FERC on Tuesday approved a trio of changes to NYISO’s capacity market that were spurred by New York’s Climate Leadership and Community Protection Act (CLCPA).
With FERC’s blessing, NYISO will now exclude new capacity resources required to satisfy the CLCPA’s goals from its buyer-side market power mitigation (BSM) rules. The change will automatically eliminate offer floors for wind, solar, storage, hydroelectric, geothermal, fuel cells that do not use fossil fuel, demand response and other qualifying resources under the law (ER22-772-001).
Commissioner James Danly disagreed with NYISO dispensing with BSM rules for certain resources and dissented in part from the order.
Going forward, NYISO will also adopt a new, marginal capacity accreditation design that values installed capacity (ICAP) suppliers based on their marginal contribution to system reliability, instead of an average contribution. NYISO plans to rely on the same resource adequacy model database that it uses to establish its locational minimum ICAP requirements and installed reserve margin to value the resource adequacy contribution of different classes of resources.
Finally, the ISO will also change how it determines its ICAP market demand curves and will now use a reference unit’s individual derating factor — instead of a systemwide or regional derating factor — to calculate an unforced capacity reference point price.
NYISO filed the proposal to sidestep a possible jurisdictional dispute with the state while ensuring its capacity market still results in just and reasonable outcomes after an influx of thousands of megawatts of subsidized resources. The CLCPA requires New York to procure large amounts of renewable energy to get to zero-emission electricity by 2040. (See NYISO Details Comprehensive Mitigation Review, Related Impacts.)
The ISO already maintained a BSM exemption for its wind and solar resources. It will eliminate that exclusion because it’s now duplicative. It plans to maintain its existing BSM exemptions for self-supply and competitive suppliers.
NYISO said its proposal “better accommodate[s] New York state’s policy objectives.” It also said by exempting new capacity resources that “serve CLCPA objectives” from its BSM mitigation rules, it recognizes New York’s jurisdiction to address its resource mix.
FERC said the exclusion will preserve “New York state’s right to plan its generation mix while still protecting against the exercise of buyer-side market power.” It agreed with NYISO that the suite of changes “would provide a legally durable solution to the tension between protecting commission-jurisdictional markets and accommodating state policies.”
The commission also said NYISO’s proposed marginal capacity accreditation design will “accredit all resources based on an objective measure of their incremental contribution to resource adequacy” and said the new demand curve calculation “will better reflect the characteristics of the reference peaking plant, thus ensuring economically efficient ICAP market outcomes.”
The mitigation exclusion will begin immediately; the new marginal capacity accreditation design and ICAP demand curve changes will take effect starting with the capability year beginning May 1, 2024. FERC asked for a follow-up informational report from NYISO to apprise it of “final implementation details.”
Danly Differs on Exceptions
Danly said that while he agreed with the new resource accreditation and demand curve calculation, he could not support BSM exemption that favors “state-preferred resources.”
“As I have explained before, buyer-side market mitigation is required in order for us to find market rates to be just and reasonable,” he wrote in a partial dissent.
Danly said applying BSM to offers from state-supported resources is not an “unlawful intrusion” of the Federal Power Act’s protection of state authority over generation portfolios. He argued that it is “squarely” within FERC’s jurisdiction to ensure that states’ out-of-market subsidies don’t adversely affect wholesale capacity rates. He warned that NYISO will experience “inevitable price suppression caused by unmitigated state subsidies.”
Danly referenced the 3rd U.S. Circuit Court of Appeals’ 2009 finding that states “are free to make their own decisions regarding how to satisfy their capacity needs, but they ‘will appropriately bear the costs of [those] decision[s],’ including possibly having to pay twice for capacity.”
“This equally applies to the decisions of New York state,” Danly wrote.
The majority, however, said the order hearkens back to the commission’s “earliest BSM orders, which … focused on the exercise of buyer-side market power by market participants rather than attempting to block or mitigate the effects of state public policies.” The order is a departure from FERC’s days of issuing BSM rule orders that “treated state policy choices as equivalent to anticompetitive conduct,” it said, and the exemption will “strike a more appropriate balance between the harms of over- and under-mitigation.”
The commission also said NYISO’s BSM rules as applied today are likely causing the capacity market to ignore some resources, “causing it to clear surplus resources at an elevated price” and “suggesting that new resources are needed, or that existing resources should not retire, when such resources are not in fact necessary to ensure resource adequacy.”
In a separate statement, Commissioner Mark Christie said his agreement with BSM rule exemptions hinged on the fact that NYISO is a single-state ISO, with resulting costs from the rule likely to be confined within New York borders.
“A similar analysis could well lead to a different outcome in a multistate RTO, if the record showed that the RTO was implementing one state’s public policies as to preferred resources, and that implementation resulted in impacts being shifted to consumers in one or more other states,” Christie wrote. “Such impacts and cost-shifting in multistate RTOs, if proven by the record, could well be unjust, unreasonable and unduly discriminatory or preferential under the FPA.”
