FERC Continues to Squeeze Renewable Resources Participating in Wholesale Electric Capacity Markets
On February 20, 2020, the Federal Energy Regulatory Commission (“Commission” or “FERC”) issued several orders narrowing New York Independent System Operator, Inc.’s (“NYISO”) buyer-side market power mitigation rules in its mitigated capacity zones, including NYISO’s proposal to exempt up to 1,000 megawatts (“MW”) of renewable resources from NYISO’s buyer-side market mitigation rules in a capacity auction year (“NYISO Renewable Exemption Order”). The Commission’s actions will significantly impact renewable resources in NYISO, PJM Interconnection, L.L.C. (“PJM”), and potentially other organized markets. Rejection of the proposed MW exemption will hinder renewable resources’ participation in NYISO’s capacity auction by: (i) requiring them to bid no lower than an established price floor, regardless of their actual incremental costs; and (ii) tightening currently-available mitigation exemptions.
The effect of FERC’s orders (e.g., expanding the resources subject to a minimum offer price floor) likely will diminish chances of renewable resources’ success in capacity auctions, which may increase capacity prices. The Commission’s implementation of similar policies in two different ISOs/RTOs may foreshadow expansion of the policy into other regions and markets. FERC’s philosophy of counteracting state renewable subsidies creates uncertainty for many market participants, and will impact pricing and compensation across multiple markets for years to come.
NYISO’s buyer-side market power mitigation rules provide that new participants in its Installed Capacity (“ICAP”) market are subject to a capacity offer bid floor, unless otherwise exempted. Resources are exempt from the floor price if:
the forecast of capacity pricing the first year of a new entrant’s operation exceeds the default offer floor (which is 75% of the NYISO’s most recent net cost of new entry [“CONE”] reset); or
the forecast of capacity pricing in the first three years of a new entrant’s operation exceeds the unit-specific net CONE.
Previously, FERC held that certain renewable and self-supply resources lacking the incentive and ability to exercise buyer-side market power to artificially suppress ICAP market prices should be exempt from NYISO’s buyer-side market power mitigation rules.
In response, NYISO proposed to exempt up to 1,000 MW of renewable energy from its buyer-side mitigation rules in every auction year. If aggregate qualifying bids totaled above 1,000 MW, the bids would be reduced pro rata to meet the 1,000 MW exemption. According to NYISO, the exemption avoided artificially suppressing ICAP market prices while advancing resource adequacy without discouraging entry of renewable resources.
NYISO justified using ICAP to calculate the exemption, rather than Unforced Capacity (“UCAP”), because ICAP: (1) provides reliable and transparent information; (2) is consistent with other exemptions to the buyer-side market power mitigation rules; (3) is a fixed quantity across time periods; (4) is less complicated and administratively burdensome than a UCAP-based MW exemption; and (5) avoids the uncertainty of NYISO having to determine whether the MW exemption is exceeded whenever resources’ derating factors are updated. NYISO also contended that using UCAP would create uncertainty for resources seeking, and having already been granted, a renewable resources exemption.
The NYISO Renewable Exemption Order
The NYISO Renewable Exemption Order rejected the level, and other features, of NYISO’s proposed exemption, and directed NYISO to make a compliance filing.