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					     NYISO Posting for
      FERC Order 890
    Describing the NYISO
      Planning Process




         September 14, 2007




`
                   NYISO Posting for FERC Order 890 Filing – DRAFT


                                       Table of Contents


Section:                                                                                    Page No:

   I.      Cover Memo -     Draft OATT Attachment...................................I          –   1-6
  II.      Exhibit 1A   -   Attachment Y – Clean Version .........................II           – 1-30
 III.      Exhibit 1B   -   Attachment Y – Blacklined Version .................III             – 1-31
  IV.      Exhibit 2    -   Con Edison/PSEG Proposal..............................IV           –   1-3
  V.       Exhibit 3    -   National Grid Proposal .....................................V      – 1-10
  VI.      Exhibit 4    -   Comparison of Cost Allocation Proposals .............VI            –   1-5
 VII.      Exhibit 5    -   TO Cost Recovery Proposal..............................VII –           1-6
   SECTION I


    Cover Memo

Draft OATT Attachment
  DRAFT OATT ATTACHMENT DESCRIBING THE NYISO PLANNING PROCESS


                    Posted with Related Documents To Comply With
               FERC Order 890 (Docket Nos. RM05-17-000 and RM05-25-000)

                                   Posted on September 14, 2007


Background


On February 15, 2007 FERC issued its Final Rule (Order No. 890) on open access reform,
culminating a lengthy rulemaking process that began in September 2005. Order No. 890 adopts
a number of reforms to FERC’s pro-forma Open Access Transmission Tariff (“OATT”) that was
adopted under Order Nos. 888 and 889 over a decade ago. The Commission’s stated objectives
in Order No. 890 include one “…to increase transparency in the rules applicable to planning and
the use of the transmission system.” The Final Rule directed that, by October 11, 2007, all
transmission providers, including ISOs and RTOs, must either submit filings containing the non-
rate terms and conditions in Order No. 890, or must demonstrate that previously approved
variations from the pro-forma OATT provisions continue to be consistent with or superior to the
revised pro-forma OATT.


In Order No. 890, FERC has adopted nine “Planning Principles” for reliability and economic
planning processes with which all transmission providers must comply. In the Final Rule, FERC
recognized that ISO/RTOs already have Commission-approved transmission planning processes
that are more open and transparent than in non-ISO/RTO regions, and noted that its intent is
“…not to reopen prior approvals.”


After reviewing Order No. 890, NYISO has concluded that its existing Comprehensive
Reliability Planning Process (“CRPP”), contained in Attachment Y to the NYISO OATT, is
already in compliance with most of the nine FERC Planning Principles contained in the Final
Rule, namely the following: Coordination, Openness, Transparency, Information Exchange,
Comparability and Dispute Resolution. However, the NYISO’s existing planning process does




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not yet fully comply with the remaining three principles. These deal with: Economic Planning
Studies, Cost Allocation and Regional Planning.


During March through June of 2007, the NYISO worked with stakeholders through the Electric
System Planning Working Group (“ESPWG”) and the Transmission Advisory Planning
Subcommittee (“TPAS”) to develop a planning “Strawman” which proposed modifications to the
existing NYISO OATT Attachment Y planning process -- principally in the area of economic
planning -- to address the requirements of Order No. 890. On June 28, this Strawman was
presented to FERC Staff at a technical conference held in Pittsburgh. While the Strawman was
favorably received, FERC Staff provided a clear indication that the NYISO’s compliance filing
must also include a cost allocation methodology for both reliability projects as well as economic
projects. Stakeholders at the technical conference also called for increased transparency in the
local planning processes of transmission owners, and of an increased level of inter-regional
planning among the North ISO/RTOs.


On July 27, 2007, FERC issued an Order granting additional time—until December 7, 2007—for
compliance filings with respect to the planning provisions of Order No. 890. The July 27 Order
also requires all transmission providers to post on their respective websites—by September
14th—a draft of their proposed planning process. The NYISO makes this posting to comply
with that requirement. In the July 27 Order, the Commission stated its concern that “in many
regions much work remains” to be done in order to prepare tariff language required for the
December compliance filing. Accordingly, following the posting of the drafts in September,
FERC will hold another round of technical conferences to assist transmission providers and their
stakeholders in preparing their compliance filings. The technical conference for the NYISO,
PJM, ISO-NE and MISO will be held in Boston on October 15-16.


On August 2, as a follow-up to the June technical conference, FERC Staff issued a “White
Paper” to provide guidance for transmission providers in the preparation of their compliance
filings. In this White Paper, FERC Staff provides specific recommendations regarding the issues
that should be addressed with respect to each of the nine Planning Principles contained in the
Final Rule. Regarding Cost Allocation, Staff recommends that transmission providers should



09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                           I-2
take guidance from recent Commission Orders (including Orders for MISO, PJM, and CAISO)
which have stressed the need for ex ante certainty through definite cost allocation rules and clear
rules for identifying who benefits from specific projects. FERC Staff clearly states in the White
Paper that simple statements, such as “project costs will be allocated to project beneficiaries” do
not provide the required ex ante certainty.


NYISO’s Stakeholders Process Following the June Technical Conference


Since the FERC technical conference in June, the NYISO has been working diligently with its
stakeholders on the development of its compliance filing. The NYISO has held a total of six
formal stakeholder meetings at joint meetings of the ESPWG and TPAS. In addition, members
of NYISO staff have had numerous conference calls and meetings with various sector
representatives, including the New York Transmission Owners, and with members of the staff of
the New York PSC. The principal focus of the NYISO stakeholder process during this time has
been on the development of an economic planning process, cost allocation and recovery
procedures, and a process for the integration of the local TO planning process with the NYISO’s
planning process.


These efforts to date have produced a working draft of the NYISO planning process. This draft,
in the form of a modified Attachment Y to the NYISO OATT (which is equivalent to Attachment
K of the pro forma OATT referenced in Order No. 890), is included in this posting as Exhibits
1A and 1B. Exhibit 1A is a clean version of the modified Attachment Y to the NYISO OATT.
Exhibit 1B is a blacklined version of the same document that highlights the modifications
proposed thus far to the existing Attachment Y of the NYISO OATT in order to address the
planning requirements of Order No. 890. The principal topics addressed in this draft Attachment
Y are the following:
            •   Local TO Planning Process
            •   Economic Planning Process
            •   Cost Allocation
            •   Interregional Planning




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In accordance with the existing Attachment Y, the NYISO has worked with its stakeholders to
develop a number of planning procedures. The NYISO is also in the process of developing a
manual for the Comprehensive Reliability Planning Process (“CRPP Manual”) that will be
posted prior to the December 7 compliance filing. The modified draft Attachment Y included in
this posting also incorporates these procedures, either in full or by reference to the CRPP
Manual.


The NYISO believes that this working draft of the modified OATT Attachment Y substantially
addresses all of FERC’s nine Planning Principles for both reliability planning and economic
planning. While the entire draft may be subject to further modification, the NYISO believes that
general consensus has been achieved on most issues with the exception of cost allocation and
cost recovery. Additional stakeholder discussions are also anticipated to further develop the
proposed provisions for the local TO planning process, as well as for the overall economic
planning process.


Cost Allocation


The NYISO and its stakeholders have been discussing cost allocation methodologies for both
reliability projects and economic projects. These discussions have produced substantial
agreement regarding the methodology for reliability projects, included in this posting in Section
14.1 of Exhibit 1. Discussions will continue on this methodology, including its possible
application to the advancement of a reliability backstop project due to economic considerations.
To date, the discussions on cost allocation have produced no agreement regarding the
methodology for economic projects. Currently, there are under discussion three possible
methodologies for allocating the cost of economic projects: (i) NYISO staff’s proposal, based on
the FERC-approved MISO methodology referenced in the August 2 FERC Staff White Paper on
Order No. 890, and contained in Section 14.2 of Exhibit 1 (albeit not in the form of tariff
language), (ii) a proposal submitted by Con Edison and PSEG, included in this posting as Exhibit
2, and (iii) a proposal submitted by National Grid included in this posting as Exhibit 3. This
posting also includes a matrix comparing these three different methodologies, as Exhibit 4.




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Cost Recovery


On a parallel track with the general NYISO stakeholder process, the NYISO and the New York
Transmission Owners and staff of the New York PSC, have been in active discussions on cost
recovery for regulated reliability projects and regulated economic projects. The New York
Transmission Owners have made it clear that their support for any cost allocation methodology,
whether for reliability projects or for economic projects, depends on the inclusion in the NYISO
OATT of a cost recovery mechanism for regulated reliability projects and regulated economic
projects that is satisfactory to them. The New York Transmission Owners presented a cost
recovery proposal to the ESPWG and TPAS during their joint meeting on September 6. This
proposal would, if adopted, require a change to the existing provisions of Attachment Y.
Specifically, in order to treat all types of solutions to bulk power system Reliability Needs on an
equal basis, the TO’s proposal provides for cost recovery under the NYISO OATT for generation
and demand-side response projects, in addition to transmission projects, that are built to meet
bulk power system Reliability Needs. It is noted that the staff of the New York PSC has
expressed its concerns regarding potential jurisdictional aspects of the New York Transmission
Owners’ proposal. This proposal will be discussed with Market Participants at future
stakeholder meetings. It is included in this posting as Exhibit 5.


Local Transmission Owner Planning


The NYISO and its stakeholders have had extensive discussions about local Transmission Owner
planning. Under the current NYISO reliability planning process, CRPP, the transmission district
plans prepared by each New York Transmission Owner provide input to the CRPP. This input
will continue when the CRPP is modified and expanded to comply with Order No. 890. The
NYISO, New York Transmission Owners and other stakeholders have been discussing
extensively the process that each Transmission Owner will follow when developing its
transmission district plan to ensure satisfaction of the requirements of Order No. 890. The New
York Transmission Owners have stated that they are committed to ensuring transparency and
coordination in their respective transmission district planning processes, without altering the
established procedures and timelines they follow to develop these plans. The current proposal,



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provided by the New York Transmission Owners and modified following discussions at several
stakeholder meetings, is included in the posting in Section 4 of Exhibit 1.


Going Forward


Building on the work done thus far, including the documents in this posting, the NYISO intends
to continue working diligently with all interested stakeholders to build the broadest possible
support for its compliance filing on December 7. The NYISO welcomes comments on this
posting and on the issues raised by the requirements of Order No. 890. Such comments may be
brought to meetings of the ESPWG and TPAS, or to the FERC technical conference in Boston
on October 15 and 16, or may be submitted directly to NYISO by an e-mail sent to X. Henry
Chao, Director of System and Resource Planning, HChao@NYISO.com.




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      SECTION II
       EXHIBIT 1A

Attachment Y – Clean Version

      New York ISO
   Comprehensive System
     Planning Process
                                                                   DISCUSSION DRAFT
                                                                           Clean Version
                                                      (NYISO Posting--September 14, 2007)




                                     Attachment Y

            New York ISO Comprehensive System Planning Process
                                   Table of Contents


A.   General Overview                                                                   1
     1.0    New York Comprehensive System Planning Process (“CSPP”)                     1
     2.0    Definitions                                                                 2
     3.0    NYISO Implementation and Administration                                     4
B.   Reliability Planning Process                                                       4
     4.0    Local Transmission Owner Planning Process                                   4
     5.0    Reliability Needs Assessment                                                5
     6.0    RNA Review Process                                                          7
     7.0    Development of Solutions to Reliability Needs                               8
     8.0    NYISO Evaluation of Proposed Solutions to Reliability Needs                 9
     9.0    Comprehensive Reliability Plan                                             12
     10.0 Monitoring of Reliability Project Status                                     13
C.   Economic Planning Process                                                         16
     11.0 Congestion Assessment and Resource Integration Study for Economic Planning   16
     12.0 CARIS Review Process                                                         18
D.   Cost Allocation and Cost Recovery                                                 18
     13.0 Cost Allocation Principles                                                   18
     14.0 Cost Allocation Methodologies                                                21
     15.0 Cost Recovery for Regulated Projects                                         26
E.   Other Provisions                                                                  27
     16.0 FERC Role in Dispute Resolution                                              27
     17.0 Non-Jurisdictional Entities                                                  27
     18.0 Tax Exempt Financing Provisions                                              28
     19.0 Interregional Planning Coordination                                          28

     Appendix A: Reporting of Historic and Projected Congestion                        29
A.      General Overview

1.0     New York Comprehensive System Planning Process (“CSPP”)

        1.1   Reliability Planning Process

         Sections 4.0 through 9.0 of this Attachment describe the process that the NYISO, the
Transmission Owners, and Market Participants shall follow for planning to meet the reliability
needs of the New York State Bulk Power Transmission Facilities (“BPTFs”). The objectives of
the process are to: (1) evaluate the reliability needs of the BPTFs; (2) identify, through the
development of appropriate scenarios, factors and issues that might adversely impact the
reliability of the BPTFs; (3) provide a process whereby solutions to identified needs are
proposed, evaluated, and implemented in a timely manner to ensure the reliability of the system;
(4) provide an opportunity for the development of market-based solutions while ensuring the
reliability of the BPTFs; and (5) coordinate the NYISO’s reliability assessments with
Neighboring Control Areas.

        The NYISO will provide, through the analysis of historical system congestion costs,
information about historical congestion including the causes for that congestion so that Market
Participants and other stakeholders can make appropriately informed decisions. See
Appendix A.

        1.2   Transmission Owner Planning Process

       The Transmission Owners will continue to plan for their transmission systems, including
the BPTFs. The planning process of each TO is referred to herein as the Local TO Planning
Process (“LTPP”).

       The plans periodically prepared by the Transmission Owners will be used as inputs to the
Reliability Planning Process described in this Attachment Y. Each Transmission Owner will
prepare plans for its transmission system in accordance with the procedures described in Section
4.0.

        1.3   Economic Planning Process

        Sections 11.0 and 12.0 of this Attachment Y describe the process that the NYISO, the
Transmission Owners, and Market Participants shall follow for economic planning to identify
and reduce current and future projected congestion on the New York State BPTFs. The
objectives of the economic planning process are to: (1) project congestion on the New York
State BPTFs over the ten-year planning period of this Comprehensive Transmission System
Planning Process, (2) identify, through the development of appropriate scenarios, factors that
might produce or increase congestion, (3) provide a process whereby projects to reduce
congestion identified in the economic planning process are proposed and evaluated in a timely
manner, (4) provide an opportunity for the development of market-based solutions to reduce the
congestion identified, and (5) coordinate the NYISO’s congestion assessments and economic
planning process with Neighboring Control Areas.




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Exhibit 1A
2.0     Definitions

      Unless otherwise defined in this document, capitalized terms used herein shall have the
meanings ascribed to them in the OATT.

      ATRA: The Annual Transmission Reliability Assessment conducted under
Attachment S to the NYISO OATT.

       Binding Interface Test: A test conducted by the NYISO, when Reliability Needs have
been identified, to determine the binding interfaces that are impacting LOLE within the NYCA.

       CARIS: The Congestion Assessment and Resource Integration Study for economic
planning developed by the NYISO in consultation with the Market Participants under this
Attachment Y.

       Compensatory Megawatt: A unit of measurement, for Reliability Needs cost allocation
purposes, that serves as a proxy for the resources to be added to address a Reliability Need,
without regard to the nature of the actual solution, which may be generation, transmission or
demand response.

       CRP: The Comprehensive Reliability Plan as approved by the NYISO Board of
Directors pursuant to this tariff.

        CSPP: The Comprehensive System Planning Process set forth in this Attachment Y,
which covers reliability planning, economic planning, cost allocation and cost recovery, and
interregional planning coordination.

         ESPWG: The Electric System Planning Work Group, or any successor Market
Participant work group or committee designated to fulfill the functions assigned to the ESPWG
in this tariff.

         Five Year Base Case: The model representing the New York State Power System over
the first five years of the Study Period.

        Gap Solution: A solution to a Reliability Need that is designed to be temporary and to
strive to be compatible with permanent market-based proposals. A permanent regulated solution,
if appropriate, may proceed in parallel with a Gap Solution.

       LTP: The Local TO Plan, developed by each TO, which describes its respective plans
that may be under consideration or finalized for its own Transmission District.

      LTPP: The Local Planning Process conducted by each Transmission Owner for its own
Transmission District.

        Other Developers: Parties or entities sponsoring or proposing to sponsor regulated
solutions to Reliability Needs who are not Transmission Owners.




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Exhibit 1A
       Management Committee: The standing committee of the NYISO of that name created
pursuant to the ISO Agreement.

       New York State Bulk Power Transmission Facilities: The facilities identified as the
New York State Bulk Power Transmission Facilities in the annual Area Transmission Review
submitted to NPCC by the NYISO pursuant to NPCC requirements.

        NYCA Free Flow Test: A NYCA unconstrained internal transmission interface test,
performed by the NYISO to determine if a Reliability Need is the result of a statewide resource
deficiency or a transmission limitation.

       NYDPS: The New York State Department of Public Service, as defined in the New York
Public Service Law.

       NYPSC: The New York Public Service Commission, as defined in the New York Public
Service Law.

       Operating Committee: The standing committee of the NYISO of that name created
pursuant to the ISO Agreement.

       Reliability Criteria: The electric power system planning and operating policies,
standards, criteria, guidelines, procedures, and rules promulgated by the North American Electric
Reliability Council (“NERC”), Northeast Power Coordinating Council (“NPCC”), and the New
York State Reliability Council (“NYSRC”), as they may be amended from time to time.

       Reliability Need: A condition identified by the NYISO in the RNA as a violation or
potential violation of Reliability Criteria.

        Responsible TO: The Transmission Owner or Transmission Owners designated by the
NYISO, pursuant to the NYISO Planning Process, to prepare a proposal for a regulated solution
to a Reliability Need or to proceed with a regulated solution to a Reliability Need. The
Responsible TO will normally be the Transmission Owner in whose Transmission District the
NYISO identifies a Reliability Need.

          RNA: The Reliability Needs Assessment as approved by the NYISO Board under this
tariff.

          Study Period: The ten-year time period evaluated in the RNA.

        TPAS: The Transmission Planning Advisory Subcommittee, or any successor Market
Participant work group or committee designated to fulfill the functions assigned to TPAS in this
tariff.




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Exhibit 1A
3.0     NYISO Implementation and Administration

       a.      The NYISO shall adopt procedures for the implementation and administration of
the Comprehensive System Planning Process set forth in this tariff. Such procedures will be
incorporated in the NYISO’s manuals.

         b.     The NYISO shall establish in its procedures a schedule for the collection and
submission of data and the preparation of models to be used in the studies contemplated under
this tariff. That schedule shall provide for a rolling two-year cycle of studies and reports. Each
cycle commences with the Local TO Planning Process providing input into the Reliability
Planning Process, which is followed by the Economic Planning Process.

       c.      The NYISO’s procedures shall be designed to allow the coordination of the
NYISO’s planning activities with those of NERC, NPCC, the NYSRC, neighboring Control
Areas and other regional reliability organizations so as to develop consistency of the models,
databases, and assumptions utilized in making reliability and economic determinations.



B.      Reliability Planning Process

4.0     Local Transmission Owner Planning Process

        4.1   Criteria, Assumptions and Data

        Each TO will post on its website the planning criteria and assumptions used in its current
LTPP as well as a list of any applicable software and/or analytical tools used in the LTPP. Any
planning criteria or assumptions for a TO’s BPTFs will meet or exceed any applicable NERC,
NPCC or NYSRC criteria. The LTPP shall include a description of the needs addressed by the
LTPP as well as the assumptions, applicable planning criteria and methodology utilized. A link
to each TO’s website will be posted on the NYISO website.

        4.2   Process Timeline

       a.      Each TO will post its current LTP on its website for review by Customers and
Market Participants sufficiently in advance of the time for submission to the NYISO for input to
its RNA so as to allow adequate time for stakeholder review and comment.

        b.      To the extent the current LTP utilizes data or inputs, related to the NYISO’s
planning process, not already reported by the NYISO in Form 715 and referenced on its website,
any such data will be provided to the NYISO at the time each TO posts its current LTP and
posted by the NYISO on its website subject to any confidentiality or Critical Energy
Infrastructure Information restrictions or requirements.

        c.      Each planning cycle, the NYISO shall hold one or more stakeholder meetings at
which each TO’s current LTP will be discussed. Such meetings will be held either at the TO’s
Transmission District, or at a NYISO location. The NYISO shall post notice of the meeting and
shall disclose the agenda and any other material distributed prior to the meeting.


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Exhibit 1A
        d.     Market Participants may submit written comments to a TO with respect to its
current LTP within thirty days after the meeting. Each TO shall list on its website, as part of its
LTP, the person and/or location to which comments should be sent by Market Participants. All
comments will be posted on the NYISO website. Each TO will consider comments received in
developing any modifications to its LTP. Any such modification will be explained in its current
LTP posted on its website pursuant to Section 4.2.b above and discussed at the next meeting held
pursuant to Section 4.2.c above.

      e.      Each planning cycle, each TO will submit its current LTP to the NYISO as
contemplated in Section 5.4(b) below for timely inclusion in the RNA.

5.0     Reliability Needs Assessment

        5.1   General

        The NYISO shall prepare and publish the RNA as described below. The RNA will
identify Reliability Needs and provide an analysis of historic congestion costs. The NYISO shall
also designate in the RNA the Responsible TO with respect to each Reliability Need.

        5.2   Market Participant Participation in the Development of the RNA

        The NYISO shall develop the RNA in consultation with Market Participants. TPAS will
have responsibility consistent with ISO Procedures for review of the NYISO’s reliability
analyses. ESPWG will have responsibility consistent with ISO Procedures for providing
commercial input and assumptions to be used in the development of reliability assessment
scenarios provided under Section 5.5, and in the reporting and analysis of historic congestion
costs. Coordination will be established between these two groups and NYISO Staff during each
stage of the planning process. The NYISO Staff shall report any majority and minority views of
these Market Participant work groups when it submits the RNA to the Operating Committee for
a vote, as provided below.

