FERC approves NYISO’s rehearing request in Lake Erie Loop Flow proceeding

FERC on Aug. 22 issued an order on the New York ISO‘S (NYISO) request for rehearing of an order issued in the Lake Erie Loop Flow proceeding on March 15.

The commission granted rehearing, in part, and denied rehearing, in part, for certain reasons.

NYISO initiated the proceeding to address a certain subset of unscheduled flows around Lake Erie. These unscheduled flows were the result of specific transactions for which the contract path was not consistent with the actual physical flow of power from the transaction-specified source to the transaction-specified sink.

To address these market distortions, NYISO proposed certain short-term solutions, which FERC accepted, subject to the requirement that NYISO work with its neighboring RTOs/ISOs to develop a comprehensive, long-term solution.

In response, NYISO, in collaboration with PJM, the Midwest ISO and the Ontario IESO, proposed to develop and implement an interface pricing initiative, among other proposals. The interface pricing initiative contemplated the development and implementation of interface pricing revisions to address existing seams that create incentives which exacerbate loop flows. NYISO stated that, under its proposal, the ISOs and RTOs in and around the Lake Erie region would be required to use similar methods to price interregional transactions.

FERC said it rejected NYISO’s assertion that its Dec. 22, 2011, compliance filing included the changes to the NYISO’s market rules, as required by FERC’s December 2010 order, FERC said in the order. 

However, based on NYISO’s representations, in its rehearing request that PJM uses expected energy flows rather than actual energy flows to determine interface prices, FERC found it reasonable to use expected flows for pricing purposes. FERC therefore granted rehearing of the March 2012 order’s determination that, to comply with the December 2010 order, NYISO was required to submit a revised pricing methodology based on actual energy flows, consistent with PJM’s methodology.

“Instead, to comply with the December 2010 order, we require NYISO to submit a detailed proposal along with complete explanations of how its proposal will better align scheduled and real-time energy flows, including an explanation of how it uses NERC tag information to better predict energy flows and to enhance existing interface pricing practices,” FERC said.

FERC also clarified that the March 2012 order does not require NYISO to abandon its economic evaluation of external transactions and redesign its market in order to adopt interface pricing rules that are the same as PJM’s existing rules. “We recognize that the benefits of any market design enhancement must be weighed against the cost of doing so and that some changes may be cost prohibitive,” FERC said.

As NYISO states, differences between existing regional market designs may preclude NYISO from adopting the exact same methodology employed by another RTO/ISO. Accordingly, FERC clarified that in requiring that NYISO’s proposal be consistent with PJM’s interface pricing approach, the commission is requiring NYISO’s methodology to compatible with PJM’s – not necessarily identical to it.

FERC also clarified that the interface pricing revisions at issue in the proceeding were not intended to apply to those interfaces for which unscheduled Lake Erie loop flows are not an issue.

NYISO will propose compliance modifications to its interface pricing proposal to alter certain elements of its proposed methodology, “namely, the conforming mode, which relies on NYISO’s status quo pricing and scheduling policy to the extent they are inconsistent with the PJM methodology.”