Cayuga Operating Company Proposal Feb. 2015

February 6, 2015
VIA ELECTRONIC FILING

Hon. Kathleen H. Burgess
Secretary
NYS Public Service Commission
3 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 abovereferenced 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 Commissions 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 was
most recently extended by the Secretary to February 6, 2015.
Cayuga is pleased to provide the Commission with its Revised Repowering Proposal.
Cayugas Revised Repowering Proposal satisfies the Commissions requirements contained in its
Order Instituting Proceeding and, if approved, would allow NYSEG to continue to provide
reliable electric service to its customers in central New York and enable the creation and
retention of significant economic benefits in the area. The Cayuga Facilitys 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 reliability
and 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
NYSEGs transmission system.
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.
Hon. Kathleen H. Burgess

February 6, 2015
Page 2
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 Commissions 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)
Cayuga Repowering Proposal

Increase Efficiency Reduce Emissions Create Jobs Support the Local Economy Assure System Reliability Local Generation
Revised Repowering Proposal
Cayuga Operating Company LLC

Lansing, New York
February 6, 2015
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
CAYUGA OPERATING COMPANY LLC
REVISED REPOWERING PROPOSAL

228 Cayuga Drive
Lansing, New York 14882
(607) 533-7913
February 6, 2015
i
Table of Contents
I.
Executive Summary........................................................................................1
II.
Background .....................................................................................................3
A. Recognizing the Importance of Repowering ................................3
B. The Commissions Repowering Proceeding .................................4
1. The Cayuga Facility.................................................................6
2. The Dunkirk Facility................................................................9
III.
Cayugas 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.
VI.
Summary and Conclusion .............................................................................34

Attachments
1
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 Commissions
(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 ($104.2 million net present value [NPV])2 to Cayuga to (1) add gas-fired
capability to the 2 electric generating units at the Cayuga Facility, and (2) operate these units for
10 years commencing approximately January 1, 2017.
The Revised Repowering Proposal best satisfies the Commissions and the States criteria
for evaluating the repowering of electric generating facilities: reliability, ratepayer costs, the
environment, the economy (e.g., temporary and permanent jobs, economic development, and tax
revenue), and electric market competitiveness. As set forth in detail below, the Revised
Repowering Proposal allows NYSEG to continue to provide reliable electric service to its
customers in central New York and enables the creation and retention of significant economic
benefits in the area. Adding dual-fuel capability also allows for enhanced reliability and potential
ratepayer savings in times where natural gas supplies are scarce and/or natural gas prices are
Transmission Reinforcements, Order Instituting Proceeding and Requiring Evaluation of Generation Repowering
(Jan. 18, 2013) (the Repowering Order).
2
See Attachment 1. The NPV was computed using NYSEGs discount rate of 7.48% and discounted cash flows as
of January 1, 2015.
2
very high. The overall financial benefits and savings of repowering the Cayuga Facility are
summarized in the following table:3
($ in millions)
Economic Benefits:
Construction
On-Going Labor
Materials and Services (Direct)
Property Taxes
RSS Agreement Savings
Fuel Diversity Benefits
Quantified Benefits of Repowering
Less: Cost to repower (NYSEG Payments)
Net Benefits of Repowering
NPV Amount
$33
64
28
20
10
14
169
(104)
$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
Commissions subsequent review and acceptance.
See also Attachment 1.
3
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 States 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 aected electric utilities to perform
analyses of pending or potential power plant retirements specically 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
Blueprint at 10, available at http://www.nyenergyhighway.com/PDFs/BluePrint/EHBPPT/.

