NYISO Files Criteria and Considerations for New Capacity Zones

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January 5, 2011

The New York ISO and New York Transmission Owners have asked FERC to approve several "criteria and considerations" for identifying a possible need for new capacity zones, and for triggering a requirement to further evaluate such potential zones (ER04-449 et. al.).

The filing does not include tariff language, but NYISO and the TOs are seeking FERC approval for core features of their proposed approach, to be followed by specific tariff language in a subsequent filing.

The proposed criteria and considerations would only address the creation of new capacity zones, and would not govern the possible elimination of existing, or newly created, zones.

Under the proposal, NYISO would first examine two "threshold" criteria in determining whether a load zone warrants further examination as a capacity zone.  "The threshold criteria are intended to provide a relatively streamlined initial 'pass/fail' test," NYISO said.  If a load zone met the threshold criteria for further study, then NYISO would proceed to a more rigorous analysis of whether the new capacity zone is warranted.

Any new capacity zone would ultimately need to be proposed to FERC along with new and revised tariff provisions.  The proposed process could only result in the creation of a new capacity zone with the same boundaries as one or more of the eleven existing NYCA Load Zones.  "Partitioning the existing Load Zones for purposes of developing a new Capacity zone would not be practicable or desirable due to the linkages between the various Capacity and Energy market obligations of Installed Capacity Suppliers," NYISO said.

The two initial criteria under the NYISO's examination would be a "Highway Capacity Deliverability" test and a "Reliability Criterion."

Under the Highway Capacity Deliverability criteria, the NYISO would evaluate whether the available Tie Capacity Margin on each Highway Interface was at least equal to the size (in MW) of the NYCA "new entrant" peaking unit used to formulate the then-effective Demand Curve.

Under the "Reliability Criterion" threshold, the NYISO would analyze, for each potential new capacity zone, whether the absence of the largest generator, coupled with an N-1-1 loss of transmission into or generation in the proposed zone, would create a resource deficiency condition (i.e., imports and generation less than peak load).

If the two threshold tests suggest the potential for a new capacity zone, NYISO would select an independent consultant to perform specific studies and assessments focusing on net cost of new entry differences, consumer impacts, and market power in the potential zone, to determine if a new capacity zone is needed.

The net cost of new entry would be determined along with Indicative Demand Curves for each potential new capacity zone.  A net cost of new entry for a particular potential zone that is substantially lower than any adjacent zone examined, or another zone in which the candidate zone is nested, would militate against creating a new capacity zone, since price signals from a new capacity zone would not provide any stronger signal for new entry over the currently existing capacity zone Demand Curves.

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