May 8, 2002 BAWG Conference Call FINAL SETTLEMENT CHALLENGES POLICY AND PROCEDURE The NYISO tariffs provide Market Participants with a twelve-month time frame after the issuance of final billing invoices in which to challenge the accuracy of final settlement information. The NYISO began issuing final billing invoices at the conclusion of the twenty-four month period for correcting original settlement information for November 1999 and has continued thereafter. The following procedures establish the framework for the NYISO s administration of challenges to final billing invoices. The NYISO-administered markets, and the billing systems for those markets, are complex and significantly interdependent. These procedures are intended to carry out the NYISO s tariff obligations, without discrimination, while reasonably and fairly providing Market Participants with finality and financial certainty as to their market participation. 1. Final Settlement Information Market Participants purchasing energy, capacity, and other services in the New York wholesale energy market pay for their purchases into the New York Independent System Operator s ( NYISO ) ISO Clearing Account. Likewise, entities delivering energy products into the market are reimbursed from the ISO Clearing Account. The billing and payment procedures for the Clearing Account are governed by Article 7 of the NYISO Market Administration and Control Area Services Tariff ( Services Tariff ) and Article 7 of the NYISO Open Access Transmission Tariff ( OATT )(also, collectively, the Tariffs ). The Tariffs require Market Participants to make payments into the Clearing Account in accordance with settlement information a monthly billing invoice - provided by the NYISO. Within a reasonable time after the first day of the month, the NYISO is required to deliver invoices for the net amounts owed for purchases from or sales into the markets during the preceding month. The NYISO currently posts monthly invoices on or around the seventh day of the month for market activities in the prior service month. Article 7.2.A. of the Services Tariff and Article 7.1(i) of the OATT provide for monthly settlement information to be based in whole or in part on estimates. In actual
practice, substantially all of the monthly settlement information in an initial NYISO monthly billing invoice is based on estimated or forecasted load and other data. Consequently, at certain intervals following the initial monthly billing invoice, the NYISO issues adjusted, or true-up, invoices for the original service month. These trueup invoices reflect the substitution of subsequently available actual billing data in place of the prior initial estimates, as well as any other necessary corrections or adjustments to an earlier initial monthly billing invoice. According to Article 7.4 of the Services Tariff and Article 7.2A of the OATT, settlement information is subject to correction or adjustment for errors by the ISO in arithmetic, computation or estimation 24 months from the original month of service (The OATT adds one additional word to this phrase; i.e., within 24 months.) Within this 24 month period, as they are prepared from time to time, true-up bills for earlier service months are included with a Market Participant s current regular monthly billing invoice. The NYISO currently considers the true-up bill that is issued at the conclusion of the twenty-four month period for adjustments or corrections to initial settlement information to be the final billing invoice for the original service month. Articles 7.4.A of the Services Tariff and 7.2A of the OATT provide Market Participants twelve months from the date on which a final billing invoice for an NYISO energy market product is issued in which to challenge the accuracy of that final settlement information. The Tariffs, however, require Market Participants to first make payment in full, including any amounts in dispute. If the NYISO subsequently determines that an overpayment has been made, the refund of any overpayment will include accrued interest. 2. Challenges to Final Settlement Information Settlement information for electric energy is comprised of estimated and actual load data, estimated and actual meter readings, and day-ahead and real-time market prices for energy. Settlement information for capacity is comprised of the prices for purchasing installed and unforced capacity ( ICAP ) in the NYISO s six-month capability period ICAP auction or the subsequent monthly ICAP auctions. Settlement information for transmission congestion contracts ( TCCs) is comprised of the prices for purchasing TCCs in the NYISO s capability period Initial TCC auctions and subsequent monthly TCC reconfiguration auctions within each six-month capability period. The objective of the final billing invoice for each energy or capacity product in the NYISO markets is to adjust or correct, where applicable, all prior estimates or errors in initial settlement information. As discussed below, those NYISO market services that are purchased solely at auction-determined prices are not subject to a subsequent true-up billing process. A. Energy and Ancillary Services Challenges to the settlement information contained in a final billing invoice for energy and ancillary services could range from disputes regarding meter readings to the 2
accuracy or correctness of NYISO calculations and computations. In the course of reviewing a challenge to final energy billing invoice accuracy, the NYISO may review every component of the challenged final invoice to ensure that any possible set-off or other adjustment to the challenged amount is captured. In no event, however, will the Market Participant be liable for an amount greater than the challenged final bill, if disputing an amount paid to the NYISO, or receive an amount less than the challenged bill, if disputing an amount received from the NYISO, as a result of other possible setoffs or adjustments that might be determined by the NYISO. For example, assume that a Market Participant s challenge of a specific set of final billing interval information is valid, resulting in an overcharge of $50,000 in the disputed bill. During the course of its investigation, however, the NYISO discovers errors in other non-disputed billing intervals that would have otherwise increased the final billing invoice by $70,000. In this instance, the NYISO would resolve the bill challenge by offsetting the $50,000 that was found to be an overcharge, but would not adjust the challenged bill to assess the Market Participant for