New York City's Summer 2001 Electricity Situation Home > Electricity > Electricity Restructuring Fact Sheets > NYC's Summer 2001 Electricity Situation New York City's Summer 2001 Electricity Situation Introduction The average price of electricity in New York State has historically been one of the highest in the Nation, particularly in the densely populated areas in and around New York City and Long Island. In an effort to lower prices, the State Public Service Commission (PSC) acted in 1995 to introduce competition by issuing an order known as "The Competitive Opportunities Case." The goals of this order were to have a competitive wholesale market by 1997 and a competitive retail market by early 1998. Movement to Competitive Markets In 1996, electric utilities submitted restructuring plans. To prevent anticompetitive market power abuses by the incumbent utilities, as well as to establish a clear market value for generation assets to determine stranded cost recovery, utilities sold most of their generation assets. Long-term contracts were put into place to supply the utilities' customers' power needs. Rate schedules were established to allow customers of the six major investor-owned utilities to choose their supplier of electricity. In order to have competitive generation services, open access to the transmission system is required. The PSC supported the development of the New York Independent System Operator (NYISO), which is charged with providing open access while coordinating the daily operation and ensuring the reliability of the New York bulk power system. In 1997, the New York Power Pool filed a proposal with the Federal Energy Regulatory Commission (FERC) that dissolved the currently existing New York Power Pool and replaced it with the NYISO. The NYISO facilitates an open and competitive wholesale power market by treating electricity as a commodity that is bought and sold on the basis of competitive bidding. The NYISO is also responsible for managing congestion or transmission limitations in the power system of New York State along with providing general transmission and ancillary services. As part of the move toward competition, Consolidated Edison (ConEd) sold most of its power plants and now relies on long-term contracts and the spot market operated by NYISO for its power requirements to serve its 3 million customers in New York City. Since May 2000, customers who choose to continue purchasing their electric energy from ConEd have been subject to market-based prices. ConEd has asked FERC to implement price caps for wholesale power to protect its customers from possible high and volatile wholesale prices this summer. The utility has been reducing its electricity delivery rates, with the latest reduction of $208 million as of April 2001. Even though all New York utilities' restructuring plans included initial rate reductions and caps of varying degrees and timing, residential customers over the whole State paid an average of 14.2 cents per kilowatthour in 2000, up from 13.3 cents in 1999, 13.7 in 1998 and 14.1 in 1997. Wholesale prices for power in New York have increased over 100 percent in the last year. Factors contributing to the increase include rising natural gas prices, the primary fuel used for generation in New York, and the effect on markets of imbalances between supply and demand. Legitimate concerns exist over the expected high price of power during possible periods of high temperatures in the coming summer, as well as the possibility of forced rolling blackouts in the city if demand exceeds the amount of available in-city capacity and the limited transmission capability for importing electricity into the city. Transmission Constraints into New York City and Long Island The New York State control area has three major transmission constraint paths that show consistent pricing congestion. Two of them are the interface of the transmission service into New York City and then into Long Island. Transmission congestion into New York City increases prices for electricity in the eastern part of the State, including the City and Long Island. The NYISO uses a locational-based marginal pricing system (LBMP); LBMP is the cost to provide the next megawatt of electricity to the grid at a specific location. To avoid overloading certain lines and equipment, the NYISO may deviate from its least-expensive bid-price and re-dispatch higher cost electricity to ensure that no constraints are violated. This causes a locational difference in costs and, because many bidders compete for existing transmission capacity across key interfaces, the price increases. The increases are the cost of congestion, which can be a significant factor in the price of electricity in the eastern part of the State, New York City and Long Island. One transmission interface of concern is the Sprain Brook/Dunwoodie Interface,(1) which consists of the underground and submarine extra high voltage cables from Westchester County into the New York City and Long Island load zones. This interface may limit the total electricity it can transfer into these zones from upstate New York to approximately 4,500 MW. Another interface of concern is the PJM-New York Interface. The New York import capability from PJM under emergency conditions is 2,400-2,900 MW, depending on regulatory controls on the PJM/New York Interface. NYISO Report on the State's Electricity Shortage In March 2001, the NYISO issued a report entitled, "Power Alert: New York's Energy Crossroads." The report brought attention to the possibility of an impending electricity crisis in New York and made recommendations to alleviate a growing imbalance in the supply and demand of electricity in New York. The New York Electric Reliability Council (a member of the North American Electric Reliability Council) recommends maintaining a reserve margin of 18 percent of peak load to ensure a reliable and continuous power supply. Since 1999, in order to meet this reserve requirement, it has been necessary to rely more each year on out-of-state generators. New York's electric power system is comprised of four parts: upstate east and west, New York City, and Long Island. New York City and Long Island are load pockets, areas where the majority of capacity to serve the load must be locally installed due to existing transmission limitations. These areas have additional location reliability requirements. In the city, to meet peak demand with adequate reserves, 80 percent of the peak demand capacity must be located physically "in-city." Long Island requires 98 percent of peak load capacity be located "on-island." Table 1 shows the peak demand, in-State and locally installed capacity, and the required capacity to meet the 18 percent reserve margin and the location reliability requirements. Table 1. Peak Demand, Installed Capacity, and Required Reliability Capacity for New York, 2000 and 2001 (Megawatts) Forecasted Peak Demands (NYISO)Installed Capacity118 Percent of Peak Demand Upstate East in 20006,1568,1167,264 Upstate West in 2000 9,14014,69310,785 Total Upstate in 2000 15,29622,80918,049 Entire State in 2000 a 30,200 35,34735,636 Entire State in 2001 30,86835,34736,132 Forecasted Peak Demands (NYISO)Locally Installed CapacityLocational Reliability Requirement New York City 2000 10,3408,031 in-city8,272 in-city New York City 2001 10,4708,031 in-city8,376 in-city Long Island 2000 4,5644,507 on-island4,473 on-island Long Island 2001 4,5974,507 on-island4,505 on-island a Actual peak demand of 28,138 MW in 2000 was well below the peak of 30,200 MW forecasted by the NYISO, probably because the summer of 2000 was unusually cool. (Source: New York Public Service Commission, Interim Pricing Report On New York State's Independent System Operator, December 2000). The table shows that for 2001, out-of-state capacity will be needed to meet reserve requirements at peak demand in the State of New York. (Installed capacity is assumed to remain at 2000 levels.) While upstate installed capacity is more than adequate to meet that area's peak demand and reserve margin, both New York City and Long Island fall short of the required 18 percent reserve margin and are dependent on imports from both upstate and out-of-state sources. Without the new generation plants that are planned to be built for this summer, New York City will not meet its reliability requirement at the time of peak load. Without new generation sited in-city and on-island and/or increased transmission capacity for imports into the city and the island, the probability of rolling blackouts is increased as reserve margins decline. To combat the potential for these problems this summer, the New York Power Authority is in the process of installing 450 MW of capacity in New York City. This capacity will be provided by small internal combustion units located around the city, which are expected to be online by the summer of 2001. However, these projects have met with some local resistance and some delays may occur. An underwater transmission line project was planned to increase the import capacity by 300 MW between neighboring Connecticut and Long Island with completion expected by 2002. However, due to both environmental concerns and doubt about the benefit to Connecticut, the siting authority in Connecticut recently denied approving the project. The company is planning to look for alternative siting for the project. As much as 29,000 MW of new capacity has been proposed for construction in New York, but none other than the 450 MW of capacity mentioned above have completed the licensing and siting requirements. At this time, New York, unlike California, does not rely heavily on imports of power to meet its needs, and at peak demand, less than 5 percent of power is imported. However, with continued growth in demand and little new growth in supply, the reliance on power imports to maintain an adequate reserve margin will increase. The NYISO predicts growth in the next few years of between 1.2 and 1.4 percent annually. In order to meet increasing demand with the in-state supply, the report recommends 8,600 MW of new generation be built by 2005; 4,000 to 5,000 MW of it needs to be approved in 2001; and about half of the new generation will need to be located in New York City and Long Island. The report also recommends that the State's current rather cumbersome process of licensing and siting power plants be streamlined to expedite new plant construction. In response to the above-mentioned NYISO report, New York State Electric & Gas issued a report entitled, "New York State's Electric Energy Crisis and New York State Electric & Gas Corporation's (NYSEG) Comprehensive Solution." The report observes that installation of 8,600 MW by 2005 is an unprecedented effort, given the historical length of time necessary for licensing, siting, and construction of plants and the seemingly inevitable delays that occur as the result of local resistance and possible lawsuits and litigation. The NYSEG report contains some of the same recommendations as the NYISO report: streamlining the siting and approval process, building new generation plants as soon as possible, and using energy efficiency and load reduction programs to reduce demand. The NYSEG report also suggests instituting temporary price controls until new generation can be built, upgrading the transmission and natural gas infrastructure, and establishing a Regional Transmission Organization that would include the New England ISO and the PJM ISO. Conclusion In conclusion, the NYISO, the PSC, and the utilities in New York agree that supplies of electricity are expected to be tight in the New York City and Long Island areas of the State this summer. While unlikely, they also agree that blackouts could occur in the event of a prolonged period of extremely hot weather. Customers of Con Ed in New York City may experience high prices this summer due to several key factors--congestion on key interfaces in the transmission system around the New York City area, continuing high wholesale prices, and the demand for electricity exceeding supply in any one area. Links: · New York Independent System Operator, "Power Alert: New York's Energy Crossroads," March 2001. · New York State Electric & Gas, "New York State's Electric Energy Crisis and New York State Electric & Gas Corporation's Comprehensive Solution," April 2001. · New York Independent System Operator, Internet web site at http://www.nyiso.org. · Consolidated Edison of NY, Internet web site at http://www.coned.com. · State of New York Public Service Commission, Internet web site at http://www.dps.state.ny.us. · Energy Information Administration, Electric Sales and Revenue, 1997, 1998, 1999. · Energy Information Administration, Electric Power Monthly, March 2001. Endnote 1. New York City; a transmission interface map can be viewed at http://www2.nyiso.com/services/documents/planning/pdf/nys_trans_map.pdf. Need Help? phone: 202-586-8800 email: infoctr@eia.doe.gov Specialized Services from NEIC Energy Information Administration, EI 30 1000 Independence Avenue, SW Washington, DC 20585 URL: http://www.eia.doe.gov/cneaf/electricity/page/fact_sheets/newyork.html Page last modified on 05/20/2002 13:56:35