for home heating and other customers and potentially

reducing gas prices.56 DPS Staff concluded that “dual-fuel capability provides opportunities

for potentially significant production cost savings” and, together with other savings,

“provides value to customers and society.”57

As to the environment, DPS Staff determined that repowering the Dunkirk Facility

“would create additional opportunities to avoid adverse environmental impacts by reducing

the local emission of CO2, SOx, and NOx from the plant compared to burning coal, which is

the appropriate benchmark under the circumstances.”58

Ultimately, DPS Staff concluded that there are “significant potential benefits” to

repowering the Dunkirk Facility and recommended that “the Commission approve the cost

allocation and recovery associated with the Dunkirk [Repowering] Proposal.”59

On June 12, 2014, the Commission adopted DPS Staff’s findings regarding the

53 Id. at 25.54 Id. at 26.55 Id.56 Id.57 Id. at 27 (emphasis added).58 Id.59 Id. at 30.


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reliability, economic development, economic, and environmental benefits of repowering the

Dunkirk Facility and approved the Term Sheet.60 The Commission concluded that the Term

Sheet for repowering the Dunkirk Facility was in the public interest and consistent with the

Part Y Legislation codifying the State’s policy on electric generation repowering.61

III. CAYUGA’S REVISED REPOWERING PROPOSAL

Cayuga’s Revised Repowering Proposal proposes repowering Units 1 and 2 of the

Cayuga Facility (each 150 MW net coal-fired boilers) to burn natural gas. After the repowering

is complete, Units 1 and 2 will remain capable of generating approximately 300 MW in total.

Notably, Unit 1 will retain its existing capabilities and will employ a highly-flexible design, such

that the fuel source can be switched back and forth between natural gas and coal within 24 hours

and, in most cases, while the unit is operating. This responsive dual-fuel capability provides

added reliability during times when natural gas supplies are either limited, too costly, or both.

Cayuga anticipates that repowering can be completed and commercial operation commenced on

or about January 1, 2017.

Under the Revised Repowering Proposal, NYSEG will pay Cayuga an estimated $49.5

million toward construction costs and $9.6 million per year for 10 years, beginning on the date of

the repowered Cayuga Facility’s commercial operation. Construction cost payments will be for

actual amounts incurred without mark-up or project management fees, and any construction costs

savings would directly reduce the construction cost payments from NYSEG.62 Cayuga calculates

60 Case 12-E-0577: Proceeding on Motion of the Commission to Examine Repowering Alternatives to UtilityTransmission Reinforcements, Order Addressing Repowering Issues and Cost Allocation and Recovery (Jun. 13,2014).61 Id. at 40.62 It is also important to note that a significant benefit of repowering is that it isolates the ratepayer from cost andschedule overruns. In a transmission solution, under traditional utility ratemaking, ratepayers will bear all risk for any cost or schedule overruns. The Revised Repowering Proposal, on the other hand, shifts this burden to Cayuga’sshareholders. Costs are fixed as approved in the repowering terms and any overage is borne by Cayuga.


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the NPV cost of the Revised Repowering Proposal to be $104 million.63 The schedule of

forecasted payments as well as the NPV cost calculation is shown in Attachments 1 & 2.

The Revised Repowering Proposal differs significantly from the Initial Proposal. Most

notably, the estimated project construction costs and NYSEG’s proposed annual payments have

been substantially reduced. For example, Option 1 (which had a similar technical scope to that

proposed here) in the Initial Proposal would have required NYSEG to pay Cayuga an average of

$40.5 million per year for 20 years as part of a traditional capacity and energy PPA. Under

Option 1, NYSEG would have borne the market risk if the price paid to Cayuga for electricity

and capacity under the PPA exceeded market prices. By contrast, this Revised Repowering

Proposal, Cayuga has eliminated the PPA structure and assumed the market risk. Instead, an

initial up-front payment of $49.5 million would be used to pay construction costs, and only $9.6

million would be required annually for the 10-year term. Further, the Repowering Proposal does

not require NYSEG to acquire energy, capacity, or any other NYISO market product from

Cayuga.

The Revised Repowering Proposal also contemplates the addition of solar generation on-

site. Cayuga is currently working with the Lansing Central School District and a solar developer

to place a 2 MW-AC solar photovoltaic (“PV”) installation on a 10-acre portion of Cayuga’s

property. The solar developer plans on entering into a 10-year PPA with the School District that

will cover 100% of the District’s annual electricity consumption. This solar project has already

been awarded funding through the New York State Energy Research and Development

63 As noted above, the NPV was computed using NYSEG’s discount rate of 7.48% and discounted cash flows as of January 1, 2015.


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Authority’s (“NYSERDA”) NY Sun Competitive PV Program. Governor Cuomo announced 64

the awards on September 26th, 2014 stating:

“Today we are making another long-term investment in our clean energyeconomy – with nearly $100 million in funding that will dramatically increase our capacity to generate and utilize solar energy across the state . . . this is asignificant step forward in our goal of creating a better place for New Yorkers tolive and work, and I look forward to seeing these projects contribute to a cleaner environment.”

Cayuga is also working with another solar developer to place an additional 2 MW-AC

solar PV installation on-site. Electric generation from this additional solar installation will be

sold under PPAs with various local electric customers. Funding for this project will be sought

through various NYSERDA renewable energy programs.

