UNITED STATES OF AMERICA
BEFORE THE

FEDERAL ENERGY REGULATORY COMMISSION

New York Independent System Operator, Inc.)Docket Nos. ER13-102-007

REQUEST FOR REHEARING AND CLARIFICATION OF
NEW YORK INDEPENDENT SYSTEM OPERATOR, INC.

Pursuant to Section 313(a) of the Federal Power Act1 and Rules 713 and 20072 of the
Commission’s Rules of Practice and Procedure,3 the New York Independent System Operator,
Inc. (“NYISO”) requests rehearing of the Commission’s December 23, 2015, Order
Conditionally Accepting Tariff Revisions and Requiring Further Compliance in the above-
captioned proceeding.4 The December Order conditionally accepted the May 18, 2015 joint
compliance filing5 by the NYISO and the New York Transmission Owners6 (collectively the
“Filing Parties”). But the December Order also imposed a number of conditions and additional
compliance directives.

As discussed below, two of these determinations are inconsistent with the Commission’s
obligation to engage in reasoned decision making and thus must be modified on rehearing. They

1 16 U.S.C. § 8251(a).

2 This filing was originally due on January 22, 2016, the 30th day following the Commission’s December 23, 2015 order. The filing deadline was automatically extended by operation of Rule
2007(a)(2) because adverse weather conditions in the Washington, D.C. region resulted in the
Commission closing early on January 22 and not reopening until today.

3 18 C.F.R. § 385.713.

4 New York Independent System Operator, Inc., Order Conditionally Accepting Tariff Revisions and Requiring Further Compliance, 153 FERC ¶ 61,341 (2015) (“December Order”).

5 New York Independent System Operator, Inc. and New York Transmission Owners, Compliance Filing, Docket No. ER13-102-007 (May 18, 2015) (“May 18 Filing”).

6 The New York Transmission Owners are Central Hudson Gas & Electric Corporation,

Consolidated Edison Company of New York, Inc., Long Island Lighting Company d/b/a LIPA (“LIPA”), New York Power Authority (“NYPA”), New York State Electric & Gas Corp., Niagara Mohawk Power Corp. d/b/a National Grid, Rochester Gas & Electric Corp., and Orange & Rockland Utilities, Inc.. LIPA and NYPA are not subject to the Commission’s jurisdiction under Section 205 of the Federal Power Act but joined in making the filing voluntarily.

are the directives that: (i) the NYISO not be indemnified under the Development Agreement for acts of ordinary negligence; and (ii) Responsible Transmission Owners7 must execute the pro forma Development Agreement for a backstop solution that the NYISO triggers to proceed in parallel to a selected alternative regulated solution. In addition, the NYISO seeks clarification that it may propose to use interconnection processes other than those currently set forth in
Attachments X and S of its Open Access Transmission Tariff (“OATT”) to evaluate the
interconnection of future proposed solutions to its transmission system.

I.COMMUNICATIONS

Communications and correspondence regarding this pleading should be directed to:

Robert E. Fernandez, General Counsel
Raymond Stalter, Director of Regulatory Affairs
*Carl F. Patka, Assistant General Counsel
New York Independent System Operator, Inc.

10 Krey Boulevard

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

Fax: (518) 356-4702 rfernandez@nyiso.com rstalter@nyiso.com

cpatka@nyiso.com

* -- Persons designated for service.

*Ted J. Murphy

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

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

*Michael Messonnier8
Hunton & Williams LLP

Riverfront Plaza, East Tower 951 East Byrd Street

Richmond, VA 23219
Tel: (804) 788-8712
Fax: (804) 343-4646

mmessonnier@hunton.com

7 Capitalized terms that are not otherwise defined herein shall have the meaning specified in

Attachment Y of the NYISO OATT, and if not defined therein, in the body of the NYISO OATT and the NYISO Market Administration and Control Area Services Tariff.

8 Waiver of the Commission’s regulations (18 C.F.R. § 385.203(b)(3) (2014)) is requested to the
extent necessary to permit service on counsel for the NYISO in both Richmond, VA and Washington,
DC.

