MINUTES OF THE ANNUAL MEETING OF

Minutes of the Annual Meeting of the Power Authority of the State of New York held at the Clarence D. Rappleyea Building at 11:00 a.m.

Present: Joseph J. Seymour, Chairman

Frank S. McCullough, Jr., Vice Chairman

Elise M. Cusack, Trustee

Robert E. Moses, Trustee

Thomas W. Scozzafava, Trustee

Michael J. Townsend, Trustee

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Timothy S. Carey President and Chief Executive Officer

David E. Blabey Executive Vice President and Special Counsel to the Chairman

Thomas J. Kelly Executive Vice President and General Counsel

Vincent C. Vesce Executive Vice President – Corporate Services and Administration

Steven J. DeCarlo Senior Vice President – Transmission

Joseph Del Sindaco Senior Vice President and Chief Financial Officer

Angelo S. Esposito Senior Vice President – Energy Services and Technology

Louise M. Morman Senior Vice President – Marketing, Economic Development
and Supply Planning

Brian Vattimo Senior Vice President – Public and Governmental Affairs

Edward A. Welz Senior Vice President – Power Generation

Carmine J. Clemente Deputy Secretary and Deputy General Counsel

Joseph J. Carline Assistant General Counsel – Transmission

Gerald C. Goldstein Assistant General Counsel – Regulatory & Contracts

Thomas P. Antenucci Vice President – Project Management

Arnold M. Bellis Vice President – Controller

Robert J. Deasy Vice President – Energy Resource Management

John M. Hoff Vice President – Procurement and Real Estate

Charles I. Lipsky Vice President and Chief Engineer

Donald A. Russak Vice President – Finance

William V. Slade Vice President – Environmental Management

Tom H. Warmath Vice President and Chief Risk Officer

James H. Yates Vice President – Major Accounts Marketing and Economic Development

Stephen P. Shoenholz Deputy Vice President – Public Affairs

Dennis T. Eccleston Chief Information Officer

Anne B. Cahill Principal Attorney I

Angela D. Graves Deputy Secretary

Michael E. Brady Treasurer

Arthur M. Brennan Director – Internal Audit

Gerard R. Mullin Director – Fuel Planning and Operations

Daniel Wiese Director – Corporate Security and Inspector General

Anthony C. Savino Manager – Business Power Allocations and Compliance

Michael A. Saltzman Senior Information Specialist

Mary Jean Frank Associate Secretary

Lorna M. Johnson Assistant Secretary

Jack Murphy Special Advisor to President and Chief Executive Officer

Diane Gil Senior Procurement Specialist

Lisa Farrell Secretary to Executive Vice President and General Counsel

Chairman Seymour presided over the meeting. Executive Vice President and General Counsel Kelly kept the Minutes.

President Carey said that because of the 75^th anniversary celebration taking place later in the day, he would curtail his report, with a discussion of legal issues to take place in Executive Session. In response to a question from Chairman Seymour, Mr. Kelly said that a request for proposals (“RFP”) was being sent out today to firms approved by the Office of the State Comptroller for an independent audit of the Authority’s community support contributions. He said that once the responses to the RFP have been received, a meeting of the Audit Committee would be convened to decide upon the winning firm based on staff’s recommendations. In the meantime, staff is compiling background material on all of the community support contributions that have been made. Responding to another question from Chairman Seymour, Mr. Kelly said that part of the independent auditor’s charge would be to look at the Authority’s current contribution policy (including the changes that were implemented last year) and to make recommendations for any changes that it deems advisable.

4. Allocation of 10,880 kW of Hydro Power

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to approve seven allocations of available Replacement Power (‘RP’) or Expansion Power (‘EP’) totaling 10,880 kW to six industrial companies.

BACKGROUND

“Under the RP Settlement Agreement, National Grid (‘Grid’) (formerly Niagara Mohawk Power Corporation), with the approval of the Authority, identifies and selects certain qualified industrial companies to receive delivery of RP. Qualified companies are current or future industrial customers of Grid that have or propose to have manufacturing facilities for the receipt of RP within 30 miles of the Authority’s Niagara Switchyard. RP is up to 445,000 kW of firm hydro power generated by the Authority at its Niagara Power Project that has been made available to Grid, pursuant to the Niagara Redevelopment Act (through December 2005) and Chapter 313 of the 2005 Laws of the State of New York.

“Under Section 1005 (13) of the Power Authority Act, as amended by Chapter 313, the Authority may contract to allocate or reallocate directly, or by sale for resale, 250 MW of firm hydroelectric power as EP and up to 445 MW of RP to businesses in the State located within 30 miles of the Niagara Power Project, provided that the amount of power allocated to businesses in Chautauqua County on January 1, 1987 shall continue to be allocated in such county.

