The Power to Grow:
Development of the 2002 New York State Energy Plan

June 15, 2001

Mr. Paul DeCotis
New York State Energy Planning Board
c/o New York State Energy Research
and Development Authority
Corporate Plaza West
286 Washington Avenue Extension
Albany, New York 12203-6399

Dear Mr. DeCotis:

RE: The Power to Grow: Development of the 2002 New York State Energy Plan

New York State needs an energy policy that:

  1. Focuses on the need for reliable energy supplies, at costs for consumers and businesses that are competitive with those in other states.
  2. Facilitates the development of energy resources in the state including at least 10,000 megawatts of new, more efficient, environmentally friendly base-load electric generation, which we believe should be sited where needed within the next five years.
  3. Assists energy consumers, including residents and businesses, in making efficient, cost-effective and environmentally friendly use of energy supplies.
  4. And provides the coordination needed to ensure that key supply efforts dependent upon multiple parties (for example, the expansion of electric and gas distribution systems) occur in a timely fashion.

Because we believe these policy goals are of paramount importance to New York's economic health, and to the well-being of its citizens, The Business Council is submitting extensive recommendations for consideration in the 2002 State Energy Plan now being developed by the Energy Planning Board.

New York's economy needs the power to grow—and the Board's work can, and should, play an important role in making that happen.

The Business Council of New York State, Inc., is the statewide, broad-based business organization in the Empire State. It represents some 3,600 member firms with a total of some 1 million employees statewide, as well as chambers of commerce and other business associations in every part of the state.

The staff and members of The Business Council have carefully reviewed the 1998 State Energy Plan, and weighed the pressing energy concerns facing the State. In developing these comments, we have queried our broad membership, met with representatives of the State Energy Planning Board, and invited members of that Board to address The Business Council's Energy Committee.

At the outset, we stress energy policy (rather than "plan") because policy more accurately captures the important task before the Energy Planning Board. As stated in the 1998 SEP, its purpose is "to provide strategic direction and policy guidance, and to coordinate State government's activities and responses to the fundamental changes that will occur over the next several years."(1)

Energy Law Sections 6-104 and 6-106 require that the Board review and update its State Energy Plan every four years, and spell out what the plan shall contain. But the looser, public understanding of the meaning of the word "plan" tends to give rise to unrealistic expectations as to what the Board and the State can accomplish in this process.

New York's state government cannot, for the most part, supply the energy needs of its residents and enterprises. It cannot control the amount of energy used in the state. In a global market of energy supply, it cannot control the price. It cannot precisely forecast the demand for energy even a few years ahead—let alone the 20-year forecasts demanded under the statute. It cannot forecast energy prices over such a time frame, either.

The experience of just the most recent State Energy Plan is instructive in this regard. It forecast that new electric generating capacity might not be needed until 2010.(2) Yet this spring, less than three years after that plan was published, state officials and the Power Authority were urgently working to site new generating capacity in and around New York City to avert a threatened supply shortfall this summer. The projection was off, but the policy was sound—and that is what saved the day.

New York State can work within the framework of a free-market economy to expand energy supplies and distribution systems, facilitate energy efficiency and environmental protection, and coordinate efforts to eliminate gaps and bottlenecks in the supply and delivery systems.

Properly pursued, such policies will strengthen New York's economy—the core concern of The Business Council. Plentiful supplies will ensure competition, which is essential in reducing the cost of energy and strengthening the State's competitive edge. Secure and reliable supplies will give business the confidence to invest and provide jobs in New York.

Our comments are respectfully offered within the framework of this understanding of the Board's mission. They are focused on topics we believe are important to the state as a whole. We have broken our submission into ten subject areas.

1. Electrical generation

In terms of its economic health, New York State's first and most urgent need is for an energy policy that encourages and facilitates the rapid development of additional sources of electrical supply.

This is critical both to avert a very real threat to the reliability of the system—and to provide competition that will drive down prices, making real the deregulated markets envisioned in the state's restructuring of the electric utility industry.

The recent experience of California—a power crisis that has thrown that state into recession and has gravely jeopardized the state government's fiscal stability, even before the potential worst of the crisis has hit—illustrates just how much New York has at stake in this arena.

California legislatively adopted a deeply flawed "deregulation" scheme that gravely exacerbated its problems; New York has not emulated those mistakes.

But the two states share this fundamental similarity: Demand for electricity has been growing, without new capacity being developed to meet it. It is only a matter of time, therefore, before a similar crisis hits New York—unless we facilitate the development of new generating capacity.

