FERC on Friday rejected NYISO’s proposal to make it easier for public policy resources to clear its capacity market, prompting a fiery dissent from Democrat Richard Glick, who warned the ruling “will ultimately doom NYISO’s current capacity market construct by forcing New York to choose between the commission’s constant meddling and the state’s commitment to addressing the existential threat posed by climate change.”

Chairman Neil Chatterjee and fellow Republicans James Danly and Bernard McNamee — in one of his final rulings before leaving the commission — joined in rejecting the proposal, which would allow public policy resources in New York City and capacity zones G-J to avoid buyer-side mitigation if enough existing capacity exits the market, or if demand increases enough to boost capacity requirements (ER20-1718-001).

The proposal was recommended by NYISO’s Independent Market Monitor and supported by majorities of all of the ISO’s stakeholder sectors. (See Five New Recommendations from NYISO Monitor.)

‘Similarly Situated’

But the commission majority said NYISO’s plan was “unduly discriminatory because it does not provide sufficient justification for prioritizing the evaluation of public policy resources before nonpublic policy resources, independent of cost.”

The ISO contended public policy resources — renewables, battery storage and other zero-emission resources — are not “similarly situated” to nonpublic policy resources because the latter are unlikely to be completed under New York’s aggressive emission-reduction goals.

But the commission said they should be treated the same because “they must adhere to similar requirements for interconnection and for participation in the” ISO’s Installed Capacity (ICAP) Market.

“Further, our finding that NYISO’s proposal is unduly discriminatory is dispositive,” the commission added. “We need not reach NYISO’s arguments that its proposal would not cause price suppression.”

James Denn, spokesman for the New York Public Service Commission, said the state will seek to overturn the ruling.

“Long standing FERC policy and precedent respected state’s rights. But this constitutionally protected idea apparently means nothing to this administration.  If allowed to stand, this decision would cause tremendous economic and environmental harm across the country by intentionally increasing energy prices for consumers to line the pockets of fossil fuel interests, and undermining successful renewable energy policies that have created hundreds of thousands of jobs.”

“We worked closely with market participants on a design we felt addressed FERC’s jurisdictional obligations and New York’s right to implement renewable energy policies,” said NYISO CEO Rich Dewey. “We’re reviewing the order to assess next steps and remain confident we can find a regulatory solution acceptable to all parties that supports the changing grid.”

The ISO’s buyer-side market power mitigation rules require new ICAP resources in New York City and zones G-J to offer at or above the default offer floor — 75% of the net cost of new entry (CONE) of the hypothetical unit modeled in the most recent ICAP demand curve reset — until they clear 12 monthly auctions.

To win an exemption from mitigation, a new entrant must pass one of two exemption tests. Part A allows exemptions if the forecast of capacity prices in the first year of a new entrant’s operation is higher than the default offer floor. Part B permits exemptions if the forecast of capacity prices in the first three years of a new entrant’s operation is higher than the net CONE of the new entrant.

4 Changes

NYISO proposed four changes to its rules, saying they would “better reflect changes in resource investment and retirement decisions and, ultimately, the composition of the overall resource mix that are expected to take place in New York state.”

The changes would:

• modify the ISO’s current practice of performing the Part B test before the Part A test by swapping their order;
• establish two separate mitigation study periods (Group 1 and Group 2), each covering three consecutive years;
• evaluate resources under the Part A test for each capability year of a resource’s three-year mitigation study period; and
• put public policy resources ahead of nonpublic policy resources in Part A evaluations.

The commission said the proposal “would unjustifiably limit nonpublic policy [resources’] ability to pass the Part A test and participate on an equal footing with public policy resources.”

The ISO contended public policy resources are more likely to secure the necessary permits and siting permissions, secure firm off-takers and receive favorable financing, and that nonpublic policy resources are unlikely to enter the market in the future.

It cited the Climate Leadership and Community Protection Act, which calls for 70% of New York’s electricity to come from renewable resources by 2030 and for electricity generation to be 100% carbon-free by 2040. It also nearly quadrupled New York’s offshore wind energy target to 9 GW by 2035.

