In an attempt to put a lid on price volatility this summer, FERCyesterday 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.

In response to a complaint filed by Nstar Services Co., theCommission said “market flaws” in the New England Power Pool(NEPOOL) warranted the temporary $1,000 bid cap in the region’senergy and automatic generation control (AGC) market. The bid capwould go into effect immediately and would last until Oct. 31. Thebid cap would be imposed during capacity-constrained periods whenOperating Procedure 4 is activated.

In response to another complaint brought by New York StateElectric & Gas, FERC again cited “market flaws” as its reasonfor imposing temporary bid caps in the New York Independent SystemOperator’s (NYISO) energy markets during this summer. The cap takeseffect immediately and will expire Oct. 28.

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 and would thwart investment in theregion.

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, Hoecker voted for the two orders..

In the New England market, “the cap will be applicable to bidsinto the energy market by both internal and externalresources…..and by internal resources into the AGC market, asNstar proposes,” the order said [EL00-83].

“We will accept Nstar’s proposal that the bid caps not apply toany emergency purchases by [the New England ISO], and that suchemergency purchases would not set the clearing prices…..We willalso allow NEPOOL participants to procure energy under EmergencyEnergy Transactions (EETs) at prices above the $1,000 cap, whileprohibiting EETs above $1,000 from setting the clearing 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 Operating Procedure 4 atthe applicable hourly energy price, which cannot exceed $1,000 MWh.

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 as a temporary fix, but the Commission said a $1,000 capwould provide the market with the “most reasonable remedy.” It isthe same cap that is currently in effect for the Pennsylvania-NewJersey-Maryland (PJM) market, and “promotes our goal ofcoordination 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.

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