Week Ending February 21, 2020

Glick, Others Criticize FERC Orders on NYISO Aiding Fossil Fuel Generators

This Article Appears as Published in Foster Report No 3287
Glick, Others Criticize FERC Orders on NYISO Aiding Fossil Fuel Generators

FERC is facing criticism for the four orders approved February 20 on market power mitigation measures in the New York Independent System Operator (NYISO) that critics say will have the effect of hindering state efforts supporting renewable resources and decarbonization plans.

Senate Minority Leader Chuck Schumer (D-N.Y.), who sent a letter to FERC Chairman Neil Chatterjee February 19 asking him to not undermine New York’s clean energy goals, said on Twitter, “FERC has become a wholly-owned GOP subsidiary, doing the bidding of the biggest polluters.”

Commissioner Richard Glick dissented on the orders and labeled them as another intrusion on state clean energy goals that will have the effect of driving up capacity prices, supporting existing fossil fuel generation and making it harder for demand response and renewable resources to compete. “We’ve created one big mess in Eastern capacity markets,” Glick said, referring to orders for PJM Interconnection and ISO New England that are frustrating state policymakers and pushing them away from organized markets regulated by FERC.

The American Council on Renewable Energy (ACORE) said the NYISO orders amount to “a new subsidy to the fossil fuel industry” at the expense of customers in New York. The buyer-side mitigation measures of the orders conflict with policies New York has designed to accelerate the transition to cleaner resources, ACORE President and CEO Gregory Wetstone said. The group is reviewing the implications of the orders and considering options on challenging them.

Chatterjee and Commissioner Bernard McNamee defended the orders at the February 20 open meeting, and Chatterjee sought to make a distinction between the NYISO orders and the December 2019 order on the minimum offer price rule (MOPR) in PJM. Although people will link them together as FERC supporting fossil fuel generation assets, the orders address different markets and act on complaints that have been pending at FERC for some time, he said.

Chatterjee did not agree with the characterization that FERC is providing a bailout for coal and nuclear power plants through ISO orders that have the effect of the failed proposed rule from former Department of Energy Secretary Rick Perry that was designed to do that. “People are trying to connect threads that are not there,” he said.

Chatterjee declined to speculate on whether the orders will prompt New York to abandon the capacity market. “I stand by our action” that protects the market from price distortions and addresses complaints on the buyer-side mitigation measures, he said.

The Climate Leadership and Community Protection Act in New York calls for the state to have increasingly larger shares of power come from cleaner resources in the years to come. NYISO and the state Public Service Commission have begun proceedings to consider exiting the capacity market and having the state take back resource adequacy decisions to better align with state clean energy policies.

FERC’s “overreach” in the orders “will no doubt create greater momentum in that direction,” Glick said in one of the dissenting statements.

The four orders improve the buyer-side mitigation rules to ensure adequate supplies and send accurate price signals to consumers, Chatterjee said. They narrow the exemptions from NYISO’s buyer-side market power mitigation rules in the southeast part of the state.

The NYISO market power mitigation rules provide that, unless exempt from mitigation, new capacity resources must enter the New York City or Lower Hudson Valley installed capacity markets at a price above the applicable floor offer until their capacity clears 12 monthly auctions. NYISO exempts new entrants from the offer floor through two different paths, and the orders act on complaints or compliance filings from past rulings.

The order on a 2016 compliance filing (ER16-1404) accepts in part and rejects in part the NYISO compliance plan, directing the grid operator to make a new compliance filing to ensure exemptions for both renewable and self-supply resources are narrowly tailored to exempt only those resources that FERC has determined to be exempt. The other orders (EL13-62, EL19-86, EL16-92) address complaints on exemptions and find that demand response resources should be subject to buyer-side market power mitigation rules.

Many groups were reading through the orders and providing limited reactions at press time besides some general comments about New York’s push for cleaner energy resources and the challenge of power markets with federal and state oversight. “The bottom line is that we need to have a conversation about the right way to pursue environmental and other energy policy goals through competitive markets,” said Todd Snitchler, president and CEO of the Electric Power Supply Association (EPSA).

The orders highlight the growing strain on the NYISO capacity market caused by out-of-market subsidies that give an advantage to certain power providers, Snitchler said. As policymakers in New York consider their options, EPSA supports market-based mechanisms, such as a price on carbon or other measures that treat any ton of emissions avoided or displaced the same.

The Natural Gas Supply Association (NGSA) said instead of favoring some resources over others, a better path for New York is to put a price on carbon. Gas-fired generation is a good partner for renewable resources and helping the state achieve clean energy goals, said Patricia Jagtiani, executive vice president at NGSA.

“Pricing carbon is the best means to accomplish a state’s carbon reduction goals in a way that harmonizes with the well-functioning wholesale competitive markets that have proven to yield lower energy bills, fewer emissions and more diverse energy sources for consumers,” Jagtiani said.

Others agreed with Glick that FERC’s orders will hasten New York’s move away from a capacity market. The orders are strictly at odds with the state’s clean energy goals and the Natural Resources Defense Council (NRDC) will seek rehearing to show that treating resources required under state law as out-of-market subsidies that must be mitigated is an incorrect application of buyer-side mitigation, Cullen Howe and Rebecca Behrens of NRDC said in a February 20 blog post. “This argument may fall on deaf ears given FERC’s current makeup,” they wrote.

Given the rulings from FERC, “It’s time for New York to take ownership of resource adequacy,” Howe and Behrens said.

Glick said it is “comical” to suggest that the steps FERC is taking have anything to do with market power mitigation, as very few resources have buyer-side market power. Yet FERC is subjecting more resources to mitigation based on Commission preferences, resulting in consumers paying more for resources that are not in line with state goals.

In his dissenting statement, Glick quoted former FERC Chairman Norman Bay, who wrote in a 2017 order on the NYISO market that an idealized vision of markets free from influence of public policies does not exist, “and it is impossible to mitigate our way to its creation.”

The Federal Power Act is clear that states have authority over generation decisions, yet FERC efforts to “protect” capacity markets from the influence of state policies is the wrong approach, Glick said. All three ISO in the East (PJM, NYISO and ISO New England) now force new resources to compete based on administratively determined estimates for their costs and revenues rather than their own estimates of what they need to compete in the market, he said.

Glick said MOPR rules “that were once intended only as a means of preventing the exercise of market power have evolved into a scheme for propping up prices, freezing in place the current resource mix, and blocking states’ exercise of their authority over resource decisionmaking. The result is an ever-expanding system of administrative pricing that is, ironically enough, justified on the basis that it promotes competition.”

FERC’s efforts to save capacity markets are interfering with state public policies that will force states to choose between their policy preferences and the benefits of wholesale markets that the Commission spent the past 20 years fostering, Glick wrote. “Although that should be a false choice, the Commission is increasingly making it into a real one,” he said.

By Tom Tiernan ttiernan@fosterreport.com

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