10 Krey Boulevard Rensselaer, NY 12144

February 17, 2011

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., Proposed Tariff

Revisions for the Measurement and Performance of Special Case Resources, Aggregations and Responsible Interface Parties, Docket No. ER11-___-000

Dear Secretary Bose:

In accordance with Section 205 of the Federal Power Act and Part 35 of the

Federal Energy Regulatory Commission’s (“Commission”) regulations,1 the New York
Independent System Operator, Inc. (“NYISO”) hereby submits proposed amendments to
its Market Administration and Control Area Services Tariff (“Services Tariff”) to
enhance the NYISO Special Case Resource Installed Capacity program (“ICAP/SCR”)
that allow for the participation of demand side resources to provide installed capacity
through a Responsible Interface Party.2 This filing proposes to amend the Services Tariff
and provide greater clarity in the measurement of the performance of Special Case
Resources (“SCRs”), and the Responsible Interface Parties (“RIPs”) that may seek to
aggregate one or more SCRs in the NYISO’s ICAP/SCR markets, by applying new
performance factor calculations and performance deficiency penalties that apply to RIPs.
The proposed amendments to the Services Tariff will allow the NYISO to better align the
participation and performance of demand response with the operational expectations of
the NYISO during an ICAP/SCR event called for reliability purposes by obtaining better
estimates of the demand reduction capabilities (and Installed Capacity) of Special Case
Resources.

The tariff amendments include a new process to determine the baseline Load of
demand response that reflects the capacity of each individual SCR that is available at the
time of an ICAP/SCR event. Currently this baseline amount is calculated in accordance
with ISO Procedures found in section 4.12 of the NYISO Installed Capacity Manual and
is known as the Special Case Resource Average Peak Monthly Demand (“APMD”). An

1 18 C.F.R § 35 et seq. (2010).

2 Capitalized terms not otherwise defined herein shall have the meaning specified in Section 1.0 of the OATT and Section 2 of the Services Tariff.

Honorable Kimberly D. Bose, Secretary February 17, 2011

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SCR’s APMD is the average one-hour peak Load calculated using the SCR’s four peak
one-hour Load values measured between noon and 8 p.m. during the four middle months
of the Prior Equivalent Capability Period. The APMD methodology does not ensure that
the demand reduction capabilities of an SCR are coincident with the peak system Loads
in the New York Control Area (“NYCA”). This filing proposes to replace the APMD
methodology currently provided for in ISO Procedures with a new baseline approach,
Average Coincident Load (“ACL”), that better estimates the demand reduction

capabilities of the ICAP/SCR program during peak Load conditions. The ACL proposal
calculates a baseline load level for each SCR by Capability Period using the top twenty

(20) hours of the resource’s measured Load that are coincident with the top forty (40)

coincident hours of the NYCA Peak Load during the Prior Equivalent Capability Period, adjusted on a Load Zone basis (“SCR Load Zone Peak Hours”).

In accordance with the ICAP Manual amendments approved by the Business

Issues Committee on January 26, 2011, an adjustment from the top forty (40) SCR Load
Zone Peak Hours will be made for the Summer 2011 Capability Period. The approved
ISO Procedures provide that the NYISO will identify the top 50 SCR Load Zone Peak
Hours to be used by RIPs in calculating the ACL values for their Special Case Resources
in the Summer 2011 Capability Period. This adjustment is being made because the
NYISO is unable to implement a process through its Demand Response Information
System (“DRIS”) that will be able to address resource-specific adjustments to each
applicable SCR’s reported coincident Load for this summer. This DRIS functionality is
expected to be in place by the Winter 2011/12 Capability Period. This will allow the
Transmission Owner to submit Load adjustment values by resource for all SCRs that
have participated in a Transmission Owner’s demand response event. DRIS will also
allow the RIPs to view the amount of Load added back to their SCR resources Load
values for all affected coincident hours.

The proposed tariff amendments also relate to various aspects of measurement
and performance of SCRs and RIPs within the ICAP/SCR program. The amendments
include changes in the calculation for RIP performance factors to allow individual
resources that over-perform during an hour of an SCR event or test to offset the under-
performance of resources during that same hour that are within the same SCR
aggregation. The proposed tariff amendments also include new tariff language that
provides for the calculation of a shortfall for an Installed Capacity Supplier that is a RIP,
which would also subject the RIP to deficiency payments as provided by the Services
Tariff.

