[Federal Register Volume 68, Number 160 (Tuesday, August 19, 2003)]
[Rules and Regulations]
[Pages 49845-49972]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-20157]



[[Page 49845]]

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Part II





Department of Energy





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Federal Energy Regulatory Commission



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18 CFR Part 35



Standardization of Generator Interconnection Agreements and Procedures; 
Final Rule

Federal Register / Vol. 68, No. 160 / Tuesday, August 19, 2003 / 
Rules and Regulations

[[Page 49846]]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM02-1-000; Order No. 2003]


Standardization of Generator Interconnection Agreements and 
Procedures

July 24, 2003.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Final rule.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) is 
amending its regulations under the Federal Power Act to require public 
utilities that own, control, or operate facilities for transmitting 
electric energy in interstate commerce to file revised open access 
transmission tariffs containing standard generator interconnection 
procedures and a standard agreement that the Commission is adopting in 
this order and to provide interconnection service to devices used for 
the production of electricity having a capacity of more than 20 
megawatts, under them. Any non-public utility that seeks voluntary 
compliance with the reciprocity condition of an open access 
transmission tariff may satisfy this condition by adopting these 
procedures and this agreement.

EFFECTIVE DATE: This final rule will become effective October 20, 2003.

FOR FURTHER INFORMATION CONTACT: 
Patrick Rooney (Technical Information), Office of Market, Tariffs 
and Rates, Federal Energy Regulatory Commission, 888 First Street, 
NE., Washington, DC 20426, (202) 502-6205.
Roland Wentworth (Technical Information), Office of Market, Tariffs 
and Rates, Federal Energy Regulatory Commission, 888 First Street, 
NE., Washington, DC 20426, (202) 502-8262.
Bruce Poole (Technical Information), Office of Market, Tariffs and 
Rates, Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-8468.
Michael G. Henry (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-8532.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
    A. Background
    1. Need for Standard Generator Interconnection Procedures and 
Agreement
    2. Interconnection ANOPR
    3. Interconnection NOPR
    a. Overview of the NOPR
    b. Severing of Small Generator Issues from the NOPR
    B. Legal Authority
    1. The Federal Power Act and Order No. 888
    2. Commission Interconnection Case Law
    C. Differences Between the Proposed and Final Rules
II. Discussion
    A. Issues Related to the Standard Large Generator Interconnection 
Procedures (LGIP)
    1. Overview
    2. Section-by-Section Discussion of the Proposed LGIP
    Section 1--Definitions
    Section 2--Scope and Application
    Section 3--Interconnection Request
    Section 4--Queue Position
    Section 5--Procedures for Interconnection Requests Submitted Prior 
to Effective Date of Interconnection Procedures
    Section 6--Interconnection Feasibility Study
    Section 7--Interconnection System Impact Study
    Section 8--Interconnection Facilities Study
    Section 10--Optional Interconnection Study
    Section 9--Engineering & Procurement (``E&P'') Agreement
    Section 11--Standard Large Generator Interconnection Agreement
    Section 12--Construction of Transmission Provider's Interconnection 
Facilities and Network Upgrades
    Section 13--Miscellaneous
    Appendices
    B. Issues Related to the Standard Large Generator Interconnection 
Agreement (LGIA)
    1. Overview
    2. Article-by-Article Discussion of the Proposed LGIA
    Article 1--Definitions
    Article 2--Effective Date, Term and Termination
    Article 3--Regulatory Filings
    Article 4--Scope of Service
    Article 5--Interconnection Facilities Engineering, Procurement, and 
Construction
    Article 6--Testing and Inspection
    Article 7--Metering
    Article 8--Communication
    Article 9--Operations
    Article 10--Maintenance
    Article 11--Performance Obligation
    Article 12--Invoice
    Article 13--Emergencies
    Article 14--Regulatory Requirements and Governing Law
    Article 15--Notices
    Article 16--Force Majeure
    Article 17--Default
    Article 18--Indemnity
    Article 19--Assignment
    Article 20--Severability
    Article 21--Comparability
    Article 22--Confidentiality
    Article 23--Environmental Releases
    Article 24--Information Requirements
    Article 25--Information Access and Audit Rights
    Article 26--Subcontractors
    Article 27--Disputes
    Article 28--Representations, Warranties and Covenants
    Article 29--Joint Operating Committee
    Article 30--Miscellaneous
    Appendices
    C. Other Significant Policy Issues
    1. Interconnection Pricing Policy
    Concerns about the Fairness and Efficiency of the Commission's 
Crediting Policy
    Interconnection Pricing and the Transition to Standard Market 
Design
    The Inability of a Transmission Owner To Recover the Costs of 
Network Upgrades
    Responsibility for Line Outage Costs Resulting from Interconnection
    Issues Concerning the Five Year Refund Period and the Payment of 
Interest
    Rules Governing the Payment of Credits
    Responsibility for the Costs Incurred by Affected Systems
    Policies Regarding Previously Approved Cost Allocations and Pricing 
Arrangements
    Miscellaneous Pricing Issues
    2. Interconnection Products and Scope of Service
    Definition of Interconnection Products
    Pricing of Network Resource Interconnection Service
    Study Requirements for Network Resource Interconnection Service
    Identification of Types of Interconnection Services to be Studied
    Revisions to the Final Rule LGIP and Final Rule LGIA
    3. ``Distribution'' Interconnections
    4. Issues Relating to Qualifying Facilities
    5. Variations from the Final Rule
    6. Waiver Availability for Small Entities
    7. OATT Reciprocity Requirements Applied to the Final Rule LGIP and 
Final Rule LGIA
    8. General Comments/Clarifications
    a. Insurance
    b. Liquidated Damages

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    c. Consequential Damages
    d. Two vs. Three Party Agreements
    D. Compliance Issues
    1. Amendments to Transmission Providers' OATTs
    2. Grandfathering of Existing Interconnection Agreements (ISOs and 
non-ISOs)
    3. Order No. 2001 and the Filing of Interconnection Agreements
III. Information Collection Statement
IV. Environmental Impact Statement
V. Regulatory Flexibility Act
VI. Document Availability
VII. Effective Date and Congressional Notification
Regulatory Text
Appendix A--Flow Chart of the Large Generating Facility Interconnection 
Process
Appendix B--Commenter Acronyms
Appendix C--Standard Large Generator Interconnection Procedures (LGIP), 
including Standard Large Generator Interconnection Agreement (LGIA)
    Before Commissioners: Pat Wood, III, Chairman; William L. Massey, 
and Nora Mead Brownell.

I. Introduction

    1. This Final Rule requires all public utilities that own, control 
or operate facilities used for transmitting electric energy in 
interstate commerce to have on file standard procedures and a standard 
agreement for interconnecting generators larger than 20 MW. The 
Commission expects that this Final Rule will prevent undue 
discrimination, preserve reliability, increase energy supply, and lower 
wholesale prices for customers by increasing the number and variety of 
new generation that will compete in the wholesale electricity market.
    2. This Final Rule requires public utilities that own, control, or 
operate facilities for transmitting electric energy in interstate 
commerce to file revised open access transmission tariffs (OATTs) to 
add Standard Large Generator Interconnection Procedures (Final Rule 
LGIP)\1\ and a Standard Large Generator Interconnection Agreement 
(Final Rule LGIA).\2\ Any non-public utility that seeks voluntary 
compliance with the reciprocity condition of an open access 
transmission tariff may satisfy this condition by adopting this 
Agreement and these procedures.
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    \1\ Readers may note that provisions of the Final Rule LGIP are 
referred to as ``Sections'' whereas provisions of the Final Rule 
LGIA are referred to as ``Articles.''
    \2\ Such filings must be made within 60 days of publication of 
this Final Rule in the Federal Register.
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    3. The Final Rule LGIP sets forth the procedures that 
Interconnection Customers and Transmission Providers are required to 
follow during the interconnection process.\3\ The Final Rule LGIA sets 
forth the legal rights and obligations of each Party, addresses cost 
responsibility issues, and establishes a process for resolving 
disputes.
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    \3\ Unless otherwise defined in this Preamble, capitalized terms 
used in this Final Rule have the meanings specified in Section 1 of 
the Final Rule LGIP and Article 1 of the Final Rule LGIA. The term 
Generating Facility means the specific device for which the 
Interconnection Customer has requested interconnection. The owner of 
the Generating Facility is referred to as the Interconnection 
Customer. The entity (or entities) with which the Generating 
Facility is interconnecting is referred to as the Transmission 
Provider. The term Large Generator is intended to refer to any 
energy resource having a capacity of more than 20 megawatts, or the 
owner of such a resource.
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    4. The Federal Energy Regulatory Commission's (Commission's) 
authority to require the addition of the Final Rule LGIA and Final Rule 
LGIP to the OATT derives from its findings of undue discrimination in 
the interstate electric transmission market that formed the basis for 
Order No. 888.\4\ The Commission here adopts standard procedures and a 
standard agreement to be used by Transmission Providers with 
Interconnection Customers proposing to interconnect a generator of more 
than 20 MW to sell energy at wholesale in interstate commerce. The 
Final Rule LGIP and Final Rule LGIA apply to any new Interconnection 
Request to a Transmission Provider's Transmission System.\5\ The 
Commission is not requiring any retroactive changes to individual 
(versus generic) interconnection agreements filed with the Commission 
prior to the effective date of this Final Rule.
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    \4\ Promoting Wholesale Competition Through Open Access Non-
Discriminatory Transmission Services by Public Utilities; Recovery 
of Stranded Costs by Public Utilities and Transmitting Utilities, 
Order No. 888, 61 FR 21540 (May 10, 1996), FERC Stats. & Regs. ] 
31,036 (1996), order on reh'g, Order No. 888-A, 62 FR 12274 (Mar. 
14, 1997), FERC Stats. & Regs. ] 31,048 (1997), order on reh'g, 
Order No. 888-B, 81 FERC ] 61,248 (1997), order on reh'g, Order No. 
888-C, 82 FERC ] 61,046 (1998), aff'd in relevant part sub nom. 
Transmission Access Policy Study Group v. FERC, 225 F.3d 667 (DC 
Cir. 2000), aff'd sub nom. New York v. FERC, 535 U.S. 1 (2002).
    \5\ New Interconnection Requests include those submitted after 
the effective date of this Final Rule and include requests to 
increase the capacity of, or modify the operating characteristics 
of, an existing Generating Facility that is interconnected with the 
Transmission Provider's Transmission System.
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A. Background

    5. The electric power industry continues to be in transition. Where 
the industry once comprised mainly large, vertically integrated 
utilities providing bundled power at cost-based rates, companies 
selling unbundled wholesale power at rates set by competitive markets 
have now become common. Balanced market rules and sufficient 
infrastructure are essential for achieving power markets that will 
provide customers with reasonably priced and reliable service.
    6. The Commission continues to work to encourage fully competitive 
bulk power markets. The effort took its first major step with Order No. 
888, which required public utilities to provide other entities 
comparable access to their facilities for transmitting electricity in 
interstate commerce, and continued with Order No. 2000,\6\ which 
encouraged the development of Regional Transmission Organizations 
(RTOs).
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    \6\ Regional Transmission Organizations, Order No. 2000, 65 FR 
810 (Jan. 6, 2000), FERC Stats. & Regs. ] 31,089 (1999), order on 
reh'g, Order No. 2000-A, 65 FR 12,088 (Mar. 8, 2000), FERC Stats. & 
Regs. ] 31,092 (2000), aff'd sub nom. Public Util. Dist. No. 1 v. 
FERC, 272 F.3d 607 (DC Cir. 2001).
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    7. In this proceeding the Commission, pursuant to its 
responsibility under Sections 205 and 206 of the Federal Power Act 
(FPA) to remedy undue discrimination, requires all public utilities 
that own, control, or operate facilities for transmitting electric 
energy in interstate commerce to append to their OATTs a Final Rule 
LGIP and Final Rule LGIA. The Commission believes that these documents 
will provide just and reasonable terms and conditions of transmission 
service while ensuring that reliability is protected and that they will 
provide a reasonable balance between the competing goals of uniformity 
and flexibility.
1. Need for Standard Generator Interconnection Procedures and Agreement
    8. In April 1996, in Order No. 888, the Commission established the 
foundation necessary to develop competitive bulk power markets in the 
United States: non-discriminatory open access transmission services by 
public utilities and stranded cost recovery rules to provide a fair 
transition to competitive markets. Order No. 888 did not directly 
address generator interconnection issues.
    9. In Tennessee Power Company \7\ (Tennessee) the Commission 
clarified that interconnection is a critical component of open access 
transmission service and thus is subject to the requirement that 
utilities offer comparable service under the OATT. In Tennessee the 
Commission encouraged, but did not require, each Transmission Provider 
to revise its OATT to include interconnection procedures, including a

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standard interconnection agreement and specific criteria, procedures, 
milestones, and time lines for evaluating Interconnection Requests.\8\
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    \7\ Tennessee Power Company, 90 FERC ] 61,238 (2002).
    \8\ See, e.g., Commonwealth Edison Co., 91 FERC ] 61,083 (2000).
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    10. The Commission to date has addressed interconnection issues on 
a case-by-case basis. Although a number of Transmission Providers have 
filed interconnection procedures as part of their OATTs,\9\ many 
industry participants remain dissatisfied with existing interconnection 
policy and procedures. With the increasing number of interconnection-
related disputes, it has become apparent that the case-by-case approach 
is an inadequate and inefficient means to address interconnection 
issues.
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    \9\ See, e.g., American Electric Power Service Corp., 91 FERC ] 
61,308 (2000), order denying reh'g and granting clarification, 94 
FERC ] 61,166, order dismissing request for clarification, 95 FERC ] 
61,130 (2001), appeal docketed sub nom. Tenaska, Inc. v. FERC, No. 
01-1194 (DC Cir. Apr. 23, 2001); Southwest Power Pool, Inc., 92 FERC 
] 61,109 (2000); Carolina Power & Light Co., 93 FERC ] 61,032 
(2000), reh'g denied, 94 FERC ] 61,165 (2001), appeal docketed sub 
nom. Tenaska, Inc. v. FERC, No. 01-1195 (DC Cir. Apr. 23, 2001); 
Virginia Electric & Power Co., 93 FERC ] 61,307 (2000), order on 
clarification, 94 FERC ] 61,045, reh'g denied, 94 FERC ] 61,164 
(2001), appeal docketed sub nom. Tenaska, Inc. v. FERC, No. 01-1196 
(DC Cir. Apr. 23, 2001); Consumers Energy Co., 93 FERC ] 61,339 
(2000), order on reh'g and clarification, 94 FERC ] 61,230, order on 
clarification and denying reh'g, 95 FERC ] 61,131 (2001).
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    11. Interconnection plays a crucial role in bringing much-needed 
generation into the market to meet the growing needs of electricity 
customers. Further, relatively unencumbered entry into the market is 
necessary for competitive markets. However, requests for 
interconnection frequently result in complex, time consuming technical 
disputes about interconnection feasibility, cost, and cost 
responsibility. This delay undermines the ability of generators to 
compete in the market and provides an unfair advantage to utilities 
that own both transmission and generation facilities. The Commission 
concludes that there is a pressing need for a single set of procedures 
for jurisdictional Transmission Providers and a single, uniformly 
applicable interconnection agreement for Large Generators.\10\ A 
standard set of procedures as part of the OATT for all jurisdictional 
transmission facilities will minimize opportunities for undue 
discrimination and expedite the development of new generation, while 
protecting reliability and ensuring that rates are just and reasonable.
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    \10\ In another rulemaking, the Commission proposes a separate 
set of procedures and an agreement applicable to Small Generators 
(any energy resource having a capacity of no larger than 20 MW, or 
the owner of such a resource) that seek to interconnect to 
jurisdictional Transmission Providers. See Standardization of Small 
Generator Interconnection Agreements and Procedures, Notice of 
Proposed Rulemaking, Docket No. RM02-12-000 (issued concurrently 
with this Final Rule). 104 FERC ] 61,104.
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    12. Interconnection is a critical component of open access 
transmission service, and standard interconnection procedures and a 
standard agreement applicable to Large Generators will serve several 
important functions: They will (1) Limit opportunities for Transmission 
Providers to favor their own generation, (2) facilitate market entry 
for generation competitors by reducing interconnection costs and time, 
and (3) encourage needed investment in generator and transmission 
infrastructure. The Commission expects that the Final Rule LGIP and 
Final Rule LGIA (as well as the documents that will be developed in the 
Small Generator Interconnection proceeding--see footnote 10, supra) 
will resolve most disputes, minimize opportunities for undue 
discrimination, foster increased development of economic generation, 
and protect system reliability. Therefore, the Commission adopts the 
Final Rule LGIP and Final Rule LGIA, which will be required as an 
amendment to the OATT of each public utility that owns, controls, or 
operates facilities for transmitting electric energy in interstate 
commerce. As discussed below, more flexibility is available to 
independent transmission entities in the procedures and agreement they 
must adopt as compared with the standard provisions adopted herein.
2. Interconnection ANOPR
    13. The Commission issued an Advance Notice of Proposed Rulemaking 
(ANOPR) regarding generator interconnection on October 25, 2001.\11\ As 
a point of departure, the ANOPR presented the Standard Generator 
Interconnection Procedures and Standard Generation Interconnection 
Agreement of the Electric Reliability Council of Texas (ERCOT).\12\ The 
Commission supplemented and modified the ERCOT documents with various 
``best practices'' that were identified in Attachment A to the ANOPR. 
These ``best practices'' were based, in part, on generator 
interconnection procedures and agreements that had been approved by the 
Commission in past cases. The ANOPR instructed the commenters and 
parties to assume that the Commission's current pricing policy, as 
described in ANOPR Attachment B, would remain in effect.
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    \11\ Standardizing Generator Interconnection Agreements and 
Procedures, Advance Notice of Proposed Rulemaking, 66 FR 55140 (Nov. 
1, 2001), FERC Stats. & Regs. ] 35,540 (2001).
    \12\ The ERCOT agreement and procedure were appended to the 
ANOPR as Appendix A.
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    14. The ANOPR initiated a consensus-making process in which members 
of various segments of the electric power industry, government, and the 
public had an opportunity to provide input. This effort resulted in two 
documents that largely shaped the Notice of Proposed Rulemaking (Large 
Generator Interconnection NOPR) that followed.\13\ These two documents 
are referred to as the Consensus LGIP and Consensus LGIA (although a 
consensus was not reached on all issues). The Commission received 
numerous comments, primarily from Transmission Providers, Transmission 
Owners, generators (herein called Interconnection Customers), and state 
regulators, on the ANOPR and the Consensus LGIP and Consensus LGIA.
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    \13\ Standardization of Generator Interconnection Agreements and 
Procedures, Notice of Proposed Rulemaking, 67 FR 22250 (May 2, 
2002), FERC Stats. & Regs. ] 32,560 (2002).
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3. Interconnection NOPR
a. Overview of the NOPR
    15. Although the negotiators did not reach consensus on every 
issue, the Consensus LGIP and LGIA reflect substantial agreement among 
diverse interests. The Commission used these documents and the comments 
on them to create the proposed standard LGIP and LGIA documents (NOPR 
LGIP and NOPR LGIA). Generally, the NOPR used the Consensus LGIP and 
LGIA provisions where there was agreement. Where the participants could 
not reach consensus on a particular issue and options were presented in 
the Consensus LGIP and LGIA, the Commission chose between those options 
guided by the principle of minimizing barriers to entry of new 
generation without increasing the risk of reliability problems. Where 
an issue remained unresolved and no option was presented, the 
Commission generally proposed the ERCOT provision.
b. Severing of Small Generator Issues From the NOPR
    16. In their comments on the interconnection NOPR, supporters of 
Small Generators (which are defined herein as devices for the 
production of electricity having a capacity no more than 20 MW) 
requested that the Commission adopt separate rules and procedures for 
interconnecting Small Generators. They argued that use of a Final Rule 
LGIP and Final Rule LGIA

[[Page 49849]]

designed for Large Generators would unduly hinder the development of 
Small Generators. They sought streamlined procedures and requirements 
that would allow an Interconnection Customer with a Small Generator to 
avoid delays caused by studying sequentially the effects of 
interconnecting its generator with the Transmission Provider's electric 
system.
    17. Persuaded by this request, the Commission decided to propose 
separate Small Generator interconnection procedures and an agreement 
(SGIP and SGIA) to provide the right incentives for both Transmission 
Providers and Interconnection Customers with Small Generators.\14\ To 
that end, the Commission severed the issues related to interconnecting 
generators no larger than 20 MW from this proceeding and initiated 
another rulemaking docket, RM02-12-000, for the former.\15\
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    \14\ The Small Generator Interconnection ANOPR proposed adopting 
two Small Generator Interconnection Procedures documents and two 
Small Generator Interconnection Agreements, with the distinction 
between the two sets of documents being the size of the Small 
Generator.
    \15\ See Standardization of Small Generator Interconnection 
Agreements and Procedures, Advance Notice of Proposed Rulemaking, 67 
FR 54749 (Aug. 26, 2002), FERC Stats. & Regs. ] 35,544 (2002).
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B. Legal Authority

1. The Federal Power Act and Order No. 888
    18. In fulfilling its responsibilities under Sections 205 and 206 
of the Federal Power Act,\16\ the Commission is required to address, 
and has the authority to remedy, undue discrimination. The Commission 
must ensure that the rates, contracts, and practices affecting 
jurisdictional transmission do not reflect an undue preference or 
advantage for non-independent Transmission Providers and are just and 
reasonable. Additionally, as discussed in Order No. 888, the 
Commission's regulatory authority under the Federal Power Act ``clearly 
carries with it the responsibility to consider, in appropriate 
circumstances, the anticompetitive effects of regulated aspects of 
interstate utility operations pursuant to [FPA] Sections 202 and 203, 
and under like directives contained in Sections 205, 206, and 
207.''\17\
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    \16\ 16 U.S.C. 824d, 824e (2000).
    \17\ Gulf States Utils. Co. v. FPC, 411 U.S. 747, 758-59 (1973); 
see City of Huntingburg v. FPC, 498 F.2d 778, 783-84 (D.C. Cir. 
1974) (noting the Commission's duty to consider the potential 
anticompetitive effects of a proposed interconnection agreement).
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    19. The record underlying Order No. 888 showed that public 
utilities owning or controlling jurisdictional transmission facilities 
had the incentive to engage in, and had engaged in, unduly 
discriminatory transmission practices.\18\ The Commission in Order No. 
888 also thoroughly discussed the legislative history and case law 
involving Sections 205 and 206, concluded that it had the authority and 
responsibility to remedy the undue discrimination it had found by 
requiring open access, and decided to do so through a rulemaking on a 
generic, industrywide basis.\19\ The Supreme Court affirmed the 
Commission's decision to exercise this authority by requiring non-
discriminatory (comparable) open access as a remedy for undue 
discrimination.\20\
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    \18\ Order No. 888, FERC Stats. Regs ] 31,036 at 31,679-84; 
Order No. 888-A, FERC Stats. & Regs ] 31,048 at 30,209-10.
    \19\ Order No. 888, FERC Stats. & Regs ] 31,036 at 31,668-73, 
31,676-79; Order No. 888-A, FERC Stats. & Regs ] 31,048 at 30,201-
12; TAPS v. FERC, 225 F.3d 667, 687-88 (DC Cir. 2000).
    \20\ New York v. FERC, 535 U.S. 1 (2002).
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    20. The Commission has identified interconnection as an element of 
transmission service that is required to be provided under the 
OATT.\21\ Thus, the Commission may order generic interconnection terms 
and procedures pursuant to its authority to remedy undue discrimination 
and preferences under Sections 205 and 206 of the Federal Power Act.
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    \21\ See Tennessee Power Co., 90 FERC ] 61,238 at 61,761, reh'g 
dismissed, 91 FERC ] 61,271 (2000).
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2. Commission Interconnection Case Law
    21. Unless expressly changed in this Final Rule, the holdings in 
the Commission's existing interconnection precedents will remain a 
useful guide during the implementation of this Final Rule. The 
Commission's interconnection cases have drawn the distinction between 
Interconnection Facilities and Network Upgrades. Interconnection 
Facilities are found between the Interconnection Customer's Generating 
Facility and the Transmission Provider's Transmission System. The 
Commission has developed a simple test for distinguishing 
Interconnection Facilities from Network Upgrades: Network Upgrades 
include only facilities at or beyond the point where the 
Interconnection Customer's Generating Facility interconnects to the 
Transmission Provider's Transmission System.\22\ The Commission has 
made clear that Interconnection Agreements are evaluated by the 
Commission according to the just and reasonable standard.\23\ Most 
improvements to the Transmission System, including Network Upgrades, 
benefit all transmission customers, but the determination of who 
benefits from such Network Upgrades is often made by a non-independent 
transmission provider, who is an interested party. In such cases, the 
Commission has found that it is just and reasonable for the 
Interconnection Customer to pay for Interconnection Facilities but not 
for Network Upgrades. Agreements between the Parties to classify 
Interconnection Facilities as Network Upgrades, or to otherwise 
directly assign the costs of Network Upgrades to the Interconnection 
Customer, have not been found to be just and reasonable and have been 
rejected by the Commission.\24\
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    \22\ Entergy Gulf States, Inc., 98 FERC ] 61,014 at 61,023, 
reh'g denied, 99 FERC ] 61,095 (2002); see Public Service Co. of 
Colorado, 59 FERC ] 61,311 (1992), reh'g denied, 62 FERC ] 61,013 at 
61,061 (1993).
    \23\ Pacific Gas & Electric Company, et al., 102 FERC ] 61,070 
(2003).
    \24\ See, e.g. Illinois Power Co., 103 FERC ] 61,032 (2003); 
American Electric Power Service Corp., 101 FERC ] 61,194 (2002).
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    22. Regarding pricing for a non-independent Transmission Provider, 
the distinction between Interconnection Facilities and Network Upgrades 
is important because Interconnection Facilities will be paid for solely 
by the Interconnection Customer, and while Network Upgrades will be 
funded initially by the Interconnection Customer (unless the 
Transmission Provider elects to fund them), the Interconnection 
Customer would then be entitled to a cash equivalent refund (i.e., 
credit) equal to the total amount paid for the Network Upgrades, 
including any tax gross-up or other tax-related payments. The refund 
would be paid to the Interconnection Customer on a dollar-for-dollar 
basis, as credits against the Interconnection Customer's payments for 
transmission services, with the full amount to be refunded, with 
interest within five years of the Commercial Operation Date. The 
Commission has clarified that transmission credits may be used whether 
or not a Generating Facility is being dispatched and that credits must 
be accepted for all network transmissions by the Interconnection 
Customer, regardless of whether the plant from which the credits 
originated is dispatched.\25\ Credits are not tied to any particular 
Generating Facility.\26\ The Commission has stated that peaking 
facilities, for instance, must be allowed to use credits even when the 
Generating

[[Page 49850]]

Facility is not dispatched.\27\ The Commission has also allowed 
Transmission Providers to require several Interconnection Customers to 
share the costs of Network Upgrades, under certain circumstances.\28\
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    \25\ Entergy Services, Inc., 101 FERC ] 61,289 (2002).
    \26\ Id.
    \27\ Colton Power, LP, 101 FERC ] 61,150 (2002).
    \28\ Id.
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    23. The Commission has also clarified that an Interconnection 
Customer need not enter into an agreement for the delivery component of 
transmission service to interconnect with a Transmission Providers' 
Transmission System.\29\ At the same time, Interconnection Service or 
an interconnection by itself does not confer any delivery rights from 
the Generating facility to any points of delivery.\30\
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    \29\ Entergy Services, Inc., 101 FERC ] 61,016 (2002); Southern 
Company Services, Inc., 95 FERC ] 61,307 at 62,049, order dismissing 
reh'g, 96 FERC ] 61,168 (2001); Tennessee Power Co., 90 FERC ] 
61,238 at 61,761 (2000).
    \30\ See Arizona Public Service Co., 94 FERC ] 61,027 at 61,076, 
order on reh'g, 94 FERC ] 61,267 (2001).
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    24. The Commission has clarified that ownership of the 
Interconnection Facilities does not have a direct effect on reliability 
of the system. Therefore, as long as the Transmission Provider operates 
the Interconnection Facilities, the Commission will allow an 
Interconnection Customer to own part, or all, of those facilities.\31\
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    \31\ Arizona Public Service Company, 102 FERC ] 61,303 (2003).
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C. Differences Between the Proposed and Final Rules

    25. The Final Rule LGIP and Final Rule LGIA largely track the 
proposed documents. Changes made in the Final Rule tend to be specific 
to an individual LGIP section or LGIA article, and do not require 
fundamental changes to the documents. That being said, there are a few 
significant issues, some substantive and others organizational, that 
the Commission summarizes here.
    26. Most importantly, we note that the Final Rule applies to 
independent and non-independent Transmission Providers alike, but non-
independent Transmission Providers are required to adopt the Final Rule 
LGIP and Final Rule LGIA into their OATTs, with deviations from the 
Final Rule justified using either the ``regional differences'' or 
``consistent with or superior to'' standard. We also allow Regional 
Transmission Organizations (RTOs) and ISOs more flexibility to 
customize an LGIP and LGIA to meet their regional needs. This applies 
to terms and conditions as well as pricing. While RTOs and ISOs are 
required to submit compliance filings, they may submit LGIP and LGIA 
terms and conditions that meet an ``independent entity variation'' 
standard that is more flexible than the ``consistent with or superior 
to'' standard and the regional differences standard.
    27. We are also including in the Final Rule LGIA an article 
addressing insurance requirements and limiting liability for 
consequential damages, both of which were absent from the NOPR. 
Provision for liquidated damages had been removed from the Final Rule 
LGIP but remains an option in the Final Rule LGIA. Also, in the Final 
Rule LGIP, when a Transmission Provider elects to study Interconnection 
Requests in Clusters, it would simultaneously study all 
Interconnections Requests received within a 180 day window, rather than 
a 90 day window as proposed.
    28. On pricing, we clarify the approach set forth in the NOPR. We 
continue our current policy of requiring a Transmission Provider that 
is not an independent entity to provide transmission credits for the 
cost of Network Upgrades needed for a Generating Facility 
interconnection. For a Transmission Provider that is an independent 
entity, such as an RTO or ISO, we allow flexibility as to the specifics 
of the interconnection pricing policy. Also, an RTO or ISO may propose 
participant funding for Network Upgrades for a generator 
interconnection, and, for a transitional period not to exceed a year, a 
region may use participant funding as soon as an independent 
administrator has been approved by the Commission and the affected 
states.
    29. Where the policy of transmission credits for upgrades required 
as a result of the interconnection applies, the Commission provides 
several clarifications in this Final Rule. For example, the 
Interconnection Customer should receive transmission credits only if 
its Generating Facility has achieved commercial operation. Transmission 
credits are to be paid to the Interconnection Customer when upgrades to 
an Affected System \32\ are constructed and the Interconnection 
Customer has paid for them. Finally, the Transmission Provider may 
decline to award credits for only those transmission charges that are 
designed to recover out-of-pocket costs, such as the cost of line 
losses, associated with the delivery of the output of the Generating 
Facility.
---------------------------------------------------------------------------

    \32\ An Affected System is an electric system other than the 
Transmission Provider's Transmission System that may be affected by 
the proposed interconnection.
---------------------------------------------------------------------------

II. Discussion

    30. In part A of this discussion we address the Standard Large 
Generator Interconnection Procedures (Final Rule LGIP) that specify the 
details of the uniform process a prospective Interconnection Customer 
and its Transmission Provider shall use to initiate, evaluate, and 
implement an Interconnection Request pursuant to the Final Rule.
    31. In part B we discuss the details of the Standard Large 
Generator Interconnection Agreement (Final Rule LGIA) to be executed by 
the prospective Interconnection Customer, the Transmission Provider 
and, where appropriate, the Transmission Owner. This document is 
incorporated as Appendix 6 to the Standard Large Generator 
Interconnection Procedures and covers the related rights and 
obligations of the Parties.\33\
---------------------------------------------------------------------------

    \33\ The Final Rule LGIP and Final Rule LGIA define Party or 
Parties as ``Transmission Provider, Transmission Owner, 
Interconnection Customer, or any combination of the above.''
---------------------------------------------------------------------------

    32. In part C, we discuss a number of other significant policy 
issues in connection with this rulemaking, including pricing policies; 
the required Interconnection Services; the treatment of 
``Distribution'' level interconnections; Qualifying Facility matters; 
variations from the Final Rule and accommodation of regional 
differences; the availability of waivers for small entities; OATT 
reciprocity implications for interconnection requests; assorted 
clarifications to the NOPR's proposals; insurance and liquidated 
damages matters; two- versus three-party interconnection agreements; 
and consequential damage issues.
    33. In part D, we address Compliance Issues pertaining to the 
requirement for a Transmission Provider to file conforming amendments 
to its existing OATT; the treatment to be accorded existing 
interconnection agreements (grandfathering); and the method a 
Transmission Provider is to use to file executed and unexecuted 
interconnection agreements in accord with this Final Rule.

A. Issues Related to the Standard Large Generator Interconnection 
Procedures (LGIP)

1. Overview \34\
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    \34\ For the convenience of the reader, a flow chart depicting 
the interconnection process is appended to this preamble as Appendix 
A.
---------------------------------------------------------------------------

    34. The Final Rule Standard Large Generator Interconnection 
Procedures (LGIP) document specifies the steps that must be followed 
and deadlines that must be met when an Interconnection

[[Page 49851]]

Customer requests interconnection of either a new Generating Facility 
or the expansion of an existing Generating Facility with the 
Transmission Provider's Transmission System.\35\ The Commission directs 
each public utility to amend its OATT with a single compliance filing 
to incorporate the Final Rule LGIP and the Standard Large Generator 
Interconnection Agreement (LGIA) documents. RTOs and ISOs must also 
make compliance filings, but as discussed above, will have more 
flexibility to propose different procedures and a different agreement.
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    \35\ Any Transmission Provider with an Interconnection Request 
outstanding at the time this Final Rule becomes effective shall 
transition to the Final Rule LGIP within a reasonable period of 
time. This is further described in Final Rule LGIP Section 5.1.
---------------------------------------------------------------------------

    35. The Final Rule LGIP sets forth the following steps to secure an 
interconnection. First, the prospective Interconnection Customer will 
submit an Interconnection Request to the Transmission Provider along 
with a $10,000 deposit, preliminary site documentation, and the 
expected In-Service Date.\36\ The Transmission Provider will 
acknowledge receipt of the request and promptly notify the 
Interconnection Customer if its request is deficient. When the 
Interconnection Request is complete, the Transmission Provider will 
place it in its interconnection queue with other pending requests. The 
Transmission Provider will assign a Queue Position to each completed 
Interconnection Request based on the date and time of its receipt.\37\ 
Queue Position is used to determine the order of performing the various 
Interconnection Studies and the assignment of cost responsibility for 
the construction of facilities necessary to accommodate the 
Interconnection Request.\38\ The Transmission Provider will also 
maintain a list of all Interconnection Requests \39\ on its OASIS.\40\
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    \36\ The standard form of Interconnection Request is Appendix 1 
of the LGIP document.
    \37\ For example, the first complete Interconnection Request, 
assigned an earlier Queue Position, is ``higher-queued'' relative to 
the second complete Interconnection Request that is assigned a later 
Queue Position and is ``lower queued.'' The withdrawal of a complete 
Interconnection Request causes it to lose its Queue Position and all 
succeeding complete Interconnection Requests to advance, 
accordingly.
    \38\ Any Interconnection Customer assigned a Queue Position 
before the effective date of this Final Rule would retain that Queue 
Position.
    \39\ We emphasize that the Final Rule LGIP requires the 
Transmission Provider, the Transmission Owner, and such entities' 
officers, employees, and contractors to maintain proper procedures 
for Confidential Information provided by an Interconnection Customer 
related to the Interconnection Request, the disclosure of which 
could harm or prejudice the Interconnection Customer or its 
business.
    \40\ Open Access Same-Time Information System and Standards of 
Conduct, Order No. 889, 61 FR 21737 (May 10, 1996), FERC Stats. & 
Regs. ] 31,035 at 31,590 (1996), order on reh'g, Order No. 889-A, 62 
FR 12484 (Mar. 14, 1997), FERC Stats. & Regs. ] 31,049 (1997), reh'g 
denied, Order No. 889-B, 81 FERC ] 61,253 (1997), aff'd in relevant 
part sub nom. Transmission Access Policy Study Group v. FERC, 225 
F.3d 667 (DC Cir. 2000), aff'd sub nom. New York v. FERC, 535 U.S. 1 
(2002).
---------------------------------------------------------------------------

    36. The Parties will then schedule a Scoping Meeting to discuss 
possible Points of Interconnection and exchange technical information, 
including data that would reasonably be expected to affect such 
interconnection options.\41\ The Scoping Meeting is followed by a 
series of Interconnection Studies to be performed by, or at the 
direction of, the Transmission Provider to evaluate the proposed 
interconnection in detail, identify any Adverse System Impacts on the 
Transmission Provider's Transmission System or Affected Systems, and 
specify the facility modifications that are needed to safely and 
reliably complete the interconnection.\42\ These studies include:
---------------------------------------------------------------------------

    \41\ The Scoping Meeting will address technical matters such as 
facility loadings, general instability issues, general short-circuit 
issues, general voltage issues, and general reliability issues that 
would affect the Interconnection Customer's designation of its Point 
of Interconnection.
    \42\ The standard forms of agreement for the Interconnection 
Feasibility Study, the Interconnection System Impact Study, the 
Interconnection Facilities Study, and the Optional Interconnection 
Study, are included at Appendices 2-4 to the Final Rule LGIP, 
respectively.

    (1) Interconnection Feasibility Study to evaluate on a 
preliminary basis the feasibility of the proposed interconnection, 
using power flow and short-circuit analyses (to be completed within 
45 Calendar Days from the date of signing of an Interconnection 
Feasibility Study Agreement) (study requires a $10,000 deposit);
    (2) Interconnection System Impact Study to evaluate on a 
comprehensive basis the impact of the proposed interconnection on 
the reliability of Transmission Provider's Transmission System and 
Affected Systems, using a stability analysis, power flow, and short-
circuit analyses (to be completed within 60 Calendar Days from the 
date of signing of an Interconnection System Impact Study Agreement) 
(study requires a $50,000 deposit);\43\
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    \43\ At the Transmission Provider's option, Interconnection 
System Impact Studies for multiple Generating Facilities may be 
conducted serially or in clusters.
---------------------------------------------------------------------------

    (3) Interconnection Facilities Study to determine a list of 
facilities (including Transmission Provider's Interconnection 
Facilities and Network Upgrades as identified in the Interconnection 
System Impact Study), the cost of those facilities, and the time 
required to interconnect the Generating Facility with the 
Transmission Provider's Transmission System (to be completed within 
90-180 Calendar Days from the date of signing of an Interconnection 
Facilities Study Agreement) (study requires a $100,000 deposit or an 
estimated monthly cost developed by the Transmission Provider for 
conducting the Interconnection Facilities Study); and
    (4) Optional Interconnection Study or sensitivity analysis of 
various assumptions specified by the Interconnection Customer to 
identify any Network Upgrades that may be required to provide 
transmission delivery service over alternative transmission paths 
for the electricity produced by the Generating Facility and (study 
requires a $10,000 deposit).

    37. The Interconnection Feasibility Study, the Interconnection 
System Impact Study, and the Interconnection Facilities Study must be 
performed in the above order, with completion of each study before the 
next begins.\44\ An Interconnection Customer may also request a restudy 
of any of the above if a higher-queued project either drops out of the 
queue, is subjected to Material Modifications, or changes its Point of 
Interconnection.\45\ The Interconnection Customer will pay the actual 
costs for performing each of the Interconnection Studies and restudies.
---------------------------------------------------------------------------

    \44\ These Interconnection Studies are typical of the kinds of 
studies undertaken by Transmission Providers to evaluate 
Interconnection Requests. The Interconnection Facilities Studies and 
Interconnection System Impact Studies also correspond to 
transmission service studies described in the pro forma open access 
tariff. See Order No. 888-A (Tariff Part II, 19 Additional Study 
Procedures for Firm Point-To-Point Transmission Service Requests; 
and Tariff Part III, 32 Additional Study Procedures for Network 
Integration Transmission Service Requests), FERC Stats. & Regs., 
Regulations Preambles (July 1996-December 2000), ] 31,048 at 30,524-
26 and 30,535-36.
    \45\ An Interconnection Feasibility Restudy must be completed 
within 45 Calendar Days of such request. Similarly, the Transmission 
Provider has 60 Calendar Days to complete either an Interconnection 
System Impact Restudy or an Interconnection Facilities Restudy.
---------------------------------------------------------------------------

    38. The Transmission Provider's Interconnection Facilities Study 
report \46\ will include a best estimate of the costs to effect the 
requested interconnection which are to be funded up-front by the 
Interconnection Customer. At the same time as the report is issued, the 
Transmission Provider shall also give the Interconnection Customer a 
draft interconnection agreement completed to

[[Page 49852]]

the extent practicable.\47\ The Transmission Provider and the 
Interconnection Customer will then negotiate the schedule for 
constructing and completing any necessary Transmission Provider 
Interconnection Facilities and Network Upgrades, and incorporate this 
schedule into the interconnection agreement that is signed by the 
Parties.\48\
---------------------------------------------------------------------------

    \46\ Upon the completion of each of the Interconnection Studies, 
a report is prepared which presents the results of the analyses.
    \47\ The draft interconnection agreement shall include: Appendix 
A, Interconnection Facilities, Network Upgrades and Distribution 
Upgrades; Appendix B, Milestones; Appendix C, Interconnection 
Details; Appendix D, Security Arrangements Details; Appendix E, 
Commercial Operation Date; and Appendix F, Addresses for Delivery of 
Notices and Billings.
    \48\ In general, the In-Service Date of an Interconnection 
Customer's Generating Facility or Generating Facility expansion will 
determine the sequence of construction of Network Upgrades. An 
Interconnection Customer, in order to achieve its expected In-
Service Date, may request that the Transmission Provider advance the 
completion of Network Upgrades necessary to support such In-Service 
Date that would otherwise not be completed pursuant to a contractual 
obligation of an entity other than the Interconnection Customer. The 
Transmission Provider will use Reasonable Efforts to advance the 
construction if the Interconnection Customer reimburses it for any 
associated expediting costs and the cost of such Network Upgrades. 
The Interconnection Customer is entitled to transmission credits for 
the expediting costs that it pays.
---------------------------------------------------------------------------

2. Section-by-Section Discussion of the Proposed LGIP
    39. What follows is a discussion of the standard interconnection 
procedures the Commission proposed, the comments received, and the 
Commission's conclusion. The order of discussion follows the 
organization of the proposed LGIP, covering Sections 1-13. Only 
subsections for which issues are raised are presented. For example, we 
discuss Section 2.3, but not Sections 2.1 or 2.2 because no significant 
issues were raised regarding Sections 2.1 or 2.2. Readers should note 
that section numbers referred to in the following discussion are the 
numbers contained in the proposed LGIP. Some proposed sections are 
renumbered in the Final Rule; mention of that fact will be made in the 
Commission Conclusions discussion, where appropriate. Also, note that 
Proposed LGIP Section 14 is eliminated from the Final Rule in its 
entirety because provisions for interconnection procedures and an 
interconnection agreement for Small Generators have been severed from 
this proceeding, as discussed, supra.
    40. Section 1--Definitions--Section 1 of the NOPR LGIP and Article 
1 of the NOPR LGIA contained defined terms that appeared in the 
respective documents. For the sake of consistency, the Final Rule LGIP 
and Final Rule LGIA contain one common set of terms. Included in the 
list of defined terms are a number of new terms which were not included 
in the NOPR LGIP and NOPR LGIA. Comments relating to the definition of 
terms in both documents are discussed below.
    41. Ancillary Services (In the NOPR: Ancillary and Other 
Services)--The NOPR proposed that Ancillary and Other Services would 
have the same meaning as defined in the Transmission Provider's OATT 
and include some other services such as generator balancing, black 
start, and automatic generation control.
Comments
    42. Cinergy and Entergy claim that this term is not used in the 
LGIA and that its definition should be deleted.
Commission Conclusion
    43. The Commission disagrees that the definition should be deleted. 
The term is used in Article 9 of the NOPR LGIA and elsewhere. However, 
to be consistent with the OATT, the Commission here adopts the 
definition of Ancillary Services in Order No. 888: ``Those services 
that are necessary to support the transmission of capacity and energy 
from resources to loads while maintaining reliable operation of the 
Transmission Provider's Transmission System in accordance with Good 
Utility Practice.''
    44. Commercial Operation Date--The NOPR proposed to define 
Commercial Operation Date as the date on which the Generating Facility 
commences commercial operation of a unit at the Generating Facility 
after Trial Operation of the unit is completed, as confirmed in 
writing, in accordance with proposed Appendix F to the NOPR LGIA.
Comments
    45. Central Maine points out that when a Generating Facility 
consists of more than one generating unit, under the NOPR, the 
Commercial Operation Date depends on the operability of a generating 
unit after its testing. Central Maine requests that the Commission 
define the term Commercial Operation Date as the date on which the 
Generating Facility as a whole commences commercial operation, not the 
individual generating units.
Commission Conclusion
    46. The Commission is not adopting Central Maine's proposal. The 
Generating Facility (referred to as the Facility in the NOPR LGIP and 
NOPR LGIA) could consist of multiple generating units with 
substantially different Commercial Operation Dates. Under Central 
Maine's proposal, all of the Generating Facilities at the complex would 
be required to undergo a pre-commercial Trial Operation each time a new 
generating unit at the Generating Facility is ready to commence 
commercial operation. Central Maine gives no reason why this should be 
required. Furthermore, revising the NOPR LGIP is unnecessary because 
Article 6.1 of the NOPR LGIA (Pre-Commercial Operation Date, Testing 
and Modifications) addresses testing of the Generating Facility and the 
Interconnection Customer's Interconnection Facilities to ensure their 
safe and reliable operation.
    47. Generating Facility (In the NOPR: Facility)--The NOPR proposed 
to define the term Facility as the Interconnection Customer's 
generator, as identified in the Interconnection Request, but excluding 
the Interconnection Customer's Interconnection Facilities. In this 
Final Rule, the Commission has renamed Facility to Generating Facility 
to avoid confusion between other facilities and equipment.
Comments
    48. Central Maine states that a full description of the Generating 
Facility should be attached to the interconnection agreement as an 
appendix.
Commission Conclusion
    49. The Commission concludes that it is unnecessary to append a 
description of the Generating Facility to the interconnection agreement 
because Appendix 1 of the Final Rule LGIP (Interconnection Request) 
already provides detailed information about the Generating Facility. 
Accordingly, the Commission adopts the proposed definition but changes 
the defined term from Facility to Generating Facility.
    50. Generator--In the NOPR, the Commission proposed to define the 
term Generator to mean any Generating Facility, regardless of 
ownership.
Comments
    51. Dairyland Power points out that the term Generator is used in 
the NOPR LGIP to refer to the entity that owns the Generating Facility, 
as well as the facility itself. It asks for clarification.
Commission Conclusion
    52. To clarify, we use the term Interconnection Customer in this 
preamble and the Final Rule to refer to the owner of the Generating 
Facility. The terms Small Generator and Large Generator refer to the 
class of energy producing devices no larger than 20 MW and larger than 
20 MW, respectively.

[[Page 49853]]

    53. Good Utility Practice--In the NOPR, the Commission defined Good 
Utility Practice to mean any of the practices, methods and acts 
generally accepted in the region, including Applicable Reliability 
Standards and the National Electrical Code.
Comments
    54. NERC states that although the terms Good Utility Practice and 
Applicable Reliability Standards have separate definitions, they have 
often been used interchangeably. It notes that the Commission has 
defined Applicable Reliability Standards to include NERC and regional 
reliability council requirements while Good Utility Practice is a 
broader term that includes Applicable Reliability Standards. NERC 
comments that it is important that these terms be used consistently.
    55. Cinergy notes that Good Utility Practice is defined to include 
compliance with the National Electrical Code. It states that because it 
is not subject to the National Electrical Code, it would be improper to 
attempt to bind it to such compliance.
Commission Conclusion
    56. The Commission agrees with NERC that there is some overlap in 
the proposed definitions of Good Utility Practice and Applicable 
Reliability Standards. To remove any misunderstanding in the definition 
of Good Utility Practice, the Commission is adopting in the Final Rule 
the Order No. 888 definition, which contains no references to 
Applicable Reliability Standards and National Electrical Code. This 
also addresses Cinergy's concern.
    57. Interconnection Guidelines--The NOPR stated that the technical 
requirements to be followed by the Parties are set forth in the 
proposed Appendix G (Interconnection Guidelines).
Comments
    58. Southern observes that proposed Appendix G is blank, inferring 
that the Interconnection Customer and Transmission Provider negotiate 
the technical and operational requirements. Southern believes that this 
is inappropriate because interconnection guidelines should be 
established by the Transmission Provider, not by negotiation. Southern 
contends that requiring a Transmission Provider to negotiate the 
technical and operational requirements with each Interconnection 
Customer is inconsistent with the goal of uniform interconnection 
procedures.
Commission Conclusion
    59. Proposed Appendix G was intended to set forth uniform technical 
and operational requirements applicable to all Interconnection 
Customers established by the Transmission Provider, not to be a vehicle 
for the Parties to negotiate technical and operational requirements on 
a case-by-case basis. The Commission concludes, however, that most, if 
not all, of the generic technical and operational requirements are 
already set forth in the Final Rule LGIA. We are therefore not defining 
the term Interconnection Guidelines as well as not including proposed 
Appendix G in the Final Rule LGIA.\49\
---------------------------------------------------------------------------

    \49\ See, e.g., Article 7 (Metering), Article 8 (Communications) 
and Article 9 (Operations).
---------------------------------------------------------------------------

    60. Joint Operating Committee--The NOPR proposed to define Joint 
Operating Committee to mean a committee comprised of members of 
individual operating committees that addresses issues arising out of 
the duties, roles, and responsibilities of individual operating 
committees described in Article 29 of the NOPR LGIA.
Comments
    61. FirstEnergy and PSNM state that the Joint Operating Committee 
would impose additional administrative costs on the Transmission 
Provider and is also unnecessary.
Commission Conclusion
    62. The Commission is not deleting the term. As discussed later, 
the Final Rule does not require the Parties to form individual 
operating committees. Instead, the Final Rule requires a Joint 
Operating Committee comprising the Transmission Provider and all of its 
Interconnection Customers. Among other things, the committee will 
address issues arising out of the duties, roles, and responsibilities 
of the Parties under their interconnection agreements.
    63. Network Upgrades--In the NOPR, Network Upgrades were defined as 
additions, modifications, and upgrades to the Transmission System 
required beyond the Point of Interconnection in order to accommodate 
the interconnection of the Generating Facility. Network Upgrades are 
identified by the Parties in Appendix A to the interconnection 
agreement (including any modifications, additions or upgrades made to 
such facilities). The NOPR also stated that Network Upgrades benefit 
all users of the Transmission System, without distinction or regard as 
to the purpose of the upgrade.
Comments
    64. Several commenters, including Calpine and SoCal Water District, 
request that the definition of Network Upgrades be clarified and made 
as specific as possible. Calpine and Nevada Power propose that Network 
Upgrades should include only facilities shown to be ``integrated'' to 
the Transmission System, that is, likely to be used by entities other 
than the Interconnection Customer. Some commenters \50\ contend that 
circuit breakers are not Network Upgrades, since they benefit only the 
new Interconnection Customer.
---------------------------------------------------------------------------

    \50\ E.g., Edison Mission, Georgia Transmission, MidAmerican, 
and SoCal Water District.
---------------------------------------------------------------------------

Commission Conclusion
    65. The Final Rule revises the definition of Network Upgrade to 
include the phrase ``at or beyond the Point of Interconnection,'' 
instead of ``beyond the Point of Interconnection,'' to make it 
consistent with established Commission precedent. The network begins at 
the point where the Interconnection Customer connects to the 
Transmission System, not somewhere beyond that point.\51\ Facilities 
beyond the Point of Interconnection are part of the Transmission 
Provider's Transmission System and benefit all users. We are also 
removing the concept of beneficiary from the definition so as to avoid 
implying a pricing policy in the definition.
---------------------------------------------------------------------------

    \51\ See Entergy Gulf States, Inc., 99 FERC ] 61,095 (2002).
---------------------------------------------------------------------------

    66. We disagree with the comments stating that the term is not well 
defined. The Commission has defined Network Upgrades as those 
facilities ``at or beyond the Point of Interconnection'' partially in 
order to clarify to all entities exactly what is a Network Upgrade. We 
are removing references to beneficiaries from the definition, because 
our well-established precedent regarding what constitutes Network 
Upgrades does not require a case-specific determination that all users 
benefit from Network Upgrade; instead we look only as whether the 
upgrade is at or beyond the Point of Interconnection.\52\
---------------------------------------------------------------------------

    \52\ E.g., Entergy Services, Inc. v. FERC, 319 F.3d 536 (DC Cir. 
2003); Southern Company Services, Inc., 101 FERC ] 61,309 (2002); 
American Electric Power Service Corp., 101 FERC ] 61,194 (2002); 
Tampa Electric Company, 99 FERC ] 61,192 (2002).
---------------------------------------------------------------------------

    67. Reasonable Efforts--The NOPR proposed to define Reasonable 
Efforts as actions that are timely and consistent with Good Utility 
Practice and are substantially equivalent to those a Party would use to 
protect its own interests.

[[Page 49854]]

Comments
    68. Some commenters including Central Maine found this definition 
to be vague. They also contend that only Good Utility Practice should 
be required.
Commission Conclusion
    69. The Commission adopts the proposed definition. The standard in 
the NOPR is necessary to ensure comparable treatment. If a Party 
normally exceeds Good Utility Practice when it protects its own 
interests, it must do so for others as well.
    70. System Protection Facilities--The NOPR proposed to define 
System Protection Facilities as the equipment required to protect the 
Transmission System from faults and other electrical disturbances 
occurring at the Interconnection Customer's Generating Facility, and 
vice versa.
Comments
    71. NERC proposes that the definition of System Protection 
Facilities should include ``necessary protection signal communications 
equipment'' in addition to the other equipment mentioned in the 
definition. It argues that such communications equipment is needed to 
coordinate and monitor the operation of protective devices.
Commission Conclusion
    72. The Commission agrees with NERC and adopts the recommended 
language.
    73. Transmission Owner and Transmission Provider--In the NOPR, the 
Commission proposed to define Transmission Owner to mean any entity 
that owns, leases or otherwise possesses an interest in the 
Transmission System at the Point of Interconnection. It proposed to 
define Transmission Provider to mean the entity that provides 
transmission service under its OATT.
Comments
    74. EEI proposes that the definition of Transmission Provider be 
revised to include Transmission Owner. National Grid states that the 
proposed LGIA should clearly delineate the rights and responsibilities 
of Transmission Owners that are not Transmission Providers.
Commission Conclusion
    75. We agree with EEI. Accordingly, the definition of Transmission 
Provider in the Final Rule includes the Transmission Owner as well. 
While we recognize that the Transmission Provider and the Transmission 
Owner may be distinct entities in some cases, throughout the Final Rule 
we will refer to both the Transmission Provider and the Transmission 
Owner generically as the Transmission Provider. There are a few 
instances in which the distinction between Transmission Owner and 
Transmission Provider becomes relevant and there we use the appropriate 
terms.
    76. Section 2--Scope and Application--Section 2 of the NOPR LGIP 
provided that the Transmission Provider receive, process, and analyze 
all Interconnection Requests in the same manner as it does for itself, 
its subsidiaries or Affiliates.
    77. Section 2.3--Base Case Data--Section 2.3 of the NOPR LGIP 
required the Transmission Provider to provide base case power flow, 
short-circuit and stability databases to the Interconnection Customer 
upon request so that the Interconnection Customer may independently 
study its Interconnection Request.
Comments
    78. Mirant notes that certain of the language from the Consensus 
LGIP Section 2.3 concerning confidentiality provisions and the makeup 
of the Base Case data appears to have been unintentionally left out of 
the NOPR LGIP Section 2.3.\53\
---------------------------------------------------------------------------

    \53\ Mirant states that the following language was left out of 
Section 2.3 of the NOPR LGIP: ``and contingency lists upon request 
subject to confidentiality provisions. Such databases and lists, 
herein referred to as Base Cases, shall include all (I) generation 
projects and (ii) transmission projects, including merchant 
transmission projects that are proposed for a Transmission System 
for which a transmission expansion plan has been submitted and 
approved by the applicable authority.''
---------------------------------------------------------------------------

    79. Dominion Resources asks that the Commission revise LGIP Section 
2.3 to state that Base Case data is subject to a confidentiality 
provision between the Parties. Sempra comments that the Transmission 
Provider should protect the confidentiality of other Interconnection 
Customers' information that is part of those databases. Entergy states 
that this Section should apply only to information that is not 
commercially sensitive, so as to avoid providing a competitive 
advantage to other Interconnection Customers.
    80. Calpine argues that the Transmission Provider should provide, 
in addition to the stated databases, all underlying assumptions, data 
files and documents used to create the Base Case, because otherwise the 
provision could be interpreted as a narrow set of data files that are 
meaningless.
    81. The Ohio PUC contends that the Commission should ensure that 
rules for handling critical energy infrastructure information (CEII) 
are not abused by utilities that seek to withhold from public 
disclosure commercial information that is not really CEII and that has 
historically been central to public regulatory proceedings. It believes 
that there must be procedures to ensure protection of critical public 
interests. The Ohio PUC recommends that the procedures be carried out 
by an entity, such as the newly formed Department of Homeland Security, 
that has specific experience in CEII and is qualified to review the 
Commission's CEII decisions.
Commission Conclusion
    82. As Mirant correctly notes, segments of the Consensus LGIP 
Section 2.3 relating to confidentiality and the makeup of the Base Case 
data were inadvertently omitted from the NOPR; this text is included in 
the Final Rule. Both confidentiality and the Base Case data format were 
significant topics in the Commission Staff Queuing Technical Conference 
held on January 21, 2003. Most conference participants agreed that 
providing this Base Case data was reasonable in that it would help the 
Interconnection Customer and its subcontractor conduct Interconnection 
Studies independently, expedite the evaluation process, and free up the 
Transmission Provider's resources, and reduce the time that would 
otherwise be devoted to performing Interconnection Studies or acting as 
the Interconnection Customer's consultant. The Commission believes that 
adding the missing text addresses other commenters' concerns regarding 
the need for confidential treatment of the Base Case data and other 
commercially sensitive information that may be provided to the 
Interconnection Customer.
    83. In response to Calpine, we clarify that Transmission Providers 
must provide all underlying assumptions and data files so that the 
Interconnection Customer or its subcontractor can independently conduct 
Interconnection Studies.
    84. As to the concerns of the Ohio PUC and others regarding the 
security of critical energy infrastructure information, the security of 
the energy infrastructure is essential. The Commission expects that all 
Transmission Providers, market participants, and Interconnection 
Customers will comply with the recommendations of the President's 
Critical Infrastructure Protection Board, as well as any best practice 
recommendations or requirements that may be issued by NERC or any other 
electric reliability authorities. In particular, all public utilities 
are expected to meet basic standards for system infrastructure and 
operational

[[Page 49855]]

security, including physical, operational, and cyber-security 
practices. However, they are not to abuse security requirements in an 
effort to withhold from public disclosure commercial information that 
lacks legitimate CEII status.
    85. Section 3--Interconnection Request--In NOPR LGIP Section 3, the 
Commission proposed that each Interconnection Request include, among 
other things, a refundable deposit of $10,000 that would be applied 
toward the cost of the Interconnection Feasibility Study.
    86. Section 3.1--General--NOPR LGIP Section 3.1 would have required 
that the Interconnection Customer submit to the Transmission Provider 
an Interconnection Request and a refundable deposit of $10,000 to be 
applied toward the cost of an Interconnection Feasibility Study. The 
Interconnection Customer would submit a separate Interconnection 
Request for each site to be studied and may submit multiple 
Interconnection Requests for a single site. At the Interconnection 
Customer's option, the Parties could identify alternative Points of 
Interconnection and configurations at the Scoping Meeting and attempt 
to eliminate alternatives from further consideration. The 
Interconnection Customer would be required to select the Point of 
Interconnection no later than the execution of the Interconnection 
Feasibility Study Agreement.
Comments
    87. Some commenters, including Entergy and PJM, state that an 
initial evaluation of several alternative interconnection sites is 
inconsistent with regional planning and can be accomplished only at the 
expense of Transmission Providers and lower queued Interconnection 
Customers seeking swift interconnection.
    88. Cal ISO raises several questions related to the possibility of 
multiple Interconnection Requests for a single site: (1) Do multiple 
Interconnection Requests refer only to routing and interconnection 
arrangements? (2) If so, how many alternatives are acceptable under one 
submittal? (3) Is an Interconnection Request for one site that is to be 
evaluated at two different voltage levels, one or two Interconnection 
Requests? and (4) Is the $10,000 deposit required for each 
Interconnection Request, resulting in multiple deposits for multiple 
requests at a single site?
    89. ISO New England recommends revising this section to give an RTO 
or ISO authority to set reasonable interconnection deposit amounts, 
taking into account the requested study's complexity. It also states 
that concerns about discriminatory treatment of Interconnection 
Customers should be alleviated because the RTO or ISO is independent.
Commission Conclusion
    90. Except as noted below, we are adopting Section 3.1 in the Final 
Rule as proposed. Allowing the Interconnection Customer the option to 
have the Parties evaluate alternative interconnection sites and 
configurations at the Scoping Meeting will greatly reduce the need to 
conduct detailed analyses of interconnection options that are found to 
have little merit. Providing the Interconnection Customer with more 
information prior to authorizing an Interconnection Feasibility Study 
should lead to more efficient use of the Transmission Provider's 
planning resources and higher quality Interconnection Studies.
    91. With regard to Cal ISO's first question, multiple 
Interconnection Requests at a single site could involve more than just 
alternative routing and interconnection arrangements. For example, they 
could also involve substantially different Generating Facility designs. 
Regarding Cal ISO's second question, we do not set a generic limit on 
the number of Interconnection Requests that may be included in a single 
submittal, but leave it to the Parties to reach agreement at the 
Scoping Meeting, or, if they fail to agree, pursue dispute resolution. 
As to the third question, a request to evaluate one site at two 
different voltage levels would be two Interconnection Requests. With 
respect to Cal ISO's fourth question, the Interconnection Customer must 
submit a deposit with each Interconnection Request when more than one 
request is submitted for a single site. However, if an Interconnection 
Request is withdrawn before the execution of an Interconnection 
Feasibility Study Agreement, perhaps as a result of discussions at the 
Scoping Meeting, the Transmission Provider must promptly return the 
deposit to the Interconnection Customer. Finally, the Commission is 
clarifying Section 3.1 to eliminate the uncertainty underlying Cal 
ISO's questions 3 and 4.
    92. The Commission is not revising proposed LGIP Section 3.1 to 
provide the flexibility that the New England ISO seeks. The proposed 
study deposit requirements appropriately balance the interests of the 
Transmission Provider and the Interconnection Customer. However, as 
explained elsewhere in this preamble, we will entertain proposals by an 
RTO or ISO to adopt alternative interconnection procedures that reflect 
regional differences.
    93. Section 3.2--Identification of Types of Interconnection 
Services--Section 3.2 of the NOPR LGIP stated that, when the 
Interconnection Customer submits its Interconnection Request, it must 
identify the type of Interconnection Service it desires. The Final Rule 
provides for two service products: (1) Energy Resource Interconnection 
Service, which is a basic or minimal interconnection service, and (2) 
Network Resource Interconnection Service, which is a more flexible and 
comprehensive service. However, any Interconnection Customer requesting 
Network Resource Interconnection Service may request that it also be 
studied for the less comprehensive Energy Resource Interconnection 
Service up to the point when an Interconnection Facility Study 
Agreement is executed. Comments and conclusions relating to Section 3.2 
of the NOPR LGIP are discussed in part II.C.2 (Interconnection Products 
and Scope of Service).
    94. Section 3.3.1--Initiating an Interconnection Request--According 
to NOPR LGIP Section 3.3.1, in order to initiate an Interconnection 
Request, the Interconnection Customer would be required to submit a 
$10,000 deposit, a completed Interconnection Request, and either a 
demonstration of Site Control (e.g., securing land rights, air permit, 
etc.) or an additional deposit of $10,000, with the deposits applied 
toward any required Interconnection Studies. The latter deposit would 
be refundable only if the Interconnection Customer demonstrates Site 
Control within the time period specified in the proposed LGIP Section 
3.3.3.
    95. Proposed LGIP Section 3.3.1 would allow the expected In-Service 
Date of the Generating Facility to be no later than the completion date 
of the relevant region's expansion planning period, not to exceed seven 
years from the date of the Interconnection Request, unless the 
Interconnection Customer can demonstrate that engineering, permitting 
and construction of the Generating Facility will take longer. Under the 
proposal, the In-Service Date may not exceed ten years from the date 
the Interconnection Request is received by the Transmission Provider.
Comments
    96. Some commenters contend that an Interconnection Customer should 
be required to demonstrate Site Control when it submits an 
Interconnection

[[Page 49856]]

Request.\54\ They disagree with the proposed LGIP Section 3.3.1 
provision that allows for the posting of an additional $10,000 deposit 
in lieu of the demonstration of Site Control. For example, PJM states 
that Site Control is a strong indication of a serious project and is 
essential for establishing a queue that will consist of projects that 
are likely to be completed. PJM claims that this is not a burdensome 
requirement, and that every one of the 285 requests for generator 
interconnection that it has received since 1999 has included evidence 
of Site Control at the Interconnection Feasibility Study stage. Edison 
Mission believes that the Interconnection Customer must have 
uninterrupted Site Control throughout the interconnection process. It 
states that a $10,000 deposit is not sufficient to discourage 
Interconnection Customers from filing premature Interconnection 
Requests (in order to secure a favorable Queue Position) and only later 
find themselves to be unable to secure Site Control. Edison Mission 
further contends that such a minimal deposit requirement may encourage 
Interconnection Customers, not acting in good faith, to speculate in 
interconnection rights by placing deposits for Interconnection Requests 
at promising locations. It believes that such speculation will 
frustrate other Interconnection Customers that obtain a site but are 
locked out of interconnection due to the superior Queue Position of a 
Party that merely posted a deposit. Edison Mission predicts that this 
will become an even greater issue as market designs based on locational 
marginal pricing become the norm.
---------------------------------------------------------------------------

    \54\ E.g., BPA, Central Maine, Cleco, Edison Mission, Georgia 
Transmission, NYTO, PJM, PJMTO, and Salt River Project.
---------------------------------------------------------------------------

    97. Cleco believes that the only deposit that should be refundable 
is the $10,000 deposit paid in lieu of demonstrating Site Control, not 
the original deposit initiating an Interconnection Request. Moreover, 
Cleco states that the Commission should make clear that the $10,000 
deposited in lieu of Site Control should be refundable if the 
Interconnection Customer demonstrates Site Control within the time 
period specified in Section 3.3.3.
    98. Central Maine takes exception to allowing an Interconnection 
Customer to remain in the queue for a period not to exceed ten years 
from the date of receipt of the Interconnection Request; it says this 
period is too long. FirstEnergy recommends replacing ``Regional 
Expansion Planning Period'' with ``Transmission Provider Expansion 
Planning Period.'' Salt River Project seeks clarification as to how to 
reconcile a situation where the original In-Service Date is ten years 
out and there is then a three year extension.
    99. Some commenters, including American Wind Energy, Edison 
Mission, NMA, Peabody, and WEPCO, contend that the development time for 
certain large scale coal, wind power, and other types of projects raise 
special issues. For example, they want the ten year restriction 
eliminated because their equipment is not ``off-the-shelf,'' and siting 
and permitting can exceed ten years. Some commenters also want the 
Commission to revise Section 3.3.1 to allow them up to nine months 
after the Interconnection Request is made to submit final design 
specifications. They contend that because large non-gas-fired 
generators are unique and not ``off-the-shelf,'' completion of the 
final design specifications requires nine or more months after the 
Interconnection Request is submitted.
Commission Conclusion
    100. We retain the proposed text that requires a demonstration of 
Site Control or a posting of an additional deposit of $10,000. There 
may be instances when requiring Site Control could unduly delay the 
interconnection process.
    101. We also share Edison Mission's concern that some participants 
may attempt to game the system by filing Interconnection Requests at 
multiple sites knowing that Site Control is unlikely to be obtainable 
at every site. However, under NOPR LGIP Section 11.3, the 
Interconnection Customer must provide reasonable evidence of Site 
Control within 15 Business Days after the receipt of the Final 
Interconnection Agreement or post additional security of $250,000, 
which will be applied toward future construction costs when the 
demonstration of Site Control is made. This is sufficient incentive for 
an Interconnection Customer to refrain from engaging in the speculative 
behavior suggested by Edison Mission.
    102. With respect to the ten-year period for allowing an 
Interconnection Customer to remain in the queue, we believe that ten 
years should be adequate time to complete the siting, permitting and 
construction requirements for all plants unless major permitting delays 
are encountered. Large non-gas-fired projects (e.g., coal or oil 
projects) generally take eight years or less to complete. Thus, a ten-
year period gives large projects at least a two year buffer. Moreover, 
we note that numerous Interconnection Customers and Transmission 
Providers negotiated this time limit during the Consensus process. 
Finally, if an Interconnection Customer believes it needs additional 
time to complete its project, it should seek the approval of the 
Transmission Provider to extend the In-Service Date. Accordingly, the 
Commission clarifies that the term of the Final Rule LGIP Section 3.3.1 
is ten years, or longer if the Parties agree, with such agreement not 
to be unreasonably withheld.
    103. Regarding the need for additional time for some 
Interconnection Customers to complete design specifications, the 
Commission is not convinced that an exception should be made in the 
Final Rule LGIP to allow an Interconnection Customer proposing to 
construct a large non-gas-fired Generating Facility to submit final 
design specifications nine months after the Interconnection Request is 
made. The Interconnection Customer should have its design substantially 
completed prior to submitting its Interconnection Request so that it 
does not block or disrupt the queuing process. The Transmission 
Provider is not able to act on an Interconnection Request unless it 
includes all necessary information, and to give one class of 
Interconnection Customers extra time to submit design specifications 
would be unfair to other Interconnection Customers in the queue.
    104. As to FirstEnergy's recommendation, the Commission clarifies 
that, in the absence of a regional expansion planning period, the 
appropriate expansion planning period would be that of the Transmission 
Provider.
    105. Section 3.3.4--Scoping Meeting (In the NOPR: Initial Scoping 
Meeting)--Proposed LGIP Section 3.3.4 would have required the 
Transmission Provider to hold a Scoping Meeting with the 
Interconnection Customer no later than 30 Calendar Days from receipt of 
the Interconnection Request. The purpose of the Scoping Meeting would 
be to discuss alternative interconnection options, including potential 
feasible Points of Interconnection. The Interconnection Customer would 
designate its Point of Interconnection and one or more alternative 
Points of Interconnection on the basis of information gathered at the 
Scoping Meeting. Section 3.3.4 would also provide that the 
Interconnection Customer may forgo the Interconnection Feasibility 
Study and proceed directly to an Interconnection System Impact Study.
Comments
    106. Several commenters, including El Paso, Entergy, FirstEnergy, 
and

[[Page 49857]]

