US Justice Department Probes NYC's Electricity Market
DOW JONES NEWSWIRES - June 7, 2007 7:33 a.m.
By Matthew Dalton - Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Competition in New York City's electricity market has caught the attention of investigators at the U.S. Justice Department, according to a disclosure Thursday by one of the city's largest power suppliers.
New York City officials and large energy consumers have periodically complained to the federal government about the state of competition in the city's power market, given that most of the city's electricity is generated by just three companies. New York City electricity prices are among the highest in the nation, mainly due to the prevalence of expensive of natural gas as a generation fuel and, critics say, the fact that generation ownership is highly concentrated in the hands of three firms.
Keyspan Corp. (KSE), owner of the 2,450 megawatt Ravenswood plant in Queens, has received a "civil investigative demand" from the Justice Department for information "relating to its investigation of competitive issues" in the city's electricity market, according to a statement filed by the company with the Securities and Exchange Commission Thursday.
Ravenswood generates about a quarter of the city's electricity. U.S.
Power Generating Co., of New York, in partnership with Madison Dearborn Partners, a Chicago private equity firm, own three power plants in the city representing 2,200 megawatts of capacity. NRG Energy Inc. (NRG), based in Princeton, N.J., owns two plants with nearly 1,400 megawatts of capacity.
NRG hasn't received a similar investigative request from the Justice Department, according to a person familiar with the situation.
The department's request focuses on the city's electricity "capacity market," which determines the payments that the state allows generators to collect for keeping their plants available to run.
These "capacity payments," which plants receive in addition to any revenue from selling electricity, are intended to provide an additional incentive for power-plant construction and the maintenance of plants that are only needed during periods of extremely high demand.
Capacity payments are supposed to decline with the construction of power plants, and observers widely expected that to happen last summer, as 1,000 megawatts of new power-plant capacity began operating in the city. One megawatt can power 500 homes to 1,000 homes. But capacity prices last summer rose 6% compared with the one before, prompting questions from city officials and others about whether the market that sets these prices is fair.
Members of the New York Independent System Operator, which controls the state's electricity markets, subsequently approved a measure, over the objections of generators, that would have lowered the city's cap on capacity prices. But the Federal Energy Regulatory Commission reversed that decision in March and ordered the generators to reach a settlement with supporters of a lower cap, mainly New York City's utility Con Edison (ED). Those talks are ongoing.
National Grid PLC (NGG), based in London, has offered to buy Keyspan for $7.3 billion. The transaction must still be approved by New York state regulators.
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