Unexpected outages in recent weeks on two of the four major power transmission lines from upstate New York into New York City mean that New York City as well as Long Island “will be tested during any periods of sustained hot weather this summer,” FERC Chairman Joseph P. Kelliher told a congressional committee last Wednesday.

Mark Lynch, CEO of the New York Independent System Operator (NYISO), told the hearing that the unplanned outages on the two power lines into New York City are expected to continue until early to mid-August “and have added to the challenges of dealing with summer demand in New York City.”

Lynch said that NYISO has worked with Consolidated Edison “to implement plans to address the situation and the city continues to meet all applicable reliability criteria. However, the possibility for voltage reduction or controlled localized load shedding remain somewhat elevated under extreme weather conditions or” if the loss of additional facilities occurs.

The hearing, held by the House Government Reform Committee’s Subcommittee on Energy and Resources was called to examine a summer energy market assessment released in May by FERC staff.

New York City and Long Island “pose long-standing challenges for the electric system,” Kelliher said. FERC’s assessment in May “noted key improvements in New York City, as recent generation investments begin to relieve some reliability concerns,” he said.

But, even before the transmission outages “the balance of supply and demand remains tight” on Long Island. Imports from upstate New York and New England “are still crucial for Long Island and the area remains exposed to the risks of heat and of unplanned generation and transmission outages.”

The FERC report said the overall U.S. electric market appeared stronger going into this summer, but flagged four areas — Southern California, southwestern Connecticut, Long Island, and Ontario, Canada — that face potential outages and price hikes due to inadequate transmission and generation capacity, tight demand, aging infrastructure and extended heat spells (see NGI, May 22).

Kelliher told lawmakers that while these regions have so far managed to adequately cope with the onset of increasingly muggy days and higher temperatures, he also noted that in most regions, July and August “are the times of greatest vulnerability to sustained high heat, so we’re not out of the woods yet.”

Kelliher used his prepared remarks to specifically address where things stand with the potential trouble spots. Southern California “faces another summer of tight supply in an area of fast growing demand,” he noted.

The region “depends very heavily on imports from northern California, from the Pacific Northwest and the Southwest, particularly at peak.” Under high load scenarios, Southern California needs to import 10,000 MW, which is “a much higher dependence on imports than we see in most other parts of the country.”

Since last year, transmission upgrades “have helped import capability somewhat, but net generation growth in Southern California barely covered load growth.”

Meanwhile, Southwest Connecticut “again faces a very tight balance between supply and demand,” Kelliher said. Combined local generation and import capability are not sufficient to meet expected demand and reliability requirements.

Transmission capacity for imports “now operates at or near its limit while transmission capacity within the region cannot fully support local generation or the addition of new generation,” he noted. “The region has not added significant generation or transmission capacity since 2004.” While transmission upgrades are underway, they will not be completed until late 2009. “Until those upgrades are completed, the infrastructure in southwest Connecticut remains very fragile.”

As for Ontario, FERC’s concern is the effects that Ontario demand and the operation of the province’s market may have on U.S. markets.

“Part of the problem last summer related to Ontario market rules,” Kelliher pointed out. “I want to praise Ontario regulators. Since last summer, they’ve acted to change those rules and adopt day-ahead scheduling earlier this summer.”

Kelliher also noted that the trend in generation construction has recently changed. “Right now, if you look at most power plants under construction, I believe the majority right now are being built by utilities, by vertically integrated utilities,” he said.

He said the U.S. is “in a period now where the balance has shifted back to the utilities building. The question really is — is that a temporary shift? I think probably the right answer is that we have different kinds of wholesale power markets. In some wholesale power markets, there is not much left of vertical integration.” A good example of this situation, Kelliher noted, is New England, where the “vast majority” of supply is met by IPPs. “But in other regions, vertical integration remains the norm.”

Overall, there are “very significant” differences among the wholesale power markets in the U.S. “In one region, the solution to meeting supply needs will probably be the independent power producer. In another, it might be the vertically integrated incumbent utilities. In others, it probably will be both under some state competitive bidding process. Or if the utility ends up being the low bidder, perhaps it’s perfectly reasonable for them to be the builder, but they may not be.”

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