Executive Speeches

New York Power Authority Testimony to the New York State Assembly Standing Committees on Energy; Corporations, Authorities and Commissions; Economic Development; and Small Business Public Hearing on the Power for Jobs Program, State Legislative Office Building, Roosevelt Hearing Room, Albany, New York

March 4, 2002

Good morning. My name is Jim Yates. I am the New York Power Authority’s Vice President for Major Account Marketing and Economic Development. Among my responsibilities is the administration of the Power Authority’s economic development power programs, including Power for Jobs, which is the focus of this hearing.

By way of background, I should note that the New York Power Authority (NYPA) owns and operates 21 generating facilities at 17 locations across New York State, with a total capacity of over 5.6 million kilowatts. It also owns and operates over 1,400 circuit miles of transmission lines and works to advance energy efficiency and the development of clean energy technologies. NYPA supplies electricity to government agencies, community-owned electric systems and rural electric cooperatives, private utilities and job-producing companies.

The Power Authority, as a result of a series of federal and state laws enacted over the past several decades, provides low-cost electricity to a wide range of businesses and other employers across the Empire State to promote job creation and retention. As of 2001, NYPA was supplying some 2,000 megawatts to more than 900 employers, ranging from heavy manufacturing and financial services to health care facilities and cultural institutions. Those allocations of electricity were linked to some 420,000 jobs.

The first programs established to use Power Authority electricity for economic development involved low-cost hydroelectricity from the Niagara Power Project. The Replacement Power program provides 445 MW designated by federal law, the Niagara Redevelopment Act, for industries located in the Niagara Mohawk service territory within 30 miles of the Niagara Power Project. The Expansion Power program provides 250 MW earmarked under State law for job creation and retention in New York's three westernmost counties. Under both hydropower programs, the contracts for the power allocations include customer commitments to sustain agreed-upon levels of employment.

As you may be aware, there are currently 17 megawatts of Replacement Power available for reallocation for economic development. That power has been relinquished by businesses no longer using the electricity or recaptured from companies unable to keep the job commitments in their contracts for the hydropower. On January 28th, Governor Pataki announced a major new marketing campaign in conjunction with the Buffalo Niagara Enterprise and others to use this low-cost hydropower to attract industries from all over North America to relocate and create jobs in Western New York.

As an example of the value of Niagara hydropower, I would note that it is making a vital contribution toward securing the future of the General Motors engine plant in Tonawanda, which employs nearly 3,600 workers and is the largest private employer in Erie County. A package of state government incentives, including additional Niagara hydropower, played an important role in GM’s decision to designate the plant for a $500 million expansion for the manufacture of a new high-tech six-cylinder engine, starting in early 2003.

In addition to the Replacement and Expansion power programs, NYPA's sales of hydropower to New York State’s fifty-one municipal electric systems and rural cooperatives also benefits many businesses located within these service areas. The Municipal and Rural Cooperative Economic Development Power program offers 108 megawatts to encourage economic development in the communities served by the state’s local public power systems. Half of the power is supplied from the public power system’s allocation of Niagara hydropower. The remaining portion is provided by other generating sources arranged by the Power Authority or the local public power system.

Just last week, Governor Pataki announced that the Municipal and Rural Cooperative Economic Development Power program will help support a $5.3 million expansion of a family-owned corrugated products business in the City of Plattsburgh. The allocation of 500 kilowatts of power will enable Lakeside Container Corp. to more than quadruple its current work force of nine people. The firm recently completed a new 57,000-square foot building adjacent to the former Plattsburgh Air Force Base that will allow it to undertake additional manufacturing work.

The Economic Development Power program, created by state legislation in 1987, provides for job creation and business revitalization throughout the State. Electricity for this program is supplied by the FitzPatrick power purchase agreement with Entergy. To receive EDP, companies must commit to maintain a specific level of jobs and, in the case of business retention, invest in real property improvements. The State Economic Development Power Allocation Board evaluates applications and makes recommendations to NYPA’s trustees.

Municipal Distribution Agency power, another designated portion of FitzPatrick nuclear power, is sold to downstate local municipal distribution agencies for economic development purposes. For example, a few months ago the NYPA Trustees approved an allocation to the New York City Public Utility Service for the Ultra-Flex Packaging Corp., one of the 10 largest private employers in Brooklyn. The power will help Ultra-Flex, which had contemplated a move to Connecticut, complete a $3 million expansion in Brooklyn rather than move out of state.

In October 2001, omnibus legislation was signed into law containing an array of measures to address New York State’s economic recovery in the wake of the events of September 11th. Among the provisions of the legislation was authorization for NYPA to sell up to 80 MW to assist in the economic recovery of New York City. NYPA had previously supplied 80 MW of electricity to the Port Authority of New York and New Jersey for the World Trade Center. The New York City Economic Recovery Power program will provide low-cost electricity to former tenants of the World Trade Center and other businesses located in, or intending to locate in, the Liberty Zone and Resurgence Zone, as designated by the legislation.

The Power for Jobs program, which is the focus of this hearing, provides low-cost electricity to assist New York State employers at risk of reducing or closing their operations or moving out of State, or who were willing to expand job opportunities in the State.

