New York Turns Into a Lab on the Future of Electricity
By KIRK JOHNSON - The New York Times, Jul 25, 2001

George Crethan has four new window air-conditioners stacked in the foyer of his Queens apartment, waiting to be installed. They use about half as much electricity as the ones he is replacing, and he will get a $300 rebate check from the state of New York as an added sweetener.

But Mr. Crethan will probably not get to install them until September, because his co-op apartment complex is replacing all its windows with new energy-efficient models, and the co-op board has said he has to wait until that work is finished.

This is how the future of electricity is arriving in New York this summer: as a makeshift, sometimes colliding jumble of schemes and mechanisms that Rube Goldberg might have assembled. To stave off shortages and rising rates until large new power plants can be built — the first is not expected until 2003 — utility companies, the state government, businesses and consumers are each cranking up their own quick fixes, from adjusted thermostats to elaborate financial incentives that reward conservation to rooftop diesel motors that can pressed into service on hot days to squeeze out a few watts.

This transition is portrayed in Albany and the industry as an unpleasant but brief intermission that will end when the new plants are completed and New York can return to business as usual.

But many energy experts say the intermission could upstage the show. The first big new plant will not be ready for at least two years, and in the meantime, they say, anxiety over electricity supplies and prices is already provoking the kind of change not seen since the oil crisis of the 1970's. They predict that the collision of forces — new technology, government incentives, private investment and the long shadow cast by California's rolling blackouts — will transform the way New Yorkers think about and use electricity long before a new plant is ever switched on.

Where exactly that transformation will lead remains to be seen; whether, for example, it will reduce or delay the need for the new plants. The experts are watching closely.

"Every process of change reaches a point where it all comes together and accelerates exponentially, and we've reached that point with electricity," said Allen J. Zerkin, an adjunct professor at the Wagner School of Social Research at New York University. "In five years, we won't even recognize the landscape."

The New York area, particularly Long Island and New York City, is emerging as a laboratory for new approaches. In the city and on the Island, electricity supplies are tightest and stakes are high, given the electrified mass transit systems, the many elevators and the city's crucial role in global finance.

To increase supply, ideas and technologies that were stalled or dismissed as impractical a few years ago, including wind power, solar cells and fuel cells, are suddenly blossoming on Long Island and upstate. The number of households and businesses that generate their own electricity is expected to surge by the middle of the decade.

To reduce demand, new companies are coming forward with devices and monitoring systems that can both save power and earn payments from the state. Traditional suppliers like Consolidated Edison say they will soon begin installing "real time" meters that allow customers to know the price they are paying for power at any given time, and adjust their consumption.

Even the very concepts of supply and demand are getting a second look, as a new state program allows large energy consumers to behave like suppliers, by selling their reduced use of power on the wholesale electricity market. The state government, which had been poised to abandon its historic role of regulating the electricity industry, is playing a huge, if ambiguous, part as both an electricity generator and an investor through its conservation rebates and other incentives.

These disparate threads have already eased New York City's supply problem by 250 to 500 megawatts, roughly the output of a small- to medium-size power plant, according to various estimates. The city will have to come up with another 1,500 to 2,500 megawatts by 2006 to avert a crisis, Con Ed and others say.

This is not to say, however, that Rube Goldberg's machine will run smoothly. Some of the new strategies may not work as envisioned, and some are bound to conflict, like Mr. Crethan's new air-conditioners and windows. The state's moves into making electricity are already annoying private generators, which do not appreciate the competition and could be discouraged from pursuing their own plans to build new plants.

It is also unclear whether these remedies will make any dent in deeper energy problems, like the aging transmission lines that are already near capacity, thus keeping New York City and Long Island from importing more power. The success of these moves hangs on how intense a sense of crisis the public feels. So far this summer, New York's jitters have have been soothed by moderate temperatures and Con Ed's assurances that it has enough power.

But most electricity industry leaders and analysts agree that the innovations, fears and conflicts of the next few years will force a change in attitudes: if nothing else, that electricity is not a limitless commodity.

"Some people resist change, and some people embrace it, but this period we're in now is going to drive change all by itself," said Philip Herman, a vice president at Aqualine Resources, an energy demand management company in Waltham, Mass., that plans to open a New York office this summer.

New Lines of Supply

H Power, a company in Clifton, N.J., will open a factory in North Carolina in the next few months to make residential fuel cells, small electrochemical devices related to batteries that convert hydrogen and oxygen into electricity and heat. The cells can back up a home's power needs or take a household completely off the electricity grid.

Part of the company's impetus is a new technology that makes smaller fuel cells economical. But an equally important force is harder to quantify: anxiety. California's energy problems have made some feel that electricity is undependable, company officials say, and the first homeowners to react to that feeling will be those with the most to lose in a blackout: the growing ranks of home-based businesspeople and telecommuters for whom power failures could be devastating.

"People don't know how to protect themselves," said H Power's chief executive, H. Frank Gibbard. "Residential, we think, is a multibillion- dollar market in the United States, and right now the Northeastern U.S. is the center of commercialization of that technology."

Industry experts say that while the fuel cells are just starting to be made, they expect 100,000 a year to be turned out by 2005, at a cost of $5,000 for a five-kilowatt unit big enough to power the average home.

Bigger outfits are also worried. Montefiore Medical Center in the Bronx will become self-sufficient this summer when it starts up its own natural-gas-fired generating system. Office buildings with electricity back-up systems are at a premium in the real estate market. At least one new office tower has been proposed in Manhattan that would make all its own electricity there to supply tenants' needs.

