Report Questions Need for New NYISO Capacity Market for Electricity

Capacity additions to the electric power grid in New York are from time to time needed to maintain reliability as demand grows or as old power plants are retired for various reasons.  Deregulation enthusiasts have proposed that the New York Independent System Operator (NYISO) create a mandatory long term forward capacity market mechanism to foster new power plant additions that would be similar to mandatory capacity markets in PJM and ISO-New England.  These have drawn  criticism from consumer groups due to the added cost paid by consumers for capacity charges, with no assurance that plants will be built when and where they are needed.  See PULP Network, Wholesale Electricity Capacity Market Results Attacked by PA, MD, DE and NJ Utility Commissions and Utility Consumer Advocates, June 5, 2008.

A new report questions the need for such a new market mechanism.  The report, New York State Capacity Market Review finds that the existing framework in New York is working.

Generation investment in New York is driven by both non-market standards and by market  incentives. The non-market standards, many of which are set by non-NYISO institutions, include obligations to serve, reliability standards, renewable portfolio standards, and environmental regulations. Market incentives are provided by the revenues that can be gained or the costs that can be avoided: a) in NYISO-administered short-term markets for energy, ancillary services, and capacity; b) through long-term bilateral transactions; and (c) through self-supply or ownership of generation. Thus, the NYISO-administered markets are only one part of the overall framework for providing generation capacity and assuring reliability.
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there is no need to fix what is not broken. The existing capacity market structure has provided generation capacity where it is most highly valued, using diverse fuels and meeting a variety of renewable resources and environmental policy goals. This success has been achieved without resorting to a mandatory forward market such as those used by PJM and ISO-New England. The current design does not require replacement by a mandatory forward centralized capacity market.

The report was prepared for the American Public Power Association (APPA), the National Rural Electric Cooperative Association, (NRECA) and New York Association of Public Power (NYAPP),  by Laurence D. Kirsch and Mathew J. Morey, Christensen Associates Energy Consulting LLC.  NYAPP  is an association of municipal utilities and rural electric cooperatives serving approximately 450,000 customers / members across New York State.

The Press Release for the Report is here.

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