UNITED STATES OF AMERICA
BEFORE THE

FEDERAL ENERGY REGULATORY COMMISSION

New York Independent System Operator, Inc.)Docket No. ER13-909-001

ANSWER 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. (“NYISO”) respectfully submits this answer to the May 30 comments (“Comments”)2 filed by the New York Transmission Owners (“NYTOs”).3 The Comments address NYISO’s May 9 Response to Request for Further Information Proposed Tariff Amendments to Revise Ancillary Service Price Calculations During Period of Scarcity and Request for Commission Action no Later than July 1, 2013 (“May 9 Filing”).

For the reasons set forth below, the Commission should accept the revisions proposed for
scarcity pricing in this docket, revisions that have been endorsed by the NYISO’s independent
Market Monitoring Unit.4 These include revisions to the determination of scarcity conditions

2 Comments of the New York Transmission Owners, Docket ER13-909-001, (May 30, 2013). Because the NYTOs pleading is styled as “comments” the NYISO may answer it as a matter of right under Rule 213. To the extent that the Commission were to treat the Comments as tantamount to a protest, the NYISO respectfully asks that the Commission exercise its discretion and accept this answer because it will help to clarify complex issues and facilitate the Commission’s review.

3 The NYTOs are 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 (“Niagara Mohawk”), Orange and Rockland Utilities, Inc., and Rochester Gas and Electric Corporation.

4 See: Motion to Intervene and Comments of the New York ISO’s Market Monitoring Unit, Docket No. ER13-909-001 (May 30, 2013) (“MMU Comments”).

Honorable Kimberly D. Bose June 12, 2013

Page 2

that would trigger a re-pricing of Operating Reserves and Regulation Service5 pursuant to the scarcity pricing methodologies currently set forth in the NYISO’s Market Administration and Control Area Services Tariff (“Services Tariff”). The Commission should not accept the
Comments’ proposal that the May 9 Filing’s revised trigger be treated as a “stopgap measure.”6 Rather, the Commission should encourage the NYTOs to propose any changes that they may wish to see made to the NYISO’s scarcity pricing rules in the NYISO stakeholder process
instead of raising them at the Commission in the first instance.

I.ANSWER

A.It Is Vitally Important that the Commission Issue an Order by July 1, 2013

Accepting the Proposals Included in the May 9 Filing Without Imposing the
NYTOs’ Modifications or Treating the May 9 Filing as a “Stopgap Measure”

The NYISO has previously explained that the issuance of an order accepting its proposed
enhancements to the scarcity pricing trigger and methodologies for LBMPs, and to the trigger for
pricing Ancillary Services, is essential to the creation of appropriate, locationally specific, price
signals to encourage existing Energy Suppliers to maximize their output during scarcity
conditions and to attract new supply to areas that may be capacity short this summer.7 The
NYISO has, more recently, discussed with its stakeholders the specific reliability threat that
exists this summer in the Lower Hudson Valley under extreme weather conditions and the
capacity issues, in general, facing the New York Control Area for this summer.8 Delaying the

5 Capitalized terms that are not otherwise defined herein shall have the meaning specified in Services Tariff.

6 See, e.g., Comments at 1, 4.

7 See: Filing Letter to Secretary Bose, Docket Docket No. ER13-909-000 (February 8, 2013), p. 3

8 See: Southeast New York Load Pocket, Summer 2013, presented and discussed with Market
Participants at the March 27, 2013 Management Committee meeting under Agenda Item # 3 at:

Honorable Kimberly D. Bose June 12, 2013

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implementation of the rules proposed in the May 9 Filing in order to consider the modifications proposed by the NYTOs could mean locational price signals that would otherwise indicate the existence of scarcity conditions and the value to system reliability of additional energy and
demand response for this summer would be missing. Moreover, treating the May 9 Filing as a stop gap measure would undervalue the signal that appropriately set scarcity prices otherwise provide to investors who are considering making additional investments in the NYCA Load
Zones that are prone to scarcity conditions.

