10 Krey Boulevard Rensselaer, NY 12144

July 29, 2010

Via 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. ER06-1014-___
Eighth Price Validation Informational Report

Dear Ms. Bose:

Pursuant to Ordering Paragraph (B) of the Commission’s January 14, 2006 order

(“January 14 Order”) in the above-captioned proceeding,1 the New York Independent System Operator, Inc. (“NYISO”) respectfully submits this Price Validation Informational Report
(“Report”), which details the corrections that the NYISO has made to erroneous locational based marginal prices (“LBMPs”) from the period January 1, 2010 through June 30, 2010, as well as actions the NYISO has taken to minimize pricing errors.

Due to the NYISO’s continued efforts, conducted in collaboration with its stakeholders, price errors and the need for price corrections continue to be infrequent and to decline. In 2005, the NYISO corrected prices in approximately 16% of hours. In 2006, that number was reduced to approximately 3% of hours. In 2007, the number was further reduced to approximately 1% of hours. In 2008, the percentage of hours containing price errors continued to decline to
approximately 0.7%. In 2009 the percentage of hours corrected was 0.3%. And in the first half of 2010 the percentage of hours corrected was 0.3%. The trend has been one of consistent
improvement to a very high level of pricing performance.

I.Background

In its January 14 Order, the Commission conditionally accepted proposed revisions to the
NYISO’s tariffs to eliminate its Temporary Extraordinary Procedures (“TEPs”) and establish a
framework and time limits for price corrections outside of the TEPs. In that order, the
Commission required the NYISO to submit informational reports every six months thereafter
that indicate the causes of pricing errors that occurred during the reporting period, the duration
and rate impact of those errors and the associated corrections, and the actions the NYISO took to
correct the pricing errors. In addition, the Commission directed the NYISO to summarize and

1 New York Independent System Operator, Inc., 116 FERC ¶ 61,037 (2006).

Honorable Kimberly D. Bose, Secretary July 29, 2010

Page 2

discuss what actions it undertook during the preceding six months to reduce or eliminate the types of price errors that occurred.

This is the eighth Report submitted in compliance with the January 14 Order.2 This Report details all of the price corrections the NYISO made for the period January 1, 2010,
through June 30, 2010, in its Real-Time Market.3 There were no day-ahead market price
corrections during the reporting period. The Report identifies the causes of each pricing error, the number of Real-Time Dispatch (“RTD”) intervals affected,4 and the amount by which each corrected price was changed. In addition, the Report describes the measures taken by the
NYISO to minimize the incidence of pricing errors and to improve its price validation and
correction practices. Attachments A and B to this Report detail the Real-Time Market price corrections for the period January 1, 2010 through June 30, 2010.

II.Communications and Correspondence

Communications regarding this filing should be directed to: *Robert E. Fernandez, General Counsel

Elaine D. Robinson, Director of Regulatory Affairs New York Independent System Operator, Inc.

10 Krey Boulevard

Rensselaer, NY 12144
Tel: (518) 356-6000
Fax: (518) 356-4702
rfernandez@nyiso.com
erobinson@nyiso.com

*Persons designated to receive service.

III.Service

The NYISO has served a copy of this filing on the official service list compiled by the
Secretary in this proceeding. In addition, the complete filing will be posted on the NYISO’s
website at www.nyiso.com. The NYISO will also make a paper copy available to any interested
party that requests one.

2 The NYISO submitted the prior reports to the Commission on January 31, 2007, January 31, 2007,
January 31, 2008, August 1, 2008, January 31, 2010, January 31, 2010 and January 29, 2010 respectively.

3 The Real-Time Market is defined as the “ISO-administered markets for Energy and Ancillary Services,

resulting from the operation of the RTC [Real-Time Commitment] and RTD [Real-Time Dispatch]” models. OATT at § 1.36f; Services Tariff at § 2.155. While the NYISO corrects prices in the hour-ahead market, as necessary, that “market” consists of only advisory prices that are not used in NYISO settlements. Furthermore, the NYISO has corrected relatively few advisory prices during the period covered by this Report.

