State Public Service Commission filing with Federal Energy Regulatory Commission

7/29/2019 State Public Service Commission filing with Federal Energy Regulatory Commission

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STATE OF NEW YORK DEPARTMENT OF PUBLIC SERVICETHREE EMPIRE STATE PLAZA, ALBANY, NY 12223-1350

www.dps.ny.gov

PUBLIC SERVICE COMMISSIONAUDREY ZIBELMAN PETER :\fcGOWANGeneral CounselhairPATRICIA L ACAMPORAGARRY A. BROWN KATHLEEN H. BURGESSGREGG C. SAYRE SecreiaryDIANE X. BURMANCommissioners

September 12, 2013

SENT VIA ELECTRONIC FILING Kimberly D. Bose, Secre ta ry Federa l Energy Regulatory Commission 888 F i r s t St r e e t , N.E. Room 1-A209 Washington, D.C. 20426

Re: Docket No. ER13 1380-000 - New York IndependentSystem Operator , Inc .Dear Secre ta ry Bose:

For f i l i ng , please f ind the Request fo r Rehear ingand Cla r i f i c a t i on o f the New York S ta t e Publ ic Serv iceCommission in the above-en t i t l ed proceeding. The p a r t i e shave also been provided with a copy o f t h i s f i l i ng , asind ica ted in the a t tached Ce r t i f i c a t e of Service . Shouldyou have any ques t ions , p lease fee l f ree to con tac t me a t(518) 473-8178.

Very t r u ly yours ,

Ass is tan t CounselAttachmentcc: Serv ice Li s t
http:///reader/full/www.dps.ny.govhttp:///reader/full/www.dps.ny.gov


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UNITED STATES OF AMERICA BEFORE THE

FEDERAL ENERGY REGULATORY COMMISSION

New York Independent System Docket No. ERI3-1380-000Operator , Inc .

REQUEST FOR REHEARING AND CLARIFICATION OF THE NEW YORK STATE

PUBLIC SERVICE COMMISSION

BACKGROUND On Apri l 30, 2013, th e New York Independent System

Operator , Inc . (NYISO) f i l ed proposed t a r i f f rev i s ions toe s t a b l i sh a New Capaci ty Zone (NCZ) (NCZ F i l i n g ) . The NCZFi l ing exp la ined t h a t the NYISO had i den t i f i ed a cur ren t Highwayde l ive r a b i l i t y cons t ra in t dr iv ing the need to c rea te an NCZ inNYISO Load Zones G, H, I , and J . 1 The asse r t ed purpose of t h i sNCZ i s to induce developers of genera t ion to bu i ld f a c i l i t i e swith in the new zone to address the i den t i f i ed co n s t r a in t .

The NCZ Fi l ing a l so reques ted t h a t the Federal EnergyRegula tory Commission (FERC or Commission) accep t the NYISO'sprev ious ly proposed market power mit iga t ion ru les app l icab le tothe NCZ. The NYISO plans to implement the NCZ by May I , 2014,to coincide with the s t a r t of the 2014/2015 Capab i l i ty Year.

Capi ta l ized terms t h a t a re not o therwise def ined here in haveth e meaning s e t fo r th in the NCZ Fi l ing , the NYISO Serv icesTa r i f f , o r the NYISO Open Access Transmission Ta r i f f .

