Executive Speeches

Remarks of Eugene W. Zeltmann, president and chief executive officer of the New York Power Authority, at the New York Power Supply Forum, New York City.

June 10, 2004

Good afternoon.  It’s great to be here to participate in this year’s Power Supply Forum.

The 12 months since the last Forum have been an eventful time in the electricity business—probably far more eventful than anyone imagined, or wished for, when we left last June’s conference.

It’s also been a busy period for the New York Power Authority—which is why I welcome this opportunity to talk to you about how we see our role in the state’s developing competitive power industry.

Over the past year, we’ve done a thorough strategic assessment as to just what that role should be.  And it’s clear to us that NYPA can best serve the state by complementing the work of the private sector—and at times by carrying out assignments that others can’t or won’t accept.

To state it simply, we do not foresee the need for the Power Authority to build any more new power plants or transmission lines.

We believe the private sector should be able to meet the challenges and capitalize on available opportunities in the market.  And we fully expect private developers to respond to the state’s capacity requirements.

To put these statements in perspective, it’s worth noting that the Power Authority now owns and operates 17 power plants with a total installed capacity of more than 6,100 megawatts.

We also own and operate more than one-third of the state’s high-voltage transmission.  As I mentioned at last year’s Forum, we’ve built New York’s last two major in-state transmission lines—Marcy-South and the Long Island Sound Cable.

In light of all this, I think it’s fair to say that our new strategic approach is pretty significant.

It sends a clear signal to private-sector power producers that the state will be looking primarily to them—not NYPA—to strengthen the power infrastructure.  And it underscores Governor Pataki’s strong belief—and our own—that a competitive private sector is vitally important to New York’s electric power industry.

There are, of course, steps that state government can take to enhance the industry’s development.  For example, renewal of New York’s Article Ten siting law would be a valuable impetus on the generation side.  And I’m encouraged that the state Public Service Commission is considering means to facilitate long-term contracts for purchases by investor-owned utilities from merchant power plants.

At the Power Authority, we foresee that our most effective option to meet future customer demand will, in fact, be to purchase the necessary capacity and energy—unless we must build a facility in response to a compelling public need that is not being fulfilled.

When we installed a series of small, clean natural-gas-fueled plants at seven locations in New York City and on Long Island back in 2001, it was in response to just such a compelling public need—to stave off power shortages that had been threatened for that summer.

The plants—with a total output of about 450 megawatts—served that purpose.  They did the same in 2002—and they’ve provided year-round economic and environmental benefits as well.  We had no wish or intention to install these plants—but we did so because of the critical need that otherwise would not have been met.

In the same vein, we’re now building a 500-megawatt combined-cycle plant in Queens.  It’s needed to help avert future capacity shortages in New York City—and specifically to serve our government customers in the city.  Here again, we’re acting in response to a real public need. That includes not just the need for electricity, but also the need to improve and protect air quality in New York.

We’re building the plant—which will be one of the cleanest and most efficient in New York City’s history—on the site of our existing Charles Poletti Power Project.

A landmark agreement—reached under Governor Pataki’s leadership—calls for us to close the 875-megawatt Poletti project as soon as 2008 if the New York Independent System Operator finds there’s enough other generating capacity in the city.  In any case, the existing plant will close no later than 2010.  And the agreement requires us to limit Poletti’s capacity factor to 30 percent on a three-year average after the new 500-megawatt plant begins commercial operation next year.

All of which is by way of saying that our combined-cycle plant doesn’t lessen the need for more new capacity in the city. Indeed—as I indicated—replacing Poletti with the new plant will result in a net capacity decline, though there will be significant environmental and efficiency benefits.

With that very much in mind, the Power Authority last week issued a request for proposals to supply capacity and energy on a long-term basis to serve our government customers in New York City after Poletti closes.

We’re looking for as much as 500 megawatts of clean in-city capacity—along with sufficient energy supplies—to help meet these customers’ needs for up to 20 years.  In other words—through our competitive bidding process—the Power Authority is giving New York’s private power producers the opportunity to replace the output of Poletti.

Instead of seeking bids, we could have elected to build another new plant ourselves.  We did consider adding a second combined-cycle facility at the Poletti site.  But, in the final analysis, we determined that our customers’ needs could be more effectively met with power purchase transactions.  Beyond that, we felt that going this route would help to encourage the growth of a vibrant private power sector.

