Commissioner Richard Glick Statement
October 15, 2020
Docket No. EL19-86-001
Order: E-25
I dissent from today’s order because it once again perverts buyer-side market power mitigation into a series of unnecessary and unreasoned obstacles to New York’s efforts to shape the resource mix. Buyer-side market power mitigation should be all about and only about buyers with market power. Applying buyer-side market power mitigation to entities that are not buyers or that lack market power is nonsensical. Moreover, even when applied to buyers with market power, mitigation must be tailored to and reasonably address their potential to exercise that market power.
In this order, the Commission continues to apply buyer-side market power mitigation where it does not belong. The electric storage resources at issue in this proceeding are not buyers, much less buyers with market power. That should be the end of the analysis. Instead, the Commission insists on subjecting those resources to unjust and unreasonable mitigation measures that will inappropriately prop up prices and place the Commission in direct conflict with the State of New York. It is becoming increasingly clear that, unless something changes, the Commission’s effort to “protect” NYISO’s capacity market may ultimately be what dooms it.
Buyer-Side Market Power Mitigation Should be Limited to Buyers with Market Power
When first introduced, buyer-side market power mitigation rules were (as their name would suggest) aimed squarely at mitigating the exercise of buyer-side market power—i.e., the ability of a large buyer of capacity to exercise monopsony power to lower capacity market clearing prices. To the extent the Commission required buyer-side mitigation of capacity market offers, it limited that mitigation to resources that could be used effectively for the purpose of depressing capacity market prices or to resources with both the incentive and ability to depress capacity market clearing prices.[1] In short, buyer-side market power mitigation was all about, and only about, the exercise of buyer-side market power.[2]
The Commission has abandoned that narrow focus. It no longer requires a resource to be a buyer, much less a buyer with market power, before subjecting that resource to buyer-side market power mitigation. Buyer-side market power rules—often referred to as minimum offer price rules or MOPRs—that were once intended only as a means of preventing the exercise of market power have evolved into a scheme for propping up prices, freezing in place the current resource mix, and blocking states’ exercise of their authority over resource decisionmaking.[3] The result is an ever-expanding system of administrative pricing that is, ironically enough, justified on the basis that it promotes competition.[4] But, in reality, it is not competition that the Commission is promoting.[5]
The basic premise of market competition is that sellers should compete to offer the best terms, including price, to provide a particular product or service. And the purpose of capacity markets is to provide the “missing money” that resources need to remain viable, but are unable to earn by providing energy and ancillary services due to various limitations in the markets for those services.[6] That means that capacity market competition should follow a single “first principle”: Enabling resources to vie with each other to require as little missing money as possible to cover their going forward costs, receive a capacity commitment, and help to ensure resource adequacy. For the market to be truly competitive, resources must have the flexibility to reflect their own expertise, experience, technology, risk tolerance, and whatever else might provide them with a competitive advantage in the quest to provide capacity at the lowest possible cost. True competition can produce enormous benefits for consumers by shifting risk to investors, facilitating the entry of relatively efficient resources (and the retirement of inefficient ones), and spurring the development and deployment of new technologies and business models—all while procuring the lowest-cost set of resources needed to keep the lights on.
Instead of promoting true competition, the Commission’s approach to buyer-side market power has degenerated into a scheme for propping up prices, protecting incumbent generators, and impeding state clean energy policies.[7] Although the specifics of the mitigation regimes vary among the eastern RTOs, they all generally force new entrants to bid at or above an administratively determined estimate[8] of what a new resource “should” cost, while existing resources are permitted to bid at a lower level.[9] In practice, those administrative pricing regimes create a systemic bias in favor of existing resources and curtail resources’ incentive and ability to compete across all possible dimensions. Moreover, because potential new entrants to the capacity markets tend to disproportionately be new technologies and resources needed to satisfy state or federal public policies, the Commission’s use of MOPRs also has the unmistakable effect (and, recently, the intent[10]) of slowing the transition to a cleaner, more advanced resource mix.
That type of quasi-competition does not lead to an efficient market outcome. To achieve an efficient outcome, resources’ capacity market offers must reflect all relevant costs minus all relevant revenues, including costs and revenues that are not derived directly from Commission-jurisdictional markets.[11] If the market ignores some of those costs and revenues, then the set of resources selected will not actually reflect the lowest-cost or most efficient means of ensuring resource adequacy. And yet that is where we find ourselves: All three eastern RTOs now force new resources to compete based on administratively determined estimates of their costs and revenues, rather than their own estimates of what they need to make up the missing money. The result is neither a competitive market nor an efficient outcome.