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On May 21, 2013, th e New York S ta t e Publ ic Serv iceCommission (NYPSC) submit ted its t imely Notice o f In te rven t ionand P r o t e s t to the NCZ Fi l ing (NYPSC P ro t e s t ) . The NYPSCopposed th e NCZ Fi l ing because it d id no t recognize th e S t a t e ' songoing compet i t ive procurement processes t h a t would address thesame de l ive r a b i l i t y co n s t r a in t i de n t i f i e d by th e NYISO, withinth e same per iod t h a t th e NYISO seeks to impose th e NCZ. Inl i g h t of these S ta t e processes , th e NYPSC main ta ined t h a t th epr ice s igna l from th e NCZ would n ot be e f f e c t i v e i n incent ingnew genera t ion over th e shor t - te rm, s ince supp l ie r s would belooking to th e pr ice s igna l s t h a t r e s u l t from th e S t a t e ' si n i t i a t i v e s and not th e shor t - te rm pr ice sp ikes assoc ia ted withimplementing th e NCZ a t t h i s t ime. This pr ice sp ike w i l lrequ i re ra tepayers to pay hundreds o f mil l ions of d o l l a r s inunjus t and unreasonable inc reased Ins t a l l e d Capaci ty (ICAP)co s t s . In add i t ion , the NYPSC advocated fo r a mechanism fo rdetermining when the NCZ i s no longer necessary and should bee l imina ted . The NYPSC fu r the r opposed th e NYISO's proposedmit iga t ion measures fo r any new en t ran t s in t h i s NCZ, whichwould l i ke ly have th e e f f e c t o f d e t e r r i n g new en t ry t h a t th e NCZi s supposedly designed to i ncen t .

On August 13, 2013, FERC i ssued an Order accep t ing theNCZ Fi l ing and es t ab l i s h in g a t echn ica l conference to di scusswhether o r not to model Load Zone K as an expor t -cons t ra ined

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zone fo r a fu ture Demand Curve r e se t proceeding (August 2013Order) .2 The August 2013 Order dismissed the NYPSC's argumentsre l a t ed to the shor t - te rm i ne f fec t iveness o f pr ice s igna l s inth e NCZ, and the concomitant windfa l l in ICAP revenues t h a twould be ex t rac t ed from r a tepaye r s . As FERC s t a t ed , "[b]ecausethe n e t cos t of new en t ry in th e new capac i ty zone i s higherthan in th e Res t -o f -S ta t e , the new capac i ty zone needs its ownICAP Demand Curve, r e f l e c t i n g i t s higher ne t cos t o f new en t ry ,in orde r to send the necessary pr i ce s igna l s over the long runand provide the h igher capac i ty revenue over th e long run neededto encourage new investment. , ,3

In add i t i on , FERC's August 2013 Order r e jec ted theNYPSC's r eques t to inc lude a mechanism fo r determining when theNCZ i s no longer necessary and should be e l imina ted . Inre j ec t ing t h i s argument, FERC determined t h a t the NYISO shouldwork with its s takeholders to determine i f a mechanism fo re l imina t ing the NCZ i s "deemed necessary ," and if so, " f i l eappropr ia te t a r i f f rev i s ions with the Commission.,,4 TheCommission a l so found t h a t the NYPSC's arguments with re spec t to

2 Docket No. ER13-1380, New York I n d e ~ p d e n t System Opera tor ,I n c . , Order Accept ing Proposed T ar i f f Revisions andEstabl i sh ing a Technica l Conference, 144 FERC ,61,126 ( issuedAugust 13, 2013) (August 2013 Order) .

3 August 2013 Order , '2 6 (emphasis added) .4 August 2013 Order , ,82 .

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the NCZ mit iga t ion measures were beyond th e scope o f t h i sproceed ing .

REQUEST FOR REHEARINGThe NYPSC reques ts rehear ing o f the August 2013 Order

pursuant to Rule 713 of the Commission/s Rules of Prac t ice andProcedure . s As discussed more fu l l y below 1 th e August 2013 Ordercon ta ins numerous mischa rac te r i za t ions and i n co r r ec t s ta tementsregarding the NYPSC/s Pro tes t l which led th e Commission to makeerroneous conclus ions .

