# !"#$

%&'(')*&+$

',$-.'+#/$

-0&.#$

-''.*(1$*($

2#3$4'56$

Robert McCullough

June 3, 2010Executive Summary!!

Detailed analysis of closed cycle cooling for all power plants in New York State makes four significant

findings. Most important, it identifies two old, inefficient power plants that could be closed without

affecting the level of reserve capacity (see page 17).

1. Environmental compliance at the Oswego Steam Station implies plant closure or repowering.!!

This is an uncompetitive oil plant that only generated power 0.06% of the time in 2008.! ! The

effect of its closure on price and reliability would be inconsequential.!!!

2. Assuming the passage of aggressive carbon surcharge legislation as well as closed cycle cooling,

the C.R. Huntley Generating Station near Tonawanda is a candidate for closure or repowering.!!! Replacement by a combined

" cycle natural gas plant would ensure significant air quality benefits

(see page 21).!!!

3. The change in electricity prices as a result of requiring closed cycle cooling would be less than 1

percent.!!!

4. An opportunity exists to reduce the cost of power by reforming the current wholesale electricity

market mechanism which results in high prices for New Yorkers.!!! !

The analysis shows that these two plants seldom set the price of electricity in New York (see page 20).

The prices received by the plants in this study are more than enough to pay the costs of environmental

compliance. Allowing these plants to operate with sub

" standard cooling systems while imposing massive

burdens on public water bodies and ecosystems is both unfair to New Yorkers and to the power

producers owning modern plants that efficiently use fuel and water.

Given these findings, the power industry in New York could easily bear the additional cost of closed

"

cycle cooling.!! In addition, a requirement for closed cycle cooling would cost power customers very little,

would have no adverse impacts on reliability, and would improve air quality.

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

1 | Page My name is Robert McCullough.!! I am the managing partner of McCullough Research located at 6123

S.E. Reed College Place, Portland, Oregon 97202.!! McCullough Research specializes in wholesale energy

issues throughout the U.S. and Canada.!! Our projects include detailed analysis of bulk power markets,

plant construction and siting, and impact on consumers.!!

The Eastern Environmental Law Center asked us to review the cooling water intake structures policy

issued on March 4, 2010 with special emphasis on the economic analysis contained in Table 6 in

Appendix A of the draft BTA policy of the New York State Department of Environmental Conservation. 1

Table 6 contains a preliminary analysis of the economic impacts of bringing the cooling systems of 27

New York facilities into environmental compliance.! ! However, the analysis while useful is neither

detailed nor complete.! ! The concept behind the table is to compare revenues from the New York

Independent System Operator’s energy market with the capital and O&M costs associated with

environmental compliance.!! On the far right of the table is a “Cost

" Revenue Ratio” reflecting a rule of

thumb appreciation of the economic impact.

Table 6: Estimated compliance costs for the steam electric industry in New York State.!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 1 CP

" nn / Best Technology Available (BTA) for Cooling Water Intake Structures, New York State Department of

Environmental Conservation, March 4, 2010, page 14.

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

2 | Page While the table does give an overall sense of the relative impacts, its problems can be briefly itemized:

1. The revenues used are both incomplete and anachronistic.! ! While zonal energy costs are an

important component of revenues in the New York ISO, other revenues 2

– most significantly

uplift payments

– also play a significant role in certain areas of the state.!! New York ISO prices

are extremely volatile, so the use of 2007 prices with average generation for a period across five

years will give incorrect results. 3

2. Multiplying 2007 prices by twenty years is very likely to give a biased forecast of actual

revenues.!! This is especially true given the enormous increase in New York ISO prices in 2008 as

well as long

" term forecasts available from the U.S. Energy Information Administration.

3. The impact on a specific facility cannot be estimated by considering only its revenues.!! A plant

with high revenues may well be the least profitable plant if its fuel and O&M costs approximate

its revenues.! ! As discussed below, a correct analysis compares the net income against the

expected cost of environmental compliance.

While incomplete, Table 6 largely matches the results of the detailed analysis undertaken in this report.



## Can the Required Environmental Compliance Measures Be Prudently

Undertaken?

1. What is the impact on the plant owner of environmental compliance?!!

2. What is the impact on society of environmental compliance?

The first question is relatively straightforward.! ! Almost every car owner faces this question at some

point.!! The value of a car must be compared against the incremental cost of repairs.!! The owner of an

older car must compare the cost of a new transmission against an estimate of the continued usefulness

of the vehicle.!! A relatively new vehicle will receive repairs.!! An older, less viable one will be sold to the

junkyard.

Metaphorically speaking, this is the same economic decision to be made by a plant owner facing a major

environmental upgrade.!! Will the future expected net income

– revenues minus operating costs

– of the

plant be greater than the predicted cost of environmental compliance?!! If they are, the plant owner will!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 2 Other revenues are composed of ancillary services, immediately responsive generating capacity (spinning

reserve), capacity needed to serve load in the event of a contingency (supplemental reserve), and make

" whole

payments by an RTO/ISO to a utility (uplift).!!! See, for example,!! http://www.ferc.gov/docs

" filing/eqr/soft

" tools/eqrdatadictionary.pdf

3 Ibid., page 20.

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

3 | Page decide to continue operating.! ! If they are not, the plant owner will decline to make the required

investment and instead retire the facility.!! While this decision may prove stressful for shareholders in the

short term, it is one of the business issues addressed regularly by management found in SEC 10Ks and

other financial filings.! ! The lifetime of electric generation facilities is usually limited to 35 to 50 years!!

and closure is usually related to an economic change that does not meet this simple test.

Analyzing this decision would be difficult without the ready source of data on future fuel costs, O&M,

and electric prices in New York issued annually by the U.S. Energy Information Administration.!! The most

recent forecast is the Annual Energy Outlook 2010 (AEO 2010), which analyzes electric operations

separately for New York State. 4

Given the data available on each of the 25 plants (two of the 27 plants are no longer in operation and do

not require analysis), it is relatively easy to model plant operations, revenues, and incremental costs

over the next 25 years. 5!! The expected net revenues are then brought to current dollars using the real

tax

" adjusted weighted cost of capital for each facility. 6!! If discounted net revenue is greater than the cost

of environmental compliance, the plant will continue operating.! ! If not, the rational profit

" seeking

company will close the plant, repower it, or replace it with a more efficient plant that uses either dry

cooling or wet closed

" cycle cooling.

