Follow the Money: Are Natural Gas Costs Killing it in NY?

Jq6R0MmGSue Mickley
StratComPa Consulting Services, Allentown, PA

 

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If you follow the money, Sue Mickley says, it could well be that the low natural gas costs of producing electricity are what’s killing it in New York.

I always say follow the money and you will find the motivators for politician’s, businesses, and people’s actions.  Yesterday, I just played with a thought that was bothering me regarding power generation in New York and that state’s reliance on Niagara Falls and hydroelectric energy, supposedly so inexpensive, yet somehow leaving the state’s residents with nearly the highest electric rates in the nation. How could this be?

It turns out I’m not the only one asking questions.  I found many credible articles written over the last 3 months about the subject of electricity competition across America.  The cost to the American public both personally, and through goods and services they buy, is daunting – our politicians and utilities are stealing money right out of our pockets.  Here is what I discovered and it is a real eye opener. It seems the low natural gas costs of producing electricity could be killing in New York, where hydro-electric is a government enterprise and the price of trendy renewables incentives are tacked on electric bills.

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Niagara Falls Hydroelectric Facility

I learned, first of all, something very interesting as far as dates are concerned from this web page about the New York Power Authority’s Niagara Falls facility.  Bear in mind the New York Power Authority is a government enterprise and a new 50-year compact was signed in 2007, just as gas drilling potential was rearing its “ugly” head in New York.  Wouldn’t natural gas development cause immense competition to the power generated by the falls, which, after all, can’t be turned off and on at will without disrupting water flows? This much we do know; if natural gas took too much market share from hydro that would increase the overhead costs per unit of electricity.

That raises additional questions. Did natural gas get crushed to protect the state’s income from the power plants and its major financial investment in upgrades?  How much money do these hydroelectric power plants bring into the state?  Thee are many such questions and few answers, but I see a motivator for the crushing blow to natural gas and the manipulation of the DRBC since the plant sells power throughout the Northeast.  It is an important export for New York State.

Here’s an excerpt (emphasis added):

When the Niagara plant produced its first power in 1961, it was the largest hydropower facility in the Western world at the time. Today, Niagara is the biggest electricity producer in New York State, generating 2.4 million kilowatts—enough power to light 24 million 100-watt bulbs at once! This low-cost electricity saves the state’s residents and businesses hundreds of millions of dollars a year.

In 2006, the Power Authority completed a $300-million upgrade and modernization at the Robert Moses Niagara Power Plant. All 13 turbines have been replaced and other improvements were made to generating equipment in the power dam, enabling the project to operate at maximum efficiency well into the 21st century. In 2012, we began a $460 million upgrade to the project’s Lewiston Pump-Generating Plant.

What’s puzzling is the huge disconnect between this statement and the fact New York State averages 40.6% higher electricity costs to its citizens than is the case nationally – 17.77 cents/KWh vs. a 11.1 cents/KWh national average in 2014. If New York State one-fifth of its electricity from hydro and it’s so inexpensive, how is this possible?  It appears the Power Authority’s statement that: “This low-cost electricity saves the state’s residents and businesses hundreds of millions of dollars a year.” Is nothing less than a bald-faced lie.

The same Washington Post article from which this fact may be gleaned also includes this (emphasis added):

New York’s high power prices could also lead to a solar boom. In April, New York residents paid an average 17.77 cents for a kilowatt hour of electricity. That was 40.6 percent more than the national average, federal data shows.

Prices are even higher in the New York City area. Con Edison, the city’s power company, for years has charged the highest per-kilowatt-hour prices of any big-city utility. Solar production in Con Ed’s territory has more than doubled in the last 18 months.

Notice the Post thinks high prices are an opportunity, telling us once again why New York State’s politicians may like them high – it offers a wonderful opportunity for promoting trendy renewables with all kinds of schemes that have the potential to accrue money and power for those same politicians. The reality, though, may be found in the second paragraph where it’s explained that high electricity prices go with increased renewables use.

And, no wonder. New York’s electricity market is massively distorted by overregulation and requirements to employ renewable energy that must be subsidized by ratepayers and taxpayers. New York demands massive renewables use and somebody has to pay for it. That problem is solved by tacking the costs onto electric bills while New York maintains the pretense of being a big renewable energy state by virtue of that hydroelectric power.

The state even brags about how it is using renewable mandates to incentivize hydroelectric, saying this (emphasis added) and ignoring the additional costs this imposes on all electricity users in the state:

With support from the state’s Renewable Portfolio Standard, upgrades to 25 existing hydropower generation stations have been completed or are underway in New York. Renewable Portfolio Standard funding is available for existing plant upgrades and for new low-impact run-of-river facilities up to 30 MW of capacity with no new storage impoundments.

New York and states like it are stating to face resistance to these scams, though. Walmart in Florida, for example, is trying to deal with this state and utility chokehold on consumers by by pursuing its own cost-cutting and efficiency alternatives. However, it’s being penalized by renewables mandates that add to its electricity bills. Walmart has the resources to challenge a system that unfairly adds to electricity costs to support uneconomic renewables choices, but what about everyone else? Should New Yorkers be forced to pay for renewables mandates and subsidies and state hydroelectric monopolies that raise the cost of electricity to 40.6% above the national average?

The answer is obvious, but what many may not realize is the extent to which these policies raise their electric costs compared to the natural gas costs of producing electricity and protect “public” income from utilities, to the financial detriment of the state’s citizens and businesses.

Let’s compare, for example, the cost of electricity generated by a modern gas fired plant to that of hydroelectric power. The Energy Information Administration (EIA) offers two sets of cost comparisons. The first, this one, compares direct costs and it suggests hydroelectric is really, really cheap compared to everything else, but check out the details. It indicates hydroelectric costs 11.34 mills per Kilowatt hour compared to 35.67 mills for “gas turbine and small scale” but read the notes and you’ll notice the latter term includes “gas turbine, internal combustion, photovoltaic, and wind plants.” It also doesn’t specifically calculate capital costs, or the capacity factors which go into the true cost of electricity.

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The Higley hydroelectric station, located on Lower Raquette River in St. Lawrence County

 

Those factors are partially addressed in a second EIA table found here, which compares levelized costs that do specifically address capital costs, capacity factors and, to some extent, subsidies. There are still many flaws in the comparisons because they do not account for the fact power is worth more at certain times of the day and similar factors, but, putting those aside, we find hydroelectric power has an estimated levelized cost of 83.5 mills per Kilowatt hour compared to only 72.6 mills for an advanced combined cycle natural gas plant. That’s the big picture and if we factor in the missed subsidies in the form of renewables mandates and the real value of power at different times of the day, it only gets better for gas.

So, is this one of the reasons New York State killed gas for now; because it was too competitive with the state’s own power and the immense graft opportunities connected with renewables scams? Could be.

 

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5 thoughts on “Follow the Money: Are Natural Gas Costs Killing it in NY?

  1. The state wanted the NYRI build for the purpose of lowering electrical costs to NYC at the expense of upstate. Thank god it was defeated and not built.

    People need to read the NIETC assessment of electric bottlenecks in the USA!

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