P. 1 

# OAR Box 1802 Prepped by Charmelle Mathews



### Document

Number: 

# 35 ) IV-E-3 0 Docket Number: 

# A-90-3 7

Printed 11/4/200811:57:59 AM

Sheet 35of 117P. 2

* Date : April 9,199 9 A . Q Q ^2 " 7 To : Ai r an dRadiation Docke

t #A-90-3 7 T\ ) - * I ? ~ 3 0 From : EPA' s Offic

e o f Ai r Qualit y Planning an

dStandard s (MD-12) Re : Octobe

r 22,199 8 O n 10/22/9 8 ther

e was ameeting between EP A an dvariou s representative s fromth e utilit y industry . During the meeting issue s regarding utilit y "strandedassets " andmajo r New Sourc e Revie

w (NSR ) wer e presente dto EP

A an ddiscussedi

n general . The specific NS Ritem s discussedincluded : aclaimby industr y tha t th e curren t NS Rregulation s acteda s abarrie r to promoting physica

l o r operationa

l change s tha

t wouldotherwis e increas e energ y efficiency and reduc e emission , EP

A citin g the needfo

r som e specific example s of

ho w th e curren

t NS R regulation s act

as abarrie r t o energy improvement s a

t existing utilit

y units , industr

y issue s i n regar dt o the potentia

l NS Rconsequence s tha

t ma y b e associatedwit

hthe replacemen

t o f turbine blade s a

t existing units , "distric t

heating " typ e project s ( acentralize dunit tha t provide s stea mt o multiple offsit

e facilities ) an

dth e NS Rapplicabilit

y process , an

dth e concept

of using a "cap " typ e of

approachfo

r determining majo

r NS Rapplicabilit

y fo r utilit y units . A copy of

th e meeting attendee lis t

an dhandout s presente da

t the meeting ar

e attached . cc : Pa mSmith , (MD-12 )P. 3 ^OCT.27.199 8 12:28P

M ISO. 65 9 P . 2/ 2



## Sfir Mir Ulftrrs hZm



# 55£Pr • 

# u / WjACci F ^°5e5f^^



## »* - £?«

. .

.2 - ^3-757-7^9 7. 

## £ o 2 - 7^-cO ?

<&*l/?-L7-- < 

### S'o-z

J^l^-A^b-UA^

2-0X-9U0-76&6. 

## \t^. 2oz/60S-5P. 4



# PSE& G Jric5vens.oji i 

# JSoge/.5.chwarz i 

# ^ 

# mmmm

PSE&G : 10,50 0 Megawatt s o f installe d generatin g capacity , energ y diverse , servin g on e o fth e mos t densel y populate d state s i n th e U.S . PSE& G procur s - 25 % o f it s energ yneeds : -1/ 3 fro m IPPs&QF s A s o f 1997 , PSE&G initia tive s resulte d i n abou t 65 0 M wo f DS M sinc e 1990 , ou rtarge t i s 105 0 M w b y2000 . PSE& G Generatio n Energ y Mi x

coa l
nuctaa rP. 5



## "Old " Electri c Utilit y Busines s
Generatio n



## "Old " Electri c Utilit y Business : IR P Plannin g
Inventor yo f Resources : Suppl y& Deman d

Projection s o f existin g plan t ne wplan t cost s & DS M alternative s
Avoide d Cos t Determinatio n Bu y vs . ' Build : PU C Consideration s Aft . Suppliers . Othe rUtilities . IPPs , etc .


# 4P. 6



## Electri c industry ha s bee n restructure d a t Wholesal e leve l —Retai l restructurin g happenin g a t stat e level .

Monopol y servic e territories

Ope n market s an d consume r choice •Pre-199 2 utilitie s had monopol y service territories . Onl y competitio n was fro m cogeneratio n facilities .
•Pos t 1992 : •Wholesal e restructurin g mandated a t federa l leve l •Retai l restructurin g proceedin g a t state-by-state leve l

•Wit h restructurin g "uncertainty " i s a "way-of-life" .


