David Lodemore

Senior Counsel

May 19, 2017

The Honorable Kimberly D. Bose Secretary

Federal Energy Regulatory Commission 888 First Street, N.E.

Washington, DC 20426

Re: Niagara Mohawk Power Corporation d/b/a National Grid
Western New York Facilities Charge

Rate Schedule under the NYISO OATT Docket No. ER17-_____________

Pursuant to Section 205 of the Federal Power Act1 and Part 35.13 of the

Commission's Regulations,2 Niagara Mohawk Power Corporation d/b/a National Grid

(“National Grid” or “NMPC”) submits a new rate schedule to the New York Independent
System Operator, Inc.’s (“NYISO”) Open Access Transmission Tariff (“NYISO
OATT”).3 This rate schedule establishes the Western New York Facilities Charge
(“WNY-FC”), which will allow National Grid to recover costs related to certain upgrades
to non-bulk transmission facilities recommended by the NYISO and found by the New
York State Public Service Commission (“NYPSC”) to be needed in connection with any
selected Public Policy Transmission Project (the “WNY Ancillary Upgrades”).

As explained below, the proposed WNY-FC is just and reasonable because it is
based on a transmission rate formula previously accepted by the Commission.
Specifically, the WNY-FC will be calculated using the formula rate for NMPC’s
Transmission Service Charge (“TSC”) set forth in Attachment H to the NYISO OATT.
But unlike the TSC, the WNY-FC will not be collected solely from National Grid’s
wholesale transmission service customers. Instead, the WNY-FC will be allocated to
appropriate load-serving entities consistent with the cost allocation methodology to be
approved by the Commission for recovering the costs of the developer selected to build a
specified Western New York Public Policy Transmission Project. This allocation
approach is consistent with the objectives of the order of the NYPSC which addressed the
Western New York Public Policy Transmission Need. This order provided that National
Grid should undertake the WNY Ancillary Upgrades, recommended by the NYISO, to
National Grid’s existing non-bulk transmission system, because they are required to fully

The Honorable Kimberly D. Bose May 19, 2017

Page 2

effectuate the various bulk-power system projects proposed in response to the NYISO’s public policy process.

I.Background

National Grid is a regulated utility operating in the State of New York. It is

engaged in the transmission, distribution, and wholesale and retail sale of electric power and natural gas in Buffalo, Albany, Syracuse, and other portions of upstate New York. National Grid is a founding member of the NYISO and a signatory to the ISO-TO
Agreement.4 It is also a participant in the NYISO electricity markets on behalf of certain of its end-use customers and serves as load-serving entity to its customers.

The NYISO public policy transmission planning process was developed to

comply with Order No. 1000.5 Order No. 1000 required, in part, that regional planning
processes take into account Public Policy Transmission Needs.6 The primary steps in the
NYISO public policy transmission planning process include: the identification of Public
Policy Transmission Needs through a joint process where the NYISO solicits potential
needs and the NYPSC decides which needs to pursue; a NYISO solicitation requesting
proposed solutions designed to meet those needs; an evaluation of the viability and

sufficiency of proposed transmission and non-transmission solutions; and the evaluation and selection of the “more efficient or cost effective” project to satisfy the identified Public Policy Transmission Need.7

On August 1, 2014, the NYISO initiated its public policy transmission planning process for the first time, requesting that entities identify potential Public Policy
Requirements that drive the need for transmission.8 After receiving responses, the NYISO filed the proposed Public Policy Requirements with the NYPSC.

NYISO OATT, Attachment Y, § 31.4.1. A Public Policy Transmission Need is “any Public Policy

Requirement [] identified by the [New York State Public Service Commission] that may be driving the
need for additional transmission facilities... ” Case 14-E-0454, In the Matter of New York Independent

System Operator, Inc.’s Proposed Public Policy Transmission Needs for Consideration, Order Addressing Public Policy Transmission Need for Western New York, at 1 (issued October 13, 2016) (“October 13 NYPSC Order”). See also NYISO OATT, Attachment Y, § 31.1.1.

The Honorable Kimberly D. Bose May 19, 2017

Page 3

On July 20, 2015, in response to the NYISO filing and following its review of
stakeholder comments, the NYPSC adopted transmission congestion relief in Western
New York as a Public Policy Requirement driving the need for transmission.9 The
NYPSC referred this need to NYISO to examine potential solutions.10 Specifically,
NYISO was “to consider solutions for increasing Western New York transmission
capability sufficient to ensure the full output from [New York Power Authority’s]
Niagara hydroelectric generating facility . . . as well as certain levels of
simultaneous imports from Ontario across the Niagara tie lines.”11

Following the July 2015 Order, the NYISO solicited potential solutions to reduce Western New York transmission congestion. Transmission and non-transmission
projects were submitted for consideration. The NYISO then prepared a Viability and
Sufficiency Assessment, issuing a report on its findings on May 31, 2016.12 In
conformity with the NYISO’s public policy transmission planning process, this report
was made public and sent to the NYPSC for further consideration. The role of the
NYPSC at this phase of the process is to evaluate whether there continues to be a need for a Public Policy Transmission Project.