IV. BENEFITS OF REPOWERING THE CAYUGA FACILITY

A. Reliability

1. Power Quality and Local Generation

Under the Revised Repowering Proposal, the Cayuga Facility will continue to meet

reliability needs and provide power quality by supplying NYSEG with services such as voltage

regulation, load following capability (or regulation response service), and spinning reserve

ancillary services. Transmission upgrades cannot provide the same support.

DPS Staff correctly recognized in the Dunkirk proceeding that local generation provides

benefits that transmission upgrades simply cannot. There, the Staff Report notes the importance

and benefits of having generators located near load centers.65 Specifically, the Staff Report

states:

“Large steam turbines . . . were constructed near load centers in conformance withintegrated resource plans the utilities had developed with a goal of strategically

64 Press Release: GOVERNOR CUOMO A NNOUNCES $94 MILLION AWARDED FOR SOLAR PROJECTS ACROSS THESTATE (Sept. 26, 2014), available at https://www.governor.ny.gov.65 Staff Report at 16.


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dispersing generation throughout the State. These turbines possess a significant

rotating mass that provides the inertia necessary to maintain power systemstability and mitigate frequency excursions following major disturbances, such as

abrupt load changes causes by large motor starts, load switching, or loss of transmission lines . . . [facilitating] a more stable overall operation of the power

system.”66

DPS Staff’s recognition is highly relevant here because maintaining physical generation

in the Finger Lakes and Southern Tier region is becoming increasingly important. Over the past

10 years, electric generation in this area has decreased significantly. In 2000, the Finger Lakes

and Southern Tier region had 820 MW of dispatchable generation.67

By 2006, however, this

number decreased to 602 MW.68

Today, there are a mere 319 MW available, including the

Cayuga Facility.69 If the Cayuga Facility is retired, total generation in this region will drop to 7

MW, which would result in a significant threat to power quality in NYSEG’s Zone C Finger

Lakes/Southern Tier service area.

Further, NYSEG is better able to control the quality of the power it delivers to its

ratepayers when it can directly schedule the generators supporting its service area. NYSEG has

direct control of generators in their service area when it comes to voltage support and, if needed,

MW support via NYSEG’s interconnection agreements with the generators. In contrast, NYSEG

does not have any direct control over scheduling a unit outside of its service area in order to

address any capacity or voltage issues that may arise. As a result, NYSEG would have to ask

neighboring utilities to schedule generation to come on line and pay their costs, which would, in

turn, be passed on to NYSEG’s ratepayers. If this is not done, then NYSEG’s primary solution is

to order large loads to curtail their consumption of electricity, often via high-cost contracts with

66 Id.

67See New York Independent System Operator, 2000 LOAD AND CAPACITY DATA: A R EPORT BY THE NYISO.

68See New York Independent System Operator, 2006 LOAD AND CAPACITY DATA: A R EPORT BY THE NYISO,

available at http://www.nyiso.com/public/webdocs/markets_operations/services/planning/Documents_and_

Resources/Planning_Data_and_Reference_Docs/Data_and_Reference_Docs/2006_goldbook_public.pdf.69

See New York Independent System Operator Planning and Reference Documents, file: 2013 NYCA Generators,

available at http://www.nyiso.com/public/markets_operations/services/planning/documents/index.jsp.


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these loads. These ensuing costs are also passed on directly to ratepayers. All of these additional

costs, however, may be avoided by having sufficient local generation.

No additional dispatchable generation is currently planned in the Finger Lakes and

Southern Tier region. The NYISO’s 2014 Reliability Needs Assessment (“RNA”) assessed

resource adequacy and transmission security and adequacy for the New York Control Area

(“NYCA”) bulk power transmission system from 2015 through 2024.70

According to the original

RNA, although there is a need for additional generation to come online by 2019, such additional

generation is likely to be added in Zones G to J rather than in the central and western parts of the

State due to the market signals provided by the new Lower Hudson Valley Capacity Zone.71

The

NYISO recently updated the results of its assessment. In a letter dated November 14, 2014, the

NYISO indicated that, with the return of approximately 1,900 MW of generation resources and

updates to local transmission owner plans, the needs previously identified by the RNA have been

mitigated.72

Therefore, it does not appear that a new alternative generation source will be readily

available to satisfy the region’s reliability and power quality needs.

The lack of local generation is particularly important in the Finger Lakes and Southern

Tier region as there are a number of large commercial and industrial customers in the region that

rely heavily on a reliable source and quality of power. For example, at the July 29, 2013 Public

Hearing, a representative of Corning, Inc. explained how important power quality is to its

business:

“We employ more than fifty-seven hundred people in the Upstate Region and are

one of the largest industrial consumers of electricity. Today’s manufacturers,

including Corning, require a high level of reliable electric service(s) that is verydifferent from the past. Our machines and our processes are extremely sensitive to

power quality. Having local generation in the region ensures a level of reliability

70See NYISO 2014 R ELIABILITY NEEDS ASSESSMENT (Sep. 16, 2014), p. 1.

71 Id. at 61.

72See Attachment 2.


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that we could not otherwise have if the Cayuga plant is not repowered. The plant

strengthens the delivery system in the Southern Tier by providing localgeneration. System reliability, local generation, clean generation are all

components of New York’s Energy Highway blueprint, which detail how NewYork will meet our energy needs in the future . . . .”

73

In sum, under the Revised Repowering Proposal, the Cayuga Facility will continue to

meet the reliability need and provide power quality by supplying NYSEG with services such as

voltage regulation, load following capability (or regulation response service), and spinning

reserve ancillary services. Transmission upgrades cannot provide the same support. NYSEG’s

proposed alternative transmission upgrades would make NYSEG reliant on the integrity of the

transmission system and its ability to coordinate with generators and/or utilities in other regions

to replace essential services.

