New York State Seeks Relief from NYISO Buyer Side Mitigation Rules

Two New York state energy regulatory agencies (New York) have asked the Federal Energy Regulatory Commission (FERC) to grant a blanket exemption from buyer-side mitigation rules for Energy Storage Resources seeking to participate in the Installed Capacity Market (ICAP) auctions of the New York Independent System Operator (NYISO). In the alternative, New York has asked for an exemption from such rules for up to 300 MW of Energy Storage Resources that enter the market each calendar year for ten years, with unused amounts rolled forward. New York asserted that such relief is needed for attainment of state generation development objectives.

Bids Into ICAP Auctions May Be Subject to Buyer-Side Market Power Mitigation

The intent of NYISO-administered ICAP auctions is to ensure the availability of sufficient generation capacity when needed to meet the needs of consumers served by the NYISO. According to the New York Complaint:

"Resources must "clear" the ICAP auction, or contract bilaterally for their capacity to be counted towards meeting New York’s Installed Reserve Margin. In exchange for clearing the capacity market and receiving ICAP payments, a supplier must commit to make the energy associated with its capacity available in the day-ahead market. Suppliers that are selected in the energy market are compensated separately for their wholesale sales of energy, and any ancillary services they may also provide."

Generation suppliers located in Mitigated Capacity Zones of New York City and the Lower Hudson Valley that participate in ICAP auctions are subject to buyer-side mitigation measures to prevent suppression of capacity prices. Unless a resource is deemed to be economic or qualifies for a Competitive Entry Exemption, its bids into the ICAP auction must comply with a minimum-offer pricing rule contained in the NYISO’s Market Administration and Control Area Services Tariff (the Offer Floor).

Relief from Offer Floor Is Requested for Energy Storage Resources

The state has adopted policies to support development of electric generation resources that will enhance resilience and fuel diversity while reducing fossil fuel emissions. These policy goals include:

• Supply of 50% of the electricity consumed in New York State from clean, renewable sources such as solar and wind energy by 2030.

• Installation of up to 3,000 MW of qualified energy storage systems by 2030, with an interim objective of deploying 1,500 MW of energy storage systems by 2025.

New York explained that Energy Storage Resources support development of clean energy generation resources, many of which produce electricity on an intermittent basis. New York’s concern is that bids into the ICAP auctions by Energy Supply Resources subject to the Offer Floor will exceed the auction clearing price, and such bids therefore will not “clear” the auction.

While recognizing that the requested relief may suppress capacity prices, New York asserted that:

• No "compelling evidence" exists that Energy Supply Resources are being used to suppress capacity prices; and

• Any reductions in capacity prices resulting from the grant of relief are expected to be short-lived and are "the incidental effects of regulatory actions designed to achieve the State’s legitimate policy objectives."

It is generally recognized that increased reliance on renewable energy resources is essential to addressing global climate change. The inability of Energy Storage Resources to qualify for ICAP revenues may reduce the incentive for development of such resources. New York therefore believes that relief of Energy Storage Resources from the Offer Floor is essential to achievement of the state’s Energy Storage Resource deployment and policy goals.

State Generation Development Policies Can Be Achieved Without Relief

The clean energy development goals cited in the Complaint are statewide goals. The Offer Floor requirements do not apply to generation suppliers in areas of the state located outside of the Mitigated Capacity Zones. Presumably, it would be possible for Energy Storage Resources located in other areas to bid up to 3,000 MW of capacity into the ICAP auctions in order to meet the state’s objectives without the requested relief.

Nevertheless, New York suggests waivers of the Offer Floor are warranted because application of such rules to Energy Storage Resources in the Mitigated Capacity Zones "will shift project development away from the region where energy storage can provide the greatest reliability, resilience, fuel diversity, environmental, and public health benefits." However, New York failed to identify any state policy incentivizing development of fuel diverse, non-carbon emitting generation resources specifically in the Mitigated Capacity Zones.

Although the continued operation of nuclear power plants in other areas of the state is subsidized to preserve their environmental and economic benefits, Governor Andrew Cuomo vigorously supported the premature shut-down of the Indian Point Energy Center, a 2,000 MW nuclear-fueled generation plant within a Mitigated Capacity Zone north of New York City, by 2021. It is difficult to reconcile the state’s program to foster clean, reliable energy and reduce harmful greenhouse gas emissions in the New York City area with its opposition to continued operation of a nuclear powered generating plant in the area that has provided clean, safe, and reliable energy for more than 40 years.

The Complaint Raises Interesting Issues

The Complaint raises issues before FERC with potential broad policy implications. For example:

• Should FERC abandon its policies on fuel neutrality to accommodate state preferences for generation from specific types of energy resources?

• Should FERC permit state generation procurement policies to take precedence over rules intended to protect against the potential exercise of horizontal market power?

In a Notice of Filing issued on July 30, 2019, FERC established August 19, 2019 as the deadline for filing of motions for leave to intervene and protests in the proceeding. Because the relief requested by New York may result in lower market clearing prices in the ICAP auctions, and because of the policy implications raised by the Complaint, it is reasonable to expect that generation suppliers that participate regularly in the NYISO ICAP auctions may seek to intervene.

With one vacancy currently at FERC, and another vacancy to be created by the departure of Commissioner Cheryl LaFleur at the end of August 2019, the FERC’s makeup by the time it acts on the Complaint is uncertain. The appointment of two new commissioners to the five-member FERC before it acts on the Complaint may affect the outcome of the proceeding. It will be interesting to see how FERC addresses the policy-related issues raised by the Complaint, and to consider the implications of this request for other organized capacity markets.