FERC Filings
MOTION FOR LEAVE TO INTERVENE AND PROTEST RE: NYISO TEP BID CAP
PROTEST
The NYISO is, once again, seeking to extend its TEP and the current bid caps in certain NYISO markets through April 30, 2002. And, once again, EPSA strongly urges the Commission to reject these additional extensions. As the Commission is well aware, these measures were originally designed to cover issues arising in the first 90 days of the NYISO’s operations in September, 1999. As EPSA has repeatedly argued, and the Commission has recognized, extending them for the fifth time in two years only continues to delay the development of robust competitive markets and allows the NYISO to impose unnecessary and adverse conditions on the developing market.
As the Commission recognized in its May, 2001 Orders approving a fourth extension, but only for six months rather than the eighteen months that had been sought, “[b]y NYISO’s own account, most market flaws have been corrected.” Further, the Commission noted that should new market flaws arise, the NYISO has the ability to correct those flaws “without undertaking intrusive measures such as the ones provided for by TEP.” Further, the New York supply situation has “substantially improved” and new demand response programs have been implemented. Finally, the Commission also noted that the “NYISO has made substantial progress in eliminating market design problems and software defects.”
Further, the NYISO has failed to justify its request to extend these measures for the upcoming winter capability period. Even if there were some technical justification for the use of TEP in the summer, asking for an extension throughout the winter months appears counterintuitive. Since New York is a summer peaking system the winter period should have lower loads and also increased generating capacity given that generation output increases in colder weather. Also, the NYISO reported at a recent meeting of its Management Committee that the various demand response programs implemented by the NYISO and the state’s utilities have produced over 1,500 MWs of peak reduction. Thus, the NYISO’s concerns are misplaced and there is no evidence that a critical shortage problem will arise during the period covered by this request. In addition, no other northeast ISO retains the type of extraordinary authority available through the TEP when, as the Commission has recognized, other less drastic remedies exist to address any problem that might arise.
In addition, the NYISO’s concerns about the implementation of virtual bidding are misplaced. Virtual bidding is not a wholly new feature of the New York market. It has been available since the market’s inception to all generators and load serving entities within the state. The “new” virtual bidding program merely opens these hedging opportunities to all market participants, increasing the liquidity in the New York markets. There is no evidence the extraordinary authorities of the TEP will be needed to address issues under this program.
Against this backdrop, it is unreasonable to have the NYISO, like clockwork, seek yet another extension of its TEP and bid caps. Such market intervention measures may be viewed by certain constituencies within the NYISO as “politically correct,” but they have profound and serious consequences for energy prices and the long-term competitive viability of the markets which cannot be ignored. As EPSA has said in previous filings, the use of price caps or bid caps may adversely affect the market by limiting market entry, slowing the development of risk mitigation tools, and undermining demand-side response. These are not trivial considerations; each is critical to the successful development of competitive markets.
At a time when capital is needed to attract new generation and to expand and improve the electric system infrastructure, the NYISO’s proposed actions would create uncertainty that will discourage and delay this much-needed investment. Indeed, the NYISO’s proposals are counterproductive to its own recommendation that substantial new investment – 8,600 MW of new installed capacity by 2005 – is needed in New York if that market is to operate as intended.
Commissioner Massey has expressed his awareness “that any sort of cap or intervention risks a watering down of the price signals we need for bringing about new supply and for hedging.” Further, in a series of dissents, former Commission Chairman Curt Hébert has also pointed out that retroactive price changes create market uncertainty, in turn forcing suppliers from the market – an action that ultimately undermines competition and harms consumers.
Finally, in previous extensions market participants have pointed out that the NYISO is using the TEP to adjust prices and conditions in the market not to its liking, rather than correcting market design flaws.
For market control measures that have been extended under the guise of “temporary” labels, the NYISO’s repeated extension of and unnecessary layering of market control mechanisms is completely contrary to the needs of competitive markets. The time has come, as the Commission suggested in its May, 2001 Orders, to decide that temporary means temporary and that two years of TEP and price mitigation is enough. EPSA acknowledges that the NYISO has made substantial progress in correcting its market design flaws and many of the initial problems have been solved; however, continued reliance on TEP has chilled the ardor of the NYISO for identifying and making progress towards more permanent solutions, since it has been able to fall back on these more drastic and unnecessary powers. These “interim” procedures should continue to be institutionalized to the determent of creating a robust market.