2. Actual Reliability Need and Proven Performance

At the July 29, 2013 Public Hearing in Lansing, New York, NYSEG stated that, without

both of Cayuga’s units operating or absent certain transmission reinforcements, NYSEG’s

Auburn area customers would be exposed to extended outages of approximately 500 hours each

year.74

However, experience for the past 3 years has shown that, on average, NYSEG has

required a Cayuga unit to run over 2,900 hours per year (4,656 in 2014 alone). This necessarily

implies that there are other significant reliability needs in the region over the 500 hours

purportedly needed in Auburn.

Notably, Cayuga has, 100% of the time, consistently performed when it has been called

upon by NYSEG to run for reliability purposes.


Transmission Reinforcements, Transcript of the Public Hearing (Posted Aug. 12, 2013), p. 87.74 See Power Point Presentation by NYSEG at the July 29, 2013 Public Hearing in Lansing, New York, at 4;

appended hereto as Attachment 3.


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3. Need for Fuel Diversity Among Generators

Repowering the Cayuga Facility will also address reliability via fuel diversity. Under the

Revised Repowering Proposal, Unit 1 will remain capable of burning coal. Using a highly-

flexible design, the fuel source may be switched back and forth between natural gas and coal

within 24 hours and, in most cases, while the unit is operating. This responsive dual-fuel

capability provides added reliability during times when natural gas supplies are either limited,

too costly, or both.

Addressing reliability through fuel diversity is important because recent generator

retirements have significantly altered the composition and concentration of generators

throughout the State. According to the 2014 NYISO Gold Book, over the last three years, owners

of over 2.5 gigawatts (“GW”) of generation, consisting of 1.4 GW of coal and 1.1 GW of oil and

gas generation capacity, have provided notices of retirement or mothball.75

Further, according to

the RNA, “fuel adequacy” is increasingly becoming an issue because of the steady increase in

natural gas-powered electricity production.76

Although this shift has lowered emissions and costs

of electricity, the RNA finds that these outcomes “are accompanied by a reduction in overall fuel

diversity in NYCA.”77

In the RNA, the NYISO also examined the ability of the regional natural gas

infrastructure to meet the reliability needs of New York’s electric system. Specifically, the RNA

provides a detailed review of New York gas markets and infrastructure, assesses historic pipeline

congestion patterns, provides an infrastructure and supply adequacy forecast, and examines

75 2014 LOAD AND CAPACITY DATA: A R EPORT BY THE NYISO, available at http://www.nyiso.com/public/webdocs/

markets_operations/services/planning/Documents_and_Resources/Planning_Data_and_Reference_Docs/

Data_and_Reference_Docs/2014_GoldBook_Final.pdf (“NYISO Gold Book”).76 RNA at 56.77

Id.


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postulated contingency events.78

A key finding in this review is that there is increasing

congestion on key pipelines in New York resulting from increased gas demand in New England

and, to a lesser degree, by in‐State demand increases for generation.79

According to the NYISO,

“[g]as fired generators located on constrained pipeline segments may continue to experience gas

supply curtailments over the study horizon.”80

The significant and prolonged periods of cold weather experienced last winter, commonly

referred to as the Polar Vortex, revealed the major challenges associated with increased reliance

on natural gas generation and importation of power from other regions. The North American

Electric Reliability Corporation (“NERC”) Polar Vortex Review Report (the “NERC Report”)

issued in September 2014 addresses the role natural gas shortages played during last winter’s

event.81

According to the NERC Report, “[d]uring the polar vortex, the cold weather also

increased demand for natural gas, which resulted in a significant amount of gas-fired generation

being unavailable due to curtailments of gas.”82

In an attempt to alleviate generators’ dependence on natural gas during such cold weather

events as the Polar Vortex, neighboring RTOs have implemented changes to capacity markets.

For example, the PJM Interconnection’s Board of Managers recently authorized the “Capacity

Performance Proposal,” modeled after ISO-New England’s recently approved “Pay for

Performance” capacity market design.83

The PJM’s Capacity Performance Proposal is intended

78 Id.

79 Id.

80 Id.

81 North American Electric Reliability Corporation, POLAR VORTEX R EVIEW (Sep. 29, 2014), available at http://

www.nerc.com/pa/rrm/January%202014%20Polar%20Vortex%20Review/Polar_Vortex_Review_

29_Sept_2014_Final.pdf.82

Id. at p. 4.83

See PJM Board Approves Capacity Performance, available at http://www.pjm.com/about-

pjm/newsroom/newsletter-notices/inside-lines/2014/december.aspx


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to ensure the reliability of capacity resources by incentivizing generators to make investments in

dual-fuel capability or secure firm natural-gas pipeline contracts to minimize fuel delivery risk.

Notably, a fuel oil alternative does not ensure that generators will remain available during

cold weather events. The NERC Report found that natural gas plants, including plants that utilize

fuel oil as a back-up, experienced the most significant operating limitations.84

Generating plants

that were unable to secure natural gas and attempted to use fuel oil experienced limitations on

run-times due to environmental restrictions and difficulties maintaining adequate fuel supplies as

demand outpaced delivery capabilities. Generators also experienced difficulties operating in low

temperatures as equipment froze, sensors failed, and fuel gelled.85

Because the Cayuga Facility

will use coal as an alternate fuel source after repowering, it will not suffer the same problems

faced by generators using fuel oil as a back-up source. Coal is in abundant supply and is

generally not impacted by low temperatures.

