10 Krey Boulevard Rensselaer, NY 12144

November 15, 2010

Submitted Electronically

Kimberly D. Bose

Secretary

Federal Energy Regulatory Commission 888 First Street N.E.

Washington, D.C. 20426

Re: New York Independent System Operator, Inc.’s Compliance Filing in Docket
Nos. ER10-2062-___ and ER10-1977-___

Dear Ms. Bose:

In compliance with the Commission’s Orders Accepting and Suspending Tariff
Revisions Subject to Conditions that were issued in Docket Nos. ER10-1977-000, et al.1
(“IBRT Order”) and ER10-2062-000, et al.2 (“RLS Order”) on September 29, 2010
(collectively the “September 29 Orders”) the New York Independent System Operator, Inc.
(“NYISO”) hereby submits proposed revisions to the Market Power Mitigation Measures
(“Mitigation Measures”)3 and Market Monitoring Plan4 that are attachments to the NYISO’s
Market Administration and Control Area Services Tariff (“Services Tariff”). The September

29 Orders accepted, subject to the compliance obligations addressed in this filing, proposed
revisions to the NYISO’s Services Tariff to permit the NYISO to: (1) implement enhanced
generator reference level development software (“RLS”) functionality; and (2) implement
new market rules that permit Generators to increase Real-Time Market5 Incremental Energy
Bids for Energy that was already scheduled in the Day-Ahead Market (“Increasing Bids in
Real Time” or “IBRT”). The September 29 Orders directed the NYISO to make substantive
changes to its proposed RLS and IBRT tariff revisions. Although the NYISO’s e-tariff

submission is being made in Docket No. ER10-2062, et al., this filing addresses the NYISO’s compliance obligations in both of the identified dockets.

1 See New York Independent System Operator, Inc., 132 FERC ¶ 61,271 (2010), Docket No. ER10-1977 (“IBRT
Order”).

2 See New York Independent System Operator, Inc., 132 FERC ¶61, 270 (2010), Docket No. ER10-2062 (“RLS
Order”).

3 The Mitigation Measures are set forth in Attachment H to the Services Tariff.

4 The Market Monitoring Plan is set forth in Attachment O to the Services Tariff.

5 Capitalized terms that are not otherwise defined herein shall have the meaning specified in the Services Tariff or in the MMM.

Kimberly D. Bose, Secretary November 15, 2010

Page 2

I.LIST OF DOCUMENTS SUBMITTED

The NYISO submits the following documents:

1. this filing letter;

2. A clean version of the proposed revisions to the NYISO’s Services Tariff and

3. A blacklined6 version of the proposed revisions to the NYISO’s Services Tariff.

II.COPIES OF CORRESPONDENCE

Correspondence concerning this filing should be served on:

Robert E. Fernandez, General Counsel

Raymond Stalter, Director, Regulatory Affairs *Alex M. Schnell

*Kristin A. Bluvas, Attorney

New York Independent System Operator, Inc.

10 Krey Boulevard

Rensselaer, NY 12144
Tel: (518) 356-8707
Fax: (518) 356-7678

aschnell@nyiso.com
kbluvas@nyiso.com

* Persons designated for receipt of service

III.BACKGROUND

In July and August of this year, the NYISO submitted several distinct but

interdependent filings, which were assigned three distinct docket numbers. The first of these
filings was submitted on July 21, 2010 in Docket No. ER10-1866-000. It is not addressed in
the instant filing because the Commission did not require any changes to the tariff revisions
that the NYISO proposed.7 The NYISO’s proposed IBRT tariff revisions were submitted to
the Commission on July 26, 2010, with minor errata and amendments subsequently submitted
in that docket on July 30, 2010, August 10, 2010 and September 29, 2010. The RLS changes

6 In order to simplify Commission review of this filing, the NYISO’s blackline distinguishes the proposed IBRT compliance revisions from the proposed RLS compliance revisions with yellow highlighting.

7 In the July 21, 2010 filing in Docket No. ER10-1866 the NYISO proposed changes to its Bid Production Cost Guarantee Payment program and changes to permit the NYISO to more accurately implement a requirement to its Mitigation Measures that Generator start-up reference levels incorporate costs related to satisfying minimum run time requirements (“Late Day Start”). The Commission issued a letter order on November 3, 2010 accepting these changes without imposing any compliance conditions.

