New York's Energy Crisis Part 2 : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

HARD BARGAINS WHY CHEAP ELECTRICITY IS TOUGH TO FIND Series: The Power Brokers Second of Three Parts Source: Buffalo News Publication date: 2000-07-10

Tony Caprino hates paying his Niagara Mohawk bill. Especially when he knows that his neighbor Sam Teresi pays only one-third of what Caprino spends on electricity. Caprino, mayor of the nearby Village of Lakewood for the past 20 years, pays 12 cents a kilowatt-hour.

Teresi, in his first year as mayor of this Chautauqua County city, pays 4 cents.

A $75 power bill for Caprino is a $25 bill for Teresi. But his lights burn just as brightly. His toaster pops up just as quickly.

Electricity users in Buffalo, Niagara Falls and most everywhere else in the state don't fare any better than Caprino when they turn on a light switch.

They all pay too much.

Due to high taxes, state blunders on nuclear power and guaranteeing top rates to independent producers, New York's utilities charge 62 percent more than the national average.

But not in Jamestown.

Electricity is still a bargain here along the state's Southern Tier. And it's roughly as cheap in 46 other small New York cities, towns and villages as well as in four rural cooperatives.

Why? They all qualify for Niagara Power Project electricity, the cheapest in the nation, because they all run their own electric systems. Federal law guarantees 40 percent of Niagara power to the state's municipal utilities.

Some, like Jamestown, also produce power in their own plants. Most, like Akron in Erie County, own only the distribution lines.

Caprino would like Lakewood to start its own municipal utility, but he's finding how expensive that is.

Niagara Mohawk and other private utilities have spent a fortune building electric systems, from generating stations to transmission lines to the lines coming into residential homes.

Utilities are not about to give anything away to a new municipal utility that would also take away their customers. So Niagara Mohawk continues to battle Lakewood before the state Public Service Commission over the village's final bill.

Municipal power is a legacy from the presidency of Franklin D. Roosevelt and the Tennessee Valley Authority. Power to the people meant cheap electricity from the nation's waterways.

The same principle applies to the Niagara Project. But will Niagara's cheap juice continue flowing to Jamestown and other "munis," as municipal utilities are commonly known? And why can't other New York residents share in the bounty?

Cheap Niagara electricity will soon be a volatile political issue. The 2.4 million-kilowatt Niagara Power Project, which produces enough electricity to light 24 million 100-watt bulbs, is up for its first relicensing in half a century.

That won't happen until 2007, and talks won't even begin for two more years.

But like heat lightning before a big electrical storm, skirmishing over Niagara's power already has begun.

Among the questions:

Why can't Niagara County, where the Power Authority sits

on thousands of tax-free acres, get cheap power for its own residents? Hundreds of big ugly transformers send Niagara's power over their heads to others. Why can't they get any?

Why can't Buffalo homeowners get some of Niagara's affordable electricity? Can the city create a municipal utility, as State Sen. Alfred T. Coppola and others want, or will Niagara Mohawk's bill for its lines be too costly?

Will the Long Island Power Authority, now the nation's largest muni, with 1 million customers, seek hydropower? A state law that set up the authority by bailing out LILCO, the troubled Long Island Lighting Co., barred it from seeking hydropower, but laws can be repealed.

Utilities battle munis

Politicians who created municipal utilities years ago, such as Jamestown Mayor Samuel A. Carlson in the 1920s, look like visionaries. Others would like to be.

A group of 21 northern New York communities calling themselves the Alliance for Municipal Power is trying to become a muni. Lakewood is haggling with Niagara Mohawk over its final bill. Buffalo has tested the waters, finding them financially chilly.

Dozens of paper munis were set up in the 1980s, including Erie County, which for a brief time got cheap Niagara hydropower. That ended when the Federal Energy Regulatory Commission redirected the power to real municipal utilities.

But it has been half a century since a city of more than 50,000 people has created a new municipal utility anywhere in the country.

And it has been 19 years since New York's last muni was created, in the City of Massena, located in the northern reaches of the state.

The reason is money.

A city has to buy out the private utility before going public. And the private utilities got a ruling in 1998 that made it even harder to start a municipal utility.

The state's Public Service Commission ruled that communities wanting to leave a private utility had to pay an exit fee based on the utility's past investments. And that is besides paying for the electric lines a municipal utility would take over.

In Buffalo, Niagara Mohawk estimates the exit fee alone at $900 million.

Coppola, who pushed for a city muni as a Common Council member, calls that figure inflated. His experts put the figure at $295 million.

"They blame everyone but themselves," Coppola said of Niagara Mohawk executives, citing their costly forays into troubled nuclear power. "The exit fee is basically to cover their poor management over the years."

The PSC or the courts would set a final figure, if anyone picks up Coppola's efforts now that he's a state senator. But it still would be a dear price for the city to pay.

NiMo defends exit fees

Niagara Mohawk says it's only fair.

"What the regulatory contracts we operate under are attempting to prevent is unfair cost shifting," said Stephen Brady, a spokesman for Niagara Mohawk. "If Community X decides to leave our network, we have incurred costs (in the past) to serve these customers."

"If the state allows communities to leave without paying those costs," Brady added, "those costs are going to be passed on to the existing customers."

In Lakewood, Caprino has found how high Niagara Mohawk thinks those costs are.

"They started out at $39 million," he said of the company's first demand. "We're down to $14.5 million, and we're still working on it. I think it's looking pretty good."

The village has hired Washington, D.C., attorney Cathy Fogel, who previously represented the state's munis and helped Massena start the state's last municipal utility.

Massena has drastically cut power rates -- from 13 to 4 cents a kilowatt-hour -- since becoming a muni and currently receives the Niagara Project's seventh-largest municipal allocation (22 megawatts).

