UNITED STATES OF AMERICA
BEFORE THE

FEDERAL ENERGY REGULATORY COMMISSION

New York Independent System Operator, Inc.)Docket No. ER13-1380-000

ANSWER TO COMMENTS

AND REQUEST FOR LEAVE TO ANSWER AND ANSWER TO PROTESTS
OF THE NEW YORK INDEPENDENT SYSTEM OPERATOR, INC.

In accordance with Rule 213 of the Commission’s Rules of Practice and Procedure,1 the
New York Independent System Operator, Inc., respectfully submits this answer to comments that
oppose, and seeks leave to answer protests against, its Proposed Tariff Revisions to Establish and
Recognize a New Capacity Zone and Request for Action on Pending Compliance Filing
(“April 30 Filing”).2 This answer also addresses the Motion to Intervene and Comments of
Entergy Nuclear Power Marketing, LLC (“ENPM”) which endorses almost every element of the
April 30 Filing but includes a few suggestions that should not be adopted.3
As is discussed in detail below, the NYISO continues to strongly support the April 30 Filing, including its request for Commission action on its June 2012 Filing.4 The April 30 Filing will ultimately benefit all New York consumers and the overall efficiency of the NYISO-
administered capacity markets. The comments and protests that oppose the April 30 Filing have
not shown that the NYISO’s proposed tariff revisions should be modified or rejected. Most of

1 18 C.F.R. 385.213 (2013).

2 This answer focuses on key aspects of the comments and protests and does not attempt to

address every assertion that they make. No inference should be drawn from the NYISO’s silence on

matters that have been raised in comments and protest in this proceeding but that are not addressed herein.

3 See Motion to Intervene and Comments of Entergy Nuclear Power Marketing, LLC, Docket No. ER13-1380-000 (filed May 21, 2013) (“ENPM Comments”).

4 The June 2012 Filing is pending in Docket No. ER12-360-001. It proposed compliance tariff revisions to establish market power mitigation measures in "New Capacity Zones,” including but not limited to, the one proposed in this proceeding.

the issues that the comments and protests raise are outside the scope of this proceeding which is
focused on two narrow questions. Namely, whether the NYISO properly followed Section 5.16
of its Market Administration and Control Area Services Tariff (“Services Tariff”) by proposing
to: (i) establish a New Capacity Zone (“NCZ”);5 and (ii) include Load Zones G, H, and I, and J
but not Load Zone K (Long Island), within it. 6 To the extent that “out of scope” issues have any
potential merit, they should, and can, first be considered through the NYISO stakeholder process.

The Commission should not convene a technical conference, or take any other action that
would delay a ruling on the April 30 Filing.7 It is very important that an order be issued no later
than July 1, 2013 authorizing the NYISO to establish an NCZ encompassing Load Zones G, H, I,
and J (the “G-J Locality”) for the Capability Year beginning May 1, 2014.8 As the April 30
Filing reiterated, acceptance of the NYISO’s proposed tariff revisions by July 1, 2013 “is critical
to the schedule of the ongoing ICAP Demand Curve reset process and the processes to
implement the G-J Locality.”9 Delay would seriously threaten the NYISO’s ability to timely
implement the NCZ and new ICAP Demand Curves for the NCZ. The Services Tariff requires
that the ICAP Demand Curves be filed by November 30, 2013 and implemented for the period
beginning May 1, 2014.

5 Capitalized terms that are not otherwise defined herein shall have the meaning set forth in the
Services Tariff, and if not defined therein, in the NYISO’s Open Access Transmission Tariff (“OATT”).

6 See Section II.C, below.

7 See Section II.G, below.

8 See April 30 Filing at n. 9 (explaining the tariff basis for the requirement that the proposed NCZ be in place at the start of the NYISO’s next Capability Year and concurrent with the implementation of new ICAP Demand Curves, i.e., on May 1, 2014).

9 See New York Independent System Operator, Inc., Docket No. ER12-360-000 at 7 (filed November 7, 2011) and New York Independent System Operator, Inc., 140 FERC ¶ 61,160 (2012) (“August 2012 Order”). See also Section II.G, below.

A delayed response to the April 30 Filing, including even an otherwise timely order that defers important decisions or makes the proposed tariff revisions “subject to refund,”10 would
increase the already high degree of complexity in establishing an NCZ. It also would create
harmful uncertainty in the NYISO capacity markets. The Commission has already
acknowledged the sensitivity and importance of the NYISO’s NCZ implementation timetable. In its August 2012 Order accepting NCZ-related tariff revisions, the Commission “recognize[d] that NYISO must coordinate its workload with other tariff obligations and [it found] that NYISO’s
filing with respect to the timing and sequencing of the process complies with the September 8,
2011 Order.”11 Further, the Commission previously rejected a proposal to have the ICAP
Demand Curve for the NCZ filed separately from the other ICAP Demand Curves finding that
this “would introduce unnecessary complexity and delay.12

I.REQUEST FOR LEAVE TO ANSWER

Rule 213 authorizes the NYISO to answer pleadings styled as comments as a matter of
right. In addition, the Commission has discretion to accept answers to pleadings styled as
protests when they help to clarify complex issues, provide additional information, or are

10 See Motion to Intervene and Protest of the Indicated New York Transmission Owners, Docket No. ER13-1380-000 at 3 (filed May 21,2013) (“Indicated NYTOs Protest”).

11 See August 2012 Order at P 32.

12 See Id. at P 33 (stating that “[e]very three years, NYISO performs a review of the ICAP
demand curves, and no later than November 30 of the year prior to the year that the revised demand
curves are proposed to become effective, makes a Federal Power Act section 205 filing with the
commission for acceptance of such revised demand curves. The Commission must then issue an order
within 60 days of such filing and the new demand curves do not take effect until May 1 of the following
year subject to whatever conditions the Commission attaches to their acceptance. Further, we agree with
NYISO that requiring the creation and filing of alternative ICAP demand curves would necessitate an
additional filing, which would introduce unnecessary complexity and delay.” (Internal citations
omitted)).

otherwise helpful in the development of the record in a proceeding.13 The Commission should accept the NYISO’s responses to the issues raised in protests because they will help to clarify a number of complex issues, and will clarify why some of the complex issues raised by the
comments and protests are beyond the comparatively narrow scope of this proceeding. This answer also corrects misleading or inaccurate statements found in a the comments, protests, and affidavits that oppose the April 30 Filing.

II.ANSWER

A.THE COMMISSION SHOULD REJECT COLLATERAL ATTACKS ON

PRIOR COMMISSION ORDERS, ATTEMPTS TO EXPAND THE SCOPE OF THIS PROCEEDING, AND REQUESTS THAT WOULD DELAY
ACCEPTANCE OF THE APRIL 30 FILING

The April 30 Filing explained that the tariff provisions governing the establishment of
NCZs require the NYISO to conduct a triennial NCZ Study. Under Section 5.16.2, if the NCZ
Study identifies a constrained Highway interface into one or more Load Zones, the NYISO must
establish and identify the boundary of one or more NCZs. Under Section 5.16.4, the NYISO
must file tariff revisions to implement the NCZ(s) along with the study results.
The scope of this proceeding should therefore be limited to the questions of whether the NYISO properly conducted the NCZ Study, correctly concluded that there was a constrained Highway interface (which automatically triggered the requirement that the NYISO identify the NCZ boundary and propose a new Locality,) and whether the proposed NCZ boundary is just and reasonable. It should also encompass issues related to the tariff provisions addressed in the April 30 Filing, such as those addressing the Pivotal Supplier “threshold.” Thus, the NYISO

13 See e.g., New York Independent System Operator, Inc., 108 FERC ¶ 61,188 at P 7 (2004)

(accepting the NYISO’s answer to protests because it provided information that aided the Commission in
better understanding the matters at issue in the proceeding); Morgan Stanley Capital Group, Inc. v. New
York Independent System Operator, Inc., 93 FERC ¶ 61,017 at 61,036 (2000) (accepting an answer that

was “helpful in the development of the record...”).

agrees with the Long Island Power Authority (“LIPA”) that this proceeding should not “delve
into the computation of the installed capacity (“ICAP”) market demand curve for the NCZ
auction and resultant pricing, or the computation of the locational capacity requirement (“LCR”)
in the NCZ or any issue that relates to the mechanics of the NYISO’s ICAP markets that are
established under existing tariff provisions and market protocols.”14 As discussed below, the
Commission should not address issues raised in the comments and protests, that are beyond the
scope of this proceeding or that represent collateral attacks on earlier Commission orders.15

1. Arguments that an NCZ Not Be Established at this Time Are

Impermissible Collateral Attacks on the August 2012 Order and Beyond the Scope of this Proceeding

The New York State Public Service Commission (“NYPSC”) opposes the NYISO’s

proposal to establish an NCZ.16 As noted above, the Services Tariff establishes a straightforward NCZ implementation “trigger,” i.e., if the NCZ Study identifies a constrained Highway interface, an NCZ must be created. The current tariff does not allow the NYISO to consider other factors. No party disputes that the Services Tariff contains this requirement. No party sought rehearing of the August 2012 Order that accepted those tariff provisions. There is no dispute that the
NYISO correctly identified a constrained Highway interface and adhered to the tariff
requirements that it identify an NCZ boundary.

