2547 1 THIS TRANSCRIPT CONTAINS 186 PAGES 2 NUMBERED 2547 THROUGH 2732 3 4 5 STATE OF CONNECTICUT 6 DEPARTMENT OF PUBLIC UTILITY CONTROL 7 8 9 Docket No. 05-07-14 PH02 10 DPUC Investigation of Measures to Reduce 11 Federally Mandated Congestion Charges 12 13 14 Prebid Conference held at the 15 Legislative Office Building, Capitol Avenue, 16 Hartford, Connecticut, on October 10, 2006, 17 beginning at 10:05 a.m. 18 19 20 H e l d B e f o r e: 21 The Hon. DONALD W. DOWNES, Chairperson 22 ROBERT LUYSTERBORGHS, ESQ., Legal Advisor 23 24 25 UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2548 1 A p p e a r a n c e s: 2 For the Connecticut Light and Power 3 Company: 4 NORTHEAST UTILITIES 5 107 Selden Street 6 Berlin, Connecticut 06037 7 By: DANIEL P. VENORA, ESQ. 8 9 For the United Illuminating Company: 10 WIGGIN & DANA, LLP 11 One Century Tower 12 New Haven, Connecticut 06510 13 By: LINDA RANDELL, ESQ. 14 15 For Kleen Energy Systems, LLC: 16 PULLMAN & COMLEY 17 90 State House Square 18 Hartford, Connecticut 06103 19 By: FREDERIC LEE KLEIN, ESQ. 20 21 22 23 24 25 UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2549 1 A p p e a r a n c e s (Cont'd.): 2 For Environment Northeast: 3 ENVIRONMENT NORTHEAST 4 15 High Street 5 Chester, Connecticut 06412 6 By: ROGER E. KOONTZ, ESQ. 7 8 For NRG Energy: 9 MURTHA, CULLINA, LLP 10 CityPlace I. 11 185 Asylum Street 12 Hartford, Connecticut 06103-3469 13 By: PAUL R. McCARY, ESQ. 14 15 DPUC Staff: 16 MARK QUINLAN 17 MIKE CHOWANIEC 18 19 For London Economics International, LLC: 20 JULIA FRAYER 21 BRIDGETT NEELY 22 DANA ZENTZ 23 24 25 UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2550 1 THE CHAIRPERSON: Good morning 2 everybody. I'll start by introducing myself. 3 My name is Don Downes. I'm the Chairman of 4 the Department of Public Utility Control, and 5 I'll be presiding at today's prebid 6 conference. 7 First I want to thank you all 8 for coming. We very much appreciate the 9 turnout. We've actually been very pleased by 10 the process so far. We have some 80 proposal 11 registrations from 45 potential bidders, 12 which I think is remarkable, and so I'm 13 pleased to have you all here today. 14 The object of today's exercise 15 is to try and provide as much information as 16 we can and respond to bidders' questions on 17 the RFP process. The conference also will 18 serve as our technical meeting on contract 19 templates, so we would also be interested in 20 hearing bidder views and questions on the 21 contract templates that were issued in 22 September. 23 We'll be taking bidder views 24 into consideration in the final contract 25 template, which should be issued by the end UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2551 1 of October, and given that the redlines were 2 submitted on October 6, we'd appreciate it if 3 you would limit your comments to the 4 substantive issues. 5 There is an agenda -- well, at 6 least used to be, and we'll replenish the 7 supply of agendas over here on the corner of 8 the front riser as well as copies of the 9 slides, and so forth. We are running out of 10 some of these pieces. We're busy copying 11 more copies of the slide presentation. Those 12 will be available, again, down in the corner 13 here to the right. 14 As you notice, there is no 15 signup sheet. A number of you are already 16 known to us, and so you can't avoid that. 17 Others of you are people that we have not had 18 the pleasure of seeing before in our 19 presentations. You are welcome to identify 20 yourselves or not, as you choose. 21 We have received a substantial 22 number of questions through e-mail, and we 23 plan on addressing those. To the extent that 24 we have live questions from people here, we'd 25 encourage you to jot them down on a piece of UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2552 1 paper and provide them to us. And, again, if 2 you want to identify yourself, fine; if not, 3 that's okay, too. We'll go through and read 4 out the questions and provide the answers for 5 you as best we can. 6 The agenda for the day is 7 first off to start off with a presentation. 8 We'd like to walk you through a presentation 9 that we've developed on the RFP process and 10 the related issues. We think that it will 11 probably answer a good number of questions 12 which you may already have. We'd like to try 13 and walk through this entire presentation, if 14 we can, please. So if you have questions, 15 take your copy of the Powerpoint presentation 16 and please write yourself a little note. 17 There's some more being delivered right 18 there. 19 This afternoon when we 20 reconvene after lunch -- we'll try and break 21 for about a 60-minute lunch hour, roughly 22 from noon to one. At 1:00 when we return, 23 we'll begin with questions from the slides. 24 Then we'll go to questions from the e-mail 25 bag; and then we'll go to live and in-person UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2553 1 questions. 2 The RFP coordinator is 3 available after this conference through the 4 rest of the RFP process and will be happy to 5 address whatever additional questions you may 6 have after this process through the Q and A 7 page of the website. Again, those will be 8 done on the same anonymous basis. We'll 9 simply state the question and then provide 10 the answer. 11 So let me introduce the 12 players to you, if I might here, just so 13 everybody knows who we are. 14 MS. FRAYER: Musical chairs. 15 THE CHAIRPERSON: Yes, first 16 and foremost the people who are moving around 17 the room most frequently are our very valued 18 consultants here. On your left, Julia Frayer 19 from London Economics, and on your right, 20 Bridgett Neely from London Economics. These 21 folks have been invaluable to us, along with 22 Dana Zentz, who is the person to your far 23 right on the upper riser. 24 Next, working our way down the 25 riser, DPUC's very own Mark Quinlan, the head UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2554 1 of our electric unit. I introduced myself. 2 My esteemed counsel and colleague, Rob 3 Luysterborghs, and the head of our 4 legislative and services group, Mike 5 Chowaniec. 6 So we're all here at your 7 service here. We'd like to again start with 8 the presentation through the slides. Again, 9 if you have questions as we go, please mark 10 them down. We'll return and collect those 11 first and work our way through this when we 12 finish the presentation. 13 So maybe at this point I will 14 again introduce Julia Frayer and ask her if 15 she will start the process. 16 MS. FRAYER: Thank you, 17 Chairman, and I'm actually going to hand it 18 off right away to Bridgett Neely, who will 19 start the discussion this morning on the RFP. 20 MS. NEELY: Good morning 21 everybody. Does that work? 22 So what I'm going to do this 23 morning is just walk you through the main 24 elements of the RFP just to highlight the 25 most important parts. As the Chairman noted, UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2555 1 we will be answering any questions you may 2 have this afternoon, so as I go through, 3 unless there's really a specific bullet point 4 you didn't understand, let's hold the main 5 questions until the afternoon. 6 One other comment I wanted to 7 make, we really summarize the key points of 8 the RFP and the contract in this 9 presentation; however, we would direct you to 10 the exact language in the RFP and the 11 contract for purposes of writing your 12 proposal. 13 The main objective of this RFP 14 process really is to reduce the impact of 15 FMCCs for Connecticut ratepayers and, as 16 such, to develop a new or incremental 17 capacity that's located in Connecticut. 18 That's what our emphasis is, making sure that 19 any generation projects are electrically 20 located in Connecticut, which means that they 21 can serve Connecticut's locational sourcing 22 requirement for ISO New England, or for 23 demand resources that they are geographically 24 located in Connecticut. 25 This is a contract for UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2556 1 differences, as we'll discuss later this 2 morning. Therefore, the pricing in the 3 contract will settle against ISO New England 4 markets. The contract, it is mandatory that 5 we price against the forward capacity market 6 for almost all projects. We'll discuss 7 exceptions a little later. And at the bidder 8 option, it's also possible to settle against 9 the locational forward reserve market as well 10 as against the day-ahead energy market. 11 The contract term can be up to 12 15 years and will be settled -- the 13 counterparties to these contracts will be the 14 electric distribution companies in 15 Connecticut, initially based on the 16 geographic location of the project, though 17 there may be some reallocation at the end 18 just to make sure that that allocation is 19 equal based on the load basis of the electric 20 distribution companies. 21 There are two different 22 contract templates which are available on the 23 RFP website, one for generation assets and 24 one for all demand resources, and we want to 25 clarify that we've been going along the UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2557 1 process of ISO New England as they have been 2 evolving their definitions of these 3 resources. We originally had three different 4 contract templates, one for generation, one 5 for demand response and one for other demand 6 resources. Now that ISO, for the purposes of 7 the forward capacity market, has changed its 8 definition to integrate those two assets into 9 one large demand resource contract, we 10 followed suit, so we now only have one 11 contract for demand resources. 12 Finally, bids in this process 13 will be evaluated using predominantly a cost 14 benefit analysis for the economic portion and 15 then applying a more qualitative assessment 16 of another factors which represent 17 Connecticut's policy priorities that we've 18 worked through. And, again, we'll discuss 19 all these issues in more detail as we go 20 through today's presentation. 21 The RFP deadline, very, very 22 important. The process going through right 23 now, obviously the first phase is finished. 24 The registrations were due last week. 25 The next important deadline is UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2558 1 November 13, by which point all of the 2 qualifications packets will be due. 3 December 13, the next most 4 important date, will be the financial bid 5 date, since that's the date the financial 6 bids are due as well as the security deposits 7 for the bids. 8 We expect that the DPUC will 9 issue a decision on selecting the projects no 10 later than April 23, 2007. That is a 11 no-later-than date. If we can make that 12 process more quick, we will, but that's sort 13 of our outer bound for that process. 14 Within two weeks of that date, 15 the electric distribution companies will have 16 executed the contracts and submit them to the 17 DPUC, and again at that point, from that date 18 onwards there is an additional six-month 19 period for DPUC approval of the contracts. 20 So our outer bound or final DPUC approval of 21 all contracts will be November 8, 2007. The 22 DPUC will do all it can to make that process 23 as quick as possible so that, again, is an 24 outer bound date for you. 25 MS. FRAYER: As some of you UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2559 1 may already know by looking at the docket, 2 the record in the docket at the Commission, 3 there's a voluminous amount of information 4 that has been presented and discussed and 5 commented upon over the last six months, so 6 the September 15 issuance of the RFP has a 7 strong foundation behind it. One of the 8 foundation pieces that were put together is 9 an investment needs analysis, which is a 10 quantitative analysis of the incremental 11 capacity needs for the state of Connecticut 12 under different market outlooks. And right 13 behind you there is a summary of that that's 14 taken as an excerpt directly from that 15 investment needs report. It was referred to 16 as the August 25 needs assessment - revised 17 in the interim decision from the Department. 