New York ISO seeks emergency sanction authority

By the OGJ Online Staff

HOUSTON, June 20 -- The New York Independent System Operator Tuesday asked federal regulators to approve emergency sanctions to deter generators and other participants from manipulating the wholesale electricity market this summer.

The filing requested a waiver from the usual waiting period to allow the ISO to put the penalties into effect immediately, pending Federal Energy Regulatory Commission approval. ISO Chairman Richard Grossi said the action was necessary because of the "very tight supply situation we are facing in New York this summer."

The New York grid operator has said the state and New York City should escape blackouts this summer, but just barely.

It earlier submitted and hoped to win FERC approval of a so-called automated "circuit breaker" proposal by June 13, but the federal agency delayed action on the program. When it filed the earlier plan for a price circuit breaker, the ISO said it also proposed alternative sanction plans, one in the event FERC approved its price mitigation plan, and a more onerous one in case the federal agency didn't act by June 13.

Grossi said ISO board has a responsibility to protect consumers against the possibility "someone might manipulate the market during extreme demand periods. We believe the sanctions proposal we are filing with the FERC balances the short-term need for consumer protections with the long-term need to attract additional supply."

Under Tuesday's plan, utilities as well as generators can be penalized for noncompetitive conduct under the grid operator's market monitoring plan. If utilities underschedule to induce lower prices, they could be assessed hefty fines. Penalties could be doubled and tripled for successive violations.

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 would 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.

Under the proposed circuit breaker scheme, 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.

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.