
[Federal Register Volume 80, Number 39 (Friday, February 27, 2015)]
[Notices]
[Pages 10676-10681]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-04119]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. EL15-37-000]


Order Instituting Section 206 Proceeding and Directing Filing To 
Establish Reliability Must Run Tariff Provisions: New York Independent 
System Operator, Inc

    Before Commissioners: Cheryl A. LaFleur, Chairman; Philip D. 
Moeller, Tony Clark, Norman C. Bay, and Colette D. Honorable.

    1. The Commission, pursuant to section 206 of the Federal Power Act 
(FPA),\1\ takes action through this order to address a recurring issue 
in the wholesale markets administered by the New York Independent 
System Operator, Inc. (NYISO). NYISO, as the

[[Page 10677]]

independent system operator, is responsible for efficiently and 
reliably administering the resources and transmission facilities under 
its control. As with certain other regions of the country, NYISO is 
facing challenges with temporarily retaining certain generation 
resources needed to ensure reliable transmission service until more 
permanent reliability solutions are in place. This has manifested 
itself in proceedings before this Commission initiated by generation 
resources that had sought to deactivate \2\ but were determined to be 
needed for reliability by the New York Public Service Commission (New 
York Commission). These generation resources sought this Commission's 
approval of agreements under which the generation resources would 
continue to operate and recover costs that would not otherwise be 
recovered through generator sales of energy, capacity and ancillary 
services in NYISO's markets. The services provided under these 
agreements, commonly referred to as ``must run'' or ``reliability must 
run'' (RMR) services,\3\ provide for the retention of generation units 
wishing to deactivate, often because they have become uneconomic, but 
which are needed for transmission system reliability. NYISO was not a 
party to any of the agreements or applications filed for approval.
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    \1\ 16 U.S.C. 824e (2012).
    \2\ For purposes of this order, references to generator 
``deactivation'' encompass generator retirements, mothballing, or 
any other long-term outages or suspension of service.
    \3\ The services are designated as RMR or ``Reliability Support 
Services'' (RSS) in the various agreements. We will generally refer 
to such services as RMR services here.
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    2. Given the foregoing, the Commission is concerned that NYISO's 
Market Administration and Control Area Services Tariff (NYISO Tariff) 
is unjust and unreasonable. Although NYISO is the entity responsible 
for providing open access transmission service on the New York 
transmission system and ensuring the reliability and efficiency of that 
transmission service,\4\ the NYISO Tariff lacks provisions governing 
the rates, terms and conditions for RMR service. While the Commission 
has repeatedly stated that our jurisdictional markets should utilize 
market mechanisms to ensure that the resulting rates are just and 
reasonable,\5\ the Commission has also recognized that short-term 
remedies, such as RMR agreements, may be appropriate in certain 
circumstances to address an immediate problem at hand. Indeed, pursuant 
to our authority under the FPA, the Commission has accepted tariff 
provisions filed by other independent system operators (ISOs) and 
regional transmission organizations (RTOs) to implement and govern RMR 
service.\6\ In doing so, the Commission has emphasized that RMR 
agreements should be of a limited duration so as to not perpetuate out-
of-market solutions that have the potential, if not undertaken in an 
open and transparent manner, to undermine price formation.\7\
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    \4\ Article 2.01 of the ISO/TO Agreement, which governs the 
relationship between NYISO and its transmission owners, explains 
that NYISO has operational control over certain transmission 
facilities, while Transmission Owners have responsibility for the 
operation of Local Area Transmission System Facilities. It further 
explains that such operation by each Transmission Owner shall not 
compromise the reliable and secure operation of the New York State 
Transmission System, and that each Transmission Owner shall promptly 
