The Federal Energy Regulatory Commission Thursday approved a plan allowing the New York grid operator to institute a system to control electricity price spikes in the state’s supply-constrained market.
However, FERC said because of concerns the so-called “automated mitigation procedure” could hold down prices at times when market power is not the cause for high or volatile bids, it set an expiration date of Oct. 31.
That will allow the New York Independent System Operator to get through summer. The ISO said the extra check was needed because prices could exceed an existing $1,000/Mw-hr energy bid cap on “super-peak” demand days.
ISO Pres. Richard Museler Friday denied the system constituted a bid cap and said it will “carefully slice out” uncompetitive conduct without damaging the free market. “We believe this customized approach is quite advanced, and is the first of its kind in any wholesale electricity market in the nation,” he said.
Museler also said the plan will not eliminate price spikes caused by true scarcity, one of FERC’s concerns, but only those caused by economic withholding. He said it is preferable to fixed caps that can reduce supply from internal sources or imports with marginal costs higher than the bid cap, to soft bid caps that may also reduce resources in New York, and retroactive remedies that could cause price uncertainty.
Even though the ISO has tools to restrain uncompetitive behavior once it’s spotted and few examples of such behavior have ever surfaced, Museler said the FERC-approved plan prospectively eliminates the problem before noncompetitive bids set the market clearing price.
Under the plan, the ISO will automatically review generators’ bids when power prices exceed $150/Mw-hr when plants are off line and during times of high demand. Bids more than $100 or 300% above historic averages for an individual plant will be reviewed for signs of market manipulation.
If a generator can’t explain the deviation, the ISO would automatically lower the bid to the historic average. The ISO claimed the procedure would have resulted in mitigation in less than 0.25% of the hours in 2000.
In setting the October deadline, FERC agreed with generators the proposal may not provide “sufficient consultation” to establish particular bids were attempts to exercise market power. Federal regulators said they do not share the ISO’s view automatic mitigation is best done based solely on an examination of bidding behavior without determining if there is an underlying structural market power problem.
FERC said, for instance, transmission constraints into New York City could confer market power on all sellers in such a load pocket. It said it preferred the more limited approach used by PJM Interconnection Inc., the mid-Atlantic grid operator, and ISO New England.
New York officials also urged FERC to institute a separate proposal pending before the commission that would allow the ISO to assess fines and publicize the names of generators’ deemed to be charging excessive prices.