10 Krey Boulevard, Rensselaer, NY 12144
Ph: 518.356.6000 | Fax: 518.356.8899
February 21, 2020
By Electronic Delivery
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. ER20-____-000;
Proposed Enhancements to the ICAP Demand Curve Annual Update
Procedures
Dear Secretary Bose:
In accordance with Section 205 of the Federal Power Act1 and Part 35 of the regulations of the Federal Energy Regulatory Commission (“Commission”), the New York Independent System Operator, Inc. (“NYISO”) submits proposed revisions to Section 5.14.1.2.2 of its Market Administration and Control Area Services Tariff (“Services Tariff”).2 The NYISO proposes certain technical enhancements to the procedures for annually updating the ICAP Demand
Curves in the years between the tariff-prescribed periodic reviews.
The NYISO Management Committee unanimously approved the proposed revisions on
January 22, 2020. The NYISO respectfully requests that the proposed revisions become
effective on April 22, 2020 (i.e., the day following the end of the statutory 60-day notice period).
I.Documents Submitted
The NYISO respectfully submits the following documents with this filing letter:
1.A clean version of the proposed revisions to the Services Tariff (“Attachment I”);
and
2.A blacklined version of the proposed revisions to the Services Tariff
(“Attachment II”).
II.Background
Section 5.14.1.2.2 of the Services Tariff requires that the NYISO conduct periodic
1 16 U.S.C. § 824d.
2 Capitalized terms not otherwise defined herein shall have the meaning specified in the Services
Tariff.
Website: www.nyiso.com | LinkedIn: NYISO | Twitter: @NewYorkISO
Honorable Kimberly D. Bose February 21, 2020
Page 2
reviews of the parameters of the ICAP Demand Curves (commonly referred to as the “ICAP
Demand Curve reset” or “DCR”). The Services Tariff specifies that the DCR must, among other
factors, assess: (i) the current localized levelized embedded cost of a peaking plant3 underlying
each ICAP Demand Curve (commonly referred to as the gross cost of new entry or “Gross
CONE”); and (ii) the likely projected net Energy and Ancillary Services (“EAS”) revenues to be
earned by each peaking plant from participation in the NYISO-administered markets.
As part of the last reset, the NYISO conducted a comprehensive review of the DCR and
implemented revisions to the process. The changes included: (1) extending the period between
resets to four years; (2) implementing annual updates between resets; and (3) revising the
methodology for estimating potential net EAS revenues earned by the hypothetical peaking
plants.4
The annual updates consist of the following: (1) adjusting the Gross CONE value of each peaking plant based on a composite escalation factor;5 (2) determining new net EAS revenue
estimates for each peaking plant using updated cost and market price information;6 (3)
determining updated winter-to-summer available capacity ratio values;7 and (4) determining the revised values of the ICAP Demand Curves utilizing the updated values described above.8 The Services Tariff requires that the NYISO post the results of annual updates to its website on or
before November 30th of the calendar year prior to the commencement of the Capability Year for which the updated ICAP Demand Curves apply.9
The NYISO recently completed the final annual update for the current reset period - the
first reset period to which the process enhancements have applied.10 Based on the experience
gained from the execution of the annual updates over the course of the current reset period, the
3 The Services Tariff requires use of the costs and projected net EAS revenues for a “peaking
plant” in determining the values of the ICAP Demand Curves. A “peaking unit” is defined as “the unit
with technology that results in the lowest fixed costs and highest variable costs among all other units’
technology that are economically viable.” The Services Tariff defines a “peaking plant” to mean “the
number of units (whether one or more) that constitute the scale identified in the periodic review.”
4 See Docket No. ER16-1751-000, New York Independent System Operator, Inc., Proposed
Services Tariff Revisions to Implement Enhancements to the Periodic Reviews of the ICAP Demand
Curves (May 20, 2016); and New York Independent System Operator, Inc., 156 FERC ¶ 61,039 (2016).
5 See Services Tariff § 5.14.1.2.2.1.
6 See Services Tariff § 5.14.1.2.2.2.
7 See Services Tariff § 5.14.1.2.2.3
8 Id.
9 See Services Tariff § 5.14.1.2.2. For example, in November 2019, the NYISO posted the updated ICAP Demand Curves that will apply for the upcoming 2020/2021 Capability Year.
