New York State Assembly - 1997 Annual Report

Committee Members
Majority	Minority
Joseph T. Pillittere	Marc Herbst, Ranking Minority Member
Susan John	Daniel J. Fessenden
Steve Englebright	Michael Spano
Sam Hoyt
Audrey G. Hochberg
N. Nick Perry
Martin A. Luster
Felix Ortiz
William Scarborough

Staff

Radmila P. Miletich, Legislative Associate
Julia Mallalieu, Associate Counsel
Andrew B. Stegemoeller, Legislative Coordinator
John Hudder, Director of Program Development Group
Carol Taylor, Senior Program Associate, Program Development Group
John Howard, Executive Director for Assemblyman Tonko
Randy L. McCullough, Legislative Director for Assemblyman Tonko
Charles Stagnitta, Committee Assistant
Tom Lynch, Committee Clerk
Christine Chiaravalle, Committee Scheduling Secretary
Jacqueline Canabush, Program & Counsel Secretary
Judith Madelone, Executive Assistant to Program Development Group

The Assembly Energy Committee, now in its 19th year, has jurisdiction over legislation relating to energy availability and sources, energy policy and planning, the conservation of energy, and electric and gas rate-making in New York State. The Committee considers bills which amend the Energy Law, the Public Service Law, and the Public Authorities Law. The Committee works closely with the Assembly Committee on Corporations, Authorities and Commissions, which considers legislation concerning the structure and operations of the Power Authority of the State of New York (PASNY), the Public Service Commission (PSC), and the Energy Research and Development Authority (ERDA). The Committee also works with other State agencies, including the Department of Economic Development (DED), the Department of Environmental Conservation (DEC), and the Department of Transportation (DOT).

In 1997, the Committee considered 83 bills, acting favorably on 25. Eleven bills passed the Assembly, and five became law.

The public's growing recognition of the economic impact of energy decisions has given rise to a new era in energy policy for New York's electric industry. The success of the independent power industry, the availability of economic development power allocations through PASNY, self-generation by many large customers, and efforts to establish additional municipal electric systems provide increasingly competitive alternatives to utility-generated power.

The Assembly's goal is to encourage the stimulation of economic growth through an energy policy which reduces electricity costs by at least 25 percent and which maintains an economic, reliable, and environmentally sensitive energy supply for all consumers. In order to spur the nation's and the State's recovery from an economic slowdown, the State must understand the link between energy costs and economic development and, in particular, job creation.

In light of this economic need, the Assembly has developed a comprehensive legislative package which would increase competition in the electric industry, including reorganizing PASNY. In addition, the legislation would create the Energy 2000 Fund to maximize benefits of competition to consumers by providing mechanisms to reduce rates and to finance energy projects. The Committee will continue to channel changes in the energy industry to benefit all ratepayers.

This conference was hosted jointly in New York City by Speaker Silver and the National Conference of State Legislatures (NCSL) with the National Council on Competition and the Electric Industry. This forum brought together state and federal officials and representatives from the private sector, utilities, labor organizations and non-profit groups. The purpose of this event was to examine methods for reducing the high cost of electricity and the role of legislators in advancing reforms aimed at ensuring safety, quality and reliability in the emerging competitive electric industry. This conference emphasized the impact electricity rates have across the State and the nation.

From New York to California, the cost of electricity is a burden for families facing a high cost of living and an important consideration for businesses looking to expand or relocate their operations. This conference was an important opportunity for a comprehensive public discussion on what the problems are and how government can help.

Issues ranging from universal service and consumer protections to the treatment of strandable costs in a competitive market were addressed during the conference. Other areas of discussion included taxation in the competitive electric marketplace, environmental issues, renewable energy sources, energy conservation, and credit enhancement mechanisms.

The impetus for the conference was a series of roundtables which the Speaker conducted in 1995 and 1996 and which included the business community, utility and labor leaders, consumer advocates, energy experts, and Members of Assembly. These roundtables focused on the impact on New York State residential and commercial customers of electric rates as high as 50 percent above the national average.

The conference and these roundtables helped to refine the Assembly's Competition Plus/Energy 2000 legislative package. The Assembly also has released a series of reports and briefing papers, stemming from these discussions and including topics such as, the level of New York's surging electricity prices, their impact on small businesses, and a critique of Governor Pataki's securitization proposal.

Chapter 389 of the Laws of 1997, Budget Bill A.8671/S.5785, contains provisions which would reduce the level of the GRT and provides these savings to ratepayers. As a result of these changes, utilities will collect one percent less GRT from customers between October 1, 1998 and January 1, 2000.

For many years this Committee has championed efforts, through proposals such as A.6149 (Tonko), to eliminate the GRT, replace it with the corporate franchise tax, and provide the resulting savings to ratepayers. Finally, agreement was reached this year to begin reducing this regressive tax.

On average, State and local taxes represent more than 20 percent of the typical power bill in New York State. The State collects over $700 million in GRT through electric companies from ratepayers. With this tax, the State discourages entrepreneurial initiative and limits growth. For the State's energy-intensive manufacturing base, this burden can be a potentially critical obstacle in keeping their businesses located in the State. In addition, when the State raises money through utility rates, it places an unfair burden upon those on fixed or limited incomes who are dependent on utility services.

