NEW YORK POWER AUTHORITY
2006 REPORT TO THE GOVERNOR AND LEGISLATIVE LEADERS
ON POWER PROGRAMS FOR ECONOMIC DEVELOPMENT
New York Power Authority
Frank S. McCullough, Jr., Chairman
Michael J. Townsend, Vice Chairman
Joseph J. Seymour
Elise M. Cusack
Robert E. Moses
Thomas W. Scozzafava
Leonard N. Spano
New York State Economic Development Power Allocation Board
Frank S. McCullough, Jr., Chairman
James A. Duncan, Jr.
Kevin S. Corbett
Bernard P. McGarry
NEW YORK POWER AUTHORITY
REPORT TO THE GOVERNOR AND LEGISLATIVE LEADERS
CONCERNING ECONOMIC DEVELOPMENT POWER AND
POWER FOR JOBS POWER FOR 2006
This report is submitted pursuant to Subdivision 14 of Section 1005 of the Public Authorities Law which directs the Power Authority:
To provide to the governor, to the speaker of the assembly, and to the temporary president of the senate, on or before April first of each year, an economic development report including projections for the next succeeding twelve months of the amount of economic development power, expansion power, replacement power, preservation power, high load factor power, municipal distribution agency power and power under the power for jobs programs which will be or is expected to be available with a listing of the current recipients of such power, and data on the number and types of jobs resulting from allocation of such power under each such program. Such report shall include the amount of revenues collected and used in the previous calendar year pursuant to the eighth unnumbered paragraph of this section. Such report shall describe the process by which the authority obtained lowest cost power made available under the power for jobs program. Such report shall contain a record of wholesale power supply bids provided to the authority under a competitive procurement process and the price of power obtained through any alternate methods. Such report shall state the reasons for choosing each specific source of power under each of the foregoing power programs and the price at which that power was available.
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Economic Development Power (EDP) is defined in state law (New York State Public Authority Law§1005 as amended by Chapter 313 of the Laws of 2005) as power that is voluntarily relinquished by businesses to the authority, except that it shall not include any power from the Niagara or Saint Lawrence - FDR projects or any power under the Power for Jobs program which may be voluntarily relinquished by businesses, small businesses, and not-for-profit corporations. As of March 31, 2007, 259.70 megawatts (MW) of such power had been voluntarily relinquished by businesses. A balance of 66.46 MW of EDP is currently unallocated. The total quantity of EDP may increase in 2007 if a business purchasing Economic Development Power under a contract signed prior to formation of EDPAB relinquishes such power.
Under the provisions of Chapter 313 of the Laws of 2005, only a select set of existing EDP customers are eligible for the rate moderation provided by the Energy Cost Saving Benefit created in 2005. As a consequence, any new allocations of EDP would need to be sold with commodity costs at market prices (See section, “Power Purchases for the High Load Factor, Economic Development Power and Municipal Distribution Agency Power Programs,” for more information.)
Current Allocations of Economic Development Power
Through March 31, 2007, there are 65 allocations of EDP to 59 companies totaling 193.24 MW currently among the allocations that have been recommended by the Economic Development Power Allocation Board (EDPAB), and have been approved by the Power Authority. All current EDP allocations are listed in Exhibit I.
Chapter 316 of the Laws of 1997 established the Power for Jobs (PFJ) program to provide low-cost power to businesses and not-for-profit corporations that agree to retain or create jobs in New York State. In return for commitments to create or retain jobs, successful applicants receive three-year contracts for electricity under the program. The program was to be phased in over three years, with approximately 133 MW being made available each year.
Chapter 386 of the Laws of 1998 amended the Power for Jobs statute to accelerate the distribution of the power, making 267 MW available in Year One. The 1998 amendments also increased the size of the program to 450 MW, with 50 MW to become available in Year Three.
In May 2000, budget legislation (Chapter 63 of the Laws of 2000) was enacted which included provisions authorizing another 300 MW of power to be allocated under the Power for Jobs program. The additional megawatts were described in the statute as ‘Phase Four’ of the program. Customers who received allocations in Year One were authorized to apply for reallocations. The balance of the power was awarded to new applicants. All 300 MW were allocated by July 2001.