10 References to the term “reset period” herein means the period of Capability Years for which ICAP Demand Curves resulting from methodologies and inputs established during each DCR are in effect. For example, the reset period associated with the DCR completed in 2016 encompasses the 2017/2018 through 2020/2021 Capability Years.
Honorable Kimberly D. Bose February 21, 2020
Page 3
NYISO proposes certain enhancements to the procedures for the annual adjustment of Gross CONE values, as further described herein.
III. Description of the Proposed Enhancements and Tariff Revisions
The NYISO updates the Gross CONE value of the peaking plant for each ICAP Demand Curve using a single, statewide composite escalation factor.11 The composite escalation factor
measures changes over time in values for certain publicly available inflation indices that relate to the costs of building a new resource. The composite escalation factor consists of four
components: (1) changes in construction material costs (“materials component”); (2) changes in turbine generator costs (“turbine component”); (3) changes in labor costs (“labor component”); and (4) changes in the general cost of goods and services (“general component”). The costs of
the peaking plant for each ICAP Demand Curve are broken down into each of these cost
categories and used to derive average statewide weighting factors that should be applied to each component.12 The applicable weighting factors are determined as part of each DCR and remain fixed for the four-year period covered by each reset.13
The NYISO currently calculates the value of the composite escalation factor for a given
annual update based on the most recent year-over-year percentage change in values published by
the index for each component, multiplied by the applicable weighting factor for each component
and summed across the resulting values for all four components. The year-over-year percentage
changes are determined using finalized data published by the indices as of October 1st of the
calendar year prior to the beginning of the Capability Year for which the updated ICAP Demand
Curves will apply. The NYISO adjusts the Gross CONE value underlying each of the then-
effective ICAP Demand Curves by applying the calculated composite escalation factor to each
such value.
Based on the experience of executing the annual updates for the current reset period,
certain stakeholders raised concerns that the current procedures for adjusting Gross CONE
values could potentially produce sub-optimal outcomes under certain conditions. Such
stakeholders contend that the current procedures for measuring changes in index values on a
year-over-year basis can result in temporal discrepancies in the measurement of changes for
particular annual updates if index values that are reutilized in a subsequent annual update are
revised by the index publisher after their initial use.14 Such stakeholders also raised concerns
11 See Services Tariff § 5.14.1.2.2.1.
12 See, e.g., Docket No. ER17-386-000, New York Independent System Operator, Inc., Proposed ICAP Demand Curves for the 2017/2018 Capability Year and Parameters for Annual Updates for
Capability Years 2018/2019, 2019/2020 and 2020/2021 (November 18, 2016) at 40-41; and New York Independent System Operator, Inc., 158 FERC ¶ 61,028 (2017).
13 See Services Tariff §5.14.1.2.2.1.
14 Index publishers commonly have procedures that permit revisions to previously “finalized”
values after initial finalization. Although not materially impacting the results of any calculations to date, the NYISO has identified certain instances where an index publisher has made minimal adjustments to certain data values from one year to the next.
Honorable Kimberly D. Bose February 21, 2020
Page 4
that applying the calculated composite escalation factor to the then-currently effective Gross
CONE values underlying each ICAP Demand Curve may call into question the appropriateness of fixing the weighting factors for each component of the composite escalation factor for the
duration of the reset period. These stakeholders contend that if the rate of change among the four components significantly varies over the course of the reset period, it may be more appropriate to revise the weighting factors annually to reflect changes based on the updated Gross CONE
values resulting from each annual update.
In response to stakeholder feedback, the NYISO proposes two, technical enhancements to the current procedures for adjusting Gross CONE values as part of the annual updates. The
NYISO proposes to revise the methodology for calculating the composite escalation factor
during each annual update. The NYISO also proposes to revise the manner of applying the
composite escalation factor to derive adjusted Gross CONE values.
The NYISO proposes to revise the methodology for measuring changes in the indices for
each component of the composite escalation factor. Rather than measuring the change in the
applicable inflationary indices on a year-over-year basis, the NYISO proposes to measure such
changes over the duration of the reset period that has been completed as of each annual update.
