1. New York State Electricity Markets
Federal Energy Regulatory Commission
Market Design Technical Conference
January 22, 2002
Charles A. King - Vice President, Market Services

2. Outline of Today’s Presentation
Overview of New York’s Market Structure
Day-Ahead Market
Real-Time Market
Transmission Service Markets
Financial Transmission Rights
Ancillary Services Markets
Long-Term Capacity Markets
Market Monitoring and Mitigation
Appendix – Statistics and Examples

3. I. NYISO Overview New York ISO "Hub of the Northeast"
Hydro
Quebec
19,410 MW*
ISO -
New England
25,158 MW*
IMO
23,857 MW*
New York ISO
30,983 MW*
PJM
54,176 MW*
* = Peak Load in Megawatts

4. NYISO Overview New York Electric Industry Restructuring
New York Transmission Owners entered into settlement agreements with New York Public Service Commission in mid 1990s which required divesture of generating units
Established phased schedule for retail access
Wholesale markets launched and NYISO began operation on December 1, 1999

5. NYISO Overview NYISO Governance

6. NYISO Overview Unique System Characteristics
Transmission prone to thermal, voltage and stability limitations which can bifurcate NYISO system (east vs. west)
Much higher degree of transmission congestion
FERC 12/19/01 Electric Transmission Constraint Study
High degree of generation divestiture
Investor-owned utility divesture currently at 91 percent

7. I. NYISO Overview New York Independent System Operator
High Voltage Transmission System
- 230 kV and above Transmission

8. NYISO Overview Markets
Bid-Based Markets
Energy
Regulation
Spinning and Non-Spinning Reserves
Three-part bids
Self-scheduling
Other Markets
Installed Capacity
Transmission Congestion Contracts
Two Settlement System
Day-Ahead Market
Real-Time Market

9. NYISO Overview Markets (continued)
Locational Based Marginal Pricing
Nodal congestion management pricing system
Marginal losses
Financial Hedging Instruments
Transmission Congestion Contracts
Contract For Differences
Virtual Trading
Demand Response Program
Day-Ahead
Emergency

10. NYISO Overview Markets (continued)
Flexible market structure accommodates:
Bilateral Transactions
Existing Transmission Agreements
Scheduling of Energy Limited Resources
Municipal Customers
Power Marketers
Price responsive load customers

11. NYISO Overview New York's Two-Settlement Process
Bids by 5 a.m.
Day before
Forward
Contracts
DAM = Day-Ahead Market
SCUC = Security Constrained Unit Commitment
BME = Balancing Market Evaluation
RT = Real-Time Market
SCD = Security Constrained Dispatch
Day-Ahead
Market
SCUC
(Hourly
Process)
Schedules
Bids by 90 min
before hour
BME
Basepoints
Supplemental
Resource
Evaluation
Real-Time
Market
Real
Conditions
Gen
SCD

12. Day-Ahead Market Highlights
Bids submitted by 5:00 am previous day
Suppliers submit MW quantity and price bids for each hour including any ancillary services bids
Loads submit MW requirement bids for each hour including any price cap load bids
Includes bids for virtual supply and virtual load
Security Constrained Unit Commitment (SCUC) scheduling software simultaneously cooptimizes energy and ancillary services for least cost solution

13. Day-Ahead Market Highlights (continued)
Locational Based Marginal Prices (LBMP) posted by 11:00 am previous day
Accommodates bilateral transaction scheduling concurrently with supply and load bids
Any deviations in supply or demand settled in Real-Time Market

14. Day-Ahead Market Benefits
Provides price certainty while avoiding volatility of Real-Time Market
Simultaneous co-optimization process maximizes the use of the existing transmission system and provides for appropriate cost allocation
Highly automated system manages complex operating processes

15. Day-Ahead Market Benefits (continued)
Multi-pass Security Constrained Unit Commitment (SCUC) process accommodates
Reliability requirements
Market mitigation
Cost assignment of uplift

16. Day-Ahead Market Unique Characteristics
Day-Ahead prices include effect of reliability commitments and all scheduled external transactions
Incorporates automated mitigation (in-city and automated mitigation procedures (AMP))
Ancillary Services secured and priced
Fully unbundled
Simultaneous co-optimization of individual availability bids

17. Real-Time Market Highlights
Balances system supply and demand every five minutes
Bids may be adjusted to address in-day operating conditions
Accommodates additional bilateral transactions and changes to fixed output generator schedules
Security Constrained Dispatch (SCD) software re-optimizes energy and ancillary service markets on system-wide basis
Provides for commitment of “quick start” resources
Locational Based Marginal Prices (LBMP) posted every five minutes

