July (pdf) - New York Power Authority

needs at any point in time. Unless governed by a bilateral arrangement, the price a generator is paid and the
price paid to the NYISO by an LSE purchasing energy is dependent upon the results of the bidding process
and system conditions (for a discussion of certain NYISO rules having an impact on the bidding
procedures, see ‘‘NYISO Mitigation Measures’’ below). A significant feature of the NYISO energy markets
is that prices are determined on a location-specific basis taking into account local generating bids submitted
and the effect of transmission congestion and electrical losses between regions of New York State.
The Authority, being an LSE and a generator, may choose to meet its LSE load requirements by a
combination of (1) bilateral arrangements, which, in the Authority’s case, would mean specified Authority
generation and purchased energy under contractual arrangements, linked to specified Authority loads, and
(2) purchases in the DAM or the real time market. The Authority’s ownership of certain transmissionrelated
rights serves to reduce uncertainty concerning congestion costs to the Authority of such bilateral
arrangements and energy market transactions.
Certain Authority Plant Outage Risks
The NYISO administers the DAM and the real time market through which suppliers and purchasers of
energy and ancillary services can sell and acquire such products. The Authority participates in these
markets as both a buyer and a seller of electricity and ancillary services.
Because of NYISO installed capacity reserve requirements, the Authority is required to bid into the
DAM virtually all of the installed capacity of its units. The NYISO then decides which Authority units will be
dispatched, if any, and how much of such unit’s generation will be dispatched. The dispatch of a
particular unit’s generation depends upon the bid prices for the unit submitted by the Authority, bids
submitted by other generators, the amount of generation needed by the NYISO to meet expected demand and
transmission limitations. If an Authority unit is dispatched by the NYISO, the Authority receives a fixed price
for each hour (the ‘‘Market Clearing Price’’), based on NYISO pricing methodology, for the energy dispatched
above that designated by the Authority as bilateral arrangement generation (the ‘‘Excess Energy’’). As to
the bilateral arrangement generation (the ‘‘Contract Energy’’), the Authority receives the price in its contracts
with its customers (the ‘‘Contract Price’’).
This procedure has provided the Authority with economic benefits from its units’ operation when
selected by the NYISO and may do so in the future. However, such selections in the DAM also obligate the
Authority to supply the energy in question during a specified time period, which does not exceed two days
(the ‘‘Short-Term Period’’), if the unit is selected. If a forced outage occurs at the Authority plant which is
to supply such energy, then the Authority is obligated to pay during the Short Term Period (1) in regard to
the Excess Energy amount, the difference between the price of energy in the NYISO real time market and
the Market Clearing Price in the DAM, and (2) in regard to the Contract Energy amount, the price of
energy in the NYISO real time market which is offset by the Contract Price. This real time market price may
be subject to more volatility than the DAM price. The risk attendant with this outage situation is that, under
certain circumstances, the Market Clearing Price in the DAM and the Contract Price may be well below the
price in the NYISO real time market, with the Authority having to pay the difference. In times of maximum
energy usage, this cost could be substantial. This outage cost risk is primarily of concern to the Authority in
the case of its 500-MW Plant because of its size, nature, and location.
In addition to the risk associated with Authority generation bids into the DAM, the Authority could incur
substantial costs in times of maximum energy usage in purchasing replacement energy for its customers
in the DAM or through other supply arrangements to make up for lost energy due to an extended outage
of its units and non-performance of counterparties to energy supply contracts.
As part of an ongoing risk mitigation program, the Authority implements financial hedging
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