Robert Callender, Vice President for Programs, NYSERDA Testimony before the Legislative Fiscal Committees Hearing Room C - LOB January 13, 2009 • Good morning Chairman Kruger, Chairman Farrell, Senator Johnson, Assemblyman Hayes and members of the committee. Thank you for the opportunity to testify before your committees today on Governor David Paterson’s Executive Budget proposals as they relate to the New York State Energy Research and Development Authority (NYSERDA). NYSERDA is very pleased to be working with Governor Paterson to implement his ambitious clean energy agenda, which, as I will speak to later, is providing positive economic news in these very challenging economic times. • Created by legislation in 1975, NYSERDA is a public benefit corporation dedicated to developing and deploying innovation and technology to solve New York’s most difficult energy and environmental problems. • Over the last decade or so, NYSERDA has leveraged its organizational strengths to assume several new responsibilities to address the State’s energy needs. • In 1998, adding to its already “best in class” research and development programs, NYSERDA assumed responsibility for energy efficiency efforts that were previously administered by the utilities. The System Benefits Charge (SBC) program is funded in the same manner, but at a lower amount, as the programs that were previously administered by the utilities.
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• In 2004, NYSERDA began administering renewable energy program funds -- the Renewable Portfolio Standard (RPS) -dedicated to increasing the proportion of renewable generated electricity used by New York consumers. This was a new assessment with a single statewide administrator, which was identified at the time as the best method for ensuring that the State could get the greatest amount of renewable resource penetration with a single statewide administrator. • In 2008, the Public Service Commission increased funding for energy efficiency efforts through its Energy Efficiency Portfolio Standard (EEPS) proceeding, which will be delivered by both the investor-owned electric utilities and NYSERDA. • Lastly, we are currently in the process of developing plans for new programs and initiatives to be funded through the sale of pollution allowances under the Regional Greenhouse Gas Initiative (RGGI) and Clean Air Interstate Rule (CAIR) programs. • NYSERDA has met these increasing responsibilities and challenges by continuing to follow principles which have been cornerstones of NYSERDA operations since its inception. Our programs are implemented through competitive contract selection processes which involve outside experts serving on technical evaluation panels. The results of these contract awards are published in reports available to the public on our website to provide full transparency and accountability. • NYSERDA also administers its programs by relying on stakeholder input, and by structuring programs which work through energy market participants.
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• In addition, our programs undergo rigorous annual evaluation of program results, including review and reporting from independent evaluation contractors who report directly to our funding sponsors. These evaluation efforts ensure that our programs are delivering results and that the results are accurate. Our programs also undergo annual independent audit. Lastly, our programs have been subjected to six audits by the Office of the State Comptroller over the last six years, including two audits completed in 2008 which are awaiting issuance of reports, and in each case these audit reports found that NYSERDA was effective in administering its programs. • The ratepayer funds used to implement the SBC, RPS and EEPS programs are collected from the electric customers of Consolidated Edison, Orange and Rockland, Central Hudson, New York Electric and Gas, the upstate territory of National Grid, and Rochester Gas and Electric. These funds and programs have been implemented through the ratemaking process of the Public Service Commission and are subject to the Public Service Law. • The funds are not collected from the customers of electric cooperatives, municipal utilities, the municipal customers of the New York Power Authority (NYPA), or the customers of the Long Island Power Authority (LIPA), who are outside the purview of the Public Service Law. In effect, these entities have their own energy efficiency and clean energy programs to meet the needs of their customers.
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• NYSERDA is nationally recognized for its expertise and ability to address today’s energy, environmental and economic challenges. Our program activities range from research and development to the deployment of new energy technologies; from energy efficiency to renewable sources of energy; from low-income assistance to education initiatives; and from market transformation to environmental preservation efforts. These programs are also helping to build New York State’s economy by lowering energy consumption, improving energy efficiency, increasing productivity, growing jobs and, creating a sustainable, clean energy economy, which create new opportunities for job-seekers, entrepreneurs and businesses of all sizes. • Our programs – and the energy efficiency programs that NYPA and LIPA deliver on behalf of their customers -- have become critical to the reliability of the state’s electric system. The investments to date have deferred the need for the equivalent of four medium sized power plants, while reducing the harmful impact of air emissions and water pollution that threaten people’s health and our environment. Our programs have created and retained thousands of jobs. In fact, we have been building the “green collar” work force long before the term was coined and we continue to develop cutting-edge programs that states throughout the country are emulating. • In addition to these funds administered on behalf of the Public Service Commission, consistent with the State’s clean energy goals, a portion of NYSERDA’s budget is comprised of funding approved through State Budget appropriations. These dollars include support for the following:
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• In respect to 18-a of the Public Service Law, approximately $11.9 million of Public Service Law Section 18-a dollars, funded through electric and gas assessments, help support energy research and development at NYSERDA. Our research and development function is critical to producing deployable solutions to our energy and environmental challenges. In addition, $4.1 million dollars supports energy policy and planning, and NYSERDA is playing an active role in the Governor’s efforts to develop a statewide energy plan. • In 2007, there were $225 million in energy efficiency and clean energy commercial product sales that were developed through NYSERDA research and development programs. • In connection to reappropriations, there are also $72.5 million in reappropriations contained in the Urban Development Corporation budget for various NYSERDA administered programs funded in the FY06-07 State Budget. These dollars are committed to cellulosic ethanol pilot production facility development; energy and environmental programs such as E85 fueling stations, advanced vehicle R&D, hydrogen transportation and plug-in hybrid vehicles; and investments in energy conservation and efficiency pilot programs.
