NYISO conducts energy market auctions in two phases. The Day Ahead Market is conducted prior to the commencement of each day. Forward contracts are established for each hour of the coming day. The Real Time Market is conducted when the load actually occurs. Most energy in the NYISO is transacted in the Day Ahead Markets.
The Day Ahead Market sets prices as of 11:00 AM the previous day (thus the term day-ahead) based on generation and energy transaction bids that were offered in advance to the NYISO. DAM prices are determined on an hourly basis for each of the state's eleven zones and for the four neighboring areas (New England, Hydro Quebec, Ontario Hydro and PJM). Typically more than 90% of energy transactions processed by NYISO occur in the DAM.A software program called Security Constrained Unit Commitment (SCUC) determines the amount of energy expected to be needed within the state for each day. NYISO will schedule the generating units that can most economically satisfy the energy needed to supply customers' demand and allow a sufficient reserve for contingencies. The New York Marginal Cost of Energy is the base price that NYISO must pay to obtain the needed energy. This base price is determined at the NYISO reference bus, so named because it is the reference against which losses, congestion, shift factors, penalty factors and other system mathematical quantities are calculated. It is physically located at the Marcy 345 kV substation in Marcy, New York. In transmitting energy across the state, there are additional costs for the electrical losses and sometimes for congestion that occurs when transmission lines become overloaded. The DAM zonal LBMPs are determined by adding the marginal cost of energy, the marginal cost of losses and the marginal cost of congestion.
