COMMISSION ON THE FUTURE OF NEW YORK STATE POWER PROGRAMS FOR ECONOMIC DEVELOPMENT

Transcription

1 TESTIMONY TO COMMISSION ON THE FUTURE OF NEW YORK STATE POWER PROGRAMS FOR ECONOMIC DEVELOPMENT SEPTEMBER 22, 2006 PRESENTED BY KENNETH J. POKALSKY DIRECTOR, ENVIRONMENTAL & REGULATORY PROGRAMS

2 My name is Ken Pokalsky and I am Director of Environmental and Regulatory Programs for The Business Council of New York State. I appreciate the opportunity to address the Commission this morning and provide these comments on behalf of The Business Council. As background, The Business Council is: New York's largest statewide employer advocate More than 3,200 businesses, state & local business groups, and related entities More than 1,100 manufacturing firms As is well known in this room, electric power costs represent a significant competitive disadvantage for many New York State businesses. Fortunately, more than six hundred businesses, including many of the state s most energy intensive manufacturers, currently benefit under one of several state economic development power programs. According to NYPA figures, these businesses represent more than 400,000 jobs across New York State. In fact, within our membership, we have about 150 employers, accounting for more than 100 MW of total allocations, that are currently enrolled in either the Power for Jobs, Economic Development Power, High Load Factor, and/or Municipal Distribution Agency power programs. We are here today to address two major concerns. First, these four programs simply are not as effective as they once were. 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. To address this problem, we need to re-power the Economic Development Power, MDA and High Load Factor programs, and devise a long term replacement for the Power for Jobs program. Second, virtually all businesses in the state, and most residents of the state, bear some 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 both 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. Page 2 of 7

3 In both cases, New York should adopt a straighforward goal eliminate the cost of electric power as a significant competitive disadvantage for the state s economy. THE BIGGER PICTURE Over the next three to five years, we see little to suggest any significant improvement in the state s electric power situation. We expect that New York will struggle simply to meet its growing demand for electric power. This past February, the ISO projected peak demand for 2006 at 33,295 MW; we exceeded that projection by early August, with peak demand on August 1 at 33,879 MW. This exceeded the expected peak by more than five percent. Five percent growth equates to approximately 1800 to 2000 MW of load growth during peak conditions. The ISO s recently released reliability study shows a need for 2000 MW of resource additions by 2010, and more than 3100 MW by 2015 figures that include the need to complete 1200 MW of generation capacity downstate that has been proposed, but is not yet under development (including two significant proposals that would have to move forward without the benefit of the Article X siting law); the need for significant (990 MW) importation of power generated outside of New York; and 450 MW of additional voluntary load reductions. 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 unconducive for large project sitings power generation or otherwise and in a regulatory environment that will significantly limit our energy options. Environmental initiatives, including RGGI, mercury limits, and the Clean Air Interstate Rule, will jeopardize some of our existing generation including some of our lower cost generation capacity and result in increased reliance on more expensive, more volatile fuel for power generation. New York, and the northeast in general, is basing its electric power future on natural gas supply and price, and will depending on increased supply on natural gas with no clear plan to achieve it. Dealing with these larger, systemic issues, is beyond the charge of this Commission. However, we believe that the Commission must recognize these issues in assessing the need for, and design of, economic development power programs in New York, and stress the need to address these systemic issues in your final report. IMPACT OF ENERGY PRICES Based on current data (YTD data through May 2006), average prices paid for electric power by industrial customers in New York were 42 percent above the national average; for commercial businesses, this difference was slightly less, 40 above the national average. We stress that these are average costs, reflecting among other things the purchase of low cost hydro power by some businesses. These lower priced Page 3 of 7

4 power purchases are reflected in statewide average, meaning that power rates for the typical New York business are even less competitive than these data would suggest. This cost of this electric power premium in New York is significant. Comparing instate costs to the national average industrial power price shows: a cost premium of $5,550 per month, or $66,700 per year, for a small sized manufacturer ( defined as 500KW demand, 40% load factor, 144,000 kwh usage) a cost premium of $28,000 per month, or $330,000 per year, for a midsized industrial customer (defined as a 2000KW demand, 50% load factor, and 720,000kwh of usage) a cost premium of $151,000 per month, or $1.8 million per year, for a largesized industrial customer (defined as a 10000KW demand, 65% load factor, and 4.68 million kwh usage). These premiums are derived by comparing in-state commodity costs to national average prices, using typical energy bill data from the NYS PSC. We include these comparisons to stress a point; businesses in New York face a significant, immediate problem with energy costs on the supply side. While we agree there is more to be done to improve energy efficiency, in the short term, energy efficiency measures cannot achieve the cost-of-doing business reductions that can be achieved through the application of effective low cost energy programs. RECOMMENDATIONS We urge the Commission to recognize this larger context, and urge the next Administration and the legislature to begin addressing these fundamental issues regarding electric power supply discussed above. In the meantime, to help address the immediate symptom of high energy prices impacting energy-dependent business, The Business Council urges the Commission the consider the following recommendations: the state should adopt a long term mechanism to provide low costs power through the Economic Development Power, MDA and High Load Factor programs, and a long term replacement for the Power for Jobs program. We understand that PfJ was adopted as a temporary program to ease with the transition to retail competition. But we are past the point of talking about the need for a transitional program and adopting additional one-year extensions of Power for Jobs. Regardless of one s view on the state s deregulation strategy, you must recognize that the electric power market, and prices, are significantly impacted by factors other than New York s Page 4 of 7

