The Future of Power for Jobs: Deal or No Deal?

May 19, 2010
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Power for Jobs was created in 1997 to provide discounted power to approved businesses in the form of lower rates from their local utility companies. Utility companies in the program also receive a tax break on their utility gross receipts tax for the discount they offer on transmission. Although the program was originally intended to provide transitional assistance during the restructuring of New York's electricity market, it proved so popular that, instead of ending in December 2005 as originally planned, it has been renewed many times, and most recently on an annual cycle.

In 2009 after a lapse in the law due to delayed legislative action, the program was extended for another year, until last Saturday, May 15, 2010. Assemblyman Cahill, the Chair of the Energy Committee, and a joint task force of the legislature have been examining the program for reform and more permanent extension. Governor Paterson has also been seeking changes that would allow for greater stability in the power allocations and expand its availability statewide.

With May 15 in the rear-view mirror and hoping to avoid the problems that were created last year by a protracted lapse in the program, the legislature has passed a two-week extender and negotiation on a replacement bill has accelerated. Indeed, the Senate and the Governor announced a two-way deal yesterday. The deal increases the power available to economic development deals by ending discount power contracts for residential consumers and replacing them with $100 million in direct aid to affected rate-payers. Assemblyman Cahill is considering that proposal and has advanced his own bill, A.10053, to improve the program.

In Overhauling the New York Power Authority's Economic Development Programs, available here, the Citizens Budget Commission assessed Power for Jobs. The report advances a three-part framework for judging any legislation that moves forward.

  1. Does the new Power for Jobs program support New York's energy goals?
  2. New York's energy prices are among the highest in the nation, reducing the State's economic competitiveness. Although these costs are a real concern for businesses, subsidizing power works against environmental improvement efforts by encouraging consumption rather than conservation. With ambitious goals in place for conservation and increased use of energy from renewable sources, a new Power for Jobs program should complement, rather than undermine, these goals. The legislation should include greater provision for environmental audits to help firms identify areas where they can conserve energy, and to improve access to the capital they will need to comply with any recommended changes.

  3. Will it be connected to larger State economic development goals?
  4. To work effectively, economic development tools need to support a unified strategy. If efforts to address high power costs are not made strategically and in concert with efforts to lower other barriers in New York's business environment, then the power subsidies are an expensive and wasted opportunity to leverage a valuable resource for greater return. Economic development goals should include retention and growth of jobs with significant income potential, and the efforts of all the agencies involved in economic development should be coordinated with Empire State Development. The Power Authority programs have their own applications, different statutory goals, and a separate allocation board.

    Although recently cooperation between Empire State Development and the Power Authority has improved, these efforts have been voluntary. Program reforms should require coordination. At a minimum the allocation board for power subsidies should include the CEO of Empire State Development. More ideal would be an Empire State Development equipped to make power deals. In this way a standard model for making an allocation decision could be developed statewide and Empire State's negotiating power improved. Ultimately firms in New York want the same one-stop shopping approach they experience in other states. Programs operated by different agencies with different processes do not help.

  5. Will the disclosure required in the program be sufficient to allow the public to judge whether the benefits outweigh its costs?
  6. Costs and benefits of the current set of programs cannot now be evaluated; disclosure is poor and performance metrics are lacking. All that can be said is that inconsistent practices in the allocation methods are evident in the limited metrics that the Power Authority does disclose. Subsidies vary widely by firm. For all Power for Jobs beneficiaries the subsidy, measured in kilowatts per job committed, ranges from 0.10 to 21.43 with a mean of 3.14 and a median of 2.50. In addition, even within the same industry there is considerable variation. Among a sample of 11 large food companies the subsidies ranged from 0.49 kilowatts per job to 9.17 kilowatts per job.

    These power subsidies have real value and the public should understand exactly what they are giving away and getting in return. Selection standards should be detailed and deliverables clarified. Compelling performance metrics and detailed cost estimates should be required to be publicly disclosed online.

The success of any economic development program is hard to measure. However, New York's are particularly opaque. Multiple players muddle the scene and compound the difficulties of making decisions about who and what to assist. This must change if New York is to make better use of its increasingly scarce resources. As a final deal is hammered out on Power for Jobs it should be one that addresses the three areas of weakness in the current program, and one that can be judged as not just incremental but potentially transformative. If not then there should be "no deal."

 

By Elizabeth Lynam

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