        5.3   Preparation of the Reliability Needs Assessment

        a.      The NYISO shall evaluate system needs in the RNA over the Study Period.

       b.      The starting point for the development of the Five Year Base Case will be the
system as defined for the ATRA. The details of the development of the Five Year Base Case are
contained in the procedures contained in the NYISO’s Comprehensive Reliability Planning
Process Manual.

        c.      The NYISO shall assess the Five Year Base Case to determine whether the
BPTFs meet all Reliability Criteria for both resource and transmission adequacy in each year,
and report the results of its evaluation in the RNA. Transmission analyses will include thermal,
voltage, short circuit, and stability studies. Then, if any Reliability Criteria are not met in any
year, the NYISO shall perform additional analyses to determine whether additional resources
and/or transmission capacity expansion are needed to meet those requirements, and to determine
the expected first year of need for those additional resources and/or transmission. The study will



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Exhibit 1A
not seek to identify specific additional facilities. Reliability needs will be defined in terms of
total deficiencies relative to Reliability Criteria and not necessarily in terms of specific facilities.

       d.       The NYISO will also evaluate the BPTFs over the second five years of the Study
Period to determine whether they meet all Reliability Criteria for both resource and transmission
adequacy in each year and report the results of its evaluation in the RNA. A short circuit
assessment will be performed for the tenth year of the Study Period. Reliability needs will be
defined in terms of total deficiencies relative to Reliability Criteria and not necessarily in terms
of specific facilities.

         e.      The NYISO shall develop the system representation to be used for its evaluations
of the second five years of the Study Period using (1) the most recent Load and Capacity Data
Report published by the NYISO on its web site; (2) the most recent versions of NYISO
reliability analyses and assessments provided for or published by NERC, NPCC, NYSRC, and
neighboring Control Areas; (3) information reported by neighboring Control Areas such as
power flow data, forecasted load, significant new or modified generation and transmission
facilities, and anticipated system conditions that the NYISO determines may impact the BPTFs;
and (4) Market Participant data submitted pursuant to paragraph 5.4 below.

        5.4   Market Participant Input

       a.       At the NYISO’s request, Market Participants shall provide in accordance with the
schedule set forth in the procedures adopted under Section 3.0 the data necessary for the
development of the RNA. This input will include but not be limited to (1) existing and planned
additions to the New York State Transmission System (to be provided by Transmission Owners
and municipal electric utilities); proposals for merchant transmission facilities (to be provided by
merchant developers); generation additions and retirements (to be provided by generator owners
and developers); demand response programs (to be provided by demand response providers); and
any long-term firm transmission requests made to the NYISO.

       b.       The Transmission Owners shall submit their plans referenced in Section 1.2 and
Section 4.0 to the NYISO. The NYISO will review the Transmission Owners’ plans to
determine whether they will meet Reliability Needs, recommend an alternate means to resolve
the needs from a regional perspective, where appropriate, or indicate that it is not in agreement
with a Transmission Owner’s proposed additions. The NYISO shall report its determinations
under this section in the RNA and in the CRP.

        5.5   Reliability Scenario Development

       The NYISO, in consultation with the ESPWG and TPAS, shall develop reliability
scenarios addressing the first five years and the second five years of the Study Period. Variables
for consideration in the development of these reliability scenarios include but are not limited
to: load forecast uncertainty, fuel prices and availability, new resources, retirements,
transmission network topology, and limitations imposed by proposed environmental legislation.




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Exhibit 1A
        5.6   Evaluation of Alternate Reliability Scenarios

         The NYISO will conduct additional reliability analyses for the alternate reliability
scenarios developed pursuant to paragraph 5.5. These evaluations will test the robustness of the
needs assessment studies conducted under paragraphs 5.3. This evaluation will only identify
conditions under which Reliability Criteria may not be met. It will not identify or propose
additional needs. In addition, the NYISO will perform appropriate sensitivity studies to
determine whether Reliability Needs previously identified can be mitigated through alternate
system configurations or operational modes. The Reliability Needs may increase in some
reliability scenarios and may decrease, or even be eliminated, in others. The NYISO shall report
the results of these evaluations in the RNA.

        5.7   Reliability Needs Assessment Report Preparation

        Once all the analyses described above have been completed, NYISO Staff will prepare a
draft of the RNA including discussion of its assumptions, Reliability Criteria, and results of the
analyses.



6.0     RNA Review Process

        6.1   Market Participant Process

       The draft RNA shall be submitted to both TPAS and the ESPWG for review and
comment. Following completion of that review, the draft RNA shall be forwarded to the
Operating Committee for discussion and action. The NYISO shall notify the Business Issues
Committee of the date of the Operating Committee meeting at which the draft RNA is to be
presented. Following the Operating Committee vote, the draft RNA will be transmitted to the
Management Committee for discussion and action.

        6.2   Board Action

        Following the Management Committee vote, the draft RNA, with working group,
Operating Committee, and Management Committee input, will be forwarded to the NYISO
Board for review and action. Concurrently, the draft RNA will be provided to the Independent
Market Advisor for his review and consideration of whether market rules changes are necessary
to address an identified failure, if any, in one of the NYISO’s competitive markets. The Board
may approve the RNA as submitted, or propose modifications on its own motion. If any changes
are proposed by the Board, the revised RNA shall be returned to the Management Committee for
comment. The Board shall not make a final determination on a revised RNA until it has
reviewed the Management Committee comments. Upon approval by the Board, the NYISO shall
issue the final RNA to the marketplace by posting it on its web site.

        6.3   Needs Assessment Disputes

      Notwithstanding any provision to the contrary in this Attachment, the NYISO OATT, or
the NYISO Services Tariff, in the event that a Market Participant raises a dispute solely within


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Exhibit 1A
the NYPSC’s jurisdiction relating to the final conclusions or recommendations of the RNA, a
Market Participant may refer such dispute to the NYPSC for resolution. The NYPSC’s final
determination shall be binding, subject only to judicial review in the courts of the State of New
York pursuant to Article 78 of the NYCPLR.

        6.4   Public Information Sessions

         In order to provide ample exposure for the marketplace to understand the identified
reliability needs, the NYISO will provide various opportunities for Market Participants and other
potentially interested parties to discuss the final RNA. Such opportunities may include
presentations at various NYISO Market Participant committees, focused discussions with various
industry sectors, and/or presentations in public venues.



7.0     Development of Solutions to Reliability Needs

        7.1   Regulated Backstop Solutions

        a.      When a Reliability Need is identified in any RNA issued under this tariff, the
NYISO shall request and the Responsible TO shall provide to the NYISO, as soon as reasonably
possible, a proposal for a regulated solution or combination of solutions that shall serve as a
backstop to meet the Reliability Need if requested by the NYISO due to the lack of sufficient
viable market based solutions to meet such Reliability Need. The backstop regulated solution or
solutions shall cover all of the Reliability Needs identified for the Study Period. A proposed
regulated backstop solution to address a need in the second five years of the planning period that
does not have a trigger date of one year or less will not require the same level of detail as a
proposed solution for a need in the first five years. The criteria for regulated backstop solutions
are included in the NYISO’s Comprehensive Reliability Planning Process Manual. Such
proposals may include reasonable alternatives that would effectively address the Reliability
Need. The Responsible TO shall also estimate the lead time necessary for the implementation of
its proposal. The NYISO will establish a lead time for responses submitted pursuant to
Sections 7.2, 7.4 and 8.7 on the basis of the time period required for implementation of the
proposed potential backstop solution. Prior to providing its response to the RNA, each
Responsible TO will present for discussion any updates in its LTP made in response to a
Reliability Need identified in the RNA. Contemporaneous with the request to the Responsible
TO, the NYISO shall solicit responses using the two-step process defined below, which shall not
be a formal RFP process.

       b.      Market Participants may submit at any time optional suggestions for changes to
NYISO rules or procedures which could result in the identification of additional resources or
market alternatives suitable for meeting Reliability Needs.

        7.2   Market-Based Responses

       At the same time that a proposal for a backstop regulated solution is requested from the
Responsible TO under Section 7.1, the NYISO shall also request market-based responses from
the market place. Subject to the execution of appropriately drawn confidentiality agreements and


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Exhibit 1A
FERC’s standards of conduct, the NYISO and the appropriate Transmission Owner or
Transmission Owners shall provide any party who wishes to develop such a response access to
the data that is necessary to develop its response. Such data shall only be used for the purposes
of preparing a market-based response to a Reliability Need under this section. Such responses
will be open to all resources, including generation, demand response providers, and merchant
transmission developers.

        7.3   Qualifications for a Valid Market-Based Response

        The NYISO’s procedures establishing qualifications and criteria for a valid market-based
solution are included in the NYISO’s Comprehensive Reliability Planning Process Manual.
Such qualifications recognize the differences between various resources’ characteristics and
development time lines.

        7.4   Alternative Regulated Responses

        a.      In the event that no market based solution qualified under Section 7.3 is proposed,
or the NYISO determines that there is imminent need to do so, the NYISO will initiate a second
step of the solicitation process by requesting alternative regulated responses to Reliability Needs.
Such proposals may include reasonable alternatives that would effectively address the identified
Reliability Need.

        b.      In response to the NYISO’s request, Other Developers may develop alternative
regulated proposals for generation, demand side alternatives, and/or other solutions to address a
Reliability Need and submit such proposals to the NYISO. Transmission Owners, at their
option, may submit additional proposals for regulated solutions to the NYISO. Transmission
Owners and Other Developers may submit such proposals to the NYDPS for review at any time.
Subject to the execution of appropriately drawn confidentiality agreements and FERC’s
standards of conduct, the NYISO and the appropriate Transmission Owner or Owners shall
provide Other Developers access to the data that is needed to develop their proposals. Such data
shall be used only for purposes of preparing an alternative regulated proposal in response to a
Reliability Need.

        7.5   Additional Solutions

       Should the NYISO determine that it has not received adequate regulated backstop or
market-based solutions to satisfy the Reliability Need, the NYISO may, in its discretion, solicit
additional regulated backstop or market-based solutions. Other Developers may submit
additional alternative regulated solutions for the NYISO’s consideration at that time.


8.0     NYISO Evaluation of Proposed Solutions to Reliability Needs

        8.1   Evaluation of Regulated Backstop Solutions

       The NYISO shall evaluate a proposed regulated backstop solution submitted by a
Responsible TO pursuant to Section 7.1 to determine whether it will meet the identified
Reliability Need in a timely manner, and will report the results of its evaluation in the CRP.


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Exhibit 1A
        8.2   Evaluation of Market Based Proposals

        The NYISO shall review proposals for market-based solutions and determine whether
they resolve a Reliability Need. If market-based solutions are found by the NYISO to be
sufficient to meet a Reliability Need in a timely manner, the NYISO will so state in the CRP.
The NYISO will not select from among the market-based solutions if there is more than one
proposal which will meet the same Reliability Need.

        8.3   Evaluation of Alternative Regulated Responses

       If market-based solutions do not resolve a Reliability Need, the NYISO shall proceed to
review the proposed alternative regulated solutions submitted in accordance with Section 7.4
above, and will report the results of its review in the CRP.

        8.4   Resolution of Deficiencies

        Following initial review of the proposals, as described above, NYISO Staff will identify
any reliability deficiencies in each of the proposed solutions. The Responsible TO, other TO or
Other Developer will discuss any identified deficiencies with the NYISO Staff. Other
Developers and TOs that propose alternative regulated solutions shall have the option to revise
and resubmit their proposals to address any identified deficiency. With respect to regulated
backstop solutions proposed by a Responsible TO pursuant to Section 7.1, the Responsible TO
shall make necessary changes to its proposed backstop solution to address any reliability
deficiencies identified by the NYISO, and submit a revised proposal to the NYISO for review.
The NYISO shall review all such revised proposals to determine that all of the identified
deficiencies have been resolved.

        8.5   Designation of Backstop Regulated Solution and Responsible TO

         If the NYISO determines that a market-based solution will not be available in time to
meet a Reliability Need, and finds that it is necessary to take action to ensure reliability, it will
state in the CRP that implementation of a regulated solution is necessary. The NYISO will also
identify in the CRP (1) the backstop regulated solution that the NYISO has determined will meet
the Reliability Need in a timely manner, and (2) the Responsible TO.

        8.6   Regulated Solution to Proceed in Parallel with a Market-based Solution

       If the NYISO determines that it is necessary for the Responsible TO to proceed with a
regulated solution to be conducted in parallel with a market-based solution in order to ensure that
a Reliability Need is met in a timely manner, the CRP will so state.

        8.7   Gap Solutions

       a.      If the NYISO determines that neither market-based proposals nor regulated
proposals can satisfy the Reliability Needs in a timely manner, the NYISO will set forth its
determination that a Gap Solution is necessary in the CRP. The NYISO will also request the
Responsible TO to seek a Gap Solution.



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Exhibit 1A
      b.     If there is an imminent threat to the reliability of the New York power system, the
NYISO Board, after consultation with the NYDPS, may request the appropriate Transmission
Owner or Transmission Owners to propose a Gap Solution outside of the normal planning cycle.

        c.     Upon the NYISO’s determination of the need for a Gap Solution, pursuant to
either Section 8.7.a or 8.7.b above, the Responsible TO will propose such a solution, as soon as
reasonably possible, for consideration by the NYISO and NYDPS.

        d.      Any party may submit an alternative Gap Solution proposal to the NYISO and the
NYDPS for their consideration. The NYISO shall evaluate all Gap Solution proposals to
determine whether they will meet the Reliability Need or imminent threat. The NYISO will
report the results of its evaluation to the party making the proposal as well as to the NYDPS
and/or other appropriate regulatory agency(ies) for consideration in their review of the proposals.

       e.      Gap Solution proposals submitted under Sections 8.7.c and 8.7.d shall be
designed to be temporary solutions and to strive to be compatible with permanent market-based
proposals.

      f.      A permanent regulated solution, if appropriate, may proceed in parallel with a
Gap Solution.

        8.8   Confidentiality of Solutions

       a.      The term “Confidential Information” shall include all types of solutions to
Reliability Needs that are submitted to the NYISO as a response to Reliability Needs identified
in any RNA issued by the NYISO as part of the CRPP if the supplier or owner of that solution
designates such reliability solutions as “Confidential Information.”

        b.      For regulated backstop solutions and plans submitted by the Responsible
Transmission Owner in response to the findings of the RNA, the NYISO shall maintain the
confidentiality of same until the NYISO and the Responsible Transmission Owner have agreed
that the Responsible Transmission Owner has submitted sufficient regulated backstop solutions
and plans to meet the Reliability Needs identified in an RNA. Thereafter, the NYISO shall
disclose the regulated backstop solutions and plans to the Market Participants; however, that any
preliminary cost estimates that may have been provided to the NYISO shall not be disclosed.

        c.     For an alternative regulated response, the NYISO shall determine, after consulting
with the owner or supplier thereof, whether the response would meet part or all of the Reliability
Needs identified in an RNA, and thereafter disclose the alternative regulated response to the
Market Participants; however, that any preliminary cost estimates that may have been provided
to the NYISO shall not be disclosed.

       d.      For a market-based response, the NYISO shall maintain the confidentiality of
same during the CRPP and in the Comprehensive Reliability Plan, except for the following
information which may be disclosed by the NYISO: (i) the type of resource proposed (e.g.,
generation, transmission, demand side); (ii) the size of the resource expressed in Megawatts of
equivalent load that would be served by that resource; (iii) the subzone in which the resource
would interconnect or otherwise be located; and (iv) the proposed in-service date of the resource.


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Exhibit 1A
        e.      In the event that the developer has made a public announcement of its project or
has submitted a proposal for interconnection with the NYISO, the NYISO shall disclose the
identity of the market-based developer and the specific project during the CRPP and in the
Comprehensive Reliability Plan.



9.0     Comprehensive Reliability Plan

        Following the NYISO’s evaluation of the proposed market-based and regulated solutions
to Reliability Needs, the NYISO will prepare a draft Comprehensive Reliability Plan (“CRP”).
The draft CRP shall set forth the NYISO’s findings and recommendations, including any
determination that implementation of a regulated solution (which may be a Gap Solution) is
necessary to ensure system reliability.

        9.1   Market Participant Process

       The NYISO Staff shall submit the draft CRP to TPAS and ESPWG for review and
comment. Following completion of that review, the draft CRP shall be forwarded to the
Operating Committee for a discussion and action. The NYISO shall notify the Business Issues
Committee of the date of the Operating Committee meeting at which the draft CRP is to be
presented. Following the Operating Committee vote, the draft CRP will be transmitted to the
Management Committee for a discussion and action.

        9.2   Board Action

         Following the Management Committee vote, the draft CRP, with working group,
Operating Committee, and Management Committee input, will be forwarded to the NYISO
Board for review and action. Concurrently, the draft CRP will also be provided to the
Independent Market Advisor for his review and consideration of whether market rule changes
are necessary to address an identified failure, if any, in one of the NYISO’s competitive markets.
The Board may approve the draft CRP as submitted or propose modifications on its own motion.
If any changes are proposed by the Board, the revised CRP shall be returned to the Management
Committee for comment. The Board shall not make a final determination on the draft CRP until
it has reviewed the Management Committee comments. Upon final approval by the Board, the
NYISO shall issue the CRP to the marketplace by posting on its website. The NYISO will
provide the CRP to the appropriate regulatory agency(ies) for consideration in their review of the
proposals.

        9.3   Reliability Disputes

        Notwithstanding any provision to the contrary in this Attachment, the NYISO OATT, or
the NYISO Services Tariff, in the event that a Market Participant raises a dispute solely within
the NYPSC’s jurisdiction concerning NYISO’s final determination in the CRP that a proposed
solution will or will not meet a Reliability Need, a Market Participant seeking further review
shall refer such dispute to the NYPSC for resolution, as provided for in the NYISO’s
Comprehensive Reliability Planning Process Manual. The NYPSC’s final determination of such



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Exhibit 1A
disputes shall be binding, subject only to judicial review in the courts of the State of New York
pursuant to Article 78 of the New York Civil Practice Law and Rules.

        9.4   Determination of Necessity

        a.      If the NYISO determines in the CRP that implementation of a regulated solution
is necessary, the NYISO will request the Responsible TO to submit its proposal for a backstop
regulated solution to the appropriate necessary regulatory agency(ies) to begin the approval
process. The Responsible TO in response to the NYISO request shall make such a submission.
Other Developers and TOs proposing alternative regulated solutions pursuant to Section 7.4.b
that have completed any changes required by the NYISO under Section 8.4, which the NYISO
has determined will resolve the identified deficiencies, may submit these proposals to the
appropriate state regulatory agency(ies) for review.

        b.      If the NYISO determines in the CRP that it is necessary for the Responsible TO to
proceed with the regulated solution identified in 9.4.a in parallel with a market-based solution in
order to ensure that a Reliability Need is met in a timely manner, the Responsible TO shall
proceed with due diligence to develop it in accordance with Good Utility Practice unless or until
notified by the NYISO that it has determined that the regulated solution is no longer needed.

        c.      If, after consultation with the Responsible TO, the NYISO determines that the
Responsible TO has not submitted its proposed solution for necessary regulatory action within a
reasonable period of time, or that the Responsible TO has been unable to obtain the approvals or
property rights necessary under applicable law to construct the project, the NYISO shall submit a
report to the FERC for its consideration and determination of whether any action is appropriate
under federal law.

10.0    Monitoring of Reliability Project Status

       a.      The NYISO will monitor and report on the status of market-based solutions to
ensure their continued viability to meet Reliability Needs on a timely basis in the CRP. The
NYISO’s criteria to assess the continued viability of such projects are included in the NYISO’s
Comprehensive Reliability Planning Process Manual.

         b.      The NYISO will monitor and report on the status of regulated solutions to ensure
their continued viability to meet Reliability Needs on a timely basis in the CRP. The NYISO’s
criteria to assess the continued viability of such projects are included in the NYISO’s
Comprehensive Reliability Planning Process Manual.

        c.      The NYISO will apply the criteria in this Section 10.0(c) for halting a regulated
solution that is already underway because of the entry of a viable market-based solution that the
NYISO has determined will meet the same Reliability Need. These criteria include a cut-off
point following which a regulated solution may not be cancelled regardless of the appearance of
a market-based solution.

                (i)     The NYISO shall review proposals for market-based solutions, pursuant to
                        Section 8.2 of Attachment Y. If, based on the availability of market-based
                        solution(s) to meet the identified Reliability Need, the NYISO determines


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Exhibit 1A
                        that the regulated backstop solution is no longer needed and should be
                        halted, it will immediately notify the Responsible TO and will so state in
                        the CRP. If a regulated backstop solution is halted by the NYISO, all of
                        the costs incurred and commitments made by the Responsible TO up to
                        that point, including reasonable and necessary expenses incurred to
                        implement an orderly termination of the project, will be recoverable by the
                        Responsible TO under the cost recovery mechanism in the NYISO tariff.

                (ii)    Once the Responsible TO submits its application for state regulatory
                        approval of the regulated backstop solution, pursuant to Section 9.4(a) of
                        Attachment Y, or, if state regulatory approval is not required, once the
                        Responsible TO submits its application for any necessary regulatory
                        approval, the entry of a market-based solution will not result in the halting
                        by the NYISO of the regulated backstop solution. The NYISO, however,
                        will continue to evaluate proposed market-based solutions to determine
                        their ability to meet the identified Reliability Need in a timely manner, and
                        will provide the results of its review to the Responsible TO, market
                        participants and the appropriate state regulatory agency(ies).

                (iii)   If a material modification to the regulated backstop solution is proposed
                        by any federal, state or local agency, the Responsible TO will request the
                        NYISO to conduct a supplemental reliability review. If the NYISO
                        identifies any reliability deficiency in the modified solution, the NYISO
                        will so advise the Responsible TO and the appropriate federal, state or
                        local regulatory agency(ies).

                (iv)    If the appropriate federal, state or local agency(ies) does not approve the
                        regulated backstop solution all of the necessary and reasonable costs
                        incurred and commitments made up to the final federal, state or local
                        regulatory decision will be recoverable by the Responsible TO under the
                        NYISO cost recovery mechanism.

                (v)     The NYISO is not required to review market-based solutions to determine
                        whether they will meet the identified Reliability Need in a timely manner
                        after the regulated backstop solution has received federal and state
                        regulatory approval, unless a federal or state regulatory agency requests
                        the NYISO to conduct such a review. The NYISO will report the results
                        of its review to the federal or state regulatory agency, with copies to the
                        Responsible TO.

