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Industry News

FERC Expands Capacity Market Payments to Generators in New York

LCG, May 22, 2003-The Federal Energy Regulatory Commission has changed its policy on payments to electricity generating companies in New York state.

New York's capacity market requires that utilities pay power plant owners for keeping their generators working and available. Utilities in New York have to secure 118 percent of expected peak electricity demand. Until Wednesday, generators reserving this demand were paid according to the FERC regulation.

Starting yesterday, generators reserving electricity over the minimum 118 percent requirement will also receive payments. FERC decided to change its policy as the Commission found it will give "better price signals to investors for the construction of new generation, encourage the formation of long-term bilateral transactions and reduce incentives to withhold capacity," according to the FERC order.

Utilities not meeting the 118 percent requirement were charged $250 per kilowatt-hour for electricity, according to a deficiency charge.

The New York Independent System Operator will still assess secured capacity each month by requiring utilities to state how much capacity they have reserved for the coming month. However, those utilities who have not secured enough power will have the opportunity to purchase capacity as generators will be able to bid in available capacity.

Capacity payments will change according to power availability, and payments will reach $0 at the point when overall available capacity is over 130 percent of peak demand.

The current changes will be applicable for 3 years. FERC is positive the new capacity payments will stabilize power prices, although several utilities have come out against the changes.

The New York Independent System Operator will file annual capacity market reports in order that FERC will better assess the changes and prevent any possible withholding of capacity.

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