II.SPECIFICATION OF ERRORS/STATEMENT OF ISSUES

In accordance with Rule 713(c),9 the NYISO submits the following specifications of error and statement of the issues on which it seeks rehearing of the December Order:

• The Commission failed to engage in reasoned decision making, to provide a reasoned
explanation for its decision, or to explain its departure from its own precedent when it
directed that the Development Agreement be modified so that the NYISO would not be
indemnified in cases of ordinary negligence.10

• To the extent that the December Order’s directive that the Development Agreement’s

limitation on liability and indemnification provisions be made “mutual” is not limited to the extent permitted under the NYISO’s tariff it does not constitute reasoned decisionmaking and is inconsistent with applicable precedent.11

• The Commission’s directive that Responsible Transmission Owners must execute the

Development Agreement for backstop solutions that are triggered by the NYISO to begin implementation in parallel to a selected alternative regulated solution was inconsistent with the Commission’s obligation to engage in reasoned decision making.12

9 18 C.F.R. § 385.713(c).

10 Id.

11 See Midcontinent Independent System Operator, Inc., 153 FERC ¶ 61,168 at P 215
(2015)

12 See, e.g., Motor Vehicle Mfr. Ass 'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 at 43

(1983); National Fuel Gas Supply Corp. v. FERC, 468 F.3d 831 at 839 (D.C. Cir. 2006); NorAM Gas

Transmission Co. v. FERC, 148 F.3d 1158, 1165 (D.C. Cir. 1998); citing K N Energy, Inc. v. FERC, 968
F.2d 1295, 1303 (D.C. Cir. 1992); West Deptford Energy, LLC v. FERC, 766 F.3d 10, 12 (D.C. Cir.
2014).

III.BACKGROUND

The May 18 Filing included numerous proposed tariff revisions that were intended to

address the remaining regional transmission planning requirements of Order No. 100013 and the Commission’s April 16, 2015 Order in Docket Nos. ER13-102-005 and -006.14 Among other things, the May 18 Filing included a pro forma Development Agreement between the NYISO and the Developer of an alternative regulated transmission solution selected in the NYISO’s reliability planning process as the more efficient or cost-effective solution to a Reliability Need. The tariff revisions were the product of an extensive stakeholder process.

The proposed pro forma Developer Agreement included liability and indemnification
provisions. Under proposed Article 9.2, Developers would only be excused from the duty to
indemnify the NYISO in cases where the NYISO is grossly negligent or engages in intentional
misconduct. The Filing Parties explained that this proposal was “consistent with the general
limitation of liability and indemnification requirements applicable to the NYISO under Sections

2.11.2 and 2.11.3(b) of the NYISO OATT.”15 The December Order appears to have overlooked
the extensive history of Commission rulings affirming the use of a gross negligence
indemnification standard under the NYISO’s tariffs which strongly supports the NYISO’s gross
negligence indemnification proposal. That history is discussed in more detail below in Section
IV.A.

13 Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities, Order No. 1000, 136 FERC ¶ 61,051 (2011) (“Order No. 1000”), order on reh’g and
clarification, Order No. 1000-A, 139 FERC ¶ 61,132 (2012) (“Order No. 1000-A”), order on reh’g and clarification, 141 FERC ¶ 61,044 (2012) (“Order No. 1000-B”).

14 New York Independent System Operator, Inc., 151 FERC ¶ 61,040 (2015) (“April 2015
Order”).

15 May 18 Filing at 15.

IV.REQUEST FOR REHEARING

A.The Commission’s Determination that the NYISO Should Not Be

Indemnified Under the Development Agreement for Acts of Ordinary Negligence Is Inconsistent with Precedent and Commission-Approved NYISO Tariff Provisions and is Unjust and Unreasonable.

Paragraph 103 of the December Order directed the Filing Parties to revise Article 9.2 of
the Development Agreement so that Developers would not be obliged indemnify the NYISO in
case of losses resulting from the NYISO’s ordinary negligence or intentional misconduct.

