FERC Filings
MOTION TO INTERVENE AND PROTEST OF INDEPENDENT POWER PRODUCERS OF NEW YORK, INC. AND ELECTRIC POWER SUPPLY ASSOCIATION-Consolidated Edison Company of New York, Inc.-Docket Nos. ER01-1385-000; EL01-45-000
IV. PROTEST
A. CON EDISON HAS FAILED TO JUSTIFY ITS PROPOSED REVISIONS TO THE MITIGATION MEASURES.
Pursuant to Section 205 of the Federal Power Act, 16 U.S.C. § 824d, Con Edison must prove that its proposed revisions to the Mitigation Measures are just and reasonable before the Commission can approve them. 16 U.S.C. § 824(d) (1984). Pursuant to Section 206, Con Edison has the additional burden of proving that the existing Mitigation Measures are unjust and unreasonable before it can receive the Commission’s approval. 16 U.S.C. § 824(e) (1984). For the reasons discussed below, Con Edison has failed to meet its burden of proof under either Section 205 or 206.
Con Edison alleges that New York City consumers have been excessively charged tens of millions of dollars as a result of localized market power. Con Edison’s claim is unconvincing, because the NYISO’s MMU - the independent entity charged with ensuring that high prices are not the result of the exercise of market power - has made no findings, to IPPNY’s knowledge, of localized market power in New York City. Nor did Con Edison, to IPPNY’s knowledge, file any formal complaints to the NYISO’s MMU to seek the MMU’s assistance in mitigating the alleged exercise of localized market power in New York City. Con Edison’s proposed revisions to the Mitigation Measures are simply unnecessary, because the NYISO’s MMU already has the tools to address localized market power that could result in improper prices.
The NYISO has ample authority under its Market Monitoring Plan and Market Power Mitigation Plan (“MPMP”) to address localized market power issues in New York City. In approving the NYISO’s MPMP, the Commission determined that the NYISO’s ability to mitigate market participants’ conduct “will help to remedy market power quickly and deter participants from exercising market power.” New York Independent System Operator, Inc., 89 FERC 61,196 (1999), order on rehearing and on compliance filing, 90 FERC 61,317 (2000). The NYISO's MPMP specifies that physical or economic withholding of an electric facility is the type of conduct that may warrant mitigation. Con Edison’s argument that generators can circumvent the Mitigation Measures by submitting high bids for start-up and minimum generation ignores the fact that the NYISO’s MMU monitors and mitigates this type of conduct.
The NYISO is authorized to impose mitigation for economic withholding when minimum generation bids increase by the lower of 300 percent or $100 per MWh or when start-up cost bids increase 200 percent above reference prices for these generators. If a generator’s bids do not rise above the thresholds for mitigation but the MMU believes prices are not the result of competitive market conditions, the MPMP authorizes the NYISO to file under Section 205 with the Commission to apply an appropriate mitigation measure. Thus, if generators are bidding “far above competitive levels,” as Con Edison claims (March 1 filing at 2) the MMU is fully capable of remedying the situation.
Further, Con Edison’s proposal to extend the Mitigation Measures to all units in New York City is premature, because the addition of new capacity will likely make the in-City market more competitive. Market power should decrease as new suppliers enter the market. Any new units constructed will be required to seek authorization from the Commission to sell energy at market-based rates. The Commission should decide at the time it reviews the applications for market-based rate authority whether additional Mitigation Measures are appropriate. Therefore, the Commission should reject Con Edison’s request to expand the list of generators subject to the Mitigation Measures to “all units located electrically in the City.”
If the Commission does endorse modifications to Con Edison's mitigation measures, the Commission must provide that such modifications would apply only to those facilities currently subject to mitigation under the existing mitigation program and not to any future capacity that comes on-line in the City. In addition, if the Commission were to broaden the scope of the existing mitigation program, it would be necessary to review and significantly modify the methodologies used in the mitigation measures for the day-ahead market, because the proposed extension of those procedures into the real-time market fundamentally changes the circumstances applicable to the subject units in ways that would require modification of the mitigation procedures. The day ahead mitigation was not designed nor does it reflect the true costs and risks associated with generating under a mitigated environment for both the day ahead and real time markets.
