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MICHAEL J. MESSONNIER, JR.
DIRECT DIAL: 804-788-8712
EMAIL: mmessonnier@hunton.com

November 20, 2012

By Electronic Delivery

Kimberly D. Bose, Secretary

Federal Energy Regulatory Commission 888 First Street N.E.

Washington, D.C. 20426

Re: New York Independent System Operator, Inc.’s

Proposed Tariff Revisions Regarding a Blind Trust Mechanism; Docket No. ER13_______

Dear Ms. Bose:

Pursuant to Section 205 of the Federal Power Act,1 the New York Independent System
Operator, Inc. (“NYISO”) hereby submits proposed revisions to the rules governing
“prohibited investment” by its directors, employees, their spouses and their minor children
(“NYISO Employees”). These rules are set forth in the NYISO’s Independent System
Operator Agreement (“ISO Agreement”) and its Open Access Transmission Tariff (“OATT”).2
The proposed revisions will establish a blind trust mechanism to provide NYISO Employees
who hold the securities of certain market participants or their affiliates with an alternative to
divestiture while preserving the NYISO’s independence.3 The NYISO requests that the
Commission waive its usual 60 day notice period and make this blind trust mechanism
effective on January 1, 2013, so that it will be part of the NYISO’s compliance program at the
start of the calendar year.

The NYISO’s tariffs and agreements generally prohibit a NYISO Employee from

holding the securities of a market participant or its affiliates and require divestiture of any such

1 16 U.S.C. § 824d.

2 Capitalized terms that are not otherwise defined herein shall have the meaning specified in Article 1 of the OATT and Article 2 of the NYISO Market Administration and Control Area Services Tariff.

3 The term “securities” is defined in Section 12.7.1 to Attachment F of the NYISO OATT as referring to “stocks, stock options, bonds and any other instruments of debt or equity.”

ATLANTA AUSTIN BANGKOK BEIJING BRUSSELS CHARLOTTE DALLAS HOUSTON LONDON LOS ANGELES
McLEAN MIAMI NEW YORK NORFOLK RALEIGH RICHMOND SAN FRANCISCO WASHINGTON

www.hunton.com

Kimberly D. Bose, Secretary November 20, 2012

Page 2

prohibited investments within six months. Since this restriction was imposed at the start of

NYISO operations, the NYISO-administered markets have evolved and expanded significantly
to include a much greater number and wider range of market participants. Over time, the list of
securities that are prohibited investments for NYISO Employees has grown to include several
hundred publicly-traded companies, including many that are not primarily engaged in the
electric sector and whose NYISO market activities are de minimis in relation to the companies’
overall business activities. As a result, this blanket restriction has grown to present a possible
impediment to recruiting and retaining the most qualified directors and employees.
Furthermore, this restriction can cause unreasonable financial harm to a NYISO Employee who
is required to divest the securities of a company that does not present a meaningful conflict of
interest concern, especially when the securities become prohibited investments as a result of an
unforeseen change in circumstances.

The NYISO proposes to provide NYISO Employees with the option of placing certain,
qualifying investments in a single blind trust as an alternative to divesting them. The
Commission has previously accepted the adoption of a similar blind trust mechanism by the
Midwest Independent Transmission System Operator, Inc. (“Midwest ISO”), finding that a
blind trust is consistent with its independence requirements for independent system operators
(“ISOs”).4 To further assure the independence of the NYISO and NYISO Employees, the
NYISO’s proposed blind trust mechanism includes a substantial additional measure of
protection. The blind trust will only be available for use with the securities of companies that
are not primarily engaged in the electric sector and whose NYISO market activities are de
minimis in comparison to their overall business activities. The financial condition of these
companies cannot, therefore, be materially impacted by NYISO actions. The proposed
revisions were approved by the NYISO’s stakeholder Management Committee on November 2,
2012, and by the NYISO Board of Directors on November 19, 2012.

I.List of Documents Submitted

The NYISO submits the following documents:

1. This filing letter;

2. A clean version of the proposed revisions to the ISO Agreement (“Attachment I”);
and

3. A blacklined version of the proposed revisions to the ISO Agreement (“Attachment
II”).

4 See Midwest Independent Transmission System Operator, Inc., Order Accepting Tariff Revisions, 115 FERC ¶ 61,255 at P. 11 (May 26, 2006) (“Midwest ISO Blind Trust Order”).

Kimberly D. Bose, Secretary November 20, 2012

Page 3

The NYISO’s proposed revisions to the ISO Agreement are part of a package of

revisions to the rules governing prohibited investments in the NYISO OATT and ISO

Agreement. Earlier today, the NYISO submitted the proposed revisions to the NYISO OATT. As stated in that filing, the NYISO is making this supplemental filing because the NYISO is unable to electronically submit its proposed revisions to the ISO Agreement at the same time as it electronically submits proposed revisions to the NYISO OATT due to technical restrictions imposed by the eTariff system. This filing letter, with the exception of this Section I, is
identical to the filing letter submitted earlier today.

