New York Works to Form Statewide Energy Plan, Amidst Plant Siting and Transmission Challenges

Scientech ( March 07, 2002 ) - By Will McNamara Director, Electric Industry Analysis - [News item from Dow Jones]

A key New York energy group on March 5 held the last in a series of public hearings seeking input on a draft plan designed to guide the development of state energy policy. The New York State Energy Planning Board, an ad hoc group made up of the heads of five state agencies, will evaluate the suggestions it received as it develops the final version of its energy policy guidelines. The board is aiming to approve the plan by early June and to then distribute it to the governor, lawmakers and state agencies later this year, said Gary Davidson, a spokesman for the New York State Energy and Research Development Authority, a public corporation whose chief officer sits on the state energy board.

Analysis: New York State law requires that a selected group of energy-industry participants and interested parties work together to update the state's 20-year energy plan every four years and to conduct at least three public hearings to receive comments on the plan. The group issued its first set of guidelines in 1994. The mandate on collective dialogue regarding energy issues in the state has led to a host of conflicting opinions and varying agendas, as the process includes input from representatives from the New York State Energy Research and Development Authority, and heads of the state's departments of transportation, environmental conservation, public service, and economic development also sit on the energy-planning board. The group seems to have honed in on a three-tier strategy for improving New York's energy infrastructure, which includes new generating capacity, transmission upgrades and increased used of energy-efficient solutions (fuel diversity). Given some inherent concerns about New York's market, the likely increase of demand in the state and the fact that few generation or transmission upgrades have taken place in recent history, the proposals outlined by the New York State Energy Planning Board are quite necessary, as many lobbyists cite an urgent need for the upgrades.

New York City in particular, which faces its own unique generation and transmission challenges, escaped a rather alarming situation last summer when temperatures drove up demand and put additional strain on limited supplies. Many of the proposals included in the state's energy plan won't be implemented for several years, so the imminent concern is how New York City and New York State will navigate through what could be a very difficult next few years.

Let's establish some of the data on the New York market, which should help to crystallize the precarious condition of the state's energy infrastructure. The state of New York has not brought a new baseload plant online since 1996, when a 200-MW plant opened in Brooklyn. Note that about 10, heavily contested peaking turbines were brought online by the New York Power Authority in the summer of 2001. It has been almost seven years since a 1,000-MW unit in Oswego, N.Y., marked the last plant to open in upstate New York. Further, New York expects only a 3.5-percent increase in new capacity in the next three to four years. Consequently, concerns about the state's ability to meet increasing demand for power have gained momentum, despite an inherent conflict between what amounts to two contrary agendas. Pressure has been placed on New York regulators to expedite the approval steps for siting new plants in the state. However, at the same time, environmental and community groups closely guard the proposals for new plants and often lobby for limitations on how and where the new plant will produce power.

Meanwhile, increased demand is causing additional problems for the energy markets of New York City and New York State. Demand in the state rose by 2,700 MW from 1995 to 2000, or 2.5 times as fast as new generation capacity was added. Demand over the course of 2001 was expected to reach 31,100 MW, or about 3.7 percent above earlier forecasts. New York City hit record peaks of demand during the summer of 2001, which exacerbated concerns about available power supply. Note that the national economic downturn of the last year, coupled with the events of Sept. 11, seem to have slowed growth in electricity use in New York (some reports say lowering demand by about 100 MW), but this trend is not expected to continue. The state energy plan being created by the State Energy Planning Board projects that growth in peak demand in New York will be somewhere between 0.68 percent and 1.1 percent a year, which is lower than the average of 2.1-percent demand growth over the past five years. For the summer of 2002, the New York ISO forecasts power consumption will peak at 30,910 MW this summer, up 0.41 percent from what the grid operator had expected for 2001. New York rules require the state to keep 1,800 MW of electricity in reserve above the expected peak load every day.

Thus, one of the top priorities for those involved in energy-infrastructure planning for New York is new generating capacity. One report from the Public Policy Institute estimated that New York must increase its electricity generating capacity by at least 9,200 MW over the next five years to keep up with the growing demand. According to data from the New York ISO, energy companies have proposed to build more than 40,000 MW of new generation over the next five years. However, as is often the case, planned generating capacity that is announced may never get to the point of breaking ground. This may be especially true in New York City, which obviously is a very urbanized area that does not offer many locations for the siting of new generating facilities. The problem in the city is exacerbated by the fact that New York City and Long Island can only import limited quantities of power on constrained transmission lines. Being both densely populated and heavily residential, it is difficult to site new power plants in the area. Consequently, 80 percent of the power that New York City consumes is generated by the city. In November, New York state's siting board approved Astoria Energy's plans to build a 1,000-MW natural-gas-fired, combined-cycle plant that will be at an existing oil terminal in the Astoria section of Queens in service by 2004. However, approval for new plants such as the one by Astoria Energy are rare and reportedly will be short of the city's generating-capacity needs at times during the course of 2002. The projected shortfall is expected to increase by another 200 MW by summer 2002.