As illustrated in Figure 1, above, New York's demand for electricity has been growing steadily. Indeed, from 1980 through 2000, New York State's annual peak demand for electricity grew 5.1 times as much as our population, and 2.1 times as much as our employment base. The state's energy market is becoming more "electrified"; electric generation accounted for 43 percent of primary energy consumption in New York in 1999, up from 35.8 percent in 1985.(3) Yet as of this writing, the state has not seen a major new electrical generating facility actually go on line since 1995.(4)

As illustrated in Figure 2, below, over the 20-year period from 1980-2000, New York's peak demand grew by roughly 1,000 more megawatts than it added in terms of new generating capacity. Over the last five years of the period, peak demand grew by 2,700 megawatts, yet only 293 megawatts of new capacity were added.(5)

We know it is well understood by the Energy Planning Board, and by the responsible state agencies, that left unchanged, this situation is a disaster waiting to happen.

Reliability concerns, alone, make it vital that New York rapidly bring new generating capacity on-line. We are grateful that the Power Authority, the Public Service Commission and other state entities have moved so forcefully to install new, smaller generating units in and around New York City to avert reliability problems this summer. But the danger will only grow in the years immediately ahead. The NYISO forecasts that the state needs to add another 875 megawatts of generating capacity within a year just to meet the reserve requirements for summer 2002 even assuming a reduced rate of growth in demand.(6)

If we fail to meet our basic reliability needs, we run the risk of California-style "rolling blackouts" that could jeopardize public health and safety, inconvenience our citizens, damage our economy and debase New York's reputation. Imagine having to announce that the world financial capital is off-line right now because—oops!—we forgot to build the electric generating capacity that we need.

There are good reasons that the New York State Reliability Council mandates an 18 percent reserve capacity margin. The very highest energy policy priority of this state should be to meet that reliability standard.

But our needs go beyond reliability.

As the 1998 SEP articulated, New York has deregulated its marketplace for electricity in order to bring down this state's longstanding high cost of electricity, and make our state more competitive. Deregulation is intended to restrain prices by forcing suppliers of generation to compete against each other. In a properly functioning market, this policy also has environmental benefits, because the lowest bidders will be those with the lowest costs, and they will be the suppliers operating newer, more efficient and (other things being equal) more environmentally friendly generating facilities.

This was a highly desirable—and urgently needed—policy goal. New York's economic health depends upon securing competitive costs for all forms of energy, including electricity. As of 1999, average residential electric rates in New York were 39.6 percent above the national average, commercial rates were 36.3 percent above the national average, and industrial rates were 8.3 percent above the national average.(7)

Yet electricity industry deregulation will not work—indeed, it will turn against us—if we do not enable new suppliers to enter the market. If available supplies do not keep up with demand, prices will be bid progressively higher. This is the very phenomenon that is right now, today, closing the doors of businesses in California and pushing its state government towards potential bankruptcy.

How much surplus capacity do we need to ensure competition, lower prices and environmental benefits? No specific target was identified during the course of deregulation. But a very useful calculation has since been formulated by the NYISO, which operates the electric market in the state. The NYISO has developed a detailed database of information about how prices respond to specific supply and demand situations. Working from that experiential basis, the NYISO calculates that the state needs about 15 percent excess capacity, above what is needed for system reliability, to ensure competition. With that level of surplus, the NYISO has concluded, average electric rates in the state should be about 20 to 25 percent below what they would be if only the reliability margin were met.(8)

Projecting that peak demand over the next five years will grow about 7.2 percent, and then adding an 18 percent reliability factor and the margin of about 15 percent to ensure price competition, the NYISO calculates that New York needs to bring an additional 8,600 megawatts of capacity on-line by 2005.

NYISO's projection of annual growth was admittedly conservative, and The Business Council believes that it could well turn out to be too low. Peak demand has grown by nearly 10 percent—not 7 percent—over the past five years. If that growth rate were to continue for the next five years, and using the same 18 percent-plus-15 percent calculation, New York would need an additional 9,658 megawatts of capacity by 2005—as illustrated in Table 1 on the following page.

The good news is that there are more than enough proposals for new generating facilities now being advanced than are needed to address our near-term supply concerns. Based on filings at the NYISO, we calculate that developers currently have some 72 potential new generating plants (or expansions of existing plants) in various stages of consideration. These would add total new capacity of about 27,000 megawatts—all targeted, in theory, to come on line by 2005 at the latest. If a bit more than a third of these plants could be approved and built, our near-term needs for new capacity would probably be met.

Table 1: Projection of New Capacity Needed by 2005
2000 peak demand (source: NYISO) 30,200 MW
Add 5-year growth of 9.82%, based on experience of 1995-2000 + 2,965 MW
Projected peak demand 2005 = 33,165 MW
+18% margin for reliability + 5,069 MW
+15% Margin for competition + 5,870 MW
Total capacity needed, 2005 = 45,005 MW
LESS: Capacity on-line, 2000 - 35,347 MW
New capacity needed, 2001-2005 + 9,658 MW

The bad news is that these plants will not be built within five years, if the process of approval for siting new plants in New York State continues to operate at its current pace. The siting process under Article X of the Public Service Law in theory provides for consolidated and expedited review, and it has taken as little as nine months once an application is deemed complete. But the process of getting the environmental permits and other items needed before an application is deemed complete can take three years or more.

