NYISO Outlines Initial Recommendations for ICAP Demand Curve Reset Process and Methodology Improvements

On May 21, the NYISO presented an overview of possible paths forward with its ICAP Demand Curve Reset (DCR) Process and Methodology Improvements,including providing stakeholders a set of initial recommendations. The presentation at a joint ICWG/MIWG/PRLWG stakeholder meeting, covered all six redesign tracks (out of ten total tracks identified) prioritized in the 2025 Capacity Market Structure Review. The NYISO stated that its goal is to complete the market design and corresponding proposed tariff revisions by the end of 2026.

Key Takeaways

The NYISO presented all six tracks together for the first time. Stakeholders had previously asked to see the tracks holistically rather than in isolation, and today's presentation framed initial recommendations and open items in the context of the full design.

Initial recommendations span all six tracks. These include codifying the historically-used proxy unit economic viability criteria, use of EIA capital cost data, explicit treatment of proxy unit residual value, a planning-metric-informed Level of Excess (LoE), Marginal Reliability Impact (MRI) informed Zero Crossing Points (ZCPs), indexed annual updates to four financial parameters, a six-year reset cycle, and a lower maximum clearing price.

CAF stabilization was not advanced as an initial recommendation. It is being assessed within the broader Improving Capacity Accreditation and Resource Adequacy Modeling project.

Proxy Unit Screening Criteria

The NYISO is proposing to codify in the tariff the screening criteria used in past resets: availability to most market participants, sufficient operating experience, ability to meet environmental requirements and be practically constructed in the relevant region, and dispatchability with cycling capability. Additional reliability-oriented criteria under consideration include explicit operating reserve capability, quick synchronization, a minimum CAF threshold, minimum duration and firm fuel capability, and quick cycling. Prescribing a specific technology, such as a single-cycle gas turbine with a defined amortization period, remains an alternative under discussion.

Cost-to-Build Approach

The NYISO is recommending greater use of the EIA Capital Cost and Performance Characteristic Estimates for Utility Scale Electricity Generating Plants as a starting point. NYISO comparisons indicate EIA EPC cost estimates closely align with past NYISO DCR results for gas turbines, with 2024 values within a couple of percent of EIA figures. Owner's costs (permitting, licensing, interconnection, deliverability upgrades) diverge more meaningfully from national figures and are more project-specific. The proposal is to leverage EIA EPC data with location-specific scaling adjustments while focusing future consultant work on New York-specific Owner's cost components.

Residual Value

The NYISO is recommending explicit treatment of proxy unit residual value in cost of new entry (CONE). Potential sources include site sale proceeds net of remediation, sale of interconnection facilities and rights, moveable unit value for gas plants, and end-of-life considerations for battery storage.

Financial Parameters

The After-Tax Weighted Average Cost of Capital (ATWACC) is currently estimated each DCR and held fixed for the reset period. The NYISO is proposing annual indexed updates to four parameters:

Risk-Free Rate. One-month trailing average of the 10-year Treasury yield, replacing the prior reset's 90-day trailing average on 20-year yields.

Total Market Return. Indexed approach reflecting changes in investor opportunity costs as risk-free yields move, parameterized with gamma (sensitivity), base TMR, base RfR, and the indexed RfR.

Cost of Debt. Indexed to a publicly available index; candidates include the S&P 10-year BB and BBB utilities indices and a blended BB/BBB index.

Tax Rate. Indexed to the headline tax rate to reflect annual changes in local, state, or federal tax policy.

Capital structure, equity beta, and the methodology gamma value would continue to be determined each DCR and held fixed.

Reset Periodicity

The NYISO is proposing to shift the DCR cycle from every four years to every six. If adopted, the next reset would cover May 1, 2029 through April 30, 2035.

Demand Curve Structure

Level of Excess. Current tariff sets LoE based on the size of the proxy unit, currently 200 MW (the 2-hour BESS proxy). The NYISO is proposing to inform LoE with an explicit reliability or planning metric. The NYISO’s Independent Market Monitor, Potomac Economics, recently published a 2025 State of the Market Report which frames a closely related planning-market gap and recommends raising LoE to roughly 1,000 MW in New York City and 1,800 MW statewide. Our forthcoming post on the 2025 SOM Report will cover the full set of MMU capacity market recommendations.

Zero Crossing Point. Existing ZCPs, expressed as a percentage of excess beyond minimum requirements, are 112% for NYCA, 115% for G-J, 118% for NYC, and 118% for Long Island. The NYISO is proposing to inform ZCPs using Marginal Reliability Impact (MRI) curves.

Curve Shape. The NYISO is exploring kinked demand curves but has not yet recommended a departure from the current straight-line design. Both convex and concave formulations remain under evaluation.

Maximum Clearing Price

The current maximum clearing price is derived from 150% of gross CONE. The NYISO is proposing to lower this ceiling and is seeking feedback on alternatives in the range of 110%, 115%, and 120% of gross CONE.

Next Steps

The NYISO is soliciting written stakeholder feedback and is planning to return to an ICWG/MIWG/PRLWG meeting in late June with updates and additional designdetail. The project goal remains completion of market design and corresponding proposed tariff updates by the end of 2026. The next DCR is listed as a mandatory 2027 project, with a filing currently due November 30, 2028.

Luminary Energy is evaluating the proposed initial concepts and tracking the DCR Process and Methodology Improvements initiative as the NYISO works through the remaining design questions. Reach out to our team with questions about how these proposed changes intersect with your position in NYISO markets.

Luminary Energy LLC provides advisory services to wholesale power generators and market participants in NYISO and ISO New England. To learn more about Luminary Energy's services or to connect with a member of our team, contact us at contact@luminary.energy.