Mohawk Valley Project. Response to The New York Energy Highway Request for Information

Transcription

1 Mohawk Valley Project Response to The New York Energy Highway Request for Information May 30, 2012

2 Table of Contents I. Executive Summary...3 II. Respondent Information...4 III. Project Description...5 IV. Project Justification...6 Economic Benefits Energy...7 Economic Benefits Capacity...10 Economic Benefits Socio-Economic...10 Jobs...10 Clean Energy...11 Technology Benefits...11 Operational / Reliability Benefits...12 V. Financial / Cost Recovery...13 Cost Recovery...13 Market-Based Transmission Projects...14 Regulated Transmission Projects...15 Reliability Projects...15 Economic Transmission Projects...15 Conclusion...16 VI. Permit / Regulatory Approval Process...16 VII. Additional Information...17 Property...17 Projected In-Service Date and Project Schedule...17 Interconnection...17 Construction...19 Environmental...20

3 American Electric Power Company, Inc. 1 Riverside Plaza Columbus, OH Contact: Robert Bradish Vice President Transmission Grid Development Tele: (614) RWBradish@aep.com I. Executive Summary On behalf of American Electric Power Company, Inc. (AEP), and its subsidiaries, we are pleased to submit the Mohawk Valley Project in response to the New York Energy Highway RFI. The Mohawk Valley Project is a high voltage direct current (HVDC) electric transmission line designed to transmit 1,000 megawatts (MW) of economical and renewable generation from Utica in upstate New York to the primary load areas in southern New York and New York City, a distance of 250 miles. The Mohawk Valley Project accomplishes New York Governor Andrew Cuomo s Power New York objectives of using supply-side energy imperatives to provide facilities that transport low-cost, renewable energy generated in upstate New York to load centers downstate in the following ways: The project directly injects power into the existing transmission grid, reducing the current constraints on the flow of electricity to the downstate area. The project promotes energy independence for New York by facilitating the transport of economical and reliable wind and solar generated power within the state. The project also spurs economic investment in new generating sources and enriches clean energy initiatives. By injecting power directly into the targeted load area, the project will reduce power flows on critical transmission facilities, thereby increasing overall system reliability and facilitating the rebuild of the existing transmission infrastructure. AEP engaged Charles River Associates (CRA) to perform a high-level evaluation of the project and its impact on energy, capacity, and socio-economic factors. CRA estimates that: The project would reduce the costs of electric energy to ratepayers in New York by $70 to $130 million in The cost of installed capacity (ICAP) would be $538 million lower in 2018, primarily due to a reduction in New York City ICAP prices. The proposal offered by AEP will use ABB s HVDC Light converter technology, the most advanced HVDC technology available. This technology is the best solution for high-capacity power transmission underground and under water over long distances, ensuring high reliability of the power grid and minimal environmental and aesthetic impacts. AEP envisions that in the future the project will add connection points, supporting further transmission of economical and renewable generation from upstate New York to load pockets in southern New York and New York City. Additionally, AEP will consider provisions to double the capacity of the project to accommodate future load increases. To minimize environmental and visual disturbances, the proposed transmission line will utilize existing transportation, pipeline, and electrical corridors for the underground HVDC transmission line, except where engineering or environmental constraints require under water or aerial transmission. All options will examine the use of existing infrastructure rights-of-way to identify the optimal route with the least aesthetic and environmental impact. Submitted by American Electric Power Company, Inc. May 30, 2012 Page 3 of 20

4 AEP anticipates that the New York Independent System Operator (NYISO) Comprehensive System Planning Process to categorize the Mohawk Valley Project as a market-based transmission solution, therefore we intend to file as a merchant developer at the Federal Energy Regulatory Commission (FERC) for negotiated rate authority to sell transmission rights of the project. II. Respondent Information American Electric Power, Inc. 1 Riverside Plaza Columbus, OH Contact: Robert Bradish Vice President Transmission Grid Development Tele: (614) RWBradish@aep.com Founded in 1906, American Electric Power (AEP) has been a leader in the development of transmission technology since the earliest days of our history. AEP owns the nation's largest electricity transmission system, a nearly 39,000-mile network with voltage levels ranging from 23 kilovolts (kv) to 765 kv, and supported by an annual Transmission budget of over $1.5 billion. AEP's transmission system directly or indirectly serves about 10 percent of the electricity demand in the Eastern Interconnection and approximately 11 percent of the electricity demand in the Electricity Reliability Council of Texas (ERCOT). AEP energized the first long-distance transmission line in 1917, connecting a mine-mouth power plant with a major load center. Since that time, the company has pioneered advanced technologies in electric power transmission, generation, distribution, and grid operations. We operate the largest fleet of flexible alternating current transmission system (FACTS) devices, including back-to-back HVDC and static VAR systems, in the country. (See Appendix A for photos of AEP installations.) AEP employs 35 project managers, 300 engineers and 60 planners to manage its 11-state system. While, we have one of the largest transmission and distribution engineering groups in the nation, we are able to supplement our internal engineering and project construction management expertise with contract staff and engineering firms. Our centralized planning organization has decades of experience in meeting the long-term challenges of the transmission system. Our expertise enables us to independently analyze the impact of changes in supply and demand fundamentals on the transmission system from both a regional and national perspective. AEP risk management experts consistently implement environmental mitigation requirements, ensure project security, manage project safety, and assure project quality. AEP believes no aspect of our operations is more important than the health and safety of our employees and contractors. We endeavor to be a world class leader in all aspects of our operations, especially safety and health, and strive for a zero harm culture. As the nation s leading transmission provider and one of its largest utilities, AEP has significant purchasing power, enabling us to leverage an extensive network of vendors for efficiencies in pricing. We cultivate major vendors to meet our exacting engineering and manufacturing standards and reserve shop space for materials prior to purchase to meet project needs. AEP has been at the forefront of efforts aimed at modernizing the electrical grid within our service territory, across the Eastern Interconnection and in ERCOT. These efforts resulted in numerous collaborative transmission studies and electric transmission joint ventures with likeminded utilities and partners. AEP currently owns or is developing transmission projects in 15 states. Long-term, joint ventures outside the corporate footprint with Great Plains Energy, MidAmerican Holding Company, Duke Energy, Exelon, and Westar Energy provide reliability, economic, and public policy benefits in a cost effective manner. The largest among these is our $1.5 billion investment in the Texas Competitive Renewable Energy Zones (CREZ) project through Electric Transmission Texas, a joint venture with Submitted by American Electric Power Company, Inc. May 30, 2012 Page 4 of 20

5 MidAmerican. The project includes construction of 16 substations, several FACTS devices, and 465 miles of transmission lines to deliver Texas wind energy to markets in the ERCOT region. AEP views this Request for Information as an opportunity to demonstrate our expertise to the state of New York and to continue to be a leader in modernizing the electrical grid and developing clean, renewable energy resources. III. Project Description The proposed Mohawk Valley Project is a 250-mile, ±320 kv high-voltage direct current (HVDC) transmission line capable of transmitting 1,000 MW of electric power within the New York Independent System Operator (NYISO) system. The underground line will originate near Utica, New York (Oneida County) in NYISO Zone E Mohawk Valley and terminate within the New York City metropolitan area at NYISO Zone J New York City. The HVDC line route will utilize existing public rights-of-way as much as possible. Near New York City, the line will follow existing rights-of-way along transportation infrastructure or will be submerged within the city s natural waterways. The project is anticipated to be constructed and in-service by A map of the proposed project is included in Appendix B. Respondent Project Name Project Type Terminus Points Length American Electric Power Company, Inc. Mohawk Valley Electric Transmission Utica, NY Oneida County / greater New York City 250 miles Technology High voltage direct current 1 Topography Capacity Voltage NYISO Zones Underground (under water or aerial, if required by engineering or environmental constraints) 1000 MW ± 320 kv (symmetric monopole circuit) Mohawk Valley / New York City In-service Date 2018 The northern terminus will connect with the existing Marcy Substation via a 345 kv line from the AC/DC converter station. The southern terminus will connect via a new DC/AC converter station and 1 Supplemented with 345 kv connections to existing transmission infrastructure Submitted by American Electric Power Company, Inc. May 30, 2012 Page 5 of 20

