ORDER GRANTING COMPLAINT IN PART
(Issued February 26, 2015)

1. On December 4, 2014, Consolidated Edison Company of New York, Inc., Orange
and Rockland Utilities, Inc., New York State Electric and Gas Corp., Rochester Gas and
Electric Corp., and Central Hudson Gas and Electric Corp. (collectively, Complainants)
filed a complaint against the New York Independent System Operator, Inc. (NYISO)
pursuant to sections 206 and 306 of the Federal Power Act (FPA)1 and Rule 206 of the
Commission’s regulations.2 The Complainants allege that the rules governing buyer-side
market power mitigation (buyer-side mitigation rules) in section 23 of NYISO’s Market
Administration and Control Area Services Tariff (Services Tariff) are unjust,
unreasonable, or unduly discriminatory or preferential. The Complainants seek to modify
the provisions of the Services Tariff to add a competitive entry exemption to the buyer-

1 16 U.S.C. §§ 824e, 825e (2012).

2 18 C.F.R. § 385.206 (2014).

Docket No. EL15-26-000- 2 -

side mitigation rules. In this order, we grant the complaint, in part, and require NYISO to
make a compliance filing within 30 days of the date of this order, as discussed below.

2. The original purpose of buyer-side mitigation rules—and minimum offer price

rules (MOPR) generally—was to address buyer-side market power, i.e., the market power
exhibited by entities seeking to lower capacity market prices for the capacity they buy.
However, in the case of NYISO, there is no requirement that the project developer be a
net buyer of capacity, and the mitigation rules apply to all new capacity. This broader
application has resulted in mitigation of certain resources that can derive no benefit from
lower prices but, nonetheless, fail NYISO’s mitigation exemption test as uneconomic
resources. However, there still is a concern when buyers or their agents can exercise
market power to reduce capacity market prices below competitive levels by paying out-
of-market subsidies to support new capacity, and then offer that capacity into the
organized capacity market at prices below costs to drive down the market price. Such
uneconomic entry can harm competition in the capacity markets, producing unjust and
unreasonable wholesale rates by artificially depressing capacity prices.3 Because the
price of capacity is within the Commission’s exclusive jurisdiction, the Commission has
jurisdiction to mitigate buyer-side market power within those markets.4

3. The Commission has approved various buyer-side market power mitigation tariff
provisions as just and reasonable mechanisms to mitigate the potential for uneconomic
entry and deter the exercise of buyer-side market power.5 By mitigating actual buyer-
side market power, these tariff provisions can help to ensure markets reflect competitive
prices and adequate capacity in the short-run and the long-run. In this order, we find that

3 See, e.g., PJM Interconnection, L.L.C., 128 FERC ¶ 61,157, at PP 90-91 (2009).

4 New England Power Generators Ass'n, Inc. v. FERC, 757 F.3d 283, 290-91 (D.C. Cir. 2014).

5 The courts have affirmed the Commission’s authority to require buyer-side

mitigation. See, e.g., New England Power Generators Ass'n, Inc. v. FERC, 757 F.3d

at 290-91; PPL EnergyPlus, LLC v. Nazarian, 753 F.3d 467, 476-77 (4th Cir. 2014)

(citing Appalachian Power Co. v. Pub. Serv. Comm'n, 812 F.2d 898, 904 (4th Cir. 1987) (finding that Maryland’s development of a resource and requirement that the resource to bid into the PJM Interconnection, L.L.C. (PJM) capacity market in a way that
“effectively supplants the [capacity price] generated by the auction with an alternative
[price] preferred by the state” seeks to “erode[] the effect of the FERC determination
and undermine[] FERC’s exclusive jurisdiction”); PPL Energyplus, LLC v. Solomon,
766 F.3d 241 (3rd Cir. 2014).

Docket No. EL15-26-000- 3 -

NYISO’s existing buyer-side mitigation rules mitigate a certain class of resources (i.e.,
pure merchants who fund their projects without subsidies from entities with buyer-side
market power) and, thus, we require NYISO to adopt certain tariff revisions to address
this mitigation. Several of the intervenors in this proceeding argue against the adoption
of a competitive entry exemption to NYISO’s buyer-side mitigation rules, asserting that
the exemption would allow the entry of a resource that would otherwise be deemed

“uneconomic” by NYISO’s existing mitigation exemption test. However, while

NYISO’s existing buyer-side mitigation rules function to protect against uneconomic
entry, we note that whether the exemption test would deem a resource to be
“uneconomic” is not the Commission’s sole focus. As we have stated previously:

[B]ecause a purely merchant generator places its own capital at risk when it invests in a new resource, any such resource will have a strong incentive to bid its true costs into the auction, and it will clear the market only when it is cost effective. As such, a bid from a merchant project below Net [cost of new entry (CONE)] likely represents the economics of that resource, and if it does not, the resource will not be able to recover its costs. The purpose of the MOPR, however, is not to protect a merchant resource from making a poor investment decision with its own capital.6

The focus then is not on whether the resource is economic, but on whether it should be subject to an offer floor otherwise meant to apply to buyers with market power.

4. Our action today also is consistent with our desire to balance two objectives:

preventing the exercise of market power to depress capacity prices, and providing

flexibility to project developers to implement certain business decisions without

inappropriate regulatory restrictions. Here, the Commission is directing modifications to NYISO’s buyer-side mitigation rules to allow for private investors, relying solely on
market revenues, to enter the capacity market unmitigated upon certifying that they are a purely merchant investment, with no out of market subsidy. Without these modifications, private investors would be unnecessarily mitigated and possibly deterred from entering the market altogether. Such an outcome is unreasonable. Therefore, and as discussed further herein, the modifications we are directing today strike the balance that the
Commission is seeking with respect to buyer-side mitigation rules.

6 PJM Interconnection, L.L.C., 143 FERC ¶ 61,090, at P 57 (2013) (rehearing pending).

Docket No. EL15-26-000- 4 -

I.Background

5.New York State’s Installed Capacity (ICAP) market, which NYISO administers, is

designed to send appropriate economic signals to investors to ensure there is sufficient
capacity available to satisfy New York’s peak demand along with its planning reserve
margin. NYISO’s ICAP market uses administratively-determined demand curves for
each ICAP pricing zone and includes market power mitigation rules in the New York
City and G-J Locality zones to prevent the exercise of both buyer and seller market
power. These mitigation rules ensure that market clearing capacity prices reflect a

competitive outcome even when buyers and sellers may have the ability and incentive to exercise market power.7 The Commission approved NYISO’s market power mitigation plan because it would prevent sellers with market power from artificially raising capacity prices and prevent net purchasers from artificially depressing capacity prices.8

6. NYISO’s buyer-side mitigation rules provide that, unless exempt from mitigation,
new capacity resources enter the New York City or G-J Locality markets at a price at or
above the applicable offer floor and continue to meet the offer floor until their capacity
clears twelve monthly auctions.9 A new entrant can be exempted from the offer floor if
NYISO determines that it passes either part of the mitigation exemption test.10 NYISO’s
Market Monitoring Unit (MMU) describes the Part A test as “compar[ing] a forecast of
capacity prices in the first year of an Examined Facility’s operation to the Default Offer
Floor, which is 75 percent of the net [cost of new entry (CONE)] of the hypothetical unit
modeled in the most recent Demand Curve reset,” such that a new entrant is exempted “if
the price forecast for the first year is higher than the Default Offer Floor.” Under the Part
B test, NYISO “compares a forecast of capacity prices in the first three years of an

Examined Facility’s operation to the net CONE of the Examined Facility,” such that a new entrant is exempted “if the price forecast for the three years is higher than the net CONE of the Examined Facility.”11

7 New York Indep. Sys. Operator, Inc., 143 FERC ¶ 61,217, at P 3 (2013).

8 New York Indep. Sys. Operator, Inc., 122 FERC ¶ 61,211, at P 1 (2008), order on
reh’g, 124 FERC ¶ 61,301 (2008), order on clarification, 131 FERC ¶ 61,170 (2010).

9 NYISO, Services Tariff, § 23.4.5.7 (9.0.0).

10 NYISO, Services Tariff, § 23.4.5.7.2 (9.0.0).

11 Potomac Economics, Assessment of the Buyer-Side Mitigation Exemption Test
for the Taylor Biomass Energy Project 2 (Mar. 7, 2014), http://www.nyiso.com/public/
webdocs/markets_operations/services/market_monitoring/ICAP_Market_Mitigation/Buy

(continued...)

Docket No. EL15-26-000- 5 -

7. Since the Commission approved NYISO’s buyer-side mitigation tariff provisions,
both NYISO and the MMU have proposed a competitive entry exemption to NYISO’s
mitigation exemption test, but NYISO’s stakeholders have not approved the proposed
changes.12 NYISO developed proposed tariff revisions incorporating a competitive entry
exemption, which its stakeholders discussed at meetings during 2012 and 2013, and on
which they voted on May 28, 2014.13 Specifically, NYISO proposed to exempt projects
that have “no direct or indirect (i) contracts with, (ii) financial support from, or (iii) in
kind support from any NY electric distribution company, Municipal Utility, or any NY
state or local governmental entity, including but not limited to Public Authorities.”14
Only thirty-two percent of the sector-weighted vote of stakeholders supported the
proposal, failing to garner the fifty-eight percent support required to enable it to submit
the proposal to the Commission pursuant to section 205 of the FPA.15

II.Notice of Filing and Responsive Pleadings

8.Notice of the complaint was published in the Federal Register, 79 Fed.

Reg. 74,719 (2014) with answers, interventions, and comments due on or before

er_Side_Mitigation/Class_Year_2011/MMU%20Report%20re%20MET%20for%20TBE _Final_3-7-14.pdf.

12 See, e.g., Potomac Economics, 2012 State of the Market Report for the New

York ISO Markets 23-24 (Apr. 2013), http://www.nyiso.com/public/webdocs/

markets_operations/documents/Studies_and_Reports/Reports/Market_Monitoring_Unit_
Reports/2012/NYISO2012StateofMarketReport.pdf.

13 Consolidated Edison Company of New York, Inc., Orange and Rockland

Utilities, Inc., New York State Electric and Gas Corp., Rochester Gas and Electric Corp.,
and Central Hudson Gas and Electric Corp. December 4, 2014 Complaint (Complaint),
Exhibit A, Affidavit of Richard B. Miller ¶ 28 (Miller Aff.); Complaint, Exhibit C,
Management Committee Meeting May 28, 2014 Final Motions (Management Committee
Motions).

14 Complaint, Exhibit D, NYISO, Proposed ICAP Buyer-Side Mitigation Modifications at 7 (May 28, 2014) (NYISO Presentation).

15 Management Committee Motions; NYISO, NYISO Agreements, Foundation
Agreements, ISO Agreement §§ 7.10, 19.01 (Mar. 5, 2013), http://www.nyiso.com/
public/webdocs/markets_operations/documents/Legal_and_Regulatory/Agreements/NYI
SO/iso_agreement.pdf.

Docket No. EL15-26-000- 6 -

December 24, 2014.16 Timely motions to intervene were filed by Independent Power

Producers of New York, Inc. (IPPNY), Multiple Intervenors, Exelon Corporation, the

City of New York (City of NY), Dynegy Marketing and Trade, LLC and

Sithe/Independence Power Partners, LP, NRG Power Marketing LLC and GenOn Energy Management, LLC, Electric Power Supply Association (EPSA), TDI USA Holdings
Corp. (TDI), Hudson Transmission Partners, LLC, Niagara Mohawk Power Corp. d/b/a
National Grid, New York Association of Public Power, TC Ravenswood, LLC, Cogen
Technologies Linden Venture, L.P. (Linden Cogen), PSEG Power LLC, PSEG Energy
Resources & Trade LLC, and PSEG Power New York LLC, Entergy Nuclear Power
Marketing, LLC (Entergy), Cricket Valley Energy Center LLC (Cricket Valley), the
New York Power Authority (NYPA), the Long Island Power Authority and its operating subsidiary, Long Island Lighting Company d/b/a Power Supply Long Island (LIPA),
Potomac Economics, as the Market Monitoring Unit for NYISO (MMU), and the New
York State Department of State’s Utility Intervention Unit. The New York State Public
Service Commission (NYPSC) filed a notice of intervention. Brookfield Energy
Marketing, LP filed an out-of-time motion to intervene.

9. On January 15, 2015, NYISO filed an answer to the complaint. Cricket Valley, the NYPSC, TDI, NYPA and LIPA (jointly, NYPA/LIPA), the MMU, and the City of NY filed comments. Entergy, Linden Cogen, and IPPNY and EPSA (jointly,
IPPNY/EPSA) filed protests.

10.On January 29, 2015, Cricket Valley filed an answer to the comments and protests.

On January 30, 2015, the Complainants, NYISO, TDI, Entergy, and IPPNY/EPSA each

filed answers to the comments and protests. Entergy and Linden Cogen filed answers to

the answers.

III.Procedural Matters

11.Pursuant to Rule 214 of the Commission’s Rules of Practice and Procedure,17 the

notice of intervention and timely, unopposed motions to intervene serve to make the entities that filed them parties to this proceeding.