The Energy Planning Board does not operate the pre-application process, nor the siting process, and hence it cannot directly speed up the siting of new generating capacity. But it can help deal with this problem, in two specific ways.

First, as we detail below, the Energy Planning Board can join The Business Council and other interested parties in seeking reforms that will streamline and speed up the Article X siting process, assuming the statute is to be renewed before it expires at the end of 2002.

Second, the Energy Planning Board can, in the new State Energy Plan, openly identify a need for substantial additional generating capacity, as this state's most important and urgent need in terms of energy policy.

Precisely because the State Energy Plan provides "strategic direction and policy guidance" to all state agencies whose activities impact on our energy supply, this will help all relevant agencies understand that expanded electric generating capacity is a necessity for New York State—not an afterthought, not a secondary consideration, and certainly not a nuisance to be avoided.

The needs forecast in the State Energy Plan have particular saliency, of course, for the plant-siting process itself. The law established to govern the siting process requires that an applicant:

"... shall demonstrate that the construction of the facility is reasonably consistent with the energy policies and long-range energy planning objectives and strategies contained in the most recent state energy plan."(9)

Therefore an electric demand forecast in the State Energy Plan that turns out to be too low could potentially disrupt the legal process of siting new power plants in the state. It is important that the new SEP not under-forecast future electric demand.

It should be noted, as well, that deregulation has completely altered the dynamics of the State's decisions on supply needs. When utilities were regulated and could pass on to ratepayers all their permissible costs, the financial risk of building more capacity than was needed fell on the customers—because the ratepayers had to pay for the plant whether they needed the output or not. Under deregulation, the tables are turned and the financial risk falls on the suppliers; if they build more capacity than is needed, they will simply have to bid lower, or idle their equipment (or sell to other markets, thus bringing in wealth that will create more jobs in New York State).

All this suggests to us that if the State Energy Plan is to err in its projections of future electric demand, it is better to err on the high side rather than the low side. A high estimate will do the most to lower barriers to the development of the energy supplies New Yorkers need.

As demonstrated above, we believe a reasonable projection is that New York needs to site at least 10,000 new megawatts of generating capacity. It would not seem unreasonable to us to err on the high side of that, and clear the way for the siting of as much as 15,000 megawatts of new capacity in the next five to seven years, if potential suppliers step forward with plans on that scale.

We have additional comments on new generation under Section 4, on fuel diversity.

2. Electrical transmission

Just as New York needs additional electrical generation, the state is in dire need of an expansion and upgrade of its electricity transmission infrastructure. The current system faces tight constraints in a number of regions, including the Central East crossover near Utica; New York City; and Long Island. Lines at these points are already carrying the maximum amount of electricity possible, creating "bottlenecks" that expose customers served by those lines to possible power shortages and price spikes.

These transmission limitations are closely related to the issue of where to site new generating plants. In many cases plants must be sited closer to their markets, since our ability to ship power from one region to another is constrained. However, it is often much more difficult to site a plant in the area where its electricity is desperately needed, than to site the plant in rural areas or other places more accustomed to, or desirous of, these facilities.

A good example of this is Oswego County, where a new plant was approved within nine months of its application being filed.(10) Oswego County already hosts a significant number of generating facilities, and so this new plant had a relatively smooth siting process.

When such plants are sited in more rural areas that welcome them, however, it imposes additional strain on the transmission system once power is shipped elsewhere. Power from one area of the state cannot easily be transmitted across New York without losses in electricity. Nor can electricity be stored like other fuels once it is produced. Transmission is also limited in the areas mentioned above where bottlenecks form. In most cases, the transfers of power are at a maximum, thus limiting the amount of electricity that can be generated in one part (upstate, the west) and shipped via wire to downstate (New York City, Long Island).

The addition of new merchant plants in the state's wholesale electricity market can further stress the transmission grid, since the plants are not planned in conjunction with, or in the scheme of, the current transmission system. All major generating facilities must have interconnection studies performed by the ISO. However, these studies are done at the request of the projects, not the ISO. Therefore there is not a clear indicator of where a power plant must be sited other than the free market.

The New York ISO, in its own filings for the 2002 State Energy Plan, articulated several points in this regard with which we concur. The NYISO is proposing to develop a comprehensive Transmission Planning Process in conjunction with New York's market participants and appropriate state agencies, which will allow them to perform scoping statements "to identify cost-effective opportunities for transmission system enhancements" and "support market-based solutions." We believe that these ISO goals, combined with possible federal action to enhance the siting process of transmission and pipeline, will expedite the process of meeting our growing needs for electricity infrastructure.