comply to the extent practicable with a request from the NYISO to 
take action with respect to coordination of the operation of its 
Local Area Transmission System Facilities.
    \5\ PJM Interconnection, LLC, 110 FERC ] 61,053, at P 31 (2005) 
(``market clearing prices that reflect [reliability] costs better 
support efficient consumption and investment decisions''). See also, 
ISO New England, Inc., 148 FERC ] 61,179 (2014), order on 
clarification, 150 FERC ] 61,029, at P 10 (2015) (if future winter 
reliability program is found to be necessary, it must be a market-
based, rather than out-of-market, solution); ISO New England, Inc., 
144 FERC ] 61,204, at P 42 (2013), reh'g denied, 147 FERC ] 61,026 
(2014) (market-based solutions preferable to out-of-market solutions 
to address winter reliability issues); See Midwest Indep. 
Transmission Sys. Operator, Inc., 108 FERC ] 61,163 at n. 226 (``The 
Commission favors market design remedies, where possible, to provide 
needed revenues to support reliability-based generators and other 
needed investments''), reh'g denied, 109 FERC ] 61,157 (2004); see 
also Midwest Indep. Transmission Sys. Operator, Inc., 140 FERC ] 
61,237, at P 63 (2012), order on compliance, 148 FERC ] 61,056, at P 
42 (2014).
    \6\ See, e.g., PJM Interconnection, L.L.C., 107 FERC ] 61,112, 
at P 8 (2004); Calif. Indep. Sys. Operator Corp., 138 FERC ] 61,112 
(2012); Calif. Indep. Sys. Operator Corp., 134 FERC ] 61,211 (2011); 
ISO New England, Inc. 125 FERC 61,102, order on clarification, 125 
FERC ] 61,234 (2008), order denying reh'g, 130 FERC ] 61,089 (2010); 
Midwest Indep. Transmission Sys. Operator, Inc., 140 FERC ] 61,237 
(2012).
    \7\ See, e.g., PJM Interconnection, L.L.C., 107 FERC ] 61,112, 
at PP 20-21 (2004); Midwest Indep. Transmission Sys. Operator, Inc., 
108 FERC ] 61,163, at P 368, reh'g denied, 109 FERC ] 61,157 (2004) 
(RMR program is backstop measure designed to meet short-term 
reliability need).
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    3. As further discussed below, the provision of RMR services has 
been an ongoing concern in NYISO's markets. Accordingly, to ensure the 
proper and efficient operation of NYISO's markets, we find that NYISO 
should have on file the rates, terms, and conditions for RMR service. 
Without such provisions, there is no assurance that generation 
resources will be treated on a not unduly discriminatory basis and have 
the opportunity to collect compensatory rates without a protracted 
proceeding. The uncertainty created for resources by the lack of clear 
tariff provisions has the potential to exacerbate the very concerns an 
RMR service is meant to address--ensuring the continued reliable and 
efficient operation of the grid, and of NYISO's markets.\8\ NYISO is 
uniquely positioned to assess the need for RMR service and the 
appropriate entity to assess the potential impacts RMR agreements may 
have on its markets in New York. Thus, NYISO should be the entity that 
administers RMR service in New York, and should do so pursuant to the 
provisions of its Commission-jurisdictional Tariff required by this 
order to be filed with the Commission.
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    \8\ See 16 U.S.C. 824(b)(1) (2012) (the FPA gives the Commission 
jurisdiction over ``the transmission of electric energy in 
interstate commerce and . . . the sale of electric energy at 
wholesale in interstate commerce'').
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    4. As discussed below, NYISO's Tariff is unjust and unreasonable 
because it does not contain provisions governing the retention of and 
compensation to generating units needed for reliability. The 
Commission, pursuant to section 206 of the FPA, will require NYISO to 
submit to the Commission within 120 days of the date of this order 
fully supported proposed tariff provisions governing the retention of 
and compensation to generating units required for reliability, 
including procedures for designating such resources, the rates, terms 
and conditions for RMR service, provisions for the allocation of costs 
of RMR service, and a pro forma service agreement for RMR service.\9\
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    \9\ The Commission is acting on two filings concerning 
agreements for RMR service in NYISO concurrently with this order in 
Docket Nos. ER12-2237-002 and ER13-405-000.
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I. Background

