New York state regulators have asked FERC to delay implementing its decision until 2017 on the New York ISO’s (NYISO) plans to implement a new capacity zone by May 1, 2014, saying that the new zone will result in a rise in customer electricity bills.
The state Public Service Commission (PSC) also said on Sept. 25 that it, the New York Power Authority and other state utilities have each filed petitions requesting that FERC reconsider its decision to allow NYISO to make changes in the wholesale market for electric generation capacity because of its adverse impact on electricity customers.
According to the PSC’s Sept. 12 FERC filing (Docket No. ER13-1380-000), NYISO filed on April 30 proposed tariff revisions to establish the new capacity zone. NYISO noted that it had identified a current highway deliverability constraint driving the need to create the new zone in NYISO Load Zones G, H, I and J. The asserted purpose of the new zone is to induce developers of generation to build facilities within the new zone to address the identified constraint, the PSC added.
On May 21, the PSC submitted its notice of intervention and protest, opposing NYISO’s filing because it did not recognize the state’s ongoing competitive procurement processes that would address the same deliverability constraint identified by NYISO, within the same period that NYISO seeks to impose the new zone, the PSC said.
“In light of these state processes, the NYPSC maintained that the price signal from the [new zone] would not be effective in incenting new generation over the short-term, since suppliers would be looking to the price signals that result from the state’s initiatives and not the short-term price spikes associated with implementing the [new zone] at this time,” the PSC said. “This price spike will require ratepayers to pay hundreds of millions of dollars in unjust and unreasonable increased installed capacity (ICAP) costs.”
In an Aug. 13 order, FERC dismissed the PSC’s arguments related to the short-term ineffectiveness of price signals in the new zone and the concomitant windfall in ICAP revenues that would be extracted from ratepayers, the PSC said.
FERC also rejected the PSC’s request to include a mechanism for determining when the new zone is no longer necessary and should be eliminated.
The PSC, in its filing, requested rehearing of that order, noting that the order contains numerous mischaracterizations and incorrect statements regarding the PSC’s protest.
The PSC urged FERC “to properly account for the NYPSC’s ongoing initiatives that carry out New York Governor Andrew Cuomo’s Energy Highway Blueprint, and will address the deliverability constraint associated with the [new zone].”
Cuomo, in his 2012 State of the State Address, announced a plan to build a private sector-funded $2bn “Energy Highway” system that will tap into the generation capacity and renewable energy potential in upstate and western New York to bring low-cost power to downstate New York.
The PSC said that since its initiatives related to the Blueprint will impact the long-term price signals for encouraging new entry in the new zone, implementing the new zone now will result in improper and meaningless price signals to prospective developers, without any concomitant ratepayer benefits.
The PSC also said that it estimates that those improper price signals will result in an economic windfall for incumbent generators and a price increase for ratepayers that may be upwards of $350m per year, which translates to a total bill rate increase of more than 25% for some customers of Central Hudson Gas and Electric.
Central Hudson’s holding company is CH Energy Group (NYSE:CHG).
To ensure FERC has a complete record, it should direct NYISO to analyze the long-term price signals that will result from the PSC’s initiatives before implementing the new zone, or FERC should phase-in the new zone price signals to correspond with the implementation of the PSC’s congested relief initiatives.
The PSC also said that FERC should direct NYISO to file tariff amendments providing a process for the elimination of the new zone when the deliverability issues that led to its formation are resolved.
Furthermore, FERC should direct NYISO to address the need to modify the “buyer-side” mitigation measures for the new zone, which would apply to any new entry in the new zone and would deter the very entry that the new zone is supposedly designed to incent, the PSC said.
In the Sept. 25 statement, PSC Chair Audrey Zibelman said the PSC is “well aware of the downstate demand for electricity,” adding, “However, in its decision, FERC did not take into consideration the ongoing initiatives included in the Governor’s Energy Highway Blueprint designed to resolve transmission constraints between upstate and downstate without needlessly burdening customers.”
NYPA President and CEO Gil Quiniones said in the statement that creation of a permanent new capacity zone undermines the Energy Highway initiatives, adding, “This proposed new capacity zone will take money out of the pockets of ratepayers and result in a windfall of profits for existing power plant owners in the region.”
In its April 30 FERC filing, NYISO said it “strongly supports” the establishment of the new zone, noting that it has carefully examined and considered the transmission system, capacity market and economic consequences of its proposal.
“It concluded that establishing and implementing the G-J Locality for the May 1, 2014 start of the 2014/2015 Capacity Year is necessary to send more efficient price signals, enhance reliability, mitigate potential transmission security issues, and serve the long-term interest of all consumers in New York State,” NYISO said. “The Independent Market Monitoring Unit (“MMU”) for the NYISO has previously called for the creation of [new zone] and supports the NYISO’s proposal.”