                (vi)    If a necessary federal, state or local authorization for a regulated solution
                        is withdrawn, all expenditures and commitments made up to that point
                        including reasonable and necessary expenses incurred to implement an
                        orderly termination of the project, will be recoverable under the NYISO
                        cost recovery mechanism by the Responsible TO. When an alternative
                        regulated solution proposed by a TO or Other Developer has been
                        determined by the PSC to be the preferred solution to a Reliability Need


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Exhibit 1A
                        and the TO or Other Developer makes all best efforts to obtain necessary
                        federal, state or local authorization, but these authorizations are not
                        granted or are withdrawn, then all reasonably incurred expenditures and
                        necessary expenses incurred to implement an orderly termination of the
                        project, will be recoverable under the NYISO cost recovery mechanism by
                        the TO or Other Developer, provided that such expenditures and
                        commitments were before the PSC when it made its determination that the
                        alternative regulated solution is the preferred solution.

        d.      The NYISO will apply the criteria in this Section 10.0(d) for determining the
cutoff date for a determination that a market-based solution will not be available to meet a
Reliability Need on a timely basis.

                (i)     In the first instance, the NYISO shall employ its procedures for
                        monitoring the viability of a market-based solution to determine when it
                        may no longer be viable. Under the conditions where a market-based
                        solution is proceeding after the date on which the NYISO would otherwise
                        have invoked a regulated backstop solution, it becomes even more critical
                        for the NYISO to conduct a continued analysis of the viability of such
                        market-based solutions.

                (ii)    The developer of such a market-based solution shall submit updated
                        information to the NYISO twice during each CRPP cycle, first during the
                        input phase of the RNA, and again during the solutions phase during the
                        period allowed for the solicitation for market-based and regulated
                        backstop solutions. If no solutions are requested in a particular year, then
                        the second update will be provided during the NYISO’s analysis of
                        whether existing solutions continue to meet identified reliability needs.
                        The updated information of the project status shall include: status of final
                        permits, status of major equipment, current status of construction
                        schedule, estimated in-service date, any potential impediments to
                        completion by the reliability need date, and any other information
                        requested by the NYISO.

                (iii)   The developer shall immediately report to the NYISO when it has any
                        indication of a material change in the project status or that the project in-
                        service date may slip beyond the Reliability Need date. A material change
                        shall include, but not be limited to, a change in the financial viability of
                        the developer, a change in siting status, or a change in a major element of
                        the project development.

                (iv)    Based upon the above information, the NYISO will perform an
                        independent review of the development status of the market-based
                        solution to determine that it remains viable to meet the identified
                        reliability need in a timely manner. If the NYISO, at any time, learns of a
                        material change in the project status of a market-based solution, it may, at




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Exhibit 1A
                        that time, make a determination as to the continued viability of such
                        project.

                (v)     The NYISO, prior to making a determination about the viability of a
                        specific proposed solution, will communicate its intended determination to
                        the project sponsor along with the basis for its intended determination.
                        The NYISO shall provide sponsor a reasonable period (not more than 2
                        weeks) to respond to the NYISO’s intended determination, including an
                        opportunity to provide additional information to the NYISO to support the
                        continued viability of the proposed solution.

                (vi)    If the NYISO determines that a market-based solution that is needed to
                        meet an identified Reliability Need is no longer viable, it will request the
                        Responsible TO(s) to invoke the regulated backstop solution, or to seek
                        other measures including but not limited to a Gap Solution, to ensure the
                        reliability of the system within the benchmark timeframe.

                (vii)   If the NYISO determines that the market-based solution is still viable, but
                        that its in-service date is likely to slip beyond the reliability need date, the
                        NYISO will request the Responsible TO(s) to prepare a Gap Solution in
                        accordance with the provisions of this Attachment Y.



C.      Economic Planning Process

11.0    Congestion Assessment and Resource Integration Study for Economic Planning

        11.1 General

        The NYISO shall prepare and publish the Congestion Assessment and Resource
Integration Study (“CARIS”) as described below. The CARIS for economic planning will align
with the reliability planning process. Each CARIS will use a ten-year planning horizon, and
each will be conducted during a XX-month time period. Each CARIS will be based on the most
recently concluded and approved CRP. The base case for each CARIS will assume a reliable
system for the ten-year planning horizon based upon the CRP.

        11.2 Market Participant Participation in the Development of the CARIS

        a.      The NYISO shall develop the CARIS in consultation with Market Participants.
The TPAS will have responsibilities consistent with ISO Procedures for review of the NYISO’s
technical analyses. ESPWG will have responsibilities consistent with ISO Procedures for
providing commercial input and assumptions to be used in the development of the congestion
assessment and the congestion assessment scenarios provided for under Section 11.5, and in the
reporting and analysis of congestion costs. Coordination will be established between these two
groups and NYISO staff during each stage of the economic planning process. The NYISO staff
shall report any majority and minority views of these Market Participant work groups when it
submits the CARIS to the Business Issues Committee for a vote, as provided below.


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Exhibit 1A
        b.      The NYISO, in conjunction with ESPWG, will develop criteria for the selection
and grouping of congestion and resource integration studies, as well as for setting the timelines
for the selected studies. Study selection criteria may include congestion estimates, and shall
include a process to prioritize the studies that comprise each CARIS. Criteria shall also include a
base number of high priority studies as well as a process to set the cut off date for each CARIS
study cycle.

       c.      The NYISO, in conjunction with ESPWG, will develop a process by which
individual customers can request and fund additional congestion and resource integration studies.
These individual studies are in addition to those that a customer can request related to firm point-
to-point transmission service pursuant to Section 19 of the NYISO OATT or studies related to
interconnection requests under Attachment X or Z of the NYISO OATT.

        d.      The NYISO, shall post all requests for congestion and resource integration studies
on its website.

        11.3 Preparation of the CARIS

       a.       The Study Period for the CARIS shall be the same ten-year Study Period covered
by the CRP.

        b.      The CARIS will assume a reliable system throughout the Study Period, based
upon the solutions identified in the most recently completed and approved CRP. The baseline
system for the CARIS shall first incorporate sufficient viable market-based solutions to meet the
identified Reliability Needs. Multiple market-based solutions, as well as regulated solutions to
Reliability Needs, may be included in the scenario assessments described in Section 11.5.

        c.     In conducting the CARIS, the NYISO shall combine the component studies
selected and assess system congestion and resource integration over the study period, measuring
congestion by the metrics discussed in Appendix A to this Attachment Y. All resource types
shall be considered as potential solutions to the congestion identified: generation, transmission
and demand response. The CARIS may include consideration of the economic impacts of
advancing a regulated back stop solution contained in the CRP.

        d.      In conducting the CARIS, the NYISO shall conduct cost/benefit analysis of each
solution to the congestion identified, applying cost/benefit metrics that the NYISO will develop
in conjunction with ESPWG.

        11.4 Market Participant Participation in the Development of the CARIS

         At the NYISO’s request, Market Participants shall provide in accordance with the
schedule set forth in the NYISO Comprehensive Reliability Planning Process Manual, the data
necessary for the development of the CARIS. This input will include but not be limited to
existing and planned additions to the New York State Transmission System (to be provided by
Transmission Owners and municipal electric utilities); proposals for merchant transmission
facilities (to be provided by merchant developers); generation additions and retirements (to be
provided by generator owners and developers); demand response programs (to be provided by
demand response providers); and any long-term firm transmission requests made to the NYISO.


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Exhibit 1A
        11.5 Congestion and Resource Integration Scenario Development

        The NYISO, in consultation with the ESPWG and TPAS, shall develop congestion and
resource integration scenarios addressing the Study Period. Variables for consideration in the
development of these congestion and resource integration scenarios include but are not limited
to: load forecast uncertainty, fuel price uncertainty, new resources, retirements and potential
requirements imposed by proposed environmental and energy efficiency mandates. The NYISO
shall report the results of these scenario analyses in the CARIS.

        11.6 CARIS Report Preparation

        Once all the analyses described above have been completed, NYISO Staff will prepare a
draft of the CARIS including a discussion of its assumptions, inputs, methodology, and the
results of its analyses.

12.0    CARIS Review Process

        12.1 Market Participant Process

       The draft CARIS shall be submitted to both TPAS and the ESPWG for review and
comment. Following completion of that review, the draft CARIS shall be sent to the Business
Issues Committee and the Management Committee for discussion and action.

        12.2 Board Action

        [TBD - Pending Resolution of Cost Allocation Process]

        12.3 Public Information Sessions

        The final CARIS report will be posted on the NYISO website. In order to provide ample
exposure for the market place to understand the content of the CARIS, the NYISO will provide
various opportunities for Market Participants and other potentially interested parties to discuss
final CARIS. Such opportunities may include presentations at various NYISO Market
Participant committees, focused discussions with various industry sectors, and /or presentations
in public venues.



D.      Cost Allocation and Cost Recovery

13.0    Cost Allocation Principles

        13.1 Market Based Responses

       The costs of market-based solutions shall be the responsibility of the developer of the
market-based proposal and shall not be subject to the provisions of Section 13.2 or Section 13.3.




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Exhibit 1A
        13.2 Regulated Responses to Reliability Needs

        Cost allocation for regulated solutions to Reliability Needs shall be determined by the
NYISO based upon the principle that beneficiaries should bear the cost responsibility. The
specific cost allocation methodology in Section 14.1, developed by the NYISO in consultation
with ESPWG, incorporates the following elements:

        a.     The focus of the cost allocation methodology shall be on solutions to violations of
specific Reliability Criteria.

       b.      Potential impacts unrelated to addressing the Reliability Needs shall not be
considered for the purpose of cost allocation for regulated solutions.

       c.      Primary beneficiaries shall initially be those Transmission Districts identified as
contributing to the reliability violation.

       d.      The cost allocation among primary beneficiaries shall be based upon their relative
contribution to the need for the regulated solution.

        e.     The NYISO will examine the development of specific cost allocation rules based
on the nature of the reliability violation (e.g., thermal overload, voltage, stability, resource
adequacy and short circuit).

      f.     Cost allocation among Transmission Districts shall recognize the terms of prior
agreements among the Transmission Owners, if applicable.

        g.     Consideration should be given to the use of a materiality threshold for cost
allocation purposes.

      h.     The methodology shall provide for ease of implementation and administration to
minimize debate and delays to the extent possible.

      i.     Consideration should be given to the “free rider” issue as appropriate. The
methodology shall be fair and equitable.

       j.       The methodology shall provide cost recovery certainty to investors to the extent
possible.

        k.      The methodology shall apply, to the extent possible, to Gap Solutions.

        l.    Cost allocation is independent of the actual triggered project(s), except when
allocating Minimum Locational Capacity Requirement (“LCR”) cost responsibilities, and is
based on a separate process that results in NYCA meeting its LOLE requirement.

       m.    There is no implied relationship between the project(s) triggered by the NYISO
and the Compensatory MW additions contemplated in the cost allocation process outlined below.

        n.      The target year is the year in which a need will be met by a backstop solution(s).



09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                         II - 19
Exhibit 1A
      o.      The trigger year is the year in which the backstop solution must begin to be
implemented, driven by the project lead time.

       p.      Cost allocation for a solution that meets the needs of a target year assumes that
backstop solutions of prior years have been implemented.

        q.      Cost allocation will consider the most recent values for LCRs. LCR must be met
for the target year.

        13.3 Regulated Economic Projects

        Cost allocation for regulated responses to NYISO studies of future congestion shall be
determined by the NYISO based upon the principle that beneficiaries should bear the cost
responsibility. The NYISO will develop criteria in consultation with Market Participants for
determining the beneficiaries of regulated economic transmission projects. The specific cost
allocation methodology, to be developed by the NYISO in consultation with ESPWG, will
incorporate the following elements:

       a.      The focus of the cost allocation methodology shall be on responses to specific
conditions identified in studies of future congestion.

       b.      Potential impacts unrelated to addressing the identified congestion shall not be
considered for the purpose of cost allocation for regulated economic projects.

       c.      Economic projects that were previously analyzed can proceed on a market basis
with willing buyers and sellers at any time.

        d.     Cost allocation shall be based upon a beneficiaries pay approach. Cost allocation
under the NYISO tariff for a regulated economic project shall be applicable only when a super
majority of the beneficiaries of the project, to be defined in the NYISO tariff, vote to support the
project.

        e.      Beneficiaries of a regulated economic project shall be those entities economically
benefiting from the proposed project. The cost allocation among beneficiaries shall be based
upon their relative economic benefit.

        f.      Consideration shall be given to the proposed project’s payback period.

        g.      The cost allocation methodology shall address the possibility of cost overruns.

        h.     Consideration shall be given to the use of a materiality threshold for cost
allocation purposes.

      i.     The methodology shall provide for ease of implementation and administration to
minimize debate and delays to the extent possible.

      j.     Consideration should be given to the “free rider” issue as appropriate. the
methodology shall be fair and equitable.



09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                         II - 20
Exhibit 1A
       k.       The methodology shall provide cost recovery certainty to investors to the extent
possible.

       l.    Benefits determination shall consider various perspectives, based upon the
agreed-upon metrics for analyzing congestion.

        m.      Benefits determination shall account for future uncertainties as appropriate (e.g.,
load forecasts, fuel prices, environmental regulations).

         n.     Benefits determination shall consider non-quantifiable benefits as appropriate
(e.g. - system operation, environmental effects, renewable integration).

        13.4 Interconnection Cost Allocation

       The cost allocation methodologies in Section 14.0 shall not apply to the allocation of
interconnection costs for market-based generation and merchant transmission projects, which is
determined in accordance with Attachment S of the NYISO OATT.

14.0    Cost Allocation Methodologies

        14.1 Cost Allocation Methodology for Regulated Responses to Reliability Needs

        General Reliability Solution Cost Allocation Formula:

         The cost allocation mechanism for reliability backstop projects would be used as a basis
for allocating costs associated with projects that are triggered to meet Reliability Needs
identified in the RNA. The formula is not applicable to that portion of a project oversized
beyond the smallest technically feasible solution that meets the Reliability Need identified in the
RNA. The same cost allocation formula is applied regardless of the project or sets of projects
being triggered; however, the nature of the solution set may lead to some terms equaling zero,
thereby dropping out of the equation. To ensure that appropriate allocation to the LCR and
non-LCR zones occurs, the zonal allocation percentages are developed through a series of steps
that first identify responsibility for LCR deficiencies, followed by responsibility for remaining
need. This cost allocation process can be applied to any solution or set of solutions that involve
a single or multiple cost allocation steps. One formula can be applied to any solution set:

                                 ⎛                                               ⎞
 Cost Allocationi =
                    ⎛ LCRdefi ⎜ Coincident Peak × 1 − LCR
                    ⎜            ⎜                 i     (     i  )              ⎟
                                                                     Soln STWdef ⎟
                               +                                   ×
                    ⎜ Soln Size ⎜ n                                    Soln Size ⎟
                    ⎝                                        (
                                 ⎜ ∑ Coincident Peak k × 1 − LCR k        )      ⎟
                                 ⎝ k =1                                          ⎠
                                 ⎛
                                 ⎜                 i
                                                         (
                                 ⎜ Coincident Peak × 1 − LCR          )
                                                                 i × SolnVCIdef ⎟
                                                                                 ⎞
                                                                                 ⎟
                               + m
                                 ⎜
                                                             (
                                 ⎜ ∑ Coincident Peak l × 1 − LCR l
                                 ⎝ l =1
                                                                          )
                                                                       Soln Size ⎟
                                                                                 ⎟
                                                                                 ⎠




09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                         II - 21
Exhibit 1A
                                ⎛                                      ⎞
                                ⎜                                      ⎟
                                     Coincident Peak i
                               +⎜ n                                    ⎟ × 100 %
                                                         SolnGNLdef
                                                       ×
                                ⎜                         Soln Size    ⎟
                                ⎜ ∑ Coincident Peak k                  ⎟
                                ⎝ k =1                                 ⎠

Where i is for each applicable zone, n represent the total zones in NYCA, m represents the zones
isolated by the binding interfaces, and where LCR is defined as the locational capacity
requirement in terms of percentage and is equal to zero for those zones without an LCR
requirement, (1-LCR) is set equal to zero if the actual value is negative, LCRdefi is the
applicable zonal LCR deficiency, SolnSTWdef is the STWdef for each applicable project,
SolnVCIdef is the VCIdef for each applicable project, SolnGNLdef is the GNL def for each
applicable project and Soln Size represents the total compensatory MW addressed by each
applicable project.

        Four step cost allocation methodology for regulated reliability solutions:

        a.      Step 1 - LCR Deficiency

                (i)     Any deficiencies in meeting the LCRs for the target year will be referred
                        to as the LCRdef. If the reliability criterion is met once the LCR
                        deficiencies have been addressed, that is LOLE ≤ 0.1 for the target year is
                        achieved, then the only costs allocated will be those related to the LCRdef
                        MW. Cost responsibility for the LCRdef MW will be borne by each
                        deficient locational zone(s), to the extent each is individually deficient.

For a single solution that addresses only an LCR deficiency in the applicable LCR zone, the
equation would reduce to:

                                                 LCRdefί      x 100%
                               Allocationί =
                                                 Soln_ Size

Where i is for each applicable LCR zone, LCRdefi represents the applicable zonal LCR
deficiency, and SolnSize represents the total compensatory MW addressed by the applicable
project.

                (ii)    Prior to the LOLE calculation, voltage constrained interfaces will be
                        recalculated to determine the resulting transfer limits when the LCRdef
                        MW are added.

      b.      Step 2 - Statewide Resource Deficiency. If the reliability criterion is not met after
the LCRdef has been addressed, that is an LOLE > 0.1, then a NYCA Free Flow Test will be
conducted to determine if NYCA has sufficient resources to meet an LOLE of 0.1.

                (i)     If NYCA is found to be resource limited, the NYISO, using the transfer
                        limits and resources determined in Step 1, will determine the optimal
                        distribution of additional resources to achieve a reduction in the NYCA
                        LOLE to 0.1.


09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                        II - 22
Exhibit 1A
                (ii)    Cost allocation for Compensatory MW added for cost allocation purposes
                        to achieve an LOLE of 0.1, defined as a Statewide MW deficiency
                        (STWdef), will be prorated to all NYCA zones, based on the NYCA
                        coincident peak load. The allocation to locational zones will take into
                        account their locational requirements.

For a single solution that addresses only a statewide deficiency, the equation would reduce to:

                    ⎛                                                     ⎞
                    ⎜
 Cost Allocationi = ⎜ n
                                              (
                           Coincident Peak i × 1 − LCRi  )Soln STWdef
                                                                          ⎟
                                                                          ⎟ x 100%
                                                        ×
                    ⎜                                                     ⎟
                                                  (
                    ⎜ ∑ Coincident Peak k × 1 − LCRk         )
                                                            Soln Size
                                                                          ⎟
                    ⎝ k =1                                                ⎠

Where i is for each applicable zone, n is for the total zones in NYCA, and LCR is defined as the
locational capacity requirement in terms of percentage and is equal to zero for those zones
without an LCR requirement, (1-LCR) is set equal to zero if the actual value is negative, Soln
STWdef is the STWdef for the applicable project, and SolnSize represents the total
compensatory MW addressed by the applicable project.

        c.      Step 3 - Voltage Constrained Interface Deficiency. If the NYCA is not resource
limited as determined by the NYCA Free Flow Test, then the NYISO will examine voltage
constrained transmission interfaces, using the Binding Interface Test.

                (i)     The existing output results of MARS ot.09 files indicate the average
                        expected number of hours that each interface is at limit in each flow
                        direction, as well as the average expected number of hours with a loss of
                        load event. These average expected values will be used as an initial
                        indicator to determine the binding interfaces that are impacting LOLE
                        within the NYCA.

                (ii)    NYISO will review the ot.09 output along with other applicable
                        information that may be available in MARS to make the determination of
                        the binding interfaces and to determine if there is a need to develop a new
                        MARS output table that would provide a clearer and more transparent
                        determination.

                (iii)   Zone(s) within areas isolated from the rest of NYCA as a result of voltage
                        constrained interface limits are assigned cost responsibility for the
                        Compensatory MW, defined as VCIdef, needed to reach an LOLE of 0.1.

                (iv)    If one or more areas are isolated as a result of binding interfaces identified
                        through the Binding Interface Test, the NYISO will determine the optimal
                        distribution of Compensatory MW to achieve a NYCA LOLE of 0.1.
                        Compensatory MW will be added until the required NYCA LOLE is
                        achieved or until the voltage constrained interfaces reach their thermal
                        limits. If the interfaces are at their thermal limits and the required NYCA
                        LOLE has not been achieved, Step 4 of the process will be conducted.


09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                           II - 23
Exhibit 1A
                (v)      The VCIdef MW are allocated to zones isolated as a result of the voltage
                         constrained interface limits, based on their NYCA coincident peaks.
                         Allocation to locational zones will take into account their locational
                         requirements.

For a single solution that addresses only a binding interface deficiency, the equation would
reduce to:

                            ⎛                                                     ⎞
                            ⎜                                                     ⎟
                                 Coincident Peak l × (1 − LCR l )
             Allocation i = ⎜ m                                                   ⎟ × 100 %
                                                                    Soln VCIdef
                                                                  ×
                            ⎜                                                     ⎟
                            ⎜ ∑ Coincident Peak l × (1 − LCR l )
                                                                     Soln Size
                                                                                  ⎟
                            ⎝ l =1                                                ⎠

                         Where i is for each applicable zone, n is for the total zones in NYCA, m is
                         for the zones isolated by the binding interfaces, and where LCR is defined
                         as the locational capacity requirement in terms of percentage and is equal
                         to zero for those zones without an LCR requirement, (1-LCR) is set equal
                         to zero if the actual value is negative, SolnVCIdef is the VCIdef for the
                         applicable project and So1nSize represents the total compensatory MW
                         addressed by the applicable project.

        d.      Step 4 - General Resource Deficiency. If the reliability criterion is still not met
after Step 3, the NYISO will determine the optimal distribution of additional compensatory MW,
defined as GNLdef MW, to achieve a NYCA LOLE of 0.1.

