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NY asks FERC to reconsider order that could boost NY power costs

* FERC order could cost NY rate payers up to $500 million

* NY wants new Astoria plant in power capacity market

* Capacity market is a problem for other power grids

By Scott DiSavino

Oct 12 (Reuters) - New York asked U.S. energy regulators to reconsider a federal decision that allegedly would boost New Yorkers power costs by up to $500 million in 2013, the state's power generator and utility regulator said late this week.

The U.S. Federal Energy Regulatory Commission (FERC) issued an order in September requiring the operator of the New York power grid to recalculate the cost of the new Astoria Energy II power plant in the state's power capacity market.

Such a move would force the new Astoria plant to boost its offer price for capacity, leading to major power price increases that would harm consumers, the New York Public Service Commission (PSC) said in a release Thursday.

The New York Power Authority (NYPA), the state-owned power generator, has a contract to buy power for its New York City government customers from the 550-megawatt (MW) Astoria plant, which entered service in July 2011.

Those customers include schools, hospitals, municipal buildings, subways and commuter trains.

"The FERC order results in the unwarranted transfer of wealth from local and state governments and consumers to existing power plant owners," Gil Quiniones, NYPA president and chief executive officer, said in a release Thursday.

FERC issued its order after the owners of two older power plants in New York City alleged the state grid operator, the New York Independent System Operator (NYISO), priced too low the cost of the new Astoria unit in the capacity market. That low price would reduce prices paid to other power plants for their capacity.

"Absent this FERC order, over time, independent generators facing unfair competition from state-subsidized projects exercising market power would be forced to shutter their operations, prematurely retiring their otherwise economic power plants," US Power Generating, one of the New York City plant owners, said in a statement responding to the rehearing request.

The other New York City power plant owner that complained to FERC was a unit of Canadian energy company TransCanada Corp , which owns the Ravenswood power plant in Queens.

NYPA and the state PSC said removing the Astoria plant from the capacity market would favor older, less efficient units and discourage new generators from building new plants or upgrading older plants in the state.

US Power Generating however disagreed with the state, noting, "Without competition, New York electricity consumers would be captive to higher long-term energy prices."

Grid operators, like the NYISO, use capacity markets to help maintain system reliability by paying generators to keep their plants available for service whether or not they are used to generate power.

CAPACITY MARKET PROBLEMS

Capacity markets have also caused problems in other power grids, most recently in PJM, the nation's biggest serving more than 60 million customers in 13 Mid-Atlantic and Midwest states and the District of Columbia.

Earlier this week, the head of Maryland's utility regulator sent a letter to PJM and its market monitor to express disappointment with proposed changes to PJM's capacity market.

PJM considered changes to its market in part due to complaints from Maryland and New Jersey that the grid's capacity market encouraged generators to keep old, inefficient power plants in service while discouraging the construction of new, cleaner power plants. That is similar to New York's complaint about FERC's decision on the new Astoria plant.

In PJM, the controversy over the capacity market and the states' efforts to get around that market by signing long-term deals with generators to build new power plants has been the subject of several ongoing federal and state regulatory and legal battles.

And, despite problems with existing capacity markets in PJM and New York, power grid operators in the Midwest and Texas were considering adopting their own capacity markets in an effort to encourage generators there to build more generation and keep existing plants operating.

(Reporting By Scott DiSavino; Editing by Bob Burgdorfer)

((scott.disavino@thomsonreuters.com)(+1 646 223-6072)(Reuters Messaging: scott.disavino.thomsonreuters.com@reuters.net))

Keywords: UTILITIES NEWYORK/FERC