4 RTD intervals normally occur every five minutes.

Honorable Kimberly D. Bose, Secretary July 29, 2010

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IV.Report Details

A.Types and Causes of Pricing Errors

Attachment Q of the OATT and Attachment E of the Market Services Tariff define two
types of price errors.5 The first type of error (“Type I”) results from a simple miscalculation and can reflect a software programming error or a failure of the software to produce an accurate price calculation. The second type of error (“Type II”) results when a price is based on an incorrect
price-setting resource.

The NYISO classifies pricing errors at two levels. The first level is the type of error, as described above. The second level provides a more detailed description of the underlying cause of the error. The NYISO recognizes eight second-level error classifications, as follows:

1 - Posting Error - Posting errors occur when prices do not properly post on NYISO’s
website. These include instances when prices posted incorrectly or did not post at
all.

2 - Indeterminacy / Penalty or Shift Factor Trade-offs - Indeterminacies occur when
the pricing solution cannot be tied to a specific resource. Penalty and shift factor
trade-offs are dispatch schedules that are mathematically correct but inconsistent
with actual operating practices or procedures.

3 - Static Data Error - Static data errors are instances when incorrect non-metered data
are used in the pricing and scheduling system software.

4 - Computer System Failure - Computer system failures include all IT hardware
systems used in compiling data, and calculating and posting prices.

5 - Software Error - Software errors are programming errors in the computer code that
is used in the commitment, dispatch and price calculation processes.

6 - Telemetry - Telemetry issues are caused by problems in the metering, compilation
and conveyance of meter data from generators, loads, tie lines and phase angle
regulators to the NYISO.

7 - Prices Inconsistent with Dispatch / No Marginal Unit - Errors here are the result
of the unit dispatch and pricing not being consistent. Also included are instances
when no marginal unit can be identified.

8 - Operator Input - Operator input errors occur when the system operator enters an
erroneous value that results in incorrect pricing.

5 See OATT, Attachment Q at §§ A(i)-(ii); Services Tariff, Attachment E at §§ A(i)-(ii).

Honorable Kimberly D. Bose, Secretary July 29, 2010

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B. Discussion of Pricing Errors from January through June 2010

The NYISO has conducted an analysis of its Real-Time Market from January through

June 2010 to determine the number of intervals and hours that required price corrections, as well as the causes of the underlying price errors. Table 1-A below provides a count of hours
corrected by month in the Real-Time Market.

Table 1-A

RTD Hours Corrected
January - June 2010

Total134,3440.30%

As shown above, the NYISO corrected prices in only 0.3% of the hours in the first half of 2010. It should be noted that any hour that had at least one interval corrected is included in this tabulation. During this period, one month, February, had no price corrections.

Table 1-B below provides a compilation, by month, of the number of RTD intervals

corrected from January through June of 2010. As would be expected, the percentage of intervals corrected is significantly less than the percentage of hours corrected because not all intervals in a corrected hour require correction.

Table 1-B

RTD Intervals Corrected
January - June 2010

Honorable Kimberly D. Bose, Secretary July 29, 2010

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55% of the total number of intervals corrected, were for an external proxy generator at the HQ interface.

The price corrections from January through June 2010 were classified by error type and error description for both hours and intervals. Table 2 provides the distribution of price
corrections by month between the error types (Type I or Type II).

As Table 2 shows, most (57%) of the RTD interval price corrections in the first half of 2010 were Type I - Calculation Errors that occurred in April and June. All of these errors were caused by posting problems that resulted in the failure to apply special pricing rules for external interfaces. The remaining nineteen intervals were Type II errors. On an hourly basis, only 23% of the corrections were for Type I errors.

Table 2

RTD Price Correction Error Types
January - June 2010

Total2519310

Table 3 presents a summary of RTD interval price corrections classified by reason for the second half of 2010.

