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, New York.

June 16, 2005

Good afternoon. This is my third appearance at the New York Power Supply Forum in as many years. And I imagine you are all aware of the ominous nature of things happening in threes: Celebrity deaths, plane crashes, three on a match.

Perhaps, I can evade the consequences of my third appearance by restating the essence of what I said last year: that the Power Authority does not intend to build any more new power plants or transmission lines unless there is a compelling public need to do so.

Having said that, however, it’s important to be aware that the Power Authority remains a looming presence in New York’s supply picture. And if you took the subway or Metro North to get here today, you benefited from low-cost Power Authority electricity.

The fact is, we recently concluded new power-supply agreements with the MTA, New York City government, and our other large public customers in the city to ensure that those benefits continue through 2017.

The contracts represent a new era of collaboration in our relationship with these customers as they’ll be actively involved in scrutinizing our costs, operations and decisions. They’ll even participate in our planning processes.

One could say that the relationship has morphed from that of supplier and customer to full-blown partnership.

Our customers can choose from among various payment options for the electricity and select different levels of risk with respect to potential price volatility.

We view this as a natural evolution of the electricity marketplace—an important concession to these all-important customers who have elected to stay with us at a time of competition and choice in the power industry.

And as an important public entity ourselves, we recognize the need to leverage our resources on behalf of other public entities such as schools, hospitals, and libraries.

But since we sold our nuclear plants five years ago, we’re no longer able to supply their entire load from our existing portfolio of plants.

This has encouraged us to secure bids from new or existing sources of electricity, an action that we believe will strengthen the prospects of independent power producers in the area and lead to a healthier, more efficient electricity marketplace.

As might be expected, we tend to give special consideration to newer, cleaner sources of generation and to other solutions, including generation produced by renewable sources in keeping with the State’s Renewable Portfolio standard.

When I spoke at this conference a year ago, NYPA had just issued a Request for Proposals to procure a major portion of our customers’ long-term needs. As a result of that process, we were able to secure a significant portion of these requirements.

Under yet another RFP, we are now looking for up to 500 megawatts of in-City capacity starting as early as 2008, through a competitive bidding process that concluded just yesterday.

This will go a long way toward meeting the requirement that most of the generating capacity be sited within the City limits, in keeping with rules of the New York Independent System Operator.

We have worked in close collaboration with the government customers, both in setting the scope of our RFP solicitations from the marketplace and in establishing the criteria for evaluating the offers.

Working together, we have adopted a “laddering” strategy to stagger the supply segments over time.

In the years to come, we will continue to encourage these important customers to be active participants as we make repeated forays into the market to maintain and refresh the supply chain.

My years at GE taught me the importance of an efficient supply chain.  Companies like Dell Computer have created organizations that have no inventory of finished goods, relying instead on a supply chain of vendors that delivers the components just in time. That way they are able to build their products in response to customer demand and do it so efficiently that it almost appears as if the products are purchased the instant they are produced.

Our industry could be the very model of supply chain efficiency as what we produce is perforce consumed in the same instant. The subtle orchestration of the processes inherent in our supply chain is handled by the ISO and its efficiency puts even the Dells of this world to shame.

Looked at in the aggregate, a load like the New York City customers is so large and dynamic that it rises to the level of a major logistics challenge. The solicitation of RFPs is therefore an on-going process. And later this year, the supply side of the equation will get an even bigger boost when one of the cleanest and most efficient power plants in the city’s history will come on line with 500 megawatts of vital, new capacity.

The Power Authority spent more than two years building the plant, which comes equipped with state-of-the-art air pollution control devices as well as air-cooled condenser technology so that there’s minimum impact on the surrounding air and no impact on the water in the adjoining East  River. In fact, the plant is being built cheek-by-jowl to our Poletti Project, which will produce its last kilowatt of power in 2010, and possibly even sooner.

I think of this new plant as a way of bolstering in-city supplies to avert imminent shortages—such as occurred nearly four years ago. In that instance, you may recall, we stepped into the supply breach in a unique way. Within about 10 months, we built 10 small, clean, gas-fired power plants in various parts of the city, and another unit on Long Island—a job that normally would take two years or more.

