1050 Thomas Jefferson Street, NW Seventh Floor

Washington, DC 20007
(202) 298-1800 Phone
(202) 338-2416 Fax

Gary D. Bachman
202-298-1880
gdb@vnf.com

SUBMITTED VIA E-TARIFF FILING

July 2, 2015

Kimberly D. Bose Secretary

Federal Energy Regulatory Commission 888 First Street, NE

Washington, DC 20426

Re: New York Power Authority
Docket No. ER15-___-000

Dear Ms. Bose:

The New York Power Authority (“NYPA”) hereby submits this request for: (i)

acceptance pursuant to section 205 of the Federal Power Act (“FPA”)1 and Part 35 of the
Federal Energy Regulatory Commission’s (“Commission” or “FERC”) regulations2 of a
transmission formula rate template and implementation protocols (together “Formula
Rate”) to determine NYPA’s annual transmission revenue requirement (“ATRR”) in
order to recover NYPA’s costs for transmission services provided under the New York
Independent System Operator, Inc.’s (“NYISO”) Open Access Transmission Tariff
(“OATT”); (ii) authorization pursuant to section 219 of the FPA3 and Order No. 6794 to
recover 100% of NYPA’s prudently incurred costs associated with the development of
the Marcy-South Series Compensation Project (“MSSC Project”) in the event that the
MSSC Project is abandoned for reasons outside NYPA’s control (“Abandonment
Incentive”); (iii) authorization to include a 50 basis point adder in NYPA’s authorized
return on equity (“ROE”) for participation in the NYISO (“RTO Participation Adder”);5

1 16 U.S.C. § 824d (2012).

2 18 C.F.R. pt. 35 (2015).

3 16 U.S.C. § 824s.

4 Promoting Transmission Investment through Pricing Reform, Order No. 679, 71 Fed. Reg. 43,294 (July 3,
2006), FERC Stats. & Regs. ¶ 31,222, at P 58 (2006), order on reh’g, Order No. 679-A, 72 Fed. Reg. 1,152
(Jan. 10, 2007), FERC Stats & Regs. ¶ 31,236, at P 49 (2006), order on reh’g, 119 FERC ¶ 61,062 (2007).

and (iv) acceptance of amendments to Section 14 of Attachment H of the NYISO OATT to incorporate the NYPA Formula Rate and related tariff revisions.6

NYPA respectfully submits that its proposal, as demonstrated by this transmittal
letter and the attached testimonies and exhibits, is just and reasonable, and should be
accepted without suspension or hearing to become effective September 1, 2015. NYPA
proposes to begin collecting a new formulaic ATRR of $192,388,117 effective
September 1, 2015, subject to true-up in 2016 under the Formula Rate implementation
protocols.

I.INTRODUCTION

NYPA is an integral transmission-owning contributor to the NYISO-controlled

grid in New York State. NYPA owns, operates, and maintains over 1,400 circuit miles of
high voltage transmission facilities, many of which comprise backbone paths necessary
for critical North-South energy transfers to downstate load. Lacking distribution facilities
or a defined geographical service territory of its own, NYPA has, since the inception of
the NYISO, recovered its cost of owning and maintaining its transmission facilities from
NYISO customers primarily through the NYPA Transmission Adjustment Charge

(“NTAC”).7

Section 14.2.2.4.1 of the NYISO OATT currently allows NYPA to recover a

stated ATRR of $175.5 million through the NTAC and other revenue streams. This black
box settled value was the outcome of Docket No. ER12-2317-000, wherein NYPA
requested the first increase in its ATRR since 1999. In that proceeding, NYPA indicated
that its proposed rate increase was “the first in a probable series of proposed [revenue

5 Application of the RTO Participation Adder will be limited to the upper end of the zone of

reasonableness. As described below, application of the RTO Participation Adder for the MSSC Project will
be further limited to the extent capitalized costs exceed a fully-formed engineering assessment of project
costs. With respect to future congestion-reducing projects awarded to NYPA through the competitive
developer selection process administered by the NYISO under Attachment Y of its OATT, NYPA will
request the use of ROE adders, if any, in a future filing under FPA sections 205 or 219, as applicable, and
in a form that is consistent with any risk-sharing or performance-based commitments agreed to by the NY
Transco, LLC with respect to such competitive projects as part of a Commission-approved settlement in
Docket No. ER15-572-000.

6 The tariff revisions proposed herein governing the collection of NYPA’s revenue requirement will

become part of the NYISO OATT. Accordingly, the NYISO is submitting this filing in FERC’s e-Tariff system on NYPA’s behalf solely in its role as the Tariff Administrator. However, the burden of
demonstrating that the proposed tariff amendments are just and reasonable rests on NYPA, the sponsoring party. The NYISO takes no position on any substantive aspect of the filing at this time.

7 See Central Hudson Gas & Elec. Corp., 86 FERC ¶ 61,062, order on reh’g, 88 FERC ¶ 61,138 at

pp. 61,403-404 (1999). As discussed in Section II.B., infra, NYPA recovers some of its transmission costs
from customers directly interconnected with its facilities, customers with grandfathered transmission
contracts with NYPA, sales of transmission congestion contracts and congestion rents. These revenues are
subtracted from NYPA’s ATRR for purposes of determining the NTAC charge. See NTAC Formula,
NYISO Open Access Transmission Tariff, Attachment H, Annual Transmission Revenue Requirement for
Point-to-Point Transmission Service and Network Integration Transmission Service § 14.2.2.2, version

4.0.0 (effective Feb. 18, 2013) (hereinafter, “NYISO OATT”).

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requirement] increases that will likely culminate in NYPA requesting, in some future
filing, authorization to implement a formula rate in order to make annual updates to its
transmission [revenue requirement].”8 Mounting operation and maintenance expenses,
capital improvements and life extension upgrades for aging facilities, and investments in
new projects, including those identified through the NYISO’s Order No. 1000 regional
planning process, threaten to strain NYPA’s finances if cost recovery lag is not

adequately managed. For this reason, NYPA now seeks to convert its stated ATRR to a formulaic ATRR that updates on an annual basis.

The proposed Formula Rate is similar to other formula rates accepted by the
Commission as just and reasonable. It will allow NYPA to recover an ATRR across a
July to June period (“Rate Year”) that uses the prior calendar year’s historical cost of
service as a proxy projection for the Rate Year revenue requirement. Calendar Year
actual costs are determined the following year and any difference between transmission
revenues received and actual costs during a Calendar Year are reflected as a True-Up
Adjustment during the subsequent Rate Year. In this way, NYPA will never collect any
more or less than its actual cost of service. The Formula Rate incorporates a base ROE of

8.85%, which is fully supported by a two-step discounted cash flow (“DCF”) analysis,
plus an adder for continued participation as a NYISO transmission owner. Stated values
for depreciation and amortization rates are supported by depreciation studies and
supporting testimony, and stated values for post-retirement benefits other than pensions
(“PBOPs”) are supported by an actuarial report. While NYPA, as a state instrumentality,
is not required to file a FERC Form No. 1, the inputs to the Formula Rate will be sourced
from or reconciled to independently-audited financial statements included in NYPA’s
publicly available Annual Report published each April.9 Finally, like other modern rate
formulas recently accepted by the Commission, the NYPA Formula Rate is capable of
calculating one or more project-specific revenue requirements through the use of direct
assignments and cost allocators in the event it is determined that the costs of any project
or projects developed by NYPA should more appropriately be allocated to NYISO
customers on some basis other than the load-ratio share allocation embodied in the
NTAC mechanism.

In addition to seeking acceptance of the proposed Formula Rate, NYPA also

requests Commission authorization under section 219 of the FPA and Order No. 679 to
recover 100% of prudently incurred costs associated with the development of the MSSC
Project in the event the project is abandoned for reasons outside NYPA’s control. The

8 See Exh. No. PA-1, Prepared Direct Testimony of Thomas A. Davis at 4, Docket No. ER12-2317-000
(July 27, 2012) (NYPA testimony in support of transmission revenue requirement application filed in
2012).

9 The Commission has accepted formula rates filed by other non-jurisdictional entities that have used
similar inputs to populate their formula rates. See Southwest Power Pool, Inc., Omaha Public Power
District (“OPPD”) Transmittal Letter and Formula Rate Filing, Exh. No. OPP-1 at 8, Docket No. ER09-
256-000 (Nov. 7, 2008) (“The Template is to be completed with actual test year data as reported in OPPD’s
audited financial statements. The financial information is as reported in OPPD’s audited financial
statements and summarized in OPPD’s annual report.”); Southwest Power Pool, Inc., Letter Order, Docket
No. ER09-256-000 (Jan. 27, 2009) (letter order accepting tariff revisions implementing OPPD formula
rate).

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MSSC Project is one of the Transmission Owner Transmission Solutions Projects

(“TOTS Projects”) of the New York Transmission Company, LLC (“NY Transco”), and
is being co-developed by NYPA and the NY Transco. The TOTS Projects were
identified by the New York Public Service Commission (“NYPSC”) through recent
proceedings initiated to resolve reliability concerns and address the possible retirement of
the Indian Point Energy Center (“IPEC”) nuclear facility. As found by FERC in its
recent order on the NY Transco’s rate application and incentive request in Docket No.
ER15-572-000, the MSSC Project qualifies for Order No. 679’s rebuttable presumption
by virtue of its selection in the NYPSC proceedings. And, as will be demonstrated in the
ensuing discussion and accompanying testimony, there is a nexus between the regulatory
and financial risks that NYPA will face in developing the MSSC Project and NYPA’s
narrowly tailored request to mitigate those risks through the use of the Abandonment
Incentive. Notably, NYPA is not requesting any ROE risk adders or other risk-mitigating
incentives for the MSSC Project, and will limit the application of the RTO Participation
Adder with respect to capitalized costs that exceed a fully-formed engineering assessment
of project costs. Instead, NYPA seeks only to protect itself and its bondholders from
shouldering the cost of the project in the event it is abandoned for reasons outside
NYPA’s control.

