Long Island Power Authority Draft Electric Resource Plan 2009-2018

Long Island Power Authority Draft Electric Resource Plan 2009-2018

Table of Contents Preface The Long Island Power Authority (LIPA) is pleased to provide Long Island consumers, civic and community organizations, local and state agencies, and other concerned constituencies with its Draft Electric Resource Plan to address Long Island s electricity supply requirements for the period 2009 through 2018. Since the issuance of LIPA s 2004-2013 Energy Plan, the electric industry on Long Island and worldwide has experienced significant changes. Fuel prices have become increasingly volatile, consensus on the need to control emissions of Greenhouse gases have emerged and the costeffectiveness of energy efficiency, wind and solar technologies has improved. On Long Island, LIPA has fostered the successful Clean Energy Initiative, developed the largest solar power program in the state, instituted the operation of the Neptune Cable that connects LIPA to the PJM system, upgraded the NUSCO line, executed a successful fuel hedging program, completed two combined cycle plants and constructed a new combined cycle plant. The introduction and effective management of these programs has saved LIPA s ratepayers hundreds of millions of dollars. Between 2004 and 2008, fuel price volatility significantly increased while LIPA s base rates remained the same. Total rates, including fuel adjustment clause increases, have been mitigated through LIPA s adoption and implementation of a flexible dynamic planning process that incorporates diverse resource solutions. In this 2009 Draft Electric Resource Plan, LIPA will endeavor to build upon this success through an updated plan that continues to incorporate approaches that provide flexibility and the ability to dynamically respond to change. Electric Resource Plan Process A proposed energy plan outline was issued for public comment in January 2008. Public hearings were held in April and May 2008, where oral and written commentary was i received from customers and other interested parties. The outline was substantially enhanced as a result of these hearings and an updated version was posted on LIPA s web site in July 2008. LIPA s responses to the oral and written comments are included in Appendix C of the Draft Electric Resource Plan. LIPA is issuing the Draft Electric Resource Plan and accompanying Appendices for public review and comment. As part of this process LIPA will hold public hearings and provide reviewers the ability to provide a second round of comments prior to adoption of the Final Electric Resource Plan. Summary The Draft Electric Resource Plan for 2009-2018 builds on the foundation of plans and programs that have been in place since May 1998, when LIPA became Long Island s retail supplier of electricity. The LIPA Electric Resource Plan will continue to evolve in the decades ahead, but will always focus on the overarching need to provide Long Islanders with energy solutions that balance the impact on customer bills with the need to sustain a healthy environment and reliable electric service. LIPA appreciates and commends the participation of Long Island stakeholders in the Draft Electric Resource Plan public hearing process. Many of the issues articulated by those parties have been incorporated into this Plan while others warrant further investigation and analysis and may be incorporated in future plans. LIPA s dynamic and flexible planning approach will continue to require careful scrutiny of 2009 2018

Table of Contents system and market conditions to ensure that the Electric Resource Plan meets Long Island s electricity needs. The recommendations contained in this Draft Electric Resource Plan are not meant to be static, unchanging plans. Rather, LIPA has instituted a process to monitor the marketplace, system conditions, and customer demands in order to make timely and cost-effective adjustments to the plan, while maintaining the flexibility to consider demand and supply resource options as long as practically possible before committing to an investment track. 2009-2018 ii

Table of Contents Table of Contents Section Description Page PREFACE... I 1 EXECUTIVE SUMMARY...1-1 1.1 Key Strategies...1-1 1.2 Integrated Plan...1-4 1.3 Summary of Recommendations...1-6 1.4 Benefits of the Plan...1-7 1.5 LIPA Plan Consistency with the New York State Energy Policy...1-8 1.6 Implications of the New Federal Administration s Energy Policies...1-8 1.7 LIPA Business Advisory Panel...1-9 2 OVERVIEW...2-1 2.1 Key Planning Issues...2-1 2.2 What is LIPA?...2-3 2.3 LIPA s History...2-3 2.4 System Description...2-3 2.4.1 Power Supply...2-5 2.4.2 Transmission...2-8 2.4.3 Distribution...2-8 2.5 System Achievements...2-8 2.5.1 Energy Efficiency...2-8 2.5.2 Renewables...2-9 2.5.3 On-Island Supply...2-11 2.5.4 Interconnections...2-12 2.5.5 Off- Island Supply...2-12 2.5.6 Air Emissions from Generation Resources...2-13 2.6 Key Relationships...2-13 2.6.1 New York Independent System Operator...2-14 2.6.2 Independent System Operator of New England...2-14 2.6.3 PJM Interconnection...2-14 2.6.4 National Grid...2-15 3 VISION, MISSION, AND STRATEGIC OBJECTIVES...3-1 3.1 Vision Statement...3-1 3.2 Mission Statement...3-1 3.3 Strategic Objectives...3-1 3.3.1 Objective 1: Promote a Healthy Environment through Leadership in Energy Efficiency and Renewable Resources...3-2 iii 2009 2018