5 deregulation efforts. For example, since 1996 just prior to our movement to deregulation 1996 natural gas prices, as measured by average prices of gas delivered for electric power generation within New York State, has increased by 220 percent. Few states rely on natural gas for power production. Just four, Texas, Louisiana, California and New York account for more than fifty percent of all natural gas-based power production in the U.S. Around the nation, states that rely most heavily on natural gas also have amongst the highest electric power costs. We see a stronger correlation between energy prices and fuel mix than energy prices and deregulation status. These repowered energy programs should focus on the retention of existing in-state business and employment. They should continue to focus on businesses for which the cost of energy is a critical competitive issue, based on their relative or absolute cost of electric power, and for which electric power costs have a significant impact on their economic viability, on their reinvestments decisions, and on their locational 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. We feel it is important to emphasize that manufacturing remains an essential component of our state s economy, particularly in upstate New York. In stressing the importance of manufacturing jobs, we often refer to as the manufacturing bonus, of $11,400, the average difference between average manufacturing salary and non-manufacturing private sector job in upstate New York (using 2002 wage data) -- a 33 percent bonus over the typical non-manufacturing private sector job. Further, based on research by the ESDC, manufacturing supports nearly 50 percent of the upstate economy with 430,000 direct jobs and 1.5 million indirect jobs. In short, manufacturing jobs remain invaluable to the upstate New York, and retention of existing manufacturing jobs needs to be given higher priority within the state s economic development strategies. These programs need sufficient resources to offer power benefits to addtional retention targets. And while a portion of these resources could be reserved for business attraction purposes, frankly we see this as a lesser priority, considering other significant incentive programs available to the state for business attraction such as Empire Zones. Criteria for the continued or re-allocation of economic development power needs to reflect new economic realities. Successful retention programs cannot simply be based on increased headcount. Instead, criteria must factors such as reinvestment in capital facilities; investment in new technology and energy efficient equipment and facilities; and retention of existing in-state employment. As manufacturers in New York and worldwide continue to innovate in the race to become more efficient, looking solely at employment levels only is an inadequate measurement of a business long-term Page 5 of 7

6 commitment to staying in New York State. The 2005 power legislation expanded NYPA s ability to consider factors such as capital investments that are indicative of a business overall health and commitment to New York, in making contract decisions. A renewed Power for Jobs program could include several levels of benefits, based on eligibility criteria, prevailing local power rates, and the availability of other forms of state financial assistance to the applicant. Unfortunately, there are no easy options available for infusing low cost electric power into a statewide economic development power program. As we have seen, the use of NYPA purchased power cannot be relied on to provide a significant, reliable cost benefit to program participants. Therefore, to implement this type of EDP program, the state will need to consider redeploying a portion of NYPA hydro-power currently dedicated by statute to residential uses for economic development purposes once it becomes contractually available in mid We recognize that this approach would have an adverse cost impact on some upstate residential ratepayers, and a significant impact on ratepayers in certain utility service areas. However, we believe that the state could help offset these adverse impact, especially lower income ratepayers, through mechanisms such as tax credits, or through use of other state financial resources. However, we believe that a reallocation of NYPA hydro resources through a strategically targeted economic development program would have a far more significant, positive impact on the state s economy, and in particular the upstate economy, than would its continued use in the residential sector. Finally, we would like to make several points regarding the broader energy challenges facing New York State, and suggest that there are many avenues available to New York to help address the competitiveness impact of high power costs. 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. Longer term power purchase agreements (15 year or greater) should also be considered to promote new economic development in New York, 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. Page 6 of 7

7 The state needs to accommodate and provide incentives for expanding and upgrading of our power infrastructure. The Business Council has just formed an internal working group to look at these energy infrastructure issues. We need to facilitate new generating capacity thru Article X renewal. We need to increase access to natural gas supply, including the siting of LNG facilities We need to promote fuel diversity through coal gasification and carbon sequestration in addition to, rather than instead of, cleaner coal combustion technology; and consider additional nuclear generation capacity. We agree that more can and should be done to increase energy efficiency, and we believe the Commission should have a voice on this issue as well. For example, the state should consider adoption of broadly applicable energy efficiency investment tax credits that would be available to all commercial and industrial employers. These would be in addition to existing ITC provisions available to some sectors. To amplify the impact of such credits, the state should follow the approach used in the brownfield program and in effect exempt such credits from alternative minimum taxes by treating unusable credits as refundable overpayments in the tax year in which they are earned. Few states have this type of broad based efficiency tax credits, and adoption here would advance New York s position as a leader in innovative energy policy. In closing, The Business Council would again like to thank the Commission for this opportunity to be heard. We have a mutual interest in developing effective economic development power programs, and in addressing the state s more systemic electric power issues. The Business Council, and its member companies, look forward to working with the Commission and the state Legislature on the specific design of, and criteria for, a renewed EDP and Power for Jobs programs. Page 7 of 7