Georgia Transmission, state that the Parties should be able to agree to 
schedule a Scoping Meeting outside the 30-day window.
    107. El Paso believes that the Interconnection Customer should not 
make the final decision on designation of the Point of Interconnection; 
instead, the Transmission Provider should designate the Point of 
Interconnection with the Interconnection Customer's consent. At a 
minimum, El Paso recommends that Section 3.3.4 be modified to state 
that the Transmission Provider must consent to the designation of Point 
of Interconnection and that such consent will not be unreasonably 
withheld. El Paso explains this is because the designation of Point of 
Interconnection has serious cost consequences for the Transmission 
Provider and its customers.
    108. PJM states that the Interconnection Feasibility Study is an 
important first step in evaluating an Interconnection Request and that 
about one-third of the Interconnection Requests are withdrawn after the 
Interconnection Feasibility Study. PJM adds that the Interconnection 
Customer should not be allowed to skip the Interconnection Feasibility 
Study and go directly to the Interconnection System Impact Study 
because this omission would have serious implications for the 
Clustering of Interconnection of Studies and would create the need for 
a large number of restudies. PJM proposes that this provision be 
deleted from the Final Rule LGIP.
Commission Conclusion
    109. In the Final Rule LGIP, the Commission is revising Section 
3.3.4 to allow the Parties to hold the Scoping Meeting outside the 30 
Calendar Day window upon agreement of the Parties, since either Party 
can object to the postponement. With respect to El Paso's concern 
regarding the designation of the Point of Interconnection, the purpose 
of the Scoping Meeting is to discuss alternative interconnection 
options, including potential Points of Interconnection. The Commission 
notes that the Transmission Provider will have an opportunity to voice 
its concerns at the Scoping Meeting and assess the likely cost 
consequences of interconnecting at various points. It is appropriate 
that the Interconnection Customer decide its Point of Interconnection 
based on input from the Transmission Provider because the former must 
consider its investment in the Generating Facility and its site 
selection criteria, as well as its initial funding of Network Upgrades. 
For these reasons, we adopt Section 3.3.4 as proposed.
    110. Regarding PJM's concern about allowing the Interconnection 
Customer to skip the Interconnection Feasibility Study and proceed 
directly to the Interconnection System Impact Study, the Commission 
agrees with PJM that the Interconnection Feasibility Study is an 
important first step in evaluating an Interconnection Request and 
should not be skipped. The Commission is therefore deleting this text 
from the Final Rule LGIP Section 3.3.4.
    111. Section 3.4--OASIS Posting--Proposed LGIP Section 3.4 required 
that the Transmission Provider post on its OASIS a list of all 
Interconnection Requests. It must post the following information for 
each Interconnection Request: the location by county and state; the 
station or transmission line or lines where the interconnection will be 
made; and the projected In-Service Date. The list will not disclose the 
identity of the Interconnection Customer until the Interconnection 
Customer executes an interconnection agreement or requests that the 
Transmission Provider file an unexecuted Agreement with the Commission. 
The Transmission Provider also must post deviations from the study time 
lines set forth in the interconnection procedures. Interconnection 
Study reports and Optional Interconnection Study reports also must be 
posted after the Parties meet to discuss the applicable study results.
Comments
    112. Avista states that listing the location of a Generating 
Facility by county and state is not sufficient. The location should be 
specified in greater detail, because some counties cover hundreds of 
square miles. Mirant and NYTO state that the identity of the 
Interconnection Customer should be posted on the OASIS when the 
Interconnection Request is made because it will help identify 
Interconnection Customers that are unlikely to see their projects 
through completion and drop out of the queue. Mirant claims that the 
identity of the Interconnection Customer is important for conducting 
meaningful Optional Interconnection Studies.
    113. NSTAR seeks clarification about whether entire studies 
consisting of base case data are to be posted on the OASIS, or just the 
interpretive analysis contained in the study reports. Salt River 
Project seeks clarification as to whether the posting of deviations 
refers to the study time lines in proposed LGIP Section 6.3 
(Interconnection Feasibility Study Procedures) or the study time lines 
that were agreed to by the Parties in advance. MidAmerican recommends 
that changes in the Generating Facility's In-Service Date should also 
be posted on the OASIS.
Commission Conclusion
    114. The Commission is not requiring that the location of a 
Generating Facility be specified in any greater detail than proposed 
because the OASIS posting also includes the substation or transmission 
line where the interconnection is to be made. We are also not requiring 
that the identity of the Interconnection Customer be posted when the 
Interconnection Request is made because disclosing the identity at that 
early stage may put the Interconnection Customer at a competitive 
disadvantage and its project at risk. With regard to Mirant's assertion 
that the identity of the Interconnection Customer is important in 
conducting meaningful Optional Interconnection Studies because it helps 
identify who may drop out of the queue, we note that the Optional 
Interconnection Studies are to be performed after the Interconnection 
System Impact Study, at which point only serious projects are likely to 
remain in the queue.
    115. The Commission clarifies that the study reports are to be 
posted, not the actual studies. Regarding deviations from the study 
time lines, the Commission clarifies that the Transmission Provider is 
to post deviations from the study time lines as projected by the 
Transmission Provider for completing future Interconnection Studies. 
For example, Section 6.3 (Interconnection Feasibility Study Procedures) 
calls for the Interconnection Feasibility Study to be completed within 
45 Calendar Days after the Transmission Provider receives the fully 
executed Interconnection Feasibility Study Agreement. If the 
Transmission Provider anticipates that it will not be able to complete 
the Interconnection Feasibility Study within 45 Calendar Days, it 
should post its deviation along with an explanation for the delay 
(e.g., backlog). Finally, we adopt MidAmerican's recommendation, and 
Final Rule LGIP Section 3.4 requires the posting of any expected 
deviation from a Generating Facility's In-Service Date.
    116. Section 3.5--Coordination with Affected Systems--Proposed LGIP 
Section 3.5 dealt with interconnections that may affect a Transmission 
System other than that of the Transmission Provider. A third party 
Transmission System was proposed to be defined in the NOPR LGIA as an 
Affected System. Section 3.5 also proposed obligations and rights of 
the Affected System, the

[[Page 49858]]

Transmission Provider, and the Interconnection Customer, including a 
requirement to coordinate Interconnection Studies.
Comments
    117. Interconnection Customers including Duke Energy, Independent 
Producers, Norton Energy, and Peabody support requiring the 
Transmission Provider (rather than the Interconnection Customer) to 
coordinate and perform all necessary Interconnection Studies and 
Network Upgrades with an Affected System. Duke Energy agrees that the 
Affected System Operator should be required to cooperate with the 
Transmission Provider in completing necessary studies. Duke Energy also 
wants the Affected System Operator to enter into an agreement with the 
Interconnection Customer. Other commenters, predominately Transmission 
Providers, oppose placing these responsibilities on the Transmission 
Provider.\55\ They contend that (1) a contract cannot bind a third 
party that is not a signatory to it, (2) it is unfair to impose 
liability for liquidated damages for an incomplete study on the 
Transmission Provider where the Transmission Provider has no control 
over the Affected System, (3) the Transmission Provider should be 
required to use only ``reasonable efforts'' to coordinate with an 
Affected System, (4) the Interconnection Customer should pay any costs 
of conducting Interconnection Studies on an Affected System, including 
all costs of delays caused by the studies, (5) the Interconnection 
Customer should be required to pay for the necessary upgrades on the 
Affected System and not be allowed to operate until such upgrades are 
completed, and (6) the Transmission Provider should not be responsible 
for actions (or inactions) of third parties either with regard to 
funding or construction of Network Upgrades.
---------------------------------------------------------------------------

    \55\ E.g., AEP, Ameren, BPA, Cal ISO, Central Maine, Central 
Vermont PSC, Cleco, the Construction Issues Coalition, Dairyland 
Power, Dominion Resources, Entergy, Georgia Transmission, Imperial 
Irrigation, ISO New England, MidAmerican, the Midwest ISO, National 
Grid, Nevada Power, NYTO, PGE, PJM, Salt River Project, SoCal 
Edison, TANC, and TVA.
---------------------------------------------------------------------------

Commission Conclusion
    118. The Commission continues to treat interconnection and delivery 
as separate aspects of transmission service, and an Interconnection 
Customer may request Interconnection Service separately from 
transmission service (delivery of the Generating Facility's power 
output). In the majority of circumstances, interconnection alone is 
unlikely to affect the reliability of any neighboring Transmission 
System. However, in those rare instances in which the interconnection 
alone may cause a reliability problem on an Affected System, the 
Commission adopts the approach of Order No. 888 for Network Upgrades 
required to protect an Affected System from a reliability problem due 
to delivery service.\56\ Under Order No. 888, the Transmission Provider 
is required to assist the Transmission Customer in coordinating with 
the Affected System on any Network Upgrades needed to protect the 
reliability of that system.\57\ We will also allow the Transmission 
Provider to coordinate the timing of construction of Network Upgrades 
to its Transmission System with the construction required on the 
Affected System.\58\ As provided in the OATT, the Commission's Dispute 
Resolution Service is available should the Interconnection Customer 
wish to challenge the Transmission Provider's decision to delay 
construction pending completion of the Affected System's upgrades.\59\
---------------------------------------------------------------------------

    \56\ See Section 21 of the OATT. See also Tampa Electric Co., 
103 FERC ]61,047 (2003), and Nevada Power, 97 FERC ]61,227 (2001), 
reh'g denied, 99 FERC ]61,347 (2002); but see American Electric 
Power Service Corporation, 102 FERC ]61,336 (2003).
    \57\ Section 21.1 of the OATT states that: ``The Transmission 
Provider will undertake reasonable efforts to assist the 
Transmission Customer in obtaining such arrangements, including 
without limitation, provided any information or data required by 
such other Transmission System pursuant to Good Utility Practice.''
    \58\ Section 21.2 of the OATT states that: ``Transmission 
Provider shall have the right to coordinate construction on its own 
system with the construction required by others. The Transmission 
Provider, after consultation with the Transmission Customer and 
representatives of such other systems, may defer construction of its 
new transmission facilities, if the new transmission facilities on 
another system cannot be completed in a timely manner.''
    \59\ See Section 21.2 of the OATT.
---------------------------------------------------------------------------

    119. The Commission reiterates that under Order No. 888, economic 
losses from having to redispatch generation do not justify delaying the 
provision of the delivery component of transmission service.\60\ The 
Commission adopts the same standard here for interconnections.
---------------------------------------------------------------------------

    \60\ See Section 13.2 of the OATT.
---------------------------------------------------------------------------

    120. Thus, unless the interconnection alone will endanger the 
reliability of an Affected System, a Transmission Provider may not 
require an Interconnection Customer, as a condition of interconnection, 
to accept responsibility for Network Upgrades on other systems. To hold 
new Interconnection Customers responsible for upgrades to all 
interconnected systems, including not only the system to which the 
Generating Facility interconnects, but other, more distant systems as 
well would create an unreasonable obstacle to the construction of new 
generation.\61\ We reiterate that requiring a Transmission Provider to 
coordinate intermediate studies and upgrades with other systems is just 
and reasonable.
---------------------------------------------------------------------------

    \61\ Nevada Power, 97 FERC ]61,227 (2001), reh'g denied, 99 FERC 
]61,347 at 62,294 (2002).
---------------------------------------------------------------------------

    121. Although the owner or operator of an Affected System is not 
bound by the provisions of the Final Rule LGIP or LGIA, the 
Transmission Provider must allow any Affected System to participate in 
the process when conducting the Interconnection Studies, and 
incorporate the legitimate safety and reliability needs of the Affected 
System. However, the Affected System is not required to participate in 
the interconnection of the Generating Facility, as proposed by Duke 
Energy. If the Affected System declines to work with the Transmission 
Provider, or fails to provide information in a timely manner, the 
Transmission Provider may proceed in the interconnection process 
without taking into account the information that could have been 
provided by the Affected System. Neither the Final Rule LGIP nor the 
Final Rule LGIA is intended to expose the Transmission Provider to 
liability as a result of delays by the Affected System.
    122. In addition, we note that NERC Planning Standards require 
Transmission Providers to work together to minimize effects on each 
others' systems. When a Transmission Provider adds its own new 
generation to its system, this may have a reliability effect on other 
systems, requiring coordination among systems. Such coordination must 
extend to new generation of any Interconnection Customer because, as 
stated in this provision, a Transmission Provider must offer all 
generators service that is comparable to the service that it provides 
to its own generation or that of its Affiliates.
    123. Section 3.6--Withdrawal--Proposed LGIP Section 3.6 provided 
that the Interconnection Customer would have the option to withdraw its 
Interconnection Request at any time with written notice to the 
Transmission Provider. If the Interconnection Customer fails to adhere 
to the requirements of the interconnection procedures, its request 
would be deemed withdrawn and the Transmission Provider would provide 
written notice of the deemed

[[Page 49859]]

withdrawal along with a written explanation. In either instance, the 
Interconnection Customer would lose its Queue Position and pay all of 
the Transmission Provider's prudently incurred costs up to the 
withdrawal. The Transmission Provider would be required to update its 
OASIS queue posting and to refund the Interconnection Customer any 
portion of the Interconnection Customer's deposits or study costs that 
exceeds the costs that the Transmission Provider has incurred, 
including interest. In the event of a withdrawal, the Interconnection 
Customer would be able to request all information the Transmission 
Provider developed for any completed Interconnection Studies, up to the 
date of withdrawal of the Interconnection Request, subject to the 
confidentiality provisions of Section 13.1.
Comments
    124. FirstEnergy and WEPCO assert that an Interconnection Customer 
should be given a reasonable amount of time to address purported 
deficiencies before a Transmission Provider deems a request withdrawn 
because the purported deficiency may not have been adequately 
communicated to the Interconnection Customer.
    125. Cinergy requests that this section be modified to require that 
a Transmission Provider provide written notice to the Transmission 
Owner of any Interconnection Customer withdrawal notice it receives or, 
alternatively, that the Interconnection Customer provide notice to both 
the Transmission Provider and the Transmission Owner.
    126. When an Interconnection Customer withdraws its application, 
NYTO supports having the Interconnection Customer pay the Transmission 
Provider all monies due to the Transmission Provider before it is 
allowed to obtain any Interconnection Study data or results. Duke 
Energy argues that an Interconnection Customer's responsibility for 
prudently incurred costs terminates either when the Transmission 
Provider receives the Interconnection Customer's notice of withdrawal 
or, in the event the Interconnection Customer is deemed to have 
withdrawn its application for interconnection, when the Transmission 
Provider provides notice of withdrawal.
    127. PJM believes that the proposed language implies that if an 
Interconnection Customer disputes its loss of Queue Position, it would 
remain in the queue pending Dispute Resolution. PJM advocates instead 
the approach the Commission has accepted in the PJM Tariff, that is, 
when an Interconnection Customer is disqualified from the queue, it is 
eliminated from the queue unless and until a Dispute Resolution process 
restores its position.
Commission Conclusion
    128. The Commission agrees with FirstEnergy and WEPCO that 
Interconnection Customers should be given an opportunity to address any 
deficiencies before their requests are deemed withdrawn by the 
Transmission Provider. Proposed LGIP Section 3.6 is revised in the 
Final Rule LGIP accordingly.
    129. The Commission agrees with Duke Energy that an Interconnection 
Customer's responsibility for a Transmission Provider's prudently 
incurred cost terminates at the earlier of either when the Transmission 
Provider receives the Interconnection Customer's notice of withdrawal 
or when the Transmission Provider provides a notice of withdrawal after 
deeming an Interconnection Request to be withdrawn. The Commission also 
agrees with NYTO that when the Interconnection Customer withdraws its 
application, it must pay all monies due to the Transmission Provider 
before it is allowed to obtain any Interconnection Study data or 
results.
    130. We agree with PJM that it is unreasonable for an 
Interconnection Customer to maintain its Queue Position pending Dispute 
Resolution. In most cases, Dispute Resolution and any related 
litigation would create delays, and it would be unfair to delay the 
projects of lower queued Interconnection Customers while a higher-
queued Interconnection Customer's Queue Position is in dispute. The 
Commission clarifies this section in the Final Rule LGIP accordingly.
    131. Section 4--Queue Position--Proposed LGIP Section 4 would 
establish the Interconnection Customer's Queue Position (i.e., the 
chronological priority assigned to an Interconnection Request), which 
would be used to determine both the order in which studies are 
performed and the cost responsibility for the facilities necessary to 
accommodate the Interconnection Request. At the Transmission Provider's 
option, Interconnection System Impact Studies would be performed 
serially as Interconnection Requests are received or in clusters, as 
discussed below. Proposed LGIP Section 4 also described when a Queue 
Position can be transferred to another entity, and when an 
Interconnection Customer could modify its Interconnection Request 
without losing its Queue Position.
    132. Section 4.1--General--Proposed LGIP Section 4.1 required the 
Transmission Provider to assign a Queue Position to the Generating 
Facility based on the date and time of receipt of a valid 
Interconnection Request. However, if the sole reason that an 
Interconnection Request is deemed invalid is lack of information 
required in the Interconnection Request, and if the Interconnection 
Customer provides such information in accordance with Section 3.3.3 of 
the proposed LGIP, the Transmission Provider would then be required to 
assign the Interconnection Customer a Queue Position based on the date 
and time that the Interconnection Request was initially filed. The 
Queue Position of each Interconnection Request would be used to 
determine the order of performing the Interconnection Studies, which 
would determine the cost responsibility for the facilities necessary to 
accommodate the Interconnection Request. This is because the facilities 
needed for one Interconnection Customer are affected by the facilities 
needed for other generators that come before it in the queue.
Comments
    133. TVA observes that the level of commitment by Interconnection 
Customers to complete an interconnection varies. A change in the 
request of a higher queued Generating Facility will affect lower queued 
generators because it may require restudies. It states that the 
``first-come, first-served'' method rewards an Interconnection Customer 
that simply is the first in line, even if it has not done the 
preparation to make a complete and legitimate Interconnection Request. 
According to TVA, this is costly and unfair to other Interconnection 
Customers. It also asserts that if an Interconnection Customer seeks to 
change its Point of Interconnection, it should be placed in a lower 
position in the queue. Ameren has similar concerns and states that it 
has a high withdrawal rate for Interconnection Requests. It claims that 
fewer restudies would be needed if a Transmission Provider could study 
only ``serious'' requests.
    134. American Wind Energy believes that projects in the queue when 
the Final Rule takes effect should receive equal treatment under the 
new rule. It states that since summer 2000 several developers have 
accelerated their projects and have executed interconnection 
agreements. These developers should be able to have their

[[Page 49860]]

interconnection agreements revised to be consistent with the Final Rule 
LGIA.
    135. PJM believes that the proposed procedures do not help 
eliminate projects that are not economically feasible. Accordingly, the 
Interconnection Customer should be required to meet milestones to show 
significant commitment to a project. The fixed schedule approach (which 
fixes a time period for completing an Interconnection Study after the 
receipt of an Interconnection Request) undermines integrated regional 
planning, since it forces planners to study each Interconnection 
Request independently of other Interconnection Requests that are 
located in close electrical proximity. PJM also notes that such 
projects could have related effects on the Transmission System and 
overall expansion alternatives.
    136. PacifiCorp believes that there will be problems in the queuing 
and the Interconnection System Impact Study process if an 
Interconnection Customer is allowed to request an Interconnection Study 
when it does not expect to begin construction or operations for a long 
time. According to PacifiCorp, long lead times substantially increase 
the uncertainty that the project will be completed. An independent 
Transmission Provider should be given more flexibility in addressing 
these issues.
    137. TECO Energy states that the Interconnection Request must 
provide a demonstration of Site Control for the Generating Facility at 
the time of the initial request before it may enter the queue. It 
states that it is inefficient to commit a Transmission Provider's 
resources to the study of a request until the project achieves a level 
of certainty and specificity that justifies the commitment of 
resources, even though the Interconnection Customer pays for the 
Interconnection Studies.
    138. EEI, PSEG, and SoCal Edison all state that they generally 
support establishing a single integrated queue per RTO region.
    139. EEI states that Interconnection Service and delivery service 
are separate and that there is no need to combine them. It believes 
that any combination of the two services requires a single 
Interconnection Feasibility Study for several generators, would likely 
overly complicate the queuing process, and subsequently delay study 
completions. It contends that the separation of interconnection and 
delivery services is critical to designing a queue that is appropriate 
for both non-Standard Market Design and Standard Market Design service.
    140. Xcel observes that the ``first-come, first-served'' queue 
process does not take into account either the transmission planning 
requirements of RTOs or state integrated resource planning statutes and 
rules, which often require the use of a ``portfolio approach'' whereby 
state-regulated load-serving entities select between competing 
generation providers based on the total cost of generation and 
transmission.
    141. Xcel supports a process similar to the periodic ``open 
season'' used for gas pipelines, in which the Transmission Provider or 
RTO would periodically solicit market interest in incremental 
transmission capacity and then develop a transmission plan that serves 
the various market needs at the lowest overall cost.
    142. TXU wants the Final Rule to allow a Transmission Provider, 
RTO, or ISO to create queues that are periodically opened and closed, 
based on a predetermined time period. Proposed projects should be 
placed into a queue according to the date of the Interconnection 
Request.
    143. American Wind Energy, NYISO, and Tenaska believe that Queue 
Position should not be used exclusively to determine the cost 
responsibility for the facilities necessary to accommodate the 
Interconnection Request. American Wind Energy states that the first 
wind project in the queue should not be required fund the Network 
Upgrades for what logically will be a long term large scale build-out 
of an entire wind resource area. NYISO also contends that the 
Commission's proposal is not workable in the NYISO system because its 
interconnection cost allocation rules are not based on Queue Position. 
Instead, Interconnection Facility costs are determined each year and 
allocated on the basis of pro-rata electrical impact among the members 
of a group of projects that have reached a specified point in the New 
York State project permitting process.
Commission Conclusion
    144. The Commission understands Ameren's and PJM's concerns that 
uncertainty about project withdrawal creates difficulties for a 
Transmission Provider in planning for necessary Network Upgrades. 
Having an Interconnection Customer and a Transmission Provider 
establish agreed upon milestones at the Scoping Meeting should help to 
ensure that the Transmission Provider's planning process reflects only 
the interconnection of Generating Facilities that are making 
satisfactory progress toward completion. Also, a Transmission Provider 
facing difficulties of this sort may wish to consider conducting 
Interconnection Studies on a clustered basis (see discussion below). 
Factors other than Queue Position also must be considered in 
determining the cost responsibility of an Interconnection Customer, 
especially when a Transmission Provider conducts Interconnection 
Studies on a clustered basis. However, we believe that Queue Position 
must play a critical role in determining cost responsibility, and 
expect the Transmission Provider to give appropriate recognition to 
Queue Position when it develops its cost allocation rules.
    145. We agree with TVA's comment that moving the proposed Point of 
Interconnection should lead to a lower Queue Position if it is a 
Material Modification under Final Rule LGIP Section 4.4.3. Section 4.1 
is revised accordingly in the Final Rule.
    146. With respect to TECO Energy's comments on the need to 
demonstrate Site Control in the initial application, the Commission 
notes that LGIP Section 3.3.1 and the definition of Site Control in the 
Final Rule already require early demonstration of Site Control or 
posting a deposit of $10,000. Section 7.2 of the Final Rule LGIP 
requires a demonstration of Site Control prior to executing the 
Interconnection System Impact Study Agreement. We conclude that these 
provisions adequately demonstrate Site Control.
    147. There must be a single integrated queue per geographic region. 
We note that it was the method generally agreed upon during the 
Commission staff's Technical Conference on Queuing. However, we will 
afford an RTO or ISO the flexibility to propose queues and queuing 
rules designed to meet its regional needs.
    148. Xcel's and TXU's comments are addressed in the Commission 
Conclusions discussion for Section 4.2 (Clustering), which follows.
    149. Section 4.2--Clustering--For the purpose of the 
Interconnection System Impact Study, Section 4.2 of the NOPR LGIP 
permitted the Transmission Provider to study Interconnection Requests 
serially or in clusters. The Transmission Provider would be allowed to 
simultaneously study all Interconnection Requests received during a 
period not to exceed 90 Calendar Days (``the queue cluster window'') 
except requests for Energy Resource Interconnection Service, which 
would be studied serially. The Transmission Provider would be permitted 
to study an Interconnection Request separately if warranted by Good 
Utility Practice based upon the

[[Page 49861]]

electrical remoteness of the proposed Generating Facility.
Comments
    150. Various Transmission Providers including BPA, NYTO, and PJM 
recommend that the queue cluster window be extended from 90 to 180 days 
so that the study process may be fully integrated into the Transmission 
Provider's planning process, and to ensure that one set of 
Interconnection Studies can be completed before the next round begins. 
PJM states that a 180-day window reasonably balances the competing 
objectives of completing Interconnection Studies as rapidly as possible 
and ensuring that the study process produces meaningful regional 
expansion plans that induce economically efficient decisions by 
generation developers. PSEG sees merit in the clustering approach, but 
states that it should be tied to the planning process and have 
specified start and end dates. PJM opposes the requirement to study 
requests for Energy Resource Interconnection Service serially, arguing 
that most of the tests applied to Energy Resource Interconnection 
Service and Network Resource Interconnection Service are the same.
    151. The Midwest ISO seeks clarification whether a cluster refers 
to a group of Interconnection Requests that were submitted during a 
specified time period, such as 90 Calendar Days, or to a group of 
Generating Facilities that are located in geographic proximity to one 
other, or both. The Midwest ISO seeks further clarification whether 
each Interconnection Request is to be studied serially within the 
cluster in order to determine the cost of Network Upgrades for each, or 
all of the Interconnection Requests are to be studied simultaneously, 
which will determine only the total cost of Network Upgrades. It argues 
that if the latter is the case, the Commission will need to prescribe a 
way to allocate the total cost of Network Upgrades to each 
Interconnection Customer within the cluster.
    152. American Wind Energy states that clustering is the best method 
to interconnect both large and small generators in a balanced regional 
planning process, and also facilitates the coordinated completion of a 
useful Interconnection System Impact Study.
Commission Conclusion
    153. In the Final Rule, we are setting the queue cluster window for 
conducting Interconnection System Impact Studies at 180 Calendar Days. 
As the commenters make clear, the principal benefit of studying 
Interconnection Requests in clusters is that it allows the Transmission 
Provider to better coordinate Interconnection Requests with its overall 
transmission planning process, and, as a result, achieve greater 
efficiency in both the design of needed Network Upgrades and in the use 
of its planning resources. We are persuaded by the arguments of PJM and 
others that the proposed 90-day cluster window is too short to achieve 
this result, and that a 180-day window is more appropriate.
    154. We are also persuaded by PJM that if the Transmission Provider 
elects to study Interconnection Requests in clusters, requests for both 
Energy Resource Interconnection Service and Network Resource 
Interconnection Service should be included in the clustered 
Interconnection Studies. Requiring the Transmission Provider to perform 
System Impact Studies for Energy Resource Interconnection Service 
requests on a serial basis would mean that many of the efficiency 
benefits of clustering would be lost. When a Transmission Provider 
conducts Interconnection Studies on a clustered basis, the 
Interconnection Customer may have to wait longer to obtain study 
results than it would if its request were studied serially. However, 
some of the information that an Interconnection Customer needs is 
provided by the Interconnection Feasibility Study, which is conducted 
serially and early in the study process.
    155. Clustering is strongly encouraged in queue management and the 
Interconnection Study process for all Transmission Providers. We 
vigorously support the use of queue windows to manage the 
Interconnection Study process. In response to the Midwest ISO's 
comments, Final Rule IP Section 4.2 has been modified to better explain 
the clustering process. Queue windows with regular, fixed opening and 
closing dates are essential to an orderly process. Once fixed, any 
changes to these dates should be announced with a posting on the 
Transmission Provider's OASIS at least 180 days in advance of the 
change. Cluster windows enable the Transmission Provider to evaluate 
all pending Interconnection Requests periodically and systematically in 
light of the Transmission Systems's capabilities at the time of each 
clustered Interconnection System Impact Study.
    156. Clustering (by queue position and electrical location) ensures 
that the regional expansion plan considers all uses of the Transmission 
System and enables expansion of the system to be accomplished in the 
most efficient manner reasonably achievable. However, projects that are 
electrically isolated can still be studied independently. Additionally, 
allocation of cost responsibility for system upgrades and jointly used 
facilities is more readily managed by studying requests in clusters. 
Absent the ability to cluster interconnection requests, it is difficult 
to distinguish the Transmission Provider's cost responsibility for 
baseline reliability upgrades from the responsibility of 
Interconnection Customers and other developers for the costs of 
upgrades required to accommodate their Interconnection Requests since 
each request would have to be studied serially. Equally important, 
Interconnection Studies for smaller generators can be more easily 
expedited. These efficiencies are best obtained using clustered queue 
windows, not through the sequential processing of Interconnection 
Requests.
    157. Section 4.3--Transferability of Queue Position--The Commission 
proposed in Section 4.3 of the NOPR LGIP that an Interconnection 
Customer may transfer its Queue Position to another entity if such 
entity acquires the Generating Facility identified in the 
Interconnection Request and the Point of Interconnection does not 
change.
Comments
    158. National Grid states that the Commission should resist 
requests from those that propose to make Queue Position a tradable 
commodity to gain flexibility over the timing of their proposed 
projects. National Grid offers several arguments against allowing this: 
(1) It would create an unnecessary commodity that would encourage 
gaming in competitive markets, (2) it would render the interconnection 
queue process unmanageable because the trading of Queue Positions would 
make it impossible to build sets of assumptions on which to base 
studies, (3) it would add another layer of administrative burdens for 
Transmission Providers; and (4) the disputes over Queue Position that 
are likely to arise would divert the Transmission Provider's attention 
away from facilitating reasonably prompt interconnections. Instead, the 
Commission should adopt a subordinate application process like the one 
implemented in NEPOOL, which allows a project sponsor to accelerate the 
construction and operation of its facilities application ahead of other 
projects in the queue in return for the sponsor's assumption of the 
risks associated with building the facilities in a sequence different 
from the study order of the queue.
    159. The CPUC believes that changes resulting from an 
Interconnection Customer selling its Queue Position

[[Page 49862]]

could harm subsequent Interconnection Customers in the queue, since it 
could affect the portfolio of technologies in the queue and the 
diversity of the Transmission System as a whole. According to the CPUC, 
an Interconnection Customer wishing to sell its position should be 
required to provide assurances that it will pay not only for any 
Interconnection Studies needed as a result of the change, but also for 
the costs to subsequent Interconnection Customers in the queue as a 
result of the change. The seller of the Queue Position should also be 
liable for any obligations that the buyer of the position is unable to 
fulfill in the event of a Default.
Commission Conclusion
    160. While the commenters raise legitimate concerns with Queue 
Position trading in general, we conclude that the restrictions on 
transferability that are already contained in Section 4.3 address these 
concerns. Section 4.3 of the Final Rule LGIP permits an Interconnection 
Customer to transfer its Queue Position to another entity only if such 
entity acquires the specific Generating Facility identified in the 
Interconnection Request and the Point of Interconnection does not 
change. These limitations on transferability greatly reduce the 
potential impact on lower queued Interconnection Customers. The new 
Interconnection Customer would also be required to show, under Section 
4.4.3 of the Final Rule LGIP, that any proposed change is not a 
Material Modification.
    161. Section 4.4--Modifications--Proposed LGIP Section 4.4 would 
have required that the Interconnection Customer submit to the 
Transmission Provider, in writing, modifications to any information 
provided in the Interconnection Request. Either the Interconnection 
Customer or the Transmission Provider would be permitted to identify 
changes to the planned interconnection that may reduce the costs and 
increase the benefits (including reliability) resulting from the 
interconnection. If the changes are acceptable to the Transmission 
Provider and Interconnection Customer (such acceptance not to be 
unreasonably withheld), the Transmission Provider would make the 
necessary changes and proceed with interconnection restudies in 
accordance with Sections 6.4, 7.6 and 8.5 of the LGIP, as applicable. 
Accordingly, the Generating Facility would retain its Queue Position.
    162. Section 4.4.1--Proposed LGIP Section 4.4.1 LGIP would allow an 
Interconnection Customer to make the following modifications to its 
Interconnection Request, provided that it makes them before returning 
the executed Interconnection System Impact Study Agreement to the 
Transmission Provider: (1) A reduction of as much as 60 percent in the 
megawatt output of the proposed project, (2) modification of the 
technical parameters associated with the Generating Facility technology 
or the step-up transformer impedance characteristics, (3) modification 
of the interconnection configuration, or (4) any other type of change 
except to the proposed Point of Interconnection. Any increase in the 
Generating Facility's megawatt output would be placed at the end of the 
queue.
Comments
    163. Dynegy argues that item (4) is confusing, makes the other 
items in the list redundant, and does not belong in this section. 
Several commenters, including Duke Energy and WEPCO, advocate allowing 
an Interconnection Customer to increase the output of its Generating 
Facility by up to ten percent of the voltage level of the line to which 
it is interconnecting without affecting its Queue Position.
Commission Conclusion
    164. We agree with Dynegy that item (4) does not belong in this 
section. The item more appropriately belongs in Section 4.4.3. 
Accordingly, Final Rule LGIP Section 4.4.3 includes the following 
sentence: ``Any change to the Point of Interconnection shall constitute 
a Material Modification.''
    165. We reject the other commenters' proposal to allow an 
Interconnection Customer to increase the output of its Generating 
Facility by up to ten percent. The percentage by which the capacity of 
the proposed Generating Facility could be increased without 
substantially changing the size and configuration of necessary Network 
Upgrades needed to accommodate the change in output would depend on the 
size and location of the Generating Facility and the voltage level at 
the Point of Interconnection, among other things. This could vary 
significantly from case to case, and may well be less than ten percent.
    166. Section 4.4.3--Proposed LGIP Section 4.4.3 would have required 
that, prior to making a modification other than one specifically 
permitted by Sections 4.4.1, 4.4.2, and 4.4.5, the Interconnection 
Customer may first ask the Transmission Provider to evaluate whether 
the modification is actually a Material Modification. A Material 
Modification would be a modification that has a material effect on the 
cost or timing of a lower queued Interconnection Customer. The 
Transmission Provider would be required to evaluate the proposed 
modification and inform the Interconnection Customer in writing whether 
the modification would considered be a Material Modification. The 
Interconnection Customer could then either withdraw the proposed 
modification or submit a new Interconnection Request for such 
modification.
Comments
    167. SoCal Water District and Dynegy ask the Commission to clarify 
the definition of Material Modification to avoid disputes between the 
Parties regarding the Generating Facility's Queue Position. Ameren 
argues that a modification that is proposed as not being ``material'' 
may in fact be a Material Modification. FirstEnergy opposes giving the 
Transmission Provider the discretion to determine whether a request is 
a Material Modification. El Paso observes that reading proposed LGIP 
Sections 4.4.3 and 4.4.5 together implies that the Transmission 
Provider will be forced to judge whether an extension of three years or 
more is material and to determine if a cost effect or other project 
change is material. El Paso supports defining a Material Modification 
as: (1) A change greater than 12 months in Commercial Operation Date, 
(2) an increase of greater than $100,000 or 10 percent in the 
Transmission Provider's cost that a later queued Interconnection 
Customer would bear; or (3) a change greater than five miles in the 
location of, or any change in the voltage level at, the Point of 
Interconnection. Edison Mission believes that the Final Rule LGIP 
should clarify the effect of material improvements and modifications to 
existing Generating Facilities on the interconnection status and the 
rights of such Generating Facilities. The Bureau of Reclamation 
expresses concern that the NOPR does not define how or when an existing 
Interconnection Customer would be affected by Material Modifications. 
The Bureau of Reclamation is concerned because design and approval of 
its generator refurbishment is a federal responsibility and would be 
subject to the federal appropriation process.
Commission Conclusion
    168. It is not necessary to revise proposed LGIP Section 4.4.3 to 
define precisely what constitutes a Material Modification. The impact 
of a modification depends in large part on the size, location, type of 
project and the

[[Page 49863]]

configuration of the Transmission Provider's Transmission System. The 
various Interconnection Studies will identify the modification's impact 
on other Interconnection Customers. This impact determines if the 
change is indeed a Material Modification. We leave it to the 
Transmission Provider to make that determination; however, it must do 
so on a reasonable basis.
    169. Section 4.4.4--Proposed LGIP Section 4.4.4 in the NOPR LGIP 
provided that, upon receipt of an Interconnection Customer's request 
for modification permitted under Section 4.4, the Transmission Provider 
would perform any necessary additional Interconnection Studies as soon 
as practicable, but in no event later than 30 Calendar Days after 
receiving notice of the Interconnection Customer's request. Any 
additional Interconnection Studies resulting from such modification 
would be done at the Interconnection Customer's expense.
Comments
    170. Exelon asserts that this section is not practical and is 
punitive to all lower queued Interconnection Customers. It contends 
that each time a modification is requested, a Transmission Provider or 
Transmission Owner must begin studying the modification within 30 Days 
and all work on the Interconnection Studies of all lower queued 
Interconnection Customers must be halted.
Commission Conclusion
    171. We adopt Section 4.4.4 as proposed. While any modification 
that requires additional study can pose a challenge to the Transmission 
Provider's schedules and resources, the modifications that are 
permitted under Section 4.4 occur early enough in the study process 
that their effect on Interconnection Customers lower in the queue 
should be limited. Furthermore, since all Interconnection Requests are 
evaluated in the same restudy, this provision appropriately balances 
the Interconnection Customer's need for flexibility to change the 
project with the Transmission Provider's need for certainty in resource 
costs and schedules.
    172. Section 4.4.5--Section 4.4.5 of the NOPR LGIP provided that an 
extension of less than three cumulative years in the Commercial 
Operation Date of the Generating Facility should not be considered a 
Material Modification and should be treated in the same manner as in 
Section 12.3 (Construction Sequencing).
Comments
    173. Salt River Project seeks clarification on what to do when the 
original In-Service Date is at the maximum allowable ten years (under 
Proposed LGIP Section 3.3.1) and there is a request for a three year 
extension. Duke Energy supports allowing an Interconnection Customer to 
request an extension of all dates, including the In-Service Date, for 
periods of less than three cumulative years. Sempra believes that the 
Transmission Provider needs greater flexibility to manage and evaluate 
its Transmission System for delays of more than one year.
    174. Westconnect RTO finds that two provisions in this Section 
contradict Western Electricity Coordinating Council (WECC) procedures. 
They are allowing the Interconnection Customer to decide to extend its 
Generating Facility's Commercial Operation Date for up to a total of 
three cumulative years and providing that such extensions are not 
material and should be handled through construction sequencing. 
Westconnect RTO asserts that regional practices concerning transmission 
planning and reliability should be honored.
    175. SoCal PPA and El Paso believe that a three year period is an 
unreasonably long time to permit suspension of interconnection because 
it interferes with the Transmission Provider's ability to manage the 
queue and plan its system.
Commission Conclusion
    176. With respect to Salt River Project's request, we clarify that 
the term contained in Final Rule LGIP Section 3.3.1 is ten years, or 
longer if the Transmission Provider agrees. Furthermore, such agreement 
shall not be unreasonably withheld. This clarification also addresses 
Duke Energy's and Sempra's concerns.
    177. With respect to Westconnect RTO's assertion that this section 
contravenes WECC procedures, as stated above, we would permit 
modifications to the Final Rule LGIA and Final Rule LGIP where the 
Transmission Provider shows that there are legitimate regional 
differences, such as the WECC procedures, that would support such 
modifications. As to other arguments that three years is an 
unreasonably long time to permit extensions of the Commercial Operation 
Date, the Commission recognizes that such flexibility places a burden 
on the Transmission Provider's expansion planning process, but these 
extensions in most cases are well within the scope of other unforeseen 
changes that affect the planning process. The Final Rule therefore 
adopts Section 4.4.5 as proposed.
    178. Section 5--Procedures for Interconnection Requests Submitted 
Prior to Effective Date of Interconnection Procedures--Section 5 of the 
proposed LGIP described the procedures for assigning a Queue Position 
prior to the effective date of the Final Rule LGIP. It also proposed a 
transition process for a Transmission Provider with an Interconnection 
Request that is outstanding when the Final Rule takes effect.
    179. Section 5.1--Queue Position for Pending Requests--Proposed 
LGIP Section 5.1 provided that any Interconnection Customer assigned a 
Queue Position prior to the effective date of the Final Rule LGIP would 
retain that Queue Position. Also, if an Interconnection Study Agreement 
has not been executed as of the Final Rule effective date, then that 
Interconnection Study and subsequent Interconnection Studies would be 
processed in accordance with the Final Rule. However, an executed 
Interconnection Study Agreement would be completed in accordance with 
the terms in place at the time of execution of that agreement. The 
proposed section also provided that if an interconnection agreement has 
been tendered as of the Final Rule effective date, the Transmission 
Provider and Interconnection Customer would finalize its terms. To the 
extent necessary, outstanding requests would transition to the Final 
Rule procedures within a reasonable period of time, not to exceed 60 
Calendar Days. Reasonable extensions would be granted.
Comments
    180. The Midwest ISO recommends adding a subsection to the LGIP 
that permits Interconnection Requests in existing queues of non-RTO 
Transmission Providers to be merged into the queue of the RTO or ISO 
based on the original request dates at the time the Transmission 
Provider joins the RTO.
    181. Central Maine supports the grandfathering of existing 
interconnection agreements that are filed with and accepted by the 
Commission as of the effective date of the Final Rule LGIP and Final 
Rule LGIA.
    182. Sempra argues that it is inappropriate to mandate Parties to 
agree to an interconnection agreement tendered but not fully negotiated 
prior to the issuance of the Final Rule because, otherwise, the 
tendering Party could tender them on the eve of the Final Rule going 
into effect and the

[[Page 49864]]

other Party would be compelled to negotiate under the Final Rule's 
terms and conditions. Therefore, either Party should be permitted to 
set aside unexecuted but tendered interconnection agreements prior to 
the effective date of the Final Rule.
    183. MidAmerican states that the proposed provision of Section 
5.1.2, which established a transition period from the old queue 
processes to the new Final Rule provisions that should not exceed 60 
days, is practical only for projects that are in their early stages. It 
proposes adding the phrase ``provided that any existing interconnection 
agreement or Interconnection Study Agreement shall remain in full force 
and effect'' for projects that have an executed interconnection 
agreement. MidAmerican also states that the Commission should clarify 
that this transition period is only for those outstanding requests for 
which Interconnection Studies Agreements and interconnection agreements 
have yet to be executed prior to the Final Rule going into effect. 
Similarly, Central Maine seeks clarification of the meaning of pending 
or outstanding requests.
    184. BPA states that this provision should be clarified with regard 
to the circumstances under which an Interconnection Customer with an 
existing Interconnection Request may request an extension of applicable 
deadlines.
Commission Conclusion
    185. The purpose of Proposed LGIP Section 5.1 was to ensure that a 
Generating Facility that has an established Queue Position prior to the 
Final Rule taking effect will continue to hold its position. This is 
also the case mentioned by the Midwest ISO for merging new members into 
the RTO's queue when the Transmission Provider joins an RTO. However, 
on compliance, discretion will be granted to RTOs or ISOs to propose 
queuing rules customized to their needs, in accordance with the 
``independent entity standard'' (described in part II.C.5).
    186. Under proposed LGIP Section 5.1.1, the Interconnection Studies 
for which the Parties have an executed Interconnection Study Agreement 
would be completed under the Interconnection Study Agreement's terms, 
but any remaining studies would be completed under the Final Rule LGIP 
study procedures. The Commission concludes that this situation may 
cause confusion and unnecessary complications in the event that the 
Transmission Provider's existing study procedures conflict with those 
in the Final Rule LGIP. To provide further clarification, and to 
prevent situations in which an Interconnection Customer may be forced 
to comply with conflicting or redundant study requirements, the 
Commission modifies this section to give the Interconnection Customer a 
choice. Under the Final Rule LGIP Section 5.1.1.2, if an 
Interconnection Customer has signed an Interconnection Study Agreement 
as of the effective date of the Final Rule, the Interconnection 
Customer will have the option to either continue with the rest of its 
Interconnection Studies under the Transmission Provider's existing 
study process or complete those remaining studies for which it does not 
have a signed Interconnection Study Agreement under the Final Rule 
LGIP.
    187 .In response to Central Maine, we clarify that existing 
interconnection agreements that are filed with and accepted by the 
Commission prior to the effective date of this Final Rule will remain 
in effect. Regarding Sempra's request to allow the Parties to set aside 
interconnection agreements tendered but not executed before the 
issuance of the Final Rule, the Commission concludes that this decision 
is best left to the discretion of the Parties. If the Parties decide to 
continue their negotiations, they have until the Final Rule's effective 
date to submit their agreement to the Commission to qualify for 
grandfathering. Accordingly, Final Rule LGIP Section 5.1.1.3 states 
that an executed or unexecuted interconnection agreement submitted for 
approval by the Commission before the effective date of the Final Rule 
will be grandfathered and will not be rejected simply for failing to 
conform to the Final Rule LGIA.
    188. With respect to Central Maine's and MidAmerican's requests for 
clarification of the term ``outstanding requests'' in Section 5.1.2, we 
clarify that the term refers to any request for interconnection that 
has been submitted to a Transmission Provider but has not yet been 
submitted to the Commission for approval prior to the effective date of 
this Final Rule.
    189. There is no need to adopt MidAmerican's proposed language 
regarding the adequacy of a 60 day transition period in Section 5.1.2 
since the Final Rule allows an Interconnection Customer to extend 
deadlines, and the 60 day period applies only to Interconnection 
Requests with outstanding studies for which an Interconnection Study 
Agreement has not been executed. We expect the Parties to work together 
during the transition period to ensure that no Interconnection Request 
is unreasonably delayed.
    190. Finally, we deny BPA's request to explain the circumstances 
under which an Interconnection Customer may request an extension 
because these circumstances are likely to differ in each case. However, 
we expect that a Transmission Provider will grant an extension if it 
can be reasonably accommodated in a nondiscriminatory manner in the 
transition to the Final Rule LGIP.
    191. Section 5.2--New Transmission Provider--Proposed LGIP Section 
5.2 provided that if the Transmission Provider transfers control of its 
Transmission System to a successor Transmission Provider while an 
Interconnection Request is pending, the original Transmission Provider 
would also transfer to the successor any deposit or payment that 
exceeds the cost that it has incurred. The original Transmission 
Provider would be required to coordinate with the successor to complete 
any appropriate Interconnection Study. If an Interconnection Agreement 
has not been executed or if an unexecuted Interconnection Agreement has 
been filed with the Commission, the Interconnection Customer would have 
the option to complete negotiations with either the initial 
Transmission Provider or the successor.
Comments
    192. Dairyland Power observes that the initial Transmission 
Provider should provide interest to the successor when the balance of 
deposits or payments is transferred. Also, if the study costs of the 
new Transmission Provider exceed the amount of the deposit, it is 
reasonable that the Interconnection Customer make up the difference.
    193. Without explanation, NYTO states that the Interconnection 
Customer should not have the option of negotiating with a successor 
Transmission Provider.
Commission Conclusion
    194. With respect to Dairyland Power's comment, the Commission 
clarifies that any additional costs incurred by the successor in excess 
of the deposit amounts must be treated in accordance with the Final 
Rule and paid upon completion of the Interconnection Studies. The 
Commission does not adopt NYTO's position and instead permits the 
Interconnection Customer to negotiate with the successor Transmission 
Provider.
    195. Section 6--Interconnection Feasibility Study; Section 7--
Interconnection System Impact Study; Section 8--Interconnection 
Facilities Study; Section 10--Optional

[[Page 49865]]

Interconnection Study--Proposed LGIP Sections 6, 7 and 8 describe (1) 
the analyses that would be conducted for each of the Feasibility, 
System Impact, and Facilities Studies, (2) the Interconnection 
Customer's responsibility regarding the actual cost of each study and 
of any restudies that may be required; and (3) the right an 
Interconnection Customer would have to maintain its Queue Position and 
substitute a Point of Interconnection, identified by either the 
Transmission Provider or the Interconnection Customer, if any of these 
Interconnection Studies uncovers a result that the Interconnection 
Customer and Transmission Provider did not contemplate during the 
Scoping Meeting. These sections would also allow an Interconnection 
Customer to direct that one of the alternative Points of 
Interconnection specified in the related Interconnection Feasibility 
Study Agreement and Scoping Meeting be used if the Transmission 
Provider cannot agree on a substitute Point of Interconnection.
    196. Section 10 proposed that the Interconnection Customer may ask 
the Transmission Provider to perform a reasonable number of Optional 
Interconnection Studies. An Optional Interconnection Study would be a 
sensitivity analysis based on assumptions provided by the 
Interconnection Customer. The scope of the Optional Interconnection 
Study would be to identify the Interconnection Facilities, Network 
Upgrades and the costs that may be required to provide transmission 
service or Interconnection Service.
    197. The following paragraphs group together discussions of 
Sections 6, 7, 8, and 10 because of the relationships among the topics 
and provisions.
General Comments Related to the Feasibility Study, the System Impact 
Study, the Facilities Study and the Optional Interconnection Study
    198. A number of commenters, including El Paso, FirstEnergy, the 
Midwest ISO, National Grid, and PJM, are concerned that the proposed 
Interconnection Studies will take longer to complete than the 
Interconnection Studies that a Transmission Provider typically performs 
today, and will lead to delays in the development of new generation 
projects. TVA believes that the study deadlines are unrealistic, 
particularly for Transmission Providers with medium to large 
interconnection queues. It opposes having to study the Energy Resource 
Interconnection Service and Network Resource Interconnection Service 
during each phase of the Interconnection Study process. Instead, TVA 
proposes that the Interconnection Customer should be able to designate 
only one Interconnection Service for study purposes or adjusting the 
time lines in Sections 6, 7, 8, and 10 to reflect the increased scope 
of work required by giving the Interconnection Customer such 
alternatives. Imperial Irrigation opposes the NOPR's proposed 
Interconnection Studies because it does not have enough resources to 
conduct them. NYISO urges the Commission to allow for regional 
differences in the Final Rule.
    199. Entergy opposes giving the Interconnection Customer the 
ability to continually modify its selected Point of Interconnection 
throughout the study process. TVA opposes an Interconnection Customer 
maintaining its position in the queue if the Interconnection Customer 
changes its Point of Interconnection in any of the Interconnection 
Studies. PJM believes that to allow the Interconnection Customer to 
require restudies throughout the Interconnection Study process is 
inconsistent with a workable regional planning process.
    200. Sempra opposes setting a dollar figure for good faith 
estimates of Interconnection Study costs in the standardized study 
agreements that are attached as appendices to the Final Rule LGIA. It 
supports leaving the cost estimates blank in the appendices, with the 
expectation that the Transmission Provider would provide the timely 
good faith estimate later. Sempra also supports limiting the 
Transmission Provider's ability to pass on cost overruns to the 
Interconnection Customer.
    201. Central Maine notes that the proposed Interconnection Study 
agreements would fix the ``good faith estimated cost for performance'' 
of each particular study. It argues that this is inappropriate because 
Interconnection Study costs vary greatly from one Generating Facility 
to another. It believes that Transmission Providers should be able to 
tailor each Interconnection Study agreement to the particular 
Generating Facility, and to include the good faith Interconnection 
Study cost estimate in each such agreement. If prepayment of 
Interconnection Study costs is not required, the deposit should be a 
percentage of the estimated total Interconnection Study cost, as 
opposed to a fixed dollar amount.
    202. Several commenters seek additional requirements in assigning 
cost responsibility for Interconnection Studies to the Interconnection 
Customer. Central Maine notes that there are no proposed payment terms 
governing restudies, and supports clearly stating that the 
Interconnection Customer should bear full cost responsibility for a 
restudy. BPA supports requiring the Interconnection Customer to pay the 
estimated cost of the Interconnection Feasability Study in advance 
under Sections 6.1 and 7.2. National Grid's position is that the 
Interconnection Customer should prepay the costs of all Interconnection 
Studies because the Transmission Provider is exposed to the risk of 
nonpayment. Central Vermont PSC believes that the Interconnection 
Customer should bear study costs involving an Affected System.
    203. Several entities seek clarification on the proper scope of, 
and standards for, the Interconnection Studies. Cal ISO believes that a 
study should encompass conditions that include off-peak scenarios and 
contingency conditions. Entergy and Westconnect RTO argue that the NOPR 
LGIP does not mention types of Interconnection Studies other than load 
flow, short circuit, and stability studies. They suggest that the scope 
of the Interconnection Studies not be limited to these named analyses, 
but be expanded to include additional Interconnection Studies conducted 
in accordance with Good Utility Practice. PSNM supports expanding the 
scope of Interconnection Studies to encompass any analyses dictated by 
Good Utility Practice and allow for additional time on specialized 
Interconnection Studies, if needed. PacifiCorp supports permitting the 
Transmission Provider to require additional Interconnection Studies 
recommended or required by a regional reliability council, including 
remedial action margin studies. Georgia Transmission believes that the 
Transmission Provider's obligation under Sections 6.2 and 6.3 is 
inconsistent with the limited scope of the Interconnection Feasibility 
Study, which is defined to consist only of a power flow study and a 
short circuit analysis.
    204. Southern asks whether, if one Interconnection Request is 
required to be restudied by a date certain, all other lower queued 
requests would have to be restudied by that same date. Southern 
believes that this would be unworkable and unrealistic.
    205. NYTO seeks details on specific study procedures for each of 
the Interconnection Studies.
Comments Related to Interconnection Feasibility Studies
    206. SoCal Water District argues that an Interconnection Customer 
should

[[Page 49866]]

lose its position in the queue when the Interconnection Feasability 
Study uncovers a result that was not contemplated during the Scoping 
Meeting, instead of being allowed to designate a different site for the 
Point of Interconnection, as proposed. It says that this will encourage 
the Interconnection Customer to make the right choice at the beginning. 
It also comments that the Interconnection Customer should not be 
assigned a Queue Position until after the completion of the 
Interconnection Feasability Study.
    207. NSTAR believes that Interconnection Feasibility and 
Interconnection Facilities Studies should be at the option of the 
Interconnection Customer.
    208. The Midwest ISO points out that it is not always possible to 
determine accurately when an Interconnection Customer in a high Queue 
Position will actually come on line and that this could affect the 
accuracy of the Interconnection Feasability Study requested by a lower 
queued Interconnection Customer.
    209. Sempra supports allowing a Transmission Provider or 
Transmission Owner to consider in its Interconnection Studies the In-
Service Dates of all proposed generation projects, even those lower in 
the queue. This is so that the studies produce sound results for 
reliability purposes and consider all projects that will come on line 
at approximately the same time.
Comments Related to Interconnection System Impact Studies
    210. FirstEnergy opposes as unreasonably short the proposed three 
day period of time during which a Transmission Provider must give an 
Interconnection Customer a non-binding good faith estimate of the cost 
and time frame for completing an Interconnection System Impact Study.
Comments Related to Optional Interconnection Studies
    211. Proposed LGIP Section 10.1 would allow the Interconnection 
Customer to ask the Transmission Provider to perform a reasonable 
number of Optional Interconnection Studies on or after the date the 
Interconnection Customer receives the results of the Interconnection 
System Impact Study associated with its Interconnection Request. A 
Transmission Provider would have five days from the date it receives a 
request for an Optional Interconnection Study to give the 
Interconnection Customer an Optional Interconnection Study Agreement. 
Commenters raise concerns with the requirement to perform Optional 
Interconnection Studies, cost responsibilities for such studies, and 
the proposed deadlines.
    212. Southern opposes allowing an Interconnection Customer to 
require that a Transmission Provider perform Optional Interconnection 
Studies. Southern believes that Optional Interconnection Studies will 
delay the process by tying up Transmission Provider resources that 
could be dedicated to performing the required studies. BPA contends 
that allowing the Interconnection Customer to require an unspecified 
number of Optional Interconnection Studies, while requiring that the 
standard Interconnection Studies be performed within the standard 
deadlines, places an unreasonable burden on the Transmission Provider.
    213. Nevada Power opposes having to conduct Optional 
Interconnection Studies on the grounds that allowing changes to the 
original Interconnection Request violates the queue rights of other 
Interconnection Customers by giving additional study time and priority 
to the Optional Interconnection Study request. Dominion Resources makes 
a similar point.
    214. SoCal Edison believes that the Final Rule should provide for 
Optional Interconnection Studies (1) that are performed outside the 
NOPR LGIP time line, (2) if it is understood by the Interconnection 
Customer who elects to implement a study that implements Material 
Changes, that it could impact the Generating Facility's Queue Position; 
and (3) may not exceed for each requester a maximum of two Optional 
Interconnection Studies. NYISO urges the Commission to delete Section 
10.1 to reduce the number of studies that the Transmission Provider 
must perform. The Midwest ISO believes that the Interconnection 
Feasibility Study may be elected and can serve as the Optional 
Interconnection Study described in Section 10.
    215. On the issue of cost responsibility, Central Vermont PSC 
supports having the Interconnection Customer compensate the 
Transmission Provider for the costs of an Optional Interconnection 
Study, including all charges incurred by an Affected System.
    216. With respect to the deadlines associated with Optional 
Interconnection Studies, FirstEnergy believes that the five day 
turnaround period for the Transmission Provider to provide an Optional 
Interconnection Study Agreement, as called for in Section 10.1, is too 
short and that a ten day period would be better. Cal ISO also supports 
a ten day turnaround time.
Commission Conclusion--General Comments
    217. The proposed time frames for completing Interconnection 
Studies are reasonable. For each of the studies, the NOPR LGIP allows 
for the possibility that the Transmission Provider will not be able to 
complete the study within the allotted time. In these cases, the NOPR 
LGIP provides that the Interconnection Customer and the Transmission 
Provider will come to an acceptable accommodation. As to Imperial 
Irrigation's concern that it lacks sufficient resources to conduct the 
Interconnection Studies, Section 13.4 gives the Parties the option of 
using a contractor to complete the required studies at the 
Interconnection Customer's expense and Section 4.2 allows the 
Transmission Provider to cluster Interconnection Studies, thereby 
saving time and money.
    218. We believe that the proposed Interconnection Study deposit 
amounts are high enough to ensure that an Interconnection Customer is 
serious about its Interconnection Request. In the absence of 
standardized Interconnection Study cost estimates, a Transmission 
Provider could set the Interconnection Study costs at such high levels 
so as to discourage entry by competing generators.
    219. Central Maine does not identify the benefits of making 
Interconnection Study deposits a percentage of the estimated 
Interconnection Study costs. Because the proposed dollar amounts are 
reasonable and are the result of the consensus process, the Commission 
adopts them for the Final Rule LGIP.
    220. We find that the proposed provisions regarding the payment of 
study costs by the Interconnection Customer are adequate. The NOPR LGIP 
makes clear that the Interconnection Customer is responsible for the 
actual costs of all Interconnection Studies. We reject the proposal 
that the Interconnection Customer fully prepay the costs of 
Interconnection Studies because the advance payment would be based on 
Transmission Provider estimates rather than actual costs. The 
Commission recognizes that the costs of performing Interconnection 
Studies may vary by Interconnection Customer because each 
interconnection is unique. The unique features of each interconnection 
should be identified either in the Scoping Meeting or early in the 
Interconnection Study process so that the Transmission Provider can 
offer the Interconnection Customer a reasonable estimate of what the 
actual

[[Page 49867]]

study costs will be. However, we will require the Transmission Provider 
to provide a detailed and itemized accounting of the Interconnection 
Study costs in the relevant invoices. If the Interconnection Customer 
disputes the study cost, it may pursue dispute resolution procedures as 
described in Section 13.5 of the Final Rule LGIP.
    221. With regard to commenters' various concerns about the proper 
scope of, and standards for, the Interconnection Studies, the 
Commission emphasizes that the Final Rule LGIP should not be 
interpreted as preventing the Transmission Provider from studying 
Interconnection Requests in accordance with Good Utility Practice and 
regional reliability requirements. The Transmission Provider may 
conduct necessary Interconnection Studies using any standards that are 
generally accepted within the region and consistently applied to all 
generation projects, including those of the Transmission Provider. If 
these standards differ from those specified in the LGIP, the 
Transmission Provider must include them in its compliance filing and 
may implement them only upon approval of the Commission. For this 
reason, we decline to specify detailed study procedures for each 
Interconnection Study beyond what is specified in the Final Rule LGIP.
Commission Conclusion--Interconnection Feasibility Studies
    222. With regard to the concern that allowing changes to original 
Interconnection Requests would be unworkable and would violate the 
rights of lower queued Interconnection Customers due to the need to 
conduct numerous restudies, the Final Rule allows the Transmission 
Provider to take additional time to complete the necessary work. In 
addition, although lower queued Interconnection Customers may be harmed 
when their Interconnection Requests must be restudied due to actions of 
an Interconnection Customer higher in the queue, they also benefit from 
the flexibility to request that the Transmission Provider study a 
substitute Point of Interconnection. In this respect, the Commission 
finds that the NOPR LGIP strikes an appropriate balance and, 
accordingly, adopts it in the Final Rule.
    223. Regarding Sempra's question about which projects within the 
queue should be considered when performing Interconnection Studies, the 
Commission requires the Transmission Provider to consider in its 
Interconnection Studies all generators with both higher and lower 
queued Interconnection Requests that could affect the Network Upgrades 
associated with integrating these generators with the Transmission 
System, as specified in the Final Rule LGIP.
Commission Conclusion--Interconnection System Impact Studies
    224. In response to FirstEnergy's comment that there is 
insufficient time to provide cost and time estimates for completing an 
Interconnection System Impact Study, we find that three Business Days 
is reasonable. We note that prior to the Interconnection System Impact 
Study, the Transmission Provider will have conducted the 
Interconnection Feasibility Study and the Parties will have met to 
discuss the study results. Accordingly, through this ongoing process, 
the Transmission Provider will have had ample time to anticipate and 
prepare such estimates.
Commission Conclusion--Optional Interconnection Studies
    225. The Commission finds that commenters' concerns about allowing 
an Interconnection Customer to request Optional Interconnection Studies 
are misplaced. Such studies are for informational purposes only and are 
to be completed within an agreed upon time period using Reasonable 
Efforts. If Optional Interconnection Studies place too great a burden 
on the resources of the Transmission Provider, the Final Rule permits 
the use of a contractor at the Interconnection Customer's expense. The 
Commission is neither eliminating these provisions nor, as SoCal Edison 
proposes, limiting the number of Optional Interconnection Studies an 
Interconnection Customer may request. These studies may provide 
information needed by the Interconnection Customer. Since the 
Interconnection Customer pays for the Optional Interconnection Study 
and a contractor may be used for this purposes, the impact on a 
Transmission Provider is minimal.
    226. Section 9--Engineering & Procurement (``E&P'') Agreement (In 
the NOPR: Agreements)--Proposed LGIP Section 9 provided a mechanism for 
the Transmission Provider and the Interconnection Customer to enter 
into an Engineering & Procurement Agreement prior to executing the 
LGIA. An Interconnection Customer may ask that the Transmission 
Provider begin engineering and procurement of long lead-time items 
necessary for the establishment of the interconnection. The 
Transmission Provider is not obligated to offer an agreement if the 
Interconnection Customer is in Dispute Resolution as a result of an 
allegation that the Interconnection Customer has failed to meet any 
milestones or comply with any other sections of the LGIP. This section 
also specifies the cost and other obligations of the Interconnection 
Customer.
Comments
    227. Calpine and Duke Energy propose that Section 9.1 be expanded 
to cover situations where the construction of certain Network Upgrades 
takes place prior to the execution of the LGIA. Duke Energy states that 
the Transmission Provider should be prohibited from refusing to enter 
into an interim Engineering & Procurement Agreement unless the 
Interconnection Customer's failure to meet milestones directly affects 
the Transmission Provider's ability to meet its obligation under the 
Engineering & Procurement Agreement. FirstEnergy states that it is 
inappropriate to enter into an Engineering & Procurement Agreement 
prior to the execution of an LGIA, or the filing of an unexecuted LGIA 
with the Commission.
Commission Conclusion
    228. We disagree with Calpine and Duke Energy regarding 
construction. The Final Rule does not require the construction of 
Network Upgrades prior to the execution of the LGIA; nor do we see why 
the Transmission Provider should be placed at risk by committing to the 
construction of such Network Upgrades prior to the execution of an 
LGIA. Regarding FirstEnergy's comments, we conclude that it is 
reasonable to allow the Parties to enter into an Engineering & 
Procurement Agreement for long lead-time items necessary to accommodate 
the interconnection as long as the Interconnection Customer bears the 
cost risk. Likewise, in response to Duke Energy and consistent with the 
language in the NOPR, we conclude that it is reasonable to require a 
Transmission Provider to offer an Engineering & Procurement Agreement 
only if the Interconnection Customer has met its obligations under the 
Final Rule LGIP. Accordingly, we adopt Section 9 in the Final Rule as 
proposed.
    229. Section 11--Standard Large Generator Interconnection Agreement 
(In the NOPR: Interconnection Agreement)--Proposed LGIP Section 11 
includes procedures for tendering, negotiating, executing, and filing 
an interconnection agreement.
    230. Section 11.1--Tender--Proposed LGIP Section 11.1 provided that 
the Transmission Provider simultaneously submit to the Interconnection 
Customer

[[Page 49868]]

the draft Interconnection Facilities Study Report and a draft LGIA, to 
the extent practicable, in the form of the pro forma LGIA. Within 30 
Calendar Days after the issuance of the draft Interconnection 
Facilities Study report and a draft pro forma LGIA, the Transmission 
Provider shall submit the completed draft of the LGIA.
Comments
    231. Central Maine believes that 30 days is an unreasonable time 
frame in which to prepare such technically detailed documents as the 
appendices to the interconnection agreement, and it should therefore be 
increased to 60 days.
Commission Conclusion
    232. Central Maine has not convinced us of the difficulty of 
preparing the interconnection agreement appendices in 30 Calendar Days 
or shown a need to extend the time in which to prepare them to 60 
Calendar Days. Accordingly, the Commission retains the proposed 30 
Calendar Day requirement for the Transmission Provider to tender the 
completed interconnection agreement.
    233. Section 11.2--Negotiation--Proposed LGIP Section 11.2 provided 
that the Transmission Provider and the Interconnection Customer be 
required to negotiate the terms contained in the appendices to the 
interconnection agreement for up to 60 Calendar Days after tender of 
the final Interconnection Facilities Report. If the Interconnection 
Customer determines that negotiations are at an impasse, it could 
either request termination of the negotiations and request submission 
of the unexecuted interconnection agreement to the Commission, or 
initiate Dispute Resolution procedures. If the Interconnection Customer 
requests termination of the negotiations, but within 60 Calendar Days 
thereafter fails to request either the filing of the unexecuted LGIA or 
initiate Dispute Resolution, it would be deemed to have withdrawn its 
Interconnection Request.
Comments
    234. FirstEnergy contends that the provisions of this section 
unduly restrict the ability of the Parties to negotiate a resolution. 
It argues that proposed LGIP Section 11.2 provides no recourse for the 
Transmission Provider in circumstances where the negotiations are at an 
impasse and the Interconnection Customer neither terminates the 
Interconnection Request nor continues to negotiate in good-faith. 
FirstEnergy recommends that Section 11.2 of the NOPR IA be revised to 
include the following language: ``Unless otherwise agreed to by the 
Parties, if the Interconnection Customer has not executed the 
Interconnection Agreement, requested the filing of an unexecuted 
[interconnection agreement], or initiated Dispute Resolution procedures 
within 60 days of the tender of the completed draft of the LGIA 
Appendices, the Interconnection Customer will have been deemed to have 
withdrawn its Interconnection Request.
Commission Conclusion
    235. The Commission agrees with FirstEnergy that there could be 
circumstances where the Parties could be unduly restricted in their 
negotiations and therefore adopts the language proposed by FirstEnergy 
in the Final Rule LGIP.
    236. Section 11.3--Execution and Filing--Proposed LGIP Section 11.3 
would have the Interconnection Customer demonstrate Site Control to the 
Transmission Provider, and provides specific milestones as evidence of 
Site Control. It would also provide that the Transmission Provider file 
the LGIA as soon as practicable, but not later than ten Business Days 
after receiving either the two executed originals of the LGIA, or the 
request by the Interconnection Customer to file an unexecuted LGIA.
Comments
    237. Mirant does not oppose requiring an Interconnection Customer 
to maintain Site Control and provide reasonable evidence that the 
Interconnection Customer has met some of the specified milestones. 
However, it asks the Commission to clarify what constitutes 
``reasonable evidence'' of Site Control. Other commenters, including 
PJM and PJMTO, assert that the Commission should give the 
Interconnection Customer more milestones to meet.
    238. PJM opposes letting an Interconnection Customer deposit 
$250,000 instead of demonstrating meaningful progress and believes that 
doing so can lead to clogging and gaming of the queue.
    239. Central Maine requests that the Commission extend from ten to 
30 days the obligation to file, as additional time is needed to prepare 
the filing. It claims that neither Party would be adversely affected by 
such an extension.
Commission Conclusion
    240. We shall modify Proposed LGIP Section 11.3 to better reflect 
the Commission's unexecuted agreement procedure in the OATT.\62\ 
Accordingly, the unexecuted agreement should contain terms and 
conditions deemed appropriate by the Transmission Provider for the 
Interconnection Request. But the LGIA approach differs from the OATT 
approach, since the Parties' obligations may be significantly different 
in the LGIA context. The OATT unexecuted agreement provision requires 
the Transmission Provider to commence providing service as long as the 
Transmission Customer agrees to compensate the Transmission Provider at 
the rate the Commission ultimately determined to be just and 
reasonable. Since the LGIA involves obligations different from those in 
the OATT, including facilities construction that may be undertaken by 
either Party, it is appropriate to give both Parties more flexibility 
to determine whether to proceed under the non-disputed terms of their 
unexecuted agreement. Once the unexecuted agreement is filed, if the 
Parties agree to proceed with design, procurement, and construction of 
facilities and upgrades under the agreed upon terms of the unexecuted 
agreement, they may proceed pending Commission action.
---------------------------------------------------------------------------

    \62\ See Section 15.3 of the OATT.
---------------------------------------------------------------------------

    241. In response to Mirant's request to clarify what constitutes 
``reasonable evidence'' of Site Control, the Commission notes that the 
Final Rule definition of the term specifically lists the types of 
documentation that reasonably demonstrates evidence of Site Control.
    242. PJM proposes to eliminate the $250,000 additional deposit if 
the Interconnection Customer is unable to provide evidence of Site 
Control. It would also have the Generating Facility lose its place in 
the queue if the Interconnection Customer misses a milestone. We find 
that the deposit is a sufficient showing that the Interconnection 
Customer is serious about the project and will continue to work to meet 
the requirements of Site Control and other milestones. Finally, this 
section provides sufficient milestones and penalties to reasonably 
ensure that the Interconnection Customer is intent on completing the 
project.
    243. Central Maine has not provided any support for its request to 
extend the time from ten to 30 days to meet the filing obligations. 
Accordingly, the Final Rule retains the ten Business Days requirement.
    244. Section 12--Construction of Transmission Provider's 
Interconnection Facilities and Network Upgrades--Proposed LGIP Section 
12 required the

[[Page 49869]]

Transmission Provider and the Interconnection Customer to agree to a 
schedule for the construction of Interconnection Facilities and Network 
Upgrades that are needed to accommodate the Interconnection Request. It 
also provided for an Interconnection Customer to request the 
acceleration of Network Upgrades that are needed for a higher-queued 
Interconnection Customer that would not have otherwise been completed 
in time to support the lower queued Interconnection Customer's In-
Service Date as long as it commits to pay any costs associated with 
expediting the project, including the cost of any Network Upgrades 
assigned to the higher-queued Interconnection Customer.
    245. Section 12.1--Schedule--Proposed LGIP Section 12.1 provided 
that the Transmission Provider and Interconnection Customer negotiate 
in good faith to develop a schedule for the construction of the 
Transmission Provider's Interconnection Facilities and Network 
Upgrades.
Comments
    246. Duke Energy and FirstEnergy contend that this section should 
be deleted, since it is already covered in Article 5 of the NOPR LGIA.
Commission Conclusion
    247. The Commission finds no reason to delete Section 12.1. It 
merely states that the Parties must negotiate a construction schedule 
in good faith. The fact that the negotiated construction schedule is in 
Appendix B (Milestones) of the LGIA does not require us to delete 
Section 12.1 from the Final Rule LGIP.
    248. Section 12.2--Permits--Proposed LGIP Section 12.2 provided 
that the Parties specify in the LGIA each Party's responsibility for 
obtaining permits, licenses, and authorizations necessary to construct 
the Interconnection Facilities and Network Upgrades needed to 
accommodate the proposed interconnection in conformance with all 
Applicable Laws and Regulations.
Comments
    249. Duke Energy states that the first sentence of Section 12.2 
should be stricken because it duplicates NOPR LGIA Article 14.1. 
FirstEnergy contends that the entire section should be deleted because 
the topic is more properly addressed in the LGIA. Cinergy asks the 
Commission to clarify that nothing in the section requires the 
Transmission Provider to exercise its power of eminent domain. Central 
Maine argues that the phrase ``nothing in this Section 12.2 shall be 
construed to waive any rights under Applicable Laws and Regulations'' 
should be either deleted or applied to the entire Final Rule LGIP, 
because its inclusion in just one provision creates confusion.
Commission Conclusion
    250. The Commission disagrees with Duke Energy. Proposed LGIP 
Section 12.2 merely requires the Parties to specify in the LGIA each 
Party's responsibility for obtaining permits, licenses, and 
authorizations necessary to construct the Interconnection Facilities 
and Network Upgrades. Article 14.1 of the NOPR LGIA, on the other hand, 
states that each Party's obligations under the LGIA are conditioned 
upon regulatory approval from relevant Governmental Authorities.
    251. In response to Cinergy's assertion, while the Commission does 
not require that the Transmission Provider exercise its right of 
eminent domain in all instances, we do not prohibit it from doing so. 
Rather, in the Final Rule, consistent with the Commission's discussion 
of NOPR LGIA Article 5.11 (now Final Rule LGIA Article 5.13), Lands of 
Other Property Owners, we require that a Transmission Provider or 
Transmission Owner use efforts similar to those it typically undertakes 
on its own behalf (or on behalf of an Affiliate), which may include use 
of eminent domain rights, to secure permits for the Interconnection 
Customer, unless restricted from doing so by state law.
    252. We agree with Central Maine's arguments and are therefore not 
incorporating into this section the proposed text dealing with the 
waiving of rights under Applicable Laws and Regulations.
    253. Finally, the Commission agrees with FirstEnergy that the 
issues contained in this section are more appropriately discussed in 
the Final Rule LGIA. Accordingly, proposed LGIP Section 12.2 is being 
deleted from the Final Rule LGIP and is being incorporated into the 
Final Rule LGIA as Article 5.14.
    254. Section 12.3--Construction Sequencing (In the Final Rule LGIP: 
Section 12.2)--Proposed LGIP Section 12.3 stated that an 
Interconnection Customer may ask the Transmission Provider to advance 
construction of Network Upgrades supporting other generators that were 
assumed to be completed in time to support the Interconnection 
Customer's Generating Facility's In-Service Date. The Transmission 
Provider would have to use Reasonable Efforts to advance the 
construction of such Network Upgrades, provided that the 
Interconnection Customer commits to pay the Transmission Provider the 
cost of the Network Upgrades and any associated expediting costs. The 
Transmission Provider must refund to the Interconnection Customer the 
costs of any expedited Network Upgrades after the Transmission Provider 
receives payment from the entity for which the Network Upgrades were to 
be originally constructed. Until such costs are refunded, the 
Transmission Provider must provide the Interconnection Customer with 
transmission credits for the costs of the expedited Network Upgrades.
Comments
    255. Duke Energy seeks clarification that (1) the Interconnection 
Customer earlier in the queue is obligated to pay the Transmission 
Provider only the amount not refunded, through credits, to the 
Interconnection Customer requesting the acceleration (and thus is 
eligible for transmission credits only for that amount), (2) the 
Interconnection Customer requesting the accelerated construction is 
reimbursed for Network Upgrade costs only up to the amount of the 
transmission credits not received, (3) the Transmission Provider is not 
required to advance funds for construction or to pay total credits in 
excess of the cost of the Network Upgrades; and (4) the higher-queued 
Interconnection Customer must pay for the expedited Network Upgrades on 
the date that it would have been required to pay were it not for the 
request for acceleration. Duke Energy also notes that there may be 
circumstances when acceleration requires greater expenditures than 
would be required to meet a reasonable construction schedule. It 
therefore recommends that if a Transmission Provider believes that the 
Commission would not allow such expenditures to be included in the 
revenue requirement under traditional ratemaking principles, the 
Transmission Provider should have the opportunity to challenge the 
provision of credits for these costs.
Commission Conclusion
    256. The Commission affirms that an Interconnection Customer higher 
in the queue is obligated to pay the Transmission Provider for only 
that portion of the costs of the expedited Network Upgrades not already 
paid to the Interconnection Customer that requested expedition through 
transmission credits. The Transmission Provider can then forward this 
amount to the expediting Interconnection Customer as a lump sum payment 
for

[[Page 49870]]

the balance of costs that the higher-queued Interconnection Customer is 
owed. At this point, the payment of credits will cease and the payment 
of credits to the higher-queued Interconnection Customer can begin. The 
latter credits will continue until the higher-queued Interconnection 
Customer has been reimbursed for the portion of the Network Upgrade 
costs that it has paid. The Transmission Provider is also not required 
to advance funds for construction or to pay total credits in excess of 
the cost of the Network Upgrades, including any interest that may be 
due. Finally, the higher-queued Interconnection Customer is responsible 
for paying the costs of the advanced Network Upgrade on the date that 
it would have been required to pay had there been no request for 
accelerated construction.
    257. In response to Duke Energy's final concern, the Commission 
recognizes that there may be circumstances under which the Transmission 
Provider, in attempting to accommodate the Interconnection Customer's 
request to accelerate the project, may have to incur costs that would 
exceed what would normally be required to meet a reasonable 
construction schedule. However, we will consider such costs to have 
been prudently incurred unless it is demonstrated in a rate proceeding 
that the Transmission Provider could have met the Interconnection 
Customer's requested In-Service Date at a lower cost through the 
construction of alternative Network Upgrades, or by other means. 
Consequently, the Transmission Provider should have no reason to 
challenge the provision of credits for any costs that it prudently 
incurs.
    258. Consistent with the above discussion, the Final Rule clarifies 
Section 12.3 and removes certain text that is largely redundant.
    259. This section is designated Section 12.2 in the Final Rule 
LGIP.
    260. Section 13--Miscellaneous--Proposed LGIP Section 13 included a 
variety of provisions, described below.
    261. Section 13.1--Confidentiality--Proposed LGIP Section 13.1 
would have required that the Transmission Provider afford confidential 
treatment to all information it receives from the Interconnection 
Customer to process its request for Interconnection Service except for 
information that is in the Interconnection Request and information that 
is or becomes generally available to the public. The Transmission 
Provider would be permitted to use this information only for the 
Interconnection Study and to share it only with those who need it for 
Interconnection Studies and actions to interconnect the Generating 
Facility. The Transmission Provider would not be permitted to share 
such information with the merchant generation or marketing functions of 
the Transmission Provider or its Affiliates' merchant functions or as 
otherwise prohibited by Order No. 889.
    262. The Transmission Provider would be liable to the 
Interconnection Customer for any Breach of confidentiality caused by 
its agent or contractor. If requested by the Interconnection Customer, 
the Transmission Provider would be required to destroy or return to the 
Interconnection Customer information no longer needed. If the 
Transmission Provider is required to disclose the information to any 
regulatory body, it would be obligated to request confidential 
treatment of the information. The Transmission Provider must provide 
the Interconnection Customer with prompt written notice if it receives 
a request for the Confidential Information to allow the Interconnection 
Customer an opportunity to contest the disclosure. The confidentiality 
provisions would not require the Transmission Provider or 
Interconnection Customer to disclose information in violation of any 
confidentiality obligations to third parties.
Comments
    263. Several commenters, including Central Maine and MidAmerican, 
argue that these confidentiality protections should be extended to the 
Transmission Provider as well. Central Maine seeks a clear policy about 
what information may be disclosed, what information must be disclosed, 
the manner of disclosure, and what information must remain confidential 
as part of the interconnection process.
    264. Lakeland seeks reconciliation of the differences between the 
confidentiality provisions of the NOPR LGIA and the NOPR LGIP. 
Specifically, the Final Rule LGIP should accommodate compliance with 
state Open Records laws, including Florida's, as in the NOPR LGIA.
    265. Entergy opposes requiring a Transmission Provider to provide 
Confidential Information, or disclose anything not public, to an 
Interconnection Customer. If that disclosure is required by the Final 
Rule, the confidentiality requirements should be reciprocal and a Party 
should be required to designate which materials warrant confidential 
treatment.
    266. The Midwest ISO agrees with the proposal that Confidential 
Information only be shared among employees of the Transmission Provider 
(including Transmission Owners of Affected Systems) and third parties 
that need the information to perform or review Interconnection Studies. 
Moreover, in accordance with Order No. 889, the information should not 
be shared with individuals responsible for merchant or marketing 
functions. The Midwest ISO also requests that the Commission clarify 
what type of planning information should be kept confidential for 
security reasons and what information should be made available, perhaps 
under a non-disclosure agreement executed by the Parties. Proposed LGIP 
Section 13.1 would have required that the Transmission Provider keep 
confidential all information provided by the Interconnection Customer 
related to Interconnection Service that is not provided in the 
Interconnection Request; the Midwest ISO and NERC state that some 
information in the Interconnection Request may be commercially 
sensitive, such as unit-specific data, and should be kept confidential.
    267. GE Power notes that developers generally prefer to look at 
alternative project scenarios before going ``on the record'' with their 
plans. GE Power requests that the Commission address the balance 
between commercial confidentiality or security-based secrecy and the 
need to make the data available so that studies and business 
forecasting can be completed.
    268. NERC comments that the information provided by Interconnection 
Customers that may be considered confidential under Section 13.1 is 
needed to protect reliability because it generally is shared not only 
with directly affected neighboring systems, but also with regional and 
NERC study groups for modeling inter-regional and interconnection 
reliability effects. NERC states that this data is generally provided 
in a manner that masks ownership and other commercial terms and that 
NERC has standards of conduct for Reliability Coordination and a data 
confidentiality agreement. It requests that mechanisms remain in place 
to ensure the availability and confidentiality of such data so that 
Interconnection Customers will provide data needed for reliability 
assessment. NERC proposes that an Interconnection Customer identify 
specific information to be protected as confidential and that the 
Transmission Provider share this information only with parties to 
confidentiality agreements.

