On May 12, 2020, FERC clarified that the offer floor price calculation for Special Case Resources (“SCRs”)—demand response resources participating in the New York Independent System Operator, Inc.’s (“NYISO”) Installed Capacity market (“ICAP”)—must include any payment or other benefit provided by state-sponsored programs. FERC’s order follows a February 2020 order directing NYISO to apply its buyer-side mitigation (“BSM”) rules to all new SCRs, and finding that the offer floor calculation for SCRs should include only the incremental costs of providing wholesale-level capacity services rather than payments from retail-level demand response programs designed to address distribution-level reliability needs. Commissioner Richard Glick issued a separate statement concurring with FERC’s clarification as to the SCR offer floor price calculation, but added that NYISO’s BSM regime will impose arbitrarily high offer floors on SCRs that are not exercising market power.
SCRs that have cleared the capacity market are obligated to reduce their demand on the system when called upon by NYISO, provided that NYISO gives the resource provider notice that it will be called prior to the time of activation. SCRs have been the subject of several proceedings to determine whether NYISO’s BSM rules—aimed at preventing uneconomic entry from artificially suppressing capacity prices—should apply, and if so, how the offer floor for SCRs should be calculated. In 2010, NYISO proposed to include in the offer floor calculation any payment or other benefit the SCR received for supplying capacity, except for those provided under programs administered or approved by New York State or an instrumentality of the State (“State Program Language”). In a 2015 order, FERC rejected the State Program Language, and held that all benefits from State programs were to be included in the SCR offer floor calculation.
Then, in 2016, a group of New York state agencies and renewable energy advocates filed a complaint challenging NYISO’s application of BSM rules to SCRs, arguing that subjecting SCRs to BSM limited their full participation in the ICAP market and interfered with federal, state, and local policy objectives. In a February 2017 order on the complaint, FERC directed NYISO to revise its BSM rules to prospectively exempt SCRs (see February 14, 2017 edition of the WER). In a February 2020 order on rehearing, FERC reversed course and directed NYISO to apply BSM rules to all new SCRs, reasoning that payments made to SCRs outside of the ICAP market could enable SCRs to suppress ICAP prices below competitive levels (see February 26, 2020 edition of the WER).
Subsequently, NYISO submitted a compliance filing to notify FERC of its intention to apply BSM rules to SCRs beginning May 2020. However, NYISO’s proposed tariff language included the State Program Language that would have excluded any benefits or payments provided under State programs from offer floor calculations. NYISO stated its belief that FERC’s rejection of this language in 2015 had applied to New York City and did not impact Mitigated Capacity Zones (“MCZs”) other than New York City. In response to protests from NYISO’s Market Monitoring Unit and the Independent Power Producers of New York that FERC had explicitly rejected the State Program Language, FERC clarified that the State Program Language would not apply to SCRs entering all MCZs, and directed NYISO to submit a compliance filing within 45 days removing the language from its tariff.
Commissioner Glick wrote separately, concurring with FERC’s order insofar as it clarified the governing tariff language resulting from FERC’s previous orders on the offer floor calculation for SCRs. But Commissioner Glick also explained his continuing belief that NYISO’s market power mitigation regime is unjust and unreasonable because FERC has failed to ensure that mitigation is tailored only to SCRs that are buyers with market power.
FERC’s May 12 order is available here.