The request for acceptance of the Formula Rate and related NYISO tariff changes
and the request for authorization to utilize the Abandonment Incentive for the MSSC
Project are fully supported by the ensuing discussion and accompanying testimony and
exhibits. With life extension expenditures and new construction on the horizon, now is
the appropriate time for NYPA to modernize its transmission cost recovery mechanism
by converting from a stated ATRR to a formulaic ATRR. It is also important for NYPA
to secure a measure of risk protection through the use of the Abandonment Incentive
before significant spending on the MSSC Project takes place. Accordingly, NYPA asks
that the Commission accept for filing the Formula Rate and related tariff changes
effective September 1, 2015 so that the NYISO may begin collecting the NTAC using the
ATRR produced by the Formula Rate and 2014 Calendar Year inputs, and authorize use
of the Abandonment Incentive for the MSSC Project to mitigate NYPA’s abandonment
risk as development of this important project gets underway.

II.BACKGROUND

A.Description of NYPA

NYPA is a corporate municipal instrumentality and a political subdivision of the
State of New York, organized under the laws of New York, and operates pursuant to Title

1 of Article 5 of the New York Public Authorities Law. NYPA is a “state

instrumentality” within the definition of section 201(f) of the FPA and therefore is

exempt from the requirements of Part II of the FPA.10 It is engaged in the generation,
transmission, and sale of electric power and energy at wholesale and retail throughout

10 16 U.S.C. § 824(f) (“No provision in this subchapter shall apply to, or be deemed to include . . . a State or any political subdivision of a State . . . or any agency, authority, or instrumentality of any one or more of the foregoing ”); see also Village of Bergen v. FERC, 33 F.3d 1385, 1389 (D.C. Cir. 1994).

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New York, and is a founding member of the NYISO.11 NYPA’s bulk power transmission
system encompasses approximately 1,400 circuit miles and consists of facilities ranging
from 115 kilovolts (“kV”) to 765 kV.12 NYPA’s facilities directly interconnect with the
transmission systems of all of the State’s investor-owned utilities.13 NYPA’s facilities
also directly interconnect with adjoining control areas through interconnections to utility
systems in Vermont, Ontario, and Québec.14 As the largest state-owned power

organization in New York, NYPA has taken responsibility for constructing, owning, and operating critical segments of transmission infrastructure throughout the State.15
NYPA’s generation customers include a geographically diverse group of governmental entities (e.g., City of New York, Metropolitan Transportation Authority), municipal
utilities (47 located throughout the state), rural electric cooperatives (4), and numerous end-use business customers.16

B.The NTAC Cost Recovery Mechanism

NYPA’s agreement to join the NYISO was premised on NYPA’s ability to recover its
ATRR through the NYISO OATT structure.17 NYPA has no distribution facilities and
virtually all of NYPA’s customers are connected to the transmission and distribution systems
of other public utilities.18 FERC has previously recognized that, unlike other transmission
owners in New York, NYPA does not have a defined, integrated service area; instead, its
“customers are located in the service areas of other transmission providers, and . . . pay for
service based on the costs of the transmission providers where the loads are located.”19
These unique circumstances necessitate a usage-based charge to assess NYISO customers for
the use of NYPA’s transmission facilities to ensure that NYPA is able to recover its costs
plus a fair return. Accordingly, NYPA, the NYISO, and the other transmission owners
agreed to establish the NTAC to recover any shortfalls in NYPA’s ATRR that are not
recovered through other agreements under which NYPA directly bills its customers for
transmission services.20 The NTAC is a $/MWh charge that is applied at a uniform rate to

11 Prepared Direct Testimony of Thomas A. Davis, Exh. No. PA-101 at 4 (hereinafter “T. Davis Testimony”).

12 Id. at 5.

13 Id.

14 Id.

15 Id.

16 T. Davis Testimony, Exh. No. PA-101 at 4-5.

17 Id. at 6.

18 Id.

19 Central Hudson Gas & Elec. Corp., 103 FERC ¶ 61,143 at P 30 (2003).

20 See Central Hudson Gas & Elec., 86 FERC ¶ 61,062 at pp. 61,212-213, order on reh’g, 88 FERC

¶ 61,138 at pp. 61,403-404. On January 27, 1999, FERC conditionally accepted the proposal made by

NYPA and the other Transmission Owners to establish the NYISO in Docket No. ER97-1523-000. See id. In conjunction with that filing, the NYISO Transmission Owners filed a joint settlement agreement
resolving all issues set for hearing in that docket. This settlement established the NTAC mechanism as a part of the NYISO OATT to ensure NYPA’s recovery of its ATRR. See New York Indep. Sys. Operator, Inc., 140 FERC ¶ 61,240 at P 4 (2012).

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virtually all NYISO energy transactions.21 The NTAC thus recognizes that NYPA’s transmission system, which forms the backbone of the high voltage grid in the NYISO control area, benefits customers around the state.

The NTAC is set forth in Section 14.2.2 of Attachment H of the NYISO OATT.22
NYPA calculates the NTAC by deducting from NYPA’s revenue requirement, currently
referred to as “RR,” a number of directly-recovered revenue streams, such as revenues
received directly from NYPA’s interconnected customers and customers with grandfathered
transmission contracts, the sale of transmission congestion contracts, and congestion rents.23
That portion of NYPA’s RR not recovered from those separate sources is recovered as a
monthly surcharge assessed to all customers taking transmission service under the NYISO
OATT. Section 14.2.2.4.1 of the NYISO OATT currently provides that NYPA’s “Amended
RR = $175.5 million.” This stated revenue requirement was the product of a settlement in
Docket No. ER12-2317-000 that was approved by the Commission in 2013.24 Anticipating
rising costs, NYPA predicted in that proceeding that its “proposed transmission RR increase
[would be] the first in a probable series of proposed RR increases that will likely culminate in
NYPA requesting, in some future filing, authorization to implement a formula rate in order to
make annual updates to its transmission RR.”25

C.NYPA Faces Rising Costs to Extend the Life of Its Transmission

System.

As described in the attached testimony of NYPA Vice President Thomas A.

Davis, a sizable amount of 230 kV and 345 kV transmission assets comprising NYPA’s
transmission system date from the 1950s and 1960s, contemporaneous with the
construction of NYPA’s hydroelectric projects at Niagara and St. Lawrence.26
Historically, these facilities were built to deliver Niagara and St. Lawrence-FDR
hydropower as well as purchased power from the Canadian utilities Hydro-Québec and
Ontario Hydro, and these facilities continue to perform these functions in the NYISO
marketplace.27 Some of NYPA’s facilities, such as the 230 kV transmission line from the
St. Lawrence-FDR project to the Adirondack station, were built in the 1940s.28
Additionally, the 765 kV Massena-Marcy line, which was completed in 1978 and
contributes significant import capability and market integration with the Hydro-Québec
system, is now over 30 years old and in need of life extension and modernization

21 See NYISO OATT, Attachment H, §§ 14.2.2.1, 14.2.2.2.1.

22 See id. § 14.2.2.

23 Id. § 14.2.2.2.1.

24 See New York Indep. Sys. Operator, Inc., 145 FERC ¶ 61,017 (2013); see also T. Davis Testimony, Exh. No. PA-101 at 7.

25 See Exh. No. PA-1, Prepared Direct Testimony of Thomas A. Davis at 4, Docket No. ER12-2317-000.

26 T. Davis Testimony, Exh. No. PA-101 at 7.

27 Id. at 7-8.

28 Id. at 8.

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efforts.29 In the long run, to ensure the reliability of its transmission facilities, NYPA is projecting that over the 10-year period 2015-2024 transmission-related capital spending will be significant.30 NYPA’s “Strategic Vision 2014-2019” strongly emphasizes the need for NYPA to refurbish its existing infrastructure for future generations.31 The existing ATRR of $175.5 million is not adequate to cover existing costs, and that
deficiency will grow as new investments are made.32

D. NYPA’s Role in Development of the MSSC Project

In November 2012, the NYPSC ordered Consolidated Edison Company of New
York, Inc. (“Con Edison”), with the assistance of NYPA, to develop a plan to address the
possible closure of the IPEC nuclear facility in the Lower Hudson Valley.33 Con Edison
and NYPA jointly submitted a proposal which called for the construction of the three
TOTS Projects by the summer of 2016 (“Reliability Contingency Plan”) to address
reliability concerns that could arise if IPEC were to be taken out of service.34

On November 4, 2013, the NYPSC issued an Order Accepting IPEC Reliability
Contingency Plans.35 In this Order, the NYPSC (1) accepted the three TOTS Projects for
inclusion in the portfolio for the Reliability Contingency Plan, (2) directed that the TOTS
Projects should “move as promptly as possible to implementation,” and (3) further
directed Con Edison and the New York State Electric & Gas Corporation (“NYSEG”), in
consultation with NYPA, to “proceed as quickly as possible with an application to
[FERC] for approval for the cost allocation and cost recovery for the TOTS Projects.”36
The NYPSC noted that the TOTS Projects would result in “net benefits for ratepayers
even if IPEC were to operate beyond December 2015,”37 i.e., that the determination to

29 Id.

30 Id.

31 See New York Power Authority, Strategic Vision 2014-2019 at 30-31, available at

http://www.nypa.gov/PDFs/StraVis2014/C1B568998FA6919AE001FA29EBAAAD1F/STPLBK%209-
236-13%5B1%5D.pdf.

32 T. Davis Testimony, Exh. No. PA-101 at 8, 10.

33 See Case 12-E-0503, Proceeding on Motion of the Commission to Review Generation Retirement

Contingency Plans, Order Instituting Proceeding and Soliciting Indian Point Contingency Plan at 9 (Nov.
30, 2012) (hereinafter “Order Instituting Reliability Contingency Proceeding”), available at
HYPERLINK "http://documents.dps.ny.gov/public/common/viewdoc.aspx?docrefid=0fe5ea7e-68a6-42a0-85fb-/" http://documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId={0FE5EA7E-68A6-42A0-85FB-
A68C812FAC88}.

