July 19, 2017
By Electronic Delivery
Honorable Kimberly D. Bose, Secretary Federal Energy Regulatory Commission 888 First Street, NE
Washington, DC 20426
Re: New York Independent System Operator, Inc., Docket No. ER17-___-000;
Proposed Tariff Revisions to Eliminate Bond Funds from Cash Collateral
Investment Options and Clarify Language Regarding Treatment of
Defaulting Customer Funds
Dear Secretary Bose:
In accordance with Section 205 of the Federal Power Act1 and Part 35 of the regulations
of the Federal Energy Regulatory Commission (“Commission”), the New York Independent
System Operator, Inc. (“NYISO”) respectfully submits proposed amendments to its Open Access
Transmission Tariff (“OATT”) and Market Administration and Control Area Services Tariff
(“Services Tariff”) to remove the option for Market Participants to elect to invest their NYISO
cash collateral deposits in a choice of two bond funds and to clarify language related to the
actions the NYISO must take in relation to a defaulting customer’s funds held by the NYISO.
The NYISO Management Committee unanimously approved, with one abstention, the proposed tariff revisions on May 31, 2017. The NYISO respectfully requests issuance of an
order by the Commission accepting all of the tariff revisions proposed in this filing to become effective on the first business day after the end of the standard sixty-day notice period under FPA Section 205, i.e., September 18, 2017.
I.Documents Submitted
1.This filing letter;
2.A clean version of the proposed revisions to the Services Tariff (“Attachment I”);
1 16 U.S.C. § 824d.
10 Krey Boulevard, Rensselaer, New York 12144 | www.nyiso.com
Honorable Kimberly D. Bose July 19, 2017
Page 2
3.A blacklined version of the proposed revisions to the Services Tariff (“Attachment
II”);
4.A clean version of the proposed revisions to the OATT (“Attachment III”); and
5.A blacklined version of the proposed revisions to the OATT (“Attachment IV”).
II.Background
The NYISO’s Services Tariff sets forth the circumstances under which Market
Participants must provide the NYISO collateral, in an acceptable form, as security for the prompt
payment of a Market Participant’s obligations to the NYISO.2 A cash deposit is one of the
acceptable forms of collateral.3 Prior to 2005, the NYISO invested cash collateral in a money
market fund consisting of federal agency securities with maturities approximating 30 days.4 In
February 2005, Market Participants requested that the NYISO investigate different investment
options that would potentially offer greater returns than they were receiving on their cash
collateral in the money market fund.5 After researching options, the NYISO identified two bond
fund options—one short term and one intermediate term6—that offered the potential for
increased earnings and fulfilled the following criteria the NYISO set forth for considering
investment alternatives: (i) safety of principal, (ii) liquidity of funds, (iii) earnings, and (iv) ease
of administration.
While the bond funds offered the potential for increased earnings, the NYISO determined
that they were inherently more volatile than money market funds, primarily due to fluctuation in
market interest rates.7 In recognition of that volatility and in order to preserve the underlying
principal, Market Participants agreed that a “premium” of additional collateral should be
required in order to invest in a bond fund.8 Based on the historic volatility of the bond funds, 5%
and 10% premiums were established for the Short-Term and Intermediate-Term Bond Funds,
respectively.9
2 Section 26.6 of the Services Tariff.
3 Section 26.6.1.1 of the Services Tariff.
4 Docket No. ER05-1433-000, New York Independent System Operator, Inc., Filing of Tariff Revisions to Implement Certain Collateral Investment Alternatives at 2 (Sept. 2, 2005).
5 Id.
6 Id. at n.4.
7 Id. at 3.
8 Id.
9 Id.
Honorable Kimberly D. Bose July 19, 2017
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In October 2005, the Commission accepted the NYISO’s requested revisions to the
OATT and Services Tariff to allow Market Participants the choice of investing in the two bond funds, effective November 1, 2005.10
III.Description of Proposed Tariff Revisions
A. Removing Bond Fund Investment Options
Although the bond fund investment options became available in 2005, no Market
Participant chose to invest their cash collateral in a bond fund until 2009. Since then, a total of six Market Participants have utilized the bond funds, and their investments averaged 0.17% of total cash collateral held by the NYISO. Currently, only one Market Participant is invested in the bond funds. No Market Participant raised objections to the NYISO’s proposal to remove the bond fund investment options during the stakeholder process. Moreover, the NYISO is not
aware of another regional transmission owner or independent system operator tariff that requires bond fund investment options for Market Participant cash collateral.