18 The bottom line from that 19 investment needs is that based on four 20 different scenarios that looked at a variety 21 of supply and demand outlooks, with the 22 demand outlooks primarily composed of 23 different ISO New England forecasts for 24 demand for Connecticut, there's an 25 incremental capacity need ranging around UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2560 1 630 megawatts in the short term that rises 2 unsurprisingly in the long term to a range of 3 1,500 to approximately 2,500 megawatts by 4 2021. 5 The investment needs was done 6 geographically and was done also on a time 7 dimension covering a hypothetical 15-year 8 period starting from the near term. 9 The investment needs was also 10 done on the basis of a product or FMCC 11 perspective given that that's the objective 12 of this RFP, and therefore we analyzed which 13 ISO New England product market, either the 14 forward capacity market, which is represented 15 as FCM on the graph, or the locational 16 forward reserve market, represented by LFRM 17 in the graph above, which one of those is 18 driving that incremental capacity need over 19 time. 20 The analysis was done at this 21 point based on just the quantities of 22 incremental capacity above and beyond the 23 existing supply mix. Therefore, it's 24 important to keep in mind that on top of 25 this, there will be considerations for UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2561 1 reliability, for the effectiveness of new 2 capacity vis-a-vis existing and planned 3 transmission expansions, which is all 4 discussed in much more detail in the needs 5 assessment, so I would strongly recommend 6 that if you haven't already, to take a look 7 through that document. 8 The needs assessment also has 9 importantly been tailored to be consistent 10 with and correspond to the bid evaluation, 11 the economic portion of the bid evaluation, 12 which will also take on a scenario analysis 13 approach to looking at the expected cost and 14 expected benefits of projects as they impact 15 the ISO New England markets and therefore 16 costs to load to ratepayers of the electric 17 distribution companies. 18 The other point to keep in 19 mind, which has probably been something of a 20 well known at this point from the RFP 21 perspective, is that the Commission is using 22 this investment needs as a benchmark or point 23 of reference. However, the Department -- and 24 I'll let the Chairman speak clearly to that 25 if he wants to add on -- will be making or UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2562 1 selecting projects in light of the actual 2 financial bids because it is a cost benefit 3 analysis, and of course the financial bids 4 are a key component of that, the actual bids 5 that we receive in December as well as other 6 policy priorities, so there is no commitment 7 on behalf of the Department to procure 8 629 megawatts or 2,483 megawatts or any 9 particular number, but it is an important 10 reference point. 11 MS. NEELY: The issue of 12 eligibility in the RFP was originally driven 13 by the Energy Independence Act, which is what 14 mandated the DPUC to launch and run this RFP 15 process. As such, our original eligibility 16 criteria are defined by the terms in the EIA, 17 which is to include but not be limited to 18 generation, grid-side distributed resources 19 and customer-side distributed resources. 20 We're trying to be as open-minded and 21 flexible as possible. We want to encourage 22 all possibly eligible projects to 23 participate. 24 It is required that the 25 projects be located in Connecticut, again, UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2563 1 electrically for generation assets and 2 physically for demand resources. 3 The projects that bid in must 4 be -- must represent new or incremental 5 capacity. What we're taking as new capacity 6 is any asset that's not listed in ISO's CELT 7 report. In addition to that, we will also 8 count as new capacity deactivated units, so 9 they would be listed in the CELT report as 10 deactivated as long as they are replaced or 11 refurbished within three years of the new 12 contract. 13 In addition, we'll also 14 consider as new capacity refurbished or 15 repowered projects as long as they meet 16 several conditions. Those conditions are 17 that the aggregate capacity at the site 18 increases for a fixed amount of time, which 19 must be contractually binding; that the 20 assets were originally at least 30 years or 21 more -- at least 30 years old; and that the 22 new investment increases capacity by the 23 larger of 40 megawatts or 20 percent of the 24 site's summer installed capacity -- summer 25 demonstrated capacity, sorry. UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2564 1 If those conditions cannot be 2 met, then the incremental portion of new 3 capacity can be bid in. So that's an 4 important difference in terms of identifying 5 what part of your project would be bid in. 6 In addition, demand resources 7 which may currently be under existing 8 programs through either the DPUC or through 9 ISO can bid for the period of time when their 10 funding ends. So they cannot bid into the 11 project if their funding still goes through 12 2008, but as of when their funding ends, they 13 can bid for the contract period that starts 14 as of the point in time when their funding 15 period ends. 16 MS. FRAYER: One thing to keep 17 in mind with the criteria for eligibility, 18 the idea behind all of these different 19 elements is really to ensure that there are 20 tangible benefits to Connecticut ratepayers. 21 So each of these factors were designed with 22 specific objectives in mind that are, again, 23 related back to the Energy Independence Act. 24 The electrical and physical 25 location relates back to the fact that it is UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2565 1 imperative for the purposes of ratepayers and 2 therefore for policy makers that new capacity 3 is actually quote, unquote, counted by ISO 4 New England as fulfilling Connecticut's local 5 sourcing requirement, and that is one of 6 the -- one of the factors that gets 7 considered. 8 The focus on new or 9 incremental capacity is also very important 10 because the impact -- there won't be any 11 demonstrable impact in terms of FMCCs if 12 there isn't new capacity added to the supply 13 mix. 14 So in case there are comments 15 on that, we definitely want to entertain them 16 in the afternoon or after this presentation, 17 but keep in mind that the criteria have been 18 mapped against the requirements that are part 19 of the statute. 20 MS. NEELY: The next couple of 21 slides will walk you through the minimum 22 requirements in the RFP. These, again, are 23 more general statements, and we can talk 24 through them in more detail this afternoon. 25 There's four categories that UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2566 1 we've come up with. The first one is just a 2 general minimum requirements in terms of 3 being -- making sure you're eligible to 4 participate and that you get through the 5 entire RFP process. 6 First of all, obviously, the 7 slide previously where we discussed 8 eligibility criteria, you need to meet those 9 or your project needs to meet those as a 10 minimum requirement, and obviously being 11 eligible to serve as Connecticut's local 12 sourcing requirement is a crucial part of 13 that. 14 Bidders must be willing to 15 sign the DPUC-approved master contracts. We 16 received a lot of comments last week. We're 17 very grateful for them. They provided some 18 useful input for us moving forward. We plan 19 on issuing revised contracts by the end of 20 the month to you, and those will represent 21 the master, but we will be taking all of your 22 comments very seriously. 23 With that said, once those 24 final contracts are issued, we will not be 25 making any major changes to them, so that the UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2567 1 bidders needs to be comfortable with those 2 contracts and be willing to sign those 3 contracts, the main provisions of the 4 contracts. 5 And then sort of more general 6 administrative things, the proposal must be 7 submitted on time, must comply with 8 submission instructions. We do have sort of 9 a dual filing process where things are sent 10 to the RFP coordinator as well as to the DPUC 11 just because this is a DPUC run event as 12 well, and so filing with both entities is 13 very important. 14 In addition, when the 15 financial bids are submitted in December, the 16 proposal must be binding and must be binding 17 through November 8, 2007 due to the length of 18 the approval process. It's possible, as I 19 said earlier, that that might happen more 20 quickly, but we do need for bidders to commit 21 to that time frame in advance. 22 In addition, the project 23 security deposit must also be submitted at 24 the same time as the financial bids are 25 submitted on December 13. UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2568 1 The next category of minimum 2 requirements are more technical requirements, 3 and this is what we're evaluating in the 4 forms we request detailing the experience of 5 the project team. We are -- will be looking 6 for the team to be -- to demonstrate that 7 they have the sufficient managerial, 8 technical and financial experience to 9 develop, construct and operate this project 10 and to bring it to full operations. 11 All projects, with some demand 12 resource exceptions, which we'll discuss 13 later, must meet the technical and operating 14 requirements of the forward capacity market 15 in ISO New England based on their project 16 type. So, again, if you're a generating 17 plant, if you're distributed generation or 18 you're demand resources, there are different 19 requirements, obviously, for those different 20 types of projects. 21 MS. FRAYER: And the other two 22 categories are something that we sort of 23 already talked about earlier today, about the 24 electrical and physical location of that 25 resource both for demand resources and UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2569 1 generation. We are very mindful of the fact 2 that, in effect, the supplier has to also 3 coordinate not only with ourselves but also 4 with the system operator here in New England 5 and other regulatory and siting agencies 6 within the state, and that is actually 7 another, I guess, technical requirement on 8 the project that is something that we believe 9 the supplier is taking on, but we are also 10 asking for information from the 11 qualifications submission to understand where 12 you are in the process with respect to 13 interconnection permitting, and so forth. 14 MS. NEELY: The third category 15 of minimum requirements are financial minimum 16 requirements. As we said earlier, the 17 financial bid is firm and must be binding 18 through November 8. The bidder must 19 demonstrate that it is financially able to 20 secure the project and the contract. It must 21 also demonstrate that it has a viable plan to 22 finance the project. We're asking for that 23 information about project financing 24 qualification process on November 13. By 25 December 13 we're expecting to see some firm UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2570 1 commitment letters for financing. 