Executive Speeches

Remarks of Eugene W. Zeltmann, President and Chief Executive Officer of the New York Power Authority, before the Annual Meeting of the National Association of State Energy Officials, New York, New York

September 12, 2005

Good afternoon. Of the many manifestations of energy companies in America, the Power Authority—while not altogether unique—is decidedly unusual. In a nutshell, we are the nation’s largest non-federal public power company, which is a way of saying almost nothing about what we do.

But it certainly suggests that we are something of a force in New York’s energy picture.

In point of fact, we provide a quarter of the state’s electricity, which we sell to corporations, other utilities, coops, government agencies and municipal systems as well as to the entire New York City government.

Over the past few years, we’ve done considerable soul-searching and analysis as to just what our role should be in the new deregulated industry. We’ve concluded that we can best serve the state by complementing the work of the private sector. We want to handle those assignments for which we’re particularly well-suited or which private companies cannot or will not accept.

We believe the private sector should be able to meet the challenges and capitalize on available opportunities in our market.

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, including the Marcy-South line 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 independent power producers that the state will be looking primarily to them—not the Power Authority—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 power industry.

Speaking for the Power Authority, I can tell you that we think the most efficient option for us will increasingly be to purchase the necessary capacity and energy—unless we have to 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 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 completing 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 potentially serious problem. All of which is by way of saying that our combined-cycle plant doesn’t avert the need for more new capacity in the city.

With that very much in mind, the Power Authority last year issued a request for proposals to supply capacity and energy on a long-term basis to serve our government customers. As a result of that process, we were able to secure a significant portion of those requirements.

Under yet another RFP, we are now evaluating bids to supply up to 500 megawatts of in-city capacity.

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.

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 will dictate where merchant transmission projects are appropriate or where new power plants—or demand-side management—would be preferable.

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 and there were a compelling reliability need.

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 effective regional planning processes for transmission and to address issues concerning investment incentives and cost-recovery mechanisms when new lines or upgrades are needed.

Another way to strengthen the transmission system, if necessary, is to employ new technologies that enable us to carry more power on the lines we already have.

The Power Authority has 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.

Now operators are able to instantly move power from a heavily loaded line to one with spare capacity.

The Power Authority has provided the bulk of the funding for the CSC—more than $41 million. But another $13 million 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 think this is the kind of partnership between the public and private sectors that can benefit our industry and the customers we serve. The CSC is also an example of the type of project the Power Authority can sometimes carry out when others may be reluctant or unable to do so.

In that regard, I should note that we have no assurance as to when—if ever—we’ll recover our investment in the CSC through transmission congestion contracts. But—as a public entity—we recognized an obligation to demonstrate this technology without delay so others could adapt it to their own systems.

We think we can also make important—and possibly unique—contributions in such areas as economic development, clean new energy technologies and energy efficiency. Each is among our top priorities.

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.

One key part of our economic development efforts will be to keep on operating our big hydroelectric projects on the Niagara and St. Lawrence rivers as efficiently as we know how.

The hydro projects, by the way, were the only major power plants in New York State that continued to run throughout the 2003 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 bolster the economies 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.

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.

The hydro projects are—and will remain—central to our operations. But since we sold our nuclear plants to Entergy in late 2000, all the megawatts supplied through our more recent 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.

Economical electricity is important to the Empire State’s effort to help create and protect jobs for New Yorkers. And, 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.

We now have a distributed generation program that will build on the efforts that have already made us a national leader in advancing clean energy sources such as fuel cells and solar power.

To date, we’ve installed 18 solar power units at various locations, as well as a dozen fuel cells and several micro-turbines.

In Yonkers, we pioneered the world’s first commercial fuel cell to run on a 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 with several counties and municipalities to develop power projects fueled by the gases produced at public landfills—and normally flared off into the air. This has all the makings of a true industrial ecosystem.

Like the new energy technologies, the Power Authority’s ambitious energy-efficiency programs ease stress on the power system, clean the air and reduce our dependence on foreign oil.

We recently passed the $815 million dollar mark for our total investment in completed energy-efficiency projects in schools and other public facilities throughout the state. These projects save enough electricity each year to meet the needs of more than 750,000 New Yorkers. They also avoid the annual release of 700,000 of tons of green-house gases and cut government electric bills by $90 million of dollars a year.

In another effort to clean the air and cut use of oil, the Power Authority has helped to put more than 750 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.

Governor Pataki followed up by calling for New York to obtain up to 25 percent of its electricity from renewable sources by 2013. Last year, the Public Service Commission issued an order that made it official and this past April laid plans for implementing the program.

Thanks mainly to the Power Authority’s Niagara and St. Lawrence-FDR hydro projects, the state has a head start toward hitting the 25 percent target—we’re now at about 19 percent. And I’m thinking that wind technology might make up the difference.

I know of a number of private sector firms eager to take up the challenge.

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 a year 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.