UNITED STATES OF AMERICA
BEFORE THE

FEDERAL ENERGY REGULATORY COMMISSION

Transmission Planning and Cost Allocation)

By Transmission Owning and Operating)Docket No. RM10-23-000

Public Utilities)

COMMENTS OF

THE NEW YORK INDEPENDENT SYSTEM OPERATOR, INC.

The New York Independent System Operator, Inc. (“NYISO”) respectfully

submits these comments on the Commission’s Notice of Proposed Rulemaking (“NOPR”)
concerning Transmission Planning and Cost Allocation by Transmission Owning and
Operating Public Utilities.1 The NYISO supports the Commission’s goals of facilitating
transmission planning and, where appropriate, promoting transmission infrastructure
investment. The NOPR outlines a number of reasonable reforms that should help to
achieve the Commission’s objectives. It appropriately continues the Commission’s
traditional policy of allowing different regions the flexibility to develop their own
solutions to transmission planning process and implementation requirements. It also
rightly focuses on the need to avoid taking actions that “might disrupt the progress that is
already being made... ”2 in transmission planning, a principle that is especially

important in Independent System Operator and Regional Transmission Organization
(“ISO/RTO”) regions. Finally, the NOPR would reasonably require that interregional
planning and cost allocation arrangements be established only for facilities that are

1 Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities, 131 FERC ¶ 61,253 (2010) (“NOPR”).

2 Id. at P 33.

physically located within neighboring regions and would prohibit the involuntary

allocation of costs to those who would not receive any benefit.

The Commission should reject any proposals that would entail more radical and
disruptive changes to ISO/RTO planning rules or overly prescriptive mandates that would
override regional flexibility. At the same time, the Commission should recognize that the
transmission planning and cost allocation “deficiencies” which the NOPR is intended to
address do not exist in all parts of the country. It should therefore narrow the scope of
the compliance filings under a final rule so that ISOs/RTOs are not effectively compelled
to once again demonstrate compliance with requirements that they have already satisfied
in their individual Order No. 8903 planning proceedings. Any final rule should clarify
that public utility transmission providers will not be required to have a separate cost
allocation process exclusive to “public policy” transmission projects so long as such
projects fall within the scope of some other cost allocation procedure (or if the procedure
for consideration of such public policies does not require a separate cost allocation
methodology). Finally, the Commission should be cautious in exercising any authority
that it may have to impose pre-determined interregional cost allocation methodologies
and cost recovery mechanisms. Experience suggests that doing so is likely to be
extremely difficult and may well do more harm than good.

In addition to these comments, the NYISO is a signatory to, and supports, the Comments of the ISO/RTO Council, which were also submitted today.

3 Preventing Undue Discrimination and Preference in Transmission Service, Order No. 890,

FERC Stats. & Regs. ¶ 31,241, 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 No. 890”).

I.BACKGROUND

A.The NYISO’s Compliance with Order No. 890’s Planning

Requirements

Order No. 890 required all public utility transmission providers to submit

compliance filings adopting an open, transparent, and coordinated planning process at
both a regional and a local level, and to propose “a coordinated and regional planning
process” that satisfied various planning principles and requirements.4 Recognizing that
some transmission providers, particularly ISOs/RTOs, already had substantial planning
processes in place, the Commission held that “a transmission provider (including an RTO
or an ISO.... ) may make a compliance filing in this proceeding describing its existing
coordinated and regional planning process, including the appropriate language in its
tariff, and show that this existing process is consistent with or superior to the
requirements in this Final Rule.”5

The NYISO held numerous stakeholder meetings regarding Order No. 890’s requirements and worked collaboratively with stakeholders to develop a compliance proposal that enjoyed broad support. The overall compliance effort spanned several years and is now very nearly complete.

Well before Order No. 890, the NYISO held a collaborative stakeholder process
to create a Comprehensive Reliability Planning Process (“CRPP”) under Attachment Y to
its Open Access Transmission Tariff (“OATT”) that was filed in August 2004.6 The

4 Order No. 890 at P 437.

5 Id.

6 New York Independent System Operator, Inc., Filing of Comprehensive Reliability Planning Process and Related Agreement, Docket No. ER04-1144-000 (filed August 20, 2004).

Commission approved the CRPP in December 20047 and the NYISO issued its first

reliability planning assessment and comprehensive plan in 2005.8

Following Order No. 890, the NYISO, together with the New York Transmission
Owners (“NYTOs”),9 submitted a joint initial compliance filing (“December 2007
Filing”) proposing a new Comprehensive System Planning Process (“CSPP”) that built
upon the CRPP. The NYISO and the NYTOs proposed to add a Local Transmission
Planning Process (“LTPP”) for open and transparent planning by individual NYTOs for
their local systems.10 Moreover, the NYISO proposed a new economic planning process-

- the Congestion Analysis and Resource Integration Study (“CARIS”) under which the
NYISO analyzes congestion on the bulk power transmission system over a ten-year
period, conducts additional congestion studies for all requestors at their expense, and
conducts studies on specific projects to relieve congestion.11 The NYISO proposed to
extend the planning cycle from one year to two years to accommodate these additional
functions.

The December 2007 Filing also explained that the NYISO would satisfy Order
No. 890’s interregional coordination principle through its continued participation in the
Northeast Coordinated System Planning Protocol (“NCSPP”), which is now on file with

7 New York Independent System Operator, Inc., 109 FERC ¶ 61,372 at P 1 (2004).

8 See New York Independent System Operator, Inc., Comprehensive Reliability Planning Process
(CRPP) Reliability Needs Assessment (December 21, 2005), available at < http://www.nyiso.com/public/
webdocs/newsroom/press_releases/2005/rna_final12212005.pdf>.