34 See Case 12-E-0503, Proceeding on Motion of the Commission to Review Generation Retirement

Contingency Plans, Order Accepting IPEC Reliability Contingency Plans, Establishing Cost Allocation and Recovery, and Denying Requests for Rehearing at 8 (Nov. 4, 2013) (hereinafter “Order Accepting IPEC Reliability Contingency Plan”), available at

http://documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId={5AFE13E9-181F-40CF-A91C-
5AEC0E066AC9}.

formal challenge rights with respect to each Annual Update of the Template.74 Any

NYISO customer or transmission owner that disputes the prudence of a NYPA capital

expenditure may submit a formal challenge to the Commission under the Protocols and, if the challenge creates “serious doubt” as to the prudence of the expenditure, the burden would shift to NYPA to demonstrate prudence before the Commission.75

Lastly, the incumbent developer reforms implemented by the Commission in
Order No. 1000 create a dynamic where affording other transmission owners veto
authority on NYPA capital expenditures exceeding $5 million per year is inappropriate
and unduly discriminatory. Indeed, the investor-owned utility transmission-owning
members of the NYISO recently formed a transmission-only investment vehicle—the NY
Transco—for the purpose of developing competitive transmission opportunities in New
York.76 The interest of the NYTOs is no longer simply to protect their customers from
NYPA capital expenditures; instead, as equity investors in the NY Transco, the NYTOs
now have a financial incentive to exercise their veto to limit spending by NYPA to create
additional investment opportunities for themselves in the new competitive landscape for
transmission development.

For these reasons, the Commission should accept as just and reasonable NYPA’s
proposal to eliminate Section 14.2.2.2.3 of the NYISO OATT and allow NYPA the
opportunity to recover the cost of capital expenditures deemed necessary to maintain the
reliability of its transmission system through the annual updating of the Formula Rate.

B.Formula Rate Design

NYPA’s proposed Formula Rate reflects established cost-of-service principles for electric utilities and is consistent with Commission policy. The Formula Rate has two parts. The first part is the cost-of-service Template that underlies the ATRR calculation. The second part contains the Protocols, discussed infra Section IV.F.

The Template provides for the recovery of a return on rate base, depreciation and
amortization expense, operation and maintenance (“O&M”) expense, and administrative
and general (“A&G”) expense, less any revenue credits.77 NYPA employs the
Commission’s accepted methods of calculating the cost of debt and equity in order to
calculate the return on rate base. The values for PBOPs, the ROE, and depreciation rates
are stated terms and may only be changed pursuant to an FPA section 205 or section 206
filing.78

74 See Prepared Direct Testimony of Alan C. Heintz, Exh. No. PA-201 at 12 (hereinafter “Heintz Testimony”).

75 Kentucky Utils. Co., 62 FERC ¶ 61,097 at p. 61,698 (1993).

76 New York Indep. Sys. Operator, Inc., 151 FERC ¶ 61,004.

77 There is no expense category for taxes, because NYPA’s income and properties it acquires for projects are exempt from taxation.

78 T. Davis Testimony, Exh. No. PA-101 at 12.

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NYPA’s proposed Formula Rate computes NYPA’s total ATRR. Schedule H of
the Formula Rate is able to determine any project-specific revenue requirements in the
event it is subsequently determined that the costs of a NYPA project should be more
appropriately allocated and recovered through some mechanism other than the NTAC.79
For example, if ongoing negotiations by the NY Transco and other parties in Docket No.
ER15-572-000 culminate in a comprehensive settlement that includes a cost allocation
for the TOTS Projects, including NYPA’s share of the MSSC Project,80 the Template
would produce a distinct ATRR for the MSSC Project that would be excluded from the
total ATRR to arrive at the NTAC ATRR. This feature could also be used if NYPA is
directed to build an Order No. 1000 project by the NYISO for which there is a
beneficiaries-pay cost allocation specified in the NYISO OATT or identified through the
regional planning and developer selection process. In either case, the determination of a
project-specific ATRR for the MSSC Project or future Order No. 1000 project will also
accommodate the reduction or elimination of the RTO Participation Adder for these
projects, as described above and in Section IV.D.1.c below. Unlike the formula rate
recently considered by the Commission in the NY Transco proceeding,81 this Formula
Rate will pose no risk of double recovery, because all of NYPA’s costs will be recovered
through a single Formula Rate, and any costs that are assigned to specific projects will
automatically be deducted from NYPA’s calculation of the NTAC so that, in total, NYPA
will recover no more than its just and reasonable cost of service.

To calculate the ATRR, NYPA will forecast the values that will populate the

Template for each July - June Rate Year using prior year actual data from NYPA’s

Annual Report as a proxy for Rate Year costs.82 During the subsequent Annual Update,
NYPA will determine a true-up of the forecasted ATRR collected during the prior
calendar year when the actual data become available from the independently-audited
financial statements contained in NYPA’s Annual Report. If there is any difference
between the actual calendar year ATRR and the transmission revenues received by
NYPA during the preceding calendar year, the difference, along with interest calculated
in accordance with section 35.19a of the Commission’s regulations, will be reflected as
an adjustment to the forecasted ATRR during the following Rate Year.83 This ensures
that neither the customers nor the transmission owner are harmed if NYPA’s revenues
received during a calendar year differ from its actual cost of service.

79 Heintz Testimony, Exh. No. PA-201 at 7.

80 NYPA’s share of the MSSC Project is an integral part of the TOTS Projects for which the NY Transco has sought cost recovery in Docket No. ER15-572-000. If a regional cost allocation is agreed upon or determined for the NY Transco’s share of the TOTS Projects, it stands to reason that NYPA’s costs
associated with the MSSC Project should be recovered on an equivalent basis.

81 See NY Transco Order at PP 146-47.

82 See Heintz Testimony, Exh. No. PA-201 at 4-5.

83 Id. at 5.

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C.Source of Inputs to the Formula Rate Template

1.The Commission Allows Non-Jurisdictional Entities to Provide

Alternative Cost Support.

Owing to its status as a non-jurisdictional utility under the FPA,84 NYPA is not

required to file FERC Form No. 1. Indeed, the Commission has recognized that NYPA is
not subject to section 205 of the FPA, and is thus “not subject to the Commission’s
regulatory filing requirements.”85 Accordingly, in NYPA’s most recent rate filing in
2012, the Commission waived the requirement that NYPA submit cost data using the
section 35.13(h) cost of service statements, provided that a sufficient record was
developed for the Commission to make its just and reasonable determination.86

In the context of formula rates, the Commission has taken a flexible approach

with non-jurisdictional transmission owners that do not file FERC Form No. 1. For

instance, the Commission accepted the Nebraska Public Power District’s (“NPPD”)

formula rate, which derives its inputs from NPPD’s actual data as recorded in accordance
with FERC’s Uniform System of Accounts (“USofA”).87 The Commission also accepted
the Omaha Public Power District’s (“OPPD”) formula rate, which derives its inputs—like
NYPA—from OPPD’s audited financial statements, which are summarized in OPPD’s
annual report.88 The Michigan Public Power Agency (“MPPA”) also uses actual cost

84 See 16 U.S.C. § 824(f); City of Vernon, Cal., Opinion No. 479, 111 FERC ¶ 61,092 at P 42, order on
reh’g, 112 FERC ¶ 61,207, Opinion No. 479-A (2005), order on reh’g, Opinion No. 479-B, 115 FERC
¶ 61,297 (2006), vacated and remanded on other grounds sub nom., Transmission Agency of N. Cal.. v.
FERC, 495 F.3d 663 (D.C. Cir. 2007) (“Vernon”); New York Indep. Sys. Operator, Inc., 140 FERC ¶
61,240 at PP 28-30.

85 New York Indep. Sys. Operator, 140 FERC ¶ 61,240 at P 36 (“[W]e grant NYPA’s requested waiver of
section 35.13 of the Commission’s regulations. Because NYPA is not subject to section 205 of the FPA, it
is not subject to the Commission’s regulatory filing requirements.”); see also Vernon, Opinion No. 479,
111 FERC ¶ 61,092 at P 44 & n.55 (excusing municipality from Commission’s regulatory filing
requirements, subject to caveat that “sufficient record [must be] developed upon which the Commission can
evaluate the justness and reasonableness of the Participating Transmission Owner’s TRR”).

86 New York Indep. Sys. Operator, Inc., 140 FERC ¶ 61,240 at P 36 (granting “NYPA’s requested waiver of section 35.13 of the Commission’s regulations” and finding that NYPA “is not subject to the Commission’s regulatory filing requirements,” but requiring NYPA to develop a sufficient record in order to permit the Commission to make its required just and reasonable determination).

87 See Southwest Power Pool, Inc., NPPD Transmittal Letter and Formula Rate Filing at 10, Exh. No. NPP-

1 at 6, Docket No. ER09-255-000 (Nov. 7, 2008); Southwest Power Pool, Inc., Letter Order, Docket No.
ER09-255-000 (Jan. 27, 2009) (letter order accepting tariff revisions implementing NPPD formula rate);
see also Southwest Power Pool Open Access Transmission Tariff, Attachment H, Annual Transmission
Revenue Requirement for Network Integration Transmission Service § II.4.2.1, version 29.1.4 (effective
June 1, 2015) (“For each year, NPPD will complete and make available for review, on its website, actual
data as recorded in accordance with FERC’s Uniform System of Accounts, including an affidavit of the
Chief Financial Officer of NPPD attesting to the accuracy of the cost and revenue data set forth

therein.”).

88 See Southwest Power Pool, Inc., OPPD Transmittal Letter and Formula Rate Filing at 4, Exh. No. OPP-1 at 8, Exh. No. OPP-4 at 6, Docket No. ER09-256-000 (Nov. 7, 2008); Southwest Power Pool, Inc., Letter
Order, Docket No. ER09-256-000 (Jan. 27, 2009) (letter order accepting tariff revisions implementing
OPPD formula rate).

