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New Power Capacity Zone in New York to Increase Prices

December 5, 2013

The U.S. Federal Energy Regulatory Commission (FERC) decided on August 13, 2013 to allow the New York Independent System Operator (NYISO) to create a new capacity zone in the Lower Hudson Valley that includes New York City. The new zone will include current NYISO zones G, H, I, the three of which cover the Lower Hudson Valley, and J, which covers New York City. 

The idea for the new zone, designed to improve reliability and to promote new and existing generation and demand response program investments, was not without its detractors. At the onset, the Public Service Commission, New York Power Authority, and other utilities lamented the decision, pointing to higher power costs, by varying degrees based on class (residential, commercial, or industrial), in the current zones involved (G through J, but especially for G, H, and I).

The program, set to begin May 1, 2014, has already impacted pricing in the Lower Hudson Valley and in New York City. Suppliers expect a change in capacity charge (a cost component that is part of electric supply based on peak usage, i.e. how and when power is used) beginning in May; though, they are unsure of the exact change. Due to this uncertainty, suppliers have been conservative in pricing, driving up the cost of electricity in the aforementioned regions. Forward capacity charts project capacity prices to be higher starting in January.