A Cost-Benefit Analysis of the New York Independent System Operator: The Initial Years

Abstract:

Excerpt from the introduction:

The New York Independent System Operator (“NYISO”) asked Analysis Group to conduct a study that would measure the costs and benefits associated with various aspects of the restructuring of the wholesale power market in New York. Our economic study focuses on certain key changes in operational performance of the power system during the initial years following the start-up of the NYISO. NYISO began operation at the end of 1999, as part of the larger process to restructure the electric industry in New York State. At the wholesale level, restructuring included both changes in the institutions responsible for grid operation and in the dispatch and market rules implemented by the NYISO, as well as major changes in the ownership of generation assets. These combined changes – especially the new market rules that paid generators market clearing prices – created strong profit incentives for improving operational performance of power plants. We look at the effect of these changes. There were many other changes in the industry as well, not all of which are amenable to quantitative assessment. To assess these larger changes in the economic environment, we examine broad measurable changes in wholesale power market performance, although we do not suggest that we have examined all factors comprehensively. Our spotlight focuses on the effects of changes in power plant dispatch rules and practices, and in incentives for improvement performance of generating units.