Outrages & Insights

Hard choices ahead on hydropower

We are approaching the moment of truth regarding cheap hydropower, the most potent economic development tool Western New York has at its disposal.

With the announcement that the New York Power Authority has awarded 18.7 megawatts of discounted hydropower to Steel Development, the region's inventory of unallocated power is 29 megawatts, down from a high of about 160 MW four years ago. That's out of a pool of 695 megawatts of so-called replacement and expansion power, WNY's share of the low-cost power produced at the Niagara Power Project in Lewiston.

At the same time, the folks at the Buffalo Niagara Partnership gave some interesting testimony last week to a group of state legislative leaders in town to hold public hearings on the nine economic development programs offered by the Power Authority.

Let me quote from the testimony:

The Buffalo Niagara Enterprise has made great strides working with solar panel and wind turbine manufacturers who have expressed interest in our region because of our proximity to both customers and supply chain, in addition to low cost hydropower. 

Currently, the BNE has nine active projects -- good projects, with real interest in our region, that come from the renewable energy industry, other advanced manufacturing sectors and that include brownfield cleanups and strong job creation as part of their plans.  Together these projects represent potential private sector investments of up to $4.7 billion here, and creation of nearly 5,500 new jobs. 

To land these projects, we (as a region) currently have approximately 40 MW of Expansion and Replacement power available…while the projects would likely require total allocations closer to 200 MW.

Indeed, Niagara Falls Mayor Paul Dyster told me the other day that he feels the region is putting itself on the map as a potential home to clean-tech industry and stands a decent shot at developing an industrial cluster -- if we play our cards right.

I don't expect that all seven of the projects mentioned by the Partnership will actually happen. Two or three, maybe.

The investment for, say, three projects, would approach 100 megawatts, with a payoff of something like 2,000 jobs, if the Partnership's numbers are in the ballpark.

Problem is, we don't have 100 megawatts to invest. Nope, we're down to 29, and that number is likely to drop further as NYPA finds additional customers before any of the big clean-tech projects advance sufficiently to obtain power allocations.

But, alas, there is a potential solution.

Long-term contracts for the major replacement and expansion power customers come due in several years and the authority is preparing for negotiations. The battle lines are being formed.

On one side are those who want to continue to treat long-term customers as though their allocations are a birthright, regardless of the bang for the buck.

On the other side are those who say we need to make the best and highest use of the power, and if that means some existing customers lose out, well, so be it, provided there is a net gain in jobs.

(News business columnist David Robinson had an interesting take in Sunday's paper.)

The reality is that a continuation of the status quo favoring legacy industries is going to limit the region's ability to attract new economy enterprises.

That's not an opinion, that's the reality.

Which means hard choices are on the horizon.

(As an aside, I've costed out the Steel Development deal, and it's on the pricey side, although less so than  Yahoo! at $810,000 per job over 15 years.

The Steel Development deal works out to a discount worth $32,325 per job per year over 10 years. The average annual cost per job for power allocated since 2006 is $11,833, so you can see the state is paying a premium for the 200 jobs that Steel Development would bring to the region.

The deal fares better, but not great, using a second measurement that considers how much investment projects generate per kilowatt of discounted power. Steel Development's $200 million investment works out to $10,695 per KW, vs. $11,451 for other projects awarded power since 2006.

In short, this is a generous deal.)

 

Smart study on dumb use of discounted power

In 2001 the New York Power Authority paid consultants to tell them what they didn't want to hear -- that the entrenched Replacement and Expansion Power program providing cheap hydropower to some 100 industries in Western New York wasn't working very well. Among other things, the report the team of mostly UB professors produced determined that 85 percent of the hydropower could be put to more effective use.

Then, in the waning days of George Pataki's days as governor, a blue ribbon panel charged with studying the state's nine discounted power programs, including the aforementioned Replacement and Expansion Power, said an overhaul was in order from Long Island all the way to Niagara Falls.

In 2007, The Buffalo News published an investigation I wrote that can be summed up with this line lifted from the main story: "The region is home to cheap power, high rates and huge corporate subsidies to a select few."

And the beat goes on.

Today, the Citizens Budget Commission releases a well-researched study of the state's nine discount power programs.

Its conclusion: Throw the circuit break on them and start over.

The programs, set up by legislation and managed by the Power Authority, all leave a lot to be desired, the study said. They don't align with the state's energy and economic development objectives and are tough to quantify and qualify because NYPA shields cost information from the public.