In addition, Con Edison’s proposal to extend the Mitigation Measures to the real-time market is unnecessary, because it can enter into hedging arrangements that adequately mitigate the impact of high energy prices in the real-time market. Con Edison can enter into bilateral agreements with suppliers to assure price certainty at known levels. Many of IPPNY’s and EPSA’s members and other market participants have offered products in various forms and terms to Con Edison to assist it in hedging its supply obligation. Con Edison can also bid more of its requirements into the NYISO’s day-ahead market to avoid the potential volatility of the real-time energy market. If Con Edison delays too long in acquiring these products, prices will likely increase as tight supply conditions become more apparent. Finally, consumers can take advantage of the new demand-side response mechanisms that will be implemented this summer. One mechanism provides for greater demand response during emergency conditions. The other allows customers on interruptible rates to sell reductions in consumption into the day-ahead market.
Imposing Con Edison’s proposed revisions will only serve to discourage the market from using these hedging alternatives. If the market is to learn to use these alternative hedging mechanisms properly, it must receive real prices signals. The Commission should not allow Con Edison to use the regulatory process to obtain a free hedge just because it fails to avail itself of readily available methods to mitigate high prices. Thus, the Commission should reject Con Edison’s proposal.
B. CON EDISON’S PROPOSED REVISIONS TO THE MITIGATION MEASURES WILL HARM THE DEVELOPMENT OF A ROBUST COMPETITIVE MARKET BY INHIBITING THE ENTRY OF CRITICALLY NEEDED SUPPLY IN NEW YORK CITY.
Con Edison’s request to broaden the applicability of the Mitigation Measures is a major step backwards from the Commission’s goal of introducing meaningful competition. If granted, Con Edison’s request will create unnecessary uncertainty in the market, undercut commercial transactions, stifle the development of forward markets and chill entry of critically needed energy supplies into New York during the critical peak summer demand period. During times of supply shortages, the Commission should do everything possible to encourage the development of new generation in New York. Con Edison’s proposals will in fact discourage generators from siting in New York City, increasing the risk that system reliability problems will occur in the future.
The Commission’s recently stated policy regarding market mitigation is clear that mitigation should only be applied during the most severe supply/demand imbalances. The Commission ruled that mitigation should be applied in the California market only during Stage 3 Emergencies, which occur when operating reserves are at or below 1.5 percent of load and, “therefore, represent the most severe supply/demand imbalance.” The Commission’s Staff espoused the same policy in the “Staff Recommendation on Prospective Market Monitoring and Mitigation for the California Wholesale Electric Power Market” issued March 2001 (“Staff Recommendation”). Staff recommends that price mitigation be applied in California:
only for a defined and limited period. Successful mitigation should permit prices to fulfill their role in the marketplace, providing incentives for the development of new and more efficient infrastructure in electricity supply, transmission and demand reduction. The marketplace needs confidence that a credible timetable is in place for the removal of this regulatory constraints [sic] to competitive markets. Simply put, the price mitigation must be limited enough in scope and term that it will not serve as a crutch to delay long-term improvements. Staff Recommendation at 19-20.
Staff strongly recommended that the price mitigation expire within no more than one year.
Just as in California, long-term improvements in electricity supply, transmission and demand reduction infrastructure are critically needed in New York City. While the supply/demand balance may be tight in New York City this summer, however, it is unlikely that operating reserves will be at or below 1.5 percent of load for many hours. If reserves do fall below this level, the NYISO’s MMU has the tools necessary to mitigate high prices caused by market power, as discussed in point A above.
If the Commission’s goal of encouraging the growth of competitive markets is to succeed, it must allow the natural interplay of supply and demand to determine prices without imposing artificial restraints. Con Edison’s proposal has the potential to degrade system reliability by chilling the development of badly needed new generation in New York City. Correct price signals will encourage the development of new generation and assure that generators are fully ready to operate at peak times. Suppliers of capacity and energy rely on accurate price signals in determining when, or whether, to operate and to finance and develop new generation projects. Suppliers face uncertain risk because once the revised Mitigation Measures are imposed, there is no guarantee that they will not be extended, or even tightened, in the future or applied more broadly to other aspects of the market. The solution to reducing high prices in the market is to encourage greater numbers of suppliers to enter the market, not to impose artificial restraints on prices that will drive away beneficial competition.