PROTEST of CLEAN ENERGY PARTIES of Cricket Valley Energy
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UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION ) Cricket Valley Energy Center LLC and ) Empire Generating Company, LLC, ) ) Complainants, ) ) v. ) Docket No. EL21-7-000 ) New York Independent System Operator, Inc., ) ) Respondent. ) ) PROTEST OF CLEAN ENERGY PARTIES Pursuant to Rule 211 of the Federal Energy Regulatory Commission’s (“FERC” or “Commission”) Rules of Practice and Procedure,1 the Sustainable FERC Project, Natural Resources Defense Council, Sierra Club, American Wind Energy Association, Alliance for Clean Energy New York, and Advanced Energy Economy (collectively, “Clean Energy Parties”) respectfully submit this Protest in response to the Federal Power Act (“FPA” or “the Act”) Section 2062 complaint (“Complaint”) filed on October 14, 2020, by Cricket Valley Energy Center LLC (“Cricket Valley”) and Empire Generating Company, LLC ( “Empire Generating”) (collectively, “Complainants”) against the New York Independent System Operator, Inc. (“NYISO”) in the above-captioned docket. Specifically, Complainants request fast-track processing and the issuance of an order on or before December 31, 2020, finding that the offer floor rules set forth in Attachment H to 1 18 C.F.R. §§ 385.211 and 214. 2 16 U.S.C. § 824e. 1 NYISO’s Market Administration and Control Area Services Tariff (the “Services Tariff”)3 are unjust, unreasonable, and unduly discriminatory and establishing a replacement rate. For the reasons set forth herein, the Clean Energy Parties protest the Complaint and urge the Commission to reject it because Complainants have failed to demonstrate that the existing rate is unjust and unreasonable and because the proposed expanded Minimum Offer Price Rule (“MOPR”) is not just and reasonable. The Complainants have also failed to establish a need for fast track review. Clean Energy Parties also urge the Commission to provide an opportunity for stakeholders to work through its shared governance process and the New York Public Service Commission’s (“NYPSC”) resource adequacy proceeding to explore opportunities to durably integrate policy with NYISO’s capacity market design.4 TABLE OF CONTENTS I. SUMMARY OF ARGUMENT ............................................................................................... 4 II. BACKGROUND ..................................................................................................................... 9 A. The purpose of capacity markets is to support reliability at minimal cost to consumers through price signals capable of guiding the orderly entry and exit of resources. ...................... 9 B. New York State has unique authority over resource adequacy and reliability. ............... 12 C. NYISO’s capacity market is designed to send price signals that meet long-term resource adequacy objectives in the most cost-effective manner for consumers .................................... 15 D. State policies invariably impact the costs and revenues of supply resources .................... 18 E. New York addresses environmental externalities through a range of public policies ....... 20 F. History of NYISO’s Buyer Side Mitigation Rules ............................................................ 22 G. Arguments Raised by Complainants .................................................................................. 27 III. Argument ........................................................................................................................... 29 3 Capitalized terms used and not otherwise defined herein have the same meaning as that provided in the Services Tariff, or if not defined therein, in the NYISO’s Open Access Transmission Tariff (“OATT”). The Offer Floor Rules are set forth in Section 23.4.5.7 of Attachment H to the Services Tariff. Although the rules are labelled therein as “Buyer-Side Market Power Mitigation Measures for Installed Capacity,” Complainants refer to them as the “Offer Floor Rules.” 4 N.Y. State Pub. Serv. Comm’n, Case 19-E-0530, Order Instituting Proceeding and Soliciting Comments (Aug. 8, 2019), http://documents.dps.ny.gov/public/Common/ ViewDoc.aspx?DocRefId=%7b1D25F4BE-9A05-463F-A953- 790D36E318BC%7d. 2 A. Complainants have failed to demonstrate that the existing rate is unjust and unreasonable 29 1. Current capacity rates provide more than an adequate level of resource adequacy are therefore just and reasonable ................................................................................................. 31 2. The Complaint Fails to Demonstrate an Actual “Threat”, Does Not Propose Just and Reasonable Changes to NYISO’s Mitigation Measures, and Fails to Tailor its Relief to the Scope of Any Actual “Problem” ........................................................................................... 