MINUTES OF THE REGULAR MEETING

OF THE

POWER AUTHORITY OF THE STATE OF NEW YORK

 

February 26, 2013

 

Table of Contents

 

 

 

                Subject                                                                                                                                  Page No.               Exhibit

 

            Introduction                                                                                                                                   3

1.                   Adoption of the February 26, 2013 Proposed Meeting Agenda                                        4

2.                   Certificates of Appreciation                                                                                                     5

3.                   Consent Agenda:                                                                                                                       6

a.       Minutes of the Regular Meeting held on January 23, 2013                               6                      

b.       Energy Efficiency Education Program in New York City                                   7

Schools – Authorization to Award Services Contract to

Support Program

 

c.        Proposed Direct Sale Contract for the Sale of Western                                       7                       “3c-A”; “3c-B”

New York Hydropower – Notice of Public Hearing

 

Resolution                                                                                                                                    

 

Discussion Agenda:                                                                                                                                 12

 

4.                   Q&A on Reports from:

a.       President and Chief Executive Officer                                                                  12                      “4a-A”

 

b.       Chief Operating Officer                                                                                           14                      “4b-A”

 

c.        Chief Financial Officer                                                                                            15                      “4c-A”

 

5.                   Release of Funds in Support of the Western New York                                                     16

    Power Proceeds Allocation Act

Resolution

 

6.                   Decrease in Westchester County Governmental Customer                                              19                      “6-A”

                    Rates – Notice of Adoption

                Resolution

 

7.                   Decrease in New York City Governmental Customer                                                        22                      “7-A”; “7-B”

    Fixed Cost Component – Notice of Adoption

Resolution

 

8.                   Informational Item: Key Performance Indicators and                                                    30                     

    Strategic Planning Process

 


 

 

Subject                                                                                                                                  Page No.               Exhibit

9.                   Motion to Conduct an Executive Session                                                                            34

10.                Motion to Resume Meeting in Open Session                                                                       35

11.                Next Meeting                                                                                                                             36

    Closing                                                                                                                                        37                                                                         

 


                Minutes of the Regular Meeting of the Power Authority of the State of New York held via video conference at the Clarence D. Rappleyea Building, 123 Main Street, White Plains, New York at approximately 11:00 a.m.

 

Members of the Board present were:

 

                                John R. Koelmel, Chairman

                                Eugene L. Nicandri, Trustee 

                                R. Wayne LeChase, Trustee

                                Terrance P. Flynn, Trustee

                                Joanne M. Mahoney, Trustee – Syracuse

 

                                Trustee Jonathan Foster – excused

                               

----------------------------------------------------------------------------------------------------------------------------------------------------

Gil C. Quiniones                                   President and Chief Executive Officer

Judith C. McCarthy                            Executive Vice President and General Counsel

Edward Welz                                        Chief Operating Officer

Donald Russak                                    Chief Financial Officer

Joseph Kessler                                      Senior Vice President – Power Generation, Power Supply

Robert Lurie                                         Senior Vice President – Strategic Planning

James Pasquale                                   Senior Vice President – Economic Development and Energy Efficiency

Paul Tartaglia                                       Senior Vice President – Energy Resource Management

Joan Tursi                                             Senior Vice President – Corporate Support Services

Bradford Van Auken                          Senior Vice President and Chief Engineer – Operations Support Services

Thomas Concadoro                            Vice President and Controller

Sobeida Cruz                                        Vice President – Environmental Justice – SENY-Public and Governmental Affairs

Thomas Davis                                      Vice President – Financial Planning and Budgets

Dennis Eccleston                                 Vice President – Information Technology/Chief Information Officer

John Kahabka                                     Vice President – Environmental, Health and Safety

Joseph Leary                                        Vice President – Community and Government Relations

Patricia Leto                                         Vice President – Procurement

John Suloway                                       Vice President – Project Development Licensing and Compliance

Karen Delince                                       Corporate Secretary

Brian McElroy                                     Treasurer

Brian Liu                                               Deputy Treasurer

Bruce Fardanesh                                 Chief Electrical Engineer – Engineering

Khalil Shalabi                                       Chief Technology Officer and Director – Research and Development

Janis Archer                                          Director – Strategy Management – Strategic Management

Mike Lupo                                            Director – Marketing Analysis and Administration

Michael Saltzman                               Director – Media Relations

Gerard Vincitore                                  Director – Resource Planning and Project Analysis

Gina Harwood                                     Manager – Corporate Finance

Timothy Muldoon                               Manager – Business Power Allocations and Compliance

Gary Schmid                                        Manager – Network Services Infrastructure

Kerry-Jane King                                   Sustainability Manager – Special Projects and Business Integration

John Markowitz                                   Lead Research and Technology Development Engineer II

Jiankang Zhu                                       Research and Technology Development Engineer II

Ruth Colon                                           Senior Business Integration Project Manager

Brian Wilkie                                          Rotational BI Project Manager – Special Projects and Business Integration

Lorna M. Johnson                               Assistant Corporate Secretary

Jillian Nelson                                        Associate Pricing & Power Contract Analyst – Marketing Analysis and Administration

Egle Travis                                            Senior Pricing Analyst – Marketing Analysis and Administration

Sheila Baughman                                                Senior Secretary – Corporate Secretary’s Office

Charles Johnston                                 Senior Regulatory Security Specialist – Corporate Security


 

Trish Hennessy                                    Photographer – Video and Photographic Services

Michael Schneider                               Contractor – Video Production Services

Lindsay Dean                                       National Urban Fellow – Special Projects and Business Integration

Sheri L. Mooney                                  Senior Vice President, Senior Programs Manager - First Niagara Financial Group

Jennifer Sanfilippo                              Vice President, Government Relations – First Niagara Financial Group

                               

Chairman Koelmel presided over the meeting.  Corporate Secretary Delince kept the Minutes.

 


Introduction

                Chairman Koelmel welcomed the Trustees and staff members who were present at the meeting.  He said the meeting had been duly noticed as required by the Open Meetings Law and called the meeting to order pursuant to the Authority’s Bylaws, Article III, Section 3.


 

1.                   Adoption of the February 26, 2013 Proposed Meeting Agenda

On motion made and seconded, the meeting Agenda was adopted. 

 


 

2.                   Certificates of Appreciation

Chairman Koelmel said that on behalf of the Trustees he wanted to commend six staff members who received Technology Transfer awards for research and development projects they worked on with the Electric Power Research Institute (“EPRI”) and the Institute of Electrical and Electronic Engineers (“IEEE”) and made the following remarks:

“I am very pleased that the next action is to honor six NYPA employees with Certificates of Appreciation for their achievements following their award recognition from EPRI and IEEE, two industry groups. The awards are representative of the heavy emphasis that NYPA places on integrating innovative technologies and supporting a clean environment to ensure the reliable and efficient operation of its facilities.

 

The Board of Trustees and Executive Management take pride in the professionalism and achievements of the Authority’s workforce. We are pleased to recognize today, the following individuals for embodying those qualities:

 

Bruce Fardanesh, Jiankang Zhu, John Markowitz, John Nowicki, Jonathon Mayette and John Nolan.

 

Congratulations again to all six awardees.”


 

3.                   Consent Agenda:               

a.       Approval of the Minutes

                The Minutes of the Regular Meeting held on January 23, 2013 were unanimously adopted.


 

b.       Energy Efficiency Educational Program in

New York City Schools – Authorization to

Award Services Contract to Support Program

 

The President and Chief Executive Officer submitted the following report:

 

SUMMARY

 

“The Trustees are requested to approve the award of a contract for an Energy Efficiency Educational Program in New York City Schools not to exceed the amount of $600,000 to Gove Group, Inc. located in Pittsburgh, Pennsylvania and the National Theater for Children located in Minneapolis, Minnesota, for a three-year term.

 

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.

 

“In accordance with the Authority’s Expenditure Authorization Procedures, the award of non-personal services, construction, equipment purchase or non-procurement 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 the Trustees’ approval.

 

“The United States Environmental Protection Agency (‘EPA’) defines environmental justice as ‘fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies.’  Environmental justice describes the efforts to improve the living environment of low-income and minority communities.

 

“On April 24, 2012 the Trustee’s approved the Environmental Justice Implementation Plan, which included implementing an Energy Efficiency Educational Program within Environmental Justice Communities working with schools in developing an educational curriculum for students in elementary schools.  The curriculum will address where and how electricity is created and transmitted; energy conservation and alternative energy concepts. Communication has been held with the New York State Department of Education to describe the program in detail. 

 

DISCUSSION

 

                “On October 16, 2012, the Authority advertised in the New York State Contract Reporter a Request for Proposals (‘RFP’) (Q12-5358FS) soliciting firms interested in providing Energy Efficiency and Renewable Program Consulting Services.  In response to the notice, 67 firms downloaded the RFP from the Authority’s Web site. 