Kimberly D. Bose, Secretary November 15, 2010

Page 3

were submitted on July, 30 2010. Due to the related nature of these filings and the fact that
they modified many of the same tariff sections, the NYISO submitted a filing in Docket No.
ER11-92-000 consolidating all the tariff revisions proposed for Docket Nos. ER10-1866, et
al., ER10-1977, et al., and ER10-2062, et al., including all supplemental and errata filings,
with priority order designations correctly corresponding to requested effective dates. This
filing was made on October 12, 2010 (the “October 12 Filing”). However, the October 12
Filing did not address the NYISO’s outstanding, substantive compliance obligations included

in the September 29 Orders. The NYISO addresses its IBRT and RLS compliance obligations in the instant filing.

IV PROPOSED TARIFF REVISIONS

A.Increasing Bids in Real Time

In Docket No. ER10-1977 the NYISO proposed revisions to permit it to implement
new IBRT functionality. In the September 29 IBRT Order, the Commission found this new
functionality would “increase the ability of generators to manage the risk of real-time cost
increases” and “permit bids to more accurately reflect in-day energy production costs,” but
that the revisions “lack specificity in their application or leave assessment of penalties up to
the NYISO’s discretion.”8 In compliance with the September IBRT Order, the tariff revisions
proposed below remove all discretion with regard to the NYISO’s application of penalties. In
addition, the NYISO proposes to include the identified penalties on its “traffic ticket” list of
Market Violations that the Market Monitoring Unit is not required to report to the
Commission’s Office of Enforcement.9

1. Mitigation Measures Sections 23.4.7.2, 23.4.3.3.4 and 23.4.7.3.1

The Commission found the NYISO’s proposed Section 23.4.7.2 to be “unjust and

unreasonable” because it does not “indicate what information or criteria the NYISO will rely
upon to determine whether a Market Party’s behavior is ‘consistent with competitive
behavior.’”10 To address the Commission’s concern, the NYISO proposes non-discretionary
criteria to determine when both a penalty and mitigation will be imposed. If the real-time
Incremental Energy Bid submitted for Energy that was already scheduled in the Day-Ahead
Market exceeds the reference level plus the conduct threshold specified in Section 23.4.7.2 of
the Mitigation Measures, and the virtual market penalty calculation formula contained in
Section 23.4.3.3.4 of the Mitigation Measures results in a penalty in excess of $1000, then
both the mitigation measure specified in Section 23.4.7.3.1 of the Mitigation Measures and

8 See IBRT Order ¶ 22.

9 See Market Administration and Control Area Service’s Tariff, § 30.4.5.3.2. In order to be considered a “traffic ticket” type offense the Commission has specified that “(i) the activity must be expressly set forth in the tariff, (ii) the activity must involve objectivly identifiable behavior, and (iii) the activity does not subject the actor to sanctions or consequences other than those expressly approved by the Commission and set forth in the tariff, with the right of appeal to the Commission” (See RLS Order ¶ 22, n.8)

10 See IBRT Order ¶ 24.

Kimberly D. Bose, Secretary November 15, 2010

Page 4

the penalty specified in Section 23.4.3.3.4 of the Mitigation Measures will be imposed. The
NYISO has deleted the language that allowed it to decide not to apply a penalty when a
Market Party is able to show that the real-time Incremental Energy Bid(s) submitted was
consistent with competitive behavior. The NYISO also deleted the phrase “which may be
imposed” to eliminate the discretion of the NYISO as to whether to apply the penalty or not.

2. Market Monitoring Plan Section 30.4.5.3.2 and 30.4.6.2.9

The proposed revisions to Sections 23.4.7.2, 23.4.3.3.4 and 23.4.7.3.1 that are

described above give Market Parties notice of the “objectively identifiable behavior” that will
require the NYISO to impose penalties in accordance with Section 23.4.3.3.4, and mitigation
in accordance with Section 23.4.7.3.1. By using entirely objective criteria and eliminating the
discretion associated with applying the penalty, the NYISO submits that its proposed virtual
market penalty meets the requirements to be considered a “traffic ticket offense” that the
NYISO’s Market Monitoring Unit is not required to refer to the Commission’s Office of
Enforcement as a Market Violation. The NYISO proposes to add virtual market penalties
assessed under subsection Section 23.4.3.3.4 of its Mitigation Measures to the list of “traffic
ticket” offenses listed in Section 30.4.5.3.2 of the Market Monitoring Plan.

