NYSEG Publishes Report on New York's Evolving Electric Energy Crisis

April 4, 2001

NYSEG Publishes Report on New York's Evolving Electric Energy Crisis

New York State Electric & Gas Corporation (NYSEG), a subsidiary of Energy East Corporation (NYSE: EAS), today published a report on New York's energy crisis entitled, New York State's Electric Energy Crisis and NYSEG's Comprehensive Solution. In its report, NYSEG warns that the New York electric energy market, like a train without brakes, is on a volatile, high-priced track leading toward derailment. Since the inception of New York Independent System Operator (NYISO) operations in November 1999, wholesale electric prices in New York have risen over 100%. Because there is insufficient supply in the state, consumers with electric market price pass-throughs on their bills are almost assured of future increasing total electric prices.

The urgency for real solutions to New York's electric energy crisis was reaffirmed recently on March 14, 2001 when the NYISO issued a report entitled Power Alert: New York's Energy Crossroads (NYISO Report). However, as detailed in New York State's Electric Energy Crisis and NYSEG's Comprehensive Solution, NYSEG demonstrates that there are serious problems with generation supply and a lack of transmission and pipeline infrastructure, which prevent the emergence of a robust wholesale electric market until 2008. Consumers expect and deserve price certainty during this period. NYSEG's report also demonstrates that the NYISO assumptions understate the potential crisis -- both in terms of wholesale and total electric price increases as well as system reliability.

The NYISO Report:

Is premised on outdated prices for gas and does not consider any natural gas pipeline transportation or delivery costs.
Unrealistically assumes that 8,600 megawatts of new generation, roughly 30 percent of New York's peak demand, can be built by 2005.
Includes recommendations to subject New York customers to unstable and volatile electric wholesale market prices, so called "price signals," at a time when a robust wholesale electric market is years away.
Falls short in assessing the magnitude of the crisis and fails to describe a realistic solution to protect New York electricity customers from irrationally volatile wholesale electric energy price spikes.

Ralph Tedesco, president of NYSEG, said: "NYSEG believes that energy policies must adjust to evolving market dynamics. In the 1990s, escalating energy prices, largely due to high state and local taxes and runaway NUG costs, were the rule in New York State. In an effort to reduce electric prices and increase choice, the policy for a competitive wholesale electric energy marketplace was put in place. Wholesale and retail competition, it was thought, would drive electric prices down to more reasonable levels and provide a catalyst for further market innovation. Yet, today, rising total electric prices in parts of New York threaten our economy. While NYSEG strongly supports competition, our experience in New York, coupled with the California experience, underscores the need for us to reevaluate the time frame and infrastructure requirements necessary to achieve our goals.

"Without delay, New York State must act to provide real solutions to the state's looming energy crisis. The NYISO's recommendations cannot be implemented in time to protect consumers and the upstate economy from the irrational price volatility that is impacting other areas of New York and the country. The problems facing the wholesale electric energy market will require at least seven years to be resolved, even if we act now. Price protection for consumers, in the interim, is imperative. Our recently proposed NYSEGPlan, which includes a price protection plan to freeze electric prices through mid-2008, contains the real solutions to ensure a successful transition to a robust competitive electric energy market," Tedesco concluded.

On March 7, 2001, NYSEG announced a comprehensive six-point energy policy named NYSEGPlan. By providing reliable energy at stable prices, while also promoting competition by offering customers their choice of suppliers, NYSEGPlan assures that the people and businesses of upstate New York ultimately receive the benefits intended by deregulation of the electric industry with appropriate environmental sensitivities. The NYSEGPlan recommendations include:

Streamline the siting and approval process to build new generating plants. To achieve this, NYSEG recommends establishing a siting process, which is mindful of the environment and provides a decision within six months.
Add to the state's transmission capacity. To achieve this, NYSEG recommends financial incentives be introduced to encourage the construction of new transmission and expansion of existing transmission and establishing an expedited licensing process.
Add to the state's natural gas supply infrastructure. To achieve this, NYSEG recommends establishing an approval process that includes financial incentives to expeditiously add the needed new capacity.
Create a regional transmission organization to increase supply liquidity. To achieve this, NYSEG recommends that a technical conference be convened that would include ISO representatives from New England, New York, and the Pennsylvania-New Jersey-Maryland ISO (PJM) and which would mandate a time frame to institute a Regional ISO.
Reinforce the need for wise energy use by all consumers. But more is needed than sending "price signals" which the upstate New York economy cannot afford. Price signals that arrive in customers' bills 45 days after the fact do not work. We need to encourage interruptible load where feasible, and build the technological infrastructure necessary for real time pricing.
Approve the NYSEG Price Protection Plan on a timely basis to ensure that customers have reliable energy at stable prices, while also giving customers a choice of suppliers during the transition to a well-functioning competitive market. To achieve this, NYSEG recommends that the NYSEG Price Protection Plan be approved by July 1, 2001.

Press Conference Information: To review its report published today, NYSEG will host a press conference this afternoon at 1:30 p.m. EST in Albany, New York, at the Legislative Correspondents' Press Room, Legislative Office Building, Room 130. Copies of the report and additional information will be available at the press conference.

About NYSEG: NYSEG is a subsidiary of Energy East Corporation, a super-regional energy services and delivery company in the Northeast. NYSEG provides superior customer service and promotes competition. By focusing on customer service, competition and growth, NYSEG will continue to be a valuable asset to the communities it serves. For more information about NYSEG, visit the company's Web site at http://www.nyseg.com.

About Energy East: Energy East is a super-regional energy services and delivery company in the Northeast. A leader in promoting competition, Energy East serves 2 million customers (1.4 million electricity and 600,000 natural gas) in upstate New York and New England over a 32,000-square-mile service area. The strength of the company is underscored by its commitment to financial discipline, state of the art technology and the operational talent to be among the best at what it does. On February 20, 2001, Energy East announced a strategic combination with RGS Energy Group, the parent company of Rochester Gas and Electric Corporation. The combined company will be one of the largest, most diversified energy providers in the Northeast, serving half of upstate New York and nearly 3 million customers, including approximately 1.8 million electric customers, almost one million natural gas customers and approximately 200,000 other retail energy customers. For more information about Energy East, please visit the company's Web site at http://www.energyeast.com. SOURCE New York State Electric & Gas Corporation.