FERC OKs NYISO Mitigation Plan For This Summer Only

FERC last Thursday signed off on a proposal forwarded by the New York independent system operator (NYISO) designed to prevent market abuse during times when the ISO's system is subject to certain conditions such as excessive generator outages. However, the Commission said that it would only allow the automated mitigation procedure (AMP) to be in place during the 2001 summer capability period, noting that the proposed AMP may mitigate bids in situations where market power is not the cause for high or volatile bids.

"We are very pleased with the FERC's decision, particularly as temperatures are getting warm and electric loads are increasing in New York," said William J. Museler, NYISO CEO. "While the AMP is essentially the automation of existing NYISO market monitoring measures, we believe it goes a long way toward balancing the need for consumers to be protected from market abuses with the desire of suppliers for price certainty."

NYISO, in a March notice of withdrawal of a filing at FERC, said that it intended to automate a step in its market mitigation measures to eliminate the current one-day delay in mitigating conduct that would otherwise set non-competitive market energy prices in the next day's day-ahead market. The ISO's AMP is designed to prevent market abuse during times when the ISO's system is subject to very high load, excessive generator outages or binding transmission constraints and prices exceed $150/MWh.

In response to NYISO's proposal, several Mirant affiliates lodged a complaint with FERC over the AMP. The Mirant affiliates stated that the withdrawal filing makes clear that the NYISO improperly intended to implement the AMP without filing any changes to its market monitoring plan pursuant to the Federal Power Act (FPA). The Mirant affiliates further asserted that the AMP creates a "new and unproven presumption" that market power has been exercised, thereby denying the procedural due process currently provided to market parties under the ISO's market monitoring plan. The Mirant affiliates also argued that the AMP creates a greater probability of improper mitigation actions by the NYISO and that after-the-fact uplift compensation for improperly mitigated bids would not correct the artificially depressed price signals sent to other market players.

FERC subsequently determined in an early May order that the ISO's AMP proposal needed to be examined in greater detail before it could be approved. The Commission concluded that if the NYISO wished to implement its AMP proposal, it needed to file revised tariff sheets pursuant to section 205 of the FPA to set forth the AMP procedures. NYISO on May 17 filed a new attachment to its market administration and control areas services tariff.

The Commission last week said that it would allow the AMP mechanism to be in place during the summer 2001 capability period. But FERC said it viewed the proposed mechanism as only a temporary solution and noted that it agrees with certain intervenors that the AMP may mitigate bids in situations where market power is not behind high or volatile bids. "We also agree that the proposal may not provide for sufficient consultation with generators to reasonably establish that particular bids were attempts to exercise market power." Accordingly, FERC said that although it would accept the AMP plan for this summer, it would also require that the proposed mechanism terminate on Oct. 31, 2001.

FERC made it clear that it does not share NYISO's view that automated mitigation is best done based solely on an examination of bidding behavior, without determining whether there is an underlying structural market power problem. For example, FERC said that when transmission constraints into New York City are binding, the presence of few independent sellers in the load pocket may confer market power on all sellers in the load pocket. "In general, we believe automatic market power mitigation may be most appropriate where it is tied to structural market power problems such as must-run situations where generators would otherwise be in a position to name their price." The Commission pointed out that both PJM and ISO New England use this more limited approach of automatic mitigation.

Meanwhile, as the Empire State scrambles to avoid the blackouts and price spikes seen in California, the New York Power Authority (NYPA) recently said it expected to be able to complete the lion's share of its plan to install 11 gas turbine generators throughout various New York City boroughs by the end of June.

NYPA last year announced that it would purchase up to 11 small gas turbines by this summer to help avoid a supply shortage and potential electricity price spikes in the New York metropolitan area. In addition, the agency set a deadline of June 1, 2001 for the installation of all 11 turbines. The gas turbines at each site will produce 44 MW or, in the case of two units at a single site, a combined maximum of 79.9 MW. The generators are expected to provide just over 400 MW of additional capacity for New York City this summer.

"Six of the 11 units are operational," Luis Rodriguez, an NYPA spokesperson, told NGI. Another unit in Sunset Park, Brooklyn, was expected to become operational last week. He said the NYPA expected to have 10 units operational by the end of June, and by the end of next month, all of them.

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