Niagara Power Project FERC No. 2216

 

Niagara Power Project Power Allocations, Rates, and Opportunities

 

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Prepared for: New York Power Authority

Prepared by: The Brattle Group

 

August 2005

 

 

Copyright © 2005 New York Power Authority

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ABBREVIATIONS

Agencies

ENCRPB         Erie and Niagara Counties Regional Planning Board

FERC               Federal Energy Regulatory Commission

FPC                 Federal Power Commission

NYISO             New York Independent System Operator

NYPA              New York Power Authority

PASNY            Power Authority of the State of New York

Units of Measure

cfs                    cubic feet per second

fps                    feet per second

G                      giga (prefix for one billion)

GW                  gigawatt

GWh                gigawatt-hour

k                      kilo (prefix for one thousand)

kV                    kilovolt

kVA                 kilovolt-ampere

kW                   kilowatt

kWh                 kilowatt-hour

M                     mega (prefix for one million)

mgd                  million gallons per day

MV                  megavolt

MVA               megavolt-ampere

MW                 megawatt

V                     volt

W                     watt

Wh                   watt-hour

Regulatory and Legal

CFR                 Code of Federal Regulations

FPA                 Federal Power Act

PAA                Power Authority Act

PAL                 Power Authority Law

Miscellaneous

DEIS                Draft Environmental Impact Statement

EA                   Environmental Assessment

EIS                   Environmental Impact Statement

FSCR               First Stage Consultation Report

IOU                 Investor-Owned Utility

MEUA             Municipal Electric Utilities Association of New York

NMPC             Niagara Mohawk Power Corporation

NYSEG            New York State Electric & Gas

RG&E              Rochester Gas and Electric

 

 

1.0                             EXECUTIVE SUMMARY

This report describes the legal and institutional framework that governs allocations of Niagara Project power, explains ratemaking methodologies and outcomes, and discusses current and future opportunities for utilizing project power. The Niagara Redevelopment Act authorized the New York Power Authority (NYPA) to build a hydroelectric project that would use the United States share of water made available for power generation under the 1950 Niagara River Water Diversion Treaty. The allocation of this power is governed primarily by Federal and State law, as administratively and judicially interpreted, with discretion given to NYPA regarding allocation and contracts once legal requirements are met.

Niagara Project power is divided among four basic types of allocations – Preference Power, Replacement Power, Expansion Power and contract sales to three upstate investor-owned utilities for resale to residential customers. As currently allocated, 50% of Firm Power (940 MW) is allocated to Preference customers, which are municipal electric and rural cooperative utilities (40% in New York and 10% out-of state), 445 MW to Replacement Power, 250 MW to Expansion Power, and the remaining power to investor-owned utilities. The allocation has remained fairly constant throughout the term of the project, with the primary exception being the Preference Power allocation rising to serve the growing needs of eligible municipal and rural cooperative systems, while the allocation to investor-owned utilities fell. 

            The customer base that ultimately uses the power provided by the Niagara Project varies considerably – both geographically and in uses of the power – depending upon the class of power and the entity purchasing the power from NYPA.  Preference Power provides the most geographically distributed benefit of Niagara Project power, but also is quite concentrated in terms of the relatively small proportion of customers and loads that it serves within those broad geographic regions.  The share of residential retail sales to total retail sales for the New York Preference customers averages 40%, and Preference Power serves about 2% of New York State residential customers.  Replacement Power and Expansion Power serves only industrial customers that are heavily concentrated in Niagara County (Replacement Power) or in Niagara, Erie, and Chautauqua counties (Expansion Power). Power deliveries to three upstate investor-owned utilities are dedicated to residential customers, which together serve 2.4 million customers in 54 of New York’s 62 counties. 

The rates on Niagara power remained constant from 1961 to 1981, when court decisions mandated a change to cost based rate making. Preference Power and energy sold to upstate investor owned utilities for residential customers are sold at cost, while Replacement and Expansion Power are sold at below market rates. The cost-based rates are determined using a unique version of the “Trended Original Cost” method of rate regulation in which the rate of return on capital is not included.

Due to statutory, judicial and contractual restraints, opportunities for new utilizations of project power are limited.  The Niagara project is fully allocated, except for quantities of Replacement and Expansion Power that are underutilized, voluntarily relinquished by or withdrawn from recipients. There are established procedures for eligible business applicants to apply for and receive an allocation from the blocks of unallocated Replacement and Expansion Power. The New York State Legislature on June 23, 2005 passed legislation that provides a state statutory basis for the continued sale of 445MW of Replacement Power to businesses within 30 miles of the Project. (S5866/A8960). The legislation, which will be sent to the Governor for his approval, also provides for the use of a portion of unallocated Replacement Power for the purpose of Energy Cost Savings Benefits to be granted by the New York State Economic Development Allocation Board, consistent with current contractual obligations.

 The contracts with the upstate investor-owned utilities for resale to residential customers expire at the end of the current license (August 31, 2007).  Except for the general priority for residential use under state law, there are no statutory restrictions that prohibit this portion of Niagara Project Power from being reallocated to other recipients.   However, there are no requirements on the power authority to alter the existing arrangements. Finally, the Niagara Project Upgrade will provide an estimated 35 MW of additional firm power, of which one-half will be made available to preference customers as required by the NRA. The other half will be used as a source for a portion of the power to be allocated for the benefit of the Host Communities.

 

2.0     INTRODUCTION

This report addresses the historic, current, and potential future allocation and pricing of power from the Niagara Power Project.    The report describes the legal and institutional framework that governs allocations of Niagara Project power, explains ratemaking methodologies and outcomes, and discusses current and future opportunities for utilizing project power.

The power allocation and ratemaking issues addressed by The Brattle Group in this report span the era from before the project’s inception to the post-relicensing phase.  The report reviews the historic statutory framework and the relevant case law and contracts to explain how that legal and contractual framework has impacted and will continue to impact power allocation and rates.  The report presents several opportunities for power allocations that are possible in the context of the existing legal framework.[1]

2.1         Brief History of the Niagara Power Project

The Niagara River has been utilized for hydroelectric power generation since the first privately-owned facility was built in 1881.  Transmission lines to Buffalo were built in 1896, and additional privately-owned generating stations were built during the early 20th Century, with the largest – the 365 MW Schoellkopf Power Plant – built at the turn of the Century by the Niagara Mohawk Power Company.  Because the Niagara River serves as a border between the U.S. and Canada, the allocation of water rights is a matter of international treaty.  Among other things, the Niagara River Water Diversion Treaty of 1950 provides a minimum daytime water flow over Niagara Falls during the tourist season and allocated the water rights for hydroelectric power production equally between the U.S. and Canada.

While Congress was debating the proper way to develop the U.S. share of hydropower rights on the Niagara River, a rockslide effectively destroyed the Schoellkopf Power Plant on June 7, 1956, an event which threatened disruption in power supplies for industry in Western New York.  In response, the U.S. Congress passed the Niagara Redevelopment Act (NRA) in 1957, directing the Federal Power Commission to issue a hydropower license to the Power Authority of the State of New York (PASNY) for a facility large enough to utilize the U.S. share of the Niagara River water resource. PASNY, now conducting business as the New York Power Authority (NYPA), was created in 1931 by the New York Power Authority Act (PAA) for the purpose of developing hydropower in the state, and NYPA was, in fact, building the Saint Lawrence-Franklin D. Roosevelt project in the St. Lawrence River when the NRA was signed into law.[2]  The 50-year project license for the Niagara Power Project, incorporating the power allocation and other requirements of the NRA, became effective September 1, 1957, and expires on August 31, 2007.  Construction commenced in 1958, and the plant began operation in February 1961.

The legal basis for power allocations and rates – primarily the Niagara Redevelopment Act and the Power Authority Act – provided an exceptionally stable platform for power allocations and rates for the first two decades of the plant’s operation.  However, the profound changes in energy and power markets that occurred during the 1970s, such as higher fossil energy costs, cost overruns in nuclear construction programs, and the impact of stricter environmental regulations, combined with rising demands from eligible Preference customers, spawned a significant series of legal actions in the 1980s that challenged the established allocations and ratemaking procedures.  The resolution of these protracted legal struggles altered allocations and rate-setting and will continue to influence power delivery and prices.   As power markets in New York and the eastern U.S. continued to evolve during the 1990s, the establishment of the New York Independent System Operator (NYISO). the deregulation of the wholesale generation market and the introduction of retail customer choice further altered the relationship between the physical provision of power and the financial terms under which customers received electric supply.

2.2         Description of the Niagara Power Project

2.2.1        Physical Description

The primary project components are the twin intakes located 2.6 miles above Niagara Falls, the conduits that carry water to the 1.8 billion gallon forebay on the east bank of the Niagara River, the Robert Moses Niagara Power Plant (RMNPP) – the main generating plant – housing 13 Francis-type turbines, the Lewiston Pump Generating Plant (LPGP), housing 12 Francis-type reversible pump-turbines, the 22-billion-gallon Lewiston Reservoir, and the switchyard that conveys the electrical power to the state electrical grid.

The Niagara Power Project integrates two different types of hydroelectric facilities – the RMNPP run-of-river diversion type plant and the LPGP pumped-storage peaking facility. Hydroelectric plant capacity measures vary substantially under assumed water flow conditions; the current Net Dependable Capacity under adverse flow conditions has been established at 2,400 MW. As discussed later, measures of physical capability also can differ somewhat from the amount of capacity allocated under regulation as well as contractual obligations for Project Power. The current capacity of the Niagara Power Project for the purposes of establishing allocations under federal law was set by the FERC at 2,280 MW (1,880 MW of firm power and 400 MW of firm peaking power).

2.2.2        Economic and Operational Description

The project is designed specifically to generate power when most valuable, within the constraints of legally and physically available water flows.   The project operates on dual weekly and daily cycles designed to maximize the amount of energy produced during the periods of peak demand while minimizing the waste of water available for power production.  The dual cycles achieve these goals by storing water that would otherwise be lost for generation in the Lewiston Reservoir when dispatch by the NYISO is less than the generating capacity of the project and by utilizing the stored water when flow is insufficient to serve the generation called for by NYISO.

The daily cycle compensates for the variation between demand in the daytime and the nighttime and includes four distinct periods: the daytime, the nighttime change-over, the nighttime, and the morning change-over. During the daytime period – particularly in tourist season – demand is usually greater than the energy generated from the allowable flow through the Robert Moses Plant.  Thus, in order to generate the necessary contracted energy, water is released from the Lewiston Reservoir, flowing through both the Lewiston and Robert Moses plants.  When load is reduced sufficiently to allow the Robert Moses Plant to meet load without the additional flow from the Lewiston Reservoir, generation at the Lewiston Plant ceases and pumping begins. This is the nighttime change-over. During tourist season the nighttime change-over coincides with the Niagara River Water Diversion Treaty reduction in mandated flow over Niagara Falls from 100,000 cfs to 50,000 cfs at 10 p.m. (between April 1 and September 15) or 8:00 pm (between September 16 and October 31).

Following the nighttime change-over is the nighttime period which is characterized by the pumping of excess flow into the Lewiston Reservoir for use in the daytime. The pumps are powered by surplus energy from the Robert Moses Plant except under low flow conditions in which case the energy for the pumps are supplied by open market purchases. The nighttime period is followed by the morning change-over in which pumping at the Lewiston Plant is stopped and generation recommences. During tourist season, the morning change-over occurs at 8 a.m. when the Niagara Falls flow returns to 100,000 cfs. Otherwise, the morning change-over occurs when the load exceeds the generating capacity without additional releases from the Lewiston Reservoir – typically occurring between 7 and 8 a.m.

In addition to the daily cycle, the weekly cycle further compensates for the variation between demand on weekdays and weekends. Weekday power demands are sufficiently large so that nighttime pumping is inadequate to fully replace the water released during the weekday time period. However, on weekends load is significantly lower than weekdays and can be met from the Robert Moses Plant alone, allowing additional pumping into the Lewiston Reservoir during the daytime period on weekends. Thus, the gradual drawdown of the Lewiston Reservoir during the week is compensated by the complete replenishment on the weekends. The reservoir is completely filled at the Monday morning change-over, is gradually drawn down to a minimum level at the Friday nighttime change-over, and is refilled over the weekend.

 

3.0     LEGAL AUTHORITIES GOVERNING NIAGARA POWER PRODUCTION AND ALLOCATION

3.1         1950 Niagara River Water Diversion Treaty

The 1950 Niagara River Water Diversion Treaty between the U.S. and Canada dictates the amount of water available for hydroelectric development for each country.   It supercedes the allocations set forth in the 1909 Boundary Waters Treaty (between the U.S. and Great Britain).

The preamble to the treaty cited the need for greater utilization of water for hydroelectric purposes on both sides of the border, but the parties recognized “their primary obligation to preserve and enhance the scenic beauty of the Niagara Falls and River and, consistent with that obligation, their common interest in providing for the most beneficial use of the waters of that River.”   By its terms, therefore, the treaty balances the need to expand hydroelectric utilization with the obligation to preserve a substantial natural resource.

Article III of the treaty defines the water available for hydroelectric power.  Article IV of the treaty reserves “sufficient amounts of water in the Niagara River for scenic purposes” by establishing minimum flows over Niagara Falls at 100,000 cubic feet per second (cfs) between 8:00 AM and 10:00 PM (EST) each day during the period April 1 through September 15; 100,000 cfs between 8:00 AM and 8:00 PM each day during the period September 15 through October 31; and 50,000 cfs during any other time.[3]  Article V simply states “all water specified in Article III of this treaty in excess of water reserved for scenic purposes in Article IV may be diverted for power purposes.”   Article VI divides the water available for power purposes equally between the U.S. and Canada.

The Treaty was signed on February 27, 1950, and ratified by the Senate on August 9, 1950.   However, in ratifying the Treaty, the Senate expressed the following reservation:

The United States on its part expressly reserves the right to provide by Act of Congress for the redevelopment, for the public use and benefit, of the United States’ share of the waters of the Niagara River made available by the provisions of the Treaty, and no project for redevelopment of the United States’ share of such waters shall be undertaken until it be specifically authorized by Act of Congress.

President Truman signed the Treaty, incorporating the above reservation, on October 30, 1950.  The Senate reservation meant that the Power Authority of the State of New York could not pursue hydroelectric development on the Niagara River without first obtaining specific authorization by the U.S. Congress.[4]  This situation sparked the Congressional debates of the 1950s, which were effectively interrupted by the destruction of the Schoellkopf Plant in June 1956.

3.2         The Niagara Redevelopment Act

The demise of the Schoellkopf Plant created an immediate need to resolve the issues surrounding the development of the Niagara River for hydroelectric power.[5]  This need was met with the Niagara Redevelopment Act (NRA; Public Law 85-159; 16 USC § 836), enacted on August 21, 1957.   Section 836 (a) provides:

The Federal Power Commission is expressly authorized and directed to issue a license to the Power Authority of the State of New York for the construction and operation of a power project with capacity to utilize all of the United States share of the water of the Niagara River permitted to be used by international agreement.

