10 Krey Boulevard  Rensselaer, NY 12144

February 17, 2016

By Electronic Delivery

Honorable Kimberly D. Bose, Secretary Federal Energy Regulatory Commission 888 First Street, NE

Washington, DC 20426

Re: Hudson Transmission Partners, LLC v New York Independent System Operator,
Inc., Docket No. EL12-98-001 and-002, Further Compliance Filing, Docket No. ER16-___-
000

Dear Ms. Bose:

The New York Independent System Operator, Inc. (“NYISO”) respectfully submits this
further compliance filing in response to the Commission’s November 19, 2015 Order on
Rehearing, Clarification and Compliance Filing (the “November 2015 Order”).1 The November
2015 Order denied rehearing of an earlier order that had denied most aspects of a complaint by
Hudson Transmission Partners, LLC (“HTP”). The complaint concerned the NYISO’s
application of its buyer-side capacity market power mitigation measures (“BSM Rules”)2 to
HTP’s 660 MW merchant transmission facility (“HTP Project”). Among other things, the
November 2015 Order upheld the NYISO’s use of a scaling methodology to adjust its estimates
of HTP’s energy revenues to reasonably account for imperfections in coordination between the
markets administered by the NYISO and the neighboring PJM Interconnection, LLC (“PJM”).
The November 2015 Order also required the NYISO to file additional compliance tariff revisions
to “provide the conceptual basis and general framework” for the methodology the NYISO will
use to project likely Energy and Ancillary Services revenues for controllable transmission lines
in its buyer-side mitigation determinations.3 The Commission specified that the proposed

1 Hudson Transmission Partners, LLC v. New York Independent System Operator, Inc., 153 FERC ¶ 61,191 (2015).

2 The BSM Rules are set forth in Section 23.4.5.7 et seq. of the NYISO’s Market Administration and Control Area Services Tariff (“Services Tariff”). At the time HTP initiated this proceeding, the BSM Rules applied only to new entry into New York City. Subsequently, the BSM Rules were revised to
apply to additional Mitigated Capacity Zones. The proposed tariff revisions, described in Section II are to the currently effective version of the BSM Rules.

3 November 2015 Order at P 94.

Honorable Kimberly D. Bose February 17, 2016

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revisions must be “sufficiently broad and flexible to allow for the kinds of variations that exist with respect to [Unforced Capacity Deliverability (“UDR”)] projects.” 4

This further compliance filing proposes the tariff revisions required by the November
2015 Order. The NYISO respectfully requests Commission action within sixty days from the
date of this filing, i.e., by April 15, 2016 (as the Commission is not open on the 60th calendar
day after this filing) to provide the NYISO and stakeholders with timely notice that the changes
proposed herein have been accepted. As described in Section V below, the NYISO requests a
flexible effective date.

In support of this filing, the NYISO submits the confirming affidavit of Julia N. Popova, PhD, an economist for the NYISO in the NYISO Market Mitigation and Analysis since 2008. Dr. Popova is a subject matter expert on the matters described in this filing.5

I.DOCUMENTS SUBMITTED

In addition to this transmittal letter the NYISO is submitting:

1. A clean version of proposed modifications to the Services Tariff (“Attachment
I”);

2. A blacklined version of the proposed modifications to the Services Tariff
(“Attachment II”); and

3. A confirming affidavit of Julia N. Popova (“Attachment III”).

II. PROPOSED COMPLIANCE TARIFF REVISIONS APPLICABLE TO FUTURE

BSM RULE DETERMINATIONS FOR UDR PROJECTS

The revisions proposed in this filing establish clear tariff rules to govern the computation
of net Energy and Ancillary Services revenue estimates used in BSM determinations for UDR
projects. They also provide transparency to stakeholders while remaining sufficiently flexible to

4 See Id. Controllable transmission lines participate in the NYISO’s capacity market with

Unforced Capacity Deliverability Rights (UDRs”). The BSM Rules refer to these projects as “UDR

facilities” and “UDR projects”, interchangeably. (As described below, the proposed tariff provisions

include conforming the provisions to only use the term “UDR projects.”) UDRs, “[w]hen combined with
Unforced Capacity which is located in an External Control Area or non-constrained NYCA region either
by contract or ownership, and which is deliverable to the NYCA interface in the Locality in which the
UDR transmission facility is electrically located, … allow such Unforced Capacity to be treated as if it
were located in the Locality.” See Services Tariff Section 2.21. Thus, a UDR project must have one
terminus in a Locality. The other terminus can either be in the Rest of State or in an External Control
Area.