The NYISO’s Winter 2013–2014 Cold Weather Operating Performance Report (the

“NYISO Winter Report”)86

further illustrates the value of fuel diversity with respect to in-State

generation during severe weather conditions such as the Polar Vortex. On January 7, 2014, as

record winter peak demand occurred, the NYISO invoked demand response in all zones and

issued public appeals for customers to curtail non-essential use to lower the load down from this

record peak. The NYISO also issued a NERC Energy Emergency Alert. Fortunately, a key factor

that allowed demand to be met was 1,000 MW of wind generation produced that day. Had this

intermittent resource not been generating, it is unlikely that sufficient generation would have

been available to all zones.

84 Id. at 14.

85 Id .

86See New York Independent System Operator, NYISO WINTER 2013-2014 COLD WEATHER OPERATING

PERFORMANCE R EPORT (Mar. 13, 2014). The NYISO’s findings are also reflected in the NERC Report.


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The NYISO Winter Report also assessed import and export results during five “cold

snaps” experienced in 2013–2014. Typically, excess Hydro Quebec (“HQ”) power (which

averages approximately 1,400 MW on peak) is imported into the NYCA. During these cold

snaps, the NYISO was unable to rely on power from HQ, as imports were either very limited or

non-existent. In addition, during the cold snap that occurred on January 7, 2014, PJM exports

into New York, which in earlier cold snaps were around 3,000 MW, were reduced to the point

where New York was exporting 705 MW. PJM did not have the generation typically available to

New York during this period. Both the HQ and PJM data in the NYISO Winter Report show a

very real need to maintain generation and fuel diversity in New York—especially in times of

severe cold.

A repowered Cayuga Facility will preserve a high-performance resource that

demonstrated very reliable operation during the Polar Vortex. During the NYISO’s new winter

peak demand day on January 7, 2014, the Cayuga Facility was generating at 100% of its capacity

for every hour at all peak times during that day. A repowered Cayuga Facility will also help

ensure that demands can be met during extreme cold weather events—which Governor Cuomo

has referred to as “the new normal”—by providing reliable in-State generation.87

Moreover, with

dual-fuel capability using coal as an alternative, a repowered Cayuga Facility will provide

additional reliability during periods of extreme cold by utilizing a fuel source that is not subject

to the same constraints as fuel oil.

NYSEG’s proposed alternative transmission upgrades would not provide any of these

fuel-diversity benefits.

87See Press Release: GOVERNOR CUOMO OUTLINE BOLD AGENDA FOR 2013: BUILDS ON P ROGRESS OF PAST TWO

YEARS BY GROWING THE ECONOMY, I NVESTING IN EDUCATION, MAINTAINING LEGACY AS PROGRESSIVE CAPITAL OF

THE NATION, AND R ISING TO MEET CHALLENGES IN THE WAKE OF HURRICANE SANDY (Jan. 9, 2013), available at http://www.governor.ny.gov/news/governor-cuomo-outlines-bold-agenda-2013-builds-progress-past-two-years-

growing-economy.


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Finally, the Staff Report and the Commission’s ensuing order in the Dunkirk proceeding

favorably cite the significance of the Dunkirk Facility’s ability to switch to coal as a generation

source in times of natural gas scarcity and/or price spikes. Specifically, DPS Staff noted that the

Dunkirk Facility’s ability to switch to alternate fuels during gas price spikes would reduce

natural gas consumption, thus freeing up gas for home heating and other customers and

potentially reducing gas prices.88

DPS Staff concluded that “dual-fuel capability provides

opportunities for potentially significant production cost savings,” and, together with other

savings, “provides value to customers and to society.”89 A repowered Cayuga Facility would

provide the same significant benefits and value.

B. Economic Development and Community Benefits

The Staff Report in the Dunkirk repowering proceeding recommended that the

Commission “consider the economic development impacts unique to the local community.”90

According to DPS Staff, “[t]here are a number of public policy concerns and values that are not

reflected in the current generation market pricing.”91

Moreover, according to DPS Staff,

“avoiding the uniquely disproportionate harm to the locality has a public interest benefit

supporting local tax revenue stability and promoting local economic opportunity.”92

Although the

Staff Report on the Dunkirk Facility repowering further noted that it is difficult to calculate a net

dollar amount of economic development benefit, “an indication of the size of this benefit can be

appreciated by considering the direct benefits that the plant would provide to the community.”93

88 Staff Report at 26–27.89 Id. at 27 (emphasis added).90 Id. at 20.91 Id.92 Id.93 Id.


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The economic development impacts associated with repowering the Cayuga Facility are

equally significant and should be considered by the Commission as part of its public interest

determination. Specifically, repowering the Cayuga Facility will provide benefits in the form of

construction spending during 2015–2016 for both construction of a new natural gas pipeline and

repowering the Cayuga Facility. Cayuga estimates that the repowering project would initially

create a total of 118 predominantly-union jobs to install and construct a new gas pipeline and to

modify the Cayuga Facility to allow it to operate on natural gas. The construction labor benefits

are estimated to be $37 million.94

Similarly-significant economic development benefits will continue through the 10-year

term of the repowering agreement. Approximately 30 permanent employees will be employed at

the Cayuga Facility with a total payroll of approximately $57 million over the proposed 10-year

operating period.95 The indirect economic impact realized in the region and the State is an

additional 60 jobs and $48 million over this 10-year period. 96

Economic development benefits will also be realized through material and service

purchases during the term of the repowering agreement. Based on historical budgets and actual

spending, a total of $36 million of materials and services are projected to be required to support

the Cayuga Facility’s operations for 10 years commencing January 2017.