### "New " Electri c Business : Unbundle d & Competitiv e

^^EansanenHi^e^nannBBBBBHBa& '

LEGEND-TRANSACTION S • ^ - Thir d Party PSE 6

<33P. 7



### "New " Electri c Business : Plannin g b y Busines s * 

### m GENERATIO N WHOLESAL E

• ' • •What' s th e market ? kKPprojectio n

- Fuel'"projections

] Envir.Reqmts I

. - Capacit

y valu e

- Ancillary services ^ Locatio n valu e

- Voltag e contro l ' -Tradin g valu e p •SWOT .-Competito r asset s

- Owned assets*, ; • H

TRANSMISSIO N •Loading : •' - Existin g capacity

- Deman d growt h .-Locatio n o

f constraint s ' - Loo p flows

• Stability contro l -

- Histor y

- Projection s
•Servic e & pricin g opportunitie s 

# .

_a

•Loading : •Existin g capacity •Deman d growt h

- Locatio n of constraint s

- Locatio n o

f growt h

•Reliabilit

y goal s & Cus t response requirements
•Right-of-wa

y avail .
•Communit

y concern s 

### 1 RETAI L

MARKETIN G

•Market Assessmen t

- IRarke t segmen t tatio n (cust . Type , energy , services ) -Siz e of marke t •SWO T -Self-assessmen t -Competitor s •Obligations : -Universa l service ?

•Wholesale'energy '

. an d capacity avail . & pric e


### Generatio n business plannin g toda y require s modelin g regulator

y an d marke

t issue s an d respons

e to those issue

s to develo p a robus

t plan . (V (2) P) Identify Regulator y Issue s


### m Identify? ; Marke t Issue s „ ; Develo p * Regulator y Scenario s

(5)
1 Mark* ) .^Scenario s 5, Identif y r Strategies/ Technologie s
M .;. y57- 5^5i5. (7)



## mm ^•aodel ^ ?5'I'IO/ZA



### C PP. 8



## Fo rexample , PSE& G ha s assigne d probabilitie s t o emergin g regulator y requirements/outcome s Estimate d Probabilit y 0 % OT C Regiona l Probabilisti c Outcome s

|50*Mreii y |

0 % Federa l Probabilisti c Outcome s iSttsu , beyon d ft 

## Countles s combination s o fstrategie s ar e evaluate d i n a financia l mode l t o determin e a n optimu m strategy .

Output / Cal c

^P. 9



## Eac h strateg y i s evaluate d agains t th e tota l numbe r o f possibl e marke t scenario s t o produc e a rang e o f potentia l values . 

## m. Fo rexample , fo ran existin g asset th e potentia l valu e outcome s include :

Strateg y17 3 Strateg y0 Strateg y1 1

VO/I M Major Characteristic* l«O M I166 M S18 W SNC R /Amin e Injectio n 33 % Ga s Cofirin g Allowanc e Consumptio n S124 M S151 M
• N o Reduction s • Pur e Allowanc e Consumptio n S11S M S140 M S1S7 M
• SC R - 2 yea rCatalys t



### I n 199 3 an d i n subsequen t years , PSE& G ha s use d thi s approac h t o develo p a NO xstrateg y fo r ou r N J generat i

~ 5 0 o o w c o t/ > c o Z, W E U J X O z 4 0 3 0 2 0 1 0 0 \

BE R 1 A BU R 1 0 Repowar ,

• \ 1 HUD2-LNBKJF A \ HU D 1 - Wn t mj . O S HO*tACT

^ \

—Ki-iUf.T/^f:

—' — M XHO* »•*#» < (n*m

Uj_ I I I I mt K1 A l . bNL K



### V

ME R 1 & 2 u Allrilio/ - GT-WaUrlnj . ' HU D 2 - Amin e 1 1 1 I ME R 1 A 2 - CA H Sys .

