UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
New York Independent System Operator, Inc.)Docket Nos. ER12-1653-000,
)RM11-7-000, AD10-11-000
)
REQUEST FOR LEAVE TO ANSWER AND ANSWER OF
THE NEW YORK INDEPENDENT SYSTEM OPERATOR, INC.
Pursuant to Rule 212 and 213 of the Commission’s Rules of Practice and Procedure,1 the New York Independent System Operator, Inc. (“NYISO”) respectfully submits this request for
leave to answer and answer to the protest filed on September 7, 2012 by Beacon Power LLC
(“Beacon”).2 The Beacon Comments and Protest address the NYISO’s August 17, 2012 filing of compliance tariff revisions3 in response to the Commission’s directives in Order No. 755.4 The Electricity Storage Association (“ESA”) also filed a protest to the NYISO’s August 17, 2012
filing with arguments that are significantly similar to those raised by Beacon.5 The NYISO is
therefore not addressing ESA’s protest other than to note that it should be rejected for the same
reasons Beacon’s protest should be rejected.
1 18 C.F.R. §§ 385.212, 213 (2011).
2 New York Independent System Operator, Inc., Docket No. ER12-1653-001 Comments and Protest, Beacon Power LLC, 9/7/12 (“Comments and Protest”).
3 New York Independent System Operator, Inc., Docket ER12-1653-000, Letter to Secretary Bose from Mollie Lampi, August 17, 2012, (“Second Compliance Filing”).
4 Frequency Regulation Compensation in the Organized Wholesale Power Markets, Order No. 755, 137 FERC 61,064 (2011), reh’g denied, Order No. 755-A, 138 FERC ¶ 61,123 (2011) (“Order No. 755”).
5 New York Independent System Operator, Inc., Docket No. ER12-1653-001 Comments and Protest, Electricity Storage Association, September 7, 2012.
The NYISO’s Second Compliance Filing proposed values for its Regulation Movement Multiplier (“RMM”),6 and Regulation Movement Bid Restriction (“Bid Restriction”). Beacon supports the NYISO’s proposed RMM value and the NYISO therefore takes no issue with the discussion of the RMM in the Comments and Protest. As is explained below, however, Beacon’s protest of the value of the Bid Restriction, on the other hand, is based on mathematical errors and an incomplete analysis. Moreover, its argument that the Bid Restriction is not really
“temporary” ignores the plain meaning of the provision as clearly described in the tariff. The Commission should therefore adopt the Bid Restriction as proposed.
I. REQUEST FOR LEAVE TO ANSWER
The NYISO is authorized to answer Beacon as a matter of right to the extent that its
pleading constitute “comments.” The Commission also has discretion to accept answers to
protests when they help to clarify complex issues, provide additional information, are otherwise helpful in the development of the record in a proceeding or assist in the decision-making
process.7 The NYISO’s answer satisfies those standards and should be accepted because it addresses inaccurate or incomplete statements, and provides additional information that the Commission needs to fully evaluate the arguments in this proceeding.
6 Capitalized terms that are not otherwise defined herein shall have the meaning specified in the NYISO’s compliance filings in this docket.
7 See, e.g., Southern California Edison Co., 135 FERC ¶ 61,093 at P 16 (2011) (accepting answers to
protests “because those answers provided information that assisted [the Commission] in [its] decision-making
process”); New York Independent System Operator, Inc., 134 FERC ¶ 61,058 at P 24 (2011) (accepting the answers to protests and answers because they provided information that aided the Commission in better understanding the matters at issue in the proceeding); New York Independent System Operator, Inc. 140 FERC ¶ 61,160 at P 13 (2012) and PJM Interconnection, LLC, 132 FERC ¶ 61,217 at P 9 (2010) (accepting answers to answers and protests
because they assisted in the Commission’s decision-making process).
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II.ANSWER
A. The Commission Should Not Revise the NYISO’s Proposed Bid Restriction
The NYISO has previously explained that it proposed a Bid Restriction of $2.47 in order
to avoid unforeseen but potentially significant price volatility as the design changes to the
Regulation Service Market mature. This could be of particular concern since, at the time that the
Bid Restriction is implemented, the NYISO will not have all the information necessary to
employ the mitigation tools it traditionally uses to prevent the abuse of market power.8 The
value of $2.47 is the average revenue earned by a Regulation Service Supplier in the NYISO’s
market from 2009 through 2011 for each MW of energy provided in response to the Regulation
Service dispatch signal provided by the NYISO - i.e., the product that is proposed to be called
“Regulation Movement.”9 Once the NYISO’s proposed Regulation Service redesign is
implemented, Regulation Service providers bidding the costs and delivering the MWs of
regulation response that they did from 2009 through 2011 will earn, in Regulation Movement
settlements alone, what they earned for providing Regulation Service in each of these previous
years even with a Bid Restriction (and Regulation Movement Market Price) no higher than
$2.47.