Part of the economic benefit associated with the Cayuga Facility’s continued operation is

the further support of local communities. Cayuga’s direct payments to the local communities and

School District are critical to their ability to provide essential and educational services. Cayuga

94 Case 12-E-0577: Proceeding on Motion of the Commission to Examine Repowering Alternatives to UtilityTransmission Reinforcements, Cayuga Repowering Proposal (Filed Mar. 26, 2013), p. 41.95 Case 12-E-0577: Proceeding on Motion of the Commission to Examine Repowering Alternatives to UtilityTransmission Reinforcements, Amended Attachment #4 - Financial Projection Option 1 to 4 (Filed w/ RAO Apr. 12,2013).96 This figure is based on the multiplier used in the Tompkins County Area Development (“TCAD”) assessment. SeeCase 12-E-0577: Proceeding on Motion of the Commission to Examine Repowering Alternatives to UtilityTransmission Reinforcements, Cayuga Repowering Proposal (Filed Mar. 26, 2013), p. 41.


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other important services and its reliable power supports our businesses. The

Lansing School District, which our community has nurtured for many years,would be hurt dramatically . . . .”

102

Chris Pettograsso, Superintendent of the Lansing School District: “the reduction

of a one point two five minimum million dollar . . . loss [to the School District]

due to the [Cayuga] plant going away will be too much to bear. We will need tomake significant reductions . . . that would greatly diminish the value of what it

means to be educated at Lansing.”103

As it did in the Dunkirk proceeding, the Commission should consider the short- and long-

term economic development benefits that a repowered Cayuga Facility will provide to the local

community and School District. The level of spending Cayuga will make during construction and

10-year operation, the negative consequences to the local community if the Cayuga Facility was

retired, and the undisputed fact that NYSEG’s alternative transmission upgrades offer none of

these benefits, makes it clear that the public interest is best served by a repowered Cayuga

Facility.

C. Economic and Ratepayer Benefits

1. Price Impacts

In the Staff Report in the Dunkirk repowering proceeding, DPS Staff recognized

projected savings resulting from reduced installed capacity and LBMP as an economic benefit.104

Repowering the Cayuga Facility will produce similar economic benefits in the form of Installed

Capacity (“ICAP”) and LBMP savings.

102 Id. at 61, lines 08–16.

103 Id. at 41, line 20–42, line 2.

104 Staff Report, at 26. According to DPS Staff, NRG used legitimate methodologies for derivation of ICAP and

LBMP economic benefits and, while DPS Staff did not dispute the numbers, the duration and benefits from such

price impacts was uncertain.


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If the Cayuga Facility is retired, Cayuga projects that capacity prices will rise annually by

$150 million per year for three years,105 impacting all ratepayers in the Rest of State (“ROS”)

capacity price regions. This estimate is proportionately consistent with the annual impact

estimated by National Grid in the Dunkirk proceeding, taking into consideration the generating

capacity of both the Cayuga and Dunkirk Facilities.

As noted above, it is unlikely that any new generation will be sited in the region to

mitigate increases in capacity or LBMP. The NYISO utilized capital cost estimates for new

construction in setting the Cost of New Entry. According to the NYISO, the cost of constructing

new generation ranges from $711 per kW for a simple cycle plant to $1,332 per kW for a

combined cycle facility.106 In contrast, however, repowering the Cayuga Facility would provide

300 MW of generation at a cost of $347 per kW. Accordingly, on a dollar/MW basis, repowering

the Cayuga Facility is a more cost-effective option to address the need for local generation.

Finally, during winter months the Cayuga Facility averages a 70% capacity factor as a

merchant generator, dispatching as dictated by market prices. If the Cayuga Facility is retired, a

replacement generator would not likely operate as efficiently, which could also result in higher

electricity prices.

2. Resource and Production Cost Savings

In the Staff Report in the Dunkirk repowering proceeding, DPS Staff concluded that

“resource cost savings is a better measure to assess the potential benefits from a generation

105 Case 12-E-0577: Proceeding on Motion of the Commission to Examine Repowering Alternatives to UtilityTransmission Reinforcements, Cayuga Operating Company - Comments on the NYSEG Report (Aug. 16, 2013), p.10.106 NERA Economic Consulting, I NDEPENDENT STUDY TO ESTABLISH PARAMETERS OF THE ICAP DEMAND CURVEFOR THE NEW YORK I NDEPENDENT SYSTEM OPERATOR (Aug. 2, 2013), available at http://www.nyiso.com/public/webdocs/markets_operations/committees/bic_icapwg/meeting_materials/2013-08-13/Demand%20Curve%20FINAL%20Report%208-2-13.pdf.


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resource . . . .”107 In addition to savings associated with congestion relief, which have not been

applied here, DPS Staff estimated the production cost savings that would result from repowering

the Dunkirk Facility under abnormal conditions. According to DPS Staff, “[t]hese estimates

provide an indication of the insurance value provided by the dual-fuel capability the [repowered]

units would have.”108 DPS Staff estimated that during one peak period when gas prices spike, a

repowered Dunkirk Facility could provide substantial production cost savings of approximately

$50 million.109

Since a repowered Cayuga Facility will also retain the flexibility to operate on coal, the

same conclusions in Dunkirk apply to the Cayuga Facility. As such, Cayuga estimates that

production costs savings would be approximately $17 million in one season alone under the

Dunkirk methodology.110 Repowering the Cayuga Facility would allow this potential annual

benefit to be recognized for at least 10 years.

