Originally printed by Restructuring Today on August 24, 2012

The Village of Port Jefferson, New York told FERC yesterday that National Grid Generation’s answer to its complaint (RT, Aug-22) was full of “misapprehension and omissions of fact.” The village alleged National Grid Generation (Genco) was manipulating the market in the Long Island Power Authority’s (LIPA) territory by refusing to build new generation, thus keeping prices for its existing supply high.

Genco shot back that the village was basing its arguments on contract negotiations and that FERC regulations simply do not warrant a manipulation probe. The firm’s power plants are cheaper than new ones would be and any developers would have to overcome that, it added, but several projects are under development in LIPA’s territory nonetheless.

Port Jefferson argued yesterday that Genco benefitted for many years from market conditions that were inherited from the monopoly held by the former Long Island Lighting Company, which were preserved when the state broke that utility up.

Genco is now using those conditions to its advantage, said Port Jefferson, to stall third-party investment and to perpetuate a shortage of merchant generators within the highly constrained Long Island Control Area, where nearly all capacity requirements are met by the firm’s fleet.

The complaint alleged Genco has a monopoly on the island’s generation and its current efforts to keep this control is an exercise of market power in violation of the Federal Power Act.

The generation fleet is viable only due to the guaranteed cost recovery in the power purchase agreement it has with LIPA and that creates an inherent economic advantage that new generation has to overcome, said the filing.

Continued operation of the existing units, which are less and less competitive in the energy market, creates the appearance of an excess of viable generation, thus disrupting price signals to create new plants, said Port Jefferson.

Genco told FERC it believes Port Jefferson is trying to get it to add generation but the village’s complaint is only about the alleged barriers to new build.

The complaint is not trying to force Genco into negotiations with LIPA to repower plants, said Port Jefferson. It is simply asking whether those negotiations are actually unconstrained and independent.