Executive Speeches

Remarks of Eugene W. Zeltmann, president & chief executive officer of the New York Power Authority, to the Municipal Electric Utilities Association of New York State (MEUA) semiannual meeting, Syracuse, New York

April 30, 2002

Good evening. It’s great to see all of you again.

It was just a little over eight months ago that Joe Seymour, as Power Authority chairman, spoke to you at your annual meeting in Niagara Falls. That’s not all that long ago, but a lot’s happened since.

First and foremost, of course, the tragic events of September 11th. In fact, Governor Pataki has since named Joe to be executive director of the Port Authority, whose previous top administrator—Neil Levin—was among the victims of the Trade Center attack.

And just this morning, the Power Authority’s trustees elected Lou Ciminelli—a Buffalo businessman and a trustee since 1995—to succeed Joe as our chairman.

The period since your last meeting has also been a tumultuous one for the energy business—first with the Enron problems and now with the turmoil in the Middle East and the potential effects on oil prices and supply.

Trouble in the Middle East, unfortunately, isn’t new.  But Enron was a real shocker.

The fall of what most experts thought to be an innovative, growing enterprise with superb management just goes to show we have to question everything, even when it means challenging authority.  And that can be tough sometimes.

I’m reminded of a sea captain who was accustomed to being obeyed, and wouldn’t stand for being second-guessed by anybody.

One night at sea, the captain saw what looked like the lights of another ship heading toward him.  He had his signalman blink to the other ship:  “Change your course 10 degrees south.”  The reply came back:  “Change your course 10 degrees north.”

The captain answered: “I am a captain.  Change your course south.”  To which the reply was: “Well, I am a seaman first class.  Change your course north.”

This infuriated the captain, so he signaled back: “Dammit, I say change your course south. I’m on a battleship!” And the seaman replied:  “And I say change your course north. I’m in a lighthouse!”

Whatever the reasons for it, the Enron affair clearly has made things more complicated for those seeking to chart a course in today’s energy business.  Among other things, it’s created a lack of trust that is discouraging investment in new power plants. And this at a time when we face potential electricity supply shortages in New York State and other parts of the nation.

Most of your systems over the years have been relatively immune to electricity price spikes or supply problems since your primary power source is the Power Authority’s Niagara Project.  This great facility, as you know, provides some of the nation’s least-expensive power—at a production cost for you of less than one cent per kilowatt hour.

It’s always interesting to compare your retail rates with those of the state’s investor-owned utilities.  Looking at just the residential class, the latest summary from the APPA shows the revenues per kilowatt hour—a good reflection of the rates—are in the range of 3 l/2 cents or less for about a quarter of your systems.  For more than 30 of the 47 municipal systems, they’re 4 l/2 cents or less.  In contrast, for the lowest investor-owned utilities—Rochester Gas and Electric and Central Hudson—they’re over 11 cents per kilowatt hour.

This shows just how valuable our hydropower is.  And that we must never take it for granted.

As you’re well aware, the low Great Lakes water levels of the past few years have reduced the hydro supplies to which we’d all grown accustomed.  Beyond that, we’re facing the relicensing of Niagara, as well as our St. Lawrence-FDR hydro project.  And it’s important to recognize that the federal relicensing process as it now stands could affect both the supply and price of hydroelectric power produced at our projects and the many others where the existing licenses are expiring.

I know Joe Seymour talked to you about this last year, but the problem persists.

Despite ongoing efforts in Congress to streamline the process, hydroelectric operators still face costly delays and withering demands from existing regulations.

The Federal Energy Regulatory Commission and its staff are among those on record as saying that relicensing reform is needed—and that it can come only from Congress.

Unfortunately, the comprehensive energy bill that the House passed last year includes what many in our industry consider to be a weak response to the issue.

The energy bill that the Senate passed last week is an improvement.  It would still allow federal agencies to set mandatory environmental conditions for new licenses, but would give applicants greater ability to meet those conditions in ways that would reduce effects on costs or power production.

We view this as a promising first step—and we hope it survives in the bill that emerges from the conference committee with the House.  But, along with others, we continue to push for legislation proposed by Congressman Ed Towns of Brooklyn and Senator Larry Craig of Idaho—an author of the current Senate language.  These bills would go considerably further in balancing energy, economic and environmental needs—and would help to ease the protracted delays that often mark the licensing process.

The bills are now in limbo, and probably won’t resurface until the next session of Congress.  I know the MEUA has declared its support for them.  We thank you and urge you not to let up and to keep following this issue—which is so important to all of us.

Meanwhile, working in the current regulatory framework, the Power Authority is implementing alternatives to the traditional relicensing procedure.  These involve bringing interested parties into the process early on—well before we submit the applications to FERC.

This cooperative approach at St. Lawrence-FDR enabled us to reach a broad-based agreement with regulatory agencies and local communities that addressed their concerns on a number of issues.  The agreement was essentially in place when we applied last October for a new 50-year license for the project—where the current license expires in 2003.

