Washington (Platts)--22Jan2013/157 pm EST/1857 GMT

A federal appellate court on Tuesday upheld the US Federal Energy Regulatory Commission's 2010 approval of New York Independent System Operator's plan to mitigate the market power of certain generators by reducing how much they are paid for providing electricity to maintain grid reliability.

FERC in the initial and rehearing orders approved the seller-side mitigation measures but declined New York City-based generator TC Ravenswood's call to also address buyer-side market power in the energy capacity market. The measures that FERC approved applied to all suppliers located in New York, with exception to those in New York City and Long Island.

Ravenswood argued that suppliers generally do not receive enough revenues to cover their costs and that the market power mitigation measures would exacerbate that shortfall. To balance that effect, it asked FERC to prevent generators that are subsidized under state or federal programs from bidding at unjustifiably low prices.

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The commission rejected the request, reasoning that no one had submitted evidence that NYISO's mitigation plan would prevent generators from recovering their full costs. FERC also said that higher energy prices in periods of marketwide scarcity would help generators recover their fixed costs and it noted that NYISO was considering the buyer-side market power mitigation issue in a stakeholder process.

Ravenswood asked the US Court of Appeals for the District of Columbia Circuit to review the decisions. It argued that FERC's acceptance of supplier-side mitigation measures without any counterbalancing buyer-side mitigation measures violated FERC's general policy against single-issue rate filings as well as the commission's duty to assure the utility's tariff reflects just and reasonable rates and service terms.

While the DC Circuit said it is true that FERC "may not slice and dice issues to the prejudice of a party," the court was not convinced that there had been any abuse of discretion by FERC.

"In the first place, Ravenswood exaggerates the integrated character of the two issues" by calling them matters of supply- and buyer-side market power, the court said. Granted, both issues "involve distortion of competitive results, but market power and subsidies seem to be different brands of distortion."

Second, the court had already approved FERC's incremental approach to addressing market power issues, the DC Circuit said.

Finally, "the specific context of the mitigation orders here itself exemplifies the iterative process" in that FERC accepted NYISO's plan to apply bid mitigation to three generators before it allowed the broader mitigation measures that are challenged by Ravenswood, the court said.

"Although delay may be costly, just such delay has occurred in the process of addressing supply side market power, and it would take a far clearer case than this to justify our disrupting the pattern created by the commission's choices over how to sequence its consideration of those issues," the DC Circuit said.

--Esther Whieldon, esther_whieldon@platts.com
--Edited by Jason Lindquist, jasonlindquist@platts.com