Not only does Beacon inaccurately characterize the manner in which the Bid Restriction
was calculated, it ignores the additional revenue that Regulation Capacity will provide under the
NYISO’s proposed Regulation Service market redesign. Regulation Movement is one part of a
two-part bid opportunity that would be offered to Regulation Service providers, including
8 See: New York Independent System Operator, Inc., Docket ER12-1653-000, Letter to Secretary Bose from Mollie Lampi, April 30, 2012, (“First Compliance Filing”) proposed amendments to the Market
Administration and Control Area Services Tariff (“Services Tariff”) Sections 21.5.3 and 21.5.3.1.
9 See: Second Compliance Filing, Affidavit of Mr. Rana Mukerji, ¶¶ 9-12.
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Limited Energy Storage Resources (“LESRs”). Beacon consistently, and erroneously, ignores this fact when it makes its revenue-deficiency arguments. Moreover, it offers no alternative design, nor any evidence on which an alternative Bid Restriction level should be based, when asking the Commission to order that the Bid Restriction be revised. Its revenue insufficiency arguments are therefore invalid and should be dismissed.
1. Beacon Misstates its Ability to Recover its Costs under the NYISO
Design
Beacon argues that a Bid Restriction based on historic average revenues does not provide
room for a Supplier to bid high when costs are “above average.” 10 Beacon ignores, however, the
fact that because the Bid Restriction is based on historic average revenues, it will allow suppliers
to recover amounts greater than their actual costs when they are lower than average historic
costs. Beacon focuses exclusively on the possibility that there might be individual hours during
the temporary duration of the Bid Restriction when the Bid Restriction might limit cost recovery
without acknowledging that there will be many other hours when they will be able to earn
revenues in excess of their costs. Commission precedent is clear that competitive suppliers in
organized markets are not entitled to a guarantee to recover their costs in every hour.11
Neither does Beacon’s assertion that the annual average Regulation Services market
prices from 2008 through 2010 were higher than the proposed Bid Restriction12 make the
10 Comments and Protest at 3. Beacon errs, however, when stating the $2.47 value is based on average
Market prices. It is based on average revenue earned expressed in terms of the MW provided by regulation response
- the product to be now identified as Regulation Movement. See: Second Compliance Filing, Affidavit of Mr. Rana Mukerji, ¶¶ 9-12.
11 See: Bridgeport Energy, LLC, 113 FERC P 61,311 (2005) at P 47, (“It is reasonable and expected in a competitive market that there will be periods where full cost recovery is not realized. In a competitive market, the Commission does not have an obligation to guarantee cost recovery, especially for a highly efficient merchant generator, capable of earning a significant portion of available market revenues. Instead, the Commission is
responsible for assuring that Bridgeport is provided the opportunity to recover its costs.”)
12 Comments and Protest at 4.
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NYISO’s Bid Restriction calculation, which was based on the Regulation Service market
revenue for the more recent 2009 through 2011 period, unreasonable or incapable of providing appropriate cost recovery. Beacon does not challenge the NYISO’s use of Regulation Service revenue earned from 2009 to 2011 as the basis for its Bid Restriction calculation nor does it assert that the NYISO should have, instead, used the market revenue earned from 2008 through 2010 in determining average revenue.
2. Beacon Understates the Revenue that Suppliers Will Receive Under
the NYISO’s Regulation Service Market Redesign.
Beacon’s argument that the NYISO Bid Restriction prevents LESRs “from recover[ing]
all their costs with the revenue they earn in the Regulation market” mischaracterizes the expected
revenue streams that Suppliers will be able to earn under the NYISO’s Regulation Services
Market redesign and is not credible.13 Beacon ignores the NYISO’s proposed Bid Production
Cost Guarantee for Day-Ahead and Real-Time Regulation Capacity Bids and Real-Time
Regulation Movement Bids, which ensure that the revenue any scheduled Regulation Service-
only provider receives in a day will at least equal its Regulation Service as-bid costs for the
day.14 In addition, as mentioned, unless Suppliers were bidding less than their costs from 2009
through 2011, and there is no reason to believe that they were, the revenue a provider can expect
to receive from its Regulation Movement settlement on its own, even with a Bid Restriction,
should allow Suppliers to recover all the costs they bid historically (2009 through 2011) to
provide Regulation Service. This will be the case so long as Suppliers deliver, on average, 10
MW of Movement for each MW of Capacity. Indeed, since LESRs will likely provide more than
13 Comments and Protest at 4-5.
14 See: First Compliance Filing proposed amendments at Services Tariff, Sections 18.2.2.2 and 18.4.2.
These proposed revisions will also ensure that the daily revenues paid any energy and demand-side resource
providing Regulation Service will cover its as-bid costs for providing service to the NYISO, including Regulation Service as-bid costs.
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10 times their scheduled Regulation Capacity in Regulation Movement MW, they can expect to earn even more than they earned from 2009 through 2011, for the same service.
In addition, Beacon’s unsupported assertion that LESRs should recover “substantially all their costs . . . from the NYISO’s Regulation Movement payment” does not justify basing an example of a costs-versus-payments calculation on incomplete information. Correcting the
example of revenue insufficiency Beacon provided illustrates Beacon’s error directly.