We got to this point largely because of the Commission’s misguided belief that it must “protect” capacity markets from the influence of state public policies.[12] However, as explained below, the Commission’s efforts to prop up prices by mitigating the effects of state public policies upset the jurisdictional balance that is at the heart of the FPA and interfere with capacity markets’ ability to produce efficient market outcomes.
The FPA is clear. The states, not the Commission, are responsible for shaping the generation mix. Although the FPA vests the Commission with jurisdiction over wholesale sales of electricity, as well as practices affecting those wholesale sales,[13] Congress expressly precluded the Commission from regulating “facilities used for the generation of electric energy.”[14] Congress instead gave the states exclusive jurisdiction to regulate generation facilitates.[15]
But while those jurisdictional lines are clearly drawn, the spheres of jurisdiction themselves are not “hermetically sealed.”[16] One sovereign’s exercise of its authority will inevitably affect matters subject to the other sovereign’s exclusive jurisdiction.[17] For example, any state regulation that increases or decreases the number of generation facilities will, through the law of supply and demand, inevitably affect wholesale rates.[18] But the existence of such cross-jurisdictional effects is not necessarily a “problem” for the purposes of the FPA. Rather, those cross-jurisdictional effects are the product of the “congressionally designed interplay between state and federal regulation”[19] and the natural result of a system in which regulatory authority over a single industry is divided between federal and state government.[20] Maintaining that interplay and permitting each sovereign to carry out its designated role is essential to the cooperative federalism regime that Congress made the foundation of the FPA.
When the Commission tries to prevent a state public policy from having an inevitable, but indirect effect on a capacity market, it takes on the role that Congress reserved for the states. That is true even where the Commission claims that its only “policy” is to block the effects of state public policies, not the state policies themselves. After all, a federal policy of eliminating the effects of state policies is itself a form of public policy—just not one that Congress gave the Commission authority to pursue.
Moreover, as former Commission Chairman Norman Bay correctly observed, an “idealized vision of markets free from the influence of public policies . . . does not exist, and it is impossible to mitigate our way to its creation.”[21] Instead, public policy and energy markets are inextricably intertwined.[22] Nearly every aspect of the electricity market is affected by at least one—and more often many—federal, state, or local policies.[23] Even if the Commission is successful in ferreting out state efforts to shape the generation mix, the result will not be a “competitive” market. Instead, the market will remain a reflection of public policy, but will ignore the effects of the very policy decisions that Congress expressly gave the states the authority to make. And while that might further the Commission’s goal of increasing prices and slowing the transition to a cleaner energy mix, it will not establish a market based on anything close to actual competition, much less one that is insulated from public policy.
And the end result will be profoundly inefficient, no matter how many times my colleagues use the words “market” and “competition.” The resources procured through that market will require considerably more missing money than would the set of resources procured in the absence of this kind of over-mitigation.[24] Moreover, the mitigation regimes that the Commission has approved will, by design, ignore resources that must be built because they are necessary to satisfy state public policies. As a result, capacity markets will procure unneeded capacity and customers will be left paying twice for capacity. That means customers will be paying for more of the more expensive capacity than they should.
In addition, widespread mitigation undermines a capacity market’s ability to establish price signals that efficiently guide resource entry and exit. States will continue to exercise their authority over the resource mix no matter how hard the Commission tries to frustrate those efforts, especially given the ever-growing threat posed by climate change.[25] A capacity construct that ignores state public policies will produce price signals that do not reflect the factors that are actually influencing the development of new resources. Those misleading price signals will encourage the participation of the wrong types of resources or resources that are not needed at all. It is hard for me to see how a price signal that encourages redundant investment is a “competitive” or desirable outcome, much less a just and reasonable one.
The Commission has suggested that if it succeeds in blocking state policies, then capacity markets will become efficient little islands unto themselves.[26] But a capacity market is a means to an end, not an end in itself. It is a construct that is supposed to minimize the amount of money that customers spend on capacity in order to meet a target reserve margin.[27] A capacity market that does not serve that purpose and is “efficient” only if you disregard the fact that, in the real-world, it produces inefficient results is a “market” that we ought to reject out-of-hand.