DPS Staff further noted in the Staff Report in Dunkirk that “dual-fuel flexibility allows

for alternative fuels to be utilized during times of peak gas demand, freeing up natural gas that is

utilized by New York State residents for home heating and other natural gas dependent facilities

and allowing for reduced gas prices [to the region].”111 Conversely, according to DPS Staff,

“when natural gas is cheaper than coal, LBMPs could be set by higher-cost coal plants, and

Dunkirk could fire with natural gas.”112 Again, the same analysis applies to a repowered Cayuga

Facility.

107 Staff Report, at 23.108

Id. at 25109

Id.110

See id.111

Id. at 26.112

Id. at 26–27.


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Ultimately, DPS Staff concluded that, “[i]t is clear that there would significant net public

benefits from having dual-fuel capability . . . during critical times.”113

These net public benefits

would be realized here under the Revised Repowering Proposal. Transmission upgrades, in

contrast, do not provide these benefits.

3. RSS and Transmission Cost Avoidance

On May 31, 2013, NYSEG filed an application for a certificate of public convenience and

necessity (“CPCN”) pursuant to Article VII of the Public Service Law (“PSL”) to construct the

Auburn Transmission Project (“ATP”).114 According to NYSEG’s Article VII application, the

ATP will occur in two phases. Phase 1 is required regardless of whether the Cayuga Facility

continues to operate or is retired.115

Phase 2, however, is only required if the Cayuga Facility is

retired.

As part of the approval of the RSS agreements between NYSEG and Cayuga, the

Commission ordered NYSEG to file quarterly updates containing the estimated timelines for

completion of Phases 1 and 2 of the ATP. Based on NYSEG’s latest update, filed January 16,

2015, the anticipated in-service date for Phase 2 is July 2017.116

NYSEG’s timeline, however, is

premised upon the Commission issuing an order granting a CPCN in March 2015. At this point,

it is unlikely that a certificate will be granted before June 2015. Based on NYSEG’s timeline

113 Staff Report at 26.114 Case 13-T-0235: Joint Application of New York State Electric & Gas Corporation and Niagara Mohawk Power

Corporation d/b/a National Grid for a Certificate of Environmental Compatibility and Public Need for the

Construction of Approximately 14.5 Miles of 115 kV Electric Transmission Facilities from the State Street

Substation in Cayuga County to the Elbridge Substation in Onondaga County , NY , Application (Filed May 31,

2013).115 Case 13-T-0235: Joint Application of New York State Electric & Gas Corporation and Niagara Mohawk Power

Corporation d/b/a National Grid for a Certificate of Environmental Compatibility and Public Need for the

Construction of Approximately 14.5 Miles of 115 kV Electric Transmission Facilities from the State Street

Substation in Cayuga County to the Elbridge Substation in Onondaga County, NY , ATP-Supplement (Filed Nov. 12,

2013).116 Case 12-E-0400: Petition of Cayuga Operating Company, LLC to Mothball Generating Units 1 and 2 , 3rd QTR

Cayuga Transmission Upgrade Schedule and Reliability Analysis (Oct. 16, 2014).


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then, the in-service date for Phase 2 would likely not occur until at least October 2017, assuming

no delays.

In contrast, Cayuga anticipates the repowering being completed by January 2017. As a

result of this earlier solution, NYSEG could avoid RSS payments for the period January 2017

through at least October 2017.117 RSS savings during this period would total almost $28

million.118 Importantly, in the Dunkirk proceeding, the Staff Report favorably cites these RSS

savings.119

4. Further Measurement of Economic Benefits

In its evaluation of the economic benefits created by repowering the Dunkirk Facility,

DPS Staff examined the NPV of such benefits through 2019. DPS Staff determined that no

incremental jobs or economic development would occur after the NYISO determined “need

year” for new generation to come online. Since this analysis was performed, the NYISO

indicated in its 2014 CRP Base Case Preliminary Assessment that the “need year” may be

shifting to 2024, which would greatly enhance the total value of economic benefit resulting from

a repowered Cayuga Facility.120

Regardless of whether the “need year” is 2019 or 2024, limiting the measurement of

economic benefits resulting from a repowered Cayuga Facility for the period to up to this “need

year” fails to consider the possibility that the power and capacity markets will not be sufficient to

entice adequate additional merchant-based generation to enter the market. Further, it is unlikely

that if a new plant were to be built anywhere in New York State, it would have any impact on the

117 Although the current RSSA between Cayuga and NYSEG terminates in April 2017, it would likely be extendedso that its termination coincides with the in-service date of Phase 2.118 Cayuga’s RSSA with NYSEG provides for a monthly payment in 2017 of $2.6 million and capital expenditurereimbursement of $1.9 million.119 Staff Report at 29.120

See NYISO 2014 CRP Base Case Preliminary Assessment, available at http://www.nyiso.com/public/webdocs/markets_operations/committees/bic_espwg/meeting_materials/2014-10-23/Agenda%202_2014CRP_Base%20Case%20Needs%20Assessment.pdf.


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local community as power prices and capacity revenues available to facilities in Zone C are

materially lower than in other parts of New York State.

D. Environmental Benefits

The Revised Repowering Proposal provides significant environmental benefits, including

a material reduction in air emissions compared to the existing coal-fired units. These emissions

reductions will improve the air quality in central New York and lower the Cayuga Facility’s

existing carbon footprint.

