Important Notification for New York Gas & Electric Customers
The NY Independent System Operator ("NYISO"), which operates NY State’s power grid, recently enacted Federal Energy Regulatory Commission ("FERC") mandated changes that will impact all energy supply prices for customers in Central Hudson,Orange & Rockland, and ConEdison service areas as well as small parts of the NYSEG territory. The change has created an increase in the Installed Capacity ("ICAP") component of energy pricing; a component that all customers must pay for at a rate determined by monthly ICAP auctions. This increase will affect all customers in the lower Hudson Valley area regardless if they receive their energy supply from the utility or an energy supply company like New YorkGas & Electric. While NYG&E greatly appreciates your business, you are receiving this notification as we must incorporate the ICAP increase into your NYG&E fixed price contract.
What is ICAP?
To ensure the long-term reliable operation of the power grid, the Federal Energy Regulatory Commission ("FERC") and the New York Independent System Operator ("NYISO") require that enough generating capacity exists to meet peak demand. This "installed capacity requirement" obligates all customers to secure a portion of the generation capacity of the power plants that supply your area of NY. Customers essentially pay generators to set aside the capability to produce energy during periods of peak demand. Most customers do not operate at their peak demand level at all times. However, if customers did operate at peak demand and the generation plants had not set aside the capability to produce this energy, the grid would become unreliable and prices could dramatically fluctuate.
Historically, customers located on Long Island and in the NY City purchased ICAP from generators within their vicinity. Customers outside of these regions could buy ICAP from any generator located within the state. Thus, customers in areas north of NYC could buy ICAP from generators near Buffalo or Syracuse, as it was assumed that the power could reliably and cost effectively reach the customer. NYISO and FERC no longer feel that this model is sufficient.
Despite actions from numerous by-parties (including NYG&E and other energy suppliers, utility companies, business and residential customers in NY, and the NY Public Service Commission) to prevent, phase-in or otherwise delay the implementation of a new capacity zone in NY, the FERC mandated that on May 1, 2014 there will be a new requirement on customers located in the lower Hudson Valley of NY.
Affects to Your NYG&E Fixed Price Contract
While the impact on any given customer will vary, as a result of this mandated change in market design and regulatory requirements, NYG&E is faced with no other option than to pass through these associated costs to serve your energy needs. This change ONLY impacts customers who are located in the lower Hudson Valley. Thus, if you are a customer in Central Hudson, Orange & Rockland, ConEdison and a small section of NYSEG, your fixed rate agreement has been impacted.
The mathematics behind the concept are quite complex and the price increase varies based on each customers ICAP requirement, or Tag. An ICAP Tag is a function of each customer's usage during the system's peak demand period last year and is applied to the following year's usage. Capacity is purchased each month to meet the peak demand illustrated by your ICAP Tag and will be spread out across your remaining contracted usage. As each customer's "peak usage" and total usage quantity vary, only generalities are outlined in this notification. NYG&E will be passing along the costs associated with these changes on an individualized basis.
Per the information below in the View Strip Auction Summary, the prices resulting from the recent capacity strip auction for customers in the lower Hudson Valley ("G - J locality", the very first auction reflecting the new ICAP zone) is nearly double the rate that a customer would otherwise have been paying ("NYCA"). As an example, Orange & Rockland customers who would have seen costs of $5.15 per ICAP KW per capacity unit (plus a system reserve margin) will now see costs of $9.96 per ICAP KW on 88% of their usage capacity requirement (the remainder still being set at the $5.15 rate).
For additional information, please refer to the article, "Hudson valley & NYC Brace as Imminent Changes to New York's Energy Markets Approach," by RenewableEnergyWorld.com.
Please understand that NYG&E, along with many others, lobbied against this new structure and the increased costs that it places upon all customers in the Lower Hudson Valley. We will continue to help our fixed price customers by reducing your exposure to market and price volatility.