2 In addition, winning bidders 3 must be able to post the completion of the 4 performance security if they actually are 5 selected when the contracts are approved. 6 MS. FRAYER: The project 7 security deposit that is submitted with the 8 financial bid is refundable to all those 9 projects that are not selected. 10 MS. NEELY: Finally, a couple 11 of words about siting. The bidder is 12 responsible for meeting all federal, state, 13 local environmental siting and permitting 14 requirements, and they also must demonstrate 15 some level of site control. We're not 16 setting a specific level of site control or 17 permitting that we're requiring in advance. 18 However, these issues will be assessed as 19 part of the bid evaluation process, 20 specifically when we analyze the project 21 execution risks of the project. So the 22 further advanced the project is in terms of 23 siting control, in terms of the permitting 24 process, the higher ranked that project will 25 be. So it's more to each bidder's benefit to UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2571 1 really advance that and demonstrate to us 2 that you've pushed that along. 3 MS. FRAYER: And, again, I 4 think what we're trying to do is also 5 intentionally but indirectly coordinate with 6 other processes in New England new generation 7 resources as well as demand resources. We'll 8 be showing to ISO New England over the next 9 six months a show of interest form on this, 10 and there are upcoming deadlines for ISO, 11 filings that require the same or similar 12 information, so in effect there's a kill two 13 birds with one stone concept going on here. 14 MS. NEELY: Just one thing, 15 you know, we've added. There has been a 16 lengthy stakeholder process as we've designed 17 this contract and there's been a new element 18 that's been added since the last meeting, so 19 we thought it might be useful just to talk 20 through it a little bit more for you. One of 21 the things we discussed at length with a 22 group of you, how we might settle against the 23 energy market, and this is what we've 24 ultimately decided on. We've included as an 25 option to bidders a one-way call option UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2572 1 against the day-ahead energy market, which 2 will provide a hedge against energy prices in 3 exchange for providing a fixed level of 4 revenues to bidders. 5 The call option ultimately is 6 a fixed for variable swap on a certain amount 7 of capacity. The bidder can designate the 8 call option contract quantity, which can be 9 equal to or less than the amount they 10 designate for the forward capacity 11 settlement. 12 MS. FRAYER: The bidder would 13 also submit the capacity payment that they 14 want to earn on a monthly basis -- or annual, 15 effectively, basis over the term of the call 16 option, and other parameters of the call 17 option as well, including the strike price 18 and how that strike price, if it does at all, 19 changes over the contract term. 20 So there's a lot of 21 flexibility built in here. The idea was to 22 take a lot of the proposals we had during our 23 last technical meetings on the RFP and 24 contract, including the oral arguments we've 25 heard on the draft decision, and to UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2573 1 incorporate what we thought would be the 2 methodology or an instrument that would 3 actually effectively achieve almost every 4 single one of the proposals in one form or 5 another that was before us. 6 The call option, which is 7 important also to keep in mind, is a 8 financial call option consistent with the 9 financial structure of the overall contract, 10 but because it is settled against the 11 day-ahead energy price at the Connecticut 12 load zone, it is an important -- it is very 13 important for bidders to consider what the 14 risk versus reward tradeoffs are for this 15 type of product. 16 From our perspective, the 17 benefits from a ratepayer perspective is 18 really that it could be structured as a hedge 19 against or can be seen as a hedge against 20 energy prices. 21 MS. NEELY: And, again, if you 22 have questions on this, we can discuss this 23 in more detail this afternoon because we know 24 it's a new concept. 25 So the next couple of slides UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2574 1 are dedicated just to walk you through the 2 steps of the proposal. As I said, there's 3 two main deadlines for bidders that are 4 coming up. The first one is November 13, 5 which is the qualifications package, and 6 there we're looking for five different 7 documents to be submitted. 8 The first is just a very 9 cursory administrative form, the introduction 10 to the bidder team in writing, your legal 11 status, tax number, some really basic 12 administrative details, about two pages. 13 Appendix F is minimum 14 technical requirements, and that's really 15 looking for information about the bidder team 16 and your previous experience and just 17 demonstrating to us why you have the 18 technical and managerial skills to develop 19 and operate this project. 20 Likewise, Appendix G, the 21 financial questionnaire, is demonstrating the 22 bidder's financial capabilities to manage and 23 develop the project, be able to sustain the 24 project. 25 Appendix H is more detailed. UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2575 1 There's both questions that are written in 2 the RFP as well as an Excel template that 3 needs to be filled out, and that's really 4 looking at the specifics of the project. We 5 issued an addendum to the RFP last week where 6 we did state -- and I just want to reiterate 7 here -- we'll be slightly amending those 8 questionnaires just to reflect some of the 9 more recent changes in the contract, so 10 please just look on the website, it will be 11 up by the end of the week, and pull down the 12 most recent versions of both the Word and the 13 Excel file for those documents. 14 If you have questions, if you 15 think that some of the questions don't apply 16 to your project, please e-mail or call us and 17 talk through that so that we're clear. We 18 would prefer not to be receiving forms that 19 have "to be determined" or "not applicable" 20 when they really are applicable or really 21 should be determined by that point. 22 Finally, Appendix I is the 23 anticipated project financing. Here we'd 24 like you to lay out what your anticipated 25 plan in terms of debt and equity are for the UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2576 1 project. 2 As we say further down, some 3 of these forms can be updated later. We 4 would really like your best efforts as of 5 November 13 on this information. At the time 6 of the financial bid submission on 7 December 13, we'll expect you to fill in the 8 financial bid templates, which again will be 9 revised by the end of this week and put back 10 on the website. 11 In addition, if you need to 12 amend Appendix F, which talks about minimum 13 technical requirements, if you added somebody 14 new to your team, for example, or Appendix H, 15 which gives all the details of the project, 16 if certain small details have changed and you 17 want to amend those, or if you've changed 18 some small aspects to your project financing, 19 you can amend those forms and resubmit them. 20 We do request that you only do this if really 21 absolutely necessary and you tell us why, 22 that there is actually a compelling reason 23 for that change, when you submit those 24 amended forms. 25 On December 13 as well you'll UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2577 1 need to submit your project security deposit. 2 MS. FRAYER: And we'll post 3 more information on the website about some of 4 the dynamics for how to actually submit that 5 project security deposit because it can take 6 a number of different forms, cash and letter 7 of credit. So we will provide some more 8 information on the RFP website over the next 9 few weeks. 10 One thing also to make sure 11 everybody understands, the linkages between 12 these appendices that you're submitting on 13 the parameters of the projects and then the 14 contract terms and also, in the interim, the 15 bid evaluation, we will take all of the 16 information that's part of the submissions 17 and use that as the basis for measuring the 18 potential impact on cost to load on 19 ratepayers. So each of the questions -- each 20 of the parameters that we're asking about in 21 the technical requirements and project 22 description is very important. It's going to 23 help us evaluate project execution risk. It 24 will help us also to understand what the 25 technical description and therefore the UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2578 1 economic description of the projects are. 2 Furthermore, many of these 3 appendices, as discussed in the RFP, are then 4 incorporated in full in the contract as part 5 of the contract, so effectively they're the 6 confirmation term sheets. So once they are 7 submitted -- once they are final with the 8 financial bid submission, they will be 9 incorporated almost in their entirety into 10 the contract and therefore make up the terms 11 of the contract. So it's very important that 12 careful detail is -- very careful 13 consideration by bidders is taken to these 14 submissions. 15 MS. NEELY: We ask that forms 16 be thoroughly completed for both the 17 qualification and the financial bid phase. 18 We will not accept "to be determined" on the 19 forms unless it's really absolutely 20 necessary. On some of the registration 21 forms, a lot of -- not a lot of people but 22 some bidders did put "to be determined" on 23 virtually every aspect of the form. That 24 will not be acceptable at the qualification 25 level. So if you have questions, please call UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2579 1 us, and we can talk you through it. We 2 really want these forms filled out entirely 3 for them to be considered. 4 I think the rest of the points 5 we covered here. Forms must be submitted by 6 the due date as well. So I just want to 7 reiterate those two deadlines for you, 8 November 13, December 13. Very important. 9 MS. FRAYER: What we wanted to 10 do now with -- I think this is basically the 11 end of our talking, hopefully, at this point 12 before we step into the contract templates, 13 was to go through very quickly the bid 14 evaluation process. I know that this is the 15 particular aspect of the RFP that raised a 16 lot of questions in our previous technical 17 meetings at the Department. 18 I think of the bid evaluation 19 process as consisting of three stages, and in 20 the first stage it's effectively a 21 preliminary identification for internal 22 purposes of potential winning projects 23 through a combination of economic analysis 24 where we're looking at the cost versus 25 benefit tradeoff of the projects submitted to UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2580 1 us from the perspective of ratepayers. 2 There's also an analysis of other factors, 3 which are both quantitative and to some 4 degree qualitative. We will describe in a 5 few minutes the scoring metric that we've put 6 together. There's effectively a scoring 7 approach. The other factors are supposed to 8 represent 15 percent of the total score of a 9 project, while the economic analysis, the 10 cost benefit analysis is intended to 11 represent 85 percent of the total score. 