Th e NYPSC urges th e Commission to r e v i s i t the NYPSC/sarguments and to proper ly account fo r th e NYPSC/s on-goingi n i t i a t i v e s t h a t car ry o ut New York Governor Andrew Cuomo/sEnergy Highway Bluepr in t l and w i l l address th e d e l i v e r a b i l i t yco n s t r a in t as soc ia ted with th e NCZ. Because these i n i t i a t i v e sw i l l d i r e c t l y impact th e long- term p r i ce s igna l s fo r encouragingnew en t ry in th e NCZ 1 implementing the NCZ a t t h i s t ime w i l lr e s u l t in improper and meaningless pr ice s igna l s to prospec t ivedevelopers wi thout any concomitant ra t epaye r b e n e f i t s . TheNYPSC es t imates t ha t these improper pr ice s igna l s w i l l r e s u l t i nan economic windfa l l fo r incumbent gene ra to rs and a s i g n i f i c a n tp r i ce inc rease fo r ra tepayers t ha t may be upwards o f $350mil l ion per yea r . This t r a ns l a t e s to a t o t a l b i l l ra te inc rease

5 18 C.P.R. 385.713 .

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of over 25% fo r some customers of Cen t ra l Hudson Gas andElec t r i c Corpora t ion . The NYPSC an t i c ip a t e s t h a t the bulk powert ransmiss ion r e l i e f t h a t w i l l r e s u l t from the NYPSC'si n i t i a t i v e s w i l l have a mat e r i a l impact on long term In s t a l l e dCapaci ty pr ices in th e NCZ. There fore , to ensure FERC has acomplete record , th e Commission should d i r e c t th e NYISO toana lyze the long- term pr i ce s igna l s t ha t w i l l r e s u l t from th eNYPSC's i n i t i a t i v e s p r i o r to implementing th e NCZ. In thea l t e rn a t i v e , the Commission should phase- in the NCZ pr i ces igna l s to correspond with th e implementat ion o f th e NYPSC'sconges t ion r e l i e f i n i t i a t i v e s .

The NYPSC also reques t s t h a t th e Commission d i r e c t th eNYISO to f i l e t a r i f f amendments prov id ing a process fo r th ee l imina t ion of the NCZ when th e d e l i v e ra b i l i t y i ssues t h a t led

to i t s format ion are reso lved . The Commission appears tosugges t i ncons i s t en t s tandards by which th e NCZ should bec rea t ed ( i . e . , d e l i v e ra b i l i t y ) , and fo r which the NCZ should ber e ta ined i.e., r e l i a b i l i t y and /or the cos t -o f -new-en t ry ) .Fina l ly , we ask t ha t th e Commission d i r e c t th e NYISO to addressth e need to modify th e "buyer s ide" mit iga t ion measures fo r th eNCZ, which would apply to any new en t ry in th e NCZ and wouldd e t e r th e very en t ry t h a t the NCZ i s supposedly designed toincen t . For these reasons , th e Commission should gran t theNYPSC's Request fo r Rehearing and Clar i f i ca t ion .

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I . STATEMENT OF ISSUESA. Whether FERC's dec is ion , which i ncor rec t ly charac te r ized

the NYPSC's P r o t e s t and fa i l ed to cons ider arguments t ha tth e New Capaci ty Zone would r e s u l t in unjus t andunreasonable impacts , was a rb i t r a ry , capr i c ious ,incons i s ten t with reasoned decis ion-making, an abuse o fd i sc re t ion , o r otherwise not in accordance with law. 6

B. Whether FERC's dec is ion , which fa i l ed to prov ide t a r i f fprovis ions fo r e l imina t ing th e New Capaci ty Zone t ha t a recomparable to the prov i s ions fo r c rea t ing th e New Capaci tyZone, was a rb i t r a ry , capr i c ious , incons i s ten t with reasoneddecis ion-making, an abuse o f d i sc re t ion , o r otherwise no tin accordance with the law. 7

C. Whether FERC's dec is ion , which fa i l ed to address th eNYPSC's P r o t e s t t h a t th e mit iga t ion measures appl ied to th eNew Capaci ty Zone are un jus t and unreasonab le , wasa rb i t r a ry , capr i c ious , incons i s ten t with reasoned dec is ionmaking, an abuse o f d i sc re t ion , o r otherwise not inaccordance with law. 8

I I . DISCUSSIONA. The Commission Incorrect ly Characterized The NYPSC'sProtes t And Failed To Provide Meaningful Consideration Of

