An Introductory Guide for Participation in New York ISO Processes

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Q. What is New York ISO and what does it do?

A. The New York Independent System Operator (NYISO) operates the electric transmission system or "grid" in the State of New York. NYISO1s headquarters office is in Rensselaer, New York, near the state capital of Albany.

NYISO coordinates the flow of electricity across the high-voltage, long-distance power lines in New York. It also develops market and reliability rules so that the grid operates reliably and safely. In the absence of such coordination, high power usage on portions of the grid could limit the flow of electricity, which is known as "congestion." Just as vehicle traffic can become congested due to weather or road repair, the electric grid can become congested due to heavy demand during times of system stress (e.g., hot or cold weather) or because a transmission line is down for maintenance. NYISO manages the flow of electricity and has a control center, with a 2,300 square foot video wall, to monitor congestion and emergencies on the grid at all times.i You can think of this as being somewhat similar to an air traffic controller station at an airport, with NYISO system operators maintaining awareness to evolving circumstances or new issues developing on the grid in order to maintain electric flow, reduce congestion, and prevent outages and emergencies.

NYISO is one of seven ISOs or regional transmission organizations ("RTOs," often collectively referred to as "RTOs/lSOs") that the Federal Energy Regulatory Commission (FERC) has overseen the development of since the late 1990s in various parts of the country. NYISO was formed in 1999 and was preceded by the New York Power Pool. The New York Power Pool coordinated reliable utility operations for over three decades following the troubling experience of the 1965 Northeast Blackout.ii

RTOs/lSOs like NYISO are non-profit entities designed to ensure non-discriminatory access to the grid, so that sellers and buyers of wholesale electricity are able to connect with ease and efficiency and achieve competitive, fair, market-based prices reflecting supply and demand. In addition to operating the grid and managing the flow of electricity, another key part of NYISO1s activities is the day-to-day business of running wholesale electricity markets, which is an intricate operation that relies on complex market rules. NYISO develops these market rules based in part on input from stakeholders (representatives from different groups, such as power suppliers and marketers, consumer organizations, utilities, and others) and rulings by FERC. FERC has regulatory oversight over NYISO's activities.

NYISO also conducts a Comprehensive System Planning Process for New York's grid, which seeks to prepare for the impact of expected changes in supply and demand for power on the reliable operation of the grid over a ten-year period.iii  There is an extensive document library on the NYISO website containing planning documents and reports, including fact sheets, whitepapers, annual Power Trend Reports, manuals, and even podcasts on issues like competition and connecting clean energy to the grid.iv

Q. What does it mean when you refer to the "wholesale electricity transmission system" or the "grid?"

A. NYISO, under FERC jurisdiction, operates high-voltage transmission lines that move wholesale power throughout the state, often across significant distances. By contrast, power lines that deliver electricity to retail customers on electric utility poles are considered to be local "distribution," and are generally subject to state or local regulation and jurisdiction.

One key distinction between transmission lines and distribution lines is voltage: in general, local distribution lines are lower voltage - typically 100 kilovolts or less- and high-voltage transmission lines are everything above that. NYISO operates (and FERC regulates) the high­ voltage lines and approves the rates for the power that flows on those lines. This is called the "wholesale electricity transmission system" or the "grid" for New York.

The following diagram illustrates how electricity travels, including NYISO's operation of transmission lines subject to FERC's jurisdiction:

You have probably seen tall poles carrying electricity along a strip of land that look like the tall metallic pole above (second from the left); this is an example of high voltage electricity transmission managed by NYISO.

Q. Does NYISO own the electric transmission infrastructure that it operates?

A. No - NYISO operates those lines but does not own them. Utilities in New York continue to own the transmission infrastructure (lines and poles and other equipment) but hand over operational control to NYISO. Such utilities are considered "transmission owners" or "TOs" in NYISO, and they receive just and reasonable rates through NYISO when those transmission facilities are used, with payments allocated in accordance with NYISO rules. NYISO is an "independent system operator" or "ISO" because it has independent authority, overseen by FERC, to operate the transmission lines owned by the utilities.

Q. What does "wholesale electricity" mean, and why does NYISO operate a market for it?

A. To understand wholesale sales of electricity, consider the graphic below. In the graphic, the power generation plant (Generator) sells electricity to an electric utility or other company that resells power (Reseller), who in turn intends to resell that electricity to homes and businesses (Retail Customer). The sale from Generator to Reseller is a wholesale sale of electricity and FERC almost always has jurisdiction over the rates charged for that sale. Wholesale sales in NYISO are in interstate commerce because New York's grid interconnects with those of other states.

