UNITED STATES OF AMERICA
BEFORE THE

FEDERAL ENERGY REGULATORY COMMISSION

New York Independent System)Docket No. ER14-___-000

Operator, Inc.)

PETITION FOR TEMPORARY TARIFF WAIVERS,

REQUEST FOR SHORTENED COMMENT PERIOD, AND

REQUEST FOR EXPEDITED COMMISSION ACTION BY JANUARY 31, 2014

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

“Petition” pursuant to Rule 2071 of the Commission’s Rules of Practice and Procedure for temporary waivers of Sections 21.4 and 21.5.1 of its Market Administration and Control Area Services Tariff (“Services Tariff”). Granting these requested waivers will enable the NYISO to consider Incremental Energy and Minimum Generation2 offers that exceed $1000/MWh and compensate Generators that are able to demonstrate that they actually incurred variable costs in excess of $1000/MWh to provide
Incremental Energy or Minimum Generation.

As discussed below, extreme winter weather and unprecedented natural gas market conditions have driven certain gas-fired Generators’ fuel costs to previously unseen levels. The requested waivers are therefore necessary to ensure the reliable operation of the New York State Power System and that Generators are made whole for their costs of producing Energy. The waivers are consistent with
Commission precedent because they are needed to remedy a concrete problem, are narrowly drawn, and will not have adverse consequences.

The NYISO is requesting that these temporary waivers be in effect from January 22, 2014
through February 28, 2014, i.e., for the remainder of the coldest portion of the winter season. The
NYISO also respectfully asks that the Commission grant any other waivers, or authorize any other

1 18 CFR § 385.207 (2013).

2 Capitalized terms that are not defined in this Petition have the meaning ascribed to them in Section 2 of the NYISO’s Market Administration and Control Area Services Tariff (“Services Tariff”).

actions, that it deems necessary to enable the NYISO to preserve reliability and ensure that Generators are made whole for their costs during this period.

The NYISO respectfully requests that the Commission act expeditiously and, either waive or abbreviate to the maximum extent possible any comment procedures, so that it may issue an order granting the requested waivers by January 31, 2014.3

I.THE NEED FOR EMERGENCY ACTION

The extreme cold weather that New York (and much of the Eastern United States) is

experiencing has caused an unprecedented spike in natural gas prices. These extreme natural gas

prices are, in turn, significantly increasing the cost of producing electric Energy in New York and the rest of the Eastern United States. The purpose of this waiver filing is to protect the reliability of the New York State Power System by providing New York Control Area (“NYCA”) Generators that must operate on natural gas the opportunity to recover the actual costs that they incur to operate, should those costs exceed the $1,000/MWh Bid Restriction4 that limits the NYISO’s authority to consider Incremental Energy Bids and Minimum Generation Bids that exceed this amount.

II.DESCRIPTION OF REQUEST FOR WAIVERS

A.Background—Extremely Cold Weather and Unprecedented Natural Gas Prices

Are Increasing the Cost of Producing Electricity in New York and the Eastern United States

New York is in the throes of a cold snap that began on January 21, 2014. It is not expected to end until January 24th or 25th.5 Temperatures in New York City during this cold snap are expected to range from 8 degrees to 20 degrees Fahrenheit. This is approximately 20 degrees below average for New York City at this time of year.

3 The NYISO’s external Market Monitoring Unit, Potomac Economics, has indicated that it supports this filing.

4 See NYISO Market Services Tarff Section 21.4.

5 Another cold snap may begin on January 27 or 28, 2014.
2

The natural gas prices that the NYCA is experiencing during the cold snap could cause some

NYCA Generators’ costs to exceed the $1,000/MWh Bid Restriction. The January 22, 2014 day-ahead
index price for natural gas at the Transco Z6 NY6 hub was more than $120/MMBtu. $120/MMBtu is
more than double the second highest price posted for that hub in 2013 and 2014. The January 22, 2014
day-ahead index price is 20 times higher than the $6/MMBtu average price at the Transco Z6 NY hub
in December 2013. During January and February 2013, the average Transco Z6 NY natural gas prices
were $9.98/MMBtu and $10.39/MMBtu respectively. The January 2013 average price was affected by
a three day period when temperatures ranged from slightly above 5 degrees to less than 20 degrees

Fahrenheit. During the cold weather in 2013 the Transco Z6 NY natural gas price ranged from

approximately $16/MMBtu to less than $40/MMBtu. The January 22, 2014 day-ahead index price of
$120/MMBtu is more than triple the highest price seen at the Transco Z6 NY hub in January of 2013.

