Commissioner Allison Clements Statement
April 9, 2021
Docket No. ER21-502-001
I dissent in part from today’s order because NYISO has failed to demonstrate that the unit it has chosen as the proxy unit in the G-J locality, a peaking facility with dual fuel capability, is “the unit with technology that results in the lowest fixed costs and highest variable costs among all other units’ technology that are economically viable.”[1] Such a demonstration is required by the plain terms of NYISO’s tariff, but NYISO’s own record evidence shows that a different unit, one without dual fuel capability, is the unit with the lowest fixed costs and highest variable costs that is economically viable. The Commission’s decision accepting NYISO’s inadequately-justified proposal subjects customers in the Lower Hudson Valley to additional capacity costs, without giving those customers the benefit of any guarantee that any units that may actually be constructed in the Hudson Valley will have firm fuel supply. Simply put, the order requires customers to pay for a different level of reliability than what they are in fact receiving.
It is undisputed that nothing in NYISO’s tariff, nor any state or federal rule of any kind, requires peaking units connected to the interstate pipeline system in the G-J locality to have dual fuel capability.[2] And while a unit connected to the Local Distribution Company (LDC) system in the region must have such capability, nothing compels a unit to connect to the LDC system rather than directly connecting to the interstate pipeline system. In fact, NYISO’s own filings in this proceeding anticipate that a unit with such a connection may be constructed, and assume that such a unit would have the same interconnection costs as a unit connected to the local distribution company system.[3] The evidence in the record put forward by NYISO indicates that a dual fuel unit would have fixed costs approximately $40.5 million greater than a unit without such capability.[4] By failing to select the lower fixed cost unit that is economically viable, NYISO has therefore violated the terms of its tariff.
NYISO argues that dual fuel is needed to provide “siting flexibility” to accommodate either type of connection point.[5] But this argument implicitly recognizes that an interstate pipeline system connection point may be feasible. NYISO claims that such flexibility will minimize siting costs, but to the extent that the lowest cost development site turns out to be at a point of connection to the interstate system, such flexibility would be entirely superfluous to a unit’s siting costs. Given NYISO’s failure to provide any evidence that the costs of siting a unit to connect to the interstate system would be higher than those of a unit connected to the LDC system, and its own assumption that a generic unit with either type of connection would have the same costs, NYISO cannot escape the conclusion that a unit without dual fuel capability is economically viable and would have lower fixed costs than a unit possessing such capability. Because NYISO’s inclusion of SCR technology in costs for the proxy unit depends upon that unit operating with dual-fuel capability,[6] NYISO has likewise failed to demonstrate that SCR costs are properly included.
The majority order’s approval of NYISO’s proposed unit extols the reliability benefits of dual fuel.[7] But using a dual fuel unit as the proxy in creating the demand curve for the Lower Hudson Valley does nothing to ensure that these reliability benefits will be achieved. The proxy unit is an input into the Cost of New Entry calculation but does not determine what types of units may actually be constructed. In the absence of a mandatory requirement for such capability, developers can be expected to pursue a profit maximizing strategy, regardless of the demand curve’s underlying assumptions. NYISO does not claim that a unit without dual fuel capability would not be eligible to provide capacity, nor does it demonstrate that a non-dual fuel unit without firm fuel supply would be de-rated or financially penalized in a manner that would jeopardize its economic viability.
The majority order seeks to dismiss Consumer Stakeholders’ argument “that NYISO has violated its Services Tariff by failing to select the peaking facility design with the lowest cost” by suggesting that “Consumer Stakeholders misinterpret the Services Tariff to only require that the proposed peaking facility have the lowest fixed costs, rather than ‘the lowest fixed costs and highest variable costs among all other units’ technology that are economically viable.’”[8] But the broader standard contained in NYISO’s tariff further supports Consumers’ case. While NYISO argues that additional energy market revenues for a dual fuel unit “result in a larger offset to the peaking plant’s gross capital investments costs,” citing an example where a dual fuel unit in Zone G would earn approximately $1.7 million in additional energy market revenues across a 12-month period,[9] that is a consequence of such a unit having lower variable costs. Under NYISO’s tariff standard, which calls for the lowest fixed cost, highest variable cost unit, these variable cost benefits do not provide a rationale for choosing a dual fuel unit over a unit without such capability.[10] NYISO has not provided evidence that this difference in energy market revenues is significant enough to impact the economic viability of a non-dual fuel unit. To the contrary, as discussed above, NYISO’s own filing suggests a unit directly connected to the interstate pipeline system would be economically viable.
