Executive Speeches

Testimony of Timothy S. Carey, chief operating officer of the New York Power Authority, to the Assembly Standing Committee on Energy, Syracuse New York

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October 12, 2005

Good morning, Chairman Tonko and distinguished Members of the Assembly.  My name is Timothy S. Carey. I am Chief Operating Officer of the New York Power Authority (NYPA).  I am accompanied by Joseph J. Carline, Assistant General Counsel.

The New York Power Authority owns and operates 21 generating facilities and over 1,400 circuit miles of transmission lines across New York State. NYPA supplies electricity to government agencies, community-owned electric systems and rural electric cooperatives, private utilities and to private sector businesses and non-profit institutions in return for commitments to protect jobs.

The Assembly Energy Committee’s effort to foster widespread public discussion about energy costs is a timely and valuable endeavor. The New York Power Authority certainly welcomed your invitation to contribute to that effort. As you know, NYPA has been invited to testify today about a particular issue relating to the administration of the economic development power programs. Correspondence from Speaker Sheldon Silver and Chairman Tonko asked that NYPA address that specific concern in this forum. 

As a result, this testimony will focus on job commitments and the economic development power programs administered by NYPA under the guidance of the Economic Development Power Allocation Board (EDPAB). 

The Economic Development Power Allocation Board reviews applications for Economic Development Power allocations, Power for Jobs allocations and extended benefits, as well as the new Energy Cost Savings Benefit. The four-member board consists of one appointee of the Speaker of the Assembly (James A. Duncan), one appointee of the Majority Leader of the Senate (Bernard P. McGarry) and two appointees of the Governor (Kevin S. Corbett and Frank S. McCullough, who was appointed by the Governor to chair the Board.). EDPAB makes recommendations to the New York Power Authority.

I believe we are all in agreement that the power programs under the jurisdiction of EDPAB and NYPA have made significant contributions to the Empire State’s economic development efforts. For example, the Power for Jobs program, created in 1997, currently serves more than 600 corporations that have committed to protect 318,000 jobs. The Economic Development Power program, created in 1987, serves 68 companies with 67,500 job commitments.

These power programs provide real, tangible benefits to the bottom line of private sector employers. Since these programs offer publicly financed subsidies to selected private enterprises, I think we can all agree that the integrity of these programs requires that program participants be held accountable for their contractual commitments

And I believe we can all agree that there is also a very real need to endeavor to enforce such commitments without inadvertently undermining an employer’s ability to continue to provide jobs, make investments and supply goods and services in New York State.

Let me state publicly that NYPA appreciates the Assembly’s interest in this matter. We look forward to your guidance in helping to better balance both of these goals. I know we have a common interest in working to help New York industries be competitive while assuring the continued integrity of these power programs. 

It is important to understand that EDPAB and NYPA each play distinct roles in the process of matching the amount of power allocated to a corporation with the number of jobs the corporation retains or creates in New York State. EDPAB performs that function when a corporation first applies for power and when its reapplies for a renewed allocation after its contract has expired. NYPA performs the job commitment enforcement function during the term of the contract.

The Power for Jobs program was created in 1997[1] to assist New York State enterprises at risk of closing, reducing or relocating their operations and help those seeking to expand job opportunities in the Empire State.

As originally established, the Power for Jobs program provided power to businesses and not-for-profit corporations that agreed to retain or create jobs in New York State. In return for commitments to create or retain jobs, successful applicants received three-year contracts for economical electricity. The Power for Jobs program initially made available 400 MW of power; up to 200 MW provided from the Authority’s James A. FitzPatrick Nuclear Power Project with the remainder purchased by the Authority through a competitive bid process. The program was to be phased in over three years, with approximately 133 MW being made available each year.

Due to pressing demand for allocations, the Power for Jobs statute was amended in 1998[2] to accelerate the distribution of the power, making of total of 267 MW available in “Phase one” of the program. The 1998 amendments also increased the size of the program to 450 MW, with 50 MW to become available in “Phase three.”

