Originally Published: April 21st, 2011, Long Island Business News

By Thomas Bjurlof

The Long Island Power Authority’s pending decisions on awarding long-term energy-supply contracts have the potential to impact our regional economy, not to mention our quality of life, for years to come.

I join many Long Islanders who support repowering – essentially building new power plants on the sites of old ones – to create clean, safe, efficient and reliable power for the future.

What our decision makers need to consider is that the cost to build the power plant is just one factor in evaluating future energy generation projects. Ultimately, the “opportunity cost” – a widely accepted economic principle that considers what will be precluded by making one decision rather than another – weight the scales in favor of repowering.

Let’s say decision makers are thinking about building a clean, efficient electric plant (call it Plant X) on a piece of undeveloped land. The plant, plus connecting to the electrical transmission grid and natural gas pipelines, brings the total project cost to about $650 million.

Up the road is old, inefficient Plant Y, which has seen its glory days, but will continue to generate power on a limited basis, albeit more expensively and with greater environmental impacts. Replacing Plant Y on the same site with a clean, efficient plant using existing infrastructure would cost roughly the same as building Plant X.

The difference is that even if Plant X is built, the costs and impacts of Plant Y may lessen but aren’t eliminated. For example, Plant Y would continue to pollute the air and its water-cooling system would continue to ingest larvae and fish eggs. Repower Plant Y and you have seized the opportunity to improve the environment.

Plant Y, because it is less efficient, would continue to produce more costly electricity, pushing up rates. Repower Plant Y and you have lowered the cost of electric power.

Plant Y, if shuttered, would require a cleanup of vast proportions at a staggering cost. Repower Plant Y and the remediation costs are significantly lessened. Plant Y is repowered on existing industrial property with in-place infrastructure such as transmission lines and natural gas supply.

Repowering Plant Y avoids placing burdens on additional communities and creating more industrial properties.
Choose Plant X and now you have two power plants in operation instead of one, both requiring significant tax or support payments, ultimately borne by ratepayers, to local communities that host the plants. Building a new plant means paying for two plants instead of one.

Sound familiar? Of course, this is the scenario LIPA’s management team faced several years back when it contemplated the new Caithness plant in Yaphank.

With tax challenges by LIPA and National Grid now lodged against all four of Long Island’s legacy power plants, repowering may offer opportunities to create greater value in the older plants in return for tax payments. Taxes are easier to adjust than building new power plants, and while it’s obvious to many of us that taxes must be reduced on Long Island’s legacy plants, it should be a rational approach.

It makes far more sense to propose a new power plant in a community that has already hosted one for the past 50 years than to create new incentives to coax other communities into hosting a new plant, as was the case with Caithness.

LIPA’s decision on Caithness was flawed because it used simple project costing and did not consider opportunity cost before it committed to that option. LIPA couldn’t do a credible comparison even of project costs because it did not know the exact cost of repowering, though to its credit, LIPA later commissioned an in-depth study of repowering.

The bottom line is that repowering offers compelling economic, social, environmental and quality-of- life advantages.

This time, Long Island can’t afford to oversimplify what is an exceedingly complex issue. Our decisions on future energy sources are much too important.

Bjurlof, a former executive with AT&T and Boeing, consults on energy management and regulatory issues for numerous international firms. He is a member of the Mayor’s Energy Task Force in Port Jefferson.