Spring 2008

New York ISO

CONNECTIONA Newsletter for Our Market Par ticipants

sm

Joint Meeting: Cooperstown in June

In this issue

Operator Training 2

True Grid 4

2007 State of the Markets 8

Testing the Wind 11

2007 Annual Report 14

Summer 2008 Forecast 15

continued on page 3

continued on page 17

Issues vital to the reliability of the bulk electricity grid and the administration of the

wholesale electricity markets will be on the agenda for the NYISO’s Joint Board of Directors/

Management Committee meeting on June 9 at the Otesaga Hotel in Cooperstown.

The annual joint meeting provides a forum for intensive discussion, in a town hall meeting-

style, of strategic issues.

On the agenda for this year’s joint meeting are three principal topics: developing forward

capacity markets, the interregional planning and coordination of markets, and the

integration of wind resources into the NYISO markets.

New NYISO President & CEOStephen G. Whitley to join NYISO in July

On June 4, the NYISO Board of Directors announced the selection of

Stephen G. Whitley as President and Chief Executive Offi cer. He will join

the NYISO on July 7.

Mr. Whitley is a 38-year veteran of the energy industry, with extensive

experience in bulk power system planning and operations. In his sev-

en-year tenure as senior vice president and chief operating offi cer of

ISO New England (ISO-NE) Mr. Whitley was responsible for System Plan-

ning, System Operations, Market Operations, Settlements, Customer

Service and North American Electric Reliability Corporation/Northeast

Power Coordinating Council (NERC/NPCC) compliance for the six-state region.

He previously served as ISO-NE Vice President, System Operations from 2000 to 2001. Prior

to coming to ISO New England, he completed a 30-year career with the Tennessee Valley

Authority where he last served as General Manager, Electric System Operations of the Trans-

mission Power Supply Group and was responsible for control area operations, power supply,

economic dispatch, system protection, transmission security, and services and dispatching

for the fi ve-state, 80,000 square-mile TVA service territory.

Stephen Whitley

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The old saying — “Practice makes perfect” —

means a lot more when it comes to training the

people who operate the bulk electricity grid.

Expertly trained operators are vital not just to

the reliability of the grid, but also to the vitality

of New York’s wholesale electricity markets. The

most reliable and effi cient power grid encour-

ages market competitiveness.

System reliability is paramount. The NYISO’s op-

erators are on the job 24 hours a day, every day

of the year, and their training is continuous and

comprehensive. No matter how long they have

been on the job, they undergo refresher, infor-

mation systems, and emergency (contingency)

response training about every six weeks. New

operators receive instruction that is even more

intensive.

Grid Operator Training Exceeds Standards

NYISO’s operator training far exceeds federal

standards. North American Electric Reliability

Corporation (NERC) standards require operators

to have 200 continuing education hours every

three years. NYISO’s operators typically receive

300 hours of training.

Market participants benefi t directly from NYISO

training. Transmission Owners (TOs) send their

local control room operators to the NYISO for

supplemental training reinforcing the interac-

tion between local control areas and the bulk

electricity grid. Over the course of the past year,

140 people received NYISO instruction on the

fundamentals, intricacies, and innovations of

operating the electric power system. One hundred of

these students came from TOs around the state.

Advanced Simulator Mimics Real Life and

Emergency Conditions

A centerpiece of NYISO training is a simulator room. It

is a full duplication of the operating system that can

take operators through a regular day monitoring the

grid, as well as put them through emergency situa-

tions.

Simulator training can recreate actual past emergen-

cies or put system operators in extreme situations

they have never faced in the real world of operations.

The simulation provides the trainee with an opportu-

nity to go through an exercise in a safe environment,

work out problems with the support of other staff ,

and develop confi dence in their ability to handle dif-

fi cult situations when they actually encounter them.

It also provides a useful tool to train for bringing the

system back on line after an emergency.

Classroom work on policies and procedures is also

an important part of operator training, as are events

reviews of noteworthy occurrences on the power

system, and demonstration of new applications.

Training for Excellence

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The Operations Training Department also

participates in wide-area training events

that include regional emergency opera-

tions involving neighboring grid opera-

tors (Ontario IESO, PJM, ISO-New England,

and Hydro-Quebec). Such events include

a mock exercise to restore power after

a blackout event which aff ects multiple

areas.

Praise for NYISO Training Quality,

Eff ectiveness

A December 2007 audit by the North

American Electric Reliability Corporation

(NERC) and the Northeast Power Coor-

dinating Council (NPCC) noted that the

NYISO and its operators are doing “an

outstanding job” in meeting new federal

reliability requirements.

In 2004, the NERC Readiness Audit Program

identifi ed the NYISO among its “Examples

of Excellence” in training.

And in 2006, the NERC Readiness Audit

Report stated, “The audit team was espe-

cially impressed with NYISO’s training pro-

gram. Highlights of the program include:

employing personnel to allow operators

the opportunity to train for advancement

and exceed the NERC recommended mini-

mum hours of required training; carefully

planned course scheduling by the training

staff to ensure full operator participation;

and simulator training that includes both

NYISO and transmission owner operators.”

“Steve Whitley brings an impressive array of talents and

expertise to the NYISO. He has a well-demonstrated

commitment to excellence in the operation of the bulk

electricity grid and the administration of wholesale electricity

markets,” said NYISO Board Chair and Interim CEO Karen

Antion.

