December 16, 2008

 

 

MEMORANDUM TO THE TRUSTEES

 

FROM THE PRESIDENT and CHIEF EXECUTIVE OFFICER

 

SUBJECT:     2009 Operation and Maintenance, Capital,

Energy Services and Fuel Expenditure Budgets

 

SUMMARY

 

            The Trustees are requested to approve the 2009 Budgets for Operation and Maintenance (“O&M”), Capital, Energy Services and Fuel Expenditures as follows:

 

                                                                                                2009 Budget

                                                                                                 ($ million)

                                    O&M                                                      304.5           

                                    Capital                                                    184.5

                                    Energy Services                                       120.6

Fuel                                                         543.5

 

BACKGROUND

 

            The Authority is committed to providing reliable, affordable and clean energy consistent with its dedication to safety, while promoting the development of energy-efficient technologies, for the benefit of the state of New York.  The 2009 budgets are intended to provide the Authority’s operating facilities and support organizations with the resources needed to meet this overall mission and the Authority’s strategic objectives.

 

DISCUSSION

 

O&M

 

            The O&M budget of $304.5 million represents an increase of $9.5 million, or 3.2%, from the 2008 budget.

 

Payroll costs, which include salaries, overtime and fringe benefits, account for $165.4 million, or approximately 54%, of the budget.  This represents a $2.9 million increase from the 2008 budget of $162.5 million.  Factors contributing to the payroll increase include the incorporation of annual and bargaining unit increases, new positions added in 2008 and requested for 2009 and salary adjustments, partially offset by increased labor charged to capital projects and a slight decrease in employee benefit costs.  Non-payroll expenses of $139.1 million increase $6.6 million due to increased planned maintenance outages supported by contractors, higher Information Technology (“IT”) service contracts to support new and existing communications and computer systems and increases in recurring materials and contract services costs for Power Supply facilities.  Some of this increase is offset by an executive decision to reduce travel, consultants, office supplies, books and publications, seminars and conferences and Blackberry and cell phones by 10% from the 2008 Budget.

 

            Power Supply’s 2009 budget is $4.6 million (2.2%) above the 2008 level primarily due to greater outage costs and salary, material and services escalation, partially offset by a shift of labor from recurring maintenance to capital.  During 2009, the outage budget of $15.5 million includes a Hot Gas Path Inspection at the 500 MW plant, along with maintenance outages at numerous Small Clean Power Plant (“SCPP”) units.  Major non-recurring projects include the St. Lawrence E-Bay Brick Façade Repairs ($3.0 million), Blenheim-Gilboa (“B-G”) Taintor Gate Painting Seal and Grouting Repairs ($1.2 million), Crescent Dam C Erosion ($1.1 million), Astoria Gas Pipe Support Maintenance ($1.0 million) and the LPGP Life Extension and Modernization Study ($0.9 million).

 

Headquarters support departments are $4.9 million (6.5%) above the 2008 level, due primarily to salary escalation and the addition of new positions, increased IT maintenance agreements and additional non-recurring programs for 2009.

 

The R&D budget of $8.3 million is $0.4 million below 2008.

 

Fuel

 

The Fuel budget of $543.5 million is a decrease of $1.7 million (0.3%) from 2008.  This is a cash budget reflecting planned fossil-fuel purchases in 2009 for Poletti, Flynn, the SCPPs and the 500 MW plant, plus the first-year cost of the Regional Greenhouse Gas Initiative (“RGGI”).  The budget assumes lower commodity prices and slightly reduced generation at most facilities.  The RGGI requires the Authority to buy emission credits for its fossil-fuel plants.  The 2009 RGGI budget of $32.6 million is based on historical emission rates and the forecasted consumption of natural gas and oil.