                (i)      The cost for these GNLdef MW will be allocated among all zones in the
                         state, prorated on a NYCA coincident peak load basis.

For a single solution that addresses only a GNL deficiency, the equation would reduce to:

                                    ⎛                                      ⎞
                                    ⎜                                      ⎟
                      Allocationi = ⎜ m                                    ⎟ × 100%
                                        CoincidentPeakk   Soln GNLdef
                                                        ×
                                    ⎜                                      ⎟
                                    ⎜ ∑ CoincidentPeakk
                                                            Soln Size
                                                                           ⎟
                                    ⎝ k =1                                 ⎠

                          Where i is for each applicable zone, n represents the total zones in
                          NYCA, and where SolnGNLdef is the GNLdef for the applicable project
                          and Soln Size represents the total compensatory MW addressed by the
                          applicable project.

        e.      If, after the completion of Steps 1 through 4, there is a thermal or voltage security
issue that does not cause an LOLE violation, it will be deemed a local issue and related costs will
not be allocated under this process.

     f.      Costs related to the deliverability of a resource will be addressed under the
NYISO’s deliverability procedures.


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Exhibit 1A
        14.2 Cost Allocation Methodology for Regulated Economic Projects

[NOTE: This section is the NYISO Straw Proposal for Economic Cost Allocation discussed at
the 8/15/07 ESPWG meeting. This Straw Proposal is based upon the MISO’s FERC-approved
cost allocation methodology. There are two other Economic Cost Allocation proposals
submitted by Market Participants. All three proposals are still under discussion within the
NYISO stakeholder process. The MP proposals, as well as a matrix comparing all three
proposals, are also included in this posting.]

                Cost/Benefit analysis will be performed by the NYISO
                Develop parameters for Cost/Benefit studies with stakeholder input (e.g. -
                “benefits” metrics, time horizon, discount rate & cost of capital)
                TO’s to provide assistance to NYISO in the development of cost estimates for
                potential economic projects
                Cost/Benefit analysis is used to determine the initial eligibility for regulated
                funding under the NYISO tariff
                Project benefits to be determined as follows:
                        Compute the present value of the production cost benefit on a NYCA basis
                        over the 10-year study period
                        Compute the present value of the net LBMP cost benefit on a zonal basis
                        over the 10-year study period
                        Calculate a weighted average of the above over the 10-year period:
                        Determine the relative weighting factors (MISO) uses 70% production
                        cost/30% LMP weighting)

                The weighted average of the benefits must be greater than zero
                Cost/Benefit analysis over the 10-year study period must be at greater than 1.x
                (MISO uses a sliding Cost/Benefit scale from 1.2 to 3.0 depending upon the in-
                service date for the proposed project)
                A proposed project must also meet these additional tests:
                      Total project cost shall be greater than $xx Million (MISO threshold is
                      $5M)
                      Shall only apply to transmission facilities above xxKV (MISO threshold is
                      345 KV or higher — NYISO might use bulk power transmission system
                      definition used for the CRPP)
                      Project shall not be a regulated reliability project that has already been
                      triggered by the NYISO
                      Project shall not be a market-based project
                Cost/Benefit analysis to include various additional metrics (Need to determine the
                role of such additional metrics in this process. MISO does not use other metrics,
                but PJM had proposed similar metrics that FERC did not completely reject.)




09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                             II - 25
Exhibit 1A
                        Generator payments
                        ICAP costs
                        Ancillary service costs
                        Losses
                        TCC payments
                Cost/Benefit analysis will not include a threshold for triggering a regulated
                economic upgrade
                Results of analysis to be posted on NYISO website
                Forecast congestion costs in accordance with agreed upon metrics
                Other economic parameters (ICAP, ancillary services, losses)
                Results of Cost/Benefit analysis
                Cost allocation methodology
                Methodology to be developed with stakeholder input
                Consistent with the principles in the NYISO Economic Planning Strawman
                Primary principle: “beneficiaries pay”
                Cost Allocation to be xx% on a NYCA-wide basis and yy% on a zonal basis
                (MISO uses 20% postage-stamp/80% sub-zonal cost allocation)
                Costs within each zone to be allocated on a peak-load ratio share
                A zone is considered to be a “beneficiary” (and thus subject to its share of the
                zonal cost allocation) if the weighted average of its zonal production cost savings
                and LBMP savings over the 10-year study period is greater than zero. (MISO
                uses a 70% production cost/30% LMP weighted average)
                Zones with a weighted average benefit of less than zero will not receive any zonal
                cost allocation. Such zones will continue to pay the NYCA-wide allocation
                Process to include a requirement for a “super-majority” vote of beneficiaries as a
                pre-condition for cost allocation for a regulated economic project under the
                NYISO Tariff
                Only zones considered “beneficiaries” under the above test will be eligible to vote
                Rules for voting eligibility to be developed (e.g. representative voting vs
                individual voting; definition of “representative”; load weighted vs per capita
                voting, etc.)
                Determine the “super-majority” percentage required to approve.

15.0    Cost Recovery for Regulated Projects [More specific processes to be included for
        reliability and economic projects.]

        The Transmission Owners will be entitled to full recovery of all reasonably incurred
costs, including a reasonable return on investment and any applicable incentives, related to the
development, construction, operation and maintenance of regulated projects, including Gap



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Exhibit 1A
Solutions, (i) undertaken by a Transmission Owner at the request of the NYISO pursuant to this
tariff to meet a Reliability Need, or (ii) undertaken by a Transmission Owner in response to a
NYISO economic planning process study of future congestion.

       a.      The Responsible TO will receive cost recovery for a regulated solution it
undertakes at the NYISO’s request to meet a Reliability Need under this tariff that is
subsequently cancelled in accordance with the criteria established pursuant to Section 10.c
above. Such costs will include reasonably incurred costs through the time of cancellation,
including any forward commitments made.

        b.      The Responsible TO shall have the right to make a filing with FERC, under
Section 205 of the Federal Power Act, for approval of its costs described in this Section 15
incurred with respect to (i) the implementation of a regulated transmission solution determined
by the NYISO in the CRP to be necessary to meet a Reliability Need, or (ii) the implementation
of a regulated project in response to a NYISO economic planning process study of future
congestion. Upon request by LIPA or NYPA, the NYISO will make a filing with FERC on
behalf of LIPA or NYPA, as the case may be.

       c.      Cost recovery for regulated transmission projects undertaken pursuant to the
NYISO’s request under this Attachment Y shall be under the NYISO OATT and in accordance
with the provisions of the Agreement Between the New York Independent System Operator, Inc.
and the New York Transmission Owners on the Comprehensive System Planning Process.

        d.      Costs related to regulated non-transmission reliability projects and economic
projects will be recovered by the Transmission Owners in accordance with cost allocation and
cost recovery policies adopted by the NYPSC pursuant to the provisions of New York Public
Service Law.



E.      Other Provisions

16.0    FERC Role in Dispute Resolution

        Disputes directly relating to the NYISO’s compliance with its tariffs that are not resolved
in the internal NYISO appeals process and all disputes relating to matters that fall within the
exclusive jurisdiction of FERC shall be reviewed at FERC pursuant to the Federal Power Act if
such review is sought by a Market Participant. The NYPSC or any party to a dispute regarding
matters over which both the NYPSC and FERC have jurisdiction and responsibility for action
may submit a request to FERC for a joint or concurrent hearing to resolve the dispute.

17.0    Non-Jurisdictional Entities

       LIPA’s and NYPA’s participation in the NYISO Comprehensive Planning Process shall
in no way be considered to be a waiver of their non-jurisdictional status pursuant to
Section 201(f) of the Federal Power Act, including with respect to the FERC’s exercise of the
Federal Power Act’s general rate making authority.



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Exhibit 1A
18.0    Tax Exempt Financing Provisions

        Con Edison, NYPA and LIPA shall not be required to construct, or cause to construct, a
transmission facility identified through the NYISO Comprehensive Reliability Planning Process
if such construction would result in the loss of tax-exempt status of any tax-exempt bond issued
by Con Edison, NYPA or LIPA, or impair their ability to secure future tax-exempt financing.

19.0    Interregional Planning Coordination

        19.1 The Northeastern ISO/RTO Planning Coordination Protocol

        The NYISO will coordinate the transmission system planning activities for the NYCA
described in this Attachment Y through the Northeastern ISO/RTO Planning Coordination
Protocol. This protocol describes the committee structure, processes and procedures through
which system planning activities are coordinated by the ISOs and RTOs of the northeastern
United States and eastern Canada. The activities covered by the protocol are to be conducted in
coordination with the Regional Reliability Councils of the northeastern United States and eastern
Canada. The primary purpose of the protocol is to contribute, through coordinated planning, to
the on-going reliability and the enhanced operational and economic performance of the parties to
the protocol. To accomplish this, the parties will coordinate the evaluation of tariff-provided
services, such as generation interconnection, to recognize the impacts that result across the
different systems. The parties will also produce, on a periodic basis, a Northeastern Coordinated
System Plan that integrates the system plans of the parties and includes upgrade projects jointly
identified by the parties to enhance the coordinated performance of their systems.




09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                      II - 28
Exhibit 1A
                                  APPENDIX A
                REPORTING OF HISTORIC AND PROJECTED CONGESTION

1.0     General

        As part of its Comprehensive System Planning Process, the NYISO will prepare
summaries and detailed analysis of historic and projected congestion across the New York
Transmission System. This will include analysis to identify the significant causes of congestion
in an effort to help Market Participants and other stakeholders distinguish persistent and
addressable congestion from congestion that results from one time events or transient
adjustments in operating procedures that may or may not recur. This information will assist
Market Participants and other stakeholders to make appropriately informed decisions.

2.0     Definition of Congestion

         The NYISO will report the cost of congestion as the change in bid production costs that
results from transmission congestion. The following elements of congestion-related costs also
will be reported: (i) impact on load payments; (ii) impact on generator payments; and
(iii) hedged and unhedged congestion payments.

        The determination of the change in bid production costs and the other elements of
congestion will be based upon the difference in costs between the actual constrained system
prices computed in the NYISO’s Day-Ahead Market and a simulation of an unconstrained
system. The simulation shall be developed by the use of the PROBE model approved by the
NYISO Operating Committee on January 22, 2004.

3.0     Analysis

       Each Reliability Needs Assessment will include the NYISO’s summaries and detailed
analysis of the prior year’s congestion across the New York Transmission System. The
NYISO’s analysis will identify the significant causes of the historic congestion.

     Each study of projected congestion for economic planning will include [_______]. The
NYISO’s analysis will identify the significant causes of the projected congestion.

4.0     Detailed Cause Analysis for Unusual Events

        The NYISO will perform an analysis to identify the cause of unusual events causing
significant congestion levels. Such analysis will include the following
elements: (i) identification or the cause of major transmission outages; and (ii) qualification of
the market impact of relieving historic constraints.

        Some of the information necessary to this analysis may constitute sensitive electric
infrastructure material and will need to be handled with appropriate confidentiality limitations to
protect national security interests.




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Exhibit 1A
5.0     Summary Reports

        The NYISO will prepare various reports of historic and projected congestion costs.
Historic congestion reports will be based upon the actual congestion data from the NYISO Day-
Ahead Market, and will include summaries, aggregated by month and calendar year, such
as: (i) NYCA; (ii) by zone; (iii) by contingency in rank order; (iv) by constraint in rank order;
(v) total dollars; and (vi) number of hours. Projected congestion reports will include summaries
[_________].

        These reports will be based upon the foregoing definitions of congestion.




09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                       II - 30
Exhibit 1A
        SECTION III

          EXHIBIT 1B

Attachment Y – Blacklined Version

        New York ISO
     Comprehensive System
       Planning Process
                                                                   DISCUSSION DRAFT
                                                      (NYISO Posting--September 14, 2007)


                                       Attachment Y

            New York ISO Comprehensive System Planning Process
                                    Table of Contents



A.     General Overview                                                                      2
       1.0    New York Comprehensive System Planning Process (“CSPP”)                        2
       1.1    General                                                                        2
       2.0    Definitions                                                                    3
       3.0    NYISO Implementation and Administration                                        4
B.     Reliability Planning Process                                                          5
       4.0    Local Transmission Owner Planning Process                                      5
       5.0    4.0 Reliability Needs Assessment                                               6
       6.0    5.0 RNA Review Process                                                         8
       7.0    6.0 Development of Solutions to Reliability Needs                              9
       8.0    7.0 NYISO Evaluation of Proposed Solutions to Reliability Needs               10
       9.0    8.0 Comprehensive Reliability Plan                                            13
       10.0 9.0 Monitoring of Reliability Project Status                                    14
C.     Economic Planning Process                                                            17
       11.0 Congestion Assessment and Resource Integration Study for Economic
              Planning                                                                      17
       12.0 CARIS Review Process                                                            19
D.     Cost Allocation and Cost Recovery                                                    20
       13.0 10.0 Cost Allocation Principles                                                 20
       14.0 Cost Allocation Methodologies                                                   22
       15.0 11.0 Cost Recovery for Regulated Projects                                       28
E.     Other Provisions                                                                     29
       16.0 12.0 FERC Role in Dispute Resolution                                            29
       17.0 13.0 Non-Jurisdictional Entities                                                29
       18.0 14.0 Tax Exempt Financing Provisions                                            29
       19.0 Interregional Planning Coordination                                             29

Appendix A: Reporting of Historic and Projected Congestion                                  31
A.      General Overview

1.0     New York Comprehensive System Planning Process (“CSPP”)

        1.1   1.0 New York Comprehensive Reliability Planning Process

        1.1     General

         ThisSections 4.0 through 9.0 of this Attachment describesdescribe the process that the
NYISO, the Transmission Owners, and Market Participants shall follow for planning to meet the
reliability needs of the New York State Bulk Power Transmission Facilities (“BPTFs”). The
objectives of the process are to: (1) evaluate the reliability needs of the BPTFs; (2) identify,
through the development of appropriate scenarios, factors and issues that might adversely impact
the reliability of the BPTFs; (3) provide a process whereby solutions to identified needs are
proposed, evaluated, and implemented in a timely manner to ensure the reliability of the system;
(4) provide an opportunity for the development of market-based solutions while ensuring the
reliability of the BPTFs; and (5) coordinate the NYISO’s reliability assessments with
Neighboring Control Areas.

        The NYISO will provide, through the analysis of historical system congestion costs,
information about historical congestion including the causes for that congestion so that Market
Participants and other stakeholders can make appropriately informed decisions. See Appendix
A.

        1.2   Transmission Owner Planning Process

      The Transmission Owners will continue to plan for their transmission systems, including
the BPTFs. The planning process of each TO is referred to herein as the Local TO
Planning Process (“LTPP”).

       The plans periodically prepared by the Transmission Owners will be used as inputs
to the Reliability Planning Process described in this Attachment Y. Each Transmission
Owner will prepare plans for its transmission system in accordance with the procedures
described in Section 4.0.

        1.3   Economic Planning Process

       Sections 11.0 and 12.0 of this Attachment Y describe the process that the NYISO,
the Transmission Owners, and Market Participants shall follow for economic planning to
identify and reduce current and future projected congestion on the New York State BPTFs.
The objectives of the economic planning process are to: (1) project congestion on the New
York State BPTFs over the ten-year planning period of this Comprehensive Transmission
System Planning Process, (2) identify, through the development of appropriate scenarios,
factors that might produce or increase congestion, (3) provide a process whereby projects
to reduce congestion identified in the economic planning process are proposed and
evaluated in a timely manner, (4) provide an opportunity for the development of market-
based solutions to reduce the congestion identified, and (5) coordinate the NYISO’s
congestion assessments and economic planning process with Neighboring Control Areas.


09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                      III - 2
Exhibit 1B
2.0     Definitions

      Unless otherwise defined in this document, capitalized terms used herein shall have the
meanings ascribed to them in the OATT.

        ATRA: The Annual Transmission Reliability Assessment conducted under Attachment S
to the NYISO OATT.

      Binding Interface Test: A test conducted by the NYISO, when Reliability Needs
have been identified, to determine the binding interfaces that are impacting LOLE within
the NYCA.

      CARIS: The Congestion Assessment and Resource Integration Study for economic
planning developed by the NYISO in consultation with the Market Participants under this
Attachment Y.

        Compensatory Megawatt: A unit of measurement, for Reliability Needs cost
allocation purposes, that serves as a proxy for the resources to be added to address a
Reliability Need, without regard to the nature of the actual solution, which may be
generation, transmission or demand response.

       CRP: The Comprehensive Reliability Plan as approved by the NYISO Board of
Directors pursuant to this tariff.

       CSPP: The Comprehensive System Planning Process set forth in this Attachment
Y, which covers reliability planning, economic planning, cost allocation and cost recovery,
and interregional planning coordination.

         ESPWG: The Electric System Planning Work Group, or any successor Market
Participant work group or committee designated to fulfill the functions assigned to the ESPWG
in this tariff.

         Five Year Base Case: The model representing the New York State Power System over
the first five years of the Study Period.

        Gap Solution: A solution to a Reliability Need that is designed to be temporary and to
strive to be compatible with permanent market-based proposals. A permanent regulated solution,
if appropriate, may proceed in parallel with a Gap Solution.

       LTP: The Local TO Plan, developed by each TO, which describes its respective
plans that may be under consideration or finalized for its own Transmission District.

        Other Developers: Parties or entities sponsoring or proposing to sponsor regulated
solutions to Reliability Needs who are not Transmission Owners.

       Management Committee: The standing committee of the NYISO of that name created
pursuant to the ISO Agreement.



09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                       III - 3
Exhibit 1B
       New York State Bulk Power Transmission Facilities: The facilities identified as the New
York State Bulk Power Transmission Facilities in the annual Area Transmission Review
submitted to NPCC by the NYISO pursuant to NPCC requirements.

      NYCA Free Flow Test: A NYCA unconstrained internal transmission interface test,
performed by the NYISO to determine if a Reliability Need is the result of a statewide
resource deficiency or a transmission limitation.

       NYDPS: The New York State Department of Public Service, as defined in the New York
Public Service Law.

       NYPSC: The New York Public Service Commission, as defined in the New York Public
Service Law.

       Operating Committee: The standing committee of the NYISO of that name created
pursuant to the ISO Agreement.

       Reliability Criteria: The electric power system planning and operating policies,
standards, criteria, guidelines, procedures, and rules promulgated by the North American Electric
Reliability Council (“NERC”), Northeast Power Coordinating Council (“NPCC”), and the New
York State Reliability Council (“NYSRC”), as they may be amended from time to time.

       Reliability Need: A condition identified by the NYISO in the RNA as a violation or
potential violation of Reliability Criteria.

        Responsible TO: The Transmission Owner or Transmission Owners designated by the
NYISO, pursuant to the NYISO Planning Process, to prepare a proposal for a regulated solution
to a Reliability Need or to proceed with a regulated solution to a Reliability Need. The
Responsible TO will normally be the Transmission Owner in whose Transmission District the
NYISO identifies a Reliability Need.

          RNA: The Reliability Needs Assessment as approved by the NYISO Board under this
tariff.

          Study Period: The ten-year time period evaluated in the RNA.

        TPAS: The Transmission Planning Advisory Subcommittee, or any successor Market
Participant work group or committee designated to fulfill the functions assigned to TPAS in this
tariff.

3.0       NYISO Implementation and Administration

        a.     The NYISO shall adopt procedures for the implementation and administration of
the Comprehensive ReliabilitySystem Planning Process set forth in this tariff. Such procedures
will be incorporated in the NYISO’s manuals.

      b.      The NYISO shall establish in its procedures a schedule for the collection and
submission of data and the preparation of models to be used in the studies contemplated under


09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                      III - 4
Exhibit 1B
this tariff. That schedule shall provide for an annuala rolling two-year cycle of studies and
reports. Each cycle commences with the Local TO Planning Process providing input into
the Reliability Planning Process, which is followed by the Economic Planning Process.

       c.      The NYISO’s procedures shall be designed to allow the coordination of the
NYISO’s planning activities with those of NERC, NPCC, the NYSRC, neighboring Control
Areas and other regional reliability organizations so as to develop consistency of the models,
databases, and assumptions utilized in making reliability and economic determinations.

B.      Reliability Planning Process

4.0     Local Transmission Owner Planning Process

        4.1   Criteria, Assumptions and Data

       Each TO will post on its website the planning criteria and assumptions used in its
current LTP as well as a list of any applicable software and/or analytical tools used in the
LTP. Any planning criteria or assumptions for a TO’s BPTFs will meet or exceed any
applicable NERC, NPCC or NYSRC criteria. The LTP shall include a description of the
needs addressed by the LTP as well as the assumptions, applicable planning criteria and
methodology utilized. A link to each TO’s website will be posted on the NYISO website.

        4.2   Process Timeline

       a.       Each TO will post its current LTP on its website for review by Customers
and Market Participants sufficiently in advance of the time for submission to the NYISO
for input to its RNA so as to allow adequate time for stakeholder review and comment.

        b.     To the extent the current LTP utilizes data or inputs, related to the NYISO’s
planning process, not already reported by the NYISO in Form 715 and referenced on its
website, any such data will be provided to the NYISO and posted by the NYISO on its
website subject to any confidentiality or Critical Energy Infrastructure Information
restrictions or requirements.

       c.      Each planning cycle, the NYISO shall hold one or more stakeholder meetings
at which each TO’s LTP will be discussed. Such meetings will be held either at the TO’s
Transmission District, or at a NYISO location. The NYISO shall post notice of the meeting
and shall disclose the agenda and any other material distributed prior to the meeting.

       d.      Market Participants may submit written comments to a TO with respect to
its LTP within thirty days after the meeting. Each TO shall list on its website, as part of its
LTP, the person and/or location to which comments should be sent by Market Participants.
All comments will be posted on the NYISO website. Each TO will consider comments
received in developing any modifications to its LTP. Any such modification will be
explained in its current LTP posted on its website pursuant to Section 4.2.b above and
discussed at the next meeting held pursuant to Section 4.2.c above.




09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                      III - 5
Exhibit 1B
      e.     Each planning cycle, each TO will submit its current LTP to the NYISO as
contemplated in Section 5.4(b) below for timely inclusion in the RNA.