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• NYSERDA has received 90 applications from retail gas stations interested in installing E85 or B20 fueling equipment, and has committed or spent about $1.6 million. Thirty (30) of these stations are currently selling E85 fuel to their customers, with four (4) also offering B20. The remaining 60 stations are in process. NYSERDA plans to more broadly market this program in 2009, with the goal of establishing 300 retail biofuels stations. In addition, approximately $900,000 has been awarded to six petroleum companies in New York State for biofuels blending and storage equipment. These companies serve as more local sources for distribution of the biofuels to the retail stations. • Under NYSERDA’s West Valley Program, the State budget provides $13.5 million for New York’s obligation to the West Valley Demonstration Project. • NYSERDA holds title on behalf of the State to the Western New York Nuclear Service Center, the site of a former nuclear fuel reprocessing and radioactive waste disposal operation near West Valley in Cattaraugus County. Under the West Valley Demonstration Project Act, the U.S. Department of Energy and NYSERDA are working together on a multi-billion dollar cleanup of the highly contaminated facilities at the Center. As required under the federal act, NYSERDA contributes 10% of the total project cost. In addition, NYSERDA has management and financial responsibility for one of the Center’s low-level radioactive waste disposal sites, the 15 acre State-Licensed Disposal Area.
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• NYSERDA’s mission at the Center is to safeguard workers, neighbors, and the environment, while at the same time making sure that USDOE honors its obligations for the West Valley Demonstration Project cleanup and long-term care of the site. Important cleanup work has been accomplished at West Valley, including the treatment and solidification of highly radioactive liquid waste into glass logs. However, there is significant cleanup work yet to be accomplished, currently estimated to cost at least a billion dollars that will require years to complete. • The U.S. Department of Energy and NYSERDA recently issued a Draft Environmental Impact Statement analyzing several alternatives for completing the West Valley cleanup. A decision on the cleanup is expected later this year. Several years ago, NYSERDA and New York State sued USDOE and the United States concerning cost allocation for the West Valley work. Mediated negotiations aimed at resolving this dispute are ongoing, and we have made some progress toward settlement. • To date, the cost of the cleanup is about $2.5 billion including New York’s more than $250 million share of the clean-up activities at West Valley. As I mentioned, NYSERDA’s 20092010 West Valley Site Management Program budget is $13.5 million, the same as last year. • And for the most part, NYSERDA’s energy efficiency, renewable technology, and clean air programs are supported by funds that are not appropriated in the state budget.
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• In respect to our Energy Efficiency Programs, NYSERDA has perhaps the most sophisticated and far-reaching energy efficiency programs in the nation, which are funded by a system benefits charge, or SBC, valued at about $175 million per year. These cost-effective and award-winning programs include demand response programs, green buildings, energy efficient appliances, residential and commercial building improvements, clean energy technology development, and much more. On top of the half billion dollars in annual customer savings, the programs have reduced greenhouse gases 2 million tons on an annual basis, which is the equivalent to removing about 400,000 cars from the State’s roadways. And for every dollar New Yorkers invest through this program, two dollars in energy costs are avoided. • These programs have become a critical component of overall system reliability, especially in the transmission-constrained downstate region of the State. • And since inception, the System Benefits Charge programs had provided 3,180 GWh of annual energy savings, saved customers over $620 million annually on their energy bills, and created or retained approximately 4,700 jobs. In addition, the program has permanently reduced energy consumption by 670 megawatts. And our peak load reduction program – which is implemented during periods of highest electric use -- can curtail an additional 550 megawatts thereby protecting the electric system during the most vulnerable times.
