New York’s new capacity zone (“NCZ”) conundrum discussed in an April 11, 2014 post, entitled: Hudson Valley & NYC Brace As Imminent Changes to New York’s Energy Markets Approach, is now being fought at Federal Circuit Court. The New York Public Service Commission (NY PSC) and Central Hudson Gas and Electric (CHG&E) have challenged the Federal Energy Regulatory Commission’s (FERC’s) approval of the new capacity zone, which is expected to significantly impact ratepayers in the Lower Hudson Valley. Rising temperatures can bring shockingly high electric prices, however, with an increase of $280 million per year in electric rates and $70 million of that coming just this summer in the Lower Hudson Valley, utility bills may burn much worse than any prolonged summer sun exposure. So sit back in your beach chair and unwind with us as we unravel the story of the Hudson Valley’s energy future.

As discussed in the Tribune’s previous post, the primary issue at hand is reliability: there is transmission congestion caused by inadequate transmission capacity. In other words, New York’s current electrical infrastructure cannot adequately supply the Lower Hudson Valley with reliable electric power. There are two competing solutions:

1. The first is New York’s Energy Highway Blueprint, which is a massive planned transmission upgrade that promises to bring more upstate power downstate and assuage reliability concerns. The plan calls for “at least 1,000 megawatts of new alternating current (AC) transmission capacity to relieve congestion” with construction hoped to begin in 2018. This initiative was created by a task force under Governor Cuomo and is being implemented by the NY PSC. Further, as we noted in our last post, wind power is becoming an increasingly more significant generation resource in upstate New York.
2. The second solution is to have ratepayers front the money for new generation in the Hudson Valley. This is currently happening with the new capacity zone created by the New York Independent System Operator (NYISO) and approved by FERC in its August 13, 2013 (“August Order”) and January 28, 2014 (“January Order”) Orders . The new capacity zone essentially creates a capacity market boundary surrounding the Lower Hudson Valley and NYC and cuts this area off from the rest of the state. Within this boundary, all the energy capacity for the region must exist either in the form of generation or in the form of transmission lines carrying energy into the region. By limiting the capacity market in this way, competitiveness in the Lower Hudson Valley’s capacity market increases and such competitiveness is supposed attract new electric generation project proposals and development, thereby increasing reliability. As many have noted, this will primarily give incumbent generators a massive windfall rather than provide new opportunities for other types of generation resources.

These competing solutions highlight the jurisdictional roles that FERC, the PSC and NYISO play in regulating energy. FERC is responsible for regulating wholesale sales of electricity (sales for resale) and the transmission of electricity. NYISO is a creature of the federal government. It is a voluntarily created not for profit corporation that operates the transmission grid in New York, and is tasked with implementing FERC’s regulations while ensuring a safe, reliable, and fair wholesale energy market. The NY PSC is responsible for siting transmission, siting generation, retail sales (sales directly to end users) and the distribution of electricity. Distribution refers to your local power lines while transmission refers to the large high voltage power lines that carry energy to distribution systems. So, in this instance, the federal government and the State are using their respective authority to fix a problem with conflicting solutions.

After FERC approved the new capacity zone, NYISO began to back-peddle and, along with the NYPSC and the New York Transmission Owners, requested a rehearing of the January Order. The requests for rehearing focused on the central argument that the short term impacts of the new capacity zone are unjust and unreasonable, with the NY PSC citing a $280 million increase on Lower Hudson Valley consumers’ electric rates per year. As noted by the NY PSC, rates are expected to increase by $70 million during the 2014 summer months alone, which is hitting ratepayers right after the polar vortex price spikes.

As mentioned in the previous post, on March 24^th, FERC issued a Tolling Order regarding the parties’ Request for Rehearing of FERC’s January 28, 2014 Order approving the new capacity zone (a tolling order is a mechanism that FERC uses to buy itself time before issuing a final Order). FERC did not address the rehearing requests but afforded additional time for consideration, leaving the issue open and without closure. Many parties in the region submitted comments on the matter after FERC issued its tolling order, including Ulster County legislator Manna Jo Greene, who noted that “There is a strong and broad consensus here in the Hudson Valley that the FERC should immediately postpone the proposed New Capacity Zone, or reverse their earlier decision and withdraw it entirely.” However, by not responding either way, the new capacity zone was immediately implemented effective May 1, which is where we left off in our previous post.

Time to reapply the sunblock.  Check out Part II on the heated battle at Federal Circuit Court.