NYISO’s proposed modifications to capacity market rules are rejected by FERC

September 11, 2020

by Paul Ciampoli
APPA News Director
September 11, 2020

The Federal Energy Regulatory Commission on Sept. 4 issued an order rejecting changes proposed by the New York ISO (NYISO) to the buyer-side mitigation rules in its capacity market.

FERC’s decision drew a stinging rebuke from FERC Commissioner Richard Glick, who argued in a dissent that the order is “just the latest in the Commission’s ever-growing compendium of attempts to block the effects of state resource decisionmaking.”

The NYISO’s proposal, which the grid operator said received full stakeholder and market monitor support, would revise the process by which the NYISO determines exemptions from buyer-side mitigation when capacity prices are forecast to exceed certain thresholds following the entry of the new resource, which is referred to as the “Part A” exemption (Docket No. ER20-1718-001).

These provisions are intended to allow for the possibility that a new resource may be entering service at a time of tight capacity, and therefore would not need to have its offer price mitigated.

The NYISO said that the modifications were designed to better reflect the expected expansion of renewable resources and storage resulting from state laws and regulations.

The proposed tariff changes would increase the likelihood that such “Public Policy” resources would qualify for the Part A exemption, primarily by changing the order of preference for the exemption from resources with the lowest project cost to Public Policy resources, among other modifications.

The project cost is no longer the main factor determining which resources will be constructed, the grid operator said. The NYISO said that resources that meet public policy needs are likely to be built and become operational, even if they do not have the lowest Net Cost of New Entry because such resources are “favored by new laws and policies that govern siting and operation of these resources. They are thus more likely to have firm off-takers and receive favorable financing terms from private lenders.” 

The NYISO’s proposed change to the Part A exemption to give preference to Public Policy resources would not reduce capacity prices, and only would change which specific resources receive an exemption.

FERC decision

FERC determined that the NYISO proposal is unduly discriminatory because it does not provide sufficient justification for prioritizing the evaluation of Public Policy Resources before non-Public Policy Resources, independent of cost.

“Further, our finding that NYISO’s proposal is unduly discriminatory is dispositive; we need not reach NYISO’s arguments that its proposal would not cause price suppression,” the Commission said.

In contrast to its orders on the PJM MOPR expansion, in which FERC sought to avoid what it terms  “price suppression” from the participation of state-sponsored resources in the capacity market, in the NYISO order FERC focused only on this differential treatment between Public Policy resources and other types of capacity resources.

Commissioner Glick’s dissent

In his dissent, Glick argued that the Commission “has perverted NYISO’s buyer-side market power mitigation rules into a mind-boggling series of unnecessary and unreasoned obstacles aimed at stalling New York’s efforts to transition the state toward its clean energy future. As a result, those rules have become an unprincipled regime that has little to do with buyers or the exercise of market power.”

Responding to the other Commissioners’ reason for rejecting the proposal, Glick said that Public Policy Resources are not similarly situated for the purposes of the Part A Exemption Test “because they are subject to relatively favorable siting regimes and, as a result of their status under New York law, are more likely to secure the customers and financing that help ensure that they get developed successfully.”

He said that given that the purpose of the Part A Exemption Test “is to facilitate the entry of resources when capacity margins are getting tight and additional resources are needed, the likelihood that the exempted resources actually appear is a highly relevant and distinguishing feature that would support differential treatment.”

Glick said that until recently, the Commission “has long asserted an interest in balancing the effects of state policies with measures to address how those policies affect capacity market prices.  While reasonable minds can disagree over how effectively the Commission struck that balance in years gone by, it is hard to argue that today’s order does anything but confirm that the era of respect for state decisionmaking is over.”

And that, in turn, puts regional transmission organizations and independent system operators “in an impossible position, forcing them to juggle the Commission’s ideological antipathy toward state efforts to shape the resource mix with the realities that Congress gave states responsibility over resource decisionmaking and that the physical system will ultimately, and rightfully, reflect those state choices.” 

The NYISO’s filing “sought to strike a balance between those concerns by taking into account the effects of New York law while avoiding any of the ‘price suppression’ concerns on which the Commission has been so focused. And NYISO appeared to have done so admirably,” Glick said. 

The proposal received a super-majority of votes in the stakeholder process and not a single party protested this issue before the Commission, he noted, including any of the generator groups “that have cheered on the Commission’s slew of recent buyer-side mitigation orders. But, of course, the Commission thinks it knows better than NYISO’s stakeholders, better than NYISO’s Market Monitoring Unit, better than the New York State Public Service Commission, and better than the people of New York.” 

In rejecting the NYISO’s proposal, “the Commission makes clear how little it cares about stakeholder compromise or the consequences its actions will have for the practical reality of running an organized wholesale market,” wrote Glick.

This decision comes in the midst of a New York Public Service Commission proceeding, launched last August to consider how to reconcile the NYISO resource adequacy programs with the State’s renewable energy and environmental emission reduction goals.

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