               

                “On November 7, 2012, eight firms submitted bid proposals for the program.  The bids were reviewed by an evaluation committee consisting of staff from Public Affairs, Energy Efficiency, Marketing and Economic Development and Procurement divisions.  The evaluations were based on a number of technical criteria specified in the RFP and the prospective Contractors’ proposed costs.  These criteria included the firm’s relevant technical approach, experience in training educators, experience in implementing energy programs, project team organization and experience, proposal content and format, and proposed costs.

 

                “Based on a thorough evaluation of the eight proposals, four firms were interviewed.  The selection criteria were based on content, type of services to be offered, schedule and costs.  As a result of proposed costs, scheduling, offered services and subsequent interviews and reference checks, Authority staff recommends the award of a contract to Gove Group, Inc. and the National Theater for Children because of their unique approach to the educational program.  The proposed contractors will work with schools selected by the Authority, employing multiple approaches to provide education to the staff and teachers about energy and ensure that students learn and implement energy efficiency measures.  This program will offer teachers, students, parents and communities an opportunity to learn about energy conservation, alternative energy and where energy comes from.  Gove Group has served as the Implementation Contractor for the New York State Energy Research and Development Authority’s (‘NYSERDA’) Energy Smart Students program from 2008 to 2012. 

 

FISCAL INFORMATION  

 

“Funding for the implementation of the Energy Efficiency Educational Program has been budgeted in the 2013-2016 budgets and will be provided from the Operating Fund.

 

RECOMMENDATION

 

“The Vice President –  Public and Government and Regulatory Affairs and the Vice President – Environmental Justice recommend that the contract to Gove Group Inc. and the National Theater for Children for the Energy Efficiency educational curriculum be approved and should not exceed the $600,000 recommended in the Environmental Justice Implementation Plan approved by Trustee’s on April 24, 2012. 

 

“For the reasons stated, I recommend the approval of the above-requested action by adoption of a resolution in the form of the attached draft resolution.”

 

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

 

RESOLVED, That the Trustees authorize the President and Chief Executive Officer, the Vice President Public Government and Regulatory Affairs and the Vice President Environmental Justice to execute agreement and other documents between the Authority and Gove Group Inc. and the National Theater for Children; and be it further

 

RESOLVED, That the Chairman, the Vice Chairman, the President and Chief Executive Officer, the Chief Operating 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.


 

c.        Proposed Direct Sale Contract for the

Sale of Western New York Hydropower –

Notice of Public Hearing                                

 

The President and Chief Executive Officer submitted the following report:

 

SUMMARY

 

                “The Trustees are requested to authorize a public hearing, pursuant to Section 1009 of the New York Public Authorities Law (‘PAL’), to approve a proposed form of contract applicable to certain Expansion Power (‘EP’) and Replacement Power (‘RP’) customers requiring a direct sale contract for the sale of hydropower commencing on July 1, 2013.  These customers, who were awarded allocations the terms of which extend beyond June 30, 2013, currently take service under sale-for-resale contracts between the Authority, customers and the customers’ local electric utility.  Because the sale-for-resale business model will terminate on June 30, 2013 in favor of a direct sale arrangement between the customers and the Authority, new direct sale contracts are needed to facilitate the sale of hydropower for the remaining terms of such customers’ allocations.  The form of the proposed direct sale contract is attached as Exhibit ‘3c-A,’ and the list of the customers that require such contracts, along with the respective allocations and supplemental commitments applicable to the allocations, is attached as Exhibit ‘3c-B.’  

 

BACKGROUND

 

“Under PAL §1005(13), the Authority may allocate and sell directly or by sale-for-resale, 250 MW of EP and 445 MW of RP to businesses located within 30 miles of the Niagara Power Project, provided that the amount of EP allocated to businesses in Chautauqua County on January 1, 1987 shall continue to be allocated in such county.

 

“Since the late 1980s, the Authority’s sales of EP and RP have been handled almost exclusively under contracts that the Authority entered into with Niagara Mohawk Power Corporation d/b/a National Grid (‘National Grid’) and New York State Electric and Gas Corporation (‘NYSEG’), both of which facilitated the provision of Authority hydropower to end-use customers on a sale-for-resale basis.  These contractual arrangements expire on June 30, 2013, and the Authority has made arrangements to continue the sale of the EP and RP allocations under a direct sale contract with each of the customers. 

 

“The first significant step in this direction was made in September 2010 after a public hearing process, when the Trustees approved long-term contract extensions that accommodated direct sales to customers for approximately 185 EP and RP allocations for the period July 1, 2013 through June 30, 2020.  The Trustees also approved a new service tariff governing all EP and RP sales commencing July 1, 2013, Service Tariff No. WNY-1 (‘ST WNY-1’), which modified the production rate for EP and RP by applying a three-year phase-in to a specified target rate which is based on the Authority’s Preservation Power rate.

 

“The form of contract proposed in this item would apply to six current EP and RP customers.  These customers did not receive long-term contract extensions as part of the initiative identified above because (i) the allocations at issue were awarded after the period when the Authority offered long-term extensions, (ii) delivery for these allocations commenced after such period, or (iii) the customers declined long-term extensions.  As a result, the allocations for these customers extend beyond the term of the soon-to-expire sale-for-resale contractual arrangements with the local utilities.  The Authority would continue to sell these customers their allocations under a direct sale arrangement for the remaining term of the allocations. 

 

“Transmission and delivery service for these allocations would continue to be provided by National Grid or NYSEG, as applicable, and in accordance with their filed service tariffs. 

 

DISCUSSION

 

                “The following is a summary of some pertinent provisions of the proposed form of contract:

 

·         Consistent with other recent direct sale contracts that the Trustees have approved, this contract would provide for the direct billing of all production charges (i.e. demand and energy) as well as all New York Independent System Operator, Inc. (‘NYISO’) charges, plus taxes or any other required assessments, all as set forth in ST WNY-1. 

 

·         Each contract would include each customer’s previously agreed-upon supplemental commitments (to be included in a schedule attached to each contract) with respect to employment, power utilization and capital investment.  The Authority would retain the right to reduce or terminate customers’ allocations if employment, power utilization or capital investment commitments are not met, as provided for in these commitments. 

 

·         Another contract feature includes the ability to award additional allocations of EP or RP to the customer at the same facility, which would be incorporated into Schedule A of the contracts.  The Trustees approved this convention in the 2010 long-term extension contracts, and it is appropriate to be included here as it would simplify contract administration.

 

·         To accommodate non-payment risk that could result from a direct billing arrangement with the Authority, the contract includes commercially reasonable provisions concerning, among other things, the ability to require deposits in the event of customer failure to make payment for any two monthly bills.  This is consistent with recent Authority contracts that incorporate direct billing, including the Authority’s Recharge New York sales contracts.

 

“The Authority is in the process of discussing the proposed contract with customers and anticipates receiving customer approval, especially given that each customer’s supplemental commitments will not change, and the continued provision of the allocation cannot occur in the absence of an underlying sales agreement.  Notably, applying ST WNY-1 rates to these customers effective July 1, 2013 puts them at no disadvantage vis-à-vis other EP and RP customers taking such service at that time.

 

“As required by PAL §1009, when the Authority believes it has reached agreement with its co-party, it is required to transmit the proposed contract to the Governor and other elected officials, and hold a public hearing on the contracts.  At least 30-days’ notice of the hearing must be given by publication once in each week during such period in each of six selected newspapers.  Following the public hearing, the form of contract may be modified, if advisable.  Upon approval of the final proposed contract by the Authority, the Authority must ‘report’ the proposed contract, along with its recommendations and the public hearing records, to the Governor and other elected officials.  Upon approval by the Governor, the Authority may execute the contract.

 

FISCAL INFORMATION

 

                “As stated above, the allocations associated with the proposed form of contract will be served commencing July 1, 2013 in accordance with ST WNY-1, which specifies a three-year rate phase-in to a target rate that is based on the Authority’s Preservation Power rate.  The impact of the fully implemented phase-in, absent the effects of the annual adjustment factor, would produce additional annual revenues.

 

RECOMMENDATION

               

“The Manager – Business Power Allocations and Compliance recommends that the Trustees authorize the Corporate Secretary to convene a public hearing on the form of the proposed contract with Replacement Power and Expansion Power customers and transmit copies of such proposed form of contract to the Governor and legislative leaders pursuant to PAL §1009.  Staff will report to the Board of Trustees on the public hearing and the contracts and at that time make additional recommendations regarding the proposed contracts.

 

“For the reasons stated, I recommend the approval of the above-requested action by adoption of a resolution in the form of the attached draft resolution.”

