This initial response addresses the reference in the hearing notice to the
March 2002 U.S. Department of Energy report regarding outages and supply
shortages that occurred nationwide during the summer of 1999, and the reference
made to LIPA’s forecasting capability and the supply of electricity on Long
Island.
On April 10, 2000, LIPA sent a letter to the US DOE correcting the record
regarding the comments contained in Section 3.3 of the DOE report. A copy of
that letter and attachments is provided to the committee for the record. [Attachment
A]
In part our letter said: "…in Section 3.3 of the report, the characterization of
the adequacy of load forecast, and the relationship of load forecasts to T&D
capability, are very broad and misleading. The statements ignore the following
information that was made available to the [research] Team."
The LIPA letter points out that the 25% increase in peak load over the previous
year occurred in one specific area of Long Island, the South Fork. The South
Fork, it should be noted represents less than 5% of the total islandwide load.
Additionally, the load increase cited in the report occurred as a result of an
"extreme" weather event. Calculations had also been given to the DOE that
demonstrated the "normal" weather load for that area to put the extreme weather
demand in context. In its report, the DOE did not take this information into
consideration.
We indicated in our April 20th letter to the DOE, that the load forecast for the
entire LIPA service territory, on a weather-normalized basis, was remarkably
accurate.
We also reported to the DOE Study Team that prior to the 1999 summer, LIPA had
two efforts underway to improve area load forecasting. These efforts were not
acknowledged in the DOE report and have since been incorporated in current load
forecast procedures.
It should also be noted that since the summer of 1999, LIPA installed a new
underground transmission line to bolster LIPA’s ability to deliver power to the
South Fork. The cable has worked perfectly since going into service in May of
2000.
The DOE report also made comments about long-term planning issues as if LIPA had
been the owner of Long Island’s electric transmission and distribution system
for more than 14 months. Keeping in mind that LIPA purchased LILCO’s T&D system
in May of 1998, and that the extreme weather event experienced on Long Island in
July of 1999 provided an entirely new set of circumstances with which to deal,
LIPA has responded to the challenge and has significantly increased the amount
of capital dollars expended to improve the system over the original projections
made in early 1998. These increased capital expenditures have helped earn LIPA
the highest reliability rating of any overhead system in New York State,
according to Public Service Commission criteria.
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Q1. What is LIPA's energy planning process and how has LIPA ensured public
participation and input into the planning process?
A1. With the advent of both a competitive generation market in New York State,
and retail choice via the Long Island Choice program available to LIPA’s
customers, the energy planning process has changed dramatically from that which
had been employed when LILCO served Long Island and the New York Public Service
Commission reviewed those plans. The utility is no longer in a "command and
control" position whereby it dictates the amount and type of supply resources
available as well as the absolute amount of demand management and energy
reductions. These changes have led to a far more dynamic environment for the
planning of utility resources than at any time in recent memory.
Despite these changes, LIPA has sought to provide the public with ample
opportunity for participation in the decision process while ensuring that the
goals of reliability (keeping the lights on), lowest cost energy, and
environmentalism are met.
The LIPA Board meets at least ten times each year and takes comments from the
public at every meeting. At those meetings, all of LIPA’s major initiatives have
been discussed. Prior to issues reaching the Board, the public has had the
opportunity to comment on all the major elements of LIPA’s resource mix. The
Clean Energy Initiative has been reviewed by the public and by an independent
review panel. LIPA has issued publicly eight RFPs in less than four years for
supply and demand resources. The public has an opportunity to express their
views to LIPA on the purpose and objectives of each RFPs. A brief list of the
RFPs and their dates of issue follow:
Four Off-Island Transmission Cable RFPs to evaluate a wide range of issues
relative to obtaining more off-island electricity for the LIPA service area. The
first of these was issued in January 1998, five months before the actual
purchase of LILCO’s electric retail business. The most recent was issued in
August 2000.
LIPA also provides a 24/7 online opportunity for public input via the
Internet.
All public meeting dates are posted on LIPA’s Web site as well as RFP documents,
proposed and adopted budgets, financial reports, all of the documents related to
the purchase of LILCO’s retail electric business, news releases, major program
documents and a wide range of information helpful to customers. The minutes of
the meetings of the Board of Trustees are also posted on the site.
LIPA customers have an unprecedented opportunity to gain information about LIPA
and its programs, and provide input, any time of day or night. On average the
Web site records about 39,000 visitors to the site monthly. Each visit lasts an
average of seven minutes, and information on energy conservation is the most
sought after.
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Q2. What public input went into LIPA's decision to purchase additional
generating capacity, particularly that provided by small fossil fuel electrical
generators and how do these purchases fit an overall energy plan?