Energy experts caution that the number of those leaving the shelter of the grid is expected to remain small for now, barring a severe price increase or power failure. They also stress that because many of these new systems rely on natural gas, they provide limited protection from rising energy prices.

But what has changed is the money trail. Private capital, hard to attract for alternative energy projects in recent years, is now flowing. And the main reason, they say, is the state of New York.

Last month, Gov. George E. Pataki announced that he would require all state buildings to have at least 20 percent of their electricity supplied by renewable, nonpolluting sources like wind or solar power by 2010. While that deadline is years away, Mr. Pataki's order is already stimulating the market for so-called green energy by putting the state on record as an interested consumer.

The state's energy agency, the New York State Energy Research and Development Authority, has invested $40 million, most of that in just the last few months, to encourage conservation and alternative generation. The agency is working with 50 private companies specializing in energy management products. Nearly half of those companies have entered the New York market in just the last two years, and the number of companies is expected to double again over the next year, according to estimates from the authority.

"Finding investing capital is no longer a problem," said Bill Moore, a principal at Atlantic Renewable Energy, a Richmond, Va., company that is developing a 75-megawatt wind power project west of the Adirondacks in New York State.

Challenges for Old Suppliers

For utilities and power suppliers, however, the state's new efforts and the scramble for innovative solutions have been a mixed blessing.

Many energy company officials have been outraged as the New York Power Authority, a state-chartered agency that supplies power to government and other customers, has built 10 small emergency power plants around New York City this summer. While private companies wait in line for the state to consider their plant proposals — spending millions of dollars in some cases just to complete the preapplication process — the state itself has leapfrogged ahead of them Yesterday, a state appeals court said that in its rush to install the plants, the state had failed to conduct environmental impact studies of the minipower plants.

"Here you are, running as hard as you can, and you look over your shoulder and find that the project that gets done quicker, faster and better is the state's," said an official at a company that has applied to build a plant in New York City.

For big energy providers, the great question of the next few years is how the new growth in independent generation, alternative energy and conservation technology will fit, if at all, with their existing operations and their future.

The Long Island Power Authority has jumped with both feet into alternative energy, investing in fuel cells, solar and wind projects that it predicts will supply 10 percent of the Island's energy needs by the end of the decade.

But its neighbor on Long Island, the KeySpan Corporation, faces a quandary. KeySpan, which owns power plants and sells natural gas, has built the Montefiore Medical Center's new generation plant, and will sell the hospital the natural gas to run it. But every sale like that means less demand for the electricity the company sells from its large generating stations like Ravenswood in Queens. Projecting the region's energy mix four or five years from now, a company spokesman said, has become much harder.

"It's a very different energy dynamic than we were talking about even just two months ago," said David J. Manning, a senior vice president for corporate affairs at KeySpan.

In this confusing time, the prospects are unclear even for the new power plants that are supposed to end all the uncertainty.

Although proposals for 85 plants across the state are in some stage of consideration by state officials, the sheer volume of proposals has slowed the approval process. No one says that the state needs anywhere near 85 plants, so each time a plant is approved, uncertainty is cast on the rest. That uncertainty, in turn, further slows the process, as companies delay expensive reports and analyses while reassessing their likelihood of success.

So while the electricity industry looks to 2003 as the year when the first new plants will start to relieve New York's supply problem, the wait could stretch on.

"This is a shaking-out period," said Bill May, the project manager for Astoria Energy, a subsidiary of SCS Energy, which has proposed a 1,000-megawatt plant in Astoria, Queens.

Reducing Demand

For many decades before the world was wired, ice was the main ingredient for cooling a building. It may yet be again.

Beginning this fall, an otherwise ordinary-looking Manhattan high- rise office building on the Avenue of the Americas at 45th Street will install in its basement enough tanks to make and store about 380 tons of ice, which it plans to use next summer for air-conditioning. By using ice instead of chilled water, which is the ordinary technology, the building will use less electricity. The ice will also be made at night, when electricity prices are lowest, so that little or no power will be needed to run the cooling system during peak daylight hours.

But those savings are only the beginning. The building's owner, the Durst Organization, then plans to bid the saved energy back into the wholesale electricity market and get paid all over again. The company will, in effect, sell its savings.

The idea that demand for electricity is a commodity that can be sold is the core of a provisional program created this year by the organization that administers the state's power market, the Independent System Operator. The program, which the system operator says is the first of its kind in the country, allows energy users to put on the table just how much electricity they will forgo or defer using if the price is right.

Since the program began in June, 29 businesses around the state have proposed forgoing 500 megawatts of energy that they will be paid not to use if supplies run short. Users of another 400 megawatts have volunteered to take payments to shut off power if supplies reach a more critical stage.

The Durst plan depends on real- time pricing, the ability to gauge what electricity costs at any given time. Con Edison plans to begin installing as many real-time electricity meters as possible this year under a metering plan recently approved by the state, though the number of customers seeking the new devices is still small, a spokesman said. In many parts of New York City, the meters are probably years away, because many older buildings have a single meter for all units.

Prof. Roger Anderson, director of the energy research center at Lamont-Doherty Earth Observatory of Columbia University, does not think the piecemeal remedies will solve the long-term energy problems. But the attempt, he says, will force a reckoning. Looking ahead five years, Professor Anderson says he is a pessimist, but his view changes to optimistic after 10 years.

"It's like a car," he said. "You fix the transmission and find that the engine is busted, so you fix the engine the rear end is busted, and then you need a new car. We're going to come out of this realizing we need a new car."