Message-ID: <9125806.1075848229829.JavaMail.evans@thyme> Date: Fri, 6 Apr 2001 05:15:00 -0700 (PDT) From: issuealert@scientech.com Subject: Future Looks Dark for New York Market; NYSEG Outlines Energy Policy Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: "SCIENTECH IssueAlert" X-To: X-cc: X-bcc: X-Folder: \Steven_Kean_June2001_5\Notes Folders\New york X-Origin: KEAN-S X-FileName: skean.nsf Today's IssueAlert Sponsors:=20 [IMAGE] Southeastern Electric Exchange=20 2001 Utility Odyssey: Engineering & Operation/Accounting, Customer Billing and Finance Conference= =20 and Trade Show The Doral Resort Miami, FL =20 Featured speakers include Wall Street Analysts Ed Tirello and Dan Ford and= =20 SEE Company Utility Executives Donald Hintz, Entergy Corp., Dennis Wraase,= =20 Pepco, and Bill Coley, Duke Power=20 For full details: www.theexchange.org=20 In an exclusive SCIENTECH PowerHitters Interview, Cody Graves, CEO of=20 Automated Energy, Inc. and former Chairman of the Oklahoma Corporation=20 Commission, discusses the status of restructuring in Oklahoma and=20 nationwide. Graves also discusses the role Automated Energy is playing in= =20 providing an essential piece of the restructuring pie. See the questions= =20 Graves was asked at: www.ConsultRCI.com=20 [IMAGE] The most comprehensive, up-to-date map of the North American Power System b= y=20 RDI/FT Energy is now available from SCIENTECH. The Wall Map measures 42" x= =20 72"; the Executive Map Set consists of 18 11" x 17" maps. Visit our website= =20 at www.ConsultRCI.com for a detailed description of these valuable maps and= =20 complete ordering instructions.=20 [IMAGE] IssueAlert for April 6, 2001 Future Looks Dark for New York Market;=20 NYSEG Outlines Energy Policy by Will McNamara=20 Director, Electric Industry Analysis [News item from Reuters] New York State Electric & Gas Corp. (NYSEG), one o= f=20 New York's seven utilities, said the state will not have enough megawatts t= o=20 support a truly competitive wholesale electric market until 2008. NYSEG, in= a=20 report issued late Wednesday, warned there are "serious problems with (New= =20 York's) generation supply and a lack of transmission and pipeline=20 infrastructure." The report challenges a market appraisal by the New York= =20 Independent System Operator (NYISO), which has run the state's wholesale=20 power market since 1999. The NYSEG report, titled ``New York State's Electr= ic=20 Energy Crisis and NYSEG's Comprehensive Solution,'' criticizes the NYISO fo= r=20 not giving power consumers "price certainty" in the transition from local= =20 monopolies to an open, competitive market.=20 Analysis: New York can now officially be added to the list of troubled ener= gy=20 markets, as market projections and fundamental structural problems spell ou= t=20 an alarming prognosis for the state as it heads into the summer season.=20 However, unlike California, which basically faces a power supply problem th= at=20 can be improved over time, New York arguably suffers from a more severe and= =20 permanent set of conditions that cannot be easily resolved. Like its West= =20 Coast counterpart, New York also suffers from a supply / demand imbalance a= nd=20 local resistance that thwarts new generation development. However, even if = or=20 when power supply can be increased in New York, the core load center of New= =20 York City still suffers from inherent transmission deficiencies that contin= ue=20 to take their own toll on the stability of the market.=20 Various stakeholders in the New York market have now begun to place blame o= n=20 each other in advance of what could shape up to be a very problematic summe= r.=20 As noted, in its new report, NYSEG, a subsidiary of Energy East (NYSE: EAS)= ,=20 is especially critical of NYISO, which it says has contributed to soaring= =20 wholesale prices in New York. NYSEG also blames NYISO for outlining=20 unrealistic goals for new power supply, not providing accurate price signal= s=20 to energy customers, and for not doing enough to solve immediate problems. = =20 Yet, beyond the finger pointing, some essential facts can be established, o= n=20 which both NYSEG and the NYISO apparently agree. According to data included= =20 in the NYISO report, between 1995 and 2000, while statewide demand in New= =20 York rose by 2,700 MW, generating capacity under contract in the state=20 increased only by 1,060 MW. New York has not brought a new plant online sin= ce=20 1996, when a 200-MW plant opened in Brooklyn. It has been almost seven year= s=20 since a 1,000 MW unit in Oswego, N.Y. marked the last plant to open upstate= . =20 In addition, New York