5.0     4.0 Reliability Needs Assessment

        5.1   4.1 General

        The NYISO shall prepare and publish the RNA as described below. The RNA will
identify Reliability Needs and provide an analysis of historic congestion costs. The NYISO shall
also designate in the RNA the Responsible TO with respect to each Reliability Need.

        5.2   4.2 Market Participant Participation in the Development of the RNA

       The NYISO shall develop the RNA in consultation with Market Participants. TPAS will
have responsibility consistent with ISO Procedures for review of the NYISO’s reliability
analyses. ESPWG will have responsibility consistent with ISO Procedures for providing
commercial input and assumptions to be used in the development of reliability assessment
scenarios provided under section 4.5,Section 5.5, and in the reporting and analysis of historic
congestion costs. Coordination will be established between these two groups and NYISO Staff
during each stage of the planning process. The NYISO Staff shall report any majority and
minority views of these Market Participant work groups when it submits the RNA to the
Operating Committee for a vote, as provided below.

        5.3   4.3 Preparation of the Reliability Needs Assessment

        a.      The NYISO shall evaluate system needs in the RNA over the Study Period.

        b.      The baselinestarting point for the first five year perioddevelopment of the Five
Year Base Case will be the system as defined for the ATRA. The NYISO shall set out the
details of the development of the Five Year Base Case are contained in the procedures adopted
under section 3, abovecontained in the NYISO’s Comprehensive Reliability Planning
Process Manual.

        c.      The NYISO shall assess the Five Year Base Case to determine whether the
BPTFs meet all Reliability Criteria for both resource and transmission adequacy in each year,
and report the results of its evaluation in the RNA. Transmission analyses will include thermal,
voltage, short circuit, and stability studies. Then, if any Reliability Criteria are not met in any
year, the NYISO shall perform additional analyses to determine whether additional resources
and/or transmission capacity expansion are needed to meet those requirements, and to determine
the expected first year of need for those additional resources and/or transmission. The study will
not seek to identify specific additional facilities. Reliability needs will be defined in terms of
total deficiencies relative to Reliability Criteria and not necessarily in terms of specific facilities.

       d.      The NYISO will also evaluate the BPTFs over the second five years of the Study
Period to determine whether they meet all Reliability Criteria for both resource and transmission
adequacy in each year and report the results of its evaluation in the RNA. A short circuit
assessment will be performed for the tenth year of the Study Period. Reliability needs will be



09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                             III - 6
Exhibit 1B
defined in terms of total deficiencies relative to Reliability Criteria and not necessarily in terms
of specific facilities.

         e.     The NYISO shall develop the system representation to be used for its evaluations
of the second five years of the Study Period using (1) the most recent Load and Capacity Data
Report published by the NYISO on its web site; (2) the most recent versions of NYISO
reliability analyses and assessments provided for or published by NERC, NPCC, NYSRC, and
Neighboringneighboring Control Areas; (3) information reported by neighboring control
areasControl Areas such as power flow data, forecasted load, significant new or modified
generation and transmission facilities, and anticipated system conditions that the NYISO
determines may impact the BPTFs; and (4) Market Participant data submitted pursuant to
paragraph 4.45.4 below.

        5.4   4.4 Market Participant Input

        a.       At the NYISO’s request, Market Participants shall provide in accordance with the
schedule set forth in the procedures adopted under sectionSection 3.0 the data necessary for the
development of the RNA. This input will include but not be limited to (1) existing and planned
additions to the New York State Transmission System (to be provided by Transmission Owners
and municipal electric utilities); proposals for merchant transmission facilities (to be provided by
merchant developers); generation additions and retirements (to be provided by generator owners
and developers); demand response programs (to be provided by demand response providers); and
any long-term firm transmission requests made to the Transmission Owners or by municipal
electric utilitiesNYISO.

        b.     The Transmission Owners shall submit their plans referenced in section
1.1Section 1.2 and Section 4.0 to the NYISO. The NYISO will review the Transmission
Owners’ plans to determine whether they will meet Reliability Needs, recommend an alternate
means to resolve the needs from a regional perspective, where appropriate, or indicate that it is
not in agreement with a Transmission Owner’s proposed additions. The NYISO shall report its
determinations under this section in the RNA and in the CRP.

        5.5   4.5 Reliability Scenario Development

        The NYISO, in consultation with the ESPWG and TPAS, shall develop reliability
scenarios addressing the first five years and the second five years of the Study Period. Variables
for consideration in the development of these reliability scenarios include but are not limited to:
load forecast uncertainty, fuel prices and availability, new resources, retirements, transmission
network topology, and limitations imposed by proposed environmental legislation.

        5.6   4.6 Evaluation of Alternate Reliability Scenarios

        The NYISO will conduct additional reliability analyses for the alternate reliability
scenarios developed pursuant to paragraph 4.5.5.5. These evaluations will test the robustness of
the needs assessment studies conducted under paragraphs 4.3.5.3. This evaluation will only
identify conditions under which Reliability Criteria may not be met. It will not identify or
propose additional needs. In addition, the NYISO will perform appropriate sensitivity studies to
determine whether Reliability Needs previously identified can be mitigated through alternate


09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                           III - 7
Exhibit 1B
system configurations or operational modes. The Reliability Needs may increase in some
reliability scenarios and may decrease, or even be eliminated, in others. The NYISO shall report
the results of these evaluations in the RNA.

        5.7   4.7 Reliability Needs Assessment Report Preparation

        Once all the analyses described above have been completed, NYISO Staff will prepare a
draft of the RNA including discussion of its assumptions, Reliability Criteria, and results of the
analyses.

6.0     5.0 RNA Review Process

        6.1   5.1 Market Participant Process

       The draft RNA shall be submitted to both TPAS and the ESPWG for review and
comment. Following completion of that review, the draft RNA shall be forwarded to the
Operating Committee for discussion and action. The NYISO shall notify the Business Issues
Committee of the date of the Operating Committee meeting at which the draft RNA is to be
presented. Following the Operating Committee vote, the draft RNA will be transmitted to the
Management Committee for discussion and action.

        6.2   5.2 Board Action

        Following the Management Committee vote, the draft RNA, with working group,
Operating Committee, and Management Committee input, will be forwarded to the NYISO
Board for review and action. Concurrently, the draft RNA will be provided to the Independent
Market Advisor for his review and consideration of whether market rules changes are necessary
to address an identified failure, if any, in one of the NYISO’s competitive markets. The Board
may approve the RNA as submitted, or propose modifications on its own motion. If any changes
are proposed by the Board, the revised RNA shall be returned to the Management Committee for
comment. The Board shall not make a final determination on a revised RNA until it has
reviewed the Management Committee comments. Upon approval by the Board, the NYISO shall
issue the final RNA to the marketplace by posting it on its web site.

        6.3   5.3 Needs Assessment Disputes

       Notwithstanding any provision to the contrary in this Attachment, the NYISO OATT, or
the NYISO Services Tariff, in the event that a Market Participant raises a dispute solely within
the NYPSC’s jurisdiction relating to the final conclusions or recommendations of the RNA, a
Market Participant may refer such dispute to the NYPSC for resolution. The NYPSC’s final
determination shall be binding, subject only to judicial review in the courts of the State of New
York pursuant to Article 78 of the NYCPLR.

        6.4   5.4 Public Information Sessions

         In order to provide ample exposure for the marketplace to understand the identified
reliability needs, the NYISO will provide various opportunities for Market Participants and other
potentially interested parties to discuss the final RNA. Such opportunities may include


09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                        III - 8
Exhibit 1B
presentations at various NYISO Market Participant committees, focused discussions with various
industry sectors, and/or presentations in public venues.

7.0     6.0 Development of Solutions to Reliability Needs

        7.1   6.1 Regulated Backstop Solutions

         a.      The first timeWhen a Reliability Need is identified in any RNA issued under this
tariff, the NYISO shall request and the Responsible TO shall provide to the NYISO, as soon as
reasonably possible, a proposal for a regulated solution or combination of solutions that shall
serve as a potential backstop to meet the Reliability Need if requested by the NYISO due to
the lack of sufficient viable market based solutions to meet such Reliability Need. The
backstop regulated solution or solutions shall cover all of the Reliability Needs identified
for the Study Period. A proposed regulated backstop solution to address a need in the
second five years of the planning period that does not have a trigger date of one year or less
will not require the same level of detail as a proposed solution for a need in the first five
years. The criteria for regulated backstop solutions are included in the NYISO’s
Comprehensive Reliability Planning Process Manual. Such proposals may include
reasonable alternatives that would effectively address the Reliability Need. The Responsible TO
shall also estimate the lead time necessary for the implementation of its proposal. The NYISO
will establish a lead time for responses submitted pursuant to sections 6.2, 6.4Sections 7.2, 7.4
and 7.48.7 on the basis of the time period required for implementation of the proposed potential
backstop solution. Prior to providing its response to the RNA, each Responsible TO will
present for discussion any updates in its LTP made in response to a Reliability Need
identified in the RNA. Contemporaneous with the request to the Responsible TO, the NYISO
shall solicit responses using the two-step process defined below, which shall not be a formal RFP
process.

       b.      Market Participants may submit at any time optional suggestions for changes to
NYISO rules or procedures which could result in the identification of additional resources or
market alternatives suitable for meeting Reliability Needs.

        7.2   6.2 Market-Based Responses

        At the same time that a proposal for a backstop regulated solution is requested from the
Responsible TO under Section 6.1,7.1, the NYISO will firstshall also request market-based
responses from the market place. To the extent timing considerations allow, as the NYISO
determines pursuant to section 6.1.a above, and while continuing to ensure reliability, a period of
time will be reserved for the development and review of market-based responses only. Subject
to the execution of appropriately drawn confidentiality agreements and FERC’s standards of
conduct, the NYISO and the appropriate Transmission Owner or Transmission Owners shall
provide any party who wishes to develop such a response access to the data that is necessary to
develop its response. Such data shall only be used for the purposes of preparing a market-based
response to a Reliability Need under this section. Such responses will be open to all resources,
including generation, demand response providers, and merchant transmission developers.




09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                        III - 9
Exhibit 1B
        7.3   6.3 Qualifications for a Valid Market-Based Response

        The NYISO will develop’s procedures establishing qualifications and criteria for a valid
market-based solution in conjunction with ESPWGare included in the NYISO’s
Comprehensive Reliability Planning Process Manual. Such qualifications shall recognize the
differences between various resources’ characteristics and development time lines.

        7.4   6.4 Alternative Regulated Responses

         a.     In the event that no market- based solution qualified under section 6.3Section 7.3
is proposed, or the NYISO determines that there is imminent need to do so, the NYISO will
initiate thea second step of the solicitation process by requesting alternative regulated responses
to Reliability Needs. Such proposals may include reasonable alternatives that would effectively
address the identified Reliability Need.

        b.      In response to the NYISO’s request, Other Developers may develop alternative
regulated proposals for generation, demand side alternatives, and/or other solutions to address a
Reliability Need and submit such proposals to the NYISO. Transmission Owners, at their
option, may submit additional proposals for regulated solutions to the NYISO. Transmission
Owners and Other Developers may submit such proposals to the NYDPS for review at any time.
Subject to the execution of appropriately drawn confidentiality agreements and FERC’s
standards of conduct, the NYISO and the appropriate Transmission Owner or Owners shall
provide Other Developers access to the data that is needed to develop their proposals. Such data
shall be used only for purposes of preparing an alternative regulated proposal in response to a
Reliability Need.

        7.5   Additional Solutions

         Should the NYISO determine that it has not received adequate regulated backstop
or market-based solutions to satisfy the Reliability Need, the NYISO may, in its discretion,
solicit additional regulated backstop or market-based solutions. Other Developers may
submit additional alternative regulated solutions for the NYISO’s consideration at that
time.

8.0     7.0 NYISO Evaluation of Proposed Solutions to Reliability Needs

        8.1   7.1 Evaluation of Regulated Backstop Solutions

       The NYISO shall evaluate a proposed regulated backstop solution submitted by a
Transmission OwnerResponsible TO pursuant to Section 6.17.1 to determine whether it will
meet the identified Reliability Need in a timely manner, and will report the results of its
evaluation in the CRP.

        8.2   7.2 Evaluation of Market Based Proposals

        The NYISO shall review proposals for market-based solutions and determine whether
they resolve a Reliability Need. If market-based solutions are found by the NYISO to be
sufficient to meet a Reliability Need in a timely manner, the NYISO will so state in the CRP.


09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                       III - 10
Exhibit 1B
The NYISO will not select from among the market-based solutions if there is more than one
proposal which will meet the same Reliability Need.

        8.3   7.3 Evaluation of Alternative Regulated Responses

        a.     If market-based solutions do not resolve a Reliability Need, the NYISO shall
proceed to review the proposed alternative regulated solutions submitted in accordance with
section 6.4Section 7.4 above, and will report the results of its review in the CRP.

        8.4   Resolution of Deficiencies

        b.      Following initial review of the proposals, as described above, NYISO Staff will
identify any reliability deficiencies in each of the proposed solutions. The Responsible TO,
other TO or Other Developer will discuss any identified deficiencies with the NYISO Staff.
Other Developers and TOs that propose alternative regulated solutions shall have the option
to revise and resubmit their proposals to address any identified deficiency. With respect to
regulated backstop solutions proposed by a Responsible TO pursuant to section 6.1,Section 7.1,
the Responsible TO shall make necessary changes to its proposed backstop solution to address
any reliability deficiencies identified by the NYISO, and submit a revised proposal to the NYISO
for review. The NYISO shall review all such revised proposals to determine that all of the
identified deficiencies have been resolved.

        8.5   Designation of Backstop Regulated Solution and Responsible TO

         c.       If the NYISO determines that a market-based solution will not be available in
time to meet a Reliability Need, and finds that it is necessary to take action to ensure reliability,
it will state in the CRP that implementation of a regulated solution is necessary. The NYISO
will also identify in the CRP (1) the backstop regulated solution that the NYISO has determined
will meet the Reliability Need in a timely manner, and (2) the Responsible TO.

        8.6   Regulated Solution to Proceed in Parallel with a Market-based Solution

        d.     If the NYISO determines that it is necessary for the Responsible TO to proceed
with a regulated solution to be conducted in parallel with a market-based solution in order to
ensure that a Reliability Need is met in a timely manner, the CRP will so state.

        8.7   7.4 Gap Solutions

       a.      If the NYISO determines that neither market-based proposals nor regulated
proposals can satisfy the Reliability Needs in a timely manner, the NYISO will set forth its
determination that a Gap Solution is necessary in the CRP. The NYISO will also request the
Responsible TO to seek a Gap Solution.

      b.     If there is an imminent threat to the reliability of the New York power system, the
NYISO Board, after consultation with the NYDPS, may request the appropriate Transmission
Owner or Transmission Owners to propose a Gap Solution outside of the normal planning cycle.




09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                         III - 11
Exhibit 1B
        c.     Upon the NYISO’s determination of the need for a Gap Solution, pursuant to
either Section 7.4.8.7.a or 7.4.8.7.b above, the Responsible TO will propose such a solution, as
soon as reasonably possible, for consideration by the NYISO and NYDPS.

        d.      Any party may submit an alternative Gap Solution proposal to the NYISO and the
NYDPS for their consideration. The NYISO shall evaluate all Gap Solution proposals to
determine whether they will meet the Reliability Need or imminent threat. The NYISO will
report the results of its evaluation to the party making the proposal as well as to the NYDPS
and/or other appropriate regulatory agency(ies) for consideration in their review of the proposals.

       e.      Gap Solution proposals submitted under Sections 7.4.a8.7.c and 7.4.b8.7.d shall
be designed to be temporary solutions and to strive to be compatible with permanent market-
based proposals.

      f.      A permanent regulated solution, if appropriate, may proceed in parallel with a
Gap Solution.

        8.8   Confidentiality of Solutions

        a.     The term “Confidential Information” shall include all types of solutions to
Reliability Needs that are submitted to the NYISO as a response to Reliability Needs
identified in any RNA issued by the NYISO as part of the CRPP if the supplier or owner of
that solution designates such reliability solutions as “Confidential Information.”

       b.      For regulated backstop solutions and plans submitted by the Responsible
Transmission Owner in response to the findings of the RNA, the NYISO shall maintain the
confidentiality of same until the NYISO and the Responsible Transmission Owner have
agreed that the Responsible Transmission Owner has submitted sufficient regulated
backstop solutions and plans to meet the Reliability Needs identified in an RNA.
Thereafter, the NYISO shall disclose the regulated backstop solutions and plans to the
Market Participants; however, that any preliminary cost estimates that may have been
provided to the NYISO shall not be disclosed.

       c.      For an alternative regulated response, the NYISO shall determine, after
consulting with the owner or supplier thereof, whether the response would meet part or all
of the Reliability Needs identified in an RNA, and thereafter disclose the alternative
regulated response to the Market Participants; however, that any preliminary cost
estimates that may have been provided to the NYISO shall not be disclosed.

       d.     For a market-based response, the NYISO shall maintain the confidentiality
of same during the CRPP and in the Comprehensive Reliability Plan, except for the
following information which may be disclosed by the NYISO: (i) the type of resource
proposed (e.g., generation, transmission, demand side); (ii) the size of the resource
expressed in Megawatts of equivalent load that would be served by that resource; (iii) the
subzone in which the resource would interconnect or otherwise be located; and (iv) the
proposed in-service date of the resource.




09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                       III - 12
Exhibit 1B
       e.      In the event that the developer has made a public announcement of its
project or has submitted a proposal for interconnection with the NYISO, the NYISO shall
disclose the identity of the market-based developer and the specific project during the
CRPP and in the Comprehensive Reliability Plan.

9.0     8.0 Comprehensive Reliability Plan

        Following the NYISO’s evaluation of the proposed market-based and regulated solutions
to Reliability Needs, the NYISO will prepare a draft Comprehensive Reliability Plan (“CRP”).
The draft CRP shall set forth the NYISO’s findings and recommendations, including any
determination that implementation of a regulated solution (which may be a Gap Solution) is
necessary to ensure system reliability.

        9.1   8.1 Market Participant Process

       The NYISO Staff shall submit the draft CRP to TPAS and ESPWG for review and
comment. Following completion of that review, the draft CRP shall be forwarded to the
Operating Committee for a discussion and action. The NYISO shall notify the Business Issues
Committee of the date of the Operating Committee meeting at which the draft CRP is to be
presented. Following the Operating Committee vote, the draft CRP will be transmitted to the
Management Committee for a discussion and action.

        9.2   8.2 Board Action

        Following the Management Committee vote, the draft CRP, with working group,
Operating Committee, and Management Committee input, will be forwarded to the NYISO
Board for review and action. Concurrently, the draft CRP will also be provided to the
Independent Market Advisor for his review and consideration of whether market rule
changes are necessary to address an identified failure, if any, in one of the NYISO’s
competitive markets. The Board may approve the draft CRP as submitted or propose
modifications on its own motion. If any changes are proposed by the Board, the revised CRP
shall be returned to the Management Committee for comment. The Board shall not make a final
determination on the draft CRP until it has reviewed the Management Committee comments.
Upon final approval by the Board, the NYISO shall issue the CRP to the marketplace by posting
on its website. The NYISO will provide the CRP to the appropriate regulatory agency(ies) for
consideration in their review of the proposals.

        9.3   8.3 Reliability Disputes

        Notwithstanding any provision to the contrary in this Attachment, the NYISO OATT, or
the NYISO Services Tariff, in the event that a Market Participant raises a dispute solely within
the NYPSC’s jurisdiction concerning NYISO’s final determination in the CRP that a proposed
solution will or will not meet a Reliability Need, a Market Participant seeking further review
shall refer such dispute to the NYPSC for resolution, as provided for in the NYISO’s
Comprehensive Reliability Planning Process Manual. The NYPSC’s final determination of
such disputes shall be binding, subject only to judicial review in the courts of the State of New
York pursuant to Article 78 of the New York Civil Practice Law and Rules.



09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                      III - 13
Exhibit 1B
        9.4   8.4 Determination of Necessity

        a.      If the NYISO determines in the CRP that implementation of a regulated solution
is necessary, the NYISO will request the Responsible TO to submit its proposal for a backstop
regulated solution to the appropriate statenecessary regulatory agency(ies) to begin the approval
process. The Responsible TO in response to the NYISO request shall make such a submission.
Other Developers and TOs proposing alternative regulated solutions pursuant to Section
6.4.7.4.b that have completed any changes required by the NYISO under Section 7.3.b,8.4,
which the NYISO has determined will resolve the identified deficiencies, may submit these
proposals to the appropriate state regulatory agency(ies) for review.

        b.      If the NYISO determines in the CRP that it is necessary for the Responsible TO to
proceed with the regulated solution identified in 8.4.9.4.a in parallel with a market-based
solution in order to ensure that a Reliability Need is met in a timely manner, the Responsible TO
shall proceed with due diligence to develop it in accordance with Good Utility Practice unless or
until notified by the NYISO that it has determined that the regulated solution is no longer
needed.

        c.      If, after consultation with the Responsible TO, the NYISO determines that the
Responsible TO has not submitted its proposed solution for statenecessary regulatory action
within a reasonable period of time, or that the Responsible TO has been unable to obtain the
approvals or property rights necessary under applicable law to construct the project, the NYISO
shall submit a report to the FERC for its consideration and determination of whether any action
is appropriate under federal law.

10.0    9.0 Monitoring of Reliability Project Status

       a.      The NYISO will monitor and report on the status of market-based solutions to
ensure their continued viability to meet Reliability Needs on a timely basis in the CRP. The
NYISO will develop’s criteria, in conjunction with the ESPWG, to assess the continued viability
of such projects are included in the NYISO’s Comprehensive Reliability Planning Process
Manual.

        b.     The NYISO will monitor and report on the status of regulated solutions to ensure
their continued viability to meet Reliability Needs on a timely basis in the CRP. The NYISO’s
will develop criteria, in conjunction with the ESPWG, to assess the continued viability of such
projects are included in the NYISO’s Comprehensive Reliability Planning Process Manual.

        c.    The NYISO, in conjunction with ESPWG, will developapply the criteria in this
Section 10.0(c) for halting a regulated solution that is already underway because of the entry of a
viable market-based solution that the NYISO has determined will meet the same Reliability
Need. SuchThese criteria shall also establishinclude a cut-off point following which a regulated
solution may not be cancelled regardless of the appearance of a market-based solution.