14 See Motion to Intervene and Comments of the Long Island Power Authority, Docket No. ER13-
1380-000 at 3-5 (filed May 21,2013) (“LIPA Protest”).

15 See, e.g., San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services, et al.,

134 FERC ¶ 61,229 at P 15 (2011) (“[collateral attacks on final orders and relitigation of applicable

precedent by parties that were active in the earlier cases thwart the finality and repose that are essential to administrative efficiency and are strongly discouraged.”) citing Entergy Nuclear Operations, Inc. v.
Consolidated Edison Co., 112 FERC ¶ 61,117, at P 12 (2005); see also EPIC Merchant Energy NJ/PA, LP v. PJM Interconnection, LLC, 131 FERC ¶ 61,130 (2010) (dismissing as an impermissible collateral attack a complaint that merely sought to re-litigate the same issues that were raised in the prior case citing no new evidence or changed circumstances).

16 See Notice of Intervention and Protest of the New York State Public Service Commission, Docket No. ER13-1380-000 at 2, 4 (filed May 21, 2013) (“NYPSC Protest”).

Thus, the NYPSC’s argument that the NYISO should not create an NCZ despite the

results of the NCZ Study is an impermissible collateral attack on the September 2011 Order and August 2012 Order.17 Similarly, the NYPSC’s suggestion that the decision to create an NCZ should consider factors not specified in the Services Tariff18 would violate the tariff and is a collateral attack on earlier orders.19

2. Arguments that NCZs Should Not Be Established Absent Express

Rules Governing Their Elimination or Providing for “Price

Convergence” If Deliverability Constraints Are Eliminated Are

Impermissible Collateral Attacks on Earlier Orders, Are Beyond the
Scope of this Proceeding, and Should Not Delay Commission Action

The NYPSC argues that the April 30 Filing’s proposed tariff revisions are unjust and
unreasonable because they do not include a mechanism to eliminate NCZs when the
deliverability constraints that necessitate their creation “dissipate.”20 The Indicated New York
Transmission Owners (“Indicated NYTOs”) suggest that the April 30 Filing is “deficient” 21
because it “eliminated a key component of the deliverability test for reexamining whether the
NCZ continues to be necessary,”22 and because the NYISO has not begun “to work on a
mechanism for the removal of the NCZ when the deliverability constraint is eliminated.”23
The Indicated NYTOs also claim that the April 30 Filing is “deficient” because it is

17 See New York Independent System Operator, Inc., 136 FERC ¶ 61,165 (2011) (September 2011 Order) (requiring NYISO to "use the deliverability test methodology contained in section 25.7.8 of
Attachment S to the OATT" to determine whether NCZs should be created and rejecting consideration of others factors); August 2012 Order at P 50 (finding NYISO compliance tariff revisions to be consistent with September 2011 Order). See also New York Independent System Operator, Inc., 137 FERC ¶ 61,229 (2011) (clarifying September 2011 Order).

18 NYPSC Protest at 4, 6.

19 See September 2011 Order at PP 51, 59-64 (rejecting use of factors other than the deliverability test in determining whether to establish an NCZ.)

20 NYPSC Protest at 7-8.

21 Indicated NYTOs Protest at 2.

22 Id. at 3.

23 Id. at 12.

inconsistent with alleged past “assurances” that “unneeded NCZs would neither create inaccurate
price signals, nor cause price separation, once relevant deliverability constraints were
eliminated.”24 They criticize the NYISO and the independent Market Monitoring Unit (“MMU”)
for taking the view that “the NCZ and related price impacts may continue, even when future
studies show the underlying deliverability constraints, which formed the basis for creating a
NCZ, no longer exist.”25 They further argue that the NYISO “ignored” the underlying criteria
for creating NCZs and erred by not attempting to develop mechanisms that would “eliminate
price separation when a constraint no longer binds.”26 Similarly, Central Hudson (“Central
Hudson Gas & Electric Corporation”) argues that the Commission should require that “NCZ
LCRs be based on the deliverability constraint and that the LCRs must be eliminated when the
deliverability constraint is removed.”27

The Indicated NYTOs acknowledge28 that the Commission expressly held that the

April 30 Filing was not required to “define criteria regarding the potential elimination of capacity
zones.”29 The September 2011 Order clearly instructed the NYISO to establish rules to govern
the creation of NCZs, and it expressly authorized the NYISO to defer stakeholder discussions
regarding the potential elimination of unneeded capacity zones.30 It is therefore an
impermissible collateral attack on the September 2011 Order to oppose the April 30 Filing on the

24 Id. at 8.

25 Id.

26 Indicated NYTOs Protest at 10; citing Affidavit of Michael D. Cadwalader (“Cadwalader Affidavit”) at P 21.

27 Protest of Central Hudson Gas & Electric Corporation, Docket No. ER13-1380-000 at 10 (filed May 21,2013) (“CH Protest”).

28 Indicated NYTOs Protest at 8-9.

29 September 2011 Order at P 70.

30 Id.

ground that it does not include NCZ elimination or price separation provisions. The Indicated
NYTOs’ suggestion that the September 2011 Order was somehow based on false premises or
overlooked other considerations31 is inaccurate and does not make their argument any less of a
collateral attack.

The development of rules or criteria for the elimination of a Locality (i.e., an NCZ that
has been established) even if not a collateral attack, would be beyond the scope of this
proceeding. Furthermore, the fact that the NYISO did not include NCZ elimination (or price
convergence) rules in the April 30 Filing had no bearing on its requirement to establish an NCZ.
Possible rules addressing NCZ elimination and price convergence are extraneous to and discrete
from the Commission’s evaluation of the NYISO’s filing to establish the new Locality in
accordance with the tariff process which is the scope of this proceeding. Furthermore, NCZ
elimination rules would apply to more than just the proposed new Locality that is the subject of
this proceeding. They would apply to the existing Localities and to any NCZs that result from
future triennial filings in accordance with Section 5.16.4(a) of the Services Tariff.32
Even if it were procedurally permissible to address the elimination of NCZs or price separation rules in this proceeding, the Commission should not accept the proposals included in the comments and protests because they are without merit, as discussed below in Section II.B and in the attached Answering Affidavit of Dr. David B. Patton, 33 President of Potomac

31 Indicated NYTOs Protest at 8-9, 11.

32 The Indicated NYTOs argue that removing the UPNY-SENY interface from the deliverability test because with the creation of the NCZ it is no longer an “Other Interface” would inaccurately reflect whether a Locality should be eliminated. (See Indicated NYTOs Protest at 16-17.) The NYISO’s
proposed tariff revision to revise the Other Interface definition conforms with the tariff.

33 Dr. Patton is the President of Potomac Economics, Ltd. which is the NYISO’s independent
MMU.

Economics, (“Patton Answering Affidavit”).34 In any case, there certainly is no need to delay

issuing an order in the April 30 Filing to weigh the merits of, or to allow for, such an evaluation.
The Indicated NYTOs, Central Hudson, and the NYPSC base their arguments on their stated expectation that system conditions will change markedly in coming years. They focus principally on New York State’s “Energy Highway Initiative” which is expressly intended to result in the construction of significant transmission infrastructure improvements. Although the NYSPC requested proposals for upgrades associated with the UPNY-SENY constraint to be in place by 2018, the NYPSC set October 1, 2013 as the date for applications for transmission
siting authorizations.35 Thus, the process is at its early stages and its results and the timing of
them are not certain. Even assuming transmission upgrades requested are completed on the
NYPSC’s identified schedule, they would not be completed for five years. Further, there is no
guarantee that “Energy Highway” projects would eliminate the constraint that triggered the
creation of the G-J Locality or, more importantly, address reliability, which the ICAP Demand
Curve and LCR specific to the G-J Locality are designed to address.

The NYISO notes that the Commission previously declined to excuse ISO New England,
Inc. (“ISO-NE”) from an obligation to create eight new capacity pricing zones based on
insufficiently supported assertions that future transmission development would make the zones
unnecessary.36 The Commission recently conditionally lifted the requirement to create the new
zones because it found, based on a substantive showing by ISO-NE, “that many of the
constraints previously existing within the New England region either have been or will be

34 See Attachment 1 hereto.

35 See NYPSC Protest at 5; see also, NYPSC Docket No. 12-T-0502, In the Matter of Alternating Current Transmission Upgrades, available at

<http://documents.dps.ny.gov/public/Common/SearchResults.aspx?MC=0&MNO=12-T-
0502&DFF=5/5/2013&CI=0>.

36 See ISO New England, Inc., 142 FERC ¶ 61,017 (2013).

alleviated by new transmission upgrades.”37 The evidentiary showing by ISO-NE underlying the Commission’s recent decision is markedly distinct from the facts in the NYCA. The assertions in this proceeding regarding potential future transmission upgrades that may alleviate constraints in the NYCA38 fall short of the evidentiary showings made by ISO-NE.