• wjtn-ewsy* . ME R 1 A 2 - Induc t SC R HU D 2 - Eton . SC R

\ GT-S«lgctRp» r 

# ^^^^J T 9 0 9 5 ® 9 9 0 0 0

3P.1 0



### On e wa y t o reduc e uncertaint

y i s t o ge t "hands-on " experience , suc h a

s PSE& G has don e wit h Mercur

y Projecte d Full-Scal e Sorben t Use an d Cos t PctUar t C m touted Type Sfedudia n Sato t Neede d Type Tcnsfy r CtxtSWy r Instate d COS t * H g s ^ H a
s ^ 2

D >7 6 25 9 0 2 5 S O S O 7 5 -6 0 Acthhtu l Cart m

Acttate d Carbo n SodirnBcartxrat e Sodh m Bkartxnat e Scxfu n Bcartxrat e Sotfu n Bcartxrak s Hydrate d Lir e H/tkatedLvn e HyckatedLkn e 530 1,20 0 12,00 0 30,00 0 334 0 14,40 0 3,50 0 16^0 0 3*50 0 26543 ? 600.1^00 " 3,00 0 7,50 0 99 0 3,60 0 40 0 1£0 0 .* » 2/40 0

24,00 0
2/40 0

* D e cos t range reflect s th e rang e h surtxatf Mb , AC- 1 cost s ar e

. to b e hal f thos e o f th e comrrertialty-avaiaM e Darc o FG D 

### I t woul d see m tha t fe wcompanie s ar e reall y "struggling " wit h uncertaint y « man y ar e buyin g coa l an d fossi l fue l assets . Plantfs ) Plan t Siz

e Kincai d (coal ) 1108 State Lin e (coal ) 50 0 Coal , Oil , Gas , Hydr

o 400 0 Oil , Gas 2645 Oil , Ga s 395 6 Oil , Ga s 370 0 Oil , Gas , Hydr

o 1185 Biomas s Oil , Ga s 200 0 Home rCit y(coal ) 1800 Coal , Oi l 1424 MW Selle r Commonwealt h Commonwealt h NEE S PG& E So . Calif . Ediso n So . Calif . Ediso n Centra l Man e Powe r Buye r

Dominio n Energy Souther n Co . U S Gen . Co . Duk e EnergyPowe r AE S Corp . Housto n Industrie s FP L Grou p Bosto n Ediso n Sith e Energie s NYSEG , GP U Ediso n Missio n Energy NYSE G AE S Corp . Tota l = 22,31 8 M

W 

# HP.1 1



## IO 

# \i

# PSE&G : 10,50 0 Megawatts of installe d generatin g densel ypopulate d state s i n th e U.S .

IlilBiillHKil ^ wsmm®m>tmm!mmm®w@sim 

# Ma p o f PSE&G Servic e Territor yan d Locatio n o

f Generatin g Assets

M«< ; Ycrf 

# ® 7 ^vKoyston s 

## m 

# 3i f\?.m}syivani.. ! 

# ® ^ Pittebur^ i 7

^MDonsmaug h H a rr i a bur g O a **:i i L±iLiSt^AMaaa ph i a Beni m Hw>aig

- Jy i «"'T Y V . Vp^biKlw i \ !p; ! *«vai w TMnton\gj|- ' ButinutonJkP'* r c * r i £ Fossi l plan t (siz e denote s relativ

e hea t input] (dart s red denote s % ownership ) 0 Nuclea rplan t Servic e are a "221 2 m IA ) - 43 % ownershi p (\3) • I , ,\ r*i .</*3 *»103 1 mW

I - 95 % ownershi p V^" t - - J ' 3 -"-»« / 

# PSE& G procur e ~ 25 % o f its energ yheeds : tiyes msUlted|iiigabout65 p MwofDSM!sin&1 ^ ou rtarge t i s 1050 M

w5 by200^;.-^< ; 

# "v;>.- ^ PSE& G Generatio n Energ yMi x ^ 9as

_coa l
nuclea r

# u * * C 

# C aW<Iil*w5s«K?«'®^ ^ 

## 'Qsn^ralio n J 4 

## ansmssno n ,.-< ? ' "



## Distributio n 

# Ful l vertica l integratio n

- Customer

s "captive " t o utilit

y

- Universa l service at reasonabl e price s

- Fai ropportunit

yt o obtai n reasonabl e "returns " fo rpruden t investmen t c i

## u n 

# i i • I : »

i^^^^^S^SSS^^^mS^r^^^^Sm^S^^m^^Sf^S^^W^msml^Sma^m^- S*m«:3Ss8«SS ? iSs^^^SMs^s^^^mm^lsmm^SM: Inventor y o f Resources : Suppl y & Deman d