Just last month, we asked FERC to approve an alternative licensing approach for the Niagara project, whose 50-year license ends in 2007.

We’d previously discussed this with a number of customers and other interested parties, including your Executive Committee and some of the member systems.  The MEUA and the state’s four rural electric cooperatives are among those supporting the alternative process at Niagara, and we greatly appreciate that.

We’re confident that this approach will help to assure that all with an interest in Niagara’s relicensing—including your systems and customers—are heard, that issues are identified and discussed and that we work together to resolve matters of concern.

We’re still awaiting FERC approval of the process, but we’re making good use of the time.

We recently put up a Niagara relicensing web site that you can access on the Internet. Our staff is now preparing an information package that should be in your hands by late this year or early 2003.  At that time, we’ll also meet with the interested parties to officially mark the start of the alternative process.

Things will pick up steam after that, beginning with various studies and continuing through preparation of an environmental assessment and a draft license application and formal discussions with the various parties.  By the time we file the final application in 2005, we hope to have all issues resolved and full support for the new license from all concerned.

One of our major goals in the Niagara relicensing is to strike a balance between our obligations to the Western New York communities that play host to the project and the need to maintain low rates for your systems and the project’s other customers. It’s a goal I think we achieved with the St. Lawrence-FDR agreement, and one I’m confident of meeting at Niagara, with your help.

You’ve heard this from us in the past, but I want to again stress how important this balancing act is.  Any local commitments will have to be paid for with revenues derived from our rates.  While we want to be fair to the communities, we also want to make sure that your power costs aren’t affected.  So, please, stay informed and involved as the process moves forward.

While we’re focused on relicensing Niagara, we’re also working to modernize it. The project, after all, has been in service for more than 40 years.  So we’re replacing the 13 turbine-generators at the main generating facility.  It’s a phased-in effort designed to minimize any lost production during the modernization.  To date, we’ve replaced eight units, and the remaining work is scheduled to be wrapped up by 2006.

We began a modernization project at St. Lawrence-FDR last year, and just this month we put the first of 16 new turbine-generators into service.  Work has already begun on replacing a second unit, which we expect to be in operation by early 2003. 

As I’ve indicated, we’re carrying out the upgrades against a backdrop of low water levels in the Great Lakes.  The good news is that the levels in Lakes Erie and Ontario have been rising lately, thanks to heavier-than-average rain last fall, near average snow pack this year and an early thaw.

With respect to your hydro energy allocations, we’re still awaiting the final report for April—after having forecast a 5 percent reduction for the month.  And we expect to be able to provide the full allocations in May.  That’s no small feat since monthly cutbacks have been more common than not for quite some time.

Our latest estimates show cuts of less than 1 percent in allocations for June and July. However, after that, we anticipate increased reductions through October of between 7 and 11 percent.

Happily, these forecasts are a significant improvement compared with last year. In fact, if our current projections hold, our hydro energy reductions this year will be less than 40 percent of what they were in 2001.  

We’ve tried to be as fair as we can on this issue, purchasing substitute energy to make up for the reductions for those systems desiring it. You’ll also recall that we established a $10 million fund in 2000, which we later increased to $17 million, to offset any difference between the forecasted and actual shortages. As of now, more than $5 million remains in the fund.

I recognize that you and your customers associate the Power Authority mainly with hydropower.  But we’re also heavily involved with other energy sources.

If any of you attended the APPA’s engineering and operations conference in March, you may have noticed that we won our sixth consecutive national public power safety award—something of which I’m personally very proud.

But even beyond that, you may have heard Alan Richardson, association president and CEO, praise our successful effort to help keep the lights on in New York City and on Long Island last summer by quickly installing 11 small, clean gas-fired power plants.

A New York Times article earlier this year quoted industry experts as saying that installation of these plants is a case in which “government has proven its worth.”  Very gratifying words—and a tribute to public power.

Putting in the small generators proved crucial, as New York set statewide records for electricity demand on three consecutive August days.  The new peak—close to 31,000 megawatts—came within about six percent of the available generating capacity—a very close call.

Yet—to show how quickly things can change in our business—the September 11th attacks and the economic slowdown have led, at least for the moment, to falling prices and a perceived easing of supply problems in New York and other parts of the country. These trends—along with the shaken investor confidence I mentioned at the start—have prompted some prospective developers to reconsider or drop plans for new power plants.

These, I believe, are serious miscalculations, based on temporary conditions that will reverse as the economy rebounds—as it’s apparently starting to do.

Only last month, the Independent System Operator, which runs New York’s power system, forecast that the state will need 7,100 megawatts of new capacity by 2005 to meet demand growth—and to spur competition, bring down prices and improve the environment.

For our part, the Power Authority plans to build a clean, new 500-megawatt natural-gas-fueled plant in Queens next to our Charles Poletti Power Project. We hope the state Siting Board will approve our application soon and that construction will begin next month.  The facility should begin producing power in 2004.

