Generator Retirements and Interconnection Rights

1. Generator Retirements and Interconnection Rights NEPOOL Markets Committee December 15, 2011

2. Today’s Discussion • Repowering and re-use of existing sites • Repowering in FCM • Current tariff language governing Non-Price Retirement Requests • Proposal • Timeline

3. Repowering and Re-use of Existing Sites • Repowering/re-using existing sites has inherent advantages: • Sites are already integrated into regional transmission system • Minimize new transmission and fuel supply infrastructure • Minimize siting and greenfield land-use issues • Sites are already assimilated into the communities • Maintain generation close to load, reducing system losses and congestion

4. Repowering in FCM • Section III.13.2.3.2(e) explicitly provides for Repowering an Existing resource where there is significant investment or increase in output • Clearly envisions the potential and legitimacy of converting an Existing resource to New • Enables access to five-year price lock for repowered resource • Under ‘Repowering’: • ‘New’ resource replaces ‘Existing’ if cleared • ‘Existing’ resource can delist if ‘New’ does not clear

5. Practical Considerations • In addition to low capacity prices, many Existing resources that are candidates for repowering are facing low energy margins and likely environmental compliance costs • ‘Repower’ project in FCM, as with any new investment, faces substantial price risk going forward, and is unlikely to clear in the near term • Delist bids are based on a fraction of cash going-forward costs (and perhaps partial reimbursement of incremental capital) • Only a NPRR avoids the risk of taking on a CSO at non-compensatory rates

6. NPRR and Interconnection Rights • III.13.2.5.2.5.3 Retirement of Resources • (a)(i) A resource that submits a Non-Price Retirement Request … will be retired coincident with the commencement of the Capacity Commitment Period for which the Non-Price Retirement Request is submitted … . … The interconnection rights for the unit will terminate and the status of the resource will be converted to retired on the date of retirement.

7. Interconnection Rights • For a resource that has deactivated through some means other than via Non-Price Retirement Request: • Section III.13.2.5.2.5.3(d) A resource that does not operate commercially for a period of three calendar years will be deemed by the ISO to be retired. The interconnection rights for the unit will terminate and the status of the unit will be converted to retired on the date of retirement. Where a generator has submitted an application to repower under Schedule 22 or 23 of the OATT, the current interconnection space will be maintained beyond the three years unless the application under Schedule 22 or 23 is withdrawn voluntarily or by the operation of those provisions. Where an application is withdrawn under Schedule 22 or 23, the three year period will be calculated from the last day of commercial operation of the resource.

8. NPRR vs. Deactivation • Under NPRR, the deactivation of the unit and termination of interconnection rights both happen at the beginning of the Capacity Commitment Period for which the NPRR was submitted (if not earlier) • Under other forms of deactivation, resource owner has the three-year window from the date of deactivation to initiate repowering plans. Once those plans are initiated, project is subject to the progress milestones of Schedule 22/23. • Only ‘energy’ interconnection rights are maintained; ‘capacity’ rights are only determined through clearing in FCM

9. Proposal • Sever the link between NPRR and immediate termination of interconnection rights, enabling existing sites to retain the three-year option on redevelopment • One approach would be to create a ‘Non-Price Deactivation Request’ • Enable un-priced exit from FCM with commitment to cease operations of existing resource • Interconnection rights would terminate upon conversion to ‘retired’, three years after deactivation (or earlier) unless extended by new interconnection request under Schedule 22/23

10. Next Steps • Consultation with ISO and stakeholders • Further committee dates to be determined • Assuming deadline for ‘Non-Price Deactivation Request’ would be the same as for NPRR (October 7, 2012 for FCA7), rule change must be effective prior to that date