STATE ENERGY PLAN TESTIMONY
John T. Evers
The Business Council of New York State, Inc.

March 5, 2002, 1:00 p.m.
Department of Environmental Conservation
Public Hearing Room

The Business Council of New York State, Inc., a broad-based business association of over 3,600 member companies submitted a detailed outline of its priorities for the new State Energy Plan on June 21, 2001. Having reviewed the draft State Energy Plan and solicited the views of our members, we now submit these additional comments for your consideration.

We applaud the efforts of the State Energy Planning Board and the five state agencies that comprise the board for traveling the state to solicit comments on the draft Plan. We appreciate your hard work and welcome the opportunity to speak before you today.

Let me begin by reiterating the key priorities we identified in June. 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 9,200 megawatts of new electric generating capacity, which we believe should be sited where needed within the next five years.
3. Assists energy consumers, including residents and businesses, in making more efficient and cost-effective 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.

Our comments on the draft Plan flow from those four key considerations.

1. The Need for more Electrical Generation, Transmission

We must reiterate the main contention of business and industry in the area of energy — New York needs to add additional baseline generation in order to foster greater competition and the resultant benefits of lower wholesale costs to consumers. Put it more simply: New York needs to quickly build more power plants. This is key to the success of New York's energy markets and to a healthy economy. Our own research report on this topic, "The Power to Grow", explains the link between a vibrant economy, and reliable and abundant sources of electricity; we are submitting a copy appended to this testimony. This report shows that, based on our projections, New York needs to site and build over 9,200 megawatts of electric generating capacity over the next five years, in order to ensure the reliable surplus that we need to avoid shortages and to stimulate the competition that will drive costs down.

While the draft Plan does state that New York is in need of more sources of electricity generation, its projections for growth in electric power demand over the next three to five years seem unrealistically — indeed dangerously — low

The draft Plan offers a "mid-range forecast" for peak demand growth of 0.68% a year — and a "high-end forecast" of only 1.1% growth a year. Yet peak demand has grown an average of 2.1% over the past five years. It's grown 1.8% a year on average over the last 20 years — for total growth over that period of 43.1%. Peak demand has consistently grown faster than total electric consumption.

This unrealistically low forecast for peak demand leads the Plan to incorporate projections for increases in reserve margins that are overly optimistic. These low projections, in turn, point the Plan toward lower projected generation capacity than we believe is necessary for the state, and thus mask the very urgent need to bring new plants on line over the next five years. (Draft SEP, 3-5)

In this respect the draft Plan reminds us of the 1998 plan. That plan also forecast low rates of growth. It projected that peak demand in 2001 would be between 28,280 and 29,450 megawatts. The actual peak reached on August 9 was 30,983 megawatts. Think about that. One of the implications is that if the 1998 plan had forecast a higher peak we may have better planned and averted the need to site the emergency generating stations that got us through last summer without blackouts. And as the members of the Energy Planning Board know all too well, the better phrase would be, "barely got us through." Again, it is this need to better forecast that we must stress.

The plain truth is, the 1998 Plan underestimated the growth in demand. That was a honest mistake. But when we make a mistake, we should learn from it -- not repeat it.

The Business Council has sought to make the public aware of New York's need for additional generation. And we believe it is the duty of the State Energy Plan to do likewise. This has led us to actively seek intervener status in a variety of cases before the New York State Board on Electrical Generation and the Environment (the Siting Board). Our research in these cases explains the need to site and build over 9,200 megawatts of electricity. In so doing, we took into account realistic projections of demand growth, the reliability and demand figures published by the New York Independent System Operator (NY-ISO) as well as the suggested levels needed to insure competitive pricing. We believe that these targets need to be reflected in New York's State Energy Plan.

In addition to the need for more electricity generating facilities, we maintain that New York State needs to focus its attention on the needs for natural gas pipeline expansion and electrical transmission upgrades. The state Plan needs to recognize the key connection between natural gas and generation. All of the 23 plants currently seeking approval under Article X are dependent on natural gas as their primary fuel. In this regard we look forward to studying the results of the joint ISO/NYSERDA natural gas reliability study and its suggestions in the areas of natural gas supply and demand.

However, even without a study of New York's future natural gas needs this rapidly approaching dependence on natural gas is very apparent in the field of power generation. As discussed in more detail below, the Plan should stress the need for a diverse generation fuel mix which includes not just renewables but also coal and nuclear.

The draft State Energy Plan states that the administrative approach to restructuring was premised on stakeholders and experts and was designed to provide flexibility to make judgments. This key point separates us from other models that have been locked into legislatively enacted restructuring (i.e. California). While New York needs to be patient for the full benefits of competition, this administrative approach has served the state well. The primary barrier to achieving "effective wholesale competition" is the lack of baseline electricity generating facilities and the supporting energy infrastructure where needed. We agree with these points.(Draft SEP, 1-17)

2. Fuel Diversity

In addition to the siting of new generation, the Plan should reflect, as mentioned above, the need to continue its commitment to a balanced fuel mix in generation. Currently, New York has a variety of fuels that comprise its generating facilities including nuclear, coal, and oil fueled generation in addition to a variety of biomass and other renewable sources. These plants provide a fuel mix that ensures that we are not overly dependent on one type of fuel for our generating needs and will not experience sufficient future price spikes or supply problems due to over-dependence on a single source. The Plan needs to encourage state policies that encourage fuel diversity and avoid creating (either directly or indirectly) a situation in which we become overly dependent on one type of generation. The Plan needs to realize the importance of fuel diversity by encouraging both renewables as well as fossil-fuel fired generation such as coal.