12 In addition, we will do also 13 an analysis of project execution risk because 14 all of our analysis, especially since it's 15 over a multiyear time frame, is going to be 16 discounted to present value dollar terms, and 17 we are going to be using in the discount rate 18 a single discount rate across all projects. 19 Therefore, the relative execution risks and 20 market risks and technical risks of different 21 projects will be encapsulated through this 22 project execution risk component. 23 Once we have done an analysis 24 of each project individually and then ranked 25 the different projects, the next step is to UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2581 1 look at the portfolio of preliminary sort of 2 winning projects to understand where there 3 are tradeoffs between projects. And then as 4 part of that, as part of the portfolio 5 analysis, we will also consider whether there 6 are any concerns or considerations for market 7 power issues, which has been raised as a 8 substantial issue by some of the policy 9 makers here in the state. And that will 10 actually then lead us to the final 11 identification of winning projects. 12 Each of these stages are 13 described in much more detail within the RFP. 14 There's a whole section in the RFP dedicated 15 to this, but we'll be happy to step through 16 them in a little bit more detail and also 17 take questions this afternoon or later this 18 morning. 19 For the economic analysis, the 20 cost benefit analysis, it's effectively, the 21 way I like to describe it, sort of an impact 22 analysis, what happens to cost to load, 23 because market prices change, due to the 24 introduction of a new project, be that a 25 demand resource project or a generation UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2582 1 project. So effectively there's two steps to 2 it. There's a development of a baseline 3 outlook of market prices and therefore cost 4 to load under a variety of future market 5 conditions. That's our benchmark scenarios. 6 And that's done without any specific projects 7 in place but with some of the generic entry 8 depending on the underlying assumptions for 9 each of the scenarios. The scenarios we are 10 using are detailed in the RFP and they are 11 consistent with the four scenarios that I 12 have highlighted originally on the screen, 13 though for the actual cost benefit analysis 14 we're doing many more than just four 15 scenarios to make sure that we are capturing 16 a lot of the potential uncertainties in the 17 market. 18 Once we've established the 19 baseline, we then move to look at each of the 20 project's incremental impact on the market 21 prices and market quantities, and that 22 basically requires us to run another 23 simulation of market prices with the 24 particular project that we're investigating 25 incorporated based on the commercial UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2583 1 operation date and all the technical 2 parameters that the project provided in their 3 qualifications package. 4 We then can compare the annual 5 costs to load between the impact scenarios 6 and baseline outlook, and that provides us 7 effectively with the benefits to ratepayers 8 from the project. 9 As I mentioned earlier, we 10 will look at the present value of those 11 benefits so that we can compare projects with 12 different commercial operation dates and 13 different contract terms on an 14 apples-to-apples basis. 15 On the cost side of the cost 16 benefit equation, what we will evaluate is 17 the cost of the contract and therefore the 18 project to ratepayers, again using the impact 19 scenarios where we incorporated the impact of 20 the project on market prices and the selected 21 settlement options that the project has 22 committed to in the financial bid submission 23 and the annual contract prices that they have 24 indicated. 25 And this will depend, again, UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2584 1 if a project decides to just settle against 2 the forward capacity market, if it settles 3 against the forward capacity market and the 4 locational forward reserve market, or even a 5 third option or element thereof is if a 6 project chooses also to incorporate the call 7 option as part of its package. 8 To the extent that additional 9 ratepayer funding is known today, that will 10 also be included as a cost item, and I know 11 that in some of the questions we've received 12 to date there's been some questions about 13 what is meant by ratepayer funding, so we'll 14 talk a little bit about that this afternoon. 15 And effectively, again, 16 because the costs are going to vary by time, 17 we're going to discount all the costs using 18 the 9.8 discount rate, which we discussed in 19 the interim decision. 20 And the combination, 21 therefore, of the costs and the benefits is 22 our net benefit to Connecticut ratepayers, 23 which will be the quantitative ranking 24 element, if you will, and economic analysis 25 portion of the bid evaluation. UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2585 1 There's a number of other 2 factors, as we mentioned, that are 3 incorporated. In fact, we've got five other 4 factors, as highlighted in the RFP, and we 5 are going to talk today about a number of 6 those. I wanted to start with environmental 7 emissions. 8 In effect, what we want to do 9 is understand whether or not some of the 10 projects over the term of their agreement or 11 contract reduce emissions. The major sort of 12 pollutants are sulfur dioxide, NOx and carbon 13 dioxide. In order to be able to evaluate 14 projects on an equivalent basis, what we will 15 do is out of the simulations model actually 16 measure the reduction in emissions caused by 17 the project on a ton per kW basis and 18 therefore be able to rank individual projects 19 among their peers within the bidding process. 20 And once that ranking is done, we will then 21 attribute additional points to projects based 22 on their relative ranking among other 23 projects that have submitted bids. 24 The Energy Independence Act 25 also talks about a preference for the use of UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2586 1 existing infrastructure and existing 2 generation sites, and therefore we've also 3 allocated additional points to those projects 4 that propose to use existing transmission or 5 fuel supply infrastructure or existing 6 electrical generation sites, and effectively 7 demand side resources will receive the full 8 benefit of that as well because they are 9 minimizing the introduction of new electric 10 generation sites to the state. 11 The other three categories 12 that we're including is fuel diversity as 13 well as this consideration of front-loading 14 of costs. And then we have a catch-all with 15 what we call "other," which I'll discuss 16 last. 17 The fuel diversity category is 18 meant for us to provide additional points in 19 the bid evaluation process to non-oil and 20 non-gas-fired power plants or projects. 21 Therefore, renewable and demand resources 22 will be granted the maximum amount of points 23 in this category. 24 As we know, I think -- or as 25 is clear within the terms of the RFP and the UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2587 1 contract, any natural gas-fired facility 2 responding to this RFP will have to commit to 3 having a secondary non-gas fuel available. 4 Leaving that aside, however, if it's 5 primarily natural gas fired or primarily oil 6 fired it still will not receive points under 7 this fuel diversity category. 8 The front-loading of costs was 9 an important issue raised because of the 10 tenure of these contracts. Based on the 11 statute, the contracts can run for as much as 12 15 years, and therefore there is a likelihood 13 that in some years there are -- although 14 there may be a positive net benefit over the 15 entire term of the contract to ratepayers, 16 some projects may have quote, unquote, front 17 loading of costs or may actually incur costs 18 that are higher than the benefits they are 19 expected to produce. 20 In order to help us evaluate 21 this consideration, which is an important one 22 from the perspective of ratepayers, rate 23 shock, we want to take into account the year 24 by year, rather than just the present value, 25 but the year-by-year stream of costs and UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2588 1 benefits, and therefore we've constructed a 2 scaling mechanism, a point system where we 3 give additional points to those projects that 4 do not have any negative net cost effectively 5 in their first five years of the contract 6 term and small amounts of points for some 7 smaller amount of increment of negative years 8 of costs. 9 The last "other" factor is one 10 that we want to sort of leave open for 11 bidders to try to provide input to us on. We 12 want to be able to grant an additional two 13 and a half points for other benefits that the 14 project can produce based on information that 15 the bidder will articulate to the DPUC as 16 part of their bid package. For example, if a 17 project sponsor believes that their project 18 improves the reliability of the transmission 19 network or produces very beneficial 20 economic -- local economic impacts or 21 provides other types of benefits to 22 Connecticut ratepayers, for example, 23 increases in tax bases, and so forth, all of 24 those are relevant, and we will definitely 25 consider them to the extent the bidder is UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2589 1 willing to supply us with information on 2 those benefits and qualify those statements. 3 MS. NEELY: We'd be looking 4 for some sort of objective information. I 5 recognize that everybody probably thinks 6 their project is great, but we would need 7 some sort of objective documentation to 8 support those claims, and please submit that. 9 MS. FRAYER: Another area on 10 the reliability of the transmission network, 11 there was definitely a lot of discussion of 12 reliability must-run costs to a special 13 projects. If a new project is reducing the 14 need for an RMR-type asset because of its 15 specific site location and attributes, those 16 are other things that we will consider as 17 well, but these are all very site specific, 18 very project specific, and therefore what we 19 want to do is get the fullest amount of input 20 from the bidder rather than rely on some sort 21 of scaling methodology. 22 MS. NEELY: Just to sort of 23 take one step back, because I know that's a 24 lot of information to throw at you, for those 25 five categories, that's worth 15 percent of UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2590 1 the quantitative score. Environmental 2 emissions is worth 5 points out of that 15, 3 and the remaining four are worth 2.5 each, 4 just to give you a sense of the ranking of 5 those five elements. 6 MS. FRAYER: I thought what we 7 might want to do is keep on moving through 8 the contract. We've probably got I think 9 probably a half dozen slides left or so. So 10 if you guys will be patient with us, we'll 11 take a break after that. 12 MS. NEELY: So just to provide 13 you with an overview of the contract, it is a 14 contract for differences that settles against 15 the ISO markets as they are selected by the 16 bidder. There are three possibles. One is 17 mandatory, the forward capacity market, and 18 the other two are optional. So settling 19 against the locational forward reserve market 20 or the day-ahead energy market are both 21 optional at the bidder's selection in the RFP 22 process. That is not something you can 23 select later on in the contract term. 24 Monthly settlement is based on 25 one-twelfth of the annual contract price UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2591 1 submitted in the financial bid as compared to 2 actual market prices in that period of time. 3 The term of the contract is up 4 to 15 years, to be specified by the bidder in 5 their financial bid. We're very flexible on 6 that. 7 The Connecticut electric 8 distribution companies, Connecticut Light and 9 Power and United Illuminating, will be 10 serving as the counterparties to these 11 contracts. The recovery of their costs is 12 statutorily mandated for this contract. 