This gave the Power Authority the right to build a hydroelectric project that would use the entire water resource made available under the 1950 Treaty.  In addition to the requirements for hydroelectric facility license normally required under Section 4 (e) of the Federal Power Act (FPA), the NRA established certain requirements concerning the disposition of project power.   These rules reflected Congressional concerns regarding how the benefits of publicly-owned hydropower might be realized and distributed among various classes of customers in New York and other states.

Three sections of the NRA govern the licensee’s obligations to allocate power to specific classes of customers.   Section 836 (b) (1) creates a preference for public power entities for 50 percent of the project output in order to serve “domestic and rural consumers” at “the lowest rates reasonably possible.”   Section 836(b) (2) ensures that a “reasonable portion” of the preference power defined above is made available to consumers in neighboring States “within reasonable economic transmission distance;” this provision, however, “shall not be construed to require more than 20 per centum of the project power subject to preference provisions to be made available for use in such States.” Section 836(b) (3) allocates 445 MW of the project power to Niagara Mohawk Power Corporation for resale to customers formerly served by the Schoellkopf Plant.  The entire NRA language was incorporated into the FPC license for the Niagara Power Project (no. 2216) in Articles 20 – 26.[6]   Although part of the existing license, the provisions of the NRA control, and will continue to control, the terms under which the re-licensed project will operate.   Because these statutory provisions have figured prominently in subsequent legal actions, they are reproduced in their entirely below, with emphasis added on phrases that have been subject to specific disputes.

3.2.1        NRA Preference Power

Section 836 (b) (1) states:

In order to assure that at least 50 per centum of the project power shall be available for sale and distribution primarily for the benefit of the people as consumers, particularly domestic and rural consumers, to whom such power shall be made available at the lowest rates reasonably possible and in such manner as to encourage the widest possible use, the licensee in disposing of 50 per centum of the project power shall give preference and priority to public bodies and nonprofit cooperatives within economic transmission distance. In any case in which project power subject to the preference provisions of this paragraph is sold to utility companies organized and administered for profit, the licensee shall make flexible arrangements and contracts providing for the withdrawal upon reasonable notice and fair terms of enough power to meet the reasonably foreseeable needs of the preference customers.

Several observations are warranted regarding this section.  First, the emphasis on “domestic and rural” consumers was common language from earlier statutes and now refers generally to the class of residential customers.[7]  However, the notion that 50 percent of the Project Power be available for sale to residential customers has been construed as a Congressional expectation, not a mandate. [8]   Second, the section grants preference and priority to “public bodies and nonprofit cooperatives” within “economic transmission distance” but does not define those terms.   Third, to the extent that project power that qualifies for such preference status is instead marketed through traditional investor owned utilities (IOUs), there must be sufficient flexibility in those marketing arrangements to reallocate those sales to public bodies and nonprofit cooperatives if and when the need arises to satisfy the preference obligation.

3.2.2        NRA Preference Power Out of State

Section 836 (b) (2) states:

The licensee shall make a reasonable portion of the project power subject to the preference provisions of paragraph (1) of this subsection available for use within reasonable economic transmission distance in neighboring States, but this paragraph shall not be construed to require more than 20 per centum of the project power subject to such preference provisions to be made available for use in such States. The licensee shall cooperate with the appropriate agencies in such States to insure compliance with this requirement. In the event of disagreement between the licensee and the power-marketing agencies of any of such States, the Federal Power Commission [now Federal Energy Regulatory Commission] may, after public hearings, determine and fix the applicable portion of power to be made available and the terms applicable thereto: Provided, That if any such State shall have designated a bargaining agency for the procurement of such power on behalf of such State, the licensee shall deal only with such agency in that State. The arrangements made by the licensee for the sale of power to or in such State shall include observance of the preferences in paragraph (1) of this subsection.

 This section ensures that a limited portion of the benefits of this Congressionally-mandated project utilizing the U.S. share of an international resource is realized outside the State of New York.   The “reasonable portion” in this section applies to the 50% of project power made available to preference customers established in Section 836 (b) (1), but no more than 20% of the 50% (or 10%) of total project power  is required to be allocated to out-of-state recipients, who also must conform to the preference criteria outlined in the previous section.

3.2.3        NRA Replacement Power

Section 836 (b) (3) states:

The licensee shall contract, with the approval of the Governor of the State of New York, pursuant to the procedure established by New York law, to sell to the licensee of Federal Energy Regulatory Commission project 16 for a period ending not later than the final maturity date of the bonds initially issued to finance the project works herein specifically authorized, four hundred and forty-five thousand kilowatts of the remaining project power, which is equivalent to the amount produced by project 16 prior to June 7, 1956, for resale generally to the industries which purchase power produced by project 16 prior to such date, or their successors, in order as nearly as possible to restore low power costs to such industries and for the same general purposes for which power from project 16 was utilized…[9]

This establishes the basis for what has become known as “Replacement Power” i.e., the terms and conditions under which the former recipients of power (and their successors) from the Schoellkopf and Adams plant receive power from the Niagara Power Project.   The allocation level here is quite specific (445 MW) to be resold by the former licensee of Project 16 (Niagara Mohawk Power Corporation) “generally to the industries” that purchased power from the Schoellkopf and Adams Plants, at rates “in order as nearly as possible to restore low power costs to such industries.”  Because the final maturity date of the bonds initially issued to finance the project is December 31, 2005, both the NRA and the conforming license provide a terminal (or “sunset”) date for this requirement.[10] The New York State Legislature on June 23, 2005 passed legislation that provides a state statutory basis for the continued sale of 445MW of Replacement Power to businesses within 30 miles of the Project. (S5866/A8960). The legislation, which will be sent to the Governor for his approval, also provides for the use of a portion of unallocated Replacement Power for the purpose of Energy Cost Savings Benefits to be granted by the New York State Economic Development Allocation Board, consistent with current contractual obligations.

3.2.4        Modifications to the Original NPP License

Several amendments and revisions to the project license have occurred.  The most important of these was the proposed upgrade and expansion of both the RMNPP and the LPGP submitted to the FERC on November 29, 1984.   The upgrade of the RMNPP and the upgrade/expansion of the LPGP were approved in an Order Amending License issued on March 31, 1989.  However, the Power Authority later decided to abandon the plans to expand and upgrade the LPGP, and FERC approved the proposed license amendment on April 5, 1995, incorporating only the RMNPP upgrades.

3.3         New York State Law:  Power Authority Act (PAA)

3.3.1        Introduction and Purpose of PAA

On April 7, 1931, Governor Franklin D. Roosevelt signed the Power Authority Act (PAA) into law, creating the Power Authority of the State of New York to develop hydropower on the St. Lawrence river.    The original elements of the PAA and subsequent amendments, including the addition of the Niagara Project authorization in 1951, are reflected in the New York Public Authorities Law (PAL).  PAL § 1001 declares:  “those parts of the Niagara and St. Lawrence rivers within the boundaries of the state of New York are hereby declared to be natural resources of the state for the use and development of commerce and navigation in the interest of the people of this state and the United States.”   In order to implement the policies outlined in Section 1001, PAL § 1002 (1) creates the Power Authority of the State of New York as “a corporate municipal instrumentality of the state” and as “a body corporate and politic, a political subdivision of the state, exercising governmental and public powers, perpetual in duration, capable of suing and being sued…”

3.3.2        Preference Power under PAL § 1005

PAL § 1005 outlines the powers and duties of the authority, creates the legal framework for constructing facilities, producing and delivering electricity from Power Authority projects and establishes certain principles for charging rates. PAL § 1005 (5) authorizes the Power Authority to develop, maintain, manage and operate hydroelectric projects (meaning both the St. Lawrence-FDR and Niagara Projects) and that:

…in the development of hydro-electric power there from such projects shall be considered primarily as for the benefit of the people of the state as a whole and particularly the domestic and rural consumers to whom the power can economically made available, and accordingly that sale to and use by industry shall be a secondary purpose, to be utilized principally to secure a sufficiently high load factor and revenue returns to permit domestic and rural use at the lowest possible rates and in such manner as to encourage increased domestic and rural use of electricity.  In furtherance of this policy and to secure a wider distribution of such power and use of the greatest value to the general public of the state, the authority shall in addition to other methods which it may find advantageous make provision so that municipalities and other political sub-divisions of the state now or hereafter authorized by law to engage in the distribution of electric power may secure a reasonable share of the power generated by such projects, and shall sell the same or cause the same to be sold to such municipalities and political subdivisions at prices representing cost of generation, plus capital and operating charges, plus a fair cost of transmission, all as determined by the trustees, and subject to the conditions which shall assure the resale of such power to domestic and rural consumers at the lowest possible price, provided, however, that in disposing of hydro-electric power pursuant to and in furtherance of the aforementioned policy and purposes, appropriate provision may also be made to allocate a reasonable share of project power to agencies created or designated by other states and authorized to resell the power to users under the same terms and conditions as power is disposed of in New York state.

PAL § 1005 (5) contains no percentage requirement for the allocation of St. Lawrence and Niagara Project hydropower to either residential consumers or municipal and rural cooperative systems. There is a general direction that power is intended primarily for direct consumer use and that “sale to and use by industry shall be a secondary purpose, to be utilized principally to secure a sufficiently high load factor and revenue returns to permit domestic and rural use at the lowest possible rates and in such manner as to encourage increased domestic and rural use of electricity.”  Moreover, that same provision of law allows for the provision of a “reasonable share” of the power from such projects for “municipalities and other political sub-divisions of the state now or hereafter authorized by law to engage in the distribution of electric power.”   As discussed later, this definition of preference customers under PAL § 1005 (5) is somewhat broader than the definition used in the NRA. 

3.3.3         Power Rates under PAL § 1005

PAL § 1005 (5) provides additional guidance on Preference Power rates by defining prices as reflective of costs and giving the Trustees authority to calculate the costs.  Sales are made “at prices representing cost of generation, plus capital and operating charges, plus a fair cost of transmission, all as determined by the trustees, and subject to the conditions which shall assure the resale of such power to domestic and rural consumers at the lowest possible price.”    Notwithstanding the “lowest possible price” for domestic and rural customers, contracts for the sale, transmission and distribution of power from the NYPA projects shall provide for “(a) payment of all operating and maintenance expenses of the project [and] (b) Interest on and amortization and reserve charges sufficient within fifty years of the date of issuance to retire the bonds of the power authority issued for the project.”

In addition, PAL § 1005 (5) gives the Power Authority the right to stipulate the conditions of resale of the power in its contracts without review by the New York Public Service Commission:

g.   That the rates, services and practices of the purchasing, transmitting or distributing public agencies shall be governed by the provisions and principles established in the contract, and not by the regulations of the public service commission or by general principles of public service law regulating rates, services and practices and that in the event that any public agencies or companies which purchase power from the authority shall sell any such power for resale, such sale for resale shall be made at rates no higher than those at which the power was purchased from the authority.

 

h.   The rate structures agreed upon in such contract may provide different rates for different localities, classes of consumers, and amounts of current consumed, and for changes in the rates resulting from variation in operating costs and fixed charges.

 

These statutory provisions give NYPA substantial authority to set rates, negotiate contracts, and otherwise determine the terms and conditions under which project power is resold to ultimate customers.

3.3.4        Expansion Power under PAL § 1005

In addition to the 445 MW of Replacement Power defined by the NRA, PAL § 1005 (13) allocates 250 MW of Niagara project power to businesses located generally within 30 miles of the Niagara Project switchyard.   This “Expansion Power” is designed to retain and expand business in the Niagara Frontier region of western New York.  The Expansion Power provisions of PAL § 1005 (5) were added in 1987, preserving allocations to customers in Chautauqua County that lie outside of the 30 mile limit.[11]  The current statutory definition and eligibility criteria are found at PAL § 1005 (13) [as amended]:

Notwithstanding any other provision of law to the contrary but subject to the terms and conditions of federal energy regulatory commission licenses, to allocate or reallocate directly or by sale for resale, two hundred fifty megawatts of firm hydroelectric power as “expansion power" to businesses within the state located within thirty miles of the Niagara project provided that the amount of power allocated to businesses in Chautauqua county on January first, nineteen hundred eighty-seven shall continue to be allocated in such county. Provided, however, the authority shall negotiate contracts on reasonable terms and conditions to renew or extend every permanent contract allocation of expansion power in effect on the effective date of this subdivision and provided further, to the extent consistent with such contracts, the authority shall negotiate contracts on reasonable terms and conditions to extend or renew all other allocations or allotments of such power in effect on such date. Contracts entered into pursuant to this subdivision shall be long-term and shall contain reasonable provisions providing for the partial or complete withdrawal of the power in the event the recipient fails to maintain mutually agreed levels of employment and power utilization.

The 250 MW allocation of Expansion Power is concentrated in Niagara and Erie counties.  Additional language of PAL § 1005 (13) regarding relinquishment and criteria for re-allocation are discussed later.

 

4.0     ALLOCATION AND DELIVERY OF NIAGARA POWER PROJECT POWER

4.1         Overview of Project Power Allocation and Energy Deliveries

Niagara Project power is divided among four main types of allocations – Preference Power, Replacement Power, Expansion Power and power sold under contracts with three upstate investor-owned utilities (IOUs) for resale to residential customers.   Preference customers are 51 municipal electric and rural cooperative utilities in New York and, through bargaining agents, such entities in 7 neighboring states.  Replacement and Expansion Power is sold to upstate IOUs for resale to business customers.

The firm allocations from the Niagara Power Project are expressed in capacity terms (megawatts), while energy delivered is measured in megawatthours.[12]   Neither power generation nor demand is constant over time, and thus contracts must account for these fluctuations by establishing “load factors” to describe the percent of total potential energy actually delivered over a given time period.  In actual operation, delivered power does not always perfectly match contractual load factors.  For example, firm peaking power is sold at 12.5% load factor (corresponding roughly to the capacity factor of LPGP), but averages 11.9% load factor as delivered.

In addition to capacity and energy, the NPP produces and sells “ancillary services” into the NYISO, such as voltage support and various types of operating reserves.  Prior to wholesale market restructuring, these services used to be bundled into various contracts, but now are sold separately (“unbundled”) and are procured by load-serving entities from the NYISO.   The Power Authority conducts ancillary service transactions with the NYISO in accordance with market rules as is the case with other wholesale generators. 

