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ENERGY COMMITTEE NEWSLETTER, January 30, 2001

Staff Contact: Ken Pokalsky

SYSTEMS BENEFIT CHARGE (SBC) APPROVED BY PUBLIC SERVICE COMMISSION

PSC RATIFIES SBC EXTENSION AND EXPANSION

On January 24th the Public Service Commission (PSC) approved, with some amendments, the System Benefits Charge (SBC) expansion and extension that was proposed last fall. Specifically,

Peak load reduction is designed to lower the overall amount of electricity consumed by the state as a
whole.

The goal of this new phase is to reduce the statewide consumption of electricity by over 1,400 Megawatts per year by year five. Under the PSC staff proposal, 15 objectives were outlined to
lower the state's overall wholesale megawatt consumption. Further details on these comprehensive plans are due in mid-February when NYSERDA is scheduled to reveal its master plan for the
second phase of the SBC.

THE SYSTEM BENEFIT CHARGE (SBC)

A GENERAL OUTLINE

The SBC is a surcharge on electricity that funds programs including energy
efficiency, research and development, low-income services, and environmental protection. Together these programs form the core of the "New York State Energy $mart Program".

The SBC was instituted by the PSC in order to help market transformation by encouraging these programs, many of which had previously been administered by the local investor owned utilities. The PSC feared that
many of these programs would be discontinued without the encouragement of the state. The New York State Energy Research Development Authority (NYSERDA) is the entity charged by the PSC with administering the programs comprehensively entitled "Energy $mart". Under the first round of the SBC, it was assessed at $78 million per year. The SBC was originally scheduled to expire on June 30, 2001. As mentioned above, the new program will continue to fund the New York Energy
$mart programs administered by NYSERDA between 1998-2000 but will also add peak load reduction programs beginning in 2001 and running through 2005.

The Business Council expressed strong reservations about the five-year extension of the program and advocated for the exemption of commercial and industrials from the charge. Under the extension ratified by the PSC on Wednesday, industrial and commercial
rate payers that were previously exempt from the SBC are now subject to the SBC when their flex rate contracts are renewed.

NEW CHAIRMAN NAMED AT THE FERC

The President has elevated Federal Energy Regulatory Commission (FERC) board member Curt Hebert to chairman of the Commission. Hebert has been a board member since 1997. He is widely acknowledged as a champion of the free market system. In FERC’s press release announcing his appointment Hebert stated; “These are challenging times for the Commission as the bulk power markets continue to move toward full and fair competition and more fully embrace the tenets of the free enterprise system. I believe this system is part of the solution rather than part of the problem for the malfunctioning market on the West Coast.”

HERITAGE POWER PLANT SITED

The plant will add 800 megawatts to New York's wholesale electricity market.

The New York State Board on Electrical Generation Siting and the Environment, commonly known as the Siting Board, unanimously approved the application of Heritage Power LLC for a Certificate of Environmental Compatibility and Public Need on January 17, 2001. The permit allows the
company to construct and operate a natural gas fired combined-cycle combustion turbine generator, capable of producing 800 megawatts (MW) of electricity. It is to be located in Sciba, Oswego County. The plant is planned as an addition to the existing 1,042 MW Independence Plant which is owned by Sithe Energies, Inc. Heritage Power is a joint undertaking of Sithe Energies and its affiliates and the General Electric Company (GE). The process to site and build the plant began in early 2000. An application was filed by Heritage in February, the Siting Board started formal public review in April, and public hearings were held in September of 2000. In November 2000 necessary air and water permits were issued by the Department of Environmental Conservation.

The Siting Board is comprised of the Chair of the Public Service Commission, the Commissioners of Environmental Conservation, Health, and Empire State Development, and the Chairman of the Board of the New York State Energy Research Development Authority (or their designees) and one citizen from the County & one from the Judicial District, where the facility is proposed, appointed by the Governor.


NEW YORK INDEPENDENT SYSTEM OPERATOR (ISO) NEWS

On January 16th the Independent System Operators of both New York and New England announced they have approved a resolution that establishes a joint task force on inter-control area market coordination. The resolution provides for a cooperative effort to insure interregional coordination between the two systems. It is an effort to reduce barriers to transactions between the two neighboring wholesale markets. The agreement between the two ISO Boards was made along with their Regional Transmission Organization (RTO) filings.