[[Page 49871]]

Commission Conclusion
    269. In response to Central Maine's and several others' requests 
that the confidentiality provision in the NOPR LGIP be made more 
specific, the Commission is incorporating into Section 13.1 certain 
aspects of the confidentiality provisions in Article 22 of the LGIA. 
These include a definition of Confidential Information, procedures for 
the release of Confidential Information, and guidance regarding how 
Confidential Information should be treated when it is requested by the 
Commission as part of an investigation. Both Parties are eligible to 
use the protection afforded by the revised section as long as the 
information is identified as Confidential Information in accordance 
with the section. This revision should satisfy commenters that sought 
greater specificity regarding procedures for maintaining and disclosing 
information in the confidentiality provisions in the LGIP. It also 
eliminates any significant conflicts between the LGIP and LGIA 
confidentiality provisions. The Final Rule LGIP Section 13.1 differs 
from Final Rule LGIA Article 22 only with respect to the provisions in 
Article 22 that address the fact that the confidentiality obligations 
arise under a signed Interconnection Agreement.
    270. This revision eliminates from the Section 13.1 the exception 
for information that appears in the Interconnection Request. Under the 
revised provision, it is the Interconnection Customer's responsibility 
to designate the information submitted in its Interconnection Request 
that should remain confidential.
    271. Lakeland requests that the Commission adopt provisions that 
accommodate compliance with state open records laws. Public utilities 
also may be subject to information restrictions arising from national 
security concerns. As noted above, the Commission expects all public 
utilities to meet basic standards for system infrastructure and 
operational security. In addition, if state laws indeed conflict with 
the confidentiality and information sharing addressed in this 
provision, the Commission expects that public utilities will make 
conforming changes to these provisions in their compliance filings and 
explain the statutory basis for such changes.
    272. The Commission agrees with the Midwest ISO and NERC that the 
Final Rule must allow information to be shared with Transmission 
Provider representatives of NERC and other regional planning groups, 
since to deny them this information may undermine Transmission System 
reliability and modeling efforts. Section 13.1 of the Final Rule allows 
the Parties to share Confidential Information with an independent 
transmission administrator or reliability organization as long as the 
disclosing party agrees to promptly notify the other Party in writing 
and to seek to protect the Confidential Information from public 
disclosure by separate confidentiality agreement or other reasonable 
measures. We do not, as the Midwest ISO requests, specify the planning 
information that may be made available, as it is likely that the data 
will vary by region.
    273. Finally, GE Power proposes that this rulemaking address what 
information a Transmission Provider should make available to a would-be 
Interconnection Customer before the submission of an Interconnection 
Request. We decline to do so. This Final Rule addresses 
interconnection, not the general availability of information to all 
those who have not yet submitted an Interconnection Request.
    274. Section 13.3--Obligation for Study Costs--Proposed LGIP 
Section 13.3 would have required the Interconnection Customer to pay 
the actual costs of the Interconnection Studies. If any deposit exceeds 
the actual cost of the study, that amount would be refunded to the 
Interconnection Customer or offset against the cost of any future 
Interconnection Studies associated with the Interconnection Request. 
Proposed LGIP Section 13.3 also stated that the Transmission Provider 
would not be obligated to perform or continue to perform any 
Interconnection Studies unless the Interconnection Customer has paid 
all undisputed amounts under this section.
Comments
    275. PJM argues that the absence of significant milestones in 
Section 13.3 amplifies the opportunities for an Interconnection 
Customer to dispute its bill and string its project along at little 
cost. Any refusal to pay an invoiced study cost should be a Default 
that triggers withdrawal of the Interconnection Request.
    276. The Midwest ISO believes that the Transmission Provider should 
be permitted to collect interest on any unpaid amounts not in dispute, 
and Duke Energy believes that deposits in excess of the actual study 
cost should be entitled to earn interest from the day a deposit is 
credited to an account.
    277. Sempra would require the Interconnection Customer to pay for 
simple and inexpensive Interconnection Studies up front, and to pay for 
expensive and complicated studies through periodic payments.
Commission Conclusion
    278. The Commission declines to adopt any of the proposed changes 
to Section 13.3 in the Final Rule. While an Interconnection Customer 
could delay the interconnection process merely by disputing its bill, 
the Commission is not convinced that a significant number of 
Interconnection Customers will to act in this manner, since most 
Interconnection Customers presumably will want to have their projects 
on line as soon as possible. Furthermore, requiring the Interconnection 
Customer to pay all invoiced amounts, no matter how unreasonable, or 
lose its Queue Position would invite abuse on the part of the 
Transmission Provider.
    279. In response to the Midwest ISO and Duke Energy, the payment of 
interest on study deposits and unpaid study costs tend to offset one 
another over time. Moreover, the Commission is not persuaded that the 
interest costs would be large enough to warrant the additional 
administrative expense that the Transmission Provider would incur in 
tracking the amounts due. Also, the requirement to pay a deposit and 
then additional amounts as they come due will generally achieve the 
result that Sempra seeks.
    280. Finally, to ensure that the Interconnection Customer is 
adequately informed regarding the actual costs of Interconnection 
Studies, we revise Section 13.3 to require the Transmission Provider to 
provide a detailed and itemized accounting of the Interconnection Study 
costs in the relevant invoices.
    281. Section 13.4--Third Parties Conducting Studies--Proposed LGIP 
Section 13.4 provided that the Interconnection Customer be able to 
require the Transmission Provider, within 30 days of its notification, 
to use a consultant to complete the Interconnection Study at issue if 
(1) the Parties cannot agree to the timing of the completion of the 
Interconnection Study, or (2) the Interconnection Customer receives 
notice from the Transmission Provider that the Transmission Provider 
will not complete an Interconnection Study within the applicable time 
frame, or (3) the Interconnection Customer receives from the 
Transmission Provider neither the Interconnection Study nor a notice 
about not completing the Interconnection Study. In such situations, the 
Interconnection Study would be conducted at the Interconnection 
Customer's expense and

[[Page 49872]]

in the case of (3), the Interconnection Customer could submit a claim 
to Dispute Resolution to recover the costs of the third party study. 
The consultant would be required to follow the LGIP protocols and use 
the information it receives to do the Interconnection Study for the 
sole purpose of completing the study. The Transmission Provider would 
be required to cooperate with the consultant to complete and issue the 
Interconnection Study in the shortest reasonable time.
Comments
    282. Some commenters, including Duke Energy, EPSA, NYISO, and 
Sunflower Electric, endorse the NOPR proposal to allow an 
Interconnection Customer to request a consultant to undertake or 
complete an Interconnection Study, while others advocate the 
Transmission Provider being allowed to initiate use of a consultant to 
accelerate completion of Interconnection Studies, as well. Sunflower 
Electric sees use of a consultant as a short-term means to alleviate a 
Transmission Provider's backlog. Central Maine seeks clarification of 
the process for selecting the consultant. It argues that a 30 day 
deadline for a Transmission Provider to issue an RFP and select a 
consultant is not realistic.
    283. BPA, MidAmerican, and PJM question whether use of a consultant 
will speed up the study process, whether it will significantly reduce a 
Transmission Provider's overall study effort, and whether it will help 
a Transmission Provider to more efficiently study multiple 
Interconnection Requests. They are concerned that any benefits may be 
limited to situations in which Interconnection Customers' projects are 
studied individually, on a non-integrated basis, in isolation from 
other higher-queued Interconnection Requests and system improvements 
and expansions. Others recommend allowing a Transmission Provider to 
complete pending Interconnection Studies for higher-queued 
Interconnection Requests before turning its databases, workpapers, and 
study results over to the consultant to help it move forward with its 
study. In addition, PJM observes that an independent Transmission 
Provider, such as an RTO or ISO, has no incentive to delay completion 
of an Interconnection Study. NYISO would have the ISO direct and review 
any consultant Interconnection Studies.
    284. BPA proposes allowing a Transmission Provider to ignore the 
consultant's study if it is not completed by the deadline. BPA also 
wants sufficient time for the Transmission Provider, as ``the expert'' 
in regard to its system, to review the study to ensure that it is 
adequate and to make necessary changes to it.
Commission Conclusion
    285. Based on the foregoing comments and a balancing of the 
interests of an Interconnection Customer (to obtain the results of any 
necessary Interconnection Studies as soon as possible) and the 
responsibility of Transmission Provider (to efficiently and effectively 
plan its Transmission System), the Commission will permit use of a 
consultant upon the request of an Interconnection Customer at any time 
during the Interconnection Study process. This is subject to the 
Transmission Provider deciding that such use will (1) help maintain or 
accelerate the study process for the Interconnection Customer's pending 
Interconnection Request and (2) not interfere with the Transmission 
Provider's planning processes or hamper the Transmission Provider's 
progress on any other Interconnection Studies for pending 
Interconnection Requests. Moreover, a consultant hired to perform an 
Interconnection Study must follow the same rules and procedures as does 
a Transmission Provider that conducts the study in-house.
    286. The Commission will not specify in Section 13.4 all the terms, 
conditions, and selection processes that would be applicable. Instead, 
the Final Rule leaves it up to the Parties to negotiate the details of 
the timing and process for selecting the consultant, the deadlines for 
the consultant's work, the Transmission Provider's direction and review 
of the consultant's work, the contingency rights and obligations of the 
Parties if the consultant fails to timely deliver a study of adequate 
quality, and any other relevant matters. This added flexibility may 
increase opportunities for the use of a consultant to accelerate the 
completion of necessary Interconnection Studies when it is feasible to 
do so.
    287. Section 13.6--Disputes--Proposed LGIP Section 13.6 detailed 
requirements for the Dispute Resolution process. Upon written notice of 
a dispute arising out of the Interconnection and Operating Agreement or 
its performance, a senior representative or representatives of each 
Party would be required to try to resolve the dispute informally. 
Failing informal resolution within 30 Calendar days, by mutual 
agreement the dispute would be submitted to arbitration, or each Party 
would exercise its other legal or equitable rights. Section 13.6.2 
specified external arbitration procedures, and Section 13.6.3 stated 
that unless otherwise agreed, the arbitrator would be required to 
render a decision within 90 Calendar Days of its appointment that shall 
be binding upon each Party. Final decision affecting jurisdictional 
rates, terms, and conditions would be filed with the Commission. 
Finally, Section 13.6.4 delineated responsibility for costs related to 
the resolution of disputes.
Comments
    288. Central Maine believes that the Parties should be precluded 
from settling by binding arbitration matters that are under the 
Commission's jurisdiction.
Commission Conclusion
    289. Although Section 13.6 proposed making Dispute Resolution 
available only for disputes arising under the LGIA, the Final Rule 
extends the procedures to disputes arising under the LGIP. This section 
is designated Section 13.5 in the Final Rule LGIP.
    290. The Commission has long encouraged the use of alternative 
dispute resolution to resolve disagreements over Commission-
jurisdictional contracts. The Commission's complaint rule, in fact, 
requires Parties to specify in a formal complaint whether they have 
attempted an informal resolution of contract-related disputes, and if 
they have not done so, to explain why not.\63\ Final Rule LGIP Sections 
13.5.1 through 13.5.3 reflect the Commission's policy of encouraging 
alternative dispute resolution without compromising the Commission's 
authority. Final Rule LGIP Section 13.5.3 prevents arbitrators from 
changing the provisions of the interconnection agreement in any manner. 
Arbitrators may only interpret and apply the provisions. Any such 
changes to the interconnection agreement could be made only pursuant to 
Sections 205 and 206 of the Federal Power Act, and would require 
Commission review. Although the arbitrator's decision is binding in so 
far as it is enforceable in any court having jurisdiction, an 
arbitrator's decision must be filed with the Commission if it affects 
jurisdictional rates, terms and conditions of service, Interconnection 
Facilities, or Network Upgrades. Thus, the Commission retains the 
authority to review the arbitrator's decision. Nor do we agree that the 
provision circumscribes the Parties' right to avail themselves of the 
Commission's

[[Page 49873]]

complaint process because under Section 13.5.1, a Party that does not 
agree to arbitration may exercise its rights, including its right to 
bring a complaint to the Commission.
---------------------------------------------------------------------------

    \63\ 18 CFR 385.206(b)(9) (2003).
---------------------------------------------------------------------------

    291. The Commission also adds language to Section 13.6.1 to 
emphasize that Parties should consider using informal dispute 
resolution as well as more formal options. The Commission encourages 
Parties to settle their disputes through other mechanisms (e.g., 
mediation, assisted negotiations, settlement judge procedures) prior to 
commencing arbitration proceedings. Of course, at any point during the 
process the disputing Parties may have recourse to alternative methods 
of dispute resolution, provided that both Parties agree.\64\
---------------------------------------------------------------------------

    \64\ Disputing parties may retain mediators from outside 
sources, or they may use the Commission's Dispute Resolution Service 
or the Commission's settlement judge process.
---------------------------------------------------------------------------

    292. Appendices--Proposed Appendix 1 is the application form for 
making an Interconnection Request. Proposed Appendices 2, 3, 4, and 5 
set forth the terms for the Interconnection Feasibility Study 
Agreement, the Interconnection System Impact Study Agreement, the 
Interconnection Facilities Study Agreement, and the Optional 
Interconnection Study Agreement; and require a deposit of $10,000 for 
the Interconnection Feasibility Study, $50,000 for the Interconnection 
System Impact Study, $100,000 for the Interconnection Facilities Study, 
and $10,000 for the Optional Interconnection Study. The Final Rule LGIP 
retains these appendices. In addition, the Final Rule LGIP incorporates 
the Final Rule Standard Large Generator Interconnection Agreement at 
Appendix 6.

B. Issues Related to the Standard Large Generator Interconnection 
Agreement (LGIA)

1. Overview
    293. The proposed LGIA contained the Parties' contractual 
Interconnection Service rights and obligations. It addressed matters 
such as the effective date and termination costs; regulatory filings; 
scope of service, including interconnection product options; generator 
provided services; Interconnection Facilities engineering, procurement 
and construction; testing and inspection, including start-up and 
synchronization, system protection and controls requirements; 
emergency, and disconnect obligations; metering and communications; 
operations and maintenance; Defaults and indemnifications; transmission 
crediting; audits; and Dispute Resolution.
    294. The proposed LGIA also specified the allocation of the 
responsibilities among the Interconnection Customer, the Transmission 
Provider and Transmission Owner (where the latter is a Party other than 
the Transmission Provider that owns the facilities to which the 
interconnection is being made), in regard to obtaining all permits and 
authorizations necessary to accomplish the interconnection.
    295. Under this Final Rule, if an Interconnection Customer agrees 
to pay for any modification to the Transmission Provider's facilities 
necessitated by the requested interconnection, the Transmission 
Provider is obligated to offer an executable form of LGIA to the 
Interconnection Customer. The interconnection agreement becomes 
effective upon execution by the Parties, subject to acceptance by the 
Commission. If the Interconnection Customer executes the LGIA, the 
Transmission Provider, the Interconnection Customer, and the 
Transmission Owner must perform their respective obligations in 
accordance with the terms of the executed interconnection agreement, 
subject to modification by the Commission.
    296. If the Interconnection Customer determines that negotiations 
are at an impasse, it may initiate Dispute Resolution procedures and, 
if not successful, request submission of the unexecuted agreement to 
the Commission by the Transmission Provider in accordance with Final 
Rule LGIP Section 11. Pending Commission action, the Parties will 
comply with the unexecuted agreement to the extent they can proceed 
under the agreed upon terms.
2. Article-by-Article Discussion of the Proposed LGIA
    297. What follows is a discussion of the proposed LGIA, the 
comments received, and the Commission's conclusion. The order of 
discussion follows the organization of the proposed LGIA, covering 
Articles 1 through 30. Similar to the section-by-section discussion of 
the proposed LGIP, only articles for which issues are raised are 
presented. Readers should note again that article numbers referred to 
in the following discussion are the numbers contained in the proposed 
LGIA. Some proposed articles are renumbered in the Final Rule; mention 
of that fact is made in the Commission Conclusions discussion, where 
appropriate.\65\
---------------------------------------------------------------------------

    \65\ For some of the LGIA provisions that the Commission is 
adopting here, few if any written comments were submitted. 
Commenters tended to use the 30 pages to which they were limited to 
explain what they would change. They made statements of support for 
the rule in general, but did not make article-by-article comments on 
parts that they supported. As a result, the only comments received 
on some articles were calls for change, even if a majority of 
commenters may have indicated general support for the proposed 
articles that they did not specifically comment on.
---------------------------------------------------------------------------

    298. Article 1--Definitions--Proposed LGIA Article 1 contained the 
definitions of terms used throughout the NOPR LGIA. Many of these terms 
appear both in the NOPR LGIP as well as the NOPR LGIA and we have 
decided that a common list of all the defined terms should be included 
in both the Final Rule LGIA and Final Rule LGIP. However, for 
simplicity, discussion of commenters' concerns regarding defined terms 
are discussed in part II.A.2, Section 1 (Definitions).
    299. Article 2--Effective Date, Term and Termination--Proposed LGIA 
Article 2 included the proposed effective date, the term of the 
proposed LGIA, and the procedures for its termination.
    300. Article 2.2--Term of Agreement--Article 2.2 proposed that the 
LGIA remain in effect for ten years, or longer by request, and be 
automatically renewed for each successive one year period thereafter.
Comments
    301. Exelon, NYTO and PG&E believe that automatic renewal is 
unreasonable because it allows the LGIA to remain in effect for an 
indefinite period. PG&E argues that the LGIA should be for a fixed term 
(20 years, for example), because the ten year initial term coupled with 
automatic renewals could make it last forever without giving the 
Transmission Provider an opportunity to terminate the LGIA except in 
the case of a Default by the Interconnection Customer. PG&E further 
argues that a longer fixed term without automatic renewal gives the 
Parties the flexibility to change the terms of the LGIA at the end of 
the term to reflect new market structures as they may develop.
Commission Conclusion
    302. We adopt Article 2.2 as proposed. Automatic renewal is an 
efficient mechanism to renew the LGIA. It mitigates a non-independent 
Transmission Provider's market power by allowing the Interconnection 
Customer to renew without renegotiation. At the same time, the 
interests of the Transmission Provider

[[Page 49874]]

are adequately protected as it can terminate the LGIA in case of 
Default by the Interconnection Customer.
    303. The Commission also notes that the LGIA, in addition to 
addressing the electrical connection of the Interconnection Customer to 
the Transmission Provider's Transmission System, also fixes the 
performance, operational, and financial obligations of the Parties even 
after the Generating Facility begins commercial operation. These 
obligations and responsibilities are of indefinite duration, existing 
as long as the Generating Facility is connected to the Transmission 
Provider's Transmission System. Therefore, it is appropriate for the 
term of the LGIA to be indefinite as well.
    304. In addition, a ten year minimum term allows the Parties to 
avoid tax liability for the payments to the Transmission Provider under 
current Internal Revenue Service policy.\66\
---------------------------------------------------------------------------

    \66\ See part II.B.2 Article 5.14.1 (Interconnection Customer 
Payments Not Taxable).
---------------------------------------------------------------------------

    305. Article 2.3.1--Written Notice--Proposed LGIA Article 2.3.1 
provides that the Interconnection Customer may terminate the LGIA after 
giving the Transmission Provider 30 Calendar Days advance written 
notice.
Comments
    306. MidAmerican proposes requiring an Interconnection Customer to 
provide three years' advance notice to terminate the LGIA. According to 
MidAmerican, the unexpected retirement of the Generating Facility may 
result in reduced system reliability due to decreased generation 
resources, and a Transmission Provider may need to construct or upgrade 
its own generating or transmission facilities if this occurs. 
MidAmerican notes that three years is the time customarily required to 
construct such facilities. Therefore, a three year termination 
provision would provide a Transmission Provider the opportunity to 
maintain reliability if the Generating Facility shuts down 
unexpectedly.
Commission Conclusion
    307. We are not persuaded to increase the advance notice and 
termination period to three years as proposed by MidAmerican. 
MidAmerican's concern appears to be that the Generating Facility, due 
to several years of load growth and other changes, may be essential to 
system reliability. Utilities should not allow themselves to become 
critically dependent on one generator; however, if they do, they can 
enter into a ``reliability must-run'' contract before the 
Interconnection Customer exercises its right to terminate. While there 
may be a problem if many Interconnection Customers were to cancel 
concurrently, we do not believe that the LGIA is the best vehicle for 
addressing this problem, or that every Interconnection Customer in 
every circumstance should be constrained by a three year termination 
provision whether or not such a general problem exists.
    308. However, we extend the notice period to 90 Calendar Days in 
order to conform with the Commission's Regulations, which provide that 
the Transmission Provider is required to notify the Commission of the 
proposed cancellation or termination of a contract at least 60 Calendar 
Days, but no more than 180 Calendar Days, before the cancellation or 
termination is proposed to take effect.\67\
---------------------------------------------------------------------------

    \67\ 18 CFR 35.15 (2003).
---------------------------------------------------------------------------

    309. Article 2.3.2--No Commercial Operation--Proposed LGIA Article 
2.3.2 would have provided that the Transmission Provider be allowed to 
terminate the LGIA if the Interconnection Customer has not met its 
obligation to achieve commercial operation of its Generating Facility 
within five years of the scheduled Commercial Operation Date or fails 
to be available for operation for a period of five years unless a major 
Generating Facility upgrade is in progress.
Comments
    310. Mirant favors deleting this provision. It asserts that there 
is no valid reason for a Transmission Provider to terminate the LGIA if 
the Interconnection Customer has paid for the necessary system upgrades 
and has met every other obligation under the LGIA. Others point out 
that PJM's interconnection agreement does not include such a provision. 
Mirant argues that the Transmission Provider should be able to 
terminate the LGIA only if the Interconnection Customer defaults under 
the terms and conditions of the LGIA. PSNM and Dairyland Power also 
favor deleting this provision altogether and claim that, at best, it 
should be left to the Parties to negotiate a reasonable period for not 
achieving commercial operation without risking termination of the LGIA.
    311. Most Transmission Providers, on the other hand, object to the 
five year window for achieving commercial operation as being too long, 
claiming that one to three years is a more reasonable period of 
time.\68\ They point out that the Interconnection Customer determines 
the Generating Facility's Commercial Operation Date without any input 
from the Transmission Provider and that the Interconnection Customer 
should not have an additional five years to achieve commercial 
operation.
---------------------------------------------------------------------------

    \68\ E.g., Central Vermont PSC, Cinergy, El Paso, Exelon, 
MidAmerican, and PG&E.
---------------------------------------------------------------------------

    312. Central Vermont PSC also advocates shortening the period from 
five to two years, and expresses concern that proposed LGIA Article 
2.3.2, read with proposed Article 4.1.2, might require a Transmission 
Provider to reserve transmission capacity on its transmission system 
for an Interconnection Customer taking Network Resource Interconnection 
Service for up to five years if the Interconnection Customer fails to 
meet its scheduled Commercial Operation Date or fails to be operable 
for a consecutive five-year period.
Commission Conclusion
    313. We agree with Mirant that the Transmission Provider should not 
be allowed to terminate the LGIA if the Interconnection Customer has 
paid all costs for which it is responsible and has met all of its other 
obligations under the LGIA. The Commission is removing this provision 
from the Final Rule LGIA because it contains other provisions for 
termination, such as failure to meet milestones and other obligations. 
Furthermore, we note that an Interconnection Customer cannot begin to 
receive credits for Network Upgrades until its Generating Facility has 
achieved commercial operation, thereby providing an incentive to the 
Interconnection Customer to perform.
    314. Article 2.4--Termination Costs--Proposed LGIA Article 2.4 
would have required a Party terminating the interconnection agreement 
to pay for all costs incurred by the other Party (including costs of 
cancellation orders or contracts for Interconnection Facilities and 
equipment).
Comments
    315. Mirant argues that an Interconnection Customer should be held 
responsible only for the Network Upgrades that it has agreed to pay 
for. It and others are concerned that a higher-queued Interconnection 
Customer responsible for numerous Network Upgrades might terminate its 
LGIA and leave lower-queued Interconnection Customers to pay for the 
Network Upgrades that would otherwise have been assigned to the higher-
queued Interconnection Customer. Dominion Resources argues that if a 
higher-queued Interconnection Customer suspends or terminates 
construction of its Generating Facility, the lower-queued 
Interconnection

[[Page 49875]]

Customers must be made responsible for the costs of the Network 
Upgrades.
    316. Some Transmission Providers argue that this provision does not 
make the Interconnection Customer responsible for all costs associated 
with the termination of an interconnection agreement. For example, 
Southern says that proposed LGIA Article 2.4.1 covers only that portion 
of the Transmission Provider's Interconnection Facilities not yet 
constructed or installed, and should be modified to include all Network 
Upgrades for which the Transmission Provider has incurred expenses. BPA 
argues that proposed LGIA Article 2.4.1 should be clear about which 
Party is responsible for the termination costs and allocate costs 
accordingly. Central Maine believes that the Transmission Provider and 
its other customers should not incur any costs associated with the 
termination of the LGIA, regardless of who is responsible for the 
termination. The Midwest ISO also states that the termination provision 
must ensure that the Transmission Provider is made whole for the costs 
it incurs.
Commission Conclusion
    317. As for the obligations of the lower-queued Interconnection 
Customer with respect to the Network Upgrades that would have been paid 
for by the terminating Interconnection Customer, this issue is 
addressed in our discussion of Article 5.13 (Suspension).
    318. We clarify that if an Interconnection Customer terminates the 
LGIA, it will be held responsible for all costs associated with that 
Interconnection Customer's interconnection, including any cancellation 
costs relating to orders or contracts for Interconnection Facilities 
and equipment, and any Network Upgrades for which the Transmission 
Provider has incurred expenses and has not been reimbursed by the 
Interconnection Customer. This clarification should resolve the Midwest 
ISO's and Mirant's concerns while ensuring that the Transmission 
Provider is made whole for the costs it incurs.
    319. Article 2.5--Disconnection--Proposed LGIA Article 2.5 would 
have provided that the cost of disconnecting the Generating Facility 
from the Transmission Provider's Transmission System be borne by the 
terminating Party unless the disconnection is the result of Default by 
the other Party.
Comments
    320. A number of commenters express concern that this article 
suggests that the Transmission Provider may somehow be responsible for 
certain disconnection costs. For example, PacifiCorp emphasizes that 
the Transmission Provider must be able to disconnect (and not 
reconnect) a Generating Facility if the Interconnection Customer 
materially Breaches its obligations to maintain electrical standards or 
operational requirements, or in the event of Default by the 
Interconnection Customer. In such a situation, PacifiCorp argues, the 
Transmission Provider should not be required to bear the costs of 
disconnecting the Generating Facility. Southern and Dairyland Power ask 
that this article be revised to make the Interconnection Customer 
responsible for all costs of disconnection under all circumstances.
Commission Conclusion
    321. We agree with PacifiCorp that the Transmission Provider must 
be able to disconnect the Generating Facility from the Transmission 
System to protect its system if the Interconnection Customer fails to 
maintain electrical standards and operational requirements. 
Accordingly, the Final Rule clarifies that all disconnection costs are 
borne by the terminating Party, unless the termination results from the 
non-terminating Party's Default of the LGIA.
    322. Article 2.7--Reservation of Rights--Proposed Article 2.7 would 
have reserved to each Party their rights to unilaterally seek 
modification to the executed LGIA pursuant to Sections 205 and 206 of 
the FPA, except as restricted by the other provisions of the executed 
LGIA.
Comments
    323. Dynegy and Mirant note that this clause is redundant because 
another Reservation of Rights provision appears in proposed Article 
30.11.
Commission Conclusion
    324. We agree that this Article 2.7 is redundant, and we delete it 
from the Final Rule LGIA.
    325. Article 3--Regulatory Filings--Proposed LGIA Article 3 would 
have provided that the Transmission Provider is responsible for filing 
the LGIA with the appropriate state and federal regulatory authorities 
(collectively ``Governmental Authorities'') having jurisdiction over 
the Parties. Article 3 also describes how Confidential Information 
should be treated. It also prohibits an Interconnection Customer from 
protesting the filing of an LGIA or an amendment to an LGIA that the 
Interconnection Customer has executed.
Comments
    326. MidAmerican recommends that Article 3 be modified to make both 
Parties responsible for maintaining the confidentiality of information 
provided by the other Party. The DG Alliance states that an 
Interconnection Customer has the right to file unilaterally an 
unexecuted LGIA if the Transmission Provider declines to negotiate in 
good faith.
Commission Conclusion
    327. MidAmerican's concerns are addressed in Article 22 of the 
Final Rule LGIA, which deals with the rights and responsibilities of 
each Party with respect to treatment of Confidential Information. The 
DG Alliance's comments are addressed in Section 10.3 of the Final Rule 
LGIP, which contains the procedure for filing an unexecuted agreement.
    328. Regarding the prohibition against the Interconnection Customer 
protesting an executed and filed LGIA or amendment, the Commission 
concludes that this is contrary to the reservation of rights provision 
of the LGIA, which allows the parties to retain their respective rights 
to unilaterally amend their executed LGIA under Sections 205 and 206 of 
the FPA. Because this prohibition effectively negates the 
Interconnection Customer's Section 206 rights under the LGIA, this 
clause favors the Transmission Provider at the expense of the 
Interconnection Customer with respect to rights that, if present, 
should be mutual. Accordingly, we delete this prohibition from the 
Final Rule LGIA.
    329. Article 4--Scope of Service--Proposed LGIA Article 4 
identified two types of Interconnection Service from which the 
Interconnection Customer must choose: Energy Resource Interconnection 
Service, which is a basic or minimal service, and Network Resource 
Interconnection Service, which is a more flexible and comprehensive 
service. Because this topic generated so much controversy, and because 
the two services are addressed both in the NOPR LGIA and NOPR LGIP, 
discussion of proposed LGIA Articles 4.1 through 4.1.2.2 is included in 
part II.C.2 (Interconnection Products and Scope of Service).
    330. Article 4.3.1--Generator Balancing Service Arrangements--
Proposed LGIA Article 4.3.1 described certain requirements that the 
Interconnection Customer would have to satisfy before submitting a 
schedule for delivery service. In particular, the Interconnection 
Customer would have to ensure that the Generating Facility's actual 
output matches its scheduled delivery, on an integrated clock hour 
basis, including ramping into and out of its schedule. The 
Interconnection

[[Page 49876]]

Customer would have to arrange for the supply of energy when there is a 
difference between actual and scheduled output.
Comments
    331. Some commenters, such as NERC, PacifiCorp and American Wind 
Energy, argue that the provision of energy imbalance service is not 
related to interconnection and should not be addressed in this 
rulemaking.
    332. Cinergy and others object to the use of a clock hour basis to 
match Generating Facility output to delivery, indicating that a 10-
minute interval basis may be more appropriate so that energy injections 
will be more consistent across the scheduled hour. NERC likewise has 
concerns about adopting an integrated clock hour specification, and 
notes that the Generating Facility's scheduling period may be something 
other than a clock hour, as specified in the Transmission Provider's 
Commission-approved Tariff or market structure. NERC recommends 
revising this provision to ensure consistency with the Tariff and 
market structure.
    333. Cinergy argues that any balancing arrangement to be 
implemented by the Interconnection Customer should be determined to be 
technically feasible by the Transmission Provider and recommends that 
ramp time be excluded in the balancing arrangement because it may 
conflict with NERC scheduling requirements. Arkansas Coops notes that 
use of the clock hour may be inconsistent with operating procedures 
developed in RTOs.
Commission Conclusion
    334. The Commission concludes that a provision for balancing 
service arrangements must be included in the Final Rule LGIA because it 
describes one of the important requirements that the Interconnection 
Customer must meet before it takes delivery service. Therefore, the 
Commission retains Article 4.3 in the Final Rule LGIA.
    335. However, the Commission agrees with commenters that Article 
4.3 of the NOPR LGIA is overly prescriptive. Accordingly, in the Final 
Rule, the Commission adopts NERC's proposal to revise NOPR LGIA Article 
4.3.1 to omit the reference to an integrated clock hour basis, and to 
add the phrase, ``consistent with the scheduling requirements of the 
Transmission Provider's Commission-approved Tariff and any applicable 
Commission-approved market structure.''
    336. Article 5--Interconnection Facilities Engineering, 
Procurement, and Construction--Proposed LGIA Article 5 described 
procedures for designing, procuring, and constructing the Transmission 
Provider's Interconnection Facilities and Network Upgrades and the 
Interconnection Customer's Interconnection Facilities. Construction 
options, rights, and responsibilities were also presented. This article 
would have provided that the Interconnection Customer will not be 
directly assigned the costs of modifications made to the Transmission 
Provider's Interconnection Facilities or the Transmission System to 
facilitate interconnection of a Generating Facility of another 
Interconnection Customer or to provide transmission service under the 
Transmission Provider's Tariff.
    337. Article 5.1--Options--Proposed LGIA Article 5.1 specified the 
method for determining which Party is responsible for the construction 
of the Transmission Provider's Interconnection Facilities and Network 
Upgrades. The Interconnection Customer would specify various 
construction completion dates (such as the In-Service Date, the Initial 
Synchronization Date, and the Commercial Operation Date), and the 
Transmission Provider would then choose among three options: (1) Option 
A would have provided that the Transmission Provider construct the 
Transmission Provider's Interconnection Facilities and Network Upgrades 
using Reasonable Efforts to complete construction by the dates 
designated by the Interconnection Customer, but would not be 
responsible for any liquidated damages in case it fails to meet the 
construction completion dates established by the Interconnection 
Customer; (2) Option B(i)a would have provided that the Transmission 
Provider construct the Transmission Provider's Interconnection 
Facilities and Network Upgrades according to the construction 
completion dates established by the Interconnection Customer, and if it 
fails to meet those dates, it may be liable for liquidated damages; 
however, the Transmission Provider can opt out of this provision by 
notifying the Interconnection Customer of its intention to do so within 
30 Calendar Days; and (3) Option B(i)b would have provided that, if the 
Transmission Provider notifies the Interconnection Customer that it 
cannot meet the dates established by the Interconnection Customer, the 
Interconnection Customer could assume responsibility for the 
construction of the Transmission Provider's Interconnection Facilities 
and Stand Alone Network Upgrades.\69\ This option would also provide 
that if the Interconnection Customer does not want to assume 
responsibility for construction, the Parties would negotiate in good 
faith to revise the construction completion dates and other provisions. 
Any agreement reached by the Parties during this negotiation shall be 
binding. However, if the Parties are unable to reach an agreement, the 
Transmission Provider would assume responsibility for construction of 
its Interconnection Facilities and Network Upgrades in accordance with 
Option A. Proposed LGIA Article 5.1 would establish standards for the 
Interconnection Customer to follow if it assumes responsibility for 
constructing the Transmission Provider's Interconnection Facilities and 
system upgrades that are not Stand Alone Network Upgrades. It does not 
grant any right to the Interconnection Customer to construct upgrades 
that are not Stand-Alone Network Upgrades.
---------------------------------------------------------------------------

    \69\ Stand-Alone Network Upgrades are those Network Upgrades 
that the Interconnection Customer may construct without affecting 
day-to-day operations of the Transmission System during their 
construction.
---------------------------------------------------------------------------

Comments
    338. Cinergy states that the distinction between Options A and 
B(i)a is not clear. Monongahela Power recommends that the Commission 
rename Option B(i)a as Option B and Option B(i)b as Option C.\70\
---------------------------------------------------------------------------

    \70\ A typographical error in the NOPR added to the lack of 
clarity.
---------------------------------------------------------------------------

    339. Cinergy and NSTAR seek clarification as to whether the 
Commission intended that the Interconnection Customer take the 
responsibility for the construction of upgrades that are not Stand-
Alone Network Upgrades.
    340. Several commenters, including Cinergy, NYTO, and SoCal PPA, 
argue that the Interconnection Customer may choose unrealistic 
construction completion dates and expose the Transmission Provider to 
liquidated damages. Cinergy states that if several Interconnection 
Customers choose their construction completion dates close to each 
other, the Transmission Provider may not be able to meet the dates due 
to limited construction staff. PacifiCorp recommends that any 
construction completion date should be treated as an estimate and that 
any delays on the part of the Interconnection Customer completing its 
Generating Facility should automatically extend the time for the 
Transmission Provider to complete its Interconnection Facilities and 
Network Upgrades.

[[Page 49877]]

    341. A number of Transmission Providers oppose giving the 
Interconnection Customer the option to build or have a contractor build 
the Transmission Provider's Interconnection Facilities and Stand Alone 
Network Upgrades. TXU argues that this could threaten the reliability 
of the Transmission System. SoCal Edison argues that the Transmission 
Provider must retain adequate control of the engineering and 
construction of any Transmission Provider Interconnection Facilities 
and Stand Alone Network Upgrades because of its obligation to protect 
the safety of the public and maintain the reliability of the 
Transmission System. Cinergy and NYTO assert that if the Commission 
does not eliminate the Interconnection Customer's option to build, the 
Final Rule must provide that an Interconnection Customer exercising 
this right shall indemnify or hold harmless the Transmission Provider 
from any resulting liability.
    342. Southern states that to ensure that construction of the 
Transmission Provider's Interconnection Facilities and Stand Alone 
Network Upgrades does not impair the reliability or safety of the 
Transmission System: (1) The Transmission Provider should be allowed to 
approve the Interconnection Customer's contractors and engineers, as 
well as the vendors from which equipment and materials are purchased; 
(2) the Transmission Provider's Interconnection Facilities and Stand 
Alone Network Upgrades should be constructed, and equipment and 
materials purchased, pursuant to contracts that are reasonably 
acceptable to the Transmission Provider, including acceptable equipment 
warranty provisions; (3) the Transmission Provider should retain some 
level of supervision over the construction, with unrestricted access to 
construction sites to perform inspections; (4) the Interconnection 
Customer should provide a construction schedule to the Transmission 
Provider before construction begins; (5) the Interconnection Customer 
should be required to respond promptly to all requests for information 
from the Transmission Provider; and (6) the Transmission Provider 
should be able to require the Interconnection Customer or its 
contractors to remedy any situation that does not meet the Transmission 
Provider's specifications or standards.
    343. Similarly, the Construction Issues Coalition argues that the 
Interconnection Customers' right to build the Transmission Provider's 
Interconnection Facilities and Stand Alone Network Upgrades should be 
under specific conditions, such as: (1) The Transmission Provider must 
provide approval and oversight during design and construction; (2) the 
Transmission Provider must approve contractors in advance; (3) adequate 
time should be provided to the Transmission Provider for approval of 
engineering and construction activities; and (4) all equipment and 
construction must carry warranties to avoid risk exposure to the 
Transmission Provider. SoCal Edison argues that costs associated with 
the Transmission Provider's oversight of the construction should be 
borne by the Interconnection Customer.
    344. NERC argues that if the Interconnection Customer assumes 
responsibility for construction, it should comply with Good Utility 
Practice and the Transmission Provider's safety and reliability 
criteria.
    345. NYTO claims that several essential elements of the ERCOT model 
are absent from the Commission's proposal. It argues, for example, that 
the Commission should adopt ERCOT's 15 month minimum time period for 
completing construction after siting permits and land rights have been 
obtained.
    346. American Transmission argues that the Transmission Provider 
must have the right to step in and assume construction responsibilities 
to protect the integrity of the system and rights of the third parties 
in case of serious lapses by an Interconnection Customer.
    347. Southern argues that the Final Rule LGIA should require the 
Interconnection Customer to transfer the Transmission Provider's 
Interconnection Facilities and Stand Alone Network Upgrades to the 
Transmission Provider for ownership and operation after it completes 
construction.
    348. PJMTO asserts that Final Rule LGIA Article 5.1 should contain 
more explicit provisions addressing the Transmission Owner's role in: 
(1) Obtaining permits and authorizations, (2) obtaining land rights, 
(3) performing direct line attachment tie-in work, and (4) calibrating 
remote terminal unit settings.
    349. American Transmission states that proposed LGIP Section 8 
(Interconnection Facilities Study) requires the Transmission Provider 
to develop detailed cost estimates for constructing the Transmission 
Provider's Interconnection Facilities and Network Upgrades under the 
assumption that the Transmission Provider will perform all of the 
construction, yet the Interconnection Customer may assume the 
responsibility for part of the construction. It asks the Commission to 
clarify whether there is any relationship between the Transmission 
Provider's cost estimates and the actual cost of construction performed 
by the Interconnection Customer. It wants to require approval by the 
Transmission Provider of the Interconnection Customer's budget for the 
construction of the Transmission Provider's Interconnection Facilities 
and Stand Alone Network Upgrades.
    350. Dynegy asserts that the last sentence of Article 5.1.A(iv), 
which provides that the Interconnection Customer's selection of 
subcontractors is subject to the Transmission Provider's standards and 
specifications, is overly broad and conflicts with proposed LGIA 
Article 26.1 (Subcontractors--General), which states that ``nothing in 
this Agreement shall prevent a Party from utilizing the services of any 
subcontractor as it deems appropriate to perform its obligations under 
this Agreement.''
Commission Conclusion
    351. The Commission is revising Proposed LGIA Article 5.1 to 
distinguish the various options more clearly. NOPR Option A is now 
renamed Standard Option. Under the Standard Option, the Transmission 
Provider shall construct the Transmission Provider's Interconnection 
Facilities and Network Upgrades using Reasonable Efforts to complete 
the construction by the dates designated by the Interconnection 
Customer, but shall not be responsible for any liquidated damages if it 
fails to complete the construction by the designated dates. The 
Standard Option also serves as the default in the event the Parties are 
unable to reach an agreement under the Negotiated Option
    352. Option B(i)a is renamed Alternate Option. Under the Alternate 
Option, the Transmission Provider shall construct the Transmission 
Provider's Interconnection Facilities and Network Upgrades according to 
the construction completion dates established by the Interconnection 
Customer, and if it fails to meet those dates, it may be liable for 
liquidated damages; however, the Transmission Provider can decline to 
use this option by notifying the Interconnection Customer of its 
intention to do so within 30 Calendar Days of executing the LGIA.
    353. The last option--Option B(i)b in the NOPR--gives the 
Interconnection Customer two choices in the Final Rule LGIA: the Option 
to Build and the Negotiated Option. This is because the proposed Option 
B(i)b actually presented two options. Under the Option to Build, the 
Interconnection

[[Page 49878]]

Customer may assume responsibility for the construction of the 
Transmission Provider's Interconnection Facilities and Stand Alone 
Network Upgrades if the Transmission Provider notifies the 
Interconnection Customer that it cannot meet the dates established by 
Interconnection Customer. However, as clarified in Final Rule LGIA 
Article 5.1.3, it does not grant any right to the Interconnection 
Customer to construct upgrades that are not Stand-Alone Network 
Upgrades. Furthermore, both the Transmission Provider and the 
Interconnection Customer must agree on which facilities are the Stand 
Alone Network Upgrades and identify them in Appendix A to the LGIA.
    354. The Negotiated Option provides that, if the Transmission 
Provider notifies the Interconnection Customer that it cannot meet the 
dates established by Interconnection Customer, and the Interconnection 
Customer does not want to assume responsibility for construction, the 
Interconnection Customer may decide that the Parties shall negotiate in 
good faith to revise the construction completion dates and other 
provisions under which the Transmission Provider is responsible for the 
construction. If the Parties are unable to reach an agreement, the 
Transmission Provider shall assume responsibility for construction of 
the Transmission Provider's Interconnection Facilities and Network 
Upgrades in accordance with the Standard Option.
    355. Regarding Cinergy, NYTO, and SoCal PPA's concerns about the 
selection of unrealistic construction completion dates by an 
Interconnection Customer, the Final Rule Alternate Option allows the 
Transmission Provider to avoid unrealistic construction completion 
dates by notifying the Interconnection Customer that it is unable to 
meet the established dates. We agree with PacifiCorp that any delay on 
the part of the Interconnection Customer in meeting its construction 
completion dates should grant an automatic extension to the 
Transmission Provider. We note that Final Rule LGIA Article 5.3 
(Liquidated Damages) provides that no liquidated damages shall be paid 
to the Interconnection Customer if the Interconnection Customer is not 
ready to commence use of the Transmission Provider's Interconnection 
Facilities and Network Upgrades on the specified construction dates 
except if such delay is due to the Transmission Provider's delay.\71\
    356. With regard to the concern that giving the Interconnection 
Customer the right to construct the Transmission Provider's 
Interconnection Facilities and Stand Alone Network Upgrades could 
threaten the safety and reliability of the Transmission System, Final 
Rule LGIA Article 5.2 (General Conditions Applicable to Options to 
Build) has several safeguards. For example, the Interconnection 
Customer is required to use Good Utility Practice and the standards and 
specifications provided in advance by the Transmission Provider. In 
addition, the Transmission Provider has the right to approve the 
engineering design, the equipment acceptance tests, and the 
construction of the Transmission Provider's Interconnection Facilities 
and Stand Alone Network Upgrades.
---------------------------------------------------------------------------

    \71\ Other comments on this issue are addressed in part II.C.8.b 
(Liquidated Damages).
---------------------------------------------------------------------------

    357. In response to those comments seeking an indemnification or 
hold harmless provision to protect the Transmission Provider from 
liability arising out of the Interconnection Customer's exercising its 
right to build, the Commission adds an indemnification clause to Final 
Rule LGIA Article 5.2 (General Conditions Applicable to Options to 
Build).
    358. With respect to various modifications that Southern and the 
Construction Issues Coalition seek, Final Rule LGIA Article 5.2 
(General Conditions Applicable to Options to Build) adds several 
provisions proposed by these commenters, such as a requirement that the 
Interconnection Customer (1) provide a construction schedule in advance 
of the start of construction, (2) remedy deficiencies brought to its 
attention by the Transmission Provider, and (3) carry warranties for 
equipment similar to those carried by the Transmission Provider. 
However, the Commission declines to grant fully the high level of 
Transmission Provider control that Southern and the Construction Issues 
Coalition seek, such as approval of subcontractors and vendors. Such 
control would be overly broad, and the Transmission Provider's ability 
to seek remedy of any deficiencies should enable it to carry out its 
responsibilities. The Commission also will deny SoCal Edison's request 
that the Interconnection Customer bear the Transmission Provider's 
costs associated with the oversight of construction performed by the 
Interconnection Customer because such costs are de minimus.
    359. With respect to NERC's comment that an Interconnection 
Customer should follow Good Utility Practice and the safety and 
reliability criteria of the Transmission Provider, such standards are 
in Final Rule LGIA Article 5.2 (General Conditions Applicable to Option 
to Build).
    360. Regarding NYTO's argument that a minimum of 15 months is 
needed to complete construction of the Transmission Provider 
Interconnection Facilities and Network Upgrades, we conclude that 
specifying such a minimum period is unnecessary because under the 
Alternate Option, the Transmission Provider will be protected from 
incurring liquidated damages liability due to delays beyond its 
reasonable control or reasonable ability to cure.
    361. The Commission rejects American Transmission's proposal that 
the Transmission Provider have a right to step in and assume 
construction responsibilities in case of lapses by an Interconnection 
Customer. Since Article 5.1 permits the construction of only 
Transmission Provider Interconnection Facilities and Stand Alone 
Network Upgrades, the Commission believes that any such lapses would 
affect only the Interconnection Customer. If it has the potential to 
affect anyone other than the Interconnection Customer, the Commission 
will address such concerns when brought to its attention.
    362. The Final Rule does not require that the Interconnection 
Customer transfer ownership of the Transmission Provider's 
Interconnection Facilities and Stand Alone Network Upgrades to the 
Transmission Provider after the Interconnection Customer completes 
them; however, the Commission will require transfer of control of such 
facilities. Reliability does not require ownership, but it does require 
control by the Transmission Provider.\72\
---------------------------------------------------------------------------

    \72\ See Arizona Public Service Company, 102 FERC ] 61,303 
(2003). We also note that the ownership of Stand Alone Network 
Upgrades by an Interconnection Customer is discussed further under 
``Rules Governing the Payment of Credits'' in part C.1 of this 
Preamble.
---------------------------------------------------------------------------

    363. With respect to PJMTO's request for provisions regarding the 
Transmission Owner's role in obtaining permits and land rights, Final 
Rule LGIA Articles 5.12 (Access Rights) and 5.13 (Lands of Other 
Property Owners) do not distinguish between the role of the 
Transmission Provider and the Transmission Owner in assisting the 
Interconnection Customer in obtaining land rights and permits. The 
Final Rule LGIA is not the appropriate place to set forth the nature of 
the relationship between the Transmission Owner and Transmission 
Provider. In addition, the Commission is stating in this Final Rule 
that it will give an independent transmission provider such as an RTO

[[Page 49879]]

or ISO the flexibility to propose different rules in its compliance 
filing.
    364. The Commission denies American Transmission's request to 
include a provision in the Final Rule LGIA for the Transmission 
Provider to review and approve the Interconnection Customer's budget if 
an Interconnection Customer assumes the responsibility to construct the 
Transmission Provider's Interconnection Facilities and Stand Alone 
Network Upgrades. The Interconnection Customer is likely to act in its 
best interests to keep the costs down because it initially funds the 
construction costs. In addition, allowing a Transmission Provider 
unfettered discretion to review the budget would encourage 
anticompetitive behavior.
    365. With regard to Dynegy's concern regarding subcontractors, 
Article 26.1 provides that nothing in the LGIA prevents a Party from 
using the services of any subcontractor to perform its obligations 
under the LGIA and that it is up to the Party to ensure that the 
subcontractor complies with the LGIA. In addition, the hiring Party 
remains primarily liable to the other Party for the performance of the 
subcontractor. Thus, if the subcontractor fails to meet the 
Interconnection Customer's obligations under the LGIA or to the 
Transmission Provider, the Interconnection Customer is obligated to 
remedy any deficiencies. Accordingly, the Commission is removing the 
words ``including selection of subcontractors'' from Article 5.1 to 
ensure consistency between that article and Article 26.1.
    366. Article 5.2--Power System Stabilizers (In the Final Rule LGIA: 
Article 5.4)--Proposed LGIA Article 5.2 would have required the 
Interconnection Customer to install, operate and maintain power system 
stabilizers, if required by the Interconnection System Impact Study. 
The Transmission Provider would establish minimal acceptable settings 
subject to the design and operating limitations of the Generating 
Facility.
Comments
    367. Several commenters, including Cal ISO, Dairyland Power, 
Dominion Resources, and NSTAR, argue that the Transmission Provider's 
ability to require the installation of a power system stabilizer should 
not be limited to when required by the Interconnection System Impact 
Study because the Generating Facility may become a source of power 
system oscillations on the Transmission System many years after 
operations commence. Dominion Resources contends that a Transmission 
Provider should be able to require an Interconnection Customer to 
install a power system stabilizer any time it determines through its 
operating experience that a power system stabilizer is needed.
    368. Cal ISO argues that the requirement to install a power system 
stabilizer should not be based on the ``Interconnection System Impact 
Study,'' but should be based on the ``guidelines and procedures of the 
Applicable Reliability Council.'' NERC points out that the Transmission 
System reliability criteria and use of power system stabilizers vary 
from one region to another, depending on the electrical characteristics 
of the system. NERC states that, as a result, it is important that the 
system operator be notified if a power system stabilizer is inoperable 
or removed from service.
Commission Conclusion
    369. The Commission agrees with Cal ISO that an Interconnection 
Customer should be required to install a power system stabilizer in 
accordance with the standards of the Applicable Reliability Council. 
This also addresses Dominion Resources' concern that installation of a 
power system stabilizer on a Generating Facility may be needed at a 
later time; such a requirement should be covered in the guidelines of 
the Applicable Reliability Council. If the Applicable Reliability 
Council guidelines do not cover such matters, a Transmission Provider 
may justify its reasons for wishing to require a power system 
stabilizer despite the lack of such a requirement in the Applicable 
Reliability Council guidelines when it makes its compliance filing.
    370. The Commission will adopt NERC's recommended language 
requiring notification when power system stabilizers are removed or are 
not available for automatic operation.
    371. This article is designated Article 5.4 in the Final Rule LGIA.
    372. Article 5.8.1--Generator Specifications (In the Final Rule 
LGIA: Article 5.10.1)--Proposed LGIA Article 5.8.1 would have required 
that the Interconnection Customer submit the final specifications for 
the Interconnection Customer's Interconnection Facilities, including 
System Protection Facilities, to the Transmission Provider for review 
at least 90 Calendar Days prior to the Initial Synchronization Date. It 
proposed to require the Transmission Provider to provide comments to 
the Interconnection Customer within 30 Calendar Days of the 
Interconnection Customer's submission.
Comments
    373. Cleco and NYTO assert that the Interconnection Customer should 
have to submit initial specifications for the Interconnection 
Customer's Interconnection Facilities to the Transmission Provider at 
least 180 Calendar Days prior to the Initial Synchronization Date with 
the understanding that the initial specifications are subject to 
change. Such initial specifications would give them an opportunity to 
perform the planning required for the new facilities and upgrade.
Commission Conclusion
    374. The Commission agrees with Cleco and NYTO and adopts their 
proposal in the Final Rule.
    375. This article is designated Article 5.10.1 in the Final Rule 
LGIA.
    376. Article 5.8.2--Transmission Provider's Review (In the Final 
Rule LGIA: Article 5.10.2)--Proposed LGIA Article 5.8.2 would have 
required that the Interconnection Customer to modify the 
Interconnection Customer's Interconnection Facilities as may be 
reasonably required by the Transmission Provider to ensure that they 
are compatible with the telemetry communications and safety 
requirements of the Transmission Provider.
Comments
    377. NERC requests that the word ``reasonably'' be removed from the 
article and recommends referring to Good Utility Practice.
Commission Conclusion
    378. The Final Rule revises this article to refer to Good Utility 
Practice, as requested by NERC, but it does not eliminate the term 
``reasonably.'' The Interconnection Customer's Interconnection 
Facilities are installed at the expense of the Interconnection 
Customer, but must be reviewed and meet the specifications and 
requirements established by the Transmission Provider. The term 
``reasonably'' helps to ensure that the Transmission Provider does not 
require the installation of equipment beyond what is necessary for 
compatibility and reliability, or beyond the standards the Transmission 
Provider would apply to its own Interconnection Facilities.
    379. This article is designated Article 5.10.2 in the Final Rule 
LGIA.
    380. Article 5.8.3--Interconnection Customer Interconnection 
Facilities Construction (In the Final Rule LGIA: Article 5.10.3)--
Proposed LGIA Article 5.8.3 would have required the Interconnection 
Customer to provide to

[[Page 49880]]

the Transmission Provider certain ``as built'' drawings, information, 
and documents pertaining to the construction of the Interconnection 
Customer's Interconnection Facilities.
Comments
    381. NERC proposes that the Interconnection Customer also provide 
the Transmission Provider specifications for the excitation system, 
automatic voltage regulator, generator control and protection settings, 
transformer tap settings, and communications.
Commission Conclusion
    382. The Commission adopts NERC's proposal and revises Proposed 
LGIA Article 5.8.3 to make clear that the list of information to be 
provided is not exhaustive.
    383. This article is designated Article 5.10.3 in the Final Rule 
LGIA.
    384. Article 5.11--Lands of Other Property Owners (In the Final 
Rule LGIA: Article 5.13)--Article 5.11 proposed that Transmission 
Providers would be required to use Reasonable Efforts, including use of 
its eminent domain authority if necessary, to facilitate the 
interconnection of Generating Facilities. The Interconnection Customer 
would be required to pay any expenses related to obtaining rights of 
use, rights of way, easements, or eminent domain costs that the 
Transmission Provider might incur, up to the fair market value of the 
land or ``such other price as required by the applicable inter-
affiliate transaction requirements.''
Comments
    385. EPSA and several Interconnection Customers, including Calpine, 
El Paso, and Reliant Energy, request that the Transmission Provider or 
Transmission Owner be required to use its eminent domain authority to 
facilitate the exercise of the Parties' rights and obligations under 
the LGIA to the extent it is permitted to do so. Numerous Transmission 
Provider commenters express concern that the eminent domain provisions 
of the NOPR are too broad, placing the Transmission Provider in an 
untenable situation. Specifically, several argue that the Commission's 
proposal conflicts with state limitations on their eminent domain 
authority.\73\ Cleco, for example, states that in Louisiana, a utility 
cannot legally request eminent domain on behalf of another entity. 
National Grid and the Construction Issues Coalition argue that many 
states require that eminent domain authority be used only ``to further 
a public need''--something that is lacking in the NOPR. Cinergy 
proposes deleting the entire eminent domain provision, arguing that it 
imposes an inappropriate burden on the Transmission Provider and 
reiterates that it conflicts with existing state laws. Similarly, El 
Paso requests that the use of eminent domain be at the sole discretion 
of the Transmission Provider or Transmission Owner, citing the numerous 
factors that must be considered in such an undertaking.
---------------------------------------------------------------------------

    \73\ E.g., Cinergy, Cleco, the Construction Issues Coalition, 
Duke Energy, National Grid, PJMTO, Salt River Project, SoCal Edison, 
and Southern.
---------------------------------------------------------------------------

    386. Duke Energy proposes that the Commission require a 
Transmission Provider to use eminent domain only when it reasonably 
determines that (1) other alternatives are not available and (2) use of 
eminent domain is permissible under state law. Duke Energy also asserts 
that the Transmission Provider should provide a written explanation of 
why other alternatives are appropriate or why the use of eminent domain 
would not be permitted under state law.
    387. National Grid argues that the Commission should eliminate the 
eminent domain provision, citing the long delays and heavy litigation 
that often accompany the seizure of property. National Grid, the 
Construction Issues Coalition, and others argue that regulation of 
eminent domain differs from state to state, making the type of national 
contract clause envisaged by the Commission impossible.
    388. PJMTO also opposes the eminent domain provision, arguing that 
eminent domain is an unpopular last resort and one that is rarely 
exercised even by a Transmission Provider or Transmission Owner on its 
own behalf. Instead, it proposes requiring that a Transmission Provider 
or Transmission Owner, upon receipt of a reasonable request, to assist 
an Interconnection Customer in acquiring land rights using efforts 
similar to those it typically undertakes on its own behalf.
    389. PJMTO also argues for eliminating the cap on land value, 
noting that individual state laws already contain mechanisms for 
valuing property. The Commission may lack authority to require a price 
cap on property sold by an Affiliate of a Transmission Provider, 
according to National Grid and the Construction Issues Coalition.
    390. Salt River Project also opposes the eminent domain language 
and instead proposes that the Commission work with federal land holding 
agencies to streamline the procurement of land rights. SoCal Edison 
adds that it does not believe the Commission has the authority to 
impose an eminent domain requirement. Instead, it proposes requiring 
Transmission Providers to exercise good faith efforts in using whatever 
eminent domain authority state law may allow on an Interconnection 
Customer's behalf.
Commission Conclusion
    391. We agree that a mandatory eminent domain requirement can be 
difficult for a Transmission Provider or Transmission Owner. The Final 
Rule requires that a Transmission Provider or Transmission Owner use 
efforts similar to those it typically undertakes on its own behalf (or 
on behalf of an Affiliate) to secure land rights for the 
Interconnection Customer. We are also clarifying that the Transmission 
Provider or Transmission Owner's efforts must also comply with state 
law.
    392. If the Transmission Provider is an independent entity, the 
Transmission Owner, the Transmission Provider, and the Interconnection 
Customer may all sign the LGIA. This allows a Transmission Owner and a 
Transmission Provider to jointly undertake efforts to secure land 
rights for the Interconnection Customer.
    393. Regarding the cap on land value, while the Commission remains 
concerned that Affiliates of a Transmission Provider or Transmission 
Owner might request above-market compensation for land necessary to 
facilitate the interconnection, the Commission also recognizes that the 
valuation of property is a matter of state law. Therefore, we eliminate 
this cap in the Final Rule.
    394. This article is designated Article 5.13 in the Final Rule 
LGIA.
    395. Article 5.12--Early Construction of Base Case Facilities--
Proposed LGIA Article 5.12 would have required that, at the 
Interconnection Customer's request, the Transmission Provider must 
construct, using Reasonable Efforts to accommodate the Interconnection 
Customer's In-Service Date, all or any portion of Network Upgrades 
reflected in the Base Case of the Interconnection Customer's Facilities 
Study that are necessary to accommodate the Interconnection Customer's 
In-Service Date. Construction of the Network Facilities would be 
required even if the Network Facilities are shared with other 
interconnecting generators that would not be completed in time to meet 
the Generating Facility's In-Service Date.
Comments
    396. MidAmerican contends that this article is inconsistent with 
Section 12.3

[[Page 49881]]

of the NOPR LGIP (Construction Sequencing), which requires that the 
Transmission Provider use Reasonable Efforts to accommodate the 
Generating Facility's In-Service Date. Accordingly, it proposes that 
Article 5.12 be revised.
    397. Cleco argues that the Party requesting early construction 
should pay all Network Upgrade costs associated with the early 
construction. FP&L argues that to avoid the need to continuously 
restudy and revise Network Upgrades, the LGIA should require the timely 
construction of Network Upgrades relied upon by lower-queued 
Interconnection Customers.
    398. Entergy, Dairyland Power, and others state that the Final Rule 
should address which Interconnection Customer finances Network Upgrades 
in the event of a delay by the higher-queued Interconnection Customer 
to whom the Network Upgrades are assigned. Cal ISO states that language 
regarding milestones should be inserted between proposed LGIA Articles 
5.12 and Article 5.13.
Commission Conclusion
    399. In response to the concerns of Entergy and others, the 
Commission notes that a lower-queued Interconnection Customer always 
has the right under this article to accelerate its construction 
schedule by completing all required Network Upgrades on schedule 
despite any delays by higher-queued Interconnection Customers. This 
would require the lower-queued Interconnection Customer to fund those 
Network Upgrades at least initially; however, in the absence of 
participant funding, it would be reimbursed over time through credits, 
with interest. Article 5.12 does not need to be changed to allow this.
    400. Regarding ``best'' versus ``reasonable'' efforts, the 
Commission agrees with MidAmerican that there was an inconsistency 
between proposed LGIA Article 5.12 and proposed LGIP Section 12.3, 
which requires the Transmission Provider to use Reasonable Efforts to 
accommodate the Interconnection Customer's requested In-Service Date. 
Article 5.12 is the more stringent of the two because it requires the 
Transmission Provider to construct facilities necessary to accommodate 
the Interconnection Customer's In-Service Date. The Commission's intent 
is to expedite the interconnection of new generators in a manner that 
does not undermine the reliability of a Transmission Provider's 
Transmission System. However, there may be circumstances beyond the 
Transmission Provider's control that would prevent it from meeting the 
construction deadline. To address this concern and to ensure 
consistency between this article and LGIP Section 12.3, the Commission 
agrees with MidAmerican's comment that the term ``Reasonable Efforts'' 
is appropriate. This article, which is designated Article 5.15 in the 
Final Rule LGIA, uses that term.
    401. An additional article regarding milestones is not needed. By 
the time the LGIA is executed, the Parties will have already 
established under Article 5.1 the milestones Cal ISO refers to.
    402. Article 5.13--Suspension (In the Final Rule LGIA: Article 
5.16)--Proposed LGIA Article 5.13 would allow the Interconnection 
Customer, upon written notice to the Transmission Provider, to suspend 
work on Interconnection Facilities or Network Upgrades as long as the 
Interconnection Customer agrees to be responsible for all reasonable 
and necessary costs incurred by the Transmission Provider in suspending 
work. This article proposed that the LGIA be deemed terminated if the 
Interconnection Customer has not requested the Transmission Provider to 
recommence work within three years from the date of the suspension 
request.
Comments
    403. Peabody supports allowing an Interconnection Customer to 
suspend work on the interconnection for up to three years because this 
offers the Interconnection Customer the flexibility that large-scale 
generation projects need to accommodate permitting and other delays. 
Other commenters, including BPA, Cinergy, and SoCal PPA, argue that a 
three year suspension period is unreasonably long. SoCal PPA further 
states that substantial changes to the Transmission System could occur 
during that time. Western believes that letting an Interconnection 
Customer contract with a Transmission Provider for an interconnection 
and then suspend operation for as long as three years could allow the 
Interconnection Customer to game the system. Consequently, Western and 
other commenters argue that the suspension period should be limited to 
six months, while Cinergy recommends limiting the suspension period to 
one year. NYTO believes the entire provision is unreasonable.
    404. Cinergy requests that Article 5.13 make it clear that if an 
Interconnection Customer gives a Transmission Provider written notice 
of suspension of work, the Transmission Provider does not have to 
obtain written permission from the Interconnection Customer to cancel 
or suspend material, equipment and labor contracts associated with that 
work, and that the Commission clarify what is included in the 
definition of ``suspension of work.'' Further, to prevent gaming the 
process, Cinergy proposes that an Interconnection Customer be allowed 
to provide written notice of suspension of work only once per 
Generating Facility.
    405. Dominion Resources questions whether the responsibility for 
funding the cost of Network Upgrades would fall on the Interconnection 
Customer suspending or terminating construction or on other 
Interconnection Customers remaining in the queue. The Interconnection 
Customer actually using the Network Upgrades should be required to pay 
for them. Dominion Resources recognizes that this may shift costs from 
the Interconnection Customer requesting the suspension to 
Interconnection Customers further down the queue, which could mean that 
an Interconnection Customer will be subject to potential cost increases 
even after signing an LGIA. However, it views this as a more acceptable 
allocation of cost responsibility than requiring an Interconnection 
Customer that desires to suspend or terminate its project to bear the 
full cost of Network Upgrades it may never use. In order to avoid 
gaming of the interconnection queue, if the suspending Interconnection 
Customer later continues with its project, it should be required to 
reimburse any lower-queued Interconnection Customers for any Network 
Upgrade costs related to its suspension.
    406. NERC and MidAmerican comment that there must be a requirement 
to leave the system in a safe and reliable condition, consistent with 
Good Utility Practice, if a project is suspended in a partially 
complete state.
    407. The Midwest ISO requests that Article 5.13 make it clear that 
a suspending Interconnection Customer must provide notice to the 
Transmission Owner and to any independent Transmission Provider.
    408. The Midwest ISO and Georgia Transmission request clarification 
that the Transmission Provider will be reimbursed for any expenses 
related to the suspension.
Commission Conclusion
    409. Many commenters express concern over the effect that a 
suspending Interconnection Customer might have on lower-queued 
Interconnection Customers. We agree with Dominion Resources that, in 
some cases, a subsequent (i.e., lower queued) Interconnection Customer 
may be responsible for funding the costs of completing the Network 
Upgrades constructed for a higher-queued

