Alternatives to the Indian Point Energy Center for Meeting New York Electric Power Needs (2006) / Chapter Skim
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Appendix E Paying for Reliability in Deregulated Markets
Appendix E Paying for Reliability in Deregulated Markets
Pages 124-143
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From page 124... ...
.3 As a result, there was considerable soulapproved by a state public utility commission (PUC) , it was searching by regulators and criticism by the public about relatively straightforward for investors to finance the capac what had gone wrong with the regulatory process.
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From page 125... ...
The ence of excess generating capacity and the economic incen- overall outcome of the six-cent law was that thousands of tives to shift away from expensive nuclear power plants to megawatts of new contracts were made to buy electricity less expensive natural gas turbines (Lyon and Mayo, 2000)
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From page 126... ...
has contributed to the financial problems faced happened to be low. Entrepreneurs saw an opportunity to by many owners of natural gas turbines.
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From page 127... ...
Although many standards, why the current regulatory practices have failed utilities in the country are now planning to use coal instead to ensure that future levels of generating capacity will be of natural gas in new power plants, building a typical coal sufficient to meet these standards, and what can be done, plant in the New York City region is unlikely to meet state given current circumstances, to meet future levels of demand environmental standards and unlikely to get widespread sup- and maintain the reliability of supply. port from the public.
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From page 128... ...
Treating generation adequacy as the central issue GENERATING CAPACITY FOR MEETING ADEQUACY for reliability downplays the importance of transmission ser STANDARDS IN NEW YORK CITY vices and distributed energy resources (DERs) for maintaining the reliability of supply.
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From page 129... ...
consistent with City and Long Island, and as a result, NYISO does a supple North American Electric Reliability Council (NERC) and mentary analysis to determine the locational installed capac Northeast Power Coordinating Council (NPCC)
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From page 130... ...
, are located upstate. The existing generating units in New York City and Effect of the Capacity Factor of Peaking Units on Cost Long Island are relatively expensive to operate because they use oil or natural gas as a fuel.
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From page 131... ...
. Hence, an efficient market price covers the pro- economic efficiency in the spot market and to provide some duction costs of all units that are dispatched, but additional source of supplementary income for generators (the approach income to cover capital costs is only earned when the market advocated in the northeastern states of the United States)
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From page 132... ...
Howare the lack of adequate metering and the fact that most cus- ever, the summer of 2000 was exactly when the deregulated tomers still pay fixed regulated prices. Clearly, a truly effi- market in California became "dysfunctional," leading evencient market would include price-responsive load, "smart" tually to an intervention in the California market by FERC in appliances, and a wide range of distributed energy resources the fall.
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From page 133... ...
For the NYCA, this situation implies that tion curves shown in Figure E-5. The three curves are demany generating units needed for operating reliability in rived from the hourly zonal spot prices in New York City New York City and Long Island will not earn enough in- from May to April for 2000-2001, 2002-2003, and 2004come above production costs to cover their capital costs.
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From page 134... ...
134 ALTERNATIVES TO THE INDIAN POINT ENERGY CENTER curve for 2000-2001 over the truncated range of hours shown with the highest prices. In other words, this average price is in Figure E-5.
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From page 135... ...
Poletti 1 NYC ST FO6/NG 882 2,629 34 13. Arthur Kill ST 2-3 NYC ST NG/FO6 860 675 9 aST, steam turbine; CC, combined-cycle turbine; GT, combustion turbine; NG, natural gas; FO6, residual oil; FO2, distillate oil.
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From page 136... ...
capital costs. The second is to use targeted contracts, such as Power Purchase Agreements (PPAs)
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From page 137... ...
, and a detailed description of this market is ized decision making can work well for private goods, and given in Chapter 5 of the NYISO "Installed Capacity as a result, regulators have decided to leave the responsibilManual" (NYISO, 2004a)
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From page 138... ...
Under the Energy Policy Act of 2005, NYISO would and Capacity Data (NYISO, 2004) are no longer as accurate have to shed some load when capacity shortages occur to as they were under traditional regulation.
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From page 139... ...
Since the the New York Public Service Commission (NYPSC) , nor is time horizon in the ICAP auction is too short to commit to there an implicit guarantee to investors that all prudent probuilding new capacity, an investor will still want to have a duction costs and capital costs will be recovered from cusPPA with some credit-worthy buyer.
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From page 140... ...
. The flattening of the dards in the NYCA is best summarized by the drop in proprice-duration curve, coupled with the current uncertainty jected reserve margins for generating capacity from the foreabout the future prices of fossil fuels such as natural gas, has cast made in 2004 to that in 2005, shown in Figure E-6.
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From page 141... ...
Although it is still too early to know how ensuring that reliability standards in the NYCA are met. Both this new authority will be implemented by FERC, it is clear the New York Public Service Commission and the Northeast that the threat of paying penalties will be a tangible reason Power Coordinating Council (NPCC)
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From page 142... ...
This is a September 2005, it seems that most state regulators believed transparent process that reduces the financial risk for investhat the existing regulatory practices were working well and tors and lowers capital costs. The process is consistent with that reliability standards would continue to be met.
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From page 143... ...
A variation of the Article X NERC (North American Electric Reliability Council)
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