A2. As noted above, the public has been kept informed of LIPA’s need to add
generating resources and has had ample opportunity to comment on the RFPs and to
express their views at meetings of the LIPA Board of Trustees. Throughout the
process of selecting the sites at which these units are being built, the host
communities were consulted extensively on the need for these units, the
potential impact on the local communities and the benefits that would be
realized by these communities.
Public workshops were conducted in each of the communities hosting a Powering
Long Island generation project. Starting early last year in the Rockaways and
concluding in November in Brentwood and Shoreham, LIPA and the individual
project developers met with community representatives, elected officials and
other individual stakeholders to brief them on the need for the small generators
and the process that would be followed.
Community representatives from all of the host communities were invited to visit
the New York Power Authority unit that was constructed last year on Pilgrim
State Hospital property in Brentwood to see an LM-6000 turbine in operation.
Many did.
The Department of Environmental Conservation also conducted six public hearings,
one in each of the host communities, on the air permit requirements. LIPA and
project developer representatives attended the hearings to record and follow up
on any project questions raised at the hearings that would not be addressed by
the scope of the hearing format. LIPA has continued to maintain contact with
community representatives during the construction phase of the project to
address questions and follow up on concerns and open issues.
LIPA’s purchase of capacity from several small generating units beginning this
summer is the only way to meet the near-term demand on Long Island. To meet
longer-term requirements, LIPA will evaluate other options, including larger,
fuel-efficient plants, repowering existing generating units and additional
transmission ties to regional electric grids. At the same time, LIPA will
continue to press forward with the development and implementation of alternative
energy technologies, such as solar, wind, geothermal and fuel cells as part of
the supply mix. Energy conservation and efficiency programs will also remain a
top priority.
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Q3. Where do the KeySpan generating facilities fit into the LIPA energy plan
for Long Island and how was the public included in this decision making process?
A3. The existing KeySpan generating facilities provide nearly 80% of the total
capacity requirements and over 60% of the energy consumed on Long Island and are
integral to LIPA’s ability to meet customer demand at lowest cost. LIPA has
recently agreed with KeySpan to extend the option period for purchase of the
generation to between November 2004 and May 2005, in order to more thoroughly
explore alternatives to the "all or nothing" option that was negotiated in 1997.
During the period when LIPA was actively considering the exercise of the option,
public briefing and comment sessions were held on three separate dates in
Suffolk County, Nassau County and the Rockaway Peninsula.
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Q4. What is LIPA's plan to remove existing electrical transmission
constraints and move Long Island towards wholesale and retail competition, and
how does this fit into LIPA's overall capital plan?
A4. LIPA continues to strengthen the overall transmission system on Long Island
with the goal of providing lowest cost, reliable service to all our customers.
LIPA welcomes all wholesale power developers who wish to build plants to
interconnect, so long as they are prepared to compensate LIPA for costs that
LIPA would incur for system reinforcements needed to make the power deliverable
throughout LIPA’s system. Such costs are highly affected by the locations chosen
by generation developers.
LIPA has also undertaken a project to have a new cross-Sound cable built from
New Haven, Conn. to Shoreham, which will carry 330 megawatts of electricity to
Long Island. This new added resource will help stimulate competition on Long
Island as well as in Connecticut by increasing the supply of electricity
available to both Long Island and Connecticut.
LIPA is also investigating the possibility of adding other cable connections to
the mainland, which would increase the ability to get off-island resources to
the region.
Since 1998, LIPA has also invested nearly $600 million in system upgrades to
enhance the reliability of the system and to improve its ability to transport
power around Long Island. An additional $313 million is budgeted for 2002. The
capital budget has been used to improve LIPA’s transmission and distribution
system. For example, in 1998, LIPA improved the cable link from Westchester
County to Long Island, which increased the flow of electricity by 200MW. In
1999, LIPA initiated a priority project to build a new underground transmission
cable from Riverhead to Southampton transmission cable that went into service in
May of 2000. And plans are in place to improve the NUSCO cable link from
Norwalk, Connecticut to Northport. These are just a few examples of the kinds of
projects being done by LIPA to improve the deliverability of electricity to load
pockets on the Island where transmission restrictions jeopardized system
reliability.
Presently, LIPA is in the process of completing the replacement of its share of
the Y-50 transmission tie line that is co-owned by ConEd. This upgrade will
improve our import capabilities with an upgraded cable link to power from
upstate New York and southern New England.
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Q5. The state Independent System Operator is projecting an extremely tight
energy supply on Long Island for the next few years. How does LIPA plan to
address issues of a shortage of generating capacity in the LIPA service
territory in the short term (this summer), and the long term (2-6 years)?