These proposed amendments will collectively enhance the NYISO’s ability to

measure and track the performance of individual SCRs and RIPs that are participating in
the NYISO’s Installed Capacity markets through the ICAP/SCR program. The
provisions are designed to be implemented concurrently. As we have noted above, there
are also additional procedural revisions made to the NYISO Installed Capacity Manual
that are required to be implemented when these tariff amendments become effective.
These procedures have been reviewed, and were approved by, the NYISO’s Business

Honorable Kimberly D. Bose, Secretary February 17, 2011

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Issues Committee on January 26, 2011, subject to the Commission’s acceptance of the proposed tariff language.

I.Documents Submitted

1.This filing letter;

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

(“Attachment I”); and

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

Tariff (“Attachment II”).

II.Background for Proposed Tariff Amendments

A.Proposed Change from APMD to ACL

Due to the increased participation of demand response in the NYISO Installed
Capacity market, and the importance of these demand response megawatts to system
planning and operations, the NYISO began a detailed evaluation in 2010 of the current
baseline methodology used to determine the amount of Load reduction available from
SCRs. The objective of this assessment was to determine whether changes in the
baseline methodology could be implemented that would better represent the expected
Load of a demand response resource at the time of an event and as such provide the
NYISO with a better measure of the Installed Capacity associated with each SCR that can
be sold in the NYISO market and called upon at the time of an event.

In order to conduct this analysis, NYISO staff collected interval metered data for
229 demand response resources that were currently enrolled as Special Case Resources.
The NYISO looked at approximately forty (40) different calculation methods. These
alternatives include baseline methodologies that focused on demand during hours that
were both coincident and non-coincident with the NYCA peak load hours. A number of
discussions were held with NYISO stakeholders at the NYISO’s Installed Capacity

Working Group (“ICAPWG”) to discuss and propose methodologies to be evaluated and
to establish the protocols for the analysis. Results were also reviewed with stakeholders
at the several ICAPWG meetings before the NYISO brought its proposal to replace the
APMD methodology and discuss implementation plans for the proposed ACL
methodology. The proposed ACL baseline methodology was then brought to the
NYISO’s Business Issues Committee for discussion, review and action in December
2010 and January 2011.

B.Proposed Provisions Regarding Measurement and Tracking of RIP’s and

Calculation of RIP Deficiency

At the same time that the NYISO was assessing its baseline methodology with
NYISO stakeholders, market participants requested that the NYISO also evaluate the

Honorable Kimberly D. Bose, Secretary February 17, 2011

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procedures and requirements that the NYISO utilized to measure and track performance
of SCRs. In particular, RIPs requested that the NYISO consider modifying its procedure
for calculating performance factors for a RIP that was based upon its entire portfolio of
SCRs to include performance factors calculations for SCRs that are grouped in an
aggregation in a single Load Zone. The RIPs also requested that the performance factor
calculation take into account the over-performance of SCRs as well as the under-
performance of others.

In conducting its assessment of measuring and tracking RIP performance the

NYISO determined that it was also necessary to modify the tariff to allow for the NYISO
to calculate RIP performance and to calculate RIP deficiency charges. The NYISO
developed new tariff provisions and revisions to address the proposal to calculate RIP
performance factors and SCR Aggregation performance factors and also identified the
need to add a Responsible Interface Party to the tariff as well as providing expressly for a
RIP deficiency calculation to support a RIP deficiency charge. These changes also
included minor revisions to existing definitions and provisions in the Services Tariff.

The proposed amendments to the Services Tariff, as well as the necessary changes
to the Installed Capacity Manual, were discussed at several ICAPWG meetings before
being brought to the Business Issues Committee for discussion, review and action in
January 2011.

III.Description of Proposed Tariff Revisions

A.Tariff Definitions and Provisions Regarding the Proposed ACL Methodology

Average Coincident Load: The NYISO proposes to include this new defined

term that reflects the new baseline methodology for SCRs. Each SCR will have an ACL value calculated for it in accordance with Section 5.12.11.1.1 of the Services Tariff,
proposed herein, for each Capability Period that represents its average hourly Load in lieu of the current APMD value calculated in accordance with section 4.12 of the NYISO
Installed Capacity Manual.

