The Federal Energy Regulatory Commission on Nov. 15 rejected a July 30 complaint from the Incorporated Village of Port Jefferson, N.Y., against National Grid Generation LLC and its affiliates (collectively GENCO), alleging that GENCO is engaged in fraudulent practices and illegal exercise of market power and seeking an investigation and hearing.
The village also sought commission orders requiring GENCO to divest itself of the ownership of its existing generating facilities in the Long Island Control Area (LICA), to cease its alleged exercise of market power, and to engage in corrective measures to relieve the conditions that make such exercise possible.
“No party disputes that GENCO is a pivotal supplier in LICA, however the facts do not show that it has a ‘near monopoly’ or ‘monopoly power,’” the commission wrote. “It owns approximately 3700 MW on Long Island, which represents roughly two-thirds of the capacity and 25 percent of the energy supplied to LICA but there are substantial opportunities for imports, e.g., from the Cross Sound and Neptune controllable lines. In addition, it is not unreasonable for GENCO to continue to operate substantially depreciated assets. Further, Complainant has not established that there is an ‘artificially high amount of Committed Capacity’ maintained by GENCO, since LIPA is responsible for ensuring that it contracts for sufficient capacity to ensure resource adequacy.”
Port Jefferson is located in the town of Brookhaven in Suffolk County, and its residents are residential and commercial consumers of the Long Island Power Authority (LIPA), a corporate municipal instrumentality, which through its wholly-owned subsidiary, the Long Island Lighting Co., owns the retail electric transmission and distribution system on Long Island.
GENCO, according to the village, owns and operates 52 electric generation units throughout Long Island and currently supplies LIPA with capacity, energy and ancillary services from these facilities at cost-based rates under the terms of a Power Supply Agreement (PSA) between LIPA and GENCO. The PSA was executed in 1997 and expires on May 28, 2013, subject to LIPA’s right to renew for an additional 15-year term on substantially similar terms.
GENCO stated that the PSA is a tolling agreement in that LIPA provides all fuel for operation of GENCO’s generation fleet and is entitled to all electric output. The generating facilities include the natural gas-fired peakers located at the existing Glenwood Generation Station and Port Jefferson Generation Station. GENCO said that its fleet consists of 49 oil- and natural gas-fired units having a capacity of about 3.700 MW and that it currently provides nearly two-thirds of the capacity and about a quarter of the energy for the LICA. GENCO also stated that under the PSA, LIPA is solely responsible for the dispatch of GENCO’s generating plants and for the bidding of GENCO’s plants into the capacity and energy markets operated by the New York Independent System Operator (NYISO).
GENCO said complaint was frivolous
GENCO said that the complaint should be denied as frivolous and not logically or legally supported. According to GENCO, the village’s assertion that GENCO has engaged in market manipulation is self-contradictory and not truly related to market manipulation, but rather to complainant’s desire to protect its property tax revenues. GENCO also said the complainant had not shown that GENCO exercised market power because complainant’s concept of strategic forbearance does not fit the definition of either economic or physical withholding.
GENCO also asserted that there is no commission precedent or other legal basis that would force a generator to build new units or repower existing ones. GENCO argued that the complaint adopts an incoherent theory of manipulation in that it accuses GENCO of simultaneously refusing to both add and subtract supply. GENCO contended that the failure to build or repower generation units does not constitute withholding or manipulation. GENCO also stated that it cannot physically withhold its capacity because its generation is completely under the control of LIPA and can be dispatched at will by LIPA, and likewise, economic withholding cannot be the case because the price at which it provides energy and capacity to LIPA is set purely by cost-based components accepted by the commission in the PSA.
In another part of the reasoning for rejection of the complaint, FERC said: “Complainant also alleges that GENCO is leveraging its market power in order to corrupt the negotiations with LIPA and force LIPA to extend the PSA on substantially similar terms. Complainant asks the Commission to investigate whether such negotiations are actually unconstrained and independent. As found above, Complainant has not alleged facts sufficient for the Commission to determine that GENCO is exercising market power in the Long Island electricity markets and thus, Complainant cannot further argue that GENCO is improperly interfering with the open and independent negotiation of a PSA between itself and LIPA through the exercise of that market power. We thus find that Complainant’s arguments regarding the nature of the current negotiation of the PSA renewal, as presented to us, are unfounded; unsubstantiated allegations do not warrant further investigation. Commission review of any new PSA between GENCO and LIPA will occur when that agreement is filed with the Commission. Accordingly we decline to investigate the negotiations regarding the PSA.”