FERC Orders NYISO to Inflate CONE in Buyer-Side Mitigation of NYISO Capacity Offers

FERC ordered that an inflation factor shall be applied to the Unit net Cost of New Entry (CONE) used in applying buyer-side mitigation to capacity sellers in the New York ISO ICAP mechanism, in ruling on a complaint filed by capacity suppliers (EL11-42).

FERC found that an inflation factor should be applied to Unit net CONE as part of the exemption analysis in order to, "have a valid comparison of Unit net CONE to each year of the Unit Mitigation Study Period projected demand curve prices."

"This will state both the Unit net CONE and demand curve prices in 'nominal' dollars of the future years of the Unit Mitigation Study Period. That way, an 'apples to apples' comparison of Unit net CONE and projected demand curve prices can be made," FERC said.

All other things being equal, an inflation adjustment will make it more difficult for sell offers to avoid triggering buyer-side mitigation.

FERC said that in making the Unit exemption determination NYISO should "inflate" or restate Unit net CONE and demand curve price values projected for the three-year future Unit Mitigation Study Period to reflect inflation. "The average of each year's inflated Unit net CONE values for that three-year period should be compared to the average of the forecasted demand curve prices for that period," FERC held.

Unit net CONE and projected demand curve prices used in applying the prong (b) Unit exemption test should be inflated by the same inflation rate that is included in the latest effective demand curve escalation factor.

Furthermore, the offer floor for a non-exempt unit should be adjusted annually for inflation, FERC ruled. FERC will not require monthly adjustment as sought by capacity suppliers.

FERC also required NYISO to use values from the same demand curve that is effective at the time it makes an exemption determination in comparing Default net CONE with spot market auction prices.

If the Commission has not accepted proposed updated demand curves applicable to the periods used in the mitigation test at the time of such mitigation exemption determination, then, consistent with section 23.4.5.7.4 of NYISO's Services Tariff, the most recently approved demand curves must be used.