Item E-23: Commissioner James Danly Dissent Regarding New York Independent System Operator, Inc.

Commissioner James Danly Statement
December 16, 2022
ER21-502-004

I dissent from the majority’s order on remand issued today, as I did in the underlying proceeding.[1]  This issuance continues to reject the 17-year amortization period for the peaking generator plant that the New York Independent System Operator, Inc. (NYISO) proposed as part of its demand curve reset and instead directs NYISO to use the earlier Commission-approved 20-year amortization period for the 2021-2025 demand curve reset cycle.[2]

Consistent with my earlier statement, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) held that the Commission’s justification for rejecting NYISO’s proposal to implement a 17-year amortization period was “insufficiently reasoned and must be set aside.”[3]  According to the court, because the Commission “had previously approved NYISO’s decision to index the price of capacity to the net cost of a peaking plant as just and reasonable,” “NYISO needed to show that its amortization period represented a reasonable estimate of the number of years that an investor would expect a gas-fired plant built in New York between 2021 and 2025 to remain commercially viable.”[4]  The court determined that none of the reasons advanced by the Commission were “sufficient to demonstrate inconsistency with NYISO’s Tariff and justify FERC’s order.”[5]

First, the D.C. Circuit found the order’s suggestion—that some fossil-fueled plants may remain in service after 2039 because the law’s requirements may be modified—was “squarely inconsistent” with Commission precedent requiring NYISO to “take into account currently effective laws and regulations and avoid speculating about laws and regulations in the future.”[6]  The court noted that “at the time of NYISO’s filing, the [New York State Commission] had not exercised its discretion to ‘modify’ the Act’s zero-emission target and had given no indication it ever would.”[7]  Second, the D.C. Circuit found the Commission failed to explain why the NYISO’s interpretation of the law, namely that the New York State Commission will require each power plant in New York to meet the 2040 zero-emission requirement, was outside the zone of reasonableness.[8]  Third, the D.C. Circuit found the Commission failed to “either critically review the [Market Monitoring Unit’s] analysis or perform its own” as to whether fossil-fueled plants will retire or continue to operate after 2040.[9]  The court declined to express its “view on whether the more detailed explanations FERC offered in its briefing could support the same result if adopted by the agency and supported by the record.”[10]

Now declaring that this issuance “[c]onsider[s] the record as a whole, including what the record reflects as well as what it lacks,”[11] the Commission largely recasts its former arguments and reaches the same result.  It finds that there is “uncertainty about when the [law] will be fully implemented.”[12]  It also finds that the record reflects a 17-year amortization period that “will significantly increase the cost of capacity” and the cost is  notjustified.[13]

Yet, the same New York State law remains on the books.  It “requires electricity demand in the State to be served by 100% zero-emission resources by January 1, 2040.”[14]  The New York State Commission still has not taken action.  NYISO’s decision to revise the 17-year amortization period was taken in response to the law and based on a plain reading of the law.  Notwithstanding the 2040 zero-emission requirement, the Commission contends that this does not explicitly require fossil fuel generator retirement nor has the New York State Commission acted as the law requires.  The Commission concludes that, because the New York State Commission has not indicated that the only means to comply is for existing fossil fuel generators to retire, NYISO is speculating as to a future state issuance.  The Commission points to studies that a “significant capacity of dispatchable thermal resources will be needed.”[15]  According to the majority, “[u]ntil there is more certainty with respect to how the [New York State law] will practically affect new and existing generators post-2040, we find that there is insufficient support for reducing the amortization period to 17 years.”[16]  Yet, the Commission itself is speculating as to what the New York State Commission will do or will not do.  Although the New York State Commission is a signatory to comments in this proceeding,[17] that does not constitute an official action.  The fact remains that the law is in effect and that NYISO is taking into account of it.  The speculative arguments advanced by the Commission are inconsistent with precedent and fall short of addressing the deficiencies identified by the court.

This issuance also does not overcome the court’s holding that the Commission failed to explain why NYISO’s interpretation of the law, namely that the New York State Commission will require each power plant in New York to meet the 2040 zero-emission requirement, was outside the zone of reasonableness.  Here too, the Commission speculates as to what might happen once the New York State Commission acts, when (and if) it does.  The Commission identifies the denial by the New York Department of Environmental Conservation’s of two air permits because they depended on potential future action by the New York State Commission, in further support of its position that the law’s zero emission goal does not alone predict implementation or compliance with the law.[18]  The Commission ignores the plain language of the law and states: “[s]hould the New York Commission ultimately adopt implementation criteria that explicitly requires the retirement of all fossil-fuel generators in New York State by 2040, those regulations can be properly taken into account in future demand curve resets.”[19]  The Commission’s arguments are speculative and thus fail to reckon with whether NYISO’s proposal is within the zone of reasonableness.

Today’s order loses sight of our statutory mandate.  We evaluate whether NYISO’s proposal is just and reasonable under section 205 of the Federal Power Act.[20]  The fact that others have proposed an alternative 15 or 20 year amortization period is irrelevant.[21]  Considering the time to build a unit after the implementation of the new demand curves, I prefer a 15-year amortization period but I would not substitute my judgment that 15-years is more just and reasonable than NYISO’s 17-year proposal.[22]  I continue to believe NYISO’s 17-year amortization period is just and reasonable.

As to the order’s finding that the high cost of the shorter amortization period is not justified,[23] it is arbitrary and capricious to reject the proposed amortization period as too costly without considering the overall rate effect of the proposed demand curves.  By requiring an artificially low demand curve today, we jeopardize reliability and only defer and increase the costs that consumers will ultimately have to bear when they eventually underwrite the construction of a new fleet of emissions-free generation resources.

For these reasons, I respectfully dissent.