Kessel pivots on profit use
Puts priority on funds to aid WNY economy
In an abrupt reversal of policy, New York Power Authority chief Richard M. Kessel said Wednesday that he’s prepared to retain profits from the sale of unused hydropower in Western New York to promote economic development.
The authority has been keeping the proceeds, which The Buffalo News estimates at $161 million over the last four years, and using it for a various purposes that offer no direct benefit to the region.
Rep. Brian Higgins, D-Buffalo, has been fuming over the practice, and The News reported Wednesday that he was drafting federal legislation that would require the Power Authority to turn the profits over to a locally controlled development corporation that would use the money to build infrastructure and make capital improvements to public facilities.
Kessel, the agency’s president and chief executive officer, said he’s prepared to retain a “significant portion” of the profits in Western New York to promote economic development.
“There is no question the New York Power Authority has not done enough with low-cost power staying in Western New York,” Kessel said. “There is an extraordinary need to do more.”
But Kessel is cool to Higgins’ ideas on how to use the money, saying that it should be “energy-related.” He would like to use the money to assist economic development, perhaps by using part of the money to lower the electric bills of select companies.
Higgins said he’s pleased with Kessel’s stance. “That is a major victory for our community, if it comes to fruition,” he said.
But Higgins quickly added that he thinks the authority needs to do more than just keep the money here. It should give the community a much greater say in how the region’s allocation of low-cost hydropower generated at the Niagara Power Project in Lewiston is assigned, he said.
“The authority should give us the resources back and get . . . out of the way,” he said. “We will make the decisions about the highest and best use of both the low-cost power and the money from the incremental sale of [unused] low-cost power.”
The authority posted a record $298.5 million profit in 2008, even after making a “voluntary contribution” of $119 million to state government to help balance the budget. The Niagara Power Project generated 69 percent of the authority’s profits last year, clearing a record $205 million.
Profits at the power complex jumped by 28 percent last year, partly because of a spike in energy prices. While more than 90 percent of the electricity generated at the complex is sold for a little above cost, the balance sold last year at market rates, about six times the cost of production, resulting in a huge markup.
This pool of low-cost power has grown in recent years because a growing portion of electricity set aside for industries in Erie and Niagara counties has gone unused. Virtually all of the power was allocated to local industry until the early part of this decade, when several major customers either closed or scaled back operations.
By 2006, 20.9 percent of the 695 megawatts set aside for local industry went unused.
At present, 138 megawatts, or 19.9 percent, are unused, and that figure is expected to climb to 21.2 percent next month after the closing of a steel plant in Lackawanna.
Higgins wants the revenue from the sale of that power to revert to Western New York, and he submitted a bill Wednesday to amend the federal legislation governing the complex so this would be required.
Niagara Falls Mayor Paul A. Dyster endorsed Higgins’ bill Tuesday, and Buffalo Mayor Byron W. Brown, Erie County Executive Chris Collins and Buffalo Niagara Partnership President Andrew J. Rudnick backed it Wednesday.
Passage of the measure is uncertain, but Kessel is uneasy about the prospect of a federal edict and wants to strike a compromise with Higgins.
“I’d love to work with Congressman Higgins,” he said. “We’re not interested in a war.”
Already, he has directed Power Authority staff to develop a plan to get unused power into the hands of companies as soon as possible. The authority also is examining ways of increasing the amount of low-cost power available.
If successful, there would be little power left to sell at premium rates, and thus not a lot of money available for use in the region. But that would be all right with reform advocates, because it means the power would be used for the economic benefit of the region rather than to generate cash for the Power Authority.
Higgins, however, wants to break the state’s monopoly over the decisionmaking on allocation of low-cost power. The long-term contracts of most of the authority’s major customers are to expire in the next several years, and negotiations are expected to begin by year’s end.
A 2001 study commissioned by the authority and investigative reporting by The News in 2007 found that the authority is squandering much of the low-cost power allocated for industry in the region. Most of it goes to a handful of companies that enjoy discounts that amount to some of the richest corporate subsidies in the nation, The News found.
Higgins and Dyster have expressed interest in making better use of the allocations when they come up for renewal. Firms enjoying the deep discounts, worth an estimated $180 million in 2006, are lobbying for the status quo.
“Let Buffalo Niagara use these resources to chart its own course,” Higgins said. “We need to be freed up from the Power Authority and its bureaucracy; we need to be freed up from Albany and its bureaucracy.”
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