Executive Speeches

Remarks of Eugene W. Zeltmann, president & chief executive officer of the New York Power Authority, at the Multiple Intervenors Annual Meeting, Verona, New York

October 2, 2003

Thank you and good morning. 

Seven weeks ago today, New York State—along with seven other states and the Province of Ontario—was jolted by the Blackout of 2003.

This seven-week milestone is hardly one to celebrate.  But it does underscore the vital role of groups like Multiple Intervenors in focusing attention on the need to assure a reliable and economical power supply.

That role has taken on increased urgency.  First, of course, because of the blackout—which I’ll talk about a little later.  But also because of unrelated forces that were at work before August 14.

It’s just the first decade of the 21st century and all signs are that we’ve already reached a critical turning point in history.  We are entering a world as different from the one we leave behind as the industrial economy was from the feudal system.  To a degree far beyond anything previously experienced, we are growing out of the nationally-based industrial societies that were created at the dawn of the Industrial Revolution and heading toward an interconnected global economic system.

When Alexander the Great wept by the riverbank because there were no more worlds to conquer, the trouble lay not with the globe, but with the map maker.

Today, there are no such constraints.  Firms are able to integrate and coordinate far-flung divisions and distribution channels in more and more complex ways, thanks to advances in information technology. The driving forces are the Internet and high-speed data networks that span the globe—and the electricity that powers them.

You could, of course, argue that globalization started decades ago with the exodus to developing countries of jobs making shoes, textiles and toys. After that, simple service work, like processing credit-card receipts and low-level computer programming, began fleeing to Third World enclaves.

But now, lawyers in Manhattan fax draft letters to a typist in the West Indies instead of handing them to a secretary nearby.

Systems engineers in San Jose or Seattle arrange for sophisticated software to be written in Bombay or Bangalore—where programmers earn less than $5,000 a year.  And technology has evolved to the point where a telephone call made in New York at four in the morning to a number in Chicago will be routed in the blink of an eye to an operator in Hong Kong.

The rise of a globally integrated knowledge economy is a blessing for developing nations. But it has serious implications for the American labor force. An unprecedented hiring binge in Asia, Eastern Europe and Latin America comes at a time when companies are downsizing at home.

We now have a paradoxical situation in which the U.S. economy is continuing to recover from the recession of 2001—and showing real signs of significant growth—but employment is still lagging.

The jobs picture in New York State, as you well know, was severely impacted by the recession and—more directly than in any other state—by September 11.  However, the latest state Labor Department statistics show modest growth in private-sector employment in most upstate areas and in the northern suburbs of New York City.  Those parts of the state generally are doing better than the nation as a whole.

Indeed, I believe New York is well positioned to benefit from one positive aspect of the rush to globalization I was talking about a moment ago.

The fact is, as American firms and consumers enjoy reduced costs from outsourcing work abroad, larger profits will be available for reinvestment in innovative businesses at home.  That should eventually mean new jobs for displaced workers.  New and expanding subcontractors overseas will also create new markets for U.S. products—helping to spur the creation and growth of dynamic industries here.

Two years ago, Governor Pataki sought to foster these dynamic industries by leveraging the power of our high-tech businesses with the intellectual depth of our private and state university systems.  The outcome was New York’s Centers of Excellence—a network of sophisticated research and economic development centers that will stretch from Buffalo to Stony Brook.

When the ingredients come together as they will through this program, you have what economists call technology clusters.  And these clusters, increasingly, are becoming perhaps the best hope for America’s future economic growth and supremacy.

The old economy created clusters of materials suppliers, factories and transportation.  In the new economy, a cluster’s key ingredient is brain power.

These technology clusters in New York are expected to attract $1 billion in investment from the federal government and the private sector—putting the state on the leading edge of the 21st century.

We’re moving ahead on semiconductor and nanotechnology R&D facilities at the University at Albany.  A bioinformatics facility in Buffalo.  A wireless communications center on Long Island.  A photonics complex in the Rochester area.  And other exciting initiatives as well.

Governor Pataki is remaking New York into the high-tech capital of the world—a magnet for the brightest minds in the firmament.  And—for all of these dynamic new industries—a reliable electric power supply will be critical.

