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

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

In its reply to another complaint brought by New York StateElectric & Gas (NYSEG), FERC again cited “market flaws” as itsreason for imposing temporary bid caps in the New York IndependentSystem Operator’s (NYISO) energy markets during this summer. Thecap takes effect immediately and will expire Oct. 28.

NYSEG President and CEO Michael German hailed the Commission’sdecision as “clearly a win for electricity consumers and theevolving competitive market in the state.” The utility sought thebid cap to prevent “volatile, irrational prices” from dooming thefledgling competitive market in New York State, he said.”Allegations that NYSEG asked for FERC action because it wasunprepared to meet summer demand are baseless. In fact, we have -or have contracted for – more than enough power to meet ourcustomers’ needs.”

Commissioner Curt Hebert Jr. opposed both orders, saying thatallowing bid caps was tantamount to giving the markets a “securityblanket,” or imposing a “stay” on FERC’s effort to bringcompetition to the bulk electric markets in New England and NewYork. “With bid caps, the competitive market we all [seek] will bedead,” he said, noting that bid caps were unfair to marketparticipants who properly hedged in anticipation of high summerelectric demand and would thwart investment in the region.

Chairman James Hoecker said he “very much agree[d]” withHebert’s view that FERC should “resist the temptation tomicro-manage” the electric markets. “I think the Band-Aid that weapply here requires constant vigilance by the Commission.” Despitehis reservations, however, Hoecker voted for the two orders..

In New England, “the cap will be applicable to bids into theenergy market by both internal and external resources…..and byinternal resources into the AGC market, as NSTAR proposes,” theorder said [EL00-83]. “We will accept NSTAR’s proposal that the bidcaps not apply to any emergency purchases by [the New England ISO],and that such emergency purchases would not set the clearingprices…..We will also allow NEPOOL participants to procure energyunder Emergency Energy Transactions (EETs) at prices above the$1,000 cap, while prohibiting EETs above $1,000 from setting theclearing prices,” the FERC order noted.

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

In New York, FERC noted that the “possible consequences” ofproblems in the electric market during the summer months “are tooserious 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 believeda $1,000 MWh cap would provide the market with the “most reasonableremedy.” It is the same cap that is currently in effect for thePennsylvania-New Jersey-Maryland (PJM) market, and “promotes ourgoal of coordination between neighboring ISOs,” the order said[EL00-70].

“We agree…..that the bid cap should not apply to Sink PriceCap Bids used for scheduling exports from NYISO because [such] bidsare not used to determine prices that are paid by buyers andreceived by sellers.” Nor would the bid cap apply to NYISO’sancillary service markets, FERC said in its decision. “We havealready imposed bid restrictions on NYISO’s 10-minute non-spinningreserves market due to the market concentration in that market,”the order noted, adding that “no showing has been made that a bidcap 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 onlyapproving this cap on an interim basis and are directing NYISO tocontinue to take corrective actions over the summer period and tocontinue developing a demand-responsive mechanism. We do not intendfor this to become a permanent measure.

Susan Parker

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