From: issuealert@scientech.com
Date: 2001-03-22 11:21:00+00:00
Subject: New York Obstacles Thwart Sithe Energies' Plans for New Power Plant

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IssueAlert for  March 22, 2001 

New York Obstacles Thwart Sithe Energies' Plans for New Power Plant 

by Will McNamara 
Director, Electric Industry Analysis

[News item from PR Newswire] Sithe Energies, Inc. announced that, in response 
to issues raised by local residents, the company is reassessing its plans for 
a power generating facility in Ramapo, New York. The alternative currently 
under review is a smaller "peaking" facility, which would use no water for 
generation and operate only during a time of peak electricity use and 
emergencies to help ensure reliability of the region's electricity supply. 
Originally slated as an 827-MW combined cycle facility fueled by natural gas, 
the alternative plant is a 510-MW peaking unit also powered by natural gas. 

Analysis: Sithe Energies' original plans for the Ramapo plant appear to have 
been thwarted by concerns among local residents who opposed certain aspects 
of the plant. Ramapo is located 30 miles north of New York City. Chief among 
the concerns of local residents is that Ramapo plant was originally planned 
to run all the time to meet demand, and as a result would use local water 
resources for cooling purposes. In response to the concerns of residents, 
Sithe is modifying plans for the plant and reducing its planned output. 
Unfortunately, Sithe plans to move forward with a smaller peaking unit at the 
very time when it has become increasingly clear that the state of New York 
has some rather serious power supply concerns.  

For background, it is important to note that Exelon Corp. owns nearly half of 
Sithe Energies. In December 2000, Exelon acquired 49.9 percent of the stock 
of Sithe. The remaining 50.1 percent of Sithe is owned by Vivendi (34 
percent), Marubeni Corp. (15 percent) and Sithe Management (1 percent). The 
acquisition marked the continuation of an aggressive generation expansion 
plan on the part of Exelon. 

Jim McGowan, Sithe senior vice president for development, referenced the role 
that public opposition played when he spoke about the new plans for a peaking 
unit in the area. "Sithe has a strong history of working closely with local 
communities and inviting their input to ensure their major issues are 
addressed," McGowan said. "We've listened carefully to [residents'] concerns 
and are addressing them by considering a facility that is clean, less 
visible, and uses no water for generation." McGowan further noted that the 
new peaking plant will only operate a limited number of hours annually while 
fulfilling the region's growing need for electricity during times of peak 
consumer demand. 

As an independent power producer, Sithe Energies owns power plants across the 
United States and internationally. The company has a generation presence in 
such states as California, Colorado, Massachusetts, New Jersey and 
Pennsylvania (among several others). In New York, Sithe Energies owns four 
rather small plants and one large plant that generate approximately 1,329 MW: 
Batavia (58 MW), Independence Station (Scriba, N.Y., 1,042 MW), Massena (86 
MW), Ogdensburg (83 MW), and Sterling (Sherill, N.Y., 60 MW). In addition to 
the proposed peaking plant in Ramapo, Sithe Energies also has proposed 
Heritage Station, an 800 MW power plant located near Lake Ontario. A full 
siting review in New York normally takes a year to complete. However, 
projects under 80 MW are not required to go through the extensive 
environmental impact statement, which generally involves a detailed*and time 
consuming*examination of alternatives.  

The state of New York has not brought a new plant online since 1996, when a 
200-MW plant opened in Brooklyn. It has been almost seven years since a 1,000 
MW unit in Oswego, N.Y., marked the last plant to open upstate. Further, New 
York expects only a 3.5-percent increase in new capacity in the next three to 
four years. Consequently, concerns about the state's ability to meet 
increasing demand for power have gained momentum, heightened by the ongoing 
problems in California. Pressure has been placed on New York regulators to 
expedite the approval steps for siting new plants in the state. However, at 
the same time, environmental groups closely guard the proposals for new 
plants and often lobby for limitations on how and where the new plant will 
produce power. This appears to be the case in Sithe Energies' Ramapo plant, 
which is proceeding on the condition that it will not use water resources to 
generate power. 

