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September 25, 2000

Spitzer, industry leaders agree New York needs more generating plants

New York State must site and build new generating plants and transmission lines to avoid shortages of electricity and keep the price of power in check, Attorney General Eliot Spitzer and leaders in the electrical industry agreed.

The Attorney General spoke Friday, September 22, to The Business Council's Annual Meeting, which drew more than 500 business and government leaders to The Sagamore resort on Lake George. The previous day, attendees heard a panel of industry executives describe the changes taking place in the marketplace for electricity and the need for new generating facilities.

"We need more generating capacity," Attorney General Spitzer said. "We need more transmission lines. We need to work together on facilitating rapid decision-making."

He pointed out that new generating plants are typically more energy-efficient and produce lower emissions than older plants. He criticized those who oppose all proposals for new generating capacity as favoring a policy of "NOPE, Nowhere On Planet Earth."

"There is this overwhelming desire not to have these facilities anywhere near us," the Attorney General said. "We need to overcome it."

He urged business leaders to work with environmentalists to promote newer, cleaner generating capacity. Without such capacity, he warned, the state will once again suffer economically from uncompetitively high energy costs.

The Attorney General's comments echoed many of those made by industry leaders during The Council's panel discussion.

Industry executives and a representative from the state Public Service Commission were unanimous in the belief that New York must develop more generating capacity within the next two to three years, or risk shortages that in turn could cost lives and cause significant economic damage to the state.

Traditionally, generating capacity has been considered necessary to guarantee that the supply of electricity will be reliable, said Stephen B. Bram, president of Orange & Rockland Utilities Inc. The new competitive marketplace demands still more capacity to allow competition among providers and keep prices down, he said.

Robert B. Catell, chairman and CEO of Keyspan, said reducing electrical prices will require a broad range of steps, including further attention to the heavy tax burden on the electrical industry.

"We still are a very heavily taxed industry," he said. "It's really taxing the consumer. We've made some progress in that regard, but I think we could move more quickly."

Thomas S. Richards, chairman, president and CEO of Rochester Gas & Electric Corp., agreed: "If this is such an essential product, why do we tax it so disproportionately?"

Speakers agreed that the state is likely to have adequate supplies of power to absorb increased demand through the summer of 2001. By the following year and 2003, though, peak loads might be too great for available generating and transmission capacity unless new facilities are online, they said.

Without more capacity, "we're going to have real problems out there," said William J. Museler, president and CEO of the New York Independent System Operator, the nonprofit organization that operates the state's bulk power system and wholesale electricity market.

New York's "one-stop" siting process for new plants "has a lot of positive aspects" compared to some other states, said Willard Ladd, senior vice president of Sithe Industries. Still, he said, New York's "is a difficult process," and should be streamlined to make sure supplies are adequate over the next few years.

Richards said the marketplace for electricity in New York is structured better than that in California, where prices doubled in some regions for parts of last summer and rolling backouts hit areas in San Francisco and the Silicon Valley.

"Their problems could happen here if we're not careful," Richards said, warning against proposals to institute price controls on electricity and make other moved toward California-style regulation of the marketplace. Ladd said some generating plants are built specifically for peak demand and may operate only two weeks a year. Limits on peak prices could make such facilities uneconomic, and increase the likelihood of supply shortfalls in the future, he said.

The dramatic increase in oil prices in recent months and other marketplace factors may make it difficult for producers of electricity to bring rates down in the near future, both in New York and elsewhere, speakers said. Catell suggested the national strategy to address that problem might include new incentives for production of natural gas, the main fuel in most newer electrical generating plants.

Ronald Liberty of the Public Service Commission staff said the PSC has set a goal of increasing capacity in New York City by 1,350 megawatts over the next two years, with more than half of that in place by next summer. Without such new capacity, the city could suffer rolling blackouts. "That's a frightening possibility we want to avoid at all costs," he said. "Lives are at stake."

While New York's move to a competitive marketplace for electricity is often called "deregulation," Liberty said the word is misused.

"We're moving the regulation from government to the consumer," he said. "It's through their choices that prices are regulated." Other speakers predicted that less regulation by state government will allow the energy industry to create innovative new products and services, as has happened in telecommunications.