FERC Upholds Prior Decision Applying NYISO Buyer-Side Market Power Mitigation Rules to Electric Storage Resources

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On October 15, 2020, FERC issued an order sustaining, with modifications, its previous denial of a complaint that claimed New York Independent System Operator, Inc.’s (“NYISO”) buyer-side market (“BSM”) power mitigation rules were unjust, unreasonable and unduly discriminatory.  FERC upheld its previous determination that the application of BSM rules to electric storage resources (“ESR”) does not inappropriately interfere with state policies and that the complainants failed to show that NYISO’s existing rate was unjust and unreasonable because it over-mitigates electric storage resources.  FERC’s order sparked a dissent from Commissioner Glick who argued that the majority’s order was arbitrary and capricious, and that BSM power mitigation should only apply to buyers with market power.

FERC’s October 2020 order follows a February 2020 order wherein FERC denied a complaint, filed by the New York State Energy Research and Development Authority (“NYSERDA”) and the New York Public Service Commission (“NYPSC”, together with NYSERDA, the “Complainants”), which claimed that the BSM power mitigation rules limited ESR’ ability to participate in NYISO’s capacity market and interfered with state policy objectives (see February 26, 2020 edition of the WER).  In the February 2020 order, FERC held that mitigating ESRs in NYISO’s capacity market does not divest New York State of its jurisdiction over generation facilities or its authority to set generation-related environmental goals, and that mitigation appropriately protects the capacity market while preserving the cooperative federalism approach established by the Federal Power Act (“FPA”).  FERC also found that the Complainants failed to demonstrate that the unmitigated entry of ESRs would not result in the suppression of capacity prices and that BSM mitigation is not addressed by, and does not fall under, Order No. 841’s mandate that independent system operators and regional transmission operators reduce barriers to entry preventing ESRs from participating in their markets.

In its October 2020 order, FERC first found that it correctly applied FPA section 206 in its February 2020 order when it held that the Complainants did not meet their section 206 burden to show that BSM power mitigation rules are unjust and unreasonable or unduly discriminatory.  FERC sustained its previous finding that aggregated ESRs have the ability to suppress capacity market prices, and therefore, to prevent such suppression, it was appropriate for NYISO to apply the BSM rules to ESRs.  FERC also agreed with its previous finding that Order No. 841 did not address, and does not apply to, BSM rules with respect to ESRs.  FERC further held that applying BSM rules to ESRs does not intrude on New York’s authority over generation facilities, local reliability, retail sales, or other matters reserved to the states by the FPA.  Specifically, FERC found that applying BSM power management rules to ESRs does not constitute direct regulation of generation facilities and that its previous order struck an appropriate balance between accommodating state policies while protecting the integrity of the capacity market.  Finally, FERC disagreed with arguments that it failed to consider that its order may lead to increased costs to consumers and the propping up of capacity market prices.  FERC instead stated that its order simply found that ESRs have the ability to suppress capacity markets and that the Complainants failed to show that the existing rate over-mitigates ESRs.

In his dissent, Commissioner Glick contended that BSM power mitigation rules should not apply to entities that are not buyers or who lack market power, and that the majority’s attempt to protect NYISO’s capacity market from suppression, “may ultimately be what dooms it.” Commissioner Glick contended that the majority’s approach to BSM has led to the artificial propping up of capacity market price and also interferes with the capacity markets’ ability to produce efficient market outcomes.  Instead, he argued, BSM power mitigation should be limited solely to buyers with market power, which would be more consistent with the FPA and FERC’s core mission as a regulator of monopoly pricing power.  Commissioner Glick concluded by stating that the majority’s order was arbitrary and capricious, and that the application of BSM power mitigation to ESRs was unjust and unreasonable.

FERC’s October 15 order is available here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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