That's the bad news.

The worse news: The hydropower programs - Replacement and Expansion Power in our backyard and Preservation Power in Massena, which amounts to a huge handout to Alcoa -- are the least-efficient programs of all.

Consider these numbers from the Budget Commission's study, lifted from my story today:

Discounts for other discount programs offered by the state range from $247 to $630 per job per year. For the hydro programs, the cost ranges from $5,836 to $7,883 annually per job.

A look at the major recipients of low-cost hydropower customers in Erie and Niagara counties further drove home the point.

Statewide, the authority allocated on average 4.4 kilowatts of power for every job created or preserved. But the allocation for Olin Corp. in Niagara Falls works out to 497 kilowatts per job. The allocation is 244 per kilowatt per job for BOC Gases in Buffalo and 202 for Occidental Chemical in Niagara Falls.

Ah yes, good old Olin and Occidental. As I reported in my 2007 investigation:

Olin gets a $24 million annual subsidy -- an estimated $150,359 per job. Occidental gets a $28.7 million subsidy -- calculated at $111,144 per job.

Occidental's employment has dropped over the past three decades to about 200 today, but the pay is pretty good, in the $40,000 to $60,000 range.

Candace Jaunzemis, Occidental's plant manager, noted the facility's current payroll, including benefits, is about $20 million a year.

The value of its discounted power is some $29 million.

Therein lies the problem.

You'd think the state lawmakers whose legislation allows for this would be shamed into action. But it hasn't happened.

Not when George Maziarz - who is now incessantly yapping about NYPA's shortcomings, real and imagined - was a power on the Senate Energy Committee back when the Republicans were in change.

And not ever when Robin Schimminger sat, and continues to sit, as chairman of the Assembly's Committee on Economic Development, Job Creation, Commerce and Industry.

Most of the legislation governing the nine power programs is coming up on expiration, as are most of the authority's contracts with replacement and Expansion Power customers. Thus, an opportunity presents itself.

Rest assured, the Olins and Occidentals of the world are lobbying behind the scenes for a continuation of the status quo. There is no organized voice for change, but a few brave folks like Niagara Falls Mayor Paul Dyster are saying something has to give. So maybe there's hope.

After all, Gov. Paterson's folks reacted to the upcoming expiration of the legislation authorizing Empire Zones by proposing that the program be chucked.

I know this is short notice, but five Senate and Assembly committee chairmen. including the heads of both Energy Committees, are holding a hearing at 3 p.m. today at the offices of the Buffalo-Niagara Partnership, 665 Main Street, to take public comment on the future of the state's power programs.

On Wednesday, they'll do it all again at Niagara Falls City Hall at 10 a.m. The meeting notice for this hearing says the testimony is by invitation only, so you might want to get on the stick if you want to be heard.

Our senators do downstate's bidding

Here's how clueless Bill Stachowski and Antoine Thomspon are: The Democratic leadership trotted them out in Albany Thursday to plead for passage of an extension of the Power For Jobs program.

Trouble is, the program does Western New York little good. In fact, it's one of the ways the profits from  the Niagara Power Project are used to benefit downstate business interests.

Here's what I reported on the program in 2007 in my Power Failure investigation of the New York Power Authority:

The program was started in 1997 and was supposed to end in 2000, but lawmakers continue to extend it. In the process, they have required the authority to reimburse the state for an increasing share of lost tax revenue, now 100 percent. The program involved 599 companies as of a year ago, including 89 from Erie and Niagara counties, whose allocation of discounted power accounted to 12 percent of the statewide total.

Power For Jobs is now slated to end this June, but the authority as it now stands remains on the hook for another contribution of $175 million.

While Niagara power isn't the sole source of funding for the voluntary contributions, the Power Authority acknowledges the plant's profits do go a long way.

In other words, profits from our plant are being used to subsidize the operations of downstate businesses.

Rep. Brian Higgins is negotiating with the New York Power Authority to secure a portion of the Niagara Power Project's profits to benefit Western New York. The expiration of the Power For Jobs program would free up money towards that end. But we've got Thompson and Stachowski doing the bidding of downstate interests instead.

They're team players, all right. Just not our team.

 

Anti-bonus bill passes Assembly

A bill to prohibit bonuses to management and other non-union employees at state authorities - including the New York Power Authority, which handed out nearly $40 million in such pay this past decade - passed the state Assembly 122-0 yesterday.

