Executive Speeches

Excerpts from remarks of Roger B. Kelley, president and chief executive officer of the New York Power Authority, at the Explore Buffalo Niagara 2007 economic forum, Niagara Power Project, Lewiston, New York.

September 14, 2007

Good morning, and welcome to the New York Power Authority’s Niagara Power Project—one of the world’s great hydroelectric facilities.

We meet today in the Power Vista—the project’s admission-free visitors center and a major tourist attraction on the Niagara Frontier.  I’m pleased that you’ll have the chance to go through the center after this morning’s session.  It should give you a good sense of the importance of this project and of the vital role of hydroelectric power in the region’s history and development.

For those who may be unfamiliar with the Power Authority, we’re the largest state-owned electric utility in the United States.  We operate 18 power plants—as well as more than 1,400 circuit-miles of transmission lines in various parts of the state.  The Niagara project is our largest generating plant, the largest in New York State and one of the largest in the nation.

Each second, more than 600,000 gallons of water surge through two massive underground conduits that begin about 4 l/2 miles from here—on the Niagara River above the Falls.  This is our fuel—clean, renewable—and free.

Some of that water ultimately plunges about 300 feet to power the 13 turbine-generators in the project’s main generating plant—just north of us, on the Niagara Gorge.  Some is pumped into a reservoir at a second plant across the way—which doubles as a pumping and generating facility.  The stored water is then used to generate electricity at both plants when demand for power is high.

At such times, the Niagara project can dependably produce more than 2,400 megawatts of electricity.  That would be enough to meet the needs of nearly 2 million homes—though, as I’ll make clear later—much of the project’s output is, in fact, designated for use by businesses.

As the project’s operator and a longstanding member of the Niagara Frontier community, the Power Authority is proud to have been the first sponsor to sign on for Explore Buffalo Niagara 2007.  Seeing all of you here proves to me just how wise that investment was.

I’ve lived in the area for the past 15 years so I know firsthand of its many advantages.  And the presence of this hydroelectric project—which produces some of the least-expensive electricity in the United States—is among the most significant of those advantages for businesses considering sites at which to locate or expand.

Niagara power now helps to support more than 44,000 jobs at some 125 companies in Western New York.  With 77 megawatts currently available for allocation to businesses, we hope that some of your companies will be added to that list.  The Power Authority is eager to join with you and other state and local entities to make that happen quickly and efficiently.

I can tell you that this is very much in line with the priorities of our governor, Eliot Spitzer, who is committed to bringing  jobs and investment to New York—and particularly to the Niagara Frontier and other parts of upstate.

The governor has, for the first time, appointed an official—Dan Gundersen—who has responsibility solely for upstate economic growth.  I know that Dan and his team at the Empire State Development Corporation look forward to working with you to meet your needs.

In just the first months of Governor Spitzer’s term, he and the Legislature have enacted substantial property tax cuts and have reduced workers compensation rates by 20 percent. Measures like this can only enhance the value of our low-cost power by improving the general business climate.

The outlook in this part of the state has brightened further thanks to recent developments involving the Niagara project itself.

Late last year, the Power Authority completed a 15-year, $298 million upgrade at the project’s main generating facility.  We replaced the turbines and refurbished the generators and other equipment in all 13 generating units.

We reached an even more significant milestone this past March when we received a new 50-year federal operating license for the project.  This followed an innovative process involving extensive participation by our customers, local communities, regulatory agencies, environmental groups and numerous other parties.  The new license took effect right on schedule—two weeks ago tomorrow.

The successful relicensing means that the Power Authority will be operating the Niagara project for many years to come.  And the upgrade means we’ll be operating it at maximum efficiency.  That’s an extremely promising combination for businesses—present and future—that require a reliable, economical power source.

Agreements we reached as part of the relicensing process call for us to provide a wide range of economic, environmental and recreational benefits on the Niagara Frontier.

We will, for example, contribute a total of nearly $180 million over the term of the license for redevelopment of the waterfront in the City of Buffalo.  The goal is to again make that area the thriving commercial center it once was and a mecca for companies desiring prime locations and access to major U.S. and Canadian markets.  I believe some of you toured the waterfront on Wednesday evening, and I hope you recognized its immense potential.

Under several other relicensing agreements, we’ll provide $450 million over the life of the new license for development of a 35-mile Niagara River Greenway—envisioned as a network of parks, trails and recreational facilities along the river from Lake Erie to Lake Ontario.  The Greenway promises to significantly boost tourism in the region and to enhance its already enviable quality of life.

Let me now turn to my top priority for this morning—which is to tell you something about the two large blocks of Niagara project power that are reserved for Buffalo-Niagara area businesses under state law, what they mean to the Niagara Frontier—and what they can mean to you.

A total of 695 megawatts—more than 36 percent of the project’s firm, or guaranteed, output—is designated for companies pledging to create specified numbers of jobs in return for their power allocations and to invest in Western New York.  The power is essentially available within 30 miles of the project, although a small amount is earmarked for companies in the county that’s southwest of Buffalo.

The cost of the electricity—not counting delivery—is generally less than two cents per kilowatt hour.  That’s nearly 75 percent below alternative wholesale power costs in this part of New York State.

