MINUTES OF THE REGULAR MEETING O

Minutes of the Regular Meeting of the Power Authority of the State of New York held via video conference at the following participating locations at 11:05 a.m.:

1) New York Power Authority, 30 South Pearl Street, Albany, NY

2) New York Power Authority, 123 Main Street, White Plains, NY

3) New York Power Authority, Niagara Power Project, 5777 Lewiston Road, Lewiston, NY

The following Members of the Board were present at the following locations:

Frank S. McCullough, Jr., Chairman (Albany, NY)

Elise M. Cusack, Trustee (Lewiston, NY)

Robert E. Moses, Trustee (Albany, NY)

Joseph J. Seymour, Trustee (Albany, NY)

Leonard N. Spano, Trustee (Albany, NY)

Michael J. Townsend, Vice Chairman – Excused

Thomas W. Scozzafava, Trustee – Excused

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Timothy S. Carey President and Chief Executive Officer

Thomas J. Kelly Executive Vice President and General Counsel

Joseph Del Sindaco Executive Vice President and Chief Financial Officer

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 and Economic Development

William J. Nadeau Senior Vice President – Energy Resource Management and Strategic Planning

Edward A. Welz Senior Vice President and Chief Engineer – Power Generation

Arnold M. Bellis Vice President – Controller

John M. Hoff Vice President – Procurement and Real Estate

Donald A. Russak Vice President – Finance

William V. Slade Vice President – Environmental Health and Safety

Daniel Wiese Vice President and Inspector General – Corporate Security

Anne B. Cahill Corporate Secretary

Angela D. Graves Deputy Corporate Secretary

Dennis T. Eccleston Chief Information Officer

Brian C. McElroy Treasurer

Lisa Cole Deputy Treasurer

Joseph J. Carline Assistant General Counsel – Power and Transmission

Frederick E. Chase Executive Director – Hydro Relicensing

Thomas J. Concadoro Director – Accounting

James F. Pasquale Director – Business Power Allocations, Compliance and Municipal and Cooperative Marketing

Michael A. Saltzman Director – Media Relations

Marilyn J. Brown Manager – Market and Pricing Analysis

Steven Lockfort Manager – Risk Reporting

Joanne Wilmott Manager – Community Relations, Niagara

Lewis Payne Supervisor – Right of Way/Environmental

Mary Jean Frank Associate Corporate Secretary

Lorna M. Johnson Assistant Corporate Secretary

Jeffrey Carey Special Assistant to the President’s Office

William Helmer Special Licensing Counsel

Lynnette J. Taylor Senior Legal Secretary

Steven A. Mitnick Assistant Secretary for Energy and Telecommunications, Governor
Spitzer’s Office

Thomas Congdon Special Assistant for Energy and Telecommunications, Governor
Spitzer’s Office

Colleen Hurley Paralegal, Couch White LLP

Steve MacNish Paralegal, Couch White LLP

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

1. Approval of the Minutes

The Minutes of the Regular Meeting of February 27, 2007 were unanimously adopted.

2. Financial Reports for the Two Months Ended February 28, 2007

Mr. Bellis provided the Financial Reports for the two months ended February 28, 2007.

3. Report from the President and Chief Executive Officer

President Carey said that Alan Richardson, the keynote speaker at the Authority’s 75^th anniversary celebration, was stepping down as President and Chief Executive Officer of the American Public Power Association at the end of the year.

President Carey congratulated Mr. Chase and everyone who was involved in obtaining the new 50-year license from the Federal Energy Regulatory Commission (“FERC”) for the Niagara Power Project. Mr. Chase said that FERC had approved the new license on March 15^th, nearly six months before it will take effect on September 1, 2007. The new license involves no adverse changes to project operation or expansion of the project’s boundaries. The new license also approves a settlement agreement resolving all issues among the critical stakeholders in the relicensing proceeding. Among these items are:

Eight habitat improvement projects in the vicinity of the project.
A habitat enhancement fund.
Public access and recreational improvements.
Development of a Recreation Plan, a Land Management Plan and a Historic Properties Management Plan.
Improvements to the Niagara Water Board’s Falls Street Tunnel to minimize groundwater seepage into the tunnel in the project area.
Power allocations consistent with the federal Niagara Redevelopment Act.

