FERC Orders NYISO to Re-test Capacity Units' Exemption from Buyer-Side Mitigation Using New Data

FERC yesterday ordered the New York ISO to recalculate its determinations exempting the new 575 MW generating facility owned by Astoria Energy II LLC (Astoria II) and the 512 MW generating facility being developed by Bayonne Energy Center, LLC from the buyer-side mitigation rules, as FERC granted, in part, a complaint from Astoria Generating Company, L.P. and TC Ravenswood.

FERC found that the exemption determinations should have been based on data for prices, revenues, and costs as of October 2010, rather than, as used by NYISO, data from July 2008 for Astoria II. Should the units no longer qualify for an exemption from mitigation, capacity prices could increase.

FERC ruled that if NYISO's redeterminations of the mitigation exemptions for Astoria II and Bayonne result in either of them not being exempt from mitigation, they will be subject to the applicable offer floor for the duration specified in NYISO's tariff.

Astoria II has already participated, and cleared, in several auctions held in past months without being subject to an offer floor.

Of most note to retail suppliers and other LSEs, FERC ruled that any buyer-side mitigation under the redeterminations shall be applied on prospective basis only, and not affect the prices under prior capacity auctions.

"[E]ven if NYISO finds that either Astoria II or Bayonne is subject to an offer floor, we will not require NYISO to re-run the auctions occurring in the past based on such offer floors. Re-running past auctions would create market uncertainty for market participants and require resolving complex questions. For example, if any resources that cleared the original auction (and actually provided capacity services) did not clear the re-run auction, the question would arise whether such a resource should be paid, and if so, how much. Conversely, if any resources failing to clear the original auction (and thus, not providing capacity services in that past period) would clear in the re-run auction, the question would arise whether such a resource should be paid (despite not providing capacity services in the past period), and if so, how much. We conclude that it is preferable not to re-run these past auctions, in order to provide greater certainty for market participants, and to avoid the need to resolve these complex issues. Because we are not requiring a retroactive remedy, if and at such time that NYISO determines that the subject projects are not exempt, NYISO should apply the applicable offer floor prospectively from the date of the determination for the period provided in the Services Tariff," FERC said.

With respect to Astoria II, FERC also ordered that NYISO recalculate Astoria II's unit net Cost of New Entry to include its share of the cost of common facilities, Astoria II's share of class year 2010 project cost allocation, and the out-of-pocket costs (if any) of the transferred capacity deliverability rights as of October 2010.

FERC also found that NYISO's use of the actual cost of capital for Astoria II in the mitigation exemption determination was inappropriate because the actual, lower cost of capital for Astoria II resulted from lower financing costs due to its power purchase agreement with the New York Power Authority. FERC called the PPA the result of a "discriminatory" solicitation -- discriminatory because the NYPA solicitation was limited to new resources, and therefore provided Astoria II with "irregular or anomalous" cost advantages that should not be reflected in the mitigation exemption determination.

Docket: EL11-50