The Regulatory Top 10 List – New York State

1. The Regulatory Top 10 List – New York State Joshua Meyer October 8, 2004

2. About Encorp • Total MW controlled by Encorp product 700+ • Number of Generator Power Controls shipped 1,450+ • Total number of customers 240+ • Grid interconnected projects 95%+ • Breakdown of projects by application • CHP (our primary DG market) • Renewables / Non-pipeline fuels • Standby power • Peak shaving • Merchant/IPP • Demand response programs • Interruptible rates • Time of use rates • Peak sharing

3. About the Northeast Combined Heat & Power Initiative (NECHPI) Mission Statement Lead the region in encouraging the use and implementation of CHP technologies; to drive CHP roadmap actions items for the Northeast Region in support of DOE’s and EPA’s goal of doubling CHP use by 2010; and to provide a central point for coordination and communications among the various stakeholder organizations in the region, including federal agencies, state agencies, utilities, project developers, equipment manufacturers, CHP users, universities, research institutions, and public interest groups.

4. The “Top 10” List 1 Lack of clarity about interconnection 2 Interconnection process reform 3 Negotiated “flex” tariffs are abused 4 Interconnection on networks is daunting 5 Niagara Mohawk’s standby fee 6 Lack of hourly prices in retail markets 7 CHP often not included in systems planning & ISO 8 Antiquated building codes 9 Lack of knowledge on gas rates 10 ConEd’s steam standby rates

5. #1 – Key facts about interconnection remain evasive Market Challenge NECHPI’s Suggested Action Next Steps Key & decisive facts about interconnection are not readily available to energy consumers, CHP project developers and, to a limited degree, utilities. Missing or hard to obtain facts include a comprehensive database of successful interconnections, a detailed map of the grid where utilities will allow or disallow interconnection by technology and unit size. In a similar fashion to MA and CA, New York should create a process through which best practices and successes in interconnection may be tracked and reflected in interconnection standards and procedures on an ongoing basis. This information should include schedules for grid upgrades and weaknesses. Regions where interconnection is prohibited should be highlighted. Where interconnection is allowed, technical standards should be prescribed in advance for all types of technologies (including induction, synchronous, and inverter) along with relay requirements and protector settings for network grids. By doing so, time and effort will be saved for both utilities and developers, and developers will be able to more effectively engineer local solutions to local constraints. The best medium to reflect this information is on a public website. The NECHPI is dedicated to building a robust web site that will attempt to shed light on all aspects of interconnection in New York.

6. #2 – Interconnection process reform Market Challenge NECHPI’s Suggested Action Next Steps Utility responses can be slow creating unreasonable & expensive delays. Or utilities can demand unreasonable expenditures for useless or redundant engineering studies or protective equipment. Create concise procedures with fixed maximum prices and timelines for utilities to respond to interconnection requests. Other states such as California and Massachusetts have done this to the benefit of CHP owners and developers. The CHP market will grow once there are standardized processes, predictable timelines, and greater certainty with budgetary economics. The NECHPI membership along with the USCHPA is deeply interested in participating in the development of business processes that insure timely, safe and cost effective interconnections.

7. #3 – Special tariffs sometimes called “flex rates” are abused Market Challenge NECHPI’s Suggested Action Next Steps Negotiated or “special tariffs” allows for predatory pricing practices Special tariffs must be made in a public forum and a utility’s last, best and final offer must be provided within a three weeks of a customer’s initial request. The utility must state publicly all terms and conditions associated with their special offer in a public forum. Chairman Flynn recognizes this challenge and assured the CHP community at the NYSERDA conference in June that the PSC is addressing this issue.

8. #4 – Interconnection on network grids Market Challenge NECHPI’s Suggested Action Next Steps Network grids and highly congested areas of radial grids remains daunting, especially for synchronous generators To help overcome the high costs of interconnecting in these areas where capacity is greatly needed the Commission should consider working with either NYSERDA or the state legislature on incentive programs that help defray these interconnection costs in highly congested areas. The Commission and NYSERDA should continue to focus attention on solutions to the technical barriers associated with interconnection to areas with over-capacity substations. NYSERDA has funded the 717 5th Avenue project – a demonstration of a synchronous interconnection on a network grid.

