10 Krey Boulevard Rensselaer, NY 12144
May 9, 2013
Honorable Kimberly D. Bose, Secretary Federal Energy Regulatory Commission 888 First Street, NE
Washington, DC 20426
Re: New York Independent System Operator, Inc., Docket No. ER13-909-001;
Response to Request for Further Information, Proposed Tariff Amendments to Revise Ancillary Service Price Calculations During Periods of Scarcity and Request for Commission Action no Later than July 1, 2013
Dear Secretary Bose:
In accordance with the Commission’s April 9, 2013 Letter in this proceeding1 requesting
further information the New York Independent System Operator, Inc. (“NYISO”) respectfully
submits this response to the Commission’s questions. The attached affidavit of Mr. Robert Pike,
the NYISO’s Director of Market Design, addresses Questions one through seven from the April
9 Letter. Answers to questions eight through ten are provided herein in Section II.
In addition, in accordance with Rule 35.17(b)2 this filing includes proposed tariff
amendments that are supplements to the proposed revisions the NYISO submitted in its initial
filing in this docket.3 In addition to the amendments proposed in its Feb. 8 Filing, the proposed
amendments included herein revise Sections 4.4.2.7, 15.3.5.1, 15.3.5.2, 15.4.6.2, 15.4.6.2.1, and
15.4.6.2.2 of the Market Administration and Control Area Services Tariff (“Services Tariff”).
All of these proposed revisions are set forth in Attachments II and III and described in Section III of this letter.
As noted in Section III, and as Mr. Pike indicates in his affidavit,4 the need for several of
the proposed amendments became evident when the NYISO analyzed the questions in the April
9 Letter. The NYISO had indicated in its Answer to Protest that the methodology for pricing
Operating Reserves during periods of statewide scarcity under the currently applicable tariff
would be appropriate.5 This methodology would also resolve the inconsistency that the
1 See: New York Independent System Operator, Inc. ER13-909-000, Commission Letter dated April 9, 2013 (“April 9 Letter”).
2 18 C.F.R. §35.17(b) (2013).
3 New York Independent System Operator, Inc., Proposed Tariff Amendments to Revise Energy Price Calculations During Periods of Scarcity, ER13-909-000, February 8, 2013 (“Feb. 8 Filing”).
4 New York Independent System Operator, Inc., Affidavit of Mr. Robert Pike, ER13-909-000, May 9, 2013.
5 New York Independent System Operator, Inc., Request for Leave to Answer and Answer to Protest, of The New York Independent System Operator, Inc., ER13-909-000, March 20, 2013 (“Answer to Protest”) pp2.3.
Honorable Kimberly D. Bose May 9, 2013
Page 2
Commission points out in its April 9 Letter.6 As explained more fully herein, the NYISO has
also determined to revise the trigger for applying scarcity pricing to Operating Reserves and
Regulation Service on the advice of Dr. David Patton of the NYISO’s MMU, Potomac
Economics. The proposed amendments provided herein include those proposals thereby
resolving certain pricing inconsistencies and avoiding inefficient outcomes that could appear in
the real-time market if the NYISO were to implement the design for pricing Operating Reserves
and Regulation Service during periods of scarcity as proposed in its Feb. 8 Filing.
The NYISO also recognizes that pricing and scheduling consistency is best achieved
through use of the real-time optimization engine and that the practice of applying prices
administratively after schedules have been established by the real-time dispatch (“RTD”) will
never duplicate the RTD’s pricing and scheduling efficiency. However, the proposal set forth
herein can be accomplished in the short-term, addresses the recommendation from the
Independent Market Monitor to “set efficient prices when demand response resources are needed
to satisfy reliability needs…”7 and reduces the scheduling / pricing inefficiencies that the
NYISO’s initial proposal did not while retaining the uniform market price/MW principle that is
fundamental to the NYISO Markets.
Under the NYISO’s amended proposal, presented herein, Operating Reserves and
Regulation Service will not be priced at scarcity levels unless a scarcity event is triggered in the pricing region applicable to these products. Thus, all providers of Eastern Operating Reserves, for instance, would be paid a scarcity-determined Eastern Operating Reserves price, or none would. Nonetheless, schedules and prices under these revisions will, on occasion, still continue to be inconsistent. But this inconsistency will arise less often and be of a smaller impact than under the NYISO’s proposal in its Feb. 8 Filing.