B. The NYISO Proposes to Permit Generators to Submit and Recover Actual Costs

they Incur to Provide Incremental Energy and Minimum Generation

If the Commission grants the NYISO’s waiver request, the NYISO will reimburse affected
generation resources for their demonstrated, actual costs of producing Incremental Energy and/or
Minimum Generation that exceed the $1,000/MWh Bid Restriction, via a Bid Production Cost
Guarantee. The supplemental payment will be available for both Day-Ahead and Real-Time Market
commitments. Additional costs incurred to commit Generators that are needed for reliability will be
recovered in accordance with the rules set forth in Rate Schedule 1 of the NYISO’s OATT.7 The
NYISO is not currently able to permit, and is not seeking authority to permit Incremental Energy offers
in excess of $1,000/MWh to set prices in its Day-Ahead or Real-Time Markets.
The NYISO proposes to require Generators that will incur variable costs in excess of
$1,000/MWh to provide Incremental Energy or Minimum Generation to the NYISO to comply with

6 Transco Z6 NY is the natural gas pipeline index price that determines the natural gas price incurred by Generators in and around New York City.

7 See Section 4.1.8 of the Services Tariff.

the requirements set forth below in order to be eligible to recover their actual, demonstrated costs in excess of the Bid Restriction:

1. The Market Party responsible for offering the Generator must submit a Bid of

$1,000/MWh for the (portion of the) Minimum Generation and Incremental Energy MWs that it expects to incur an incremental cost of greater than $1,000/MWh to
provide; and

2. The Market Party responsible for offering a Generator that expects to incur incremental

costs in excess of $1,000/MWh to provide Minimum Generation or Incremental Energy
must submit an e-mail to the NYISO’s Stakeholder Services Department at
Stakeholder_Services@NYISO.com specifying the fuel cost it expects to incur;8 and
3. When it obtains documents substantiating the fuel costs incurred, the Market Party
responsible for offering a Generator must submit a Services Center ticket to the
NYISO’s Stakeholder Services Department. The Market Party must submit documents
evidencing the actual fuel costs incurred with the Services Center ticket.
Eligibility to recover costs in excess of the $1,000/MWh cap will be determined after-the-fact and will be limited to demonstrated, actual production costs incurred. Generators will be expected to offerinto the NYISO’s markets based on the lowest cost fuel available. The NYISO will notify Market Parties responsible for offering generation into its markets of their obligations to comply with the
Commission’s Market Behavior Rules (18 C.F.R. § 35.41) and the requirements of the Market
Mitigation Measures that are set forth in Attachment H to the NYISO’s Services Tariff.

8 The NYISO requests that e-mail notice also be provided to the responsible Market Participant’s stakeholder services representative, but this additional notice is not mandatory.

C.The NYISO Requests a Temporary, Limited Waiver of the Requirement that it

Reject All Incremental Energy and Minimum Generation Bids that Exceed that +/-
$1,000/MWh Limit

The NYISO requests a temporary, limited waiver of the provisions of Sections 21.4 and 21.5.1 of Attachment F to its Services Tariff that require it to summarily reject Day-Ahead and Real-Time Market Incremental Energy Bids and Minimum Generation Bids that exceed the +/-$1,000/MWh Bid Restriction. Granting the requested waiver will enable the NYISO to compensate Market Parties for the actual costs they incur to produce Incremental Energy and Minimum Generation from their
Generators at times when natural gas prices are extremely high.

Granting the NYISO’s requested waiver is appropriate because it will provide assurance to

NYCA generation owners that they will have a reasonable opportunity to recover the costs they incur to provide Incremental Energy and/or Minimum Generation. Failure to implement measures to permit generation owners to recover the costs they incur to supply Incremental Energy and/or Minimum
Generation could reduce participation in the markets that the NYISO administers. Such a result could be detrimental to reliability.

Accordingly, the NYISO respectfully requests the Commission waive the identified Services

Tariff requirements for a period commencing on January 22, 2014 and concluding at the end of the day on February 28, 2014.

III. COMPLIANCE WITH THE COMMISSION’S WAIVER PRECEDENT

The Commission has traditionally granted tariff waiver requests when: (i) the underlying error (if any) was made in good faith; (ii) the waiver request is limited in scope; (iii) a concrete problem
needed, or needs, to be remedied, and (iv) the request did not have undesirable consequences such as harming third parties. 9

9 PJM See, e.g., New York Independent System Operator, Inc., 144 FERC ¶ 61,147, at P 8 (2013); New York

Independent System Operator, Inc., 139 FERC ¶ 61,108, at P 14 (2012); PJM Interconnection, L.L.C., 137 FERC ¶ 61,184,
at P 13 (2011); ISO New England, Inc., 134 FERC ¶ 61,182, at P 8 (2011); California Independent System Operator Corp.,
132 FERC ¶ 61,004, at P 10 (2010); accord ISO New England Inc. -EnerNOC, Inc., 122 FERC ¶ 61,297 (2008); Central