Table of Contents 3.3.2 Objective 2: Balance Plan Objectives with their Impacts on Customer Electric Bills 3-3 3.3.3 Objective 3: Maintain High Reliability of the Bulk Power System...3-3 3.3.4 Objective 4: Maintain High Reliability of the Distribution System...3-3 3.3.5 Objective 5: Position LIPA with the ability to Respond Rapidly to Change as a way of Managing Risk...3-3 4 ENVIRONMENTAL ACTION PLAN...4-3 4.1 Climate Change...4-3 4.1.1 Regional Greenhouse Gas Initiative...4-3 4.1.2 Other Emission Initiatives...4-3 4.2 Addressing Sustainability in our Environmental Plan...4-3 4.3 Environmental Policy and Recommendations...4-3 4.3.1 Recommendation 4.1: Air Regulatory Initiatives...4-3 4.3.2 Recommendation 4.2: Impacts from Generation...4-3 4.3.3 Recommendation 4.3: Biofuels Assessment...4-3 4.3.4 Recommendation 4.4: Air Pollution Control Technologies...4-3 4.3.5 Recommendation 4.5: Impacts from T&D...4-3 4.3.6 Recommendation 4.6: Habitat Enhancement...4-3 4.3.7 Recommendation 4.7: Recreational Trails...4-3 4.3.8 Recommendation 4.8: Greenhouse Gas Inventory...4-3 4.3.9 Recommendation 4.9: Emission Data Availability...4-3 4.3.10 Recommendation 4.10: Water Use Reduction Assessment...4-3 4.3.11 Recommendation 4.11: Sustainability through Energy Efficiency...4-3 4.3.12 Recommendation 4.12: Sustainability through Renewable Resources...4-3 4.3.13 Recommendation 4.13 - Economic Development through Green Collar Jobs...4-3 4.3.14 Recommendation 4.14: Power Supply CO 2 Footprint Reductions...4-3 5 EFFICIENCY PLAN...5-3 5.1 Efficiency Recommendations...5-3 5.1.1 Recommendation 5.1: Efficiency Long Island Plan - Committed...5-3 5.1.2 Recommendation 5.2: Efficiency Programs Performance...5-3 5.1.3 Recommendation 5.3: Investigation of Cost-Effective Energy Efficiency Programs...5-3 5.1.4 Recommendation 5.4: Investigation and Investment in T&D Efficiencies...5-3 5.1.5 Recommendation 5.5: Investigation and Investment in Generation Efficiencies5-3 5.1.6 Recommendation 5.6: Smart Grid Systems...5-3 5.1.7 Recommendation 5.7: Smart Metering Systems...5-3 5.1.8 Recommendation 5.8: Meeting the 15 x 15 Goal...5-3 6 TRANSMISSION AND DISTRIBUTION PLAN...6-3 6.1 T&D Reliability, Efficiency and Infrastructure Plan...6-3 6.1.1 Technical Performance...6-3 6.1.2 Customer Satisfaction...6-3 6.1.3 Compliance with Regulatory Requirements...6-3 6.1.4 T&D System Financial Performance...6-3 6.2 T&D Recommendations...6-3 6.2.1 Recommendation 6.1: System Reliability Infrastructure Enhancements...6-3 iv 2009-2018

Table of Contents 6.2.2 Recommendation 6.2: T&D Customer Satisfaction Plan...6-3 6.2.3 Recommendation 6.3: Compliance with Regulatory Requirements...6-3 6.2.4 Recommendation 6.4 T&D Plan s Financial Performance Metrics...6-3 6.2.5 Recommendation 6.5 Support STARS Transmission Infrastructure Study...6-3 7 FUEL MANAGEMENT PLAN...7-3 7.1 Current Fuel Markets and Price Volatility...7-3 7.1.1 Natural Gas...7-3 7.1.2 LNG Development...7-3 7.1.3 Oil...7-3 7.2 Fuel Diversity and Cost Implications...7-3 7.3 Long Island Fuel Delivery and Infrastructure Issues...7-3 7.4 Fuel Supply Strategy, Objectives and Recommendations...7-3 7.4.1 Recommendation 7.1: Renewables to Reduce Fuel Price Risks...7-3 7.4.2 Recommendation 7.2: Fuel Diversity...7-3 7.4.3 Recommendation 7.3: Structured Hedging Program...7-3 7.4.4 Recommendation 7.4: Economics of Biofuels Projects...7-3 7.4.5 Recommendation 7.5: RPS to Diversify Fuel Supply...7-3 7.4.6 Recommendation 7.6: Long Term Fuel Plan for the Caithness Project...7-3 7.4.7 Recommendation 7.7: Deteriorating Fuel Supply Infrastructure on Long Island7-3 8 THE ELECTRIC RESOURCE PLAN...8-3 8.1 Planning Approach...8-3 8.1.1 Needs Analysis...8-3 8.1.2 Development of Plan...8-3 8.1.3 Evaluating Fit with Strategic Objectives...8-3 8.2 Key Plan Parameters...8-3 8.2.1 Economic Metrics...8-3 8.2.2 Production Efficiency Metrics...8-3 8.2.3 Reliability Metrics...8-3 8.2.4 Environmental Metrics...8-3 8.3 Resource Need...8-3 8.3.1 Load Growth Projection...8-3 8.3.2 Probability Need Analysis...8-3 8.3.3 Statewide IRM Requirement...8-3 8.3.4 Long Island LCR Requirement...8-3 8.3.5 LIPA s Capacity Need Conclusion...8-3 8.4 Policy and Recommendations...8-3 8.4.1 Adoption of Energy Efficiency...8-3 8.4.2 Improve Interconnections and Reliability...8-3 8.4.3 Recommendation 8.1: Renewable Portfolio Standard Program Goal...8-3 8.4.4 Recommendation 8.2: Utilizing Transmission Inter-ties to Import Renewable Energy from Off-Island Sources...8-3 8.4.5 Recommendation 8.3: Regional Wind...8-3 8.4.6 Recommendation 8.4: Backyard Wind...8-3 8.4.7 Recommendation 8.5: Solar PV RFPs...8-3 8.4.8 Recommendation 8.6: Net Metering Program...8-3 8.4.9 Recommendation 8.7: Solar Rebate...8-3 v 2009 2018

