Grid in Transition

New York’s public policies are increasingly prioritizing clean energy production and a rapid transition away from fossil fuels.  During this time of rapid change, we must maintain adequate supply necessary to meet growing consumer demand for electricity. 

The ability to respond quickly to changing needs on the grid is important to maintain reliable electric service to consumers. Renewable energy resources like wind-powered generators or solar panels have the benefit of being emissions-free, but because they cannot produce energy when it is not windy, or the sun is not shining, they are not dispatchable, meaning they cannot produce electricity on demand or increase production when increased supply of electricity is needed. Today, fossil-fueled generators are an important source of dispatchable supply services.

The grid needs sufficient flexible and dispatchable resources to balance variations in wind and solar resource output. Dispatchable, emission-free resources (DEFRs) must have the attributes of today’s fossil generators (responding quickly to rapid system changes), but without harmful emissions. Energy storage technologies are beginning to provide these services, but additional technologies will be needed.

The retirement of fossil-based resources is outpacing the development of new renewable-based resources and other dispatchable, emissions-free resources. At the same time, demand growth is being driven by the electrification of the housing and transportation sectors as well as new large industrial customers. If demand grows at a rate greater than the build-out of generation and transmission, deficiencies could arise over the next decade, as identified in the NYISO’s reliability planning process. The NYISO’s recent 2023-2032 Comprehensive Reliability Plan (CRP) details these risks. In 2024, the NYISO will issue a Reliability Needs Assessment to further evaluate these trends and their implications to grid reliability.

Transmission constraints is another issue of the transition that must be considered. During periods of high demand, constraints along key transmission lines can limit the amount of carbon-free electricity that can be delivered from upstate, where generation is predominantly emission-free, to meet demand downstate, where electricity demand in the state is typically highest. Today, New York City and its surrounding suburbs at times rely more on fossil-fuel powered generation located in the downstate region to serve customer needs.

Many peaker plants, which generally operate to meet peak electricity demand, are located within “pockets” in New York City and Long Island where the ability to transmit electricity into these areas is limited. To fully meet consumers’ needs in these areas, local supply is necessary. New transmission investment will be important in part because of the so-called “peaker rule,” which requires that certain fossil fuel generators meet tightening regulations on smog-forming pollutants. The first compliance period, which began in May 2023, resulted in 1,027 MW of peaker capacity becoming unavailable, with an additional 590 MW slated to be unavailable by May 2025.
 
As it does with all generators retiring from serving the grid, the NYISO has conducted reliability studies to understand the impacts of generators retiring in response to the “peaker rule.” In July 2023, the NYISO identified a reliability violation beginning in the summer of 2025 in the New York City area. By November 2023, the NYISO had identified and announced the retention of certain peaker plants in New York City as a short-term solution to the reliability violation. Beyond 2025, the NYISO found that New York City’s reliability margin would improve when the Champlain Hudson Power Express (CHPE) transmission line from Quebec to New York City is completed. CHPE is expected to enter service in the spring of 2026. While the NYISO identified a short-term solution to the New York City reliability violation, reliability margins are also observed to be narrowing across the grid in New York, which poses significant challenges for the electric system over the next ten years.

Addressing Transmission Needs

Like any product, electricity must travel from where it is produced to where it is consumed. Our Public Policy Transmission Planning Process identifies the transmission investments needed to achieve public policy goals, such as increased renewable energy production.

As a first step, the New York Public Service Commission (PSC) opens a public process to examine what transmission system upgrades and additional investments need to be made. Chief among the considerations is where the system is most constrained and, looking into the future, where expected renewable supply will be developed, and where forecasted demand will be greatest. Many parties participate in this part of the process, including the NYISO, making suggestions and putting forward ideas.

Once the PSC identifies specific needs for the power system, we request proposals from developers to meet those needs. The NYISO then evaluates the proposed solutions based on their ability to satisfy the needs identified by the PSC. The proposals are ranked based on design criteria, efficiency, and cost-effectiveness.