## n^lwIFo?iffP!al

M * r*Ai.Au*.dn&inV ] 

### * X&fteldeffctiofts S v - j , , Complianpe ^ \:\

\ » 1 Externalitie s v " ••i' i Projection s

o fexistin g plant , ne wplan t . cost s & , DS M alternatives , 

# iiSMW B Projectio n Fue l Pricin g Bu y vs .

Build : PU C Consideration s Al t Suppliers : Othe rUtilities , IPPs , etc . • ^

# Wholesal e leve l — a t stat e level . l^sggllsffisslsls ^ 

## SSB S

Monopol y servic e territori e

Ope n market s an d consume rchoi c 

# Pre-199 2 utilitie s ha

d monopolyservic

e territories . Onl

ycompetitio n wa

s fro m cogeneratio n facilities . Pos t 1992 : {% • Wholesal e restructurin g mandate d a t federal leve l r

# • Retai l restructuring , proceedin g a t state-by-stat

e leve l Wit h resttucturing a ; |way-pWife".; : 

# -: : 

# ' ^.j^^^^/z^ r^ -

# "New " Electri cBusiness : Unbundle d & Competitive Cogeneratio n

LEGEND-TRANSACTION S Thir d Party PSE G

### ( I 

# n

Wmmie^^^mw^W^^^S »««<»#&^:ffi«;^^^ ^ 

## GENERATIO N WHOLESAL E
•What' s th e market ?

- Energy :

- MC P projectio n

- Fue l projection s

- Envir . Reqm't s

- Capacit y valu e

- Ancillary services :

- Locatio n valu e

- Voltag e contro l

- Tradin g valu e 

## SWO T

- Competito rasset s

- Owne d asset s 

## TRANSMISSIO N Loading :

- Existin g capacit y

- Deman d growt h

- Locatio n o f constraint s

- Loo p flow s Stabilit y contro l -

- History

- Projection s Servic e & pricin g opportunitie s 

## LD C Loading :

- Existin g capacit y

- Deman d growt h

- Locatio n o f constraint s

- Locatio n o f growt h Reliability goal s & Cust . respons e requirement s Right-of-wa y avail . Communit y concern s Marke t Assessmen t

- Marke t segmen tatio n (cust . Type , energy , services )

- Siz e of marke t SWO T

- Self-assessmen t -Competitor s Obligations :

- Universa l service ? Wholesal e energ y an d capacit y avail . & pric e ^o o C L 

# require s

%|R % 

# 3 (1) Identify Regulatory Issue s
(4) Identify Marke t Issue s ( f 

### 2) Develo p * Regulatory Scenario s
(5) Develo p * . . Marke t

. Scenario s (3) Identif y " Strategies

/ Technologie s
(6)

, Marke t Mode l (7) Financia l •Screenin g Mode l (8)
.'•.'• ' 

### Strateg y Selectio n 

### r ^< I • •A • 

# regulator yrequirements/outcomes . sti r' Probabilit y 0 % 

## OT C Regiona l Probabilisti c Outcomes
50 % [50 % Mercur y] 

### 100 % Toxi c

reportin g 5%/y rred . OTC MO U

65 % NO x 

### 19 9 _^ _ 1.5lb/mwhNOx GP S 100 % Ozon e & fin e

particulat e std . revisio n 00 0 005 ,

Toxi c reportin g 5%/y r 50 % A R S0 2 Phas e I I A R Grou p I I & Revise d Grou p I NOx 1.5 Ib/MW h NO xGP S
Greenhous e Gas Reduction s Credite d • 50 % Mercur y CO , t o

Kyoto level s 50 % S0 2 beyon d AR 0 % 

## Federa l Probabilisti c Outcome s 010 )

25 % S0 2 beyon d A r <£ >

# combination s

i n a
mR^^s^mmmmmm^mimmsi^m^mfim^^memsmm^^m! 