“I am deeply honored to become the President and CEO

of the NYISO,” said Mr. Whitley. “I welcome the opportunity

to work with the NYISO’s employees, stakeholders, and

government offi cials as we build upon the good work

already accomplished by this talented group of industry

professionals.”

Mr. Whitley is a member of the Electric Power Research

Institute (EPRI) Grid Operations - Power Delivery and Markets

Sector Council, member of the NPCC Board of Directors, and a

member of the Executive Committee of CIGRE (International

Council on Large Electric Systems), U.S. Committee.

He earned a Bachelor of Science degree in Electrical

Engineering from Tennessee Technological University prior to

beginning his electricity industry career with the TVA.

Mr. Whitley is a retired Colonel in the U. S. Army Reserve

and the former commanding offi cer of the 3397th Garrison

Support Unit, Fort Campbell, Kentucky. He retired after a

distinguished 30-year career, which included active duty in

Operation Desert Storm in 1990 and 1991.

The NYISO’s selection is a result of a nationwide search

conducted for the NYISO Board by Heidrick & Struggles, a

leading executive search fi rm.

New NYISO President & CEOcontinued from page 1

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continued on next page

Smart Home. Its core concept is going from a cen-

tralized to a distributed environment with millions

of sensors on the grid. Other key features include

moving from an electromechanical to a digital

grid, from manual to automated processes (such as

meter reading), from limited to transparent pric-

ing information and giving consumers an array of

choices regarding energy use and spending.

The consumer’s perspective was among the topics

addressed at the symposium. A video provided by

the Distributed Energy Financial Group showed a

Smart Home in the year 2015. Advanced meter-

ing and sensors were in place, and a display screen

installed by the local utility enabled residents to

see the amount and cost of the electricity they

were using – in real time, and an interface through

which they change their usage behavior, if desired.

For example, during a hot day with peak demand

approaching, a utility representative would ap-

pear on the screen and warn that electricity prices

were about to go up, and if the current in-home

temperature is maintained, then a pre-set budget

limit might be exceeded - demonstrating how

this technology can empower consumers to make

informed decisions about their energy use and

purchase. A gaming console showed a real-time

profi le of the home’s appliances, and the consumer

could click on each for energy use and cost infor-

mation and plan how to save electricity by making

slight modifi cations.

In sum, advanced metering and Smart Grid technolo-

gies give the consumer the option of modifying their

lifestyles for short periods of time and – with real-time

price information – gives consumers more control over

their spending.

True GridIn the same way that iPhones and Blackberries

revolutionized communications, a Smart Grid that

includes Advanced Metering Infrastructure (AMI)

can change the way consumers view and use elec-

tricity in the near future.

That was the consensus that emerged from the

two-day symposium and technology expo, “True

Grid: Smart Metering and Advanced Technologies,”

held in Albany in May. The event attracted more

than 250 participants from utilities and other

market participants, federal and state energy

regulators, legislative staff ers and technology

providers. The analogy was echoed by several

participants at the conference, who noted that the

imagination and drive that produced innovative

phones and PDAs are now being applied to Smart

Grid technologies.

The Smart Grid encompasses a complete, end-

to-end view of transmission, distribution, and the

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Many panelists at the conference pointed out that AMI

is a “system of technology systems” applying to the

transmission and distribution power grid technologies

that are already being used in other industries. Many

large customers already utilize and benefi t from these

technologies through demand response programs,

and the objective now is to make the choices and op-

tions available to the smaller business and residential

customers.

Why Now?

Federal Energy

Regulatory

Commissioner

Suedeen Kelly

discussed

the “historic

convergence of

circumstances”

driving the Smart

Grid movement, which FERC supports. They

include the diffi culty of siting new generation

and transmission, the economics of producing

electricity, concern about carbon emissions and

concern about reliability. In this regard, she

noted the need to reduce grid bottlenecks and

mentioned that much of our legacy distribution

and transmission systems – now more than 50

years old – need to be modernized.

She noted that issues, particularly including fi nanc-

ing, remain to be resolved. “At the local regulatory

level, what do utilities and vendors need to recover

their costs?” she asked. “How will utilities be left

whole when demand response – a cornerstone of

Smart Grid – grows?”

continued on next page

Commissioner Kelly co-chairs a collaborative between

FERC and the National Association of Regulatory Utility

Commissioners (NARUC) studying these issues and

others. She said that at a national level, Congress an-

nounced last year that it wants to have the nationwide

electric grid modernized along Smart Grid lines and

has directed the Department of Energy to educate the

public. Congress has authorized funding the move to

Smart Grid, but has not yet provided funds.

New York State Public Service Commission Chairman

Garry Brown, who also sits on the FERC-NARUC col-

laborative, cited the global economy and how it is

spurring the need to maximize the grid’s potential. He

noted that, with the burgeoning economic growth and

electricity use of India and China, worldwide projec-

tions of energy demand are forecast to triple by 2050.

Worldwide events can and do aff ect energy prices in

New York State, Chairman Brown noted. He suggested

that rather than become overwhelmed by forces be-

yond our control; we can do three things in New York

to aff ect our energy future. A Smart Grid, he said, has a

role in each of the three areas.

First, we can en-

hance energy effi -

ciency, which is the

goal of the state’s

ambitious “15 X 15”

strategy to lower

the use of electricity

15 percent by 2015.

Advanced metering

and Smart Grid technologies would help achieve that

goal by providing “prices to devices” that help consum-

ers to better gauge the cost of their energy use.

