FERC Rejects NYISO’s Capacity Market Plan, Creating Consternation
The Federal Energy Regulatory Commission’s (FERC’s) ruling on Sept. 4, 2020, rejected, in a three-to-one decision, the New York Independent System Operator’s (NYISO) proposal to change its capacity market rules, ostensibly intended to support, among other things, New York and New Jersey’s ambitious, and some say, unattainable renewable goals.
The action comes directly on the heels of a potential upheaval of the PJM market construct, in which several market participants including New Jersey and Maryland strongly “suggest” they’ll leave PJM under provisions of its tariff allowing them to participate in an alternative Fixed Resource Requirement (FRR) arrangement. There are striking similarities is both cases, with PJM’s Minimum Offer Pricing Rule (MOPR) having brought on its “revolution” and FERC’s rejection of NYISO’s renewables-support plan having opened the floodgates there.
FERC’s ruling asserted that NYISO’s proposal unfairly prioritized state-subsidized resources, creating an uneven playing field that harmed competitive generators by suppressing capacity prices, against NYISO’s robust insistence that was not in fact the case.
Many observers still see FERC’s ruling as a prop-up for carbon and criteria-polluting fossil-fuel generators, further arguing that it unfairly harms New York’s legitimate efforts to build new renewables, especially offshore wind, and integrate them into the market in a way that reflects their contribution to resource adequacy and the fight against global warming and climate change.
This is an interesting argument in light of California’s current resource adequacy crisis, with emergency rolling blackouts ordered by the California Independent System Operator (CAISO), blamed partly on wildfire disruptions of the grid, but also largely on the lack of adequate fast-ramp and dispatchable generation to back utility-scale wind and solar when the wind slows, at sundown, and when cloudy skies—today almost totally obscured by wildfire smoke—dramatically reduce PV solar farm generation.
According to Utility Dive, the outcry from some quarters was loud and clear: Chris Casey, a senior attorney at the Natural Resources Defense Council (NRDC) Climate and Clean Energy Program, said that the commission is “erecting barriers and making it harder for states to achieve their energy goals.” Casey says that in response, the NY Public Service Commission (PSC) may try to “take back control” of control of the state’s generation resource mix precisely to ensure resource adequacy. That could set up another fight with FERC. Casey says without equivocation that FERC is “not cooperating with reforms;” one could imagine that FERC’s response would be that “cooperation” with states’ attempt to override control on issues affecting wholesale energy prices is precisely in conflict with its statutory role to protect the fairness and integrity of the established energy markets.
Analogous to the way PJM’s MOPR rules are applied, New York’s Buyer-Side Mitigation (BSM) rules require an offset against resources that receive state subsidies, to level up the market and ensure that those subsidies do not allow non-competitive generators to clear the market via what amount to handouts on the backs of ratepayers. Currently, NYISO requires new resources to bid a certain minimum price, but one that CRDC’s Casey and others say make it impossible for those resources to clear the market. He asserts that this amounts to paying twice for the privilege of entering the market, also, ironically, the costs of which are (also) then put on the backs of ratepayers.
FERC pushed back against that thinking, ruling that both state-sponsored and open-market resources are subject to the same requirements to interconnect and operate in NYISO’s capacity market, and therefore what NYISO proposes makes a level playing field impossible.
Merchant generators that take market risk in both energy and capacity also see BSM as essential to fair and competitive energy markets. The Independent Power Producers of New York (IPPNY) supported FERC’s decision just as strongly on the argument that allowing subsidized but unmitigated resources to enter the NYISO capacity market would suppress capacity markets.
Also according to Utility Dive, the NY PSC said “If allowed to stand, this decision would cause tremendous economic and environmental harm across the country by intentionally increasing energy prices for consumers to line the pockets of fossil fuel interests, and undermining successful renewable energy policies that have created hundreds of thousands of jobs.”
Further, the PSC promised to challenge FERC, assumedly in an administrative appeal first, and after exhausting administrative remedies, typically this would happen in federal court.
Interestingly, FERC’s ruling runs contrary to two fairly recent Federal Appeals Court rulings, one in New York (2nd Circuit) and the other in Illinois (7th circuit) that affirmed lower court decisions allowing state subsidies for nuclear-generating units, with the specific intent to recognize nuclear’s carbon-free and other environmental attributes and societal benefits. However, these are for energy rather than capacity; nuclear plants in New York, New Jersey, Illinois, and Ohio are receiving so-called Zero-Emission Credit (ZEC) subsidies, although in Ohio a wrench was recently thrown in the gears when authorities arrested the speaker of the state’s house of representatives and four others in late July on a $60 million bribery and racketeering charge around a bill that gave $1.3 billion in subsidies to two failing nuclear plants in the Buckeye state. In a news conference immediately after the arrest, United States Attorney for the Southern District of Ohio David DeVillers is quoted in The Washington Post, saying “This is likely the largest bribery, money laundering scheme ever perpetrated against the people of the state of Ohio. This was bribery, plain and simple. This was a quid pro quo. This was pay to play.”
A consortium of competitive generators fought for nearly two years against ZECs, which they saw as unfair—and unnecessary—subsidies to nuclear units, because they were in fact profitable. Moreover, they said that threats to close the plants were hollow because if they did, they would have to buy back their forward capacity obligations that could have run in the hundreds of million dollars.
It’s become clear that there is a robust and enduring tension between states that are part of a regional energy market (such as PJM) or operate their own (such as NYISO), and FERC about allowing state-sponsored/subsidized resources to bid into capacity markets without mitigation, regardless of environmental attributes or societal benefits from those resources.
As an example, dissenting FERC Commissioner Richard Glick issued a statement saying, among other things, “Today’s order is just the latest in the Commission’s ever-growing compendium of attempts to block the effects of state resource decision-making. To achieve that end, the Commission has perverted NYISO’s buyer-side market power mitigation rules into a mind-boggling series of unnecessary and unreasoned obstacles aimed at stalling New York’s efforts to transition the state toward its clean energy future. As a result, those rules have become an unprincipled regime that has little to do with buyers or the exercise of market power.”
This battle will play out, but it’s likely to stretch well into the next administration, fraught with accusations from both sides that it’s mostly political, either propping up fossil-fuel generators and constraining states that simply want to expand clean energy, or giving unfair advantage and privilege to states to usurp the organized energy markets. It will have to be resolved one way or another, but don’t hold your breath. The race is just starting.
—David Gaier is an experienced corporate communications professional and previously a spokesman for two major public energy companies. He has also worked in-house and in agencies across several industries and is a Marine Corps and Foreign Service veteran.