But Fogel said new munis should not expect such immediate benefits because of long-term Niagara contracts with existing municipal utilities.

"Currently, all of the preferences are contracted until 2013," she said. "So if they can get in there, it wouldn't be until 2013."

Creating a municipal utility

Few knew what a municipal utility was before downstate politicians and John Dyson, the New York Power Authority chairman in the early 1980s, called for Niagara's cheap power to be shared across the state.

Dyson, whose flair for publicity once led him, as state commerce commissioner, to wear a Lone Ranger mask before a State Legislature committee, soon got everyone in a lather.

Dyson put the issue on the front page with his plan to spread Niagara's wealth from Buffalo to Nassau County. He called it "one man, one volt."

On one side were downstate politicians, led by Angelo Orazio of Nassau County, chairman of the Assembly's Energy Committee. He wanted to know why Long Islanders paid the nation's highest rates while a state authority virtually gave away Niagara electricity to upstate customers.

They were opposed by Western New York politicians and industry captains who warned of losing thousands of jobs if Niagara power were reallocated.

When the municipal utilities objected, Dyson called them "muni pigs."

"He referred to us in many, many ways, all of them erroneous," said Robert Mullane, executive director of the Municipal Electric Utilities Association in Syracuse. "They tried to change the allocations. We tried to tell them they were fooling around with federal law. They just wouldn't listen."

Municipal utilities traced their allocations to precedents set when Roosevelt backed a plan by Sen. George W. Norris of Nebraska to create the Tennessee Valley Authority in the 1930s.

Suits save munis

The Niagara Power Project, funded by public bonds, was licensed in 1957 in much the same way as the TVA. The federal government decreed that half of Niagara's power go to municipal utilities, half to industry.

So the munis, convinced they had law on their side in the Dyson battle, hired attorney Fogel and sued the Power Authority.

They filed three lawsuits. They won all three. Municipal power was saved.

"The court said you would dilute the benefit so much, it would have very little value to those receiving it," Fogel said of the court's demolition of Dyson's "one man, one volt."

But what the federal government gives, the federal government can take away.

"It was a combination of state and federal legislation that created this," Stan Lundine said of the Niagara Project and its allocations. "It can probably be changed by a combination of state and federal legislation."

Lundine should know how politics and legislation work. He's the former mayor of Jamestown, the region's former congressman and lieutenant governor under Gov. Mario M. Cuomo.

"They will argue, 'You've had this benefit so long, it's time to share,' " he said of those looking for Niagara power. "My impression is it's up for grabs."

Visionary Jamestown mayor

Jamestown, a busy furniture- and metal-manufacturing city in the early part of the 20th century, had private natural gas and electric companies as well as its own small electric generating plant.

Both private utilities made the mistake of raising their rates for city street lights in the 1920s during the time of Carlson, a no- nonsense leader who believed that government should do all it could for its citizens.

Carlson was convinced of electricity's future importance and felt Jamestown could control its fate only if it bought out the private utility. Opposed by the city's top industrialists and the private electric company, Carlson got the measure through.

"It was his Swedish stubbornness and his belief in municipal ownership of every kind that did it," said Helen G. Ebersole, a local historian and author of the book "Electricity and Politics, Jamestown 1891-1931."

Jamestown stopped buying private electricity and generated its own power at the Samuel A. Carlson Plant but never bought much hydroelectric power until Lundine's administration.

"There was kind of a silly pride in generating our own power," Lundine said. "I remember asking, how much did it cost to generate power? It was about 4.5 mils (cents per kilowatt). And how much to buy Niagara power? It was about 1 mil.

"I said, 'Well, let's see how much we can buy.' I mean, you have to take advantage of it."

Jamestown profits today

Jamestown today gets Niagara's third-largest allocation -- 72 megawatts -- behind fellow municipal utilities Plattsburgh and Fairport. The Carlson generating plant can produce another 53 megawatts of power but usually generates only one-third of what the city needs.

It's a selling point for Jamestown to keep manufacturers such as Monofrax, a power-intensive company that makes glass bricks for kilns.

"If we were to lose this allocation, I'm concerned many of the larger companies would say, 'If the rates are going up, we're going to have to go where it's more economical,' " said Michael B. Darroch, deputy general manager of Jamestown's Board of Public Utilities.

Besides delivering electricity at bargain rates, the city's public utilities last year contributed $2.16 million to the city and school treasuries in lieu of taxes.

The Carlson Plant also produces hot water for the city's heating district, which provides heat for downtown buildings and nearby factories.

"Niagara Mohawk and New York State Electric & Gas are out to make a profit," said Darroch. "Our object is to keep our utility rates low. Our profit is returned to our customers."

"If you take what is available and spread it around, I don't see any of the downstate areas getting that great of an advantage," he said.

"If you get a slight reduction in rates," the board's general manager, Walter W. Haase, added about spreading Niagara's power, "people aren't going to notice it."

Overseeing new license

But they do notice, obviously, when anyone is getting a bargain like Jamestown.

C.D. "Rapp" Rappleyea, as chairman and chief executive of the New York Power Authority, will oversee negotiations for the Niagara Power Project's new license.

Rappleyea, who spent 23 years in the Assembly and witnessed political hunger for cheap electricity, refused to speculate on who will get what when the negotiations are over. He says the power authority won't even start the process until 2002.

"There will be pressure," Rappleyea said, "to get some of this cheap hydropower."

Caprino would like the same benefit for Lakewood, if he can chisel down Niagara Mohawk's exit fee.

Can he bring it together in time?

"I don't know. I hope so," said Caprino. "Once we reach a final figure, we have to put it to the voters in a public referendum."

Tuesday: Why power goes out of state.

Publication date: 2000-07-10

part 1 at:

-- Martin Thompson (, July 12, 2000

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