LIPA hurries to build power capacity as NY aims to cut demand

Most days this spring, the state meter that gauges Long Island's daily electric use rarely tips the scale beyond 3,000 megawatts -- a big number, but still only around half the Island's total available electric capacity.

But as system planners at the Long Island Power Authority look to the future, they see a troubling gap. By 2022, according to LIPA's "Need for Resources" road map released this spring, there will be a shortage of 1,125 megawatts -- the equivalent of the combined output of three large power plants.

LIPA attributes nearly half the shortfall to unforeseen circumstances -- things that may or may not happen -- such as a cable failure or plant outage. But its projected need far exceeds what the state expects will be necessary by 2022.

That has led the authority to seek proposals for vast new amounts of power that will commit ratepayers to billions of dollars in payments for the next two decades.

These projections come after a decade during which LIPA has been building capacity, some say well beyond its need. A 2013 state-commissioned report by Potomac Economics, a consulting firm, stated, "Long Island generally has far more capacity than needed to satisfy its local capacity requirement."

LIPA's plan also comes as New York State articulates a new energy vision that encourages widespread use of methods to reduce energy demand to offset the need for new plants.

"Finding ways to reduce peak demand represents the single largest savings opportunity for consumers in New York," Gov. Andrew M. Cuomo's administration said in an April statement. " . . . New transmission lines and power plants won't have to be built, and expensive peak power won't have to be used."

Local experts are pointing to the apparent disconnect between the two aims, and many are questioning whether the additional power is needed.

"Everything we own as residential consumers is using less and less electricity," said Shawn Nuzzo, president of Ecological Engineering of Long Island, a green-energy consulting firm in Stony Brook. LIPA, meanwhile, appears to be planning as though the population were increasing and "heavy equipment manufacturing were coming back to Long Island," he said.

LIPA's power road map may be in for some changes by PSEG Long Island. PSEG staff, at LIPA's request, has been reviewing the projections and in July, it will report on whether the authority needs to adjust them, said David Daly, PSEG Long Island president.

Daly declined to say whether he expects there will be an adjustment, but promised the analysis will weigh the costs of new projects against the projected need. PSEG will take over LIPA's power markets division by Jan. 1, 2015.

LIPA and the state say New York's new energy vision would take time to implement and does not obviate the need for new plants and transmission. LIPA says a new Caithness II power plant, at least one plant repowering, peaking power-unit upgrades and renewable projects all are needed to meet projected peak demand.

"The fact remains Long Island has aging power plants and high-cost electricity," Public Service Commission spokesman James Denn said. The PSC believes it is "essential that we make smart investments into our energy systems to create efficient, resilient and reliable energy in addition to lowering costs."

Building for peaks

Although LIPA has plenty of power to meet the needs on days of moderate weather, the state requires that it build the system to meet demand for summer peaks, and then some. For 2014, for instance, market regulators require that LIPA acquire 107 percent of its forecast demand from on-Island sources.

LIPA's near-term plans include contracting for two large new power facilities to be built that would boost local capacity in excess of 1,660 megawatts -- more than the Northport power station, Long Island's largest at around 1,500 megawatts. Outside companies will build and own the plants, and ratepayers will pay billions of dollars to lease them for 20 years.

LIPA is moving forward with a plan to triple the output of the Caithness facility in Yaphank. Under the plan, construction of the $3 billion Caithness II plant will begin next year, and be ready to produce power in 2018.

In addition, a plan to overhaul National Grid's E.F. Barrett facility in Island Park involves building an entirely new 625-megawatt plant on site, to replace two older units of a combined 370 megawatts.

"It seems that there's a lot of capacity being added in a very short period of time," said LIPA trustee Matthew Cordaro, speaking as an energy expert who developed a blueprint to repower the Island's aging plants. "To install that much base load capacity based on the projections I see, I think it's questionable at best and definitely needs to be studied . . . "

Ross Ain, president of Caithness Energy, said he has reviewed the state's new energy plan and didn't see it having an immediate impact on the need for new, modern plants such as Caithness II. "I think it's an absolutely laudable goal," he said. "It will take a lot of time and work trying to incent the consumer side."

Ain said building plants such as Caithness II will help modernize Long Island's energy sources with cleaner-operating facilities that operate more cheaply. He said the LIPA plan already has a fair amount of demand reduction built in -- some 600 megawatts by 2022. "It's not as if LIPA and Long Island are not doing their share," he said, noting it will take five to 10 years to realize the goals of the state plan, while the need for more capacity looms.

Estimates questioned

But some question the methods LIPA uses for its estimates of future capacity.

Notably, LIPA's plan for new energy projects includes a sizable "allowance for uncertainties" that accounts for nearly half the projected need for more capacity over the next decade.

In planning documents used to make a case for a 752-megawatt plant in Yaphank, LIPA and its contractor, Caithness Energy, have pointed to projected shortfall of 1,125 megawatts of capacity by 2022.

But the New York Independent System Operator, which sets the requirement, projects a 2022 peak for LIPA of 6,467 megawatts -- 423 megawatts less than LIPA's projection. LIPA gets to the 1,125 megawatt shortfall by including, among other things, 585 megawatts of "allowance for uncertainties."

Michael Deering, LIPA's director of communications and clean-energy program oversight, said the allowance "reflects the fact that the further out in time you go, the more you need to be prepared for events or circumstances that can change over time that may affect the forecast." Regulatory requirements can change, and planned efforts at energy reductions might not happen, he said.

Plans called 'appropriate'

A Department of Public Service audit released in 2013 found that LIPA's planning for future capacity, with technical help from National Grid, was "appropriate." The audit doesn't specifically address the impact of the new plants on rates, including LIPA's projection that Caithness II would raise rates upward of 3 percent.

Historical data shows LIPA has seen relative stability and even declines in electricity sales and system peaks. In 2007, LIPA's total electricity sales were 20,093 gigawatt hours, according to the state Department of Public Service. Two years of declines followed until it increased in 2010 to 20,320 gigawatt hours. Since then there have been three years of year-over-year declines, including last year's 19,931 gigawatt hours.

Peak power also has been relatively stable, declining from 5,247 megawatts in 2007 to less than 5,130 for the next two years, before spiking in 2010 and 2011 to more than 5,700 megawatts. In 2012, LIPA saw the peak decline to 5,341 megawatts. Last year saw a peak of 5,761 megawatts.