On June 23, 2021, FERC accepted in part and rejected in part the New York Independent System Operator’s (“NYISO”) February 2021 proposal to revise its process for procuring operating reserves throughout the New York Control Area (“NYCA”). FERC accepted NYISO’s proposed revisions to its Operating Reserves Demand Curve (“ORDC”), including revisions to certain shortage pricing values, subject to a compliance filing providing at least two weeks’ notice of the actual effective date of the revisions. NYISO subsequently submitted that compliance filing on June 29, 2021 noting an effective date of July 13, 2021. The June 23 order also rejected NYISO’s proposal to establish a process for procuring reserves in excess of quantities required by minimum reliability standards, without prejudice to NYISO submitting a more specific proposal in the future.

NYISO’s February proposal followed a 2019 study of its reserve procurement and shortage pricing practices in the face of increasing reliance on weather-dependent, intermittent resources. In that study, NYISO explained that shortage pricing is employed to efficiently price energy and ancillary services when market conditions are tight. Shortage pricing for reserves in NYISO is administered through the use of ORDCs, which represent the value of reserves over a range of shortage levels. NYISO’s February 2021 filing included ORDC revisions intended to ensure that reserves do not fall below a certain quantity at all times and to reduce unnecessary price volatility.

The current NYCA 30-minute reserve requirement is 2,620 MW. In its February 2021 filing, NYISO proposed to revise the MW quantity assigned the highest pricing value in the NYCA 30-minute reserve demand curve to 1,965 MW, but to maintain the existing $750/MWh maximum allowable Shadow Price, i.e., the marginal value of relieving a particular constraint. For the remaining 655 MW of the 30-minute reserve requirement, NYISO proposed to employ a nine-stepped, downward-sloping demand curve. NYISO also proposed revisions to the structure of the NYCA curve that applies in certain emergency circumstances and to Special Case Resources, i.e., demand response resources participating in NYISO’s Installed Capacity Market.

FERC accepted NYISO’s proposed ORDC revisions, subject to a compliance filing providing two weeks’ notice of the effective date. FERC found that NYISO’s proposed ORDC changes would improve pricing efficiency, and that a graduated, nine-stepped curve would result in more accurate prices and avoid unnecessary price volatility. FERC also approved NYISO’s updated ORDC values, concluding that they would better incent resources to develop and/or maintain the capability to provide reserves when and where needed, and would significantly address the reserve shortages that NYISO has experienced. FERC also accepted NYISO’s proposal to modify its scarcity pricing rules to align with the 30-minute reserve demand curve when demand response resources are activated.

NYISO’s February 2021 filing also proposed to establish a process to facilitate procurement of reserves in excess of those required by minimum reliability standards, in anticipation of increasing intermittent resources deployed on New York’s grid. FERC rejected this proposal without prejudice, holding that the proposed revisions lacked sufficient specificity as to the costs associated with procurement of supplemental reserves. FERC explained that additional details, including triggering conditions for the procurement of supplemental reserves and methods for determining the quantities of supplemental reserves, should be vetted through NYISO’s stakeholder process before being memorialized in its Tariff.

FERC’s June 23 order is available here; NYISO’s June 29 compliance filing is available here.