Minutes of the Regular Meeting of the Power Authority of the State of New York held at the Hawkins Point Visitors’ Center – St. Lawrence Power Project – Massena,

New York, at 11:00 a.m.

Present: Frank S. McCullough, Jr., Chairman

Elise M. Cusack, Trustee

Robert E. Moses, Trustee

Thomas W. Scozzafava, Trustee

Leonard N. Spano, Trustee

Michael J. Townsend, Vice Chairman – Excused

Joseph J. Seymour, Trustee – Excused

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Timothy S. Carey President and Chief Executive Officer

Joseph Del Sindaco Executive Vice President and Chief Financial Officer

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

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 and Chief Engineer – Power Generation

Anne B. Cahill Corporate Secretary

Tom H. Warmath Vice President and Chief Risk Officer

Angela D. Graves Deputy Corporate Secretary

Paul Finnegan Executive Director – Public and Governmental Affairs

John Suloway Executive Director – Licensing, Implementation and Compliance

Daniel Wiese Inspector General and Director – Corporate Security

Richard Turner Regional Manager – Northern New York

Mary Jean Frank Associate Corporate Secretary

Jeffrey Carey Special Assistant to President and Chief Executive Officer

Karen White Reporter – Courier-Observer

W. Gary Edwards Supervisor – Town of Massena

Mike Almasion Lawyer

Josie Catanzorite Town of Massena

Carol Anderson Citizen

Shane M. Liesblen Reporter – Watertown Times

Bob McVail Treasurer – St. Lawrence County

Wes Oberholzer General Manager – ALCOA

Mike Gayfield Power Manager – ALCOA

Ron McDougall Union Representative – General Motors

Andrew Szarka Trustee, Village of Massena

Chairman McCullough presided over the meeting. Secretary Cahill kept the Minutes.

Chairman McCullough welcomed the people in the audience to the Trustees’ Meeting and thanked Mr. Turner for the tours he had helped arrange for the Trustees, as well as the St. Lawrence/FDR Power Project staff’s efforts in hosting the meeting.

1. Approval of the Minutes

The Minutes of the Regular Meeting of June 27, 2006 were unanimously adopted.

2. Financial Reports for the Six Months Ending June 30, 2006

Mr. Bellis presented an overview of the reports to the Trustees.

3. Report from the President and Chief Executive Officer

No report.
4. 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 67 Power for Jobs (‘PFJ’) customers as listed in Exhibit ‘4-A.’ In addition, the Trustees are requested to approve modifications to the benefits for one customer that has applied to have its PFJ benefits reinstated after they were reduced by the Economic Development Power Allocation Board (‘EDPAB’) for non-compliance with the customer’s job commitments as detailed in Exhibit ‘4-B.’ EDPAB has recommended that these customers receive such extended benefits and modifications.

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, 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 expired 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 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 July 21, 2006, EDPAB recommended that the Authority’s Trustees approve electricity savings reimbursement rebates to the 67 businesses listed in Exhibit ‘4-A.’ Collectively, these organizations have agreed to retain more than 68,000 jobs in New York State in exchange for rebates. 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 Exhibit.

“Also, at its meeting on July 21, 2006, based on the reconsideration criteria, EDPAB recommended that the Authority’s Trustees approve modifications to the benefits for one customer that has applied to have its PFJ benefits reinstated after they were reduced by EDPAB for non-compliance with the customer’s job commitments.

“The Trustees are requested to approve the payment and funding of rebates for the companies listed in Exhibit ‘4-A’ in a total amount currently not expected to exceed $4,100,000. 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 to the companies listed in the Exhibits in the future.

FISCAL INFORMATION

“Funding of rebates for the companies listed on Exhibit ‘4-A’ is not expected to exceed $4,100,000. Payments will be made from the Operating Fund. To date, the Trustees have approved $44.4 million in rebates.

RECOMMENDATION

“The Executive Vice President and Chief Financial Officer and the Director – Business Power Allocations and Regulation recommend that the Trustees approve the payment of electricity savings reimbursements to the Power for Jobs customers listed in Exhibit ‘4-A.’ It is also recommended that the Trustees approve modifications to the benefits for one customer that has applied to have its Power for Jobs benefits reinstated after they were reduced by the Economic Development Power Allocation Board for non-compliance with the customer’s job commitments as detailed in Exhibit ‘4-B.’

