September 14, 2010

The Honorable Kimberly D. Bose Secretary

Federal Energy Regulatory Commission 888 First Street, NE

Washington, DC 20426

Re: National Grid

Docket No. ER10-___-000

Purchase and Sale Agreement between

Niagara Mohawk Power Corporation d/b/a National Grid and Luther Forest Technology Campus Economic Development
Corporation

Dear Secretary Bose:

Pursuant to Section 205 of the Federal Power Act (“FPA”)1 and Part 35 of the
Commission’s regulations,2 Niagara Mohawk Power Corporation d/b/a National Grid
(“National Grid”) submits for Commission acceptance the Purchase and Sale Agreement
(“PSA”) between National Grid and the Luther Forest Technology Campus Economic
Development Corporation (“Luther Forest EDC”) (together, the “Parties”).3 The relevant
provisions of the PSA concern the sale of four new 115 kV transmission service lines and
a 115 kV substation, plus property and rights of way, from the Luther Forest EDC to
National Grid. National Grid respectfully requests that the Commission make the PSA
effective as of September 9, 2010.4

date the transmission facilities to be sold from the Luther Forest EDC to National Grid
will be energized and used for Commission-jurisdictional transactions. In these
circumstances, Commission precedent provides that the transfer is not subject to
Commission approval pursuant to Section 203 of the FPA (16 U.S.C. § 824b). See, e.g.,
PacifiCorp, 132 FERC ¶ 61,018, at P 20 (2010) (“The transfer of ownership in
transmission facilities not yet in service are not subject to the Commission jurisdiction
under section 203 of the FPA.”); Entergy Mississippi, Inc., 117 FERC ¶ 61,200, at PP 22-

23 (2006) (“We agree that the disposition of the facilities takes place before the facilities

The Honorable Kimberly D. Bose September 14, 2010

Page 2

I.Background

Niagara Mohawk Power Corporation, a subsidiary of National Grid USA, is a public utility subject to the Commission’s jurisdiction that owns transmission facilities located in the State of New York. National Grid’s high-voltage New York transmission facilities have been placed under the operational control of the New York Independent System Operator, Inc. (“NYISO”).

The Luther Forest EDC is a subsidiary of the Saratoga Economic Development Corporation, which is a private, not-for-profit corporation formed for the specific public purpose of promoting job creation and retention in Saratoga County, New York. The Luther Forest EDC receives funding from the State of New York, including $37 million dedicated to electric transmission infrastructure improvements at the Luther Forest
Technology Campus (“Technology Campus”).

The Technology Campus is designed to be an innovative technology center and a
significant employment opportunity for central New York. The Technology Campus
consists of facilities and land covering over 1,300 acres in Saratoga County. The
Technology Campus is intended to satisfy the special needs of facilities used to conduct
research regarding nanotechnology and for the manufacturing of nanotechnology
products (specifically, semiconductor wafers that are manufactured within a “clean
room” environment). The Luther Forest EDC has a commitment from GlobalFoundries
to build a computer chip plant at the campus, and that plant is currently under
construction. The overall project is a $4.2 billion capital investment that is designed to
create almost 1,500 high-tech jobs and generate $90 million per year in regional
household earnings. The supply chain development is likely to create an additional 5,000
jobs in the region. The project is widely considered one of the most significant economic
development projects in New York State history.

The nanotechnology focus of the Luther Forest Technology Campus results in

unique electric power needs. Specifically, the Technology Campus is designed to have a
redundant electric supply from separate grids to increase reliability. To that end, the
Luther Forest EDC constructed four new 115 kV transmission service lines and a 115 kV
substation to connect the Technology Campus to National Grid’s transmission system.
These new 115 kV transmission lines enter the campus in opposite directions to connect
the campus to the National Grid transmission system in two different locations. The
transmission lines create a high-voltage looped network which connects the eastern and
western networks in National Grid’s New York transmission system which are not
currently connected in the vicinity of the Technology Campus. The Luther Forest EDC
also acquired property and rights of way needed to construct these facilities.

become jurisdictional. Thus, we will grant rehearing and not require that the Lease Agreement be filed under Section 203.”).

The Honorable Kimberly D. Bose September 14, 2010

Page 3

The Luther Forest EDC employed professional engineering and construction

companies to design and construct the new transmission facilities in accordance with

standards established by National Grid and with Good Utility Practice. The Luther Forest
EDC desired to have National Grid perform design review, permitting services, and
construction inspection and acceptance testing services in connection with this project.
National Grid agreed to do so pursuant to the terms and conditions of an Engineering,
Permitting and Construction Services Agreement (“EPC Services Agreement”) between
National Grid and the Luther Forest EDC, which was filed with and accepted by the
Commission in 2009.5

The EPC Services Agreement accepted by the Commission noted that the Luther Forest EDC intended to transfer the four new 115 kV transmission service lines and the new 115 kV substation to National Grid under a separate transfer agreement upon
completion of the project.6 The PSA is the separate agreement by which these facilities will be transferred from the Luther Forest EDC to National Grid.