                (i)     The NYISO shall review proposals for market-based solutions,
                        pursuant to Section 8.2 of Attachment Y. If, based on the availability
                        of market-based solution(s) to meet the identified Reliability Need, the
                        NYISO determines that the regulated backstop solution is no longer


09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                       III - 14
Exhibit 1B
                        needed and should be halted, it will immediately notify the
                        Responsible TO and will so state in the CRP. If a regulated backstop
                        solution is halted by the NYISO, all of the costs incurred and
                        commitments made by the Responsible TO up to that point, including
                        reasonable and necessary expenses incurred to implement an orderly
                        termination of the project, will be recoverable by the Responsible TO
                        under the cost recovery mechanism in the NYISO tariff.

                (ii)    Once the Responsible TO submits its application for state regulatory
                        approval of the regulated backstop solution, pursuant to Section
                        9.4(a) of Attachment Y, or, if state regulatory approval is not
                        required, once the Responsible TO submits its application for any
                        necessary regulatory approval, the entry of a market-based solution
                        will not result in the halting by the NYISO of the regulated backstop
                        solution. The NYISO, however, will continue to evaluate proposed
                        market-based solutions to determine their ability to meet the
                        identified Reliability Need in a timely manner, and will provide the
                        results of its review to the Responsible TO, market participants and
                        the appropriate state regulatory agency(ies).

                (iii)   If a material modification to the regulated backstop solution is
                        proposed by any federal, state or local agency, the Responsible TO
                        will request the NYISO to conduct a supplemental reliability review.
                        If the NYISO identifies any reliability deficiency in the modified
                        solution, the NYISO will so advise the Responsible TO and the
                        appropriate federal, state or local regulatory agency(ies).

                (iv)    If the appropriate federal, state or local agency(ies) does not approve
                        the regulated backstop solution all of the necessary and reasonable
                        costs incurred and commitments made up to the final federal, state or
                        local regulatory decision will be recoverable by the Responsible TO
                        under the NYISO cost recovery mechanism.

                (v)     The NYISO is not required to review market-based solutions to
                        determine whether they will meet the identified Reliability Need in a
                        timely manner after the regulated backstop solution has received
                        federal and state regulatory approval, unless a federal or state
                        regulatory agency requests the NYISO to conduct such a review. The
                        NYISO will report the results of its review to the federal or state
                        regulatory agency, with copies to the Responsible TO.

                (vi)    If a necessary federal, state or local authorization for a regulated
                        solution is withdrawn, all expenditures and commitments made up to
                        that point including reasonable and necessary expenses incurred to
                        implement an orderly termination of the project, will be recoverable
                        under the NYISO cost recovery mechanism by the Responsible TO.
                        When an alternative regulated solution proposed by a TO or Other


09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                    III - 15
Exhibit 1B
                        Developer has been determined by the PSC to be the preferred
                        solution to a Reliability Need and the TO or Other Developer makes
                        all best efforts to obtain necessary federal, state or local authorization,
                        but these authorizations are not granted or are withdrawn, then all
                        reasonably incurred expenditures and necessary expenses incurred to
                        implement an orderly termination of the project, will be recoverable
                        under the NYISO cost recovery mechanism by the TO or Other
                        Developer, provided that such expenditures and commitments were
                        before the PSC when it made its determination that the alternative
                        regulated solution is the preferred solution.

        d.     The NYISO, in conjunction with the ESPWG, will developapply the criteria in
this Section 10.0(d) for determining the cutoff date for a determination that a market-based
solution will not be available to meet a Reliability Need on a timely basis.

                (i)     In the first instance, the NYISO shall employ its procedures for
                        monitoring the viability of a market-based solution to determine when
                        it may no longer be viable. Under the conditions where a market-
                        based solution is proceeding after the date on which the NYISO would
                        otherwise have invoked a regulated backstop solution, it becomes even
                        more critical for the NYISO to conduct a continued analysis of the
                        viability of such market-based solutions.

                (ii)    The developer of such a market-based solution shall submit updated
                        information to the NYISO twice during each CRPP cycle, first during
                        the input phase of the RNA, and again during the solutions phase
                        during the period allowed for the solicitation for market-based and
                        regulated backstop solutions. If no solutions are requested in a
                        particular year, then the second update will be provided during the
                        NYISO’s analysis of whether existing solutions continue to meet
                        identified reliability needs. The updated information of the project
                        status shall include: status of final permits, status of major
                        equipment, current status of construction schedule, estimated in-
                        service date, any potential impediments to completion by the
                        reliability need date, and any other information requested by the
                        NYISO.

                (iii)   The developer shall immediately report to the NYISO when it has any
                        indication of a material change in the project status or that the project
                        in-service date may slip beyond the Reliability Need date. A material
                        change shall include, but not be limited to, a change in the financial
                        viability of the developer, a change in siting status, or a change in a
                        major element of the project development.

                (iv)    Based upon the above information, the NYISO will perform an
                        independent review of the development status of the market-based
                        solution to determine that it remains viable to meet the identified


09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                       III - 16
Exhibit 1B
                        reliability need in a timely manner. If the NYISO, at any time, learns
                        of a material change in the project status of a market-based solution,
                        it may, at that time, make a determination as to the continued
                        viability of such project.

                (v)     The NYISO, prior to making a determination about the viability of a
                        specific proposed solution, will communicate its intended
                        determination to the project sponsor along with the basis for its
                        intended determination. The NYISO shall provide sponsor a
                        reasonable period (not more than 2 weeks) to respond to the NYISO’s
                        intended determination, including an opportunity to provide
                        additional information to the NYISO to support the continued
                        viability of the proposed solution.

                (vi)    If the NYISO determines that a market-based solution that is needed
                        to meet an identified Reliability Need is no longer viable, it will
                        request the Responsible TO(s) to invoke the regulated backstop
                        solution, or to seek other measures including but not limited to a Gap
                        Solution, to ensure the reliability of the system within the benchmark
                        timeframe.

                (vii)   If the NYISO determines that the market-based solution is still viable,
                        but that its in-service date is likely to slip beyond the reliability need
                        date, the NYISO will request the Responsible TO(s) to prepare a Gap
                        Solution in accordance with the provisions of this Attachment Y.

C.      Economic Planning Process

11.0    Congestion Assessment and Resource Integration Study for Economic Planning

        11.1 General

        The NYISO shall prepare and publish the Congestion Assessment and Resource
Integration Study (“CARIS”) as described below. The CARIS for economic planning will
align with the reliability planning process. Each CARIS will use a ten-year planning
horizon, and each will be conducted during a XX-month time period. Each CARIS will be
based on the most recently concluded and approved CRP. The base case for each CARIS
will assume a reliable system for the ten-year planning horizon based upon the CRP.

        11.2 Market Participant Participation in the Development of the CARIS

       a.     The NYISO shall develop the CARIS in consultation with Market
Participants. The TPAS will have responsibilities consistent with ISO Procedures for
review of the NYISO’s technical analyses. ESPWG will have responsibilities consistent
with ISO Procedures for providing commercial input and assumptions to be used in the
development of the congestion assessment and the congestion assessment scenarios
provided for under Section 11.5, and in the reporting and analysis of congestion costs.
Coordination will be established between these two groups and NYISO staff during each


09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                      III - 17
Exhibit 1B
stage of the economic planning process. The NYISO staff shall report any majority and
minority views of these Market Participant work groups when it submits the CARIS to the
Business Issues Committee for a vote, as provided below.

        b.     The NYISO, in conjunction with ESPWG, will develop criteria for the
selection and grouping of congestion and resource integration studies, as well as for setting
the timelines for the selected studies. Study selection criteria may include congestion
estimates, and shall include a process to prioritize the studies that comprise each CARIS.
Criteria shall also include a base number of high priority studies as well as a process to set
the cut off date for each CARIS study cycle.

       c.      The NYISO, in conjunction with ESPWG, will develop a process by which
individual customers can request and fund additional congestion and resource integration
studies. These individual studies are in addition to those that a customer can request
related to firm point-to-point transmission service pursuant to Section 19 of the NYISO
OATT or studies related to interconnection requests under Attachment X or Z of the
NYISO OATT.

       d.      The NYISO, shall post all requests for congestion and resource integration
studies on its website.

        11.3 Preparation of the CARIS

      a.      The Study Period for the CARIS shall be the same ten-year Study Period
covered by the CRP.

       b.     The CARIS will assume a reliable system throughout the Study Period,
based upon the solutions identified in the most recently completed and approved CRP. The
baseline system for the CARIS shall first incorporate sufficient viable market-based
solutions to meet the identified Reliability Needs. Multiple market-based solutions, as well
as regulated solutions to Reliability Needs, may be included in the scenario assessments
described in Section 11.5.

       c.     In conducting the CARIS, the NYISO shall combine the component studies
selected and assess system congestion and resource integration over the study period,
measuring congestion by the metrics discussed in Appendix A to this Attachment Y. All
resource types shall be considered as potential solutions to the congestion identified:
generation, transmission and demand response. The CARIS may include consideration of
the economic impacts of advancing a regulated back stop solution contained in the CRP.

       d.     In conducting the CARIS, the NYISO shall conduct cost/benefit analysis of
each solution to the congestion identified, applying cost/benefit metrics that the NYISO will
develop in conjunction with ESPWG.

        11.4 Market Participant Participation in the Development of the CARIS

      At the NYISO’s request, Market Participants shall provide in accordance with the
schedule set forth in the NYISO Comprehensive Reliability Planning Process Manual, the


09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                   III - 18
Exhibit 1B
data necessary for the development of the CARIS. This input will include but not be
limited to existing and planned additions to the New York State Transmission System (to
be provided by Transmission Owners and municipal electric utilities); proposals for
merchant transmission facilities (to be provided by merchant developers); generation
additions and retirements (to be provided by generator owners and developers); demand
response programs (to be provided by demand response providers); and any long-term
firm transmission requests made to the NYISO.

        11.5 Congestion and Resource Integration Scenario Development

       The NYISO, in consultation with the ESPWG and TPAS, shall develop congestion
and resource integration scenarios addressing the Study Period. Variables for
consideration in the development of these congestion and resource integration scenarios
include but are not limited to: load forecast uncertainty, fuel price uncertainty, new
resources, retirements and potential requirements imposed by proposed environmental and
energy efficiency mandates. The NYISO shall report the results of these scenario analyses
in the CARIS.

        11.6 CARIS Report Preparation

      Once all the analyses described above have been completed, NYISO Staff will
prepare a draft of the CARIS including a discussion of its assumptions, inputs,
methodology, and the results of its analyses.

12.0    CARIS Review Process

        12.1 Market Participant Process

      The draft CARIS shall be submitted to both TPAS and the ESPWG for review and
comment. Following completion of that review, the draft CARIS shall be sent to the
Business Issues Committee and the Management Committee for discussion and action.

        12.2 Board Action

        [TBD - Pending Resolution of Cost Allocation Process]

        12.3 Public Information Sessions

       The final CARIS report will be posted on the NYISO website. In order to provide
ample exposure for the market place to understand the content of the CARIS, the NYISO
will provide various opportunities for Market Participants and other potentially interested
parties to discuss final CARIS. Such opportunities may include presentations at various
NYISO Market Participant committees, focused discussions with various industry sectors,
and /or presentations in public venues.




09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                III - 19
Exhibit 1B
D.      Cost Allocation and Cost Recovery

13.0    10.0 Cost Allocation Principles

        13.1 10.1 Market- Based Responses

       The costs of market-based solutions shall be the responsibility of the developer of the
market-based proposal and shall not be subject to the provisions of Section 10.2.13.2 or Section
13.3.

        13.2 10.2 Regulated Responses to Reliability Needs

       Cost allocation for regulated solutions to Reliability Needs shall be determined by the
NYISO based upon the principle that beneficiaries should bear the cost responsibility. The
NYISO will develop criteria in consultation with Market Participants for determining the
beneficiaries of regulated solutions to Reliability Needs. The specific cost allocation
methodology, to be developed by the NYISO in consultation with the ESPWG, will
incorporatespecific cost allocation methodology in Section 14.1, developed by the NYISO in
consultation with ESPWG, incorporates the following elements:

        a.     The focus of the cost allocation methodology shall be on solutions to violations of
specific Reliability Criteria.

       b.      Potential impacts unrelated to addressing the Reliability Needs shall not be
considered for the purpose of cost allocation for regulated solutions.

       c.      Primary beneficiaries shall initially be those Transmission Districts- identified as
contributing to the reliability violation.

       d.      The cost allocation among primary beneficiaries shall be based upon their relative
contribution to the need for the regulated solution.

        e.     The NYISO will examine the development of specific cost allocation rules based
on the nature of the reliability violation (e.g., thermal overload, voltage, stability, resource
adequacy and short circuit).

      f.     Cost allocation among Transmission Districts shall recognize the terms of prior
agreements among the Transmission Owners, if applicable.

        g.     Consideration should be given to the use of a materiality threshold for cost
allocation purposes.

      h.     The methodology shall provide for ease of implementation and administration to
minimize debate and delays to the extent possible.

      i.     Consideration should be given to the “free rider” issue as appropriate. The
methodology shall be fair and equitable.




09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                        III - 20
Exhibit 1B
       j.       The methodology shall provide cost recovery certainty to investors to the extent
possible.

        k.      The methodology shall apply, to the extent possible, to Gap Solutions.

        l.     Cost allocation is independent of the actual triggered project(s), except when
allocating Minimum Locational Capacity Requirement (“LCR”) cost responsibilities, and
is based on a separate process that results in NYCA meeting its LOLE requirement.

       m.     There is no implied relationship between the project(s) triggered by the
NYISO and the Compensatory MW additions contemplated in the cost allocation process
outlined below.

       n.       The target year is the year in which a need will be met by a backstop
solution(s).

      o.     The trigger year is the year in which the backstop solution must begin to be
implemented, driven by the project lead time.

       p.     Cost allocation for a solution that meets the needs of a target year assumes
that backstop solutions of prior years have been implemented.

       q.     Cost allocation will consider the most recent values for LCRs. LCR must be
met for the target year.

        13.3 Regulated Economic Projects

       Cost allocation for regulated responses to NYISO studies of future congestion shall
be determined by the NYISO based upon the principle that beneficiaries should bear the
cost responsibility. The NYISO will develop criteria in consultation with Market
Participants for determining the beneficiaries of regulated economic transmission projects.
The specific cost allocation methodology, to be developed by the NYISO in consultation
with ESPWG, will incorporate the following elements:

       a.     The focus of the cost allocation methodology shall be on responses to specific
conditions identified in studies of future congestion.

       b.     Potential impacts unrelated to addressing the identified congestion shall not
be considered for the purpose of cost allocation for regulated economic projects.

       c.      Economic projects that were previously analyzed can proceed on a market
basis with willing buyers and sellers at any time.

        d.    Cost allocation shall be based upon a beneficiaries pay approach. Cost
allocation under the NYISO tariff for a regulated economic project shall be applicable only
when a super majority of the beneficiaries of the project, to be defined in the NYISO tariff,
vote to support the project.



09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                      III - 21
Exhibit 1B
       e.      Beneficiaries of a regulated economic project shall be those entities
economically benefiting from the proposed project. The cost allocation among
beneficiaries shall be based upon their relative economic benefit.

        f.      Consideration shall be given to the proposed project’s payback period.

      g.        The cost allocation methodology shall address the possibility of cost
overruns.

        h.    Consideration shall be given to the use of a materiality threshold for cost
allocation purposes.

      i.     The methodology shall provide for ease of implementation and
administration to minimize debate and delays to the extent possible.

      j.     Consideration should be given to the “free rider” issue as appropriate. the
methodology shall be fair and equitable.

       k.     The methodology shall provide cost recovery certainty to investors to the
extent possible.

      l.    Benefits determination shall consider various perspectives, based upon the
agreed-upon metrics for analyzing congestion.

         m.     Benefits determination shall account for future uncertainties as appropriate
(e.g., load forecasts, fuel prices, environmental regulations).

      n.      Benefits determination shall consider non-quantifiable benefits as
appropriate (e.g. - system operation, environmental effects, renewable integration).

        13.4 10.3 Interconnection Cost Allocation

       The cost allocation methodology developed under this sectionmethodologies in Section
14.0 shall not apply to the allocation of interconnection costs for market-based generation and
merchant transmission projects, which is determined in accordance with Attachment S of the
NYISO OATT.

14.0    Cost Allocation Methodologies

        14.1 Cost Allocation Methodology for Regulated Responses to Reliability Needs

        General Reliability Solution Cost Allocation Formula:

        The cost allocation mechanism for reliability backstop projects would be used as a
basis for allocating costs associated with projects that are triggered to meet Reliability
Needs identified in the RNA. The formula is not applicable to that portion of a project
oversized beyond the smallest technically feasible solution that meets the Reliability Need
identified in the RNA. The same cost allocation formula is applied regardless of the project



09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                    III - 22
Exhibit 1B
or sets of projects being triggered; however, the nature of the solution set may lead to some
terms equaling zero, thereby dropping out of the equation. To ensure that appropriate
allocation to the LCR and non-LCR zones occurs, the zonal allocation percentages are
developed through a series of steps that first identify responsibility for LCR deficiencies,
followed by responsibility for remaining need. This cost allocation process can be applied
to any solution or set of solutions that involve a single or multiple cost allocation steps. One
formula can be applied to any solution set:

                                ⎛                                             ⎞
                    ⎛ LCRdefi ⎜ CoincidentPeak × (1 − LCR )                   ⎟
                               +⎜ n
                                                                  SolnSTWdef⎟
 Cost Allocationi = ⎜                             i         i   ×
                    ⎜ Soln Size ⎜                                   SolnSize ⎟
                    ⎝                                        (
                                ⎜ ∑ CoincidentPeakk × 1 − LCRk       )        ⎟
                                ⎝ k =1                                        ⎠
                                ⎛
                                ⎜
                               + m                i
                                                         (
                                ⎜ CoincidentPeak × 1 − LCR       )
                                                              i × SolnVCIdef⎟
                                                                              ⎞
                                                                              ⎟
                                ⎜
                                                             (
                                ⎜ ∑ Coincident Peakl × 1 − LCRl
                                ⎝ l =1
                                                                     )
                                                                    Soln Size ⎟
                                                                              ⎟
                                                                              ⎠

                                ⎛                                        ⎞
                                ⎜                                        ⎟
                                     Coincident Peak i
                               +⎜ n                                      ⎟ × 100 %
                                                         SolnGNLdef
                                                       ×
                                ⎜                         Soln Size      ⎟
                                ⎜ ∑ Coincident Peak k                    ⎟
                                ⎝ k =1                                   ⎠

Where i is for each applicable zone, n represent the total zones in NYCA, m represents the
zones isolated by the binding interfaces, and where LCR is defined as the locational
capacity requirement in terms of percentage and is equal to zero for those zones without an
LCR requirement, (1-LCR) is set equal to zero if the actual value is negative, LCRdefi is
the applicable zonal LCR deficiency, SolnSTWdef is the STWdef for each applicable
project, SolnVCIdef is the VCIdef for each applicable project, SolnGNLdef is the GNL def
for each applicable project and Soln Size represents the total compensatory MW addressed
by each applicable project.

        Four step cost allocation methodology for regulated reliability solutions:

        a.      Step 1 - LCR Deficiency

                (i)     Any deficiencies in meeting the LCRs for the target year will be
                        referred to as the LCRdef. If the reliability criterion is met once the
                        LCR deficiencies have been addressed, that is LOLE ≤ 0.1 for the
                        target year is achieved, then the only costs allocated will be those
                        related to the LCRdef MW. Cost responsibility for the LCRdef MW
                        will be borne by each deficient locational zone(s), to the extent each is
                        individually deficient.

For a single solution that addresses only an LCR deficiency in the applicable LCR zone, the
equation would reduce to:


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Exhibit 1B
                                                 LCRdefί    x 100%
                               Allocationί =
                                                 Soln_ Size

Where i is for each applicable LCR zone, LCRdefi represents the applicable zonal LCR
deficiency, and SolnSize represents the total compensatory MW addressed by the
applicable project.

                (ii)    Prior to the LOLE calculation, voltage constrained interfaces will be
                        recalculated to determine the resulting transfer limits when the
                        LCRdef MW are added.

        b.    Step 2 - Statewide Resource Deficiency. If the reliability criterion is not met
after the LCRdef has been addressed, that is an LOLE > 0.1, then a NYCA Free Flow Test
will be conducted to determine if NYCA has sufficient resources to meet an LOLE of 0.1.

                (i)     If NYCA is found to be resource limited, the NYISO, using the
                        transfer limits and resources determined in Step 1, will determine the
                        optimal distribution of additional resources to achieve a reduction in
                        the NYCA LOLE to 0.1.

                (ii)    Cost allocation for Compensatory MW added for cost allocation
                        purposes to achieve an LOLE of 0.1, defined as a Statewide MW
                        deficiency (STWdef), will be prorated to all NYCA zones, based on
                        the NYCA coincident peak load. The allocation to locational zones
                        will take into account their locational requirements.

For a single solution that addresses only a statewide deficiency, the equation would reduce
to:

                             ⎛                                                      ⎞
                                    Coincident Peak i × (1 − LCRi )
                             ⎜                                                      ⎟
          Cost Allocationi = ⎜ n                                                    ⎟ x 100%
                                                                      Soln STWdef
                                                                    ×
                             ⎜                                                      ⎟
                                                         (
                             ⎜ ∑ Coincident Peak k × 1 − LCRk   )       Soln Size
                                                                                    ⎟
                             ⎝ k =1                                                 ⎠

Where i is for each applicable zone, n is for the total zones in NYCA, and LCR is defined as
the locational capacity requirement in terms of percentage and is equal to zero for those
zones without an LCR requirement, (1-LCR) is set equal to zero if the actual value is
negative, Soln STWdef is the STWdef for the applicable project, and SolnSize represents
the total compensatory MW addressed by the applicable project.

       c.     Step 3 - Voltage Constrained Interface Deficiency. If the NYCA is not
resource limited as determined by the NYCA Free Flow Test, then the NYISO will examine
voltage constrained transmission interfaces, using the Binding Interface Test.

