New York ISO to consider electricity price caps


Kate Thomas
OGJ Online

With possible power shortfalls and price spikes looming, the New York Independent System Operator board on June 20 will consider a controversial proposal to cap electricity bids in the day-ahead and real-time energy markets at $1,000/Mw-hr.

If the board approves the measure, the New York ISO will file for authority to impose the bid caps with the US Federal Energy Regulatory Commission. At the New York ISO's request, on May 31, FERC approved bidding restrictions on 10-min nonspinning reserves on an interim basis. However, FERC rejected imposition of bid caps on 10-min spinning reserves.

During 1998 and 1999 heat waves, power prices spiked to more than as $7,000/Mw-hr in some parts of the US. New York is one of the areas vulnerable to power outages this summer, says the North American Electric Reliability Council (NERC) in its annual assessment of summer generating and transmission capacity.

New York and New England have projected they might not be able to meet peak generation needs. Although about 1,000 Mw of generating capacity has been added in New England since last summer, the extra power has been partially offset by the loss of transmission capacity in Vermont, an outage at the Indian Point No. 2 nuclear plant, and the failure of the Hudson transformer serving New York City, according to NERC.

New Yorker consumers paid about 11.7�/kw-hr in 1998, according to the New York Energy Research and Development Authority, while industrial users paid about 5.3�/kw-hr, a 5% decline from the prior year. The organization claims New York consumers on a per unit basis pay more than the national average for most forms of energy. While the state is the nation's fourth-largest energy consumer, only an estimated 12% of energy requirements are met by in-state resources.

In addition to proposed caps in the day-ahead and real-time market, the New York ISO board will also consider a proposal to limit combined payments for availability and lost opportunity costs for 10-min and 30-min reserves at $1,000/Mw-hr. Presently, generators can bid into the reserve market and are paid whether or not the power is used, said a New York ISO spokesman.

Combined payments for regulation�the process of adjusting supply to load�would also be capped at $1,100/Mw-hr under the proposal. Further, bid production cost guarantees would be suspended for a supplier who bids minimum generation levels, start-up costs, or minimum run times when locational-based marginal pricing at the supplier's bus averages $200Mw-hr/day or more. Total payments, including bid production cost guarantees, could not exceed $24,000/Mw/day.

Price caps have not popular with the industry. In testimony filed with FERC, Dynegy Inc. urged the agency to "resist the temptation to endorse price caps" and their functional equivalents. The Houston energy firm said price caps discourage future investment in generation and transmission, balkanize markets, and nullify meaningful market signals that would otherwise stimulate new construction.

Higher prices should ultimately elicit investment in new generation, New York ISO Chief Executive William J. Museler said in a statement, but "licensing new generation is not a smooth process. The peak demand is growing with New York's robust economy, while the building of new generation has remained stagnant."

Formed as part of the restructuring of New York's electric industry in December 1999, the New York ISO assumed responsibility for management of the state's electric grid from the former New York Power Pool. The ISO administers the competitive wholesale market and is responsible for maintaining the safe and reliable operation of the grid.

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