Chapter 389 of the Laws of 1997, Budget Bill A.8671/S.5785, also provides, until December 31, 2002, credits against the franchise tax for half of the incremental cost of electric vehicles, 60 percent of the cost of clean-fuel vehicle property, and half of the cost of clean-fuel vehicle refueling property. This law also provides a sales tax exemption for clean-fuel vehicle refueling property.

For many years, the Committee has championed the increased use of alternative fuel vehicles, through proposals such as A.6150-A (Tonko), by offering a variety of tax credits. Finally, Governor Pataki took the Committee's lead, and agreement was reached on these important tax incentives.

Increased use of alternative fueled vehicles is required by the National Energy Policy Act. The transportation sector of New York State's economy has made the least progress in reducing its energy consumption and its reliance on imported oil. For reasons of economic security and environmental protection, New York State commits itself to developing non-oil-based fuels for transportation.

Meeting the requirements of the 1990 Clean Air Act Amendments also necessitates the wide use of clean alternative fuel vehicles in the State. Use of alternative fuels can reduce the emission of carbon monoxide, particular matter, reactive hydrocarbons, nitrous oxides, and carbon dioxide.

A number of feasible alternatives to gasoline have been developed; however, they have not been widely distributed in the marketplace. Requiring the development and increased use of alternative fuels in centrally fueled fleets will expedite the entry of such fuels into the general market.

Incentives to encourage the development of an alternative fuel vehicle market in New York State resolve a "chicken and the egg" problem. Consumers may be reluctant to acquire alternative fuel vehicles because of a concern about where to refuel them, and alternative fuel providers may be reluctant to invest in fueling facilities and associated infrastructure, if they are uncertain about customer demand for the fuels. This law provides incentives to fuel providers to establish alternative fuel refueling stations. Business and consumers are provided with incentives to convert their existing vehicles to alternative fuels or to purchase new alternative fuel vehicles.

The public first became aware of the importance of energy conservation during the energy crisis of the early 1970's and of the fact that rising energy costs can be mitigated through the efficient use of energy by consumers.

Successful conservation actually lowers ratepayers' bills. This fact is important to families who find their heating bills to be a major financial burden and to businesses for which high energy costs are an impediment to stability and growth. In addition, energy conservation can reduce the State's overall consumption of energy and decrease pollution. Also, the State's economy is strengthened through the creation of a new industry producing efficiency technology, such as manufacturing of energy efficient light bulbs, the implementation of advanced heating systems, and the development of high technology computer systems which analyze energy use and target the conservation of power.

Since 1986, the State has been able to support conservation efforts through the allocation of more than a quarter of a billion dollars, which New York gets as a result of federal court orders requiring oil companies to repay funds received from violating pricing regulations and illegally overcharging customers for petroleum products in the 1970's. The State has received money from three major settlements: Kansas Stripper, Exxon, and Warner. Additional settlements recently have been resolved. The federal courts ordered the states to use these restitutionary payments for energy conservation programs.

Over the years, the Committee has been successful in directing large portions of the money to low- and middle- income residential customers, who spend a high proportion of their incomes on energy bills. The Committee also has provided program funding for business and institutional customers. These programs provide free audits, low-interest loans, grants for energy conservation improvements, as well as, funds for the development of energy-saving technologies.

ERDA has been designated as the entity to continue administering uncompleted projects, contracts, and commitments which were entered into prior to March 31, 1995. PASNY has been designated as the custodian of current funding.

This year, Chapter 432 of the Laws of 1997, Budget Bill A.8648/S.5764, allocates $8 million of POCR funds to PASNY in the following amounts to implement these programs:

Electricity costs in New York State are significantly higher than the national average. This disparity hampers economic prosperity for all consumers, especially businesses. The high cost of electricity threatens to erode the utilities' customer base, resulting in further rate increases for residential and small business customers who will be forced to bear a higher proportion of the utilities' fixed costs.

Increasing competition in the electricity industry, with proper regulatory safeguards, can result in lower electricity costs. Competition must be implemented in a manner that does not jeopardize the safety or reliability of the electric system and that provides benefits to all classes of customers.

The Assembly's legislative package, known as Competition Plus/Energy 2000, would provide a blueprint for the implementation of competition in the electric industry and would address issues which are solely in the purview of the Legislature. In addition, as a component of comprehensive legislation establishing a competitive electric industry and with the appropriate conditions and restrictions, securitization has the potential to reduce electricity costs, if combined with cost reductions by power producers.

This bill would freeze electric rates immediately for all consumers and would establish standards for the implementation of competition in the electric industry. These standards would include: guaranteeing the safety and reliability of the electric system; ensuring residential, commercial, and industrial customers benefit from competition; limiting utility cost recovery; preserving consumer protection and customer service; utilizing the expertise of electric industry workers and minimizing dislocations; fostering environmental and energy efficiency programs, and maximizing public participation.

Competition Plus would implement wholesale competition and would establish customer choice pilot programs. Customer choice would be implemented by 2000, if the PSC certifies that the legislatively established standards for competition are being met.

Competition Plus would create separate companies for electricity generation and for transmission and distribution by 2003 and for electricity and gas by 2005, unless system reliability would be reduced or consumer costs would be increased. If it is determined that customers are not being served at reasonable prices or if customers are not benefiting from competition, the PSC may re-regulate, as needed, to correct problems.

