Fortnightly Magazine - June 15 2000


ISO Meltdown?

Some wanted to shut down New York's power markets. Then cooler heads prevailed.

I love it when ordinary electric customers take it straight to the regulators. Like what happened during that late spring East Coast heat wave, when some in the electric industry asked federal officials in Washington, D.C. in effect to shut down the New York ISO-suspending nascent "competitive" markets for trading energy, reserves, and ancillary services.

All it takes is some honesty and a moment or two to master the vocabulary.

Listen to Barbara Garr, assistant treasurer for Hammond & Irving of Auburn, N.Y., manufacturers of seamless rolled rings and open die forgings. "Rings are our specialty," it says right there on the H&I letterhead.

In her letter to the Federal Energy Regulatory Commission dated May 4, Garr writes, "We are in a very competitive market and cannot accept any hint of price increases....We are concerned that current operation of the New York ISO endangers the competitive marketplace and, absent a safety net, prices will continue to be irrationally volatile."

Or Thomas A. Lewis, corporate engineer for International Wire Group, of Camden, N.Y. "IWG operates six manufacturing plants in upstate New York for the fabrication of copper wire, with a combined demand of approximately 20 megawatts....During the summer of 1999...the actual costs of manufacturing wire during periods of upward real-time electricity pricing volatility actually exceeded the value of the product produced."

And then there was Thomas W. Grifa, of Goulds Pumps Inc., Seneca Falls, N.Y., a part of ITT Industries. "Very few marketers were willing to participate in the New York market and all had significant cost adders tied to market pricing. The initial kilowatt-hour pricing showed some savings but penalties from our non-linear load profile in some scenarios added up to $300,000 in additional cost, and the majority was in the summer months. It was even suggested to jump back and forth between supplier of last resort and marketers to secure savings, but that loophole has now been closed."

IT ALL STARTED ON APRIL 24 , when New York State Electric & Gas Corp. filed a formal complaint asking the FERC on an emergency basis to suspend market-based bidding and pricing in markets for energy and ancillary services in the New York Independent System Operator, from June 1 through October 2000. Also, NYSEG asked the FERC to convene an emergency technical conference on a fast track to address short-term modifications to ISO software and a fix for various market flaws cited in the complaint.

"The warning signs are clear," said lawyer Stuart A. Caplan, from the firm of Huber Lawrence & Abell, representing NYSEG.

"The confluence of severe problems-extra-tariff pricing rules, software problems, and communications failures-have strained the NY ISO market to the point that a short-term safety net is the only prudent course to avert a potential disaster this summer."

But cooler heads prevailed two weeks later, when NYSEG withdrew its call for a technical conference and for cost-based bidding. Instead, it offered an alternative plan worked out with six other ISO members: Central Hudson