The encouragement of clean coal technology and the continuation of nuclear power need to be stressed. The Plan should express a commitment to this state's six nuclear facilities and more opportunities to maintain and upgrade the state's 43 coal plants. Coal plays an especially important role in New York State. Coal-fired generation in New York not only supports the wholesale electricity markets but also the state's vast railroad system. Coal comprises over 25 percent of New York State rail shipments. The elimination of coal-fired electrical generation would have a devastating impact on the wholesale electricity markets as well as the rail industry and local economies in Western and Central New York State.

3. Article X, Article VII

Under Article X of the Public Service Law, developers seeking to site and build plants are required to show that their proposals are "consistent with the energy policies and long-range energy planning objectives and strategies contained in the most recent energy plan; or that the facility was selected pursuant to an approved procurement process". The 1998 State Energy Plan committed to the concept that competitive markets served as sufficient indication of public need in the siting of new generation. The 1998 Plan stated; "Siting of major electric facilities under Article X of the Public Service Law may be premised on a finding that the proposed facilities would promote or contribute to a competitive market for wholesale or retail provision of electricity." (SEP 1998, 1-4) This concept should be firmly restated in the 2002 Plan.

The restructured market reflects the need to promote more generation and satisfy the public need. Market development and proper long-term forecasting should therefore be a theme of the Plan. We believe the Plan should encourage the siting of generation and provide a realistic forecast of need.

In the areas of plant siting we agree with the Plan that Article X of the Public Service Law (the "siting law") needs to be extended. The siting law has at times proven to be cumbersome to developers seeking to enter the deregulated electrical generation markets. While some procedural changes may be considered, we believe that the basic structure of the siting law should be continued.

The Business Council does not recommend a wholesale revision of Article X, but rather a careful reexamination of the provisions that have caused the most problems in the siting of plants by private developers. Additionally, we believe that Article 7 of the Public Service Law, must also be renewed and, to some degree, improved in order better foster the development of the State's electricity transmission system.

In general, it should be the policy of the state to encourage all developers to enter the restructured market and site projects that comply with the provisions of Article X. The state should not mandate specific technology requirements on all projects that may or may not be appropriate to particular projects. All projects seeking to bolster the wholesale electricity market deserve an impartial hearing under Article X and timely and speedy approval if they comply with the siting law. (Draft SEP, 1-30)

Overall, the restructured energy markets, and the State as a whole, require certainty in the renewal of the law — not a gap between Article X and its successor like we experienced in the years between Article 8 and the current siting law. We will have more to say in this regard as the law's renewal is addressed by the Legislature and Governor.

4. Economic Development

The Plan makes welcome references to the need to continue the second- and third-year contracts for low-cost power under the "Power for Jobs" program. We have testified at Budget and Assembly hearings in support of the renewal of the "Power for Jobs" program. We also agree with the Plan's assessments in regards to the repeal of certain energy taxes and their beneficial impact on the cost of electricity and the acknowledgment of the added costs that New York's tax code imposes on business and industry in the realm of energy. Similarly, we acknowledge the need for the continuation of programs that help foster economic development such as tax credits for alternative fuel vehicles (AFV) and distributive generation (DG). We also support the Plan's call for additional federal funding for transit and transportation system operations.

5. Distributed Generation

In the areas of distributed generation and combined heat and power technologies, the Plan highlights many possibilities. Distributed generation can benefit the state in areas of load pockets and other areas where interconnection or the siting of baseline generation is extremely difficult. Likewise, the additional supply afforded through distributive generation in such areas can alleviate stress on the transmission grid and provide for peak load shedding. Distributed generation and combined heat and power systems can help business and manufacturing in areas where stand alone systems seem most appropriate such as rural areas, load pockets or business ventures seeking to supplement energy needs or the development on-site resources. Therefore continued exploration of such programs may aid businesses and industry as well as the overall transmission grid and the market. These programs should not be subsidized by one customer group over another. In a similar vein, we applaud the stop gap measures and programs developed to reduce peak demand and encourage load shedding in times when demand outstrips supply. Times we hope are few and far between.

6. Environmental

We strongly oppose the recommendation to adopt state-level greenhouse gas emission targets for 2010, 2020 and 2050, and/or the establishment of sector-specific reduction goals (e.g., electric generating, industrial and/or transportation sectors.) This is an international issue, with the United States' participation being negotiated and addressed at the national level. Similarly, we believe that the impact on the cost of energy in regards to environmental initiatives such as this should be studied and quantified. The Plan includes no acknowledgment of the economic cost of environmental regulations. For example, there seems to be no accounting for impact of ADI (the acid deposition initiative) on energy costs or generating capacity, even though the report recognizes that some coal plants may be closed, or have their operations reduced, due to ADI. Additionally, we favor a national approach to "four pollutant" emission policies rather than a state initiative.

7. Energy Efficiency

The draft Plan outlines the programs and projects currently being undertaken by the New York State Energy Research and Development Authority (NYSERDA) and other public and private entities to improve energy efficiency and foster conservation. We recognize the importance of these efforts but must reiterate that these programs, in and of themselves, should not be viewed as nor counted among new sources of power. Historically, rising energy efficiency has increased economic output — but it has not reduced total energy consumption. The Business Council supports energy conservation and efficiency, and the development of renewable forms of energy. At the same time, these programs must be cost-effective and must not place extra financial burdens on customers. And we must not fool ourselves into believing that they can eliminate the need for existing and expanded generating capacity.

Lastly, 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 towards pro-active policies that will secure the energy needs of its people, businesses and industries.

In closing, thank you for your time and I hope that these recommendations are helpful to the Board as it prepares the final State Energy Plan.

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The Business Council of New York State, Inc.
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