Average Coincident Load of an SCR Aggregation: The NYISO proposes to

add this new defined term that represents the ACL for a group of SCRs located in a single
Load Zone and assigned to an SCR Aggregation by the RIP. The ACL for an SCR
Aggregation will be calculated in accordance with Section 5.12.11.1.2 of the Services
Tariff, proposed herein, for each month in the Capability Period and is equal to the sum
of the ACLs and Provisional ACLs for all SCRs assigned to the SCR Aggregation for
that month.

Provisional Average Coincident Load: The NYISO proposes to add this new
defined term to be used in lieu of the ACL for SCRs that have not previously been
enrolled with the NYISO and did not have interval metering Load data available to it for
the Prior Equivalent Capability Period. The Provisional ACL for a newly enrolled SCR

Honorable Kimberly D. Bose, Secretary February 17, 2011

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is determined once for each Capability Period and may not be applied for more than three consecutive Capability Periods.

SCR Change of Load: The NYISO proposes to modify and incorporate into the
Services Tariff this defined term, which currently exists in section 4.3.3.1 of its Installed
Capacity Manual. The proposed definition is updated from the existing procedure to
refer to the ACL baseline methodology being proposed herein Provisional ACL rather
than APMD.

SCR Change of Status: The NYISO proposes to modify and incorporate into the
Services Tariff this defined term, which currently is found in section 4.3.3.2 of the
Installed Capacity Manual. An SCR Change of Status is a SCR Change of Load that is
reasonably expected to last for more than sixty continuous days. In accordance with the
proposed Section 5.12.11.1.1 of the Services Tariff, RIPs must report an SCR Change of
Status in order that the NYISO may recalculate an ACL for the resource and any SCR
Aggregation to which the resource has been assigned to reflect the reduction in the
megawatts that can be expected to be provided during an SCR event or test.

SCR Load Zone Peak Hours: The NYISO proposes this new defined term,
which describes the top coincident peak hours, falling between one o’clock p.m. and
seven o’clock p.m. that are identified by the NYISO for the Prior Equivalent Capability
Period. These top hours will be adjusted for each Load Zone to exclude hours in which
SCRs and Emergency Demand Response Program resources were deployed by the
NYISO in that Load Zone. Each SCR will identify its the top twenty hours of demand
that are coincident with these SCR Load Zone Peak Hours in order to calculate the ACL
as set forth in the Section 5.12.11.1.1 of the Services Tariff proposed herein.

5.12.11.1.1 Special Case Resource Average Coincident Load or

Provisional Average Coincident Load: This proposed new section to the Services

Tariff provides for the calculation of an ACL for each SCR that is enrolled by a RIP in
the ICAP/SCR program prior to each Capability Period. In the case where an SCR has
not previously been enrolled with the NYISO and does not have adequate interval
metering Load data for the Prior Equivalent Capability Period, the RIP enrolling the
resource is responsible for providing the NYISO with a Provisional ACL that will apply
to that resource for the entire Capability Period. An SCR may use a Provisional ACL for
a maximum duration not to exceed three consecutive Capability Periods.

This section also provides that the RIP shall report any applicable SCR Change of
Status and that the NYISO shall adjust the ACL (or, if applicable, a Provisional ACL)
value attributed to the SCR for all months in which the SCR Change of Status applies.

5.12.11.1.2 Average Coincident Load of an SCR Aggregation: This newly

proposed section of the Services Tariff provides that the ISO shall compute the Average Coincident Load of an SCR Aggregation each month in accordance with ISO Procedures. Monthly calculation of an SCR Aggregation will account for the addition of newly
enrolled resources to the aggregation, the exit of resources from the market, a

Honorable Kimberly D. Bose, Secretary February 17, 2011

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reconfiguration of the aggregation established by the RIP, and any migration of resources in the aggregation between RIPs.