3. Arguments Addressing the Applicability of Buyer-Side Mitigation

Measures to the Proposed G-J Locality and to Potential Future NCZs Are Beyond the Scope of this Proceeding

The NYPSC and the Indicated NYTOs argue that the NYISO has not adequately justified
imposing buyer-side mitigation in the G-J Locality.39 The NYPSC also argues that applying
such mitigation measures would be harmful because it would discourage entry by new merchant
projects.40 The Indicated NYTOs contend that the April 30 Filing would result in the improper
continuation of buyer-side mitigation measures after the deliverability constraint that gives rise
to an NCZ has been addressed. ENPM encourages the Commission to accept the April 30 Filing
and act on the June 2012 Filing by the NYISO’s requested dates but asks that the Commission
either reject or set for further consideration the June 2012 Filing’s proposed grandfathering
exception.41

To the extent that the NYPSC is challenging approved features of the New York City
buyer-side mitigation measures that establish the “conceptual framework” for the NYISO’s

37 ISO New England, Inc., 143 FERC ¶ 61,198 at P 34 (May 31, 2013).

38 See Indicated NYTOs Protest at 9, 17, CH Protest at 8, and NYPSC Protest at 5.

39 See Indicated NYTOs Protest at 3, n.2, and NYPSC Protest at 8-9.

40 NYPSC Protest at 8-9.

41 See ENPM Comments at 7, n. 20, and Attachment 1 ─ Affidavit of Mark D. Younger at P 46 (“Younger Affidavit”).

proposed NCZ mitigation measures it is an impermissible collateral attack on the Commission orders addressing the New York City measures.42

Except for arguments regarding the Pivotal Supplier threshold proposal that the NYISO made for the first time in the April 30 Filing,43 arguments regarding the applicability of buyerside mitigation measures to the G-J Locality are the subject of pending Docket No. ER12-360-
000. The Indicated NYTOs, the NYPSC, and ENPM acknowledge that they have already made arguments in that docket.44 Such arguments have nothing to do with the NYISO’s
determinations under Section 5.16.2 of the Services Tariff that it was required to establish an NCZ and that it should encompass Load Zones, G, H, I, and J.

Moreover, the concern that buyer-side market power mitigation measures will remain in force in Load Zones where they are no longer necessary arises out of and corresponds to the concern that prices may not converge simply because the deliverability constraint that gave rise to the NCZ is eliminated. There is thus no need to address buyer-side mitigation issues in this proceeding, including by convening a technical conference, just as there is no need to address NCZ elimination or the “price convergence” proposals.45

42 The pending June 2012 Filing proposed to utilize the conceptual framework of the currently
effective ICAP market mitigation measures applicable to the New York City Locality for the NCZ. To
the extent the NYPSC is challenging approved features of those existing mitigation measures, it is a
collateral attack on prior Commission orders. See, e.g., New York Independent System Operator, Inc.,
124 FERC ¶ 61,301 (2008) and New York Independent System Operator, Inc., 131 FERC ¶ 61,170
(2010).

43 See Indicated NYTOs Protest at 50; at Cadwalader Affidavit at PP 40-50.

44 See Indicated NYTOs Protest at 3, n. 2, NYPSC Protest at 8, and ENPM Comments at 12,

n. 44.

45 Should the Commission consider the Indicated NYTO’s proposal, Section II.G, below, addresses and disposes of it.

LIPA’s request to be exempted from future buyer-side mitigation to the extent that Load
Zone K is ever included in an NCZ46 is likewise beyond the scope of this proceeding. LIPA’s
arguments should be made, and considered, in Docket No. ER12-360, or in future proceedings
concerning any future NCZ proposal that includes Long Island. There is no need to consider
them at this time.

4.Arguments Regarding Indicative NCZ LCRs Are Beyond the Scope of

this Proceeding

Central Hudson and the Indicated NYTOs make a number of claims regarding supposed deficiencies in the NYISO’s approach to calculating the Indicative NCZ Locational Minimum Installed Capacity Requirement (“Indicative NCZ LCR”) for the G-J Locality. Central Hudson in particular claims that alleged errors in the NYISO’s approach to calculating the Indicative NCZ LCR should lead to changes in the NYISO’s proposed NCZ boundary.47

The Services Tariff and April 30 Filing are both very clear that Indicative NCZ LCRs are
used “solely for establishing revised ICAP Demand Curves in accordance with Section 5.14.1.2.”
The Indicative NCZ LCR for the proposed G-J Locality will be an element of the November
2013 ICAP Demand Curve Reset filing. It is not relevant to the issue of whether an NCZ will be
created. The determination of the Indicative NCZ LCR also had nothing to do with the NYISO’s
identification of the NCZ boundary. The Indicative NCZ LCR for the G-J Locality was
mentioned in the April 30 Filing solely to confirm for the Commission that the NYISO had
satisfied Section 5.16.3’s requirement, for the sake of completeness, and as background
information. The April 30 Filing also made it very clear that the NYISO would “continue to
discuss with stakeholders the Indicative NCZ LCR, and its use in the ICAP Demand Curve reset

46 See LIPA Protest at 7-8.

47 See CH Protest at 8-9.

process.”48 Accordingly, questions regarding the Indicative NCZ LCRs are not pertinent to the
actual issues in this proceeding and the Commission should not take them up at this time.49

B. THE NYPSC’S AND INDICATED NYTOS’ SUBSTANTIVE

ARGUMENTS REGARDING NCZ ELIMINATION, PRICE

CONVERGENCE, AND THE PIVOTAL SUPPLIER THRESHOLD SHOULD BE REJECTED ON THE MERITS

As described in Section A.2. above, the NYPSC argues that the April 30 Filing should
have included a “process to allow for NCZs to be eliminated” when “transmission system
improvements have eliminated the need for them.” 50 It asks that Commission to direct the
NYISO to develop a mechanism for determining when “unneeded zones” should be eliminated
and for eliminating them.51 The Indicated NYTOs claim that the April 30 Filing was “deficient”
because of its alleged inconsistency with earlier Commission findings, and supposed NYISO and
MMU representations, related to “price separation.” 52 They assert that the NYISO has departed
from a requirement that “price separation resulting from recognition of a deliverability constraint
warranting the NCZ will be eliminated if and when that deliverability constraint is eliminated.”53
The Indicated NYTOs also contend that once the deliverability constraint that gives rise to an
NCZ is eliminated there would cease to be any justification for buyer-side market power
mitigation within the NCZ.54 They warn that continuing mitigation in such circumstances would

48 See April 30 Filing at 5.

49 Should the Commission consider Central Hudson’s proposal, Section II.G, below, addresses and disposes of it.

50 NYPSC Protest at 7.

51 Id. at 7-8.

52 Indicated NYTOs Protest at 5.

53 Id.

54 Id. at 14-15.

inappropriately mitigate new entry.55 The NYPSC makes similar arguments.56 Regarding

supplier-side mitigation, the Indicated NYTOs argue that the NYISO’s proposal endorsed by the
MMU would “exempt some entities that have a financial interest in withholding NCZ UCAP
from the offer cap, causing prices to rise without proper justification.”57
Sections II.A.2 above explains why the Commission should not, and need not, address NCZ elimination and price convergence arguments in this proceeding. To the extent that the Commission chooses to consider them, the Answering Affidavit of Henry Chao, Ph.D., and John

M. Adams (“Chao/Adams Answering Affidavit”)58 and Patton Answering Affidavit explain why they are without merit.

Section II of the Chao/Adams Answering Affidavit distinguishes the manner in which
LCRs are utilized to ensure that reliability criteria are met, from the way in which deliverability
test results are used to show system constraints.59 It notes that LCRs are an input in the
deliverability tests’ base case.60 The Chao/Adams Answer Affidavit also compares the
deterministic nature of deliverability tests to the probabilistic simulations used to calculate the
loss of load expectation (“LOLE”)61 that determine LCRs. The Chao/Adams Answering

55 Id. at 15.

56 See NYPSC Protest at 8-9.

57 Id. at 15.

58 See Attachment 2 hereto.

59 The Chao/Adams Answering Affidavit also explains (at PP 10 - 21) the similarities, and the one
significant difference, between the deliverability tests performed for the NCZ Study and in the Class Year
process.

60 See Chao/Adams Answering Affidavit at P 13.

61 See Id. at PP 19-20. The LOLE is a New York State reliability requirement which specifies that the probability that customers will lose electric service, shall not exceed one day in ten years (or 1 days per year).