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data as reported in MPPA’s Audited Financial Report to derive its ATRR (but uses the EIA Form 412 as the direct input into the template).89 In each instance, the Commission waived the requirement that the non-jurisdictional entity comply with section 35.13 of the Commission’s filing regulations, notwithstanding the fact that the proposed formula rate was not rooted in the FERC Form No. 1.

a. NYPA’s Independently-Audited Financial Statements,

in Conjunction with Extensive Workpapers Included in the Formula Rate, Provide Sufficient Detail and
Transparency for Customers to Verify NYPA’s
Computation of the ATRR.

In light of the Commission’s recognition that non-jurisdictional entities should be
able to use alternative sources of information to populate their formula rate templates and
the Commission’s acceptance of templates that use a variety of different inputs, NYPA
respectfully requests waiver of the requirements of section 35.13 of the Commission’s
regulations to the extent necessary to permit the population of the Formula Rate Template
using cost data from NYPA’s Annual Report that, in conjunction with detailed
workpapers included in the Formula Rate, meets the substance of FERC Form No. 1.
Specifically, NYPA will use information contained in its financial statements, which can
be found in the Financial Report section of NYPA’s Annual Report, which is published
on NYPA’s website each year in April and attached as Exhibit No. PA-105 to this
Application.

The Financial Report section of the Annual Report compiles information

contained in NYPA’s books and records. The testimony of Mr. T. Davis provides an

overview of the accounting procedures used by NYPA to record transmission

investments and expenses. As a hydroelectric licensee under Part I of the FPA,90 NYPA
is required to maintain its books and records related to its hydroelectric plant, consistent
with the USofA, and is subject to audit by FERC with respect to such books and
records.91 To avoid maintaining multiple sets of books and records, NYPA utilizes the

89 Michigan Public Power Agency, Informational Filing of Annual Rate Formula Update at 1, 3, Docket No. ER15-1090-000 (Feb. 23, 2015).

90 See, e.g., New York Power Auth., 118 FERC ¶ 61,206 at p. 61,952, reh’g denied, 120 FERC ¶ 61,266 (2007) (“This license is issued to the New York Power Authority (Licensee) for a period of 50 years,
effective September 1, 2007, to operate and maintain the Niagara Project No. 2216. This license is subject to the terms and conditions of the [FPA], which is incorporated by reference as part of this license, and subject to the regulations the Commission issues under the provisions of the FPA.”).

91 See 18 C.F.R. pt. 101; Trafalgar Power Inc., 87 FERC ¶ 61,207 at p. 61,798 (1999) (“[A]ll licensees are
required to comply with the requirements of the Uniform System of Accounts to the extent necessary to
carry out their responsibilities under Sections 4(b), 10(d) and 14 of the FPA... ”); Seneca Generation,

LLC, 145 FERC ¶ 61,096 at P 23 n.20 (2013) (“All hydropower licensees are required to comply with the
requirements of the Uniform System of Accounts pursuant to 18 C.F.R. Part 101 to the extent necessary to
carry out their responsibilities under Part I of the FPA. We further note that a licensee’s status as a market-
based rate seller under Part II of the FPA does not exempt it from these accounting responsibilities as a
licensee under Part I of the FPA.”); see also 16 U.S.C. § 797(b) (“The Commission is authorized and
empowered... [t]o determine the actual legitimate original cost of and the net investment in a licensed

project, and . . . each licensee shall . . . file with the Commission in such detail as the Commission may

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USofA for all utility property, including transmission and general plant and operations and maintenance for which NYPA will seek recovery in this Formula Rate.92 Therefore, the information contained in NYPA’s financial statements reconciles to information contained in conformance with FERC’s numbered accounting system and, to the extent not already provided in workpapers included with the Formula Rate, such detailed
records can be provided to interested parties upon request during the Formula Rate
customer review process prescribed in the Protocols.

Mr. T. Davis provides additional details about the controls in place to ensure the
accuracy of the information in the financial statements contained in the Annual Report.
NYPA prepares its financial statements in conformity with generally accepted accounting
principles (“GAAP”),93 and complies with all applicable pronouncements of the
Governmental Accounting Standards Board.94 NYPA further maintains a layered system
of controls to ensure the accuracy and integrity of NYPA’s financial statements and the
information contained in the Annual Report. First, NYPA employs internal controls to
provide reasonable assurances “that transactions are executed in accordance with
management’s authorization, that financial statements are prepared in accordance with
[GAAP],” and that NYPA’s assets are safeguarded.95 This system of controls is
“documented, evaluated, and tested on an ongoing basis.”96 Second, NYPA retains an
external auditor—KPMG, LLP—to independently audit NYPA’s financial statements.97
Lastly, NYPA’s Board of Trustees adds a final layer of oversight. The Board’s Audit
Committee meets with NYPA’s management, Senior Vice President of Internal Audit,
and KPMG periodically during the year to discuss internal controls, accounting matters,
financial statements, NYPA’s internal auditing program, and the scope and results of
KPMG’s audit, as well as the results of periodic audits by the Office of the State
Comptroller.98

Among other things, the financial statements contain NYPA’s capital assets,

aggregate operating expenses and values for more specific categories of expenses, such
as O&M and depreciation, as well as operating revenues, such as transmission charges.99

require, a statement . . . showing the actual legitimate original cost of construction of such project, addition, or betterment The licensee shall grant to the Commission . . . at all reasonable times, free access to

such project, addition, or betterment, . . . accounts, books, records, and all other papers and documents relating thereto.”).

92 T. Davis Testimony, Exh. No. PA-101 at 16-18.

93 Exh. No. PA-105 (New York Power Authority, Annual Report 2014 at 20, 23 (2014), available at
http://www.nypa.gov/NYPA-2014-AnnualReport.pdf (hereinafter “2014 Annual Report”)); T. Davis
Testimony, Exh. No. PA-101 at 13.

94 2014 Annual Report at 42.

95 Id. at 20.

96 Id.

97 Id. at 21.

98 2014 Annual Report at 20.

99 See id. at 37, 39, 51.

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They further provide NYPA’s long-term debt and NYPA’s net position, which comprise NYPA’s capital structure.100

NYPA proposes to use the information contained in the independently-audited
financial statements in the Annual Report, as supplemented by Workpapers 1-27 in the
Template, to transparently populate the cost of service schedules in its Template each
year, just as a jurisdictional utility would use the FERC Form No. 1. As described in Mr.

T. Davis’s testimony, NYPA’s plant in service, accumulated depreciation, depreciation
expense, and capital structure can be verified and reconciled from NYPA’s financial
statements.101 NYPA’s O&M can be verified in the aggregate.102 Generally speaking,
the Template develops an ATRR on the Transmission Revenue Requirement Summary
attachment by aggregating values from Schedules A-K. Workpapers 1 through 27 are
used to input data from the financial statements and company records and translate it to
useable form for Schedules A-K. This process is described in greater detail in Mr. T.
Davis’s testimony.

D.Other Formula Rate Components

1.Return on Equity

a.The Base ROE Proposed by NYPA Is Just and

Reasonable and Within the Zone of Reasonableness Calculated Using the Commission’s Two-Step DCF Methodology.

The Commission has held that, while non-jurisdictional public power entities do
not raise equity capital through the issuance of stock, they nevertheless provide internal
sources of funding for investment and such funding comes at a cost.103 Consistent with
this precedent, NYPA proposes to recover a base ROE of 8.85% based on the
recommendation of Mr. Ansaldo. Mr. Ansaldo performed a two-step DCF analysis that

100 See id. at 29, 38-39, 53-54.

101 T. Davis Testimony, Exh. No. PA-101 at 15.
102 Id.

103 See, e.g., AES Power Inc., 74 FERC ¶ 61,220 at p. 61,745 (1996) (“We find that it is reasonable for

TVA to include a 10 percent margin in its rate. First, it is extremely unlikely that a business enterprise the
size of TVA could rely solely on debt financing because lenders would be unwilling to make such loans or
the cost would be prohibitive (reflecting the risk of 100 percent debt financing). TVA, like any other
similar business, must provide internal funding for a portion of its expenses. The fact that the financing is
funded internally rather than through the sale of common stock makes it no less of a cost.”); Midwest
Indep. Transm. Sys. Operator, Inc., 106 FERC ¶ 61,219 at P 31 (2004) (“Consistent with our policy
outlined in Order No. 2000, we continue to encourage participation of all transmission owners in RTOs,
including cooperatives and municipals. Their participation will enhance the reliability and economic
benefit of RTOs and ensure appropriate RTO size and scope. It is unlikely that Wolverine or any other
small transmission owner will participate in an RTO without proper and equitable compensation for their
transmission facilities. We find that once Wolverine and MPPA become participating members of Midwest
ISO by turning over control of their transmission facilities to Midwest ISO, they should receive the same

12.88 percent ROE afforded to other transmission owners in Midwest ISO.”).

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is consistent with the Commission’s latest guidance in Opinion No. 531.104 Mr. Ansaldo expanded the proxy group to include utilities rated more than one notch below NYPA’s AA credit rating in order to achieve a group of sufficient size, but otherwise followed the two-step DCF analysis prescribed in Opinion No. 531.

Mr. Ansaldo identifies a range of reasonable returns of 7.19% to 9.34% and

recommends a base ROE of 8.85% for NYPA that reflects an upward adjustment from
the measure of central tendency based on a finding of anomalous economic conditions.
Mr. Ansaldo relied on several of the factors considered “informative” by the Commission
in finding anomalous economic conditions in Opinion No. 531, including an expected
earnings analysis and state commission-approved ROEs.105 Mr. Ansaldo found that both
the expected earnings analysis and state commission-approved ROEs indicate that the
anomalous economic conditions recognized by the Commission in Order No. 531 persist
today.106 Mr. Ansaldo also found that an ROE towards the upper end of the range is
appropriate due to the very low interest rates—lower than those used to measure the
market conditions in Opinion 531—that were used to measure the return in this filing.107
Lastly, Mr. Ansaldo also recommends an ROE towards the upper end of the range,
because it will be conducive to maintaining NYPA’s AA/Aa1 bond rating.108 The return
on equity NYPA earned in 2014 was 9.4%, and NYPA has maintained a strong bond
rating at this level of return.109 Accordingly, an ROE of 9.34% (after the 49 of the 50
basis point RTO Participation Adder is applied to remain within the top end of the zone
of reasonableness) on NYPA’s transmission assets would provide a level of support for
NYPA’s high bond rating similar to that of other NYPA operations.110 Mr. Ansaldo’s
testimony and exhibits can be found at Appendix E.

b. The RTO Participation Incentive Is Appropriate

Because NYPA Is a Member of the NYISO, NYPA Has Turned over Operational Control over Its Transmission Assets to the NYISO, and the Resulting Total ROE Will Remain Within the Zone of Reasonableness.

