NEW YORK POWER AUTHORITY

 

 

 

 

2011 REPORT TO THE GOVERNOR AND LEGISLATIVE LEADERS
ON POWER PROGRAMS FOR ECONOMIC DEVELOPMENT

 

New York Power Authority

Michael J. Townsend, Chairman

John S. Dyson, Vice Chairman

D. Patrick Curley

Jonathan F. Foster

Eugene L. Nicandri

Mark O’Luck

Wayne LaChase

 

 

New York State Economic Development Power Allocation Board

 Samuel Hoyt, Chairman

Robert B. Catell

Eugene L. Nicandri

Bernard P. McGarry

 

 

April 2012

 

 

 

 

 

 

 

 

NEW YORK POWER AUTHORITY

 

 

2011 REPORT TO THE GOVERNOR AND LEGISLATIVE LEADERS ON POWER PROGRAMS FOR ECONOMIC DEVELOPMENT

 

 

This report is submitted by the Power Authority of the State of New York (Power Authority, or NYPA) pursuant to Subdivision 14 of Section 1005 of the Public Authorities Law (PAL). Subdivision 14 directs the Power Authority:

 

To provide to the governor, to the speaker of the assembly, and to the temporary president of the senate, on or before April first of each year, an economic development report including projections for the next succeeding twelve months of the amount of economic development power, expansion power, replacement power, preservation power, high load factor power, municipal distribution agency power and power under the power for jobs programs which will be or is expected to be available with a listing of the current recipients of such power, and data on the number and types of jobs resulting from allocation of such power under each such program. Such report shall include the amount of revenues collected and used in the previous calendar year pursuant to the eighth unnumbered paragraph of this section. Such report shall describe the process by which the authority obtained lowest cost power made available under the power for jobs program. Such report shall contain a record of wholesale power supply bids provided to the authority under a competitive procurement process and the price of power obtained through any alternate methods. Such report shall state the reasons for choosing each specific source of power under each of the foregoing power programs and the price at which that power was available. [1]

 

[1] The current version of Subdivision 14 expires on June 30, 2012. For reporting year 2011, Subdivision 14 would seem to impose reporting obligations on NYPA that overlap with new reporting requirements provided for in Subdivision 18 of Section 1005 (enacted as part of Chapter 60 of the Laws of 2011, which also enacted the Recharge New York (RNY) Power Program). We have assumed this overlap to be unintentional, and that the intent is for Subdivision 18 reporting to begin after Subdivision 14 expires. Accordingly, in an attempt to harmonize these reporting requirements, NYPA will adhere to the requirements of Subdivision 14 for reporting year 2011, and begin reporting in accordance with Subdivision 18 with reporting year 2012. This approach also reflects the fact that the Power For Jobs and the Energy Cost Savings Benefit programs expire on June 30, 2012, and the Recharge New York Power Program does not commence until July 1, 2012, meaning that none of the information referenced in Subdivision 18 can be reported concerning this program until the 2012 reporting year.

 

A.                Economic Development Power

·         Projected Availability

 

Economic Development Power (EDP) is defined in state law (PAL § 1005, as amended by Chapter 313 of the Laws of 2005) as power that is voluntarily relinquished by businesses to the authority, except that it shall not include any power from the Niagara or Saint Lawrence-FDR projects or any power under the Power for Jobs (PFJ) program which may be voluntarily relinquished by businesses, small businesses, and not-for-profit corporations. As of March 31, 2012, 259.70 megawatts (MW) of such power had been voluntarily relinquished by businesses. A balance of 106.7 MW of EDP is currently unallocated. The total quantity of EDP may increase in 2012 if a business purchasing EDP under a contract signed prior to formation of the Economic Development Power Allocation Board (EDPAB) relinquishes such power. 

 

Under the provisions of Chapter 313 of the Laws of 2005, existing EDP customers are eligible, and have been approved, for the rate moderation provided by the Energy Cost Savings Benefit (ECSB), created in 2005 and subsequently extended through June 30, 2012. As a consequence, any new allocations of EDP would not have the benefit of ECSB, and thus would need to be sold with commodity costs at market prices (See section, “Power Purchases for the High Load Factor, Economic Development Power and Municipal Distribution Agency Power Programs,” for more information.)

