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
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
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
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
"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.