 

               


 

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

 

RESOLVED, That the Trustees hereby authorize a public hearing on the terms of the proposed form of direct sale contract for the sale of hydropower and energy generated by the New York Power Authority commencing on July 1, 2013 for certain Replacement Power and Expansion Power customers, subject to rates previously approved by the Trustees; and be it further

 

RESOLVED, That the Corporate Secretary be, and hereby is, authorized to transmit copies of the proposed form of contract to the Governor, the Speaker of the Assembly, the Minority Leader of the Assembly, the Chairman of the Assembly Committee on Ways and Means, the Temporary President of the Senate, the Minority Leader of the Senate and the Chairman of the Senate Finance Committee, pursuant to Public Authorities Law §1009(1); and be it further

 

RESOLVED, That the Chairman, the Vice Chairman, the President and Chief Executive Officer, the Chief Operating 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.

 


 

 

4.                   Discussion Agenda:

 

a.       Report of the President and Chief Executive Officer

 

                President Gil Quiniones said that for the month of February the Authority had performed well operationally and financially as outlined in the Performance Scorecard.  He added that, based on comments from the Trustees, the performance scorecard had been updated, the details of which would be outlined by Janis Archer and Robert Lurie later in the meeting. 

New York Energy Highway

 

President Quiniones said that the Energy Highway Task force submitted its blueprint of recommendations on how to revitalize and upgrade the State’s transmission infrastructure to the Governor in October last year.  He said that some of the actions recommended in the blueprint have been launched, and by June 2013 all of the actions recommended are scheduled to be launched as follows: 

President Quiniones then gave a brief outline of some of the Board actions, some of which are required by statute and also the Authority’s strategic plan, to be taken at the March Annual Meeting:

President Quiniones ended by saying that he is confident the Authority is headed in the right direction for the year 2013.

In response to a question from Chairman Koelmel, President Quiniones said although the Authority’s safety goals are aggressive, he is assured that the right safety measures will be implemented based on changes in the leading indicators which has been incorporated in the updated performance scorecard.

In response to further questions from Chairman Koelmel, President Quiniones said the launch of the actions recommended in the energy highway initiative blueprint is on schedule.  The Authority will participate in the initiative; any action by the Authority will require the Board’s approval.  President Quiniones added that this initiative by the Governor for projects to address the state’s aging transmission infrastructure will ultimately unblock the bottlenecks in the state’s transmission infrastructure to make it more efficient and the Authority will play a significant role in helping to achieve those goals.


 

b.       Report of the Chief Operating Officer

                Mr. Joseph Kessler, Senior Vice President of Power Generation, provided highlights of the Chief Operating Officer’ s report to the Trustees. 

Generation

 

     Systemwide, Net Generation was slightly above projections for January

     Generation market readiness was 99.7 percent in January, which is above the monthly target

of 99.4 percent.  Year-to-date generation market readiness was at 98.9 percent

     No significant events during January

     Operations DART(Days Away, Restricted and Transfer) Rate is 1.28 against a target of 1.08

 

Transmission

 

     There were no significant unplanned transmission events in January

     Transmission reliability in January was 96.81 percent; this was above the target of 95.17 percent

     Year-to-date transmission reliability is 96.81 percent; this was above the target of 95.17 percent

     Actual Transmission reliability performance trending well to a year-end target of 95.69 percent

 

 KEY ISSUES:

 

·         St. Lawrence Unit 28 remains out of service due to rotor repairs.  The unit is expected to return to service on March 15, 2013.

 

Safety:

 

·         Mr. Kessler said staff is statistically tracking and recording the Authority’s safety performance and has performed Root-cause analysis (“RCA”) for all recordable injuries and plans to perform RCA for near-misses.  Staff is continually seeking ways to improve the Authority’s safety culture and will report any significant steps in that regard to the Board

Environmental

 

 

Personnel/Succession Planning:

 

       Operations have completed the interview process to choose the next Vice President of Transmission.  A recommendation will be made to the Governance Committee at its next meeting.

 

       Operations continue to work collaboratively with UWUA and IBEW as contract negotiations continue.

 

 

Global Sourcing and Quality Control:

 

       With regard to the Board’s concerns regarding Global Sourcing and Quality Control, Operations will provide a full report at the next meeting on some of the measures staff propose to take, going forward, to protect the Authority’s interests (IP, QA, Costs, etc.) in procuring specialized equipment.


 

c.        Report of the Chief Financial Officer

Mr. Thomas Concadoro, Vice President and Controller, provided highlights of the financial report to the Trustees.  He said the Authority started the year well financially.

Mr. Concadoro ended by saying that staff would be presenting the 2012 financial statements to the Audit Committee and Board of Trustees in March.  The Authority’s annual investment report  will  also be presented to the Board at that meeting.  The presentations will include KPMG’s audit reports and representatives from KPMG plan to attend the meetings.

In response to a question from Chairman Koelmel, Mr. Concadoro said the audit work was nearing completion.

Responding to questions from Chairman Koelmel and Trustee Flynn, Mr. Russak said that market prices reacted to the closure of the coal plant.  In response to further questions from Trustee Flynn, President Quiniones said based on this reaction to market prices, operators who have mothball units will likely perform a financial analysis then make a determination on whether it is financially advantageous for them to re-enter the market or continue to mothball their plants.  Responding to further question from Chairman Koelmel, Mr. Russak said the Authority’s Energy Resource Management and Energy Risk groups will look for any potential to lock in some of these revenue streams.


 

5.                   Release of Funds in Support of the Western

                New York Power Proceeds Allocation Act     

 

The President and Chief Executive Officer submitted the following report:

 

SUMMARY

 

“The Trustees are requested to approve the release of funds into the Western New York Economic Development Fund (‘WNYEDF’) representing the net earnings from unallocated Expansion Power and Replacement Power sold into the wholesale energy market for the period through December 31, 2013 as set forth in Chapter 58 of the Laws of 2012. 

 

BACKGROUND

 

“On March 30, 2012, Governor Cuomo signed into law the Western New York Power Proceeds Allocation Act (the ‘Act’) which authorizes the Authority, as deemed feasible and advisable by the Trustees, to deposit into the WNYEDF net earnings from the sale of unallocated Expansion Power and Replacement Power from the Authority’s Niagara power project.  The Act repealed Chapter 436 of the Laws of 2010, which had amended the Public Authorities Law and the Economic Development Law, to create a somewhat similar program authorizing unallocated Expansion Power and Replacement Power to be utilized for WNYEDF benefits.

 

“The effective date for calculating the net earnings is August 30, 2010, the original effective date of Chapter 436 of the Laws of 2010.  Net earnings are defined as ‘the aggregate excess of revenues received by the power authority of the state of New York from the sale of expansion and replacement power and energy produced at the Niagara project that was sold in the wholesale energy market over what revenues would have been received had such energy been sold on a firm basis to an eligible expansion power or replacement power customer under the applicable tariff or contract.’ 

 

“The net earnings deposited into the WNYEDF will be utilized to fund economic development projects (‘eligible projects’) by private businesses, including not-for-profits, which are physically located within New York State and within a thirty-mile radius of the Niagara power project.  Eligible projects are to support the growth of business in the state and thereby lead to increased tax revenues and job creation or retention.  Eligible projects may include capital investment in buildings, equipment and associated infrastructure; research and development that benefits New York State; support for tourism and marketing and advertising for Western New York State tourism and business; and energy related projects as authorized under §1005(17) of Public Authorities Law.

 

“The Act also established the Western New York Power Proceeds Allocation Board (‘Allocation Board’) which consists of five members appointed by the Governor.  The Allocation Board’s responsibilities include establishing written procedures for reviewing applications and making recommendations to the Authority for the allocation of fund benefits to eligible projects.  In reviewing applications for benefits, the Allocation Board shall employ the same criteria used for determining eligibility for Expansion, Replacement and Preservation Power allocations as provided in §1005 of Public Authorities Law including, but not limited to, the number of jobs and type of jobs created as measured by wage and benefit levels; business’ long-term commitment to the region; amount of capital investment; and impact on competitiveness in the region.  Upon recommendation of the Allocation Board, the Authority shall award fund benefits to an applicant, provided however, that upon a showing of good cause, the Authority shall have the discretion as to whether to adopt the Allocation Board’s recommendation, or to award benefits in a different amount or on different terms and conditions.

 

DISCUSSION

 

“The Authority is requested, from time to time, to provide financial support to the State or for various other State programs.  Any such transfer of funds must (1) be authorized by the Legislature; (2) be approved by the Trustees ‘as feasible and advisable,’ (3) satisfy the requirements of the Authority’s General Resolution Authorizing Revenue Obligations dated February 24, 1998, as amended and supplemented (‘Bond Resolution’) and (4) as set forth in the Trustees’ Policy Statement dated May 24, 2011, a debt service coverage ratio of 2.0 shall be used as a reference point in considering any such payments or transfers.