Table 3

January - June 2010

RTD Interval Price Corrections by Reason

ReasonJanFebMarAprMayJunTotal

1 - Posting Error---1-2425

2 - Indeterminacy / Penalty or Shift Factor Trade-Off1-----1

3 - Data Error - Static------0

4 - Computer System Failure------0

5 - Software Error--6-4-10

6- Telemetry-----11

7 - Prices Inconsistent w/Dispatch / No Marginal Unit3--3--6

8 - Operator Input--1---1

Total407442544

January Price Corrections

There were two separate price corrections in January 2010. The first, on January 7, was
for a single interval that had a penalty factor trade-off. The second correction, which spanned
three intervals on January 10, was due to the unintended deletion of an Out-of-Merit record for a

Honorable Kimberly D. Bose, Secretary July 29, 2010

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generator that did not have a commitment schedule, and hence was scheduled off. The unit continued to operate until its commitment schedule returned.

February Price Corrections

There were no price corrections in February 2010.

March Price Corrections

There were two price corrections in March 2010. The first, on March 5, was due to a software error that applied an incorrect limit that resulted in extreme pricing for six intervals in one hour. The second price correction, on March 6, was due to an operator error resulting in an incorrect limit being used for a single interval.

April Price Corrections

In April 2010 there were two price corrections. The first, on April 11, was due to a

software error that resulted in a single interval posting failure of generator (not zonal) prices.

The second correction, on April 28, was caused by an incorrect generator unit status that resulted
in improper schedules for the unit. This error existed for three intervals and spanned two hours.

May Price Corrections

May 2010 had one day with RTD price corrections with four affected intervals over two
hours. The problem was due to a change in load forecast coefficients that generated erroneous
forecasts.

June Price Corrections

In June 2010 there were three days with price corrections totaling twenty-five intervals

and three hours. The first of the price corrections was due to a software deployment that resulted in generator (not zonal) prices failing to post. The second price correction was because of a
Transmission Owner ICCP problem that resulted in erroneous generator schedules. The last of the June price corrections was due to a software error that caused a posting problem.

C.Correction of Pricing Errors

The overwhelming majority of price corrections occur in the Real-Time Market. When erroneous prices are found, there are a number of ways they can be corrected. NYISO uses the following seven correction modes for erroneous LBMPs:

1. Replace with a preceding or subsequent interval’s price

2. Average the preceding and subsequent interval prices

3. Replace with a preceding interval’s advisory price

4. Substitute erroneous LBMP with price from a similar bus

Honorable Kimberly D. Bose, Secretary July 29, 2010

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5. Recalculate prices

6. Replace with another market’s prices (RTC or SCUC)

7. Repost missing prices

In accordance with NYISO’s Market Services Tariff, price corrections must accurately reflect actual system conditions. A correction mode that is appropriate for an error in one
circumstance may not be appropriate for the same error in another circumstance due, for
example, to different commitment schedules, constraint patterns or external schedules. When
pricing errors are found, the NYISO conducts an evaluation of the system conditions in the
erroneous pricing interval, and uses a correction mode that most accurately reflects those
conditions. The determining factor is how closely the final price reflects the state of the system during the erroneous pricing interval.

D.Impact of Price Corrections

The impact of price corrections on zonal LBMPs was evaluated for the period January
through June 2010. In this evaluation, the average change in LBMP was calculated for each
month using zonal prices in the Real-Time Market. The number of price increases and decreases
that resulted from the price corrections was also examined. Tables 4 and 5 present the results of
this analysis.

