RG&E Fossil Fuel Plant Divestiture Plan Adopted

• by New York State Public Service Commission

ALBANY, NY (11/12/2009)(readMedia)-- The New York State Public Service Commission (Commission) today approved the process by which Iberdrola SA, the owner of Rochester Gas & Electric Corporation (RG&E), would sell off certain fossil fuel plants as required as part of its purchase of RG&E and New York State Gas and Electric Corporation.

"As a result of a collaborative process, a fair and equitable plan has been crafted to enable Iberdrola to divest itself of the fossil fuel plants it acquired last year as part of its purchase of Energy East's New York assets," said Commission Chairman Garry Brown. "This divesture plan will speed the sale of the power plants and benefit ratepayers long-term. I congratulate the parties involved for creating such a workable and fair solution."

The divestiture plan approved by the Commission today describes the assets offered for sale, which include RG&E Stations 3 and 9, each consisting of an 18 MW combustion turbine; RG&E's Allegany Station, a 62 MW combined cycle gas-fired facility; RG&E's Russell Station site, where a coal-fired generation facility was recently retired; and the Carthage Station, a 63 MW combined cycle gas-fired facility owned by Cayuga Energy Inc., a competitive subsidiary of Energy East that operates in wholesale electric markets. Iberdrola will offer the five assets for sale as a single bundle, but will consider bids for alternatives to the preferred bundling.

The generation assets would be sold at auction, in a two-stage process. After indicative bids are received and evaluated in the first stage of the process, final binding bids would be obtained and evaluated in the second stage. Bidders will be instructed to price the Carthage plant separately. The sale of the Russell site is contingent upon remediation, by either demolishing or rehabilitating the existing structures on the site; assumption of all environmental liabilities at the site; and acceptance of a consent judgment and order RG&E entered into with the state Department of Environmental Conservation that establishes environmental conditions for any new generation that might be built at the site. Bidders interested in re-powering the site would be encouraged to submit a plan detailing the construction of a new generation facility there.

The plan provides for extensive consultation with Department of Public Service staff. All important auction documents will be provided to staff for its review and comment before their promulgation. Staff will be permitted to review the bid evaluation methodology and assumptions, and the selection from the first stage indicative bids of the bidders eligible for the second stage binding bidding process.

If the bids obtained in the auction are priced at less than the current net book value of the assets, the auction process would be suspended. RG&E would then petition the Commission for guidance on the next steps it should take.

Under the plan, RG&E would be permitted to retain 10 percent of the net proceeds realized from the auction up to a maximum pre-tax ceiling of $5 million. The plan also sets forth accounting protocols for the treatment of auction proceeds. Because the Carthage plant is a merchant facility owned by a competitive subsidiary of Energy East and its costs have never been reflected in regulated utility rates, the divestiture plan provides for separate accounting of the proceeds related to its sale.

Finally, the divestiture plan provides that the auction process will commence upon receipt from the Commission of an order authorizing Iberdrola to proceed. Thereafter, time periods are established for important milestones, and the plan states that the auction will be completed as soon as possible.

Finally, staff notes that there is no need to force prematurely the negotiation of a power purchase agreement to the potential detriment of ratepayers. Once the sale is concluded, the parties may negotiate such agreement when the price will be more readily obtainable.

The Commission's decision today, when issued, may be obtained by going to the Commission Documents section of the Commission's Web site at www.dps.state.ny.us and entering Case Number 07-M-0906 in the input box labeled "Search for Case/Matter Number." Many libraries offer free Internet access. Commission orders may also be obtained from the Commission's Files Office, 14th floor, Three Empire State Plaza, Albany, NY 12223 (518-474-2500).

-30-