N.Y. PSC Denies NiGen Request to Change RPS Contract Price

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November 22, 2010

The New York PSC denied the request of Niagara Generation, LLC for a pricing adjustment in a Main Tier incentive contract entered into between NiGen and the New York State Energy Research and Development Authority (NYSERDA) under the Renewable Portfolio Standard (RPS) program, as the PSC found that, "the contract is a binding agreement that was awarded in a competitive solicitation at the price bid by NiGen and allowing a price adjustment in such a circumstance would undermine the competitive process established for the Renewable Portfolio Standard (RPS) program."

NiGen, which owns a 54-MW coal plant which it co-fires with wood as biomass power under the RPS contract, was seeking a pricing adjustment to allow for the introduction of a cost-based rate established by negotiation with the Staff of the Department of Public Service, with future price adjustments every two and one half years during the term of its RPS contract.  NiGen said that it currently finds itself in a position where the cost of biomass and other fuels, combined with other operating costs, have made continued operation of the NiGen facility on biomass fuel uneconomic.

"The incentive level in the NiGen RPS contract is set at the price NiGen itself bid before it was awarded the contract," the PSC said in denying the requested pricing adjustment.  "The changes in the market NiGen describes are all risks that a developer in a competitive market accepts when it enters into a long term contract, and must responsibly be factored by the developer into any bid price that the developer offers.  The premise of our move to wholesale competition was that wholesale generators would bear these risks rather than ratepayers.  Allowing the requested mid-stream price adjustment in a contract that does not provide for such adjustments would undermine the competitive process established for the RPS program," the Commission concluded.

"Other bidders in the solicitation that NiGen participated in were subject to the same rules and it would be unfair to the other bidders that were underbid by NiGen and were not awarded contracts to now allow an upward price adjustment for NiGen that the others might have beat.  In addition, our stepping in and breaking the price terms of an executed contract would invite all other RPS contract holders to petition us to adjust their prices upwards whenever market changes do not go their way.  Contracting under such circumstances would be a mockery and there would be little protection for ratepayers as to the cost certainty of the RPS program that the current contract prices provide," the PSC added.

While NiGen had noted that the PSC will allow future biomass contracts to include an "escape clause" and potential price adjustment to address rising costs, the PSC stressed that such action was purposefully limited to a going-forward basis and does not abrogate existing contracts.

The PSC's order is in Case 03-E-0188

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