Suedeen Kelly

Garry Brown

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ten objectives for grid modernization that together

characterize a Smart Grid. They include increased use

of digital information to improve reliability, security

and effi ciency of the electric grid; deploying and

integrating distributed resources and generation,

including renewable resources; developing demand

response and energy effi ciency resources; deploying

“smart” technologies for metering, communications

and distribution automation; integration of smart ap-

pliances and consumer devices; providing consum-

ers with timely information and control options; and

identifying and lowering unreasonable or unneces-

sary barriers to adoption of smart grid technologies,

practices and services.

Tom Lynch, Director of Government Aff airs for the

New York State Energy Research and Development

Authority (NYSERDA), said that achieving the

Smart Grid would require the collaboration of all

stakeholders in New York.

He noted that the Governor recently issued an

Executive Order creating a new State Energy

Planning Board that will look at supply, transmission

constraints, and infrastructure changes, including

Smart Grid.

continued on next page

Second, we can develop more renewable

resources – like hydroelectric and wind resources,

and enhance fuel diversifi cation. This could

include nuclear energy, solar power and clean coal

technologies.

Third, we must deal with our energy infrastructure

– improving it and maximizing its use with Smart

Grid technologies.

“We need to be looking at how we can improve

the infrastructure, how to get the refrigerator not

to make ice on a hot summer day between 4 and

7 pm and overall, how we can give people the

price signals they need to understand how much

electricity costs at certain times,” Chairman Brown

said.

Commissioner Kelly, Chairman Brown and oth-

ers at the conference noted that all of this would

require very large investments. Chairman Brown

noted, however, that we spend $20 billion annu-

ally on electricity in New York. “We need to put the

Smart Grid’s costs in the proper context,” he said.

“At the PSC, we need to make sure the investments

are made prudently, wisely and eff ectively.”

He noted that the PSC is currently reviewing

proposals from New York utilities for an advanced

metering pilot or demonstration projects.

NYISO Board Chair Karen

Antion cited other

convergent factors ac-

celerating the develop-

ment of Smart Grid. The

Energy Independence

and Security Act of 2007,

signed into federal law

last December, off ers Karen Antion

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It’s Already Happening

According to FERC Commissioner Kelly, FERC has found

that 72 utilities in 32 states have “Smart Grid” pilot or

demonstration projects in place or pending.

With so many pilots underway, conference attendee

Tom Bautz, from Orange & Rockland Utilities, noted

that conferences like the NYISO’s aid in the “fact fi nding

process” in which utilities can learn from one another’s

experiences.

One of the largest smart metering projects underway

in the world involves Hydro One, wholly owned by

Canada’s Ontario province. With demand growing rap-

idly, Hydro One and Capgemini, its outsourcing agent

for meter installation, are under a government direc-

tive to install 800,000 smart meters by December 31 of

2008 and meter all of Ontario’s 4.5 million customers

by December 31, 2010. The aim is that by introducing

AMI and Time-of-Use rates – charging higher rates dur-

ing peak demand hours and lower rates at night and

other off -peak times when there is a surplus of gen-

erating capacity – consumers will be incented to shift

their consumption patterns in terms of when and how

they use electricity. Such a shift by millions of ratepay-

ers could reap benefi ts ranging from reducing power

plant emissions, increasing grid reliability and reducing

peak prices by lowering peak demand.

Such projects are neither cheap nor easy. Capgemini’s

CEO, Meir Shargal, noted that AMI’s initial capital

outlay is a foundation for the future. The distributed

grid, demand response and other building blocks will

give a much larger return on investment. He also said

that smart metering need to be handled by multiple

departments within a utility. His company has found

that typically it involves 80 diff erent processes at a

utility, engaging various departments, so the approach

must be interdisciplinary.

Alignment is Key

Reaction to the regulatory commissioners, repre-

sentatives from government agencies like NYSERDA,

technology developers and market participants who

presented was universally positive.

Many attendees cited “alignment” among stakeholders

as the most critical need to move Smart Grid forward –

more critical than breakthrough technologies or world

energy changes.

Reza Ghafurian of Consolidated Edison, who gave a

presentation on how the utility is applying Smart Grid

concepts to one of its distribution networks in Man-

hattan, said afterward, “I’ve found the conference very

valuable, especially hearing the comments from the

policymakers at the state and federal levels, NYSERDA

and the NYISO. It’s great to hear that the perspectives

are all aligned.”

20th versus 21st Century Grid20th Century Grid 21st Century Grid

Electromechanical

Centralized

Manual

Limited pricing info

Few customer choices

Digital

Distributed

Automated

Transparent & detailed pricing

Many customer choices

continued on next page

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Advanced Metering Infrastructure – features sys-

tems that measure, collect, and analyze energy usage,

employing advanced communications and data

management hardware and software to provide usage

information to electricity customers and utilities.

Smart Meter – an electricity meter capable of measur-

ing and recording usage data at specifi ed intervals.

It allows electricity customers, suppliers, and service

providers to participate in all types of price-based

demand response programs.

Attendee Joe Lopes, from Applied Energy Group,

said, “It’s very useful to hear the policy direc-

tion in New York State regarding AMI. Plus, the

industry is changing rapidly and it pays to keep

up. This has been a great way to hear from all

the agency and policy people, see where they’re

aligned and where things are going.”

The Wholesale Sector

Although much of the conference dealt with

the ultimate consumer experience, the Smart

Grid has positive implications for both the bulk

electricity grid and the wholesale electricity

marketplace.

