Michael Giberson

From Reuters: Amid NYC heat wave, Con Edison lowers power voltage

New York energy company Consolidated Edison Inc reduced the power voltage in some Manhattan neighborhoods on Wednesday, in an action known as a brownout, as a brutal heat wave stressed the city’s electric system for a third day. This was the second voltage reduction during this week’s heat wave, aimed at easing the load on the power grid and allowing workers to fix heat-stressed equipment in the affected neighborhoods. The company had also turned down the voltage in a few Manhattan neighborhoods for several hours on Monday.

MORE ABOUT CAPACITY MARKETS: Capacity markets are economic rules by which consumers collectively pay electric power supply resources to be available to help meet consumer demand, particularly if and when consumer demand is especially high.

See the New York ISO capacity market rules for the details, though the document is not exactly easy to read. Part of the problem is that capacity markets have been difficult to design well, so there has been constant tinkering with the rules. (Notice, for example, that the NYISO capacity market rules document begins with an 18-page “Revision History,” see pages vii-xxiv.)

The NYISO’s “2011 State of the Market Report,” which is more readable than the NYISO capacity market manual, describes the markets as follows (p. 35):

The capacity market is designed to ensure that sufficient capacity is available to reliably meet New York’s planning reserve margins. This market provides economic signals that supplement the signals provided by the NYISO’s energy and operating reserves markets. Currently, the capacity auctions determine clearing prices for three distinct locations: New York City, Long Island, and NYCA. By setting a distinct clearing price in each location, the capacity market facilitates investment in areas where it is most needed.

What reliably “meeting New York’s planning reserve margins” means is that suppliers get paid extra, that is in addition to being paid for supplying electric power and providing transmission support services, they get additional pay for ‘being there’ in order to help assure that consumers can get all of the power they want AND the system still has sufficient extra resources available in case of an emergency. The use of brownouts indicates either that the ISO didn’t plan for enough resources or that some of the resources paid for were unable to deliver when needed.

As mentioned here and here before, currently regulators in Texas are considering whether they should stick with ERCOT’s so-called “energy-only market design” (where generators can get paid through the ERCOT market for supplying electric power and providing reserves and other transmission support services, but nothing more**) or switch to a capacity market, as was recommended by a Brattle Group report.

Mostly the point of my post here is that even with capacity markets, sometimes there isn’t enough power to go around. Part of the problem, as everyone knows, is that no amount of market design or contracts or financial assurance can actually guarantee physical resource adequacy. In plainer English: No matter how much you pay or promise to pay, you can not guarantee there will always be enough power to go around.

Makes you wonder what consumers are paying for in capacity markets.

**Most generators make most of their revenue through contracts with retailers, which could include a payment for capacity in addition to energy supplied. However, ERCOT rules do not require consumers to buy “capacity.”

LATE AMENDMENT: A correspondent points out that the Manhattan brownouts were most likely a distribution system problem, not a resource adequacy problem. NYISO capacity reports indicate adequate reserve margins on July 18 and 19, the days of the brownout. A more careful reading of the article itself supports the distribution system view; notice that the article mentions the brownouts were “aimed at easing the load on the power grid and allowing workers to fix heat-stressed equipment in the affected neighborhoods.” (emphasis added).