[[Page 49882]]

Interconnection Customer that suspends or terminates construction of 
such Network Upgrades. However, the Commission is not obligating in 
this Final Rule a subsequent (i.e., lower queued) Interconnection 
Customer to pay for these costs regardless of whether that 
Interconnection Customer benefits from the facilities, since this would 
subject that Interconnection Customer to significant financial risk. 
Prices quoted for interconnection in the LGIA are estimates based on 
the results of studies conducted during the LGIP phase of the 
interconnection process. If it is apparent to the Parties at the time 
they execute the LGIA that contingencies (such as other Interconnection 
Customers terminating their LGIAs) might affect the financial 
arrangements, the Parties should include such contingencies in their 
LGIA and address the effect of such contingencies on their financial 
obligations. If no such contingencies are accounted for in the executed 
LGIA, since the costs of Network Upgrades may influence an 
Interconnection Customer's decision whether it can enter into an 
Interconnection Agreement, we leave it to the subsequent 
Interconnection Customer and the Transmission Provider to revisit the 
negotiated terms of their executed Interconnection Agreement. We deny 
the requests to revise or delete Proposed LGIA Article 5.13 on these 
grounds.\74\
---------------------------------------------------------------------------

    \74\ An RTO or ISO with participant funding may propose an 
alternative policy for Commission approval.
---------------------------------------------------------------------------

    410. We also retain the three year period. The Commission agrees 
with Peabody that allowing the Interconnection Customer to have the 
Transmission Provider suspend work for up to three years allows 
generation projects the flexibility necessary to accommodate permitting 
and other delays that are particularly likely to affect large projects.
    411. The Final Rule requires the Interconnection Customer to pay 
all reasonable costs that the Transmission Provider incurs in 
suspending work on its Interconnection Facilities, as well as costs 
that are reasonable and necessary to ensure the safety and integrity of 
the Transmission Provider's Transmission System during the suspension.
    412. We reject Cinergy's proposal that an Interconnection Customer 
be limited to one suspension period per Generating Facility. The LGIA 
is designed to be a standard agreement that will operate in any number 
of situations, and to limit arbitrarily each Generating Facility to 
only one suspension period, regardless of circumstances, is 
unreasonable.
    413. We adopt NERC's proposal that Article 5.13 require a 
suspending Interconnection Customer to leave the system in a safe and 
reliable condition in accordance with Good Utility Practice and the 
Transmission Provider's safety and reliability criteria.
    414. In response to Cinergy's request for clarification of the term 
``suspension of work,'' the Commission clarifies that a Transmission 
Provider, upon receiving written notice of suspension from the 
Interconnection Customer, is authorized to cancel or suspend material, 
equipment and labor contracts associated with that work. If reliability 
could be compromised by stopping construction, the Transmission 
Provider must continue construction until it reaches a stage where it 
can safely discontinue work. Any costs associated with suspension (or 
of completing a discrete Network Upgrade) shall be deducted from the 
Interconnection Customer's security deposit.
    415. With respect to the Midwest ISO's request to require an 
Interconnection Customer to notify both the Transmission Owner and the 
Transmission Provider, we clarify that if both Parties are signatories 
to the LGIA, the Interconnection Customer is required to notify both 
the Transmission Owner and the Transmission Provider.
    416. This article is designated Article 5.16 in the Final Rule 
LGIA.
    417. Article 5.14--Taxes--Proposed LGIA Article 5.14 addressed the 
allocation of responsibilities that would apply with respect to the tax 
treatment of an Interconnection Customer's payments or property 
transfers to the Transmission Provider for the installation of the 
Transmission Provider's Interconnection Facilities and Network 
Upgrades.
    418. Internal Revenue Service policy, as expressed in IRS Notice 
2001-82 and IRS Notice 88-129, delineates the standards under which an 
Interconnection Customer's payments to build interconnections 
facilities will not create a current tax liability for a Transmission 
Provider. The ``safe harbor'' provisions described in these notices 
generally prevent the transaction from being considered a taxable 
transfer. If the IRS changes its policy, or if the transaction no 
longer qualifies for safe harbor protection and tax liability results, 
under the provisions in Article 5.14 the Interconnection Customer would 
indemnify the Transmission Provider for any tax liability that may 
arise from the payments to build the Transmission Provider's 
Interconnection Facilities and Network Upgrades.
Comments
    419. Several entities argue that the IRS safe harbor does not 
eliminate all risk of these payments being treated as taxable income to 
the Transmission Provider because the IRS may revisit its policies in a 
manner that establishes tax liability for interconnections, including 
the credits provided against transmission service in exchange for the 
reimbursement of Network Upgrades.\75\ These commenters argue that 
Article 5.14 should account for these risks.
---------------------------------------------------------------------------

    \75\ E.g., EEI, FP&L, MidAmerican, and TXU.
---------------------------------------------------------------------------

    420. Some commenters, including Duke, EPSA, NYTO, and PG&E, argue 
that the Commission should adopt Article 5.16.5 of the Consensus LGIA, 
which ensures that a Transmission Owner is made whole when a 
contribution from an Interconnection Customer is non-taxable when made, 
but the IRS later imposes tax liability. NYTO further suggests that the 
two revisions to Consensus LGIA Article 5.16.5 that were proposed by 
the Transmission Owners should be retained. These provisions would 
ensure that the Transmission Owner would be reimbursed for taxes 
imposed more than ten years after the date the Interconnections 
Facilities are placed in service and allow for security for such 
potential tax liability.
Commission Conclusion
    421. The Commission finds that Article 5.14 as proposed 
appropriately addresses the risk that the contracting Parties face 
because of the uncertainties regarding IRS policy, because it requires 
the Interconnection Customer to indemnify the Transmission Provider in 
the event that the IRS changes or clarifies its policy.
    422. The Commission concludes that a discussion of subsequent 
taxable events is appropriate for the Final Rule LGIA.\76\ The two 
additions NYTO requests are unnecessary because Final Rule LGIA Article 
5.17.3 addresses limitation of indemnification and the ability of the 
Transmission Provider to require security from the Interconnection 
Customer.
---------------------------------------------------------------------------

    \76\ Subsequent taxable events are discussed in Final Rule LGIA 
Article 5.17.6. This discussion retains the article numbers that 
appeared in the NOPR LGIA.
---------------------------------------------------------------------------

    423. Article 5.14.1--Interconnection Customer Payments Not Taxable 
(In the Final Rule LGIA: Article 5.17.1)--Proposed LGIA Article 5.14.1 
would have provided that, consistent with IRS Notice 2001-82 and IRS 
Notice 88-129 (discussing the IRS safe harbor provisions), all payments 
made by the Interconnection Customer to the

[[Page 49883]]

Transmission Provider for the installation of Transmission Provider's 
Interconnection Facilities and Network Upgrades are non-taxable, either 
as contributions to capital, or as advances.
Comments
    424. Peabody endorses this proposed provision. It argues that it is 
in the best interest of Interconnection Customers, Transmission 
Providers and customers to take advantage of the tax exemption for 
payments that Interconnection Customers make to Transmission Providers 
for Network Upgrades made pursuant to an LGIA.
    425. Progress Energy argues that an Interconnection Customer's 
right to terminate the LGIA on 30 Calendar Days' written notice may 
jeopardize the safe harbor treatment of Interconnection Customer 
contributions because the IRS safe harbor provisions apply only to 
interconnection agreements with a minimum term of ten years.
Commission Conclusion
    426. In response to Progress Energy, the mere existence of the 30 
day termination provision does not mean that the Interconnection 
Agreement conflicts with the IRS minimum term requirement of ten years. 
Nevertheless, if either Party in fact terminates the LGIA before ten 
years have passed, the IRS may then conclude that the Interconnection 
Customer's payments are indeed taxable. Accordingly, the Parties should 
consider these possible tax consequences when deciding whether to 
terminate an LGIA within ten years.
    427. This article is designated Article 5.17.1 in the Final Rule 
LGIA.
    428. Article 5.14.2--Representations and Covenants (In the Final 
Rule LGIA: Article 5.17.2)--Proposed LGIA Article 5.14.2 set forth the 
representations and covenants that would be agreed to by the Parties to 
conform to the requirements of the IRS safe harbor provisions set forth 
in the relevant IRS Notices.
Comments
    429. FirstEnergy argues that in order for the Interconnection 
Customer's payments to the Transmission Provider to be deemed non-
taxable under the IRS safe harbor provisions, ownership of the 
electricity generated at the Generating Facility must pass to another 
entity prior to the transmission of the electricity on the Transmission 
System. FirstEnergy asks the Commission to clarify the representations 
and proposed covenants in proposed LGIA Article 5.14.2 to refer to the 
Point of Interconnection or Point of Change of Ownership.
Commission Conclusion
    430. We do not intend to interpret the IRS safe harbor provisions, 
and so we leave it to the Parties to ensure that their conduct, 
including the point at which the ownership of electric energy produced 
by the Generating Facility changes hands, conform to IRS policy.
    431. This article is designated Article 5.17.2 in the Final Rule 
LGIA.
    432. Article 5.14.3--Indemnification for Taxes Imposed Upon 
Transmission Provider--Proposed LGIA Article 5.14.3 would have required 
that the Interconnection Customer indemnify (hold harmless) the 
Transmission Provider from income taxes imposed against the 
Transmission Provider as a result of payments or property transfers 
made by Interconnection Customer to the Transmission Provider under the 
LGIA--that is, if the IRS safe harbor provisions do not keep the 
Transmission Provider from having to pay income taxes. The Transmission 
Provider would not include a gross-up \77\ for income taxes unless 
either it has made a good faith determination that the payment or 
transfers should be recorded as income subject to taxation, or any 
Governmental Authority directs Transmission Provider to treat the 
payment or transfers as subject to taxation. As an alternative to the 
gross-up, the Transmission Provider would be able to require the 
Interconnection Customer to provide security in a form reasonably 
acceptable to the Transmission Provider and in an amount equal to the 
Interconnection Customer's estimated tax liability.
---------------------------------------------------------------------------

    \77\ A gross-up for income taxes is a dollar amount calculated 
to determine the Interconnection Customer's estimated tax liability 
to the Transmission Owner.
---------------------------------------------------------------------------

Comments
    433. MidAmerican supports Article 5.14.3 and recommends that the 
Transmission Owner be added to this provision by changing Transmission 
Provider to Transmission Provider or Transmission Owner.
    434. LADWP argues that although Section 5 of the Commission's OATT 
provides that the transmission customer must indemnify the Transmission 
Provider that owns facilities financed by tax-exempt debt, it is not 
clear whether that provision would apply to an Interconnection 
Customer. LADWP asks the Commission to clarify that an Interconnection 
Customer is liable for the cost of any adverse tax consequences visited 
on the public power Transmission Owner because of the interconnection.
    435. SoCal PPA believes that the Interconnection Customer's 
obligation to reimburse the Transmission Provider for taxes should 
cover ad valorem property taxes and other taxes assessed against the 
Transmission Provider.
    436. NE Utilities seeks an alternative method for a Transmission 
Provider to recover tax liability for which it is not reimbursed due to 
circumstances beyond its control--for example, if the security 
instrument provided by the Interconnection Customer does not cover the 
full tax liability or if the Interconnection Customer defaults on its 
obligation to indemnify the Transmission Provider. It argues that in 
these situations, the Commission should authorize the Transmission 
Provider to recover the remaining balance from customers.
    437. TXU says that the Commission should provide comprehensive 
protection for a Transmission Provider if the IRS decides that 
Interconnection Customer payments are taxable. A letter of credit, as 
provided for in proposed LGIA Article 5.14.3, would provide some 
security for the Transmission Provider, but may limit the process of 
contesting IRS positions and may prove otherwise difficult to 
administer. Without elaborating, TXU requests that a more comprehensive 
security device be required until definitive guidance is received from 
the IRS.
    438. SoCal Edison states that if a Transmission Provider or 
Transmission Owner is unable to recover from a generator any income tax 
incurred as a result of an interconnection arrangement, the Commission 
should provide Transmission Providers and Transmission Owners with a 
regulatory backstop that would guarantee the recovery of these income 
taxes in transmission rates. It adds that to the extent that a 
Transmission Provider or Transmission Owner is unable to include income 
taxes in transmission rates because of other regulatory restrictions 
(such as a rate freeze or the requirement to have state commission 
approval for such rates), the Transmission Provider or Transmission 
Owner should have discretion in determining the appropriate form and 
level of security required from the generator at the time the IA 
becomes effective, and a right to offset any tax liability against any 
transmission credit owed. Further, SoCal Edison says Article 5.14 must 
state that any future payment shall include interest and penalties, as 
well as any other costs imposed by the IRS.

[[Page 49884]]

    439. Progress Energy advocates that Article 5.14.3 include certain 
requirements regarding the Interconnection Customer-provided financial 
guaranty, such as requiring that the guaranty be issued by a financial 
entity acceptable to the Transmission Provider and that it be non-
revocable for the term of the LGIA.
    440. Dynegy proposes that the Commission make the security 
obligation mutual. The Final Rule should state that, when the 
Transmission Provider requires the Interconnection Customer to pay a 
tax gross-up because the Transmission Provider has determined in good 
faith that the payments or property transfers made to Transmission 
Provider should be reported as income subject to taxation, the 
Transmission Provider must post security for the amount of the gross-
up, plus interest. This will protect the Interconnection Customer from 
becoming an unsecured creditor in the event of a Transmission Provider 
insolvency before the issuance of a private letter ruling that could 
result in the refund of the tax gross-up payment and interest to the 
Interconnection Customer.
    441. Calpine argues that the security requirement should bear a 
reasonable relationship to the risk to which a transmission owner is 
exposed. Instead of allowing the Transmission Provider to require an 
Interconnection Customer to meet a costly security requirement--using 
funds that the Interconnections Customer could put to better use 
developing generation and infrastructure--the Commission should 
authorize the Transmission Provider to recover in its rates any future 
tax liability. If the Commission is unwilling to expose ratepayers to 
this risk, it should modify the Final Rule to ensure that any residual 
security that the Interconnection Customer would be obligated to post 
be reasonably related to the actual risk to which the Transmission 
Provider is exposed.
    442. EPSA argues that an Interconnection Customer should not be 
required to pay the taxes of a Transmission Owner unless the 
Interconnection Customer is entitled to a refund if it is ultimately 
determined that the amounts paid for Interconnection Facilities and 
Network Upgrades are not subject to tax. If the Transmission Owner in 
an Affected System is not a Party to the Interconnection Customer's 
LGIA, the Interconnection Customer will have no means to enforce its 
right to a refund of any amounts it has previously paid in taxes. A 
Transmission Owner is able to insist on security indefinitely, to 
protect against the remote possibility of a change in circumstances 
that might become a subsequent taxable event, the balance reflected in 
the Consensus Tax Provisions would be upset.
Commission Conclusion
    443. In response to MidAmerican's request that proposed LGIA 
Article 5.14.3, which is designated Article 5.17.3 in the Final Rule 
LGIA, specify that the Transmission Owner as well as the Transmission 
Provider is indemnified, the term ``Transmission Provider'' in the LGIA 
includes the Transmission Owner, where applicable. Accordingly, there 
is no need to revise this provision.
    444. SoCal PPA raises tax issues beyond the scope of Article 5.17, 
since this article addresses only federal tax liability. The Commission 
rejects the proposal that ad valorem property taxes be included in the 
Interconnection Customer's obligation to reimburse the Transmission 
Provider for taxes, since these expenses are annual and are more 
analogous to operating expenses that are not covered under the LGIA.
    445. The Commission rejects requests that the Transmission Provider 
may recover any outstanding federal tax liability balance from 
customers. A Transmission Provider is to use the security option in 
Article 5.17.3 to protect itself from the risk that an Interconnection 
Customer will not pay the potential tax liability, so there should not 
be any outstanding liability. This, along with the ability to require 
security or, where appropriate, a gross-up, should sufficiently protect 
the Transmission Provider from potential tax liability. Should the 
Transmission Provider be unable for some reason to recover the full 
cost of its tax liability, it may propose to recover such costs in its 
rates, but the Commission is not pre-authorizing the recovery of these 
costs generically.
    446. In response to SoCal Edison's request for a requirement that 
future payment include interest and penalties, as well as any other 
costs imposed by the IRS, this requirement is in Article 5.17.3.
    447. The Commission rejects as unnecessary Progress Energy's 
request for greater specificity regarding the guaranty because Article 
5.17.3 already gives the Transmission Provider the discretion to choose 
the security in a form ``reasonably acceptable'' to the Transmission 
Provider. Accordingly, the Transmission Provider has the discretion to 
require the Interconnection Customer to offer security that meets the 
criteria Progress Energy specifies.
    448. The Commission agrees with Dynegy that the Interconnection 
Customer should receive security if a Transmission Provider determines 
that the payments or property transfers should be reported as income 
subject to taxation. It is reasonable to require the Transmission 
Provider to post security, since the gross-up puts the Interconnection 
Customer at risk in the event that it turns out that taxes do not have 
to be paid, but the Transmission Provider has become insolvent. Final 
Rule LGIA Article 5.17 gives the Interconnection Customer the option to 
request such security when the Transmission Provider has made an 
independent determination that taxes should be payable.\78\
---------------------------------------------------------------------------

    \78\ Security will not be available when a Governmental 
Authority directs a Transmission Provider to report payments of 
property as income subject to taxation.
---------------------------------------------------------------------------

    449. Regarding EPSA's argument that an Interconnection Customer 
should not be required to pay a gross-up unless it is entitled to a 
refund if the amounts paid ultimately are not taxed, the Commission 
notes that the refund protection is already in Article 5.17.7. This 
protection, together with the ability to require security for a gross-
up, should afford an Interconnection Customer sufficient protection 
against the risk of nonrecovery.
    450. EPSA raises issues regarding tax liability and Network 
Upgrades on Affected Systems. Obligations regarding tax liability and 
related indemnification should be set forth in a separate agreement 
between the Interconnection Customer and the Affected System related to 
the Network Upgrade.\79\
---------------------------------------------------------------------------

    \79\ See Part II.A.2--Section 3.5 (Coordination with Affected 
Systems).
---------------------------------------------------------------------------

    451. Finally, in response to EPSA's argument that proposed LGIA 
Article 5.14.3 of the LGIA permits a Transmission Provider to insist on 
security indefinitely, the Final Rule has been revised to state that 
indemnification will terminate at the earlier of the expiration of the 
ten year testing period, as contemplated by the IRS safe harbor 
provisions, or the applicable statute of limitations, or the occurrence 
of a subsequent taxable event contemplated by this article and the 
payment of any related indemnification obligation. These are reasonable 
end points for the indemnification obligation because once the earlier 
of either of these events occurs, there is no further risk of new tax 
liability and, therefore, no further need for indemnification.
    452. Article 5.14.4--Tax Gross-Up Amount (In the Final Rule LGIA: 
Article 5.17.4)--Proposed LGIA Article 5.14.4

[[Page 49885]]

described how the Parties would calculate the Tax Gross-Up Amount.
Comments
    453. FP&L argues that the tax gross-up methodology in proposed LGIA 
Article 5.14.4, when combined with the requirement that the 
Transmission Provider provide refunds in the form of transmission 
service credits for its full costs of Network Upgrades (including 
income taxes), will not allow the Transmission Provider to be made 
whole for the income tax payments for Network Upgrades. It states that 
Article 5.14.4 requires the Interconnection Customer to pay up front 
the net present value of the income taxes due on Network Upgrades, 
based on the assumption that the Transmission Provider will get income 
taxes back through the future stream of tax depreciation benefits. But 
if the Transmission Provider is also required to give back to the 
Interconnection Customer the net present value of income tax payments, 
plus interest, through refunds, then the Transmission Provider is 
paying the full cost of income taxes on assets that it is purchasing 
and it will not be made whole. FP&L further states that the Commission 
should authorize two alternatives for the tax gross-up methodology: (1) 
The Interconnection Customer pays the full amount of taxes up front, 
but then receives refunds for its tax payments; or (2) the 
Interconnection Customer pays a reduced amount for the taxes up front, 
which is the present value of the Transmission Provider's carrying 
costs, calculated at its current weighted average cost of capital, for 
its tax payment associated with the contribution in aid of construction 
until it receives the payment back over time through tax depreciation, 
but then does not receive refunds for the payment of taxes. Under 
either alternative, it is essential that the Interconnection Customer 
not receive interest from the Transmission Provider on tax payments 
actually made to the government because, if it does, the Transmission 
Provider will not be made whole.
    454. Southern asks the Commission to modify this article so that 
the calculation of the tax gross-up for payments that entitle the 
Interconnection Customer to credits is not reduced by depreciation 
deductions available to the Transmission Provider. FirstEnergy says the 
method of calculating the Present Value Depreciation Amount, should be 
clarified by adding the phrase ``used for Federal and state purposes'' 
after ``* * * Transmission Provider's anticipated tax deductions as * * 
*.''
    455. EPSA supports the tax gross-up calculation in Proposed LGIA 
Article 5.14.4. It argues that the calculation was drafted by tax 
professionals during the ANOPR process in an effort to ensure that the 
Transmission Provider is made whole. The drafting group determined that 
the most appropriate manner for calculating the tax gross-up is the 
methodology set forth in Ozark Gas Transmission Corp., 56 FERC ] 61,349 
(1991). EPSA also states that this formula has been approved by the 
Commission and many existing interconnection agreements use the Ozark 
Gas methodology to compute tax gross-ups for both interconnection 
facilities and network upgrades, without regard to whether the 
Interconnection Customer will receive transmission credits. EPSA 
further argues that the calculation takes into account a Transmission 
Provider's federal and state tax rate and the present value of all tax 
depreciation deductions to which the Transmission Provider is entitled 
over the life of the Interconnection Facilities and Network Upgrades. 
Finally, EPSA argues that the tax benefits associated with depreciation 
are not returned to the Interconnection Customer as transmission 
credits, as some commenters contend. Although the Transmission Provider 
will return the gross tax costs to the Interconnection Customer in the 
form of Transmission Credits, the Transmission Provider still benefits 
from being able to deduct the cost of the Interconnection Facilities 
and Network Upgrades.
Commission Conclusion
    456. The Commission agrees with EPSA that Proposed LGIA Article 
5.14.4 offers the appropriate methodology for ensuring that a 
Transmission Provider is fully compensated for tax consequences. FP&L 
and Southern have not sufficiently explained how the calculation fails 
to make the Parties whole, and we do not revise this article.
    457. This article is designated Article 5.17.4 in the Final Rule 
LGIA.
    458. Article 5.14.5--Private Letter Ruling or Change or 
Clarification of Law (In the Final Rule LGIA: Article 5.17.5)--Proposed 
LGIA Article 5.14.5 would have required that, at the Interconnection 
Customer's request and expense, a Transmission Provider file with the 
IRS a request for a private letter ruling as to whether any property 
transferred or sums paid or to be paid by the Interconnection Customer 
to the Transmission Provider under the LGIA would be subject to federal 
income taxation. The point of obtaining such a ruling is to get a 
definitive answer up front as to whether taxes will be due. If a 
private letter ruling concludes that such sums are not taxable, the 
Interconnection Customer's obligations would be reduced accordingly.
Comments
    459. Commenters criticize the proposed relationships between the 
Interconnection Customer and the Transmission Provider in seeking a 
private letter ruling. El Paso argues that the Transmission Provider 
should have sole discretion to decide how to minimize its taxes, 
including whether to seek a private letter ruling or to contest a tax 
determination. While the Interconnection Customer must indemnify the 
Transmission Provider for tax liability, El Paso argues that this does 
not justify allowing the Interconnection Customer to require the 
Transmission Provider to dedicate its taxpayer status, time, and 
resources to seeking a private letter ruling or contesting a tax 
determination. This inappropriately places the Interconnection Customer 
in the position of deciding how the Transmission Provider will meet its 
obligations to the Interconnection Customer. In addition, even if the 
Interconnection Customer pays filing and legal fees associated with a 
private letter ruling or contest, this does not compensate the 
Transmission Provider for its internal costs of prosecuting such 
proceedings.
    460. Dynegy generally supports this provision but contends that it 
should be revised because it (1) fails to recognize that the 
Interconnection Customer is the Party at risk of paying a tax gross-up 
that turns out not to have actually been required by the tax laws, and 
(2) unduly restricts the Interconnection Customer's ability to make the 
arguments it wants made in pursuing a private letter ruling. For 
instance, Dynegy says, Article 5.14.5 allows the Interconnection 
Customer to prepare only the ``initial draft'' of the private letter 
ruling request, and Article 5.16.6 provides for only one level of 
judicial review for appeals of adverse rulings. Such restrictions 
should be removed because it is the Interconnection Customer, not the 
Transmission Provider, that is paying the gross-up and funding the 
efforts to obtain a private letter ruling.
    461. Salt River Project notes that this provision would require a 
Transmission Provider to file a private letter ruling, at an 
Interconnection Customer's request and expense, but establishes that 
the Interconnection Customer would prepare the initial draft of the 
letter. This will give rise to disclosure and

[[Page 49886]]

confidentiality problems and is a bad business practice.
    462. FP&L proposes, without elaboration, that the Commission modify 
proposed LGIA Article 5.14.5 to permit the Transmission Provider to 
require a jointly filed request for a private letter ruling.
    463. FirstEnergy asks the Commission to clarify that the last 
sentence of this article refers to the need to maintain a parental 
guarantee or letter of credit as required by proposed LGIA Article 
5.14.3, and not the Interconnection Customer's indemnification 
obligations under proposed LGIA Article 5.14 generally.
    464. NYTO argues, without elaboration, that a provision is needed 
to ensure that a Transmission Owner can ask the Interconnection 
Customer to provide financial security to backstop its potential tax 
liability where the Transmission Owner has not asked for a gross-up 
payment from the Interconnection Customer pending any ruling from the 
IRS.
Commission Conclusion
    465. The Commission rejects comments that seek to deny the 
Interconnection Customer the right to ask the Transmission Provider, at 
the Interconnection Customer's expense, to seek a private letter ruling 
from the IRS. The Interconnection Customer would otherwise be without 
recourse if it disagrees with the Transmission Provider's conclusion 
regarding either tax liability (and gross-up) or the need for security, 
and it is the Interconnection Customer that pays the taxes.
    466. In response to Dynegy, we will not grant the Interconnection 
Customer greater latitude with respect to the Transmission Provider's 
request for a private letter ruling because the proposed provision 
already offers a fair balance between the interests of the Parties. 
While the Interconnection Customer funds the request for a private 
letter ruling, permitting it to submit an ``initial draft'' of the 
private letter ruling request, and to insist on a single appeal, allows 
the Interconnection Customer to have adequate participation in the 
effort to secure an IRS determination.
    467. The Commission disagrees with Salt River Project's argument 
that allowing the Interconnection Customer to prepare the initial draft 
of the request for a private letter ruling from the IRS gives rise to 
disclosure and confidentiality problems. The Commission leaves it to 
the Parties to work within the confidentiality and other provisions of 
the LGIA to determine the most appropriate means for allowing the 
Interconnection Customer to draft the request.
    468. FP&L offers no explanation for why the Transmission Provider 
should be permitted to require a jointly filed request for a private 
letter ruling. As a result, we reject FP&L's request.
    469. The Commission agrees with FirstEnergy that the last sentence 
of Proposed LGIA Article 5.14.5 should be revised. This sentence refers 
to the Interconnection Customer's obligations if a private letter 
ruling concludes that the transfers or sums paid to the Transmission 
Provider are not subject to federal income taxation. In this event, the 
Interconnection Customer's obligations with respect to the guaranty or 
gross-up allowed under Final Rule LGIA Article 5.17.3 will be reduced 
or eliminated. The private letter ruling would not eliminate the 
Interconnection Customer's obligation to indemnify the Transmission 
Provider in the event that the IRS changes its ruling or policy or a 
subsequent taxable event occurs.
    470. As for NYTO's argument that the Transmission Provider should 
be able to ask the Interconnection Customer to provide financial 
security when the Transmission Provider has foregone the gross-up, such 
authority is already in Final Rule LGIA Article 5.17.3. Under this 
article, the Transmission Provider may secure a guaranty from the 
Interconnection Customer in an amount equal to the Interconnection 
Customer's estimated tax liability. Since the article does not specify 
the timing of such a request, the request may be made at any time the 
Transmission Provider believes that it is appropriate.
    471. This article is designated Article 5.17.5 in the Final Rule 
LGIA.
    472. Article 5.14.6--Contests--Proposed LGIA Article 5.14.6 
described the obligations that would apply if any Governmental 
Authority determines that the Transmission Provider's receipt of 
payments or property is income subject to taxation. At the 
Interconnection Customer's sole expense, the Transmission Provider 
would appeal or oppose such a determination. Proposed LGIA Article 
5.14.6 also described the procedures for settling the contested ruling.
Comments
    473. Southern proposes clarifying that the Interconnection 
Customer's obligation for the settlement amount is calculated on a 
basis that is fully grossed-up for taxes.
    474. NYTO argues that the Transmission Owner's obligation to 
contest a determination by a Governmental Authority should be subject 
to the Interconnection Customer providing an opinion of tax counsel 
that there is high likelihood of success.
Commission Conclusion
    475. The Commission rejects the commenters' requests. The 
Transmission Provider may determine if the settlement amount is 
appropriate under Article 5.14.6, which is designated Article 5.17.7 in 
the Final Rule, and, therefore, has the opportunity to ensure that the 
amount is calculated in an acceptable manner. The Commission will not 
require that the Interconnection Customer tender a tax counsel opinion. 
Under Article 5.17.7, the Interconnection Customer must pay all of the 
costs of an appeal of the ruling. The Commission believes that the 
prospect of paying for an appeal with a low likelihood of success 
should be a sufficient incentive not to pursue a weak case.
    476. Article 5.14.7--Refund (In the Final Rule LGIA: Article 
5.17.8)--Proposed LGIA Article 5.14.7 described the conditions under 
which a refund would be payable to the Interconnection Customer for any 
payments made related to income tax liability and the formula for 
calculating the refund.
Comments
    477. The Florida PSC recommends that the indemnification treatment 
in the LGIA be subject to review by state commissions on a case-by-case 
basis since there are local consequences. In some instances, 
indemnification alone is insufficient and letters of credit, parental 
involvement or other forms of guarantees may be required to protect 
retail customers adequately from becoming the default responsible 
Party. The Transmission Provider should be able to petition the state 
commission for a more stringent indemnification standard.
Commission Conclusion
    478. The Commission does not grant Florida PSC's request. When the 
Commission, under the authority of sections 201, 205 and 206 of the 
Federal Power Act \80\ sets a rate, term or condition for such 
transmission, a state may not exercise its jurisdiction over a retail 
rate to review the reasonableness of the rate, term or condition set by 
the Commission.\81\
---------------------------------------------------------------------------

    \80\ 16 U.S.C. 824, 824d and 824e (2000).
    \81\ See, e.g., Mississippi Power & Light v. Mississippi ex rel. 
Moore, 487 U.S. 354, 371-72 (1988); Nantahala Power & Light Co. v. 
Thornburg, 476 U.S. 953, 970 (1986) (both applying the same 
principle to the Commission's jurisdiction over wholesale sales of 
electric energy).
---------------------------------------------------------------------------

    479. This article is designated Article 5.17.8 in the Final Rule 
LGIA.

[[Page 49887]]

    480. Article 5.14.8--Taxes Other Than Income Taxes (In the Final 
Rule LGIA: Article 5.17.9)--Proposed LGIA Article 5.14.8 described the 
Parties' obligations if taxes other than federal or state income taxes, 
and for which the Interconnection Provider may be required to reimburse 
the Transmission Provider under the terms of the LGIA, are imposed. At 
the Interconnection Customer's expense, the Transmission Provider would 
appeal or oppose such a determination. Proposed LGIA Article 5.14.8 
also described the procedures for settling the contested ruling.
Comments
    481. FP&L asks the Commission to clarify Article 5.14.8 to require 
the Interconnection Customer to pay tax costs, other than income tax, 
related to interconnection payments.
Commission Conclusion
    482. The Commission notes that Article 5.14 does not limit recovery 
to state or federal income taxes related to interconnection payments. 
This provision by itself does not create additional tax liability 
beyond income taxes. Because FP&L offered no justification for why 
additional tax protection is necessary, the Commission rejects its 
request.
    483. This article is designated Article 5.17.9 in the Final Rule 
LGIA.
    484. Article 5.15--Tax Status (In the Final Rule LGIA: Article 
5.18)--Proposed LGIA Article 5.15 provided that each Party cooperate 
with the other to maintain the other Party's tax status. It also 
proposed that the LGIA would not be intended to adversely affect any 
Transmission Provider's tax exempt status with respect to the issuance 
of bonds.
Comments
    485. NYTO proposes modifying the LGIA to be consistent with the 
tax-exempt bond provisions of the Transmission Owner's (or the ISO's) 
OATT. Thus, the LGIA would provide that the Transmission Owner is not 
obligated to take any action, and the Interconnection Customer is 
prohibited from taking any action, that would adversely affect the tax-
exempt status of the Transmission Owner's (or the ISO's) local 
furnishing bonds.
    486. Several commenters, including LADWP and TANC, are concerned 
about the effect that providing Interconnection Service will have on 
the tax-exempt status of their bond funding. TANC asks the Commission 
to provide flexibility for municipal utilities that adopt the Tariff 
additions. NRECA-APPA is concerned that contributions by an 
Interconnection Customer for construction of interconnection facilities 
and Network Upgrades may result in loss of its tax-exempt status. A 
tax-exempt cooperative must ensure that at least 85 percent of its 
income comes from members.
    487. LPPC urges the Commission to give public power utilities the 
option to: (1) Refuse to provide an interconnection if doing so would 
jeopardize the tax-exempt status of the public power utility's 
financing; or (2) proceed with the interconnection with an 
indemnification provision that would require Interconnection Customers 
to reimburse public power entities if any aspect of compliance with the 
Final Rule causes the utility to lose the tax-exempt status of its 
bonds.
Commission Conclusion
    488. The Commission concludes that the tax status of the Parties is 
sufficiently protected by Proposed LGIA Article 5.15.
    489. As described more fully in the reciprocity discussion in this 
preamble, public power and other nonjurisdictional entities with ``safe 
harbor'' tariffs may add the Final Rule LGIP and Final Rule LGIA to 
their safe harbor tariffs if they wish to continue to have safe harbor 
protection.\82\ The Commission limits reciprocity compliance to those 
services a nonjurisdictional entity is capable of providing on its 
system.\83\ The Commission will consider the restrictions on 
nonjurisdictional and jurisdictional entities' conduct that would 
endanger the tax exempt status of their bond funding during compliance 
or upon submission of amended safe harbor tariffs, and we will act to 
ensure that they retain their tax-exempt status. Accordingly, the 
Commission need not address further here the argument raised by LPPC.
---------------------------------------------------------------------------

    \82\ See part II.C.7 (OATT Reciprocity Requirements Applied to 
the Final Rule LGIP and Final Rule LGIA).
    \83\ Order No. 888-A, FERC Stats. & Regs ] 31,048 at 30,286.
---------------------------------------------------------------------------

    490. This article is designated Article 5.18 in the Final Rule 
LGIA.
    491. Article 6--Testing and Inspection--Proposed LGIA Article 6 
provided that, prior to the Commercial Operation of the Generating 
Facility, the Transmission Provider shall test the Transmission 
Provider Interconnection Facilities and Network Upgrades, and the 
Interconnection Customer shall test the Generating Facility and the 
Interconnection Customer's Interconnection Facilities to ensure their 
safe and reliable operation. The Interconnection Customer would bear 
the cost of these tests and any modifications. After the Commercial 
Operation Date, each Party shall conduct routine inspection and testing 
of its own facilities, at its own expense, in accordance with Good 
Utility Practice.
Comments
    492. Entergy generally supports the testing and inspection 
provisions, but urges that Article 6.1 provide the Parties with 
additional scheduling flexibility if testing reveals the need for 
modifications to the Generating Facility. Entergy therefore proposes 
that the Parties' schedules for completing their respective obligations 
to construct and install facilities shall be extended to the extent 
reasonably necessary to complete any necessary modifications to the 
Generating Facility.
    493. Arkansas Coops propose that Article 6.1 of the NOPR LGIA be 
modified to prohibit a Transmission Provider from preventing an 
Interconnection Customer sale of test energy to an entity other than 
the Control Area operator.
Commission Conclusion
    494. The Commission does not believe that a change to the LGIA is 
required in order to satisfy Entergy's concern. The LGIA is premised on 
the idea that the Interconnection Customer and Transmission Provider 
will coordinate the interconnection of the Interconnection Customer's 
Interconnection Facilities on an ongoing basis. If the testing reveals 
a problem with the Interconnection Facilities or Network Upgrades, the 
LGIA contemplates that the Parties will work together to modify the 
schedule.
    495. In response to Arkansas Coops, the Interconnection Customer 
may sell its energy to anyone; the LGIA does not need to address this 
matter, as it is not an interconnection matter.
    496. Article 7--Metering--Proposed LGIA Article 7 would have 
required that, unless otherwise agreed to by the Parties, the 
Transmission Provider shall install, own, operate, and maintain 
Metering Equipment at the Point of Interconnection, with the 
Interconnection Customer bearing all reasonable documented costs.
    497. Article 7.2--Check Meters--Proposed LGIA Article 7.2 provided 
that the Interconnection Customer, at its own expense, may install one 
or more meters on its side of the Point of Interconnection to check the 
accuracy of Transmission Provider's meters.
    498. Article 7.3--Standards--Proposed LGIA Article 7.3 provided 
that if Article 7 conflicts with the manuals,

[[Page 49888]]

standards or guidelines of the Applicable Reliability Council, the 
latter shall control.
    499. Article 7.4--Testing of Metering Equipment--Proposed LGIA 
Article 7.4 provided that if at any time Metering Equipment fails to 
register or is found to be inaccurate by more than one percent, the 
Transmission Provider shall correct all measurements made by the 
inaccurate meter.
    500. Article 7.5--Metering Data--Proposed LGIA Article 7.5 provided 
that the official measurement of the amount of energy delivered from 
the Generating Facility to the Point of Interconnection is the metered 
data, which would be telemetered to one or more locations designated by 
the Transmission Provider and one or more locations designated by the 
Interconnection Customer.
Comments
    501. Cal ISO and SoCal Edison argue that, in California, it is the 
Cal ISO Tariff that governs metering provisions. They further argue 
that many provisions of proposed LGIA Article 7 appear to be at odds 
with Cal ISO's Tariff and WECC requirements. For example, Cal ISO 
points out that proposed Article 7.1 appears to require metering only 
at the Point of Interconnection which would mean ``net metering,'' 
whereas WECC requires Cal ISO to meter a generator's gross output.
    502. SoCal Edison and WEPCO argue that the Transmission Provider 
should not be required to own the meters because owning meters carries 
with it some liability associated with inaccurate meter readings.
    503. Dynegy comments that meters should be installed at an agreed-
upon location rather than at the Point of Interconnection, and metering 
information should be provided in analog and digital form to no more 
than two locations specified by the Transmission Provider. It also 
proposes that check meter measurements be used when the primary meter 
is inaccurate, and that the Final Rule specify in more detail the cost 
responsibility of the Transmission Provider if it does not properly 
maintain the metering equipment.
    504. Baker & McKenzie and Dynegy argue that proposed LGIA Article 
7.2 incorrectly references Article 7.3 and should refer instead to 
Article 7.4. Several commenters, including Baker & McKenzie, the Bureau 
of Reclamation, Dynegy, and Monongahela Power, propose that language 
should be added to Article 7.4 to use check meters to correct the 
measurements read by failed or inaccurate Metering Equipment. Baker & 
McKenzie proposes several editorial changes to clarify Article 7.4.
    505. FirstEnergy argues that the one percent metering accuracy is 
very difficult to achieve and its current interconnection agreement as 
well as the industry standard allows for a two percent metering error. 
It asserts that the provision should be changed to allow for a metering 
error of two percent. Monongahela Power argues that the allowed 
metering error should be 1.5 percent.
    506. Several commenters including EEI, FirstEnergy, and Southern 
argue that the last sentence of proposed LGIA Article 7.5 incorrectly 
states that ``metering data [is] provided by the Interconnection 
Customer'' because the metering data is being provided by the 
Transmission Provider to the Interconnection Customer.
Commission Conclusion
    507. Cal ISO's concern with regard to metering being allowed only 
at the Point of Interconnection is misplaced. Proposed LGIA Article 
7.1, which provides that ``[u]nless otherwise agreed by the Parties, 
Transmission Provider shall install Metering Equipment at the Point of 
Interconnection,'' clearly allows Metering Equipment to be placed at an 
agreed upon location different from the Point of Interconnection. 
However, in response to Cal ISO's and SoCal Edison's concern that their 
metering provisions are governed by WECC requirements, we are adding 
the following language to Article 7.1: ``Each Party shall comply with 
the Applicable Reliability Council requirements.'' The Commission does 
not expect that Applicable Reliability Council requirements will 
conflict with our provisions in Final Rule LGIA Article 7. Accordingly, 
we find the following language to be unneeded and are deleting it from 
Article 7.3 (Standards): ``To the extent this Article 7 conflicts with 
the manuals, standards, or guidelines of the Applicable Reliability 
Council regarding interchange metering and transactions, the manuals, 
standards and guidelines of such Applicable Reliability Council shall 
control.''
    508. In response to SoCal Edison and WEPCO, we are not revising 
proposed LGIA Article 7.1 because the Final Rule contains the phrase 
``[u]nless otherwise agreed by the Parties'' which allows any Party to 
own the meters. In response to Dynegy and Baker & McKenzie we are 
changing the reference in Final Rule LGIA Article 7.2 to Article 7.4. 
We are also adding language in Final Rule LGIA Article 7.4 for the use 
of check meters to correct the measurements read by failed or 
inaccurate Metering Equipment. In response to FirstEnergy and 
Monongahela Power's argument, the Commission adopts a metering error of 
two percent because, as pointed out by FirstEnergy, two percent is the 
industry standard. Finally, we are correcting the error in the last 
sentence of proposed LGIA Article 7.5 noted by EEI, FirstEnergy and 
Southern.
    509. Article 8--Communication--Proposed LGIA Article 8 described 
the operating communications and dedicated data circuits between the 
Parties that would be necessary and the cost and maintenance 
responsibility for such equipment.
    510. Article 8.1--Interconnection Customer Obligations--Proposed 
LGIA Article 8.1 would have required the Interconnection Customer to 
maintain satisfactory operating communications with the Transmission 
Provider's Transmission System dispatcher or designated 
representatives.
Comments
    511. NERC and Western recommend that a Transmission Provider be 
permitted to use a voice communications system that does not rely on 
the public telephone system.
    512. Dairyland Power proposes that maintenance be performed by the 
Transmission Provider, in an agreed upon manner, at the Interconnection 
Customer's expense.
    513. Cleco and FirstEnergy propose that the Interconnection 
Customer be responsible for the cost of maintaining any communications 
and computer equipment belonging to either Party, as well as the 
hardware and software necessary for the Transmission Provider to 
interface properly with the Interconnection Customer's system.
    514. Progress Energy requests that the first sentence of proposed 
LGIA Article 8.2 be rewritten to read: ``Prior to the Initial 
Synchronization Date of the [Generating] Facility, a remote terminal 
unit, or equivalent data collection and transfer equipment acceptable 
to both Parties shall be installed * * *''
    515. The Bureau of Reclamation believes that cyber-security and 
data security issues should be addressed in the body of the LGIA, and 
not in an Appendix.
Commission Conclusion
    516. The Commission concurs with the recommendations of NERC, 
Western and Progress Energy, and revises Proposed LGIA Articles 8.1 and 
8.2 to allow greater flexibility.
    517. In response to the Bureau of Reclamation, the Commission notes 
that

[[Page 49889]]

the Appendices are as binding as provisions within the body of the 
LGIA.
    518. Articles 8.1 and 8.2 require that the Interconnection Customer 
transmit the data to a point specified by the Transmission Provider. 
Once the data has reached that point, it becomes the responsibility of 
the Transmission Provider to maintain its own hardware and software 
equipment. In response to Dairyland Power, the Commission notes that 
the Parties may enter into an agreement regarding which Party actually 
performs the data system maintenance, but the Interconnection Customer 
is ultimately responsible for paying for that maintenance.
    519. Article 9--Operations--Proposed LGIA Article 9 would have 
required the Interconnection Customer and Transmission Provider to 
operate their facilities in a safe and reliable manner. It also 
proposed reactive power requirements and provided that the 
Interconnection Customer will be compensated for capital expenses 
incurred based on the use of the Interconnection Facilities by the 
Transmission Provider, all third party users, and the Interconnection 
Customer.
    520. Article 9.1--General--Proposed LGIA Article 9.1 would have 
required the Parties to comply with LGIA Appendix G (Interconnection 
Guidelines). It would also require that each Party provide to the other 
Parties all information that may be required to comply with Applicable 
Laws and Regulations.
Comments
    521. Southern, Lakeland, and FirstEnergy state that Article 9.1 
should refer to Applicable Reliability Council requirements instead of 
Appendix G Interconnection Guidelines, which is blank. FirstEnergy 
states that each Party should be required to comply with the 
requirements of any RTO or ISO and any procedures agreed to by the 
Joint Operating Committee.
    522. Exelon requests that proposed LGIA Article 9.1 be modified to 
include the following language: ``To the extent interconnection 
requirements are inconsistent with ISO/RTO rules, the ISO/RTO rules 
shall govern.''
Commission Conclusion
    523. In the Final Rule, Article 9.1 refers to Applicable 
Reliability Council requirements. The Commission is deleting Appendix G 
(Interconnection Guidelines). With respect to FirstEnergy's request 
that Parties be required to comply with any procedures agreed to by the 
Joint Operating Committee, the Commission does not believe that any 
language changes are required. We clarify that the Parties are expected 
to comply with the procedures established by the Joint Operating 
Committee. We also clarify that the RTO or ISO rules, once approved by 
the Commission, shall govern the LGIA.
    524. Article 9.2--Control Area Notification--Proposed LGIA Article 
9.2 would have required the Interconnection Customer to notify the 
Transmission Provider in writing of the location of its Control Area at 
least three months before the Generating Facility's Initial 
Synchronization Date. The proposed article also provided that the 
Interconnection Customer has the right to change the Control Area after 
the Initial Synchronization Date.
Comments
    525. Some commenters, including PG&E and Cal ISO, believe that the 
Generating Facility must be the Control Area to which it is 
electrically connected.
    526. MidAmerican believes that the Interconnection Customer must 
provide the metering and communications necessary to be a part of a 
Control Area other than the Transmission Provider's Control Area. Cleco 
proposes that since switching Control Areas is labor-intensive for the 
employees of both Control Areas, the Interconnection Customer should be 
required to remain in a Control Area for at least 12 months before 
switching.
    527. NERC asks that proposed LGIA Article 9.2 be clarified to 
ensure that the host Control Area (the Control Area to which the 
Interconnection Customer is physically connected, regardless of whether 
the Generating Facility is electrically telemetered to another Control 
Area through a dynamic transfer) can enforce an Interconnection 
Customer's power factor, voltage control, and other similar 
obligations. Others commenters, including WEPCO, MidAmerican, Avista, 
National Grid, Southern, express concerns that a separate agreement and 
control equipment modification should be required, and that if the 
Interconnection Customer designates a different Control Area, it should 
be required to follow the rules for all applicable Control Areas.
    528. Duke Energy asks what the consequence would be if an 
Interconnection Customer fails to notify a Transmission Provider of its 
Control Area three months prior to its Commercial Operating Date. The 
Maine PSC requests that Article 9.2 permit waiver of Control Area 
notification in certain situations.
Commission Conclusion
    529. In response to Cal ISO, PGE, and Cleco, the Commission does 
not prohibit dynamic scheduling of a Generating Facility physically 
connected in one Control Area but scheduled into another. Nor does it 
place restrictions on changing Control Areas and how long an 
Interconnection Customer must remain in a Control Area. Moreover, in 
Order No. 888 the Commission did not require that Transmission 
Providers offer dynamic scheduling.\84\ However, we also agree with the 
concerns expressed by NERC and other commenters that the process of 
changing Control Areas and the attendant implementation brings about 
requirements for coordination, control equipment modification, and 
agreement on operational details. In such cases, the Commission 
confirms that the Transmission Provider's OATT shall apply.
---------------------------------------------------------------------------

    \84\ Order No. 888 at 31,709-10.
---------------------------------------------------------------------------

    530. We also confirm that the Interconnection Customer must notify 
the Transmission Provider at least three months before the Initial 
Synchronization Date of the Control Area in which it will be located. 
Failure of an Interconnection Customer to make the appropriate Control 
Area designation would be treated as a Breach of the Final Rule LGIA, 
subject to opportunity to cure. Similarly, while an Interconnection 
Customer could request that the Transmission Provider waive the three 
month notice requirement, we decline to make that a provision of the 
Final Rule LGIA.
    531. Article 9.3--Transmission Provider Obligations--Proposed LGIA 
Article 9.3 would have required the Transmission Provider to operate 
and maintain its Transmission System in a safe and reliable manner and 
in accordance with the LGIA. It also proposed that the Interconnection 
Customer would not be obligated to follow the Transmission Provider's 
instructions if those instructions would undermine the safe and 
reliable operation of the Generating Facility.
Comments
    532. NERC proposes deleting the proposed language allowing an 
Interconnection Customer to not follow the Transmission Provider's 
instructions if doing so would cause material damage to the Generating 
Facility. NERC is concerned that the language appears to grant the 
Interconnection Customer a blanket right not to follow operating 
instructions of the Transmission Provider.

[[Page 49890]]

    533. NYTO proposes revising Article 9.3 of the NOPR LGIA to remove 
any incentive for the Interconnection Customer to ``create'' 
circumstances (e.g., emergencies) that would warrant noncompliance.
    534. Southern asserts that it is inappropriate to impose broad 
obligations on a Transmission Provider's Transmission Systems in the 
LGIA. The LGIA should govern only the interconnection of an 
Interconnection Customer and the Interconnection Facilities necessary 
to achieve the interconnection, not the entire Transmission System.
    535. Dynegy states that proposed LGIA Article 9.3 fails to consider 
the economic effect of operating instructions on the Interconnection 
Customer, which could be financially devastating, and that the article 
should make clear that the Transmission Provider must compensate the 
Interconnection Customer for responding to such operating instructions.
Commission Conclusion
    536. We agree with NERC's concern that the proposed language 
appears to grant the Interconnection Customer a blanket right not to 
follow the operating instructions of the Transmission Provider during 
normal operating conditions and accordingly delete the proposed 
language in the Final Rule. We expect a Transmission Provider to follow 
NERC procedures and to take every precaution not to cause any material 
adverse impact on the safe and reliable operation of the Generating 
Facility. It is essential that the Interconnection Customer follow all 
orders given by the Transmission Provider, unless they would result in 
impairment to public health or safety, since otherwise the Transmission 
Provider would be unable to effectively manage its Transmission 
System.\85\ Final Rule LGIA Article 13.6 (Interconnection Customer 
Authority) allows Interconnection Customers to take ``actions or 
inactions'' necessary to ``preserve the reliability of the 
Interconnection Customer's Generating Facility'' during an Emergency 
Condition.
---------------------------------------------------------------------------

    \85\ Pacific Gas and Electric Company, et al., 81 FERC ] 61,122 
at 61,456 (1997).
---------------------------------------------------------------------------

    537. In response to NYTO's comments, all Parties are obligated to 
follow Good Utility Practice and to abide by their obligations under 
the LGIA. If a Party were to manufacture an Emergency Condition, it 
would be a violation of the LGIA, as well as a serious Breach of NERC 
and other reliability rules.
    538. Southern's concerns are misplaced. Proposed LGIA Article 9.3 
simply stated that the Transmission Provider shall maintain its system 
in a safe manner and that the Interconnection Customer is required to 
follow the instructions of the Transmission Provider under normal 
circumstances.
    539. Dynegy's comment also appears to be misplaced. Proposed LGIA 
Article 9.3 dealt with the obligations of the Transmission Provider, 
not the obligations of the Interconnection Customer. Assuming that 
Dynegy's comment applies to Article 9.4 instead, we clarify that a 
Party is not obligated to follow a Transmission Provider's instructions 
that would cause harm to its Generating Facility, unless public health 
and safety would be threatened by noncompliance.
    540. Article 9.6.1--Power Factor Design Criteria--Proposed LGIA 
Article 9.6.1 would have required the Generating Facility to be 
designed so that at the continuous rated power output, its power factor 
would be within a range of 0.97 leading to 0.95 lagging, unless the 
Transmission Provider has established different requirements applicable 
to all Interconnection Customers in the Control Area on a comparable 
basis.
Comments
    541. NERC proposes that the Commission require power factor 
capabilities to be ``within a range required by Good Utility 
Practice,'' which incorporates NERC standards by reference. It cites 
its own Planning Standard, which allows a generator to be within the 
range of 0.95 leading to 0.90 lagging and argues that such a range 
provides more responsive reactive absorption and supply than the range 
proposed in Article 9.6.1. That Planning Standard also requires that if 
the Generating Facility does not meet the requirements, the 
Interconnection Customer must make alternate arrangements for supplying 
dynamic reactive power to meet the area's reactive power requirements. 
However, NERC concedes that a power factor requirement of 0.95 leading 
to 0.95 lagging is a common practice in some NERC regions.
Commission Conclusion
    542. We adopt the power factor requirement of 0.95 leading to 0.95 
lagging because it is a common practice in some NERC regions. If a 
Transmission Provider wants to adopt a different power factor 
requirement, Final Rule LGIA Article 9.6.1 permits it to do so as long 
as the power factor requirement applies to all generators on a 
comparable basis.
    543. Article 9.6.3--Payment for Reactive Power--Proposed LGIA 
Article 9.6.3 would have provided that the Transmission Provider pay 
the Interconnection Customer for reactive power that the Generating 
Facility provides or absorbs. Such payment would be in accordance with 
the Interconnection Customer's rate schedule unless service is subject 
to a Commission-approved RTO or ISO rate schedule. If no rate schedule 
is in effect, the Transmission Provider would compensate the 
Interconnection Customer in an amount that would be due the 
Interconnection Customer had the rate schedule been in effect when the 
service commenced; provided, however, that the rate schedule must be 
filed with the Commission within 60 Calendar Days of the commencement 
of service.
Comments
    544. El Paso and others maintain that the Interconnection Customer 
should not be compensated for reactive power provided or absorbed 
within the power factor range established in Article 9.6.1 (Power 
Factor Design Criteria) since it is only meeting its obligation to do 
so. MidAmerican, Cleco, El Paso, Nevada Power, PG&E, and Western state 
that the Interconnection Customer should be compensated for the 
reactive power it provides or absorbs when the Transmission Provider 
asks the Interconnection Customer to operate its Generating Facility 
outside the established power factor range. Cleco and Nevada Power also 
contend that if the Transmission Provider pays for reactive power, so 
should the Interconnection Customer, when it does not meet the 
Transmission Provider's voltage schedule that can be met by the 
established power factor range.
    545. MidAmerican and Cleco argue that reactive power should be paid 
for only if the Interconnection Customer has filed a rate schedule with 
the Commission prior to the commencement of service. Duke argues that 
the last sentence of the NOPR LGIA Article 9.6.3 that provides for 
filing of a rate schedule within 60 Calendar Days of having provided 
reactive service without a rate schedule should be moved to Article 
11.6 (Interconnection Customer Compensation) to cover a similar 
situation during an Emergency Condition. Cal ISO believes that the 
procurement of reactive power should be left to another proceeding 
(such as a Regional Market Design proceeding),

[[Page 49891]]

and NYISO states that this issue is already being dealt with in its 
Market Administration and Control Area Services Tariff.
Commission Conclusion
    546. We agree that the Interconnection Customer should not be 
compensated for reactive power when operating its Generating Facility 
within the established power factor range, since it is only meeting its 
obligation. Proposed Article 9.6.3 required payment for reactive power 
to an Interconnection Customer only when the Transmission Provider 
requests the Interconnection Customer to operate its Generating 
Facility outside the range established in Article 9.6.1 (Power Factor 
Design Criteria). In response to Cleco and Nevada Power, we agree that 
the Interconnection Customer should be penalized or otherwise 
compensate the Transmission Provider if the Interconnection Customer 
does not meet the Transmission Provider's voltage schedule 
requirements, so long as the voltage schedule requirements can be met 
by the established power factor range. The Commission is not including 
a standard penalty or compensation provision here, but will entertain 
reasonable requests to do so on compliance. We agree with Duke and move 
the last sentence of Article 9.6.3 to 11.6.
    547. With respect to the argument that payment for reactive power 
should be required only if the Interconnection Customer has a rate 
schedule on file when service commences, we note that the Commission's 
Regulations allow an applicant to file a rate schedule within 60 days 
of the commencement of service.\86\
---------------------------------------------------------------------------

    \86\ See 18 CFR 35.3 (2003).
---------------------------------------------------------------------------

    548. An RTO or ISO, at the time its compliance filing is made, may 
propose variations from this policy, as discussed below.\87\ An RTO or 
ISO has different operating characteristics depending on its size and 
location and is less likely to act in a discriminatory manner than a 
Transmission Provider that is also a market participant. An RTO or ISO 
will have greater flexibility to customize its LGIP and LGIA to respond 
to regional needs.
---------------------------------------------------------------------------

    \87\ See Part II.C.5 (Variations from the Final Rule and 
Regional Differences).
---------------------------------------------------------------------------

    549. Article 9.7.1.2--Outage Schedule--Proposed LGIA Article 
9.7.1.2 would have a Transmission Provider post transmission facility 
outages on the Open Access Same-Time Information System (OASIS) and 
require an Interconnection Customer to schedule its maintenance on a 
rolling 24 month basis. It also stated that a Transmission Provider may 
ask the Interconnection Customer to reschedule its maintenance as 
necessary to maintain the reliability of the Transmission System; 
however, the Transmission Provider will compensate the Interconnection 
Customer for any costs of rescheduling such maintenance.
Comments
    550. Several commenters argue that the Transmission Provider should 
not be required to compensate the Interconnection Customer for the 
costs of rescheduling maintenance when the purpose of rescheduling the 
maintenance is to ensure the reliability of the Transmission System. 
For example, Cal ISO claims that the compensation issue should be 
resolved by deferring to the RTO or ISO outage coordination provisions 
in its Tariff. Southern contends that the Interconnection Customer 
benefits from a reliable Transmission System and should therefore 
maintain the reliability of the Transmission System without any 
compensation for rescheduling its outages. Southern also argues that 
the provision seems to require the Transmission Provider to compensate 
the Interconnection Customer for rescheduling maintenance even if such 
rescheduling is required to interconnect another Interconnection 
Customer. If the provision is adopted, Southern requests clarification 
that the Interconnection Customer, not the Transmission Provider, is 
required to pay the costs that other Interconnection Customers incur to 
reschedule their maintenance. Southern also requests clarification that 
the reimbursed costs are limited to direct costs and will not include 
consequential or indirect costs (such as lost profits).
    551. Dairyland Power, PSNM, and Western assert that an 
Interconnection Customer may try to game the outage scheduling process. 
It could revise its maintenance schedule to coincide with a maintenance 
project (by listing it on the Transmission Provider's OASIS) and thus 
create congestion or reliability conditions on the Transmission System 
for the purpose of receiving compensation from the Transmission 
Provider. PSNM further states that while curtailment and redispatch 
costs under the OATT generally are shared on a pro rata basis when 
transmission service is not available, this article anticipates that 
the Transmission Provider will compensate an Interconnection Customer 
for changes in the Interconnection Customer's maintenance plan, with no 
reciprocal compensation if the Interconnection Customer changes its own 
plans.
    552. Western believes that requiring the Transmission Provider to 
compensate for ``any costs'' leaves too much to interpretation. The 
provision should be limited to actual costs incurred by the 
Interconnection Customer, such as remobilization costs, to prevent 
gaming. AEP believes that compensation should be provided on rare 
occasions when maintenance must be rescheduled for reliability 
purposes. Cleco believes that the payment to the Interconnection 
Customer should occur only if the Transmission Provider is initially 
allowed to approve the maintenance schedule proposed by the 
Interconnection Customer.
Commission Conclusion
    553. We agree that the proposed requirement to compensate 
Interconnection Customers for ``any costs'' incurred in rescheduling 
maintenance is overly broad. Compensation should be limited to the 
additional, direct costs that the Interconnection Customer incurs as a 
result of having to reschedule maintenance.
    554. We also agree that this article, as proposed, could create an 
opportunity for gaming on the part of the Interconnection Customer, 
which might schedule its maintenance at a time when the Transmission 
Provider could be expected to ask it to reschedule. Therefore the 
proposed article is modified so that an Interconnection Customer will 
not receive compensation if it had modified its schedule of maintenance 
activities during the year before the date of the initially scheduled 
maintenance.
    555. Article 9.7.1.3--Outage Restoration--Proposed LGIA Article 
9.7.1.3 would have provided that if an outage on a Party's 
Interconnection Facilities or Network Upgrades harms the other Party's 
facilities, the Party owning or controlling the facility that is out of 
service will use Reasonable Efforts to promptly restore it to a normal 
operating condition.
Comments
    556. NERC proposes to require the first Party to provide the other 
Party information on the nature of the Emergency Condition, including 
an estimated time of restoration, and on any corrective actions 
required, as soon as practical, followed by a written explanation of 
the nature of the outage. The clarification is necessary because the 
outage may affect outage clearances on other equipment, calculation of

[[Page 49892]]

transfer capabilities, system deratings, and so on.
Commission Conclusion
    557. We incorporate NERC's proposed change. NERC's proposal 
recognizes not only the importance of restoration after an outage, but 
the necessity of coordinated restoration and information-sharing to 
make all affected Parties aware of the restoration, the corrective 
actions taken, and the time the restoration occurred, so that all 
Parties may determine whether the interconnected system has been 
returned to a normal operating condition.
    558. Article 9.7.2--Interruption of Service (In the NOPR: 
Continuity of Service)--Proposed LGIA Article 9.7.2 would have provided 
that the Transmission Provider may require the Interconnection Customer 
to reduce or interrupt deliveries of electricity if such delivery of 
electricity would adversely affect the Transmission Provider's ability 
to perform activities that are necessary to safely and reliably operate 
and maintain the Transmission System. It also would require the 
Transmission Provider to schedule the reduction or interruption to 
either coincide with the scheduled outage of the Generating Facility or 
during periods of low demand.
Comments
    559. Several commenters, mostly Transmission Providers such as 
Exelon, MidAmerican, PG&E and Southern, argue that the last sentence of 
proposed LGIA Article 9.7.2.4 that requires the Transmission Provider 
to schedule the reduction or interruption to either coincide with the 
scheduled outage of the Generating Facility or during periods of low 
demand unreasonably limits the Transmission Provider when it can 
perform maintenance and repair work. PG&E asserts that the periods of 
low demand either occur at night or during winter, and those times are 
not suitable for performing maintenance and repair work because it may 
jeopardize the safety of maintenance personnel. MidAmerican argues that 
the impact on both the Transmission Provider and Interconnection 
Customer should be considered when scheduling maintenance and repair 
work on the Transmission System. MidAmerican offers this alternative 
last sentence of proposed LGIA Article 9.7.2.4: ``Transmission Provider 
shall coordinate with the Interconnection Customer using Good Utility 
Practice to schedule the interruption or reduction during periods of 
least impact to the Interconnection Customer and the Transmission 
Provider.''
    560. Exelon argues that a separate provision should be added to 
require the Transmission Provider to notify the Interconnection 
Customer before the Transmission Provider undertakes any construction, 
repair or maintenance work on its Transmission System that may require 
the Interconnection Customer to reduce output from its Generating 
Facility.
Commission Conclusion
    561. In response to MidAmerican and PG&E's concern, we adopt 
MidAmerican's proposed language because it balances the interests of 
both the Transmission Provider and the Interconnection Customer. With 
regard to Exelon's argument, we note that Article 9.7.2.4 of the Final 
Rule LGIA provides that: ``Except during the existence of an Emergency 
Condition, when the interruption or reduction can be scheduled without 
advance notification, Transmission Provider shall notify 
Interconnection Customer in advance regarding the timing of such 
scheduling and further notify Interconnection Customer of the expected 
duration.''
    562. Article 9.7.3--Under-Frequency and Over-Frequency Conditions 
(In the NOPR: Under-Frequency Load Shed Event)--Proposed LGIA Article 
9.7.3 stated that the Transmission System is designed to activate a 
load-shed program automatically in the event of an under-frequency 
system disturbance. It proposed that an Interconnection Customer shall 
implement an under-frequency relay set point for the Generating 
Facility to ensure ``ride through''\88\ capability of the Transmission 
System, to the extent allowed by equipment limitations or warranties.
---------------------------------------------------------------------------

    \88\ ``Ride through'' means a Generating Facility staying 
connected to and synchronized with the Transmission System during 
system disturbances within a range of over- and under-frequency 
conditions, in accordance with Good Utility Practice.
---------------------------------------------------------------------------

Comments
    563. NERC, MidAmerican, and SoCal Edison state that the scope of 
Article 9.7.3 should be expanded to include over-frequency conditions 
as well.
    564. NERC, Florida RCC, and TECO Energy oppose relying on equipment 
limitations or warranties as an excuse for an Interconnection Customer 
to avoid following Applicable Reliability Council rules. They claim 
that in a limited number of instances where equipment limitations do 
exist, the Applicable Reliability Council's rules permit the 
Interconnection Customer to propose alternative load shedding 
procedures. They also express concern that should the Commission retain 
the language relating to equipment limitations or warranties, load 
shedding procedures may not be effective to prevent full collapse of an 
electrical ``island,'' thereby threatening the reliability of the 
Transmission System.
    565. NERC recommends that the Generating Facility's response to 
both under- and over-frequency conditions be studied and coordinated 
with the Transmission Provider's Transmission System in accordance with 
Good Utility Practice.
Commission Conclusion
    566. We agree with many commenters that their proposed changes 
would better protect reliability. Therefore, we revise Article 9.7.3 to 
refer to Applicable Reliability Council requirements and to include 
over-frequency conditions. Equipment limitations or warranties should 
not be an excuse for not following Applicable Reliability Council 
rules; in case of genuine equipment limitations, Applicable Reliability 
Council rules permit the Interconnection Customer to offer alternative 
proposals. As such, the Commission eliminates the phrase ``equipment 
limitations or warranties'' in the Final Rule. In addition, the 
Commission is adopting NERC's proposed language regarding studies to 
determine the Generating Facility's response to frequency deviations 
because of its importance in stabilizing the power system during an 
electrical disturbance.
    567. Article 9.7.4.1--System Protection Facilities (In the NOPR: 
Protection and System Quality)--Proposed LGIA Article 9.7.4.1 would 
have required that the Interconnection Customer, at its expense, 
install, operate and maintain System Protection Facilities.
Comments
    568. NERC states that the title of proposed LGIA Article 9.7.4.1 
should be changed from ``Protection and System Quality'' to 
``Protection Required by Study'' because system quality issues are not 
addressed here.
Commission Conclusion
    569. The title of Final Rule LGIA Article 9.7.4.1 is changed to 
``System Protection Facilities.'' This change addresses the NERC 
comment to eliminate reference to ``System Quality.''
    570. Article 9.7.4.2--Proposed LGIA Article 9.7.4.2 would have 
required that

[[Page 49893]]

each Party's facility be designed to isolate any fault or abnormality 
that would negatively affect the other Party or third parties connected 
to the Transmission Provider's Transmission System.
Comments
    571. NERC notes that the term ``negatively affect'' is too vague. 
It proposes that proposed LGIA Article 9.7.4.2 be revised to state that 
each Party's protection facilities will be designed and coordinated 
with other systems in accordance with Good Utility Practice.
Commission Conclusion
    572. The Commission adopts NERC's proposed change.
    573. Article 9.7.5--Requirements for Protection--Proposed LGIA 
Article 9.7.5 would have required the Interconnection Customer, in 
compliance with Applicable Reliability Standards, to install, operate 
and maintain protective devices necessary to remove faults ``promptly'' 
and to protect the Generating Facility from other conditions, such as 
negative sequence currents and over- or under-frequency.
Comments
    574. NERC comments that the term ``promptly'' is not useful when 
describing requirements for, or actions taken to preserve, system 
reliability. It also notes that the Generating Facility's fault 
protection must be coordinated with system protection. ``Good Utility 
Practice'' should replace ``Applicable Reliability Standards,'' since 
Applicable Reliability Standards is a subset of Good Utility Practice.
Commission Conclusion
    575. The Commission agrees with NERC and adopts its proposals.
    576. Article 9.9--Use of Transmission Provider's Interconnection 
Facilities by Third Parties--Proposed LGIA Article 9.9 would have 
provided, among other things, that third parties may use the 
Transmission Provider's Interconnection Facilities if required by 
Applicable Laws and Regulations, or if the Parties agree.
Comments
    577. APS believes that it is inappropriate to prohibit the use of 
Interconnection Facilities for other functions such as the housing of 
fiber optic circuits.
Commission Conclusion
    578. Since proposed LGIA Article 9.9 specifically allows the 
Parties to agree to permit third party usage of the Interconnection 
Facilities, there is no need to revise it.
    579. Article 9.10--Disturbance Analysis Data Exchange (In the NOPR: 
Data Exchange)--Proposed LGIA Article 9.10 would have provided that the 
Parties cooperate with one another in the analysis of disturbances to 
either the Generating Facility or the Transmission Provider's 
Transmission System by the gathering and sharing of any information 
related to any disturbance.
Comments
    580. NERC states that since this article is limited to data 
exchange for disturbance analysis, the title should be ``Disturbance 
Analysis Data Exchange.'' NERC also recommends covering ``and any 
disturbance information required by Good Utility Practice.''
Commission Conclusion
    581. The Commission adopts NERC's proposals in the Final Rule.
    582. Article 10--Maintenance--Proposed LGIA Article 10 would have 
made the Interconnection Customer responsible for all reasonable 
expenses of owning, operating and maintaining Interconnection Customer 
and Transmission Provider Interconnection Facilities (except for 
operations and maintenance expenses associated with modifications 
necessary for providing service to a third party that pays for such 
expenses). No significant comments were submitted on this article. 
Accordingly, the Commission adopts in the Final Rule LGIA Article 10 as 
proposed.
    583. Article 11--Performance Obligation--Proposed LGIA Article 11 
described the Transmission Provider's and the Interconnection 
Customer's obligations with respect to construction of Interconnection 
Facilities and Network Upgrades, security arrangements and deposits, 
refunds in the form of transmission credits with interest for amounts 
funded by the Interconnection Customer, and compensation to the 
Interconnection Customer for services the Transmission Provider 
requests.
    584. Most of the issues in Proposed LGIA Article 11 relate to 
pricing. All pricing matters are discussed in part II.C.1 
(Interconnection Pricing Policy).
    585. Article 11.5--Financial Security Arrangements--Proposed LGIA 
Article 11.5 would have required the Interconnection Customer to 
provide the Transmission Provider with a form of security at least 90 
Calendar Days before the procurement, installation, or construction of 
discrete Transmission Provider Interconnection Facilities or Network 
Upgrades begins. The security amount would have had to be sufficient to 
cover the costs of procuring, constructing, and installing the 
Transmission Provider's Interconnection Facilities or Network Upgrades, 
and it would have been reduced on a dollar-for-dollar basis as payments 
were made. Articles 11.5.1.1, 11.5.1.2 and 11.5.1.3 would have required 
that the issuer of the guarantee, letter of credit, surety bond or 
other form of security meet the creditworthiness requirements of, or be 
acceptable to, the Transmission Provider and that the security 
instrument contain specified provisions, such as a reasonable 
expiration date.\89\
---------------------------------------------------------------------------

    \89\ NOPR LGIA Article 11.5.1 is identical to Article 11.5 
except that the former required the Interconnection Customer to 
provide the Transmission Provider with a form of security at least 
30 Calendar Days prior to the commencement of the procurement, 
installation, or construction of discrete Transmission Provider 
Interconnection Facilities or Network Upgrades. The inclusion of 
both provisions in the NOPR LGIA was an error. As explained below, 
we are eliminating Article 11.5 in the Final Rule LGIA.
---------------------------------------------------------------------------

Comments
    586. Commenters identify three areas of concern with this 
provision. First, some commenters believe that 30 days is insufficient 
time for the Interconnection Customer to provide a reasonable form of 
security to the Transmission Provider. For example, Dairyland Power 
argues that 30 days is not enough time for delivery of the necessary 
equipment and materials. SoCal PPA maintains that the security should 
be provided 90 days in advance. Progress Energy argues that security 
should be provided when an interconnection agreement is executed, and 
FP&L requests that security should be provided within 30 days of either 
execution of the interconnection agreement or its acceptance by the 
Commission.
    587. Exelon argues that the amount of the security should be 
allowed to increase (or decrease), based on any changes in the 
construction cost estimate. According to Progress Energy, the 
Interconnection Customer should offer security to cover the full cost 
of the Network Upgrades. EPSA contends that the Interconnection 
Customer should be allowed to provide security on a rolling six month 
basis based on the Transmission Provider's cost exposure at each six 
month interval to ensure that the security costs paid by the 
Interconnection Customer are reasonable at any given time and are 
consistent with the Transmission Provider's obligations. In the 
alternative, EPSA supports the 30 day period. Duke

