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NYISO: FERC should order it to exempt demand response providers from mitigation

TheNew York ISO hastaken the rare step of agreeing that FERC should grant a complaint targetingthe grid operator, but independent power groups are strongly opposing the move.

Severalstate agencies and others had asked FERC to order the NYISO to exempt certaindemand response providers, referred to as special case resources, or SCRs, fromits buyer-side market power mitigation measures, and the NYISO recently toldFERC that it has no problem with the request.

"Theevidence to date does not demonstrate that external demand response programs[those not administered by the NYISO] have the ability to support the use ofSCRs to suppress capacity prices," the NYISO reported.

Underthe NYISO's installed capacity, or ICAP, market rules, the grid operatorcounteracts incentives for buyers with market power to artificially suppressprices below competitive levels by applying an offer floor to new resources,including demand resources, located in either of two mitigated capacity zones.

Theproblem, according to a complaintfiled by the New York Public Service Commission, New York Power Authority andothers, is that the NYISO calculates the offer floor by including any paymentsreceived from a resource's participation in demand response programs.

Resourcestherefore can be reluctant to participate in distribution-level demand responseprograms because doing so could subject them to mitigation, and they choose toparticipate in the NYISO's demand response program instead, the complainantssaid. As such, they asserted that the measures are interfering with the state'suse of demand response to help plan the system and cut retail delivery rates,and that FERC's approval of the mitigation rules overreaches into matters ofstate authority.

FERCin October 2015 (EL15-64) recognizedthat certain "narrowly defined" renewable and self-supply resourceshave little or no ability or incentive to suppress wholesale capacity marketprices, but was not convinced that demand resources do so as well.

Butthe entities filing the newest complaint said including the value of benefits thatan SCR receives in its offer floor determination is flawed because it linksprograms that are not intended to be linked. If FERC does not request a "blanketexemption" for such resources, the complainants ask that the agency grant "program-specific"exemptions.

TheNYISO told FERC that it supports eliminating unnecessary mitigation rules,including those that interfere with state public policy objectives and subjectresources to mitigation that have limited or no incentive and ability toexercise buyer-side market power to artificially suppress market prices. Thatappears to be the case with external demand response programs and thereforesubjecting such resources to mitigation may result in overmitigation, the gridoperator said.

Accordingly,the NYISO said it supports the complaint's proposed blanket exemption, as wellas the complaint's alternative request for relief. "The payments andbenefits available from individual programs identified in the complaint do notappear to have ability to artificially suppress capacity prices," theNYISO stated. "Moreover, some of the identified individual programs areintended to address public policy objectives that are not captured by the NYISO'smarkets."

TheNYISO said it also does not oppose FERC acting quickly on the request, andsuggested that the commission do so in conjunction with it acting on rehearingof the October 2015 order.

Insharp contrast, the Independent Power Producers of New York and Electric PowerSupply Association strongly opposed the complaint. "Nothing has changedsince the issuance of the October order to support a different determination,"the trade associations said.

Inparticular, the groups argued that the complainants' falsely presume that thesole purpose of the state's demand response programs is to avoid or delay morecostly utility distribution system investments. The New York PSC is promotingthe deployment of demand response for a variety of reasons, including reducingpeak load on the bulk power system, they insisted.

Assuch, the trade groups asserted that SCRs can significantly impact capacityprices, and exempting SCRs from offer floor mitigation will give SCRs theincentive and ability to artificially suppress capacity prices. "Complainantswholly fail to account for, much less address, the adverse consequences to themarket that will result from under-mitigation," the trade groups said.

IfFERC grants any aspect of the request to exempt SCRs from offer floormitigation, the groups said it should do so only a prospective basis. (EL16-92)