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).
5
4
repowering.8 To that end, the Blueprint recommends that [t]he aected local utilities should
evaluate potential replacement options for the retiring facilities, including repowering the
existing power plant with a new plant, and transmission and distribution upgrades. The analysis
should include economic development, environmental, and customer impacts of each evaluated
alternative.9
B.
The Commissions Repowering Proceeding
On July 20, 2012, Cayuga filed a notice of intent with the Commission to mothball the
Cayuga Facility by January 16, 2013.10 In response, the Commission directed the local
transmission and distribution utility, NYSEG, and the New York Independent System Operator
(the NYISO) to perform an analysis to determine the effects of this retirement on electric
system reliability and local reliability issues, and to propose solutions in the event the retirement
adversely affects reliability.11 On August 24, 2012, NYSEG advised the Commission that
studies indicated that mothballing the Cayuga Facility would have adverse impacts on
transmission system reliability in central New York State. NYSEGs preliminary studies
identified a need to retain both units at the Cayuga Facility as available and capable of being
committed to maintain near-term reliability.
Previously, on March 14, 2012, NRG Energy, Inc. (NRG) also filed a notice of intent
to mothball the Dunkirk Facility by September 10, 2012.12 In response, the Commission directed
Id.
10
Case 12-E-0400: Petition of Cayuga Operating Company, LLC to Mothball Generating Units 1 and 2, Notice of
Intent to Mothball Cayuga Units 1 and 2 (Jul. 20, 2012). Cayuga filed its notice pursuant to the Commissions
procedures established in the generation unit retirement proceeding. See Case 05-E-0889: Policies and Procedures
Regarding Generation Unit Retirements, Order Adopting Notice Requirements for Generation Unit Retirements
(Dec. 20, 2005).
11
Case 12-E-0400: Petition of Cayuga Operating Company, LLC to Mothball Generating Units 1 and 2,
Commission letter to NYSEG and NYISO regarding Cayugas intent to mothball units 1 and 2 (Sep. 7, 2012).
12
Case 12-E-0136: Petition of Dunkirk Power LLC and NRG Energy, Inc. for Waiver of Generator Retirement
Requirements, Notice of Intent to Mothball Dunkirk Units 1, 2, 3, and 4 (Mar. 14, 2012).
9
5
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 Blueprints 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.
6
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 Commissions evaluation criteria in the Repowering Order were subsequently codified
in legislation setting forth the States policy on electric generation repowering. This law states, in
part, that:
Repowering existing power generation facilities can produce significant benefits in
terms of enhanced system reliability, electric market competitiveness, and
emissions 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 public
interest to develop clean power generation near energy demand to meet the needs of
ratepayers, support local and state tax revenue stability, promote economic
opportunity, and enhance the states 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 Cayugas 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 Support
Service (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
Transmission Reinforcements, Cayuga Repowering Proposal (Mar. 26, 2013).
7
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 Cayugas
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 Cayugas Initial Proposal and NYSEGs
report was held in Lansing, New York. Numerous members of the community stated at the public
hearing that they favor Cayugas repowering proposal over NYSEGs alternative transmission
upgrades.
On August 16, 2013, Cayuga submitted comments on NYSEGs report.21 Cayugas
comments identified significant deficiencies, misstatements, and non-conformities in NYSEGs
report compared to what the Commission required in its Repowering Order. Most glaringly,
NYSEGs report failed to comply with the Repowering Order because it ignored the evaluation
criteria mandated by the Commission, codified in the States policy on electric generation
repowering, and recommended in the Blueprint. Specifically, NYSEGs 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, NYSEGs report presents a
view of ratepayer costs for repowering versus alternative transmission upgrades that is not
factually supported. For example, NYSEGs report misrepresents Cayugas position regarding
20
Transmission Reinforcements, Report on Cayuga Repowering Analysis (May 17, 2013).
21
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.
8
carrying costs and the manner in which those costs would impact a repowering project.23 By
altering Cayugas analysis, NYSEGs report double counts capital costs, thereby significantly
overstating Option 1s costs. NYSEGs 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 Cayugas Initial Proposal and NYSEGs report. According to Staff, Cayugas
and NYSEGs 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 Commissions 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
Transmission Reinforcements, Cayuga Operating Company - Comments on the NYSEG Report (Aug. 16, 2013), p.
15.
24
Id.
25
Transmission Reinforcements, Notice of Filing Deadline (Sep. 24, 2013), p. 1 (emphasis added).
26
Id.
27
Id.
28
Transmission Reinforcements, Extension Request (Oct. 23, 2013).
9
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 States codified policy on electric generation repowering, (2) the
Blueprint, (3) the Commissions Repowering Order, and (4) the Commissions 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 Commissions
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
29
Transmission Reinforcements, Ruling on Extension Request (Nov. 26, 2014).
30
Press Release: GOVERNOR CUOMO ANNOUNCES DUNKIRK POWER PLANT TO BE REPOWERED AND EXPANDED TO
COST EFFECTIVELY MEET RELIABILITY NEEDS, RESTORING PAYMENTS TO LOCAL GOVERNMENT AND PRESERVING
JOBS (Dec. 15, 2013), available at https://www.governor.ny.gov/press/12152013-dunkirk-power-plant.
31
Id.
32
Id.
10
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 Dunkirks existing coalfueled units to burn natural gas, while retaining the flexibility to burn coal, if needed, subject
to the limitations specified in the Dunkirk Facilitys 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 States 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