All of the plants were operating when a torrid heat wave enveloped the metropolitan area in August of 2001. The combined output of these plants—450 megawatts—made the critical difference in supply as air conditioners were switched to their extreme settings in every apartment and office building within 50 miles of midtown.

I have come to think of these plants as New York’s Maginot Line as they are located at strategic points in the outer boroughs and in Brentwood, Long Island to provide the first line of defense against supply shortfalls.

For according to the ISO, while the state as  a whole will enjoy a projected surplus above requirements this summer of some 1,500 megawatts, in the City the margin is just a tad over 330 megawatts and on Long Island is less than 250.

While our small plants have had a profound impact on the supply picture in the city, they’ve had a minimum impact on the air. That’s because their emissions per kilowatt hour are 80 percent below those of the next available power sources within the City.

Of course, I wouldn’t want you to think that the New York Power Authority is solely concerned with supplying electricity to the New York Metropolitan area.

As most of you know, we are very much a statewide entity and enjoy the distinction of being the nation’s largest state-owned electric utility, owning and operating 17 power plants, the largest being in upstate New York.

Most noteworthy are the massive hydroelectric plants that we operate along the St. Lawrence River and at Niagara Falls. These power-houses produce some of the cheapest electricity in the entire Western Hemisphere.

As such, they are unrivaled engines at producing jobs and entire industries have grown up around them. Needless to say, they are a scarce resource. And in keeping with Governor Pataki’s economic development initiatives, we’ve had to supplement their output with low-cost power elsewhere to keep jobs from fleeing New York.

The Power Authority has long given New York State a critical advantage in the global struggle to attract and keep job-producing businesses. The economical power we provide through various programs helps to support more than 400,000 jobs throughout the state.

Some 250,000 of these jobs are protected under the Governor’s Power for Jobs program, which has been extended until the end of next year.

The aim of this program was to help employers make the transition to a competitive marketplace when lower prices would prevail. Rising oil and natural gas prices have extended the transition period. But I’m confident that we’ll get there.

Of course, as I said, low prices are an established fact at our hydro projects. These projects are vital to the economic health of Western and Northern New York and we want to make sure their power is put to the best possible use.

I like to think of our two hydro plants as the Power Authority’s crown jewels. They were our first plants and we’re now investing considerable sums to modernize them.

Six years ago, we began a $254-million life extension and modernization program at the St. Lawrence-FDR project that involves replacing all 16 turbines and renovating the power dam’s generating equipment—an undertaking that won’t be completed until 2013.

Similarly, at Niagara, the State’s largest power plant, we’ve nearly completed a $290 million life extension and modernization program that will enable that monumental project to operate at maximum efficiency for many years to come.

We’ve already upgraded 11 of the 13 turbine-generator units at the Robert Moses Niagara Power Plant—the project’s main generating facility—and we’re on track to complete the modernization program next year.

Meanwhile, we’re investing more than $20 million in a major maintenance program at the Niagara Project’s Lewiston Pump-Generating Plant—the facility that lets us store water so we can produce more electricity in peak periods.

But by far the most important issue at Niagara these days is the project’s relicensing.

And I’m pleased to report that we’re on schedule to submit our Niagara Relicensing application for a new 50-year federal license by August—two years before the current one expires, as required by the Federal Power Act. The goal is to receive the new license by August 2007 without missing a beat between the new and the old.

Improving the efficiency of Niagara, therefore, is to give it a new lease over the life of its renewed 50-year operating license.

Similarly, anything we can do to improve the efficiency of the electricity that’s used throughout the state will make it go a lot farther and produce more benefits.

In fact, Governor Pataki made this a priority for all public agencies under Executive Order 111, which sets specific targets to make state entities more energy efficient and environmentally friendly.

The Power Authority not only has to comply with the order but is charged with reducing the energy costs of other public entities.

Our annual investment in energy efficiency and clean new energy technologies, such as fuel cells and solar power, will exceed $67 million this year, money that we raise through the sale of bonds or notes to private investors or finance from our own operations. The savings on electricity bills—and to taxpayers—amount to more than $90 million a year. An added dividend is the annual elimination of over 697,000 tons of greenhouse gases from the air.