As part of the DCR, the NYISO will establish a baseline from which changes in each index will
be measured. This baseline period represents the time periods associated with the most recent
finalized data available for each index as of October 1st of the calendar year in which the NYISO
files the results of the DCR with the Commission. For each annual update, the NYISO will
measure the changes in each index as the difference between the most recently available data and
the data values associated with the baseline period. The values used will be based on the data
published by each index as of October 1st of the calendar year prior to the commencement of the
Capability Year for which the updated ICAP Demand Curves will apply. The use of a consistent
baseline period to measure changes over time is intended to address the potential concerns that
can arise under the current year-over-year calculation methodology.
The NYISO also proposes to revise the process for using the composite escalation factor
to determine adjusted Gross CONE values. Rather than applying the composite escalation factor
to the Gross CONE values underlying the then-effective ICAP Demand Curves, the NYISO will
apply the composite escalation factor calculated during each annual update to the Gross CONE
values underlying the ICAP Demand Curves for the first Capability Year covered by the reset
period. The Gross CONE values underlying the ICAP Demand Curves for the first Capability
Year of a reset period are used for determining the weighting factors assigned to each component of the composite escalation factor. Use of these values as a consistent baseline for determining adjusted values is intended to address the potential concerns related to the use of weighting
factors that remain fixed for the duration of each reset period.
The NYISO proposes revisions to Section 5.14.1.2.2.1 of the Services Tariff to describe
the new methodology used in the annual updates to: (1) calculate the composite escalation factor;
and (2) adjust Gross CONE values by using the calculated composite escalation factor value.
The proposed revisions identify the “baseline period” used for purposes of measuring changes in
the applicable values of the indices associated with each component of the composite escalation
Honorable Kimberly D. Bose February 21, 2020
Page 5
factor. The proposed revisions also provide that the NYISO will determine adjusted Gross
CONE values for each annual update by applying the calculated composite escalation factor to the Gross CONE values underlying the ICAP Demand Curves for the first Capability Year covered by a reset period.
The NYISO also proposes clarifying revisions to Section 5.14.1.2.2.4.11 of the Services Tariff. The proposed revisions clarify that no changes are being proposed to the methodology for determining the inflation rate used for annual adjustments to Offer Floor values in connection with the buyer-side capacity market mitigation rules.15 This inflation rate will continue to be based on the most recent year-over-year percentage change in the values of the index for the general component of the composite escalation factor.
IV.Effective Date
The NYISO respectfully requests that the proposed tariff revisions become effective on April 22, 2020 (i.e., the day following the end of statutory 60-day notice period).16
V.Requisite Stakeholder Approval
The NYISO Management Committee unanimously approved the proposal on January 22,
2020. The NYISO’s Board of Directors approved the proposed revisions on February 11, 2020.
VI.Communications and Correspondence
Please direct all communications and service in this proceeding to:
Robert E. Fernandez, Executive Vice President & General Counsel Karen G. Gach, Deputy General Counsel
Raymond Stalter, Director, Regulatory Affairs
*Garrett E. Bissell, Senior Attorney
New York Independent System Operator, Inc.
10 Krey Boulevard
Rensselaer, NY 12144
Telephone: 518-356-6000
Email: gbissell@nyiso.com
*Person designated for receipt of service.
15 See Section 23.4.5.7 of Attachment H of the Services Tariff.
16 The NYISO has completed all annual updates for the current reset period. Accordingly, the revised methodology would first be utilized as part of the annual update to determine the ICAP Demand Curves for the 2022/2023 Capability Year.
Honorable Kimberly D. Bose February 21, 2020
Page 6
VII.Service
The NYISO will send an electronic link to this filing to the official representative of each
of its customers, each participant on its stakeholder committees, the New York State Public
Service Commission, and the New Jersey Board of Public Utilities. The NYISO will also post
the complete filing on its website at www.nyiso.com.
VIII.Conclusion
The NYISO respectfully requests that the Commission accept the proposed revisions to the Services Tariff attached hereto with an effective date of April 22, 2020.
Respectfully submitted,
/s/ Garrett E. Bissell
Garrett E. Bissell
Senior Attorney
New York Independent System Operator, Inc.
cc:Anna Cochrane
James Danly
Jignasa Gadani
Jette Gebhart
Kurt Longo
John C. Miller
David Morenoff
Daniel Nowak
Larry Parkinson
Douglas Roe
Frank Swigonski
Eric Vandenberg
Gary Will
