NYISO Markets Overview July 19 2019 www cppa

NYISO Markets Overview July 19, 2019 www. cppa. gov. pk ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED

ISOs & RTOs § NYISO is one of nine Independent System Operators (ISOs) § They serve 2/3 of U. S. electricity customers & more than 1/2 of Canadian consumers ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 2

NYISO by the numbers § New York population: 19. 85 million § 2018 Energy Demand: 161, 114 GWh § 2019 Required Installed Capacity: 37, 887 MW § 2018 Peak: 31, 861 MW § Record peak: 33, 956 MW (July 19, 2013) § Transmission: 11, 173 circuit miles § Power Generation: 700+ units § Wholesale Market Participants: 435 § Average Annual Market Transactions: $5. 3 billion ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 3

History of the NYISO 1965 Northeast Blackout 1970 NYPP Control Center begins operation 1996 FERC Orders 888 & 889 Dec. 1999 NYISO begins operation New York Power Pool (NYPP) 1966 New York Power Pool (NYPP) Created ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 1996 NYS PSC Competitive Opportunities Order Dec. 2013 New control center begins grid operations NYISO 1997 NYPP files NYISO proposal 4

The Mission of the New York Independent System Operator, in collaboration with its stakeholders, is to serve the public interest and provide benefit to consumers by: • Maintaining and enhancing regional reliability • Operating open, fair and competitive wholesale electricity markets • Planning the power system for the future • Providing factual information to policymakers, stakeholders and investors in the bulk power system www. nyiso. com ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 5

Shared Governance § 150 -plus members from five major market sectors • • • End Use Consumers Generation Owners Other Suppliers Transmission Owners Public Power & Environmental Parties § NYISO’s shared governance requires interaction between the Board, market participants and other stakeholders • Multiple opportunities for direct interaction between the MPs and Board members • • • Monthly meetings of the Liaison Committee following Board meetings Annual Sector Meetings Annual Joint Board/Management Committee meeting ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 5

Value of Shared § Address Key Issues Governance • § Rigorous Process • • § Operation, implementation, and future of the NYISO markets Involves discussion, debate, and vote Goal: Consensus Inclusive • Provides forum for diverse set of viewpoints to be heard ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED The Federal Energy Regulatory Commission (FERC) has lauded the collaborative results of NYISO’s shared governance system, stating: “The Commission commends NYISO and the stakeholders for working together to resolve many issues…” 6

Governance Structure President & CEO Board of Directors Management Committee NYISO Staff Operating Committee Subcommittees, Working Groups & Task Forces ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED Business Issues Committee Subcommittees, Working Groups & Task Forces 8

Committees, Sub-Committees, Working Groups & Task Forces MANAGEMENT COMMITTEE BUSINESS ISSUES COMMITTEE Billing and Accounting Working Group Installed Capacity (ICAP) Working Group Market Issues Working Group Price-Responsive Load Working Group Electric System Planning Working Group Interconnection Issues Task Force Credit Policy Task Force Market Mitigation and Analysis Task Force Electric-Gas Coordination Working Group ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED Board Liaison Committee Budgets and Priorities Working Group By- Laws Subcommittee Market Participant Audit Advisory Subcommittee Tariff Review Subcommittee Stay Review Subcommittee Board Selection Subcommittee OPERATING COMMITTEE Communication and Data Advisory Subcommittee Transmission Planning Advisory Subcommittee System Operations Advisory Subcommittee System Protection Advisory Subcommittee Electric System Planning Working Group Restoration Working Group Interconnection Project Cost Allocation Study WG Reactive Power Working Group Interconnection Issues Task Force 9

Sector voting system Generati on Other Owners Suppliers (21. 5%) Public (21. 5%) Power Government Advocate & Retail Aggregators (1. 8%) Statewide Advocate (2. 7%) Small Consumers (4. 5%) (17%) End-Use Consume Transmissi rs on Owners (20%) 58% approva l required Power Authorities (8%) Municipals & Co-ops (7%) Environmental Parties (2%) Large Consumers-Industrial (9%) Large Consumers-Government (2%) ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 9

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Fuel Mix – Generating Capacity New York Statewide Generating Capacity by Fuel Source: 2019 Upstate (zones A-E) Generating Capacity by Fuel Source: 2019 Downstate (zones F-K) Generating Capacity by Fuel Source: 2019 ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 15