Affidavit establishes that deliverability tests are not designed to maintain LOLE criteria62 and
that it is “essential that reliability needs be considered when establishing LCRs.”63 “Setting
LCRs based on a deliverability test that is not designed to evaluate reliability criteria for a range
of possible system conditions would not ensure that the LOLE is maintained at the one day in ten
years criterion.”64 Thus, Dr. Chao and Mr. Adams both concluded that the “probabilistic
methodology used to set the LCR is a truer representation of reliability needs for the NCZ than a
deliverability methodology.”65 They therefore each state their opinion that “the use of
probabilistic methods to set LCRs is clearly superior to the use of deliverability-based
methodologies.”66

The Patton Answering Affidavit builds on the Chao/Adams Answering Affidavit’s

assessment of deterministic deliverability and probabilistic LCR analyses. Dr. Patton defines the
key issue raised by the Indicated NYTOs, Central Hudson, and the NYPSC as “whether the LCR
or the deliverability test should govern the locational prices in the capacity market.”67 Dr. Patton
concludes that “the answer to this question is clear - once defined, the LCR should govern
locational pricing in the NYISO capacity market . . .”68 Thus, price convergence should not be
required simply because a deliverability constraint ceases to exist. Instead, price separation
should “be determined based on the costs of satisfying the LCR for the NCZ.”69

62 Chao/Adams Answering Affidavit at P 22.

63 Id. at P 4.

64 Id. at P 24.

65 Id.

66 Id.

67 Patton Answering Affidavit at P 12.

68 Id.

69 Id. at P 11.

This is the case because LCRs are “a much better indicator of the resource adequacy
needs in the NCZ”70 whereas the deliverability test “is not designed to provide an accurate
indication of the reliability needs in the NCZ.”71 Because the LCR “is the amount of capacity
that is necessary in the NCZ to satisfy the LOLE criterion, the NYISO will not be satisfying the
LOLE criterion if less than the LCR is procured.”72 Therefore, “if a deliverability test is used to
eliminate the NCZ (or otherwise eliminate price separation) when the LCR would otherwise
bind, this process will cause the NYISO to violate a reliability requirement.”73
Dr. Patton also opposes proposals that would eliminate NCZs once they have been
established. Section IV of the Answering Patton Affidavit expresses serious concern that
eliminating NCZs or adopting price convergence requirements tied to the resolution of
deliverability constraints could create severe market instability. Such rules could place the
NYISO in the position of having to continuously define, “un-define,” and then re-define NCZs as
changing system conditions cause deliverability constraints to bind, cease to bind, and then
became binding again.74 Adopting this kind of framework could “undermine the stability of the
market and introduce substantial risks for investors.... ”75 The Patton Answering Affidavit

explains that there is no reason to accept such disadvantages because LCRs should ultimately
determine whether NCZ prices rise above ROS prices.76 When LCRs are no longer binding
prices will not separate and the fact that the NYISO is modeling an NCZ will become

70 Id. at P 13.

71 Id. at P 14.

72 Id. at P 15.

73 Id. at P 15.

74 See Patton Affidavit at P 16.

75 Id.

76 Patton Answering Affidavit at P 17.

“academic.”77 In short, Dr. Patton concludes that it is “simply an economically flawed assertion”
to claim that price separation should not occur simply because the deliverability test in not
binding.”78 Dr. Patton warns that adopting the price convergence arguments made by certain
parties in this proceeding “would undermine the performance of the NYISO capacity market.”
With respect to buyer-side mitigation, although the Indicated NYTOs claim that there are potential drawbacks to continuing it after deliverability constraints have been eliminated, they overlook potential problems associated with ending it too quickly. There is, at a minimum, cause for concern that potential disadvantages would outweigh all of the purported benefits asserted by the Indicated NYTOs. Removing buyer-side mitigation from an established NCZ after a
deliverability constraint has been resolved would provide incentives for entities capable of
exercising buyer-side market power to evade the rules. This would be accomplished by
providing sufficient incentives for incremental capacity to be built to alleviate the reliability
constraint. Turning buyer side mitigation rules on and off could create opportunities for them to
be circumvented.

The Indicated NYTOs, through the Cadwalader Affidavit, propose a different

methodology to determine the Pivotal Supplier threshold, from the one used by the NYISO and
supported by Dr. Patton, and recommend removing the minimum size threshold.79 The NYISO’s
proposal, which is supported by the MMU, is a structure that has been effective in New York
City and will likewise be an effective structure for the G-J Locality.80 Because the Indicated

77 Id.

78 Id. at P 20.

79 See Cadwalader Affidavit at PP 39-54, and 56.

80 The Patton Affidavit proposed an additional adjustment to the rules to address a concern that

“UCAP that is sold in advance of the monthly spot auction is deducted from the portfolio of the supplier.” See Patton Affidavit at PP 29, 32; see also April 30 Filing at 20-21.

NYTOs’ proposal does not contain a minimum threshold it could result in potential over-

mitigation of small suppliers, particularly when the market is long on capacity and prices are

low. The NYISO believes that some minimum threshold component is important because it

balances mitigating those suppliers that are pivotal with the risks of over-mitigation. In addition, under the Indicated NYTOs’ proposal, ICAP suppliers in Load Zone J would be subject to two thresholds (the Load Zone J threshold and the G-J Locality threshold) set in significantly
different manners. Therefore, the Indicated NYTOs’ proposal could cause confusion and
possibly unanticipated adverse consequences, whereas the NYISO’s proposal has clarity for
Market Participants. 81 The Commission should therefore accept the NYISO’s proposed
threshold and not adopt the Indicated NYTOs’ proposal.

C. THE COMMISSION SHOULD ACCEPT THE NYISO’s NCZ

BOUNDARY COMPRISED OF LOAD ZONES G, H, I, AND J

Multiple Intervenors (“MI”) and the Consolidated Edison Company of New York, Inc.,
Orange and Rockland Utilities, Inc., and Central Hudson (collectively “CE/CH”) argue that the
NYISO should be required to include Load Zone K (i.e., Long Island) in the NCZ. Both MI and
CE/CH allege that the NYISO had decided to include Load Zone K in the NCZ only to change
its decision.82 By contrast, LIPA supports the NYISO’s decision not to include Load Zone K.

The NYISO’s January 30 ICAP Working Group presentation was clear that it was

describing a “preliminary” boundary definition and would only “identify the final boundary after

81 Because the NYISO does not believe that Mr. Cadwalader had demonstrated that the market power mitigation proposal in the April 30 Filing is unjust or unreasonable the NYISO has not attempted to evaluate whether it would be practicable to implement in the necessary timeframe (given the potential need for software changes) or feasible to administer.

82 See Motion to Intervene and Protest of Multiple Intervenors, Docket No. ER13-1380-000 at 5-6 (filed May 21,2013) (“MI Protest”); Protest of Consolidated Edison Company of New York, Inc., Orange and Rockland Utilities, Inc., and Central Hudson Gas and Electric Corporation, Docket No. ER13-1380-
000 at 5-6, 10, 16 (filed May 21,2013) (“CE/CH Protest”).

receiving stakeholder input.”83 The NYISO subsequently made it clear, including in the April 30 Filing, that its preliminary boundary determination changed after it completed additional analysis and evaluation.

1. The NYISO’s Identification of the NCZ Boundary Comprised of Load

Zones G-J is Consistent with Section 5.16 of the Services Tariff and is Just and Reasonable

Section 5.16.2 of the Services Tariff states that:

In determining the New Capacity Zone boundary, the ISO shall consider the

extent to which incremental capacity in individual constrained Load Zones could impact the reliability and security of the constrained Load Zones, taking into account interface capability between constrained Load Zones.

CE/CH argues that this provision requires the NYISO to include a Load Zone in an NCZ if incremental capacity in that Load Zone would impact the reliability and security of adjacent constrained zones. They contend that the NYISO’s analysis should have focused solely on an evaluation of Load Zone K’s ability to impact reliability and security in the NCZ without reference to Load Zone J’s ability to do so.84

Section 5.16.2 does not require, and it would be unreasonable to interpret it to require,
that any Load Zone that has any impact on reliability and security in adjacent constrained zones
be included in the NCZ. Section 5.16.2 establishes the specific trigger for the creation of an
NCZ, and it provides that the boundary of the NCZ “may encompass a single constrained Load
Zone or a group of Load Zones including one or more constrained Load Zones on the
constrained side of the Highway.”85 It does not require that it include all Load Zones on the

83 See NYISO, New Capacity Zone Preliminary Boundary Definition and Indicative LCR at cover, 2 (January 30, 2013), available at

<http://www.nyiso.com/public/markets_operations/committees/meeting_materials/index.jsp?com=bic_ica
pwg>.

84 CE/CH Protest at 7-8.

85 Services Tariff Section 5.16.2.

constrained side of the triggering interface. The Services Tariff expressly provides for the

NYISO to exercise its judgment because it specifies that the NYISO must “consider the extent to which” capacity additions in a given Load Zone could impact the reliability and security of the other constrained Load Zones. This language necessarily permits the NYISO to make a
reasonable determination based on its expertise and judgment.