Instead of interfering with state public policies, the Commission’s buyer-side market power mitigation regime should be all about—and only about—buyers with market power. In the event that a resource is not a buyer with market power, its capacity market offer should not be subject to buyer-side market power mitigation.[28] That result is both more consistent with the FPA’s federalist foundation and the Commission’s core responsibility as a regulator of monopoly/monopsony power.[29] That approach would also be a great deal simpler and would get the Commission out of these interminable disputes about who gets mitigated, when, and to what level. In short, I believe that buyer-side market power mitigation rules that are not limited only to market participants with actual buyer-side market power are per se unjust and unreasonable and should be abandoned immediately.[30]
“Actual” is an important distinction here. The Commission has at times justified extending buyer-side market power mitigation to resources that receive state subsidies on the basis that the state is like a quasi-buyer that looks out for the interests of all consumers in the state.[31] We should abandon that notion as well. States regulate for a variety of reasons and acting as if any regulation is an exercise of market power fundamentally misunderstands the role Congress reserved for the states under the FPA. Philosophical market power—as distinguished from actual market power—should have no place in the Commission’s regulatory regime. In any case, to the extent that a state is directly targeting the wholesale market price, then the law in question is preempted and there is no need to muddle things up with a MOPR.[32]
Some argue that Commission intervention is necessary to “protect” the market from states’ exercise of their authority under the FPA. But if we ever reach a point where the only way to “save” a capacity market is to unmoor it from reality by blocking the effects of state policies, then it will be past time to find an alternative approach to ensuring resource adequacy—one whose feasibility does not depend on inefficient real-world outcomes or the Commission usurping the role that Congress reserved for the states. What is more, that perspective completely ignores previous state and federal actions to shape the generation mix, which have collectively done far more to shape the current generation mix than the steps that states are taking today.[33]
Indeed, the Commission’s efforts to “save” capacity markets are more likely to hasten their eventual demise. The more the Commission interferes with state public policies under the pretext of mitigating buyer-side market power, the more it will force states to choose between their public policy priorities and the benefits of the wholesale markets that the Commission has spent the last two decades fostering. Although that should be a false choice, the Commission is increasingly making it into a real one. New York provides the perfect example as the Public Service Commission has begun a proceeding to consider “taking back” from NYISO the responsibility for ensuring resource adequacy.[34] And numerous states are considering leaving the other eastern RTOs’ capacity markets, which also have rules that hinder states’ exercise of their resource decisionmaking authority. The Commission’s overreach, affirmed in today’s order, will no doubt create greater momentum in that direction.
Today’s Order is Arbitrary and Capricious
I believe that the foregoing analysis compels the Commission to go back to basics on buyer-side market power mitigation.[35] Where entities are not buyers, they categorically should not be subject to buyer-side market power mitigation.[36] End of discussion. And where entities are buyers, the Commission should impose buyer-side market power mitigation only when those buyers possess actual market power.[37]
Today’s order fails that standard. When participating in NYISO’s capacity market, electric storage resources are not buyers, much less buyers with market power. Accordingly, the application of buyer-side market power mitigation to electric storage resources is per se unjust and reasonable.
The Commission does not contest the facts.[38] Instead, it responds that “[b]uyer-side market power mitigation rules may change over time to protect the integrity of the capacity market.”[39] None of the rehearing parties are disputing the fact that buyer-side market power mitigation rules—like any market rules—can and will change over time. Their point is that those rules have changed in a manner that is arbitrary and capricious.[40] In particular, they argue that it is not reasonable to impose measures for mitigating buyer-side market power where there is no buyer-side market power to begin with.[41] Noting the fact that those rules have changed is not a reasoned response to the argument that the change is arbitrary and capricious.[42] After all, the mere fact that a rule can change does not make the change at issue just and reasonable.
The Commission also argues that it is appropriate to evaluate market power here by looking to whether all electric storage resources collectively possess something akin to buyer-side market power.[43] But, as I explained in my dissent from the underlying order, that is not how the Commission evaluates market power in other circumstances.[44] We do not, for example, consider whether all natural gas-fired units collectively possess market power and mitigate them on that basis.[45] It would be absurd to do so because individual resources do not share incentives or act on a class-wide basis. As such, if buyer-side market power is actually the concern, an inquiry based on an entire resource class’s ability to “suppress prices” is not a reasonable approach to addressing that concern.
In addition, the Commission’s rejection of the arguments for adopting a limited exemption from buyer-side market power mitigation is similarly unreasoned. The New York Parties argue that the Commission should have created an exemption for electric storage resources in much the same way that it created exemptions—albeit limited ones—for renewables and self-supply resources.[46] As they explain, the same principles on which the Commission relied to justify those exemptions support an exemption from mitigation for at least some electric storage resources.[47] The Commission response is bewildering, to put it mildly. It suggests that electric storage resources are not similarly situated to the renewable resources receiving exemptions, because “the Commission determined that only purely intermittent renewable resources with low capacity factors are eligible for the renewable resources exemption based on the Commission’s determination that these resources have little or no incentive and ability to exercise buyer-side market power.”[48] And, the Commission notes, “[e]lectric storage resources are not purely intermittent.”[49]
But, no one is arguing that electric storage resources are intermittent, much less “purely intermittent.” Nor should they because the Commission has never said that only resources that are purely intermittent can or should qualify for exemptions from buyer-side market power mitigation rules. Rather, the Commission has previously provided exemptions from buyer-side market power mitigation based upon whether the resource has the incentive and ability to artificially suppress prices.[50] It is abundantly clear that the rehearing requests are arguing that electric storage resources are similarly situated to other exempt resources because they lack the incentive and ability to depress the capacity market clearing price—not that they are intermittent.[51] In other words, the rationale relied upon to support limited exemptions for other resource types supports a similar exemption for electric storage resources. Responding to that argument with a reference to the uncontested fact that electricity storage resources are not intermittent renewables is not a reasoned response. In fact, it is completely nonsensical.