The December Order cited a November 2014 ruling16 involving the California

Independent System Operator Corporation’s (“CAISO”) proposed pro forma “Approved Project Sponsor Agreement” (“APSA”).17 In that case, the Commission required that the CAISO “revise the pro forma APSA to exempt from the indemnification provision a party’s own ordinary
negligence... ”18 The Commission stated that a “hold harmless provision must strike a balance between protecting the indemnified party and ensuring that the indemnified party has an
incentive to avoid negligent acts.”19 The CAISO ruling was based principally on a 2005
determination in Northeast that “indemnification for ordinary negligence would fail to
incentivize a party to avoid negligent actions.”20

The December Order acknowledged that a gross negligence indemnification exception
had been approved in the pro forma Large Generator Interconnection Agreement. But it argued
that this treatment was justified because interconnection involved greater risks than other

16 California Independent System Operator Corporation, 149 FERC ¶ 61,107 (2014) (“CAISO”).

17 The pro forma APSA “sets forth the terms and conditions that will govern an approved project
sponsor’s responsibilities and relationship with CAISO during the period prior to the time that the CAISO
assumes operational control over the approved project sponsor’s transmission facilities.” CAISO at P 1.

18 CAISO at P 96.

19 CAISO at P 96.

20 December Order at P 105; citing Northeast Utilities Service Company, 111 FERC ¶ 61,333 at P

27 (2005) (“Northeast”).

transmission services. The Commission concluded that “ordinary negligence should be

exempted from the indemnity provision in the Development Agreement because this change will incentivize the parties to avoid negligent actions.”21

The Administrative Procedure Act22 requires federal agencies, including the

Commission, to engage in “reasoned decision making,” to provide a reasonable explanation for
their decisions, and, in particular, to reasonably justify departures from precedent. Commission
decisions are remanded, or vacated, on appeal if they fail to satisfy these standards. Specifically,
courts have held the Commission must "examine the relevant data and articulate a satisfactory
explanation for its action including a rational connection between the facts found and the choice
made."23 The Commission also cannot depart from its prior rulings without “‘provid[ing] a

reasoned analysis indicating that prior policies and standards are being deliberately changed, not casually ignored.’”24

The Commission’s determination that developers should not indemnify the NYISO in
cases of ordinary negligence is not consistent with reasoned decision making. It ignores factors
and precedents that apply to the NYISO rather than the general principle in the Northeast ruling.
Specifically, Northeast is part of a line of cases dating back to Order No. 88825 that rejected

21 December Order at P 105.

22 5 U.S.C. §§ 551 et seq.

23 Motor Vehicle Mfr. Ass 'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (internal quotation marks and citations omitted).

24 West Deptford Energy, LLC v. FERC, 766 F.3d 10, 12 (D.C. Cir. 2014); quoting Alcoa, 564
F.3d 1342, 1347 (D.C. Cir. 2009) (quoting Entergy Servs., Inc. v. FERC, 319 F.3d 536, 541 (D.C. Cir.
2003)).

25 Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission
Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities,
Order No. 888, FERC Stats. & Regs. ¶ 31,036 (1996), order on reh’g, Order No. 888-A, FERC Stats. &
Regs. ¶ 31,048 (1997); order on reh’g, Order No. 888-B, 81 FERC ¶ 61,248 (1997), order on reh’g,
Order No. 888-C, 82 FERC ¶ 61,046 (1998), aff’d in relevant part sub nom. Transmission Access Policy

attempts by Commission jurisdictional public utilities to be indemnified for acts of ordinary

negligence under their transmission tariffs. But as a 2005 decision in Southern Company

Services, Inc., explained, the Commission had consistently provided special liability protections
to public utilities that were Independent System Operators or Regional Transmission
Organizations (“ISOs/RTOs”).26 This special protection was originally afforded because
ISOs/RTOs “were created by and solely regulated by the Commission, and otherwise would be
without limitations on liability.”27 Without such protections ordinary negligence claims could
threaten ISOs/RTOs with bankruptcy.28 By contrast, in cases like Northeast that did not involve
ISOs/RTOs, the Commission consistently “rejected revisions to indemnification provisions (in
particular, changing the standard from “negligence” to “gross negligence”).”29
In keeping with the Commission’s precedent concerning ISO/RTO indemnification
provisions, the NYISO has had a gross negligence liability limitation rule in its Services Tariff
since its inception in 1999. In 2007, two years after the Northeast decision, the Commission
accepted the NYISO’s proposal to revise its OATT to adopt additional liability protection.30
This included a revision to the NYISO OATT’s indemnification provision to incorporate a gross
negligence standard. The Commission approved language, which remains in effect today,

Study Group v. FERC, 225 F.3d 667 (D.C. Cir. 2000), aff’d sub nom. New York v. FERC, 535 U.S. 1
(2002).

