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MACNY Testifies at Joint Legislative Hearing on Low Cost Power Programs

Testimony To:

Joint Legislative Hearing:

Senate Standing Committee on Corporations, Authorities & Commissions

Senate Standing Committee on Commerce, Economic Development and Small Business

Assembly Standing Committee on Energy

Assembly Standing Committee on Corporations, Authorities and Commissions

Assembly Standing Committee on Economic Development, Job Creation, Commerce and Industry

New York State’s Low Cost Power Programs


Presented By:

Karyn Burns
Director, Communications & Government Relations
MACNY, the Manufacturers Association


September 23, 2009

To start, I would like to thank you for asking me to speak today, and also for recognizing the immediate need to address the various issues related to the State’s current low-cost economic development power programs. My name is Karyn Burns, and I am here representing MACNY, The Manufacturers Association. As you may know, MACNY is a trade association representing over 330 companies with over 55,000 employees across nineteen counties in Upstate New York. Founded in 1913, we pride ourselves on not only being the largest association of manufacturers in New York, but also one of the oldest and most widely recognized associations in the nation. We continue to advocate for causes that will enable New York State manufacturers to thrive in today’s competitive global market, because manufacturing is a critical component of a vibrant economy.

It is common knowledge we as a state and a nation are facing difficult economic times, and manufacturing is certainly no different. A struggling economy, coupled with increasing international competition, has proven to be significant challenges for New York State manufacturing. However, when all is said and done, one thing remains certain: manufacturing continues to remain the backbone to the State’s economic success. If the manufacturing sector falters, so do other sectors of the local and regional economy, in such areas as financial services, government and other service sectors. Therefore, the way Albany treats its manufacturing sector will hold significant impact on the future of the state’s economic stability. One such area in need of attention is lowering the increasingly alarming high costs of electricity for the state’s manufacturing sector. MACNY believes proper usage of the hydropower is one such method in helping reduce costs while enhancing the state’s economic development appeal.

MACNY has been a leader in lobbying the New York State Legislature for a comprehensive, long-term solution to alleviate the high energy costs inflicted on New York State manufacturers. We come here today in similar efforts, urging you and your colleagues in the Senate and Assembly to also support us in our continued efforts to phase out the current short term power programs and create a long term economic development power program, utilizing the 455 mw of hydropower as the base resource of low cost power, which of note was recommended in the 2006 Power Commission report.

Throughout the years, many have debated the best use of the 455 mw of hydropower in New York. MACNY firmly believes that allocating this resource to energy intensive manufacturers will make the State of New York a better place to live. Many out-of-state manufacturers are currently looking to relocate, but choose not to do so in New York because of the high energy costs here. Our collective members are often telling us that the cost of energy alone is a major hindrance in their ability to remain competitive and still do business from New York State. On average, New York State businesses pay almost 40% above the national averages for electricity for industrial and commercial businesses.

The simple fact is this: allocating the hydropower within a new long term economic development power program to the business community will not only help New York retain businesses already located here, but also attract and retain strong, growing out-of-state manufacturers. Taking into account the multiplier effect of manufacturing, many more jobs in other sectors will be created by the future growth in manufacturing.

As you are well aware, Western New York and the North Country have led the way in embracing long term economic development solutions. Western New York understood the positive outcomes of securing hydropower resources when it allocated 450 mw of Replacement Power for economic development in 2006. Senator Wright, former Chairman of the Senate’s Energy Committee, also saw this opportunity when he advocated for Preservation Power for the North Country, sponsoring legislation in which 490 mw of hydropower would remain in three counties for future job development. Both Western New York and the North Country represent a good model for long-term economic development in the state. Both regions have secured resources for business retention and development that will sustain thousands of family-supporting jobs.

While our State continues to endure the difficult fiscal crisis and one of the worst recessions in history, I implore you and your colleagues to see the similar benefits our State as a whole could receive by following similar suit in a state wide and similar economic development power program effort. New York State as a whole could reap these same benefits by reallocating the 455 mw, currently designated for residential customers, to businesses who retain and increase jobs. This reliable hard wired resource of hydropower will enhance the ability of manufacturers and businesses to expand and create new family-supporting jobs. Low-price hydropower cuts the bottom line for businesses, making them more competitive with out-of-state businesses for capital dollars, investments and expansion. Businesses with continuous low-cost energy can plan for the future with confidence because of price predictability from long-term hydropower contracts.

MACNY has been working for years on implementing a long term economic development power program. As a result of our years of experience and working with the manufacturing and business community, this memorandum provides a brief outline of the objectives recommended by MACNY, The Manufacturers Association to be included in new energy legislation to replace the current state energy programs.