13 MS. FRAYER: And one thing to 14 note on that is we intend to have one 15 counterparty per project, per contract. 16 Although there are two electric distribution 17 companies in Connecticut, the counterparty 18 will most likely be based on the geographical 19 location of the project within the service 20 territory of either company, but could also, 21 depending prior to the bid selection process, 22 could be redistributed by the Department in 23 order to ensure a fair load ratio basis so 24 there isn't substantial settlement between 25 the distribution companies during the term of UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2592 1 the contract in terms of costs going back and 2 forth, the idea being that all ratepayers 3 from the two electric distribution companies 4 will equally bear the costs of these 5 contracts on a load ratio basis. 6 MS. NEELY: And, finally, just 7 one last point. We realize it's somewhat 8 unusual. The DPUC has a special role in this 9 contract. 10 MS. FRAYER: And the Chairman 11 might want to speak to it later, but an 12 effective way that I like to see it is to 13 recognize that the Department wants to see 14 these contracts reach maturity and success, 15 so it wants to be in a situation where it can 16 ensure that the contracts remain on target -- 17 the projects remain on target and also aren't 18 terminated too early because that's the only 19 way that it can ensure that the anticipated 20 benefits that were used to evaluate the 21 proposed bid and select projects are actually 22 then delivered over the term of the contract 23 to ratepayers. 24 As an example, and this is 25 just as an illustration, we have a similar UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2593 1 example as well, probably with slightly 2 different numbers in the RFP, and in fact we 3 also have what I call sort of a bid 4 evaluation prototype model so that folks can 5 actually see how we take prices in the 6 market, contract prices and calculate costs 7 to load and therefore calculate the cost 8 benefits of projects. That prototype is also 9 available with the RFP on the website. And 10 to the extent there are updates to the model 11 or updates that are necessary because of the 12 contract refinements that may take place 13 within the next few weeks, we'll update it on 14 the website as well. 15 This is just sort of an 16 example here where it lays out a project, a 17 sample project that has the following 18 contract prices under three different 19 scenarios for the different products that it 20 has selected and different contract 21 quantities because, again, within the RFP you 22 can choose the actual contract quantities 23 subject to certain restrictions for the 24 different optional features above and beyond 25 the forward capacity market. UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2594 1 MS. NEELY: So the contract 2 quantity for the forward capacity market is 3 the maximum. That's the underlying basis of 4 the contract. The contract quantities that 5 you can submit for the locational forward 6 reserve market and for the call option can be 7 equal to or less than the contract quantity 8 for the forward capacity market. 9 MS. FRAYER: And what I'd like 10 to do is try to just walk you through one 11 example, and then maybe you can go through 12 the other examples on your own. 13 If you look at case one, we 14 know that this project has submitted a 15 monthly contract price of $8 per kW per month 16 for the forward capacity market for 10 17 megawatts. We know that in this particular 18 point of the contract term, the forward 19 capacity auction, the main auction, the 20 forward capacity market cleared at $7 per kW 21 per month. Because of the contract for 22 differences nature of this master agreement, 23 the buyer, which is the electric distribution 24 companies, make up the difference to the 25 contract price, so they would pay the UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2595 1 supplier an additional dollar per kW per 2 month for the selected contract quantity of 3 $10 per kW per month. And that's at the 4 bottom, gets us to the $10,000 number. And, 5 again, this is simply meant to be 6 illustrative to just see how the contract for 7 differences works. 8 In this particular example, 9 also staying on case one, this project 10 selected to also settle 3 megawatts against 11 the locational forward reserve market and of 12 course bid those 3 megawatts into the 13 locational forward reserve market, and his 14 additional net locational forward reserve 15 market premium above and beyond the forward 16 capacity market price was $5 per kW per 17 month, and the actual locational forward 18 reserve market premium in the locational 19 forward reserve auction turned out to be $6 20 per kW per month. It's hard to see, but 21 hopefully on your printout it's a little 22 clearer. It's covered by the "C" in "Sample 23 Calculation." So in this instance the 24 supplier would be paying the buyer, the 25 supplier would be paying the Connecticut UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2596 1 distribution companies the difference, which 2 is $2 per kW per month times the contract 3 quantity for LFRM settlement. 4 And the last component in this 5 example is the call option, which had a call 6 option supplemental capacity payment of $4 7 per kW per month. So the supplier gets that 8 $4 per kW per month regardless of what 9 day-ahead energy prices would be, times the 10 call option quantity of 5 megawatts. 11 However, he must also then pay back or net 12 out from that payment the variable stream of 13 payments to the distribution company, which 14 revolve around the strike price that the 15 project has submitted, which is $55 per 16 megawatt hour in the case one example, and 17 the actual day-ahead energy market price, 18 which in this instance we set up to be 60. 19 So in this instance there is an amount 20 payable from the seller to the buyer, and 21 that's netted against his call option 22 capacity payment. 23 Therefore, the bottom line 24 under case one, his monthly payment is 25 composed of a $10,000 payment for the forward UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2597 1 capacity market, a deduction of $3,000 for 2 the locational forward reserve market, and 3 then an additional payment of $2,000 for the 4 call option, for a net payment of $9,000. 5 Now, this example is very 6 simple. It's meant to illustrate a situation 7 where there weren't any liquidated damages or 8 adjustments for ISO penalties or other 9 performance requirements, but it is 10 illustrating the concept of sort of the 11 contract for differences as the payment 12 stream can go both directions. 13 MS. NEELY: And, again, in the 14 example that's on the website, you can toy 15 with it. You can enter it, the formulas are 16 there, so you can play with this a little 17 more to see how it works. 18 MS. FRAYER: The values in 19 there are hypothetical, purely for 20 illustrative purposes, but the formulas are 21 intended to be accurate and correct. 22 MS. NEELY: So just to go 23 through a little bit the supplier obligation 24 under the contract, this is very synthetic, 25 so obviously please refer to the contract UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2598 1 itself. As we've said several times today, 2 it's very important to us that the facility 3 must be located in Connecticut. It must 4 qualify for Connecticut's local sourcing 5 requirement for generation and for 6 potentially some demand resources and other 7 demand resources just must be physically 8 located in Connecticut. 9 MS. FRAYER: So that they can 10 actually count for the installed capacity, 11 the demand side or the procurement side of 12 the requirement for the forward capacity 13 market. 14 MS. NEELY: It is very 15 important to us that the project comes on 16 line when it's supposed to come on line. 17 This procurement process has been launched to 18 advance the development process more quickly 19 than it would otherwise have happened under 20 market conditions. So the timing is very, 21 very important to us. As such, we have put 22 in place liquidated damages if the commercial 23 operation date is missed or if the capacity 24 of the facility is actually less than was 25 promised under the original financial bid. UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2599 1 MS. FRAYER: And, in effect, 2 there's a lot of questions about what those 3 represent. They represent the fact that from 4 the perspective of ratepayers, once the 5 projects -- portfolio projects or a project 6 has been selected under this RFP, that is the 7 expectation about benefits, and there's a 8 foregone opportunity cost or lost 9 opportunities for ratepayers to the extent 10 that projects don't come on time and 11 replacement capacity needs to be bought or 12 higher prices are present across the market 13 because that capacity would have reduced 14 overall costs but hasn't because it's not in 15 the market. And that applies both for 16 commercial operation as well as sort of the 17 logic, if you will, once commercial operation 18 is reached why we have certain requirements 19 about maintaining the specified contract 20 quantity that the bidder had promised in its 21 proposal. 22 MS. NEELY: That also actually 23 speaks to the damages that we've included for 24 availability. The project is supposed to be 25 available at the level promised in the UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2600 1 financial bid and as amended -- or as 2 attached to the contract. That is why there 3 are also liquidated damages for the 4 availability of the generation project that 5 is not applicable for demand resources. In 6 addition, there are certain requirements but 7 no liquidated damages on generation projects 8 to maintain their heat rate. 9 MS. FRAYER: And there's a 10 number of other sort of -- although this is a 11 financial contract from a settlement 12 perspective, we wanted, to the extent it's a 13 15-year, very long-term contract, we wanted 14 to ensure that the ratepayers were getting 15 what they had supposedly been proposed to 16 get, and therefore there are some elements of 17 the contract that are much more similar to a 18 physical contract, including some of the 19 requirements about how the supplier must 20 participate in the different ISO New England 21 markets which we are settling against. 22 Again, the intent here is that what we're 23 trying to do is ensure that the ISO New 24 England markets perform as competitively and 25 as robustly as envisioned by those that UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2601 1 designed the markets and to ensure that the 2 cost to ratepayers are competitive and as 3 effective and as efficient as possible. 