Most of the land-based wind generation and large-scale solar electricity production is located in northern and western New York. This is because these regions have the strongest winds to support land-based wind turbines, and where land is more available for solar farms. These regions, which typically have lower demand levels than other regions of the state, have limitations to their ability to transmit electricity. Existing constraints on the transmission system lead to “curtailing,” or purposefully reducing the output of solar or wind in order to maintain grid reliability. This is done when such resources are generating more energy than can be consumed within the region it is produced or can be reliably transmitted to other regions. Absent upgrades to the transmission system, curtailment of renewable resources in northern and western New York would increase as new renewable supply entered service.

The NYISO’s Public Policy Transmission Planning Process has advanced three major projects in New York: Empire State Line in Western New York, AC Transmission Projects in the Mohawk-Hudson Valley, and Propel NY to deliver offshore wind interconnected to Long Island and improve the reliability of the Long Island transmission system. The NYISO is also in the early stages of addressing a public policy need for transmission investments in the New York City area as identified by the PSC. This effort calls for proposals to build transmission that will move nearly 4,800 MW of offshore wind energy directly into New York City. 

This historic level of investment in the transmission system will deliver more clean energy to consumers while enhancing grid resilience and reliability.

Interconnection Process

The increase in large scale renewable generating facilities and new clean energy technology is driving a transition of the transmission system. Integrating a high volume of new facilities onto the transmission system can have major implications for reliability and the flow of power across the state.

To address this, the NYISO has an interconnection process, which requires proposed new generation and transmission projects to enter an “interconnection queue.” Proposals undergo a series of studies and detailed analysis that serve two key functions on behalf of customers:

• Determinations of whether adding a new resource creates reliability issues on the system; and
• If the project does impact system reliability, determine what system upgrades are necessary to interconnect the project while maintaining system reliability, and the costs of those upgrades.

Under the process, the costs of equipment and upgrades required to connect projects are assigned to project developers, and in some cases, the local utility, not consumers. The interconnection process is required to identify the lowest cost solution to solve the reliability need. The allocation of upgrade costs identified through the process are not subject to negotiation, providing an important element of certainty for developers. This cost certainty is a highly regarded aspect of the New York process.

The interconnection process ensures open access to the transmission grid for new supply resources seeking to enter operation and is an essential element in maintaining the performance and reliability characteristics of the electric system on behalf of customers.

Since the enactment of the New York State Climate Leadership and Community Protection Act (CLCPA), there has been a dramatic increase in applications for new clean energy supply to interconnect to the grid. In anticipation of this state policy-driven influx of new interconnection requests, the NYISO worked with stakeholders to implement a comprehensive redesign of the interconnection study process in 2019, offering greater flexibility and expedited study options to developers.

In July 2023, FERC issued Order 2023: Improvements to Generator Interconnection Procedures and Agreements. Among the goals of Order 2023 is streamlining interconnection processes to accommodate growing queues across the country. Many of the enhancements called for are already integral elements of the NYISO’s interconnection process. In May 2024, the NYISO submitted its compliance filing to FERC to address Order 2023. The NYISO’s full compliance plan is designed to meet the obligations of FERC’s order while reflecting the unique elements of interconnection planning in New York. On August 1, 2024, the NYISO began the process of transitioning to these new interconnection rules, putting into place new tools and processes designed to support new supply and demand interconnection customers.

Even with these new rules and improvements in place, it remains true that multiple factors outside the scope of the NYISO’s control can impact whether a project elects to move forward with the interconnection process, including the status of siting and other regulatory matters, investment risks, and supply-chain concerns. These factors can result in developers electing to defer or drop out of the process, even after the final interconnection studies have been completed and interconnection costs have been allocated and accepted.
 
To address the increase in projects seeking to connect to the grid, the NYISO is working with stakeholders to implement further improvements to the interconnection study process. Additional engineers and project management staff have been hired to support existing engineers who are currently shouldering the increased workload. Additional staff will also help manage timelines and customer service functions. Focus groups with developers are ongoing to identify additional areas for enhancements. New technology is also being developed that will create transparency and efficiencies in managing demands for applicants as well as NYISO staff.

Competitive Wholesale Electricity Markets

Wholesale energy markets in the U.S. use a competitive auction structure to establish the cost of energy. In this structure, generators consider their fuel and other operational costs in offering their supply to the market. Those with lower costs offer into the market at lower prices and fluctuations in the costs for fuel influence generators’ offers.