5 The Confirming Affidavit of Dr. Popova is Attachment III to this filing.

Honorable Kimberly D. Bose February 17, 2016

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permit the NYISO to utilize a methodology that will suit the different characteristics of individual UDR project.

A.Guiding Principles

The proposed tariff revisions delineate guiding principles the NYISO would use to develop the methodology for each UDR project for which it is calculating a Unit Net CONE pursuant to Services Tariff Section 23.4.5.7. The guiding principles establish the conceptual basis and framework for those methodologies to the extent practicable given the anticipated differences among a UDR projects and the relevant markets and areas.

Proposed Sections 23.4.5.7.3.8.1(a) and (b) provide for the NYISO to use a methodology
that considers the design of the proposed project and its unique operating characteristics. The
NYISO will also consider the location and manner in which a UDR project’s terminus is
interconnected in the NYCA, and, if UDR facility is connecting to an External Control Area, its
terminus’ interconnection to the neighboring system. These elements are consistent with the
Commission’s directive that the NYISO use methodologies that “reflect the specific
characteristics of future UDR projects and the interactions between the system with which each
project is interconnecting and NYISO.”6 These elements will allow the NYISO to assess the
projected potential for energy to flow over the actual UDR project and also the project’s
capability to provide Ancillary Services.

The proposed guiding principle in Section 23.4.5.7.3.8.1(c) would require the NYISO to
consider the potential effect of transactions utilizing the UDR project on NYCA and in External
Control Areas prices. This provision provides for the methodology to recognize a UDR project’s
effects on interconnected systems and markets, and thus on the UDR project’s net revenues.

Proposed Sections 23.4.5.7.3.8.1(d) and (e) specify that a NYISO methodology will

reasonably project the costs, including fees, to acquire, transmit, and provide into the Mitigated Capacity Zone Energy and Ancillary Services, and revenues therefrom. If the UDR project design as proposed in the Class Year is bi-directional, the methodology would also account for potential net sales into the External Control Area.

Proposed Section 23.4.5.7.3.8.1(f) establishes that a NYISO methodology will account
for “projected opportunity costs (including fees) of selling energy, capacity, and any other
product associated with the sale of energy, into an area in lieu of a sale transaction into the
Mitigated Capacity Zone.” Thus, for example, the capacity in an External Control Area that
might be available to be transmitted over a UDR project could also be sold into that area or
another neighboring Control Area. In that instance, it would be appropriate for the NYISO’s
methodology to consider the projected profitability of sales other than those utilizing the UDR
project.

6 See November 15 Order at P 94.

Honorable Kimberly D. Bose February 17, 2016

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Proposed Section 23.4.5.7.3.8.1(g) provides for a NYISO methodology to project

revenues from the sale of energy and ancillary services, and associated market products, with
reference to market-based clearing price mechanisms, or if the Control Area does not have
market-based pricing, then a reasonable substitute, in the NYISO’s judgment. Thus, the NYISO would account, as applicable to the project, for the forward market market-based clearing prices
as in PJM and ISO-NE, but also for revenues available from the non-market area of Hydro-
Quebec, and Ontario’s Independent Electricity System Operator which has a single clearing price market. This provision will allow the NYISO the flexibility to make reasonable adjustments to
account for interregional differences that exist at the time of its Unit Net CONE determination
for a specific UDR project. It will also enable the NYISO to reasonably project revenues
utilizing available data or making appropriate adjustments in the absence of data, such as when a new market rule has recently been established.

Proposed Section 23.4.5.7.3.8((h) would ensure that a NYISO methodology considers
“[t]he effect of scheduling uncertainty and imperfect arbitrage on the projected costs and
revenues from the purchase and sale of energy and ancillary services that are reasonable
projected” to be transmitted utilizing the UDR project. A methodology established in accordance
with this principle would appropriately account for arbitrage and forecast limitations.