 

Chapter 60 (Part CC) of the Laws of 2011, which created the RNY Power Program, extended ECSB through June 30, 2012 after which ECSB will expire.  As discussed below, ECSB customers may be eligible for “transitional electricity discounts” provided for under Chapter 60. 

 

·         Current Allocations

 

As of March 31, 2012, the Power Authority has approved, upon the recommendation of EDPAB, 52 allocations of EDP to 46 companies totaling 153.0 MW.  All current EDP allocations are listed in Exhibit I.

 

 

B.                 Power for Jobs

·         Projected Availability

 

Chapter 316 of the Laws of 1997 established the PFJ program to provide low-cost power to businesses and not-for-profit corporations that agree to retain or create jobs in New York State. In return for commitments to create or retain jobs, successful applicants receive three-year contracts for electricity under the program. The program was to be phased in over three years, with approximately 133 MW being made available each year.

 

Chapter 386 of the Laws of 1998 amended the Power for Jobs statute to accelerate the distribution of the power, making 267 MW available in Year One. The 1998 amendments also increased the size of the program to 450 MW, with 50 MW to become available in Year Three.

 

Chapter 63 of the Laws of 2000 included provisions authorizing another 300 MW of power to be allocated under the PFJ program as “Phase Four” of the program. Customers who received allocations in Year One were authorized to apply for reallocations. The balance of the power was awarded to new applicants. All 300 MW were allocated by July 2001.

 

Chapter 226 of the Laws of 2002 authorized another 183 MW of power to be allocated under the PFJ program. The additional megawatts are described in the statute as “Phase Five” of the program. Customers who received allocations in Year Two or Year Three were given priority to reapply for the program. Remaining power was awarded to new applicants. All 183 MW were allocated by the end of July 2003.

 

In August 2004, Chapter 59 of the Laws of 2004 included provisions to extend benefits for PFJ customers whose contracts expire before scheduled “sunset” of the program, then December 31, 2005. Such customers were allowed to choose to receive an “electricity savings reimbursement” rebate and/or a power contract extension.  PFJ customers with contracts expiring by November 30, 2004 were made eligible for a rebate from the date their contract expired through December 31, 2005. The law also authorized customers to alternatively choose to receive a rebate from the date their contract expired as a bridge to a new contract extension.  New contracts would be in effect from a period no earlier than December 1, 2004 through December 31, 2005.

 

In March 2005, Chapter 59 of the Laws of 2005 extended the “sunset” of the program until December 31, 2006. The new law made all PFJ customers with contracts or benefits expiring December 31, 2005 eligible to apply for a one-year extension of benefits in the form of either a contract extension or “electricity savings reimbursement.”

 

Chapter 645 of the Laws of 2006 extended PFJ until June 30, 2007, required NYPA to provide restitution to the PFJ customers who paid more than the local utility rates as a result of 2006 price increases, authorized manufacturers who are PFJ customers currently served by contract extensions to be able to choose to be served by energy savings reimbursement rebates, and authorized NYPA to pay the additional costs of the electricity savings reimbursements, energy costs savings benefits and voluntary contributions to the state treasury to the extent the Power Authority had sufficient resources.

 

Chapter 89 of the Laws of 2007 extended PFJ until June 30, 2008. 

 

Chapter 59 of the Laws of 2008 extended PFJ until June 30, 2009. 

 

Chapter 217 of the Laws of 2009 extended PFJ until May 15, 2010.

 

Chapter 311 of the Laws of 2010) extended PFJ until May 15, 2011. 

 

Chapter 60 (Part CC) of the Laws of 2011, which created the RNY Power Program, extended PFJ through June 30, 2012 after which PFJ will expire.  As discussed below, PFJ customers may be eligible for “transitional electricity discounts” provided for under this law. 

 

·         Current Allocations

 

As of March 31, 2012, there are a total of 411 allocations of PFJ to 388 employers totaling 278.8 MW that have been recommended by EDPAB and approved by the Power Authority.  A summary of the current PFJ allocations is listed in Exhibit II.  The exhibit indicates the type of benefit chosen by the customer – electricity savings reimbursement (rebate) or power contract.

