[BETA] Fortnightly

When the New York Public Service Commission (PSC) asked the Federal Energy Regulatory Commission (FERC) to reform the contract prices of two independent power producers (IPPs), Lockport Energy Associates, L.P. and Saranac Power Partners, L.P., the move triggered a call to arms from the Independent Power Producers of New York, Inc. (IPPNY). And in the pitched battle that followed, IPPNY did indeed emerge victorious. The IPPs sell electricity to New York State Electric and Gas Co. (NYSEG), which presented the PSC with data estimating that the contracts would cause the utility's customers to pay $2 billion more over the remaining life of the contracts than if NYSEG generated or otherwise acquired the electricity. The PSC agreed and went to bat for NYSEG. It asked the FERC to examine whether the prices should be reduced. "If cost reductions are in order," said PSC chairman Jarold A. Jerry, Jr., they should be passed directly to consumers. This will benefit the public and should also enable NYSEG to be more competitive."

Executive director Carol E. Murphy immediately wrote to Gov. George E. Pataki to express IPPNY's outrage: "The PSC's decision to ask FERC to unilaterally break and reform long-term contracts sends a chilling message not only to business and the investors in independent power projects, but to utility shareholders as well. Shareholders need to be equally concerned about their highly over-priced plants, like nuclear units Nine Mile I [wholly owned by Niagara Mohawk] and Nine Mile II [18 percent owned by NYSEG]. Customers overpay $450 million each year for electricity generated at these utility-owned plants."

Sean Brady, NYSEG spokesman, refutes those allegations. He forecasts that, from 1994 to 2009, the cost of electricity from Nine Mile II will vary be-tween 7.21 cents per kilowatt-hour (›/Kwh) and 10.66 ›/Kwh, while the cost of electricity from the two nonutility generators continues to rise through the next decade (see graph).

In the final analysis, however, the FERC was not won over by force of numbers. Its unanimous decision rejecting NYSEG's attempt to alter its contractual obligations was motivated more by concern for the playing field. In the words of FERC chair Elizabeth A. Moler: "We want to ensure that we do nothing to chill the competitive wholesale market."

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