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September 27, 2006

Council testifies additional power generation needed to curb rising energy costs

New York should refocus its economic development power programs on retaining existing energy-intensive businesses and site additional energy generation to curb rising energy prices, Ken Pokalsky, the Council's director of environmental and regulatory programs, told the state’s Power Commission.

Pokalsky’s remarks, which he made during testimony to the Commission on September 22, emphasized the importance of the state’s economic power programs.

“Electric power costs represent a significant competitive disadvantage for many New York State businesses,” Pokalsky said. “Fortunately, more than 600 businesses, including many of the state most energy intensive manufacturers, currently benefit under one of several state economic development power programs.”

The state’s Power Authority estimates that the benefiting businesses employ more than 400,000 New Yorkers, he added.

The Council’s own membership includes 150 employers enrolled in the Power for Jobs, Economic Development Power, High Load Factor, or the Municipal Distribution Agency (MDA) power programs, Pokalsky told Commission members.

“These four programs simply are not as effective as they once were,” Pokalsky said. “Loss of access to Fitzpatrick nuclear power, and changes in the electric marketplace, have resulted in less beneficial programs, and in less certainty regarding program benefits.”

Pokalsky said that the problem should be addressed by re-powering the Economic Development Power, MDA, and High Load Factor programs, and by devising a long-term replacement for the Power for Jobs program.

“Criteria for the continued or re-allocation of economic development power needs to reflect new economic realities,” Pokalsky said. “Successful retention programs cannot simply be based on increased headcount. Instead, criteria must include such factors as reinvestment in capital facilities; investment in new technology and energy efficient equipment and facilities; and retention of existing in-state employment.”

High power costs are a burden shared by most residents and employers in the state, Pokalsky said. He added that recent data show New York’s energy prices are 42 percent above the national average.

“High-cost power is a symptom of larger, systemic issues with our power system, including relatively high reliance on natural gas for electric power production; failure to grow generation capacity to keep up with growth in demand; high property taxes; state environmental initiatives; state-imposed energy program fees; the lack of an efficient siting law and others.”

We know that we are losing both business and people to other, more competitive states, and we are losing business, especially manufacturing, to low-cost foreign competitors, Pokalsky said. “It is essential that the state also begin to address these big picture issues as well for the benefit of business and residential power customers alike.”

Pokalsky expressed concern over New York’s future supply of power. “We expect that New York will struggle simply to meet its growing demand for electric power,” he said. “This past February, the ISO projected peak demand for 2006 at 33,295 megawatts; we exceeded that projection by early August, with peak demand on August 1 at 33,879 megawatts.”

The ISO's recently released reliability study shows a need for 2,000 megawatts of added capacity by 2010, and more than 3,100 MW of added capacity by 2015, Pokalsky said.

“It is unclear how the state can achieve the parallel goals of assuring adequate power supplies and achieving reduced power costs, in a political atmosphere that is not conducive for siting large project power generation, and in a regulatory environment that will significantly limit our energy options,” he said.

Environmental initiatives, including RGGI, mercury limits, and the Clean Air Interstate Rule, will further jeopardize some of our existing generation, Pokalsky added.

It is imperative that new, low-cost base-load generation be introduced to the marketplace to provide support for continuing load growth and potential unit retirements, Pokalsky said.

Pokalsky urged the Commission to support:

Longer-term power purchase agreements should also be considered to promote new economic development in New York. Such agreements would also provide long-term, low-cost energy for existing and new commercial and industrial customers, and dampen the effects of natural gas and fuel oil price volatility on the energy marketplace, Pokalsky said.