Archives of Rudolph W. Giuliani

Addressing the Need for Long-term Reliable Energy in NYC

Tuesday, March 27th, 2001

Check Against Delivery


The recent power shortages and rationing of electricity in California have made most Americans vividly aware of the consequences of inadequate energy planning. The presence of electricity is not something that we can afford to take for granted.

New York grew by nearly 700,000 in the past decade. We are the Financial Capital of the World in a technological age. Basic elements of our infrastructure, such as subways and elevators, depend on electricity to function normally. The computers we work on and the stock markets that move the world are powered by electricity - a serious power failure in New York City would have instantaneous international implications. A situation like that of California - where the regular possibility of blackouts is high - is simply unacceptable in New York.

My administration's clear priority in this area is to see that the lights stay on and that electricity continues to flow in New York City. Despite increased demand for electricity, New York City remains the most efficient urban energy consumer in America. That being said, we depend upon electricity every second of every minute of every day. There is no room for complacency as we prepare for the future.

The work needed to avert an energy crisis needs to be done well in advance. And because energy policy is such a complex topic, as civic leaders, we need to do a better job of communicating the realities of our City's energy needs - both the imperative of building new plants and the realities that restrict our choices about where to locate them. That is why I have come to the New York City Partnership this morning to discuss a four point plan for a reliable, affordable, and sustainable energy supply for New York City's future.

I. First, the City should support the construction of new environmentally sound power plants that will ensure reliable supply, lower prices and reduced air pollution;

II. Second, the City should support cost-effective energy conservation, which is why we recently started a free energy conservation audit program for New York City businesses;

III. Third, the City should support more effective transitional price controls for the wholesale market, so that New York City customers are not exposed to the price spikes of last summer;

IV. Fourth - and finally - the City should continue its support of deregulation because, in the long-run, the free market will do the best job of ensuring that New Yorkers get dependable, affordable, and cleaner electricity.


I. The Need for New Power Plants

New Yorkers should understand that our City would need more power plants regardless of deregulation. The spectacular economic growth that has occurred over the past half-dozen years means that New Yorkers are consuming more electricity. This is fundamentally a good thing. If a high-tech business that consumes a considerable amount of electricity decides to locate in New York City instead of someplace else, it has a very positive effect on jobs and the economy. Similarly, if New York City's record job growth enables a family of recent immigrants living in Washington Heights to afford an air conditioner so that they can be more comfortable during the summer months, that is a good thing as well. Everyone needs adequate power to maintain and further improve their quality of life.

The census numbers that were released several weeks ago show that a record 8 million people now live in New York City. That is an exciting sign of New York City's vitality as a world center for commerce and culture. Of course, this also means that New York City is using an increased amount of electricity. However, many, if not most, people might be surprised to know that in terms of energy use and overall environmental impact, because of the density of our population, New York City is one of the most energy efficient places in the world. In the words of the New York Times, "New Yorkers are in fact astonishingly stingy in their use of energy".

A primary reason for this is that we have one of the best subway systems in the world. In addition, because New Yorkers tend to live in apartments and smaller houses, we consume less energy than most other places in the United States. For example, the average residential household in the United States consumes approximately 865 kilowatt hours per month, while the average New York City household consumes well less than half of that - only 370 kilowatt hours per month.

CHART: Average Monthly Residential Electric Use of NYC vs. the Nation

New York City is admirably energy efficient, but as the business capital of the world, we are nonetheless dependent on the constant availability of electricity. No one who was around for the 1965 and 1977 blackouts wants to see those events repeated. The blackout in Washington Heights on July 6th and 7th of 1999 again demonstrated the importance of a reliable electric supply. This is why New York City has the toughest reliability rules in the nation.