All of these criteria are satisfied in this proceeding. The requested waivers address unforeseen
and unprecedented market conditions that threaten the reliability of the New York State Power System.
There can be no question that the NYISO is acting in good faith by taking prompt action to ensure that
Generators are given the opportunity to recover demonstrated, actual costs of producing Incremental
Energy and Minimum Generation. When initially implemented, the Bid Restrictions that the NYISO is
seeking to waive did not contemplate the extreme natural gas prices that are currently driving up the
cost of producing electric Energy. This is the first point in NYISO’s history that the Bid Restrictions
could limit Generators’ ability to participate in the Energy markets and adversely affect reliability.

The requested waivers are limited in scope to the minimum necessary to address the issues facing the NYCA. As described above, the requested waivers include safeguards against over-
compensating Generators and are limited in duration. The NYISO’s proposal relies on existing tariff mechanisms, such as the existing BPCG rules, as much as possible.

The requested waivers address a “concrete problem.” Absent the requested waivers, certain
Generators might be required to provide service needed to support reliability without being able to
recoup a portion of the incremental operating costs that they incur. This would present Generators
with an undesirable financial incentive not to offer to provide service at a time when the Generator is
needed.

Finally, the requested waivers will not have undesirable consequences, such as harming the

legitimate interests of third parties. Increasing payments to Generators so that they are made whole for the actual costs they incur to provide Minimum Generation and Incremental Energy that the NYISO schedules will increase the costs ultimately paid by Loads. However, such increased costs should not be viewed as “harming” Loads because they are necessary to ensure continued, reliable electric service during extreme weather conditions, as explained above.

Vermont Public Service Corp., 121 FERC ¶ 61,225 (2007); Waterbury Generation LLC, 120 FERC ¶ 61,007 (2007); Acushnet Co., 122 FERC ¶ 61,045 (2008).

IV.REQUEST FOR EXPEDITED COMMISSION ACTION BY JANUARY 31, 2014

The NYISO respectfully requests that the Commission act expeditiously and issue an order
granting the requested waivers by January 31, 2014. The NYISO also requests that the Commission
either waive or shorten to the maximum extent possible any comment period on this petition, so that it
may issue an order by that date. Commission action within that time frame will permit Generators to
recover their actual, demonstrated costs through the NYISO-administered markets and ameliorate a
threat to reliability. It would also be consistent with other recent Commission orders granting
independent system operators expedited waivers to address unexpected winter-related natural gas
market issues.10

V.SERVICE

This filing will be posted on the NYISO’s website at www.nyiso.com. In addition, the NYISO
will e-mail an electronic link to this filing to the official representative of each party in Docket No. ER12-1653, to each of its customers, to each participant on its stakeholder committees, to the New York Public Service Commission, and to the New Jersey Board of Public Utilities.

VI.COMMUNICATIONS

Copies of correspondence concerning this filing should be served on:

Robert E. Fernandez, General Counsel
Ray Stalter, Director of Regulatory Affairs
*Alex M. Schnell, Registered Corporate

Counsel

James H. Sweeney, Attorney

New York Independent System Operator, Inc.

10 Krey Boulevard

Rensselaer, NY 12144
Tel: (518) 356-6000
Fax: (518) 356-4702

*Ted J. Murphy

Hunton & Williams LLP
2200 Pennsylvania Avenue, NW Washington, DC 20037-1701 Tel: (202) 955-1500

Fax: (202) 778-2201
tmurphy@hunton.com

rfernandez@nyiso.com
rstalter@nyiso.com
aschnell@nyiso.com
jsweeney@nyiso.com

*persons designated to receive service

VII. CONCLUSION

For the reasons specified above, the New York Independent System Operator, Inc. respectfully petitions the Commission to expeditiously issue an order granting the temporary waivers requested herein by January 31, 2014.

Respectfully submitted,

/s/ Alex M. Schnell

Robert E. Fernandez, General Counsel

Alex M. Schnell, Registered Corporate Counsel James H. Sweeney, Attorney

New York Independent System Operator, Inc.

Dated: January 22, 2014

cc:Michael Bardee

Gregory Berson

Anna Cochrane

Jignasa Gadani

Morris Margolis

Michael McLaughlin
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 22nd day of January, 2014.

/s/ Joy A. Zimberlin

Joy A. Zimberlin

New York Independent System Operator, Inc.

10 Krey Blvd.

Rensselaer, NY 12144 (518) 356-6207