The bill is sponsored by Sam Hoyt. A companion bill in the Senate is one of many measures on hold because of the coup chaos. 

Yahoo! continued

The Buffalo Geek has some salient thoughts on the apparent decision by Yahoo! to locate a server farm (1) in WNY and (2) in Lockport.

Says the Geek:

As I described last month, if a data center project of this scope is properly sited and planned, it can have a positive multiplier effect on the local economy.  Yahoo! is building these regional data centers to support their plans in the cloud computing space and the potential for independent application development firms and support industry is quite lucrative with this business model.

Placing the data center in Lockport, away from the academic clusters and other related industry limits the potential for spinoff, such as it is.  While Lockport is a much better choice than Pembroke or Cambria, I wonder why New York State did not encourage Yahoo! to locate its facility in the urban core of Buffalo or Niagara Falls or even Amherst. 

Oh, wait…I know!  It’s because we don’t have a plan.  Practicing ad hoc economic development is no way to go through life, guys.  Here’s a lesson for local leaders, if you’re going to give away over $1MM in incentives per job created, you have the responsibility and right to dictate some of the criteria for site selection.

The Geek is right -- this region does not have a plan, or a strategy, when it comes to economic development. What it does have is a lot of businesses getting tax breaks and big power discounts because, well, they're there for the taking.  

Higgins' zig-zag, for better and worse

Hardly anyone, not even the folks at the New York Power Authority, are disagreeing with Brian Higgins these days regarding his assertion that Western New York ought to be getting more benefits from the Niagara Power Project. Not when it generates more low-cost electricity than all but a handful of hydropower plants in the nation, and not when it cleared $205 million last year, providing the authority with nearly 70 percent of its profits.

There is, however, lots to debate in the congressman's latest proposal on how NYPA ought to belly up to the bar.

Nearly two months ago, Higgins submitted a bill in Congress that would have required NYPA to return the proceeds from the sale of any unused power earmarked for local industry. It's been averaging about $40 million per in recent years. He got members of the local delegation to the State Legislature to sign on with companion legislation that was announced at a press conference Saturday.

The potential problem with that approach is that, if the authority were to do the right thing and allocate  the power, as it's been able to do for most of its 50-plus years, there wouldn't be any proceeds flowing back to WNY. The authority's decision last month, done at the behest of Gov. David Paterson, to give a big allotment of power to Yahoo!, even though the discounts add up to $810,000 per job, show just how easy it is to move power out the door if and when the authority is so inclined.

In a shift that Higgins doesn't see as such, the congressman now wants NYPA to return 36 percent of the plants profits to WNY for economic development purposes. Pegging a number to net revenue makes a lot more sense, in that the profits aren't going to go away.

Higgins calculates that his formula would generate about $65 million a year. My math tells me that, based on the profits last year, the number would be close to $74 million. Last year's profits were a record, however, and if you go back seven years -- low water levels in the two or three previous years resulted in abnormally low earnings -- the number would be $47.5 million.

Either way, a decent chunk of change.

How Higgins would spend the money, no matter the formula, is where the debate ought to begin.

For starters, he proposes that 60 percent of it come to Erie County. I think the folks in Niagara County, where the plant is located and where most of the low-cost hydropower is now allocated, might have something to say about that.

Also worth debate is how Higgins would spend the money in Erie County.

Some of it is earmarked for economic development that involves technology and good-paying jobs, primarily for the expansion of the Buffalo Niagara Medical Campus. Some of it is for infrastructure that would, among other things, help open the Outer Harbor for residential development.

But a lot of it would be targeted for capital improvements to cultural facilities, in an effort to promote the notion of cultural tourism. Money to add gallery space to the Albright-Knox, help finish the Darwin Martin House, get the restoration of the H.H. Richardson complex off the dime, build an exhibit at the Buffalo Zoo and spiff up the Tiff Nature Preserve. Stuff like that.

My question: Is this really the best and highest use of our economic development dollars?

Once you get past short-lived construction jobs, how many good-paying jobs would be created?

How many in the future economy involving technology, clean energy and other other green-collar jobs?

And what would the Higgins plan do to address poverty in Buffalo, the nation's third-poorest city, and Niagara Falls, which isn't much better off?

One could argue that much of what's on Higgins' list would return a relative modest bang for the buck.