The NYISO calculates the price of electricity by determining the expected demand and evaluating numerous supply offers to meet that demand. These offers are ranked by cost from lowest to highest, with the NYISO’s market software selecting the least costly resources first, and then continuing to select supply resources until the total demand is met. All selected suppliers receive the price set by the last supplier needed to meet demand ― this is known as the clearing price.

A key element of the market design is that it enables actual costs, including fuel costs, to be accounted for in the clearing price for electricity. As a result, while the competitive market works to minimize cost, electricity prices are significantly influenced by fuel costs and these costs are ultimately passed through to consumers in the electricity supply component of their bills.

Energy markets are like a commodities market, with one major exception: electrical energy can only be stored in very limited quantities. Other commodities such as oil, gas, or wheat, can be stored. Electricity is different. The amount of energy on the grid being consumed must, at all times, be equal to the amount of energy being generated. This is true 24 hours a day, 7 days a week. To run the energy grid, you need operators to balance the flow between generation and consumption. And you need energy markets that work both a day ahead and in real time to incentivize and pay the energy generators to be available to generate the power we need to meet demand.

To do that, we have three markets: the energy market, ancillary service market, and capacity market. These three markets work together. In simple terms:

• Energy markets secure resources to supply the demand on a minute-to-minute basis.
• Ancillary service markets procure a variety of additional services to protect the electric system and balance supply and demand to meet system needs instantaneously.
• Capacity markets provide incentives to generation resources to maintain additional energy reserves over a longer period. Through the capacity market, we determine how much capacity is needed to meet the expected peak demand for the year plus a margin of additional resources to call on, if necessary.

Working together, these markets keep the system reliable in real time and also drive system response so that if we have a sudden need, for example if the wind suddenly dies down, other resources can ramp up and fill that need. The purpose of the energy market and ancillary service market is to meet the reliability needs in real time, and the purpose of the capacity market is to make sure that we have sufficient resources in the longer time frame.

How Markets Can Support Climate Goals

Competitive, wholesale markets can help with the transition to a zero-emission grid by sending the right economic signals to developers to invest in new technologies in the right geographic area to best serve the grid. These markets leverage competition to keep electricity as cost-effective and efficient for New Yorkers as possible, and to help make sure there are adequate resources in place in the future.

Competitive markets have over time created pressure on the generating fleet to switch to newer, more efficient generation plants. Emissions from the electric sector declined and prices generally followed.

Since 2000, electric generators that primarily combust natural gas increased from less than 50% to more than 60% of the generating capacity in the state. That transition towards natural gas contributed to the complete phase-out of coal-fired generating capacity from the grid during this time frame.

The NYISO's wholesale electricity markets continuously evolve to address changing system needs and capture the benefits of new technologies entering the grid, all while supporting reliability. For instance, in April 2024, the NYISO launched a first-in-the-nation program to integrate Distributed Energy Resources (DERs) such as small-scale solar arrays or residential batteries, into the wholesale electric markets. The new rules allow DER aggregations of 10 kilowatts or more to participate in aggregations that provide reliability and other important services to the electric grid. The rules effectively enable multiple resources to be dispatched in a coordinated manner to encourage flexible supply and demand to respond to dynamic grid conditions. In approving the rules, FERC Chairman Willie Phillips and Commissioner Allison Clements noted that, “…NYISO has been at the forefront of developing a participation model for DERs and seeking to implement that model expeditiously.” The NYISO forecasts distributed generation in the state to more than double by 2040 as the state pursues its renewable and decarbonization objectives. 

Through ongoing, effective engagement with stakeholders and policymakers, the NYISO continues to prepare the wholesale electricity markets of today for the needs of consumers. 

Wholesale Electricity Prices

Fossil fuel costs fluctuate due to economic factors such as global demand for fossil fuels, inflation, lagging supply, and global instability caused by war. While consumers might expect these conditions to impact the cost of gasoline, many have been surprised by the degree to which these fossil fuel prices find their way into electricity bills as well.

