Executive Speeches

Excerpts from remarks of Roger B. Kelley, president and chief executive officer of the New York Power Authority, at the annual meeting of Multiple Intervenors, Syracuse, New York.

October 11, 2007

Good morning.  It’s a pleasure to be here and to see a number of familiar faces. 

I was delighted to learn that many of the members of Multiple Intervenors are Power Authority customers.  Beyond that, I know that this organization has long been on the front lines in the fight to ensure that New York’s businesses have the reliable, affordable power supply that is essential to economic growth.  

Although I’ve been at the Power Authority for only a little more than three months now,  I’m not exactly a newcomer to the state’s electric utility industry.  Most of my 33 years in the business have been spent here—including a stint as chairman of the Independent Power Producers of New York.  So I think I have a keen appreciation of the issues that concern you.  

I’m very honored to have been selected for the Power Authority job in what I see as an extremely critical period for NYPA and the state’s power industry.   

I believe the Authority is at a crossroads—in terms both of its role in helping to meet the state’s energy needs and in promoting economic development.  I’d like to discuss each of these areas with you today. 

Let me begin by saying that Governor Spitzer has told me that he wants to use the Power Authority to the greatest possible extent to benefit the people of this state. 

This means that NYPA will move aggressively to help meet the governor’s ambitious “15 by 15” target of cutting the state’s energy use by 15 percent below the forecasted level by 2015. 

It means we will figure prominently in efforts to achieve the goals of such energy and environmental initiatives as the Renewable Portfolio Standard and the Regional Greenhouse Gas Initiative. 

And it means we will again focus—where appropriate—on our traditional role of electric power infrastructure development. 

As I recently told my old friends in IPPNY, the Power Authority remains firmly committed to viable competitive power markets in New York State.  We continue to view the private sector as the primary provider of new generation—and transmission infrastructure improvements. But we will do what is necessary if needs are not being met. 

The stark fact is that the additional power plants and transmission lines that New York will need to meet the future requirements of its businesses and residents have not yet been built. 

The absence of a power plant siting law to replace the Article Ten legislation that expired at the end of 2002 is a major concern.  I know there are significant differences of opinion, but I hope the policymakers in Albany will arrive at a resolution that leads to enactment of a new siting law. 

Meanwhile, we’re seeing a steep rise in construction costs for power plants and transmission lines because of huge increases in demand for raw materials, labor and other items.  Longer manufacturing lead times are drawing out project construction—increasing debt costs.

Access to the credit markets has been impeded by an absence of the long-term power supply contracts and long-term capacity markets that can assure potential investors that debt will be repaid.  

The reasons for the delay in building new facilities are clear.  But so, too, is the growing need for those facilities. 

The New York Independent System Operator predicted earlier this year that substantial resource additions—in the form of generation, transmission or demand-side management—will be needed by 2011 to ensure reliable service in Southeastern New York, and beginning in 2012 for the state as a whole. Those lead times are already very tight for licensing and construction of new facilities. 

Just last month, the ISO issued its 2007 Comprehensive Reliability Plan, which found that generation and transmission proposals by independent and regulated entities would—if implemented—meet or exceed reliability requirements through 2016.  But the report also cited a number of risks and uncertainties that could affect those projects. 

Bear in mind, too, that the ISO forecasts are based strictly on reliability needs.  They don’t account for the potential benefits of new energy resources in encouraging competition and reducing costs to businesses and other consumers, in diversifying fuel supplies and in cleaning the air by permitting retirement of older, less-efficient power plants. These are all essential considerations as we plan for the future.           

For the Power Authority, the immediate focus in terms of new capacity is in New York City, where a series of power-supply agreements call for us to serve the city government and other large public entities through 2017.  A number of factors—including the pending shutdown of our 885-megawatt Poletti power project in Queens in January of 2010—could threaten our ability to provide reliable, economical service in that time frame. 