The need for enhanced scarcity pricing for LBMPs, Operating Reserves and Regulation
Service outweighs the few remaining real-time market inefficiencies that may exist under the
NYISO’s proposed administrative application of scarcity pricing. Scarcity-priced LBMPs are
necessary to ensure continued reliable service by signaling shortages in the capacity available
from generation currently on the system to provide Operating Reserves. Scarcity pricing of
energy and these ancillary service products indicates additional supply of these products would
be valuable. Scarcity pricing assists in maintaining long-term reliability by signaling the need
for new investment in transmission, generator resources and additional demand reduction in the
areas where the existing energy is in short supply. These benefits far outweigh short-term
market inefficiencies.
6 April 9 Letter at p.3.
7 See: 2012 State of the Market Report for the New York ISO Markets, David B. Patton, Ph.D., Pallas LeeVanSchaick, Ph.D., Jie Chen, Ph.D., April 2013, page 85 at:
http://www.nyiso.com/public/webdocs/markets_operations/documents/Studies_and_Reports/Reports/Mark
et_Monitoring_Unit_Reports/2012/NYISO2012StateofMarketReport.pdf.
Honorable Kimberly D. Bose May 9, 2013
Page 3
The proposed tariff amendments included herein were shared for comment with the
NYISO’s stakeholder members of the Management Committee on May 1, 2013 and were
discussed at the May 3, 2013 meeting of the Market Issues Working Group. In addition the
NYISO has reached out to several stakeholders with particular questions about these
amendments.
Finally, the NYISO wishes to inform the Commission that, in response to requests raised by concerned stakeholders during the consideration and approval of the tariff amendments that were submitted in the Feb. 8 Filing, the NYISO committed to provide a comprehensive
evaluation and proposal regarding shortage pricing by the 2nd quarter of 2014. The NYISO has further discussed this commitment and can now say that it will include an evaluation, stakeholder review, assessment and prioritization of the following issues:
(i)the locations for which reserves are procured;
(ii)the reserves (type and amount) procured for those locations;
(iii)the reserve demand curve MW and value set points; and
(iv)the implementation and triggering of scarcity pricing.
The NYISO will also solicit stakeholder feedback on additional items to consider in this comprehensive evaluation. These efforts will include stakeholder evaluation of the cost/benefits of achieving the enhancement requested by the New York Transmission Owners (“NYTOs”) in the Protest submitted in this docket to establish zonal reserve market clearing prices during
scarcity events.8 The NYISO will complete the evaluation of zonal reserve market clearing
prices during scarcity events before the end of the first quarter of 2014.
The NYISO’s stakeholder review may lead to the development of additional
enhancements to the NYISO’s implementation of its shortage and scarcity pricing rules. If it
does, the NYISO would expect to make one or more separate tariff filings under Section 205 of
the Federal Power Act to address those issues in the future. The possibility that additional
enhancements may be proposed at a later time should not, however, delay the Commission action in this proceeding.
8 New York Independent System Operator, Inc., New York Independent System Operator, Inc., Motion To Intervene and Protest of the New York Transmission Owners, March 1, 2013 (“Protest”).
Honorable Kimberly D. Bose May 9, 2013
Page 4
I.Documents Submitted
1.This filing letter;
2.The Affidavit of Mr. Robert Pike, the NYISO’s Director of Market Design
(Attachment I);
3.A clean version of the proposed revisions to the NYISO’s Services Tariff
(“Attachment II”); and
3.A blacklined version of the proposed revisions to the NYISO’s Services Tariff
(“Attachment III”).
II. Answers to Questions Numbers 8, 9, and 10 from OMER.
Question 8. In NYISO’s Answer, it offered to put back in place all of the existing tariff
provisions currently identified as Scarcity Pricing Rule “A” (MST section 15.4.6.2.1) in order to eliminate an inconsistency between the language used for the revisions to scarcity pricing for
Operating Reserves the ISO submitted in its February 8 Filing and the language NYISO uses to calculate Operating Reserves prices in non-scarcity periods. Please explain how the proposed
revisions are inconsistent.
Answer 8. The revisions proposed by the NYISO in its Feb. 8 filing to Sections
15.4.6.2.1 and 15.4.6.2.2 described scarcity pricing by looking to the pricing methodology of
Section 15.4.6.1, the methodology that is used during non-scarcity periods. As a result, the
NYISO proposed to reset the shadow price “of each Operating Reserve product” to the highest
Lost Opportunity Cost of any Operating Reserves provider of that product or the shadow price
established by RTD if higher. As the NYTOs correctly pointed out, there are no shadow prices
“for Operating Reserve products.”9 The Shadow Price of each relevant Operating Reserves
“constraint” is used in Section 15.4.6.1 to establish clearing prices during non-scarcity periods.