    5. Multiple filings have been made by generators that had applied 
to the New York Commission to mothball certain facilities but which 
were determined to be needed for transmission system reliability. These 
generators then pursued agreements to provide RMR-type service for a 
limited term until permanent solutions to transmission system 
reliability issues are addressed by transmission upgrades. The range of 
RMR-type services to be provided by these units were substantially 
similar, but involved a number of different agreements some of which 
were filed at the Commission and others at the New York Commission.
    6. Specifically, on July 12, 2012, pursuant to FPA section 205,\10\ 
Dunkirk Power LLC (Dunkirk) filed in Docket No. ER12-2237-000, an 
unexecuted RMR agreement with cost-of-service pricing net of revenues, 
under which Dunkirk would provide RMR service to

[[Page 10678]]

Niagara Mohawk Power Corporation d/b/a National Grid (National Grid) 
from two of Dunkirk's generation units.\11\ Concurrently, however, 
Dunkirk had been engaged in negotiations with National Grid for the 
same type of services for the same units but with different 
compensation provisions. Dunkirk filed a ``Term Sheet'' summarizing the 
RSS agreement (RSSA) with the New York Commission on July 20, 2012. 
Accordingly, Dunkirk submitted a request on August 1, 2012, for the 
Commission to hold the RMR proceeding in abeyance to provide the New 
York Commission time to review the Term Sheet for the RSSA. On August 
16, 2012, the New York Commission approved the Dunkirk/National Grid 
RSSA Term Sheet. On August 22, 2012, Dunkirk filed a further request 
that the Commission hold the RMR proceeding in abeyance indefinitely to 
provide time for the parties to execute a final contract and for any 
subsequent New York Commission order to issue.\12\
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    \10\ 16 U.S.C. 824d (2012).
    \11\ Dunkirk Filing, Docket No. ER12-2237-000, at 1 (filed July 
12, 2012).
    \12\ On March 4, 2013, National Grid and Dunkirk entered into a 
second RSSA (2013 Dunkirk RSSA) to cover the period following 
termination of the August 2012 RSSA. On May 20, 2013, the New York 
Commission approved the 2013 Dunkirk RSSA. Petition of Dunkirk Power 
LLC and NRG Energy, Inc. for Waiver of Generator Retirement 
Requirements--Order Deciding Reliability Need Issues and Addressing 
Cost Allocation and Recovery, Case 12-E-0136 (New York Public 
Service Commission, May 20, 2013.
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    7. On March 29, 2013, National Grid proposed in Docket No. ER13-
1182-000 to amend certain components of its Wholesale Transmission 
Service Charge formula under Attachment H of the NYISO Tariff to 
incorporate the costs it incurs pursuant to the above-described RSSAs 
covering the Dunkirk services as approved by the New York Commission. 
National Grid proposed to add a new item, ``Reliability Support 
Services Expense,'' that would have included expenses incurred pursuant 
to agreements entered into with generators or other similar resources 
for the purpose of supporting transmission reliability. On August 30, 
2013, noting protestors' arguments about the unique rate and 
reliability implications inherent in National Grid's proposed 
revisions, the Commission rejected National Grid's filing, without 
prejudice to National Grid making a new filing under FPA section 205 
providing additional support for recovery of RSS costs. The Commission 
found that the proposed formula rate revisions would essentially 
establish a placeholder that would allow the future pass-through of RSS 
costs. In order for the Commission to approve such a pass-through, the 
Commission explained that National Grid would, at a minimum, need to 
file any underlying RSSAs for Commission review, and support the 
proposed rates.\13\ On December 6, 2013, in Docket No. ER14-543-000, 
National Grid filed different revised provisions to its Wholesale 
Transmission Service Charge formula to pass through RSS costs and 
included the two RSSAs pursuant to the Commission's directive. On 
February 4, 2014, the Commission accepted and suspended National Grid's 
revisions, and made them effective subject to refund and further 
order.\14\
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    \13\ New York Independent System Operator, Inc., 144 FERC ] 
61,172, at P 39 (2013).
    \14\ New York Independent System Operator, Inc., 146 FERC ] 
61,065 (2014).
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    8. Similar to Dunkirk, Cayuga Operating Company, LLC (Cayuga) 
sought approval from the New York Commission to mothball its generation 
units, but it was determined that its units are needed for transmission 
system reliability. On November 16, 2012, pursuant to FPA section 205, 
Cayuga filed an unexecuted RMR agreement with the Commission under 
which Cayuga would provide RMR service to New York State Electric & Gas 
Corporation (NYSEG). This agreement was based on cost-of-service rates 
less the revenues earned by Cayuga from the sale of energy, capacity 
and ancillary services in the NYISO markets. In the meantime, similar 
to Dunkirk, Cayuga was in negotiations with NYSEG for an RSSA and filed 
a ``Term Sheet'' with the New York Commission summarizing the proposed 
RSSA, which differed from its FPA section 205 RMR agreement only as to 
the rate. Cayuga also requested that the Commission hold Cayuga's RMR 
filing in abeyance until Cayuga notified it to do otherwise.\15\ 
Following the New York Commission's December 17, 2012 order approving 
the RSSA Term Sheet and directing the parties to execute and 
subsequently file the RSSA with the New York Commission,\16\ Cayuga 
submitted an expedited motion for the Commission to hold the RMR 
proceeding in abeyance until further notice.\17\ On February 28, 2013, 
Cayuga filed a motion to withdraw its FPA section 205 RMR filing as 
moot on the grounds that it would never make sales to NYSEG under the 
RMR agreement it had filed with the Commission, but, rather, any sales 
would be pursuant to the RSSA that NYSEG filed with the New York 
Commission.\18\
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    \15\ Cayuga Transmittal, Docket No. ER13-405-000, at 4 (filed 
Nov. 16, 2012).
    \16\ Petition of Cayuga Operating Company, LLC to Mothball 
Generating Units 1 and 2, Case 12-E-0400, New York Public Service 
Commission, (issued and effective December 17, 2012).
    \17\ Cayuga Expedited Motion to Hold Proceeding in Abeyance, 
Docket No. ER13-405-000, at 2 (filed Dec. 31, 2012).
    \18\ Cayuga Expedited Motion to Withdraw Filing, Docket No. 
ER13-405-000, at 3 (filed Feb. 28, 2013).
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II. Discussion