16 On December 11, 2014, IPPNY filed a Motion for a 30-Day Extension of Time to File Comments. The City of NY filed comments in support of IPPNY’s Motion. On December 19, 2014, the Commission extended the date for filing comments,
interventions, and protests to January 15, 2015.

17 18 C.F.R. § 385.214 (2014).

Docket No. EL15-26-000- 7 -

12. Pursuant to Rule 214(d) of the Commission’s Rules of Practice and Procedure,18 we will grant Brookfield Energy Marketing, LP’s late-filed motion to intervene given its interest in the proceeding, the early stage of the proceeding, and the absence of undue
prejudice or delay.

13. Rule 213(a)(2) of the Commission’s Rules of Practice and Procedure19 prohibits an answer to an answer or protest unless otherwise ordered by the decisional authority. We will accept the answers filed by Cricket Valley, the Complainants, NYISO, TDI, Entergy, IPPNY/EPSA, and Linden Cogen because they have provided information that assisted us in our decision-making process.

IV. Discussion

14. We will grant the complaint, in part. We find that the Complainants have

demonstrated that NYISO’s Services Tariff is unjust, unreasonable, or unduly

discriminatory or preferential pursuant to section 206 of the FPA without a competitive
entry exemption to the buyer-side mitigation rules. We further find that the
Complainants’ proposed tariff rules, as modified below, are just and reasonable.
Accordingly, we grant the Complainants’ request that the Commission direct NYISO to add a competitive entry exemption to the rules governing buyer-side mitigation in
NYISO’s Services Tariff, as modified below. We discuss the merits of the competitive
entry exemption first and then turn to the specific tariff revisions necessary to implement the competitive entry exemption.

A.The Merits of a Competitive Entry Exemption

1.Complainants’ Proposal

15.The Complainants allege that NYISO’s current buyer-side mitigation rules are

unjust, unreasonable, unduly discriminatory, preferential, and fail to accomplish their

intended purpose, because they do not provide for a competitive entry exemption and, as
such, are “unnecessarily applied to un-subsidized, competitive entrants who have no
incentive to inappropriately suppress capacity market prices.”20 The Complainants
explain that NYISO performs the market mitigation exemption test three years before a
unit is expected to operate and bases it on tariff-determined market price forecasts for the

18 18 C.F.R. § 385.214(d) (2014).

19 18 C.F.R. § 385.213(a)(2) (2014).

20 Complaint at 2, 8.

Docket No. EL15-26-000- 8 -

time of the unit’s entry into the market.21 The Complainants claim that these tariff-

determined forecasts do not adequately factor in the uncertainty of future market

conditions and of potential changes in the resource mix after other generating units retire.

16. The Complainants also state that NYISO’s tariff-determined forecasts do not

properly account for uncertainty in generating unit deactivations. Specifically, the

Complainants argue that the current rules assume that any generator that has not

submitted a written notice of its intent to retire will remain in operation. The

Complainants assert that the amount of mothballing generation in New York

demonstrates the inaccuracy of this assumption.22 According to the Complainants, there is over 21 GW of installed capacity that is over 40 years old in New York and impending environmental regulations that may affect additional generators, such that more
mothballing and retirement of generation can be expected in the near future.23

17. The Complainants state that, as currently constructed and implemented under the
Services Tariff, the buyer-side mitigation rules apply to all new entry even if it has no
subsidy that would enable it to artificially depress prices. The Complainants contend that
this creates a barrier for new merchant entry that deters competitive investment for new
supply in New York.24 Specifically, the Complainants assert that NYISO’s current rules
are unjust and unreasonable for two reasons: (1) “they do not permit investors to enter
the capacity markets on their own forecasts of market conditions at the time of entry;”
and (2) they force investors “to undergo a test as to whether their particular facility is
‘economic’ even if the investor does not have market power or has [not] received an
inappropriate subsidy.”25

18.The Complainants argue that NYISO’s competitive entry exemption should be

based on the following principles:

21 Complaint at 9 (citing Miller Aff. ¶ 18).

22 Complaint at 10 (citing Miller Aff. ¶ 20).

23 Complaint at 10 (citing NYISO, 2013 Load & Capacity Data (Apr. 2013),

http://www.nyiso.com/public/webdocs/markets_operations/services/planning/Documents
_and_Resources/Planning_Data_and_Reference_Docs/Data_and_Reference_Docs/2013_
GoldBook.pdf and Miller Aff. ¶ 21).

24 Complaint at 8.

25 Complaint at 8-9 (citing Miller Aff ¶ 17).

Docket No. EL15-26-000- 9 -

1. all market-based investment should be allowed without being subject

to an economic test because the purpose of [buyer-side mitigation] is to prevent investment only where the intent and purpose of the
investment is to depress capacity market prices;

2. a categorical exemption for merchant investment/competitive entry

is necessary to eliminate a barrier to entry that currently undermines the NYISO’s competitive markets;

3. the competitive entry exemption should permit the use of typical

government economic development incentives, such as low cost financing and property tax incentives, because those kinds of economic development incentives are typically available for any market-based investment; and

4.certain utility contracts may be necessary for a generator, such as a

gas transportation contract, which can allow for a negotiated rate

because of the generator’s right to bypass the local utility.26

2.NYISO’s Answer

19.NYISO states that it strongly supports the complaint and supports a competitive

entry exemption. NYISO believes that the buyer-side mitigation rules provide necessary
protections to the market and that adding a competitive entry exemption would be
entirely consistent with their purpose.27 NYISO argues that uneconomic entry supported
by subsidies can result in artificial price suppression. NYISO asserts that capacity market
mitigation rules exist to protect capacity markets from this artificial price suppression,
not to protect competitive entrants from making investment mistakes that might
incidentally result in lower capacity market clearing prices. It argues that competitive
entrants should not be prohibited from taking the risk of entry based on their projections
of future capacity prices, and thus of whether their projects will be economic.28 NYISO
asserts that the Complainants’ proposed competitive entry exemption is very similar to
the one that NYISO developed through its stakeholder process. NYISO argues that the
core features of the Complainants’ proposal are reasonable and are fully supported by the

26 Complaint at 13 (citing Miller Aff. ¶ 31).

27 NYISO January 15, 2015 Answer at 5-6.

28 NYISO January 15, 2015 Answer at 6.

Docket No. EL15-26-000- 10 -

complaint.29 NYISO argues that the Commission should approve the complaint because it is meritorious, well-supported, and proposes tariff revisions that will improve the
buyer-side mitigation rules.

20. According to NYISO, it has previously described to the Commission that “[n]ew
entrants that satisfy specified criteria defining truly competitive entrants are unlikely to
serve as vehicles for artificial price suppression.”30 NYISO contends that creating an
exemption for competitive entrants “would allow capacity project developers that have a
different view of future market developments than an ISO/RTO forecasts to enter in a
competitive market environment.”31 An exemption could also “establish clear parameters
that would allow state-sponsored or state-mandated procurements to not be subject to
mitigation rules if it is the result of a procurement that is competitive and
nondiscriminatory.”32

21. NYISO concludes that adding a competitive entry exemption to the buyer-side
mitigation rules is justified even though NYISO is currently pursuing in the stakeholder
process improvements that should ameliorate Complainants’ concerns regarding the
forecasts used under the buyer-side mitigation rules.33 According to NYISO, entities that
satisfy specified tariff criteria defining competitive entrants should be exempt from offer
floor mitigation even after the NYISO’s forecast improvements have been made.

29 NYISO January 15, 2015 Answer at 8.

30 NYISO January 15, 2015 Answer at 7 (citing Post-Technical Conference

Comments of the New York Independent System Operator, Inc. at 13, Docket

No. AD13-7-000 (filed Jan. 18, 2014) (NYISO Post-Technical Conference Comments)).

31 NYISO January 15, 2015 Answer at 7 (citing NYISO Post-Technical Conference Comments at 13).

32 NYISO January 15, 2015 Answer at 7 (citing NYISO Post-Technical Conference Comments at 13).

33 NYISO January 15, 2015 Answer at 8 (citing NYISO, “Enhancements to the
ICAP and Energy Forecasts in the Buyer-Side Mitigation Rules” (Dec. 12, 2014),

http://www.nyiso.com/public/webdocs/markets_operations/committees/bic_icapwg/meeti
ng_materials/2014-12-12/EnhancementsICAPEnergyFrcstBSM_ICAPWG_12-12-
2014.pdf and Complaint at 9-10).

Docket No. EL15-26-000- 11 -

3.Comments and Protests

22.TDI agrees with the Complainants’ assertion that NYISO’s current buyer-side

mitigation rules are unjust and unreasonable because they result in the mitigation of

privately-funded merchant projects that have no ability or incentive to artificially distort
or depress capacity prices. TDI asserts that mitigation of these privately-funded projects,
therefore, only serves to impair competition by circumscribing the ability of competitive
entrants to participate fully in NYISO’s capacity markets.34 TDI contends that the
Commission has built upon these principles in recognizing that merchant projects should
not be mitigated and thus deterred from making investments in resources. TDI argues
that, as a matter of economics, cost recovery for a merchant project is markedly different
than it is for a project with an out-of-market contract because a merchant project has no
incentive or ability to artificially depress capacity prices. TDI argues that the
Commission relied on this logic when it approved the competitive entry exemption in
PJM.35 TDI argues that, because the Commission’s rationale in the PJM Proceeding
rested on basic economic principles, and not on any regionally-specific findings, the
Commission should adopt a similar competitive entry exemption for merchant projects in
NYISO.

23. Cricket Valley also strongly supports the Complainants’ request because Cricket
Valley is developing a new, 1,000 MW merchant generator in the Lower Hudson Valley
that recently failed both NYISO-administered buyer-side mitigation exemption screens.36

34 TDI January 15, 2015 Comments at 1-2.

35 TDI January 15, 2015 Comments at 3-4 (citing PJM Interconnection, L.L.C.,

143 FERC ¶ 61,090 at P 57). Unlike the rule change proposed by the Complainants, TDI
contends that PJM’s current buyer-side mitigation rules categorically exempt from
mitigation all resources except certain gas-fired facilities. This exemption is by rule; the
project does not have to apply for and wait to receive the exemption. The rationale for
this broad exemption, according to TDI, is that buyer-side mitigation rules should only
“target[] those resources most likely to raise price suppression concerns (i.e., gas-fired
resources).” The competitive entry exemption, on the other hand, is available for gas-
fired facilities upon application and approval. Regardless, TDI states that the
fundamental principles underlying PJM’s competitive entry exemption are equally
applicable to merchant resources of any type and not exclusive to gas-fired resources.
TDI January 15, 2015 Comments at 3-4 (citing PJM Interconnection, L.L.C., 143 FERC
¶ 61,090 at PP 26, 166-68).

36 Cricket Valley January 15, 2015 Comments at 2.

Docket No. EL15-26-000- 12 -

Cricket Valley states that the NYISO MMU has consistently warned that NYISO’s

buyer-side mitigation rules need reform because the current system over-mitigates needed capacity resources.37 Cricket Valley states that the MMU recommended that NYISO
create a market-based investment exemption to allow merchant investors to invest based on their own expectations.38

24. Cricket Valley states that the threat of mitigation can compromise a generator’s
ability to obtain financing, and therefore deter new entry where it is needed most.39
Cricket Valley states that purely merchant generators have a strong incentive to bid their
true costs and to avoid depressing the capacity price because a truly competitive
generator cannot economically bid under its costs without negative consequences.40
Cricket Valley states that the competitive entry exemption balances mitigating the
exercise of market power and unfair subsidies while preventing the over-mitigation of
needed capacity that is proposed by competitive generators.41 Cricket Valley states that
the buyer-side mitigation rules are applied to all new capacity resources, even when there
is no evidence of intent to suppress prices.42 Cricket Valley asserts that without the
competitive entry exemption, new entry is extremely difficult, if not impossible.43

25. Cricket Valley maintains that the screens in the current buyer-side mitigation test
are fundamentally flawed because they already fail to pass purely competitive merchant
generators.44 Cricket Valley states that each exemption screen relies on erroneous
assumptions, such as ignoring retirements and mothballed units, as well as anticipating
and including capacity that does not yet exist.45 Cricket Valley states that the faulty

37 Cricket Valley January 15, 2015 Comments at 2.

38 Cricket Valley January 15, 2015 Comments at 11.

39 Cricket Valley January 15, 2015 Comments at 15.

40 Cricket Valley January 15, 2015 Comments at 18.

41 Cricket Valley January 15, 2015 Comments at 18.

42 Cricket Valley January 15, 2015 Comments at 2.

43 Cricket Valley January 15, 2015 Comments at 20.

44 Cricket Valley January 15, 2015 Comments at 8-9.

45 Cricket Valley January 15, 2015 Comments at 2.

Docket No. EL15-26-000- 13 -

inputs produce an artificially low ICAP forecast, making it difficult for a new capacity

resource to appear economic.46 Cricket Valley states that with the NYISO’s assumptions, the ICAP forecast is likely to: (1) over-estimate the amount of in-service capacity;

(2) understate forecasted prices; and (3) lead to over-mitigation of new resources such as Cricket Valley.47

26. The City of NY contends that for many years, and in multiple proceedings before
the Commission and NYISO, it has argued that NYISO’s buyer-side mitigation rules are
overbroad and serve more as a barrier to new entry than as a protection against market
abuses. Indeed, incumbent generating companies have wielded the mitigation rules
against potential competitors to block new entry. The City of NY argues that the
Commission recently approved changes in PJM, exempting merchant generation
developers from buyer-side mitigation rules. According to the City of NY, the
Commission stated that the “exemption will remove an unnecessary barrier to entry for
merchant projects and other projects that are procured on a competitive basis.”48 The
City of NY argues that, while there are differences between regions that militate against
adoption of identical market rules by each system operator, on some issues, such as
market mitigation, there is no reason to allow wholly inconsistent rules.49

27. The City of NY argues that the need for the same relief is demonstrated by

two projects. First, in 2011, the City of NY contends that incumbent generators filed a

complaint with the Commission against NYISO challenging NYISO’s decision to exempt
the Bayonne Energy Center (Bayonne) from mitigation.50 Second, very recently, the City
of NY asserts that NYISO determined that the Champlain Hudson Power Express Project
being developed by TDI is subject to mitigation in NYISO’s in-City capacity market.
The City of NY states that, like Bayonne, the Champlain Hudson Power Express Project
is a merchant project of the type envisioned by the Commission in Order No. 888, and

46 Cricket Valley January 15, 2015 Comments at 2.

47 Cricket Valley January 15, 2015 Comments at 10 (citing Miller Aff. ¶ 14).

48 City of NY January 15, 2015 Comments at 4 (citing PJM Interconnection, L.L.C., 143 FERC ¶ 61,090 at P 53) (emphasis added by City of NY).

