If New York Gov. Andrew Cuomo (D) fulfills his pledge to close down the Indian Point nuclear station 33 miles north of Manhattan, he or a successor is likely to face two more steps: finding enough new electrical generation capacity or energy savings to replace the two reactors and persuading New Yorkers that the added cost is worth it.

Policy and politics, more than markets, will be crucial in keeping lights on and businesses running in New York City and its suburbs without the 2,040 megawatts of capacity that the two Entergy Corp. reactors now provide, according to both sides in the Indian Point debate. It is another example of how so much of the nation's power future is bring decided in state capitols and city halls.

New York's future without the Indian Point plant is now the subject of conflicting analyses by two consulting firms representing opposing sides of the issue.

Charles River Associates issued a report in August, commissioned by the New York City Department of Environmental Protection, saying that replacing Indian Point's reactors in 2013 and 2015, when current federal operating licenses expire, would raise wholesale electricity costs by about $1.5 billion per year, or roughly 10 percent. New York City customers would pay $300 million more per year for wholesale energy, without Indian Point, the study says.

"Every replacement option studied will result in a cost increase to energy consumers throughout the state, either through increased market prices or subsidies to new generators," the CRA report says.

"The decisions regarding these tradeoffs will lie in the realm of public policy. Those who assert that there are 'cheap' and 'simple' solutions simply fail to acknowledge these tradeoffs."

"Nothing says you can't shut Indian Point down if policymakers and regulators agree that the costs -- environmental and economic -- are worth it," said report author and CRA principal Christopher Russo.

2nd study finds power cost lower

On Monday, Indian Point opponents fired back with the second study, prepared by Synapse Energy Economics Inc., at the request of Riverkeeper, a New York environmental organization, and the Natural Resources Defense Council.

The Synapse analysis says the latest energy data from New York authorities show that even if Indian Point were closed, the state would not need to replace its output until 2020 -- a conclusion that the CRA report missed because it relied on year-old forecasts of electricity demand, Synapse says.

Synapse says that CRA's cost estimates run high because that firm did not include New York's opportunity to replace Indian Point power with increases in demand response, energy efficiency and conservation programs. New York consumers would likely pay only 1 to 2 percent higher bills for replacement energy if the two reactors are shut down, Synapse said.

But the Synapse report also underscores the political challenge that would confront Cuomo or a governor following him in Albany. "The ultimate cost of replacing Indian Point will depend up the choices that are made by policymakers" if the plants are not relicensed for operation, the study concludes.

Governments have to be willing to increase regulation of appliance and building energy efficiency. Grid operators must create programs that incentivize customers to cut back on electricity use when demand and prices peak -- both households and businesses, says Synapse Vice President Tim Woolf, one of the report's authors.

His firm's study projects that New York could ramp energy efficiency up enough to reduce electricity consumption in the state by 1.5 percent per year from 2015 to 2021. New York ratepayers would have to fund energy efficiency programs. Regulators would have to continue tightening building codes and raising appliance standards. A few states that have hit the 1.5 percent target or more "have a history of political and regulatory support and an infrastructure of utilities willing and able to do the job," Woolf said.

New York would have to show a similar political commitment. "Energy efficiency is definitely not free. It will cost," said Ahmad Faruqui, a principal with the Brattle Group consulting firm. The initial down payments pay for themselves in time, studies show. Reductions in demand of 5 to 15 percent in current electricity usage by 2020 are very economical compared to the costs of adding new generating plants, he said. But the pump must be primed. "It is an issue of how aggressive policymakers want to be," he said.

"What is lacking in New York today is that they don't have any large-scale demand management program for residential and small commercial users," the mass market. Most of the programs are concentrated on commercial and industrial users. "They could do a lot more in New York," Faruqui said.

If demand response and energy efficiency gains aren't enough, then Indian Point's energy would have to be replaced by some combination of new gas-fired power plants located close to or in the city, or new transmission lines that could import surplus energy from upstate or Canada.

Existing markets can't replace loss

It isn't realistic to count on New York's existing electricity markets to provide enough new generation or transmission to replace the Indian Point power in time, says Edward Krapels, CEOs of Anbaric Transmission, an independent developer of power lines, including two that serve metropolitan New York.

Krapels' firm has proposed to build a new high-voltage direct-current line under the Hudson River from Albany to the Indian Point area, delivering power from upstate New York wind farms and natural gas plants. There is a competing proposal from Transmission Developers Inc. to put a 355-mile, $3.8 billion line from Canada down the Hudson to New York City, delivering wind and hydropower. Either line could fill a big part of an Indian Point power deficit, the developers say. They are moving through the regulatory process in New York.

The Synapse report assumes that some major new transmission additions could be built in time to replace Indian Point. "It is difficult to predict the likelihood that any one of these projects will be approved and come on-line. Nonetheless, it is safe to conclude that some of these transmission lines are likely to be developed prior to 2020 and would assist in replacing the capacity from Indian Point," the report says.

Krapels said that is unlikely to happen unless New York authorities commit to guaranteeing prices for the power the new transmission lines would deliver, through purchase power agreements (PPA).

New York, like other Eastern states, runs "capacity markets" to attract offers from generation companies for new power supply to meet expected increased energy needs several years ahead. But as high as power prices are in New York state -- and they are among the highest in the United States -- they aren't enough to incentivize power companies to commit to adequate long-term investments in new plants, Krapels and other industry participants say.

"The competitive power market structures don't yet provide enough of a financing basis to build major, billion-dollar infrastructure projects like transmission lines and power plants," Krapels said.

A policy snarl started by Fukushima

The policy uncertainties surrounding Indian Point could hardly be more complex, those engaged in the debate agree.

Entergy has asked the Nuclear Regulatory Commission to relicense the two reactors for another 20 years of operation, and that application is under review.

Separately, Cuomo's Department of Environmental Conservation has denied Indian Point a Clean Water Act permit, ordering Entergy to build cooling towers at the plant. Cooling towers significantly reduce the volumes of water that must be pulled from the Hudson River to cool the reactors, and according to the state are required to protect fish and aquatic life adequately.

Entergy says it would have to close both plants for 42 weeks to build the towers, at a cost of $1 billion. It wants to meet the statute's requirements instead by installing screening in front of the plant's water intakes, and has appealed the cooling tower order to a state administrative law judge. If the company loses at that level, it would be expected to take its appeal to court.

In the meantime, the older Indian Point reactor's license is due to expire in 2013, followed by the second reactor, in 2015. If New York indeed has enough spare resources to go to 2020 without Indian Point before facing electricity shortages, there may be time for new policies to take hold.

Otherwise, it is a race against the calendar.

"It would take a wartime ethos to get 2,000 megawatts of new generation connected to the grid" in the lower Hudson Valley or New York by 2016, said Richard Levitan, president of the Levitan & Associates, a Boston consulting firm.

"With great governmental support in New York City and from FERC [the Federal Energy Regulatory Commission], it could be done on an expedited track. Whether three years is barely enough, I'm not sure," he said in an interview following release of the CRA report.

Cuomo's decision to close Indian Point reflects a political decision that the economic consequences of nuclear catastrophe such as Japan suffered in March, so close to New York and its suburbs, is not acceptable. The nuclear industry responds by pointing to the NRC's Fukushima task force report, which concluded that U.S. reactors posed no imminent threat to public health and safety.