Appendix A DPS REV Staff Report Wholesale Market Products

Reforming the Energy Vision (REV) is Governor Cuomo’s plan to “rebuild, strengthen and modernize New York’s energy system.  The REV DPS Staff Report and Proposal (available at DPS Staff Reports April 24, 2014) contains a very good description of the wholesale electric market in Appendix A (reproduced below). In order for REV to be successful the services described below must be maintained.

In order to understand the rationale of REV you have to understand how electricity generated at power plants gets to your home. Before the New York electric system was de-regulated, your power company was responsible for generating power, transmitting it over the big transmission lines to your neighborhood where the distribution power lines delivered it to your home. After de-regulation your power company is no longer responsible for generating[1] the power only delivering it.

In the de-regulated system the New York Independent System Operator regulates the generation of power to the system where it can be sent to your home. Appendix A (quoted below) describes the wholesale market products that are used to govern those transactions. Day to day power needs are met with a couple of products. Energy markets balance electrical power needs against the power generating plants capabilities to insure that the power needed is available. The Day Ahead Demand Response Program is an option where instead of turning on an additional generating unit a facility offers to use less power instead.

In addition to the day to day power variations there are seasonal variations with the main reliability issue being a peak load day. Capacity Markets guarantee that when the peak loads occur that there are enough generating plants available to provide the necessary power where and when it is needed.

The power generation, transmission and distribution system is connected and synchronized. In order to provide the requirements for the system to be connected and synchronized NYISO operates markets for “ancillary services.” There are five separate categories of ancillary services. Regulation services continuously balances load and power supply. Voltage support services maintain the system voltage. , Synchronous and non-synchronous reserves are used to address emergency contingencies during daily operations while black start services are used to startup the system when there is a blackout. Finally there are demand side ancillary services. These are analogous to the day ahead demand response program whereby they facilitate the use of demand side resources to meet the needs of the services described above.


In summary, in order for REV to be successful all these services have to be maintained. The inconvenient issue is that some of the proposed components of REV behave markedly different than components of the existing system. Consequently providing these services at lower costs while maintaining reliability is an ambitious goal and one that must be addressed in the plans.


April 24, 2014 — Reforming the Energy Vision DPS Staff Report and Proposal

Appendix A Wholesale Market Products

 Energy Markets

At present, the NYISO operates a number of wholesale competitive markets. There are two distinct markets for the electric energy, the Day-Ahead market, and the Real-Time market. Approximately 98% of the electric energy used in the State is scheduled in the Day-Ahead market with the remaining 2% accounted for in the Real-Time market.

In the Day-Ahead market, the NYISO co-optimizes the Energy, Operating Reserves and regulation markets by utilizing bid-based Security Constrained Economic Dispatch (SCED) and Security Constrained Unit Commitment (SCUC). Day-ahead bids are due by 5:00 a.m. on the day before the unit will run, and the NYISO posts the day-ahead schedules and the market clearing prices by 11:00 a.m. Clearing prices are based on LBMP (Locational Based Marginal Pricing), which is the cost to supply the next MW of load at a specific location in the grid. By so doing the NYISO ensures that resources are available to satisfy loads that are forecast for the day.

The NYISO also runs Real-Time markets to efficiently and economically balance actual system loads and a large number of changes continuously taking place on the system, such as unanticipated transmission and generation outages. Real-time bids are due 75 minutes prior to the hour of operation. Differences between day-ahead schedules and actual load and generation are priced at real-time LBMPs, which are calculated every 5 minutes.

 Day Ahead Demand Response Program (DADRP)

The DADRP allows end-users to participate in the day-ahead energy market by offering load reduction bids. DADRP participants are paid at the LBMP market price for the amount of their winning bid and have a performance obligation much like winning generators. Participation in the NYISO‟s DADRP is currently limited to curtailable load. A recent FERC Order, however, ruled that behind-the-meter generation must also be allowed to participate. Eligibility is limited to providers that can demonstrate an ability to curtail at least 1 MW of load, and at present, there is a $75/MWh minimum offer floor. However, in the NYISO‟s compliance filing in response to FERC‟s Order 745, the new monthly floor will be determined through the application of a “net benefits test.”

 Capacity Markets

The NYISO establishes Installed Capacity (ICAP) requirements to ensure sufficient resources are available to adequately serve the forecasted summer peak New York Control Area (NYCA) system load. ICAP suppliers must satisfy semiannual tests of maximum output, and must meet deliverability requirements (sufficient transmission to reach load in their respective capacity regions). The NYISO operates capacity markets to facilitate the purchase, by Load Serving Entities (LSEs), of the capacity they are required to procure. In this context, “capacity” is not the electricity itself, but instead the ability to produce electricity when necessary.

ICAP requirements are set based upon projected peak NYCA load, plus an additional reserve amount to ensure the system can reliably serve peak demand even in cases of unplanned outages (known as “contingencies”). This reserve amount is known in New York as the “Installed Reserve Margin” (IRM). In addition to the Statewide IRM, the NYISO imposes minimum Locational Capacity Requirements (LCRs) in areas of the State that have limits on their ability to import power from outside areas. Thus, there are LCRs established for New York City (Zone “J”), Long Island (Zone “K”), and the newly established Lower Hudson Valley capacity zone (Zones “G” through “J”). LSEs are subject to ICAP requirements based on their respective share of coincident system peak load for the State (i.e., the IRM). Where applicable, they must satisfy part of that requirement with resources which are electrically located within their Zone.