                (i)     The existing output results of MARS ot.09 files indicate the average
                        expected number of hours that each interface is at limit in each flow
                        direction, as well as the average expected number of hours with a loss


09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                         III - 24
Exhibit 1B
                        of load event. These average expected values will be used as an initial
                        indicator to determine the binding interfaces that are impacting
                        LOLE within the NYCA.

                (ii)    NYISO will review the ot.09 output along with other applicable
                        information that may be available in MARS to make the
                        determination of the binding interfaces and to determine if there is a
                        need to develop a new MARS output table that would provide a
                        clearer and more transparent determination.

                (iii)   Zone(s) within areas isolated from the rest of NYCA as a result of
                        voltage constrained interface limits are assigned cost responsibility for
                        the Compensatory MW, defined as VCIdef, needed to reach an LOLE
                        of 0.1.

                (iv)    If one or more areas are isolated as a result of binding interfaces
                        identified through the Binding Interface Test, the NYISO will
                        determine the optimal distribution of Compensatory MW to achieve a
                        NYCA LOLE of 0.1. Compensatory MW will be added until the
                        required NYCA LOLE is achieved or until the voltage constrained
                        interfaces reach their thermal limits. If the interfaces are at their
                        thermal limits and the required NYCA LOLE has not been achieved,
                        Step 4 of the process will be conducted.

                (v)     The VCIdef MW are allocated to zones isolated as a result of the
                        voltage constrained interface limits, based on their NYCA coincident
                        peaks. Allocation to locational zones will take into account their
                        locational requirements.

For a single solution that addresses only a binding interface deficiency, the equation would
reduce to:

                             ⎛                                                     ⎞
                             ⎜                                                     ⎟
                                  Coincident Peak l × (1 − LCR l )
              Allocation i = ⎜ m                                                   ⎟ × 100 %
                                                                     Soln VCIdef
                                                                   ×
                             ⎜                                                     ⎟
                             ⎜ ∑ Coincident Peak l × (1 − LCR l )
                                                                      Soln Size
                                                                                   ⎟
                             ⎝ l =1                                                ⎠
                        Where i is for each applicable zone, n is for the total zones in NYCA,
                        m is for the zones isolated by the binding interfaces, and where LCR
                        is defined as the locational capacity requirement in terms of
                        percentage and is equal to zero for those zones without an LCR
                        requirement, (1-LCR) is set equal to zero if the actual value is
                        negative, SolnVCIdef is the VCIdef for the applicable project and
                        So1nSize represents the total compensatory MW addressed by the
                        applicable project.




09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                         III - 25
Exhibit 1B
       d.     Step 4 - General Resource Deficiency. If the reliability criterion is still not
met after Step 3, the NYISO will determine the optimal distribution of additional
compensatory MW, defined as GNLdef MW, to achieve a NYCA LOLE of 0.1.

                (i)      The cost for these GNLdef MW will be allocated among all zones in
                         the state, prorated on a NYCA coincident peak load basis.

For a single solution that addresses only a GNL deficiency, the equation would reduce to:

                                    ⎛                                   ⎞
                                    ⎜                                   ⎟
                      Allocationi = ⎜ m
                                        CoincidentPeakk   Soln GNLdef ⎟
                                                        ×                 × 100%
                                    ⎜                       Soln Size ⎟
                                    ⎜ ∑ CoincidentPeakk                 ⎟
                                    ⎝ k =1                              ⎠
                           Where i is for each applicable zone, n represents the total zones in
                           NYCA, and where SolnGNLdef is the GNLdef for the applicable
                           project and Soln Size represents the total compensatory MW
                           addressed by the applicable project.

       e.      If, after the completion of Steps 1 through 4, there is a thermal or voltage
security issue that does not cause an LOLE violation, it will be deemed a local issue and
related costs will not be allocated under this process.

     f.      Costs related to the deliverability of a resource will be addressed under the
NYISO’s deliverability procedures.

        14.2 Cost Allocation Methodology for Regulated Economic Projects

[NOTE: This section is the NYISO Straw Proposal for Economic Cost Allocation discussed
at the 8/15/07 ESPWG meeting. This Straw Proposal is based upon the MISO’s FERC-
approved cost allocation methodology. There are two other Economic Cost Allocation
proposals submitted by Market Participants. All three proposals are still under discussion
within the NYISO stakeholder process. The MP proposals, as well as a matrix comparing
all three proposals, are also included in this posting.]

o       Cost/Benefit analysis will be performed by the NYISO
              Develop parameters for Cost/Benefit studies with stakeholder input (e.g. -
              “benefits” metrics, time horizon, discount rate & cost of capital)
              TO’s to provide assistance to NYISO in the development of cost estimates for
              potential economic projects
              Cost/Benefit analysis is used to determine the initial eligibility for regulated
              funding under the NYISO tariff
              Project benefits to be determined as follows:
                 Compute the present value of the production cost benefit on a NYCA
                 basis over the 10-year study period
                 Compute the present value of the net LBMP cost benefit on a zonal basis
                 over the 10-year study period



09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                      III - 26
Exhibit 1B
                    Calculate a weighted average of the above over the 10-year period:
                        Determine the relative weighting factors (MISO) uses 70% production
                         cost/30% LMP weighting)
                     The weighted average of the benefits must be greater than zero
                Cost/Benefit analysis over the 10-year study period must be at greater than
                1.x (MISO uses a sliding Cost/Benefit scale from 1.2 to 3.0 depending upon
                the in-service date for the proposed project)
                A proposed project must also meet these additional tests:
                     Total project cost shall be greater than $xx Million (MISO threshold is
                     $5M)
                     Shall only apply to transmission facilities above xxKV (MISO threshold
                     is 345 KV or higher — NYISO might use bulk power transmission
                     system definition used for the CRPP)
                     Project shall not be a regulated reliability project that has already been
                     triggered by the NYISO
                     Project shall not be a market-based project
                C/B analysis to include various additional metrics (Need to determine the
                role of such additional metrics in this process. MISO does not use other
                metrics, but PJM had proposed similar metrics that FERC did not
                completely reject.)
                    Generator payments
                    ICAP costs
                    Ancillary service costs
                    Losses
                    TCC payments
               Cost/Benefit analysis will not include a threshold for triggering a regulated
               economic upgrade
    o        Results of analysis to be posted on NYISO website
                Forecast congestion costs in accordance with agreed upon metrics
                Other economic parameters (ICAP, ancillary services, losses)
                Results of Cost/Benefit analysis
                Cost allocation Methodology



        o Methodology to be developed with stakeholder input
        o Consistent with the principles in the NYISO Economic Planning Strawman
        o Primary principle: “beneficiaries pay”
        o Cost Allocation to be xx% on a NYCA-wide basis and yy% on a zonal basis
          (MISO uses 20% postage-stamp/80% sub-zonal cost allocation)
        o Costs within each zone to be allocated on a peak-load ratio share
        o A zone is considered to be a “beneficiary” (and thus subject to its share of the
          zonal cost allocation) if the weighted average of its zonal production cost savings
          and LBMP savings over the 10-year study period is greater than zero. (MISO
          uses a 70% production cost/30% LMP weighted average)




09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                   III - 27
Exhibit 1B
        o Zones with a weighted average benefit of less than zero will not receive any zonal
          cost allocation. Such zones will continue to pay the NYCA-wide allocation
        o Process to include a requirement for a “super-majority” vote of beneficiaries as
          a pre-condition for cost allocation for a regulated economic project under the
          NYISO Tariff
          o Only zones considered “beneficiaries” under the above test will be eligible to
              vote
          o Rules for voting eligibility to be developed (e.g. representative voting vs
              individual voting; definition of “representative”; load weighted vs per capita
              voting, etc.)
          o Determine the “super-majority” percentage required to approve.

15.0    11.0 Cost Recovery for Regulated Projects [More specific processes to be included for
        reliability and economic projects.]

        The Transmission Owners will be entitled to full recovery of all reasonably incurred
costs, including a reasonable return on investment and any applicable incentives, related to
the development, construction, operation and maintenance of regulated solutionsprojects,
including Gap Solutions, (i) undertaken by a Transmission Owner at the request of the NYISO
pursuant to this tariff to meet a Reliability Need, including a reasonable return on investment and
any applicable incentivesor (ii) undertaken by a Transmission Owner in response to a
NYISO economic planning process study of future congestion.

       a.      The Responsible TO will receive cost recovery for a regulated solution it
undertakes at the NYISO’s request to meet a Reliability Need under this tariff that is
subsequently cancelled in accordance with the criteria established pursuant to section 9.Section
10.c above. Such costs will include reasonably incurred costs through the time of cancellation,
including any forward commitments made.

       b.      The Responsible TO shall have the right to make a filing with FERC, under
Section 205 of the Federal Power Act, for approval of its costs described in section 11this
Section 15 incurred with respect to (i) the implementation of a regulated transmission solution
determined by the NYISO in the CRP to be necessary to meet a Reliability Need, or (ii) the
implementation of a regulated project in response to a NYISO economic planning process
study of future congestion. Upon request by LIPA or NYPA, the NYISO will make a filing
with FERC on behalf of LIPA or NYPA, as the case may be.

       c.      Cost recovery for regulated transmission projects undertaken pursuant to the
NYISO’s request under this tariffAttachment Y shall be under the NYISO OATT and in
accordance with the provisions of the Agreement Between the New York Independent System
Operator, Inc. and the New York Transmission Owners on the Comprehensive System Planning
Process for Reliability Needs.

       d.      Costs related to regulated non-transmission reliability projects and economic
projects will be recovered by the Transmission Owners in accordance with cost allocation and
cost recovery policies adopted by the NYPSC pursuant to the provisions of New York Public
Service Law.


09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                       III - 28
Exhibit 1B
E.      Other Provisions

16.0    12.0 FERC Role in Dispute Resolution

        Disputes directly relating to the NYISO’s compliance with its tariffs that are not resolved
in the internal NYISO appeals process and all disputes relating to matters that fall within the
exclusive jurisdiction of FERC shall be reviewed at FERC pursuant to the Federal Power Act if
such review is sought by a Market Participant. The NYPSC or any party to a dispute regarding
matters over which both the NYPSC and FERC have jurisdiction and responsibility for action
may submit a request to FERC for a joint or concurrent hearing to resolve the dispute.

17.0    13.0 Non-Jurisdictional Entities

       LIPA’s and NYPA’s participation in the NYISO Comprehensive Reliability Planning
Process shall in no way be considered to be a waiver of their non-jurisdictional status pursuant to
Section 201(f) of the Federal Power Act, including with respect to the FERC’s exercise of the
Federal Power Act’s general rate making authority.

18.0    14.0 Tax Exempt Financing Provisions

        Con Edison, NYPA and LIPA shall not be required to construct, or cause to construct, a
transmission facility identified through the NYISO Comprehensive Reliability Planning Process
if such construction would result in the loss of tax-exempt status of any tax-exempt bond issued
by Con Edison, NYPA or LIPA, or impair their ability to secure future tax-exempt financing.

19.0    Interregional Planning Coordination

        19.1 The Northeastern ISO/RTO Planning Coordination Protocol

       The NYISO will coordinate the transmission system planning activities for the
NYCA described in this Attachment Y through the Northeastern ISO/RTO Planning
Coordination Protocol. This protocol describes the committee structure, processes and
procedures through which system planning activities are coordinated by the ISOs and
RTOs of the northeastern United States and eastern Canada. The activities covered by the
protocol are to be conducted in coordination with the Regional Reliability Councils of the
northeastern United States and eastern Canada. The primary purpose of the protocol is to
contribute, through coordinated planning, to the on-going reliability and the enhanced
operational and economic performance of the parties to the protocol. To accomplish this,
the parties will coordinate the evaluation of tariff-provided services, such as generation
interconnection, to recognize the impacts that result across the different systems. The
parties will also produce, on a periodic basis, a Northeastern Coordinated System Plan that
integrates the system plans of the parties and includes upgrade projects jointly identified
by the parties to enhance the coordinated performance of their systems.




09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                       III - 29
Exhibit 1B
                                               APPENDIX A


                   REPORTING OF HISTORIC AND PROJECTED CONGESTION



1.0     General

         As part of its Comprehensive System Planning Process, the NYISO will prepare summaries
and detailed analysis of historic and projected congestion across the New York Transmission
System. This will include analysis to identify the significant causes of historic congestion in an
effort to help Market Participants and other stakeholders distinguish persistent and addressable
congestion from congestion that results from one time events or transient adjustments in operating
procedures that may or may not recur. This information will assist Market Participants and other
stakeholders to make appropriately informed decisions.

2.0     Definition of Congestion

        The NYISO will report the cost of congestion as the change in bid production costs that
results from transmission congestion. The following elements of congestion-related costs also will
be reported: (i) impact on load payments; (ii) impact on generator payments; and (iii) hedged and
unhedged congestion payments.

        The determination of the change in bid production costs and the other elements of congestion
will be based upon the difference in costs between the actual constrained system prices computed in
the NYISO’s Day-Ahead Market and a simulation of an unconstrained system. The simulation shall
be developed by the use of the PROBE model approved by the NYISO Operating Committee on
January 22, 2004.

3.0     Analysis

       Each Reliability Needs Assessment will include the NYISO’s summaries and detailed
analysis of the prior year’s congestion across the New York Transmission System. The NYISO’s
analysis will identify the significant causes of the historic congestion.

     Each study of projected congestion for economic planning will include [_______]. The
NYISO’s analysis will identify the significant causes of the projected congestion.

4.0     Detailed Cause Analysis for Unusual Events

        The NYISO will perform an analysis to identify the cause of unusual events causing
significant congestion levels. Such analysis will include the following elements: (i) identification or
the cause of major transmission outages; and (ii) qualification of the market impact of relieving
historic constraints.




09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                       III - 30
Exhibit 1B
        Some of the information necessary to this analysis may constitute sensitive electric
infrastructure material and will need to be handled with appropriate confidentiality limitations to
protect national security interests.

5.0     Summary Reports

        The NYISO will prepare various reports of historic and projected congestion costs.
TheseHistoric congestion reports will be based upon the actual congestion data from the NYISO
Day-Ahead Market, and will include summaries, aggregated by month and calendar year, such as:
(i) NYCA; (ii) by zone; (iii) by contingency in rank order; (iv) by constraint in rank order; (v) total
dollars; and (vi) number of hours. Projected congestion reports will include summaries
[_________].

        These reports will be based upon the foregoing definitions of congestion.




09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                         III - 31
Exhibit 1B
    SECTION IV

      EXHIBIT 2

Con Edison/PSEG Proposal
Con Edison/PSEG: Economic Project Cost Allocation Proposal – 08/13/07
   • Economic cost allocation through the NYISO tariff is only applicable to economic
      transmission solutions.
   • Only high quality economic projects which meet stringent project viability criteria can be
      considered for cost allocation through the NYISO tariff.
          o Viability criteria should be based on a “five year payback” decision rule: only
              project(s) where the net reduction in load payments for all NYISO loads over the
              first five year in service period exceeds the total cost, including environmental
              costs and any costs associated with any required regulatory approvals, of the
              project should be considered viable and therefore eligible for cost allocation
   • Beneficiaries shall include loads who benefit from access to lower cost generation
      previously unavailable due to congestion. The following point to be discussed to
      determine individual MP positions: Consideration will be given to including generators
      as beneficiaries to the extent that certain generators receive additional payments through
      increased access to higher priced markets.
          o Beneficiary allocations shall be determined on a percentage basis through a
              consideration of each beneficiary’s share of the total sum of incremental load
              savings and, if considered, incremental net generator revenues (i.e. summing the
              absolute value of the load savings with the increased net generator revenues.)
          o Neither loads whose LBMPs increase nor generators whose revenues fall as a
              result of an economic transmission project are eligible to receive any “make-
              whole” payments or other reimbursements.
   • Once beneficiaries are identified and the appropriate cost allocation to each is
      determined, these same beneficiaries must agree that the project delivers needed benefits
          o A beneficiaries only “vote”, weighted pro-rata by their potential cost allocation
              percentage, will determine a project’s eligibility for tariff recovery. A market
              participant’s right to vote is aligned with its obligation to directly pay for the
              proposed project. If the project is not supported by a super-majority of paying
              beneficiaries, it is not eligible for cost recovery through the NYISO tariff. If the
              project is supported by a super-majority of paying beneficiaries, then it is eligible
              for cost recovery through a direct charge to all paying beneficiaries through the
              NYISO tariff
          o To the extent that individual TOs, municipalities, LSEs, and if considered,
              generators, are charged directly as beneficiaries of the economic project, each
              would be delegated a voting share in proportion to its pro-rata share of the costs
              being allocated to them.
          o Point to be discussed to determine individual MP positions: The role of the
              NYPSC in the process should be appropriately considered and the process should
              provide an opportunity for their input before the beneficiaries vote.
          o While the payback threshold trigger is based on the total payback in the first five
              years, a more detailed zonal payback may be calculated to assist beneficiaries in
              evaluating their individual risk
   • At least 80% of the designated beneficiaries must vote in favor of a project for the project
      to be eligible for cost recovery through the NYISO tariff




09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                IV - 1
Exhibit 2
            o For a project that meets the “80% of beneficiaries support” test, those identified
                by the NYISO as beneficiaries but who do not support the project would still be
                required to pay for the project
            o For projects that have at least 67% support of beneficiaries but less than 80%
                support, can request a NYS PSC review for regulated project recovery.
        •   Economic analysis of a particular project (used to determine project viability and cost
            allocation percentages) will focus on changes in load payments and generator
            payments as the key decision metric [Note: This may need to be revised depending on
            whether the generators are included as beneficiaries.]
            o Economic modeling of a particular project will be performed by the NYISO, as
                requested by a market participant or project sponsor, using an industry standard
                production cost modeling program. The analyses assumptions will be vetted
                through the stakeholder process and should be endorsed by the projected
                beneficiaries. (Note: If beneficiaries don’t like the assumptions they will vote
                against the project, so there seems to be a proper check in place)
            o Such customer requested economic planning studies will commence after the
                Comprehensive Reliability Planning Process for a given year has concluded and
                must be completed before the next planning cycle begins

        The next two bullets should be discussed. While the base case should assume a reliable
        system, the process to get there should be vetted more fully to determine individual MP
        positions:
            o The base case for the economic analysis of a particular project will include all TO
                backstop reliability projects as though they will be built in the year indicated in
                the CRPP. Considerations will be given to inter-regional plans.
            o Sensitivity analyses will consider the effect of market based solutions on the base
                case economic benefits, and the results of these sensitivities will be provided to
                the designated beneficiaries for consideration during the super-majority vote.

             o Future costs of fuels, emissions credits and system topology will be estimated by
                the NYISO, with high and low price forecast sensitivities for fuel and emissions; a
                sensitivity will also be performed to account for the cost or benefit of carbon
                emissions
             o Future generation shall be modeled using projects currently active and in the
                generation interconnection queue; in outer years when the generation
                interconnection queue is smaller, NYISO will forecast generation additions such
                that the NYISO (1) always meets the IRM requirements and the applicable LCR
                requirements as they exist in the year of the study and (2) the location of
                generation additions are influenced by capacity prices and the cost of construction
                in various NYISO capacity zones
             o Pre-existing long term power purchase contracts shall be considered as an offset
                to calculated benefits. If detailed information is not available, the NYISO shall
                consider quantities of MWs that may be committed for the longer term, and
                exclude those MWs from potential savings.
    •   If the project is approved, economic cost allocation will be applicable only to those
        reasonable costs incurred with the FERC approved ROE net of all market revenues.