6 transformation to a new 345 kv AC gas-insulated substation (GIS). 2 One 345 kv circuit consisting of twin 345 kv AC cables are proposed to connect from the new GIS station to an existing 345 kv substation. The project will utilize ABB's HVDC Light technology. (Appendix C is an ABB brochure that explains the benefits of this technology. )The AC/DC conversion is carried out in a voltage source converter (VSC) station using high voltage electronic semiconductor valves. The HVDC cables, also manufactured by ABB, will be extruded polymer (non-oil) insulated and directly buried underground or under water. This advanced HVDC transmission technology has been deployed in many applications around the world, including the Murraylink project in Victoria, Australia 3. Connections to existing substations will be made via traditional 345 kv AC transformers and circuit breakers commonly used by electric utilities. The Mohawk Valley Project will serve as a new transportation path for electricity within NYISO. Although its additional transfer capacity will allow greater utilization of efficient, renewable and economic electric generation in upstate New York, the route can carry power from any generation source. By providing access to large load centers in metropolitan New York City, the project will encourage development of new sources of generation. IV. Project Justification The Mohawk Valley project will facilitate delivery of excess generation, including renewable resources, located in upstate New York to the major load centers in southern New York State and the New York City metropolitan area. Up to 1,000 MW of existing and planned generation resources will be made available. The project bypasses points of congestion on the existing transmission grid, which today forces transmission system operators to run less efficient and higher cost generating units located downstate in order to maintain reliability. The additional resources will lower energy prices, in particular for the New York City area. The project supports the Governor s goal of more efficient use of the state's existing generation resources, which will make the state of New York more energy self-sufficient. In addition, as less efficient, higher polluting power plants are retired, the project enables new, more diverse generation resources, including renewable resources such as wind generation, to be constructed in less populated areas while still providing reliable energy to the major load centers. The Mohawk Valley project is anticipated to provide important economic benefits to New York: lower energy costs, lower capacity costs, preparation for future energy demand growth, and socio-economic benefits such as jobs and clean energy development. With a direct connection from upstate New York to New York City that is not constrained by the existing electric transmission infrastructure, the Mohawk Valley project provides New York City with a virtual power plant without the need for a significant local footprint. Several studies, including those by NYISO, demonstrate the economic benefit of providing increased transmission capability across key interfaces in the New York electricity market. To verify and provide context for how the Mohawk Valley project fits into the state's long-term transmission strategy, AEP 2 AEP considered termination at either West 49th Street or the Rainey 345 kv stations to compute the benefits of this proposal. 3 The Murraylink project is a 220 MW interconnector between the Riverland in South Australia and Sunraysia in Victoria. It is a 180 kilometer underground high-voltage power link and is believed to be the world s longest underground transmission system. ABB has provided a complete HVDC Light transmission system, made up of high-tech extruded cables buried in the ground, with a HVDC Light converter station at each end of the link. Murraylink Transmission Company Pty. (TransÉnergie Australia), is a subsidiary of TransÉnergie, the transmission division of Hydro-Québec, Canada. It is now owned by Energy Infrastructure Investments consortium and operated by the APA Group. Submitted by American Electric Power Company, Inc. May 30, 2012 Page 6 of 20

7 engaged Charles River Associates (CRA) to perform a high-level evaluation of the project and its impact on energy, capacity, and socio-economic factors (see Appendix D). In the interest of time, the scope of the CRA analysis was limited to evaluating a single year, 2018, and only two scenarios: (1) low-wind (business as usual), which assumed wind generation only with signed interconnection agreements and (2) high-wind, which included an additional 2.4 GW of wind generation from the NYISO generation queue. As such, the results are not directly comparable to NYISO and other publically available economic analyses. However, the results demonstrate the relative value of the project based on objective economic metrics that directly impact energy costs for consumers. The analysis may actually understate the total benefits of the project. Should the project move forward in this process, AEP will perform more detailed studies to more completely quantify the benefits of the project. Supports Job Growth Encourages Renewable Generation Development (2,400 MW of additional renewable resources can be integrated) (Up to 20,000 man-years) Enhances Grid Efficiency (Reduces average LMP price by up to $0.75/MWh) Utilizes Advanced Technology (Limited line losses, controllable resource) Mohawk Valley Project Maximizes Ratepayer Value (Ensures system reliability, provides reduction in load payments of between $70 - $130 million/year) Environmental Sustainability (Minimal construction impact, connects renewable resources) Economic Benefits Energy From an energy market perspective, the primary benefits of the Mohawk Valley project are derived in the form of reduced congestion costs and lower production costs. The project would mitigate congestion costs across key NYISO constrained transmission zones. The constrained areas between upstate New York and downstate New York and New York City limit the flow of low-cost upstate electric generation to Submitted by American Electric Power Company, Inc. May 30, 2012 Page 7 of 20

8 downstate markets. The result is a significant price separation between upstate and downstate New York/ New York City. In addition, these congested interfaces are essentially in series in the same path. While fixing one constraint would allow more economical power to flow, that energy would inevitably be constrained by the next constraint downstream. The Mohawk Valley project would bypass all of the major constraints and provide a path directly into New York City, giving access to low-cost generation and reducing congestion for southern New York and the New York City metropolitan area customers. The Mohawk Valley project traverses transmission corridors identified as top congested facilities by NYISO in the recent Congestion Assessment and Resource Integration Study (CARIS) issued in April 2012 and shown in Figure 1 below. 4 Figure 1 As part of CARIS, NYISO identified three top congested facilities in the state of New York based on both historic and projected trends. To identify the best resolution for congestion, NYISO examined generic transmission, generation, and demand response and energy efficiency solutions to determine the type of solution that offers most benefits when compared with its cost. In the most recent CARIS report, NYISO ratifies the fact that transmission is the best solution to resolve most congestion in New York State as demonstrated in Figure 2. According to NYISO, transmission solutions increased savings in production cost 5 in New York Control Area by $350 million, $208 million, and $154 million respectively for each identified corridor NYCA-wide Production Cost Savings = NYCA Generator Production Cost Savings ΣΣ [ (Import/Export Flow) Solution (Import/Export Flow) Base ] x Proxy LMP Solution Submitted by American Electric Power Company, Inc. May 30, 2012 Page 8 of 20

9 NYISO utilizes production cost savings as the primary metrics when determining the benefits of solutions. Production cost savings improve when a solution relieves congestion barriers and ensures an equal playing field for all generation in a control area, thus enabling more efficient, less costly generation to run. Figure 2 AEP s proposed project parallels all three transmission corridors identified by NYISO as congested, and therefore offers benefits beyond the generic transmission solutions identified by NYISO. Furthermore, the Mohawk Valley Project offers savings not only in production cost, but also reduces imports into New York State, reduces the magnitude of load payments, and lowers the average locational marginal prices (LMP). Though simplified, the CRA analysis verifies the expected benefits. The general benefits for 2018 include: The Leeds-Pleasant Valley interface is congested for nearly 600 fewer hours per year. The Dunwoddie-South interface is congested for approximately 1,500 fewer hours per year. The project is expected to decrease the average LMP within New York City (Zone J) by approximately $1.77 $2.33 per megawatt-hour, and for NYISO as a whole by $0.41 $0.75 per megawatt-hour. The project reduces costs to load by approximately $70-$80 million per year in a business-as-usual case, and approximately $120-$130 million per year considering increased renewable energy use. These benefits also increase as more wind is included upstate. The results for NYISO as a whole are summarized in Table 1 for both the low-wind and high-wind scenarios. Please note that the benefits reflected are expected only in year The accumulative impact of the project over its life span is expected to be far greater. Where Proxy LMP Solution is the LMP at one of the external proxy buses; (Import/Export Flow) Solution (Import/Export Flow) Base represents incremental imports/exports with respect to one of the external systems; and the summations are made for each external area and all simulated hours. Submitted by American Electric Power Company, Inc. May 30, 2012 Page 9 of 20

10 Reduction in Imports into New York State ($-millions) Reduction in Load Payments ($-millions) Reduction in Average Wholesale LMP ($/MWh) Connection at West 49 th Street 6 Connection at Rainey Connection at West 49 th Street Connection at Rainey Connection at West 49 th Street Connection at Rainey Low Wind $26.2 $17.4 $70.6 $79.3 $0.41 $0.46 High Wind $43.1 $13.2 $120.6 $129.5 $0.70 $0.75 Economic Benefits Capacity Table 1 Due to transmission limitations into southern New York and the New York City metropolitan area, the current New York City minimum locational capacity requirement (LCR) is 83.9% for May 2012 April New York City must have in-city generation resources equal to 83.9% of its expected peak load. The Mohawk Valley Project would increase the generation import capability to the southern New York and New York City metropolitan area by bringing up to 1,000 MW of electric generation into the New York City metropolitan area. This would lower the current minimum LCR and therefore provide savings to ratepayers. The nature of the HVDC project is such that it will provide New York with a virtual power plant connecting generation resources in upstate New York directly with the New York City metropolitan area. The CRA analysis estimates that the cost of New York's installed capacity (ICAP) would be $538 million lower in 2018 primarily due to a reduction in the New York City ICAP prices. In addition, the project lowers the state-wide capacity requirement by approximately 200 MW due to the ability to better utilize and share existing resources. These capacity cost savings will have a direct benefit to customer bills. The Mohawk Valley project will play a key role in maintaining sufficient capacity going forward, helping the industry maintain pace with an increased societal reliance on reliable electricity supply. As energy demand grows, the project will provide the substantial additional capacity needed to serve customer needs in critical areas. The project is projected to displace the need for new capacity at least through 2020, thus avoiding the need to build new plants in the already congested areas around New York City. Combined with other energy efficiency efforts and demand response initiatives, this date could be extended further into the future. Economic Benefits Socio-Economic Jobs As with any major infrastructure project, there are employment opportunities created by constructing and operating a new transmission line, as well as opportunities from developing additional renewable generation resources. Both of which are facilitated by the Mohawk Valley project. These employment benefits result not only from the direct construction and operations jobs that are created, but also through jobs created from the supply chain and the local services sector. 6 West 49th Street and Rainey 345 kv stations were used to compute the benefits of this proposal. Other locations will be considered for the project. Submitted by American Electric Power Company, Inc. May 30, 2012 Page 10 of 20

