NRG Seeks Waiver of Capacity Market Penalty For Capacity Shortfall
January 24,2017
NRG Curtailment Solutions, Inc. petitioned FERC for a "limited" waiver of the New York ISO penalty provisions which assess a deficiency charge on a Responsible Interface Party (RIP) participating in NYISO’s capacity market as a Special Case Resource (SCR) when there is a shortfall in delivered capacity
NRG Curtailment Solutions (NRGCS) specifically sought waiver of the "penalty" component of any deficiency charge, i.e., the fifty percent adder to the applicable clearing price. NRG Curtailment Solutions said that it will pay back the underlying capacity market revenues it would have otherwise earned.
"The basis for the waiver request is that on April 15, 2016, the Environmental Protection Agency ('EPA') issued a surprise guidance document ('Guidance Document') clarifying the number of hours that asset-backed demand response resources would be allowed to operate in wholesale markets. While all market participants were on notice that the operative environmental rules would be changing, NRGCS believed in good faith that the changes would not affect its ability to participate in the NYISO capacity market. Because the EPA Guidance Document was issued after the May 2016 registration deadline, a small number of ineligible generator backed resources were registered in NYISO’s market for the month of May," NRGCS said
As a result, NRGCS expects to incur non-performance and invalid registration penalties for at least 13% of its total May UCAP
We would simply note this is yet another example where capacity market rhetoric does not equal reality, and that Texas should be mindful of this example should it ever again seriously consider a capacity market
During the tortuous debate, we repeatedly heard that capacity market assures the presence of the procured resources (it clearly did not here), and, if not, any Texas market would hammer any paid capacity resources which do not show up.
Here we have an affiliate of one of the largest proponents of a Texas capacity market seeking a waiver for not providing capacity, because it acted in "good faith" in assuming an EPA rule would fall one way rather than another. To load, motivation is immaterial. NRG assumed an obligation which it fully expected load to pay for; now that it could not meet such obligation, it only seeks to return its capacity market revenues without penalty for not meeting this bargain struck with load.
This is not an academic exercise for Texas, and has significant implications should a capacity market be adopted. While the current federal administration should remove such regulatory uncertainty, it is well known that the viability of significant amounts of Texas generation has been premised on the enactment or repeal, through litigation, of various EPA regulations. What if a Texas generator had acted in "good faith", and had bid a significant amount of MW into the Texas capacity market, on the assumption the MW would remain eligible under various EPA rules, only for the EPA rules to surprisingly include such MW under the rules' purview and force the retirement of such capacity? (EPA rules which surprisingly expand their impact on Texas versus earlier drafts are not a rare development)