The second question is more complex.! ! Electric rates in New York reflect bulk market costs and local

distribution costs.!! The latter will be unaffected by environmental compliance.!! Bulk market costs may

well be affected if a number of the plants are closed if forced to meet environmental standards.!! The

impact on prices is twofold.!! First, closure of a number of plants may affect the load/resource balance in

New York.!! If so, new plants would need to be brought on line to meet the state’s needs for capacity.!! Second, the elimination of plants or changes in the marginal costs of plants may affect the energy

market in New York.

A priori, the impact on consumers may well be beneficial.!! Elimination of older, less efficient facilities via

replacement with more efficient facilities can have the impact of reducing energy costs as well as plant

emissions.!! The heat rates of the plants in the BTA Policy Technical Document have significantly larger!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4 Annual Energy Outlook 2010, Report #:DOE/EIA

" 0383(2010), May 11, 2010.!! A glossary of technical terms is in

Appendix A to our report.

5 For the five Long Island plants in the analysis, this prediction is difficult, because the Long Island Power Authority

has a long

" term power purchase agreement in place, but it expires in 2013. Because it is not possible to predict

what any new contract might contain, our analysis assumes that the plants on Long Island become part of the

larger New York ISO market.

6 Black River Generation had no readily available financial filings.!! In this case we assume the average discount rate

of the remaining 24 facilities.

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

4 | Page incremental costs than newer units. Average heat rates for the plants in the BTA Policy Technical

Document were much higher than that of a modern combined cycle unit, as the following graph shows. 7!!

In this case, the analysis is straightforward since only the Oswego Steam Station is likely to face closure

as a result of the BTA policy alone.!! The unit neither dramatically changes the load/resource balance in

New York, nor provides significant energy to meet New York’s energy requirements to impact the state’s

energy markets. Even when adding in a scenario for the future pricing of carbon, as prudent

entrepreneurs have already started to do, only C.R. Huntley in addition to Oswego would go offline.

Again, the loss of Huntley would not cause any major effect on price or reliability.!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 7 Average heat rates for the plants in the BTA Policy Technical Document were much higher than a modern

combined cycle unit.!! Heat rates from plants built after 2012 appear in AEO 2010 at

http://www.eia.doe.gov/oiaf/aeo/assu mption/pdf/electri city.pdf#page=3

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

5 | Page Our report assumes throughout that the New York markets are efficient, meaning that bids and prices

will reflect the producers’ true marginal costs.!! This very conservative assumption is a “worst case” for

the plants studied since it assumes that average wholesale prices in New York will reflect average

marginal costs over time.!! In reality, prices in New York are often higher than marginal costs; hence our

assumption would have the effect of overestimating the negative financial effects of environmental

compliance.



## Modeling Impacted Electric Facilities 2010 through 2035

On an annual basis, the U.S. Energy Information Administration undertakes a detailed 25

" year forecast

of energy for the United States.!! The most recent forecast, AEO 2010, was issued on May 11, 2010.!! The

forecast contains detailed subforecasts by energy type and geographic area; we use the electricity

module for the state of New York. The benefits of having a detailed forecast of New York include:

1. The forecast is impartial.!! The EIA has taken no position in the current proceeding.

2. AEO 2010 is the product of a modeling process undertaken for many years.!! The EIA’s forecasts

have been reviewed and tested in many arenas.!! They are relied upon to set U.S. policy by the

U.S. government in many venues.

3. The AEO is well

" documented with thousands of pages of detailed analysis standing behind the

forecast.

Since the volatility of New York ISO prices is high, we adjust the average levels forecasted by the EIA by

the actual prices from 2008 in order to reflect generation opportunities for high

" price units like the

Oswego Steam Station.! ! We also conduct a sensitivity case using EIA fuel forecasts to observe the

potential impact of carbon tax or cap and trade policy changes.



## The New York Independent System Operator Markets

For the past decade, the New York ISO has operated a highly stylized administrative system of prices.!!

The basic structure resembles a market with bids, bidders, and a market settlement mechanism.!! Unlike

a market in the more traditional sense, the bids, bidders, and the settlement mechanism are complex

and secretive.

Overall, market results in New York are both higher and more volatile than would exist in an open

market.!! For the purposes of this report we have assumed the distribution of electric prices by subregion

from 2008 and escalated the curve using the most recent forecast of New York electric operations from

the U.S. Energy Information Administration.

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

6 | Page The following chart illustrates the distribution of prices in New York.!! Prices above $150/MWh would not

normally occur without extensive system emergencies or significant market power.!! The EIA’s forecast,

for example, does not produce prices above $153.39/MWh over the period from 2008 through 2035.!!

The New York ISO, however, experienced day ahead prices as high as $378.82/MWh in 2008. 8

In analyzing the revenue prospects of eligible plants we set the mean of the actual 2008 price

distribution to the forecasted value from the EIA.! ! This approach provides a simulation of the higher

volatility experienced in New York, while following the levels predicted in the detailed EIA forecasts for

the next 25 years.

The New York ISO also administers capacity markets, markets for ancillary services, and specific

reliability

" related dispatch payments.! ! The reliability

" related dispatch payments are loosely based on

plant bids.!! Payments in this case are described by the phrase “uplift”.!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 8 2008 State of the Market Report, David Patton, page 25.

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

7 | Page Ancillary service and uplift revenues for 2008 are taken from each plant owner’s Electric Quarterly

Reports to the Federal Energy Regulatory Commission.!! Capacity revenues are based on capacity prices

forecasted in AEO 2010. 9

The first step is to calculate the weighted, tax

" adjusted real cost of capital.! ! The initial step in the

calculation of the cost of capital is to find the cost of equity.!! We use the Capital Asset Pricing Model to

calculate this cost.!!

1. Beta

The beta coefficient ( # ) of an asset is a statistic that describes the correlation between its rate of return

and that of the financial market as a whole. A positive beta indicates that the asset’s returns generally

follow the overall market’s returns.!! It is found by dividing the covariance between the rates of return of

the asset and the market by the variance of the rate of return of the market:

7

8 9 -':;5

8 < 5 = >

?@5;5

= > <

where 5 8 is the rate of return from holding the asset and 5 = is the rate of return in the market.

The most recent market beta is obtained for each plant owner from the Market Club. 10!! It is then used to

calculate the expected rate of return on equity:

0 9 A B C A = D 7<

where 0 is the cost of equity, t R is the risk

" free rate of return, and t

p is the risk premium.

2. Tax

" Adjusted Cost of Capital

Cost of capital is the cost of obtaining capital for long

" term investment in plant and equipment.

