ELECTRIC SHOCKS

Legislative action can help straighten out state energy policy

Electricity costs, controversy over proposed power plants, and an evolving energy marketplace combine to put energy issues at the forefront of environmental concerns during the current session of the New York State Legislature. Lawmakers must find their way through a landscape of competing interests and political concerns while environmentalists point to global warming, radioactive waste, continuing air quality problems, new research on the damage of acid rain and dramatic increases in childhood asthma to show that energy policy is not just about generating more power. Over all loom California's electricity woes.

For more than six years, a coalition of state environmental and public health groups has been fighting for the environment in the era of deregulation. The goal has been to prevent shortsighted and polluting solutions to New York's energy needs by promoting clean, efficient, and sustainable energy policy. Now, with California's troubles, the controversial siting of temporary generators in low-income and minority communities, and the new Bush Administration's aggressive policy of natural resource extraction and the expansion of nuclear power, the debate is becoming critical. In early March, the New York coalition, which includes Environmental Advocates, the Natural Resources Defense Council, Pace Energy Project and the Sierra Club among others, will present its comprehensive Environmental Agenda for Energy at an Albany press conference. The proposals are also part of Earth Day Lobby Day, scheduled for April 23 at the Capitol. The coalition is seeking a 10 percent reduction in public sector energy use and a 10 percent reduction of energy use in the New York City metropolitan area over the next three years. In addition, the groups are calling for a state commitment that by 2012, 10 percent of all electricity generated in state must be from clean, renewable sources. To achieve these goals, the groups are backing legislation to foster consumer choice for electricity, remove market barriers to clean energy sources, and provide incentives for efficiency and commercialization of renewables. The Environmental Agenda for Energy includes:

Clean Distributed Generation: Deregulation will likely lead to a proliferation of distributed generation (DG) - small energy generators located close to where the energy is used. DG can be very clean or very polluting. Because the traditional electric system relies on large, centrally located power plants, significant energy - up to 8 percent - is lost during transmission. Fuel cells and solar panels are two energy sources that can be located where they are used. Unfortunatelly, so are dirty, back-up diesel generators that have been placed in schools, hospitals and other institutions for use should there be a system failure or rolling blackouts. Now there is an attempt to use these dirty generators as temporary power sources, a proposal with serious implications for air quality, especially in New York City. The state Legislature must pass a law that removes the barriers to clean distributed generation while closing the loophole for dirty diesel generators. This will involve changing utility interconnection and fee rules, as well as establishing streamlined distributed generation emission standards.

A Clean New York Power Authority: NYPA should be taking a bigger role in planning New York's sustainable energy future. A law is needed to ensure that the Power Authority will invest up to a billion dollars in conservation and the development of new clean technologies within the next decade. Before deregulation, New York invested nearly $300 million a year in programs to manage electricity demand. After falling below $80 million in recent years, a recent Public Service Commission ruling assures that the Systems Benefit Charge will now provide up to $150 million per year, although New York still lags behind per capita expenditures in neighboring states. NYPA needs to help fill this gap and increase investments in efficiency and new technologies. NYPA should also be a leader in demonstrating the immense market potential of renewable sources. Advocates are pushing for a renewable portfolio standard that would ensure that the authority's electricity increasingly comes from wind and solar generators.

Increased Reliance on Nuclear Power Is Not the Answer: Nuclear power should not be part of New York's energy future. Environmental Advocates supports two laws that will make sure that nuclear safety is not compromised in the course of restructuring. One bill would create a nuclear power plant whistleblower access and assistance program, designed to protect workers who come forward to report nuclear safety concerns. A second bill would require the Public Service Commission to conduct a due diligence review of companies buying nuclear power reactors. Operation of these plants in a competitive market warrants a very close look.

Retail Choice and Green Power: One of the promises of deregulation was retail choice, driving down prices and giving consumers the option of buying green power such as solar, wind and low-impact hydro. So far, deregulation has failed to produce meaningful retail choice in New York. To stimulate green power, the coalition is proposing legislation to establish a competitive default service. Currently, if a consumer doesn’t specifically choose an energy provider, the traditional utilities (Con Ed, Niagara Mohawk) are the provider by default. This proposal would furnish another default provider to 35 percent of consumers. To be considered, the competitor would have to beat current rates and provide 2 percent of its electricity from clean, renewable sources. This is meant to foster the development of competing energy services companies and avoid the continuation of unregulated monopolies.

Clean Energy Tax Signals: The tax system can be used to foster the evolution of a clean energy sector, and can educate the public about clean energy options. Ideas for this session include a tax credit for investment in wind power technologies, a sales tax exemption for products that meet strict efficiency standards certified by the New York State Energy Research and Development Authority (NYSERDA) and the federal Environmental Protection Agency as Energy Star products, a sales tax exemption for fuel-efficient vehicles, and increased tax credits for green buildings. These small changes to the tax system can spark greater interest in energy-saving opportunities.