49 City of NY January 15, 2015 Comments at 8.

50 City of NY January 15, 2015 Comments at 5 (citing Astoria Generating Co.,

L.P. v. New York Indep. Sys. Operator, Inc., Docket No. EL11-42, Complaint Requesting Fast Track Processing, Emergency, Interim Relief and Shortened Comment Period, filed July 11, 2011).

Docket No. EL15-26-000- 14 -

has investors who see long-term opportunities in New York City and apparently believe
that they can cost-effectively compete against other market participants. However,
NYISO has determined that this merchant project should not be permitted to compete
against the incumbents. The City of NY finds that the fact that this merchant project is
even subject to a mitigation determination demonstrates the unreasonableness of and
defects in NYISO’s rules. The City of NY states that in enacting Order No. 888 and its
progeny, the Commission encouraged and welcomed developers like TDI. Further, the
Commission has adopted a policy to provide ratemaking incentives to companies that
develop new transmission lines.51 The City of NY finds it wholly inappropriate to allow
rules to continue to exist that bar these very same developers from competing in the
markets the Commission created.52

28. The NYPSC states that buyer-side mitigation rules should only apply surgically to uneconomic resources whose entry actually reflects an unfair exercise of market power.53 The NYPSC states that the MMU and NYISO have recognized flaws in the buyer-side
mitigation rules and recommended changes, including adding a competitive entry
exemption.54 The NYPSC contends that the continued application of the buyer-side
mitigation process to merchant entrants will obstruct the free and fair functioning of the NYISO markets, instead of ensuring a free market.55 The NYPSC states that it intends to seek relief from defects in the current buyer-side mitigation rules in a separate,
forthcoming filing to the Commission.56

29. NYPA/LIPA argue that adopting a competitive entry exemption would result in a
just and reasonable NYISO capacity market. NYPA/LIPA explain that the competitive
entry exemption is appropriate, and that it will encourage merchant facilities to enter the

51 City of NY January 15, 2015 Comments at 6 (citing Promoting Transmission Investment through Pricing Reform, Order No. 679, FERC Stats. & Regs. ¶ 31,222
(2006), order on reh’g, Order No. 679-A, FERC Stats. & Regs. ¶ 31,236, order on reh’g, 119 FERC ¶ 61,062 (2007)).

52 City of NY January 15, 2015 Comments at 6.

53 NYPSC January 15, 2015 Protest at 3.

54 NYPSC January 15, 2015 Protest at 6.

55 NYPSC January 15, 2015 Protest at 6.

56 NYPSC January 15, 2015 Protest at 7.

Docket No. EL15-26-000- 15 -

market, increase available supply options, enhance system reliability, and benefit New York ratepayers.57

30. The MMU contends that the competitive entry exemption would allow private
investors in competitive new supply to avoid being subjected to buyer-side mitigation.
Because buyer-side mitigation is aimed at preventing subsidized entry of uneconomic
new resources, the MMU argues that such concerns are absent for private investors who
will not have contracts that are vehicles for such subsidies. The MMU contends that,
without this exemption, the buyer-side mitigation rules may prevent entry of competitive
suppliers. The MMU asserts that this situation can arise when competitive entrants have
views of future market conditions that are inconsistent with the assumptions NYISO
makes when performing its mitigation exemption test. The MMU argues that the test is
necessarily deterministic, evaluating whether new entry is economic based on forecasted
capacity prices, given known resource additions and retirements. The MMU states that
the recent series of generator retirements highlights the need for the buyer-side mitigation
rules to function appropriately when the retirement of existing facilities creates profitable
opportunities for new investment.58

31. IPPNY/EPSA argue that the Complainants fail to meet their section 206 burden to
show that the existing buyer-side mitigation rules are unjust and unreasonable.59
IPPNY/EPSA maintain that the Complainants failed to demonstrate that the buyer-side
mitigation rules impede economic facilities from entering the NYISO market or that
NYISO’s offer floor mitigation under the buyer-side mitigation rules, in fact, under-
compensates generators or prevents any potential investors from entering the market.60
IPPNY/EPSA contend that the Commission should reject the complaint because the
Commission already addressed whether to apply the buyer-side mitigation rules only to
certain types of entrants in implementing the currently effective rules.61

32. IPPNY/EPSA state that because two projects were subject to offer floor

mitigation, the buyer-side mitigation rules worked as intended and limited the effects of

57 NYPA/LIPA January 15, 2015 Comments at 7.

58 MMU January 15, 2015 Comments at 4-5.

59 IPPNY/EPSA January 15, 2015 Protest at 2.

60 IPPNY/EPSA January 15, 2015 Protest at 9, 12.

61 IPPNY/EPSA January 15, 2015 Protest at 10.

Docket No. EL15-26-000- 16 -

uneconomic new entry.62 IPPNY/EPSA contend that, while an offer floor does not

preclude a new entrant from offering its capacity into the New York markets, the offer floor does force the new entrant to submit a competitive bid.63 According to
IPPNY/EPSA, a universally applied offer floor can lead to NYISO’s eventual reliance on out-of-market contracts to induce new entry.64

33. IPPNY/EPSA also assert that the buyer-side mitigation rules protect the market
and do not prevent a new entrant from making its own assumptions.65 IPPNY/EPSA
further contend that the affidavit of Mr. Younger proves that NYISO’s application of the
buyer-side mitigation rules has not impeded economic new entry because the projects
have accepted their Class Year cost allocations, indicating that the buyer-side mitigation
rules do not prevent a new entrant from going forward based on its own expectations.66
IPPNY/EPSA argue that the reference to PJM’s tariff does not provide any support for
the assertion that NYISO’s tariff requires such exemption rules. IPPNY/EPSA contend
that the Commission accepted PJM’s proposed competitive entry exemption under
section 205 of the FPA, rather than section 206, which did not require PJM to prove that
its existing tariff was unjust and unreasonable. IPPNY/EPSA state that, while PJM
operates a forward market, New York has a shorter-term system that does not allow the
ICAP market the same ability to show whether a developer’s entry will be economic.67

34. Linden Cogen argues that the complaint should be rejected for several reasons. As
an initial matter, Linden Cogen maintains that the Complainants have not alleged any
new facts or change in circumstances to warrant revisiting the Commission’s prior
orders.68 Linden Cogen maintains that the currently-effective mitigation exemption test
process is just and reasonable, maintains New York City ICAP market prices at economic
levels for all resources, and does not prevent new merchants that are confident in their

62 IPPNY/EPSA January 15, 2015 Protest at 13.

63 IPPNY/EPSA January 15, 2015 Protest at 14.

64 IPPNY/EPSA January 15, 2015 Protest at 15.

65 IPPNY/EPSA January 15, 2015 Protest at 2.

66 IPPNY/EPSA January 15, 2015 Protest at 13.

67 IPPNY/EPSA January 15, 2015 Protest at 17.

68 Linden Cogen January 15, 2015 Protest at 4.

Docket No. EL15-26-000- 17 -

economics from passing the mitigation exemption test and obtaining an exemption from the buyer-side mitigation rules.69

35. Linden Cogen explains that the Commission carefully considered the key inputs in
the mitigation exemption test and required NYISO to apply standards that would place
merchant projects and subsidized projects on a level basis for the mitigation exemption
test.70 Linden Cogen states that the currently-effective mitigation exemption test process
allows developers to demonstrate characteristics that are unique to each project, such as
investment in projects that have lower heat rates, lower outage rates, more effective

reserve capability, decreased emissions, incremental transmission capacity that creates
congestion value, and flexibility within air permit limitations.71 Linden Cogen argues
that Complainants fail to satisfy their section 206 burden of demonstrating that NYISO’s
currently-effective buyer-side mitigation rules and mitigation exemption test process are
unjust and unreasonable and that their proposed alternatives are just and reasonable.72
Linden Cogen states that the Complainants do not provide evidence that the mitigation
exemption test has impeded legitimate, economic entry into the in-City market or that a
specific application of the mitigation exemption test impeded economic entry.73 Linden
Cogen also contends that the Complainants fail to show any evidence that the mitigation
exemption test has resulted in insufficient capacity in Zone J or that capacity prices have
been unjustly high as a result of the mitigation exemption test.74

36. According to Linden Cogen, instead of meeting their section 206 burden, the

Complainants rely on the Commission’s orders approving PJM’s competitive entry

exemption to support their requested relief.75 Linden Cogen asserts that there are several
differences between the capacity markets in PJM and NYISO, including differences in

69 Linden Cogen January 15, 2015 Protest at 5.

70 Linden Cogen January 15, 2015 Protest at 13.

71 Linden Cogen January 15, 2015 Protest at 21.

72 Linden Cogen January 15, 2015 Protest at 4.

73 Linden Cogen January 15, 2015 Protest at 15.

74 Linden Cogen January 15, 2015 Protest at 16-17.

75 Linden Cogen January 15, 2015 Protest at 4.

Docket No. EL15-26-000- 18 -

lead time for procurement, the limited application of PJM’s minimum offer price rule, and supply size.76

37. Entergy also argues that Complainants fail to meet their section 206 burden to

demonstrate that NYISO’s existing buyer-side mitigation rules are unjust and

unreasonable because they do not cite any evidence that the existing rules have prevented
economic merchant entry.77 Rather, Entergy contends that there is evidence that the
current buyer-side mitigation rules have successfully prevented uneconomic entry and
that uneconomic resources have been mitigated, but continued to proceed with the
project.78 Entergy states that the proposed competitive entry exemption creates new
opportunities to artificially suppress capacity pricing in NYISO where out-of-market
interference in the markets is already pervasive.79 Entergy argues that the proposal is not
comparable to PJM because NYISO is a single-state RTO where the state government
advocates and implements out-of-market rules and where re-regulation is advocated.80

4.Answers

38.The Complainants state that the current buyer-side mitigation rules are unjust and

unreasonable because they do not allow investors to enter the markets based on their own
forecasts of market conditions at the time of entry, and investors are forced to endure a
test even if the investor does not have any market power or inappropriate subsidies.81
The Complainants state that there is actual new evidence of projects that have been
subject to mitigation even though the entrants appear to be competitive and have no
incentive to inappropriately suppress capacity market prices.82 The Complainants argue
that NYISO has gained actual market experience with the buyer-side mitigation rules

76 Linden Cogen January 15, 2015 Protest at 19.

77 Entergy January 15, 2015 Protest at 2.

78 Entergy January 15, 2015 Protest at 9 (citing Potomac Economics, 2013 State of the Market Report for the New York ISO Markets 23-24 (May 2014)).

79 Entergy January 15, 2015 Protest at 1.

80 Entergy January 15, 2015 Protest at 11.

81 Complainants January 30, 2015 Answer at 6.

82 Complainants January 30, 2015 Answer at 9.

Docket No. EL15-26-000- 19 -

over the past seven years and has recognized the need to modify them to address overmitigation of economic entrants.83

39. NYISO argues that the complaint more than adequately satisfies the requirement
that complaints be supported by “substantial evidence.”84 NYISO asserts that the
complaint more than sufficiently explains why the proposed tariff language implementing
a competitive entry exemption should be accepted by the Commission. NYISO argues
that the proposed competitive entry exemption rules are an example of an incremental
improvement that will protect against over-mitigation without undermining the purpose
of the buyer-side mitigation rules. NYISO contends that market improvements are not
prohibited simply because certain market participants might prefer that rules not evolve.85

40. TDI avers that its Champlain Hudson Express Project is a concrete example of an economic project that has been inappropriately mitigated, and illustrates the exact
problem presented by the existing tariff provisions.86 TDI states that NYISO determined that its Champlain Hudson Express Project is uneconomic, even though it is a merchant transmission project that has no out-of-market contracts and has not received any state subsidies.87 TDI also adds that, unless the Commission specifically indicates that Class Year 2015 members will be eligible to apply for a competitive entry exemption, TDI will not receive timely relief and will be forced to delay its project.88

41. IPPNY/EPSA argue that no party, including the Complainants, has demonstrated
that it has sustained or is likely to sustain any special harm that warrants the Commission
abandoning the existing buyer-side mitigation rules and directing NYISO to impose a
competitive entry exemption in opposition to the clear determination of its stakeholders.89

83 Complainants January 30, 2015 Answer at 9.

84 NYISO January 30, 2015 Answer at 4 (citing La. Pub. Serv. Comm’n v. Entergy Corp., 139 FERC ¶ 61,240, at P 106 n.217 (2012), order on remand, 144 FERC ¶ 63,021 (2013) (remanding to administrative law judge for additional proceedings).