 

Capital

 

The 2009 Capital budget totals $184.5 million, an increase of $42.1 million (29.6%) from 2008.  The increase mostly reflects additional capital projects for the Niagara facility.  Included in this request are both new and ongoing capital projects, as well as general plant equipment purchases.  Significant capital projects include $20.5 million and $19.5 million respectively, for the B-G and St. Lawrence Life Extension projects and $21.4 million for agreed-upon commitments in the relicensing applications for Niagara and St. Lawrence.  Headquarters administrative support projects total $25.4 million and primarily comprise IT-related initiatives and Fleet Management vehicle and equipment purchases.

 

Energy Services

 

Energy Conservation/Renewable projects account for $120.6 million, $15.8 million above the 2008 budget.  The 2009 budget includes increased funding for energy efficiency projects for Authority customers and government entities, and initial funding for the Lower Manhattan Energy Initiative.

 

FISCAL INFORMATION

 

Payment will be made from the Operating Fund for Operation and Maintenance and Fuel Purchases.

 

Payment will be made from the Capital Fund or Energy Conservation Effectuation Fund for Capital and Energy Services expenditures.

 

RECOMMENDATION

 

            The Executive Vice President and Chief Financial Officer and the Vice President and Controller recommend approval of the 2009 Operation and Maintenance, Fuel, Capital and Energy Services expenditure budgets as discussed herein.

 

            The Chief Operating Officer, the Executive Vice President and General Counsel, the Executive Vice President and Chief Engineer – Power Supply, the Senior Vice President – Enterprise Shared Services and I concur in the recommendation.

 

            The attached resolution is recommended for adoption.

           

 

 

                                    Richard M. Kessel

                                                                        President and Chief Executive Officer

 

Att.

2009 Budget

 

R E S O L U T I O N

 

 

            RESOLVED, That the 2009 budgets for Operation and Maintenance, Fuel, Capital and Energy Services expenditures, as discussed in the attached memorandum of the President and Chief Executive Officer, are hereby approved; and be it further

           

RESOLVED, That up to $138.8 million of monies in the Operating Fund are hereby authorized to be withdrawn from such Fund and deposited in the Capital Fund, provided that at the time of withdrawal of such amount or portions of such amount, the monies withdrawn are not then needed for any of the purposes specified in Subsections (1)(a)-(c) of Section 503 of the General Resolution Authorizing Revenue Obligations adopted on February 24, 1998, with the satisfaction of such condition being evidenced by a certificate of the Treasurer or the Deputy Treasurer; and be it further

 

            RESOLVED, That the 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.

 

EXHIBIT “A”

December 16, 2008

Page 1 of 3

O&M AND FUEL

2009 BUDGET

($ MILLIONS)

						%
DEPARTMENT		2008		2009		CHANGE
EXECUTIVE OFFICES		16.6		19.7		18.4%
BUSINESS SERVICES		19.2		20.8		8.2%
CHIEF ADMINISTRATION		34.7		35.1		1.4%
ENERGY MARKETING AND BUSINESS DEV.		12.0		12.2		1.6%
POWER SUPPLY
OPERATIONS SHARED SERVICES - HQ		19.6		20.5		4.9%
CLARK ENERGY CENTER		10.8		13.2		22.9%
TRANSMISSION FACILITIES		28.3		29.1		2.9%
BLENHEIM - GILBOA		14.8		14.9		0.3%
CHARLES POLETTI		20.3		17.5		(13.8%)
NIAGARA		44.4		39.4		(11.1%)
ST. LAWRENCE		18.3		22.2		21.8%
R.M. FLYNN		5.7		7.0		23.8%
SCPP		15.2		19.3		26.6%
SMALL HYDRO		6.7		5.5		(17.0%)
500 MW		19.4		19.6		(1.1%)
TOTAL POWER SUPPLY		203.8		208.4		2.2%
R&D AND INSTITUTIONAL FUNDING		8.7		8.3		(4.5%)
TOTAL O&M BUDGET		295.0		304.5		3.2%
FUEL
OIL		37.8		13.7		(63.8%)
GAS		507.4		497.2		(2.0%)
REGIONAL GREENHOUSE GAS INITIATIVE		0.0		32.6
TOTAL FUEL BUDGET		545.2		543.5		(0.3%)