September 22, 2022
EL21-7-000
I dissent from today’s order.[1] Once again, the majority refuses to address price suppression—this time in the New York Independent System Operator, Inc.’s (NYISO) installed capacity spot market auctions—that results from below-cost offers from resources receiving out-of-market payments provided by New York State. A market rate design cannot be competitive, let alone just and reasonable, when it permits states to freely manipulate prices. By their very design, state subsidies give certain resources a competitive advantage over other resources. Any generator that is not receiving a subsidy will be forced into premature retirement or potentially into expensive, out-of-market reliability contracts to keep the lights on.
I have explained, at length, our obligation to mitigate the exercise of buyer-side market power via state-sponsored resources bidding below cost and suppressing capacity prices.[2]
I have also repeatedly explained that the Commission has a statutory mandate to ensure that rates are just and reasonable and no state action can override our obligation.[3] Courts have agreed.[4] When the inevitable price suppression caused by unmitigated state subsidies results in the premature retirement of generators with needed attributes, resource adequacy will be compromised.[5]
Given that states continue to place their finger on the scale in order to favor certain resources, perhaps it is time we seriously consider a return to cost-based ratemaking to protect ratepayers. This would return responsibility for resource adequacy back to the states, which are exercising their prerogative under the Federal Power Act to select the generation assets within their territory. Doing otherwise perpetuates the notion that our markets are competitive and, therefore, capable of incentivizing investment in the necessary type and quantity of resources, when, in fact, they are not.
For these reasons, I respectfully dissent.
[1] Cricket Valley Energy Ctr. LLC v. FERC, 180 FERC ¶ 61,180 (2022).
[2] Comm’r James P. Danly, White Paper: Commissioner James Danly on the Requirement that Competitive Markets be Protected from the Exercise of Market Power Applied to [Regional Transmission Organization (RTO)] Capacity Markets, FERC (July 15, 2021), https://www.ferc.gov/news-events/news/white-paper-commissioner-james-danly-requirement-competitive-markets-be-0; Comm’r James P. Danly, White Paper: Commissioner James Danly on the Requirement that Competitive Markets be Protected from the Exercise of Market Power Applied to RTO Capacity Markets, FERC (June 17, 2021), https://cms.ferc.gov/news-events/news/white-paper-commissioner-james-danly-requirement-competitive-markets-be-protected; Comm’r James P. Danly, Danly Office White Paper: The Requirement that Competitive Markets be Protected from the Exercise of Market Power Applied to RTO Capacity Markets, FERC (May 20, 2021), https://www.ferc.gov/news-events/news/danly-office-white-paper-requirement-competitive-markets-be-protected-exercise.
[3] See, e.g., ISO New England Inc., 179 FERC ¶ 61,139 (2022) (Danly, Comm’r, dissenting); N.Y. Indep. Sys. Operator, Inc., 179 FERC ¶ 61,102 (2022) (Danly, Comm’r, concurring in part and dissenting in part) (dissenting from the portion of the order that excludes state-preferred resources that come under New York State’s Climate Leadership and Community Protection Act from NYISO’s buyer-side market power mitigation rules); Statement of Commissioner Danly, Docket No. ER21-2582-000 (Oct. 27, 2021) (FERC Accession No. 20211027-4003) (Danly Fair RATES Act Statement).
[4] The D.C. Circuit has squarely found that “mitigation measures . . . do not entail direct regulation of facilities, a matter within the exclusive control of the states. See 16 U.S.C. § 824(b)(1).” New England Power Generators Ass’n, Inc. v. FERC, 757 F.3d 283, 290 (D.C. Cir. 2014). The Third Circuit also has rejected a state’s claim that the Commission “is preventing New Jersey from using the resources it has chosen to promote,” holding that “FERC is doing no such thing.” N.J. Bd. of Pub. Utils. v. FERC, 744 F.3d 74, 97 (3d Cir. 2014) (NJBPU). Finding that NYISO’s reforms are not just and reasonable and retaining mitigation measures do not thwart a state’s choice to promote preferred resources. If they want their preferred capacity, even in the face of a Commission-imposed mitigation regime, they are entitled to it. The states simply must pay for it. See id. (“Thus, as in Connecticut Department of Utility Control, New Jersey and Maryland are free to make their own decisions regarding how to satisfy their capacity needs, but they ‘will appropriately bear the costs of [those] decision[s],’ . . . including possibly having to pay twice for capacity.”) (quoting Conn. Dep’t of Pub. Util. Control v. FERC, 569 F.3d 477, 481 (D.C. Cir. 2009)). The states could also exit the market and return to cost-of-service ratemaking. See, e.g., Ill. Com. Comm’n v. FERC, 721 F.3d 764, 776 (7th Cir. 2013) (“A further answer to both the substantive and procedural questions . . . is that [RTO] members who think they’re being mistreated by the . . . tariff can vote with their feet. Membership in an RTO is voluntary . . . .”).
[5] Chairman Glick says that I am “prone to hyperbole” when I warn that blackouts are the likely outcome of the majority’s misguided policies to prop up renewables at the expense of competitive markets and existing fossil resources. Rich Heidorn Jr., Summer Forecasts Spark Warnings of ‘Reliability Crisis’ at FERC, RTO Insider (May 19, 2022), https://www.rtoinsider.com/articles/30170-summer-forecasts-spark-warnings-reliability-crisis-ferc. Chairman Glick appears to be confusing “hyperbole” with “reality.” California and Texas have already experienced blackouts.