Report Finds Competition Alive And Well In NY

Competition is, for the most part, flourishing in New York's electricity markets, but significant levels of new generation will need to be added to the state's system in the near future in order for New Yorkers to avoid incurring higher electricity prices, according to a report recently issued by Dr. David Patton, market adviser to the New York independent system operator (NYISO).

In his report, Patton concluded that, except for isolated cases, suppliers bid competitively into the New York electric markets. Also, he emphasized that if this situation were to change and suppliers began engaging in anticompetitive conduct, the NYISO can effectively address such conduct. Patton disclosed his findings at a meeting held earlier this week in Albany between the NYISO board and New York's various market sector representatives.

In addition, Patton's study found that the competitive markets facilitated by the NYISO have resulted in real benefits over the prior regulated system. The incentives offered by the competitive markets have resulted in increases in supplies offered to the market of 5% to 10% compared to the regulated system.

But Patton warned that the inability of investors to site significant amounts of new generation in the face of growing loads will make the markets increasingly exposed to large price fluctuations, even with fully competitive conduct by suppliers. In addition, Patton cautioned that barriers to investment will also increase the vulnerability of the market to market power abuses as transmission constraints and tight supply cause withholding to have a greater effect on price.

Turning to the increase in prices in 2000 from historical levels, Patton found that the higher prices were primarily caused by much higher prices for natural gas and oil, as well as the outage of the Indian Point 2 nuclear unit in Eastern New York.

"These findings confirm what we have believed all along, that New York's competitive markets are working," said NYISO CEO William Museler in commenting on Patton's year-long study. Museler also said the findings underscore a conclusion NYISO reached in its own recent study, Power Alert: New York's Energy Crossroads, that the state needs to get serious about siting and building significant amounts of new generation. New York State Electric & Gas Corp. recently criticized that report asserting, among other things, that it "unrealistically assumes" that 8,600 MW of new generation for the state can be built by 2005 (see NGI, April 9).

Patton's report can be downloaded from the NYISO's web site at www.nyiso.com.

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