11 The direct benefits attributed to the project are related to the construction and operation of the line. AEP anticipates using the New York state based resources, which will create local employment opportunities in construction, materials sourcing, manufacturing, environmental mitigation, operations, and maintenance. As shown in the CRA analysis, the project would result in 4,000-7,000 man-years of additional employment in New York State during (direct and indirect jobs). In addition, the project will facilitate further development of renewable generation resources within New York, which could create additional employment opportunities for New York companies and workers. An additional 2.4 GW of wind built as a result of the project would be an additional 13,000 man-years of employment associated with wind development in Clean Energy New York State has a large wind resource capability, with about 1,400 MW in service and connected to the grid and additional projects in various stages of development. These are utility-scale wind projects located primarily in upstate New York and on the northern side of the major transmission constraints previously identified. The project would enable the efficient transfer of wind generation from the areas in upstate to markets in southern New York and New York City. Over time, without new transmission capability, wind development in upstate New York will exacerbate constraints and increase congestion. The congestion will result in the curtailments of wind resources, thus eliminating the benefit of these resources. As shown in the CRA analysis, the project would allow at least 2,400 MW of additional wind energy to connect to the system, and more of that wind to move to load pockets downstate. Relative to the low-wind case, in the high-wind case the downstate/upstate price separation increases because of the additional wind, which reflects increased congestion. The project s positive impact on LMPs, load payments and adjusted production cost is greater in the high-wind case since the project relieves more congestion. In other words, the value of the project becomes greater as more wind generation is connected to the system. As the project facilitates the unconstrained operation of renewable generation resources in upstate New York, this will contribute to the reduction in the New York state's carbon footprint. Technology Benefits The Mohawk Valley project proposes a 250 mile transmission line using voltage source converter (VSC) based HVDC technology. The anticipated rating is 1000 MW at +/-320 kv DC. The project will use subterranean and submarine power cables, which offer numerous environmental and aesthetic benefits. The power line will not be visible, cables will be made of solid dielectric materials free of oil, and converter substations would require a small footprint. (See Appendix E for photos of converter station.) VSC based HVDC technology was first introduced in Many subterranean and submarine transmission projects up to 500 MW are already in commercial operation and more are under construction world-wide, including European projects with ratings similar to this proposed project. As this project is developed, greater capacity solutions can be considered as technology advancements enable increased equipment ratings. A second identical circuit could also be quite economical if it is constructed concurrently along the same route. The proposed project aligns well with the stated New York Energy Highway objectives. The proposed project will reduce power flow constraints and expand downstate power source diversity. Due to its inherent reactive power support characteristics, VSC based HVDC technology is particularly well suited to connect remote generation resources into urban load centers. The unique characteristics of VSC technology allows the power grid to mimic the performance of a generator at its delivery point, without a Submitted by American Electric Power Company, Inc. May 30, 2012 Page 11 of 20

12 new generating plant having to be constructed at that location and with a much smaller footprint. In addition to creating a virtual power plant within the city, it also provides fine power flow control. The HVDC Light technology proposed for this project offers an effective solution for high capacity transmission over long distances. VSC based HVDC transmission creates a convenient bypass for electric delivery from a remote location directly to the city, relieving congestion along other power delivery paths downstate and into the city. The technology can be installed quickly and provides an alternative to or complement to conventional transmission systems and local generation. As a result, diverse resources from remote locations are better able to be delivered downstate. The proposed technology will assure long term reliability and flexibility while increasing right of way utilization. The proposed underground technology ensures high reliability since the cables are not directly subject to most overhead line outage threats, such as lightning, ice and wind loading, and faults due to vegetation contacts. The VSC technology does not incrementally increase local fault currents despite the 1000 MW additional capacity. The VSC technology has inherent black start capability and advantages. This will prove particularly valuable if downstate resources that currently serve system restoration needs are retired The route would maximize use of existing rights of way. The expansion of overhead alternating current (AC) transmission capacity is impractical over much of the anticipated route. Subterranean AC transmission has many limitations due to the need to compensate for reactive power due to the cable s capacitance. And a 1000 MW AC solution would require at least a double circuit 345 kv line with significant voltage compensation equipment to achieve comparable performance. The use of HVDC subterranean cables with VSC technology resolves these challenges. This approach not only minimizes environmental impact, it also improves the quality of the power supply. This technology will encourage development of utility-scale renewable generation resources throughout the state. The high capacity, long distance capabilities of this project will provide an efficient delivery pipeline for renewable sources located upstate. It also has the flexibility to add terminals in the future for interconnecting new resources, new loads, or reinforcing locations where older generation has been retired. VSC technology will support the increased efficiency of power generation, particularly in densely populated urban areas. As mentioned above, VSC technology appears as a virtual generator at the receiving end but requires only a fraction of the footprint that new generation would require. Moreover, the electricity delivered to the city will include a significant share of new, renewable resources. Using HVDC technology provides for a very efficient low-loss transmission delivery of generation from more efficient sources. The total operating losses over the 250 miles at full load (1,000 MW), including line and converter station losses, are estimated to be around 42.5 MW, or 4.25%. These low losses equate to less overall energy consumption, less required generation, lower costs, and reduced emissions. Operational / Reliability Benefits While the Mohawk Valley Project is not designed specifically to address reliability issues, its offers reliability and operational benefits. Reliability takes on many definitions, but can be summarized into two main categories: mitigating risk of thermal overloads on transmission facilities, and maintaining a stable grid voltage. Problems in these areas are the primary threats to maintaining continuous reliable electric service to customers. Congestion is an economic symptom of an underlying physical reliability issue, in this case thermal overloads. As noted, the project establishes a new corridor between upstate and downstate New York, significantly increasing the ability to move power into downstate New York. By developing this corridor, the Mohawk Valley Project reduces the potential of overloads on existing facilities and those that run in parallel into New York City. Submitted by American Electric Power Company, Inc. May 30, 2012 Page 12 of 20

13 With the retirement of many traditional generating units, ancillary services in the form of voltage support become an increasingly critical element in maintaining reliability. As described in more detail above, the VSC technology utilized in the AC/DC converter stations can provide both static and dynamic reactive power support to stabilize the AC grid voltage. As noted, the Mohawk Valley Project is the equivalent of building a 1,000 MW generator with 600 MVAr of reactive support capability directly in New York City. Many existing transmission lines in metropolitan New York are heavily loaded, which makes it increasingly difficult to obtain maintenance outages for long periods of time. Taking these aging facilities out of service for maintenance creates significant reliability risk. The Mohawk Valley Project provides another pathway that would effectively facilitate the maintenance outages necessary to rebuild portions of the existing system. V. Financial / Cost Recovery AEP will work with entities in New York to form mutually beneficial public-private partnerships for the Mohawk Valley Project. AEP has extensive experience in developing creative partnerships across its 11-state service territory, and we believe having transparent and collaborative relationships ensures successful completion of capital projects. AEP has engaged a variety of municipal, cooperative, and public power agency counterparties for construction and ownership of new power projects and long-term power supply contracts. While the actual terms of an arrangement would be determined as the project design and parameters become better known, AEP has a demonstrated success in structuring collaborative, innovative and flexible solutions for customers, partners and stakeholders. AEP has constructed agreements that provide flexible cash flow requirements and investment needs for our partners. Potential structures include, but are not limited to, Build, Operate (BO); Build, Operate, Transfer (BOT), Build, Lease, Operate (BLO); or Build, Lease, Transfer (BLT), which offer flexible ownership and revenue pricing opportunities. Additional creativity is available through the use of phased lease payments (structured payment step-ups and step-downs throughout the term) or using components from both a fixed and variable payment structures (such as pure fixed payments, pure variable payments, or a combination of them). Variations on these structures can be tailored to fit almost any desired ownership or participation configuration and they can also accommodate cross-industry and commercial partners. Since AEP proposes a long-term ownership in the Mohawk Valley Project, we are open to offering upfront equity interest to various counterparties, including New York state entities, provided we are able to maintain a credit quality of at least investment grade at the asset level. Funding sources are anticipated to include public and private debt markets, mezzanine funding, equity financing as well as other traditional and non-traditional funding sources, depending on the market conditions of the capital markets. AEP will make every effort to fund the project efficiently in the most cost-effective manner possible to minimize the cost impact on New York customers. However, the exact mix of the funding strategy will be determined as the project specifics and recovery mechanism become clearer. Cost Recovery Since the proposed route of the project falls entirely within the NYISO, is the project would be included within the Comprehensive System Planning Process (CSPP), a three-stage process that includes local transmission planning, reliability planning, and economic planning, and the project is subject to Reliability Impact Study/System Impact Study (RIS/SIS) for interconnection to the NYISO electrical system. Submitted by American Electric Power Company, Inc. May 30, 2012 Page 13 of 20