Transmission Reinforcements, Notice of Filing Deadline (Dec. 23, 2013).
34
Id.
35
Transmission Reinforcements, Term Sheet and Statement in Support (Feb. 13, 2014).
36
Id.
37
Transmission Reinforcements, Notice Soliciting Comments on Staff Report & Staff Report (May 16, 2014)
Report), p. 13.
Utility
Utility
Utility
(Staff
11
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 Facilitys units would also contribute to
addressing resource adequacy needs identified in the NYISOs 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.
Id. at 14.
40
Id.
41
Id.
42
Id.
43
Id. at 15.
44
Id. at 1516.
45
Id. at 17.
39
12
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 Grids projections of lower
installed capacity and Locational Based Marginal Pricing (LBMP) resulting from the
Dunkirk Facilitys 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.
Id.
48
Id.
49
Id. at 2021.
50
Id. at 21.
51
Id. at 2223.
52
Id. at 23.
47
13
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 shortages54 and the repowering proposal would ensure
the availability of the Dunkirk Facility for 10 years.55 DPS Staff also noted that the Dunkirk
Facilitys 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 Staffs findings regarding the
53
Id. at 25.
Id. at 26.
55
Id.
56
Id.
57
58
Id.
59
Id. at 30.
54
14
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 States policy on electric generation repowering. 61
III.
CAYUGAS REVISED REPOWERING PROPOSAL

Cayugas 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 Facilitys 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
Transmission 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 and
schedule 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 Cayugas
shareholders. Costs are fixed as approved in the repowering terms and any overage is borne by Cayuga.
15
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 NYSEGs 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 onsite. 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 Cayugas
property. The solar developer plans on entering into a 10-year PPA with the School District that
will cover 100% of the Districts 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 NYSEGs discount rate of 7.48% and discounted cash flows as of
January 1, 2015.
16
Authoritys (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 energy
economy with nearly $100 million in funding that will dramatically increase our
capacity to generate and utilize solar energy across the state . . . this is a
significant step forward in our goal of creating a better place for New Yorkers to
live 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 with
integrated resource plans the utilities had developed with a goal of strategically
64
Press Release: GOVERNOR CUOMO ANNOUNCES $94 MILLION AWARDED FOR SOLAR PROJECTS ACROSS THE
STATE (Sept. 26, 2014), available at https://www.governor.ny.gov.
65
Staff Report at 16.
17
dispersing generation throughout the State. These turbines possess a significant
rotating mass that provides the inertia necessary to maintain 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.66
DPS Staffs 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 NYSEGs 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 NYSEGs 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 NYSEGs ratepayers. If this is not done, then NYSEGs primary solution is
to order large loads to curtail their consumption of electricity, often via high-cost contracts with
66
Id.
See New York Independent System Operator, 2000 LOAD AND CAPACITY DATA: A REPORT BY THE NYISO.
68
See New York Independent System Operator, 2006 LOAD AND CAPACITY DATA: A REPORT 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.
67
18
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 NYISOs 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 regions 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. Todays manufacturers,
including Corning, require a high level of reliable electric service(s) that is very
different 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
70
See NYISO 2014 RELIABILITY NEEDS ASSESSMENT (Sep. 16, 2014), p. 1.