• Extend the current power programs with existing rates and/or benefits until June 30, 2011 to provide a transition to a new “Economic Development Power Program” (“EDPP”). Begin new program application process no later than January 1, 2011.
• Starting July 1, 2011, combine Economic Development Power (“EDP”), High Load Factor (“HLF”) and Power For Jobs (“PFJ”) program and begin the new, “Economic Development Power Program” (“EDPP”)
• Create two tier of EDPP applicants and recipients: (1) Upstate high energy intensive users; (2) downstate energy intensive users. In the first tier, provide recipients with power allocations utilizing the 455 megawatts of power from the residential allocation from the Niagara and Saint Lawrence-FDR hydroelectric projects. The second tier shall be granted monetized benefits, similar in structure to proposals made in the Governor’s previously proposed Electric Cost Discount Program.
• Phase the 455 megawatts of residential hydropower into new program through a three-year phasing process, the first year phase in 250 megawatts, the second year phase in 155 megawatts, and the third year phasing in 100 megawatts until the 455 megawatts fully supports allocations granted to first tier recipients in the Economic Development Power Program.
• Require that all preexisting EDP, PFJ and HLF recipients reapply for the program, and while any current recipients will be grandfathered into a new program, each applicant will be placed into a tier based on credentials as specified in tiered system.
• Require that new contracts be drafted for current EDP, PFJ and HLF recipients, grandfathering them into new program, yet also phasing them out of the current programs, coinciding with phase-ins of the 455 mw of residential hydropower as it is supports contracts for first tiered recipients in EDPP .
• Require that the customer benefit of hydropower allocation, in the first tier for manufacturers and the second tier, not be less than the benefit provided under current EDP, PFJ and HLF programs.
• Establish a seven year minimum term for contracts under new energy program, provide yearly eligibility review and contract extension, and establish an evergreen contract renewal, adding an additional year to each individual contract after passing annual eligibility review.
• While phasing out the 455 mw of residential hydropower to be utilized as energy allocation for the new program, determine a rebate program to compensate for the residential customers who will be losing current discounts. In similar structure to a STAR rebate program, offer lower-income families with rebate option providing discounts off their electric bill, similar in pricing to current reductions off their bill from the 455 mw of hydropower, to help alleviate price spikes to those residential customers in need.
• The applicable criteria for Tier I eligibility should include consideration of the following: (1) the significance of the cost of energy to the competitive position and operating cost of an applicant, (2) the current and planned use of cash flow for capital investment within New York State, (3) the size of the applicant’s payroll and number of jobs that are planned or at risk, (4) whether program benefits would prevent the closure or relocation of facilities, (5) the contribution made by the applicant to the local economy, and (6) the applicant’s current or committed investment in energy efficiency measures.

During my testimony, I find it imperative to issue a response to the Citizen’s Budget Commission’s report that was released yesterday, indicating their desire to end the power programs entirely. While some of the findings in the report can be justified, MACNY finds the overall recommendations within the report to be both reckless and destructive for the future of the state’s economy. The mere recommendation to end these critical programs could send a shockwave through the upstate economy. By their own account, these programs help support approximately 500,000 jobs, which could be put in grave jeopardy should we accept and implement these unsubstantiated recommendations. As we have stated time and time again, manufacturing jobs remain critical to New York State’s economy, in particular Upstate. We find it increasingly troubling that a New York City based organization would continue to make recommendations that would have such a negative impact on the Upstate economy. It is our recommendation to the Senate and Assembly to create a long term plan that improves on the preexisting programs that will sustain and grow these industries that remain of such critical importance to the Upstate and statewide economy. We have witnessed reckless recommendations such as indicted in the CBC report that cause companies to reexamine their desire to stay and invest in New York State. MACNY respectfully asks the Citizens Budget Commission to not only reexamine and consider its approach and recommendations, but to work and correspond with the very companies within the Upstate region that their recommendations would so significantly impact. I invite and encourage the CBC to sit down with Upstate manufacturers to see just how critical these programs are, and how destructive their recommendations would truly be. MACNY would be more than happy to facilitate this conversation.

I think we can all agree that collectively, we want to retain jobs, and the residents who benefit from those jobs, in New York State. For the critical manufacturing sector, a key component is a reliable and effective long term economic development power program.

Again, I thank you for your time and dedication to such an important matter that is long overdue and in need of attention. On behalf of the entire MACNY membership, we look forward to working with you and your colleagues in achieving a long term solution.

KEB.09.23.09