I understand his reasoning -- it's work that's ready to go, which could boost what many consider to be an important component of the regional economy, and which could capitalize facilities that maybe haven't gotten enough TLC.

But I'm sorry, you lose me with $10 million to help relocate a golf course and restore South Park to its former glory.

It's not that nicer parks and bigger art galleries and improved zoo exhibits aren't good things.

But they're not going to generate a lot of jobs, and especially not good-paying ones.

And that's what the name of the game ought to be.

Power Authority paid nearly $40 million in bonuses

Most of us working stiffs can look forward to a pay raise once a year. Well, at least we could before last year's financial meltdown.

But for employees at the New York Power Power Authority, Christmas has come twice a year the past decade.

There was the annual pay raise, of course. Good raises, ones that I found had bumped the average NYPA salary up to more than $82,000 by 2005, as I reported in my "Power Failure" series.

On top of the annual pay raise came something called "variable pay." Something you and I would call a "bonus."

As I report in Sunday's News, the authority from 1999 to 2007 paid out $39.8 million in variable pay/bonuses. It worked out to an average of $2,452 per employee the last year checks were cut. The big cheeses got as much as $8,100.

Practically no one has been left out. Even temps and part-timers got in on the action. Part-time tour guides got $500 apiece.

Over the years, the bonuses amounted to an average of 3.3 percent of pay. I don't know about the rest of you, but there haven't been too many years I've seen a 3.3 percent raise, much less bonus.

NYPA boss Richie Kessel suspended the payments due for 2008 this past March after a lot of politicians started hootin' and hollerin' about the bonuses about the time everyone was screaming about the big bucks still flowing to people in the Wall Street firms that helped get us into this national financial mess.

"You have to put your finger in the wind once in a while and the winds told me that this was not a good idea," Kessel said.

The bonus program hasn't been killed, but it is on life support, pending a study of employee compensation that is in the works. Kessel notes that NYPA competes with the private utilities for talent and therefore has to pay competitive wages and benefits. While he's not sure what the study will show, his hunch is that it demonstrate that NYPA employees on balance are underpaid.

"I'm sure there are some well-paid people at NYPA, but I'm also sure there are a lot of underpaid people at NYPA, too," Kessel said.

Underpaid?

I dunno, maybe there's some engineer someplace who could be making a bigger buck elsewhere. But with one in five employees knocking down over $100,000 a year, with the average janitor making $52,000 a year, security guards $57,000 and trade apprentices -- apprentices! -- $65,000, I think the authority could find takers without bonuses.

Then there's the big bucks given to the big wheels. Roger Kelley was pulling down $235,000 to run the authority in 2007. Given that money, did we need to give the guy a $4,496 bonus to do his job well?  

Assemblyman Richard Brodsky, no friend of authorities, is correct in saying a theoretical case for performance-based pay can be made. But the size of the bonuses, on top of already-big paychecks and generous benefits, underscore how the Power Authority in some ways continues to operate in a parallel universe.

And, folks, we're not in it.

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For those of you who want to play a while longer in the sand box, check out these ditties:

Searchable database of all bonuses paid from 2003-2007.

Authority's variable pay policy

Authrority's variable pay criteria for 2007

Story from my 2007 "Power Failure" series on authority pay, perks and profits.

 

Yahoo! or Boohoo?

When the federal government helps underwrite job creation, it often caps the subsidy at $35,000 per job.

The New York Power Authority has offered hydropower discounts worth $809,940 in an effort to lure a Yahoo! data center to Western New York.

I think the numbers speak for themselves.

Come to think of it, I'll let a few more talk.

I've built a database that tracks allocations of low-cost hydropower the Power Authority has made since 2006. The value of the discounts has worked out to an average of $12,446 per job, per year.

The richest of the deals worked out to $32,733 per head.

Yahoo! would come in at $53,996.

Multiply that by the 15-year contract and you're at $800,000 and change.

Power Authority boss Richard Kessel concedes the numbers don't look good on the surface.

"On a number basis this doesn't look like the greatest deal in the world, but we can't look at the numbers alone," he said. 

He quickly added, "Numbers matter less than jobs. We've just got to create jobs in Western New York."

Greg LeRoy of Good Jobs First, a national expert who I've used for years as a sounding board for economic development subsidies, said the proposed Yahoo! subsidy is one of the largest he's ever seen, and he questioned if the deal is the smartest way to leverage low-cost hydropower to create jobs.