Arguments That The New Capacity Zone Would Result InUnjust And Unreasonable Impacts

The August 2013 Order s t a t e s t h a t th e Commission"d i sagree[s ] with th e NYPSC t h a t crea t ing a new capac i ty zonewould prov ide no economic benef i t s and would need le ss ly inc rea se

6 In reviewing agency dete rmina t ions , cour t s s ha l l "holdunlawful and s e t as ide agency ac t ion , f indings , andconclus ions found to be ... a rb i t r a ry , capr i c ious , an abuse o fd i s c r e t i o n , o r otherwise not in accordance with law, ... o r ,unsupported by su b s t a n t i a l evidence." 5 U.S.C. 706 j see a l s o ,Farmers Union Cent . Exchange, Inc . v. F .E .R.C. , 734 F.2d 1486(D.C. Cir . 1984) .

7 Id .8 Id .

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customers ' b i l l s . " 9 The NYPSC d id not dispute t ha t c rea t ing anNCZ could have long-term r e l i a b i l i t y benef i t s , o r t ha t thec rea t ion of a new NCZ in Zones G-J may eventual ly i ncen t newgenera t ion in t ha t locat ion, lO b u t i n s t ead disputed t ha t thesebenef i t s would accrue from es tab l i sh ing the NCZ " a t th i s time./lll

As th e NYPSC demonstrated in i t s Pro tes t , there arenew Sta te t r ansmiss ion i n i t i a t i v e s underway t ha t w i l l addressth e de l i ve r ab i l i t y c o n s t r a i n t i den t i f i ed by the NYISO. Inpa r t i cu l a r , two programs t ha t address recommendations made byNew York Governor Andrew Cuomo's Energy Highway Bluepr in t wi l lr e s u l t in th e add i t i on of major t r ansmiss ion f a c i l i t i e s in theco r r ido r i de n t i f i e d in the NCZ Fi l ing as congested . 12 The f i r s tof these seeks t r ansmiss ion so lu t i ons t ha t can be cons t ruc ted byth e summer o f 2016; the NYPSC ant i c ipa t e s making a decis ion on

funding t he se so lu t i ons t h i s f a l l .13

The second proceedings o l i c i t s a l t e rna t i ng cur ren t t r ansmiss ion proposa ls , with thegoal of adding a t l e a s t l,OOOMW o f t r ans fe r capabi l i t y over the

9 August 2013 Order , , 25 .10 The NYPSC recognized t ha t NCZs "have the po t e n t i a l to send

appropr ia te pr ice s igna l s to r e t a in ex i s t ing genera t ionresources and to encourage th e ent ry of new resources . / I NYPSCPro tes t , p . 2.

11 NYPSC Pro tes t , p. 3 (emphasis added) .12 See, Energy Highway Bluepr in t , pp. 37-49,

ht tp: / /www.nyenergyhighway.com/Content /pdf /Bluepr int_FINAL.pdf13 Case 12-E-0503, Generat ion Ret i rement Cont ingencYEans , Order

I n s t i t u t i ng Proceeding and So l i c i t i ng Indian Poin t ContingencyPlan ( i ssued November 30, 2012).

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Upstate New York/Southeas t New York and Cen t ra l Eas ti n t e r faces . 14 The Energy Highway Bluepr in t presen ted to theGovernor c a l l s fo r cons t ruc t ion o f th e pro jec t s s e l ec t ed in t h i sl a t t e r process by 2018. 15

The progress o f the S ta t e programs r a i s e s "se r iousdoubts regard ing th e ef fec t iveness o f crea t ing an NCZ a t t h i st ime, while requ i r ing ra tepayers to pay hundreds o f mi l l i ons inad d i t i o n a l Ins t a l l e d Capaci ty cos t s with in th e NCZ with noconcomitant b en e f i t s to consumers." 16 The Commission e i t h e rfa i l ed to cons ider these imminent changes "on the ground," o ra r b i t r a r i l y and capr ic ious ly ignored them. The Commissionshould not p ut b l inder s on to th e S t a t e ' s i n i t i a t i v e s , whichshould be viewed as support ive o f FERC's goa l s .