Companies create value for their shareholders by earning a return on their invested capital that exceeds

the cost of obtaining that capital.!! The cost of obtaining the capital is usually expressed as a percentage

of the amount of capital obtained.!! For example, in the case of debt, the cost of capital is the rate of

interest paid on the debt.! ! In the case of equity, it is the expected yield on the market value of

outstanding common stock.!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 9 AEO 2010, New York Prices by Time Slice.!! 10 Market Club, Charting: Quotes and Fundamental Data, Members Section.

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

8 | Page For each power plant, we estimate the cost of capital by calculating the average of the owner company’s

costs of debt and equity, weighted by the proportion each respective component of capital constitutes

in the company’s capital structure. 11!! Cost of debt is the average annual rate at which the company pays

out interest on its total outstanding long

" term debt, i.e. the ratio of its total interest expenditures in a

given year to its total outstanding long

" term debt in that year. Since interest expenditures are tax

deductible, only the after

" tax portion of the debt is taken into consideration when determining the cost

of debt to the company. 12!! Similarly, the cost of equity is the market yield on the outstanding shares of

the company. In accordance with the standard Capital Asset Pricing Model (CAPM), we estimate it by

adding to the prevailing risk

" free rate of return in the economy a company

" specific risk premium that is

found by adjusting the market specific risk premium with the beta coefficient of the individual

companion that market (see above).

This method of accounting for a company’s overall cost of capital is known as its Weighted Average Cost

of Capital (WACC):

EF-- 9 $ G H#IA JG K L A@M$5@A# J

G H#IA C %NO*A0 J G -'+A$',$H#IA J C G %NO*A0 J

G H#IA C %NO*A0 J G -'+A$',$%NO*A0 J

<$$$$$

-'+A$',$H#IA 9 P(A#5#+A$%MQ#(+#

ROA+A@(/*(1$S'(1T !#5)$H#IA

-'+A$',$%NO*A0 9 U*+6.#++$U#AO5( C $ #

VWXYZ[\ D G]@56#A$U#AO5($ L $U*+6.#++$U#AO5(J

We take the expected rate of return in the market to be 9% and the prevailing risk

" free rate of return to

be 4.28%, which is the average of the 30

" year U.S. Treasury bond yields in 2008. 13! ! The tax

" adjusted

WACCs range from 4.92% for East River Generating Station and Brooklyn Navy Yard Cogeneration to

8.35% for the AES plants, Cayuga, Greenidge, Somerset, and Westover.!!

Plants owned by companies with low betas have lower WACCs than plants owned by companies with

high betas.!! For example, East River Generating Station, owned by Consolidated Edison Company of New

York, has a relatively low beta (0.3) and a relatively low tax

" adjusted WACC (4.92%).!! Conversely, AES!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 11 Publicly traded companies provide their income statements and balance sheets in Form 10

" Ks filed at the U.S.

Securities and Exchange Commission.!! Black River Generation did not have readily available financial filings.!! In this

case, we assume the average discount rate of the remaining 24 facilities.

12 We assume a 35% federal income tax rate.

13 Average U.S. Treasury yield rate for 2008 is at

http://www.federalreserve.gov/release s/h15/data/Annual/H15_TCMNOM_Y30.txt

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

9 | Page Cayuga, owned by AES Eastern Energy, has a relatively high beta (1.45) and a relatively high tax

" adjusted

WACC (8.35%).!!

3. Tax

" Adjusted Real Discount Rate

The value of a company, an asset, or a project, is estimated by adding up the net present values of its

future cash flows.!! It is standard practice to discount the cash flows using the weighted average cost of

capital of the company.!! However, because we report our results in real terms (2008 dollars), we convert

the plants’ nominal WACCs to real WACCs with the assumption of a 3.5% average annual inflation rate

over the horizon of interest to us.

U#@.$EF-- 9 K C 2')*(@.$EF--

K C %MQ#&A#/$P(^.@A*'($U@A# L K

The tax

" adjusted real discount rates range from 1.37% for Brooklyn Navy Yard and East River to 4.69%

for the AES plants.!!

The estimated future profits of the plants are then discounted at the real tax

" adjusted discount rate to

2008 dollars and added up for comparison with the estimated costs of the closed

" cycle cooling systems

over the 25 years.

4. Fuel Costs

Estimated fuel prices are taken from the EIA which projects fuel prices up to 2035. 14!! On the demand

side, the AEO predicts moderate growth in energy consumption. Total primary energy consumption

increases by 14% between 2008 and 2035, an average annual growth rate of 0.5%, which is well below

the predicted 2.4% growth rate of national economic output. 15!! This difference is the result of the U.S.

economy decreasing in energy intensity, as well as increased efficiency of energy

" consuming appliances,

vehicles, and structures.!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 14 AEO 2010, Electricity Generation & Renewable Resources, Table 77 Electric Power Projections for EMM Region

Northeast Power Coordinating Council/ New York at

http://www.eia.doe.gov/oiaf/aeo/sup plement/index.htmlhttp://www.eia.do e.gov/oiaf/aeo/supplement/sup_elec

.xls

15 AEO 2010, Executive Summary at http://www.eia.doe.gov/oia f/aeo/pdf/execsummary.pdf

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

10 | Page On the supply side, there is a declining reliance on imported liquid fuels, but much of this slack is taken

up by strong growth in generation from renewable sources.!! The increased production of shale gas is

predicted to offset the decline in gas production from other sources, making natural gas a viable option

for electricity production.

U.S. primary energy consumption, 1980

" 2035 (quadrillion Btu) 16

AEO 2010 forecasts a steady increase in the price of every fuel except uranium.!! The price of petroleum

increases most drastically between 2010

" 2035 with a 74% increase in the price of distillate fuel oil and a

104% increase in the price of residual fuel oil.! ! Coal only sees a 22% price increase, but this assumes

there will be no legislation restricting carbon emissions.

5. O&M Costs

Operations and maintenance costs for a power plant include labor, materials and supplies, contractor

services, licensing fees, and miscellaneous costs, such as employee expenses and regulatory fees. 17!!! We!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 16 Ibid.