In its May 31, 2016 report, the NYISO determined which projects were viable and
sufficient to satisfy Western New York transmission congestion needs.13 Additionally,
the NYISO concluded that certain non-bulk transmission limitations in western New
York could prevent any project from fully addressing transmission congestion needs.14
To resolve this problem, the NYISO recommended that the project chosen to relieve
Western New York transmission congestion should be coupled with upgrades to certain
115 kV facilities owned by National Grid to address these non-bulk transmission issues
that are related to the bulk power transmission system need, and thereby optimize the
overall solution.15

On June 22, 2016, the NYPSC published a Notice of Proposed Rulemaking
relating to the Public Policy Transmission Need of relieving Western New York

transmission planning on the [Bulk Power Transmission Facilities].” NYISO OATT, Attachment Y, §

31.1.1.

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transmission congestion. After reviewing comments submitted in response to this notice, the NYPSC issued an order on October 13, 2016.16

The October 13 NYPSC Order confirmed that relieving Western New York
transmission congestion remains a Public Policy Transmission Need and directed the
NYISO to proceed to evaluate and select, as appropriate, the more efficient or cost-
effective transmission solution to meet this need.17 The October 13 NYPSC Order also
recognized the need to make certain non-bulk transmission facility upgrades in order to
fully achieve the benefits of the Western New York Public Policy Transmission Need,
stating:

The [NYPSC] expects National Grid to undertake the upgrades necessary
on the non-bulk system, such as those identified by the NYISO, and to
receive reimbursement from the developer ultimately selected by the
NYISO to receive cost recovery through the [NYISO] OATT. The costs
of these upgrades should not be used as a distinguishing factor between
bids.18

The NYISO subsequently confirmed that it will implement the NYPSC’s directive that the costs of these non-bulk system upgrades will not be a distinguishing factor in its
evaluation process and that the NYISO is modeling these upgrades in a consistent fashion across all the viable and sufficient projects.

II. Description of the Filing and Statement of Reasons

National Grid is filing this new schedule to the NYISO OATT to establish a
Western New York Facilities Charge, which will enable National Grid to recover the costs related to upgrades to its non-bulk transmission facilities recommended by the
NYISO in connection with any selected Public Policy Transmission Project, the WNY Ancillary Upgrades. The WNY-FC will be established in Rate Schedule 17, set forth in Section 6.17 of the NYISO OATT.

A. The WNY-FC Will Result in Just and Reasonable Rates

As noted above, the WNY-FC will allow National Grid to recover the costs of the
WNY Ancillary Upgrades that are needed to achieve the relief of the Western New York
transmission congestion that is the purpose of the selected Public Policy Transmission
Project.19 National Grid anticipates that the identified non-bulk transmission upgrades

October 13 NYPSC Order, supra note 7. Id. at 17.

Id.

Although the proposed Rate Schedule 17 is specific to the recovery of costs for the WNY

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recommended by the NYISO will consist of reconductoring to National Grid’s 193 and 194 lines.20

In the event that National Grid is selected by the NYISO as the developer of a
Public Policy Transmission Project to address the identified Western New York Public
Policy Transmission Need (“WNY Developer”), National Grid may submit filings to the
Commission under Section 205 of the Federal Power Act to modify Rate Schedule 17 to
allocate and recover all the costs of its selected solution to the Western New York Public
Policy Transmission Need, including the costs related to the WNY Ancillary Upgrades.

Rate Schedule 17 shares many features with Rate Schedules 13 and 15 to the

NYISO OATT, rate schedules previously accepted by the Commission that established the Transco Facilities Charge (“TFC”) for approved projects of the NY Transco and the Marcy South Series Compensation Facilities Charge (“MSSCFC”) for the New York Power Authority’s Marcy South series compensation project, respectively.21

The NYISO will calculate and bill the WNY-FC separately from other charges under the NYISO OATT. The NYISO will collect the WNY-FC from load-serving
entities (“LSEs”) to which the costs of the WNY Ancillary Upgrades have been allocated (“Responsible LSEs”).22 The manner in which these Responsible LSEs will be identified is discussed in Section II.B of this filing letter.

The annual WNY-FC revenue requirement will be calculated based on the

formula rate for NMPC’s TSC set forth in Attachment H to the NYISO OATT but will be a separate charge from the National Grid formula rate TSC that is charged to NMPC’s
wholesale transmission service customers. This revenue requirement will be the basis for calculating the WNY-FC Rate, in dollars/megawatt-hour, to be charged by the NYISO to each Responsible LSE.

National Grid will track the gross plant costs of the WNY Ancillary Upgrades.
The WNY-FC revenue requirement will equal the trued up transmission revenue
requirements for National Grid’s TSC from the prior year divided by National Grid’s
gross transmission plant multiplied by the gross plant of the WNY Ancillary Upgrades.
This carrying charge approach will use system average costs updated each year as a
projection of the operations and maintenance, administrative and general, and other costs
associated with the WNY Ancillary Upgrades. Such a system average approach is widely

cost recovery of any transmission project National Grid builds in response to the NYISO’s Order 1000 planning processes.

The Honorable Kimberly D. Bose May 19, 2017

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used in formula rates approved by the Commission.23 Such an approach is particularly appropriate in this case because the capital costs of the WNY Ancillary Upgrades are estimated to be less than $20 million. Under these circumstances it would be inefficient to track the operating and overhead costs of these facilities separately.