These Shadow Prices are not susceptible to revision during scarcity or otherwise.
The NYISO realized, as it explained in its March 20, 2013 Answer to Protest, that its
administratively-applied scarcity pricing needed to revise market prices not shadow prices. As a result, in its March 20, 2013 Answer to Protest, the NYISO proposed to return to the
methodology of Pricing Rule “A,” found in Section 15.4.6.2 and currently effective, which resets the prices otherwise established by Section 15.4.6.1 during scarcity.
The NYISO’s current proposal also adds back the pricing methodology detailed in
Section 15.4.6.2.2 for pricing Operating Reserves during scarcity East of Central East that is in
effect currently, with minor administrative revisions. The amendments being proposed for
9 New York Independent System Operator, Inc., Request for Leave to Answer and Answer to Protest, of The New York Independent System Operator, Inc., ER13-909-000, March 20, 2013.
Honorable Kimberly D. Bose May 9, 2013
Page 5
scarcity pricing of Operating Reserves in this May 9, 2013 filing also revise the trigger for determining when to use this methodology as provided in Section 15.4.6.2.
Question 9. Please explain why Scarcity Pricing Rule “A” would remain appropriate under the proposed revisions NYISO filed in this docket.
Answer 9. Scarcity Pricing Rule “A” in the tariff before the NYISO’s Feb 8 filing described
how scarcity prices for Operating Reserves were set when Available Reserves statewide were
insufficient, but-for the load reductions requested from SCR/EDRP Resources, to maintain the
30-minute reserves requirement (the “trigger”). Although the NYISO is proposing to revise the
trigger, as is explained in Section III of this letter, the formula in Section 15.4.6.2.1, for
establishing market clearing prices when Available Reserves statewide are insufficient, remains
relevant and appropriate for pricing Operating Reserves under the proposed trigger identifying
statewide scarcity. This pricing formula uses the highest lost opportunity cost of specified
suppliers, scheduled by RTD, to set the price of specified Operating Reserves products in a
manner that complies with the rule defining cascading of operating reserve prices in Section
15.4.4.3. This pricing approach also enforces the rule that is embedded in the calculation of
Operating Reserves prices during non-scarcity intervals (pursuant to Section 15.4.6.1) that
Western reserves prices will never exceed Eastern reserves prices for the equivalent product.
As is more fully explained in Section III of this letter, the NYISO is proposing to return the rule previously identified as Scarcity Pricing Rule “B” in Section 15.4.6.2.2 to the Services Tariff as the methodology to use when Available Reserves are sufficient statewide but
insufficient East of Central East. The NYISO proposes to rename this methodology, however, to drop the reference to rule “B.”
Question 10. Please be specific as to which existing tariff provisions currently identified as
Scarcity Pricing Rule “A” would be reinstated, and how they would integrate with the proposed revisions to MST section 15.4.6.2.1.
Answer 10. The NYISO is submitting in Attachments II and III redlined and clean versions of
the proposed amendments to Services Tariff Sections 15.4.6.2.1 and 15.4.6.2.2. These Sections
describe the methodology for setting scarcity prices for Operating Reserves when the trigger,
described in Section 15.4.6.2, indicates that scarcity pricing for Operating Reserves is necessary,
either statewide (using the methodology in Section 15.4.6.2.1) or East of Central East (using the
methodology in Section 15.4.6.2.2). But for minor editorial changes, the NYISO is now
retaining the methodologies as they appeared in these Sections before the Feb. 8 Filing.
III. Description of and Justification for Revisions Proposed Herein
A. Amendments to Sections 15.4.6.2, 15.4.6.2.1, 15.4.6.2.2, 15.3.5.1, and 15.3.5.2
The NYISO proposes ministerial changes to Section 15.4.6.2 to drop the title. The
NYISO is also deleting the scarcity pricing methodology included in this section by the
Honorable Kimberly D. Bose May 9, 2013
Page 6
amendments included in the Feb. 8 Filing. The NYISO proposes to add a revised trigger to
determine when Operating Reserves should be priced. The NYISO further proposes the
situations under which the scarcity pricing formulas found in the also-amended Sections
15.4.6.2.1 and 15.4.6.2.2 would be used. The formulas previously in these sections and deleted by the Feb 8 amendments in this docket are herein proposed to be returned to Sections 15.4.6.2.1 and 15.3.5.2. As explained below, these methodologies are appropriate for scarcity-pricing
Operating Reserves using the NYISO’s proposed triggers.