Other settlements with the Host Communities, Tuscarora Nation, Niagara University and Erie County/City of Buffalo discussed in the license Order are considered off-license agreements not under FERC’s jurisdiction.

After staff’s review of the license, the consensus is that it has no fatal flaws that would require the Authority to file a request for rehearing. It is possible, however, that groups that have sought a settlement with the Authority may request a rehearing by the deadline of April 15, 2007. In response to a question from Trustee Seymour, Mr. Chase said that FERC did not approve the off-line settlement agreements, although it had accepted them in the license Order.

Mr. Chase said that the Niagara River Greenway Commission approved the Niagara River Greenway Plan on March 21, 2007 and has sent it to Carol Ash, Acting Commissioner of the New York State Office of Parks, Recreation and Historic Preservation, for her consideration and approval. As part of the settlement agreements reached during the Niagara project relicensing, the Authority will provide $9 million a year for projects consistent with the Greenway Plan. The $9 million will be divided into four funds: (1) projects in Niagara County, (2) projects in Erie County, (3) ecological projects and (4) projects in State parks. The Authority must establish the funds after September 1, 2007, the effective date of the new Niagara license.

4. Allocation of 350 kW of Hydro Power

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to approve an allocation of available Replacement Power (‘RP’) totaling 350 kW to Cameron Compression Systems.

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 to Cameron Compression Systems as set forth in Exhibits ‘4-A’ and ‘4-A1.’ The Exhibit shows, among other things, the amount of power requested by the company, the recommended allocation and additional employment and capital investment information. This project will help maintain and diversify the industrial base of Western New York and provide new employment opportunities. It is projected to result in the creation of 18 jobs.

RECOMMENDATION

“The Director – Business Power Allocations, Compliance and Municipal and Cooperative Marketing recommends that the Trustees approve the allocation of 350 kW of hydro power to the company listed in Exhibits ‘4-A’ and ‘4-A1.’

“The Executive Vice President and General Counsel, the Senior Vice President – Marketing and Economic Development, 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 350 kW of Replacement Power, as detailed in Exhibits “4-A” and “4-A1,” 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, 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.

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 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 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 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 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 March 27, 2007, EDPAB recommended that the Authority’s Trustees approve electricity savings reimbursement rebates to the 37 businesses listed in Exhibit ‘5-A.’ Collectively, these organizations have agreed to retain more than 32,000 jobs in New York State in exchange for the 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 $3.7 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 in Exhibit ‘5-A’ is not expected to exceed $3.7 million. Payments will be made from the Operating Fund. To date, the Trustees have approved $69.6 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.”

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

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

NOW THEREFORE BE IT RESOLVED, That to implement such Economic Development Power Allocation Board 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 Power for Jobs 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 $3.7 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, 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. PURPA – Compliance with Ratemaking Standard – Notice of Adoption

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to adopt the Demand Response and Smart Metering Standard (‘Standard’) in Section 1252 of the federal Energy Policy Act of 2005 (‘EPAct’). EPAct required the Authority, as a non-regulated electric utility, to consider and make a determination as to whether to adopt the Standard by August 8, 2007. The Standard centers on application of time-of-use rates and the metering equipment used to implement these rates. Staff analyzed the Authority’s current offerings and has determined that the Authority has already met the intent of the Standard; therefore, staff recommends that the Trustees adopt the Standard in Section 1252 of EPAct to the extent that the Authority already has done so and that the Authority continues to offer the current selection of programs, pricing alternatives and metering to its retail customers.

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 for electric consumers. In August 2005, Congress amended PURPA via EPAct. The Authority is a non-regulated electric utility with respect to the Federal Energy Regulatory Commission (‘FERC’), the agency that implements PURPA. Under EPACT, the Authority was 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 was required to consider the Standard in good faith, and to issue a determination as to whether it would be adopted. The law required 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.

