Complaint by N.Y. Capacity Suppliers Would Deprive Load of Full Benefits of Competition

July 7, 2011
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The, "full benefits of competitive markets would not be allowed to materialize," if FERC were to grant a complaint from several generators against the New York ISO regarding the implementation of existing buyer-side mitigation rules in the ICAP market, the New York PSC said (EL11-42).

The PSC, NYISO, and various downstate load serving entities (such as Consolidated Edison) argued that the complaint filed by capacity suppliers, first reported by Matters (6/6), amounts to a collateral attack on prior Commission orders. Furthermore, NYSIO informed FERC that it is following the current language of its tariff, and that it is the capacity suppliers which seek to deviate from that language in their requested relief.

Among other things, the complaint concerns which demand curves shall be used when applying buyer-side market power mitigation, and whether inflation should be taken into account.

The PSC said that the complainants, who are incumbent generation owners, are seeking to impede new entry into the ICAP market, which, "will likely interfere with appropriate signals for the retirement of older, less-efficient generation."

"This would unfortunately hinder the realization of one of the key potential benefits of moving to competitive markets, i.e., the replacement of less efficient and higher-polluting generation with more efficient, cleaner-emitting energy sources. By protecting Incumbent Generation Owners from competition from new market entrants, and ensuring them a significant revenue stream, as the Complaint seeks to accomplish, the full benefits of competitive markets would not be allowed to materialize," the PSC said.

The Downstate LSEs similarly said that, "[t]he NYC Suppliers want to subject as many of the new entrants to mitigation to maintain high ICAP clearing prices and preserve their market shares. However, their actions are contrary to the fundamental underpinning of the competitive markets that economic new entry is desirable and should be encouraged, even if such new entry causes older, less efficient generating facilities to close. Moreover, the consequences of the NYC Suppliers' contentions, if upheld, will be that New York City's consumers will have to pay more for capacity than they should under a proper functioning market."

"In other words, the NYC Suppliers' Complaint constitutes yet another attempt to seek preferential status for incumbent generators over new entrants in the New York City ICAP market and to secure an essentially guaranteed level of inflated capacity prices in New York City for as long as possible. The Complaint amounts to nothing more than an end-run around Commission Orders that clearly recognized that the revised new entrant mitigation measures proposed by the NYISO were 'more transparent, predictable and less prone to manipulation by the project developer,'" the Downstate LSEs added.

As noted, complainants protest that NYISO intends to use the ICAP Demand Curve for the 2010/2011 Capability Year when developing the Mitigated Bid Floor and conducting the Mitigation Exemption Test, which complainants call "outdated" since the NYISO has now proposed demand curves for the 2013/2014 Capability Year.

However, the Downstate LSEs noted that the NYISO tariff clearly defines Mitigation Net Cost of New Entry as the "capacity price on the currently effective In-City Demand Curve..." Given that the 2013/2014 demand curves have not yet been approved by FERC, NYSIO must use the 2010/2011 demand curves, the Downstate LSEs said.

The Downstate LSEs also noted that FERC had previously confirmed that, "the current demand curve rates will remain in effect at the start of the 2011/2012 capability period that begins on May 1, 2011 until a date determined by a further Commission order that rules on compliance filings."

As to including inflation in the mitigation calculation, NYISO noted that the "currently effective" ICAP Demand Curves do not include an inflation factor -- as FERC has explicitly stated.

"[T]herefore, it would be inappropriate for the NYISO to apply one [as desired by complainants]. Thus, the Complaint is a collateral attack," on FERC's prior order, NYISO said.

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