In July 2002, legislation was signed into law (Chapter 226 of the Laws of 2002) which authorized another 183 MW of power to be allocated under the program. The additional megawatts are described in the statute as ‘Phase Five’ of the program. Customers who received allocations in Year Two or Year Three were given priority to reapply for the program. Remaining power was awarded to new applicants. All 183 MW were allocated by the end of July 2003.
In August 2004, budget legislation (Chapter 59 of the Laws of 2004) was enacted which included provisions to extend benefits for Power for Jobs customers whose contracts expire before scheduled “sunset” of the program, December 31, 2005. Such customers may choose to receive an “electricity savings reimbursement” rebate and/or a power contract extension. Power for Jobs customers with contracts expiring by November 30, 2004 were made eligible for a rebate from the date their contract expired through December 31, 2005. The law also authorized customers to alternatively choose to receive a rebate from the date their contract expired as a bridge to a new contract extension. New contracts would be in effect from a period no earlier than December 1, 2004 through December 31, 2005.
In March 2005, budget legislation (Chapter 59 of the Laws of 2005) was enacted to extend the “sunset” of the program until December 31, 2006. The new law made all Power for Jobs customers with contracts or benefits expiring December 31, 2006 eligible to apply for a one-year extension of benefits in the form either contract extension or “electricity savings reimbursement.”
In 2006 legislation was signed into law (Chapter 645 of the Laws of 2006) to extend Power for Jobs until June 30, 2007, require NYPA to provide restitution to the Power for Jobs customers who paid more than the local utility rates as a result of 2006 price increases, authorize manufacturers who are Power for Jobs customers currently served by contract extensions to be able to choose to be served by energy savings reimbursement rebates and authorize NYPA to pay the additional costs of the electricity savings reimbursements, energy costs savings benefits and voluntary contributions to the state treasury to the extent the Authority has sufficient resources.
As of March 31, 2007 EDPAB had recommended and the Power Authority had approved allocations for all the power available in all phases of the Power for Jobs program.
Current Allocations of Power for Jobs Power
As of March 31, 2007, there are a total of 525 allocations of Power for Jobs Power to 504 employers totaling 354.27 MW that have been recommended by EDPAB and approved by the Power Authority. These allocations expire with the expiration of the program on June 30, 2007. A summary of the current Power for Jobs allocations is listed in Exhibit II. The exhibit indicates the type of benefit chosen by the customer.
Projection of Expansion Power Availability
Under state law (New York State Public Authority Law §1005), the Authority may contract to allocate or reallocate directly, or by sale for resale, 250 MW of firm hydroelectric power as Expansion Power to businesses in the State located within 30 miles of the Niagara Power Project, provided that the amount of Expansion Power allocated to businesses in Chautauqua County on January 1, 1987 shall continue to be allocated in such county. A balance of 10.76 MW is available for allocation to eligible businesses, as of March 31, 2007.
Current Allocations of Expansion Power
Through March 31, 2007, there are 73 allocations of Expansion Power to 68 companies totaling 239.24 MW currently among the allocations that have been approved by the Power Authority. All current Expansion Power allocations are listed in Exhibit III.
Projection of Replacement Power Availability
Replacement Power is the 445 MW of firm hydropower generated by the Authority at its Niagara Project which has been made available to National Grid, initially pursuant to the federal law (Niagara Redevelopment Act 16 USC §§836, 836a), but now pursuant toSubdivision 13 of §1005 of the Public Authorities Law (Chapter 313 of the Laws of 2005). To qualify a business must have s facilities for the receipt of Replacement Power within 30 miles of the Authority’s Niagara switchyard and otherwise meet the criteria set forth in PAL §1005(13). Chapter 313 of the Laws of 2005 as amended by Chapter 645 of the Laws of 2006 authorizes up to 70 MW of unallocated Replacement Power to be used for Energy Cost Savings Benefit awards to mitigate rate increases to benefit eligible business customers throughout the State, through June 30, 2007, provided that the full 70 megawatts is deemed to be available for allocation in Western New York as of January 1, 2007. As of March 31, 2007, a balance of 67.05 megawatts is available for allocation to eligible businesses,
Current Allocations of Replacement Power
Through March 31, 2007, there are 73 allocations of Replacement Power to 64 companies totaling 377.95 MW. All current Replacement Power allocations are listed in Exhibit IV.