Beacon explains how the NYISO’s Regulation redesign would have left it with revenue “below the level that would have allowed adequate cost recovery” by comparing expected
Regulation Movement revenue with actual expenses for hour 15 on August 7, 2011. Its
conclusion that actual expenses exceeded revenue could only be true if the Regulation Capacity revenues that it would have received for that very same hour were zero or were ignored
altogether. If the Regulation Capacity revenues that Beacon would likely have received are
included, Beacon’s example proves the point that the NYISO’s Regulation Services Market is designed to allow providers the opportunity to earn revenue in excess of their costs,
notwithstanding the Regulation Movement Bid Restriction.
In hour 15 on August 7, 2011, when Energy prices rose in reaction to high demand, the
Real-time Regulation Service Demand Curve triggered and the average RTD Market Clearing
Price for Regulation Capacity over the hour was $362.59/MW.15 Beacon indicates that it was
scheduled for 20 MW of Regulation Capacity and that it provided 599 MW of Regulation
Movement for that hour at a cost of $3,962.96.16 Assuming Beacon was scheduled in real-time,
15 See Pricing Data at:
<http://www.nyiso.com/public/markets_operations/market_data/pricing_data/index.jsp.>
16 Comments and Protest at 5.
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fully delivered 18 MW of Regulation Capacity for the hour, and settled its Regulation Movement MWs at a Market Price set at the Bid Restriction -- $2.47, Beacon would have earned $6526.62 in Regulation Capacity revenue and $1479.53 in Regulation Movement revenue, or more than $13/ MW of Regulation Movement provided that hour.17 This is well in excess of, not well below, Beacon’s cited costs of $6.62 per MW of Movement for the hour.
In addition, Beacon’s assertion that it is not good market design to require out-of-market
opportunities to ensure cost recovery mischaracterizes the NYISO’s proposal. For regulation-
only providers like Beacon, the NYISO ensures full cost recovery for the bidder’s Regulation
Capacity and Regulation Movement as-bid costs through its Bid Production Cost Guarantee. 18 .
3. Beacon Ignores the Plain Terms of the NYISO’s Proposed Bid
Restriction Which Call for Its Termination When It Is No Longer
Needed
Finally, Beacon’s assertion that, to be temporary, the NYISO’s Bid Restriction must
expire at an established date is simplistic and unreasonable. Unlike any other Bid cap in Section
21 of the NYISO’s Services Tariff, Section 21.5.3 requires the NYISO’s Market Monitoring Unit
(“MMU”) to evaluate the Regulation Movement Bid Restriction and make a recommendation
that it continue, be adjusted or expire. This review and recommendation is to occur no less
frequently than once a year (which means it could be requested earlier) and is required to
include, but not be limited to, an evaluation of whether an increase in the Bid Restriction, or its
elimination, would provide incentives to raise offers for Regulation Movement substantially
17 The NYISO market redesign continues the application of a Regulation Service Demand Curve. See: First Compliance Filing, Services Tariff Section 15.3.7.
18 See footnote 14, supra.
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above levels that would be anticipated in an efficient market and whether the Bid Restriction prevents appropriate cost recovery. 19
If the issues that the Bid Restriction was intended to avoid are resolved early, as Beacon suggests, the MMU may well recommend its elimination sooner rather than later. The
Commission should not act to preempt the MMU by determining the date on which the Bid Restriction will no longer be necessary to mitigate potential impacts on price volatility. When Regulation Movement Bids are reflecting a competitive Regulation market and NYISO’s
customers no longer need a Bid Restriction to avoid unreasonable price spikes, the tariff permits the MMU to recommend the Bid Restriction’s elimination. Beacon’s request that the
Commission act prematurely and establish an expiration date before any empirical information has been accumulated in support of such an approach should be denied.
19 See: First Compliance Filing proposed amendments at Services Tariff Section 21.5.3 (Attachment F).
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III.CONCLUSION
WHEREFORE, for the reasons set forth above, the NYISO respectfully requests that
the Commission reject Beacon’s arguments challenging the NYISO’s proposed Bid Restriction
and accept the NYISO’s Compliance Filings submitted in this docket, including the values for its
Regulation Movement Multiplier and Bid Restriction, without requiring any modifications.
Respectfully submitted;
/s/ Mollie Lampi
Mollie Lampi
Assistant General Counsel
New York Independent System Operator, Inc.
10 Krey Blvd.
Rensselaer, New York 12144 (518) 356-7530
mlampi@nyiso.com
September 21, 2012
cc:Travis Allen
Michael A. Bardee
Gregory Berson
Anna Cochrane
Jignasa Gadani
Morris Margolis
Michael McLaughlin
Joseph McClelland
Daniel Nowak
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CERTIFICATE OF SERVICE
I hereby certify that I have this day served the foregoing document upon each person
designated on the official service list compiled by the Secretary in this proceeding in accordance with the requirements of Rule 2010 of the Rules of Practice and Procedure, 18 C.F.R. §385.2010.
Dated at Rensselaer, NY this 21st day of September, 2012.
/s/ Joy A. Zimberlin
Joy A. Zimberlin
New York Independent System Operator, Inc.
10 Krey Blvd.
Rensselaer, NY 12144 (518) 356-6207
