5. Power for Jobs Program - Extended Benefits

The President and Chief Executive Officer submitted the following report:

Summary

“The Trustees are requested to approve extended benefits for 49 Power for Jobs (‘PFJ’) customers as listed in Exhibit ‘5-A.’ These customers have been recommended to receive such extended benefits by the Economic Development Power Allocation Board (‘EDPAB’).

BACKGROUND

“In July 1997, the New York State Legislature and Governor George E. Pataki approved a program to provide low-cost power to businesses and not-for-profit corporations that agree to retain or create jobs in New York State. In return for commitments to create or retain jobs, successful applicants receive three-year contracts for PFJ electricity.

“The PFJ program originally made 400 megawatts (‘MW’) of power available. The program was to be phased in over three years, with approximately 133 MW made available each year. In July 1998, as a result of the initial success of the program, the Legislature and Governor Pataki amended the PFJ statute to accelerate the distribution of the power, making a total of 267 MW available in Year One. The 1998 amendments also increased the size of the program to 450 MW, with 50 MW to become available in Year Three.

“In May 2000, legislation was enacted that authorized another 300 MW of power to be allocated under the PFJ program. The additional MW were described in the statute as ‘phase four’ of the program. Customers that received allocations in Year One were authorized to apply for reallocations; more than 95% reapplied. The balance of the power was awarded to new applicants.

“In July 2002, legislation was signed into law by Governor Pataki that authorized another 183 MW of power to be allocated under the program. The additional MW were described in the statute as ‘phase five’ of the program. Customers that received allocations in Year Two or Year Three were given priority to reapply for the program. Any remaining power was made available to new applicants.

“Chapter 59 of the Laws of 2004 extended the benefits for PFJ customers whose contracts expired before the end of the program in 2005. Such customers had to choose to receive an ‘electricity savings reimbursement’ rebate and/or a power contract extension. The Authority was also authorized to voluntarily fund the rebates, if deemed feasible and advisable by the Trustees.

“PFJ customers whose contracts expired on or prior to November 30, 2004 were eligible for a rebate to the extent funded by the Authority from the date their contract expired through December 31, 2005. As an alternative, such customers could choose to receive a rebate to the extent funded by the Authority from the date their contract expired as a bridge to a new contract extension, with the contract extension commencing December 1, 2004. The new contract would be in effect from a period no earlier than December 1, 2004 through the end of the PFJ program on December 31, 2005.

“PFJ customers whose contracts expired after November 30, 2004 were eligible for rebate or contract extension, assuming funding by the Authority, from the date their contracts expired through December 31, 2005.

“Approved contract extensions entitled customers to receive the power from the Authority pursuant to a sale-for-resale agreement with the customer’s local utility. Separate allocation contracts between customers and the Authority contained job commitments enforceable by the Authority.

“In 2005, provisions of the approved State budget extended the period PFJ customers could receive benefits until December 31, 2006. In 2006, a new law (Chapter 645 of the Laws of 2006) included provisions extending program benefits until June 30, 2007.

“Section 189 of the New York State Economic Development Law, which was amended by Chapter 59 of the Laws of 2004, provided the statutory authorization for the extended benefits that could be provided to PFJ customers. The statute stated that an applicant could receive extended benefits ‘only if it is in compliance with and agrees to continue to meet the job retention and creation commitments set forth in its prior power for jobs contract.’

“Chapter 313 of the Laws of 2005 amended the above language to allow EDPAB to consider continuation of benefits on such terms as it deems reasonable. The statutory language now reads as follows:

An applicant shall be eligible for such reimbursements and/or extensions only if it is in compliance with and agrees to continue to meet the job retention and creation commitments set forth in its prior power for jobs contract, or such other commitments as the board deems reasonable. (emphasis supplied)

“At its meeting of October 18, 2005, EDPAB approved criteria under which applicants whose extended benefits EDPAB had reduced for non-compliance with their job commitments could apply to have their PFJ benefits reinstated in whole or in part. EDPAB authorized staff to create a short-form application, notify customers of the process, send customers the application and evaluate reconsideration requests based on the approved criteria. To date, staff has mailed 200 applications, received 109 and completed review of 108.

DISCUSSION

“At its meeting on December 19, 2006, EDPAB recommended that the Authority’s Trustees approve electricity savings reimbursement rebates to the 49 businesses listed in Exhibit ‘5-A.’ Collectively, these organizations have agreed to retain more than 69,000 jobs in New York State in exchange for rebates. The rebate program will be in effect until June 30, 2007, the program’s sunset.

“The Trustees are requested to approve the payment and funding of rebates for the companies listed in Exhibit ‘5-A’ in a total amount currently not expected to exceed $4.6 million. Staff recommends that the Trustees authorize a withdrawal of monies from the Operating Fund for the payment of such amount, provided that such amount is not needed at the time of withdrawal for any of the purposes specified in Section 503(1)(a)-(c) of the General Resolution Authorizing Revenue Obligations, as amended and supplemented. Staff expects to present the Trustees with requests for additional funding for rebates to the companies listed in the Exhibit in the future.

FISCAL INFORMATION

“Funding of rebates for the companies listed on Exhibit ‘5-A’ is not expected to exceed $4.6 million. Payments will be made from the Operating Fund. To date, the Trustees have approved $60 million in rebates.

RECOMMENDATION

“The Executive Vice President and Chief Financial Officer and the Director – Business Power Allocations, Compliance and Municipal and Cooperative Marketing recommend that the Trustees approve the payment of electricity savings reimbursements to the Power for Jobs customers listed in Exhibit ‘5-A.’

“The Executive Vice President and General Counsel, the Senior Vice President – Marketing and Economic Development, the Senior Vice President – Public and Governmental Affairs, the Vice President – Major Account Marketing and Economic Development and I concur in the recommendation.”

Mr. Pasquale presented the highlights of staff’s recommendations to the Trustees. In response to a question from Chairman McCullough, Mr. Pasquale said that all of the companies whose allocations had been reduced had been notified of the reductions, as well as the process for reconsideration of the reductions. Chairman McCullough added that a very high percentage of those companies had applied for such reconsideration.

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

WHEREAS, the Economic Development Power Allocation Board (“EDPAB”) has recommended that the Authority approve electricity savings reimbursements to the Power for Jobs (“PFJ”) customers listed in Exhibit “5-A”;

NOW THEREFORE BE IT RESOLVED, That to implement such EDPAB recommendations, the Authority hereby approves the payment of electricity savings reimbursements to the companies listed in Exhibit “5-A,” and that the Authority finds that such payments for electricity savings reimbursements are in all respects reasonable, consistent with the requirements of the PFJ program and in the public interest; and be it further

RESOLVED, That based on staff’s recommendation, it is hereby authorized that payments be made for electricity savings reimbursements as described in the foregoing report of the President and Chief Executive Officer in the aggregate amount of up to $4.6 million, and it is hereby found that amounts may properly be withdrawn from the Operating Fund to fund such payments; and be it further

RESOLVED, That such monies may be withdrawn pursuant to the foregoing resolution upon the certification on the date of such withdrawal by the Vice President – Finance or the Treasurer that the amount to be withdrawn is not then needed for any of the purposes specified in Section 503(1)(a)-(c) of the General Resolution Authorizing Revenue Obligations, as amended and supplemented; and be it further

RESOLVED, That the Senior Vice President – Marketing and Economic Development or her designee be, and hereby is, authorized to negotiate and execute any and all documents necessary or desirable to effectuate the foregoing, subject to the approval of the form thereof by the Executive Vice President and General Counsel; and be it further

RESOLVED, That the Chairman, the President and Chief Executive Officer and all other officers of the Authority are, and each of them hereby is, authorized on behalf of the Authority to do any and all things and take any and all actions and execute and deliver any and all certificates, agreements and other documents to effectuate the foregoing resolutions, subject to the approval of the form thereof by the Executive Vice President and General Counsel.

6. Power for Jobs Program - Extended Benefits - 2007

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to approve extended benefits for two Power for Jobs (‘PFJ’) customers as listed in Exhibits ‘6-A’ and ‘6-B’ until June 30, 2007 to reflect recently enacted changes in the law. These customers have been recommended to receive such extended benefits by the Economic Development Power Allocation Board (‘EDPAB’).

BACKGROUND

“In 2005, provisions of the approved State budget extended the period PFJ customers could receive benefits until December 31, 2006.

“Chapter 313 of the Laws of 2005 amended the above language to allow EDPAB to consider continuation of benefits on such terms as it deems reasonable. The statutory language now reads as follows:

“In 2006, a new law (Chapter 645 of the Laws of 2006) included provisions extending program benefits until June 30, 2007.

DISCUSSION

“At its meeting on December 19, 2006, EDPAB recommended that the Authority’s Trustees approve a contract extension to the business listed on Exhibit ‘6-A.’ Exhibit ‘6-B’ lists a business that EDPAB is recommending to continue to receive electricity savings reimbursements. Together, these businesses have agreed to retain more than 400 jobs in New York State in exchange for the contract extension or rebate. The contract will be extended and the rebate program will be in effect until June 30, 2007, the program’s newly enacted sunset date. The power will be wheeled by the investor-owned utilities as indicated in the Exhibits.

FISCAL INFORMATION

“The cost of the rebate to the customer listed on Exhibit ‘6-A’ will not be known until 2007. Payments will be made from the Operating Fund. To date, the Trustees have approved $60 million in rebates.

RECOMMENDATION

“The Executive Vice President and Chief Financial Officer and the Director – Business Power Allocations, Compliance and Municipal and Cooperative Marketing recommend that the Trustees approve the contract extension for, and the extension of eligibility to receive electricity savings reimbursements to,

the Power for Jobs customers listed in Exhibits ‘6-A’ and ‘6-B.’

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

WHEREAS, the Economic Development Power Allocation Board (“EDPAB”) has recommended that the Authority approve a contract extension and an electricity savings reimbursement to the Power for Jobs (“PFJ”) customers listed in Exhibits “6-A” and “6-B”;

NOW THEREFORE BE IT RESOLVED, That to implement such EDPAB recommendations, the Authority hereby approves a contract extension for the company listed in Exhibit “6-A,” and the extension of eligibility to receive electricity savings reimbursements to the company listed in Exhibit “6-B”; and be it further

7. Economic Development Plan – Use of Net Revenues Produced by Sale of Expansion Power

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to approve Economic Development Plans (‘Plans’) covering the use of net revenues produced by the sale of Expansion Power (‘EP’) and to authorize the submission of such Plans to the Economic Development Power Allocation Board (‘EDPAB’) for the period of one year.

BACKGROUND

“Chapter 32 of the Laws of 1987: (a) authorized the Authority to enter into new contracts for the sale of EP to customers in Western New York; (b) provided for the sale of industrial power as Economic Development Power (‘EDP’) under newly established criteria and (c) established EDPAB to review applications for EDP and to recommend approved applications to the Authority.

“The eighth unnumbered paragraph of Section 1005 (13) of the Public Authorities Law (‘PAL’), as amended by Chapter 32, directs the Authority to identify net revenues produced by the sale of EP and, further, to identify an amount of such net revenues to be used solely for Industrial Incentive Awards. These awards are to be made in conformance with Plans, covering all such net revenues, that are submitted by the Authority to EDPAB and are approved by EDPAB pursuant to Section 188 of the Economic Development Law (‘EDL’).

“Net revenues are defined by Section 1005 as any excess of revenues properly allocated to the sales of EP over costs and expenses properly allocated to such sales. The Authority is directed in Section 1005 to identify net revenues no less often than annually. Section 188 of the EDL provides that EDPAB is to review each Plan applying the same economic development criteria as those used to evaluate applications for power. The statute does not specify a definition of Industrial Incentive Awards.

