Executive Speeches

Remarks of Eugene W. Zeltmann, president and chief operating officer, New York Power Authority, at the Long Island Energy Summit, Medford, New York.

July 12, 2001

Good afternoon. I appreciate this opportunity to tell you about some of what the New York Power Authority is doing to help make electricity deregulation work in New York State while averting the kind of crisis that has hit California.

Interestingly enough, the Chinese word for "crisis" is composed of two characters, one meaning "danger" and the other, "opportunity."

In California, the focus has been a lot more on the "danger" side of the picture as blackouts and price spikes have become the hallmarks of the deregulated era. But the crisis in California has provided a real opportunity for those of us in New York and other states to learn from what’s happened there and avoid the same mistakes.

Without question, the biggest single challenge facing our industry as it moves into the new age of deregulation is to make sure that we have enough electricity to sustain and drive economic growth and to enable consumers to reap the full benefits of competition.

The rapid increase in demand for power over the past few years has reflected the needs of an expanding economy—and, most dramatically, the pervasive use of computers and other electronic devices.

A report last year by J.P. Morgan stated that information technology and Telecommunications accounted for about 16 percent of the nation’s electricity consumption —with continuing growth expected.

New York State is not insulated from the power crunch. More than 820,000 jobs have been added to the state’s economy since Governor Pataki took office. And job growth like that—however welcome—translates into new demands for electricity.

As you know very well on Long Island, supplies are tight for the short term. But I’m confident that given New York State’s current actions and policies, the twin goals of competition—reliable supplies and lower prices for consumers—will be progressively realized over the next several years.

I should note that the New York Power Authority is no stranger to competition. Long before the current move to customer choice, we were operating without guaranteed franchise areas and could sell our electricity only if it cost less than that available from other sources.

We built our Flynn combined-cycle power plant at Holtsville in the early nineties after winning a bidding competition conducted by the Long Island Lighting Company. In retrospect, that process might be seen as the first stirrings of a competitive power industry in New York State.

Today, the entire output of the 135-megawatt Flynn plant—which is fueled mainly by natural gas—goes to the Long Island Power Authority for resale, at cost, to its customers.

Along with NYPA’s transmission cable under Long Island Sound—which can carry 600 megawatts of electricity—this plant is vital to meeting the Island’s power needs.

With that as local background, let me now tell you about some of the ways in which we’re helping to facilitate the state’s transition from a regulated power industry to a competitive one.

I mentioned at the start the direct link between electricity and economic growth.

Well, the low-cost electricity that the New York Power Authority supplies under Governor Pataki’s highly successful Power for Jobs program and other initiatives helps to support nearly 450,000 jobs throughout the state.

More than 25,500 of them are right here on Long Island at employers ranging from Brookhaven Labs, the Hazeltine Corporation and Kozy Shack to Symbol Technologies and Central Suffolk Hospital.

Power for Jobs, in particular, is a program specifically designed to help employers lower their electric costs until competition kicks in and lower rates prevail everywhere.

Another way in which we’ve helped to ease the path to the competitive era was through the sale last November of our two nuclear power plants to Entergy Corporation in what we believe was the largest privatization of public assets in New York State’s history.

The purchase price—$967 million—was a record for the U.S. nuclear power industry.

But the decision to sell the plants wasn’t easy. After some performance difficulties in the early-to-mid-1990s, they’d shown remarkable progress in the past few years.

We had every reason to believe their excellent operation would continue. But, with an eye on the coming competitive industry, we concluded that the sale of the plants would better serve the people of New York State. Let me explain.

Deregulation and competition have given birth to what is, in effect, a new paradigm for nuclear power—something called a nuclear operating company.

These are companies like Entergy that operate a number of nuclear power plants at multiple sites—and are committed to expanding their nuclear fleets. Their size gives them significant competitive advantages.

Given this reality, we concluded that selling the plants would assure that they would operate more efficiently and provide greater value to consumers. And certainly bringing in Entergy as a major new power supplier promises to enhance competition in New York State.