85 NYISO January 30, 2015 Answer at 10.

86 TDI January 30, 2015 Answer at 3.

87 TDI January 30, 2015 Answer at 3.

88 TDI January 30, 2015 Answer at 7-8.

89 IPPNY/EPSA January 30, 2015 Answer at 2.

Docket No. EL15-26-000- 20 -

IPPNY/EPSA also assert that issues with NYISO’s mitigation exemption test are outside of the scope of the complaint and should be addressed in the stakeholder process or in a separate complaint.

42. Entergy states that the parties did not provide any actual evidence of economic
entry being prevented and did not demonstrate that the existing rate was unjust and
unreasonable or unduly discriminatory.90 Entergy also argues that there is no evidence
that any of the recently mitigated projects are economic, but rather only assertions by the
project developers themselves. Entergy also finds that the fact that PJM has a
competitive entry exemption does not mean NYISO’s ICAP market is unjust and
unreasonable because it does not have one.91 Entergy asserts that both the Complainants
and the parties supporting a competitive entry exemption are primarily concerned with
NYISO’s forecasting of future prices, and the assumptions made about unit retirement
and mothballing. Entergy contends that a stakeholder solution concerning the forecasts
used under the buyer-side mitigation rules is underway and that the Commission should
consider the results of the ongoing discussions instead of adopting a competitive entry
exemption.92 Entergy also states that the Complainants’ proposed competitive entry
exemption was similar to the proposal rejected during the NYISO stakeholder process,
but with key changes to make the exemption easier to obtain. Entergy contends that
NYISO’s version is an improvement over the Complainants proposal, but is still flawed.

43. In response to the Complainants’ answer, Entergy rejects the market analysis

included in the affidavit of Mr. Michael D. Cadwalader, which the Complainants attached
to their answer. According to Entergy, Mr. Cadwalader purports to show that the existing
buyer-side mitigation rules prevent economic entry through an examination of summer
2014 clearing prices in the New York City and Lower Hudson Valley zones.93 Entergy
offers the affidavit of Mr. Michael M. Schnitzer to contradict the Complainants’ and
Mr. Cadwalader’s claims. Entergy reiterates that the Complainants fail to support their
claim that economic entry is being improperly mitigated by NYISO’s existing buyer-side
mitigation rules.

44. Linden Cogen reiterates in its answer that the Complainants fail to show that any
circumstances have changed since the Commission approved NYISO’s existing buyer-

90 Entergy January 30, 2015 Answer at 2-3.

91 Entergy January 30, 2015 Answer at 6.

92 Entergy January 30, 2015 Answer at 8-9.

93 Entergy February 18, 2015 Answer at 2.

Docket No. EL15-26-000- 21 -

side mitigation rules, or that uneconomic entry can suppress market prices with or

without the intent to do so.94 Linden Cogen asserts that not only must the rates for new
entrants be just and reasonable, but so too must the rates for other market participants be
just and reasonable.95 Linden Cogen further notes that the mitigation exemption test has
been consistently applied since it was first adopted in 2008, which serves to maintain
predictability.96

5.Commission Determination

45.We find that NYISO’s current buyer-side mitigation rules are unjust and

unreasonable because they are unnecessarily applied to unsubsidized, competitive

entrants who have no incentive to inappropriately suppress capacity market prices. We also find that the competitive entry exemption to NYISO’s tariff rules proposed in the complaint, as modified below, is just and reasonable. We, therefore, grant the complaint, in part, and require NYISO to make a compliance filing, within 30 days of this order, to modify its buyer-side mitigation tariff rules to include a competitive entry exemption, as discussed below, effective as of the date of this order.

46. NYISO concurs with the Complainants and expresses its strong support for a

competitive entry exemption because competitive entrants should not be prohibited from
taking the risk of entry based on their projections of future capacity prices. In addition to
NYISO and the MMU, NYPA/LIPA, the City of NY, the NYPSC, Cricket Valley, and
TDI all filed comments in support of creating a competitive entry exemption. These
parties all agree that, while the purpose of buyer-side market mitigation is to deter the
exercise of buyer-side market power and the resulting price suppression, NYISO’s
existing buyer-side mitigation rules act as a barrier to entry for merchant resources. We
agree. NYISO’s current buyer-side mitigation rules should not be applied to competitive
unsubsidized merchant resources because these resources do not have the incentive to
exercise buyer-side market power.97 Moreover, subjecting such resources to an offer
floor serves no competitive objective or market efficiency, regardless of whether they are
judged uneconomic according to NYISO’s existing buyer-side mitigation exemption test,

94 Linden Cogen February 24, 2015 Answer at 6.

95 Linden Cogen February 24, 2015 Answer at 3.

96 Linden Cogen February 24, 2015 Answer at 9.

97 As used in this order, “merchant” projects are those projects that are funded
privately, rather than with subsidies, and that will recover their costs through market
revenues.

Docket No. EL15-26-000- 22 -

because customers do not bear the risk or costs of uneconomic entry of such resources.

The competitive market process alone is sufficient to discipline competitive unsubsidized
merchant entry. Our logic for approving the competitive entry exemption here is similar
to the logic applied by the Commission when it approved PJM’s competitive entry
exemption. Specifically, the Commission found that, “[b]ecause a purely merchant
generator places its own capital at risk when it invests in a new resource, any such
resource will have a strong incentive to bid its true costs into the auction, and it will clear
the market only when it is cost effective.”98 Although Entergy, Linden Cogen, and
IPPNY/EPSA each filed protests arguing that the Complainants failed to meet their FPA
section 206 burden, we disagree. We find that there is ample evidence presented in this
proceeding to demonstrate that NYISO’s current buyer-side mitigation rules are unjust
and unreasonable because they subject unsubsidized merchant projects, with no incentive
to artificially depress market prices, to the mitigation exemption test.

47. IPPNY/EPSA, Linden Cogen, and Entergy all argue that the Commission’s

approval of a competitive entry exemption in PJM does not support adoption of a

competitive entry exemption in NYISO. We are acting in this proceeding solely on the
merits of the Complainants’ proposal and not based on the Commission’s previous action
in PJM. As the Commission has stated many times before, we allow for each region to
develop rules to address the differing concerns of the regions.99 That is not to say,
however, that principles underlying market design in one region are not applicable to
another (i.e., that competitive entrants should not be subject to buyer-side market power
mitigation rules).

98 PJM Interconnection, L.L.C., 143 FERC ¶ 61,090 at P 57.

99 See, e.g., Preventing Undue Discrimination and Preference in Transmission
Service, Order No. 890, FERC Stats. & Regs. ¶ 31,241, at P 559 (“We therefore allow
regional flexibility in cost allocation... ”), order on reh’g, Order No. 890-A, FERC

Stats. & Regs. ¶ 31,261 (2007), order on reh’g, Order No. 890-B, 123 FERC ¶ 61,299
(2008), order on reh’g, Order No. 890-C, 126 FERC ¶ 61,228 (2009), order on
clarification, Order No. 890-D, 129 FERC ¶ 61,126 (2009); Long-Term Firm
Transmission Rights in Organized Electricity Markets, Order No. 681, FERC Stats.
& Regs. ¶ 31,226, at P 100 (“This approach will appropriately recognize regional
differences in market design... ”), reh’g denied, Order No. 681-A, 117 FERC

¶ 61,201 (2006), order on reh’g, Order No. 681-B, 126 FERC ¶ 61,254 (2009); PJM

Interconnection, LLC, 112 FERC ¶ 61,031, at P 32 (2005) (“[I]t is not necessary that all
RTOs use the same procedures as long as the generators retain options for filing rates
with the Commission, as the generators do here.”), order on reh’g, 114 FERC ¶ 61,302
(2006).

Docket No. EL15-26-000- 23 -

48. Entergy also argues that the phase out of the offer floor and the tariff provision

permitting an entrant to demonstrate to NYISO that its costs are lower than the offer floor
make a competitive entry exemption unnecessary. Specifically, Entergy argues that, even
if a merchant entrant is required to bid at the offer floor, it will be able to clear the market
in twelve months, and then be relieved of mitigation.100 As the Complainants argue, we
find that it is unjust and unreasonable for that entrant to have been subjected to mitigation
in the first place. Similarly, Entergy argues that the tariff provision permitting individual
companies to demonstrate to NYISO that they have lower costs makes the competitive
entry exemption unnecessary. Entergy argues that the Commission has found that this
type of unit-specific review is a suitable replacement for a broad exemption that may

upset the balance between over-mitigation and under-mitigation.101 Entergy’s argument
about unit-specific review is unconvincing. From an administrative aspect, creating a
generic exemption from having to meet the existing NYISO buyer-side mitigation
exemption test eliminates the need for NYISO to engage in detailed reviews of individual
projected costs, revenues, capacity levels, and other factors that may lead to litigation
before the Commission. Granting the complaint, in part, and directing a generic
exemption from the tariff’s current buyer-side mitigation rules for entities that should not
be subject to mitigation in the first place achieves that result. We conclude that, while the
existing unit-specific exemption review process is necessary as a general matter, it is
unjust and unreasonable for NYISO to apply the existing buyer-side mitigation test to a
merchant resource that has no incentive to artificially suppress capacity market prices.

49. In addition, Linden Cogen argues that the Commission should dismiss the

complaint because it is a collateral attack on prior Commission orders approving and

implementing NYISO’s buyer-side mitigation rules and mitigation exemption test

process. Linden Cogen argues the Complainants failed to demonstrate a significant

change in circumstances to justify the Commission revisiting prior orders to find that the buyer-side mitigation rules are no longer just and reasonable.102 Modifying existing tariff provisions under section 206 of the FPA is not barred by the fact that the Commission originally accepted the provisions at issue. We therefore find that the complaint is not a collateral attack on the existing buyer-side mitigation rules, which will continue to apply, as previously approved, to non-merchant projects.

100 Entergy January 15, 2015 Protest at 3, 17 n.50 (citing Schnitzer Aff. 4:15-20). 101 Entergy January 15, 2015 Protest at 20-21.

102 Linden Cogen January 15, 2015 Protest at 11 (citing California Electricity Oversight Bd. v. California Indep. Sys. Operator Corp., 109 FERC ¶ 61,182, at P 28 (2004) and Pacific Gas & Elec. Co., 121 FERC ¶ 61,065, at P 40 (2007)).

Docket No. EL15-26-000- 24 -

50. We note that some of the intervenors in this proceeding, like Entergy, claim that
the Commission adopted an “uneconomic entry” standard in NYISO and that such
standard is either determinative in or at odds with this case. We further note that the rules that govern and ensure economic entry are pending, in one form or another, before the
Commission in several proceedings.103 Our findings here are not intended to interfere or prejudge the issues raised in those proceedings. Rather, we note that the issue in this
proceeding—allowing for the entry of purely competitive entrants—is consistent with the fundamental objective of NYISO’s buyer-side mitigation rules, which is to protect
against new entrants that have the ability and incentive to suppress capacity market prices through the exercise of buyer-side market power. Thus, our findings in this proceeding
are a supplement to NYISO’s existing rules.

51. Finally, we note that many of the parties argue over the merits of the existing
mitigation exemption test. The incumbent generators argue that the test is working as
intended, such that uneconomic entry is prevented. The issue in this proceeding is not
whether new entrants are properly judged uneconomic according to the calculation
methodology underlying NYISO’s existing mitigation exemption test, but, rather,
whether the right parties are being subjected to the test in the first place. As we discussed
above, merchant resources should not be subjected to the test if they can qualify for the
competitive entry exemption. Therefore, our decision to direct NYISO to create a
competitive entry exemption is not based on whether there are flaws with the calculation
methodology underlying NYISO’s existing mitigation exemption test. Because we are
not basing our decision on this argument, any issues regarding the merits of the existing
mitigation exemption test are beyond the scope of this proceeding and are more
appropriately addressed in any Commission proceeding that follows the ongoing NYISO
stakeholder process.104

B.Tariff Revisions Necessary to Implement the Competitive Entry

Exemption

52. The Complainants propose to add a competitive entry exemption to NYISO’s

buyer-side market mitigation rules that will exempt a project that has no “non-qualifying
contractual relationships” with a “Non-Qualifying Entry Sponsor.”105 The proposed

103 See, e.g., Docket Nos. EL07-39-006 and ER08-695-004 (requesting rehearing of Commission orders on NYISO’s buyer-side mitigation rules).

