The New York Independent System Operator (ISO) walked away fromFERC empty-handed last week, as the Commission cited itsdisappointment with the regional power group’s failure to reduceconcentration in the 10-minute non-spinning reserves market.

In its decision, which was approved by a 3-1 vote, FERC chidedthe New York ISO for not only failing to implement some of themarket fixes that it ordered last May, but also for coming up shortwith the corrections that it did put into effect. As a result, theCommission 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 themarket is “workably competitive.”

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

In addition to restricting the bid-cap level, the Commissiondirected staff to schedule a technical conference to explorechanges to market rules to resolve the concerns in the non-spinningreserves market. It told staff to report back with its findings in120 days.

The technical conference will provide industry and FERC with theopportunity to prevent a “second sizable market meltdown in a majorstate,” said Chairman James J. Hoecker. He hinted Wednesday thatNew York’s problems may be owing, at least in part, to the factthat it shares the region with two other strong ISOs – the NewEngland ISO and PJM. In a just-released report on the U.S. bulkpower markets, staff concluded the Commission’s competitionobjectives “would be better served with one Northeast regionaloperation” instead of three, Hoecker said.

Commissioner Curt Hebert Jr., who dissented from the FERCmajority, said he advocated removing bid restrictions from themarket. “Rather than let go and at least allow the ISO to take babysteps into the competitive market, we continue price controlsindefinitely. I would let [them] go, especially when an ISO with aninstitution inherently wedded to keeping prices low rather thanefficiency wants to test its legs.”

With the addition of a hydroelectric energy facility andincreased exports from the PJM and New England ISO into New York’snon-spinning reserves market, Hebert said he believed the “supplypicture since May has brightened considerably” to justify removingprice constraints. “The ISO [still] has a long way to go. I willadmit that. Nevertheless, I would not make the perfect the enemy ofthe good,” he said.

Moreover, he accused the FERC majority of backing down from itsthreatened investigation of the New York ISO market in the event itwasn’t satisfied with the ISO’s actions. “If the record convincesthe majority, as it seems to, that the ISO must do more [to reducemarket concentration], we much march boldly to institute theproceeding that we threatened. Instead, the majority meekly callsfor a technical conference.” Hebert also called for FERC to removethe $1,000/MWh that was levied on the New York ISO’s energy marketslast summer.

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

Susan Parker

©Copyright 2000 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.