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

Ms. Morman presented the highlights of staff’s recommendations to the Trustees. Chairman McCullough noted that with this authorization the Trustees have approved the payment of $44.4 million in electricity reimbursement rebates. He noted that these rebates would continue to be paid only through the Power for Jobs’ programs’ current sunset date of December 31, 2006.

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 67 Power for Jobs (“PFJ”) customers listed in Exhibit “4-A”; and

WHEREAS, EDPAB has recommended that the Authority approve modifications to one allocation for a customer that has applied to have its PFJ benefits reinstated after they were reduced by EDPAB for non-compliance with the customer’s job commitments as detailed in Exhibit “4‑B”;

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 “4-A,” 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 one customer that has applied to have its PFJ benefit reinstated after they were reduced by EDPAB for non-compliance with the customer’s job commitments as detailed in Exhibit “4-B”; 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 $4.1 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 this approval shall expire on December 31, 2006; 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.

5. PURPA – Compliance with Ratemaking Standard

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to authorize a public hearing for the purpose of commencing consideration of a Demand Response and Smart Metering Standard (‘Standard’) as required by the federal Energy Policy Act of 2005 (‘EPACT’). The Authority, as a non-regulated electric utility under the requirements of EPACT, must complete consideration of the Standard and make a determination as to whether to adopt the Standard by August 8, 2007. The Standard has to do with time-of-use rates and the metering equipment used to implement the rates. The public hearing will provide interested parties with an opportunity to provide comments to the Authority with respect to whether and how the Standard should be adopted.

BACKGROUND

“The Public Utility Regulatory Policies Act (‘PURPA’) is a federal statute first enacted in 1978 for the purposes of encouraging: (1) conservation of energy supplied by electric utilities; (2) optimization of the efficient use of facilities and resources by electric utilities and (3) equitable rates to electric consumers. The Authority is a non-regulated electric utility with respect to the Federal Energy Regulatory Commission (‘FERC’), the agency that implements PURPA.

“In August 2005, PURPA was amended by Congress via the Energy Policy Act of 2005. Under EPACT, the Authority is required to provide public notice and conduct a hearing with respect to consideration of the new ratemaking Standard. While not required to adopt the Standard, the Authority must consider the Standard in good faith, and issue a determination as to whether it will be adopted. The law requires the Authority to publicly announce the date of the hearing before August 8, 2006, and to make its consideration and determination by August 8, 2007. The Standard at issue concerns Time-Based Metering and Communications.

DISCUSSION

“The new Standard contains two requirements that only apply to retail sales. Approximately half of the Authority’s customers, in terms of loads, are defined as wholesale using FERC criteria. For example, sales to utilities (National Grid, New York State Electric and Gas Corporation and Rochester Gas and Electric Corporation) including Replacement Power, Expansion Power, Niagara/St. Lawrence Rural and Domestic Power, Economic Development Power and Power for Jobs, are not subject to the Standard. The retail sales affected by the Standard primarily include the downstate government customers, High Load Factor customers and aluminum companies. The first requirement under the Standard requires the Authority to provide all these retail customers with a time-based rate schedule in which the rates reflect the cost of generating and purchasing the power at the wholesale level. Second, the Standard requires the Authority to provide the customer, upon request, a time-based meter enabling the customer to receive such a rate. The statute provides four allowable time-based rate schedules:

1. Time-of-use pricing whereby prices are set for a specific time period on an advance or forward basis;

2. Critical peak pricing whereby time-of-use prices are in effect except for certain peak days, when prices reflect the costs of generating and/or purchasing electricity at the wholesale level and when consumers may receive additional discounts for reducing peak period energy consumption;

3. Real-time pricing, reflecting the utility’s generating costs; and

4. Credits for loads that participate in peak load reduction programs.

“The Authority’s staff will prepare a report that advises the Trustees as to whether the Authority should adopt the Standard. Staff will consider the views of interested parties, in particular the Authority’s customers, which will be afforded an opportunity to provide comments at the public hearing and in writing. Staff’s recommendation will be made available to the public upon request.

FISCAL INFORMATION

“There is no anticipated fiscal impact.

RECOMMENDATION

“The Manager – Power Contracts, Wholesale and Electric Systems Marketing recommends that a public hearing on the ratemaking standard be held at the Jaguar Room at 123 Main Street, White Plains, New York, at 10:30 a.m. on Wednesday, January 10, 2007, and that, on or before August 8, 2006, notice of the public hearing be issued in a news release and published on the Authority’s web site. The notice will also be published in the New York State Register on November 15, 2006.

