BOX 1-1

Keeping Competitive Markets Operating

New York’s large and varied power system requires a very complex set of functions for smooth and efficient operation. NYISO conducts energy market auctions in two phases: (1) the Day Ahead Market establishes forward contracts for each hour of the coming day; (2) the Real Time Market is conducted when the load actually occurs to precisely match supply with demand. Most energy transactions in NYISO are conducted in the Day Ahead Markets. NYISO adds up the bids starting with the lowest cost for each time interval until it has sufficient power to meet projected demand. All bidders then receive the price set by the highest accepted bidder.

Other important functions include the Installed Capacity (ICAP) Market, which is designed to ensure that load serving entities (LSEs, such as ConEd) have sufficient capacity available to serve their customers. The following are among the NYISO market products, as described in detail on the NYISO website (

Energy Markets

Day-ahead locational-based marginal pricing (LBMP) energy Real-time LBMP energy

Ancillary Services

Regulation service (frequency control)

Black start capability

Voltage support service (reactive power)

Installed Capacity (ICAP)

Transmission Congestion Contracts

Demand Response Programs

Emergency Demand Response Program

Special Case Resources (SCR)

Day Ahead Demand Response Program

SOURCE:; accessed March 29, 2006.

Reliability standards are set by the New York State Reliability Council (NYSRC) in conjunction with the Northeast Power Coordinating Council (NPCC), which operates under the North American Electric Reliability Council (NERC). NPCC standards also apply to New England and eastern Canada, while NYSRC standards are tailored to New York’s particular situation (e.g., requirements for generating capacity in New York City and Long Island). NYSRC also sets the amount of installed generating capacity (ICAP) needed to meet the required reserve margin generating capacity at peak electrical load. Reserve margin criteria are set yearly for 1 year ahead (18 percent for 2006-2007) by NYSRC, which also specifies other allowable resources (e.g., specific loads that can be shut off on NYISO’s order are equivalent to generating capacity for meeting peak demand) to be included in the reserve margin and correspondingly to be used in calculating the reliability. Finally, the Energy Policy Act of 2005 provides that the Federal Energy Regulatory Commission (FERC) will certify a single organization (expected to be NERC) that will propose and enforce mandatory “reliability standards for the bulk-power system in the United States,” subject to FERC approval.

A complicated network of high-voltage transmission lines is required to deliver the bulk power to load centers, which may be hundreds of miles from the generating stations.4 The bulk power system must be controlled very precisely to keep voltage and frequency within tight bounds and to operate reliably despite the occasional component failure. It also is important to keep the cost of electricity as low as possible, in part by operating the lowest-cost plants as much as possible.

The NYCA has about 38,000 MW of installed capacity within New York State and 4,000 miles of high-voltage transmission lines. Power also can be traded with interconnected control areas in New England, the Mid-Atlantic region, and Canada. The NYCA high-voltage transmission system, including major substations, is shown in Figure 1-1.

Power demand fluctuates both during the day and over the year, as shown in Figure 1-2, so a variety of generating plants must be available to follow the load, including:

  • Baseload plants, to meet the steady part of the load. Baseload facilities (such as the Indian Point units) produce power inexpensively. They typically operate all day and most of the year. They are generally nuclear or coal-fired steam generators. The Indian Point units are an important generating resource in the NYCA owing to their low cost and their location near the load centers in New York City and Westchester County.

  • Peaking plants for periods of high demand. Combustion turbines, for example, are often deployed in simple cycle, and are used during periods of peak demand, because they can be quickly turned on or off. The operational flexibility of such “peaking” generators, however, is counterbalanced by their low thermal efficiencies, which makes them expensive to operate.

  • Intermediate units, which also follow demand but are used more than peaking plants. An intermediate generator might use a combustion turbine in combination with a steam turbine to provide a wide range of operating flexibility. Combined-cycle facilities are typically fueled with natural gas and often have the capability of burning oil as an alternative fuel supply when supplies of natural gas are curtailed because of high demand, usually during the winter. Modern


Low-voltage distribution lines, which are not part of the bulk power system, carry the power to the end-use customer. Most outages that consumers experience are due to failures in the distribution system (e.g., trees falling on overhead lines), but these usually are repaired quickly and are not part of this study.

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