The New York Independent System Operator (NYISO) is asking FERC to approve a market design in New York electricity markets based on an unforced capacity (UCAP) methodology, which it says will offer an incentive for generators to improve the efficiency of their generating assets. More broadly, the ISO expects the UCAP proposal to bring it one step closer to the development of a common installed capability (ICAP) market design among the various Northeastern ISOs.

The NYISO made its proposal in a petition filed at the Federal Energy Regulatory Commission at the end of last week. It asked FERC to allow it to implement a Stage II ICAP market with a UCAP methodology, which estimates the probability that a resource is available to serve load, taking into account forced outages. UCAP requires that the NYISO qualify resources based not only on dependable maximum net capability tests, but also taking into account each resources actual generating performance. The NYISO also proposed revisions to its services tariff to reduce the length of the obligation procurement period to one month from six months. Under a one-month obligation procurement period, load serving entities must demonstrate to the NYISO that they have procured sufficient UCAP every month for the following month.

The ISO said that the UCAP methodology is expected to give generators a reason to improve the efficiency of their generating assets. Under UCAP, qualification of a unit’s “unforced” capacity reflects its actual forced outage experience. In addition, the move to a one-month obligation procurement period will address issues raised by the current market design based on a six-month obligation procurement period, which allows for load shifting every month. In the past, load shifting has caused load serving entities to become deficient and pay substantial deficiency charges, even if they had diligently secured sufficient ICAP in a capability period auction.

The NYISO argued that its market design brings it closer to the development of a common ICAP market design in the Northeast and helps to eliminate seams issues. FERC recently examined seams-related issues at a technical conference looking at regional transmission organization coordination (see Daily GPI, June 20). The ISO asserted that the implementation of a UCAP methodology in New York closely mirrors the market design for PJM (Pennsylvania, New Jersey and Maryland). During the development of the NYISO’s market design, the ISO’s staff consulted with PJM staff on several occasions to assess the application of such concepts in New York state.

The NYISO noted that its proposal raises questions related to a price cap previously set for generating units within New York City. FERC in 1998 adopted market power mitigation measures for certain New York City generating units owned at the time by Consolidated Edison and subject to divestiture. But the conversion of ICAP to UCAP raises the question of how the cap ought to be translated for UCAP, the NYISO said.

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