Table 4

Average Zonal Price Change
January - June 2010

JanFebMarAprMayJun

CAPITAL-585.62--267.60-0.5071.74-358.45

CENTRAL-542.21--109.8528.2470.31-326.71

DUNWOODIE-599.22--228.249.2374.72-360.56

GENESEE-523.54--101.5428.4070.72-315.01

HUDSON VALLEY-595.96--227.539.4273.99-359.31

LONG ISLAND-571.70--230.4111.0876.38-365.49

MILLWOOD-597.85--229.169.0374.31-359.59

MOHAWK VALLEY-575.66--115.1030.2871.06-303.91

NEW YORK CITY-603.36--228.917.5575.80-359.36

NORTH-508.16--85.0730.5566.2712.51

WEST-495.41--104.3626.6672.25-301.54

HQ-510.68--85.0831.4566.55-32.11

NPX-585.93--250.303.9672.22-42.07

OH-468.67--97.2025.8671.16-36.36

PJM-531.70--178.9715.3671.56-36.62

Honorable Kimberly D. Bose, Secretary July 29, 2010

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Table 5

Zonal Price Change Count (Increase/Decrease)
January - June 2010

JanFebMarAprMayJunTotal

Increase DecreaseIncrease DecreaseIncrease DecreaseIncrease DecreaseIncrease DecreaseIncrease DecreaseIncrease Decrease

CAPITAL040007122201316

CENTRAL040034212201712

DUNWOODIE040007122201316

GENESEE040034212201712

HUDSON VALLEY040007122201316

LONG ISLAND130007122201415

MILLWOOD040007122201316

MOHAWK VALLEY040034212201712

NEW YORK CITY040007122201316

NORTH130034212210910

WEST040034212201712

HQ1300342122013823

NPX0400071222013328

OH0400342122013724

PJM0400072122013427

Total3570021842322303016278255

As can be seen in Table 4, the average zonal price changes were quite high in January, March and June. The January average change was driven by one interval (07 Jan 2010, 16:55) whose corrected price was over $2000 less than the original price. Coupled with the fact that there were only four intervals corrected in January, this single interval had a large impact. The average change in March was -$170, while the average change in June was -$236. Given the limited number of price corrections, the impact of a few large corrections was substantial. As shown in Table 5, there were a total of 333 zonal interval prices corrected. Of these, 78 zonal interval prices (23.4%) were increased and 255 (76.6%) were decreased.

E.Price Correction Mitigation Initiatives

The NYISO’s efforts to improve initial price accuracy have successfully maintained a

high level of price accuracy in 2010. This continued success is due to the NYISO’s commitment to identifying pricing problems, thoroughly evaluating these problems, and developing, where
possible, solutions to mitigate these problems. These efforts have dramatically reduced pricing
errors since 2006.

For the January through June 2010 reporting period the NYISO has initiated a number of efforts - both institutional (e.g., software enhancements) and operational - to revise and develop strategies and procedures to mitigate pricing errors. Among the measures undertaken during the reporting period are:

• The Integrated Source Selection (ISS), an automated system that screens telemetry

and switches to alternate metering sources when erroneous values are found, has been enhanced to expand and improve monitoring of interfaces and load pockets. A
generalized degrade feature has been added to include, where available, a third
metering source.

• A 3-Way comparison for SCADA metering, State Estimator and RTD for zonal loads,
sub-zonal loads and interface flows has been enhanced by adding individual timers.

Honorable Kimberly D. Bose, Secretary July 29, 2010

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• On-going operator training has an enhanced curriculum to focus on the identification
and response to pricing problems.

• The NYISO has continued to enhance its network model to improve its performance
in the scheduling systems.

V.Conclusion

WHEREFORE, the New York Independent System Operator, Inc., respectfully requests that the Commission accept this informational report.

Respectfully submitted,

/s/ Mollie Lampi

Mollie Lampi

Assistant General Counsel

New York Independent System Operator, Inc.

10 Krey Blvd.

Rensselaer, NY 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

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 29th day of July, 2010

/s/ Joy A. Zimberlin

Joy Zimberlin

New York Independent System Operator, Inc

10 Krey Blvd.

Rensselaer, NY 12114 (518) 356-6207