Table of Contents 8.4.10 Recommendation 8.8: Renewables to Enhance Fuel Diversity...8-3 8.4.11 Recommendation 8.9: Repowering Existing Older Plants...8-3 8.4.12 Recommendation 8.10: Competitive RFP for Potential Greenfield Plants and/or Repowering/Retiring Exist Plant...8-3 8.4.13 Recommendation 8.11: Site for Peaking Unit Retirements...8-3 8.4.14 Recommendation 8.12: NUSCO Cable Upgrade...8-3 8.5 Benefits of the Representative Plan...8-3 8.5.1 Economic Benefits...8-3 8.5.2 Production Efficiency...8-3 8.5.3 Reliability...8-3 8.5.4 Fuel Consumption and Fuel Mix...8-3 8.5.5 Environmental Metrics...8-3 8.6 Conclusion...8-3 2009-2018 vi

List of Exhibits List of Exhibits Exhibit Description Page Exhibit 1-1 LIPA s Recommended Electric Resource Plan...1-2 Exhibit 1-2 LIPA s Integrated Plan...1-5 Exhibit 2-1 Map of LIPA Service Territory...2-4 Exhibit 2-2 Typical Electric System Structure...2-5 Exhibit 2-3 2008 Power Supply (MW)...2-6 Exhibit 2-4 On-Island Generation and Off-Island Transmission Additions...2-6 Exhibit 2-5 LIPA Capacity by Fuel Type Comparison...2-7 Exhibit 2-6 LIPA Energy by Fuel Type Comparison...2-7 Exhibit 2-7 Circuit Miles of Distribution Lines...2-8 Exhibit 2-8 CEI Accomplishments 1999-2008...2-10 Exhibit 5-1 Efficiency Evaluation Process...5-3 Exhibit 5-2 Addressing LIPA s 15 x 15 Contribution...5-3 Exhibit 6-1 Transmission and Distribution Technical Performance Plan...6-3 Exhibit 6-2 Transmission & Distribution Customer Satisfaction Plan...6-3 Exhibit 6-3 Transmission & Distribution Compliance with Regulatory Requirements Plan...6-3 Exhibit 6-4 Transmission & Distribution Financial Performance Plan...6-3 Exhibit 7-1 Energy Information Administration s Natural Gas Monthly 1988 to 2008...7-3 Exhibit 7-2 Energy Information Administration s Oil Monthly 1988 to 2008...7-3 Exhibit 8-1 Interaction of Planning Processes...8-3 Exhibit 8-2 Power Supply Planning Process...8-3 Exhibit 8-3 Alternative Technologies Considered...8-3 Exhibit 8-4 Evaluation Metrics...8-3 Exhibit 8-5 Projected Load Growth Impacts from ELI Investment...8-3 Exhibit 8-6 NYSRC LIPA Statewide Need for Resources...8-3 Exhibit 8-7 NYISO Long Island Locational of Need for Resources...8-3 Exhibit 8-8 Summary of Recommended Plan...8-3 Exhibit 8-9 Comparison of Plans NPV Total Revenue Requirement (2009$)...8-3 Exhibit 8-10 Comparison of Plans Annual Revenue Requirement...8-3 Exhibit 8-11 Comparison of Plans Annual Rev. Requirement: Savings of Representative Plan...8-3 Exhibit 8-12 Comparison of Plans Annual Average Electric Rates...8-3 vii 2009 2018

List of Exhibits Exhibit 8-13 Comparison of Plans Annual Avg. Electric Rates: Increase of Representative Plan...8-3 Exhibit 8-14 Comparison of Plans Heat Rate...8-3 Exhibit 8-15 LIPA Statewide IRM Requirement Reference Plan...8-3 Exhibit 8-16 LIPA Statewide IRM Requirement Representative Plan...8-3 Exhibit 8-17 Long Island LCR Requirement Reference Plan...8-3 Exhibit 8-18 Long Island LCR Requirement Representative Plan...8-3 Exhibit 8-19 Actual Fuel Consumption in 2008...8-3 Exhibit 8-20 Fuel Consumption for the Reference Plan in 2018...8-3 Exhibit 8-21 Fuel Consumption for the Representative Plan in 2018...8-3 Exhibit 8-22 Comparison of Plans SO 2 Emissions...8-3 Exhibit 8-23 Comparison of Plans NO X Emissions...8-3 Exhibit 8-24 Comparison of Plans RGGI Allowances...8-3 Exhibit 8-25 Comparison of Plans CO 2 Footprint...8-3 2009-2018 viii

1 Executive Summary LIPA has developed a flexible and dynamic plan that allows it to investigate and weigh decisions as long as possible before committing to an investment in the selected solution. In order to preserve this flexibility, LIPA regularly tests various markets for resources through Requests for Proposal (RFPs), discussions with market participants, and by staying abreast of market issues as they arise. LIPA has developed this plan to balance ensuring sufficient power sources for our customers with the impacts on customer electric bills. LIPA s mission is to deliver safe, reliable, and economical electric service to its customers. In order to achieve this mission, LIPA has adopted five strategic objectives that drive all aspects of our business: 1) Promote a healthy environment through leadership in efficiency and renewables; 2) Balance the objectives of the electric resource plan with the impact on customer bills; 3) Maintain high reliability of the bulk electric system; 4) Maintain high reliability of the distribution system; and 5) Position LIPA to respond rapidly to change in order to manage risk. To meet these objectives the electric resource plan adopts four key strategies that are described in the next section. These strategies drive the selection of resource options. 1.1 Key Strategies Our plan for 2009 through 2018 relies on the adoption of four key strategies: (1) committed investment in energy efficiency (2) acquisition of renewable generation resources, (3) maintaining and upgrading our existing fleet of resources, and (4) improving transmission interconnections to enhance the ability to deliver power to the island. Exhibit 1-1 provides a summary of the recommended Electric Resource 1-1 Plan that is color coded to identify those tactics that LIPA is committed to invest in, is in the planning stages of, or are under study for potential adoption. Our commitment to energy efficiency is demonstrated by the announcement of Efficiency Long Island (ELI), an enhanced program that builds upon LIPA s previous conservation efforts which concluded at the end of 2008. ELI will encourage customers to conserve by investing in the equipment, appliances, and installation and construction methods utilized in their businesses and homes so that the most efficient technologies and practices available are chosen. ELI will offer prescriptive solutions such as appliance efficiency rebates, as well as customized approaches, such as helping customers to assess the appropriate technologies that result in lower energy consumption, to working with trades and contractors to ensure that they are aware of and trained in state of the art energy efficiency methods and practices. LIPA is committed to investing in ELI over the next ten years. LIPA is further evaluating its ability to meet its efficiency goal by enhancing internal generation and transmission system efficiencies, reducing energy losses, introducing smart meters through which customers may further modify their usage, and investigating the use of efficient electro-technologies. 2009 2018