9 The NYTOs supporting the joint compliance filing were Central Hudson Gas & Electric

Corporation, Consolidated Edison Company of New York, Inc., Long Island Power Authority, New York Power Authority, New York State Electric & Gas Corporation, Niagara Mohawk Power Corporation d/b/a National Grid, Orange and Rockland Utilities, Inc., and Rochester Gas and Electric Corporation.
References to the NYISO in this section should be read to include the NYTOs, which have joined the NYISO in each of the compliance filings.

10 NYISO OATT, Attachment Y at Section 31.2.1.

11 NYISO OATT, Attachment Y at Section 31.3.1.

the Commission. The NCSPP provides the procedures for the exchange of planning-
related data and information and establishes the system planning analysis procedures to be utilized by the parties. The NCSPP also provides for the development of a
Northeastern Coordinated System Plan among PJM, the NYISO, and ISO-NE (including the technical participation of the Ontario Independent Electric System Operator, Ontario Power Authority, Hydro Quebec, and New Brunswick) which incorporates the individual system plans. The entire process is conducted in an open and transparent manner in
collaboration with an inter-regional stakeholder advisory committee (“IPSAC”).
On June 18, 2008, the NYISO supplemented the December 2007 Filing with a tariff proposal governing cost allocation and cost recovery for regulated transmission reliability projects under the CRPP (“June 2008 Filing”).

In an order issued on October 16, 2008,12 the Commission found that the tariff

proposals in the December 2007 and June 2008 Filings were substantially consistent with the planning directives set forth in Order Nos. 890 and 890-A, and conditionally accepted those proposals for filing subject to the submission of a compliance filing addressing
certain identified issues.

On January 14, 2009 and May 19, 2009, the NYISO submitted joint compliance
filings in response to the October 2008 Order (respectively, the “January 14 Filing” and
the “May 19 Filing”). In an order issued on October 15, 2009 (“October 2009 Order”),13
the Commission conditionally accepted for filing the tariff amendments submitted by the

12 New York Independent System Operator, Inc., 125 FERC ¶ 61,068 (2008) (“October 2008

Order”). Notably, at P 70 of the October 2008 Order, the Commission cited the NCSPP and found that the NYISO’s compliance filing satisfied Order No. 890’s inter-regional planning principle. Similarly, the NYISO understands that the Commission found PJM and ISO-NE to be compliant with the interregional coordination requirements of Order No. 890 based on the existence of the NCSPP.

13 New York Independent System Operator, Inc., 129 FERC ¶ 61,044 (2009).

NYISO in the January 14 and May 19 Compliance Filings, and directed the submission
of an additional compliance filing to address “certain discrete issues.”
On December 11, 2009, the NYISO submitted a compliance filing addressing most of the compliance issues identified in the October 2009 Order. On April 13, 2010, the NYISO submitted another compliance filing addressing the remaining issues that were not addressed in the December 11, 2009 filing. On August 30, 2010, the
Commission issued an order unconditionally accepting that filing.14
Finally, on July 15, 2010, the Commission issued an order accepting for filing the changes submitted in the December 11, 2009 compliance filing, and directing further minor changes to Attachment Y of the NYISO OATT. The NYISO filed those directed changes with the Commission on August 16, 2010. Those compliance revisions are the last component of the NYISO’s and NYTOs’ compliance with Order No. 890’s
transmission planning requirements that remains pending before the Commission.

B. The NYISO’s Comprehensive System Planning Processes

The two-year planning cycle under the CSPP commences with the LTPP of each
NYTO, which develops a Local Transmission Plan (“LTP”), with input from interested
parties participating in the NYISO’s planning processes. The NYISO uses the LTPs as
input to its base case for its reliability planning process for the New York Bulk Power
Transmission Facilities. The CRPP includes the development of a Reliability Needs
Assessment (“RNA”) and a Comprehensive Reliability Plan (“CRP”). For each
“Reliability Need” identified in the reliability planning process, the NYISO seeks market-
based solutions -- which may include generation, transmission, or demand response

14 New York Independent System Operator, Inc., et al., 132 FERC ¶ 61,188 (2010).

resources -- while at the same time designating a Responsible Transmission Owner to

plan and, if necessary, implement a regulated backstop solution if no viable market-based
solutions are forthcoming in time to satisfy the Reliability Needs. Other Developers may
also submit proposals for alternative regulated solutions. All proposed solutions are
analyzed by the NYISO to determine whether they will meet the identified Reliability
Needs.

Once the reliability planning phase of the CSPP is complete, an economic
planning process is conducted through the CARIS, a group of three congestion and
resource integration studies developed with stakeholder input through an open and
transparent process. Under Phase II of CARIS, the NYTOs or developers may submit
proposals for regulated economic transmission projects for evaluation by the NYISO for
cost recovery under the NYISO’s Tariff. As the NYISO explained in the December 7
Filing, the costs of economic upgrades will be allocated based on a “beneficiaries pay”
approach under which those entities that economically benefit from a project will bear its
costs, and the cost allocation among them will be based upon their relative economic
benefit from such upgrades. The proposed economic cost allocation and cost recovery
mechanism under the NYISO OATT will apply only if at least a super-majority of a
project’s beneficiaries -- 80 percent of the weighted vote of the beneficiaries -- agree that
an economic project should proceed.

