PowerFacts

NYISO Report by Noted Expert Shows Significant Progress Over Past Decade

The New York Independent System Operator (NYISO) recently released a new detailed report analyzing the progress the ISO has made since its inception, titled "The New York Independent System Operator: A Ten-Year Review." The report, conducted by Dr. Susan Tierney of The Analysis Group, evaluates the performance of the markets in New York following the state's restructuring of its wholesale electricity industry. While the report notes that there are opportunities to improve operations conducted by the NYISO, the implementation of an independent system operator and the decision to restructure its markets in an effort to promote competition has led to improved reliability, growth, and efficiency.

"In substantial ways, many of the concerns that led to the restructuring of New York's electricity market and to the establishment of NYISO have been realized in this first decade of NYISO operations. New Yorkers have had reliable bulk power, and NYISO has played no small part in ensuring that outcome. Market forces have been introduced deep into the wholesale market, leading to power production efficiencies and investment in relatively efficient generating units. Structural changes that have occurred have reinforced the competitiveness of the market. Many public policy goals of New York State - including increased energy from renewable power projects, lower air emissions from power plants, greater reliance on demand-side measures to assure an efficient market with lower costs than otherwise would occur, assuring that consumers have retail customer choice, and ensuring that utilities recover their stranded costs - have seen positive outcomes in the past decade." P. 73

Market Design

"From the beginning, NYISO has focused on developing a competitive market design and administering competitive market operations. From the outset and using the market design platform proposed by the transmission utilities after countless hours of discussions, NYISO's market design has provided important incentives for efficient power production and for investment in new resources located in places where they were needed for reliability and/or to put pressure on power production prices." P. 33

"NYISO has estimated that this combination of influences on the New York wholesale power market has produced lower electricity costs, after controlling for the changing prices of input fuels (especially natural gas) that rose significantly since 2000. In other words, if fuel prices had not risen, then wholesale electric prices would have dropped over the first ten years of NYISO operations. (This is also known as reviewing electricity prices after "normalizing" for the effect of changes in fuel prices.)" P. 27-28

"Many observers inside and outside of New York think that NYISO has the "best market design in the country." In research for this 10-year assessment, the majority of comments elicited by a wide variety of stakeholders (including generators, transmission owners, marketers, consumer advocates, environmental groups, market monitors and experts) were favorable to the design and operations of the wholesale markets administered by NYISO." P. 34

"Since the advent of New York's restructured electric market, the state's investor-owned electric utilities have not directly built and/or invested in new power plant facilities. Notably, most of the capacity additions - at least that occurred in the first half of the last decade - were made by companies that were not utilities at all. Of the power plant capacity built prior to 2005 (the period with the largest amount of capacity addition during the decade, as shown on Figure 19), 570 MW was added by utilities (i.e., the New York Power Authority and a few municipal utilities) and the remaining amount was added by non-utility generating companies. Of the 6,156 MW of new capacity added over the last decade, 1,152 MW (or 19 percent) was built by publicly owned utilities, while the rest was added by generating companies (i.e., NYISO Market Participants that were not investor-owned transmission/distribution utilities in New York State)." P. 41

"Many observers note that the timing of so much at-risk power plant investment in NYISO's market can be attributed in large part to the combination of a number of market design elements, including: access to transmission; the design of the energy, ancillary service and capacity markets; New York's location-based energy market price that sent signals for power plant developers to put plants in the downstate market areas; the "pay-for-performance" nature of the markets; and the power plant siting policies of the state at the time, which relied on market structure as the basis for determining whether new plants were needed." P. 43

"Under the old system, there was a strong sense that the utilities and their operating entity, the NYPP, were insufficiently transparent in terms of information about operations, plans, transactions on the grid, and a variety of other types of information... By contrast, a vast amount of information about operations, operational conditions, capacity, customer loads, plans, prices of various products, and other data is available to the public under today's system... In addition to the relative transparency of information about today's electricity system, it is also much more open in terms of involvement by non-utility entities... the number of NYISO Market Participants was 120 in 2000, and grew to 367 Market Participants by 2008." P. 54-56

Reliability

"NYISO has performed its reliability functions exceptionally well. It has coordinated second-to-second operations of power plants, transmission facilities and customer loads in real time. It has also carried out long-term planning processes to support assurance of reliable system operations in the future. Power plant and demand-response resources in New York's electric industry are sufficient to provide reliable supply for many years ahead." P. 4

