10 Krey Boulevard Rensselaer, NY 12144
July 26, 2010
By Electronic Filing
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.ER10-___-___
Proposed Tariff Clarifications regarding Real-Time Energy Offers
Dear Ms. Bose:
Pursuant to Section 205 of the Federal Power Act,1 the New York Independent System
Operator, Inc. (“NYISO”) hereby submits proposed revisions to its Open Access
Transmission Tariff (“OATT”) and Market Administration and Control Area Services Tariff
(“Services Tariff”) to revise provisions concerning Real-Time Energy offers. These
provisions will allow Generators to increase the price of Energy already scheduled Day-
Ahead for re-evaluation in the real-time market. The opportunity to re-offer Energy already
scheduled Day-Ahead at a higher price in real-time will allow Generators to reflect in their
real-time offers the cost implications of circumstances that arose following the Day-Ahead
commitment, such as fuel outages or fuel cost increases. This functionality provides an
opportunity to manage the risk of these unexpected fuel cost increases. It also improves the
ability for the NYISO’s real-time commitment and dispatch software to reflect such
unexpected circumstances in real-time Location Based Marginal Pricing (“LBMP”).
These Tariff amendments have been approved by the NYISO’s Management Committee and the NYISO’s Board of Directors.
IDocuments Submitted
1.This filing letter;
2.A clean version of the proposed revisions to the NYISO’s Open Access
Transmission Tariff (“OATT”) and Market Administration and Control Area Services Tariff (“Services Tariff”); and
3. A blacklined version of the proposed revisions to the NYISO’s Open Access
Transmission Tariff (“OATT”) and Market Administration and Control Area Services Tariff (“Services Tariff”).
1 16 U.S.C. §824d (2000).
Honorable Kimberly D. Bose July 26, 2010
Page 2
IIBackground
Market Participants submit Generator offers in the Day-Ahead Market (“DAM”)
based on their expected marginal costs of operation. The costs associated with running at the
Day-Ahead committed level may increase following the close of the DAM, due to reasons
such as the need to switch to an alternate fuel due to fuel curtailment or otherwise. Currently,
generators are not permitted to increase their Energy offer on capacity that received a DAM
schedule2 and no other NYISO mechanism exists for generators to manage or hedge these
post-DAM increases in costs. Thus, Generators must either run to their Day-Ahead schedule
at their increased cost, or take a derate. Such unplanned derates, however, will impact the
Generator’s future Unforced Capacity calculation and may compromise real-time reliability.
The enhancement proposed here will allow generators to increase their real-time
market offers for DAM committed incremental Energy. Increases in the price of their Day-
Ahead scheduled incremental Energy offers allow the real-time commitment and dispatch
software to dispatch such a Generator below its Day-Ahead schedule if other facilities are
available at a bid-cost less than the Generator’s increased real-time bid. A Generator
dispatched lower than its DAM schedule will face Balancing Market obligations but these
obligations are likely to be less than the cost of operating to its DAM schedule at its higher
costs. As such, this feature will improve the ability of Generators to manage the risk of real-
time cost increases after submission of their Day-Ahead offers but before the real-time
dispatch hour.
Generators able to update their real-time offers in the event of real-time cost increases may also include a lower risk premium in their Day-Ahead Market offers, appropriately
benefiting Loads by moving the risk for real-time cost increases from Day-Ahead load to realtime load. This functionality also improves real-time market efficiency by making up-to-date cost information available to the real-time market software thereby allowing real-time LBMPs to more accurately reflect in-day Energy production costs.
Generators will not be allowed to increase their Minimum Generation Cost or MW. This ensures that the NYISO’s Security Constrained Unit Commitment (“SCUC”)-scheduled Day-Ahead units will be online and available to provide Energy above their minimum
generation levels, if the need for such dispatch materializes.3 In addition, units will remain unable to increase their Start-Up Costs since the SCUC software reflected this cost in the generator’s DAM schedule and settlement.
This project is dependent on successful deployment of the Reference Level Software
(“RLS”) project, since generators’ reference levels may need to be updated when they
experience cost increases which they want to incorporate into their real-time offers. Pursuant
2 Generators currently are allowed to increase their Energy offers in the Hour-Ahead Market only for capacity that was not committed in the DAM although they may lower their offers in the Hour-Ahead Market for DAM committed Energy.
3 Generators economically dispatched above their minimum generation levels will not be additionally compensated, for Energy previously scheduled Day-Ahead, at real-time LBMPs or otherwise.
Honorable Kimberly D. Bose July 26, 2010
Page 3
to the proposed tariff amendments related to the RLS project, Market Participants will be able
to submit fuel type and fuel cost information with their updated real-time offers. RLS will use
the Market Participant-submitted fuel data to adjust reference levels, subject to RLS rules.