The Commission should therefore not review the NYISO’s boundary identification

decision in this proceeding as if there were only one possible “correct” configuration under the
Services Tariff. Nor should it conclude that, contrary to the express words in the Services Tariff,
the NYISO is automatically required to include all Load Zones on the constrained side of a
constrained Highway in the NCZ. Instead, the Commission should apply the “just and
reasonable” standard and accept the NYISO’s determination if it concludes that it represents a
reasonable outcome.86 Stated otherwise, the NYISO should not be required to demonstrate that
an NCZ boundary encompassing Load Zones G, H, I and J was the only possible result. Doing
so is not only contrary to the “just and reasonable” standard of review for the proposed Services
Tariff revisions to establish the NCZ; such a demonstration would almost certainly be impossible
to make. The April 30 Filing’s boundary identification determination was just and reasonable
because the reliability and transmission security analyses described in the April 30 Filing showed
that incremental capacity in Long Island cannot effectively provide reliability benefits to the
other Load Zones in the NCZ due principally to transfer capability limitations. Moreover, Dr.
Patton noted that the NYISO’s proposal to not include Load Zone K in the NCZ was “consistent
with market design principles”87

86 16 U.S.C. §824(d) (2012).

87 Patton Affidavit at P 17.

2.The NYISO Is Required to Follow the NCZ Boundary Identification

Requirement As Written in Section 5.16.2 of the Services Tariff and Is Not Bound to Apply the Additional “Indicators” that CE/CH Would Read Into It

CE/CH claims that the April 30 Filing “does not comport” with the NYISO’s November
2011 Filing and that the NYISO did not “appropriately apply” the two “indicator tests” that
allegedly must be applied under Section 5.16.2.88 According to CE/CH: (i) the “positive
indicator test” requires that a Load Zone be included in an NCZ if it would “impact reliability
and security” of that NCZ;89 and (ii) the “negative indicator test” requires that the NYISO
“assess whether a zone is ‘relatively electrically isolated’ from other candidate Load Zones
within the potential NCZ.”90

It is true that the November 2011 Filing referenced these potential considerations and that
the August 2012 Order mentioned this reference when it summarized that filing. It is also true,
however, that the NYISO considered both “indicators” in its analyses in the manner
contemplated by both the August 2012 Order and the November 2011 Filing.91 Importantly,
neither “indicator test” is a component of the Services Tariff provision pursuant to which the
NYISO is to identify the boundary. Nor did the August 2012 order require that the NYISO apply
the “indicator tests” in the manner favored by CE/CH. Indeed, the August 2012 Order stated that
the NYISO’s methodology was “specified” in Section 5.16, indicating that extrinsic “non-
specified” references would not be required parts of every analysis. It also noted that the
Services Tariff gave the NYISO a “reasonable level of flexibility in consideration and evaluation

88 CE/CH Protest at 9.

89 Id. at 10.

90 Id. at 19.

91 See Sections II.C.3 and II.C.4 below.

of new capacity zones” thereby further indicating that the NYISO was not bound to apply the “indicator tests.”

The November 2011 Filing similarly did not present the “indicator tests” as absolute

requirements or as the entirety of the NYISO’s boundary identification analysis. Instead, it

described them as factors that may be relevant to an analysis but not absolutely essential, or

necessarily dispositive, parts of the analysis. The November 2011 Filing stated simply that “[t]o the extent that excess capacity in an individual Load Zone within the region of consideration for a New Capacity Zone can improve the reliability and security of a potential New Capacity Zone, it is a positive indicator for including that Load Zone as part of the New Capacity Zone.”92 It
also said that “Load Zones that are relatively electrically isolated from other candidate Load
Zones within the potential New Capacity Zone would tend to be a negative indicator for
including it in the New Capacity Zone.”93

3. Claims that the NYISO’s Boundary Identification Analysis Was

Flawed Because it Did Not Adhere to the “Positive Indicator Test” Have No Merit and Should Be Rejected

CE/CH argues that NYISO’s boundary identification analysis should be rejected, and that
Load Zone K should be included in the NCZ based on its flawed interpretation of Section 5.16.2
and the “positive indicator test.” According to CE/CH, the “positive indicator test”
automatically requires the inclusion of Load Zone K in the NCZ merely because Load Zone K
has an impact on reliability and security on Load Zones G, H, and I (“Load Zones GHI”).94 MI

92 See New York Independent System Operator, Inc., Compliance Filing Docket No. ER12-360-
000 at 6 (filed November 7, 2011) (“November 2011 Filing”).

93 Id. Similarly, the NYISO’s January 30 ICAP Working Group presentation stated that relative

electrical isolation would “tend to be a negative indicator” highlighting that the “negative indicator” was a factor in the NYISO’s analysis, not a binding requirement.

94 See, e.g., CE/CH Protest at 10.

makes a similar argument.95 As noted above, both CE/CH and MI claim that the NYISO’s
analysis should have focused on “an evaluation of Zone K’s ability to impact reliability and
security in the proposed NCZ” as an individual Load Zone, “separate and apart from Zone J’s
ability” to provide support.96 CE/CH, and its witness, Dr. Mayer Sasson (“Sasson Affidavit”),
make a number of additional arguments for the propositions that: (i) Load Zone K “provides
reliability benefits, support and security to the proposed NCZ;” and (ii) the April 30 Filing’s
analysis was flawed because it supposedly overlooked or understated these benefits and allegedly
ignored other relevant factors.97

The NYISO explains above that CE/CH and MI are mistaken when they assert the

“positive indicator” test automatically requires that a Load Zone be included in the NCZ if it
confers any reliability and security benefit on the NCZ. This is not what the Services Tariff
requires and is not a reasonable test for setting NCZ boundaries. Indeed, the April 30 Filing
indicated that even External Control Areas located adjacent to the Load Zones G-J had some
impact on reliability and security within it, but that this did not mean that they too should be
included in the NCZ.98

In reality, the Services Tariff allows the NYISO to consider the extent to which a Load Zone benefits the NCZ. This flexibility allows the NYISO to consider the extent to which
different Load Zones would benefit an NCZ and to weigh in its boundary analysis a comparison of the relative benefits of including different Load Zones.

95 See MI at 10-11, 16.

96 See CE/CH Protest at 8; see also MI at 10-11, 16.

97 See, e.g., CE/CH Protest at 10 and Sasson Affidavit at P 21.

98 See April 30 Filing ─ Affidavit of Mr. Gary Jordan at P 12 (“Jordan Affidavit”).

The NYISO was therefore permitted to perform the NCZ boundary analysis in the

manner that it judged was suited to determining which Load Zones should be included in the

NCZ. The Chao/Adams Answering Affidavit reiterates that the most valid approach to defining
an NCZ’s boundary is to determine the extent to which incremental capacity additions in a Load
Zone would impact a new Locality.99 This is best ascertained by conducting the comprehensive
capacity “fungibility” analyses that the NYISO used, and that were described in the April 30
Filing. As was explained in the Chao/Adams Affidavit provided with the April 30 Filing
(“Chao/Adams Affidavit”), the NYISO made this determination by running extensive
simulations using the General Electric’s Multi-Area Reliability Simulation (“MARS”) model.
These simulations demonstrated that capacity in Load Zones GHI was not fungible with capacity
in Load Zone K (and was much more fungible with capacity in Load Zone J). This was a strong
indication that Load Zone J should be included in the NCZ but that Load Zone K should not
be.100 The other analyses described in the April 30 Filing corroborated this conclusion.101 The
Chao/Adams Answering Affidavit reaffirms the conclusion’s validity.102 In addition, it reiterates
that, contrary to MI’s assertion, the analyses did include looking at Load Zone K separate from
Load Zone J and jointly with it.103

The Chao/Adams Answering Affidavit refutes CE/CH’s arguments against the NYISO’s
capacity fungibility analysis, which CE/CH refers to as the “First Test.” For example, CE/CH
claims that the two resource adequacy analyses discussed in the April 30 Filing. And the
“Second Test” ignored “the complex interactions that occur when shifting capacity form the

99 Chao/Adams Answering Affidavit at P 28.

100 See Chao/Adams Affidavit at PP 19-22. 101 Id. at PP 23-27.

102 See Chao/Adams Answering Affidavit at PP 6, 27-33.
103 Id.

LHV Zone to Zone K as well as when adding capacity to Zone K,” and misinterpreted the results of those tests. The Chao/Adams Answering Affidavit explains that it is CE/CH, not the NYISO, that ignores the “complex interactions” that exist on the system and are accounted for in the
MARS model.104

Thus, it is misleading for CE/CH to assert that the First Test “incorrectly concluded” that
the transfer limit between Load Zone K and Load Zones GHI was 300 MW instead of 530 MW.
As the Chao/Adams Answering Affidavit makes clear, CE/CH ignores the Load Zone K to Load
Zone J transfer limit and treats the Load Zone K to Load Zone GHI transfer limit as if it were
wholly independent of the transfer limit to Load Zone J. In reality, the simultaneous transfer
limit from Load Zone K to Loads Zones J and GHI can be more limiting and must be considered.
CE/CH also ignores the impacts that generator availability can have on transfer limits from Load
Zone K. In short, it is true that 530 MW is the maximum transfer limit from Load Zone K to
Load Zones GHI but the actual limit will often be significantly lower because of simultaneous
transfer and generator availability impacts. The NYISO’s MARS analyses and “unified
methodology” used in the resource adequacy analysis accounted for all of these factors and
supported both the NYISO’s use of a 300 MW transfer limit105 and its assessment that limited
transfer capability from Load Zone K is a reason for not including Load Zone K in the NCZ.106

104 Id. at PP 38-43.

105 Id. at PP 36-42.

106 CE/CH assert (at 13) that even assuming that 300 MW were the correct transfer limit value
that it still represented a “material” amount of capacity. This suggestion is irrelevant, however, because
whether it is possible to export a “material” amount of capacity from a Load Zone to the NCZ is not the
test for determining whether that Load Zone should be included in an NCZ. See also Chao/Adams
Affidavit at P 32.

