FERC Filings
REQUEST FOR REHEARING OF THE ELECTRIC POWER SUPPLY ASSOCITION RE: CONSOLIDATED EDISON CO. OF NEW YORK
ARGUMENTS
I.
THE COMMISSION’S SCANT JUSTIFICATION IN APPROVING THE CON EDISON PROPOSAL UNDER SECTION 206, FAILURE TO CONSIDER THE COMMENTS IN OPPOSITION TO THE PROPOSAL AND FAILURE TO RECONCILE ITS OWN PRECEDENT AND POLICY GOALS MAKES THE DECISION ARBITRARY AND CAPRICIOUS
The lack of justification for the Commission’s decision, the Commission’s failure to consider the voluminous comments in opposition to the Con Edison proposal and the Commission’s failure to reconcile this decision with its own precedent and policy goals makes the Commission’s decision totally arbitrary and capricious. It will not withstand judicial review.
The courts have cautioned that the Commission must provide an adequate basis for its decisions, including articulation of factual findings supporting the underlying decision. The Commission must make “a reasoned decision based upon substantial evidence in the record.” Here, the Commission provided no adequate justification. To be sure, there is nothing arbitrary about the Commission changing its mind, but again the Commission must provide an adequate justification for doing so.
A.
THE COMMISSION’S ORDER DOES NOT SATISFY THE REQUIREMENTS OF SECTION 206 OF THE FEDERAL POWER ACT
Neither the Con Edison filing nor the Commission’s scant justification for approving that filing meets the strict and unambiguous requirements of Section 206. In short, Con Edison did not show, and the Commission Order did not prove, that the existing in-city mitigation measures were unjust and unreasonable and the expanded mitigation measures were just and reasonable.
Moreover, in both Orders the Commission expressed serious reservations about the proposal. In the face of such serious reservations, the Commission must set forth a compelling justification for acting. The Commission’s Order provides no such compelling justification, certainly not a sufficient justification to make a Section 206 finding. The July 20th Order relies not on a current finding
that in-city generators are exercising market power, but points to a September 1998 decision for the proposition that the Commission had already agreed with Con Edison’s assertion that the in-city sellers may have market power when there are transmission and reliability constraints and supply outside the constrained area cannot compete for the last increment of demand.
The Commission overstates its findings in the September 1998 decision. The Commission September 1998 decision simply reviewed the mitigation measures to determine if they would be reasonable and adequate in the face of any market power that might arise. The Commission then said:
We agree that it is reasonable to adopt market power mitigation measures to address the potential for in-city generation owners to exercise generation dominance in New York City. … We find that Con Ed’s proposal . . . addresses concerns about localized market power.
In the event the Commission is now inclined to embrace retroactively the conclusions that Con Edison posited in 1998, the September 1998 decision was entered into before the NYISO markets became operational and certainly before the NYISO’s extensive market monitoring efforts went into effect. As such, it was incumbent upon the Commission to make some sort of additional showing that even more measures were needed. The Commission provided none. Indeed, not only did the Commission not make any current finding, the June 11, 2001 report entitled The New York Market Advisor’s Annual Report on The New York Electric Markets for Calendar Year 2000 (hereinafter the Market Advisor’s Report) is directly contrary to the Commission’s decision to expand in-city mitigation measures. That report states:
Although a number of operational issues have arisen in the implementation of these markets, the transition to competitive electric markets has been remarkably smooth given the unprecedented scope of this effort.
The report adds:
The electric markets in New York have been competitive under most conditions experienced to date;
Except for several isolated instances, the analysis reveals that suppliers bid in a manner consistent with workable competition.
These instances can be effectively remedied under the current mitigation measures, and the automated mitigation procedure (“AMP”) [subsequently approved] should effectively address the one day lag in the implementation of mitigation.
Lower conduct thresholds for identifying withholding do not appear necessary at this point but further assessments will be made.
The report concludes:
The competitive markets implemented by the New York ISO have caused suppliers to offer 5 to 10 percent more output from existing generating units in comparison to the prior regulated system. The additional supply is among the real benefits resulting from the competitive markets and is especially important under the prevailing tight market conditions.
Prices were not unreasonably high during 2000 given the dramatic increase in fuel prices over the year and large unit outages-prices during 2000 would have averaged very close to 1999 without these factors.
Nowhere does the report suggest that any change is warranted in the current in-city mitigation measures or that in-city generators exercised market power.
In the context of a hearing under Section 206, the NYISO’s Market Advisor stands apart from others appearing before the Commission because the Market Advisor is dealing with facts. The Market Advisor has concluded, based on its analysis of the facts, that the markets are workably competitive and the existing mitigation measures are adequate and effective. Yet, the Commission simply ignores the Market Advisor’s Report and its factual underpinnings, even though the Report supports the Commission’s May 16th Order. Rather in the July 20th Order, the Commission states, without citation, that “supplies in the New York City area may be tight this summer.” The Commission adds that the effectiveness of new demand response programs is uncertain.