4.1.1        Allocations, Contracts and Energy Delivery of Project Power by Type

 Preference Power can be subdivided into in-state preference customers (municipal electric and rural cooperatives) and out-of-state preference customers.  Firm contracts with three upstate New York investor-owned utilities (Niagara Mohawk, New York State Electric and Gas and Rochester Gas & Electric) account for the remaining firm power sales.  Project Power allocations are either “Firm Power” generally at the customers’ load factors or “Firm Peaking Power” at much lower load factors.  Finally, at any point in time, due to underutilization, recapture or relinquishment of allocations, sales of Replacement and Expansion Power to business users are typically somewhat lower than the full allocation (445 and 250 MW, respectively).  Table 3.1.1-1 summarizes the 2003 allocations, contracts and deliveries by each of these classifications.  It also displays the various measurements of Niagara Project Power relevant to measuring power allocation and energy deliveries.   In the first two columns, the table shows the Project Power as established by the Federal Energy Regulatory Commission at 1,880 MW of Firm Power and 400 MW of Firm Peaking Power for total Project Power allocations of 2,280 MW.[13] As allocated, 50% of Firm Power is allocated to Preference customers (40% in New York and 10% out-of state), 37% of Firm Power is allocated to Expansion and Replacement Power and the remaining 13% is allocated to upstate IOUs for resale to residential customers.  Only investor-owned utilities and out-of-state Preference customers receive Firm Peaking allocations (360 MW and 40 MW, respectively).

The next set of columns show the overall power allocations available for contract, which total 2,336 MW.  The difference between this total and the 2,280 MW total is comprised of an additional 56 MW of Firm Power contracts with the upstate IOUs.  The next set of columns show actual contracts for power as of December 31, 2003, which total nearly 2,252 MW.   These figures reflect the fact that not all Replacement and Expansion Power allocations are fully subscribed by eligible business customers at any given moment.  At year-end 2003, 90% of Replacement Power was under contract and 87% of Expansion Power was under contract.   All together, about 77 MW of Replacement and Expansion Power was available at the end of 2003 (a figure that has increased slightly to 115 MW by July 1, 2004 due to relinquishments exceeding reallocations in the first half of 2004).

Finally, the “Contract Sales” columns in the table show actual sales under each contract category and the associated (as-delivered) load factors for each type of Project Power.  About 41% of the project’s energy sales go to Replacement and Expansion Power while the remaining 59% goes to the Preference Power customers and upstate IOUs for residential customers.  Because load factors for Preference customers are somewhat lower than Replacement and Expansion power customers in terms of energy delivery, Preference customers (in New York and out-of-state) received about 43% of total energy delivered from the Niagara project in 2003.  

Generation from the Niagara Power Project does not always perfectly coincide with hourly contractual demands.  When NPP generation exceeds contract demand NYPA sells excess generation into the ISO spot markets, and when generation is insufficient to cover firm contract demand NYPA purchases electricity from the ISO market.   During calendar year 2003, sales from the Niagara Power Project were roughly 12.4 million megawatt hours, while generation was only 11.9 million megawatt hours.   The contract sales in excess of generation were made up by 507,148 MWh of net system purchases.

The net purchase position reflects lower than average water flows in recent years.   The resulting decline in energy production was greater than the reduced contract load from unallocated power.  Until water flows return to normal, the present level of unallocated power will not provide a sufficient basis for net energy sales over contract demands from the Niagara Project.

When project output is reduced due to low-water flows NYPA provides recipients of reduced project power with the option of purchasing substitute power. Substitute power is not a NPP product, but rather ISO market power purchased through the ISO by NYPA that is resold at cost as a substitute for power normally delivered under firm hydroelectricity contracts received in years without low-flow restrictions. Alternately, in years when water flow conditions are favorable, NYPA makes available interruptible energy as required by contract to certain purchasers from the Project.

4.1.2         Allocation and Energy Delivery of Project Power by Region

Each class of power allocation has a different customer base and thus geographic distribution of power. As such, the benefits of Niagara power are concentrated in distinct geographic areas depending on the power class as shown in Table 3.1.2-1 and Table 3.1.2-2.

All Replacement and Expansion Power is delivered into Western New York. The most geographically concentrated power is Replacement Power:  76% of Replacement Power is allocated within the host communities of the City of Niagara Falls, the Town Niagara, and the Town of Lewiston and 99% is allocated within the Niagara Frontier region of Niagara and Erie Counties.[14]  Expansion Power is similarly concentrated, although the benefits are diffused somewhat more broadly in Western New York.  34% of Expansion Power allocations are to businesses in the host communities, and 41% to firms in Niagara County.  50% of Expansion Power allocations are given to firms in Erie County.

In contrast to the allocations of both Replacement and Expansion Power, Preference Power is distributed throughout New York and to neighboring states. About 2% of Preference Power is allocated to two municipal agencies in the Niagara Frontier region – the Villages of Akron and Springville in Erie County.  About 16% of Preference Power allocations (18% of energy sales) are in Western New York, with 77% of allocations and 79% of sales in New York State.   Out-of-state municipals and cooperatives receive 20% of Firm Power Preference allocations and account for 21% of Preference Power energy deliveries.  Contracts with three upstate investor-owned utilities also distribute Project Power to residential customers throughout Upstate New York, with 17% of power going to Niagara and Erie Counties and 22% to Western New York, with the remainder going to mid- and upstate counties in New York.

4.1.3        Allocation and Energy Delivery of Project Power to Domestic and Rural Customers

The customer base that ultimately uses the power provided by the Niagara Project varies considerably depending upon the class of power and the entity purchasing the power from NYPA for resale to ultimate customers. Expansion Power is resold exclusively to industrial and commercial customers as is nearly all Replacement Power.[15]

Sales of Project Power (exclusive of Replacement and Expansion Power) to the three upstate investor-owned utilities are designated for residential customer use.  These energy deliveries account for an average of 12% of the three utilities’ total residential customer kWh sales.  Municipal electric and rural cooperative utilities who receive Preference Power serve residential, commercial and industrial customers in varying proportions, and are not obligated to flow the entire benefit of preference power to domestic and rural (i.e. residential) customers.   Residential sales as a percentage of total retail sales for the New York Preference customers ranges from 12% to 98%, averaging 40% (based on 2002 figures).   Using the actual residential customer sales proportions for each New York Preference customer to estimate geographic delivery of Preference Power to residential customers, we can estimate the geographic distribution of energy sales of Preference Power to domestic and rural customers.  Combining this with an estimate of county-by-county residential sales from the three IOUs, we estimate the total Niagara Project Power energy sales that flow to domestic and rural customers.  Table 3.1.3-1 shows this estimate, and provides a geographic breakdown of all energy sales to domestic and rural customers. 

According to this estimate, 5,500 gigawatt-hours (GWh) of electric energy was supplied to domestic and rural customers, or 44% of overall Niagara sales of 12,446 GWh in 2003.  It is worth noting that this percentage is wholly determined by factors outside of NYPA’s range of control, i.e. the percentage of residential sales by the preference customers.  In total, the amount of electricity supplied to residential customers by Preference Power recipients in New York and out-of-state (2,719 GWh) was nearly identical to the amount supplied to the upstate IOUs under contracts (2,781 GWh).  Niagara County received about 2% of the Project deliveries to residential customers, while Erie County received about 9%.  Because both Preference customers and the three upstate IOUs serve loads across the state, Niagara Project Power for residential customers is not concentrated in Western New York, where only 19% of Project Power for residential customers is delivered.  About 82% of Project Power that flows to residential customers flows to New York households and 18% flows to out-of-state residential customers.

4.2         Preference Power Allocation

Throughout the history of the Niagara Power Project – including during the Congressional debates of the mid 1950s – the role of Preference Power has engendered the most controversy and contention.  The history of the NPP is intertwined with the history of public power, federal hydropower, and rural electrification in the U.S. during the 20th Century.   Allocations of Preference Power have increased over time – in part through design – but also as a result of a series of legal challenges which have increased the power allocated to municipal electric and rural cooperative customers (both in New York and out-of-state).   The increase in Preference Power allocation and sales has been accompanied by a reduction in the amount of power marketed to the upstate IOUs.   This can be seen in Table 3.2-1, which shows the difference in allocations between 1982 and 2003 among various types of power customers.

As the table demonstrates, the Preference Power allocation for New York municipals and cooperatives increased 63% from 461 MW in 1982 to 752 MW in 2003, while power sales from the Niagara Project to investor-owned utilities (exclusive of Replacement and Expansion Power) dropped 50% from 600 MW in 1982 to 301 MW in 2003.[16]  Smaller shifts occurred as the amount of firm peaking power to IOUs fell 40 MW between 1982 and 2003, with 5 MW of firm peaking power and 43 MW of firm power added to out-of-state preference power customers during that time.

4.2.1        Relevant Legal and Regulatory Precedents on Preference Power Allocation

The legal history of Preference Power involves concepts dating back to the early 20th century political movements and jurisprudence.   Many principles in the NRA and PAL have been tested in the courts with respect to Preference Power allocations, and resulting case law defines the discretion that NYPA has to alter Preference Power allocations.

4.2.1.1  Withdrawn Power and “Reasonably Foreseeable Needs”

When the original contracts for preference power were signed with the investor-owned utilities in 1961, they provided for some power to be withdrawn over time (from the portion designated for domestic and rural customers served by the IOUs) to meet the “reasonably foreseeable needs” of expected load growth of the Preference customers as per the NRA.[17]  The projections that estimated the likely amount of withdrawable power were made through 1985, but the contracts with IOUs themselves extended through the end of 1989.   However, resulting demand growth (primarily non-residential) in municipal and cooperative systems proved to be higher than expected, in part due to the low rates they charged commercial and industrial customers.  By 1978, all of the withdrawable power was already transferred from IOUs to Preference customers. From the late 1950s, prior to the operation of the Niagara Project, some power from the St. Lawrence-FDR project was used to satisfy NPP preference customers’ requirements. Later, the St. Lawrence Power was replaced with equal amounts of Niagara Preference Power.

 On May 12, 1978, the Municipal Electric Utilities Association of New York (MEUA) filed a complaint against the Power Authority at FERC, beginning a series of legal actions that culminated in a 2nd Circuit decision issued on August 15, 1984.[18]    In the interim, several FERC decisions were issued, and appealed to the courts.   The initial ALJ decision found that the Power Authority had failed to provide for the reasonably foreseeable needs of Preference Power customers when it entered into contracts with the IOUs, declared the contracts void and ordered the Power Authority to revise the contracts to comply with the NRA and the Project license.[19]   On hearing, the FERC issued Opinion 151, which found that preference customers were entitled to receive all their current needs up to 40% of the project output, and thus upheld the voiding of the contracts.[20]   However, upon rehearing, the Commission partially reversed itself and limited the remedy to the 1985 – 1990 period, ordering the Power Authority to increase the preference allocation from its current level of 586 MW to 697 MW.[21]  These orders were appealed to the Circuit Court in PASNY v. FERC.   The Court generally agreed with the imposed remedy, but allowed NYPA to fulfill the increase with identically-priced power from the St. Lawrence-FDR project.  If it failed to accomplish this requirement, the contracts with IOUs were to be voided and reallocations demanded (including reallocation from Expansion Power if necessary).[22]  The contracts were not voided and new contracts with IOUs were entered into as of February 22, 1989.

4.2.1.2  Requirements and Criteria for Receiving Preference Power

Under the NRA, Preference Power recipients are “public bodies and nonprofit cooperatives within economic transmission distance” while PAL § 1005 identifies “municipalities and other political sub-divisions of the state now or hereafter authorized by law to engage in the distribution of electric power” as having priority for receiving a “reasonable share” of project power at the “lowest possible price.”   These eligibility criteria are not identical.

In 1985, NYPA began to sell Niagara Preference Power to “municipal distribution agencies” (MDAs), which various jurisdictions established under State Law in order to qualify for allocations of Preference Power, under the presumption that such entities were “public bodies” within the meaning of  NRA § 836 (b) (1) and thus entitled to preference and priority in NPP power allocations.[23]  MDAs (sometimes called “paper munis”) were public agencies that purchased power at wholesale and then distributed it to retail customers of investor-owned utilities through “lease and operating agreements” (LOAs) that gave them limited rights to the utilities’ distribution network.   When these arrangements were challenged, New York courts upheld the position of the Power Authority that these MDAs complied with the legal requirements and qualified as public bodies under New York State law.[24]  However, a series of subsequent FERC and Federal court cases eventually determined that none of these entities qualified as public bodies under the NRA. and therefore that they  were not entitled to receive Preference Power.  The FERC and Federal Courts found that such agencies were not equivalent to municipal and cooperative (M&C) systems that owned and controlled the distribution network, which traditionally were understood to furnish  “yardstick competition” in the electricity market.   These decisions had the effect of limiting Preference Power to municipal electric and rural cooperative distribution utilities.

The theory of yardstick competition emerged in the 1930s, and the theory was implemented through various tax advantages for cooperatives and a preference for municipal electric and rural cooperative systems to receive Federal hydropower.  The primary goal of yardstick competition was to provide an alternative form of utility organization, one that would enjoy inherent cost advantages and challenge the rate structures and practices of the investor-owned utilities.  This created a way to discipline IOU costs and rates through the threat of losing large customers to existing M&C systems or even communities organizing their own power delivery systems by purchasing IOU assets (“municipalization”).  As the matter was brought before FERC, the issue regarding whether MDAs were public bodies under the NRA focused on whether an MDA could perform as a yardstick competitor, rather than simply pass on savings to IOU customers. FERC found that MDAs were not capable of performing a yardstick competition function, and voided the allocations.[25]

4.2.1.3  Out-of-State Preference Power Allocations

Niagara project power is sold to Preference customers outside of New York under the NRA.   However, the actual amount has risen over time as a result of litigation, and as a wider area came within “economic transmission distance.”  In a 1975 case, the Federal Power Commission (now FERC) decided that the NRA does not require allocation of a full 10 percent of project power to out-of-state entities, and that preference power is not limited to firm power.[26]   A later decision noted that FERC has the authority to review the Power Authority’s determination of what constitutes a “reasonable portion” of project power allocated to out-of-state entities.[27]  In 1985, however, FERC stated in a footnote that the full 10% should be allocated to out of state preference customers, as there was sufficient demand within economic transmission distance to satisfy the Congressional intent that up to 20% of Preference Power be allocated out of state. [28]  In the same decision, FERC ruled that the most reasonable method of apportioning Project power among out-of-state preference customers is based on the number of residential customers served by each preference customer.[29]

 The entities receiving out-of-state Preference Power has also changed over time, as transmission costs declined (and became more economic relative to electricity generation) and as allocation formulas were clarified.   Recently, the composition of out-of-state Preference Power changed as a result of the Buckeye Cooperative in Ohio qualifying to receive Niagara Project power. This has caused NYPA to re-allocate some preference power from other states’ allocations.

