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ConEd, Competitive Affiliates Seek Finding that Competitive Solar Projects Won't Create Vertical Market Power

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October 13, 2010

Consolidated Edison, Orange and Rockland Utilities, Consolidated Edison Solutions, and Consolidated Edison Development have jointly requested a declaratory ruling from the New York Public Service Commission that 200 MW of renewable energy projects to be developed and owned by ConEdison Solutions and ConEd Development (jointly, the competitive affiliates) which are directly connected to the ConEd and O&R transmission and distribution systems will not be reviewed under the Commission's Vertical Market Power Policy Statement, or, in the alternative, that the Commission determines that the rebuttable presumption of vertical market power has been overcome.

In the Vertical Market Power Policy Statement, the PSC adopted a rebuttable presumption that, "ownership of generation by a T&D company affiliate would unacceptably exacerbate the potential for vertical market power."

The competitive affiliates are currently investing in solar energy projects in the Northeast and said that they desire to develop and own additional small-scale solar, and potentially other small-scale renewable energy projects, throughout New York State, including within the ConEd and O&R service territories.  The competitive affiliates plan to construct up to 100 MW of renewable energy projects in ConEd's service territory and up to 100 MW of renewable energy projects in O&R's service territory, each of which would be sized at 20 MW or less.

The Consolidated Edison, Inc. companies jointly submitted that the Commission should not review the competitive affiliates' planned ownership of these renewable energy projects under the Vertical Market Power Policy Statement, even if the projects are interconnected to the ConEd and/or O&R transmission and distribution systems, "as it is not clear that the Commission intended a resource like small-scale solar to come within the ambit of the VMP Policy Statement, and the relatively small amount of renewable generation to be developed by the [competitive] Affiliates in the service territories of their affiliated transmission owners 'could not give rise to market power.'"

The companies noted that the Vertical Market Power Policy Statement was developed by the Commission to deal with the vertical market power concerns resulting from the utility divestiture of fossil-fueled generating assets, and was applied in reviewing a subsequent utility merger, which required PSC approval under Public Service Law §70.

However, the ConEd companies noted that in a case involving the acquisition of a 20 MW Qualifying Facility by an unregulated affiliate ("CHEC") of Central Hudson, the "small size of the generation ownership interest" that CHEC sought to obtain was a major consideration in the Commission's decision that CHEC's acquisition of the QF need not be reviewed under the Vertical Market Power Policy Statement because the transaction, "could not give rise to market power."

While the 100 MW in each service area that the competitive affiliates are seeking to develop is larger than the QF involved in the CHEC proceeding, the ConEd companies said that the impact is less material on a relative basis.  The total annual energy sales from the planned renewable energy projects to be installed in ConEd's service territory are projected to be 123,000 MWh annually, or 0.2 percent of ConEd's total energy deliveries in 2009, while CHEC's sales from the QF in question in 2009 were 2.4 percent of Central Hudson's total 2009 energy deliveries.  For O&R, the planned 100 MW of renewable energy projects would result in energy deliveries representing about 3.0 percent of O&R's 2009 New York deliveries.

"[T]he relatively small amount of renewable generation the [competitive] Affiliates are planning to develop in the service territories of CECONY [ConEd] and O&R will not incent either transmission owner to exercise vertical market power," the companies said.

"Furthermore, the nature of renewable energy projects, such as the planned solar facilities, is such that the market value of the electric output of these renewable energy projects has a very small impact on the economics of the project.  For example, less than 15 percent of the value of a solar energy project comes from the capacity and energy produced by the facility, with the vast majority of the value corning from a combination of tax depreciation, Federal production tax credits and some form of renewable energy credits," the companies added.

"In addition, a further mitigating factor is the [competitive] Affiliates' plan to sell most, if not all, of the output of these renewable energy projects under bilateral contracts with entities other than CECONY or O&R, in response to RFPs, making their revenues even more indifferent to market prices," the companies said.

   
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