The statutory history of the Power for Jobs program involves three major acts. In July 1997, Governor Pataki signed Chapter 316 of the Laws of 1997, the statute creating the Power for Jobs program. The program originally made available 400 megawatts of power. The program was to be phased in over three years; with approximately 133 megawatts being made available each year.

In July 1998, the legislature approved and Governor Pataki signed Chapter 386 of the Laws of 1998 that accelerated the distribution of the power and increased the total amount of power available to 450 megawatts. Under the revised program, 267 megawatts were made available in Year One. In Year Two, 133 megawatts were allocated and the final 50 megawatts were allocated in Year Three.

In May 2000, Chapter 63 of the Laws of 2000 was enacted which authorized another 300 megawatts of power to be allocated under the Power for Jobs program, with up to 75 megawatts to be allocated to small businesses and not-for-profit corporations. The additional megawatts, described in the statute as Phase Four of the program, were to be allocated in three rounds: 100 megawatts by October 1, 2000, 100 megawatts by February 1, 2001 and 100 megawatts by July 1, 2001. In addition to first-time applicants, those who received allocations in Year One (December 1997-November 1998) were also eligible for allocations in Phase Four.

The Economic Development Power Allocation Board (EDPAB) reviews applications for allocations. This four-member board, established by the 1987 law creating the Economic Development Power program, includes one appointee of the Speaker of the Assembly, one appointee of the Majority Leader of the Senate and two appointees of the Governor. The New York Power Authority, in cooperation with the Empire State Development Corporation and the Department of Public Service, provides staff to assist EDPAB in the review process. EDPAB makes recommendations for allocations of Power for Jobs electricity to the Trustees of the New York Power Authority.

The Power for Jobs statute established that businesses seeking allocations must demonstrate that they are "at risk of relocating facilities or operations" out of New York State or "closing or curtailing facilities or operations in the state, resulting in the loss of jobs." By statute, they must also demonstrate that the cost of electricity for their facilities in New York State exceeds the cost of electricity at locations where they would establish new facilities or where their competitors have operations.

Not-for-profit corporations are required by statute to demonstrate that they provide "critical services or substantial benefits to the local community" and face "significant risk of closing or curtailing" their facilities or operations.

The criteria reviewed for each applicant includes jobs, total payroll, estimated savings, capital investments in the facility and state and local economic development assistance.

All applicants were required to submit twelve months of utility bills with their applications. The bills were analyzed and, based on the applicant’s historical demand and load factor information; estimated savings were derived by comparing what they had been paying for electricity to what they would pay for electricity with an allocation from the Power for Jobs program. Individual customer savings are not directly monitored after an allocation is awarded.

Approved allocations enable the customer to receive the power from the Authority pursuant to a sale for resale agreement with the customer’s local utility. The term of the contracts is limited to three years. The allocation contract between the customer and the Authority contains job commitments enforceable by the Authority.

To promote the program and encourage participation by eligible employers, announcements were placed in major newspapers and business publications statewide. Direct mail was sent to employers throughout the state. Regional meetings were conducted around the state. Exhibits explaining the program were presented at various conferences. The program was also promoted in conjunction with New York State’s economic development marketing efforts. A toll-free telephone number (1-800-JOBS-NYPA) was established to handle inquiries. Information on the program is also provided on the New York Power Authority website (www.nypa.gov).

Allocation of all the power available in the 450 megawatt program was completed by March 2000. Under that program, the New York Power Authority had received more than 3,000 inquiries from potential applicants. Those inquiries resulted in 1,623 applications being sent to potential applicants. Of those requesting application forms, 841 completed and submitted applications. Those applications contained total requests for allocations of power exceeding 1,400 megawatts, more than three times the amount of power available.

From December 1997 through March 2000, the Economic Development Power Allocation Board and the New York Power Authority Board of Trustees approved 647 allocations under the Power for Jobs program. The allocations were linked to commitments for more than 268,000 jobs, including some 12,000 new jobs. Average job commitments per allocation exceeded 500 jobs per megawatt. This level far exceeded the original projections for the program, which were based on the 100 jobs/megawatt benchmark for other economic development power programs.

A wide array of large and small enterprises received allocations. The size of the allocations ranged from 20 kilowatts to 5,000 kilowatts (5 megawatts). The types of employers benefiting from the program include major manufacturers and high technology enterprises; hospitals, colleges and cultural institutions; family businesses, agribusinesses and farms.

The Power for Jobs statute specifically authorizes allocations to three categories of applicants: business, small business and not-for-profit corporation. The statutory definition of small business under the Power for Jobs program includes "a corporation, partnership, limited liability company, sole proprietorship or individual that normally utilizes a minimum peak electric demand of four hundred kilowatts or less." The statutory definition of not-for-profit corporation under the Power for Jobs program includes "a corporation defined in subdivision five of section one hundred two of the not-for-profit corporation law."

In the 450 megawatts program, the statute provided that "up to one hundred megawatts of power under the power for jobs program may be recommended for allocations to not-for-profit corporations and small businesses." Within the 100 megawatts allocated to small businesses and not-for-profit corporations, 69.5 megawatts were allocated to not-for-profit corporations and 30.5 megawatts were allocated to small business.