In addition, the NYISO proposes to eliminate the changes made to Section 30.4.6.2.9 of the Market Monitoring Plan because the NYISO has deleted the proposed responsibility of the Market Monitoring Unit (“MMU”) to review and comment on whether it considered a Market Party’s behavior to be “consistent with competitive behavior.”

3.Mitigation Measures Sections 23.4.7.3.1, 23.4.7.3.1.1 through

23.4.7.3.1.4, and Section 23.4.7.3.2

In Section 23.4.7.3.1 of the Mitigation Measures, the NYISO proposes to clarify that if
the objective conditions of Section 23.4.7.2 exist, then the NYISO shall revoke the ability of a
Generator to use the IBRT functionality for a period of time. As instructed by the
Commission, the NYISO proposes to delete an exception for a Market Party to demonstrate
that its real time Incremental Energy Bid was consistent with competitive behavior.11 The
NYISO also proposes to add three subsections to Section 23.4.7.3.1 specifying non-
discretionary criteria that will be used to determine the duration of the mitigation that is
imposed. Proposed new subsection 23.4.7.3.1.1 provides that the first time IBRT-related
mitigation is applied to a Generator, the duration of mitigation is 90 days, commencing two
days after the NYISO gives the Market Party notice of its decision to mitigate. Proposed
Subsection 23.4.7.3.1.2 specifies that any subsequent instances of mitigation will last for 180
days. Subsection 23.4.7.3.1.3 allows for a Generator’s history of IBRT-related mitigation to
be reset after one year without being IBRT-mitigated (after one year of “good behavior”).

Because the IBRT mitigation measure is necessarily imposed on a Generator, not on a
Market Party, proposed new subsection 23.4.7.3.1.4 provides that in the event of a transfer,
sale, assignment or grant of the Generator bidding rights, the acquiring/new Market Party

11 See IBRT Order ¶ 24, 26.

Kimberly D. Bose, Secretary November 15, 2010

Page 5

must be informed of any applicable mitigation and the duration of such mitigation. This
provision will ensure that entities that acquire the right to submit offers for a mitigated
Generator are aware that the Generator is subject to IBRT mitigation so that they bid
appropriately.

Finally, as directed by the Commission, in Paragraph 24 of the IBRT Order, the

NYISO has deleted Section 23.4.7.3.2 of the Mitigation Measures because it repeats language that is already included in Section 23.4.7.2.

4.Market Monitoring Plan Sections 30.4.6.2.7

In paragraph 25 of the IBRT Order the Commission directed the NYISO to make

changes to Section 30.4.6.2.7 of the Market Monitoring Plan to remove discretion. Consistent with the NYISO’s proposed changes to Section 23.4.7.2 of the Mitigation Measures that are described above, the NYISO proposes to eliminate all need for discretionary review by the
NYISO and/or by its MMU for applying IBRT-related penalties and mitigation. For this
reason the proposed section of the Market Monitoring Plan is no longer necessary and the
NYISO proposes to delete it entirely. This section has been renumbered, therefore the deleted section is actually Section 30.4.6.2.9 of the Market Monitoring Plan. The NYISO submits that this change addresses the Commission’s directive.

B.Reference Level Software

The NYISO filed in Docket No. ER10-2062, et al., changes to implement a new RLS
functionality to enable Market Parties to submit fuel price and fuel type information for
Generators for the NYISO to use in the development of a Generator’s reference levels. In the
September 29 RLS Order, the Commission accepted the NYISO’s filing, finding it
“provide[d] increased accuracy in the development of reference levels,” but ordered the
NYISO to submit a compliance filing complying with certain conditions.12 The RLS changes
the NYISO is proposing to address the Commission’s requirements are identified below.
Because the proposed RLS compliance changes affect some of the same set of tariff sheets as
the IBRT compliance changes, the tariff changes related to compliance with the RLS Order
appear in highlighted text.