“In 1990, 1996 and 2001, the Authority approved a five-year program under which EP net revenues were to be dedicated to helping maintain stable industrial rates. EDPAB has periodically approved such Plans for use of EP revenues to hold industrial rates at a stable level.

DISCUSSION

“Allocations of EDP have been a useful economic development tool. EDPAB has recommended allocations associated with the creation or retention of more than 81,000 jobs, totaling 193 MW, to date. The costs of providing EDP are greater than the revenues produced by such sales. In order to continue to market this power on a competitive basis consistent with the aim of the legislation creating EDPAB, the rates for industrial power must be kept low enough to be of sufficient economic incentive for industries to locate or expand in New York State.

“The Authority’s EDP programs were recently reviewed by the Temporary State Commission on the Future of New York State Power Programs for Economic Development and numerous changes in the form and administration of these programs were recommended. Any such changes would require legislation. Moreover, the Power for Jobs (‘PFJ’) and the Energy Cost Savings Benefit (‘ECSB’) programs will end on June 30, 2007. The ECSB awards go to the same customers that benefit from current Industrial Incentive Award rate relief. Thus, pending clarification on the future of these programs, it is appropriate to propose extensions of the Industrial Incentive Awards for one year instead of the usual five-year extension.

“It is therefore proposed that the Authority’s Chairman be authorized to submit the Authority’s Plans to EDPAB for the ensuing one-year period, providing for the use of all net EP revenues to support industrial rates, provided that the Chairman, at his discretion, may recommend to EDPAB a different use of such net revenues, consistent with statutory requirements. The Authority will report to EDPAB on the effect of using these funds.

RECOMMENDATION

“The Director – Business Power Allocations, Compliance and Municipal and Cooperative Marketing recommends that the Trustees authorize the Chairman to submit to the Economic Development Power Allocation Board for approval for the ensuing one-year period, Economic Development Plans that provide for the use of net revenues from the sale of Expansion Power to support industrial rates, provided that the Chairman, at his discretion, may recommend to the Economic Development Power Allocation Board a different use of such net revenues consistent with statutory requirements.

“The Executive Vice President and General Counsel, the Senior Vice President – Marketing and Economic Development and I concur with the recommendation.”

Mr. Pasquale presented the highlights of staff’s recommendations to the Trustees. Chairman McCullough said that the future of these Plans depend on the actions of the State Legislature in the coming session. Responding to a question from Trustee Seymour, Chairman McCullough said that these Plans cover just one year, instead of the usual five years, because of the uncertainties as to the future of the EDP programs. He said that management would be monitoring any changes made and reporting back to the Trustees on them.

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That the Authority hereby approves Economic Development Plans that provide for the use of net revenues from the sale of Expansion Power to support industrial rates for a one-year period, or for such other use as determined by the Chairman, consistent with statutory requirements, in accordance with the foregoing report of the President and Chief Executive Officer; and be it further

RESOLVED, That the Chairman or his designee be, and hereby is, authorized to submit annually for the next year Economic Development Plans to the Economic Development Power Allocation Board for review and approval; and be it further

RESOLVED, That the Chairman or his designee be, and hereby is, authorized to execute any and all documents necessary or desirable to effectuate such Economic Development Plans; and be it further

RESOLVED, That the Chairman, the President and Chief Executive Officer and all other officers of the Authority are, and each of them hereby is, authorized on behalf of the Authority to do any and all things, take any and all actions and execute and deliver any and all agreements, certificates and other documents to effectuate the foregoing resolutions, subject to the approval of the form thereof by the Executive Vice President and General Counsel.

8. Modification of Westchester County Governmental Customer Pricing and Implementation of Energy Charge Adjustment Clause – Notice of Adoption

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to take final action to approve a modification in the rates for the sale of firm power to the Westchester County Governmental Customers (‘Customers’) in 2007.

“This proposed final action is twofold. First, staff seeks approval to increase the production rates of the Customers by 25.8% on average as compared to 2006 rates effective with the January 2007 billing cycle. Second, Trustee approval is requested to reinstitute a monthly Energy Charge Adjustment (‘ECA’) mechanism applicable to the Customers. Implementation of these two elements will ensure that the Authority fully recovers the actual costs to supply electricity to the Customers.

BACKGROUND

“At their September 26, 2006 meeting, the Trustees directed the publication in the New York State Register (‘State Register’) of notice that the Authority proposed to revise the production rates for the Customers and to reinstitute a monthly ECA mechanism, effective January 1, 2007. Notification of the proposed rate modification was published in the State Register on October 11, 2006. The public comment period closed on November 27, 2006, in accordance with the State Administrative Procedure Act (‘SAPA’). Since this proposal would increase revenues to the Authority by more than 2%, a public forum was held at the Authority’s White Plains office on November 15, 2006, consistent with Authority policy. No party made any comments at the public forum, and no written comments were submitted to the Authority through the end of the public comment period.

DISCUSSION

“Because the production rates for the Customers remained unchanged from February 1990 through December 2004, with only modest increases in 2005 and 2006, a significant increase in the base rates is needed to recover the Authority’s actual costs of serving the Customers. Significant cost components that drive this proposed rate increase include the cost of purchased power, the cumulative effects of inflation since 1990 and charges associated with the New York Independent System Operator (‘NYISO’).

“The 2007 production rate increase is based on a pro forma Cost-Of-Service (‘COS’). The pro forma 2007 COS for the Customers is $44.4 million and revenues at current production rates are expected to be $35.3 million, resulting in a projected revenue deficiency of $9.1 million. The new base production rates proposed would result in a 25.8% increase over 2006 rates. Staff proposes to apply the production increase equally to both the base demand and energy rates. Both the current and proposed new rates are contained in the table in Exhibit ‘8-A.’

“In order for the Authority to recover all costs incurred to serve the Customers, the ECA mechanism will be reinstituted, replacing the tariff modifications approved by the Trustees in 1994. Under this ECA mechanism, Authority invoices to the Customers will include a charge or credit each month that reflects the difference between the projected cost of electricity recovered by the base rates and the actual costs incurred by the Authority for, among other things, purchased power and NYISO charges. Exhibit ‘8-B’ contains the final ECA tariff provision. Staff supplied the Trustees with mark-ups to the existing tariff provision at their September 26^th meeting.

“Exhibit ‘8-C’ contains the public forum transcript, which indicates that no party made any comments on the Authority’s proposal. Also, as indicated, the Authority received no written comments on its proposed rulemaking. Because there were no public comments of any kind, this memorandum recommends the adoption without modification of the September 26^th proposed rulemaking.

FISCAL INFORMATION

“The adoption of the production rate increase would result in an estimated $9.1 million of additional revenue over current rates.

RECOMMENDATION

“The Vice President – Major Account Marketing and Economic Development recommends that the Trustees authorize the Corporate Secretary to file a Notice of Adoption with the New York State Department of State for publication in the New York State Register of a modification in production rates and implementation of an Energy Charge Adjustment clause applicable to the Westchester County Governmental Customers.

“It is also recommended that the Senior Vice President – Marketing and Economic Development, or her designee, be authorized to issue written notice of final action to the affected customers.

“The Executive Vice President and General Counsel, the Executive Vice President and Chief Financial Officer, the Senior Vice President – Marketing and Economic Development, the Vice President – Controller, the Vice President – Major Account Marketing and Economic Development, the Vice President – Finance, the Assistant General Counsel – Power and Transmission and I concur in these recommendations.”

Mr. Yates presented the highlights of staff’s recommendations to the Trustees. In response to questions from Trustee Seymour, Ms. Morman said that the Authority’s electricity rates would still be lower than those of Con Edison and National Grid for the next couple of years and that it was conceivable in the future that these municipalities may not want to purchase their power from the Authority. She said that the next item deals with this possibility by providing for shorter contract terms for these customers.

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That the Trustees adopt a modification in production rates and implementation of an Energy Charge Adjustment clause applicable to the Westchester County Governmental Customers as described in the foregoing report of the President and Chief Executive Officer; and be it further

RESOLVED, That the Senior Vice President – Marketing and Economic Development or her designee be, and hereby is, authorized to issue written notice of this final action by the Trustees to the affected customers; and be it further

RESOLVED, That the Corporate Secretary of the Authority be, and hereby is, directed to file such notices as may be required with the New York State Department of State for publication in the New York State Register and to submit such other notice as may be required by statute or regulation concerning the rate increase; and be it further

RESOLVED, That the Chairman, the President and Chief Executive Officer and all other officers of the Authority are, and each of them hereby is, authorized on behalf of the Authority to do any and all things, take any and all actions and execute and deliver any and all certificates, agreements and other documents to effectuate the foregoing resolution, subject to the approval of the form thereof by the Executive Vice President and General Counsel.

9. Increase in New York City Governmental Customer Rates – Notice of Adoption

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to take final action to approve an increase in the rates for the sale of firm power to the New York City Governmental Customers (‘Customers’) in 2007.

“This proposed action is consistent with the rate-setting process set forth in the Long-Term Agreements (‘LTAs’) for the purchase of electric service executed by each of the Customers and the Authority. Under this proposed final action, staff seeks approval to increase the ‘Fixed Costs’ component (as defined in the LTAs) of the Customers’ 2007 production rates. This proposition, by itself, would increase the estimated billed production revenues of these Customers by 1.8% on average as compared to 2006 rates.

BACKGROUND

“At their September 26, 2006 meeting, the Trustees directed the publication in the New York State Register (‘State Register’) of a notice that the Authority proposed to increase the Fixed Costs component of the production rates to be charged in 2007 to the Customers. The Customers were directly notified of the proposed rate increase by mail on September 27, 2006. The State Register notice was published on October 11, 2006. Since this proposal would increase revenues to the Authority by less than the 2% required for a public forum under Authority procedures, none was held for this proposed action. The public comment period closed on November 27, 2006. Comments were filed pursuant to State Administrative Procedure Act (‘SAPA’) procedures by the City of New York’s Department of Citywide Administrative Services (‘City’) and jointly by the Port Authority of New York and New Jersey and the Metropolitan Transportation Authority (‘PA/MTA’).

“As indicated in the September 26^th memorandum to the Trustees, under the LTAs the Authority must establish Fixed Costs based on cost-of-service (‘COS’) principles and make changes only under a SAPA proceeding, with the approval of the Trustees. As the memorandum also indicated, the LTAs establish two distinct cost categories: Fixed Costs and Variable Costs. Fixed Costs include operation and maintenance (‘O&M’), shared services (e.g., headquarters), debt service, other expenses (i.e., certain directly assignable costs) and a credit for investment and other income.

“Staff is not requesting the Trustees’ approval of the Variable Costs component of the production rates (i.e., fuel and purchased power, risk management, New York Independent System Operator (‘NYISO’) ancillary services and O&M reserve, less a credit for NYISO revenues from Customer-dedicated generation) as that is developed in collaboration with the Customers in accordance with the provisions of the LTAs. As prescribed by the LTAs previously approved by the Trustees, the Authority will issue revised tariffs reflecting the new rates for 2007 that incorporate both the final Fixed Costs and Variable Costs. For 2007, the Customers have collectively selected an ‘Energy Charge Adjustment (‘ECA’) with Hedging’ cost-recovery mechanism offered under the LTA under which the Authority will pass through all Variable Costs to the Customers, including those of certain agreed-upon hedging transactions. This cost-recovery mechanism also employs the LTA’s pre-established ECA under which Authority invoices will include a charge or credit each month that reflects the difference between the projected cost of electricity recovered by the tariff rates and the actual costs incurred by the Authority.

