USPowerGen: Lower Pricing from New Entry Represents "Failure" of ICAP Market

The lower Zone J capacity pricing in the New York ISO, which the independent market monitor has confirmed is competitive, represents a, "fundamental failure of the marketplace," said Mark Sudbey, CEO of US Power Generating Company, in connection with the announcement that subsidiary Astoria Generating Company, L.P. will review potential restructuring alternatives.

USPowerGen claims that recent new entry is uneconomic, and thus anti-competitive; however, this view has been rebutted by both the NYISO and market monitor. Lower pricing is rather the natural result of competitive forces, and pricing is similar to 2008 levels before a retirement spiked capacity prices.

As succinctly noted by the New York Power Authority in comments to FERC, "Complainants [which include Astoria Generating Company, L.P.] want the Commission to prevent new entrants from competing against them if the (natural and expected) result of such competition is that In-City ICAP prices fall. Their position is wholly contrary to the primary reason that the Commission and the NYPSC decided to move from a fully regulated, vertically-integrated utility regime to a lightly regulated, broad-based, competitive paradigm." (see 8/4 for additional detail on competitive levels in ICAP pricing)

If FERC does not act to raise capacity prices, "capacity pricing in New York City will continue to deteriorate to a point where by year-end Astoria Generating cash flow will be insufficient to cover operating expenses, including property taxes, maintenance and capital expenditures. This outcome would leave the company with no choice but to consider a financial restructuring in the bankruptcy courts," USPowerGen said.

Astoria Generating Company, L.P. has retained financial advisory firm Perella Weinberg Partners and the law firm of Kirkland & Ellis, LLP to provide guidance on a potential restructuring.