On October 15, 2009, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) denied New York Regional Interconnect, Inc.’s (“NYRI”) request for rehearing of FERC’s Order on Rehearing, which affirmed its acceptance of the New York Independent System Operator’s (“NYISO”) cost allocation and recovery requirements for economic upgrades to the transmission system.  The Commission’s decision may render NYRI’s proposed $2 billion transmission project infeasible.

On two separate prior occasions, FERC has approved the NYISO’s rules for transmission project cost allocation.  On October 16, 2008, FERC issued an order conditionally approving NYISO’s filing to comply with Order No. 890’s nine transmission planning principles.  NYRI sought rehearing of two of NYISO’s proposed eligibility requirements for cost recovery for an economic transmission project.  The first would require the proposed project benefit to exceed the cost of the project (“production cost metric”).  The second would require a supermajority (80 percent) of the project beneficiaries to approve the project. 

On March 31, 2009, FERC denied rehearing of the October 2008 order, stating that the use of the production cost metric is just and reasonable because it identifies projects that can produce system-wide cost savings.  Also, the Commission said NYRI’s argument that the supermajority vote was anticompetitive was just speculation, and that it is not the agency in charge of enforcing antitrust laws. 

In April, NYRI announced that it was canceling its proposed 190-mile transmission line because of FERC’s refusal to require NYISO to change its transmission cost allocation procedures.  On April 29, 2009, NYRI filed its most recent pleading, which requested rehearing of the March 31 Rehearing Order and included a motion to reopen the record to include a NYISO white paper entitled Transmission Expansion in New York State, which NYRI claims outlines many of the problems with NYISO’s cost allocation process.  Again, the Commission denied NYRI’s request for rehearing, stating that the Commission’s March 31 Rehearing Order did not modify the core ruling in the October 16, 2008 Order. The Commission also refused to reconsider its refusal to address the NYISO white paper and disagreed with NYRI when it claimed expensive transmission projects cannot be financed outside of NYISO’s cost recovery process.

FERC Commission Philip Moeller dissented from the order, agreeing that the NYISO supermajority voting provision would discourage construction of new economic transmission lines.  Moeller also agreed with NYRI that the Commission should have considered and addressed a NYISO white paper entitled Transmission Expansion in New York State.  Moeller said he believes that the white paper provides evidence that it is nearly impossible for non-incumbent, non-merchant transmission developers to get a supermajority vote from project beneficiaries.  In particular, transmission owners (“TO”) with valuable Transmission Congestion Contracts have an incentive to vote against a project that reduces congestion, and a TO can now vote against an independent transmission project because the TO could build a similar project and recover the cost in its own rate base.   According to Moeller, the white paper casts doubt on whether the existing NYISO transmission policy will lead to constructing new lines, and the white paper suggests NYISO is lagging behind other ISOs and RTOs in committing to new upgrades.
The full order is available at www.ferc.gov under Docket No. OA08-52-005.