The guiding principles are designed to ensure that the NYISO will use methodologies
that properly account for each UDR project’s attributes. The NYISO’s methodologies will also
consider the market structures at each project’s termini. As recognized in the November 2015
Order, allowing the NYISO the necessary flexibility to develop UDR project-specific
methodologies, reasonably bounded by the proposed guidelines, will allow the NYISO to
reasonably estimate net revenues of UDR projects in light of the multitude of unpredictable
similarities and differences among individual UDR projects. The proposed approach will also
permit the NYISO to account for the evolution of market rules over time, as necessary. For
example, the NYISO, PJM, and ISO New England, Inc. have been working on to reduce seams,
such as interregional scheduling enhancements, which readily may impact the estimated net
Energy and Ancillary Services revenues for a project. The guiding principles would enable the
NYISO to consider such developments. The proposed guiding principles also provide
transparency to stakeholders regarding the factors that will be reflected in future methodologies.

B.Implementation

The proposed tariff revisions also include certain implementation steps. Consistent with
other provisions of the BSM Rules, proposed Section 23.4.5.7.3.8.2(a) specifies that the NYISO
will be required seek input from the Market Monitoring Unit (“MMU”) when it is establishing
the methodology for an individual UDR project, including regarding the inputs to be used in the
methodology. Proposed revisions to Services Tariff Attachment O, Section 30.4.6.2.12, contain
the MMU’s specific obligations to provide that input. Proposed Section 23.4.5.7.3.8.2(b)

requires the NYISO to post on its web site a description of methodology. These provisions are

Honorable Kimberly D. Bose February 17, 2016

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modeled on similar requirements currently in the BSM Rules7 and are designed to foster

developers’ and other stakeholders’ confidence in the determinations. The web site postings of other determinations under the BSM Rule have fostered transparency and provided useful
information. It is reasonable to expect that the MMU’s input, the posting of a description of the methodology, under these revisions, will have similar beneficial effects.

The NYISO notes that current Services Tariff Section 23.4.5.7.6.8 and Services Tariff

Section 30.4.6.12 specify that the MMU will prepare a written report confirming whether the

NYISO’s Offer Floor and exemption determinations were conducted in accordance with Section

23.4.5.7.6 and identifying any flaws.8 Thus, the MMU’s current obligation to prepare a report will include a discussion of whether the methodology and the NYISO’s application of it are in accordance with its tariff obligations and identify any flaws.

Proposed Section 23.4.5.7.8.2(c) makes clear that if a UDR project withdraws from a Class
Year and then enters another Class Year (regardless of whether it has the same or a different
interconnection queue position,) the ISO may utilize a different methodology than previously
used, following the guiding principles and implementation requirements set forth in Section

23.4.5.7.8. This provision increases transparency by eliminating any possible ambiguity

regarding the NYISO’s authority to change methodologies if a UDR project withdraws from a Class Year and enters another Class Year. It will also foster confidence in the reasonableness of the methodology and the BSM Rule determinations based thereon.

III.MINISTERIAL REVISIONS

As described in footnote 4, the BSM Rules refer to proposed controllable transmission
lines that plan to participate in the capacity market as “UDR facilities” and “UDR projects”,
interchangeably, with the same meaning. For avoidance of confusion, the NYISO proposes to
revise the several uses of “UDR facility” to “UDR project”. These incidental clarifying
adjustments are similar to ones that the Commission has allowed the NYISO to include in prior
compliance filings.9

7 See, e.g., Section 23.4.5.7.6.8.

8 Services Tariff Section 30.10.4 includes this report among the reports the MMU is required to

prepare.

9 See, e.g., New York Independent System Operator, Inc., 125 FERC ¶ 61,206 at P 41 (2008)

(accepting revisions proposed in a compliance filing “as needed to implement the modifications directed”
in an order, even though the order did not specifically direct the filing of such revisions). See also New
York Independent System Operator, Inc., 127 FERC ¶ 61,042 at 12 (2009) (accepting revisions that
“make ministerial changes that permit the effective implementation” of the proposal that is the subject of
the compliance filing).