However, it should be understood that even with the siting of power plants in areas where they are most urgently needed (i.e. New York City and Long Island), new transmission projects are needed to transport electricity from areas where plants have been (or can be) sited to where supply is lacking. Currently, there have been proposals for private corporations to enter the transmission business, including a bold initiative to build transmission lines from Canada to points in New York City underneath the Atlantic Ocean.

Financial incentives may be one option for ensuring upgrades. Another is to expand the use of existing rights-of-way. While there are promising technologies (such as superconductivity) available or on the horizon, we fear they cannot be realized without financial incentives. This area of research should be highlighted in the State Energy Plan, as it was in the federal plan.

3. Natural gas pipeline

New York State needs to expand and upgrade its natural gas pipeline infrastructure. The demand for this clean-burning fuel is increasing in New York (as is the production of natural gas in many areas across the Southern Tier). But bottlenecks in the existing pipeline are making it more difficult to deliver gas throughout New York. Restraints on supply will increase costs for this energy source, too. As of 1999, residential natural gas rates in New York were 28.9 percent above the national average, industrial rates were 21.9 percent above the national average, and commercial rates were 9.9 percent above average.(11)

The State must look for ways to facilitate the development of pipelines, to accommodate future needs for both the commodity and the means to deliver it to the markets where it is most needed.

The natural gas industry and the generating companies are already closely tied; this connection will become closer in the years ahead, due to the increased dependence of generators on natural gas as a primary fuel. Just as an increase in electricity production is dependent on adequate transmission lines for delivery, so too are generators dependent on natural gas pipelines for their fuel supply.

Nor is electric generation the only issue. Making natural gas available in additional parts of the state for commercial, industrial and residential customers could enhance economic development.

New York currently produces about 1 percent of the natural gas it consumes—but if exploration trends continue, that figure could rise to 5 percent. Once produced, adequate infrastructure will be needed to deliver the commodity to market. Encouraging this development will allow the state to be less dependent on out-of-state energy sources, as well as providing tax revenue and entrepreneurial opportunities. Failure to develop the infrastructure will lead to a problem now experienced in Canada—significant production, but no delivery system.

Currently there are several pipeline proposals that effect New York pending before the Federal Energy Regulatory Commission (FERC). These mainline proposals would greatly enhance the supply of natural gas to all New York markets, not the least of which would be the electrical generators planned in, and around, New York City. Of the 22 publicly announced power generation projects, seven are in New York City, five are in Rockland/Orange Counties, and four are in Suffolk County. If the ability to supply these areas with natural gas does not keep pace with consumer demand, we will experience shortfalls, price spikes, and a corresponding problem with electricity costs due to a heavy dependence on natural gas.

One of the biggest hurdles to the creation of more pipeline capacity in the state is the problem of siting and building specific transmission lines. Currently, the issues associated with siting and building natural gas pipelines can be just as cumbersome, time-consuming and expensive as those for siting generating facilities. In fact, siting pipelines (just as with electric transmission wires) can be more difficult because of the amount of territory they traverse, and the frequent need for siting in populated areas. Adding to this are the often redundant (and sometimes conflicting) state and federal regulatory processes, along with the increasingly aggressive tactics of opposition groups. New York should not send so many discouraging signals to those who might consider investing to bring this needed energy to our state.

The New York State Energy and Research Development Authority (NYSERDA) is currently seeking proposals under its Request for Proposal (RFP) No. 600-01; "Study [of] the Interaction of the Gas and Electric Systems in New York State."

The State Energy Planning Board is relying on this study, for which proposals were due by May 30, 2001, for insight into the linkage between electricity and natural gas. The three goals of the study are outlined as follows:

1). To obtain a better understanding of the potential use of natural gas for power generation, and to obtain a better understanding of the interstate and intrastate pipeline systems' abilities to deliver gas.

2). To model the natural gas pipeline systems serving the Northeast and New York State, to estimate the operation of the gas and electric systems, and to determine the high, low, and expected gas demand cases that could be provided in various scenarios.

3). To examine the operation of the electric and gas systems under various contingencies.(12)

The results will examine the impact of natural gas on electrical generation in the state, the pipelines used in the delivery of natural gas, and the long-range effects of the commodity, and its delivery systems, on the New York market. Clearly, the role of natural gas in electricity generation is a factor in fuel diversity; all of the power plant proposals in the siting process are natural-gas fired (with some having oil back-up). The impact of petroleum, as well as other fuel groups, will be addressed in this planned study. The data collected under this study should highlight possible problems and solutions involved in improving the state's natural gas needs.