suffers from severe transmission bottlenecks. Deficie= nt=20 transmission systems in central New York, around New York City and at the= =20 outlining borders to other states and Canada limit the amount of power than= =20 can be imported into the state. New York City is relatively isolated from t= he=20 transmission grids that serve the rest of the state and must rely heavily o= n=20 city-based power supply. New York City's load should reach 10,535 MW this= =20 summer alone, requiring 8,428 MW of in-city capacity, along with imports, t= o=20 meet demand and provide a reserve margin. With a current capacity of 8,132= =20 MW, there is a potential 296 MW shortfall. These projections presume normal= =20 weather conditions. If New York experiences a warmer-than-normal summer, th= e=20 outlook gets even worse. =20 Further, according to a report from New York's State Attorney General,=20 between 1988 and 1998 capital improvements to New York's transmission syste= m=20 dropped from $307.7 million per year to $90 million per year. At the presen= t=20 time, only one major addition to the transmission system in the state is=20 scheduled. A proposed underwater line linking Long Island to Connecticut=20 would provide Long Island with about 300 MW of additional power and increas= e=20 its import capacity by about 4 percent. Unless this transmission expansion = is=20 expedited, it is not scheduled for operation until 2002. =20 Consequently, given all of these factors, power supplies in New York most= =20 certainly will be strained this summer when warmer temperatures drive up th= e=20 use of air conditioners, pushing demand to annual highs. While NYSEG and th= e=20 NYISO may agree on the nature of New York's problems, a contentious debate= =20 has emerged with regard to finding a solution. In its own proposal, release= d=20 in early March, the NYISO focused on building new generation, expediting=20 siting processes, improving transmission lines, and conservation efforts. I= n=20 one of its key proposals, the NYISO urged the creation of 8,600 MW of new= =20 electricity (roughly 30 percent of New York's peak demand) by 2005, with up= =20 to 5,000 MW of that generation being made available by the end of 2001. =20 NYSEG immediately denounced the plan for "falling short in its assessment o= f=20 the magnitude of the crisis" and issued its own proposals in its recent=20 report. For instance, NYSEG officials said that NYISO had "grossly=20 oversimplified the situation" and that, considering the tenuous state of=20 power construction in New York, the objective of establishing 8,600 MW by= =20 2005 was "extremely unrealistic." In turn, NYSEG says that a robust wholesa= le=20 electric market will not materialize in New York until 2008, assuming that= =20 measures to repair the problems in the state are taken immediately. In earl= y=20 March, NYSEG released the "NYSEGPlan," outlining six steps which it believe= s=20 "contain the real solutions to ensure a successful transition" to a=20 competitive market in New York. In summary, the NYSEGPlan includes:=20 Streamlining the siting and approval process to build new generating plants= .=20 Adding to the state's transmission capacity. =20 Adding to the state's natural-gas supply infrastructure. =20 Creating a regional transmission organization to increase supply liquidity.= =20 Reinforcing the need for wise energy use by all consumers, by encouraging= =20 interruptible load where feasible, and building the technological=20 infrastructure necessary for real-time pricing.=20 Approving the NYSEG Price Protection Plan, in which electric rates would be= =20 frozen for seven years, by July 1, 2001.=20 However, while NYSEG criticized NYISO for espousing unrealistic goals, the= =20 same obstacles inherent in New York's market might also thwart its own ener= gy=20 plan. For instance, topping the list of NYSEG's six steps is an emphasis on= =20 establishing new generation in New York through a streamlined siting and=20 approval process. This may be easier said than done. As I mentioned in my= =20 3/22/01IssueAlert, the opposition to new power plants in New York equals th= e=20 lobbying force that community groups in California wield. In that column, I= =20 discussed the fact that Sithe Energies has downscaled a proposed plant in= =20 Ramapo, N.Y. (from an 827-MW combined-cycle facility to a 510-MW peaking=20 unit) due to opposition raised by local residents. =20 In addition, just yesterday, a New York Supreme Court judged blocked effort= s=20 by the New York Power Authority (NYPA) to build two 44-MW gas-fired=20 generators in the borough of Queens. The Supreme Court