II.Notable Provisions of the PSA

The PSA sets forth the terms and conditions for the transfer of land and assets

from the Luther Forest EDC to National Grid, including the transfer of four new 115 kV
transmission service lines and the new 115 kV substation. The PSA also sets forth the
terms and conditions of various easements to be conveyed to National Grid in connection
with the transfer. The PSA states that National Grid will pay the Luther Forest EDC a
purchase price of one dollar ($1.00) for the project.7 Pursuant to Section 1.3 of the PSA,
National Grid will also pay the federal and state income taxes assessed on the difference
between the purchase price and the fair market value of the transferred assets.

Section 1.8 establishes the terms and conditions for obtaining regulatory

approvals related to the PSA and the transactions contemplated therein. This provision establishes that the terms and conditions of the PSA are contingent upon regulatory approvals being granted.

Section 2.1 of the PSA establishes a series of closing dates for property to be

transferred under the PSA. These phased closing dates allow the initial transmission

facilities to be transferred in September 2010 to permit testing of certain customer plants being constructed at the Technology Campus while the construction of other facilities to be transferred under the PSA is still being completed.

Other provisions of the PSA address representations and warranties, liability and
indemnification, and other standard provisions in commercial agreements of this nature.

The Honorable Kimberly D. Bose September 14, 2010

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III.Cost-Related Issues

While the construction of transmission projects by a customer that are then

transferred to a utility for a nominal fee of $1 can raise issues under the Commission’s
transmission pricing policies, both the Commission and interested parties should
recognize that this PSA does not involve any facilities constructed by a customer. The
Luther Forest EDC is not now - and will not in the future be - a wholesale customer of
National Grid or an entity taking transmission service from National Grid.8 The Luther
Forest EDC is a nonprofit economic development entity which is the vehicle through
which the State of New York is promoting the addition of new industries in New York
and new employment opportunities for the citizens of the State. The construction of the
four new 115 kV transmission service lines and the new 115 kV substation was funded
by the State of New York through the Luther Forest EDC. The state funding provided to
the Luther Forest EDC to construct the infrastructure needed to attract new industries to
the State of New York is analogous to the funding of projects provided pursuant to the
American Recovery and Reinvestment Act of 2009.9

The funding of these transmission facilities by the State of New York will result
in benefits to all customers that use National Grid’s New York transmission system. The
parallel eastern and western networks in National Grid’s New York transmission system
are not currently connected in the vicinity of the Technology Campus. Customers will
receive reliability benefits resulting from the creation of new, looped transmission
facilities connecting these eastern and western networks. As such, the funding of these
transmission facilities by the State of New York and the transfer of these facilities to
National Grid under the PSA will provide customer reliability benefits.

Even if the Commission were to treat the Luther Forest EDC as a customer of
National Grid, the terms of the transfer contemplated by the PSA do not contravene the
Commission’s transmission pricing policies.10 The Commission has explained that its
relevant transmission pricing policies are based on the following three goals: “(1) to hold
native load customers harmless, (2) to provide the lowest reasonable cost-based price to
third-party firm transmission customers, and (3) to prevent the collection of monopoly
rents by transmission owners and promote efficient transmission decisions.”11 The
arrangement described above is consistent with all three goals. First, the arrangement
protects native load by ensuring that the rest of National Grid’s customers do not pay the

The Honorable Kimberly D. Bose September 14, 2010

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capital costs of the Luther Forest EDC transmission facilities. These customers will

enjoy the additional benefits of the new looped network facilities without bearing the full cost of such facilities. Second, the arrangement will provide low-cost service to third-
party customers. Even though a company that locates to the Technology Campus will be a retail customer rather than a third-party wheeling customer, the goal of providing the lowest reasonable cost-based price will be respected due to the direct assignment of costs of the project to the Luther Forest EDC, which is a willing, state-funded, not-for-profit entity. Third, the arrangement will prevent the collection of monopoly rents because the capital costs of the transmission facilities will be paid by the Luther Forest EDC with the funding it receives from the State of New York.

In addition, the arrangement set forth above does not violate the Commission’s policy against “and” pricing.12 National Grid will not charge customers for the same facilities on both an incremental basis and an embedded basis. To the contrary, these pricing terms are consistent with Commission precedent that permits the direct
assignment of costs for higher levels of service.13

National Grid believes it is appropriate to provide the Commission and other

parties with information on the future rate implications of the transfer contemplated by

the PSA. The capital costs of the four new 115 kV transmission service lines and the new 115 kV substation will not be included in National Grid’s transmission rates. Instead, the $1 purchase price will be included in National Grid’s wholesale transmission revenue
requirement. In the event that National Grid incurs an impact associated with income
taxes due to the transfer, National Grid intends to recover such costs in its New York
wholesale Transmission Service Charge (“TSC”) formula rate, which is set forth in
Attachment H to the NYISO OATT, and in its retail rate, which is regulated by the New
York Public Service Commission.

