For the first time in a half-century, state officials are preparing to rethink the use of a huge block of low-cost hydropower generated north of Niagara Falls that’s intended to promote economic development in Western New York.

Many economic development officials believe the power is one of the region’s best tools for reinvigorating the regional economy. Because it’s so cheap to generate, the power can be sold to companies for a fraction of the cost of other suppliers. That makes it potent bait to lure companies and help firms already in the area expand their operations.

That’s not the way much of the power is being used now, however.

Much of the power is propping up dying industries and lavish corporations with excessive subsidies, a Buffalo News investigation found last year. A 2001 study commissioned by the state Power Authority reached a similar conclusion, determining that 85 percent of the hydropower could be put to more effective use.

Nevertheless, the program has been treated by state officials as a sacred cow, in part because many of the region’s leading corporations benefit from it and fears that change could hurt the area’s lackluster economy.

But amid growing criticism, state energy officials told The News last week they’re prepared to reconsider the program, as part of a wider review of nine programs across the state that use public power to promote economic development.

The initial focus will be on Power For Jobs and three other statewide programs that are due to expire June 30. Deputy Energy Secretary Paul A. De- Cotis said he expects a review later this year of the replacement and expansion power program that provides discounted power to about 100 industries

in Niagara, Erie and Chautauqua counties.

“Everything is on the table for discussion. We’re not ruling anything out,” DeCotis said.

“It’s hard to say what the outcome will be, but the intent is to make the most efficient use of these benefits,” he added. “What we’re trying to do is get a handle on this and bring some rationality to the decision making.”

Rep. Brian Higgins, D-Buffalo, a leading advocate for making smarter use of Niagara hydropower, hailed the administration’s move.

“This is a great opportunity to get low-cost hydropower to those businesses, in both the old and new economy, that have the greatest potential for job growth. The one thing we have is cheap power that can give us a competitive advantage over virtually any other [local] economy in the nation,” he said.

Assemblyman Sam Hoyt, who represents Buffalo and Grand Island, called the review “big and bold” and said he hopes administration officials extend their efforts to consider ways for the region to become a larger producer of clean, alternative fuels beyond hydropower.

Big power discounts

The Niagara Power Project was opened in 1961, replacing two privately owned generating facilities, including the Schoellkopf plant, which was destroyed in a rock slide in 1956. The Power Project ranks as the nation’s second-largest hydropower facility, and more than one-third of what it generates is earmarked for local industry.

The authority sells power to some 100 companies at about one-quarter the market rate, which in 2006 saved the recipients an estimated $180 million. Just 10 companies get two- thirds of the power and savings, however, most of them industries that receive the hydroelectricity because they were customers of the private generating plants in the 1950s.

But many have shed jobs over the years, and the discounts they enjoy provide what critics say is a poor return. For example, just two of the longtime replacement power customers, the Olin and Occidental chemical plants in Niagara Falls, receive 29 percent of the region’s low-cost power allocation while employing just 1 percent of the workers in the companies participating in the program.

In 2006, Olin and Occidental enjoyed discounts worth an estimated $53 million for a combined work force of just 418. That works out to more than $126,000 per job.

Many other recipients enjoy discounts that, over the lifetime of their contracts, far exceed the $35,000 per job benchmark used by the federal government to determine how much public money should be spent for job creation.

Greg Leroy, executive director of Good Jobs First, one of the nation’s leading experts on economic development subsidies, has characterized the discounts as “a sweet deal” and among the most generous subsidies he has come across in his years of research.

Some have found fault with the criteria used to determine which companies receive lowcost power, saying it is outdated and favors Cold War-era companies at the expense of New Economy endeavors.

Others say the criteria is better than it is given credit for. They note it takes some 10 factors into account, including how much money the applicant would invest in its facility, the number of jobs it would create and the wages and benefits it would pay, and how the business fits into the local economic development plans.

Changing the criteria isn’t going to change a whole lot, however.

For starters, once they get power based on promises of jobs and investment, companies usually don’t face consequences when they fail to live up to their half of the bargain. The News found that 23 companies between 2003 and 2005 failed to meet their job obligations, but only six saw their allocations reduced.

There’s an even bigger issue, however.

About half of the program’s 695 megawatts of power is largely exempt from the criteria. All the companies holding this power need to do to retain it when their contracts come up for renewal is meet limited obligations concerning jobs.

They are only required to meet these relaxed standards because they were customers of the private generating plants that the Power Project replaced. Companies new to the program the past 20 years, including those now seeking power, are the ones that have to meet the more demanding criteria.

This double standard is among the issues that the Spitzer administration will consider in its review, and changing it would require a change in state law.

Changing the criteria would require legislative action.

State officials have time to mull their options. Most of the large contracts for hydropower extend to 2013.

Alcoa deal no factor

The Spitzer administration is not lacking for suggestions on how to revise the criteria.

A blue ribbon panel in December 2006 recommended changes in the criteria for all of the state’s power programs used to promote economic development, including the replacement and expansion power program here in Western New York.

“Current eligibility criteria do not support economic development objectives,” the report said.

The Power Authority commissioned a study several years ago in an effort to change the criteria to make it more reflective of today’s economic dynamics. The study was shelved short of completion, but a preliminary set of recommendations provide food for thought.

The News last summer queried 20 utility executives, energy consultants, economic development officials, economists, and labor and business leaders on how to best use the region’s share of hydropower.

The consensus: Change the criteria, but go further by targeting power and economic development funds to promote key segments of the local economy that have the potential for growth; clean up brownfields to make them suitable for development; and encourage the growth of small business and so-called green enterprises.

Spitzer administration officials set aside fears that some local officials expressed last month after the state announced an agreement in principle involving the continued sale of low-cost power to Alcoa Aluminum in Massena. The deal involves the sale of hydropower generated at a plant along the St. Lawrence River to Alcoa for another 30 years in exchange for a $600 million investment in its two plants in the North Country.

Some officials here have expressed concerns that the deal could be precedent setting, as a number of large hydropower customers here have been pushing for long-term extensions.

But circumstances are different and there will be no “me, too” deal for hydropower customers in Western New York, according to DeCotis and Paul Francis, one of Spitzer’s top lieutenants as director of state operations.

Speaking of the Alcoa deal, Francis said: “There would have not been an extension of anywhere near that term if there had not been an investment of that size.”