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ENERGY COMMITTEE NEWSLETTER, November 30, 2000

ENERGY COMMITTEE REVIEWS 2001 LEGISLATIVE PROGRAM

The Business Council's Energy Committee met on November 29th to review and compile its 2001 legislative program. A copy of that program will be mailed (or e-mailed) to each member of the committee early next week.

The committee also heard a presentation by William Flynn, the Vice President of the New York Energy Research Development Authority (NYSERDA). Mr. Flynn, who spoke on the topic of phase one of the System Benefits Charge (SBC), was aided by Peter Smith, Brian Platt and Christine Benedict.

Mr. Flynn outlined the role and performance of the SBC under its first two years and presented the committee with some examples of programs currently being operated by NYSERDA.

The committee also discussed the System Benefits Charge as proposed by the Public Service Commission. See article below.

SYSTEM BENEFITS CHARGE (SBC)

The Energy Committee, at its November 29th meeting, reviewed the PSC proposal to expand and extend the SBC for another five years at almost double the current rate beginning January 1, 2001. The funding would be increased from $78 million per year to $139 million per year.

The new SBC, or phase 2, is designed to maintain the first aspect of the program; "electric load reduction, outreach and education, energy efficiency, research and development, low income customer assistance, environmental disclosure, and individual utility public benefit programs." But it also adds a new goal; peak load reduction.

The Business Council, while agreeing with the concepts of peak load reduction and energy conservation, issued comments contending that "if its [SBC] load reduction goals are achieved there would in all likelihood, be net energy dollar savings for electricity rate payers overall. But the reverse is also true - if the goals are not achieved, this program will increase, rather than reduce, energy costs overall."

In our letter to the PSC, we argued that the SBC should be extended for no more than two years, and that it be restructured to protect commercial and industrial customers from any increase.

The Public Service Commission is scheduled to take action on this proposal at its December 13th meeting. The Business Council's letter to the Commission and the article outlining our position were e-mailed to the committee last week. They have also been posted on the Energy page.

PUBLIC SERVICE COMMISSION / CON ED MERGER

The PSC met on November 28th in New York City. The Commission approved three items regarding Con Ed and its proposed merger with Northeast Utilities (00M0095, 99E1020, 96E0897). The merger plans still have to be approved by several federal regulatory bodies and the state of Connecticut.

As part of the deal, Con Ed will reduce rates to its electricity, gas and steam customers. Electricity rates will be reduced by over $1.5 billion. The agreement will effectively extend the Electric Restructuring Agreement approved by the PSC in 1997 to the year 2005.

The Public Service Commission will meet in New York City on December 13th at 10:30 am.

NEW YORK POWER AUTHORITY

The New York Power Authority, in an effort to insure adequate electricity supply in the City of New York, has recently selected five (5) sites for nine (9) small, clean electric generators. An additional site is being considered on Staten Island.

The generators are all 44 megawatt gas turbines. If operated in groups of two, the generators will produce 79.9 megawatts, thus the units will not be subject to approval under Article X of the Public Service Law. They will, however, need the approval of the Department of Environmental Conservation (DEC).

An eleventh (11th) generator will be installed on Long Island at the request of the Long Island Power Authority (LIPA). Hearings on the proposals will be held in mid-December by DEC. NYPA hopes to have the generators operating by June 1, 2001.

NEW POWER AUTHORITY TRUSTEE

The State Senate confirmed the appointment of Timothy Carey of Montrose as a trustee of the New York Power Authority on November 29th. Mr. Carey replaces Hyman Miller who resigned after 10 years on the board. In addition to Mr. Carey, the board is comprised of C.D. "Rapp" Rappleyea, the chairman, Louis Ciminelli, Gerald DiMarco, and Frank McCullough.

PSC expert: New York needs to increase power plants to meet future demand

New York State will not have enough energy capacity to meet its demand unless it sites more power plants soon, an expert from the Public Service Commission (PSC) has told The Business Council.

"Electric supplies are tight for 2001, 2002, and beyond unless new generation is built," Howard Tarler, Chief of Bulk Transmission Systems for the PSC, said Nov. 13 at the annual issues conference of The Council's Government Affairs Council.

"Energy conservation programs alone cannot solve capacity needs. Our neighboring states are building power plants," he added. "We have to start catching up or we are going to be left behind." He noted that an inadequate supply of power was the cause of power problems in California last summer that caused substantial social and economic disruption there.

Growth in demand in New York State: Since 1998, New York State's energy usage has outpaced both moderate and high-end projections, Tarler said. For example, annual peak electricity usage has increased from 27,206 megawatts in 1995 to 30,311 megawatts in 1999. In 1999, New York's actual load exceeded the highest growth projections for 2002, he said, and growth has continued since then.

New York should be able to meet demand for electricity through 2002, Tarler said, citing a "Reliability Assessment for 2000-2009" released in October by the North American Electric Reliability Council.

But after that, Tarler added, "market solutions must be obtained, including several thousand megawatts" of new power.

How the PSC is addressing concerns about supply: To address concerns about the state's future energy supply, the PSC is trying to identify potential sources of new supply and opportunities for demand reduction, and to ensure an efficient and effective siting process for new generating facilities, Tarler said.

For example, for 2001, the PSC hopes to gain 750 megawatts of power, 500 of them in New York City, through a combination of increased generation and load reduction, he said. For 2002, the goal is a net gain of at least 600 additional megawatts, of which 200 should be in New York City, he said.

To meet short-term goals, Tarler said, the New York Power Authority (NYPA) has bought 11 44-megawatt gas turbines to be installed by next summer, nine or 10 in New York City and the rest on Long Island.

ARTICLE X ISSUES

The Business Council of New York State, Inc., at its Annual Issues Conference in November, discussed the urgent need for additional generation in New York State. See article above.

There is a clear-cut need for more electrical generating capacity in the state of New York. At the Issues Conference, evidence was presented that brought to light the fact that the supply of electricity in the upcoming summer, and beyond, will be extremely tight. This fact was also highlighted at the Annual Meeting in September when industry executives discussed the need for more capacity.

Recently, 4 out of 5 applicants for sites in New York City were rejected by the Siting Board as incomplete. With the estimated need for at least 750 more megawatts for 2001 (500 MW in NYC), the state is in dire need for new generation.

The Business Council is reiterating the need to expedite the Article X process. We hope to bring together representatives from DEC, the PSC, and the generating and transmission industries, to discuss what is needed to insure reliability and increase the number of plants being sited. This topic was discussed at the Energy Committee meeting of November 29th and will continue to be a focus in the year ahead.

A FAREWELL TO LOU FREDA

At the November 29th meeting of the Energy Committee, Chair Michael Rose announced the retirement of KeySpan's Director of Government Relations, Lou Freda. Lou retired on November 30th. We will miss Louie's humor and good cheer and wish him and his wife much happiness.