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

11 | Page estimate the O&M costs for each unit using the Nuclear Energy Institute's annual report, US Electricity

Costs and Components

, which gives the average cost of different electricity production components by

fuel type. 18

6. Hours of Operation

Hours of operation are calculated as the sum of hours in a year where the plant’s zonal Locational Based

Marginal Price (LBMP) 19 exceeds its Total Marginal Cost (TMC) of production.!! LBMP is defined as the

value in dollars per megawatt

" hour of energy injected into the grid at a particular location. 20! ! Plant

LBMPs are reported by NY ISO’s 15 zones.!! For a plant X in year Y in NY ISO zone k, the number of hours

of operation is given by:

_'O5+$',$'Q#5@A*'( `<a 9 b Sc]d

a<e<f g !]- ` hijk

flm!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 17 Nuclear Energy Institute, Costs: Fuel, Operation and Waste Disposal at

http://www.nei.org/resourcesandstats/nuclear_statistics/costs

18 Nuclear Energy Institute, U.S. Electricity Costs and Production Components (1995

" 2009) at!! http://www.nei.org/resourcesandstats/d ocumentlibrary/reliableandaffordabl eenergy/graphicsandc harts/uselectri

cityproductioncostsandcomponents

19 NYISO LBMP database at http://www.nyiso.com/public/markets_operati ons/market_data/pricing_data/index.jsp

20 NYISO technical bulletin 026, 12/5/2008 at

http://www.nyiso.com/public/webdocs/d ocuments/tech_bulletins/tb_062.pdf

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

12 | Page Note that in the above equation the sum range will change from 8760 to 8784 for leap years.!! In 2008,

Arthur Kill Generating Station, owned by NRG Energy and operating in NYISO zone J, operated 1640 out

of 8784 hours.

Total Marginal Cost is defined as the sum of Marginal Fuel Cost and O&M costs. Marginal Fuel Cost is

calculated as the product of fuel prices forecasted by the AEO 2010 21 and the plants’ corresponding heat

rates 22!! O&Ms are the values reported in 2008 by the Nuclear Energy Institute. 23!! Therefore, for a plant X

in year Y the Total Marginal Cost is:

!]- `<a 9 ;]@51*(@.$nO#.$-'+A$

`<a > C G]@51*(@.$Ro]

` $J

TMC for Arthur Kill Generating Station in 2008 was equal to $128.25/MWh, where the Marginal Fuel

Cost was $122.75/MWh and the O&M cost was $5.50/MWh. The formula for calculating the Marginal

Fuel Price is given below in Section 8, Heat Rates.

We use the number of hours of operation to calculate the energy revenue, which is defined as the

product of the number of hours of operation, the corresponding LBMP, and the nameplate capacity of

the plant. 24!! Total plant costs are also calculated as the product of the number of hours of operation,

nameplate capacity, and the total marginal cost as defined above.!!

The maximum hours of operation of any plant is limited to the fraction of hours in a year equal to the

Weighted Equivalent Availability Factor (WEAF) listed in the North American Electric Reliability

Corporation Generating Availability Data System (GADS). 25!! This factor takes into account the forced and

scheduled outages that restrict the plants to operating for a smaller number of hours per year than may

be economically desirable for them.!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 21 AEO 2010, Electricity Generation & Renewable Resources: Table 77 Electric Power Projections for EMM Region

Northeast Power Coordinating Council/ New York at

http://www.eia.doe.gov/oiaf/aeo/sup plement/index.htmlhttp://www.eia.do e.gov/oiaf/aeo/supplement/sup_elec

.xls

22 Data calculated from the EIA Form

" 923 Database (Form 923 is a combined form for reporting EIA

" 906, EIA

" 920,

EIA

" 423, FERC

" 423, and EIA

" 767, i.e. heat and power, monthly costs and fuel quantity, and operation and design

aspects) at!! http://www.eia.doe.gov/cneaf/el ectricity/page/eia906_920.html and

http://www.eia.doe.gov/pub/el ectricity/f906920_2008.zip

23 NEI Report, US Electricity Production Costs and Components (1995

" 2009) at

http://www.nei.org/resourcesandstats/d ocumentlibrary/reliableandaffordabl eenergy/graphicsandc harts/uselectri

cityproductioncostsandcomponents/h ttp://www.nei.org/filefold er/US_Electricity_Production_Costs_and_Compon

ents.xls

24 EIA definition of nameplate capacity at http://www.eia.doe.gov/glossary/glossary_g.htm

25 NERC GADS downloadable database at http://www.nerc.com/page.php?cid=4|43

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

13 | Page 7. Uplift and Ancillary Service Charges

Ancillary services for 2008 are calculated as the sum of all revenues (other than energy and capacity)

listed in the Federal Energy Regulatory Commission’s Electric Quarterly Reports for the operator and/or

parent company of an individual plant.! ! The FERC EQRs summarize market

" based power sales, cost

"

based power stales, and transmission service by company for each quarter. 26,27!!

In 2008 the ancillary revenue for Arthur Kill Generating Station was $47,512,707.81, and included

revenues from Black Start Services, Reactive Supply and Voltage Control, Regulation and Frequency

Response, Spinning Reserve, Supplemental Reserve, and Uplift payments.

Subsequent to 2008, ancillary services are calculated as the product of 2008 ancillary services, and the

ratio of subsequent energy and capacity revenue to the 2008 energy and capacity revenue.! ! Ancillary

revenue for a plant X, in year Y, is given as:

F(&*..@50$U#:#(O# `<a$ 9 F(&*..@50$U#:#(O# pkkh G %(#510$@(/$-@Q@&*A0$U#:#(O# `<a

%(#510$@(/$-@Q@&*A0$U#:#(O# pkkh J

The forecasted ancillary revenue for Arthur Kill Generating Station in 2012 is calculated to be

$45,438,105.53 using the formula above.!!

8. Heat Rates

Heat rate is a measure of plant efficiency expressed as the ratio of the total fuel consumption in

MMBtus to net generation in MWhs. Total fuel consumption and net generation can be calculated from

the AEO 2008. 28!! Heat rates for all 25 plants are assumed to be constant from 2008 to 2035, based on

the heat rates in 2008.!! The heat rate of a plant X in 2008 is given by:

_#@A$U@A# ` 9 nO#.$-'(+O)QA*'($]]cAO `

2#A$q#(#5@A*'( `

Heat rate is used to convert fuel prices given in the AEO 2010 29 from dollars per MMBtu to Dollars per

MWh.!! The marginal fuel cost of a plant X, in year Y, is equal to:!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 26 FERC EQR Accessing Data: http://eqrdds.ferc.gov/eqrd ds/newapp/emailinfo.aspx

27 FERC EQR Description: http://www.ferc.gov/docs

" filing/eqr.asp

28 Data calculated from EIA Form

" 923 Database at http://www.eia.doe.gov/cneaf/electricity/page/eia906_920.html

And http://www.eia.doe.gov/pub/electricity/f906920_2008.zip

29 AEO 2010, Electricity Generation & Renewable Resources: Table 77 Electric Power Projections for EMM Region

Northeast Power Coordinating Council/ New York at

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

14 | Page 

### ]@51*(@.$nO#.$-'+A `<a 

### 9 $ G_#@A$U@A# ` 

### JG%PF$nO#.$d5*&# a 

### J

We adjust the heat rate to reflect a 3% increase as a result of the installation of a closed cycle cooling

system.