18. Real-Time Market Benefits
Simultaneous co-optimization process maximizes the use of the existing transmission system while maintaining reliability
Provides for least cost dispatch of Real-Time resources
Provides Real-Time price transparency

19. Real-Time Market Unique Characteristics
Ex-ante pricing based upon “scheduled” generator basepoint vs. ex-post pricing based upon generator actual output
NYISO uses unit-specific MW signal instead of dollar zonal price signal
Minimum energy bid is -$1000 vs. $0 in PJM. NYISO practice allows market to resolve min-gen scenarios instead of dumping energy

20. Real-Time Market Unique Characteristics (continued)
Variations on criteria used to determine which units are eligible to set Locational Marginal Pricing (LMP)
PJM only allows units that respond to $ zonal price signal to set LMP
NYISO used hybrid pricing method to allow inflexible units to set LMP. PJM does not allow inflexible units to set price

21. Transmission Service Markets Highlights
Firm transmission service available to users willing to pay congestion costs
Continuous redispatch to support firm transactions
Transmission Congestion Contracts (TCCs) provide financial hedge against congestion costs
Non-firm transmission service curtailed when congestion exists
Cost of transmission marginal losses included in clearing price

22. Transmission Service Markets Highlights
Long-term prescheduling and ramp management will enhance ability to acquire explicit long-term transmission service across control area boundaries
Facilitation of “counter-flow” transactions in hourly scheduling process avoids need to curtail day-ahead transactions for transmission system security
Implementation of Open Scheduling System (OSS) for “One Stop Shopping”

23. Transmission Service Markets Benefits
Loads pay non-pancaked license plate Transmission Service Charge
All parties pay the same rate at the same location
All parties have equal access to the transmission system, no physical reservations / rights to hoard
Day-Ahead transaction certainty enhanced through presence and utilization of counter-flow transactions

24. Transmission Service Markets Unique Characteristics
NYISO utilizes an implicit bid-based transmission reservation scheduling process
NYISO planned implementation of explicit transmission pre-scheduling process provides physical long-term reservation and schedule at NYISO boundaries
Utilization of “counter-flow” transaction avoids curtailment of Day-ahead schedules
Open Scheduling System (OSS) facilitates transaction scheduling

25. Transmission Service Markets Unique Characteristics
Blended (flow-based) export transmission service charge rate
Generation minimum interconnection criteria is “access-based” with no deliverability requirement
Special protection schemes fully addressed

26. Financial Transmission Rights Highlights
Transmission Congestion Contracts (TCCs) sold through auction - serves as a congestion hedge, or as financial instrument available to the market
Auctions held on a semi-annual basis for TCCs for variable time periods (half-year to 5 years)
Monthly “Re-configuration Auctions” conducted
Auction results posted
TCCs settled in Day-Ahead market
May be specified between generators, zones, external proxy buses, NYISO reference bus

27. Financial Transmission Rights Benefits
All Transmission Congestion Contracts (TCCs) auctioned except those associated with Grandfathered Transmission Wheeling Agreements
Fully funded TCCs provide hedging certainty
Multiple round auction enhances price discovery

28. Financial Transmission Rights Benefits (continued)
“Alternating Current (AC) Power flow” solution provides for improved accuracy
Simultaneous feasibility is assured to avoid “over selling” of Transmission Congestion Contracts (TCCs)
TCCs are “unbundled” - for more liquid market
Moving towards a simultaneous, multi-period TCC auction process by Summer 2003

29. Financial Transmission Rights Unique Characteristics
NYISO fully funds TCCs and balances over/under collection with Transmission Owners
PJM passes revenue shortfalls to FTR holder and over-collection is refunded to loads
High degree of capability offered for sale in the auction
TCCs may be purchased up to 5 years vs. monthly in PJM

30. Ancillary Services Market Highlights
Market-Based Services
Regulation
Spinning Reserve
10-Minute Non-Spinning Reserve
30-Minute Non-Spinning Reserve
Simultaneously co-optimized with energy markets both Day-Ahead and Real-Time
Incorporates locational reserve requirements
Cost-Based Services
Scheduling, Control and Dispatch
Voltage Support
Black Start

31. Ancillary Services Market Benefits
Separate but simultaneously co-optimized markets provide an efficient mechanism for obtaining the least-cost solution
Lost opportunity cost payments ensure availability of sufficient resources
Markets can satisfy locational needs
Allows for a more precise ability to control and dispatch resources to maximize use of the transmission system

