Washington (Platts)--3Dec2012/613 pm EST/2313 GMT

The New York Independent System Operator is proposing changes that would allow merchant generation projects to be exempt from its capacity market buyer-side mitigation tests if they meet certain standards for competitiveness, NYISO staff said at a Monday meeting.

Now, new facilities entering NYISO capacity markets that do not pass the mitigation exemption test are considered uneconomic and face bid mitigation. This could limit their participation in auctions by requiring them to set bids that might be too high to clear.

NYISO's Principal Economist Nicole Bouchez said this approach does not take into account market assumptions that influence investment decisions, speaking at a Monday meeting of a the market issues working group and the installed capacity working group. For example, Bouchez said, the exemption test does not reflect potential future retirements, which may play a key role in determining whether a merchant project is economically viable.

Article continues below...

Request a free trial of: Electric Utility Week
	Electric Utility Week focuses on the fundamental news that matters to utilities, including: the state of utility industry earnings, stock prices and strategies, regional grid organizations, prospects for transmission investment, new areas of opportunity like broadband-over-power-line service.

To address that discrepancy, NYISO is proposing a new exemption to its buyer-side mitigation tests for "competitive entry that is not receiving support outside of competitive markets, thus allowing such entrants to enter at their own risk and based on their own business outlook," Bouchez said in a presentation to the working groups.

Under the NYISO's proposal, new merchant generation projects would be eligible for the exemption as long as they do not have direct or indirect contracts with any New York distribution company, municipal utility or government entity. State distribution companies, munis and government agencies would not be eligible for the exemption, even if they build the new unit themselves.

"What we're really trying to target here is competitive entry," Bouchez said. "What we're really going for is trying to identify a common denominator of what a pure merchant facility is. [We wanted to] not have any situation where there could be cross-subsidization happening and cut out any circumstances where a cost could end up in a rate base."

To obtain the exemption, NYISO's proposal said, company officials will need to submit certifications about the absence of contracts with prohibited entities at specific points during the interconnection study process and when the plant first sells energy. NYISO would also need to be able to review all contracts related to physical or financial supply from the project.

Any attempts to circumvent NYISO's proposed rules to improperly secure an exemption would be referred to the Federal Energy Regulator Commission's office of enforcement, Bouchez said.

NYISO is also considering other potential penalties it could impose in such cases, according to Bouchez.

As a further protection, if a project is certified as exempted from buyer-side mitigation rules under this competitive exemption provision and then enters a contract with a forbidden entity, it would not be eligible for NYISO's normal mitigation exemption test and would have to bid into the capacity market at the default net cost of new entry.

NYISO staff asked market participants to submit written comments on the proposal by January 3. The issue will be discussed again at the installed capacity working group's January 14 meeting.

--Juliana Brint, juliana_brint@platts.com
--Edited by Carla Bass, carla_bass@platts.com

Tweet