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Category Error in Northeast Markets

Negative consequences from New York ISO’s mitigation exemption test.

New York City, according to Sir Peter Hall’s epic 1998 survey, Cities in Civilization, is the “apotheosis of the modern.” Hall cites New York City’s unique geography as compelling technological fixes, and thus New York engineers invented the air brake (Westinghouse), the telephone (Bell), the electric light (Edison), the fountain pen (Waterman), the adding machine (Burroughs) and the linotype (Mergenthaler). Over time, cities age and sometimes ossify, as seen in Detroit. Cities have to reinvent themselves, and that reinvention includes their basic infrastructure: they have to renew roads, bridges, power lines, and water systems.

Superstorm Sandy’s high winds and severe flooding revealed the fragility of, not only New York City’s electricity infrastructure, but also that of the surrounding Metro Area, which is unique in that its transmission grid is defined by three completely different planning processes that determine what transmission must be built to keep the lights on: the Connecticut suburbs are administered by the Independent System Operator of New England (ISO-NE), upstate New Jersey by the PJM RTO, and New York City and Long Island by the New York Independent System Operator (NYISO).

Each regional transmission organization spends the vast majority of its time managing the complex system of connections between electricity generation, transmission, distribution, and consumption within their service areas, not between service areas. Thus, in spite of FERC prodding for better inter-area coordination, neither PJM nor ISO-NE nor NYISO have “sponsored” transmission projects between the regions.

To the extent there are inter-regional projects, it has been at the initiative of New York. New York’s electric authorities (the New York Power Authority and the Long Island Power Authority) have pioneered interconnections between the different electrical grids that serve the New York metro area: LIPA commissioned the 300MW Cross Sound cable in 2001 that connects Connecticut to Long Island, and the 660MW Neptune cable that connects New Jersey to Long Island. NYPA commissioned the 660MW Hudson cable from New Jersey to mid-town Manhattan.

These projects – designed as sophisticated, controllable, inter-area HVDC systems - could have opened the door for transmission to shatter the destructive load pockets of the metro area, and to integrate New York City and Long Island fully into the neighboring PJM and New England markets. But such a tectonic shift cannot occur without a challenge from those who had invested in the expectation that load pockets are forever. In the case of transmission to end load pockets, the challenge came in the development of the details of the NYISO “capacity regulations.”

Compounded Errors

As usually happens in these types of regulatory constructs, the devil is in the details. The essence of the detailed regulation prepared by the NYISO was “Mitigation Exemption Test” (MET). If a project was exempt, it could participate in the capacity market without restrictions. If it was not exempt (if it was deemed “uneconomic”), it would be prohibited from participating the capacity market for a defined period of years. Such a prohibition would cost the project tens of millions of dollars per year in revenue.

Whatever one’s opinion of this construct for generation qua

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