“At their meeting of July 25, 2006, the Trustees directed that public notice of the Authority’s consideration of the Standard be published in the New York State Register and that a public hearing be held at which customers and the public could make oral statements and/or submit written comments. As directed by the Trustees, staff held a public hearing on January 10, 2007 (the public forum transcript is attached as Exhibit ‘6-A’). The public comment period closed on January 24, 2007. Comments were filed by the City of New York’s Department of Citywide Administrative Services (‘City’).

DISCUSSION

“The new Standard applies only to the Authority’s retail rates. These include rates for the Authority’s retail loads, which by FERC criteria include direct-sale customers, such as governmental customers, customers that receive High Load Factor power and some of the Authority’s other industrial customers. These retail customers account for about half of the Authority’s total load. The other half of the Authority’s customers, in terms of load, is defined as wholesale using FERC criteria. For example, sales to utilities (Consolidated Edison Co. of New York, Inc. (‘Con Edison’), 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 new Standard has two requirements. First, the Standard requires that the electric utility provide all 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 that the electric utility provide the customer, on request, a time-based meter enabling the customer to receive such a rate.

“Staff prepared a study detailing the complete analysis of the Standard and its findings relative to the Authority’s compliance, entitled ‘Staff Report on PURPA – Compliance with Ratemaking Standard in Consideration of the Federal Energy Policy Act of 2005 Regarding Demand Response and Smart Metering, December 2006’ (the ‘Report’), which is attached as Exhibit ‘6-B.’ The Standard’s first requirement mandates that all retail customers have access to time-based rates such as time-of-use pricing and demand-response programs. The Authority has developed and currently offers eight programs that meet the Standard’s criteria, comprising four time-of-use and market-based pricing alternatives that reflect time-of-use pricing and real-time pricing based on wholesale market prices, and four demand-response programs. Staff analyzed the total retail customer population to determine if every retail customer had access to at least one market-based pricing alternative or demand-response program, and determined that every retail customer was eligible for at least two programs. The results are summarized in Table 1: Retail Customer Eligibility for Multiple Offerings.

	# of Customers Eligible	Eligible as % of Total
Eligible for at least 2 programs	160	100%
Eligible for at least 3 programs	141	88%
Eligible for at least 4 programs	32	20%
Eligible for at least 5 programs	14	9%
Eligible for at least 6 or more programs	0	0%

Table 1: Retail Customer Eligibility for Multiple Offerings

Based on this analysis, staff has determined that the Authority has satisfied the Standard’s first requirement to ‘provide individual customers upon customer request, a time-based rate schedule under which the rate charged by the electric utility varies during different time periods and reflects the variance, if any, in the utility’s costs of generating and purchasing electricity at the wholesale level.’

“The Standard’s second requirement is that each regulated electric utility provide ‘each customer requesting a time-based rate with a time-based meter capable of enabling the utility and customer to offer and receive such rate.’ The Authority’s retail customers are located mainly in the service territories of other local distribution companies (‘LDCs’). Therefore, in nearly every instance, their LDC, not the Authority, meters the Authority’s customers for billing. The LDCs that serve the Authority’s retail customers are regulated electric utilities, and therefore are subject to the new EPAct standard. Staff expects that the LDCs’ implementation of the Standard will provide customer access to advanced metering in any instances where it currently is not available. For the retail customer accounts where the Authority directly owns or controls the billing or revenue metering, the Authority already has interval metering installed that meets EPAct’s criteria for advanced metering. Based on this analysis, staff has determined that the Authority meets the second requirement of the Standard.

“The City filed formal written comments (attached as Exhibit ‘6-C’) during the public comment period. A review and analysis of these written comments follows:

Issue: Advanced Metering.

“Comment 1: The City is a direct customer of the Authority only. While local distribution charges come from Con Edison, the LDC, they are billed through the Authority. The Report states that the Authority ‘expects’ the LDC to provide access to advanced metering in implementing the Standard that is the subject of the Report (p. 18). To fully encourage customer response to information about electricity usage, the City asks the Authority to take an active, rather than a passive, role on its customers’ behalf if that is necessary to encourage the LDC to provide customer access.

“Staff Analysis: The Authority works closely with Con Edison and customers to make metering data available to customers.