14 Project developers, if selected by the RFI process, have two options for recovering costs associated with this project, market-based or regulatory-based (regional cost recovery mechanism). Market-Based Transmission Projects A market-based transmission project is an investor proposed solution driven by market needs to meet future reliability requirements of the bulk electricity grid as outlined in NYISO s Reliability Needs Assessment. Attachment Y of NYISO tariff specifically provides that the costs of market-based projects are the responsibility of the developer (NYISO Tariff, Attachment Y ). Therefore, should a merchant transmission developer proceed with a market-based transmission project, it will be up to that developer to submit a filing with FERC to sell transmission rights over the project at negotiated rates. Such a filing would be made pursuant to Section 205 of the Federal Power Act and must meet FERC s four-factor test for granting negotiated rate authority to merchant transmission owners. Under the test, the merchant transmission developer must show: (1) the negotiated rates will be just and reasonable; (2) there is no potential for undue discrimination; (3) there is no potential for undue preference, including affiliate preference; and (4) the project will meet applicable regional reliability requirements and will operate in a coordinated and efficient manner. 7 Negotiated rates. As to whether negotiated rates are just and reasonable, FERC assesses whether the merchant transmission owner has assumed the full market risk for the cost of constructing the project and whether the project is within the developer s or its affiliate s traditionally regulated transmission system. In the event the merchant transmission owner has assumed such risk and the project is not within the developer s or an affiliate s regulated transmission system, there are no captive customers who would be required to pay the costs of the project. FERC found that the assumption of risk criterion had not been met (and thus, the rates were not just and reasonable) when a developer proposed a project in the service area of an incumbent utility affiliate and the utility affiliate played a substantial role in the preliminary development stages of the project. 8 Undue discrimination. Regarding prevention of undue discrimination, FERC assesses: (1) the terms and conditions of a merchant transmission developer s open season for subscribing to transmission capacity; and (2) the developer s commitments to turn operational control over to the regional transmission organization or independent system operator (ISO). FERC requires that open seasons be fair, transparent and non-discriminatory and that reports regarding the open seasons be filed with FERC shortly after the close of the open season. 9 Undue preference. Concerning undue preference and affiliate abuse, FERC has stated that its concerns regarding affiliate abuse arise when a merchant transmission owner is affiliated with an anchor customer, participants in the open season, or customer that subsequently takes service over the merchant transmission line. This concern can be alleviated if the developer shows that none of its affiliates owns or operates electric facilities in the region in which the merchant transmission project is proposed See Chinook Power Transmission, LLC, 126 FERC 61,143, at P 37 (2009). 8 See Mountain States Transmission Intertie, LLC, 127 FERC 61,270, at P 61 (2009). 9 Such reports must include the terms of the open season (including notice of the open season and the method for evaluating bids), the identity of the parties that purchased capacity, and the amount, term, and price of that capacity. 10 See Champlain Hudson Power Express, Inc., 132 FERC 61,006, at P 51 (2010) (Champlain). FERC granted Champlain Hudson Power Express, Inc. (Champlain) authority to charge negotiated rates for transmission rights on its proposed merchant transmission project. Notably, Champlain stated that it had participated in the NYISO s and ISO-NE s reliability planning process and that it intended to transfer operational control over the project to the NYISO and ISO-NE. Linden VFT, LLC is another example of a merchant transmission developer to which FERC granted authority to sell transmission rights at negotiated rates. Linden VFT has transferred control over its transmission facilities to PJM, and service over the facilities is offered under Schedule 16 of the PJM Open Access Transmission Tariff PJM Tariff), which is attached for reference. See Linden VFT, LLC, 119 FERC 61,066 (2007). Submitted by American Electric Power Company, Inc. May 30, 2012 Page 14 of 20

15 Regional reliability. Finally, FERC has asserted that regional reliability and operational efficiency criteria satisfied when a merchant transmission developer has turned over operational control of a facility to an RTO and commits to comply with all applicable reliability rules. 11 Assuming FERC grants a merchant transmission developer negotiated rate authority based, in part, on a developer turning operational control of the project over to the NYISO, the developer would also need to ensure that the NYISO tariff is amended to provide the terms on which service will be provided over the developer s facilities. An example of such a schedule is Schedule 16 of the PJM Tariff, which addresses transmission service over Linden VFT s facilities. Regulated Transmission Projects For regulated transmission projects identified by the NYISO planning process as solutions to reliability and economic needs, costs are recovered using a beneficiary pays system. Reliability Projects The NYISO identifies the zones affected by a reliability violation that a transmission project will alleviate. In this case, project costs are allocated among the zones according to their contribution to the reliability violation. Schedule 10 of the NYISO Tariff sets forth a Reliability Facilities Charge (RFC) for the recovery of costs related to each regulated reliability transmission project undertaken pursuant to a determination by the NYISO that a regulated solution is needed to address reliability needs. The RFC is to be billed by the NYISO and paid by the load serving entities (LSE) in the load zones for which the cost of the transmission facilities have been allocated in accordance with Attachment Y of the NYISO Tariff. The formula uses a revenue requirement as the basis for the RFC Rate ($/MWh) for the billing period, which will be applied by the NYISO to each LSE based on its actual energy withdrawals. Attachment Y and Schedule 10 contemplate that other developers are eligible to recover their costs under Schedule 10; however, the other developer must first submit a filing to FERC under Section 205 of the Federal Power Act and receive approval prior to commencing construction. After the project is complete, the other developer (with coordination with NYISO, as necessary) must submit another filing that details the final project cost and resulting revenue requirement to be recovered under Schedule 10. Specifically, Section of Schedule 10 to the NYISO Tariff provides, Upon receipt of all necessary federal, state, and local authorizations, including FERC acceptance of a Section 205 filing authorizing cost recovery under the NYISO tariff, the Other Developer shall commence construction of the project. Upon completion of the project, the Other Developer and/or the NYISO, as applicable, will make a filing with FERC to provide the final project cost and resulting revenue requirement to be recovered pursuant to this Attachment. The resulting revenue requirement will become effective and recovery of project costs pursuant to this Attachment will commence upon the acceptance of the filing by FERC. Based on a review of FERC s elibrary, it does not appear that any other developers have sought FERC authorization for cost recovery under Section of Schedule 10. Economic Transmission Projects The cost allocation for an economic transmission project follows a beneficiary pays approach, and other developers, such as merchant transmission developers, are eligible for cost recovery. However, in order 11 See Champlain at P 54. Submitted by American Electric Power Company, Inc. May 30, 2012 Page 15 of 20

16 for regulated cost recovery to be available for a specific project, the project must meet the following conditions: (1) the benefit of the proposed project must exceed the cost; 12 (2) the total capital cost of the project must exceed $25 million; (3) eighty-percent of the project beneficiaries must support the project by voting for it in a stakeholder process. If the project satisfies the eligibility criteria, the NYISO will identify the project s beneficiaries over the first 10 years of the project by measuring the present value of annual locational marginal price savings for load in the zones affected by the project, net of reductions in transmission congestion credit payments and the price of bilateral contracts. For each load zone that experiences a benefit, a portion of the project cost is allocated based on the zone s pro rata share of the total savings. Within each zone, the zonal cost is allocated to each load serving entity based on its share of the total MWh consumed in the zone. Finally, Section of Attachment Y establishes that a developer (such as a merchant developer) must submit a filing with FERC and that FERC must approve the cost of a proposed economic transmission project in order for those costs to be recovered through the NYISO Tariff. Conclusion The project proposed as part of this RFI addresses multiple drivers for reliability, public policy and providing economic benefits to the NYISO system. The current tariff for regulated cost recovery mechanism in NYISO is effective in identifying cost effective solutions on a single-driver basis, but not for a multitude of drivers, which this project provides. The NYISO requirement that economic projects get an 80% stakeholder project approval adds additional complexity to the development of such projects. A clear path forward for a regulated cost recovery mechanism would require significant change to the existing NYISO Tariff, especially with respect to transmission planning and cost allocation. The sponsors understand that NYISO is working towards changes in the transmission planning and cost allocation in order to meet FERC Order Some of these changes could eliminate or reduce the barriers for a transmission project of this nature to be identified for a regulated cost recovery mechanism. At this time, it is presumed that the Mohawk Valley Project will be a market-based transmission project and the sponsors would take the necessary steps to recover the costs associated with this project. VI. Permit / Regulatory Approval Process Over the years, AEP has engineered and designed many large transmission projects. We are currently involved in siting and constructing several large projects, such as the Texas CREZ build out (with over $1 billion in transmission assets) and the 345 KV transmission infrastructures to support the John W. Turk Power Plant project in Arkansas. As part of these projects, AEP complied with all federal, state and local regulatory and permitting requirements. AEP will obtain all required permits and approvals at the appropriate time during the development and construction phases of the project. The approvals will include, but are not limited to: After completion of the initial stakeholder outreach, AEP will prepare and submit a Public Service Commission Article VII Application for a Certificate of Environmental Compatibility and Public Need (Article VII Application) for the project. This application will contain all the necessary permitting information and public involvement for proposed and alternative routes. After approval of the Article VII Application, a comprehensive Environmental Management and Construction Plan (EM&CP) will be developed and submitted for approval. 12 The benefit is defined as the present value of annual NYISO-wide production cost savings and the cost is the present value of the project s annual total revenue requirement, both over the first ten years the project will be in service. Submitted by American Electric Power Company, Inc. May 30, 2012 Page 16 of 20

17 A New York Independent System Operator Reliability Impact Study will be prepared and submitted to the NYISO for review and approval. VII. Additional Information Property As asserted earlier, AEP intends to use existing infrastructure corridors, including transportation, pipeline, and electric transmission corridors, for the Mohawk Valley Project HVDC transmission line. During the project s early stages of development, AEP will actively seek ways to minimize possible adverse environmental impacts and disturbances along the proposed route. The Utica converter station will require purchase of 5 to 7 acres of land near the New York Power Authority s Marcy substation. Additionally, a 150-foot corridor will be acquired for the overhead connection between the Utica conversion station and the Marcy substation. AEP will select the most optimal connection point within the New York City area for the final terminus. The converter station there will require the purchase of between three and seven acres of land; depending on property costs and converter station design. Rights-of-way for an underground or submarine cable will be acquired to connect the downstate converter station to the Consolidated Edison transmission system. Projected In-Service Date and Project Schedule It is anticipated that the project will have an in-service date of 2018, depending on timely receipt of required regulatory approvals. A preliminary project schedule can be found in the Appendix F. Interconnection The proposed project will interconnect with the existing transmission network in two locations. At the northern terminus, an interconnection will be established at the New York Power Authority s Marcy 345 kv substation. At the southern terminus, two potential interconnection points were evaluated within the Consolidated Edison territory, West 49th Street substation and Rainey 345 kv substation. These interconnection points were selected based upon the availability of well established extra-high voltage (EHV) sources and sinks. The interconnection points will allow for power to flow into the proposed line at the source end and be distributed at the sink end with minimal impact to the underlying AC network. In addition, these existing substations are relatively accessible and have the physical characteristics necessary to allow the equipment required for the interconnection. AEP performed a preliminary system impact study of the proposed project using models obtained from the NYISO. This study assessed the impact of connecting the proposed project to the existing transmission system and identified potential reliability benefits as a result of the interconnection. The primary steady-state load flow analysis of the New York system was performed using the NYISO 2016 model and considered all relevant contingencies. In the 2011 Congestion Assessment and Resource Integration Study (CARIS) 13 report issued in March 2012, NYISO identified New Scotland Pleasant Valley 345 kv and Pleasant Valley Leeds 345 kv transmission circuits among top three congested transmission corridors in New York. NYISO also confirmed that a generic transmission solution had the highest benefit to cost ratio (B/C) in addressing congestion on these corridors pdf Submitted by American Electric Power Company, Inc. May 30, 2012 Page 17 of 20

