Auction Results Are In!
The auction results from the summer 2014 New York strip auction are in! The results continue the trend of ever-rising capacity costs. For businesses and institutions that buy power in deregulated markets, the capacity cost component is a significantly higher now than it was 3 to 4 years ago. You cannot ignore this component of your cost. For larger buyers, you may want to consider a block hedging strategy for capacity as well as for power.
You will recall, as we’ve discussed here, that this Spring the NY ISO added a new capacity area for Zones G (Hudson Valley), H (Millwood which is in Westchester), I (Dunwoodie, also in Westchester), and J (New York City).
It was widely known that customers in zones G, H and I (the new capacity zone) would pay a higher rate than they would have if they had still been grouped with the “rest of state”. Our expectation was that NY City capacity costs would remain steady, and that the zones situated outside of G, H, I and J would probably pay the same or less for capacity than they had paid. But, everything went up.
Here are the strip auction results /kW/Month for May-September:
Zone J (NYC) = $16.24
Zones G, H and I = $9.96
Zones A – F (RoS)= $5.15
We will know exactly what the final summer prices are for capacity after the June monthly auction is complete in mid-May.
What is the impact?
It is difficult to calculate exactly what impact the auction results will have until you run your account through our pricing model. To give you a sense for what to expect, just take a look at capacity auction trends (below) over time. Take a look at where capacity prices have been compared to current prices in the following graph, which shows both Winter and Summer capacity clearing prices over time from 2008 through to this most recent auction.
Bottom line for businesses and institutions that buy electricity in deregulated markets: No matter where you are located in New York, you need to pay attention to capacity costs. Larger organizations may want to want to consider different strategies for power and capacity. Feel free to contact us if you have questions.