That’s because the power grid does not operate in isolation. The competitive wholesale electricity markets in New York are heavily influenced by national and global fossil fuel markets. The same economic and geopolitical factors that are causing volatility in oil and natural gas markets nationally and globally ultimately affect wholesale electricity markets as well. These conditions impact the costs to produce electricity, which ultimately are reflected in wholesale electricity prices and in supply charges seen in consumer bills.

Wholesale electricity markets in New York are designed to meet the electricity needs of consumers in the most cost-efficient and reliable manner possible, even when the factors that influence those costs, like fuel, materials, and labor, put upward pressure on prices.

History

NYISO was created in 1999, three decades after the formation of its predecessor, the New York Power Pool. The New York Power Pool was created by the utilities in the state in the late 1960s to manage the transmission of power around New York while balancing the needs of different regional utilities.

In the 1990s, regulators and utilities nationally and within New York had a greater interest in minimizing costs for electricity consumers. The NYISO grew out of that need.

The need for independence was recognized along the way.

Regulatory and Reliability Organization Oversight

Federal Energy Regulatory Commission (FERC)
FERC is an independent agency that regulates the interstate transmission of electricity, natural gas, and oil under the authority of the Federal Power Act. Among its responsibilities is the regulation of the transmission and wholesale sale of electricity in interstate commerce. The NYISO’s two tariffs are regulated by FERC. As such, FERC must approve all changes to the NYISO’s Tariffs, and the NYISO’s procedures and operations must comply with FERC orders and applicable federal laws.

New York Public Service Commission
The Public Service Commission (PSC) regulates the state's electric, gas, steam, telecommunications, and water utilities, including by setting retail rates for consumers and ensuring New York's utilities provide adequate service. They further have jurisdiction over the siting of major gas and electric transmission facilities. While the PSC and its Department of Public Service (DPS) do not have regulatory oversight of the NYISO’s federally-regulated tariffs, DPS staff actively participate in the NYISO’s shared governance process, and the PSC has regulatory oversight of certain elements of the NYISO’s finances.

North American Electric Reliability Corporation (NERC)
NERC is the Electric Reliability Organization (ERO) for North America. It supports the reliability and security of the electric grid through the development and enforcement of Reliability Standards, which the NYISO must comply with, and annually assesses seasonal and long‐term reliability. In the US, NERC is overseen by FERC.

New York State Reliability Council (NYRC)
The NYSRC is a nonprofit entity whose mission is to preserve electric reliability for New York State. The NYSRC establishes reliability rules specific to the operation of the power system in New York State.

Northeast Power Coordinating Council (NPCC)
NPCC is a not-for-profit corporation dedicated to ensuring the reliability of the international, interconnected bulk power system in Northeastern North America, including New York. NPCC, together with five other Regional Entities, coordinates reliability requirements with NERC.

Governance Process

The NYISO and its stakeholders utilize a shared governance process to establish wholesale electricity market rules and processes associated with grid planning and operations. This transparent and inclusive process ensures that individual interests cannot unduly influence grid reliability or energy market outcomes.

Under this model, a supermajority of stakeholders must approve voting items before a committee before moving forward, a practice that requires consensus among entities with various interests. The allocation of votes ensures that no one sector can dominate the decision-making process.

Representatives have voting power in exercising responsibilities that include:

• Developing and adopting procedures for operation of the bulk power system
• Designing and planning the market design and NYISO systems
• Preparing the NYISO’s annual budget
• Reviewing and recommending candidates for vacancies on the NYISO Board of Directors

As part of the NYISO's shared governance structure, stakeholders play a vital role in developing the NYISO's budget. Through this process, the Budget and Priorities Working Group (BPWG) provides guidance to the NYISO on project identification, prioritization, and evaluation.

After the BPWG provides their input to the annual budget process, the working group sends a budget proposal to the Management Committee for review. The Management Committee is the NYISO's highest-ranking stakeholder committee and votes on whether to recommend the budget proposal to the NYISO's Board of Directors for final approval.

Independence

The NYISO is transparent, open and independent of its stakeholders. We are a registered 501(c)3 not for profit corporation. NYISO and its directors, executives and employees are prohibited from having financial interests in any company participating in New York wholesale competitive electric markets.