After the blackout in Washington Heights I formed a Task Force on Electric Reliability, chaired by John Dyson, to ensure that Con Edison makes the necessary investments to upgrade its aging underground wires that deliver electricity. That Task Force made numerous recommendations for the improvement of Con Edison's delivery system - recommendations that have since been adopted by the New York State Public Service Commission, which oversees Con Edison. We plan to continue to monitor closely Con Edison to ensure that New Yorkers have the most reliable electric supply in the world, and I am pleased to say that as a result of our efforts, Con Edison has accelerated its improvement program.

But while the Washington Heights blackout resulted from a failure of Con Edison's underground wires, we now face the possibility of a shortage due to the limited amount of power currently generated in New York City. This is because of the fact that while demand for electric power has increased over the past decade, our production capacity has remained the same. Current projections indicate that demand will continue to increase over the next four years.

CHART: Forecasted NYC Peak Demand for Electricity

In fact, while demand has been growing, there has not been a major new power plant built in New York City since 1967, and no new construction of power plants in New York State since 1994. In any case, the transmission systems that could deliver electricity from outside of New York City offer limited capacity. To prevent the possibility of a blackout due to transmission line failures, like the one that occurred in 1977, the City is required by independent regulators to have 80% of the forecasted summertime peak usage of electricity capable of being supplied by power plants located inside the City itself. This year, without new generation, the City would not have enough power to satisfy this requirement.

CHART: Estimated NYC Electric Supply/Demand Summer 2001

This is why I have supported the NYPA plants as a temporary stop-gap measure to prevent blackouts in the coming summer. NYPA has indicated to me that these plants would not be permanent and their output would be offered at their cost of generating electricity.

In the long run, the construction of larger, more efficient and cleaner plants is the answer, but most of these plants are at least 3 years away from operating. Since the last major plant was constructed in New York City in 1967, there have been tremendous advances in power plant technology. New power plants are 30-40 percent more efficient and emit between 15 to 20 times less pollutants than older plants. As these new plants are built, the old plants will operate less, and the result will be cleaner air for New York.

CHART: Annual Emissions 1,000 MW Power Plant

Because these new power plants all run on natural gas, I have asked City agencies to review our gas pipeline capacity to determine whether we should support the construction of new pipeline connections to the City's gas system.

The New York Independent System Operator [I.S.O.], the non-profit corporation that runs the New York State electric system, recently concluded that New York City will need at least 2,000 to 3,000 mega-watts of new power plants within the next 3-4 years. Five New York City business and labor groups - including the New York City Partnership - agreed. This new power will be needed to ensure both reliability and competition.

The private marketplace has responded to our City's need for more energy with proposals to build a number of power plants in the City. There are currently seven proposals for large power plants.

CHART: Proposed New In-City Generation Projects

Affected neighborhoods have expressed concern about these plans because they think that they are being unfairly targeted. But people have to understand that there are certain engineering realities that dictate where power plants are located. The plants have to be near: (1) connections to the electric grid; (2) high pressure natural gas pipelines; and (3) a water supply for cooling.

MAP: New York City Power Plant Proposals

This first map shows where the proposed power plants are to be placed, and this overlay shows how the proposals line up with the location of electric and natural gas connections. The City will do its best to help mitigate the effects of these plants on the affected communities, but we can't change these basic realities.

While new plants need to be placed reasonably and fairly across the City, there also needs to be important changes in the State permitting process. Article X of the Public Service Law gives the State the authority to review and approve the siting of all large power plants. This means that the siting process can take up to 18 months. This is simply too long. The State has recently stated that it will take steps to expedite the Article X siting process, and I urge the State to do everything possible to accelerate the review process. But the State should be prepared to consider serious legislative reform soon if power plants are still getting bogged down in Article X.


II. Support for Energy Conservation

But while I consider the construction of new power plants essential to New York's future, I also support a renewed emphasis on cost-effective electricity conservation. That's why my administration has taken steps to support consumer conservation by supporting an increase in the amount of funds that the State spends to increase energy conservation. The Economic Development Corporation recently introduced a free energy survey for businesses that pay less than $100,000 per year in electricity costs, with the aim of informing these businesses of cost-effective ways to reduce their energy consumption.