18 Load flow results did not show any negative impacts on monitored facilities at or above 100 kv in the state. The analysis performed did confirm NYISO findings concerning the two most congested facilities in the state of New York, and demonstrated that the HVDC proposals will significantly reduce loadings on the parallel 345 kv corridors. This reduction provides incremental reliability margin to the existing system while relieving congestion. For example, the Mohawk Valley Project reduces the loading on the Marcy - Edic 345 kv line by 576 MW for 216 using simulated load flow conditions under normal conditions. The full impact is summarized in Figure 3. Reduction in Loadings on Existing 345 kv Lines Marcy Edic 345kV: 576 MW Fraser Edic 345kV: 178 MW Marcy Coopers 345kV: 142 MW Coopers Fraser 345kV: 135 MW Rock Tavern Coopers 345kV: 129 MW Pleasant Valley E Fishkill 345kV 1 & 2: 138 MW Rock Tavern Middletown 345kV: 109 MW Rampo Smawha 1 & 2 345kV: 216 MW Figure 3 The analysis also suggests that Smawah Waldwick 345 kv line and several 138 kv lines in the state of New York experience thermal loadings beyond their capacity under certain transmission outage conditions. The project significantly reduces the loadings on these facilities in addition to providing congestion relief. NYISO issued Phase II report of New York State Transmission Assessment and Reliability Study (STARS) report in April In addition to highlighting congestion and the projected changes in the generation fleet in state of New York, the report also identified 4,700 miles of transmission that will require replacement in the next 30 years. Most of the facilities identified for replacement are considered critical expressways that carry bulk power from the northern parts of the state to major load centers such as New York City. The Mohawk Valley Project establishes a new corridor that parallels a significant number of the Submitted by American Electric Power Company, Inc. May 30, 2012 Page 18 of 20

19 transmission facilities identified by NYISO for rebuild in the 30-year transmission base plan 14 outlined in STARS. The project could be a vital step in easing outage requirements for critical transmission facilities so they could be rebuilt without jeopardizing the reliability of the grid. If selected, the Mohawk Valley Project will be submitted to NYISO for a formal System Impact Study. This evaluation will provide the necessary approval for the interconnection and identify any required network upgrades. The characteristics of the HVDC line will facilitate multi-terminal operation, allowing a second intermediate point of interconnection, if needed, to accommodate changes in generation or to serve load. If warranted, a second 1,000 MW cable could be installed in the same corridor at the time of construction, doubling the capacity of the project. The southern terminus of the second cable could be located at the same point, with additional AC outlets, or at a separate location. The interconnection of the additional 1,000 MW has not been fully evaluated, but is considered a viable option to be investigated during the next phase of the project development process. Construction The project will be engineered, designed, and constructed using recognized engineering practices and industry standards to comply with all federal, state and local laws. The Utica converter station will be contained within a building adjacent to a new open-air 345 kv switching station. The downstate converter station will be constructed inside a building along with a gas-insulated 345 kv switching station to minimize the required footprint. HVDC Line. The HVDC line will be largely located underground except where engineering or environmental constraints require under water or aerial electric transmission along the route. (See Appendix G for photos.) Conventional trenching equipment, modified for the installation of the HVDC underground cables, will be used. HVDC underground cables will be located, where possible, below the surface within existing rights-of-way. The cable will be installed in a trench that is typically 24 inches wide by 42 to 72 inches in depth, depending on the characteristics of the route and thermal insulating properties of the indigenous soil. Cable trays or ducts will be used to install the cable in overpasses and bridges. Mass. Electric Construction Company, a Kiewit Construction Company subsidiary, is anticipated to perform construction activities. With regional headquarters in Woodcliff Lake, New Jersey, Mass. Electric has constructed several electric projects in metropolitan New York and the New York-New Jersey-Connecticut tri-state area employing local union trade labor. All construction activities will comply with all federal, state, and local requirements. Appropriate training and personal protection equipment will be provided so that the construction can be accomplished in a safe and environmentally compatible manner. AC Lines. An overhead 345 kv line will be constructed on a 150-foot right-of-way to connect the Utica converter station to the Marcy substation. The overhead construction will utilize steel poles and bundled ACSR conductors. The 345 KV AC line connecting the downstate converter station to the Consolidated Edison transmission system will be primarily a submarine cable beneath water and underground cable on land. Appropriate training and personal protection equipment will be provided so that the overhead and cable construction can be accomplished in a safe and environmentally comparable manner. Alternatives. AEP is fully aware of the importance of building the best solution to meet the Governor s initiative. We fully intend to examine and identify the most environmentally friendly and cost-optimal route in siting the Mohawk Valley Project. To achieve this goal, AEP will optimize existing rights-of-way afforded 14 The base transmission plan developed by NYISO to address aging infrastructure, wind interconnection, generation retirement, and congestion is available at Phase_2_Final_Report_4_30_2012.pdf. Submitted by American Electric Power Company, Inc. May 30, 2012 Page 19 of 20

20 through already established infrastructure projects for transportation, pipelines and electrical transmission lines. Environmental The project will be constructed in an environmentally friendly manner in compliance with all federal, state and local regulations. All applicable permits and approvals will be acquired in advance of construction. The construction of the Mohawk Valley Project will use conventional trenching equipment with minimal rights-of-way requirements, which reduces the aesthetic impact compared to traditional aerial electric transmission lines. Since the proposed route for the project will use existing transportation corridors and rights-of-way, adverse environmental impacts will be minimized, if not eliminated. The construction methods and reliance on underground and submarine placement of the HVDC cable ensures minimal impact to scenic, historic and archaeological sites Submitted by American Electric Power Company, Inc. May 30, 2012 Page 20 of 20

21 Appendix A: Photos of AEP Installations

22 AEP Static VAR Compensator Installation AEP Eagle Pass High Voltage Direct Current Converter Station

23 AEP Laredo Variable Frequency Transformer Installation Variable Frequency Transformer Rotor

24 Appendix B: Map of Mohawk Valley Project

25 1 East 13 th Street 345 kv station 2 West 49 th Street 345 kv Station 3 Rainey 345 kv Station Marcy SS 4 Vernon 138 kv Station 5 Queensbridge 138 kv Station 6 Astoria 345 kv Station

26 Appendix C: ABB HVDC Light Brochure The following is a brief reference document with basic information about HVDC Light technology. A more complete document with additional project references and a comprehensive description of the technology and its applications is available at: &LanguageCode=en&DocumentPartId=&Action=Launch

27 Reliable electrical transmission over long distances, using ABB cable systems HVDC Light Installation planned alongside existing road network. Environmental intrusion minimized.

28 HVDC Light cables are manufactured at Karlskrona. They are then transported on drums to the location where they are to be buried in the ground. The picture above shows the first HVDC Light cable, which was installed on Gotland as early as With new electrical supply systems, security is the key to success When new systems for efficient electrical distribution are developed and put into use, security, safety and environmental considerations are the common objectives for both consumers and producers. They were also the starting points when ABB developed its concept for cost-effective power transmission using HVDC Light. Works all around the clock Success came quickly. The world s longest land-based power transmission cable has worked all around the clock, day after day. When this document was printed, the Murray Link in Australia had been in operation for rather more than four years. A corresponding installation on a smaller scale, on the Swedish island of Gotland, has delivered power since the end of the last decennium. Connect-hide-forget It is with this real-life experience that ABB puts its unique competence, as well as its quality stamp within cable systems into play, in order to compete for the investments that are needed to strengthen Europe s electrical transmission network. Through similar projects, we know that the future is already here. This brochure is our way of sharing our thoughts about a secure, long-term and cost-effective means of electrical distribution, that will continue working even when hard autumn storms rage. The idea is as equally obvious as it is self-evident: Connect-hideforget! The cable is designed so as not to cause risks for personal injury, even if an accident occurs and the cable is cut by a digger. The power is then immediately cut. Unhindered by weather conditions such as lightning, storms and icing, the cable delivers electrical power in an environmentally friendly, stable manner, with a minimum of maintenance. Quality at every stage Quality is the most important aspect of our business. And it applies to the entire chain, from selection of raw materials to the last installation on site before power starts flowing. All our quality work is built on calculations, testing and experience. Each cable must, for example, be qualified before it is produced and delivered. This assumes type-testing, where the cable is subject to different types of stresses in accordance with internationally defined demands, amongst others extremely high voltages for short periods of time, in proportion to the cable s performance. This was done with HVDC Light, qualified for 150 kilovolt, and also for a corresponding cable with a capacity of 300 kilovolt. Theory and practice bound together in one unit. Quality verified production ABB produce cable systems using well proven technology. They are based on the same production technology used for our alternating current cables.

