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NYSEG Requests Conference On NUG Contracts

January 25, 1999
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NYSEG Requests Conference On NUG Contracts

New York State Electric &amp Gas (NYSEG) has asked FERC and the New York State Public Service Commission (PSC) to hold a joint technical conference on utility power purchase agreements with nonutility generators (NUGs) as soon as possible. Eight state lawmakers sent a letter to FERC Chairman James Hoecker on the matter last fall, but action was never taken, a NYSEG spokesman noted.

"Saranac Power Partners (CalEnergy), Lockport Energy Associates and Indeck Energy Services have already cost our customers more than $750 million in excess of competitive market prices and ultimately they will cost customers more than $2 billion. It's time for all of us to put our heads together to find a way to right this wrong," said NYSEG Chairman Wes von Schack.

In 1998, NYSEG's total cost of required power purchases from NUGs exceeded $320 million. NYSEG spokesman Clayton Ellis said the utility negotiated its power purchase agreements with the gas-fired NUGs back in the late 1980s based on "long-run avoided costs," a pricing scheme developed by the PSC and the utility that estimated the cost of the utility providing its own power over a long term with new plant construction or power purchases. "Those estimates we made in the late-80s are way off today," he said. "We're paying more than 7.5 cent/KWh, for example, while today the market price is 2.5-3 cents. And to make it even worse, by the time the contracts expire we're going to be paying those facilities more than 12 cents/KWh for power."

Meanwhile, the federal laws that permitted development of NUGs still stipulate that utilities and their customers should not pay above-market prices for the electricity. "For our customers' sake it's time to break the logjam," said von Schack.

"A technical conference will give all parties an opportunity to discuss why our experience with NUGs has differed so sharply from Congressional and regulatory intent and expectations."

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