[Federal Register Volume 68, Number 37 (Tuesday, February 25, 2003)]
[Notices]
[Pages 8747-8750]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-4337]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. EL03-38-000]


Before Commissioners: Pat Wood, III, Chairman; William L. Massey, 
and Nora Mead Brownell; Cargill Power Markets, LLC, Complainant, v. 
Midwest Independent Transmission System Operator, Inc., Respondent; 
Order on Complaint Establishing Hearing and Settlement Procedures

February 14, 2003.
    1. In this order, the Commission sets for hearing the complaint 
(complaint) filed on December 31, 2002 by Cargill Power Markets, LLC 
(Cargill) against the Midwest Independent Transmission System Operator, 
Inc. (Midwest ISO), regarding a request by Cargill for long-term firm 
transmission service. Moreover, to aid the parties in settling their 
dispute, we will hold the hearing in abeyance pending the outcome of 
settlement judge procedures.

Background

    2. Cargill complains that the Midwest ISO wrongfully recalled 
Cargill's confirmed reservation with the Midwest ISO for 52 MW of long-
term firm point-to-point transmission service (service reservation) 
from the Pennsylvania-New Jersey-Maryland (PJM) source Control Area to 
the Michigan-Ontario Independent Electricity Market Operator border 
(MI-IMO), for the period January 1, 2003 through January 1, 2004. 
Cargill states that the Midwest ISO confirmed the service reservation 
on November 21, 2002. Cargill further contends that on

[[Page 8748]]

November 27, 2002, the Midwest ISO informed Cargill that the Midwest 
ISO might annul the service reservation due to its re-evaluation of 
certain business practices. However, Cargill claims that after Cargill 
refused to agree to an annulment, the Midwest ISO stated that it would 
review the situation.
    3. Cargill further alleges that on December 23, 2002, the Midwest 
ISO informed Cargill that the service reservation was inadvertently 
processed out of order and was being recalled due to the MI-IMO 
interface being oversubscribed by non-competing requests, based on the 
condition, Midwest ISO's Business Practices Manual Section 6.8.1, that 
competing requests must have the same source and sink Control Areas. 
Cargill states that the Midwest ISO claimed authority to recall the 
service reservation under Section 4.2.13.10 of the Open Access Same 
Time Information System (OASIS) Standards and Communication Protocols 
Document (S&CP Document).
    4. Cargill contends that the Midwest ISO's recall of the service 
reservation violates the Midwest ISO's Open Access Transmission Tariff 
(OATT) and Business Practices, as well as prior Commission orders and 
the Commission's OASIS standards. Cargill states that the S&CP Document 
\1\ and Commission precedent \2\ require that the acceptable reasons 
for a recall of transmission capacity be clearly articulated in the 
Midwest ISO's OATT or in a transmission service agreement. Cargill 
maintains that neither the Midwest ISO's OATT nor a transmission 
service agreement allow the recall of confirmed long-term firm 
transmission capacity due to a re-evaluation of, or disputes regarding, 
the Midwest ISO's Business Practices.
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    \1\ Cargill cites Sections 4.2.13.10 of the S&CP Document, which 
states, in relevant part: ``There are cases in implementing 
provisions of the Primary Provider's Tariff that the capacity 
reserved by a Transmission Customer may be reduced in whole or in 
part. The particular reasons for these reductions are Tariff 
specific. * * *'' Cargill Complaint at 7.
    \2\ Cargill cites Duke Energy Corp., 88 FERC ] 61,184 (1999); 
Southern Company Services, Inc., 100 FERC ] 61,314 (2002); Public 
Serv. Co. of New Mexico, 85 FERC 61,240 (1998); Public Serv. Co. of 
New Mexico v. Arizona Pub. Serv. Co., 99 FERC ] 61,162 (2002); and 
Exelon Generation Co., LLC v. Southwest Power Pool, Inc., 99 FERC ] 
61,235, reh'g denied, 101 FERC ] 61,226 (2002) (Exelon).
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    5. Furthermore, Cargill contends that the Commission has stated 
that transmission providers are liable for errors, even if made in good 
faith or in accordance with its published procedures.\3\ Cargill argues 
that if a transmission provider oversubscribes a transmission system, 
the onus is on it to either curtail transmission service or build 
transmission facilities. Cargill relies upon Exelon,\4\ where the 
Commission stated:
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    \3\ Cargill cites Open Access Same-Time Information System and 
Standards of Conduct, Order No. 889-A, 62 FR 2484 (1997), FERC 
Stats. and Regs. ] 31,049 at 30,572.
    \4\ 101 FERC at 61,980.