Subject to the limitations described in Section IV.D.1.c infra, and consistent with
section 219(c) of the FPA and Commission precedent, NYPA requests a 50 basis point
adder to its base ROE for RTO participation.111 The Commission determined in Order

104 Coakley, Mass. Atty. Gen. v. Bangor Hydro-Elec. Co., Opinion No. 531, 147 FERC ¶ 61,234, order on paper hearing, Opinion No. 531-A, 149 FERC ¶ 61,032 (2014), order on reh’g, Opinion No. 531-B, 150 FERC ¶ 61,165 (2015).

105 Opinion No. 531 at PP 146-48.

106 Ansaldo Testimony, Exh. No. PA-301 at 10-11. 107 Id. at 10.

108 Id. at 8-9.
109 Id. at 9.
110 Id.

111 See 16 U.S.C. § 824s(c).

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No. 679 that it will approve ROE adders “for public utilities that join and/or continue to
be a member of an [independent system operator], RTO, or other Commission-approved
Transmission Organization.”112 The Commission has found that the incentive recognizes
the benefits that flow from RTO/ISO membership, and that a “utility is presumed eligible
for an RTO incentive ‘if it can demonstrate that it has joined an RTO, ISO, or other
Commission-approved Transmission Organization, and that its membership is on-going’
and need not provide additional justification as to the necessity or benefits of the
incentive.”113 Accordingly, the Commission has routinely approved the incentive for
RTO participation as long as the resultant ROE after application of the RTO adder is
within the ROE zone of reasonableness.114 Consistent with this practice, the Commission
recently approved the use of the adder by the NY Transco for the three TOTS Projects
provided that the total ROE does not exceed the top end of the zone of reasonableness
and the NY Transco joins the NYISO and turns over operational control of the projects to
NYISO.115 The Commission has also consistently granted this incentive to non-
jurisdictional utilities.116

As described above, NYPA is a member of the NYISO and has turned over

operational control of its transmission facilities to the NYISO. NYPA will likewise turn over operational control of the MSSC Project to the NYISO once it is placed in service. NYPA’s requested total ROE of 9.34% includes 49 basis points of the 50 basis point RTO Participation Adder to stay within the top end of the zone of reasonableness
determined using the Commission’s two-step DCF analysis. The Commission should therefore find that it is just and reasonable.

112 Order No. 679 at P 326; Order No. 679-A at P 86; see also Ass’n of Businesses Advocating Tariff Equity
Coal. of MISO Transmission Customers v. Midcontinent Indep. Sys. Operator Inc., 149 FERC ¶ 61,049 at
P 200 (2014) (“The Commission stated in Order No. 679 that entities that have already joined, and that
remain members of, an RTO, ISO, or other Commission approved transmission organization, are eligible to
receive this incentive.”).

113 NY Transco Order at P 90 (quoting Order No. 679 at P 327); see also Midcontinent Indep. Sys.

Operator, Inc., 150 FERC ¶ 61,004 at PP 41-44 (2015); Pac. Gas & Elec. Co., 141 FERC ¶ 61,168 at P 25
(2012) (determining that granting incentive ROE for “participation in the CAISO is consistent with the
stated purpose of FPA section 219 . . . and is intended to encourage [transmission owner’s] continued
involvement in the CAISO,” despite arguments that such incentive is no longer necessary) (footnotes
omitted); Niagara Mohawk Power Corp., 124 FERC ¶ 61,106 at P 35 (2008) (We will grant up to 50 basis
points of incentive ROE for Niagara Mohawk’s continued participation in NYISO... Our decision to

grant Niagara Mohawk an incentive for participation in the NYISO is consistent with the stated purpose of
section 219 of the FPA—that the incentive applies to all utilities joining the transmission organization—
and is intended to encourage Niagara Mohawk’s continued involvement with NYISO.”) (footnotes
omitted).

114 See id.; see also NY Transco Order at P 91. 115 NY Transco Order at P 88.

116 See, e.g., Midcontinent Indep. Sys. Operator, Inc., 151 FERC ¶ 61,166 (2015); Midcontinent Indep. Sys. Operator, Inc., 151 FERC ¶ 61,137 (2015); Midcontinent Indep. Sys. Operator, Inc., 151 FERC ¶ 61,050 (2015) (RTO adder granted to four municipal utility entities); Valley Elec. Ass’n, Inc., 141 FERC ¶ 61,238 (2012) (RTO adder granted to an electric cooperative in the California ISO).

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c.Performance-Based ROE for Certain New Construction

NYPA believes that in order to best serve the interests of New York consumers, the risks associated with new transmission development should be equitably shared between the developer and the ratepayer. Consistent with this philosophy, NYPA will make the following commitments.

First, with respect to the MSSC Project, application of the RTO Participation

Adder will be performance-based. As a pre-Order No. 1000 project competitively

awarded by the NYPSC, NYPA believes it is appropriate to share the risk of cost

overruns with NYISO ratepayers. Accordingly, at a future date that is mutually

acceptable to NYPA and NYPSC, NYPA project managers and engineers will perform a
fully-formed engineering assessment of project costs. NYPA will earn a return of its
base ROE plus the RTO Participation Adder of 9.34% for capitalized project costs so
long as the costs stay below a 10% deadband. For costs that exceed the estimate by 10%
or more, NYPA will earn one half of the RTO Participation Adder (24.5 basis points).
NYPA will forego entirely the RTO Participation Adder and earn the base ROE of 8.85%
for capitalized project costs that exceed the estimate by 20% or more. The Formula Rate
is designed to produce a project-specific ATRR that, if necessary, reflects a project-
specific ROE for MSSC that is below the 9.34% total ROE that applies to NYPA’s
existing assets. A worksheet appended to the Formula Rate Template would be used to
transparently determine the total ROE for the MSSC Project in the event of cost overruns.

Second, with respect to future congestion-reducing projects that are competitively
awarded to NYPA through Attachment Y of the OATT, NYPA will seek incentives in
excess of the base ROE of 8.85% in a future filing under FPA sections 205 or 219, as
appropriate. Any such request would conform to commitments on risk-sharing or
performance-based incentives that may be stipulated for the NY Transco in a settlement
agreement approved by the Commission in Docket No. ER15-572-000 with respect to
future competitive projects.

NYPA believes these commitments appropriately allocate risks among NYPA and
NYISO ratepayers with respect to the development of the MSSC Project and future
competitively-awarded congestion-reducing projects and will, at least with respect to the
NY Transco, ensure that competition for such future projects is on a level playing field.
NYPA would hope other competitors in the NYISO’s competitive developer solicitations
would similarly offer appropriate risk-sharing commitments in competitive bids for
congestion-reducing projects by limiting the application of ROE incentives to
performance-based adders.

2.Capital Structure

As explained in Mr. Ansaldo’s testimony, NYPA proposes to use its actual capital
structure, which is comprised of long-term debt and its net position, as updated each year
in NYPA’s financial statements, capped at a maximum of 60% equity.117 NYPA does

117 Ansaldo Testimony, Exh. No. PA-301 at 13.

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not have traditional common stock and thus its “equity” is retained income listed on its financial statements as its “net position.”118 NYPA’s net position is equivalent to a private entity’s retained earnings.119

As populated with 2014 calendar year data, NYPA’s Template produces a capital
structure of 23.6% debt and 76.4% equity based on its ratio of long-term debt to net
position.120 NYPA’s long-term capitalization target, which it intends to achieve through
the issuance of long-term debt to finance capital expansion, is 65% equity.121 However,
NYPA is proposing to voluntarily cap the equity component of its capital structure at
60% to minimize rate impacts to NYISO customers during a period of anticipated capital
spending over the coming years. The Commission should accept as just and reasonable
NYPA’s proposal to cap the equity component of its capital structure at 60% equity,
because it is slightly lower than NYPA’s long-term capitalization goal and will help
reduce rate impacts to consumers as NYPA modernizes its transmission infrastructure in
the coming years.122

As Mr. Ansaldo describes, imposing a lower cap on NYPA’s equity capitalization
would be inconsistent with NYPA’s strong credit rating of AA/Aa1 and resulting low
cost of debt.123 NYPA’s high bond rating primarily results from NYPA’s conservative
use of debt financing (low leverage).124 However, if a more leveraged financial structure
is imputed to NYPA, then one cannot assume the historical or prospective financing rates
of an AA/Aa1 rated entity. NYPA’s cost of debt under such a structure would therefore
need to increase, raising the overall cost of capital produced by the Template.
Furthermore, as Mr. Ansaldo notes, capping NYPA’s equity capitalization at less than
60% would also warrant reexamination of NYPA’s conservative ROE request because, as
discussed below, the proxy group used to perform the DCF analysis utilized to calculate
NYPA’s proposed ROE included only those utilities with the highest credit ratings.125 If
a capital structure is imputed to NYPA that is similar to that of utilities with lower credit
ratings, such lower-rated utilities should arguably also be included in the proxy group for
the purposes of the DCF analysis.126

118 Id. at 3; see also T. Davis Testimony, Exh. No. PA-101 at 17. 119 Ansaldo Testimony, Exh. No. PA-301 at 3.

120 Id. at 12.

121 Id. at 14.

122 The Commission has accepted voluntary proposals by an entity to cap the equity component of its

capital structure. See Transource Wis., LLC, 149 FERC ¶ 61,180 at P 34 (2014) (“We also grant

Transource Wisconsin’s proposal to cap the equity component of its capital structure at 55 percent. We

note that the Commission traditionally does not require applicants to cap the capital structures used for

ratemaking at a particular numerical value. Here, however, Transource Wisconsin has voluntarily proposed to cap the equity component of its capital structure, and we accept this voluntary cap.”).

