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NY utilities challenge FERC over capacity zone pricing

By: Barbara Vergetis Lundin |

Joining the New York Power Authority (NYPA) and the New York State Public Service Commission (PSC), Central Hudson Gas & Electric Corporation and Iberdrola USA subsidiaries New York State Electric & Gas Corporation and Rochester Gas and Electric Corporation have challenged the Federal Energy Regulatory Commission’s (FERC) decision to assess “unnecessarily high prices in the new capacity zone in the lower Hudson Valley,” providing oral arguments in the Second Federal Circuit Court of Appeals in New York City.

Capacity charges are required to ensure generators are available in the event of unforeseen circumstances like sudden demand spikes, and the new capacity zone changes the way utilities in lower New York must purchase capacity.

In their argument, all three utilities urged the court to order FERC to revisit and revise its decisions relating to pricing in the new capacity zone, termination of the new capacity zone and to compensate customers for the higher resulting electric supply costs.The utilities estimate that the new capacity zone will increase residential bills by nearly 6 percent and industrial customer bills by up to 10 percent while providing no customer benefits, and requested that FERC allow time for the transmission solutions to take place.

“We oppose FERC’s implementation of the new capacity zone because it increases electricity costs for our customers without a corresponding benefit,” James P. Laurito, president of Central Hudson. “We believe electric transmission development is a far better solution, as this will alleviate power concerns without the high cost of a new capacity zone.”

The New York State PSC feels just as strongly.

“We understand that the FERC-administered capacity market is designed to have a price signal high enough to incent new supply to maintain a reliable system and we are as concerned as FERC with the reliability of the system. However, in the short-term, this is beneficial only to existing generators in the region at the expense of consumers who pay while receiving no benefits. It is also of no benefit to new generators since they won’t be on-line this summer, nor will new generators benefit until they actually bring plants on-line,” the PSC said in a statement. “We are disappointed and frustrated because FERC has been dismissive of our ongoing proceedings to construct transmission, as well as our efforts to address generator re-powering requests. These take time, but they will happen. Our greater concern is that FERC is ignoring consumer impacts, and its decision is an unnecessary transfer of wealth from consumers who are already reeling from last winter(‘s) price increases. We are pressing on with the courts, and we will continue to press FERC to work with, not against, the State and its consumers.”

Capacity prices in the lower Hudson Valley are estimated by the three utilities to have increased by approximately $80 million since the new capacity zone was implemented on May 1, 2014.