    9. As noted above,\19\ NYISO's having on file rates, terms and 
conditions for RMR service is fundamental to the proper and efficient 
operation of NYISO's markets. Without such provisions, there is no 
assurance that generation resources will be treated on a not unduly 
discriminatory basis and have the opportunity to collect compensatory 
rates without a protracted proceeding. Thus, pursuant to FPA section 
206, the Commission finds that the omission of procedures in the NYISO 
Tariff governing the rates, terms, and conditions of FERC-
jurisdictional RMR service needed to ensure reliable transmission 
service renders the NYISO Tariff unjust and unreasonable and inadequate 
to prevent undue discrimination among similarly-situated resources. The 
uncertainty created for resources by the lack of clear tariff 
provisions has the potential to exacerbate the very concerns an RMR 
service is meant to address--ensuring the continued reliable and 
efficient operation of the grid, and of NYISO's markets. NYISO, as the 
independent system operator in New York, is uniquely positioned to 
assess the need for RMR service. Moreover, given its role, NYISO is the 
appropriate entity to assess the potential impacts RMR agreements may 
have on its markets in New York. Therefore, NYISO should be the entity 
that administers RMR service in New York, pursuant to the provisions of 
its Commission-jurisdictional Tariff required by this order to be filed 
with the Commission.
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    \19\ See supra note 8 and accompanying text.
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    10. NYISO has filed status reports on matters concerning RMR 
service and compensation for nearly four years now and there has been 
no consensus regarding tariff provisions governing compensation for 
generators needed for reliability.\20\ The Commission thus has no 
expectation of NYISO and its stakeholders addressing the matter on 
their own. Yet, the need for RMR service remains as evidenced by the 
aforementioned cases, and NYISO, as the independent system operator is 
responsible for efficiently and reliably administering the resources 
under its

[[Page 10679]]

control, particularly including the generation resources needed to 
ensure reliable transmission service.
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    \20\ NYISO Eighth Informational Report on Efforts to Develop 
Rules Addressing Compensation to Generators that Are Determined to 
be Needed for Reliability, Docket No. ER10-2220-000, at 2 (filed 
Sep. 23, 2014).
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    11. If left unresolved, uncertainty regarding NYISO's RMR 
procedures and compensation policies could undermine NYISO's access to 
generation units needed for reliability. That is, in the absence of 
tariff provisions that would allow NYISO to secure RMR services, NYISO 
may not be able to ensure both that there is indeed adequate 
generation, and at the appropriate locations, to ensure reliable and 
efficient operations, and that such generation is adequately 
compensated so that it will be available when needed. NYISO's inability 
to secure adequate RMR services could impede its ability to ensure the 
reliable and efficient operation of the electric grid and its markets. 
Therefore, pursuant to FPA section 206, we direct NYISO to submit 
proposed tariff provisions setting forth its proposals to establish an 
appropriate RMR process in the NYISO tariff. The filing should consist 
of fully supported proposed tariff provisions governing the retention 
of and compensation to generating units required for reliability, 
including procedures for designating such resources, the rates, terms 
and conditions for RMR service, provisions for the allocation of costs 
of RMR service, and a pro forma service agreement for RMR service.\21\
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    \21\ However, the Commission clarifies that NYISO's RMR proposal 
will not require Dunkirk to enter into new pro forma agreements for 
the 2012 and 2013 RSS agreements or for Cayuga to enter into new pro 
forma agreements for the Cayuga RSSA-1 and RSSA-2 agreements 
referenced above. The Commission also notes that the costs at issue 
in the Niagara Mohawk Power Corp. filing in Docket No. ER14-543-000, 
related to the 2012 and 2013 Dunkirk RSSAs, remain pending before 
the Commission in Docket No. ER14-543-000.
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    12. In order to assist NYISO in the development of a compliance 
proposal, the Commission provides general guidance on the elements that 
should be addressed by NYISO.\22\ NYISO's proposal should be consistent 
with this general guidance.\23\
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    \22\ In its evaluation of what to include in its submission, we 
encourage NYISO to consider the RMR tariff provisions of other RTOs/
ISOs. However, we recognize that there may be reasons to allow 
variation among RTOs/ISOs, so we will not at this time direct NYISO 
to adopt any particular mechanism. See PJM Interconnection, LLC, 112 
FERC ] 61,031, at P 21 (2005) (PJM's procedures need not precisely 
match procedures of another ISO).
    \23\ NYISO, however, is not limited to filing proposed tariff 
provisions that meet the general guidance provided in this order. 
NYISO's compliance filing may contain additional provisions as long 
as they are fully supported and are shown to be just and reasonable 
and not unduly discriminatory.
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A. RMR Process