09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                IV - 2
Exhibit 2
             o To the extent that a developer’s costs change prior to the commencement of
                procurement and construction activities, the project developer’s cost increases
                will be considered for possible inclusion in the cost allocation and recovery
                process once the developer provides appropriate verification of the projected cost
                increases, without elimination of the projected benefits, and must have
                appropriate regulatory approvals.
             o Prior to inclusion in the cost allocation process, beneficiaries will vote on the
                revised economic analysis and only a super-majority vote still in favor of the
                project moving ahead will determine if the increases can be recovered
        The next bullet is an option for consideration and to be vetted more fully to determine
        individual MP positions:
             o Cost recovery applicable only when and if economic project commences
                commercial operation.
    •   If the project is approved, recovery from the beneficiaries for such project costs (net of
        market revenues) and its associated FERC approved ROE will occur over the first five
        years of the project in-service date, consistent with the projected “five year payback”
        decision rule, and consistent with the projected savings.
    •   Alternative: If the project is approved, the beneficiaries’ allocation shall be reviewed 4
        years after the project is put in service, with a reallocation in the following year. The
        study shall look at the change in the projected impacts to all customers in the NYISO
        territory with and without the project. To the extent that benefits are no longer achieved
        or are distributed significantly differently than originally anticipated, the project costs
        will be socialized, in all or in part depending on the study results.
             o In no case shall a beneficiaries’ allocation increase by more than 5% in any one
                year
             o Since after 15 years it will be difficult to determine whether the original benefits
                are being achieved because the bulk power system will be significantly different
                from the system at the time the original triggering decision was made, at that
                point in time any remaining costs, including maintenance investments, will be
                socialized




09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                 IV - 3
Exhibit 2
   SECTION V

     EXHIBIT 3

National Grid Proposal
National Grid’s Proposal for an Economic
Planning Process in New York

ESPWG
28 August 2007




Exhibit 3
    Principles

       Cost allocation through the NYISO tariff is only
       applicable to transmission solutions
       Cost allocation is based on beneficiaries pay
       Eligibility of economic project is based on bright line
       test
       Stakeholder input is needed to establish the criteria
       and study assumptions for the performance of studies
       The NYISO shall advise if a project is economically
       justified; however does not “trigger” a project to go
       forward




2   Exhibit 3
    Viability Criteria – Bright Line Test

        The bright line test incorporates the metrics
        most meaningful to the NY market
            Load Payment (zonal load times zonal LBMP)
            Capacity Payment (zonal load times locational
            ICAP payment)
        Test
        If NPV for all NYISO loads of the sum of gross
        load payment savings and NYCA capacity
        payments savings exceed NPV of project’s
        costs then project is economically justified
        ∑(Load Payment Savings + Capacity Payment Savings) > Cost of Project


3    Exhibit 3
    Timeframe for calculation of annual benefits

        Project annual benefits over 15 year period
            Although 30 years is the general depreciation life of a
            project, 15 years is chosen as benefits become harder
            to forecast longer periods outward
        Compare NPV of project annual benefits (∆gross load
        payments and ∆capacity payments) to NPV of annual
        cost over same period
        To project annual benefits, use a single set of input
        assumptions regarding fuel costs, load forecasts, etc
        Timeframe to consider the RNA base case including all
        Responsible TO backstop reliability projects which the
        NYISO has found is needed
            If the NYISO did not “trigger” any Responsible TO
            solution(s), the NYISO should assume the existing
            system in its base case

4    Exhibit 3
    Sensitivity Analysis

       For informational purposes only, sensitivity
       analysis of the following parameters should be
       conducted to inform decisions
          Future Generation
                   Using the purposed market based solutions
                Fuel costs
                Load growth
                Emission costs
                Increased demand response/energy efficiency


5   Exhibit 3
    Parameters

       Project developer shall include in total cost of project,
       all known environmental costs and any costs
       associated with any required regulatory approvals
       Shall only apply to projects on the NYCA bulk power
       system as defined in the tariff
       Project shall not be a regulated reliability project that
       has already been triggered by the NYISO
       Project shall be included in NYISO reliability base case
       once appropriate milestones have been met
       Once deemed economic through bright line test and
       supporting NYISO findings, project must go through
       appropriate regulatory approvals to receive permitting
       and siting

6   Exhibit 3
    Cost Allocation of Economic Based Project

       FERC stated in the most recent PJM Order on this issue and
       repeated in Order No. 890…
           RTOs should design cost allocation mechanisms to “fairly assign
           cost to causer and beneficiaries”
                    FERC has recommended a metric based approach and/or postage
                    stamp based
                The mechanism should “enjoy broad support from regulators and
                stakeholders”
                    Although FERC has warned that it will step in if consensus could not
                    be reached
                The mechanism “must encourage transmission investment”
                    FERC has acknowledged that transmission is needed for both
                    reliability and economic efficiency of market
                FERC has stated that cost allocation must be well-defined, ex-
                ante, placed in the tariff, and not vulnerable to litigation when
                applied


7   Exhibit 3
    Cost Allocation Proposal

       Cost allocation is beneficiaries pay
       Beneficiaries are determined as those zones that
       receive a net savings
       Loads whose total sum of load payment and capacity
       payment increase as a result of the economic
       transmission project are not eligible to receive any
       “make whole” payments or other reimbursements
       Each zone determined as beneficiaries will be allocated
       costs based on that zone’s percentage of total savings
           Loads within a zone will pay the pro rata share of their
           peak load


8   Exhibit 3
    Cost Allocation Parameters

       Cost allocation is only applicable to those reasonable
       costs incurred with the FERC approved ROE net all
       market revenues (TCC payments)
       Estimated project costs will be used in the bright line
       test to determine viability of project and eligibility
       under the economic cost allocation mechanism.
       Cost allocation of project is based on actual cost of
       project when completed as approved by the FERC and
       New York PSC as appropriate
       Cost recovery under NYISO tariff




9   Exhibit 3
     Economic Planning Timeline
        The economic planning analysis should be performed as part of
        the overall NY planning process
             After completion of the reliability portion of the planning process
        The assumptions and parameters to be used in the analysis
        should be developed by stakeholders within a NYISO working
        group
             NYISO will make final determination of assumptions and
             parameters used in study if stakeholders cannot come to
             consensus
        Project developer(s), market participant(s), or DPS staff may
        approach NYISO to conduct economic analysis of proposal(s)
             If needed, stakeholders will discuss how to group and cluster
             studies
        NYISO will conduct economic analysis using bright line test
        including sensitivity analysis
        Only if project passes bright line test, can project proceed through
        regulatory process


10   Exhibit 3
           SECTION VI

             EXHIBIT 4

Comparison of Cost Allocation Proposals
                                             ORDER 890: NYISO COMPLIANCE FILING

                      COMPARISON OF COST ALLOCATION PROPOSALS UNDER CONSIDERATION


                                          NYISO Straw Proposal                   Con Edison/PSEG Proposal              National Grid Proposal
                                        (Based Upon MISO’s FERC-
                                            Approved Methodology)
                                         (Presented @ 8/15/07 ESPWG)              (Presented @ 8/15/07 ESPWG)         (Presented @ 8/28/07 ESPWG)
APPLICABILITY

  Transmission Projects               Applicable                               Applicable                          Applicable
                                      (On the NYCA bulk power system)                                              (On the NYCA bulk power system)
  Generation & Demand                 Not Applicable for Cost Allocation       Not Applicable                      Not Applicable
    Response Projects                      under NYISO Tariff
                                      (Such projects to be market-based)
  Reliability Backstop                Not Applicable if already triggered by   Not Addressed in Proposal           Not Applicable if already triggered
  Projects                                 the NYISO.                          [CE’s Accelerated Reliability            by the NYISO
                                      May be applicable to the advancement          Projects 08-27-07 was to
                                           of a regulated backstop project.         address advancement of a
                                                                                    regulated backstop project]
  “Triggering”                        NYISO process will not trigger an        Same                                Same
                                          economic project

MODELING ISSUES

  Sequential Process                  Builds on most recent CRP                Same                                Same
  Planning Horizon                    10 Years (Same as CRPP)                  5 Years                             15 Years
  Model                               Production Costing Model                 Industry standard production cost   Not specified
                                                                                    model                          (Production cost model implicit in
                                                                                                                        the methodology)




09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                                                                   VI - 1
Exhibit 4
  Base Case Resources                 According to CRP Plan                       TO Regulated Reliability Backstop       Consider only TO Regulated
                                      (Preference for market-based                    Solutions to be installed in year       Reliability Backstop Solutions
                                           solutions/use regulated reliability        of need                                 triggered by the NYISO. If no
                                           backstops only if needed)                                                          backstops triggered—use the
                                                                                                                              existing system.
  Open & Transparent                  Develop methodology & study                 Same                                    Same
  Process                                 assumptions/ review study
                                          results with stakeholders
                                          (ESPWG/TPAS)

COST/BENEFIT ANALYSIS                 Used to determine initial eligibility for   Same                                    Same
                                          cost allocation under NYISO
                                          Tariff

  Time Period                         10 Years                                    5 Years                                 15 Years
  Benefits Metrics                    Weighted average: (PV of NYCA wide          Net reduction in (LBMP) load            Sum of (NPV LBMP Zonal load
                                            production cost savings) + (NPV            payments for all NYISO loads            savings) + (NPV Zonal ICAP
                                            Zonal LBMP load savings)                                                           payment savings)
                                      Weighting factors: TBD
  C/B Multiplier                      Sliding scale depending upon the in-        No Multiplier                           No Multiplier
                                            service date of the project           (NPV Benefits must exceed total         (NPV Benefits must exceed total
                                      Multipliers: TBD                                 project costs, including               project costs: including
                                                                                       environmental and regulatory           environmental and regulatory
                                                                                       approval costs)                        approval costs)
                                                                                  Zonal C/B may also be calculated for
                                                                                       information purposes only
  Minimum Cost Threshold              Project Cost to be greater than $X          None                                    None
                                      Amount: TBD
  Cost Estimates                      To be developed by NYISO with               Not specified                           Based upon estimated costs
                                           assistance of TO                                                               Does not specify who calculates
  Additional Metrics                  For information only                        None Proposed                           None Proposed
                                      May include: generator payments;
                                           ICAP costs; AS costs; Losses;
                                           TCC payments
  Additional Scenarios                For information only                        For information only                    For information only




09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                                                                           VI - 2
Exhibit 4
                                      May include: fuel & load forecast        May include: market-based               May include: additional generation
                                          uncertainty; pending                     solutions; high & low price             scenarios, including
                                          environmental regulations;               forecasts for fuel & emissions          consideration of market-based
                                          alternative resource scenarios;                                                  reliability solutions; fuel & load
                                          energy efficiency                                                                forecast uncertainty; emissions
                                                                                                                           costs; demand response/energy
                                                                                                                           efficiency

COST ALLOCATION

  Fundamental Principle               “Beneficiaries Pay”                      Same                                    Same
  Other Principles                    See NYISO “Strawman”                     None Specified                          None Specified
  NYCA Wide/Zonal                     X% NYCA-Wide/Y% Zonal                    No NYCA-Wide Allocation                 No NYCA-Wide Allocation
  Allocation                          Allocation %: TBD
  Beneficiary Designation             Weighted average over 10 years:          Loads who benefit: Based on             Zonal NPV (Load Payment Savings +
                                           (Zonal production cost savings) +       reduction in LBMP load                  Capacity payment savings) >
                                           (zonal LBMP load savings) > 0           payments (Zonal basis??)                NPV Cost of Project
                                      Weighting factors: TBD                   Generators: Who benefit from access
                                      To determine eligibility for the zonal       to higher LBMP revenues
                                           cost allocation
   Non-Beneficiaries                  Will not receive any zonal cost          No “make whole” payments                No “make whole” payments
                                           allocation; must still pay NYCA-
                                           Wide cost; no “make-whole”
                                           payments
  Allocation Factor                   Peak load ratio share                    Load: based on share of total load      Zonal costs: based on % of total
                                                                                    savings                                savings
                                                                               Generator + Load: based on share of     Within Zone: to LSEs on peak load
                                                                                    load savings + incremental             ratio share
                                                                                    generator revenues
  Project Cost                        Actual project cost                      All “Reasonable costs” actually         Actual cost of project when
                                      Methodology: TBD                              incurred                                completed
                                                                               Net of all market revenues              Net of all market revenues (e.g., less
                                                                               Provision for review and vote on cost        TCC payments)
                                                                                    increases prior to start of




09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                                                                        VI - 3
Exhibit 4
                                                                                 procurement/construction
  Approval of Project Cost            By FERC through NYISO Tariff            FERC sets ROE                          By FERC and/or NYSPSC “as
                                                                                                                         appropriate”
                                                                                                                     FERC sets ROE



BENEFICIARIES VOTE?                   Yes                                     Yes                                    No Vote


  Eligibility to Vote                 Only zones who are beneficiaries        Only loads (generators) who are        NA
                                                                                   beneficiaries
  Voting Rules                        TBD                                     Voting share weighted pro-rata in      NA
                                                                                   accordance with cost allocation
                                                                                   percentage
  Percentage                          “Super Majority”                        80%                                    NA
                                      %: TBD                                  Between 67% and 80%: Can request
                                                                                   a NYS PSC review for regulated
                                                                                   cost recovery
  Beneficiaries voting “no”           Required to pay proportional share of   Required to pay proportional share     NA
                                          project                                  of project

COST RECOVERY

  Vehicle                             NYISO Tariff                            NYISO Tariff                           NYISO Tariff
  Cost Recovery Begins                TBD                                     When and if project commences          Not Addressed
                                                                                   commercial operation
  Recovery Period                     TBD                                     5 Years                                Not Addressed
                                                                              With a FERC-approved ROE

OTHER PROVISIONS

  Conform to NYISO Tariff             Economic project must comply with       Not Mentioned                          Not Mentioned
                                          all other requirements of NYISO
                                          Tariff (e.g. interconnection)




09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                                                                 VI - 4
Exhibit 4
  Regulatory Approvals for            Not Mentioned      Not Mentioned                             Per normal regulatory process
  Permitting & Siting
  Consideration of LT                 Not Included       Pre-existing LT power purchase            Not Included
  Contracts                                                   contracts to offset projected
                                                              benefits.
                                                         Use MW offset if cost information is
                                                              not available.
  Prospective Review of               Not Included       Provision for prospective review of       Not Included
  Cost Allocation                                             project benefits after 4 years
                                                         Possible reallocation/ socialization of
                                                              costs at that time



NOTE: Alternative positions are highlighted in yellow




09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                                                  VI - 5
Exhibit 4
    SECTION VII

       EXHIBIT 5

TO Cost Recovery Proposal
                                            09/05/07
                              Transmission Owners Proposal
                                Outline of Cost Recovery for
                               Regulated Reliability Projects


1.       Cost Recovery for Regulated Backstop Solutions by the Responsible TO(s)

     •   Upon request of the NYISO, the Responsible TO(s) will proceed with the process
         to obtain all necessary federal, state and local approvals for its backstop solution.
     •   If one or more alternative regulated solution(s) has been found by the NYISO to
         meet the identified reliability need and has been included in the CRP, the
         proponents of any alternative regulated solutions shall seek a determination by the
         PSC as to whether its proposed alternative regulated solution is preferable to the
         regulated backstop solution in meeting the reliability need identified in the CRP.
     •   The request for a PSC determination shall be made by the proponent(s) of an
         alternative regulated solution(s) following the NYISO Board’s determination that
         the Responsible TO(s) should proceed to implement a regulated backstop solution
         pursuant to Section 8.4(a) of Attachment Y.
     •   The request for a determination by the PSC shall address whether an alternative
         regulated solution is preferable to the regulated backstop solution based on the
         PSC’s assessment of the relative merits of the proposed solutions, including their
         costs and ability to effectively address the reliability need identified in the CRP in
         a timely manner.
     •   If the PSC determines that a proposed alternative regulated solution is a preferable
         solution to the regulated backstop solution in meeting the reliability need
         identified in the CRP, the proponent of the alternative regulated solution shall be
         eligible for cost recovery under the provisions of Attachment Y of the NYISO’s
         OATT.
     •   If the PSC determines that an alternative regulated solution is not preferable to the
         regulated backstop solution, the Responsible TO(s) will proceed with obtaining
         all necessary federal, state and local approvals for the regulated backstop solution.



09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                   VII - 1
Exhibit 5
    •   The PSC’s determination as to the preferred regulated solution will not affect in
        any way the authority of the PSC or any federal, state or local entity whose
        approval is required for the implementation of a proposed regulated solution, nor
        affect the ability of a transmission owner to continue to plan and meet the needs
        of its transmission system outside the NYISO Comprehensive Reliability
        Planning Process.
    •   Participation by a transmission owner in the NYISO CRPP shall not be construed
        as a waiver of the rights a transmission owner may have under the Energy Policy
        Act of 2005 and Section 216 of the Federal Power Act with respect to the siting of
        transmission facilities in a national interest electric transmission corridor, and
        those rights are expressly reserved.
    •   The Responsible TO(s) (other than LIPA and NYPA, whose process for recovery
        of incurred costs is separately addressed below) will make a §205 filing to FERC
        describing the regulated backstop solution and its related costs, and seeking FERC
        approval of the regulated backstop solution and its associated rate treatment (e.g.,
        cost of capital, depreciation period, CWIP) through the NYISO tariff.
    •   Upon receipt of all necessary federal, state and local approvals, the Responsible
        TO(s) will commence implementation of the regulated backstop solution.
    •   If a necessary federal, state and local approval is conditioned on a project
        substantially different from regulated backstop solution included in the CRP but
        still meets the identified need, the Responsible TO(s) will make a FERC filing for
        approval of the revised solution.
    •   Upon completion of the regulated backstop solution, the Responsible TO(s) will
        make a supplemental FERC filing to provide the final project cost and resulting
        revenue requirement.
    •   All reasonably incurred costs will be recovered by the Responsible TO(s),
        including (1) costs incurred to study, plan, modify, and develop the regulated
        backstop solutions in any CRP whether or not it is triggered, and (2) costs
        incurred up to the time a triggered project is halted by the NYISO or, if
        applicable, a necessary authorization is either not granted or subsequently
        withdrawn.


09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                   VII - 2
Exhibit 5
    •   A NYISO Reliability Facilities Charge (“RFC”) will be billed by the NYISO and
        paid by transmission customers in all applicable load zones and sub-zones to
        which costs have been allocated, including but not limited to TOs, Munis and
        competitive LSEs.
    •   The FERC approved revenue requirement will be the basis for a monthly RFC.
        The RFC will be assessed to transmission customers on a monthly $/MWh basis.
    •   The NYISO will adjust the RFC to account for variances in the billing units to
        properly equate the revenues received with the FERC approved revenue
        requirement.
    •   Incremental TCCs and/or other products resulting from the project will be
        auctioned or otherwise sold through the NYISO markets and the NYISO will
        offset the project’s monthly revenue requirement by the associated revenues from
        such sales.
    •   The NYISO will collect the RFC revenues on a monthly basis and remit those
        revenues to the appropriate Responsible TO(s) in accordance with the NYISO
        tariff.


    2. Cost Recovery by LIPA and NYPA

    •   Costs for regulated solutions which are to be allocated to customers within
        LIPA’s transmission district will be pursuant to a rate recovery mechanism
        approved by the LIPA Board of Trustees, which will include the rate LIPA will
        charge and collect from responsible entities within LIPA’s transmission district,
        in accordance with NYISO cost allocation.
    •   Upon approval of the rate recovery mechanism by the LIPA Board of Trustees,
        LIPA will provide to the NYISO, for inclusion within the NYISO OATT and
        filing with FERC on an informational basis only, a description of the rate
        recovery mechanism and the rate LIPA will charge and collect from responsible
        entities within the Long Island transmission district in accordance with the
        NYISO’s cost allocation.




09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                 VII - 3
Exhibit 5
    •   For costs allocated to other transmission districts for a project undertaken by
        LIPA, the NYISO will enter into a cost-sharing agreement with LIPA for the
        reimbursement of costs incurred by LIPA. The agreement will provide that the
        NYISO will obtain any necessary FERC approvals for the incorporation of such
        reimbursed costs into the RFC.
    •   Any costs incurred by NYPA, subject to prior approval by its trustees, and
        subsequently approved by FERC, will be recovered through inclusion of such
        costs into the NYISO RFC in a manner that is consistent with the process used for
        a regulated transmitting utility, except that the NYISO will obtain necessary
        FERC approvals.
    •   Incremental TCCs and/or other products resulting from the project will be
        auctioned or otherwise sold through the NYISO markets and the NYISO will
        offset the project’s revenue requirement by the associated revenues from such
        sales.


    3. Cost Recovery For an Alternative Regulated Solution Implemented by a TO

    •   If an alternative regulated solution proposed by a TO is determined by the PSC to
        be the preferred solution to meet all or a portion of a reliability need identified in
        the CRP, the TO that proposed the solution will implement it, and will proceed to
        obtain all necessary federal, state and local authorizations for the alternative
        regulated solution.
    •   Upon a PSC determination that the alternative regulated solution is the preferred
        solution, the TO will make a §205 filing to FERC describing the selected
        alternative regulated solution and its related costs, and seeking FERC approval of
        the selected alternative regulated solution and its associated rate treatment.
    •   Upon receipt of all necessary federal, state and local authorizations, the TO will
        implement the alternative regulated solution.
    •   If a necessary federal, state and local approval is conditioned on a project
        substantially different from alternative regulated solution included in the CRP but




09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                     VII - 4
Exhibit 5
         still meets the identified need, the TO will make a FERC filing for approval of the
         revised solution.
     •   Upon completion of the selected alternative regulated solution, the TO will make
         a supplemental FERC filing to provide the final project cost and resulting revenue
         requirement.
     •   The TO will receive cost recovery under the NYISO tariff and rate recovery
         mechanism in the same manner as a Responsible TO.
     •   The TO will not be entitled to recovery of costs related to the alternative regulated
         solution unless the PSC determines that the alternative regulated solution is the
         preferred solution to meet all or a portion of a reliability need identified in the
         CRP. Once such determination is made, all reasonably incurred costs related to
         the selected project will be recoverable under the NYISO tariff.
     •   Incremental TCCs and/or other products resulting from the project will be
         auctioned or otherwise sold through the NYISO markets and the NYISO will
         offset the project’s revenue requirement by the associated revenues that the
         project receives from such sales.
     •   The NYISO will collect the RFC revenues on a monthly basis and remit those
         revenues to the TO that implemented the alternative regulated solutions in
         accordance with the NYISO tariff.


4.       Cost Recovery For an Alternative Regulated Project Implemented by an
         Other Developer

     •   If an alternative regulated solution proposed by an Other Developer is determined
         by the PSC to be the preferred solution to meet all or a portion of a reliability
         need identified in the CRP, the Other Developer that proposed the solution will
         implement it, and will proceed to obtain all necessary federal, state and local
         authorizations for the alternative regulated solution.
     •   Upon PSC determination that the alternative regulated solution is the preferred
         solution, the NYISO, on behalf of the Other Developer, will make a §205 filing to
         FERC describing the selected alternative regulated solution and its related costs,



09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                     VII - 5
Exhibit 5
        and seeking approval of the selected alternative regulated solution and its
        associated rate treatment.
    •   Upon receipt of all necessary federal, state and local authorizations, the Other
        Developer will implement the selected alternative regulated solution.
    •   If a necessary federal, state and local approval is conditioned on a project
        substantially different from alternative regulated solution included in the CRP but
        still meets the identified need, the NYISO will make a FERC filing for approval
        of the revised solution.
    •   Upon completion of the selected solution, the NYISO will make a supplemental
        FERC filing to indicate project completion and to proceed with cost recovery.
    •   The NYISO will recover costs related to the selected regulated alternative
        solution from its transmission customers in all applicable zones and subzones to
        which costs have been allocated by the NYISO through the RFC as described in
        Section 1, and remit the revenues to the Other Developer through the NYISO
        tariff.
    •   The Other Developer will not be entitled to recovery of costs related to the
        alternative regulated solution unless the PSC determines that the alternative
        regulated solution is the preferred solution to meet all or a portion of a reliability
        need identified in the CRP. Once such determination is made, all reasonably
        incurred costs related to the selected project will be recoverable under the NYISO
        tariff.
    •   Incremental TCCs and/or other products resulting from the selected project will
        be auctioned or otherwise sold through the NYISO markets and the NYISO will
        offset the selected project’s revenue requirement by the associated revenues that
        the project receives from such sales.




09/14/07 NYISO Posting for FERC Order 890 Draft Filing                                   VII - 6
Exhibit 5

				
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