Randy Bowers, Principal, Settlements Processes &

Control at the NYISO, noted that the use of digi-

tal information will enhance the ability to moni-

tor and control the transmission grid, and Smart

Grid features will help minimize transmission and

transformer losses, and maintain and enhance

regional reliability.

Conference attendee Michael Walsh, Direc-

tor of information solutions company NYSTEC,

summed up the two-day experience. “The

conference provided an excellent showcase to

demonstrate how Smart Grid and Advanced

Metering Infrastructure will enable New Yorkers to

achieve energy management goals that have been

set by federal and state leaders.”

Another attendee noted that, with so much activity

relating to Smart Grid and AMI in so many sectors,

“We don’t have to reinvent the wheel. We can all

learn from one another’s experiences, and that’s the

key value of this conference.”

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New Credit Management SystemFollowing extensive discussions with market participants,

the NYISO will implement a new Credit Management Sys-

tem (CMS) to automate and integrate credit requirements

and processes for all of its wholesale electricity markets.

The NYISO initiated discussions with market participants

at an October 2007 technical conference, and continued

intensive talks in various venues, including at a March

2008 technical conference.

The new system, which will be phased in over two years,

should make the credit process more effi cient, and pro-

vide the market participants with more information.

“The new multi-market CMS will provide the NYISO with

an accurate, near real-time credit risk assessment, in total

and by market participant. It will also equip each market

participant with a user-friendly interface and enhanced

information to manage its credit position,” explained

Mary McGarvey, NYISO Vice President and Chief Financial

Offi cer.

As specifi ed by the Federal Energy Regulatory Commis-

sion (FERC), the NYISO establishes credit requirements

applicable to market participants and the basis for allocat-

ing payment default amounts to market participants. If

a participant defaults on its payment obligations to the

NYISO, other market participants are liable for a portion

of the default obligation not covered by the defaulting

participant.

The two-year project will integrate credit management for

market participants in all markets, including transmission

congestion contracts, virtual transactions, energy, ancillary

services and installed capacity (ICAP).

Karen Antion, NYISO Board Chair and interim CEO, noted

that the fi nancial integrity of the wholesale electric-

ity markets requires the credit-worthiness of all market

participants. “We continually strive to balance rigorous

protections against default with the need to avoid unrea-

sonable barriers to market entry,” she said.

Ward Joins NYISO BoardChristopher O. Ward was unanimously elected to the NYISO

Board of Directors on April 15. At the time of his election

to the Board, he was Managing Director of the General

Contractors Association of New York (GCANY), a post he

had held since 2006. On May 5, Governor David A. Paterson

announced that he would recommend Mr. Ward for appoint-

ment as the Executive Director of the Port Authority of New

York and New Jersey.

Prior to joining CGANY, Mr. Ward was Chief Executive Offi cer

of American Stevedoring, Inc. From 2002 to 2005, he served

as Commissioner of the New York City Department of Envi-

ronmental Protection, which is responsible for protecting the

environmental health, welfare, and natural resources of New

York City and its residents.

Announcing Ward’s election to the Board, NYISO Board Chair

Karen Antion, said, “Christopher Ward’s extensive experience

with environmental protection and public works infrastruc-

ture will off er valuable perspectives to the work of the NYISO

Board of Directors. His impressive record of public service and

success in the private sector will add to our Board members’

wide array of expertise and accomplishments.”

He had previously served as Chief of Planning and External

Aff airs at the Port Authority of New York and New Jersey,

where he also served as Director of Port Development. Prior

to that, he was Director of Business Development at Ameri-

can Stevedoring, Inc., Senior Vice President for Transportation

and Commerce at the New York City Economic Development

Corporation, Assistant Commissioner at the New York City

Department of Telecommunications and Energy, and Director

of Research at the New York City Department of Consumer

Aff airs.

Mr. Ward received a Master of Theological Studies from Har-

vard Divinity School and a Bachelor of Arts from Macalester

College in St. Paul, Minnesota.

His selection is the result of a nationwide search. The process

included extensive stakeholder participation and candidate

interviews with a representative group of Market Participants.

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2007 State of the Market Report

Dr. David Patton, the NYISO’s Independent Market Advisor presented his 2007 State of the

Market Report: New York Electricity Markets

to NYISO market participants and the Board of Directors in May.

The assessment of the performance of the New York electricity markets in 2007 stated that the NYISO “operates the most complete set of electricity markets in the U.S.” Among the benefi ts of NYISO markets cited by the report:

Day-ahead and real-time markets jointly optimize energy, operating reserves and regulation, which leads to prices that refl ect the value of energy at each location on the network, the lowest cost resources being started each day to meet demand, and delivery of the lowest cost energy to New York’s consumers to the maximum extent allowed by the transmission network.

Capacity markets produce effi cient long-term economic signals to inform decisions to invest in new generation and demand response resources, and maintain existing resources.

The market for transmission rights allows participants to hedge the congestion costs associated with using the transmission network.

The report also states that the “NYISO markets are at the forefront of market design and have been a model for market development in other areas.” Dr. Patton points out that the NYISO was the fi rst RTO market to:

Jointly optimize energy and operating reserve markets that effi ciently allocate resources to provide these products.

Impose locational requirements in its operating reserve and capacity markets – the locational requirements play a crucial role in signaling the need for resources in transmission-constrained areas.

