New Energy Pricing Structure is Bringing Benefits to the Lower Hudson Valley

Feb. 23, 2015

A controversial, indeed much bashed, energy pricing mechanism for New York's Lower Hudson Valley is improving the region's electrical reliability and stimulating large-capital investments that will benefit the region for years to come.

Matthew Cordaro, PhD

At issue is the Lower Hudson Valley Capacity Zone. Following a lengthy and protracted process that began in 2007, the Federal Energy Regulatory Commission (FERC) determined that, because of persistent reliability challenges and a lack of power plants in the region, pricing incentives were needed to attract investments in new electricity sources. On May 1, 2014, the new pricing mechanism went into effect.

The central aim of the capacity zone proposal - to stimulate more power production in the region - is on course. The Bowline and Danskammer power plants are two significant power producers in the region that are being repowered, or modernized, as we speak. For years, both plants have been producing very limited power.

The non-profit operator of New York's electric grid, the New York Independent System Operator (NYISO), estimates that higher output from these and other plants will produce $400 million in savings for residents and businesses in 2015 alone.

Both power plants must still contend with regulatory reviews to ensure they meet the state's rigorous environmental standards. And, to be sure, they should not receive exemptions or special treatment as part of the regulatory review process.

The New York Public Service Commission estimated that the capacity zone pricing mechanism will increase consumers' bills by five to ten percent. It is important to keep in mind, though, that these price increases are designed to be temporary. They are also designed to lessen the likelihood of blackouts, whose costs can be enormous in terms of lost food, lost business, and even public safety.

NYISO's projection for $400 million in 2015 savings seems at odds with assertions by Central Hudson on its website that the capacity zone has raised electric costs for residents and businesses by as much as $99 million per year starting in May 2014. In fact, Central Hudson also notes on its website that the supply charge for residential electricity has actually fallen by 13 percent from April 2014 to February 2015.

The way to lower New Yorkers' electricity bills immediately and significantly is for politicians, including many who have criticized the capacity zone proposal, to cut the vast number of electricity taxes in New York State, which account for 25 percent of a typical customer's bill.

This includes the 18-a fee, a measure put in place to address the 2009 fiscal crisis, and a two percent general receipts tax. Electricity taxes are by nature regressive and most harmful to the poor.

The New York Independent System Operator (NYISO) estimates that 4,700 of the 11,000 circuit miles of transmission lines in the state will need to be replaced in the next thirty years. As such, there is a lot of competition, and investment alternatives, for new transmission lines in New York which can also reduce power costs.

It is imperative that the state continues to work to attract new market-competitive transmission proposals without providing any direct or indirect subsidies to these projects. Such costs, whether in the form of direct, indirect or opaque charges, fall on the backs of energy consumers and drive costs higher because they are ultimately anti-competitive.

The expanded local energy production that results from the Lower Hudson Valley capacity zone means an increase in supply and reliability for the downstate region for the long term. This capacity has set the region on the right path of encouraging new private investments in infrastructure and leading us to a reliable energy future.

The bottom line is that the capacity zone is working as expected and bringing benefits to the region.

About the Author

Matthew Cordaro, PhD | Trustee at Long Island Power Authority

Dr. Matthew C. Cordaro, whose career spans many years as a senior executive in the utility industry, an educator, scientist and researcher in the fields of business, energy and environment, most recently was the Dean of the Townsend School of Business at Dowling College. Before moving over to Dowling he was at the C.W. Post Campus of Long Island University in the College of Management where over his tenure he served in a number of high level administrative, academic and research positions. Dr. Cordaro has served as the Chairman of the Suffolk County Legislature’s Utility Oversight Committee and recently was appointed by the New York State Assembly Leader to the Long Island Power Authority’s Board of Trustees.

Just prior to joining Long Island University Dr. Cordaro served as the first President and Chief Executive Officer of the Midwest Independent System Operator (Midwest ISO) based in Indianapolis, Indiana, the largest independent transmission system operator in the nation. Today the Midwest ISO is responsible for electric reliability and markets covering 57,000 miles of transmission lines and 150,000 Megawatts of electric generation and clears over 23 billion dollars in energy transactions, over an area exceeding 200,000 square miles, and extending into 13 states and one province of Canada.

Previously, Dr. Cordaro was employed as President and Chief Executive Officer of Nashville Electric Service, one of the ten largest public electric utilities in the nation. He also previously served as President of Long Lake Cogeneration Corporation and as Senior Vice President of Long Lake Energy Corporation, a major alternative energy producer. For 22 years he was with Long Island Lighting Company, a major investor-owned utility, finally holding the position of Senior Vice President of Operations, Engineering, and Construction.

Dr. Cordaro is currently a member of the New York Affordable Reliable Electricity Alliance’s advisory board. He is a past member of the board of directors of the Electric Power Research Institute, the American Public Power Association, and the Nature Conservancy of Tennessee, and has served on the editorial advisory boards of World Transmission and Distribution magazine and the Long Island Business News. Dr. Cordaro has also testified many times before congressional and state legislative committees and is frequently sought by the media for expert commentary.

Dr. Cordaro holds a Ph.D. in Physics and Engineering from Cooper Union, an M.E. in Nuclear Engineering from New York University, a B.S. in Engineering Science from C. W. Post College and completed the Executive Management Program at the University of Michigan. He has also been an Atomic Energy Commission Fellow, a Guest Research Associate at the Brookhaven National Laboratory, and has served as an adjunct faculty member at Polytechnic Institute of New York and C. W. Post College. Dr. Cordaro has also authored many publications on education, business, energy, environment and utility issues.