In l i g h t o f th e NYPSC's ongoing proceed ings , po te n t i a lnew en t ran t s contemplat ing en t ry in th e Lower Hudson Val leyth ree o r four years from now w i l l n ot look a t th e p r i ce s s e t inthe summer o f 2014 as a va l id and i n d i ca t i v e " long run p r i c es igna l . " Implementing th e NCZ in 2014 w i l l provide ameaningless pr ice s ig n a l and w i l l only serve to prov ide an

14 Case 12-T-0502, Al te rna t ing Current Transmiss ion Upgrades,Order Ins t i t u t i ng Proceeding ( i ssued November 30, 2012).Appl ica t ion mater ia l s a re due to th e NYPSC by October I , 2013 . .

15 See, Energy Highway Bluepr in t , p. 40.16 NYPSC Pro tes t , p. 3 (emphasis added) . As noted above, the

NYPSC es t imates the pr ice impacts may be upwards o f $350mil l ion per y ea r , which t r a ns l a t e s to a r a t e inc rease of over25% fo r some cus tomers .

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extremely high shor t - term p r i c e t h a t prov ides incumbentgene ra to r s in the Lower Hudson Valley with an economic windfal l .This skewed sho r t term pr ice bears no r e l a t i on to the long- termpr ice s igna l th e NCZ i s in tended to produce, and would becomplete ly meaningless fo r prospec t ive deve lopers . TheCommission fa i l ed to proper ly account fo r the NYPSC's on-goingi n i t i a t i v e s and to recognize the important d i s t i nc t i on t ha t th eNYPSC was making between shor t - term and long-term benef i t s ofthe NCZ pr ice s igna l s .

FERC's ra t iona le i n approving the NCZ s t r e ssed theimportance of a long- term pr ice s igna l . The August 2013 Orderi nd i ca t ed t ha t "c rea t i ng a new capaci ty zone i s necessary toprovide more accura te pr ice s igna l s over the long run toencourage new inves tment in th e new capaci ty zone when it i sneeded./l 17 The Commission's goal of c rea t ing the NCZ to providea long- term pr ice s igna l would be success fu l ly achieved bya l lowing fo r a de lay u n t i l 2017 fo r the capaci ty pr ice increase ,o r a phase- in approach as advocated by the New York TransmissionOwners, so t ha t pr ices in th e NCZ would r e f l e c t the newconf igura t ion of the t ransmiss ion system. Therefore , theCommission should d i r e c t the NYISO to analyze th e long- termpr ice s igna l s t h a t w i l l r e s u l t from the NYPSC's i n i t i a t i v e sp r i o r to implementing the NCZ. Alte rna t ive ly , the Commission

17 August 2013 Order , , 2 5 .

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should phase- in th e NCZ p r i c e s igna l s to correspond with th eimplementa t ion of th e NYPSC's conges t ion r e l i e f i n i t i a t i v e s .Ei ther approach would ensure th e Commission es t ab l i shes prope rpr ice s igna l s , and achieves the requi red balance o f j u s t andreasonable r a t e s fo r ra tepayers and lCAP prov ide rs . 18

In add i t i on , th e Commission i nco r rec t ly charac te r izedth e NYPSC's argument by s t a t i ng t h a t " [ t ]h e NYPSC i s concernedt h a t p r i ces in th e new capac i ty zone would be higher than in th eRes t -o f -S ta te , because th e higher n e t cos t o f new en t ry in th enew capac i ty zone would r a i s e the new capac i ty zone ' s lCAPDemand Curve.,,19 This charac te r i za t ion i s i n fac t con t ra ry toth e NYPSC's p o s i t i o n . The NYPSC main ta ins t h a t even if th eCost of -New-Entry (CONE) was equa l in th e d i f f e r e n t zones,pr ices could be h ighe r in th e new zone because of th e Locat iona lCapaci ty Requirement (LCR) in the NCZ and th e d i f f e r e n t l engthso f the Demand Curve. Under a l i ke ly scenar io , th e CONE in th eLower Hudson Val ley could equa l o r approximate th e CONE in th eRes t -o f -S ta te market . However, because o f the LCR, pr i ces maynot be al lowed to e q u i l i b ra t e . Therefore , it i s poss ib le t ha t