We also need to educate the public as to what it can do to conserve electricity during the peak summertime periods. One way to do this effectively is to introduce new electric meters that will show customers the real cost of electricity on a hot summer day. Most people do not realize that they are billed for electricity based on its average cost for the month, rather than its real cost at the time it is delivered. Real-time pricing is one way to address this.

But while cost-effective energy conservation is important, we need to recognize that conservation alone cannot eliminate the need for new power plants located here in New York City. According to the National Resources Defense Council, we can at most save 5%, or 500 megawatts, out of our total need of over 10,000 megawatts. In addition, given that we need 2-3,000 megawatts of new generation, we will still need a substantial amount of new generation even if we exceed expectations and save 500 megawatts.

III. Support for Transitional Wholesale Price Controls

To compliment our efforts to ensure the ready availability of electricity, I believe it is necessary to have better wholesale price controls during the ongoing transition between regulation and a free market. The double-digit price increases that New Yorkers had to pay last summer were unacceptable. Last July, the average electricity bill in New York City jumped 43% - from $51 to $73 - as compared to the year before. Maimonides Medical Center in Brooklyn reported that their annual electricity bill rose from $2 million in 1999 to $2.8 million last year. This cannot be allowed to continue - regulators need to do more to protect our citizens from opportunistic and unreasonable price increases.

The absence of new generators in the City means that there is a limited number of power plant companies competing in the de-regulated wholesale market - and consequently a lack of incentive for existing producers to cut wholesale prices. Simply put, New York City does not yet have enough power plants to allow for a truly free wholesale market in electricity. Recognizing this situation, Federal and State regulators still impose a form of price controls for New York City. These price controls, however, have proven to be inadequate.

Therefore, I have directed the Law Department to ask the Federal Energy Regulatory Commission to impose more effective wholesale price controls in New York City until more plants are built. More effective transitional price controls will ensure that price increases are kept moderate, while at the same time keeping the signal to private power generation companies that we want them to build in the City. I urge the State Public Service Commission to join us in this request.

IV. Continued Support of Deregulation

New York was one of the first States to deregulate its electric industry, and while this deregulation has resulted in some of the same growing pains that occurred with the deregulation of industries like airlines and telephones, I continue to strongly support this process.

History has shown us that free markets do a much better job than government regulators at ensuring that customers pay the lowest prices. Open competition encourages accountability and innovation. For example, the deregulation of the natural gas and electric industries has resulted in new technologies such as combined-cycle natural gas generation and fuel cells, which promise a new era in clean energy.

And while many people find it fashionable to be critical of electricity deregulation, I would remind them that there were many more people who were critical of the sharp price increases that resulted from the failures of regulation during the 1970s and 80s. Deregulation itself is a response to the inherent problems of consumers interacting with a monopoly. Deregulation should be completed. The problem is that it was done immediately, without giving the market sufficient time and incentives to evolve into a truly free market. New Yorkers should remain committed to the path of deregulation, while making some transitional adjustments.

For these reasons, my administration will continue to support deregulation, while we take proactive steps to ensure a smoother transition for the consumer.


Conclusion

The bottom line is that New York City's energy policy should be driven solely by a concern for doing what is responsible - both now and in the long-term. Energy policy is no place for trying to score partisan political points. It is far too serious a matter, with too many lasting implications. Our common ground on this issue should be clear - nobody wants blackouts or excessive price hikes that would hurt the most vulnerable New Yorkers the most. New York City requires a moderate, multi-faceted approach that embraces necessary change, while seeking to minimize the short-term discomfort - financial or otherwise - that may be caused by the transformation of the electric industry. I believe that this four-point plan will help New York City achieve the dependable, affordable, and sustainable energy supply that we need and deserve.

Thank you.

# # #

 



Go to Major Addresses | Giuliani Archives | Dept. of Records | NYC.gov Home Page
Contact Us | FAQs | Privacy Statement | Site Map