DISCUSSION

“Based on staff’s analysis, the final increase in Fixed Costs sought by this action is $12.2 million. Under the LTAs, Customers’ concerns must be considered in a confidential process prior to presenting any proposed changes to the Fixed Costs to the Trustees or issuing them for public comment. Numerous Customer data requests were subsequently presented to staff, and in all cases, responses to relevant questions were provided to the Customers. In addition, the Customers filed formal written comments in accordance with SAPA. A review and analysis of these written comments is as follows:

A. Comments on Proposed Fixed Costs Increase.

“Issue 1: O&M Component of Fixed Costs.

“Comments: The Customers raised concerns that the 500 MW Combined Cycle Unit (‘500 MW CCU’) and Poletti plant O&M components of Fixed Costs are too high. The City contends that the 500 MW CCU’s projected O&M should be reduced by $2.0 million based on its assessment of the projected 2006 actual cost (based on nine months of actual 2006 expenses provided by the Authority) and further requests an amortization through 2009 for what it deems to be a non-recurring $2.3 million projected 2007 outage expense. City Comments at 3-4. In a similar vein, PA/MTA requests a 500 MW CCU O&M reduction of $3.3 million based on PA/MTA’s view that the modern technology and newness of the plant compels a lower Fixed Costs O&M. PA/MTA also requests that the unit’s outage costs be amortized rather than expensed in 2007. Regarding Poletti, PA/MTA requests an O&M reduction of $0.7 million based on a comparison of a group of ‘peer units’ (i.e., generating plants of an allegedly similar nature elsewhere). PA/MTA Comments at 2-3, 13-17.

“Staff Analysis: The 500 MW CCU’s first year of operation is 2006 and, to date, the plant has exceeded the projected generation output without incident, largely because the facility is brand new. The actual O&M expenses are currently less than projected in the areas of contracted services support, materials and waste removal due, in part, to the better-than-expected operational level. This ‘under-run’ is also, in part, attributable to budgeted operations staff positions not yet filled.

“However, because the 500 MW CCU has provided more generation output than expected, the O&M projection for the 2007 Fixed Costs component includes additional costs needed to ensure effective operation in 2007. Moreover, the plant was frequently called on to ‘ramp up’ and ‘ramp down’ in response to market price signals, which accelerates the need for increased maintenance expenses. As a result, in addition to the recurring baseline costs of operation, the O&M projection reflects the expected cost of the turbine inspection and repair outages, as well as preventive maintenance tasks that are based on the expected number of actual hours of operation and amount of output. These cost items are included in the proposed final 2007 O&M budget, which is also being presented for Trustee approval today. In short, the operational experience of the 500 MW CCU in 2006 is expected to continue in 2007. Accordingly, the Authority cannot accept the City’s argument to lower this component based on nine months of 2006 Fixed Costs data because that would put the Authority at risk for under recovery. For the same reasons, PA/MTA’s argument that the plant’s ‘state of the art’ technology, by itself, justifies no increase to this component is misplaced, and must be rejected.

“Staff has also reviewed PA/MTA’s comments regarding peer performance and has determined that the peer groups PA/MTA used are not representative because this comparison ignores the conditions under which the 500 MW CCU and Poletti projects must operate.

“Staff has considered the Customers’ comments on amortizing the 500 MW CCU outage costs. The current outage schedule includes more extensive Hot Gas Path Inspection outages in 2008 followed by additional turbine inspection outages in 2010. Due to the schedule of these outages, staff does not see any benefit to amortizing the outage cost through 2009 as suggested.

“Recommendation: For the reasons stated above, staff recommends no changes to the 500 MW CCU and Poletti O&M component of the Fixed Costs category.

“Issue 2: Shared Services.

“Comments: The Customers request that the Authority reduce the Shared Services component of the Fixed Costs. Both the City and PA/MTA have requested, through separate analyses, a $1.6 million reduction in Shared Services. City Comments at 4; PA/MTA Comments at 17-19.

“Staff Analysis: The Shared Services component of the Fixed Costs consists of the portion of the headquarters O&M budget not directly assignable to any facility or project, plus the Research and Development O&M budget offset by the allocation to capital projects.

“These Shared Services allocations are based on the level of headquarters resources required to support the Customers and the proportional amount of labor assigned to support the 500 MW CCU, Poletti and Small Hydro projects. The Authority uses the same methodology to allocate the headquarters costs to other Authority facilities.

“Neither the City nor PA/MTA justifies its proposed reductions to this component. The City simply states that the Authority’s allocator percentage used to calculate Shared Services, a weighted average based on labor ratios applied to non-directly assignable headquarters costs, should remain unchanged from 2006. However, Authority staff provided updated cost data to show that this allocator percentage rose 1.64%, and the City does not provide any compelling reason to reject staff’s explanation. PA/MTA proffered an alternative analysis regarding the Shared Services costs at the 500 MW CCU, but that analysis is unconvincing. PA/MTA does not rebut staff’s methodology and the supporting cost data staff supplied to the Customers, but rather extrapolates based on the 11 employees that work at that site, ignoring the Authority’s allocation methodology. See PA/MTA Comments at 19.

“Recommendation: For the reasons stated above, staff recommends no changes to the Shared Services component of the Fixed Costs category.

“Issue 3: Other Expenses – Decommissioning and Asset Retirement Charges.

“Comments: The City comments that the 3.5% inflation factor used to calculate the Decommissioning and Asset Retirement Charges for the Poletti project and the 500 MW CCU are too high and should be revised using an inflation factor of 2.7%. The City also believes that the residual value of the land for the Poletti project and the 500 MW CCU should be factored into the calculation, which, in effect, would reduce the Decommissioning and Asset Retirement charges. City Comments at 5-6.

“Staff Analysis: The long-term inflation rate staff used for the calculations (3.5%) is an Authority corporate-wide assumption used in all of its long-term planning studies. The City suggested a 2.7% rate based on a U. S. Department of Energy estimate. However, staff continues to believe that the Authority’s inflation rate is a reasonable and appropriate measure of long-term inflation. In fact, Authority staff has analyzed the U. S. Department of Labor’s statistics on inflation, which are widely available, and has calculated that the annualized inflation factor over the past 30 years was 4.3%, which is greater than staff’s estimate.

“The City also contends that the residual value of the land for these two facilities should be factored in the calculation for the cost of decommissioning. However, decommissioning activities do not presume or require that the land be disposed of at the time of decommissioning. Moreover, it is not possible at this time to foreclose the possibility that the land would continue to be used by the Authority for power generation purposes. As no determination has been made as to the disposition of the land at the time of decommissioning it is not appropriate to make any adjustments on this basis.

“Recommendation: For the reasons stated above concerning the amortization of decommissioning costs, the inflation rate and value of land, staff recommends no changes to this cost item.

B. Other Comments.

“PA/MTA raised the following concerns regarding the Fixed Costs component that are not germane to the matters presented for Trustee approval as described in this memorandum:

“Issue 3: Alternative Approach to Establishing Portions of Fixed Costs for 2008-09.

“Comments: PA/MTA suggests adopting a fixed COS level for the generator O&M and Shared Services components of the Fixed Costs and applying an escalation factor to those items for the 2008 and 2009 rate years.[1] The PA/MTA proposal would use the components established for 2007 as the baseline to which the escalation factor would be applied. It states that this would decrease the administrative burden of reviewing these costs annually, provide budget certainty for all parties and provide the Authority an incentive to reduce costs. PA/MTA Comments at 21.

“Staff Analysis: PA/MTA would essentially re-open the terms of the LTAs relating to Fixed Costs rate setting and Customer review. Such a dramatic change to the contract terms is certainly not warranted based on any recent experiences, and could not be adopted by the Authority absent a negotiated agreement.

“Moreover, the LTA process, in which the Fixed Costs are submitted to the Customers mid-year prior to their implementation and subject to review and inquiry, provides a number of concrete benefits to the Customers. Such submission and review may capture significant Fixed Costs reductions that benefit the Customers, or significantly lower what would otherwise be a large cost increase proposed by staff but which might contain flaws. Doing away with the submission of a COS may also disadvantage the Authority by not allowing proper cost recovery. In only the second year in which the Fixed Costs have been determined under the LTA, experience suggests that it has worked satisfactorily for both the Authority and the Customers.

“However, staff would not necessarily rule out various means to streamline the rate-setting process and is open to discussing this matter further with the Customers if there is continued interest.

“Recommendation: Staff believes that the Fixed Costs procedures contained in the LTA are satisfactory, and does not recommend any changes at this time. Staff also believes that it is bound by the existing LTAs.

C. Final Recommendation.

“Based on the foregoing analysis, the proposed increase in the Fixed Costs component of the production rates will be implemented without modification.

“As mentioned, the final rates will combine the Trustee-authorized Fixed Costs increase with the Variable Costs increase achieved in accordance with the LTAs. For the Trustees’ information, the combined increase is $98.6 million and would represent an estimated 14.4% increase in production rates, and an estimated 10.5% increase in average total bills. The combined Fixed Costs and Variable Costs increase would be equally applied to demand and energy charges.

“Exhibit ‘9-A’ shows the overall estimated Customer bill impacts for 2007. Exhibit ‘9-B’ shows the final 2007 Conventional and Time-of-Day production rates. Exhibit ‘9-C’ contains the comments filed by the Customers.

FISCAL INFOMATION

“The adoption of the Fixed Costs increase would result in an estimated $12.2 million of additional revenue to the Authority over current rates.

RECOMMENDATION

“The Vice President – Major Account Marketing and Economic Development recommends that the Trustees authorize the Corporate Secretary to file a Notice of Adoption with the New York State Department of State for publication in the New York State Register for an increase in Fixed Costs applicable to the New York City Governmental Customers under the Long-Term Agreements.

“It is also recommended that the Senior Vice President – Marketing and Economic Development, or her designee, be authorized to issue written notice of final action to the affected customers.

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That the Trustees adopt an increase in Fixed Costs applicable to the New York City Governmental Customers under the Long-Term Agreements, as described in the foregoing report of the President and Chief Executive Officer; and be it further

RESOLVED, That the Chairman, the President and Chief Executive Officer and all other officers of the Authority are, and each of them hereby is, authorized on behalf of the Authority to do any and all things and take any and all actions and execute and deliver any and all certificates, agreements and other documents to effectuate the foregoing resolution, subject to the approval of the form thereof by the Executive Vice President and General Counsel.

10. Westchester County Governmental Customers – New Supplemental Electricity Agreements

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to authorize the execution of new supplemental electricity agreements (‘New Supplemental Agreements’) with each of the 104 Westchester County Governmental Customers (‘Customers’), as listed in Exhibit ‘10-A.’

BACKGROUND

“The Authority has served governmental customers in southeastern New York State since their transfer from Consolidated Edison Company of New York, Inc. (‘Con Edison’) beginning in 1976 as part of the Authority’s purchase of the Indian Point 3 Nuclear and Charles Poletti Power (then the Astoria 6) Plants. A total of 104 governmental customers located in Westchester County purchase Authority electricity under an Application for Electric Service (‘Original Agreements’) in order to serve myriad government facilities, including office buildings, public schools, public housing, hospitals, water and wastewater treatment plants, parks and police and fire stations. In 2005, the Customers accounted for about $55 million in total revenue to the Authority, of which two-thirds was for electricity supply.

