MINUTES OF THE SPECIAL TRUSTEES MEETING
POWER AUTHORITY OF THE STATE OF NEW YORK
August 30, 2010 - 2:00 P.M.
Table of Contents
Power for Jobs
Extended Benefits, Energy Cost Savings Benefit Awards and Economic
Development Power Program Contract Extensions, Exhibit - “2-A” – “2-D”
3. Next Meeting
Minutes of the Special Meeting of the Power Authority of the State of New York held via videoconference at the following participating locations at approximately 2:00 p.m.
1) New York Power Authority, 123 Main Street, White Plains, NY, 16th Floor Board Room
2) New York Power Authority, 501 7th Avenue, New York, NY, 9th Floor Board Room
3) New York Power Authority, 30 South Pearl Street, Albany, NY, 10th Floor
4) New York Power Authority, 95 Perry Street, Buffalo, NY, 4th Floor
5) St. Lawrence/FDR Power Project, 830 Barnhart Island Road, Massena, NY
6) Harris Beach, PLLC, 99 Garnsey Road, Pittsford, NY
7) Expedite Video Conferencing, Inc., 325 Duffy Avenue, Hicksville, NY
Members of the Board were present at the following locations:
Michael J. Townsend, Chairman – Pittsford, NY
Jonathan Foster, Vice Chairman – New York, NY
D. Patrick Curley, Trustee – Buffalo, NY
Eugene L. Nicandri, Trustee – Massena, NY
Mark O’Luck, Trustee – New York, NY
Richard M. Kessel President and Chief Executive Officer
Gil C. Quiniones Chief Operating Officer
Francine Evans Executive Vice President, Chief Administrative Officer
and Chief of Staff
Elizabeth McCarthy Executive Vice President and Chief Financial Officer
Bert Cunningham Senior Vice President – Corporate Communications
Paul Finnegan Senior Vice President – Public, Governmental and Regulatory Affairs
James F. Pasquale Senior Vice President – Marketing and Economic Development
Donald Russak Senior Vice President - Corporate Planning & Finance
Karen Delince Corporate Secretary
Michael Huvane Vice President – Marketing
Dennis Eccleston Chief Information Officer
Michael Saltzman Director – Media Relations
Timothy Muldoon Manager, Business Power Allocations and Compliance
Angela D. Graves Deputy Corporate Secretary
Lorna M. Johnson Assistant Corporate Secretary
Chairman Townsend presided over the meeting. Corporate Secretary Delince kept the Minutes.
Chairman Michael Townsend called the Special Meeting to order pursuant to Article III, Section 4 of the New York Power Authority By-Laws. He said the meeting was to take action on the Power for Jobs and Energy Cost Savings Benefits programs. He said the notice that is required under the By-Laws to call a special meeting had been given.
The President and Chief Executive Officer submitted the following report:
“On August 9, 2010 the Governor signed legislation authorizing an extension of the Power for Jobs (‘PFJ’) and the Energy Cost Savings Benefit (‘ECSB’) Programs through May 15, 2011. At their August 17, 2010 meeting, the Economic Development Power Allocation Board (‘EDPAB’) recommended to the Trustees that they approve the extension of PFJ program benefits to the customers listed in Exhibit ‘2-A’ and ECSB program benefits to the customers listed in Exhibit ‘2-C’ through May 15, 2011. It is therefore recommended that the Trustees approve such extensions and also, as necessary, extension of contracts for Economic Development Power, High Load Factor and Municipal Distribution Agency power through May 15, 2011, to coincide with the term of extended ECSB benefits to such entities for the customers listed in Exhibit ‘2-B.’ Lastly, the Trustees are requested to extend the expiration dates of the ECSB rates contained in the applicable tariffs (ST-1, ST-1S, ST-35, ST-50 and ST-50A) to May 15, 2011 as shown in Exhibit ‘2-D.’
Power for Jobs
“In July 1997, the New York State Legislature and the Governor approved a 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 PFJ electricity.