    If the transmission system becomes constrained such that the 
transmission provider cannot satisfy existing customers, then the 
obligation is on the transmission provider to either curtail service 
pursuant to the provisions of its OATT or to build more capacity to 
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relieve the constraint.

    6. Moreover, Cargill argues that the recall of its service 
reservation was prohibited, because the Midwest ISO failed to give 
Cargill timely notice of the action. Cargill notes that the Commission 
has allowed the annulment of other service reservations where the 
transmission customer received timely notice of the annulment.\5\ 
However, Cargill states that the Midwest ISO did not send Cargill 
notice of the recall until December 23, 2002, over one month after the 
service reservation was confirmed and a little more than one week 
before service was to commence. Moreover, Cargill alleges that the 
Midwest ISO erred in posting the relevant recall on its OASIS, since 
the relevant notice, posted on November 29, 2002 (OASIS notice), 
referenced 1 MW of service, while Cargill had reserved 52 MWs. Cargill 
states that it did not have reasonable notice of the recall, since the 
notice referenced a different MW of service. Cargill alleges that on 
December 30, 2002, after Cargill had alerted the Midwest ISO of the 
inadequate notice, the Midwest ISO amended the posted recall to 
reference the 52 MWs at issue.
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    \5\ Cargill cites Williams Energy Marketing & Trading Co. v. 
Southern Company Services, Inc., 101 FERC ] 61,144 (2002) (reh'g 
pending) (Williams Energy); Powerex Corp. v. Department of Energy, 
95 FERC ] 61,241 (2001) (Powerex).
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    7. Finally, Cargill distinguishes its complaint from another 
complaint filed against the Midwest ISO by Tenaska Power Services 
Co.\6\ (Tenaska complaint). Cargill states that this proceeding must be 
resolved separately from the Tenaska complaint. Cargill contends that 
the Tenaska complaint involves the proper interpretation of the Midwest 
ISO's Business Practices and hinges on whether Section 6.8.1 of that 
document applies to long-term firm requests and whether competing 
requests must have the same points of receipt and delivery. On the 
other hand, Cargill alleges that it has a confirmed reservation for 
long-term firm transmission service that, by reference to a provision 
in the S&CP document, which is not provided for anywhere in the Midwest 
ISO's OATT, the Midwest ISO has attempted to recall a week before 
service is to commence. Cargill states that the only relationship 
between its complaint and the Tenaska complaint is that the Midwest ISO 
has oversold service to the MI-IMO interface and now seeks to resolve 
that situation by invoking an undefined and vague recall procedure not 
specified in its OATT.
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    \6\ Docket No. EL03-30-000.
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Notice of the Filing and Responsive Pleadings

    8. Notice of Cargill's filing was published in the Federal 
Register,\7\ with the answer, interventions, comments, and protests due 
on or before January 15, 2003. The Midwest ISO filed a timely answer. 
Tenaska Power Services Co. (Tenaska) filed a timely motion to intervene 
and comments, and Dynegy Power Marketing, Inc., Reliant Resources, Inc. 
and MidAmerican Energy Company filed timely motions to intervene. Duke 
Energy Trading and Marketing, L.L.C. (Duke Energy) filed an untimely 
motion to intervene.
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    \7\ 68 FR 1448 (2003).
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    9. In its answer, the Midwest ISO states that under the Midwest 
ISO's longstanding preemption methodology, which has been in effect 
since the Midwest ISO became operational (February 1, 2002), Cargill's 
request for service could not preempt any requests for short-term 
transmission service, because no short-term requests shared the same 
source and sink Control Areas as Cargill's requested service. The 
Midwest ISO contends that, at the urging of FERC Hotline Staff, it 
began employing an expanded preemption methodology that would not 
require competing requests to have the same source and sink Control 
Areas. The Midwest ISO states that, using the expanded preemption 
methodology, it approved Cargill's transmission service request on 
November 19, 2002. The Midwest ISO maintains that Cargill confirmed 
that approval on November 21, 2002.
    10. On the morning of November 27, 2002, the Midwest ISO alleges 
that Cargill contacted the Midwest ISO and expressed concern that the 
expanded preemption methodology (which, the Midwest ISO contends, led 
to the approval of Cargill's service request) violated the Midwest 
ISO's preemption methodology, set forth in Section 6.8.1 of the Midwest 
ISO's Business Practices Manual. The Midwest ISO states that, after 
internal discussions, it agreed with Cargill that the expanded 
preemption methodology violated the Business Practices Manual.