While other new plants are being planned in New York, realistically it will 
be two years or more before they come online and provide sufficient capacity 
to ease concerns about shortages. Meanwhile, the state enters this summer's 
season with significant doubts about its ability to meet power demands. "New 
York City, like other areas of the Northeast, the Midwest and California, is 
in a very serious situation," reported a member of the New York Public 
Service Commission to the New Assembly.  

While the entire state of New York is subject to shortages, the problem 
appears to be particularly acute in New York City. A November 2000 FERC 
report entitled "Investigation of Bulk Power Markets, Northeast Region," 
highlights specific capacity problems in the New York City/Long Island 
community of 11 million people. These areas are particularly vulnerable 
because they are isolated from most of the state's grid, the study says. Like 
northern California, which suffered rolling blackouts due to transmission 
constraints, New York City and Long Island can only import limited quantities 
of power on constrained transmission lines. Hydro and fossil resources are 
plentiful in upstate New York, but cannot reach the city. Being both densely 
populated and heavily residential, it is difficult to site new power plants 
in the area. Consequently, 80 percent of the power that the city consumes is 
generated by the city. New plants are being proposed because New York City 
reportedly will be 300 MW short of its required 8,428-MW generating capacity 
needs this summer. That projected shortfall is expected to increase by 
another 200 MW by summer 2002.  

Increased demand is causing additional problems for the energy markets of New 
York City and New York State. Demand in the state rose by 2,700 MW from 1995 
to 2000, or 2.5 times as fast as new generation capacity was added. This 
year's demand is expected to reach 31,100 MW, or about 3.7 percent above 
regulators' earlier forecasts. According to the FERC report, New York City's 
load should reach 10,535 MW this summer alone, requiring 8,428 MW of in-city 
capacity, along with imports, to meet demand and provide a reserve margin. 
With a current capacity of 8,132 MW, there is a potential 296 MW shortfall. 
Long Island has a potential 131 MW shortfall to meet the required 4,653 MW of 
power.  

The report confirms earlier projections by FERC Chairman Curt HSbert and 
others that unless New York gets additional generation capacity online within 
the next few months, the state could suffer some of California's problems. 
However, despite the need for additional power generation in the state, the 
intense public scrutiny of Sithe's plant in Ramapo echoes similar protests 
from environmental groups and politicians for new generation plants 
throughout the state. For instance, the New York Power Authority's (NYPA) 
plan to install ten 44-MW combustion turbines by June was met with opposition 
from environmental groups like the New York Public Interest Research Group 
(NYIRG), which has sued the NYPA, charging that it circumvented the 
environmental review process for siting new plants. In addition, FERC's 
report included data from the New York ISO indicating that there were 
approximately 74 projects proposed to be built in New York State (as of 
November 2000). The report indicated that only one of these projects is 
likely to be built in the next three to four years. 

Although Sithe has modified its plans into a smaller peaking unit, McGowan 
has reiterated that New York should not fall behind in meeting its energy 
requirements. If it does, it will make the same mistakes for which California 
is now paying a tremendous price. Along the same lines, William Muesler, CEO 
of the New York ISO, recently said that to avoid a replication of 
California's market meltdown, New York must move quickly to build more power 
plants. Muesler cited that 8,600 MW of new power plant capacity, 25 percent 
more than is currently available, must be constructed in New York by 2005 or 
shortages will become likely, pushing up prices and increasing the odds of 
rolling blackouts.  

However, despite these clear warnings about the need for new power plants, 
"not in my back yard" has been a common response in New York. Even New 
Jersey's acting Governor Donald T. DiFrancesco has joined the ranks of those 
opposing new power plants in the region. DiFrancesco reportedly told a 
meeting of about a dozen North Jersey mayors who oppose new power plants that 
he has created a task force to help opponents of various power plant projects 
in New York and New Jersey. Included in the task force are members of 
DiFrancesco's own staff, the state Department of Environmental Protection and 
the Attorney General's Office. Moreover, although California offers a clear 
picture of the ramifications that can result from not establishing adequate 
supply, New York appears to be heading down a similar path. Although 
California and New York have different restructuring models, one market 
factor is the same in both states: supply that cannot meet demand. We know 
the toll that this inequity has had on California. Is it only a matter of 
time before New York suffers the same consequences? 

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