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The Nation's Grid Chiefs: On The Future of Markets

Exclusive interviews with the CEOs of five regional transmission systems.

Fortnightly Magazine - October 2006

the Capital Region, New York City, and Long Island—essentially right where the pricing has indicated that they need to be.

Fortnightly: In the wake of what happened in New England, with the demise of LICAP and approval instead of what they call the forward capacity market, without any demand curve, has there been any discussion in New York about moving away from a demand curve and going with an auction instead?

Lynch: I don’t know if we have specifically talked about that. But even prior to the New England settlement, we had had discussions with our market participants about whether we should look at a more forward type of capacity market.

You suggested that we might abandon the demand curve. I am not too sure you need to abandon the demand curve. I think you can go to some type of forward capacity market, but still employ that demand curve. It helps to level some of the boom/bust aspects of the market.

Fortnightly: So you would be looking at some sort of forward obligation, rather than just a monthly auction?

Lynch: Right. What you’d probably be looking at, to be somewhat hypothetical here, could be some type of a forward auction. We could look at some type of program where bids and offers are put in place and we match those up on a longer-term basis.

Fortnightly: Do you see any chance of moving to an energy-only market, removing the caps and relying on that price, without a supplemental capacity market?

Lynch: I would have to say that for the foreseeable future I think bid caps are a political reality here in New York and potentially the Northeast.

Fortnightly: Has the ISO been involved in any discussions concerning climate change, imports of coal-fired power, or controlling CO 2 emissions?

Lynch: We have been involved in a lot of discussions, specifically RGGI [the Regional Greenhouse Gas Initiative, see]. What we consider ourselves to be is more of a resource—a source of information on the impact that these environmental initiatives may have, on the market or the reliability of the system.

Fortnightly: If there was a restriction on operation of coal-fired resources or imports of coal-fired power, would that show up in your dispatch algorithm as just one more constraint?

Lynch: Constraint is an interesting word. What I think would happen, in-state, is you would see an increase in the cost of production of electricity, because the facilities that would be emitting the CO 2 in the case of RGGI would have to add the cost of allowances. Either they would be given sufficient allowances or they would have to go out and purchase allowances.

On the issue of transactions in and amongst different control areas, between New York and PJM, or with ISO New England or our neighbors in Canada, it presents an interesting hypothetical. Some of that trade is interstate commerce. I don’t know how you look at that or control that. My hope is that we will have an opportunity to voice some analysis on it—again, strictly from a