II.Copies of Correspondence

Copies of correspondence concerning this filing should be served on:

Robert E. Fernandez, General Counsel
Raymond Stalter, Director of Regulatory Affairs
New York Independent System Operator, Inc.

10 Krey Boulevard

Rensselaer, NY 12144
Tel: (518) 356-6000
Fax: (518) 356-4702
rfernandez@nyiso.com
rstalter@nyiso.com

* -- Persons designated for service.

*Ted J. Murphy

Hunton & Williams LLP
2200 Pennsylvania Avenue, NW Washington, D.C. 20037
Tel: (202) 955-1500

Fax: (202) 778-2201
tmurphy@hunton.com

*Kevin W. Jones5

Michael J. Messonnier, Jr. Hunton & Williams LLP 951 East Byrd Street

Richmond, VA 23219
Tel: (804) 788-8200
Fax: (804) 344-7999
kjones@hunton.com

mmessonnier@hunton.com

Kimberly D. Bose, Secretary November 20, 2012

Page 4

from having a financial interest in a market participant or its affiliate. The purpose of this

prohibition is to ensure that NYISO Employees are independent of and do not have a financial incentive to favor any market participant.6

A NYISO Employee can come to hold the securities of a market participant or its

affiliate through a variety of circumstances. For example: (i) a NYISO Employee may have
obtained the securities before joining the NYISO; (ii) a NYISO Employee may involuntarily
acquire the securities as a gift or inheritance; (iii) a company in which a NYISO Employee
owns securities, or its affiliate, may become a NYISO market participant; or (iv) a company in
which a NYISO Employee holds securities may become affiliated with a NYISO market
participant through a merger or other corporate organizational change. Under any of these
circumstances, a NYISO Employee is required under the current rules to divest the prohibited
securities within six months.7

B. Impact of the Evolution of the NYISO’s Markets

The number and nature of NYISO market participants have expanded substantially

since the NYISO began operations in 1999 when the current prohibited investment

requirements were established. The number of NYISO market participants has risen from 119
in 2000 to over 350 today. NYISO market participants and affiliates now include a wide range
of companies, including many whose primary business activities are outside the electric sector
and have only limited involvement in the NYISO markets. These include large commercial
and industrial companies that participate solely in the NYISO’s demand response programs and
large financial institutions with subsidiaries that participate in certain aspects of the NYISO’s
markets.

Currently, NYISO market participants and their affiliates number several thousand

companies. The identities of these companies change frequently as entities enter and withdraw
from the NYISO’s markets and as the compositions of corporate families change. Of these
market participants and affiliates, several hundred issue publicly-traded securities, including
some of the most widely-held securities. As the list of prohibited investments has grown to
include companies not traditionally engaged in the electric sector and companies with only a de
minimis interest in the NYISO markets relative to their overall business activities, the NYISO’s
prohibited investment rules risk harming the NYISO’s ability to recruit and retain the most
qualified NYISO Employees. In addition, these rules have the potential to cause unnecessary
financial harm to a NYISO Employee who is required to divest securities that do not present
any real conflict of interest concern.

6 NYISO Employees must certify to the NYISO each year that they do not have a prohibited financial interest in a market participant or its affiliates.

7 OATT Attachment F § 12.7.2.

Kimberly D. Bose, Secretary November 20, 2012

Page 5

IV.Description of Proposed Tariff Revisions

A.The NYISO’s Proposed Blind Trust Mechanism

The NYISO proposes to revise Sections 12.7.1, 12.7.2, and 12.14 of Attachment F of
the OATT and Section 5.01 of the ISO Agreement to establish a blind trust mechanism to
provide NYISO Employees that hold the securities of certain qualifying market participants or
their affiliates with an alternative to divestiture.8 The blind trust mechanism requires an
independent third party to have full managerial discretion over a trust’s holdings. The trust
beneficiary - the NYISO Employee - would not have control over or visibility into the
holdings of the trust.

Upon request, the NYISO will determine whether a company’s securities qualify for
placement into a blind trust as an alternative to divestiture. A company’s securities will be
eligible for the blind trust option if the company is not primarily engaged in the electric sector
and its activity in the NYISO markets is de minimis in relation to its overall business activities
such that its financial condition cannot be materially impacted by NYISO actions.
Specifically, a company’s securities will qualify if: (i) the company is not classified as an
electric power company under the North American Industry Classification System (NAICS),9
and (ii) the company’s (or its affiliate’s) total participation in the NYISO’s markets during the
company’s most recently completed fiscal year constituted less than 0.5% of the company’s
gross revenues in that year.10

If a company satisfies the proposed two-part test, a NYISO Employee may elect either
to place those securities into a single blind trust or to divest them. The NYISO will update this
analysis annually using the most recently available financial data. If, as part of the annual
review, the NYISO determines that a company no longer satisfies the two-part test, then any of
its securities that were still held within a blind trust would have to be divested by the trustee.