### BBBsHSelS S

®mu^mm^3m®sm$m8^mimw^%mm ISS^^^^S^SfSSSi^SS s

NP V <JS -



### Output / Cal c

# numbe rof io s t o produc e a value s Fo rexample , fo ra n existin g asse t th e potentia l valu e outcome s include :

Value Major Characteristics 

### Strateg y 17 3 Expected Value
High

Value $140 M $166 M $180 M SNC R /Amin e Injectio n 33 % Ga s Cofirin g Allowanc e Consumptio n 

### Strateg y 0 Expected Value

$124 M $151 M
• N o Reduction s • Pur e Allowanc e Consumptio n High Value $219 M 

### Strateg y 1 1 Expected Value
High

Value $118 M $140 M $187 M
• SC R - 2 yea rCatalys t O

# I n 

# 199 3 

# an d i

n
1EIIHH H



## ^ . 5 0 X c o

(Ji mmmm 

# £ L U X 

## O 4 0 3 0 2 0 1 0 BE R 1 & BU R 1 0 Repower , LI N 9 , COX9 Replac e

HU D 2 - LNB/OF A HU D 1 - Wate r Inj . ME R I & 2 -SNC R 60% NOx RACT / MER 1 &2-CAHSys . ~HUD~ 2 -~CAH"5ys . ~ ~ " ME R 1 & 2 - In-Duc t SC R HUD2-Econ . SC R

••_MOxBudgetJPhaae l[ HJJD_J.i.S,N,C B _ ^ __®%L&n__Xante*- _MER-l-f t *--Amine- . G T- Wate r Inj . 90% NOx Budget (Phase II) HU D 2 - Amin e 

# V' \ ST-S e

Selec t Rpv

\ \ T T T T 

## 9 0 9 5 

# (98 ) 9 9 0 0 0 3 C\ >

# On e wa

yt o reduce uncertaint

yi s t o ge t "hands-on * experience , suc h a s PSE&G ha s don e wit h Mercur

y Projecte d Full-Scal e Sorben t Us e an d Cos t Pollutan t Controlle d Typ e % Reductio n H g 

# so 2 

## H a


# so 3 2 0

>7 5 2 5 5 0 2 5 5 0 5 0 7 5 -9 0 Sorben t Neede d

Typ e Tons/y r Activate d Carbo n Activate d Carbo n Sodiu m Bicarbonat e Sodiu m Bicarbonat e Sodiu m Bicarbonat e Sodiu m Bicarbonat e Hydrate d Um e Hydrate d Lim e Hydrate d Lim e 53 0 1,20 0 12,00 0 30,00 0 3,94 0 14,40 0 3,50 0 16,20 0 3,50 0 Cost$k/y r 265-530 * 600-1,200 * 3,00 0 7,50 0 99 0 3,60 0 40 0 1,90 0 40 0 Installe d

Capita l Cos t $ k 2,40 0 24,00 0 2,40 0 S^itffiiS-SS e



### * Th e cos t rang e reflect s th e rang e i n sorben t $/lb , AC- 1 cost s ar e projecte d t o b e hal f thos e o f th e commercially-availabl e Darc o FGD TM c 0

# I t woul d see m that fe wcompanies are reall y "struggling " wit h uncertaint y • - man y ar

e buyin g coa l an d fossi l fue l assets . Plant(s ) Plan t Size - Kincai d (coal ) Stat e Lin e (coal ) Coal , Oil , Gas , Hydr

o Oil , Ga s Oil , Gas Oil.Ga s Oil , Gas , Hydr

o Biomas s Oil , Ga s Home rCit

y(coal ) Coal , Oi l 110 8 50 0 400 0 264 5 395 6 370 0 1185 200 0 180 0 1424 M W Selle r Buve r Commonwealt h Commonwealt h NEE S PG& E So . Calif . Ediso n So . Calif . Ediso n Centra l Main e Powe r Bosto n Ediso n Dominio n Energy

Souther n Co . U S Gen . Co . Duk e Energ yPowe r^ AE S Corp . ^ Housto n Industrie s FP L Grou p Sith e Energie s NYSEG , GP U Ediso n Missio n Energy NYSE G AE S Corp . Tota l = 22,31 8 M

W