 

 

C.                Expansion Power

·         Projected Availability

 

Under PAL § 1005), the Authority may contract to allocate or reallocate directly, or by sale for resale, 250 MW of firm hydroelectric power as “Expansion Power” to businesses in the State located within 30 miles of the Niagara Power Project, provided that the amount of Expansion Power allocated to businesses in Chautauqua County on January 1, 1987 shall continue to be allocated in such county. As of March 31, 2012, 12.8 MW is available for allocation to eligible businesses.

·         Current Allocations

As of March 31, 2012, there are 105 allocations of Expansion Power that have been approved by the Power Authority to 74 companies totaling 237.2 MW.  All current Expansion Power allocations are listed in Exhibit III.

 

D.          Replacement Power

·         Projected Availability

 

"Replacement Power" is the 445 MW of firm hydropower generated by the Authority at its Niagara Project pursuant to PAL § 1005(13).  To qualify, a business must have facilities for the receipt of Replacement Power within 30 miles of the Authority’s Niagara switchyard and otherwise meet the criteria set forth in PAL §1005(13).  Chapter 313 of the Laws of 2005, as amended by Chapter 645 of the Laws of 2006, authorizes up to 70 MW of unallocated Replacement Power to be used for ECSB awards to mitigate rate increases to benefit eligible business customers throughout the State, provided that the full 70 megawatts is deemed to be available for allocation in Western New York.  As of March 31, 2012, a balance of 26.8 MW of Replacement Power is available for allocation to eligible businesses.

·         Current Allocations

As of March 31, 2012, there are 126 allocations of Replacement Power that have been approved by the Power Authority to 72 companies totaling 418.2 MW. All current Replacement Power allocations are listed in Exhibit IV.

 

 

E.                 Preservation Power

·         Projected Availability

Chapter 313 of the Laws of 2005 established the “Preservation Power” program relating to allocations of hydropower within the counties of Jefferson, St. Lawrence and Franklin Counties from quantities sold to Alcoa and GM Powertrain from the St. Lawrence-FDR Power Project. The Preservation Power Program is comprised of 490 MW, including 478 MW of firm and interruptible hydropower currently sold to Alcoa and 12 MW of hydropower that was previously sold to GM Powertrain.

 

Chapter 313 of the Laws of 2005, as amended by Chapter 645 of the Laws of 2006, authorizes up to 38.6 MW of unallocated Preservation Power to be used for ECSB awards to mitigate rate increases to benefit eligible business customers throughout the State, provided that the full 38.6 megawatts is deemed to be available for allocation within the counties of Jefferson, St. Lawrence and Franklin.

 

As of March 31, 2012, 11 MW has been relinquished by The Racer Trust, formerly GM Powertrain. Of the 11 MW, there is currently 1.7 MW of Preservation Power available for allocation to eligible businesses. 

·         Current Allocations

 

As of March 31, 2012, there are six allocations of Preservation Power that have been approved by the Power Authority to six companies totaling 488.3 MW. All current Preservation Power allocations are listed in Exhibit IX.

 

During 2011, new allocations of Preservation Power were awarded to Newton Falls Fine Paper Co. LLC and Upstate Niagara Cooperative, Inc.  Newton Falls was awarded 5 MW as an incentive to invest $21.7 million in refurbishing and restarting papermaking operations at its facility in Newton Falls, St. Lawrence County, thus creating 91 jobs. Upstate Niagara Cooperative was awarded 3 MW to invest $11 million to purchase and expand operations at a shuttered North Lawrence dairy processing plant in St. Lawrence County, thereby creating 80 jobs.

 

F.                 High Load Factor Power

·         Projected Availability

 

The Power Authority’s “High Load Factor” (HLF) power program allocates 96.25 MW to energy-intensive industries throughout the state. Eligibility for the program is limited to expanding industries demonstrating that electricity costs are equal to at least 7.5% of product costs, an electric load of 5 MW or greater and demand of 540 kilowatts/month or greater.  HLF allocations are eligible and have been approved for ECSB as described above in Section A of this Report.