DISCUSSION

“On October 22, 2003, the Authority, Grid, Empire State Development Corporation and the Buffalo Niagara Enterprise signed a Memorandum of Understanding (‘MOU’) that outlines the process to coordinate marketing and allocating Authority hydro power. The entities noted above have formed the Western New York Advisory Group (‘Advisory Group’) with the intent of better using the value of this resource to improve the economy of Western New York and the State of New York. Nothing in the MOU changes the legal requirements applicable to the allocation of hydro power.

“Based on the Advisory Group’s discussions, staff recommends that the available power be allocated among six companies as set forth in Exhibits ‘4-A’ and ‘4-B.’ The Exhibits show, among other things, the amount of power requested by each company, the recommended allocation and additional employment and capital investment information. These projects will help maintain and diversify the industrial base of Western New York and provide new employment opportunities. They are projected to result in the creation of 227 jobs.

RECOMMENDATION

“The Director – Business Power Allocations, Regulation and Billing recommends that the Trustees approve the allocation of 10,880 kW of hydro power to the companies listed in Exhibits ‘4-A’ and ‘4-B.’

“The Executive Vice President and General Counsel, the Senior Vice President – Marketing, Economic Development and Supply Planning, the Vice President – Major Accounts Marketing and Economic Development and I concur in the recommendation.”

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

RESOLVED, That the allocation of 1,780 kW of Replacement Power and 9,100 kW of Expansion Power, as detailed in Exhibits ‘4-A’ and ‘4-B,’ be, and hereby is, approved on the terms 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 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.

Exhibit “4-A1”

APPLICATION SUMMARY

Replacement Power

Company: Flexo Transparent, Inc.

Location: Buffalo, New York

County: Erie

IOU: National Grid

Business Activity: Various products printed on plastic film used to make bags, rollstock and bottle sleeves.

Project Description: The company will build a 12,970-sq.-ft. expansion, attaching it directly north of its current building. Inside the expansion, the company will install a 10-color gearless press, a laminator and a slitter. In order to operate the press, the company needs to install a 25,000 SCFM oxidizer that will have a 125 HP motor. Flexo will need more power and install a 100 KVA transformer.

Prior Application: No

Existing Allocation: None

Power Request: 380 kW

Power Recommended: 380 kW

Job Commitment:

Existing: 90 jobs

New: 10 jobs

New Jobs/Power Ratio: 26 jobs/MW

New Jobs -

Avg. Wage and Benefits: $34,000

Capital Investment: $5,600,000

Capital Investment $14,736,842/MW

Per MW

Summary: Flexo Transparent, Inc. is a flexographic printing company founded in Buffalo in 1954. The company prints on plastic film to make bags, rollstock and bottle sleeves for both food and retail markets. A low-cost hydro allocation will help the company grow and stay competitive.

Exhibit “4-A2”

APPLICATION SUMMARY

Replacement Power

Company: Metaullics Systems, Division of Pyrotek, Inc.

Location: Sanborn

County: Niagara

IOU: National Grid

Business Activity: Manufacturer of high-temperature materials for industrial applications.

Project Description: Purchase and renovation of the former St. Gobain site adjacent to the company’s current site, in addition to a capital investment supporting the expansion of its graphite product line. Upgrade two existing furnaces to support new filter business. The new space will support additional forming, furnacing and assembly operations for the company’s business. Reconfiguring to provide isolated storage and material-handling facilities.

Prior Application: Yes

Existing Allocation: 1,000 kW of RP

Power Request: 1,500 kW

Power Recommended: 1,200 kW

Job Commitment:

Existing: 0 jobs

New: 19 jobs

New Jobs/Power Ratio: 16 jobs/MW

New Jobs -

Avg. Wage and Benefits: $50,000

Capital Investment: $2,137,000

Capital Investment $1,780,833/MW

Per MW

Summary The expansion would permit growth in the sales of components within the organization and would also add capacity for external sales. The company’s products are used worldwide in the aluminum industry for applications in defense, aerospace, electronic, food and beverage packaging and critical automotive products.

Exhibit “4-A3”

APPLICATION SUMMARY

Replacement Power

Company: R. A. Miller Hardwood Company, Inc.

Location: North Tonawanda

County: Niagara

IOU: National Grid

Business Activity: Manufacturer of hardwood lumber and moldings

Project Description: The company will build a new 12,000-sq.-ft. milling facility and a new boiler room at its existing site, including five new dry kilns, a wood waste boiler, a planer and a molder machine.