“In 1996, and again in 2001, the majority of the Customers signed Supplemental Power Service Agreements with the Authority (‘Supplemental Agreements’). These Supplemental Agreements contained, among other things, commitments from the Customers to remain full-requirements electricity customers of the Authority for certain fixed terms, in return for which the Authority agreed to constrain its ability to raise production rates from those established in 1990.

“Under the Supplemental Agreements, the Customers realized rates frozen at 1990 levels for 10 years. Then, in both January 2005 and January 2006, as permitted by the Supplemental Agreements, the Authority increased production rates by 2.4% based on a prescribed index. These pricing arrangements essentially insulated the Customers from the significant increases in costs the Authority has experienced in serving them over the last several years. Because the Supplemental Agreements signed a decade ago did not accommodate these significant changes in costs and industry structure, the Authority gave the Customers the requisite three-year notice of termination of the Supplemental Agreements to be effective at the end of 2006. In January 2007, absent new supplemental electricity agreements, the Authority would serve the Customers under their Original Agreements, whereby the Authority would fully recover the actual costs to supply electricity to the Customers. The New Supplemental Agreements have been developed at the request of the County of Westchester.

“Over the course of the last year, staff has been engaged in ongoing discussions with the County of Westchester regarding terms of a suitable new agreement that would include provisions and pricing reflecting the additional costs and risks of supplying the Customers.

DISCUSSION

“The attached form of agreement (Exhibit ‘10-B’) is a result of discussions with the County of Westchester and the Authority. The principal features of the New Supplemental Agreement are as follows:

· The Customers agree to be full-requirements electricity customers of the Authority through December 31, 2008, with the right to purchase renewable energy from a non-Authority source and supply limited amounts of their load with distributed generation.

· As early as January 1, 2009, the Customers can elect to purchase any quantity of supply from non-Authority sources and cease being full-requirements customers.

· The Customers may fully terminate service from the Authority on one year’s written notice, which cannot become effective earlier than January 1, 2009. On full termination of service, the Customers’ Original Agreements would also be terminated.

· The Customers confirm their acceptance of the proposed increase in production rates for 2007, as well as a tariff change implementing a revised Energy Charge Adjustment (‘ECA’) mechanism. The Trustees are being requested to take final action to approve these rate modifications at their meeting today.

· The Authority can modify the Customers’ rates at any time based on a fully supported pro forma cost-of-service and the State Administrative Procedure Act process, subject to review and comment by the Customers.

· The Customers are committed to pay for any supply resources secured for them by the Authority under a collaborative Request for Proposals or similar process. If a Customer terminates the agreement, it will be subject to an exit fee that represents the Customer’s pro rata share of any resources that are added to the Authority’s portfolio of production resources through a collaborative procurement process.

· If a Customer elects to purchase renewable energy credits/attributes from the Authority, the cost/benefits of such attributes will be borne directly by the Customer through an appropriate bill surcharge/credit. Customers have the right to purchase or enter into agreements for renewable energy and/or credits/attributes from sources other than the Authority.

· The Authority and the Customers will continue to work in partnership to identify energy efficiency and clean energy technology projects at the Customers’ facilities and to implement such projects that the Authority and the Customers agree are economically feasible. The costs of such programs shall be borne by the Customers in the same manner as under the current cost-recovery mechanisms for Authority energy efficiency projects.

“The agreement, substantially in the form attached as Exhibit ‘10-B,’ is expected to be submitted for approval to the County of Westchester Board of Acquisition and Contract within the next two weeks. The County of Westchester accounts for nearly 35% of the revenues in the Authority’s Westchester County Governmental Customer segment. In addition, this agreement, substantially in the form attached but tailored to specific Customers, will also be offered to the other Customers noted on Exhibit ‘10-A.’ Each will require approval by their governing board or responsible public official before the Authority can execute the agreement with each Customer.

FISCAL INFORMATION

“Once executed, the New Supplemental Agreements will secure approximately $90 million in production revenues to the Authority through December 31, 2008.

RECOMMENDATION

“The Director – Major Accounts Governmental recommends that the Trustees authorize the execution of agreements, substantially in the form attached hereto as Exhibit ‘10-B,’ with the County of Westchester and other governmental entities in the County, conditioned on the County of Westchester’s providing written notice that all necessary approvals of the New Supplemental Agreement have been obtained.

Ms. Maide presented the highlights of staff’s recommendations to the Trustees. Chairman McCullough said that this adjustment in the Authority’s rate structure was long overdue.

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That the Senior Vice President – Marketing and Economic Development, or her designee, is authorized to execute agreements between the Westchester County Governmental Customers listed in Exhibit “10-A” and the Authority, conditioned on the County of Westchester’s providing written notice that all necessary approvals of such agreement have been obtained, in substantially the form attached hereto as Exhibit “10-B,” with such amendments, deletions and supplements along with any other documents necessary to effectuate the foregoing, subject to the approval of the form thereof by the Executive Vice President and General Counsel; and be it further

RESOLVED, That the Chairman, the President and Chief Executive Officer and the Senior Vice President – Marketing and Economic Development are, and each of them hereby is, authorized on behalf of the Authority to do any and all things, take any and all actions and issue, execute and deliver any and all tariffs, agreements, certificates and other documents to give effect to such agreements and to effectuate the foregoing resolution, subject to the approval of the form thereof by the Executive Vice President and General Counsel.

List of Westchester County Governmental Customers

County of Westchester
Abbott Union Free School District
Ardsley Union Free School District
Ardsley, Village of
Bedford Central School District
BOCES – South Westchester
Briarcliff Manor Union Free School District
Briarcliff Manor, Village of
Bronxville Union Free School District
Bronxville, Village of
Buchanan, Village of
Byram Hills Central School District No. 1
Chappaqua Central School District
Cortlandt, Town of
Croton Harmon Union Free School District
Croton-on-Hudson, Village of
Dobbs Ferry Union Free School District
Dobbs Ferry, Village of
Eastchester Fire District
Eastchester Union Free School District
Eastchester, Town of
Edgemont Union Free School District
Elmsford Union Free School District
Elmsford, Village of
Fairview Fire District
Greenburgh Central School District No, 7
Greenburgh Graham Union Free School District
Greenburgh Housing Authority
Greenburgh, Town of
Greenville Fire District
Harrison Central School District
Harrison Fire District No. 4
Harrison, Town of
Hartsdale Fire District
Hastings-on-Hudson Union Free School District
Hastings-on-Hudson, Village of
Hawthorne Cedar Knolls Union Free School District
Hendrick Hudson School District
Irvington Union Free School District
Irvington, Village of
Lake Mohegan Fire District
Lakeland Central School District
Larchmont, Village of
Mamaroneck Union Free School District
Mamaroneck, Town of
Mamaroneck, Village of
Millwood Fire District
Montrose Fire District
Mt. Kisco Housing Authority
Mt. Kisco, Village of
Mt. Pleasant-Blythedale School District
Mt. Pleasant Central School District
Mt. Pleasant Cottage Union Free School District
Mt. Pleasant, Town of
Mt. Vernon School District
Mt. Vernon, City of and Housing Authority
New Castle, Town of
New Rochelle Municipal Housing Authority
New Rochelle School District
New Rochelle, City of
North Castle South Fire District No. 1
North Castle, Town of
North Tarrytown Housing Authority
Northern Westchester Joint Water Works
Ossining Union Free School District
Ossining, Town of
Ossining, Village of
Peekskill School District
Peekskill Housing Authority
Peekskill, City of
Pelham Manor, Village of
Pelham Union Free School District
Pelham, Village of
Pleasantville Union Free School District
Pleasantville, Village of
Pocantico Hills Central School District
Port Chester Housing Authority
Port Chester, Village of
Port Chester-Rye Union Free School District
Rye Brook, Village of
Rye City School District
Rye Neck Union Free School District
Rye, City of
Rye, Town of
Scarsdale Union Free School District
Scarsdale, Village of
Sleepy Hollow, Village of
Tarrytown Municipal Housing Authority
Tarrytown Union Free School District
Tarrytown, Village of
Tuckahoe Housing Authority
Tuckahoe Union Free School District
Tuckahoe, Village of
Valhalla Union Free School District
Verplanck Fire District
Westchester Joint Water Works
White Plains Housing Authority
White Plains School District
White Plains, City of
Yonkers City Board of Education
Yonkers Housing Authority
Yonkers Parking Authority
Yonkers, City of
Yorktown, Town of

Form of

S U P P L E M E N T A L A G R E E M E N T

This Supplemental Agreement (“Agreement”) contains certain supplemental terms and conditions governing the supply of electricity to _________________ (“Customer”) by New York Power Authority (“NYPA”) (and, together with the Customer, the “Parties”) under the Application for Service between NYPA and the Customer dated_________, ____ (“Application for Service”). This Agreement shall be effective as of January 1, 2007 (“Effective Date”) and, subject to Article VII, supersedes and replaces all previous supplemental agreements between the Customer and NYPA.

By executing this Agreement, the Customer agrees, subject to the specific provisions hereof: (a) to be a full requirements electricity customer of NYPA for calendar years 2007 and 2008, except as provided in Article I; (b) thereafter to be a customer of NYPA with the right to self-supply or purchase from non-NYPA sources any portion of its load upon notice to NYPA as set forth herein; and (c) to support and pay for its share of supply resources dedicated to Westchester County and the other governmental entities located in the County (“Westchester Governmental Customers”), as those supply resources may be modified or expanded from time to time as a result of a collaborative process, discussed further herein, plus all other costs as NYPA may set forth through the filing of a cost-of-service (“COS”) .

The Application for Service, the applicable tariffs and NYPA’s Rules and Regulations continue in full force and effect, except to the extent modified by this Agreement. In the event of any conflicts in the terms of the Agreement and the Application for Service, tariffs or Rules and Regulations, this Agreement shall control.

I. Terms of Sale, Termination and Non-NYPA Supply

A. NYPA agrees to sell, and Customer agrees to purchase full requirements electricity from NYPA commencing January 1, 2007 through December 31, 2008. Thereafter, Customer may, consistent with this Agreement, at its option:

1. purchase its full electricity requirements from NYPA,

2. purchase electricity from both NYPA and non-NYPA sources, or

3. purchase electricity entirely from non-NYPA sources upon full termination.

B. Customer or NYPA may fully terminate this Agreement for any reason upon at least one (1) year’s prior written notice to the other Party, to be effective no earlier than January 1, 2009. No full termination of service will become effective sooner than January 1^st following the one-year notice. Any full termination of service under this Agreement shall operate to terminate the Application for Service and all other documents pertaining to the provision of electric service by NYPA to Customer, provided that such agreements shall remain in effect for as long as necessary to effect final billings and account settlements.

C. At any time under this Agreement, Customer may install distributed generation resources at or adjacent to its facilities provided Customer gives NYPA sufficient notice of the commencement of such supply. For calendar years 2007 and 2008, the aggregate of such generation added at Customer’s facilities in a given calendar year shall not exceed the greater of three percent (3%) per year of Customer’s highest coincident peak billing demand or 250 kW. Sufficient notice under this subsection C shall be deemed to be at least two (2) months prior to the start of the New York Independent System Operator (“NYISO”) capability period in which the distributed generation resource is expected to commence service.

D. At any time under this Agreement, Customer may elect to self-supply or purchase from non-NYPA sources physical renewable energy, provided that Customer gives NYPA notice at least two (2) months prior to the start of the NYISO capability period in which the physical renewable energy resource is expected to commence service.