The bottom line is that the Commission has failed to justify the continued use of buyer-side market power mitigation measures against individual energy storage resources. And it has similarly failed to explain the differing approaches it has taken to issuing exemptions from mitigation for different types of resources. Indeed, today’s order leaves the distinct impression that if the New York Parties had sought an exemption for electric storage resources a few years earlier, they very likely would have received it and been in a better place today. All told, today’s order aptly illustrates what a mess buyer-side market power mitigation has become in New York.
* * *
As I have explained before, we must not let the detailed questions addressed in this order cause us to lose the forest for the trees.[52] New York is exercising its reserved authority under the FPA to regulate generation resources as part of its ambitious efforts to address climate change.[53] As part of that policy, it is seeking to promote electric storage resources and secure the multitude of benefits that those resources can provide to the grid.[54] The Commission’s approach to buyer-side market power mitigation puts it at loggerheads with the State in a way that is entirely unnecessary and wholly unproductive.
The Commission can use all the buzz words it wants—“integrity,”[55] “price suppression,”[56] or even just the ad nauseam invocation of markets[57]—without changing the fact that we are witnessing a federal agency attempt to stamp out the effects of a state’s efforts to promote a clean energy future. That does not end well. Not only does it undermine the jurisdictional balance that Congress created when it enacted the FPA, it also leads to higher prices[58] and casts doubt on the long-term viability of the markets that we should be striving to foster and protect.
Finally, today’s order is yet another example of why we should pay attention to what the Commission does, not what it says. We’ve heard a lot recently about concerns regarding climate change, respect for states’ rights, and enthusiasm for emerging technologies, including energy storage. In today’s order, all those concerns are on full display. And yet, as usual, when push comes to shove, the Commission inevitably chooses the path that will prop up prices and freeze in place the current resource mix. Until that changes, even once, we should remain skeptical that professed concerns about climate, states’ rights, or emerging technologies are anything more than window dressing.
For these reasons, I respectfully dissent.
[1] See, e.g., PJM Interconnection, L.L.C., 117 FERC ¶ 61,331, at PP 34, 103-04 (2006) (discussing the buyer-side market power mitigation provisions imposed as part of the settlement that created the Reliability Pricing Model); see also Richard B. Miller, Neil H. Butterklee & Margaret Comes, “Buyer-Side” Mitigation in Organized Capacity Markets: Time for a Change?, 33 Energy L.J. 449, 460-61 (2012) (Time for a Change?) (discussing the Commission’s early approach to buyer-side market power mitigation).
[2] See, e.g., PJM Interconnection, L.L.C., 117 FERC ¶ 61,331 at P 104 (“The Commission finds the Minimum Offer Price Rule a reasonable method of assuring that net buyers do not exercise monopsony power by seeking to lower prices through self supply.”); N.Y. Indep. Sys. Operator, Inc., 122 FERC ¶ 61,211, at P 106 (2008) (explaining that buyer-side market power “mitigation is aimed at preventing uneconomic entry by net buyers of capacity, the only market participants with an incentive to sell their capacity for less than its cost.”).
[3] See Calpine Corp. v. PJM Interconnection L.L.C., 169 FERC ¶ 61,239 (Calpine v. PJM), r’hrg denied, 171 FERC ¶ 61,035 (2020) (Calpine v. PJM Rehearing) (Glick, Comm’r, dissenting at P 4); see also Miller, Butterklee & Comes, Time for a Change?, 33 Energy L.J. at 461 (“[B]uyer mitigation has effectively become new entrant mitigation under which all new entrants are subject to mitigation unless otherwise exempted because they have somehow demonstrated that their new facility is not ‘uneconomic.’”).