Section 1 Executive Summary Exhibit 1-1 LIPA s Recommended Electric Resource Plan 1. Energy Efficiency 3. Upgrade Existing Fleet Endorse adoption of a LIPA 15 x 15 plan End-use efficiency ELI Additional DSM to close remaining gap Generation efficiency T&D efficiency Smart Meters Efficient Electro-Technologies 2. Renewable Resources Endorse adoption of a LIPA RPS program that supports statewide goal of 30% renewables by 2015 Off-Island Renewable RFP On-Island Resources Wind (regional and backyard) PV 50 MW RFP and successors Net Metering Program Expansion of Solar Rebate Utilize renewables to enhance fuel diversity Repower older plants to address environmental and efficiency issues Competitive procurement of green field plants and repowering/retirement Retire some of older steam plants Study best site for Peaking Unit retirements Issue RFP for new 10-minute reserve Retire targeted units 4. Improve Interconnections & Reliability Proceed with NUSCO Upgrade Study to examine membership in NYISO, PJM, or ISO-NE Target new interconnections with best ISO System SmartGrid System Legend: Committed Planned Under Study To address the second strategy, LIPA has adopted a renewable portfolio standard (RPS) program such that renewable resources would contribute 25% of the energy requirements of LIPA s customers by the year 2013. LIPA is investigating an increase in this goal to a level of 30% by 2015. LIPA will issue both on and off-island RFPs periodically to solicit cost-effective renewable technology resources. In addition, LIPA is offering a net metering program for customers who install renewable systems and expanding the solar rebate to offer a backyard wind program and the solar entrepreneur program to businesses and municipalities for installations at their facilities. 2009-2018 1-2 The third strategic element is to enhance the existing fleet of resources through approaches such as examination of repowering opportunities, retirement potential, and the introduction of new resources through competitive procurement. LIPA continues to consider the ability to repower current generation resources cost-effectively, and to that end commissioned a study to evaluate the potential for and costs of such an effort at the Northport and Port Jefferson facilities. In parallel, we are assessing the potential to repower the Barrett Station. The final strategy in this balanced electric resource plan is the continuing effort to improve LIPA s interconnections. LIPA investigates and

Section 1 Executive Summary supports upgrades to existing interconnections where economic. We have increased our ability to bring power in from New England and New Jersey through undersea cables. LIPA is moving forward with upgrades to the NUSCO cable to Connecticut to increase the capacity of that interconnection to bring power into Long Island. LIPA has access to the Pennsylvania, New Jersey and Maryland (PJM) and the New York Independent System Operator (NYISO) and participates in technical meetings at each of these ISOs as well as ISO-New England (ISO- NE). In the past LIPA has evaluated which ISO offers the greatest benefit to its customers. LIPA continues to consider the advantages of various ISO memberships, and in the event that one ISO appears more favorable than another, a deeper investigation into the possibilities of new cable construction to enhance the interconnection to that ISO will be undertaken. Committed, Planned and Under Study Committed elements are either under firm contract, have approved funding, or are currently available; Planned elements are those still under active discussion, negotiation, or development. While the intention is to proceed with these projects, LIPA may adjust the timing, size or design of the element as conditions change. For example, if LIPA has decided to issue a Request For Proposals (RFP) for power supply, transmission service, or DSM, the element is considered planned; and Under Study elements are those that are in the early stages of discussion or development, with no contractual commitment from LIPA. If, as an example, LIPA is considering the issuance of an RFP for power supply, transmission service, or DSM, but has not finalized the timing, or characteristics of the RFP, the element would be considered under study. Each of the elements of LIPA s Recommended Plan is identified as Committed, Planned or Under Study. Each is defined in the box to the right. 1-3 2009 2018

Section 1 Executive Summary 1.2 Integrated Plan LIPA s Electric Resource Plan incorporates recommendations from several interdependent plans including: the Environmental Plan which addresses environmental issues that drive a significant part of the resource plan strategy; the Efficiency Plan which postpones the need for generation resources; the Transmission and Distribution Plan which supports system reliability and increases system efficiency; the Fuel Management Plan which ensures a reliable supply of fuel; and, the overall Electric Resource Plan which combines the elements from all of the plans, in addition to the Power Supply Plan, into the final plan for meeting customer needs. The Electric Resource Plan recognizes and internalizes the importance of the environment within each and every strategic decision. Exhibit 1-2 visually depicts the component plans. Along the left facing side of Exhibit 1-2, the five key LIPA strategic objectives are shown. These strategies, such as supporting a healthy environment, drive each of the component plans that make up the Electric Resource Plan and support the development of recommended actions. Across the top of the graphic the four key electric resource planning strategies are depicted, including energy efficiency. These four strategies were developed to support the organization s objectives and as such drive the recommended actions in the Electric Resource Plan. On the right side of the graphic each box represents an element of the Electric Resource Plan, for example the T&D Plan. For each major plan, such as the T&D plan, recommendations are developed, which are summarized in this executive summary and more fully described in Sections 4 through 8 of this document. These recommendations include, for example, continued investment in efficiency as a means to postpone the need for new generation, mitigate environmental issues and mitigate long term supply risk. As each plan is described in this document, checkmarks identifying those areas in which the plan s recommended actions items correspond to LIPA s overall strategic objectives and the resource plan s key strategies are placed in the cross hatched boxes on the face of the diagram. The graphic in Exhibit 1-2 is used periodically throughout this document to illustrate how each component plan supports the strategies of the Electric Resource Plan and LIPA s overall objectives. 2009-2018 1-4