Attachment Y also uses a “beneficiaries pay” cost allocation methodology for
regulated transmission projects, when they are needed to meet reliability needs because
private investment in projects is insufficient. The methodology is based on a three-step
approach that focuses on whether a need is a locational need, a statewide need, or a

bounded regional need.15 For upgrades needed to satisfy locational reliability

requirements in those areas that have Locational Capacity Requirements (“LCRs”) for
Installed Capacity -- currently, New York City and Long Island -- costs are allocated
solely to LSEs in those LCR zones. For upgrades needed to satisfy statewide reliability
requirements, costs are allocated to all New York Control Area (“NYCA”) load zones
based on their contribution to the NYCA coincident peak load, although the LCR zones
receive a credit against this allocation for costs incurred to meet their locational capacity
requirements. For upgrades needed to satisfy reliability requirements within a bounded
area, costs are allocated to zones within the bounded area based on their NYCA
coincident peaks.

C. Transmission Planning in New York Works Well

The NYISO recognizes the Commission’s view that reforms are needed to

address “deficiencies” in certain existing regional transmission planning and cost

allocation procedures. The NYISO respectfully submits, however, that its Commissionapproved processes and procedures do not have significant deficiencies and are not in need of major reform. That does not mean that the NYISO opposes the NOPR or
believes that all of its existing procedures are perfect. As is discussed in more detail below, in Section II, the NYISO supports nearly all of the NOPR’s proposals and is
prepared to make the incremental improvements that would be applicable to it if the
NOPR’s proposals were to be adopted. It does mean, however, that the Commission should reject any suggestions that may be offered in comments that would require
unnecessary radical changes in regions such as New York.

15 Needs are determined in accordance with a standard that requires sufficient resources to ensure that the New York Control Area has a loss-of-load expectation of less than 0.1 days per year.

Needed transmission has been, and is being, constructed to serve New York.

Among other developments, between 2000 and 2009 nearly 1,300 MW of transmission
capability was added to bring more power to Long Island and New York City from the
PJM and New England control areas.16 Additional transmission projects are at varying
stages of development, including: (i) the Hudson Transmission Project, a planned 660
MW 4.5 mile underwater DC cable between New Jersey and New York City that plans to enter service in 2012;17 (ii) the Cross Hudson-Cable Project, a 700 MW, 8 mile AC line
between New Jersey and New York City projected to enter service by mid-2013; and (iii) the Champlain-Hudson Power Express, a 370 mile underwater and underwater DC cable that would deliver up to 1,000 MW of wind and hydropower to New York City, and
which is expected to enter service in 2015.18

The prevalence of new and proposed underwater transmission facilities

terminating in the downstate region is not unexpected given environmental and other

siting restrictions in New York, the distribution of the State’s load, and the insular

geography of the downstate region. Transmission investment decisions reflect in part the recommendations and other information produced by the NYISO’s planning processes, with respect to both transmission and non-transmission resources, as well as the

16 New York Independent System Operator, Inc., Power Trends 2010 at 3, 5 (April 5, 2010)
available at < http://www.nyiso.com/public/webdocs/newsroom/power_trends/
powertrends2010_FINAL_04012010.pdf>.

17 The New York State Public Service Commission approved issuance of a certificate of public

convenience and necessity for the Hudson Transmission Project at its Session held September 8, 2010. See PSC Case No. 08-T-0034, HUDSON TRANSMISSION PARTNERS, LLC - Appn. for a Certificate of
Environmental Compatibility and Public Need for a 345 Kilovolt Submarine/Underground Electric
Transmission Line Between Manhattan and New Jersey.

18 Champlain Hudson Power Express, Project Details - Background (2010) available at <
http://www.chpexpress.com/background.php>.

locational price signals emanating from the NYISO-administered energy, capacity, and ancillary services markets.

D.Recent Interregional Planning Developments in the Eastern

Interconnection

The NYISO has played a leading role in the formation and implementation of the
Eastern Interconnection Planning Collaborative (“EIPC”), which has been awarded $16
million by the Department of Energy to conduct interconnection-level planning and
analysis under the American Recovery and Reinvestment Act of 2009 (“ARRA”). The
EIPC will build upon the regional expansion plans developed each year by regional
stakeholders in collaboration with their respective North American Electric Reliability
Corporation Planning Authorities. The Stakeholder Steering Committee (“SSC”) was
formed in June, interconnection-wide technical analysis is already underway, and the
SSC has formed working groups to recommend future resource scenarios that will be the
subject of detailed transmission reliability and economic analysis during Phase II. This
approach will provide coordinated interregional analysis for the entire Eastern
Interconnection guided by the consensus input of an open and transparent stakeholder
process.

The NYISO, and other EIPC participants, believe that the results of this unique initiative will provide a sound basis for policy makers, and regulators, as they consider future transmission system from a public policy perspective. The NYISO appreciates the NOPR’s support for the EIPC and the Commission’s statement that it does not intend for its new proposals to interfere with this important initiative.

II.COMMENTS

A.Proposed Transmission Planning Reforms

1.Participation in a Regional Transmission Planning Process

The NOPR proposes to require public utility transmission providers to participate
in a regional transmission planning process that produces a regional plan that meets seven
of the nine Order No. 890 transmission planning principles.19 Regional processes would
have to “consider and evaluate transmission facilities and other non-transmission
solutions” and to “develop a regional transmission plan that identifies transmission
facilities that cost-effectively meet the needs of transmission providers, their transmission
customers, and other stakeholders.”20 The NOPR also noted that “the existing regional
transmission processes that many utilities relied upon to comply with the requirements of
Order No. 890 may require only modest changes to fully comply with these
requirements.”21

The NYISO supports the NOPR’s proposed regional planning requirements but
respectfully submits that ISOs/RTOs should not be required to make a new compliance
filing to address them. As was explained above, the NYISO and the NYTOs already
conduct a comprehensive regional transmission planning processes that accounts for
reliability and economic needs for the bulk power system in the New York Control Area.
The CSPP already provides comparable treatment to both transmission and non-
transmission solutions (generation and demand response), and culminates in the
development of a regional plan. Furthermore, as noted above, the Commission has

19 NOPR at Appendix B.

20 Id. at P 51.

21 Id at P 53.

already found the CSPP to be in compliance with Order No. 890’s planning principles with respect to reliability and economic projects. The NYISO understands that the same is true of other jurisdictional ISOs/RTOs.