Prior Application: No

Existing Allocation: None

Power Request: 400 kW

Power Recommended: 200 kW

Job Commitment:

Existing: 43 jobs

New: 10 jobs

New Jobs/Power Ratio: 50 jobs/MW

New Jobs -

Avg. Wage and Benefits: $28,000

Capital Investment: $2,500,000

Capital Investment $12,500,000/MW

Per MW

Summary: The Miller family has been in the hardwood lumber business since 1889. The company’s customer base is distributed throughout the United States and Canada, Europe and the Far East. The company, which had a fire and lost all manufacturing capability, is considering moving to Pennsylvania. A low-cost hydro allocation will help the company rebuild, grow and stay competitive in New York.

Exhibit “4-B1”

APPLICATION SUMMARY

Expansion Power

Company: HSBC Technology & Services Inc.

Location: Amherst / Pendleton

County: Erie / Niagara

IOU: National Grid

Business Activity: Data center operations to support HSBC

Project Description: Two Projects: Project 1 – Existing facility provides 17,500 sq. ft. of raised-floor computer room space in a 35,000-sq.-ft. building with a 15,000-sq.-ft. exterior equipment yard. An adjacent five-acre parcel would be acquired to support a building. Project 2 – New site development on 76 acres, including a 200,000-sq.-ft. building and an approximately 75,000-sq.-ft. secured exterior equipment yard. Initial raised-floor space of 65,000 sq. ft. for conditioned/secured placement of data processing /work equipment.

Prior Application: No

Existing Allocation: None

Power Request: 18,000 kW

Power Recommended: 7,800 kW

Job Commitment:

Existing: 104 jobs

New: 78 jobs

New Jobs/Power Ratio: 10 jobs/MW

New Jobs -

Avg. Wage and Benefits: $81,000

Capital Investment: $274 Million

Capital Investment $35,128,000/MW

Per MW

Summary: HSBC is one of the top 10 financial services organizations in the US. The company is considering consolidating and expanding its primary and disaster recovery data operations in Western New York. Over a 15-year period, the company expects its direct capital spending to be more than $2.4 billion.

Exhibit “4-B2”

APPLICATION SUMMARY

Expansion Power

Company: Rosina Food Products

Location: Cheektowaga

County: Erie

IOU: New York State Electric and Gas Corporation

Business Activity: Produces frozen Italian specialty products

Project Description: The company wants to increase production capacity at this site to minimize the need to outsource work to other manufactures outside New York State. The project includes renovating the warehouse into production space. In addition, the company will install new machines and equipment to increase production. The new equipment includes wastewater treatment equipment, meat grinders/blenders, a microwave oven cook/freeze line and new packaging equipment.

Prior Application: Yes

Existing Allocation: 400 kW of EP

Power Request: 400 kW

Power Recommended: 400 kW

Job Commitment:

Existing: 250 jobs

New: 40 jobs

New Jobs/Power Ratio: 100 jobs/MW

New Jobs -

Avg. Wage and Benefits: $31,000

Capital Investment: $4,800,000

Capital Investment $12,000,000/MW

Per MW

Summary: Obtaining additional low-cost hydro power is critical for the continued success of the Buffalo site. The company has been in Buffalo since 1963 and continues to grow, with products distributed nationally. The company’s expansion/growth depends on low-cost hydro power that would allow it to remain competitive.

Exhibit “4-B3”

APPLICATION SUMMARY

Expansion Power

Company: Rosina Food Products

Location: West Seneca

County: Erie

IOU: New York State Electric and Gas Corporation

Business Activity: Produces frozen Italian specialty products

Project Description: The company wants to improve production efficiency at this facility to promote increase sales and growth. The project includes renovating its warehouse into production space. In addition, the company will install new machines and equipment to increase production. The new equipment includes a new chopper, entrée line equipment, a fryer, a new ravioli line and refrigeration equipment.

Prior Application: None for this site

Existing Allocation: 400 kW of EP at Cheektowaga

Power Request: 400 kW

Power Recommended: 400 kW

Job Commitment:

Existing: 151 jobs

New: 40 jobs

New Jobs/Power Ratio: 100 jobs/MW

New Jobs -

Avg. Wage and Benefits: $27,000

Capital Investment: $1,370,000

Capital Investment $3,425,000/MW

Per MW

Summary: Improved efficiencies gained through this expansion will help the company improve its ability to compete and grow in this highly competitive national market. Currently, the company’s cost of electricity is approximately 12 % of its cost of production. The company’s expansion and growth depend on low-cost hydro power that will allow it to remain competitive.

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 37 Power for Jobs (‘PFJ’) customers as listed in Exhibits ‘5-A’ and ‘5-B.’ In addition, the Trustees are requested to approve modifications to the benefits for four customers that have applied to have their PFJ benefits reinstated after having been reduced by the Board for non-compliance with their job commitments as detailed in Exhibits ‘5-C1’ and ‘5-C2.’ These customers have been recommended to receive such extended benefits and modifications 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.