Section 1 Executive Summary Exhibit 1-2 LIPA s Integrated Plan Electric Resource Plan Objectives Healthy Environment Cost Supply Reliability Service Reliability Flexibility Key Key Strategies Strategies Environment Environment Energy Energy Efficiency Efficiency Goals and Means to Achieve Goals 1 Renewable Renewable Resources Resources ENVIRONMENTAL PLAN EFFICIENCY PLAN Upgrade Upgrade Existing Existing Fleet Fleet & Reliability Reliability T&D PLAN FUEL PLAN Improve Improve Interconnections Interconnections POWER SUPPLY PLAN 1-5 2009 2018

Section 1 Executive Summary 1.3 Summary of Recommendations In this Electric Resource Plan, LIPA identifies a number of actions designed to facilitate achievement of the strategies enumerated as part of its Recommended Plan. LIPA intends to address sustainability within this plan while balancing the cost of actions with potential benefits. Our investments in sustainable solutions, like for example, the Governor s 45 x 15 initiative, must consider the implications for customer bills. These recommendations are summarized below and are grouped into the four strategies under which the Plan was formulated. In addition, the recommendation number is shown beside each recommendation, which identifies the section of this document in which it is more fully described and identifies whether the recommendation is committed, planned or under study. We have highlighted the environmental goals first followed by the four key resource plan strategies. 1) Continue to Provide Responsible Environmental Stewardship on Long Island a) Monitor Emerging Air Regulatory Initiatives for Potential Implications, 4.1, Committed b) Minimize Impacts Associated with the Generation of Electricity, 4.2, Committed c) Undertake a Biofuels Assessment, 4.3, 7.4, Under Study d) Study Air Pollution Control Technologies, 4.4, Committed e) Minimize Impacts from Transmission and Distribution System Operations, 4.5, Committed f) Enhance Natural Habitat, 4.6, Committed g) Offer Recreational Trails on LIPA Grounds, 4.7, Under Study h) Report Greenhouse Gas Inventory, 4.8, Planned i) Emission Data Availability, 4.9, Planned j) Water Use Reduction Assessment, 4.10, Under Study 2009-2018 1-6 k) Sustainability Improvements through Energy Efficiency, 4.11, Committed l) Sustainability Improvements through Renewable Resources, 4.12, Committed m) Encourage Economic Development Through Green Jobs, 4.13, Committed 2) Address Sustainability Improvements and Resource Need through Increased Investment in Energy Efficiency a) Customer End-Use Efficiency i) Invest in Efficiency Long Island Plan, 5.1, Committed ii) Monitor Performance of Efficiency Programs to Ensure Value is Achieved, 5.2, Committed iii) Ongoing Investigation of Cost- Effective and Targeted Energy Efficiency and Load Management Programs that meet the Overall Resource Planning Strategies, 5.3, Committed iv) Consider Smart Grid Systems, 5.6, Under Study v) Implement Smart Metering, 5.7, Planned vi) Study Cost Effective Ways of Meeting the 15 x 15 Goal, 5.8, Under Study vii) Invest in Electro-Technologies, 5.8, Under Study b) T&D System Efficiency i) Investigate and Invest in T&D System Efficiencies, 5.4. Committed c) Generation Efficiency i) Investigate and Invest in Generation System Efficiencies, 5.5, Committed 3) Support Sustainability Improvements and Resource Need through Investment in Renewable Resources a) Endorse the Adoption of a LIPA RPS program that supports the NYS goal of 30% renewables by 2015, 8.1, Planned b) Investigate Utilizing Transmission Interties to Import Cost-Effective Renewable Energy from Off-Island Sources, 8.2. Planned c) Study Regional Wind Development, 8.3, Under Study

Section 1 Executive Summary d) Incentivize Backyard Wind, 8.4, Committed e) Solar PV RFPs, 8.5, Planned/Under Study f) Adopt Net Metering Program, 8.6 Committed g) Expand the Solar Rebate Program, 8.7, Committed 4) Upgrade Existing Fleet a) Adopt Renewable Energy Resources to Reduce Fuel Price Volatility and Shortages, 7.1, Planned b) Continue to Maximize Fuel Diversity Opportunities, 7.2, Under Study c) Investigate Potential for Repowering Generation Units, 7.2, 8.7, Committed d) Issue a Competitive RFP to Address Potential Greenfield, Repowering or Retiring Existing Facilities, 8.8, Planned e) Continue Structured Hedging Program, 7.3, Committed f) Utilize RPS as a Means to Diversify Fuel Supply, 7.5, Committed g) Develop a Long Term Fuel Supply Plan for the Caithness Project, 7.6, Committed h) Joint Investigation of Deteriorating Fuel Supply Infrastructure on Long Island by LIPA and NYSERDA, 7.7, Planned i) Determine the Best Site for Peaking Unit Retirement, 8.9, Under Study 5) Improve Interconnections and Reliability a) Comply with T&D Regulatory Requirements, 6.3, Committed b) Maintain High Reliability Through System Infrastructure,6.1, Committed c) Adopt Customer Satisfaction Plan, 6.2, Committed d) Ensure T&D System Financial Performance, 6.4, Committed e) Explore Transmission Projects through Regional Planning Partnerships, 6.5, Under Study 6) Balance Investment with Impact on Customer Bills a) Explicitly include cost impacts in each analysis and decision for investment or policy changes, Committed 1.4 Benefits of the Plan The Recommended Electric Resource Plan, as described in Exhibit 1-1, is compared to a Reference Plan, along with others analyzed to evaluate the preferred plan. The Recommended Plan incorporates a number of actions that are either planned or under study which renders a direct comparison of benefits difficult, since it is not known how it will actually be implemented. LIPA has adopted a Representative Plan in which it models adoption of these actions to illustrate the Recommended Plan for comparison and evaluation of its benefits. Further detail of this approach is provided in Section 8.5. The Representative Plan provides significant benefits to LIPA s customers and the environment when compared to the Reference Plan as summarized here. In general, the Representative Plan moves LIPA toward a more sustainable power supply through the adoption of end-use and system energy efficiency programs, introduction of additional renewable resources and replacement of existing generation with more efficient generating resources. Over the 2009 to 2028 analysis period, the projected benefits of implementing the Representative Plan include: Saving LIPA customers more than $2.1 billion over the study period; Improving the average generation efficiency 37% more than the Reference Plan; Increasing the fuel diversity of LIPA s power supply; Meeting the Governor s 45 x 15 target for energy efficiency and renewable energy; 1-7 2009 2018