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• The Renewable Portfolio Standard, or RPS, administered by NYSERDA, is recognized as a critical part of New York’s efforts to lessen our heavy dependence on fossil fuels and reduce harmful air emissions. Governor Paterson’s 45 by 15 initiative is the most aggressive clean energy program in the nation. The goal of the initiative is that by 2015, 30% of the electricity consumed by New Yorkers will be generated by renewable resources, while at the same time reducing overall projected electric consumption by 15%. Through the RPS, NYSERDA stimulates and supports a myriad of projects that include hydropower, wind, biomass, solar, and other eligible technologies. • NYSERDA has designed and implemented the RPS program to adhere to three key principles: (1) transparency, (2) competitive and objective project selection, and (3) cost-effective administration. As a result of the completion of three competitive solicitations for large-scale, grid-tied renewable resources NYSERDA has contracts with twenty-eight new renewable facilities. The total capacity associated with these 28 facilities is approximately 1,164 MW, enough electricity to supply 560,000 average homes. Of the 1,164 MW associated with the RPS, approximately 785 MW are operating and 379 are under construction or awaiting interconnection. This includes 1,106 MW of wind, 29 MW of biomass, and 29 MW of hydroelectric. Wind capacity in operation is already over 15 times the 48 MW that existed just 3 years ago. Combined, these facilities when fully operating are expected to produce over 3.1 million MWh per year.
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• The total economic benefits associated with the projects supported by the Renewable Portfolio Standard are valued at $4 billion over the next twenty years. Given the program funding commitment of about $535 million to date, this level of economic benefits represents a benefit/cost ratio of more than 7 to 1. If the energy expected to be generated by these new renewable resources is instead generated by the system-wide mix of conventional, non-renewable generating resources, New York would experience an increased release of emissions amounting to 2,600 tons of nitrogen oxide, 5,200 tons of sulfur dioxide, and 1.9 million tons of carbon dioxide per year. • New York is also a member state in the Regional Greenhouse Gas Initiative (RGGI), a first in the nation initiative established to reduce greenhouse gases. RGGI is a carbon cap and trade program adopted by ten northeast and Mid-Atlantic States. Under regulations promulgated by the Department of Environmental Conservation, allowances to emit carbon dioxide in New York are to be sold at auction. NYSERDA worked with the DEC and the other RGGI states to develop a regional auction platform for the sale of the RGGI allowances. • The second auction was held in December of 2008, which marked the first time that New York allowances were made available under RGGI. New York’s share of the auction proceeds totaled approximately $42 million dollars, based on $3.38 price per allowance and all of our allowances were sold. Under the DEC and NYSERDA regulations, the proceeds from the RGGI auctions will be used to fund energy efficiency and renewable energy programs and services, as well as other greenhouse gas reduction strategies, in programs to be administered by NYSERDA.
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• NYSERDA is in the process of developing an Operating Plan to determine how the RGGI auction proceeds will be spent. That Plan is being developed in an open stakeholder process that features an Advisory Group, established by NYSERDA pursuant to our regulations, that includes among its members the Energy Committee chairs of the Assembly and the Senate. • In testimony provided to this panel last year, we briefed the members on the Clean Air Interstate Rule program (CAIR). In January 2008, our Board approved a Cooperation Agreement with the DEC under which NYSERDA agreed to sell nitrogen oxide allowances as part of the DEC’s NOx cap and trade program promulgated under EPA’s Clean Air Interstate Rule and use the proceeds for energy efficiency and renewable energy. In July, a federal appeals court invalidated the EPA program. Now, however, in a December decision, the U.S. Court of Appeals for the D.C. circuit has allowed the EPA program to remain in effect until EPA has an opportunity to promulgate a new rule to remedy the defects. NYSERDA will resume efforts to sell the allowances. Given the legal uncertainties surrounding this program, allowance prices have been extremely volatile and it is difficult to predict how much funding the sale of the allowances will generate. We are anticipating that the proceeds will be on the order of 20 to 40 million dollars. And we have competitively selected a nationally recognized environmental commodity broker who will auction the allowances in the existing markets.
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• In closing, these initiatives represent a significant investment in the clean energy economy that Governor David Paterson outlined in his State of the State address and that the State Legislature and government have been supporting for decades, as world leaders. With a renewed emphasis on energy policy, and research and development at the federal level, New York State is uniquely poised to reap the potential benefits of new resources and programs that will jump-start the state and national economy. Our academic institutions will provide the intellectual infrastructure necessary to help the private sector build a new knowledge economy based upon innovation and technology. • NYSERDA continues to build upon our long-term relationships with universities, colleges and community colleges in developing the green collar workforce required to make our homes and businesses more energy efficient, and to develop, install and maintain the renewable energy infrastructure necessary to meet the challenge of global climate change. • Given the current economy and the risk of some projects to attain capital funds, maintaining stability in the delivery of government funds becomes even more critical. In many cases, private capital looks to any public funds/incentives as an assurance that their investment will move forward. If that public incentive stream is jeopardized, the even-further limited capital that is available now, will seek other projects.
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• In addition, if the markets are moving towards a particular direction, it is essential that the incentive programs retain a degree of flexibility in order to follow those investments. We can craft the best programs in the country, but if the market is not responding to them, then we jeopardize the economic development potential and put at risk the ability to meet overall state policy energy goals. • As always, the staff of NYSERDA looks forward to working with all of you as we collectively address the issues confronting energy consumers across this State. • Thank you.
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