·         Current Allocations

As of March 31, 2012, the Power Authority has approved eight allocations of High Load Factor power to six companies totaling 96.25 MW.  All current High Load Factor allocations are listed in Exhibit V.

 

G.                Municipal Distribution Agency Power

·         Projected Availability

 

         NYPA’s “Municipal Distribution Agency” (MDA) power program provides 96 MW for downstate Municipal Distribution Agencies (New York City Public Utility Service Agency; the County of Westchester County Public Utility Service; the Nassau County Public Utility Service and the Suffolk County Public Utility Service). MDA allocations are eligible and have been approved for ECSB as described above in Section A of this Report.

·         Current Allocations

As of March 31, 2012, the Power Authority, upon the recommendation of various agencies, has approved 27 allocations of Municipal Distribution Agency power to 25 companies totaling 62.2 MW. All current Municipal Distribution Agency allocations are listed in Exhibit VI.

 

 

H.                Recharge New York Power Program 

 

Chapter 60 (Part CC) of the Laws of 2011 created the RNY Power Program. The RNY Power Program makes 910 MW of “Recharge New York Power” (“RNY Power”) available to “eligible applicants” for the purpose of attracting new businesses and retaining and expanding existing businesses throughout the State of New York. 

 

In summary, the RNY Power resource is comprised of: (1) fifty percent (50%) of firm hydroelectric power from the Authority’s Niagara and Saint Lawrence-FDR hydroelectric projects (“RNY Hydropower”) that was withdrawn, effective August 1, 2011, from the utility corporations that had purchased such power for the benefit of domestic and rural consumers; and (2) fifty percent (50%) of market power procured by the Authority from market or other authorized sources (“RNY Market Power”). 

 

 Pursuant to Chapter 60, the Authority is authorized, beginning July 1, 2012, to “make available, contract with and sell” to eligible applicants such RNY Power allocations as are recommended by EDPAB.  RNY allocations will consist of equal parts of RNY Hydropower and RNY Market Power.

 

Pursuant to Chapter 60 and by order of the NYS Public Service Commission, utilities are required to deliver RNY Power at a discount.  In essence, the discount derives from exempting RNY Power from the Renewable Portfolio Surcharge and the Systems Benefit Charge, including the Energy Efficiency Portfolio Standard surcharge.  The delivery discount will apply to a Customer’s total RNY Power allocation even if the Customer decides to purchase the RNY Market Power component of its RNY allocation from a non-NYPA source.  If a customer declines to purchase RNY Market Power from the Authority, the Authority will have no responsibility for supplying such power to customer for the term of the allocation.

 

At the time this report was completed, the Power Authority had received approximately 1,010 applications for RNY Power. 

 

I.                   Competitive Procurement of Power for the PFJ Program  

Under Chapter 316 of the Laws of 1997 which created the PFJ program, up to half of the program’s 400 MW was authorized to be provided from the Fitzpatrick Nuclear Power Project and the balance to be obtained from other suppliers through a competitive procurement process.  The 1997 law also required the bids selected to provide power at costs lower than those of the Fitzpatrick plant.  Chapter 386 of the Laws of 1998 amended the program, increasing the amount of power available from 400 MW to 450 MW. 

 

Chapter 63 of the Laws of 2000 expanded the PFJ program and extended it until December 31, 2005, and authorized the Power Authority to provide power from alternative sources if those sources had prices lower than power obtained via the competitive procurement process.  This provided NYPA the flexibility to request additional bids if the initial responses to NYPA’s request for proposal (RFP) were insufficient.

 

Since the program began in 1997, the Power Authority has issued twenty-two RFPs. 

 

Public notice of a RFP has been provided by advertisements in newspapers around the State notifying would-be bidders of the program.  As provided for under RFP #18, issued March 1, 2006 for the period May to December 2006, NYPA solicited bids each month for its prospective requirements in the following month.  This procedure continued under RFP # 19, issued October 25, 2006 for the January to June 2007 period, under RFP # 20, issued July 16 2007 for the July 2007 to June 2008 period, under RFP # 21, issued May 20, 2008 for the July 2008 to June 2009 period, and under RFP # 22, issued July 21, 2009 for the July 2009 to May 2010 period based upon the legislation extension described earlier.  Energy marketers and power providers were sent letters inviting them to participate in the bidding process. On average, the RFP was sent to about 20-40 parties.