Since 1999, more than 50 facilities, totaling more than 23,000 MW of electric generating capacity, have been proposed for the New York City area. To date, however, only about 600 MW of generating capacity have been put into service by the New York Power Authority at 10 small turbines in New York City to meet peak demand in the summer and by El Paso Corp. at the Linden power plant in New Jersey. No other plants are expected to go into service in the city in 2002. A new project proposed by TransGas Energy Systems is scheduled to be reviewed by New York State regulators on March 18. The large power plant in New York City would be a 1,100-MW combined-cycle natural-gas fired facility (consisting of four combustion-turbine generator units, four heat-recovery steam-generator units and two steam-turbine generator units) that would be located in Brooklyn. The plant would not be put into operation until 2005, and under state law requires approval from the New York State Board on Electric Generating Siting and the Environment (Siting Board). In addition TransGas Energy, ConEdison and the New York Power Authority (NYPA) also are proposing new projects that must gain approval from the Siting Board. ConEdison's plan includes the replacement of turbines at a plant in lower Manhattan and the NYPA's proposal involves the installation of a new turbine at an existing facility in Queens.

As is common in the state's approval process, companies proposing new plants often have to hold public hearings on the potential health hazards of the proposed plants, which may require testimonies and studies from environmental experts. This approval process could become a challenge for TransGas Energy, ConEdison and the NYPA. Part of the problem seems to be community opposition. To illustrate this, let's look at the case of Sithe Energies, which hit a roadblock with its construction plans in New York last year. Sithe Energies originally planned an 827-MW combined-cycle facility fueled by natural gas in Ramapo, N.Y. Chief among the concerns of local residents was that the Ramapo plant was originally planned to run all the time to meet demand, and as a result would use local water resources for cooling purposes, which could potentially reduce existing water supplies.

Community resistance thus became an issue for the company, which altered its plans and began to consider a 510-MW peaking unit (also powered by natural gas) that would only be operated in times of increased demand. In mid-December, however, Sithe announced that it would terminate all activity on the proposed Ramapo plant, stating that the "current climate in this region makes the construction of a peaking facility at this location uneconomic at this time." What's the bottom line on New York's generating capacity? In a report issued last year, New York State Electric Gas Corp. (NYSEG), one of New York's seven utilities, said the state will not have enough megawatts to support a truly competitive wholesale electric market until 2008. NYSEG warned there are "serious problems with (New York's) generation supply and a lack of transmission and pipeline infrastructure." According to data included in a separate report by the New York ISO, which manages the state's transmission grid, between 1995 and 2000, while statewide demand in New York rose by 2,700 MW, generating capacity under contract in the state reportedly increased only by 1,060 MW. As noted, part of the solutions being proposed by the New York State Energy Planning Board is the use of energy-efficient generation such as clean-gas turbine generators in New York City and an increase in statewide investment (reportedly up to $100 million per year) of clean-energy technologies such as fuel cells, microturbines and solar power. The use of on-site generation may be an effective alternative to more traditional forms of generation, the siting of which could be challenged by local communities and availability of natural gas. In addition to the constraints on generating capacity, New York suffers from severe transmission bottlenecks. Deficient transmission systems in central New York, around New York City and at the outlying borders to other states and Canada limit the amount of power that can be imported into the state. New York City is relatively isolated from the transmission grids that serve the rest of the state and must rely heavily on city-based power supply. New York City's load should reach 10,535 MW this summer alone, requiring 8,428 MW of in-city capacity, along with imports, to meet demand and provide a reserve margin. With a current capacity of 8,132 MW, there is a potential 296-MW shortfall. These projections presume normal weather conditions. If New York experiences a warmer-than-normal summer, the outlook gets even worse.

Further, according to a report from New York's State Attorney General, between 1988 and 1998 capital improvements to New York's transmission system dropped from $307.7 million per year to $90 million per year. According to available reports, at the present time only one major addition to the transmission system in the state is scheduled. A proposed underwater line linking Long Island to Connecticut would provide Long Island with about 300 MW of additional power and increase its import capacity by about 4 percent. Unless this transmission expansion is expedited, it is not scheduled for operation until 2002. One development that may help to improve New York's transmission infrastructure is the recent approval by FERC of Canadian transmission company TransEnergie U.S. Ltd.'s proposed Harbor Cable project linking New York and New Jersey. FERC's approval authorizes TransEnergie U.S. to offer all transmission capacity over the project for sale in an "open season" auction, in which interested parties bid to buy space to move power over the lines. The project would connect the transmission systems in the PJM area with New York City via a high-voltage direct-current cable. TransEnergie U.S. says it hopes to have the project in service by the summer of 2004.

Consequently, given all of these factors, power supplies in New York remained strained and the area certainly could benefit from the construction of new generation capacity. However, from a time perspective, none of the necessary upgrades that are still under review by the State Energy Planning Board (which then require the approval from the state's governors and regulators) will come online for at least three to four years. While the long-term prospects for New York may be improved by this evolving energy plan, the short-term outlook, particularly this summer, remains a concern.