Introduce capacity demand curves that refl ect the value of incremental capacity to the system and provide for increased stability in market signals.

Provide operating reserve demand curves that contribute to effi cient prices during shortage conditions when resources are insuffi cient to satisfy both the energy and operating reserve needs of the system.

The 2007 State of the Market Report also notes that the NYISO is the only market to have:

An optimized real-time commitment system to start gas turbines and schedule external transactions economically. Other organized markets rely on their operators to determine when to start gas turbines.

A mechanism that allows gas turbines to set energy prices when they are economic. Gas turbines frequently do not set prices in other

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areas because they are infl exible and distort the prices in the real-time market.

A real-time dispatch system that is able to optimize over multiple periods (up to 1 hour), which allows the market to anticipate upcoming needs and move resources to effi ciently satisfy the needs.

“Ex-ante” real-time prices that are consistent with the real-time market dispatch. Other organized markets use an “ex-post” pricing method that can result in less effi cient prices that are not consistent with dispatch signals.

A mechanism that allows demand-response resources to set energy prices when they needed, which is essential to maintaining effi cient price signals during shortages.

The report said that, in 2007, energy prices increased 6 to12 percent in most areas outside Long Island, primarily due to fuel prices as natural gas prices increased an average of 15 percent. Price increases were partially off set by milder summer weather and new transmission capacity that was added between New Jersey and Long Island in July 2007. The additional 660 MW of import capability led to a three percent decline in Long Island prices, according to Dr. Patton.

Among its recommendations, the report states that the NYISO should:

Continue the work with neighboring control areas to better utilize the transfer capability between regions, ideally by directly coordinating the physical interchange.

Evaluate potential improvements real-time commitment model (“RTC”) and the real-time dispatch model (“RTD”) to improve their consistency and improve the management of ramp capability at the top of the hour.

Evaluate changing two provisions in the mitigation measures that may limit competitive 10-minute reserves off ers in the Day-Ahead Market. (The provisions limit the reference levels of some GTs to $2.52/MWh and the off ers of 10-minute spinning reserves in New York City to $0/MWh.)

Consider whether additional capacity zones are needed outside of New York City and Long Island.

Evaluate whether it is feasible to enable the NYISO reliability based Emergency Demand Response resources to set clearing prices in local areas when they are needed to maintain transmission system reliability.

The full 175-page 2007 State of the Market Report:

New York Electricity Markets is available for download from the NYISO website

(www.nyiso.com)

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Governor’s Energy Planning Order Notes NYISO RoleBy Executive Order issued on April 9, Governor David

Paterson established a State Energy Planning Board

and tasked the panel with creating a new State

Energy Plan. The order names the NYISO among the

public and private entities with which the new board

will consult.

NYISO Board Chair Karen Antion, in an April 14 letter

to Gov. Paterson, off ered the NYISO’s support and

encouraged the new board to view its process as “an

opportunity to build on the NYISO’s Comprehensive

Reliability Planning Process” and “take advantage

of the knowledge and experience of our staff to

augment the resources provided by the public sector”

to the planning process.

Among the items to be included in the new state

energy plan are:

a statement of long-range energy policy objectives

and strategies appropriate to increase energy supply

and reduce energy demand

demand forecasts for periods of up to ten years,

supply requirements for the state

assessments of existing energy resources

projections of energy prices

assessments of sustainable alternatives to

traditional resources

assessments of the eff ects of electricity production

on public health and the environment

assessments of environmental policies and

programs aff ecting energy

an inventory of greenhouse gas emissions

A draft plan is required on or before March 31,

2009, with the fi nal plan due by June 30, 2009.

The board is authorized to issue new plans every

three years.

The membership of the State Energy Planning

Board includes the Governor’s Deputy Secretary

for Energy, Paul DeCotis, who will chair the panel.

The other members include the Chair of the

Public Service Commission, the Commissioner of

Environmental Conservation, the Commissioner

of Transportation, the Commissioner of Health,

the Commissioner of Economic Development,

the President of the New York State Energy

Research and Development Authority, the

Director of the Budget, the President of the

Urban Development Corporation, the Secretary

of State, and the Governor’s Deputy Secretary for

Environment.

NYISO Planning Process

Solutions Market-based & Regulatory

Reliability Plan

Needs Assessment

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Testing the WindWind power is a growing, renewable resource in

New York, with the NYISO and market participants

working together to develop and implement ways to

integrate wind power resources into New York’s electricity

system. There are currently about 500 megawatts of

wind generation in commercial operation in New York

State. Another 7,000 MW of proposed wind power

projects are at various stages of the grid interconnection

process administered by the NYISO.

Since wind is an “intermittent” resource, the NYISO is

conducting detailed analyses to determine how best to

accommodate such large increases in wind energy while

maintaining the reliability of the bulk electric system.

An important step will be the centralized wind

forecasting system that the NYISO plans to begin

administering this summer. Forecasts, both day-

ahead and real time, will be supplied to the NYISO

by AWS Truewind, a leading provider of advanced

atmospheric modeling and measurement services.

Market participants who operate wind projects will have

access to their individual forecasts, and the NYISO will

incorporate each forecast into its market software.

To produce the forecasts, wind generators will provide

meteorological data and the NYISO will send power

data to AWS Truewind. The company will provide wind

power forecasts, and the NYISO will use the information

to integrate wind power in balancing electricity supply

with consumer demand. The forecasts will make it easier

to gauge how much wind power will be available on the

bulk electricity grid throughout a given day, reducing the

possibility of unanticipated power gaps.