26 Southern Company Services, Inc., 113 FERC ¶ 61,239 (2005) (“Southern”).

27 Southern at P 7. See also Midwest Independent Transmission System Operator, Inc., 110

FERC ¶ 61,164 (2005); Southwest Power Pool, Inc., 112 FERC ¶ 61,100 (2005); ISO New England, Inc., 106 FERC ¶ 61,280, order on reh’g, 109 FERC ¶ 61,147 (2004) (each of these three orders approved special liability protections for ISOs/RTOs.)

28 See Midwest Independent Transmission System Operator, Inc., 110 FERC ¶ 61,164 at P 12

(granting protection in response to argument that "potential damages associated with liability for ordinary negligence, even when limited to direct damages, are significant, and could force Midwest ISO to
consider liquidation in a bankruptcy proceeding... ”)

29 Southern at P 7; citing Northeast at PP 24-30.

30 See New York Independent System Operator, Inc., 120 FERC ¶ 61,026 (2007).

specifying that Transmission Customers must “at all times indemnify, defend, and save the ISO”
from “any and all damages, losses, claims” arising out of or resulting from the NYISO’s
“performance of its obligations under this Tariff on behalf of the Transmission Customer, except
in cases of gross negligence or intentional wrongdoing by the ISO.”31 The Commission
explained that enhanced liability and indemnification provisions were warranted in the NYISO’s
case because:

As we stated in Order No. 890, we have provided such liability protection to
RTOs and ISOs because they were created by and solely regulated by us, and
otherwise would be without limitations on liability. We agree with NYISO that
the language of the liability limitations proposed here is consistent with
provisions that we have accepted for other RTOs and ISOs. In those orders we
reasoned that RTOs and ISOs must provide service to all eligible customers, and
cannot deny service to particular customers based on the risk of potential damages
associated with interruption of service to those customers, thus, all customers
ultimately bear the cost associated with the risk of such service. We also
reasoned that gross negligence provisions balance lower rates for all customers
against the burden of limited recovery for some. The same reasoning applies
here. In prior orders, we also found ISO cost recovery of damages it must pay, as
proposed here, to be appropriate and based on Commission precedent, because the
RTO or ISO has no shareholders from which to recover costs and, thus, must look
to entities taking transmission service pursuant to its tariff.32

In addition, in 2009 the Commission accepted tariff revisions to allow the NYISO to

recover the costs associated with penalties assessed for violations of NERC reliability standards
and other regulatory requirements if certain conditions were met.33 Among other things, the
revisions allowed the NYISO to recover penalty costs in cases where it was “demonstrably at
fault” but had acted with ordinary, not gross, negligence. The Commission expressly noted this

31 NYISO OATT at Section 2.11.2.

32 120 FERC ¶ 61,026 at P 13 (internal citations omitted).

33 New York Independent System Operator, Inc., 127 FERC ¶ 61,196 (2009)

part of the NYISO’s proposal “with approval” and rejected arguments that a gross negligence
standard would mute the NYISO’s incentives to comply with NERC’s Reliability Standards.34
The NYISO’s proposal had been developed based on the Commission’s 2008 Guidance Order addressing penalty cost recovery issues facing ISOs/RTOs.35 The Guidance Order had acknowledged “the careful balance required when addressing recovery of reliability penalties by RTOs and ISOs.”36 On the one hand, ISOs/RTOs performed critical reliability functions, but on the other they are “typically member-supported non-profit organizations” and “they do not have an independent source of funds with which to pay any penalties assessed to them ”37 These

factors justified providing ISOs/RTOs with special protection, including, potentially, the ability to recover penalty costs caused by their ordinary negligence.38

More generally, the use of a gross negligence liability standard is commonplace in state utility regulation. The United States Court of Appeals for the District of Columbia Circuit has explained, and the Commission has acknowledged, that:

[P]rior to unbundling, many state commissions had approved retail tariff

provisions permitting utilities to limit their liability for service interruptions to instances of gross negligence or willful misconduct. Courts found that such provisions balance lower rates for all customers against the burden of limited recovery for some, and that the technological complexity of modern utility
systems and resulting potential for service failures unrelated to human errors justify liability limitations.39

34 127 FERC ¶ 61,196 at P 35.