This legislation also would establish a Temporary Special Commission for the purpose of overseeing the restructuring of the electric industry in New York State in a manner that best serves the public interest. The Temporary Commission would conduct public hearings and would negotiate with the public, members of the business community, and representatives of government in determining the best course for implementing competition. The Temporary Special Commission would expire upon the election of members of the PSC by the people of the State of New York.

This bill also would provide for the issuance of qualified rate orders by the Temporary Special Commission, consistent with the standards for competition, to authorize the securitization of qualified transition expenditures.

Expenditures, which are eligible for securitization, would be limited to: (1) regulatory assets (costs related to demand-side management, research and development, low-income customers, renewable resources, environmental remediation, and worker transition) acquired before January 1, 1997, (2) the costs of restructured independent power producers (IPP) contracts, and (3) the cost of financing such expenditures.

The aggregate statewide amount of financing would be limited to $5 billion. Access to financing would depend upon the implementation of utility transition programs, related to energy efficiency, renewable resources, and worker transition programs.

This bill would provide for the restructuring of PASNY and the establishment of an Energy 2000 Fund. The bill would have required a plan for the restructuring of PASNY to be submitted prior to November 30, 1997. This bill would develop a Power Authority Restructuring Board to create the restructuring plan and to approve all payments from the Energy 2000 Fund. The plan would provide for the sale of all of PASNY's non-hydroelectric generating facilities and transmission facilities or would provide an explanation of why these assets could not be sold.

PASNY would continue to operate hydro facilities and would support the electric system, particularly in transmission-constrained areas, if competition is not providing electricity services in an efficient manner.

PASNY would operate an electric industry employee training center. The PASNY restructuring plan, when implemented, would minimize the dislocation of employees and would preserve benefits under existing collective bargaining agreements. Any transfer of facilities or restructuring of PASNY is contingent upon the extension of terms and conditions of employment, for a reasonable initial period, of any non-managerial employees.

PASNY employees would continue to receive their retirement benefits as though they were still employed by PASNY. The restructuring plan would provide for standards of training and certification of PASNY employees who operate and maintain electric facilities and for safety and reliability standards during emergencies and disasters.

The introduction of competition into the electric industry raises three important issues that are addressed by this legislation. The first issue is the role which PASNY should play as a competitor in the electricity market. PASNY has the potential to enjoy unfair advantages in this market. For this reason, PASNY should be restructured, so that it primarily provides services which are not adequately provided by the private sector.

The second issue is how utilities and other power producers will manage the transition into competition. In order to hasten the price reductions which competition will bring, while avoiding unfair impacts on power producers, PASNY would establish the Energy 2000 Fund to provide loan guarantees, in a competitive manner, for private sector refinancing of power producer debt. This refinancing would result in immediate savings for utility customers.

The third issue is the treatment under a competitive industry of energy efficiency, research and development, worker transition, and other beneficial programs. The Energy 2000 Fund will ensure that important public benefits are not lost in the transition to competition.

This legislation would establish a low-income lifeline rate to assist low-income residential customers in paying their electric bills. Eligibility for the program results from the residential customer receiving public assistance, such as supplemental security income, food stamps, and free or reduced school lunches. Electricity used by these customers would be exempt from the GRT.

This bill would ensure that the reliability of the electric system would be maintained through the continued employment of a skilled workforce by the State's electric corporations and by PASNY. This bill would require the PSC to adopt standards for distribution systems and electric generating facilities and for training and certification of employees. This bill would require similar training and certification standards for PASNY employees.

The PSC would require electric corporations, undertaking (a) a sale of generation, transmission, or distribution assets, (b) a merger, sale of stock, formation of a holding company, or any other significant restructuring, or (c) a significant downsizing of operation and maintenance expenses, to establish an industry worker transition program, in conjunction with the Department of Labor (DOL).

The PSC also would require that the costs of such a program be funded with monies made available through the Empire State Economic Development Fund and the DOL's Secretary's Discretionary Grant Program. The PSC must ensure that all reasonable efforts have been made to obtain funds from these sources, prior to allowing any recovery of program costs from ratepayers.

The bill would not impair the effectiveness of any collective bargaining agreements, and contracts relating to employment terms would continue to remain in effect. This provision would apply to electric corporations and to PASNY. This legislation passed the Assembly but was not acted upon by the Senate.

This bill would require that the members of the PSC be elected to office. Allowing the public to elect PSC Commissioners would provide greater participation and accountability in the regulation of the provision of gas and electric service, which is vital to the public interest. In order to provide greater public oversight, two consecutive Legislatures (for example, this one and the one after the next election) would have to approve this measure before the election of the PSC members could occur.

The creation and retention of jobs in this State is one of our greatest challenges. High electricity prices cost New York jobs and hamper our competitiveness. This year, the Assembly's efforts led to a law which helps meet this challenge.

The Power for Jobs Program provides 400 megawatts of low-cost power to small and large businesses and to not-for-profit corporations. Improved access to low-cost power will result in the creation and retention of jobs in this State. The power will be allocated through the New York State Economic Development Power Allocation Board and will be made available by PASNY.

This program is an expansion of the Power Authority's existing economic development programs. The Assembly's initiative guaranteed the availability of 75 megawatts of low-cost power under this new program to small businesses and not-for-profit corporations; 325 megawatts is available to larger businesses.

In addition, the Assembly's persistence produced an economic boon for this State by including 200 megawatts of the lowest-price power available, obtained through a competitive procurement process, as part of the power to be distributed through this program. The rest of the power would come from PASNY's FitzPatrick Nuclear Facility.

