NYISO Delivers Interim Recommendations for the ICAP Demand Curve Reset Process and Methodology Improvements Project

Introduction

On July 1, the NYISO presented an update on its ICAP Demand Curve Reset Process and Methodology Improvements project at an ICAPWG/MIWG/PRLWG stakeholder meeting. The discussion expanded on recommendations first shared on May 21, 2026 and added detail across four project tracks: proxy unit screening criteria, proxy unit cost to build, DCR process enhancements, and ICAP demand curve structures. The presentation sets up an initial concept proposal expected in August, with a more complete market design and proposed tariff revisions targeted by year-end.

Key Takeaways

Core financial parameters are moving to annual indexing. The NYISO is recommending that cost of debt, tax rate, risk-free rate, and total market return shift from fixed-per-DCR values to annually indexed updates, while equity beta and the debt-to-equity ratio would remain fixed for each reset period.

The demand curve itself may change shape. The NYISO is recommending a combined kinked demand curve with two inflection points, alongside potential changes to the level of excess, the zero-crossing points, and a lower maximum clearing price. Much of the detailed parameter work would be folded into an expanded scope of work for the independent DCR consultant.

As part of the NYISO’s tariff-driven Demand Curve Reset process, this consultant is the third-party firm the NYISO engages through an RFP process to conduct each reset study, typically a company with financial modeling expertise, working alongside an engineering subcontractor experienced in developing generation assets, preferably across Upstate New York, New York City, and Long Island.

The reset period will remain at four years. After stakeholder feedback from the 5/21/2026 meeting, the NYISO no longer recommends moving the reset period from four to six years.

Scope-of-work for the tariff versus the consultant needs further clarification. Several stakeholders pressed the NYISO to clarify which parameters would be written into the tariff and which would be handed to the independent consultant as a scope of work. The NYISO agreed to provide a clearer breakdown at the August meeting.

Proxy Unit Screening Criteria

The NYISO did not have an update on proxy unit definition enhancements for this presentation but remains interested in stakeholder feedback. The track continues to weigh codifying the historical screening criteria, adding reliability-based screening criteria, or prescribing a specific technology outright.

Proxy Unit Cost to Build

The NYISO is recommending the use of U.S. Energy Information Administration (EIA) capital cost data as a starting point for all potential proxy unit technologies. In benchmarking, EPC cost estimates from the EIA for a simple cycle gas turbine came within 5% for NYC and 10% for Syracuse/Rest of State of the estimates from the last three DCRs, while EIA EPC estimates for a 4-hour battery ran roughly 25% and 40% higher than the 2025-2029 DCR figures for NYC and Syracuse/Rest of State respectively. The NYISO stressed repeatedly during discussion that EIA figures would serve as a starting point reviewed and adjusted by the consultant, not as fixed inputs.

On residual value, the NYISO is seeking feedback on expanding each DCR’s scope of work to require the independent consultant to assess the residual value of each technology option, covering factors such as scrap value, land value, interconnection facilities, relocation value, and site remediation costs. Several stakeholders flagged the practical difficulty of determining residual value where much of it depends on private M&A transactions and site-specific assumptions such as leased sites in New York City.

DCR Process Enhancements

The NYISO is proposing to annually index and update four financial parameters: cost of debt (a trailing 1-month blended average of August S&P BBB and BB utilities indices), the headline tax rate (federal, state, and NYC corporate rates), the risk-free rate (a trailing 1-month average of August treasury yields), and total market return (a trailing 20-year S&P 500 total return CAGR). The NYISO recommends against an effective tax rate, citing added volatility, lower transparency, and greater complexity. Equity beta and the debt-to-equity ratio would remain fixed for each reset period, with the NYISO seeking to expand the comparable-company set to improve stability, in part because the March 2, 2026 announced acquisition of AES reduced the existing comparables group.

The NYISO is seeking feedback on using the Handy-Whitman Index of Public Utility Construction Costs, published semi-annually for the North Atlantic Region, to escalate construction materials, generator, and labor costs in the annual update process. Stakeholders asked the NYISO to show how closely a Handy-Whitman approach would have tracked actual GT and battery cost changes across recent resets, including through recent tariff-driven cost volatility.

Demand Curve Structures

The NYISO presented recommendations across several curve parameters, with much of the detailed work proposed for the consultant’s expanded scope of work.

Maximum clearing price: The NYISO is considering a lower maximum clearing price and seeking feedback on requiring the consultant to estimate the upper bound of Gross CONE using a 95% confidence interval to inform it.

Level of excess: The NYISO is considering whether the level of excess should be set as part of each DCR rather than tied to the size of the proxy unit, potentially informed by reliability metrics, MRI curve inflection points, or statistical analysis of existing and planned generation.

Zero-crossing point: The NYISO is exploring modifying the current ZCPs (112% for NYCA, 115% for G-J, and 118% for both NYC and Long Island) to reflect updated system conditions, and is seeking feedback on using an average of the past three years’ MRI curves to inform them.

Combined kinked curve: The NYISO is recommending a combined kinked demand curve with two inflection points, separating conditions of excess supply from reliability-driven scarcity valuation. The first kink at the level of excess is intended to improve price stability and reduce costs for clearing short of the minimum requirement, while the second kink creates a convex shape to approximate MRI curves and reflect the declining marginal value of capacity beyond the level of excess. Stakeholders noted they were not aware of another ISO using a two-kink convex/concave structure and asked the NYISO to clarify the rationale, which the NYISO tied to the same logic as lowering the maximum clearing price.

Capacity accreditation factor stability, while conceptually related, is being evaluated within the separate Improving Capacity Accreditation and Resource Adequacy Modeling project rather than this one.

Next Steps

The NYISO is seeking stakeholder feedback on all design tracks discussed, with feedback preferred by the first week of August. The NYISO plans to return to an ICAPWG in mid-August to address that feedback and present an initial concept proposal of its recommended market design. The NYISO also committed to more clearly distinguishing, at the August meeting, which recommendations would be written into the tariff versus provided to the independent consultant as a scope of work.

Contact Us

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 the team, contact contact@luminary.energy.