FERC Rejects ConEd Market Power Mitigation Changes

Saying it wants to avoid the uncoordinated development of market mitigation proposals, FERC last week rejected a proposal by Consolidated Edison Co. of New York (ConEd) to make revisions to the utility's localized market power mitigation measures. Among other things, the Commission voiced concerns over the fact that ConEd's proposal failed to use the New York Independent System Operator's (NYISO) stakeholder process.

FERC in September 1998 signed off on a set of localized market power mitigation measures proposed by ConEd. The utility proposed that the measures be attached to generation units within New York City that it planned to divest. In approving the market power mitigation measures, FERC agreed that it was reasonable to adopt mitigation measures to address the potential for in-city generation owners to exercise generation dominance there. FERC also noted that the localized market power mitigation measures are implemented by the NYISO under its market monitoring plan.

In March of this year, ConEd returned to FERC and filed revisions to the localized measures. The utility said that the revisions were needed to make the measures operate as originally intended and to close certain loopholes in their coverage that have become apparent during the first year and a half of NYISO operations. ConEd listed several loopholes in the mitigation measures including that they do not apply to energy sales in the real-time market and do not cover all of the in-city units that have localized market power.

ConEd's proposed revisions would expand the application of the mitigation measures to bids for sales of energy in the real-time market during constrained periods and to all generators located electrically within New York City, not just those divested by ConEd. The revisions would also extend the application of the mitigation measures to bids for minimum generation and startup in all instances where generation must be operated out of merit due to local reliability requirements and bids for startup and minimum generation during constrained periods. ConEd asked that FERC grant an effective date of May 1, 2001, for its proposed revisions so that they could be in place before the summer capability period.

FERC last week said that it was confronted with several significant issues in assessing ConEd's proposal. First, the Commission argued that the utility circumvented the NYISO stakeholder process by unilaterally filing revisions to the in-city mitigation measures. ConEd's failure to utilize the NYISO stakeholder process has resulted in strong opposition to the utility's proposal, FERC said. The Commission said it wants to encourage market participants to use the stakeholder process, especially in this type of situation where a market participant seeks to modify measures that impact all market players. Furthermore, FERC pointed out that the NYISO is responsible for the administration and implementation of not only the localized market power mitigation measures, but also its market monitoring plan. The NYISO has already said that it cannot fully implement ConEd's proposal for the upcoming summer capability period and would prefer to devote all available time and resources to enhancing the administration of its market monitoring plan, rather than changing the localized market power mitigation measures. And the proposed measures may be duplicative of the mitigation authority that the ISO already has, NYISO pointed out.

Taking all of these issues into account, FERC rejected ConEd's proposal. In justifying its action, the Commission said that it wants to prevent the uncoordinated development of market power mitigation proposals that could result in duplicative or conflicting mitigation measures within New York, which in turn could discourage additional investment and prevent rather than support the development of effective competition. But the Commission went on to say that its rejection of ConEd's proposal does not preclude the NYISO from addressing the utility's proposed mitigation through the stakeholder process. In fact, the Commission continued, the NYISO has said that it is not opposed to revisiting the price effect levels for specific markets if the current thresholds can be shown to allow sustained, super-competitive pricing. Therefore, FERC said that if ConEd continues to believe that the NYISO should have additional mitigation authority, it should work with the ISO within its stakeholder process to formulate a feasible mitigation proposal that the NYISO could file under Section 205 of the Federal Power Act.

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