9. LBMP Calculation

We forecast the plants’ energy revenues between 2010 and 2035 using the EIA’s annual electricity

generation price forecasts for the New York region between 2008 and 2035. 30!! The EIA’s price estimates

are renormalized using the actual hourly electricity prices recorded at the New York ISO in 2008. 31 From

that point on, the NY ISO prices by zone in 2008 are assumed to grow at the annual rates forecasted by

the EIA until 2035.!!

The energy revenues are calculated by multiplying the forecasted hourly prices by the plants’ average

available generating capacities and estimated number of hours of operation in each year (see above).



## Results

Our results indicate that only one of the 25 operating plants will be closed by compliance with the

closed cycle cooling requirement alone.! ! Our results agree with the analysis in the draft of the BTA

policy's Appendix A that the unit most threatened by environmental compliance is the Oswego Steam

Station.! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! http://www.eia.doe.gov/oiaf/aeo/sup plement/index.htmlhttp://www.eia.do e.gov/oiaf/aeo/supplement/sup_elec

.xls

30 AEO 2010, New York Prices by Time Slice.!!! 31 NY ISO Day

" Ahead Market Locational

" based Marginal Prices (Zonal) for 2008 at http://mis.ny iso.com/public/P

"

2Alist.htm

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

15 | Page Table 2: Forecasted Impact of Closed Cycle Cooling System Implementation on Steam Plants in New York State!!

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

16 | Page The results are quite robust under a variety of modeling values.!! For example, even under the cap and

trade assumptions discussed below, the capital costs of environmental compliance would not cause an

additional closure unless increased by 41%.



## Economic Implications of the Closure of the Oswego Steam Station

The load resource balance in New York is summarized in Table V

" 2a of the 2010 Gold Book. 32!! The Gold

Book, an annual reference document prepared by the New York ISO, includes information on system

loads, specific generating resources, load resource balance, and transmission.

Table 3: New York Control Area Load / Resource Balance Forecast

The purpose of this table is to estimate whether the capacity resources in New York are sufficient to

meet projected requirements.! ! The structure of the table itemizes and totals all generating facilities.!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 32 2010 Load & Capacity Data, New York Independent System Operator, April 2010, page 72.

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

17 | Page The resource capability is compared to the base forecast.!! Finally, the reserve margin for New York is

calculated.

Although the estimates of acceptable reserve margins vary by jurisdiction, the acceptable range is 7% to

15%.! ! The lowest estimate in the 2010 Gold Book is a reserve margin of 26.9% in 2010.! ! This is

highlighted in yellow.

The Oswego Steam Station is the first resource in Table V

" 2a.!! It is quite easy to recalculate this table

assuming that this unit is retired in 2010.!! We also assume a 3% reduction in the capacity of plants which

have implemented closed cycle cooling systems.

Table 4: New York Control Area Load / Resource Balance Forecast Without Oswego Steam Station

The revised table indicates that there is no problem meeting a prudent reserve margin in New York after

the Oswego Steam Station is retired.!! The details from AEO 2010 corroborate the retirements in the oil

" SUMMER CAPABILITY 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Fossil Steam Turbine (Oil) 0 0 0 0 0 0 0 0 0 0 0

Steam Turbine (Oil & Gas) 7962.8 7962.8 7962.8 7962.8 7962.8 7962.8 7962.8 7962.8 7962.8 7962.8 7962.8

Steam Turbine (Gas) 1257.3 1257.3 1257.3 1257.3 1257.3 1257.3 1257.3 1257.3 1257.3 1257.3 1257.3

Steam Turbine (Coal) 2620.1 2620.1 2620.1 2620.1 2620.1 2620.1 2620.1 2620.1 2620.1 2620.1 2620.1

Combined Cycle 7996.4 8655.4 8655.4 8655.4 8655.4 8655.4 8655.4 8655.4 8655.4 8655.4 8655.4

Jet Engine (Oil) 521.9 521.9 521.9 521.9 521.9 521.9 521.9 521.9 521.9 521.9 521.9

Jet Engine (Gas & Oil) 161.1 161.1 161.1 161.1 161.1 161.1 161.1 161.1 161.1 161.1 161.1

Combustion Turbine (Oil) 1003.8 1003.8 1003.8 1003.8 1003.8 1003.8 1003.8 1003.8 1003.8 1003.8 1003.8

Combustion Turbine (Oil & Gas) 1573.8 1573.8 2086.3 2086.3 2086.3 2086.3 2086.3 2086.3 2086.3 2086.3 2086.3

Combustion Turbine (Gas) 1207.8 1207.8 1757.8 1849 1849 1849 1849 1849 1849 1849 1849

Internal Combustion 55.1 55.1 55.1 55.1 55.1 55.1 55.1 55.1 55.1 55.1 55.1

Pumped Storage Pumped Storage Hydro 1376.6 1406.6 1406.6 1406.6 1406.6 1406.6 1406.6 1406.6 1406.6 1406.6 1406.6

Nuclear Steam (PWR Nuclear) 2643.9 2643.9 2643.9 2643.9 2643.9 2643.9 2643.9 2643.9 2643.9 2643.9 2643.9

Steam (BWR Nuclear) 2628.1 2628.1 2628.1 2796.1 2796.1 2796.1 2796.1 2796.1 2796.1 2796.1 2796.1

Renewable Conventional Hydro 4177 4177 4177 4177 4177 4177 4177 4177 4177 4177 4177

Internal Combustion (Methane) 87.7 87.7 87.7 87.7 87.7 87.7 87.7 87.7 87.7 87.7 87.7

Steam Turbine (Wood) 87.1 87.1 87.1 87.1 87.1 87.1 87.1 87.1 87.1 87.1 87.1

Steam Turbine (Refuse) 245.7 245.7 245.7 245.7 245.7 245.7 245.7 245.7 245.7 245.7 245.7

Wind (6) 124.1 124.1 125.6 125.6 125.6 126.2 126.2 126.2 126.2 126.2 126.2

EXISTING GENERATING FACILITIES 35730.3 36419.3 37483.3 37742.5 37742.5 37743.1 37743.1 37743.1 37743.1 37743.1 37743.1

Special Case Resources

!"! SCR (3) 2251.0 2251.0 2251.0 2251.0 2251.0 2251.0 2251.0 2251.0 2251.0 2251.0 2251.0

Changes Additions 659.0 1064.0 91.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