NYPA has also initiated a Peak Load Management Incentive Program, in which it pays its government and business customers in New York City who agree to cut electricity use at certain times during the summer. This program alone has the potential of eliminating about 60 megawatts of demand during periods of strain. 

Given the major energy excesses in the environment, improving energy efficiency must be seen as a major energy source. And investments in “mining” this new energy supply will provide longevity to the “supply” that few other sources can ensure.

Of course, the best way of improving overall energy efficiency is to look at system-wide efficiencies, which is a three-pronged dynamic. I’ve already spoken about how we’re improving efficiencies at some of our plants and to the end user through demand-side initiatives.

But I neglected to mention the third component of efficiency—improving the throughput of the transmission system. As the owner of nearly of third of all the transmission lines in the state, this is a vital concern for us.

A new study by the American Council for an Energy-Efficient Economy urges greater investments in energy efficiency and "demand-side" strategies to reduce strain the power grid.

Last year, the Power Authority embarked on just such a strategy in the Tri-Lake’s region of the Adirondacks to help relieve the stressed transmission conduits there.

In keeping with a comprehensive agreement between the Power Authority, the Villages of Lake Placid and Tupper Lake and Niagara Mohawk, we’re planning to invest $2 million in energy efficiency enhancements at the new Lake Placid convention center. And we’re working with the Village of Tupper Lake to explore the feasibility of a biomass generating facility within the Village limits.

All of this is in addition to new capacitor banks being installed at the Lake Placid substation and some three megawatts of distributed generation to be configured at the Tupper Lake substation.

We are also working with both villages—and Niagara Mohawk—to make transmission improvements that address the region's long-term power needs, including installation of a 46-kilo-var static variable compensator at the Tupper Lake substation and a 115-kilo-var unit at Lake Colby. These units should be up and running by 2006. Also in the works is a new 46 kilo-volt sub transmission line which will be energized sometime in 2008. So, stay tuned.

But the biggest challenge in the movement of electricity is to make transmission lines themselves more efficient. Last year I told you about a $41 million investment we made in a promising technology called a Convertible Static Compensator that has done just that.

It has not only significantly increased the amount of electricity that can be moved reliably over our existing transmission lines but has also enabled operators to route power away from heavily loaded lines to under-utilized lines. This has helped bolster state-wide transmission by nearly 200 megawatts. It has also reduced system losses and provided new-found flexibility for system operations.

So far, I’ve talked about efficiencies in supply, demand and transmission. But I’ve said nothing how we might preserve and extend NYPA’s most important resource—our people.

We’ve spent scores of years developing this talent. And they’re mightily efficient already. Which is why we put in place yet another laudable initiative: worker safety.

Putting it in such bloodless terms may seem peculiar to you. But my intention is to appeal to your heads for I believe that your hearts are already in the right place.

At the Power Authority we’ve made an all-out commitment to orker safety. It’s not just a matter of avoiding accidents.  Rather, it’s an alert state of mind and an attention to detail that translates into a safer workplace.

We’ve undertaken a number of vital programs aimed at accident prevention. One of them is immediate sharing of information on accidents and near-miss incidents.  When either happens at one site, we immediately e-mail a report of what went wrong to all other sites to prevent it from happening somewhere else. Another important initiative is benchmarking our safety and health programs against those of other companies. We make comparisons not just with electric utilities, but with a wide range of firms in different industries to assess what we’re doing and arrive at best safety practices.

Thanks to efforts such as these, NYPA won the American Public Power Association’s highest award for safe operating practices this year, as in eight of the last nine years.

Believe it or not, I’m as proud of that accomplishment as I am of all the other things that NYPA is doing.  Because if we’re not concerned about each other how can we realistically be expected to be concerned about the public at large?

As Albert Einstein observed, “The concern for one’s fellow man must always be the primary interest of all technical effort.”  If we never lose sight of that, we’re certain to be successful.

Thank you for your attention.