Power Plant Siting: Power plant siting issues continue to be controversial. One partial solution is to require the state Siting Board to consider the cumulative impacts of all plants proposed in a small geographic area, such as New York City or Long Island. Rather than the current practice of examining these proposals one-by-one, the Board should consider the cumulative impact of all existing and proposed plants, including those smaller plants that fall under the siting law's 80 megawatt threshold. Advocates are pushing a bill to require NYSERDA to conduct this analysis for the Siting Board to consider whenever approving new plants under Article X of the Public Service Law.

NUCLEAR FALLOUT

Kyle Rabin

Remember the $132 billion Savings and Loan scandal? Another bailout of similar magnitude is underway, but it's receiving much less attention. This payoff would give billions of dollars, recovered from energy ratepayers for stranded investments in nuclear power, to utilities like the Niagara Mohawk Power Corporation (NiMo). Nationwide, investor owned utilities are looking for a total bailout of about $200 billion. The payoff also involves new companies who buy reactors looking to raid the plump reactor decommissioning (cleanup) funds collected from ratepayers over the operational lifespan of a nuclear power plant.

Although state energy policy has not yet been set requiring utilities to divest themselves of their nuclear plants, companies like NiMo and Consolidated Edison are looking to quickly unload their commercial reactors. Often, these license transfers amount to an accounting shell game - the original owners unload their unprofitable reactors for a fraction of the original construction cost - with the resulting loss borne by ratepayers.

For example, NiMo and three other companies have reached a deal to sell their interest in the two Nine Mile Point reactors to Baltimore-based Constellation Nuclear, LLC for $815 million. This offer is considerably lower than the combined $2 billion plus book value for these two plants. The reactors’ low market value means that NiMo will attempt to make up its losses by continuing to charge ratepayers for past investments in construction and for profits they will never earn on electricity generated by their soon-to-be-divested nuclear power plants.

To pass the cost onto ratepayers, the utilities will need the permission of the state Public Service Commission. In NiMo’s case, the bill could total a few billion dollars. Of the nearly $7 billion that the two Nine Mile reactors cost to construct, ratepayers have absorbed approximately $3 billion. That partly explains why current owners don’t mind selling their plants for low prices.

Meanwhile, the potential new owners, like Entergy Nuclear, Inc. and Constellation Nuclear, LLC, are attracted by the large and still accumulating decommissioning funds. Unfortunately, there is the potential for the new owners to choose a decommissioning strategy based solely on financial considerations rather than the long-term economic and public health interest of the surrounding communities. It is certainly possible that the existing nuclear sites in New York could be turned into long-term nuclear dumps while the out-of-state owners earn interest on the decommissioning accounts. "You could theoretically shut the plant down and make money on it," explains Entergy’s Chief Executive Officer Wayne Leonard, "because there is more money in the decommission fund than it costs to close the plant."

DIRECTOR'S CHAIR

Val Washington

With this issue of Albany Report, we are trying something new. Although there is much to report - including the Albany County Legislature’s passage of the pesticide Neighbor Notification Law on Feb. 12 - we are devoting most of this issue to energy. Events in California, and the election of a new administration in Washington, D.C. - not to mention the growing threat of global warming - bring a sense of urgency to the discussion. We want our members to know that Environmental Advocates has a strong energy program developed over the past six years with a coalition of New York and national groups concerned about energy policy and its impact on the environment. As we launch into the 2001 legislative session, we are working on a comprehensive plan we call the Environmental Agenda for Energy. If passed, it will increase energy conservation, stimulate research in alternatives to fossil fuels and nuclear power, and protect overburdened communities from the impacts of temporary, emergency power generators. For this issue of Albany Report, in addition to reports from our energy policy staff, we have invited Gordian Raacke and David Wooley to contribute articles to help our understanding of the current state of energy deregulation. And EA members may be surprised to learn from our interview with Laurence DeWitt that we are one of five environmental organizations with a seat on the New York State Independent System Operator, the body that is now making the day-to-day decisions about the state’s electricity markets.

We want you to know what principles guide us as we navigate the uncharted waters of electric power market deregulation. Let’s be clear. Whether it’s coming from Albany or Washington, we reject the calls for increased generation without at least an equal commitment to conservation. Why? Because electric power pollutes. Electric power plants are responsible for about half the nation’s emissions of acid rain- and asthma-inducing sulfur dioxide and nitrogen oxides, along with mercury and other toxic chemicals. They have generated more than 40,000 metric tons of high level radioactive waste without a long-term storage plan. And talking about electric industry deregulation without talking about global warming is like talking about the tobacco industry without mentioning lung cancer. There is no longer a serious debate about human causation of global warming, and climate change is evolving on a sharper curve than the most dire predictions of a decade ago. Power plants are the single largest source of the greenhouse gases warming the atmosphere.