Ms. Morman presented the highlights of staff’s recommendations to the Trustees. In response to questions from Chairman McCullough, Ms. Morman said that the public hearing mandated by the legislation relating to this standard would be held on January 10, 2007, and that following the hearing, staff would report back to the Trustees on its outcome, with a final report due to the Federal Energy Regulatory Commission by August 2007.

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

WHEREAS, by August 8, 2006, the Authority must set a public hearing date for the consideration of the Time-Based Metering and Communications ratemaking standard under the Public Utility Regulatory Policies Act:

NOW THEREFORE BE IT RESOLVED, That the Trustees direct the Public and Governmental Affairs office to issue a news release for a public hearing on the ratemaking standard, such hearing to be held in the Jaguar Room at 123 Main Street, White Plains, New York, on Wednesday, January 10, 2007, at 10:30 a.m.; and be it further

RESOLVED, That the Trustees direct the Corporate Secretary to arrange to have a notice of such public hearing published in the November 15, 2006, issue of the New York State Register; 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.

6. Statewide Energy Services Program – Engineering Services in Support of Energy Efficiency Projects

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to approve the award of engineering support contracts to DMJM Harris, Genesys Engineering P.C. and Wendel Duchscherer for engineering and construction management services in support of Energy Services Program (‘ESP’) projects Statewide. The intended term of the contracts is up to four years. The total aggregate funding for these contracts is $3 million. This funding will be part of the funding of the ESP programs previously authorized by the Trustees at their meetings on December 16, 1997 and June 28, 2005, so no new funding is requested at this time. All costs associated with these services will be recovered directly from ESP program participants.

BACKGROUND

“Section 2879 of the Public Authorities Law and the Authority’s Guidelines for Procurement Contracts require the Trustees’ approval for procurement contracts involving services to be rendered for a period in excess of one year.

DISCUSSION

“Since 2004, the Authority has been ramping up its efforts to increase investment in energy efficiency, clean energy and improved system reliability projects via its ESP programs Statewide. These efforts have been very fruitful, with investment increasing from the 2004 level of $66.4 million to the budgeted 2006 investment target of $102 million, a 53% increase. It is projected that annual investment will continue at the $100 million level for the foreseeable future.

“During this period of intensely increased investment, the Authority has kept its staffing levels associated with the ESP essentially flat. This has allowed the Authority to offer program participants services at an improved cost, since the cost allocated by the Authority to these programs is being spread across a larger investment in projects. This in turn makes the projects more economical and attractive for program participants to implement, leading to additional projects.

“With the increased volume of projects, there is an increased need for engineering and field support of the projects being developed and implemented. This includes audit, design and construction management, along with other work that ensures the Authority’s ability to maintain a high level of customer service. The most cost-effective way to engage these resources is to contract for them on a temporary basis, rather than adding full-time staff. This allows the Authority’s full-time staff to be fully engaged, handling peaks in work by directing the efforts of its contractors. The cost of these resources will be recovered from each program participant in the Authority’s ESP via a fee applied to each project.

“In June 2006, staff solicited bids from consulting and engineering firms recognized for their experience in providing engineering and construction management services. A total of 79 bid packages were either sent to potential bidders or downloaded from the Authority’s web site. Of the 79 potential bidders, 73 bidders declined to bid. Of the remaining 6 bidders, Authority staff selected the three lowest-priced qualified bidders: DMJM Harris, Genesys Engineering P.C. and Wendel Duchscherer. The following is a brief description of these companies.

DMJM HARRIS

“DMJM Harris is a full-service energy management company with strong in-house engineering and project management capabilities with offices in New York City. DMJM Harris has provided design and implementation services for the Authority in the past on various programs, and the Authority has been pleased with their efforts in other programs. Harris understands Authority processes and has proven utility program experience in all facility types (schools, municipal water treatment, hospitals, universities, government buildings, etc.).

GENESYS ENGINEERING P.C.

“Genesys Engineering (‘Genesys’) focuses on energy and utility infrastructure with offices in White Plains, Kingston and Albany, New York. Genesys provides mechanical and electrical engineering services to clients in the public sector with in-house resources and staff. Genesys specializes in the study, design, construction, and commissioning of energy conservation projects.

