Update #2: New York PSC Asks If State Should Oversee LSE (ESCO) Resource Adequacy Portfolios, Similar To California (Written Order, Questions Issued)

PSC Launches Inquiry Into Resource Adequacy Mechanism, "Compatibility" Of NYISO ICAP Market With State Policy Goals

PSC Raises Consideration of Fixed Resource Requirement

August 8, 2019

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Update: 2:20 pm ET, 8/8

The PSC has issued its written order to open the resource adequacy inquiry

The PSC sought stakeholder comment on the following

1) Are the State’s energy policies and mandates, such as those related to Offshore Wind, photovoltaics, other renewables, and energy storage compatible with the NYISO’s resource adequacy mechanisms? If not, what issues are manifested? Also, if not, how could they be aligned?

2) Does the interaction of policies and market structure mechanisms result in safe and adequate service at just and reasonable rates for customers?

3) Is an ICAP product an effective long-term solution for resource adequacy given the required future generating resource mix, which may have lower marginal costs or different availability profiles than many current generation resources in operation? What are the salient attributes of such long-term solutions?

4) Is there a preferred mechanism(s) for ensuring resource adequacy? What are the cost impacts and benefits to consumers under the various potential resource adequacy mechanisms?

5) Should alternative approaches be considered to ensure the procurement of generation resources is aligned with State policy goals. If so, which ones? Are there existing or proposed models which might be instructive, such as the State overseeing LSEs’ resource adequacy portfolios (e.g., an approach similar to the one used by California) or restructuring NYISO rules to accommodate State public policies (e.g., a Fixed Resource Requirement Alternative, as proposed by FERC Order issued on June 29, 2018 in Docket No. EL16-49, ¶160 et seq.)?

6) What is the State role with respect to resource adequacy matters that best serves New York’s electricity customers with safe, adequate, and reliable service at just and reasonable rates in the context of state policies?

7) What, if any, next steps should the Commission take with respect to resource adequacy matters?

In the order, the PSC states, "this Order commences a proceeding for the Commission to consider how to reconcile resource adequacy programs with the State’s renewable energy and environmental emission reduction goals."

"This inquiry is necessitated by the Commission’s statutory obligations to ensure the provision of safe and adequate service at just and reasonable rates," the PSC says in the order

"Costs to consumers are a primary and ultimate consideration, recognizing that the necessary investments in resources must have sound economics. However, New York is ideally situated, being within a single state Independent System Operator, to speak clearly and coherently to its environmental, economic, and energy service policy interests, and thus to the services and outcomes it looks to electricity markets and providers to deliver," the PSC says in the order

"ICAP, as currently designed, is an incomplete resource adequacy instrument because it fails to recognize and provide compensation for many important factors, such as environmental and local reliability benefits. Because of this, there is no guarantee that the resources that clear the ICAP auctions are the same ones needed to meet the State’s clean energy and other mandates. Further, the NYISO may impose 'mitigation' on resources that are the subject of state policy support by intervening to raise their minimum bid levels into the NYISO-administered auctions and thereby potentially causing them to not 'clear' the auction, and therefore to not be counted as eligible capacity resources. As a result, consumers may pay higher costs than necessary, and that increase could grow substantially over time as the State’s clean energy goals expand," the PSC says in the order

The PSC says in its order that, "The Commission is initiating this proceeding to investigate resource adequacy matters that fall within its statutory authority under the Public Service Law (PSL). These matters directly relate to the Commission’s statutory responsibilities to ensure that 'every electric corporation and every municipality shall furnish and provide such service, instrumentalities and facilities as shall be safe and adequate and in all respects just and reasonable.' To carry out its obligations, the Commission may 'examine or investigate the methods employed...in manufacturing, distributing and supplying...electricity...and have power to order such reasonable improvements as well as promote the public interest, preserve the public health and protect those using such...electricity.' And, whenever the Commission determines, after a hearing, that 'the property, equipment or appliances of any such person, corporation or municipality are unsafe, inefficient or inadequate, the [C]ommission shall determine and prescribe the safe, efficient and adequate property, equipment and appliances thereafter to be used, maintained and operated for the security and accommodation of the public and in compliance with the provisions of law and of their franchises and charters.'"

The PSC says in its order that, "Further authority is provided under PSL §5(2) to 'encourage [jurisdictional entities] to formulate and carry out long-range programs...for the performance of their public service responsibilities with economy, efficiency, and care for...preservation of environmental values and the conservation of natural resources.' The Commission possesses all powers necessary or proper to enable the Commission to carry out the purposes of the PSL."

The PSC says in its order that, "Jurisdiction over resource adequacy matters are generally reserved to the states under the Federal Power Act (FPA). The FPA expressly reserves the rights of states to exercise jurisdiction 'over facilities used for the generation of electric energy or over facilities used in local distribution.' The FPA also reflects the nexus between resource adequacy and reliability matters by authorizing FERC to 'develop and enforce compliance with reliability standards' covering the bulk-power system, but explicitly preventing FERC from 'order[ing] the construction of additional generation or transmission capacity or to set and enforce compliance with standards for adequacy or safety of electric facilities or services.' Moreover, FERC’s jurisdiction over reliability standards preserves the 'authority of any State to take action to ensure the safety, adequacy, and reliability of electric service within that State, as long as such action is not inconsistent with any reliability standard, except that the State of New York may establish rules that result in greater reliability within that State, as long as such action does not result in lesser reliability outside the State than that provided by the reliability standards.'"

Case 19-E-0530

Earlier:

The New York PSC today commenced an inquiry into assuring resource adequacy, given questions that have been raised concerning the "compatibility" of the New York ISO installed capacity market with state policy goals.

DPS Staff noted various policies adopted by the PSC which result in installed capacity supported by ratepayers, such as renewable mandates, nuclear ZEC credits, and storage. The PSC recently filed a complaint at FERC concerning buyer-side mitigation of storage in the NYISO capacity market

DPS Staff during a presentation described the NYISO ICAP market as an "incomplete" resource adequacy mechanism

Staff noted that the NYISO ICAP market doesn't recognize the value of environmental attributes, fuel diversity, and local reliability

Staff further noted that buyer-side mitigation in the NYISO market means customers may not receive the value of capacity that is supported by customers through various state policies

This raises the question of whether the NYISO market is compatible with the state's goals

PSC Chair John Rhodes during a discussion at today's session cited the PSC's duty to ensure safe and adequate service, and just and reasonable rates, as prompting the need for the inquiry.

The PSC's order opening the inquiry includes a series of questions for stakeholder comment

Notably, one question asks if the state should oversee the resource adequacy portfolios of LSEs (such as ESCOs), similar to the California model

The PSC said in a news release that the review will be focused on the following:

• An assessment of the policy position the Commission should take with respect to resource adequacy;

• Consideration of how policies can best be aligned under existing mechanisms such as NYISO’s ICAP auctions or whether new alternative approaches should be pursued; and,

• Consideration of cost impacts and benefits to consumers under various resource adequacy mechanisms.

• The proceeding will provide ample opportunity for public comment and review.

Case 19-E-0530

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