Accordingly, none of the “deficiencies” that the NOPR identified with respect to
regional planning appear to be applicable to the NYISO or to other ISOs/RTOs. It
likewise does not appear that ISOs/RTOs will need to make even “modest changes” that
the NOPR anticipated might be required in some regions. The NYISO respectfully
submits that it is in full compliance with Order No. 890 and the principles established in
the NOPR for regional transmission planning. Compelling the NYISO (and the NYTOs)
to make another compliance filing to re-establish that they are meeting the Commission’s
expectations in this area would not serve any useful purpose, but would divert limited
resources from the implementation of the approved planning procedures.
The final rule in this proceeding should also clarify that it is not calling for any changes to the configuration of the ISO/RTO planning regions that were accepted in
various Order No. 890 compliance proceedings. There would be no benefit to revisiting
the boundaries of ISO/RTO planning regions. Engaging in such an exercise would only
expend resources that would be more productively committed to actual planning work.

2.Public Policy Driven Projects

a.“Considering” vs. “Identifying” Public Policy Priorities

The NOPR would require all public utility transmission providers to amend their tariffs to explicitly provide for consideration of public policy requirements established by state or federal laws or regulations in local and regional transmission planning.22

22 Id. at P 64.

Planning studies may also choose to consider such proposals even when they are not

explicitly required. The NOPR did not propose to identify the public policy requirements
that must be considered in each local or regional process. Instead, it would “require each
public utility transmission provider to coordinate with its customers and other
stakeholders to identify public policy requirements established by state or federal laws or
regulations that are appropriate to include in its local and regional planning processes.23
While the NYISO supports the NOPR’s proposal, the Commission should
understand, that existing transmission planning rules already provide for consideration of
public policy requirements in many regions. For example, both the NYISO’s reliability
and economic planning processes already include robust scenario analyses of the impacts
of environmental regulations, energy efficiency, renewable resource and other public
policies contained in federal and New York State laws, rules and goals on the bulk power
transmission system and future system needs.

In addition, the NYISO has provided technical analyses that were instrumental in
the development of the long-range New York State Energy Plan (“SEP”),24 which was
adopted in 2009 at the direction of the New York State Energy Planning Board (“SEPB”)
(and which encompasses electricity as well as other energy issues). The SEPB brings
New York State’s various energy, environmental, and public welfare agencies together to
formulate an SEP that reflects the state’s principal energy policy objectives. These
policies include promoting renewable energy resources (wind, solar, sustainable
hydroelectric), and energy efficiency so that 45 percent of the State’s electricity needs in

23 Id. at P 65.

24 See State Energy and Planning Board, 2009 State Energy Plan (December 2009), available at
<http://www.nysenergyplan.com/stateenergyplan.html>.

2015 will be met by renewables (30 percent) and energy efficiency (15 percent), one of the most aggressive goals of its kind in the nation.

The NYISO conducted bulk power system reliability analyses and various

scenario analyses for the 2009 New York State Energy Plan, and provided numerous

white papers and technical input to the State Energy Plan Technical Working Group. A
new State law in 2009 has designated the NYISO a non-voting member of the SEPB 25
The NYISO expects to devote significant resources to the next SEP development in 2011.

Furthermore, the NYISO is already required to perform certain transmission

studies upon request by the New York State Public Service Commission. Recently, the NYISO completed an extensive study on the transmission system impacts of integration of up to 8,000 MW of future wind-powered generation in New York.26 The NYISO also conducts other “special studies” that inform state policymaking, such as a study of the
bulk power system resource impacts of proposed nitrogen oxides rules requiring
“Reasonably Available Control Technology” for fossil fueled power plants. The NYISO stands ready to study the impacts of federal energy and environmental policies, such as a possible future federal renewable portfolio standard or carbon cap and trade program, on the New York bulk power transmission system.

New York and other regions have their own energy planning priorities. There is
thus ample reason for the Commission to afford different regions the flexibility to
respond to the NOPR’s proposed “public policy” requirements in the manner that best

25 McKinney’s Session Laws of New York, 2009 N.Y. Laws Chapter 433.

26 The NYISO has not finally published the report, however, a final draft was provided at the June
18, 2010 Market Issues Working Group Committee Meeting Group meeting. See, New York Independent
System Operator Inc., NYISO Wind Generation Study Final Draft (June 2010), available at <
http://www.nyiso.com/public/webdocs/committees/bic_miwg/meeting_materials/2010-06-
18/Wind_Generation_Study_Report_Final_Draft_6_22_10_CLEAN.doc>.

suits their circumstances. Accordingly, the NYISO supports the NOPR’s call for planning processes to “consider” and “account for” state and federal public policy programs without being more prescriptive.

