July (pdf) - New York Power Authority

equirements of certain municipal electric system and rural cooperative system customers.
Contracts for the sale, transmission and distribution of power and energy generated by the Niagara and
St. Lawrence-FDR Projects and by other projects (i) to provide an adequate supply of energy for optimum
utilization of its hydroelectric projects, (ii) to attract and expand high load factor industry, (iii) to provide for
the additional needs of the Authority’s municipal electric and rural electric cooperative customers, and
(iv) to assist in maintaining an adequate, dependable electric power supply for New York State, are subject
to the approval process specified in Section 1009 of the Act. Such approval process requires, in addition to
agreement between the Authority and the other contracting parties, (i) submission of the contract to the
Governor and representatives of the State Senate and Assembly, (ii) public hearings and further review
and, if deemed necessary, renegotiation of the contract by the Authority, and (iii) approval of the
Governor.
Marketing Issues and Developments
(1) The power market in New York State has experienced significant changes over the last 15 years
with the advent of a competitive marketplace and the creation of the NYISO. As a major participant in
New York’s power market, the Authority has been affected by these changes. With increased focus on
customer needs, the Authority has initiated marketing programs and taken other actions to retain and
provide value to its various customers. In this regard, in 2005, the Authority entered into the 2005
Agreements with all of its NYC Governmental Customers, including: the City of New York, the MTA, the
Port Authority of New York and New Jersey, the New York City Housing Authority, and the New York State
Office of General Services. The 2005 Agreements replaced the earlier long-term agreements with those
customers that were in place. Under the 2005 Agreements, the NYC Governmental Customers will
purchase their electricity from the Authority through December 31, 2017, with these customers having the
right to terminate service from the Authority at any time on three years’ notice provided that they
compensate the Authority for any above-market costs associated with certain of the resources used to
supply them, and, under certain limited conditions, on one year’s notice.
Under the 2005 Agreements, the Authority implemented a price-setting process commencing with the
2006 rates, under which the NYC Governmental Customers request the Authority to provide indicative
electricity prices for the following year reflecting market-risk hedging options designated by them. The
NYC Governmental Customers can elect to have a full cost energy charge adjustment (“ECA”) passthrough
arrangement relating to fuel, purchased power, and NYISO-related costs, including such an
arrangement with some cost hedging; a sharing plan pricing option; or a minimum price volatility pricing
option. Except for any specific amounts borne by the Authority under a sharing plan and the minimum
price volatility option; the NYC Governmental Customers pay all of the costs incurred to serve them,
including hedging costs. If the customers choose a sharing plan pricing option, the customers and
the Authority share equally in actual cost variations (up to $60 million) above a projected amount for
the year, and cost variations in excess of $60 million are borne by the Authority. In addition, if
actual costs are below the projected amount, the NYC Governmental Customers and the Authority share
equally in such savings after the customers receive the first $10 million in savings, in the aggregate, over
the term of the 2005 Agreements. For 2011, the NYC Customers chose a market-risk hedging price option
designated an “ECA with hedging” pricing option whereby actual cost variations in variable costs are passed
through to the customers as specified above.
Pursuant to the 2005 Agreements, the Authority will modify rates annually through a formal rate
proceeding before the Authority if there is a change in fixed costs to serve the NYC Governmental
Customers. Except for the minimum volatility price option, changes in variable costs, which include fuel
and purchased power, will be captured through contractual pricing adjustment mechanisms. Under these
mechanisms, actual and projected variable costs will be reconciled and either charged or credited to the
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