1.Mitigation Measures Sections 23.3.1.4.7.8 and 23.2.1.4.7.8.1

through 23.2.1.4.7.8.6, and Market Monitoring Plan Section

30.4.6.2.3

In paragraphs 18-21 of the RLS Order the Commission directed the NYISO to modify
Section 23.3.1.4.7.8 and its mirror Market Monitoring Plan provision, Section 30.4.6.2.3, to
specify the criteria or information that the NYISO will use to determine when it will cease
using Market Party submitted fuel type and fuel price information in the calculation of
reference levels, and to provide criteria for specifying the duration of mitigation that the
NYISO will apply. To comply with this directive, the NYISO proposes to remove discretion

12 See RLS Order ¶ 17.

Kimberly D. Bose, Secretary November 15, 2010

Page 6

from the process by mandating both the application of, and the duration of, mitigation when defined criteria/thresholds are met.

The NYISO proposes to modify Section 23.3.1.4.7.8 of the Mitigation Measures to
eliminate the NYISO’s discretion in applying mitigation by changing a “may” to a “shall,”
and deleting the phrase “taken as a whole,” giving Market Parties clear notice of when this
type of mitigation will apply. Further, the NYISO proposes to add subsections 23.3.1.4.7.8.1
through 23.3.1.4.7.8.6 to specifically identify the duration of the mitigation that will be
applied and to provide a specific definition of what constitutes sufficient “bias” to take away a
Market Party’s ability to use this functionality. These rules provide that the first time the
NYISO ceases to use the fuel type and fuel price information the NYISO will suspend the
ability for that Generator to submit such information for a period of 60 days. This 60-day
mitigation period begins two days after written notice of the mitigation is provided to the
Generator. For the second and any subsequent violations, the NYISO will apply the
mitigation for 180 days; provided however that if the Generator is not mitigated for a period
of one year or more (exhibits good behavior), the mitigation history will reset and the
Generator will only be subject to mitigation for a 60-day period for its next infraction.

Because the RLS mitigation measure is necessarily imposed on a Generator, not on a
Market Party, proposed new subsection 23.3.1.4.7.8.4 provides that in the event of a transfer,
sale, assignment or grant of the Generator bidding rights, the acquiring/new Market Party
must be informed of any applicable RLS mitigation and the duration of such mitigation. This
provision will ensure that entities that acquire the right to submit offers for a mitigated
Generator are aware that the Generator is subject to RLS mitigation so that they bid
appropriately.

Proposed new subsection 23.3.1.4.7.8.5 sets forth objective criteria for determining
when a Market Party has submitted inaccurate fuel type information that is biased in the
Market Party’s favor. The proposal incorporates an objective 10% increase in fuel price
threshold that is similar to the conduct and impact thresholds that the NYISO uses elsewhere
in its Mitigation Measures. Proposed new subsection 23.3.1.4.7.8.6 is similar to subsection

23.3.1.4.7.8.5, but it sets forth the standard for determining when there is bias in the fuel price information that a Market Party submits.

2.Mitigation Measures Section 23.4.3.3.3 and Market Monitoring

Plan Section 30.4.6.2.8

The NYISO proposes several compliance changes to Section 23.4.3.3.3 of the

Mitigation Measures. In the RLS Order, the Commission directed the NYISO to: (1) insert
criteria or information to define what is “consistent with competitive behavior;”13 (2) insert
criteria to determine when a penalty under $10,000 will be applied;14 (3) identify the specific
facts and circumstances that are relevant in determining the multiplier to use when calculating

13 See RLS Order¶ 22.

14 See id.

Kimberly D. Bose, Secretary November 15, 2010

Page 7

a penalty, or eliminate the multiplier;15 and (4) add subsections 23.4.3.3.3.3 and 23.4.3.3.3.4 to the list of “traffic ticket” type penalties identified in Section 30.4.5.3.2 of the Market
Monitoring Plan.16

To address these concerns, the NYISO proposes the following changes to Section

23.4.3.3.3:

(i) the Market Party shows, to the satisfaction of the ISO, with review and

comment by the Market Monitoring Unit, that its actions were consistent with
competitive conduct (in which case no penalty is appropriate), that the
information was submitted in compliance with the requirements of Section

4.1.9 of the ISO Services Tariff… or (ii) the total penalty calculated for a particular Day-Ahead or Real-Time Market day is less than $105,000, (in which case the ISO may elect to will not apply a penalty calculated in the manner specified below).