123 Ansaldo Testimony, Exh. No. PA-301 at 13-14.

124 Id. at 14.

125 Id.

126 Id.

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Mr. Ansaldo’s testimony demonstrates that NYPA’s high bond rating does not

come at an increased cost for ratepayers than a lower bond rating, due to the fact that

NYPA does not pay income taxes and therefore does not collect an income tax allowance through the Template.127 Mr. Ansaldo also demonstrates that NYPA’s overall rate of
return is already about 25% less than a typical investor-owned utility’s pre-tax overall
return because NYPA does not require an allowance for income taxes.128 Thus, there is no strong reason to depart from the Commission’s strong preference to use an entity’s
actual capital structure,129 and NYPA should be permitted to use its actual capital
structure capped at 60% equity.

3.Depreciation Rates

NYPA proposes to adopt stated depreciation rates for transmission and general
plant using two depreciation studies of NYPA’s Transmission Assets dated September
30, 1996 (“1996 Depreciation Study”) and August 13, 1982 (“1982 Depreciation Study”).
The depreciation rates for transmission plant are based on the 1996 Depreciation Study,
while the depreciation rates for general plant are based on the 1982 Depreciation
Study.130 The testimony of Mr. Austin O. Davis corroborates the methodology used in
preparing the 1982 Depreciation Study, as well as the methodology utilized by Mr. Julius
Breitling, P.E. in preparing the 1996 Depreciation Study.131 As Mr. A. Davis explains,
the depreciation rates proposed for NYPA are based on average service life, mortality
dispersion (Iowa Curve), and net salvage (gross salvage less cost of removal).132 A
percent is developed for each account or subaccount based on service lives and net
salvage percentages estimated for transmission and general plant currently included in
NYPA rates. A. Davis’s testimony and exhibits, including the 1996 Depreciation Study
and the 1982 Depreciation Study, are attached to this Application as Appendix F.

4. Post-Retirement Benefits Other Than Pensions

The Template includes a stated PBOP expense, consistent with Commission

policy.133 As explained in the testimony of Mr. T. Davis, the 2014 Annual Report shows

127 Id. at 15.

128 Ansaldo Testimony, Exh. No. PA-301 at 15.

129 See, e.g., Virginia Elec. & Power Co., 123 FERC ¶ 61,098 at P 73 (“The Commission has a strong

preference for using the actual capital structure of the company in developing its rate of return, unless there
is an overriding reason not to do so.”); ITC Holdings Corp., 121 FERC ¶ 61,229 at P 49 (2007) (“Use of the
transmission-owning operating company’s actual capital structure . . . reflects the Commission’s preference
to use a utility’s own capital structure if the utility issues its own debt without guarantees, has its own bond
rating, and has a capital structure within the range of capital structures approved by the Commission.”).

130 Prepared Direct Testimony of Austin O. Davis, Exh. No. PA-401 at 3.

131 Id. at 2-3.

132 Id. at 4-5.

133 This treatment is consistent with the treatment approved in Trans-Allegheny Interstate Line Co., 124 FERC ¶ 61,075 (2008). See Trans-Allegheny Interstate Line Co., 121 FERC ¶ 61,009 at PP 18-19 (2007) (accepting revision to tariff sheet providing stated value for PBOPs).

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a PBOP expense of approximately $38 million.134 The source of this value is an actuarial report produced by Buck Consultants, LLC which is attached to the testimony of Mr. T. Davis.135 Mr. T. Davis describes the components of the PBOP expense identified in the actuarial report, and explains how it is allocated and assigned to NYPA’s transmission
function.136 NYPA’s 2014 PBOP expense will remain fixed unless changed pursuant to sections 205 or 206 of the FPA.137

E. Determination of a Projected ATRR for the Initial Rate Period

The Protocols provide for a July through June Rate Year. Because NYPA is

seeking a September 1, 2015 effective date for its Formula Rate, it has included with this
Application a populated Template to produce an initial ATRR that the NYISO will
collect through June 30, 2016 subject to true-up. The Initial Rate Period is defined in the
Protocols as the “initial period, from the date the rates are first made effective by the
Commission thru June 30, 2016.”138 Thus, if the Commission grants NYPA’s request for
an effective date of September 1, 2015, the Initial Rate Period will run from September 1,
2015 through June 30, 2016.

Using inputs from NYPA’s financial statements contained in the 2014 Annual
Report, NYPA’s ATRR for the Initial Rate Period will be $192,388,117.139 The
Template produces a 12-month ATRR that will be used by NYISO to calculate the
NTAC $/MWh charge assessed to energy withdrawals during the 10-month Initial Rate
Period. The first True-Up Adjustment in July 2016 will compare NYPA’s transmission
revenues received from September 1 through December 31, 2015 against 4/12 of the
actual calendar year 2015 ATRR, and any difference will be refunded or surcharged at
the FERC interest rate. In this way, customers will pay an NTAC based on the current
stated ATRR through August 31, 2015, and the application of the Formula Rate ATRR
will be limited in 2015 to the last four calendar months of the year. Pro-rating the actual
2015 ATRR during the 2016 Annual Update’s determination of the calendar year 2015
True-up Adjustment will ensure that customers are not over-charged during 2015 as a
result of the mid-year transition from a stated ATRR to a formulaic ATRR.

NYPA further proposes that any changes to NYPA’s Formula Rate resulting from
settlement or litigation of this proceeding be incorporated, with FERC interest, into the
next True-Up Adjustment in lieu of customer-specific refunds. Allowing refunds
resulting from settlement or litigation to pass through the natural True-Up mechanism of
the Formula Rate will ease NYISO’s administrative burden, particularly in light of the

134 T. Davis Testimony, Exh. No. PA-101 at 19; 2014 Annual Report at 65.

135 T. Davis Testimony, Exh. No. PA-101 at 19.

136 Id. at 19-20.

137 Id. at 12.

138 App’x A, Clean Version of NYISO OATT, at § 14.2.2.4.2.1(b)(xiii) (hereinafter “App’x A”).

139 NYPA will not recover any revenue for the MSSC Project in the Initial Rate Period because the MSSC Project is anticipated to be placed in service during Calendar Year 2016.

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already complex NTAC charge which is assessed to all energy withdrawals state-wide and would be difficult to adjust on a customer or transaction-specific basis.

F.Formula Rate Implementation Protocols

Mr. Alan C. Heintz describes the Protocols for populating and updating the
Template in his testimony. NYPA proposes to add the Protocols to a new Section

14.2.2.4.2 of Attachment H to the NYISO OATT.140 The Protocols prescribe NYPA’s
Annual Update Process, which refreshes the calculation of NYPA’s NTAC and projectspecific revenue requirements. The Protocols also govern the specific procedures for
notice, requests for information, and review and challenges to the Annual Update.141 The Protocols provide for a July 1st to June 30th rate year; as discussed above, however, the Initial Rate Period will only run from September 1, 2015 to June 30, 2016. After the
Initial Rate Period, NYPA will determine a true-up amount by comparing the prior
calendar year’s actual ATRR—using data from NYPA’s independently-audited financial statements contained in NYPA’s Annual Report—against transmission revenues received by NYPA during the preceding calendar year.142 Any true-up amounts will be calculated with interest in accordance with 18 C.F.R. § 35.19a.143

The Protocols provide for customer review procedures that are consistent with the
Commission’s recent pronouncements on (i) scope of participation in the information
exchange process; (ii) the transparency of the information exchange; and (iii) the ability
of interested parties to challenge NYPA’s implementation of the Formula Rate as a result
of the information exchange.144 Following the July 1 publication of the Annual Update,
including True-Up Adjustment of the prior calendar year’s rates based on actual data
from NYPA’s Financial Report, NYPA will hold a customer meeting between 15 and 60
days later.145 Customers will have a 150-day discovery period during which to submit
information requests, and a 180-day review period to submit preliminary challenges.146
Customers have 60 days after the close of the review period or 30 days after NYPA
makes its informational filing, whichever is later, to submit formal challenges to the
Commission.147 Any changes to the True-Up Adjustment resulting from the customer
review period will be reflected, with interest, in the following year’s True-Up
Adjustment. Parties at all times retain their rights under sections 205 and 206 of the FPA,
without regard to the Protocols’ review process.

140 See Heintz Testimony, Exh. No. PA-201 at 4.

141 However, consistent with Commission precedent, the proposed Protocols do not limit a customer’s or the Commission’s rights under section 206 of the FPA. See, e.g., Tampa Elec. Co., 133 FERC ¶ 61,023 at P 61 (2010); Pioneer Transmission, LLC, 126 FERC ¶ 61,281 at P 113 (2009), order on clarification, 130 FERC ¶ 61,044 (2010).

142 See Heintz Testimony, Exh. No. PA-201 at 6.
143 See id.

144 See, e.g., Empire Elec. Dist. Elec. Co., 150 FERC ¶ 61,200 (2015). 145 See App’x A at § 14.2.2.4.2.1(a), (b)(xvi).

146 See id. § 14.2.2.4.2.3.

147 See id. § 14.2.2.4.2.3(b)(iv).

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V.THE REQUESTED ABANDONMENT INCENTIVE IS JUST AND

REASONABLE AND CONSISTENT WITH THE REQUIREMENTS OF FPA SECTION 219.

NYPA seeks authorization to use one risk-mitigating incentive for the MSSC
Project: the Abandonment Incentive. NYPA is eligible for this incentive under section
219 of the FPA because the MSSC Project will help ensure reliability and will reduce the cost of power to customers by reducing transmission congestion. This incentive is
appropriate under section 219 of the FPA, Order No. 679, and the Commission’s 2012
Policy Statement,148 because there is a nexus between the MSSC Project and the
Abandonment Incentive, which is tailored to reduce the financial and regulatory risks
associated with the MSSC Project. As already discussed above, NYPA also seeks
authorization to use a 50 basis point RTO Participation Adder incentive for all
transmission investments that have been turned over to the operational control of the
NYISO, including its investment in the MSSC Project (subject to the performance-based ROE provisions discussed in section IV.D.1.c, supra).

