NYISO Files Updated ICAP Demand Curves

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December 1, 2010

The New York ISO has filed with FERC an application to set the ICAP demand curves for the Capability Years of 2011/2012, 2012/2013 and 2013/2014.

The ICAP Demand Curves would be established at the following points:

 

 

 

 

 

 

NOTE: All dollar figures are in terms of $/kW-month of ICAP and all percentages are in terms of the applicable NYCA Minimum Installed Capacity Requirement and Locational Minimum Installed Capacity Requirement.  The defined points describe a line segment with a negative slope that will result in higher values for percentages less than 100% of the NYCA Minimum Installed Capacity Requirement or the Locational Installed Capacity Requirement with the maximum value for each ICAP Demand Curve established at 1.5 times the estimated localized levelized cost per kW-month to develop a new peaking unit in each Locality or in Rest of State, as applicable.

The current shape and zero crossing points of the demand curves would not change.  While some stakeholders have objected that the current Demand Curve is too shallow, which, if true, would mean that the Demand Curves were overcompensating suppliers, NYISO found no basis to support such an argument.  The NYISO, "believes that its proposal to continue with previously approved slopes and zero crossing points is the most reasonable approach.

"Slope and shape adjustments can have unpredictable but significant impacts on projected Capacity revenues. For example, it would result in lowering capacity compensation, which could significantly increase investors' perception of risk and significantly raise the levelized costs of entry," the NYISO said.

The NYISO is proposing that the level of excess capacity in NYCA be modeled at 1%, with NYC modeled at 1.1%, and LI at 2.1%.  The estimated excess capacity levels that are proposed are lower than those in the previous Demand Curve reset in part because the NYISO, "determined that it is appropriate to set the level in relation to the size of the peaking unit used to establish the Demand Curves rather than on a larger combined cycle unit (as was done in the 2007 reset)."

The NYISO's recommendation results in estimated energy and ancillary services revenue (net revenue offset) of $27.44/kW-year for the NYCA, $101.67/kW-year in NYC, and $168.77/kW-year on LI (all figures in 2011 dollars), for the peaking technologies chosen in the NYISO study.

The NYISO is not recommending that anomalies such as Lake Erie loop flow, or the premiums that generators must pay for gas in the day-ahead market, be included in the net revenue offset.  The NYISO recommendation also does not account for the expected increase in the use of Demand Side Resources.

"[A]djustments for these conditions should not be made ... [A]lthough large anomalous events with measurable effects may not even out over a relatively brief three-year period, they will even out in the long run," NYISO said.

The prior Demand Curve study used the Handy-Whitman Index for power-plant construction to determine a projected escalation rate.  The lack, to date, of a strong economic recovery and the uncertainty created by inaction on carbon legislation has led the NYISO to conclude that historic equipment escalation rates will not be sustainable.  Consequently, the NYISO is proposing a 1.7% escalation factor for the second and third years of the three-year reset period.  This value was derived from three publicly available inflation forecasts.

NYISO ICAP Demand Curve Filing

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