Projection of Preservation Power Availability
Chapter 313 of the Laws of 2005 established the “Preservation Power” program to govern future allocations of hydropower within the counties of Jefferson, St. Lawrence and Franklin Counties from quantities now sold to Alcoa and GM from the St. Lawrence-FDR Power Project. Thus, the Preservation Power Program covers 478 MW of firm and interruptible hydropower currently sold to Alcoa and 12 MW of hydropower sold to GM PowerTrain .
Current Allocations of Preservation Power
As of March 31, 2007, no power has been relinquished from existing customers and, consequently, there is no Preservation Power currently available for allocation.
Projection of High Load Factor Power Availability
The High Load Factor Power program, established by state law (New York State Public Authority Law§1005), allocates 96.25 MW to energy-intensive industries throughout the state. Eligibility for the program is limited to expanding industries demonstrating that electricity costs are equal at least 7.5% of product costs; an electric load of 5 MW or greater and demand of 540 kilowatts/month or greater.
Current Allocations of High Load Factor Power
Through March 31, 2007, there are eight allocations of High Load Factor power to six companies totaling 96.25 MW currently among the allocations that have been approved by the Power Authority. All current High Load Factor allocations are listed in Exhibit V.
Projection of Municipal Distribution Agency Power Availability
The Municipal Distribution Agency Power program, established in state law (New York State Public Authority Law§1005) provides 96 MW for downstate Municipal Distribution Agencies (New York City Public Utility Service Agency; the County of Westchester County Public Utility Service; the Nassau County Public Utility Service and the Suffolk County Public Utility Service).
Current Allocations of Municipal Distribution Agency Power
Through March 31, 2007, there are 35 allocations of Municipal Distribution Agency power to 34 companies totaling 72.54 MW currently among the allocations that have been recommended by various agencies and have been approved by the Power Authority. All current Municipal Distribution Agency allocations are listed in Exhibit VI.
Competitive Procurement of Power for the Power for Jobs Program
Chapter 316 of the Laws of 1997 created the Power for Jobs program to provide lower cost electricity to businesses and not-for-profit corporations throughout the State to stimulate new jobs and opportunities for New Yorkers. Under that chapter of law, up to half of the program’s 400 MW was authorized to be provided from the Fitzpatrick Nuclear Power Project and the balance to be obtained from other suppliers through a competitive procurement process. The 1997 law also required the bids selected to provide power at costs lower than those of the Fitzpatrick plant. Chapter 386 of the Laws of 1998 amended the program, increasing the amount of power available from 400 MW to 450 MW.
Chapter 63 of the Laws of 2000 expanded and extended the program until December 31, 2005, and authorized the New York Power Authority to provide power from alternative sources if those sources have prices lower than power obtained via the competitive procurement process. This provided the Authority the flexibility to request additional bids if the initial responses to the RFP were insufficient.
In July 2002, legislation was enacted to extend the Power for Jobs program and created “Phase Five” of the program. The available energy under the program was increased by 183 megawatts and recipients whose allocations were scheduled to expire in 2003 were able to extend their participation.
Changes to the Power for Jobs program were approved in August 2004 as part of legislation implementing the State Budget for 2004-2005. Customers with expiring contracts were offered extended benefits, either by contract extension through December 31, 2005 or through an electricity savings reimbursement. In 2005, lawmakers and the governor approved the New York State Budget which extended the period during which Power for Jobs customers could receive benefits through December 31, 2006. Chapter 645 of the Laws of 2006 extended Power for Jobs until June 30, 2007 and allowed manufacturers to leave the program and opt for electricity savings reimbursement instead.