In a similar vein, the New York ISO also submitted a compliance filing with the FERC for Order 2000 which directs the formation of Regional Transmission Organizations (RTO). RTOs are groupings of ISOs that strive for greater cooperation and virtual seamless electrical reliability and operations between large regions. The filing demonstrates that the NYISO will be able to meet the operational structure required by the federal body to meet the required RTO characteristics. New York’s filing was made jointly with the state’s transmission owners; Consolidate Edison, Central Hudson, Niagara Mohawk, Rochester Gas and Electric, New York State Gas and Electric, and Orange and Rockland Utilities. The New York Power Authority and Long Island Power Authority also supported the measure.

New York is located between the IMO Ontario (Independent Electricity Market Operator), the New England ISO, and the PJM (parts of Pennsylvania, New Jersey Maryland, Virginia, Delaware, and the District of Columbia).

The ISO also announced plans to implement an Emergency Demand Response Program (EDRP) in the event of a power emergency. NYISO is normally required to have 1800 MW of operating reserve as a standby. This program would provide for 200 to 300 MW due to participating customers switching to standby generators or having their power interrupted.


CAROL MURPHY TO JOIN NYISO STAFF

Carol Murphy, the Executive Director of the Independent Power Producers of New York, Inc (IPPNY) was named on January 30th to the position of Executive Director of Government Affairs and Communications at the New York ISO. Her responsibilities will include communicating the complex and intricate issues of the ISO and the wholesale electricity market to both the public and the energy industry.

ELECTRICITY NEEDS HIGHLIGHTED BY
NY BUILDING CONGRESS

The New York Building Congress and four other New York City based groups including the New York City Partnership and Chamber of Commerce, unveiled its report, “A Matter of urgency: New York City’s Electrical Supply Needs” on January 25th. The report was compiled by the energy committee of the NY Building Congress.

The report highlighted the electricity supply problems in New York City. The recommendations included; improved transmission infrastructure, conservation efforts, price signals to encourage consumer response, demand response management, the encouragement of distributed generation, and the need to build more power plants in, and around, New York City.


PRESIDENT ESTABLISHES CABINET LEVEL ENERGY STUDY

President Bush announced on January 29th the establishment of an eight member energy committee to be headed by Vice President Cheney. The committee will include the secretaries of Treasury, Commerce, Transportation, Energy, Agriculture, and Interior and the head of the Environmental Protection Agency.

The panel will be charged with developing a national energy policy. Emphasis will be placed on the imbalance between high energy demand and energy supply shortages. Efforts will also be placed on securing more domestic energy supplies, namely oil, natural gas, and coal.

CALIFORNIA ELECTRICITY PROBLEMS

The State of California continues to experience severe electricity problems. In order to help the utility companies that have been supplying consumers with electricity at fixed rates, the Governor has exhausted the $400 million allocated to last week to buy electricity on the open market for the utilities. The Governor also solicited bids on long-term energy contracts that reportedly came in at an average of $69 a megawatt hour.

After the bids were received the California Legislature began drafting a plan to effectively re-legislate the market. Under one plan, the state would become the buyer of electricity through long term contracts based on the bids solicited. The California Department of Water would then buy power for the state’s utilities who would serve as the distribution agents. Another plan would have the state of California issue bonds to cover the utilities'
debts ($12 billion to date), then retire the bonds over 10 years through rate increases of upwards of 15 percent. In exchange for the financial security, the state would acquire long-term stock options in the companies that the state could sell off when the utilities become more secure. Final plans would have to be passed by both Houses and signed by the Governor.

It has become clear however, that the California problem, according to President Bush, is a problem that is best solved by Californians. He has been reluctant to actively influence the market so far and has limited himself to establishing a task force to review a national energy policy.

ASSEMBLY ENERGY COMMITTEE MEMBERSHIP NAMED

The Speaker of the New York State Assembly named the chairs and members of the standing committees last week. The Energy Committee is as follows;

Chairman; Tonko. Majority members; John, Englebright, Hoyt, Perry, Luster, Ortiz, Scarborough, A. Cohen, M. Cohen. Minority members; Warner, Manning, Herbst.