[4] See, e.g., Calpine v. PJM, 169 FERC ¶ 61,239 at P 38 (discussing the Commission’s finding on the need to maintain the “integrity of competition”); id. P 17 n.38 (“This Commission determined many years ago that the best way to ensure the most cost-effective mix of resources is selected to serve the system’s capacity needs was to rely on competition.”); ISO New England Inc., 162 FERC ¶ 61,205, at P 24 (2018) (asserting that states’ exercise of their authority over generation facilities “raises a potential conflict with . . . competitive wholesale electric markets”).
[5] See Calpine v. PJM Rehearing, 171 FERC ¶ 61,035 (2020) (Glick, Comm’r, dissenting at P 3) (explaining that the Commission’s [PJM MOPR orders] “turned the ‘market’ into a system of bureaucratic pricing so pervasive that it would have made the Kremlin economists in the old Soviet Union blush”). It is also worth noting that this Commission’s infatuation with mitigation only goes one way. It is interested in mitigation only when it raises prices. While the Commission has devoted untold resources to pursuing illusory concerns about monopsony power, it has so far refused to take a hard look at seller-side market power. One example is the Chairman’s premature termination of the enforcement process regarding the nearly 1,000% year-over-year increase in prices in MISO Zone 4 and the Commission’s failure to provide any justification for its finding that such a rate is just and reasonable. See Pub. Citizen, Inc. v. Midcontinent Indep. Sys. Operator, Inc., 168 FERC ¶ 61,042 (2019) (Glick, Comm’r, dissenting at PP 4-5). Another example is the Commission’s failure over the course of the last year to take any action on the complaints regarding PJM’s Market Seller Offer Cap. Those complaints allege that PJM’s current rules allow for the exercise of market power, which increase the total cost of capacity by more than a billion dollars. See PJM Independent Market Monitor Complaint, Docket No. EL19-47-000 at 11-12 (Feb. 21, 2019). That complaint has now sat before the Commission for more than 20 months, and it has been more than 15 months since the last substantive filing was made in that docket.
[6] See, e.g., James F. Wilson, “Missing Money” Revisited: Evolution of PJM’s RPM Capacity Construct 1 (2016), https://www.publicpower.org/system/ files/documents/markets-rpm_missing_money_revisited_wilson.pdf (discussing the concept of missing money and the origin of capacity markets in the eastern RTOs); Roy J. Shanker Comments, Docket No. RM01-12-000 (Jan. 10, 2003) (discussing the idea of missing money).
[7] Calpine v. PJM, 169 FERC ¶ 61,239 (Glick, Comm’r, dissenting at P 4).
[8] In previous orders, the Commission has made much out of so-called unit-specific exemptions, which permit a resource to bid below the default offer floor if it can convince the relevant market monitor that its estimated net going-forward costs are below that floor. If the resource succeeds, the market monitor permits the resource to bid at a lower, but still administratively determined, level. That is still administrative pricing. See Calpine v. PJM Rehearing, 171 FERC ¶ 61,035 (Glick, Comm’r, dissenting at P 86).
[9] In ISO New England and NYISO, existing resources are exempt from mitigation. N.Y. State Pub. Serv. Comm’n v. N.Y. Indep. Sys. Operator, Inc., 170 FERC ¶ 61,119, at P 38 (2020) (NYPSC v. NYISO) (“NYISO’s buyer-side market power mitigation measures are applied to all new entrants in the mitigated capacity zones[.]”); ISO New England Inc., 162 FERC ¶ 61,205 at P 3 (“ISO-NE utilizes a minimum offer price rule, or MOPR, that requires new capacity resources to offer their capacity at prices that are at or above a price floor set for each type of resource[.]”). The Commission’s recent order in PJM applied the MOPR to existing resources, but makes them subject to a different—and generally more favorable—pricing regime than new resources. Calpine v. PJM, 169 FERC ¶ 61,239 at P 2 (“[T]he default offer price floor for applicable new resources will be the Net Cost of New Entry (Net CONE) for their resource class; the default offer price floor for applicable existing resources will be the Net Avoidable Cost Rate (Net ACR) for their resource class.” (footnotes omitted)); id. (Glick, Comm’r, dissenting at PP 32-35) (criticizing the Commission for using different offer floor formulae for existing and new resources).
[10] See, e.g., Calpine v. PJM, 169 FERC ¶ 61,239 (Glick, Comm’r, dissenting at P 4).
[11] The periodic demand curve resets that occur in the eastern RTOs illustrate the variety of factors that go into determining the missing money. For example, the development of Net CONE in NYISO’s most recent demand curve reset addressed factors ranging from federal, state, and local requirements related to environmental considerations, regional differences in capital and labor costs, as well differences in social justice requirements. See NYISO Transmittal, Docket No. ER17-386-000, Ex. D (Nov. 18, 2016) (Analysis Group, Inc. study addressing demand curve parameters). Those factors affect not only what resource you build and where you can build it, but also how you can operate that resource and, therefore, what revenues you can expect to earn and what costs you can expect to incur. Considering all those factors is necessary to produce efficient price signals guiding when and where to site new capacity, notwithstanding the fact that they are not derived from Commission-jurisdictional markets.