the additional $20,000 error discovered during the NYISO s review of other non-disputed billing intervals. As another example, assume that a Market Participant s challenge of a specific set of billing intervals for energy it supplied into the New York markets is valid, resulting in an underpayment of $50,000 in the disputed final bill. If, during its investigation, the NYISO determines that the Market Participant was, in fact, overpaid $70,000 for energy delivered in other non-disputed billing intervals, the NYISO would offset the $50,000 found to be underpaid, but would not further reduce the Market Participant s final billing invoice amount by the additional $20,000 overpayment for delivered energy that was discovered during the NYISO s review. B. Installed Capacity ICAP is purchased according to market-clearing prices determined in the initial capability period ICAP auctions held prior to the six-month summer and winter capability periods and in the monthly ICAP auctions conducted subsequent to each initial auction. ICAP purchase prices are not subject to subsequent true-up billings. Each monthly ICAP invoice also includes an initial customer load shift adjustment reflecting the transfer of ICAP financial obligations between load serving entities. Each monthly ICAP invoice also includes a one-time true up adjustment to the initial load shifting adjustment made three months previously. Each monthly invoice for ICAP auction purchases, including any three-month true-ups to initial load shift adjustments, represents the final billing invoice for ICAP purchase obligations and other ICAP-related market activities. Accordingly, the twelve-month challenge period for each monthly ICAP invoice begins with the date of issuance of that invoice, currently the date of the NYISO consolidated invoice. Because strip ICAP products are paid for in monthly installments over the sixmonth time period of the strips, the twelve-month challenge period for ICAP purchased 3
in strips will begin with the initial monthly billing invoice for that six-month ICAP strip. The twelve-month challenge period for monthly ICAP purchased in subsequent monthly auctions will begin with the date of the invoice for each of the monthly purchases. C. Transmission Congestion Contracts TCCs are purchased according to market-clearing prices determined in twiceyearly initial capability period TCC auctions and in monthly TCC reconfiguration auctions conducted throughout each capability period. As with ICAP, TCC purchase prices are not subject to subsequent true-up billings. The initial billing invoice for TCCs awarded during any auction will also be the final billing invoice and, therefore, the twelve-month challenge period will begin with the date of an initial invoice for TCCs purchased at auction. Monthly congestion rents from TCCs have been adjusted in subsequent True-Up billings as a result of price changes or price corrections to day-ahead market prices. These congestion rent true-ups have been, and will continue to be, included within the overall true-up adjustments for energy and ancillary services. 3. Market Impact of Final Settlement Adjustments Adjustments to the settlement information for one Market Participant may have an impact on one or more other Market Participants. This Policy and Procedure, therefore, establishes how the NYISO will determine the time-frame in which to capture such adjustments, the methodology for reflecting adjustments to one Market Participant in the settlement information of other affected Participants, and how the NYISO intends to communicate the settlement of billing challenges to the entire New York market. A. Time for Responding to Challenges to Final Settlement Information Bill challenges can be submitted to the NYISO at any time throughout the twelvemonth time frame for disputing a final billing invoice, up to and including the last day of the challenge period. For example, final settlement information issued on March 7, 2002 for the original February 2000 service month could be challenged for accuracy through March 6, 2003. The NYISO will make its best efforts to dispose of all issues arising during the twelve-month challenge period within 60 days of receipt of the challenge. B. Allocating Billing Adjustments Throughout the Market The NYISO s policy for allocating the impacts of billing corrections distinguishes between the twenty four month period afforded by the tariffs for correcting initial billing invoices and the twelve month challenge period following the NYISO s issue of final billing invoices. Consistent with its tariff authority for correcting billing invoices, the NYISO adjusts or corrects billing invoices for every other Market Participant whose 4
settlement information is impacted by a specific bill correction or adjustment issue that comes to its attention during the twenty four month bill correction period. During the subsequent twelve-month bill challenge period, however, the NYISO s policy regarding the collateral effects of a successful bill challenge on other Market Participants will reflect the tariffs limitations on the NYISO s ability to change bills after the end of the initial twenty-four month period for correcting bills. When the NYISO determines that an individual bill challenge is valid, whether in whole or in part, it will resolve the challenge as the settlement of a dispute with the individual Market Participant, as explained in 3.C. below. Because its ability to adjust or correct original billing invoices terminates after twenty four months, the NYISO will not unilaterally re-issue final billing invoices for other Market Participants whose settlement information reflects issues similar to that of the individual bill challenge and, thus, otherwise might have been adjusted by the NYISO before the conclusion of the twenty four month bill correction period. Adjustments to final settlement information will not be made absent the submission of an individual billing challenge and an NYISO determination that the challenge, in whole or in part, is valid. The charges to the NYISO resulting from the settlement of the individual bill challenge will be included in Rate Schedule 1 charges for the entire New York market for the month in which the NYISO settles the claim. The NYISO will communicate the cumulative total of monthly charges for claim settlements as a part of the regular monthly notification currently posted to the market on the 20 th of each month announcing the Rate Schedule 1 charge for the upcoming month. The NYISO considers the details