35 Reliability Standard Compliance and Enforcement in Regions with Regional Transmission
Organizations or Independent System Operators, 122 FERC ¶ 61,247 (2008) (“Guidance Order”).

36 127 FERC ¶ 61,106 at P 6; citing Guidance Order.

37 Id.

38 See Guidance Order at P 27.

39 See Southwest Power Pool. Inc., 112 FERC ¶ 61,100 at P 36 (2005) citing Transmission Access
Policy Study Group v. FERC, 225 F.3d 667, 727 (D.C. Cir. 2000) (“Prior to unbundling, retail tariffs were
primarily a matter for state regulation, and most states had approved tariff provisions permitting utilities
to limit their liability for service interruptions to instances of gross negligence or willful misconduct.
Courts upheld these limitations on the public policy grounds that they balanced lower rates for all

The Commission has also pointed to state laws establishing gross negligence liability protections as a basis for providing similar federal protection to ISOs/RTOs operating in those states.40 New York State law permits regulated utilities to limit their liability to gross
negligence. This further supports the use of a gross negligence standard for both liability and indemnification in the NYISO’s case.41

The difference between permitting and preventing the NYISO from obtaining

indemnification in cases of ordinary negligence is significant, particularly when viewed in light
of New York precedent. New York courts in utility cases have defined gross negligence as the
“failure to exercise even slight care”42 and equated it with willful misconduct.43
Other courts equate gross negligence with recklessness or even intentional misconduct. By
contrast, ordinary negligence can be shown by demonstrating a failure to exercise reasonable due
care without the kind of exceptional failures associated with gross negligence. Thus, by
directing the NYISO to remove the word “gross” before negligence, and thereby requiring the
NYISO to indemnify for “negligence and intentional misconduct,” the Commission, without
explanation, erroneously conflated a reasonable duty standard of care with culpable acts of
misconduct. The Commission should grant rehearing to correct this error.

customers against the burden of limited recovery for some, and that the technological complexity of modern utility systems and resulting potential for service failures unrelated to human errors justified liability limitations.”) (internal footnotes omitted).

40 See, e.g., 112 FERC ¶ 61,100 at P 36 (“Several state commissions in SPP’s footprint allow
utilities to limit their liability to gross negligence. We believe that SPP and its TOs should be afforded similar protection. Otherwise, disparate treatment is a disincentive to participate in SPP.”) (internal
footnotes omitted).

41 See Lee v. Consolidated Edison Co., 413 N.Y.S. 2d 826, 828 N.Y. App. Div. 1978).

42 Food Pageant, Inc. v Consolidated Edison Co., Inc., 54 NY2d 167 (1981). See also Balacki v. Long Island Power Authority, 40 Misc.3d 1220 (Dist. Nas. 2013) (rejecting claim for damages caused by Hurricane Sandy of grounds that the Long Island Power Authority storm preparations did not constitute “gross negligence.”)

43 Id.; citing Weld v Postal Telegraph-Cable Co., 210 NY 59 (1913) (equating gross negligence with willful misconduct.)

Moreover, the December Order imposed this drastic change on the indemnification
protection available to the NYISO while apparently overlooking the accepted NYISO tariff
provisions and precedents discussed above. It offers no reasoned explanation for its deviation from those precedents or of why it would be appropriate for the NYISO to be subject to a gross negligence indemnification standard for all of its Commission-jurisdictional activities, except
those under the Development Agreement. It does not consider that under the test outlined in
CAISO depriving the NYISO of indemnification for ordinary negligence would not represent a reasonable “balance between protecting the indemnified party and ensuring that the indemnified party has an incentive to avoid negligent acts.”44

The NYISO has strong incentives to act reasonably under the proposed Development

Agreement just as it does under its OATT, its Services Tariff, and the NERC reliability standards
notwithstanding the applicability of a gross negligence standard in all of them. Disallowing
indemnification in cases of ordinary negligence would be an unexplained departure from the
standard normally applied to the NYISO that would unreasonably shift risk to it. Accordingly,
the December Order’s determination on this point is not based on reasoned decision making and
deviates without any reasoned explanation from NYISO-specific precedent. It should therefore
be reversed on rehearing.