18 This one-s ided approach f a i l s to ensure pr ices to consumersare not excess ive , and i s impermissible . See, Farmers UnionCent . Exchange, Inc . v. F .E.R.C. , 734 F.2d 1486, 1501-02 (D.C.Cir . 1984) (c i t i ng FERC v . Pennzoi l Producing Co. , 439 U.S.508, 517 (1979) i Permian Basin Area Rate Cases, 390 U.S. 747,797 ( 1 9 6 8 ; see a l so FPC v. Natura l Gas Pipe l ine Co., 315U.S. 575, 58 5 (1942) .

19 August 2013 Order , , 26 .

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even if the de l ive r a b i l i t y i s sue i s resolved and the re i s nodi f fe rence in CONE, pr ices could remain higher in th e NCZ.Because the NYlSO has not included a process fo r determiningwhether to e l imina te the new capac i ty zone i f th e Highwayde l ive r a b i l i t y cons t ra in t s a re longer b ind ing, as d i scussed inth e fol lowing sec t ion , it fu r the r exacerba tes the problem.

B. The Commission Improperly Concluded That Tar i f fProvis ions Were Not Needed To Determine When TheElimination Of The New Capacity Zone Is Warranted

By f a i l i n g to e s t a b l i sh t a r i f f prov i s ions fo rdetermining when the NCZ may be el iminated , the Commission hasi nappropr i a t e ly skewed pr ices in favor of supp l i e r s , and l e f tra tepayers in the pos i t ion of having to bear a permanentincrease in lCAP p r i ce s . While the Commission mainta ined t h a tr e l i ev ing the binding d e l i v e ra b i l i t y co n s t r a in t w i l l r e s u l t inp r ice convergence between the Rest-Of Sta t e market and the NCZ,the NYlSO's r ecen t ana lys i s presen ted a t var ious working groupmeetings demonst ra tes t h a t even i f the d e l i v e ra b i l i t y cons t ra in td i s s ip a t e s , p r i c e s w i l l not be ab le to "equ i l ib ra t e " o r convergeunless t he re i s such an abundance o f excess capac i ty in the newcapac i ty zone t h a t the supply approaches the zero cross ing poin t

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on the Demand Curve. 20 The Commission must address t h i s flaw inthe market des ign by ensuring the NCZ can be e l imina ted when iti s no longer needed.

Moreover, th e NYPSC i s concerned t ha t th e Commissionappears to sugges t a d i f f e r e n t s tandard may be appropr i a t e fo rNCZ e l imina t ion than NCZ c r ea t i o n . In the sepa ra t e proceedingwhere the NYISO or ig ina l ly proposed two main c r i t e r i a fo rdef in ing when t o c rea te an NCZ, the NYISO f i l ed a de l i ve rab i l i t yt e s t and a r e l i a b i l i t y t e s t . The NYISO a l so proposed to inc ludea CONE ana lys i s to determine if the cos t of en t ry wass ubs t a n t i a l ly d i f f e r e n t in a par t i cu l a r zone. The Commissionre j ec ted both the r e l i a b i l i t y c r i t e r i a and the CONE c r i t e r i a ,and determined t h a t th e de l i ve rab i l i t y t e s t should be the s ing let h re sho ld fo r c rea t ing an NCZ. 21

While the August 2013 Order i n d i ca t e s t h a t the "NYISOshould work with i t s s takeholders , and i f a mechanism fo r zonee l imina t ion i s deemed necessary , NYISO should f i l e appropr i a t e

20 In the Consumer Impact Analysis presented a t th e March 28,2013 Ins t a l l e d Capaci ty Working Group (ICAP) meeting, theNYISO pro jec ted c lea r ing pr ices fo r 2018 under var iousscenar ios . Even under the scenar io with the l a rge s t inc reaseof supply in the NCZ i . . 1,500 MW of genera t ion andt ransmiss ion add i t ions ) , the forecas ted c lea r ing p r i ces in theNCZ d id not e qu i l i b r a t e with the R e s t -o f - s t a t e p r i c e s . August2013 Order , ~ 5 1 .