32. Ancillary Services Market Unique Characteristics
Fully unbundled regulation and reserve services
Four markets vs. single regulation market in PJM
Explicit availability bids for each Ancillary Service Market
Specific locational requirements met
Ancillary services are fully scheduled in the Day-Ahead Market, with in-day adjustments made through hourly and supplemental processes
Energy and ancillary services simultaneously co-optimized

33. Long Term Capacity Markets Highlights
Installed Capacity (ICAP) requirements for Load Serving Entities (LSE’s) based on annual peak load
Long-term ICAP requirement
Monthly ICAP auctions accommodate load-shifting and latest generator performance
Supply can be via Bilateral Transaction, self supply, or auction

34. Long Term Capacity Markets Highlights (continued)
Locational requirements apply (in-city and Long Island)
Deficiency charges applied to Load Serving Entities (LSEs), if requirements are not met
Market power mitigation measures apply in New York City

35. Long Term Capacity Markets Benefits
NYISO market similar to neighbors for product consistency
Ensures resource adequacy to meet reliability requirements
Installed Capacity (ICAP) reflects experienced availability: Unforced Capacity (UCAP)
Intermittent resources (windmills, etc…) eligible
Demand-side resources allowed to participate

36. Long Term Capacity Markets Unique Characteristics
4 hour qualification test vs. 2 hour test in PJM
Full credit for ICAP / UCAP for interruptible loads and intermittent generators
Monthly certification
Deficiency penalty applied monthly

37. Market Monitoring & Mitigation Highlights
NYISO market monitoring procedures …
foster transition to a fully competitive market
seek to maintain a competitive supply demand relationship under all conditions
minimize unnecessary market intervention
insure delivery of market based products from suppliers
Mitigation based upon Conduct and Impact standard
Multiple mitigation needs addressed through variable thresholds, margins, and reference offers/bids

38. Market Monitoring & Mitigation Highlights
Market Monitoring accountable to NYISO Board of Directors
Independent Market Advisor provides oversight
NYISO applying comprehensive mitigation approach to address all mitigation needs based upon conduct / impact standard
Day-Ahead Market (DAM) In-City with structural component
Real-Time (RT) In-City with structural component
Statewide Automated DAM

39. Market Monitoring & Mitigation Highlights
Market monitoring of:
Physical Withholding / physical audits
Economic Withholding
Uneconomic production
Submission of false information
Failure to follow dispatch instruction
Under-scheduling load
Transmission congestion contracts
Transmission service / transactions
Installed Capacity Markets
Market participant financial positions against collateral

40. Market Monitoring & Mitigation Benefits
Mitigation parameters (triggers, thresholds, reference prices, etc) may be tailored to address specific needs
Reference prices reflect historical accepted competitive offers whenever possible
Process provides for consultation with market participants prior to mitigation
Procedures automated to prevent “lost day”
Mitigation parameters can be reviewed and adjusted over time, allows Market Participants to “build out “ of a congested pocket

41. Market Monitoring & Mitigation Unique Characteristics
NYISO relies on a conduct / impact standard to determine exercise of market power (except for New York City pocket mitigation; plan under development to add conduct / impact plus structural component)
PJM assumes market is un-competitive when transmission congestion exists (except for East/Central/West voltage constraints)
NYISO mitigates to a competitively set reference bid
PJM mitigates via cost-capping (cost + 10 percent)

42. Market Monitoring & Mitigation
Universal Market Mitigation Framework
CONDUCT TEST T R I G E S T H R E S O L D M A R G I N S C O N S U L T A I
MARKET IMPACT TEST
Generator
Reference
Prices
Historical 90 day Competitive
Negotiated
Default
Mitigation Occurs Only
During Non-competitive Times

43. APPENDIX
Statistics
and Examples

44. Day-Ahead Market Performance Statistics
High degree of price certainty
Load zones A, G, and J used as trading indices by power marketers
95% of New York’s energy transactions settled Day-Ahead
Includes both Day-Ahead Market and Bilateral Transactions
All Transmission Congestion Contracts (TCCs) settled Day-Ahead

45. Day-Ahead Market New York Market Share
Bilaterals
50%
NYISO
Day-Ahead Market
45 – 50%
Real
Time
<5%
Bilateral Contracts outside the NYISO %
NYISO Day-Ahead Market %
NYISO Real-Time Market <5%
100%

46. Real-Time Market Performance Statistics
Represents less than 5 percent of New York energy market transactions
Less than .05 percent of price intervals corrected in 2001
Improved NERC control performance