Honorable Kimberly D. Bose February 17, 2016

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IV. STAKEHOLDER AND INDEPENDENT MARKET MONITORING UNIT INPUT

The NYISO met with stakeholders on January 19, 2015 to discuss the development of the proposed compliance tariff revisions. A draft of the tariff language was sent to the stakeholders on February 8, 2015 and a conference call in which the NYISO reviewed the draft with
stakeholders and received their input was held on February 11, 2015.

Further, the NYISO’s independent Market Monitoring Unit reviewed the proposed

compliance tariff revisions and authorizes the NYISO to state that it believes they are reasonable and can be implemented effectively.

V.REQUESTED EFFECTIVE DATE

The NYISO respectfully requests a flexible effective date so that its proposed compliance
tariff revisions become effective two weeks after the occurrence of the later of the following two
events (1) the completion of Class Year 2015, and (2) the Commission’s issuance of an order
accepting the proposed tariff revisions. The NYISO will promptly notify the Commission,
parties to the proceeding, and its stakeholders after those events occur. It will file the effective
date and will refile these eTariff sections to reflect the effective status of the accepted revisions
on the identified date.10

The NYISO is presently examining Examined Facilities in Class Year 2015 pursuant to the BSM Rules. The requested flexible effective date would ensure clear application of all provisions (including web site postings) and avoid confusion.11

The NYISO respectfully requests Commission action within sixty days from the date of this filing, by April 15, 2016,12 so that the NYISO, parties to the proceeding, and other
stakeholders have timely notice that the changes proposed herein have been accepted. Such
timely action by the Commission will: (a) allow the NYISO to proceed with certainty to fulfill its obligations to apply the current BSM Rules to Class Year 2015 determinations; (b) ensure clarity of the BSM Rules and the obligations thereunder, including for projects presently in the
Interconnection Queue that will be eligible to enter Class Year 2016.13

10 The NYISO emphasizes that it already has authority under its existing tariff provisions to consider the factors referenced in the guiding principles when estimating projected net Energy and Ancillary Services revenues for UDR projects. The NYISO must necessarily account for the
characteristics of individual UDR projects and market realities (such as the impossibility of perfect arbitrage) in fulfilling its existing tariff obligation to make reasonable estimates. The proposed
compliance tariff revisions will provide greater transparency regarding the NYISO's approach and reinforce that may not exercise unlimited discretion.

11 See Services Tariff Section 23.4.5.7.9.

12 The 60th day is April 17, 2016, which is not a Commission business day.

13 See Open Access Transmission Tariff Section 25.5.9.

Honorable Kimberly D. Bose February 17, 2016

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No Examined Facility or Market Participant will be prejudiced by this request because the proposed rules are consistent with the NYISO’s current process for establishing a
methodology for BSM Rule determinations for UDR projects.

VI.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 to
this proceeding, 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.

VII. COMMUNICATIONS AND CORRESPONDENCE

All communications and services in this proceeding should be directed to:

Robert E. Fernandez, General Counsel
Raymond Stalter, Director of Regulatory Affairs * Gloria Kavanah, Senior Attorney

New York Independent System Operator, Inc.

10 Krey Boulevard

Rensselaer, NY 12144
Tel: (518) 356-6103
Fax: (518) 356-7678
rfernandez@nyiso.com
rstalter@nyiso.com

gkavanah@nyiso.com

*Designated for receipt of service.

VIII. CONCLUSION

* Ted J. Murphy

Hunton & Williams LLP 2200 Pennsylvania Avenue Washington, D.C. 20037 Tel: (202) 955-1588

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

Honorable Kimberly D. Bose February 17, 2016

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Dated: February 17, 2016

cc:Michael Bardee

Anna Cochrane
Kurt Longo

Max Minzner
Daniel Nowak
Larry Parkinson

J. Arnold Quinn
Douglas Roe

Kathleen Schnorf
Jamie Simler
Gary Will

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 17th day of February 2016.

By:/s/ John C. Cutting

John C. Cutting

New York Independent System Operator, Inc.

10 Krey Blvd.

Rensselaer, NY 12144 (518) 356-7521