Latest move in power play leads to blackout warnings

Real Estate Weekly, March 7, 2007 by Esther O. Perez

New York City could be heading towards a repeat of last year's summer power blackouts or worse, according to energy asset managers, ConsumerPowerline (CPLN).

The Federal Energy Regulatory Commission (FERC) is expected to vote today (Wednesday) on a proposal by the New York Independent System Operator's (NYISO) to reduce the amount of money big energy consumers are paid for reducing their power usage during electric grid high-demand periods.

"One of two messages will be sent to New York today; if FERC votes against this proposal, they are saying 'Okay, we're coming in and saving you', but if they vote for the proposal, they are basically saying 'If you guys want to slit your wrist, that's your business," said Mike Gordon, founder and president of CPLN.

Since 2001, the New York State Energy Research and Development Authority (NYSERDA) has implemented emergency Demand Response Programs in New York City to help promote energy conservation in skyscrapers, hotels and Time Square's famous neon signs, by allowing energy providers, such as Con-Edison, to buy back energy to help avoid jeopardizing the State's electric grid stability.

Contributors can earn up to $200,000 annually with the present cap rates for electricity, $105 per kilowatt per year. The NYISO proposal would cut that by 17% to $85 per kilowatt.

CPLN--the largest non-utility provider for DSM in the United Sates--claims that any reduction in payment would turn customers off to the program. The company also says the plan is in contradiction with two recent government reports issued by FERC--the independent agency that regulates the interstate transmission of electricity, natural gas and oil--and the U.S. Department of Energy (DOE), which both recommended that the Demand Response Programs should operate nationwide.

"The impact of just a 25% loss in program participation translates to 150 megawatts of lost emergency power capacity--or enough to support 125,000 homes," said Gordon.

NYISO, the federally regulated, not-for-profit corporation charged with operating New York's bulk electric transmission system, has strong support from the state's Public Service Commission and Con-Edison who supported Demand Response during last summer's heat wave.

"The issue before FERC addresses the current market for electricity capacity in New York and is intended to allow the price of capacity to vary more widely when there is excess capacity available. We expect little if any impact on what Demand Response providers receive from energy and capacity payments. We do not foresee any impact on service reliability," Alfonso Quiroz, spokesman for Con-Edison.

Among the organizations that supply electric power to the grid during an emergency are Macy's department store, Morgan Stanley, CB Richard Ellis, Forest City Ratner, New York University, First Financial Residential, Co-op City, Swig Equities and Newmark Knight Frank.

Starwood Hotels & Resorts Worldwide, Inc, is a large contributor to the emergency needs of the city. John Lembo, senior director of energy for Starwood Hotels & Resorts--which operates, among others, the W Hotel in Times Square--said, "To us, participating in demand response programs helps ensure that the lights will be kept on for all New Yorkers. It's good business and good corporate citizenship.

"If FERC allows this proposed market change, market revenues will fall, and our hotels will have to reconsider participating in demand response."

CPLN argues that the NYISO has incorrectly processed the impact on the Demand Response Program, the long-term rate increases for consumers due to construction of fewer power plants and the increased use of costly peaking power plants to bail the city out in a power emergency.

"The only thing we're asking them to do is not to make a decision without looking at the permanent side effects," said Gordon.

"If the entire program folds, we can almost guarantee a major blackout in the event the summer of 2007 even approaches the severity of last year's temperatures.

"Without a robust emergency demand response program in place, and with unanticipated load-growth, we're truly on red alert. There is a real prospect of blackouts this summer that would make the 2006 Queens blackout look like a walk in the park."