Although delivered to specific municipal electric and rural cooperative systems in the neighboring states, both the NRA and PAA envision and permit such states to designate a single bargaining agent to represent the preference customers in that state, which can include a preference customer, the Public Utility Commission, or other body.    NYPA’s contract is with the bargaining agent; however, that agent does not resell the power (or its portion of the power) at retail unless it also is a municipal or cooperative distribution utility.[30]

4.2.1.4  Preference Power and Domestic and Rural Customers

Several cases have addressed Preference Power resales to domestic and rural (i.e. residential) customers.   Nothing in the NRA or PAL prohibits a municipal or cooperative preference customer from selling preference power to industrial or commercial customers.   Although the general intent of the preference provisions is to favor domestic and rural consumption, an allocation of preference power does not restrict resale to any particular type of customer.[31]

4.2.1.5  Geographic Allocation of Preference Power and Energy Deliveries

Although Preference Power is the most spatially distributed benefit of Niagara project power – reaching 51 municipal electric and rural cooperative utilities across New York and additional systems in 7 neighboring states – it is also quite concentrated in terms of the relatively small proportion of customers and loads that it serves within those broad geographic regions.  When the Niagara Power Project began delivering power in 1961, not all municipal and cooperative systems had a need for power or were within “economic transmission distance,” and, therefore, allocations gradually were made available to all municipal electric and rural cooperative utilities in New York and increased to initial Preference Power recipients.  Jamestown, currently the largest Preference customer, only received its allocation in 1971 (to augment its own coal-fired generation), and three municipalities in Long Island began receiving Preference Power in 1976.  Appendix A shows a summary of New York Preference Power allocations and kWh sales for 2003, and Table 3.2.2-1 shows the geographic allocation of preference power for 2003.  

Two percent (2%) of Preference Power is delivered into Niagara and Erie Counties.  Western New York receives 18% of overall Preference Power, or roughly 22% of Preference Power delivered into New York.  Out of state Preference customers receive 21% of Preference Power.

4.2.2        Out-of-State Preference Power

As seen in Table 3.2.2-1, 228 MW of Niagara Project Power was allocated to out of state recipients in 2003, with 1,149 GWh of energy delivered.  Table 3.2.3-1 provides a breakdown of these allocations and deliveries by recipient state.   In 2003, Massachusetts received the most – about 34% – of out-of-state Preference Power energy deliveries, with Ohio and Pennsylvania following with 28% and 20%, respectively.

Although out-of-state Preference Power allocations have remained steady at a total of 228 MW of Firm and Firm Peaking Power, the composition of state recipients can change as new entities become eligible to receive power.   Recently, the inclusion of the Buckeye Electric Cooperative in Ohio as an eligible recipient has caused out-of state allocations to shift to Ohio from the other six neighboring states, roughly in proportion to their current allocations.   Table 3.2.3-2 shows the shift in allocations that occurred in the Spring of 2004 in both Firm and Firm Peaking Power.

In order to increase the overall Ohio allocation, other states’ allocations were reduced by roughly 20%-30%.   Owing to this re-allocation, Ohio now receives the most out-of-state Preference Power – at 46% of the total, with Massachusetts’ share declining to 23% and Pennsylvania falling to 17%.

4.2.3        Preference Power to Domestic and Rural Customers

Appendix B shows the 2002 energy deliveries to Preference customers in New York, combined with data on their number of residential customers and residential kWh sales from the Energy Information Administration (2002 is shown because that is the most recent EIA data available on retail electricity suppliers).   In 2002, the 51 municipal electric and rural cooperative utilities in New York received 4,340 GWh of Niagara Project Power, and sold 4,566 GWh at retail to all customers (residential, commercial and industrial).[32] The share of residential retail sales to total retail sales for the New York Preference customers ranges from 12% to 98%, with an average of 40%.   All together, these M&C Preference customers served 153,000 residential retail customers.   Table 3.2.4-1 allocates Preference Power deliveries in 2003 between residential and other (industrial & commercial) sectors, by region, using factors derived from the 2002 data.[33]

This estimate shows that 50% of Preference Power is allocated to domestic and rural customers.  About 20% of Preference Power sales attributed to domestic and rural customers in New York are in Western New York, and, thus, 80% of the benefit of Preference Power that flows to residential customers in New York accrues to areas outside of the western region.   Two percent (2%) of the residential customer benefit from Preference Power deliveries remains in the Niagara Frontier region.

4.3         Replacement Power Allocation

Replacement Power allocation has not varied since its inception, with 445 MW of firm power granted to Niagara Mohawk for sales to industrial customers on the Niagara Frontier.   As of July 1, 2004, there were 68 companies receiving Replacement Power with a total contract demand of 378 MW  (23 of these also received Expansion Power allocations). Appendix C shows the list of industrial customers receiving Replacement Power and their kW allocations as of July 1, 2004.   (It also shows the allocations as of December 31, 2003, which provide Replacement Power contract totals used in calculations based on calendar 2003 data.) 

4.3.1        Requirements and Criteria for Receiving Replacement Power

All of the NPP replacement power is sold through Niagara Mohawk pursuant to Niagara Contract NS-1 under service tariff NP-F1.[34]  In the original NS-1 (February 10, 1961) Replacement Power was defined in Article I (h) as “Project firm power made available by Authority to Contractor [Niagara Mohawk] pursuant to Public Law 85-159 [NRA] to replace power formerly produced by Contractor in its Adams and Schoellkopf plants.   The industrial customers to whom such power is sold by Contractor and the amounts sold to each shall be approved by Authority.”  Although the NRA § 836 (3) provided for 445 MW of Niagara Project Power “for resale generally to the industries which purchase power produced by project 16 prior to such date, or their successors, in order as nearly as possible to restore low power costs to such industries and for the same general purposes for which power from project 16 was utilized,” the NMPC originally allocated the full 445 MW to local industries, even though some were not formerly recipients of power from Project 16.   NS-1 Article IV (1) states: “Contractor shall resell the replacement power made available to it to industrial customers in accordance with Public Law 85-159.”  There were no specific references to the method by which the Power Authority or NMPC should reallocate any replacement power that might be made available due to the original recipients closing or downsizing industrial facilities.    Finally, NS-1 Article II (1)(b)(i) gives the Power Authority the right to restrict energy deliveries below 95% load factor to Replacement Power customers.  The delivered energy that represents the difference between actual Replacement Power load factor and 95% load factor is credited to the residential customers of Niagara Mohawk.

The New York State Legislature on June 23, 2005 passed legislation that provides a state statutory basis for the continued sale of 445MW of Replacement Power to businesses within 30 miles of the Project. (S5866/A8960). The legislation, which will be sent to the Governor for his approval, also provides for the use of a portion of unallocated Replacement Power for the purpose of Energy Cost Savings Benefits to be granted by the New York State Economic Development Allocation Board, consistent with current contractual obligations. The bill treats reallocations of Replacement Power in the same manner and under the same criteria as currently apply to the allocation of Expansion Power. (PAL §1005(13))

4.3.2        Relinquished and Re-Allocated Replacement Power

By the late 1970s, about 110 MW of the Replacement Power allocation had been relinquished by the original recipients as they discontinued or reduced operations, and NMPC was using the relinquished power for general system requirements.[35]  Several customers filed a breach of contract suit against the Power Authority and NMPC to restore power allocations that they believed should be granted to industrial customers. (the “Airco” case).[36]  The Airco case was settled with the parties to the dispute agreeing to an allocation of relinquished Replacement Power and a method for allocating future relinquishments among industrial customers.   Another case soon followed, with Bethlehem Steel suing the Power Authority and NMPC.[37]  In that case, the court concluded that (a) Niagara Mohawk and NYPA had broad discretion to select those entities that would receive initial Replacement Power allocations, with no specific company entitled to receive an allocation; (b) Replacement Power relinquished during the term of the contract (NS-1) had to be reallocated to the industries as a group but no specific company was entitled to a portion of such relinquished power; and (c) while Niagara Mohawk (but not NYPA) breached the contract when it refused to allocate relinquished Replacement Power, plaintiff had not proven its contractual right to a specific allocation of relinquished Replacement Power or damages for the failure to allocate that power.  The Bethlehem case was settled with all parties agreeing to additional allocations of relinquished Replacement Power and a method for allocating future relinquishments.

The current framework for re-allocations of relinquished Replacement Power is an outgrowth of a process established by a 1988 Settlement Agreement between NYPA, Niagara Mohawk and the industrial customers.[38]  Under the settlement, relinquished Replacement Power was held by Niagara Mohawk until it reached 10 MW, or 18 months have expired, whichever occurs first.  The availability of Replacement Power was published in local newspapers and industry then submits requests based on their expansion needs. Customers receive Replacement Power allocations under criteria similar to those for Expansion Power, including the number of jobs created per MW and the level of new investment.   Recently, Niagara Mohawk, NYPA, and Western New York economic development entities streamlined the reallocation procedures to ensure that there is a continuing allocation process as Replacement and Expansion Power becomes available for reallocation. This new process provides greater opportunity to match available power with a prospective customer.[39]  Note that the new state legislation concerning Replacement Power, discussed above, would replace any inconsistent allocation methods established by the Airco and Bethlehem settlements, which expire on January 1, 2006.

4.3.3        Geographic Distribution of Replacement Power Allocations and Associated Energy Deliveries

Because of its historic association with the Schoellkopf and Adams plants, Replacement Power is geographically concentrated in the Niagara Frontier region.  Although not specifically stipulated in the NRA or the PAL, Contract NS-1 requires that all of the Replacement Power recipients be located within 30 miles of the Niagara switchyard.  The new  legislation changes the radius for Replacement Power to be 30 miles from the Project. Appendix D provides a breakdown of current Replacement Power customers by the investor-owned utility serving those customers and region. Table 3.3.3-1 shows the geographic distribution of Replacement Power allocations and associated energy deliveries by the Host Communities and the counties of Niagara and Erie.[40]   Over three-quarters (76%) of all Replacement Power is allocated to industries located in the Host Communities, with nearly all of the remainder in Erie County

4.3.4        Expiration of Replacement Power Allocation

Under the NRA the Replacement Power requirement and allocations expire on December 31, 2005.[41]   The new legislation mentioned above that has passed both houses of the New York State Legislature, and which is expected to be signed by the Governor (S5866/A8960) operates to provide a statutory base for replacement power sales independent of the Niagara Redevelopment Act.   The bill would extend the Replacement Power allocations as a matter of state law by amending PAL § 1005 (13), and basically merge Replacement Power with Expansion Power allocation rules.  

The remainder of PAL § 1005 (13) is largely unchanged except for additional investment criteria added to the allocation methods.    Expansion Power Allocation

Up to 250 MW of firm Project Power has been allocated to three load-serving entities:  Niagara Mohawk (174.7 MW) New York State Electric and Gas (38.7 MW) and City of Jamestown (3.1 MW).   As of December 31, 2003 there were only 217 MW actually under contract, with the rest available for allocation under the rules outlined in PAL § 1005 (13); by July 1, 2004 there were 202 MW of Expansion Power contracts with 68 companies.   Appendix C also shows the industrial customers served by the current allocation of Expansion Power and their kW allocations.

4.3.5        Requirements and Criteria for Receiving Expansion Power

Expansion Power is defined by New York State law, and designed to elicit new or expanded business in the Niagara Frontier region.  As outlined in PAL § 1005 (13), the requirements for receiving Expansion Power are business customers within 30 miles from the Niagara Power Plant switchyard (or Chautauqua County allocations as of 1987).  The trustees of the Power Authority have authority to determine which customers receive Expansion Power and the amount of any such allocation.  Actual customer’s allocations are decided by the trustees under the criteria outlined in PAL § 1005 (13).

The rules regarding Expansion Power are explicit regarding relinquished and re-allocated power.   PAL § 1005 (13) states:

Expansion power relinquished or withdrawn after the effective date of this subdivision shall be allocated directly or by sale for resale by the authority to businesses within the state located within thirty miles of the Niagara project provided, that the amount of power allocated to businesses in Chautauqua county on January first, nineteen hundred eighty-seven shall be allocated in such county. These allocations shall be made in accordance with criteria established by the trustees. Such criteria shall address the expansion of industry and employment pursuant to paragraph (a) of this subdivision and the revitalization of existing industry pursuant to paragraph (b) of this subdivision.

The criteria for allocating relinquished power are the same as eligibility for Expansion Power, and were furnished by the 1987 Expansion Power law:

  (a) Criteria for eligibility for expansion power. Each application for an allocation for expansion power shall be evaluated by the trustees under criteria which shall include but need not be limited to:

 (1) the number of jobs created as a result of an expansion power allocation;

  (2) the business` long term commitment to the region as evidenced by the current and/or planned capital investment in business` facilities in the region;

  (3) the ratio of the number of jobs to be created to the amount of expansion power requested;

  (4) the types of jobs created, as measured by wage and benefit levels, security and stability of employment;

  (5) the type and cost of buildings, equipment and facilities to be constructed, enlarged or installed;

  (6) the extent to which expansion power will affect the overall productivity or competitiveness of the business and its existing employment;

  (7) the extent to which an allocation of expansion power may result in a competitive disadvantage for other business;

  (8) the growth potential of the business facility and the contribution of economic strength to the area in which the business facility is or would be located;

  (9) the extent of the business` willingness to make jobs available to persons defined as eligible for services under the federal job training partnership act of nineteen hundred eighty-two and the extent of the business` willingness to satisfy affirmative action goals;

  (10) the extent to which an allocation of expansion power is consistent with state, regional and local economic development strategies and priorities and supported by local units of government in the area in which the business is located; and

  (11) the impact of the allocation on the operation of any other facilities of the business, on other businesses within the region, and upon other electric ratepayers.

  (b) Revitalization. In addition to the criteria provided in paragraph (a) of this subdivision the trustees shall establish special criteria for the evaluation of applications for power allocated for the revitalization of industry. Such criteria shall include, but need not be limited to:

  (1) that the business is likely to close, partially close or relocate resulting in the loss of a substantial number of jobs;

  (2) that the business is an important employer in the community and efforts to revitalize the business are in long-term interests of both employers and the community;

  (3) that a reasonable prospect exists that the proposed allocation of expansion power will enable the business to remain competitive and become profitable and preserve jobs for a substantial period of time;

  (4) that the applicant demonstrates cooperation with the local electricity distributor and other available sources of assistance to reduce energy costs to the maximum extent practicable, through conservation and load management; and

  (5) that the allocation will not unduly affect the cost of electric service to customers of the local electricity distributor.

The new legislation affecting Replacement Power amends these criteria in minor respects regarding capital investment.

4.3.6        Geographic Distribution of Expansion Power Allocations and Energy Deliveries

Appendix D shows the geographic allocation of Expansion Power by utility.  Table 3.4.2-1 shows the geographic distribution of Expansion Power and the associated energy deliveries (assuming average load factors apply across geographic boundaries).  As in Replacement Power, all Expansion Power is delivered into Western New York, but Expansion Power is less concentrated in the Host Communities, where 34% is currently allocated.    Expansion Power customers in Erie County account for half of the current allocation, and about 10% of Expansion Power allocation goes to customers in Western New York outside of Niagara and Erie Counties.