[[Page 49894]]

Energy also supports the 30 day requirement.
    588. NMA and Peabody state that while a Transmission Provider 
should not be placed at risk financially if an Interconnection Customer 
either terminates its interconnection agreement or breaches its 
obligation to make monthly payments to the Transmission Provider, at no 
time will the Transmission Provider be exposed to the financial costs 
of all the amounts of Network Upgrades or additions as contemplated 
under the NOPR LGIA. Requiring an Interconnection Customer to guarantee 
the total cost of the Network Upgrades is unfair because it causes the 
Interconnection Customer seeking to interconnect a very large generator 
to incur significant interest costs that it will never be able to 
recover, and this does not represent the true financial exposure the 
Transmission Provider faces for Network Upgrades. Further, limiting the 
security requirement to an amount that reflects the Transmission 
Provider's cost exposure during a 120 day forward-looking period is 
more appropriate than requiring an Interconnection Customer with a very 
large generator to provide security for the total cost of the project. 
Calpine warns that unnecessary financial security would be a barrier to 
entry.
    589. Several commenters, mostly Transmission Providers, believe 
that the Transmission Provider or Transmission Owner should determine 
the form of security to be provided by the Interconnection 
Customer,\90\ since they bear the risk if an Interconnection Customer 
abandons a project. The Financial Security Issues Coalition argues that 
the specific reference to surety bonds should be deleted from proposed 
LGIA Article 11.5 because surety bonds are not in the OATT as an 
acceptable form of collateral. Also, to reduce bankruptcy and 
fraudulent conveyance issues, any proposed guaranty should be from a 
parent, and not merely an Affiliate, of the Interconnection Customer. 
Finally, any proposed guarantor should have a BBB+ bond rating or 
higher.
---------------------------------------------------------------------------

    \90\ E.g., BPA, Central Maine, Duke Energy, Exelon, the 
Financial Security Issues Coalition, Georgia Transmission, NSTAR, 
and NYTO.
---------------------------------------------------------------------------

    590. Sempra argues that proposed LGIA Article 11.5.1 should be 
revised to clarify that the decision whether to provide security is the 
option of the Interconnection Customer. The provision should require an 
Interconnection Customer to provide a substitute security if it suffers 
serious financial erosion and financial-ratings downgrades that could 
lead the Transmission Provider to require assurances of a guarantor's 
ability to perform its financial and performance obligations. Dominion 
Resources does not object to the NOPR provision, provided that a 
subsequent Interconnection Customer is responsible for the costs of 
completing Network Upgrades if a higher-queued Interconnection Customer 
chooses to suspend or terminate construction of the Interconnection 
Facilities.
    591. Arkansas Coops argue that Article 11.5.1 should require the 
Transmission Provider to accept security from the National Rural 
Utilities Cooperative Finance Corporation (CFC), since this is critical 
for cooperatives that obtain financing from the CFR.
Commission Conclusion
    592. We note at the outset that Article 11.5 and Article 11.5.1 are 
substantially identical, and the inclusion of both provisions in the 
NOPR was redundant. We are therefore deleting Article 11.5 in the Final 
Rule, and renumbering the remaining articles accordingly. The 
discussion that follows, however, will refer to article numbers 
contained in the NOPR LGIA.
    593. With respect to commenters' concern that the 30 day window for 
providing a reasonable form of security is too short, the NOPR stated 
that the form of security must be provided by the Interconnection 
Customer at least 30 Calendar Days in advance of the procurement, 
installation, or construction of Interconnection Facilities or Network 
Upgrade projects. Parties, therefore, remain free to agree to an 
earlier deadline for the security if they foresee circumstances such as 
a long lead time for delivery of equipment. We expect that an 
Interconnection Customer will honor a reasonable request for an earlier 
deadline for providing a reasonable form of security. And, we will not 
require that the security be available at an earlier time, or at some 
specified period after execution of an interconnection agreement, 
because the purpose of the security is to fund procurement and 
construction. Since it is uncertain when procurement and construction 
will begin, it is reasonable to make such activity the trigger for 
tendering the security.
    594. We are not persuaded that providing security on a 120 day or 
six month rolling basis is superior to the approach proposed in the 
NOPR. We retain the article as proposed for the following reasons. 
First, the Final Rule LGIA provides for the reduction of the security 
amount on a dollar-for-dollar basis as payments are made; this protects 
the Interconnection Customer against providing too much security and 
ensures that the Transmission Provider is always adequately protected 
against its cost exposure. Second, commenters provide inadequate 
support for their claim that they would be unduly burdened if the 
article remained unchanged, or that a Transmission Provider and its 
other customers would suffer no financial harm if the Commission 
adopted a rolling 120 Calendar Days or six month security period. 
Third, retaining the proposed language will help to ensure that only a 
financially sound generation project will advance to the point where a 
Transmission Provider must make an irreversible financial commitment on 
its behalf. Fourth, the approach proposed by the commenters could 
expose a Transmission Provider and its other customers to financial 
risk if the Interconnection Customer defaults before the construction 
of new facilities and Network Upgrades have advanced to the point where 
those facilities can be put to productive use.
    595. In response to Exelon's concern that the amount of security be 
permitted to increase as well as decrease, Final Rule Article 11.5 does 
not prohibit the Parties from increasing the total amount of security 
required under an executed LGIA. The prices quoted for interconnection 
in the LGIA are estimates based on the results of studies conducted 
during the LGIP phase of the interconnection process. As a result, the 
final cost of Network Upgrades may rise or fall and with it, the 
security required under the LGIA.
    596. We disagree with commenters' contention that the article 
requires the Interconnection Customer to guarantee the total cost of 
the Network Upgrades. Final Rule Article 11.5 requires the 
Interconnection Customer to provide security to the Transmission 
Provider for discrete portions of the Transmission Provider's 
Interconnection Facilities or Network Upgrades, not the total amount of 
the Network Upgrades. It also provides that the security amount is 
reduced on a dollar-for-dollar basis for payments made to the 
Transmission Provider, thereby protecting the Interconnection Customer 
from having to provide too much security.
    597. With respect to commenters' arguments as to the form of 
security, the Final Rule states that the Interconnection Customer has 
the right to select a form of security that is acceptable to the 
Transmission Provider and that the Transmission Provider cannot 
unreasonably refuse to accept a

[[Page 49895]]

particular form. As the Commission has noted in recent orders, allowing 
the Interconnection Customer to provide an ``irrevocable letter of 
credit * * * or an alternative form of security proposed by the 
Transmission Customer and acceptable to the Transmission Provider and 
consistent with commercial practices'' is not unreasonable, and no 
commenter has convinced us otherwise.\91\ Granting the Transmission 
Provider absolute discretion on what forms of security to allow would 
provide too great an opportunity to erect hurdles to new generation, by 
allowing it to act in an unduly discriminatory or preferential 
manner.\92\ Moreover, Final Rule Article 11.5 grants the Transmission 
Provider the discretion to reject security from a financial institution 
that is not reasonably acceptable. As a result, the Commission rejects 
comments that would grant the Transmission Provider greater discretion 
with respect to the Interconnection Customer's chosen security or 
eliminate forms of credit specified in the article.
---------------------------------------------------------------------------

    \91\ See Florida Power & Light Company, 98 FERC ] 61,226 at 
61,893-94, reh'g granted in part on other grounds, 99 FERC ] 61,318 
(2002); Florida Power & Light Company, 98 FERC ] 61,324 at 62,358-59 
(noting that Florida Power & Light Company's practice of limiting 
interconnection customers to a letter of credit is unreasonable), 
reh'g rejected as moot, 100 FERC ] 61,094 (2002).
    \92\ Southwest Power Pool, Inc., 100 FERC ] 61,096 at P 12 
(2002).
---------------------------------------------------------------------------

    598. In response to Sempra, Final Rule Article 11.5 clearly states 
that the Interconnection Customer ``shall provide'' security to the 
Transmission Provider. It is only the form of that security that is the 
Interconnection Customer's option, within the restrictions specified. 
We are not adding language to the provision to establish requirements 
if an Interconnection Customer receives a financial downgrade that 
makes it difficult to secure a guaranty. The Interconnection Customer 
remains responsible for providing an acceptable form of guaranty under 
the existing terms of the article.
    599. Regarding Dominion Resources' comment, this issue is addressed 
in our discussion of Article 5.13 (Suspension).
    600. Regarding the Arkansas Coops' concern that a Transmission 
Provider would not accept security from the CFC, we would not consider 
such a rejection to be a reasonable decision on the part of the 
Transmission Provider under the existing terms of Article 11.5. 
Accordingly, we are not revising the provision.
    601. Article 12--Invoice--Proposed LGIA Article 12 set out a 
monthly invoice and billing dispute procedure. The Transmission 
Provider would have been required to provide an invoice for the final 
cost of construction of the Transmission Provider's Interconnection 
Facilities and Network Upgrades within six months, in sufficient detail 
to enable the Interconnection Customer to compare actual costs with 
estimates. No significant comments were submitted on this article. 
Accordingly, the Commission adopts in the Final Rule LGIA Article 12 as 
proposed.
    602. Article 13--Emergencies--Proposed LGIA Article 13 explained 
the Transmission Provider's and the Interconnection Customer's 
responsibilities when Emergency Conditions arise.
    603. Article 13.1--Definition--Proposed LGIA Article 13.1 would 
define Emergency Condition as a condition or situation: (1) That in the 
judgment of the Party making the claim is imminently likely to endanger 
life or property, or (2) that, in the case of the Transmission Provider 
making the claim, is imminently likely (as determined in a non-
discriminatory manner) to cause a material adverse effect on the 
security of, or damage to the Transmission System, the Transmission 
Provider Interconnection Facilities, or the Transmission Systems of 
others to which the Transmission System is directly connected, or (3) 
that, in the case of the Interconnection Customer making the claim, is 
imminently likely (as determined in a non-discriminatory manner) to 
cause a material adverse effect on the security of, or damage to, the 
Generating Facility or its Interconnection Facilities. Any condition or 
situation that results from a lack of sufficient generating capacity to 
meet load requirements and that results solely from economic conditions 
would not, on its own, be an Emergency Condition.
Comments
    604. PG&E and Cal ISO believe that lack of sufficient generation to 
meet load requirements that results solely from economic conditions can 
be a genuine Emergency Condition. PG&E states that when insufficient 
generation occurs, regardless of the reason, the Transmission Provider 
is still responsible for maintaining system stability to the extent 
possible. It believes that taking away the tools necessary in such an 
emergency could harm the Transmission System. Cal ISO and Salt River 
Project make a similar point; they consider lack of generation, for any 
reason, to be an Emergency Condition that can endanger reliability and, 
at a minimum, warrants an emergency notification such as those provided 
for under the Cal ISO's procedures. According to Cal ISO, without a 
declaration of an Emergency Condition, the Transmission Provider will 
not be able to invoke its obligation under Article 13.5 of the NOPR 
LGIA to take actions necessary to preserve reliability.
    605. El Paso seeks to revise both the proposed definition of the 
term Emergency Conditions and NOPR LGIA Article 13 to include a 
definition of an abnormal condition and to provide the Transmission 
Provider and Interconnection Customer the discretion to prevent an 
Emergency Condition (by taking action or inaction) during an abnormal 
condition.\93\ El Paso notes that such action or inaction would require 
prompt oral notification to the other Party as well as compensation for 
changes in real power output and reactive power production.
---------------------------------------------------------------------------

    \93\ El Paso would define Abnormal Condition as ``any condition 
at the [Generating] Facility, on the Interconnection Facilities, on 
the Transmission System, or on the transmission system of other 
utilities which is outside normal operating parameters such that 
facilities are operating outside their normal ratings or reasonable 
operating limits have been exceeded and would result in an Emergency 
Condition if these conditions continue. Any condition or situation 
that results from lack of sufficient planned generating capacity to 
meet load requirements or that results solely from economic 
conditions will not, standing alone, constitute an Abnormal 
Condition.''
---------------------------------------------------------------------------

Commission Conclusion
    606. The Commission agrees with the comments concerning the 
potential harm to the Transmission Provider's Transmission System by 
reducing its flexibility to respond during Emergency Conditions. The 
Commission is removing from the Final Rule LGIA Article 13.1 definition 
of Emergency Condition the sentence that reads, ``Any condition or 
situation that results from a lack of sufficient generating capacity to 
meet load requirements that results solely from economic conditions 
shall not, on its own, constitute an Emergency Condition.'' The 
Commission denies El Paso's request to add a definition of an abnormal 
condition and to provide the Transmission Provider and Interconnection 
Customer the discretion to take certain actions or inactions in the 
event of an Emergency Condition. The Commission would expect the 
Parties to treat any abnormal conditions appropriately, regardless of 
whether it is a defined term in the Final Rule.
    607. Article 13.5.1--Transmission Provider Authority--General--
Proposed LGIA Article 13.5.1 provided that the

[[Page 49896]]

Transmission Provider would be able to take whatever actions or 
inactions it deems necessary during an Emergency Condition to preserve 
the safety and reliability of the Transmission System or the 
Transmission Provider Interconnection Facilities.
Comments
    608. Dynegy contends that during an Emergency Condition, the 
Transmission Provider should compensate the Interconnection Customer 
for starting up or shutting down a Generating Facility or increasing or 
decreasing its real or reactive output.
Commission Conclusion
    609. Compensation during an Emergency Condition is appropriately 
addressed in Final Rule LGIA Article 11.6.1 (Generator Compensation for 
Actions During Emergency Conditions).
    610. Article 13.6--Interconnection Customer Authority--Proposed 
LGIA Article 13.6 would allow the Interconnection Customer to take 
actions or inactions necessary to protect the integrity of its 
Generating Facility or Interconnection Facilities during an Emergency 
Condition.
Comments
    611. NERC proposes that Article 13.6 be revised to read as follows: 
``Consistent with Good Utility Practice and the [LG]IA and [LG]IP, the 
Interconnection Customer may take actions or inactions with regard to 
the [Generating] Facility or the [Interconnection Customer's] 
Interconnection Facilities during an Emergency Condition in order to 
(1) preserve public health and safety, (2) preserve the reliability of 
the [Generating] Facility or the [Interconnection Customer's] 
Interconnection Facilities, (3) limit or prevent damage, and (4) 
expedite restoration of service.'' Central Maine requests that proposed 
LGIA Article 13.6 be revised to require that an Interconnection 
Customer exercise its rights in an Emergency Condition in accordance 
with Good Utility Practice.
Commission Conclusion
    612. We adopt NERC's proposed language in Final Rule Article 13.6 
because it provides greater specificity concerning the Interconnection 
Customer actions or inactions that may be taken during the course of an 
Emergency Condition.
    613. Article 14--Regulatory Requirements and Governing Law--
Proposed LGIA Article 14 described the regulatory requirements and 
governing law for each Party's obligations under the LGIA.
    614. Article 14.1--Regulatory Requirements & Article 14.2--
Governing Law and Applicable Tariffs--Article 14.1 of the NOPR LGIA 
proposed that each Party's obligations shall be subject to its receipt 
of any required approval or certificate from Governmental Authorities 
in a form and substance satisfactory to the applying Party, or the 
Party making any required filings with, or providing notice to, such 
Governmental Authorities. Article 14.1 also stated that nothing in the 
LGIA shall require an Interconnection Customer to take any action that 
could result in its inability to obtain, or its loss of, status or 
exemption under the Federal Power Act or the Public Utility Holding 
Company Act of 1935, as amended. Article 14.2 of the NOPR LGIA provided 
that the LGIA is governed by the laws of the state where the Point of 
Interconnection is located, without regard to conflicts of state law 
principles, and that the LGIA is subject to all Applicable Laws and 
Regulations.
Comments
    615. The Bureau of Reclamation states that it does not have 
investors or shareholders, is not subject to the Commission's 
jurisdiction under sections 205 or 206 of the Federal Power Act, and is 
not subject to the jurisdiction of state public utility commissions. 
The Bureau of Reclamation has sovereign immunity except to the extent 
that immunity has been waived by Congress. It believes that proposed 
LGIA Article 14.2 does not reflect that, as a federal agency, it must 
comply with the Constitution of the United States and all applicable 
laws. It states that this includes statutory and regulatory limitations 
on its ability to submit disputes to arbitration. SoCal PPA requests 
that Parties have the option of selecting the laws of a state other 
than the state where the interconnection will occur as the governing 
law for the LGIA.
Commission Conclusion
    616. The Bureau of Reclamation and SoCal PPA argue that public 
power entities cannot adopt Article 14 without variation. We will not 
require these entities to adopt provisions that they are legally 
forbidden to adopt in order to have their reciprocity tariffs approved. 
As described more fully in the reciprocity discussion,\94\ 
nonjurisdictional entities with safe harbor status for their tariffs 
may add the Final Rule LGIP and Final Rule LGIA if they wish to 
continue to have safe harbor protection, but only need to provide 
services they are ``capable'' of providing.\95\ We will consider the 
legal restrictions on nonjurisdictional entities when we evaluate their 
reciprocity compliance filings.
---------------------------------------------------------------------------

    \94\ See Part II.C.7 (OATT Reciprocity Requirements Applied to 
the Final Rule LGIP and Final Rule LGIA).
    \95\ Order No. 888-A, FERC Stats. & Regs ] 31,048 at 30,286.
---------------------------------------------------------------------------

    617. Article 15--Notices--Proposed LGIA Article 15 contained the 
addresses at which the Transmission Provider and Interconnection 
Customer will receive, among other things, notices, bills and payments. 
No significant comments were submitted on this article. Accordingly, 
the Commission adopts this article in the Final Rule as proposed.
    618. Article 16--Force Majeure--A Force Majeure clause excuses 
performance under a contract due to an event beyond a Party's control. 
Article 16 of the NOPR LGIA proposed to adopt the Force Majeure 
language of the OATT. It defined Force Majeure events as: ``[A]ny act 
of God, labor disturbance, act of the public enemy, war, insurrection, 
riot, fire, storm, or flood, explosion, breakage or accident to 
machinery or equipment, any curtailment order, regulation or 
restriction imposed by governmental military or lawfully established 
civilian authorities, or any other cause beyond a Party's control * * 
*.'' The NOPR provision would have required the Parties ``to make all 
Reasonable Efforts'' to comply with their obligations and resolve the 
Force Majeure condition.
Comments
    619. Several commenters ask that the Commission establish a list of 
non-Force Majeure events.\96\ More specifically, some commenters 
believe that Article 16 should exclude economic hardship from the 
definition of Force Majeure,\97\ while the Coalition for Contract Terms 
and PSEG comment that the Commission should not treat ``removable or 
remediable causes'' as Force Majeure.
---------------------------------------------------------------------------

    \96\ E.g., The Coalition for Contract Terms, Monongahela Power, 
PJMTO, and PSEG.
    \97\ E.g., The Coalition for Contract Terms, Entergy, Mirant, 
PJMTO, and PSEG.
---------------------------------------------------------------------------

    620. Some commenters request that the Commission establish a formal 
notice requirement that Parties must follow when claiming Force 
Majeure.\98\ NYTO asks the Commission to require the Party claiming 
Force Majeure to notify those affected of what steps the

[[Page 49897]]

Party is taking to remedy the Force Majeure condition. Dominion 
Resources and Progress Energy request that the Commission clarify the 
obligations and responsibilities of each Party during a Force Majeure 
occurrence. Specifically, they ask the Commission to clarify how a 
Party invokes the Force Majeure provision.
---------------------------------------------------------------------------

    \98\ E.g., The Coalition for Contract Terms, Dominion Resources, 
Mirant, Monongahela Power, and Progress Energy.
---------------------------------------------------------------------------

    621. A number of commenters ask the Commission to clarify that the 
Party claiming Force Majeure must return to complying with the LGIA as 
soon as the Force Majeure event ends and that the other Party's 
obligation to pay for services rendered is not suspended during the 
Force Majeure event.\99\
---------------------------------------------------------------------------

    \99\ E.g., The Coalition for Contract Terms, Exelon, PSEG, and 
PJMTO.
---------------------------------------------------------------------------

    622. PacifiCorp argues that the Force Majeure clause should cover 
acts of negligence or intentional wrongdoing by someone other than the 
claimant, while MidAmerican requests the opposite. Cinergy comments 
that the NOPR does not define curtailment, and is concerned that this 
term might unnecessarily broaden the definition of Force Majeure.
Commission Conclusion
    623. We agree that the contracting Parties would benefit from 
greater specificity in the Force Majeure provision, so the Final Rule 
LGIA sets forth the procedural obligations and responsibilities of the 
Parties during a Force Majeure event. We adopt a requirement that the 
Party experiencing a Force Majeure event formally notify the other 
Party and that it keep the other Party informed about its attempt to 
remedy the situation. A Party shall exercise due diligence to remove 
the disability with reasonable dispatch, and it will resume its duties 
under the LGIA as soon as reasonably possible. For instance, a fire 
that triggers a Force Majeure claim may be put out within hours, but it 
may take the Party days or weeks to resume normal operation. The Party 
would not be in Default of its obligations during that time. The Final 
rule article also clarifies that the obligation to pay money when due 
is not suspended by reason of Force Majeure.
    624. We agree that it would be useful to identify economic hardship 
as a non-Force Majeure event. Economic hardship is not considered an 
event outside the control of the Party. However, it is unnecessary to 
specify that a ``removable or remediable'' cause does not qualify as 
Force Majeure event. Final Rule Article 16 defines a Force Majeure 
event as one that is ``beyond a Party's control.''
    625. NOPR Article 16.1 proposed to except from the list of Force 
Majeure events acts of ``negligence or intentional wrongdoing.'' We 
clarify in the Final Rule LGIA that acts of negligence or intentional 
wrongdoing committed by an entity other than the Party claiming Force 
Majeure would qualify for Force Majeure protection. This is an event 
beyond a Party's reasonable control.
    626. With respect to Cinergy's comments regarding use of the term 
``curtailment,'' we conclude that while the curtailments imposed by 
governmental military or lawfully established civilian authorities are 
considered Force Majeure events under Section 10.1 of the OATT, it is 
an inappropriate Force Majeure event in the Final Rule LGIA. 
Curtailments to transmission service should not serve as the cause for 
excusing performance under an interconnection contract. As a result, 
the Commission omits curtailment from the definition of Force Majeure 
in the Final Rule LGIA.
    627. Article 17--Default--Proposed LGIA Article 17 defined Default 
as the failure of either Party to perform any obligation in the time or 
manner provided in this LGIA. No Default would exist as a result of 
Force Majeure or an act or omission of the other Party. Article 17 also 
described notice and cure procedures: the defaulting Party would have 
30 Calendar Days from receipt of a Default notice to cure the Default; 
or, if the Default cannot be cured within 30 Calendar Days, the 
defaulting Party must begin the cure within 30 Calendar Days and must 
complete the cure within 90 Calendar Days. NOPR Article 17.1.2 provided 
the non-defaulting Party with the right to terminate the LGIA and 
recover damages if a Default is not cured, or is not capable of being 
cured, within the time provided in Article 17.1.1.
Comments
    628. Calpine is concerned that not all Defaults are capable of 
being cured within 90 Calendar Days, especially if they involve the 
purchase, modification or installation of equipment. It therefore 
argues that it is sufficient to require that the cure begin in 30 
Calendar Days, and that the defaulting Party ``continuously and 
diligently complete such cure,'' as required under Article 17.1.1.
Commission Conclusion
    629. The Commission declines to adopt Calpine's proposed change. 
The non-defaulting Party needs to be protected from lengthy Defaults by 
having the right to terminate, even if the Default cannot be cured 
within 90 Calendar Days through diligent action by the defaulting 
Party. The LGIA does not prevent the Parties from agreeing to an 
extension of the time permitted to cure a Default. Calpine's proposal 
would provide the non-defaulting Party with too little protection.
    630. Article 18--Indemnity--Indemnification is defined as 
compensating another for a loss suffered due to a third party's act or 
Default.\100\ In the NOPR, we proposed that the LGIA incorporate the 
indemnity provision currently found in the OATT. Thus, the 
indemnification provision in NOPR LGIA Section 18.1 would indemnify the 
Transmission Provider and Interconnection Customer for legal costs due 
to claims by third persons arising from performance of the Transmission 
Provider's or Interconnection Customer's obligations under the LGIA on 
behalf of the other contracting Party, and would not explicitly allow 
indemnification for disputes arising over enforcement of this 
provision. The Commission sought comments on this approach and the 
relative merits of the alternative provisions in the Consensus LGIA and 
ERCOT interconnection agreement. The Consensus LGIA does not extend 
indemnity protection to cases of ordinary negligence or willful 
misconduct, and the ERCOT provision does not extend indemnity 
protection to cases of gross negligence or intentional wrongdoing. 
Additionally, the Consensus LGIA, unlike the ERCOT interconnection 
agreement, sets forth detailed procedures for pursuing an indemnity 
claim and makes the recovery of legal costs available as part of an 
indemnity claim.
---------------------------------------------------------------------------

    \100\ Black's Law Dictionary 772 (7th ed. 1999).
---------------------------------------------------------------------------

Comments
    631. Commenters generally support the inclusion of an 
indemnification provision, but ask that the Final Rule cover other 
charges, such as attorneys' fees, and explain the process for invoking 
this protection.\101\ Several commenters, including Duke Energy, 
Monongahela Power, PacifiCorp, and Sempra, point out a typographical 
error that would have excepted negligence or intentional wrongdoing by 
the indemnifying Party rather than the indemnified Party. Some 
commenters recommend extending the protection to ordinary negligence by 
the Transmission Provider, but denying

[[Page 49898]]

protection for gross negligence.\102\ NYTO and Cinergy request that the 
provision cover an Interconnection Customer's performance of 
construction activities. PSEG requests that the provision be revised to 
offer specific limitations on the damages provision and a provision 
limiting liability arising from an emergency. El Paso requests that the 
Final rule specifically indemnify the Transmission Provider from 
penalties incurred due to the actions or inactions of the 
Interconnection Customer.
---------------------------------------------------------------------------

    \101\ E.g., Central Maine, Dominion Resources, Exelon, 
Monongahela Power, NYTO, and Progress Energy.
    \102\ E.g., Central Maine, the Coalition for Contract Terms, 
Midwest ISO TO, PSEG, Salt River Project, and Southern.
---------------------------------------------------------------------------

    632. PJMTO argues that the OATT provision does not contain enough 
specific provisions and inadequately constrains the potential financial 
risk to each Party. Specifically, it argues that the provision should 
limit damages and set forth the proper standard for assessing liability 
(i.e., gross negligence and willful misconduct). It also expresses 
concern that lending institutions would shy away from investing in new 
generation without liability limits.
    633. Southern proposes to require that each Party indemnify and 
hold the other Party harmless from any liability resulting from 
activities on the indemnifying Party's own side of the Point of Change 
of Ownership, except in cases of gross negligence or intentional 
misconduct. Each Party should also indemnify the other Party for 
failure to adhere to operating requirements and Breaches of the LGIA. 
SoCal PPA notes that it applies a more stringent ``willful action'' 
standard. It warns that if the Commission retains the proposed 
standard, a Transmission Owner will have to procure insurance to cover 
this exposure, for which the Interconnection Customer should pay.
    634. NYTO takes issue with the provision's bilateral effect, 
arguing that a Transmission Owner should not have to indemnify an 
Interconnection Customer, since the Interconnection Customer requests 
interconnection for its own benefit. Similarly, NYISO argues that the 
provision should protect the active Parties to an agreement, here the 
Transmission Owner or ISO, but not the Interconnection Customer.
    635. Salt River Project notes that it is unclear whether the 
Commission intends to preempt the appropriate tribunal's consideration 
of whether liability should attach for injuries to third parties.\103\ 
It also argues that compliance with an Interconnection Customer's 
request should not be required if it will result in violation of 
statutory restrictions, bond covenants, creditor agreements or private 
use restrictions.
---------------------------------------------------------------------------

    \103\ Citing Avista Corp., 96 FERC ] 61,058 at 61,181 (2002).
---------------------------------------------------------------------------

Commission Conclusion
    636. We are amending the proposed indemnity standard to match the 
customary legal standard of conduct and better address the potential 
for liability. Because risk exposure can increase interconnection 
costs, we are revising the indemnity standard to provide protection for 
acts of ordinary negligence, but not for acts of gross negligence or 
intentional wrongdoing. Similarly, commenters have convinced us that 
interconnection presents a greater risk of liability than exists for 
the provision of transmission service and that, therefore, the OATT 
indemnity provision is not suitable in the interconnection context. 
While several commenters request a dollar limit on liability, we 
conclude that the tightened standards serve as an acceptable limit on 
liability and that a monetary limitation on damages is not necessary to 
adequately protect the Parties.
    637. Because construction of Interconnection Facilities may expose 
both a Transmission Provider and an Interconnection Customer to 
liability for acts taken on the other Party's behalf, we are retaining 
the bilateral nature of the provision. In response to the concern of 
some commenters, the indemnity provision of the Final Rule also 
describes the process for pursuing and securing indemnity from claims 
in more detail. Additionally, the Final Rule LGIA gives an indemnified 
Party the right to collect the legal costs of defending an 
indemnification claim if the indemnifying Party fails to adequately 
defend the claim on its own. We also adopt El Paso's proposal that 
indemnification be available because of action or inaction by the 
Interconnection Customer, and modify the provision accordingly.
    638. In response to NYTO's request that the provision cover an 
Interconnection Customer's construction activities, the Final Rule 
provision covers construction activities as well as all other 
activities performed on behalf of the other Party. Where an 
Interconnection Customer constructs the Transmission Provider's 
Interconnection Facilities and Stand Alone Network Upgrades under the 
Option to Build in Final Rule LGIA Article 5.1, a Transmission Provider 
will be protected by the indemnification clause that appears in that 
article. Indemnification applies to all work, regardless of the side of 
the Point of Interconnection on which the work occurs.
    639. With regard to cost allocation, we clarify that each Party is 
responsible for paying its own insurance. This is equitable and helps 
keep the costs of interconnection low, which should encourage the 
construction of new generation resources. Additionally, we are 
eliminating indemnification for gross negligence or intentional 
wrongdoing, which will also reduce the Parties' risk exposure and cost 
of insurance.
    640. It is not our intent to preempt the ``appropriate tribunal's'' 
assignment of liability for injuries to third parties, as proposed by 
Salt River Project. The indemnification provision is a common 
contractual risk-sharing provision and does not strip any court or 
other tribunal of jurisdiction. To the extent that this provision would 
cause a specific Transmission Provider to violate statutory or other 
restrictions, the issue should be raised on compliance in a filing 
explaining the special circumstances.
    641. Article 19--Assignment--Proposed LGIA Article 19 provided the 
conditions for assigning the LGIA to another entity. It stated that any 
assignment under the LGIA shall not relieve a Party of its obligations, 
nor shall a Party's obligations be expanded.
    642. Article 19.1--Assignment--Article 19.1 of the NOPR LGIA stated 
that written consent ordinarily would be required to assign the LGIA, 
but assignment may be secured without consent if the assignee is an 
Affiliate that meets certain qualifications. Article 19 also provided 
that no consent would be required if an Interconnection Customer 
assigns the LGIA for collateral security purposes to aid in financing.
Comments
    643. The Bureau of Reclamation argues that there are limitations on 
its ability to comply with Article 19.1. It does not typically allow 
assignments without approval by both entities and assurance that 
assigns and successors are bound by the original terms of the 
interconnection agreement. It states that there are standard articles 
that it would be required to include that are not contained in the 
NOPR, such as ``Officials Not to Benefit,'' ``Use of Convict Labor,'' 
``Prompt Payment Provisions,'' and ``Tort Claims.''
Commission Conclusion
    644. The Bureau of Reclamation's concerns are addressed in the 
reciprocity discussion at Article 14.1 (Regulatory Requirements) and 
Article

[[Page 49899]]

14.2 (Governing Law and Applicable Tariffs).
    645. Article 20--Severability--Article 20 of the NOPR LGIA 
explained that if a court or Governmental Authority determines that any 
provision of the LGIA is invalid, void, or unenforceable, such 
determination would not invalidate any other provision in the LGIA. No 
significant comments were submitted on this article. Accordingly, the 
Commission adopts this article in the Final Rule LGIA as proposed.
    646. Article 21--Comparability--Article 21 of the NOPR LGIA would 
have required that the Parties comply with all applicable comparability 
requirements and code of conduct laws, rules and regulations. No 
significant comments were submitted on this article. Accordingly, the 
Commission adopts this article in the Final Rule LGIA as proposed.
    647. Article 22--Confidentiality--Article 22 of the NOPR LGIA 
described what constitutes Confidential Information and the protection 
proposed for such information when shared between Parties. It set forth 
proposed procedures for the release of Confidential Information and 
guidelines regarding how Confidential Information should be treated 
when it is subject to a request from the Commission as part of an 
investigation. The information of both Parties is protected by this 
article as long as the information is identified as Confidential 
Information in accordance with the article.
Comments
    648. Cal ISO argues that an RTO or ISO should have access to 
operational, performance and maintenance data.
    649. The Bureau of Reclamation argues that it may not be able to 
conform to the proposed confidentiality provisions because it must 
adhere to the Freedom of Information Act (FOIA) \104\ when addressing 
confidentiality. It further explains that FOIA requires federal 
agencies to release most documents in their possession upon request, 
except to the extent their contents meet certain exceptions. The Bureau 
of Reclamation also notes that Article 22 should be revised to reflect 
security concerns raised by the release of information.
---------------------------------------------------------------------------

    \104\ 5 U.S.C. 552(a) (2000).
---------------------------------------------------------------------------

Commission Conclusion
    650. In the Final Rule, the Commission adopts NOPR Article 22, with 
minor modifications, as described below.
    651. In response to Cal ISO, the Final Rule allows an RTO or ISO to 
have access to certain data. Final Rule Article 22.1.11 permits a 
Transmission Provider to make available information ``necessary to 
fulfill its obligations * * * as a transmission service provider or a 
Control Area operator including disclosing the Confidential Information 
to the RTO/ISO.'' A Transmission Provider that is obliged to disclose 
information to an RTO or ISO must notify the other Party in writing, 
assert confidentiality, and cooperate in seeking to protect the 
Confidential Information from public disclosure ``by confidentiality 
agreement, protective order or other reasonable measures.'' Thus a 
Transmission Provider may make available any required operational, 
performance or maintenance data as long as it maintains the 
confidentiality of the requested Confidential Information.
    652. Regarding the Bureau of Reclamation's argument about its 
obligations under FOIA, the Commission recognizes that Parties may be 
subject to statutory or regulatory information restrictions, some of 
which may address security concerns. If state or federal laws indeed 
conflict with the Final Rule's confidentiality and information sharing 
provisions, the Commission expects that public utilities will make 
conforming changes to these provisions in their compliance filings and 
explain the statutory basis for such changes. This also applies to non-
public utilities that plan to amend their safe harbor tariffs with a 
conforming Final Rule LGIP and Final Rule LGIA.
    653. The Commission is also making several minor changes to NOPR 
LGIA Article 22.1.10 that addresses disclosure to the Commission or its 
staff. A Party must provide requested information to the Commission or 
its staff, even when the Party otherwise would be required by the LGIA 
to maintain this information in confidence. The Party receiving the 
request must ask the Commission to treat this information as 
confidential and non-public, consistent with Section 388.112 of the 
Commission's Regulations.\105\ A Party must notify the other Party when 
it learns that the Commission has received a request that such 
information be made public pursuant to Section 388.112. Commission 
policy prohibits a contracting Party from revealing to a counter-Party 
that it has received a request for information from the Commission, 
when such request is made pursuant to an investigation or 
otherwise.\106\ The Commission likewise prohibits a Party from 
notifying the other Party prior to the release of the Confidential 
Information to the Commission or its staff.\107\
---------------------------------------------------------------------------

    \105\ 18 CFR 388.112 (2003).
    \106\ American Electric Power Service Corp., 99 FERC ] 61,312 at 
PP 22-24 (2002).
    \107\ Id.
---------------------------------------------------------------------------

    654. The Commission is also revising Article 22.1.10 in the Final 
Rule LGIA to clarify that the Party receiving the request from the 
Commission or its staff will not contact the other Party before 
releasing the Confidential Information. In addition, because requests 
for information may be made under the investigation rules in Section 
1b.20 of the Commission's Regulations, the Final Rule article includes 
this reference.
    655. Article 23--Environmental Releases--Proposed LGIA Article 23 
described the procedures that would be required for notifying the other 
Party of the release or remediation of Hazardous Substances. No 
significant comments were submitted on this article. Accordingly, the 
Commission adopts this article in the Final Rule as proposed.
    656. Article 24--Information Requirements--Proposed LGIA Article 24 
described the proposed requirements for sharing information regarding 
the electrical characteristics of the Parties' respective facilities, 
including monthly status reports on construction and installation of 
the Transmission Provider's Interconnection Facilities and Network 
Upgrades.
    657. Article 24.4--Information Supplementation--Proposed LGIA 
Article 24.4 required the Parties, before the Commercial Operation Date 
of the Interconnection Customer's Generating Facility, to provide 
either updated test and other technical information or written 
confirmation that the new technical data and the originally submitted 
data are consistent. It also describes the types of voltage tests that 
would be conducted by the Interconnection Customer and the type of 
recordings it is required to provide to the Transmission Provider. It 
provides that when there are multiple units at a Generating Facility, 
the Interconnection Customer would be required to provide recordings 
for only one generating unit if the other units have identical design 
and response characteristics.
Comments
    658. NERC recommends that Article 24.4 be revised to require that 
tests conducted on the Generating Facility be consistent with Good 
Utility Practice. It also recommends requiring the Interconnection 
Customer to provide the Generating Facility's characteristics based on 
validated test recordings, as opposed to raw test data. It asks that 
the

[[Page 49900]]

Commission not permit the test results for one generating unit to be 
allowed to represent the characteristics of all generating units, if 
there is more than one unit at the Generating Facility with the same 
design characteristics. NERC believes that it is necessary to verify 
modeling characteristics of each generating unit for system planning 
purposes and to verify the operational capabilities of each generating 
unit for operations purposes. NERC states that the electrical 
characteristics of each Generating Facility are unique.
Commission Conclusion
    659. We concur with NERC's position and adopts its recommended 
revisions.
    660. Article 25--Information Access and Audit Rights--Proposed LGIA 
Article 25 required that each Party make information available to the 
other Party necessary to verify costs for which the other Party is 
responsible under this LGIA and to carry out its obligations and 
responsibilities under the LGIA. No significant comments were submitted 
on this article. Accordingly, the Commission adopts this article in the 
Final Rule as proposed.
    661. Article 26--Subcontractors--Proposed LGIA Article 26 provided 
that the Parties would be able to use subcontractors to perform 
obligations under the LGIA if the subcontractors comply with the 
applicable terms and conditions of the LGIA and each Party remains 
liable to the other for the subcontractor's performance. The hiring 
Party would retain all of its obligations under this article. No 
significant comments were submitted on this article. Accordingly, the 
Commission adopts this article in the Final Rule as proposed.
    662. Article 27--Disputes--Proposed LGIA Article 27 explained the 
Dispute Resolution and arbitration procedures that would apply to the 
LGIA. No significant comments were submitted on this article. 
Accordingly, the Commission adopts this article in the Final Rule as 
proposed with one change to emphasize that Parties should consider 
using informal dispute resolution as well as more formal options.
    663. Article 28--Representations, Warranties and Covenants--
Proposed LGIA Article 28 would have required that each Party be 
organized and qualified to do business in the relevant jurisdiction. 
Each Party would be required to have the authority to enter into this 
LGIA, and performance of its duties would not conflict with 
organizational or formation documents. No significant comments were 
submitted on this article. Accordingly, the Commission adopts this 
article in the Final Rule as proposed.
    664. Article 29--Joint Operating Committee (in the NOPR: Operating 
Committee)--Proposed LGIA Article 29 provided that the Transmission 
Provider shall set up: (1) An Operating Committee made up of a member 
from the Interconnection Customer and a member from the Transmission 
Provider, and (2) a Joint Operating Committee made up of members of all 
of its Operating Committees, in order to coordinate operating and 
technical considerations of Interconnection Service. The Operating 
Committee would meet when necessary, but not less than once each 
calendar year. The duties of the Operating Committee would include, 
among other things, establishing and maintaining control and operating 
procedures, data requirements and operating record requirements, 
reviewing outage forecasts, and coordinating outage schedules.
Comments
    665. Avista and FirstEnergy oppose this requirement as unduly 
burdensome and unnecessary because it will impose additional costs on 
them. Moreover, some of the tasks envisioned for the Operating 
Committee are being performed either by NERC or an Applicable 
Reliability Council. For example, Avista argues that NERC is 
responsible for establishing standards for operating and control 
procedures for generators. Dynegy, on the other hand, would keep the 
Operating Committee and proposes some minor changes to the proposed 
language of this provision.
    666. PJM and Cal ISO argue that ISOs should be exempt from this 
requirement because they already perform the tasks envisioned for 
Operating Committee in the normal course of their business.
Commission Conclusion
    667. The Final Rule LGIA eliminates the requirement that the 
Transmission Provider constitute an Operating Committee for each 
Interconnection Customer. However, we are requiring a Joint Operating 
Committee because it provides Interconnection Customers and 
Transmission Providers a forum in which to discuss and coordinate 
operating and technical considerations of Interconnection Service. We 
are revising Final Rule LGIA to eliminate tasks that are already being 
performed by NERC, thereby responding to Avista's concern.
    668. Finally, we agree with PJM and Cal ISO's proposal that the 
Final Rule article exempt an RTO or ISO from this requirement because 
an RTO or ISO performs Joint Operating Committee-type functions in 
their normal course of business.
    669. Article 30--Miscellaneous--Proposed LGIA Article 30 addressed 
matters such as rules of interpretation, a prohibition on third party 
beneficiaries, and the right to amend the LGIA by mutual agreement. No 
significant comments were submitted on this article. Accordingly, the 
Commission adopts this article in the Final Rule as proposed.
    670. Article 30.11--Reservation of Rights--Proposed Article 30.11 
would have reserved to each Party their rights to unilaterally seek 
modification to the LGIA pursuant to sections 205 and 206 of the FPA, 
except as restricted by the other provisions of the executed LGIA.
Comments
    671. Dynegy and Mirant note that this clause is redundant because 
another Reservation of Rights provision appears in Proposed Article 
2.7.
Commission Conclusion
    672. The Commission deletes proposed Article 2.7, and modifies 
proposed Article 30.11 in this Final Rule. As proposed, Article 30.11 
contains a redundancy. The Commission deletes the second paragraph of 
this Article, because it repeats the reservation of rights set forth in 
the first paragraph of the Article.
    673. Appendices--The NOPR LGIA contained appendices for 
Interconnection Facilities and Network Upgrades, time schedule, 
interconnection details, standard LGIA, security arrangement details, 
Commercial Operation Date, and interconnection guidelines. The 
Commission adopts these appendices in the Final Rule LGIA, with the 
exception of Appendix G (Interconnection Guidelines) since the Final 
Rule LGIA captures the provisions of that Appendix elsewhere.

C. Other Significant Policy Issues

    674. A number of issues such as interconnection pricing policy, 
permitted variations in the terms of the Final Rule for independent 
transmission entities, and legal issues such as consequential damages 
and liquidated damages transcend individual sections in the Final Rule 
LGIP or articles in the Final Rule LGIA. Accordingly, they are 
addressed in the individual discussions that follow.
1. Interconnection Pricing Policy
    675. In the NOPR, the Commission proposed to adopt its existing 
interconnection pricing policy for a

[[Page 49901]]

Transmission Provider that is not independent of market participants, 
and invited comments on whether it should depart from this policy for a 
Transmission Provider that is independent.
    676. Since the NOPR was written to reflect the Commission's current 
pricing policy, NOPR LGIA Article 11 proposed that the Interconnection 
Customer be solely responsible for the costs of Interconnection 
Facilities, which are defined as all facilities and equipment between 
the Generating Facility and the Point of Interconnection with the 
Transmission System. Network Upgrades, which are defined as all 
facilities and equipment constructed at or beyond the Point of 
Interconnection for the purpose of accommodating the new Generating 
Facility,\108\ would be funded initially by the Interconnection 
Customer unless the Transmission Provider elects to fund them. The 
Interconnection Customer would then be entitled to a cash equivalent 
refund (i.e., credit) equal to the total amount paid for the Network 
Upgrades, including any tax gross-up or other tax-related payments. The 
refund would be paid to the Interconnection Customer on a dollar-for-
dollar basis, as credits against the Interconnection Customer's 
payments for transmission services, with the full amount to be 
refunded, with interest calculated in accordance with 18 CFR 
35.19a(a)(2)(ii), within five years of the date the Network Upgrades 
are placed in service, so long as the Transmission Provider continues 
to receive payments for transmission service with respect to the 
Generating Facility during this period. The NOPR proposed that the 
Interconnection Customer may assign its refund rights to any person.
---------------------------------------------------------------------------

    \108\ The proposed definition also states that the ``facilities 
and equipment are used by and benefit all users of the transmission 
grid, without distinction or regard as to the purpose of the upgrade 
(e.g., to relieve overloads, to remedy stability and short circuit 
problems, to maintain reliability, or to provide protection and 
service restoration) including the fact that these facilities and 
equipment are being replaced or upgraded to accommodate the 
interconnection request.''
---------------------------------------------------------------------------

    677. Also, in the NOPR, the Commission asked for comments on 
appropriate interconnection pricing consistent with the use of the 
locational marginal pricing methodology. This method was proposed in 
the Standard Market Design proceeding that the Commission had 
previously announced.\109\ The Commission noted that in a region that 
uses locational pricing, the RTO or ISO usually assigns to the 
Interconnection Customer the cost of any new network facilities that 
would not be in its transmission expansion plan but for the 
interconnecting Generating Facility. The Interconnection Customer then 
typically receives transmission rights in return for the capacity that 
is created. The Commission explained that this pricing method has been 
allowed only in regions where the Transmission Provider is independent 
of market participants, because certain aspects of this method can be 
subjective. These subjective aspects include the determination of 
congestion prices, rules for deciding which Interconnection Customer in 
the queue should be responsible for which facilities, the cost of the 
facilities, and the assumptions underlying the power flow analysis 
needed for system impact and facilities studies. The Commission noted 
that a Transmission Provider that is not an independent entity would 
have the ability and the incentive to exploit this subjectivity to its 
own or its affiliates advantage if it is able to allocate the costs of 
Network Upgrades between the Interconnection Customer and other 
transmission customers, where the Transmission Provider may be the 
principal other customer. The Commission invited comments on whether it 
should accept an approach that departs from the current Commission 
policy of providing transmission credits, and stated its willingness to 
consider alternative proposals as long as the cost causation 
determinations are made on an objective and non-discriminatory basis by 
an independent entity such as an RTO.
---------------------------------------------------------------------------

    \109\ Remedying Undue Discrimination Through Open Access 
Transmission Service and Standard Electricity Market Design, Notice 
of Proposed Rulemaking, 67 FR 55542 (Aug. 29, 2002), FERC Stats. & 
Regs. ] 32,563 (2002).
---------------------------------------------------------------------------

    678. The Commission has traditionally favored a ``rolled-in'' 
transmission pricing policy of the type that formed the basis for the 
pricing proposal in the Interconnection NOPR. However, such a policy 
may limit economic expansions that would remove congestion and allow 
customers to reach more distant power supplies. This may occur at least 
in part because state siting authorities may have little interest in 
siting a transmission facility that benefits mainly a particular 
Interconnection Customer or customers in another state if doing so 
would require the retail sales customers on the constructing public 
utility's system to pay for the new facilities.
    679. The Standard Market Design NOPR proposed that a policy of 
participant funding, where those who benefit from a particular project 
pay for it, may help to solve this problem. The Commission then 
reiterated its concern that certain functions that the Transmission 
Provider must perform to implement participant funding can be 
subjective. Also in this docket, the Commission encouraged the 
formation of Regional State Committees, which would allow states to 
work together to identify beneficiaries of expansion projects and make 
recommendations on pricing proposals and cost recovery that may include 
rolling in, assignment to beneficiaries, or some combination of the 
two.
    680. Finally, the Commission also addressed in the NOPR the 
question of the appropriate rate treatment for the cost of 
Interconnection Facilities that the Transmission Provider constructs 
for its own Generating Facilities. The Commission noted that, in 
Southern Company Services, Inc. (Southern), the company proposed to 
continue to treat the cost of Interconnection Facilities for its own 
Generating Facilities as part of the network while directly assigning 
the cost of the same type of facilities to its competitors' Generating 
Facilities. Southern raised the issue of how to ensure consistency 
between interconnection and transmission pricing. Recognizing the need 
to address this issue on a generic basis, the Commission made Southern 
subject to the outcome of this rulemaking. The Commission proposed in 
the NOPR to require all transmission rates to be designed in a manner 
that is consistent with whatever interconnection pricing policy is 
approved in the Final Rule. Thus, the Commission proposed that, to the 
extent its current interconnection pricing policy is adopted, each 
Transmission Provider must remove from its transmission rates the costs 
of all Interconnection Facilities, not just generator step-up 
transformers, constructed for the Transmission Provider's own 
Generating Facilities. The Commission proposed that the costs of these 
sole use facilities be directly assigned as generation-related costs. 
The Commission explained that this would be consistent with its current 
pricing of generator step-up transformers, and it would send a more 
accurate price signal by assigning the cost of Interconnection 
Facilities to the generation customers using them.
Comments
    681. A large number of commenters argue that the Commission's 
proposed crediting policy provides an undesirable subsidy to the 
Interconnection Customer and thereby creates incentives for the 
Interconnection Customer to make poor siting and investment decisions. 
Many commenters express concerns about the relationship between this 
policy and the Commission's Standard Market Design

[[Page 49902]]

proposal, and several provide recommendations on how the two rules 
could be made compatible. In addition, many commenters object to 
specific features of the proposed crediting policy. For example, 
several transmission owners cite problems (e.g., regulatory lag, retail 
rate freezes) related to their ability to recover in transmission rates 
the costs of interconnections, including the credits that they pay to 
an Interconnection Customer. Many commenters object to the five year 
``sunset'' date for refunding all amounts paid by the Interconnection 
Customer. They are concerned that transmission customers could be left 
with the financial burden and no offsetting benefits if the 
Interconnection Customer's Generating Facility ceases to operate. Some 
commenters argue that the Interconnection Customer's receipt of credits 
should not be limited to those occasions when the Interconnection 
Customer takes transmission service with respect to the output of the 
Generating Facility. Others argue that the payment of interest on 
unpaid credits is not appropriate or that the rate prescribed is either 
too high or too low.
    682. The following is a summary of the comments received, organized 
according to the issues addressed. After each issue summary, the 
Commission presents its conclusions for that issue.\110\
---------------------------------------------------------------------------

    \110\ Issues regarding the pricing of Network Resource 
Interconnection Service are addressed in part II.C.2 
(Interconnection Products and Scope of Service).
---------------------------------------------------------------------------

Concerns About the Fairness and Efficiency of the Commission's 
Crediting Policy
    683. Transmission Owners, such as Entergy, and others argue that 
the Commission's current crediting policy requires all transmission 
customers to subsidize the cost of facilities that would be unnecessary 
``but for'' a particular Interconnection Customer's Generating Facility 
and that provide no benefits to the other transmission customers on the 
Transmission System. They also argue that this policy encourages 
inefficient siting decisions because the Interconnection Customer has 
no incentive to consider the full impact of its decision regarding 
where to locate its Generating Facility on the Transmission System. 
They claim that, when selecting a site, an Interconnection Customer 
will pay more attention to fuel supply and water availability than to 
its impact on the Transmission System.
    684. The Alabama PSC argues that a pricing policy that spreads the 
costs of all interconnection-related facilities situated ``at and 
beyond'' the Point of Interconnection to all transmission customers 
results in a subsidy to the Interconnection Customer, causes 
inefficiencies in siting, and is inconsistent with longstanding cost 
causation principles. The Coalition for Pricing claims that the policy 
of assigning cost responsibility simply based on the physical location 
of the facilities (i.e., relative to the Point of Interconnection) is 
contrary to the Commission's ``system-wide benefit test'' and violates 
the Energy Policy Act of 1992. It argues that certain facilities 
installed at and beyond the Point of Interconnection may not provide a 
system-wide benefit and, as such, should be directly assigned to the 
Interconnection Customer. Entergy argues that grave consequences can be 
avoided through the interim use of the system-wide benefit test, and 
the assignment of costs to those who benefit, prior to the 
establishment of participant funded expansion regimes in RTOs.
    685. PSEG notes that in PJM the cost of any Network Upgrades that 
would not be required ``but for'' the interconnection of a Generating 
Facility to the Transmission System is assigned to the Interconnection 
Customer, and the Interconnection Customer receives financial 
transmission rights associated with the Network Upgrades that it pays 
for. PJM and others argue that an established RTO or ISO should be 
allowed to continue to use this policy, as the NOPR proposes. PJM 
states that its experience under its interconnection rules confirms 
that such pricing promotes economic efficiency including efficient use 
of the Transmission System. However, KeySpan cautions that the ``but 
for'' test can become meaningless if a fictitious transmission planning 
study can be used to identify the Transmission System needs required to 
meet load growth. It states that the independence of the Transmission 
Provider completing the study is the key to this process.
    686. The Maine PUC contends that the Commission's reasoning for 
refusing to socialize system expansion costs in the natural gas 
pipeline context applies with equal force in the generator 
interconnection context. It states that, just as subsidization of gas 
pipeline expansion costs could lead to non-optimal or unnecessary 
capacity expansion, so too will subsidization of Network Upgrades 
associated with new generation projects. The Maine PUC also states 
that, just as rolled-in pricing gives an existing gas pipeline an 
unfair economic advantage over potential new entrants, subsidization of 
Network Upgrades for Generating Facility interconnections could 
interfere with price signals for alternatives to traditional congestion 
solutions, such as load response from customers or merchant 
transmission.
    687. Many other commenters, including state commissions, are 
especially concerned about an Interconnection Customer that intends to 
sell its output off-system or out of state. These commenters claim that 
the current policy requires transmission customers of the local 
Transmission Provider to subsidize the cost of Network Upgrades that 
would, in the latter case, provide them with no benefits. NRECA-APPA 
recommends that, without a commitment by the Interconnection Customer 
to serve power customers within the Transmission Provider's footprint, 
the Commission should require the Interconnection Customer to pay for 
the Network Upgrades. Some commenters, such as the Midwest ISO, further 
claim that the law in some states may not allow Network Upgrade costs 
to be rolled into the base rates of the local customers that are not 
the beneficiaries of the upgrades.
    688. Other commenters, including EPSA, voice strong support for the 
crediting approach. EPSA states that the crediting mechanism works well 
at this time and should not be adjusted until the Commission has put in 
place a specific market design that would require such an adjustment. 
American Transmission and SoCal Edison also support the crediting 
approach. Indeed, American Transmission supports the crediting approach 
even if the Transmission Provider is an independent entity. American 
Transmission states that it discounts the argument advanced by critics 
of this policy that the Interconnection Customer must receive stronger 
price signals through direct assignment of the costs of Network 
Upgrades to bring about efficient location of new generation. It 
believes that requiring participant funding for Network Upgrades is 
akin to moving backward to the vertically integrated industry structure 
that existed prior to open access.
    689. Cleco supports participant funding that would eliminate the 
need for the costs of Network Upgrades being refunded through 
transmission crediting. In the absence of such an approach, Cleco 
recommends that an Interconnection Customer should be credited for only 
half of the transmission service it has subscribed to for the first 
five years. Under Cleco's

[[Page 49903]]

proposal, there would be no interest paid, and after five years no 
additional payment to the Interconnection Customer would be made. 
Western also recommends that the Commission adopt a method to recover 
the costs of the Network Upgrades from the benefitting entities. It 
believes that current transmission customers should be held harmless 
from the cost impact of Network Upgrades that is not mitigated by 
increased transmission usage and associated revenues.
    690. The North Carolina Commission recommends that the Commission 
modify its proposed rule to explicitly adopt the ``but for'' pricing 
policy for interconnection and transmission service in those states 
that have not yet unbundled retail electric service or implemented 
retail competition.
    691. Several commenters, including National Grid, propose that the 
pricing issue can be resolved by analogy to the process of cost 
allocation for public roads. According to this analogy, the 
Interconnection Customer will have virtually sole use of the leads to 
the substation, just like the homeowner has sole use of his or her 
driveway. Thus, the cost of Interconnection Facilities, which are for 
the sole use of the Interconnection Customer, should be the 
responsibility of the Interconnection Customer. Next, the substation 
facilities needed to connect the sole-use facilities of the 
Interconnection Customer to the general delivery system are shared-use 
facilities, much like a local street. National Grid states that the 
cost of such facilities could be allocated partially to load and 
partially to the new Interconnection Customer. It explains that Network 
Upgrades that are remote from the Generating Facility typically allow 
movement of aggregate generation to aggregate load. National Grid 
contends that the benefits and use of such Network Upgrades are spread 
much more broadly and, like the highway system, could be rolled in and 
allocated to aggregate load within the market, or throughout an RTO if 
one exists. Finally, it argues that it may be appropriate to maintain 
an incremental charge for market-to-market transactions, but only where 
Network Upgrades in one market are needed by another market.
    692. Peabody asserts that the NOPR contains certain provisions that 
are unjust and unreasonable as applied to large-scale base-load 
generation projects, especially coal-based projects. It urges the 
Commission to modify its interconnection pricing policy in such cases 
to require the Transmission Provider to roll the costs of Network 
Upgrades into its transmission rate base without requiring the 
Interconnection Customer to fund the costs in advance.
Commission Conclusion
    693. For Transmission Providers that are not independent entities, 
the Commission will continue to apply its current interconnection 
pricing policy, with certain revisions that are discussed below.
    694. The Commission recognizes that its policy of requiring refunds 
to be paid to an Interconnection Customer for the cost of Network 
Upgrades constructed on its behalf is a controversial one. However, the 
Commission instituted this policy to achieve a number of important 
goals. First, consistent with the Commission's long-held policy of 
prohibiting ``and'' pricing \111\ for transmission service, the 
crediting policy ensures that the Interconnection Customer will not be 
charged twice for the use of the Transmission System. The Commission 
determined that it is appropriate for the Interconnection Customer to 
pay initially the full cost of Interconnection Facilities and Network 
Upgrades that would not be needed but for the interconnection, but once 
the Generating Facility commences operation and delivery service 
begins, it must receive transmission service credits for the cost of 
the Network Upgrades. This ensures that the Interconnection Customer 
will not ultimately have to pay both incremental costs and an average 
embedded cost rate for the use of the Transmission System. Second, the 
Commission's crediting policy helps to ensure that the Interconnection 
Customer's interconnection is treated comparably to the 
interconnections that a non-independent Transmission Provider completes 
for its own Generating Facilities. The Transmission Provider has 
traditionally rolled into its transmission rates the cost of Network 
Upgrades required for its own interconnections, and the Commission's 
crediting policy ensures that Network Upgrades constructed for others 
are treated the same way. Finally, the policy is intended to enhance 
competition in bulk power markets by promoting the construction of new 
generation, particularly in areas where entry barriers due to unduly 
discriminatory transmission practices may still be significant. The 
policy is therefore consistent with the Commission's long-held view 
that competitive wholesale markets provide the best means by which to 
meet its statutory responsibility to assure adequate and reliable 
supplies of electric energy at just and reasonable prices.\112\
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    \111\ When a Transmission Provider must construct Network 
Upgrades to provide new or expanded transmission service, the 
Commission generally allows the Transmission Provider to charge the 
higher of the embedded costs of the Transmission System with 
expansion costs rolled in, or incremental expansion costs, but not 
the sum of the two. Hence, ``and'' pricing is not permitted.
    \112\ The Commission's crediting policy has also withstood 
judicial review. In an opinion issued February 18, 2003, the DC 
Circuit Court of Appeals affirmed Commission orders requiring a 
Transmission Provider to provide credits to Interconnection 
Customers for the cost of short-circuit and stability Network 
Upgrades. Entergy Services, Inc. v. FERC, 319 F.3d 536 (DC Cir. 
2003). The court stated that ``[t]he Commission's rationale for 
crediting network upgrades, based on a less cramped view of what 
constitutes a 'benefit,' reflects its policy determination that a 
competitive transmission system, with barriers to entry removed or 
reduced, is in the public interest.'' Id. at 543-44. The court 
concluded that ``the Commission has reasonably explained that its 
crediting pricing policy avoids both gold plating and less favorable 
price signals such that the enlarged transmission system, which it 
views as a public good, can function reliably and continue to 
expand.'' Id. at 544.
---------------------------------------------------------------------------

    695. While the Commission still finds these to be appropriate goals 
for an interconnection pricing policy, the commenters that object to 
the Commission's crediting policy make a number of valid points. Most 
importantly, as many point out, providing transmission service credits 
to an Interconnection Customer for the cost of Network Upgrades that 
would not be needed but for the interconnection of the new Generating 
Facility mutes somewhat the Interconnection Customer's incentive to 
make an efficient siting decision that takes new transmission costs 
into account, and it provides the Interconnection Customer with what 
many view as an improper subsidy, particularly when the Interconnection 
Customer chooses to sell its output off-system. In this regard, the 
Commission believes that, under the right circumstances, a well-
designed and independently administered participant funding policy for 
Network Upgrades offers the potential to provide more efficient price 
signals and a more equitable allocation of costs than the crediting 
approach. The Commission notes that the transmission pricing policies 
that the Commission has permitted for an RTO or ISO with locational 
pricing, in which the Interconnection Customer bears the cost of all 
facilities and upgrades that would not be needed but for the 
interconnection of the new Generating Facility and receives valuable 
transmission rights in return, are acceptable forms of participant 
funding.
    696. However, the Commission remains concerned that, when the 
Transmission Provider is not

[[Page 49904]]

independent and has an interest in frustrating rival generators, the 
implementation of participant funding, including the ``but for'' 
pricing approach, creates opportunities for undue discrimination. As 
the Commission stated in the NOPR, a number of aspects of the ``but 
for'' approach are subjective, and a Transmission Provider that is not 
an independent entity has the ability and the incentive to exploit this 
subjectivity to its own advantage. For example, such a Transmission 
Provider has an incentive to find that a disproportionate share of the 
costs of expansions needed to serve its own power customers is 
attributable to competing Interconnection Customers. The Commission 
would find any policy that creates opportunities for such 
discriminatory behavior to be unacceptable. Furthermore, none of the 
commenters in this proceeding has convinced the Commission that, in the 
absence of independence, it is possible to implement a ``but for'' 
pricing approach that avoids this inherent subjectivity. Therefore, the 
Commission continues in this Final Rule its current policy, as modified 
below, of requiring a Transmission Provider that is not an independent 
entity to provide transmission credits for the cost of Network Upgrades 
needed for a Generating Facility interconnection.
    697. The Commission notes, however, that the current pricing policy 
does not explicitly address instances where the Generating Facility 
interconnects with a Transmission Provider's jurisdictional 
distribution facility and, as a result, upgrades are needed on the 
Distribution System to accommodate the interconnection. The Commission 
clarifies here that, if any such interconnection is jurisdictional, the 
cost of such upgrades must be directly assigned to the Interconnection 
Customer. This is because an upgrade to the Distribution System 
generally does not benefit all transmission customers. Distribution 
facilities typically deliver electricity to particular localities, and 
do not serve a bulk delivery service for the entire system as is the 
case for transmission facilities. Accordingly, it is not appropriate 
that all transmission customers share the cost of Distribution 
Upgrades.
    698. For a Transmission Provider, such as an RTO or ISO, that is an 
independent entity, the Commission continues to allow flexibility 
regarding the interconnection pricing policy that each independent 
entity chooses to adopt, subject to Commission approval. We invite a 
Regional State Committee to establish criteria that an independent 
entity would use to determine which Transmission System upgrades, 
including those required for generator interconnections, should be 
participant funded and which should not.
    699. The Commission will permit, for a period of transition to the 
start of RTO or ISO operations, not to exceed a year, participant 
funding to be used for Network Upgrades for generator interconnections 
as soon as an independent administrator has been approved by the 
Commission and the affected states. Allowing participant funding, i.e., 
direct assignment of the cost of Network Upgrades is reasonable, if an 
independent administrator performs transmission planning and related 
cost allocation, as a transitional approach that may be used in 
anticipation of an RTO or ISO assuming operational control of the 
regional transmission grid within a year.\113\ Based on the comments in 
this interconnection rulemaking, we find this approach to be 
appropriate here. Therefore, the Commission adopts this policy in this 
Final Rule.
---------------------------------------------------------------------------

    \113\ See Cleco Power LLC, et al., 103 FERC ] 61,272 (2003); 
Southern Company Services, Inc., 103 FERC ] 61,279 (2003), reh'g 
pending.
---------------------------------------------------------------------------

    700. However, the Commission wishes to emphasize that, by allowing 
an independent Transmission Provider to adopt a pricing policy, such as 
the ``but for'' approach, that differs from the crediting approach that 
the Commission is requiring for non-independent entities, the 
Commission is not abandoning the goals that the Commission has 
established for interconnection pricing, as described above. First, 
even though the ``but for'' approach allows the cost of certain Network 
Upgrades to be assigned to the Interconnection Customer, it is not 
``and'' pricing if, for example, the Interconnection Customer is 
allowed to receive well-defined capacity rights that are created by the 
upgrades. For example, PJM, which uses locational pricing, gives Firm 
Transmission Rights (FTRs) and Capacity Interconnection Rights (CIRs) 
to the Interconnection Customer in exchange for a ``but for'' cost 
payment. These are rights that are created by the Network Upgrades for 
which the Interconnection Customer pays, and they are well-defined, 
long-term and tradeable. Moreover, the Commission concludes that, even 
if the Interconnection Customer (or its power sales customer) is also 
required to pay an embedded cost-based charge for transmission service, 
this is not ``and'' pricing. This is because the Interconnection 
Customer pays separate charges for separate services. It pays an access 
charge for transmission service that may involve an obligation to pay 
congestion charges, and in exchange for its ``but for'' payment, it 
receives these well-defined capacity rights, which provide some 
protection from having to actually pay the congestion charges.
    701. Second, when the Transmission Provider is an independent 
entity, the Commission is much less concerned that all generation 
owners will not be treated comparably because independence ensures that 
the Transmission Provider has no incentive to treat Interconnection 
Customers differently.
    702. Third, in this context, ``but for'' pricing is consistent with 
the Commission's policy of promoting competitive wholesale markets 
because it causes the Interconnection Customer to face the same 
marginal cost price signal that it would face in an efficient, 
competitive market. This means that, in a competitive market 
environment, market forces could act freely to achieve the desirable 
level of entry of new generating capacity.
    703. Finally, participant funding of transmission upgrades may 
provide the pricing framework needed to overcome the reluctance of 
incumbent Transmission Owners in many parts of the country to build 
transmission, with the result that badly needed transmission 
infrastructure could be put in place quickly.
Interconnection Pricing and the Transition to Standard Market Design
    704. Several commenters assert that certain proposed Standard 
Market Design policies, such as locational marginal pricing, congestion 
revenue rights, transmission expansion pricing, and transmission 
planning, could affect interconnection pricing, but that the full 
effect cannot be determined until the Standard Market Design Final Rule 
is issued. Nevertheless, many of these commenters propose that, until 
Standard Market Design is implemented, the Commission should continue 
to require the Interconnection Customer to pay for Network Upgrades in 
exchange for future transmission service credits. Duke Energy proposes 
that after Standard Market Design is implemented, the crediting policy 
could be replaced with one that provides the Interconnection Customer 
with financial transmission rights in exchange for funding Network 
Upgrades.
    705. Exelon and Sithe recommend that, for the Transmission Provider 
that is not yet part of an RTO, and for an RTO that has not yet 
implemented LMP-based congestion pricing, the Commission continue its 
current policy

[[Page 49905]]

of requiring the Transmission Provider to provide an Interconnection 
Customer that funds Network Upgrades with credits against future 
transmission service. As a transition plan, Exelon and Sithe recommend 
that an Interconnection Customer that is receiving credits when 
Standard Market Design is implemented be awarded financial transmission 
rights in an amount based on the Interconnection Customer's remaining 
credits as a proportion of its total credits. Some commenters, such as 
Cleco Power and Monongahela Power, emphasize that a Transmission 
Provider should not be required to provide both transmission credits 
and congestion rights to the same Interconnection Customer. Mirant 
believes that the two practices can coexist and that the 
Interconnection Customer should have the option to elect either 
transmission credits or the equivalent firm transmission rights as 
comparable compensation for Network Upgrades.
    706. Other commenters believe that attempting to resolve pricing 
issues in this rulemaking presents significant problems. New York 
Transmission Owners declares that the ``Commission's [Standard Market 
Design and LMP] policies and this NOPR are regulatory ships traveling 
in the night on a collision course, each completely unaware of the 
other's existence.'' They propose that the Commission limit the 
interconnection rulemaking to non-price issues. EPSA proposes that the 
Commission need not resolve in this proceeding what, if any, changes in 
the crediting mechanism might be necessary to implement Standard Market 
Design and the formation of RTOs. Calpine submits that the transmission 
credit policy should not be abandoned in the transition to Standard 
Market Design. It states that relying on recovery of the costs of 
Network Upgrades solely through assignment of FTRs under Standard 
Market Design would ignore the network access aspect of Standard Market 
Design and would not provide a practical means of recovering all costs 
of Network Upgrades. Although a change in policy may be appropriate 
after the Standard Market Design is in place, Calpine recommends that 
such a change not be made in this proceeding.
Commission Conclusion
    707. The timing and content of any Final Rule in the Standard 
Market Design proceeding will not be determined in this proceeding. In 
the meantime, it is important to include interconnection pricing rules 
in this Final Rule, based on the record of this proceeding.
The Inability of a Transmission Owner To Recover the Costs of Network 
Upgrades
    708. A number of Transmission Owners express concern that they may 
not be able to recover in a timely fashion the costs that they will 
incur under the proposed pricing policy. Monongahela Power states that 
a Transmission Owner faces three problems in this regard. First, it 
notes that a Transmission Owner faces the expense, delay, and 
uncertainty of a full transmission rate case before the Commission to 
roll in the costs of system upgrades associated with new generation 
projects. Second, it claims that even if the Commission grants full 
cost recovery, costs may be ``trapped'' by an inability to pass them 
through to the majority of customers due to a state retail rate freeze. 
Third, a Transmission Owner may face lost revenues associated with a 
new generating project once transmission service begins because of the 
requirement to provide a financial credit to the Interconnection 
Customer. Monongahela Power asks that the Commission permit a 
Transmission Owner to make a limited Section 205 filing for the 
immediate roll in of these costs, and that it work with the States to 
accommodate the flow-through of these costs to retail customers. At a 
minimum, both Monongahela Power and Dominion Resources ask that the 
Commission provide for deferred accounting treatment with assurances of 
future cost recovery when the Transmission Owner must record a 
transmission revenue credit with no income to offset it.
Commission Conclusion
    709. The Commission concludes that it is not necessary to provide 
for the Transmission Provider to make a limited Section 205 filing as 
proposed by Monongahela Power for the immediate roll in of the costs it 
will incur under the crediting policy. In the ordinary course of 
business, a public utility frequently incurs costs for which it has no 
immediate revenue offset, just as it routinely experiences revenue 
increases that are not accompanied by commensurate increases in costs. 
When a public utility believes that its revenues are not adequate, it 
is permitted by Section 205 of the FPA to make a rate filing. The 
commenters have provided no evidence to convince the Commission that 
the burden created by its crediting policy is so great that the 
Commission should change its regulations to permit a limited Section 
205 transmission rate filing that addresses only credit-related cost 
increases, or deferred accounting treatment for transmission credits, 
as sought by Monongahela Power and Dominion Resources.
Responsibility for Line Outage Costs Resulting From Interconnection
    710. The NOPR did not address the allocation of costs that may be 
incurred when a transmission line must be taken off-line in order to 
complete an interconnection. In an order issued November 20, 2001,\114\ 
however, the Commission stated that it would consider in this 
rulemaking the question of who should bear these costs.
---------------------------------------------------------------------------

    \114\ American Electric Power Service Corporation, 97 FERC ] 
61,200 (2001) (AEP).
---------------------------------------------------------------------------

    711. Commenters express a variety of views on this issue. The 
Coalition for Pricing states that these costs should be a component of 
the costs paid by generators for interconnection service under the 
Final Rule IA. It asserts that any other policy would result in all 
transmission customers unfairly subsidizing Generating Facility 
interconnections. The Coalition for Pricing proposes that the Parties 
to individual interconnection agreements be allowed to agree on the 
specific line outage costs for which the Interconnection Customer 
should be responsible. The Coalition for Pricing argues that, since the 
Parties' agreement would necessarily be filed with the Commission, it 
would retain its regulatory control over line outage cost allocations. 
However, Reliant states that the Commission has had a policy of not 
requiring that the Interconnection Customer pay for outage-related 
costs, and argues that the Coalition for Pricing has provided no 
justification for departing from this policy. Reliant recommends 
rejecting the modifications that the Coalition for Pricing proposes.
    712. AEP recommends that the Interconnection Customer be required 
to reimburse all affected generation owners for outage-related costs 
that they incur, whether or not such generation owners are affiliated 
with the Transmission Provider. AEP believes that this can be done in a 
manner that properly identifies the costs, minimizes the Transmission 
Provider's discretion, and allows for adequate regulatory scrutiny. It 
recommends a method of compensation that it claims avoids the exercise 
of discretion. That is, the Interconnection Customer should replace the 
energy that would otherwise have been generated by the affected 
Generating Facility. AEP states that if the Interconnection Customer is 
unwilling to replace the lost energy, it would be up to the affected 
generation

