Dive Brief:

• The Federal Energy Regulatory Commission on Wednesday removed an exemption that had allowed some demand response resources to bid into the New York Independent System Operator (NYISO) capacity market below generation offer floors. 
• In a 2-1 decision, the commission determined that payments received under the Commercial System Distribution Load Relief Programs (CSRP) submitted by the ISO "do not qualify for exclusion from the calculation of [Special Case Resources] (SCR) offer floors." FERC's decision means these demand response resources, which are compensated by New York distribution utilities for their grid services, will have to bid in at a higher price and be less competitive.
• Commissioner Richard Glick dissented from the decision, writing that it "perverts buyer-side market power mitigation into a series of unnecessary and unreasoned obstacles to New York's efforts to shape the resource mix."

Dive Insight:

For clean energy advocates, FERC's decision is the most recent move by federal regulators to block the effects of state resource decision-making. Other power producers say the order simply ensures capacity prices reflect actual costs in competitive markets.

A spokesperson for NYISO said the grid operator is still reviewing the order and had no comment.

Buyer-side market power mitigation measures were developed to ensure entities with both supply and capacity needs could not suppress prices. But clean energy advocates say those rules are now being twisted in order to negate the effects of New York State energy policies.

"It's really an attack on New York's authority to forge its own energy future," said said Chris Casey, a senior attorney at the Natural Resources Defense Council (NRDC) Climate and Clean Energy Program. "It's an unlawful federal overreach that threatens the integrity of the capacity market to protect old, polluting power plants."

Utilities say the CSRP resources are designed solely to meet distribution system needs. But FERC's order concluded that the CSRPs submitted by NYISO were "not designed to address and do not address solely distribution-level reliability needs, and therefore payments received under the programs must be included in the calculation of SCR offer floors in NYISO."

FERC in its order also determined that a separate class of demand response resources, known as Distribution Load Relief Programs, do qualify for exclusion from the calculation of SCR offer floors.

Glick, in his dissent, argued that applying buyer-side market power mitigation "to entities that are not buyers or that lack market power is nonsensical. Moreover, even when applied to buyers with market power, mitigation must be tailored to and reasonably address their potential to exercise that market power."

"The commission continues to apply buyer-side market power mitigation where it does not belong," Glick wrote.

According to Independent Power Producers of New York (IPPNY), however, FERC's decision will help capacity markets operate effectively and fairly.

"FERC correctly concluded that CSRP payments are for providing capacity service to reduce peak load," Matthew Schwall, IPPNY director of market policy and regulatory affairs, said in an email. IPPNY represents the competitive power supply industry in New York. 

Schwall said FERC determined the costs to SCRs for reducing peak load "are properly reflected in the NYISO's capacity market via an offer floor so that capacity prices accurately reflect the cost of doing business for all resources participating in the competitive wholesale markets."

The situation is similar to a September FERC decision that rejected changes to NYISO's capacity market in order to accommodate the renewable energy required for the state to reach 70% renewable energy by 2030. Glick also dissented there, and called it "just the latest in the Commission's ever-growing compendium of attempts to block the effects of state resource decision-making."

The issue of state control over its resource base is not specific to New York. Last year, FERC issued an order expanding the Minimum Offer Price Rule in PJM Interconnection's regional capacity market, effectively raising the floor price for state-subsidized resources. That has led states, including New Jersey and Maryland, to consider exiting that market.