The majority order refers to the Commission’s past approval of NYISO demand curve proposals that similarly used a dual fuel proxy unit for the G-J locality.[11] But those prior orders were based on different information in the record. The Commission’s most recent order found that, as in 2014, “the record reflects” that “the incremental costs of dual fuel capability would be more economical than the estimated cost of interconnecting to an interstate pipeline.”[12] Here, by contrast, NYISO has assumed the same interconnection costs for units, whether or not they connect to the interstate or LDC pipeline system. In the absence of any information in the record on higher siting costs for a non-dual fuel unit, NYISO’s own information suggests such a unit would be more, not less economically viable than a dual fuel unit given its lower fixed costs associated with the generation equipment.
As the Commission’s recent inquiry into capacity market design principles suggests, it is far from clear that basing the NYISO demand curve around the costs of a proxy gas unit continues to make sense in the current context where the majority of new resources entering the NYISO market are doing so pursuant to state and local policy directives, as well as customer demand for clean resources, rather than solely responding to wholesale market price signals. But so long as existing market rules remain in place, NYISO should be required to make the demonstration mandated by its tariff. The majority order fails to apply the required scrutiny to NYISO and thereby renders energy bills less affordable for New York customers without giving those customers correspondingly significant reliability benefits.[13]
For these reasons, I respectfully dissent in part.
[1] NYISO, Services Tariff § 5.14.1.2.2 (30.0.0).
[2] See NYISO Transmittal at 18.
[3] Id. (“[T]he gas interconnection cost assumptions reflect generic site assumptions and are intended to represent a cost to reasonably accommodate either gas interconnection option.”); Deficiency Response at 6 (“Regardless of the type of interconnection, the NYISO’s proposal for the G-J Locality ICAP Demand Curve includes the estimated costs associated with a 5-mile, 16-inch diameter gas lateral, plus the cost of an associated metering and regulation station. The capital cost estimate for the proposed peaking plant used in determining the G-J Locality ICAP Demand Curve includes an aggregate assumed cost of $23.5 million to interconnect the peaking plant to either a LDC system or an interstate pipeline.”).
[4] See NYISO Filing, attach. III, Ex. E, app. A, tbls. “1x0 GE 7HA.02 tuned to emit 25ppm Dual Fuel with SCR, Capital Costs” and “1x0 GE 7HA.02 tuned to emit 25ppm Gas Only with SCR, Capital Costs.”
[5] NYISO Transmittal at 18; Deficiency Response at 7-8.
[6] See Majority Order at 50 (“NYISO states that the inclusion of dual fuel capability significantly affects the viability of the synthetic minor approach described above.”).
[7] Majority Order at P 42.
[8] Majority Order at P 44.
[9] Deficiency Response at 4-5.
[10] Even if such costs were to be weighed against the higher up front costs associated with a dual fuel unit, the evidence in the record shows that the higher costs associated with a dual fuel unit far exceed the additional revenues such a unit would earn in the energy market.
[11] Majority Order at P 41.
[12] New York Independent System Operator, Inc., 158 FERC ¶ 61,028 at PP 92, 93 (2017).
[13] While a higher priced demand curve may attract a greater level of reserves, it does nothing to guarantee that units entering the market have dual fuel capability. Under NYISO’s capacity market design principles, setting each locality’s demand curve based on the lowest cost unit capable of meeting NYISO’s capacity requirements should be expected to procure sufficient capacity reserves to meet the region’s target reserve margin.