Authority reaps windfall selling low-cost power
By McClatchy Tribune News
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Instead of helping the local economy, the cheap power has been sold by the New York Power Authority for an estimated $161 million and used mostly to subsidize businesses outside the region and fund authority operations statewide, The News found. What's more, profits at the Niagara Power Project more than tripled the past four years.
The Lewiston facility once accounted for a quarter of the profits generated at the 18 power plants the authority operates. But thanks to the explosion in profits - nearly $1 million every other day - the Niagara River facility last year provided nearly two-thirds of profits generated by authority plants statewide.
"I continue to be concerned about the lack of ROI (return on investment)," said Assemblyman Sam Hoyt, D-Buffalo. "I'd like to see a greater portion of low-cost power and the revenues generated by that low-cost power remain in Western New York."
Local economic development officials, after struggling for several years, have recently found takers for most of the unused low-cost power. That means most of the power earmarked for Western New York eventually will remain here, thus leaving the authority with less to sell on the open market.
"We've made significant progress toward enhancing the Western New York economy through our allocations of low-cost hydropower and implementation of the settlement agreement for the Niagara Power Project relicensing settlement," said authority spokesman Michael Saltzman.
But until companies start using the power - they have three years to do so after it is assigned - the authority will continue to sell it on the open market for a big mark-up. The News calculates that this year, unused Niagara hydropower will fetch up o $45 million.
There's also no assurance that all current power users will continue to use their full allocations because of changes in business conditions or their ability to live up to job commitments the power is linked to.
A federal law passed in the 1950s reserved more than one-third of the generation capacity of the Niagara Power Project for industry within 30 miles of the plant.
The hydroelectricity is sold at a rate slightly above cost, and about one-fifth the current market rate. As recently as 2001, 99 percent of the power was allocated to some 100 companies. Over the next several years, however, several large customers closed their plants, and supply to others was cut because they trimmed jobs.
The authority and state and local economic development officials were slow in finding new customers, and by 2005, 23 percent of the region's allocation was not being used.
That dropped to 17 percent by April of this year. It's not difficult to find companies interested in obtaining low-cost power, but locating firms that meet the state's qualifying criteria can be "tricky," said Thomas Kucharski, president of Buffalo Niagara Enterprises.
The criteria have been criticized as being too geared toward old-economy businesses, and some changes have been made, but Kucharski said more tweaking may be in order.
"We all agree we could stand to take another look at the criteria," he said.
Others question the effectiveness of economic development officials. They also note the authority has a vested interest in not reassigning the power to local companies, as its sale on the open market means more money for the agency.
"How difficult can it be to find people to take low-cost power?" said State Sen. George Maziarz, a Newfane Republican and chairman of the Senate Energy Committee.
"I suspect the authority has been too reluctant (to find takers) because of the financial reward it gets from selling the power on the open market," he said.
Two local business owners who tried unsuccessfully to get hydropower from the authority voiced frustration over the surplus. Bob Confer, vice president of Confer Plastics in North Tonawanda, said his company approached the authority last year, seeking an increase in its 300-kilowatt allocation.
The company employs about 130 people to manufacture molded plastics for industry, he military and consumer products, and was trying to cut its electricity bills.
Confer's bills average 11.5 cents per kilowatt, more than double the rates paid by his major competitors in Ohio. The authority turned down the request, saying the company's application didn't meet the program's criteria.
"This is quite frustrating," Confer said after being told of the authority's unused power. "It seems to me the state tends to bend over backwards to serve the new companies coming into New York but does nothing for those already here."
Doug Taylor, president of Taylor Devices in North Tonawanda, said he, too, was told his request for low-cost power didn't meet the program's criteria when he applied about five years ago.
"It just shows the rules are slanted to favor taking the power from Niagara and selling it," he said. "It's the fleecing of Western New York."
While Taylor and Confer didn't get the power they wanted, the authority made considerable headway the past couple of years allocating most of the unused power. With a large allocation last month to Globe Metals in Niagara Falls, only seven megawatts are now unspoken for, the lowest amount since 2000. But because companies have three years to use the power once it is allocated, 17 percent of the power remained unused through April.
The authority, for example, made a large allocation last month, but the company, Globe Metals, won't be using its full allocation for three years.