To give you a further idea of the hydropower’s impact, it helps to support about 70 percent of all the manufacturing jobs in the Buffalo-Niagara area.  Overall—when multiplier effects are considered—it’s linked to more than 160,000 jobs in this part of the state and to almost $16 billion in annual gross regional product.

As I’ve indicated, the Niagara allocations to businesses come from two separate blocks.  The larger—known as replacement power—consists of 445 megawatts. The other one is referred to as expansion power and comprises 250 megawatts.

The two categories have existed throughout the history of the Niagara project, but have quite different origins.

Replacement power has its roots in the federal law that designated the Power Authority to build the project.  It was literally intended to replace the power that had gone to area industries from a plant that was owned by Niagara Mohawk—the local private utility—and was destroyed in a rockslide into the Gorge in 1956.

Expansion power was designated by the Power Authority itself for sale to businesses in the region.

Thanks to a series of changes over time, both classes of power are now protected under state law and are virtually identical in everything but name.  That will make life easier for you as you apply to the Power Authority for an allocation.  We’ll determine which class of power to provide—but it will make absolutely no difference to you.

You’ll also benefit from the fact that in 2003 we signed an agreement with several partners in the public and private sectors to coordinate and streamline the marketing and allocation of Niagara power to businesses.  In essence, we created a continuous application and approval process.  The agreement also included formation of an advisory group that helps us identify applicants and review applications in a timely fashion.

We’ve made more than 80 allocations since the new approach began in 2004—which I think demonstrates its effectiveness.

We look at various factors in judging the applications—but none is more important than the number of jobs that will result from an allocation.  As I’ve mentioned, we require specific job commitments and investment plans from every applicant to ensure that this valuable power is being used as productively as possible.

We also consider the ratio of jobs to the amount of power requested, along with the quality and type of jobs.  A company’s current or planned capital investment in the region, as well as in the proposed new or expanded facilities, is another key factor.  In addition, we examine how a proposal fits in with state, regional and local economic development plans.

For many years after the Niagara project began operation, the allocations were largely confined to major manufacturing companies that formed the backbone of the region’s economy—companies like du Pont, General Mills, General Motors and Occidental Chemical.

These and other manufacturers are still vital to the area.  In fact, less than two months ago, we approved additional allocations to two of our long-time industrial customers—Moog, which provides a wide range of products and systems for the aerospace and defense sectors, and Niacet, a large producer of specialty chemicals. We expect that, together, these allocations will lead to creation of 150 new jobs and capital investment of more than $32 million.

But—important as the traditional industries are—our customer base is now far more diverse than in the past.  Here’s just some of what’s been happening as a result of recent power allocations:

• GEICO—one of the largest private auto insurance companies in the United States—has established a national service center on the Niagara Frontier.  This has involved the creation of 650 jobs, retention of 86 and a capital investment of $40 million.  We expect that the leased building will eventually house up to 2,500 employees.
   

• Greatbatch, Incorporated has invested nearly $40 million to purchase and expand a building for the production of medical grade implantable batteries.  About 370 jobs have been protected or created.
   

• Two projects are directly addressing energy and environmental concerns—matters of particular interest to the Power Authority.  Certain Teed Corporation used its power allocation to help transform a brownfield site in Buffalo into a 268,000-square-foot facility for the production of building materials.  Another company—Western New York Energy—is investing $78 million to build a plant that will manufacture ethanol for use in automobiles.
   

• Thanks in part to an allocation the Power Authority approved last January, Citigroup selected a Western New York site for a new 155,000-square-foot office building after considering locations in the Philippines and India—as well as in New Jersey.  Citigroup will lease the space from the developer and will create 500 new Western New York jobs.

The Citigroup case underscores the critical—and potentially decisive—role that our low-cost hydropower often plays in the investment decisions of companies that have numerous options. Many of our customers face worldwide competition—throughout their industries, and within their own companies.  As they frequently tell us, Niagara power is the reason they’re here.

Replacement power and expansion power are at the heart of the Power Authority’s economic development efforts in Western New York.  But I’d also like to touch on a couple of other matters that may be of interest to you.

As part of the relicensing, we’re allocating Niagara power to various local entities in the immediate project area here in Niagara County. The county itself hopes to make at least some of its nine-megawatt share available to new or expanding businesses.

Also in Niagara County, the Power Authority has established a revolving fund through which we provide low-interest loans to companies locating or expanding here. More than 600 jobs have been created thanks to the fund—which is now worth about $8 million.  This may be something you want to consider in addition to a potential power allocation.

The loan fund—like numerous other Power Authority initiatives on the Niagara Frontier—typifies our commitment to this region, to its people and to its economic health.  We take very seriously our responsibility as the custodian of a priceless energy resource.

It was exactly 250 years ago that the first sawmill was built on the Niagara River.  From that modest beginning, waterpower became the region’s lifeblood.

Today, in an age of high technology and a competitive global economy, this invaluable asset—and this power project—may well be more important than ever.  They are among the most compelling reasons for you to Explore Buffalo Niagara.

The New York Power Authority stands ready to assist you in any way that we can.