In the WSJ:
March 15, 2001
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To Avert an Energy Crunch, Official Says
New York Must Build More Power Plants
By REBECCA SMITH
Staff Reporter of THE WALL STREET JOURNAL
New York must move swiftly to build more power plants if it wants to avoid "a replication of California's market melt-down," the Eastern state's grid operator warned.
The New York Independent System Operator said 8,600 megawatts of new-power-plant capacity, a 25% increase from what currently exists, must be constructed by 2005 or shortages will become so pronounced that they will push up prices and raise the specter of blackouts. Roughly half that generating capacity must be constructed within the New York City area alone, to ensure the lights stay on there.
Learn more about the power crisis in California.
Energy-Supply Policy Tied to Use of Generators Debated in Northeast (March 15)
"We really are at a crossroads with respect to reliability of the system and the viability of the wholesale market," said William Muesler, chief executive of the New York ISO. After deregulating its retail electricity market in 1998, the state a year later formed the ISO as a way to wrest control over the state's high-voltage transmission system from utilities and to foster competitive markets where energy can be traded each day.
Wednesday, for the first time, the ISO projected energy costs depending on whether the 17-or-so plants it believes are needed actually get built. If they are built, electricity supplies could improve enough to push down annual spending on wholesale electricity by $1.4 billion, or 23%, statewide, the ISO said in its report. If no new plants get built and the economy continues to expand modestly, prices would be expected to rise 14% and the state's cushion of surplus power would tumble to half its current level.
That assessment for possibly higher prices appears conservative, however, based on California's experience with tightening supplies. California's prices jumped 10-fold from January 2000 to January 2001, when its competitive market effectively shrank due to power-plant outages and dwindling supplies of electricity available for the state to import from neighboring states.
Like California, New York relies on its neighbors for getting enough power to meet its peak summer need. From 1995 to 2000, statewide demand rose by 2,700 megawatts, more than 2-1/2 times as fast as new capacity was added.
Next to California's market, New York's deregulated electricity market is the most exposed to the effects of rising spot-market prices. That is because 30% to 50% of the power consumed in the Empire State is purchased through its daily or day-ahead energy auctions. California's market was entirely dependent on similar short-term purchases. The mid-Atlantic states, by contrast, obtain only 15% to 18% of the power they consume on a short-term basis.
For now, New York is protected against catastrophic price spikes by a $1,000-per-megawatt-hour price cap. But as California learned the hard way, such caps do little to protect against sustained high prices if demand continuously bumps up against supply levels. A spokesman for Consolidated Edison, the utility that serves New York City, said the utility agreed with the ISO's basic conclusions. "Supplies are tight. We're hoping we'll be OK this summer, but we'll be in trouble next summer if nothing gets built," said ConEd spokesman Mike Clendenin. To improve reliability for this coming summer, 10 small combustion turbine generators are being added around the city.
Write to Rebecca Smith at rebecca.smith@wsj.com |