As environmentalists, we are determined to rein in the gross waste of energy that underlies so much of how our society runs. There is enormous room for energy efficiency even without serious life-changing redirection. But the utilities fight it and too many politicians fear to be associated with the idea of conservation. Of course, some new plants will be built. But the greatest underutilized energy source in the country today is the more efficient use of the electricity already being produced. And it is that understanding that guides our organization’s energy work.

PUBLIC POWER TO THE PEOPLE

It may be the only thing that’s working

Hardly a day goes by without yet another news story about what is being called the California energy crisis. Yet one interesting element of the Golden State’s current energy picture is rarely reported: municipally owned power companies are doing fine. For those who get their electricity from the municipally owned Los Angeles Department of Water and Power (LADWP) and the Sacramento Municipal Utility District (SMUD), there is no power shortage and prices are stable. In fact, LADWP is selling power to the state and has just announced a plan to spend $4 million per year to plant city trees to reduce the need for summer air conditioning.

Public power companies, such as LADWP and SMUD, are typically set up by a municipality, a city or state to provide electricity to its citizens and businesses. They generally have one objective: to provide an abundant supply of electricity to their customers who also happen to be their owners. And in most cases, public power companies are pretty good at this. Investor-owned utilities also have one simple objective: to provide an abundant supply of money to their shareholders who also happen to be their owners. And they are also pretty good at this.

For example, a recent audit of some of the California-based investor-owned utilities, which claim to need rate increases to save them from bankruptcy, revealed that they had skillfully transferred billions of dollars from ratepayers’ pockets into the company’s bank accounts. From there, the transfers continued to the parent company and into shareholders’ vaults, and thus, out of reach of regulators. This is not to say that investor-owned utilities aren’t good at providing electric service to their customers. It is simply to illustrate the fact that investor-owned utilities are in business to make money while public power companies are in business to provide electricity to the public.

While weathering the storm in California better than its private counterparts, public power has also been a national leader in implementing energy efficiency and renewable initiatives. For example, LADWP and SMUD have installed solar electric panels throughout their systems.

New York has its own public power entities, the New York Power Authority (NYPA) and the Long Island Power Authority (LIPA), that help mitigate the deregulation pressures of the private generators. Unlike its municipally owned California counterparts, NYPA operates statewide. LIPA is, of course, a regional Long Island entity. In recent years, both have undertaken or pledged to implement important energy efficiency programs. NYPA’s High Efficiency Lighting Program helped schools install more efficient lighting which resulted in savings of millions of dollars for ratepayers and significant reductions in harmful air emissions because less power was generated. While yet to deliver on its promise, LIPA plans to have ten thousand solar electric panels installed on Long Island’s roofs within the decade.

Public power entities can be corrupted to varying degrees where they serve as political patronage mills or, worse yet, as instruments to bail out bad investments of investor-owned utilities with ratepayer or taxpayer money. Unfortunately, this is what happened with LIPA’s ill-advised 1998 takeover of the private Long Island Lighting Company (LILCO). In an unprecedented scheme to privatize LILCO’s profits while socializing its losses, the state agreed to a $7 billion bailout that benefited LILCO’s shareholders and burdened Long Island’s ratepayers with the largest public bond issue in the history of this country.

With proper safeguards, public power can be a tool to provide safe, reliable and affordable electricity and to implement energy policies that are in the public interest. Free of the need to maximize shareholder dividends, public power is well suited to balance short-term objectives, such as maintaining reasonable rates, with longer-term needs, such as a gradual move to renewable energy sources. By adhering to democratic principles, practicing meaningful outreach and allowing true public participation, public power can go beyond providing utility service. In its truest form, public power can fulfill its promise to give power to the people.

Gordian Raacke is executive director of the Citizens Advisory Panel, Long Island’s federal court-appointed energy watchdog. He also serves on the Board of Environmental Advocates. The views expressed in this article are those of the author and do not necessarily reflect the views of organizations with which he is affiliated.

INTRO TO NYISO

An Albany Report Interview

Despite deregulation, there is still a central body that decides how much power is needed and sets wholesale prices, since long-term contracts have been replaced by spot markets. The New York Power Pool, which used to order power plants to run or shut down as needed, has been replaced by the New York Independent System Operator (NYISO) which contracts with generators on a next-day need basis. Environmental Advocates is one of five environmental groups with a vote on the NYISO. Together, the groups, represented by Laurence DeWitt, the former director of the Office of Energy Efficiency and the Environment at the state Department of Public Service, control 2 percent of the votes. Albany Report asked DeWitt to describe how the ISO operates and to discuss some of the current issues.