judge order NYPA to= =20 "cease all construction on the units" and ruled that the power authority=20 violated state environmental-review laws to its efforts to rush the plant= =20 into service by June. In response, NYPA has said that the plants=01*along w= ith=20 nine others that it is hoping to build throughout New York City=01*are need= ed to=20 prevent power outages this summer. NYPA continues to face fierce opposition= =20 from community groups (many of them launching lawsuits) who do not want the= =20 generation units in their neighborhoods. =20 Consequently, the supply / demand imbalance in New York is a very serious= =20 matter, and one that residents in the state may not fully appreciate unless= =20 blackouts occur. Until the core problem of insufficient transmission lines= =20 surrounding New York State and New York City are solved, adding new power= =20 supply (assuming that generation development can move past community=20 opposition) would not be enough to bring more balance to the market. In the= =20 interim, conservation efforts may truly be the only tool that New Yorkers c= an=20 user to abate power outages this summer, but again the general public may n= ot=20 fully understand the need to reduce their power usage. =20 New York basically has three options at this point to prepare for near-term= =20 problems. First, expedite the building of new generation sources (including= =20 distribution generation alternatives). This assumes that gas lines will be= =20 sufficient to import necessary fuel. Second, allow the economy of New York= =20 City to stagnate as a result of the supply / demand imbalance, which will= =20 drive residents out of the city and in turn reduce demand. And, third, focu= s=20 on conservation efforts, which again may not work until residents are=20 directly impacted by outages. The city may choose a combination of all thre= e=20 approaches or decide to focus on just one. However, to address the immediat= e=20 concerns, it does not appear that New York has any options besides this=20 three-tier approach.=20 One point that bears mentioning is the similarity between California and Ne= w=20 York regarding the position that both states took on divestiture. Although = it=20 is not completely accurate to say that either state officially mandated=20 divestiture, utilities in both California and New York felt intense pressur= e=20 to divest and submitted restructuring plans that included the sale of most = of=20 their power plants. NYSEG, the author of the new report on New York's power= =20 problems, is one utility that sold all of its generation assets and will=20 remain only in the transmission business. This most likely creates a=20 heightened sensitivity on NYSEG's part with regard to the power supply=20 shortages presently facing New York. Again, we now have two states that=20 represent the array of problems that can result when the vertical utility= =20 model becomes dismantled. Of course, it is not fair to say that divestiture= =20 is the sole source of the current problems in California and New York, but= =20 taking away a utility's ability to effectively control is own power supply= =20 costs certainly contributed to the vulnerability in both states. =20 An archive list of previous IssueAlerts is available at www.ConsultRCI.com Reach thousands of utility analysts and decision makers every day. Your=20 company can schedule a sponsorship of IssueAlert by contacting Nancy Spring= =20 via e-mail or calling (505)244-7613. Advertising opportunities are also=20 available on our website.=20 SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let = us=20 know if we can help you with in-depth analyses or any other SCIENTECH=20 information products. If you would like to refer a colleague to receive ou= r=20 free, daily IssueAlerts, please reply to this email and include their ful= l=20 name and email address or register directly on our site. =20 If you no longer wish to receive this daily email, send a message to=20 IssueAlert, and include the word "delete" in the subject line.=20 SCIENTECH's IssueAlerts(SM) are compiled based on the independent analysis= =20 of SCIENTECH consultants. The opinions expressed in SCIENTECH's IssueAlert= s=20 are not intended to predict financial performance of companies discussed, = or=20 to be the basis for investment decisions of any kind. SCIENTECH's sole=20 purpose in publishing its IssueAlerts is to offer an independent perspecti= ve=20 regarding the key events occurring in the energy industry, based on its=20 long-standing reputation as an expert on energy issues. =20 Copyright 2001. SCIENTECH, Inc. All rights reserved.