We believe it is particularly important to note the Executive Orders promulgated by President Bush on May 18, 2001. These two Executive Orders (entitled "Actions Concerning Regulations that Significantly Affect Energy Supply, Distribution, or Use," and "Actions to Expedite Energy-Related Projects") serve a dual purpose: 1) to attempt to streamline and expedite the process of federally licensing energy projects, and 2) to encourage federal agencies to take into account the significance of agency actions on energy policy and supply. In the case of new generation, transmission and natural gas pipeline, these new Executive Orders, designed to expedite the approval of energy projects, may serve as a beacon to New York State as it looks for ways to streamline and fast-track the projects needed to add electricity to the grid (whether these projects are generation, transmission, or pipeline).

4. Fuel diversity

The State Energy Plan should identify a mechanism that would assure a reasonable fuel diversity for the state. Current trends are tilting us away from diversity. Natural gas was used to produce 37.1 percent of all electricity delivered in New York State in 1999—up from 12.6 percent in 1985.(13) And all 22 of the proposed generating facilities within the Article X process, capable of producing almost 14,000MW, are to be natural gas-fired units. This number is expanded when generation projects under 80 MW are considered.

This growing dependence on natural gas for electricity generation could cause wide price swings in the cost of electricity in years to come if New York experiences shortages and/or high prices in this commodity. Such was the case in 2000 when high electricity prices were reported to be due, in large part, to higher fuel costs.(14) While some of the plants currently seeking Article X approval have oil capability, all are primarily natural gas-fired. The State Energy Plan needs to address this concern.

The need for diversity was cited in the federal energy plan as well. That study noted that between 1999 and 2020, 90 percent of electricity capacity additions will be natural gas-fired and our consumption of natural gas nationally will increase by 50 percent. It was also pointed out that New York is one of the seven states that uses more than a third of natural gas-fired generation for its electricity production.(15)

The alternative energy sources currently employed in New York State for the generation of electricity should continue to play a role in the future. Coal, oil, and nuclear power currently supply a needed diversity in our market. This diversity protects the consumer from the volatility of sole source fuel dependency and its pitfalls.

New York State has been a national leader in environmental protection, especially in the control of air pollution and the permitting and oversight of air emission sources. As the State considers the adoption of new environmental regulations, it needs to be aware of the impact on the State Energy Plan, and it needs to consider approaches that will accommodate the need for reliable and affordable energy. For example, it is important that any new regulatory program accommodate the state's need to maintain a diversity in its energy sources.

If the State of New York insists upon environmental policies that have the effect of singling out and excluding any particular fuel, that amounts to a de facto policy of having less diversity, and hence more vulnerability to price spikes and supply shortages.

With regard to coal in particular, technologies have been and are being developed that will render this fuel much cleaner. One encouraging development is the inclusion of more than $2 billion in funding in the National Energy Plan for "clean-coal" technology. Within that plan, the President outlines plans for rendering coal-fired electricity generation both economically and environmentally reliable through technological advancements. The report states that not only is coal the source of 52 percent of the nation's electricity—but also we have enough supply of it to last for 250 years.(16) It is also worth noting that the continued use of coal for generation is vital to the future of energy-efficient rail freight in New York State.

Nuclear power is also mentioned prominently in the federal plan and has been featured as a highly reliable, non-emission source of electricity. Likewise, biomass should be encouraged as an indigenous source of additional generation in New York State.

Given the difficulties of siting new generating capacity in the state, potential generators are going to continue to choose natural gas as the path of least resistance—unless the State sends strong signals that it will encourage a diversity of fuel sources.

5. Distributive generation

There are several untapped opportunities in the area of distributive generation. The use of distributive generation can help in peak load reduction, reduce congestion on existing transmission lines, and further aid in the development of new sources of electrical generation.

In the federal energy plan it was noted that the distributive generation can help reduce transmission losses because power is produced where it is used. This proximity also provides for the more efficient use of waste heat and steam.

Distributive generation can also provide for the integration of on-site efficiency and new generation capabilities. The federal plan mentions a number of issues to be studied, including uniform standards, emissions, zoning problems, metering and perhaps other issues.(17) New York action on facilitating distributive generation needs to be mindful of the decisions made to date on the issue of "stranded costs" related to pre-deregulation construction.

6. Article X siting law

The Article X electric generation siting process is supposed to be a "fast-track" procedure; the Siting Board has only one year to act on an application after it has been accepted (unless the applicant agrees to a six-month extension).

In practice, however, the process of "accepting" an application has become quite attenuated, through various cycles of filing a preliminary scoping statement, then a pre-application phase of review, followed by submission of an application, often followed by required revisions to that application, before the application is accepted and the one-year countdown begins.

Currently in the process are a number of applications that were filed as long ago as November of 1998, but that have not yet been accepted. This suggests that as a "fast-track" process, the siting law is, to put it mildly, in need of some fine tuning. The process has not proven to be a quick one and the state has only seen two plants pass the siting phase—neither of which has yet been built.