4 MS. NEELY: And we know some 5 of you in your comments on the contracts made 6 concerns that the bidding requirements may be 7 considered uncompetitive, both at an ISO 8 level or a federal level. We're looking into 9 that issue, and we will amend whatever needs 10 to be amended to make sure they are 11 consistent with legal requirements. The 12 intent for those bidding requirements was 13 that bidders are being paid a fixed amount 14 under the contract, and we don't particularly 15 feel that bidders should be earning rates on 16 top of that amount in the contract on the 17 capacity market. So we'll do what we can do 18 to balance our views on that issue with the 19 legal requirements. 20 MS. FRAYER: And, effectively, 21 all the requirements have been tailored to 22 the extent we can right now to the settlement 23 agreement and to the details of the proposed 24 market rules that have been issued by ISO. 25 So we have not tried to -- we've been very UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2602 1 considerate and very careful about ensuring 2 that what we are proposing is physically 3 doable and consistent with the rules that 4 have been laid out very strictly in all those 5 FERC and ISO documents. 6 MS. NEELY: And, finally, just 7 one last word about supplier obligations. 8 The project's completion and performance 9 security is required to be paid at the 10 execution date -- execution date and will be 11 required through the entire term of the 12 contract. I know we received some questions 13 on that. It is a level before the COD date, 14 and that then decreases the market strongly 15 afterwards, for generation projects that's a 16 hundred dollars a kW before COD and then 25 17 per kW afterwards. The security for demand 18 resources -- and again, now, that's all 19 demand resources, there's no distinction 20 between different categories -- will be $5 a 21 kW before COD and 15 after COD. Those 22 security requirements, whatever bidders have 23 supplied already to ISO can be netted against 24 this amount, so we're not trying to double up 25 security on you. We realize that you're UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2603 1 posting security to ISO as well, so those 2 would be netted against what you've already 3 provided to ISO. 4 MS. FRAYER: But it's 5 important to keep in mind why we need 6 additional security on top of what financial 7 assurances participants may post into the 8 organized markets. The reason being is that 9 the potential -- the performance and 10 security -- project completion and 11 performance security is not going to be used 12 unless there is effectively an early 13 termination, and so from the perspective of 14 ratepayers, it's their insurance policy or 15 security that they're going to actually 16 receive the benefits that they expect over a 17 very long term, potentially long-term 18 contract, one that exceeds the time dimension 19 of the organized market, the spot 20 transactions and monthly balances in the 21 billing statements from ISO. In effect, 22 we've got a very long-term contract here 23 potentially with a long-term payment stream, 24 and it's important for us to have some 25 security, credit security that that's going UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2604 1 to be fulfilled. 2 MS. NEELY: This next slide 3 we're just going to skip for now. This is a 4 slide that had a lot of comments that we 5 received on Friday and read over this 6 weekend. We finished the presentation last 7 week. So I think we're going to hold off on 8 commenting on this slide. We discuss some of 9 the issues that bidders had in the afternoon 10 session because all of these three topics 11 were very controversial, so rather than 12 present them, let's just deal with them in Q 13 and A. 14 MS. FRAYER: Effectively, in 15 terms of the three topics, just so we go 16 through it, it's market -- what happens to 17 the contract if there are market rules and 18 the obligations of the supplier. There were 19 requirements or terms in the contract 20 regarding change of control assignment and 21 sale provisions. Our intent here is to 22 ensure that the project execution risk that 23 we had measured in the bid evaluation process 24 is maintained through at least a short period 25 after commercial operation. Although we also UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2605 1 recognize that people are looking for 2 third-party lenders to help finance it, we've 3 tried to already incorporate that, and we're 4 very concerned with the unique nature of 5 lending institutions in helping realize these 6 types of projects. And the last aspect is 7 the governing law, which actually is not very 8 controversial, but there are very specific 9 legal requirements that are part of the 10 contract in terms of sort of jurisdiction, if 11 you will. 12 MS. NEELY: Finally, we just 13 wanted to walk through, there are two 14 different contracts, and while we generally 15 just talk about the contracts as an aggregate 16 and a lot of the clauses we've talked about 17 up until now are very similar between the 18 two, we did want to highlight some of the 19 differences. And for those of you that do 20 have demand resource projects, if you have 21 questions on the specific nature of that 22 contract, please bring them up this afternoon 23 or send questions to the RFP manager so we 24 can make sure that those are very clearly 25 highlighted to you. UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2606 1 MS. FRAYER: I think the 2 differences are primarily geared towards the 3 physical nature, I think that's the best way 4 to describe it, of the resource, the 5 generation resource, and that's actually also 6 represented in the fact that there's 7 different project security deposits and 8 different completion and performance credit 9 requirements on these two different types of 10 projects. But there are specific operating 11 requirements on generation. With respect to 12 demand resources, there are specific 13 eligibility requirements based on the 14 proposed ISO rules, and we acknowledge within 15 the contract that those may change from time 16 to time as they are finalized and further 17 developed. There's different adjustments to 18 the contract quantity that take place with 19 respect to demand resources because of the 20 nature of those resources that differ from 21 the contract quantity provisions for 22 generation. 23 MS. NEELY: And specifically 24 one of the challenges we've faced and are 25 facing with demand resources is that the UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2607 1 rules for their participation in the forward 2 capacity market in ISO are still being 3 designed, so we're working with a little bit 4 of a moving target in that contract, and 5 we're trying to create the contract to really 6 be fully aligned with ISO rules. So that's 7 our intent and we're still dealing a little 8 bit with that. 9 MS. FRAYER: And effectively 10 with respect to liquidated damages as they 11 may apply, those have also been, I would say, 12 they've been adjusted to be specific to the 13 requirements of generation versus demand 14 resource type contracts. But there are also 15 a lot of commonality between the two 16 contracts, and that was very explicit to the 17 direction that we took to ensure that there's 18 no bias implicit in one type of resource over 19 another, and this is really going back to the 20 initial objectives we set out for us, that we 21 want to do a single all-source RFP where 22 we're allowing different types of resources 23 to compete on an equal footing. 24 Should we take a break? 25 MR. LUSTERBORGHS: Yes, let's UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2608 1 take a 15-minute break at this point and come 2 back at 11:25. 3 (Whereupon, a recess was taken 4 from 11:10 a.m. until 11:26 a.m.) 5 THE CHAIRPERSON: So what we 6 thought we would do at this point is perhaps 7 first I'd like to go back and see if we can 8 entertain questions, if you have any, on the 9 slides in particular. I'd appreciate it if 10 you'd point out the slide or at least 11 describe it so we can then put it on the 12 screen and everybody can take a look at it at 13 the same time while your question is getting 14 asked. 15 The plan is we'll kind of walk 16 through the slides, and then we'll break. 17 We'll break for a lunch period. The 18 intention would be to return promptly at 19 1:00 and then to begin the process of walking 20 through Q and A. 21 Now, again, we have a number 22 of questions that were already asked of us by 23 e-mail, and so we'll begin by taking those up 24 and knocking them off one after the other, 25 and then we'll start on additional questions. UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2609 1 Notice the white box on the 2 lower riser right next to Mr. Coretto. Keep 3 your fingers out of there, Michael. The box 4 is our elegant method for taking anonymous 5 questions. You can sneak back here at 6 lunchtime when nobody is here and drop your 7 question in the box. You are welcome to 8 identify yourself or not, as you choose. 9 However, we will not identify you when we 10 pose the question and answer it so everybody 11 has a reasonable level playing field. 12 Please, jump right in. 13 MS. FRAYER: And we will post 14 these same questions and answers on the RFP 15 website and the Q and A as well for anybody 16 who wants to sort of listen more than they 17 want to take verbatim notes. 18 THE CHAIRPERSON: So on the 19 slides, does anybody have questions on the 20 slides? 21 Come on. If I tell you 22 there's going to be a quiz, does anybody have 23 questions on the slides? 24 (No response.) 25 THE CHAIRPERSON: Really? We UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2610 1 must be getting really good at this. Oh, 2 it's just that everybody is hungry and you 3 want to be out of this room. 4 All right, in that case, let's 5 go ahead and break at this point. We need to 6 do a little caucus and get ourselves 7 together, and we will return here at 1:00 for 8 part 2. 9 Was that a question or are you 10 just looking at your watch? 11 A VOICE: No, just looking at 12 my watch. 13 THE CHAIRPERSON: Do I seem 14 overly hurt? 15 A VOICE: No. Last time I did 16 that, I won something at an art auction. 17 THE CHAIRPERSON: All right. 18 In that case, ladies and gentlemen, thank you 19 for your time and attention, and we will see 20 you back here at 1:00. We will start 21 promptly. 22 (Whereupon, a luncheon recess 23 was taken at 11:31 a.m.) 24 25 UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2611 1 AFTERNOON SESSION 2 1:05 P.M. 3 4 THE CHAIRPERSON: Only one 5 person submitted a couple of questions that 6 were left in the box. I sent them off to the 7 handwriting analyst, and we'll have your name 8 shortly. But anybody who wants to submit 9 anything further is welcome to leave them in 10 the box, and we'll pick up on those as we go. 11 As I had threatened earlier, I think maybe 12 what we'll do at this stage of the game is go 13 to the questions that we received in advance 14 through the e-mails, and so forth. We 15 received a fair number of them, and so maybe 16 we'll kind of walk through these. Maybe 17 we'll just kind of read them out and then 18 provide you with the answer here. 19 The first question was, with 20 the financial bids due on December 13, 2006, 21 it's likely that entities proposing to build 22 generation projects will be relying on 23 initial cost estimates related to matters 24 such as interconnection costs and/or EPC 25 contractor work, essentially turn-key UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2612 1 generation contract. Will suppliers have an 2 opportunity to refine their bids past -- or 3 post December 13 or will their financial bids 4 be binding? 