[[Page 49906]]

owner to file with the Commission a proposal to recover its costs. 
Further, AEP believes that the Interconnection Customer, the existing 
generation owner and the Transmission Provider should be obligated to 
use Reasonable Efforts to minimize the impact of any outage.
    713. ATC states that dividing the costs between the Interconnection 
Customer and the Transmission Provider may provide the most equitable 
results. It believes that a reasonable approach might be to allocate up 
to the full costs of the line outage to the Interconnection Customer so 
long as the timing is primarily under the Interconnection Customer's 
control. However, if the Transmission Provider has substantial 
influence over the timing and engineering aspects of the outage, ATC 
recommends that all or a large percentage of the new facility costs may 
be appropriate for rolling into transmission rates.
Commission Conclusion
    714. The Final Rule does not permit the Transmission Provider to 
allocate interconnection-related outage costs to the Interconnection 
Customer. The Commission recognizes that the Transmission Provider and 
the owners of other generators may incur costs as a result of having to 
take a transmission line out of service in order to complete an 
interconnection. Such costs may include generator shut-down and restart 
costs, redispatch and purchased power costs, lost opportunity costs on 
sales not made, costs of power to compensate for additional line 
losses, and possibly other costs. In prior orders,\115\ the Commission 
has generally rejected, without prejudice, proposals by a Transmission 
Provider to allocate these costs to the Interconnection Customer. Among 
other things, the Commission has found that the proposals are vague, 
leave too much discretion to the Transmission Provider, and do not 
provide for adequate regulatory oversight by the Commission. For 
example, in NSTAR, the Commission stated that ``determining how much 
cost responsibility to assign to an interconnecting generator, when 
other factors also may contribute to the need to redispatch 
contemporaneously, would be unacceptably arbitrary: for example, higher 
redispatch costs may be the result of a planned or unplanned outage, 
maintenance that requires a line to be taken out of service 
temporarily, or an unexpected shift in load.'' \116\ Furthermore, while 
the Transmission Provider may be able to propose an objective method 
for determining its own outage-related costs, estimating the outage-
related costs of unaffiliated generation owners could pose a 
significant problem. The Commission does not believe that AEP's 
proposal to have the Interconnection Customer replace the energy that 
would otherwise have been generated by the affected Generating Facility 
solves this problem in part because the value of the replacement energy 
may bear no relationship to the actual outage-related costs.
---------------------------------------------------------------------------

    \115\ See, e.g., id.; ISO New England, Inc., 91 FERC ] 61,311 
(2000).
    \116\ Cambridge Electric Light Co., et al., (NSTAR), 95 FERC ] 
61,339 (2001).
---------------------------------------------------------------------------

    715. As the Commission concluded above, when the Transmission 
Provider asks the Interconnection Customer to reschedule a planned 
maintenance outage of the Generating Facility (per Article 9.7--
Outages, Interruptions, and Disconnection), the Interconnection 
Customer should be compensated for only the direct costs that the 
Interconnection Customer incurs. It should not be compensated, for 
example, for lost opportunity costs. One reason is that outages of 
transmission and generation facilities for maintenance and other 
purposes are a routine part of electric system operations and, in 
fairness, these costs also should be considered a normal part of doing 
business. Moreover, the determination of the appropriate level of costs 
to be allocated involves a process that is inevitably arbitrary and 
contentious, particularly when the determination is made by a 
Transmission Provider that is not an independent entity. Therefore, in 
the Final Rule we are codifying our policy of not allowing 
interconnection-related outage costs to be allocated to the 
Interconnection Customer.
Issues Concerning the Five Year Refund Period and the Payment of 
Interest
    716. Many commenters object to the proposal to require the 
Interconnection Customer to be reimbursed for the costs of Network 
Upgrades within a five year period. Several also object to the payment 
of interest on outstanding balances or to the formula for determining 
the rate of interest.
    717. Duke Energy generally supports the provisions as proposed but, 
to be consistent with the Commission's policy of allowing the 
Transmission Provider to collect the higher of incremental or embedded 
costs for transmission service, it recommends elimination of the five 
year ``sunset'' provision in Section 11.4.1 of the NOPR LGIA. Cleco is 
concerned that a Transmission Provider may be liable for payment of 
refunds after a five year period has elapsed because the 
Interconnection Customer has not taken enough transmission service to 
be credited the full amount for upgrades originally paid for. 
Westconnect RTO submits that arbitrarily setting a five year term is 
unjustified and unreasonable. It proposes that a more appropriate 
approach would be to allow unused transmission credits to expire after 
a set term. However, Mirant argues that once the Network Upgrades are 
placed in service, every network customer receives some benefit from 
those facilities. Therefore, it sees no reason to limit the refund to 
the requirement in proposed LGIA Article 11.4.1 that the Transmission 
Provider continue to receive payment for transmission service from the 
Generating Facility.
    718. Western states that if it has to return monies to an 
Interconnection Customer in less time than the service life of an 
upgrade, rates may have to be increased to ensure the timely repayment 
of other federal investments. It believes such a rate increase would be 
inequitable to existing customers. BPA states that the Interconnection 
Customer should not be entitled to a refund over an arbitrary five year 
period and argues that other customers should not have to bear the risk 
that the Interconnection Customer will cease taking transmission 
service. LADWP states that the five year requirement imposes an undue 
burden on public power customers. It requests that, if the Commission's 
generation interconnection pricing policy is applied to a non-
jurisdictional transmission owner, that owner should have the 
flexibility to provide such refunds over the same period that it would 
use to amortize such facilities if constructed for the benefit of its 
own customers. WEPCO states that the Commission should recognize that 
sometimes both the Interconnection Customer and the Transmission 
Provider may desire a payback period of less than five years. 
Accordingly, it recommends that the Commission revise Article 11.4.1 of 
the NOPR LGIA to provide for repayment at such earlier time as the 
Parties may agree.
    719. Mirant argues that, at a minimum, the Commission should 
require that interest on any Network Upgrades be calculated using the 
Transmission Provider's most recent Commission-approved rate of return 
in the Transmission Provider's OATT. For a non-public utility that does 
not have a rate of return, Mirant proposes that the Commission use the 
rate of return set forth in the most recent Commission order as a proxy 
for such entity. Peabody recommends that the Commission modify the 
proposed LGIA

[[Page 49907]]

to provide for a more flexible, incentive-based rate of interest for 
transmission credits. Also, if a Transmission Provider files for 
incentive pricing for transmission service, Peabody recommends that it 
be required to file simultaneously to amend the interest rate in LGIA 
Article 11.4.1 to match such incentive mechanism. Progress Energy 
disagrees with the requirement to pay an Interconnection Customer 
interest, arguing that the Transmission Provider cannot use the funds 
advanced by the Interconnection Customer for purposes other than 
constructing the Network Upgrades and that it should not be put in the 
position of being a bank for the Interconnection Customer. If interest 
must be paid, Progress Energy proposes using the Federal Fund 
Commercial Rate or a similar rate to ensure that the payment of 
interest is not a source of profit for the Interconnection Customer.
Commission Conclusion
    720. Regarding the specific rules for the payment of credits, the 
Commission clarifies that the Interconnection Customer is entitled to a 
full refund of the payments it makes toward the cost of Network 
Upgrades within five years after the Commercial Operation Date, as long 
as the Generating Facility remains in operation through the five year 
period.\117\ During the five year period, credits must be awarded on a 
dollar-for-dollar basis as payments are made for transmission services. 
However, the Commission is also permitting the payments to be made on 
any other basis that is mutually agreeable to the Interconnection 
Customer and the Transmission Provider. For example, if the Parties 
agree to a stream of uniform monthly payments designed to fully 
reimburse the Interconnection Customer over the five year period, that 
would be acceptable. In addition, as stated in Article 11.3 of the 
Final Rule LGIA, the Transmission Provider may elect to fund the 
Network Upgrades itself, with no advance payment by the Interconnection 
Customer, and thus no need for subsequent credits.
---------------------------------------------------------------------------

    \117\ Although Article 11.4.1 of the NOPR LGIA proposed to begin 
the five year period on the date that the Network Upgrades are 
placed in service, as the Commission explains below, the Commission 
concludes that the Interconnection Customer should not be entitled 
to receive a refund unless the Generating Facility achieves 
commercial operation. Therefore, the Commission is modifying Article 
11.4.1 to specify that the five year period begins with the 
Generating Facility's Commercial Operation Date.
---------------------------------------------------------------------------

    721. With regard to Cleco's concern about the Transmission 
Provider's liability at the end of the five year crediting period, the 
Commission clarifies that the Transmission Provider must make a lump-
sum payment to the Interconnection Customer for any balance owed to the 
Interconnection Customer five years after the Interconnection Customer 
has begun commercial operation.
    722. The Commission recognizes that the choice of the length of the 
repayment period is somewhat arbitrary. However, specifying five years 
as the maximum repayment period will promote the development of new 
generation by reducing the Interconnection Customer's risk, thereby 
facilitating project financing. Contrary to the views of LADWP and 
others, it would not be appropriate to extend repayment over a period 
that corresponds to the Transmission Provider's amortization period for 
similar facilities. As explained above, the Commission's policy for a 
non-independent Transmission Provider is to roll the costs of 
interconnection-related Network Upgrades into the Transmission 
Provider's transmission rate base. However, rather than require 
immediate roll-in, we have chosen a five year repayment period, in part 
to provide the Interconnection Customer with an incentive to make good 
faith requests for Network Upgrades.
    723. With regard to the payment of interest on unpaid credits, the 
Commission adopts the policy proposed in the NOPR. The Commission 
continues to believe that the Interconnection Customer is entitled to a 
refund for all of the costs of the Network Upgrades for which it has 
paid, including a reasonable estimate of the carrying costs that it 
incurs in making the advance payments. The determination of an interest 
rate that accurately reflects this carrying cost cannot be reduced to a 
completely objective calculation. Interest calculated in accordance 
with 18 CFR Sec.  35.19a(a)(2)(ii) provides a reasonable proxy for this 
carrying cost, and because it offers an objective calculation, the 
Commission retains this provision in Article 11.4.1 of the Final Rule 
LGIA.
Rules Governing the Payment of Credits
    724. With regard to the payment of credits, Interconnection 
Customers generally are in favor of a flexible policy that allows 
credits to be paid under a wide range of circumstances, while 
Transmission Providers advocate a policy that places strict limits on 
when and how an Interconnection Customer may receive credits.
    725. For example, Dynegy states that the Final Rule must ensure 
that the credits do not limit the Interconnection Customer to 
purchasing the delivery component of transmission service on the 
Transmission Provider's system with the Interconnection Customer's 
Generating Facility as the Point of Receipt. Instead, Dynegy believes 
that the credits should apply to transmission at any location on the 
Transmission Provider's system. Duke Energy believes that an 
Interconnection Customer's flexibility in obtaining refunds should be 
similar to the flexibility a Transmission Customer has to reassign 
transmission service under the OATT. Accordingly, it proposes to allow 
credits not only for the charges for transmitting power from the 
Generating Facility, but also for the charges for transmitting power 
from an Affiliated Generating Facility. Similarly, Peabody states that 
the Interconnection Customer should be allowed to receive credits for 
any transmission service that it purchases on the Transmission 
Provider's Transmission System. Both Calpine and EPSA offer modified 
language for Article 11 of the NOPR LGIA that would implement these 
recommendations. Cal Cogen and the Energy Producers and Users Coalition 
claims that a term-based credit mechanism (i.e., one where the credits 
are paid out according to a fixed schedule) is preferable to the NOPR's 
proposed transmission-based mechanism.
    726. Edison Mission states that Articles 2 and 11 of the NOPR LGIA 
should be modified so that if an Interconnection Customer pays for 
Network Upgrades but the interconnection agreement is then terminated 
or the Generating Facility not constructed, the Interconnection 
Customer nonetheless receives payments for the upgrades it paid for, 
with the payments coming from other users of the Transmission System.
    727. Other commenters propose limiting the availability of credits. 
Dominion Resources argues that, if Network Upgrades funded by the 
Interconnection Customer are not used for output from the Generating 
Facility, a refund for such upgrades is inappropriate. Similarly, the 
Coalition for Pricing claims that proposed LGIP Section 11.4.2 can be 
read to suggest that the Interconnection Customer has some right to 
transmission credits as transmission service is taken anywhere on the 
Transmission Provider's system. It asks the Commission to clarify that 
this is not the case. The Alabama PSC argues that providing 
transmission credits only when transmission service is taken from an 
Interconnection Customer's Generating Facility would prevent the 
socialization of upgrade costs that do not benefit the network.

[[Page 49908]]

    728. Westconnect RTO and others argue that the Transmission 
Provider should credit the Interconnection Customer only for the 
``demand'' or ``return'' component of the otherwise applicable 
transmission charges, and not apply the credit to such costs as 
operations and maintenance, administrative and general, taxes, line 
losses, etc. Also, Westconnect RTO and BPA oppose the proposal in 
Section 12.3 of the NOPR LGIP that the Interconnection Customer receive 
transmission credits for expediting costs associated with constructing 
Network Upgrades out of sequence. TAPS states that the Interconnection 
Customer should receive a credit against its network transmission 
service bill based on the capacity of the Generating Facility, not the 
energy output of the unit. It argues that an energy output-based method 
of calculating the credit unfairly penalizes network customers and 
sends the wrong price signal, discouraging the construction of peaking 
units and the designation of such units as Network Resources.
    729. WEPCO states that the Commission must continue to mandate, as 
proposed in Article 11.4 of the NOPR LGIA, that rights to receive 
credits are fully assignable. It believes that this is crucial because 
in many instances the Interconnection Customer is not the transmission 
customer.
Commission Conclusion
    730. The Commission agrees with Dynegy and others that the 
Interconnection Customer should receive credits for transmission 
(delivery) service taken anywhere on the Transmission Provider's 
Transmission System and that credits should not be limited to service 
taken with respect to the Generating Facility at the point of receipt, 
as long as certain conditions are met. That is, as long as the 
Generating Facility has achieved commercial operation, continues to 
operate and there are unpaid credits outstanding, the Interconnection 
Customer should receive credits for all of the transmission charges 
that it pays, including charges for ``through'' transmission service. 
This is appropriate because it provides an additional vehicle by which 
the Transmission Provider can meet the requirement that the 
Interconnection Customer must receive a full refund of all amounts due 
within five years of the Commercial Operation Date. Accordingly, the 
Commission is removing from Article 11.4.1 of the Final Rule LGIA the 
following language: ``so long as Transmission Provider continues to 
receive payments for transmission service with respect to the 
Generating Facility during such period.''
    731. Edison Mission asks that Articles 2 and 11 of the NOPR LGIA be 
modified to allow the Interconnection Customer to receive credits for 
Network Upgrades that it has paid for if the interconnection agreement 
is terminated or the Generating Facility is not constructed. The 
Commission disagrees. In order to achieve an appropriate balance 
between the Interconnection Customer's risks and incentives, the 
Commission believes that the Interconnection Customer should receive a 
refund of the costs of Network Upgrades only if the Generating Facility 
has achieved commercial operation. Allowing the Interconnection 
Customer to avoid any responsibility for the cost of Network Upgrades 
needed for a Generating Facility that is never completed would 
improperly shift all risk of cost recovery to the Transmission Provider 
and its other customers. In addition, it would greatly reduce the 
Interconnection Customer's incentives to make good faith requests for 
Network Upgrades. Therefore, the Commission concludes that the 
Transmission Provider must provide a refund to the Interconnection 
Customer only after commercial operation of the Generating Facility has 
been demonstrated. However, if the Generating Facility fails to achieve 
commercial operation, but it or another Generating Facility is later 
constructed and makes use of the Network Upgrades, the Interconnection 
Customer would at that time be entitled to a refund of the investment 
that it made in the Network Upgrades.
    732. Westconnect RTO and others argue that the Transmission 
Provider should credit the Interconnection Customer only for the non-
usage sensitive ``demand'' or ``return'' component of the applicable 
transmission charges, presumably on the basis that this is the 
component that relates most directly to the cost of the investment for 
which the Interconnection Customer is to receive credits. The 
Commission clarifies that the Transmission Provider may decline to 
award credits for those transmission charges that are designed to 
recover out-of-pocket costs, such as the cost of line losses, 
associated with the delivery of the Generating Facility's output. The 
Commission notes, however, that all amounts paid by the Interconnection 
Customer toward Network Upgrades must be refunded within five years of 
the Commercial Operation Date. Thus, any reduction in the level of 
credit payments will only increase the cost of interest and the 
magnitude of the final cash payment that may be required.
    733. Westconnect RTO and BPA oppose the proposal in Section 12.3 of 
the NOPR LGIP that would provide the Interconnection Customer with a 
refund of the costs of expediting construction of Network Upgrades so 
that they can be placed in service out of sequence. The Commission is 
not changing this provision in the Final Rule LGIP. The sequence in 
which Network Upgrades would normally be constructed is based on the 
order in which requests are received. Although changing the order may 
increase or decrease the level of costs, the new level of costs is no 
less legitimate than the first. Thus, the Transmission Provider must 
refund to the Interconnection Customer the cost of constructing Network 
Upgrades regardless of the construction sequence.
    734. In response to WEPCO's concern about the assignability of 
refund rights, the Commission confirms that Final Rule LGIA Article 
11.4 provides that refund rights are fully assignable.
    735. Finally, the Commission clarifies how the crediting policy 
will work when the Interconnection Customer elects to build and retain 
ownership of Stand-Alone Network Upgrades. In such case, the 
Interconnection Customer is not entitled to a refund of its investment 
in any facilities in which it elects to retain ownership. If the 
Interconnection Customer constructs Stand-Alone Network Upgrades, and 
chooses not to transfer ownership to the Transmission Provider, it will 
not receive a refund but may enter into a cost-based lease agreement 
with the Transmission Provider that places the upgrades under the 
Transmission Provider's operation and control. The rates, terms and 
conditions of any such lease agreement are subject to the approval of 
the Commission.
Responsibility for the Costs Incurred by Affected Systems
    736. A number of commenters argue that the Final Rule should 
address directly the assignment of costs that may be incurred by 
Affected Systems when an Interconnection Customer obtains an 
interconnection.\118\ Entergy contends that, even if the Final Rule 
LGIA could bind an Affected System, the Commission's current 
interconnection pricing policies fail to establish the allocation of 
the costs of Network Upgrades among the Interconnection Customer, the 
interconnecting Transmission Provider, and the Affected System. 
Dominion

[[Page 49909]]

Resources recommends that Section 3.5 of the NOPR LGIP require the 
Interconnection Customer to be responsible for all costs incurred by 
the Transmission Provider in coordinating the interconnection request 
with the affected party, including all study costs. Reliant states that 
there is presently no mechanism that provides the Interconnection 
Customer with transmission credits for a contribution to the 
construction of Network Upgrades on third party systems. Reliant 
recommends that the Commission add to Section 3.5 of the NOPR LGIP 
language proposed by EPSA that addresses this omission. Mirant 
recommends that the Commission require the Transmission Provider to 
coordinate the provision of transmission credits associated with 
funding Network Upgrades on affected third party systems.
---------------------------------------------------------------------------

    \118\ As discussed above, an Affected System is a system other 
than that of the Transmission Provider that may be affected by the 
proposed interconnection.
---------------------------------------------------------------------------

    737. LADWP is concerned that the NOPR did not address how the 
Commission intends the financing and crediting to be implemented if the 
Interconnection Customer does not purchase transmission service on the 
Affected System.
Commission Conclusion
    738. The NOPR LGIP and NOPR LGIA included no pricing provisions 
that specifically address situations where Network Upgrades must be 
constructed on Affected Systems to protect the reliability of those 
systems. However, the Commission concurs with the commenters that state 
that the NOPR LGIA should be modified to expressly allow for refunds to 
be provided to the Interconnection Customer when such Network Upgrades 
must be constructed and the Interconnection Customer is required to pay 
for them. Therefore, the Commission modifies Article 11.4 of the Final 
Rule LGIA to make it applicable to all jurisdictional Affected System 
Operators on whose systems Network Upgrades are constructed to 
accommodate the Interconnection Customer's Interconnection Request. 
This means that, prior to the Commercial Operation Date, an Affected 
System Operator may require the Interconnection Customer to pay for all 
Interconnection Facilities and Network Upgrades constructed to 
accommodate the Interconnection Customer's Interconnection Request. 
Then, upon commencement of commercial operation, any Affected System 
Operator that has received payments from the Interconnection Customer 
must begin to refund to the Interconnection Customer the costs of 
Network Upgrades that the Interconnection Customer has paid. 
Furthermore, refunds are to be provided without regard to whether the 
Interconnection Customer has contracted for delivery service on the 
Affected System Operator's Transmission System. If the Interconnection 
Customer has not contracted for delivery service, and in the absence of 
another mutually agreeable payment schedule, refunds shall be provided 
by means of a uniform stream of monthly payments designed to fully 
reimburse the Interconnection Customer, with interest, over a five year 
period commencing with the Generating Facility's Commercial Operation 
Date.
    739. When the Interconnection Customer is required to pay for 
Network Upgrades on an Affected System, it must enter into an agreement 
with the Affected System Operator unless the payments are incorporated 
in the interconnection agreement that the Interconnection Customer 
signs with the Transmission Provider. Any agreement with an Affected 
System Operator must specify the terms governing payments to be made by 
the Interconnection Customer as well as the payment of refunds by the 
Affected System Operator. The Commission is revising proposed Article 
11.4.1 to incorporate this new requirement.
Policies Regarding Previously Approved Cost Allocations and Pricing 
Arrangements
    740. A number of commenters express their views regarding the 
NOPR's proposal to require that all Transmission Providers remove from 
their transmission rates the costs of Interconnection Facilities 
constructed for the Transmission Provider's own Generating Facilities, 
and to treat them as directly assigned, generation-related costs. 
Commenters also address the possible retroactive application of the 
pricing policy adopted in the Final Rule. Calpine and Mirant request 
that the Commission require that all Transmission Owners make 
compliance filings to remove the costs of Interconnection Facilities 
from existing transmission rates. The Arkansas PSC states that it does 
not object in principle to the proposal to remove such costs from 
transmission rates, but notes that this could shift additional costs 
onto the retail customers of regulated generation-owning utilities. It 
proposes that, if the cost-shifting burden is judged to be significant, 
a phase-in or modification may be appropriate. PSNM believes that the 
Commission's proposal to require all Transmission Providers to remove 
sole use facilities from their transmission rates currently in place 
resolves the lack of pricing comparability alleged by Interconnection 
Customers.
    741. PJMTO generally agrees with the NOPR's proposal to assign to 
the generator the costs of Interconnection Facilities, but requests 
that the Commission clarify that, to the extent this policy alters 
existing practices, it will apply prospectively and only affect 
interconnections that post-date the Final Rule. PJMTO states that, 
historically, transmission providers have used a variety of approaches 
to assign cost responsibility for Interconnection Facilities, claiming 
that some have rolled these costs into transmission rates while others 
have directly assigned the costs to the Interconnection Customer. PJMTO 
urges the Commission not to undercut the business assumptions of 
existing project sponsors or to require the Transmission Provider to 
refile transmission rates to remove any non-network costs that have 
been rolled in, and invoice Interconnection Customers for such removed 
costs. Exelon and Sithe express similar views and state that, since 
Order No. 888, numerous vertically integrated utilities have spun off 
their Generation Facilities to non-affiliated third parties. Exelon and 
Sithe believe that those parties would likely claim that their 
interconnection arrangements have been effectively grandfathered and 
that no interconnection costs that may have been rolled into base 
transmission rates are now recoverable from them. Exelon and Sithe 
argue this could lead to costly and time-consuming litigation.
    742. Calpine requests that the Commission find here that any policy 
that requires the Interconnection Customer to pay for Network Upgrades 
is unjust and unreasonable, and unless otherwise barred by explicit 
contract language, any Interconnection Customer should be permitted to 
have the facility cost allocation provisions of any existing agreement 
modified pursuant to Section 206 of the FPA to reflect the current 
interconnection pricing policies. However, Exelon and Sithe, using 
arguments similar to those above, recommend that any historical 
allocation of the costs of Network Upgrades that was agreed to by the 
parties and accepted by the Commission should not be disturbed now. 
Exelon and Sithe recommend that those costs be rolled into the 
transmission rate base only for new Interconnection Requests.
Commission Conclusion
    743. The Commission believes that, to ensure fully comparable 
treatment of all Generating Facilities, transmission rates should not 
include the costs of Interconnection Facilities. As stated in the NOPR, 
this policy is consistent with the Commission's current treatment of

[[Page 49910]]

generation step-up transformers, appropriately assigns the costs of 
Interconnection Facilities to the generation customers using them, and 
ensures that the Transmission Provider's own Generating Facilities and 
those of its competitors are treated comparably.
    744. However, the Commission is sympathetic to the concern of PJMTO 
and Exelon and Sithe that the Transmission Provider may have difficulty 
recovering the costs associated with Generating Facilities that it does 
not own, including those that it once owned but has since divested. 
Also, the Commission is concerned that the Transmission Provider may 
have difficulty identifying the interconnection-related costs of older 
Generating Facilities given that, historically, the Transmission 
Provider may have had no reason to segregate these costs from other 
transmission costs in its books of account. Therefore, the Commission 
is not adopting the NOPR's proposal to require the Transmission 
Provider to remove from its existing transmission rates the costs of 
all Interconnection Facilities constructed for its own Generating 
Facilities and to directly assign them as generation-related costs. 
Rather, the Commission here is imposing a more limited requirement. The 
Commission is requiring that the Transmission Provider remove from 
transmission rates only the costs of Interconnection Facilities 
constructed by the Transmission Provider after a certain date to 
interconnect Generating Facilities owned by the Transmission Provider 
on the effective date of this Final Rule. That date certain is March 
15, 2000, the date on which the Commission issued its order in 
Tennessee clarifying that interconnection is a separate component of 
transmission service, and that an Interconnection Customer may request 
interconnection separately from the delivery component of transmission 
service. That order effectively placed Transmission Providers on notice 
that the costs of Interconnection Facilities cannot be recovered in 
rates for transmission service. Thus, the Commission presumes that 
after March 15, 2000, any Interconnection Agreement signed by the 
Transmission Provider provides for the direct assignment of 
Interconnection Facility costs to the Interconnection Customer. The 
Commission also presumes that the Transmission Provider can identify 
the costs of any Interconnection Facilities constructed for its own 
Generating Facilities after March 15, 2000. In this Final Rule, the 
Commission is requiring the Transmission Provider, in its next filed 
transmission rate case, to remove such costs from transmission rates.
    745. With regard to the Arkansas PSC's concern about the impact of 
any cost shifting that may result from the reallocation of 
Interconnection Facility costs, we do not believe that the impact will 
be so great as to warrant a phase-in. Because the requirement that we 
are adopting here applies only to costs incurred after March 15, 2000, 
we expect the cost impact, if any, to be small. Furthermore, any cost 
impact will not occur until the Transmission Provider's next filed rate 
case.
    746. Finally, in response to Calpine, the Commission is not 
requiring in this Final Rule any changes to previously accepted 
interconnection agreements.
Miscellaneous Pricing Issues
    747. Dynegy argues that Article 4.6 of the NOPR LGIA should be 
clarified to include a more comprehensive listing of the possible 
services that the Interconnection Customer might be called upon to 
provide to the Transmission Provider under the express provisions of 
the LGIA. Dynegy submits that the Interconnection Customer would be 
required to have a Tariff on file with the Commission pursuant to 
Section 205 of the Federal Power Act for any service for which it seeks 
to charge the Transmission Provider. In the alternative, it recommends 
that the Commission clarify that this provision does not require the 
Interconnection Customer to forego the right to seek compensation for 
any services beyond the two listed.
    748. ACEEE states that it agrees with the Commission's general 
proposal on pricing, but identifies pricing issues faced by the 
Interconnection Customer that it believes can pose major barriers to 
interconnection. It claims that excessive standby charges, backup power 
rates, and insurance requirements have frequently been used to try to 
block an Interconnection Customer from interconnecting a new Generating 
Facility and competing on a comparable basis. It states that the 
Commission and others must address these pricing issues if electricity 
markets are to be fully accessible.
Commission Conclusion
    749. In response to Dynegy, the Commission clarifies that, while 
Articles 4.6 and 11.6 of the Final Rule LGIA provide that the 
Transmission Provider must compensate the Interconnection Customer for 
certain specific services that the latter provides, no provision of the 
Final Rule LGIA limits the right of the Interconnection Customer to 
seek compensation for any other services that the Transmission Provider 
may from time to time request from the Interconnection Customer.
    750. With regard to ACEEE's concerns about the rates for standby 
charges and backup power rates provided by the Transmission Provider to 
the Interconnection Customer, the rates for these services are a state 
jurisdictional retail rate issue. The Commission discusses insurance 
requirements in part II.C.8.a of this Preamble.
2. Interconnection Products and Scope of Service
    751. Scope of service, including in particular the definition and 
study requirements for the two Interconnection Service products 
proposed to be made available to Interconnection Customers, was perhaps 
the most heavily debated topic during the ANOPR phase of this 
proceeding. In addition, the controversial nature of this topic is 
reflected in the many pages that commenters devoted to it. These 
comments are addressed below.
Definition of Interconnection Products
    752. The LGIA NOPR provided for two Interconnection Service 
products from which the Interconnection Customer would have to choose: 
Energy Resource Interconnection Service, which is a basic or minimal 
interconnection service, and Network Resource Interconnection Service, 
which is a more flexible and comprehensive interconnection 
service.\119\ Neither is a transmission delivery service. Article 4 
(Scope of Service) of the NOPR LGIA defines these products and sets 
forth specific Interconnection Study requirements for each. This 
article also describes the relationship between delivery service and 
the Interconnection Services, as well as the rights and 
responsibilities that each Interconnection Service entails. In 
addition, Section 3.2 of the NOPR LGIP sets forth the procedure that 
the Interconnection Customer must use to select an Interconnection 
Service.
---------------------------------------------------------------------------

    \119\ During the ANOPR negotiating sessions EPSA and other 
Interconnection Customers negotiated to secure these two forms of 
service.
---------------------------------------------------------------------------

    753. As proposed, Energy Resource Interconnection Service would 
allow the Interconnection Customer to connect its Generating Facility 
to the Transmission System and be eligible to deliver its output using 
the existing firm or non-firm capacity of the Transmission System on an 
``as available'' basis. In an area with a bid-based energy market 
(e.g., ISO New

[[Page 49911]]

England, NYISO, or PJM), Energy Resource Interconnection Service would 
allow the Interconnection Customer to place a bid to sell into the 
market and the Generating Facility would be dispatched if the bid is 
accepted. In all other areas, no transmission delivery service would be 
assured, but the Interconnection Customer may obtain point-to-point 
transmission service or gain access to secondary network transmission 
service, pursuant to the Transmission Provider's Tariff. The 
Interconnection Studies to be performed for Energy Resource 
Interconnection Service would identify the Interconnection Facilities 
required as well as the Network Upgrades needed to allow the proposed 
Generating Facility to operate at full output. In addition, the 
Interconnection Studies would identify the maximum allowed output of 
the Generating Facility without Network Upgrades.
    754. In contrast, Network Resource Interconnection Service would 
require the Transmission Provider to undertake the Interconnection 
Studies and Network Upgrades needed to integrate the Generating 
Facility into the Transmission System in a manner comparable to that in 
which the Transmission Provider integrates its own generators to serve 
native load customers. If the Transmission Provider is an RTO or ISO 
with market-based congestion management, it would have to integrate the 
Generating Facility in the same manner as all other Network Resources.
    755. The Transmission Provider would study the Transmission System 
at peak load, under a variety of severely stressed conditions, to 
determine whether, with the Generating Facility at full output, the 
aggregate of generation in the local area can be delivered to the 
aggregate of load, consistent with the Transmission Provider's 
reliability criteria and procedures. Under this approach, the 
Transmission Provider would assume that some portion of the capacity of 
existing Network Resources is displaced by the output of the new 
Generating Facility.
    756. Network Resource Interconnection Service provides for all of 
the Network Upgrades that would be needed to allow the Interconnection 
Customer to designate its Generating Facility as a Network Resource and 
obtain Network Integration Transmission Service. Thus, once an 
Interconnection Customer has obtained Network Resource Interconnection 
Service, any future transmission service request for delivery from the 
Generating Facility would not require additional studies or Network 
Upgrades. However, Network Resource Interconnection Service itself does 
not convey any delivery service and the Interconnection Customer would 
not be required to identify a specific buyer (or sink). If the 
Interconnection Customer wishes to obtain the delivery component of 
transmission service, it would have to do so pursuant to the 
Transmission Provider's Tariff.
    757. Requests for long-term transmission service for deliveries 
outside the Transmission Provider's system may require additional 
Interconnection Studies and Network Upgrades. Network Resource 
Interconnection Service would allow the Generating Facility to be used 
to provide Ancillary Services and, should the Transmission System 
become congested, the Generating Facility would be subject to the same 
congestion management procedures that apply to all other Network 
Resources. Article 4.1.2.3 of the NOPR LGIA states that ``[d]epending 
on how the cost allocation issue is resolved, the [Interconnection 
Customer] may be allocated congestion rights based on the construction 
of upgrades.''
    758. Proposed LGIA Article 4.3 also provides for generator 
balancing service arrangements and refers to other articles that 
address payment for certain services provided by the Interconnection 
Customer.
Comments
    759. Several commenters, primarily Transmission Providers, object 
to the proposed requirement that Interconnection Customers be allowed 
to request Network Resource Interconnection Service. NRECA-APPA and 
others argue that, contrary to the Commission's assertion, Network 
Resource Interconnection Service would convey transmission delivery 
rights to the Interconnection Customer in the form of a permanent right 
to the future use of the Transmission System's delivery capacity. APS 
contends that Network Resource Interconnection Service would provide 
delivery service rights that are greater than any available under Order 
No. 888, and claims that Network Resource Interconnection Service may 
require a Transmission Provider to expand transmission capacity beyond 
any foreseeable needs of network load and to hold that capacity 
indefinitely. LG&E Energy believes that Network Resource 
Interconnection Service could result in substantial overbuilding of the 
Transmission System as a result of the requirement that transmission be 
upgraded to accommodate any Interconnection Customer taking Network 
Resource Interconnection Service to serve any load on the system. 
However, TAPS is concerned that Network Resource Interconnection 
Service does not provide for the capacity expansions that may be needed 
to allow network customers to access their Network Resources without 
congestion. It claims that the NOPR's treatment of Network Resource 
designation and network service is inconsistent with the OATT Network 
Integration Transmission Service, which requires a demonstration of 
load-specific deliverability from designated Network Resources. TAPS 
states that Network Resource Interconnection Service lacks such a 
deliverability test and, as a result, would be a service under which 
the Network Resource designation is meaningless from a load serving 
entity's point of view. It claims that while Network Resource 
Interconnection Service would grant some rights to the Interconnection 
Customer, it leaves the load serving entity to bear all the risk of 
congestion between its Network Resources and its load.
    760. PSNM notes that for an Interconnection Customer to secure 
delivery rights using Network Integration Transmission Service under 
the OATT, the Generating Facility must be designated as a Network 
Resource. The Interconnection Customer also must pay separately for 
point-to-point service when not providing service as a Network 
Resource. PSNM claims that the language in the NOPR LGIA would undo 
that requirement. Western objects to the fact that Network Resource 
Interconnection Service would impose no obligation on an 
Interconnection Customer to serve network load or to meet network 
operating obligations, such as providing Ancillary Services, and would 
not require an Interconnection Customer to participate in regional 
planning processes. Dairyland Power states that Article 4.1.2 of the 
NOPR LGIA seems to presuppose that Network Resource Interconnection 
Service may be used only in conjunction with Network Integration 
Transmission Service under the OATT, but the LGIA is not explicit. It 
asks the Commission to clarify the purpose of Network Resource 
Interconnection Service and how it may actually be used.
    761. Central Maine claims that the exact products or services 
required to be offered are not clearly defined. Industrial Energy 
asserts that the acknowledgment of potential congestion in the Network 
Resource Interconnection Service description seems to contradict the 
further

[[Page 49912]]

specifications in proposed LGIA Article 4.1.2.3, which appears to 
contemplate delivery from the Generating Facility within the 
Transmission Provider's Transmission System of any amount of capacity 
and/or energy up to the amount initially studied without additional 
studies or Network Upgrades. TANC recommends that the Commission 
replace the study provision requiring displacement of existing 
generation (NOPR LGIA Article 4.1.2.2) with appropriate technical 
guidelines and procedures for identifying resource displacement.
    762. LG&E Energy claims that the proposal is inconsistent with the 
Commission's proposed approach to Standard Market Design. It notes that 
the market designs of certain ISOs permit customers to designate any 
resource as a Network Resource, but do not require the Transmission 
System to be upgraded to ensure physical delivery of all generation 
resources to all loads. Rather, according to LG&E Energy, the effect of 
transmission congestion is reflected in locational energy prices. Also, 
the Midwest ISO states that it is not clear how Network Resource 
Interconnection Service would evolve as Standard Market Design is 
implemented. It believes that Network Resource Interconnection Service 
is more appropriate for an Interconnection Customer that wishes to 
designate its Generating Facility as a capacity resource in a market 
design where there is a capacity market. If there is not such a market, 
the Midwest ISO would support Energy Resource Interconnection Service 
alone as sufficient to provide for reliable interconnections, and allow 
for market-based mechanisms to support expansion of the Transmission 
System beyond minimum reliability needs. Both the Wisconsin PSC and 
American Wind Energy advise the Commission to defer consideration of 
Network Resource Interconnection Service until it can be evaluated in 
the context of Standard Market Design. Dairyland Power states that it 
is not clear how Network Resource Interconnection Service would fit 
with the new Network Access Service contemplated in the Commission's 
Standard Market Design rulemaking.
    763. Some commenters argue that there should be only one 
interconnection product and that product should define a minimum level 
of service. For example, ISO New England believes that its Minimum 
Interconnection Standard has resulted in equal treatment of new and 
incumbent generation owners and has resulted in a substantial number of 
new generators being interconnected onto the bulk power Transmission 
System in New England. It also states that the Minimum Interconnection 
Standard allows every generator owner, new and incumbent alike, the 
opportunity to participate in all markets.
    764. PG&E notes that, while Network Resource Interconnection 
Service requires the Transmission Provider to interconnect new plants 
in a manner comparable with that of other Network Resources, in 
California there are no Network Resources. PG&E asks the Commission to 
explain how this Interconnection Service would apply in areas where no 
network transmission service is available. Central Maine argues that 
the definition of products and services should be left to regional 
practices.
    765. Xcel states that the description of Network Resource 
Interconnection Service appears to assume the Transmission Provider's 
system is the same as its Control Area. However, with the development 
of large transmission networks subject to an RTO's OATT, it may not be 
possible to actually deliver the capacity and energy of any individual 
generator to a network load on a huge regional network. The Midwest ISO 
recommends that, if Network Resource Interconnection Service is 
retained as part of the Final Rule, an Interconnection Customer within 
a large footprint RTO like the Midwest ISO should be allowed to select 
specific zones (or Control Areas) in which it would be eligible to be a 
designated Network Resource.
Commission Conclusion
    766. Article 4 of the NOPR LGIA did not adequately convey the 
Commission's intent, particularly with regard to the characteristics 
that distinguish the two proposed interconnection products and the 
rights and responsibilities that each entails. Many of the commenters' 
concerns can be addressed by improving the clarity and accuracy in the 
Final Rule provisions concerning scope of services and interconnection 
products. Therefore, as described below, the Commission modifies the 
text of proposed LGIA Article 4 and provides the following 
clarifications.
    767. Both Energy Resource Interconnection Service and Network 
Resource Interconnection Service provide for the construction of 
Network Upgrades that would allow the Interconnection Customer to flow 
the output of its Generating Facility onto the Transmission Provider's 
Transmission System in a safe and reliable manner. However, contrary to 
the assertions of several commenters, neither Energy Resource 
Interconnection Service nor Network Resource Interconnection Service in 
and of itself conveys the right to do so. Moreover, neither type of 
Interconnection Service constitutes a reservation of transmission 
capacity. The Interconnection Customer, load or other market 
participant would have to request either point-to-point or Network 
Integration Transmission Service under the Transmission Provider's OATT 
in order to receive the delivery service that is a prerequisite to 
flowing power onto the system. When an Interconnection Customer that 
has chosen either Energy Resource Interconnection Service or Network 
Resource Interconnection Service later requests firm point-to-point 
delivery service, additional Network Upgrades may be required, 
depending on the availability of transmission capacity to deliver power 
to the delivery point.
    768. Network Resource Interconnection Service is intended to 
provide the Interconnection Customer with an interconnection of 
sufficient quality to allow the Generating Facility to qualify as a 
designated Network Resource on the Transmission Provider's system 
without additional Network Upgrades. This means that Network Resource 
Interconnection Service entitles the Generating Facility to be treated 
in the same manner as the Transmission Provider's own resources for 
purposes of assessing whether aggregate supply is sufficient to meet 
aggregate load within the Transmission Provider's Control Area, or 
other area customarily used for generation capacity planning. Thus, 
with Network Resource Interconnection Service, the Interconnection 
Customer would be eligible to obtain Network Service under the 
Transmission Provider's OATT, or network access service under the 
Tariff of an RTO or ISO, without the need for additional Network 
Upgrades.
    769. However, contrary to the views of some commenters, Network 
Resource Interconnection Service does not necessarily provide the 
Interconnection Customer with the capability to physically deliver the 
output of its Generating Facility to any particular load on the system 
without incurring congestion costs. Depending on the location of the 
load for which the Generating Facility serves as a designated Network 
Resource, it may be required to participate in a redispatch procedure, 
or other non-discriminatory congestion management process, such as 
locational marginal pricing. Network Upgrades required under Network 
Resource Interconnection Service integrate the Generating Facility into 
the

[[Page 49913]]

Transmission System in a manner that ensures that aggregate generation 
can meet aggregate load while satisfying regional reliability criteria 
and generation capacity planning requirements. However, these upgrades 
do not necessarily eliminate congestion.
    770. In response to ISO New England and the Midwest ISO, the 
Commission is not limiting the Interconnection Customer's 
interconnection alternatives to a single option that meets only a 
minimum interconnection standard. In general, such a policy would not 
provide an interconnection that meets the standard that the 
Transmission Provider uses to interconnect its own generators. The 
Commission notes, however, that in regions where the Transmission 
System is operated by an independent entity, the Commission allows 
flexibility, as discussed in part II.C.1 (Interconnection Pricing 
Policy). For example, an independent entity may determine, subject to 
Commission approval, that the designation of Network Resources is not 
necessary (which, PG&E points out, is the case in California).
    771. The Commission recognizes that the Transmission Provider's 
Transmission System may not comprise a single Control Area, as several 
commenters point out. If the Transmission Provider operates more than 
one Control Area, it may limit the network service that is available to 
an Interconnection Customer taking Network Resource Interconnection 
Service to the Control Area where the Generating Facility is located. 
If the Interconnection Customer wishes to serve load in another Control 
Area, it must submit a separate request for transmission service to 
that other area, and it would be subject to the pricing provisions of 
the Transmission Provider's OATT for that service.
    772. The Commission further clarifies that, if the Generating 
Facility of an Interconnection Customer taking Network Resource 
Interconnection Service is selected by a load as a designated Network 
Resource, it will be required to meet all network operating obligations 
that the OATT imposes upon Network Resources generally. If an 
Interconnection Customer's Generating Facility has not been designated 
as a Network Resource by any load, it cannot be required to provide 
Ancillary Services except to the extent such requirements extend to all 
generators that are similarly situated.
    773. Finally, in response to Dairyland Power and others, the 
Commission notes that an RTO or ISO may propose in its tariff filing to 
modify the definition and scope of the available interconnection 
products to accommodate its market.
Pricing of Network Resource Interconnection Service
    774. Some commenters express concern over the application of the 
proposed interconnection pricing policy to Network Resource 
Interconnection Service. For example, Progress Energy and the Alabama 
PSC believe that an Interconnection Customer taking Network Resource 
Interconnection Service should pay a reservation charge for reserved 
but unused transmission capacity on the Transmission Provider's 
Transmission System. Progress Energy believes that such an approach 
would properly allocate the cost of the transmission capacity being 
reserved for the Interconnection Customer until a customer actually 
begins paying for transmission service for output from the 
Interconnection Customer's Generating Facility.
    775. Entergy states that the requirement that a Transmission 
Provider offer Network Resource Interconnection Service should not be 
included in the Final Rule until the Commission has thoroughly analyzed 
the effects of providing such service. If this service is required, 
however, Entergy recommends that a Transmission Provider be compensated 
by any Interconnection Customer electing this service, as the service 
prevents a Transmission Provider from achieving the maximum use of its 
Transmission System due to the standing transmission reservation that 
it claims is granted to an Interconnection Customer under this service. 
The Coalition for Pricing recommends that the Interconnection Customer 
be required to commit to pay for Network Resource Interconnection 
Service for a specific term long enough to protect other customers from 
economic harm. It further recommends that, if the Interconnection 
Customer is not required to commit to a specific term of Network 
Resource Interconnection Service, it should at a minimum be required to 
pay some amount up front to cover ongoing expenses associated with the 
upgrades constructed if service is cancelled after a short time.
    776. NRECA-APPA states that coupling Network Resource 
Interconnection Service with the Commission's current interconnection 
pricing policy will cause customers to bear much of the cost of Network 
Upgrades while having no right to use the resulting transmission 
delivery capability.
    777. However, American Transmission opposes any special charges for 
Network Resource Interconnection Service and believes that commenters' 
criticisms that this service confers too great an advantage on the new 
Interconnection Customer are overstated. It believes the provision 
should be designed to put the independent generation owner on a 
competitive footing equal to that of incumbent owners. If the 
Commission is persuaded that the proposed policy provides an undue 
advantage to the new Interconnection Customer, the solution lies in 
adjusting the service description, not in imposing a surcharge.
Commission Conclusion
    778. The Commission is not requiring the Interconnection Customer 
to pay a reservation fee for the delivery component of transmission 
service as a condition for receiving Network Resource Interconnection 
Service. As explained above, Network Resource Interconnection Service 
does not convey to the Interconnection Customer a reservation of 
transmission capacity or the right to begin taking firm or non-firm 
transmission service on the Transmission Provider's system. Rather, its 
purpose, as stated in proposed LGIA Article 4.1.2.1, is to provide the 
Network Upgrades needed to integrate the Interconnection Customer's 
Generating Facility into the Transmission System in a manner that is 
comparable to that in which the Transmission Provider integrates its 
own resources or other Network Resources. When the Interconnection 
Customer does take transmission service, it (or its power sales 
customer) will be required to pay appropriate rates, subject to the 
crediting provisions of Article 11.4 of the Final Rule LGIA. To charge 
the Interconnection Customer an additional reservation fee, as several 
commenters propose, would violate the Commission's prohibition against 
``and'' pricing. Nevertheless, Network Resource Interconnection Service 
does not guarantee that the Interconnection Customer can physically 
deliver its output to any load. This means that, depending on the 
location of its power sales customer, the Interconnection Customer may 
be required to pay congestion or redispatch costs.
    779. Finally, in response to NRECA-APPA, the Commission emphasizes 
that any capacity created by the Network Upgrades constructed on the 
Interconnection Customer's behalf is available for use by all customers 
on an equal basis. The Final Rule only requires that, once the 
Interconnection Customer has paid for the Network Upgrades needed to 
integrate its Generating Facility, it cannot be charged

[[Page 49914]]

again for any additional upgrades that may be needed to continue to 
qualify as a Network Resource.
Study Requirements for Network Resource Interconnection Service
    780. Article 4.1.2.2 of the NOPR LGIA described the Interconnection 
Study procedures for Network Resource Interconnection Service. Among 
other things, they would require the Transmission Provider to study the 
Transmission System at peak load, under a variety of severely stressed 
conditions, to determine whether, with the Generating Facility at full 
output, the aggregate of generation in the local area can be delivered 
to the aggregate of load, consistent with the Transmission Provider's 
reliability criteria and procedures.
Comments
    781. PG&E states that it does not understand the difference between 
the study requirements for Energy Resource Interconnection Service and 
Network Resource Interconnection Service. For Network Resource 
Interconnection Service, the NOPR LGIA says that the study must be done 
with the system at peak load and under a variety of severely stressed 
conditions, but PG&E claims that it is not clear that any lesser study 
would be necessary for Energy Resource Interconnection Service.
    782. Cal ISO states that it is essential that all studies consider 
off-peak operating periods with the Generating Facility at full output. 
It argues that, during light load periods, the energy generated is not 
consumed locally and has to be transmitted over longer distances, 
possibly causing overloads that would not be revealed by studying only 
on-peak periods. Therefore, Cal ISO recommends replacing ``at peak 
load, under a variety'' with ``at peak load and under a variety.'' NERC 
recommends several changes in NOPR LGIA Article 4.1.2.2, including 
replacing ``at peak load, under a variety of severely stressed 
conditions'' with ``under a set of reasonably expected limiting 
conditions.'' It states that studying interconnection impacts only 
under conditions of system peak load and the Generating Facility's peak 
output may overlook the study of other conditions that could be unsafe. 
NERC asserts that use of the term ``limiting conditions'' provides the 
flexibility to incorporate studies that are necessary to ensure 
reliability.
Commission Conclusion
    783. The study requirements for Energy Resource Interconnection 
Service and Network Resource Interconnection Service are set forth in 
Sections 3.2.1 and 3.2.2 of the Final Rule LGIP.
    784. In response to PG&E, the principal difference between the 
study requirements for Energy Resource Interconnection Service and 
Network Resource Interconnection Service is that the study for Network 
Resource Interconnection Service identifies the Network Upgrades that 
are needed to allow the Generating Facility to contribute to meeting 
the overall capacity needs of the Control Area or planning region 
whereas the study for Energy Resource Interconnection Service does not. 
The study for Energy Resource Interconnection Service includes short 
circuit/fault duty, steady state (thermal and voltage) and stability 
analyses to identify the Network Upgrades needed to allow the output of 
the Generating Facility to be injected into the Transmission System 
using capacity on an ``as available'' basis. By contrast, the study for 
Network Resource Interconnection Service includes similar analyses but 
also assumes that the output of the Generating Facility may displace 
the output of certain other Network Resources on the Transmission 
System. The study then identifies the Network Upgrades that would be 
required to allow the Generating Facility to be counted toward system 
capacity needs in the same manner as the displaced resources. However, 
the Interconnection Customer may request that Optional Studies be 
performed, and Section 3.2 of the Final Rule LGIP allows the 
Interconnection Customer then to proceed with Network Resource 
Interconnection Service or to request a lower level of interconnection 
service whereby only certain upgrades will be completed.
    785. With regard to the changes to Article 4.1.2.2 of the LGIA 
recommended by NERC and Cal ISO, we note that this provision is 
intended to serve two purposes. First, it establishes the standards for 
conducting necessary studies to provide the requested service while 
ensuring that the reliability of the system is maintained. Second, it 
deters a Transmission Provider from delaying an interconnection by 
imposing on competing Interconnection Customers, in the name of 
reliability, more stringent Interconnection Study requirements than it 
would require of its own interconnections or those of its Affiliates. 
Because NERC's and Cal ISO's proposals satisfy only the reliability 
purpose, the Commission does not adopt them. Our requirement that the 
interconnection be studied with the Transmission Provider's 
Transmission System at peak load, under a variety of severely stressed 
conditions, is comparable, we believe, to the study requirement that 
the Transmission Provider applies to its own generation. However, we 
are sympathetic to NERC's and Cal ISO's concerns. Therefore, the 
Commission would entertain a request, in a non-independent Transmission 
Provider's compliance filing required by this Final Rule, to adopt a 
different requirement (e.g., off-peak load in addition to peak load) if 
the non-independent Transmission Provider can demonstrate that the 
proposed requirement is consistent with or superior to the requirement 
of the Final Rule LGIP. At a minimum, the Transmission Provider must 
demonstrate that it consistently applies the proposed requirement in 
the studies it conducts for itself and its Affiliates. As discussed 
below in Part II.C.5 (Variations from the Final Rule), we will allow an 
RTO or ISO to seek an ``independent entity variation'' from the Final 
Rule LGIP if it wants to adopt a different study requirement.
Identification of Types of Interconnection Services To Be Studied
    786. According to Section 3.2 of the NOPR LGIP, when the 
Interconnection Customer submits its Interconnection Request, it would 
be required to identify the type of Interconnection Service it wants. 
However, an Interconnection Customer requesting Network Resource 
Interconnection Service would have the option of requesting that its 
Interconnection Request also be studied for the less comprehensive 
Energy Resource Interconnection Service up to the point when an 
Interconnection Facilities Study Agreement is executed.
Comments
    787. Several commenters state that allowing the Interconnection 
Customer to request that its Interconnection Request be studied for 
both Network Resource Interconnection Service and Energy Resource 
Interconnection Service concurrently will unnecessarily tax the 
Transmission Provider's resources and increase the burden of performing 
the studies. Entergy and BPA believe that this option will 
unnecessarily delay the conduct of studies for third party 
interconnections unless the Interconnection Customer is required to 
select the particular service under which it will interconnect prior to 
the execution of an Interconnection System Impact Study Agreement. 
Entergy states that such a limitation would not unduly disadvantage the 
Interconnection Customer, but would further ensure that a Transmission

[[Page 49915]]

Provider's limited transmission planning resources are used to perform 
studies for interconnections that are likely to be completed. NYTO 
believes that the additional study work required to conduct concurrent 
studies is not accounted for in the Interconnection Feasibility, System 
Impact or Facilities Study sections of the NOPR LGIP. It states that 
additional time would be required to conduct the concurrent studies if 
the Transmission Provider is required to offer this option. Also, Cal 
ISO asks whether two deposits will be required if an Interconnection 
Customer requests that the Interconnection Request be studied as both 
Network Resource Interconnection Service and Energy Resource 
Interconnection Service.
    788. BPA observes that the NOPR LGIP included very strict timelines 
for completion of various studies and provided for no meaningful 
milestones or other means by which the Transmission Provider can ensure 
that only bonafide Interconnection Requests remain in the queue. It 
states that this places a Transmission Provider with a large number of 
Interconnection Requests in a very difficult position, and the more 
concurrent studies the Interconnection Customer can require the 
Transmission Provider to perform on a single request, the more 
difficult this position becomes. BPA believes that requiring concurrent 
studies is purely for the convenience of the Interconnection Customer, 
and that it is not unreasonable to require the Interconnection Customer 
to choose early in the process what kind of resource it intends to 
develop.
    789. Georgia Transmission believes that it is appropriate to allow 
the Interconnection Customer to request concurrent studies throughout 
the Interconnection Feasibility Study stage, but allowing the parallel 
studies to continue beyond that point simply gives the Interconnection 
Customer more time to decide what type of Interconnection Service 
product to contract for, while greatly increasing the study burden on 
the Transmission Provider. Georgia Transmission claims that the 
Interconnection System Impact Study is a much more complex and involved 
study than the Interconnection Feasibility Study. Further, to 
accommodate the Interconnection Customer's desire to study multiple 
Interconnection Service products, Georgia Transmission claims that the 
Transmission Provider must conduct multiple studies not only for the 
first Interconnection Customer, but for all other Interconnection 
Customers proceeding through the interconnection process to reflect the 
multiple service characteristics of the first Interconnection Customer. 
If these other Interconnection Customers also request the Transmission 
Provider to concurrently study multiple service options, the 
Transmission Provider study burden ``quickly snowballs out of 
control.'' \120\ At this stage of the Interconnection Study process, 
the cost of studying the multiple service options greatly outweighs the 
benefits to the Interconnection Customer.
---------------------------------------------------------------------------

    \120\ Comments of Georgia Transmission at 18.
---------------------------------------------------------------------------

    790. TVA argues that allowing an Interconnection Customer to 
request that the Transmission Provider study both types of 
Interconnection Services may double the work of the Transmission 
Provider at each stage up to the Interconnection Facilities Study 
stage. It finds this troubling in light of the NOPR's proposed 
milestones frames and the possibility of the Transmission Provider 
having to pay liquidated damages for failure to meet the deadlines.
    791. Interconnection Customers, however, express very different 
views. For example, Tenaska states that the choice between Network 
Resource Interconnection Service and Energy Resource Interconnection 
Service will be dictated by the Interconnection Customer's wholesale 
power customer. It argues that marketing efforts for new generation 
projects are not completed until late in the development process, 
making it impossible for the Interconnection Customer to know with 
certainty which service it requires. Tenaska asks that the 
Interconnection Customer be afforded maximum flexibility to choose 
between the two interconnection Services and recommends that, instead 
of making the Interconnection Customer choose prior to executing the 
Interconnection Facilities Study Agreement, the Final Rule LGIP should 
allow the Interconnection Customer to defer its choice until the 
execution of the interconnection agreement.
Commission Conclusion
    792. While conducting complex Interconnection Studies can be 
burdensome for the Transmission Provider, the Commission is not 
amending NOPR LGIP Section 3.2 to eliminate the Interconnection 
Customer's option to have its request studied as Energy Resource 
Interconnection Service as long as it has also requested to be studied 
as Network Resource Interconnection Service. This is a valuable option 
for the Interconnection Customer because it provides key information to 
support its investment decisions, and thus helps to meet the 
Commission's goal of encouraging the development of a new generation.
    793. The Commission also recognizes that the Interconnection System 
Impact Study is more complex than the Interconnection Feasibility 
Study. However, the Commission does not believe that it would be 
reasonable to require the Interconnection Customer to choose between 
the two services prior to executing the Interconnection System Impact 
Study Agreement, as several commenters propose. Once the 
Interconnection Customer has asked to be studied for Network Resource 
Interconnection Service, a service that is far more comprehensive than 
Energy Resource Interconnection Service, the incremental burden created 
by also having to conduct an Interconnection System Impact Study for 
the simpler Energy Resource Interconnection Service should not be 
great. It is for this reason that the Commission disagrees with Georgia 
Transmission's contention that having to study multiple options will 
have a significant snowball effect on the overall study burden. 
Moreover, the Transmission Provider will be fully compensated for all 
of the costs that it incurs in conducting a more expansive study. As 
for the risk that the Transmission Provider faces by allowing the 
Interconnection Customer to make this choice, such risk is mitigated by 
the fact that the Commission is not making the Transmission Provider 
subject to liquidated damages under the Final Rule LGIP.\121\
---------------------------------------------------------------------------

    \121\ Liquidated damages in the LGIP are further discussed in 
part II.C.8.b(4).
---------------------------------------------------------------------------

Revisions to the Final Rule LGIP and Final Rule LGIA
    794. In the Final Rule, the Commission is modifying various 
provisions of the NOPR LGIP and NOPR LGIA to provide greater clarity 
and to make other minor changes with respect to scope of service and 
interconnection products, as discussed above. In addition, the 
Commission is incorporating in the Final Rule LGIP certain provisions 
concerning product definitions and study requirements that were 
included in the NOPR LGIA but not the NOPR LGIP. These provisions are 
being added to the Final Rule LGIP because they directly relate to the 
process of obtaining an interconnection. They appear as new Sections 
3.2.1 and 3.2.2 in the Final Rule LGIP.

[[Page 49916]]

3. ``Distribution'' Interconnections
    795. We proposed in the NOPR \122\ that we would assert authority 
to order interconnection when the Interconnection Customer wants to 
interconnect its Generating Facility with a jurisdictional transmission 
facility, or when it will make a wholesale sale of electric energy in 
interstate commerce using a public utility's ``distribution'' 
facilities.
---------------------------------------------------------------------------

    \122\ See Large Generator Interconnection NOPR, FERC Stats. & 
Regs. ] 32,560 at 34,178 & n.22 (2002).
---------------------------------------------------------------------------

Comments
    796. Commenters objecting to the Commission's jurisdictional 
statement--chiefly Transmission Providers, public power providers, and 
state public utility commissions \123\--argue that ``distribution'' 
interconnection raises complex jurisdictional issues and that the 
Commission should leave this issue to the States, in part because they 
have experience regulating these kinds of interconnections. EEI notes 
that it is unclear if the Commission has authority over sales of power 
for resale using ``distribution'' facilities when the energy neither 
crosses state lines nor enters the interstate transmission system. The 
Public Power Council asks the Commission to recognize the jurisdiction 
of state commissions and local governing boards over the 
``distribution'' systems of investor-owned and publicly owned 
utilities. SoCal Edison and PG&E ask the Commission to clarify that 
when a retail customer installs a generating facility that will never 
send energy over the Transmission System (i.e., the energy will be 
consumed on site), this is a retail service arrangement beyond 
Commission jurisdiction.
---------------------------------------------------------------------------

    \123\ E.g., Consumers, EEI, LADWP, National Grid, the North 
Carolina Commission, NRECA-APPA, the Public Power Council, and the 
Wisconsin PSC.
---------------------------------------------------------------------------

    797. The North Carolina Commission argues that, because it has not 
restructured its electric industry, any generating facility in North 
Carolina not owned by a vertically integrated utility would be required 
to sell its output at wholesale (because it cannot sell directly to 
retail consumers). As a result, the NOPR effectively eliminates state 
jurisdiction over the interconnection of generators involved in 
programs such as net metering or green power, which rely on simpler and 
less expensive interconnection procedures and agreements than those 
proposed by the Commission. These interconnection decisions are best 
left to the States.
    798. APS notes that the NOPR does not address how Transmission 
Providers will handle their responsibilities over transmission 
facilities jointly owned by jurisdictional and non-jurisdictional 
entities. This is a particular concern in the Western United States. 
APS warns that the failure to examine this issue in a separate NOPR 
will result in a patchwork of transmission terms and conditions that 
the Commission sought to avoid in Order No. 888.\124\
---------------------------------------------------------------------------

    \124\ Citing Order No. 888, FERC Stats. & Regs ] 31,036 at 
31,673.
---------------------------------------------------------------------------

    799. EEI raises other objections, noting that Commission regulation 
of ``distribution'' interconnections may create new layers of 
regulatory costs that will not be recoverable in retail rates. It also 
warns that competing and possibly conflicting state and federal 
interconnection requirements may encourage forum-shopping by 
Interconnection Customers and create problems for ``distribution'' 
providers. To discourage this, National Grid proposes that an 
Interconnection Customer should state whether it will make sales for 
resale before the Scoping Meeting provided for in Section 3.3.4 of the 
proposed LGIP; this will determine how the Interconnection Studies will 
be performed. Once established, the designation could not be changed 
unilaterally by the Interconnection Customer.
    800. NRECA-APPA argues that, because ``distribution'' systems do 
not operate like Transmission Systems, ``distribution'' 
interconnections will require provisions not in the NOPR LGIP and NOPR 
LGIA, including different Interconnection Study requirements. It argues 
that the physical differences and economic differences between 
interconnection at ``distribution'' and transmission levels--
distribution is typically ``low voltage'' and transmission typically is 
``high voltage,'' and ``distribution'' providers may lack engineering 
personnel necessary to evaluate Interconnection Requests--would make a 
single rule completely inappropriate. WEPCO argues that the NOPR LGIP 
and NOPR LGIA are unworkable for interconnections to the 
``distribution'' system because ``distribution'' companies serve load 
and ``distribution'' systems are not designed to accommodate large 
generation facilities seeking to move energy off the ``distribution'' 
system. Accordingly, the Commission should clarify that the principles 
underlying the Final Rule LGIP and Final Rule LGIA, i.e., 
nondiscriminatory access and comparable treatment, will be applicable 
to both ``distribution'' and transmission, but that the documents will 
apply only to transmission level interconnections. State-approved 
tariffs should govern ``distribution''-level interconnections. 
Nevertheless, an Interconnection Customer interconnecting to a 
``distribution'' system still would be entitled to petition the 
Commission if it encountered undue discrimination.
    801. Consumers see a useful analogy in the Commission's natural gas 
regulations. It argues that the Commission should consider adopting an 
approach like the blanket certificate program applied to natural gas 
pipelines for incidental jurisdictional uses of non-jurisdictional 
transportation facilities. The goal of the Commission's blanket 
certificate program \125\ is to remove restraints on the flow of gas 
between the interstate and the intrastate market. It allows entities 
that are otherwise state-jurisdictional to perform incidental 
Commission-jurisdictional activities without subjecting them, or their 
incidental interstate activities, to full Commission regulation.
---------------------------------------------------------------------------

    \125\ 18 CFR 284.224 (2003).
---------------------------------------------------------------------------

    802. NARUC states that it ``supports the Commission's statement 
that the NOPR [LG]IA and [LG]IP `will apply only when a generator 
interconnects to the Transmission Provider's transmission system or 
makes wholesale sales in interstate commerce at either the transmission 
or distribution voltage level,' '' but argues that the States ``are 
best situated to ensure the efficient, reliable and safe 
interconnection of small generators to local distribution systems and 
should continue to have that authority, as the NOPR recognizes.''\126\ 
TAPS supports Commission jurisdiction over the interconnection of 
generators used for wholesale sales, whether the interconnection is 
made to transmission or ``distribution,'' because such application is 
essential to prevent evasion of the intent of the NOPR to provide non-
discriminatory interconnection service, and should encompass wholesale 
interconnections to the Distribution Systems of large jurisdictional 
utilities that have divested their transmission facilities to an 
independent transmission company or the like.
---------------------------------------------------------------------------

    \126\ NARUC comments at 5 (citation omitted) (emphasis added by 
NARUC).
---------------------------------------------------------------------------

Commission Conclusion
    803. At the outset, it is important to clarify several terms when 
discussing the question of jurisdiction. ``Local distribution'' is a 
legal term; under FPA Section 201(b)(1), the Commission lacks

[[Page 49917]]

jurisdiction over local distribution facilities.\127\ ``Distribution'' 
is an unfortunately vague term, but it is usually used to refer to 
lower-voltage lines that are not networked and that carry power in one 
direction. Some lower-voltage facilities are ``local distribution'' 
facilities not under our jurisdiction, but some are used for 
jurisdictional service such as carrying power to a wholesale power 
customer for resale and are included in a public utility's OATT 
(although in some instances, there is a separate OATT rate for using 
them, sometimes called a Wholesale Distribution Rate).
---------------------------------------------------------------------------

    \127\ 16 U.S.C. 824(b)(1) (2000).
---------------------------------------------------------------------------

    804. This Final Rule applies to interconnections to the facilities 
of a public utility's Transmission System that, at the time the 
interconnection is requested, may be used either to transmit electric 
energy in interstate commerce or to sell electric energy at wholesale 
in interstate commerce pursuant to a Commission-filed OATT.\128\ In 
other words, the standard interconnection procedures and contract terms 
adopted in this Final Rule apply when an Interconnection Customer that 
plans to engage in a sale for resale in interstate commerce or to 
transmit electric energy in interstate commerce requests 
interconnection to facilities owned, controlled, or operated by the 
Transmission Provider or the Transmission Owner, or both, that are used 
to provide transmission service under an OATT that is on file at the 
Commission at the time the Interconnection Request is made. Therefore, 
the Final Rule applies to a request to interconnect to a public 
utility's facilities used for transmission in interstate commerce. It 
also applies to a request to interconnect to a public utility's 
``distribution'' facilities used to transmit electric energy in 
interstate commerce on behalf of a wholesale purchaser pursuant to a 
Commission-filed OATT. But where the ``distribution'' facilities have a 
dual use, i.e., the facilities are used for both wholesale sales and 
retail sales, the Final Rule applies to interconnections to these 
facilities only for the purpose of making sales of electric energy for 
resale in interstate commerce.\129\
    805. In response to SoCal Edison and PG&E, we clarify that we are 
not asserting jurisdiction over a hook-up between a retail customer and 
a Transmission Provider when a retail customer installs a generator 
that will produce electric energy to be consumed only on site.
---------------------------------------------------------------------------

    \128\ For purposes of this paragraph, the term ``Commission-
filed OATT'' means a tariff that is on file at, and has been 
approved by, the Commission.
    \129\ The Commission will exercise exclusive jurisdiction only 
over the Commission-jurisdictional service. See Laguna Irrigation 
District, 95 FERC ] 61,305 at 62,039 (2001) aff'd sub nom. Pacific 
Gas & Electric Co. v. FERC, 44 Fed. Appx. 170 (9th Cir. 2002); Tex-
La Electric Cooperative of Texas, Inc., 67 FERC ] 61,019 at 61,055-
56, final order, 69 FERC ] 61,269 (1994) (both noting that the 
Commission asserts jurisdiction over the service when the facilities 
are not purely ``transmission'' facilities). Accordingly, the 
Commission will continue to exercise exclusive jurisdiction over the 
rates, terms, and conditions of the Commission-jurisdictional 
service provided over the dual use ``distribution'' facility, but 
the Commission will not assert jurisdiction over all uses of that 
facility, because the regulation of ``local distribution'' of 
electricity to end users is reserved to the States.
---------------------------------------------------------------------------

    806. Regarding the arguments that the NOPR LGIP and NOPR LGIA are 
designed for interconnection to a transmission system and not a 
``distribution'' system, we expect that the majority of 
interconnections to jurisdictional ``distribution'' or other 
jurisdictional low-voltage facilities will be made by generators no 
larger than 20 MW. These Small Generators will be interconnected using 
the standard procedures and agreement adopted in the Small Generator 
rulemaking. We are proposing rules in that proceeding to accommodate 
the interconnection of Small Generators, mostly to jurisdictional 
``distribution'' (not ``local distribution'') and low-voltage 
facilities. However, in response to WEPCO's argument, we conclude that 
under some circumstances (e.g., interconnection to facilities below 69 
kV) the Interconnection Studies in the Final Rule LGIP may be 
inappropriate to analyze some Large Generator Interconnection Requests. 
In such a case, we will allow the Transmission Provider to use modified 
Interconnection Studies, subject to Commission approval. The Commission 
expects that interconnection requests of this kind will be rare and, as 
a result, we do not at this time incorporate a standard study 
specifically designed for interconnections to low-voltage or 
``distribution'' facilities into the Final Rule LGIP. Accordingly, a 
Transmission Provider may use the studies it deems appropriate to 
properly study the Interconnection Request, subject to Commission 
approval. The Commission therefore requires that a Transmission 
Provider, upon receipt of a request for jurisdictional interconnection 
to a jurisdictional ``distribution'' or low-voltage facility, file with 
the Commission an amendment to the LGIP in its OATT that describes the 
Interconnection Studies applicable to such requests.
    807. APS raises concerns regarding joint ownership of transmission 
by jurisdictional and non-jurisdictional entities. In Order No. 888, 
the Commission required each public utility that owns an interstate 
transmission facility jointly with a non-jurisdictional entity to offer 
service over its share of the joint facility, even if the joint 
ownership contract prohibits service to third parties.\130\ Applying 
the same principle here, joint ownership does not affect the 
Commission's authority to regulate the public utility. Accordingly, the 
Final Rule LGIP and Final Rule LGIA would apply to Interconnection 
Service provided by the public utility on its portion of a jointly 
owned facility.
---------------------------------------------------------------------------

    \130\ See Order No. 888, FERC Stats. & Regs ] 31,036 at 31,692; 
Order No. 888-A, FERC Stats. & Regs ] 31,048 at 30,219 (urging such 
public utilities to seek mutually agreeable revisions to their 
agreements with non-jurisdictional entities to permit third-party 
access to all, or at least the public utility share, of the 
facilities, and to file proposed revisions to such contracts with 
the Commission).
---------------------------------------------------------------------------

    808. Regarding EEI's comment about the Commission's authority over 
an interconnection for the purpose of making sales of electric energy 
for resale using ``distribution'' facilities when the energy neither 
crosses state lines nor enters the interstate transmission system, this 
question is moot because the Commission is not here extending its 
jurisdiction to any facility that is not already under its 
jurisdiction, pursuant to a Commission-filed OATT at the time the 
interconnection request is made.
    809. Finally, regarding EEI's objection that Commission regulation 
of ``distribution'' interconnections may create new layers of 
regulatory costs not recoverable in retail rates, our jurisdiction 
discussion above clarifies that because this Final Rule applies only 
where the Commission already has jurisdiction at the time 
interconnection is requested, this should not result in any new 
unrecoverable regulatory costs to a Transmission Provider.
4. Issues Relating to Qualifying Facilities
    810. The NOPR did not address interconnection issues related to 
qualifying facilities (QFs) under the Public Utility Regulatory 
Policies Act of 1978 (PURPA).\131\ Nevertheless, several commenters 
bring QF-related issues to our attention.
---------------------------------------------------------------------------

    \131\ See 16 U.S.C. 2601 et seq.(2000).
---------------------------------------------------------------------------

Comments
    811. Cal Cogen and ELCON recommend that the Commission allow a QF 
to request interconnection under state authority when it either sells 
the majority of its output under a PURPA-based power sales agreement, 
or does not sell power to the wholesale market.