4.4         Upstate Investor-Owned Utilities

Project Power designated for domestic and rural (i.e. residential) customers and sold at Preference rates is delivered under contract with three upstate investor-owned utilities:  Niagara Mohawk (NMPC) New York State Electric and Gas (NYSEG) and Rochester Gas and Electric (RG&E).  Contracts for 310 MW of Firm Power (and 360 MW of Firm Peaking Power) are allocated to IOUs, with the Firm Power allocated as: 126 MW to NMPC, 110 MW to NYSEG and 65 MW to RG&E.

These three IOUs collectively serve almost 2.4 million residential accounts in all or parts of 54 counties in New York (out of 62 counties), and Niagara Project Power accounted for 12% of total their residential sales in 2002.[42]  Table 3.5-1 displays the power delivered to these IOUs in 2002, and shows that Niagara Project Power accounted for 21% of RG&E retail residential sales, 14% of NYSEG’s residential sales, and 9% of NMPC’s residential sales.

The geographic distribution of this power is shown on Table 3.5-2, which allocates residential power deliveries based on approximate numbers of households in the counties served by the three IOUs (also see Appendix E).  This power is broadly distributed through Upstate New York, with 22% in Western New York and 78% in the remainder of the state, although none is allocated to the downstate urban counties.

 

Table 3.1.1-1

NPP Schedule of Demand and Energy Sales, Year Ended December 31, 2003

Customer Type

Allocated Power

Power Available for Contract

Contracted Power

Contract Sales

Load Factor

kW

% of Total

kW

% of Total

kW

% of Total

MWh

% of Total

 

Firm Power

 

 

 

 

 

 

 

 

 

 

Investor Owned Utilities

245,000

13.0%

301,000

15.5%

301,000

16.2%

1,757,526

15%

66.7%

In-State Preference

752,000

40.0%

752,000

38.8%

752,000

40.4%

4,232,694

35%

64.3%

Out-of-State Preference

188,000

10.0%

188,000

9.7%

188,000

10.1%

1,107,123

9%

67.2%

Replacement Power

445,000

23.7%

445,000

23.0%

401,749

21.6%

3,494,739

29%

99.3%

Expansion Power

250,000

13.3%

250,000

12.9%

216,522

11.6%

1,436,069

12%

75.7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subtotal Firm Power Sales

1,880,000

100.0%

1,936,000

100.0%

1,851,905

100.0%

12,028,151

100.0%

74.1%

 

 

 

 

 

 

 

 

 

 

Firm Peaking Power

 

 

 

 

 

 

 

 

 

 

Investor Owned Utilities

360,000

90.0%

360,000

90.0%

360,000

90.0%

376,722

90.2%

11.9%

Out-of-State Preference

40,000

10.0%

40,000

10.0%

40,000

10.0%

41,585

9.8%

11.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subtotal Firm Peaking Sales

400,000

100.0%

400,000

100.0%

400,000

100.0%

418,307

100.0%

11.9%

 

 

 

 

 

 

 

 

 

 

Total Sales

 

 

 

 

 

 

12,446,458

 

 

 

 

 

 

 

 

 

 

 

 

Purchases

 

 

 

 

 

 

(507,148)

 

 

Generation

2,280,000

 

2,336,000

 

2,259,271

 

11,939,310

 

60.3%

 

Source: 2003 Report on the Sale and Distribution of Niagara Power and NYPA.

Data underlying table include substitute energy sales. Substitute energy sales are not a Niagara Power Project product. Substitute energy accounts for approximately 1% of sales and does not substantially affect project allocations.

Table 3.1.2-1

2003 Geographic Summary of Project Power

Region

Preference Power

Replacement Power

Expansion Power

Upstate IOU's Residential

Total Project Power

 

MW

% of Total

MW

% of Total

MW

% of Total

MW

% of Total

MW

% of Total

Western New York & Subregions

 

 

 

 

 

 

 

 

 

 

Host Communities

0

0%

304

76%

73

34%

7

1%

384

17%

Remaining Niagara County

0

0%

1

0%

15

7%

16

2%

32

1%

Niagara County Subtotal

0

0%

305

76%

88

41%

23

3%

417

18%

Erie County

17

2%

94

23%

107

50%

95

14%

313

14%

Niagara Frontier Subtotal

17

2%

399

99%

195

90%

118

18%

730

32%

Western New York Subtotal

160

16%

402

100%

217

100%

155

23%

933

41%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State Regions

 

 

 

 

 

 

 

 

 

 

New York

752

77%

402

100%

217

100%

661

100%

2,031

90%

Out-of-State

228

23%

0

0%

0

0%

0

0%

228

10%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

980

100%

402

100%

217

100%

661

100%

2,259

100%

Percent of Project Power

43%

 

18%

 

10%

 

29%

 

100%

 

 

Sources: "2003 Report on the Sale and Distribution of Niagara Power” and NYPA.

 

Capacity figures include firm and firm peaking allocations.   Niagara Frontier includes Niagara and Erie Counties; western New York includes Niagara, Erie, Genesee, Orleans, Wyoming, Chautauqua, Cattaraugus, and Allegany Counties.  Includes both firm and firm peaking power.  Replacement and Expansion totals reflect power contract levels as of 12/31/03 and are thus lower than  total statutory allocations.

 

Table 3.1.2-2

2003 Geographic Summary of NPP Energy Sales

Region

Preference Sales

Replacement Sales

Expansion Sales

Upstate IOU's Residential

Total Energy Sold

 

GWh

% of Total

GWh

% of Total

GWh

% of Total

GWh

% of Total

GWh

% of Total

Western New York & Subregions

 

 

 

 

 

 

 

 

 

 

   Host Communities

0

0%

2,646

76%

485

34%

22

1%

3,153

25%

   Remaining Niagara 
   County

0

0%

11

0%

100

7%

47

2%

159

1%

Niagara County Subtotal

0

0%

2,657

76%

585

41%

69

3%

3,311

27%

   Erie County

98

2%

816

23%

711

50%

289

14%

1,914

15%

Niagara Frontier Subtotal

98

2%

3,473

99%

1,297

90%

358

17%

5,225

42%

Western New York Subtotal

946

18%

3,495

100%

1,436

100%

476

22%

6,352

51%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State Regions

 

 

 

 

 

 

 

 

 

 

   New York

4,251

79%

3,495

100%

1,436

100%

2,134

100%

11,316

91%

   Out of State

1,149

21%

0

0%

0

0

0%

0%

1,149

9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

5,400

100%

3,495

100%

1,436

100%

2,134

100%

12,465

100%

   Percent of Project Power

43%

 

28%

 

12%

 

17%

 

100%

 

 

Percentages for subregions are of Project total.

Niagara Frontier includes Niagara & Erie Counties; Western New York includes Niagara, Erie, Genesee, Orleans, Wyoming, Chautauqua, Cattaraugus, and Allegany Counties.  Includes both firm and firm peaking.

Data underlying table include substitute energy sales. Substitute energy sales are not a Niagara Power Project product. Substitute energy accounts for approximately 1% of sales and does not substantially affect project allocations.

 

Table 3.1.3-1

Geographic Distribution of 2003 Domestic and Rural Sales

Region

Preference Sales to Domestic & Rural Customers

(GWh)

Replacement Sales to Domestic & Rural Customers

(GWh)

Upstate IOU's Sales to Domestic & Rural Customers

(GWh)

Total Sales to Domestic & Rural Customers

(GWh)

Percent of Domestic & Rural Sales in Region

Western New York &

Subregions

 

 

 

 

 

   Host Communities

0

15

22

37

1%

   Remaining Niagara
   County

0

16

47

63

1%

Niagara County Subtotal

0

31

69

100

2%

   Erie County

37

144

289

470

9%

Niagara Frontier Subtotal

37

176

358

570

10%

Western New York Subtotal

352

221

476

1,048

19%

 

 

 

 

 

 

 

 

 

 

 

 

State Regions

 

 

 

 

 

   New York

1,735

646

2,134

4,516

82%

   Out-of-State

984

0

0

984

18%

 

 

 

 

 

 

 

 

 

 

 

 

Total

2,719

646

2,134

5,500

100%

 

 

Sources: “2003 Report on the Sale and Distribution of Niagara Power,” “New York Power Authority Operations Data for 2003,” and NYPA.

 

Niagara Frontier includes Niagara & Erie Counties; Western New York includes Niagara, Erie, Genesee, Orleans, Wyoming, Chautauqua, Cattaraugus, and Allegany Counties.  Includes both firm and firm peaking power.   Out-of-State preference domestic and rural sales are calculated as the percentage of in-state preference domestic and rural sales times out-of-state preference sales.

 

Data underlying table include substitute energy sales. Substitute energy sales are not a Niagara Power Project product. Substitute energy accounts for approximately 1% of sales and does not substantially affect project allocations.

 

Table 3.2-1

Niagara Power Project Schedule of Demand, 1982 and 2003

Class

1982

2003

Demand

(MW)

Percent of Total

Demand

(MW)

Percent of Total

Firm Power

 

 

 

 

Investor Owned Utilities

600

32%

301

16%

In-State Preference

461

24%

752

39%

Out-of-State Preference

145

8%

188

10%

Replacement Power

445

23%

445

23%

Expansion Power

250

13%

250

13%

Subtotal Firm Power

1,901

100%

1,936

100%

 

 

 

 

 

Firm Peaking Power

 

 

 

 

Investor Owned Utilities

400

92%

360

90%

Out-of-State Preference

35

8%

40

10%

Subtotal Firm Peaking

435

100%

400

100%

Total

2,336

 

2,336

 

 

Sources: "Report of the Temporary Commission on Allocation of Power Authority Hydroelectric Power" and "2003 Report on the Sale and Distribution of Niagara Power."

 

Table 3.2.2-1

Preference Power Geographic Allocation and Sales

Region

Preference Power Allocation

(MW)

Preference Sales

(GWh)

Region Percent of Preference Sales

Western New York Subregions

 

 

 

   Host Communities

0

0

0%

   Remaining Niagara
   County

0

0

0%

Niagara County Subtotal

0

0

0%

Erie County

17

98

2%

Niagara Frontier Subtotal

17

98

2%

Western New York Subtotal

160

946

18%

 

State Regions

 

 

 

   New York

752

4,251

79%

   Out-of-State

228

1,149

21%

 

Total

980

5,400

100%

 

Sources: "2003 Report on the Sale and Distribution of Niagara Power" & "New York Power Authority Operations Data for 2003."

 

Data underlying table include substitute energy sales. Substitute energy sales are not a Niagara Power Project product. Substitute energy accounts for approximately 1% of sales and does not substantially affect project allocations.

 

Table 3.2.3-1

Out-of-State 2003 Preference Allocations and Sales

Entity

Preference Power Allocation

(kW)

Preference Sales

(GWh)

Percent of Preference Sales

Allegheny Electric Cooperative, Pennsylvania

47,900

228.5

19.9%

City of Cleveland, Ohio

63,800

317.9

27.7%

Connecticut Municipal Electric Energy Coop.

15,500

82.7

7.2%

Public Power Association of New Jersey

13,800

63.9

5.6%

Massachusetts Department of Telecommunications and Energy

72,200

385.2

33.5%

Rhode Island Public Utilities Commission

800

4.1

0.4%

Vermont Department of Public Service

14,000

66.5

5.8%

Total

228,000

1,149

100%

 

Sources: "2003 Report on the Sale and Distribution of Niagara Power" and "New York Power Authority Operations Data for 2003."

 

Data underlying table include substitute energy sales. Substitute energy sales are not a Niagara Power Project product. Substitute energy accounts for approximately 1% of sales and does not substantially affect project allocations.

 

Table 3.2.3-2

NPP Out-of-State Preference Power, January 1, 2004, and April 1, 2004

Entity

January 1, 2004 Allocation

April 1, 2004 Allocation

NPP Allocation
(kW)

Percent of NPP Out-of-State Allocation

NPP Allocation
(kW)

Percent of NPP Out-of-State Allocation

Connecticut Municipal Electric Energy Coop.

15,500

6.8%

10,500

4.6%

Massachusetts Department of Telecommunications and Energy

72,200

31.7%

53,000

23.2%

Public Power Association of New Jersey

13,800

6.1%

9,600

4.2%

City of Cleveland, Ohio

63,800

28.0%

104,400

45.8%

Allegheny Electric Cooperative, Pennsylvania

47,900

21.0%

38,700

17.0%

Rhode Island Public Utilities Commission

800

0.4%

600

0.3%

Vermont Department of Public Service

14,000

6.1%

11,200

4.9%

Total

228,000

100%

228,000

100%

Sources: NYPA.

 

Table 3.2.4-1

Geographic Distribution of 2003 Domestic and Rural Preference Sales

Region

Preference Sales to Domestic and Rural Customers
(GWh)

Preference Sales to Non-Rural and Domestic Customers
(GWh)

Total Preference Sales

Western New York Subregions

 

 

 

   Host Communities

0

0

0

   Remaining Niagara County

0

0

0

Niagara County Subtotal

0

0

0

Erie County

37

61

98

Niagara Frontier Subtotal

37

61

98

Western New York Subtotals

352

594

946

 

State Regions

 

 

 

   New York

1,735

2,516

4,251

   Out-of-State

984

165

1,149

 

Total

2,719

2,681

5,400

 

Sources: "2003 Report on the Sale and Distribution of Niagara Power," "New York Power Authority Operations Data for 2003," and NYPA.

 

Niagara Frontier includes Niagara & Erie Counties; western New York includes Niagara, Erie, Genesee, Orleans, Wyoming, Chautauqua, Cattaraugus, and Allegany Counties.  Out-of-State preference domestic and rural sales are calculated as the percentage of in-state preference domestic and rural sales times out-of-state preference sales.

 

Data underlying table include substitute energy sales. Substitute energy sales are not a Niagara Power Project product. Substitute energy accounts for approximately 1% of sales and does not substantially affect project allocations.

 

Table 3.3.3-1

2003 Replacement Power Geographic Allocation and Sales

Region

Replacement Power

(MW)

Replacement Sales

(GWh)

Region Percent of Replacement Sales

Western New York & Subregions

 

 

 

   Host Communities

304

2,646

76%

   Remaining Niagara County

1

11

0%

Niagara County Subtotal

305

2,657

76%

   Erie County

94

816

23%

Niagara Frontier Subtotal

399

3,473

99%

Western New York Subtotal

402

3,495

100%

 

State Regions

 

 

 

   New York

402

3,495

100%

   Out-of-State

0

0

0%

 

Total

402

3,495

100%

 

Sources: "2003 Report on the Sale and Distribution of Niagara Power" and NYPA.

 

Data underlying table include substitute energy sales. Substitute energy sales are not a Niagara Power Project product. Substitute energy accounts for approximately 1% of sales and does not substantially affect project allocations.

 

Table 3.4.2-1

2003 Expansion Power Geographic Allocation and Sales

Region

Expansion Power

(MW)

Expansion Sales

(GWh)

Region Percent of Expansion Sales

Western New York Subregions

   Host Communities

73

485

34%

   Remaining Niagara County

15

100

7%

Niagara County Subtotal

88

585

41%

Erie County

107

711

50%

Niagara Frontier Subtotal

195

1,297

90%

Western New York Subtotal

217

1,436

100%

 

State Regions

 

 

 

   New York

217

1,436

100%

   Out-of-State

0

0

0%

 

Total

217

1,436

100%

 

Sources: "2003 Report on the Sale and Distribution of Niagara Power" and NYPA.