47. Real-Time Market Performance Statistics

48. Transmission Service Markets Open Scheduling System (OSS)
What is OSS?
OSS is comprised of an industry leading set of tools for Market Participants and Scheduling Coordinators to interact, trade and communicate within and across control areas
Initially, OSS will provide the ability to:
Enter bilateral transaction bids across Scheduling Coordinator borders with a single data entry interface
View status from each Scheduling Coordinator
View schedules from each Scheduling Coordinator
Request transmission and ramp reservations

49. Transmission Service Markets Open Scheduling System (OSS)
What is OSS?
OSS is comprised of an industry leading set of tools for Market Participants and Scheduling Coordinators to interact, trade and communicate within and across control areas
Initially, OSS will provide the ability to:
Enter bilateral transaction bids across Scheduling Coordinator borders with a single data entry interface
View status from each Scheduling Coordinator
View schedules from each Scheduling Coordinator
Request transmission and ramp reservations

50. Transmission Service Markets Open Scheduling System (OSS)

51. Transmission Service Markets Open Scheduling System (OSS)

52. Transmission Service Markets Open Scheduling System (OSS)
OSS Project Timeline
6/05/01
8/27/01
2/11/02
3/11/02
Design/Development
Kickoff
Phase 1
Test Start
Phase 1
Live
Phase 2 and beyond
Agreement on OSS end-vision
Validation of pilot concepts
Open nodal architecture
Internal and external bilateral transactions (hourly)
Pre-scheduling
Integration with PJM
Ability to review and manage schedule status
Ability to edit NERC tags
Bid entry up to 18 months in future
Support EST only
Integration with e-Tag agents
Integration w/ WebCoordinate
Consistent with ESC and OASIS II
Automated Checkout
Inter-regional congestion commitments
Integration with more scheduling coordinators
Support of sub-hourly transactions
User defined time zone

53. Transmission Service Markets Open Scheduling System (OSS)
OSS Summary
Open, platform independent design that is consistent with Order 2000
OSS is an application that can be easily adopted by other Scheduling Coordinators with minimal change to existing systems
Addresses critical Inter-Control Area transaction seams issues with minimal impact on current MP processes

54. Transmission Service Markets Open Scheduling System (OSS)
OSS Summary
Based on requirements gathered from MPs with input from Scheduling Coordinators
Defines a communication protocol between Scheduling Coordinators
The OSS application will be deployed in phases with the first scheduled for Q1 2002

55. Financial Transmission Rights Performance Statistics
Net Revenues to Transmission Owners
- Year 2000: ~ $260 million
- Year 2001: ~ $65 million
Outstanding Transmission Congestion Contracts (TCCs)
- Grandfathered: ~ 40 percent (~ 11,800 MW)
- NYISO Auction: ~ 60 percent (~ 18,800 MW)

56. Financial Transmission Rights Performance Statistics
Alleviating Contract Path Confusion
Parties do not need to optimally pair their supply and load up as bilateral transactions to minimize transmission charges
TUC paid by aggregator does not depend on how it bids its supply and load
TUC is point-to-point
Does not depend on contract path
An Example
Source
Sink

57. Financial Transmission Rights Example – Configuration A
Source
Sink
Chat East
Fraser
Niagara 345
Leeds
Ramapo
Sprainbrook
Goethals

58. Financial Transmission Rights Example – Configuration A
Configuration A - Billing

59. Financial Transmission Rights Example – Configuration B
Source
Sink
Chat East
Fraser
Niagara 345
Leeds
Ramapo
Sprainbrook
Goethals
Config A
Config B

60. Financial Transmission Rights Example – Configuration B
Configuration B - Billing

61. Financial Transmission Rights Example
The Aggregator Net Charge

62. Ancillary Services Market Example: Summer 2001

63. Ancillary Services Market Example: Summer 2001
Overview of Northeast Peak
Load Situation on Aug. 9 -
New NYISO Peak Load - 30,983 MW
(Hour Beginning:14:00, August 9)
New Peaks in Neighboring Control Areas
IMO ,269 MW
ISO-NE - 25,158 MW
PJM ,176 MW

64. Ancillary Services Market Example: Summer 2001
Situations Observed –
NYISO Operating at Reserve Requirements
Neighboring Control Areas Operating at Margins
NYISO Able to Maintain Energy Exports
Depressed Voltage Levels Observed in PJM and New York

65. Ancillary Services Market Example: Summer 2001
Load Relief Measures
Total ,580 MW
EDRP & SCR MW
Voltage Reduction MW
Public Appeals MW
NYS Government MW
TO Programs MW