concerning individual billing challenges to be confidential and not for release to other Market Participants. Billing challenges, however, will be periodically audited pursuant to the NYISO s normal and ongoing audit process. Because the NYISO s market structures, billing systems, and settlement information are substantially interdependent, the NYISO will analyze and quantify the amount of each individual valid bill challenge using the entire database of settlement information as it exists at the time of the challenge. Accordingly, the calculated settlement amount for valid bill challenges submitted in the latter portion of a twelve month challenge period may reflect the compounded billing effects of challenges that are submitted and resolved earlier in the twelve-month period. In addition, billing code errors discovered by the NYISO subsequent to the issuance of final billing invoices may, at its sole discretion, be corrected in the settlement information database upon discovery so as to be included in the determination of subsequent bill challenges. To minimize the impacts on the settlement information database, the NYISO will re-run the billing system for a challenged final billing invoice only after determining that settlement information for the disputed billing intervals is, in fact, incorrect or in error. To minimize the demands on the resources of the billing system, under certain circumstances, the NYISO may seek to resolve a billing claim by reaching a negotiated 5
amount with the disputing Market Participant rather than run the system. Whether the Market Participant chooses to resolve their claim through a negotiated settlement will be entirely within their own discretion and business judgment. C. Exception for Non-NYISO Corrections to Settlement Information During the course of its review of disputed settlement information, the NYISO may determine, either by its own analysis or as a result of notice from a Market Participant, that the inaccuracy of the challenged settlement information was not the result of either an act or omission by the NYISO, but was the result of inaccurate metering data previously submitted by a third-party or the failure by a third-party to deliver necessary metering data to the NYISO. In such instances, it would be unfair to resolve a challenged bill and allocate the resulting charge to the entire market where it can be determined that metering data previously supplied to the NYISO was incorrect or was missing altogether, particularly where the bill impacts on specific Market Participants can be determined. Accordingly, where the NYISO is not culpable for the inaccuracy of disputed settlement information, the NYISO will not resolve the challenge by settling a claim and allocating the resulting charge over the rest of the market, as described in 3.B, above. The NYISO, however, will reasonably assist those Market Participants affected by inaccurate or missing metering in determining the final billing impacts to be allocated among them. D. Status of Adjustments to Challenged Final Billing Invoice If it determines that a Market Participant s bill challenge is valid, the NYISO will resolve the dispute as the settlement of a claim in the month in which it disposes of the challenge. The NYISO will not issue that Market Participant an adjusted final billing invoice for the challenged bill. The settlement of the bill challenge claim, therefore, does not trigger the beginning of an additional twelve-month challenge period for the bill in question. The billing, payment, and true-up process affords both the NYISO and Market Participants an ample amount of time to review individual settlement information for true inaccuracies. Moreover, because the NYISO may be reviewing every component of a challenged invoice, the subsequent settlement of a claim for a challenged billing invoice should reflect a complete and fair resolution of all billing issues raised by that Market Participant related to the questioned invoice. Implementing subsequent twelve-month challenge periods would provide little or no benefit to the market in terms of increased bill accuracy and would indefinitely postpone the finality of the billing process. If the NYISO rejects the challenge in full, or offers a partial settlement that is unacceptable to the Market Participant, the Dispute Resolution Procedures of the NYISO tariffs are available to the Market Participant who wishes to seek further recourse. 6
4. Procedure for Challenging Final Billing Invoices Market Participants should present challenges to final billing invoices to their respective Customer Relations Representative. All challenges should be provided in writing with a full explanation of the basis for the challenge, including appropriate supporting documentation or data. A billing challenge must specify each and every hour or interval, and related settlement information, being disputed. The Market Participant may wish to quantify or estimate their challenged amount, however, the NYISO will not require a claimed dollar amount in order to begin its review process. To be considered timely, bill challenges must be presented to the NYISO by no later than the close of business of the final day of the twelve-month challenge period for a particular final billing invoice. As indicated in 3.A., above, the NYISO will make its best efforts to resolve the challenge within sixty days of receipt of the initial dispute. The NYISO will communicate its resolution of the dispute in writing to the Market Participant immediately following the completion of its review of a challenge. Where a bill challenge is determined to be valid, the NYISO will respond in writing with the adjustment amount proposed for settling the dispute and the time when the claim would be paid to the Market Participant. If a challenge is denied, the NYISO will provide a written explanation for its denial with supporting information sufficient in detail to explain the basis for the NYISO s rejection of the billing dispute. The NYISO s payment of all claims will be conditioned upon the Market Participant s execution of a settlement and release of all claims relating to the challenged billing intervals and related settlement information in the disputed billing invoice. The NYISO will prepare and provide the appropriate release form to the Market Participant. The NYISO considers the details concerning individual billing challenges to contain information that is specific to the challenging Market Participant and, therefore, will treat all such information as confidential. 7