“The program, originally intended to last three years, has been extended many times by the Legislature. Chapter 59 of the Laws of 2004 extended the benefits for PFJ customers whose contracts expired before the end of the program in 2005. Such customers had to choose to receive an ‘electricity savings reimbursement’ rebate or a power contract extension. The Authority was also authorized to voluntarily fund the rebates, if deemed feasible and advisable by the Trustees.
“In 2005, provisions of the approved State budget extended the period PFJ customers could receive benefits until December 31, 2006. Chapter 645 of the Laws of 2006 included provisions extending the program benefits until June 30, 2007. In 2007, a new law (Chapter 89 of the Laws of 2007) included provisions extending the program benefits until June 30, 2008.
“In 2008, a new law (Chapter 645 of the Laws of 2008) included provisions extending the program benefits until June 30, 2009. In 2009, Chapter 217 of the Laws of 2009 included provisions extending the program benefits until May 15, 2010. In 2010, Chapter 311 of the laws of 2010 included provisions extending the program benefits until May 15, 2011.
Contract Extensions and ESCB Awards
“The Authority sells electricity to businesses under several State-authorized economic development power programs. These power sales are made through the Economic Development Power Program, High Load Factor Manufacturer Program, Municipal Distribution Agency Industrial Power Program and other power sales programs. The capacity and energy for these sales are provided by market purchases and supported by other Authority sources, as needed. In some instances, these customers are served directly by the Authority and in other cases the customers receive Authority power through resale arrangements with municipal distribution agencies or investor-owned utilities. Contracts range in length from 5 to more than 20 years.
“Chapter 313 of the Laws of 2005 allowed customers from the above-listed economic development programs that would otherwise be exposed to price increases to apply for benefits under the ECSB program. The legislation also authorized the Authority to sell certain amounts of unallocated hydropower into the wholesale market and use the net earnings from such sales to fund the Energy Cost Savings Benefits. During periods of lower market prices, the net earnings from the available hydropower have been sufficient to cover the cost of the ECSB program. In higher priced markets, however, the Authority has needed to contribute to the ECSB program. From the inception of the program in November 2005 through May 2010, the net earnings from the unallocated hydropower sold into the wholesale market virtually offset the customer losses.
Power for Jobs
“The recently passed legislation would allow PFJ recipients to continue with existing elections (i.e., power contracts or rebates) through May 15, 2011, with the program benefits administered as in current law. In addition, the legislation extends the availability of ‘restitution’ for those PFJ power contract customers that incur aggregate higher costs in the program as opposed to taking service from their local utilities under standard tariff provisions.
“Under the Economic Development Law as amended by the legislation, EDPAB may prescribe a simplified form and content for an application for such extended PFJ benefits. An applicant is eligible for extended PFJ benefits only if it is in compliance with and agrees to continue to meet the job retention and creation commitments set forth in its prior PFJ contract, or such other commitments ‘as the board deems reasonable.’ However, in light of the need to avoid disruption in receipt of such benefits, the legislation requires that EDPAB expedite the award of extended PFJ benefits and defer the review of compliance with job commitments until after the applicant has been awarded extended benefits.
“In light of this legislative goal that current PFJ program participants receive uninterrupted PFJ extended benefits, EDPAB recommended that review of compliance matters be deferred until on or before October 26, 2010. EDPAB recommended that the Authority approve such extensions for all PFJ program participants, subject to receipt of proper documentation requesting such extensions and agreement to the requisite commercial terms.
“It should be noted that, due to the retroactive nature of this extension, there could be unavoidable gaps in the continuation of PFJ contract service. There will likely not be disruption in the provision of PFJ rebates since they are calculated after the fact.
“The Trustees are requested to approve contract extensions or the funding of rebates for the companies listed in Exhibit ‘2-A’ through May 15, 2011. The actual payment of rebates for the companies listed in Exhibit ‘2-A’ will continue to be made as in prior years subject to the financial considerations contained in the Fiscal Information section below. While the Trustees will not be asked to approve the payment amounts on a monthly basis, the information will be made available to them when requested. The total cost of the extended rebate program is estimated to be about $50 million at current market prices. From the inception of the rebate program in 2005 through the end of 2009, the Authority incurred $202.5 million in rebate payments to eligible customers, averaging slightly more than $40 million per year.