“In 2004, provisions of the approved State budget 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.

“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, the program’s new sunset date.

“Section 189 of the New York State Economic Development Law, which was also amended by Chapter 59 of the Laws of 2004, provided the statutory authorization for the extended benefits that could be provided to PFJ customers with contracts that expire before December 31, 2005. 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 were reduced by the Board 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 said customers the application and evaluate reconsideration requests based on the approved criteria. To date, staff has mailed 196 applications, received 105 and completed review of 105.

DISCUSSION

“At its meeting on April 24, 2006, EDPAB recommended that the Authority’s Trustees approve the allocations and/or electricity savings reimbursement rebates to the 37 businesses listed in Exhibits ‘5-A’ and ‘5-B.’ Exhibit ‘5-A’ lists a business that has requested and is being recommended for a contract extension, while Exhibit ‘5-B’ lists those businesses that have requested and are being recommended for electricity savings reimbursements. Collectively, these organizations have agreed to retain more than 46,000 jobs in New York State in exchange for the contract extensions or rebates. The contracts will be extended and the rebate program will be in effect until December 31, 2006, the program’s sunset. The power will be wheeled by the investor-owned utilities as indicated in the Exhibits.

“Also at its meeting on April 24, 2006, based on its reconsideration criteria, EDPAB recommended that the Authority’s Trustees approve modifications to the benefits for four customers that have applied to have their PFJ benefit reinstated after having been reduced by EDPAB for non-compliance with their job commitments.

“The Trustees are requested to approve a contract extension for the company listed in Exhibit ‘5-A,’ and the payment and funding of rebates for the companies listed in Exhibit ‘5-B’ in a total amount currently not expected to exceed $2,400,000. 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 for the companies listed in the Exhibits in the future.

FISCAL INFORMATION

“Funding of rebates for the companies listed on Exhibit ‘5-B’ is not expected to exceed $2,400,000. Payments will be made from the Operating Fund. To date, the Trustees have approved $37.0 million in rebates.

RECOMMENDATION

“The Senior Vice President and Chief Financial Officer and the Director – Business Power Allocations, Regulation and Billing recommend that the Trustees approve the contract extension for, and the payment of electricity savings reimbursements to, the Power for Jobs customers listed in Exhibits ‘5-A’ and ‘5-B.’ It is also recommended that the Trustees approve modifications to the benefits for four customers that have applied to have their PFJ benefits reinstated after having been reduced by EDPAB for non-compliance with their job commitments as detailed in Exhibits ‘5-C1’ and ‘5-C2.’

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

Mr. Savino presented the highlights of staff’s recommendations to the Trustees. He said that of the 105 reconsideration requests that have been reviewed and acted upon, 45 customers have had their full Power for Jobs (“PFJ”) allocation reinstated, 33 have had a partial reinstatement of their PFJ allocation, 24 have remained at the proportionately reduced allocation level and 3 are still being reviewed. Vice Chairman McCullough, who is Chairman of the Economic Development Power Allocation Board (“EDPAB”), said that as the cash reimbursement payments increase each month, the EDPAB members are becoming increasingly concerned about the future viability of the program. In response to questions from Chairman Seymour, Mr. Bellis said that $58 million has been budgeted for the PFJ rebates and that so far the Authority is on target for this figure. President Carey said that he thought the reconsideration program had been successful and Vice Chairman McCullough agreed, but reiterated his concern about the future of the PFJ program.

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 electricity savings reimbursements to the Power for Jobs (‘PFJ’) customers listed in Exhibits ‘5-A’ and ‘5-B,’ respectively; and

WHEREAS, EDPAB has recommended that the Authority approve modifications to 4 allocations for customers that have applied to have their PFJ benefits reinstated after having been reduced by EDPAB for non-compliance with their job commitment as detailed in Exhibits ‘5-C1’ and ‘5-C2’;

NOW THEREFORE BE IT RESOLVED, That to implement such EDPAB recommendations, the Authority hereby approves a contract extension for the company listed in Exhibit ‘5-A,’ and the payment of electricity savings reimbursements to the companies listed in Exhibit ‘5-B,’ as submitted to this meeting, and that the Authority finds that such extensions and 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 to implement such EDPAB recommendations, the Authority hereby approves modifications to the benefits for 4 customers that have applied to have their PFJ benefits reinstated after having been reduced by EDPAB for non-compliance with their job commitments as detailed in Exhibits ‘5-C1’ and ‘5-C2’; 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 $2.4 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, Economic Development and Supply Planning 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.

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