In its report,121 NYSEG mistakenly assumes that air emissions from generating facilities

called upon to replace the Cayuga Facility’s output would be from a new, highly-efficient natural

gas plant. On the contrary, if the Cayuga Facility is not repowered, it is very likely that the

generation used to replace the Cayuga Facility would come from less-efficient units, and thus

higher carbon emitting units, especially during peak demand periods. For example, neighboring

states such as Pennsylvania and Ohio that export into New York are not part of the nine-state

Regional Greenhouse Gas Initiative (“RGGI”). As a result, these states have no economic

incentives to reduce their generators’ CO2 emissions. In addition, generating units in these states

generally are subject to less stringent environmental regulations as compared to New York.

Accordingly, the large portfolio of coal generating facilities in these states could increase

emissions of CO2, Mercury, SO2, and NOx if replacement energy comes from these out-of-state

units. In contrast, a repowered Cayuga Facility will generate electricity locally under RGGI and

more stringent New York State environmental statutes and regulations.

A repowered Cayuga Facility also supports the expansion of renewable generation

projects in the region in a manner that NYSEG’s alternative transmission upgrades either cannot


Transmission Reinforcements, Cayuga Operating Company - Comments on the NYSEG Report (Aug. 16, 2013), p.

19.


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or subject to limited capabilities. For example, the intermittent nature of renewable generation, in

particular wind generation, requires an enhanced ability to regulate load and voltage. As

discussed above ( see p. 19), a transmission solution can only regulate load if it has generation

under its control. Alternatively, NYSEG can invoke load reductions on large users at a

significant cost to ratepayers as well as potential significant disruptions to

manufacturing/business processes. Voltage can be controlled to a very limited extent by NYSEG

utilizing tap changers on transformers and by the static volt-ampere reactive compensators

installed on their system. In contrast, large spinning generators such as those at the Cayuga

Facility can perform both load regulation and voltage control. NYSEG system operations

regularly direct the Cayuga Facility to maintain a certain voltage on NYSEG’s transmission

system. As also noted above, DPS Staff recognized the importance of spinning generation in the

Staff Report on the Dunkirk Facility:

“these turbines possess a significant rotating mass that provides the inertia necessary tomaintain power system stability and mitigate frequency excursions following major

disturbances, such as abrupt load changes causes by large motor starts, load switching, or

loss of transmission lines . . . [facilitating] a more stable overall operation of the power

system.”122

For all of these above reasons, to enable future renewable projects to succeed, it is important that

a spinning generator such as the Cayuga Facility remains in the electric system.

Further, as noted above, Cayuga is proceeding with utility-scale solar initiatives as part of

its effort to promote renewable expansion and to initiate a local “green energy park.” Cayuga

contemplates installing a total of 4 MW of solar power, which will displace approximately 4,800

tons of CO2 per year. Finally, a repowered Cayuga Facility will also continue to pursue biomass

122 Staff Report at 16.


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34

co-firing initiatives. If installed, this equipment will lower total carbon emissions by over 50,000

tons per year.

V. SUMMARY AND CONCLUSION

Cayuga’s Revised Repowering Proposal provides a number of significant benefits,

including:

A repowered Cayuga Facility will fully satisfy the identified reliability need in NYSEG’s service territory and will also provide necessary ancillary services suchas voltage support;

A repowered Cayuga Facility will offer dual-fuel capability, providing muchneeded fuel diversity and lowering electric prices;

The Cayuga Facility is geographically located in an area of the State that isdependent on the wages and property taxes paid by Cayuga;

A repowered Cayuga Facility will keep valuable capacity available to the gridand prevent sharp increases to ICAP prices;

A repowered Cayuga Facility will retain high-paying union jobs both at the

Cayuga Facility and at local businesses that provide various goods and services tothe Cayuga Facility and its employees;

A repowered Cayuga Facility will create up to 400 union construction jobs;

The Cayuga Facility currently contributes at least $4 million dollars to the localeconomy annually through purchases of goods and services; a repowered CayugaFacility will continue to do so; and

A repowered Cayuga Facility will provide environmental benefits throughsignificantly-reduced air emissions and a lower carbon footprint.

In stark contrast, NYSEG’s proposed construction of alternative transmission upgrades offers no

additional benefits outside of addressing the reliability need.

The Revised Repowering Proposal is in the public interest and consistent with State’s

codified policy on electric generation repowering (Part Y Legislation), the Blueprint, the


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Commission’s Repowering Order, and the Commission’s order approving the repowering of the

Dunkirk Facility. Specifically, repowering the Cayuga Facility will satisfy the identified

reliability needs in the area, enabling NYSEG to satisfy its obligation of providing reliable

electric service in its service territory. Repowering the Cayuga Facility will also stabilize the

electric grid and obviate the need for construction of certain proposed alternative transmission

upgrades, reduce emissions by using cleaner-burning natural gas, reduce costs for ratepayers,

preserve local jobs, create temporary construction jobs, provide stable tax revenue for the local

schools and government, and improve the quality of life and the local economy in the area.

For all of these reasons, Cayuga respectfully requests that the Commission accept the

Revised Repowering Proposal and direct Cayuga and NYSEG to submit a term sheet or

agreement incorporating the Revised Repowering Proposal for the Commission’s subsequent

review and acceptance.