"The owners of New York's fleet of power plants improved their operations by reducing the length of planned and unplanned outages, thus making the plants "more available" to operate and able to produce more power with a given amount of generating capacity. This improvement was apparent as early as 2000, the end of the first year of full operations of the system under a competitive market. During that year, unlike prior years under the NYPP and the prior traditional industry structure, generators were paid for performance: a generator only received payments in NYISO's spot markets if the owner's power plant was available to run and then was selected to be dispatched for energy or ancillary services. This put pressure on power plant owners to make their plants more reliable, and to improve their plants' availability through improved maintenance, among other things. In the years since then, the system has continued to show improved operating capability... the average plant availability increased from 87.5 percent (1992-1999) to 94.7 percent (2001-2007), equivalent to adding 2,400 MW of available capacity to the system (without actually adding that amount of new power plants on to the system)." P. 36

"In electric systems, reliability is often discussed in terms of two things: operational security (keeping the lights on from second to second as contingencies occur), and resource adequacy (ensuring that there are enough generation, transmission and demand-control resources on the system at any point in time such that the operators can be assured of having the appropriate tools in place to operate the system securely). On both measures, NYISO has performed well throughout the decade. Using words that reflected the comments of many, one Market Participant said, "NYISO is the best RTO from an operations point of view."" P. 46

Growth and Efficiency

"New York has had considerable success in relying on market forces to discipline costs in the wholesale power industry in the past. Thousands of megawatts of generating and demand-response capacity have been introduced in New York (over the past decade) without relying on consumers' rates to underwrite investment. Power plants are operating more efficiently today than they were a decade ago. Many New Yorkers - notably large industrial customers - are now exercising their right to choose their electricity supplier. Substantial market information is publicly available." P. 4

"New York State's overall fleet of fossil fuel power plants today uses less fuel to produce electricity than it did at the start of the decade. Thus, for a given amount of electricity output, the power plants use less fuel and the market spends less on it. This improved efficiency... for New York State's fossil plants and shows that between 1999 and 2008, the fleet improved its efficiency of power production by 21 percent." P. 35

"From the year 2000 onwards, nuclear output increased significantly even though no additional capacity was added until 2005. From 2000 through 2005, output increased 33 percent relative to the average annual output from 1990 through 1999. Another increase in average output occurred after 2005, when three plants received approvals from federal nuclear regulators to make changes that increased the output of these plants. Thereafter, average annual electricity production at New York's nuclear plants increased by 46 percent relative to the period prior to restructuring. The increased output of power from nuclear plants meant that less efficient and more expensive power plants could be dispatched less often, thus creating significant downward pressure on prices." P. 37

"The total investment in new generating facilities has been $5.5 billion since 2000. Using a metric that includes new investment, operating costs, and payments to utilities to purchase power facilities (with this purchase payment contributing to reducing the stranded costs that had to be borne by New York consumers as part of the transition to a competitive market), the Independent Power Producers of New York have said that "New York's independent power producers have invested over $10 billion to purchase, construct, and operate their facilities... located throughout New York State."" P. 41

Consumer Choice

"An important part of New York's approach to restructuring its electric industry was the introduction of organizational changes that would support the competitive and reliable provision of power to customers. These changes included the establishment of an independent grid operator (i.e., NYISO) to assure non-discriminatory access to transmission for all participants in the market; divestiture of investor-owned utilities' power plants to help mitigate market power and stranded costs, and to allow entry of new players in the market; provision of and unbundling rates for power delivery service and power supply service; allowing retail customers the right to choose their electricity supplier (i.e., "customer choice"); and establishing mechanisms to provide visible price signals tied to the cost of providing power at different times and locations on the grid. New York has performed well on these structural metrics." P. 4

"As compared to the pre-NYISO years when eight transmission utilities exercised near-exclusive control over the New York Power Pool, over 350 Market Participants are now involved in shaping policies and protocols of the NYISO, and in providing services that support the provision of efficient, reliable and clean electric service." P. 4

Renewables and Demand Response

"In the past decade, New York's electric industry has stimulated significant investment in new renewable power projects (such as wind turbines) and low-emitting natural gas plants, and caused strong interest in demand response. Together these have helped diversify the state's energy mix and lower the air emissions that contribute to acid rain, smog and global warming." P. 4

The full report is at http://www.nyiso.com/public/webdocs/committees/mc/meeting_materials/2010-04-21/Tierney_-_Analysis_Group_-_NYISO_10-Year_Review_-_4-12-2010_FINAL.pdf

CONTACT: JOHN SHELK
(202) 349-0154or 703-472-8660

EPSA is the national trade association representing competitive power suppliers, including generators and marketers. These suppliers, who account for nearly 40 percent of the installed generating capacity in the United States, provide reliable and competitively priced electricity from environmentally responsible facilities serving global power markets. EPSA seeks to bring the benefits of competition to all power customers.