Rate Shock Across The Lower Hudson Valley (Part II)

As we left off in Part I, the fight over the Hudson Valley’s energy future has gone to federal court. NYISO’s new capacity zone is going to raise prices for ratepayers by $70 million this summer just as the sting from this past winter’s polar vortex price spikes are beginning to wear off. When this sort of danger strikes who are you going to call? The NYPSC and the CHG&E (expecting someone else?) each filed separate, now consolidated, petitions at the Federal Court of Appeals for the Second Circuit seeking immediate reprieve for New Yorkers who face immediate and sudden “rate shock”. CHG&E petitioned for judicial review of the FERC August and January Orders that seem to have triggered this impending doom, arguing that FERC’s orders are arbitrary, capricious, and contrary to law and FERC’s prior orders, regulations, and policies. CHGE v. FERC, (2d Cir.), Petition for Review (May 30, 2014).

NYPSC argued that the “FERC failed to rationally evaluate” the Energy Highway Blueprint, which seeks to alleviate New York’s transmission constraints.   Moreover, the NY PSC claimed that all revenue from the capacity auction in the new capacity zone for the near term will go to incumbent electric generation owners who know that the state’s transmission lines are on the way in 2016 – 2018. This could create a situation where no new generation would actually be developed because generators know that prices are soon going to fall, but consumers would still have to pay higher rates to send a false price signal. Thus, the new capacity zone would have no value.

NYPSC went further than CHG&E by requesting that the Second Circuit issue an emergency stay on FERC’s January and August Orders. In addition, the NYPSC filed a Petition for a Writ of Mandamus requesting that the court compel FERC to issue a final order to bring closure on the parties’ Requests for Rehearings of FERC’s August and January Orders.

NYPSC argued first that “FERC has imposed dramatic electricity cost increases on the Lower Hudson Valley by establishing a new capacity zone in New York’s electricity capacity markets.” In Re People of the State of New York, (2d Cir.), Petition for Writ of Mandamus, p. 1 (May 12, 2014).

Next, the NYPSC claimed that FERC continued to deny New Yorkers of any relief for biding its time and not issuing a final order. Every month a series of capacity auctions occur in each of the state’s capacity zones. The longer FERC took to issue its Order, more and more costly capacity auction prices resulted. Importantly, the NYPSC noted that the harm caused by the ongoing capacity auctions is irreversible because even if ruled against, FERC will not order a refund of the auction proceeds.

At long last, on May 27, 2014, FERC denied the parties’ Request for Rehearing. FERC stated that the failure to create a new capacity zone when one is needed will not ensure viability in New York’s capacity market nor will it ensure reliability of the State’s currently vulnerable electric grid. FERC noted that the State needs to combat this longstanding problem and that “decision making based on avoiding price increases in the short-term could threaten reliability and price stability in the long term.” 147 FERC ¶61,148, Order Denying Clarification and Rehearing, Dkt. ER14-500-001 (May 27, 2014). FERC claimed that the Energy Highway Blueprint will bring lower prices to the region upon its completion, however, the capacity market cannot wait for this resolve, and that prices in the short-term may increase. On May 27th, FERC also filed an Opposition Brief at the Second Circuit refuting NY PSC and CHG&E’s Petitions.

On June 4, 2014, the NY PSC’s Petition for Writ of Mandamus, which was meant to compel FERC to make a final decision on the capacity zone, was declared moot by the Second Circuit because FERC had issued its rehearing denial on May 27. The Second Circuit also denied the emergency motion for a stay of the capacity auctions with little to say on the matter.

Full judicial review and argument on the merits shall convene during the week of September 8, 2014. Until then, Lower Hudson Valley residents should keep the sun block handy because it is going to be a hot summer. Stay tuned for an update once this heat cools off.