We promised to update you on the status of capacity markets after the monthly auction. There have now been a monthly and spot auction for capacity– for the month of May. The monthly May auction, conducted in mid-April, resulted in no relief on capacity prices. The spot auction for May, which was held yesterday, April 29th, showed further price increases in the New York City Zone, and reductions in the rest of NY State. In short: prices have held and increased in New York City, and “softened” slightly in the rest of the State.

Here’s how the prices cleared in each auction:

There are three major factors influencing these prices:

• Plans to introduce a new capacity zone in the Lower Hudson Valley and Westchester County in May 2014. Zones G, H and I will be affected.
• Impending changes to the capacity demand curve, again, these will come into play in May 2014.
• Adjustments (increases) to required reserve margins, even though peak demand in the market has declined.

Capacity prices will change your cost forecast. Contact us if you want advice on how to manage these regulatory changes or if you want to see a forecast of costs.

Bottomline for businesses: The news is mixed. For customers who are buying electricity supply contracts that extend beyond May 2014, you need to understand how your supplier is managing this uncertainty. Suppliers will be pricing in risk premiums to offset the uncertainty in the capacity markets. Some suppliers will pass all price increases on to customers a year from now, others may pass through either reductions or increases, still others may honor the price you pay now and not pass through any changes. Will your supplier pass through any additional costs that result from these changes? What happens if your actual costs are lower than forecast by your supplier? Will you benefit? Make sure you read the fine print in your contract. And let us know if you have questions.