Finally, paragraphs 99-101 and paragraph 103 of the December Order also required the
Filing Parties to make Articles 9.1 and 9.2 mutual. The Commission directed the NYISO to
revise Article 9.2 of the Development Agreement so that the NYISO would have an obligation to
indemnify the Developer. For the reasons stated below, the NYISO should not be required to
indemnify a Developer for the NYISO’s own acts of ordinary negligence; however, a Developer

44 See supra, n. 18.

should be required to indemnify the NYISO for that Developer’s acts of ordinary negligence,
gross negligence, or intentional misconduct. There is no reason why Developers should be
afforded the same limitations of liability as ISOs and RTOs. Under Commission precedent, the
gross negligence and intentional misconduct standard applies only to ISOs/RTOs, not to
Developers. The Commission recently held in a case involving the Midcontinent Independent
Transmission System Operator, Inc. (“MISO”) that the MISO’s obligation to indemnify
Developers under its version of the Development Agreement should be “reciprocal to the extent
allowed under the Tariff.” Thus, the MISO is only required to indemnify a Developer in case of
its own gross negligence or intentional misconduct because the MISO’s liability for damages
under its tariff is limited to such cases.45 The same limitations on liability are established under
the NYISO’s tariffs.46 The Commission has articulated no basis to apply a different standard to
the NYISO than that recently applied to the MISO. Therefore, the Commission should grant
rehearing and limit the NYISO’s indemnity obligations to Developers to instances where the
NYISO has acted with gross negligence or intentional misconduct.

B. Responsible Transmission Owners Should Not Be Required to Execute the

Development Agreement for Backstop Solutions Running in Parallel to Selected Alternative Regulated Solutions.

The December Order directed the NYISO to require that the Responsible Transmission
Owner execute a Development Agreement when its regulated backstop solution is selected as the
more efficient or cost-effective transmission solution to a Reliability Need or is triggered to

45 Midcontinent Independent System Operator, Inc., 153 FERC ¶ 61,168 at P 215 (2015).

46 NYISO OATT at Section 2.11.2. (The NYISO’s tariff states that Transmission Customers must
“at all times indemnify, defend, and save the ISO” from “any and all damages, losses, claims”
arising out of or resulting from the NYISO’s “performance of its obligations under this Tariff

on behalf of the Transmission Customer, except in cases of gross negligence or intentional wrongdoing by the ISO.”)

proceed in parallel with a selected alternative regulated transmission solution.47 For the reasons described below, this directive is unreasonable, unduly burdensome, and inconsistent with
reasoned decision making when applied to a regulated backstop solution that has been triggered solely to serve as the backup for a selected alternative regulated solution. The December Order should be modified on rehearing so that Responsible Transmission Owners are not required to execute the Development Agreement in that scenario.

The NYISO’s reliability planning process is used to identify solutions to timely address Reliability Needs. It strives to achieve market-based solutions to Reliability Needs, with
regulated solutions serving as the backstop. In the absence of sufficient market-based solutions, the NYISO will turn to a regulated solution. The Responsible Transmission Owner is required by the NYISO tariffs to propose a regulated backstop solution to ensure there is a means of
addressing the Reliability Need.48 Other Developers, including other Transmission Owners, may also propose their own alternative solutions.49

The NYISO will evaluate all of the proposed transmission solutions that it has

determined are viable and sufficient to address the Reliability Need for purposes of selecting the
more efficient or cost-effective project.50 If the selected project is an alternative regulated
transmission solution, the NYISO may elect to also trigger the Responsible Transmission
Owner’s regulated backstop solution to begin seeking regulatory approvals and commence

47 December Order at PP 45-48.

48 OATT Attachment Y Section 31.2.4.3. The regulated backstop solution is not required to be

solely a transmission project. In the event that the Responsible Transmission Owner proposes a regulated backstop solution that is not transmission or that is a hybrid transmission/non-transmission project, the NYISO will evaluate the viability and sufficiency of the solution, but will not include the solution in its determination of the more efficient or cost-effective transmission solution. The NYISO may trigger a
regulated backstop solution to run in parallel with a selected solution, regardless of whether it is a
transmission or non-transmission solution.