21 ER04-449, New York Independent System Operator , Inc. and NewYork Transmiss ion Owners, Order on Compliance Fi l ing , 136 FERC61,165 ( issued September 8, 2011).

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t a r i f f rev i s ions with th e Commission, ,,22 the Commissionprematurely and i nappropr i a t e ly sugges t s d i f f e r e n t c r i t e r i a fo re l imina t ing the NCZ. The NYPSC presented evidence t h a t th esys tem upgrades t h a t w i l l r e s u l t from i t s two ongoingproceedings "would e l imina te the need to c rea te a new capac i tyzone and th e re su l t ing higher p r i ce s , because the upgrades wouldr e lax the t ransmiss ion cons t ra in t t h a t has b o t t l ed genera t ioncapac i ty ." However the Commission/s r a t i o n a l e fo r dismiss ingthe evidence r e l i e s on the same r e l i a b i l i t y c r i t e r i a t h a t itprev ious ly r e jec ted in th e NYISO's f i l i ng to e s t a b l i sh c r i t e r i afo r crea t ing an NCZ. 23 The August 2013 Order s t a t e s t h a t "no oneargues t h a t the upgrades would e l imina te the r e l i a b i l i t y needfo r some capac i ty to be loca ted wi th in the new capac i ty zone.,,24Moreover the Commission s t a t ed t h a t

[ i )n orde r to encourage new resources to be b u i l t inth e new capac i ty zone when they a re needed, capac i typr ices on average over t ime must approximate th e n etcos t of new en t ry in th e new capac i ty zone.Otherwise developers w i l l be r e lu c t an t to bu i ld thenew capac i ty t h a t w i l l be needed as load grows andresources r e t i r e over t ime. Because the n e t cos t o fnew en t ry in the new capac i ty zone i s higher than inth e Rest of -S ta te l the new capac i ty zone needs its ownICAP Demand Curve, re f l ec t ing i t s higher ne t cos t o fnew ent ry , in orde r to send the necessary pr ices igna l s over the long run and provide th e higher

22 August 2013 Order , , 82 .23 ER04-449, New York Independent S y s t e ~ ~ r a t o r , Inc . and New

York Transmission Owners, Order on Compliance Fi l ing , 13 6 FERC61,165 ( i s sued September 8 1 2011) .24 August 2013 Order , , 26 .

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capac i ty revenue over th e long run needed to encouragenew investment . 25

These s ta tements a t tempt to provide a ra t iona le fo r why the newzone i s needed based on f ac to r s ( i . e . , r e l i a b i l i t y and CONE)t h a t th e Commission previous ly deemed i r r e l e va n t to the c rea t iono f an NCZ. As a r e su l t , New York i s l e f t with a t a r i f fs t ru c t u re t h a t a l lows fo r the crea t ion of NCZs without a l lowingfo r t h e i r d i s s o lu t i o n , and a sus t a ined p r i c e separa t ion evena f t e r th e i n i t i a l de l ive r a b i l i t y i s sue i s r e so lved . This r e s u l t

i s c l e a r ly un jus t and unreasonable and improperly favorssupp l i e rs ' i n t e re s t s to the det r iment o f r a tepayer s . TheCommission should the re fo re d i r e c t th e NYISO to inc lude aprocess in its t a r i f f fo r dete rmin ing how to e l imina te th e newcapac i ty zone if th e Highway d e l i v e r a b i l i t y cons t ra in t s a re nolonger b inding. These provis ions a re necessary to ensure r a t e sremain j u s t and reasonable fo r ra t epaye rs , and n ot j u s t fo rsuppl i e r s . 26

25 August 2013 Order , ,26 .26 According to th e Commission, " the f a i l u r e to c r ea t e a zonewhere one i s needed i s much more s ign i f i c a n t than th e impact

of a f a i l u r e to e l imina te an ex i s t ing unneeded zone." August2013 Order , , 82 . As no ted above, t h i s one - s ided approachf a i l s to ensure pr i ces to consumers a re not excess ive , and i simpermissible . See, Farmers Union Cent. Exchange, Inc . v.F.E.R.C. , 734 F.2d 1486, 1501-02 (D.C. Cir . 1984) .