Under Attachment H to the NYISO OATT and the settlement agreement

concerning National Grid’s New York TSC formula rate accepted by the Commission in
Docket No. ER08-552 on July 22, 2009, National Grid recalculates the inputs to the TSC
formula rate by June 14th of each year. This annual update is posted on the NYISO
website and served on interested parties. Interested parties then have up to 150 days after
the publication date to review the annual update and make any challenges to the annual
update. Attachment H also sets forth a detailed process for resolving any challenges to
the annual update. To the extent any of National Grid’s TSC customers have any
questions about the inclusion of any costs related to the Luther Forest EDC transmission

The Honorable Kimberly D. Bose September 14, 2010

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facilities in National Grid’s transmission rates, the Attachment H annual update process will provide those customers with the appropriate forum to raise such questions.

The Commission should find that the arrangements set forth in the PSA are just and reasonable and should accept the PSA as filed.

IV. Effective Date and Request for Waiver of Prior Notice Requirement

National Grid respectfully requests waiver, pursuant to Section 35.11 of the

Commission’s regulations (18 C.F.R. § 35.11), of the 60-day prior notice requirement set
forth in Section 35.3 of the Commission’s regulations (18 C.F.R. § 35.3), in order to
permit the PSA to become effective as of September 9, 2010, i.e., the date that the PSA
was executed by the Parties. National Grid is authorized to state that the Luther Forest
EDC supports the waiver and the requested effective date. This effective date is
necessary and appropriate to facilitate the schedule to bring new industries to the
Technology Campus notwithstanding the fact that certain terms in the PSA took slightly
longer than originally anticipated to finalize. Specifically, the requested September 9
effective date will allow the initial transfer of transmission facilities under the PSA to go
into effect prior to the date that those transmission facilities were energized, September
10, 2010. Allowing the transfer of these transmission facilities prior to energization will
ensure compliance with New York state law, which prevents other entities from serving
retail customers in National Grid's service territory.

No harm will result to any entity from the September 9, 2010 effective date for
the PSA. Indeed, customers will benefit from the requested effective date. Once the
initial transfer of transmission facilities to National Grid has occurred and the facilities
are energized, the industrial retail customers at the Technology Campus will be able to
proceed with testing of their own facilities, consistent with a schedule which will allow
these customers to commence full commercial operations early in 2012. As noted above,
once all of the transferred transmission facilities are energized, all of National Grid’s
customers in New York will enjoy reliability benefits resulting from the creation of new,
looped transmission facilities connecting eastern and western networks in National Grid’s
New York transmission system which are not currently connected in the vicinity of the
Technology Campus.

For all these reasons, granting the requested waiver is appropriate. National Grid does not, however, request that the Commission issue an order accepting the PSA on an expedited basis.

V. Service Agreement Designation of the PSA

Pursuant to the Commission’s directives in Electronic Tariff Filings, Order No.

714, FERC Stats. & Regs. ¶ 31,276 (2008), and consistent with NYISO practice, National
Grid has designated the PSA as Service Agreement No. 1631 under the NYISO OATT.

The Honorable Kimberly D. Bose September 14, 2010

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VI.Attachments

In addition to this transmittal letter, the instant filing includes the following attachment:

Attachment APurchase and Sale Agreement between National Grid and the

Luther Forest Technology Campus Economic Development Corporation

VII. Communications and Service

Communications regarding this filing should be addressed to the following

individuals, whose names should be entered on the official service list maintained by the Secretary with respect to this docket:

Daniel Galaburda
National Grid USA

Service Company, Inc.

40 Sylvan Road

Waltham, MA 02451 (781) 907-1847

daniel.galaburda@us.ngrid.com

William Malee

Sean A. Atkins

Bradley R. Miliauskas Alston & Bird, LLP The Atlantic Building 950 F Street, NW

Washington, DC 20004 (202) 756-3300

sean.atkins@alston.com
bradley.miliauskas@alston.com

The Honorable Kimberly D. Bose September 14, 2010

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Copies of this filing have been served upon the Luther Forest EDC, the New York Public Service Commission, and the NYISO.

Please contact the undersigned with any questions. Thank you for this assistance in this matter.

Respectfully submitted,

/s/ Dan Galaburda___________

Daniel Galaburda

National Grid

__________________________ Sean A. Atkins

Bradley R. Miliauskas
Alston & Bird LLP

Counsel for Niagara Mohawk Power
Corporation, d/b/a National Grid