To the extent that the revenues received by National Grid for the WNY Ancillary Upgrades in the prior year were greater (or less) than the annual WNY-FC revenue
requirement for the year, the current year’s WNY-FC revenue requirement will be
decreased (or increased) by that difference.

The accepted formula rate protocols that apply to NMPC’s TSC will also apply to
the determination of the WNY-FC revenue requirement. National Grid will recalculate
the WNY-FC revenue requirement each year as part of the Annual Update process set
forth in Section 14.1.9.4 of Attachment H of the NYISO OATT. The WNY-FC revenue
requirement will be separately stated in that Annual Update, and the Annual Update will
include supporting documentation for the calculation of the WNY-FC revenue
requirement for each year. Each Responsible LSE will be an “Interested Party” that will
have the right to review and challenge the calculation of the WNY-FC revenue
requirement. The WNY-FC revenue requirement for the first year after the WNY
Ancillary Upgrades are placed in service will be calculated retroactively to the in-service
date. For example, if the WNY Ancillary Upgrades go into service in November of one
year, the WNY-FC will not be charged until the start of the Update Year in the following
year, and the WNY-FC revenue requirement for that Update Year would include revenue
requirements for fourteen months (allowing recovery of a full year’s revenue requirement
plus the revenue requirement for November and December of the preceding year).24

Rate Schedule 17 expressly provides that the revenues National Grid receives

from the WNY-FC will be applied as a revenue credit to the revenue requirements for the
NMPC TSC. Specifically, these revenues will be recorded in account 456.1 and
discounted from the NMPC TSC revenue requirement consistent with Attachment 1 of
Attachment H to the NYISO OATT, Schedule 10, line 7. Section 6.17.3.8 of Rate
Schedule 17 states that the net cost for the WNY Ancillary Upgrades recovered through
the NMPC TSC will be deemed to be zero. This statement reflects the fact that the net
effect of crediting the WNY-FC against the revenue requirements used to calculate the
TSC will result in no cost of the WNY Ancillary Upgrade being recovered through the
TSC.

See, e.g., Attachments N-1, GG, MM, and XX to the OATT of the Midcontinent Independent

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National Grid will request incremental transmission congestion contracts

(“Incremental TCCs”) with respect to the WNY Ancillary Upgrades in accordance with
Attachment M to the NYISO OATT.25 Incremental TCCs that may be created and
awarded to National Grid as a result of the implementation of the WNY Ancillary
Upgrades will be offered by National Grid in all rounds of the six month Sub-Auction of
each Centralized TCC Auction conducted by the NYISO. The NYISO will disburse the
associated auction revenues to National Grid.26 These Incremental TCC revenues
associated with the WNY Ancillary Upgrades will be subtracted from the WNY-FC
revenue requirement when the NYISO calculates the WNY-FC Rate.

With respect to the WNY Ancillary Upgrades only, National Grid will receive
certain outage charges specific to Incremental TCCs. National Grid will not be charged
certain shortfall charges or be paid certain surplus payments under Attachment N to the
NYISO OATT with respect to the WNY Ancillary Upgrades. Instead, any applicable
outage charges for the WNY Ancillary Upgrades will be determined pursuant to Section

19.2.4.10 of Attachment M of the NYISO OATT. In calculating the WNY-FC Rate, the
NYISO will make an outage charge adjustment for any hour in the Day-Ahead Market
during which the WNY Ancillary Upgrades are modeled to be wholly or partially out of
service.

The billing units for the WNY-FC Rate for each applicable Billing Period will be based on the Actual Energy Withdrawals available for the current Billing Period for the Load Zones and/or Subzones of the Responsible LSEs. The NYISO will determine the applicable WNY-FC Rate and collect the appropriate WNY-FC Charges from the
Responsible LSEs in each Billing Period and remit those revenues to National Grid in accordance with the NYISO’s billing and settlement procedures.

National Grid has discussed the proposed design of the WNY-FC rate recovery mechanism with the NYISO, and the NYISO has no objections to the proposed structure of the WNY-FC. Similarly, the NYPSC raised no concerns about this proposal during a meeting with National Grid or during subsequent communications with the NYISO
related to NYISO-requested features of the WNY-FC.

B. The Proposal Results in the Proper Cost Allocation and Recovery

The WNY-FC will result in the appropriate allocation of cost responsibility and
cost recovery for National Grid’s non-bulk transmission facility upgrades. Without the
WNY-FC, the costs of the WNY Ancillary Upgrades would be allocated entirely to
National Grid’s wholesale transmission service customers through the TSC and to

The Honorable Kimberly D. Bose May 19, 2017

Page 8

National Grid’s retail customers through retail rates.27 This would be inconsistent with
cost causation principles as the non-bulk transmission facility upgrades would not be
needed without a transmission project to address the Western New York Public Policy
Transmission Need. The NYPSC recognized this potential mismatch and in the October

13 NYPSC Order expressed its expectation that National Grid would recover these upgrade costs from the selected WNY Developer.