[[Page 8749]]

    11. Consequently, the Midwest ISO states that it determined that 
the transmission service queue at issue should be reprocessed 
consistent with the preemption methodology set forth in Section 6.8.1 
of its Business Practices Manual. The Midwest ISO alleges that during a 
follow-up conversation with Cargill during the early afternoon of 
November 27, 2002, the Midwest ISO informed Cargill that the Midwest 
ISO was reprocessing the queue to ensure that requests were approved on 
a first-come, first-serve basis, in compliance with the source/sink 
Control Area limitations set forth in Section 6.8.1 of the Business 
Practices Manual. The Midwest ISO states that this was the first 
indication it provided to Cargill that Cargill's service request could 
be recalled.
    12. On November 29, 2002, the Midwest ISO maintains that it 
completed its reevaluation of all incorrectly processed transmission 
service requests, including Cargill's request, and took immediate 
action to recall the service reservation. On that same day, the Midwest 
ISO states that it posted the OASIS notice recalling Cargill's service 
reservation. The Midwest ISO explains that the OASIS requires that a 
non-zero value be placed in the Capacity Requested and Capacity Granted 
fields, which required the Midwest ISO to set those fields at 1 MW in 
the OASIS notice. However, the Midwest ISO states that, in order to 
avoid confusion, it inserted in the Provider Comments field the 
following language: ``Request Recalled for the full 52 MWs. OASIS does 
not support full amount to be recalled.'' Moreover, the Midwest ISO 
states that on November 29, 2002, shortly after posting the OASIS 
notice, the Midwest ISO left a detailed telephone message with Cargill, 
explaining that Cargill's 52 MW request was being recalled in its 
entirety. The Midwest ISO further maintains that it followed the 
telephone message with an email to Cargill, again explaining the 
recall.
    13. Based upon the foregoing, the Midwest ISO contends that it 
properly recalled Cargill's service reservation. The Midwest ISO argues 
that it has inherent authority to correct errors made during 
administration of its OATT. The Midwest ISO contends that at the time 
it had approved Cargill's 52 MW request, the Midwest ISO had failed to 
subject Cargill's request to the source and sink Control Area 
preemption methodology that is specified in Section 6.8.1 of its 
Business Practices. As a result, the Midwest ISO contends that it 
accepted several long-term firm requests, including Cargill's, which 
the Midwest ISO should have rejected and which instead caused the 
interface to be oversold. The Midwest ISO argues that, because they 
were processed in violation of the Midwest ISO's OATT and Business 
Practices, those reservations were void from the outset and subject to 
recall when the error was exposed.
    14. Indeed, the Midwest ISO states that it had a basic duty as a 
regional transmission organization (RTO) to remedy the processing 
errors and resume compliance with its OATT and Business Practices by 
recalling the invalid reservations. The Midwest ISO states that, 
contrary to Cargill's assertion, the Commission has never required that 
such fundamental obligations be specified in a tariff or service 
agreement.
    15. Likewise, the Midwest ISO argues that the S&CP Document does 
not require that the particular reasons for the recall of transmission 
capacity be set forth in its OATT, as Cargill contends. The Midwest ISO 
notes that section 4.2.13.10 of the S&CP Document states that ``[t]he 
particular reasons for these reductions are Tariff specific.'' The 
Midwest ISO maintains that it recalled Cargill's service reservation in 
order to resume application of the preemption methodology set forth in 
its Business Practices Manual, which, according to the Midwest ISO, 
complements and enhances the understanding of its OATT provisions and 
principles. Therefore, the Midwest ISO states that its reason for 
recalling the service reservation is tariff specific within the meaning 
of the S&CP Document.
    16. Moreover, the Midwest ISO contends that Commission precedent 
authorizes transmission providers such as the Midwest ISO to recall 
capacity granted in error.\8\ The Midwest ISO states that in Williams 
Energy the Commission denied the customer's request to reinstate a 
mistakenly-accepted request for service, based upon the Commission's 
finding that the transmission provider was authorized to correct the 
mistake within a reasonable period of time after discovering the error. 
The Midwest ISO states that, contrary to Cargill's contention, it gave 
Cargill timely notice of its processing error, over one month before 
the service reservation was to commence.
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    \8\ The Midwest ISO cites Williams Energy and Powerex.
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    17. Finally, contrary to Cargill's assertion, the Midwest ISO 
argues that this proceeding relates to the Tenaska complaint. The 
Midwest ISO contends that Cargill's and Tenaska's complaints raise the 
identical issue regarding the Midwest ISO's application of its same 
source and sink Control Area preemption methodology. The Midwest ISO 
requests that, if the Commission does not deny Cargill's complaint, the 
Commission hold this proceeding in abeyance pending resolution of the 
Tenaska complaint.
    18. In its comments, Tenaska states that it appreciates Cargill's 
concerns and is intervening in this proceeding to protect its own 
interests. Tenaska notifies the Commission that it sought transmission 
service from the Midwest ISO before Cargill made its requests with the 
Midwest ISO and asserts that it is rightfully ahead of Cargill in the 
queue. It asks that the Midwest ISO be directed to sort out and remedy 
the problems with its transmission queue and properly process requests 
for long-term firm transmission service.