Similarly, the Chao/Adams Answering Affidavit explains that it is misleading for CE/CH
to focus on average values.107 Loss-of-load events are rare and usually occur when the system is
stressed. Focusing on average values and ignoring extreme cases results in conclusions not
suited for the purpose of determining which Load Zones should be included in an NCZ.108
The Chao/Adams Answering Affidavit also explains why CE/CH is incorrect to claim that transmission transfer limits were not the reason why NYCA LOLE exceeded the established

0.1 loss of load LOLE when more than 300 MW of capacity were removed from Load Zone GHI and added to Load Zone K as incremental capacity.109

Finally, in addition to questioning the NYISO’s resource adequacy analyses, CE/CH
contends that the NYISO’s transmission security analysis incorrectly assessed the impact that
Load Zone K has on Load Zones GHI.110 CE/CH alleges that Load Zone K has the ability to
simultaneously export “much more than 233 MW during normal conditions.”111 The
Chao/Adams Answering Affidavit reiterates that the transmission security analysis corroborated
the results of the resource adequacy analyses. It explains that CE/CH is effectively asking the
NYISO to assess transmission security in a manner that contravenes applicable reliability
requirements.112

107 See Chao/Adams Answering Affidavit at P 49.
108 Id.

109 Id. at PP 44-48.

110 See CE/CH Protest at 17-19. 111 Id. at 18.

112 See Chao/Adams Answering Affidavit at P 52.

4Claims that the NYISO’s Boundary Identification Analysis Was

Flawed Because it Did Not Adhere to the “Negative Indicator Test” Have No Merit and Should Be Rejected

CE/CH argue that Load Zone K should be included in the NCZ under the “negative

indicator test” because it is “electrically connected and integrated in the LHV Zone” and is not
“electrically isolated” from it.113 The NYISO has already explained that the “negative indicator
test” is not a mandate. The Services Tariff does not prescribe that the NYISO include every
Load Zone located on the constrained side of a constrained Highway interface in an NCZ, let
alone prescribe that it do so unless it is completely electrically isolated from other Load Zones.
Instead, the “negative indictor test” simply reflects the fact that the NYISO’s NCZ boundary
identification analysis should consider the extent to which an individual Load Zone is relatively
electrically isolated. Contrary to what CE/CH claim this “negative indicator” was considered in
the analyses described in the April 30 Filing.114 The NYISO therefore applied the “negative
indicator test” in the manner that it suggested that it would in the November 2011 Filing.
CE/CH’s specific “negative indicator test” arguments all seek to establish the undisputed fact that Long Island is connected to, and thus not totally electrically isolated, from the rest of the NYCA. Because this fact is not determinative under section 5.16.2 of the Services Tariff, there is no need for the NYISO to respond to these arguments. The NYISO notes only that the April

30 Filing demonstrated the relevant implications of Long Island’s relative electrical isolation, i.e., the lack of fungibility of incremental capacity between Load Zone K and G-J Locality. No party disputes the fact that Long Island is not as electrically connected to the rest of the NYCA than Load Zone J or other existing Load Zones and it would have been unreasonable for the NYISO to have ignored this fact.

113 See CE/CH Protest at 19; see also MI at 15.

114 See Chao/Adams Answering Affidavit at PP 27-33.

5.It Is Not True that an Increase in Generation on Long Island Could

Realistically Provide Significant Support to the G-J Locality

CE/CH asserts that if the addition of new generation resources to Load Zone K could
provide relief to Load Zones G-J then Load Zone K should be included in the NCZ.115 As
support they point to Dr. Patton’s observation that NCZs are “intended to reflect the reliability
needs of the system over the planning horizon, since this allows the capacity market to attract
investment to the areas where investment provides the greatest reliability benefit.”116 They
contend that the April 30 Filing incorrectly concluded that including Load Zone K would be
inconsistent with this market design principle “because it would incent capacity additions in
Load Zone K even though such additions would provide considerably less reliability value to
other Load Zones located on the constrained side of the UPNY-SENY interface and to the
NYCA as a whole. According to CE/CH, the April 30 Filing “overlooks” that adding new
generation into Load Zone K would increase transfer capability from Long Island to the NCZ,
and, supposedly provide significant benefits to Load Zones GHI.

The Chao/Adams Answering Affidavit explains that this argument is misleading.117 The
pertinent issue in determining whether a proposed NCZ boundary is just and reasonable is not
whether the transfer limit may increase. What is pertinent is an evaluation of the effect on the
one day in ten years LOLE requirement.118 In addition, the Chao/Adams Answering Affidavit
emphasizes that it would be inconsistent with Dr. Patton’s recommendations for the NYISO to
send an additional investment signal, above and beyond the one that already exists because Load
Zone K is already a Locality, that would incent generation development in an already export

115 See CE/CH Protest at 22-24.

116 See CE/CH Protest at 22-23.

117 See Chao/Adams Answering Affidavit at P 54.
118 Id.

constrained area.119 CE/CH’s unsupported assertion that the addition of new capacity on Long Island would increase the transfer limit also ignores the effects of the potentially prohibitive cost of system upgrades that may be required to achieve such a result.

6. Central Hudson’s Arguments Regarding the NYISO’s Boundary

Identification Analysis Should Be Rejected Because They Are Wholly Irrelevant and Based on Erroneous Assumptions

Central Hudson claims that that NYISO’s NCZ boundary analysis was flawed because of
supposed faults in the NYISO’s Indicative NCZ LCR analysis. It asserts that because the
NYISO is required to use the “Highway Deliverability Test”120 to determine whether an NCZ is
to be created it somehow follows that “deliverability concepts” must be used to develop “the
details” of an NCZ, including its boundary.121 Central Hudson argues that there is no place for
“reliability concepts” in the NCZ identification or Indicative NCZ LCR analyses.122 It contends
that the NYISO’s use of a “reliability based methodology resulted in an indicative LCR which is
not related to the UPNY/SENY constraint.”123 Central Hudson proffers its own alternative
deliverability-based methodology for computing Indicative NCZ LCRs and asks that NYISO be
required to adopt it.

As noted above in Section II.A.4, the NYISO’s Indicative NCZ LCR calculation has

nothing whatsoever to do with determinations related to the creation of, or the identification of
boundaries for, NCZs. Central Hudson’s Indicative NCZ LCR arguments are therefore wholly
irrelevant to this proceeding. In addition, there is no requirement in either the Services Tariff or
the Commission’s precedent that “reliability concepts” be excluded from decisions related to the

119 Id.

120 See April 30 Filing - Patton Affidavit at P 11. 121 See CH Protest at 8.

122 Id.

123 Id. at 7.

boundaries of NCZs or the calculation of Indicative NCZ LCRs. It is simply not accurate to

assert that because the Commission appropriately required the NYISO to use a deliverability test
to identify whether an NCZ should be created, that it may only use such a test to define their
boundaries. As explained above in Section II.B, and in the affidavits supporting this answer,
there are also a number of reliability and market design reasons why it is not appropriate to
ignore “reliability concepts” in favor of a total reliance on “deliverability concepts.”124
In particular, the Chao/Adams Answering Affidavit explains that Central Hudson fails to recognize that the UPNY-SENY transmission interface is modeled explicitly by MARS to set the Installed Reserve Margin for the NYCA and the LCRs for Localities. The reliability requirement established to meet the NYSRC resource adequacy criterion will be used to ensure that sufficient capacity is procured to satisfy the criterion. Accordingly, the NYCA Minimum Installed
Capacity Requirement must be based on the reliability criterion to ensure that sufficient capacity
is procured to meet the 0.1. LOLE criterion. And the LCRs for the Localities will be determined
so the reliability criterion is met, too. Central Hudson’s proposed deliverability-based
methodology should therefore not be considered further by the Commission.

7.The Commission Should Not Accept MI’s Alternative Proposal for

Load Zone K

Finally, MI proposes that if the Commission were to conclude that Load Zone K should
be included in the NCZ, Load Zone K should also receive some kind of “special consideration”
that the NYISO should be directed, citing a suggestion in the Patton Affidavit, to “further
consider whether modeling Long Island as an export-constrained zone is warranted.”125 MI
suggests that in the event that implementing this kind of modeling is not practicable, the NYISO

124 See, e.g., Chao/Adams Answering Affidavit at P 55-57 and Patton Answering Affidavit at PP

19-20.