The final rule in this proceeding should be clear that public utility transmission

providers will not be charged with identifying which public policies should be considered
in the planning process, or with somehow coming up with those policies themselves.
Such a requirement would necessarily compel public utility transmission providers, and
stakeholders, to “identify” which public policies would be excluded from consideration.
Although the NYISO has a voice in the public policy-making process and lends its data
and expertise to that process, it is not itself engaged in making public policy and it looks
to New York and federal policy makers for the direction to follow in its analyses. Public
utility transmission providers should simply consider public policy priorities that have
been identified by such policy makers in their planning processes.
Making private entities responsible for assessing the relative importance, or even the validity, of energy or environmental public policies would not be appropriate.
Consequently, the final rule should instead expressly accommodate arrangements, such as
New York’s, where “identifying” public policy priorities is rightly the province of state
and federal authorities.

b. Use of Flexible Criteria for Determining which Projects

Should Be Included in a Regional Transmission Plan

The NOPR invites comments on “how planning criteria based on public policy
requirements should be formulated, including whether it is more appropriate to use
flexible criteria instead of ‘bright line’ metrics when determining which projects are to be

included in the regional transmission plan....”27 The NOPR expressed some concern

that the use of flexible criteria might “provide undue discretion as to whether a project is included in a regional transmission plan” while also noting that the use of “bright line metrics” could “inappropriately result in alternating inclusion and exclusion of a single project over successive planning cycles ” and thus be disruptive.28

The Commission should not adopt uniform national requirements in this area, but
should allow different regions to adopt metrics that best suit their circumstances. In
general, the NYISO is not concerned that the exercise of “undue discretion” is a danger
that the Commission needs to guard against in ISO/RTO regions, since ISOs/RTOs are
independent neutrals with no commercial interests in planning outcomes. Moreover,
allowing for the use of more flexible criteria appears to be more consistent with the
NYISO’s position that policymakers, whose policy decisions will not be constrained by
Commission-approved tariffs in any event, should identify which public policy
considerations are relevant to transmission planning. Although regions that prefer “bright
line metrics” should be free to propose them, the Commission should not mandate that
they be used.

3.Treatment of Non-Incumbent Transmission Providers

a.Eliminating the “Federal Right of First Refusal”

The NOPR expresses concern that existing regional transmission planning

arrangements might allow for undue discrimination and preferential treatment against

non-incumbent transmission providers. It therefore proposes to require public utility

transmission providers to make a variety of tariff revisions to accommodate participation

27 NOPR at P 70.

28 Id.

by non-incumbents in regional transmission planning efforts. Among these reforms is a proposal to eliminate any “federal right of first refusal” that might exist under the public utility transmission provider’s Commission-approved tariffs or agreements.29

The NYISO generally supports the NOPR’s proposal, but notes again that the

potential problem it is aimed at addressing does not exist in all regions. There has never
been a “federal right of first refusal” in any of the NYISO’s tariffs or agreements. To the
contrary, the NYISO invites and considers all proposed solutions and solution types at the
same time and on a comparable basis. The CRPP invites “Other Developers” to submit
both merchant and alternative regulated reliability project proposals for analysis by the
NYISO. CARIS, similarly, has no restrictions on who may propose a regulated economic
transmission project for evaluation. The NYISO therefore is already in compliance with
the NOPR’s proposed requirement in this regard. Any final rule in this proceeding

should be clear that entities such as the NYISO are not required to change existing
planning arrangements in connection with the elimination of the federal right to first
refusal.

b.Qualification Criteria for Transmission Project

Sponsors

The NOPR proposes to require each public utility transmission provider to

demonstrate that its regional transmission planning process includes appropriate

qualification criteria for determining an entity’s eligibility to propose a project that do not
discriminate between incumbents and non-incumbents. All such criteria would be
included in the public utility transmission provider’s OATT. The NOPR states that it is
not “intended to change existing RTO and ISO operational procedures and practices . . .

29 Id. at PP 87-95.

.”30 but also seeks comment on whether there should be “a single set of qualification criteria that would apply in all regional transmission planning processes ”31

The NYISO supports the NOPR’s proposal but urges the Commission not to

attempt to create a single set of “one size fits all” qualification criteria. Well-developed criteria already exist in the NYISO region. The NYISO developed them criteria with its stakeholders and, in response to a recent FERC compliance order, has incorporated those criteria into the reliability and economic transmission planning processed contained in
Attachment Y of its OATT. These criteria are applicable to both incumbent and non-
incumbent proposals on a comparable basis. Attempting to create standardized national criteria would unnecessarily re-open questions that have been successfully resolved
within the respective regions and distract from more important planning work. Allowing regional flexibility is the better approach.

c.Eligibility for Regional Cost Recovery

The NOPR would clarify that non-incumbents must enjoy the same right as

incumbents to recover the cost of a transmission project through a regional cost allocation
method -- provided that they participate in the regional planning process. Conversely,
“costs associated with a project that is not included in the regional transmission plan,
whether proposed by an incumbent or by a non-incumbent transmission provider, may
not be recovered through a transmission planning region’s cost allocation process.” 32 At
the same time, the NOPR would not require a developer that does not seek to take

30 Id at n. 97.

31 Id. at P 90.

32 NOPR at P 96.

advantage of a regional cost allocation mechanism, e.g., a merchant transmission

developer, to participate in the regional transmission planning process.33

The NYISO strongly supports all of these proposals. In particular, the question of
whether developers that do not participate in a regional transmission process may
nevertheless obtain regional cost recovery has been controversial in several ISO/RTO
regions. By incorporating the NOPR’s proposal in a final rule the Commission will
provide needed certainty,34 adopt a reasonable compromise that recognizes the
importance of the regional planning processes, and discourage future attempts to make
end-runs around them. Eliminating the federal right of first refusal should also
ameliorate any legitimate concern a developer might have that its efforts to advance a
proposed project through a regional process might go to waste.35 As the NOPR proposes,
however, project sponsors that do not intend to participate in a regional planning process
should remain free to do so provided that they are willing to recover their costs through
existing market structures or other means.

d.Special Priority Rights

Finally, the NOPR proposes to create a new priority for non-incumbent sponsors
whose projects are not included in one year’s regional transmission plan but that then re-
submit the projects in later years. In that situation, the sponsor would have the “right” for

33 Id. at P 99.

34 See, e.g., The Nevada Hydro Company, Inc. and California Independent System Operator

Corp., 129 FERC ¶ 61,098 at P 25 (2009) (finding that a project must be evaluated “under CAISO’s

transmission planning process”), reh’g denied, 131 FERC 61,124 at P 24 (2010) (same); Pioneer

Transmission, LLC, 130 FERC ¶ 61,044 at P 17 (2010) (finding that a project would “have to be evaluated through Commission-approved transmission planning processes”).

