CITIZEN POWER ALLIANCE

March 24, 2008 -- ENERGY was one of the few issue areas in which David Paterson was allowed at least briefly to play a visible role during 14 months in the shadows as New York's lieutenant governor. But now that he has succeeded the disgraced Eliot Spitzer in the governor's office, Paterson needs to break with policies that have made energy increasingly expensive and potentially scarce in New York.

New Yorkers pay the third-highest electricity rates in the country, 66 percent more than the national average - and the Spitzer-Paterson administration was in the process of driving costs even higher.

For example, Spitzer's budget proposal - for which Paterson now inherits responsibility - would sock energy companies with $40 million in new taxes and fees, costs ultimately borne by ratepayers. That may not sound like much in the context of a $900 billion state economy, but it comes on top of a variety of other direct and indirect state charges that already raise energy costs. And those are going up, too.

Take the state's Renewable Portfolio Standard. New York now gets about 20 percent of its electricity from renewable-energy sources. The RPS calls for increasing the renewable share to 25 percent by 2013. To achieve that goal, it tacks a surcharge on the utility bills of every residential and commercial customer in New York. The revenues subsidize private corporations that develop renewable-energy projects. Since the state's major hydropower sources, such as the Niagara and St. Lawrence rivers, are already exploited, this growth must come from expensive technologies like solar and wind power. (Nuclear power doesn't count toward the RPS goal.)

The state's Renewable Energy Task Force, chaired by then-Lt. Gov. Paterson, recently reported that the $782 million budgeted to implement the RPS won't be enough to meet the 2013 target. Translation: Higher surcharges are on the way.

The New York State Energy Research and Development Authority, which administers the RPS, also runs New York's energy-efficiency programs - i.e., it's supposed to help reduce costs. But here NYSERDA's track record is poor. Funding for NYSERDA comes from a state-mandated utility surcharge, effectively the same as a tax, known as the System Benefits Charge. Instituted in 1998, the SBC originally cost taxpayers $60 million annually. It's been "updated" several times, and it now costs New Yorkers almost three times that amount each year. By 2011, the SBC will have cost New Yorkers $1.85 billion in charges.

Many of these programs may have some merit from an environmental perspective. But state policymakers rarely, if ever, seem to weigh costs versus benefits. A case in point is the state's approach to acid rain. Since 2003, regulators have instituted pollution-emission caps on state power-plant operators that are far more restrictive than those required by Washington, DC. New York's top environmental cop called them "the toughest acid-rain regulations in the country."

Toughest? Yes, but maybe the least effective as well. Because the chief sources of New York's acid-rain problems are Midwestern power plants out of the reach of New York regulators. Albany officials predicted the rules would raise wholesale electricity prices 5.4 percent - no small price for little discernible benefit.

New York is heading down the same path with the Regional Greenhouse Gas Initiative, a multistate compact to battle global warming. Spitzer, a major proponent, acknowledged that it would raise costs to power plants and, by extension, to ratepayers. Yet it's doubtful RGGI will have more than a negligible effect on climate change. And if the governor is really looking to curb greenhouse gas output, why is he pushing to close the Indian Point nuclear plant, which generates 2,000 MW of power but no emissions?

High costs aren't the only problem facing New Yorkers. They also must worry whether the lights will stay on. Recently, the state's power-grid operator predicted looming shortages unless the state builds more power plants over the next decade to meet rising demand. That's no easy feat. With the 2003 expiration of Article X of the Public Service Law, which streamlined the permitting process for building large power plants, it now can take more than five years for a proposed plant to get built. Consequently, few investors are lining up to build the plants New York needs.

The Spitzer administration favored an extension of Article X but with a green twist. The law, Spitzer said, must exclude nuclear and coal-fired plants. Such provisions may please environmental groups, but it won't do anything to help add the 2,750 megawatts needed to maintain the reliability of the New York grid by 2017.

Is there a bright future for New York? Perhaps, but it depends largely on whether Paterson is willing to get a handle on runaway costs and take the steps necessary to keep the Empire State economy powered up in the 21st century.

Max Schulz, a senior fellow at the Manhattan Institute, is author of "New York Unplugged? Building Energy Capacity and Curbing Energy Rates in the Empire State."