9. #5 – Niagara Mohawk standby rates Market Challenge NECHPI’s Suggested Action Next Steps Standby service charges in Niagara Mohawk service territory are artificially high and discourage CHP A uniform approach to standby services throughout New York would further promote the interests of the state. Suggestion: inside NIMO, partner with National Fuel Gas if possible. National Fuel Gas has project development funds to offset NIMO’s standby fees.

10. #6 – Hourly prices Market Challenge NECHPI’s Suggested Action Next Steps Retail market has been slow to adopt hourly prices or other tariffs that encourage rational behavior NECHPI supports the adoption of mandatory hourly and location-specific pricing for customers with peak demands in excess of 1 MW. Such a step would create price signals that better enable end-users to manage their energy and help mitigate extreme market conditions such as capacity shortages during the summer season. The Department of Public Service has told us that while they very much support hourly prices in spirit, this is not high on their list of priorities.

11. #7 – Integration of CHP into resource planning Market Challenge NECHPI’s Suggested Action Next Steps Lack of performance information on DG/CHP to allow utility systems planners to integrate CHP into future resource planning The NECHPI believes that CHP already contributes substantially to the viability of the NY regional grid, but is under-appreciated due to the lack of public knowledge of these installations. Thus, while CHP should be included in utility resource planning it is often instead assumed to be non-existent. The Commission should consider the creation of a model resource planning RFP procedure that would be based on the lessons learned from the recent Con Edison RFP. Further, the Commission should encourage other state agencies and the NY ISO to engage in market outreach activities. Specifically, too few CHP installations interact with NYISO demand response programs. While the NYISO has strong programs that are well designed for CHP systems, the greater CHP community is largely unaware of them and has yet to take full advantage of the offerings. Perhaps we will have to wait for the next RFP to see if it better designed than the past experiments. There are signs of this in the Orange & Rockland RFP. The NECHPI plans to further develop its web site on NYISO programs and invites guidance from all.

12. #8 – Building codes Market Challenge NECHPI’s Suggested Action Next Steps Legacy and antiquated building codes discourage natural gas fired CHP systems New York City Building Code favors diesel generators for standby/emergency duties to the determent of natural gas fired generators. Thus, CHP systems using natural gas may not be able to engage in emergency applications. The NECHPI recognizes that the Commission does not have jurisdiction over building codes. However, any market outreach the Commission could do to other governmental agencies is deeply appreciated and very much needed by the CHP community. Individual NECHPI members have independently worked with various NYC agencies to address code issues. Progress has been made. For details, I can refer you to the individual firms.

13. #9 – Lack of knowledge of gas rates Market Challenge NECHPI’s Suggested Action Next Steps The public’s lack of knowledge on special gas transportation rates and other gas utility incentive programs. The current market for CHP developers is fragmented and few firms are aware of many of all the programs the PSC has enacted to support CHP. Specifically, the NECHPI membership has sought to learn more about discounted gas transportation rates and other programs such as the National Fuel Gas funding mechanisms. Again, a public website that consolidates this information would be helpful. The NECHPI plans to further develop its web site on this issue and invites guidance from all.

14. #10 – ConEd’s steam standby rate Market Challenge NECHPI’s Suggested Action Next Steps Con Edison steam standby rates (SC 4) discourage cogeneration by imposing a virtual permanent ratchet and usage charges that exceed those of otherwise applicable rates. Under the current steam proceeding, the Commission should review the current SC 4 standby rate and consider either modifying it or creating a new cogeneration rate. Additionally, the Commission may wish to add a CHP exemption for systems under 1 MW to make the rate consistent with the recently adopted electric standby rates. ConEd successfully implemented a standby rate for their steam system.

15. Conclusion: What does all this mean? • New York is a great state for CHP • The various issues are organized & the parties are in dialog (this is in far contrast to other states) • The Department of Public Service is deeply interested in addressing the challenges of the CHP market • There are many resources and parties cooperating on addressing CHP regulatory and policy barriers • The challenge is in our court to continue the dialog and to seek creative solutions

16. Thank you Thank you for your interest – may I respond to your comments & questions? Joshua Meyer Encorp 9351 Eastman Park Drive Windsor, Colorado 80550 773-991-3696 joshua.meyer@encorp.com