The Business Council has done extensive research on the topic of Article X and the need for additional generation in this state. Our member companies have recently asked us to add our voice to the siting process and we will shortly submit applications in several projects for intervenor status. We believe that the State of New York, being heavily dependent on electricity for its economic well-being, needs to have the voice of its business community heard in this process. Currently, there is no statewide voice advocating for the economic need for these plants—yet there are dozens lining up to oppose them on other grounds. In fact, under current statute, would-be energy suppliers must even pay (through intervenor funding) the costs of the parties who oppose them.

We believe the law that governs the siting process, Article X of the Public Service Law, has not facilitated rational, streamlined decision-making — nor has it aided the generating companies seeking to enter the New York market. Companies complain that the process is not streamlined and there are significant drags on their efforts to site and build in a timely manner. Parts of the process seem restrictive and chaotic, such as the division of permitting in the areas of coastal zone management by the New York State Department of State. That department maintains its exclusive authority to grant certain permits, which lends an uncertainty to the process (since it is not part of the Siting Board). If the law is to function properly, greater coordination between state agencies is needed.

There are, however, some provisions in the law that are designed to aid the construction of power plants—such as provisions that allow the board to override any unreasonable local restrictions if the project will add to the overall public good.(18)

Article X is scheduled to expire as of January 1, 2003. Because that renewal is not directly an issue in the development of the new State Energy Plan, we reserve the right to revisit this issue in its proper context. However, it is the overwhelming consensus of our members that this law has not resulted in the fast-tracking of electricity generating facilities. It is our hope that the Energy Planning Board will join us in making this point.

7. Energy efficiency and energy conservation

From its inception, a primary focus of the energy planning process, and of NYSERDA, has been energy efficiency. That's good. As we noted at the outset, The Business Council believes state energy policy should assist "energy consumers, including residents and businesses, in making efficient, cost-effective and environmentally friendly use of energy supplies." Energy efficiency, like all forms of efficiency, is a tool for economic progress, and New York businesses have saved, literally, billions of dollars through energy efficiencies just over the last decade.(19)

We also believe, however, that energy efficiency cannot be counted upon as an energy "source" that will somehow obviate the need for additional amounts of real, genuine energy supplies. There is a distinction between the concept of energy efficiency, by which we mean getting more work or value out of a given amount of energy, and what some people seem to mean by energy conservation, hoping that we will be able to reduce total energy consumption.

New York State, as is often noted, has a good record of "energy conservation," in the sense that our energy consumption on a per-capita basis is the lowest of any state in the continental United States. But this achievement is a double-edged sword. For it is also true that "New York consumers on a per-unit basis pay more than the national average for virtually all forms of energy." (20) These two facts are, unfortunately, related. High prices will force people to use less. But they will also retard our economic growth.

Nor can we assume that the energy we New Yorkers have not used has stayed pristinely in the ground. Like as not it is being used by somebody else, someplace else, at a lower cost. Chances are that often, those "somebodies" either should have been, could have been, or once were, in New York.

Consider our energy-dependent manufacturing sector, for example—which lost 39.5 percent of its jobs in New York during the 1980-2000 period (compared to only a 9.5 percent loss nationally). Manufacturing companies regularly tell The Business Council that high energy costs have long made it harder for their sector to prosper in New York. The heroic efforts that Governor Pataki and the Legislature have made in recent years to change this situation are highly commendable. High prices that drive manufacturing jobs out of the state are not a desirable form of conservation.

Energy efficiency, on the other hand, is highly desirable. Like other kinds of efficiency, it is of great value in improving our economic output and our quality of life. State efforts to enhance energy efficiency are very much worth pursuing. But we should not expect these efforts to reduce our demand for energy greatly—or perhaps even at all. The fact is, our society's energy consumption is going to continue to increase. And that is a good thing, not a bad thing, because of all the economic and lifestyle values that energy brings us.

Of course, ever since President Carter put on his cardigan sweater, nobody has wanted to say this. Many Americans have earnestly believed that the only energy "policy" we need is one of energy conservation, and they have gone about their lives blithely ignoring the fact that all of us use more energy all the time, even as we steadily become more energy efficient.

Thus we see that annual peak electric consumption in New York State has grown five times as fast as our population in the last 20 years, even as the energy efficiency of everything we plug in to the wall—from refrigerators to room air conditioners to coffee makers—has steadily improved.

Nor is this a new story. Quite the opposite. Literally since the Stone Age, humans have steadily been getting more and more efficient in our use of energy. Yet our consumption of energy has gone up and up. In the last half century, the overall energy efficiency of the U.S. economy has improved by 47 percent, yet per capita energy consumption has increased 65 percent.(21) This is going to continue.

What is at work here is one of the most basic laws of economics, which can be stated this way: Greater efficiency in inputs tends to be converted into greater outputs, rather than fewer inputs.