Contract Extensions and ECSB Awards
“There are 75 High Load Factor, Economic Development Power and Municipal Distribution Agency program customers whose underlying power contracts have terms ending on May 15, 2010, or on other dates before May 15, 2011. In order for such customers to receive an extension or initial award of ECSB benefits, it is necessary to extend their underlying power contracts. Pursuant to the Economic Development Law, EDPAB has recommended extension of Economic Development Power contracts, as necessary, so that such businesses will be able to receive ECSB benefits through the end of the legislation’s extension period on May 15, 2011. These customers are listed on Exhibit ‘2-B.’
“ECSB awards serve to moderate rates for businesses served under the High Load Factor, Economic Development Power and Municipal Distribution Agency programs. Under the new legislation EDPAB is authorized to approve extensions of ECSB awards through May 15, 2011. The legislation extends ECSB benefits to entities that are currently receiving such benefits and businesses under these programs whose rates would be subject to increase on or before May 15, 2011. For entities currently receiving ECSB awards, the legislation provides for continuation of the existing level of benefits for another year while allowing the Authority to continue to use up to 70 MW of unallocated Replacement Power and up to 38.6 MW of unallocated Preservation Power to fund the ECSB awards, provided that any such Replacement Power must be made available for allocation in Western New York and any such Preservation Power must be made available in Franklin, Jefferson an St. Lawrence counties during the extension period.
“As under current law, applications for extensions of ECSB awards are to be in the form and contain such information, exhibits and supporting data as EDPAB may prescribe. EDPAB is to review the applications received and determine the applications that best meet the criteria established for the ECSB awards and recommend such applications to the Authority with ‘such terms and conditions as it deems appropriate.’ In order to avoid disruption in the delivery of ECSB benefits, the bill directs EDPAB to expedite the award of ECSB and to defer the review of compliance with job commitments until after applicants have been awarded ECSB.
“In light of the requirement of the legislation that current recipients receive extended ECSB benefits with minimal disruption subject to later review of compliance matters, EDPAB has recommended that the Authority approve extensions for all current ECSB program participants, subject to receipt of proper documentation requesting such extensions and agreement on the requisite commercial terms. Consistent with the legislative goal that current ECSB program participants receive extended benefits with minimal disruption, EDPAB recommended that review of compliance matters be deferred until on or before October 26, 2010. The list of EDPAB recommended ECSB awarded companies are listed in Exhibit ‘2-C.’
“It should be noted that due to the requirements of the host utilities and the late approval by the Legislature, there could be unavoidable gaps in the continuation of service to certain power program customers that request ECSB benefits. However, the ECSB benefits will be applied retroactively from May 16, 2010.
“It is recommended that subject to the new legislation and the financial considerations contained in the Fiscal Information section below, the Trustees approve ECSB awards to companies listed in Exhibit ‘2-C’ through May 15, 2011, the cost of which, at current market prices, is expected to be fully offset by the net receipts from the sale of unallocated Replacement Power and Preservation Power as allowed by the legislation. However, as noted above, should market prices increase to levels higher than that of today, there may be a net cost to the Authority, which, based on historical results observed during the life of the program, would not be expected to exceed $20 million. Accordingly, in such an event, Staff recommends that the Trustees authorize a withdrawal of up to $20 million from the Operating Fund for the payment of such amounts, provided that such amount is not needed at the time of withdrawal for any of the purposes specified in Section 503(1)(a)-(c) of the General Resolution Authorizing Revenue Obligations, as amended and supplemented.
“Given the financial condition of the Authority, its estimated revenues, operating expenses, debt service and reserve requirements staff is of the view that it is feasible for the Authority to pay the anticipated added costs associated with the extension of the PFJ and ECSB programs through May 15, 2011 without compromising its financial integrity.