    13. As an initial matter, as part of its RMR mechanism, NYISO 
should include Tariff provisions governing the schedule by which a 
generation owner must notify NYISO that it intends to deactivate.\24\ 
These provisions should also include a clear timeline by which NYISO 
will notify the generation owner that its unit is required for 
reliability, or, alternatively, determine that the deactivation will 
not impact reliability and the unit can be deactivated as planned.\25\ 
Provisions establishing a schedule by which a generator must notify 
NYISO of deactivation and clear timelines for action will ensure that 
NYISO, generation owners, all relevant transmission owners, and other 
concerned parties have sufficient time to plan and implement the 
reliability solutions necessary to address any identified reliability 
issue, which may ultimately mitigate the need for an RMR designation. 
In this regard, NYISO should describe the process for conducting the 
reliability analyses necessary to determine that there is a reliability 
need for the unit. NYISO may elect to address these requirements by 
expanding upon its OATT Attachment Y planning process, or developing 
another process as it deems appropriate for inclusion in the NYISO 
Tariff. We believe it is appropriate to require the NYISO Tariff to 
provide transparency with respect to such timelines, processes, and 
schedules, not just for the practical administration of the NYISO 
Tariff, but also to help ensure that there is no undue discrimination 
or preference in the handling of RMR service and agreements pursuant to 
the NYISO Tariff.
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    \24\ See, e.g., Midcontinent Independent System Operator, Inc. 
(MISO), FERC Electric Tariff 38.2.7 (requiring 26 weeks' notice); 
PJM Interconnection, LLC (PJM), FERC Electric Tariff Part V Section 
113.1 (requiring 90 days' notice); California Independent System 
Operator Corp. (CAISO) FERC Electric Tariff, Section 43 (requiring 
180 days' notice). See generally, Calif. Indep. Sys. Operator Corp., 
138 FERC ] 61,112 (2012); Calif. Indep. Sys. Operator Corp., 134 
FERC ] 61,211 (2011); ISO New England, Inc. 125 FERC 61,102, order 
on clarification, 125 FERC ] 61,234 (2008), order denying reh'g, 130 
FERC ] 61,089 (2010); Midwest Indep. Transmission Sys. Operator, 
Inc., 140 FERC ] 61,237, at P 18 (2012).
    \25\ See, e.g., Calif. Indep. Sys. Operator Corp., 134 FERC ] 
61,211 (2011); Midwest Indep. Transmission Sys. Operator, Inc., 140 
FERC ] 61,237, at P 18 (2010); PJM Interconnection, L.L.C., 112 FERC 
] 61,031, at P 31 (2005).
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    14. After considering the necessary reliability studies, NYISO must 
be the entity that makes the determination whether a specific generator 
is needed to ensure reliable transmission service and thus whether the 
facility is designated an RMR unit. As indicated earlier, NYISO is 
uniquely positioned to assess the need for RMR service. Further, given 
that it is not only the independent system operator in New York but 
also is responsible for administering the markets in New York, NYISO is 
the appropriate entity to assess the potential impacts RMR agreements 
may have on its markets. To avoid requiring NYISO to study steps 
necessary to ensure reliable operation of transmission facilities over 
which NYISO does not have direct operational control, we require that 
the NYISO Tariff indicate the entity that will conduct the study in 
such cases. In order to avoid any potential for bias among 
stakeholders, NYISO may elect to conduct the necessary reliability 
studies itself, including any studies necessitated by local reliability 
standards, such as those developed by the New York State Reliability 
Council (NYSRC). Under that approach, NYISO would need to identify in 
the NYISO Tariff how it will coordinate the necessary reliability 
studies with the affected transmission owners. Alternatively, NYISO may 
elect to allow the relevant transmission owner to conduct the necessary 
reliability studies. If an entity other than NYISO is to conduct the 
initial reliability study, NYISO must review and verify any local or 
regional reliability studies conducted, and notify stakeholders as to 
whether or not it agrees with the outcome of those studies, independent 
of any other relevant authority's determination that a particular unit 
is needed for reliability. NYISO's proposal may also include a process 
for it to take into consideration the relevant reliability studies and 
evaluations made by the New York Commission and/or NYSRC.
    15. In addition, regardless of the approach chosen by NYISO for 
conducting the necessary reliability studies, NYISO's proposal must 
include the requirement that any future generation resource-specific 
RMR filing made with the Commission fully describe, at a minimum, the 
methodologies and findings in the underlying reliability studies and 
clearly state all potential reliability criteria violations. NYISO's 
including such a requirement is important to ensuring that, when a 
resource-specific RMR filing is made with the Commission, the 
Commission will be able to evaluate NYISO's assessment of the need for 
operation of the resource in judging the reasonableness of the 
agreement including whether there has been any undue discrimination or