CCC Capacity Decrease

" 699.0

" 699.0

" 699.0

" 699.0

" 699.0

" 699.0

" 699.0

" 699.0

" 699.0

" 699.0

" 699.0

Reratings 30.0 0.0 168.0 0.0 0.6 0.0 0.0 0.0 0.0 0.0 0.0

Retirements 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

NYCA RESOURCE CAPABILITY 37971.3 39035.3 39294.5 39294.5 39295.1 39295.1 39295.1 39295.1 39295.1 39295.1 39295.1

Contracts Net Purchases and Sales (1) (7) 1541.9 1228.2 1260.6 1951.6 1901.6 1901.6 1901.6 1901.6 1901.6 1901.6 1901.6

TOTAL RESOURCE CAPABILITY 39513.2 40263.5 40555.1 41246.1 41196.7 41196.7 41196.7 41196.7 41196.7 41196.7 41196.7

BASE FORECAST

Peak Demand Forecast 33025.1 33160.5 33367.3 33736.9 33897.0 34021.0 34193.1 34414.3 34672.3 34985.8 35333.7

Expected Reserve 6488.1 7103.0 7187.8 7509.2 7299.7 7175.7 7003.6 6782.4 6524.4 6210.9 5863.0

Reserve Margin % (4) 19.6 21.4 21.5 22.3 21.5 21.1 20.5 19.7 18.8 17.8 16.6

Proposed Resource Changes (2) 3.2 136.0 978.7 1637.6 1663.7 1558.4 1558.4 1558.4 1558.4 1558.4 1558.4

Adjusted Resource Capability 39516.4 40399.5 41533.8 42883.7 42860.4 42755.1 42755.1 42755.1 42755.1 42755.1 42755.1

Adjusted Expected Reserve 6491.3 7239.0 8166.5 9146.8 8963.4 8734.1 8562.0 8340.8 8082.8 7769.3 7421.4

Adjusted Reserve Margin % 19.7 21.8 24.5 27.1 26.4 25.7 25.0 24.2 23.3 22.2 21.0 MEGAWATT

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

18 | Page powered steam category, but are not reported on a unit by unit basis.!! For example, Table 77, Electric

Power Projections for EMM Region New York, indicates an 850 megawatt retirement in 2010. 33

The energy implications of the Oswego Steam Plant closure are also inconsequential.! ! In 2008, the

capacity factor of this unit was only 6/10ths of 1%.! ! Overall, our modeling indicates that it would be

dispatched at 1/10 of 1% over the next 25 years.



## The Economic Impact of Parasitic Losses

We use 3% as an estimate of the parasitic losses associated with the adoption of the closed cycle cooling

equipment.

This increase in the marginal cost of the 25 units will only affect prices during the brief periods in a year

when these units are on the economic margin.!! Unfortunately, there is incomplete information on how

often the 25 units are price

" setters.!! In 2008, the highest demand in New York was 32,432 megawatts

versus a total resource capability of 40,554,4. 34,35!! Of the 40,554.4 megawatts available to meet demand,

25,697.6 megawatts were provided by plants identified in the CP

" nn / Best Technology Available (BTA)

for Cooling Water Intake Structures policy.

Economic theory leads us to presume the placement of a plant in the dispatch order will be based on its

marginal cost.!! The chart below shows a hypothetical energy supply curve based on five power plants

–

each with a capacity of 100 megawatts:!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 33 AEO 2010, Electricity Generation & Renewable Resources: Table 77 Electric Power Projections for EMM Region

Northeast Power Coordinating Council/ New York at

http://www.eia.doe.gov/oiaf/aeo/sup plement/index.htmlhttp://www.eia.do e.gov/oiaf/aeo/supplement/sup_elec

.xls

34 2010 Gold Book, page 20.

35 2008 Gold Book, page 66.

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

19 | Page If the energy demand is 300 megawatts, the price setting unit would be the one whose marginal cost is

$30/MWh.!! Small shanges in marginal costs for other units will not affect prices.!! There will be no impact

on price for the fourth and fifth plants since their energy is not called upon.!! By the same token, the first

two plants’ marginal costs will not have an impact on price, since it is the third plant whose bid sets the

market price.!! If demand follows the usual bell

" shaped curve, the plants on the tails of the distribution

wil have a smaller chance of setting the price.!! In the chart above, the third plant with a marginal cost of

$30.00/MWh will set the price 40.7% of the year.!! The fifth plant will only set prices 14.2% of the year.

Extending this approach to marginal costs and prices experienced in 2010 produces the following chart: $

" $10.00 $20.00 $30.00 $40.00 $50.00 $60.00

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00%

50 100 150 200 250 300 350 400 450 500$/MWhFrequencyofSettingPrice

Megawatts 

# Energy Supply Curve

MW Probability of Setting Price

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

20 | Page Prices in New York are not normally distributed.!! The chart shows that the probability of setting prices

varies dramatically between units.!! Units with low marginal costs, i.e. New York’s nuclear stations, are

seldom on the margin, so the 3% increase in their marginal costs will have little impact on market prices.!! By the same token, many of the plants with high marginal costs rarely set market prices, so their impact

is minimal as well.

Weighting the incremental marginal cost by the probability that each specific plant will set prices at the

New York ISO indicates that the impact on energy prices in New York will be slightly less than $1/MWh

in 2010.! ! The most recent data on electric prices indicates that consumers paid $151.70/MWh in

February 2010. 36!! The impact on consumers will be less than 1%.



## Cap and Trade, CLEAR, or EPA Rule Impacts

The current state of public policy on carbon emissions is in some disarray.!! Recent press reports indicate

that the Kerry Lieberman bill is unlikely to pass in 2010. 37! ! Even if passed, the bill is unclear on the

operation of the mechanics; hence, modeling its impact on New York is problematic. Similarly, other

rules in progress could require additional investment, particularly for coal

" fired plants.! ! Given the

potential impact on the units under study that are fueled by coal is important, however.! ! Because a

prudent entrepreneur would evaluate both the cost of environmental upgrades and the potential for a

significant surcharge on carbon in deciding whether to keep a plant open, we explore a scenario that!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 36 See http://www.eia.doe.gov/cneaf/e lectricity/epm/table5_6_a.html

37 “Senate Gets a Climate and Energy Bill, Modified by a Gulf Spill That Still Grows”, The New York Times, May 12,

2010 at http://www.nytimes.com/2010/05/ 13/science/earth/13climate.html $

" $20.00 $40.00 $60.00 $80.00 $100.00 $120.00

0.00% 5.00% 10.00% 15.00% 20.00%4606801,2922,2244,1254,7115,4416,1287,6928,12910,50111,15611,47912,72114,06715,17715,29615,45817,98418,91019,23221,85722,73923,299$/MWhProbabilityofSettingPrice

Megawatts 

# Energy Supply Curve

Price Probability of Setting Price

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

21 | Page assumes that the price of coal will approximate the price of natural gas under cap and trade or one of its

alternatives.!! This effectively more than doubles the cost of fuel to the coal units.!!