 

“The Bond Resolution’s requirements to withdraw monies ‘free and clear of the lien and pledge created by the Bond Resolution’ are such that withdrawals (a) must be for a ‘lawful corporate purpose as determined by the Authority,’ and (b) the Authority must determine, taking into account, among other considerations, anticipated future receipt of revenues or other moneys constituting part of the Trust Estate, that the funds to be so withdrawn are not needed for (i) payment of reasonable and necessary operating expenses, (ii) an Operating Fund reserve for

working capital, emergency repairs or replacements, major renewals or for retirement from service, decommissioning or disposal of facilities, (iii) payment of, or accumulation of a reserve for payment of, interest and principal on senior debt or (iv) payment of interest and principal on subordinate debt.

 

“On June 26, 2012, the Trustees authorized the release of up to $20 million in net earnings from the Operating Fund to the WNYEDF representing the then-estimated net earnings from inception through December 31, 2012 and such amount was deposited into the WNEDF.

 

“Staff is seeking authorization to deposit into the WNYEDF all additional net earnings through December 31, 2013 up to a total of $15 million.  While it is estimated that approximately $10 million in net earnings will be generated based upon current levels of unused Expansion Power and Replacement Power and presently projected wholesale energy prices, the recommendation for up to $15 million reflects the potential volatility in market prices.  If authorized by the Trustees, such net earnings would be deposited into the WNYEDF on at least a quarterly basis. 

 

“Staff has reviewed the effects of the transfer of up to $15 million into the WNYEDF on the Authority’s projected financial position and reserve requirements. In addition, in accordance with the Board’s Policy Statement, staff calculated the impact of this transfer on the Authority’s debt service coverage ratio and determined it would not fall below the 2.0 reference point level. Given the current financial condition of the Authority, its estimated future revenues, operating expenses, debt service and reserve requirements, staff is of the view that it will be feasible for the Authority to make the deposit of up to $15 million at this time.

 

FISCAL INFORMATION

 

“Since the passage of the initial legislation related to the WNYEDF (Chapter 436 of the Laws of 2010), the Authority has been accruing for this liability on a monthly basis.  Provisions for the Authority’s fiscal year 2013 deposits for this program were also included in the 2013 Operating Forecast approved by the Trustees in December 2012.

 

“Staff has determined that sufficient funds are available to provide up to an additional $15 million in support for WNYEDF benefits for the period ending December 31, 2013 and that such Authority funds are not needed for any of the purposes specified in Section 503(1)(a)-(c) of the Authority’s Bond Resolution.  Net earnings to be deposited into the WNYEDF for periods beyond December 31, 2013 will be requested of the Trustees at a later date. 

 

RECOMMENDATION

 

“The Treasurer recommends that the Trustees affirm the deposit of up to $15 million into the Western New York Economic Development Fund is feasible and advisable and to authorize such deposit through December 31, 2013.

 

“For the reasons stated, I recommend the approval of the above-requested action by adoption of a resolution in the form of the attached draft resolution.”

 

                Mr. Brian Liu presented highlights of staff’s recommendation to the Trustees.  In response to a question from Chairman Koelmel, Mr. Pasquale said that the first meeting of the Western New York Power Allocation Board (“WNYPAB”) will be held on Monday, March 4, in Buffalo, New York.  He continued that the Board will not be approving any recommendations; rather they will be reviewing and approving the By-laws, guidelines and procedures, the form of the application and other administrative matters.  In response to questions from Chairman Koelmel andTrustee LeChase, Mr. Pasquale said the WNYPAB will make recommendations for approval by the Authority’s Board of Trustees.  The WNYPAB will work collaboratively with the REDC, ESD and the Authority.

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

 

RESOLVED, That the Trustees hereby authorize the release of up to $15 million from the Operating Fund to the Western New York Economic Development Fund as authorized by Chapter 58 of the Laws of 2012 and as discussed in the foregoing report of the President and Chief Executive Officer; and be it further

 

RESOLVED, That the amount of up to $15 million to be used for the Western New York Economic Development Fund benefits described in the foregoing resolution is not needed for any of the purposes specified in Section 503(1)(a)-(c) of the Authority’s General Resolution Authorizing Revenue Obligations, as amended and supplemented; and be it further

 

RESOLVED, That as a condition to making the releases specified in the foregoing resolutions, on the day of such payment the Treasurer or the Deputy Treasurer shall certify that such monies are not then needed for any of the purposes specified in Section 503(1)(a)-(c) of the Authority’s General Resolution Authorizing Revenue Obligations, as amended and supplemented; and be it further

 

RESOLVED, That the Chairman, the Vice Chairman, the President and Chief Executive Officer, the Chief Operating Officer, the Executive Vice President and General Counsel, the Executive Vice President and Chief Financial Officer, the Corporate Secretary, the Treasurer and all other officers of the Authority be, and each of them hereby is, authorized and directed, for and in the name and 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 that they, or any of them, may deem necessary or advisable to effectuate the foregoing resolutions, subject to approval as to the form thereof by the Executive Vice President and General Counsel.


 

6.                   Decrease in Westchester County Governmental

                Customer Rates – Notice of Adoption                    

 

The President and Chief Executive Officer submitted the following report:

SUMMARY

“The Trustees are requested to approve a modification in the rates for the sale of firm power to the Westchester County Governmental Customers (‘Customers’) in 2013.  This proposed action is consistent with the rate-setting process set forth in the Supplemental Electricity Agreements executed by the Customers and the Authority and in accordance with the State Administrative Procedure Act (‘SAPA’).

This proposed final action seeks approval to decrease the production rates of the Customers by 3.21% as compared to 2012 rates.  This change will take effect beginning March 1, 2013.

BACKGROUND

At their meeting of September 24, 2012, the Trustees directed the publication in the New York State Register (‘State Register’) of a notice that the Authority proposed to decrease the production rates by 2.49%.  The State Register notice was published on October 10, 2012.  In accordance with SAPA, a forty-five day comment period was established, ending on November 26, 2012.  This comment period was extended through December 28, 2012.  There were no public comments received.  Since this proposal called for no rate increase to the Customers, in accordance with the Authority’s policies and procedures, no public forum was held.

DISCUSSION

Based on further staff analysis, the final projected 2013 Cost of Service (‘COS’) is $34.29 million and the projected 2013 revenues based on 2012 rates are $35.42 million, resulting in an over-recovery of $1.14 million or 3.21%.  This represents an additional decrease of 0.72% from the proposed rate decrease discussed at the September 2012 Trustee meeting.

The decrease from the preliminary COS is primarily attributable to decreases in the operations and maintenance costs.  In addition, the final 2013 COS incorporated an updated 2013 sales and revenue forecast.  The final revenue forecast resulted in $0.22 million decrease of projected 2013 revenues as compared to the preliminary 2013 COS.

Staff is proposing a 3.21% reduction in base production revenues through customer rates to reflect the continued reduction in the purchased power energy costs as contained in the currently effective 2012 rates.

In 2013, the Customers will continue to be subject to an Energy Charge Adjustment under which the Authority passes all actual variable costs to the Customers.  This cost-recovery mechanism employs a monthly charge or credit that reflects the difference between the projected variable costs of electricity recovered by the tariff rates and the monthly actual variable costs incurred by the Authority.

The current 2012 and final 2013 proposed rates with the 3.21% overall reduction in revenues are shown in Exhibit ‘6-A.’

FISCAL INFORMATION

The adoption of the 2013 production rate decrease would have no net effect on the Authority’s financial position.  The rate change would result in an estimated reduction in revenues of $1.14 million, which is offset by the forecasted reduction in costs.  The Energy Charge Adjustment mechanism will protect the Authority’s net revenues from the effects of movements in variable costs above those projected.


 

RECOMMENDATION

The Director – Market Analysis and Administration, recommends that the Trustees authorize the Corporate Secretary to file a Notice of Adoption with the New York State Department of State for publication in the State Register of a decrease in production rates for the Westchester County Governmental Customers.

It is also recommended that the Senior Vice President – Economic Development and Energy Efficiency be authorized to issue a written notice of adoption to the affected customers.

For the reasons stated, I recommend the approval of the above-requested action by adoption of a resolution in the form of the attached draft resolution.”

               

                Mr. Mike Lupo presented highlights of staff’s recommendation to the Trustees.  In response to a question from Chairman Koelmel Mr. Lupo said this reduction is efficiency driven in that purchased costs increases some efficiencies and reductions in O&M expenses.  He continued that if purchased power declines further the Authority has a mechanism to pass that decrease and variable cost on to customers.  Mr. Lupo added that the Energy Charge Adjustment process allows staff to adjust rates without coming back to the Board to further decrease the rates.