We’ve discussed this situation with city officials and the other customers, who have agreed to have us issue a request for proposals for in-city capacity.  We intend to do so shortly.  As one option under this approach, we could decide to build a new power plant in the city—alone or in a partnership with the private sector.  And—depending on the supply outlook—we will consider the possibility of building or buying capacity to meet citywide needs—not just those of our customers.  

Our eventual recommendations to the customers and to our trustees will be based on the results of the RFP—on what we view as the most favorable overall outcomes for the customers and the city.  But our willingness to even consider building our own plant and to meet needs beyond those of our customers represents a significant change from NYPA’s policies of recent years. 

With respect to transmission, our current emphasis is on rigorously maintaining our existing system and on identifying opportunities to strengthen it.  But—as with generation—the Authority cannot rule out a possible future role in construction of new transmission if circumstances dictate it. 

I think it’s important for those of you in the business community to know that the Power Authority stands ready to help ensure that this state has the electric power infrastructure it will need to meet future demand and to bring down power costs that are among the highest in the nation. 

Having said that, I also believe that it’s the role of the Empire State Development Corporation—not the Power Authority—to take the lead in recommending the allocation of power for economic development. We will, of course, do what the governor and Legislature ultimately require.  But our current thinking is that NYPA’s primary function should be to support ESDC with stable supplies of reasonably priced electricity and improved infrastructure. 

You may recall that putting ESDC in charge of the allocation process was among last year’s recommendations by the temporary commission that examined the various economic development power programs that the Authority administers.  The commission also proposed that ESDC—not NYPA—head the Economic Development Power Allocation Board.  That’s the panel that recommends—for NYPA approval—the companies to receive allocations and other benefits available through some of those programs. 

Two of the initiatives—Power for Jobs and Energy Cost Savings Benefits—expired last June and were extended until next June 30 through legislation signed by Governor Spitzer.  But the governor and the legislative leaders agreed that the one-year extensions provided only a bridge to a comprehensive long-term strategy that would bring certainty to businesses receiving the power and maximum benefit to the state in terms of jobs and investment. 

An action by the Power Authority’s trustees this past July opened an opportunity to create a potential element of that strategy. 

The trustees reallocated, on an interim basis, 455 megawatts of low-cost firm hydroelectric power to three upstate investor-owned utilities—National Grid, New York State Electric & Gas and Rochester Gas and Electric—for resale to their residential and farm customers without profit.  The allocations took effect after expiration of the previous contracts on August 31. 

There are two important points here:  Proposed new contracts that will formalize the allocations will extend only through June 30, 2008.  And the trustees retained the right—on one month’s notice—to reassign this power for economic development if the governor and the Legislature give us that direction.  The redeployment of the power to businesses was among the temporary commission’s recommendations—though there were dissenting opinions among the members on this issue. 

We’ll be holding a public hearing on the proposed contracts here in Syracuse at City Hall on November 8 and I hope you’ll attend to express your views. 

The availability of additional hydropower for businesses could be of particular benefit in combating the economic problems in upstate New York.  

Although New York’s economy is the 11th largest in the world, the upstate economy has lagged not just downstate, but the rest of the nation. 

According to the Business Council of New York State, while jobs grew nationally by 24 percent between 1990 and 2006, the growth north and west of Rockland and Putnam counties was only three percent.  During the same period, the upstate region lost more than a third of its high-paying manufacturing jobs. 

Governor Spitzer has made it a top priority to bring jobs and investment to upstate New York.  He has, for the first time, appointed an official—Dan Gundersen—who is responsible solely for upstate economic growth.  The substantial property tax cuts and the 20 percent reduction in workers compensation rates that the governor and Legislature enacted earlier this year are other positive developments.  But—regardless of what other measures are taken—there’s no question that the effective use of economical power will remain vital to the state’s economic development efforts. 

As of now, electricity supplied through NYPA-administered programs helps to support about 445,000 jobs at some 775 businesses and non-profit organizations throughout the state.   