As economies industrialize and factories become steadily more efficient at producing goods, for example, the world converts those efficiencies into producing more goods, rather than using fewer resources. When wide-bodied jetliners were developed that could haul more people per flight, they resulted in more flights per year, not fewer—because they were so efficient that more people could afford to fly. And so on.

It is the same with energy. Energy is a vital input, and as we get more efficient in its use we do more, rather than less, with it. In England in the mid-1800s, sales of coal soared, rather than dropped, once more efficient steam engines were invented. Today I install a refrigerator, say, that uses 500 fewer kilowatt hours a year, but that doesn't mean that total global consumption of electricity will drop by 500 kilowatt hours this year. I'll take the money I saved and spend it on something else, and that something else will have an energy component (in its use, or its production, or both). And when I and thousands of others use more efficient refrigerators, that might reduce total electric demand enough to reduce electric prices, which will stimulate others to buy more electricity to put it to some other desired use.

There is a long-running debate among economists as to just how large this so-called "rebound" effect is. A serious (if minority) case is made that energy efficiency may even increase total energy consumption—because, like any other efficiency, it lowers the cost of producing goods and services, hence expands the economy, hence ... increases the demand for energy. Other economists say energy efficiency can produce some net reduction in energy consumption (though none we can find argue that the ratio is one-to-one).

The Business Council is hardly in a position to settle this debate among economists,(22) but we mention it because it buttresses three points we believe the Energy Planning Board should bear in mind:

8. Tracking the overall cost of energy

It should also be a basic goal of state energy policy to move the cost of energy in all forms closer to the levels in other states. The State Energy Plan can advance this goal by, among other things, documenting comparative costs. Such studies would help focus attention on the problems that keep us from getting our costs in line with other states'.

The 1998 State Energy Plan contained a number of excellent statistical tables exhibiting the factors that contribute to the high cost of energy in New York State. We believe the plan should continue to compare the cost of key energy forms in this state to other states, as well as to the nation. We encourage the continuation of detailed price component breakdowns within each fuel group.

Studies should also be done on the impact of federal, state and local taxes and fees on the cost of fuel. It should be noted that in addition to taxes, there are significant charges assessed on certain fuels, such as the Systems Benefit Charge on electricity and the various departmental assessments on utility bills.(23) These taxes and fees contribute to the excessively high cost of energy and add to the burden of doing business in New York State. The plan could shed light on this problem and help address possible solutions.

9. Improving forecasts; evaluating the previous plan

We would also suggest some steps that might enhance the reliability of the goals and forecasts contained in the State Energy Plan—or at least would help readers make better use of those forecasts.

As we stated above, it is inherently impossible for the Energy Planning Board actually to do what the statute plainly requires—forecast supply, demand and prices for the next 20 years. Therefore these forecasts are inevitably wrong. We already know, for example, that the 1998 SEP forecasts for electricity, natural gas and petroleum were all too conservative.

Yet these projections, particularly for the five-year time frame, matter a lot, especially with respect to the electric generation siting process and similar state policy decisions.

One possibility would be for the planning agencies' staffs to update the near-term projections every year—just as they now issue an Annual Report on whether the goals of the SEP are being met.

Another possibility would be for each new iteration of the State Energy Plan, starting with this one, to have a detailed cross-check on the previous one. This would include listing the projections from the previous plan, comparing those to actual results, and explaining any differences. A similar approach could be taken to the goals of the previous SEP. For example, the 1998 SEP states a goal of "increasing commuter mass transit ridership by 20 percent statewide."(24) The new plan could explain whether such goals have been achieved—and if not, why not.

We recognize that this kind of cross-checking will be neither easy, nor fun. But it would have at least two advantages, it seems to us. First, it would enable the readers of each new plan to put in perspective the projections and goals of the plan, against the track record of the previous plan. Second, the fact that this cross-checking was going to occur would tend to discourage future planners from including in the document any projections or goals that do not have a solid footing—that were, for example, designed to look good to conservation-minded advocates, even if they were not realistic.

10. The State Energy Plan

Finally, as is clear from the above suggestions, we believe there should continue to be a state energy "plan"—or, to describe it in terms that make more sense to us, a regularly updated information and policy document.

The document should steer the State toward pro-active policies that will secure the energy needs of its people, businesses and industries.

It should bring a sense of urgency to the most important immediate task—which is to site at least 10,000 megawatts of new generating capacity, with attendant distribution and fuel capacity, in just the next five years.

And as a policy document for the Executive branch of government, it should focus on what can be done administratively—not on a laundry list of legislative proposals. New York does not need "one size fits all" legislation on energy planning. It needs its administrative agencies to have clear goals in mind, and then to pursue those goals with flexibility and creativity. Energy policy should define the goals, and give the agencies room to implement them.