The proposed allocation of the upgrade costs through this filing is consistent with
the objectives of the October 13 NYPSC Order. National Grid will “receive
reimbursement” for its costs of making the non-BPTF upgrades that are related to the
BPTF project that is selected by the NYISO to fulfill the Western New York Public
Policy Transmission Need.28 The costs of a project selected to address that need will
either be: (1) allocated to all New York LSEs through a project-specific cost allocation
developed under Attachment Y to the NYISO OATT, Section 31.5.5.4, and submitted for
Commission acceptance or approval by the WNY Developer, or (2) will be subject to the
default cost allocation to all LSEs in New York based on load ratio share consistent with
Section 31.5.5.4.3. Under either approach, the LSEs that will pay the costs of the
selected project of the WNY Developer will be the Responsible LSEs that will pay the
costs of the WNY Ancillary Upgrades under Rate Schedule 17. All project costs will be
recovered from LSEs in proportion to their cost allocation and consistent with the
NYISO’s billing and settlement systems that recover transmission costs from LSEs.29 As
such, this filing will achieve the same effective cost allocation and recovery as if the
WNY Developer paid National Grid for the costs of the WNY Ancillary Upgrades, and
the WNY Developer then passed these costs through to LSEs as an operating expense in
its own rates.

It should be noted that National Grid’s customers will bear a share of the costs

under this approach (through allocation to the Responsible LSEs), but not all of the costs
of the WNY Ancillary Upgrades. This is appropriate because projects that are selected
under the Western New York Public Policy Requirement are chosen because of their
benefit to all of New York. Moreover, National Grid will recover no more and no less
costs through the NYISO’s collection of costs from LSEs than it would receive if it were
to obtain reimbursement from the WNY Developer. In sum, the Commission should

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Page 9

accept or approve the cost recovery mechanism proposed in this rate schedule as just and reasonable.

C.Effect on Rates and Revenues

The WNY-FC is a new charge to be paid by Responsible LSEs to allow National
Grid to recover costs for non-bulk transmission system upgrades associated with the
WNY Developer’s Western New York public policy transmission project. The existing
rates for NMPC’s TSC customers and retail customers will not be directly affected by
this new charge. The identification of the Responsible LSEs will occur through the
process set forth in Attachment Y to the OATT after the selection of the WNY
Developer. As noted above, the costs of the WNY Ancillary Upgrades are estimated to
be less than $20 million.

III.Proposed Effective Date

National Grid requests an effective date 61 days after filing. National Grid

believes it is important to file this proposal and seek Commission approval prior to the
selection of a WNY Developer. According to the NYISO, it will likely make a selection
in the mid 2017 time frame. This proposal is intended to be neutral as to which WNY
Developer is selected and, as noted by the NYPSC in the October 13 NYPSC Order
discussed above, it should not be a factor in the selection of a WNY Developer.30

Under the terms of the proposed Rate Schedule 17, the NYISO will not actually begin charging the WNY-FC until after the WNY Ancillary Upgrades are placed into service. The NYISO will begin charging the WNY-FC on the next effective Update Year after the WNY Ancillary Upgrades are placed into service.

October 13 NYPSC Order at 17.

The Honorable Kimberly D. Bose May 19, 2017

Page 10

IV.Additional Information

A.Communications

Please place the names of the following persons on the official servicelist

established by the Secretary in this proceeding:

David Lodemore*Tiffany Forsyth*

Counsel for National GridDirector

National GridFERC Rates and Revenue Requirements

40 Sylvan Road1 Metrotech Center

Waltham, MA 02451Brooklyn, NY 11201

(781) 907-3704(929) 324-4582

david.lodemore@nationalgrid.com tiffany.forsyth@nationalgrid.com

Bart D. Franey*Sean A. Atkins*

DirectorAlston & Bird, LLP

Transmission Planning950 F Street, NW

and Asset Management - NYWashington, DC 20004

300 Erie Blvd. West(202) 239-3072

Syracuse NY 13202sean.atkins@alston.com

(315) 428-5136

bart.franey@nationalgrid.com

* Designated to receive service. Pursuant to 18 C.F.R. § 385.2010, National Grid
respectfully requests waiver to permit more than two individuals to receive service in this
proceeding.

B.List of Documents Submitted With Filing

Together with this filing letter, National Grid submits the following:

Attachment AClean version of Rate Schedule 17

Attachment BRedlined version of Rate Schedule 17

C.Requests for Waiver

To the extent that waivers of any applicable requirements in 18 C.F.R. § 35.13 are
necessary, National Grid respectfully requests such waivers. Good cause exists for
waiver. The information, documents and attachments accompanying this filing, together
with the National Grid’s publicly available FERC Form 1 information, substantially
comply with the Commission’s cost support regulations and provide ample support for

The Honorable Kimberly D. Bose May 19, 2017

Page 11

the reasonableness of the proposed formula rate. Further, cost of service statements

typically are not needed where the proposed rates are formulary and will be based on

actual costs as reflected in the applicant’s audited books and records.31 Although

National Grid is proposing a new charge, that charge is calculated based on a formula rate already accepted by the Commission. As a result, waiver, if necessary, would be
consistent with Commission precedent for a formula rate filing of this nature.

Finally, the information submitted with this filing substantially complies with the requirements of Part 35 of the Commission's rules and regulations applicable to filings of this type. National Grid requests a waiver of any applicable requirement of Part 35 for which a waiver is not specifically requested, if necessary, in order to permit this filing to become effective as proposed.

D.Service

National Grid has served a copy of this filing electronically on the New York

State Public Service Commission and on the NYISO. The NYISO has agreed to send a notice of this filing on behalf of National Grid to designated representatives of all NYISO customers. This will ensure that all New York LSEs receive notice of this filing.

