Electric Power Oil&Gas Journal Online Story (Dec 15, 2000)

New York regulators call for cut in price cap

Ann de Rouffignac OGJ Online The Public Service Commission of New York staff called for a price cap of $150/ Mw-hr for bids by generators into the wholesale electricity market in a report issued Thursday. Presently, the New York Independent System Operator is operating under a $1,000/Mw-hr cap. Regulators also want the Federal Energy Regulatory Commission (FERC) to "retroactively correct" wholesale prices and award refunds to consumers, if it determines gains by generators were the result of market power abuse. The Public Service Commission of New York staff released its report proposing reforms to the rules of the New York Independent System Operator (NYISO). The staff is concerned about price spikes in New York should the area experience “normal” summer weather. “The wholesale market is dangerously vulnerable to market power abuse during a normal or hotter than normal summer,” according to the report. Consolidated Edison Co. of New York agreed consumers should be protected from rising prices, while the marketplace is still under development. Consolidated Edison sold its generation during restructuring of the New York electricity industry and must buy power from the NYISO. The market in New York has similar conditions to California—tight supply, no new generation, and strong demand for electricity also characterize the New York market. The commission is concerned market participants could take advantage of these problems and send prices to levels unjustified by scarce resources. The staff found significant problems with the NYISO’s day-ahead, hour-ahead, and real-time operations. In particular, the bidding system of using a market-clearing price to pay all generators tends to keep wholesale prices higher than using a “pay what is bid” approach. Regulators recognize that market-clearing prices are more efficient and give the proper price signals; consequently, the staff is not recommending complete elimination of that type of pricing. The staff recommends the NYISO seek FERC permission to cap market clearing prices at $150/Mw-hr. Generator bids can exceed the cap, if the higher bid can be justified on a cost basis first with the NYISO and the commission, which will then make its own recommendations to FERC. But under no circumstances can bids exceed the existing $1,000/Mw-hr cap. But bids higher than $150/Mw-hr will not set the clearing price. The report also sets out stronger “mitigation” measures for generators that exercise market power. It recommends profits from market power be returned to consumers, a penalty against repeat offenders, and publication of the names of repeat offenders. These measures will be implemented when bids increase the lesser of 100% or by $50/Mw-hr. According to the commission report, market power is defined as the ability of a single firm or a group of firms acting together to profitably raise prices above competitive levels and/or restrict output below competitive levels. The report concludes the New York electricity market is particularly susceptible to market power abuse because of transmission constraints, the inability of suppliers or consumers to increase output or reduce demand in response to price changes, and an inadequate generation supply. The NYISO should seek authority from FERC to retroactively correct prices within a “reasonable” period of time when consumers are harmed by the markets. The staff reasons refunds are justified because consumers should not be harmed while the markets remain uncompetitive, especially during the time needed to allow the NYISO to make these changes to rules and regulations.

http://ogj.pennnet.com/Content/cd_anchor_printscreen/1,1242,OGJ_7_NEWS_DISPLAY_87529_1_7,00.html

-- Martin Thompson (mthom1927@aol.com), December 16, 2000

Answers

Looks like the California bug has reached the east coast.

-- Martin Thompson (mthom1927@aol.com), December 16, 2000.

The PSC has been pushing dereg hard in NYS, placing us in the same risk scenario as California except that we are a summer peaking region. The only new thing here - and it is encouraging - is that this is the first time I have seen the commission staff recognize and attempt to deal with the problem.

-- Celia Murray (celiaam@aol.com), December 18, 2000.