WENDEL DUCHSCHERER

“Wendel Duchscherer (‘Wendel’) is an architectural and engineering/design-build firm with offices in Buffalo, Albany, and Long Island. Wendel has provided design-build services for the Authority in the past on various programs. Wendel understands the Authority’s processes and has proven experience under the Clean Air For Schools Program (‘CASP’) and Statewide Energy Services Program (‘ESP’).

FISCAL INFORMATION

“Funding will be provided through the previously approved funding of the Authority’s ESP. This funding will be provided through Commercial Paper Notes, Series 1, 2 and 3 and/or operating funds. No new funding is requested at this time.

“All Authority costs, including Authority overheads and the costs of advancing funds, will be recovered from the program participants.

RECOMMENDATION

“The Senior Vice President – Energy Services and Technology recommends that the Trustees authorize up to $3 million to fund three engineering support contracts to support Energy Services and Technology staff implementing the various Energy Services Program projects. These funds will be collected from program participants in the Energy Services Program.

“The Executive Vice President and General Counsel, the Executive Vice President Corporate Services and Administration, the Executive Vice President and Chief Financial Officer, the Senior Vice President – Marketing, Economic Development and Supply Planning, the Senior Vice President – Public and Governmental Affairs, the Senior Vice President – Power Generation and I concur in the recommendation.”

Mr. Esposito presented the highlights of staff’s recommendations to the Trustees. In response to a question from Chairman McCullough, Mr. Esposito said that the $3 million being requested in this item was budgeted as part of the Authority’s $100 million capital program for 2006. Responding to a question from Trustee Cusack, Mr. Esposito said that the types of projects carried out under the Statewide Energy Services Program (“Statewide ESP) include lighting, boiler and chiller plant upgrades, as well as the implementation of energy management systems. He said that the Authority oversees the design, engineering and installation of the energy efficiency improvements and then bills the participant for all of the Authority’s direct and indirect costs, allowing them to be repaid over an extended period of time. At the request of President Carey, Mr. Esposito mentioned that the Authority has completed several projects with SUNY Buffalo, as well as Erie County, citing the Erie County Office Building as an example. Mr. Esposito said he would e-mail Trustee Cusack a listing of all of the Statewide ESP projects the Authority has sponsored in Erie County.

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

RESOLVED, That the Trustees hereby authorize the award of engineering services contracts to DMJM Harris, Genesys Engineering P.C. and Wendel Duchscherer in support of the Authority’s Energy Services Program (‘ESP’) for a period of up to four years; and be it further.

RESOLVED, That funding for these contracts be provided in the amount below:

Expenditure Authorization

Contractors (Not to Exceed)

DMJM Harris

Genesys Engineering P.C.

Wendel Duchscherer

Total: $3 million

Exact funding for each contract will be determined based on the project support needs of Energy Services and Technology staff; and be it further

RESOLVED, That the Authority’s Commercial Paper Notes, Series 1, 2 and 3 and/or operating funds may be used to finance program costs; 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.

7. Statewide Energy Services Program – Inclusion of Certain Business Customers and Not-for-profit Organizations as Eligible
Participants

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to authorize the inclusion, as eligible participants in the Statewide Energy Services Program (‘Statewide ESP’), certain of the Authority’s business customers that responded to an appeal made by the Authority last autumn that business customers mount aggressive energy conservation efforts in order to combat high energy costs and reduce the State’s dependence on foreign oil. These business customers include entities that receive power from the Authority under its Power for Jobs, Economic Development, High Load Factor, Municipal Distribution Agency, Expansion Power, Replacement Power and Preservation Power programs. Additionally, the Trustees are requested to authorize the inclusion of not-for-profit organizations as eligible participants in Statewide ESP. No new program funding is being requested at this time and all costs of work performed will be recovered directly from each participant in the program.

BACKGROUND

“The Authority’s mission is to provide clean, economical and reliable energy consistent with its commitment to safety, while promoting energy efficiency and innovation for the benefit of its customers and all New Yorkers. In that regard, the Authority has provided energy services programs across the State to reduce energy consumption and peak demand. To date, the Authority’s programs have reduced the demand for electricity by 195 MW, resulting in savings of more than $93 million annually.