The NYTOs’ claims that the May 9 Filing should not be accepted, or should only be

accepted on an interim basis, because its proposals are “defective” lack merit. As the

Commission has acknowledged, when Special Case Resources and Emergency Demand

Response Program Resources are called in New York, they are marginal resources and should set market-clearing prices as marginal resources.9 The enhancements proposed by the NYISO in this docket improve the link between the locations where these resources are marginal for Energy and the locations where they are eligible to set the Energy LBMP, a link that is muted in the
NYISO’s currently effective scarcity pricing rule-set.

By establishing a Load-Zone based rather than a regionally-based trigger for pricing
LBMPs using scarcity pricing methodologies, the NYISO can better determine where these
resources are marginal when called. These resources will be marginal, and will set scarcity

http://www.nyiso.com/public/webdocs/markets_operations/committees/mc/meeting_materials/2013-03-
27/SENY_Load_Pocket_MC_3_27_2013.pdf; and the 2013 Summer Capacity Outlook presented and discussed with Market Participants at the May 29, 2013 Management Committee at:

http://www.nyiso.com/public/webdocs/markets_operations/committees/mc/meeting_materials/2013-05-
29/4_2013%20Summer%20Capacity%20Outlook_MC.pdf

9 New York Independent System Operator, Inc., 102 FERC ¶ 61,313 at P 25(2003); and New York Independent System Operator, Inc. 103 FERC ¶ 61,339 (2003).

Honorable Kimberly D. Bose June 12, 2013

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prices, when Available Reserves in any Load Zone for which their Load Reduction was needed to resolve a reliability need are less than the MW of Load Reduction they were called upon to provide. As Dr. Patton has determined:

this is a reasonable approach because when this occurs, it indicates that butfor the called upon Load Reductions, Available reserves would have been insufficient to address the reliability issue.10

Moreover, the May 9 Filing’s enhancements to the triggering events pursuant to which
Operating Reserves would be priced using scarcity pricing has also been endorsed by Dr. David
Patton:

If statewide Available Reserves were adequate and the Load Zones identified
with a reliability issue were exclusively located East of Central East, the
NYISO proposal would retest the adequacy of Available Reserves in the area
East of Central East. If Available Reserves East of Central East were less
than the MW of called-upon SCR and EDRP Resources, the NYISO would
re-price Operating Reserves using the scarcity pricing methodology in the
tariff for Eastern scarcity (formerly known as Pricing Rule “B”).

We believe that this is appropriate because it assures that scarcity pricing will
only be reflected in areas where NYISO is truly short. Currently, its
locational operating reserve requirements generally pertain to NYCA or to
Eastern New York. In reality, however, the SCRs or EDRPs may be called
for reliability needs in zones that are a subset of these areas. When this
happens, it is important not to reprice reserves in other zones outside of
where the reliability need exists. This is accomplished under the NYISO
proposal described above.11

Accordingly, the Commission should refrain from imposing the further revisions

recommended by the NYTOs. It should instead accept the amendments proposed in the May 9 Filing as of their proposed July 8, 2013 effective date.

10 MMU Comments at 2.

11 MMU Comments at 3.

Honorable Kimberly D. Bose June 12, 2013

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B. The Commission Should Require the NYTOs to Pursue their Preferred

Market Rule Changes Through the NYISO Stakeholder Process Rather than Unilaterally Raising them Before the Commission in the First Instance

Although the NYTOs acknowledged the improvements made in the NYISO’s May 9
Filing they continue to urge the Commission to impose their own preferred tariff changes to
allow Ancillary Service prices to “clear the market.”12 The Commission should follow its
precedents discouraging individual parties from making “end-runs” around ISO/RTO
stakeholder processes13 and encourage the NYTOs to bring their proposals to the NYISO
stakeholder process. The NYTOs have acknowledged in this proceeding that they did not
identify their concerns before the NYISO made its February 8 filing, and thus never raised them
with other stakeholders.14 Most of the NYTOs also recently, and correctly, argued in another
proceeding that it was improper for parties to attempt to “circumvent” the stakeholder process.15

