In the waning days of August, many New Yorkers contemplate that last visit to the beach. That kind of daydreaming works for some but not for me. I tend to think more about the number of degree days and where peak electricity usage has topped out for the month. You see I was raised in a family of electricians. I too was an electrical apprentice for a summer before the economy took a downturn. I learned first-hand how challenging it is to work in an underground vault on a 100 degree day connecting 440 volt feeder cables under Jerome Avenue (in the Bronx for out-of-towners) for a power supply for a school. It is demanding and exhausting work but very essential.

This year, due to the amount of rain and the number of cloudy days, there have not been as many peak days on the grid. On the other hand, humidity does help with driving peak loads higher.

Another factor is that the relatively low interest rates we are experiencing have not elicited the supply in power bonds. We believe that the present remains an excellent time to bring out those alternative energy and gas fired projects. The uncertainty in Washington should not overwhelm sound base load management. We fully appreciate the fact that generation planning is a very detailed and very carefully considered process. But, the complacency over rates should not affect the decisions to go to market. The graph below indicates the trend in issuance.

The point of this discussion is to ask: where are we headed in terms of power supply? The Indian Point plants produce nuclear power and are scheduled to be closed in the not-too-distant future. Gas fired generation has been the trend of late due to the lower emissions and the relatively benign cost of the power over the long haul. Alternative energy is also receiving ever more approval from consumers who care about power at a cost but also want to know more about where and how it is being produced. Importing more Canadian hydropower is an option, though that source may be affected by trade negotiations.

California and Texas are ahead on alternative energy. The former uses solar alternatives to such an extent that there is a concern that an eclipse has a greater chance to cause short term challenges. Imagine that even five years ago! Texas is advanced in the use of wind turbines. The only place I have seen more is in Amsterdam.

A lot has been accomplished in the area of reducing usage. HVAC systems are becoming ever more efficient. Software systems that run many units have become incredibly sophisticated. Landlords are very sensitive to spikes in power costs. The peak usage frequently occurs on a work day in the summer around mid-day. The utilities make certain that they have enough peaking units and other potential sources of purchased power to meet the demand. The good news is we have not heard quite as many complaints on the power front this year.

Switching to the subway operations is a different consideration. The system is remarkable in that it is moving more people than ever before. But some of the same principles apply to the trains as are applied to the availability of power. Capacity and reliability are key elements for both.

I was especially heartened to learn that MTA is investing in the near term in its power system in order to improve reliability. This upgrade is probably one of the best uses of $40 odd million ever. When old cables are frayed or compromised they are more prone to problems that cause surges. In turn, the surges can cause circuit breakers to move to the tripped position that can contribute to the delays in operations.

Trains run on DC power here. The power that comes to the system is AC power. Therefore, there is the need for transformers along the line. Even though the small buildings that house the equipment may not be considered attractive they are still essential to the integrity of the system. Chances are there may be more of them to be constructed or expanded. There is just no way to avoid these improvements.

As a consequence of the DC current, there is a need to use the third rail system. Preventing fires by improved trash removal is actually quite important as well as visually improving conditions.

There is also every reason to have an update to the system of switches. Better switches will make a difference in more service.

Volume in the Power Sector overall has declined this year. Given refundings have been such a large component of the volume, this drop off is to be expected. Another factor is the recent cancellations of the two sizeable nuclear plants that have been affected by the Westinghouse bankruptcy filing. This development may have delivered near term relief to rate payers due to the cancellation of rate hikes intended to support the cancelled projects, but, now more thought needs to be devoted to what will fill the void in the long run.

Spreads have contracted about as far as they are going to go in this sector. A bit of supply may make the sector more attractive to portfolio managers again. In the meantime, gains may be taken and there is more swapping to pick up a few basis points.

I trust that none of what I have said here will keep you from taking that trip to the beach. However, you may just appreciate the air conditioning a tad more when you return home.