NYISO gas buying contributes to ISO-NE price volatility: ICF

Houston (Platts)--20Nov2013/553 pm EST/2253 GMT


Overbuying of natural gas in the New York Independent System Operator contributes to volatile natural gas prices and consequently to unstable electricity prices in ISO New England, an ISO-NE panel was told Wednesday.

In a presentation to ISO-NE's Planning Advisory Committee, ICF International, an energy market consultancy, noted that NYISO and ISO-NE generators compete for gas supply, but New York generators have an advantage, because they are upstream from New England on the gas pipeline grid.

Gas-fired generators occasionally order more gas than they really need to ensure fuel supplies, but this "contributes to gas price volatility and an inefficient use of gas infrastructure," the ICF presentation said.

"Because New England's generators are located downstream from New York's generators and are already subject to pipeline constraints, [New England generators] are more likely to be exposed to the pressure reductions created by this behavior," the presentation states.

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Another advantage is that NYISO's electricity market commitment schedules are earlier than ISO-NE's market commitments, which provides New York generators a timing advantage in buying gas within the daily gas market, the presentation states.

Relieving pipeline constraints would require new capacity, but Federal Energy Regulatory Commission rules require firm purchase contracts to build new pipeline capacity, the presentation states. But "current electric market cost recovery mechanisms" do not directly support such a commitment, the presentation states.

ISO-NE has taken several steps to address its power-price volatility issue this winter, including a program to ensure that dual-fuel power plants have enough oil inventories to switch from gas to oil when needed.

And FERC recently approved a proposal to let ISO-NE market participants change their bids in real time to reflect fuel costs.

--Mark Watson, Markham.watson@platts.com
--Edited by Derek Sands, derek.sands@platts.com

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