E. Commencing in 2009 and thereafter, and for portions of the Customer’s load not otherwise covered by resources identified in subsections C and D above, Customer may partially terminate service under this Agreement and secure supply from non-NYPA sources for any portion of its load, provided that Customer gives NYPA sufficient written notice indicating the amount and commencement date of such non-NYPA supply. Sufficient notice under this subsection E shall be deemed to be at least two (2) months prior to the start of the NYISO capability period in which the non-NYPA supply resource is expected to commence.

F. If the Customer commences delivery of any non-NYPA supply resources under the terms set forth in subsection E above, for that portion of Customer’s load NYPA reserves the right to discontinue its role as Load-Serving Entity at the NYISO for the Customer upon one month’s notice.

II. Production and Delivery Rates and Other Charges

A. 2007 Production Rates: Customer accepts NYPA’s proposed production rates and COS for 2007, as well as a tariff change implementing a revised Energy Charge Adjustment (“ECA”) provision, scheduled to take effect in January 2007, as to which NYPA’s Trustees, on December 19, 2006, approved under the State Administrative Procedure Act (“SAPA”).

B. Subsequent Production Rates: Any subsequent proposed rate or other tariff modification (i.e., after the above 2007 proposed rates and tariffs are adopted) by NYPA to Customer will be based on a projected, pro forma COS and other appropriate documentation subject to Customer review and comment. NYPA will calculate any future COS in a manner generally consistent with the COS for the 2007 rate year, which shall include the costs of supply resources (both capacity and energy) used to supply Westchester Governmental Customers in 2007, and the costs attributable to any other new Short- or Long-Term Resources as appropriate (but excluding any existing or future NYPA “in-city” resources, unless otherwise mutually agreed); as well as any hedging costs and all NYISO expenses and/or credits related to such supply resources. New Short-Term Resources are supply resources with a term no greater than a Capability Period (as defined by the NYISO) which are secured independently by NYPA in the normal course of meeting Westchester Governmental Customer requirements. New Long-Term Resources are resources secured pursuant to Article III, below.

With respect to any proposed change to the COS, NYPA shall forward to the Customer an explanation of all reasons for the increase/decrease and shall also identify the sources from which NYPA will obtain the total increased revenues and the bases upon which NYPA proposes to allocate the increased costs among its customers. NYPA will endeavor to provide customer with the same prior notice of a proposed rate modification as NYPA provides to its New York City Governmental Customers, but in any event NYPA will provide such notice no less than thirty (30) days’ prior to the filing of proposed action under SAPA with respect to such a modification.

Upon the conclusion of any SAPA process concerning Customer’s production rates, the applicable tariff will be updated to include the revised demand and energy rates to be charged to Customer effective for the succeeding billing period. In addition, the tariff applicable to Customer will include an Energy Charge Adjustment (“ECA”) provision to capture monthly fluctuations in costs incurred in serving Customer, substantially in the form which NYPA’s Trustees approved on December 19, 2006, under SAPA.

Upon request from Customer, NYPA will provide calculations and supporting information concerning changes in the ECA.

C. Delivery Rates: NYPA will pass on to Customer, on a basis that is revenue neutral to NYPA, all charges related to the supply of electricity to Customer assessed by the Consolidated Edison Company of New York, Inc. (“Con Edison”) or any other entity from which NYPA is required to secure transmission and delivery service. To the extent necessary and practicable, NYPA will use a true-up mechanism to assess charges for under-recovery and apply credits for over-recovery of Con Edison delivery charges. NYPA shall be obligated to actively intervene and collaborate with the Westchester Governmental Customers (along with NYPA’s other affected customers) in all rate cases concerning these delivery service charges before the appropriate regulatory bodies with the objective of assuring that any increase in or modification to the delivery service charges is fair and reasonable to all of NYPA’s customers. Nothing in this Agreement shall limit in any way Customer’s right to intervene and fully participate in any court or administrative proceeding having as its subject matter, directly or indirectly, such delivery charges.

D. Recovery of Taxes, Fees, and Other External Charges: Tariff charges shall be subject to increase or decrease by NYPA at any time (either through an adjustment factor applied to the base rates or through the ECA, as appropriate) due to changes in applicable taxes, fees, assessments or other external charges (excluding fines and penalties) that are levied on NYPA (or that NYPA is required to collect from Customer) by federal, state and local government entities, or by grid or market operators such as the NYISO or its successors, it being the Parties’ intent that these external charges be passed through to Customer as incurred, without mark-up. NYPA will use reasonable efforts to provide timely notice of the imposition of any such charges and nothing shall impede any such Customer’s right to challenge such taxes, fees or charges. The Parties shall cooperate to minimize any new taxes, fees, assessments, market rules or other charges that result in increased costs levied upon NYPA in association with the sale of electricity to Customer.

III. New Long-Term Supply Resources

During the term of this Agreement, Customer may desire NYPA to solicit additional long-term supply resources to the supply portfolio serving Customer and/or the Westchester Governmental Customers through a Request for Proposals (“RFP”) or similar process. If the Customer so requests, NYPA agrees to collaborate with the Customer in such RFP or similar process.

Prior to entering into any such new long-term supply resource agreement between NYPA and a supplier (“RFP Contract(s)”), NYPA shall obtain the consent of Customer, and the agreement of the Customer to an extension of its Agreement that will be coterminous with the term of the longest of any such RFP Contract, with no right of full or partial early termination by Customer, absent mutual agreement. Such mutual agreement shall provide for payment of an exit fee based on the net stranded costs related to RFP Contract(s) entered into under this Article III and arising from the Customer’s termination as calculated by NYPA in a commercially reasonable manner.

NYPA shall permit other Westchester Governmental Customers a reasonable amount of time to elect to receive an extension of their respective Agreement(s) on substantially the same terms as set forth in this agreement. The rates for any Customer subject to the extension described above shall reflect all the costs incurred and benefits derived by NYPA under any such RFP Contract based on COS principles as noted in Article II above for the duration of Customer’s electricity purchases under this Agreement.

If Customer does not choose to enter into an extension of this Agreement, its rates shall not include any costs incurred or benefits derived by NYPA under any such RFP Contract.

IV. Partnership on Energy Efficiency & Renewable Energy

A. Energy Efficiency: Parties will work in partnership to identify energy efficiency and clean energy technology projects at the Customer’s facilities and to implement such projects that are economically feasible and agreeable to the Parties. NYPA will finance, for the Customer, energy efficiency and clean energy technology programs each year over the term of the Agreement that will assist the Customer in implementing projects that promote energy efficiency and improving the environment. The costs of such programs will be borne by Customer. Projects will be implemented under existing, revised or new cost recovery agreement(s), as necessary.

B. Renewable Energy: If Customer elects to purchase renewable energy attributes/credits and/or physical renewable energy from NYPA, the cost/benefits of such attributes/credits and/or physical renewable energy will be borne directly by Customer through an appropriate bill surcharge/credit. Customer has the right to purchase or enter into agreements for renewable energy attributes/credits and/or physical renewable energy from a source other than NYPA.

V. Approvals

Execution of this Agreement has been authorized and approved by the governing board, authorized executive or commissioner of the Customer whose approval is required for the execution of this Agreement, and by NYPA's Board of Trustees.

VI. Amendment

This Agreement may be amended at any time but only upon a written agreement signed by both Parties.

VII. Prior Claims

Nothing contained herein shall be read to preclude either Party from asserting claims or bringing actions related to service and/or bills rendered prior to the Effective Date of this Agreement.

AGREED:

[CUSTOMER]

BY: ____________________________________

TITLE: _________________________________

DATE: _________________________________

AGREED:

NEW YORK POWER AUTHORITY

BY: ________________________________________

TITLE: _____________________________________

DATE: _____________________________________

Approved as to Form: Approved as to Form:

___________________________ ______________________________

[Title] Executive Vice President and

[Customer] General Counsel

New York Power Authority

11. 2007 Operation and Maintenance, Capital and Fuel Budgets

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to approve the 2007 budgets for Operation and Maintenance (‘O&M’), Capital and Fuel Purchases as follows:

2007 Budget

($ million)

O&M 281.2

Capital 644.9

Fuel 534.3

BACKGROUND

“The Authority is committed to providing reliable, affordable energy; retaining and creating jobs in New York State and promoting the development of energy-efficient technologies. The Authority continues to undertake and implement projects, strategically positioning itself to meet the challenges of a changing electric market. The 2007 budgets are intended to provide the Authority’s operating facilities and support organizations with the resources needed to meet its overall mission and strategic objectives.

DISCUSSION

O&M

“The O&M budget of $281.2 million represents an increase of $21.2 million, or 8.2%, from the 2006 budget. The timing of several planned maintenance outages accounts for $10.3 million, almost 50% of the increase. Non-outage expenses increased $10.9 million, or 4.2% from 2006, most of which comprises wage and fee increases. The increases by organization are as follows: Power Generation ($12.3 million), Headquarters Support ($8.3 million) and Transmission ($0.6 million).

“Payroll costs, which include salaries, overtime and fringe benefits, account for $156.5 million, or approximately 56%, of the budget. This represents a $0.3 million reduction from the 2006 budget of $156.7 million. Factors contributing to the payroll decrease include staff reductions and anticipated attrition in 2007, increased vacancies, increased labor charged to capital projects and a reduction in pension costs reflecting a reduced Authority contribution rate to the New York State Retirement System. These factors are offset by projected salary increases. Non-payroll expenses of $124.7 million increased $21.5 million due to planned maintenance outages and increased outside services to support numerous headquarters initiatives.

“Power Generation’s 2007 budget is $12.3 million (9.5%) above the 2006 level primarily due to $10.5 million in planned outages at Flynn, Poletti and the 500 MW plants, coupled with increased Federal Energy Regulatory Commission fees ($1.2 million), consultant support for energy supply RFPs ($1.2 million) and increased utility expenses ($0.5 million). This increase is offset by lower personnel costs resulting from position eliminations and anticipated attrition in 2007, increased vacancies and a decrease in fringe benefits expense. Major non-recurring projects include the Niagara Headgate Refurbishment ($1.3 million), Joint Works with Ontario Power Generation ($1.2 million), B-G Penstock and Tunnel Inspection ($1.0 million), Niagara 480/508 Elevated Drain Rehabilitation ($1.0 million), Niagara Penstock Manhole Inspection and Repairs ($0.7 million), Niagara Landfill Remediation ($0.7 million) and St. Lawrence Foundation Inspection and Grouting ($0.6 million).

“The 2007 Transmission budget is $0.6 million (1.3%) above the 2006 level due to an increase in payroll, transmission line operations and maintenance support and energy management system consultant support. Major ongoing initiatives include continuation of the Right-of-Way Maintenance program ($2.7 million), Breaker and Insulator Maintenance ($0.5 million) and Tower Painting ($0.4 million).

“Headquarters support departments are $8.3 million (11.2%) above the 2006 level, due primarily to the initiation of a communications program to raise community awareness and understanding of the Authority ($3.0 million), increased outside litigation support ($1.0 million), Leadership in Energy and Environmental Design support and certification costs ($0.9 million) and yearly salary increases.

“The R&D budget of $8.8 million is unchanged from 2006.

Fuel

“The Fuel budget of $534.3 million is decreased $97.2 million (15.4%) from 2006. This is a cash budget reflecting planned fossil-fuel purchases in 2007 for Poletti, Flynn, the Small Clean Power Plants (‘SCPPs’) and the 500 MW plant. The budget assumes lower commodity prices and reduced generation at Poletti and Flynn, offset by increased generation at the 500 MW plant. Outages at Poletti, Flynn and the 500 MW plants were factored into the fuel budget.