“Statewide ESP is an energy efficiency program that provides a turnkey approach to identifying, procuring and implementing energy-saving solutions for participants outside what has been traditionally referred to as the Authority’s Southeastern New York (‘SENY’) territory. Statewide ESP and the market segments covered by the program have evolved over time. The initial program, launched in the early 1990s, was called the Statewide High Efficiency Lighting Program (‘HELP’). This program was offered to facilities owned and operated by New York State and served by investor-owned utilities outside the SENY service territory. As the name implies, the technologies installed were relatively simple lighting retrofits. As demand for the program expanded, new HELP initiatives were launched that targeted different sectors. These include Long Island HELP, which targeted public schools on Long Island; Public Schools HELP, which targeted the remaining schools across the State and County and Municipal HELP, which targeted county and local facilities. During this time, the energy-saving measures offered by the programs were expanded to allow for more comprehensive projects. Ultimately, to streamline the budgeting process and provide a single fully integrated program to all these sectors, the Trustees, at their meeting of December 16, 1997, approved the consolidation of all these programs into Statewide ESP, a single program available to all public entities served by investor-owned utilities outside the SENY service territory. At their meeting of December 14, 2004, the Trustees authorized the inclusion of publicly operated facilities served by municipal and cooperative electric systems in Statewide ESP, and in May 2006, municipal and cooperative systems themselves were added.

DISCUSSION

“With the recent spike in energy prices, the Authority proactively issued communications to its customers and others in the late fall of 2005 offering assistance to those entities that were struggling with the increased cost of energy. Over the past several months, the Authority has received requests from a number of business customers about the programs the Authority offers. Staff has met with these customers and it appears that some of them can benefit from Statewide ESP as it is now configured. It would be especially helpful for these entities to be able to participate in Statewide ESP because, by receiving power from the Authority, they are not currently eligible for programs offered by the New York State Energy Research and Development Authority that are funded by the Systems Benefit Charge.

“In addition, not-for-profit organizations (‘NFPs’) throughout the State have been requesting assistance from the Authority in the area of energy efficiency. However, these NFPs are presently not eligible for Statewide ESP. Staff has found that certain NFPs, such as public hospitals and colleges, are a good fit for the Statewide ESP. If the Trustees authorize the eligibility of NFPs, staff expects that Statewide ESP will serve this new sector very well.

“If approved by the Trustees, the above-described business customers (i.e., those that responded to the Authority’s outreach in the fall of 2005) and NFPs would be added as eligible market sectors of Statewide ESP. The previously approved funding for this program is sufficient for these new market sectors at this time, and the program will continue to be implemented to take into account the Authority’s regulatory requirements associated with supporting these types of projects.

FISCAL INFORMATION

“Funding will be provided through the previously approved funding of Statewide ESP. This funding is provided from the proceeds of the Authority’s Commercial Paper Notes, Series 1, 2 and 3 and/or the Operating Fund. In addition, projects may be funded, in part, with monies from POCR (Petroleum Overcharge Restitution) funds. All Authority costs, including overheads and the costs of advancing funds, but excluding any grant of POCR funds, will be recovered consistent with other Energy Services and Technology programs.

RECOMMENDATION

“The Senior Vice President – Energy Services and Technology recommends that the Trustees authorize the inclusion of the above-described business customers and not-for-profit organizations as eligible participants in the Authority’s previously authorized Statewide Energy Services Program.

“The Executive Vice President and General Counsel, the Executive Vice President and Chief Financial Officer, the Senior Vice President – Marketing, Economic Development and Supply Planning, the Senior Vice President – Power Generation, the Senior Vice President- Public and Governmental Affairs and I concur in the recommendation.”

Mr. Esposito presented the highlights of staff’s recommendations to the Trustees. In response to a question from Trustee Cusack, Mr. Esposito said that most of the Statewide ESP work is from repeat customers, such as SUNY. President Carey added that Mr. Esposito and his staff have worked very hard to promote this program to potential customers. Chairman McCullough said that the Authority is bringing terrific benefits to these customers. President Carey then said that the Authority has spent more than $900 million on energy efficiency programs over the years, saying that the Authority itself had cut energy use at the Clarence D. Rappleyea Building in White Plains by 50% thanks to Statewide ESP.