66. Ancillary Services Market Example: Summer 2001
System Performance
Equipment Performance
Market Information System was reliable
The Transmission System was secure and reliable
Generation performed consistently
Load was served throughout the period

67. Ancillary Services Market Example: Summer 2001
System Performance
Impact of Transactions on Voltages
NYISO exports and wheels to PJM
PJM experienced severe voltage problems in the East
NYISO experienced depressed SENY voltages
Some transactions cut by NYISO to increase voltages
PJM requested NYISO voltage reduction to avoid system voltage collapse
NYISO implemented 5 percent voltage reduction to assist PJM

68. Ancillary Services Market Example: Summer 2001
Level of Exports Maintained during Peak Day
NYISO Reserve Requirement
Operating Reserve
August 9, 2001

69. Ancillary Services Market Example: Summer 2001
Benefits of NYISO “Best Practices” August 9, 2001
Best Practice: Simultaneous co-optimization of energy and ancillary service markets;
Best Practice: Hourly evaluation (Balancing Market Evaluation – BME) which optimizes in-day resource adjustments;
Best Practice: Emergency Demand Response Program

70. Ancillary Services Market Example: Summer 2001
Benefits of NYISO “Best Practices” August 9, 2001 (continued)
NYISO Best Practices provided the ability to track and augment system energy and reserves in real time despite adverse conditions.
NYISO Best Practices provided the ability to make full utilization of limited transmission capability in real-time to maintain reliability in NY and support neighboring control areas.
NYISO able to maintain exports critical to neighboring areas during peak load periods due to flexibility afforded by NYISO Best Practices.

71. Ancillary Services Market Performance Statistics

72. Ancillary Services Market Performance Statistics
*10 minute reserves includes only capability in Eastern New York due to locational reserve requirements.

73. Long Term Capacity Markets Performance Statistics
Installed Capacity (ICAP) Requirements
Statewide: 36,132 MW
Locational:
New York City: 8,428 MW
Long Island: 4,639 MW
Procurement
75 percent Bilateral Transactions
25 percent NYISO Auctions

74. Long Term Capacity Markets Performance Statistics
Statistics on ICAP prices
Winter - UCAP
Strip Auction
$9.40/kW/month NYC (3970 MW)
$2.00/kW/month Rest of State (ROS) (2290 MW)
Monthly – thorough 1/2002
$7.30/kW/month NYC (550 MW)
$0.20/kW/month ROS (550 MW)

75. Market Monitoring & Mitigation Fundamentals of Operation
Market Power Mitigation: Two Criteria
Conduct inconsistent with workable competition
Actions have a substantial impact on LBMPs or other revenues

76. Market Monitoring & Mitigation Fundamentals of Operation
Conduct inconsistent with workable competition
Economic Withholding of an Electric Facility
Physical Withholding by an Electric Facility
Uneconomic Over-production from an Electric Facility

77. Market Monitoring & Mitigation Fundamentals of Operation
Actions have a substantial impact on LBMPs or other Revenues
Criterion
The lower of a tripling of prices or $100 in an energy or ancillary services market
A tripling of guarantee payments to a market participant

78. Market Monitoring & Mitigation Fundamentals of Operation
Does Conduct Exceed Thresholds?
Thresholds for Economic Withholding
The lower of a quadrupling of prices or $100 / MW in the energy markets and for most reserves.
The lower of a quadrupling of prices or $50 / MW for real-time 10-minute spinning reserves.
A tripling of startup cost offer prices
Reference concept
Accepted, unmitigated offers during periods of workable competition

79. Market Monitoring & Mitigation Fundamentals of Operation
Does Conduct Exceed Thresholds?
Thresholds for Physical Withholding: Day-Ahead
The lower of 10% or 100 MW of a unit’s capability.
The lower of 5% or 200 MW of an organization’s capability
Thresholds for Physical Withholding: Real-Time
Operation of a unit at less than 90% of the NYISO’s dispatch rate

80. Market Monitoring & Mitigation Fundamentals of Operation
Does Conduct Exceed Thresholds?
Thresholds for Uneconomic Over-production
Schedule and production of energy at an LBMP less than 20% of a unit’s reference price.
Real-time output exceeding 110% of the NYISO’s dispatch level.
The conduct must cause or contribute to congestion

81. Market Monitoring & Mitigation Fundamentals of Operation
Screening Reports
“5 AM” Generator, Startup, and Zone Reports
“11AM” Generator and Energy Exception Reports
Identify DAM conduct through reports and data screens
Identify impact through SCUC and offer-curve analysis
Conduct and impact together trigger prospective mitigation