49 OATT Attachment Y Section 31.2.4.7.

50 OATT Attachment Y Section 31.2.6.5.

implementation as a standby, backup solution in case the selected transmission solution cannot or does not proceed to completion.51 In such instance, the NYISO will continue to expect that the
selected project will proceed to be developed and completed in time to address the Reliability
Need. However, as system reliability is at issue and as the Developer of an alternative solution
does not have the same obligations as the Responsible Transmission Owner to complete the
project, the NYISO may require the standby project to proceed in parallel as a means for
maintaining system reliability.52

Pursuant to Section 31.2.8.1.6 of Attachment Y of the OATT, the Developer of a selected
alternative regulated transmission solution must execute a Development Agreement to proceed
with its project. The Development Agreement serves as a mechanism for the NYISO to closely
monitor the progress of the development and construction of the selected project and to identify
as soon as possible whether the project cannot be constructed in time to satisfy the Reliability
Need.

It is, however, unreasonable to require the Responsible Transmission Owner to enter into
a Development Agreement when the regulated backstop solution has simply been triggered as an
emergency backup.53 In this scenario, the selected project and the regulated backstop solution
are not similarly situated. It is not unduly discriminatory to require the Developer of the selected
project to execute the Development Agreement, while a project on stand-by does not. Upon

51 OATT Attachment Y Sections 31.2.8.1.3, 31.2.8.1.4.

52 See OATT Attachment Y Sections 31.2.8.1.3, 31.2.8.1.4; see also Agreement Between the New York Independent System Operator, Inc., and the New York Transmission Owners on the Comprehensive Planning Process for Reliability Needs, available at:

<http://www.nyiso.com/public/webdocs/markets_operations/documents/Legal_and_Regulatory/Agreeme
nts/NYISO/Comprehensive_Planning_Process_for_Reliability_Needs_Agreement.pdf>

53 For the compliance filing due on March 22, 2016, the NYISO is reviewing tariff changes to

incorporate appropriate requirements for a Responsible Transmission Owner in the event that its regulated backstop solution becomes the only solution to a Reliability Need.

selecting a transmission project, the NYISO expects the selected project will be constructed, and
the project should be subject to the terms and conditions of a Development Agreement to ensure
that it is making timely progress. This is particularly true for the non-incumbent Developers, as
they are not subject to any other agreements or requirements to timely construct their projects.
Insofar as the Developer of the selected project is timely developing its project to satisfy the
Reliability Need, it will proceed to complete the project. In these circumstances, the regulated
backstop solution simply exists to be available in the event the selected solution falls through.54
The NYISO will halt this regulated backstop solution as soon as the selected solution has
demonstrated through its own progress that there is no need for a back-up.55
To satisfy its obligations as the regulated backstop solution, the Responsible
Transmission Owner must simply begin implementation activity required to be ready to ramp up
and proceed with its project if the selected project will not proceed. There is no need for the
Responsible Transmission Owner to enter into a Development Agreement at that time or for the
NYISO to be performing the same level of project monitoring for the backup as the selected
solution. If the NYISO were to enter into a Development Agreement with the backstop solution,
the NYISO would be simultaneously a party to and responsible for administering two separate
Development Agreements with two different Developers for two separate projects to satisfy the
same Reliability Need. Such a requirement would create confusion regarding the separate roles
of the projects, and result in an unnecessary administrative burden on the NYISO and the
Responsible Transmission Owner, which may never be required to construct any facility.

54 The NYISO will monitor the progress of all triggered regulated solutions to a reliability need to ensure that they are proceeding, including a regulated backstop solution that proceeds in parallel with an alternative regulated solution, until such time as the parallel regulated solution is halted. See OATT
Attachment Y, Section 31.2.13.2.

55 OATT Attachment Y Section 31.2.8.2.1.

The December Order asserts that requiring the Responsible Transmission Owner to
execute the Development Agreement is consistent with Commission action in PJM
Interconnection, L.L.C. (“PJM”), where the entity that accepts its designation as a Designated
Entity must execute a Designated Entity Agreement.56 The Commission’s analogy breaks down
in the case of a Responsible Transmission Owner that is simply on stand-by in the event its
backstop project is required because the selected project cannot be completed. While PJM can
designate a Transmission Owner to step-in to complete a non-incumbent developer’s project if
the project cannot be timely completed, PJM does not designate the Transmission Owner in the
backup role as a Designated Entity or require it to execute the Designated Entity Agreement
prior to PJM’s determination that the Transmission Owner must step-in to complete the project.57
Similarly, while the CAISO can direct a Participating TO to construct a transmission solution
when the Approved Project Sponsor is unable to do so, CAISO does not designate the
Participating TO as the Approved Project Sponsor or require it to execute the Approved Project
Sponsor Agreement prior to determining that the Participating TO must complete the project.58
Accordingly, the Commission’s determination is flawed, serves no useful policy purpose, imposes unnecessary burdens on both the NYISO and Responsible Transmission Owner, is not supported by precedent, and is inconsistent with reasoned decision making. The Commission should revise the determination on rehearing.

V.REQUEST FOR CLARIFICATION

As the December Order noted, Attachment X of the NYISO OATT “sets forth NYISO’s
generation and ‘Merchant Transmission Facilities’ interconnection process. Attachment S of the

56 December Order at P 48 n 113.

57 See PJM Operating Agreement, Schedule 6, Section 1.5.8 (k).

58 See CAISO Tariff, Section 24.6.4.

OATT contains the related cost requirements for that interconnection process, including the

facilities cost allocation procedures.”59 Paragraph 67 of the December Order required the Joint
Filing Parties to make “revisions to Article 4 of the Development Agreement to clarify that all
alternative regulated transmission solutions will be evaluated for interconnection under
Attachments X and S of the NYISO OATT, regardless of whether the entity developing the
solution is a Transmission Owner signatory to the NYISO Transmission Owners Agreement or a
nonincumbent transmission developer.”60 In addition, the Commission directed the Filing
Parties “to further revise Article 4 to clarify that Responsible Transmission Owners developing
regulated backstop solutions will also be evaluated for interconnection under Attachments X and

S.”61

Notwithstanding, the December Order also stated that the NYISO need not necessarily use its existing Attachment X and S processes for these purposes. Specifically:

[T]o the extent the Filing Parties propose a not unduly discriminatory or

preferential process other than the process in Attachments X and S for conducting the interconnection studies necessary for NYISO to select the more efficient or cost-effective transmission solution in the regional transmission plan for purposes of cost allocation, and for that selected transmission project to interconnect to
NYISO’s system, we will address that proposed process in the order addressing the compliance filing ordered herein.62

The NYISO interprets the language quoted above as applying to the directives in

Paragraph 67. That is, the NYISO understands that it may propose that alternative regulated

transmission solutions and regulated backstop solutions be evaluated using processes other than
those established under Attachments X and S. The NYISO is considering proposing such an

59 December Order at n. 157.

60 December Order at P 67.

61 Id.

62 December Order at P 73.

alternative new process in its compliance filing. The NYISO therefore asks, out of an abundance of caution, that the Commission confirm that the NYISO’s interpretation of Paragraph 67 and the language quoted above is correct.

VI.CONCLUSION

WHEREFORE, for the foregoing reasons, the New York Independent System Operator, Inc., respectfully requests that the Commission grant rehearing and clarification of the December Order as specified above.

Respectfully submitted,

s/Ted J. Murphy

Ted J. Murphy

Counsel to the NYISO

January 27, 2016

Cc: Michael BardeeJ. Arnold Quinn

Anna CochraneDouglas Roe

Kurt LongoKathleen Schnorf

Max MinznerJamie Simler

Daniel NowakGary Will

Larry Parkinson

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 27th day of January 2016.

/s/ Joy A. Zimberlin

Joy A. Zimberlin

New York Independent System Operator, Inc.

10 Krey Blvd.

Rensselaer, NY 12144 (518) 356-6207