35 The NOPR notes this possible concern at PP 87-88.

a number of years to develop its project even if one or more substantially similar projects were proposed by others in later transmission planning cycles.36

As drafted, this proposal appears to be highly problematic for the reasons that are
set forth in the Comments of the ISO/RTO Council. Most notably, it would actually
hinder transmission planning by creating an incentive for potential sponsors to flood
transmission queues with speculative projects in order to capture the priority “right to
build.” The NYISO’s planning process already includes procedures establishing the
timelines and windows of opportunity for projects to be submitted to the NYISO for
evaluation in each planning cycle. This process includes projects proposed by incumbent
NYTOs as well as Other Developers of generation, transmission and/or demand response
resources. There has been no suggestion that these procedures are not just and reasonable.
Moreover, creating such a preferential right would interfere with the market-
driven nature of the NYISO’s reliability and economic planning processes. Under the
CRPP and the CARIS, if a reliability need is identified or congestion quantified over
certain facilities, private developers compete for investors and financing for their projects
and the discipline of the market determines which projects are built. If the Commission
creates a right to develop for certain developers, it will disrupt that discipline by favoring
certain projects over others that would not necessarily merit development based on their
economics. Accordingly, the Commission should not adopt generic requirements that
would override the existing procedures in a final rule. The Commission should instead
allow for regional flexibility and not mandate a new preferential right for any one class of
market participants.

36 NOPR at P 95.

4.Interregional Planning

The NOPR proposes to require each public utility transmission provider to

coordinate with each of the neighboring regions within its interconnection to address
transmission planning issues.37 Coordination between planning regions would be
governed by bilateral interregional planning agreements, which would be filed with the
Commission, and which could be developed by ISOs/RTOs on behalf of their members.38
The NOPR specifies a number of features that would have to be included in interregional
agreements.39 In particular, the NOPR would require that the agreements provide for the
concurrent and coordinated evaluation of projects that would be located in two
neighboring regions and clarify that inclusion of the regional project in both regional
transmission plans would be a prerequisite to the recovery of project costs through
regional cost allocation processes.40 The NOPR states that it is not proposing to require
interconnection wide planning or cost allocation, was not requiring multi-lateral planning
agreements, and was not “intended to interfere with the efforts already underway in
ARRA-funded transmission planning initiatives.... ”41

The NOPR’s interregional planning proposals are reasonable and should be
included in the final rule in this proceeding. Requiring coordinated evaluation for
projects that are physically located in neighboring regions is a realistic reform that the
NYISO believes can be implemented by building on the existing NCSPP. The focus on
projects that physically span two regions would set an appropriate national baseline that

37 Id. at P 114.

38 Id. at P 115.

39 Id. at P 117.

40 Id. at P 118.

41 Id. at P 112.

would not preclude regions that wish to go further from including other kinds of projects
in their planning and cost allocation arrangements. Setting a realistic requirement would,
however, avoid disrupting planning efforts in regions that are not yet prepared to go
further. For the same reasons that it supports making participation in a regional
transmission planning process a prerequisite to regional cost recovery, the NYISO also
strongly supports the NOPR’s proposal that a project’s inclusion in both regions’
transmission plans be a prerequisite to the recovery of project costs under an interregional
cost recovery system.42

The NOPR correctly encourages, but does not propose to require, multi-lateral
interregional planning agreements. This approach will give the nascent interregional
planning initiatives established under the ARRA, such as the EIPC, an opportunity to
develop. It would be premature for the Commission to establish additional interregional
planning institutions, or to press for the creation of new interregional transmission plans,
at a time when so much effort is already being devoted to EIPC implementation by all of
the major Planning Authorities in the Eastern Interconnection. Any such effort would
risk frustrating ongoing ARRA-sponsored efforts, contrary to the NOPR’s stated intent.
To the extent that jurisdictional public utility transmission providers would be required to enter into bilateral agreements with neighboring Canadian systems, the
Commission should clarify that they will not be deemed to be out of compliance with the
final rule if they are unable to complete such agreements. It would be unjust to hold
jurisdictional entities responsible if a Canadian neighbor, which ultimately cannot be
compelled to enter into bilateral agreement, declines to do so.

42 See Section II.A.3.c, above.

Finally, the NYISO has no objection to the proposed elements that the NOPR

would require all interregional agreements to include, provided that the final rule allows each “interregional transmission planning agreement to be tailored to best fit the needs of the regions entering into the agreement.”43 The Commission should determine “what” elements it wishes to be included, and allow “how” those elements are implemented to be negotiated among parties to bilateral planning agreements.

