July (pdf) - New York Power Authority

techniques to cover, among other things, future maximum energy usage periods and uses its various
resources for outage risk mitigation purposes. In addition, the NYISO has implemented a FERC-approved
bid cap on generator bids into the DAM and the real time market. The bid cap, which remains in effect
until further FERC action, serves to limit the Authority’s outage loss exposure.
Also, as noted above, economic benefits are derived by the Authority from this bidding mechanism
when its units are operating. These benefits could serve to offset any losses which may be suffered by the
Authority due to outage situations, the amount of such offset being dependent upon the amount of aggregate
benefits derived by the Authority and the severity of the losses suffered as a result of such outages.
Consequently, any use of these economic benefits for this offset purpose would serve to reduce the amount
of these economic benefits available to meet outage expenses.
There can be no guarantee, however, that even with any protective hedging techniques, offsetting
economic benefits, and a bid cap, the Authority would not suffer substantial economic loss in the future if
one or more of its units were to suffer a forced outage during a maximum energy usage period or an
extended forced outage period or a counterparty failed to perform under its energy supply contract.
NYISO Mitigation Measures
Pursuant to FERC approval, the NYISO implemented the Automated Mitigation Procedure (‘‘AMP’’)
to apply mitigation thresholds and measures to detect and automatically mitigate Market Participant
behavior that exceeds applicable conduct and market impact thresholds. Electric energy markets that are
generally competitive may occasionally cease to be competitive if conditions arise that temporarily give
Market Participants an ability to raise prices significantly by economically withholding capacity. High loads,
facility outages, binding transmission constraints, or other factors can cause such instances, either singly or in
combination. The NYISO developed the AMP for the automatic detection and mitigation of energy and
other bids in the NYISO DAM and real time markets that exceed certain established criteria. The AMP
procedures could result in a Market Participant’s bid being mitigated if specified conduct and impact
thresholds are exceeded.
In a January 14, 2005 opinion, a Federal appeals court vacated the FERC orders approving the DAM AMP.
Following motions for rehearing and clarification, the D.C. Circuit Court of Appeals ruled on March 24,
2005 that its January 14, 2005 opinion applies only to the DAM AMP outside the New York City area. On
May 27, 2005, the NYISO deactivated the rest-of-state (‘‘ROS’’) area DAM AMP. However, the ROS DAM
remains subject to manual mitigation measures. Further, by order dated September 15, 2005, FERC denied a
request for rehearing by the NYISO and ruled that the real time AMP for ROS be removed. The NYISO is
now using real time scheduling software to apply conduct and impact mitigation in the real time ROS area.
In 2008, FERC ordered the NYISO to incorporate tariff language to establish mitigation rules
intended to protect the New York City capacity market against uneconomic entry of new resources.
Subsequent FERC orders in 2010 provided additional direction to the NYISO on these matters. These
rules, commonly referred to as Buyer Side Mitigation, require the NYISO to evaluate new entry and
determine if the new entry is an economic decision. If the NYISO determines a new entrant into the New
York City capacity market is not economic, an offer floor price is established and the new entrant is
required to bid into the spot market at the mitigation offer floor. Such a floor can result in the new
resource not receiving capacity revenues for certain months. Capacity from new entrants is removed from
the offer floor requirement after clearing the spot market for 12 non-continuous monthly spot auctions.
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