 

Data underlying table include substitute energy sales. Substitute energy sales are not a Niagara Power Project product. Substitute energy accounts for approximately 1% of sales and does not substantially affect project allocations.

 

Table 3.5-1

Distributions to Domestic and Rural Customers from Upstate IOU’s 2002 Sales

Entity

Power Contracted

(MW)

Niagara Sales

(GWh)

Residential Customers

Retail Sales to Residential Customers

(GWh)

Niagara Sales as Percent of Residential Sales

Niagara Mohawk Power Corp

301

941

1,369,959

10,120

9%

New York State Electric & Gas Corp

260

836

715,299

5,544

15%

Rochester Gas and Electric Corporation

100

466

281,565

2,156

22%

Total

661

2,243

2,366,823

17,820

13%

 

Sources: 2002 EIA Form 861, Tables 14 - 17, "New York Power Authority Operations Data for 2002," and "2003 Report on the Sale and Distribution of Niagara Power."

 

Power contracted includes both firm and firm peaking power. Data underlying table include substitute energy sales. Substitute energy sales are not a Niagara Power Project product. Substitute energy accounts for approximately 1% of sales and does not substantially affect project allocations.

 

Table 3.5-2

2003 Upstate IOU’s Geographic Residential Power and Sales

Region

Upstate IOU's -Residential Power

(MW)

Upstate IOU's -Residential Sales

(GWh)

Region Percent of Upstate IOU's -Residential Sales

Western New York

Subregions

 

 

 

   Host Communities

7

22

1%

   Remaining Niagara
   County

16

47

2%

Niagara County Subtotal

23

69

3%

   Erie County

95

289

14%

Niagara Frontier Total

118

358

17%

Western New York

155

476

22%

 

State Regions

 

 

 

   New York

661

2,134

100%

   Out-of-State

0

0

0%

 

Total

661

2,134

100%

 

Sources: US Census, NYPA, "New York Power Authority Operation Data for 2003," and 2002 EIA Form 861, Table 17.

 

Data underlying table include substitute energy sales. Substitute energy sales are not a Niagara Power Project product. Substitute energy accounts for approximately 1% of sales and does not substantially affect project allocations.

 

5.0     RATE-SETTING METHODOLOGY AND IMPACT OF RELICENSING COSTS

5.1         History and Overview of Ratemaking Principles Applicable to Niagara Power Project

The initial rates for firm power for the Niagara Power Project were established when the plant went into operation in 1961. This initial rate included a one dollar per kilowatt per month demand charge and a 2.67 mills per kWh energy charge applicable to all firm power deliveries – Preference, Replacement, Expansion and power delivered to IOUs. These rates remained steady through 1981 when the Trustees decided to retire the remaining bonds issued under the Authority’s 1954 Bond Resolution for the St. Lawrence and Niagara hydro projects. At that time, the Trustees decided to conduct a comprehensive study to determine an appropriate rate level.  A decision by the New York Supreme Court in the Auer et al v. Dyson et al case in 1981 addressed how project costs and revenues were to be handled in the rate setting process. Specifically, the court said that revenues from the Niagara and St. Lawrence hydro projects could not be diverted to finance other projects until the statutory obligation to provide domestic and rural customers with the lowest possible rate was met. The court went on to state that in setting the “lowest possible rate:”

…the Authority has broad discretion, in setting such rates, to determine the components of its costs, and it is not required to guarantee any specific rate. It may include a reasonable charge for depreciation of the Niagara and St. Lawrence projects and such other factors which the exercise of business accounting principles would allow.

Following this decision, the trustees adopted a five percent rate decrease for the domestic and rural customers on June 29, 1982 retroactive to January 1, 1982. Also, rates were to be based on a 1982/1983 cost-of-service study including only those costs tied to the hydro projects. Costs to be considered included operating and maintenance expenses, administrative and general expenses, indirect overhead costs, depreciation, and inflation compensation. Indirect overhead costs were to be allocated according to generating capacity. These indirect costs include headquarters office administrative expenses, debt service expenses related to non-revenue producing facilities and research & development expenses.

NYPA is required to provide service from its hydroelectric facilities at cost to “preference rate customers,” which include municipalities, cooperatives and investor-owned electric utilities.[43]  In addition to the Auer Decision, Section 1005 (5) of the New York Power Authority Act provides a general guideline that, in determining hydroelectric rates the New York Power Authority:  “shall sell the same or cause the same to be sold to such municipalities and political subdivisions at prices representing cost of generation, plus capital and operating charges, plus a fair cost of transmission, all as determined by the trustees, and subject to conditions which shall assure the resale of such power to domestic and rural consumers at the lowest possible price.”[44]   The Power Authority Act, in Section 1005 (5) (h), allows varying rates based on “different localities, classes of customers, and amounts of current consumed” and allows for rate adjustments as a result of changes in operating costs and fixed charges. However, from the inception of the Niagara project through 1981 uniform and constant rates were charged for all customer classes (Figure 4.1-1).

The Auer Decision also explicitly stated that preference customers are not entitled to rates below cost as a result of revenues from other project energy sales:

There is nothing in Subdivision 5 of Section 1005 of the Public Authorities Law which requires or authorizes the furnishing of hydroelectric power to rural or domestic users at less than cost. In fulfilling its statutory requirements that the rate to domestic and rural customers be the lowest possible rate, the Authority has broad discretion, in setting such rates, to determine the components of its costs, and it is not required to guarantee any specific rate. It may include a reasonable charge for depreciation of the Niagara and St. Lawrence projects and such other factors which the exercise of business accounting principles would allow.

Once the lowest possible rate for domestic and rural consumers of the Niagara and St. Lawrence projects has been established excess revenues derived from the sale of power from the Niagara and St. Lawrence projects may be added to the general fund of the authority.[45]

 

5.1.1        Auer I Decision

The plaintiffs in this case sued the Power Authority, claiming that the 1974 bond resolution, known as the General Purpose Bond Resolution and the Ninth Supplemental General Purpose Bond Resolution were  in violation of sections 1001 and 1005 of the Public Authorities Law, the Niagara Redevelopment Act and the Federal Power Commission license of St. Lawrence.  The General Purpose Bond Resolution provided that NYPA revenues from all projects, including the hydroelectric projects, be used to pay off the 1974 series bonds as well as any new bond series issued after the retirement of the Niagara and St. Lawrence bonds and the refinancing of the Fitzpatrick and Blenheim-Gilboa projects (the 1970 bonds).  Plaintiffs argued that the use of hydroelectric revenues to pay off bonds associated with capital investments in other projects throughout the state would result in an illegal rate for the  domestic and rural customers and thus violate subdivision 5 of section 1005 of the Public Authorities Law.  NYPA argued that such an interpretation would lead to NYPA default on the bonds as this narrow interpretation of the Public Authorities Act would not be consistent with the Bond Covenant.

The court focused on several sections of the Public Authority Act in its decision. First, under subdivisions 5 and 6 of section 1005 of the Public Authority Law, the hydroelectric projects are to benefit “the people of the state as a whole” and “particularly the domestic and rural consumers at the lowest possible rates.”  Second, though there is no definition of “lowest possible rates” in the Act, the court asserted that “an interpretation that would permit the lowest possible rate to be less than cost would be absurd, and it must be presumed that the Legislature never intended such a result” where costs are defined as “cost of generation, plus capital and operating charges, plus a fair cost of transmission.”  Further, the decision found NYPA’s duty in sales to industry as “the responsibility of the authority to seek contracts of sale to industry as a secondary purpose "to secure a sufficiently high load factor and revenue returns" to facilitate [the lowest possible rate].”  Therefore, once it is established that preference customers are receiving the lowest possible rate there is nothing in the Public Authority Act preventing hydroelectric revenues from being included in a general fund.[46] 

 

5.1.2        Auer II Decision

Following the Auer I Decision, NYPA established a cost based rate that included a debt service charge from certain non-hydro projects.  The plaintiffs argued that this was in violation of the initial court decision.  In the second Auer Decision, the court stated that cost based rates used to establish the lowest possible rate must be set first, i.e., before NYPA could determine whether there would be excessive revenue to use in a general fund.  Therefore, the decision required NYPA to remove the non-hydro project debt service charges and refund these to the domestic and rural customers.

The Auer II Settlement established several rules for the recovery of capital expenditures and debt charges. In addition to a charge for hydroelectric project depreciation (return of capital), NYPA could also include an adjustment for inflation. However, with the exception of debt interest, NYPA was not allowed to earn a return on capital through a real rate of return charge.[47]

5.2         Treatment of Capital Cost

Two key features of Auer in regard to capital charges were its treatment of inflation and the lack of a return on capital.  Auer capital charges are based on a partial implementation of “Trended Original Cost” (TOC) method. As traditionally implemented, TOC is a cost-based method of rate regulation that tracks the cost of investment outlays for property, plant and equipment and gives the companies making those investments a fair opportunity both to (1) recover the capital they have invested, through subsequent depreciation and amortization charges, and (2) earn a fair rate of return on the capital while it remains unrecovered.  In this, it is like the Original Cost (“OC”) method widely used to set rates for investor-owned utilities in North America.  It differs from OC in that inflation compensation under TOC comes through an increase in the value of the assets employed, not through an inflation premium in the allowed rate of return on those assets.  However, the starting present values of the capital charges are the same and equal the initial amount invested.[48]  Thus, both methods exactly recover the cost of the investment from customers over time, albeit in different patterns.

The second key feature of Auer in regard to capital recovery is that the method deviates from a normal application of TOC as it does not include the rate of return on capital.  Under Auer, NYPA recovers less from its capital investments than a private firm or regulated IOU might expect to earn as it omits the return on capital.  This makes the present value of the capital charges under this version of TOC less than that recovered under a traditional TOC methodology.  For example, Figure 4.2-1 compares the cost recovery found under traditional OC and TOC, which have present values equal to a $1,000 initial investment, with the Auer cost recovery method, which has a present value of only $631.  Since NYPA’s assets have much longer lives than the example’s assets, the actual present value from full cost recovery for NYPA will be a lower percentage of the initial investment than this.  For example, with a 50-year asset and the assumptions otherwise unchanged, NYPA gets back only $373 in present value under Auer-style TOC, well below half of the actual cost of the investment.  As a result, the cost-of-service based rate is lower than would be expected under traditional capital charge recovery methods.

Despite earning no return on its capital investments, NYPA is bound by the principles under the Auer settlement, which does permit the collection of the interest expense on the debt NYPA issues for the new investments.  Since the total cost of capital of those investments, debt and equity combined, will exceed the interest expense on the debt-financed part of the investments, this means NYPA charges less than standard TOC for the capital employed on behalf of preference rate customers on the new investments as well as the old ones.

5.3         Treatment of Operational Costs

Variable costs included in rates are site O&M, Niagara roadwork, Headquarters overhead allocation and research & development expenses. The Niagara roadwork, completed between 1991 and 1996, is included as O&M for rate making purposes and is being amortized on a 15 year schedule for this purpose.[49] These annual variable expenses, in addition to capital costs associated with both new and existing investments, less revenue from demand charges, are then divided by forecasted annual generation (or the long term average) in order to determine an estimated energy production cost.  

5.3.1        Combining Costs of Niagara and St. Lawrence for Ratemaking

Though the contracts distinguish between Niagara and St. Lawrence, the rate calculations track costs and output for both projects together. Total costs less revenue from demand charges are divided by the combined capacities of both Niagara and St. Lawrence projects in order to estimate the energy production charge.  Total costs are a combination of variable costs and capital costs from both the projects and the portion of Headquarters allocated to the hydroelectric projects. The generation capacity is based on long term average water flows.

5.4         NYPA Cost of Service Methodology for Setting Hydro Rates

The cost of service method combines capital and variable expenses from both the Niagara and St. Lawrence hydroelectric projects in order to calculate an energy production cost.  In addition, the component of headquarters capital costs allocated to Niagara and St. Lawrence is factored into the hydro cost of service model. Since depreciation rates and financing differ between the two hydro projects, Niagara and St. Lawrence capital expenditures are tracked separately.  However, after depreciation, interest and the inflation component have been calculated these capital costs are combined for the final cost calculations. In this respect, Niagara and St. Lawrence are not tracked on a project-by-project basis. Likewise, the headquarters capital expenses are not allocated to Niagara and St. Lawrence individually but rather to the two projects as a whole. Finally, these total capital and variable expenses for the two projects are summed together. After subtracting out the demand charge revenues (from both preference and non-preference customers), the total costs are divided by the net generation capacity in order to determine the energy production cost. 

5.5         Ancillary Services

The move to competitive generation markets and the start of operations by the New York Independent System Operator (“NYISO”, or “ISO”) have fundamentally changed the nature of the electric industry in the New York Control Area (“NYCA”).  One change is that electric service has now been unbundled into separate component products.  Prior to the new market structure, the incumbent utility provided customers with all aspects of electric power, bundling generation (capacity and energy) together with all of the network support services that are necessary to deliver it reliably.  Now, the ISO’s new market structure distinguishes and charges separately for these network support services.  The ISO acquires these support services from competitive suppliers, and passes the cost of each unbundled service or product through to customers, as an item separate from the cost of generation.

The embedded costs for these four ancillary services are not new costs, nor are the services themselves new.  Rather, in the past all services and costs have been bundled together, but now the new market separates them.  The total cost of service of the NYPA hydro facilities is first determined (which in total supports the provision of all electric services) and then the relevant costs associated with ancillary services are allocated in the appropriate portion.  After deducting the costs of these ancillary services, the remainder of the total cost of service associated with generation is used to develop the cost-based generation rates for NYPA’s preference rate customers.  The unbundling does not change NYPA’s total costs; it merely allocates these costs among energy and the ancillary services identified.

5.6         Preference Power Rates

Section 1005 of the Public Authority Act states that preference customers are to receive power at the “lowest possible rate” consistent with the cost-reflective principles outlined therein From 1961 through 1981 this meant a constant rate with a demand charge of one dollar per kilowatt per month and an energy charge of 2.67 mills per kWh. The Auer I decision prompted the move towards cost-based rate making which resulted in a decrease in the energy charge. The demand charge remained constant at one dollar per kW-month until May 2003 when annual increases began. The energy charge was set at 4.92 mills per kWh in May 1994 (Figure 4.6-1). Finally, in the case of Village of Bergen v. Power Authority of New York, the court ruled that labor ratios as opposed to capacity ratios were to be used in the allocation of indirect overhead in calculating a lowest possible rate.[50]

5.7         Expansion Power Rates

From the beginning of Niagara operations in 1961 through the end of 1987, expansion rates were the same as those for replacement power. Demand charges were one dollar per kW per month and energy charges were 2.67 mills per kWh (see Figure 4.7-1).