In the Buffalo-Niagara Falls area, hydroelectric power from our Niagara project—supplied at rates that among the lowest in the country for businesses—is linked to about 70 percent of the region’s manufacturing jobs. About 73 megawatts are now available for allocation to companies pledging to create jobs and invest in Western New York—so we have a real opportunity to strengthen the area’s economy. 

Back 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.  The agreement included formation of an advisory group that helps us identify applicants and review applications in a timely fashion.   

Since the new process took effect in January 2004, we’ve made allocations to 82 companies with commitments to create more than 4,200 new jobs and invest more than $1.4 billion in Western New York.  I think this demonstrates how NYPA can work effectively with state and local economic development experts in presenting a unified package to businesses seeking assistance.  Carried further, it could provide a model for a new approach in which we focused on producing the power while the decisions on allocations were left to ESDC and others. 

Of course, even low-cost power is no guarantee that jobs won’t move elsewhere. 

One of your members—General Motors Powertrain—has received hydropower from NYPA’s St. Lawrence-FDR project for nearly 50 years, but has announced that it intends to close its Massena plant. 

Also in the North Country, we’re continuing our efforts with the Spitzer administration and Alcoa—another M.I. member—to reach agreement on a new long-term contract with the company for St. Lawrence-FDR power.

With some limited exceptions, Niagara and St. Lawrence-FDR are now the only facilities from which the Power Authority actually supplies power for economic development as opposed to purchasing it from other sources. 

I’m therefore pleased to report that our new 50-year federal operating license for Niagara took effect this past September 1—following the new 50-year St. Lawrence-FDR license we received just about four years ago.  M.I. members in Western and Northern New York played very constructive roles in the relicensing processes—and we appreciate their contributions to the successful outcomes.  

We also concluded a major upgrade at Niagara last December and are carrying out a similar effort at St. Lawrence that’s scheduled for completion in 2013.  Our overall investment in the two programs will come to more than half a billion dollars. 

The new licenses and the project improvements mean not only that the Power Authority will be operating these vital public resources for many years to come, but also that we’ll be operating them at maximum efficiency.  In addition, we’re finding ways to leverage our investments at these projects and elsewhere in ways that are likely to have a positive impact on the state’s economy. 

We are, for example, moving ahead on a $21 million program in which clean, renewable hydropower from the Niagara project will be used to create hydrogen through the electrolysis of water.  The hydrogen produced in this emission-free process will fuel vehicles in Niagara Falls State Park and at a Niagara Frontier Transportation Authority facility.   

If our model is scaled up, we might find that hydrogen can be obtained more cheaply than oil or natural gas.  The impact of that would be profound, since buildings, as well as cars and trucks, could be powered by fuel cells that convert hydrogen to electricity.  Our “Hydropower to Hydrogen” project could, in fact, help give impetus to a hydrogen-based industry in New York State. 

I think projects such as this are in line with goals shared by Multiple Intervenors and the Power Authority. 

We both want to see the state’s businesses prosper.  We both want to contribute to a better quality of life for all New Yorkers.  And we both want to lower electricity costs. 

This shared commitment was demonstrated recently when we joined forces to help resolve some significant cost issues in a state Public Service Commission proceeding on NYSEG rates. A Commission order and a subsequent settlement ensure that stranded costs and certain other surcharges will not be included in the delivery rates for NYPA business customers in NYSEG’s territory.  Such exemptions have already resulted in annual savings to the existing customers of more than $6 million—a figure that will increase as new businesses are added. 

In a broader sense, the Power Authority sees Multiple Intervenors as far more than a group of energy consumers.  We think of you as the drivers of change and a nucleus for civic and economic improvement. 

This is important to keep in mind as opportunities beckon. 

We’re now seeing a cheaper dollar spurring exports. 

We’re seeing new patterns of supply and demand for labor drawing millions of skilled workers into gainful employment. 

We’re seeing new patterns of development as light industrial parks, shopping malls and low-density office complexes spread beyond the cities and even the suburbs into previously untapped areas. 

We must find ways to embrace these opportunities and to capitalize on them.  The Power Authority looks forward to working with you in meeting this and the other challenges that lie ahead.