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Niagara powers profits, auditors agree Lewiston plants keep authority in black

A state audit has confirmed that the Lewiston hydropower complex generates huge profits for the State Power Authority, including $166 million last year.

The findings by Comptroller Alan G. Hevesi underscore the importance of the Niagara Power Project to the authority's financial well-being.

The audit shows that without the project's earnings, the authority would have operated in the red in both 2004 and 2005. The same could be said of the hydropower plant on the St. Lawrence River near Massena, the authority's other major profit center, whose finances were not part of the study.

Also inferred from the audit is that the authority committed a small fraction of the Lewiston operation's profits to garner the support of local governments in its bid to extend its license to operate the two-plant hydropower complex. The deals with governments in Niagara and Erie counties would cost the authority slightly less than $5 million a year in present-day dollars.

The audit, released Monday, is the byproduct of a disagreement last year between Rep. Brian Higgins, D-Buffalo, and the power authority over how much money the Niagara Power Project makes. The dispute prompted Higgins to ask Hevesi to conduct the audit, which calculated profit figures without offering any opinion about their appropriateness or the manner in which the authority uses them.

Higgins contends the audit lends creedence to his claim that the authority is cheating the region out of the benefits of having the project located in its backyard.

"The audit confirms that Western New York and our natural resources are being used by the power authority to subsidize abuse and inefficiency statewide" he said.

The power authority had a different take on Hevesi's audit.

"The findings affirm [the power authority's] sound and responsible management of the Niagara Project. [The authority's] finances are an open record," the authority said in a statement.
The audit criticized the power authority for failing to make public, via annual financial statements, its internal figures on the revenues and expenses of each of the 17 electrical generating facilities it operates.

The audit notes that the law establishing the authority requires a "full and complete disclosure of all factors of cost in the transmission and distribution of power. However, detailed information on the fiscal impacts of various power projects is not currently provided."

The audit concluded that last year, the Lewiston complex cleared $165.8 million on revenues of $397.7 million. In 2004, its revenues exceeded expenses by $112.2 million.

The audit compared these profits against the authority's overall profits of $58.5 million last year and $82 million in 2004, after subtracting payments to the state treasury and several economic development projects.

The figures for the Niagara Power Project do not include a share of these costs.

In its official response to the audit, the authority told Hevesi's staff that the project's profits do not reflect historical trends and were higher than usual last year in part because of increased energy prices caused by Hurricane Katrina.

But past audits by the comptroller have concluded the authority has long used the profits of the hydropower operations in Lewiston and Massena to subsidize losses elsewhere in the system.

Higgins said the audit's findings will help him press his case to keep more of the wealth generated at the Lewiston complex in the community.

His blistering attacks over the past two years generally have been regarded as a factor in the authority's raising its offer to Buffalo and Erie County, which would bring $279 million into the community over 50 years. That settlement has a value of about $90 million in present-day dollars.

Higgins said the profits disclosed in the audit show that settlement "is easily justifiable."

Next on Higgins' agenda: "A very significant block of cheap hydropower to give business that are here, and business we want here, to give Western New York a competitive advantage in the national and global economy."

The authority is seeking another 50-year license from the federal government to operate the Lewiston plants. To bolster its application, on which federal officials are expected to rule early next year, the authority has negotiated settlements with a number of local, state and federal governments and agencies, as well as other non-governmental entities. These agreements essentially call for the authority to provide money and, in some cases, low-cost power, to offset the impacts of the complex, in exchange for support of the license application.

A coalition of seven municipalities and school districts in Niagara County negotiated the largest deal, which they have touted as worth up to $1.2 billion over 50 years. The value in present-day dollars, however, is about $146.5 million. In addition, the authority would sell coalition members an allocation of power at cost, allowing them to reduce their electricity expenditures but not costing the authority any out-of-pocket expenses.

The authority reached much smaller settlements with several other organizations, including Niagara University and the Tuscarora Nation.


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