In May 2000, budget legislation[3] was enacted which included provisions that authorized another 300 megawatts of power to be allocated under the Power for Jobs program. The additional megawatts constituted “phase four” of the program. Customers who had received allocations in “Phase one” were authorized to apply for reallocations.

In July 2002, legislation was enacted[4] to authorize another 183 MW of power to be allocated under the program, under “Phase five” of the program. Customers who received allocations in “Phase two” or “Phase three” were given priority to apply for reallocations.

In each of the reallocation phases (Phases four and five), applicants were required to submit current employment data. Proportionally reduced allocations were recommended by EDPAB and approved by NYPA for 38 applicants, whose employment totals were 3,700 jobs lower than their prior contract commitments. The practice of reducing power allocations to reflect reduced job commitments was, however, changed by the provisions of law enacted in 2004.

In August 2004, budget legislation[5] was approved which included provisions to extend benefits for Power for Jobs customers with contracts expiring before the scheduled end of the program in 2005. Those customers were provided the choice of an “electricity savings reimbursement” rebate and/or a power contract extension through December 31, 2005.

This year, budget legislation[6] was approved to extend the “sunset” of the program until December 31, 2006. The new law made all Power for Jobs customers with contracts or benefits expiring through the end of 2005 eligible to apply for an extension of benefits in the form of  contract extension or “electricity savings reimbursement.”

However, the 2005 budget legislation did not address provisions of the 2004 law which stated: “An applicant shall be eligible for such reimbursements and/or extensions only if it is in compliance with and agrees to continue to meet the job retention and creation commitments set forth in its prior power for jobs contract.”

More than one-third (121 of 322) of the applicants for extended benefits under provisions of the 2004 law reported employment levels below their contractual job commitments.

Since the program’s inception, all Power for Jobs contracts have been required by New York State Economic Development Law to “include reasonable provisions providing for the partial or complete withdrawal of the power under the power for jobs program in the event that the recipient fails to maintain mutually agreed upon levels of employment and power utilization”. 

As I noted earlier, prior to the amendments enacted in 2004, EDPAB, in the process of reviewing applications for reallocations after expiration of three-year contracts, made recommendations based on the job levels reported in reallocation applications consistent with those provisions of the Economic Development Law.  The 2004 law removed EDPAB’s ability to recommend approval of proportionally reduced allocations, by making any applicant in noncompliance with job commitments ineligible for any level of extended benefit.  

At the February 22, 2005 EDPAB meeting, the board asked staff to advise all non-compliant applicants that the board was unable, under provisions of the 2004 amendments to the law, to recommend approval of their applications for extended Power for Jobs benefits.

The omnibus power for economic development legislation[7] approved in the 2005 legislative session included provisions addressing this issue. Specifically, the legislation amended the provisions of the 2004 law, which stated: “An applicant shall be eligible for such reimbursements and/or extensions only if it is in compliance with and agrees to continue to meet the job retention and creation commitments set forth in its prior power for jobs contract,” by adding the phrase: “or such other commitments as the board deems reasonable.”

Administration of the programs authorized by the 2005 omnibus act has been consistent with the legislative intent articulated in bill memorandum and public announcement of the new law.

Specifically, the bill memorandum states: “Extension of the Power for Jobs program adopted in 2004 (as part of Chapter 59 of the Laws of 2004) authorized extended benefits for Power for Jobs customers with contracts that expire before December 31, 2005. However, provisions of the law restricted the eligibility of applications to customers whose job commitments were in full compliance with prior contracts. This legislation would allow such customers to be eligible for partial benefits in proportion to their compliance with revised job retention and creation commitments, as determined by the EDPAB.”[Underlining added for emphasis.]

The June 21, 2005 News Release, “Governor, Majority Leader, Speaker Announce Agreement on Comprehensive Energy Legislation,” similarly stated that provisions of the bill would “Create more flexibility in the Power for Jobs Program by allowing customers to receive partial benefits under the Program in proportion to their compliance with job retention and creation commitments.” [Underlining added for emphasis.]

