Wednesday, August 01, 2007

Broadwater's $14.8 Billion in Energy Savings Versus Long Island Sound's $55 Billion for the Local Economy: Which Do You Choose?

As we know from the study the U.S. EPA commissioned back in the early 1990s, the businesses in Connecticut and New York that rely on Long Island Sound to be clean and to be an attractive place to boat and swim and fish contribute $5.5 billion to the economy of New York and Connecticut a year. Obviously that $55 billion over 10 years.

And now we also know, from LIPA's report on the economics of Broadwater's proposed LNG terminal, that if its built in the middle of the Sound it was reduce energy costs by $14,8 billion over 10 years (a report that was released, as Bryan Brown pointed out, "only 18 months later than they said it would be available.") LIPA's press release explains it this way:
  • Expressed in current dollars, the total economic value of the project in terms of reduced energy costs could be $14.8 billion over 10 years.
  • Of that $14.8 billion, New York City energy users could derive $6.3 billion in benefits; energy consumers in the rest of New York could see $5.8 billion in savings; and Long Island’s natural gas and electric consumers could get only $2.7 billion in benefits.
So if New York State and the federal government approve Broadwater, we'll could conceivably be putting at risk a resource -- that is, the Sound -- that contributes $55 billion over 10 years for an energy source that saves $14.8 billion over 10 years.

How's that for a trade-off?



Anonymous Anonymous said...

Your comparison of the value of LIS from the Altobello report to the value of the energy savings calculated by the Levitan report is a good starting point.

To advance the argument, I think it needs support from someone who can vet the economics and assumptions of both reports to make sure it compares apples to apples and not apples to oranges.

Also, it looks like it's time for someone to update the LIS (Altobello) economic report, given that it's based on 1990 data and a multiplier based on 1984 data.

2:09 PM  
Blogger Tom Andersen said...

Fair enough.

As for an update of the study of the economic value of the Sound, I went to SoundWaters several years ago to hear Marilyn Altobello talk, and she said she was working on, or perhaps reviewing, an update that would show that her $5 billion estimate was low. I haven't heard a thing about it since, though.

2:13 PM  
Blogger Sam said...

I usually don't trust most economic forecasts on energy costs and savings because they are notoriously volatile (pun intended). Remember when deregulation was supposed to save the ratepayer bazillions of dollars in electric costs, yet ended up going up by 20-30 percent? All those numbers are cooked up to look good and do not include variables such as lower natural gas markets at Henry Hub, higher costs of hauling natural gas from other countries, and many more things - how about two super deepwater platforms in the Gulf of Mexico that could add a full 10% to natural gas pools? I stand by my earlier statements that LNG is a very risky proposition, and could have an economy of scale that could also put itself out of business very easily.

The science of recreational economics is also a fairly sloppy one because it assumed you know how to measure how money is spent, such as on recreational marine craft on LIS. Not only must that pass peer review, but to model the impact of Broadwater you need to figure out how to measure "avoidance" such as not being able to enjoy the sound near the proposed terminal and shipping lanes. Obviously, Broadwater is not going to shut down every boat in the LIS.

At the end of the day you still have two sets of numbers, one based on energy assumptions and the other on recreational marine spending habits. I would hesitate to compare them in terms of dollars.

Of course, with an economic guru I'd love to have a contract to do things exactly like this - capital, operating, and maintenance costs as well as the cost of banking. Sorry, I wouldn't even go into the mysteries of "savings" because that's negative money, something I can't measure. Sorry, it doesn't exist unless you have some real hard margin discounts locked up well ahead of time.

It would be interesting to compare.

8:36 PM  
Blogger Denise Civiletti said...

LIPA ratepayers (like me) spent $850,000 on a 157-page "compilation" of information (the Levitan report) that Kessel now says LIPA may or may not even use! Kessel asked Levitan in 2005 to do this "assessment" so LIPA could make "a recommendation" to the governor. I'm certainly not anxious for that to happen, because it's pretty obvious where LIPA would come down on Broadwater, at least if Kessel has anything to say about it. But $850,000 of rate payer's money for what amounts to a PR event for Broadwater? That's pretty outrageous, even for LIPA.

Levitan & Associates is an LNG industry consultant. Among other things, it failed to take into account many of the proposed storage facility's costs — both to the environment and to the local economy. The report is a ratepayer-funded $850,000 "justification" for Broadwater prepared by one of the LNG industry's trusted consultants.

For those of you who are not LI residents, you should know there is a long and bitter history for Long Islanders and their electric utility. For purposes of this discussion, suffice it to say this is just one more insult on top of many others too numerous to discuss here.

6:18 AM  
Anonymous Anonymous said...

I will restrain myself to a rather obvious point, I don't know much about the subject.

The savings of $14.8 bn over 10 years come with a rather high degree of probability. But the supposed $55 bn in downside risk is not remotely comparable, even if you accept this figure.

There is a very small chance of a terrorist incident with an LNG tanker -- I would say less than 1% but let's pretend its even 5% (which is preposterous given all the potential targets the US has to offer). And would all $5.5 billion per year of economic activity across the entire Long Island sound region be decimated for 10 years even if there were an accident? No! This piece suggests we should compare $14.8 bn with $55 bn when in fact we should compare $14.8 bn (or something in that range) with $55bn times 5% likelihood times 20% of the sound. That's $550 million. How's that for a trade-off? Terrific, thanks very much.


6:32 PM  
Blogger Tom Andersen said...

The "analysis" (and I use quotes because I really didn't do an anlysis) has nothing to do with terrorism but rather with the fact (or the opinion) that Broadwater would be a blight that would prompt people to want to use Long Island Sound less and would also cause some amount of pollution and environmental harm that would diminish the Sound's value as an economic resource.

6:47 PM  

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