Eligible program participants need to meet commitments regarding job creation or job retention. Job creation criteria include the number and type of jobs to be created, long-term commitment to New York State, and contribution to economic strength of the area. Job retention criteria include to what extent operations would be scaled back or closed down, competitors have access to lower electricity prices, or investments are being made in on-site electric-generation technology.

This law would nurture competition in New York State's electric industry by providing residential customers with short-term choices as to how their electricity is produced. Net metering would involve giving residential utility customers the opportunity to generate their own power and still remain a utility customer.

The term net metering would include measuring the difference between the amounts of power supplied by the utility and the electricity generated by the customer. Customers could generate up to 10 kilowatts of power using solar electricity (photovoltaic) panels at their premises for their own use and could purchase any other power they need from the utility. Customers would be required to pay the same rates as other residential customers for the net amount of the electricity they consume from the utility. If electricity generated by the customer exceeds the amount of electricity supplied by the utility, the unused generated power would be sold to the utility at avoided cost.

By requiring net electricity metering, this law stimulates economic growth, reduces costs to customers and utilities and enhances the diversification of the State's energy supply mix. The law limits the availability of net energy metering to 0.1 percent of the 1996 peak demand of each electric corporation.

Last year, Governor Pataki vetoed this legislation due to a concern, which arose after the legislation had passed, regarding the PSC's ability to protect the safety of utility workers. The Assembly worked steadfastly to resolve this problem, and the agreement reached this year addresses all safety concerns. Specifically, this legislation requires standards for safe and adequate interconnections to the electric system to protect electric workers, emergency response organizations and the public, in the event of emergencies requiring disconnection of the solar equipment.

The agreement also provides additional incentives for residential customers to invest in renewable solar energy. Specifically, it would provide a personal income tax credit for installation of residential photovoltaic (PV) equipment. Additional investment in solar energy decreases the use and reliance on non-renewable technologies.

This bill would establish a statewide competition pilot program for dairy farms and would require electric corporations to provide transmission and distribution services to dairy farms within their service territory. This pilot program would be limited to twenty megawatts of peak demand. The PSC would determine the eligibility of marketers and customers which would participate in the pilot program.

Most of the pilot programs that have been proposed have been restricted to specific utility service territories. A dairy farm pilot program would be statewide, crossing utility service territory boundaries. Such a pilot program would provide valuable information in evaluating the manner in which competition should be introduced.

This bill passed the Assembly but the Senate took no action. On February 25, 1997, the PSC approved a retail access pilot proposal proposed by Dairylea Cooperative, Inc. On June 27, 1997, the PSC approved additional details for a multi-utility retail pilot program for farm and food processor electricity customers. The PSC's program may result in fewer competitive choices and higher prices than the Assembly's proposal would have.

This bill would maintain consumer protections provided under the Home Energy Fair Practices Act and related provisions for residential gas, electric, and steam customers. This bill would clarify and underscore existing law by explicitly prohibiting the waiver of any right, obligation, rule or regulation related to continuing, starting, changing or discontinuing residential gas, electric, or steam service by any party or the PSC.

It is necessary to protect residential gas, electric, and steam customers, who knowingly or otherwise, enter into contracts for service which may include provisions for the waiver or limitation of consumer protections under the Home Energy Fair Practices Act. This Act guards residential customers against any unreasonable demands, conditions, and burdens placed on them by a utility for access to residential service. These protections also are encompassed by rights, obligations, rules or regulations arising from the Act.

This clarification of existing law guarantees that rights for residential customers related to access to utility service cannot be waived. These rights include safe, reliable, dependable and continued service for all residential customers, regardless of a customer's ability to pay for that service and without the fear of termination without proper notice.

Consumers are concerned over the growing cost of electricity in New York State. Energy efficiency plans, under the Home Insulation and Energy Conservation Act (HIECA), are designed to help consumers use energy more efficiently and to reduce their bills for electric services.

This bill would re-enact the eligibility for residential customers to participate in HIECA plans through September 1, 1998. It also would extend the ability for advertising of these programs to be financed through that period. Finally, it would require the PSC to continue to provide the Legislature and the Governor with reports on the implementation of HIECA programs through May 31, 1998.

As the electric industry moves toward a competitive environment, proper consumer safeguards will need to be established. When the industry does reach a competitive environment, utilities then may choose to implement other programs to foster increased energy efficiency and cost-effective savings. At least until competition in the electric industry is achieved, the HIECA program should be maintained at its current level in order to assist consumers in conserving energy and obtaining relief from high electric bills.

The law removes PSC discretion to impose mandatory time of use rates. This legislation continues to require utilities to offer customers the option of paying time of use rates.

The PSC had mandated that some residential customers pay electric service charges on the basis of time-of use energy rates. The rationale of the PSC was to persuade residential users to consume electricity during "off peak" hours, which are predetermined at times of the day during certain times of the year. The intention of this rate is to promote energy conservation and provide cost savings to the consumer.

However, due to the inability of some customers to shift their use of electricity to off-peak hours, mandatory time of use rated have resulted in prices increases for customers, such as dairy farmers. This measure ensures price benefits for customers who can re-adjust their load use but does not result in higher prices for customers who cannot re-adjust their use patterns.

