MMU Flags NYISO 'Planning-Market Gap' and Undervalued Net CONE as Capacity Market Design Failures in 2026 RNA Review

Potomac Economics, as NYISO's Market Monitoring Unit, issued formal comments on the 2026 Reliability Needs Assessment identifying a systemic misalignment between NYISO's capacity market design and its reliability planning process. The MMU documents that NYISO's capacity market 'Level of Excess' (LOE) parameter does not reflect the higher capacity margins implicitly targeted by increasingly conservative planning assumptions (new 'Aging Generation' methodology, proposed scenario-based planning), creating a 'planning-market gap' that signals market surplus and depresses prices even as Reliability Needs rise to 1,850 MW statewide and in NYC by 2036. Separately, the MMU finds the 2024 Demand Curve Reset's use of a 2-hour battery proxy with long amortization understates Net Cost of New Entry (Net CONE) by approximately 35% outside NYC. The MMU also identifies three procedural flaws in the Reliability Planning Process (RPP) solutions solicitation that favor regulated cost-of-service solutions over Market-Based Solutions, and recommends process and parameter changes ahead of the 2028 Demand Curve Reset.

The misalignment is already producing real-world consequences: over 800 MW of economic generator retirement notices in 2025-2026 (including 160 MW filed after Reliability Needs were publicly identified), and NYISO has resorted to out-of-market cost-of-service retention contracts (180 MW on Long Island, 500 MW in G-J Locality) to maintain reliability. If unaddressed, the gap between market price signals and true reliability needs will perpetuate premature retirements, under-maintained aging generation fleets (NY ranks 3rd nationally in reliance on 50+ year-old fossil capacity), and escalating reliance on regulated procurement costing an estimated $400M-$900M/year by 2036 — a cost outcome the MMU argues is inefficient relative to properly incentivized market-based solutions.

This is a textbook administered-market calibration failure with first-order implications for resource adequacy design: the capacity demand curve (via LOE and Net CONE) is the primary long-term price signal in NYISO's ICAP market, and if its calibration diverges from the reliability planning process's true procurement target, the market structurally under-procures even as physical reliability deteriorates. The MMU's recommendation to tie LOE directly to RNA/STAR-implied planning margins would effectively make capacity market parameters endogenous to the planning process output, a meaningful structural reform that could become a template for other ISOs facing similar planning-market decoupling (cf. PJM's post-2024 capacity price response reducing retirements, cited in the memo as a counter-example of effective price signals working). The Net CONE proxy unit debate (battery vs. dual-fuel CT with normal amortization) is a recurring flashpoint across US capacity markets as administrators try to balance decarbonization-consistent cost assumptions against reliability-driven accreditation realities; NYISO's choice ahead of the 2028 reset will be an important signal for how ISOs handle stranded-asset risk in Net CONE methodology. The RPP solutions-process flaws (inability to partially credit Market-Based Solutions, lack of developer incentive to participate, premature 'point of no return' lock-in of oversized regulated solutions) represent a market-design-adjacent governance problem that determines whether competitive solutions can actually compete with utility-style cost-of-service procurement — a theme highly relevant to resource adequacy frameworks across North America as load growth (data centers) and retirements accelerate simultaneously.

NYISO Market Services Tariff (MST) Section 30.4.6.8.2 (MMU reporting mandate); NYISO OATT Attachment Y Section 31.2 (Reliability Planning Process solutions solicitation); New York State Build Public Renewables Act (NYPA fossil unit phase-out requirement)

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