FERC order on NYISO proposal again draws future of capacity market into question

Washington — A recent US Federal Energy Regulatory Commission order rejecting the New York grid operator's efforts to accommodate the state's aggressive climate goals has added to tensions that could sway the state to take back resource adequacy responsibility and dismantle its capacity market.

New York, other states within the Eastern regional transmission organizations and clean energy advocates have grown increasingly frustrated with FERC's steps to address states' out-of-market resource procurement actions through market mechanisms that administratively raise the capacity market bids of resources receiving state subsidies.

New York in particular has plans to usher in a carbon-free power system by 2040 and achieve net-zero greenhouse gas emissions by 2050. New York Independent System Operator has been insistent that it can improve its existing market design to align with the state's climate policies while maintaining competitive price signals in the wholesale markets it administers.

In that regard, NYISO in late April pitched changes to the process for securing an exemption from its buyer-side market power mitigation rules that, according to the grid operator, would better reflect the clean energy transition underway in the state, while not running afoul of recent federal mandates (ER20-1718).

NYISO's BSM rules require new generators entering the installed capacity markets in New York City and the Lower Hudson Valley (Load Zones G-J) to meet a floor price until their capacity has cleared 12 monthly auctions.

While a batch of orders (ER16-1404, et al) FERC issued in February narrowed exemptions to those rules, resources may still forego such offer pricing by demonstrating that their forecasted capacity prices will be higher than the default offer floor for 12 months — through the so-called Part A Exemption Test — or by showing that their forecasted capacity prices will be higher than their net cost of new entry for three years, under the Part B Exemption Test.

Proposed enhancements to the Part A Exemption Test, among other things, would have given priority — with regards to the order in which NYISO performs analyses — to resources that are more likely to be constructed given state policies over non-public-policy resources.

But the latest order from FERC, essentially rejecting the grid operator's plan to facilitate entry of state-preferred resources such as renewables, battery storage and other zero-emission technologies, left some, including one commissioner, questioning whether such a balance is possible under the current thinking of the commission majority.

Adding fuel to the fire

The sole Democratic commissioner on the panel, Richard Glick, criticized the majority's decision as adding to the "mind-boggling series of unnecessary and unreasoned obstacles" the commission has perpetuated through capacity market rule changes.

In a dissenting statement, Glick asserted the majority's rejection of the filing was purely based on NYISO's acknowledgment of state public policy goals. He noted the New York Public Service Commission's review of whether to take back resource adequacy from NYISO, and argued that "the evident hostility toward state policies displayed in this order will only add fuel to that fire."

Chris Casey, a senior attorney at the Natural Resources Defense Council, accused the FERC majority of "once again demonstrating hostility to the legally established authority of states to determine how best to provide power to their citizens."

Casey offered that "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."

NYISO President and CEO Rich Dewey, however, was not ready to throw in the towel.

"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," he said in an emailed statement Sept. 8. "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."

Majority's view

FERC found the proposed prioritization of public policy resources before non-public policy resources to be unjust, unreasonable and unduly discriminatory.

"Because public policy resources and non-public policy resources are similarly situated, the proposal would unjustifiably limit non-public policy resource's ability to pass the Part A test and participate on an equal footing with public policy resources," FERC said in a Sept. 4 order, adding that it "need not reach NYISO's arguments that its proposal would not cause price suppression," given the finding of discrimination.

FERC went on to assert that paying twice for capacity, an outcome NYISO's proposal sought to avoid, was a potential cost of the state's resource procurement decisions that the state would have to bear.

"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," the commission said in the order.