By William Opalka

FERC on Tuesday approved changes to NYISO’s scarcity pricing logic that the ISO says will better reflect the real-time value of demand response (ER16-425).

NYISO implemented its current, ex-post scarcity pricing logic in 2013. The new logic allows the ISO to incorporate scarcity pricing into its real-time optimization. (See NYISO Seeks OK for New Scarcity Pricing Rules.)

“NYISO’s proposal increases price transparency by ensuring consistency between resource schedules and pricing outcomes in real-time when NYISO activates [demand response] resources, thereby reducing the potential for uplift costs,” the commission said.

“NYISO’s proposal recognizes that capacity that is available within 30 to 60 minutes can be dispatched to meet load prior to activating [demand response] resources. Thus, NYISO will procure a greater amount of available operating capacity from the market before relying on [demand response] resources and triggering scarcity pricing than under its existing rules,” FERC added.

As a result of the new logic, the ISO will:

• Increase the value of Southeastern New York 30-minute reserves from $25/MW to $500/MW at all times to align the value of reserves with the actual cost of providing them;
• Increase in the value of the middle pricing point of the regulation service demand curve (shortages of regulation service greater than 25 MW but less than 80 MW) from $400/MW to $525/MW at all times;
• Reduce the target level for Southeastern New York 30-minute reserves to zero during actual or anticipated severe weather conditions (“storm watch events”); and
• Increase the New York control area 30-minute reserve demand curve values priced at less than $500/MW to $500/MW, effective in real time during any DR activation.

The changes were supported by the Electric Power Supply Association, the Independent Power Producers of New York and the New York Transmission Owners.

The commission rejected protests by the New York Department of State’s Utility Intervention Unit, saying its concern that NYISO’s filing missed an opportunity to remedy an alleged flaw in its existing scarcity pricing mechanism was beyond the scope of the case.

FERC also rejected the UIU’s argument that the proposal could result in less efficient dispatch of generating resources and higher production costs. “We find that the benefits of increasing price transparency and incorporating scarcity pricing in the real-time market software outweigh such concerns,” the commission said, adding that “additional system changes may be required to further optimize the scarcity pricing mechanism and avoid the potential issues” the UIU raised.

FERC ordered the ISO to submit a compliance filing clarifying tariff provisions differentiating between scarcity events, when it calls on DR, and shortage events, when the market is short of operating, regulation, or transmission reserves.

The changes will become effective once NYISO deploys the required software changes. The ISO expects to complete the work by June 30.