The 450 megawatts went to 647 allocations, 348 (54%) were to large businesses, 161 (25%) were to small businesses and 138 (21%) were to not-for-profit institutions.

Allocations to business averaged one megawatt per allocation. Small business allocations averaged 190 kilowatts per allocation. Allocations to not-for-profit corporations averaged 500 kilowatts per allocation.

As indicated previously, there were 268,642 job commitments linked to the allocation of the 450 megawatts, an average of 597 job commitments per megawatt. Within the allocation categories, job commitments for allocations to businesses averaged nearly 400 jobs per megawatt; job commitments for allocations to small businesses averaged nearly 450 jobs per megawatt; job commitments for allocations to not-for-profit corporations averaged more than 1,600 jobs per megawatt.

The extraordinarily high average for not-for-profit allocations is believed to be due to the labor-intensive characteristics of the hospitals and health care institutions that received a significant number of the not-for-profit allocations. Fifty-two of the 138 not-for-profit allocations were received by hospitals and health care facilities. Health care-related job commitments account for 80% of all the not-for-profit job commitments.

The 300 megawatts authorized for allocation under Phase Four of the Power for Jobs program were, as required by statute, allocated in three rounds: 100 megawatts by October 1, 2000, 100 megawatts by February 1, 2001 and 100 megawatts by July 1, 2001.

Customers who received allocations in Year One, the period running from December 1997 to November 1998, were eligible for reallocations in Phase Four. Ninety-seven percent of eligible customers reapplied for reallocations under Phase Four.

There were 305 customers eligible to apply for reallocations, 296 applied and were approved. Of the 300 megawatts allocated under Phase Four, 242 megawatts were reallocations.

In addition to the reallocations, 58 megawatts of new allocations were approved to 89 new applicants. A total of 48,605 jobs are linked to those new allocations.

With respect to the number and amount of allocations to each category of eligible customers, 225 of the 300 megawatts in Phase Four were allocated or reallocated to 211 business customers. In accordance with the statute’s provisions, small businesses and not-for-profits received 75 of the 300 megawatts. There were 103 allocations and reallocations, totaling 20 megawatts to small businesses. A total of 71 not-for-profit institutions received 55 megawatts under Phase Four.

The legislation creating Phase Four did not include provisions for extending contracts to allocations made in Year Two or Year Three of the 450 megawatt program. Allocations made in Year Two total 133 megawatts. There are some 260 allocations from Year Two with contracts that will begin to expire in the spring of 2002. There were 65 allocations, totaling 50 megawatts, made in Year Three. Those contracts will begin to expire in 2003.

In January, when the Governor announced his 2002-2003 Executive Budget, he proposed extending the expiring Power for Jobs contracts. As recently announced, the Governor’s legislative proposal would make available another 183 megawatts of Power for Jobs. Similar to the Phase Four legislation adopted in 2000, the Governor’s proposed extension of the program would enable customer with expiring Power for Jobs contracts to apply for new allocations.

An essential element of each Power for Jobs contract is the provision that the employer commit to retain or add a specific number of jobs. If the job level falls below 90% of that commitment, the Power Authority may reduce that customer's power allocation proportionately.

Power Authority staff conduct reviews of the employment commitments of Power for Jobs allocations. The reviews are done annually on the anniversary date the employer began receiving power under the program. Since March 2000, the Power Authority Trustees have acted on six sets of employment commitment reviews.

In the aggregate, employers receiving Power for Jobs are more than exceeding job commitments. On the average, actual job levels total 105% of overall job commitments.

However, that is not to suggest that every Power for Jobs allocation has exceeded its job commitment. In the employment level evaluations conducted to date, about one in twelve customers reported jobs levels below 90% of their job commitment at the time of the review. The vast majority of those customers demonstrated reasonable prospects for returning to job levels at or above the threshold. Each of these situations is closely monitored. In ten cases allocations have been terminated and in seven instances power allocations were reduced.

At their February meeting, Power Authority Trustees expressed concern about exacerbating an employer’s economic situation during a short-term national economic downturn by reducing an allocation and increasing power costs. They have asked staff to recommend steps to address this concern, including the possibility of briefly suspending such power reductions.

In summary, please allow me to make a few observations about the results of the Power for Jobs program. First of all, I should note that the job commitments resulting from the program far exceeded original expectations. Job commitments averaged over 500 jobs per megawatt, well beyond the traditional 100 jobs per megawatt benchmark.

Moreover, in aggregate, Power for Jobs customers have more than delivered on their job commitments. Overall, employment levels are 5% above the total job commitments, based on quarterly reviews of Power for Jobs contracts.

Allocations were well balanced. Average allocations were consistent with the comparable power needs of larger businesses, small businesses and not-for-profit institutions, with the size of allocations ranging from 20 kilowatts to 5 megawatts.

Thank you for the opportunity to present this testimony. If you have questions regarding the Power Authority’s administration of the Power for Jobs program, I would be pleased to answer them.

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