Since the program began in 1997, the Power Authority has issued nineteen Requests for Proposals (RFPs) – (see Exhibit VII). In 1999, bids were requested under both the New York Power Pool (NYPP) and the New York Independent System Operator (NYISO) regimes because this period covered the transition from the NYPP to the NYISO. In 2000, the NYISO was in operation and bidders were given the opportunity to bid to enter into bilateral agreements to provide energy or enter into Contracts for Differences (CFDs) to hedge energy costs. Additionally, the Power Authority sought bids for Installed Capacity (ICAP) as required by the NYISO. Since 2000, when the Authority sold its Fitzpatrick Nuclear Power Project, all of the requirements of the program have been acquired from the marketplace. Chapter 313 of the Laws of 2005 removed references to the Fitzpatrick Plant as a source of power for the program and clarified that NYPA may use power from other sources to serve the Power for Jobs customers.
As New York transitioned into operations under the NYISO, the Power Authority recognized a need to evaluate bids at a pace reflecting the largely financial nature of the new energy markets. As a result, the bid evaluation process was accelerated, reducing the time period between submission of bids and notification of results from two to three weeks to approximately thirty hours.
Public notice of an upcoming RFP is provided by advertisements in newspapers around the State notifying would-be bidders of the program. As established under RFP # 18, issued March 1, 2006 for the period May to December 2006, NYPA now solicits bids each month for its prospective requirements in the following month. This procedure has continued under RFP # 19, issued October 25, 2006 for the January to June 2007 period, based upon the legislation extension described earlier. Each month energy marketers and power providers are sent letters inviting them to participate in the bidding process. On average, the RFP is sent to about 20-40 parties who have requested proposals. Bidders are generally given two to four weeks to submit their intent to participate in upcoming procurements.
To be considered, proposals are required to be submitted complete and on time, conforming to the specifications and other requirements of the RFP. Bidders are required to provide sufficient financial guarantees and comply with applicable local, state, and federal laws and regulations, including those of the New York Independent System Operator. Bidders are expected to indemnify and hold the Power Authority harmless against all loss, damage and expense of every kind on account of adverse claims, which could arise from transactions with the bidder.
Bids are evaluated based on whether they meet the minimum requirements for the bid; whether selecting their bids would result in the lowest possible cost to the Power for Jobs customers; and whether the bidder’s financial and operational ability is adequate to carry out the terms of the agreements. The environmental impact of the bidder’s power supply is also a factor in the evaluations. Bidders with emissions from the source of capacity at or below the set emissions limitations receive “tie-breaker” preference over other bidders with the same price.
In RFP No. 19, the most recent RFP, the Power Authority accepted competitive bids to fulfill the majority of energy and capacity requirements. Remaining requirements, for which no acceptable bids were submitted, were met through energy and capacity market purchases.
Exhibit VII provides data on the bids provided to the Authority under the competitive procurement process through RFP No. 19.
Power Purchases for the High Load Factor, Economic Development Power and Municipal Distribution Agency Power Programs
When the High Load Factor, Economic Development Power and Municipal Distribution Agency power programs were established, energy and capacity for the programs were supplied by the FitzPatrick Nuclear Power Project. The project was sold by NYPA to the Entergy Corporation in 2000. Upon the sale of the plant, NYPA purchased the output from the plant by a purchased power agreement (PPA). The PPA expired on December 31, 2004. Chapter 313 of the Laws of 2005 removed references to the FitzPatrick Nuclear Power Plant as the source of power for the programs and clarified that NYPA may use power from other sources to continue to serve the customers in these programs. Energy for the programs were supplied in 2006 by NYPA ISO purchases, primarily in the day ahead market (DAM) at prices published on the ISO website for each hour of the year. Similarly, capacity requirements are secured through purchases in the ISO markets.
