What was LIPA thinking when it projected that Long Island would need 1,125 megawatts of additional power in the next 10 years?
After PSEG Long Island's finding that LIPA had more than ample power to meet needs through 2022, Long Island Power Authority officials have defended the planning process that came to that conclusion -- including a proposed 752-megawatt power plant that PSEG found "will not be needed."
At a trustees meeting Wednesday, LIPA officials conceded the PSEG analysis and recommendations were "reasonable," and said they won't move on a contract for the proposed Caithness II power plant this year. They also explained their own analysis, noting it included a considerably more "conservative" projection of future needs and contingencies than PSEG's, which mirrored a state projection.
LIPA said its plan was meant to "encompass a greater range of uncertainties" than the state projection, minimizing the chance with an 80 percent certainty that Long Island would suffer an outage because of a lack of generation. To get there, LIPA called for building a range of new power resources and transmission facilities -- in all, 585 megawatts beyond what state regulators projected would be needed by 2022. (A megawatt powers around 800 homes and an average power plant produces around 350 megawatts.)
"LIPA chose to incorporate additional conservatism in its analysis to cover these uncertainties," Rick Shansky, director of LIPA's Power Supply Long Island division, told trustees. Included in the list of variables was what he termed a "Monte Carlo" analysis, which "actually rolls the dice thousands of times" to predict with a higher degree of certainty what might happen to the LIPA system over time.
State regulators require that utilities have enough power resources to sustain a one-day outage every 10 years. LIPA's planning far exceeded that requirement, though Shansky was unable to put a specific figure on how much.
PSEG in its review concluded that "this degree of conservatism is no longer necessary" given a more "mature" and "robust" state planning process.
LIPA critics were quick to pounce. "They were just wrong," said energy consultant Thomas Bjurlof, who likened the LIPA approach to equipping a car with not only four spare tires, but also a "spare car with eight spare tires."
The authority's approach "always shifted the risk" for that higher certainty to ratepayers rather than investors, he said.
Plant developers receive 20-year capacity contracts from LIPA called power purchase agreements, which cover all their construction and finance costs, taxes and profits. Once it pays the capacity costs, LIPA then pays separately for the power from the plants.
Shanksy said LIPA has "always been concerned about the impact on ratepayers."
But the official price tag for Caithness II, and projects tied to it, remain unclear. Constructing and equipping the plant alone has been estimated at more than $1 billion.
"I don't think anybody ever publicly laid out all the costs," said Arthur Abbate, a 37-year veteran of Long Island utility companies. "It's scary. The economy is fragile at best, and for us to go down the road of taking on this indebtedness, it defied logic to me."
PSEG has said the region has sufficient capacity to handle power needs until as late as 2022.
Shanksy said LIPA has "not reached a judgment" yet on that longer-term view. He will be in a position next year to review it when he shifts to a contract oversight role at LIPA and PSEG takes over his power markets role. "We'll take a deeper look at their forecast," he said. "We'll challenge them to demonstrate all they believe here is solid."