The authority will continue to sell Globe's unused allocation, and those from other companies, on the open market until the industries begin using it. And it's possible some of the power might never be put to use because some of the large recipients are developing projects with uncertain prospects. The unused power is sold at a considerable mark-up.
The authority receives 1.6 cents per kilowatt-hour for power sold to local industries under the program vs. up to 6 cents on the open market. For the four years that figures are available, The News calculated the sale of unused Niagara power earned the authority $161 million, including a projected $45 million for this year.
The governor and State Legislature found uses for this money that has little to do with Western New York.
Legislation in 2005 laid claim to 70 megawatts of the unused power, dictating that for as long as it remained unassigned, proceeds from the sale should fund the Energy Cost Savings Benefit program, which subsidizes electric bills of 105 companies around the state. A News review of the program shows three of the program's customers are in Erie and Niagara counties; they receive 9 percent of the program's allocation.
In contrast, 57 of the companies, and 49 percent of the discounted allocation, went to companies and nonprofits in New York City, Long Island and Westchester County.
Over the past decade, the governor and Legislature also required the authority to absorb the cost of another subsidy program, Power For Jobs, at a cost of $505 million. Sixteen percent of the approximately 600 participating companies are located in Erie and Niagara counties, and they account for 12 percent of the program's allocation.
Of late, the authority and National Grid negotiated a new contract that took effect last September and resulted in less power staying in the community and more cash flowing to the authority. The authority sells low-cost hydropower to National Grid, which, in turn, sells it at cost to the industrial customers.
National Grid used to keep the unused replacement power and sell it at cost to residential customers, providing some small savings. Under the new contract, the authority keeps the power and sells it.
At about the same time the authority was selling unused power for big money, the Niagara Power Project became more profitable. The establishment in 1999 of the New York Independent System Operator provided the authority an easier vehicle to sell power into the market at premium rates. Low river flows in 2000, 2001 and 2003 limited how much water those plants could divert, and profits dropped accordingly.
But earnings took off after water flows returned to normal and reached unprecedented heights in the past three years, averaging $16 million. At the same time, the authority saw profits drop at many of its other generation facilities, including its other large hydropower plant in Massena.
It used to be that the authority relied on the Niagara Power Project for about a quarter of its operating profits from generation facilities. The News found that share has steadily climbed the past four years and accounted for nearly two-thirds in 2007. These profits are being used in various ways. About half go to statewide energy programs.
The other half is used by the authority to pay off bonds, make capital improvements and fund general operations.
Calls for reform Power Authority officials, who work largely under dictates established by the governor and State Legislature, insist Western New York gets an equitable return on the Niagara Power Project.
Local industry is the single largest recipient of the plant's low-cost power.
Another block of power goes to private utilities, whose coverage area includes the region. That helps to lower residential and commercial bills by a small amount. Officials note that the Niagara Power Project is a major employer, with some 290 workers.
And the region is scheduled to receive $391 million in inflation- adjusted dollars over the next 50 years as part of the deal struck several years ago that enabled the authority to obtain an extension on its license to operate the plant.
"The Niagara Project is a mainstay of the Western New York economy, with the region receiving greater benefits from the facility than any other part of the state, as provided for under the law," said Saltzman, the authority spokesman.
However, many local elected officials said the plant needs to be put to better use on behalf of the region. There's been talk over the past year of revising the criteria used to issue power to, among other things, promote more-effective allocations.
State energy officials said in January that they plan to conduct a review. Officials, including Rep. Brian Higgins, D-Buffalo, want the power earmarked for local industry to remain in the region. When circumstances require its sale on the open market, Higgins said most of the proceeds should revert to Western New York.
"Most of it should come back here because that's where the revenue is derived from," he said. He sees a particular use of those revenues to help wind and solar-power start-ups.
Maziarz, the State Senate Energy Committee chairman, said he will use his position "to make the Niagara Power Project more responsible to Western New York in terms of job creation and economic development, particularly in Niagara County."
Accomplishing this, he said, will require legislation and a change in the makeup of the authority's governing board, whose members are nominated by the governor and confirmed by the Senate.
Officials have complained that the board gives short shrift to estern New York concerns.
As seats open up, Maziarz said, nominees "are going to be vetted like never before." Part of his mission, he said, is to impress upon nominees that the plant in Lewiston needs to be treated more as a regional asset.
"To say NYPA should be doing more for the local economy is the understatement of the year," he said.
