On February 18, 2016, FERC issued an order conditionally accepting tariff revisions from the New York Independent System Operator, Inc. (“NYISO”). According to the NYISO, the proposed tariff revisions would improve coordination between the electric and natural gas system by giving NYISO authority to prohibit generators from including unauthorized natural gas costs and penalties in reference levels and to reject after the fact requests to recover costs associated with unauthorized natural gas use.

The NYISO filed proposed revisions to its market power mitigation measures set forth in section 23 of its Market Administration and Control Area Services Tariff. NYISO’s proposed revisions are intended to: (1) exclude unauthorized natural gas consumption costs and penalties from reference levels; (2) address NYISO’s use of best information available when it adjusts reference levels to reflect appropriate fuel costs; (3) revise NYISO’s energy market physical withholding rules; (4) require generators to use the NYISO-specified default bid when subject to market power mitigation measures; (5) improve the calculation of penalties for submission of inaccurate fuel cost information; and (6) modify the day-ahead and real-time guarantee payment impact test thresholds that apply to reliability-committed generators located outside of the New York Constrained Area.

FERC found to be just and reasonable the NYISO’s proposal to exclude from reference levels, used to determine the price at which a generator may bid into NYISO, those costs and penalties incurred by a generator when, as a shipper, it engages in unauthorized takes/deliveries of natural gas from an interstate natural gas pipeline. FERC observed that “[a]llowing generators to recover costs and penalties associated with unauthorized natural gas consumption could jeopardize the reliability of natural gas pipeline and transmission systems and is therefore at odds with the reliability and costs [and] benefits otherwise associated with allowing generators to recover actual fuel costs in reference levels.”

FERC also accepted the rest of NYISO’s proposals, finding them (after the adoption of one condition) to be just and reasonable because they “should allow the recovery of actual authorized fuel costs and ensure cooperation and coordination between generators and interstate natural gas pipelines and LDCs, thus contributing to the reliable operation of the electric system.” Those provisions: (1) give Market Parties in NYISO an exemption from physical withholding evaluation when, and to the extent that, a generator does not bid into the real-time market because, were the generator to bid, be selected and generate as a result of the bid, it would necessitate the generator pulling gas from one or more interstate natural gas pipelines where it was not authorized to do so; (2) impose a reporting obligation on NYISO requiring it to disclose in the event that it does not use the best fuel cost information available to it to adjust reference levels; (3) authorize NYISO to require a Market Party to submit a default bid or default bid parameters for a mitigated resource; (4) revise the penalty calculation NYISO performs when Market Parties submit inaccurate fuel type or fuel price information; and (5) modify the impact threshold to evaluate submission of inaccurate fuel type or fuel price information when generators are committed for reliability outside of the New York Constrained Area.

FERC accepted NYISO’s proposed tariff revisions, subject to one condition, effective as of February 18, 2016. FERC required NYISO to clarify one aspect of its physical withholding evaluation. NYISO’s proposed tariff revisions include ones exempting forced outages from physical withholding evaluation, “subject to verification by the NYISO as may be appropriate.” However, FERC noted that there was no similar “subject to verification” requirement with respect to the proposed exemption from physical withholding evaluation for a generator that did not bid into the energy market where doing so would require it to consume unauthorized natural gas. FERC found no reason for this discrepancy and directed NYISO to submit a compliance filing clarifying that NYISO will include the “subject to verification” requirement in the proposed exemption from physical withholding evaluation for generators that cannot supply capacity in the real-time market where doing so would require the use of unauthorized natural gas or penalty natural gas.

A copy of FERC’s order can be found here.