104 NYISO January 15, 2015 Answer at 7-8.

105 Non-qualifying contractual relationships are contracts related to the planning,
siting, interconnection, operation, or construction of the project, contracts for the energy

(continued...)

Docket No. EL15-26-000- 25 -

exemption includes a list of otherwise disallowed contracts that are exempted from being non-qualifying contractual relationships, including contracts for payment-in-lieu of taxes or industrial siting incentives, such as tax abatements or financing incentives, and service agreements for natural gas. In conjunction with this list, the Complainants propose a list of certifications the applicant must make that include certifying, for example, that the
applicant has not entered into any non-qualifying contractual relationships. The
Complainants also propose to include a de minimis exception, which allows a project to
qualify for the competitive entry exemption with non-qualifying contractual relationships if the “subsidy value” of those contracts is less than five percent of the project’s costs.
Under the proposal, NYISO determines the eligibility of the project by reviewing the
required certifications, including that the applicant conducted due diligence in identifying potential non-qualifying contractual relationships.

53. Having found that the Complainants satisfied the initial burden under section 206
to show that NYISO’s existing tariff is unjust and unreasonable without a competitive
entry exemption, we must determine the just and reasonable replacement rate. Many of
the intervenors in this proceeding, including NYISO, the MMU, and the existing
generators, offer modifications to the Complainants’ proposed competitive entry
exemption. We find the Complainants’ proposed tariff language, in part, to be just and
reasonable, as modified below, and direct NYISO to file the rules as outlined in this
section.106 Specifically, as discussed below, we direct NYISO to file, unchanged, the
Complainants’ Proposed Services Tariff sections 23.4.5.7.8.1.1-1.2 (describing eligibility
for a Competitive Entry Exemption and defining Entry Date, Non-Qualifying Entry
Sponsor, and non-qualifying contractual relationship), section 23.4.5.7.8.1.5 (describing
NYISO’s review of the competitive entry exemption certifications, in consultation with

or capacity produced by or delivered from or by the project, or contracts that provide
services, financial support, or tangible goods to the project that are entered into with a
Non-Qualifying Entry Sponsor. A Non-Qualifying Entry Sponsor is a Transmission
Owner, a Public Power Entity, or any other entity with a Transmission District in the
New York Control Area, or an agency or instrumentality of New York State, or a
political subdivision thereof. See Proposed Services Tariff § 23.4.5.7.8.1.

106 Once the Commission finds that the challenged tariff provisions in a section 206 proceeding are unjust, unreasonable, or unduly discriminatory or preferential, “the Commission shall determine the just and reasonable rate . . . to be thereafter observed and in force, and shall fix the same by order.” 16 U.S.C. § 824e(a) (2012); see also Maryland Pub. Serv. Comm’n v. FERC, 632 F.3d 1283, 1285 n.1 (D.C. Cir. 2011) (ruling that the petitioner does not have the burden to propose just and reasonable rates, but rather that the Commission must determine the just and reasonable rate).

Docket No. EL15-26-000- 26 -

the MMU), section 23.4.5.7.8.2.4 (stating the timing for submitting certifications),

sections 23.4.5.7.8.3.1-3.3 (outlining the timing for submitting certifications and

additional information and for withdrawing a request), and sections 23.4.5.7.8.4.1-4.2
(describing NYISO’s and the MMU’s posting and reporting requirements). We further
direct NYISO to file the changes discussed below to the Complainants’ Proposed
Services Tariff sections 23.4.5.7.8.1.3-1.4 (listing allowable contracts and describing
the de minimis exception) and 23.4.5.7.8.2.1 (listing required certifications). We also
direct NYISO to include in its compliance filing sections 23.4.5.7.8.2.2-2.3 and
sections 23.4.5.7.8.2.5-2.7 (listing additional certifications), as proposed by NYISO in its
answer. Finally, we direct NYISO to include the tariff revisions proposed by NYISO in
its answer to existing Services Tariff sections 23.4.5.7.2, 30.4.6.2.12, and 30.6.2.2.5, and
to existing section 12.4 of NYISO’s Open Access Transmission Tariff (OATT), which
make the competitive entry exemption operative and implementable.

C.De Minimis Exceptions

1.Complainants’ Proposal

54.The Complainants propose in section 23.4.5.7.8.1.4., which concerns the contracts

that are deemed to be excluded, that non-qualifying contractual relationships be allowed
only if “the subsidy value, defined as the benefit provided by the Non-Qualifying Entry
Sponsor for the commodity or service as compared to an arms-length transaction, does
not exceed five percent of the total levelized cost of all capital and fixed operation and
maintenance cost of” the proposed new project. This is a modification from the proposal
NYISO submitted to its stakeholders, in which NYISO proposed to apply the five percent
limit to the “total value” of such contracts, rather than to the “subsidy value,” defining
“total value” as “the greater of the total payment to the Generator or [Unforced

Deliverability Right] project or the fair market value of the contract, collectively.” The Complainants assert that the “subsidy value” is more appropriate because “the purpose of the exemption is to deter inappropriate subsidization of new entrants.”107

2.NYISO’s Answer

55.NYISO argues that the Commission should direct NYISO to include in a

compliance filing provisions that were developed in its stakeholder process in place of
the Complainants’ proposed tariff language. Specifically, NYISO states that it proposed
a clear bright-line exception to the prohibition on non-qualifying contractual
relationships, under which a de minimis amount of non-qualifying contractual
relationships would not disqualify an entrant from the competitive entry exemption.

107 Complaint at 14 (citing Miller Aff. ¶ 33).

Docket No. EL15-26-000- 27 -

NYISO explains that it proposed to measure the de minimis amount by the “total value”
of the contracts, rather than the “subsidy value.”108 Although the Complainants proposed
that “the five percent should be focused on the subsidy value of the contract . . . because
the purpose of the exemption is to deter inappropriate subsidization of new entrants,”
NYISO argues that, even if this were true in principle, the complaint does not specify,
and NYISO could not imagine how it could practicably determine, the “subsidy value” of
new entrants’ contracts.109 NYISO contends that the difficulties posed by the
Complainants’ proposal would be exacerbated by the number and variety of contracts to
be evaluated.

3.Comments and Protests

56.The City of NY supports the Complainants’ proposed de minimis exception.

57.The MMU disagrees with the Complainants’ proposal. Specifically, the MMU

states that the Complainants’ propose to cap the value of any contract subsidies at five

percent of the project’s costs, rather than to cap the total value of the contracts with Non-
Qualifying Entry Sponsors at five percent of the project’s cost. The MMU argues that
this would substantially weaken the buyer-side mitigation rules because it would grant
the competitive exemption to projects that are receiving material subsidies. The MMU
contends that even NYISO’s proposal of allowing contracts with non-qualifying entities
having a total contract value of less than five percent would potentially allow a material
amount of subsidies to be provided to the developer. Hence, the MMU proposes that

NYISO’s de minimis allowance for non-qualifying contractual relationships be modified so that any such contract be priced at fair-market value or cost-of-service levels, as
applicable. The MMU’s concern is that the NYISO criteria could still allow contracts designed to convey material subsidies to the developer.110

58. IPPNY/EPSA also argue that the Complainants’ proposal is weaker than NYISO’s
because it allows an even greater threshold of contracts with Non-Qualifying Entry
Sponsors under the de minimis exception before disqualifying entrants for the
competitive entry exemption. IPPNY/EPSA assert that the Complainants’ use of the
estimated “subsidy value,” as opposed to the “total value” of the contracts, could be
difficult. IPPNY/EPSA state that NYISO selected five percent based on the five percent

108 NYISO January 15, 2015 Answer at 13.

109 NYISO January 15, 2015 Answer at 14 (citing Complaint at 14, Miller Aff. ¶ 32, and Complaint Ex. B (Proposed Services Tariff § 23.4.5.7.8.1.4)).

110 MMU January 15, 2015 Comments at 10.

Docket No. EL15-26-000- 28 -

being derived from the “total value,” defined as the total payment or fair market value of the contract, not based on the “subsidy value;” if the five percent is derived solely from the subsidy value, IPPNY/EPSA assert the five percent goes well beyond a level that
could be considered de minimis. IPPNY/EPSA argue that no subsidy should be permitted at all, but that, at most, the level should be set at one to two percent.111

59. Entergy states that, if the Commission must adopt the competitive entry

exemption, it should not adopt the Complainants’ version. Entergy argues that the

proposed language modifies NYISO’s previously rejected proposal, and undercuts the

buyer-side mitigation rules’ ability to prevent artificial suppression.112 Entergy states that the Complainants’ proposal changes the threshold for when a prohibited contract will
trigger mitigation from five percent, as measured by the total value of the contracts, to
five percent, as measured by the subsidy value of the contracts. Entergy argues that this is a lower mitigation threshold, such that it is easier for uneconomic entrants to satisfy the competitive entry exemption.

4.Answers

60.The Complainants state that no party provided any convincing examples or

evidence of the type of transactions where it would be difficult to determine the “subsidy
value” for purposes of the de minimis exception, which is only the difference between the
contract value and the fair market value.113 The Complainants assert that all of the
opponents of the competitive entry exemption fail to note that it is the subsidy value for
all such contracts that cannot be more than five percent of the capital costs of the project,
not just one individual contract.114 The Complainants explain that their de minimis
exception proposal would provide sufficient protection against inappropriate
subsidization of a project, in light of small legitimate differences that determine fair
market value, which would be used to determine the subsidy value.115 The Complainants
also argue that certain utility contracts, such as a gas transportation contract, may be
essential for a generator to operate.116 The Complainants aver that there is no reason to

111 IPPNY/EPSA January 15, 2015 Protest at 22.

112 Entergy January 15, 2015 Protest at 4.

113 Complainants January 30, 2015 Answer at 19.
114 Complainants January 30, 2015 Answer at 19.
115 Complainants January 30, 2015 Answer at 19.
116 Complainants January 30, 2015 Answer at 18.

Docket No. EL15-26-000- 29 -

preclude an entity that self-supplies or hedges on behalf of its franchised customers from entering into a contract with a new facility as long as the subsidy value of such contract, in combination with all of the other contracts entered into by the developer with a nonqualifying entity, is no greater than five percent of its costs.117

61. NYISO states that it takes no position on the MMU’s proposal that contracts with
Non-Qualifying Entry Sponsors be priced at “fair market value or cost of service levels,
as appropriate based on the type of contract.”118 NYISO states that it strongly agrees that
competitive entrants should not have any contracts that subsidize entry. NYISO argues
that, if the Commission accepts the MMU’s recommendations on this issue, it should
clarify that the burden would be on the entrant to demonstrate that its contracts were
priced at fair market value or cost of service value. NYISO states that it would then
review the information submitted to determine its reasonableness, with input from the
MMU. NYISO also adds that the Commission should clarify that “fair market value”
will not necessarily be a single “correct” value, but rather may be a range of reasonable
values.119

62. TDI states that the Complainants’ proposed tariff language should be accepted,
without modification.120 TDI asserts that, while various other parties have proposed
revisions to the proposed tariff language, these proposals would undermine the
competitive entry exemption and delay or prevent its timely implementation. TDI states
that, with regard to the de minimis exception, using the “subsidy value” measurement
more appropriately captures the type of harm that the buyer-side mitigation rules are
designed to prevent.121

63. Cricket Valley supports NYISO’s proposed de minimis exception. Cricket Valley agrees with NYISO and the MMU that it is unworkable to determine the subsidy value of the diverse contractual relationships that NYISO will need to review to determine

117 Complainants January 30, 2015 Answer at 20.

118 NYISO January 30, 2015 Answer at 11 (citing MMU January 15, 2015 Comments at 6-9).

119 NYISO January 30, 2015 Answer at 12.
120 TDI January 30, 2015 Answer at 5.

121 TDI January 30, 2015 Answer at 6 (citing NYISO January 15, 2015 Answer

at 14).

Docket No. EL15-26-000- 30 -

eligibility for the competitive entry exemption.122 Cricket Valley states that the “subsidy

value” criteria proposed creates unnecessary complexity in the buyer-side mitigation

process.123

5.Commission Determination

64.We reject the proposed de minimis exception. Permitting any form of a

de minimis exception contradicts the principle underlying the competitive entry

exemption: that unsubsidized entities do not have the incentive to exercise market

power to lower capacity market prices. Permitting such subsidies, as part of the

competitive entry exemption, may facilitate artificially depressing capacity prices to non-
competitive levels because they make it financially possible for a resource to offer a price
into the capacity auction that is below its actual costs. No party in this proceeding has
provided any reason why permitting any subsidy is a necessary part of the competitive
entry exemption. In addition, no party cites to any economic analysis that shows that a
subsidy at any level will have a negligible impact on market prices, thus making it truly
de minimis, let alone establishing that a threshold of five percent is an accurate dividing
line between a significant and an insignificant subsidy. As explained by Entergy, a

purely private new entrant should be able to recover 100 percent of its costs from market revenues.124

D.Certifications

1.Complainants’ Proposal

65.The Complainants propose a certification process and certification form, which

accompanies an application for a competitive entry exemption and requires that the

applicant certify that the project does not have any non-qualifying contractual

relationships. NYISO will review this certification to determine the applicants’ eligibility for the exemption. The Complainants state that their proposal is a more “streamlined” certification process than what NYISO proposed to its stakeholders.