Market Metrics © COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED. 15

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New Generation, Upgraded Capacity, and Capacity Returning from Deactivation Since 2000 Total Nameplate Capacity Added Since 2000: 12, 949 MW • Represents ~ 33% of NY’s current generating capacity • Nearly 80% of new generation was developed in southeastern New York -- where power demand is greatest ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 19

New Transmission in New York State: 2000 -2018 ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 20

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NYISO Market Design © COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED. 21

Guiding Principle Markets (efficient dispatch and pricing) Reliability (resource adequacy and secure dispatch) Aligning Markets and Reliability ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 23

Why Markets? § Investment risk shifted from consumers to commercial entities § Profitability driven by efficient operation and decision making § Support innovative technologies § An efficient market structure leads to consumer benefits - lower prices, environmental benefits, renewable resources and improved reliability ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 24

NYISO Markets (A showcase in advanced Market Design) § Day-Ahead and Real Time Markets § Capacity Markets § Demand Response and Distributed Energy Resources § Ancillary Services § Virtual Trading § Congestion Hedges ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 25

Integrating Markets and Public Policy in New York © COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED. 25

Governor Cuomo’s Direction on Clean Energy § Governor’s Green New Deal • Economy-wide 40% reduction in GHG emissions by 2030 and 80% • • • by 2050 100% Clean Energy Resources by 2040 Adjusting 50 x 30 to 70% Clean Energy Resources by 2030 Increases 2, 400 MW prior offshore wind goal by 2035 to 9, 000 MW Doubles prior distributed solar integration goal to 6, 000 MW by 2025 Doubles storage goal to 3, 000 MW of storage by 2030 State Energy Planning Board can consult with the NYISO to provide analysis and recommendations on policies to meet state’s 100 x 40 goal ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 27

Peak Trends 2018 -2029 Forecast • Peak demand decreases 2. 3% in 2029 as compared to 2018 • Energy efficiency and DERs forecast to reduce peak demand by 4, 859 MW in 2029 ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED Electric Peak Demand Trends in New York State – Actual & Forecast: 2018 -2029 28

Wind, Solar & Storage Existing and Proposed Wind, Solar, and Storage nameplate capability in New York State (MW) ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 29

DERs & The Grid of the Future ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 30

Integrating Distributed Energy Resources NYISO DER Roadmap objectives: • Integrate DER into • • Energy, Ancillary Services, and Capacity markets; Align with the goals of New York State’s REV Enhance measurement and verification methodologies Align compensation with wholesale service performance, and Focus on wholesale market transactions ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 31

The NYISO’s Energy Storage Resource Market Design § In 2018, the NYISO completed the market design of the ESR participation model, and filed tariff revisions for FERC Order No. 841 on December 3, 2018. • § In its filing, the NYISO provided rules to: • Allow Energy Storage Resources to provide capacity, energy, and ancillary services, provided that those resources qualify. • Enable ESRs to set price as a wholesale buyer or a wholesale seller. • Introduce new bidding parameters specific to ESRs. • Establish a minimum ESR participation size of 100 k. W. Market design elements that are outside the scope of FERC Order No. 841 compliance will be part of future market design enhancements: • Rules for dual participation and aggregations of all resource types are being developed as part of the DER Participation Model. ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 33

Appendix (NYISO Market Design) © COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED. 37

Market Overview § Security Constrained Unit Commitment (SCUC) scheduling software co-optimizes resource for the least production cost solution • Simultaneously to meet load requirements and satisfy operating reserve and regulation requirements, while respecting network security constraints ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 38

Day-Ahead & Real-Time Markets § Full two-settlement LBMP market for Energy and Reserves • Forward and Real-Time Markets • Simultaneous Co-optimization of Energy, Interchange, Operating Reserves and Regulation to minimize total production cost • Shortage pricing for operating reserves • Virtual Bidding • Demand Side Participation • Economic evaluation of intertie transactions ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 39

Real-Time Market Overview § Real-Time Commitment (RTC) • Multi-period, time linked, security constrained unit commitment & dispatch software • Co-optimizes to simultaneously solve load, reserves & regulation requirements • Runs every 15 -minutes, optimizes over next 2 ½ hour period • Issues binding commitments for units to start • Provides for commitment of “quick start” resources including 10 -and 30 -minute gas turbines • Issues binding schedules for interchange transactions ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 40