This bill would require utilities to offer not-for-profit veterans' posts or halls the same rates currently charged to domestic consumers, religious organizations and community residences, without raising rates to other consumers.

Currently, veterans' organizations are charged a utility rate based on the amount and type of service they use. Higher utility rates reduce the operating budgets of veteran organizations, thus limiting their ability to sponsor needed community services. Reducing energy costs for veterans' organizations would allow them to better afford to provide community services to veterans and would set the stage for the transition to a competitive electricity market.

This law eliminates the power of the Board of Directors of a rural electric cooperative, without the authorization of the members thereof, to pledge or encumber the property, assets, rights, privileges, licenses etc. of the cooperative to secure any debt which may be owed to the Federal Government. This law brings cooperative practices in line with current federal law.

In the late 1960's, federal law, regarding rural electric cooperative borrowing, changed to require cooperatives to obtain at least three percent of their borrowing from private market rate sources, rather than solely through obligations of the Federal Government. The federal borrowing restriction in New York was originally passed in 1942 and was never changed when the federal law was amended.

New York rural electric cooperatives were created in 1941 to provide electric service in areas not served by private power companies. Four rural electric cooperatives, based in Steuben, Madison, Otsego, and Delaware counties, serve approximately 15,000 New York customers. Each cooperative is a non-profit electric utility, owned by the customers it serves and governed by a Board of Directors elected by the cooperative membership.

This bill would require the PSC to direct gas corporations to purchase natural gas at the lowest available price at "city gate." Gas corporations would not be required to purchase natural gas from instate or out-of-state sources when it can be demonstrated that such a purchase would have an adverse impact on the ratepayers, which cannot be reasonably mitigated.

In spite of the proliferation of energy conservation programs, eventually some ability to generate power will be needed. The Committee supports the most efficient, cost-effective, and environmentally sensitive means of power production which can be achieved through fair competition.

This law directs the State Energy Planning Board to conduct a study to evaluate the safety concerns of transporting LNG in urban and densely populated areas and to report its findings to the Legislature and the Governor by December 1, 1998.

This law requires the evaluation of the potential for accidents, criminal activity and environmental factors. It requires the review the activities of other states and the Federal Government in relation to LNG. In addition, this law requires the evaluation of potential markets within New York State for LNG as an alternative fuel and the provision of estimates of the economic benefits and/ or costs associated with its use and it prohibition.

LNG has been used by utilities for several decades, but further development of LNG uses has been limited by a moratorium on the approval of the siting of LNG facilities and routes for its transportation in New York State. The moratorium was to be continued until such times as accurate information concerning its safe transportation and storage became available.

Since the moratorium was imposed in 1978, the use of LNG has grown in other states to include varied industrial, residential and transportation applications. It is necessary to investigate the regulatory actions of the Federal Government and other states and to examine the recent safety record and practices of LNG producers, distributors and consumers to provide the information necessary to evaluate the need for further extension or modification of the moratorium.

On Wednesday, February 26, 1997, the Committee held a public hearing in Albany to solicit comments on the circumstances surrounding the sudden increase in natural gas prices and the impact of competitive forces within the natural gas market on these high prices.

The competitive forces which provide natural gas services to customers in an openly competitive natural gas market may prevent radical fluctuations in natural gas prices. During the early spring of 1997, the increase in natural gas prices gave many customers cause for concern.

The market forces driving such increases and the method by which these increases were reflected in bills resulted in an unusually high level of public inquiries and complaints. This hearing provided customers and suppliers with a forum to better understand issues surrounding these sudden price increases and to address customer frustration.

As a result of the specific suggestions at this hearing, the PSC directed utilities to offer a "fixed-price option," which allows consumers to lock in a set price, instead of paying a variable price, for natural gas through the winter.

The Committee, the Assembly Committee on Corporations, Authorities & Commissions, along with the Assembly Committee on Consumer Affairs and Protection held a joint hearing on Friday, April 4, 1997, in New York City. This hearing examined the terms of Consolidated Edison Company's (Con Edison's) electric restructuring settlement, its effect on ratepayers and alternative ways to further reduce electricity costs in the region. This hearing focused attention on the anti-competitive nature of the settlement and on the disparity of rate cuts offered to various classes.

Under Con Edison's original proposal, base rates would be lowered over five years by 3.3 percent for residential customers, by 10 percent for small and large commercial customers and for large industrial customers, and by 25% for some manufacturers.

Con Edison would split into separate generating, marketing, and distributing companies that could be owned by a single holding company. The Company would divest itself of a portion of its generating capacity in New York City and Westchester. The Company also would be required to begin letting other companies sell power in its market and to distribute their power over its lines.

Subsequent to this hearing, a revised settlement provided additional savings for smaller customers and modified some of the terms of competition. The PSC approved the settlement on September 23, 1997 and required that savings for residential customers be increased to 10 percent.

The Assembly Energy Committee held a series of public hearings on Thursday, January 30, 1997, at SUNY Stony Brook, Friday, January 31, 1997, in Brooklyn, and Friday, March 21, 1997 in Queens, to solicit comments on the terms of the proposed merger and its effect on the ratepayers of both utilities, as well as, on alternative ways to further reduce electricity costs.

BUG and LILCO have proposed to merge to create a joint utility company. The new company will provide electricity and natural gas service to customers on Long Island and natural gas service to customers in Brooklyn, Queens, and Staten Island. The Chief Executive of each utility would share responsibility for the operation of the new company. The new company's 15 member board would include six LILCO directors, six BUG directors, and three outside directors chosen by both companies. The shareholders of each company would swap their stock for stock in the new company.

