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NYISO Under Fire For 'Economic Protectionism'

NYISO Under Fire For 'Economic Protectionism'

It's been less than a month since FERC scolded the New York Independent System Operator (NYISO) for blunders that resulted in the rejection of commercially viable power imports, but the ISO is under the gun again, this time for computer-related snafus that rejected commercially viable power exports to the Pennsylvania, New Jersey and Maryland ISO (see NGI, June 5 and May 8).

The charges, however, are much more serious this time around and run quite a bit deeper than computer problems. Protesters claim the ISO is engaging in "economic protectionism" by trying to hoard available power in state to the detriment of the larger regional power market.

Niagara Mohawk Energy Marketing (NMEM) on June 19 filed a complaint, a request for fast track processing and a request for stay against the NYISO, claiming that the ISO violated Section 205 of the Federal Power Act, violated its own tariff and refused to take action to correct problems that occurred on May 5. NMEM urged the Commission to order the ISO to install a process that allows its automated export system to be overridden manually when errors occur.

Several other parties, including Southern Energy, PPL and Enron Power Marketing, have since come forward with similar grievances and urged the Commission to order the ISO to find a solution before it causes more economic harm this summer.

NMEM told FERC that on May 5 it submitted a request for 50 MW of transmission to export power to PJM from New York for the hours 0700 through 2300 on May 8. The marketer said it entered a "price-cap-sink" bid of $9,999.99/MWh, which was well above actual market prices, to help ensure that it would receive the export capacity. The price-cap-sink is the energy price at the New York border above which the transmission customer (NMEM) does not want its transmission request scheduled.

Despite Day Ahead Market prices in New York at only $50/MWh, however, NMEM's bid was rejected by the ISO's software (called Security Constrained Unit Commitment software). NMEM said the computer glitch cost it $68,000 over just four hours.

"The flaw that led to NMEM incurring damages to the tune of more than $17,000 per hour is endemic to the NYISO's software," the marketer told FERC. "Thus, it is more likely than not that NMEM and others will be harmed by this flaw in the future absent Commission immediate action on this complaint."

In an affidavit filed by James J. Cifaratta, NMEM's vice president of business development, in support of NMEM's complaint, Cifaratta explained that the software problem occurs as a direct result of artificially high price forecasting by the ISO. Evidently, a price exceeding $9,999.99/MWh was forecast by the ISO and even though the ultimate actual price eventually was $50/MWh, the power export scheduled by NMEM still was rejected. "This problem occurs when NMEM or any market participant attempts to transmit power from sources (such as from owned generation, a bilateral purchase or a purchase from the NYISO administered markets) located within New York State to markets outside New York State," Cifaratta explained. "Based on the NYISO's explanations to date, it appears that the reason NMEM's export transaction was rejected is the direct result of inaccurate price forecasting... of the SCUC program... The NYISO's rejection of NMEM's May 5 transmission request was not to NMEM's knowledge, due to reliability concerns or lack of transmission capacity, but instead was the direct result of the NYISO's own software problems."

However, even after the defects were pointed out to the ISO and supported by other affected parties, the ISO refused to deal with the problem, NMEM said.

Several subsidiaries of Southern Energy described similar computer glitches around the same time. "On May 8, 2000, the Southern parties, through Southern Company Energy Marketing attempted to export power to PJM, and just as was the case with NMEM's above described transaction, had their export transactions improperly rejected," they told the Commission. "SCEM entered a sink price of $9,999/MWh for hours 12 through 18 and despite the fact that [Location-Based-Marginal cost-Prices] averaged $47.88/MWh for the hours in question, the transaction was rejected.

"The NY ISO possessed adequate transmission capacity.....," Southern said, adding that "cutting the transaction had an adverse effect on the PJM market, considering that the PJM prices for all of the hours in question ranged from $268 to $483 compared to $37 to $50 in New York, indicating tighter supply in PJM."

PPL Electric Utilities said it also encountered similar difficulties, and Enron told FERC the situation is more serious than the software slipups reveal. "Flawed SCUC software and the NYISO's lackadaisical attitude about fixing it present a problem larger than the immediate economic injury to NMEM and other market participants," Enron Power Marketing told FERC. "That problem is economic protectionism."

Enron pointed to the evidence presented in the Cifaratta affidavit as showing NYISO's "complete disregard for (if not overt discrimination against) the well being of consumers in the larger power market outside of New York.

"This type of economic protectionism and discrimination offends both the Commerce Clause and the FPA... This provincialism also should cause the Commission to rethink earlier decisions to authorize the configuration of ISOs or regional transmission organizations along state and political boundaries rather than around power flows and markets. ISOs, such as the NYISO, have the effect of balkanizing the national power market into pockets of economic protectionism."

In a motion to file an answer to the complaint, the NYISO told FERC last week that it is aware of these problems and hopes to have repairs to its export software completed by mid-July. "Accordingly, the issues and requested relief in the complaint are essentially moot, and the complaint should therefore be dismissed," the ISO said.

"The complaint suggests that the current SCUC procedures were adopted in a deliberate effort to discriminate against exports from New York. This is not true. The SCUC protocols that caused the NMEM export on May 8 not to be scheduled were the result of the implementation of assumptions made in the software development process in favor of preserving reliability...

"[T]he NYISO was faced with the implementation of a complex, full-featured market system that was without precedent anywhere in the world, and thus needed to deal with a lack of certainty about the actual bidding behavior of market participants and other factors potentially affecting market outcomes. In this setting it was entirely reasonable to make certain necessary assumptions in favor of ensuring that the new markets would result in reliable service to end users --- just as it is also appropriate, as experience with the markets is being gained, to refine the implementation of those assumptions in light of this experience."

Rocco Canonica

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