 

To be considered, proposals were required to be submitted complete and on time, conforming to the specifications and other requirements of the RFP. Bidders were required to provide sufficient financial guarantees and comply with applicable local, state, and federal laws and regulations, including those of the New York Independent System Operator, Inc. (NYISO).  Bidders were expected to indemnify and hold the Power Authority harmless against all loss, damage and expense of every kind on account of adverse claims, which could arise from transactions with the bidder.

 

Bids were evaluated based on whether they met the minimum requirements for the bid; whether selecting their bids would result in the lowest possible cost to the Power for Jobs customers; and whether the bidder’s financial and operational ability was adequate to carry out the terms of the agreements.  The environmental impact of the bidder’s power supply was also a factor in the evaluations.  Bidders with emissions from the source of capacity at or below the set emissions limitations received “tie-breaker” preference over other bidders with the same price.

 

            The energy and capacity requirements for PFJ are currently being met through market purchases.  Exhibit VII shows the history of the bids provided to the Authority under the competitive procurement process. 

 

 

 

J.         Power Purchases for the High Load Factor, Economic Development Power and Municipal Distribution Agency Power Programs 

 

When the HLF, EDP and MDA programs were established, energy and capacity for the programs were supplied by the FitzPatrick Nuclear Power Project.  The project was sold by NYPA to the Entergy Corporation in 2000.  Upon the sale of the plant, NYPA purchased the output from the plant by a purchased power agreement (PPA).  The PPA expired on December 31, 2004.  Chapter 313 of the Laws of 2005 removed references to the FitzPatrick Nuclear Power Plant as the source of power for these programs and provided that NYPA could use power from other sources to continue to serve the customers in these programs.  Energy for the programs was supplied by NYPA NYISO purchases, primarily in the day ahead market (or DAM), at prices published on the NYISO website for each hour of the year.  Similarly, capacity requirements were secured through purchases in the NYISO markets.

 

The tariffs containing the customers’ rates are Service Tariffs ST-1, ST-1S, ST-35, ST-50 and ST-50A.  The long-standing base production rates of $8.16/kW and $23/MWh were initially modified when the pricing option ended for certain customers (Option 3) on December 31, 2006. Upon termination of the pricing options, the customers sought and were approved for ECSB status.  Since the initial approval, the ECSB status has been expanded to include virtually all the HLF, EDP and MDA power program customers and has been subsequently extended three times.  At the Trustees’ April 2011 meeting, the ECSB customers’ status and rates were extended to June 30, 2012.  In total, there are currently 22 different ECSB production rates.  The average of the 22 ECSB rates is $9.62/kW and $28.34/MWh.

 

In accordance with Chapter 60 of the Laws of 2011, ECSB was extended to June 30, 2012 and will then expire.

   

 

K.      Power Supply for the Replacement, Expansion and Preservation Power Programs

 

                The supply source of energy and capacity for the Replacement Power program and the Expansion Power program is the Authority’s Niagara Power Project.  The supply source of energy and capacity for the Preservation Power program is the Authority’s St. Lawrence-FDR Power Project.  In circumstances when Great Lakes water levels present low flow conditions, if desired by the customers NYPA purchases energy from the NYISO markets and sells it to program customers at cost.  There were no recorded low flow conditions during 2010 and 2011.

 

L.              Rates

 

            Replacement Power base rates were approved by the Power Authority Board of Trustees in 1994, initiating a plan to phase-in rate adjustment such that Replacement Power and Expansion Power base rates would be equal in 2006.  The base rates are $3.80/kW and $6.50/MWh.  Expansion Power base rates were initially set in 1995.  Every May, the base rates are subject to a multiplier that is a composite of four indices (The indices are: Producer Price Index (PPI) for Industrial Commodities, GNP deflator, PPI for Industrial Power, and a fuel multiplier).  Effective September 2011, the multiplier was 1.44 and when multiplied by the base rates, produces a billing rate of $5.47/kW and $9.36/MWh. 