Using the latest environmental controls, the new plant will allow us to run the old one less—with a significant cut in overall emissions. 

Building clean new power plants as quickly as possible is one element of what I see as a three-part power supply strategy.  The others are strengthening the transmission system and aggressively promoting energy efficiency.

The Power Authority is working hard to make sure New York’s transmission system is ready for the new competitive era in our industry. We’ve spoken to you before about the pioneering transmission-control device that we’re completing at our Marcy Substation near Utica.

You may remember that the first phase of the device—which uses high-speed electronics and is known as a convertible static compensator—went into service last year.  By strengthening voltage support, it’s permitted increased power flows of 114 megawatts on the statewide system.

We expect the $52 million project to be fully operational later this year, when it will permit instant transfer of power from heavily loaded lines to those with spare capacity.  The overall increase in power flows will then climb to 200 megawatts or more.

Some of the work we do with your systems also reflects our commitment to a strong power-delivery system.

For example, we’re in discussions with Tupper Lake and Niagara Mohawk on the construction of a new 46-kilovolt line into the village to buttress a comparable line that’s reaching its capacity.  In addition, load growth in Solvay requires a transmission upgrade, and we’re addressing this with the village and Ni-Mo.

We’re also supporting the transfer of some of the Town of Massena’s electric load to a new substation the Electric Department will soon put into service. This has required interconnections with two of our 115-kilovolt transmission lines.

Under Governor Pataki’s leadership, the Power Authority also plays a major role in the third element of the power-supply equation—energy efficiency.

Statewide, our projects at public facilities like schools, hospitals and municipal buildings save taxpayers more than $74 million a year and cut annual greenhouse gas emissions by more than 500,000 tons.

They’ve also reduced peak demand for electricity by about 170,000 kilowatts – equivalent to the output of some power plants.

Now we’re also supporting Governor Pataki’s efforts to encourage energy efficiency by individual consumers.  In particular, we’re helping to promote and fund the Keep Cool initiative—which provides a $75 reward for New Yorkers who turn in old air conditioners and replace them with efficient units carrying the federal Energy Star label.

Thanks to our involvement, your residential customers can benefit from this program.  About 500 participated last year, and we want to see that number grow.

You should recently have received a letter from Lou Ciminelli with samples of Keep Cool promotional items.  I hope you’ll request more of these free materials from us and that you’ll really push this program in your communities.

We have a long tradition of working with you to save energy, beginning with Button Up and Watt Busters back in the 1980s—probably our first energy-efficiency initiatives—and continuing through today’s Tree Power program.  So let’s build on it with Keep Cool.

Let me turn now to another important area in which the Power Authority works closely with your systems: the use of our low-cost electricity to create jobs at businesses locating or expanding in your service territories.

The latest allocation under our municipal and cooperative economic development program went to the Plattsburgh municipal system in February. It will help support the multi-million-dollar expansion of a family-owned corrugated products business—Lakeside Container Corporation. Over the next three years, the firm expects to add 33 jobs, a nearly 400 percent increase.

We hope Green Island and Frankfort will write similar stories this year, as we review applications from the two villages for companies in their areas.

We originally earmarked a total of 108,000 kilowatts—half of it hydropower—for the program.  Allocations thus far are linked to about 2,000 jobs.  But much of the power is still available—more than 77,000 kilowatts.  So I ask you to stay alert to opportunities for allocations in your communities.

Low-cost Power Authority electricity is one of the main pillars supporting the retention and creation of jobs in New York.  Nearly 420,000 jobs throughout the state depend on it.  And with his Power for Jobs program—which has helped to protect or create more than 300,000 of those jobs in just over four years—Governor Pataki has enabled us to use this power as never before.

Through its economic development and other initiatives—just some of which I’ve mentioned tonight—the Power Authority has a major statewide impact.  But nothing is more important to us than our special relationship with you.

NYPA and the MEUA have a long history of working together for the benefit of the people you serve.  We have a strong interest in your success. And we value your business and our common bond as publicly-owned electric systems.

We have an excellent group of professionals, headed by Craig Banner, whose sole purpose is to address your needs. But beyond that, I can assure you that our trustees and senior management are fully committed to strengthening our relationship and making it as positive and productive as possible.

When I think about public power, I often find myself thinking of a long journey—one marked continually by huge challenges and fresh promise.

Along the way are many milestones.  Establishment of the first municipal systems—including some of your own, now more than a century old.  The creation of NYPA and TVA.  Rural electrification. The development of entire industries that couldn’t exist in this country if not for low-cost public power.  More recently, the struggle to prove that public power has an indispensable place in a deregulated, competitive electricity industry.

On the long march, quarrels inevitably develop—usually with our opponents, but sometimes even within the public power ranks.  But more often, within those ranks, strong loyalties are formed.  That’s because none can go his or her own way for very long, without sacrificing the overriding mutual goals.

All of us share the challenges and the promise.

As it was in the beginning, as it is now, as it must always be—we’re in this together.

Thank you.

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