29 The splicing technique is important. When the splice is correctly executed, it unites two lengths of cable to a harmonic unit with exactly the same performance as the cable itself. The technique is developed and certified by ABB, who have also produced and installed several sea cables with extremely high safety demands, using the same methods. The ends of both cables are spliced with a splicing sleeve, shown before the splice is installed. The figure shows two cable ends and a splicing sleeve. The splice is in the background. ABB has used these processes for more than 30 years, with installations all around the world, even in many towns and municipalities in Sweden. Production of HVDC Light is made in lengths of about one kilometre. Splices are made with the same high quality demands. They are prefabricated and designed to couple together cable lengths to single units when installed. Our employees are given continuous training in splicing and each splice is qualified and tested in the same way as the cable. The cable system comprises harmonic units that have the same quality demands. The installation fades into the background The installation of the cables is important. To the outer, it is very similar to the extensive installation of optical fibre cable that is currently in progress. There are however, considerable differences: We dig somewhat deeper, to increase the mechanical protection and safety aspect. Installing our cables alongside well established road networks, without having to close off traffic, is both cost-effective and environmentally friendly. This principle has been used in many installations, all around the world, for a considerable number of years. We have solved cable laying problems across water by using bridges or by drilling beneath the bottom. We have always chosen the most efficient and environmentally friendly alternative, while retaining efficiency and safety. Advantages of HVDC Light HVDC Light is not just a cable construction, it is also a cost-effective and environmentally friendly system for When the cable is installed, there is no trace of it except the markers. The photo is from Gotland and the cable is buried in the right hand road bank. secure electrical distribution. Unlike alternating current, where people and animals are exposed to a magnetic field that alternates in time, HVDC Light cables have a static field that is considerably less than the earth s magnetic field and thus harmless. The proposed EU norm is 100 times higher than the earth s magnetic field. No disturbances Our cables are buried in the ground. There is no visible intrusion and existing overhead transmission lines can be torn down, something that has already occurred in Bergshamra in Stockholm, where traditional transmissions lines where previously placed over a nursery school. Noise disturbances, that always occur with overhead transmission lines, are eliminated. Comparable total costs The cost for burying cables in the ground is usually calculated as somewhat higher than aerial lines with a corresponding technical capacity. However, there has been a considerable narrowing of the gap over the last few years. The lifespan for our cable solution has turned out to be greater than previously calculated and the cost of interruptions due to storms affects the calculation positively, to the advantage of the land-cable solution. In addition, the cost of right of way is less and the buriedcable alternative has a more positive effect on both forestry and agriculture, as well as on cultural and leisure activities in the area affected. Our opinion is that the buried-cable alternative, from a social-economic perspective, creates a win-win-situation for both the consumer and the producer.

30 ABB has more than 50 years experience of cable installations around the world. Hillary Clinton congratulating a successful project. Cross Sound was put into operation in 2002 and has functioned since then with no interruptions. So far, ABB has installed more than 1600 km of HVDC Light cable. Here are a few examples: Land cable projects Murray Link, Victoria - South Australia The longest land cable in the world 200 MW at 150 kv, 2 x 180 km, year 2002 Gotland, Sweden 50 MW at 80 kv, 2 x 70 km, year 1999 Submarine cable projects Estlink, Estonia - Finland 350 MW at 150 kv, 2 x 75 km submarine cable, 2 x 29 km land cable, year 2006 Facts about HVDC Light cables for power transmission Voltage Type tested for Power Weight Diameter Insulation Conductor 300 kv 592 kv 300 MW MW kg/meter depending on capacity 10 cm Plastic (extruded polymer) 1000 mm 2 aluminium All materials are recyclable Trench width normally seven meters, can be reduced to four meters Troll A gas platform, Norway 80 MW at 80 kv, 4 x 68 km, year 2004 Cross Sound, USA 330 MW at 150 kv, 2 x 42 km, year 2002 ABB AB High Voltage Cables Tel Fax sehvc@se.abb.com Extract from a debate: By burying cables, one creates a better environment for those who live nearby. One also ensures better delivery security as well as releasing valuable land for building development ABB HVC 2GM5060 eng

31 Appendix D: Charles River Associates Project Evaluation A high-level evaluation of the Mohawk Valley project and its impact on energy, capacity, and socio-economic factors

32 AEP Proposal to NYPA Energy Highways Initiative Impact on Energy Prices, Capacity Prices, and Employment

33 Overview Executive Summary Project Description New York ISO Energy Markets New York ISO Capacity Markets Other Economic Benefits in New York State 2

34 3 Executive Summary

35 Executive Summary (1) AEP is proposing a 1,000 MW HVDC line that will connect Marcy Station near Utica with New York City The Project will provide a new path from Zone E (Ithaca) into Zone J (New York City), and will relieve congestion on several major constraints Benefits from the Project include: Reduced congestion and lower adjusted production costs Access to more renewable energy Lower in-city capacity prices and overall NYISO ICAP costs Employment and other economic benefits. 4

36 Executive Summary (2) CRA estimates that the Project would reduce the costs of electric energy to ratepayers in New York by $70 to $130 million (2011 dollars) in 2018 Benefits are greater with increased upstate wind penetration CRA estimates that the cost of ICAP would be $538 million lower in 2018 primarily due to a reduction in New York City ICAP prices CRA estimates that the Project would create: 4,000 7,000 man-years of additional employment in New York State during (direct and indirect jobs) If the 2.4 GW of wind in the queue for upstate New York is built as a result of the Project, there would be an additional 13,000 man-years of employment associated with wind development in

37 6 Project Description

38 Project Description (1) AEP is proposing a 1,000 MW HVDC line that will connect Marcy Station near Utica with New York City The Project will connect either to West 49 th Street in Manhattan, Rainey in Queens, or possibly Astoria in Queens For this analysis, we analyzed only a West 49 th Street terminus and a Rainey terminus The New York ISO is divided into 11 zones, with prices generally higher in downstate zones due to transmission constraints that limit inexpensive power that originates in upstate New York or is imported into upstate New York (from Hydro Quebec or Ontario) from reaching downstate load centers 7

39 Project Description (2) 8

40 Project Description (3) In addition to being a source of low-cost conventional power and Canadian imports, upstate New York has significant wind power potential. Tapping these wind resources will further strain the transmission system The Project will provide a new path from Zone E (Ithaca) into Zone J (New York City), and will relieve congestion on several major constraints including: Central-East Interface/Leeds-Pleasant Valley 1 Dunwoodie-South Benefits from the Project include: Reduced congestion and lower adjusted production costs Access to more renewable energy Lower in-city capacity prices and overall NYISO ICAP costs Employment and other economic benefits. 1 The Central-East and Leeds-Pleasant Valley constraint are approximately in series. In our analysis, the major congestion appears on Leeds-Pleasant Valley. 9

41 10 New York State Energy Markets

42 Geographic Scope of the Electricity Market Analysis CRA analyzed the impact of AEP s Project using the GE MAPS model CRA modeled 2018, the expected in-service year for the Project CRA used its Northeast version of GE MAPS that includes: New York ISO ISO New England PJM Ontario Hydro Quebec (for technical reasons modeled as proxy generation and load in ISO New York and ISO New England) 11

43 GE MAPS Study Design CRA ran six GE MAPS cases: A Low Wind Case without the Project ( Low Wind ) A High Wind Case without the Project and with 2.4 GW more wind in upstate New York ( High Wind ) For each of the Low- and High-Wind cases, we ran a Project Case with the Project terminating at either W. 49 th Street or at Rainey Case Names Project None W. 49th St. Rainey Wind Low Wind Low Wind Project Low Wind - W. 49th Project Low Wind - Rainey High Wind High Wind Project High Wind - W. 49th Project High Wind - Rainey 12

44 Key Assumptions We assume that Indian Point remains in service in 2018 Our natural gas prices are based on the EIA Annual Energy Outlook 2012 forecast (Henry Hub Forecast of $5.06/MMBtu in 2011 dollars) Coal prices are estimated using CRA s North American Electricity and Environment Model ( NEEM ) NEEM analysis is also used to develop new capacity and unit retirement assumptions The Low Wind Case includes all wind farms currently under construction or with a completed interconnection agreement The High Wind Case includes 2.4 GW of additional capacity from wind farms in the interconnection queue outside of Zones J and K (Long island) Load comes from the NY Gold Book 13

45 Electricity Market Metrics CRA measured the Project s impacts on the cost of electricity in terms of: Change in congested hours Changes in LMPs Change in load payments Changes in adjusted production cost on a state-wide basis All reported values are between a Base Case without the Project and case with the Project ( Project Case ) LMP impacts are reported as changes in the load-weighted, average LMPs by zone Load payment impacts are LMP impacts times zonal load Adjusted production cost for New York State as a whole 14

46 Results Overview Interconnecting the line at either W 49 th St or Rainey causes A decrease in congestion from upstate to downstate and west to east Energy prices in Zones J and K fall Energy prices in the Rest-of-State increase, but the state-wide load-weighted price of energy across NYISO falls Relative to the Low Wind Case, in the High Wind Case The downstate/upstate price separation increases because of the additional wind, which reflects increased congestion The Project s positive impact on LMPs, load payments and adjusted production cost is greater in the High Wind Case since the Project relieves more congestion In general the price impact of the line is greater with a Rainey interconnection than with a W 49 th St interconnection 15

