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Hudson Valley & NYC Brace As Imminent Changes to New York’s Energy Markets Approach

Cowritten by Natara G. Feller, Esq.

The race to solve New York’s energy future is on and competing solutions have hit a new threshold of controversy.  In one corner, Governor Cuomo wants to build new transmission lines to bring power from update resources to serve downstate demand.  In the other corner, FERC has approved the New York Independent System Operator’s (a regional transmission organization operating under FERC’s umbrella) solution to create of a new downstate capacity zone  made up of the Lower Hudson Valley and New York City. Enter Hudson Valley Congressman Maloney (D), representing Orange, Putnam, and parts of Westchester and Dutchess Counties, who has sponsored H.R. 4327, a law introduced on March 27, 2014 that would prohibit FERC from authorizing the creation of a new capacity zone if it raises costs for ratepayers.

There is significant transmission congestion between upstate and downstate (i.e. upstate and Central New York vs. Lower Hudson Valley and NYC). New York City, Long Island, and Westchester County account for over half of the electricity demand in New York.  The problem – at peak demand, there is insufficient transmission line capacity to deliver enough energy to the downstate region.  Thus the question – how to resolve this reliability problem?

The new zone basically creates a boundary, and within those limits, sufficient electric capacity must be available to meet customer demand. This capacity can come from transmission lines that enter into the region or from new or existing generation within the region.

From the New York Public Service Commission’s (NY PSC’s) perspective, this plan will cost rate payers in the new zone $230 million in just the first year and $500 million over three years to fund the start up costs of newly required generation facilities. It also fails to take into account a massive transmission line build out initiative currently underway known as the Energy Highway Blueprint, which was initiated by Governor Cuomo. From NYISO’s perspective, its mandated studies found undisputed significant transmission constraints in the new capacity zone.  NYISO must base its decision to ensure reliability in the region on current conditions, which may not include the Governor’s proposed transmission lines, no matter how promising.

Background to the Proceeding

Currently, the New York Independent System Operator’s (“NYISO’s”) Installed Capacity market has three pricing zones: New York City, Long Island, and the New York Control Area (the rest of the state). NYISO is responsible for ensuring reliability in New York and, as it has asserted that under its tariff, if its studies show current transmission constraints, then it must create a new capacity zone to incentivize generation capacity that will sufficiently serve demand. The type of generation this would be is an open question . . . there may just be an increase in the capacity of existing generation or an opportunity to build new generation (including renewables).

Simultaneously, this FERC proceeding is occurring with the reveal of New York’s Energy Highway Blueprint plan, which proposes to expand the transmission capacity between upstate and downstate by over 1000 MW. The NYPSC has argued that the Blueprint Plan would result in the development of new transmission lines in the region and would significantly alter the landscape that NYISO’s proposal is based off of. By easing congestion bringing in power from other areas of the state, the new capacity zone may not be necessary. The Blueprint plan also promises to increase access to downstate markets for Upstate New York’s growing wind power industry. The NYPSC has begun implementing the Blueprint Plan, including a proposed rulemaking for a 10 month expedited review “for future transmission projects that can be built wholly within existing utility or State-owned rights-of- way.”  Throughout, NYPSC has stated that it is against the new capacity zone as transmission lines coming in from upstate would bring down cheap power by 2018, just after the fastest new plants incented by the new capacity zone. Alternatively, NYPSC has supported a three year phase in.

In assessing reliability constraints, NYISO cannot consider future planned transmission upgrades, no matter how promising, and must make its decisions based on what is actually happening on the ground. It seems that even with the phase-in proposal described below, that the New York Energy Highway initiative must start making progress with significant urgency.

NYISO Takes a Step Back, Proposing To Phase In The New Capacity Zone

Based on its desire to prevent customer ‘rate-shock,’ NYISO requested, on October 28 and again on November 27, 2013, that FERC approve a three year phase-in of the new capacity zone.

On January 28, 2014, FERC rejected the phase-in adjustment, and subsequently on February 24, 2014, NYISO submitted its compliance filing for its revised tariff without a phase-in. Energy marketers, local stakeholders  and ratepayers remain deeply concerned about a drastic increase in costs without a phase in.

Also, in late February Hudson Valley municipalities, environmental citizen groups, the NYPSC, members of Congress,  various generators, and other stakeholders have requested rehearing (i.e., appealed) FERC’s January 28 decision denying the phase in.   In its request for rehearing, NYISO  requested a limited rehearing on the phase in, reiterating the “importance of protecting consumers from ‘rate shock.’” NYSIO argued the phase in balances rate shock and the market incentives required for new investors as it takes plants two to three years to be built.

On March 24, 2014, FERC granted rehearing, affording additional time for consideration of the issues raised by the various stakeholders in their requests for rehearing.  However, FERC’s order requiring implementation of the new lower hudson valley/NYC capacity zone will be in full effect come May 1, without any phase in. (Queue dramatic music)

Stay tuned for what happens next!