Real-Time Market Overview § Real-Time Dispatch (RTD) • Multi-period, time linked, security constrained dispatch • Co-optimizes to simultaneously solve load, reserves & regulation requirements • Run nominally every 5 minutes, optimizes over next 60 minute period • Issues binding dispatch instructions for units to operate • Produces 5 -minute ex-ante Locational Based Marginal Prices (LBMP) • Settlements determined for each 5 -minute interval based upon actual performance ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 41

Day-Ahead to Real-Time Transition Bids by 5 a. m. Day before Day-Ahead Market (SCUC) Bids by 75 min before hour Supplemental Resource Evaluation ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED Fo Co rwa ntr rd ac ts Hour-Ahead Process (RTC) Actual Conditions SCUC = Security Constrained Unit Commitment RTC = Real Time Commitment RTD = Real Time Dispatch 15 Sc -Mi he nut du e les Real-Time Market (RTD) 5 -minute Schedules Gen 42

Operating Reserve § Market based service to ensure backup generation is available in the event of a system contingency § This service is provided by: • Generators • Demand Side and Distributed Resources § Establish market based prices for each service and location based upon the results of the competitive auction § Demand procures service from Day-Ahead Market § Suppliers compete in Day-Ahead and Real-Time Market • Forward contracts issued from Day-Ahead Market ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 43

Regulation Reserve § Market based service for regulation and frequency response to provide for the continuous balancing of resources with demand § This service is provided by: • Generators • Flywheels and Batteries (LESRs) • Demand Side Resources § Establish market based prices for the service based upon the results of the competitive auction § Demand procures service from Day-Ahead Market § Suppliers compete in Day-Ahead and Real-Time Market • Forward contracts issued from Day-Ahead Market ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 44

NYISO Scarcity/Shortage Pricing Mechanisms Used to provide pricing signals for needed services during scarcity conditions. Provides incentives for addition of needed resources in required locations: § Demand Curve for Ancillary Services • Demand Curve for Reserve and Regulation § Transmission Demand Curve • Demand Curve for Transmission Constraints § Demand Response • Emergency Demand Response and Special Case Resources ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 45

Installed Capacity (ICAP) § Role of Capacity Market • Ensures Resource Adequacy • Supports market signals for investment § Suppliers offer capacity based upon proven ability to supply § Loads procure capacity based upon forecasted peak loads, plus reliability margins, with locational requirements ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 46

Demand Curve § Demand Curve used as proxy for LSE Bids § Increases system reliability by valuing ICAP above the requirements § Reduces price volatility & sends more stable revenue signal for new resources § Provides for a competitive, fair, and non-discriminatory market for capacity ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 47

Installed Capacity (ICAP) Unlike PJM and ISO-NE NYISO does not have a Forward Capacity Market Construct Demand meets their ICAP requirement via: • Self-supply • Bilateral Transactions • Auctions – strip, monthly and spot Suppliers include: • Generators • Imports • Special Case Resources – Curtailable load and distributed generation ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 48

Transmission Congestion Contracts (TCC) § Financial instruments § Used to hedge transmission system congestion § Contracts purchased via NYISO TCC Auctions: • Centralized Auction • Awarded for Transmission Expansion ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 49

TCCs (Cont. ) § Financial instrument • Available between any generator, proxy or zonal location • TCCs are fully funded by TOs • Financial obligation – right to collect and obligation to pay congestion rents § Used to hedge transmission system congestion costs • Settled in the Day-Ahead Market • Do not have to participate in the energy market ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 50

TCCs (Cont. ) § Market Participants purchase TCCs via NYISO TCC Auctions: • Centralized Auction • • Monthly Reconfiguration Auction • • 2 -year, 1 -year and 6 -month durations available 1 -month durations available Historic Fixed Price TCCs available for 5 -year and 10 -year durations upon expiration of Grandfathered TCCs § Incremental TCCs may be awarded for transmission expansion § Owners of TCCs can sell TCCs: • • • Any Centralized TCC Auction within the period owned Monthly NYISO TCC reconfiguration auctions Secondary Market § NYISO deals with Primary Holders only ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 51

Virtual Trading § Virtual trading reduces day-ahead risk premiums by allowing market participants to accommodate for uncertainties such as: • Intermittent (wind) resource output • Weather changes • Transmission and Generation outages ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 52

Benefits of Virtual Trading § Virtual trading allows day-ahead prices to converge with the actual Real Time prices which: • Lowers risk premiums. • Results in a more efficient and competitive selection of resources to meet real time conditions. • Encourages participation in the Day-Ahead ©COPYRIGHT NYISO 2019. ALL RIGHTS RESERVED 53