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FERC signs off on NYISO plan to adopt 4-year demand curve reset process

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FERC signs off on NYISO plan to adopt 4-year demand curve reset process

FERCon July 18 approvedthe New York ISO'sproposal to change its process for resetting capacity market demand curves,including a plan to expand the interval between curve resets from three yearsto four years.

Thecommission did so despite concerns that one aspect of the proposal — a changeto the way NYISO calculates the winter-to-summer ratio adjustment it uses to accountfor seasonal differences in capacity availability that can contribute to pricevariability throughout the year — could result in artificially high referenceprices.

Somestakeholders said NYISO's approach is flawed because it incorrectly assumes thatall generator additions and deactivations take effect at the beginning of acapability year rather than when they actually occur. But FERC said allowingthe winter-to-summer ratio to be highly influenced by the timing and size of aresource's entry or exit "could lead to widely variable and erroneousresults."

"Wefind that NYISO's proposed methodology will recognize changes in the resourcemix over time, ensure that each year's winter-to-summer ratio will continue tomeasure the seasonal capacity differences with minimized volatility fromresource entry or exit, and provide for a more stable, predictable, andtransparent market," FERC said.

Currently,NYISO establishes demand curves every three years to determine how muchinstalled capacity the state's load-serving entities need to acquire tomaintain system reliability and also to help set spot market auction prices.But when NYISO filedits proposal in May, it explained that the changes it sought to make would boosttransparency and reduce uncertainty by capturing changes in market conditionsin a more timely manner.

Inaddition to lengthening the amount of time between resets of its demand curves,NYISO proposed to make formulaic and transparent updates to certain demandcurve parameters each year between resets to reflect evolving market conditions— including those driven by market rule changes — and avoid the need forsignificant resets every four years.

NYISOalso sought to implement a historical, rather than an econometric, approach toestimating net energy and ancillary services revenues expected to be earned bya peaking plant from participation in the NYISO-administered markets as well asa "collaring mechanism" that would limit the allowable annual change inthe reference point values for each demand curve during a transition period.

Whilestakeholders largely backed the proposal, some, including a large group of end usersand the New York Public Service Commission, expressed over the winter-to-summer ratioto be used as part of the annual update.

ButFERC approved the proposal, finding that increasing the period between demandcurve resets will "provide greater certainty to market participants anddevelopers of new capacity resources" while also reducing the resourcesNYISO and stakeholders need to dedicate to the resetting process.

Asfor the concerns over the winter-to-summer ratio, FERC said NYISO's methodologywill reflect both seasonal differences in capacity availability ratings andchanges in system conditions "that are expected to persist in futureyears."

"Wedisagree ... that the NYISO's methodology does not reflect market trends andthat the price collar mechanism alone will mitigate the effects of the pricevolatility that could result from calculations based on actual generatoradditions and deactivations," FERC said.

Notingthat the purpose of the winter-to-summer ratio is to address seasonaldifferences, the commission said NYISO's proposed methodology would help toensure that the entry or exit of resources does not "distort thisadjustment to the reference price and misrepresent market trends."(ER16-1751)