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

RESOLVED, That the Trustees hereby authorize the inclusion of certain of the Authority’s business customers as described in the foregoing report of the President and Chief Executive Officer as eligible participants in the Statewide Energy Services Program (‘Statewide ESP’). Such customers include entities that receive power from the Authority via the Power for Jobs, Economic Development, High Load Factor, Municipal Distribution Agency, Expansion Power, Replacement Power and Preservation Power programs; and be it further

RESOLVED, That the Trustees hereby authorize the inclusion of not-for-profit organizations throughout the State as eligible participants in Statewide ESP; and be it further

RESOLVED, That the Authority’s Commercial Paper Notes, Series 1, 2, and 3, and/or Operating Fund monies may be used to finance program costs; and be it further

RESOLVED, That Petroleum Overcharge Restitution (‘POCR’) funds may be used to finance program costs to the extent authorized by the POCR legislation, in such amounts as may be deemed necessary and desirable by the Senior Vice President - Energy Services and Technology; 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.

8. Authorization to Enter into One or More Interest Rate Swap Agreements Relating to Adjustable Rate Tender Notes

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to authorize the execution of one or more forward-starting, floating-to-fixed interest rate swap agreements relating to up to $156,145,000 in principal amount of the Authority’s Adjustable Rate Tender Notes (‘ART Notes’), with such swap agreement(s) having a term not to exceed 10 years, an effective date of not earlier than September 1, 2006, nor later than March 1, 2008 and a fixed rate to be paid by the Authority of no greater than 4%.

BACKGROUND

“Pursuant to a resolution adopted by the Trustees on April 30, 1985, the Authority issued $200 million of ART Notes to pay for a portion of the cost of construction of its Marcy-South Project, of which $156,145,000 in principal amount is currently outstanding. Goldman Sachs & Company serves as Remarketing Agent for the ART Notes, which are subject to tender by the holders of such Notes or call by the Authority on any rate reset date. The interest rate on the ART Notes resets each March 1 and September 1. Accordingly, the next rate reset date is September 1, 2006. In September 2003, the Authority entered into a floating-to-fixed interest rate swap agreement that will expire on September 1, 2006. If approved by the Trustees and executed, the proposed swap agreement(s) would replace the expiring 2003 swap agreement. The ART Notes mature on March 1, 2007, March 1, 2016 and March 1, 2020.

DISCUSSION

“Staff proposes to enter into one or more forward-starting, floating-to-fixed interest rate swap agreements with one or more counterparties to be selected through a competitive bid process that will be managed by the Authority’s swap advisor, PFM-Asset Management. The aggregate notional amount of the swap will not exceed $156,145,000 (the amount of ART Notes currently outstanding) and will have a term not to exceed 10 years. The proposed swap agreement(s) would hedge interest rate volatility relating to the ART Notes over that period.

“Under the proposed agreement(s), during the term of the swap the Authority will pay a fixed rate of no greater than 4% on the notional amount of the swap. The counterparty(ies), in turn, will pay the Authority during each six-month interest rate period payments of not less than 66% of the six-month London Interbank Offered Rate (‘LIBOR’) in effect on the date the new ART Note interest rate is set for the six-month period. The swap agreement(s), which would not be executed unless the fixed rate to be paid by the Authority is 4% or less, shall have a term of not more than 10 years.

“Staff may deem it advisable in connection with the proposed swap agreement(s) to execute credit support annexes (‘CSAs’). The CSAs would obligate the Authority and the counterparty(ies) to provide collateral to support the swap agreement(s) if the Authority’s or the counterparty(ies)’ credit ratings were downgraded. Staff proposes that the aggregate amount of collateral to be transferred without further approval by the Trustees in connection with the swap agreement(s) be limited to $25 million. If additional collateral were required and the Trustees were to decline to approve such addition collateral, the counterparty(ies) to the swap agreement(s) would have the option to terminate the swap agreement(s), with payment to be made in accordance with whether market conditions favored the Authority or the counterparty(ies).

“As discussed in prior Trustees’ meetings, the use of interest rate swaps entails acceptance of certain risks, such as (i) basis risk (e.g., where the variable rate paid by the Authority on its debt is higher than the variable rate paid to it under the swaps), (ii) tax risk (e.g., a change in tax law which results in an adverse movement in the trading ratios of short‑term tax‑exempt securities to short‑term taxable securities generally, decreasing or eliminating the anticipated savings to the Authority if the change in law causes the variable rate on the debt to rise faster than a LIBOR–based floating rate on the swap), (iii) counterparty risk (e.g., a default by the other party to the swaps that may result in additional cost to the Authority), (iv) termination risk, including the costs to the Authority of any termination of the swaps, either by the Authority or the counterparty, and (v) the risk that the swaps no longer would extend for the full period of time during which the Authority desires to maintain a net fixed rate exposure. Staff has analyzed these risks and after consultation with the Authority’s Financial Advisor, has concluded that such risks (i) are manageable and (ii) are reasonable in relation to the benefits achievable by entering into interest rate swap agreements in the manner contemplated.