Q:  What is the Independent System Operator?  A:  The New York ISO took over operation of the state’s system for transmission and selling of bulk (wholesale) power on December 1, 1999. The bulk power system was previously operated by the New York Power Pool, a combine of the state’s regulated utilities (Con Ed, Niagara Mohawk, etc.). The establishment of the NYISO and commencement of wholesale electric markets in New York was part of the overall competitive restructuring of the electric industry initiated by the Federal Energy Regulatory Commission (FERC) and the state Public Service Commission (PSC).

Q:  Who governs or controls the NYISO?  A:  There are two parallel modes of control of the NYISO, and they are sometimes in conflict. First, there is a large professional staff of about 220 (and growing) who report to a president, Bill Museler. The independent and self-perpetuating Board of the NYISO, which is comprised of 10 members, appoints him. "Independent" means that none of them can be affiliated with any of the market participants. In addition, there is a complex committee structure comprised entirely of market participants and members. The committee structure feeds up to a Management Committee which must approve almost all major decisions. The Board of the ISO can overrule the Management Committee in fairly unusual circumstances.

Q:  Who controls the Management Committee?  A:  There is an elaborate formula for constituency voting shares: electric generator owners 21.5 percent; marketers and suppliers 21.5 percent; transmission owners 20 percent; end-use consumers 20 percent; public power and environmentalists 17 percent (environmentalists get only 2 percent).

In order to pass the Management Committee, a vote of 58 percent is required. Although 2 percent is an unjustly small amount of the vote - as is the 20 percent share for consumers - these small percentages prove critically important in the many close votes. It sometimes provides us with leverage to get support for our issues.

Q:  What environmental groups are members of the ISO?  A:  Pace University Energy Project, which hires me, and Environmental Advocates, the Natural Resources Defense Counsel, Scenic Hudson and The American Wind Energy Association. By agreement, I generally represent all these groups at the ISO.

Q:  Do these groups always agree?  A:  Almost always. When they don’t, we discuss the issues and try to reach agreement so we can concentrate our small share of the vote. Occasionally agreement is not possible, and then I vote as instructed by the groups.

Q:  What are the major and most controversial issues at the NYISO these days?   A:  The major issues are what to do about risks of rolling blackouts and of very high prices the next several summers. The causes of these problems are: lack of market mechanisms for consumers to reduce their use in response to prices that they think are too high; market manipulation by generators; and a siting process that does not permit full and speedy participation by the public. A major goal for environmentalists at the NYISO is to address these problems by eliminating barriers to energy efficiency and clean generation. A major concern is that the programs being proposed may encourage owners of back-up diesel generators to turn them on to save money during high price periods, creating an air quality nightmare. Our major goal at the NYISO right now is to avoid that outcome, while encouraging the efficient use, and clean generation, of energy.

ENVIRONMENTAL ADVOCATES IN SHORT

Coming Soon: A Power Plant Near You

There are currently more than 20 active power plant proposals in New York, with many more in the works. Some are subject to siting procedures under Article X of the Public Service Law, while many - those under 80 megawatts - are not. Some of these proposals are quite controversial, including the New York Power Authority (NYPA) plan to site ten turbines in minority and low-income New York City neighborhoods without conducting an Environmental Impact Statement. New York Lawyers for the Public Interest and the New York Public Interest Research Group are litigating to stop NYPA’s turbine project until proper environmental reviews are completed.

Several Websites are available for those interested in learning the location of proposed power plants. One is maintained by the New York State Independent System Operator at: www.nyiso.com/services/planning.html. Another list is maintained by the Department of Public Service at: www.dps.state.ny.us/articlex.htm. The Legislature can help ensure fairness in the face of this power-plant siting gold rush. One legislative proposal (see Legislative Priorities, Pg. 1), would require the New York State Energy Research and Development Authority to study the cumulative impact when numerous plants are proposed in a small geographic area.

The Fix Is In

Most of the current energy debate is focused on electric power. But transportation policy is critical too. Environmentalists argue that creative solutions and new technologies can meet society’s needs without adding to environmental hazards like smog, acid rain and asthma.

Increasing vehicle miles travelled, especially downstate, has resulted in congested roads and bridges and degraded infrastructure. The solution is not the construction of new roads. Time and again, capacity expansion projects have shown that municipalities cannot build their way out of road congestion. If new roads or new lanes are built, drivers will come; air pollution, more traffic and sprawl will follow. Instead, the state needs to follow a twofold strategy of "fix it first" for roads and bridges, and public transit investment.

In remarks at recent transportation budget hearings, Department of Transportation Commissioner Joseph Boardman indicated that he agrees. The Commissioner explained that between 1980 and 2000, New York’s population increased by 8 percent but the number of vehicle miles traveled increased by 63 percent. "How will we accommodate the increased and new travel patterns? By building more roads?" Boardman asked. "Most often," he concluded, "the answer will be no."

BLOWIN' IN THE WIND

Hundreds megawatts of new power just a breeze away. Three qua