Now that ISO New England and the New York Independent System Operator (NYISO) have dropped their plans to create a Northeast regional transmission organization (RTO), the two regions will compete directly “for the few investment dollars left on the table,” Energy Security Analysis Inc. (ESAI) concludes in a research memo issued this week.

New York may have the upper hand in this contest since power prices are considerably higher in the New York Control Area (NYCA) than in New England, according to ESAI.

“The generation boom may be over, but load pockets continue to exist in New York City, Long Island, northeast Massachusetts and southwest Connecticut,” ESAI said in the memo.

The boards of directors for ISO New England and NYISO on Friday mutually agreed to withdraw their joint petition filed at FERC that proposed the creation of a Northeast regional transmission organization (NERTO) for the seven-state northeastern region.

“New York will now have to find both transmission and generation capacity,” the ESAI report said. “If the merger had succeeded, we believe the focus would have shifted to transmission projects that allocated power efficiently since NERTO would have had approximately 56,000 MW of peak load and over 70,000 MW of generation and import capability.”

Without the merger, New York will have to continue to find ways of keeping plants in service. “It is already deficient in terms of unforced capacity, and retirements would only exacerbate the problem,” ESAI said. It expects a continued focus on PJM Interconnection-New York City and PJM-Long Island transmission projects.

As for New England, ESAI said that the generation boom is over and a significant number of plants are located far from load, necessitating investment in transmission and/or new capacity. “However, New York may be the winner in terms of garnering investment dollars, as power prices are much higher in NYCA than in New England.”

ESAI said that if ISO New England forces the low-cost areas of the region to pay the costs of transmission investments that primarily benefit areas such as northeast Massachusetts and southwest Connecticut, “we expect a major debate over which upgrades actually proceed.”

The memo also looks at the impact of the NERTO’s demise on PJM. While the grid operator expands its markets as far west as Illinois, “the fact remains that the original Pennsylvania-Jersey-Maryland configuration is impacted by the same weather and load patterns that affect New York and New England.”

Therefore, from an operational standpoint, ESAI expects that PJM East — the original PJM configuration — to continue to be tied to New York and New England. ESAI also expects more PJM-New York City and PJM-Long Island transmission projects as firms arbitrage their two pools.

Meanwhile, ESAI pointed out that both ISO New England, as well as PJM, have backed away from NERTO plans due to concerns that New York would reap most of the benefits while driving up their own costs. “While some form of NERTO may still emerge as the three Northeast pools form a natural entity in terms of similar weather patterns, load levels, Canadian interties and strategic market design, its emergence and structure will depend on how New York’s power situation evolves over the next five to 10 years.”

Along with heightened competition for investment dollars between New England and New York, ESAI also sees the following regional impacts from the canceling of the NERTO proposal:

ISO New England and the NYISO in January executed an agreement to develop a common electricity marketplace for their adjacent regions based on a common market design and to jointly evaluate the feasibility of creating a NERTO. The boards of ISO-NE and the NYISO in June approved the filing of a joint NERTO proposal at FERC, which was subsequently filed at the Commission in August.

But the proposal drew heavy criticism from officials in New England who were bent out of shape over several aspects of the proposed combination. Perhaps most troubling to New England officials were concerns that the merger would mean that lower-cost power in the region would be peeled off to feed the increasing demands of New York City.

©Copyright 2002 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.