Updating Market Rules

The NYISO is also proposing wind-related revisions in

market rules, which are subject to approval by the Federal

Energy Regulatory Commission (FERC). The proposals

include:

Increasing the amount of wind generation eligible for

exemption from under-generation penalties and full

compensation for over-generation,

Requiring wind projects to fi nance the costs of the cen-

tralized forecasting service, and

Establishing penalties for wind generators who con-

tinually fail to deliver meteorological data to the NYISO

forecaster.

Karen Antion, NYISO Board Chair, reinforced the NYISO’s

interest in diversifi ed fuel resources. “As fuel costs climb

and the need for emission-free electricity grows,” she said,

“it is important to realize the full potential of renewable

energy resources such as wind. The NYISO is committed

to accommodating the market entry of any and all new

technologies and renewable resources.”

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March 19, 2008:

FERC letter order granting NYISO a tariff waiver

regarding its request to post the results of the April

auction

March 20, 2008:

FERC tolling order granting rehearing for further con-

sideration regarding the NYISO v. Hudson Transmis-

sion Partners proceeding

FERC letter order approving tariff revisions to change

the calculation of charges assessed to transmission

customers to recover costs related to various transmis-

sion facilities and black start and restoration services

FERC letter order accepting unredacted pages fi led in

response to a 2/8/08 order

March 21, 2008:

FERC guidance order on the conceptual proposal to

codify the deliverability plan

FERC order denying the Black Oak Energy complaint

v NYISO regarding alleged tariff violations concerning

price corrections and an inappropriate penalty

March 26, 2008:

FERC order accepting and suspending tariff sheets

subject to conditions and granting waivers regarding

implementation of market power mitigation of ICAP

suppliers in the NYC market

March 28, 2008:

FERC order accepting tariff sheet regarding establish-

ing a NY gas-electric coordination protocol

FERC letter order accepting errata tariff sheets regard-

ing the ICAP demand curve tariff fi ling

FERC letter announcing an audit of NYISO OASIS in-

formation postings to ensure compliance with Order

No. 890

FERC order accepting tariff revisions regarding the

2008 – 2011 ICAP Demand Curves

FERC Orders as of May 19, 2008 April 2, 2008:

FERC letter order accepting NYISO’s informational fi ling

report regarding price validations

April 3, 2008:

FERC letter order accepting NYISO’s thirteenth quarterly

report regarding penalty exemptions for grouped generat-

ing facilities the output of which is measured at a single

location

April 11, 2008

FERC letter order accepting NYISO’s compliance fi ling to

include the phrase “or zero” in order to clarify that all TCC

bids are subject to the term-based minimums included in

the bid component

April 16, 2008

FERC order accepting long-term transmission rights pro-

posal subject to modifi cation and compliance fi lings

April 28, 2008

FERC order accepting tariff revisions regarding the credit

requirements for holding Transmission Congestion Con-

tracts

April 29, 2008

FERC order accepting a large generator interconnection

agreement between NYISO, Consolidated Edison and Lin-

den VFT regarding a merchant transmission project

May 7, 2008

FERC order conditionally accepting NYISO’s compliance

fi lings regarding Order No. 890 pro forma OATT require-

ments

May 15, 2008

FERC letter order accepting an executed Large Generator

Interconnection Agreement between NYISO, the Village of

Arcade, and Noble Bliss Windpark, LLC

May 16, 2008

FERC letter order accepting a large generator interconnec-

tion agreement between NYISO, NYPA and Noble Ellenburg

Windpark, LLC

May 19, 2008

FERC notice granting NYISO an extension of time until July

21, 2008 to fi le tariff revisions regarding its deliverability

plan

15

CONNECTION

NYISO Governance Committee Roster

Management Committee (MC)

Ray Kinney (NYSEG/RG&E) - Chair

Bill Palazzo (NYPA) - Vice Chair

Budget & Priority Working Group (BPWG)

Patti Caletka (NYSEG/RG&E)

Board Selection Subcommittee (BSSC)

Ray Kinney (NYSEG/RG&E)

Stay Review Subcommittee

Paul Gioia (Dewey & LeBoeuf )

Market Participant Audit Advisory Subcommittee (MPAASS)

Les Pardo (NYPA) - Chair

MC By-Laws Subcommittee:

Neil Butterklee (ConEd)

Business Issues Committee (BIC)

Glen McCartney (Constellation) - Chair

Stuart Nachmias (ConEd) - Vice Chair

Market Issues Working Group (MIWG)

Norman Mah (ConEd)

Installed Capacity Working Group (ICAPWG)

Glenn Haake (Dynegy)

Billing & Accounting Working Group (BAWG)

Kathy Logan (U.S. Power Generating Co.)

Price Responsive Load Working Group (PRLWG)

Stephen Lynch (Energy Curtailment Specialist)

Interconnections Issues Task Force (IITF)

Glen Haake (Dynegy)

Operating Committee (OC)

Liam Baker (U.S. Power Gen) - Chair

Ted Pappas (KeySpan/LIPA) - Vice Chair

Communication Data Advisory Subcommittee (CDAS)

Ray A’Brial (Central Hudson)

Transmission Planning Advisory Subcommittee (TPAS)

John Marczewski (EIG)

System Operations Advisory Subcommittee (SOAS)

Doug Voos (Keyspan Energy)

System Protection Advisory Subcommittee (SPAS)

Ralph Mazzatto (ConEd)

Electric System Planning Working Group (ESPWG)

Tariq Niazi (New York State Consumer Protection

Board)

Restoration Working Group (RWG)

Len Panzika (NYPA)

Reactive Power Working Group (RPWG)

Janos Hajagos (LIPA)

Schedules for NYISO Governance working groups and committees can be found at:

www.nyiso.com/public/committees/calendar/index.jsp

16

sm

The NYISO and its

market participants

ultimately serve the

same consumers,

the electricity cus-

tomers of

New York State,

who are high-

lighted by

the NYISO’s

2007 Annual

Report.