Capital

“The 2007 Capital budget totals $644.9 million, an increase of $361.7 million (127.7%) from 2006. Included in this request are both new and ongoing capital projects, as well as general plant equipment purchases. The increase reflects the recognition of the cost of $363.6 million in settlement obligations under the Niagara Relicensing Agreements.

“The Energy Conservation/Renewable projects account for $102.2 million (15.8%) of the 2007 request and reflect the same level of projected work for Energy Services and Technology programs for both Southeastern New York (‘SENY’) governmental and other public entity customers. Other significant capital projects include $22.3 million and $19.9 million, respectively, for the B-G and St. Lawrence Life Extension projects and $17.0 million for the Static Var Compensator and Tri-Lakes Reliability project. Headquarters Administrative support projects total $33.0 million, including the billing system replacement and numerous other IT initiatives.

FISCAL INFORMATION

“Payment will be made from the Operating Fund for Operation and Maintenance and Fuel Purchases.

“Payment will be made from the Capital Fund or Energy Conservation Effectuation Fund for capital expenditures.

RECOMMENDATION

“The Executive Vice President and Chief Financial Officer and the Vice President – Controller recommend approval of the 2007 Operation and Maintenance, Fuel and Capital budgets as discussed herein.

“The Executive Vice President and General Counsel, the Executive Vice President - Corporate Services and Administration, the Senior Vice President and Chief Engineer – Power Generation and I concur in the recommendation.”

Ms. Tursi presented the highlights of staff’s recommendations to the Trustees. Chairman McCullough said that this budget anticipates the relicensing of the Niagara project and the financial commitments made by the Authority in the relicensing settlement agreements. President Carey thanked Ms. Tursi, Mr. Bellis and their staffs for their work on the budget, as well as the entire senior management team. He said that the quarterly budget review meetings he had instituted were extremely helpful in helping management monitor the budget on a more frequent basis. Chairman McCullough added that the quarterly meetings were extremely valuable, making the budget a living document and roadmap for the Authority’s programs and holding the department heads accountable for their departments’ expenditures.

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That the 2007 budgets for Operation and Maintenance, Fuel and Capital expenditures, as discussed in the foregoing report of the President and Chief Executive Officer, are hereby approved; and be it further

RESOLVED, That up to $138 million of monies in the Operating Fund are hereby authorized to be withdrawn from such Fund and deposited in the Capital Fund, provided that at the time of withdrawal of such amount or portions of such amount, the monies withdrawn are not then needed for any of the purposes specified in Subsections (1)(a)-(c) of Section 503 of the General Resolution Authorizing Revenue Obligations adopted on February 24, 1998, with the satisfaction of such condition being evidenced by a certificate of the Treasurer or the Deputy Treasurer; and be it further

RESOLVED, That the Chairman, the President and Chief Executive Officer and all other officers of the Authority are, and each of them hereby is, authorized on behalf of the Authority to do any and all things, take any and all actions and execute and deliver any and all agreements, certificates and other documents to effectuate the foregoing resolution, subject to the approval of the form thereof by the Executive Vice President and General Counsel.

O&M AND FUEL

2007 BUDGET

($ MILLIONS)

			%
*DEPARTMENT*	*2006*	*2007*	*CHANGE*

*EXECUTIVE OFFICES*	*10.3*	*11.7*	*13.9%*
*BUSINESS SERVICES*	*30.8*	*32.5*	*5.5%*
*MARKETING*	*7.0*	*6.6*	*(4.6%)*
*HUMAN RESOURCES AND CORP SUPPORT*	*23.2*	*27.8*	*19.4%*

*TRANSMISSION*
ENERGY CONTROL CENTER	5.0	5.4	7.7%
HEADQUARTERS SUPPORT	4.1	4.6	10.6%
CLARK ENERGY CENTER	10.1	11.6	42.5%
TRANSMISSION FACILITIES	28.7	26.9	(6.2%)
*TOTAL TRANSMISSION*	*47.9*	*48.5*	*1.3%*

*ENERGY EFFICIENCY*	*2.8*	*3.8*	*35.0%*

*POWER GENERATION*
POWER GENERATION - HQ	7.1	9.1	28.3%
BLENHEIM - GILBOA	14.9	15.9	6.4%
POLETTI	16.0	19.7	22.8%
NIAGARA	45.5	38.6	(15.2%)
ST. LAWRENCE	17.5	18.5	5.7%
FLYNN	5.2	12.4	140.2%
SCPP	10.4	13.0	24.9%
SMALL HYDRO	3.8	4.2	10.5%
500 MW	8.7	10.0	15.0%
*TOTAL POWER GENERATION*	*129.2*	*141.5*	*9.5%*

*R&D AND INSTITUTIONAL FUNDING*	*8.8*	*8.8*	*0.2%*

*TOTAL O&M BUDGET*	*260.0*	*281.2*	*8.2%*

*FUEL*
OIL	91.1	72.4	(20.5%)
GAS	539.9	461.4	(14.5%)
HEDGING	0.5	0.5	0.0%
*TOTAL FUEL BUDGET*	*631.5*	*534.3*	*(15.4%)*

CAPITAL

2007 BUDGET

($ MILLIONS)

			%
	*2006*	*2007*	*CHANGE*

*ENERGY CONSERVATION*
SENY CUSTOMER	52.0	55.2
OTHER NYPA-FUNDED	35.1	35.6
DISTRIBUTED GENERATION	0.2	0.0
PETROLEUM OVERCHARGE RESTITUTION	2.5	2.5
ENVIRONMENTAL BOND ACT AND BOE	10.0	8.2
OFFSET EMISSIONS PROJECTS	3.0	0.7
	*102.8*	*102.2*	-0.6%

*TRANSMISSION*	*26.9*	*31.1*	15.6%

*POWER GENERATION*
BLENHEIM - GILBOA	30.6	24.8
POLETTI	0.4	0.2
FLYNN	0.0	7.9
NIAGARA	40.7	399.1
ST. LAWRENCE	37.0	37.9
500 MW	18.3	6.9
SCPP PROJECT	5.4	1.8
	*132.4*	*478.6*	261.5%

*ADMINISTRATION SUPPORT*	*21.1*	*33.0*	56.4%




*TOTAL CAPITAL BUDGET*	*283.2*	*644.9*	127.7%

12. Approved Budget and Financial Plan Information Pursuant to New Regulations of the Office of the State Comptroller

The President and Chief Executive Officer submitted the following report:

SUMMARY

“In accordance with new regulations adopted by the Office of the State Comptroller (‘OSC’), the Trustees are requested to approve a 2007 annual budget and four-year financial plan and authorize: (i) making the approved budget and four-year financial plan available for public inspection at not less than five convenient public places throughout New York State, (ii) submitting the approved budget and four-year financial plan to OSC and
(iii) posting the approved budget and four-year financial plan on the Authority’s website.

BACKGROUND

“Following rulemaking proceedings undertaken pursuant to the State Administrative Procedure Act, OSC implemented new regulations on March 29, 2006 that address the preparation of annual budgets and four-year financial plans by ‘covered’ public authorities, including the Authority. (See 2 NYCRR Part 203 [‘Part 203,’ attached as Exhibit ‘12-A’].) As illustrated below, these regulations establish various new procedural and substantive requirements relating to the budgets and financial plans of public authorities.

DISCUSSION

“Part 203 sets forth specific requirements in connection with submitting and formatting, preparing supporting documentation for and monitoring both proposed and approved annual budgets and financial plans of public authorities. On October 24, 2006, the Trustees approved for public release the Authority’s proposed 2007 annual budget and four-year financial plan pursuant to Part 203.

“Under Part 203, it is now necessary and appropriate for the Trustees to adopt an approved 2007 budget and four-year financial plan (attached as Exhibit ‘12-B’). The approved 2007 budget and four-year financial plan must be made available for public inspection, whenever practicable, not less than seven days before the commencement of the next fiscal year and shall be submitted to OSC within seven days of approval by the Trustees in an electronic format prescribed by OSC. The regulations also require the Authority to post the approved budget and four-year financial plan on its website.

“Under Part 203, each approved budget and four-year financial plan must be shown on both an accrual and a cash basis and be prepared in accordance with generally accepted accounting principles; be based on reasonable assumptions and methods of estimation; be organized in a manner consistent with the public authority’s programmatic and functional activities; include detailed estimates of projected operating revenues and sources of funding; contain detailed estimates of personal service expenses related to employees and outside contractors; list detailed estimates of non-personal service operating expenses and include estimates of projected debt service and capital project expenditures.

“Other key elements that must be incorporated in each approved budget and four-year financial plan are a description of the budget process and the principal assumptions, as well as a self-assessment of risks to the budget and financial plan. Additionally, the approved budget and financial plan must include a certification by the chief operating officer (defined as the executive officer responsible for overseeing the day-to-day activities of an authority) that, to the best of his or her knowledge and belief after reasonable inquiry, the approved budget and financial plan are based on reasonable assumptions and methods of estimation and that the Part 203 regulations have been satisfied.

“Finally, as indicated in the proposed budget and four-year financial plan, the approved budget and four-year financial plan uses updated estimates of generation, fuel prices, electric prices, operation and maintenance expenses, capital costs and other revenue and expense items. The approved budget and four-year financial plan includes a section discussing the differences between the proposed and approved budget and four-year financial plans.

FISCAL INFORMATION

“There is no anticipated fiscal impact.

RECOMMENDATION

“The Vice President – Controller recommends that the Trustees approve the attached 2007 annual budget and four-year financial plan and authorize (i) making the approved budget and four-year financial plan available for public inspection at no less than five convenient public locations, (ii) submitting the approved budget and four-year financial plan to the Office of the State Comptroller in the prescribed format and (iii) posting the approved budget and four-year financial plan on the Authority’s website.

“The Executive Vice President and General Counsel, the Executive Vice President and Chief Financial Officer and I concur in this recommendation.”

Mr. Davis presented the highlights of staff’s recommendations to the Trustees. Chairman McCullough opined that the effort to develop these documents represented a tremendous undertaking and a job well done. He said that these documents provided the Authority with another roadmap for the longer term. In response to a question from Trustee Seymour, Mr. Davis said that New York Independent System Operator market revenues and fuel expenses were expected to be down in 2010 because of the anticipated retirement of the Poletti plant.

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That pursuant to 2 NYCRR Part 203, the attached 2007 annual budget and four-year financial plan, including its certification by the President and Chief Executive Officer, is approved in accordance with the foregoing report of the President and Chief Executive Officer; and be it further

RESOLVED, That pursuant to 2 NYCRR Part 203, the Corporate Secretary be, and hereby is, authorized to make the approved budget and four-year financial plan available for public inspection at not less than five convenient public places throughout New York State, submit the approved budget and four-year financial plan to the Office of the State Comptroller in the prescribed format and post the approved budget and four-year financial plan on the Authority’s website; and be it further

RESOLVED, That the Chairman, the President and Chief Executive Officer and all other officers of the Authority are, and each of them hereby is, authorized on behalf of the Authority to do any and all things, take any and all actions and execute and deliver any and all agreements, certificates and other documents to effectuate the foregoing resolution, subject to the approval of the form thereof by the Executive Vice President and General Counsel.

13. Robert Moses Niagara Power Project – Standardization of the Upgrade Program Prototype Unit – Expenditure Authorization

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to authorize capital expenditures of $9.1 million to standardize the design of Unit 4, the first upgraded turbine-generator at the Robert Moses Niagara Power Project (‘Project’).