B.Proposed Cost Allocation Reforms

1.The NOPR’s Proposals

In general, the NOPR concludes that changing industry circumstances have

necessitated reforms to the Commission’s cost allocation policies. The NOPR takes the
position that the Commission has the legal authority it needs to implement those reforms.
In particular, it maintains that under the established “cost causation principle” the
Commission may “allocate costs of a transmission facility to a beneficiary identified
through an appropriate process, such as a Commission-approved transmission planning
process.... ” even if the beneficiary does not voluntarily consent to the allocation.44 The
NOPR also notes judicial precedent requiring that all costs allocated to an identified
beneficiary must be at least roughly commensurate with the benefits that are expected to
accrue to that entity.45

Under the NOPR’s proposed reforms cost allocation and the transmission
planning process would be more closely aligned.46 All public utility transmission

43 NOPR at P 117.

44 Id. at P 147.

45 Id.

46 Id. at P 156.

providers would be required to “have in place a method, or set of methods, for allocating
the costs of new transmission facilities that are included in the transmission plan
produced by the transmission planning process in which it participates.”47 There could be
a single, universal, cost allocation method, or different methods for different types of
facilities.48 It appears that the NOPR does not require that there be a separate cost
allocation methodology for transmission projects aimed at addressing “public policy”
concerns so long as there is some allocation regime that would apply to such projects.49
The NOPR would require each public utility transmission provider to develop methods for allocating the costs of new intraregional and interregional transmission
facilities. Intraregional facility costs would be allocated wholly within the relevant
region unless an external entity voluntarily agreed to share in them. Interregional cost
allocation arrangements would apply only to transmission facilities physically located in
both of the neighboring regions, and could take the form of a direct allocation between
the regions or an allocation among beneficiaries located in both.50 Broader interregional
cost allocation arrangements are encouraged, but not required.51 The NOPR would also
adopt intra- and interregional cost allocation principles that would be used to evaluate the
justness and reasonableness of proposed cost allocation methodologies.52 The NOPR
states that the principles are not intended to dictate a uniform approach to cost allocation
and the NOPR expressly recognizes that “regional differences may warrant distinctions in

47 Id. at P 159.

48 Id. at P 160.

49 Id.

50 Id. at P 161.

51 Id. at P 173.

52 Id. at P 163.

cost allocation methods among the transmission planning regions.”53 Finally, the NOPR
proposes that if a public utility transmission provider were unable to develop satisfactory
cost allocation methods in consultation with its stakeholders, the Commission would use
the record in the relevant compliance proceeding to impose a compliant allocation
methodology.54

2.Comments

The NYISO generally supports the NOPR’s proposed reforms but takes no position at this time on its assertions regarding the Commission’s legal authority to impose cost allocation rules.

The NYISO supports the NOPR’s proposals with respect to intraregional cost
allocation, including its emphasis on the “beneficiaries pay” principle (within each
planning region) and on regional flexibility. For the reasons set forth in Section II.A.1
above, however, the Commission should narrow the scope of the required compliance
filings so that ISOs/RTOs are not forced to re-justify intraregional cost allocation rules
for reliability and economic projects that were recently approved in their individual Order
No. 890 compliance proceedings. As noted above, the NYISO is already in compliance
with the Commission’s cost allocation requirements for both reliability and economic
projects.

The NYISO also generally supports the NOPR’s proposals with respect to

interregional cost allocation, including the proposals to accommodate regional flexibility, to require allocations only between regions where a proposed facility is physically

53 Id. at P 165. See also Id. at P 175 (“There may be legitimate reasons for the public utility transmission providers located in neighboring transmission planning regions to adopt different cost allocation methods”).

54 Id. at PP 164-66.

located, and to prohibit allocations to regions that receive no benefit from an interregional project (even though the project is located within that region.) Consistent with other
NOPR proposals, no region, and no beneficiary, should ever be subject to a mandatory interregional cost allocation for a project that was not first reviewed under the auspices of an interregional planning arrangement and included in both regional plans (although
voluntary participant funding should continue to be permitted.) As with the
corresponding interregional planning requirements, it would be appropriate to allow more expansive voluntary cost allocation arrangements, but would be premature and unrealistic to require all regions to adopt specific cost allocation methodologies on an ex ante basis that would be applicable to future situations as yet unknown.

The NYISO is concerned that the NOPR’s proposal to prescribe detailed

interregional cost allocation regimes when neighboring regions are unable to create them is unlikely to achieve the benefits that the Commission anticipates. Having an accepted cost allocation regime in place is important to facilitating transmission investment but an allocation regime that is imposed in the absence of broad interregional support is unlikely to materially advance that goal.

Even if the Commission has the authority to impose cost allocation rules, doing so
without resolving the disputes that prevented a voluntary solution will simply shift those
disputes to other venues. The potential difficulties are likely to be especially acute when
multiple states are involved given the ability of states unhappy with the Commission’s
methodology to impede transmission projects through permitting decisions, regulatory
mandates, or legislative action. Any Commission-imposed allocation regimes would also
likely be challenged in federal court which would, at a minimum, result in years of

uncertainty, thereby defeating the purpose of imposing rules in the first place. In short, the Commission should encourage the development of interregional cost allocation rules between neighboring regions but should stop short of mandating such requirements
where agreement cannot be reached.

Part of the problem in this area is the inherent difficulty of negotiating specific

cost allocation rules in advance that would encompass all transmission projects that might be proposed in the future. Having to develop rules that would apply to all possible future projects will necessarily make parties more cautious about protecting their interests in every possible scenario, thereby complicating and extending the negotiations.
Unfortunately, it appears that the NOPR envisions requiring neighboring regions to
establish exactly these kinds of highly detailed, ex ante rules.