The tariffs containing the customers’ rates (Service Tariffs ST-1, ST-1S, ST-35 and ST-50) were modified by the Power Authority Board of Trustees at their October 19, 2005 meeting. The trustees approved three classifications of customer rates. The first group are those customers who selected the Option 5 pricing agreement in 1998. Option 5 pricing provided for a discount from the base rates at the 1998 levels of $8.16/kw and $23/mwh, and are subject to an annual adjustment factor. Their adjustment factor has increased since 1998 such that their current or 2007 effective billing rates are also $8.16/kw and $23/mwh. The second group of customers are those whom have been approved for EnergyCost Saving Benefits (ECSB) awards. From November 2005 to January 2006, ECSB qualified customers were billed at the base rates described above. Effective February 2006 through July 2006, they received a 5% rate increase, based on total or delivered prices. There were 12 different rates during the six month period. The ECSB customer rates increased another 6% on August 2006, effective through the program’s termination by year’s end. There are 24 different billing rates during the period. The third group of customers, of which there are none, are those who are neither Option 5 nor have ECSB status. At their October 24, 2006 meeting the Trustees approved an extension of the ECSB program through June 30, 2007 with the current rates remaining in effect.
Power Supply for the Replacement, Expansion and Preservation Power Programs
The supply source of energy and capacity for the Replacement Power program and the Expansion Power program is the Authority’s Niagara Power Project. The supply source of energy and capacity for the Preservation Power program is the Authority’s St. Lawrence-FDR Power Project. In circumstances when Great Lakes water levels present low flow conditions, if desired by the customers NYPA purchases energy from the ISO markets and sells it to program customers at cost.
Replacement Power, Expansion Power and Preservation Power rates are set contractually. Replacement Power base rates were approved by the Power Authority Board of Trustees in 1994, initiating a plan to phase-in rate adjustment such that Replacement Power and Expansion Power base rates would be equal in 2006. The base rates are $3.80/kw and $6.50/mwh. Expansion Power base rates were set in 1995. Every May, the base rates are subject to a multiplier that is a composite of four indices (The indices are: Producer Price Index (PPI) for Industrial Commodities, GNP deflator, PPI for Industrial Power, and a fuel multiplier). The most recent multiplier is 1.22 and when multiplied by the base rates, produces a billing rate of $4.64/kw and $7.93/mwh. Current Alcoa base rates of $4.040/kw and $7.984/mwh were modified in 1998. Similar to Replacement Power and Expansion Power, the base rates are subject to an annual index adjustment. (The three Alcoa indices are: PPI for Industrial Commodities less Fuel, Energy Information Administration based Regional Industrial Rate Average and PPI for Industrial Power). Current billing rates for the two Alcoa plants are $4.145/kw, $8.192/mwh and $4.214/kw, $8.330/mwh. (The difference in the rates for each plant is a result of contract provisions approved when the plants were separately owned.) General Motors in Massena is served at rates identical to Expansion Power and Replacement Power rates.
Net Revenues Produced by the Sale of Expansion Power
For the year ending December 31, 2006, there was $7,283,000 in net revenues available from the sale of Expansion Power. Net revenues are defined in the eighth unnumbered paragraph of Section 1005 of the Power Authority Act as "any excess of revenues properly allocated to the sales of expansion power over costs and expenses properly allocated to such sales."
2006
($000)
Gross Production Revenues: $20,495,000
Production Costs: $13,212,000
Net Production Revenues: $ 7,283,000
On November 27, 2001, the Power Authority's Trustees approved an Economic Development Plan covering a five‑year period concerning the use of Expansion Power net revenues for Industrial Incentive Awards in accordance with the Power Authority Act and with Section 188 of the Economic Development Law. The Plan provides for the use of net revenues to support competitive industrial rates for programs served by electricity supplied by the FitzPatrick Nuclear Power Project in order to continue to market the power as an economic development incentive, consistent with the aim of the legislation creating EDPAB.
On December 19, 2006, EDPAB approved the 2005 Plan submitted to it by the Power Authority. Net revenues of $6,896,000 produced in 2005 were utilized in 2006 in conformance with the approved Plan.