[[Page 10680]]

preference.\26\ Where an RMR determination is based on local planning 
criteria, any filing also must similarly provide, and for the same 
reasons, a full discussion of those local criteria, including, for 
example, documentation as to when the criteria became effective, how 
the criteria were applied, which regulatory body approved the standard, 
and any other supporting information.\27\
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    \26\ See, e.g., Calif. Indep. Sys. Operator Corp., 134 FERC ] 
61,211, at P 130 (2011) (directing tariff provisions providing that 
risk of retirement designation may be exercised ``only if all other 
available procurement measures fail to procure the resources needed 
for reliable operation''); ISO New England, Inc. 125 FERC 61,102, at 
P 110, order on clarification, 125 FERC ] 61,234 (2008), order 
denying reh'g, 130 FERC ] 61,089 (2010), Midwest Indep. Transmission 
Sys. Operator, Inc., 140 FERC ] 61,337, at PP 10, 36 (2012).
    \27\ See, e.g., MISO, FERC Electric FPA Tariff, MISO Rate 
Schedules, MISO Transmission Owner Agreement, C., Planning 
Activities., 1.0.0 (``planning shall conform to applicable 
reliability requirements of NERC, applicable Regional Entities, or 
any successor organizations, each Owner's specific reliability 
requirements and operating guidelines, and all applicable 
requirements of federal or state laws or regulatory authorities''); 
PJM Operating Agreement 462 (Jan. 6, 2014), available at: http://
www.pjm.com/~/media/documents/agreements/oa.ashx (addressing 
Regional Transmission Expansion Plan criteria).
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    16. Finally, NYISO's proposal must describe the process NYISO will 
use to evaluate alternatives for addressing the identified reliability 
need. The evaluation of alternatives to an RMR designation is an 
important step that deserves the full consideration of NYISO and its 
stakeholders to ensure that RMR agreements are used only as a limited, 
last-resort measure. To this end, NYISO, in its proposed tariff 
language, should explain its process for identifying RMR alternatives 
in detail, including how the process will ensure a thorough 
consideration of all types of RMR alternatives in an open and 
transparent manner.\28\ For example, MISO applies an open and 
transparent process to consider with its stakeholders feasible 
alternatives to an RMR designation, including (depending on the type of 
reliability concern identified) transmission upgrades, demand-side 
resources, and generator alternatives, as well as alternative operating 
procedures (e.g., re-dispatch, temporary rating increases, special 
protection systems).\29\ Our requiring that NYISO describe this process 
promotes the transparency needed to ensure that the process has indeed 
not been unduly discriminatory or preferential. Furthermore, NYISO's 
proposal must include the requirement that any future generation 
resource-specific RMR filing made with the Commission should detail the 
alternative solutions evaluated and justify the term of the proposed 
RMR agreement vis-[agrave]-vis the timing of alternative solutions to 
the identified reliability need.\30\ This last requirement reflects our 
belief that RMR filings should be made only to temporarily address the 
need to retain certain generation until more permanent solutions are in 
place and that all alternatives should be considered to ensure that 
designating a generator for RMR service is a last resort option for 
meeting immediate reliability needs.
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    \28\ See, e.g., Midwest Indep. Transmission Sys. Operator, Inc., 
140 FERC ] 61,237, at P 36 (2012).
    \29\ See, e.g., Midcontinent Independent System Operator, Inc., 
FERC Electric Tariff, Sec.  38.2.7.
    \30\ See, e.g., Midwest Independent Transmission System 
Operator, Inc., 140 FERC ] 61,237, at PP 10, 106 (2012).
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B. RMR Compensation