A5. With the construction of the Powering Long Island 2002 turbine projects and
the Cross Sound Cable, LIPA is seeking to alleviate the tight supply situation
in the near term that was noted by NYISO. Within the next five years, LIPA
anticipates a need to add another off-island transmission interconnection and/or
new baseload generating plants. These options will be evaluated through a
competitive process.
The ten new turbine projects, which are part of the Powering Long Island 2002
Project, will add about 408 MW of power to Long Island’s on-island capabilities;
the cable will add another 330MW. By adding some 738MW of new resources to the
mix, Long Island will need to add another 500 to 800MW of either on- or
off-island capability to meet the NYISO goals for new resources for Long Island
by 2005. LIPA has entered into a letter of interest with KeySpan to purchase
half of the output of its proposed Spagnoli Road Energy Center project, which
will generate 250MW of power and is projected to be online by summer 2004. Two
merchant projects, one in Kings Park and one in Brookhaven, are also proceeding
through the state’s Article X process and could be available in 2004 or 2005
depending on timing, the results of the Article X process and the developers’
plans assuming the projects are approved for construction.
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Q6. What measures have been recommended in the state Draft Energy Plan in
order to move Long Island into a competitive electricity market, remove existing
transmission constraints and provide additional electrical generating capacity
and fuel diversity and what is LIPA’s response?
A6. In response to this question, please find attached a copy of the statement
entered into the record of the public hearing conducted February 5, 2002, at the
Marriott Hotel in Uniondale on the Draft New York State Energy Plan. The
statement was prepared and delivered by Richard J. Bolbrock, Vice President of
Power Markets for LIPA. [Attachment B]
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Q7. If they continue, what impact will the current problems in the Long
Island electricity market have on the cost of electricity, local economies,
including effects on community residents, plant workers and local property
taxes?
A7. With the construction of the Powering Long Island gas turbine projects and
the Cross Sound Cable, LIPA will have alleviated the tight supply situation and
brought significant certainty and security to the community residents, plant
workers and local property taxes.
LIPA has also conducted extensive outreach with major employers, small and
mid-sized businesses, government entities and major business groups to brief
them on Long Island’s energy supply situation and the need for conservation and
energy efficiency, new tie-lines to the mainland and new on-island generation.
The reaction from Long Island’s business sector has been positive in that there
is a realization that LIPA is working to resolve the supply issue while keeping
rates frozen at the May 29, 1998 levels and by also providing a process for fuel
cost adjustments that is constant and predictable.
Since May of 1998, Long Island’s electric consumers have saved more than $2.1
billion over the electric rates in effect under LILCO. Nearly half of those
savings have been accrued by Long Island’s businesses. Shortly after the rate
cut, it was projected by one local economist that LIPA’s rate reduction could
help generate some 30,000 jobs because of the savings to business.
Prior to the rate cut the number one issue for more than a decade on Long Island
was LILCO’s rates, which were the highest in the nation.
LIPA’s rates are no longer the highest in the nation. In fact, since the
implementation of LIPA’s rate reduction, electric rates as a major policy
concern has been off Long Island’s radar screen. LIPA’s base electric rates are
significantly lower than ConEd’s, and lower that those of two major upstate
electric utilities.
In a recent survey conducted by Dowling College, the CPA firm of Albrecht,
Viggiano, Zureck & Company, P.C., and the Long Island Business News entitled the
"2001 – 2002 Long Island Economic Survey and Opinion Poll," the cost of energy
received one of the lowest rankings as an "Obstacle to Success." Of higher
concern are: lack of skilled labor; lack of financing resources/cash flow;
taxes; escalating medical costs; labor issues; expenses rising faster than
income and other. In fact, the selection of "other" as a response was nearly
three times greater than energy costs; and the lack of skilled labor was five
times higher.
Witness the number of new homes being built on Long Island and the number of new
commercial buildings. The cost of electricity and its supply has not been an
impediment to continued growth on Long Island. In fact, in last Sunday’s New
York Times there was an article in the Real Estate Section with the headline: "3
Big Office Projects Go Forward Without Tenants." The article describes three
projects, one in Lake Success, one in Melville and one in Holbrook that combined
will add nearly half a million square feet of commercial space to Long Island’s
inventory. The Lake Success project alone will add 261,000 square feet of space.
That article alone is testimony to the vigor of Long Island’s economy and
demonstrates a strong confidence in its future.
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Q8. Why did LIPA choose power plants below the 80 MW threshold of major
electric generating facilities that would require a public review of
environmental compatibility under Article 10 of the Public Service Law?