"It really, really begs the question of what else cheap electricity could be doing to stimulate the regional economy," LeRoy said.

With that said, I'll leave you with a few more numbers to ponder.

If the authority could find takers for the 15 megawatts allocated to Yahoo! for the aforementioned average cost per job of $12,446, the result would be 542 jobs, not the 125 Yahoo! is guaranteeing.

A hypothetical situation, granted. But worth contemplating.

I'll have more on the deal in the days ahead.

 

We need jobs, not symbolism

State officials are talking with Yahoo! about putting a data center somewhere in WNY.

Reports my colleague Tom Precious:

A state official, speaking on condition of anonymity, said Friday that Gov. David A. Paterson directed the New York Power Authority to work with Yahoo on possible state assistance involving low-cost power to lure them to the Buffalo area. A plan could go before the Power Authority board as soon as next week.

Officials said the center would not result in a large number of jobs, and a source could not put a precise number on the center’s work force. But the official said the symbolism of luring a giant like Yahoo to the region could help with other economic development efforts aimed at high-tech companies.

“It’s a big brand that we can showcase, if Yahoo goes to Western New York, that sends a message that New York is open for business, that New York wants to generate jobs for the future and we want to attract cutting-edge companies,” the official said.

Jay Rey has a follow up in today's News.

Google was sniffing around for power a while back, but the Power Authority and the state board that allocates low-cost hydropower decided the deal didn't bring enough economic benefit for the considerable subsidies Google was seeking. Those decision makers should remain level-headed in dealing with Yahoo!

The numbers on investment, jobs and subsidy have not been disclosed, so I have no sense of whether the prospective deal represents a good investment of public resources, in this case, low-cost hydropower.

But as a rule, data centers require vast amounts of electricity and bring relatively few jobs. They also tend to locate in rural areas, blunting the potential for economic spin-off.

I've been tracking power allocations made by Power Authority since January 2006, and the value of power discounts, depending on fluctuating energy prices, have tended to average in the range of $10,000 to $15,000 per job per year.

Those figures are high compared to the typical government subsidy to create jobs. The feds cap assistance in some of its major job creation programs to $35,000 for the lifetime of the subsidy. Power Authority subsidies typically exceed that cap in fairly short order.

Yeah, I know, landing a big name like Yahoo! or Google sounds neat. Politicians talk about the symbolism of it all.

But it's not symbolism this region needs, it's jobs.

That requires using low-cost hydropower to it's highest and best use. Maybe Yahoo! fits the bill. Maybe it doesn't. Let's see what the numbers show.

Is Richard Kessel blowing smoke?

Sure, he's saying a lot of the right things, but can we really believe Richard Kessel's promises to help Western New York, or is the New York Power Authority chief just giving us lip service?

My take: I think he is trying to mend fences with Western New York.

That said, I'm not blind to the authority's track record in our neck of the woods.

Kessel has the advantage of not having the "pride of authorship" of that history, and he certainly has not gone out of his way to defend the authority's actions. In fact, when he says some of the things he says, like NPYA has been shortchanging WNY, you can sometimes see some of his staff cringe, as if to say: "I can't believe he's saying that." I'm not the only one seeing it.

Some folks, starting with Congressman Brian Higgins, remain skeptical.

Others, including Niagara Falls Mayor Paul Dyster, think Kessel gets it.

What's motivating Kessel?

Politics, to a certain degree.

Kessel is running the show at NYPA because of David Paterson. And the governor is in deep trouble, here and elsewhere.

If Paterson has any chance of getting the Democratic nomination, much less winning the general election, he needs to start winning back favor. And one way to do it -- here in WNY, anyway -- is to have NYPA start doing right by the region.

To quote Bubba, 'It's the economy, stupid," and smarter use of NYPA power and profits can help.

In other words, in this case, smart energy policy is smart politics.

Beyond that, Kessel's track record in Long Island suggests he has an interest in renewable energy and a taste for big projects. He's a guy who likes to make his mark. NYPA's money affords him that opportunity.

Given the authority's track record, it's important to watch what Kessel does, not just what he says.

But I think anyone who simply dismisses what he says based on NYPA's history is being simplistic. In some ways, Kessel is a different cat from his predecessors. Moreover, the authority has never been under greater pressure to change the way it does business.