New York Independent System Operator defended its proposal for amending a narrowly tailored exemption for renewable resources under buyer-side market power mitigation rules imposed on the grid operator's capacity market.

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Arguments made in comments and protests addressing NYISO's April 7 compliance filing claimed that the grid operator's plan for limiting the amount of capacity that could qualify for the renewable exemption was laced with flaws.

NYISO, in an answer to the Federal Energy Regulatory Commission Wednesday, asked that the renewable exemption limit formula be approved as proposed. If FERC does see the need for any improvements, it urged the commission to accept its compliance filing for immediate implementation and separately direct the grid operator to launch a stakeholder process to develop further enhancements.

NYISO has stressed the need for FERC to approve its proposal by June 8 so Class Year 2019 projects in the interconnection queue can remain on schedule, as the grid operator deals with an unprecedented increase in the number of proposed generation projects.

NYISO anticipates having to make offer floor and exemption determinations under the BSM rules in September. Failing to have a renewable exemption in effect by that date could lead to over-mitigation, uncertainty for developers, delayed completion of Class Year 2019 and postponement of the start of the next class year study, NYISO said.

CAPACITY MARKET ORDERS

NYISO's BSM rules require new generators entering the installed capacity markets set up 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, unless they can demonstrate that their forecasted capacity prices will be higher than the default offer floor or the net cost of new entry.

FERC in 2015 exempted a narrow set of renewable and self-supply resources from the BSM rules (EL15-64), finding that these resources lacked the incentive or ability to exercise market power to artificially suppress installed capacity prices in the region.

But an order (ER16-1404) issued in February put more stringent limits on those exemptions, as part of FERC's ongoing campaign targeting artificial price suppression that could be brought on by out-of-market subsidies.

FERC accepted NYISO's proposed eligibility criteria for the renewable resource exemption, which would cover intermittent power resources solely powered by wind or solar energy, as well as limited control run-of-river hydro. But it rejected the grid operator's plan to cap the amount of exempt renewables in any one class year at 1,000 MW of installed capacity, and directed a further compliance filing to ensure the exemptions were narrowly tailored.

NYISO submitted that filing April 7, proposing a new methodology for calculating the renewable exemption limit for each mitigated capacity zone within each class year study, additional system deliverability upgrade study, and expedited deliverability study. The new method would also base the MW cap on unforced capacity, rather than installed capacity.

RETIREMENTS COMPONENT

Among the major gripes with its proposal that NYISO responded to Wednesday were concerns with the incremental regulatory retirements component of the proposed renewable exemption limit formula.

The MW value of that component "is intended to reflect incremental retirements attributable to 'direct' regulatory action ... because when out-of-market actions are taken that reduce supply, these actions offset the effects of the renewable-resource policies that increase supply," NYISO said.

Some protests asserted that the formula should take into account other, if not all, retirements and seasonal deactivations, a change that would make more renewable exemptions available.

Others countered that the formula was right to only encompass the subset of retirements caused by regulatory action, but took issue with NYISO's approach to distinguishing those retirements from economic retirements. They contended that the proposed approach allowed too many retirements to be included, and thus would lead to too many renewable exemptions.

NYISO said that challenges as to whether the incremental regulatory retirements proposal was too narrow or overly broad were both misplaced.

"The compliance filing's approach is consistent with what commission precedent requires," NYISO said. "Including the incremental regulatory retirements as a subset of forecasted retirements in the renewable exemption limit is narrowly tailored to market and regulatory dynamics within each mitigated capacity zone appropriately limits the risk of price suppression, and will allow for predictable and transparent implementation by NYISO."