On September 19, 2005 the Economic Development Power Allocation Board acted to recommend approval of extended benefits for 379 Power for Jobs customers with commitments to protect more than 150,000 jobs. The NYPA Board of Trustees approved the benefits as recommended by EDPAB at its monthly meeting on September 20, 2005.

Of that set, 278 applicants were determined to be meeting or exceeding their contractual job commitments and were recommended by EDPAB to continue to receive their previous allocations.

Of those in compliance with contractual job commitments, 215 applied for contract extensions and were approved to receive allocations totaling 136 megawatts linked to job commitments totaling 87,874. In aggregate, those customers reported actual job levels totaling 93,818, exceeding their prior contractual job commitments by 5,944 jobs. In addition, 63 customers in compliance with contractual job commitments applied for rebates were approved to receive benefits equal to the savings provided by 55 megawatts of lower-cost power and linked to 46,891 jobs.

Of the applications considered in September, 101 customers reported actual job levels below their contractual job commitments.  EDPAB recommended and NYPA approved proportional reduction of their allocations reflecting their job shortfall. These 101 customers were approved to receive 36.5 megawatts, in return for revised commitments totaling 16,823 jobs. (These customers had previously been allocated a total of 51.2 megawatts for job commitments totaling 22,912. In total, their combined employment levels were 6,089 jobs lower than their contractual commitments.)

In most instances, these customers had been previously ineligible to receive any level of extended benefits due to provisions of the 2004 law.

In addition to acting on Power for Jobs, EDPAB and NYPA approved new Energy Cost Savings Benefits for 59 industries in New York State.

Chapter 313 of the Laws of 2005 created the Energy Cost Savings Benefit (ECSB) to moderate the costs of electricity for select participants in several power programs. The law authorized a set of sixty-nine customers in the Economic Development Power, High Load Factor power, and Municipal Distribution Agency power programs who may be subject to power cost increases as a result of higher market prices prior to December 31, 2006 to be eligible to apply for ECSB.

Of the 59 companies approved for ECSB this month, 52 were determined to be in compliance with contractual job commitments. These customers were approved for ECSB related to allocations of 189.775 megawatts and linked to job commitments of 71,889. A total of 7 companies reported actual job levels below their contractual job commitments. These companies had previously been supplied 22.350 megawatts for job commitments totaling 5,038 jobs. They were approved for ECSB related to allocations now totaling 15,850 kW, reflecting reduced jobs levels totaling 3,431 jobs.

In their deliberations last month, the members of EDPAB decided to provide a process allowing customers whose benefits were approved at reduced levels to request reconsideration. The criteria for reconsideration are being developed and EDPAB expects to act to institute the process at its October 18th meeting.

While the 2005 law restored EDPAB’s flexibility with regard to job commitments, the language of the new law did not provide guidance about other criteria that might be used in the process of enforcing contract provisions. The proceedings of this hearing, as well as correspondence we have received from Speaker Silver and Chairman Tonko which speaks to the Assembly’s intent with regard to provisions of the new law, will certainly assist in EDPAB’s development of criteria and implementation of the reconsideration process.

As I noted earlier, job commitments are not only considered as part of the application process, they are also reviewed during the term of approved contracts. Each Power for Jobs contract contains an employer commitment to retain or add a specific number of jobs.  If the reported job levels are below 90% of that commitment the Power Authority may reduce that customer's power allocation proportionately.

Power Authority staff conducted reviews of the employment commitments of Power for Jobs allocations. The reviews were done annually on the anniversary date the employer began receiving power under the program. The results of the first reviews were reported to the Power Authority trustees in March 2000. Over the first two years of job commitment reviews, the Trustees had reduced or terminated the allocations for 18 Power for Jobs customers who were not in compliance with their contractual job commitments.

