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Bid Caps Imposed in New York, New England Electric Markets

Bid Caps Imposed in New York, New England Electric Markets

In an attempt to put a lid on price volatility this summer, FERC last week approved temporary bid caps of $1,000/MWh for the New England and New York power generation markets, bringing the bid ceilings for the entire Northeast and Mid-Atlantic regions into sync.

Responding to a complaint filed by NSTAR Services Co., the Commission said "market flaws" in the New England Power Pool (NEPOOL) warranted the temporary $1,000 MWh bid cap in the region's energy and automatic generation control (AGC) markets. The bid cap is to go into effect immediately and would last until Oct. 31. It would be imposed only when Operating Procedure (OP) 4 conditions are declared, which typically occurs during summer heat waves when generation demand is at its highest.

In its reply to another complaint brought by New York State Electric & Gas (NYSEG), FERC again cited "market flaws" as its reason for imposing temporary bid caps in the New York Independent System Operator's (NYISO) energy markets during this summer. The cap takes effect immediately and will expire Oct. 28.

NYSEG President and CEO Michael German hailed the Commission's decision as "clearly a win for electricity consumers and the evolving competitive market in the state." The utility sought the bid cap to prevent "volatile, irrational prices" from dooming the fledgling competitive market in New York State, he said. "Allegations that NYSEG asked for FERC action because it was unprepared to meet summer demand are baseless. In fact, we have - or have contracted for - more than enough power to meet our customers' needs."

Commissioner Curt Hebert Jr. opposed both orders, saying that allowing bid caps was tantamount to giving the markets a "security blanket," or imposing a "stay" on FERC's effort to bring competition to the bulk electric markets in New England and New York. "With bid caps, the competitive market we all [seek] will be dead," he said, noting that bid caps were unfair to market participants who properly hedged in anticipation of high summer electric demand and would thwart investment in the region.

Chairman James Hoecker said he "very much agree[d]" with Hebert's view that FERC should "resist the temptation to micro-manage" the electric markets. "I think the Band-Aid that we apply here requires constant vigilance by the Commission." Despite his reservations, however, Hoecker voted for the two orders..

In New England, "the cap will be applicable to bids into the energy market by both internal and external resources.....and by internal resources into the AGC market, as NSTAR proposes," the order said [EL00-83]. "We will accept NSTAR's proposal that the bid caps not apply to any emergency purchases by [the New England ISO], and that such emergency purchases would not set the clearing prices.....We will also allow NEPOOL participants to procure energy under Emergency Energy Transactions (EETs) at prices above the $1,000 cap, while prohibiting EETs above $1,000 from setting the clearing prices," the FERC order noted.

The Commission rejected NSTAR's request for an "explicit" $1,000 MWh bid cap in the operating reserve markets in New England. However, it extended the New England ISO's authority to cap prices in the operating reserve markets during OP 4 emergency conditions at the applicable hourly energy price, which cannot exceed $1,000 MWh.

In New York, FERC noted that the "possible consequences" of problems in the electric market during the summer months "are too serious to be ignored." The New York ISO had asked for a bid cap of $1,300 MWh as a temporary fix, but the Commission said it believed a $1,000 MWh cap would provide the market with the "most reasonable remedy." It is the same cap that is currently in effect for the Pennsylvania-New Jersey-Maryland (PJM) market, and "promotes our goal of coordination between neighboring ISOs," the order said [EL00-70].

"We agree.....that the bid cap should not apply to Sink Price Cap Bids used for scheduling exports from NYISO because [such] bids are not used to determine prices that are paid by buyers and received by sellers." Nor would the bid cap apply to NYISO's ancillary service markets, FERC said in its decision. "We have already imposed bid restrictions on NYISO's 10-minute non-spinning reserves market due to the market concentration in that market," the order noted, adding that "no showing has been made that a bid cap is needed in the ancillary service markets."

The Commission stressed that the bid cap in the New York market, as well as in New England, is a temporary fix. "We are only approving this cap on an interim basis and are directing NYISO to continue to take corrective actions over the summer period and to continue developing a demand-responsive mechanism. We do not intend for this to become a permanent measure.

Susan Parker

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