47 Results Congested Hours Low Wind Penetration Hours Constraint Binds Change in Hours Constraint Binds Without HVDC Line West 49th St Interconnection Rainey Interconnection West 49th St Interconnection Rainey Interconnection Leeds-Pleasant Valley (577) (597) Dunwoodie-South 3,185 1,616 1,686 (1,569) (1,499) High Wind Penetration Hours Constraint Binds Change in Hours Constraint Binds Without HVDC Line West 49th St Interconnection Rainey Interconnection West 49th St Interconnection Rainey Interconnection Leeds-Pleasant Valley (616) (631) Dunwoodie-South 3,376 1,914 1,927 (1,462) (1,449) 16

48 Results Impact on Price Paid by Load Low Wind Penetration Average Wholesale LMP ($/MWh) Change in Average LMP No HVDC Line Interconnection at W 49th St. Interconnection at Rainey Interconnection at W 49th St. Interconnection at Rainey New York City: Zone J $59.95 $58.18 $57.87 ($1.77) ($2.08) Long Island: LIPA $63.34 $62.72 $62.71 ($0.63) ($0.64) NY Rest of State $46.32 $46.84 $46.94 $0.52 $0.62 NYISO (Total) $53.29 $52.88 $52.83 ($0.41) ($0.46) High Wind Penetration Average Wholesale LMP ($/MWh) Change in Average LMP No HVDC Line Interconnection at W 49th St. Interconnection at Rainey Interconnection at W 49th St. Interconnection at Rainey New York City: Zone J $59.76 $57.71 $57.43 ($2.04) ($2.33) Long Island: LIPA $63.25 $62.53 $62.59 ($0.72) ($0.66) NY Rest of State $45.79 $45.95 $46.02 $0.16 $0.23 NYISO (Total) $52.93 $52.23 $52.18 ($0.70) ($0.75) 17

49 Results Impact Load Payments Low Wind Penetration Cost of Load ($000s) Change in Cost of Load No HVDC Line Interconnection at W 49th St. Interconnection at Rainey Interconnection at W 49th St. Interconnection at Rainey New York City: Zone J $3,443,097 $3,341,244 $3,323,699 ($101,852) ($119,397) Long Island: LIPA $1,561,967 $1,546,465 $1,546,253 ($15,502) ($15,714) NY Rest of State $4,190,462 $4,237,196 $4,246,290 $46,733 $55,827 NYISO (Total) $9,195,527 $9,124,906 $9,116,242 ($70,621) ($79,284) High Wind Penetration Cost of Load ($000s) Change in Cost of Load No HVDC Line Interconnection at W 49th St. Interconnection at Rainey Interconnection at W 49th St. Interconnection at Rainey New York City: Zone J $3,431,858 $3,314,682 $3,298,129 ($117,176) ($133,729) Long Island: LIPA $1,559,657 $1,541,862 $1,543,280 ($17,795) ($16,378) NY Rest of State $4,142,297 $4,156,628 $4,162,902 $14,331 $20,605 NYISO (Total) $9,133,812 $9,013,172 $9,004,310 ($120,641) ($129,502) 18

50 Results Adjusted Production Costs (1) In the Low Wind Case, the W 49 th St and Rainey lines lower adjusted production costs by $21.7 M and $17.9 M, respectively In the High Wind Case, the W 49 th St and Rainey lines lower adjusted production costs by $28.3 M and $30.4 M, respectively The impact is larger in the High Wind Case because the addition of low cost renewable generation in upstate New York creates congestion downstate which the line relieves Relative to the Low Wind Case in the High Wind Case: W 49 th St connection results in an additional $6.6 million in production cost benefits Rainey connection results in an additional $12.4 million in production cost benefits 19

51 Results Adjusted Production Costs (2) Low Wind Case Interconnection at W 49th St. Interconnection at Rainey W 49th St. Change No HVDC Line Rainey Change $ (Millions) + Production Cost $3,292.0 $3,292.9 $3,289.5 $0.9 ($2.5) + Purchases $955.9 $929.6 $938.5 ($26.2) ($17.4) + Sales ($376.4) ($373.0) ($374.6) $3.5 $1.8 + Wheel Costs $3.2 $2.9 $3.0 ($0.3) ($0.2) + Wheel Revs ($2.3) ($1.8) ($2.0) $0.4 $0.3 = Net Costs $3,872.4 $3,850.7 $3,854.4 ($21.7) ($17.9) High Wind Case Interconnection at W 49th St. Interconnection at Rainey W 49th St. Change No HVDC Line Rainey Change $ (Millions) + Production Cost $3,080.4 $3,094.1 $3,078.2 $13.7 ($2.2) + Purchases $873.1 $830.0 $843.0 ($43.1) ($30.2) + Sales ($380.3) ($379.2) ($378.5) $1.1 $1.9 + Wheel Costs $3.2 $2.8 $2.9 ($0.3) ($0.2) + Wheel Revs ($2.9) ($2.5) ($2.5) $0.3 $0.4 = Net Costs $3,573.5 $3,545.2 $3,543.2 ($28.3) ($30.4) High Wind Case - Low Wind Case Interconnection at W 49th St. Interconnection at Rainey W 49th St. Change No HVDC Line Rainey Change $ (Millions) + Production Cost ($211.6) ($198.8) ($211.3) $12.8 $0.3 + Purchases ($82.7) ($99.6) ($95.5) ($16.9) ($12.7) + Sales ($3.9) ($6.3) ($3.9) ($2.3) $0.0 + Wheel Costs ($0.0) ($0.1) ($0.1) ($0.1) ($0.0) + Wheel Revs ($0.6) ($0.7) ($0.5) ($0.1) $0.1 = Net Costs ($298.9) ($305.5) ($311.3) ($6.6) ($12.4) 20

52 Results Adjusted Production Costs (3) The Project results in a reduction in in-city (Zone J) gas fired generation (both Combined Cycle and Steam) and an increase in upstate (Zones C and F) gas The increase in Zone C (Central) and Zone F (Capital) combined cycle generation with the line in service also results in a reduction in imports, mostly those into downstate and New York City 21

53 22 New York State Capacity Markets

54 Capacity Market Overview CRA used its New York ISO Capacity Price model to estimate the impact on the New York City and New York Control Area ( NYCA ) ICAP prices While the offer floor prevents the Project s full 1,000 MW to count as ICAP in Zone J in the summer of 2018, it will result in new supply of MW in Zone J, which will lower the Zone J ICAP price It will also result in about 200 MW less capacity needed state-wide in 2018, which will slightly increase NYCA prices beginning in May 2018 The net effect is a reduction in ICAP costs in New York by $631 million in nominal dollars or $538 million in 2011 dollars 23

55 Results Capacity Prices and Costs (Nominal $) With Line Without Line Price ($/kw) Cleared UCAP (MW) Cost ($ Million) Price Cleared UCAP Cost NYCA Zone J NYCA Zone J NYCA Zone J Premium Total NYCA Zone J NYCA Zone J NYCA Zone J Premium Total Savings ($ M) Total ,204 4, Jan ,483 11, ,483 11, Feb ,483 11, ,483 11, Mar ,392 11, ,392 11, Apr ,526 11, ,526 11, May ,086 11, ,286 10, Jun ,086 11, ,286 10, Jul ,086 11, ,286 10, Aug ,086 11, ,286 10, Sep ,086 11, ,286 10, Oct ,086 11, ,286 10, Nov ,831 11, ,031 11, Dec ,626 11, ,826 11,

56 Capacity Market Impacts Key Assumptions Reference points for NYISO ICAP Market demand curves escalate at 1.7% annually through 2014, 2.4% thereafter Zone J: $23.33/kW-mo for 2017/18; $23.77/kW-mo for 2018/19 NYCA: $10.69/kW-mo for 2017/18; $10.95/kW-mo for 2018/19 Capacity Requirements: NYCA Installed Reserve Margin (IRM) = 118% of coincident peak load NYC Local Capacity Requirement (LCR) = 83% of Zone J peak load Conservatively, line is assumed to have no effect on IRM or LCR HVDC line subject to buyer-side mitigation at default offer floor Generic new capacity added in Zone J when supply falls below 101% of Zone J LCR Consistent with NYSO assumption of persistent surplus applied in demand curve reset process New capacity added in 200 MW increments, consistent with NYISO reference technology Zone J capacity additions in advance of 2018: Astoria Energy 2 (on line) Bayonne Trent 60 GTs (2012) Hudson Transmission Partners HVDC cable (2013) 25

57 Capacity Market Impacts Key Drivers Absent the HVDC Project, 200 MW capacity added in Zone J in May 2018 Competitive entry, consistent with NYSO demand curve assumptions Adds supply in both Zone J and overall NYCA markets With the HVDC Project, new entry in Zone J not required Allows up to 1,000 MW of upstate surplus to become deliverable to NYC Without 200 MW of new capacity, statewide supply is decrease, increasing NYCA clearing price relative to case without the line But NYC price pushed down to offer floor, lowering the premium paid to Zone J resources needed to meet LCR Net effect is a decrease in aggregate statewide costs Offer floor prevents full 1,000 MW from clearing in NYC Approximately 450 MW addition ZONE J capacity clears in winter 2017/18, Approximately 680 MW clears in summer 2018, displacing 200 MW of additions Net increase in Zone J supply of MW summer 26