In its Feb. 8 Filing, the NYISO proposed to apply scarcity prices to Operating Reserves
products whenever it applied scarcity pricing to LBMPs. This created the outcome that
whenever SCR / EDRP Resources were activated for a set of Load Zones (the “reliability
region”) that did not align with the area within which Operating Reserve products were procured
(“reserve regions”), suppliers not receiving scarcity-set LBMPs would receive scarcity-set
reserves prices. As Mr. Robert Pike indicates in his affidavit,10 based on the recommendation of
the NYISO’s Market Monitoring Unit, specifically Dr. David Patton of Potomac Economics, the
NYISO is proposing to use a second trigger, described in Section 15.4.6.2 to determine whether
it should scarcity-price Operating Reserves and Regulation Service products. The second trigger
will perform a similar but-for evaluation of Available Reserves, 11 but will specifically perform
that test for the Operating Reserve regions. The NYISO would employ the second trigger
whenever it prices LBMPs using the Section 17.1.2.2 scarcity pricing methodology.
Specifically, as described in Section 15.4.6.2, the NYISO proposes to trigger scarcity
pricing for Operating Reserves products when, but-for the requested Load Reduction from SCR /
EDRP Resources, Available Reserves would be insufficient to ensure that the reliability issues,
which required the use of SCR / EDRP Resources, can be resolved. That is, when Available
Reserves statewide are fewer than the requested Load Reduction from SCR / EDRP Resources,
and the NYISO has set LBMPs using scarcity principles, all Operating Reserves and Regulation
Service will be set using the scarcity pricing rules of Section 15.4.6.2.1 and 15.3.5.2,
respectively.
As the NYISO also proposes in amendments to Section 15.4.6.2, if scarcity pricing under
Section 15.4.6.2.1 has not been triggered because Available Reserves statewide are not less than
the Load Reduction requested from the called SCR / EDRP Resources, and the Load Zones
where LBMPs are being priced at scarcity are located in the area East of Central East, the
NYISO will apply the trigger again by looking at the sufficiency of Available Reserves East of
Central East. If Available Reserves East of Central East are less than the requested Load
Reduction from SCR / EDRP Resources, and the NYISO has set LBMPs using scarcity
principles, it will use the methodology in the current Section 15.4.6.2.2 to set scarcity prices for
10 New York Independent System Operator, Inc., Affidavit of Mr. Robert Pike, ER13-909-000, May 9, 2013.
11 The NYISO continues its proposal to amend the definition of Available Reserves to be the capability of all Suppliers to provide Operating Reserves in that interval and in the relevant location, minus the quantity of
Scheduled Operating Reserves in that interval.
Honorable Kimberly D. Bose May 9, 2013
Page 7
Eastern Spinning Reserves, Eastern 10-minute Non-Synchronized Reserves and Eastern 30-
minute Reserves (“Eastern reserves products”).
These triggers, which compare the MW of Available Reserves to the MW of requested
Load Reduction from the SCR / EDRP call, are the same as the trigger the NYISO proposed in
its Feb. 8 Filing to determine whether LBMPs should be set using scarcity pricing with the
exception of the region over which the adequacy of Available Reserves is measured. Use of the
same trigger, while varying the region over which Available Reserves are measured, allows the
NYISO to apply scarcity pricing in a manner that is more consistent across energy, reserves and
regulation.
Using this proposed approach, the NYISO will narrowly apply scarcity priced LBMPs
only in Load Zones where a reliability need required the assistance of SCR and EDRP Resources
and Available Reserves in those Load Zones would have been insufficient to resolve the
reliability need without them. If the reliability need was in Eastern New York, such that the
Available Reserves East of Central-East would have been insufficient to maintain reliability,
without the SCR/EDRP call, then Eastern reserves products will also be priced using scarcity
pricing methodologies. If the reliability need was more extensive, such that Available Reserves
statewide would have been insufficient to maintain reliability, without the SCR / EDRP call, then
Operating Reserves and Regulation Service will also be priced using scarcity pricing
methodologies.
