Sock It To 'Em: FERC Denies Phase-In of New York Local Capacity Zone, Retail Rates Projected to Increase 25% from Zone

FERC has denied the New York ISO's sought phase-in of the new G-J local capacity zone (Lower Hudson Valley zone).

NYISO had said that without a phase-in, some consumer retail rates could increase by as much as 25% upon implementation. Load interests have warned that the new capacity zone will result in over half a billion dollars in payments under the first three years of the new capacity zone.

A phase-in, "would delay the capacity market's ability to send more efficient investment price signals to attract and maintain sufficient capacity to meet local demand," FERC said.

"[A] phase-in that would suppress prices for a two-year period would discourage competitive supply and could increase the likelihood of regulatory actions to meet capacity needs," FERC said.

We're not sure how FERC arrives at the latter conclusion -- a 25% spike in retail rates essentially guarantees that the PSC will undertake whatever action is needed to lower the G-J price spike, since mitigation at FERC was not successful.

In any event, FERC's decision to subject loads in zones G-J to a spike in capacity prices should be viewed in light of two ongoing issues:

1. The New York PSC's decision yesterday to cap default service rates at NiMo

2. The request from NYISO to pay generators make-whole payments above the $1,000/MWh bid cap, even if these generators have a capacity supply obligation

Although when first contemplated, the 25% rate shock from the new local capacity zone was concerning, that concern is now heightened seeing as how the New York PSC is willing to interfere in the retail market to the extent exorbitant wholesale costs justify such intervention.

FERC, in the same order, also accepted as proposed by NYISO various ICAP demand curve parameters.

Docket ER14-500