Given our assumption, an additional unit, C.R. Huntley, would close.!! The combination of a significant

surcharge to fuel costs for carbon, plus the implementation of a closed cycle cooling system, reduces the

expected income of this plant

– net cooling capital and O&M expense

– to less than zero.

Repowering or replacing C.R. Huntley with a comparable combined cycle natural gas plant would result

in decreased air emissions and would generate 51% fewer CO 2 emissions, from 2,073,693 tons in 2009,

to 1,017,194 tons annually. 38! ! SO 2 emissions would decrease 99%, from 6,018 tons in 2009, to 5 tons

annually and NO

x emissions would decrease 88%, from 1,541 tons to 192 tons annually. 39!! These results

appear in Table 5.

Table 5: Repowering C.R. Huntley emissions data

As a result of repowering C.R. Huntley, total emissions of CO 2 , SO 2 and NO

x from the 25 plants studied

would drop 4%, 15%, and 7%, respectively from their 2009 levels.! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 38 Emissions Calculations are based on 2009 EPA data on emissions from combined cycle natural gas plants that

came on

" line in 2008; see http://camddataandm aps.epa.gov/gdm/index.cfm? fuseaction=emissions.wizard

39 The change in SO 2 and NO

x emissions, while dramatic, is consistent with a combined cycle natural gas plant; see!! http://docs.google.com/viewer?a=v&q=cach e:hhoExZMt2RoJ:www.ne tl.doe.gov/energy

" analyses/pubs/deskreference/B_NGCC_051507.pdf+SO2+ combined+cycle&hl=en&gl=us &pid=bl&srcid=ADGEESgth

w4Pa5e03

" wXo1Dc1PIiMKzaPimeGlfBnA0W9fyl5irFAqXzc3lrmK3 bp_eMyx3AacKk2Paaf0RDBdEOGE5HGhUPjELGbTrZgh2WULF

EFifPZrTG5xozyd

" g0cwVgFfoIsPN&sig=A HIEtbTBFNPxMs9MN84 byGbnZiZi1rc_cQ

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

22 | Page Table 6: Forecasted Impact of Closed Cycle Cooling System Implementation on Steam Plants in New York State Under the Cap and Trade

Scenario!!

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

23 | Page At higher fuel costs, the affected coal units are on the margin for fewer hours over the year.! ! This

reduces the wholesale price impact on consumers significantly.

After assuming that coal prices per mmbtu equal natural gas prices, the 2010 impact on wholesale prices

is only $.76/MWh.



## Renewable Portfolio Standards

In 2004 the New York Public Service Commission issued a renewable portfolio standard (RPS) with the

goal of increasing the percentage of electricity from renewable sources to at least 25% by the end of

2013. 40!! As of 2009 more than 1,164 MW of renewable capacity had been contracted, as evidenced by

the additional generation capacity cited by the 2010 NYISO Gold Book. 41!! This program is funded by a

premium charged to electricity customers.! ! NY PSC specified an escalating annual collection schedule

totaling $741.5 million.!! One possible effect of the closure of the Oswego plant (as well as the Huntley

plant under the cap and trade scenario) would be to facilitate the achievement of the RPS goal by

reducing the amount of available capacity.! ! Since many renewable technologies provide low marginal

cost energy, the increasing renewable sector is likely to reduce the rate impact to consumers.!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 40 New York Renewable Portfolio Standard Program Evaluation Report, New York State Energy Research and

Development Authority, 2009 at

http://www.nyserda.org/Energy_Inf ormation/NY%20Renewable%20Portfo lio%20Standard%20Program%20Evalua

tion%20Report%20%282009%20Review%29

" FINAL.pdf

41 2010 Load & Capacity Data, New York Independent System Operator, April 2010, page 63. $

" $20.00 $40.00 $60.00 $80.00 $100.00 $120.00

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00%6122,9844,8865,7686,4239,0489,3709,90810,46812,03212,19412,31312,89913,22113,95114,63815,57015,79017,13617,19118,30118,76120,003$/MWhProbabilityofSettingPrice

Megawatts 

# Energy Supply Curve Under Cap and Trade

Price Probability of Setting Price

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

24 | Page 

# Appendix A: Glossary

AEO: Annual Energy Outlook produced by U.S. Department of Energy’s Energy Information

Administration

Ancillary Services: Necessary services that must be provided in the generation and delivery of electricity.

As defined by the Federal Energy Regulatory Commission, they include: coordination and scheduling

services (load following, energy imbalance service, control of transmission congestion); automatic

generation control (load frequency control and the economic dispatch of plants); contractual

agreements (loss compensation service); and support of system integrity and security (reactive power,

or spinning and operating reserves)!!

Baseload: The minimum amount of electric power delivered or required over a given period of time at a

steady rate

Baseload Capacity: The generating equipment normally operated to serve loads on an around

" the

" clock

basis

Baseload Plant: A plant, usually housing high

" efficiency steam

" electric units, which is normally operated

to take all or part of the minimum load of a system, and which consequently produces electricity at an

essentially constant rate and runs continuously; these units are operated to maximize system

mechanical and thermal efficiency and minimize system operating costs

Beta ( # ): Describes a particular asset’s returns in relation to the financial market as a whole; an asset

with a positive beta is generally positively correlated with the market!!