B. Tariff Definitions and Provisions that Address SCR Aggregations and RIP

Performance Factor and Deficiency Calculations

Responsible Interface Party: The NYISO proposes to add this new defined term
to describe an existing subset of NYISO Customers that is authorized by the ISO to be
the Installed Capacity Supplier for one or more Special Case Resources. The NYISO
interacts with the RIP directly as set forth in these proposed revisions to the Services
Tariff and in accordance with its procedures. Pursuant to the proposed definition, RIPs
will include any individual SCR that is participating in the NYISO’s ICAP/SCR program
and any Customer that controls more than one SCR resource in the ICAP/SCR Program.

Minimum Payment Nomination: The NYISO proposes that addition of the clarifying language “by a Responsible Interface Party” in order to indicate the party responsible for submitting a Minimum Payment Nomination to the NYISO.

Installed Capacity Supplier: The NYISO proposes to modify this definition by replacing the term “Special Case Resource” with “Responsible Interface Party,” which is a broader and more accurate term that the NYISO proposes to define herein.

4.4.2.5 Converting to Demand Reduction, Special Case Resource Capacity
scheduled as Operating Reserves, Regulation or Energy in the Real-Time Market:
The NYISO is proposing to modify this section to clarify the process and the role of the
RIP in communicating with the individual SCR to reduce load in response to a NYISO
event or test.

5.12 Requirements Applicable to Installed Capacity Suppliers: The NYISO is proposing to modify the existing language in several places to be consistent with the use of its proposal to modify the defined term “Installed Capacity Supplier” to reference “Responsible Interface Party” in place of “Special Case Resource.” These proposed
changes make RIPs participating as an Installed Capacity Supplier expressly subject to the applicable requirements for Installed Capacity Suppliers.

5.12.11.1 Responsible Interface Parties: In addition to replacing the term “Special Case Resource” with “Responsible Interface Party” where appropriate and the proposed modifications discussed above, the NYISO has included proposed
modifications in this section that further clarify that the Minimum Payment Nomination submitted for an SCR by a RIP will be set to zero by the NYISO for all intervals for which that SCR was scheduled in the Day Ahead Market.

5.14.2 Installed Capacity Supplier Shortfalls and Deficiency Payments: The
NYISO has proposed new language to this section of the Services Tariff that provides for
the shortfall calculation the NYISO shall apply to Installed Capacity Suppliers that are
RIPs. The calculation will determine a shortfall if the sum of (i) the UCAP sold and

Honorable Kimberly D. Bose, Secretary February 17, 2011

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certified by a RIP in an ISO Monthly, an ISO Capability Period Auction and as a

Bilateral Transaction for a given month, and (ii) the UCAP sold by RIP in the ISO’s

ICAP Spot Market Auction for that month is greater than the greatest single hour of Load reduction achieved by the RIP’s SCR resources during an event or test called by the ISO in the Capability Period as confirmed data provided by the RIP to the NYISO.

In addition, the NYISO proposal includes a separate shortfall calculation that

applies to a RIP that enrolls a SCR with a Provisional ACL. This calculation determines
a shortfall, which will be attributed to the RIP, if the Provisional ACL is higher than the
individual SCR’s actual Average Coincident Load calculated for that Capability Period.
The shortfall amount will be equal to the sum of UCAP sold and certified in an ISO
Monthly, an ISO Capability Period Auction and as a Bilateral Transaction for that SCR
for a given month in the Capability period, the UCAP sold by RIP for that SCR in the
ISO’s ICAP Spot Market Auction and the SCR’s actual metered demand for the month as
determined in accordance with ISO procedure minus the SCR’s actual ACL calculated
for that Capability Period.

IV.REQUEST FOR EXPEDITED CONSIDERATION AND SPECIFIC

EFFECTIVE DATES

The NYISO requests that the Commission act expeditiously and issue an order

accepting the proposed tariff revisions no later than April 11, 2011. This expedited

treatment is sought in order that the NYISO may implement these tariff provisions for the
Summer 2011 Capability Period. While this period formally begins on May 1, 2011,
significant preliminary work, including resource enrollment and data submission and
collection, must be completed by both the NYISO and Market Participants. The bulk of
this work will need to be completed and these proposed rules effective and implemented
by early April in order to properly hold the monthly Installed Capacity auction for May
2011.

