N.Y. Power Authority Trustees Approve Modified Hydropower Rate Plan Following Overhead Cost Cuts And Public Comments

Cost-Based Rates Will Remain Among the Lowest in the Country While Allowing for Recovery of Costs for Hydroelectric Project Upgrades and Relicensing Commitments

Michael Saltzman

November 15, 2011


WHITE PLAINS—The New York Power Authority (NYPA) Board of Trustees on Tuesday adopted a rate modification plan for hydropower provided to community-owned electric systems and other categories of customers that will ensure that those groups continue to benefit from the lowest cost electricity in New York State. The cost-based rates will remain about 70 to 80 percent less than average comparative market rates. The proposed rates were reduced by cuts in Authority overhead of over $3 million per year and other adjustments from public comments.

The rate plan, to be gradually phased in over three-and-a-half years beginning next month, follows comments by interested parties at public forums held in September in Syracuse and in Massena and Lewiston, where the Power Authority's St. Lawrence-Franklin D. Roosevelt and Niagara power projects are located. At their July meeting, the trustees had authorized the forums on the proposed hydro rates, while NYPA staff redoubled its cost-management efforts to limit the rate adjustment. The oral and written comments that were received over a public comment period that NYPA extended by three weeks, to Oct. 24, further reinforced the Authority's cost-cutting outlook.

These factors led to downward adjustment in the planned rates, by over $3 million a year, as part of the Power Authority's identification of cost-cutting measures to achieve Governor Cuomo's goal of 10 percent budget cuts by state agencies. At the same time, the Power Authority is committed to renew its focus on the maintenance and reliability of its 17 generating facilities and more than 1,400 circuit-miles of transmission lines—part of the critical infrastructure underpinning the state's electric power system.

"The new rates adopted by the NYPA Trustees are consistent with the Authority's hydropower remaining among the lowest cost electricity in the country, for significant savings to residents and businesses served by the state's municipal electric systems and rural electric cooperatives and other customer groups," said Michael J. Townsend, NYPA chairman. "The rate adjustment—the first that we've undertaken since May 2008 for a category of hydropower known as preference power—will permit a gradual return to full-cost recovery for this block of power, as required by state law, and allow us to recover costs stemming from ongoing and future investments in capital project upgrades at the St. Lawrence-FDR and Niagara projects, as well as those related to commitments under relicensing agreements for those facilities."

Life extension and modernization programs at the two large hydroelectric facilities, which are both more than 50 years old, are among the principal factors in the rate adjustment, with the Power Authority to have invested more than $490 million in those initiatives, from 2009 to 2014, for the continued reliability and efficiency of the generating facilities. NYPA is also undertaking expenditures of $100 million during the same period for carrying out of relicensing commitments for significant economic, recreational and environmental benefits for Northern and Western New York.

"The rate modification plan that the Power Authority board has approved reflects the sharpening of our collective pencils to make sure that every dollar is spent wisely and that we get the most out of our resources," said NYPA Trustee John S. Dyson. "The rate-setting process that we undertook over the last few months, including the three public forums that were held to elicit comments from interested parties, supported this imperative, which is consistent with Governor Cuomo's goals for reducing the state's expenditures across-the-board and rightsizing government."

Trustee Dyson noted that the rate plan is in accordance with cost-of-service methodologies approved by the Power Authority trustees in 2003 and agreed to by the municipal electric systems and rural electric cooperatives in connection with the Authority's continuing to provide hydropower to them at cost-based rates under contracts that extend through 2025.

The typical residential customers of the 47 munis and four coops—hydropower preference customers under federal law—will experience a less than one percent change on their total monthly electric bills for each year of the phased-in rate plan. That translates out to less than 60 cents more for each year on their monthly electric bills.

The residential customers of three upstate utilities— National Grid, New York State Electric & Gas and Rochester Gas and Electric, which also receive hydropower—will see a rate adjustment of less than five cents per month for each year of the rate plan.

Other customers covered by the rate adjustment include seven neighboring states (Connecticut, Massachusetts, New Jersey, Ohio, Pennsylvania, Rhode Island and Vermont) that receive hydropower preference power under federal law and communities in the vicinity of the Niagara Power Project that obtain hydropower stemming from an agreement for the federal relicensing in 2007 of that facility.

The overall effective rate for typical customers affected by the rate modification plan will be adjusted from the current 1.07 cents per kilowatt-hour (kwh) to approximately 1.33 cents per kwh in 2014. This compares to average rates historically upstate of four to five cents per kwh for market power from other sources.

Federal and state laws, court precedents and certain settlement agreements with customers provide that the hydropower preference rates are cost-based, reflecting the investments in the operation and support of the St. Lawrence-FDR and Niagara projects. The phased-in period of the rate adjustment adopted by the Power Authority trustees will limit the impact on electricity bills, with NYPA not recovering the deferred amounts from previous years until 2014.


About NYPA:

■ The New York Power Authority uses no tax money or state credit. It finances its operations through the sale of bonds and revenues earned in large part through sales of electricity. ■ NYPA is a leader in promoting energy efficiency, new energy technologies and electric transportation initiatives. ■ It is the nation's largest state public power organization, with 17 generating facilities in various parts of New York State and more than 1,400 circuit-miles of transmission lines. ■ Approximately 80 percent of the electricity it produces is clean renewable hydropower.  Its lower-cost power production and electricity purchases support hundreds of thousands of jobs throughout the state. ■For more information, www.nypa.gov.


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