The New York Independent System Operator’s (NYISO) board is expected to rule today on a proposal that would allow it to expand and increase financial penalties for power plant owners that are found to have engaged in the exercise of market power. Generators in the state are asking the NYISO to reject the plan, arguing that it will remove incentives for power suppliers to sell electricity into New York during critical peak demand periods.

At issue is an April 18 decision by the management committee of the NYISO to seek the joint filing of a proposal that would increase and expand the penalties imposed by the NYISO under its market mitigation plan. The ISO’s management committee has proposed that the NYISO’s board of directors join them in urging the Federal Energy Regulatory Commission to approve the plan.

The NYISO management committee made its decision in response to a plan forwarded by the New York Consumer Protection Board (NYCPB) last month. In its proposal to the ISO’s management committee, the NYCPB said that the market mitigation authority held by the NYISO is applicable on a prospective basis only. If the NYISO determines that a market participant is exercising market power, it can take actions to prevent only the future reoccurrence of that market power, according to the NYCPB. The NYISO does not have the power to retroactively correct prices that were impacted by the conduct that results in the application of market mitigation, the consumer protection board went on to note, or to assess financial penalties on the offending market participant to take away the gains that it made from the exercise of market power. The NYCPB said that there “appears to be no deterrent to the use of market power.”

An NYISO spokesperson confirmed to NGI that the ISO’s board will meet today to consider the proposal and said that a decision is expected on the matter before the end of the day.

Power producers in New York State are less than thrilled with the plan. The Independent Power Producers of New York (IPPNY) earlier this month said that the proposal would discourage electricity suppliers from selling into New York during critical peak demand periods, and argued that it is unnecessary. To bolster its argument, the IPPNY pointed out that the ISO’s own market advisor found in an April 17 report (See Daily GPI, April 20) that the current generation and supply system in the state works and that changes in the mitigation plan are not needed at this time. The association also believes that the plan would impose penalties unfairly against generating plants that don’t violate bidding rules, due to a provision that imposes “default bids” on all plants affiliated with a single company, even if those plants sell power as separate entities.

At its 15th annual spring legislative conference last week, IPPNY members highlighted the need for New York to expedite new power plant approvals and avoid what the association believes is unnecessary price regulation. Although the IPPNY believes that New York’s Article X siting law works, IPPNY Executive Director Gavin Donohue argued that the approval process for proposed generation facilities takes too long.

Meanwhile, the NYISO’s market mitigation activities are also receiving increased scrutiny in the nation’s capital. FERC last week said that the NYISO needs to return to the Commission and make a filing under the Federal Power Act (FPA) before the ISO implements modified market mitigation procedures.

FERC’s order, issued last Wednesday, came in response to a complaint filed by several Mirant affiliates at FERC against the NYISO. The NYISO, in a March notice of withdrawal of a filing, stated that it intends to automate a step in its market mitigation measures to eliminate the current one-day delay in mitigating conduct that would otherwise set non-competitive market energy prices in the next day’s day-ahead market. But the Mirant affiliates state that the withdrawal filing makes clear that the NYISO improperly intends to implement these automated mitigation procedures (AMP) without filing any changes to its market monitoring plan pursuant to the FPA.

The Mirant affiliates further assert that the AMP creates a “new and unproven presumption” that market power has been exercised, thereby denying the procedural due process currently provided to market parties under the ISO’s market monitoring plan. The Mirant affiliates also assert that the AMP creates a greater probability of improper mitigation actions by the NYISO and that after-the-fact uplift compensation for improperly mitigated bids would not correct the artificially depressed price signals sent to other market players. Also, the affiliates maintain that the AMP establishes a threshold that never appears in the ISO’s market monitoring plan, since if the energy price in any zone for any time exceeds the threshold level of $150 per megawatt hour, the AMP will be invoked and the suspect market behavior will be automatically mitigated.

In its order, FERC notes that the FPA requires the NYISO to keep on file with the Commission practices and regulations affecting its rates, but the ISO’s current tariff does not include language adequately specifying the timing and the process that are contained in the AMP. Accordingly, FERC said that if the NYISO wishes to implement its AMP proposal, it must file revised tariff sheets pursuant to section 205 of the Federal Power Act to set forth the AMP procedures. In that filing, the ISO must also address the concerns raised by the parties in this proceeding, the order added. “Accordingly, along with the other concerns raised by the commenters, NYISO should more fully address the question of whether the AMP provides sufficient opportunity for meaningful consultation,” FERC stated. In addition, FERC said that the NYISO should also address the concerns that inaccurate market-clearing prices will result even if the party whose bid was improperly mitigated is ultimately made whole, and that the AMP would establish a new $150 threshold that never appears in the ISO’s market monitoring plan.

FERC Commissioner William Massey last week offered up a dissent to the Commission’s NYISO order. Specifically, Massey argued that the ISO’s existing tariff allows it to implement the modified market mitigation procedures without having to make a section 205 filing with FERC. In Massey’s view, the ISO’s existing tariff language “plainly allows” the ISO to implement the AMP. “It is critical for the ISO to have this mitigation tool available as the summer season approaches,” Massey wrote.

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