On March 25, 2011, Mayor of New York Michael Bloomberg submitted a letter to Chairman Jon Wellinghoff of the Federal Energy Regulatory Commission (“FERC” or the “Commission”), urging the Commission to reconsider its January 28, 2011 Order in Docket No. ER11-2224 approving new capacity demand curves for the New York Independent System Operator, Inc. (“NYISO”).  Mayor Bloomberg encouraged the Commission to consider the “substantial” tax benefits that New York City has offered to generators, and reduce the capacity costs to a level which is appropriate, given these benefits.

In its January 28 Order, the Commission accepted NYISO’s revisions to section 5.14 of its Market Administration and Control Area Services tariff to update demand curves for the Installed Capacity Market from 2011 to 2014.  The Commission found no evidence that the current demand curves in NYISO were overcompensating suppliers and agreed that NYISO should maintain their current crossing point for the ICAP demand curve. 

In his letter to Chairman Wellinghoff, Mayor Bloomberg argued that the Commission’s January 28 Order did not reflect a “realistic assessment” of likely cost increases to producers in the next three years, and would increase capacity prices by 50% from 2011 to 2014.  This increase would amount to $500 million in capacity charges each year, or more than 10% for residential customers and more than 14% for business customers in summer months, according to Mayor Bloomberg.   Mayor Bloomberg urged the Commission to consider that private generators have access to tax benefits which “significantly” reduce their costs.  Moreover, Mayor Bloomberg pointed out that the capacity demand curves are intended to provide “reasonable price signals” which support new generation where it is needed to maintain reliability, and since more than 1,000 megawatts of new generation to New York City are currently under construction, a 50% increase in capacity prices is not needed to promote new investment.

 A copy of Mayor Bloomberg’s letter is available here.