Please contact the undersigned if you have any questions.

Respectfully submitted,

/s/ David Lodemore

David Lodemore, Esq. National Grid

40 Sylvan Road

Waltham, MA 02451 (781) 907-3704

david.lodemore@nationalgrid.com

On behalf of Niagara Mohawk Power
Corporation d/b/a National Grid

and II data); Pub. Serv. Elec. & Gas Co., 124 FERC ¶ 61,303 at PP 23-24 (2008) (granting waiver of

Sections 35.13(d)(1)-(2), 35.13(d)(5) and 35.13(h)); Oklahoma Gas & Elec. Co., 122 FERC ¶ 61,071 at P

41 (2008); Am. Elec. Power Serv. Corp., 120 FERC ¶ 61,205 at P 41 (2007) (granting waiver of Period I and II data); Commonwealth Edison Co., 119 FERC ¶ 61,238 at PP 92-94 (2007) (granting waiver of
Period I and II data and cost-of-service statements); Trans-Allegheny Interstate Line Co., 119 FERC ¶
61,219 at P 57 (2007) (same); Duquesne Light Co., 118 FERC ¶ 61,087 at P 79 (2007) (granting waiver of Sections 35.13(d)(1)-(2) and 35.13(h)); Idaho Power Co., 115 FERC ¶ 61,281 at P 20 (2006) (granting
waiver of Period II data); Allegheny Power Sys. Operating Cos., 111 FERC ¶ 61,308 at PP 55-56 (2005) (granting waiver of Period I and II data).

6.17Schedule 17 - Rate Mechanism for the Recovery of the Western New York

Facilities Charge for Non-Bulk Transmission Facilities (“WNY-FC”)

6.17.1Applicability

6.17.1.1 Eligible Projects

This Schedule establishes the Western New York Facilities Charge (“WNY-FC”) for the recovery of the costs of certain upgrades to non-bulk transmission facilities related to any Public Policy Transmission Project that are eligible for cost recovery in accordance with the
Comprehensive System Planning Process requirements set forth in Attachment Y of the ISO
OATT.1 Niagara Mohawk Power Corporation (“NMPC”) may recover through the WNY-FC
the costs that it is eligible to recover pursuant to Attachment Y of the ISO OATT related to
certain upgrades to NMPC non-bulk transmission facilities in connection with a Public Policy
Transmission Project that the ISO has selected pursuant to Section 31.4.8.2 of Attachment Y of the ISO OATT as the more efficient or cost-effective solution to Western New York Public
Policy Transmission Need. The “Western New York Public Policy Transmission Need” relates to congestion relief in Western New York identified by the NYPSC on July 20, 2015 and
October 13, 2016, in NYPSC Case No. 14-E-0454.

The specific upgrades to NMPC non-bulk transmission facilities to address the Western
New York Public Policy Transmission Need (the “WNY Ancillary Upgrades.”) shall be
identified by the ISO in the Public Policy Transmission Planning Report for those needs.

1 Capitalized terms used in this Schedule that are not defined in this Schedule shall have the meaning set
forth in Section 31.1.1 of Attachment Y of the ISO OATT and, if not therein, in Section 1 of the OATT.

6.17.1.2 Projects Not Eligible for Cost Recovery Through the WNY-FC

This Schedule does not apply to projects that are not eligible pursuant to Attachment Y of
the ISO OATT for cost allocation and recovery under the ISO OATT, including, but not limited
to: (i) projects undertaken by Transmission Owners through the Local Transmission Owner
Planning Processes pursuant to Section 31.1.3 and Section 31.2.1 of Attachment Y of the ISO
OATT; (ii) market-based solutions to transmission needs identified in the CSPP; (iii) any non-
transmission components of an Eligible Project (e.g., generation, energy efficiency, or demand
response resources); (iv) transmission Generator Deactivation Solutions selected in the Generator
Deactivation Process pursuant to Attachment FF of the ISO OATT and eligible for cost recovery
through Schedule 16 (Section 6.16) of the ISO OATT; (v) transmission facilities eligible for cost
recovery through another rate schedule of the ISO OATT; and (vi) facilities for which costs are
recovered through the Transmission Service Charge (“TSC”) or the NYPA Transmission
Adjustment Charge (“NTAC”) determined in accordance with Attachment H of the ISO OATT.

6.17.2Revenue Requirement for WNY-FC

The WNY-FC shall be calculated in accordance with the formula set forth in Section

6.17.3. The costs that may be included in the WNY-FC revenue requirement include all

reasonably incurred costs related to the preparation of proposals for, and the development,

financing, construction, operation, and maintenance of, the WNY Ancillary Upgrades, including,
but not limited to, a reasonable return on investment and any incentives for the construction of
transmission projects approved under Section 205 or Section 219 of the Federal Power Act and
the Commission’s regulations implementing those sections, as determined by the Commission.