5 Do we want to start here? 6 MS. FRAYER: We acknowledge 7 that the time frame between the date on which 8 financial bids are due and the date -- the 9 latest date by which the decision approving 10 the contracts as given is quite lengthy and 11 probably outpaces the commercial terms, the 12 changing commercial terms that developers are 13 under to develop their commercial projects. 14 At the same time, there's a substantial value 15 for us to be able to have financial bids from 16 parties on December 13 that do not change 17 over time. However, I think what we'd like 18 to do is probably ask people for their 19 opinion at this point to find out if there's 20 a way that, keeping those two sort of 21 tradeoffs handy, what alternatives they could 22 suggest that would allow them to more 23 reasonably -- produce more competitive, let's 24 say, bids or proposals while at the same time 25 understanding kind of our position with the UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2613 1 need to have financial firmness in the bids 2 so that we can evaluate on an 3 apples-to-apples basis. We thought we might 4 ask you all if parties are interested to 5 submit comments on it within the next five 6 business days. 7 THE CHAIRPERSON: We're 8 mindful of the fact that there are real world 9 circumstances where these numbers may, in 10 fact, legitimately change. We recognize that 11 the costs of steel and labor and construction 12 materials and equipment, and so forth, may go 13 up, may go down. We also recognize that it's 14 going to take us a little time to review the 15 bids. We recognize in the commercial world 16 that many times when people offer bids, 17 they're binding for -- offer you prices for 18 constructing these bids, they're binding for 19 30 days or 60 days or something, and we 20 recognize that doesn't match up with our time 21 frames very well. On the other hand, we also 22 need to guard against setting up a situation 23 where we wind up with people either 24 recognizing this risk and overcompensating 25 for it by adding a whole bunch of money to UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2614 1 the bid by way of, in effect, a premium 2 against that risk, or, in the alternative, 3 people underbidding on the knowledge that 4 there's some sort of a mechanism for fixing 5 the problem later on and bidding it too low, 6 and, number one, they know they can't 7 sustain, in the hopes of recouping it on the 8 other end. So we appreciate the advice and 9 guidance of the participants on this. 10 Anything more on this one? 11 MS. FRAYER: The only thing I 12 would say is that Section 3.8 of the RFP does 13 describe what is already currently 14 contemplated in the RFP for adjustment of 15 bids that would take place beyond November 8, 16 2007. So to the extent that you're working 17 off of what we've already written or 18 referring to that, I would just ask that your 19 written comments are aligned with what's in 20 Section 3.8. 21 THE CHAIRPERSON: Next 22 question. If an applicant establishes by way 23 of an appraisal the value of a property, can 24 an applicant post in lieu of cash or a letter 25 of credit (the $25 per kW) and instead give a UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2615 1 mortgage on a building which would be in 2 recordable form? 3 I think our view on this is 4 that the mortgage is, in effect, a lien under 5 Connecticut law, in any event, which is not 6 one of the forms of security we called out 7 under this process. 8 We think that a mortgage lien 9 in particular would probably be problematic 10 for the DSCOs because we think it probably 11 gives them a de facto interest in generation. 12 So for those reasons, we're inclined not to 13 go there. Anything else to add to this one? 14 Okay. 3. Currently no 15 mechanism exists for notification to be given 16 when facilities are delisted. How will such 17 delisting be tracked and/or accounted for in 18 connection with calculating the available 19 capacity for needs assessment purposes? 20 I think we've already 21 indicated that we're not going to rerun the 22 needs assessment. We have assembled several 23 different estimates of the needs assessment, 24 and we have tried to demonstrate that we have 25 taken all of those pieces of advice under UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2616 1 consideration, and we're looking at this in a 2 rather broad form as opposed to targeting on 3 a specific narrow magic number. 4 We think the question is quite 5 relevant for bid evaluation purposes. We're 6 tracking all the accepted plant closures as 7 they're announced by the ISO New England. 8 Those of you who are involved know at the PAC 9 meetings ISO New England announced this 10 summer that New Boston was being approved for 11 retirement. Once an announcement is made, we 12 incorporate the retirements as permanent 13 delists in our model. So that's how we kind 14 of pick them up, and we know of no other 15 mechanism on this. We recommend that the 16 players keep track of this as they go. 17 Do you want to add some more? 18 MS. FRAYER: Yes, I think 19 potential bidders can do -- have the ability 20 to monitor the same information we're 21 monitoring to make sure that they are -- they 22 are on top of all of the same market 23 information that we're planning to use in the 24 bid evaluation. 25 THE CHAIRPERSON: The next one UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2617 1 is kind of related to the same thing. 2 As part of the RFP process, is 3 the Department willing to require the 4 delisted facilities to be publicly identified 5 with the Department and to potential 6 competing bidders? 7 Again, we expect that all 8 bidders, and we, of course, will be 9 monitoring the ISO New England proceedings 10 and the public announcements. If we come 11 across a situation where the Department and 12 the coordinator both believe that it's 13 relevant and vital, we may post additional or 14 updated information about the economic 15 analysis for the bid evaluation process, for 16 example, updated fuel supply prices, and so 17 forth. But, again, we're not prepared to 18 function as the repository of delistings, and 19 so forth. We recommend, again, that the 20 players follow the ISO New England process 21 and pick this data up from there. 22 MS. FRAYER: Again, the RFP 23 website is supposed to be sort of a 24 one-source shopping, so we hope to be able to 25 maintain good communication with potential UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2618 1 bidders through that. Also, feel free at any 2 point, if anyone has questions, I think 3 there's mikes in the front, or if there's 4 something as a follow-up you'd like to ask 5 now, just feel free to jump up. 6 THE CHAIRPERSON: Yes, as long 7 as we're there. So we've knocked off three 8 or four of these. Anybody want to follow up 9 on those questions? 10 (No response.) 11 THE CHAIRPERSON: Okay, let's 12 go to the next. Section -- I didn't leave 13 very long intentionally. 14 Section 3.2(d) of the 15 generator -- sorry. Subsection (d) of 16 Section 3.2 of the generator contract 17 template references summer seasonal claimed 18 capacity. What methods or tests will be used 19 to determine summer seasonal claimed 20 capacity? What conditions will be used for 21 these tests? For example, will 22 conditions of -- and I think they meant 23 90 degrees Fahrenheit and 45 percent 24 humidity -- be used as the test conditions? 25 Maybe I'll just let you start UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2619 1 right in. 2 MS. FRAYER: And I'll let Dana 3 pop in if he wants, but the basic idea is 4 actually resurfaced in Section 2.5 of the 5 draft master agreement for generation. The 6 summer seasonal claimed capability is 7 supposed to be defined consistent with ISO 8 New England's methodology in their capability 9 audits, and that's documented in ISO New 10 England's Manual 20, so that's where I would 11 refer people to take a look at because that 12 is the level of capacity at which resources 13 are then certified to participate in the 14 forward capacity market, which is the prime 15 market off of which you want to settle. 16 If there's any more questions 17 about those, I would probably ask you to 18 contact ISO New England to find out more 19 technical parameters, but we're basically 20 utilizing their own guidelines. 21 MR. ZENTZ: I don't think I'd 22 add a lot, other than to say in the case of a 23 thermal resource, you, of course, can't 24 predict the exact conditions of your test day 25 to be 90 degrees Fahrenheit exactly and UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2620 1 45 percent humidity exactly, and so we're 2 mindful of that, and we will accept 3 corrections or calculations from existing 4 site conditions at the time of the test to a 5 theoretical point on a warrant performance 6 curve. 7 MS. FRAYER: And just sort of 8 keep in mind -- and this is actually covered 9 in the draft master agreement for 10 generation -- there's a whole process related 11 to the testing of the summer seasonal claimed 12 capability because there's also a whole 13 process at ISO to request retests or 14 additional tests, and those are represented 15 in our agreements as well because we do allow 16 for generators who have done poorly on those 17 tests to try to seek a retest from ISO New 18 England. 19 But, again, the idea is that 20 we want the capacity that ISO has certified 21 as qualified for their markets to be the 22 designated contract quantity in our contract. 23 THE CHAIRPERSON: Next 24 question. Heat rates of certain units, for 25 example, combined cycle generators, change as UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2621 1 they ramp up production. Will combined cycle 2 projects have an opportunity to be evaluated 3 at the intervals of their heat rates? 4 MS. FRAYER: I'll leave that 5 one to Dana. 6 THE CHAIRPERSON: I was going 7 to say, let's go directly to the heat rate 8 man. 9 MR. ZENTZ: I think what we're 10 trying to get at is that we need to see an 11 ASME certified test related to the final 12 performance of the unit in commercial 13 operation, and again, it gets more to the 14 compliance with the warrant performance 15 curve, not a single point or a single load 16 condition or a single atmospheric condition. 17 So we think that when you get to the point of 18 looking into these ASME test procedures, 19 you'll see that they compensate for various 20 load conditions, or, that is, it allows for 21 compensation to be made from the test point 22 versus the day of theoretical warrant curve. 23 So we'll accept those corrections. The unit 24 does not have to be tested, for example, to 25 satisfy its ability to operate on a UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2622 1 theoretical curve. 2 MS. FRAYER: And those 3 guidelines are in Section 3.4(d) of the draft 4 master agreement for generation if anybody 5 wants to go back and take a look at what we 6 included there. 7 THE CHAIRPERSON: Just stand 8 up so we can hear you. 9 A VOICE: Sure. A question on 10 the heat rate issue. We were really 11 interested in during the evaluation stage, 12 you would look at a peaking unit at its heat 13 rate, but on a base or intermediate project, 14 you would look at different set points and 15 the heat rate based on the unit as it would 16 ramp up and down or be dispatched at 17 different load levels. 18 MS. FRAYER: You mean in the 19 bid evaluation? 20 A VOICE: Yes. 21 MS. FRAYER: We would, I think 22 as part of the technical requirements that 23 are due during the qualification submission, 24 we would like to have the best available 25 information that you can provide, and if you UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2623 1 can provide those curves, we would utilize 2 that in the bid evaluation. 