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Low Bid Cap Kept on NYISO's Non-Spinning Reserves

Low Bid Cap Kept on NYISO's Non-Spinning Reserves

The New York Independent System Operator (ISO) walked away from FERC empty-handed last week, as the Commission cited its disappointment with the regional power group's failure to reduce concentration in the 10-minute non-spinning reserves market.

In its decision, which was approved by a 3-1 vote, FERC chided the New York ISO for not only failing to implement some of the market fixes that it ordered last May, but also for coming up short with the corrections that it did put into effect. As a result, the Commission rejected the ISO's request to substantially raise the $2.52/MWh bid cap in the 10-minute non-spinning reserves market. Instead, it voted to extend indefinitely the $2.52/MWh bid cap, which expired Oct. 31, until the New York ISO can show that the market is "workably competitive."

The regional group had asked for the bid cap on non-spinning reserves to be increased to $15/MWh effective Nov. 1, and to $30/MWh on Jan. 1, 2001. It proposed that the higher cap remain in effect until April 30, 2001. Non-spinning reserves are power plants waiting on stand-by to meet peak demand. FERC estimated that 97% of the non-spinning reserve capacity in the East is held by only four entities.

In addition to restricting the bid-cap level, the Commission directed staff to schedule a technical conference to explore changes to market rules to resolve the concerns in the non-spinning reserves market. It told staff to report back with its findings in 120 days.

The technical conference will provide industry and FERC with the opportunity to prevent a "second sizable market meltdown in a major state," said Chairman James J. Hoecker. He hinted Wednesday that New York's problems may be owing, at least in part, to the fact that it shares the region with two other strong ISOs - the New England ISO and PJM. In a just-released report on the U.S. bulk power markets, staff concluded the Commission's competition objectives "would be better served with one Northeast regional operation" instead of three, Hoecker said.

Commissioner Curt Hebert Jr., who dissented from the FERC majority, said he advocated removing bid restrictions from the market. "Rather than let go and at least allow the ISO to take baby steps into the competitive market, we continue price controls indefinitely. I would let [them] go, especially when an ISO with an institution inherently wedded to keeping prices low rather than efficiency wants to test its legs."

With the addition of a hydroelectric energy facility and increased exports from the PJM and New England ISO into New York's non-spinning reserves market, Hebert said he believed the "supply picture since May has brightened considerably" to justify removing price constraints. "The ISO [still] has a long way to go. I will admit that. Nevertheless, I would not make the perfect the enemy of the good," he said.

Moreover, he accused the FERC majority of backing down from its threatened investigation of the New York ISO market in the event it wasn't satisfied with the ISO's actions. "If the record convinces the majority, as it seems to, that the ISO must do more [to reduce market concentration], we much march boldly to institute the proceeding that we threatened. Instead, the majority meekly calls for a technical conference." Hebert also called for FERC to remove the $1,000/MWh that was levied on the New York ISO's energy markets last summer.

Unlike Hebert, Commission Linda Breathitt supported extending the $2.52/MWH bid cap on 10-minute non-spinning reserves capacity, but she said she did so "reluctantly."

Susan Parker

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