“Based on today’s market prices, the ECSB program costs are expected to be fully offset by the net earnings from the unallocated hydropower sold into the wholesale market. The extension of the PFJ program is estimated to cost the Authority approximately $50 million. Such results have already been reflected in the Authority’s 2010 Budget and Four-Year Financial Plan approved by the Trustees at their December 15, 2009 meeting as the extension of these Programs was included as a key assumption in the preparation of the financial projections therein.
“The Executive Vice President and Chief Financial Officer and the Vice President – Marketing recommend that the Trustees approve the extended Power for Jobs and Energy Cost Savings Benefits and the contract extensions as set forth above. Additionally, the Trustees are requested to amend the service tariffs’ Energy Cost Savings Benefits expiration date to May 15, 2011.
“The Executive Vice President and General Counsel, the Senior Vice President – Marketing and Economic Development and I concur in the recommendation.”
President Richard Kessel thanked everyone for attending the special videoconference meeting. He stated that the resolution before the Trustees is the extension of the existing Power for Jobs (“PFJ”) and Energy Cost Savings Benefits (“ECSB”) programs that expired on May 15th. He said that the programs were extended to June 2nd after which time they lapsed because the State Legislature failed to agree on a bill. He said the proposed Energize New York program would extend the programs to more than one year with longer-term contracts and would enable the Authority to offer the program to additional customers; however, the Legislature was unable to agree on the new program. He continued that the Assembly and Senate adopted and the Governor signed an extension of the current programs to May 15, 2011. He concluded that the extension is critically important to the existing customers to retain jobs and urged the Trustees to adopt the resolution.
Mr. James Pasquale presented the highlights of staff’s recommendations to the Trustees. In response to a question from Trustee Eugene Nicandri, Mr. Pasquale said that rebates are paid retroactively; therefore, there will be no lapse in payments to customers. In response to another question from Trustee Nicandri, Mr. Pasquale said that the program expires May 15, 2011. In response to a question from Vice Chairman Jonathan Foster, Mr. Pasquale explained that if a customer is meeting its job commitments, that customer is entitled to be in the program until its expiration on May 15, 2011. Responding to a question from Chairman Townsend, Mr. Pasquale stated that the PFJ and ECSB programs would cease to exist on May 16, 2011. If the Legislature passes a new program, all the customers in the existing program will have to reapply. Under the new program, more power will be available, enabling new customers to participate. In response to another question from Chairman Townsend, Mr. Pasquale said that the proposed Energize New York program will operate under new criteria that will make it more efficient than the current program. In response to another question from Chairman Townsend, Mr. Pasquale explained that the proposed Energize New York program combines 455 MW of Authority hydropower sold to National Grid, New York State Electric and Gas Corporation and Rochester Gas and Electric Corporation with 455 MW of market power to make more than 900 MW of power available to customers statewide. If existing customers apply for the same amount of power they presently have, there will still be enough power available to attract new customers. The criteria for receiving this power would include job creation and retention and capital investment. President Richard Kessel added that Energize New York would offer long-term contracts to customers and the ability for the Authority to bring new jobs to New York State. In response to a question from Trustee Curley, Mr. Donald Russak said that the estimated “not to exceed amount” of $20 million for the programs was derived from high-cost historical conditions, in particular, the year 2008, when market price for electricity was very high. The potential cost of the program is largely a function of market prices, and the determination as to the Authority’s ability to pay takes into account water flows and the Authority’s financial stability and integrity. For planning purposes, the Authority had assumed there would be an extension of the PFJ and ECSB programs and therefore, they were included in its yearly budget projections. In response to another question from Trustee Curley, Mr. Russak said that if there is a conflict between the payment of the estimated $20 million budgeted for the programs and Section 503(1) of the Authority’s Bond Covenant, then the Authority would not be able make any payments under the PFJ and ECSB programs. In response to further questions from Trustee Curley, Mr. Russak said that the legislation did not include reference to the Gross Receipts Tax Credit. In response to a question from Trustee Nicandri, Mr. Pasquale said that the extensions had been approved by the Economic Development Power Allocation Board.