There is a difference between wholesale sales of electricity and "retail" sales of electricity to customers. When your local electric utility sells you electricity for use in your home or business, that is a retail sale, not wholesale, and is not under the jurisdiction of FERC. In NYISO, the local utility company provides retail electric service to customers. The rates those retail utilities charge are regulated by the New York Public Service Commission (for privately owned utilities), or by a city, town, or cooperative board (for municipal utilities and cooperatives).v

If you have concerns about your retail electric bill or service, the right place to address those concerns is with your utility, the applicable local regulatory authority, or your state public utility commission - not NYISO or FERC.

Q. Why are NYISO processes and markets important?

A. Although NYISO is not directly involved with your electric bill or the electric service to your home or business (as noted above, those tasks are met by your utility), NYISO makes decisions that can have a major impact on the price and reliability of electricity in your area as well as on the implementation of key state and federal energy and environmental policies.

For example, it is NYISO's responsibility to balance demand for electricity with the available supply through operation of its wholesale electricity market. Electric grids must run in balance, i.e., the electricity coming onto the grid must equal the electricity being used at all times.

NYISO, like all RTOs/lSOs, achieves this essential balancing function through the real-time energy market. In the real-time energy market, NYISO procures energy from electricity sellers for immediate delivery, with prices calculated at five-minute intervals based on actual system operating conditions.

In addition to the real-time energy market, NYISO also manages a day-ahead energy market, certain ancillary services markets to procure special products, and a capacity market to procure electricity supply for longer-term reliability needs. In the day-ahead energy market, the system software calculates prices for the next day based on the amount of energy that power suppliers offer to produce, the bids of suppliers, and the estimated amount needed by consumers. For reasons we will discuss below, most electric energy is bought and sold in the day-ahead energy market. In NYISO's capacity market, NYISO holds competitive auctions so that utilities and other retail electricity providers can procure the power they need for reliability from generators and other power suppliers. The capacity market compensates such generators and power suppliers for their availability to serve, sort of like insurance against a reliability problem. Power suppliers then sell the electricity through the day-ahead or real-time energy markets.

1. Day-Ahead Energy Market

The day-ahead energy market schedules generators (supply) to meet forecasted load (demand) one day in advance, with forecasts influenced by many factors, especially weather. The day­ ahead market consists of a bidding process that utilizes supply and demand fundamentals.

NYISO uses a computerized market model that matches supply and demand throughout its footprint for each operating hour of the next day, with the system designed to select the lowest-cost bids that will meet the electricity needs. The day-ahead approach gives generation owners and other suppliers time to plan, schedule workers and shifts (as large plants need to be started up well in advance of production) and make any necessary fuel arrangements. The majority of energy transactions take place in the day-ahead market rather than the real-time market.

The day-ahead market further allows NYISO to manage transmission congestion that may arise from prevailing conditions, especially weather. Transmission congestion occurs when a portion of the transmission grid becomes overloaded with electric power that can prevent efficient market transactions from taking place. Such overloading can cause a transmission line to retain heat, stretch and, in an extreme case, come in physical contact with other transmission lines, structures, or vegetation, which can create a hazard or outage. To avoid this, NYISO forecasts demand and designs its market rules to choose the lowest-cost resources, subject to any anticipated congestion constraints on the transmission system. This might mean that NYISO could schedule a generator or other supply resource located close to an area of heavy demand (for example, a large town or city) to produce electricity on a certain day even if it is not the lowest-cost resource.

2. Real-Time Energy Market

Through the real-time energy market, NYISO reconciles differences between forecasted and real-time load (demand), or other unforeseen conditions, which may arise from issues such as unplanned outages of generators, unexpected levels of congestion on electric transmission lines, or increased demand for electricity due to more extreme weather than forecast. Where there is a shortfall of electric supply in real-time, NYISO procures electricity for immediate delivery from power suppliers that are synchronized to the electric grid and can increase their supply (or, for a demand response resource, reduce demand) in real-time. The software selects the lowest-cost supply bids that can meet the updated demand to help ensure that prices remain as low as possible. NYISO, with the help of computer software, monitors and re­ evaluates 24 hours a day to be prepared to add resources in real-time when needed for reliability.

3. Capacity Market

Unlike the day-ahead and real-time energy markets, which are concerned with meeting the near-term demand for electricity, NYISO's capacity market seeks to ensure that there are adequate power resources for reliability over a longer term. NYISO produces demand forecasts-estimates of how much power it will need to meet reliability requirements for the upcoming summer capability period (May through October) or winter capability period (November through April). NYISO then uses auction processes to make sure every region in New York meets at least the level of capacity to meet forecasted peak demand plus a "cushion" of about 20% to deal with unexpected events, which is called the "Installed Reserve Margin." In addition to the seasonal capacity auctions, there are subsequent monthly auctions to allow for more transactions and "spot auctions" conducted prior to each month to make sure all capacity needs are covered.