Meanwhile, most of New York’s investor-owned utilities—under agreements with the Public Service Commission—have sold, or are in the process of selling, their nuclear and non-nuclear power plants. Their focus from now on will be on the transmission and distribution end of the business.

But as I’ve indicated—regardless of who owns the plants—we must be ready to meet what promises to be a growing demand for electricity in the years ahead.

Energy efficiency is an essential part of the mix—and NYPA is a national leader in that area.

We’re investing more than $100 million this year in projects utilizing energy-efficient technologies and clean, new energy sources. That’s more than 2 ½ times the figure for 1994—the year before Governor Pataki took office.

On Long Island alone, we’ve already installed about $75 million worth of energy-efficient lighting, motors and other features at public facilities such as schools, government buildings and hospitals. These efforts save the facilities more than $12 million a year on their electric bills—benefiting the Island’s taxpayers.

We’re also a leader in demonstrating renewable sources of electricity, such as fuel cells and solar energy. We operate 19 solar projects throughout the state—including five on Long Island.

Extensive though they’ve been, Governor Pataki has brought new impetus to our energy-efficiency and renewable energy programs. Last month, he issued an Executive Order requiring that state agencies obtain at least 10 percent of their electricity from renewable sources by 2005 and 20 percent by 2010. These might well be the most ambitious targets in the nation. The order also calls for major energy-efficiency improvements in state buildings.

The Governor’s order has a double meaning for the New York Power Authority. As a state agency, we’re subject to its requirements. And, as the state’s utility, we expect to have a key role in helping other public entities meet those requirements.

While local governments and school districts aren’t officially subject to the order, it encourages them to step up their energy-efficiency efforts and directs us and other agencies—including LIPA—to help in that regard.

In fact, Governor Pataki quickly followed up on his Executive Order by proposing legislation to help schools and state and local government agencies use our established procedures and those of the New York State Energy Research and Development Authority to secure the cleanest, most-efficient energy technologies.

But—important as energy efficiency is—it’s just one element in a three-part power supply strategy. In New York—and throughout the country—we must also strengthen transmission systems and build environmentally clean power plants as quickly as possible.

Competition is already putting additional demands on overburdened transmission networks as new suppliers seek to get electricity to their customers.

But because of extensive regulations and inevitable local concerns, it’s very difficult to build new transmission lines. You’ve seen that first hand on Long Island with Connecticut’s rejection of the initial proposed route for a new cable under the Sound from New Haven to Shoreham.

The most desirable course—if feasible—is to transport more power on the lines we already have. And the New York Power Authority is carrying out a pioneering project to do just that.

At our Marcy Substation near Utica, we’re investing $35 million in a first-of-its-kind device called a convertible static compensator—or CSC—that we developed in cooperation with EPRI, the electricity industry’s research arm.

The CSC will use high-speed electronics to control electricity flow and permit instant transfer from heavily loaded lines to those with spare capacity. We recently completed the project’s first phase—which has strengthened voltage support and boosted capacity on the state’s transmission system by 114 megawatts in time for the summer period of peak demand.

When the CSC is fully operational next summer, it will also permit operators to simultaneously control power flows on two lines. It’s this capability that will make the CSC the most advanced transmission control device in the world—and bring the overall increase in statewide transmission capability to 240 megawatts—including the upgrade we’ve already achieved.

I think it’s significant that about 30 other electric utilities in the U.S., Canada and New Zealand are helping to offset the project’s $48 million cost. They obviously see tremendous potential for their own areas. In fact, this innovation—if widely adopted—could revolutionize the way electric power is transmitted.

As for the third piece of the power-supply equation, about 20 proposed plants, all to be fueled by natural gas, are now in various phases of the regulatory process in New York, and two facilities have been approved. The proposed plants include a highly efficient 500-megawatt combined-cycle facility that NYPA is planning in Queens. But it’s unlikely that any of the new plants will be up and running before 2003.

Meanwhile, until recently, we faced a situation in which New York City was looking at the very real prospect of California-style blackouts, brownouts and price spikes this summer. And the situation on Long Island was precarious as well.