6.17.3Calculation and Recovery of WNY-FC and Payment of Recovered Revenue

6.17.3.1The ISO will calculate and bill the WNY-FC separately for the WNY

Ancillary Upgrades in accordance with this Section 6.17.3. The ISO shall collect
the WNY-FC from LSEs. The LSEs, including Transmission Owners,
competitive LSEs, municipal systems, and any other LSEs, serving Load in the
Load Zones and/or Subzones to which the costs of the WNY Ancillary Upgrades
have been allocated (each a “Responsible LSE”) shall pay the WNY-FC. The
costs of the WNY Ancillary Upgrades shall be allocated in accordance with the
Commission-approved cost allocation methodology for the Public Policy
Transmission Project selected to address Western New York Public Policy
Transmission Need in accordance with Section 31.5.5 of Attachment Y of the ISO
OATT.

6.17.3.2 The WNY-FC revenue requirement shall be calculated as follows: The

annual WNY-FC revenue requirement shall equal the annual Historical

Transmission Revenue Requirement (“HTRR”) for NMPC’s TSC divided by

NMPC’s gross transmission plant in service multiplied by the gross transmission
plant in service for the WNY Ancillary Upgrades. For purposes of this
calculation:

(a)NMPC’s HTRR is equal to Attachment 1 to Attachment H, Schedule 1,

line 17.

(b)NMPC’s gross transmission plant is equal to Attachment 1 to Attachment

H, Schedule 6, page 2 of 2, line 3.

In addition, to the extent that the revenues received for the WNY

Ancillary Upgrades in the prior year were greater (or less) than the annual WNY-

FC revenue requirement for the year, the current year’s WNY-FC revenue

requirement will be decreased (or increased) by that difference. The annual

WNY-FC revenue requirement will be the basis for the applicable WNY-FC Rate
($/MWh) for the Billing Period that shall be charged by the ISO to each
Responsible LSE based on its Actual Energy Withdrawals as set forth in Section

6.17.3.5.

6.17.3.3 NMPC shall request Incremental TCCs with respect to the WNY Ancillary

Upgrades in accordance with the requirements of Section 19.2.4 of Attachment M of
the ISO OATT and receive any Incremental TCCs to the extent awarded by the ISO
pursuant to such request. As it relates solely to the WNY Ancillary Upgrades,
NMPC shall not be a “Transmission Owner” for purposes of Section 20.2.5 or
Section 20.3.7 of Attachment N of the ISO OATT and accordingly shall not receive
an allocation of Net Congestion Rents under Section 20.2.5 of Attachment N of the
ISO OATT or Net Auction Revenues under Section 20.3.7 of Attachment N of the
ISO OATT.

Upgrades, shall be offered by NMPC in all rounds of the six month Sub-Auction of each Centralized TCC Auction conducted by the ISO. The ISO shall disburse the associated auction revenues to NMPC. The total amount of the auction
revenues disbursed to NMPC pursuant to this Section 6.17.3.3 shall be used in the calculation of the WNY-FC Rate, as set forth in Section 6.17.3.5. Incremental
TCCs associated with the WNY Ancillary Upgrades shall continue to be offered
for the duration of the Incremental TCCs, established pursuant to the terms of
Attachment M of the ISO OATT.

The revenue offset discussed in this Section 6.17.3.3 shall commence

upon the first payment of revenues related to Incremental TCCs associated with the implementation of the WNY Ancillary Upgrades on or after the date the
WNY-FC is implemented. The WNY-FC and the revenue offset related to
Incremental TCCs associated with the implementation of the WNY Ancillary
Upgrades shall not require and shall not be dependent upon a reopening or review of: (i) NMPC’s revenue requirements for charges set forth in another rate
schedule of the ISO OATT, or (ii) NMPC’s revenue requirements for its TSC set forth in Attachment H of the ISO OATT.

6.17.3.3.1 With respect to the WNY Ancillary Upgrades only, NMPC shall receive

the outage charges specific to Incremental TCCs as described herein and shall not
be charged O/R-t-S Congestion Rent Shortfall Charges, U/D Congestion Rent
Shortfall Charges, O/R-t-S Auction Revenue Shortfall Charges or U/D Auction
Revenue Shortfall Charges or be paid O/R-t-S Congestion Rent Surplus
Payments, U/D Congestion Rent Surplus Payments, O/R-t-S Auction Revenue

Surplus Payments or U/D Auction Revenue Surplus Payments under Section

20.2.4 and Section 20.3.6 of Attachment N of the ISO OATT. Outage charges related to any Incremental TCCs awarded by the ISO for the WNY Ancillary Upgrades shall be separately assessed to NMPC as an Expander not subject to Section 20.2.5 of Attachment N of the ISO OATT, and payable by NMPC to the ISO, pursuant to Section 19.2.4 of Attachment M of the ISO OATT for any hour in the Day-Ahead Market during which the WNY Ancillary Upgrades are
modeled to be wholly or partially out of service.

6.17.3.4 The billing units for the WNY-FC Rate for the Billing Period shall be

based on the Actual Energy Withdrawals available for the current Billing Period for those Load Zones and/or Subzones allocated the costs of the project in the manner described in Section 6.17.3.1.