122 Cricket Valley January 29, 2015 Answer at 5.

123 Cricket Valley January 29, 2015 Answer at 6.

124 Entergy January 30, 2015 Answer at 13 (citing Schnitzer Aff. 14:4-13).

Docket No. EL15-26-000- 31 -

2.NYISO’s Answer

66.NYISO argues that the Complainants’ proposed certification requirement is

narrower and less complete than the version NYISO developed in its stakeholder process.
NYISO contends that its version would not impose unreasonable burdens and would
better protect the market from the risk that applicants might inappropriately secure
competitive entry exemptions. Accordingly, NYISO argues that the Commission should
direct NYISO to adopt the certification tariff provisions NYISO proposed in its
stakeholder process.125

67. Similarly, NYISO states that the Complainants propose to “streamline” the

certification form developed by NYISO in its stakeholder process and to require NYISO
to incorporate it into the Services Tariff.126 NYISO argues that this is not warranted
under the Commission’s “Rule of Reason” precedent.127 Specifically, NYISO explains
that the form’s provisions are too far removed from the rates or the terms or conditions of
jurisdictional service to necessitate their review by the Commission, and are simply
intended to implement the tariff requirements that a generator or Unforced Capacity
Deliverability Right (UDR)128 facility must satisfy to qualify for this exemption initially
and through the date of entry.

3.Comments and Protests

68.The City of NY supports the Complainants’ proposed certification process.

69.The MMU argues that the Commission should reject the Complainants’ proposed

certification provisions and should adopt NYISO’s instead, with two additions.129 The

125 NYISO January 15, 2015 Answer at 17.

126 NYISO January 15, 2015 Answer at 17 (citing Complaint Ex. B (Proposed Services Tariff § 23.4.5.7.8.2.1)).

127 NYISO January 15, 2015 Answer at 17-18 (citing City of Cleveland v. FERC, 773 F.2d 1368, 1376 (1985) and Astoria Generating Co., L.P. v. New York Indep. Sys. Operator, Inc., 139 FERC ¶ 61,244, at P 44 n.57 (2012)).

128 The Services Tariff defines UDRs as “rights, as measured in MWs, associated with new incremental controllable transmission projects that provide a transmission interface to a Locality.” NYISO, Services Tariff, § 2.21 (2.0.0).

129 The MMU identifies the following six certification statements in NYISO’s

original proposal that the Complainants would not include: (1) “that the entrant has not

(continued...)

Docket No. EL15-26-000- 32 -

MMU first recommends that the certification state that no unexecuted agreements with a
Non-Qualifying Entry Sponsor, written or unwritten, exist that would support the
development of the project. The MMU argues that this would prevent a developer from
receiving an exemption that otherwise does not technically have a non-qualifying
contractual relationship, but does have an understanding that it will receive such a
contract upon commencing operation. Second, the MMU proposes to have an entrant
certify that none of its suppliers or customers, and no entity in the chain of its contractual
relationships with its suppliers or customers, are parties to non-qualifying contractual
relationships that are contingent on the project’s completion. If such a relationship is
found to exist, the consequences would be the same as if the developer itself had such a
non-qualifying contractual relationship - i.e., penalties and application of the offer floor
to the resource.130 The MMU states that it is concerned that the NYISO certification
requirements for indirect contracts are too weak to ensure that subsidies cannot be
indirectly conveyed to the developer. According to the MMU, this liability will ensure
the entrant takes all necessary and sufficient steps to avoid subsidies from Non-
Qualifying Entry Sponsors, including potentially third-party contract provisions that
would deter third-parties from concealing non-qualifying contractual relationships.

70. IPPNY/EPSA assert that relying on a process of self-certification, in which

NYISO must trust new entrants to certify that they are not party to any prohibited

contracts is insufficient. IPPNY/EPSA contend that there should be additional oversight of the self-certification and a requirement for continued certification.131 Rather than weakening NYISO’s proposed certification process, as the Complainants propose,
IPPNY/EPSA argue that any change should be structured to improve it, allowing for more verification of companies’ certifications, not less.

71. Entergy states that the certification is an easily bypassed one-time certification that
is frozen in time, allowing a new resource to be free to enter into a subsidized contract the

entered into a direct or indirect non-qualifying contractual relationship at the time of

synchronizing to the grid;” (2) “acknowledging exposure to Commission civil penalties;”

(3) “committing parent and affiliates to provide information relating to the project;” (4)
“acknowledging certifying officer has knowledge of the facts and circumstance involving
the request for Competitive Entrant Exemption;” (5) “obliging entrant to notify NYISO if
certification ceases to be true or accurate;” and (6) “acknowledging that failure to notify
of changes in facts or circumstances would be considered false and misleading.”

130 MMU January 15, 2015 Comments at 11.

131 IPPNY/EPSA January 15, 2015 Protest at 18, 20.

Docket No. EL15-26-000- 33 -

day after its self-certification; it also shifts the burden to NYISO to detect changed

circumstances.132 Entergy argues that NYISO’s proposal already presented loopholes for

uneconomic entry and the Complainants’ proposal makes them worse.

4.Answers

72.The Complainants answer that NYISO’s approach to the certification process was

overbearing and sought unnecessary representations.133 The Complainants argue that a streamlined approach reasonably captures all necessary information, as well as a
representation that the applicant has performed the necessary due diligence in support of its application.134

73. NYISO asserts that it will not be relying solely on the certification requirement in
determining eligibility for the competitive entry exemption. NYISO states that, in fact,
under the proposed rule, NYISO will be conducting its own review, in consultation with
the MMU, to determine eligibility.135 NYISO contends that the certification requirement
is a critically important and necessary part of the review, but neither NYISO nor the
MMU will simply rely on, or accept, certifications without further review. NYISO
argues that the certification requirement will help to make the administration of the
proposed competitive entry exemption rules feasible. NYISO contends that it had
previously argued in a September 2008 proceeding in Docket Nos. EL07-39-002, ER08-
695-000, and ER08-695-001 that a net buyer rule would create problematic incentives for
“buyers to behave strategically to avoid categorization as net buyers.”136 NYISO states
that it was also concerned at that time that contractual relationships designed to
circumvent a net buyer rule would be very difficult to identify and evaluate. NYISO
asserts that, however, the proposed competitive entry exemption rules in this proceeding
avoid these problems by not requiring an evaluation of the nature or objectives of
sponsoring entities, but simply prohibit “non-qualifying contractual relationships” with
realistically foreseeable sponsors of uneconomic entry.

132 Entergy January 15, 2015 Protest at 25.

133 Complainants January 30, 2015 Answer at 21.
134 Complainants January 30, 2015 Answer at 21.

135 NYISO January 30, 2015 Answer at 4 (citing Complaint, Exhibit B (Proposed Services Tariff §§ 23.4.5.7.8.1.5, 23.4.5.7.8.4.2)).

136 NYISO January 30, 2015 Answer at 8 (citing New York Indep. Sys. Operator,
Inc., 124 FERC ¶ 61,301, at P 28 (2008), order on reh’g, 131 FERC ¶ 61,170 (2010)).

Docket No. EL15-26-000- 34 -

74. NYISO states that it supports the MMU’s proposed certification requirement
regarding indirect contracts, in which an entrant is required to “certify that none of its
suppliers or customers, and no entity in the chain of its contractual relationships with it
suppliers or customers, are parties to non-qualifying contractual relationships that are
contingent on the project’s completion.”137 NYISO notes, however, that it interprets the
reference to the time of a project’s “completion” as a reference to non-qualifying
contracts that are contingent on a project reaching the “Entry Date.”138 NYISO states
that, if the Commission accepts the MMU’s recommendation on this point, it should
clarify that the NYISO’s interpretation is correct. NYISO further states that it has no
objection to the MMU’s recommendations that applicants be required to certify that they
do not have unexecuted agreements or informal understandings with Non-Qualifying
Entry Sponsors.139

75. TDI argues that the certification debate should avoid delays and not be subject to the stakeholder process.140 TDI contends that, under both the Complainants’ and
NYISO’s proposed revisions to the Services Tariff, developers must submit the request for exemption, including the certification, by no later than the Class Year start date. Therefore, granting NYISO’s request (i.e., issuing an order granting the complaint
without approving a form of certification) would effectively ensure that the competitive entry exemption will not be available for Class Year 2015 members.

76. In response to the MMU’s suggested additions to the certification, Cricket
Valley asserts that NYISO’s proposal regarding indirect contractual relationships is
appropriate because the developer must certify that it does not have indirect non-
qualifying contractual relationships that are limited to one degree removed from the
developer.141 Cricket Valley maintains that it is unreasonable to require a developer to
investigate every contractual relationship, no matter how far removed.142 Cricket Valley

137 NYISO January 30, 2015 Answer at 12.

138 The Complainants propose to define “Entry Date” for purposes of a

competitive entry exemption in section 23.4.5.7.8.1 of the Services Tariff as the time at which “the Generator first produces or the UDR project first transmits energy.”

139 NYISO January 30, 2015 Answer at 13 (citing MMU January 15, 2015 Comments at 10-11).

140 TDI January 30, 2015 Answer at 6.

141 Cricket Valley January 29, 2015 Answer at 10-11.
142 Cricket Valley January 29, 2015 Answer at 11.

Docket No. EL15-26-000- 35 -

further asserts that a robust certification is essential, but that the certification should not add a burdensome regulatory requirement, particularly when developers already
overcome years of regulatory hurdles. Cricket Valley states that it generally supports NYISO’s proposed certification requirements. 143

77. IPPNY/EPSA argue that the Commission should adopt the MMU’s proposal, as
augmented by the supplemental provisions discussed by Mr. Younger.144 IPPNY/EPSA
argue that, to rectify flaws with the certification, Mr. Younger proposed increased
verification of companies’ certifications145 and an expanded monitoring period.146

78. Entergy argues that the certification requirements should be expanded to include applicants’ suppliers, customers, and their contracting intermediaries. Entergy asserts
that annual continuing certifications should be required until the project begins producing power, should include a commitment not to accept any future subsidies, and should
contain an ongoing requirement to report any change in circumstances once commercial operations have commenced.147

5.Commission Determination

79.We find that NYISO’s proposed certification provisions, as further modified

below to reflect the suggestions by the MMU, are just and reasonable. We will direct

NYISO to revise its tariff accordingly, and further require that NYISO include the

certification form in the Services Tariff. We find that the Complainants’ proposal, which
includes fewer requirements than NYISO’s, is significantly weaker than the oversight
provisions NYISO proposed. Because NYISO will be relying in large part on the
certifications to determine a new entrant’s eligibility for the competitive entry exemption,
a more stringent certification requirement—one that requires additional important
certifications regarding, for example, direct and indirect contracts, exposure to civil
penalties, and parent and affiliate obligations—is reasonable because it provides for

143 Cricket Valley January 29, 2015 Answer at 7.

144 IPPNY/EPSA January 30, 2015 Answer at 8.

145 IPPNY/EPSA January 30, 2015 Answer at 8 (citing Younger Aff. ¶ 49).
146 IPPNY/EPSA January 30, 2015 Answer at 8 (citing Younger Aff. ¶ 57).

147 Entergy January 30, 2015 Answer at 15 (citing IPPNY/EPSA January 15, 2015 Protest, Ex. A (Younger Aff. ¶ 57)).

Docket No. EL15-26-000- 36 -

greater assurance that the applicant meets the criteria for obtaining a competitive entry exemption.

80. NYISO’s proposal requires a duly authorized officer, with knowledge of the

facts and circumstances, to certify the entity has not entered into any non-qualifying

contractual relationships, either directly or indirectly, that it is not, and is not an affiliate
of, a Non-Qualifying Entry Sponsor, that it will be subject to civil penalties under
section 316A of the FPA if it submits false, misleading or inaccurate information, and
that it, its parents, and its affiliates will cooperate with NYISO. Such certification must
be submitted concurrent with the request for an exemption and each time NYISO
requests a resubmittal until the project enters into service. NYISO’s proposal also
requires that the applicant update NYISO if the information in the request is no longer
true. NYISO’s certification requirements are not unreasonably burdensome on the new
entrant and provide more specificity and transparency both for a resource to determine
whether it has a non-qualifying contractual relationship and for NYISO to determine
eligibility. Moreover, NYISO’s proposal to require notification to NYISO if information
in the certification ceases to be true properly places the burden on the project developer,
rather than on NYISO, to ensure no contracts are executed with Non-Qualifying Entry
Sponsors after the certification is completed.