The bidding processes in the auctions utilize supply and demand fundamentals to compensate existing or new resources. Through the capacity market, power suppliers receive the appropriate capacity revenues, based on their location, in return for the promise of delivering electricity when needed in the relevant capability period. Power suppliers use the revenue received through the capacity market to recover costs that are generally not recovered in the energy markets, such as long-term fixed costs. There can also be penalties if a generator or other power supplier fails to meet its advance commitment to supply electricity when needed, particularly during system emergencies.

4. Ancillary Services Markets

NYISO has other specialized products and services that it procures to control the critical balance of supply and demand on the grid. Through its "ancillary services" markets, NYISO seeks to ensure that there are adequate electric reserves to maintain reliability and sufficient voltage to enable the grid to operate.

For example, the grid needs power resources in reserve and prepared to operate on short notice to deal with unexpected and sudden events, like a generator outage. NYISO has markets for three types of Operating Reserves: (1) Ten-Minute Spinning Reserves (resources that can respond to a signal from NYISO within ten minutes and are already synchronized to the grid); (2) Ten Minute Non-Synchronized Reserves (resources than can respond in ten minutes but are not already synchronized to the grid); and (3) Thirty Minute Reserves (synchronized or non­synchronized resources that can respond to a signal from NYISO within thirty minutes.

Another key ancillary service market is for the technical product called "regulation." Regulation is necessary to balance generation and load on the grid and maintain the proper frequency. The NYISO Regulation Market compensates participants for providing regulation service, which depends on the capability of specially equipped power suppliers to increase or decrease output or consumption very quickly when they receive a signal from NYISO.

The growth of inverter-based resources, such as solar, wind, and battery storage, on the New York grid is changing the needs for ancillary services in comparison with the former grid that was more heavily focused on a smaller number of large resources. In some circumstances, inverter-based resources can also participate in providing ancillary services.

Q. How is NYISO governed?

A. NYISO has a Board of Directors (NYISO Board or Board) that includes ten directors, nine of whom are elected by other members of the Board based in part on nominations from the senior stakeholder committee, the Management Committee. The tenth director is the president of NYISO by virtue of his office. The directors serve staggered, four-year terms with a three­ term limit. There are some knowledge and background requirements as to electric, finance, policy, administration and other experience to ensure that the Board as a whole has the capability to meet its responsibilities.

NYISO Board meetings are not public, but the minutes of the meetings are posted on the NYISO website.vi

Q. What are NYISO's stakeholder processes?

The stakeholder processes for NYISO consider market rule changes, adjustments to the rules governing transmission operation and cost allocation, and other electric matters.

The top-level committee is called the Management Committee. There are five sectors that can participate by voting on proposals in the Management Committee, including:

• The Generation Owners sector;
• The Public Power/Environmental Parties sector, which includes three sub-sectors: state power authorities, municipalities and power cooperatives, and environmental parties (typically non-profit organizations);
• The Transmission Owners sector (traditional utilities and others that own transmission lines);
• The End Use Consumer sector (representatives of large users, small consumers, state consumer advocates, and some others-there are five subsectors within this sector); and
• The Other Suppliers sector (a seller, buyer, broker, aggregator, retail supplier or transmitter of capacity or energy).

There are also non-voting members who participate but do not vote at the Management Committee or other committee meetings. The Department of Public Service, the staff arm of the New York Public Service Commission, is an example of a non-voting member. This is common around the country as well-it is often the case that state public service commissions track RTO/ISO affairs closely but do not vote in committee. Non-NYISO members, including members of the public, may attend Management Committee or Business Issues Committee meetings in person (except if they are in "executive session") but strictly as an observer and they must register in advance. Although attendance is allowed with registration, the public cannot participate in the meeting to comment, raise an issue, or otherwise.

In addition to the top-level Management Committee, NYISO has several other committees (see diagram below). Two of the most important are the Business Issues Committee and the Operating Committee, each of which report up to the Management Committee and cover a broad subject matter of NYISO activities. All of the Committees are supported by several subcommittees and working groups on issues such as system and transmission planning, market issues, electric/gas coordination, and several other key topics. NYISO plays a strong role in system planning for New York, so the committees and working groups dealing with planning have heightened importance.

Items can be placed on the agenda of a Management Committee, Business Issues Committee, or Operating Committee either at the behest of NYISO or by the majority vote of any one sector. Voting in these Committees is not done on a one-person/one-vote basis, since there may be over-representation at a given meeting from one particular sector. Instead, a complicated scheme called sector-weighted voting is used, where each member's votes count toward the position taken on a question by the members of that member's sector. Thus, for example, the votes of members of the End-Use Consumer Sector contribute to the position taken by that Sector, which counts as 20% of the overall vote. Ultimately, a vote must carry a sector-weighted supermajority of 58% in order to pass.