“Recommendation: At the City’s request, the Authority will actively encourage Con Edison to provide customer access to their metering equipment to facilitate greater flow of usage data directly to customers. This action is not required for the Authority to meet the EPAct Standard.

“Comment 2: The Authority is currently undertaking a customer load study that required the installation of advanced metering on a stratified sample of accounts. The program was planned with attention to the main purpose of the study, which is rate design. Right now there is no plan to deliver the real-time usage information that the advanced meters collect directly to the customers once the study is completed in March 2008. ‘Customer access to advanced metering’ has to mean not only installation of meters, but delivery of information to the end-users. Therefore, the City asks the Authority to further its mutual goals of improving demand response by planning now to include data delivery to customers from these meters as soon as the data-gathering phase of load sampling is complete. Based on work that the City would do with their accounts, their belief is that the result will be greater participation in a variety of demand-response programs.

“Staff Analysis: The City is incorrect in stating that the Authority has no plan to make this load research metering information available to customers. The Authority has stated that it will make that information available as soon as the infrastructure is in place, perhaps as soon as mid-2007.

“Recommendation: The Authority may proceed with its plan to provide customers access to the data collected by the Authority’s load research metering to support customers’ demand-response participation. This action is not required to meet the EPAct Standard.

“Staff has determined that the Authority has already met the intent of the Standard. Therefore, staff recommends that the Trustees adopt the Standard in Section 1252 of EPAct to the extent that the Authority already has done so and that the Authority continue to offer the current selection of programs, pricing alternatives and metering to its retail customers.

FISCAL INFORMATION

“There is no anticipated fiscal impact.

RECOMMENDATION

“The Manager – Market and Pricing Analysis recommends that the Trustees authorize the Corporate Secretary to file a notice with the New York State Department of State for publication in the Miscellaneous Notices/Hearings section of the New York State Register that the Authority has adopted the Demand Response and Smart Metering Standard in Section 1252 of the federal Energy Policy Act of 2005 to the extent that the Authority already has done so and that the Authority continue with these offerings and metering practices.

“The Executive Vice President and General Counsel, the Senior Vice President – Marketing and Economic Development, the Vice President – Major Account 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.

WHEREAS, by August 8, 2007, the Authority must consider and make a determination as to whether to adopt the Demand Response and Smart Metering Standard (“Standard”) in Section 1252 of the federal Energy Policy Act of 2005 under the Public Utility Regulatory Policies Act:

NOW THEREFORE BE IT RESOLVED, That the Trustees adopt the Standard to the extent that the Authority already has done so and that the Authority continue with these offerings and metering practices; and be it further

7. 2006 Financial Reports Pursuant to Section 2800 of the Public Authorities Law and New Regulations of the Office of the State Comptroller

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to approve the financial report for the year ended December 31, 2006 and authorize the Corporate Secretary to submit this report to the Governor, legislative leaders and the State Comptroller pursuant to Section 2800 of the Public Authorities Law, as amended by the Public Authorities Accountability Act of 2005. In accordance with new regulations adopted by the Office of the State Comptroller (‘OSC’), the Trustees are also requested to approve a report of actual versus budgeted results for the year 2006 and authorize making this report available for public inspection at not less than five convenient public places throughout New York State, and posting it on the Authority’s website.

BACKGROUND

“On January 15, 2006, Governor Pataki signed the Public Authorities Accountability Act of 2005 (Chapter 766 of the Laws of 2005) (‘PAAA’) into law. The PAAA reflects the State’s commitment to maintaining public confidence in public authorities by ensuring that the essential governance principles of accountability, transparency and integrity are followed at all times. To facilitate these objectives, the PAAA established an Authority Budget Office (‘ABO’) that will monitor and evaluate the compliance of State authorities with the requirements of the PAAA. The ABO has advised the Authority that it is subject to the PAAA effective with the Authority’s fiscal year beginning January 1, 2006. As one of its many changes, the PAAA amended Section 2800 of the Public Authorities Law to require that financial reports submitted by a State authority under Section 2800 be certified by the chief executive officer and chief financial officer and approved by the authority’s board.