 

            Alcoa base rates are $4.040/kW and $7.984/MWh as established in 1998.  Similar to Replacement Power and Expansion Power, the base rates are subject to an annual index adjustment.  (The three Alcoa indices are: PPI for Industrial Commodities less Fuel, Energy Information Administration based Regional Industrial Rate Average and PPI for Industrial Power). Current billing rates for the two Alcoa plants are $4.40/kW, $8.69/MWh and $4.47/kW, $8.84/MWh.  (The difference in the rates for each plant is a result of contract provisions approved when the plants were separately owned).  The Racer Trust in Massena is served at the Replacement/Expansion Power rates.

 

            At their March 2009 meeting, the Power Authority Trustees suspended the multiplier adjustment for the RP/EP and Preservation Power customers.  The suspension was removed at the Trustees’ July 26, 2011 meeting, beginning with the September 2011 billing period. As of the first quarter of 2012, there are three (3) Trustee approved Preservation Power Allocations, but none have begun their allocation takedowns.  They will be served under Service Tariff No. 10, and their current applicable base rates are $6.71/kW and $11.48/MWh.

 

M.         Net Revenues Produced by the Sale of Expansion Power 

 

For the year ending December 31, 2011, there was $7,321,000 in net revenues available from the sale of Expansion Power.  Net revenues are defined in the eighth unnumbered paragraph of Section 1005 of the Power Authority Act as “any excess of revenues properly allocated to the sales of expansion power over costs and expenses properly allocated to such sales.”

                            

                                                                                                    2011 ($)

 

Gross Production Revenues:            $23,005,000

 

Production Costs:                              $15,684,000

 

Net Production Revenues:                $  7,321,000

 

         

The Authority is directed under PAL § 1005, no less than annually, to identify net revenues and submit, for EDPAB approval, an Economic Development Plan (“Plan”) for the use of such revenues as Industrial Incentive Awards.    Net revenues for the 2008, 2009 and 2010 periods, $7,598,000, $7,802,000 and $6,431,000 respectively, were utilized in conformance with the Plan.

 

In 2009, EDPAB approved a modified Plan to make Industrial Incentive Awards available to companies in New York State that are at identifiable risk of closure or relocation to another state. In 2010, EDPAB approved an amendment to the Plan to support the Canal Side Development Project in Buffalo.  All current  Industrial Incentive Awards are listed in Exhibit VIII.

 

N.                Transitional Electricity Discounts 

 

Section 6 of Chapter 60 (Part CC) of the Laws of 2011 authorized the provision of “transitional electricity discounts” to RNY Power applicants who are in substantial compliance with all contractual commitments and receiving benefits under the PFJ, ECSB, EDP, HLF or MDA programs, but do not receive a recommendation from EDPAB for a RNY Power allocation.  Specifically, Section 6 provides:

 

§ 6. Transitional electricity discount. Notwithstanding any provision of title 1 of article 5 of the public authorities law or article 6 of the economic development law to the contrary, with respect to applicants who are in substantial compliance with all contractual commitments and receiving benefits under the power for jobs, energy cost savings benefit, economic development, high load factor or municipal distribution agency programs, but do not receive a recommendation from the New York state economic development power allocation board for a recharge New York power allocation pursuant to section 188-a of the economic development law, such board shall recommend that the power authority of the state of New York provide for a transitional electricity discount to such applicants. The power authority of the state of New York is authorized, as deemed feasible and advisable by the trustees, to provide such transitional electricity discounts as recommended by the New York state economic development power allocation board. The power authority of the state of New York shall identify and advise such board whether sufficient funds are available for the funding of such transitional electricity discounts through June 30, 2016. The amount of the transitional electricity discount for the period July 1, 2012 through June 30, 2014 shall be equivalent to 66 percent of the unit (per kilowatt-hour) value of the savings received by the applicant under the power for jobs or energy cost savings benefit programs during the 12 months ending on December 31, 2010. The amount of the transitional electricity discount for the period July 1, 2014 through June 30, 2016 shall be equivalent to 33 percent of the unit (per kilowatt-hour) value of the savings received by the applicant under the power for jobs or energy cost savings benefit programs during the 12 months ending on December 31, 2010.