“Since 1985, the interest rates on the ART Notes have averaged 3.83%, which on average during this same period was approximately 66% of the six-month LIBOR. Consequently, if this relationship continues, the floating payments received by the Authority should offset the payments to be made by the Authority to its ART Note holders, resulting in the Authority effectively paying a maximum fixed rate of no greater than 4% on its ART Notes. However, historical performance is not a guaranty of future performance. Consequently, there is no guaranty that payments received, based on a percentage of the six-month LIBOR rate, will be sufficient to offset the payments made by the Authority to the ART Note holders. The correlation between the ART Notes and the six-month LIBOR may vary going forward, and the actual rate paid on the ART Notes may in fact be higher than 66% of the six-month LIBOR rate. In such a case, the Authority would in effect be paying the fixed rate of no greater than 4% plus the difference between the ART Notes rate and 66% of the LIBOR rate. If the ART Notes rate were less than 66% of the LIBOR rate, the Authority would be paying the fixed rate minus the difference between the ART Notes rate and 66% of the LIBOR rate.

“Staff has been advised that Hawkins Delafield & Wood LLP, bond counsel to the Authority, will provide an unqualified opinion in connection with the interest rate swap agreement(s).

RECOMMENDATION

“The Treasurer recommends that the Trustees authorize the execution of one or more forward starting floating-to-fixed interest rate swap agreements related to the Authority’s Adjustable Rate Tender Notes, with a duration not to exceed 10 years commencing on or after September 1, 2006, in an aggregate notional amount not to exceed $156,145,000, with the fixed payment by the Authority of not greater than 4%, and with a floating payment to be paid by the counterparty(ies) of not less than 66% of the six-month London Interbank Offered Rate, as discussed above.

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

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

RESOLVED, That the Executive Vice President and Chief Financial Officer, the Vice President – Finance and the Treasurer be, and each of them hereby is, authorized on behalf of the Authority to enter into one or more forward-starting floating-to-fixed rate interest rate swap agreement(s), provided that: (1) the aggregate notional amount of such agreement(s) shall not exceed $156,145,000; (2) such agreement(s) shall provide for the Authority making payments to the counterparty(ies) for the term of the swap period a fixed rate of no greater than 4%, and for the counterparty(ies) to make payments to the Authority for each six-month ART Notes interest rate period of not less than 66% of the six-month LIBOR rate in effect on the date the new interest rate is set for the six-month period in question; (3) the term of such agreement(s) shall not exceed 10 years, commencing on or after September 1, 2006, but not later than March 1, 2008; (4) such agreement(s) shall have such terms and conditions, not inconsistent with the requirements set forth in clauses (1)-(3) above, as such officer executing such agreement shall deem necessary or advisable, such execution to be conclusive evidence of such approval and (5)

any collateral transferred by the Authority to support the swap agreement(s), in accordance with the terms of the applicable credit support annex,(es) shall not exceed $25 million in the aggregate without further approval by the Trustees; 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.

9. Capital Expenditure Authorization Request – Billing Systems Implementation

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to approve a Capital Expenditure Authorization Request (‘CEAR’) for $18,745,000 to implement the replacement of the Authority’s current multiple billing systems, which in some cases are more than 20 years old. These existing billing systems no longer meet the current demands of the Authority’s business requirements.

“The new billing system will be implemented as an expansion of the current SAP R/3 environment and will replace four existing systems: governmental billing, wholesale billing, World Trade Center billing and a loan ledger to support energy efficiency initiatives.

“The new billing system will significantly reduce manual data entry and provide the Authority with greater flexibility in meeting changing business requirements.

BACKGROUND

“In accordance with the Authority’s Expenditure Authorization Procedures, the award of non-personal services or equipment purchase contracts in excess of $3 million, as well as personal services contracts in excess of $1 million if low bidder, or $500,000 if sole source or non-low bidder, requires Trustees’ approval.

