New York ISO asks approval of price 'circuit breaker' scheme

By the OGJ Online Staff

HOUSTON, June 5 -- With a summer of razor thin margins in the offing, the New York Independent System Operator has asked the Federal Energy Regulatory Commission for expedited approval of an automated price "circuit breaker" scheme at the agency's June 13 meeting.

Under existing manual market power mitigation procedures, the ISO can impose price controls over the next day's bids to eliminate the effect of the exercise of market power, but it cannot impose them after the day-ahead market closes on the current day's bids.

The ISO said the circuit breaker or automated mitigation procedure will prevent market abuse during times the system is subject to very high loads, excessive generator outages, binding transmission constraints, and when prices exceed $150/Mw-hr.

The New York ISO is "working hard" to balance concerns about market power abuse during a time of supply deficiency, with a need to maintain a market that is "neither hostile nor risk-ridden to vendors," said Richard Grossi, board chairman.

Last week, the ISO said the state and New York City should escape blackouts this summer � but just barely.

Under the proposed circuit breaker system, supplier's bids in the day-ahead market would be automatically reviewed to determine if they are $100 or 300% higher than the energy reference price. In the case of start-up cost bids, they would be reviewed if prices are 200% higher than the start-up cost reference.

The circuit breaker proposal is preferable to fixed price caps, soft bid caps, and retroactive remedies, the ISO said. Caps would tend to reduce supply in New York, while retroactive measures create price uncertainty, it explained.

A preliminary analysis showed if the circuit breaker had been in effect last year, it would have resulted in mitigation in less than one-quarter of 1% of the hours during 2000, according to the ISO. The New York grid operator said the circuit breaker only addresses "economic withholding" and will not eliminate price spikes caused by true scarcity. Generators would be permitted to justify bids above the reference price prior to triggering the circuit breaker.

In conjunction with the price circuit breaker proposal, the ISO also has proposed alternative sanction plans, one in the event FERC approves its price mitigation plan, and a more onerous one in case the federal agency doesn't act by June 13.

FERC earlier rejected the ISO's contention the circuit breaker scheme was consistent with existing tariffs and ordered the ISO to submit new tariffs before putting the measures in place. Regardless of whether FERC approves the new tariffs, Grossi said, the ISO will act "promptly" using every means at its disposal to "cause an appropriate proposal of this or a similar nature to be in place this summer."