BACKGROUND

“Based on economic analyses, the Authority adopted a plan in 1991 to rehabilitate and upgrade the generating units to increase the Project’s use of available water, improve operating efficiency of each unit, allow additional operating flexibility and provide for life extension and modernization of the facilities. The current upgrade program involves an upgrade of each of the 13 generating units at the Project from a nominal output of 175 MVA to 215 MVA; work included replacement of the turbine, modifications to the generator, replacement of the transformer and other associated equipment modifications and replacement.

“After receiving Federal Energy Regulatory Commission (‘FERC’) approval in 1989, the upgrade program of the Project units began in 1991. Installation of the prototype turbine-generator on Unit 4 was completed in 1993 without some of the technological advancements made on the later upgraded units. Upgrade work on the remaining units was completed at a rate of one per year, with the program to be completed in December 2006 when the last (13^th) unit was upgraded. The overall upgrade program will be completed on schedule and under budget.

“Unit 4 was the first unit to be upgraded at the start of the program. For this reason, and through the development of the technology used throughout the program, Unit 4 was considered a ‘prototype unit’ with the understanding that it would eventually be necessary to bring it up to the same standards, design and technologies as the later upgraded units.

“With the conclusion of the 13-unit upgrade program, it is appropriate to plan for the replacement and repair of equipment on the prototype unit.

DISCUSSION

“The Project upgrade program, now approaching completion, includes rebuilding the existing wicket gates, installing new greaseless bushings and line boring the lower wicket gate bores. The first two units that were upgraded (4 and 13) were provided with Teflon-lined type bushings, while the later units used a Teflon-epoxy plug design in their bushings. The lined bushings have been reported to have higher-than-expected failure rates at other facilities.

“The standardization work will include replacement of Teflon-lined bushings with plug-type greaseless bushings, which have a proven record of performance. Additional work required from the technology advancements made during progression of the upgrade program will include:

· Replacement of the obsolete rotating excitation system with solid-state excitation.

· Rotor rim reshrink to maintain the rotor centerline, minimize generator vibrations and improve performance and extend the life-cycle of the rotor and rotor poles.

· Operating ring modifications that replace thordon material with Deva material.

· Stationary wear rings evaluation and replacement if excessive wear is determined.

· Installation of stainless steel facing plates.

· Head cover evaluation and repair if needed.

“It is anticipated that some level of standardization will also be required for no more than two additional units completed in the early stages of the program. Once the scope of work for any further standardization has been fully defined, Trustee approval will be requested.

“The Authority’s Expenditure Authorization Procedures will be followed for implementation of the prototype standardization, as well as any future unit standardization efforts.

FISCAL INFORMATION

“Payments for costs associated with the standardization of Unit 4 at the Project will be made from the Capital Fund.

RECOMMENDATION

“The Vice President – Project Management, the Vice President – Procurement and Real Estate, the Vice President – Engineering, the Regional Manager – Western New York and the Project Manager recommend that the Trustees authorize capital funding of $9.1 million for the standardization of Unit 4 at the Robert Moses Niagara Power Project.

“The Executive Vice President and General Counsel, the Executive Vice President – Corporate Services and Administration, the Senior Vice President and Chief Financial Officer, the Senior Vice President and Chief Engineer – Power Generation, the Vice President – Controller and I concur in the recommendation.”

Mr. Canale presented the highlights of staff’s recommendations to the Trustees. In response to a question from Chairman McCullough, President Carey said that this project is separate and apart from the Life Extension and Modernization (“LEM”) project at Niagara, which will be finished this month on time and under budget. He said that this project is necessary to bring the units that were first replaced under the LEM project up to the higher standards of the units that were completed last. President Carey also noted that the LEM project began 15 years ago.

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That capital expenditures are hereby approved in accordance with the Authority’s Expenditure Authorization Procedures, as recommended in the foregoing report of the President and Chief Executive Officer, in the amounts and for the purposes listed below:

Description

Current

Estimate

Previously

Authorized

Current

Request

Total

Authorized

Amount

Engineering/
Design & Construction Management

$ 460,000

Procurement

$2,773,000

Construction

$5,047,000

Authority Direct/Indirect

$ 820,000

Totals

$9,100,000

AND BE IT FURTHER RESOLVED, That the Chairman, the President and Chief Executive Officer and all other officers of the Authority are, and each of them hereby is, authorized on behalf of the Authority to do any and all things, take any and all actions and execute and deliver any and all agreements, certificates and other documents to effectuate the foregoing resolution, subject to the approval of the form thereof by the Executive Vice President and General Counsel.

14. Proposed Niagara University Hydropower Contracts – Notice of Public Hearing

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to authorize a public hearing, pursuant to Section 1009 of the Public Authorities Law, on a proposed contract with Niagara University (‘University’). The proposed contract for sale of Niagara Project (‘Project’) power and energy is part of the Niagara University Relicensing Settlement Agreement (‘NURSA’) dated May 23, 2006 between the University and the Authority in exchange for the University’s support of the Authority’s Niagara Project relicensing efforts.

“The form of the Niagara University contract is attached as Exhibit ‘14-A.’

BACKGROUND

“The existing 50-year license issued to the Authority under the Federal Power Act for the Project expires on August 31, 2007. At their meeting of June 28, 2005, the Trustees authorized the President and Chief Executive Officer (and his designees) to file an Application for a New License (‘Application’) with the Federal Energy Regulatory Commission (‘FERC’) for the Project; to file related applications with the New York State Department of State and the New York State Department of Environmental Conservation and an Offer of Settlement with FERC (‘Offer of Settlement’); to enter into and execute settlement agreements and to execute such other documents and take such other actions as may be necessary or convenient in connection with such actions. The Application was filed with FERC on August 18, 2005 and the Offer of Settlement was filed with FERC the following day.

“The Offer of Settlement included four separate settlement agreements reached by the Authority with parties participating in the Alternative Licensing Process (‘ALP’) commenced by the Authority in 2002 in accordance with FERC regulations. The Relicensing Settlement Agreement Addressing New License Terms and Conditions was executed by the State and federal agencies involved in the relicensing process and by certain public and private entities concerned with ecological issues; the Host Community Relicensing Settlement Agreement Addressing Non-License Terms and Conditions was executed by the Project ‘Host Communities,’[2] the Relicensing Settlement Agreement between the Power Authority of the State of New York and the Tuscarora Nation was executed by the Tuscarora Nation and the Relicensing Settlement Agreement Addressing Allocation of Niagara Project Power and Energy to Neighboring States was executed by the Authority’s out-of-state hydropower customers.

“Since its filing, the Offer of Settlement has been supplemented twice with the NURSA and the Erie County/City of Buffalo Relicensing Settlement Agreement. These Agreements were filed with FERC on May 26, 2006 and June 30, 2006, respectively, after being approved by the Trustees at their meetings of May 23, 2006 and June 27, 2006, respectively.

“During the course of the ALP, the University raised a number of issues generally arising out of the proximity of the campus to the Project, and settlement negotiations between the University and the Authority commenced in December 2004. These negotiations resulted in the NURSA, which includes an allocation of up to 3 MW of Project power to the University. The NURSA represents complete settlement of all issues raised by the University during the relicensing proceeding.

DISCUSSION

“The proposed contract would make available up to 3 MW of Project power and energy to the University. If the University’s electric usage exceeds 3 MW, it must procure the additional power and energy from a third party. The proposed contract contemplates delivery of power and energy to the University at the Project switchyard. It will be the University’s responsibility to arrange for delivery to its meter(s).

“The NURSA provides that the University will pay rates equivalent to the lowest production rate charged by the Authority (directly or indirectly) to an entire class of Western New York hydropower business customers (including for example, Replacement or Expansion Power customers) plus any charges assessed or imposed in connection with such supply by the New York Independent System Operator (‘NYISO’). The Authority will provide Unforced Capacity (a measure of a generator’s installed capacity that is a function of its availability on-peak) in the amounts necessary to meet the University’s Unforced Capacity obligations associated with the
up-to-3-MW allocation in accordance with the rules and tariffs of the NYISO. Neither ancillary services nor renewable or ‘green’ attributes are included in such allocation.

“The Authority’s obligation to sell power and energy to the University pursuant to the NURSA shall become effective on the latest of: (1) the first day after the date of the ‘Acceptance of the New License,’[3] (2) the date on which the Authority and the University execute a contract for the sale of power and energy or (3) September 1, 2007. The proposed contract runs through September 1, 2025, the same as the current Niagara contracts with the municipal and rural electric cooperative customers and the Neighboring States. A successor contract will be required to meet the terms of the NURSA.

“The Authority agreed to commence the statutory contract approval process for the new proposed contract now, with the expectation that the process would be concluded in early 2007, to take effect as stated above. If the license is not granted to the Authority, the contract would be of no force and effect.

FISCAL INFORMATION

“The 3 MW of Project power and energy that will be sold to the University under the proposed contracts will be sold at the then-effective Replacement/Expansion Power rate that fully recovers the Authority’s costs.

RECOMMENDATION

“The Executive Director of Hydropower Relicensing recommends that the Trustees authorize a public hearing on the proposed contracts with Niagara University to be held at a time and date authorized by the Chairman. It is further recommended that, pursuant to Section 1009 of the Public Authorities Law, the Corporate Secretary be authorized to transmit copies of the proposed contracts to the Governor and legislative leaders.

Mr. Vattimo presented the highlights of staff’s recommendations to the Trustees. In response to a question from Chairman McCullough, Mr. Vattimo said that these contracts were subject to the Authority’s obtaining a new license to operate the Niagara power project.

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That the Authority hereby authorizes a public hearing on the terms of the proposed contract for the sale of hydroelectric power and energy generated by the Authority to Niagara University substantially in the form attached hereto as Exhibit “14-A,” to be held at a subsequent time and date authorized by the Chairman; and be it further

RESOLVED, That the Corporate Secretary be, and hereby is, authorized to transmit copies of the proposed contract to the Governor, the Speaker of the Assembly, the Minority Leader of the Assembly, the Chairman of the Assembly Committee on Ways and Means, the Temporary President of the Senate, the Minority Leader of the Senate and the Chairman of the Senate Finance Committee pursuant to Section 1009 of the Public Authorities Law; and be it further

RESOLVED, That the President or his designee be, and hereby is, authorized, subject to the approval of the form thereof by the Executive Vice President and General Counsel, to enter into such other agreements, and to do such other things as may be necessary or desirable to implement sales to Niagara University as required by the Niagara University Relicensing Settlement Agreement filed with the Federal Energy Regulatory Commission in support of the anticipated new Niagara Project license and as set forth in the foregoing report of the President and Chief Executive Officer; and be it further

RESOLVED, That the Chairman, the President and Chief Executive Officer and all other officers of the Authority are, and each of them hereby is, authorized on behalf of the Authority to do any and all things, take any and all actions and execute and deliver any and all agreements, certificates and other documents to effectuate the foregoing resolution, subject to the approval of the form thereof by the Executive Vice President and General Counsel.

15. Lease of Office Space in the Clarence D. Rappleyea Building to Thomas M. Bona, P. C.

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to authorize the execution of a lease of approximately 10,656 square feet of office space on the 6^th floor of the Clarence D. Rappleyea Building (‘Building’), White Plains, as shown on Exhibit ‘15-A’ attached hereto, by the Authority as landlord to Thomas M. Bona, P. C. (‘Bona’) as tenant. The proposed lease is for a term of 10 years at an average annual base rent of $24.70 per square foot, plus electricity at an average annual rate of $2.78 per square foot and adjustments to recover increases in taxes and operating expenses over a base year as more specifically described in Exhibit ‘15-B’ attached hereto.