Responding to further question from Chairman Koelmel, Mr. Lupo said that staff generally pass the message on to the customers with whom they work; sometimes a press release is issued in actions such as this.  President Quiniones added that the message is also that the Authority has been good stewards in managing the supply portfolio of its governmental customers.  When energy prices are low, the Authority will make appropriate adjustments to reflect those low conditions to its governmental customers in New York City and Westchester.

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

 

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

 

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

               

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

 

 

 


 

7.                   Decrease in New York City Governmental Customer

                Fixed Cost Component – Notice of Adoption                   

 

The President and Chief Executive Officer submitted the following report:

 

SUMMARY

“The Trustees are requested to take final action to approve a decrease in the Fixed Cost component of the production rates by $5.4 million or 3.4%, not including Astoria Energy II (“AE II”) plant expenses, to be charged in 2013 to the New York City Governmental Customers (“Customers”). The decrease would be effective with the March 2013 billing period.

 

BACKGROUND

At their September 24, 2012 meeting, the Trustees directed the publication in the New York State Register (State Register”) of a notice that the Authority proposed to increase the Fixed Costs component of the production rates to be charged in 2013 to the Customers.  The State Register notice was published on October 10, 2012 in accordance with the State Administrative Procedure Act (“SAPA”).  The public comment period was due to expire on November 26, 2012, but was extended through December 28, 2012 by NYPA via written notice to the Customers in order to accommodate possible Customer time constraints caused by Hurricane Sandy.  The City of New York (“City”), Metropolitan Transportation Authority (“MTA”), New York City Housing Authority, New York State Office of General Services, and Port Authority of New York and New Jersey, of the eleven SENY Customers, filed formal written comments on December 17, 2012.

As indicated in the September 24th memorandum to the Trustees, under the Customers’ Long Term Agreements (“LTAs”), the Authority must establish Fixed Costs based on cost-of-service (“COS”) principles and may make changes only under a SAPA proceeding with the approval of the Trustees.  As the memorandum also indicated, the LTAs establish two distinct cost categories: Fixed Costs and Variable Costs.  Fixed Costs include Operation and Maintenance (“O&M”), Shared Services, Capital Cost, Other Expenses (i.e., certain directly assignable costs) and a credit for investment and other income.

 

DISCUSSION

Based on Customer comments received and staff’s analysis, the final decrease in Fixed Costs sought by this action is $5.4 million.  This represents a $9.2 million decrease from the proposed Fixed Costs estimate discussed at the September 24, 2012 Trustee meeting.  Under the LTAs, Customers’ concerns must be considered in a confidential process prior to presenting any proposed changes to the Fixed Costs to the Trustees or issuing them for public comment.  Numerous Customer data requests were presented to staff, and in all cases responses to relevant questions were provided to the Customers.

 

In addition, as part of the SAPA process, the New York City Governmental Customers (“NYCGCs”) submitted formal written comments to NYPA, which are attached as Exhibit “7-A.”  In their comments, the NYCGCs took the position that the 2013 Fixed Costs are “overstated” and “the period of time over which the fixed costs are collected from the NYCGCs should be lengthened.”  The NYCGCs are requesting that the 2013 Fixed Cost be reduced by some $54.5 million. 

 

1.  Staff Analysis of Public Comments on Fixed Costs and Recommendations

 

Below is staff’s analysis and recommendations addressing the public comments received on the Fixed Costs proposal, which are included in Exhibit “7-A.”

 

First, staff provides a review of the recently concluded annual process with the NYCGCs that led to the proposed 2013 Fixed Costs and the Final 2013 COS.  Second, staff provides its analysis and recommendations regarding six issues raised by the NYCGCs in their comments filed on December 17, 2012. 

 


 

Staff Review of the 2013 LTA Annual Process: During this cycle of the LTA’s annual process, NYPA staff has provided the Customers with abundant verifying information via the issuance of a comprehensive Preliminary 2013 COS and its’ accompanying, explanative, staff report and by responding to numerous data requests made during the discovery process.

 

                After distribution of the Preliminary 2013 COS on June 1, 2012, the City and the MTA submitted numerous discovery requests.  There were 40 discovery requests put forth by the City, many of which contained multiple parts resulting in a total of 85 responses and analysis being provided to the City.  The MTA issued 6 data requests that were answered.  All responses and analyses were provided over various points during July and August.

 

In addition to the formal data discovery, NYPA staff conducted conference calls with the NYCGCs and their consultants on various COS issues.  On August 23, 2012, pursuant to the terms of the LTA, NYPA and the NYCGCs teleconferenced on Fixed Costs.  Particular focus was placed on the O&M and Shared Services expenses with the NYCGCs voicing concerns over the level of Fixed Costs, the payback period of certain non-recurring costs, and the amortization of certain debt service expenditures.  The NYCGCs also voiced concerns about NYPA’s inability to provide them with final budget numbers or detailed back-up to the preliminary estimates.   Minutes were taken at this meeting and subsequently distributed to all attendees for feedback and concurrence.  An additional 16 data requests were generated from this meeting and responded to by NYPA staff through three informational memoranda dated September 14, 2012, September 21, 2012 and October 17, 2012.

 

The following is a summary of the NYCGCs comments filed under SAPA proceedings and NYPA’s responses.

 

Issue 1:  Final COS Budget Data

 

Comments:  The NYCGCs commented that NYPA would be refining the proposed 2013 Fixed Cost figures over the summer of 2012 and presenting more accurate Fixed Cost information to the Board at is September 2012 meeting.  They also indicated that NYPA was going to provide this updated information to the NYCGCs once it was reviewed with the Board.  They also requested a reconciliation of the difference between the Fixed Costs increase included in the Preliminary COS of $6.3 million versus the $3.9 million included in the SAPA notice.

 

Staff Analysis:  There seems to be Customer confusion about the timing of the SAPA notice versus the timing of the approval of the Final Budget.  As communicated in an e-mail to the NYCGCs on August 29, 2012 and explained further in the September 14, 2012 informational memorandum, the SAPA notice, which is based on the Preliminary COS, was approved by the Trustees at the September 24, 2012 Board Meeting.  The final proposed budget, however, was to be reviewed by the Trustees beginning late November and would be approved at the December Board meeting.  They were also advised that the Fixed Cost component of the 2013 COS would be adjusted as soon as those numbers were available.  As staff has explained to the Customers, the Authority’s annual budget cycle, which is finalized near the end of the year, is not “in sync” with the rate-making and discovery process that occurs in accordance with the requirements of the LTA, which takes place mid-year.  As a result, NYPA can only provide preliminary budget estimates during the discovery process since NYPA’s budget process for the upcoming fiscal year begins after the Preliminary COS is finalized in May.  The Fixed Costs included in the Preliminary COS are estimates of what NYPA expects in the upcoming fiscal year based on known events, historical spending patterns and inflationary factors.  Since SAPA rules dictate that total Fixed Costs cannot increase beyond what was included in the original SAPA notice, the NYCGCs are assured that total Fixed Costs in the Final COS will not be higher than these estimates and have historically been significantly lower.  This procedure is similar to prior years, has been discussed with Customers in prior years, and was again discussed with the Customers during the August 23, 2012 LTA teleconference and reiterated in an e-mail correspondence of August 29, 2012 and informational memorandum dated September 14, 2012.

 

The difference between the Fixed Cost increase included in the Preliminary COS of $6.3 million and the SAPA notice of $3.9 million was a change resulting from comments received from the NYCGCs during the August 23, 2012 LTA teleconference.  At that meeting the Customers had requested that NYPA recover certain Hurricane Irene costs over multiple years similar to what was done for the Rate Study costs and other non-recurring Fixed Cost items.  In response to this, NYPA adjusted the Fixed Costs totals contained in the SAPA notice to reflect the amortization of Hurricane Irene Costs over three years, without interest, rather than one year as originally proposed in the 2013 Preliminary COS.  This change, and the fact that it was being reflected in the SAPA notice, was relayed to the Customers in an e-mail dated August 29, 2012 and an informational memorandum dated September 21, 2012.  Since that time, NYPA has reduced these costs even further, crediting the Customers in the 2013 Final COS with $.6 million in Federal Emergency Management Assistance (“FEMA”) reimbursements received and anticipated for Hurricane Irene.

 

Recommendation:  Since all of the requested information has been provided, and the current year process was consistent with past practice, there are no recommendations for this issue.

 

Issue 2:  Poletti Related Expenses

 

Comment:  The anticipated cost of decommissioning and dismantling the Poletti Project (“Poletti”), which served these Customers’ needs since the Project’s in-service date in 1977, is being amortized over a number of years at a level of $3.9 million per year.  The NYCGCs assert that the annual contribution of $3.9 million should be removed from the COS due to the recent contract award of $20.6 million as recently approved by the Board of Trustees.  They indicate that this, together with the $12.2 million that has been previously spent, will bring the total decommissioning costs to $32.78 million, which is less than the $37 million collected.  The Customers also questioned whether they have been credited with the $1.3 million in salvage value related to the decommissioning of the plant.  Lastly, they questioned why the $1.33 million for inventory costs amortization was not charged to the asset retirement fund.