The 1987 amendments to the New York Power Authority Act specified that “net” revenues from the expansion power sales were to be used for “industrial incentive rewards.”[51] Expansion rates were negotiated during a period from 1987 through 1989 and were set at a uniform rate for all expansion customers. The rates were set above the preference power rate and are adjusted through time according to an industrial energy cost-based inflation index.

5.8         Replacement Power Rates

Replacement power was allocated initially to Niagara Mohawk for resale to the former customers of the Adams and Schoellkopf plants.  The destruction of the Schoellkopf plant in 1956 threatened the industries which had developed in the region., These industries faced substantial increases in electricity costs resulting from the purchasing of power from Canadian hydro plants.   Unlike preference power rates, replacement power rates need not be sold at the lowest possible cost.   As is shown in Figure 4.8-1, Replacement power had been sold at $1.00 per kW per month and 2.67 mills per kWh up to 1990.  At that point, NYPA increased the demand charge to $1.47 per kW per month while the energy charge was decreased to 2.51 mills per kWh.  NYPA wished to use these additional revenues for such projects as funding the Niagara expansion or retiring debt early.  This brought about a legal challenge (the Occidental Chemical case) protesting that the Niagara Redevelopment Act did not allow for NYPA to increase replacement power rates above the cost of production. 

In the Occidental Chemical case a number of industrial replacement power customers claimed that replacement power rate increases were contrary to the Niagara Redevelopment Act. The NRA called for power to be sold to previous customers of the destroyed Schoellkopf dam in order to restore “low power costs.” Plaintiffs felt this should be interpreted as to mean rates set at cost. In 1992, the court found that “costs” referred to the customers’ costs, not NYPA’s production costs. As a result, the court ruled that NYPA had the authority to set replacement power rates greater than the actual production cost:   

...the phrase requiring PASNY to sell Replacement Power to Niagara Mohawk for resale "in order as nearly as possible to restore low power costs to such industries" meant that PASNY should provide low-cost power to these industries. The phrase "low power costs" means what it says: low-cost power. It does not mean "at cost" power.[52]

5.9         Retail Ratemaking Procedures of Project Power Recipients

The three upstate IOUs receiving project power at preference rates are required to include these purchases to residential customers at the cost of service, in effect flowing through the benefit of lower-cost hydro resources only to that customer class.[53]  Likewise, Replacement and Expansion Power allocated to specific industrial customers is passed through with no markup from the distribution utility (other than delivery charges).  Thus, the benefit of low-cost hydropower is targeted to specific customers and classes.

Ratemaking in municipal electric and rural cooperative utilities receiving Preference Power, whether by NYPA (for customers whose full requirements are served by NYPA) or the New York Public Service Commission (for systems whose needs are partially met from sources other than NYPA) is premised on the across-the-board distribution of the benefits of the hydropower to the various classes.

5.10     Current Revenues and Usage

As of 2002, Preference customers and the three upstate investor-owned utilities receiving electricity at preference rates from Niagara accounted for approximately 35% of New York residential customers. The average residential sales revenue per kilowatt hour for the upstate investor-owned utilities and preference customers is 12.2 and 4.8 cents, respectively. The state average is 13.2 cents per kilowatt hour (See Table 4-10-1). Of course, there are other factors which keep the rates low for the municipal power providers which make up the preference customer base. For example, these entities have access to tax exempt financing, do not require a return for shareholders and generally have lower overhead expenses. Nevertheless, the relatively low Preference Power rates charged help to keep these New York municipal providers’ retail power rates below the national average for public power.

5.11     Rate Setting and the Cost of Relicensing

5.11.1    Types of Relicensing Costs and Ratemaking Treatment

Relicensing costs factored into the cost of service include procedural and administrative relicensing expenses (treated as capital expenditures) and potential capital and O&M expenses related to new license conditions.  In addition to these expenses, other costs related to relicensing are factored into the cost of service through other such accounts as operating & maintenance variables expenses or “general plant” capital charge accounts. The relicensing account capital expenses are depreciated over a period of 50 years.  As a result, the capital charges are calculated using both the original cost and trended original cost methodologies to determine depreciation, interest and inflation charges.

5.11.2    Cost of Service Impact of Relicensing

Once known and accounted for, the costs of relicensing will have a direct impact on the cost of service. Changes to variable and capital expenses will affect future energy production costs. This will include any changes to the estimated procedural and administrative expenses, expensed variable costs, and any future capital investments or increased operating & maintenance expenses resulting from the new license.

 

Table 4.10-1

Comparison of Residential Sales by Seller Type, 2002

 

Number of Residential Customers

% of State Total

Residential Sales (MWh)

% of State Total

Residential Revenues ( 000 $)

% of State Total

Average cents / kWh

Average kWh / Customer

Investor Owned Utilities

 

 

 

 

 

 

 

 

NIMO

1,369,959

19%

10,119,984

22%

$1,254,200

21%

12.4

7,387

NYSEG

715,299

10%

5,544,411

12%

$682,849

11%

12.3

7,751

RGE

281,565

4%

2,156,036

5%

$228,753

4%

10.6

7,657

Upstate IOU Totals

2,366,823

33%

17,820,431

39%

$2,165,802

36%

12.2

7,529

Other New York IOU's*

4,005,592

56%

24,007,859

52%

$3,635,185

60%

15.1

5,994

New York State IOU Totals

6,372,415

88%

41,828,290

91%

$5,800,987

95%

13.9

6,564

Preference Customers

153,253

2%

1,829,522

4%

$86,957

1%

4.8

11,938

Retail Electricity Providers

675,003

9%

2,542,672

6%

$194,115

3%

7.6

3,767

New York State Totals/Averages

7,200,671

 

46,200,484

 

$6,082,059

 

13.2

6,416

 

Source: Energy Information Administration

* Includes LIPA

 

Figure 4.1-1

Niagara Effective Rates by Customer Class

 

Notes: Load factors are from the New York Power Authority Operations Data for 2003 report. Preference load factor is assumed to be 70%. Replacement and expansion load factors are 80%.

 

Figure 4.2-1

Annual Cash Flows under OC vs. TOC vs. Auer Version of TOC

 

$1,000 investment, 20-year life, 8% nominal cost of capital, 3% inflation

 

Figure 4.6-1

Preference Customers Demand and Energy Charges

 

 

Figure 4.7-1

Expansion Customers Demand and Energy Charges

 

 

Figure 4.8-1

Replacement Customers Demand and Energy Charges

 

 

6.0     OPPORTUNITIES FOR UTILIZING PROJECT POWER

Over a third of all New York residential customers receive some benefit from Niagara’s supply of inexpensive power.  Residential customers served by Preference Power recipients number about 153,000, or about 2% of the total New York State residential customer base. In 2002, the residential customers of Preference Power recipients used about 1.8 million MWh, 4% of the state total residential retail sales. In addition, another 2.4 million up-state investor-owned utility customers, or 33% of the state’s residential customers, receive at least some portion of their electricity at preference power rates. They consumed 17.8 million MWh in 2002 (39% of total New York residential sales).  All recipients of Niagara Project power receive power at prices well below New York State’s average price thus providing an electricity cost advantage over competitors.

Niagara Project power provides a very inexpensive source of electricity for New York and the surrounding states, which understandably promotes interest in obtaining access to this resource.  In any event, opportunities to obtain new allocations will continue to be governed and constrained by the NRA, state legislation, court rulings, and present contracts.

6.1         Available Expansion and Replacement Power

As Replacement and Expansion Power becomes available over time, allocations to qualified applicants are made according to legal and legislative requirements.  As of July 2005 there are approximately 75 MW of Replacement Power and 44 MW of Expansion Power available for qualified recipients.   While temporarily available, this power cannot be reallocated to alternative recipients on a long-term basis because it must be reserved for those industrial and commercial customers for whom it is intended under Federal and State law.

6.2         Expiring Power Contracts and Allocations

The Replacement Power allocation requirement under the NRA will expire on December 31, 2005.  However, many of the allocations are subject to extension to 2013 provided the Project is relicensed and NYPA is legally authorized to do so. See Sections 3.3.1 and 3.3.4 above for a discussion of new state legislation expected to be approved which would govern the reallocation and use of unallocated RP.

Out-of-state preference contracts currently expire at the end of the current license on August 31, 2007. These contracts account for 10% of project power (228 MW).   However, under the NRA (as currently interpreted by FERC and the courts) out-of-state preference customers will continue to be entitled to up to 10% of Project power, and thus no portion of this allocation would become available for alternative use within New York.   In-State Preference Power and Expansion Power allocations are not due to expire until September 2025 and June 2013, respectively, provided the Project license is renewed on terms allowing such extensions.

The contracts with three upstate investor-owned utilities expire at the end of the current license on August 31, 2007.   Currently, these contracts allocate 301 MW of firm power and 360 MW of firm peaking power to the residential customers of Niagara Mohawk, New York State Electric & Gas and Rochester Gas & Electric. Except for the general priority for residential use in the Power Authority Act, there are no statutory restrictions that prohibit this portion of Niagara Project Power from being reallocated to other recipients, nor are there any requirements on the Power Authority to alter the existing arrangements.

6.3         RMNPP Upgrade

There is presently a turbine upgrade program in process at the Niagara Project. However, this is not going to result in significant increased firm capacity. It is estimated that about 35 MW of new firm power will be available, one-half of which will have to be made available to Preference customers (in-state and out of state) under the NRA requirements.  The other half has been earmarked for use by the Host Communities.

 

Table 5.4-1

Contracts for Project Power

Power Type

Contract Number

Contract Date

Expiration Date

Power Available for Contract (MW)

Notes

In-State Preference

Multiple

11/24/1986

09/01/2025

752 Firm

Contracts were executed 11/24/1986 with additional amendments executed 8/16/1991 and 3/30/2004.  Service ending beyond NPP license expiration subject to FERC license renewal.  Covers 40% of Project power.

Out-of-State Preference

Multiple

02/28/1990

08/31/2007

188 Firm

40 Firm Peaking

Power totaling 228 MW was supplied to Out-of-State preference customers beginning 7/1/1985.  Covers 10% of Project power.

Replacement

NS-1

02/10/1961

12/31/2005

445 Firm

Under NRA Replacement Power (445 MW) expires at the term of original project bonds.  Bills in New York Legislature would extend the authority under PAL § 1005.

Many of the allocations are subject to extension to 2013 provided the Project is relicensed and NYPA is legally authorized to do so.

Expansion

NS-1

NS-11

02/22/1989

06/30/2013

250 Firm

Allocation is 250 MW.  Expiration date subject to renewal of NPP license.

Upstate Utilities – Residential

NS-1

NS-11

NS-13

02/22/1989

08/31/2007

301 Firm

360 Firm Peaking

All sales passed on to domestic and rural consumers.

 

 

REFERENCES

R1019215923 \ Text Reference: Treaty 1957 \ Niagara River Water Diversion Treaty, TIAS 2130, 1 U.S.T. 694. 1957. 

R1019215935 \ Text Reference: Power Authority Act 1939 \ Power Authority Act, N.Y. Power Authorities Law, Article 5, Title 1. 

R1019215898 \ Text Reference: AIRCO v. NMPC 1980 \ Airco Alloys Div., Airco, Inc. v. Niagara Mohawk Power Corporation, 76 A.D. 2d 68, 430 N.Y.S.2d 179 (4th Dep't 1980). 

R1019215924 \ Text Reference: Niagara Redevelopment Act 1957 \ Niagara Redevelopment Act, Public Law 85-519, 16 U.S.C. Section 836, 1957. 

R1019215899 \ Text Reference: AECI v. FERC 1990 \ Allegheny Electric Coop., Inc. v. Federal Energy Regulatory Commission, 922 F.2d 73 (2d Cir. 1990), aff'g 48 FERC para. 61,124 (July 28, 1989) (Opinion 329). 

R1019215902 \ Text Reference: Auer et al. 1986 \ Auer et al., 1986, Settlement Agreement. 

R1019215900 \ Text Reference: Auer v. Dyson 1981 \ Auer v. Dyson, 110 Misc. 2d 943, 444 N.Y.S.2d 513 (Sup. Ct. Oswego Co. 1981). 

R1019215901 \ Text Reference: Auer v. Dyson 1984 \ Auer v. Dyson, 125 Misc. 2d 274, 479 N.Y.S.2d 102 (Sup. Ct. Oneida Co. 1984), aff'd for the reasons stated below, 112 A.D.2d 803, 491 N.Y.S.2d 1022 (4th Dep't 1985). 

R1019215904 \ Text Reference: Bethlehem Steel v. NMPC 1989 \ Bethlehem Steel Corp. v. Niagara Mohawk Power Corp., No. H-10963 (Sup Ct. Erie Co. Oct. 30, 1989) (unreported decision), aff'd no opinion, 179 A.D.2d 1095, 580 N.Y.S.2d 902 (4th Dept 1992). 

R1019215930 \ Text Reference: FERC 2001 \ Federal Energy Regulatory Commission.  2001.  Order Amending License, 97 FERC para. 61,051 (October 15, 2001). 

R1019215931 \ Text Reference: FERC 2002 \ Federal Energy Regulatory Commission.  2002.  Order Denying Rehearing, 98 FERC para 61,033 (January 17, 2002). 

R1019215928 \ Text Reference: FPC 1958 \ Federal Power Commission.  1958.  Order Issuing License (Major) and Superseding Prior Order, Project No. 2216, January 30, 1958. 

R1019215905 \ Text Reference: EIA 2002 \ Energy Information Administration.  2002.  Form 861, Tables 14-17. 

R1019215911 \ Text Reference: In re Mun Elec. Utils. Ass'n 1985 \ In re Mun Elec. Utils. Ass'n, No. 85-3027 (2d Cir. June 10, 1985). 

R1019215914 \ Text Reference: In re Nitec Paper Corp. 1984 \ In re Nitec Paper Corp., 43 B.R. 492 (Bankr. S.D.N.Y. 1984). 

R1019215907 \ Text Reference: Mass. Mun. Wholesale Elec. Co. v. Power Authority 1983 \ Mass. Mun. Wholesale Elec. Co. v. Power Auth. of N.Y., 22 FERC para. 63,087 (Mar. 9, 1983). 

R1019215909 \ Text Reference: Mun. Elec. Utils. Ass'n v. Power Authority 1980 \ Mun. Elec. Utils. Ass'n v. Power Auth. of N.Y., 13 FERC para. 63,020 (Oct. 22, 1980) Birchman Decision (Phase I). 

R1019215910 \ Text Reference: Mun. Elec. Utils. Ass'n v. Power Authority 1983 \ Mun. Elec. Utils. Ass'n v. Power Auth. of N.Y., 23 FERC para. 61,302 (May 27, 1983) Clarifying Order. 

