Attached FYI is a memo prepared by IPPNY summarizing a NY Court of Appeals (NY's highest court) decision issued last week that could impact environmental reviews of projects that are smaller than 80 MW and thus not subject to the State's siting law. As noted by IPPNY, the impact of this court ruling could be to delay the environmental review and thus the permitting time for these smaller plants.  In other generation-related developments, the NYS Siting Board last week approved the Astoria Energy project. This is a 1,000 MW natural gas-fired combined-cycle facility to be loacted in Astoria, Queens, New York City. The plant is estimated to go in service the 3rd quarter of 2004. This brings to over 1600 MW the amount of new in-city generation recently approved by the State Siting Board, on top of the 400 Mw\W added this past summer by the NY Power Authority.
-----Original Message-----
From: Vanessa Anctil [mailto:Vanessa@ippny.org]
Sent: Monday, November 26, 2001 3:25 PM
To: IPPNY Members 2
Cc: Carolyn Brown
Subject: Member Alert #48-2001 - Court of Appeals issues Potential Setbackto SEQRA Generators In NYPA Turbine Ruling


Member Alert #48-2001
November 26, 2001

Court of Appeals issues Potential Setback to SEQRA Generators In NYPA Turbine Ruling

On November 20, 2001, the New York State Court of Appeals denied a motion by the New York Power Authority ("NYPA") for leave to appeal a Appellate Division decision, Uprose v. Power Authority of State of New York, requiring the preparation of an Environmental Impact Statement ("EIS") for its installation of 10 GE LM6000 turbines at several sites in New York City.  (IPPNY's brief supporting NYPA's motion was accepted by the Court.)  The impact of the ruling may be to delay the environmental review for projects evaluated under the State Environmental Quality Review Act ("SEQRA").

The Court of Appeals, the State's highest court, did not affirm the Appellate Division's decision, it merely declined to consider the appeal, which was discretionary.  The decision is binding only in the courts of the 2nd judicial department, which includes Long Island and Westchester, although courts in other areas of the state may rely on the case for guidance.

Prior to the lawsuit, NYPA issued a negative declaration of potential significant impact with regard to the turbine projects, a SEQRA prerequisite to proceeding without preparing an EIS.  The Appellate Division decision required that NYPA prepare an EIS by January 31, 2002 because NYPA's analysis of particulate matter 2.5 ("PM2.5"), which relied on an evaluation of PM10 as a proxy, was insufficiently detailed to support a negative declaration. 

The potential impact for new generation projects is that applicants proposing power plants under 80 MW, which are subject to SEQRA, may be required to prepare an EIS.  A State agency may still be able to issue a negative declaration, and thus avoid the requirement to prepare an EIS, if an applicant demonstrates in its Environmental Assessment Form ("EAF") that there is no potential for adverse environmental impacts from PM2.5.  However, as a result of the Uprose decision, the applicant may not be able to make this demonstration by relying on a PM10 proxy analysis.  If the demonstration cannot be made that PM2.5 will not have a potential adverse environmental impact, the agency must make a positive declaration, requiring the preparation of an EIS and associated public notice and participation.  Potentially significant delay could result from this process.

The Appellate Division decision should have little impact on Article X applications.  The Article X process supplants the SEQRA process.  Essentially, the Article X process requires the preparation of an EIS equivalent, wherein PM2.5 is analyzed.  At least one case, Consolidated Edison's East River Repowering Project, has addressed the PM2.5 issue.  In that case, the Department of Environmental Conservation ("DEC"), Department of Health, and the Department of Public Service agreed that the only applicable legal standard for PM2.5 is the PM10 proxy standard.  The Board on Electric Generation Siting and the Environment ruled that PM2.5 was not an issue in the case because it is within the purview of the companion DEC air permit proceeding.  A ruling distinguishing the Uprose case was made by the Commissioner of DEC.  Although the court found that the proxy analysis conducted by NYPA was not sufficiently detailed in the EAF to support a negative declaration under SEQRA in the Uprose case, the DEC Commissioner found in the East River case that the PM10 analysis will support the determination as to whether or not the proposed project complies with the PM2.5 standard.

In an unrelated development, the FERC last week issued two orders addressing issues related to market mitigation.  In its Order Establishing Refund Effective Date And Proposing To Revise Market-Based Rate Tariffs And Authorizations ("Market Rates Order"), FERC instituted a proceeding to investigate the justness and reasonableness of the terms and conditions of market-based rate tariffs and authorizations of wholesale generators.  FERC noted that it intends to revise all existing market-based rate tariffs and authorizations by adding the following language (which will be included in all new authorizations, as well):

"As a condition of obtaining and retaining market-based rate authority, the seller is prohibited from engaging in anticompetitive behavior or the exercise of market power. The seller's market-based rate authority is subject to refunds or other remedies as may be appropriate to address any anticompetitive behavior or exercise of market power."

FERC indicated that the refund effective date will be 60 days from notice of the Market Rates Order in the Federal Register.

In a second order, FERC announced that it will implement an industry-wide standard market mitigation measure that will address conditions of market shortage in which market power could be abused.  The surplus margin assessment ("SMA") tool will be employed by FERC to determine what entities possess market power.  The SMA will replace the FERC's existing "Hub-and-Spoke" methodology for determining whether an entity possesses market power.   Entities that fail the screen are required to sell uncommitted capacity into the spot market pursuant to a form of cost-of-service rates.  The SMA order expressly does not apply in New York, because FERC noted that it will not apply this new mitigation procedure in markets (including NY) where market mitigation plans have been approved by FERC.

Copies of the orders are available upon request.  If you have any questions, please don't hesitate to contact IPPNY.