Maintaining the bond fund option requires additional resources and cost on the part of the NYISO to administer the funds. Given the low Market Participant participation since their
inception in 2005, the NYISO believes that the costs of maintaining the bond funds outweigh the benefits. Market Participants will continue to have the option to invest in money market funds,11 which do not require the “premium” that the bond funds require and has been the choice for the vast majority of Market Participants who post cash collateral with the NYISO.
B. Other Tariff Revisions
In addition to removing the bond fund investment options, the NYISO proposes
removing language from the OATT that is not necessary and could introduce ambiguity into the
NYISO’s process for pursuing remedies for Market Participant defaults. Sections 27.1 and
28.6.2 of the OATT state that the NYISO shall set aside a defaulting customer’s funds “pending determination of ISO’s counsel and/or the appropriate bankruptcy courts as to the appropriate disposition of such funds.” The NYISO recommends striking this language because it is neither necessary nor accurate in the bankruptcy context.
First, the language is not necessary. Section 27.3 of the OATT provides that the NYISO
may deviate from the steps it would ordinarily take to recover on a default, or pursue alternative
cost-recovery measures if doing so would minimize or avoid a bad debt loss. Therefore, the
NYISO already has the flexibility it needs to obtain a determination of counsel or make filings
with a bankruptcy court, if necessary, to recover on a customer default. The proposed language
is therefore not necessary to describe the actions the NYISO can take with respect to a defaulting
customer’s funds.
10 Docket No. ER05-1433-000, New York Independent System Operator, Inc., Letter Order (Oct.
5, 2005).
11 The NYISO currently offers two money market fund investment options.
Honorable Kimberly D. Bose July 19, 2017
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Second, if the defaulting Market Participant has filed for bankruptcy, the appropriate
determination by a bankruptcy court would be to establish whether there is cause for granting
relief from the automatic stay12 that would arise in the event of a Market Participant bankruptcy,
not to determine the “appropriate disposition” of funds. As a result, the NYISO recommends
striking the language as set forth in the attached blacklined version of Sections 27.1 and 28.6.2 of
the OATT.
IV.Effective Date
In accordance with Section 205 of the FPA, the NYISO requests an effective date for these tariff amendments of September 18, 2017 - the first business day following 60 days from the date of this filing.
V.Requisite Stakeholder Approval
The proposed amendments were unanimously approved, with one abstention, by the
NYISO Management Committee on May 31, 2017. The NYISO’s Board of Directors approved the proposed revisions on July 18, 2017.
VI.Communications and Correspondence
All communications and service in this proceeding should be directed to:
Robert E. Fernandez, General Counsel
Raymond Stalter, Director, Regulatory Affairs
*Amie Jamieson, Attorney/Registered In-House Counsel
10 Krey Boulevard
Rensselaer, NY 12144
Tel: (518) 356-6000
Fax: (518) 356-7678
ajamieson@nyiso.com
*Person designated for receipt of service.
VII.Service
The NYISO will send an electronic link to this filing to the official representative of each
of its customers, to each participant on its stakeholder committees, to the New York State Public
Service Commission, and to the New Jersey Board of Public Utilities. In addition, the complete
filing will be posted on the NYISO’s website at www.nyiso.com.
12 See Bankruptcy Code § 362(a).
Honorable Kimberly D. Bose July 19, 2017
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VIII.Conclusion
For the foregoing reasons, the NYISO respectfully requests that the Commission accept the tariff revisions proposed in this filing and make them effective as of September 18, 2017 -
the first business day following 60 days from the date of this filing.
Respectfully submitted,
/s/ Amie Jamieson
Amie Jamieson, Attorney/Registered In-House
Counsel
New York Independent System Operator, Inc.
10 Krey Boulevard
Rensselaer, NY 12144 (518) 356-7306
ajamieson@nyiso.com
cc:Michael Bardee
Anna Cochrane
Jette Gebhart
Kurt Longo
David Morenoff
Daniel Nowak
Larry Parkinson
J. Arnold Quinn
Douglas Roe
Kathleen Schnorf Gary Will