R1019215913 \ Text Reference: Mun. Elec. Utils. Ass'n v. Power Authority 1989 \ Mun. Elec. Utils. Ass'n v. Power Auth. of N.Y., 48 FERC para. 61,124 (July 28, 1989) Opinion No. 329. 

R1019215912 \ Text Reference: Mun. Elec. Utils. Ass'n 1988 \ Mun. Elec. Utils. Ass'n, 42 FERC para. 63,018 (Feb. 16, 1988) Levanthal Decision. 

R1019215917 \ Text Reference: NYPA 2004 \ New York Power Authority.  2004.  EP RP Customer Data. 

R1019215920 \ Text Reference: NYPA 1983 \ New York Power Authority.  1983.  Niagara and St. Lawrence-FDR Hydroelectric Projects Rate Study. 

R1019215922 \ Text Reference: NYPA 2004 \ New York Power Authority.  2004.  Operation Data for 2003. 

R1019215921 \ Text Reference: NYPA 2003 \ New York Power Authority.  2003.  Operation Data for 2002. 

R1019215919 \ Text Reference: NYPA 1961 \ New York Power Authority.  1961.  Niagara Contract NS-1, The Sale, Transmission and Distribution of Power to Niagara Mohawk Power Corporation. 

R1019215915 \ Text Reference: NYPA 1998 \ New York Power Authority.  1998.  Hydroelectric Production Rates 1998:  Calendar Year Production-Related Cost of Service Study and Rate Stabilization Reserve (RSR) Computation. 

R1019215925 \ Text Reference: Nordhaus 1998 \ Nordhaus, Robert R.  1998.  Yardstick competition in a deregulated electric industry.  Natural Resources and Environment, Spring 1998 .

R1019215927 \ Text Reference: Occidental Chem. v. Power Authority 1992 \ Occidental Chem. Corp. v. Power Auth. of N.Y., 786 F. Supp. 316 (W.D.N.Y. 1992), aff'd, 990 F.2d 726 (2d Cir. 1993), cert. Denied, 510 U.S. 947 (1993). 

R1019215926 \ Text Reference: Occidental Chem. v. Power Authority 1986 \ Occidental Chem. Corp. v. Power Auth. of N.Y., No. 17577/85 (Sup Ct. N.Y. Co. July 23, 1986). 

R1019215932 \ Text Reference: Power Auth. v. FERC 1982 \ Power Auth. of N.Y. v. FERC, 21 FERC para 61,021 (Oct. 13, 1982) (Opinion 151). 

R1019215933 \ Text Reference: Power Auth. v. FERC 1983 \ Power Auth. of N.Y. v. FERC, 23 FERC para 61,031 (April 6, 1983) (Opinion 151A). 

R1019215934 \ Text Reference: Power Authority v. FERC 1984 \ Power Auth. of N.Y. v. FERC, 743 F.2d 93 (2d Cir. 1984). 

R1019215929 \ Text Reference: NYPA 1984 \ Power Authority of the State of New York.  1984.  Application for Amendment of License, FERC Project No. 2216. 

R1019215908 \ Text Reference: Millonzi et al. 1984 \ Millonzi, Robert I., et al.  1984.  Report of the Temporary Commission on Allocation of Power Authority Hydroelectric Power, State of New York. 

R1019215936 \ Text Reference: Sirni 2004 \ Sirni, Vincent J.  2004.  Report on the Sale and Distribution of Niagara Project Power, prep. for the New York Power Authority. 

R1019215938 \ Text Reference: Census Bureau and CISER 2003 \ U.S. Census Bureau and Cornell Institute for Social and Economic Research.  2003.  Annual Estimate of Housing Units, New York Counties, 2000 to 2002, New York State Data Center. 

R1019215939 \ Text Reference: Census Bureau and CISER 2003 \ U.S. Census Bureau and Cornell Institute for Social and Economic Research.  2003.  Estimates of Resident Population, New York State Cities, 2000 to 2002, New York State Data Center. 

R1019215940 \ Text Reference: Census Bureau and CISER 2003 \ U.S. Census Bureau and Cornell Institute for Social and Economic Research.  2003.  Estimates of Resident Population, New York State Towns, 2000 to 2002, New York State Data Center. 

R1019215941 \ Text Reference: Census Bureau and CISER 2003 \ U.S. Census Bureau and Cornell Institute for Social and Economic Research.  2003.  Estimates of Resident Population, New York State Villages, 2000 to 2002. 

R1019215942 \ Text Reference: Vaisey v. Power Authority 1985 \ Vaisey v. Power Auth. of N.Y., No. 16497/85 (Sup. Ct. N.Y. Co. Oct. 17, 1985), aff'd, 120 A.D.2d 996, 502 N.Y.S.2d 316 (1st Dep't 1986). 

R1019215943 \ Text Reference: Vermont Public Service Board v. Power Authority 1975 \ Vermont Public Service Bd. v. Power Auth. of N.Y., 55 F.P.S. 1109 (May 15, 1975). 

R1019215903 \ Text Reference: Village of Bergen v. Power Authority 1998 \ Village of Bergen v. Power Authority of N.Y., 249 A.D.2d 902, 672 N.Y.S.2d 595 (4th Dep't 1998), leave to appeal dismissed, 92 N.Y.2d 940, 681 N.Y.S.2d 469 (1998). 

R1019215906 \ Text Reference: Village of Ilion v. FERC 1986 \ Village of Ilion v. Federal Energy Regulatory Commission, 790 F.2d 212 (2d Cir. 1986). 

R1019215937 \ Text Reference: Village of Solvay v. Power Authority 1973 \ Village of Solvay v. Power Auth. of N.Y., 41 A.D.2d 892, 342 N.Y.S.2d 747 (4th Dep't 1973). 

 

 

 

 

 

 

 

 

 

appendices

 

APPENDIX A

Table A-1 (next page) shows the allocations and sales of each New York municipal electric and rural cooperative utilities that receives preference power. The investigation area was determined from either U.S. Census data or the NYPA associated websites. The allocation and full/partial requirements data were reported in 2003 Report on the Sale and Distribution of Niagara Power while the sales data are compiled in New York Power Authority Operations Data for 2003.


Table A-1

Summary of 2003 Municipal and Cooperative Power Agencies Preference Allocations and Sales

Entity

Investigation Area

Full Requirement or Partial Requirement Contract

Preference Power Allocation (kW)

Preference Sales (kWh)

Bath Electric Gas & Water Sys

NY

PARTIAL

13,380

74,508,109

City of Plattsburgh

NY

PARTIAL

102,755

509,910,823

City of Salamanca

WNY

PARTIAL

12,820

75,894,552

City of Sherrill

NY

FULL

11,800

64,274,218

Delaware County Elec Cooperative, Inc

NY

FULL

9,520

53,237,396

Jamestown Board of Public Util

WNY

PARTIAL

72,280

450,444,000

Lake Placid Village, Inc

NY

FULL

28,750

144,645,626

Mohawk Municipal Comm

NY

PARTIAL

4,260

21,042,098

Oneida-Madison Elec Coop, Inc

NY

FULL

3,500

18,821,359

Otsego Electric Coop, Inc

NY

FULL

7,900

45,339,866

Steuben Rural Elec Coop, Inc

NY

FULL

12,600

70,635,289

Town of Massena

NY

PARTIAL

22,460

131,797,460

Village of Akron

EC

PARTIAL

7,730

42,592,096

Village of Andover

NY

PARTIAL

1,400

7,292,671

Village of Angelica

NY

PARTIAL

1,600

7,818,415

Village of Arcade

WNY

PARTIAL

25,030

131,218,130

Village of Bergen

WNY

PARTIAL

2,400

15,877,417

Village of Boonville

NY

PARTIAL

12,730

64,622,513

Village of Brocton

WNY

PARTIAL

2,840

13,918,353

Village of Castile

WNY

PARTIAL

1,500

7,369,065

Village of Churchville

NY

PARTIAL

3,540

17,192,460

Village of Endicott

NY

PARTIAL

9,220

51,298,780

Village of Fairport

NY

FULL

76,540

421,948,431

Village of Frankfort

NY

PARTIAL

3,495

19,570,995

Village of Freeport

NY

PARTIAL

37,910

226,678,000

Village of Green Island

NY

PARTIAL

2,500

13,870,835

Village of Greene

NY

PARTIAL

6,690

32,496,569

Village of Greenport

NY

FULL

5,240

29,512,282

Village of Groton

NY

PARTIAL

4,400

21,823,628

Village of Hamilton

NY

PARTIAL

10,670

58,666,974

Village of Holley

WNY

PARTIAL

4,300

24,702,027

Village of Ilion

NY

PARTIAL

12,720

62,540,988

Village of Little Valley

WNY

PARTIAL

3,800

21,795,307

Village of Marathon

NY

FULL

4,250

20,087,950

Village of Mayville

WNY

FULL

4,470

25,840,925

Table A-1 (cont.)

 

Entity

Investigation Area

Full Requirement or Partial Requirement Contract

Preference Power Allocation (kW)

Preference Sales (kWh)

Village of Penn Yan

NY

PARTIAL

12,890

74,635,682

Village of Philadelphia

NY

PARTIAL

2,070

9,795,563

Village of Richmondville

NY

PARTIAL

2,670

14,129,226

Village of Rockville Centre

NY

PARTIAL

28,460

163,309,000

Village of Rouses Point

NY

PARTIAL

14,600

98,664,275

Village of Sherburne

NY

PARTIAL

13,180

66,372,842

Village of Silver Springs

WNY

PARTIAL

900

5,038,275

Village of Skaneateles

NY

PARTIAL

5,050

27,753,589

Village of Solvay

NY

FULL

54,260

401,940,694

Village of Spencerport

NY

PARTIAL

12,460

57,799,761

Village of Springville

EC

PARTIAL

9,240

55,083,630

Village of Theresa

NY

PARTIAL

1,500

6,906,925

Village of Tupper Lake

NY

FULL

19,070

90,665,798

Village of Watkins Glen

NY

FULL

6,140

44,291,857

Village of Wellsville

NY

PARTIAL

10,200

59,278,020

Village of Westfield

WNY

FULL

12,510

76,120,427

Total

 

 

752,200

4,251,071,171

 

Sources: "2003 Report on the Sale and Distribution of Niagara Power" and "New York Power Authority Operations Data for 2003."

 

Data underlying table include substitute energy sales. Substitute energy sales are not a Niagara Power Project product. Substitute energy accounts for approximately 1% of sales and does not substantially affect project allocations.

 

APPENDIX B

Table B-1 (next page) uses retail sales data from EIA Form 861 and Niagara sales data from New York Power Authority Operations Data for 2003 to calculate the approximate percentage of Niagara power ultimately sold to residential customers. Using the EIA data, the percentage of residential to total retail sales for each municipal or cooperative agency is calculated. The percentage of residential sales is then multiplied by the entity’s residential sales percentage to approximate the Niagara sales to residential customers. Accounting for the fact that the Niagara sales to residential customers cannot be larger than the actual residential retail sales, the proportion of Niagara sales to residential customers to total Niagara purchases approximates the percentage of Niagara sales sold to residential customers.


Table B-1

Distributions to Domestic and Rural (i.e. Residential) Customers from Municipal and Cooperative Agencies, 2002 Sales

Entity

Full or Partial Requirements

Niagara Sales (GWh)

Total Retail Sales (GWh)

Niagara Sales as a Percentage of Total Retail Sales

Number of Residential Customers

Retail Sales to Residential Customers (GWh)

Percent of Total Sales to Residential Customers

Estimated Percentage of Niagara Sales to Residential Customers

Bath Electric Gas & Water Sys

PARTIAL

77.3

75.1

103%

3,767

39.1

52%

51%

City of Plattsburgh

PARTIAL

537.6

523.1

103%

7,814

142.9

27%

27%

City of Salamanca

PARTIAL

77.4

87.7

88%

2,963

39.4

45%

45%

City of Sherrill

FULL

65.7

67.2

98%

813

20.8

31%

31%

Delaware County Elec Cooperative, Inc

FULL

50.9

49.2

103%

4,781

40.2

82%

79%

Jamestown Board of Public Util

PARTIAL

472.8

523.6

90%

16,876

153.6

29%

29%

Lake Placid Village, Inc

FULL

148.8

147.8

101%

3,562

63.1

43%

42%

Mohawk Municipal Comm

PARTIAL

22.2

20.9

106%

1,217

12.8

61%

58%

Oneida-Madison Elec Coop, Inc

FULL

18.4

18.4

100%

1,725

18.0

98%

98%

Otsego Electric Coop, Inc

FULL

43.7

43.8

100%

3,932

38.7

88%

88%

Steuben Rural Elec Coop, Inc

FULL

67.0

61.2

109%

5,788

53.8

88%

80%

Town of Massena

PARTIAL

141.3

168.0

84%

7,985

89.6

53%

53%

Village of Akron

PARTIAL

45.4

52.1

87%

1,411

16.3

31%

31%

Village of Andover

PARTIAL

7.5

7.3

104%

491

4.8

66%

63%

Village of Angelica

PARTIAL

8.2

8.1

102%

632

5.7

71%

70%

Table B-1 (cont.)

 

Entity

Full or Partial Requirements

Niagara Sales (GWh)

Total Retail Sales (GWh)

Niagara Sales as a Percentage of Total Retail Sales

Number of Residential Customers

Retail Sales to Residential Customers (GWh)

Percent of Total Sales to Residential Customers

Estimated Percentage of Niagara Sales to Residential Customers

Village of Arcade

PARTIAL

136.8

144.7

95%

3,382

60.9

42%

42%

Village of Bergen

PARTIAL

17.2

28.9

59%

578

8.1

28%

28%

Village of Boonville

PARTIAL

67.4

68.6

98%

2,675

42.3

62%

62%

Village of Brocton

PARTIAL

15.0

15.1

99%

777

9.3

62%

62%

Village of Castile

PARTIAL

8.0

7.8

103%

514

5.4

69%

67%

Village of Churchville

PARTIAL

18.5

17.9

103%

775

9.5

53%

52%

Village of Endicott

PARTIAL

54.1

50.8

107%

2,770

20.0

39%

37%

Village of Fairport

FULL

411.5

402.3

102%

14,570

230.2

57%

56%

Village of Frankfort

PARTIAL

20.6

27.0

76%

1,495

13.8

51%

51%

Village of Freeport

PARTIAL

230.4

268.2

86%

13,015

115.9

43%

43%

Village of Green Island

PARTIAL

13.8

16.2

85%

1,325

8.5

53%

53%

Village of Greene

PARTIAL

34.5

35.3

97%

1,102

15.2

43%

43%

Village of Greenport

FULL

28.7

26.8

107%

1,645

11.5

43%

40%

Village of Groton

PARTIAL

23.3

23.2

100%

918

13.8

59%

59%

Village of Hamilton

PARTIAL

61.9

59.9

103%

1,202

19.9

33%

32%

Village of Holley

PARTIAL

25.9

25.7

101%

817

9.8

38%