Joint Legislative Hearing/Energy, Commerce/Economic Development & Corporations Committees
New York State’s Low-Cost Power Programs
Kenneth J. Pokalsky
Senior Director, Government Affairs
September 23, 2009
My name is Ken Pokalsky and I am Senior Director for Government Affairs for The Business Council of New York State.
The Business Council is New York's largest statewide employer advocate, representing about 3,000 private sector employers across the state, including about one thousand manufacturing firms.
I appreciate the opportunity to provide input to this joint hearing as you consider the future of economic development power programs.
In short, The Business Council continues to support the general recommendations of the 2006 Temporary Commission on the Future of Power Programs for Economic Development, and believes that among the best long term use of NYPA hydropower resources is to support economic development and the creation and retention of jobs.
We agree with its findings, that
The goal of power programs for economic development is to assist qualified businesses in overcoming New York’s competitive disadvantage in the price of electric power relative to other states.
…power reserved for “rural and domestic” uses [should] be redeployed for economic development purposes…. The value of the savings to the average residential customer…is arguably less significant than the benefits the power could leverage if targeted for economic development.
..the Public Service Commission should be directed to develop policies to mitigate the rate impact [on R&D customers]…
A reallocation of NYPA hydro resources through a strategically targeted economic development program would have more significant, positive impacts on the state’s economy, and in particular the upstate economy, than would continued deployment to R&D customers.
A long term commitment to providing competitively priced power to energy-intensive businesses should be an essential part of the state’s economic strategy.
Our members tell us, year after year, that energy costs are one of the state’s most significant competitiveness problems, usually ranking second or third – behind health care and taxes, particularly real property taxes – as their most significant cost-of-doing business concerns.
On average, electric power costs in New York are 40 percent above national averages for industrial and commercial businesses, even after the benefits of NYPA hydropower sales to business are considered, meaning that power costs for the typical business is even further above national averages.
More than six hundred businesses, including many of the state’s most energy intensive manufacturers, benefit from the state’s economic development power programs. According to NYPA figures, these businesses represent more than 350,000 jobs across New York State.
Within our membership, we have about 150 employers with more than 100 MW of total allocations that are currently enrolled in either the Power for Jobs, Economic Development Power and other statewide NYPA programs.
Importantly, these are high value jobs, especially those in the manufacturing sector. In upstate New York, these jobs are particularly valuable.
For example, based on 2008 NYS Department of Labor data, in the “upstate” economy (New York State, minus New York City and Long Island), the average manufacturing job pays nearly $17,500 per year more than the average private sector, non-manufacturing job ($58,567 compared to $41,139) – a manufacturing job bonus of about 42 percent.
In the five county Western New York region (Allegany, Cattaraugus, Chautauqua, Erie, and Niagara), the difference is even greater, nearly $20,400 per year ($54,172 compared to $33,792) or 60 percent.
We believe that retention of these high paying jobs should be an economic development priority for New York State. A long-term economic development power program, using NYPA hydro resources, is a key tool for achieving this job retention goal.
Given the direct economic “return” from these businesses and jobs, and the “multiplier effect” resulting from local expenditures on materials and services, and the secondary economic effect of these business’ expenditures and payrolls in the regional economy, we believe that the state’s economic development power investments produce a significant “return on investment” for the state.
For the past several years, we have urged the Administration and Legislature to adopt a permanent replacement program for “Power for Jobs,” but instead we continue to limp along with twelve month - and, this year, a ten and one half month - extensions.
The lack of long term certainty regarding the availability and cost of economic development power, and the erosion of the value of this program for many program participants, make it difficult for businesses to make significant new capital commitments in the state.
Legislation adopted in 2009 extends the existing programs through May 15, 2009, and puts mechanisms in place to develop additional information to help design a long term replacement program.
We urge the Legislature, the Administration and NYPA – with input from affected stakeholders - to agree on a long-term program, which should be adopted as early as possible during the 2010 legislative session.
A “repowered” energy programs should focus on retaining existing in-state business and jobs, promoting new capital investment in the state, and promoting new investments in businesses and new jobs.
We support an approach that:
- Adopts a permanent replacement program, along with a transition period during which current program contracts would be extended.
- Integrates PfJ and EDP into a single replacement program with common criteria.
- Makes competitively-priced power available for expansion, retention and attraction projects.
- Focuses on businesses for which the cost of energy is a critical competitive issue, and for which electric power costs have a significant impact on their economic viability, and on their siting and investment decisions. This focus would include energy intensive sectors, such as manufacturing, and other sectors and individual businesses for which electric power costs are a significant competitive factor.
- Provides certainty to program participants in both the amount of power available and its price. We strongly believe that the best approach is through allocation-based power benefits, using NYPA hydro, and/or blended hydro and purchased power to provide competitive, stable energy prices to program participants. (In effect, this would return economic development power programs to their original format, when the state had access to the output from Fitzpatrick.)
- We believe that the most efficient mechanism for creating an allocation based program includes a multi-year shift of current “rural and domestic” hydropower from residential to economic development uses.
- Direct use of former R&D power may be limited to participants in this new program located within the service territories of the three upstate utilities. If so, similar benefits should be made available for downstate EDP participants using other NYPA resources, including dedicate revenues from unallocated power under other economic development power.
- A new economic development power program should provide program participants with longer-term contracts (5 to 10 year duration), with an opportunity for contract extensions (“evergreen” contracts) provided that the business continues to meet its program obligations.
- Broadens eligibility criteria to include the number of jobs created and retained, the quality of jobs (including value of wages and benefits); level of recent and planned capital investments; relative energy efficiency and recent and planned efficiency investments; local economic significance and other factors.
- We agree that a business’ commitment to energy efficiency should be a factor in a new, long term power program. As most businesses receive a fraction of their total energy needs through low-cost NYPA power, program participants have had, and will still have, a significant financial incentive to invest in energy efficiency. NYSERDA already supports business energy audits, through its “flexibility technology” program for larger businesses, and through its audit program for smaller (on an energy cost basis) business. We support continuation of these programs.
We understand that virtually all businesses and residents in the state bear the burden imposed by high power costs. High cost power are 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.
While our proposed approach would have an adverse impact on some upstate ratepayers, we believe that the state could help offset these adverse impacts, especially lower income ratepayers, through mechanisms such as the repeal of the remaining 2 percent utility gross receipts tax on transmission and distribution charges for residential electric customers (Tax Law Section 186-a, which produces about $100 million per year) and the so-called Article 18-A assessment increases adopted this year, and which will add more than $500 million per year to state energy costs.
Likewise, the state could rollback or place limits on other administration-imposed energy assessments, such as the “system benefit charge,” the “renewable portfolio standard” and the “regional greenhouse gas initiative,” all which add to consumer’s energy bills.
We know that we are losing business and people to other, more competitive states, and we are losing business - especially manufacturing - to low cost foreign competitors. 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.
In both cases, New York needs to pursue a straight-forward goal of reducing energy costs, and eliminating the cost of electric power as a significant competitive disadvantage for the state’s economy.
Thank you again for this opportunity to provide input. We look forward to working with the Legislature on these issues as we head toward the 2010 legislative session, and look forward to your comments and questions.