[[Page 49918]]

If the QF primarily generates electricity for sale in wholesale markets 
under non-PURPA agreements, they argue, the Final Rule should apply. 
Cal Cogen argues that this approach is in keeping with the Commission's 
Regulations, which give the States the responsibility for QF 
interconnections,\132\ and Commission precedent, which holds that an 
interconnection agreement in which an interconnected utility purchases 
a QF's total output falls under state authority.\133\
---------------------------------------------------------------------------

    \132\ Citing 18 CFR 292.306, 292.308 (2003).
    \133\ Citing Western Massachusetts Electric Co., 61 FERC ] 
61,182 (1992), aff'd sub nom. Western Massachusetts Electric Co. v. 
FERC, 165 F.3d 922 (D.C. Cir. 1999).
---------------------------------------------------------------------------

    812. Similarly, SoCal Edison and PG&E request that the Commission 
clarify that the Final Rule LGIP and Final Rule LGIA will not apply to 
a QF selling to the interconnected utility or to on-site customers. 
Calpine requests that generating facilities currently interconnected to 
the Transmission System under non-FERC-jurisdictional arrangements, 
such as QFs, that subsequently become FERC-jurisdictional by 
terminating their QF status or deciding to sell power in the wholesale 
market, not be treated as ``new'' generating facilities or ``new'' 
Interconnection Customers under the interconnection procedures. While 
only the contractual arrangements have changed, the physical 
interconnection requirements remain unchanged, and as long as the 
Generating Facility's output will be substantially the same after 
conversion, no Interconnection Studies are necessary and the 
Interconnection Customer should not be placed in the Transmission 
Provider's interconnection queue with new Generation Facilities. 
Rather, the Interconnection Customer should only have to execute the 
Commission-jurisdictional interconnection agreement to become effective 
upon termination of the state-jurisdictional agreement. Independent 
Producers, which makes a similar argument, notes that treating a newly 
jurisdictional former QF as a new interconnection would be 
discriminatory since this would essentially require that facilities be 
interconnected twice. If an existing QF is already in the ``base case'' 
used to determine impacts of new generators, and this same base case is 
used to analyze the interconnection of the existing QF, there will be 
no effect.
Commission Conclusion
    813. The Commission's Regulations govern a QF's interconnection 
with most electric utilities in the United States,\134\ including 
normally nonjurisdictional utilities.\135\ When an electric utility is 
obligated to interconnect under Section 292.303 of the Commission's 
Regulations, that is, when it purchases the QF's total output, the 
relevant state authority exercises authority over the interconnection 
and the allocation of interconnection costs.\136\ But when an electric 
utility interconnecting with a QF does not purchase all of the QF's 
output and instead transmits the QF power in interstate commerce, the 
Commission exercises jurisdiction over the rates, terms, and conditions 
affecting or related to such service, such as interconnections.\137\
---------------------------------------------------------------------------

    \134\ 18 CFR 292.303, 292.306 (2003).
    \135\ The absence of interstate commerce in Alaska, Hawaii, 
portions of Texas and Maine, and Puerto Rico is not germane to the 
Commission's jurisdiction over QF matters under PURPA. See 16 U.S.C. 
2602 (2000).
    \136\ See Western Massachusetts Electric Co., 61 FERC ] 61,182 
at 61,661-62 (1992) (Western Massachusetts), aff'd sub nom. Western 
Massachusetts Electric Co. v. FERC, 165 F.3d. 922, 926 (D.C. Cir. 
1999).
    \137\ See id. at 61,661-62. The Commission further clarified 
that the use of facilities for non-jurisdictional services is not 
dispositive when determining jurisdiction: ``The fact that the 
facilities used to support the jurisdictional service might also be 
used to provide various nonjurisdictional services, such as back-up 
and maintenance power for a QF, does not vest state regulatory 
authorities with authority to regulate matters subject to the 
Commission's exclusive jurisdiction.'' Id. at 61,662.
---------------------------------------------------------------------------

    814. Thus, the Commission has jurisdiction over a QF's 
interconnection to a Transmission System if the QF's owner sells any of 
the QF's output to an entity other than the electric utility directly 
interconnected to the QF. Because the presence of any output sold to a 
third party determines Commission jurisdiction, we reject Cal Cogen and 
ELCON's requests that we establish jurisdiction over QF 
interconnections based on the amount of energy sold to a third party. 
Accordingly, this Final Rule applies when the owner of the QF seeks 
interconnection to a Transmission System to sell any of the output of 
the QF to a third party. This jurisdiction applies to a new QF that 
plans to sell its output to a third party, and to an existing QF 
interconnected to a Transmission System that historically sold its 
total output to an interconnected utility or on-site customer and now 
plans to sell output to a third party. Nevertheless, consistent with 
the Commission's Regulations, states will continue to exercise 
authority over QF interconnections when the owner of the QF sells the 
output of the QF only to an interconnected utility or to on-site 
customers.
    815. Finally, regarding a former QF interconnected to a 
Transmission System that sells electric energy at wholesale in 
interstate commerce, we conclude that the owner of the QF need not 
submit an Interconnection Request if it represents that the output of 
the generating facility will be substantially the same as before. A QF, 
under the Commission's Regulations,\138\ must provide electric energy 
to its interconnecting utility much like the interconnecting utility's 
other Network Resources, since the utility must purchase the QF's power 
to displace its own generation. When the owner of a QF that was 
formerly interconnected to a Transmission System seeks to sell energy 
at wholesale and represents that the output of its generator will be 
substantially the same after conversion, it would be unreasonable for a 
Transmission Provider to require the former QF to join the 
interconnection queue.
---------------------------------------------------------------------------

    \138\ 18 CFR 292.303 (2003).
---------------------------------------------------------------------------

5. Variations From the Final Rule
    816. In the NOPR, we proposed to allow a Transmission Provider to 
justify variations from the non-price terms and conditions of the 
interconnection provisions of the Final Rule using the approach taken 
in Order No. 888. Order No. 888 allows two types of variations. First, 
public utilities may seek to use regional differences to justify 
proposed changes to certain specifically identified OATT provisions 
when the proposed alternative provision is ``reasonable, generally 
accepted in the region, and consistently adhered to by the 
[T]ransmission [P]rovider.''\139\ Second, public utilities may argue 
that proposed changes to any OATT provision are ``consistent with or 
superior to'' the terms of the OATT. In the NOPR, we also stated that 
if a legitimate need for regional variations in specific provisions in 
the Final Rule LGIP and Final Rule LGIA were identified, we would 
consider adopting specific provisions that permit regional variations.
---------------------------------------------------------------------------

    \139\ See Order No. 888, FERC Stats. & Regs ] 31,036 at 31,770.
---------------------------------------------------------------------------

Comments
    817. While a few commenters, including Cinergy, Dynegy, and SoCal 
Edison, support the proposed provision, others seek greater flexibility 
to propose changes based on regional differences for provisions other 
than those the Commission identified as specific eligible provisions. 
For example, several commenters argue that the Commission should allow 
variations for regional

[[Page 49919]]

differences based on the reliability needs of a particular region, 
which may be unique because of system configuration or generation 
prevalent in the region.\140\
---------------------------------------------------------------------------

    \140\ E.g., Florida RCC, NARUC, the North Carolina Commission, 
the Public Power Council, and WEPCO.
---------------------------------------------------------------------------

    818. Several commenters, including APS, the Connecticut PUC, and 
WestConnect RTO, request that the Commission allow specific regional 
interconnection standards or reliability requirements to be treated as 
regional differences. The Florida RCC proposes that the Commission 
require that the Parties comply with any standards and guidelines of 
the Applicable Reliability Council. It offers several specific 
provisions that should be revised to account for the requirements 
established by the Florida RCC and other regional reliability councils.
    819. MidAmerican argues that the Final Rule should recognize 
regional differences particular to the Midwest. As an example, it 
offers the high potential for wind farms in the Midwest, and the 
resulting need to study voltage flicker, harmonics, dynamic voltage 
stability, stray voltage, and small signal stability. According to 
MidAmerican, these additional study options, which were not expressly 
proposed in the NOPR, should be included in the Final Rule to recognize 
regional differences. Entergy requests that the Commission consider 
extending the dates for completing Interconnection Studies in a region 
when there is a large number of Interconnection Requests.
    820. Dairyland Power requests that during the compliance phase of 
this rulemaking the Commission allow a Transmission Provider greater 
flexibility to make changes using a regional differences rationale. 
Monongahela Power argues that regional differences should be 
accommodated, but only on a case-by-case basis through application for 
exemption rather than through changes to the Final Rule. In this way, 
the Final Rule serves as a baseline national standard. In contrast, 
Mirant requests that the Commission restrict the availability of 
variations based on regional differences to large, established ISOs 
that can show that the variations are consistent with or superior to 
what appears in the Final Rule.
    821. NYISO recommends that the Commission revise the definition of 
Good Utility Practice, which was proposed to include ``practices, 
methods or acts generally accepted in a region,'' and which is used 
repeatedly in the NOPR LGIP and NOPR LGIA to describe the standards 
that will be applied to certain obligations. It urges that the 
definition should include among eligible regions those administered by 
an RTO or ISO.
Commission Conclusion
    822. We will apply a regional differences rationale to accommodate 
variations from the Final Rule during compliance, but with certain 
restrictions. We conclude that a non-independent transmission provider 
(such as a Transmission Provider that owns generators or has Affiliates 
that own generators) and an RTO or ISO should be treated differently 
because an independent RTO or ISO does not raise the same level of 
concern regarding undue discrimination. Accordingly, we will allow an 
RTO or ISO greater flexibility than that allowed under the regional 
differences rationale to propose variations from the Final Rule 
provisions, as further discussed below.
    823. Although commenters generally did not identify provisions in 
the NOPR LGIP or NOPR LGIA that should be subject to variations based 
on ``regional differences,'' when a commenter did provide specific 
provisions, the revisions were based on the reliability requirements of 
a given region. Because we intend to supplement rather than supplant 
the work that regional reliability groups already have undertaken 
regarding interconnection, we are permitting a Transmission Provider, 
on compliance, to offer variations based on existing regional 
reliability requirements. Accordingly, regional flexibility is included 
in the Final Rule definition of Good Utility Practice, which includes 
practices established by relevant reliability councils and local laws 
and regulations. We accommodate NYISO's proposal that the definition of 
Good Utility Practice be revised as requested by instead defining it to 
include ``acceptable practices, methods, or acts generally accepted in 
the region.'' Thus, this definition includes by implication the 
Commission-approved practices of those regions administered by an RTO 
or ISO.
    824. Nevertheless, there may be Final Rule provisions that do not 
include reference to Good Utility Practice that may be subject to or 
affected by regional reliability restrictions. Rather than identify all 
such provisions in the Final Rule, as the Florida RCC proposes, we 
leave it to the Transmission Provider to justify variations based on 
regional requirements. With this approach, we are permitting public 
utilities the flexibility necessary to ensure that reliability needs 
are met. Because we seek greater standardization of interconnection 
terms and conditions, we are not permitting a non-independent 
Transmission Provider to use the regional differences justification in 
the absence of established regional reliability standards.
    825. For other proposed deviations from the Final Rule LGIP and 
Final Rule LGIA not made in response to established regional 
reliability requirements, we are requiring non-independent transmission 
providers to justify variations in non-price terms and conditions of 
the Final Rule LGIP and Final Rule LGIA using the approach taken in 
Order No. 888, which allows them to propose variations on compliance 
that are ``consistent with or superior to'' the OATT.
    826. To clarify, if on compliance a non-RTO or ISO Transmission 
Provider offers a variation from the Final Rule LGIP and Final Rule 
LGIA and the variation is in response to established (i.e., approved by 
the Applicable Reliability Council) reliability requirements, then it 
may seek to justify its variation using the regional difference 
rationale. If the variation is for any other reason, the non-RTO or ISO 
Transmission Provider must present its justification for the variation 
using the ``consistent with or superior to'' rationale that the 
Commission applies to variations from the OATT in Order No. 888.
    827. With respect to an RTO or ISO, at the time its compliance 
filing is made, as discussed above, we will allow it to seek 
``independent entity variations'' from the Final Rule pricing and non-
pricing provisions. This is a balanced approach that recognizes that an 
RTO or ISO has different operating characteristics depending on its 
size and location and is less likely to act in an unduly discriminatory 
manner than a Transmission Provider that is a market participant. The 
RTO or ISO shall therefore have greater flexibility to customize its 
interconnection procedures and agreements to fit regional needs.
6. Waiver Availability for Small Entities
    828. In the NOPR, we did not address whether special provisions are 
needed for small Transmission Providers for whom providing 
Interconnection Services might be overly burdensome.
Comments
    829. Maine PSC asks the Commission to provide flexibility and 
waiver of the full requirements of the Final Rule LGIP and Final Rule 
LGIA for small transmission owners. Southwest Transmission requests 
that the current ``small utility'' exception for Order Nos. 888 and 889 
should not only be

[[Page 49920]]

retained, but it should be expanded to apply to cooperatives with total 
electric energy dispositions that exceed four million MWh annually and 
with outside sales that do not exceed one million MWh annually. SoCal 
Water District also asks for a waiver for utilities with annual sales 
of less than four million MWh.
Commission Conclusion
    830. We are sympathetic to the array of concerns raised by small 
Transmission Providers. Order Nos. 888 and 889 established guidelines 
for the granting of waivers to small entities, and this Final Rule 
adopts that approach and makes conforming changes to the regulatory 
text in Part 35 of the Commission's regulations.\141\ We recognize, for 
example, that it might be a financial burden on a small Transmission 
Provider to perform Interconnection Studies or manage the construction 
of Interconnection Facilities in the same manner as a larger 
Transmission Provider. The small Transmission Provider may simply not 
have the staff or expertise to efficiently accommodate all 
Interconnection Requests.
---------------------------------------------------------------------------

    \141\ See 18 CFR 35.28(d) (2003); Reg. Text 35.28(f)(3), infra.
---------------------------------------------------------------------------

    831. Because the possible scenarios under which small entities may 
seek waivers from the Final Rule are diverse, they are not susceptible 
to resolution on a generic basis and we will require applications and 
fact-specific determinations in each instance. If the circumstances 
that give rise to the exemption change, the waiver may no longer be 
appropriate. In addition, we will apply the same standards to any 
entity seeking a waiver, including public utilities seeking waiver of 
some or all of the requirements of the Final Rule, as well as non-
public utilities seeking waiver of the reciprocity provision. Each 
entity, however, will have to apply for this waiver and demonstrate 
that it qualifies for the waiver as required in Order No. 888.
7. OATT Reciprocity Requirements Applied to the Final Rule LGIP and 
Final Rule LGIA
    832. In the NOPR, we proposed that the Final Rule LGIP and Final 
Rule LGIA be subject to the reciprocity provision of Order No. 888, as 
incorporated into the OATTs adopted by public utilities.\142\ The 
reciprocity provision allows any public utility that provides open 
access transmission to a non-public utility to receive as a condition 
of service non-discriminatory access in return.\143\ With the addition 
of the Final Rule LGIP and Final Rule LGIA to the OATT, in order to 
meet its reciprocity obligation, a non-public utility would have to 
provide Interconnection Service to the Transmission Provider and the 
Transmission Provider's Affiliates under the same terms and conditions 
under which it receives service.
---------------------------------------------------------------------------

    \142\ Large Generator Interconnection NOPR, FERC Stats. & Regs ] 
32,560 at 34,184-185. See also Order No. 888, FERC Stats. & Regs. ] 
31,036 at 31,755.
    \143\ See Order No. 888, FERC Stats. & Regs. ] 31,036 at 31,760.
---------------------------------------------------------------------------

Comments
    833. Several public power commenters, including Lakeland, LPPC, 
Nebraska PPD, NRECA-APPA, and the Public Power Council, request that 
the Commission clarify that it indeed intends to apply, without 
modification, the reciprocity policy as expressed in Order No. 888 to 
the Final Rule LGIP and Final Rule LGIA. Other commenters such as LADWP 
and LIPA warn that any attempt to expand the reciprocity policy to 
allow a generator unaffiliated with a Commission-jurisdictional 
Transmission Provider to require a non-public utility to comply with 
the reciprocity condition would be an impermissible extension of 
Commission jurisdiction.
    834. Mirant argues that the Commission should add additional 
reciprocity language to every Transmission Provider's OATT that 
conditions the continued provision of transmission service on a non-
public utility Interconnection Customer offering comparable 
Interconnection Service on its own transmission facilities.
    835. Nebraska PPD objects to any reciprocity with respect to the 
Final Rule LGIP and Final Rule LGIA. In the alternative, it seeks 
clarification that the jurisdictional Transmission Provider may waive 
reciprocity. It also joins LPPC in requesting that only terms and 
conditions, and not the rate provisions, be subject to the reciprocity 
condition.
    836. Pinnacle West argues that the Commission should state that the 
reciprocity requirement cannot be satisfied if a non-public utility 
fails to provide credits against transmission service bills for Network 
Upgrades. Otherwise, Pinnacle West continues, the non-public utilities 
would be engaging in prohibited ``and'' pricing that charges customers 
twice for transmission service. It states that Commission precedent has 
made clear that to satisfy reciprocity, a non-public utility must 
charge rates comparable to the rates it charges itself.\144\
---------------------------------------------------------------------------

    \144\ Citing Missouri Basin Municipal Power Authority, 99 FERC ] 
61,062 at 61,296 (2002).
---------------------------------------------------------------------------

    837. TAPS explains that the reciprocity condition should impose an 
obligation to interconnect on a basis that is reasonable under the 
circumstances and comparable to the way the non-public utility treats 
its own interconnections. It supports the availability of a Commission 
waiver of the reciprocity requirement for small transmission owners.
    838. Certain public power entities, including the Bureau of 
Reclamation, LIPA, NYTO, Southwest Transmission, and TAPS, ask the 
Commission to consider the statutory or regulatory restrictions 
applicable to public power and other non-public utilities when the 
Commission evaluates their reciprocity compliance filings. They request 
that non-public utilities be afforded sufficient flexibility to include 
or modify certain provisions as required by law.
    839. SoCal Edison expresses concern that an interconnection with a 
non-public utility may require Network Upgrades to a neighboring public 
utility's transmission facilities, and that the neighboring public 
utility would have no recourse should the owner of the generator and 
the non-public utility proceed with the interconnection without paying 
the neighboring public utility's upgrade costs. It proposes that the 
Commission, as part of the reciprocity provision, allow a 
jurisdictional utility to disconnect from its non-jurisdictional 
neighbor unless the neighbor ensures that the interconnecting generator 
mitigates the effects on the jurisdictional utility's system.
Commission Conclusion
    840. Some commenters may have misunderstood our reciprocity 
statement in the NOPR as extending reciprocity rights to public 
utilities that do not own, control, or operate transmission either 
directly or through an Affiliate. The owners of many generators are 
public utilities that do not own, and are not affiliated with a public 
utility that owns, transmission. They are thus incapable of offering 
reciprocity service. We wish to make it clear that this Final Rule in 
no way alters the applicability of the reciprocity provision in the 
OATT and the reciprocity policy articulated in Order No. 888 and its 
progeny. The point of the reciprocity requirement is to permit a public 
utility that provides open access transmission service to require a

[[Page 49921]]

non-public utility that owns, controls, or operates transmission 
facilities to have available reciprocal transmission service from that 
non-public utility. The concept of reciprocity is simply irrelevant if 
the non-public utility does not own, control, or operate transmission 
facilities, as is the case with many Interconnection Customers. Because 
the Final Rule LGIP and Final Rule LGIA are to become a part of the 
OATT, the reciprocity provision in the OATT applies to interconnection 
as well. EEI--Alliance of Energy Suppliers, MidAmerican, and Nevada 
Power, among others, filed comments supporting this approach.
    841. Under the reciprocity provision in Section 6 of the OATT, if 
the public utility seeks transmission service from a non-public utility 
to which it provides open access transmission service, the non-public 
utility that owns, controls, or operates transmission facilities must 
provide comparable transmission service that it is capable of providing 
on its own system. Under the OATT, a public utility may refuse to 
provide open access transmission service to a non-public utility if the 
non-public utility refuses to reciprocate. A non-public utility may 
satisfy the reciprocity condition in one of three ways: first, it may 
provide service under a Tariff that has been approved by the Commission 
under the voluntary ``safe harbor'' provision. A non-public utility 
using this alternative submits a reciprocity Tariff to the Commission 
seeking a declaratory order that the proposed reciprocity Tariff 
substantially conforms to or is superior to the OATT. The non-public 
utility then must offer service under its reciprocity Tariff to any 
public utility whose transmission service the non-public utility seeks 
to use. Second, the non-public utility may provide service to a public 
utility under a bilateral agreement that satisfies its reciprocity 
obligation. Finally, the non-public utility may seek a waiver of the 
reciprocity condition from the public utility.\145\
---------------------------------------------------------------------------

    \145\ See Order No. 888-A, FERC Stats. & Regs ] 31,048 at 
30,285-86.
---------------------------------------------------------------------------

    842. A non-public utility that has a ``safe harbor'' Tariff may add 
to its Tariff an interconnection agreement and interconnection 
procedures that substantially conform or are superior to the Final Rule 
LGIP and Final Rule LGIA if it wishes to continue to qualify for safe 
harbor treatment. A non-public utility that owns, controls, or operates 
transmission and that has not filed with the Commission a safe harbor 
Tariff and seeks transmission service from a public utility must either 
satisfy its reciprocity obligation under a bilateral agreement or seek 
a waiver of the OATT reciprocity condition from the public utility.
    843. We do not require, as Pinnacle West proposes, that a non-
public utility also provide transmission credits for Network Upgrade 
costs, to satisfy the Commission's reciprocity condition. With respect 
to a tariff filed under the ``safe harbor'' provision, our reciprocity 
policy requires that it contain rates comparable to the rates the non-
public utility charges itself.\146\ As for rates contained in a 
bilateral agreement, they are a fact-specific matter that will be 
subject to a case-by-case analysis.\147\
---------------------------------------------------------------------------

    \146\ See generally Order No. 888, FERC Stats. & Regs ] 31,036 
at 31,761; see also Long Island Power Authority, 84 FERC ] 61,280 at 
62,333 (1998).
    \147\ Order No. 888-A, FERC Stats. & Regs ] 31,048 at 30,289.
---------------------------------------------------------------------------

    844. Regarding the applicability of the reciprocity requirement to 
public power and other nonjurisdictional entities, we shall limit 
reciprocity compliance to those services a nonjurisdictional entity is 
capable of providing on its system.\148\ We likewise will consider the 
legal and regulatory restrictions on nonjurisdictional entities' 
contractual rights and tax-exempt status when we evaluate any ``safe 
harbor'' reciprocity filings.
---------------------------------------------------------------------------

    \148\ Id. at 30,286.
---------------------------------------------------------------------------

    845. Finally, since we did not propose to change the reciprocity 
condition articulated in the OATT in this Final Rule, SoCal Edison's 
concerns are more appropriately addressed in the discussion of effects 
on third party systems.
8. General Comments/Clarifications
a. Insurance
    846. In the NOPR, we omitted the insurance requirements originally 
filed in the ANOPR Consensus LGIA. Those insurance requirements would 
have set out the minimum coverage types and amounts that each Party to 
the LGIA must maintain. The NOPR did not propose insurance requirements 
because insurance requirements are not contained in the OATT.
Comments
    847. Many commenters, primarily Transmission Providers, ask the 
Commission to reconsider its proposal to omit the insurance 
requirements.\149\ They argue that insurance provisions are common in 
individually negotiated interconnection agreements and are important 
for managing risks and containing liability costs. The magnitude of the 
costs and potential liability at issue necessitate the inclusion of 
insurance provisions, they claim. Entergy explains that since the 
indemnification provision in NOPR LGIA Article 18 likely will be 
inadequate to make the Transmission Provider whole, insurance is 
necessary to ensure that damaged Parties are made whole for a 
disturbance caused by a Generating Facility.
---------------------------------------------------------------------------

    \149\ E.g., American Transmission, APS, Dominion Resources, 
Dynegy, Entergy, FP&L, National Grid, NiSource, NYTO, Oklahoma G&E, 
PSNM, and Tucson Electric.
---------------------------------------------------------------------------

    848. Several commenters, including PSNM, Southern, and Tenaska, 
argue that the Commission should not follow the OATT on this issue 
because Interconnection Service is different from transmission service 
in that the operation of generators poses safety and operational risks. 
PJMTO and PSEG note that a generation project is unlikely to obtain 
financing without appropriate insurance provisions within the Final 
Rule LGIA.
    849. Some commenters, including Avista, Dynegy, FP&L, and National 
Grid, argue that the Commission should restore the insurance provision 
that appeared in the ANOPR LGIA, which included mandatory insurance 
types and coverage amounts. Others, including Dominion Resources, NYTO, 
and Progress Energy, argue that while state laws and local business 
practices should dictate the actual amount of coverage, the Final Rule 
LGIA should describe the types of insurance coverage each Party must 
carry. Some commenters including EEI--Alliance of Energy Suppliers 
state that while it is infeasible on a generic basis to stipulate the 
appropriate levels of insurance for all facilities, the Interconnection 
Customer and Transmission Provider should be required to maintain 
certain minimum levels of insurance as agreed by the Parties.
Commission Conclusion
    850. We conclude that requiring certain minimum insurance in the 
Final Rule will benefit both the Transmission Provider and the 
Interconnection Customer and will help the Transmission Provider to 
avoid undue financial risk. Accordingly, we are restoring the insurance 
requirement in the Final Rule LGIA. The addition of this provision 
should help the Transmission Provider and the Interconnection Customer 
to manage the risks arising from Interconnection Service. The Final 
Rule requires that each Party, at its own expense, maintain certain 
minimum insurance coverages throughout the period of their 
interconnection agreement. These coverages include Employers' Liability 
and Workers' Compensation Insurance, Commercial General Liability 
Insurance,

[[Page 49922]]

Comprehensive Automobile Liability Insurance, and Excess Public 
Liability Insurance.
b. Liquidated Damages
    851. Two liquidated damages provisions appeared in the NOPR, one in 
Article 5.1 of the LGIA and the other in Section 13.5 of the LGIP.
    852. The liquidated damages provision in the NOPR LGIA would be 
applicable if an Interconnection Customer chooses the option described 
in Article 5.1.B. Under this option, if a Transmission Provider fails 
to complete construction of the Interconnection Facilities by the In-
Service Date or the Network Upgrades by the Commercial Operation Date, 
the Transmission Provider would pay the Interconnection Customer 
liquidated damages. Liquidated damages would be limited to 0.5 percent 
per Calendar Day of the actual aggregate costs of the Interconnection 
Facilities or Network Upgrades for which the Transmission Provider 
remains responsible, not to exceed 20 percent of such costs.
    853. The liquidated damages provision in Section 13.5 in the NOPR 
LGIP would have the Transmission Provider pay liquidated damages if it 
fails to meet its obligations in the LGIP and does not remedy the 
failure within 15 Business Days. Liquidated damages would be one 
percent of the actual costs of the applicable study cost per Calendar 
Day, with a cap at 50 percent. Also, upon expiration of the remedy 
period, the Transmission Provider would refund any deposit amount for 
the applicable study that the Interconnection Customer had paid beyond 
the actual reasonably incurred study costs.
Comments
    854. Many commenters make similar arguments about these provisions, 
and since the provisions serve different functions, there may be 
different responses to the same argument. Nevertheless, there are a few 
issues that the Commission will address collectively; namely, legal 
authority to allow liquidated damages, and the applicability of 
liquidated damages to public power organizations and RTOs.
(1) Legal Authority To Require Liquidated Damages
    855. Some commenters argue that liquidated damages are beyond the 
Commission's statutory authority inasmuch as they are penalties that 
are not fact-specific because they are not designed to remedy the 
actual damages experienced,\150\ or are damages beyond the statutory 
authority of the Commission.\151\ Others, including El Paso and 
WestConnect RTO, argue that liquidated damages are inconsistent with 
just and reasonable rates under the Federal Power Act. Southern 
questions whether the Commission has authority to require liquidated 
damage in private contracts. Idaho Power argues that the liquidated 
damages provisions violate the Federal Power Act by preventing a 
Transmission Provider from recovering costs prudently incurred in 
providing service to an Interconnection Customer. Maine PSC notes that 
the imposition of liquidated damages is at odds with the Commission's 
precedent on liability, which states that there should be no liability 
without fault and that liability should be unavoidable if caused by 
one's own gross negligence or intentional actions.\152\ Other 
commenters, including Idaho Power and WestConnect RTO, argue that an 
Interconnection Customer should file a complaint if it believes that 
the rates, terms, and conditions of Interconnection Service are unjust 
or unreasonable.
---------------------------------------------------------------------------

    \150\ E.g., El Paso, Idaho Power, PacifiCorp, and WestConnect 
RTO.
    \151\ E.g., Entergy and SoCal PPA.
    \152\ See, e.g., ANR Pipeline Co., 98 FERC ] 61,128 at 61,862 
(2002).
---------------------------------------------------------------------------

Commission Conclusion
    856. We are deleting the liquidated damages provisions from the 
Final Rule LGIP and retaining them, with modifications, in the Final 
Rule LGIA.
    857. Liquidated damages provisions are within our statutory 
authority because, although we do not assess or award damages, we have 
jurisdiction under Section 205 over agreements from which damages may 
arise. Liquidated damages can help manage risk within a jurisdictional 
agreement.
    858. In response to the comments questioning the imposition of 
liquidated damages by regulatory fiat, we clarify that the Final Rule, 
like the NOPR, does not require liquidated damages. A Transmission 
Provider has the option to agree to a liquidated damages provision 
after agreeing to the dates for designing, procuring and constructing 
the Interconnection Facilities and Network Upgrades designated by the 
Interconnection Customer.\153\ If the Parties are unable to agree on an 
acceptable schedule, they may negotiate terms and conditions--including 
revisions to the liquidated damages provision--under the Negotiated 
Option in Article 5.1.4 of the Final Rule LGIA. So, rather than impose 
liquidated damages, the Final Rule LGIA provides liquidated damages as 
an option that may become a provision in the interconnection agreement 
signed by the Parties.
---------------------------------------------------------------------------

    \153\ LGIA Articles 5.1.2 and 5.1.3.
---------------------------------------------------------------------------

    859. Because we are not including a liquidated damages provision in 
the Final Rule LGIP, we are not discussing that proposed provision 
here.
(2) Applicability of Liquidated Damages to Public Power, Cooperatives, 
and RTOs
    860. Georgia Transmission argues that liquidated damages are 
particularly burdensome for cooperatives because of their inability to 
recover these costs except directly from the cooperative customers. For 
similar reasons, liquidated damages may make it financially prohibitive 
for some public power providers to handle Interconnection Requests from 
third party Interconnection Customers.\154\ Western warns that it 
cannot agree to a contractual provision that would result in open-ended 
financial exposure when funds have not been appropriated for this 
purpose.
---------------------------------------------------------------------------

    \154\ E.g., Imperial Irrigation, Lakeland, and LPPC.
---------------------------------------------------------------------------

    861. Midwest ISO TO argues that the liquidated damages provisions 
will not work in the RTO context, especially when the RTO is non-
profit, for several reasons: (1) A Transmission Owner in an RTO should 
not be subject to liquidated damages because it will not be in charge 
of the interconnection process--the RTO will be, (2) an RTO should not 
pay liquidated damages since the costs will end up being spread over 
all customers who will pay the Interconnection Customer for the RTO's 
failure to meet the schedule, and (3) in an RTO context, with a 
neutral, non-profit RTO, there should be much less of a need for 
liquidated damages.
    862. Cal ISO argues that since a Transmission Owner, rather than an 
RTO or ISO, will undertake many of these functions, the RTO or ISO 
should not be a guarantor for the Transmission Owner. For the RTO's 
responsibilities, Cal ISO continues, an Interconnection Customer is 
afforded recourse via Section 210 of the Federal Power Act.
    863. PSEG and PJMTO similarly argue that the Final Rule should 
treat liquidated damages as a last resort remedy that would not apply 
where either the Interconnection Customer has an effective alternative 
backstop to protect itself against discriminatory conduct by the 
Transmission Provider or Transmission Owner, or the interconnection 
process is under the control of an independent third party

[[Page 49923]]

unaffiliated with any market participant.
    864. The Midwest ISO also argues that if an RTO or the Transmission 
Owner must pay liquidated damages, the Commission should limit their 
exposure by imposing liability only in cases of gross negligence and 
should require a Party to pay liquidated damages only if its action or 
inaction alone caused the damages.
Commission Conclusion
    865. In response to commenters that question their ability to pay 
or recover liquidated damages, the Final Rule LGIA does not require 
that all executed interconnection agreements contain liquidated damages 
provision. As noted above in the discussion of proposed LGIA Article 
5.1 (Options), a Transmission Provider may reject liquidated damages 
when the schedule proffered by the Interconnection Customer exposes it 
to too much risk.
    866. Therefore, public power entities that have met a reciprocity 
obligation by filing a safe harbor Tariff will have the same 
opportunity to negotiate the liquidated damages provision as any other 
non-public power Transmission Provider. Entities with safe harbor 
tariffs that face unusual limitations, such as cooperatives financed by 
the Rural Utilities Service or federal power entities subject to 
contracting restrictions set by statute or regulation, may request 
waiver of the liquidated damages provision of the Final Rule LGIA when 
they comply with their reciprocity condition.
    867. We agree with the Midwest ISO that liquidated damages may be 
unnecessary when an RTO or ISO administers the interconnection 
agreement and oversees the interconnection process. As noted above in 
part II.C.5 (Variations from the Final Rule), we will permit RTOs and 
ISOs to use an independent entity variation standard to justify 
variations from the Final Rule provisions. Accordingly, we will 
consider proposals to eliminate liquidated damages from the compliance 
filings of RTOs and ISOs.
(3) General Comments on the LGIA Liquidated Damages Provision
    868. Many commenters, most of them Transmission Providers, ask the 
Commission to either eliminate \155\ or modify \156\ the liquidated 
damage provision in the NOPR LGIA. They argue that liquidated damages 
are inappropriate because the Transmission Owner recognizes no profit 
from the interconnection and has no means of recouping such costs.\157\
---------------------------------------------------------------------------

    \155\ E.g., APS, Bridger Valley, Cinergy, El Paso, FP&L, 
Entergy, Idaho Power, LADWP, Monongahela Power, PacifiCorp, PG&E, 
Tucson Electric, and Western.
    \156\ E.g., Ameren, American Transmission, Cal ISO, the 
Construction Issues Coalition, MidAmerican, Mirant, National Grid, 
NSTAR, NYTO, PSNM, Sempra, and SoCal Edison.
    \157\ E.g., APS, Cinergy, Exelon, and Oklahoma G&E.
---------------------------------------------------------------------------

    869. PG&E argues that the Commission should eliminate the 
liquidated damage clause and instead provide a rapid method for 
addressing Interconnection Customer complaints. PacifiCorp contends 
that this is not an appropriate context for liquidated damages because 
the Parties are not negotiating the terms. The Louisiana PSC argues 
that liquidated damages should be unavailable without a demonstration 
that harm was caused and that the Transmission Provider caused the 
harm. While FP&L argues that liquidated damages should not apply unless 
a Transmission Provider can recover these costs in rates, including 
retail rates, the Louisiana PSC argues that liquidated damages should 
not be recoverable in transmission charges.
    870. Some commenters contend that, if the Parties agree to 
liquidated damages and liquidated damages are recoverable, it should be 
the exclusive remedy for failure to complete construction on time.\158\ 
SoCal Edison argues that operating dates must be agreed upon between 
the Transmission Provider and the Interconnection Customer in order for 
liquidated damages to apply. Southern contends that liquidated damages 
should be available only for facilities that are not completed on time. 
If a Transmission Provider is subject to liquidated damages for failure 
to complete Interconnection Facilities being built by another 
Interconnection Customer, Dominion Resources argues, the 
Interconnection Customer constructing the Interconnection Facilities 
should indemnify the Transmission Owner for any liquidated damages 
resulting from the Interconnection Customer's failure to meet the 
designated date.
---------------------------------------------------------------------------

    \158\ E.g., American Transmission, Construction Issues 
Coalition, NYTO, NSTAR, SoCal Edison, and WestConnect RTO.
---------------------------------------------------------------------------

    871. Others commenters, including Georgia Transmission and NRECA-
APPA, argue that, in lieu of liquidated damages, the Commission should 
include a Good Utility Practice and best efforts standard that holds 
the Transmission Provider liable for actual damages. Several commenters 
ask the Commission to adopt a provision that would protect a 
Transmission Provider from liquidated damages if it meets a certain 
standard, such as a best efforts or Reasonable Efforts standard.\159\ 
Some commenters, including Cleco and FP&L, argue that liquidated 
damages should be available only in cases of intentional wrongdoing or 
negligence.
---------------------------------------------------------------------------

    \159\ E.g., Ameren, Cal ISO, Central Maine, El Paso, Exelon, and 
WestConnect RTO.
---------------------------------------------------------------------------

    872. Several Transmission Providers also argue alternatively that, 
if the liquidated damages provision remains in the Final Rule LGIA, it 
should be modified. Recommended modifications include not holding the 
Transmission Provider liable for Force Majeure events and circumstances 
beyond its control, such as permitting and regulatory delays, delays 
due to third parties, and delays due to the requesting Interconnection 
Customer or other Interconnection Customers.\160\ Ameren argues that 
proposed LGIA Article 5.1.B(ii) might result in confusion, appeals, and 
litigation.
---------------------------------------------------------------------------

    \160\ E.g., Ameren, the Construction Issues Coalition, Dominion 
Resources, FP&L, NE Utilities, NSTAR, PG&E, Sempra, SoCal PPA, and 
Southern.
---------------------------------------------------------------------------

    873. FP&L comments that the liquidated damages provision penalizes 
the Transmission Provider without a symmetrical opportunity for it to 
make a profit or recoup its costs and requests that the Transmission 
Provider have the opportunity to receive a financial benefit above its 
costs if a study is completed on time. Other commenters, including 
American Transmission, Cleco, MidAmerican, PG&E, and SoCal Edison, ask 
that the Commission make liquidated damages bilateral, thereby 
subjecting an Interconnection Customer to liquidated damages for 
missing its milestones. American Transmission further argues that an 
Interconnection Customer should be responsible for liquidated damages 
payable to the Transmission Provider at two levels of liability--a 
higher level when Generating Facilities lower in the queue are 
dependent on the Interconnection Customer's timely performance and a 
lower level when no third parties are harmed by the delay but the 
Transmission Provider deserves compensation.
    874. Ameren argues that the NOPR LGIA does not address a situation 
in which multiple Interconnection Customers rely on the same 
Transmission Provider Interconnection Facilities and Network Upgrades. 
American Transmission proposes that total liability for a particular 
project should be the same regardless of the number of Interconnection 
Customers requesting the component. The Construction Issues Coalition

[[Page 49924]]

recommends that the Commission modify proposed LGIA Article 5.1.B(ii) 
to specify a maximum of 20 percent of the project costs for all 
Interconnection Customers relying on the upgrade.
    875. National Grid argues that the ERCOT LGIA provision, which has 
a compensatory approach, was better than the NOPR LGIA provision, which 
takes a punitive approach. The asymmetry between risk and reward may 
cause a Transmission Provider to avoid any obligation to perform 
Interconnection Services, says National Grid. Since a Transmission 
Provider can opt out of the liquidated damages provision in the 
interconnection agreement, an Interconnection Customer will likely be 
forced to find another builder.
    876. PG&E requests that the Commission adopt a 15 month period for 
completing the work, which was in the ERCOT liquidated damages 
provision.
    877. Cal ISO argues that damages must track the entity performing 
the work. In cases where there is an RTO or ISO, the Transmission Owner 
should be liable, and the RTO or ISO should not be a guarantor for the 
Transmission Owner.
    878. Western argues that it is inequitable to allow the 
Interconnection Customer to extend the In-Service Date without penalty 
(Article 5.5) without also giving the Transmission Provider this 
option. Also, the Transmission Provider should be allowed to provide 
justification for not meeting unreasonable deadlines.
    879. The Construction Issues Coalition argues that proposed LGIA 
Article 5.1.B.1.a should be modified to allow a Transmission Provider 
or a Transmission Owner not to enter into an interconnection agreement 
that includes liquidated damages for any reason, not just because of 
unacceptable dates. Because the limits on liquidated damages recovery 
may not be appropriate for every Interconnection Customer, Mirant 
argues, the proposed LGIA liquidated damages provision should be 
optional and left to the election of the Interconnection Customer.
    880. American Forest expresses concern that the liquidated damages 
cap could be used by the Transmission Provider to delay or deny 
completion of Interconnection Studies or construction of facilities or 
upgrades simply by paying liquidated damages. The Commission should 
clarify that the cap should not be used by the Transmission Provider to 
impede the development of new generation. It proposes either deleting 
the cap or adding language to specify that the cap does not apply if 
the Transmission Provider intentionally delays or denies service. Also, 
Cal ISO notes that the penalty of 0.5 percent of the upgrade cost in 
proposed LGIA Article 5.1.A(ii) for each day the Transmission Provider 
fails to meet an agreed upon deadline for completing any portion of the 
Transmission Provider Interconnection Facilities or Network Upgrades 
does not really work as an incentive because there may be no incentive 
to meet a deadline if the cost of the upgrade is small because the 
penalty would be so low.
    881. Several commenters, including Duke Energy, EPSA, and NE 
Utilities, support the liquidated damages provision in the NOPR LGIA 
but none provide detailed arguments explaining their support.
Commission Conclusion
    882. As noted above, the proposed LGIA liquidated damages provision 
allows a Transmission Provider to refuse the Interconnection Customer's 
proffered construction schedule and perhaps even negotiate to revise 
the liquidated damages provision if the Parties end up negotiating over 
construction terms.\161\ We are concerned that Transmission Providers 
will always negotiate to eliminate liquidated damages liability unless 
the provision is revised to further protect the Transmission Provider. 
For this reason, we are adopting the recommendations of several 
commenters to revise this provision.
---------------------------------------------------------------------------

    \161\ In Final Rule LGIA Article 5.1.4, the Parties may 
negotiate terms under the Negotiated Option.
---------------------------------------------------------------------------

    883. In the Final Rule LGIA, liquidated damages would be 
recoverable if an Interconnection Customer chooses the Alternate Option 
in Final Rule LGIA Article 5.1.2. Under this option, if a Transmission 
Provider fails to complete the Interconnection Facility or the Network 
Upgrades by the dates designated by the Interconnection Customer and 
accepted by the Transmission Provider, the Transmission Provider would 
pay the Interconnection Customer liquidated damages. Liquidated damages 
would be limited to 0.5 percent per Calendar Day of the actual 
aggregate costs of the Interconnection Facilities or Network Upgrades 
for which the Transmission Provider remains responsible, and not to 
exceed 20 percent of the Transmission Provider's actual costs. They 
would not be recoverable under certain circumstances, such as when the 
Interconnection Customer is not ready to commence use of the 
Transmission Provider's Interconnection Facilities or Network Upgrades 
by the date specified (unless the Interconnection Customer was not 
ready due to delay on the part of the Transmission Provider) or if the 
delay is due to a cause beyond the reasonable control of the 
Transmission Provider.
    884. Liquidated damages should not be payable if the delay is due 
to circumstances beyond the control of the Transmission Provider. As a 
result, liquidated damages will be available only due to the action or 
inaction of a Transmission Provider, and not when the delays are due to 
third parties or other circumstances beyond the Transmission Provider's 
control. For the purposes of this provision, the Transmission 
Provider's subcontractors will not be considered third parties, but 
delays due to the action or inaction of Interconnection Customers 
earlier in the queue will be considered delays due to third parties. 
This provision also will sufficiently protect a Transmission Provider 
that seeks to interconnect multiple Generating Facilities to the same 
interconnection, since liability to each of the Interconnection 
Customers for liquidated damages may be avoidable as long as the delay 
is not attributable to the Transmission Provider or its subcontractors. 
This will also counterbalance the Interconnection Customer's ability to 
adjust the schedule under Final Rule Article 5.7, since the 
Transmission Provider can avoid liability for the acts of third 
parties. Finally, because liquidated damages liability will not have to 
be paid unless the Transmission Provider is at fault, we conclude that 
these damages will not be considered just and reasonable costs of 
service and will not be recoverable in transmission rates.
    885. Finally, if the Parties agree to liquidated damages and 
liquidated damages are payable, this will be the exclusive remedy for 
failure to complete construction on time. We are not making the 
liquidated damages provision bilateral, however, because the Final Rule 
LGIA provides a Transmission Provider the necessary protection from 
liquidated damages liability, as well as the ability to negotiate 
provisions of the interconnection agreement to better match its chosen 
level of risk.
(4) General Comments on the LGIP Liquidated Damages Provision
    886. Many commenters, most of them Transmission Providers, ask the 
Commission to either eliminate \162\ or

[[Page 49925]]

modify \163\ the liquidated damages provision in the LGIP.
---------------------------------------------------------------------------

    \162\ E.g., APS, Bridger Valley, El Paso, Entergy, FP&L, LADWP, 
LPPC, NYISO, PacifiCorp, PG&E, PGE, PJMTO, PSNM, Southern, 
WestConnect RTO, and Western.
    \163\ E.g., AEP, American Forest, American Transmission, Cal 
ISO, Central Maine, Cleco, Duke Energy, National Grid, NE Utilities, 
NYTO, and Salt River Project.
---------------------------------------------------------------------------

    887. Those opposed to the liquidated damages provision in the LGIP 
argue, among other things, that liquidated damages are inappropriate 
because the Transmission Owner recognizes no profit and has no means 
for recouping costs.\164\ Entergy notes that liquidated damages are 
improper because the Commission traditionally rejected these payments 
in favor of the payments of identifiable and direct costs incurred. 
PacifiCorp contends that this is not an appropriate context for 
liquidated damages because the Parties are not bargaining on the terms. 
Southern complains that the liquidated damages are improper because the 
LGIP provides for an uncontrolled and lengthy process due to the many 
opportunities for the Interconnection Customer to change data and 
Generating Facility configuration.
---------------------------------------------------------------------------

    \164\ E.g., APS, PG&E, and PGE.
---------------------------------------------------------------------------

    888. The NYISO and PSNM argue that instead of liquidated damages, 
the Commission should use the OATT Section 19.4 study requirement, 
which requires due diligence to perform within a specified time period. 
Under this approach, if a Transmission Provider is unable to meet the 
deadline, it must notify the customer and provide an estimate of the 
additional time needed and explain why more time is necessary.
    889. Among those commenters requesting modification, several 
Transmission Providers propose that liquidated damages be made 
bilateral, thereby subjecting Interconnection Customers to liquidated 
damages for failure to meet deadlines.\165\ American Transmission 
argues that there should be separate levels of liability facing the 
Interconnection Customer depending on third party harm caused by the 
Interconnection Customer's delay. Some commenters, including National 
Grid and NE Utilities, recommend a reciprocal financial incentive to 
earn for superior performance to offset the risk of liquidated damages.
---------------------------------------------------------------------------

    \165\ E.g., American Transmission, Joint Consumer Advocates, and 
the Midwest ISO.
---------------------------------------------------------------------------

    890. Several Transmission Providers, including AEP, Ameren, Idaho 
Power, LG&E Energy, and NE Utilities, recommend modifying the proposed 
LGIP to exempt the Transmission Provider from circumstances beyond its 
control, such as the action or inaction of third parties, the failure 
of the Interconnection Customer to provide all relevant data, failure 
of a third party contracted by the Interconnection Customer to provide 
timely studies, or permitting or other state regulatory prerequisites.
    891. The Salt River Project contends that a Transmission Provider 
should be able to avoid liquidated damages in the LGIP as it can in the 
LGIA. NSTAR recommends that the LGIP adopt NEPOOL language that allows 
the Parties to agree upon a schedule with deadlines if money damages 
are at stake for non-completion.
    892. Several commenters, including Dominion Resources, FP&L, and 
Progress Energy, argue that the liquidated damages provision should be 
revised so that it does not apply unless the failure to meet a deadline 
results from negligence or intentional wrongdoing by the Transmission 
Provider.
    893. Duke Energy asks the Commission to clarify that the Reasonable 
Efforts standard also applies to restudies, and that liquidated damages 
apply only to the study obligations under the LGIP, and not all of the 
LGIP obligations. NE Utilities recommends that, to avoid overlap and 
ambiguity, the first sentence of proposed LGIP Section 13.5 should be 
revised to apply to ``study-related'' obligations.
    894. American Transmission argues that the 50 percent cap on 
liquidated damages in the LGIP is excessive and it should be reduced to 
25 percent.
    895. American Forest proposes either deleting the cap or adding 
language to specify that the cap does not apply if the Transmission 
Provider intentionally delays or denies service.
    896. Mirant argues that the liquidated damages provision in the 
LGIP should provide for liquidated damages of one percent per day 
starting on the date the Transmission Provider misses a deadline for 
completing the study, but after 30 days, the Transmission Provider 
should pay the Interconnection Customer liquidated damages equal to the 
remaining difference between the study cost and the amount already paid 
in liquidated damages. Also, the Transmission Provider should refund 
with interest any deposit amount in excess of the actual reasonably 
incurred study costs immediately upon expiration of the 15 day remedy 
period. These modifications provide a better incentive for Transmission 
Provider compliance.
    897. Some commenters, including Calpine, EPSA, and KeySpan, argue 
in favor of the incentive that this proposed liquidated damages 
provision provides.
Commission Conclusion
    898. We are eliminating liquidated damages from the Final Rule 
LGIP. While we understand the value of providing an incentive to 
complete Interconnection Studies, we are concerned that the 
availability of such a provision may undermine the Transmission 
Provider's ability to economically administer its study process.
    899. Moreover, we question whether liquidated damages are 
appropriate during the study phase, since at that time it will be 
unclear whether a prospective Interconnection Customer intends to 
pursue its Interconnection Request. Because at this stage the 
prospective Interconnection Customer does not face a substantial risk 
of damages, we are not standardizing liquidated damages for 
Transmission Providers during the study phase (i.e., in the Final Rule 
LGIP). Rather, we are requiring that a Transmission Provider use due 
diligence to perform within a specified time period. This approach, 
which has been applied to facilities studies in OATT Section 19.4, 
gives the Transmission Provider a deadline, and requires that the 
Interconnection Customer be kept apprised in writing of any 
difficulties encountered in meeting the deadline. In order to ensure 
that a Transmission Provider complies with its obligations, we urge the 
Interconnection Customer to bring any disputes to the Commission's 
Dispute Resolution Service, or if necessary, pursue claims of unduly 
discriminatory treatment under Section 206 of the Federal Power Act.
c. Consequential Damages
    900. Consequential damages are losses that flow indirectly--rather 
than directly and immediately--from an injurious act.\166\ In the NOPR, 
the Commission chose to maintain consistency with the OATT, and the 
NOPR LGIA did not limit liability for losses or costs for consequential 
damages. Instead, it relied on the statement in Order No. 888-A that 
Transmission Providers and customers can rely on any statutes or other 
laws to protect Parties from consequential or indirect damages.\167\ 
The NOPR also stated that the OATT protects a Transmission Provider 
from consequential damages and indirect damages claims by third parties 
though indemnification except in cases of negligence or intentional 
wrongdoing by the Transmission Provider. The

[[Page 49926]]

Commission sought comments on this approach and the relative merits of 
the alternative provisions in the consensus and ERCOT interconnection 
agreements.
---------------------------------------------------------------------------

    \166\ Black's Law Dictionary 394 (7th ed. 1999).
    \167\ Order No. 888-A, FERC Stats. & Regs ] 31,048 at 30,302.
---------------------------------------------------------------------------

Comments
    901. Many commenters, mostly Transmission Providers, recommend that 
the Final Rule LGIA limit exposure to consequential damages, such as 
incidental, exemplary or indirect damages, lost profits, and other 
business interruption damages.\168\ Without a provision limiting 
exposure, the Mississippi PSC explains, a Transmission Provider will be 
unable to contractually protect itself from these claims. The risk of 
exposure will impose significant additional costs, which will then be 
charged to all transmission customers. In this way, clauses that 
exclude liability for consequential damages reduce rates.
---------------------------------------------------------------------------

    \168\ E.g., Ameren, American Transmission, APS, Avista, Central 
Maine, the Coalition for Contract Terms, Dominion Resources, Duke 
Energy, FP&L, Mississippi PSC, NYTO, PacifiCorp, Progress Energy, 
PSNM, RTO West Utilities, Tucson Electric, and WestConnect RTO.
---------------------------------------------------------------------------

    902. APS explains that, because statutes for liability vary from 
state to state, the LGIA must recognize these differences, and 
dictating specific terms should be avoided. FP&L notes that, contrary 
to the Commission's reliance on state statutes, not all states provide 
consequential damages protection. As an example, FP&L points to 
Florida, which allows exclusion of consequential damages, but the 
provision must be included in a contract. Progress Energy warns that a 
reliance on statutes or other laws dealing with consequential damages, 
as the Commission proposed in the NOPR, will only invite future 
disagreements and litigation.
    903. Some commenters, including Duke Energy and Dynegy, request 
that, if language limiting liability for consequential damages is not 
inserted, the Commission should, at a minimum, provide Parties the 
option of mutually agreeing to include a limitation on liability, 
consistent with existing Commission policy.
    904. Westconnect RTO notes that if liquidated damages are not 
available under the option in proposed LGIA Article 5.1B(i)(b), an 
Interconnection Customer may still sue the Transmission Provider for 
failing to meet the In-Service Date if there is no limitation of 
liability clause. It notes that without a clause limiting liability for 
consequential damages, an Interconnection Customer may still be able to 
secure damages akin to liquidated damages, even if the Parties do not 
expressly agree to liquidated damages in their executed interconnection 
agreement.
    905. Central Maine takes issue with the NOPR position that a 
Transmission Provider is protected from consequential and indirect 
damage liability to third parties through indemnification. A 
Transmission Provider's obligation to indemnify the Interconnection 
Customer for third party claims against the Interconnection Customer 
may be viewed as a payment of consequential damages by the Transmission 
Provider.
Commission Conclusion
    906. There are several factors that convince us that a provision 
limiting consequential damages should be added to the Final Rule LGIA. 
First, by standardizing the liability protection, rather than leaving 
the issue to state law, it should offer greater certainty to 
Transmission Providers and Interconnection Customers alike. Contrary to 
APS's argument, it is precisely because state liability statutes vary 
that we are prescribing a specific liability provision. Second, 
liability limitation provisions protect against excessive utility rates 
by capping damage awards.\169\ Finally, a goal of this rulemaking is to 
reduce litigation arising from interconnection, and an express 
provision in the LGIA limiting liability will have this effect. For 
these reasons, we are including a provision limiting consequential 
damages. Final Rule LGIA Article 18.2 protects either Party from 
liability for any special, indirect, incidental, consequential, or 
punitive damages, including profit or revenue. The Parties remain 
liable for any liquidated damages payable, and any damages for which a 
Party may be liable to the other Party under another agreement.
---------------------------------------------------------------------------

    \169\ See Richard J. Pierce, Regional Transmission 
Organizations: Federal Limitations Needed for Tort Liability, 23 
Energy L.J. 63, 67-72 (2002).
---------------------------------------------------------------------------

d. Two vs. Three Party Agreements
    907. In the NOPR, the Commission proposed that, along with the 
Interconnection Customer, the Transmission Provider, and, to the extent 
necessary, the Transmission Owner, must become signatories to the 
interconnection agreement. The intent was to require the Transmission 
Provider to sign the agreement, and if the Transmission Owner is a 
separate entity, to require it to sign as well. We reasoned that the 
Transmission Provider should sign the agreement because the 
Interconnection Service would be provided under the Transmission 
Provider's OATT. However, we noted that no one disputes that the 
Transmission Owner must also enter into an agreement with the 
Interconnection Customer, and it would be inefficient to require the 
Interconnection Customer to enter into separate agreements with the 
Transmission Owner and the Transmission Provider.
Comments
    908. Interconnection Customers, such as Calpine, Dairyland Power, 
and PSEG, generally prefer a three party agreement because it 
facilitates ``one-stop shopping.'' RTOs, ISOs, and some Transmission 
Owners, including Cal ISO, PJM, and PG&E believe that, when the 
Transmission Provider is not the Transmission Owner, the former's 
responsibilities can be fully addressed in the Tariff and it need not 
be a Party to the interconnection agreement. They argue that the main 
purpose of the agreement is to establish a property-based relationship 
between the Interconnection Customer and the Transmission Owner. Also, 
PJM states that the NOPR LGIA is not structured to accommodate its use 
as a three party agreement, and should be changed to clearly define the 
roles of Transmission Owners and Transmission Providers.
Commission Conclusion
    909. We are replacing the proposed words ``to the extent 
necessary'' with the words ``if the Transmission Owner is not the 
Transmission Provider'' in the Final Rule provision. Thus, both must 
sign the interconnection agreement when the Transmission Owner is not 
also the Transmission Provider. We believe that this better defines the 
relationship among the Parties in one document, protects the 
Interconnection Customer and, therefore, facilitates the development of 
new generation resources. In an RTO or ISO where the Transmission 
Provider is not the Transmission Owner, the RTO or ISO's compliance 
filing may propose a modified interconnection agreement that provides 
different respective rights and obligations in the region. In other 
cases, we do not believe that the three party agreement should create 
an undue burden for either entity.

D. Compliance Issues

1. Amendments to Transmission Providers' OATTs
    910. The Commission is requiring all public utilities that own, 
control, or operate interstate transmission facilities to adopt the 
Final Rule LGIP and Final Rule LGIA as an amendment to their

[[Page 49927]]

OATTs within 60 days after the publication of the Final Rule in the 
Federal Register. RTOs and ISOs are required to make a compliance 
filing by this same deadline, but their compliance filings will be 
assessed using the independent entity variation standard as described 
in Part II.C.5 of this preamble.
2. Grandfathering of Existing Interconnection Agreements (ISOs and Non-
ISOs)
    911. The Commission is not requiring retroactive changes to 
individual interconnection agreements filed with the Commission prior 
to the effective date of this Final Rule.\170\ Non-generic agreements 
submitted for approval by the Commission before the effective date of 
the Final Rule are grandfathered and will not be rejected outright for 
failing to conform to the Final Rule LGIA. Generic interconnection 
procedures submitted for approval or approved by the Commission before 
the effective date of the Final Rule must be resubmitted after being 
revised to conform to this Final Rule. For previously accepted 
individual interconnection agreements, the Commission's interconnection 
case law and policies govern.
---------------------------------------------------------------------------

    \170\ Section 5 of the Final Rule LGIP governs the treatment of 
Queue Positions established prior to the effective date of the Final 
Rule. It also provides a transition process for Transmission 
Providers with Interconnection Requests outstanding when the Final 
Rule takes effect.
---------------------------------------------------------------------------

    912. As for requests for interconnection pending when the Final 
Rule takes effect, Final Rule LGIP Section 5.1 ensures that an 
Interconnection Customer that has been assigned a Queue Position before 
the issuance of the Final Rule retains that Queue Position. If an 
Interconnection Customer has signed any Interconnection Study agreement 
as of the effective date of the Final Rule, it has the option to either 
continue with the remaining Interconnection Studies under the 
Transmission Provider's existing study process or complete the 
remaining studies for which it does not have a signed Interconnection 
Study agreement under the provisions of the Final Rule LGIP.
3. Order No. 2001 and the Filing of Interconnection Agreements
    913. Order No. 2001\171\ revised the format through which 
traditional public utilities and power marketers must satisfy their 
obligation, pursuant to Section 205 of the Federal Power Act and part 
35 of the Commission's Regulations, to file agreements with the 
Commission.\172\ Public utilities that have standard forms of agreement 
in their transmission tariffs, cost-based power sales tariffs, or 
tariffs for other generally applicable services no longer need to file 
conforming service agreements with the Commission. The filing 
requirement for conforming agreements is now satisfied by filing the 
standard form of agreement and an Electronic Quarterly Report.\173\ 
Order No. 2001 also lifts the requirement that parties to an expiring 
conforming agreement file a notice of cancellation or a cancellation 
tariff sheet with the Commission. The public utility may simply remove 
the agreement from its Electric Quarterly Report in the quarter after 
it terminates.\174\
---------------------------------------------------------------------------

    \171\ Revised Public Utility Filing Requirements, Order No. 
2001, 67 FR 31043 (May 8, 2002), FERC Stats. & Regs. ] 31,127 
(2002); reh'g denied, Order 2001-A, 100 FERC ] 61,074 (2002); 
reconsideration and clarification denied, Order No. 2001-B, 100 FERC 
] 61,342 (2002); further order, Order No. 2001-C, 101 FERC ] 61,314 
(2002).
    \172\ See Order No. 2001 at P 12.
    \173\ See id. at P 18.
    \174\ See id. at P 249.
---------------------------------------------------------------------------

    914. Non-conforming agreements, which are agreements for 
transmission, cost-based power sales and other generally applicable 
services that do not conform to an applicable standard form of 
agreement in a public utility's tariff, must continue to be filed with 
the Commission for approval before going into effect.\175\ This 
category includes unexecuted agreements and agreements that do not 
precisely match the applicable standard form of service agreement.\176\
---------------------------------------------------------------------------

    \175\ See id. at P 19.
    \176\ See id. at P 196.
---------------------------------------------------------------------------

    915. With respect to interconnection agreements, Order No. 2001 
found that part 35 of the Commission's Regulations does not make a 
distinction between an interconnection agreement and other agreements 
for service that must be filed in conformance with this part of the 
Commission's Regulations.\177\ Order No. 2001 therefore found that if 
an interconnection agreement conforms with a Commission-approved 
standard form of interconnection agreement, the utility does not have 
to file it but must report it in the Electric Quarterly Reports. Order 
No. 2001 also states that the requirement to file contract data and 
transaction data begins with the first Electric Quarterly Report filed 
after service commences under an agreement, and continues until the 
Electric Quarterly Report filed after it expires or by order of the 
Commission. However, an Interconnection Agreement that does not 
precisely match the Transmission Provider's approved standard LGIA or 
that is unexecuted must be filed in its entirety. The Transmission 
Provider should clearly indicate where the agreement does not conform 
to its standard Interconnection Agreement, preferably through red-
lining and strike-out.
---------------------------------------------------------------------------

    \177\ See id. at P 200.
---------------------------------------------------------------------------

III. Information Collection Statement

    916. The Office of Management and Budget (OMB) regulations require 
that OMB approve certain reporting and record keeping (collections of 
information) imposed by an agency.\178\ The information collection 
requirements in this Final Rule are identified under the Commission 
data collection, FERC-516 ``Electric Rate Schedule Filings.'' In 
accordance with Section 3507(d) of the Paperwork Reduction Act of 
1995,\179\ the proposed reporting requirements in the subject 
rulemaking will be submitted to OMB for review. Interested persons may 
obtain information on the reporting requirements by contacting the 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426 (Attention: Michael Miller, Office of the 
Executive Director, 202-502-8415) or from the Office of Management and 
Budget (Attention: Desk Officer for the Federal Energy Regulatory 
Commission, fax: 202-395-7285, e-mail [email protected]).
---------------------------------------------------------------------------

    \178\ 5 CFR 1320.11 (2003).
    \179\ 44 U.S.C. 3507(d) (2000).
---------------------------------------------------------------------------

    917. The regulated entities shall not be penalized for failure to 
respond to this collection of information unless the collection of 
information displays a valid OMB control number.
    918. Public Reporting Burden: The Commission did not receive 
specific comments concerning its burden estimates and uses the same 
estimates here in the Final Rule. Comments on the substantive issues 
raised in the NOPR are addressed elsewhere in the Final Rule.

----------------------------------------------------------------------------------------------------------------
                                                     Number of       Number of       Hours per     Total annual
                 Data collection                    respondents      responses       response          hours
----------------------------------------------------------------------------------------------------------------
FERC-516:
    LGIPs & LGIAs...............................              95               1               4             380

[[Page 49928]]

 
    LGIPs & LGIAs to be developed...............              81               1               6             486
                                                              81               1              25           2,205
    Recordkeeping...............................             176               1               6           1,056
                                                 -----------------
        Totals..................................  ..............  ..............  ..............           3,947
----------------------------------------------------------------------------------------------------------------

    Total Annual Hours for Collection: (reporting (2,891) + 
recordkeeping (1,056) = 3,947 hours.
    Information Collection Costs: The Commission sought comments about 
the time to comply with these requirements. No comments were received. 
Staffing requirements to review and modify existing LGIPs & LGIAs = 
$19,000 (95 respondents x $200 (4 hours @ $50 hourly rate)). To be 
added to this cost are the costs for review and preparation of new 
LGIPs and LGIAs or $125,550 (81 respondents x $1,550 (31 hours @ $50 
hourly rate)) = $144,550. There are also the annualized costs for 
processing (operations) and maintenance (recordkeeping) of these 
documents = $70,752 (176 respondents x $402 ((6 hours @ $50 hourly 
rate) (for processing these documents) (operations) + (6 hours @$17 
hourly rate) (recordkeeping/maintenance)). The Commission believes 
there will be a one-time start up costs to comply with these 
requirements for the procedures and agreements and then an additional 
$70,752 to maintain them. Total annualized costs = $215,302.
    Titles: FERC-516 ``Electric Rate Schedule Filings.''
    Action: Revision of Currently Approved Collection of Information.
    OMB Control Nos.: 1902-0096.
    Respondents: Business or other for profit.
    Frequency of Responses: One-time implementation.
    Necessity of Information: The final rule revises the reporting 
requirements contained in 18 CFR part 35. The Commission promulgates a 
standard LGIP and standard LGIA that public utilities must adopt. As 
noted in the Final Rule, the adoption of these procedures and agreement 
will (1) reduce interconnection costs and time for generators and 
Transmission Providers alike; (2) limit opportunities for Transmission 
Providers to favor their own generation; (3) facilitate market entry 
for generation competitors; and (4) encourage needed investment in 
generator and transmission infrastructure.
    919. Interconnection plays a growing crucial role in bringing much 
needed generation into the market to meet the needs of electricity 
customers. However, requests for interconnection frequently result in 
complex technical disputes about interconnection feasibility, cost and 
cost responsibility. The Commission expects that a standard LGIP and 
standard LGIA will reduce interconnection costs and time for 
Interconnection Customers and Transmission Providers, resolve most 
interconnection disputes, minimize opportunities for undue 
discrimination, foster increased development of economic generation, 
and improve system reliability.
    920. For information on the requirements, submitting comments on 
the collection of information and the associated burden estimates 
including suggestions for reducing this burden, please send your 
comments to the Federal Energy Regulatory Commission, 888 First Street, 
NE., Washington, DC 20426 (Attention: Michael Miller, Office of the 
Executive Director, 202-502-8415) or send comments to the Office of 
Management and Budget (Attention: Desk Officer for the Federal Energy 
Regulatory Commission, fax: 202-395-7285, e-mail [email protected]).

IV. Environmental Impact Statement

    921. Commission Regulations require that an environmental 
assessment or an environmental impact statement be prepared for any 
Commission action that may have a significant adverse effect on the 
human environment.\180\ No environmental consideration is necessary for 
the promulgation of a rule that is clarifying, corrective, or 
procedural or does not substantially change the effect of legislation 
or regulations being amended,\181\ and also for information gathering, 
analysis, and dissemination.\182\ The Final Rule updates part 35 of the 
Commission's Regulations and does not substantially change the effect 
of the underlying legislation or the regulations being revised or 
eliminated. In addition, the Final Rule involves information gathering, 
analysis and dissemination. Therefore, this Final Rule falls within 
categorical exemptions provided in the Commission's Regulations. 
Consequently, neither an environmental impact statement nor an 
environmental assessment is required.
---------------------------------------------------------------------------

    \180\ Regulations Implementing National Environmental Policy 
Act, Order No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs. 
] 30,783 (1987).
    \181\ 18 CFR 380.4(a)(2)(ii) (2003).
    \182\ 18 CFR 380.4(a)(5) (2003).
---------------------------------------------------------------------------

V. Regulatory Flexibility Act

    922. The Regulatory Flexibility Act (RFA)\183\ requires that a 
rulemaking contain either a description and analysis of the effect that 
the proposed rule will have on small entities or a certification that 
the rule will not have a significant economic impact on a substantial 
number of small entities. In the NOPR, the Commission stated that the 
proposed regulations would impose requirements only on interstate 
transmission providers, which are not small businesses. The Commission 
certified that the proposed regulations would not have a significant 
adverse impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \183\ 5 U.S.C. 601-612 (2000).
---------------------------------------------------------------------------

Comments
    923. NRECA-APPA argues that the Commission failed to adequately 
account for the limited resources of small service providers when 
drafting the NOPR's RFA compliance statement. According to NRECA-APPA, 
the NOPR inconsistently suggests that it would apply to wholesale sales 
through Distribution Systems, but the RFA compliance language states 
that the regulations impose requirements only on interstate 
Transmission Providers.
Commission Conclusion
    924. As explained above, only facilities owned by public utilities 
that own, control, or operate interstate transmission facilities 
(Transmission Providers) are subject to the Final Rule. Thus the Final 
Rule applies to the same class of entities subject to Order No. 888. In 
Order No. 888, the Commission concluded that the number of affected 
small entities did not constitute a ``substantial number'' under the 
RFA and noted that small entities would be eligible for a waiver.\184\ 
The Commission adopts the same reasoning here. The waiver available for

[[Page 49929]]

compliance with the Commission's Order No. 888\185\ is also available 
for this Final Rule.
---------------------------------------------------------------------------

    \184\ Order No. 888, FERC Stats. & Regs ] 31,036 at 31,897.
    \185\ See 18 CFR 35.28(d) (2003).
---------------------------------------------------------------------------

    The Regulatory Flexibility Act of 1980 (RFA)\186\ generally 
requires a description and analysis of the effect of proposed or Final 
Rules that will have significant economic impact on a substantial 
number of small entities or a certification that the rule will not have 
such an economic effect. In this Final Rule, the Commission is 
requiring public utilities that own, control, or operate facilities 
used for transmitting electric energy in interstate commerce to modify 
their OATTs, first established under Order No. 888, to include a 
standard LGIP and standard LGIA. In Order Numbers 888 and 889, the 
Commission certified that its rules would not impose a significant 
economic impact on a substantial number of small entities.\187\ In 
Order No. 888, the Commission found that just over one-tenth of the 
total number of public utilities constitute small entities.\188\ And of 
that number, several had already filed OATTs, reducing this number even 
further. As the Commission noted in Order No. 888 and reemphasizes 
here, waiver provisions are applicable here.\189\ This waiver policy 
follows the provisions of the Small Business Act (SBA) by acknowledging 
the definition of a small electric utility. The Small Business Size 
Standards component of the North American Industry Classification 
System defines a small electric utility as one that, including its 
affiliates, is primarily engaged in the generation, transmission, and/
or distribution of electric energy for sale and whose total electric 
output for the preceding fiscal year did not exceed 4 million MWh.\190\ 
Continuing to make the waiver process available should address the 
concerns of those entities that ask the Commission to extend the 
``small utility'' exception.\191\ This Final Rule will promote 
consistent reporting practices for all reporting companies. It will not 
be a significant burden to industry, since several Transmission 
Providers have already filed interconnection procedures as part of 
their OATTs and much of the information is already being supplied under 
interconnection agreements throughout the industry. Accordingly, the 
Commission certifies that this Final Rule will not have a significant 
economic impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \186\ 5 U.S.C. 601-612 (2000).
    \187\ Order No. 888, FERC Stats. & Regs. ] 31,036, at 31,898.
    \188\ 5 U.S.C. 601(3) (2000), citing to Section 3 of the Small 
Business Act, 15 U.S.C. 632 (2000). Section 3 of the Small Business 
Act defines a ``small-business concern'' as a business which is 
independently owned and operated and which is not dominate in its 
field of operation.
    \189\ See 18 CFR 35.28(d) (2003).
    \190\ 13 CFR 121.61 (Sector 22, Utilities, North American 
Industry Classification System, NAICS) (2003).
    \191\ Maine PSC, Southwest Transmission, and SoCal Water 
District.
---------------------------------------------------------------------------

VI. Document Availability

    925. In addition to publishing the full text of this document in 
the Federal Register, the Commission also provides all interested 
persons an opportunity to view and/or print the contents of this 
document via the Internet through the Commission's Home Page ( http://www.ferc.gov ) and in the Commission's Public Reference Room during 
normal business hours (8:30 a.m. to 5 p.m. Eastern time) at 888 First 
Street, NE., Room 2A, Washington, DC 20426.
    926. From the Commission's Home Page on the Internet, this 
information is available in the Federal Energy Regulatory Records 
Information System (FERRIS). The full text of this document is 
available on FERRIS in PDF and WordPerfect format for viewing, 
printing, and/or downloading. To access this document in FERRIS, type 
the docket number excluding the last three digits of this document in 
the docket number field.
    927. User assistance is available for FERRIS and the Commission's 
Website during normal business hours from FERC Online Support (by phone 
at 1-866-208-3676 (toll free) or 202-502-6652, or by e-mail at 
[email protected]) or the Public Reference Room at (202) 502-
8371, for TTY (202) 502-8659. E-Mail the Public Reference Room at 
[email protected]).

VII. Effective Date and Congressional Notification

    928. This Final Rule will take effect on October 20, 2003. The 
Commission has determined, with the concurrence of the Administrator of 
the Office of Information and Regulatory Affairs of the Office of 
Management and Budget, that this rule is not a ``major rule'' within 
the meaning of Section 251 of the Small Business Regulatory Enforcement 
Fairness Act of 1996.\192\ The Commission will submit the Final Rule to 
both houses of Congress and the General Accounting Office.\193\
---------------------------------------------------------------------------

    \192\ 5 U.S.C. 804(2) (2000).
    \193\ 5 U.S.C. 801(a)(1)(A) (2000).
---------------------------------------------------------------------------

List of Subjects in 18 CFR Part 35

    Electric power rates, Electric utilities, Reporting and 
recordkeeping requirements.