These hearings examined the impacts of the proposed merger on the safety and reliability of the electric and gas systems in Brooklyn, Queens, Long Island and Staten Island and on the costs of serving customers in those areas. These hearings also assisted the Committee in investigating how Long Island's electricity costs can be reduced significantly beyond any savings a merger can produce, how the Shoreham tax certiorari case will be resolved, as well as, what effect the merger will have on the employees of both companies.

As part of the Assembly's ongoing commitment to reducing the cost of electricity to Long Island ratepayers, the Committee, the Assembly Committee on Corporations, Authorities & Commissions, along with the Assembly Committee on Consumer Affairs and Protection held a series of public hearings throughout the State, from Albany to Long Island to New York City beginning in April and extending into June, to examine potential impacts of LIPA's proposal on Long Island and the State.

The participants in these hearings offered interpretations of the electricity cost problems facing Long Island and of the solutions which would best benefit consumers, utilities, union workers, and businesses. Issues ranging from worker displacement, the environment, bonding and tax certiorari settlements were all part of these discussions.

LIPA proposed to acquire from LILCO the stockholder equity portions, including premiums and discounts, of the following assets, as well as to assume the following financial obligations:

LIPA also proposed to hire LILCO to operate the electric transmission and distribution system for eight years. LIPA would sign long-term power contracts with LILCO for 15 years. To finance these transactions, LIPA would sell approximately $7.262 billion in tax-exempt bonds that would be repaid out of electric rates for the next 33 years. This amount would be the largest municipal borrowing in history. LIPA projected double digit savings, resulting from its tax-exempt status and its ability to issue tax-exempt bonds that lower borrowing costs.

Upon the conclusion of these hearings, the Assembly issued an analysis of the savings from the LIPA/ LILCO proposal and of the financial structure of the proposal. On July 16, 1997, the Public Authorities Control Board (PACB) voted on a resolution which approved part of LIPA's proposal and imposed additional conditions. The issuance of bonds by LIPA would require separate approval by the PACB.

In approving the resolution, the Speaker of the Assembly imposed additional conditions on the LIPA proposal, including:

On Thursday, August 14, 1997, in New City, the Committee, the Assembly Committee on Corporations, Authorities & Commissions, along with the Assembly Committee on Consumer Affairs and Protection held a public hearing to receive public comment on the impact of the plan on small businesses and residential consumers and on methods to further reduce electricity costs.

Orange and Rockland Utilities, Inc. (O&R) had entered into a settlement agreement with the Staff of the Department of Public Service and other parties, reflecting business, economic development, and energy services interests.

The original four-year agreement provides for a 1 percent rate reduction for residential and commercial customers in each of the first two years. Large industrial customers would receive an average rate reduction of 12 percent. The agreement provides for a System Benefit Charge to fund public policy programs and for a Competition Transition Charge to compensate O&R for a portion of its electric generation costs affected by the transition to a more competitive electricity market. The agreement provides for the expansion of O&R's existing PowerPick retail access pilot program to all industrial customers by the summer of 1997 and to all customers by May 1, 1998; full retail access would be available to all customers a year later.

The Administrative Law Judge for the case recommended that several modifications be made to the agreement, before approval by the PSC. These suggested changes primarily were in the areas of rates, treatment of excess earnings, the competition transition charge, the systems benefit charge, application of charges to customers of the PASNY, compensating customers for the use of O&R's name during marketing, and customer information on rates and competitive options. After the hearing, the PSC directed O&R to renegotiate its proposal to improve the implementation of competition.

The PSC approved O&R's restructuring plan, with modifications, on November 26, 1997. Under the approved plan, the customer transition change would be of limited duration, and O&R would be required to auction all its fossil fuel generating units.

On Wednesday, November 19, 1997, the Committee, the Assembly Committee on Corporations, Authorities & Commissions, along with the Assembly Committee on Consumer Affairs and Protection conducted a public hearing to examine the impact of New York State Electric & Gas Corporation's (NYSEG's) restructuring plan. NYSEG had entered into a settlement agreement with the Staff of the Department of Public Service and other parties to alter the provision of electric service in the NYSEG area.

Under NYSEG's Electric Restructuring Plan, average electric prices for most residential and commercial customers would be capped at current levels for four years. Prices would be reduced for these customers by five percent at the beginning of the fifth year of the plan. In addition, prices would be reduced by five percent per year for five years for eligible large industrial, commercial, and public authority customers who are heavy users of electricity. The Plan also would expand NYSEG's economic development programs directed at large business customers.

Customers in the City of Norwich and NYSEG's Lockport Division would be able to choose their suppliers of electricity by August 1, 1998. All remaining NYSEG electric customers would have their choice of supplier by August 1, 1999.

The Plan provides for NYSEG to be restructured into a holding company with three subsidiaries in the areas of power delivery, power generation, and energy services. In addition, NYSEG plans to auction its coal-fired generating facilities and its 18 percent interest in the Nine Mile Point 2 nuclear generating station.

After the hearing, the Administrative Law Judge for the NYSEG case commented that the settlement should be renegotiated, especially in terms of the equity of proposed rate reductions and the treatment of stranded costs.