DATED: February 6, 2015

BY: CAYUGA OPERATING COMPANY LLC

/s/ James Mulligan

James Mulligan

PresidentCayuga Operating Company LLC228 Cayuga Drive

Lansing, New York 14882


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ATTACHMENT 1


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Appendix 1

Cayuga Operating Company, LLC

Cayuga Proposal NPV Calculation

January 1, 2017 Start($ in millions) 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Total

(A) Payments from NYSEG $8.8 $40.7 $9.6 $9.6 $9.6 $9.6 $9.6 $9.6 $9.6 $9.6 $9.6 $9.6 $145.5

Year 0.5 1.5 2.5 3.5 4.5 5.5 6.5 7.5 8.5 9.5 10.5 11.5

(B) Discount Factor - 7.48% rate 0.96 0.90 0.83 0.78 0.72 0.67 0.63 0.58 0.54 0.50 0.47 0.44

(A*B) Discounted Cash Flows $8.52 $36.5 $8.0 $7.5 $6.9 $6.5 $6.0 $5.6 $5.2 $4.8 $4.5 $4.2 $104.2

NPV


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Appendix 2

Cayuga Operating Company, LLC

Cayuga Proposal NPV Calculation

January 1, 2017 Start

($ in millions) 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Total

(A) Economic Benefits:

Construction (Direct & Indirect) - $37.1 - - - - - - - - - - $37.1

On-Going Labor (Direct) - - 4.9 5.0 5.2 5.3 5.5 5.7 5.9 6.1 6.3 6.5 56.5

On-Going Labor (Indirect) - - 4.2 4.3 4.5 4.5 4.7 4.9 5.1 5.2 5.5 5.6 48.4

Materials and Services (Direct) - -

3.7 4.1 6.1 4.3 4.5 4.2 4.3 4.4 4.8 4.6 45.1

Property Taxes - - 3.0 3.1 3.2 3.2 3.3 3.4 3.5 3.6 3.7 3.7 33.7

(B) RSS Agreement Savings - - 11.7 - - - - - - - - - 11.7

(C) Fuel Diversity Benefits - - 17.2 - - - - - - - - - 17.2

Benefits of Refueling (A+B+C) - 37.1 44.7 16.5 19.0 17.3 18.0 18.2 18.8 19.3 20.3 20.4 249.7

Less: Cost to Refuel (NYSEG Payments) (8.8) (40.7) (9.6) (9.6) (9.6) (9.6) (9.6) (9.6) (9.6) (9.6) (9.6) (9.6) (145.5)

Net Benefits of Refueling ($8.8) ($3.6) $35.1 $6.9 $9.4 $7.7 $8.4 $8.6 $9.2 $9.7 $10.7 $10.8 $104.2

Discount Factor (7.48%) 0.96 0.90 0.83 0.78 0.72 0.67 0.63 0.58 0.54 0.50 0.47 0.44

Net Present Value ($8.5) ($3.2) $29.3 $5.4 $6.8 $5.2 $5.3 $5.0 $5.0 $4.9 $5.0 $4.7 $64.8


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ATTACHMENT 2


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Very ly yours,

Henry flao

Vice Pr sident, System Resource Planning

g

E W Y O R K

taZI OPER TOR

ENT

November 14, 2014

Dear Develop ers, New York T ransmission Ow ners, Market Participants, and Interested Parties:

The New Y ork Independent System Operator, Inc. NY ISO) hereby withdraws its

October 1, 2014 request for the submission of solutions to address the Reliability Needs

identified in the 2014 Reliability Needs Assessment RN A) because the identified needs have

been mitigated as described below.

On October 1, 2014 the NYISO requested that potential solutions be submitted on or

before Decembe r 1, 2014 in order to be evaluated in the NYISO Com prehensive Reliability Plan

(CRP). It was noted in that letter that recent resource announcements since the base case was

finalized for the 2014 RN A, if implemen ted, may partially meet the identified Reliability Need s,

delay the resource need, and in conjunction with local transmission own er plans LTP s), relieve

transmission security needs.

The N YISO developed a CR P base case, consistent with its tariffs and procedures, which

contains more than 1,900 MW of returning generation resources and updates to LTPs that were

not included in the RNA. With these updates, the NYISO has determined that the identified

resource adequacy and transmission security needs would be fully mitigated. For this reason,

the NY ISO is no longer requesting or accepting proposed regulated backstop, market-based, or

alternative regulated solutions to address the Reliability Needs identified by the 2014 RNA. In

the event a reliability need arises that must be addressed prior to the next reliability planning

cycle, the NYISO will implement its process to solicit proposals for a Gap Solution pursuant to

Section 31.2.10 of the NYISO Open Access Transmission Tariff.

The N YISO is continuing to review the applications submitted by developers to satisfy

the qualification requirements for participation in the NYISO's reliability planning process.

Developers determined by the NYISO to be qualified will be eligible to participate in the

reliability planning process for a three-year period, subject to complying with the NYISO's tariff

requirements and procedures.

Questions about the CRP process can be addressed to Yachi Lin [email protected]

, 518-

356-8724) or Carl Patka ([email protected], 518-356-6220).


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ATTACHMENT 3


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NYS G

Proceeding to Examine Repowering

Alternatives to Utility TransmissionReinforcements.

July 29, 2013

Public Information Forum


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t NYS G

Need for Transmission Reinforcements

• NYSEG has an existing reliability need to strengthen its system for the

intermittent loss of generation at the Cayuga site (Phase 1).

• Having both Cayuga generators unavailable would create an additional

reliability need on NYSEG’s system (Phase 2).

• Without either of the Cayuga generators operating and absent the

transmission reinforcements, for approximately 500 hours of each year,

NYSEG’s Auburn area customers would be exposed to extended

outages.

4


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ATTACHMENT 4


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