On September 22, 2022, FERC denied a complaint filed on October 14, 2020 by Cricket Valley Energy Center LLC and Empire Generating Company, LLC. Complainants alleged that the New York Independent System Operator, Inc.’s (“NYISO’s”) capacity market offer floor rules—termed buyer-side market power mitigation rules (“BSM Rules”)—were unjust and unduly discriminatory because they failed to address price suppression in NYISO’s installed capacity (“ICAP”) spot market auctions. Complainants requested that FERC require NYISO to implement a minimum offer price rule (“MOPR”) that applies to all new and existing resources that receive out-of-market subsidies, with few or no exceptions. In denying the complaint, FERC relied on a May 2022 order accepting changes to NYISO’s BSM Rules to automatically exclude wind, solar, hydroelectric, geothermal, fuel cells that do not use fossil fuel, and demand response resources from adhering to an offer floor when bidding into NYISO’s capacity market. Commissioner James Danly issued a dissenting statement and Commissioner Mark Christie issued a concurring statement.
At the time the complaint was filed in October 2020, NYISO’s BSM rules applied only to new capacity resources entering New York City and the Lower Hudson Valley, and in the spot market auction. The rules did not apply to new capacity resources in other areas, nor to existing capacity resources. The rules also provided several exemptions, including for qualifying renewable resources, among others (see February 26, 2020 edition of the WER for more information on the exemptions that applied at the time of the October 2020 complaint).
The October 2020 complaint alleged that these rules were inadequate to protect against price suppression due to their limited geographic applicability, exclusion of certain new and all existing resources, and due to state policies providing out-of-market subsidies to an increasing number of renewable generators. Complainants contended that price suppression occurs as a result of generation resources that receive out-of-market payments from New York State offering into the market at below cost and thus distorting price signals in the ICAP market. Complainants also noted their financial situations had been substantially and adversely impacted by lower-than-expected capacity prices. Empire stated that it recently emerged from bankruptcy proceedings that resulted from not receiving sufficient energy and capacity payments. Complainants requested that FERC direct NYISO to implement a MOPR that applies to all resource types, including new and existing resources, through the New York Control Area.
On May 10, 2022 (after the complaint was filed but before FERC acted on the complaint), FERC accepted revisions to NYISO’s Tariff to exclude all resources that serve the goals of New York’s Climate Leadership and Community Protection Act (“CLCPA”) from application of the BSM Rules, among other changes (“May 2022 Order”). As a result of this change, wind, solar, hydroelectric, geothermal, fuel cells that do not use fossil fuel, and demand response resources are automatically excluded from application of the BSM Rules.
FERC’s September 22 order denying the complaint relied on FERC’s findings in the May 2022 Order. FERC noted that in the May 2022 Order, it found NYISO’s narrower BSM rules appropriately balance the need to mitigate the potential exercise of buyer-side market power against the harms of over-mitigation. FERC noted that expanding the BSM rules as Complainants suggested would reverse the changes to the BSM rules that FERC had already accepted. FERC also pointed to its findings in the May 2022 Order, reiterating that it is not necessary to shield the NYISO market from the indirect effects of state policies to ensure that rates remain just and reasonable. FERC stated that although prior orders addressing the BSM rules treated state policy choices as equivalent to anti-competitive conduct, “we no longer believe it appropriate to presume that states’ exercise of their reserved authority over generation facilities is the equivalent of anticompetitive conduct, simply because of the inevitable, albeit indirect, effect on ICAP market prices.”
FERC also acknowledged Complainants’ argument that they suffered negative financial impacts due to lower-than-expected ICAP market prices, but found that the argument did not provide a basis for granting the complaint. To support this conclusion, FERC cited to orders which it stated stand for the proposition that suppliers in competitive wholesale electricity markets are not guaranteed full cost recovery, but only the opportunity to recover their costs.
Commissioner Danly filed a dissenting statement in which he argued that unmitigated state subsidies would result in price suppression and premature retirement of generators, compromising resource adequacy. Commissioner Danly also suggested a return to cost-based ratemaking principles: “Given that states continue to place their finger on the scale in order to favor certain resources, perhaps it is time we seriously consider a return to cost-based ratemaking to protect ratepayers.”
Commissioner Christie issued a concurring statement in which he reiterated points he has previously made with respect to NYISO’s capacity market rule changes to accommodate CLCPA resources—namely, that NYISO is a single-state ISO and that there is no evidence to suggest that the costs associated with these changes would be borne by ratepayers in other states (see February 23, 2023 edition of the WER for a description of a similar concurring statement).
FERC’s September 22 order is available here.
