New York electric customers in the Lower Hudson Valley will soon see a big jump in their electric bills -- due to the creation of a new "local capacity zone," which has doubled the capacity price for retail energy suppliers serving these customers.

Under federal regulation, all electric suppliers serving New York customers must meet a "capacity" requirement that requires electric suppliers to purchase a government-defined amount of capacity.  This capacity charge is said to be needed to ensure that enough power plants are on the grid.

Traditionally, there have been two capacity zones in New York's competitive market: (1) the constrained New York City zone (Zone J), where capacity prices are severe due to the limited amount of power plants sited within the city and a lack of transmission infrastructure for cheaper imports; and (2) the "rest of state" region, where there is adequate transmission and generation, so capacity prices are lower. Long Island also has a separate capacity zone, but has limited electric choice.

However, the New York ISO, which administers the state's electric transmission grid (a kind of superhighway for electrons) recently created a new "local" capacity zone for NYISO Zones G, H, I & J.  This includes the Lower Hudson Valley and New York City, covering utilities such as Consolidated Edison, NYSEG, Orange & Rockland, and Central Hudson Gas & Electric.

At the most basic level, this new G-J local capacity zone means that only local power plants can be used to meet the local capacity requirement, as transmission import capacity is modeled to be constrained.  This means that retail electric suppliers must purchase power from more expensive local power plants, rather than importing cheaper capacity from western New York.

It all adds up to higher capacity charges for retail electric suppliers, both for utilities and competitive Energy Service Companies (ESCOs). These higher capacity charges will be passed on to customers in their electric bills.  These new capacity charges take effect on May 1.

Specifically, for the new Lower Hudson Valley capacity zone, the capacity price from the summer 2014 NYISO strip auction is $9.96/kW-month. That's over double the year-ago rest-of-state price of $4.20/kW-month, which the Lower Hudson Valley received prior to being made into a separate local capacity zone.

Electric customers in New York City will see higher capacity prices as well.  The summer 2014 strip auction produced a New York City capacity price of $16.24/kW-month, versus $14.80/kW-month a year ago.