Energy price caps draw fire

CNY Business Journal (1996+), May 18, 2001 by Fitting, Beth

ALBANY - The state's independent producers of electricity are opposing a proposal by The New York Independent System Operator (NYISO) Management Committee that would effectively limit the price power producers could charge. The Committee is comprised of representatives of all market participants, including the New York State Consumer Protection Board.

Gavin Donohue, executive director of the Independent Power Producers of New York (IPPNY), says the proposal "would drive suppliers away." He calls it "unduly onerous and based on speculation about potential market abuse."

Further, Donohue points to a recent report from NYISO's market adviser that concluded, "The current generation and supply system works and changes in the mitigation plan are not necessary at this time."

The proposal, which could have resulted in some suppliers being blocked from selling into the New York market, has been sent back to the Management Committee by the NYISO board of directors. IPPNY applauded the move.

In a possibly related move, NYISO has applied to federal energy regulators for permission to intervene against possible energy price gouging. NYISO says its "Automated Mitigation Procedure" (AMP) will allow it to notify suppliers in the dayahead market when the prices to which they have agreed exceed "reference prices."

According to Steven C. Sullivan, spokesman for NYISO, "We've established reference prices for generating." These prices are computed based upon the lower of the mean or median of the previous 90 days of accepted bids and are adjusted for fuel-price changes (most of the new generators are fueled by natural gas, which has been experiencing price spikes in the supply market).

He says that "AMP is designed to prevent market abuse during times when the system is Subject to very high load, excessive generator Outages, or binding transmission constraints and prices exceed $150 per megawatt-hour."

In a tight supply market, Sullivan explains, "we had the authority to mitigate prices but it was not automatic. We could only mitigate high prices after the fact." He adds that a marketer can come to NYISO with extenuating circumstances (such as a generating plant that is down) ahead of time, and escape mitigation.

If there are not extenuating circumstances, the marketer would have to lower the price or not make the sale.

NYISO has calculated that if it was in place in 2000, the AMP would have resulted in mitigation in less than onequarter of one percent of the megawatt hours. It adds that this system "does not eliminate price spikes due to true scarcity," but "addresses only those caused by economic withholding."

Commenting on the difference between NYISO's mitigation proposal and California's price caps, Sullivan says that California pushed prices down with price caps even though "some [generators] had higher costs than the capped price. We think the AMP approach is much more flexible."