Section 1 Executive Summary Reducing the amount of new capacity that needs to be build by about 900 MW; Retiring and repowering older, less efficient power plants and replacing them with new power plants with lower emissions of SO 2, NO X and CO 2 ; Meeting LIPA s SO 2 emission targets; Meeting LIPA s NO X emission targets; Meeting LIPA s RGGI allowance targets 9 years in advance of than the Reference Plan; and, Reducing CO 2 footprint emissions to levels 12% below 2005 levels by 2026. The Representative Plan has several challenges including: The investment in efficiency and renewables that brings longer term benefits causes consumers to pay more in the short run; Additional approaches need investigation to reach the RGGI compliance target in the last few years of the 2009 to 2028 analysis period; and, More needs to be done to reach the CO 2 footprint targets throughout the 2009 to 2028 analysis period. 1.5 LIPA Plan Consistency with the New York State Energy Policy LIPA is participating in the development of the updated New York State Energy Policy in parallel with the development of our own Electric Resource Plan. The Governor s office released its electric energy policy statement as part of Governor Paterson s State of the State speech on January 7, 2009; a summary of its key goals is provided in Exhibit 1-3. LIPA identifies where its plan contributes to the New York State Policy by using the state symbol, shown here, at appropriate sections throughout this document. LIPA is also a member of the Governor s Renewable Energy Task Force which was created in June of 2007 and charged with the three goals that are outlined in Exhibit 1-4. This Exhibit summarizes the Task Force s recommendations to date. LIPA supports this effort and also identifies how this Electric Resource Plan supports the development of renewable energy as recommended by the task force with the state symbol at appropriate points in this document. 1.6 Implications of the New Federal Administration s Energy Policies LIPA recognizes the early action that President Obama and Congress are taking on Energy Policy, however, the Draft Electric Resource presented in this document was prepared prior to their actions. Since the Electric Resource Plan approach is dynamic and flexible, LIPA will evaluate how this plan supports the Administration s plan as it becomes available in more detail. An economic stimulus package entitled The American Recovery and Reinvestment Act has been adopted by the U.S. Congress. This package envisions significant investment in energy infrastructure, renewable energy, and energy efficiency. In support of the Recovery Act, the President s Office of Management and Budget has issued a budget package targeting many of these same areas. Governor Paterson announced the creation of the New York State Economic Recovery and Reinvestment Cabinet on February 10, 2009. This Cabinet, composed of State agency heads and senior staff from the Governor s Office, is tasked with managing the development of state 2009-2018 1-8

Section 1 Executive Summary and local infrastructure projects financed through the federal American Recovery and Reinvestment Act. It will work closely with local governments to ensure federal dollars reach critical projects involving transportation, water and sewer, energy, technology and other infrastructure. 1.7 LIPA Business Advisory Panel An Advisory Panel created by LIPA President and CEO Kevin S. Law consisting of elected officials, energy experts and business and financial leaders from Long Island is being utilized to map out the future of the Authority and to determine the best model for delivering energy to its 1.1 million customers. In the current business model LIPA owns the region s transmission and distribution system and is responsible for all of the management, financial, legal and energy planning for that system, which is operated by the private firm National Grid under contract to LIPA. National Grid owns all of the power plants formerly owned by LILCO, and LIPA purchases the power from these plants and pays for their fuel, operation and maintenance. This Advisory Panel is an important component of LIPA s future. It has been 10 years since LIPA took over LILCO. Given the current economic conditions LIPA believes there is a timely need to examine whether the current public/private business model is the best model for delivering electricity for our customers into the future. The Advisory Panel held its first meeting on January 15, 2009 at LIPA headquarters in Uniondale. 1-9 2009 2018

Section 1 Executive Summary Exhibit 1-3 Governor Paterson s Energy Plan Factsheet Governor Paterson s State of the State Address January 7,2009 Press Release Energy Factsheet Making New York More Energy Independent and Energy Efficient Governor Paterson proposes one of the most aggressive clean energy goals in the country. By 2015, New York will meet 45 percent of its electricity needs through improved energy efficiency and clean renewable energy. Governor Paterson has proposed increasing the Renewable Portfolio Standard to 30 percent. He has set a goal of decreasing electricity usage by 15 percent. The "45 by 15" goal will require a clean energy economy. Governor Paterson has proposed innovative financing mechanisms such as "on-bill financing" now being discussed in a proceeding before the State Public Service Commission to help New Yorkers retrofit their homes and businesses and invest in energy efficiency and renewable energy. Realizing the "45 by 15" goal will create an estimated 50,000 new green jobs. Governor Paterson calls for the creation of a clearinghouse to serve as a single point of access for information on all energy efficiency programs for schools, hospitals, and local governments. The New York Power Authority (NYPA) raises capital for school districts, as well as eligible local governments and hospitals to retrofit and install clean distributed energy resources. The New York State Energy Research and Development Authority (NYSERDA) and the Long Island Power Authority (LIPA) also offer financial incentives for greening schools. A single point of entry to program and services will be available shortly and be accessible from the New York State home page. Governor Paterson proposes the creation of an upstate research consortium on hybrid electric batteries and energy storage technologies. This consortium will help reshape the upstate economy and create a clean corridor that includes cities in the Erie Canal corridor built some 200 years ago. It will also maximize the extraordinary academic and scientific resources available in the Western, Central, and Capital Regions. Complementing the upstate research consortium, Governor Paterson also proposes creating a New York Energy Policy Institute to coordinate the expertise of New York's higher education institutions. By disseminating state-of-the-art information and analysis on energy technologies and policies, the Institute will assist in keeping New York decision makers on the cutting edge. 2009-2018 1-10