12 See, e.g., Comments at 3

13 See, e.g., ISO New England Inc., 130 FERC ¶ 61,145, at P 34 (2010) (“we encourage parties to
participate in the stakeholder process if they seek to change the market rules...”); ISO New England Inc.,
125 FERC ¶ 61,154 at P 39 (2008) (directing that unresolved issues be addressed through the stakeholder
process); ISO New England, 128 FERC ¶ 61,266 at P 55 (2009) (declining to grant a party’s specific
request for relief because the Commission “will not ... circumvent that stakeholder process”); New York
Independent System Operator, Inc., New York Transmission Owners, 126 FERC ¶ 61,046, at PP 53-54
(2009) (directing that a proposal be “presented to and discussed among … stakeholders and filed as a
section 205 proposal, not unilaterally presented to the Commission”); New England Power Pool,
107 FERC ¶ 61,135 at PP 20, 24 (2004) (declining to accept changes proposed for the first time in a
FERC proceeding by an entity that participated in the stakeholder process because the “suggested
revisions have not been vetted through the stakeholder process and could impact various participants”).

14 See: Motion to Intervene and Protest of the New York Transmission Owners, Docket ER13-
909-000, (March 1, 2013), p. 5

15 See Protest of the Indicated New York Transmission Owners, Docket No. EL13-62-000 (May
30, 2013) at Section II.A (“Stakeholders often bring issues related to the tariffs governing the NYISO
markets to the NYISO stakeholder process for collective consideration. Indeed, many such issues are
pending currently before the NYISO. IPPNY has not explained why it should be entitled to bypass that
logical prerequisite. Indeed, the Commission can rightly avoid issues that have not been fully considered

Honorable Kimberly D. Bose June 12, 2013

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The May 9 Filing indicated that several issues that had surfaced since the NYISO made
its original filing in February 2013 should be the subject of further stakeholder discussion.
Therefore, as the NYISO explained in its May 9 Filing, it is committed to conduct, by the second quarter of 2014, a comprehensive evaluation, stakeholder review, assessment and prioritization
of the following issues:

(i) the locations for which reserves are procured;

(ii) the reserves (type and amount) procured for those locations;
(iii) the reserve demand curve MW and value set points; and
(iv) the implementation and triggering of scarcity pricing.16

The appropriate avenue for the advancement of the NYTOs’ alternative Operating

Reserves scarcity pricing design is this stakeholder review where all stakeholders will have the
opportunity to participate. This review will also allow stakeholders to evaluate Dr. Patton’s
recommendation that the NYISO consider whether any changes in its locational reserve
requirements are warranted.17 If this review produces revisions that are supported by the
NYISO’s stakeholder Management Committee and its independent Board of Directors, further
revisions to the NYISO’s scarcity pricing provisions would be presented to the Commission for
its review and action. The NYTOs should be encouraged to participate in this process.

III.Conclusion

For the reasons set forth above, the NYISO, respectfully requests that the Commission
issue an order no later than July 1, 2013, accepting the proposed tariff amendments that were

by requiring that parties make use of the stakeholder process before seeking Commission intervention.”) All of the NYTOs except for Niagara Mohawk, were signatories to this filing.

16 May 9 Filing at 3.

17 MMU Comments at 4.

Honorable Kimberly D. Bose June 12, 2013

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originally included in its February 8 filing in this proceeding, as amended by the May 9 Filing, and make them effective on July 8, 2013, without imposing any of the conditions or
modifications proposed by the NYTOs in their Comments.

Respectfully submitted,

/s/Mollie Lampi

Mollie Lampi

Assistant General Counsel

New York Independent System Operator,
Inc.

10 Krey Blvd.

Rensselaer, New York 12144 (518) 356 7530

mlampi@nyiso.com

cc:Travis Allen

Gregory Berson

Anna Cochrane

Jignasa Gadani

Morris Margolis

Michael McLaughlin
Joseph McClelland
David Morenoff
Daniel Nowak

CERTIFICATE OF SERVICE

I hereby certify that I have this day served the foregoing document 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 Rules of Practice and Procedure, 18 C.F.R. §385.2010.
Dated at Rensselaer, NY this 12th day of June, 2013.

/s/ Joy A. Zimberlin

Joy A. Zimberlin

New York Independent System Operator, Inc.

10 Krey Blvd.

Rensselaer, NY 12144 (518) 356-6207