Second Circuit Denies Emergency Request to Stop New NYISO Capacity Zone

On June 4, 2014, the United States Court of Appeals for the Second Circuit denied an emergency motion requesting a stay of two FERC orders associated with the New York Independent System Operator, Inc.’s (“NYISO”) creation of a new capacity market local deliverability zone in the lower Hudson Valley. The creation of the new zone requires that a certain amount of capacity serving that area be located within the zone, which could lead to higher capacity prices in that area. The petitioners, Central Hudson Gas & Electric and the New York Public Service Commission (“NYPSC”), argued to the court that the implementation of the new capacity zone would unnecessarily expose consumers to considerably higher prices and that pending transmission developments would eventually make the zone unnecessary.

In April 2013, the NYISO proposed to create a new capacity zone within the installed capacity auction (“ICAP market”). NYISO argued this new capacity zone is necessary due to a binding transmission constraint between Upstate New York and Southeast New York that would require a certain amount of downstate capacity requirements be satisfied by resources within the area. FERC accepted the NYISO’s proposal and in a later order accepted NYISO’s compliance filing including the implementation of the new zone. See January 3, 2014 edition of the WER. NYISO has stated the new zone is expected to generate more efficient price signals, which will incent new capacity in the tightly constrained region, and serve the greater interests of all consumers in the state. Central Hudson Gas & Electric and the NYPSC asked the Second Circuit to stay FERC’s approval of the new zone on the grounds that FERC’s acceptance of the new capacity zone was a violation of the “just and reasonable” standard because the consumers affected by the rate increase would not see a corresponding benefit. With the emergency stay motion was denied, the ultimate resolution of the new capacity zone will continue to play out in the court, while the NYISO is implementing the new zone.