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FERC approves NYISO plan to avoid price spikes from capacity fleeing to ISO-NE

FERC on Jan. 27 approved market rule revisions proposed by the New York ISO aimed at preventing New York capacity prices from soaring due to changes to the ISO New England Inc.'s capacity market rules. The agency further ruled that the proposed plan should be implemented immediately, rejecting the NYISO's proposed one-year transitional mechanism strongly supported by stakeholders.

In approving the ISO-NE's market rule changes in October 2016, FERC rejected the NYISO's pleas to not let them be implemented until fall 2017. The NYISO had explained that it was still working on fixes to its own capacity market rules that would account for capacity that could be exported from constrained areas within New York. Without that fix, the NYISO said its capacity prices could spike $341 million, mainly due to Castleton Commodities International exporting capacity from its Roseton facility in New York to New England.

The Roseton plant has a capacity of roughly 1,200 MW, but it is not often used. According to SNL Energy, an offering of S&P Global Market Intelligence, its highest monthly capacity factor in 2016 through October was 10.77%, which occurred in July. Only two other months in 2016 through October had capacity factors higher than 5%.

But FERC said in its October order that the ISO-NE should not be forced to delay necessary changes to its market rules, because the NYISO needs to address a concern within its markets.

Acknowledging the urgency of the situation, the NYISO the following month asked FERC to approve proposed changes to its capacity market rules. One of the key provisions of the complicated proposal, referred to as a locality exchange factor methodology, would acknowledge that an exporting generator continues to operate within its locality, which would be reflected in capacity spot market clearing prices. The NYISO also proposed a one-year transition mechanism designed to mitigate the price impacts of the ISO-NE rule changes.

In approving the proposed new methodology, FERC found it to be just and reasonable because it will ensure that capacity prices within the NYISO's localities reflect actual market conditions and prices.

The NYISO's proposal to use counter flows in setting a locality exchange factor ensures that its capacity market "appropriately reflects the fact that a resource exporting capacity still provides reliability benefits to import constrained localities," the agency explained. In other words, it said the new methodology determines the amount of generation that can be imported into a locality given the constraint relief provided by the export.

However, FERC rejected the proposed one-year transition mechanism because it "lacks analytical basis and will delay efficient market signals."

"The one-year transition mechanism would not produce an efficient outcome because it could overstate the extent to which the capacity export will unencumber NYISO's transmission capability into southeast New York," the order stated. The commission further explained that this is because the transition mechanism is not based off of the same power flow analysis that NYISO argues is the best way of accounting for counterflows.

And while the lack of a transition may mean higher capacity prices in New York, FERC said that such an increase "does not necessarily justify a mechanism that artificially and inefficiently suppresses those prices." The agency also stressed that strong stakeholder support for a proposed provision does not mean that it must be approved. (FERC docket ER17-446)