 

Staff Analysis:  The current estimate for the Poletti Decommissioning Program including the Demineralized Water Plant is $45.9 million which includes all awarded and anticipated contracts required to implement and complete the program including contingencies and net of any salvage value to be credited to this project including the $1.3 million referenced in the NYCGCs comments.  As relayed to the NYCGCs during the August 23, 2012 LTA teleconference and in the informational memoranda of September 14 and October 17, 2012, the contractors bids include a credit for recoverable salvage value.  The $32.78 million referenced in the NYCGCs comments refers to the total projected spending in 2012 for this project together with the bid award of  $20.6 million which was considered by the Trustees at their September 2012 Trustee meeting for Poletti Power House deconstruction.  As of December 31, 2012, NYPA has collected $37.3 million from the NYCGCs, resulting in an outstanding balance to project completion of $8.6 million.  In honoring the Authority’s previous commitment to lower the annual contribution if actual costs were lower than initial projections, the remaining balance of $8.6 million has been amortized over the next five years resulting in a reduced annual payment of $1.8 million from the current of $3.9 million.  The annual savings to the NYCGCs is $2.1 million and has been reflected in the 2013 Final COS.  This item will continue to be revisited and adjusted as the decommissioning project continues. 

 

The inventory dollar amount in question represents purchases of inventory items that were anticipated to be needed during the time of the Poletti’s operation, but which still remained after the project’s closing and could not be liquidated.  The inventory costs incurred were operational in nature.  Conversely, the Asset Retirement Obligations Fund was set up for costs related to the decommissioning of the physical building and not for recovery of costs incurred during the operating life of the plant.  Since the inventory purchases were made for anticipated operational needs, NYPA has correctly not utilized the Asset Retirement Obligations Fund for their recovery. 

 

Recommendation:  Staff recommends that, due to the lower estimates for the decommissioning of Poletti, the NYCGCs annual contribution be reduced to $1.8 million from the current $3.9 million in the 2013 Final COS, and that the inventory costs amortization of $1.33 million remain as a separate cost component since the purchases were legitimately incurred to facilitate Poletti’s operation when the plant was still active.

 

Issue 3:  Fixed Costs for the 500MW

 

A.       Level of Expenses at the 500 MW

 

Comment:  The NYCGCs comment that Fixed Cost levels associated with the 500 MW facility have been increasing over the past several years while the net sales and revenues associated with the facility have been decreasing.  Based on the analysis presented, the NYCGCs are projecting losses of $11 million in 2013 for the 500 MW facility.  The Customers indicate that this will be greatly improved if “NYPA…extends the recovery period of the debt service associated with the 500 MW facility to match its projected service life, the annual Fixed Costs to the Customers would be reduced significantly and the economics would improve dramatically.”  The NYCGCs indicate that the savings to the COS in 2013 would be approximately $31-37 million depending on the amortization schedule used.

 

Staff Analysis:  It is not a valid argument to look at the profitability of one generating unit against near-term spot market prices to determine its economic feasibility.  These generating units are a hedge against the total cost of serving the energy needs of the NYCGCs and cannot be evaluated in the isolate.  Moreover, the existence of the 500 MW combined cycle unit in 2006 has had a dampening effect on energy and capacity market prices and without this facility the prices to supply electricity to NYCGCs would have been significantly higher. 

 

 It is also important to recognize that amortizing the principal and interest payments over more years than the current life of the bonds does not make a facility more “profitable” in a given year since the debt will still need to be paid by NYPA in accordance with the existing schedule.  At this time, NYPA bears a certain amount of risk on these bonds since they currently mature in 2021-2025, which is well past the expiration of the LTA in 2017.  What the Customers are asking is for NYPA to further defer recovery of a significant amount of the actual debt service payments until after the expiration of the current LTA, thereby causing the Authority to take on even greater risk on approximately $30 million each year until the expiration of the LTA.  If the Customers would like NYPA to extend the existing repayment period beyond the current amortization schedule, this can certainly be discussed during any prospective contract negotiations for the renewal of the current LTA.

 

In addressing the Customers’ proposal, the Final COS includes amortization of the variable rate portion of the 500 MW debt over 25 years versus the 20-year assumption included in the Preliminary COS and in prior years.  Unlike the outstanding fixed rated debt (see discussion in Staff Analysis below), the schedule of retirement of principal on Variable Rate Debt can be adjusted and extended by the Authority.  In this manner, the rate recoveries will continue to match the cash costs incurred by the Authority.  This represents a $6.8 million cost reduction to the Customers in 2013 and has been reflected in the 2013 Final COS.  

 

B.      Refinancing of 500 MW Fixed Rate Debt

 

Comment:  The Customers requested that NYPA evaluate the possibility of refinancing the outstanding fixed rate bonds Series 2002A, 2007C and 2011A for the 500 MW facility.  Although, the Customers recognize that these bonds have been previously refunded and are therefore not eligible for further refinancing, they requested that NYPA still explore this possibility given the “realities of the marketplace.”

 

Staff Analysis:  The majority of the Series 2002A bonds were refunded in October 2007 (Series 2007C bonds) and in October 2011 (Series 2011A bonds).  The combined refundings resulted in gross savings of approximately $14.9 million and net present value savings (at the date of issue) of approximately $11.3 million, which are already being passed on to the Customers.  In accordance with Federal Tax Regulations, the refunding issues (Series 2007C and 2011A bonds) are no longer eligible for advanced refunding.  The only remaining Series 2002A bonds mature in November 2013.

 

C.      Decommissioning Costs

 

Comment:  The NYCGCs commented on the level of costs currently estimated for the eventual decommissioning of the 500 MW facility.  At this time, they are contributing $3.8 million towards a decommissioning cost that was estimated at $60 million in expected costs in 2000 dollars.  They indicate that “given the amount of the contract the Board recently approved for the deconstruction of Poletti, it is likely that NYPA’s estimate for decommissioning the 500 MW facility is overstated.  It is their opinion that “due to the modern construction method used for the 500 MW, the costs of decommissioning should be equal or less than that of Poletti.”

 

Staff Analysis:  Due to the high volatility of such costs it is difficult to predict with certainty what the actual costs will be at the time of the 500 MW’s decommissioning.  Although the current estimate for the decommissioning of the Poletti site is $45.9 million, these quotes were obtained in a very soft construction market and the 500 MW decommissioning is approximately 20 or more years away.  As with Poletti, if the costs to decommission the 500 MW site come in lower than those currently being projected, the collection period of these monies will either be truncated or the annual Customer contribution reduced, depending on the monies needed at the time.

 

D.      GE Litigation Expenses

 

Comment:  The Customers have claimed that NYPA has not provided the requested information regarding the expenses related to the GE litigation. They assert that the legal fees associated with the case equates to approximately 3,460 to 5,200 hours of work.

 

Staff Analysis:  In the December 2011 Trustee item, NYPA staff committed to providing the Customer with the billing rates and any other disclosable information on the costs of the GE litigation as soon as possible.  This requested information was sent to the NYCGCs on January 27, 2012 and again on November 2, 2012 in response to an October 31, 2012 e-mail received from one of the NYCGCs consultants.  Inexplicably, the Customers failed to reflect the receipt of this information in their filed comments.  This information included law firm billing rates, consultant costs of DMJM-Harris and URS Corp., and an accompanying response letter to the City describing the back-up information being provided.  The issues involved in the GE litigation were technical in nature and the law firm handling the case needed significant assistance from engineering and construction consultants to perform the necessary analyses.  As indicated in this back-up documentation, of the $2.6 million in total costs for the GE litigation, 63% represented  engineering consultant costs that were needed to substantiate NYPA’s claim against GE and its subcontractors, and were not for legal fees.

 

Recommendation:  In response to the NYCGCs request, staff recommends that the amortization of the variable rate debt on the 500 MW be extended an additional five years for a $6.8 million savings to the 2013 COS.  Staff does not recommend any further changes to the costs related to the 500 MW for the reasons stated above.

 

Issue 4:  Non-recurring costs

 

A.      Amortization of Certain Costs

 

Comment:  NYCGCs have cited $6.5 million in non-recurring costs that are included in the 2013 Preliminary COS that they believe are “capital” and not “operating” and should therefore be paid back over the life of the asset rather than a one-year period as included in the 2013 Preliminary COS. 