The NYISO has worked closely with its stakeholders to submit these amendments
to its Services Tariff collectively in an effort to ensure that these changes are all in place
for the Summer 2011 Capability Period. As noted below, the amendments proposed
passed the Management Committee without any objection. Further, stakeholders at both
the Business Issues Committee and the Management Committee strongly expressed their
desire to have these provisions implemented for the Summer 2011 Capability Period and
urged the NYISO to request this expedited treatment now being sought from the
Commission in order implementation for the whole 2011 Summer Capability Period.

To the extent that the Commission deems it feasible to issue an order on or before
April 11, the NYISO respectfully requests that the Commission provide that the proposed
tariff amendments become effective on the day of the order, but in no event applicable for
any ICAP auction(s) prior to the May 2011 Monthly Auction. The NYISO notes that it is
requesting the Commission to take action within fifty-three days from this filing. In
addition to the operational benefits and efficiencies of these tariff revisions accruing to
this summer’s ICAP/SCR program, good cause exists to waive the standard sixty day

Honorable Kimberly D. Bose, Secretary February 17, 2011

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prior notice requirement3 and grant the requested early effective date because the

proposed amendments cannot be readily implemented in the middle of the Capability

Period. Both the NYISO and its stakeholders desire the benefits of these changes to

accrue to the ICAP/SCR program as soon as possible. April 11, 2011, however, is the

latest feasible effective date that would allow the NYISO to implement these baseline and
performance measures consistently throughout the 2011 Summer Capability Period. An
effective date that falls within the Summer Capability Period, but is later than April 11,
2011, will subject the NYISO and Market Participants engaged in the ICAP/SCR
program to two inconsistent and irreconcilable sets of measurement and performance
rules.

Because of the need to request the Commission act within the standard sixty day notice period, the NYISO also respectfully requests a shortened comment period. The NYISO does not anticipate that the Commission would harm any interested parties in granting this request because these matters have been subject to significant stakeholder review and discussion. In their approval of these proposed changes stakeholders
provided an explicit recommendation for the NYISO to seek expedited treatment from the Commission to ensure these measures were in place for this summer. Further, in
addition to the unanimous approval of these tariff amendments, no appeals of these
provisions have been brought to the NYISO Board.

If, however, the Commission finds it cannot issue the requested order on or before
April 11, 2011, there would be no need for a waiver of the sixty day prior notice period.
Under such circumstance the NYISO respectfully asks that the Commission’s order
indicate that the proposed tariff revisions will go into effect for the Winter 2011/2012
Capability Period, which formally begins on November 1, 2011. The NYISO expects to
implement these proposed changes into its ICAP/SCR program through a deployment of
its DRIS software currently scheduled for late September. In order to ensure that these
changes are fully captured and effective in the DRIS for the Winter 2011/2012 Capability
Period, the NYISO requests that the Commission's order be issued on or before
September 1, 2011. Therefore, if the Commission’s order is issued after April 11, 2011,
the NYISO respectfully requests a waiver of the Commission’s maximum120 day notice
period.4 The NYISO submits that good cause exists, as it has provided above, to waive
this notice requirement and ensure that one set of rules govern the administration of, and
the participation in, the NYISO’s ICAP/SCR program within a discrete Capability
Period.

V.Requisite Stakeholder Approval

The NYISO Management Committee unanimously approved this proposal and the corresponding amendments to the Services Tariff with numerous abstentions on
February 2, 2011.

3 18 C.F.R. §§ 35.3 and 35.11 (2010).

4 18 C.F.R. § 35.3 (2010).

Honorable Kimberly D. Bose, Secretary February 17, 2011

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VI. 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

* David Allen, Attorney

New York Independent System Operator, Inc.

10 Krey Boulevard

Rensselaer, NY 12144
Tel: (518) 356-7530
Fax: (518) 356-7678

rfernandez@nyiso.com
rstalter@nyiso.com
gkavanah@nyiso.com
dallen@nyiso.com

* Persons 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 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.

VIII. Conclusion

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

Operator, Inc., respectfully requests that the Commission accept for filing the proposed

tariff revisions that are attached hereto with an effective date no later than April 11, 2011.

Respectfully Submitted,

/s/ David Allen

David Allen
Attorney

New York Independent System Operator, Inc.

10 Krey Boulevard

Rensselaer, NY 12144 (518) 356-7530

dallen@nyiso.com