As I said earlier, our thinking about new power plants holds true for transmission: The Power Authority does not foresee building any new transmission lines unless we perceive that we must do so in response to a compelling public need.

Ideally, the competitive market—or competitive processes—will determine whether merchant transmission projects are appropriate or whether new power plants, or demand-side management, would be preferable.

We saw an example of this two weeks ago when the Long Island Power Authority staff recommended the proposed Neptune cable from New Jersey as one of the winners in a competitive bidding process to supply additional power to the Island.

There may, of course, be situations in which the market does not respond to a reliability need.  In such cases, we believe that any lines necessary to maintain reliability can most effectively and efficiently be built by the utilities that directly serve retail consumers and that this should be done through the regulatory process.  The only circumstance under which the New York Power Authority would foresee building new transmission would be if this process failed to adequately address reliability requirements.

We will, of course, continue to devote considerable attention to operating and maintaining our existing transmission facilities and rights-of-way.  And we’ll work with entities like the ISO, the PSC and the Federal Energy Regulatory Commission to develop an effective regional planning process and to establish mechanisms for cost allocation and cost recovery when regulated solutions are needed to meet reliability requirements.

A further challenge is to provide sufficient incentives for construction of AC transmission lines by merchant companies.

Such incentives apparently have been present for DC projects—though these projects have faced their own brand of difficulties.  One particularly dramatic example is the ongoing battle over the Trans-Energie Cross-Sound Cable.  Here we have a project that was designed to benefit the system, obtained financing, got built and went into operation—only to fall victim to parochial concerns.  Meanwhile, investors are watching their money slip away. But that—let’s hope—is a bizarre, one-of-a-kind situation.

The cost-recovery challenges with AC lines are more basic.  Because a new AC project—unlike a DC line—can potentially change flows on all lines in a system, a developer will probably be entitled to recover costs only through transmission congestion contracts.

That simply isn’t enough incentive to encourage investment by merchant companies in needed AC facilities.  I strongly believe that the regulatory process must be sharpened to focus on and resolve this ongoing problem.

I can tell you from personal experience that these concerns don’t apply just to new transmission lines.  They can also affect efforts to strengthen the system by using new technology that enable us to carry more power on existing lines.

At the Power Authority, we’ve taken a leadership role in this field by installing the world’s most advanced transmission control device at our Marcy Substation near Utica.

This convertible static compensator—or CSC—has boosted statewide transmission capacity by close to 200 megawatts through the use of real-time digital controls that bolster voltage support on the system.  For the first time anywhere, it enables operators to instantly move power from a heavily loaded line to one with spare capacity.  And—for good measure—it’s driven home the relevance of the cost-recovery issues I’ve raised.

The CSC impacts the grid essentially as a new AC line would in that it both increases the capability of the system and redistributes flows on existing lines. And so—under the current regulatory regime—we can recover our costs only through TCCs.  We thus have no assurance we’ll get back our investment of more than $41 million.

I should note that another $13 million for the project has come from some 30 utilities and ISOs and from EPRI—the Electric Power Research Institute—and Siemens, which built and installed the device for us.  We’re grateful for this support—and we think this is the kind of partnership between the public and private sectors that can benefit our industry and the customers we serve.

Nevertheless, this is basically the Power Authority’s project.  As a public entity, we recognized an obligation to demonstrate this technology—despite the absence of assured cost recovery—so others could adapt it to their own systems.  But—unless the industry successfully addresses the problems I’ve cited—I don’t think many private entities or investors will be willing to take on a similar risk.

The CSC—for the reasons I’ve mentioned—clearly is an example of the type of project that NYPA can sometimes carry out when others may be reluctant or unable to do so.

And, while the issues are different, we think we can also make important—and possibly unique—contributions in such areas as economic development, clean new energy technologies and energy efficiency.

The Power Authority has long given New York State a critical advantage in the international fight to attract and keep job-producing businesses.  The economical power we provide through various programs helps to support close to 400,000 jobs throughout the state.  We intend to continue to work with independent power producers, the investor-owned utilities and organizations like Empire State Development to build on that record.

The most essential elements of our economic development efforts will continue to be our major hydroelectric projects on the Niagara and St. Lawrence rivers.  To sustain the value of their hydropower, we will keep operating them as efficiently as we know how.

The hydro projects, by the way, were the only major power plants in New York State that stayed on line throughout the blackout.  That historical fact aside, their low-cost power is vital to the economic health of Western and Northern New York.  In addition, Niagara power helps to create and protect jobs in areas served by the state’s 51 municipal electric systems and rural cooperatives.

