Capacity Zone

Update: The Federal Energy Regulatory Commission (FERC) approved a plan in mid-2022 that allows for a broader range of energy resources, including renewables, to participate in the Hudson Valley’s electric capacity market.  This ruling negates the impact of the capacity zone and lowers the cost of electricity prices residents and businesses pay, as well as supporting emissions-free resources.

Background

The Federal Energy Regulatory Commission (FERC) implemented a Lower Hudson Valley Capacity Zone in May 2014 to address potential electricity supply shortfalls in lower New York and the Hudson Valley. The new capacity zone – which Central Hudson, the New York Public Service Commission and others contested through a series of legal motions and appeals  – was established to attract new power generation. The financial incentive provided by the new capacity zone is paid for by residents and businesses within the zone and is paid to power plant operators in the zone, not Central Hudson. It further increases the cost of electricity and raises local electric bills by an estimated 3 percent.

Following is an overview on what the Lower Hudson Valley Capacity Zone is and why it was established.

Delivery and Supply

Electric bills, aside from taxes and surcharges, are comprised of two main components: Delivery, which includes Central Hudson’s expenses to continuously operate the electric delivery system, maintain infrastructure, and provide customer services; and Supply, which refers to the electricity produced by independent power plant generators.

Supply Cost: Two Elements

Supply charges include energy cost and capacity cost. Energy cost refers to the electricity actually used by businesses and residents. Capacity cost refers to the cost, above and beyond the electricity utilized, that goes to ensure that adequate generating facilities exist and are prepared to meet system-wide power supply needs during peak demand periods. Utilities, and independent energy service companies (ESCOs), must purchase both energy and capacity and the combined cost is reflected in the Supply Charge on your energy bill.

Zoning

The New York electric grid is separated into electric grid zones based on the location of electric generators and transmission lines. Because bottlenecks in the electric transmission system located north of the Mid-Hudson Valley are constraining electric supply to southeast New York and greater New York City area, as well as because several regional generating plants in the region have been or may soon be retired, federal regulators mandated that areas affected by transmission constraints form a new capacity zone. This forces utilities serving the affected area to purchase virtually all their capacity within that zone only, rather than a larger market throughout the rest of the state.

FAQs

What is the Lower Hudson Valley Capacity Zone?
Implemented in May 2014, this newly established capacity zone imposes electricity supply purchasing restrictions on the Hudson Valley and areas in lower New York, including New York City. Utilities and ESCOs representing customers within the zone must purchase virtually all their capacity from electricity supply providers within this zone rather than throughout the rest of the state.

Who determined the need for the new capacity zone? Why?
The Federal Energy Regulatory Commission (FERC) mandated the Lower Hudson Valley Capacity Zone. The reason for doing so was to incentivize power plant operators to add generating capacity in the region due to concerns about the adequacy of available supply of electricity to serve lower New York and parts of the Hudson Valley.

Who pays for the increased cost of the new capacity zone?
Customers located within the new capacity zone pay for it through higher electricity supply costs. The capacity zone is estimated to cost customers an additional 3 percent on their electricity bills.

Who profits from the new capacity zone?
Primarily existing power plant operators within the new capacity zone.

What is being done to lessen the financial impact on customers of the new capacity zone?
Central Hudson and other New York state utilities, under the formation of NY Transco, have proposed several projects to improve transmission capacity that could eliminate the need for the Lower Hudson Valley Capacity Zone. These projects aim to transmit additional energy supply from upstate New York – where there is already a surplus of generating capacity – to the Hudson Valley and lower New York. Click here to learn more about these proposals.

Legal Challenge

Central Hudson, the New York State Public Service Commission, several local governments and other entities rallied against the implementation of the federally mandated Lower Hudson Valley Capacity Zone. Central Hudson feels that the improved transmission projects that have already been proposed will better address the need for increased electricity supply in lower New York and the Hudson Valley. Here are some documents pertaining to our legal challenge of this capacity zone: