NEWFOUNDLAND ...

POWER A FORTIS COMPANY

December 15, 2015

Board of Commissioners of Public Utilities P.O. Box 21040 120 Torbay Road St. John's, NF AlA 5B2

Attention: Cheryl Blundon Board Secretary

Ladies & Gentlemen:

Newfoundland Power Inc.

55 Kenmount Road P.O. Box 8910 St. John's, NL A 1 B 3P6 Business: (709) 737-5600 Facsimile: (709) 737-2974 www.newfoundlandpower.com

Re: An Application by Newfoundland and Labrador Hydro (Hydro) pursuant to Subsection 41 (3) of the Public Utilites Act for the approval of the procurement of 12 MW of diesel generation at Holyrood (the "Application")

Introduction

On November 20,2015, Hydro filed the Application. By letter dated November 25,2015, the Board set today as the deadline for comments on the Application. These are Newfoundland Power's comments.

In Newfoundland Power's submission, the Application is not justified on the evidence. It should be denied.

The proposed purchase of the diesel generating units is not justified by Hydro based on system planning considerations. Furthermore, Hydro has recently completed the installation ofthe new 100 MW (nominal) combustion turbine generator at Holyrood (the "New CT"), which was justified, at least in part, on its ability to black start the Holyrood Thermal Generating Station ("HTGS"). In addition, the cost benefit analysis submitted by Hydro in support of the Application is subject to significant risks.

System Planning Considerations

Hydro's current planning criterion for reserve margin is a minimum reserve margin of240 MW. The forecast reserve margin for the Island Interconnected system for the winter of 2017-2018, based on a conservative P90 forecast, is 292 MW. On that basis, Hydro confirms that the 10 MW of generation that will be made available to the system as a result of the proposed purchase of the diesel units is not required to meet Hydro's planning criteria for the winter of2017-2018. 1

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Telephone: (709) 737-5609 Email: ghayes@newfoundlandpower. com Fax: (709) 737-2974

Board of Commissioners of Public Utilities

December 15, 2015 Page 2 of3

Reserve margins for all other winter seasons from 2015 through 20 19 range between 316 and 325 MW, well above the required minimum.2

Black Start Requirement

By Order No. P.U. 16 (2014), the Board approved Hydro's proposed capital expenditure for the installation of the New CT. Hydro's original plan for the diesel units at Holyrood was to have them provide a temporary black start solution for the HTGS until the New CT was fully commissioned, after which the New CT would provide black start.3

Hydro's evidence indicates the New CT is capable of providing black start through its primary connection to the Holyrood switchyard. However, a secondary connection would be required from the New CT into the HTGS to mitigate potential problems in the switchyard. The diesels would need to be removed from service before that secondary connection could be completed.4

Should the Application not be approved, Hydro indicates it will terminate the lease of the diesel units upon successful testing of the black start function of the New CT, which is anticipated to occur no later than August 2016.5 Although Hydro has not yet completed testing of the black start capability of the New CT, there has been no indication from Hydro that its capability to black start the HTGS is in doubt. Accordingly, the status quo alternative of continuing to lease the diesel units until the black start functionality of the New CT is made fully available remains a viable option.

Cost Benefit Analysis

The cumulative present worth ("CPW") preference of $540,000 indicated in Hydro's report is dependent on the achievement of potential fuel savings in the years prior to the interconnection of Muskrat Falls and the resale of the diesel units when they are no longer required to black start the HTGS.6 The potential fuel savings are based on Hydro's proposal to include the diesel units as part of its generation dispatch order such that they would be started prior to the New CT in certain circumstances. The evidence indicates potential fuel savings of$0.90 million in 2016 and $1.07 million in 2017.7 However, Hydro has indicated that, to date in 2015, the diesels have not been operated to avoid operation of the New CT.8

In response to a question from the Board regarding the risks to the calculated CPW of the Application proposal, Hydro noted several risks, including (1) a schedule change to the Muskrat

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6

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Purchase of I2 MW of Diesel Generation, Table 2, page 7. Ibid., page 13, lines 13-16. Ibid., page 13, lines 18-23. Response to Request for Information IC-NLH-007. Purchase of 12 MW of Diesel Generation, Table 3, page 9. Response to Request for Information NP-NLH-012. Response to Request for Information NP-NLH-020. e

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Telephone: (709) 737-5609 Email: ghayes@newfoundlandpower. com Fax: (709) 737-2974+

Board of Commissioners of Public Utilities

December 15, 2015 Page 3 of3

Falls interconnection; (2) a potential cost of approximately $200,000 for environmental permitting; (3) changes in the US/Canadian dollar exchange rate affecting the resale value of the diesels; and ( 4) changes in the price of fuel.

Hydro has completed a CPW analysis of the alternative of continuing to lease the 6 diesel generators until the necessary modifications are completed to allow the New CT to black start the HTGS through a secondary connection. This analysis indicates a CPW of negative $30,000. This compares to the stated CPW preference of $540,000 indicated for the Application proposal. 9

As noted above, however, the stated CPW preference of $540,000 indicated for the Application proposal is subject to a number of uncertainties.

Concluding

The evidence is that the diesel units proposed to be purchased are not required for system planning purposes, and Hydro's original plan to use the New CT to black start the HTGS remains viable.

The CPW analysis offered to justify the proposed purchase of the 6 diesel units is subject to a number of risk variables. In particular, there is uncertainty in relation to fuel savings and the resale value of the units. For that reason, the Application proposal may offer no greater benefit to customers than the status quo.

The Board should deny the Application.

We trust this is in order.

Yours very truly,

-€~~' Senior Counsel

c. Geoffrey Young Newfoundland and Labrador Hydro

Paul Coxworthy Stewart McKelvey

Thomas J. O'Reilly, QC Cox & Palmer

Thomas Johnson, QC O'Dea Earle Law Offices

Sheryl Nisenbaum Praxair Inc.

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Telephone: (709) 737-5609 Email: ghayes@newfoundlandpower. com Fax: (709) 737-2974+