6.17.3.5 Cost Recovery Methodology

The ISO shall calculate the WNY-FC for each Responsible LSE as follows:

Step 1: Calculate the $ assigned to each Load Zone or Subzone (as applicable)

Step 2: Calculate a per-MWh Rate for each Load Zone or Subzone (as applicable)

Step 3: Calculate charge for each Billing Period for each Responsible LSE in each
Load Zone or Subzone (as applicable)

Step 4: Calculate charge for each Billing Period for each Responsible LSE across all
Load Zones or Subzones (as applicable)

Where,

l = the relevant Responsible LSE;
p = the WNY Ancillary Upgrades;

z = an individual Load Zone or Subzone, as applicable; Z = set of ISO Load Zones or Subzones, as applicable; B = the relevant Billing Period;

= Actual Energy Withdrawals in Load Zone or Subzone, as applicable, z aggregated across all hours in Billing Period B;

= Actual Energy Withdrawals for Responsible LSE l in Load Zone or Subzone, as applicable, z aggregated across all hours in Billing Period B;

= the pro rata share of the annual revenue requirement for the WNY Ancillary Upgrades as set forth in 6.17.3.2 above, allocated for Billing Period B;

= the auction revenue derived from the sale of

Incremental TCCs plus Incremental TCC payments received by NMPC pursuant to Section

20.2.3 of Attachment N of the ISO OATT for the WNY Ancillary Upgrades, as discussed in

Section 6.17.3.3 above, allocated for Billing Period B. The revenues from the sale of

Incremental TCCs in the ISO’s six month Sub-Auctions of each Centralized TCC Auction shall be allocated uniformly across all hours of the Billing Period;

OutageCostAdjustmentp,B = the Outage charges determined pursuant to Section 6.17.3.3.1 above
for any hour in the Day-Ahead Market during which the WNY Ancillary Upgrades are modeled
to be wholly or partially out of service aggregated across all hours in Billing Period B; and

ZonalCostAllocationz,p = the proportion of the cost of the WNY Ancillary Upgrades allocated to
Load Zone or Subzone, as applicable, z, in the manner described in Section 6.17.3.1 above.

6.17.3.6 The ISO will collect the appropriate WNY-FC revenues each Billing

Period and remit those revenues to NMPC in accordance with the ISO’s billing and settlement procedures.

6.17.3.7Payments received by NMPC for the WNY-FC will be treated as a

revenue credit in the revenue requirement for NMPC’s TSC. After considering the revenue credit from the WNY-FC, the net cost for the WNY Ancillary
Upgrades recovered through the TSC will be deemed to be zero.

6.17.3.8 NMPC shall recalculate the WNY-FC revenue requirement each year as

part of the Annual Update process set forth in Section 14.1.9.4 of Attachment H
of the ISO OATT. The WNY-FC revenue requirement shall be separately stated
in that Annual Update, and the Annual Update shall provide supporting
documentation for the calculation of the WNY-FC revenue requirement for the
Update Year. Each Responsible LSE paying the WNY-FC shall be an “Interested
Party” with respect to any portion of the Annual Update related to the WNY-FC.
The WNY-FC revenue requirement for the first year after the WNY Ancillary
Upgrades are placed in service will be calculated retroactively to the in-service
date. The ISO shall commence charging the WNY-FC beginning with the first
billing period for the next effective Update Year, as such term is defined in
Section 14.1.9.1.66 of Attachment H of the ISO OATT, after the WNY Ancillary
Upgrades are placed into service.

6.17Schedule 17 - Rate Mechanism for the Recovery of the Western New York

Facilities Charge for Non-Bulk Transmission Facilities (“WNY-FC”)

6.17.1Applicability

6.17.1.1 Eligible Projects

6.17.1.2 Projects Not Eligible for Cost Recovery Through the WNY-FC

This Schedule does not apply to projects that are not eligible pursuant to Attachment Y of
the ISO OATT for cost allocation and recovery under the ISO OATT, including, but not limited

to: (i) projects undertaken by Transmission Owners through the Local Transmission Owner
Planning Processes pursuant to Section 31.1.3 and Section 31.2.1 of Attachment Y of the ISO
OATT; (ii) market-based solutions to transmission needs identified in the CSPP; (iii) any non-
transmission components of an Eligible Project (e.g., generation, energy efficiency, or demand
response resources); (iv) transmission Generator Deactivation Solutions selected in the Generator
Deactivation Process pursuant to Attachment FF of the ISO OATT and eligible for cost recovery
through Schedule 16 (Section 6.16) of the ISO OATT; (v) transmission facilities eligible for cost
recovery through another rate schedule of the ISO OATT; and (vi) facilities for which costs are
recovered through the Transmission Service Charge (“TSC”) or the NYPA Transmission
Adjustment Charge (“NTAC”) determined in accordance with Attachment H of the ISO OATT.

6.17.2Revenue Requirement for WNY-FC

The WNY-FC shall be calculated in accordance with the formula set forth in Section

6.17.3. The costs that may be included in the WNY-FC revenue requirement include all

reasonably incurred costs related to the preparation of proposals for, and the development,

6.17.3Calculation and Recovery of WNY-FC and Payment of Recovered Revenue

6.17.3.1The ISO will calculate and bill the WNY-FC separately for the WNY

Load Zones and/or Subzones to which the costs of the WNY Ancillary Upgrades
have been allocated (each a “Responsible LSE”) shall pay the WNY-FC. The
costs of the WNY Ancillary Upgrades shall be allocated in accordance with the
Commission-approved cost allocation methodology for the Public Policy
Transmission Project selected to address Western New York Public Policy
Transmission Need in accordance with Section 31.5.5 of Attachment Y of the ISO
OATT.