A. The MSSC Project Is Eligible for an Incentive-Based Rate Treatment

Because It Promotes Reliability and Reduces the Cost of Delivered Power by Reducing Transmission Congestion, and Qualifies for the Rebuttable Presumption Established Under Order No. 679.

To be eligible for transmission rate incentives, a public utility must first

demonstrate that the proposed transmission project will either promote reliability or

reduce the cost of delivered power by reducing transmission congestion.149 In Order No.
679, the Commission established a rebuttable presumption that this requirement is met if:

(1) the transmission project results from a fair and open regional planning process that
considers and evaluates projects for reliability and/or congestion; or (2) the transmission
project has received construction approval from an appropriate state commission or state
siting authority.150 Additionally, the Commission requires “each applicant seeking to
invoke the rebuttable presumption to explain in its filing how the applicable process
(regional planning or state approval) in fact considered whether the project ensures
reliability or reduce congestion.”151 The purpose of this rebuttable presumption is to
avoid “duplication in determining whether a project maintains reliability or reduces
congestion. [The Commission does] not wish to repeat the work of state siting authorities
[or] regional planning processes . . . in evaluating these issues.”152 If an applicant does
not qualify for the rebuttable presumption, it “may nonetheless demonstrate that [its]

148 Promoting Transmission Investment Through Pricing Reform, 141 FERC ¶ 61,129 (2012) (“2012 Policy Statement”).

149 Order No. 679 at P 37.

150 Id. at P 58; Order No. 679-A at PP 41, 49. 151 Order No. 679-A at P 49.

152 Id. at P 46.

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project is needed to maintain reliability or reduce congestion by presenting [the Commission] a factual record that would support such findings.”153

The MSSC Project qualifies for the rebuttable presumption under Order No. 679
because it has received approval from an appropriate state commission that evaluated the
MSSC Project for both reliability and congestion benefits. The MSSC Project was
selected by the NYPSC, after a competitive process, precisely because of its potential
reliability benefits and ability to decrease the cost of power by reducing transmission
congestion. Indeed, in its NY Transco Order, the Commission recognized that the three
TOTS Projects, including the MSSC Project, qualified for the rebuttable presumption
established in Order No. 679, because “the TOTS Projects have received construction
approval from an appropriate state commission or state siting authority that considered
whether the projects ensured reliability or reduced congestion.”154

Specifically, as noted above, in November 2012, the NYPSC initiated the

Reliability Contingency Proceeding in Case 12-E-0503. In that proceeding, the NYPSC
ordered Con Edison, with the assistance of NYPA, to develop a Reliability Contingency
Plan to address the possible closure of the IPEC nuclear facility.155 Con Edison and
NYPA submitted a proposal which called for construction by Summer 2016 of the three
TOTS Projects, including NYPA’s MSSC Project,156 and requested authorization for
NYPA to issue a Request for Proposals (“RFP”) for reliability solutions. In response, the
NYPSC authorized the competitive RFP process and approved of preliminary planning
for the TOTS Projects.157

On November 4, 2013, the NYPSC issued an Order Accepting IPEC Reliability
Contingency Plans.158 In this Order, the NYPSC (1) accepted the three TOTS Projects
for inclusion in the portfolio for the Reliability Contingency Plan, (2) directed the TOTS Projects should “move as promptly as possible to implementation,” and (3) further
directed the sponsors of the TOTS Projects to “proceed as quickly as possible with an
application to [FERC] for approval for the cost allocation and cost recovery for the TOTS Projects.”159 The NYPSC’s order stated that it expected that Con Edison, NYSEG, and
NYPA would “proceed with the necessary permitting and approvals to achieve the June 1, 2016 in-service date for each project.”160

The NYPSC selected the three TOTS Projects based on expectations that (1) the
projects would contribute at least 600 MW toward the reliability relief if IPEC ceased

153 Order No. 679 at P 57.

154 See NY Transco Order at P 34 (citing Order Accepting IPEC Reliability Contingency Plan at 7, 25). 155 Order Instituting Reliability Contingency Proceeding at 9.

156 See Order Accepting IPEC Reliability Contingency Plan at 8. 157 Id. at 4.

158 See generally id.

159 Id. at 46-48.

160 Id. at 25.

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operations, (2) “[t]he reliability benefits of the Ramapo/Rock Tavern line and the

Marcy/Fraser project would be created in greater or lesser measure whether or not IPEC
retires,” and (3) “even if IPEC does not retire, and the TOTS are not required to avoid
reliability violations, the increased transfer capability from these projects would still
provide economic benefits by supplying lower cost energy from upstate sources to
downstate consumers.”161 Specifically, even if IPEC did not retire, New York
Department of Public Service (“DPS”) staff had estimated that the net present value of
the net benefits provided by the TOTS Projects for the first 15 years of operation would
be $260 million in 2016 dollars and that over a transmission lifecycle of approximately

40 years the estimated net benefit would be $670 million.162 If IPEC were retired, these net benefits would be even greater.163

The MSSC Project should qualify for the rebuttable presumption because the

NYPSC has already approved the project in a proceeding that was focused on finding

solutions to a reliability threat created by the potential retirement of the IPEC nuclear

facility. In addition to the reliability benefits of the MSSC Project, the NYPSC also

relied on the congestion-reduction benefits of the project and authorized the MSSC

Project based on its understanding that the project would provide ratepayers with millions
of dollars in congestion-related savings and net benefits, even if the IPEC remains in
service. As recognized in Order No. 679, there is no need for the Commission to repeat
the work of the NYPSC, which has already approved of the MSSC Project precisely
because of its significant reliability and congestion-reduction benefits for New York.
Consistent with the Commission’s NY Transco Order finding that the TOTS Projects
qualify for the rebuttable presumption,164 the Commission should find that NYPA’s
portion of the MSSC Project also qualifies for this rebuttable presumption since it was
approved by the NYPSC as a vital component of the TOTS Projects.

B. There Is a Nexus Between the Requested Abandonment Incentive and

the Risks and Challenges That Will Be Faced by NYPA in Developing the MSSC Project.

An applicant seeking an incentive rate treatment under Order No. 679 must

demonstrate that the incentive requested is “rationally tailored to the risks and challenges
faced in constructing new transmission[]” and must “demonstrate that there is a nexus
between the incentive sought and the investment being made.”165 In applying the nexus
test, “the Commission will examine the total package of incentives being sought, the
inter-relationship between any incentives, and how any requested incentives address the

161 Order Accepting IPEC Reliability Contingency Plan at 24.

162 Id. The net benefits of the TOTS were calculated as the difference between resource cost savings and the total revenue requirements associated with the projects. Id. at 23.

163 Id. at 24. DPS Staff also “concluded that, even if IPEC is not retired, the benefits of each TOTS project would be greater than its costs individually.” Id.

164 NY Transco Order at P 34.

165 Order No. 679 at P 26.

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risks and challenges faced by the project.”166 Additionally, in its 2012 Policy Statement,
the Commission directed “incentives applicants to first examine the use of risk-reducing
incentives before seeking an incentive ROE based on a project’s risks and challenges.”167

NYPA is only seeking one incentive rate treatment to recover 100% of prudently incurred costs in the event that the MSSC Project is abandoned for reasons outside
NYPA’s control. Consistent with the Commission’s directive in the 2012 Policy
Statement, NYPA is seeking to use a risk-reducing incentive rather than seeking any incentive ROE adders to mitigate the risks of the MSSC Project.

The Abandonment Incentive helps to remove disincentives to undertaking the
MSSC Project by eliminating the risk that lenders and NYPA may have to bear
significant costs incurred if the project is cancelled for reasons outside NYPA’s control.
The Commission has stated that allowing an applicant to recover 100% of prudently
incurred abandoned plant costs where a project is cancelled for reasons outside the
applicant’s control is “an effective means to encourage transmission development by
reducing the risk of non-recovery of costs.”168 The Commission has thus determined that
100% abandoned plant cost recovery is appropriate, for instance, when a project
developer fails to obtain requisite regulatory approvals or obtain necessary rights-of-

way.169

As discussed in detail in Mr. T. Davis’s testimony, the MSSC Project faces a

number of risks that could lead to eventual abandonment.170 In particular, there will be a
number of environmental, regulatory, and siting risks. In order to complete the MSSC
Project, NYPA must successfully secure numerous regulatory permits and approvals, and
must achieve compliance with the conditions imposed in them. First, NYPA is required
to obtain regulatory approvals from the NYPSC under Article VII of the New York State
Public Service Law. Although NYPA has received its certificate of environmental

compatibility under Article VII, Mr. T. Davis explains that NYPA still has the related
obligation to obtain approvals for its plans for environmental management of the
construction phase, including a stormwater pollution prevention plan, a noise study and
traffic plan.171 Failure to get these approvals or related compliance issues could delay the
start of construction and potentially jeopardize the MSSC Project’s slated in-service date
of June 1, 2016.172

166 Order No. 679-A at P 21; 2012 Policy Statement at P 10 (“[T]he Commission will continue to require applicants seeking incentives to demonstrate how the total package of incentives requested is tailored to address demonstrable risks and challenges.”).

167 2012 Policy Statement at P 11.

168 Order No. 679 at P 163; see also NY Transco Order at P 86 (same).

169 See Order No. 679 at P 165; Southern Cal. Edison Co., 129 FERC ¶ 61,246 at P 68 (2009), order denying clarification, 133 FERC ¶ 61,254 (2010), reh’g denied, 134 FERC ¶ 61,200 (2011); Pioneer Transmission, 126 FERC ¶ 61,281 at PP 56, 69, 75.

170 See T. Davis Testimony, Exh. No. PA-101 at 34-37. 171 Id. at 34.

172 Id. at 35.

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Second, NYPA must receive approval of its application before the New York

State Department of Environmental Conservation (“DEC”) for a State Pollutant

Discharge Elimination System Permit (“SPDES Permit”), which is required to begin

construction.173 The SPDES Permit is also subject to the approval of the New York City Department of Environmental Protection, in addition to the DEC.174 In the SPDES
Permit, the DEC may impose environmental and stormwater conditions that NYPA must comply with to construct the MSSC Project.175 Failure to obtain the necessary permits and approvals or inability to comply with the conditions imposed in them could lead to cancellation of the MSSC Project.