58 Capacity Market Cost Impacts Impact of lower Zone J price 475 MW of incremental Zone J supply lowers Zone J ICAP price by approximately $5.75/kW-mo Cost impact for 11,000 MW of Zone J ICAP purchases = $63 million monthly Offset by higher NYCA price No impact on statewide price before May 2018 Thereafter 200 MW of decreased statewide ICAP increases NYCA price by $0.43/kW-mo ICAP purchased outside of Zone J = 43,000 MW (NYCA) 11,000 MW (Zone J) = 32,000 MW Results in $14 million/month increase in cost of non-zone J capacity Net cost impact for months at $60 million 8 months at $49 million Annual impact of $630 million Cost savings diminishes over time Additional new capacity displaced through 2020 Zone J surplus created by line absorbed with load growth by

59 28 Other Economic Benefits in New York State

60 Employment Impacts Overview The Project will contribute to New York state employment in four ways: 1. Construction of the transmission line - ( ) Local construction crews and consultants Local materials suppliers 2. Operations and maintenance (O&M) of the transmission line - (ongoing) Local maintenance and repair crews 3. Construction of new generation made possible by the transmission line - ( ) Local construction crews and consultants Local manufacturers 4. O&M of the new generation - (ongoing) Local maintenance and repair crews Each was evaluated separately using: Available Project data Assumptions about component and materials sourcing Proprietary data from other transmission projects Comparable transmission impact studies, and Advanced economic modeling 29

61 Employment Impacts Transmission Construction Impacts The following is AEP s preliminary estimated cost breakdown: Cost category Installed converters Cable Construction/Other Total Estimated Cost $340 million $500 million $ million $ billion The cost categories were broken into their labor and materials components by examining data for comparable projects Labor share of installed converter cost estimated at 35% 1 Cable installation labor covered under construction/other Construction/other was assumed to be 75% construction labor and 25% local materials To be conservative, converters and cable equipment were assumed to be sourced from outside New York 1 based on capital/labor ratios for other converter investments 30

62 Employment Impacts Transmission Construction Impacts All construction is assumed to be completed by local labor Includes tasks such as right-of-way clearing, trenching, laying/welding pipe, duct bank and vault installations, backfilling, cable installation and site restoration Local contractors, under a minimal amount of imported engineering guidance/supervision, can conduct all of these tasks Labor impacts/multipliers were calculated using the input/output model IMPLAN IMPLAN is the most commonly used tool to evaluate supply chain impacts of transmission investments. It also calculates impacts of local spending of labor income and payments to local suppliers. We call these indirect impact in this study. and then reality-checked against results of other studies that included more detailed Project data 31

63 Employment Impacts Transmission Construction Impacts Direct employment related to construction activities average between 620 and 970 full-time equivalents 1 (FTEs) per year for three years The variation is between the low and high construction cost estimates provided by AEP, heretofore referred to as the low cost and high cost cases Related activity along the supply chain and elsewhere in the regional economy leads to indirect employment of 810 to 1,340 FTEs per year for three years This is a total of 1,440 to 2,910 FTEs per year Annual FTEs (for 3 years) Total FTEs Direct Indirect Total Direct Indirect Total Low cost case ,440 1,870 2,450 4,320 High cost case 970 1,350 2,320 2,920 4,040 6,950 1 An FTE is the equivalent of one person working full time for one year, though it may represent a combination of multiple part-time employees or overtime by full-time employees 32

64 Employment Impacts Transmission Construction Impacts Our estimates are more conservative than almost every other transmission construction impact study reviewed, when compared on a comparable investment level (FTEs per $1.5 billion (2012$) in construction capital costs) Project Name Location Length Capacity Total Capital Cost (2012$) 1 Wyoming HVDC / HVAC Export Wyoming 225 mi (HVDC) /310 mi (HVAC) 3,000 MW / 1,500 MW $2.2 billion / $1.3 billion Total FTEs per $1.5 billion Direct Indirect Total 7,463 16,701 24,165 2 Generic U.S. line U.S. average 18,500 3 Plains and Eastern Clean Line Project Oklahoma / Arkansas / Tennessee 750 mi 7,000 MW $3.6 billion 3,717 13,820 17,536 4 Rock Island Clean Line Iowa / Illinois 500 mi 4,000 MW $1.5 billion 4,850 12,275 17,124 5 Maine Power Reliability Program Maine $1.6 billion 5,943 2,233 8,175 6 This Project - High Cost Case New York 250 mi 1,000 MW $1.5 billion 2,920 4,030 6,950 7 Champlain-Hudson Power Express New York 333 mi 1,000 MW $2 billion 900 3,600 4,500 8 Arrowhead-Weston Line Wisconsin 220 mi 4,000 MW $321 million 2,455 9 M29 Transmission Line New York 350 MW $480 million 1,384 Not given Study authors: 1) NREL, 2) Brattle Group, 3) Perryman Group, 4) Loomis Consulting, 5) Maine Ctr for Business and Economic Research, 6) CRA, 7) LEI, 8) NorthStar Economics (for ATC), 9) Con Edison 33

65 Employment Impacts Transmission O&M Impacts Includes operations, maintenance and repair work at the converter stations and along the transmission line Adjusted O&M annual costs of other studies to match project specifics Previous studies have suggested up to 1% of total capital costs are spent per year on O&M Conservatively adjusted to 1/3 of that level to reflect differences in construction FTE estimates The FTEs are annual for the life of the line (X years) Annual FTEs Direct Indirect Total O&M

66 Employment Impacts New Generation Construction Impacts We used the High Wind Case as the basis for evaluating impacts of constructing and operating new generation as a result of the line Assumes 2.4 GW of wind turbines are installed from We used NREL s JEDI model to estimate the New York State employment impacts of the new wind farms Adjusted the turbine sourcing assumptions to reflect the actual state of wind-related manufacturing in New York (GE s local plants supplied 30% of installed and underconstruction wind farms in New York State) Sources: NY Dept of Environmental Conservation, Energy Velocity, developers websites and filings, CRA Analysis 35

67 Employment Impacts New Generation Construction Impacts Direct employment related to construction activities average between 610 FTEs per year for three years Related activity along the supply chain and elsewhere in the regional economy leads to indirect employment of 3,650 FTEs per year for three years About 850 of these annual FTEs are related to in-state turbine manufacturing This is a total of 4,260 FTEs per year for three years Annual FTEs (for 3 years) Total FTEs Direct Indirect Total Direct Indirect Total 610 3,650 4,260 1,830 10,950 12,780 36

68 Employment Impacts New Generation Construction Impacts These estimates are similar to estimates from other studies that assume similar levels of component imports, when compared on a comparable capacity level (FTEs per MW of wind) Project Name Location Estimated Wind Build Regional turbine manufacturing Average FTEs per MW of Total FTEs Wind Capacity Direct Indirect Total Direct Indirect Total Rock Island Clean Line Iowa / Illinois 4 GW 100% 3,888 35,112 39, Renewable Energy in Pennsylvania Wind Energy Development in Illinois Wind Energy Development in Washington Wyoming Transmission Study Pennsylvania 3.6 GW 0% 28, Illinois 1.9 GW not specified 1,473 8,495 9, Washington 1.7 GW 20% 4,050 4,650 8, Wyoming 9 GW 0% (50% of towers) 2,300 19,700 22, Project New York 2.4 GW 30% 610 3,651 4, Wind Energy Development in Colorado Colorado 1.8 GW 10% 1,290 1,500 2,

69 Employment Impacts New Generation O&M Impacts Includes operations, maintenance and repair work at the wind farms and its connections, as well as off-site management The JEDI model also estimates O&M employment impacts These were not adjusted from the model s presets Annual FTEs Direct Indirect Total O&M

70 Employment Impacts Summary Tables Construction ( ) Transmission Average Annual FTEs Total FTEs Direct Indirect Total Direct Indirect Total Low ,441 1,873 2,449 4,322 High 972 1,345 2,317 2,916 4,035 6,951 Wind 610 3,651 4,261 1,830 10,954 12,784 Total Low 1,234 4,467 5,702 3,703 13,403 17,106 High 1,582 4,996 6,578 4,746 14,989 19,735 O&M (ongoing) Annual FTEs Direct Indirect Total Transmission Wind Total

71 Appendix E: Photos of Converter Station

72 ABB Group May 29, 2012 Slide 1 Cross Sound Cable, Shoreham converter station, 330 MW, aerial view. Building dimensions are 80 x 25 x 11 m (L x W x H).

73 Possible layout of compact VSC station for 500 MW. Dimensions in this configuration are 48 x 25 x 27m (L x W x H). Ground floor: Transformer and ACside filters. First floor: Phase reactors, converter valves, control and cooling equipment, DCside filters and cable terminations. Second floor: Cooling fans, which may be omitted if a nearby river or other water is available for cooling. ABB Group May 29, 2012 Slide 2

74 Appendix F: High-Level Project Schedule

75 Mohawk Valley Line - HVDC Cable Schedule (May 2012) - DRAFT Public Outreach & Preparation of Siting Application Article VII Application Submittal & Review Environmental Management & Construction Plan NYISO Reliability Impact Study / System Impact Study 250 MILES, 1,000 MW HVDC TRANSMISSION LINE ROW Acquisition Engineering & Procurement Line Construction Target In-Service Date 2018

76 Appendix G: Photos from Murraylink Project Photos of the HVDC line being laid underground using trenching equipment modified for the installation of the HVDC underground cables.

77 ABB Group May 29, 2012 Slide 1

78 ABB Group May 29, 2012 Slide 2

79 ABB Group May 29, 2012 Slide 3