8 A NYISO Employee will not be permitted to obtain the securities of an existing market participant or affiliate for purposes of placing the securities in a blind trust.

9 The NAICS was developed and is used by government agencies to classify businesses for multiple purposes, including collecting, analyzing, and publishing statistical data. The NAICS’s “Electric Power Generation,
Transmission, and Distribution” industry group (2211) includes companies that generate electric power (22111), transmit electric power (221121), distribute electric power (221122), or operate as electric power brokers or agents to arrange the sale of electric power via distribution systems (221122).

10 A company’s total participation in the NYISO’s markets is equal to the sum total of the absolute value of all of its purchases and sales during the most recently completed year.

Kimberly D. Bose, Secretary November 20, 2012

Page 6

B.The Commission Has Determined That a Blind Trust Mechanism Is Consistent

with its Independence Requirements

In its Order No. 888, the Commission established that an ISO must be independent of
its market participants.11 As its ISO principle number 2, the Commission stated that: “An ISO
and its employees should have no financial interest in the economic performance of any power
market participant. An ISO should adopt and enforce strict conflict of interest standards.”

The NYISO’s proposed blind trust mechanism is consistent with the Commission’s
independence requirements for ISOs. The Commission has previously accepted the adoption
of a similar blind trust mechanism by the Midwest ISO.12 The Commission found that a blind
trust mechanism does not violate the Commission’s independence requirements because an
independent third party has sole discretion over the employee’s holdings and the employee
cannot be certain of the holdings in the trust.13 For this reason, an employee does not have a
financial incentive to favor a particular market participant or class of market participants.

Furthermore, the NYISO’s proposed blind trust mechanism includes an additional safeguard to protect the independence of NYISO Employees. The NYISO’s proposal does not permit use of the blind trust for the securities of companies that are primarily engaged in the electric sector or whose financial condition could be materially impacted by NYISO actions. The Commission, therefore, should accept the proposed blind trust mechanism as a reasonable approach to
promote the NYISO’s ability to recruit and retain the most qualified directors and employees and to prevent unnecessary financial harm to NYISO Employees.

V. Proposed Effective Date and Request for Waiver

The NYISO respectfully requests that the Commission waive its usual sixty-day notice
period and make this filing effective no later than January 1, 2013, pursuant to Section 35.11 of
the Commission’s regulations.14 Good cause exists for the Commission to grant the requested
waiver. The January 1, 2013, effective date will ensure that the blind trust mechanism is a part
of the NYISO’s compliance program at the start of the upcoming calendar year and will be in
place as the NYISO moves into the final phases of its new director search process. As

described below, the NYISO’s proposed revisions have been reviewed and approved by the NYISO’s stakeholders and Board with broad support.

11 See Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities and Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Order No. 888, FERC Stats. & Regs. ¶ 31,036, at 31,730-32 (1996).

12 Midwest ISO Blind Trust Order at P 11.

13 See id.

14 18 C.F.R. § 35.11.

Kimberly D. Bose, Secretary November 20, 2012

Page 7

VI.Requisite Stakeholder Approval

The tariff revisions proposed in this filing were discussed with stakeholders in the

September 20, 2012, Business Issues Committee meeting and the October 4, 2012, Market

Issues Working Group. The tariff revisions were approved by show of hands with abstentions at the October 17, 2012, Business Issues Committee meeting. At the November 2, 2012,
Management Committee, the tariff revisions were approved by stakeholders with only a single no vote. On November 19, 2012, the NYISO Board of Directors approved the proposed tariff revisions for filing with the Commission.

VII. Service List

This filing will be posted on the NYISO’s website at www.nyiso.com. In addition, the
NYISO will e-mail an electronic link to this filing to the official representative of each party
to this proceeding, to each of its customers, to each participant on its stakeholder committees,
to the New York Public Service Commission, and to the New Jersey Board of Public Utilities.

VIII. Conclusion

WHEREFORE, for the foregoing reasons, the New York Independent System Operator,
Inc. respectfully requests that the Commission accept the proposed tariff changes identified in
this filing.

Respectfully submitted,

Michael J. Messonnier, Jr.

Michael J. Messonnier, Jr. Counsel for

New York Independent System Operator, Inc.

cc:Travis Allen

Michael A. Bardee
Gregory Berson
Anna Cochrane
Jignasa Gadani
Morris Margolis
Michael McLaughlin
Joseph McClelland
Daniel Nowak
David Morenoff