[12] See, e.g., NYPSC v. NYISO, 170 FERC ¶ 61,119 at P 37; Calpine v. PJM, 169 FERC ¶ 61,239 at P 5 (explaining that the Commission is applying a MOPR to state-sponsored resources in order to “protect PJM’s capacity market from the price-suppressive effects of resources receiving out-of-market support”); ISO New England Inc., 162 FERC ¶ 61,205 at P 24 (“It is . . . imperative that such a market construct include rules that appropriately manage the impact of out-of-market state support[.]”).
[13] Specifically, the FPA applies to “any rate, charge, or classification, demanded, observed, charged, or collected by any public utility for any transmission or sale subject to the jurisdiction of the Commission” and “any rule, regulation, practice, or contract affecting such rate, charge, or classification.” 16 U.S.C. § 824e(a); see also id. § 824d(a) (similar).
[14] See id. § 824(b)(1); Hughes v. Talen Energy Mktg., LLC, 136 S. Ct. 1288, 1292 (2016) (describing the jurisdictional divide set forth in the FPA); FERC v. Elec. Power Supply Ass’n, 136 S. Ct. 760, 767 (2016) (EPSA) (explaining that “the [FPA] also limits FERC’s regulatory reach, and thereby maintains a zone of exclusive state jurisdiction”); Panhandle E. Pipe Line Co. v. Pub. Serv. Comm’n of Ind., 332 U.S. 507, 517-18 (1947) (recognizing that the analogous provisions of the NGA were “drawn with meticulous regard for the continued exercise of state power”). Although these cases deal with the question of preemption, which is, of course, different from the question of whether a rate is just and reasonable under the FPA, the Supreme Court’s discussion of the respective roles of the Commission and the states remains instructive when it comes to evaluating how the application of a MOPR squares with the Commission’s role under the FPA.
[15] 16 U.S.C. § 824(b)(1); Hughes, 136 S. Ct. at 1292; see also Pac. Gas & Elec. Co. v. State Energy Res. Conservation & Dev. Comm’n, 461 U.S. 190, 205 (1983) (recognizing that issues including the “[n]eed for new power facilities, their economic feasibility, and rates and services, are areas that have been characteristically governed by the States”).
[16] EPSA, 136 S. Ct. at 776; see Oneok, Inc. v. Learjet, Inc., 135 S. Ct. 1591, 1601 (2015) (explaining that the natural gas sector does not adhere to a “Platonic ideal” of the “clear division between areas of state and federal authority” that undergirds both the FPA and the Natural Gas Act).
[17] See EPSA, 136 S. Ct. at 776; Oneok, 135 S. Ct. at 1601; Coal. for Competitive Elec. v. Zibelman, 906 F.3d 41, 57 (2d Cir. 2018) (explaining that the Commission “uses auctions to set wholesale prices and to promote efficiency with the background assumption that the FPA establishes a dual regulatory system between the states and federal government and that the states engage in public policies that affect the wholesale markets”).
[18] Zibelman, 906 F.3d at 57 (explaining how a state’s regulation of generation facilities can have an “incidental effect” on the wholesale rate through the basic principles of supply and demand); id. at 53 (“[I]t would be ‘strange indeed’ to hold that Congress intended to allow the states to regulate production, but only if doing so did not affect interstate rates.” (quoting Nw. Cent. Pipeline Corp. v. State Corp. Comm’n of Kansas, 489 U.S. 493, 512-13 (1989) (Northwest Central))); Elec. Power Supply Ass’n v. Star, 904 F.3d 518, 524 (7th Cir. 2018) (explaining that the subsidy at issue in that proceeding “can influence the auction price only indirectly, by keeping active a generation facility that otherwise might close . . . . A larger supply of electricity means a lower market-clearing price, holding demand constant. But because states retain authority over power generation, a state policy that affects price only by increasing the quantity of power available for sale is not preempted by federal law.”).
[19] Hughes, 136 S. Ct. at 1300 (Sotomayor, J., concurring) (quoting Northwest Central, 489 U.S. at 518); id. (“recogniz[ing] the importance of protecting the States’ ability to contribute, within their regulatory domain, to the [FPA]’s goal of ensuring a sustainable supply of efficient and price-effective energy”).