33 4. Complainants have not been deprived of an opportunity to recover their costs ............ 40 5. Complainants Fail to Acknowledge Factors that Differentiate NYISO from Other Regions with Mandatory Capacity Markets .......................................................................... 42 6. Complainants Provide No Indication They Have Sought to Use NYISO’s Stakeholder or Tariff Processes ................................................................................................................. 45 B. Complainants’ Expanded BSM Proposal Is Not Just and Reasonable .............................. 49 1. Complainants’ basis for requested relief is not supported by Section 206 .................... 51 2. Complainants’ Expanded BSM Proposal Is Based on Flawed Economic Logic ........... 54 a. The State Policies at Issue Address Well-Understood Market Failures Such as Environmental Externality Costs ....................................................................................... 55 b. The “Correct” Capacity Price Is the One that Aligns Supply with Demand (Not the Price That Would Prevail in the Absence of State Policies) .............................................. 57 c. Capacity Markets with Sloping Demand Curves Cannot Simultaneously Produce Low Prices and Poor Resource Adequacy ................................................................................. 59 d. Broad Application of Buyer-Side Mitigation to Policy Resources will Amplify (Not Mitigate) Regulatory Risks ................................................................................................ 60 e. Merchant Investors Operate in a Context that Includes Environmental Policies from Which They Never Should Have Expected to be Indemnified .......................................... 62 f. BSM Should Be Applied for Its Narrow Original Purpose of Mitigating Market Power Abuses (Not Repurposed to Undo the Effects of State Policies) ............................ 63 3. Expanded BSM would unjustly disconnect the capacity market from its intended purpose of providing resource adequacy and thwarts New York’s clean energy transition . 64 a. An Expanded BSM Inflates Capacity Rates and Requires Redundant Capacity Without Benefiting Customers .......................................................................................... 64 b. Expansion of Buyer-Side Mitigation Threatens to Undermine the Future of Competitive Wholesale Electricity Markets ...................................................................... 68 4. Complainants’ requested “Clean MOPR” is unjust and unreasonable, because it would undermine New York’s lawful exercise of power to protect its citizens and ensure reliability 68 a. Collaborative Federalism and New York’s Legitimate Regulatory Role................... 69 3 b. Expanded BSM Would Usurp States’ Role under the Federal Power Act ................. 72 c. An Expanded BSM Will Thwart New York’s Legitimate Regulatory Goals ............ 74 IV. CONCLUSION .................................................................................................................. 77 I. SUMMARY OF ARGUMENT The complaint filed by Cricket Valley Energy Center, LLC and Empire Generating Company LLC is meritless and must be rejected by the Commission. These two uneconomic gas generators seek to transform NYISO’s capacity market from a tool designed primarily to ensure cost-effective resource adequacy into a mechanism to prop up generation resources not needed for reliability. As explained in the written testimony of Dr. Kathleen Spees and Dr. Samuel A. Newell of The Brattle Group, The Economic Impacts of Buyer-Side Mitigation in New York ISO Capacity Market, the economic theory underlying this complaint is fundamentally flawed and would yield a “capacity market that excludes a large majority of the fleet, with market clearing outcomes having no relationship to underlying supply and demand fundamentals.” The Brattle Group’s analysis shows that expanding NYISO’s Buyer-Side Mitigation (BSM) rules as requested in the complaint would result in almost 3,900 UCAP MW of redundant gas- and oil-fired plants clearing the capacity market over the next decade that otherwise would have been replaced by state policy resources. This amount is supplemental to the over 3,000 UCAP MW of thermal plants that would be unnecessarily retained over the next decade by the BSM as it already applies in more limited areas of New York. Drs. Spees and Newell estimate the total cost to New York consumers of the MOPR expansion sought by this complaint at $1.3 billion annually by 2030. Rarely do consumers get so little for so much. Complainants have failed to meet their burden under Section 206 to establish that the existing capacity market rules, including the offer floor rules,