3 MR. ZENTZ: Can you give us 4 the heat rate versus output curve? 5 A VOICE: I'm sorry? 6 MR. ZENTZ: If you can supply 7 the heat rate versus output curve for your 8 machine, then we can -- 9 A VOICE: You can use a 10 continuous curve or -- 11 MS. FRAYER: Yes, or basically 12 a point estimate version of that. 13 A VOICE: Including 14 supplemental firing? 15 MS. FRAYER: We can 16 incorporate that. 17 MR. ZENTZ: Your choice. 18 A VOICE: Thank you. 19 THE CHAIRPERSON: Okay, 20 further follow-up on heat rates? 21 Okay. Let's see, next 22 question. Will one or both utilities -- and 23 I think here they mean CL&P and United 24 Illuminating -- be countersignatories to the 25 generator contract? UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2624 1 The answer to that is there is 2 going to be only one DSCO that will be 3 serving as the counterparty per agreement. 4 MS. FRAYER: And I think there 5 was another question that came in about how 6 is that DSCO determined if there's some 7 ambiguity between electrical versus physical 8 location, and there may be a project that's 9 physically located in one service territory 10 but electrically located in another, and I 11 think the RFP did contemplate that situation, 12 but if there are additional comments that 13 interested parties have on what was already 14 contemplated in the RFP, we are willing to 15 take those comments under advisement. Again, 16 if you can get that to us by next Monday 17 close of business, that would be appreciated. 18 THE CHAIRPERSON: Okay. Next 19 question. If a facility has an outage during 20 one month, for example, for scheduled 21 maintenance, will that facility be permitted 22 to make up the outage in succeeding months? 23 Does that answer change if the outage is 24 unplanned? 25 No. If there is no UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2625 1 accommodation for typical outages, this will 2 be reflected in higher bid prices. 3 Do you want to -- 4 MS. FRAYER: Well, I think 5 what we want to do is make sure that this 6 question that the contracts -- that potential 7 bidders take a look at the contracts. We're 8 asking as part of the qualification 9 submissions describing the technical aspects 10 of the project and then those will be 11 appended to the contract for a series of 12 information. For example, there is the 13 potential for the proposed project to file 14 different contract quantities across its 15 term. A project will also have to file 16 target availability, which can change from 17 year to year across the contract term. And 18 so, in effect, the project has a capacity to 19 incorporate outages into its analysis. The 20 timing of those from the perspective of the 21 liquidated damages for availability is less 22 important because the actual task schedule 23 according to the Department is annualized. 24 It's not time specific within the year. 25 There may be other types of payments, UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2626 1 reductions or penalties that the resource 2 incurs as a result of its availability in 3 real time for the commitment or capability 4 period vis-a-vis the actual forward capacity 5 market rules and ISO New England rules, but 6 that's a risk that resources have to bear 7 with or without this contract. 8 MR. ZENTZ: Yes, basically 9 part of the question was whether you can make 10 up for an outage. I don't understand how 11 that works. If you're out, you're out, and 12 being available later doesn't make up for 13 when you're out earlier. And so we won't 14 provide accommodation for that from an 15 availability standpoint, but the important 16 thing to understand is that we're not trying 17 to make this an onerous requirement. We 18 would like the bidders to tell us when you'll 19 be available, when you expect to be 20 available, and then if for whatever reason 21 you won't be available, whether you're going 22 to program in some program maintenance or 23 some level of unexpected outages, whatever 24 that is, tell us what it is and then meet it, 25 because once you stipulate to the target UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2627 1 availability, then we would like to count on 2 you being there. 3 MS. FRAYER: And we will use 4 that target availability both in the bid 5 evaluation and then once and if a project is 6 selected throughout the contract term. 7 MR. ZENTZ: Right. There's a 8 follow-up question. 9 THE CHAIRPERSON: Yes. 10 A VOICE: Target availability 11 is really based on your maintenance schedule, 12 and your maintenance schedule will vary 13 according to how many hours you operate 14 annually. So, for instance, if you ask me 15 what year we would be doing maintenance, I 16 would ask you, well, how many hours will we 17 be operating, and I could forecast out the 18 maintenance schedule. But by requiring us to 19 put in an annual availability based on 20 maintenance, then we would have to know how 21 much we're going to run, and that's an 22 unknown. So requiring an annual availability 23 number is less appropriate than using 24 maintenance based on hours or availability 25 based on hours of operation. UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2628 1 MR. ZENTZ: Well, again, we're 2 not intending to require the bidders or to 3 stipulate their availability for them. We 4 would like for you to tell us how you're 5 going to perform. I understand you may not 6 know when you're going to operate. However, 7 it would seem that if this project or this 8 RFP and the subsequent contract were going to 9 cover your fixed capacity costs, you'd be 10 left with your marginal energy dispatch costs 11 into the market, and if you're a combined 12 cycle resource, I would think that would be a 13 significant amount of hours in the year that 14 you'd be running for energy, and therefore 15 you could pro form that in a way that would 16 allow you to stipulate your target 17 availability. 18 MS. FRAYER: And, actually, 19 it's important to keep in mind this is not -- 20 when we talk about how many hours am I 21 operating, this isn't a physical agreement 22 where the distribution companies are going to 23 be calling you and telling you, You have to 24 operate this hour, or this hour, or this 25 hour. Primarily the contract is geared UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2629 1 around the forward capacity market, which 2 doesn't say that you have to produce energy 3 in a given hour, but the forward capacity 4 market will say that you have to be available 5 to participate and to bid into the ISO New 6 England energy market. 7 If you choose, for example, 8 the call option aspect of it as part of your 9 proposal, that too isn't a physical 10 requirement, it's a financial requirement. 11 So we would think that the projects who are 12 being proposed to us, project sponsors could 13 take into account and make that determination 14 as part of the risks of operating in the 15 market. 16 THE CHAIRPERSON: Further 17 follow-up? 18 (No response.) 19 THE CHAIRPERSON: Okay. Next 20 question. Subsection (b) of Section 3.3 of 21 the generator contract template would require 22 suppliers to bid into the FCM for a one-year 23 contract. Based on their projected 24 commercial operation dates, some projects 25 will be able -- excuse me, will be eligible UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2630 1 to receive five-year FCM contracts. Would 2 the DPUC allow suppliers with contracts 3 awarded in this RFP to bid for a full 4 five-year FCM contract? 5 I think our answer on this is 6 no. Because the contract that's awarded 7 under this RFP is designed to support the 8 construction, and so forth, and provides 9 revenues for a period for as long as 15 10 years, we don't particularly want, nor do we 11 believe it's necessary, for a new capacity to 12 bid for the five-year option in the FCM. 13 Keep in mind that the five-year option was 14 essentially there to support the capital -- 15 the capital costs and investment, and we're 16 doing that through this process. So we're 17 basically in the mode of, no, stick to the 18 one-year contract. 19 Do we want to add something 20 more to that? 21 MS. FRAYER: Well, this is 22 sort of a tack on another question that we've 23 seen that came out related to this issue, is 24 not only the tenure, the time dimension of 25 the bidding requirements of the FCM, but also UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2631 1 the magnitude of the bidding requirements in 2 the FCM, and it's an issue that we probably 3 aren't ready to talk about today, but we 4 definitely want to take it into consideration 5 and consider it further. But I think on the 6 tenure side, we feel that the one-year 7 increments are the best alternative with 8 respect to the benefits to ratepayers. 9 THE CHAIRPERSON: Okay. Next 10 question. Does the commercial operational 11 date have to be a date certain or can it be 12 tied to meeting certain criteria, for 13 example, a commercial operation date on or 14 before a specified date, and under what 15 terms? If the date must be specified, can 16 the contract begin before the stated 17 commercial operation date if the plant comes 18 on early? (Recognizing the 15-year term 19 limit, the contract could terminate 15 years 20 from the actual commercial operation date.) 21 I think we're in the mode of 22 believing that the commercial operation date 23 does not need to be a date certain. There 24 are certain damages, certain liquidated 25 damages that are due if the commercial UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2632 1 operation is not attained before the 2 stipulated date. However, there's nothing in 3 the agreement that would bar a project from 4 starting commercial operations earlier. The 5 term of this RFP and the contracts resulting 6 from it begins after commercial operation, as 7 we noted in Section 5.2 of the draft 8 agreements. 9 Do you want to tack some more 10 on to that? 11 MS. FRAYER: So basically, as 12 an example, we do want bidders to provide as 13 part of their proposal a specific date which 14 is going to be a milestone date for COD, 15 December 12, 2010, or whatever the date may 16 be, so that is required. And if a project 17 actually reaches commercial operation prior 18 to that date, they are free to participate in 19 the ISO New England markets because 20 effectively as part of its costs of 21 commercial operation, it's already been 22 approved, tested and ready to participate in 23 the ISO New England markets. However, the 24 payments and the settlement amounts in the 25 contract will start as of the original UNITED REPORTERS www.unitedreporters.com Nationwide - 866-534-3383 - Toll Free 2633 1 commercial operation date. 2 THE CHAIRPERSON: Okay. Next 3 question. Will the DPUC issue a revised 4 generator contract template following the 5 October 10 technical session? If so, when? 6 The answer is yes, we will 7 issue an interim decision adopting the final 8 master agreements for both the generation and 9 demand resources in October; that is, this 10 October, this month, and -- well, with the 11 time lines being what they are, you need to 12 specify. 13 As with any Department 14 decision, we'll issue a draft decision. All 15 interested parties will have an opportunity 16 to submit written exceptions and present oral 17 argument. After the oral argument and the 18 written exceptions, we may revise further the 19 master agreements, and then we'll move to a 20 vote on a final decision. 21 Fred. I'm sorry, unidentified 22 person on the right. 23 A VOICE: Thank you. I'd li