Before the blackout, we could say with supreme confidence that the reliability of our power supply gave this country a major advantage over many of the places that were luring American jobs.  That’s still true.  But we risk losing both our confidence and our advantage if we fail to take heed of what happened in August.

Certainly, the blackout was a defining moment for everyone in the electric power business.  A moment like those in 1965 and 1977, when the lights also went out.

There were many who told us—before Thursday, August 14—that this couldn’t happen again.  Some who warned that it might happen again.  And none with quick or easy answers when it did happen again.

I spent all that Thursday night, and the next day, in the Power Authority’s Albany office—receiving and analyzing reports on the painstaking process of restoring over the course of many hours a power system that had shut down in minutes—even seconds—in the wake of what apparently began as relatively localized problems in the Midwest.

Fortunately, the Power Authority’s Niagara and St. Lawrence-FDR hydroelectric projects stayed on line when the blackout struck—and were the only major power plants in New York State to keep operating.

In the early stages, Niagara and St. Lawrence were supplying about 60 percent of the electricity still flowing in the state—with much of the rest coming from Quebec on the Authority’s 765-kilovolt transmission line.

Later, the two hydro projects—along with our Blenheim-Gilboa pumped storage project in Schoharie County—were the main electrical building blocks that enabled the statewide system to return to service.

In addition, a series of small, clean power plants that we installed in New York City in 2001—and our Poletti project in Queens—played key roles in bringing the lights back on in the city.  Four of the 10 small units were on line Thursday night and the others—along with Poletti—began operating at various times on Friday morning.

I’m also pleased to point out that the Central Park police station in Manhattan was completely unaffected because all its electricity comes from a 200-kilowatt Power Authority fuel cell on the site.

The Economist magazine observed, ironically, that thanks to the fuel cell, Central Park might have been the safest place to be in New York City during the blackout.

Although our projects—large and small—performed well in response to the event, we did have to deal with seriously erroneous reports that attributed the blackout to a lightning strike at Niagara.  Here we had this project doing yeoman service—with no lightning within hundreds of miles—and it was being singled out by public officials and the news media as the source of the problem.

Now, of course, the task of determining what actually happened—and why—is well under way.  We must learn all we can from what went so terribly wrong.  And we must use those lessons to take quick and effective corrective action.

Not surprisingly, much of the attention in Congress and elsewhere is focused on ways to strengthen the transmission system.  The need is clear for the investment incentives, the cost-recovery mechanisms and the efficient regional planning processes that will enable us to build new transmission when and where it’s required.

In a report issued shortly   after the blackout, EPRI, the power industry’s research arm, warned that investment in the system—as a percentage of company revenues—had sharply declined over the years.  Almost incredibly, it found that the figure in the’ 90s was less than half the historic minimum lows during the Depression.

As EPRI’s vice chairman, I can tell you that the report had been in the works for about a year and was actually completed just over a week before the blackout.  But what happened on August 14 did nothing to weaken its case for a dramatic increase in expenditures to develop a smarter grid.

Among other things, the report called for unleashing “the innovative technology” needed to create a power delivery network based on real-time digital controls rather than today’s relatively slow electromechanical switches.

I bring that up because the Power Authority is already doing just that at our Marcy Substation near Utica.  As you may recall, we’ve installed a convertible static compensator that has boosted statewide transmission capacity on existing lines by nearly 200 megawatts through the use of high-speed electronics.

When it’s fully operational later this year, the CSC will be the world’s most advanced device for controlling transmission-line voltage and power flows.  It’s truly a technological breakthrough of the kind our industry will need.

In another encouraging development, the state Senate recently passed legislation that Governor Pataki had proposed to facilitate upgrading of transmission lines in New York and provide state financing for transmission and generating facilities.  The proposal would establish some sensible streamlining for transmission upgrades along existing rights-of-way, so I hope the Assembly will give it serious consideration.

Likewise, it makes a lot of sense to reach agreement on the renewal of the Article Ten power plant siting statute.  The old law expired more than nine months ago and the continued stalemate sends a poor signal to the investors needed to build clean new generation in New York State.  Such modern plants—along with transmission upgrades and aggressive energy-efficiency efforts—must be part of a balanced and effective power-supply strategy.