It also cited the Accelerated Renewable Energy Growth and Community Benefit Act, which established an office to accelerate the permitting of large renewable energy facilities. (See Cuomo Proposes Streamlining NY’s Renewable Siting.)

Because of these policies, NYISO said a resource’s cost structure is no longer the best predictor of whether it will ultimately get built. Because its proposal will not change how much capacity qualifies under the Part A test, it will not result in price suppression, the ISO said.

“While NYISO’s filing makes references to certain New York state laws, regulations and policies that it argues will drive the composition of New York state’s resource mix, we disagree that the prevalence of public policy resources in the future composition of New York state’s resource mix means they are not similarly situated to nonpublic policy resources for the purposes of the Part A test,” the commission said.

It also said it was not persuaded by the Monitor’s contention that the proposed realignment will minimize surpluses and avoid inefficient incentives for investment in new resources. States “are free to make their own decisions regarding how to satisfy their capacity needs, but they ‘will appropriately bear the costs of [those] decision[s],’ … including possibly having to pay twice for capacity,” the commission wrote, quoting from a 2009 D.C. Circuit Court of Appeals ruling.

“While we respect that New York state may have initiatives to favor the development of certain types of resources, we reiterate that we must base our decision on our duty to ensure just and reasonable rates pursuant to the [Federal Power Act], and not on whether the proposal is consistent with federal, state or municipal renewable energy policies.”

Glick Dissents

Glick said the majority’s “deeply misguided” ruling “is just the latest in the commission’s ever-growing compendium of attempts to block the effects of state resource decision-making,” an apparent reference to its December ruling requiring PJM to expand its minimum offer price rule to include all new state-subsidized resources.

“This time the commission does not even bother trying to hide behind ‘price suppression,’ ‘investor confidence,’ ‘market integrity,’ ‘the premise of capacity markets’ or any of the other inscrutable buzz words that it has used to justify its efforts to ‘nullify’ state policymaking,” Glick said. “Without disputing NYISO’s explanation that these reforms would not cause any ‘price suppression,’ the commission nevertheless rejects the filing because it would expressly facilitate the entry of resources needed to meet New York’s public policy goals.”

Glick termed the ISO’s proposal “a set of minor but eminently reasonable changes” to ensure that the Part A exemption test reflects the commercial and regulatory realities under state policies. The majority’s order used “perfunctory reasoning that displays not even the slightest effort to wrestle with, or even correctly characterize, the arguments advanced by NYISO or the other supporting parties.”

He said the fact that the public policy resources are subject to the same market and interconnection rules as nonpublic policy resources is “irrelevant.”

“The commission has repeatedly recognized that state support may constitute a distinguishing factor that renders resources not similarly situated. For example, in its order accepting ISO New England’s Competitive Auctions with Sponsored Policy Resources construct, the commission approved of an entire new market — the substitution auction — that was open only to state-sponsored resources,” he said.

The order “appears to stake out the new, and even more radical, position that it is improper for an RTO to design its Tariff in a way that even acknowledges, much less accommodates, state public policies — an approach that is both fundamentally misguided and a striking departure from commission precedent and practice,” Glick said.

The majority “puts RTOs and ISOs 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 decision-making and that the physical system will ultimately, and rightfully, reflect those state choices. …

“The proposal received a supermajority of votes in the stakeholder process, and not a single party protested this issue before the commission, 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. …

“The most likely outcome of the commission’s misguided campaign to ‘protect’ capacity markets is their ultimate dissolution. Today’s order makes that result all the more likely. New York is currently considering whether to ‘take back’ resource adequacy from NYISO, a move motivated in large part by the commission’s efforts to prevent the NYISO market from reflecting the state’s policy choices. The evident hostility toward state policies displayed in this order will only add fuel to that fire.”

Reaction

“This decision is a stunning example of overreach from Washington, further proof that FERC-regulated wholesale capacity markets are fundamentally flawed. The FERC majority is once again demonstrating hostility to the legally established authority of states to determine how best to provide power to their citizens,” said Chris Casey, a senior attorney with the Natural Resources Defense Council.

“Like other states put in the same bind by FERC’s power grab, New York officials and the grid operator should work together to develop a state-controlled capacity market that serves the public interest while ensuring that New York can meet its clean energy goals.”