For other cost increases, Market Participants will continue to contact Market Mitigation and
Analysis (via the Reference Level Software application) with reference level adjustment
requests.
III Description of and Justification for Proposed Tariff Revisions
The NYISO proposes to add a new term to the Services Tariff, Section 2.18 and OATT, Section 1.18: “Real-Time Scheduling Window” defined as
The period of time within which the ISO accepts offers and Bids to sell and purchase
Energy and Ancillary Services in the real-time market which period closes seventy-
five (75) minutes before each hour, or eighty-five (85) minutes before each hour for
Bids to schedule External Transactions at the Proxy Generator Buses associated with
the Cross-Sound Scheduled Line, the Neptune Scheduled Line, or the Linden VFT
Scheduled Line.
The availability of a term describing the real-time bid submission time frame reduces the length of the description of this opportunity and thereby improves the clarity of provisions in the Services Tariff that describe it.
The NYISO also proposes to amend Services Tariff Section 4.1.8, titled “Commitment
for Reliability.” Previously, Generators required to operate in response to specific reliability-
based requests from the NYISO, could recover, pursuant to this provision, start-up and
minimum generation costs not recovered in the Dispatch Day. With the ability to include
increased incremental Energy costs in the units’ real-time bid, the NYISO proposes to limit
the application of this section to costs that were not bid, and that were not known prior to the
close of the Real-Time Scheduling Window. Additional costs for Energy scheduled Day-
Ahead will no longer be covered by this provision. These limitations are necessary to ensure
that units bid their increased costs into the real-time market where the real-time economic
dispatch could replace their more expensive Energy with less expensive supply. The balance
of the changes to this section clarify that: i) any increased costs not recovered in the Dispatch
Day and eligible for recovery under this Section are treated for Attachment C purposes as if
bid, since Attachment C discusses only bids; and ii) the reference to the recovery of payments
made under this Section applies to reliability calls for local and statewide reliability.
The NYISO also proposes to amend Section 4.4.2.2.1 of the Services Tariff, which
addresses the submission of real-time bids, to indicate that Generators may increase the bid-
price, or the mitigated bid-price, as applicable, of Day-Ahead scheduled incremental Energy
unless otherwise prohibited from doing so by other provisions of the tariff. The proposed
caveat is necessary because, as is described in detail below, the NYISO proposes new
mitigation measures that will permit it to prohibit Suppliers bidding a particular Generator
from using the opportunity to increase the price of a Day-Ahead scheduled unit in real-time
under a set of circumstances that the NYISO proposes to specify in its Market Power
Honorable Kimberly D. Bose July 26, 2010
Page 4
Mitigation Measures (“MMM”).4 The NYISO also proposes to continue the existing
prohibition found in Section 4.4.2.2.1 of the Services Tariff, on increasing Minimum
Generation and Start-up Bids for Day-Ahead scheduled Energy. As mentioned above, for system reliability, the NYISO needs to be able to rely on the Day-Ahead commitment of Generators sufficient to serve expected real-time Load. Maintaining the Minimum
Generation and Start-up Bids for Day-Ahead scheduled Generators allows the NYISO to rely on them for incremental Energy, should the need arise.
The NYISO proposes to add a new Section 5.2.2 titled “Suspension of the Ability of
Generators to Increase their Bids in Real-Time” to set forth the circumstances under which
the NYISO would temporarily suspend this new functionality, market-wide. This suspension
opportunity is patterned after the existing Section 5.2.1 describing the suspension of Virtual
Transactions, and is necessary for the same reasons as that previously accepted Tariff
provision. The functionality allowing Generators to increase Bids on Day-Ahead scheduled
Energy in real-time is very new to this market design. While the NYISO has complete
confidence that it will work as intended, and will not present reliability or market efficiency
risks, the NYISO believes that it is necessary, and prudent, to be able to discontinue this
functionality if a problem, nonetheless arises. Thus, the NYISO proposes that the opportunity
to submit real-time Incremental Energy Bids on Energy scheduled Day-Ahead at higher prices
than were submitted Day-Ahead be suspended if the use of this bidding opportunity: i) creates
a market aberration that impairs the functioning of the ISO-administered markets; or
ii) substantially impairs the reliability of the electric system. As mentioned, this suspension
functionality is patterned after the suspension functionality for Virtual Transactions and
authorizes suspension for the same reasons.
The NYISO also proposes to notify the Commission and Market Participants of a
suspension of the opportunities for generators to submit real-time Incremental Energy Bids on
Energy scheduled Day-Ahead at higher prices on the same time frame and with as much detail
as it currently uses to report a suspension of the submission of Virtual Transactions. That is,
the NYISO proposes to report as soon as practicable the reasons for the suspension, the
actions necessary to restore the functionality and the time required to restore the functionality.
