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Government Affairs Albany Update

May 23, 2003

ISO Report - NYS Summer Electricity Supply Barely Adequate

The New York State Independent System Operator (ISO), the entity charged with maintaining New York's wholesale electricity markets and the reliability of the electricity grid, announced on May 22 that the supply of electricity available this summer is "just adequate to meet power demand for "normal summer weather." The report, Power Alert III: New York's Energy Future, is the third report issued by the ISO dealing with electricity capacity needs. As of March 2003 the state's projected summer margin, including demand responses programs, stands at a positive 865 MWs (a margin of 331 MWs upstate, 51 MWs in New York City and 483 MWs on Long Island). The report states that at least 5,000 - 7,000 megawatts (MWs) must be sited within the next five years in order to maintain reliability. An immediate step in this process is the need to re-authorize Article X, the state's power plant siting law that expired on December 31, 2002. In addition to the regulatory uncertainty caused by the lapsation of Article X a number of other factors have contributed to a slowdown in the electricity generating investment markets. The Enron debacle and the California power crisis, which affected many energy companies and the finance community, have also discouraged investments in power facilities.

The report recommends re-examining New York's three-decade-old reliability criteria in light of today's high-tech business environment. The report also advocates for a more transparent process in planning New York's electricity infrastructure that includes generation, transmission, demand response, and security measures. In addition to warning that the power supply is extremely tight under "normal" conditions, the ISO states that the economy has not softened New York's power consumption. In order to face high summer demand, the market needs to improve its generation capacity, upgrade its transmission, and continue to expand demand response and conservation measures. The three "legs of the energy stool" (supply, transmission, demand response and conservation) are key to providing reliable markets over the next few years. The ISO projects an increase in the statewide load from 31,450 MWs to 33,800 MWs over the next five years -- an additional 2,360 MWs -- to which about 2,670 MWs should be added to maintain reliability and competitive pricing. Transmission upgrades are also needed at several key point in the state, specifically: Marcy, near Utica; Pleasant Valley, near Poughkeepsie; and in the New York City and Long Island zones. In regards to demand response and conservation, a long term goal will be implementing technology to allow consumers to "react to wholesale prices" through real-time electricity pricing.

For a full copy of the report access the ISO's web page at: http://www.nyiso.com/

FERC Approves Demand Curve for NY Electricity Market

The Federal Energy Regulatory Commission (FERC) issued an order on May 20th approving the New York Independent System Operator's (NYISO) demand curve (DC) tariff filing. The FERC held that "the proposed modification to NYISO's ICAP market will benefit customers because it will provide better price signals to investors for the construction of new generation, encourage the formation of long-term bilateral transactions, and reduce incentives to withhold capacity." Opponents of the plan stated that the ICAP change will result in higher wholesale electricity rates. In its order, FERC addressed each of the issues raised by opponents of the DC and dismissed them all, with one exception: FERC ordered the NYISO to eliminate the supplemental fee provision, due to concerns raised by the ISO's market adviser Dr. David Patton, as well as some utilities.

The supplemental fee applies only in circumstances when the DC spot market auction clears below the minimum statewide or locational requirement. The NYISO's Management Committee already has approved a revision to the supplemental fee provision designed to address the concerns raised by FERC, and those changes are currently being reviewed by the NYISO Board of Directors. FERC acknowledged that it is aware the NYISO is working on alternatives and expressed willingness to consider the NYISO alternative proposal in place of an outright elimination of the supplemental fee.

Next week's scheduled ICAP deficiency auction could be replaced by the first ICAP DC spot market auction, for procurement covering the month of June, 2003. For more information access the New York ISO web page at: http://www.nyiso.com/ or the Independent Power Producers at: http://www.ippny.org/

Assembly Republicans Publish "Must Do" List
Staff Contact: Ken Pokalsky

This week, Assembly Minority Leader Charlie Nesbitt issued his conference's priority list for the remainder of session. It included several issues on The Business Council's priority list as well, including various tort reform measures ("vicarious liability," caps on pain and suffering awards, reforms to the "scaffold law," etc.) and expansion of the Empire Zone program.

Nesbitt also called on the Assembly to pass the "New York Patriot Plan" (S.3283, sponsored by Senator Balboni, which passed 61-1 in the Senate this March). Among other provisions, the bill includes incentives for businesses to support employees who have been called to active military duty in the Gulf; creates new scholarship programs for veterans and their dependents,
and authorizes the governor to suspend application of laws, rules and regulations which cause undue hardship to persons ordered to active military service.

Other issues include on the Assembly minority list include: reforms to the state budget process, several anti-terrorms bills, new restrictions on unsolicited email, new tax credits for elderly prescription drug purchases and child care expenses, and others.