Id. at 61.
72
See Attachment 2.
71
19
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 local
generation. System reliability, local generation, clean generation are all
components of New Yorks Energy Highway blueprint, which detail how New
York 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. NYSEGs
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 Cayugas units operating or absent certain transmission reinforcements, NYSEGs
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.
73
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.
20
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 highlyflexible 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 Yorks 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 REPORT 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.
21
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 inState 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 winters
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 Interconnections Board of Managers recently authorized the Capacity
Performance Proposal, modeled after ISO-New Englands recently approved Pay for
Performance capacity market design.83 The PJMs Capacity Performance Proposal is intended
78
Id.
Id.
80
Id.
81
North American Electric Reliability Corporation, P OLAR VORTEX REVIEW (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/aboutpjm/newsroom/newsletter-notices/inside-lines/2014/december.aspx
79
22
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 NYISOs Winter 20132014 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.
Id.
86
See New York Independent System Operator, NYISO WINTER 2013-2014 COLD WEATHER OPERATING
PERFORMANCE REPORT (Mar. 13, 2014). The NYISOs findings are also reflected in the NERC Report.
85
23
The NYISO Winter Report also assessed import and export results during five cold
snaps experienced in 20132014. 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 Yorkespecially 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 NYISOs 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 eventswhich Governor Cuomo
has referred to as the new normalby 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.
NYSEGs proposed alternative transmission upgrades would not provide any of these
fuel-diversity benefits.
87
See Press Release: GOVERNOR CUOMO OUTLINE BOLD AGENDA FOR 2013: BUILDS ON PROGRESS OF PAST TWO
YEARS BY GROWING THE ECONOMY, INVESTING IN EDUCATION, MAINTAINING LEGACY AS PROGRESSIVE CAPITAL OF
THE NATION, AND RISING 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-yearsgrowing-economy.
24
Finally, the Staff Report and the Commissions ensuing order in the Dunkirk proceeding
favorably cite the significance of the Dunkirk Facilitys 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 Facilitys 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.92Although 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 2627.

90
Id. at 20.
91
Id.
92
Id.
93
Id.
89
25
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 20152016 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 Facilitys operations for 10 years commencing January 2017.
Part of the economic benefit associated with the Cayuga Facilitys continued operation is
the further support of local communities. Cayugas direct payments to the local communities and
School District are critical to their ability to provide essential and educational services. Cayuga
94
Transmission Reinforcements, Cayuga Repowering Proposal (Filed Mar. 26, 2013), p. 41.
95
Transmission 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. See
Transmission Reinforcements, Cayuga Repowering Proposal (Filed Mar. 26, 2013), p. 41.
26
estimates that property taxes will total $34 million over the proposed 10-year operating period.97
Loss of this property tax revenue due to retiring the Cayuga Facility would decrease the local
budget by approximately 7.4% and School Districts budget by 11.7%. Local officials have
stated that this would likely result in 15 teacher positions being eliminated and significant
programming and extracurricular activities being curtailed.98 Further, the Tompkins County
Department of Assessment (TCDA) has estimated that, without the tax revenue from the
Cayuga Facility, the average local homeowners property tax bill will increase by approximately
$600 per year.99
At the July 29, 2013 Public Hearing, numerous residents expressed their concern over the
Cayuga Facilitys possible closure and the resulting crushing impact it would have on the local
community.100 In general, local companies and farmers were concerned that their businesses
could not sustain the significant tax increase that the Cayuga Facilitys retirement would surely
bring. Teachers and school administrators spoke about the challenges a retirement would impose
on their ability to meet the communitys needs:
Mary June King, Business Administrator of the Lansing School District: if we
were to take away the Cayuga power plant . . . our tax rate would have to increase
to about $22.64 per thousand. . . . That would be a [14%] increase in our tax
rate . . . [a]nd that would be an annual loss . . . of about one and a quarter million
dollars.101
Glenn Swanson, Board of Education President of the Lansing School District:
The [Cayuga] plant is very important to the economy of the Lansing community,
as well as Tompkins County. . . . The tax revenue helps sustain our schools and
97
Transmission Reinforcements, Amended Attachment #4 - Financial Projection Option 1 to 4 (Filed w/ RAO Apr. 12,
2013)
98
Transmission Reinforcements, Transcript of the Public Hearing in Lansing, NY (Jul. 29, 2013), p. 30, lines 225.
99
See Letter from Tompkins County Department of Assessment to J. Goodenough, dated July 11, 2013 (appended
hereto as Attachment 4).
100
See generally Case 12-E-0577: Proceeding on Motion of the Commission to Examine Repowering Alternatives to
Utility Transmission Reinforcements, Transcript of the Public Hearing in Lansing, NY (Jul. 29, 2013).
101
Id. at 42, lines 06110:08.
27
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 to
make 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 longterm 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 NYSEGs 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 0816.

