NYISO and its stakeholders continued their review of the capacity market’s structure March 3 with at-times philosophical debate on the market’s purpose in New York, with some arguing that state policy has played an outsized role in new resource entry.

The ISO opened the meeting of the Installed Capacity Working Group with a statement summarizing its position on that purpose, which had been requested by stakeholders: to accurately value resources according to how they contribute to system reliability, provide nondiscriminatory price signals and function without unnecessary administrative complexity, among other ideals and goals.

Staff also summarized stakeholders’ proposed changes to the market so far:

• • incorporating additional revenue streams and resource attributes into the demand curve reset (DCR) process;
  • shifting the DCR anchor from cost of new entry to “forward going cost” of existing resources;
  • bifurcating the capacity market into new and existing resources;
  • developing an “attribute-based” market, which could include resource adequacy, transmission security or environmental attributes;
  • increasing the seasonality of the capacity market, valuing capacity where it is needed more during the peak months;
  • enhancing the zonal elements of the capacity markets;
  • refocusing the capacity market to ensure price stability regardless of public policy shifts.

NYISO noted the arguments for and against each proposal in its presentation; it intends to present the group with its recommended list of items to remove from further consideration March 17 and prioritized list of changes to consider March 26.

Much of the debate between stakeholders centered on the role of state policy and how to factor that into the market, if at all.

“It is the TOs’ position that we need to critically evaluate the degree to which the market is the driver for new entry versus state policy,” said Stuart Caplan, representing New York Transmission Owners. “Over the last four-plus capability years, all the new entry has been public policy resources.”

Caplan said that NYISO and the stakeholders needed to accurately consider how the market actually was functioning; otherwise the process would generate a solution that was “inappropriate” and “not produce just and reasonable results.” The base assumption of what the capacity market is for, and the context in which it functions, should be analyzed as part of the review, Caplan argued.

Doreen Saia, chair of Greenberg Traurig’s energy and natural resources practice in Albany, said that Caplan had turned the problem on its head.

“Either we are going to have a state policy for every kind of resource we could add to the system, or we need to think about designing the new structure so we can keep open the ability of the market to choose resources and place them,” she said.

Caplan replied by saying he was just describing things as they are and that failure to accommodate those facts could produce unjust results.

“If the primary driver remains state policy, state solicitation and contracts, then all you have is a massive wealth transfer from consumers to existing, primarily fossil fuel, generators,” Caplan said. “And the price signal would not be the driver of new entry.”

Matt Schwall, director of regulatory affairs for Alpha Generation and chair of the meeting, said that he had seen roughly 2 GW of investment that had been attracted to the competitive market.

“I compare that to the amount of megawatts that have been built in the wholesale market as a result of state policies, and I don’t know that one is greater than the other,” Schwall said. “I think to the extent that the markets can’t continue to attract investment and resources the state wants, it’s because we’ve been chipping away at the fundamentals of competitive market design.”

Caplan said that this was missing his point, “like two ships passing in the night.” He said that the situation that New York faced — high capacity prices without new resource entry — creates a problem where there is no mechanism to create competitive prices. This needed to be reckoned with during the market redesign process.

Saia said that there had been numerous studies indicating that the renewables the state wants added to the grid do not provide the reliability the system has “gotten used to,” so the market would need to compensate extant fossil fuel generation for some period. She pointed to the evolution of technology in both fossil fuel and energy storage.

“We have some very difficult decisions. I have not a doubt that some of this is going to be complicated,” Saia said. “We may need to, rather than change the demand curve reset process, add some kind of provision for a transmission security mechanism … so that we can manage that dispatch ability that we’re looking for.”

One stakeholder said that a key element of the discussion was whether the market should accommodate state policies, or if state policies should accommodate the market. He said at this point in the process, stakeholders and the ISO should take the opportunity to look at things holistically, rather than assume whether state policy or markets should come first.

A different stakeholder spoke in favor of using the capacity market to help value non-emitting resources for reliability.

“To ignore zero carbon in the capacity market and to not identify a separate product that brings us reliable capacity is, in my view, a mistake,” they said. “It’s holding on to Old World views of the capacity market and what the policy is.”

Another stakeholder representing Shell disagreed, saying that introducing an integrated resource planning mechanism into the capacity market would dull the market’s ability to reward reliability attributes.

Seasonal Capacity Accreditation Proposal

Starting this May, NYISO will implement different capacity demand curves for summer and winter to represent the differences in risk for each capability period.

Mark Younger of Hudson Energy Economics proposed a way to take this further, breaking out both the peak and shoulder months from the season. Under this structure, the market would compensate capacity at 180% of the seasonal ICAP value during peak months and 20% during the shoulder months.

Younger clarified that the specific multipliers were just examples and should be reviewed to make sure that they promoted the right behavior from resources. Under his example, November, March and April would be considered the winter shoulder months, while May and October would be the shoulder months for the summer. June and September would be paid the baseline summer price.

“I’ve identified an issue that has not been explicitly part of the ISO’s focus that I think should be, and should be included in their winter reliability project,” Younger said. “What I’m focusing on is that the reliability needs are not the same in each month of a capability period.”

Younger said this was critical now because there are resources for which the capacity is purchased in the winter’s shoulder months but not during the peak months. Now that the ISO was becoming more concerned about winter reliability risks, Younger said it made no sense to pay those resources more for contributing when they are less valuable and not contributing when they are more valuable.

He cited Hydro-Quebec specifically and said it was unlikely to behave differently after the Champlain Hudson Power Express is built.

“That’s my fear: They have nothing in their contract; they have no credit for capacity in the winter months,” Younger said. “They can sell capacity in the winter months, but that’s outside of contract.”

Several stakeholders said this seemed like a logical extension of where NYISO already was heading. Zachary Smith, senior manager of capacity and new resource integration, said the ISO was considering Younger’s proposal and how it would impact things like collateral requirements for small loads.