The following resolution, as submitted by the President and Chief Executive Officer, was unanimously adopted.
WHEREAS, the Economic Development Power Allocation Board has recommended that the Authority approve contract extensions and electricity savings reimbursements to the Power for Jobs customers listed in Exhibit “2-A”; and
WHEREAS, the Economic Development Power Allocation Board has recommended that the Authority approve contract extensions to the Economic Development Power and High Load Factor Power program customers listed in Exhibit “2-B”; and
WHEREAS, the Economic Development Power Allocation Board has recommended that the Authority approve the award of Energy Cost Savings Benefit Awards to the customers listed in Exhibit “2-C”;
NOW THEREFORE BE IT RESOLVED, That in compliance with the legislation described in the foregoing report of the President and Chief Executive Officer, the Authority implement such Economic Development Power Allocation Board recommendations, and the Authority hereby approves Power for Jobs contract extensions through May 15, 2011 for those companies listed on Exhibit “2-A” and authorizes the continued payment of Power for Jobs electricity savings reimbursements to the companies listed in Exhibit “2-A” as submitted to this meeting, subject to the terms set forth in the foregoing report of the President and Chief Executive Officer and that the Authority finds that such extensions are in all respects reasonable, consistent with the requirements of the Power for Jobs program and in the public interest; and be it further
RESOLVED, That subject to enactment of legislation substantially in the form described in the foregoing report of the President and Chief Executive Officer, the Authority approves contract extensions for the Economic Development, High Load Factor and Municipal Distribution Agency customers set forth in Exhibit“2-B,” provided the Authority receives proper documentation requesting such extensions and agreement on the requisite commercial terms; and be it further
RESOLVED, That the customers’ service tariffs be modified accordingly to reflect the extension of the program as shown in Exhibit “2-D”; and be it further
RESOLVED, That based on the recommendation of staff, it is hereby authorized that payments be made for electricity savings reimbursements as described in the foregoing report of the President and Chief Executive Officer in the aggregate amount of up to $50 million for all extensions of such programs after May 15, 2010 and it is hereby found that amounts may properly be withdrawn from the Operating Fund to fund such payments; and be it further
RESOLVED, That subject to enactment of legislation substantially in the form described in the foregoing report of the President and Chief Executive Officer, the Trustees approve Energy Cost Savings Benefit Awards to the companies listed in Exhibit “2-C,” for the period through May 15, 2011, in an amount up to $20 million net of receipts from the sale of unallocated Replacement Power and Preservation Power as allowed by legislation; and be it further
RESOLVED, That such monies for the electricity savings reimbursements and for the Energy Cost Savings Benefit Awards may be withdrawn pursuant to the foregoing resolution upon the certification on the date of such withdrawal by the Senior Vice President – Corporate Planning and Finance or the Treasurer that the amount to be withdrawn is not then needed for any of the purposes specified in Section 503 (1)(a)-(c) of the General Resolution Authorizing Revenue Obligations, as amended and supplemented; and be it further
RESOLVED, That the Senior Vice President – Marketing and Economic Development or his designee be, and hereby is, authorized to negotiate and execute any and all documents necessary or desirable to effectuate the foregoing; and be it further
RESOLVED, That the Chairman, the Vice Chairman, the President and Chief Executive Officer, the Chief Operating Officer and all other officers of the Authority are, and each of them hereby is, authorized on behalf of the Authority to do any and all things, take any and all actions and execute and deliver any and all certificates, agreements and other documents to effectuate the foregoing resolutions, subject to the approval of the form thereof by the Executive Vice President and General Counsel.
3. Next Meeting
The next Regular Meeting of the Trustees will be held on Tuesday, September 28, 2010, at 11:30 a.m., at a location to be determined in Syracuse.
On motion made and seconded, the meeting was adjourned by the Chairman at approximately