Section 1 Executive Summary Exhibit 1-4 Renewable Energy Task Force Summary of Recommendations The First Report of the Renewable Energy Task Force To Lieutenant Governor David A. Paterson February 2008 In June 2007, Governor Spitzer asked Lieutenant Governor David A. Paterson to chair and convene the first meeting of the Renewable Energy Task Force. Comprised of 20 members, this distinguished group of experts represents the broad array of stakeholders in the renewable energy field, including renewable energy and alternative fuel industries, environmental and agricultural communities, academia, local government, energy policy, green buildings, economic development, public utilities, as well as State government entities. The Task Force was charged with three primary goals: 1) Identify barriers in New York State to wider deployment and installation of renewable energy; 2) Recommend policies, including financial incentives to overcome those barriers to attract clean industries to economically depressed regions of the state; and, 3) Identify future market areas where additional research and development investment is necessary. The Task Force determined that the 16 recommendations summarized below are integral to a comprehensive policy Roadmap to move New York towards greater renewable energy development and greater energy independence. The following five recommendations comprise the central elements of this Roadmap. 1. Re-Commit to Meeting the State s Renewable Portfolio Standard Goal and Evaluate Raising the Renewable Energy Target 2. Enhance and Expand New York s Existing Net Metering Law 3. Invest in Clean Energy Businesses for Economic Growth 4. Build a Sustainable Market for Solar Energy in New York State 5. Develop a Strategy to Reap the Benefits of New York s Wind Energy Potential Adherence to the following additional recommendations is essential to the comprehensive, fullyintegrated implementation of the State s Roadmap to greater renewable energy development: Develop Both a Renewable Fuels Roadmap and a Sustainable Biomass Feedstock Study Expand Training Programs to Sustain a Green Collar Workforce Improve Overall Agency Consistency and Coordination Use Creative Financing to Promote Investment in the Renewable Energy Industry Expand Research and Development efforts for Renewable Energy Reclaim a Leadership Role Through Building and Product Energy Performance Encourage the Use of Advanced Metering and Smart-Grid Technology Build on Public and Private Educational Programs Facilitate Interconnection Processes for Renewable Distributed Generation Expand Purchases of Renewable Energy by Local Governments Create a Vehicle Efficiency/Vehicle Miles Traveled Working Group 1-11 2009 2018

Section 1 Executive Summary 2009-2018 1-12

2 Overview The Electric Resource Plan provides a blueprint for Long Island s electric energy future. It articulates LIPA s strategy for developing a balanced and comprehensive electric energy policy. The Plan discusses the methodologies employed and the rigorous technical analyses undertaken in support of crafting the plan. It also incorporates valuable oral and written commentary received from LIPA s customers and other interested parties. Additionally, the LIPA Electric Resource Plan features a discussion of critical education activities underway to disseminate information regarding how changes in the electric industry impact LIPA and its customers. In order to comprehensively address its long term planning issues, LIPA has organized the LIPA Electric Resource Plan and supporting documentation as follows: LIPA Electric Resource Plan, provides the plan including LIPA s vision, mission, and strategic objectives that drive the plan, a summary of key energy issues that impact the plan and planning processes, and a concise summary evaluation of the integrated plan; Appendix A, Technical Report, provides detailed information regarding the Electric Resource Plan. It includes discussion of the action and policy plans, descriptions of each plan element and goal, an overview of the planning process and the planning methodologies employed to create the Electric Resource Plan, and a summary of planning analysis results; Appendix B, Energy Primer, provides an overview of the current state of the energy industry, background on LIPA, and a review of the initiatives LIPA is undertaking to promote understanding of the critical energy issues facing Long Island today; Appendix C, Response to Comments, summarizes the comments received during the Electric Resource Plan public hearings, via email, or through written letter, organized according to similarity of topic as 2-1 well as cross-referenced by commentator and/or organization; and Appendix D, Technical Appendices, provides additional and supporting details on studies, methodologies, and criteria used in the planning analysis. This section describes the key planning issues that face LIPA and its customers today and provides a high level description of LIPA and the current electricity market. For greater detail about topics in this section, refer to Appendix B, Energy Primer which provides additional and more detailed discussion. 2.1 Key Planning Issues The Draft Electric Resource Plan provides an overview of the electricity industry and summarizes the key changes that have the potential to impact LIPA s Electric Resource Plan. LIPA has committed significant planning and implementation resources to meeting the challenges of an evolving utility environment. As a result, LIPA has established itself as an industry leader in both New York State and nationally, particularly in the areas of resource and transmission planning, energy efficiency, and renewable energy development. More recent changes in the energy industry that have occurred since the publication of LIPA s previous energy plan include fuel price levels 2009 2018

