Memorandum in Strong Opposition - S.6112 (Parker) / A.7376 (Cusick)

S.6112 (Parker) / A.7376 (Cusick) - AN ACT to amend the public service law, in relation to renewable energy projects on brownfield sites, dormant electric generating sites and utility owned property

The Independent Power Producers of New York, Inc. (IPPNY) is a trade association representing companies involved in the development of electric generating facilities, the generation, sale, and marketing of electric power, and the development of natural gas facilities in the State of New York. IPPNY Member companies produce the majority of New York's electricity, utilizing almost every generation technology available today such as wind, solar, natural gas, oil, hydro, coal, biomass, and nuclear.

IPPNY strongly opposes S.6112 (Parker) / A.7376 (Cusick). These bills would allow utilities (combination gas and electric corporations) to own "renewable reclamation projects," in contravention of long-standing State policy that prohibits utility ownership of electric generating facilities, which could expose ratepayers needlessly to higher costs. The bills send the wrong investment signal to private independent developers of renewable energy and energy storage projects at exactly the wrong time, when the State has announced its goals to dramatically increase its renewable and energy storage resources and is seeking private sector investment to meet those goals. If adopted, these bills would have the immediate impact of chilling private sector energy investment in the state because private developers cannot compete with rate-regulated utilities that charge energy consumers for all costs. 

The underlying intent of the bill is to foster investment in communities that have dormant electric generating sites in order to address community tax revenue concerns and the use of union labor. Investment on these sites by private owners of electric generation would provide local community tax revenue and would create and retain jobs, and the New York State Energy Research and Development Authority’s (NYSERDA) awards under the Clean Energy Standard (CES) Request for Proposals (RFP) already require the payment of prevailing wage. There would be no additional benefit from utility ownership of renewable reclamation projects.

Authorizing utilities to own renewable reclamation projects would send the wrong signal to private investors, and energy consumers would be put back on the hook for cost overruns which were routine under the antiquated utility ownership model, which has not been State policy for the last 20 years. Unlike utilities, private companies cannot recover cost overruns from ratepayers, which is why projects are likely to be completed on budget. It is impossible to fairly compare the costs and benefits of a proposed project that is subject to cost recovery from ratepayers with a private developer’s proposed project that must rely on competitively awarded state payments and wholesale electricity market revenues for cost recovery. Utilities have a lower cost of capital than merchant companies largely because of guaranteed revenues that would have ratepayers cover cost overruns. Problems such as cost overruns and negative impacts on private developers can be avoided by continuing to prohibit utilities from developing and owning any new generation, consistent with the State policy that the New York State Public Service Commission (PSC) established two decades ago to protect energy consumers. 

More than 20 years ago, the PSC began a proceeding that ultimately required the utilities to divest ownership of their electric generation facilities to prohibit the utilities from exercising market power through the combined ownership of transmission and generation and to shift the risks associated with development and operation of such facilities from captive ratepayers to private investors. The PSC’s determination that private companies can build and operate generation more efficiently and cost-effectively than utilities was one of the main reasons the PSC decided to restructure the electric utility industry.

The PSC has repeatedly reaffirmed its policy generally prohibiting utility-owned generation, most recently in its orders establishing a new market for distributed energy resources, the CES program, and an Offshore Wind Standard, in favor of competitive procurement from private sector companies to meet the State’s energy goals. Competitive procurement remained the favored approach to developing renewable energy projects this year when the State chose to enact a State Budget provision to expand the ability of the New York Power Authority (NYPA) to do competitive procurement, instead of allowing NYPA to develop and own new renewable facilities. This new statutory language builds upon a law from last year to require competitive procurement of energy storage resources because competition between private owners of electric facilities promotes innovation and meets the electricity needs of the State’s consumers at least cost.

There is no basis for utility ownership of new generation, given the successful results through competitive procurement under the CES. NYSERDA has made awards through two RFPs to 46 projects located within the state, totaling more than 3,000 MW of new, renewable capacity. That’s more renewable capacity than the over 1,900 MW of wind that has been built by independent power producers in this state in over 15 years since the increase in the State’s renewable energy programs, and developers are currently submitting project proposals under a third RFP. Developers have also responded to NYSERDA’s first RFP to procure 800 MW or more of offshore wind as part of the first phase of meeting the State’s offshore wind energy goal, and NYPA awarded its own RFP for 290 MW of renewable capacity. NYPA also has issued a Request for Information to identify battery storage companies interested in participating jointly in competitive solicitations or other energy storage development opportunities within the state. Clearly, there is no lack of private interest or investment in renewables and energy storage development in New York State.

The bills’ requirement that utilities issue RFPs for the construction of renewables implies that a private developer would only shoulder the risks of constructing a particular asset. That asset would then be transferred to a utility, where ratepayers would also inherit the myriad other risks associated with ownership—including, but not limited to, environmental, regulatory, and operational risks. Utility-owned renewables may, therefore, have a lower initial cost estimate but will ultimately lead to higher rates for ratepayers because, unlike a private investor, the utility owner would likely seek uncapped recovery of all its costs. It would create a perverse incentive for utility owners to underbid their projects and recover any cost overruns through rates after those projects have already been selected. Whereas private developers must fully assess all potential risks and live with the bids they have made, utility-owned projects can always fall back on ratepayers.

Moreover, utilities cannot help the State meet its energy and environmental goals any faster than independent power producers can because utilities cannot complete the Article 10 power plant siting process any quicker than independent power producers. Regulatory certainty is paramount in the competitive wholesale electric industry, and this legislation would have the effect up upturning the playing field for private sector investment. 

For the reasons stated above, IPPNY strongly opposes S.6112 (Parker) / A.7376 (Cusick).

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