The NYISO also proposes to exclude, from eligibility for Day-Ahead Margin
Assurance Payments (“DAMAP”), calculated pursuant to the Services Tariff Attachment J,
those hours for which Generators have increased their real-time bids on Day-Ahead scheduled
Energy. DAMAP payments reimburse a Generator for lost Day-Ahead Margin when the
NYISO has scheduled a Generator in such a way that reduces its Day-Ahead Margin. This
happens typically when the NYISO has reduced for reliability reasons the real-time schedule
of a Day-Ahead scheduled Generator. In this case, however, the reduced real-time dispatch is
the result not of NYISO actions but of the Generator’s increased real-time bid and a DAMAP
is not warranted.
In addition, the NYISO proposes to also exclude from DAMAP the two hours before
and following the hour(s) for which the unit has submitted an increased real-time Bid on Day-
Ahead scheduled Energy. Depending on a unit’s ramp rate, the NYISO will begin to ramp a
4 The MMM are set forth in Attachment H to the NYISO’s Services Tariff.
Honorable Kimberly D. Bose July 26, 2010
Page 5
Generator to its new schedule as many as two hours ahead. By the same token, it may take the NYISO as many as two hours to return a unit to its Day-Ahead schedule from an hour’s schedule based on an increased real-time bid. For the same reasons that no DAMAP should be paid for hours for which the increased real-time offer has been made, no DAMAP should be payable for the two hours preceding and the two hours following the hour(s) for which the increased real-time offer was made.
Finally, the NYISO is also proposing new mitigation provisions to prevent unjustified interactions between a Market Party’s virtual bidding and the submission of real-time
Incremental Energy Bids on capacity that was scheduled Day-Ahead. As a general matter, the NYISO’s proposal allows it to revoke the ability for any Market Party to increase hourly realtime Bid(s) on Day-Ahead scheduled capacity for a Generator (“increased real-time bid
functionality”) if the NYISO makes the following determination:
1. A Market Party has submitted an increased Energy offer for the generator for an
hour that exceeds the unit’s justifiable real-time reference level by the lower of
$100/MWH, $300, or the in-city threshold for an in-city Generator when an
interface or facility into the area where the Generator is located is constrained;
2.The Market Party also has a scheduled Virtual Load transaction for the same
hour;
3.A virtual market penalty (described below) calculated for the Market Party
(whether or not imposed) would not be zero; and
4.The Market Party has not been able to demonstrate that its increased real-time
bid was consistent with competitive behavior.
The virtual market penalty is calculated by multiplying the Virtual Load MW by the amount by which the integrated real-time LBMP exceeds the Day-Ahead LBMP applicable to the Virtual Load MW. Virtual Load MW are defined as the scheduled MW of Virtual load bid by the Market Party for the same hour in which the Market Party submitted the
incremental Energy real-time Bid.
Should the NYISO revoke the opportunity for any Market Party to use the increased
real-time bid functionality when bidding a particular Generator, the NYISO also proposes to
add the ability to impose a penalty on the Market Party that used the increased real-time bid
functionality in conjunction with the scheduling of Virtual Load. The penalty will recover the
difference between Real-Time LBMPs and Day-Ahead LBMPs at the locations where the
Market Party scheduled Virtual Load. Although the NYISO does not propose to add a
“penalty multiplier,” losses on scheduled Virtual Load Transactions in an hour will not offset
profits on scheduled Virtual Load Transactions in the same hour for purposes of calculating
the NYISO’s proposed penalty. The mitigation of the authority to use the increased real-time
bid functionality on a particular Generator will be an ongoing mitigation measure that can be
imposed for up to six months, consistent with Section 23.4.8 of the MMM. The application of
the virtual market penalty would be a one-time penalty (although potentially a multi-hour
penalty) related to the circumstances pursuant to which the increased real-time bid
functionality on that Generator was revoked.
Honorable Kimberly D. Bose July 26, 2010
Page 6
The proposed mitigation measure and associated penalty should deter Market
Participants from unjustifiably increasing their real-time bids to manipulate the settlement of Virtual Load Transactions they have also scheduled.
The NYISO includes this mitigation measure in the NYISO Tariff by amending
various Sections of Attachment H. Specifically, the NYISO proposes to amend Section
23.4.3.2 of Attachment H to include among the list of situations and circumstances pursuant
to which the NYISO may impose a financial penalty, the circumstances described above
wherein the NYISO has precluded a Market Party from increasing real-time bids on the
Generator’s Day-Ahead scheduled Energy. The NYISO proposes to add this phrase to
23.4.3.2 in a new subsection (vi):
[T]he opportunity to submit Incremental Energy Bids into the real-time market that
exceed Incremental Energy Bids made in the Day-Ahead Market or mitigated Day-
Ahead Incremental Energy Bids where appropriate, has been revoked for a Market
Party’s Generator pursuant to Sections 23.4.7.2 and 23.4.7.3 of these Mitigation
Measures.