Cargill's Response to the Midwest ISO's Answer

    19. On January 24, 2003, Cargill filed a response disputing the 
facts set forth in the Midwest ISO's answer. Cargill states that, 
contrary to the Midwest ISO's contention, the Midwest ISO confirmed 
Cargill's service request using the source-sink methodology set forth 
in the Midwest ISO's Business Practices. To that end, Cargill proffers 
evidence of an OASIS posting and a phone conversation between a Midwest 
ISO employee and a Cargill employee, which according to Cargill reveal 
that the Midwest ISO relied upon its Business Practices in confirming 
Cargill's service reservation.
    20. In addition, Cargill contends that the OASIS notice was not 
properly posted as a recall, but instead was posted as a new 
transmission service request created by the Midwest ISO, with the 
Midwest ISO listed as the customer for a fictional transaction for 1 MW 
of service. Further, Cargill states that less than three minutes after 
the Midwest ISO posted the language referring to the 52 MW service 
reservation, it removed that language from the OASIS notice. Cargill 
contends that the remaining language did not expressly refer to 
Cargill's service reservation. Moreover, Cargill contends that it has 
no evidence of receiving a voicemail or email from the Midwest ISO, 
regarding the recall.
    21. Contrary to the assertions Tenaska sets forth in its comments, 
Cargill states that its confirmed service reservation should be 
acknowledged as having priority over Tenaska's unconfirmed requests in 
the Midwest ISO transmission queue. Cargill contends that Tenaska 
requested transmission service from AEP (source) to the MI-

[[Page 8750]]

IMO interface (sink) on September 25, 2002, while Cargill had confirmed 
service from PJM (source) to the IMO (sink) on November 21, 2002. 
Therefore, Cargill states that under the Midwest ISO's source-sink 
methodology, Tenaska's and Cargill's reservations do not compete.

Discussion

Procedural Matters

    22. Pursuant to Rule 214 of the Commission's regulations, 18 CFR 
Sec.  385.214 (2002), each timely, unopposed motion to intervene serves 
to make the entity that filed it a party to this proceeding. In 
addition, we will grant Duke Energy's untimely intervention, given its 
interest in this proceeding, the early stage of this proceeding, and 
the absence of any undue prejudice or delay. While Rule 213(a)(2) of 
the Commission's regulations, 18 CFR 385.213(a)(2) (2002), allows 
replies to answers only at the discretion of the decisional authority, 
we will allow Cargill's reply to the Midwest ISO's answer, as it has 
aided us in understanding the matters at issue in this proceeding.