To be sure, supplies in New York City and New York are not overly plentiful, although the NYISO has expressed optimism that installed capacity requirements would be met this summer. Demand-side response is probably not where it should be in New York or any other area of the country either,
although the NYISO has in place this summer three demand-side response programs, an Emergency Demand Side Response Programs, an Incentivized Day-Ahead Economic Load Curtailment Program and zonal price capped load bidding. But these concerns do not lead to a finding that the existing Mitigation Measures are unjust and unreasonable or that Con Edison’s proposal is just and reasonable. The New York City rates are already the most tightly controlled “market-based” rates in the nation. The fact that supplies may be tight or that demand side programs could be better provides no basis to layer further controls on these markets, particularly when everyone except Con Edison and New York officials agree that the new measures are duplicative and potentially damaging to the market. The Commission simply cannot base its findings about the justness and reasonableness of rates on speculation that capacity might-possibly-maybe-perhaps be tight, or on uncertainty about the effectiveness of new demand-side response programs—which are clearly but one component of a comprehensive market mitigation scheme at work in these markets.
B.
THE JULY 20TH ORDER DOES NOT PROVIDE AN ADEQUATE JUSTIFICATION OF WHY THE COMMISSION CHANGED ITS MIND AND, HENCE, FAILS TO MEET THE LEGAL STANDARD FOR JUDICIAL REVIEW.
What is most fatal to the Commission’s decision is the failure to critically
examine the evidence in the record in opposition to Con Edison’s proposal. That evidence showed why the Con Edison proposal was not appropriate and why the proposal was contrary to the Commission’s goals. The failure of the Commission to truly grapple with these issues – or at a minimum, to demonstrate that it had, in fact, grappled with these issues – raises serious due process concerns, i.e. “an opportunity to be heard at a meaningful time and in a meaningful manner.” It also makes the Order legally deficient. As the Court of Appeals has recently admonished the Commission:
Unless the Commission answers objections that on their face seem legitimate, its decision can hardly be classified as reasonable.
First, the Commission did not address the evidence of significant underscheduling by Con Edison in the day-ahead market, the result of which is that Con Edison purchases 10-15 percent of its energy in the real-time.
If the California situation has taught the industry anything, it is that market
participants should not over-rely on volatile spot markets and that forward contracting is an essential element to the competitive electric market. The Commission does not explain why it is acquiescing to – indeed, enabling – a strategy that is so contrary to what the Commission found to be the primary flaw in the California market. More importantly, the Commission does not explain why it is approving proposals that will push buyers towards mitigated prices in real-time markets and eliminates any incentive to forward contract.
Second, the Commission did not address why it is adopting proposals that will stifle needed new generation in New York, particularly in the region of the state that needs it most, New York City and its immediate environs. The Market Advisor’s Report is clear:
The first priority for ensuring the competitiveness of New York markets must be to facilitate the entry of new generation and investment in transmission. The inability of investors to site significant amounts of new generation in the face of growing loads will make the markets increasingly vulnerable to large price fluctuations, even without strategic withholding by suppliers. I have forecasted that summer electricity prices are likely to rise by close to 50% over the next four years if new generation is not built.
Time and again in recent months, the Commission has expressed the need for new infrastructure. Yet, the Commission’s July 20, 2001 decision cannot be reconciled with that goal.
Third, the Commission did not address the fact that installed capacity payments (“ICAP”) are simply not sufficient to support the new generation needed in New York. Generators that cannot recover fixed costs in the ICAP market must be assured of recovering costs in the energy market or new capacity will not be built.
Fourth, the Commission did not address the fact that Con Edison’s ‘solution’ is to a ‘problem’ created by Con Edison. Con Edison has instituted out of merit dispatch orders an inordinate number of times since November 1999 . Regardless of the motive, Con Edison’s market intrusions have depressed the true clearing price of electricity, increased the cost of uplift socialized among all New York state ratepayers, and has changed the value of transmission congestion contracts. To now grant Con Edison additional localized market mitigation measures applicable to these dispatch orders rewards Con Edison for taking actions that harm the market.
Fifth, the Commission did not address the generators’ explanations why market power was not being exercised. For example, the Commission did not address the fact that the operating characteristics of the steam units, with their slow ramp speed together with load pockets that may develop, result in numerous situations where it is reasonable for gas turbines to be running and steam units to be dispatched at less than full output. In addition, altering Minimum Generation Bids to lower prices off-peak and having higher prices on peak is consistent with a workably competitive market and with a reliable and reasonable dispatch scenario.
Sixth, the Commission did not address that the existing mitigation measures do not adequately compensate generators for their costs, such as fuel, emission costs and variable operating costs in real time.