    17. As RMR agreements are for Commission jurisdictional services, 
we require NYISO's RMR proposal to include provisions dealing with 
compensation for RMR services. The Commission believes that NYISO's RMR 
compensation provisions should reflect the nature of NYISO's RMR 
proposal. That is, should NYISO choose an exclusively voluntary RMR 
regime, under which a generator wishing to deactivate could reject the 
reliability needs determination and continue to deactivate absent the 
establishment of acceptable compensation, the tariff should provide for 
the parties to agree to an appropriate cost-based rate. Compensation to 
an RMR generator must at a minimum allow for the recovery of the 
generator's going-forward costs,\31\ with parties having the 
flexibility to negotiate a cost-based rate up to the generator's full 
cost of service.\32\ This ensures that generators are appropriately 
compensated for agreeing to provide RMR service. Thus, if NYISO chooses 
an exclusively voluntary RMR regime, the tariff must include a process 
by which NYISO and the RMR unit may negotiate an appropriate cost-based 
rate, to minimize the potential for protracted disputes concerning that 
unit's compensation. The participation of the NYISO Independent Market 
Monitor in negotiations with the generator regarding the appropriate 
level of charges to include in the negotiated RMR rate should also be 
considered. Alternatively, should NYISO choose an exclusively mandatory 
RMR regime, under which a generator wishing to deactivate but 
determined by NYISO to be needed for reliability is required to remain 
in operation, NYISO's proposal should provide for compensation at a 
full cost-of-service rate.\33\
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    \31\ With respect to the going-forward costs rate, the 
Commission recognizes that the NYISO Services Tariff already defines 
Going Forward Costs. NYISO Services Tariff, Attachment H, 23.2.1. 
However, for purposes of its RMR proposal, NYISO may wish to define 
going-forward costs differently in the context of RMR unit 
compensation.
    \32\ PJM Interconnection, LLC, 107 FERC ] 61,112, at P 40 
(2004).
    \33\ Midcontinent Indep. Sys. Operator, Inc., 148 FERC ] 61,057, 
at P 84 (2014) (``While the Commission has accepted a range of 
reasonable compensation methodologies for RMR units in RTOs/ISOs, we 
find that it is unjust and unreasonable to not allow SSRs to receive 
compensation for the fixed costs of existing plant given MISO's 
authority under its Tariff to unilaterally require a generator that 
seeks to retire or suspend operations to remain online in order to 
address reliability concerns'').
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    18. NYISO's proposal should also contain procedures requiring the 
filing of RMR agreements for review and approval by the Commission, 
including, among other provisions, a pro forma RMR Agreement; \34\ a 
filing requirement for RMR agreements will ensure Commission review of 
the agreements and thus ensure that they are just and reasonable and 
not unduly discriminatory or preferential.\35\ Specifically, regardless 
of whether NYISO adopts a voluntary approach or an involuntary 
approach, NYISO's proposal should provide authorization for a generator 
to file, for Commission review, an RMR agreement under FPA section 205 
in the form of the Tariff's pro forma RMR Agreement containing cost-
based rates (and provisions for filings to change such rates) \36\ for 
the provision of RMR service in accordance with the NYISO Tariff.\37\ 
Providing for such FPA section 205 filings will ensure that generators 
delaying deactivation for transmission system reliability reasons will 
have the authority to seek just and reasonable rates when they delay 
deactivation. In the case where a generator seeks to file such rates 
under FPA section 205, NYISO should provide

[[Page 10681]]

the generator the reliability study report and NYISO's RMR proposal 
should address which entity will file the reliability report(s) with 
the Commission.
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    \34\ The filing of RMR agreements should be done consistent with 
the requirements of the Commission's eTariff system.
    \35\ Midwest Indep. Sys. Operator, Inc., 140 FERC ] 61,237, at P 
10 (2012).
    \36\ For example, a generator should have the ability to file to 
change that rate under section 205 in the event, among other things, 
that materially adverse unforeseen circumstances affecting the unit 
increase its costs, or, alternatively, if circumstances result in a 
decrease in costs.
    \37\ See, e.g., PJM Interconnection, L.L.C., 112 FERC ] 61,031, 
at PP 18-20 (2005); see also PJM OATT 119. (``A generator seeking to 
provide RMR services under a non-conforming RMR Agreement must file 
that agreement for Commission review and approval, and demonstrate 
that it is consistent with or superior to the pro forma 
agreement''); see also Midcontinent Indep. Sys. Operator, Inc., 148 
FERC ] 61,057, at P 92 (2014) (``the MISO Tariff should allow 
generation or SCU owners designated as SSRs to file their own 
revenue requirement in order to protect that generation or SCU 
owner's rights under FPA section 205'').
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    19. NYISO's RMR proposal should address the circumstance of 
accelerated cost recovery for generators that require upgrades, 
retrofitting, repowering, or some other form of additional investment 
required to continue operating during the term of the RMR agreement, to 
ensure that in such circumstances generators are appropriately 
compensated.\38\ In addition, the proposal should likewise address 
recovery of such investments from RMR generators should the RMR unit 
receive compensation for the investment during the term of the RMR 
agreement but then continue to operate as a merchant unit after the 
term of the RMR agreement.\39\ Such provisions should ensure that 
generators under RMR agreements will not recover more than an allocable 
portion of the cost of such investments from providing RMR service.
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    \38\ See, e.g., ISO New England, Inc. 125 FERC 61,102, at PP 82-
84, order on clarification, 125 FERC ] 61,234 (2008), order denying 
reh'g, 130 FERC ] 61,089 (2010).
    \39\ Midwest Indep. Transmission Sys. Operator, Inc., 140 FERC ] 
61,237, at P 138 (2012), order on compliance, 148 FERC ] 61,056, at 
P 44 (2014).
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C. RMR Cost Allocation