A8. As noted by Question 5 above, the NYISO, along with LIPA recognized that the
summer of 2002 presented an extremely tight capacity picture. Accordingly, LIPA
was interested in contracting with private developers who could build projects
in time for this summer’s peak. It also made sense to locate new peaking
generators in areas that are also load pockets within the larger Long Island
load pocket. By placing smaller units in areas where demand has been growing in
recent years, the supply is closer to the demand, the cost of major transmission
enhancements are avoided, and time is saved in getting the projects built and
online. For example, the Rockaway Peninsula in Queens is a load pocket that does
not have enough transmission to the area to reliably sustain itself during a
peak summer demand without local generation. The new FPL generation units in the
Rockaways will help address that shortage. In the Bethpage area, a small 44MW
unit is being added to an existing Calpine facility. In some areas of Bethpage,
electric demand has increased nearly 50% since 1999.
Since all of the projects were below the 80MW threshold, they were not subject
to Article X. They are, however, subject to the requirements of the State
Environmental Quality Review Act and various State approvals.
An extensive 2000-page Environmental Assessment was done on the Power Long
Island 2002 projects and LIPA as lead agency under SEQRA issued a negative
declaration with respect to the units. Also, the DEC has issued the air permits
for all of the new units. Construction on all of the units is proceeding.
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Q9. Last year LIPA imposed a fuel surcharge on its utility bills of 5.8
percent and has recently indicated it intends on extending this surcharge. Where
does LIPA derive the legal authority to impose this surcharge, how long will
this surcharge continue and what is the cost of this surcharge to LIPA
customers?
A9. The LIPA Board adopted plans in both 2001 and 2002 that mitigated the full
impact of the fuel and purchased power costs increases, which over two years
totaled $507 million. By doing so, consumers on Long Island were spared the kind
of fuel cost increases that under LILCO would have resulted in a fuel surcharge
of more than 13%.
LIPA’s mitigation plans have saved consumers some $256 million in direct fuel
and purchased power cost surcharges over the last two years.
As a result of these actions, LIPA has provided significant stability to its
customers through the administration of the FPPCA. In 2000, when fuel and
purchased power costs were escalating dramatically, LIPA customers were
unaffected. This was particularly remarkable when compared to residential
customers in New York City, who saw rates jump 40% that summer versus the year
before. By the end of the year, LIPA had spent over $307 million more than
originally budgeted for fuel for that year. The LIPA tariff would have allowed
for the pass through of the entire amount, but the LIPA Board of Trustees only
passed through $126 million, which amounted to a surcharge of 5.8% on the rates
for 2001.
In 2001 fuel prices remained high through the second quarter, and by the end of
that year, LIPA had spent $200 more than the budgeted amount. Again the LIPA
Board elected to pass through only a portion of that overrun $125 and levy a
surcharge of 5.8%.
In recent months fuel prices have begun to escalate again, but the LIPA Tariff
continues to provide price protection to our customers. Just in recent days, the
cost of gasoline on Long Island has increased at a pace that has been faster
than any recorded in the last 50 years. Again, LIPA will not add to the
surcharge so customers will know that electric bills will remain steady this
year.
The LIPA Act specifically authorizes LIPA to "fix rates and charges for the
furnishing, or rendition of…electric power or of any related service." In April,
1998, following public hearings, LIPA established its electric rates and charges
including a Fuel and Purchased Power Cost Adjustment (FPPCA) mechanism.
The Public Authorities Control Board imposed certain conditions on LIPA in
connection with its approval in 1997 of LIPA’s acquisition of LILCO. One of the
conditions is that "LIPA will not implement an increase in a average customer
rates exceeding two and one half percent over a twelve month period, without
approval of the Public Service Commission following a full evidentiary hearing."
LIPA’s 5.8% fuel and purchased power surcharge was adopted in accordance with
the LIPA Act after public hearings and is consistent with the PACB condition
described above for two reasons:
surcharges arising from automatic adjustment clauses such as the FPPCA clearly
are not covered by the PACB condition which addresses base rate increases; and
the PACB condition’s 2.5% rate increase threshold and hearing requirement are
drawn from Public Service Law, and the Public Service Commission and the courts
have ruled explicitly that surcharges arising from automatic adjustment clauses
such as the FPPCA are not rate increases under the Public Service Law and do not
require hearings.
The LIPA Tariff for Electric Service, which was adopted by the LIPA Board in 1998, details the process for passing on or crediting a customer’s bills during the subsequent year the fuel and purchased power costs that are in excess of or less than a Fuel Cost Tolerance Band around the base fuel and purchased power costs set for in the Tariff.