“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 related reporting requirements by ‘covered’ public authorities, including the Authority. These regulations establish various new procedural and substantive requirements relating to the budgets and require the chief financial officer to report publicly not later than 90 days after the close of each fiscal year on actual versus budgeted results.

DISCUSSION

“The Trustees are requested to approve the financial report for the year ended December 31, 2006 (Exhibit ‘7-A’) and authorize the Corporate Secretary to submit this report to the Governor, legislative leaders and State Comptroller pursuant to Section 2800 of the Public Authorities Law, as amended by the PAAA. This report was reviewed by the Audit Committee at its February 27, 2007 meeting. The Trustees are also requested to approve a report of actual versus budgeted results for the year 2006 (Exhibit ‘7-B’) and authorize making this report available for public inspection at not less than five convenient public places throughout New York State, and posting it on the Authority’s website.

FISCAL INFORMATION

“There is no anticipated fiscal impact.

RECOMMENDATION

“The Vice President – Controller recommends that the Trustees approve and authorize submittal of the attached reports (Exhibits ‘7-A’ and ‘7-B’) as discussed herein.

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

Mr. Concadoro presented the highlights of staff’s recommendations to the Trustees. Chairman McCullough said that he had spoken with Vice Chairman Townsend, Chairman of the Audit Committee, who told him that at their last meeting the Audit Committee met with staff and representatives from Ernst & Young, the Authority’s independent auditing firm, as well as with the Ernst & Young representatives alone, to discuss the financial reports and that Vice Chairman Townsend fully supports this resolution.

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

RESOLVED, That pursuant to Section 2800 of the Public Authorities Law, the Corporate Secretary be, and hereby is, authorized to submit to the Governor, the Chairman and Ranking Minority Member of the Senate Finance Committee, the Chairman and Ranking Minority Member of the Assembly Ways and Means Committee, the State Comptroller, the Division of the Budget and the Authority Budget Office the attached financial report for the year ending 2006 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 attached report of actual versus budgeted results for the year 2006 is approved in accordance with the foregoing report of the President and Chief Executive Officer; and the Corporate Secretary be, and hereby is, authorized to make the approved report available for public inspection at not less than five convenient public places throughout New York State, and post the report on the Authority’s website; and be it further

8. 2006 Annual Report on Investment of Authority Funds

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to review and approve the attached 2006 Annual Report on Investment of Authority Funds (Exhibit ‘8-A’).

BACKGROUND

“Section 2925 of the Public Authorities Law requires the review and approval of an annual report on investments. Pursuant to the statute, the attached report includes Investment Guidelines that set standards for the management and control of the Authority’s investments, a summary of the Guidelines, the total investment income earned in 2006, a statement on fees paid for investment services, the results of an independent audit, a detailed inventory report for each of the Authority’s eight portfolios at December 31, 2006 and a summary of purchases from dealers and banks. The approved annual report is filed with the State Division of the Budget, with copies to the Office of the State Comptroller, the Senate Finance Committee and the Assembly Ways and Means Committee. The report is also available to the public upon written reasonable request.

DISCUSSION

“In 2006, the Authority’s investment portfolio averaged approximately $772 million and earned approximately $34 million. This level of earnings is $9 million more than in 2005. The increase in investment earnings is due to an increase in the average size of the portfolio combined with higher re-investment rates in 2006. Income for the year from the Authority’s portfolios had an average yield of 4.50%, exceeding the Authority’s established performance measure by 41 basis points (41/100 of 1%). The performance benchmark for 2006 was the three-year rolling average yield of the two-year Treasury note plus an average of 90 basis points.

“At December 31, 2006, the portfolio consisted of 14% in direct obligations of the U.S. government; 4% in mortgages guaranteed by the U.S. government (‘GNMAs’); 68% in agencies of the U.S. government; 6% in Certificates of Deposit and Repurchase Agreements and 8% in Municipal Bonds.

“Investment management fees associated with the Nuclear Decommissioning Trust Fund, which is required to be managed by external managers, totaled $740,441 in 2006.

