New York Power Authority
Hydropower Contract Extensions with Upstate Utilities
Kenneth J. Pokalsky
Senior Director, Government Affairs
September 2, 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 the Authority as you consider a one year extension, through December 2010, of contracts for the continued sale of 455 MW of firm power and 360 MW of peaking power to National Grid, Rochester Gas & Electric, and New York State Electric and Gas, for distribution to their residential and small farm customers.
The Business Council understands the adverse impact that New York’s high power costs have on all customer classes, including residential, commercial and industrial customers, and we have no objections to this contract extension through the end of 2010.
However, The Business Council continues to support the recommendations of the 2006 Power Commission, and believes that the best long term use of this hydropower resource is to support economic development and the creation and retention of jobs, particularly in upstate New York.
We encourage NYPA to keep this option open, so that legislative options are not restricted by contractual commitments past December 2010.
While this 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 to residential electric customers 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.
However, we believe that 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. 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.
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 upstate.
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 Central New York region (Cayuga, Cortland, Madison, Onondaga, and Oswego counties), the difference is even greater, nearly $19,500 per year ($56,259 compared to $36,789) or 52 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.
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 several mechanisms in place to develop additional information to help design a long term replacement program.
We urge NYPA, the Administration and the state legislature to develop a long-term program, which should be adopted as early as possible during the 2010 legislative session.
A “repowered” energy programs should focus on the retention of existing in-state business and employment, promoting new capital investment in the state, and promoting new 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.
- Includes a multi-year shift of current “rural and domestic” hydropower from residential to economic development uses.
- Provides allocation-based power benefits, using NYPA hydro, and/or blended hydro and purchased power to provide competitive, stable energy prices to program participants.
- Provides participants with longer-term contracts (5 to 10 year duration).
- Broadens eligibility criteria to include jobs created/retained, capital investments, energy efficiency investments, local economic significance and other factors.
Finally, I want to again stress that 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. 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 Authority on these issues as we head toward the 2010 legislative session.