The D.C. Circuit U.S. Court of Appeals ruled against the New York State Public Service Commission (“PSC”) in their challenge to the Federal Energy Regulatory Commission’s (“FERC”) decision to accept a shorter life span for new gas plants in the rate set by the New York Independent System Operator (“NYISO”). A consequence of which will be an increase in the cost for New York energy consumers by $100 million annually, a price that is almost certain to steadily increase without intervention by the PSC.
At issue is a technical process conducted by NYISO and updated every four years utilizing a complex formula called the demand curve reset. This process determines capacity prices – the prices that energy generators get paid for being available to run. Part of that formula relies on calculating the cost to finance and build a hypothetical new peaker plant. In this instance, NYISO utilized a 17 year amortization period (instead of a 20 year amortization period) in that calculation, arguing that the CLCPA necessitates a zero emission power sector by the year 2040. FERC initially rejected NYISO’s rate under that rationale that the CLCPA does not specifically require fossil fuel electricity plants to shut down in 2040, just that the PSC needs to issue regulations to achieve zero emissions by 2040; which has not yet occurred.
The court raised issue with the PSC for failing to act more quickly to establish regulations as required by the CLCPA, originally passed in 2019. Ultimately the court ruled that FERC acted reasonably in accepting NYISO’s rate design given the uncertainty about the state’s climate goals. The majority opinion states, “The precise means by which New York will achieve zero emissions are not yet in place, but both the goal and the deadline are — unless and until the Commission steps in to change them. Investors tend to act on whatever information is publicly available to them at the time.”
The decision could have a significant impact moving forward, as NYISO is currently in the process of undergoing the next four-year iteration of the demand curve reset, and is four years closer to 2040. According to a report by Politico, an outside consultant hired by NYISO for this purpose has already recommended a 13-year amortization period – which would directly lead to an even more drastic increase in consumer energy prices in New York.
The PSC has additional options in this case. They could challenge the rate on the basis of being “not just and reasonable,” or they could issue the CLCPA required regulations and change the date from 2040 to some point further in the future, as authorized by the law.
