Treatment of Intertie Failures

Intertie Trading Subcommittee

November 24, 2003

Purpose

• Update on source and volume of intertie transaction failures

• Focus on ‘economic’ failures with NYISO subject to review under 7/7.5.8A of the market rules

• Assess impact of existing MACD guidelines and propose change

Intertie Failures

Generally:

• Volume of intertie trading 1,567,000 MWh average monthly from May to Sept./03– 787,000 MWh imports, 780,000 MWh exports

• On average, 132,000 MWh (8.4%) fail monthly for all reasons (security, TLRs, uneconomic, NERC tag discrepancies)

• Exports failures predominant in recent months– 17,800 MWh imports, 114,500 MWh exports failed

• NERC tagging failures are a small portion of the overall intertie failure rate.

Monthly Failures

All Failures - Imports and Exports

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03

Month

MW

h

Import Failures (MWh) Export Failures (MWh)

Intertie Failures - ReliabilityImports• Failed imports have an effect on reliability during on-peak hours

– During the day, most units that have committed to run are, thus, all scheduled energy must be delivered as promised or demand could exceed supply

Exports• Failed exports tend to have an effect on reliability during off-

peak hours– Thermal units left online overnight in anticipation of exports may be

forced into UBG state if transactions fail

– Hydroelectrics may not be available to be constrained down due to their inability to safely spill

– In summary, resources are less maneuverable which limits the options available to stay out of an over-generated state

Intertie Failures - Market Impact

Imports• When import transaction fails, IMO must find more

expensive generation to compensate for failure

• This tends to raise HOEP relative to pre-dispatch price

Exports• When export transaction fails, IMO may constrain off

domestic generation to compensate for failure

• This tends to lower HOEP relative to pre-dispatch price and cause increase in CMSC payments

Intertie FailuresImports - On Peak• Of the 17,800 MWh of all failed imports, 11,100 MWh of imports

failed during peak hours– Of those on-peak import failures, 1,700 MWh failed for economics (15%

of all failed on peak imports)

Exports - Off Peak• Of the 114,500 MWh of all failed exports, 78,000 MWh failed

during off peak hours– Of those off-peak export failures, 18,700 MWh failed for economics (24%

of all failed off peak exports)

Current Guidelines

• Current Guidelines allow 3 safe harbours:– 1,000 MWh or 3% failure rate

– No further review if HAM is volatile

– Bid or offers within $10 or 20% of HAM price

Total NYISO Economic Failures

22,316 MWh

FAILEDTest #1

7,008 MWh

PASSEDTest #1

15,308 MWh

FAILEDTest #1 and Test #2

5,519 MWh

PASSEDTest #1 and Test #2

16,797 MWh

FAILEDTest #1, Test #2 and

Test #3175 MWh

PASSEDTest #1, Test #2 and

Test #3

21,405 MWh

Investigation Closed

Subject to further review

Economic Failures - July 2003

Proposal

Single safe harbour– acceptable failure ratio of 3%– measured according to time and direction of

failure:• on-peak imports

• on-peak exports

• off-peak imports

• off-peak exports

MW failed for

all reasons

MW failed for

economics

3% Failure

Ratio

Volatility/

StabilityPIT Sanctionable

Import - On peak 12,300 1,700 700 400 40 40Import - Off peak 11,100 1,000 300 200 0 0Export - On peak 26,600 4,400 2,200 1,700 200 200Export - Off peak 52,500 18,700 6,500 4,300 300 300

Guidelines

These are monthly averages to illustrate the impact of the existing Guidelines.

Interties by the Numbers - Sanctionable MWh

Interties by the Numbers - Sanctionable MWh

These are monthly averages to illustrate the impact of the proposed Guidelines had they been in place for the previous period.

MW failed for all reasons

MW failed for economics

Existing Guidelines

Proposed Guidelines

Import - On peak 12,300 1,700 40 100Import - Off peak 11,100 1,000 0 0Export - On peak 26,600 4,400 200 200Export - Off peak 52,500 18,700 300 13,600

Going Forward

• Consultation with market participants on proposed changes - Intertie Trading Subcommittee

• Decision on revised guidelines

• Continued monitoring of intertie performance