Experience suggests that each interregional transmission project encompasses a diverse range of unique reliability and economic interests. Moreover, the projects
themselves tend to be unique in their configuration and in their interconnection of
geographic and metropolitan areas that differ widely. Just as a tailor cannot anticipate
every type of suit and fit for every possible customer or occasion, Transmission Planners cannot anticipate the multiplicity of interests and accommodations that need to be made for every possible transmission project. Accordingly, the imposition of such
requirements will not resolve potential cost allocation disputes but will simply shift them to other venues, or give rise to new disputes.

In order to progress toward interregional cost allocation arrangements, the NYISO
recommends that the Commission take a more measured approach. Neighboring regions
should be directed to include language in their tariffs expressly affirming their obligation

to negotiate cost allocation rules for any interregional projects that are approved through
their respective transmission planning processes. Moreover, the final rule should also
state that all public utility transmission providers must adopt the rule’s proposed
interregional cost allocation principles in their tariffs, and that any allocation agreement
for a specific transmission project that is agreed upon would have to comply with those
principles. Finally, the rule should require that each public utility transmission provider’s
tariff include provisions for interregional cost recovery for projects that are agreed upon
in accordance with these principles. If neighboring regions were unable to translate the
general tariff language into a specific cost allocation arrangement for a specific
transmission project that was approved through their planning processes, the Commission
could then push for an alternative solution with respect to any agreed-upon project on a
case-by-case basis with less difficulty. This approach would give transmission sponsors
confidence that approved projects would not be indefinitely delayed due to cost allocation
disputes. It would also spare public utility transmission providers from having to
negotiate universally applicable cost allocation rules in advance, which would, at a
minimum, avoid a significant distraction from actual planning activities. The NYISO
respectfully requests that the Commission adopt this proposal in any final rule that may
be issued in this proceeding.

The final rule should also make it clear that public utility transmission providers
may adopt cost allocation methodologies for different types of transmission projects
without creating a specific cost allocation mechanism applicable solely to “public policy”
projects. The NOPR appears to contemplate that this would be permissible, stating that
public utility transmission providers may use different cost allocation methodologies so

long as no class of transmission project is excluded from their scope.55 Clarification to
eliminate any possible ambiguity would nevertheless be helpful because it does not
appear to be necessary, or efficient, to mandate that there be distinct cost allocation rules
for public policy projects in all regions. This is especially true for regions such as New
York that do not currently have a rule requiring that “public policy” projects be
constructed. Such cost allocation methodologies can and should be determined on a
project-specific basis depending on the policy driving the agreed-upon transmission
project.

C.Compliance Timetable

The NOPR proposes that each public utility transmission provider must submit a
compliance filing addressing each of the NOPR’s proposed requirements, except for
those pertaining to interregional transmission planning agreements and interregional cost
allocation methods, within six months of the effective date of a final rule in this
proceeding. Compliance filings with respect to interregional planning agreements and
interregional cost allocation methods would be due within one year of the effective
date.56

The NYISO is concerned that the one year compliance deadline would not

provide sufficient time if the final rule, contrary to the recommendations above, requires
highly detailed “ex ante” interregional cost allocation arrangements. It will likely be
difficult for public utility transmission providers to reach such arrangements, especially

55 Id. at P 160 (“[C]ost allocation methods may distinguish among facilities that are driven by
needs associated with maintaining reliability, relieving congestion, and achieving public policy
requirements established by state or federal laws or regulations... The Proposed Rule would permit a

public utility transmission provider or transmission planning region to distinguish or not distinguish among
these three types of transmission facilities, as long as each of the three is considered in the transmission
planning process and there is a means for allocating the costs of each type of facility to beneficiaries”).

56 NOPR at P 179.

with multiple neighboring entities (including, potentially, non-jurisdictional transmission
providers), on a relatively compressed timetable. In addition, if the final rule adopts the
NOPR’s proposal that involuntary cost allocation mechanisms be imposed on regions that
cannot establish them voluntarily, then the deadline ought to be longer than a year.
Otherwise, the Commission risks triggering a large number of contested cost allocation
proceedings that would take longer to resolve, consume more resources, and create more
controversy, than simply allowing voluntary negotiations to reach their natural
conclusion. The NYISO submits that no less than twenty four months after the effective
date of a final rule for regions would be required to develop and conclude bilateral
interregional cost allocation arrangements with neighboring control areas.

III.COMMUNICATIONS

Correspondence and communications with respect to this filing should be sent to:

Robert E. Fernandez, General Counsel
Elaine D. Robinson, Director of Regulatory
Affairs

*Carl F. Patka, Senior Attorney

New York Independent System Operator, Inc.

10 Krey Boulevard

Rensselaer, NY 12144
Tel: (518) 356-8875
Fax: (518) 356-7678
rfernandez@nyiso.com
erobinson@nyiso.com
cpatka@nyiso.com

*Ted J. Murphy

Hunton & Williams, LLP 1900 K Street, NW

Washington, D.C. 20006 Tel: (202) 955-1588

Fax: (202) 828-3746
tmurphy@hunton.com

*Persons designated for service.

IV.CONCLUSION

For the reasons that were set forth above, the NYISO respectfully requests that any final rule issued in these proceedings adopt the recommendation made in these comments as well as those submitted by the ISO/RTO Council.

Respectfully submitted,

/s/ Ted J. Murphy

Ted J. Murphy

Hunton & Williams, LLP
1900 K Street, NW
Washington, D.C. 20006
Tel: (202) 955-1588
Fax: (202) 828-3746
tmurphy@hunton.com

Carl F. Patka, Senior Attorney

New York Independent System Operator, Inc.

10 Krey Boulevard

Rensselaer, NY 12144
Tel: (518) 356-8875
Fax: (518) 356-7678
cpatka@nyiso.com

Counsel for the

New York Independent System Operator, Inc.

September 28, 2010