 

Staff Analysis:  During staff’s August 23, 2012 LTA teleconference and in a follow-up informational memorandum dated September 14, 2012 NYPA explained that whether an expense is considered “capital” or “operating” is  determined by NYPA’s accounting classifications and in accordance with that, these costs were determined to be “operating.”  NYPA maintains its books and records in accordance with generally accepted accounting principles and its annual financial statements are audited by independent public accountants.  NYPA follows utility accounting practice when determining whether an expenditure is a “capital” or “maintenance” expense.  Costs incurred in connection with additions or replacements of minor items of property are accounted for as “maintenance” and therefore included in the operating budget, recoverable in one year. 

 

However, as in past years, staff indicated that the Authority would be willing to consider spreading the payback of some of these costs over a multiple-year period as requested by the Customers.  NYPA staff reviewed this issue and in an informational memorandum sent to the Customers on September 21, 2012, relayed to the Customers that “NYPA has agreed to amortize Hurricane Irene costs over three years and will be reflecting this change in the SAPA notice.”  In addition, NYPA agreed to forgo charging the Customers any interest that would normally accrue with such an amortization.  This change represented $4.5 million of the $6.5 million being questioned.  The remaining $2 million, although for non-recurring items, would not yield any savings to the Customers since these amounts are in line with what NYPA typically includes in the COS each year,  and, over the long-term, would only result in the Customers paying this annual amount plus interest.

 

B.      Request to “True-up” Storm Related Expenses

 

Comment:  Related to this, the NYCGCs expressed concern that there was no “true-up” for storm related expenses when they are included in the COS before the work is done. 

 

Staff Analysis:  Since NYPA has agreed to spread the costs related to Storm Irene over three years, payments from the Customers can easily be adjusted next year if actual costs are less than the original estimates.  In addition, NYPA has credited the Customers with $.6 million from FEMA reimbursements received for anticipated costs for Hurricane Irene.  These reimbursements are for work already done and not previously included in prior years’ COS.

 

Recommendation:  Staff recommends that, in response to the NYCGCs comments, Hurricane Irene costs be amortized over three years without interest.  As part of this amortization, NYPA will adjust any future payments towards Hurricane Irene costs to reflect actual expenditures once they are fully known. 

 

Issue 5:  Small Hydro - Operations & Maintenance Expenses

 

Comment:  The NYCGCs comment on the expenses of NYPA’s Small Hydro facilities claim that they perform poorly from an economic perspective as compared to the 500 MW Project.  They also request that NYPA conduct an audit of these facilities to see whether there are any cost savings measures that can improve their profitability.  Lastly, they request that the Kensico facility be removed from the 2013 Final COS in light of its recent closure.

 

Staff Analysis:  The comparison of NYPA’s Small Hydro facilities to the 500 MW is a difficult one since the 500 MW is a single natural-gas fired unit while the Small Hydro Facilities are five water-level dependent plants dispersed throughout the State.  There are many factors, unique to each of the facilities, which must be considered before such comparisons can be considered. 

 

NYPA’s O&M facility budgets reflect the resources deemed necessary to reliably operate and maintain each plant in a given year.  The Small Hydro Facilities are remotely operated facilities with the day-to-day maintenance and repair work routinely performed by personnel from other NYPA facilities.  There is a wide array of inspection, monitoring, testing, maintaining and repairing of equipment and structures at each of the facilities, as well as other jobs that ensure regulatory compliance and reliable operations.  A sampling of the work includes overhauling gear boxes, scaffolding, battery testing and replacement, wicket gate inspection and repairs, oil analysis, work on pumps, seals and motors, testing, calibrating and maintaining monitoring equipment, flashboard installation and removal, etc.  In addition, there are general facility expenses such as trash removal, communications, electricity, snow removal, facility upkeep, and insurance.  The level of expenditures for a given year is determined in a budget process with a budget being presented to the Board of Trustees for approval that balances financial and operational requirements.

 

Most of the expenditures for this work are NYPA labor costs which include travel time to and from the home facility.  Materials and supplies are also needed.  NYPA employs outside contractors to do specialized work if this proves more cost effective than assigning in-house staff.     During 2012, the Small Hydro facilities came in within $100,000 of budget, which is evidence to the appropriateness of the resources being allocated.    

 

In response to the Customer’s inquiry regarding the Kensico facility these costs have since been removed from the 2013 Final COS.  At the time of the Preliminary COS, it had not been determined that Kensico would be closing.  Upon learning of its closure, NYPA removed all costs related to the operation of this facility from the Final COS with the exception of insurance which represents insurance for all of the Small Hydro facilities.  Beginning in 2014, these costs will need to be reclassified to another budget line.  As mentioned earlier, NYPA has included the cost of decommissioning Kensico amortized over five years through 2017 recognizing that this facility has been closed and is now ready for decommissioning. 

 

Recommendation:  Staff recommends that due to the recent closure of Kensico, the operating expenses associated with it be removed from the COS and has reflected this in the 2013 Final COS.  Along with this, staff recommends that the current projected costs to decommission Kensico be added to the Final COS, amortized over five years.  Given the  due diligence that was put into developing the Small Hydro budgets and that these are approved budgets that balance the needs of these facilities with available resources, staff does not recommend any further changes to Small Hydro operating costs in the 2013 Final COS. 

 


 

Issue 6:  Excess Revenues Should Be Returned to the Customers

 

Comments:  The NYCGCs have commented that NYPA has been over collecting on its Fixed Costs each year and needs to return this money to the Customers.

 

Staff Analysis:       Per the terms of the LTA Agreement, there is no “true-up” on the Fixed Cost portion of the COS.  Through the SAPA process, Fixed Costs are determined and approved by the Board of Trustees.  Once the accompanying rate is determined, except for a modest 5% contingency that, if unused, is returned to Customers, NYPA accepts all risks and must absorb any and all costs that exceed that amount. 

 

Recommendation:  Since the terms of the LTA do not allow for a “true-up” of Fixed Costs, NYPA staff finds this claim to be without merit.

 

2.  Final Recommendation on 2013 Fixed Costs

 

“Based on Customer comments received and further staff analysis, staff recommends the withdrawal of the originally proposed Fixed Costs increase and the approval of a Fixed Costs decrease in 2013 over 2012 rates.  The Fixed Costs for 2013 would decline $5.4 million from the 2012 COS to $154.3 million.  This is a $9.2 million decline from the costs discussed at the September 24, 2012 Trustee meeting and included in the October 10, 2012 SAPA notice.  A breakdown of the changes in 2013 Fixed Costs as compared to 2012 are as follows: Operations and Maintenance, an increase of $1.2 million; Shared Services,  an increase of $1.3 million; Capital Costs, a decrease of $6.7 million and Other Expenses,  a decrease of $1.2 million.  This change will take effect beginning March 1, 2013.  When taken into consideration with AEII costs which are outside of the SAPA process and this Notice of Adoption, the total 2013 Fixed Costs component of the production rates are $287.6 million. 

 

3.  For Trustee Information:  Description of Final 2013 COS and Customer Rates

“Because the Variable Costs component (i.e., fuel and purchased power, risk management, New York Independent System Operator (“NYISO”) ancillary services and O&M reserve, less a credit for NYISO revenues from Customer-dedicated generation) is developed in collaboration with the Customers in accordance with the provisions of the LTAs previously approved by the Trustees, staff is not requesting the Trustees’ approval of the Variable Costs component of the production rates for 2013.  Additionally, the Authority passes all Variable Costs to the Customers by way of the “Energy Charge Adjustment (“ECA”) with Hedging” cost recovery mechanism which the Customers collectively selected for 2013.  This cost recovery mechanism offered under the LTA employs a monthly charge or credit that reflects the difference between the projected Variable Costs of electricity (i.e., the Variable Costs recovered under the Customers’ tariffs) and the monthly actual Variable Costs incurred by the Authority to serve the Customers.

“For the Trustees’ information, the projected Variable Costs are expected to decrease 9.5% from 2012 levels and, in combination with the recommended Fixed Costs decrease and AEII costs, results in a final projected 2013 COS of $808.2 million.  At existing rates, revenues of $860.7 million would be produced, resulting in an over-recovery of $52.5 million. As a result, staff is recommending that rates be revised downward by 6.1%.

 “The current 2012 Customer rates and recommended 2013 Customer rates with the 6.1% overall decrease are shown in Exhibit “7-B.”

 

FISCAL INFOMATION

The adoption of the Fixed Costs decrease would result in an estimated $5.4 million reduction in revenue to the Authority which is offset by the forecasted reduction in costs.  The Energy Charge Adjustment mechanism will protect NYPA’s net revenues from the effects of movements in variable costs above those projected.

 

RECOMMENDATION

                The Director – Market Analysis and Tariff Administration recommends that the Trustees authorize the Corporate Secretary to file a Notice of Adoption with the New York State Department of State for publication in the New York State Register for a decrease in Fixed Costs applicable to the New York City Governmental Customers under the Long-Term Agreements.

 

It is also recommended that the Corporate Secretary be authorized to publish a Notice of Adoption of the Notice of Proposed Rulemaking, consistent with the discussion herein, in the State Register.

