New York Power Authority

Power Generation in the New York City Area

The New York Power Authority (NYPA) provides about a quarter of the electricity used in New York State, selling electricity to investor-owned utilities, large industrial customers, and government agencies in the New York City area. In fact, three of NYPA’s government customers in New York City account for about 16 percent of the City’s total peak demand for electricity. With the assistance of a consulting firm specializing in utility operations, we audited the processes used by NYPA in deciding to build and operate a new power plant in New York City (the plant is scheduled to begin operation in 2005), and install and operate 11 small generating units in or near New York City (the PowerNow! project, which was completed in 2001).

We found that, before proceeding with its plans to build and operate the new plant, NYPA did not evaluate a number of alternatives commonly considered by utilities contemplating large construction projects. While additional power plants are badly needed in the New York City area, one or more of the alternatives not considered by NYPA may have been more financially beneficial to NYPA, and may also have been more financially beneficial to NYPA’s government customers. In addition, in the new competitive markets created by the restructuring of New York State’s power industry, one of the alternatives not considered by NYPA may have been more financially beneficial, in the long run, to all power users in the New York City area. We also determined that improvements are needed in NYPA’s cost estimation process, as NYPA’s estimate for the new plant rose from $375 million in 1999, when NYPA’s Board of Directors approved financing for the project, to $650 million in 2002, when construction actually began. NYPA’s Board of Directors cannot make informed decisions about construction projects if cost estimates are not reasonably accurate, and we determined that many of the costs not identified until late in the construction planning process could have been identified earlier.

The eleven PowerNow! generating units are not used to supply NYPA’s regular government customers in the New York City area; rather, they are typically operated only during periods of peak demand to provide additional power for the New York City wholesale market. NYPA installed these units in response to power shortages forecast by power industry regulators for the New York City area. In less than two full years of operation, NYPA had lost about $175 million on the units. We determined that, while NYPA’s installation of the units met a public need, the units do not have to continue to be operated by NYPA. We recommended that NYPA formally evaluate whether the units should be sold to the private sector. We also recommended that NYPA make a clear public statement describing its role in the New York City power market, because in the absence of such a statement, private sector investment in the area may be discouraged.

For a complete copy of Report 2001-S-64 click here.
For a copy of the 90-day response click here.