Id. at 41, line 2042, 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.
103
28
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
10.
106
NERA Economic Consulting, INDEPENDENT STUDY TO ESTABLISH PARAMETERS OF THE ICAP DEMAND CURVE
FOR THE NEW YORK INDEPENDENT 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%20
FINAL%20Report%208-2-13.pdf.
29
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.

Id. at 25
109
Id.
110
See id.
111
Id. at 26.
112
Id. at 2627.
108
30
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 NYSEGs 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 NYSEGs latest update, filed January 16,
2015, the anticipated in-service date for Phase 2 is July 2017.116 NYSEGs 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 NYSEGs timeline
113
Staff Report at 26.

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).
114
31
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 extended
so that its termination coincides with the in-service date of Phase 2.
118
Cayugas RSSA with NYSEG provides for a monthly payment in 2017 of $2.6 million and capital expenditure
reimbursement 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%20
Case%20Needs%20Assessment.pdf.
32
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 Facilitys
existing carbon footprint.
In its report,121 NYSEG mistakenly assumes that air emissions from generating facilities
called upon to replace the Cayuga Facilitys 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 NYSEGs alternative transmission upgrades either cannot
121
19.
33
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 NYSEGs 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 to
maintain 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.
34
co-firing initiatives. If installed, this equipment will lower total carbon emissions by over 50,000
tons per year.
V.
SUMMARY AND CONCLUSION

Cayugas Revised Repowering Proposal provides a number of significant benefits,
including:
A repowered Cayuga Facility will fully satisfy the identified reliability need in
NYSEGs service territory and will also provide necessary ancillary services such
as voltage support;
A repowered Cayuga Facility will offer dual-fuel capability, providing much

needed fuel diversity and lowering electric prices;
The Cayuga Facility is geographically located in an area of the State that is

dependent on the wages and property taxes paid by Cayuga;
A repowered Cayuga Facility will keep valuable capacity available to the grid
and 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 to
the 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 local
economy annually through purchases of goods and services; a repowered Cayuga
Facility will continue to do so; and
A repowered Cayuga Facility will provide environmental benefits through

significantly-reduced air emissions and a lower carbon footprint.
In stark contrast, NYSEGs 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 States
codified policy on electric generation repowering (Part Y Legislation), the Blueprint, the
35
Commissions Repowering Order, and the Commissions 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 Commissions subsequent
review and acceptance.
DATED:
February 6, 2015
BY:
CAYUGA OPERATING COMPANY LLC

/s/ James Mulligan
James Mulligan
President
228 Cayuga Drive
Lansing, New York 14882
ATTACHMENT 1
Appendix 1
Cayuga Operating Company, LLC
Cayuga Proposal NPV Calculation
January 1, 2017 Start

