Energy buyers protest demand curve. (Technology Update).

As part of a broad group of participants in the New York State power market, the New York Energy Buyers Forum (NYEBE) filed a protest against the NY ISO's proposed Demand Curve process for pricing of generation capacity. The 22 members of the group seek to intervene in the FERC proceeding that is necessary for that agency to accept the Demand Curve. All expressed opposition to both the proposal (which would replace the existing installed capacity auction held by the NY ISO) and the procedure under which it was accepted. A list of the protesters appears at the end of this release.

NYEBF is a 10-year-old non-profit group of large energy users, and the retail marketers, vendors, and consultants that serve them. It has participated in many state and federal proceedings related to electricity and natural gas' pricing, and supports a competitive energy market through both interventions and a variety of educational activities. Further information about ,the Forum is available at http://www.nyebf.org.

The Demand Curve would replace the existing market-based auction for securing generating capacity (a requirement of all load serving entities serving New York State customers) with an administratively-determined value that is insensitive to market forces. The primary goal of the Demand Curve is to increase available capital for new generation, ostensibly by raising the value of each megawatt of capacity that exists or may be built. There are no assurances, however, that increased payments to generators will yield new generation.

"That's one of the main problems we had with the existing ICAP (installed capacity) auction," said Lindsay Audin, associate director for NYEBF. "At the beginning of deregulation in 1997, we were told that the ICAP process would draw investment for new generation, thus improving reliability and enhancing competition. Instead, nearly all the billions of dollars we have paid since then have gone into existing generators' pockets. Aside from the small plants installed by the NY Power Authority (a non-profit state agency), essentially no new generation has appeared. To now raise the price for capacity, without ensuring we' get our money's worth, practically guarantees that this ripoff will only get worse."

The Demand Curve was originally proposed by generators in late 2002, but was defeated at the ISO Management Committee. After several revisions resulted in securing the votes of the State Public Service Commission and Consumer Protection Board, a new vote - at a hastily called special meeting at which several new members were denied voting rights - passed the measure on March 18. The NY ISO Board, despite a variety of appeals, voted to accept the proposal and passed it on to FERC for approval.

Depending on whose figures are used, the Demand Curve will raise costs at the retail level by 1.5% to 5%, making it a de facto rate increase valued at several hundred million dollars a year for New Yorkers.

This is the first time in the NY ISO's five-year history that such a major division among its participants has appeared. Among the many complaints in the protestors' filings is the contradiction that an administratively-determined price creates with FERC's much-touted Standard Market Design (SMD), which strongly supports market-based pricing mechanisms. With the NY ISO serving as the model for much of the SMD, many are watching to see how FERC handles this challenge.