Summary
The potential of a downturn in utility and merchant generator construction of power plants as a result of the current economic crisis will need to be addressed at the state level. New York State has proceedings ongoing that will address issues such as long-term energy planning and the possibility of returning to an environment where power producers will enter into contracts for the sale of electricity in order to secure financing. The market for investment in renewable resources and technologies is an area where continued investment is expected but again it would appear the renewable portfolio standards and federal production tax credits as well as contracts for the sale of the output may be needed to continue investment in these resources.
Analysis
In New York State the Renewable Portfolio Standard and access to the Federal Production Tax Credits has been part of incentive for developers to invest in new renewable resources. While New York State has restructured the investor-owned utilities so that electric generation is now owned and operated, for the most part, by merchant generators, any investment by these merchant generators may need to be provided the incentive of contracts with the utilities in order to show potential investors that a reliable income stream is available to repay any funding. New York State, and the country, faced these issues in the 1980s when developers were heavily invested in building new generation and the power purchase agreements that were entered into were the basis for many such projects being able to secure financing. In a period where credit markets are frozen and lending is most likely going to rely on stable revenue streams for approval, it is likely that developers will seek some security through contracts. Furthermore, New York State is in a financial crisis that will deeply affect ratepayers' ability to pay utility bills and the regulators will be pressured to stabilize utility rates. This stabiliization could very well involve more in-depth review of pricing issues. The utilities themselves will be faced with increased costs from uncollectible accounts and the economic crisis has spurred the New York State Public Service Commission to institute a proceeding to address this very issue. Furthermore, the New York State Public Service Commission's recent review of Con Edison's and Niagara Mohawk's five year capital expenditure plans will also potentially impact rates negatively and the Commission will be seeking ways to minimize rate impacts during these dire economic times in the State.