    20. NYISO's RMR compliance filing should include tariff provisions 
specifying a methodology for allocating the costs of RMR agreements, as 
appropriate cost allocation is essential to ensuring that the rates 
charged are just and reasonable and not unduly discriminatory or 
preferential.\40\ Moreover, disclosing the allocation of RMR costs in 
this manner will enable the entities to whom the costs may be allocated 
to better understand their potential responsibility for the RMR 
costs.\41\ Other RTOs and ISOs have adopted different approaches to 
address the recovery of the costs associated with agreements like the 
RMR agreements discussed in this order. For example, in PJM 
Interconnection, L.L.C. (PJM), RMR costs are allocated to the load in 
the zone(s) of the transmission owners that will be assigned financial 
responsibility for the reliability upgrades necessary to alleviate the 
reliability impact that would result from the unit's deactivation.\42\ 
NYISO should ensure that any cost allocation regime is consistent with 
the Commission's cost allocation principles and precedents.
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    \40\ PJM Interconnection, L.L.C., 107 FERC ] 61,112, at P 22 
(2004).
    \41\ Midwest Indep. Transmission Sys. Operator, Inc., 140 FERC ] 
61,237, at P 154 (2012).
    \42\ See, e.g., PJM OATT 120.
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D. Toggling Provisions

    21. NYISO's proposal should also include rules to eliminate, or at 
least minimize, incentives for a generator needed for reliability to 
toggle between receiving RMR compensation and market-based compensation 
for the same units.\43\ The Commission appreciates that uneconomic 
units could become economic for a number of reasons, including changing 
market conditions and the need for and timing of capital investments. 
However, the Commission is concerned that any proposed provisions not 
provide an incentive for a generation resource to propose to deactivate 
earlier than it otherwise would have in expectation of being needed for 
reliability and, therefore, be able to receive more revenues under an 
RMR service agreement than by remaining in the market. As noted above, 
the tariff provisions should not provide an incentive for a generation 
resource to re-enter the market after having received accelerated 
recovery of the cost of additional investments made under its RMR 
agreement.\44\ Accordingly, to address the Commission's concerns 
related to toggling, NYISO should craft tariff provisions that provide 
clear guidance to generators regarding the implications of a 
deactivation notice.
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    \43\ See, e.g., PJM OATT 118; ISO-NE, Transmission Markets and 
Services Tariff, III.13.2.5.2.5 (18.0.0); MISO, FERC Electric 
Tariff, 38.2.7 (4.0.0); CAISO, eTariff, 43.2.6 (1.0.0).
    \44\ See, ISO New England Inc., 125 FERC ] 61,102, at PP 45-48 
(2008).
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The Commission Orders
    (A) Pursuant to the authority contained in and subject to the 
jurisdiction conferred upon the Federal Energy Regulatory Commission by 
section 402(a) of the Department of Energy Organization Act and by the 
Federal Power Act, particularly section 206 thereof, and pursuant to 
the Commission's Rules of Practice and Procedure and the regulations 
under the Federal Power Act (18 CFR Chapter I), the Commission hereby 
institutes a proceeding in Docket No. EL15-37-000 concerning the 
justness and reasonableness of NYISO's Tariff with regard to RMR 
issues, as discussed in the body of this order.
    (B) Within 120 days of the date of issuance of this order, NYISO 
shall submit a compliance filing containing a proposed RMR Rate 
Schedule and pro forma RMR agreement, as discussed in the body of this 
order.
    (C) Any interested person desiring to be heard in this proceeding 
must file a notice of intervention or motion to intervene, as 
appropriate, with the Federal Energy Regulatory Commission, 888 First 
Street NE., Washington, DC 20426, in accordance with Rule 214 of the 
Commission's Rules of Practice and Procedure (18 CFR 385.214 (2014)) 
within 21 days of the date of this order.
    (D) The Secretary is hereby directed to promptly publish this order 
in the Federal Register.

    By the Commission.

    Issued: February 19, 2015.
Kimberly D. Bose,
Secretary.
[FR Doc. 2015-04119 Filed 2-26-15; 8:45 am]
BILLING CODE 6717-01-P