“Section 2879 of the Public Authorities Law and the Authority’s Guidelines for Procurement Contracts require Trustees’ approval for procurement contracts involving services to be rendered for a period in excess of one year.

“The current governmental and wholesale billing systems were custom developed more than 20 years ago. These billing systems are mainframe based and written in a programming language that is no longer widely used. These billing systems use an older-technology database structure. The governmental and wholesale systems have separate computer applications, separate databases and separate programming processes as well.

“Since these systems are large and very complex, it is very difficult to make programming changes to this kind of environment quickly. Any change must be extensively tested to ensure that it will not introduce any unforeseen anomalies in another part of the system. The difficulties in keeping the billing systems operational while responding to change have forced staff to work around the system at times. Numerous external systems have been developed over the past five years to meet new requirements rather then attempt to change the core billing systems.

“The billing systems are run on leased services provided by the New York State Office for Technology in Albany. The mainframe leased services cost the Authority more than $800,000 annually. The application support staff who maintain the applications are part of the Authority’s Information Technology team.

DISCUSSION

“In late 2004, a team was assembled to begin the process of evaluating alternatives to the current billing system environment. This team developed a list of necessary functional requirements based on a series of cross-functional meetings. The team then reviewed software alternatives available in the marketplace. Systems used by other utilities were also assessed. A Request for Proposals (‘RFP’) was developed and submitted to the top software vendors. Their responses led to a short list and the software vendors were brought in to demonstrate their solutions and prove their products could meet the Authority’s business requirements. In the fall of 2005, the team selected a suite of modules from SAP America to be added to the Authority’s existing SAP R/3 environment as the right choice to meet the Authority’s billing system. SAP billing and marketing modules represented world class functional processes which could be adopted by the Authority and an expansion of our existing system would eliminate a number of existing interfaces.

“Based on size and complexity of this project, it was decided that this type of implementation would require the use of a consultant system integrator (‘SI’). An RFP was developed and issued in the fall of 2005 to find a vendor to act as SI on the Authority’s behalf. Four vendors have responded to the RFP and detailed evaluations of the four proposals have been completed.

“The project is now at a critical juncture and we seek Trustee approval of the capital expenditures before proceeding with the project. The new billing system implementation will begin this fall and take up to 18 months to complete. It is expected that the new billing system will be in place by the start of 2008. The expense identified for the SI is the projected cost prior to further negotiations with the vendor. The award of a contract for consultant SI services will be submitted for the Trustees’ approval at their September 26, 2006 meeting.

“The capital expenditure request includes funding as follows:

Hardware additions - $ 100,000

Software - 450,000

NYPA staff in support of project with some temp help - 4,900,000

Consultant System Integrator (SI) - 11,500,000

Contingency - 900,000

NYPA Overhead 895,000

$ 18,745,000

FISCAL INFORMATION

“Payments will be made from the Capital Fund.

RECOMMENDATION

“The Chief Information Officer – Information Technology recommends that the Trustees approve the Capital Expenditure Authorization Request in the amount of $18,745,000 for implementation of a new billing system, including the services of a system integrator to assist the Authority with such implementation.

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

Mr. Del Sindaco presented the highlights of staff’s recommendations to the Trustees and outlined the budgeted costs associated with the proposal. He noted that $4.9 million of the $18.745 million requested for the billing systems implementation project was for Authority staff salaries. President Carey said that this project was very much needed. In response to a question from Chairman McCullough, Mr. Del Sindaco said that it is anticipated that, at the September 26^th Trustees’ Meeting, staff will recommend that the Trustees approve a contract with the System Integrator (“SI”) consultant selected through the competitive solicitation process. Responding to a question from Trustee Cusack, Mr. Del Sindaco said that the field of potential SI consultants had been narrowed down to three finalists. In response to another question from Trustee Cusack, Mr. Del Sindaco said that one of the goals for the long term was to build flexibility into the billing systems, but that the bulk of the expense associated with this project was associated with the SI consultant, not the software needed to implement the new systems.

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

RESOLVED, That pursuant to the Expenditure Authorization Procedures adopted by the Authority, the Capital Expenditure Authorization Request for Billing System Implementation services be, and hereby is, approved in the amounts and for the purposes listed below:

Description

Current Estimate

Previously Authorized

Current
Request

Total Authorized Amount

Billing System Implementation

$18,745,000

Totals

Table of Contents

SUMMARY

BACKGROUND

DISCUSSION

RECOMMENDATION