FERC Filings

MOTION FOR LEAVE TO INTERVENE AND COMMENTS OF THE ELECTRIC POWER SUPPLY ASSOCIATION-New York Independent System Operator, Inc.-Docket No. ER01-2076-000

COMMENTS

I. THE PROPOSED AMP PROCEDURES ARE UNPRECEDENTED, UNNECESSARY, AND WILL DO NOTHING TO PROMOTE A SEAMLESS REGIONAL POWER MARKET

The NYISO Board maintains that the AMP Proposal was filed for the “mitigation of exercises of market power in the [DAM] administered by the NYISO.” Moreover, the NYISO Board concluded that “exigent circumstances” exist because “there is a material risk that prices in the NYISO-administered markets will be tainted by abuses of market power during at least some intervals in the high load periods of this coming summer.” Such an assertion is presumptuous, assumes the abuse of market power well before the fact and before the matter is investigated, and prematurely concludes that the NYISO DAM is not currently workably competitive.

The AMP, as proposed, will discourage supply investment and/or the injection of supply into the state, even though the NYISO markets are not currently in a state of capacity crisis. The North American Electric Reliability Council’s 2001 Summer Assessment predicted adequate capacity margins for this summer – however, it strongly stresses the need for additional capacity to come online. The report also notes that even traditional load pockets in New York should have the ability to achieve adequate capacity if the timely completion of 11 combustion turbines (totaling about 480 MW) is achieved. Should the market experience high load periods this summer, the law of supply and demand will provide the proper incentive for increased supply – not a proscribed and unnecessary regulatory solution.

The market forces of supply and demand must not be compromised. The NYISO incorrectly assumes that market power will be exercised in an abusive manner during periods of increased load. It then, mistakenly and presumptively, imposes an artificial “fix” on this presumed abuse of market power, which will adversely disrupt the marketplace dynamics. For competitive markets to flourish, supply and demand must interact freely to determine the price, thereby allowing market participants to make intelligent resource allocation decisions. This result cannot be replicated by the regulatory efforts to “mimic” the outcomes of a robust market, particularly during periods of scarcity. The best defense against price spikes is to encourage greater numbers of suppliers to enter the market, not to restrict existing suppliers to artificially determined rates.

In addition, the NYISO has not shown the current DAM to be unworkably competitive under the current market monitoring procedures. The Commission should not approve the AMP mechanism until such a finding is proven. In fact, the NYISO’s Independent Market Advisor, Dr. David Patton, concluded that the New York markets are indeed workably competitive, except for certain isolated instances. It then follows that the AMP proposal is unnecessary.

The AMP inappropriately stretches the role of the NYISO’s market monitoring unit (MMU). EPSA has repeatedly argued that, in many cases, the role of an ISO’s MMU is unclear and controversial, and extends well beyond the basic monitoring function. The primary function of an MMU must be to ensure that markets work efficiently, and its primary role should be to serve as an early warning system, not to intrude into or prescribe unnecessary market “fixes.” As EPSA’s White Paper reiterates, the MMU should:

<center>

Evaluate the operation of the market to detect either design flaws in the operating rules, standards, procedures, or practices as set forth in the tariff, manuals and other prevailing documents or to detect structural problems in the market that may need to be addressed in future collaborative efforts;</center>

Monitor and report on issues relating to the operation of the market, including the determination of transmission congestion costs or the potential of any market participant(s) to exercise market power within the specific control area;</center>

Evaluate any proposed additional monitoring and reporting mechanisms that are necessary to assure compliance with market rules; and</center>

Facilitate a monitoring program in an independent and objective manner.</center>

Finally, the NYISO must realize that it does not operate in a vacuum. The AMP proposal will clearly have an adverse effect on the regional markets, and will do nothing to solve the seams issues among the northeastern ISOs. The Commission has pledged to promote robust regional markets. Therefore, to be consistent with that goal, it must consider the fact that neither PJM or NEPOOL has any form of automatic mitigation
measures. To allow such changes in the New York markets promises to further exaggerate the regional differences in the markets and, as discussed above, further drive out supply from the New York markets.