I’ll devote the rest of my remarks to what the New York Power Authority has done to help stave off the potential problems. By any measure, I think it’s been a truly extraordinary effort.

Under what we call the "PowerNow!" program, we’ve installed nine small, clean gas-turbine generators in various parts of New York City and a 10th on Long Island, at Pilgrim State Hospital in Brentwood. Most of the units—including the one at Brentwood—have already produced electricity. We’re finishing work on one more unit—in Brooklyn—which should be up and running by the beginning of August.

We completed the natural-gas-fueled units on an emergency basis in a period of several months—even though a job like this generally would take as much as two years or more. We knew we had to be ready for this summer—and we pulled out all the stops to meet the deadline.

The situation was particularly urgent because—for both Long Island and New York City—transmission constraints limit the amount of power that can be brought in from outside sources.

The New York Independent System Operator—which runs the state’s transmission system and wholesale power markets—therefore requires that enough generation be available on Long Island to meet at least 98 percent of the Island’s projected peak electricity needs. For New York City, the figure is less, but still a hefty 80 percent.

The gas turbines in the city will just about offset a deficit that the ISO had projected in meeting the 80 percent requirement. Long Island will fall somewhat short of the 98 percent figure. But thanks in part to the 44-megawatt Brentwood gas turbine—which we put in at the request of the Long Island Power Authority—the consensus is that the Island should be able to avoid blackouts and brownouts this summer, barring extreme weather or equipment problems.

The urgent need for the new generators was just part of the challenge we faced. We were also determined to assure that these units would be as clean and quiet as we could possibly make them.

We earmarked $55 million—$5 million each for the Brentwood generator and the 10 in the city—for the express purpose of providing the most advanced available environmental controls. As a result, increases over existing emissions and noise levels will be imperceptible in virtually all cases.

All of the units underwent thorough environmental assessments under state law and received the required state air-quality permits.

It’s hard to believe, but it was less than a year ago—in late August of 2000—that the New York Power Authority’s trustees—looking ahead to this summer—authorized the emergency purchase of the 11 LM6000 gas-turbine units from General Electric Packaged Power. They knew we had to move quickly to secure the units—which are among the world’s most fuel-efficient simple-cycle gas turbines—because of intense global competition for them.

In light of the time pressures, I must admit we violated some textbook project management rules. In particular, various tasks that would normally have been done in a logical sequence had to be handled simultaneously.

As one example, we had to settle quickly on the design of the gas connections—and advise the local utilities to start planning for them even before we knew for sure where the new generators would be located. I should note, by the way, that KeySpan is delivering our gas to the Brentwood unit—and to some of the city generators—and that we greatly appreciate its cooperation in establishing the gas connections and working out the delivery arrangements.

In selecting the gas-turbine sites, we used several major criteria, including size—at least an acre; proximity to natural gas and electric connections; the ability to avoid or minimize environmental impacts; geographic diversity; and the prospects for meeting the all-important summer deadline.

The Brentwood site offered some particular advantages in that the hospital’s wastewater treatment plant was previously located there and the closest homes—just a handful—are about a half-mile away.

We had a harder time finding suitable sites in New York City—where opponents have filed three lawsuits to block the generators. Appeals court decisions are pending in two, and a State Supreme Court justice just this past Monday ruled in our favor in a suit against our generator on Staten Island.

I honestly believe these suits are misguided because we’ve followed all the regulatory procedures; the units are so urgently needed; and—as I’ve said—they’ll have only minimal environmental impact.

The installation of the gas turbines is in keeping with NYPA’s long tradition of meeting New York State’s most pressing energy needs—and doing so with respect and concern for the environment.

We celebrated our 70th anniversary just about two and a half months ago, but we’re already looking ahead to taking on new challenges as the state’s power industry heads further into the competitive era.

As the fast-paced turbine project has shown, it’s impossible to predict too far in advance just what all those challenges will be. But at times of potential crisis, I can assure you the New York Power Authority will be ready to help defuse the dangers and create and capitalize on the opportunities.

Thank you.

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