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February 28, 2020

FERC Decision on NYS Capacity Market Potentially Limits Renewable Energy Supplier Participation

With a 2-1 vote on February 20, the Federal Energy Regulatory Commission (FERC) directed the New York Independent System Operator, Inc. (NYISO) to develop new rules governing the application of buyer-side mitigation (BSM) in New York State’s capacity markets to renewable resources. 

In New York State, NYISO is the independent operator responsible for ensuring there is adequate energy supply. NYISO carries out this duty by operating a “capacity market.” Unlike the “energy market” where electric energy is bought and sold, capacity is simply a promise to be available to provide energy if needed at a future time when the grid is under stress. As it stands, the precise impact of FERC’s new ruling on the development of renewable resources in New York State is unclear, as FERC left it to NYISO to develop new rules governing the application of its BSM provisions to renewable resources. 
 
In 2015, the NYS Public Service Commission (PSC), NY Power Authority (NYPA), and NYS Energy Research and Development Authority (NYSERDA) filed a complaint with FERC alleging that applying NYISO’s BSM rules to certain renewable resources is unjust, unreasonable, unduly discriminatory, and preferential. In 2016, FERC agreed that an exemption from the BSM rules was warranted for wind and solar resources due to their low capacity factors and high development costs. FERC issued an order directing NYISO to revise its BSM rules to propose an exemption for a narrowly defined set of renewable and self-supply resources. This latest decision by FERC in February 2020 addresses NYISO’s compliance filings in response to that 2016 order. 

In its compliance filings, NYISO proposed that a resource be eligible for the renewable resources exemption if it satisfies one of two conditions: 

  1. The resource is an exempt renewable technology (e.g., wind or solar), or 
  2. NYISO determines through an applicant-specified review that the generator is not solely powered by an exempt renewable technology, has high development costs, and a low capacity factor, so it would have limited to no incentive and ability to artificially suppress market prices. 

NYISO also proposed to cap the total amount of renewable resources qualifying for this exemption in any single class year facilities study at 1,000MW on an installed capacity (ICAP) basis. According to NYISO’s analysis, this cap would permit new renewable resources to enter NYISO markets without causing market prices to be excessively suppressed. 

In the February 2020 decision, FERC voted to accept NYISO’s proposed eligibility criteria and process for the renewable resource exemption application but rejected NYISO’s proposed renewable resource exemption MW cap. FERC directed NYISO to establish a revised MW cap that is narrowly tailored to the mitigated capacity zones within the state, not the state market as a whole, and that is based on unforced capacity (UCAP) rather than ICAP.

This decision received immediate backlash because it will result in new rules governing the application of its BSM provisions to renewable resources that may be at odds with New York’s climate goals aiming for 70 percent of energy derived from renewables by 2030––and this decision marks the third time a FERC decision could be interpreted as impeding a state’s renewable energy initiatives. 

Organizations have already announced plans to appeal the FERC decision. However, under the Federal Power Act, a party opposed to the decision must first file a request for rehearing with FERC, which has indefinitely tolled rehearing requests for its market decisions. Despite the decision, the NYISO president and CEO said that NYISO remains “committed to harmonizing the FERC’s jurisdictional obligations while respecting New York State’s right to determine the appropriate resource mix with its jurisdiction.”

If you have any questions regarding the content of this alert, please contact Brenda Colella, Regulatory Practice Area co-chair and co-team leader of the Renewable Energy and Energy Markets Teams, at bcolella@barclaydamon.com; George Pond, partner, at gpond@barclaydamon.com; Ekin Senlet, partner, at esenlet@barclaydamon.com; or another member of the firm’s Energy Team.

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