It is appropriate to use the scarcity pricing rules of Sections 15.4.6.2.1 and 15.4.6.2.2 that
are applicable currently, when scarcity pricing is triggered under the NYISO’s amended
proposal. Section 15.4.6.2.1 contains specific, separate calculations of the six Operating
Reserves products the NYISO prices in each interval while maintaining the Section 15.4.4.3 rule
against cascading and also ensuring that no Western reserves price is set higher than the
comparable Eastern price.12 The calculations exclude any Lost Opportunity Cost of reserves
suppliers on Long Island to ensure that the scarcity-set prices comply with Section 15.4.4.2.
The NYISO proposes to retain the methodology in Section 15.3.5.2 for resetting
Regulation Service prices under scarcity conditions when the NYISO has established statewide
reserves prices using the scarcity pricing rules of Section 15.4.5.2.1. The NYISO is also
proposing amendments to Section 15.3.5.1, the section that describes pricing Regulation Service
in real-time (during non-scarcity intervals) to ensure Regulation Service is priced using a
scarcity-based price only pursuant to the pricing rules of Section 15.4.6.2.1 and not otherwise.
Since Regulation Service providers and statewide reserves suppliers provide these
valuable ancillary services from their location anywhere in the state, it is appropriate that
statewide scarcity in Available Reserves would trigger scarcity pricing for both. Applying a
scarcity price to these ancillary services will signal the reliability value that suppliers of these
products bring to the market. Pricing reserves products East of Central East under similar,
12 Since these Eastern products include a locational eligibility requirement, they are a more valuable reserves product and should not be priced lower than a comparable product of lesser value.
Honorable Kimberly D. Bose May 9, 2013
Page 8
appropriate, scarcity conditions will additionally indicate the locational value of reserves Suppliers in this region.
B. Amendments to Section 4.4.2.7
The NYISO proposes a minor amendment to this section in addition to the revisions it proposed to this section in its Feb. 8 Filing. This Section currently describes the use of
SCR/EDRP Resources “in order to avoid reserves shortages.” As the NYISO indicated in its Feb. 8 Filing and again herein, the NYISO proposes to trigger scarcity pricing when SCR / EDRP Resources are need to resolve reliability issues in identified Load Zones and the
amendment proposed herein will make that adjustment.
VI. Communications and Correspondence
All communications and service in this proceeding should be directed to:
Robert E. Fernandez, General Counsel
Ray Stalter, Director of Regulatory Affairs
*Mollie Lampi, Assistant General Counsel
10 Krey Boulevard
Rensselaer, NY 12144
Tel: (518) 356-7530
Fax: (518) 356-7678
rfernandez@nyiso.com
mlampi@nyiso.com
rstalter@nyiso.com
*Persons designated for receipt of service.
VII. Effective Date
The NYISO understands that this filing constitutes an amendment to the NYISO filing
and that a new effective date will be established. The NYISO had originally requested an
effective date no later than June 26, 2013. The NYISO is on track to install the software to
implement the scarcity pricing revisions proposed in its Feb. 8 Filing and in this letter by
June 12, 2013. The NYISO will install the software in the “off” position. However, the NYISO would be able to implement provisions accepted by a FERC order in this docket as of a date one week from the date of the order.
Therefore, the NYISO respectfully requests that the Commission issue an order as soon
as practicable but in no event later than July 1, 2013 with an effective date sixty days from the
Honorable Kimberly D. Bose May 9, 2013
Page 9
date of this filing or July 8, 2013. Such an effective date will allow the NYISO to implement
these revisions during the major portion of the summer months while also allowing a one-week
notice to be issued to its Market Participants indicating the date for which the new rules will be
introduced.
VIII. Conclusion
Wherefore, for the foregoing reasons, the New York Independent System Operator, Inc.
respectfully requests that the Commission issue an order accepting the proposed Tariff
amendments included in the NYISO’s Feb. 8 Filing and the proposed amendments included
herein and making them effective no later than sixty days from the date of this filing or July 8,
2013.
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
cc:Travis Allen
Michael A. Bardee
Gregory Berson
Anna Cochrane
Daniel Nowak
Jignasa Gadani
Morris Margolis
Michael McLaughlin
Joseph McClelland
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 9th day of May, 2013.
/s/ Joy A. Zimberlin
Joy A. Zimberlin
New York Independent System Operator, Inc.
10 Krey Blvd.
Rensselaer, NY 12144 (518) 356-6207