125 See MI Protest at 8, 18, citing April 30 Filing at Patton Affidavit at P 17.

be directed to initially include Long Island in the NCZ and transition it to the new modeling system over time.126

There is no need for the Commission to consider MI’s “alternative” proposal because the NYISO’s decision not to include Load Zone K in the NCZ was just and reasonable for the
reasons specified in the April 30 Filing and in the Chao/Adams Answering Affidavit. If,
however, the Commission decides to consider MI’s proposal, the Commission should allow time for further study and discussions with stakeholders, rather than simply imposing it. The concept has been recommended by the MMU but it has not yet been developed in any detail and its
potential costs and benefits have not yet been evaluated.

D. THE COMMISSION SHOULD ACCEPT THE NYISO’S PROPOSED

RULES GOVERNING THE ELIGIBILITY OF EXTERNAL CAPACITY TO SATISFY LOCATIONAL CAPACITY REQUIREMENTS

The April 30 Filing proposed to modify Section 5.12 of the Services Tariff to clarify that
capacity associated with External CRIS Rights, Grandfathered External Installed Capacity
Agreements listed in Attachment E of the Installed Capacity Manual, and Existing Transmission
Capacity for Native Load for the New York State Electric & Gas Corporation is only qualified to
satisfy a NYCA Minimum Unforced Capacity Requirement and is not eligible to satisfy a
Locational Capacity Requirement (“LCR”). Just as it does not now, this restriction would not
apply to External capacity associated with Unforced Capacity Deliverability Rights (“UDRs”).
The NYISO explained that this distinction was just and reasonable and not unduly discriminatory
because although it was possible “that some portion of the Energy associated with External
capacity may satisfy a Locality’s need under certain circumstances,” there was no assurance that

126 Id.

it would actually do so unless External capacity were “associated with controllable transmission equipment that is considered a Scheduled Line (i.e., a UDR).”127

The April 30 Filing specifically noted that the NYISO had “rejected a stakeholder request
that External capacity over a transmission line from ISO-New England be permitted to satisfy a
G-J Locality LCR.”128 It did so because “it is impossible for External capacity from New
England, and the associated Energy, to be controlled to make it deliverable to the G-J
Locality.”129

The only objection to this tariff clarification was made by Consolidated Energy Solution,
Inc. (“CES”). CES claims that the April 30 Filing failed to recognize that capacity imported
from New England is more deliverable and therefore has a higher reliability value than capacity
from other external regions, or even from within the NYCA. CES asserts that this is attributable
to the physical configuration of the transmission grid, specifically including the 345 KV Pleasant
Valley to Long Mountain/Frost Bridge (PV-LM) line that connects directly to Load Zone G. The
potentially higher reliability value is reflected in the lower shift factors assigned to imports from
New England.130 It also argues that the April 30 Filing’s proposal would result in asymmetrical
import and export rules for the NCZ.131 Finally, CES argues that instead of treating External
capacity as entirely unable to meet LCRs, the NYISO should determine how much energy is
deliverable over PV-LM line during peak load and use that to set the level of deliverable
capacity.

127 April 30 Filing at 15.

128 April 30 Filing at 16; citing Nelson Affidavit at P 22.
129 Id.

130 See Motion to Intervene and Comments of Consolidated Edison Solutions, Inc., Docket No. ER13-1380-000 at 3-4 (filed May 21, 2013) (“CES Comments”).

131 See CES Comments at 4.

It is true that the NYISO assigned lower shift factors to imports from New England into the constrained Load Zone G, H, I region in the 2012 Summer Capability Period than it did to imports from other External regions.132 It is also true that this indicates that New England
imports were relatively more likely to be deliverable to the NYCA in that time period than those from Ontario, Quebec, or PJM. But it does not mean that the NYISO has sufficient assurance that New England capacity will be deliverable to justify treating it as deliverable to a Locality, and counting it towards satisfying LCRs. New England imports do not provide the same
assurance of delivery that the NYISO has when External capacity is associated with UDRs (i.e., when it is utilizing a controllable Scheduled Line.)

While it is true that the physical configuration of the transmission grid includes the PVLM line and that this facility connects to Load Zone G, the fact remains that the PV-LM line is not a controllable Scheduled Line like those associated with UDRs. The NYISO therefore does not have any way to effectuate delivery along the PV-LM line because the facility lacks
controllable equipment that would ensure delivery across it, and delivery also is not scheduled. The PV-LM line therefore does not provide a basis for treating capacity from New England as if it were certain to be deliverable to the G-J Locality.

Similarly, the fact that the April 30 Filing might arguably result in asymmetrical import
and export rules for the G-J Locality should not cause the Commission to conclude that the
NYISO should accept capacity that may not be deliverable. The NYISO cannot dictate the
capacity ISO New England, Inc. (“ISO-NE”) accepts as deliverable. But the NYISO has an
important reliability obligation to ensure that imports that may not be deliverable to a Locality in

132 See

<http://www.nyiso.com/public/webdocs/markets_operations/market_data/icap/ICAP_Auctions/2012/Sum
mer_2012/External_Rights/Summer_2012_-_External_Import_Rights_Availability.pdf>.

the NYCA are not treated as though they are. Moreover, because the April 30 Filing merely clarified the NYISO’s current approach to capacity imports it is not creating a new “seam” between the NYISO and ISO-NE market rules that the Commission would have a reason to address in this proceeding.

E. THE NYISO STRONGLY SUPPORTS THE IMPLEMENTATION OF

THE PROPOSED G-J LOCALITY ON MAY 1, 2014 BUT TAKES NO POSITION ON THE QUESTION OF WHETHER A PHASE-IN OF CAPACITY PRICE INCREASES IS WARRANTED ON NON-
ECONOMIC GROUNDS

The Indicated NYTOs argue that the NYISO should be directed to phase-in the capacity
price increases that the NCZ is expected to cause in Load Zones G, H, and I.133 They point to
Commission precedent that favors “softening” the impact of “substantial” price increases on
consumers and to the fact that the NYISO’s original ICAP Demand Curve proposal in 2003
included a phase-in.

As stated above, the NYISO continues to strongly support the April 30 Filing’s proposal
to establish the G-J Locality and for it to be implemented for the May 1, 2014 start of the
2014/2015 Capability Year. The NYISO believes that the April 30 Filing’s proposal is
consistent with market design principles and that it will be in the ultimate/long-term economic
interests of all New York consumers (including those that experience a short-term price increase)
for the G-J Locality to be implemented on May 1, 2014. The NYISO has considered the
equitable dimension of the Indicated NYTOs’ request for a phase-in. The NYISO understands
that the independent MMU considers it very important to establish the G-J Locality on May 1,
2014 without adopting a phase-in that would delay the capacity markets’ ability to send more

133 See Indicated NYTOs Protest at 7.

efficient investment price signals.134 The NYISO also notes that it cannot yet evaluate whether
any phase-in option would be administratively feasible or would threaten the timing of the
implementation of the NCZ (or the ICAP Demand Curves). The NYISO expects that other
parties will create a complete record on the equitable considerations posed by phase-in proposals.
Accordingly, the NYISO does not believe that there is anything further for it to add to the record
on this issue at this time.

F. TRADITIONAL TRANSMISSION RATEMAKING AND COST

ALLOCATION CONCEPTS ARE NOT RELEVANT TO THE ESTABLISHMENT OF NCZS

Central Hudson advances novel claims that the April 30 Filing is somehow inconsistent with

Commission precedents governing traditional ratemaking and the allocation of regulated costs. Central
Hudson argues that NYISO’s proposed NCZ allocates a majority of the impact of the binding
constraint at the UPNY/SENY interface to Load Zones G, H and I and thereby shifts costs from
Load Zones J and K to G-I .135 It even asserts that the “Commission should find that the
NYISO’s cost allocation proposal is not just and reasonable.”136 Contrary to Central Hudson’s
assertion, the April 30 Filing is not a cost allocation proposal. It is a proposed market design
enhancement intended to ensure the NYISO’s capacity market is sending efficient locational

134 Potomac Economics, 2012 State of the Market Report for the New York ISO Markets (April 2013) at 52 available at

<http://www.nyiso.com/public/webdocs/markets_operations/committees/mc/meeting_materials/2013
‐04‐24/4_NYISO%202012%20SOM%20Report.pdf> (“2012 SOM Report”) (“In summary, the creation of a SENY capacity zone before 2014 would have facilitated more efficient investment in both new and
existing resources where the Reliability Needs Assessment has identified resources are necessary for
resource adequacy over the next ten years. Nonetheless, it should remain a high priority for the NYISO to move forward expeditiously to create and price the SENY zone.”).

135 See CH Protest at 11.

136 Id.

investment signals that will attract investment where it is most needed and will provide the greatest reliability benefit.137

Central Hudson wrongly asserts that market price signals are intended to comport with cost causation principles, and ignores the fact that the justness and reasonableness of
Commission-jurisdictional competitive markets is ensured through the interplay of competitive market forces (and market monitoring) not traditional cost-based ratemaking restrictions.138 “The capacity market is designed to ensure that sufficient capacity is available to reliably meet New York’s planning reserve margins.”139 Capacity price signals should reflect the value of capacity in each area. By setting a distinct clearing price in each location, the capacity market facilitates investment in areas where it is most needed.