Among the projects approved before the old law expired is the Power Authority’s 500-megawatt combined-cycle plant at the site of our current Poletti project.  The new facility is on track for completion early in 2005 and will be one of the cleanest and most-efficient power plants in New York City’s history.

Proud as we are of this plant, no Power Authority activities will have a greater bearing on the state’s power supply outlook—and future economic development—than our efforts to relicense the St. Lawrence-FDR and Niagara hydroelectric projects.

The current federal license for St. Lawrence-FDR expires at the end of this month—and we hope to have a new 50-year license in hand by that time.  More than half of the project’s electricity serves two Multiple Intervenors members—Alcoa and General Motors Powertrain—and helps to protect close to 2,000 jobs at their facilities in Massena.  So the relicensing is obviously vital to them—and we appreciate their support in helping us to reach this very promising point.

A total of 25 M.I. companies—almost half your members—are served by Niagara hydropower.  These companies account for nearly 34,000 jobs in Western New York and are the backbone of the region’s economy.

The Niagara license expires in August 2007 and we’re heavily involved in the relicensing process, which—as at St. Lawrence-FDR—provides for extensive public participation.

For much of this year, we conducted a series of public meetings at which groups and individuals identified more than 800 issues of potential concern.  We’ve since consolidated the list to about 50—but plenty of work lies ahead.

We’ve now entered a major new phase of the relicensing that will run through the end of next year and will include numerous studies and settlement discussions.  Our goal is to resolve the major issues and to reach an agreement with the various stakeholders to support the application.  The filing deadline is August 2005—which really isn’t that far off.

As part of the Niagara relicensing process, there have been plenty of requests for the Power Authority to undertake extensive and expensive environmental and community improvement projects.

Such potential obligations—as worthwhile as they might be—must be balanced with the need to maintain our low rates for Niagara power.  M.I. and many of the Niagara customers here today have been active participants in the relicensing process.  I’m sure you’ll continue to keep a close eye on the relicensing to help ensure that your need for economical electricity remains a significant concern and that a proper balance is maintained in the deliberations.

We certainly want to obtain a new license on reasonable terms that will enable us to continue supplying low-cost Niagara power to your members and our other customers.  Beyond that, we are committed to assuring that we use this power as efficiently and effectively as possible to promote economic growth.

To that end, we’re working to coordinate and streamline the marketing and allocation of the power.  The idea is to make sure no opportunities for business development or expansion slip by and to give companies more certainty in their planning processes.  We are taking these steps in close cooperation with local business leaders, utilities and government to assure that we employ the full range of economic development tools.

In addition to our hydroelectric projects, the FitzPatrick nuclear plant up on Lake Ontario is a major source of power for job creation and retention.

Although we sold the FitzPatrick plant to Entergy Corporation almost three years ago, we’ve continued to buy its electricity for use in the Power for Jobs program and in other initiatives such as our Economic Development Power and High Load Factor Power programs.

Under our agreement with Entergy, those purchases will decline significantly at the end of this year and will stop at the close of 2004.

But as Lou Ciminelli, the Power Authority’s chairman, told you last year—an agreement with another energy company—Constellation Power Source—will enable us to meet the needs of our non-hydro business customers through the end of 2007.

With respect to Power for Jobs, I should note that a number of M.I. members are among the New York employers served by the program.  As you know, the power available under the last phase of Power for Jobs was allocated this past summer, and the program is scheduled to “sunset” at the end of 2005.

During my time in state government, I have learned to never predict what the legislature might do.  So I won’t hazard a guess about future legislative action on Power for Jobs.

I can say, however, that we will be working closely with Power for Jobs customers to help them transition to the most economical power available as their allocations begin to expire.

Overall, electricity supplied by the Power Authority now helps to protect more than 400,000 jobs throughout New York State—jobs that might otherwise have departed because of the global pressures I mentioned earlier.

As our economy evolves into a trans-national assembly line, wealth in raw materials—the source of strength centuries ago—no longer matters; anyone can buy them.  Proximity to rich markets matters less as transport costs fall.  Technologies pass readily from one nation to another.

Only the alliance of active minds and productive skills—and that vital force, low-cost electricity—are non-transferable to global competitors.  They are—and will remain—the abiding source of New York’s competitive advantage.

Thank you very much.