Sunday, January 04, 2009

NYRI: Manipulating “Public Need”

[This article was originally published in the December 2008 "Utica Phoenix":]

Our state legislature has delegated responsibility to the Public Service Commission (PSC) to determine whether projects such as New York Regional Interconnect’s (NYRI) power line can be allowed. NYRI cannot commence construction without PSC certifying the project's "environmental compatibility and public need."

"Need," however, is one of those words that mean different things to different people depending upon one's perspective. Amazingly, neither the Legislature, in the Public Service Law, nor the PSC, in its rules, bothered to define what "public need" is.

The cynical view is that the Legislature purposely dodged the issue, giving PSC the "dirty work" of determining what "public need" is. That makes the unelected body a lightening rod for unpopular decisions and allows legislators to run for re-election without having to justify to constituents as to why a power line may have to run through their backyards. Meanwhile, the PSC appears to be determining public need on a case-by-case basis, perhaps because it had little guidance from the Legislature upon which to base a rule. Arguably the Legislature has unconstitutionally delegated too much of its legislative authority to the PSC. However, that argument would have to be made in court, and it is doubtful that anyone would have the interest and wherewithal to mount such a challenge, especially given court deference to acts of the legislature and administrative agencies.

Another view is that the Legislature felt "public need" would be obvious and needed no definition. However, to avoid usurping the role of our duly elected representatives, the PSC cannot simply make up a yardstick for determining “public need” without some reference to legislative guidance, as unclear as that guidance may be.

Since the law requires public hearings, perhaps the legislature intended for public opinion to be the measure of need. If that is the case, then the NYRI project must be rejected as unneeded. Opinions expressed during the recent hearing in Utica were almost unanimous against it. Other hearings produced similar results, even in areas that supposedly would benefit from the project. Different people may have had different motivations (preservation of scenery, concern over health effects, declining property values, impacts to rates or economic development efforts, etc.), but they came to the same conclusion: the project was not needed when weighed against these other concerns.

Perhaps the legislature felt that its Transportation Corporation Law adequately covered the subject. NYRI styles itself as being organized under this law in order to use its power of eminent domain. However, the same law says, "electricity must be supplied on application" to any building within 100 feet of a line. This suggests that the legislature intended for power lines to bring the benefits of electricity all along their routes. If that is the measure of "public need," then NYRI fails again because the project is technically incapable of supplying power to users along its route. Power can only go in at Marcy and exit in Orange County.

NYRI has indicated significant reductions in power costs Downstate as justification for its project – as satisfying a “public need” -- while increases in cost Upstate are claimed to be modest. However, like the concept of “need” itself, what is expensive or cheap power is relative, depending on one's perspective.

Upstate's manufacturing economy was built on readily available cheap hydropower. That made the economy here much more sensitive to the price of power than the financial-services based Downstate economy. For Upstate to be competitive, costs of power must be kept at least as low as costs in competitor states with the same climate and similar manufacturing economies, such as Ohio, Pennsylvania and Kentucky. In fact, there is no logical reason why Upstate power rates, if we were treated as a separate region, could not be lower than our competitors because we have an advantage in hydropower resources. The fact that our rates are, instead, among the highest in the nation is purely the product of state government decisions that have not accounted for Upstate’s “needs.” Our high electric rates have exceeded a tipping point, driving jobs and population away. That has reduced demand for electricity Upstate.

Meanwhile, Downstate has even higher electric rates in absolute terms. However, the tipping point there has not been reached. Downstate population, and demand for power, is still growing. Even though people Downstate complain about high costs, costs have not been high enough to drive people out. That is because Downstate’s economy is not as sensitive to high rates, and the people there have higher incomes and are better able to pay them. State-pricing policy, not accounting for the differences between the Upstate and Downstate economies, has resulted in decreasing demand for power Upstate, and continued growth in demand for power Downstate.

The elephant, the Federal Government, now enters the room. It has determined that the free-flow of electrons from regions of lower demand to regions of higher demand is in the “national interest” and adopted a policy to make this happen regardless of the wishes of individual states. The NYRI project, because it would facilitate electron flow from lower-demand Upstate to higher-demand Downstate, will have Washington on its side. If New York does not permit the NYRI project to go through, as long as an imbalance in demand between the regions exists, Washington will use its policy to overrule New York and shove the project down Upstaters’ throats.

New York, however, does have options to defeat NYRI beyond playing legal games. It could use its regulatory power over electric rates to eliminate the imbalance in demand between the regions. It already uses pricing in some places to reduce power use during peak demand periods. As we are now all painfully aware from last summer’s $4+ per gallon gasoline, behavior will change and demand will drop when the price of a commodity goes high enough. If prices were to be sufficiently raised Downstate (and, perhaps, lowered Upstate) a point would be reached where the demand between the two regions would balance out. Then there would be no need for NYRI. Upstate might actually start attracting manufacturing jobs again, and Downstate might become more self-sufficient in power with nuclear, offshore wind, and tidal power projects.

But if the NYRI power line goes through, a cruel negative feedback loop will result. The line will encourage the siting of more power plants Upstate and shutting down plants Downstate. This will only increase the imbalance in demand between the regions, and justify more NYRIs in the future.

In sum, “public need” for a power line is a matter of perspective, but ultimately the Federal view will prevail. By that measure, New York has created the “public need” for NYRI through past decisions. Instead, New York should now use its rate-making authority to even out the demand for electricity between Upstate and Downstate. That would not only encourage jobs to return Upstate and development of more power generation Downstate, it would eliminate the justification for NYRI altogether. NYRI would be rendered useless.

[Be sure to pick up the January 2009 "Utica Phoenix" to read "Maintaining Identity, Advancing a Region"]

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