By Ann de Rouffignac
HOUSTON, Mar. 6, 2001Consolidated Edison Co. of New York filed Mar. 1 with federal regulators requesting additional measures be adopted to protect against alleged market power abuse by generators in New York City.
The utility sold off its generation as part of restructuring 2 years ago and must buy power on the wholesale market to serve customers. After the law was passed, Consolidated Edison said it identified loopholes in measures intended to protect against market power that could lead to excessive prices.
"The loopholes identified by the company can inflate prices by as much as $20 million in some months," said Kevin Burke, president of Consolidated Edison, in a release.
Consolidated Edison claimed generators in New York City can bid up prices in the real-time market limited only by a $1,000/MW-hr cap.
It said exercise of market power is likely in the real-time market because there are even fewer generating units which can compete than in the day-ahead market. Competition in the real-time market is limited to units already committed in the day-ahead market but not fully utilized or to units that can start up quickly. Units not committed in the day-ahead market or that have long start-up times cannot compete. Fewer units means more potential for market power abuses.
But, according to the filing, no market power mitigation measures have been adopted in the New York area real-time market. The price in the day-ahead market, however, is subject to mitigation. When bids exceed the market-clearing price at a generator's location by 105% of the price at Indian Point 2, mitigation kicks in.
The price is automatically adjusted, including fuel costs, to an average bid the generator has accepted during similar but unconstrained periods during the previous 90 days. This measure applies only to the day-ahead market and not the real-time market.
"In real-time generators can, and do, bid far above competitive levels, knowing that they can force these prices upon in-City consumers," according the Federal Energy Regulatory Commission filing.
Because there are no corresponding constraints on the real-time market, this creates perverse incentives in the day-ahead market, Consolidated Edison said. Utilities that serve customers bid for most of their power needs in the day-ahead market in an effort to avoid the expensive real-time market. Consolidated Edison said the system leads to excessive unit commitment and additional costs.
Consolidated Edison alleged it has already found evidence of real-time market problems this winter without the stress of summer demand.
"When system conditions and weather problems caused the NYISO [New York Independent System Operator] to constrain imports into the in-City load pockets, real time prices skyrocketed there to as high as $1,000/MW-hr," according to the filing.
Consolidated Edison pointed to local reliability requirements that create "must-run" situations as another instance in which the exercise of market power become possible. This occurs when owners of units that must run can charge prices in excess of competitive levelsknowing that there is no choice but to payaccording to the filing.
Consolidated Edison said it found in December 2000 and January 2001 there was at least one call per day for a must-run plant in New York City. Unit owners know must-run situations occur frequently. When they do, Consolidated Edison said, unit owners adjust bids upwards in real-time while the problem exists.
Because owners know their generation is urgently needed, the situation is described in the filing as handing owners "a blank check."