An opening letter from NYISO Chair

and Interim CEO Karen Antion notes, “Our informa-

tion technologies are sophisticated and we operate

in a complex environment of diverse market partici-

pants, generating units and transmission facilities,

with programs and engineering analyses that

contain the alphabet soup of acronyms that char-

acterize the energy industry. On a daily basis, we

cut through that complexity to responsibly serve

our ultimate customers – New York’s 19.3 million

people and thousands of vital businesses and or-

ganizations, including world centers for commerce,

culture, education, and health care.”

The report covers the NYISO’s 2007 activities under

three theme sections: reliable, economic, and

responsible. It provides the annual fi nancial state-

ment, a listing of market participants, and closes

with a memorial tribute to Peter Berle.

This edition of the annual report has a different

look, Elaine Robinson, Director of Regulatory Af-

fairs and Acting Vice President for External Affairs,

explained. “We went out of our way to make this

report especially reader friendly,” she said. For

example, we summarized the benefi ts of competi-

tion on one page. We employed a more readable

type size and eliminated unbroken pages of solid

text in favor of headlines and manageable text

summaries.”

Some highlights of the report, organized by theme

section, include:

Reliable

New Yorkers used more electricity than ever

before in 2007, setting a new annual record,

167,341 GWh.

A December 2007 audit by the North American

Electric Reliability Corporation and the Northeast

Power Coordinating Council concluded, “…the

NYISO is doing an outstanding job” in meeting

the federal reliability standards implemented

earlier in the year.

Economic

Transactions in the NYISO-administered whole-

sale electricity markets in 2007 totaled $9.5

billion. Market transactions since the NYISO’s

inception in late 1999 total $59.2 billion.

NYISO-administered markets have enabled

development of innovative demand response

resources and the NYISO continued to expand

those programs last year. A new “targeted de-

mand response” program called upon program

participants to address localized power supply

situations twice in the summer of 2007. continued on next page

2007 Annual Report Focuses on Ultimate Customers

New

York In

dep

end

ent S

ystem O

perato

r 2007 A

NN

UA

L RE

PO

RT

Reliable

Economic

Responsible

sm

17

CONNECTION

A March 2007 report, A Cost-Benefi t Analysis of

the New York Independent System Operator: The

Initial Years, found the annual savings to consumers

from NYISO-administered markets to be in the “hun-

dreds of millions of dollars.”

Responsible

With open access to the grid easing the entry of re-

newable energy projects, there were almost 7,000 MW

of proposed wind generation projects in the NYISO

interconnection queue by the end of the year.

The NYISO’s shared governance system with market

participants facilitates collaborative decision-making

and consensus building. In an order relating to an

Installed Capacity Demand Curves proposal fi led in

2007, the Federal Energy Regulatory Commission

lauded the results of the NYISO’s shared governance,

stating: “The Commission commends NYISO and the

stakeholders for working together to resolve many

issues … the proposal represents a reasonable com-

promise between the parties’ interests in a proceeding

that was contentious, with a number of parties hold-

ing divergent views.”

The 2007 Annual Report, mailed to Market Participants

and others in early May, is also downloadable from the

NYISO web site, www.nyiso.com.

Summer 2008 Electricity ForecastThe NYISO projects that suffi cient resources will be

available to meet this summer’s peak electricity usage,

which is expected to rise more than 5% above last

summer’s peak.

The forecast for the 2008 summer peak is 33,809

megawatts (MW); about 1,640 MW higher than the

2007 peak but slightly lower than the record peak

demand of 33,939 MW set on August 2, 2006. The

summer of 2006 was the second warmest on record in

the nation since 1936. The U.S. National Oceanic and

Atmospheric Administration’s temperature outlook for

this summer shows an increased probability of above

average temperatures for New York.

On hand to meet the need on the bulk electricity grid,

the NYISO projects, will be 38,920 MW of New York

State resources. That exceeds the installed capacity

requirement to meet the load including the 15 % reli-

ability reserve margin.

New York City and Long Island, where nearly half the

state’s summer load is located, are expected to have

more than suffi cient capacity to meet their needs. For

New York City, the actual installed “in-city” capacity is

480 MW above the requirement. Long Island is expect-

ed to exceed its requirement by 530 MW.

Summer 2008 electricity supply for New York State is

expected to be adequate – barring unexpected ex-

tremes in weather conditions – despite the retirement of

electricity generating facilities such as the Lovett units in

the Hudson Valley and Russell Station in the Rochester

metropolitan area. New generation, transmission up-

grades, and vigorous demand response programs that

cut peak demand all contribute to providing suffi cient

resources for New York’s electricity needs.