Additionally, the accelerated time frame for completion of the MSSC Project by
June 2016 may create further complications. The construction of the MSSC Project must
comply with a highly complicated outage schedule imposed by the NYISO. There is thus
a risk that if construction of the MSSC Project is delayed—due to regulatory approvals or
for any other reason—then this complicated outage schedule will be disrupted and lead to
even further delay.

Furthermore, as noted previously, the MSSC Project is a joint effort between

NYPA and NYSEG, with NYSEG responsible for re-conductoring the 21.8-mile

transmission line from Fraser Substation to Coopers Corners Substation and for installing
one of the series capacitor banks. The full benefits of the MSSC Project are only realized
if both components of the work are completed: NYPA’s series compensation
improvements and NYSEG’s re-conductoring and series compensation improvements.176
Like NYPA, NYSEG faces numerous local, state, and federal requirements that NYSEG
must comply with before the MSSC Project can be completed. These are described in
detail in Mr. T. Davis’s prepared testimony.177 Each of NYSEG’s required permits and
approvals—and any conditions imposed in them—presents risk to the project schedule
and costs and to NYSEG’s successful completion of its portion of the MSSC Project.

If NYSEG was forced to abandon its part of the MSSC Project, NYPA’s share of
the investment would be adversely impacted as the beneficial aspects of the series
compensators would be compromised.178 NYPA could still physically place its portion
of the project in service, but without NYSEG’s component NYPA’s portion of the project
would not be capable of providing the full reliability and congestion benefits anticipated
to result from the MSSC Project.179 As a result, if NYSEG abandons its portion of the
MSSC Project, NYPA could be exposed to the risk that certain parties may argue that

173 Id.

174 Id.
175 Id.

176 Davis Testimony at 35. 177 Id. at 35-38

178 Id. at 37.
179 Id.

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NYPA’s subsequent investment in the MSSC Project was not prudent and is not used and useful in the provision of transmission service by NYISO. This risk could lead to
abandonment of NYPA’s portion of the MSSC Project. Through no fault of its own,
NYPA may have spent considerable permitting, engineering, and construction costs that it should be allowed to recoup.

In light of the significant risks faced by NYSEG and the NY Transco, the

Commission recently granted the Abandonment Incentive to the NY Transco for recovery
of 100% of prudently incurred costs for the TOTS Projects, including the MSSC Project,
finding that “[a]pplicants have demonstrated, we find that approval of the abandonment
incentive will both attract financing for the projects and protect NY Transco from further
losses if any of the projects is cancelled for reasons outside NY Transco’s control.”180
The Commission has thus determined that there is a nexus between the risks of the
NYSEG/NY Transco component of the MSSC Project and the Abandonment
Incentive.181 NYPA’s component of the project faces many of the same risks faced by
NYSEG and the NY Transco and the ultimate success and fate of NYPA’s portion of the
project is tied to the successful completion of the NY Transco’s share of the project. In
light of these risks, it is just and reasonable to grant NYPA’s request for the
Abandonment Incentive.182 The Commission, therefore, should grant the Abandonment
Incentive for the MSSC Project in order to reduce the risk associated with the potential
cancellation of the project for reasons outside of NYPA’s control.

VI. PROPOSED EFFECTIVE DATE OF THE FORMULA RATE

NYPA requests that the Commission accept the Formula Rate effective 60 days after this filing, by September 1, 2015, without suspension or hearing. Alternatively, NYPA requests that the Commission limit the issues set for hearing and impose a
nominal suspension period.

The Commission should accept NYPA’s Formula Rate without suspension,

because the Commission has found that, as a non-jurisdictional utility, “NYPA is not

subject to Commission-imposed rate suspension and refund obligations under section 205

180 See NY Transco Order at P 86.

181 See id. at P 85.

182 It is worth noting that, although NYPA faces many of the same risks as the NY Transco with respect to
the MSSC Project, NYPA is seeking only the Abandonment Incentive to mitigate these risks, while the NY
Transco sought a broader package of incentives with respect to the MSSC Project. After considering the
nexus between various incentives and the MSSC Project, the Commission authorized the NY Transco to
utilize the Abandonment Incentive, as well as a risk-reducing incentive to establish a regulatory asset that
would allow for the deferral and subsequent recovery of all prudently incurred pre-commercial costs not
capitalized as part of the cost of construction, including pre-commercial costs of permitting, and consulting

and legal costs related to the projects. See NY Transco Order at PP 76, 85. Because the Commission found
that this broader package of incentives met the nexus test, because it was narrowly tailored to address the
demonstrable risks of the MSSC Project, it should also find that NYPA’s more limited request for
incentives meets the nexus test, because it is even more narrowly tailored to address virtually equivalent
risks.

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of the FPA.”183 Furthermore, a suspension period would be unnecessary in these
circumstances, because any potential over-collection will be compensated for when
NYPA’s completes its annual true-up of its ATRR.184 As discussed above, FERC
frequently accepts forward-looking formula rates with no more than a nominal
suspension—especially when there is a true-up mechanism in place.185 Additionally,
although NYPA is not subject to Commission order directing payment of refunds, NYPA
will agree to make all appropriate refunds to customers for any collections based on an
ATRR that exceeds what FERC ultimately accepts as just and reasonable. In lieu of
customer-specific refunds, NYPA asks that, for ease of NYISO billing administration,
any refunds be accomplished, with interest, through the annual True-Up mechanism built
into the Formula Rate.186

VII. CONTENTS OF THE FILING

In addition to this Application, which provides a detailed description of the

approvals requested and the bases for those requests, this filing contains the following components:

Appendix A:Clean Version of NYISO OATT;

Appendix B:Redline Version of NYISO OATT;

Appendix C:Direct Testimony of Thomas A. Davis (Exhibit Nos. PA-

101-109);

Appendix D:Direct Testimony of Alan C. Heintz (Exhibit Nos. PA-201-

203);

Appendix E:Direct Testimony of Richard L. Ansaldo (Exhibit Nos. PA-

301-308);

Appendix F:Direct Testimony of Austin O. Davis (Exhibit Nos. PA-

401-403).

183 New York Indep. Sys. Operator, 140 FERC ¶ 61,240 at PP 29, 31 (“In TANC, the court ruled that the

Commission had no authority to order Vernon to pay refunds under section 205 of the FPA. The court held
that the structure of the FPA clearly reflects Congress’s intent to exempt governmental entities and non-
public utilities from the Commission’s refund authority under section 205 of the FPA over wholesale
electric energy sales.”); see also Transmission Agency of N. Cal. v. FERC, 495 F.3d at 673-74; City of
Azusa, Cal., 138 FERC ¶ 61,049 at P 20 (2012) (municipality not subject to Commission-imposed rate
suspension and refund obligations under FPA section 205); City of Pasadena, Cal., 137 FERC ¶ 61,045 at
P 20 (2011) (same).

184 See Heintz Testimony, Exh. No. PA-201 at 5. 185 See supra note 70.

186 Notwithstanding its commitments made here in the instant Formula Rate filing, NYPA, as a municipal
entity, does not waive its non-jurisdictional status under Part II of the FPA. 16 U.S.C. § 824(f); see also
supra note 10.

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VIII. ADVANCED TECHNOLOGY STATEMENT

Order No. 679 requires the submission of a technology statement that describes
the advanced technologies considered and an explanation if advanced technologies are
not to be employed. NYPA does not specifically seek an advanced technology incentive;
however, NYPA will utilize advanced technologies in the development of the MSSC
Project. For example, the series capacitors that will be installed at NYPA’s Fraser
Substation will utilize newly developed technology in the components that are used to
bypass the series capacitor, namely the CapThor fast bypass device. The CapThor not
only protects the series capacitor it also provides improved operability, allowing for the
capacitor to be bypassed in less than five milliseconds if certain system conditions arise.
This is the fourth commercial SC project using CapThor technology in North America
and the second in the United States. In all cases, NYPA will emphasize good utility
practice and efficient engineering design and construction practices when developing the
MSSC Project.

IX.REQUESTED WAIVERS

Based on its status as a non-jurisdictional utility, NYPA respectfully requests that it be exempt from compliance with any requirements of section 35.13 of the
Commission’s regulations not otherwise satisfied by this filing.187 In the event any
additional waivers are required in connection with this filing, NYPA respectfully requests that the Commission grant such waivers.

X.CORRESPONDENCE AND COMMUNICATIONS

The following persons are authorized to receive notices and communications with

respect to the filing of this OATT:

Gary D. Bachman
Justin P. Moeller*
Hayley J. Fink

Van Ness Feldman, LLP

1050 Thomas Jefferson Street, NW Seventh Floor

Washington, DC 20007

Telephone: (202) 298-1800 Facsimile: (202) 338-2361 gdb@vnf.com

jpx@vnf.com
haf@vnf.com

NYPA respectfully requests that the individuals identified above with an asterisk be

placed on the Commission’s official service list in this proceeding and be designated for service pursuant to Rule 2010.188

XI.CONCLUSION

For the reasons set forth above, NYPA requests that the Commission accept for filing the Formula Rate filed herewith effective September 1, 2015. NYPA also requests that the Commission grant the requested authorizations for NYPA to utilize the
Abandonment Incentive and RTO Participation Adder as requested herein.

Respectfully submitted,

/s/Gary D. Bachman

Gary D. Bachman
Justin P. Moeller
Hayley J. Fink

Van Ness Feldman, LLP

1050 Thomas Jefferson Street, NW Seventh Floor

Washington, DC 20007

Telephone: (202) 298-1800
Facsimile: (202) 338-2361

Counsel for the New York Power Authority

Attachments: Appendices A-F

18818 C.F.R. § 385.2010. To the extent necessary, NYPA requests waiver of Rule 2010(k) so as to allow the individuals indicated above to be placed on the official service list.

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