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NYISO Files to Correct Over-mitigation Contained in Current Buyer-Side ICAP Market Power Rules

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September 28, 2010

The New York ISO has filed at FERC proposed tariff revisions to address the "unintentional consequences" -- specifically over-mitigation -- present under previously approved mitigation rules designed to guard against the exercise of buyer-side market power in the In-City ICAP markets.

Among other things, the NYISO is proposing to revise its approach to determining Offer Floor durations.  Under the proposed new tariff language, an Installed Capacity Supplier would be subject to an Offer Floor for a number of years equal to the shorter time period resulting from calculations using two alternative methodologies.  

To avoid the possibility that the methodologies might produce unreasonably long mitigation periods, the maximum Offer Floor duration under both would be thirty Capability Periods (i.e, approximately fifteen years), NYISO said.

Additionally, under both proposed Offer Floor duration calculation methodologies, the minimum mitigation period would be six Capability Periods.

Under the first methodology, the Offer Floor duration would be equal to: (a) the initial Dependable Maximum Net Capability value of the Installed Capacity Supplier plus the amount of Surplus Capacity at the time that the Installed Capacity Supplier first offers to supply UCAP, divided by (b) the forecasted average annual growth in MW for the New York City Locality over the six Capability Periods following the Installed Capacity Supplier's first offer of UCAP using the forecast values identified in the NYISO's Load and Capacity Data (commonly referred to as the "Gold Book").

Under the second methodology, an Installed Capacity Supplier's Offer Floor would be eliminated when the total number of its MW that cleared in the In-City ICAP Spot Market Auction, during months when at least fifty percent of its Capacity cleared, exceeds its Nominal UCAP.  Thus, in principle, an Installed Capacity Supplier could satisfy the Cleared UCAP test in twelve months if all of its Capacity cleared in the auctions for twelve consecutive months (which equates to twenty-four months if fifty percent cleared).  However, even if a unit subject to an Offer Floor satisfied the Cleared UCAP test in twelve months after entry, it would still be mitigated for the minimum period of six Capability Periods.

NYISO also proposed several revisions to the process of exempting a supplier from the offer floor.  Among other things, NYISO would refine one of the tests used to determine the exemption.

Under the current tariff, Installed Capacity Suppliers are exempt from the Offer Floor if the NYISO's forecast for: (i) "any" ICAP Spot Market auction price for the first two Capability Periods that the Installed Capacity Supplier is reasonably anticipated to offer to supply Unforced Capacity (UCAP) is greater, with the inclusion of the Installed Capacity Supplier, than the highest Offer Floor based on Net Cost of New Entry (CONE); or (ii) the average of the ICAP Spot Market Auction prices in the six Capability Periods beginning with the first Capability Period for which the Installed Capacity Supplier is reasonably anticipated to offer UCAP is higher, with the inclusion of the Installed Capacity Supplier, than Unit Net CONE.

The NYISO is proposing to revise the first test to provide that the NYISO will use the average of the ICAP Spot Market Auction price during each month of the two starting Capability Periods instead using the price in "any" one month during that timeframe.  Using the price from "any" one month has the potential to result in an exemption determination being made based on unrepresentative market conditions that may only exist briefly, NYISO said.

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