We want to make sure the hydropower continues to meet these essential needs.  Doing so will strengthen the overall economy of New York State—and that’s good for all of us.

Last October—right on schedule—we received a new 50-year federal license to operate the St. Lawrence-FDR Project.  We’re now in the midst of an all-out effort to obtain a new license for the Niagara Project when the current one runs out in 2007.

The massive turbines at these two major hydroelectric facilities have been spinning for close to half a century.  That’s why we’re investing a total of more than half a billion dollars to modernize both projects and extend their operating lives.

Combined with the costs of relicensing, the Power Authority’s ongoing investments in its hydro projects are significant—but well worth the expense considering their economic and environmental benefits.

The value of our hydropower to New York was recently acknowledged in the PSC’s Renewable Portfolio Standard proceeding.  NYPA is the state’s largest supplier of “green” power, accounting for more than half of the electricity from renewable resources in New York.  Our hydropower customers have been paying—and will continue to pay—for the investment in this renewable resource and it’s appropriate that their ongoing contributions have been recognized.

The hydro projects are—and will remain—central to our operations.  But since we sold the FitzPatrick nuclear plant to Entergy in late 2000, all the megawatts supplied through our other economic development programs have come from the private sector.

The largest of these programs is Power for Jobs—established by Governor Pataki and the Legislature in 1997 to help bridge the gap to a fully competitive power industry.

The program is scheduled to sunset at the end of 2005, and Power for Jobs contracts have already begun to expire.  In response, Governor Pataki has proposed that customers whose contracts have run out—or will expire by the end of the current state fiscal year—receive rebates for up to one year to mitigate resulting cost increases.

The Governor’s rebate proposal is also designed to contribute further to the development of competition, with more than 450 megawatts of demand moving from Power for Jobs to the retail market.  In addition, the rebate will continue to produce savings and protect jobs—at a lower cost than under the current program.

As I’ve indicated, the Power Authority’s emphasis on economic development can work well in tandem with private power developers.

I think that’s also true of our continued and expanding focus on promoting clean new power sources.  Our goal here is not to pre-empt the field, but to demonstrate the commercial viability of various technologies so that private developers might be willing to take them further.

Since Governor Pataki took office, the New York Power Authority has doubled its annual investment in energy efficiency and new energy technologies.  One result is that we’ve become a national leader in advancing clean energy sources—with solar photovoltaic projects, fuel cells and microturbines at locations across the state.

In Yonkers, we pioneered the world’s first commercial fuel cell to run on a renewable gas that’s a byproduct of wastewater treatment—and we’ve followed that up with eight others at treatment plants here in the city.

Our fuel cell at the Central Park police station runs on natural gas—independent of the power grid.  That prompted the Economist magazine to observe that Central Park may have been the safest place in the city during the blackout since the fuel cell kept right on operating.

Elsewhere, we’re working to develop power projects fueled by the landfill gases that are normally flared off into the atmosphere.  This has all the makings of a true man-made ecosystem.

With respect to energy efficiency, we recently passed the three-quarters-of-a-billion dollar mark for our total investment in completed projects in schools and other public facilities throughout the state.

Besides saving energy and benefiting the environment, these projects help reduce the cost of government by cutting the electric bills of public buildings by tens of millions of dollars each year.

In another effort to clean the air and lessen dependence on imported oil, the Power Authority has helped to put more than 700 electric and hybrid-electric vehicles on the road in our fleet and those of other public entities.

Our various programs are in keeping with Governor Pataki’s Executive Order 111, which established specific targets to make state entities more energy efficient and environmentally friendly.  The Governor’s order gives New York a head start toward a future in which environmental influences can be expected to increasingly dominate the evolution of our global economy—beginning with energy use.

As for the Power Authority, we will remain a vital force not only in improving the environment, but in strengthening the economy, cutting the cost of government and helping to assure a reliable supply of electricity.

Less than two years from now—in April 2006—the Authority will celebrate the 75th anniversary of its founding.  Our history has been marked by major undertakings—from building our great hydroelectric projects to creating a transmission network that spans much of the state to completing our seven small, clean plants in a matter of months.

Now we intend to take on different kinds of challenges—each extremely important in its own right.  We are well prepared to meet them—and to continue our long tradition of service to the people of New York State.

Thank you.