Analysis

    23. We find that the parties have raised material issues of fact 
upon which Cargill's complaint is based. More specifically, the parties 
dispute the circumstances under which Cargill's service reservation was 
accepted and recalled, and when Cargill received notice of the recall. 
Accordingly, pursuant to section 206 of the Federal Power Act \9\ 
(FPA), we will set Cargill's complaint for hearing.
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    \9\ 16 U.S.C. 824e (2002).
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    24. That being said, we strongly encourage the parties to settle 
this complaint. Accordingly, we will hold the hearing in abeyance and 
direct settlement judge procedures pursuant to Rule 603 of the 
Commission's Rules of Practice and Procedure.\10\ The Chief Judge shall 
appoint a settlement judge in this proceeding within 15 days of the 
date of issuance of this order. The settlement judge shall report to 
the Chief Judge and the Commission within 45 days of the date of this 
order concerning the status of settlement discussions. Based on this 
report, the Chief Judge shall provide the parties with additional time 
to continue their settlement discussions or provide for commencement of 
a hearing by assigning the case to a presiding judge.
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    \10\ 18 CFR 385.603 (2002).
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    25. In cases where, as here, the Commission institutes an 
investigation on complaint under section 206 of the FPA, section 206(b) 
requires that the Commission establish a refund effective date that is 
no earlier than 60 days after the filing of the complaint, but no later 
than five months subsequent to the expiration of the 60-day period. 
Consistent with our general policy of providing maximum protection to 
customers,\11\ we will set the refund effective date as of the date 60 
days after the date of the filing of Cargill's complaint, or March 2, 
2003.
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    \11\ See, e.g., Seminole Electric Cooperative, Inc. v. Florida 
Power & Light Company, 65 FERC ] 61,413 at 63,319 (1993); Canal 
Electric Company, 46 FERC ] 61,153 at 61,539, reh'g denied, 47 FERC 
] 61,275 (1989).
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    26. Section 206(b) also requires that, if no final decision is 
rendered by the refund effective date or by conclusion of the 180-day 
period commencing upon initiation of a proceeding pursuant to section 
206, whichever is earlier, the Commission shall state the reasons why 
it has failed to do so and shall state the best estimate as to when it 
reasonably expects to make such a decision. Ordinarily, to implement 
that requirement, we would direct the presiding judge to provide a 
report to the Commission in advance of the refund effective date. Here, 
given that the refund effective date for the complaint is March 2, 
2003, the Commission cannot follow its normal procedure.
    27. Although we do not have the benefit of the presiding judge's 
report, based on our review of record, we expect that, assuming this 
case does not settle, the presiding judge should be able to render a 
decision within four months of the commencement of hearing procedures. 
After the presiding judge renders an initial decision, assuming the 
case does not settle, we estimate that we will be able to issue our 
decision within approximately two months of the filing of briefs on and 
opposing exceptions.

The Commission Orders

    (A) Pursuant to the authority contained in and subject to the 
jurisdiction conferred upon the Federal Energy Regulatory Commission by 
section 402(a) of the Department of Energy Organization Act and the 
Federal Power Act, particularly section 206 thereof, and pursuant to 
the Commission's Rules of Practice and Procedure and the regulations 
under the Federal Power Act (18 CFR, Chapter I), a public hearing shall 
be held in Docket No. EL03-38-000, concerning the issues raised in 
Cargill's complaint against the Midwest ISO, as discussed in the body 
of this order. Also as discussed in the body of this order, we will 
hold the hearing in abeyance pending further Commission action and the 
settlement judge negotiations, as discussed in Paragraphs (B) and (C) 
below.
    (B) Pursuant to Rule 603 of the Commission's Rules of Practice and 
Procedure, 18 CFR 385.603, the Chief Administrative Law Judge is hereby 
directed to appoint a settlement judge in this proceeding within 15 
days of the date of this order. Such settlement judge shall have all 
the powers and duties enumerated in Rule 603 and shall convene a 
settlement conference as soon as practicable after the Chief Judge 
designates the settlement judge.
    (C) Within 30 days of the date of this order, the settlement judge 
shall file a report with the Commission and the Chief Judge on the 
status of the settlement discussions. Based on this report, the Chief 
Judge shall provide the parties with additional time to continue their 
settlement discussions, if appropriate, or assign this case to a 
presiding judge for a trial-type evidentiary hearing, if appropriate. 
If settlement discussions continue, the settlement judge shall file a 
report at least every 30 days thereafter, informing the Commission and 
the Chief Judge of the parties' progress toward settlement.
    (D) If the settlement procedures fail, and a trial-type evidentiary 
hearing is to be held, a presiding administrative law judge, to be 
designated by the Chief Administrative Law Judge, shall convene a 
conference in these proceedings to be held within approximately 15 days 
of the date the Chief Judge designates the presiding judge, in a 
hearing room of the Federal Energy Regulatory Commission, 888 First 
Street, NE., Washington, DC 20426. Such conference shall be held for 
the purpose of establishing a procedural schedule. The presiding judge 
is authorized to establish procedural dates, and to rule on all motions 
(except motions to dismiss) as provided in the Commission's Rules of 
Practice and Procedure.
    (E) The refund effective date established pursuant to section 
206(b) of the Federal Power Act is March 2, 2003.
    (F) The Secretary shall promptly publish a notice of the 
Commission's initiation of the proceeding in EL03-38-000 in the Federal 
Register.

    By the Commission.
Magalie R. Salas,
Secretary.
[FR Doc. 03-4337 Filed 2-24-03; 8:45 am]
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