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C. The Commission Improperly Rejected Arguments That TheMitigat ion Measures Applied To The New Capacity Zone WereUnjust And Unreasonable

The Commission summarily dismissed th e NYPSC'sarguments t h a t th e proposed mit iga t ion measures were u n j u s t andunreasonable , f inding t h a t they were "beyond the scope of t h i sproceed ing ." 27 Although th e Commission prev ious ly acceptedmarket power mit iga t ion measures fo r an NCZ, it was done on agener ic b as i s . Given t h a t the parameters of the NCZ have nowbeen defined, the Commission should address whether suchmeasures would be j u s t and reasonab le as app l ied to th e spec i f i cNCZ. Moreover, th e NYISO's NCZ Fi l ing r a i sed th e i ssue ofwhether the mit iga t ion measures were appropr ia te by reques t ingth e approval of such measures .

The NYPSC's P ro t e s t mainta ined t h a t th e unce r t a in ty o fp o t e n t i a l capac i ty earn ings produced by th e accompanying "buyer-s ide" mit iga t ion ru les in th e NCZ w i l l l i k e l y have more of along-term adverse impact on r e l i a b i l i t y and pr ices in the NCZ.In p a r t i c u l a r , " [u]nder th e proposed ru les , even a pure merchanten t r an t would face th e r i sk t h a t it would be precluded fromse l l i n g in to th e capac i ty market , thus e f fec t ive ly rece iv ing amarket p r i ce of $0. This r i sk w i l l i nev i t ab ly increase thed i f f i cu l t y of f inancing merchant p r o j ec t s , and p o t e n t i a l l yexclude them from the c a p i t a l markets a l toge ther . Thus, while

27 August 2013 Order , ~ 8 4 .

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th e "buyer-s ide mit iga t ion" ru l e s were in tended to encouragemerchant entrYI t h e i r ac tu a l implementat ion w i l l l i ke ly have th eoppos i t e e f f e c t . These ru les would l i ke ly serve as a ba r r i e r t onew entrYI and a c t coun ter to th e r a t i o n a l e s ta ted fo r c r ea t i n gt h i s new zone in th e f i r s t place ( i . e ' l to encourage th e en t ryof new re sources ) . The ap p l i c a t i o n of those r u l e s to th e NCZshould the re fo re be re j ec ted . 11 28

CONCLUSION

In accordance with th e foregoing di scuss ion l th e NYPSCrespec t fu l ly reques ts t h a t th e Commission gran t the foregoingReques t fo r Rehearing and C l a r i f i c a t i o n .

Respec t fu l ly submi t ted l

Pe te r McGowanGenera l CounselPubl ic Serv ice Commission

o f th e s t a t e of New YorkBy: David G. Drex lerA s s i s t an t Counsel3 Empire S ta t e PlazaAlbany I NY 12223-1305(518) 473-8178

Dated: September 121 2013Albany New York

28 NYPSC P r o t e s t pp. 8 - 9.

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CERTIFICATE OF SERVICEI hereby c e r t i f y t h a t I have t h i s day served the

foregoing document upon each person des ignated on th e o f f i c i a lse rv ice list compiled by the Secre ta ry in t h i s proceeding .

Dated: Albany, New YorkSeptember 12, 2013 ~ ~ ~ss i s tant CounseY

3 Empire Sta te PlazaAlbany, NY 12223-1305(518) 473-8178

State Public Service Commission filing with Federal Energy Regulatory Commission

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