Most New Yorkers could care less about a ruling that an administrative law judge could make on the Iberdrola-Energy East merger as early as Friday.
But the decision could have huge implications for upstate New Yorkers and their energy usage.
Iberdrola SA is a Spanish utility that ranks as the world’s largest developer of wind farms. The company is a 50 percent owner of the Maple Ridge Wind Farm in Lewis County, which at 321 megawatts is the largest wind farm in New York state.
Iberdrola wants to buy Energy East Corp., an electric and gas utility headquartered in Maine that has 1.3 million upstate New York customers through its New York State Electric & Gas and Rochester Gas & Electric subsidiaries.
But the merger has faced opposition from the Department of Public Service, the state agency that oversees utilities in New York.
Staff at the department, who provide guidance and recommendations to the five-person Public Service Commission that must ultimately approve or deny the merger, have argued that the deal does not provide the public with enough benefits and that it could cause disruption to the state’s wholesale electric market.
Agency staff believe Iberdrola will hold too much sway over the state’s wholesale electric market if it owns a substantial amount of generation in the state, which is why the company has been pushed to sell Energy East’s power plants and divest itself of its wind business in New York.
Iberdrola has offered the agency concessions – namely $200 million in customer benefits, including an immediate $50 million decrease in customer rates. For the average NYSEG customer, that means a savings between $3.50 and $5 on a typical monthly electric bill of between $80 and $113.
And Iberdrola has offered to sell all of Energy East’s fossil-fuel plants in New York, the largest of which is a 250-megawatt coal-fired power plant outside Rochester.
Iberdrola does not know how much those plants would fetch, but such sales can net a lot of money. National Grid just sold its 2,480-megawatt Ravenswood power plant in Queens for $2.8 billion to TransCanada Corp.
But the two sides are vastly apart on one issue. Staff at the Department of Public Service want Iberdrola to sell its share in the Maple Ridge Wind Farm and to abandon plans to develop other wind farms throughout New York – an investment that would add nearly 1,000 megawatts of available power to the state’s energy supply and double the amount of wind energy that will be in place by the end of this year. Those project are in various stages of development, although none is up and running yet.
Iberdrola says requiring it to get out of the wind business in New York is a deal-breaker that could force the company to walk away from the $4.5 billion deal.
“We want to do the transaction, but we don’t need to do the transaction,” said Pedro Azagra, Iberdrola’s director of corporate development. “If New York feels comfortable without a company like us, I think that’s fine.” ‘s unclear the administrative law judge, Rafael Epstein, will rule on the merger, or if he will rule by Friday – a date requested by Iberdrola, which wants to wrap up the merger by next month.
After talks between the company and the department staff broke down earlier this year, a legal process started, much like a trial, in which both sides gave testimony and filed briefs in an attempt to sway the judge’s decision.
Once Epstein makes a decision, that will not be the end. There traditionally is a 20-day period where the parties in the case submit comments on the decision, and an additional round of comments are accepted for 15 days after that.
After that, the judge passes on his decision and findings from the comment period to the five members of the PSC, all governor appointees. The commissioners must then vote on whether to grant Iberdrola the merger or not. The vote is the last regulatory hurdle that Iberdrola faces.
The earliest possible date the PSC could vote on the merger might be during the commission’s June 18 meeting. But many observers, including former members, have said that it’s unlikely all of this process will be wrapped up by then, although Iberdrola is holding out hope. the customer, one of the biggest impacts of the PSC decision would be on the state’s renewable energy goals.
New York’s Renewable Portfolio Standard is designed to increase use of renewable power in the state, like wind, hydro and solar energy, to 25 percent of all electricity consumption by 2013.
The goal is ambitious. Officials with the New York State Energy Research and Development Authority, which runs the program, say they expect the state to reach 21 percent by the end of next year.
Using money collected in each consumer’s electricity bill, NYSERDA subsidizes renewable energy projects in New York and in other states as long as the plants sell power into the state’s wholesale market.
Since the program started in 2006, NYSERDA’s incentives have resulted in the construction of 1,206 megawatts of new renewable-energy power plants, generating 3.6 million megawatt hours of clean electricity a year.
NYSERDA is responsible for most of the renewable energy gains. But state agencies are also responsible for increasing their renewable energy usage, and consumers are expected to add a small amount through increased demand. To reach the state’s goal, a total of 12 million megawatt hours of annual clean generation must be added to the system, which means that the state is making steady progress.
“We’re moving along pretty well,” said Kevin Hale, a senior project manager with NYSERDA. “We’ve had a lot of progress, and we’ve exceeded a lot of expectations.”
No one at NYSERDA will predict if the state can reach its goal. Although a lot of the new generation being built to support the goal is wind power, a lot is from hydro power and biomass projects. The state is also studying a new plan called 15-by-15 to reduce energy consumption by 15 percent by the year 2015.
If that plan can be implemented successfully, it may be easier for New York to reach its renewable energy goals.
But rising global energy demand, especially for wind projects, and volatility of global markets that control financing for energy projects, make it difficult for NYSERDA officials to predict if they will reach the Renewable Portfolio Standard goals.
“We’ll continue to do what we can to reach that target,” Hale said. “We’re on track and one of the most successful programs in the country.”
Despite the opposition by staff at the Department of Public Service, Iberdrola believes New York needs it to reach its renewable energy goals. As part of its concession package, Iberdrola has offered to invest $100 million in wind projects in New York over the next three years.
That may not sound like a big deal when there are more than five dozen wind projects totaling 7,000 megawatts being planned throughout the Empire State.
But Azagra, the Iberdrola executive, says those are just projects on paper – nothing like the commitment Iberdrola is prepared to make. “It’s a guaranteed number,” Azagra said of Iberdrola’s offer. “Nobody right now in New York has committed to do anything. How many of them have turbines?” of has been an issue in the wind industry, but not for Iberdrola. Just over a week ago, Iberdrola demonstrated this by announcing it was buying 200 turbines from General Electric Co. for $655 million, a deal that would give it enough turbines in the United States through 2010. “There will be more to come,” Azagra said.
What’s interesting is that even though the wind power issue appears to be the most important and divisive to those outside the process, staff at the Department of Public Service don’t see it that way. “Wind is an important aspect of this proceeding, but it is not the most important,” said Jim Denn, a spokesman for agency staff. “There are other issues that are more important to staff: real financial protections for the New York assets, and benefits to the ratepayers.”
If Iberdrola is forced out of the wind business, it is unclear what would happen to Maple Ridge and Iberdrola’s 50 percent interest in it. Officials from Horizon Wind Energy, the Houston-based company that owns the other half, declined to comment.
The Independent Power Producers of New York Inc., an Albany trade group that represents power plant owners in the state, doesn’t think Iberdrola needs to get out of the wind business entirely. It just wants Iberdrola to stay out of the NYSEG and RG&E service territories, which include the Rochester and Binghamton areas as well as parts of the Capital Region.
The Maple Ridge Wind Farm is in National Grid’s territory, so IPNNY believes Iberdrola could keep its interest there and develop wind farms outside the current Energy East markets.
That would satisfy the desires of other power plant owners that believe the state’s deregulation of the energy markets – and the separation of generation and transmission – is good.
“What we don’t want to see is a return to policies where utilities own generation in their service territories,” said IPPNY President Gavin Donohue. “The fact is, Iberdrola will be a great entrant into New York’s energy market.”
18 May 2008
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