($ in millions)
(A) Payments from NYSEG
2015 2016
$8.8 $40.7
2017
$9.6
2018
$9.6
2019
$9.6
2020
$9.6
2021
$9.6
2022
$9.6
2023
$9.6
2024
$9.6
2025
$9.6
2026
$9.6
Year
(B) Discount Factor - 7.48% rate
0.5
0.96
1.5
0.90
2.5
0.83
3.5
0.78
4.5
0.72
5.5
0.67
6.5
0.63
7.5
0.58
8.5
0.54
9.5
0.50
10.5
0.47
11.5
0.44
$8.52 $36.5
$8.0
$7.5
$6.9
$6.5
$6.0
$5.6
$5.2
$4.8
$4.5
$4.2
(A*B) Discounted Cash Flows
Total
$145.5
$104.2
NPV
Appendix 2
Cayuga Operating Company, LLC
Cayuga Proposal NPV Calculation
January 1, 2017 Start

($ in millions)
(A) Economic Benefits:
Construction (Direct & Indirect)
On-Going Labor (Direct)
On-Going Labor (Indirect)
Materials and Services (Direct)
Property Taxes
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Total
- $37.1
-
4.9
4.2
3.7
3.0
5.0
4.3
4.1
3.1
5.2
4.5
6.1
3.2
5.3
4.5
4.3
3.2
5.5
4.7
4.5
3.3
5.7
4.9
4.2
3.4
5.9
5.1
4.3
3.5
6.1
5.2
4.4
3.6
6.3
5.5
4.8
3.7
6.5
5.6
4.6
3.7
$37.1
56.5
48.4
45.1
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
(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
Less: Cost to Refuel (NYSEG Payments)
$64.8
ATTACHMENT 2
Iga
NEW YORK
taZI OPERATOR
NDENT
November 14, 2014
Dear Developers, New York Transmission Owners, Market Participants, and Interested Parties:
The New York Independent System Operator, Inc. (NYISO) hereby withdraws its
October 1, 2014 request for the submission of solutions to address the Reliability Needs
identified in the 2014 Reliability Needs Assessment (RNA) 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 December 1, 2014 in order to be evaluated in the NYISO Comprehensive Reliability Plan
(CRP). It was noted in that letter that recent resource announcements since the base case was
finalized for the 2014 RNA, if implemented, may partially meet the identified Reliability Needs,
delay the resource need, and in conjunction with local transmission owner plans (LTPs), relieve
transmission security needs.
The NYISO developed a CRP 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 NYISO 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 NYISO 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 (ylin@nyiso.com, 518356-8724) or Carl Patka (cpatka@nyiso.com, 518-356-6220).
Very ly yours,
Henry flao
Vice Pr sident, System & Resource Planning
ATTACHMENT 3
Proceeding to Examine Repowering

Alternatives to Utility Transmission
Reinforcements.
July 29, 2013

Public Information Forum
NYSEG
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 NYSEGs system (Phase 2).
Without either of the Cayuga generators operating and absent the
transmission reinforcements, for approximately 500 hours of each year,
NYSEGs Auburn area customers would be exposed to extended
outages.
it '''0 NYSEG
ATTACHMENT 4
39
Artachmeut 1
Department of Assessment
128 East Buffalo Street
Inclusion through Diversify
Jay F rank in
Director
Irene Kehoe
Assistant Director
July 11, 2013