Central Hudson fails to cite a single relevant precedent to support its notion that cost-
based ratemaking principles apply in this context of this proceeding. It ignores extensive
Commission precedent establishing capacity and energy market pricing zones without reference
to cost-of-service type cost-causation or cost allocation principles.140 The fact that new capacity
pricing zones have been established in neighboring Commission-jurisdictional organized
capacity markets without cost allocation filings or reviews confirms the inapplicability of the
ratemaking principles that Central Hudson has invoked. Similarly, from the time of their
inception, the NYISO capacity market has included locational capacity requirements for New

137 April 30 Filing at 7.

138 Central Hudson Gas & Electric Corp., et al., 86 FERC ¶61,062 (1999) (accepting the tariff and market rules and approving the proposed market-based rates of the NYISO).

139 2012 SOM Report at 49.

140 See, e.g., Central Hudson Gas & Electric Corp., et al., 95 FERC ¶63,013 (2001)(“reject[ing]
MEUA’s argument that a complete Section 205 filing, with full cost and revenue support, is required to
show that the proposed changes are just and reasonable”); New York Independent System Operator, Inc.,
103 FERC ¶61,201 at 61,757 (2003) (May 20 Order) (rejecting request for cost-benefit analysis and
concluding that “NYISO's analyses adequately demonstrate that the proposal will benefit customers”).

York City and Long Island. The NYISO established those capacity zones based on the market design principles described above without reference to cost-of-service type cost allocation
principles. The Commission should reject all claims by Central Hudson that the NCZ proposed in the April 30 Filing fails to satisfy cost causation ratemaking requirements because such cost allocation concepts are not relevant to the establishment of NCZs.

G. THE COMMISSION SHOULD NOT CONVENE A TECHNICAL

CONFERENCE OR ACCEPT THE FILING “SUBJECT TO REFUND”

The Indicated NYTOs and Central Hudson call on the Commission to “immediately”
convene a technical conference to explore NCZ elimination, price convergence, buyer-side
mitigation, and certain issues that are of interest to them.141 They suggest that the Commission
should not allow the NYISO to implement the NCZ until after the technical conference has led to
a resolution of these issues. The Indicated NYTOs also ask the Commission to suspend the
April 30 Filing for one day and make it effective subject to refund.142
The NYISO does not believe that there is any need for a technical conference in this
proceeding, especially if it would be a pre-requisite to a Commission ruling on the April 30
Filing. The Indicated NYTOs’ and Central Hudson’s concerns lack merit, for the reasons set
forth in Section II.B. above, so there is no reason for the Commission to address them at all.
However, to the extent that the Commission concludes that they have some merit, there is more
than sufficient time for the Commission to permit them to be considered in the NYISO
stakeholder process in the first instance. The Commission should be wary of the potential danger
that a technical conference would jeopardize the NYISO’s ability to prepare the G-J Locality
ICAP Demand Curve, result in a harmful and unnecessary delay in NCZ implementation, impair

141 See Indicated NYTOs Protest at 17-18 and CH Protest at 11.

142 See Indicated NYTOs Protest at 2.

the NYISO’s ability to adhere to the Services Tariff’s requirements to introduce new ICAP

Demand Curves and the NCZ concurrently and in time for the beginning of the Capability Year
on May 1, 2014.143 There is no need to risk such delay, or to dedicate the Commission’s and the
parties’ resources to a technical conference, given the availability of the stakeholder process.

The Commission should also not make the April 30 Filing effective subject to refund.

For the reasons set forth above: (i) the NYISO’s proposed tariff revisions are just and reasonable;
and (ii) the Indicated NYTOs’ arguments against them are premature, beyond the scope of this
proceeding and, in some cases, collateral attacks on earlier Commission rulings. Making the
April 30 Filing subject to refund has the potential to create great uncertainty and disruption in the
capacity market. It would add uncertainty to investment decisions to buyer side mitigation
determinations, and threaten the implementation of the ICAP Demand Curves. It could also
effectively make the entire capacity market “subject to refund” to the extent that requests for
rehearing of a Commission order on the April 30 Filing are still pending before the Commission
beyond May 1, 2014. This could undermine the entire market design by effectively preventing
capacity prices from performing their intended investment signaling function.

H.THE COMMISSION SHOULD REJECT OTHER PROPOSED CHANGES

TO THE NYISO’S DELIVERABILTY TEST

1. It Is Appropriate and Consistent with Attachment S to the NYISO

OATT to Treat the UPNY-SENY Interface as an Other Interface After the G-J Locality is Established

The Indicated NYTOs argue that removing UPNY-SENY as a Highway interface in the
deliverability test, and not providing for it to be automatically examined as such in the
deliverability test again if the constraint is removed, would inappropriately insulate new

143 It also would impair the NYISO’s issuance of buyer-side mitigation determinations for

projects in the NCZ, should the Commission accept the NYISO’s filing pending in Docket No. ER12-
360-000.

resources from paying deliverability upgrade costs. According to the Indicated NYTOs, the

Commission must act to “rectify changes to the deliverability test that will render it incapable of assigning costs for System Deliverability Upgrades (“SDUs”) to new entrants that degrade newly created deliverability headroom.”144 They argue that, at a minimum, the tariff should be revised to require the NYISO to perform an appropriate deliverability test “if a market participant makes a reasonable request.”145

The NYISO’s proposed OATT revisions to remove UPNY-SENY from the defined term
“Highway” and include it in the definition of an Other Interface is consistent with the framework
of the NYISO’s deliverability requirement. Under that framework, “Highways” and “Byways”
are identified transmission facilities located within a Capacity Region146 over which
deliverability within that Capacity Region is evaluated. “Other Interfaces” are specified
interfaces between Capacity Regions or external regions that are subject to a separate
deliverability evaluation.

Under the current tariff (i.e., prior to the establishment of the NCZ,) UPNY-SENY is
within the Rest of State (“ROS”) Capacity Region (defined as Load Zones A through I)147 and,
therefore, properly identified as a Highway. However, with the creation of the G-J Locality,
UPNY-SENY will be an interface between Capacity Regions (i.e., between ROS and the G-J
Locality). Therefore, it would be inconsistent with the deliverability framework to continue to
evaluate UPNY-SENY as a Highway and to allocate deliverability upgrade costs to developers
on that basis. UPNY-SENY should instead be evaluated as an Other Interface under the

144 See Indicated NYTOs Protest at 14.

145 Id. at 16-17.

146 “Capacity Region” is a defined term in Section 25.1.2 of OATT Attachment S.

147 Id.

applicable test in Section 25.7.9 of Attachment S, which requires developers to fund

deliverability upgrades if a project degrades the transfer capability of the Other Interface beyond the de minimis level identified in Attachment S.

2. There Is No Need for the Commission to Use this Proceeding to

Consider Whether Special Case Resources Should Be Accounted for in the NCZ Study

ENPM accepts that the NCZ study was completed in accordance with the current

provisions of the Services Tariff but nevertheless suggests that it should have accounted for all
available capacity, including Special Case Resources (“SCRs”).148 ENPM concedes, however,
that regardless of whether NYISO included SCRs in the NCZ Study the results would indicate a
substantial overload of the UPNY/SENY interface and require the NYISO to implement a

NCZ.149

The NYISO agrees that this issue does not have a direct bearing on the requirement to
create an NCZ or the G-J Locality as the boundary. The deliverability methodology in OATT
Attachment S was developed after a lengthy stakeholder process, and was approved by the
Commission. The methodology is prescriptive in several technical areas regarding the inputs and
assumptions of the “Deliverability Test,” and modeling SCRs is not among the prescribed inputs
and assumptions. The NYISO is not prepared to take a position at this time on the technical
merits of ENPM’s suggestion and there is no need to delay action on the April 30 Filing because
of it.

148 Id. at 8 and Attachment 1 - Younger Affidavit at PP 14, 27, 28.

III.CONCLUSION

For the reasons specified above, the NYISO respectfully requests that the Commission accept this answer, accept all of the tariff revisions proposed in the April 30 Filing without
requiring any modification, grant the various effective dates requested in the April 30 Filing, and permit the NYISO to implement its proposed NCZ encompassing Load Zones G, H, I, and J for the May 1, 2014 start of the 2014/2015 Capability Year.

Respectfully submitted,

/s/ Gloria Kavanah

Gloria Kavanah
Senior Attorney

New York Independent System Operator, Inc.

June 5, 2013

CERTIFICATE OF SERVICE

I hereby certify that I have this day caused the foregoing document to be served upon each person designated on the official service list compiled by the Secretary in this proceeding in accordance with the requirements of Rule 2010 of the Commission Rules of Practice and Procedure, 18 C.F.R. § 385.2010 (2013).

Dated at Washington, D.C. this 5th day of June 2013.

/s/ Catherine Karimi

Catherine Karimi

Hunton & Williams LLP

2200 Pennsylvania Ave, NW
Washington, DC 20037
Tel: (202) 955-1500
Fax: (202) 778-2201

E-mail: ckarimi@hunton.com