81. We also require NYISO to include in section 23.4.5.7.8.2.1 the first of the MMU’s
additional requirements for the certification—that no unexecuted agreements with a non-
qualifying entity, written or unwritten, exist that would support the development of the
project. As the MMU explains, without this added safeguard, a project developer could
receive subsidies through contracts that are contingent on the project’s completion, so
have not yet been executed. IPPNY/EPSA complain in their protest that an entrant’s self-
certification ceases as soon as it begins providing power, such that a new entrant could
simply wait until the unit has entered the market to sign an out-of-market contract.
IPPNY/EPSA and Entergy suggest requiring continued annual certifications. We believe
that an applicant certifying that it has no unexecuted agreements, combined with the
existing requirement that NYISO refer to the Commission’s Office of Enforcement if an
applicant provides false, misleading, or inaccurate information, will prevent applicants
from negotiating contracts with Non-Qualifying Entry Sponsors that are contingent on
the project receiving a competitive entry exemption. Moreover, NYISO explained in its
answer that it will not only be conducting its own review of the certifications, in
consultation with the MMU, but its oversight and review will not cease when an entrant
begins operating; rather, NYISO states that it and the MMU will scrutinize contracts
entered into with a Non-Qualifying Entry Sponsor after the entrant begins operating and
will notify the Commission’s Office of Enforcement where necessary.148 NYISO also

148 NYISO January 30, 2015 Answer at 7, 9.

Docket No. EL15-26-000- 37 -

notes that it is highly unlikely that a prospective entrant would be able to obtain financing by misrepresenting itself as a competitive entrant to NYISO, while actually intending to enter into subsidized contracts once operating.

82. We reject the MMU’s second suggested addition to the certification—that none of
a developer’s suppliers or customers, and no entity in the chain of its contractual
relationships with its suppliers or customers, are parties to non-qualifying contractual
relationships that are contingent on the project’s completion. Certifying the inputs and
financing of the entire supply chain for complex generation and transmission facilities is
too burdensome on developers and insufficiently supported by the MMU or any other
participant.

83. With regard to the certification form, although NYISO argues that it should not be
required to incorporate the certification form into its tariff, we direct NYISO to include a
certification form in its Services Tariff because the certification requirements contained
in the form are subject to Commission approval and should not be changed by NYISO
without Commission approval. The form’s provisions are not, as NYISO claims, too far
removed from the rates or terms or conditions of jurisdictional service to necessitate

Commission review. In addition, as TDI points out,149 by requiring that the certification
form be included in the tariff, the form will be available for use by those entering the
Class Year 2015, rather than requiring entrants to wait for NYISO to develop the form.

E.Penalties

1.NYISO’s Answer

84.In addition to modifying the de minimis exception and the certification provisions

that NYISO proposed to its stakeholders, NYISO states that the Complainants did not

include in their proposal the penalties for the submission of false, misleading, or

inaccurate information. NYISO believes that such penalties are necessary to deter misuse
of the exemption and to protect the ICAP market from uncompetitive entry and argues
that the Commission should reinstate them.150 Under NYISO’s proposal, if a project
provides false, misleading, or inaccurate information as part of its certification, NYISO
would revoke its exemption and impose a financial penalty unless NYISO determines
that it would have granted the exemption even if the applicant had submitted complete
and accurate information. NYISO states that the financial penalty would be equal to 1.5
times the maximum capacity revenue that the project would have earned in the ICAP spot

149 TDI January 30, 2015 Answer at 6.

150 NYISO January 15, 2015 Answer at 15.

Docket No. EL15-26-000- 38 -

market auction for the capacity it transacted in NYISO’s market. NYISO asserts that this formula is similar to the currently-effective formula used to calculate penalties under
another part of the buyer-side mitigation rules.151 According to NYISO, the potential
market harm of uneconomic entry can be very significant and difficult to remedy after it occurs. NYISO contends that the misuse of the competitive entry exemption could result in uneconomic entry in a mitigated capacity zone, which could inflict serious and longlasting damage on the market. NYISO explains that: “if an exemption were granted
based on false information capacity payments to all capacity resources could be
depressed. The result would be distorted long-term market signals that would undermine market efficiency and, ultimately, hurt consumers.”152

2.Comments and Protests

85.IPPNY/EPSA agree that there should be penalties, but argue that NYISO’s

proposed penalty structure is inadequate because it proposes only 150 percent of the

maximum ICAP revenue the project could have earned in each month, up to three years,
and therefore underestimates the damage inflicted on the markets by uneconomic
entry.153 IPPNY/EPSA state that the penalty should be applied to any uneconomic
project during every month, without limit, as well as jointly and severally to the Non-
Qualifying Entry Sponsor benefitting from the suppression of prices in the capacity
market.154

3.Answers

86.IPPNY/EPSA argue that NYISO’s proposed penalty structure is flawed. To

rectify these flaws, IPPNY/EPSA point out that Mr. Younger proposed higher penalties for violators.155

87. Entergy asserts that penalties should be applied for every month that an

uneconomic project harms the ICAP market by selling into it without mitigation, and

151 NYISO January 15, 2015 Answer at 15 (citing NYISO, Services Tariff, § 23.4.3.3.2 and Mukerji Aff. ¶ 16).

152 NYISO January 15, 2015 Answer at 16 (citing Mukerji Aff. ¶ 13). 153 IPPNY/EPSA January 15, 2015 Protest at 20.

154 IPPNY/EPSA January 15, 2015 Protest at 20-21.

155 IPPNY/EPSA January 30, 2015 Answer at 8 (citing Younger Aff. ¶ 52-55).

Docket No. EL15-26-000- 39 -

such penalties should be assessed from the beginning of the violation, not from when it is uncovered.156 Moreover, Entergy asserts that the applicant’s suppliers, customers, and their contracting intermediaries should also be subject to penalties if NYISO detects that they have provided an inappropriate subsidy to the applicant.

4.Commission Determination

88.We will not adopt NYISO’s proposed penalty structure because allowing NYISO

to impose financial penalties for this type of behavior is not consistent with Commission rules and relevant precedent. However, we will require NYISO to propose revocation provisions that achieve similar objectives to those provisions used by PJM.157

89. While penalties serve as a deterrent, the Commission’s regulations already

prohibit market participants from submitting false or misleading information, or omitting
material information, in communications with an RTO/ISO158 and require the MMU to
refer such actions to the Commission’s Office of Enforcement.159 These requirements
were already incorporated into NYISO’s tariff.160 Moreover, the Commission only
permits an RTO/ISO to administer its own penalties with respect to behaviors that meet
the following criteria: (1) “the activity must be expressly set forth in the tariff;” (2) “the

activity must involve objectively identifiable behavior;” and (3) “the activity does not

subject the actor to sanctions or consequences other than those expressly approved by the
Commission and set forth in the tariff, with the right of appeal to the Commission.”161

156 Entergy January 30, 2015 Answer at 15.

157 PJM Interconnection, L.L.C., Intra-PJM Tariffs, OATT, Attachment DD, § 5.14(h)(10) (17.0.0).

158 See 18 C.F.R. § 35.41(b) (2014).

159 See 18 C.F.R. § 35.28(g)(3)(iv)(A) (2014).

160 See NYISO, Services Tariff, § 4.1.7 (stating that violating FERC’s orders,
rules, and regulations also constitutes a violation of the Services Tariff); NYISO,
Services Tariff, § 30.2 (defining “market violation” as a tariff violation, a violation of a
Commission order, rule, or regulation, market manipulation, or inappropriate dispatch),
§ 30.4.5.3.1 (stating that the MMU must submit a non-public referral to the Commission
when it believes a market violation has occurred and cease its own investigation unless
directed to continue).

161 New York Indep. Sys. Operator, Inc., 129 FERC ¶ 61,164, at P 98 (2009), order on reh’g, 131 FERC ¶ 61,114 (2010).

Docket No. EL15-26-000- 40 -

We do not find that NYISO’s proposed penalty structure satisfies the “objectively

identifiable behavior” criterion; therefore, pursuant to existing tariff rules and

Commission regulations, NYISO or the MMU should refer such matters to the

Commission’s Office of Enforcement for investigation and potential sanctions beyond revocation of the exemption.162

90. Although we reject NYISO’s proposed penalty structure, we direct NYISO to
propose procedures for responding to submissions of false, misleading, or inaccurate
information in connection with an application for a competitive entry exemption that
achieve the same objective as those adopted in PJM. PJM has two options when it
“reasonably believes” an application for a competitive entry exemption that was granted
contains fraudulent or material misrepresentations or omissions and the exemption would
not have been granted had the application not contained those misrepresentations or
omissions. First, if PJM provides written notice to the entity at least thirty days prior to
the commencement of the offer period for the auction for which the seller submitted the
fraudulent exemption request, PJM can revoke the exemption for that auction and make
any filings with the Commission it deems necessary. If, however, PJM does not provide
at least thirty days’ notice, PJM cannot revoke the exemption absent the Commission’s
approval. In either case, before PJM revokes the exemption or makes a submission to the
Commission, PJM must, to the extent practicable, provide the entity an opportunity to
explain the alleged misrepresentation or omission.163 We believe that it is appropriate for
NYISO to have a mechanism to remedy the submission of false, misleading, or
inaccurate information internally before making a referral to the Commission. This need,
however, must be balanced with the need of the exempted entity to be given notice and
an opportunity to explain its actions. PJM’s tariff provisions achieve this balance,
whereas NYISO’s proposed penalty provisions do not.

91. Based upon the foregoing, we will direct NYISO to propose tariff provisions in its
compliance filing that establish such an internal mechanism with similar features to those
adopted in PJM. In particular, NYISO should include an option to revoke the exemption

162 See Market Monitoring Units in Regional Transmission Organizations and
Independent System Operators, 111 FERC ¶ 61,267, at P 5 (2005) (“The Commission
will act in cases where market participants’ behavior falls outside of the limited area
of objectively identifiable... ”); California Independent System Operator Corp.,

106 FERC ¶ 61,179, at PP 14-16, order on reh’g, 107 FERC ¶ 61,118 (2004) (discussing the role of the MMU); see also 18 C.F.R. § 35.28(g)(3)(iv)(A) (2014).

163 PJM Interconnection, L.L.C., Intra-PJM Tariffs, OATT, Attachment DD, § 5.14(h)(10) (17.0.0).

Docket No. EL15-26-000- 41 -

without obtaining Commission approval first when it provides sufficient notice to the

entrant, but should in all cases, to the extent practicable, provide the entrant with an

opportunity to explain. NYISO’s provisions should also require that non-public referrals be made to the Commission, pursuant to the Commission’s regulations.164

F.Allowable Contracts

1.Complainants’ Proposal

92.The Complainants propose to include in section 23.4.5.7.8.1.3 a list of contracts

that are allowed under the competitive entry exemption—specifically, contracts with Non-Qualifying Entry Sponsors that are not considered non-qualifying contractual
relationships under the competitive entry exemption. The list includes interconnection agreements, agreements for the construction or use of interconnection facilities or
transmission or distribution facilities, contracts for the sale or lease of real property at or above fair market value, easements or licenses to use real property, contracts for
generally available payment-in-lieu of tax (PILOT) agreements or industrial siting
incentives, and service agreements for natural gas, among others.

2.Comments and Protests

93.The City of NY explains that the exceptions to the non-qualifying contracts

proposed in section 23.4.5.7.8.1.3(vi) provides that the PILOT agreements must be

“generally available to industrial entities.” The City of NY requests that this language be changed to read “generally available to industrial or commercial entities.” The City of NY explains that, in some areas of New York, such as New York City, there are very few industrial entities, and the industrial development agencies’ programs are focused on or limited to commercial buildings.165

94. The MMU proposes to add a requirement to section 23.4.5.7.8.1.3 that any

allowable contract listed be transacted at fair market value or cost-of-service prices, as
applicable. The MMU argues that this will ensure that these contracts, even though they
may be subject to state regulatory oversight and transparency, do not result in subsidies

164 See 18 C.F.R. § 35.28(g)(3)(iv)(A) (2014).

165 City of NY January 15, 2015 Comments at 11. The City of NY notes that there are specific provisions in the law applicable to New York City regarding property tax abatements for electric generating facilities. City of NY January 15, 2015 Comments at 11 (citing New York Real Property Tax Law §§ 489-489-aaaaaa, et seq. and New York Indep. Sys. Operator, Inc., 135 FERC ¶ 61,170, at PP 41-43 (2011)).

Docket No. EL15-26-000- 42 -

or other favorable treatment that provides a subsidy. The one type of contract that the

MMU does not believe should be exempted, but was included in the Complainants’

proposal, is any contract providing financial hedges with Non-Qualifying Entry Sponsors. The MMU argues that it is not clear why this may be justifiable.

95. IPPNY/EPSA argue that the Complainants’ definition of Non-Qualifying Entry Sponsor, as originally drafted by NYISO, would permit far too broad a range of entities to secure an exemption—for example, it would permit an exemption to Hydro-Quebec, which is owned by a Canadian governmental province.

96.Entergy agrees with IPPNY/EPSA that all public funding should be prohibited,

including all state-backed and foreign governmental entities.