“In connection with its examination of the Authority’s financial statements, Ernst & Young LLP performed tests of the Authority’s compliance with certain provisions of the Investment Guidelines, the State Comptroller’s Investment Guidelines and Section 2925 of the Public Authorities Law. Ernst & Young LLP’s report, a copy of which is attached as Exhibit ‘8-B,’ states that the results of its examination disclosed no instances of noncompliance by the Authority. Consequently, staff believes the Authority is in compliance with the Investment Guidelines, the State Comptroller’s Investment Guidelines and Section 2925 of the Public Authorities Law.

“The Investment Guidelines and procedures have not been amended since last presented and approved by the Trustees at their meeting of May 23, 2006. They remain fundamentally sound and meet the requirements of the Authority. Furthermore, these Guidelines continue to meet the requirements of Section 2824 (1)(e) of the Public Authorities Accountability Act of 2005, which requires the Authority’s Trustees to establish written policies and procedures with respect to investments.

RECOMMENDATION

“The Treasurer recommends that the Trustees approve the attached 2006 Annual Report on Investment of Authority Funds.

“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.”

Mr. McElroy presented the highlights of staff’s recommendations to the Trustees. In response to a question from Trustee Seymour, Mr. McElroy said that the Guidelines attached as an exhibit are the ones that were approved by the Trustees at their meeting of May 23, 2006.

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

RESOLVED, That the 2006 Annual Report on Investment of Authority Funds be, and hereby is, approved; and be it further

2006 Annual Report on

Investment of Authority Funds

Table of Contents

Section I Guidelines for the Investment of Funds

Section II Explanation of the Investment Guidelines

Section III A. Investment Income Record

B. Fees Paid for Investment Services

C. Results of the Annual Independent Audit

Section IV Inventory of Investments Held on December 31, 2006

Section V Summary of Dealers and Banks from Which Securities Were Purchased

Section I

New York Power Authority

Guidelines for the Investment of Funds

I. General

These Guidelines for the Investment of Funds (the “Guidelines”) are intended to effectuate the applicable provisions of the General Resolution Authorizing Revenue Obligations, adopted February 24, 1998 (the “Resolution”), the lien and pledge of which covers all accounts and funds of the Authority and that governs the Authority's existing policies and procedures concerning the investment of funds as contained in these Guidelines. In a conflict between the Guidelines and the Resolution, the latter shall prevail. In addition, these Guidelines are intended to effectuate the provisions of Section 2925 of the New York State Public Authorities Law.

II. Responsibility for Investments

The Treasurer and Deputy Treasurer have the responsibility for the investment of Authority funds under the general supervision of the Executive Vice President and Chief Financial Officer. The Treasurer shall ensure that an operating manual is maintained that provides a detailed description of procedures for maintaining records of investment transactions and related information.

III. Investment Goals

The Treasurer and Deputy Treasurer are responsible for maximizing the yield on investments consistent with requirements for safety, liquidity and minimization of risk. Monies will not be invested for terms in excess of the projected use of funds.

IV. Authorized Investments

A. Monies in funds established pursuant to the Resolution shall be invested in Authorized Investments or Authorized Certificates of Deposit, defined as follows:

“Authorized Investments” shall mean:

1. Direct obligations of or obligations guaranteed by the United States of America or the State of New York;

2. Bonds, debentures, notes or other obligations issued or guaranteed by any of the following: Federal National Mortgage Association (including Participation Certificates), Government National Mortgage Association, Federal Financing Bank, Federal Home Loan Mortgage Corporation and Federal Home Loan Banks, Federal Housing Administration, Federal Farm Credit Banks Funding Corporation, Federal Farm Credit Banks, Federal Intermediate Credit Banks, Federal Banks for Cooperatives, Federal Land Banks or any other agency controlled or supervised by and acting as an instrumentality of the United States government;

3. Obligations of any state of the United States of America or any political subdivision thereof or any agency, instrumentality or local government unit of any such state or political subdivision that shall be rated at the time of the investment in any of the three highest long-term Rating Categories, as such term is defined in the Resolution, or the highest short-term Rating Category by a Rating Agency, as such term is defined in the Resolution.