In March 2002, recognizing the effects of the national economic downturn,   compounded by the economic impact of the 9/11 terror attack, NYPA Trustees approved a one-year moratorium on job commitment review actions. The Trustees subsequently extended the moratorium in 2003 and 2004. 

The January 2003 Trustee Item on the matter provides a summary of the rationale for the moratorium:

“Recent reviews of customer job commitments show that the customers are continuing to feel the effects of the national economic downturn and most failures to meet job commitments may be attributed to overall economic conditions.

“Analysis of employment volatility by the Federal Reserve Bank of New York indicates that a significant portion of changes in New York State’s employment relate to national economic conditions. The regional economies of New York State may be more or less sensitive to national economic trends (71% of Buffalo area employment volatility may be explained by national changes, compared to 37% of Albany area employment volatility.). However, for New York State as a whole, about 65% of change in employment levels is attributable to fluctuations in the national economy.

“Following the release of New York State’s most recent employment data on January 23, 2003, New York State Chief Economist, Stephen Kagann, reported: ‘Due to the lingering effects of the national recession, seasonally adjusted private employment in New York fell 6,800 or 0.1% in December 2002 from the previous month, equal to the national rate of decline of 0.1%. From December 2001 to December 2002, New York private employment declined 44,600 or 0.6%. A large share of the job losses was concentrated in New York City, which endured both the direct effects of September 11th and the reverberations from the national recession.’

“Consistent with overall national and state employment trends, approximately two-thirds of PFJ customers reported lower jobs in their current period than they had previously reported. Reducing their allocations would only continue to add to their financial distress.”

Given the end of the national recession and considering the provisions of the 2004 law making program participants in noncompliance with jobs commitments ineligible for any extended benefits, there was no further extension of the moratorium.

I should also note that, while the Trustee established a temporary moratorium on the enforcement of contractual job commitments in the Power for Jobs program, NYPA continued to enforce job commitment provisions in contracts for power under the Expansion Power, Replacement Power, Economic Development Power, High Load Factor Power and Municipal Distribution Agency Power programs.

The difference between these program and Power for Jobs are two-fold. First, contracts in these other programs are for longer terms than the three-year Power for Jobs contracts. Hence, they are not be subject to allocation and job commitment revisions  as part of the contract renewal process as frequently as Power for Jobs customers. Second and, more significant, is the fact that power in these other program that is recovered by job commitment enforcement can be reallocated to other recipients and be used to retain and create other jobs. The Power for Jobs law, due to the short-term, transitional intent of the program, does not include provisions authorizing reallocation of power recovered by job commitment enforcement.    

From the year 2000 to present, NYPA Trustees have acted on five sets of annual job commitment reviews and reduced 21 allocations in program other than Power for Jobs by an overall total of 21.27 MW resulting from employment shortfalls of 9,299 jobs.

EDPAB and NYPA have endeavored to administer the programs to achieve an essential balance. Corporations looking to continue to receive extended benefits should be held accountable for delivering the jobs they contractually committed to protect. Yet, we know that we must work to be sure that the remaining jobs and other benefits that these corporations provide to their communities are not further diminished by the pro-rated reductions.

Review of applications for extended benefits must certainly continue to include review of a corporation’s record of compliance with its contractual job commitments, but as has been suggested, that review should also include other factors. For example, Speaker Silver and Chairman Tonko have indicated in correspondence (September 23, 2005 letter to NYPA Chairman Joseph J. Seymour) to NYPA that EDPAB should be examining a company’s specific economic circumstances, including “regional and global competition, significant changes in business models and workforce transformation.” 

I appreciate the opportunity to provide this testimony, just as we were pleased to provide the Assembly with the detailed information it requested in advance of this hearing, including copies of the applications and related EDPAB and NYPA materials provided for board deliberations on the applications. In addition, the Assembly will be provided with the minutes of the September meeting of EDPAB and the NYPA Trustees subsequent to the ratification of those minutes at the October meetings.

If you have questions, I will do my best to answer them.

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