All ICAP supplies must “clear” in the mandatory, NYISO-administered, “spot” markets, which are held monthly. LSE bids in the spot auctions are determined by administratively-set “demand curves”. Supply offers in New York City (Zone “J”) and the Lower Hudson Valley (Zones “G” through “J”) are subject to bid caps (for incumbent suppliers) and bid floors (for new entrants), under market power mitigation rules established by FERC. ICAP suppliers within a zone subject to LCRs (i.e., Zones “J,” “K,” and “G” through “J”) receive the higher of the statewide capacity price or the applicable locational price for their respective zones. The NYISO also operates voluntary forward auctions, for the summer (May-October) and winter (November-April) capability periods. Supplies obtained in the forward auctions must also be offered into and clear the spot auctions in order to satisfy LSE ICAP requirements.

 Ancillary Services Markets

In addition to the energy and capacity markets, the NYISO operates markets for “ancillary services.” There are five separate categories of ancillary services at the wholesale/bulk power system level: regulation services, voltage support services, synchronous and non-synchronous reserves, black start services, and demand side ancillary services. These will each be briefly discussed in turn.

 Regulation Services

System “regulation” is the practice of continuously balancing power supply resources with load. Regulation service is accomplished through transparent day-ahead and real-time markets which receive bids from participating, qualified energy suppliers (having automatic generation control capability), demand-side resources (also see DSASP) and energy storage resources. A bid evaluation program selects specific resources and the amount of power to be delivered on the basis of each participant’s bid price, unit response rates, location and existing transmission constraints. Updates to the desired generation levels expected from each unit, occur every six seconds.

 Voltage Support Service

Voltage Support, more formally known as Reactive Supply and Voltage Control Service (“Voltage Support Service” or VSS), is necessary to maintain transmission voltages within acceptable limits. Facilities under the NYISO control are operated to produce or absorb reactive power, as necessary, to maintain transmission voltages within acceptable limits.

VSS facilities must meet a number of criteria to be eligible to participate. For example, they must have a demonstrated the ability to produce and absorb reactive power within specific limits, be able to maintain a specific voltage level under both steady-state and post-contingency operating conditions, and be capable of automatically responding to voltage control signals. In general, eligible VSS providers are generators with automatic voltage regulators, synchronous condensers, and qualified non-generator Voltage Support Resources.

Payments to eligible providers are based on an annual VSS rate established by the NYISO. Generators that are given energy delivery schedules may be eligible to receive lost opportunity costs under certain circumstances when dispatched for voltage support reasons. VSS providers can also be assessed penalties if they fail to provide VSS as directed or if they fail to maintain their automatic voltage regulators.

 Synchronized and Non-Synchronized Reserves

To ensure reliable operation of the bulk power system, the NYISO‟s “Operating Reserve Service” provides needed reserves in the form of generation or demand response if a real time power system contingency requires emergency corrective action. The NYISO provides markets for 10-minute spinning, 10-minute non-synchronized, and 30-minute non-spinning reserves with a NYCA-wide requirement as well as an Eastern and Long Island requirement and a Long Island requirement.

The minimum reserve requirements are based on the largest single “contingency” (in MW), as defined by the NYISO. Providers of Operating Reserves must be properly located electrically and geographically to ensure the ability to deliver energy reserves as necessary. The NYISO must procure sufficient Operating Reserves to comply with applicable Reliability Rules and standards. All suppliers of Operating Reserves must be located within the New York Control Area, and under NYISO Operational Control.

The NYISO administers two ancillary services markets (Day Ahead and Real-Time) through which LSEs can procure needed resources for required Operating Reserves. Each supplier that bids into these markets must be able to provide electric energy or reduce demand when called upon.

Black Start Services

In the event of a partial or system-wide blackout, Black Start Capability Service is provided by generators having the ability to re-start their facilities without the need for an external supplier of electricity. Such black start generators are either under the control of the NYISO or, in some cases, under the control of the local Transmission Owner. The NYISO selects the generating resources with black start capability by considering a number of design and operating characteristics, including electrical location, startup time in response to a NYISO order to start, response rate, and maximum power output.

Generation resources providing black start service must successfully conduct and pass annual black start capability testing. Payments for service, called Restoration Services payments, are provided under the NYISO‟s Open Access Transmission Tariff. Any Generator awarded Restoration Services payments that fails a Black Start Capability Test must forfeit all payments for such services since its last successful test.

 Demand Side Services

The NYISO also administers a Demand Side Ancillary Services Program (DSASP) intended to facilitate economic use of demand side resources to meet electricity needs. Participation is allowed for interruptible loads for Spinning Reserves or Regulation. Loads with qualified behind-the-meter generation may provide Non-Synchronous Reserves. The minimum resource size is 1 MW and there is a $75/ MWh minimum bid. The payment is the Regulation or Reserve clearing price.

 NYISO Demand Response Programs

The NYISO also administers several different demand response programs. These include the Special Case Resources Program (SCR), the Emergency Demand Response Program (EDRP), and the Day Ahead Demand Response Program (DADRP)

Special Case Resources

Participation in the NYISO‟s SCR Program is open to interruptible loads or loads with a qualified behind-the-meter Local Generator. There is a minimum of 100kW reduction, and participation is mandatory during reliability events. There is a mandatory test each capability period and capacity can be sold either in a bilateral contract or through the NYISO capacity auctions. Payments are in capacity and energy payments.

Emergency Demand Response

Participation in EDRP is open to interruptible loads or loads with a qualified behind-the-meter generator. Load reduction is voluntary and there is a minimum of 100 kW reduction for participation. Participants are compensated through an energy payment equal to the greater of $500/ MWh or the applicable real-time LBMP.

[1] There are exceptions to this rule but in general your power company no longer generates its own power.

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