On Monday, November 10, 1997, in Albany, on Tuesday, November 25, 1997 in Syracuse, and on Wednesday, December 3, 1997, the Committee, the Assembly Committee on Corporations, Authorities & Commissions, along with the Assembly Committee on Consumer Affairs and Protection held a series of public hearings to receive public comment on the impact of the Niagara Mohawk PowerChoice Settlement.

Niagara Mohawk Power Corporation (NiMo) has entered into the PowerChoice Settlement with the Staff of the Department of Public Service and other parties to alter the provision of electric service in NiMo's area. All customers could choose an electricity supplier by December 1999. Low-income customer assistance programs would be expanded.

Under the settlement, prices would be reduced by about 3.4 percent for residential customers and by about 3.2 percent for and commercial customers over five years. This reduction incorporates the recent GRT cut. However, over 40 percent of residential customers would see bill increases. Prices would be reduced for selected industrial customers by an average of 25 percent. The settlement includes a System Benefits Charge to fund energy efficiency programs, as well as, research and development and a Competitive Transition Charge or exit fees to cover any stranded costs which NiMo recovers.

The settlement provides for NiMo to be restructured into a holding company with unregulated subsidiaries. NiMo's non-nuclear power plants would be auctioned and a detailed plan would be developed for the future of its nuclear assets.

On July 9, 1997, NiMo and 16 independent power producers (IPPs) entered into a Master Restructuring Agreement to restructure or terminate 29 power purchase contracts. In exchange, NiMo would pay the IPPs $4 billion, including cash and stock. This agreement would be financed through new debt to be repaid over a seven to eight year period.

The Committee's hearings were well attended, with witnesses expressing the views of residential customers (including senior citizens and low-income customers), businesses, local governments, utility workers, power providers, energy efficiency providers, and environmental advocates.

Witnesses testified that the NiMo settlement was developed with insufficient public participation, does not reduce electricity prices sufficiently and equitably, has unfavorable economic consequences, does not provide equal access to competition for electricity services, and inadequately addresses public policy and nuclear issues.

Increasing competition in the electric industry involves far reaching policy decisions which require serious public input and debate and which require comprehensive solutions. The Assembly has issued a series of reports which begin to describe to the public the nature and scope of decisions which must be made and the types of solutions to be considered.

The Assembly has released two documents, The Electric Industry in New York in December 1995 and Competition Plus/ Energy 2000 in March 1996. The first is a general primer on the industry, and the second describes the only comprehensive governmental proposal to address the move to competition.

This year, the Assembly developed the "Shedding Light" series of briefing papers to provide background and focus for the public policy decisions which must be made during the transition to competition in the electric industry in New York State and the nation.

These policy decisions involve tens of billions of dollars, thousands of jobs, and consequences for decades. These decisions will determine whether New Yorkers can count on reliable service, whether New York State can compete to retain and create jobs, and whether residents and businesses can receive large reductions in their excessive electric rates.

In January 1997, Assembly Speaker Sheldon Silver, Majority Leader Michael Bragman, and Energy Committee Chairman Paul Tonko released Shedding Light on Securitization.

This paper is a critique of Governor Pataki's "securitization" bill, which would allow utilities to sell bonds to refinance the cost of certain "intangible" expenditures without real limits. The paper expresses concerns about the Governor version of securitization, which would (1) shelter utilities from both regulation and competition, (2) authorize borrowing on a huge scale, (3) perpetuate high rates without ensuring real savings for ratepayers, and (4) place utility workers at risk, adversely affecting electric system reliability.

In March 1997, Assembly Speaker Sheldon Silver, Majority Leader Michael Bragman, and Energy Committee Chairman Paul Tonko released Shedding Light on New York's Surging Electricity Prices.

This paper presents information which documents that New York State's electric utility prices are unacceptably high and were 72 percent higher than the national average in 1995. The paper also compares New York State's prices with those of other regions and competing states. These prices contribute to job loss and are a financial burdens for all residents.

In July 1997, Energy Committee Chairman Paul Tonko released the staff analysis Shedding Light on the Estimated Savings from the LIPA/ LILCO Proposal. This discussion of savings preceded the imposition by Speaker Silver of additional conditions on LIPA proposal.

This analysis examined the nature of the savings which could result from the acquisition of certain assets by LIPA from LILCO. LIPA estimated that the transaction could save about 18 percent for Suffolk County ratepayers and about 20 percent for Nassau County and Rockaway/ Queens ratepayers.

This examination addresses the accuracy of these estimates and whether these savings are sustainable beyond a ten year period. The analysis distinguishes between which savings realistically can be attributed as resulting directly from LIPA's proposal and which savings could have occurred in any event. The analysis concludes that, taking these distinctions into account, the actual savings to ratepayers as a direct result of LIPA's proposal could be as low as nine percent. The examination also shows that, even if all of the assumptions underlying LIPA's savings are accepted, the rate savings will fall considerably after the initial ten year period.

In July 1997, Energy Committee Chairman Paul Tonko released the staff analysis, Shedding Light on the Estimated Savings from the LIPA/ LILCO Proposal.

The analysis focuses on the financial structure, long term costs, and potential risks of the proposed LIPA/ LILCO transaction. LIPA proposed to issue $7.6 billion in municipal bonds to acquire certain assets from LILCO. This financial deal, if issued at once, would constitute the largest municipal debt ever issued in the nation.