[20] Cf. Star, 904 F.3d at 523 (“For decades the Supreme Court has attempted to confine both the Commission and the states to their proper roles, while acknowledging that each use of authorized power necessarily affects tasks that have been assigned elsewhere.”).
[21] N.Y. State Pub. Serv. Comm’n v. N.Y. Indep. Sys. Operator, Inc., 158 FERC ¶ 61,137 (2017) (Bay, Chairman, concurring at 2).
[22] As the FPA itself recognizes, “the business of transmitting and selling electric energy for ultimate distribution to the public is affected with a public interest.” 16 U.S.C. § 824.
[23] See Calpine v. PJM, 169 FERC ¶ 61,239 (Glick, Comm’r, dissenting at PP 27-28) (discussing the scope of federal and state subsidies affecting the PJM capacity market); Calpine Corp. v. PJM Interconnection, L.L.C., 163 FERC ¶ 61,236 (2018) (Calpine v. PJM Initial Order) (Glick, Comm’r, dissenting at 6-9) (explaining how “[g]overnment subsidies pervade the energy markets and have for more than a century”); ISO New England Inc., 162 FERC ¶ 61,205 (Glick, Comm’r, dissenting in part and concurring in part at 3) (“Our federal, state, and local governments have long played a pivotal role in shaping all aspects of the energy sector, including electricity generation.”).
[24] That is particularly true given that the Commission permits a resource to increase its estimated costs due to state policy and environmental goals (e.g., the increased fixed and variable costs associated with selective catalytic reduction, see NYISO Transmittal, Docket No. ER17-386-000 at 2), but not its revenue derived from state public efforts that may happen to be aimed at the exact same environmental goals.
[25] See, e.g., Calpine v. PJM, 169 FERC ¶ 61,239 (Glick, Comm’r, dissenting at P 55); see also N.Y. Indep. Sys. Operator, Inc., 173 FERC ¶ 61,206 (2020) (Glick, Comm’r, dissenting at P 1) (“The Commission’s approach is both deeply misguided and will ultimately doom NYISO’s current capacity market construct by forcing New York to choose between the Commission’s constant meddling and the state’s commitment to addressing the existential threat posed by climate change.”).
[26] Calpine v. PJM, 169 FERC ¶ 61,239 at P 5; ISO New England Inc., 162 FERC ¶ 61,205 at P 21.
[27] See supra P 5.
[28] State polices that exceed the states’ jurisdiction because they set or aim at wholesale rates would, of course, remain preempted. See, e.g., Hughes, 136 S. Ct. at 1298.
[29] Cf. Nat’l Ass’n of Reg. Util. Comm’rs v. FERC, 475 F.3d 1277, 1280 (D.C. Cir. 2007) (noting that “FERC’s authority generally rests on the public interest in constraining exercises of market power”).
[30] In dissents from previous Commission orders addressing MOPRs, I have also argued that the Commission’s policy in those particular cases exceeded its jurisdiction because it directly targeted state policies. E.g., Calpine v. PJM Rehearing, 171 FERC ¶ 61,035 (Glick, Comm’r, dissenting at PP 5-25). I still believe that to be true. But my point today is a broader one: The Commission should altogether abandon the use of buyer-side market power mitigation regimes to address something other than actual buyer-side market power, even putting aside whether the Commission’s application of those regimes exceeds its jurisdiction in the first place.
[31] See, e.g., NYPSC v. NYISO, 170 FERC ¶ 61,119 at PP 37, 39; see also N.Y. State Pub. Serv. Comm’n v. N.Y. Indep. Sys. Operator, Inc., 158 FERC ¶ 61,137 (Bay, Chairman, concurring at 3) (“The MOPR is not applied to the state, which may not actually be a buyer and which is acting on behalf of its citizenry, but to the resource, which is offering to sell capacity to the market and which may be a commercial entity. The theory, in other words, assumes such a congruence of interests between the state and the resource that the resource is mitigated for the conduct of the state.”).
[32] See Hughes, 136 S. Ct. at 1298 (“States may not seek to achieve ends, however legitimate, through regulatory means that intrude on FERC’s authority over interstate wholesale rates.”); see also New England Ratepayers Ass’n, 168 FERC ¶ 61,169, at PP 41-46 (2019) (finding a state policy preempted because it sets a wholesale rate).
[33] See, e.g., Calpine v. PJM Initial Order, 163 FERC ¶ 61,236 (Glick, Comm’r, dissenting, at 6-9) (discussing the history of federal and state subsidies that have shaped the resource mix).
[34] N.Y. State Pub. Serv. Comm’n, Case 19-E-0530, Order Instituting Proceeding and Soliciting Comments (Aug. 8, 2019), http://documents.dps.ny.gov/public/Common/ ViewDoc.aspx?DocRefId=%7b1D25F4BE-9A05-463F-A953-790D36E318BC%7d.