 

The Trustees are also requested to authorize the Senior Vice President – Economic Development and Energy Efficiency, or his designee, to issue written notice of adoption and the revised tariff leaves, as necessary, to the affected Customers.

 

For the reasons stated, I recommend the approval of the above-requested action by adoption of a resolution in the form of the attached draft resolution.”

 

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

 

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

 

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

               

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

 

 

 


 

8.                   Informational Item: Key Performance Indicators

and Strategic Planning Process                                   

 

                Ms. Janis Archer, Director of Strategy Management and Mr. Robert Lurie, Senior Vice President of Strategic Planning, reported on the Authority’s Key Performance indicators and Strategic Planning Process, respectively.

Key Performance Indicators

Ms. Janis Archer presented the following report:

 

The Authority utilizes the key performance indicators on its balanced scorecard to communicate priorities, guide behavior and monitor achievement in critical areas.  Each year, the Authority revisits the measurement structure to ensure continued accuracy and relevance.  In 2012, the scorecard consistently showed performance at or surpassing target for most indicators.  However, two areas, Safety Leadership and Environmental Responsibility, experienced challenges in 2012.  In Safety, two changes were made. First, Recordable Incident Rate was replaced with the DART (Days Away, Restricted or Transferred) Rate.  Rather than reporting a metric based on each incident occurrence, however minor, only those incidents that preclude the individual from working at their normal assignment are used in the calculation.  This reduction allows focus on the impactful events.  The target, which has been set at 0.78, is well below the Bureau of Labor Standards benchmark for utilities of 1.60.  This is a stringent target. Under the previous Recordable incident rate indicator, this month’s single incident would have resulted in a green status.

 

The second Safety change is found in one of the Operations Business Unit’s level 2 measures -- Near Miss Reports.  In 2012, Near Miss Reports merely aggregated observed near misses.  If anyone saw and reported a near miss, it counted towards achieving the target.  The intention of this leading measure was to avoid incidents by catching near misses.  The Operations Business Unit took a closer look at the measure and improved it by including “resolution of the near miss” as part of the measure.  Now, only those near misses noted and acted upon will count towards the target.

 

In prior years, the environmental measure, a lagging or after-the-fact measure, had no supporting leading measures.  For 2013, three such leading measures have been introduced: 1) Plant site environmental walk downs, 2) Job specific environmental briefings and 3) Good Management Practices implementation.  These measures target preventative steps.  The Authority uses the measures to guide behavior – in this case prevention rather than post-incident record keeping.

 

Since our scorecard of performance indicators is a communication tool, we review it periodically in order to increase clarity and focus.  In 2013, two format changes resulted in the addition of: 1) differentiating quantitative and milestone based measures and 2) a trend indicator.

 

In the redesigned Scorecard, there is a new column at the right, labeled Trend, displaying several new symbols.  The trend compares the ratio of the current result and target with the average of the same ratios for the 3 prior months.   The difference will indicate whether the measure shows consistent behavior month-to-month or if the behavior is improving or worsening.  The flat bar indicates a stable or consistent trend.  The upward arrow marks an improving trend and the downward arrow a less desirable trend.   Trend is independent of status – O&M budget Performance has a green status but a downward trend because, compared to prior months where there were budget underruns, January spending is just about at budget.  The status remains green but the trend tells us spending has accelerated.  The trend does not signal the reasons for the change nor does it inevitably indicate a problem.  It merely points out a possible need to look deeper.  The trend is, essentially, the “leading” indicator in our scorecard.

 

In 2013, we plan an additional change to our scorecard.  Beginning with the first quarter, Enterprise Risk will provide a quarterly risk indicator for selected measures, which will move us further from merely taking a backward look with the measures.

 

Each of the measures displayed here is a quantitative performance indicator, meaning they report a numerically defined result in a goal area. 

 

We also track important project and program progress with regard to key deliverables in our scorecard.

 

Projects and programs such as the Energy Highway and the Enterprise Wide Risk Management have been reported on the scorecard in previous years, intermixed with the quantified measures and forced into a single “percent complete” notation.  These project and program measures will now be displayed in a companion “scorecard” where the progress is represented graphically and the ability to note highlights and issues allows for more meaningful high-level reporting. The last column for the Energy Highway informs us that all 2012 milestones were met and highlights the delivery of the Blueprint.  Please note, this scorecard is fabricated from 2012 data.  Compliance Training met all its milestones in 2012. Milestone based measures are reported quarterly, so the first appearance of this chart will be with the March first quarter data.

 

                In response to a question from Chairman Koelmel, President Quiniones said the Authority follows a very structured process identifying its success indicators and the priorities that will define its success.  He said last year the Performance Scorecard focused on how the Authority performed historically; however, the addition of the new “Trend” indicator is more predictive and shows the direction of the Authority going forward.  In that way, senior management and the Board can focus on important aspects of what is going on in the Authority.

                Responding to further questions from Chairman Koelmel, President Quiniones said that the Authority is dealing with a number of issues relating to workforce management including retention and succession planning.  The Authority is exploring initiatives such as developing and creating a training center for the utility workforce.  Ms. Archer added that the Authority has developed a process to deal with succession planning and is now looking at measures that will impact its succession plans which is indicated in its retention “touch points.”

Mr. Russak added that there are two measures in the financial area, the O&M budget that is controlled and managed by the Authority and the debt service coverage which is susceptible to the pressures of the marketplace.   These indicators, however, will assist the Authority in managing its business.  With regards to how Net Income is reported, it is believed that although the Authority needs to have the financial strength for its major capital and energy efficiency programs, going forward the Authtority need ready access to capital markets in order to achieve its mission to deliver low-cost power services to its customers; this is indicated in the debt service measure.

Responding to a question from Trustee LeChase, Ms. Archer said that all of the reportable incidents will be recorded, tracked and addressed and that the goal is to address at least 85 percent near-misses within 90 days.  Mr. Welz added that from lessons learned, the Authority will hold itself accountable to deal with the issues and also communicate any action to staff.

Strategic Planning Process

 Mr. Robert Lurie presented highlights of the 2013 Strategic Planning Process as follows:

The 2013 strategic planning process calls for a broad external scan utilizing stakeholders, subject matter experts and research materials.   The scan and subsequent off-site strategy meetings will be guided by a series of scenarios intended to facilitate and focus discussion around the energy industry of the future and NYPA’s optimal role therein.

 

The collective external scan information as well as internal scan information gathered from NYPA executives and staff becomes input for the off-site sessions, the first of which will address NYPA’s Mission, Vision and Values.  The second off-site session will use the strategic direction established at the first session along with a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis to identify specific, measurable goals and targets.  These targets will clearly define the criteria for success.  

 

The third off-site session will identify the strategies, i.e., the specific initiatives that will define the path for achieving the identified goals.   Each strategy/initiative will be assigned a sponsor and lead who will develop a time-bound action plan to achieve the stated objective.  Appropriate performance measures will be identified to evaluate the success of the initiative. 

 

Trustee input will be sought throughout the process.

 

 Responding to a question from Chairman Koelmel, President Quiniones said the Authority will conduct an annual strategic planning program, the goal of which is to form the annual business plan and budget.  On its completion, the Trustees will be asked to review and approve the Strategic Plan.  He continued that the utility business model is in the process of changing; therefore, investments by utilities, including the Authority, over the next ten years will most likely define what utilities will look like over the next 30-40 years.  The next ten years is a critical time for the Authority, hence, the investments that are made by the Authority over the next ten years will define what it will look like over the next 30-40 years, the goal of the strategic planning process.

Responding to a question from Trustee LeChase, Mr. Lurie said the Authority will need to be flexible with the timeframe in developing its strategic plan and President Quiniones said  the Board will be involved in the process as the Authority develops its plan on where it should be in the next ten years.

 

 


 

9.                   Motion to Conduct an Executive Session

Mr. Chairman, I move that the Authority conduct an executive session pursuant to the Public Officers Law of the State of New York section §105 to discuss matters leading to the appointment, employment, promotion, demotion, discipline, suspension, dismissal or removal of a particular person or corporation.  Upon motion made and seconded an Executive Session was held.

 


 

10.                Motion to Resume Meeting in Open Session

 

Mr. Chairman, I move to resume the meeting in Open Session.  Upon motion made and seconded, the meeting resumed in Open Session.


 

11.                  Next Meeting

 

The Annual Meeting of the Trustees will be held on March 21, 2013, at 11:00 a.m., at the Clarence D. Rappleyea Building in White Plains, New York, unless otherwise designated by the Chairman with the concurrence of the Trustees.

 

 


Closing

                On motion made and seconded, the meeting was adjourned by the Chairman at approximately 1:00 p.m.

 

 

Delince Signature

 

Karen Delince

Corporate Secretary