Series Part 4: Retail supply auctions, known as Basic Generation Service auctions, are being proposed around the country. In a second article on BGS auctions, Andy Dunn presents a different view...
Energizing the Big Apple
Uncertain market design affects generation investment planning.
They say “the neon lights are bright on Broadway,” and keeping them all lit is a monumental task 1 New York City, America’s most populous city, is like many other urban areas in that it depends on high-voltage transmission to import much of its power from generation located in the surrounding countryside.
Faced with state-wide electric utility restructuring and power-market deregulation, the state of New York constantly has been adjusting the state’s power markets to meet the potentially contradictory goals of low cost, yet reliable power. In New York this has taken many forms, including monitoring of energy prices, caps on capacity prices and forced divestment of assets to reduce potential market abuses. While much progress has been made, the New York City Market, labeled Zone J by the New York Independent System Operator (NY-ISO) still is evolving, and asset-investment decision-makers need to recognize the risks associated with potential changes.
New York Capacity Auctions
The NY-ISO manages the state’s power system and administers all power-related markets—energy, ancillary services and capacity. Energy is priced using locational-based marginal-pricing to value congestion on a near real-time basis, similar to the system already in use in New England, PJM, MISO and SPP.
Capacity market prices are managed in a series of three auctions. The first auction is conducted to set monthly prices for the upcoming six-month winter or summer capacity obligation period (the “strip auction”). The second auction is conducted monthly for the prompt month and the balance of the current strip. In the third and last auction, commonly called the spot auction, the prices are set to accommodate any prompt-month demand not fulfilled in the first two auctions.