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FERC Rejects Consumer Impact, Market Power Test for Developing New York Local Capacity Zones

September  9, 2011
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Siding with capacity suppliers against load-serving entities, FERC rejected in part a proposal from the New York ISO to establish a criteria which would be used to evaluate the creation of separate capacity zones in the ICAP market (ER04-449).

See Jan. 5 story for background on two-step process proposed by NYISO for capacity zones

Among other things, FERC rejected the NYISO's proposed Consumer Impacts test as a factor included in consideration of new local capacity zones.

Furthermore, FERC rejected NYISO's consideration of market power in evaluating new capacity zones.

FERC said that NYISO's proposal failed to adequately recognize binding transmission constraints in the capacity market, and directed NYISO to use the methodology contained in the existing Attachment S Deliverability Test in section 25.7.8 of Attachment S to the NYISO OATT in determining whether to create new capacity zones.

The Commission said that NYISO's proposal would test for deliverability (and the need for new capacity zones) assuming "as designed" conditions, which FERC said would ignore actual capacity in the market that is in excess of the "as designed" capacity.

The deliverability the test shall be applied to the market "as found" rather than "as designed," FERC said.

Additionally, FERC said that NYISO's proposed Reliability Criterion for new capacity zones may improperly result in a new capacity zone not being created when one is necessary. In short, FERC found that a deliverability constraint can bind under the Attachment S Deliverability Test (requiring a separate capacity zone) without there being a corresponding reliability need.

FERC also rejected additional considerations NYISO had proposed to be used to determine whether new capacity zones were needed, such as comparing differences in the Net Cost of New Entry in adjacent zones.

While FERC accepted NYISO's proposal to initially base new capacity zones on the existing 11 load zones or a combination thereof due to the practical limitations of market and software design, FERC stressed, "we again note the importance of accurately reflecting binding transmission constraints in the capacity market clearing process ... [O]ver time, more precision in capacity pricing may be warranted."

Furthermore, although NYISO said that new zones should only be implemented along with the reset of the ICAP demand curves (once every three years), FERC ordered NYISO, along with its stakeholders, to consider the desirability and feasibility of creating new zones on an annual basis rather than only once every three years.

Finally, FERC rejected calls from load to require NYISO to develop a criteria for the elimination of local capacity zones, as FERC claimed that the impact of the failure to create a zone where one is needed is much more significant than the impact of a failure to eliminate an existing unneeded zone.

 

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