New York Power Company Says Price Cuts May Mean Bankruptcy
New York City Power Fight May Lead to Bankruptcy
The Astoria II natural-gas plant in Queens is driving down wholesale power prices. That may dampen revenue at the US Power Generating's Astoria Generating Co., which owns three oil and natural gas plants in Brooklyn and Queens, including the Astoria Generating Station, pictured. Photo: US Power Generating Company
The Astoria II natural-gas plant in Queens is driving down wholesale power prices. That may dampen revenue at the US Power Generating's Astoria Generating Co., which owns three oil and natural gas plants in Brooklyn and Queens, including the Astoria Generating Station, pictured. Photo: US Power Generating Company
A company that provides 21 percent of New York City’s electricity says it may file for bankruptcy because a newcomer is undercutting wholesale prices for the city’s power market.
“We will have no choice but to consider some sort of restructuring” for Astoria Generating Co. unless the Federal Energy Regulatory Commission intervenes, Mark Sudbey, chairman and chief executive officer of the company’s parent, US Power Generating Co. of New York, said in an interview with Bloomberg Government.
The dispute follows moves in New York and other states to offer incentives to companies that build power plants. Owners of older facilities say the arrangements let operators of the new generators bid low on the wholesale market, skewing prices, while providing subsidies that make up the difference.
The new $1.3 billion Astoria II natural-gas plant in Queens, near one of Sudbey’s plants, has driven down wholesale power prices by more than 50 percent in auctions run by the operator of New York state’s electrical grid, he says.
TransCanada Co. of Calgary has joined his closely held company in asking federal regulators to overturn pricing approved by the grid operator for the new plant, which is owned by Astoria Project Partners II LLC, a partnership including GDF Suez (GSZ) of Courbevoie, France.
The state-owned New York Power Authority, which sells electricity to government and private customers, “has made no secret of its desire to suppress power prices,” the companies said in a July 11 filing with FERC.
Political Pressure
With help from politicians, the power authority has put “immense pressure” on the grid operator to keep prices artificially low for consumers, the companies said. That may create higher prices in the long-run as older plants shut down.
On the other side are power buyers led by Consolidated Edison Inc. (ED), owner of the biggest utility serving New York City, and the New York Power Authority.
Complaints lodged with federal regulators are “yet another attempt to seek preferential status” for existing generators over new providers, the group said in a July 6 filing with FERC.
The average wholesale price for New York City electricity in 2010 was $65 per megawatt-hour, the highest in the contiguous U.S., according to the Energy Department. Residents and businesses in New York state paid an average 15.52 cents per kilowatt-hour, higher than the national average of 9.82 cents per kilowatt-hour, in April 2009, according to the department’s most recent data. A megawatt is 1,000 kilowatts.
New Jersey Plants
Earlier this year, the state of New Jersey acted to encourage construction of three new power plants in an attempt to lower electricity prices. FERC said in April a proposal by PJM Interconnection LLC, the grid operator that covers mid- Atlantic states and part of the Midwest, may push prices too low, and the agency is weighing how that applies to New Jersey’s plans.
The New York grid operator isn’t properly following market rules to prevent buyers from driving electricity prices too low, US Power Generating, TransCanada and NRG Energy Inc. (NRG) of Princeton, New Jersey, said in a complaint to FERC last month.
The New York Independent System Operator “will be disputing the allegations” in its response that is due to FERC on Aug. 3, Kenneth Klapp, a spokesman for the Rensselaer, New York-based grid operator, said in an e-mail.
Astoria Energy
Danni Sabota, a spokeswoman for GDF Suez Energy North America, referred questions to Charles McCall, CEO of closely held Astoria Energy LLC, which established the agreement between the New York Power Authority and the new plant. McCall didn’t return a call seeking comment.
The New York Power Authority plans to file its response with FERC by Aug. 3, Michael Saltzman, a spokesman, said in a phone interview. “We don’t have anything further to add at this time,” he said. Consolidated Edison spokesman Bob McGee said the company couldn’t immediately comment.
Wholesale prices for electrical capacity, the ability to provide power months or years into the future, are determined in New York through an auction run by the grid operator. Utilities buy their power in the wholesale market and sell it to consumers for a profit.
Prices to provide electrical capacity for New York City fell to $5.76 per kilowatt-month in July from $11.76 in June in auctions. The price for the August auction, posted yesterday, was $5.83 per kilowatt-month.
‘Fundamental Failure’
The price decline was due to the first-time participation of the Astoria II facility in the July auction, according to Sudbey.
“This basically is a fundamental failure of the marketplace,” said Sudbey, whose company operates two power plants in Brooklyn and one in Queens. Astoria II can afford to offer its supply below cost because it has a 20-year agreement to sell its power to the New York Power Authority, he said.
At depressed prices, established power producers may not earn enough revenue to cover their fixed operating costs, according to Sudbey. Astoria Generating Co. earns about 80 percent of its revenue from capacity payments.
FERC should require that Astoria II and other new generators offer to sell their electrical capacity at 75 percent of construction and generating costs, according to US Power Generating and TransCanada.
Astoria II’s owners haven’t filed comments in the dispute.
FERC spokesman Craig Cano declined to comment on the pending proceeding.
‘Inflammatory’ Claims
The companies’ claims that the grid operator has colluded with other market participants to suppress prices are baseless and “inflammatory,” the New York Independent System Operator said in a filing with FERC on July 12.
“Falling prices, like rising prices, are not necessarily a sign of market inefficiency, let alone market abuses,” the grid operator said.
TransCanada and US Power Generating Co. have offered “no proof” that the market would be harmed unless FERC intervenes, the New York Power Authority and the City of New York said in a regulatory filing the next day.
During the summer of 2008, New York City’s capacity prices fluctuated from $5.53 per kilowatt-month to $6.33 per kilowatt- month, approximately their current level, the power authority and the city said.
Those low prices occurred as the grid operator was just implementing its new rules to prevent buyers from exerting too much influence in the market. “You can call it an anomaly,” said Sudbey.
To contact the reporter on this story: Brian Wingfield in Washington at bwingfield3@bloomberg.net
To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net
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