For Release — Wednesday, October 17, 2001
RESEARCH: NEW YORK RISKS ECONOMIC DAMAGE
IF IT FAILS TO ADD POWER
AND CAN REAP POWERFUL ECONOMIC BENEFITS BY INCREASING CAPACITY
ALBANYNew York urgently needs to site a proposed electricity generating facility in Albany County - and at least a dozen other new power plants - to avoid the risk of serious damage to the state's economic health, a new white paper by The Public Policy Institute of New York State argues.
The paper, The Power to Grow, added that increasing capacity would give New Yorkers and New York's business community many powerful economic benefits.
"New generating capacity is needed in New York to avert serious dangers - significant electricity price increases, power interruptions, and damage to the state's ability to attract new businesses and jobs," The Institute's white paper said.
The Council's intervenor status in this proposal: The Public Policy Institute, The Business Council's research affiliate, published The Power to Grow to outline broad economic arguments for increasing generating capacity.
The Council sought "intervenor" status in this proposal, and in a second proposed power plant in Long Island, to argue that New York needs new power plants to sustain reliability, create economic growth, and engender cost-cutting competition in electricity markets.
Growth in demand: By all key measures, electricity demand in New York has been growing steadily, the paper noted. In the last 20 years, peak demand has grown 5.2 times as fast as the state's population and 2.1 times as fast as employment. And annual per-capita consumption of electricity has grown 5.3 percent since 1990.
This demand-growth pattern holds whether the state is growing or in recession, and it has occurred even though most electrical devices for offices, homes, and factories have become significantly more energy-efficient, the paper said.
This growth is likely to continue, the paper added, citing New York's increasing preference for electricity and increasing dependence on information industries that need power for data processing and communications equipment. The paper cited several factors behind this ongoing growth in demand:
- Electricity is "such a widely distributed, highly flexible, and precise way of applying energy to tasks that over time an advanced society inevitably depends upon it more and more to meet its energy needs."
- Recent economic growth has increased personal income, which has, in turn, increased demand "for the good things that electricity can power, whether it be computer networks in the schools, diagnostic equipment in the hospitals, or entertainment systems in the home."
- In the last two decades, New York has added nearly 300,000 new jobs in finance, insurance, and real estate sectors that rely increasingly on energy-intensive data processing and communications equipment.
The looming shortfall in capacity: New York lacks the generating capacity to sustain this growth in demand, The Power to Grow concluded.
Last May, New York's generating capacity was 35,847 megawatts 338 megawatts below the "minimum" (36,185 megawatts) considered necessary to meet the summer's peak demand (30,665 megawatts). The minimum needed reflects an 18 percent reserve margin recommended by the New York State Reliability Council to ensure system reliability in cases of planned plant-shutdowns or unexpected failures of plants or transmission systems.
What's more, this gap between need and capacity is likely to grow. Taking into account projected growth, the cushion needed to sustain reliability, and an added margin required to foster price-reducing competition, The Institute estimated that New York must add 9,600 megawatts of additional capacity within five years, The Power to Grow says.
The economic benefits of adding capacity: The Power to Grow described a range of benefits that would flow from increased electricity-generating capacity:
- Increased competition. New York's transition to competitive electricity markets, which began in 1998, sought to reduce energy prices by introducing market forces. But this will work only if there are enough suppliers bidding against one another for business. "Competition is the only certain, long-term way of ensuring that our energy needs are met at the lowest possible price," the paper said. "Competitive electrical prices, in turn, will make it more attractive to live, to do business, and to provide jobs in New York. Competitive prices will also benefit schools, government, hospitals, and other institutions that serve public needs."
- Sustained reliability. Increasing generating capacity will allow New York's utilities to continue providing power reliably even if there are planned shutdowns for scheduled maintenance, or unplanned shutdowns due to failures of plants and/or transmission systems.
- Economic growth. In addition to directly creating construction and power-plant jobs in New York's Capital District, the Bethlehem Energy Center would generate confidence statewide in New York's energy future, and thus encourage industrial and commercial investments here, the paper said.
The economic risks of inadequate capacity: Without additional capacity to ensure reliability and price-reducing competition, New York's economy will face a number of serious long-term risks, the paper said.
- New York, which has seen manufacturing employment decline significantly
in recent decades, could continue to lose jobs directly as a result
of high energy costs.
States with above-average energy costs lost manufacturing jobs at a faster rate than other states, the paper showed. Between 1993 and 1998, the 16 states with above-average industrial electric rates lost 2 percent of their manufacturing jobs; the 34 states with below-average industrial rates averaged a 10 percent increase in manufacturing jobs and a 39 percent increase in manufacturing output, the paper noted. The same analysis of the 10 largest manufacturing states, including New York, showed a similar pattern, the paper noted.
- The commercial sector, in which growth has helped offset New York's loss of manufacturing jobs in recent decades, also depends heavily on affordable energy. The paper cited the growth of so-called "server farms" large, electricity-intensive data centers with rows of computers servicing network needs. A single modest 10,000 square foot "server farm" needs as much as one million watts of power to run, the paper noted.
- Business confidence in New York's economy would falter, as it did in California after its energy crisis in early 2001. California surveys of business showed widely faltering confidence in investing in California because of concerns about the price and supply of energy, the paper noted. Craig Barrett, CEO of Intel Corp., California's second-largest employers, said there was "not a chance" that his company would approve any Silicon Valley expansion until it was certain the reliability crisis had ended, the paper added.
The limited value of conservation: New York businesses have saved billions of dollars through energy efficiencies in the last decade alone, the paper noted, and business commitment to cost-cutting conservation will continue, the paper said. But during this same period, the paper added, "energy consumption has grown and will continue to do so. Energy efficiency will not eliminate the need for BEC."
Growth in demand in New York has continued despite advances in energy-efficiency, the paper added. "In the last half-century, the overall energy efficiency of the U.S. economy has improved by 47 percent, yet our per capita energy consumption has increased 65 percent."
"This is a reflection of a basic tenet of economics, which holds that greater efficiency in inputs tends to be converted into greater outputs, rather than fewer inputs," the paper noted. Further increases in efficiency are there likely to produce further growth in energy demand.
"Because electricity is so ubiquitous, so integral a part of modern life, we tend to take it for granted," the paper said. "Our dependence upon electricity is a given, but it must not become an afterthought."