We would commend to your consideration these general guidelines for the State Energy Plan:

"New York [State] will assist in developing efficient and effective energy markets by working closely with industries to eliminate barriers to market entry and exit, remove or avoid any unnecessary regulation, and provide for full disclosure of information about energy choices so consumers can make rational and informed decisions. These policies should work to remove unnecessary barriers to siting of new energy supply sources, and delivery systems (e.g. investment in new pipeline or electricity generation, transmission, and distribution capacity that would enhance competition or provide necessary ancillary services)."

Where do we find those guidelines? In the current State Energy Plan.(25) That was a good job. And we know the Energy Planning Board will do it again!

The Business Council is very grateful for the opportunity to offer our comments on the important task that is now before your Board. As the Board's deliberations unfold, our staff will gladly offer whatever additional commentary, information, documentation or assistance you and your colleagues might consider helpful.


(Signed, Daniel B. Walsh)

1. New York State Energy Planning Board, New York State Energy Plan and Final Environmental Impact Statement, Albany, November 1998, p. 1-1.

2. The plan (p. 3-7) projected that additional capacity would be needed "by 2010 or later, if the reliability criteria are modified" to reduce the then-current recommended surplus of capacity for reliability needs from 22 percent to 18 percent. That modification in reliability criteria was subsequently adopted. Yet by March of 2001, the Energy Planning Board was forecasting a net operating margin shortfall of 1,168 megawatts for its "normal weather" forecast for this summer, without new generating capacity. See Energy Planning Board, Annual Report to the New York State Energy Plan, Albany, March 2001, p. 2.8.

3. NYSERDA, Patterns and Trends, December 2000, Table 2-1b, p. 13.

4. Brooklyn Navy Yard. Two other major facilities, at Athens and Scriba, have been approved but not yet built, and a number of smaller generating facilities are scheduled to open this summer in and around New York City.

5. Figures on total consumption, peak demand and new capacity brought on-line were supplied, upon our request, by the New York Independent System Operator.

6. New York Independent System Operator, Power Alert: New York's Energy Crossroads, Albany, March 2001, Table 3, p. 16.

7. Calculated from NYSERDA, Patterns and Trends, Tables 1-3a and 1-3b, p. 5.

8. A detailed explanation of the database and mathematics behind this calculation is provided in Appendix D, pp. 16-27, of NYISO's Power Alert report, previously referenced. The figure of 15 percent does not appear in Power Alert, but its projections of need work out to that.

9. Public Service Law 164, i(e)

10. The Heritage plant in Scriba was sited in January of 2001 after having its application deemed in compliance by the Siting Board in April of 2000.

11. Calculated from Tables 1-3a and 1-3b, p. 5, NYSERDA, Patterns and Trends.

12. NYSERDA Request for Proposal (RFP) No. 600-01; Up to $1,000,000 Available for Contractor Services to Study the Interaction of the Gas and Electric Systems in New York State, pp. 1-2.

13. See NYSERDA, Patterns and Trends, Table 2-6, p. 18. Coal accounted for 18 percent of 1999 generation, down from 19 percent in 1985, and petroleum was at 10.5 percent, down from 20.4 percent. Hydro accounted for 16.8 percent, down from 21.2 percent. Nuclear was 29.1 percent of generation in 1999, versus 18.9 percent in 1985; and biofuels accounted for 1.8 percent, up from virtually nothing in 1985.

14. Annual Assessment of the New York Electric Markets 2000, David B. Patton, Ph.D., New York ISO Market Advisor, April 17, 2001, pp. 10-12. These fuels were: natural gas, refined oil #2, refined oil #4.

15. National Energy Plan; Report of the National Energy Policy Development Group, May 2001, pp. x, 5-18.

16. Ibid., pp. xiii-xiv, 1-6, 5-13, 5-14.

17. National Energy Policy, pp. 6-9, 6-10.

18. Public Service Law, 168(2)(d)

19. Total commercial and industrial expenditures for energy in New York in 1999 were $10.6 billion, up from $10.3 billion in 1990. (NYSERDA, Patterns and Trends, Table 4-1, p. 33.) Assuming a 1 percent improvement in energy efficiency each year, 1999 expenditures were about $1.05 billion less than they would have been but for the efficiencies achieved during the decade.

20. NYSERDA, Patterns and Trends, p. 2, notes both New York's low consumption and high prices.

21. Per capita energy consumption was 354 million Btus in 1999, compared to 215 million BTUs in 1949. But it took only 10,900 BTUs to produce one constant dollar of GDP in 1999, compared to 20,600 BTUs in 1949. US Energy Information Administration, Energy in the United States: A Brief History and Current Trends, Washington, D.C. 1999.

22. A thorough airing of the debate was played out in a recent special issue of the British journal Energy Policy, Vol. 28 Numbers 6-7, June 2000.

23. Altogether there are 10 New York State agencies, commissions, and departments that receive a combined $91.4 million in special utility assessments.

24. p. 2-73.

25. p. 2-98.