The NYISO proposes to amend the first sentence in 23.4.3.3.1 to exclude, from the
standard penalty calculation found in Section 23.4.3.3 and 23.4.3.4, the virtual market penalty
described in Section 23.4.3.3.4. The NYISO also proposes to add a placeholder Section,
Section 23.4.3.3.3, for the penalty calculation to be introduced in a filing the NYISO intends
to make within a few days of this filing. Finally, the NYISO proposes a ministerial change to
this first sentence to indicate that the penalty calculation described in 23.4.3.3.2 is also an
exclusion from the standard penalty calculation otherwise found in Sections 23.4.3.3 and
23.4.3.4.
The virtual market penalty is proposed to be added to Attachment H as new Section
23.4.3.3.4. It could be imposed on a Market Party, as described above, if the Market Party
used the increased real-time Bid functionality for a Generator and the NYISO has, as a result
of the Market Party’s actions and pursuant to new Sections 23.4.7.2 and 23.4.7.3 of this
Attachment H, revoked the opportunity for any Market Party to use the increased real-time
Bid functionality for that Generator. The virtual market penalty is calculated as described
above.
The NYISO also proposes a new Section 23.4.7 to describe the potential mitigation
applicable under the circumstances described above when a Market Party uses the increased
real-time Bid functionality. In Section 23.4.7.1, the NYISO describes the purposes of the
increased real-time functionality - to permit Market Parties to include additional costs they
would incur to provide incremental Energy in real-time for Energy scheduled Day-Ahead,
where such additional costs were not known prior to the close of the Day-Ahead Market.
The NYISO’s proposed new Section 23.4.7.2 describes its monitoring and mitigation
implementation approach. If a Market Party uses the increased real-time Bid functionality
and also has scheduled a Virtual load bid(s) for the same hour(s), the NYISO will ask the
Market Party to demonstrate that its real-time bid was consistent with competitive behavior if:
Honorable Kimberly D. Bose July 26, 2010
Page 7
1)its real-time bid for the hour exceeded the reference level for the Generator that
can be justified after-the-fact by more than:
i)the lower of $100/MWh or 300%; or
ii)If the Market Party’s Generator is located in a Constrained Area, for
intervals in which an interface or facility into the area in which the
Generator or generation is located has a Shadow Price greater than
zero, then a threshold calculated in accordance with Sections
23.3.1.2.2.1 and 23.3.1.2.2.2of the Mitigation Measures; and
2)a virtual market penalty, if calculated for the Market Party for the hour, would
produce a positive number.
If the Market Party is unable to demonstrate to the satisfaction of the NYISO that its
real-time bid was consistent with competitive behavior, the NYISO shall revoke the use, by
any Market Party, of the increased real-time Bid functionality on that Generator, pursuant to
Section 23.4.7.3. As with other mitigation measures provided in Attachment H, this measure
expires in six months pursuant to Section 23.4.8. If the NYISO imposes the mitigation
measure identified in 23.4.7.3, it may impose the virtual market penalty described in Section
23.4.3.3.4.
IV Effective Date
The NYISO requests an effective date of September 30, 2010.
V Requisite Stakeholder Approval
The NYISO’s Management Committee approved this proposal May 19, 2010. The Board of Directors approved these proposed tariff amendments June 15, 2010.
VI Communications and Correspondence
All communications and service in this proceeding should be directed to:
Robert E. Fernandez, General Counsel
Elaine D. Robinson, Director, Regulatory Affairs
*Mollie Lampi, Assistant General Counsel
New York Independent System Operator, Inc.
10 Krey Boulevard
Rensselaer, NY 12144
Tel: (518) 356-8875
Fax: (518) 356-7678
rfernandez@nyiso.com
erobinson@nyiso.com
mlampi@nyiso.com
* Designated to receive service.
Honorable Kimberly D. Bose July 26, 2010
Page 8
VII Service
The NYISO will send an electronic link to this filing to the official representative of
each of its customers, to each participant on its stakeholder committees, to the New York
Public Service Commission, and to the electric utility regulatory agency of New Jersey. In
addition, the complete filing will be posted on the NYISO’s website at www.nyiso.com.
VIII Conclusion
Wherefore, for the foregoing reasons, the New York Independent System Operator, Inc. respectfully requests that the Commission accept this filing to be effective
September 30, 2010.
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:Jignasa Gadani
Michael A. Bardee
Gregory Berson
Connie Caldwell
Anna Cochrane
Lance Hinrichs
Jeffrey Honeycutt
Michael Mc Laughlin
Kathleen E. Nieman
Daniel Nowak
Rachel Spiker