18

sm

MANAGEMENT COMMITTEE

By-Laws Subcommitteewww.nyiso.com/public/committees/documents.jsp?com=mc_bls

Budget & Priorities Working Group www.nyiso.com/public/committees/documents.jsp?com=mc_bpwg

Liaison Subcommitteewww.nyiso.com/public/committees/documents.jsp?com=mc_ls

MP Audit Advisory Subcommittee (MPAAS)www.nyiso.com/public/committees/documents.jsp?com=mc_mpaas

Sector Meetingswww.nyiso.com/public/committees/documents.jsp?com=mc_sector_meetings

BUSINESS ISSUES COMMITTEE

Billing & Accounting Working Group (BAWG)www.nyiso.com/public/committees/documents.jsp?com=bic_bawg

Business Intelligence Task Force (BITF)http://www.nyiso.com/public/committees/documents.jsp?com=bic_bawg_bitf

Credit Policy Task Force (CPTF)www.nyiso.com/public/committees/documents.jsp?com=bic_spwg_cptf

ICAP Working Group (ICAPWG)www.nyiso.com/public/committees/documents.jsp?com=bic_icapwg

Interconnection Issues Task Force (IITF)www.nyiso.com/public/committees/documents.jsp?com=oc_tpas_iitf

Market Issues Working Group (MIWG) www.nyiso.com/public/committees/documents.jsp?com=bic_miwg

Price Responsive Load Working Group (PRLWG)www.nyiso.com/public/committees/documents.jsp?com=bic_prlwg

Resource Adequacy Issues Task Force (RAITF)www.nyiso.com/public/committees/documents.jsp?com=bic_icapwg_raitf

Scheduling & Pricing Working Group (S&PWG)www.nyiso.com/public/committees/documents.jsp?com=bic_spwg

BUSINESS ISSUES COMMITTEE (continued)

OPERATING COMMITTEE

Communication & Data Advisory Subcommittee (CDAS)www.nyiso.com/public/committees/documents.jsp?com=oc_cdas

Electric System Planning Working Group (ESPWG)www.nyiso.com/public/committees/documents.jsp?com=bic_espwg

Interconnections Projects Facilities Study Working Group (IPFSWG)

www.nyiso.com/public/committees/documents.jsp?com=oc_

tpas_iitf

Reactive Power Work Group (RPWG)www.nyiso.com/public/committees/documents.jsp?com=oc_rpwg

Restoration Working Group (RWG) www.nyiso.com/public/committees/documents.jsp?com=oc_rwg

System Operations Advisory Subcommittee (SOAS)www.nyiso.com/public/committees/documents.jsp?com=oc_soas

System Protection Advisory Subcommittee (SPAS)www.nyiso.com/public/committees/documents.jsp?com=oc_spas

Transmission Planning Advisory Subcommittee (TPAS)www.nyiso.com/public/committees/documents.jsp?com=oc_tpas

NYISO Governance Web Links

19

CONNECTION

Connection is published electronically by the External Affairs Group of the New York Independent System Operator (NYISO) for the benefi t of NYISO Market Participants. For more information, or to make comments and suggestions, please contact NYISO External Affairs.

Debra Murley, Editor

NYISO Communications Specialist

dmurley@nyiso.com

Marilyn Albright

NYISO Communications

Webmaster Specialist

malbright@nyiso.com

Gary Paslow

NYISO Manager, Communications

gpaslow@nyiso.com

Jim Alcombright

NYISO Manager,

Committee Support

jalcombright@nyiso.com

Elaine Robinson

Director, Regulator Aff airs

erobinson@nyiso.com

Disclaimer: Connection is for informational purposes only. The NYISO does not warrant the information contained herein, and Market Participants are referred to NYISO tariffs, manuals and other technical documents for complete statements of their contents.

The New York Independent System Operator

(NYISO) – www.nyiso.com – is a not-for-profi t

corporation that began operations in 1999. The

NYISO operates New York’s bulk electricity grid,

administers the state’s wholesale electricity

markets, and performs comprehensive

reliability planning for the state’s bulk electricity

system.

Each of the three main topics considers a host of related

issues and questions. With the forward capacity market,

for example, participants are being asked to consider 11

detailed questions such as: What are the most important

considerations in the market’s design? Are there unique

conditions for demand response participation? And

how is the success of the forward capacity market to be

determined?

The topic of interregional coordination encompasses,

among other considerations, how should we approach

the establishment of broader regional markets with

our neighboring ISOs and Regional Transmission

Organizations (RTOs)? What are the specifi c benefi ts

for New York from expanding regional markets? The

discussion will also seek to identify the current obstacles

to improving interregional coordination in the Northeast.

The third agenda topic, integrating wind power, will

consider if the wind generation connected to the New

York Control Area grid results in “bottled generation,”

how should curtailments be handled? Participants will

also be discussing several aspects of funding to support

transmission expansion for renewable resources.

Cooperstown in Junecontinued from page 1

Joint BOD/MC Meeting – EventsIn addition to the annual Joint Board of Directors/Management Committee Meeting, the agenda includes other events.

On June 9, immediately following morning meeting, a golf outing will be held at the Leatherstocking Golf Course at the Otesaga. Tee times will begin at 12:50 p.m.

For non-golfi ng participants, a group tour of the National Baseball Hall of Fame has been arranged for Monday, June 9. The group will depart from the Otesaga at 2 PM. The cost per person is $15. Space is limited to 20, and will be available on a fi rst come, fi rst served basis. The Otesaga also off ers lake and pool swimming, tennis, canoe rent-als, fi shing and hiking trails.

For more information, please contact Debbie Eckels (deckels@nyiso.com).