Cayuga Operating Company
Attn Jerry Goodenough
228 Cayuga Dr
Lansing NY 14882
ear Mr Goodenough,
In response to your request, the following chart snows the actual real property tax payments made
by the Cayuga Operating Company for the 2 parcels owned in the Town of Lansing along with the
percentage that each payments represents of the total tax levy
Municipality
Lansing Central School District
Tompkins County
Town of Lansing
Lansing Fire District
Tax Payment
,722 ,875 15
S586,551 23
$120,095 36
581,431 in
Percent of Total
11.70%
1 3,4%
7 36%
6 53%
You also requested an eirnate of what would happen it the two parcels owned by the Cayuga
Operating Company were removed trom the assessment roll t e., the Cayuga Operating Company
did not exist (based upon the 2012r2013 tax years I Based on current tax rates/levies, that
impact would be approximately as follows
Municipality
Lansing Central School
Tompkins County
Town oh Lansing
Lansing Fire District
Prior
Tax Rate
$19.842349
$6.0005134
51 3924
$ 939491
New
Tax Increase on Average
Tax Rale
Residential Property ($222 346)
$22 163976
$516 20
11 7% Increase
56 886598
$22 80
7 4% trio ease
Si 404946
1 3% Increase
S19 13
$13 63
51.000814
0 5% Increase
Total Tax Increase = $571 76
89% Increase
Finally you requested a chart showing the major school districts and their respective lax rates
during this before and after analysis.
Before
Schoot District
Tax Rate
Ithaca Cry
16.9534
Newfield
18.347351
TrurnanStikin3
19.0581
Laming
19 342349
Groton
21 1419
oryzen
22 2838
Mier
Tn.( Rate
School Disinct
Mara CAI
169534
18.341351
Newricio
frionatsts.ng
19 0581
Girton
21 1419
twang
22 163976
Dryden
22 2808
If you have any further questions, please do not hesitate to contact m

Sincerely.
Jay Franklin
Director of Assessment

Cayuga Operating Company Proposal Feb. 2015

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February 6, 2015

VIA ELECTRONIC FILING

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

Dear Secretary Burgess:

Hon. Kathleen H. Burgess

Active Parties (via electronic mail)

Cayuga Repowering Proposal

Revised Repowering Proposal

Cayuga Operating Company LLC

STATE OF NEW YORK

CAYUGA OPERATING COMPANY LLC

REVISED REPOWERING PROPOSAL

Cayuga Operating Company LLC

Cayugas Revised Repowering Proposal ......................................................14

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

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

See also Attachment 1.

Recognizing the Importance of Repowering

Blueprint at 10, available at http://www.nyenergyhighway.com/PDFs/BluePrint/EHBPPT/.

The Commissions Repowering Proceeding

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

CAYUGAS REVISED REPOWERING PROPOSAL

the awards on September 26th, 2014 stating:

BENEFITS OF REPOWERING THE CAYUGA FACILITY

Power Quality and Local Generation

See NYISO 2014 RELIABILITY NEEDS ASSESSMENT (Sep. 16, 2014), p. 1.

Actual Reliability Need and Proven Performance

Need for Fuel Diversity Among Generators

Economic Development and Community Benefits

Staff Report at 2627.

Economic and Ratepayer Benefits

Id. at 61, lines 0816.

Resource and Production Cost Savings

Staff Report, at 23.

RSS and Transmission Cost Avoidance

Staff Report at 26.

Further Measurement of Economic Benefits

The Revised Repowering Proposal provides significant environmental benefits, including

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

Staff Report at 16.

SUMMARY AND CONCLUSION

A repowered Cayuga Facility will offer dual-fuel capability, providing much

The Cayuga Facility is geographically located in an area of the State that is

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

A repowered Cayuga Facility will provide environmental benefits through

In stark contrast, NYSEGs proposed construction of alternative transmission upgrades offers no

CAYUGA OPERATING COMPANY LLC

January 1, 2017 Start

(A*B) Discounted Cash Flows

January 1, 2017 Start

(B) RSS Agreement Savings

(C) Fuel Diversity Benefits

Benefits of Refueling (A+B+C)

Net Benefits of Refueling

Discount Factor (7.48%)

Net Present Value

Less: Cost to Refuel (NYSEG Payments)

November 14, 2014

Proceeding to Examine Repowering

July 29, 2013

Need for Transmission Reinforcements

July 11, 2013

If you have any further questions, please do not hesitate to contact m