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FERC Approves Additional Mitigation Measures Applicable to Rest of State N.Y. Generators Dispatched for Reliability Under Certain Conditions

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October 13, 2010

FERC accepted tariff revisions from the New York ISO that provide for the mitigation of generators in the Rest-of-State region that can exercise market power when they are committed or dispatched to maintain system reliability, which is substantially similar to the mitigation approved for three specific generators in an earlier order (ER10-2220).

"NYISO has shown here that generators meeting the conditions specified in its proposed mitigation measures have market power as a consequence of too few or no competitive alternatives," FERC said.

The mitigation measures would apply to a Generator committed as a Day-Ahead Reliability Unit (DARU) or via a Supplemental Resource Evaluation (SRE), or committed as a DARU or via SRE and subsequently dispatched Out-of Merit above its minimum generation level to protect or maintain New York Control Area or local reliability (Matters, 8/16/10).  Mitigation would only be applied if one of the following three conditions were met:

i. The Market Party (including its Affiliates) that owns or offers the Generator is the only Market Party that could effectively solve the reliability need for which the Generator was committed or dispatched, or

ii. When evaluating an SRE that was issued to address a reliability need that multiple Market Parties' Generators are capable of solving, the NYISO only received bids from one Market Party (including its Affiliates), or

iii. When evaluating a DARU, if the Market Party was notified of the need for the reliability of the of its Generator prior to the close of the Day-Ahead Market.

If a Generator meets one or more of the above three conditions, the following thresholds would apply mitigation if a Bid or Bid component:

i. Exceeds the Generator's Minimum Generation Bid reference level by the greater of 10% or $10/MWh, or

ii. Exceeds the Generator's Incremental Energy Bid reference level by the greater of 10% or $10/MWh, or

iii. Exceeds the Generator's Start-Up Bid reference level by 10%, or

iv. Exceeds the Generator's minimum run time, start-up time, and minimum down time reference levels by more than one hour in aggregate, or

v. Exceeds the Generator's minimum generation MW reference level by more than 10%, or

vi. Decreases the Generator's maximum number of stops per day below the Generator's reference level by more than one stop per day, or to one stop per day.

FERC disagreed with generators that NYISO should inform a supplier whether it could be subject to mitigation before the supplier submits its bid in order to inform a generator's bidding behavior.

"As the Commission clarified in the May 20, 2010 Order, competitive behavior only requires that a generator be able to determine its marginal cost defined as its reference price level, so that it can bid at that level.  The Commission found that, as a general matter, a generator can be expected to bid at its marginal cost level in a competitive market," FERC said.

"We find that even though a supplier might not know which particular days or hours they will be committed to meet reliability needs, they will know that bidding above marginal cost is potentially subject to mitigation," FERC added.

Furthermore, FERC affirmed that, "generators needed mainly for reliability have other opportunities to receive compensation above their marginal costs."

"During periods of market-wide scarcity, given the nature of NYISO's markets, the market clearing price will typically exceed the marginal costs of virtually all generators, thereby allowing all such generators to receive revenues that contribute to fixed cost recovery.  In addition, generators can receive revenues to contribute to the recovery of their fixed, i.e., capacity, costs from the capacity market," the Commission found.

FERC noted that the NYISO Board has directed management to work with stakeholders to examine the generation owners' claims that existing cost recovery mechanisms are inadequate, and to review the process that evaluates permanent solutions to reliability problems.  FERC directed NYISO to filed informational reports on this process every 180 days.

FERC also disagreed with generators' argument that a supplier is not in a position of market power when multiple generators are capable of solving a reliability need, but NYISO only receives bids from one market party.  "As NYISO provides in its answer, a generator bidding in response to an SRE request knows they are needed for reliability and thus may be in a position to exercise market power.  Regardless of whether there is only one generator or multiple generators available to address a reliability need, when NYISO receives bids from a single market party in response to a reliability need, NYISO does not have an ability to evaluate competing offers," FERC said.

   
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