[35] N.Y. Pub. Serv. Comm’n v. N.Y. Indep. Sys. Operator, Inc., 170 FERC ¶ 61,119 (2020) (Glick, Comm’r, dissenting at PP 1, 19).
[36] Id. (Glick, Comm’r, dissenting at P 19).
[37] Id. (Glick, Comm’r, dissenting at P 19).
[38] N.Y. Pub. Serv. Comm’n v. N.Y. Indep. Sys. Operator, Inc., 173 FERC ¶ 61,060, at P 24 (2020) (Order) (“Despite the origins of buyer-side market power mitigation rules, they have subsequently been used in centralized markets to prevent resources that have the incentive and/or ability to suppress market prices from exercising that ability.”).
[39] Id.
[40] NYTOs Rehearing Request at 7 (“[T]he Complaint Order’s anticompetitive effects cannot be saved by the economic theory of prevention of monopsony power because there is no basis to presume or find that the [electric storage resources], individually or as a class, have buyer-side market power.”); Clean Energy Groups Rehearing Request at 24-29 (contending that “the Commission should approve the exemptions requested in the Complaint because [electric storage resources] have neither the incentive nor the ability to suppress capacity market clearing prices and thus lack market power, which is the basis for the Commission’s authority to approve mitigation”); New York Parties Rehearing Request at 17-20.
[41] See, e.g., NYTOs Rehearing Request at 12-13; Clean Energy Groups Rehearing Request at 24-29.
[42] After all, the fact that an agency may permissibly change policy does not mean that it is permissible for an agency to adopt arbitrary and capricious policy. See F.C.C. v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009).
[43] Order, 173 FERC ¶ 61,060 at P 19.
[44] N.Y. Pub. Serv. Comm’n v. N.Y. Indep. Sys. Operator, Inc., 170 FERC ¶ 61,119 (Glick, Comm’r, dissenting at P 19 & n.38).
[45] Id. (Glick, Comm’r, dissenting at n.38).
[46] New York Parties Rehearing Request at 21-24 (“The record in this proceeding demonstrates that [electric storage resources] are similarly situated to those resources the Commission has previously found warranted exemptions.”).
[47] Id.
[48] Order, 173 FERC ¶ 61,060 at P 26.
[49] Id.
[50] See, e.g., N.Y. Pub. Serv. Comm’n v. N.Y Indep. Sys. Operator, Inc., 153 FERC ¶ 61,022, at PP 47, 51 (2015) (explaining that “purely intermittent [renewable resources] and that have relatively low capacity factors and high development costs . . . have limited or no incentive and ability to artificially suppress capacity prices”).
[51] New York Parties Rehearing Request at 22 (“The record in this proceeding demonstrates that [electric storage resources] are similarly situated to those resources the Commission has previously found warranted exemptions. Like renewables and self-supply, storage resources lack the incentive and ability to suppress prices.”); see also Order, 173 FERC ¶ 61,060 at P 19 (“To attain an appropriate balance between under-mitigation and over-mitigation, the Commission has allowed NYISO to exempt certain resources from the buyer-side market power mitigation rules if they lack the incentive and/or ability to suppress capacity market prices.”).
[52] See N.Y. Indep. Sys. Operator, Inc., 173 FERC ¶ 61,058 (2020) (Glick, Comm’r, dissenting at P 31).
[53] See New York Parties Complaint at 2, 15-16, 20-21 (filed July 19, 2019) (discussing the New York State Climate Leadership and Community Protection Act (CLCPA)).
[54] See, e.g., Clean Energy Groups Rehearing Request at 8-9 (“The efficient and widespread deployment of [electric storage resources] at scale is critical to meeting the CLCPA’s requirement of 3,000 MW of energy storage as well as the law’s broader renewable electricity and greenhouse gas reduction requirements.”).
[55] Order, 173 FERC ¶ 61,060 at P 39.
[56] E.g., id. PP 21, 49.
[57] Id., passim.
[58] On this score, the Commission’s response is essentially that any price increases are the fault of the states for having exercised their authority over the generation mix in the first place. Id. PP 49-50. Blaming the states for exercising their reserved authority, especially when it was Commission policy that earlier this year underwent an abrupt change and created the problem, is hardly a model of good government, much less reasoned decisionmaking. See New York Parties Rehearing Request at 20 (“[T]he Commission not only failed to protect consumers from excessive rates and charges; it is responsible for foisting those charges on consumers.”); see also id. at 18 (explaining that describing the risk of double payment as one “‘states are free to take’” is “backwards”).