3.Answers

97.NYISO contends that the definition of “non-qualifying contractual relationships”

is intentionally broad to capture the whole range of possible subsidy arrangements, and
exceptions to the definition are intentionally limited and specific. NYISO states that an
entrant seeking an exemption has the obligation to review its own arrangements and then
certify that it does not have prohibited contractual relationships, and faces serious
compliance risks if it provides false, misleading, or inaccurate information.166 NYISO
further states that it has no objection to the MMU’s recommendation that those contracts
providing a short term financial hedge of up to one year with Non-Qualifying Entry
Sponsors be removed from the list of permissible contracts in section 23.4.5.7.8.1.3.167
NYISO also asserts that it has no objection to the City of NY’s proposal that
section 23.4.5.7.8.1(vi) be changed to read “generally available to industrial or
commercial entities.” NYISO also agrees that the deleted language related to gas
transportation agreements from section 23.4.5.7.8.1.3(viii) and (x), which appears
with redlined strikethrough in Exhibit B to the complaint, should not be included in the
tariff rule.168

98. TDI states that the definition of Non-Qualifying Entry Sponsor appropriately
targets New York entities, and appropriately excludes out-of-market entities. TDI

166 NYISO January 30, 2015 Answer at 8.

167 NYISO January 30, 2015 Answer at 13 (citing MMU January 15, 2015 Comments at 10-11).

168 NYISO January 30, 2015 Answer at 14. We note that NYISO inadvertently listed (vii) instead of (viii).

Docket No. EL15-26-000- 43 -

responds that IPPNY/EPSA do not explain how an out-of-state entity potentially selling
energy and capacity would benefit from price suppression in New York; rather, including
entities outside of New York, they argue, would be over-inclusive and discriminatory.169

99. Cricket Valley supports NYISO’s proposed categorical exclusions from the

definition of non-qualifying contractual relationships, as adopted by the Complainants. Cricket Valley also contends that excluding certain types of common contracts, such as interconnection agreements and development incentives, from the list of non-qualifying contractual relationships is appropriate because they are standard and essential contracts that do not reflect any intent or ability to unfairly subsidize a project.170

100. Entergy asserts that only purely private investment should be able to apply for the exemption. Entergy argues that the concept of a “non-qualifying contractual
relationship” should be expanded beyond contracts, agreements, arrangements, and
relationships to ensure that all forms of subsidy are covered, including those achieved via special tariff treatment or discriminatory tax credits.171

4.Commission Determination

101. While we reject the de minimis exception above, we will adopt a modified version of the Complainants’ proposed list of contracts in section 23.4.5.7.8.1.3 that are not
considered non-qualifying contractual relationships under the competitive entry
exemption. We find the inclusion of this list of allowable contracts to be just and
reasonable because these contracts are related more to economic development than to an attempt to subsidize a resource’s entry into the market. Accordingly, we direct NYISO to revise its Services Tariff to include the Complainants’ proposed section 23.4.5.7.8.1.3,
with the modifications discussed below.

102. The City of NY proposes to revise section 23.4.5.7.8.1.3(vi), which concerns

PILOT agreements, such that it requires that those agreements be “generally available to
industrial or commercial entities.”172 As the City of NY states, this is necessary because
in some areas of New York the industrial development agencies’ programs are focused

169 TDI January 30, 2015 Answer at 4.

170 Cricket Valley January 29, 2015 Answer at 6. 171 Entergy January 30, 2015 Answer at 16.

172 The italicized words represent the language that the City of NY seeks to add to the Complainants’ proposal. See City of NY January 15, 2015 Comments at 11.

Docket No. EL15-26-000- 44 -

on or limited to commercial buildings. We agree and note that no party objects to this proposed change. Accordingly, we direct NYISO to include such change in its
compliance filing.

103. We also adopt the MMU’s suggestion that we remove from that same list of contracts those contracts providing financial hedges with Non-Qualifying Entry Sponsors. We agree with the MMU that there is no justification for its inclusion. NYISO’s compliance filing must reflect this determination.

104. However, we will not adopt the MMU’s proposed requirement that the contracts in
this list be transacted at fair market value or cost-of-service prices, as applicable, in order
to be exempted. We find this provision to be unnecessary given that these contracts are
focused on general economic development, rather than on subsidizing a project. We
further find that adding this requirement would unnecessarily increase NYISO’s
administrative burden.

105. Finally, we order NYISO to remove from the list of allowable contracts reliabilitymust-run contracts. Specifically, the proposed list includes:

a contract that provides for payments to prevent or delay the mothballing or
retirement of an existing Generator or UDR project at the time of the
certification to address a reliability need recognized by the NYISO, as long
as (A) the value of such reliability payments will not increase because of
the entry of the new Generator or UDR project, and (B) the contract does
not exceed the shorter of (1) the time to develop the permanent solution
selected to address the reliability need or (2) seven years.173

We note that this issue was not raised in any of the comments or protests. However, we
find that this provision is unnecessary. Given that NYISO’s existing buyer-side
mitigation rules apply only to new generating resources and thus do not apply to
reliability-must-run contracts, which are established for existing generation units that
have proposed to mothball or retire, we find this provision has no practical effect at this
time and is thus unnecessary.174 Accordingly, we direct NYISO to exclude this category
from the list of contracts that are not considered non-qualifying contractual relationships.

173 See Proposed Services Tariff § 23.4.5.7.8.1.3(vii) (emphasis added).

174 The Independent Power Producers of New York, Inc. filed a complaint in

Docket No. EL13-62-000, arguing that NYISO’s buyer-side mitigation rules are unjust
and unreasonable because they do not apply to capacity offers from resources operating

(continued...)

Docket No. EL15-26-000- 45 -

106. With regard to IPPNY/EPSA’s and Entergy’s arguments that NYISO’s proposed definition of Non-Qualifying Entry Sponsor is too narrow, we agree with TDI that
including entities outside of New York could be over-inclusive and discriminate against owners of generation supply who have no reason or ability to depress prices in New York. We also find that expanding the list of Non-Qualifying Entry Sponsors to include entities outside of New York is unnecessary given the lack of support for the notion that such entities would benefit from low prices in New York.

G. Other NYISO-Proposed Provisions

107. NYISO explains that the Complainants’ proposal did not include various

additional provisions that NYISO developed through the stakeholder process, which are
necessary for the competitive entry exemption to be clearly operative and implementable.
NYISO states that the omitted language addresses implementation details, clarifies the
relationship between the competitive entry exemption and other tariff provisions, and
provides for consistency with other buyer-side determinations.175 First, NYISO states
that its revision to section 23.4.5.7.2 expressly authorizes NYISO to exempt competitive
entrants from the offer floor if they qualify for the competitive entry exemption. Without
this language, NYISO states that it would not have a clear tariff basis for implementing
the proposed competitive entry exemption. In addition, NYISO requests that the
Commission approve: (1) a change to section 30.4.6.2.12 to reflect the addition of the
competitive entry exemption provisions in tariff language governing reports prepared by
the MMU; (2) changes to section 30.6.2.2.5 to allow NYISO to request information
needed to determine the availability of the competitive entry exemption; and (3) an
addition to section 12.4 of its OATT to clarify that information disclosures authorized
under the competitive entry exemption provisions are consistent with OATT rules
regarding the disclosure of confidential information.176

Commission Determination

108. We adopt the changes NYISO proposes in its answer to section 23.4.5.7.2,

section 30.4.6.2.12, and section 30.6.2.2.5 of the Services Tariff, and section 12.4 of the
OATT, and direct NYISO to include those revisions in its compliance filing. We agree
with NYISO that these provisions are necessary both to provide NYISO with a clear tariff

under reliability-must-run contracts. This complaint is currently pending before the Commission.

175 NYISO January 15, 2015 Answer at 18.
176 NYISO January 15, 2015 Answer at 19.

Docket No. EL15-26-000- 46 -

basis for implementing the competitive entry exemption and to make the competitive
entry exemption operative and implementable. We, therefore, find them to be just and
reasonable.

H. Vintaging

1.Comments and Protests

109. NYPA/LIPA argue that the competitive entry exemption should include a

vintaging rule to avoid impacting currently mitigated units.177 NYPA/LIPA assert that
the rules must be designed so that mitigated projects continue to be judged against the
system they entered, without regard to projects exempted after mitigated projects’
entry.178 NYPA/LIPA contend that some resources were mitigated without the
availability of a competitive entry exemption, even if they might have been eligible for
the competitive entry exemption, had one existed at their time of entry, and should not be
placed in a permanent class of disadvantaged projects.179 NYPA/LIPA state that an
exemption process cannot unfairly infringe upon previously mitigated projects’
reasonable expectation that with load growth, retirements, and CONE inflation, they can
emerge from mitigation.180 NYPA/LIPA argue that it would be inappropriate to allow
projects that are advantaged by a competitive entry exemption to move the bar and
preclude existing mitigated projects from emerging from mitigation.181

2.Answers

110. NYISO argues that it does not support NYPA/LIPA’s vintaging at this time.

NYISO argues that, under the currently effective rules, entrants that have previously been
mitigated are not treated any differently when a subsequent entrant obtains an exemption
or receives a lower offer floor. NYISO contends that the Commission has held that

177 NYPA/LIPA January 15, 2015 Comments at 4.

178 NYPA/LIPA January 15, 2015 Comments at 9.
179 NYPA/LIPA January 15, 2015 Comments at 10.
180 NYPA/LIPA January 15, 2015 Comments at 9.
181 NYPA/LIPA January 15, 2015 Comments at 9.

Docket No. EL15-26-000- 47 -

entrants that are subject to an offer floor should cease to be mitigated to the extent that
their capacity cleared the market for twelve, not necessarily consecutive, months.182

111. IPPNY/EPSA argue that NYPA/LIPA’s vintaging proposal is a collateral attack on the Commission’s order accepting NYISO’s proposal to remove the provision from the
buyer-side mitigation rules that applied offer floor mitigation to an uneconomic project
for only three years, whether or not the project actually became economic by the end of
that three year period.183

112. According to Entergy, NYPA/LIPA’s proposed vintaging rule would

unnecessarily rescue uneconomic entrants from their own uneconomic entry and therefore allow uneconomic resources to suppress prices.184

3.Commission Determination

113. We reject NYPA/LIPA’s vintaging proposal. Under existing rules, if a resource
does not obtain an exemption from the buyer-side mitigation rules in advance of
operation based on NYISO’s forecast of future revenues, buyer-side mitigation continues
until it is demonstrated that the resource is needed in the market by clearing in twelve,
not-necessarily-consecutive, monthly auctions. We see no reason why mitigation should
be lifted from such a resource based on its ability to clear a hypothetical auction that
excludes one or more categories of supply that have actually offered into the auction.
Excluding any actual supply would not accurately test whether the resource is needed.
Further, this proceeding concerns the need for a new exemption based on the type of
project developer, i.e., an unsubsidized merchant with no incentive to add excess capacity
to the market in order to lower prices. The vintaging proposal challenges the existing
mitigation exemption calculation methodology, which is not at issue here, and which will
continue to apply to non-merchant projects.

I.Requests for Other Exemptions

114. The City of NY argues that the adoption of the competitive entry exemption is not
sufficient, on its own, to address all of the problems with the buyer-side mitigation rules.
Other concerns pertain to entities that seek self-supply and the treatment of renewable
sources of supply. The City of NY argues that, due to their operating constraints, most

182 NYISO January 30, 2015 Answer at 15.

183 IPPNY/EPSA January 30, 2015 Answer at 5. 184 Entergy January 30, 2015 Answer at 12.

Docket No. EL15-26-000- 48 -

renewable resources could not be used to exercise monopsony power, and there is no evidentiary or other basis for the Commission to find renewable resources are being developed to manipulate the capacity markets.185

Commission Determination

115. We find the City of NY’s arguments concerning self-supply and renewable

resources are beyond the scope of this proceeding, which, as noted above, is focused only
on whether it is appropriate for a merchant resource to be exempted from NYISO’s
buyer-side mitigation rules, and not whether other exemptions should also be
implemented.

J.Miscellaneous Issues

116. We direct NYISO to address several additional items in the compliance filing to
be submitted within 30 days of the issuance of this order. First, NYISO is directed to
correct the first sentence of proposed Services Tariff section 23.4.5.7.8.1.2 to refer to
section 23.4.5.7.8 in both instances, rather than to section 23.4.5.7.6. Second, in that
same section, NYISO is directed to change the word “Sponsors” in the second sentence
so that the sentence reads, in pertinent part: “if the third party has a non-qualifying

contractual relationship with a Non-Qualifying Entry Sponsor, the recital... ” In its

compliance filing, we direct NYISO to revise these and any additional typographical errors as necessary.

V.Extension of Notification Deadline

117. To ensure that any entrant seeking to enter Class Year 2015 and apply for the

competitive entry exemption has enough time to consider the requirements of the

exemption, we sua sponte waive the requirement in OATT section 25.5.9 that an entrant notify NYISO “within five (5) Business Days of the Class Year Start Date.”186 Thus, we direct NYISO to extend this deadline by five additional business days. This means that, instead of the deadline for submitting notice to NYISO being March 6, 2015, the deadline will be March 13, 2015.

185 City of NY January 15, 2015 Comments at 9. 186 NYISO, OATT, § 25.5.9 (4.0.0).

Docket No. EL15-26-000- 49 -

The Commission orders:

(A) The complaint is hereby granted, in part, as discussed in the body of this

order.

(B) We hereby waive the notice requirement in OATT section 25.5.9, and
extend the deadline for submitting notice to NYISO, as discussed in the body of this
order.

(C) NYISO is hereby directed to submit a compliance filing within 30 days of
the date of this order, to be effective the date of this order, as discussed in the body of this
order.

By the Commission. ( S E A L )

Nathaniel J. Davis, Sr.,
Deputy Secretary.