6.17.3.2 The WNY-FC revenue requirement shall be calculated as follows: The

annual WNY-FC revenue requirement shall equal the annual Historical

Transmission Revenue Requirement (“HTRR”) for NMPC’s TSC divided by

NMPC’s gross transmission plant in service multiplied by the gross transmission
plant in service for the WNY Ancillary Upgrades. For purposes of this
calculation:

(a)NMPC’s HTRR is equal to Attachment 1 to Attachment H, Schedule 1,

line 17.

(b)NMPC’s gross transmission plant is equal to Attachment 1 to Attachment

H, Schedule 6, page 2 of 2, line 3.

In addition, to the extent that the revenues received for the WNY

Ancillary Upgrades in the prior year were greater (or less) than the annual WNY-
FC revenue requirement for the year, the current year’s WNY-FC revenue
requirement will be decreased (or increased) by that difference. The annual
WNY-FC revenue requirement will be the basis for the applicable WNY-FC Rate
($/MWh) for the Billing Period that shall be charged by the ISO to each

Responsible LSE based on its Actual Energy Withdrawals as set forth in Section

6.17.3.5.

6.17.3.3 NMPC shall request Incremental TCCs with respect to the WNY Ancillary

NMPC shall in relation to the WNY Ancillary Upgrades exercise its right
to obtain and maintain in effect all Incremental TCCs, including temporary
Incremental TCCs, to which it has rights under Section 19.2.4 of Attachment M of
the ISO OATT and shall take the actions required to do so in accordance with the
procedures specified therein. Notwithstanding Sections 19.2.4.7 and 19.2.4.8 of
Attachment M of the ISO OATT, Incremental TCCs created and awarded to
NMPC as a result of implementation of the WNY Ancillary Upgrades shall not be
eligible for sale in Secondary Markets. Incremental TCCs that may be created
and awarded to NMPC as a result of the implementation of the WNY Ancillary
Upgrades, shall be offered by NMPC in all rounds of the six month Sub-Auction
of each Centralized TCC Auction conducted by the ISO. The ISO shall disburse
the associated auction revenues to NMPC. The total amount of the auction
revenues disbursed to NMPC pursuant to this Section 6.17.3.3 shall be used in the

calculation of the WNY-FC Rate, as set forth in Section 6.17.3.5. Incremental TCCs associated with the WNY Ancillary Upgrades shall continue to be offered for the duration of the Incremental TCCs, established pursuant to the terms of Attachment M of the ISO OATT.

The revenue offset discussed in this Section 6.17.3.3 shall commence

6.17.3.3.1 With respect to the WNY Ancillary Upgrades only, NMPC shall receive

Section 20.2.5 of Attachment N of the ISO OATT, and payable by NMPC to the ISO, pursuant to Section 19.2.4 of Attachment M of the ISO OATT for any hour in the Day-Ahead Market during which the WNY Ancillary Upgrades are
modeled to be wholly or partially out of service.

6.17.3.4 The billing units for the WNY-FC Rate for the Billing Period shall be

based on the Actual Energy Withdrawals available for the current Billing Period for those Load Zones and/or Subzones allocated the costs of the project in the manner described in Section 6.17.3.1.

6.17.3.5 Cost Recovery Methodology

The ISO shall calculate the WNY-FC for each Responsible LSE as follows:

Step 1: Calculate the $ assigned to each Load Zone or Subzone (as applicable)

Step 2: Calculate a per-MWh Rate for each Load Zone or Subzone (as applicable)

Step 3: Calculate charge for each Billing Period for each Responsible LSE in each
Load Zone or Subzone (as applicable)

Step 4: Calculate charge for each Billing Period for each Responsible LSE across all
Load Zones or Subzones (as applicable)

Where,

l = the relevant Responsible LSE;
p = the WNY Ancillary Upgrades;

z = an individual Load Zone or Subzone, as applicable; Z = set of ISO Load Zones or Subzones, as applicable; B = the relevant Billing Period;

= Actual Energy Withdrawals in Load Zone or Subzone, as applicable, z aggregated across all hours in Billing Period B;

= Actual Energy Withdrawals for Responsible LSE l in Load Zone or Subzone, as applicable, z aggregated across all hours in Billing Period B;

= the pro rata share of the annual revenue requirement for the WNY Ancillary Upgrades as set forth in 6.17.3.2 above, allocated for Billing Period B;

= the auction revenue derived from the sale of

Incremental TCCs plus Incremental TCC payments received by NMPC pursuant to Section

20.2.3 of Attachment N of the ISO OATT for the WNY Ancillary Upgrades, as discussed in

Section 6.17.3.3 above, allocated for Billing Period B. The revenues from the sale of

Incremental TCCs in the ISO’s six month Sub-Auctions of each Centralized TCC Auction shall be allocated uniformly across all hours of the Billing Period;

ZonalCostAllocationz,p = the proportion of the cost of the WNY Ancillary Upgrades allocated to
Load Zone or Subzone, as applicable, z, in the manner described in Section 6.17.3.1 above.

6.17.3.6 The ISO will collect the appropriate WNY-FC revenues each Billing

Period and remit those revenues to NMPC in accordance with the ISO’s billing and settlement procedures.

6.17.3.7 Payments received by NMPC for the WNY-FC will be treated as a

6.17.3.8NMPC shall recalculate the WNY-FC revenue requirement each year as