Hudson Transmission: NYISO’s mitigation of capacity violates FPA principles

Hudson Transmission Partners is the first and only transmission facility against which the New York ISO (NYISO) has applied its market manipulation test, resulting in the company being barred from the ISO’s capacity market, the company said. 

Hudson Transmission on Aug. 3 filed a complaint with FERC (Docket No. EL12-98) claiming that the New York ISO (NYISO) implemented a mitigation exemption test (MET) that is preventing it from earning capacity revenue.

“In addition to preventing Hudson Transmission from earning capacity revenues, the NYISO’s current rules permit the NYISO to take the reliability benefits provided by Hudson Transmission and give them away to load-serving entities (LSEs), for free, without providing Hudson Transmission any compensation whatsoever,” the company said in its complaint. “The NYISO’s current rules are not only unfair, but conflict with the fundamental principles underlying the [Federal Power Act (FPA)] that a public utility must receive just compensation for the use of its property from the beneficiaries thereof.”

The merchant transmission developer is constructing a 345-kV HVDC line that will run between northern New Jersey and New York City, importing energy and capacity into the NYISO from the PJM interconnection (PJM). The company began developing the project in 2005 in response to a request for proposals (RFP) issued by the New York Power Authority. The company won the RFP in 2006.

NYISO in 2008 adopted buyer market manipulation power rules designed to deter uneconomic entry by new generators, and applied these rules to the Hudson Transmission project according to what the company claimed were “arbitrary, unreasonable, and unduly discriminatory assumptions,” that found the company failed the test, thereby making it subject to offer floor mitigation.

“As a result, Hudson Transmission will not be able to sell capacity bilaterally, or in the NYISO’s monthly auctions because the offer floor calculated by the NYISO is so high that Hudson Transmission will not be able to clear the market in the foreseeable future,” the company said in the complaint. “Consequently, Hudson Transmission’s new, controllable merchant transmission line will not be able to serve the purpose for which it was developed and constructed (and for which it agreed to fund nearly $200 million in upgrades on the PJM and NYISO systems), namely, to supply firm capacity to New York City.”

The company said that Hudson Transmission is the first and only transmission facility to which capacity market mitigation has been applied in the NYISO, or any other market.

“Even assuming it is reasonable to apply these rules to transmission facilities, the NYISO has made a number of arbitrary and unjustifiable assumptions in adapting this generator-based test to Hudson Transmission that have never been reviewed or approved by the commission,” Hudson Transmission said. “The NYISO’s ad hoc adjustments are not in the tariff (and in at least one case, violate the clear requirements of the [open access transmission tariff (OATT)] and the services tariff), unduly discriminate against merchant transmission facilities, and are inconsistent with the NYISO’s capacity market design and sound economic theory.”

The company asks that FERC rectify four of NYISO’s errors, that NYISO included the wrong facilities and used the wrong information in its analysis; applied a “scaling factor,” which increased unit net cost of new entry (CONE), and for which there is no basis in the OATT; did not exclude “sunk costs” from its calculation of Hudson Transmission’s CONE, which it does for new generator entrants; and that it applied the MET by estimating the cost of capacity delivered by Hudson Transmission from PJM and offered into the NYISO’s installed capacity (ICAP) auctions, “which have a forward period running from less than one month and up to six months, based on prices in PJM’s base residual auctions, which have a three-year forward period and are substantially higher than the forward prices in PJM’s incremental auctions for which the forward period is more closely aligned with the forward period for the NYISO ICAP auctions.”

The company added that if the NYISO, based on a “correct application” of the MET, finds that Hudson Transmission should be mitigated, the project’s unused capacity will still save LSEs and their ratepayers the costs of procuring additional total and locational capacity as it will reduce the installed reserve margin for New York, as well as the amount of higher-priced capacity that must be physically located in the New York City and Long Island capacity zones.

Under NYISO’s current rules, however, Hudson Transmission will not receive any compensation for these reliability benefits.

“It is unjust, unreasonable, and unduly discriminatory for (1) NYISO to foreclose Hudson Transmission from participating in NYISO’s ICAP market, and then (2) use Hudson Transmission’s capacity to provide substantial reliability benefits, for free, to the NYISO LSEs and their ratepayers,” the company said. “The commission should therefore direct the NYISO to develop a mechanism to compensate Hudson Transmission for the value of the reliability benefits it would provide, or, in the alternative, clarify that Hudson Transmission may file, under Section 205 of the FPA, a rate schedule to receive just and reasonable compensation for these benefits,” Hudson Transmission said.

The New York ISO on Aug. 15 requested a 15-day extension of the Aug. 23 deadline to submit comments in the matter. The ISO said it plans to retest Hudson Transmission and issue its determination no later than Sept. 7.

The ISO asked that FERC issue an order no later than Aug. 20 regarding its request.

HQ Energy Services, the New York Public Service Commission, Exelon (NYSE:EXC) and the Electric Power Supply Association have all filed as interveners as of Aug. 17. 

About Rosy Lum 525 Articles
Rosy Lum, Analyst for TransmissionHub, has been covering the U.S. energy industry since 2007. She began her career in energy journalism at SNL Financial, for which she established a New York news desk. She covered topics ranging from energy finance and renewable policies and incentives, to master limited partnerships and ETFs. Thereafter, she honed her energy and utility focus at the Financial Times' dealReporter, where she covered and broke oil and gas and utility mergers and acquisitions.