Section 2 Overview and volatility, climate change concerns, need for improved reliability, and interest in more aggressive adoption of renewables and efficiency resources. The bullets below provide a substantive list of market changes that are particularly challenging in terms of projecting their implications for LIPA. Volatility in fossil fuel costs and the implications for choice of resource as well as impact on customer s electric bills. Increased concern with power plant emissions and global climate issues has focused emphasis on renewable energy resources and energy efficiency investments. Power supply and environmental issues have sparked a deepening interest in repowering aging generating plants on Long Island. New York State Energy Plan that is currently under development to which LIPA is contributing. Implications of enacted and pending regulatory and legislative requirements currently affecting planning efforts. o Legislative initiatives to change energy policies and practices including: Approved investment of the federal American Recovery and Reinvestment Act in energy infrastructure, renewable energy, and energy efficiency Adoption of national legislation (Energy Policy Act of 2005 and the Energy Independence and Security Act (EISA) of 2007) making sweeping changes to the energy markets, technology choices and the energy establishment Legislation being considered in New York to adopt new generation siting requirements to replace the previous siting law, 16 NYCRR, Article X, which expired in 2003 (New York Commission Rules and Regulations) o Regulatory efforts that impact energy planning include: Long term planning and reliability initiatives undertaken by the New York Independent System Operator (NYISO) FERC reliability planning and market rule changes NYISO s September 2007 Comprehensive Reliability Plan (CRP) for New York s bulk electricity grid identifies the lack of a one stop siting process as a risk factor that could adversely affect development of new generation facilities in New York Issuance of the Governor s Renewable Energy Task Force recommendations New York State Renewable and Efficiency Portfolio Standards Continued evolution of the restructured or deregulated electricity markets locally, regionally and nationally Implementation of the proposed National Cap and Trade program Continued effects of competition and the impact of industry consolidation. Continued security and safety issues for utility infrastructure. The deregulated market, introduced in the past decade, continues to provide both opportunities and risks for LIPA. The number, size and load characteristics of the remaining large customers are a factor in long term planning. Deregulation and customer choice allows commercial customers to leave, and subsequently return to, LIPA for commodity services at any time and LIPA must be prepared to provide that service. Similarly, LIPA assesses, through its planning process, the need for diverse supply resources, the impact of lack of diversity on the security and cost of power supply, and the environmental 2009-2018 2-2

Section 2 Overview impacts of resource choices. LIPA faces changes in these areas as generation and transmission technologies are evolving, fuel price volatility is increasing, and environmental and market rules are changing. All of these considerations must be factored into the LIPA planning process. 2.2 What is LIPA? LIPA is a corporate municipal instrumentality and political subdivision of the State of New York. LIPA operates as a non-profit entity as authorized by an Act of the State Legislature in 1986. In May 1998, LIPA became Long Island s primary electric service provider. Today, LIPA is the third largest public power utility in the nation in terms of customers served delivering electricity to more than 1.1 million customers, a number that continues to grow, through a system of 535,000 utility poles, over 8,900 miles of overhead wires, and more than 4,600 miles of underground cable. 2.3 LIPA s History LIPA has served the Island s growing population since 1998 with a consistent commitment to cost-containment, efficiency and service reliability. Over the past years as the Long Island population has grown, electrical requirements of the modern home have expanded resulting in significant growth in the demand for energy. Priorities at LIPA have been, and continue to be, focused on the customer - upgrading and enhancing the reliability of the electric system, advancing energy efficiency, and developing and expanding alternative energy resources in a costeffective manner. LIPA stands firmly behind its mission: to deliver safe, reliable, and economical electric service to its customers - serving as a role model of what a public power company should be in the 21st Century. The reliability of the LIPA system has been consistently validated. Since 2004, LIPA has been recognized as the most reliable electric utility in New York State with predominantly overhead transmission and distribution construction in terms of the fastest service restoration times, lowest frequency of interruption, and shortest duration of outages. 2.4 System Description Long Island is divided into four counties: Kings, Queens, Nassau and Suffolk; with land area totaling 1,377 square miles. The LIPA service territory consists of most of Nassau and Suffolk counties and the Rockaway Peninsula in Queens. LIPA s service territory is displayed in Exhibit 2-1; it covers about 1,200 square miles, encompassing nearly 90 percent of Long Island s total land area. 2-3 2009 2018

Section 2 Overview Exhibit 2-1 Map of LIPA Service Territory As indicated earlier, LIPA delivers electricity to more than 1.1 million customers on Long Island. In 2008, LIPA s retail sales were 20,135 GWh of which approximately 50% were consumed by commercial and industrial customers, 48% by residential customers and the remaining 2% by street lighting and public authorities. More than 95 percent of customers in the LIPA service area live in Nassau and Suffolk counties. The balance of the population in the LIPA service territory resides on the Rockaway Peninsula in Queens County, within the New York City limits. Three small independent municipal electric systems - Freeport, Rockville Centre, and Greenport - are located within the LIPA service territory. The New York Power Authority (NYPA) supplies energy, which is delivered over LIPA s distribution lines, for economic development purposes to various customers on Long Island. Both Nassau and Suffolk counties have Municipal Distribution Agencies (MDAs) that purchase power from NYPA and deliver it to businesses throughout the LIPA system. These MDAs were established when LILCO owned the electric system to provide lower-cost 2009-2018 2-4 power to businesses that contribute to the state's economy by adding jobs or other economic benefits. As pictured in Exhibit 2-2, the process of making and delivering electricity to consumers requires three distinct steps: first generating units produce the power, then it is transmitted at high voltages over the transmission system so that it can travel long distances to locations where the electricity will be used, and lastly, it is distributed over the distribution lines that ultimately connect directly to consumers homes and businesses. In the case where Distributed Generation 1 is providing power the energy is input at the local distribution rather than the transmission level. In order for electricity to be stepped-up to high voltages for travel over the transmission system, and then correspondingly stepped-down to move over the distribution network, it passes through transformers located in power substations on the utility network. 1 Distributed Generation is defined as generation of electricity by small-scale power plants located near the electric loads they serve.