Despite ever-increasing demand for electricity, industry experts say there will be no significant construction of new power utilities in New York.

"The rules of the game have changed," said Richard W. Flynn, chairman of the New York State Power Authority.

To that end, the utilities in the state, collectively known as the power pool, have laid out what Mr. Flynn calls "three new yellow brick roads."

Speaking at the Empire State Report's conference on New York public finance, the power authority's chairman outlined the three favored alternatives to building new facilities: Independent power production to obtain 5,000 new megawatts by the year 2000; transmission of electricity from producers for another 1,000 megawatts; and further conservation to contribute 4,500 megawatts by the year 2007.

Experts agree that energy conservation will play a major role in New York, and Mr. Flynn pointed to utilities' estimate of an 80% surge in conservation in the state between 1990 and 1991 as evidence of a trend toward saving.

Utilities are getting a good rate of return on successful conservation programs, he noted. These programs cover a variety of projects, including installation of energy-efficient lighting for customers.

The power authority, he noted, has a conservation program covering southeastern New York, which includes New York City; city governmental facilities; the Metropolitan Transit Authority; all of the state's police and fire departments and public schools; and all public facilities in Westchester County.

How to Conserve

"We will take care of all of the installation and finance the installation through short-term, tax-exempt paper," he said. "The bottom line is that the customer will be saving 75% of their lighting costs."

And in these difficult budgetary times, Mr. Flynn noted, the authority has initiated a second conservation program for the state's 8,000 public buildings. The program is slated to cut the state's $127 million power bill by almost 10%, or $12 million, and is scheduled for completion in 1993.

"We are investing $100 million in conservation," Mr. Flynn said. "This is something that is echoed by utilities across the state."

The authority and other power producers are providing sources of energy at less cost than it takes to build new utilities, he said, "and we are paid back from the customer the amount we expend to produce the savings over a period of years."

However, conservation is not a long-term solution, according to one state official.

"Energy efficiency will keep people satisfied for a while, but you can't depend on conservation forever," said F. William Valentino, vice president and treasurer of the New York State Energy Research and Development Authority, who also spoke at the conference. "You need new supply sources."

He noted that the public believes in the conversion of renewable power sources, which include hydroelectric power, waste wood, biomass, and municipal solid waste. But many of those sources require complicated and sensitive procedures for approving new sites, he noted.

Consumers are also intrigued by other renewable power sources, he said, adding that the public "looks at solar and wind as a panacea" for energy problems. But there too, challenges are posed by siting procedures, as well as technology and economics. "There are a lot of chicken and egg situations," he said.

"The issue of the 1990s and beyond I don't think is quantity, but the quality of the generation," he said. "Which of these many resources should we choose that will offer society the best bet over time?"

Another source of energy expected to increase in usage are transmission lines. Links with power producers, such as Hydro-Quebec of Canada and the hydroelectric plant at St. James Bay, should provide more energy to regions in the state.

The Long Island Lighting Co., meanwhile, is mulling a plan to buy 218 megawatts of hydroelectric power from the New York Power Authority, which has an agreement to buy 1,000 megawatts of power from Hydro-Quebec.

Hydroelectric power from Canada "costs less and is environmentally more positive" because the production does not rely on oil and gas, Mr. Flynn noted.

But Paul Gioia, senior vice president with First Albany Corp., a securities firm based in Albany, cited concerns about such power sources. The reliability of the transmission lines, the distance, and the capacity to provide power are still untested, he said.

He also noted environmental concerns over the St. James project and what impact that might have on this type of power production.

The role of competitive bidding is another road that will be well traveled over the next 20 years, Mr. Flynn said.

The state's Public Service Commission and 30 other states have encouraged competitive bidding from power producers, he said. The bidding process is supported in order to produce electrical power generation at the lowest possible cost.

"That is the big leap from the old rate of return concept that utilities built on," Mr. Flynn said.

He explained that the old school invested money in a plant and assumed they would have a rate of return on their investment over time. Now, however, the rate of return philosophy has moved to the competitive arena, he said.

As an example, Mr. Flynn cited the power authority's recent success in landing its first competitive bid.

"We just won a competitive bidding contest," he noted. The authority beat about 20 bidders to build a 150 megawatt gas-powered generator in Holtsville, N.Y., by 1995.

With respect to competitive bidding, Mr. Gioia said there is still uncertainty over how much power will be developed by independent power producers. There is also some concern over what would happen with financial liability if an independent powre producer turns out to be uneconomical, he noted.

Financing Plans

To travel down these roads, the New York Power Authority, which produces 25% of the state's power, has also prepared financing plans, Mr. Flynn said.

The authority plans to enter the capital markets for tax-exempt short-term borrowings to lend utilities money for conservation programs. Over the next 12 months, the authority plans about $225 million of long-term and short-term borrowing to finance a number of projects, Mr. Flynn said.

And the authority is no stranger to the municipal market. It ranked third in the first five months of 1991, with one issue worth $314 million. In 1990, it ranked second, with two issues totalling $353 million. The authority did not sell any long-term bonds in 1989.

In addition to the $50 million to $75 million of short-term paper earmarked to partially finance the Holtsville plant, the authority plans to use about $30 million of bonding to finance its underwater power transmission cable under Long Island Sound.

But to expand its hydroelectric facility is Niagara Falls, the authority will rely on internal funding over the 10-year construction period to finance the $500 million cost. This funding mechanism should prove cost effective and afford the "maximum" benefit to ratepayers, Mr. Flynn said.

This expansion of the authority's flagship hydroelectric plant should provide about 330 megawatts of power for peaking capacity for transmission to southeastern New York.

"We have 11 plants statewide, including two nuclear power plants," Mr. Flynn said. The authority generates power to offset the state's heavy dependence on oil producers. "We are 90% fossil fuel-free," he noted, with 65% of the power produced from hydroelectric sources and 25% from nuclear.

"By the year 2000, we will move up from providing 25% of the state's power to 33%," he said. "We are always alert to what is our focus," he noted, identifying it as environmentally sound power production and low-cost power.

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