BACKGROUND

“By deed dated July 10, 1991, the Authority acquired the Building, a commercial office building containing approximately 420,195 rentable square feet (‘rsf’). Currently, the Authority is leasing approximately 167,300 rsf of the Building to various tenants. Bona has an existing lease with the Authority for the 10,656 square feet of office space on the 6^th floor. The existing lease provided for an extension term of five years upon written notice nine months prior to the expiration date. Since Bona decided not to exercise his extension term and the existing lease will expire as of June 30, 2007, he has instead requested a new, longer-term lease with the Authority that will result in up to five additional years of rent revenue estimated to be in excess of $1.2 million.

DISCUSSION

“Thomas Bona started the firm in 1988, with a primary focus on representing insurance companies. Bona has requested that the Authority enter into a new lease for the approximately 10,656 square feet of office space. Preliminary negotiations on this space have resulted in the basic lease terms set forth in Exhibit ‘15-B.’ The existing lease would have only provided for a five-year extension had Bona exercised his option. The new lease provides for a term of 10 years, which is more beneficial to the Authority. It should be noted that this new lease with Bona, an existing tenant, is significantly more beneficial than a lease with a new tenant. A lease with a new tenant would involve a period of free rent (up to 10 months) and a much higher allowance (probably a minimum of $35 rsf) for building out new space. The new lease with Bona will not involve any free rent and will result in an allowance of less than $10 rsf for painting and re-carpeting.

“Title 5A of Article 9 of the Public Authorities Law (‘Act’) and the Guidelines for Disposal of Real Property (‘Guidelines’) require that the purpose and terms of such disposal be documented in writing and approved by resolution of the Trustees. Further, the Act and the Guidelines require that an explanatory statement be prepared concerning the circumstances of each such disposal for real property leased for a term of more than five years if the total estimated rent over the term is in excess of $100,000. Such statement shall be transmitted to the New York State Comptroller, the Director of the New York State Division of the Budget, the Commissioner of the New York State Department of General Services and the New York State Legislature not less than 90 days in advance of the disposal. Accordingly, this transfer is subject to approval by the Trustees and the timely filing of the required statement. This Trustee item, if adopted, would constitute the foregoing required explanatory statement and Trustee action.

“In order to fulfill these requirements, staff is recommending that the Authority enter into a short-term (three-month) bridge agreement to fulfill the notification requirements under the Act and then, on the expiration of the bridge agreement, enter into the Lease for a term of nine years and nine months.

FISCAL INFORMATION

“Payment for tenant improvements as set forth in Exhibit ‘15-B’ will be made from the Operating Fund.

RECOMMENDATION

“The Vice President – Procurement and Real Estate, the Director – Real Estate and the Director – Corporate Support Services recommend that the Trustees approve entering into a lease agreement with Thomas M. Bona, P. C. for commercial office space in the Clarence D. Rappleyea Building in White Plains, on terms substantially in accordance with the foregoing and Exhibit ‘15-B’ attached hereto.

“The Executive Vice President and General Counsel, the Executive Vice President – Corporate Services and Administration and I concur in the recommendation.”

Mr. Hoff presented the highlights of staff’s recommendations to the Trustees. In response to a question from Chairman McCullough, Mr. Hoff said that by this action the Trustees would be approving a three-month bridge contract and then a nine-year and nine-months lease for the remainder of the term.

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That the President and Chief Executive Officer, the Executive Vice President – Corporate Services and Administration or the Vice President – Procurement and Real Estate be, and hereby is, authorized to enter into a lease agreement for office space in the Clarence D. Rappleyea Building, White Plains, with Thomas M. Bona, P. C. on substantially the terms set forth in the foregoing report of the President and Chief Executive Officer and Exhibit “15-B,” subject to approval of the lease documents by the Executive Vice President and General Counsel; and be it further

RESOLVED, That the Executive Vice President – Corporate Services and Administration, the Vice President – Procurement and Real Estate or the Director – Real Estate be, and hereby is, authorized on behalf of the Authority to execute any and all other agreements, papers or instruments that may be deemed necessary or desirable to carry out the foregoing, subject to the approval by the Executive Vice President and General Counsel; and be it further

RESOLVED, That the Chairman, the President and Chief Executive Officer and all other officers of the Authority are, and each of them hereby is, authorized on behalf of the Authority to do any and all things and take any and all actions and execute and deliver any and all agreements, certificates and other documents to effectuate the foregoing resolution, subject to the approval of the form thereof by the Executive Vice President and General Counsel.

16. Sublease of Office Space in the Paramount Building, 1633 Broadway, New York City, to Cellfish Media, LLC

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to authorize the execution of a sublease of approximately 9,000 square feet of office space on the 20^th floor of the Paramount Building (‘Building’), 1633 Broadway, New York City, as shown on Exhibit ‘16-A’ attached hereto, by the Authority as sublandlord to Cellfish Media, LLC (‘Cellfish’) as subtenant. The proposed sublease is for a term of approximately two years at an annual base rent of $45 per square foot plus electricity at an annual rate of $2.25 per square foot and adjustments to recover increases in taxes and operating expenses over a base year as more specifically described in Exhibit ‘16-B’ attached hereto.

BACKGROUND

“At their meeting of September 29, 1987, the Trustees approved the execution of a lease for 169,234 square feet of office space at the Building as the new site for the Authority’s New York City office. The term of that lease was for 20 years. The premises under lease initially included the entire 19^th, 21^st and 22^nd floors and approximately 45% of the 20^th floor. It was further agreed that Paramount, the landlord, would vacate the balance of the 20^th floor, consisting of approximately 23,369 square feet, within five years from the date of the lease and this additional space would then be included in the Authority’s Lease. This additional space was turned over to the Authority by Paramount on June 21, 1993 and the Authority’s obligation to pay rent on this additional space commenced November 21, 1993.

DISCUSSION

“Anticipating the turnover of this space and recognizing the downsizing of the Authority’s staff and diminished space needs, the Authority in December 1992 actively marketed to sublease a significant portion of the space on the 20^th floor of the Building. By subsequent meeting of November 30, 1993, the Trustees approved the execution of a sublease for 12,423 rentable square feet (‘rsf’) of office space in the Building to Mendelsohn, Kary, Bell & Natoli, P. C. (‘Mendelsohn’), to expire on June 30, 2004. The sublease provided for an option to extend for a period of approximately five years. By First Amendment of Sublease dated March 20, 2002, the sublease was amended in certain respects to provide for a reduction of 3,423 rsf and the extension of the term for approximately four years and six months to December 30, 2008.

“Mendelsohn contacted the Authority and advised that due to the retirement of two of its senior partners, its business has decreased and virtually all of its partners and staff will be joining other firms as of January 1, 2007. Mendelsohn has requested to negotiate a reasonable financial arrangement in consideration of terminating its lease as of December 31, 2006.

“The Authority was contacted by Newmark Knight Frank with a proposal to sublease the 9,000 rsf to Cellfish, formerly known as Lagardere Active North. Cellfish is a new digital content, marketing and distribution group that creates original branded content such as music ringtones, wallpapers, animations, games and community applications aimed at the mobile generation.

“Preliminary negotiations with Cellfish have resulted in the proposed basic lease terms that are set out as Exhibit ‘16-B.’ The proposed sublease with Cellfish will offset the obligation of Mendelsohn for the remaining two years of its sublease.

FISCAL INFORMATION

“The Authority currently pays its lease obligations out of the Operating Fund. By recouping fixed rents under this proposed lease of $47.25 per square foot, the Authority will substantially offset its existing liability.

RECOMMENDATION

“The Vice President – Procurement and Real Estate, the Director – Real Estate and the Director – Corporate Support Services recommend that the Trustees approve entering into a sublease agreement with Cellfish Media, LLC for commercial office space in the Paramount Building at 1633 Broadway, New York City, on terms substantially in accordance with the foregoing and Exhibit ‘16-B’ attached hereto.

“The Executive Vice President and General Counsel, the Executive Vice President – Corporate Services and Administration and I concur in the recommendation.”

Mr. Hoff presented the highlights of staff’s recommendations to the Trustees. In response to a question from Trustee Seymour, Mr. Hoff said that this transaction was not subject to the requirements of the Public Authorities Accountability Act because the Authority’s original lease with the owners of the building had been signed in 1988, with the sublease signed in 1994. Mr. Kelly added that legal staff had reviewed this and determined that this transaction did not involve the disposal of an interest in Authority real property because the Authority does not own the building. Mr. Hoff said that the new sublease would be subject to the approval of the building owner.

The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.

RESOLVED, That the President and Chief Executive Officer, the Executive Vice President – Corporate Services and Administration or the Vice President – Procurement and Real Estate be, and hereby is, authorized to enter into a sublease agreement for office space in the Paramount Building, 1633 Broadway, New York City, with Cellfish Media, LLC on substantially the terms set forth in the foregoing report of the President and Chief Executive Officer and Exhibit “16-B,” subject to the approval of the sublease documents by the Executive Vice President and General Counsel; and be it further

RESOLVED, That the Executive Vice President – Corporate Services and Administration, the Vice President – Procurement and Real Estate or the Director – Real Estate be, and hereby is, authorized on behalf of the Authority to execute any and all other agreements, papers or instruments that may be deemed necessary or desirable to carry out the foregoing, subject to the approval of the form thereof by the Executive Vice President and General Counsel; and be it further

RESOLVED, That the Chairman, the President and Chief Executive Officer and all other officers of the Authority are, and each of them hereby is, authorized on behalf of the Authority to do any and all things and take any and all actions and execute and deliver any and all agreements, certificates and other documents to effectuate the foregoing resolution, subject to the approval of the form thereof by the Executive Vice President and General Counsel.

17. Informational Item: Permit for Temporary Use of Office Space in the Clarence D. Rappleyea Building to Westchester County Narcotics Initiative and Westchester
County Office of the District Attorney

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to authorize two separate permit transactions. The first is a permit amendment for the Westchester County Narcotics Initiative (‘Westchester Narcotics’) for the use of approximately 2,052 rentable square feet (‘rsf’) of office space on the 7^th floor of the Clarence D. Rappleyea Building (‘Building’) in White Plains. This amendment would extend the term of the current permit for an additional two years to December 31, 2008 and increase the consideration for the permit to $30,780, inclusive of electricity, effective as of January 1, 2007.

“The second transaction is to amend a permit with the Westchester County Office of the District Attorney (‘DA’) for the use of approximately 1,506 rsf of office space on the 7^th floor of the Building. This amendment would extend the current permit, which expires on July 31, 2007, for an additional 17 months until December 31, 2008 and increase the consideration for the permit to $22,590, inclusive of electricity.

BACKGROUND

“By deed dated July 10, 1991, the Authority acquired the Building, a commercial office building containing approximately 420,195 rsf. Currently, the Authority is leasing approximately 167,300 rsf of the Building to various tenants. Westchester Narcotics has had a Temporary Use Permit since February 1999 subject to revocation at any time and for any reason at the sole discretion of the Authority upon 30 days’ written notice. Additionally, the DA has had a permit with the Authority for office space since August 2002 with the same 30-day revocation notice provision.

DISCUSSION

“At the request of the DA, the Authority entered into Temporary Use Permits to assist the DA’s office in obtaining additional office space at reasonable rates for two of its departments. This additional space reduces the County’s costs and provides for additional staffing requirements to further the public health, safety or welfare of the citizens of Westchester County.

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SUMMARY