By Michael Kuser

FERC last week denied NRG Curtailment Solutions’ request for an exemption from NYISO penalties for nonperformance and invalid generator registrations on approximately 13% of its New York capacity obligations in May 2016 (ER17-834).

NRG argued that uncertainty about EPA emissions regulations compromised its ability as a Special Case Resource (SCR) to help the New York grid operator balance shortfalls in delivered capacity contracts.

SCRs are demand-side resources that agree to reduce load at the ISO’s instruction, using either curtailments or “local” generators — ones intended to self-supply a load and that do not supply the distribution system. As a “responsible interface party,” NRG Curtailment aggregates individual SCRs for the ISO.

An EPA rule change in 2013 allowed reciprocating internal combustion engines (RICE) providing emergency DR to run without extra emissions controls for up to 100 hours per year in emergency demand response programs, up from the previous limit of 15 hours annually. In 2015, the D.C. Circuit. Court of Appeals vacated and remanded the 100-hour exemption. (See Appellate Court Rejects EPA Rule on Back-Up Generators.) EPA was granted a stay of the D.C. Circuit’s decision until May 1, 2016.

On April 15, 2016, EPA issued guidance that RICE generators may not operate for any period of time unless they meet emission standards for nonemergency engines. On May 2, 2016, the D.C. Circuit issued a mandate implementing its earlier decision.

NRG said it only enrolled generators in the May 2016 installed capacity auction that would participate for 15 hours or less because it believed that the 15-hour rule would be reinstated with the elimination of the 100-hour rule. The company said it had no ability to withdraw resources that no longer complied with the revised emissions rule but that it stopped selling capacity from DR resources with noncompliant generators for the June 2016 auction.

Increasing Emissions Stringency

NYISO opposed NRG’s waiver request in a filing in February, arguing that EPA’s intent to apply more stringent emissions requirements was apparent beginning in July 2015, contrary to the company’s contentions. The ISO said EPA’s motion to stay indicated that the agency clearly intended not to revert to its 15-hour limit.

While NRG may not have intended to enroll ineligible resources, NYISO said, if the company was unsure, it could have waited until EPA had clarified its position. The ISO believes that NRG assumed the risk of noncompliance and therefore should be subject to the penalty provisions of its Tariff.

NYISO said that while it had not yet determined whether penalties were “appropriate” for NRG’s capacity sales for May 2016, “sales by invalidly enrolled SCRs would be subject to a penalty.” In addition, an aggregator can be penalized when its unforced capacity sales exceed the greatest quantity megawatt reduction achieved during a single hour in a performance test or event called by the ISO.

FERC ruled that granting the waiver “would have undesirable consequences, as it would effectively serve only to relieve NRG of the financial consequences of its market commitments … and could encourage similarly risky bidding behavior that market participants seek to remedy after the fact through a waiver.”