British Thermal Unit (BTU): Amount of heat required to increase the temperature of a pint of water

(weighing exactly 16 ounces) by one degree Fahrenheit; describes both the amount of heat energy in

fuels and the ability of appliances and air conditioning systems to produce heating or cooling

Cap and Trade: Program enacted to promote environmentally

" friendly policies by mandating emissions;

the emissions allowance is strictly controlled and must not exceed a predetermined cap amount;

emissions permits are provided to businesses, and are capped by government; businesses are able to

transfer these permits to other capped businesses if the business determines that it will not need all the

permits provided

Capacity: Amount of electric power delivered or required for which a generator, turbine, transformer,

transmission circuit, station, or system is rated by the manufacturer

Capital Asset Pricing Model (CAPM): Standard model in finance that describes the relationship between

expected return and risk of an asset

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

25 | Page Carbon Tax: A direct tax on greenhouse gas emissions to encourage companies to curb their emissions

and protect the environment

Combined Cycle: An electric generating technology in which electricity is produced from otherwise lost

waste heat exiting from one or more gas (combustion) turbines; the exiting heat is routed to a

conventional boiler or to a heat recovery steam generator for utilization by a steam turbine in the

production of electricity; the process increases the efficiency of the electric generating unit!!

Combined Cycle Unit: An electric generating unit consisting of one or more combustion turbines and one

or more boilers with a portion of the required energy input to the boiler(s) provided by the exhaust gas

of the combustion turbine(s)!!

Cost of Capital: Cost of obtaining capital for long

" term investment in plant and equipment; the cost of

obtaining it is usually expressed as a percentage of the amount of capital obtained

Cost of Debt: Average annual rate at which a company pays out interest on its total outstanding long

"

term debt, i.e. the ratio of its total interest expenditures in a given year to its total outstanding long

"

term debt in that year

Cost of Equity: The market required rate of return on a company’s outstanding shares!!

Day

" Ahead Market: The forward market for energy and ancillary services to be supplied during the

settlement period of a particular trading day that is conducted by the Independent System Operator, the

power exchange, and other scheduling coordinators; the market closes with the ISO's acceptance of the

final day

" ahead schedule

Day

" Ahead Schedule: A schedule prepared by a scheduling coordinator or the ISO before the beginning

of a trading day; this schedule indicates the levels of generation and demand scheduled for each

settlement period that trading day

Distribution Cost: The cost of distributing electricity to the ultimate consumer

Electric Quarterly Report (EQR): Quarterly reports filed at FERC by public utilities and power marketers

that summarize the contractual terms and conditions for market

" based power sales, cost

" based power

sales, and transmission services!!

Federal Energy Regulatory Commission (FERC): A quasi

" independent regulatory agency within the U.S.

Department of Energy having jurisdiction over interstate electricity sales, wholesale electric rates,

hydroelectric licensing, natural gas pricing, oil pipeline rates, and gas pipeline certification!!!

Fuel Costs (Fuel Expenses): Costs including the fuel used in the production of steam or driving another

prime mover for the generation of electricity; other associated expenses include unloading the shipped

fuel and all handling of the fuel up to the point where it enters the first bunker, hopper, bucket, tank, or

holder in the boiler

" house structure!!

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

26 | Page Generator: A machine that converts mechanical energy into electrical energy; can also refer to the

entire generation facility (also see Plant)

Grid: The layout of an electrical distribution system!!

Heat Rate: A measure of plant efficiency expressed as the ratio of the total fuel consumption in mmbtus

to net generation in MWhs

Locational

" based Marginal Price (LBMP): value in dollars per megawatt

" hour of energy injected into the

grid at a particular location

Marginal Cost: The variable costs of labor and materials!! and an estimated portion of fixed costs such as

administration overheads and selling expenses

Marginal Fuel Cost: the product of fuel prices forecasted by the EIA and the plants’ corresponding heat

rates as calculated by the EIA

Megawatt (MW): One million watts

Megawatt

" hour (MWh): One million watt hours

MMBtu (mmbtu): A thousand thousand BTUs

Nameplate Capacity: The rated output of a generator under specific conditions designed by the

manufacturer (usually indicated on a physical nameplate attached to the generator)

New York Independent System Operator (NY ISO): The independent, non

" profit organization that

coordinates regional transmission in a non

" discriminatory manner and ensures the safety and reliability

of the electric system and that is regulated by the federal government (FERC)

North American Electric Reliability Corporation: The self

" regulatory organization subject to oversight by

FERC and governmental authorities in Canada that ensures the reliability of the bulk power system in

North America

O&M: Self

" explanatory; operations and maintenance is a term of industry!!

Outage: The period during which a generating unit, transmission line, or other facility is out of service,

due to an emergency, maintenance, etc. (outages can also be scheduled)

Parasitic Loss: Reduction in energy and capacity caused by environmental compliance; in this case, the

energy cost of closed cycle cooling equipment

Plant: A facility at which are located prime movers, electric generators, and auxiliary equipment for

converting mechanical, chemical, and/or nuclear energy into electric energy; a plant may contain more

## The Economics of Closed Cycle Cooling in New York

Robert McCullough

June 3, 2010

27 | Page than one type of prime mover; electric utility plants exclude facilities that satisfy the definition of a

qualifying facility under the Public Utility Regulatory Policies Act of 1978

Power: The rate at which energy is transferred; electrical energy is usually measured in watts; also used

for a measurement of capacity

Renewable Resources: Naturally, but flow

" limited resources that can be replenished, and are virtually

inexhaustible in duration but limited in the amount of energy that is available per unit of time; some

(such as geothermal and biomass) may be stock

" limited in that stocks are depleted by use, but on a time

scale of decades, or perhaps centuries, they can probably be replenished; renewable energy resources

include: biomass, hydro, geothermal, solar and wind; in the future, they could also include the use of

ocean thermal, wave, and tidal action technologies; utility renewable resource applications include: bulk

electricity generation, on

" site electricity generation, distributed electricity generation, non

" grid

"

connected generation, and demand

" reduction (energy efficiency) technologies

Tax

" Adjusted Real Discount Rate: The tax

" adjusted interest rate at which an agent discounts future

events in preferences in a multi

" period model

Total Marginal Cost: The sum of Marginal Fuel Cost and O&M costs

Uplift payments: Payments made to ensure reliable and economic unit commitment

Watt: The electrical unit of power; the rate of energy transfer equivalent to 1 ampere flowing under a

pressure of 1 volt at unity power factor

Weighted Average Cost of Capital (WACC): Cost of acquiring debt and/or equity capital, computed on

the basis of interest rate, income tax rate, and return on equity goal; usually expressed as a percentage,

it is used as a discount rate to determine present value of specific investments

Weighted Equivalent Availability Factor (WEAF): Maximum hours of operation of any plant is limited to

the fraction of hours in a year equal to the Weighted Equivalent Availability Factor; Equivalent

Availability Factor (EAF) is a weighted average of the percentage of full energy production capacity

achievable

Zone: A defined region of a wholesale electricity market in which one price is set for electricity produced

in that zone

From various sources including http://www.eia.doe.gov/cneaf/e lectricity/page/glossary.html