First, the NYISO proposes to remove the “consistent with competitive behavior”

exception, Second, adding a specific reference to Section 4.1.9 of the Service’s Tariff, which
sets forth the rules associated with Incremental Cost Recovery for units responding to Local
Reliability Rules I-R3 and I-R5, Market Parties have notice of the exact criteria they must
meet to avoid a penalty. The NYISO also proposes to remove discretion by decreasing the
threshold under which no penalty will apply from $10,000 to $5,000 and requiring the NYISO
to apply any calculated penalty in excess of the $5,000 threshold amount. Finally, the NYISO
proposes to remove its proposed changes to Section 30.4.6.2.8 of the Market Monitoring Plan
because it has deleted the proposed portion of the Market Mitigation Measures that assigned
to the Market Monitoring Unit responsibility to review and comment on whether a Market
Party’s RLS fuel price and fuel type submissions are consistent with competitive conduct.

In Sections 23.4.3.3.3.3 and 23.4.3.3.3.4, which contain the Day-Ahead and Real-
Time RLS Penalty Calculations respectively, the NYISO proposes two parallel changes.
First, consistent with the Commission’s instructions and its proposed revisions to Section

23.4.3.3.3, the NYISO proposes to eliminate the phrase “and the Market Party is not able to
show that its submission of inaccurate fuel price information was consistent with competitive
conduct.” By removing this language, Market Parties are provided with objective measures of
what is acceptable behavior. Second, the NYISO proposes to modify the multipliers that are
applied to a penalty to eliminate consideration of the “facts and circumstances” presented by
the Market Party. Instead, the NYISO proposes two objective rules. A multiplier of 1.0 will
be used if the Market Party has not received a penalty for inaccurate fuel price or fuel type

information within the last six months. In all other cases a multiplier of 1.5 multiplier will be used. These provisions on multipliers now specify an objectively determinable method for identifying the multiplier applicable to a particular penalty.

3.Market Monitoring Plan Section 30.4.5.3.2

15 See RLS Order ¶ 23.

16 See RLS Order ¶ 25.

Kimberly D. Bose, Secretary November 15, 2010

Page 8

Finally, consistent with the Commission’s instructions the NYISO proposes to add

references to the penalties applied under both Section 23.4.3.3.3.3 and Section 23.4.3.3.3.4 to the list of “traffic ticket” type Market Violations specified in Section 30.4.5.3.2 of the Market Monitoring Plan, as subsections 30.4.5.3.2.6 and 30.4.5.3.2.7 respectively. With the proposed modifications, the penalties in these subsections now meet the criteria for “traffic ticket”
Market Violations that the Market Monitoring Unit is not required to report to the
Commission’s Office of Enforcement.17

C.Priority Order Designations

In both the RLS Order and the IBRT Order the Commission directed the NYISO to

“refile unique, chronologically correct implementation priority designations for all those tariff sections that had the same proposed effective date and implementation priority designations that were duplicative of those filed in [the three dockets].”18 The NYISO submitted
accurately designated tariff sheets in Docket No. ER11-92-000 on October 12, 2010. The
Commission accepted these changes in an order issued pursuant to delegated authority on
November 3, 2010. The NYISO also submits with this filing appropriate effective priority order designations, which will indicate that the sections submitted in the instant filing take chronological priority over those filed on October 12.

V.EFFECTIVE DATE

The NYISO respectfully requests that the tariff revisions proposed in this filing be permitted to become effective on October 21, 2010, consistent with the Commissions November 3, 2010 Order in Docket No. ER11-92-000.

VI.SERVICE LIST

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
Public Service Commission, and to the electric utility regulatory agency of New Jersey. In
addition, the complete filing will be posted on the NYISO’s website at www.nyiso.com.

VII. CONCLUSION

WHEREFORE, for the foregoing reasons, the New York Independent System

Operator, Inc. respectfully requests that the Commission accept the proposed tariff changes identified in the Attachments hereto, with an effective date of October 21, 2010.

17 See note 9, supra.

18 See IBRT Order ¶ 27; RLS Order ¶ 27.