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For Release — Thursday, February 7, 2002

UPDATED ANALYSIS: DESPITE RECESSION AND TERRORISM, NEW YORK
STILL NEEDS 9,200 MEGAWATTS OF NEW CAPACITY IN FIVE YEARS

ALBANY—New York State still faces an acute need for more electric generating capacity, even if the recession temporarily affects demand, new analysis from The Public Policy Institute shows.

An updated white paper on energy by The Institute shows that New York must still add at least a dozen new power plants with at least 9,200 megawatts of additional electricity-generating capacity within the next five years to avoid the risk of serious economic damage. Adding this capacity will make possible a number of powerful benefits, including increased growth and a more robust competition that, in the long-term, would help reduce New York's above-average electricity costs. The updated paper, The Power to Grow, can be found at www.ppinys.org/reports/2002/powertogrow.pdf.

The Institute, the research affiliate of The Business Council, first published The Power to Grow in October. It included extensive analysis of trends in New York's economy and energy consumption. The paper originally concluded that New York needed to add at least 9,600 megawatts of new capacity within five years to make economic growth possible, to keep New York's electricity systems reliable, and to foster the robust competition that is New York's only long-term hope for driving energy costs down.

Since then, The Institute has revisited its analysis to consider the effects of the recession and the Sept. 11 attacks. The economic downturn could reduce peak demand next summer to 2000 levels. However, The Institute noted, New York must remember that peak demand in New York grew steadily from 1990 through 1993, even as the state endured a recession.

Growth in demand: The Power to Grow noted that demand for electricity in New York has grown steadily in the last 20 years. In that time, peak demand has grown 5.2 times as fast as the state's population and 2.1 times as fast as employment, the report shows. Annual per-capita consumption of electricity has grown 5.3 percent since 1990.

Growth will continue, the paper added, given consumers' increasing preference for electricity and the increasing use of computers and other high-tech electricity-driven devices in homes, offices, businesses, and factories, The Power to Grow said.

For example, the paper noted that New York has added nearly 300,000 new jobs in finance, insurance, and real estate in the last 20 years. These are sectors that rely increasingly on energy-intensive data processing and communications equipment.

Capacity concerns: New York does not have the generating capacity to keep pace with this projected growth in demand and to ensure competition that will reduce rates, The Power to Grow said.

Last May, New York's generating capacity was 35,847 megawatts, which was 713 megawatts below the minimum considered necessary to meet the summer's peak demand. (This minimum includes a reserve margin of 18 percent which is recommended by the New York State Reliability Council to ensure system reliability in cases of shutdowns or failures of plants and transmission systems.)

The gap between need and capacity is likely to grow, the paper added. The Institute considered projected growth, the cushion needed to sustain reliability, and an added margin required to engender vigorous competition in concluding that New York must 9,200 megawatts of additional capacity within five years.

The risks of inadequate capacity: Failing to make this increase in capacity would threaten New York's economic prospects in many ways, the paper said.

 

Manufacturing: The Power to Grow noted that states with above-average energy costs lost manufacturing jobs at a faster rate than other states. 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.

Commercial businesses: Commercial businesses would also suffer from inadequate capacity, the paper said, because of their increasing reliance on energy. It cited the growth of"server farms," large, electricity-intensive data centers with rows of computers servicing network needs.

Business confidence: If business fears that New York will have energy that is too scarce or too costly, it may be reluctant to invest in New York. The paper cited surveys of business in California which showed widely faltering confidence in investing in business investments there because of concerns about the price and supply of energy.

For a copy of the full report in PDF format, visit www.ppiny.org/reports/2002/powertogrow.pdf.

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