This analysis shows that LIPA's indebtedness could rise to over $9 billion and that LIPA's ratepayers would pay more than $14 billion in interest charges over the term of the bonds issued during the first ten years. In addition, the analysis point out that LIPA effectively would borrow $502 million, to be repaid over the next 35 years, to subsidize rates over the first ten years.

In October 1997, Assembly Speaker Sheldon Silver, Majority Leader Michael Bragman, and Energy Committee Chairman Paul Tonko released Shedding Light on the Burden of Electricity Costs on Small Businesses.

This paper shows that small businesses in New York State are at a significant disadvantage due to the State's unacceptably high electricity prices. Small businesses in New York Sate pay as much as 230 percent more for electricity than competing businesses in other states. Also, while New York State's largest industrial customers experienced a one percent increase in electric prices between 1992 and 1996, small businesses paid price increases of 15 percent. These high electricity prices discourage small business expansion and job creation. This disadvantage for small businesses severely damages the State's economy because the vast majority of all jobs created in New York State are created by small businesses.

The Committee will continue to look for comprehensive solutions to reduce electricity costs and foster competition for all customers. As the electric industry prepares to move towards a competitive marketplace, the Committee will closely monitor the increasing competition among the utilities, independent power producers, and PASNY. In keeping with its progressive role, the Committee also will scrutinize closely new developments and technologies throughout the electric industry, including those of other states. The Committee will consider innovative ways to stimulate job creation and retention in the business and utility industry sectors and to reduce energy costs for customers.

TABLE OF CONTENTS
I.	INTRODUCTION
II.	SPEAKER'S ENERGY CONFERENCE
	A.	Reduction of the Gross Receipts Tax (GRT)
	B.	Alternative Fuel Tax Credits
	C.	Petroleum Overcharge Restitutionary Funds (POCR)
III.	BUDGET
	A.	Competition in the Electric Industry
		1. The Assembly's Comprehensive Legislative Package
		2. Near-Term Competitive Options
		3. Consumer Protection
	B.	Rate Regulation
	C.	Supply
IV.	PUBLIC HEARINGS
	A.	The Examination of the Sudden Rise in Natural Gas Prices in New York State
	B.	The Settlement by the Staff of the Department of Public Service with Consolidated Edison Company Implementing Compeitition for Electricity Services
	C.	The Proposed Merger of Long Island Lighting Company (LILCO) and Brooklyn Union Gas (BUG) Company and Alternative Proposals to Reduce Energy Costs
	D.	The Proposal by the Long Island Power Authority (LIPA) to Issues $7.262 Billion in Public Debt to Purchase the Long Island Lighting Company (LILCO)
	E.	Orange and Rockland's Electric Restructuring Plan
	F.	New York State Electric & Gas Corporation's Electric Restructuring Plan
	G.	Niagara Mohawl Power Corporation's PowerChoice Settlement
IV.	BRIEFING PAPERS
	A.	Shedding Light on Securitization
	B.	Shedding Light on New York's Surging Electricity Prices
	C.	Shedding Light on the estimated Savings from the LIPA/LILCO Proposal
	D.	Shedding Light on the Financial Structure of the LIPA/LILCO Proposal
	E.	Shedding Light on the Burden of Electricity Costs on Small Business
APPENDICES
	A.	1997 Summary Sheet
	B.	Bills Passed by Both Houses
	C.	Bills Passed by the Assembly Only

Final Action Bills Reported With or Without Amendment	Assembly Bills	Senate Bills	Total
To Floor	2	0	2
To Ways and Means	12	0	12
To Codes	3	0	3
To Rules	8	0	8
To Judiciary	0	0	0
Total	25		25
Bills Committed to Rules	0	0	0
Bills Committed to W&M	0	0	0
Bills Recalled or Substituted	0	5	5
Bills Never Reported, Held in Committee	0	0	0
Bills Never Reported, Remained in Committee	48	4	52
Bills Having Enacting Clauses Stricken	1	0	1
Total Bills Referred to Committee	74	9	83
Bills Passed Assembly	11	0	11
TOTAL NUMBER OF COMMITTEE MEETINGS HELD	10

Bills Passed by Both Houses
Governor's Action	Bill Number	Description
Chapter 307	A.2657-A (Gromack)	Makes time of use rates optional instead of mandatory
Chapter 316	A.8577 (Rules, Tonko)	Enacts the Power for Jobs Program to reduce electricity costs for businesses and not-for-profits
Chapter 385	A.8427 (Rules, Tonko)	State Energy Planning Board to study issues related to liquified natural gas
Chapter 399	A.8660-A (Rules, Englebright)	Provides for net electricity metering for eligible customer-generators
Chapter 664	A.8461 (Rules, Magee)	Relates to rural-electric cooperative property as security for debt

Bills Passed by the Assembly Only
Bill Number	Sponsor	Description
A.422	Gunther	Relates to utility rates charged to veteran organizations
A.4513	Tonko	Authorizes pilot program for dairy farms
A.5875	Parment	Requires purchase of natural gas at lowest price at the city gate
A.5989-A	Tonko	Prohibits waiver of consumer protection under the Home Energy Fair Practices Act
A.6037	Tonko	Extends provisions regarding home insulation and energy conservation plans until September 1, 1997
A.8578	Rules, Tonko	Requires the PSC establish a worker transition program for the workforce of electric utilities and PASNY