    By the Commission.
Magalie R. Salas,
Secretary.

0
In consideration of the foregoing, the Commission amends part 35, 
Chapter I, Title 18 of the Code of Federal Regulations, as follows.

PART 35--FILING OF RATE SCHEDULES AND TARIFFS

0
1. The authority citation for part 35 continues to read as follows:

    Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42 
U.S.C. 7101-7352.


0
2. In Sec.  35.28, the last sentence in the paragraph (d) introductory 
text is revised, and paragraph (f) is added to read as follows:


Sec.  35.28  Non-discriminatory open access transmission tariff.

* * * * *
    (d) Waivers. * * * Except as provided in paragraph (f) of this 
section, an application for waiver must be filed either:
* * * * *
    (f) Standard generator interconnection procedures and agreement. 
(1) Every public utility that is required to have on file a non-
discriminatory open access transmission tariff under this section must 
amend such tariff by adding the standard interconnection procedures and 
agreement contained in Order No. 2003, FERC Stats. & Regs. ] 31,146 
(Final Rule on Generator Interconnection) or such other interconnection 
procedures and agreement as may be approved by the Commission 
consistent with Order No. 2003, FERC Stats. & Regs. ] 31,146 (Final 
Rule on Generator Interconnection).
    (i) The amendment required by paragraph (f)(1) of this section must 
be filed no later than October 20, 2003.
    (ii) Any public utility that seeks a deviation from the standard 
interconnection procedures and agreement contained in Order No. 2003, 
FERC Stats. & Regs. ] 31,146 (Final Rule on Generator Interconnection), 
must demonstrate that the deviation is consistent with the principles 
of Order No. 2003, FERC Stats. & Regs. ] 31,146 (Final Rule on 
Generator Interconnection ).
    (2) The non-public utility procedures for tariff reciprocity 
compliance described in paragraph (e) of this section are applicable to 
the standard

[[Page 49930]]

interconnection procedures and agreement.
    (3) A public utility subject to the requirements of this paragraph 
may file a request for waiver of all or part of the requirements of 
this paragraph (f), for good cause shown. An application for waiver 
must be filed either:
    (i) No later than October 20, 2003, or
    (ii) No later than 60 days prior to the time the public utility 
would otherwise have to comply with the requirements of this paragraph 
(f).

    Note: The following Appendices will not be published in the Code 
of Federal Regulations.

BILLING CODE 6717-01-P

[[Page 49931]]

[GRAPHIC] [TIFF OMITTED] TR19AU03.000

BILLING CODE 6717-01-C

[[Page 49932]]

Appendix B--Commenter Acronyms

ACEEE--American Council for an Energy Efficient Economy
AEP--American Electric Power System
Alabama MEA--Alabama Municipal Electric Authority
Alabama PSC--Alabama Public Service Commission
Ameren--Ameren Services Company
American Boiler--American Boiler Manufacturers Association
American Forest--American Forest & Paper Association
American National--American National Power, Inc.
American Superconductor--American Superconductor Corporation
American Transmission--American Transmission Company, LLC
American Wind Energy--American Wind Energy Association
APS--Arizona Public Service Company
Arkansas Coops--Arkansas Electric Cooperative Corporation
Arkansas PSC--Arkansas Public Service Commission
Avista--Avista Corporation
Baker & McKenzie--Baker & McKenzie
Basin Electric--Basin Electric Power Cooperative
Bergey Windpower--Bergey Windpower Company
BP Solar--BP Solar
BPA--Bonneville Power Administration
Bridger Valley--Bridger Valley Electric Association, Inc.
Bruder--Bruder, Gentile & Marcoux, L.L.P.
Bureau of Reclamation--Bureau of Reclamation, U.S. Department of 
Interior
Cal EOB--California Electricity Oversight Board
Cal Cogen--Cogeneration Association of California
Cal DWR--California Department of Water Resources
Cal ISO--California ISO
Calpine--Calpine Corporation
Central Maine--Central Maine Power Company, New York State Electric 
& Gas Corporation, and Rochester Gas & Electric Corporation
Central Vermont PSC--Central Vermont Public Service Corporation
Cinergy--Cinergy Services, Inc.
Cleco--Cleco Power, LLC
Coalition for Contract Terms--Coalition in Support of Retaining and/
or Modifying Certain Commercial Contract Terms for the Standard 
Interconnection Agreement
Coalition for Pricing--Coalition for Equitable Transmission Pricing
Coalition for Services--Coalition for Appropriate Interconnection 
Services
Combined Heat & Power--U.S. Combined Heat and Power Association
Connecticut PUC--Connecticut Department of Public Utility Control
Construction Issues Coalition--Transmission Owner/Provider 
Construction Issues Coalition
Consumers--Consumers Energy Company
CPUC--California Public Utilities Commission
Cummins--Cummins, Inc.
Dairyland Power--Dairyland Power Cooperative
DG Alliance--Distributed Generation Alliance
Dominion Resources--Dominion Resources Services, Inc.
Duke Energy--Duke Energy Corporation
Dynegy--Dynegy Power Corporation
E3--The E Cubed Company, LLC
Edison Mission--Edison Mission Energy
EEI--Edison Electric Institute, Alliance of Energy Suppliers, EEI 
Transmission Group, EEI Distributed Generation Task Force and Tax 
Analysis Research Subcommittee
El Paso--El Paso Electric Company
ELCON--Electricity Consumers Resource Council
Encorp--Encorp, Inc.
Enercon--Enercon Engineering, Inc.
Energy Consortium--The Energy Consortium
Entergy--Entergy Services, Inc.
EPSA--The Electric Power Supply Association
EPUC--The Energy Producers and Users Coalition
Exelon--Exelon Corporation
Financial Security Issues Coalition--Transmission Owner/Provider 
Financial Security Issues Coalition
FirstEnergy--FirstEnergy Corporation
Florida PSC--Florida Public Service Commission
Florida RCC--Florida Reliability Coordinating Council
FP&L--Florida Power & Light Company
Georgia Transmission--Georgia Transmission Corporation
GE Power--GE Power Systems
Great Northern--Great Northern Power Development
Great River--Great River Energy
H Power--H Power
Idaho Power--Idaho Power Company
Ida Tech--Ida Tech
Imperial Irrigation--Imperial Irrigation District
Independent Market Operator--Independent Electricity Market Operator
Independent Producers--Independent Energy Producers Association
Industrial Energy--Industrial Energy Consumer Group
Interconnection Services Coalition--Transmission Owners Coalition 
for Appropriate Interconnection Services
International Paper--International Paper Company
ISO New England--ISO New England
Joint Consumer Advocates--Joint Consumer Advocates
Kentucky PSC--Public Service Commission of the Commonwealth of 
Kentucky
KeySpan--KeySpan-Glenwood Energy Center LLC, KeySpan-Port Jefferson 
Energy Center, LLC, and KeySpan-Ravenswood, Inc.
LADWP--Los Angeles Department of Water and Power
Lakeland--Lakeland Electric, Kissimmee Utility Authority, 
Gainesville Regional Utilities, and The City of Tallahassee, Florida
LPPC--Large Public Power Council
LG&E Energy--LG&E Energy Corp., Louisville Gas and Electric Company, 
and Kentucky Utilities Company
LIPA--Long Island Power Authority
Louisiana PSC--Louisiana Public Service Commission
Maine PSC--Maine Public Service Company
Maine Public Advocate--Maine Office of the Public Advocate
Maine PUC--Maine Public Utilities Commission
Maryland PSC--Public Service Commissions of Maryland, Delaware, and 
the District of Columbia
Memphis LG&W--Memphis Light, Gas and Water Division
MidAmerican--MidAmerican Energy Company
Midwest ISO--Midwest ISO
Midwest ISO TO--Midwest ISO Transmission Owners
Mirant--Mirant Americas, Inc.
Mississippi PSC--Mississippi Public Service Commission
Monongahela Power--Monongahela Power Company, The Potomac Edison 
Company, West Penn Power Company, and Allegheny Energy Supply 
Company, LLC
NARUC--National Association of Regulatory Utility Commissioners
National Energy Marketers--National Energy Marketers Association
National Grid--National Grid USA
Nebraska PPD--Nebraska Public Power District
NEMA--National Electrical Manufacturers Association
NE PCC--Northeast Power Coordinating Council
NERC--North America Electric Reliability Council
NE Utilities--Northeast Utilities Service Company
Nevada Power--Nevada Power Company
New York PSC--New York State Public Service Commission
NiSource--NiSource, Inc.
NMA--National Mining Association
North Carolina Commission--North Carolina Utilities Commission
Norton Energy--Norton Energy Storage, L.L.C.
NRECA-APPA--National Rural Electric Cooperative Association and the 
American Public Power Association
NRG--NRG Energy, Inc.
NSTAR--NSTAR Electric and Gas Corporation
NTTRC--National Transmission Technical Research Center
NYISO--New York ISO
NYTO--New York Transmission Owners
Ohio PUC--Public Utilities Commission of Ohio
Oklahoma G&E--Oklahoma Gas and Electric Company
Old Dominion--Old Dominion Electric Cooperative
ONEOK--ONEOK Power Marketing Company
PacifiCorp--PacifiCorp
Peabody--Peabody Energy Corporation
PGE--Portland General Electric Company
PG&E--Pacific Gas and Electric Company
Pinnacle West--Pinnacle West Energy Company
PJM--PJM International LLC
PJMTO--PJM Transmissions Owners Group
Plug Power--Plug Power

[[Page 49933]]

Progress Energy--Progress Energy, Inc.
PSEG--The PSEG Companies
PSNM--Public Service Company of New Mexico
Public Interest Organizations--Public Interest Organizations
Public Power Council--Public Power Council
RealEnergy--RealEnergy, Inc.
Reliant--Reliant Resources, Inc.
Rhode Island Consortium--The Energy Consortium of Rhode Island
RTO West Utilities--Certain RTO West Filing Utilities
Salt River Project--Salt River Project Agricultural Improvement and 
Power District
Schott--Schott Applied Power Corporation
Seminole Electric--Seminole Electric Cooperative
Sempra--Sempra Energy
Sithe--Sithe Energies, Inc.
SMUD--Sacramento Municipal Utility District
SoCal Edison--Southern California Edison Company
SoCal Water District--The Metropolitan Water District of Southern 
California
SoCal PPA--Southern California Public Power Authority
Solar Energy--Solar Energy Industries Association
Solar Turbines--Solar Turbines, Inc.
South Carolina PSA--South Carolina Public Service Authority
Southern--Southern Company Services, Inc.
Southwest Transmission--Southwest Transmission Cooperative
Sunflower Electric--Sunflower Electric Power Corporation
TANC--Transmission Agency of Northern California
TAPS--Transmission Access Policy Study Group
TECO Energy--TECO Energy, Inc.
Tenaska--Tenaska, Inc.
Tennessee Valley PPA--Tennessee Valley Public Power Association
Third Party Issues Coalition--Transmission Owner/Provider Third 
Party Issues Coalition
TI--Texas Instruments
TransEnergie--TransEnergie U.S. Ltd.
Tucson Electric--Tucson Electric Power Company
TVA--Tennessee Valley Authority
TXU--TXU Operating Companies
United Technologies--United Technologies Corporation
Vermont DPS--Vermont Department of Public Service
Western--Western Area Power Administration
WEPCO--Wisconsin Electric Power Company, Madison Gas and Electric 
Company, and Alliant Energy Corporate Services, Inc.
Westar--Westar Energy, Inc.
Westconnect RTO--Westconnect RTO, LLC
Williams Energy--Williams Energy Marketing and Trading Company
Wisconsin PSC--Wisconsin Public Service Commission
Xcel--XCEL Energy Services, Inc.

Appendix C--Standard Large Generator Interconnection Procedures (LGIP) 
Including Standard Large Generator Interconnection Agreement (LGIA)

Standard Large Generator Interconnection Procedures (LGIP) 
(Applicable to Generating Facilities That Exceed 20 MWs)

Table of Contents

Section 1. Definitions
Section 2. Scope and Application
    2.1 Application of Standard Large Generator Interconnection 
Procedures
    2.2 Comparability
    2.3 Base Case Data
    2.4 No Applicability to Transmission Service
Section 3. Interconnection Requests
    3.1 General
    3.2 Identification of Types of Interconnection Services
    3.2.1 Energy Resource Interconnection Service (ER 
Interconnection Service)
    3.2.1.1 The Product
    3.2.1.2 The Study
    3.2.2 Network Interconnection Service (NR Interconnection 
Service)
    3.2.2.1 The Product
    3.2.2.2 The Study
    3.3 Valid Interconnection Request
    3.3.1 Initiating an Interconnection Request
    3.3.2 Acknowledgment of Interconnection Request
    3.3.3 Deficiencies in Interconnection Request
    3.3.4 Scoping Meeting
    3.4 OASIS Posting
    3.5 Coordination with Affected Systems
    3.6 Withdrawal
Section 4. Queue Position
    4.1 General
    4.2 Clustering
    4.3 Transferability of Queue Position
    4.4 Modifications
    4.4.1
    4.4.2
    4.4.3
    4.4.4
    4.4.5
Section 5. Procedures for Interconnection Requests Submitted Prior 
to Effective Date of Standard Large Generator Interconnection 
Procedures
    5.1 Queue Position for Pending Requests
    5.1.1
    5.1.1.1
    5.1.1.2
    5.1.1.3
    5.1.2 Transition Period
    5.2 New Transmission Provider
Section 6. Interconnection Feasibility Study
    6.1 Interconnection Feasibility Study Agreement
    6.2 Scope of Interconnection Feasibility Study
    6.3 Interconnection Feasibility Study Procedures
    6.3.1 Meeting with Transmission Provider
    6.4 Re-Study
Section 7. Interconnection System Impact Study
    7.1 Interconnection System Impact Study Agreement
    7.2 Execution of Interconnection System Impact Study Agreement
    7.3 Scope of Interconnection System Impact Study
    7.4 Interconnection System Impact Study Procedures
    7.5 Meeting with Transmission Provider
    7.6 Re-Study
Section 8. Interconnection Facilities Study
    8.1 Interconnection Facilities Study Agreement
    8.1.1
    8.2 Scope of Interconnection Facilities Study
    8.3 Interconnection Facilities Study Procedures
    8.4 Meeting with Transmission Provider
    8.5 Re-Study
Section 9. Engineering & Procurement (``E&P'') Agreement
Section 10. Optional Interconnection Study
    10.1 Optional Interconnection Study Agreement
    10.2 Scope of Optional Interconnection Study
    10.3 Optional Interconnection Study Procedures
    Section 11. Standard Large Generator Interconnection Agreement
    11.1 Tender
    11.2 Negotiation
    11.3 Execution and Filing
    11.4 Commencement of Interconnection Activities
    Section 12. Construction of Transmission Provider's 
Interconnection Facilities and Network Upgrades
    12.1 Schedule
    12.2 Construction Sequencing
     12.2.1 General
    12.2.2 Advance Construction of Network Upgrades that are an 
Obligation of an Entity other than the Interconnection Customer
    12.2.3 Advancing Construction of Network Upgrades that are part 
of an Expansion Plan of the Transmission Provider
    12.2.4 Amended Interconnection System Impact Study
Section 13. Miscellaneous
    13.1 Confidentiality
    13.1.1 Scope
    13.1.2 Release of Confidential Information
    13.1.3 Rights
    13.1.4 No Warranties
    13.1.5 Standard of Care
    13.1.6 Order of Disclosure
    13.1.7 Remedies
    13.1.8 Disclosure to FERC or Its Staff
    13.1.9
    13.1.10
    13.1.11
    13.2 Delegation of Responsibility
    13.3 Obligation for Study Costs
    13.4 Third Parties Conducting Studies
    13.5 Disputes
    13.5.1 Submission
    13.5.2 External Arbitration Procedures
    13.5.3 Arbitration Decisions
    13.5.4 Costs

Appendices

Appendix 1--Interconnection Request
Appendix 2--Interconnection Feasibility Study Agreement

[[Page 49934]]

Appendix 3--Interconnection System Impact Study Agreement
Appendix 4--Interconnection Facilities Study Agreement
Appendix 5--Optional Interconnection Study Agreement
Appendix 6--Standard Large Generator Interconnection Agreement

Section 1. Definitions

    Adverse System Impact shall mean the negative effects due to 
technical or operational limits on conductors or equipment being 
exceeded that may compromise the safety and reliability of the 
electric system.
    Affected System shall mean an electric system other than the 
Transmission Provider's Transmission System that may be affected by 
the proposed interconnection.
    Affected System Operator shall mean the entity that operates an 
Affected System.
    Affiliate shall mean, with respect to a corporation, partnership 
or other entity, each such other corporation, partnership or other 
entity that directly or indirectly, through one or more 
intermediaries, controls, is controlled by, or is under common 
control with, such corporation, partnership or other entity.
    Ancillary Services shall mean those services that are necessary 
to support the transmission of capacity and energy from resources to 
loads while maintaining reliable operation of the Transmission 
Provider's Transmission System in accordance with Good Utility 
Practice.
    Applicable Laws and Regulations shall mean all duly promulgated 
applicable federal, state and local laws, regulations, rules, 
ordinances, codes, decrees, judgments, directives, or judicial or 
administrative orders, permits and other duly authorized actions of 
any Governmental Authority.
    Applicable Reliability Council shall mean the reliability 
council applicable to the Transmission System to which the 
Generating Facility is directly interconnected.
    Applicable Reliability Standards shall mean the requirements and 
guidelines of NERC, the Applicable Reliability Council, and the 
Control Area of the Transmission System to which the Generating 
Facility is directly interconnected.
    Base Case shall mean the base case power flow, short circuit, 
and stability data bases used for the Interconnection Studies by the 
Transmission Provider or Interconnection Customer.
    Breach shall mean the failure of a Party to perform or observe 
any material term or condition of the Standard Large Generator 
Interconnection Agreement.
    Breaching Party shall mean a Party that is in Breach of the 
Standard Large Generator Interconnection Agreement.
    Business Day shall mean Monday through Friday, excluding Federal 
Holidays.
    Calendar Day shall mean any day including Saturday, Sunday or a 
Federal Holiday.
    Clustering shall mean the process whereby a group of 
Interconnection Requests is studied together, instead of serially, 
for the purpose of conducting the Interconnection System Impact 
Study.
    Commercial Operation Date of a unit shall mean the date on which 
Interconnection Customer commences commercial operation of the unit 
at the Generating Facility after Trial Operation of such unit has 
been completed as confirmed in writing substantially in the form 
shown in Appendix E to the Standard Large Generator Interconnection 
Agreement.
    Confidential Information shall mean any confidential, 
proprietary or trade secret information of a plan, specification, 
pattern, procedure, design, device, list, concept, policy or 
compilation relating to the present or planned business of a Party, 
which is designated as confidential by the Party supplying the 
information, whether conveyed orally, electronically, in writing, 
through inspection, or otherwise.
    Control Area shall mean an electrical system or systems bounded 
by interconnection metering and telemetry, capable of controlling 
generation to maintain its interchange schedule with other Control 
Areas and contributing to frequency regulation of the 
interconnection. A Control Area must be certified by NERC.
    Default shall mean the failure of a Breaching Party to cure its 
Breach in accordance with Article 17 of the Standard Large Generator 
Interconnection Agreement.
    Dispute Resolution shall mean the procedure for resolution of a 
dispute between the Parties in which they will first attempt to 
resolve the dispute on an informal basis.
    Distribution System shall mean the Transmission Provider's 
facilities and equipment used to transmit electricity to ultimate 
usage points such as homes and industries directly from nearby 
generators or from interchanges with higher voltage transmission 
networks which transport bulk power over longer distances. The 
voltage levels at which distribution systems operate differ among 
areas.
    Distribution Upgrades shall mean the additions, modifications, 
and upgrades to the Transmission Provider's Distribution System at 
or beyond the Point of Interconnection to facilitate interconnection 
of the Generating Facility and render the transmission service 
necessary to effect Interconnection Customer's wholesale sale of 
electricity in interstate commerce. Distribution Upgrades do not 
include Interconnection Facilities.
    Effective Date shall mean the date on which the Standard Large 
Generator Interconnection Agreement becomes effective upon execution 
by the Parties subject to acceptance by the Commission, or if filed 
unexecuted, upon the date specified by the Commission.
    Emergency Condition shall mean a condition or situation: (1) 
That in the judgement of the Party making the claim is imminently 
likely to endanger life or property; or (2) that, in the case of a 
Transmission Provider, is imminently likely (as determined in a non-
discriminatory manner) to cause a material adverse effect on the 
security of, or damage to Transmission Provider's Transmission 
System, Transmission Provider's Interconnection Facilities or the 
electric systems of others to which the Transmission Provider's 
Transmission System is directly connected; or (3) that, in the case 
of Interconnection Customer, is imminently likely (as determined in 
a non-discriminatory manner) to cause a material adverse effect on 
the security of, or damage to, the Generating Facility or 
Interconnection Customer's Interconnection Facilities. System 
restoration and black start shall be considered Emergency 
Conditions; provided that Interconnection Customer is not obligated 
by the Standard Large Generator Interconnection Agreement to possess 
black start capability.
    Energy Resource Interconnection Service (ER Interconnection 
Service) shall mean an Interconnection Service that allows the 
Interconnection Customer to connect its Generating Facility to the 
Transmission Provider's Transmission System to be eligible to 
deliver the Generating Facility's electric output using the existing 
firm or nonfirm capacity of the Transmission Provider's Transmission 
System on an as available basis. Energy Resource Interconnection 
Service in and of itself does not convey transmission service.
    Engineering & Procurement (E&P) Agreement shall mean an 
agreement that authorizes the Transmission Provider to begin 
engineering and procurement of long lead-time items necessary for 
the establishment of the interconnection in order to advance the 
implementation of the Interconnection Request.
    Environmental Law shall mean Applicable Laws or Regulations 
relating to pollution or protection of the environment or natural 
resources.
    Federal Power Act shall mean the Federal Power Act, as amended, 
16 U.S.C. 791a et seq.
    FERC shall mean the Federal Energy Regulatory Commission 
(Commission) or its successor.
    Force Majeure shall mean any act of God, labor disturbance, act 
of the public enemy, war, insurrection, riot, fire, storm or flood, 
explosion, breakage or accident to machinery or equipment, any 
order, regulation or restriction imposed by governmental, military 
or lawfully established civilian authorities, or any other cause 
beyond a Party's control. A Force Majeure event does not include an 
act of negligence or intentional wrongdoing.
    Generating Facility shall mean Interconnection Customer's device 
for the production of electricity identified in the Interconnection 
Request, but shall not include the Interconnection Customer's 
Interconnection Facilities.
    Generating Facility Capacity shall mean the net capacity of the 
Generating Facility and the aggregate net capacity of the Generating 
Facility where it includes multiple energy production devices.
    Good Utility Practice shall mean any of the practices, methods 
and acts engaged in or approved by a significant portion of the 
electric industry during the relevant time period, or any of the 
practices, methods and acts which, in the exercise of reasonable 
judgment in light of the facts known at the time the decision was 
made, could have been expected to accomplish the desired result at a 
reasonable cost consistent with good business practices, 
reliability, safety and

[[Page 49935]]

expedition. Good Utility Practice is not intended to be limited to 
the optimum practice, method, or act to the exclusion of all others, 
but rather to be acceptable practices, methods, or acts generally 
accepted in the region.
    Governmental Authority shall mean any federal, state, local or 
other governmental regulatory or administrative agency, court, 
commission, department, board, or other governmental subdivision, 
legislature, rulemaking board, tribunal, or other governmental 
authority having jurisdiction over the Parties, their respective 
facilities, or the respective services they provide, and exercising 
or entitled to exercise any administrative, executive, police, or 
taxing authority or power; provided, however, that such term does 
not include Interconnection Customer, Transmission Provider, or any 
Affiliate thereof.
    Hazardous Substances shall mean any chemicals, materials or 
substances defined as or included in the definition of ``hazardous 
substances,'' ``hazardous wastes,'' ``hazardous materials,'' 
``hazardous constituents,'' ``restricted hazardous materials,'' 
``extremely hazardous substances,'' ``toxic substances,'' 
``radioactive substances,'' ``contaminants,'' ``pollutants,'' 
``toxic pollutants'' or words of similar meaning and regulatory 
effect under any applicable Environmental Law, or any other 
chemical, material or substance, exposure to which is prohibited, 
limited or regulated by any applicable Environmental Law.
    Initial Synchronization Date shall mean the date upon which the 
Generating Facility is initially synchronized and upon which Trial 
Operation begins.
    In-Service Date shall mean the date upon which the 
Interconnection Customer reasonably expects it will be ready to 
begin use of the Transmission Provider's Interconnection Facilities 
to obtain back feed power.
    Interconnection Customer shall mean any entity, including the 
Transmission Provider, Transmission Owner or any of the Affiliates 
or subsidiaries of either, that proposes to interconnect its 
Generating Facility with the Transmission Provider's Transmission 
System.
    Interconnection Customer's Interconnection Facilities shall mean 
all facilities and equipment, as identified in Appendix A of the 
Standard Large Generator Interconnection Agreement, that are located 
between the Generating Facility and the Point of Change of 
Ownership, including any modification, addition, or upgrades to such 
facilities and equipment necessary to physically and electrically 
interconnect the Generating Facility to the Transmission Provider's 
Transmission System. Interconnection Customer's Interconnection 
Facilities are sole use facilities.
    Interconnection Facilities shall mean the Transmission 
Provider's Interconnection Facilities and the Interconnection 
Customer's Interconnection Facilities. Collectively, Interconnection 
Facilities include all facilities and equipment between the 
Generating Facility and the Point of Interconnection, including any 
modification, additions or upgrades that are necessary to physically 
and electrically interconnect the Generating Facility to the 
Transmission Provider's Transmission System. Interconnection 
Facilities are sole use facilities and shall not include 
Distribution Upgrades, Stand Alone Network Upgrades or Network 
Upgrades.
    Interconnection Facilities Study shall mean a study conducted by 
the Transmission Provider or a third party consultant for the 
Interconnection Customer to determine a list of facilities 
(including Transmission Provider's Interconnection Facilities and 
Network Upgrades as identified in the Interconnection System Impact 
Study), the cost of those facilities, and the time required to 
interconnect the Generating Facility with the Transmission 
Provider's Transmission System. The scope of the study is defined in 
Section 8 of the Standard Large Generator Interconnection 
Procedures.
    Interconnection Facilities Study Agreement shall mean the form 
of agreement contained in Appendix 4 of the Standard Large Generator 
Interconnection Procedures for conducting the Interconnection 
Facilities Study.
    Interconnection Feasibility Study shall mean a preliminary 
evaluation of the system impact and cost of interconnecting the 
Generating Facility to the Transmission Provider's Transmission 
System, the scope of which is described in Section 6 of the Standard 
Large Generator Interconnection Procedures.
    Interconnection Feasibility Study Agreement shall mean the form 
of agreement contained in Appendix 2 of the Standard Large Generator 
Interconnection Procedures for conducting the Interconnection 
Feasibility Study.
    Interconnection Request shall mean an Interconnection Customer's 
request, in the form of Appendix 1 to the Standard Large Generator 
Interconnection Procedures, in accordance with the Tariff, to 
interconnect a new Generating Facility, or to increase the capacity 
of, or make a Material Modification to the operating characteristics 
of, an existing Generating Facility that is interconnected with the 
Transmission Provider's Transmission System.
    Interconnection Service shall mean the service provided by the 
Transmission Provider associated with interconnecting the 
Interconnection Customer's Generating Facility to the Transmission 
Provider's Transmission System and enabling it to receive electric 
energy and capacity from the Generating Facility at the Point of 
Interconnection, pursuant to the terms of the Standard Large 
Generator Interconnection Agreement and, if applicable, the 
Transmission Provider's Tariff.
    Interconnection Study shall mean any of the following studies: 
The Interconnection Feasibility Study, the Interconnection System 
Impact Study, and the Interconnection Facilities Study described in 
the Standard Large Generator Interconnection Procedures.
    Interconnection System Impact Study shall mean an engineering 
study that evaluates the impact of the proposed interconnection on 
the safety and reliability of Transmission Provider's Transmission 
System and, if applicable, an Affected System. The study shall 
identify and detail the system impacts that would result if the 
Generating Facility were interconnected without project 
modifications or system modifications, focusing on the Adverse 
System Impacts identified in the Interconnection Feasibility Study, 
or to study potential impacts, including but not limited to those 
identified in the Scoping Meeting as described in the Standard Large 
Generator Interconnection Procedures.
    Interconnection System Impact Study Agreement shall mean the 
form of agreement contained in Appendix 3 of the Standard Large 
Generator Interconnection Procedures for conducting the 
Interconnection System Impact Study.
    IRS shall mean the Internal Revenue Service.
    Joint Operating Committee shall be a group made up of 
representatives from Interconnection Customers and the Transmission 
Provider to coordinate operating and technical considerations of 
Interconnection Service.
    Large Generating Facility shall mean a Generating Facility 
having a Generating Facility Capacity of more than 20 MW.
    Loss shall mean any and all losses relating to injury to or 
death of any person or damage to property, demand, suits, 
recoveries, costs and expenses, court costs, attorney fees, and all 
other obligations by or to third parties, arising out of or 
resulting from the other Party's performance, or non-performance of 
its obligations under the Standard Large Generator Interconnection 
Agreement on behalf of the indemnifying Party, except in cases of 
gross negligence or intentional wrongdoing by the indemnifying 
Party.
    Material Modification shall mean those modifications that have a 
material impact on the cost or timing of any Interconnection Request 
with a later queue priority date.
    Metering Equipment shall mean all metering equipment installed 
or to be installed at the Generating Facility pursuant to the 
Standard Large Geneator Interconnection Agreement at the metering 
points, including but not limited to instrument transformers, MWh-
meters, data acquisition equipment, transducers, remote terminal 
unit, communications equipment, phone lines, and fiber optics.
    NERC shall mean the North American Electric Reliability Council 
or its successor organization.
    Network Resource shall mean that portion of a Generating 
Facility that is integrated with the Transmission Provider's 
Transmission System, designated as a Network Resource pursuant to 
the terms of the Tariff, and subjected to redispatch directives as 
ordered by the Transmission Provider in accordance with the Tariff.
    Network Resource Interconnection Service (NR Interconnection 
Service) shall mean an Interconnection Service that allows the 
Interconnection Customer to integrate its Large Generating Facility 
with the Transmission Provider's Transmission System (1) in a manner 
comparable to that in which the Transmission Provider integrates its 
generating facilities to serve native load customers; or (2) in an 
RTO or ISO with market based congestion management, in the

[[Page 49936]]

same manner as all other Network Resources. Network Resource 
Interconnection Service in and of itself does not convey 
transmission service.
    Network Upgrades shall mean the additions, modifications, and 
upgrades to the Transmission Provider's Transmission System required 
at or beyond the point at which the Interconnection Customer 
interconnects to the Transmission Provider's Transmission System to 
accommodate the interconnection of the Large Generating Facility to 
the Transmission Provider's Transmission System.
    Notice of Dispute shall mean a written notice of a dispute or 
claim that arises out of or in connection with the Standard Large 
Generator Interconnection Agreement or its performance.
    Optional Interconnection Study shall mean a sensitivity analysis 
based on assumptions specified by the Interconnection Customer in 
the Optional Interconnection Study Agreement.
    Optional Interconnection Study Agreement shall mean the form of 
agreement contained in Appendix 5 of the Standard Large Generator 
Interconnection Procedures for conducting the Optional 
Interconnection Study.
    Party or Parties shall mean Transmission Provider, Transmission 
Owner, Interconnection Customer or any combination of the above.
    Point of Change of Ownership shall mean the point, as set forth 
in Appendix A to the Standard Large Generator Interconnection 
Agreement, where the Interconnection Customer's Interconnection 
Facilities connect to the Transmission Provider's Interconnection 
Facilities.
    Point of Interconnection shall mean the point, as set forth in 
Appendix A to the Standard Large Generator Interconnection 
Agreement, where the Interconnection Facilities connect to the 
Transmission Provider's Transmission System.
    Queue Position shall mean the order of a valid Interconnection 
Request, relative to all other pending valid Interconnection 
Requests, that is established based upon the date and time of 
receipt of the valid Interconnection Request by the Transmission 
Provider.
    Reasonable Efforts shall mean, with respect to an action 
required to be attempted or taken by a Party under the Standard 
Large Generator Interconnection Agreement, efforts that are timely 
and consistent with Good Utility Practice and are otherwise 
substantially equivalent to those a Party would use to protect its 
own interests.
    Scoping Meeting shall mean the meeting between representatives 
of the Interconnection Customer and Transmission Provider conducted 
for the purpose of discussing alternative interconnection options, 
to exchange information including any transmission data and earlier 
study evaluations that would be reasonably expected to impact such 
interconnection options, to analyze such information, and to 
determine the potential feasible Points of Interconnection.
    Site Control shall mean documentation reasonably demonstrating: 
(1) Ownership of, a leasehold interest in, or a right to develop a 
site for the purpose of constructing the Generating Facility; (2) an 
option to purchase or acquire a leasehold site for such purpose; or 
(3) an exclusivity or other business relationship between 
Interconnection Customer and the entity having the right to sell, 
lease or grant Interconnection Customer the right to possess or 
occupy a site for such purpose.
    Small Generating Facility shall mean a Generating Facility that 
has a Generating Facility Capacity of no more than 20 MW.
    Stand Alone Network Upgrades shall mean Network Upgrades that an 
Interconnection Customer may construct without affecting day-to-day 
operations of the Transmission System during their construction. 
Both the Transmission Provider and the Interconnection Customer must 
agree as to what constitutes Stand Alone Network Upgrades and 
identify them in Appendix A to the Standard Large Generator 
Interconnection Agreement.
    Standard Large Generator Interconnection Agreement (LGIA) shall 
mean the form of interconnection agreement applicable to an 
Interconnection Request pertaining to a Large Generating Facility, 
that is included in the Transmission Provider's Tariff.
    Standard Large Generator Interconnection Procedures (LGIP) shall 
mean the interconnection procedures applicable to an Interconnection 
Request pertaining to a Large Generating Facility that are included 
in the Transmission Provider's Tariff.
    System Protection Facilities shall mean the equipment, including 
necessary protection signal communications equipment, required to 
protect (1) the Transmission Provider's Transmission System from 
faults or other electrical disturbances occurring at the Generating 
Facility and (2) the Generating Facility from faults or other 
electrical system disturbances occurring on the Transmission 
Provider's Transmission System or on other delivery systems or other 
generating systems to which the Transmission Provider's Transmission 
System is directly connected.
    Tariff shall mean the Transmission Provider's Tariff through 
which open access transmission service and Interconnection Service 
are offered, as filed with the Commission, and as amended or 
supplemented from time to time, or any successor tariff.
    Transmission Owner shall mean an entity that owns, leases or 
otherwise possesses an interest in the portion of the Transmission 
System at the Point of Interconnection and may be a Party to the 
Standard Large Generator Interconnection Agreement to the extent 
necessary.
    Transmission Provider shall mean the public utility (or its 
designated agent) that owns, controls, or operates transmission or 
distribution facilities used for the transmission of electricity in 
interstate commerce and provides transmission service under the 
Tariff. The term Transmission Provider should be read to include the 
Transmission Owner when the Transmission Owner is separate from the 
Transmission Provider.
    Transmission Provider's Interconnection Facilities shall mean 
all facilities and equipment owned, controlled, or operated by the 
Transmission Provider from the Point of Change of Ownership to the 
Point of Interconnection as identified in Appendix A to the Standard 
Large Generator Interconnection Agreement, including any 
modifications, additions or upgrades to such facilities and 
equipment. Transmission Provider's Interconnection Facilities are 
sole use facilities and shall not include Distribution Upgrades, 
Stand Alone Network Upgrades or Network Upgrades.
    Transmission System shall mean the facilities owned, controlled 
or operated by the Transmission Provider or Transmission Owner that 
are used to provide transmission service under the Tariff.
    Trial Operation shall mean the period during which 
Interconnection Customer is engaged in on-site test operations and 
commissioning of the Generating Facility prior to commercial 
operation.

Section 2. Scope and Application

2.1 Application of Standard Large Generator Interconnection 
Procedures

    Sections 2 through 13 apply to processing an Interconnection 
Request pertaining to a Large Generating Facility.

2.2 Comparability

    The Transmission Provider shall receive, process and analyze all 
Interconnection Requests in a timely manner as set forth in this 
LGIP. The Transmission Provider will use the same Reasonable Efforts 
in processing and analyzing Interconnection Requests from all 
Interconnection Customers, whether the Generating Facilities are 
owned by Transmission Provider, its subsidiaries or Affiliates or 
others.

2.3 Base Case Data

    Transmission Provider shall provide base power flow, short 
circuit and stability databases, including all underlying 
assumptions, and contingency list upon request subject to 
confidentiality provisions. Such databases and lists, hereinafter 
referred to as Base Cases, shall include all (1) generation projects 
and (ii) transmission projects, including merchant transmission 
projects that are proposed for the Transmission System for which a 
transmission expansion plan has been submitted and approved by the 
applicable authority.

2.4 No Applicability to Transmission Service

    Nothing in this LGIP shall constitute a request for transmission 
service or confer upon an Interconnection Customer any right to 
receive transmission service.

Section 3. Interconnection Requests

3.1 General

    An Interconnection Customer shall submit to the Transmission 
Provider an Interconnection Request in the form of Appendix 1 to 
this LGIP and a refundable deposit of $10,000. The Transmission 
Provider shall apply the deposit toward the cost of an 
Interconnection Feasibility Study. The Interconnection Customer 
shall submit a separate Interconnection Request for each

[[Page 49937]]

site and may submit multiple Interconnection Requests for a single 
site. The Interconnection Customer must submit a deposit with each 
Interconnection Request even when more than one request is submitted 
for a single site. An Interconnection Request to evaluate one site 
at two different voltage levels shall be treated as two 
Interconnection Requests.
    At Interconnection Customer's option, Transmission Provider and 
Interconnection Customer will identify alternative Point(s) of 
Interconnection and configurations at the Scoping Meeting to 
evaluate in this process and attempt to eliminate alternatives in a 
reasonable fashion given resources and information available. 
Interconnection Customer will select the definitive Point(s) of 
Interconnection to be studied no later than the execution of the 
Interconnection Feasibility Study Agreement.

3.2 Identification of Types of Interconnection Services

    At the time the Interconnection Request is submitted, 
Interconnection Customer must request either ER Interconnection 
Service or NR Interconnection Service, as described; provided, 
however, any Interconnection Customer requesting NR Interconnection 
Service may also request that it be concurrently studied as an ER 
Interconnection Service, up to the point when an Interconnection 
Facility Study Agreement is executed. Interconnection Customer may 
then elect to proceed with NR Interconnection Service or to proceed 
under a lower level of interconnection service to the extent that 
only certain upgrades will be completed.

3.2.1 Energy Resource Interconnection Service (ER Interconnection 
Service)

    3.2.1.1 The Product. ER Interconnection Service allows 
Interconnection Customer to connect the Large Generating Facility to 
the Transmission System and be eligible to deliver the Large 
Generating Facility's output using the existing firm or non-firm 
capacity of the Transmission System on an ``as available'' basis. ER 
Interconnection Service does not in and of itself convey any 
transmission service.
    3.2.1.2 The Study. The study consists of short circuit/fault 
duty, steady state (thermal and voltage) and stability analyses. The 
short circuit/fault duty analysis would identify direct 
Interconnection Facilities required and the Network Upgrades 
necessary to address short circuit issues associated with the 
Interconnection Facilities. The stability and steady state studies 
would identify necessary upgrades to allow full output of the 
proposed Large Generating Facility and would also identify the 
maximum allowed output, at the time the study is performed, of the 
interconnecting Large Generating Facility without requiring 
additional Network Upgrades.

3.2.2 Network Resource Interconnection Service (NR Interconnection 
Service)

    3.2.2.1 The Product. The Transmission Provider must conduct the 
necessary studies and construct the Network Upgrades needed to 
integrate the Large Generating Facility (1) in a manner comparable 
to that in which the Transmission Provider integrates its Generating 
Facilities to serve native load customers; or (2) in an ISO or RTO 
with market based congestion management, in the same manner as all 
other Network Resources. NR Interconnection Service Allows the 
Interconnection Customer 's Large Generating Facility to be 
designated as a Network Resource, up to the Large Generating 
Facility's full output, on the same basis as all other existing 
Network Resources interconnected to the Transmission Provider's 
Transmission System, and to be studied as a Network Resource on the 
assumption that such a designation will occur.
    3.2.2.2 The Study. The Interconnection Study for NR 
Interconnection Service shall assure that the Interconnection 
Customer's Large Generating Facility meets the requirements for NR 
Interconnection Service and as a general matter, that such Large 
Generating Facility's interconnection is also studied with the 
Transmission Provider's Transmission System at peak load, under a 
variety of severely stressed conditions, to determine whether, with 
the Large Generating Facility at full output, the aggregate of 
generation in the local area can be delivered to the aggregate of 
load on the Transmission Provider's Transmission System, consistent 
with the Transmission Provider's reliability criteria and 
procedures. This approach assumes that some portion of existing 
Network Resources are displaced by the output of the Interconnection 
Customer's Large Generating Facility. NR Interconnection Service in 
and of itself does not convey any transmission service.

3.3 Valid Interconnection Request

3.3.1 Initiating an Interconnection Request

    To initiate an Interconnection Request, Interconnection Customer 
must submit all of the following: (i) A $10,000 deposit, (ii) a 
completed application in the form of Appendix 1, and (iii) 
demonstration of Site Control or a posting of an additional deposit 
of $10,000. Such deposits shall be applied toward any 
Interconnection Studies pursuant to the Interconnection Request. If 
Interconnection Customer demonstrates Site Control within the cure 
period specified in Section 3.3.3 after submitting its 
Interconnection Request, the additional deposit shall be refundable; 
otherwise, all such deposit(s), additional and initial, become non-
refundable.
    The expected In-Service Date of the new Large Generating 
Facility or increase in capacity of the existing Generating Facility 
shall be no more than the process window for the regional expansion 
planning period (or in the absence of a regional planning process, 
the process window for the Transmission Provider's expansion 
planning period) not to exceed seven years from the date the 
Interconnection Request is received by the Transmission Provider, 
unless the Interconnection Customer demonstrates that engineering, 
permitting and construction of the new Large Generating Facility or 
increase in capacity of the existing Generating Facility will take 
longer than the regional expansion planning period. The In-Service 
Date may succeed the date the Interconnection Request is received by 
the Transmission Provider by a period up to ten years, or longer 
where the Interconnection Customer and Transmission Provider agree, 
such agreement not to be unreasonably withheld.

3.3.2 Acknowledgment of Interconnection Request

    Transmission Provider shall acknowledge receipt of the 
Interconnection Request within five (5) Business Days of receipt of 
the request and attach a copy of the received Interconnection 
Request to the acknowledgement.
    3.3.3 Deficiencies in Interconnection Request
    An Interconnection Request will not be considered to be a valid 
request until all items in Section 3.3.1 have been received by the 
Transmission Provider. If an Interconnection Request fails to meet 
the requirements set forth in Section 3.3.1, the Transmission 
Provider shall notify the Interconnection Customer within five (5) 
Business Days of receipt of the initial Interconnection Request of 
the reasons for such failure and that the Interconnection Request 
does not constitute a valid request. Interconnection Customer shall 
provide the Transmission Provider the additional requested 
information needed to constitute a valid request within ten (10) 
Business Days after receipt of such notice. Failure by 
Interconnection Customer to comply with this Section 3.3.3 shall be 
treated in accordance with Section 3.6.

3.3.4 Scoping Meeting

    Within ten (10) Business Days after receipt of a valid 
Interconnection Request, Transmission Provider shall establish a 
date agreeable to Interconnection Customer for the Scoping Meeting, 
and such date shall be no later than thirty (30) Calendar Days from 
receipt of the valid Interconnection Request, unless otherwise 
mutually agreed upon by the Parties.
    The purpose of the Scoping Meeting shall be to discuss 
alternative interconnection options, to exchange information 
including any transmission data that would reasonably be expected to 
impact such interconnection options, to analyze such information and 
to determine the potential feasible Points of Interconnection. 
Transmission Provider and Interconnection Customer will bring to the 
meeting such technical data, including, but not limited to: (i) 
General facility loadings, (ii) general instability issues, (iii) 
general short circuit issues, (iv) general voltage issues, and (v) 
general reliability issues as may be reasonably required to 
accomplish the purpose of the meeting. Transmission Provider and 
Interconnection Customer will also bring to the meeting personnel 
and other resources as may be reasonably required to accomplish the 
purpose of the meeting in the time allocated for the meeting. On the 
basis of the meeting, Interconnection Customer shall designate its 
Point of Interconnection, pursuant to Section 6.1, and one or more 
available alternative Point(s) of Interconnection. The duration of 
the meeting shall be sufficient to accomplish its purpose.

3.4 OASIS Posting

    The Transmission Provider will maintain on its OASIS a list of 
all Interconnection

[[Page 49938]]

Requests. The list will identify, for each Interconnection Request: 
(i) The maximum summer and winter megawatt electrical output; (ii) 
the location by county and state; (iii) the station or transmission 
line or lines where the interconnection will be made; (iv) the 
projected In-Service Date; (v) the status of the Interconnection 
Request, including Queue Position; (vi) the type of Interconnection 
Service being requested; and (vii) the availability of any studies 
related to the Interconnection Request; (viii) the date of the 
Interconnection Request; (ix) the type of Generating Facility to be 
constructed (combined cycle, base load or combustion turbine and 
fuel type); and (x) for Interconnection Requests that have not 
resulted in a completed interconnection, an explanation as to why it 
was not completed. The list will not disclose the identity of the 
Interconnection Customer until the Interconnection Customer executes 
an LGIA or requests that the Transmission Provider file an 
unexecuted LGIA with FERC. The Transmission Provider shall post to 
its OASIS site any deviations from the study timelines set forth 
herein. Interconnection Study reports and Optional Interconnection 
Study reports shall be posted to the Transmission Provider's OASIS 
site subsequent to the meeting between the Interconnection Customer 
and the Transmission Provider to discuss the applicable study 
results. The Transmission Provider shall also post any known 
deviations in the Large Generating Facility's In-Service Date.

3.5 Coordination with Affected Systems

    The Transmission Provider will coordinate the conduct of any 
studies required to determine the impact of the Interconnection 
Request on Affected Systems with Affected System Operators and, if 
possible, include those results in its applicable Interconnection 
Study within the time frame specified in this LGIP. The Transmission 
Provider will include such Affected System Operators in all meetings 
held with the Interconnection Customer as required by this LGIP. The 
Interconnection Customer will cooperate with the Transmission 
Provider in all matters related to the conduct of studies and the 
determination of modifications to Affected Systems. A Transmission 
Provider which may be an Affected System shall cooperate with the 
Transmission Provider with whom interconnection has been requested 
in all matters related to the conduct of studies and the 
determination of modifications to Affected Systems.

3.6 Withdrawal

    The Interconnection Customer may withdraw its Interconnection 
Request at any time by written notice of such withdrawal to the 
Transmission Provider. In addition, if the Interconnection Customer 
fails to adhere to all requirements of this LGIP, except as provided 
in Section 13.5 (Disputes), the Transmission Provider shall deem the 
Interconnection Request to be withdrawn and shall provide written 
notice to the Interconnection Customer of the deemed withdrawal and 
an explanation of the reasons for such deemed withdrawal. Upon 
receipt of such written notice, the Interconnection Customer shall 
have fifteen (15) Business Days in which to either respond with 
information or actions that cures the deficiency or to notify the 
Transmission Provider of its intent to pursue Dispute Resolution.
    Withdrawal shall result in the loss of the Interconnection 
Customer's Queue Position. If an Interconnection Customer disputes 
the withdrawal and loss of its Queue Position, then during Dispute 
Resolution, the Interconnection Customer's Interconnection Request 
is eliminated from the queue until such time that the outcome of 
Dispute Resolution would restore its Queue Position. An 
Interconnection Customer that withdraws or is deemed to have 
withdrawn its Interconnection Request shall pay to the Transmission 
Provider all costs that the Transmission Provider prudently incurs 
with respect to that Interconnection Request prior to the 
Transmission Provider's receipt of notice described above. The 
Interconnection Customer must pay all monies due to the Transmission 
Provider before it is allowed to obtain any Interconnection Study 
data or results.
    The Transmission Provider shall (i) update the OASIS Queue 
Position posting and (ii) refund to the Interconnection Customer any 
portion of the Interconnection Customer's's deposit or study 
payments that exceeds the costs that the Transmission Provider has 
incurred, including interest calculated in accordance with section 
35.19a(a)(2) of FERC's regulations. In the event of such withdrawal, 
the Transmission Provider, subject to the confidentiality provisions 
of Section 13.1, shall provide, at Interconnection Customer's 
request, all information that the Transmission Provider developed 
for any completed study conducted up to the date of withdrawal of 
the Interconnection Request.

Section 4. Queue Position

4.1 General

    The Transmission Provider shall assign a Queue Position based 
upon the date and time of receipt of the valid Interconnection 
Request; provided that, if the sole reason an Interconnection 
Request is not valid is the lack of required information on the 
application form, and the Interconnection Customer provides such 
information in accordance with Section 3.3.3, then the Transmission 
Provider shall assign the Interconnection Customer a Queue Position 
based on the date the application form was originally filed. Moving 
a Point of Interconnection shall result in a lowering of Queue 
Position if it is deemed a Material Modification under Section 
4.4.3.
    The Queue Position of each Interconnection Request will be used 
to determine the order of performing the Interconnection Studies and 
determination of cost responsibility for the facilities necessary to 
accommodate the Interconnection Request. A higher queued 
Interconnection Request is one that has been placed ``earlier'' in 
the queue in relation to another Interconnection Request that is 
lower queued.

4.2 Clustering

    At Transmission Provider's option, Interconnection Requests may 
be studied serially or in clusters for the purpose of the 
Interconnection System Impact Study.
    Clustering shall be implemented on the basis of Queue Position. 
If Transmission Provider elects to study Interconnection Requests 
using Clustering, all Interconnection Requests received within a 
period not to exceed one hundred and eighty (180) Calendar Days, 
hereinafter referred to as the ``Queue Cluster Window'' shall be 
studied together without regard to the nature of the underlying 
Interconnection Service, whether ER Interconnection Service or NR 
Interconnection Service. Deadline for completing all Interconnection 
System Impact Studies for which an Interconnection System Impact 
Study Agreement has been executed during a Queue Cluster Window 
shall be in accordance with Section 7.4, for all Interconnection 
Requests assigned to the same Queue Cluster Window. Transmission 
Provider may study an Interconnection Request separately to the 
extent warranted by Good Utility Practice based upon the electrical 
remoteness of the proposed Large Generating Facility.
    Clustering Interconnection System Impact Studies shall be 
conducted in such a manner to ensure the efficient implementation of 
the applicable regional transmission expansion plan in light of the 
Transmission System's capabilities at the time of each study.
    The Queue Cluster Window shall have a fixed time interval based 
on fixed annual opening and closing dates. Any changes to the 
established Queue Cluster Window interval and opening or closing 
dates shall be announced with a posting on the Transmission 
Provider's OASIS beginning at least one hundred and eighty (180) 
Calendar Days in advance of the change and continuing thereafter 
through the end date of the first Queue Cluster Window that is to be 
modified.

4.3 Transferability of Queue Position

    An Interconnection Customer may transfer its Queue Position to 
another entity only if such entity acquires the specific Generating 
Facility identified in the Interconnection Request and the Point of 
Interconnection does not change.

4.4 Modifications

    The Interconnection Customer shall submit to the Transmission 
Provider, in writing, modifications to any information provided in 
the Interconnection Request. The Interconnection Customer shall 
retain its Queue Position if the modifications are in accordance 
with Sections 4.4.1, 4.4.2 or 4.4.5, or are determined not to be 
Material Modifications pursuant to Section 4.4.3.
    Notwithstanding the above, during the course of the 
Interconnection Studies, either the Interconnection Customer or 
Transmission Provider may identify changes to the planned 
interconnection that may improve the costs and benefits (including 
reliability) of the interconnection, and the ability of the proposed 
change to accommodate the Interconnection Request. To the extent the 
identified changes are

[[Page 49939]]

acceptable to the Transmission Provider and Interconnection 
Customer, such acceptance not to be unreasonably withheld, 
Transmission Provider shall modify the Point of Interconnection and/
or configuration in accordance with such changes and proceed with 
any re-studies necessary to do so in accordance with Section 6.4, 
Section 7.6 and Section 8.5 as applicable and Interconnection 
Customer shall retain its Queue Position.
    4.4.1 Prior to the return of the executed Interconnection System 
Impact Study Agreement to the Transmission Provider, modifications 
permitted under this Section shall include specifically: (a) A 
reduction up to 60 percent (MW) of electrical output of the proposed 
project; (b) modifying the technical parameters associated with the 
Large Generating Facility technology or the Large Generating 
Facility step-up transformer impedance characteristics; and (c) 
modifying the interconnection configuration. For plant increases, 
the incremental increase in plant output will go to the end of the 
queue for the purposes of cost allocation and study analysis.
    4.4.2 Prior to the return of the executed Interconnection 
Facility Study Agreement to the Transmission Provider, the 
modifications permitted under this Section shall include 
specifically: (a) additional 15 percent decrease in plant size (MW), 
and (b) Large Generating Facility technical parameters associated 
with modifications to Large Generating Facility technology and 
transformer impedances; provided, however, the incremental costs 
associated with those modifications are the responsibility of the 
requesting Interconnection Customer.
    4.4.3 Prior to making any modification other than those 
specifically permitted by Sections 4.4.1, 4.4.2, and 4.4.5, 
Interconnection Customer may first request that the Transmission 
Provider evaluate whether such modification is a Material 
Modification. In response to Interconnection Customer's request, the 
Transmission Provider shall evaluate the proposed modifications 
prior to making them and inform the Interconnection Customer in 
writing of whether the modifications would constitute a Material 
Modification. Any change to the Point of Interconnection shall 
constitute a Material Modification. The Interconnection Customer may 
then withdraw the proposed modification or proceed with a new 
Interconnection Request for such modification.
    4.4.4 Upon receipt of Interconnection Customer's request for 
modification permitted under this Section 4.4, the Transmission 
Provider shall commence and perform any necessary additional studies 
as soon as practicable, but in no event shall the Transmission 
Provider commence such studies later than thirty (30) Calendar Days 
after receiving notice of Interconnection Customer's request. Any 
additional studies resulting from such modification shall be done at 
Interconnection Customer's cost.
    4.4.5 Extensions of less than three (3) cumulative years in the 
Commercial Operation Date of the Large Generating Facility to which 
the Interconnection Request relates are not material and should be 
handled through construction sequencing.

Section 5. Procedures for Interconnection Requests Submitted Prior to 
Effective Date of Standard Large Generator Interconnection Procedures

5.1 Queue Position for Pending Requests

    5.1.1 Any Interconnection Customer assigned a Queue Position 
prior to the effective date of this LGIP shall retain that Queue 
Position
    5.1.1.1 If an Interconnection Study Agreement has not been 
executed as of the effective date of this LGIP, then such 
Interconnection Study, and any subsequent Interconnection Studies, 
shall be processed in accordance with this LGIP.
    5.1.1.2 If an Interconnection Study Agreement has been executed 
prior to the effective date of this LGIP, such Interconnection Study 
shall be completed in accordance with the terms of such agreement. 
With respect to any remaining studies for which an Interconnection 
Customer has not signed an Interconnection Study Agreement prior to 
the effective date of the LGIP, the Transmission Provider must offer 
the Interconnection Customer the option of either continuing under 
the Transmission Provider's existing interconnection study process 
or going forward with the completion of the necessary 
Interconnection Studies (for which it does not have a signed 
Interconnection Studies Agreement) in accordance with this LGIP.
    5.1.1.3 If an LGIA has been submitted to the Commission for 
approval before the effective date of the LGIP, then the LGIA would 
be grandfathered.

5.1.2 Transition Period

    To the extent necessary, the Transmission Provider and 
Interconnection Customers with an outstanding request (i.e., an 
Interconnection Request for which an LGIA has not been submitted to 
the Commission for approval as of the effective date of this LGIP) 
shall transition to this LGIP within a reasonable period of time not 
to exceed sixty (60) Calendar Days. The use of the term 
``outstanding request'' herein shall mean any Interconnection 
Request, on the effective date of this LGIP: (i) That has been 
submitted but not yet accepted by the Transmission Provider; (ii) 
where the related interconnection agreement has not yet been 
submitted to the Commission for approval in executed or unexecuted 
form, (iii) where the relevant Interconnection Study Agreements have 
not yet been executed, or (iv) where any of the relevant 
Interconnection Studies are in process but not yet completed. Any 
Interconnection Customer with an outstanding request as of the 
effective date of this LGIP may request a reasonable extension of 
any deadline, otherwise applicable, if necessary to avoid undue 
hardship or prejudice to its Interconnection Request. A reasonable 
extension shall be granted by the Transmission Provider to the 
extent consistent with the intent and process provided for under 
this LGIP.

5.2 New Transmission Provider

    If the Transmission Provider transfers control of its 
Transmission System to a successor Transmission Provider during the 
period when an Interconnection Request is pending, the original 
Transmission Provider shall transfer to the successor Transmission 
Provider any amount of the deposit or payment with interest thereon 
that exceeds the cost that it incurred to evaluate the request for 
interconnection. Any difference between such net amount and the 
deposit or payment required by this LGIP shall be paid by or 
refunded to the Interconnection, as appropriate. The original 
Transmission Provider shall coordinate with the successor 
Transmission Provider to complete any Interconnection Study, as 
appropriate, that the original Transmission Provider has begun but 
has not completed. If the Transmission Provider has tendered a draft 
LGIA to the Interconnection Customer but the Interconnection 
Customer has not either executed the LGIA or requested the filing of 
an unexecuted LGIA with FERC, unless otherwise provided, the 
Interconnection Customer may elect to complete negotiations with the 
Transmission Provider or the successor Transmission Provider.

Section 6. Interconnection Feasibility Study

6.1 Interconnection Feasibility Study Agreement

    Simultaneously with the acknowledgement of a valid 
Interconnection Request the Transmission Provider shall provide to 
Interconnection Customer an Interconnection Feasibility Study 
Agreement in the form of Appendix 2. The Interconnection Feasibility 
Study Agreement shall specify that Interconnection Customer is 
responsible for the actual cost of the Interconnection Feasibility 
Study. Within five (5) Business Days following the Scoping Meeting 
Interconnection Customer shall specify for inclusion in the 
attachment to the Interconnection Feasibility Study Agreement the 
Point(s) of Interconnection and any reasonable alternative Point(s) 
of Interconnection. Within five (5) Business Days following the 
Transmission Provider's receipt of such designation, Transmission 
Provider shall tender to Interconnection Customer the 
Interconnection Feasibility Study Agreement signed by Transmission 
Provider, which includes a good faith estimate of the cost for 
completing the Interconnection Feasibility Study. The 
Interconnection Customer shall execute and deliver to the 
Transmission Provider the Interconnection Feasibility Study 
Agreement along with a $10,000 deposit no later than thirty (30) 
Calendar Days after its receipt.
    On or before the return of the executed Interconnection 
Feasibility Study Agreement to the Transmission Provider, the 
Interconnection Customer shall provide the technical data called for 
in Appendix 1, Attachment A.
    If the Interconnection Feasibility Study uncovers any unexpected 
result(s) not contemplated during the Scoping Meeting, a substitute 
Point of Interconnection identified by either Interconnection 
Customer or Transmission Provider, and acceptable to the other, such 
acceptance not to be unreasonably withheld, will be substituted for 
the designated Point of Interconnection specified above without loss 
of Queue Position, and Re-studies shall be completed pursuant to 
Section 6.4 as applicable. For the

[[Page 49940]]

purpose of this Section 6.1, if the Transmission Provider and 
Interconnection Customer cannot agree on the substituted Point of 
Interconnection, then Interconnection Customer may direct that one 
of the alternatives as specified in the Interconnection Feasibility 
Study Agreement, as specified pursuant to Section 3.3.4, shall be 
the substitute.

6.2 Scope of Interconnection Feasibility Study

    The Interconnection Feasibility Study shall preliminarily 
evaluate the feasibility of the proposed interconnection to the 
Transmission System.
    The Interconnection Feasibility Study will consider the Base 
Case as well as all Generating Facilities (and with respect to 
(iii), any identified Network Upgrades) that, on the date the 
Interconnection Feasibility Study is commenced: (i) Are directly 
interconnected to the Transmission System; (ii) are interconnected 
to Affected Systems and may have an impact on the Interconnection 
Request; (iii) have a pending higher queued Interconnection Request 
to interconnect to the Transmission System; and (iv) have no Queue 
Position but have executed an LGIA or requested that an unexecuted 
LGIA be filed with FERC. The Interconnection Feasibility Study will 
consist of a power flow and short circuit analysis. The 
Interconnection Feasibility Study will provide a list of facilities 
and a non-binding good faith estimate of cost responsibility and a 
non-binding good faith estimated time to construct.

6.3 Interconnection Feasibility Study Procedures

    The Transmission Provider shall utilize existing studies to the 
extent practicable when it performs the study. The Transmission 
Provider shall use Reasonable Efforts to complete the 
Interconnection Feasibility Study no later than forty-five (45) 
Calendar Days after the Transmission Provider receives the fully 
executed Interconnection Feasibility Study Agreement. At the request 
of the Interconnection Customer or at any time the Transmission 
Provider determines that it will not meet the required time frame 
for completing the Interconnection Feasibility Study, Transmission 
Provider shall notify the Interconnection Customer as to the 
schedule status of the Interconnection Feasibility Study. If the 
Transmission Provider is unable to complete the Interconnection 
Feasibility Study within that time period, it shall notify the 
Interconnection Customer and provide an estimated completion date 
with an explanation of the reasons why additional time is required. 
Upon request, the Transmission Provider shall provide the 
Interconnection Customer supporting documentation, workpapers and 
relevant power flow, short circuit and stability databases for the 
Interconnection Feasibility Study, subject to confidentiality 
arrangements consistent with Section 13.1.

6.3.1 Meeting With Transmission Provider

    Within ten (10) Business Days of providing an Interconnection 
Feasibility Study report to Interconnection Customer, Transmission 
Provider and Interconnection Customer shall meet to discuss the 
results of the Interconnection Feasibility Study.

6.4 Re-Study

    If Re-Study of the Interconnection Feasibility Study is required 
due to a higher queued project dropping out of the queue, or a 
modification of a higher queued project subject to Section 4.4, or 
re-designation of the Point of Interconnection pursuant to Section 
6.1 Transmission Provider shall notify Interconnection Customer in 
writing. Such Re-Study shall take not longer than forty-five (45) 
Calendar Days from the date of the notice. Any cost of Re-Study 
shall be borne by the Interconnection Customer being re-studied.

Section 7. Interconnection System Impact Study

7.1 Interconnection System Impact Study Agreement

    Unless otherwise agreed, pursuant to the Scoping Meeting 
provided in Section 3.3.4, simultaneously with the delivery of the 
Interconnection Feasibility Study to the Interconnection Customer, 
the Transmission Provider shall provide to the Interconnection 
Customer an Interconnection System Impact Study Agreement in the 
form of Appendix 3 to this LGIP. The Interconnection System Impact 
Study Agreement shall provide that the Interconnection Customer 
shall compensate the Transmission Provider for the actual cost of 
the Interconnection System Impact Study. Within three (3) Business 
Days following the Interconnection Feasibility Study results 
meeting, the Transmission Provider shall provide to Interconnection 
Customer a non-binding good faith estimate of the cost and timeframe 
for completing the Interconnection System Impact Study.

7.2 Execution of Interconnection System Impact Study Agreement

    The Interconnection Customer shall execute the Interconnection 
System Impact Study Agreement and deliver the executed 
Interconnection System Impact Study Agreement to the Transmission 
Provider no later than thirty (30) Calendar Days after its receipt 
along with demonstration of Site Control, and a $50,000 deposit.
    If the Interconnection Customer does not provide all such 
technical data when it delivers the Interconnection System Impact 
Study Agreement, the Transmission Provider shall notify the 
Interconnection Customer of the deficiency within five (5) Business 
Days of the receipt of the executed Interconnection System Impact 
Study Agreement and the Interconnection Customer shall cure the 
deficiency within ten (10) Business Days of receipt of the notice, 
provided, however, such deficiency does not include failure to 
deliver the executed Interconnection System Impact Study Agreement 
or deposit.
    If the Interconnection System Impact Study uncovers any 
unexpected result(s) not contemplated during the Scoping Meeting and 
the Interconnection Feasibility Study, a substitute Point of 
Interconnection identified by either Interconnection Customer or 
Transmission Provider, and acceptable to the other, such acceptance 
not to be unreasonably withheld, will be substituted for the 
designated Point of Interconnection specified above without loss of 
Queue Position, and restudies shall be completed pursuant to Section 
7.6 as applicable. For the purpose of this Section 7.6, if the 
Transmission Provider and Interconnection Customer cannot agree on 
the substituted Point of Interconnection, then Interconnection 
Customer may direct that one of the alternatives as specified in the 
Interconnection Feasibility Study Agreement, as specified pursuant 
to Section 3.3.4, shall be the substitute.

7.3 Scope of Interconnection System Impact Study

    The Interconnection System Impact Study shall evaluate the 
impact of the proposed interconnection on the reliability of the 
Transmission System. The Interconnection System Impact Study will 
consider the Base Case as well as all Generating Facilities (and 
with respect to (iii) below, any identified Network Upgrades 
associated with such higher queued interconnection) that, on the 
date the Interconnection System Impact Study is commenced: (i) Are 
directly interconnected to the Transmission System; (ii) are 
interconnected to Affected Systems and may have an impact on the 
Interconnection Request; (iii) have a pending higher queued 
Interconnection Request to interconnect to the Transmission System; 
and (iv) have no Queue Position but have executed an LGIA or 
requested that an unexecuted LGIA be filed with FERC.
    The Interconnection System Impact Study will consist of a short 
circuit analysis, a stability analysis, and a power flow analysis. 
The Interconnection System Impact Study will state the assumptions 
upon which it is based; state the results of the analyses; and 
provide the requirements or potential impediments to providing the 
requested interconnection service, including a preliminary 
indication of the cost and length of time that would be necessary to 
correct any problems identified in those analyses and implement the 
interconnection. The Interconnection System Impact Study will 
provide a list of facilities that are required as a result of the 
Interconnection Request and a non-binding good faith estimate of 
cost responsibility and a non-binding good faith estimated time to 
construct.

7.4 Interconnection System Impact Study Procedures

    The Transmission Provider shall coordinate the Interconnection 
System Impact Study with any Affected System that is affected by the 
Interconnection Request pursuant to Section 3.5 above. The 
Transmission Provider shall utilize existing studies to the extent 
practicable when it performs the study. The Transmission Provider 
shall use Reasonable Efforts to complete the Interconnection System 
Impact Study within ninety (90) Calendar Days after the receipt of 
the Interconnection System Impact Study Agreement or notification to 
proceed, study payment, and technical data. If Transmission Provider 
uses Clustering, the Transmission Provider shall use Reasonable 
Efforts to deliver a completed

[[Page 49941]]

Interconnection System Impact Study within ninety (90) Calendar Days 
after the close of the Queue Cluster Window.
    At the request of the Interconnection Customer or at any time 
the Transmission Provider determines that it will not meet the 
required time frame for completing the Interconnection System Impact 
Study, Transmission Provider shall notify the Interconnection 
Customer as to the schedule status of the Interconnection System 
Impact Study. If the Transmission Provider is unable to complete the 
Interconnection System Impact Study within the time period, it shall 
notify the Interconnection Customer and provide an estimated 
completion date with an explanation of the reasons why additional 
time is required. Upon request, the Transmission Provider shall 
provide the Interconnection Customer all supporting documentation, 
workpapers and relevant pre-Interconnection Request and post-
Interconnection Request power flow, short circuit and stability 
databases for the Interconnection System Impact Study, subject to 
confidentiality arrangements consistent with Section 13.1.

7.5 Meeting with Transmission Provider

    Within ten (10) Business Days of providing an Interconnection 
System Impact Study report to Interconnection Customer, Transmission 
Provider and Interconnection Customer shall meet to discuss the 
results of the Interconnection System Impact Study.

7.6 Re-Study

    If Re-Study of the Interconnection System Impact Study is 
required due to a higher queued project dropping out of the queue, a 
modification of a higher queued project subject to 4.4, or re-
designation of the Point of Interconnection pursuant to Section 6.1 
Transmission Provider shall notify Interconnection Customer in 
writing. Such Re-Study shall take no longer than sixty (60) Calendar 
Days from the date of notice. Any cost of Re-Study shall be borne by 
the Interconnection Customer being re-studied.

Section 8. Interconnection Facilities Study

8.1 Interconnection Facilities Study Agreement

    Simultaneously with the delivery of the Interconnection System 
Impact Study to the Interconnection Customer, the Transmission 
Provider shall provide to the Interconnection Customer an 
Interconnection Facilities Study Agreement in the form of Appendix 4 
to this LGIP. The Interconnection Facilities Study Agreement shall 
provide that the Interconnection Customer shall compensate the 
Transmission Provider for the actual cost of the Interconnection 
Facilities Study. Within three (3) Business Days following the 
Interconnection System Impact Study results meeting, the 
Transmission Provider shall provide to Interconnection Customer a 
non-binding good faith estimate of the cost and timeframe for 
completing the Interconnection Facilities Study. The Interconnection 
Customer shall execute the Interconnection Facilities Study 
Agreement and deliver the executed Interconnection Facilities Study 
Agreement to the Transmission Provider within thirty (30) Calendar 
Days after its receipt, together with the required technical data 
and the greater of $100,000 or Interconnection Customer's portion of 
the estimated monthly cost of conducting the Interconnection 
Facilities Study.
    8.1.1 Transmission Provider shall invoice Interconnection 
Customer on a monthly basis for the work to be conducted on the 
Interconnection Facilities Study each month. Interconnection 
Customer shall pay invoiced amounts within thirty (30) Calendar Days 
of receipt of invoice. Transmission Provider shall continue to hold 
the amounts on deposit until settlement of the final invoice.

8.2 Scope of Interconnection Facilities Study

    The Interconnection Facilities Study shall specify and estimate 
the cost of the equipment, engineering, procurement and construction 
work needed to implement the conclusions of the Interconnection 
System Impact Study in accordance with Good Utility Practice to 
physically and electrically connect the Interconnection Facility to 
the Transmission System. The Interconnection Facilities Study shall 
also identify the electrical switching configuration of the 
connection equipment, including, without limitation: the 
transformer, switchgear, meters, and other station equipment; the 
nature and estimated cost of any Transmission Provider's 
Interconnection Facilities and Network Upgrades necessary to 
accomplish the interconnection; and an estimate of the time required 
to complete the construction and installation of such facilities.

8.3 Interconnection Facilities Study Procedures

    The Transmission Provider shall coordinate the Interconnection 
Facilities Study with any Affected System pursuant to Section 3.5 
above. The Transmission Provider shall utilize existing studies to 
the extent practicable in performing the Interconnection Facilities 
Study. The Transmission Provider shall use Reasonable Efforts to 
complete the study and issue a draft Interconnection Facilities 
Study report to the Interconnection Customer within the following 
number of days after receipt of an executed Interconnection 
Facilities Study Agreement: ninety (90) Calendar Days, with no more 
than a +/-20 percent cost estimate contained in the report; or one 
hundred eighty (180) Calendar Days, if the Interconnection Customer 
requests a +/-10 percent cost estimate.
    At the request of the Interconnection Customer or at any time 
the Transmission Provider determines that it will not meet the 
required time frame for completing the Interconnection Facilities 
Study, Transmission Provider shall notify the Interconnection 
Customer as to the schedule status of the Interconnection Facilities 
Study. If the Transmission Provider is unable to complete the 
Interconnection Facilities Study and issue a draft Interconnection 
Facilities Study report within the time required, it shall notify 
the Interconnection Customer and provide an estimated completion 
date and an explanation of the reasons why additional time is 
required.
    The Interconnection Customer may, within thirty (30) Calendar 
Days after receipt of the draft report, provide written comments to 
the Transmission Provider, which the Transmission Provider shall 
include in the final report. The Transmission Provider shall issue 
the final Interconnection Facilities Study report within fifteen 
(15) Business Days of receiving the Interconnection Customer's 
comments or promptly upon receiving Interconnection Customer's 
statement that it will not provide comments. The Transmission 
Provider may reasonably extend such fifteen-day period upon notice 
to the Interconnection Customer if the Interconnection Customer's 
comments require the Transmission Provider to perform additional 
analyses or make other significant modifications prior to the 
issuance of the final Interconnection Facilities Report. Upon 
request, the Transmission Provider shall provide the Interconnection 
Customer supporting documentation, workpapers, and databases or data 
developed in the preparation of the Interconnection Facilities 
Study, subject to confidentiality arrangements consistent with 
Section 13.1.

8.4 Meeting with Transmission Provider

    Within ten (10) Business Days of providing a draft 
Interconnection Facilities Study report to Interconnection Customer, 
Transmission Provider and Interconnection Customer shall meet to 
discuss the results of the Interconnection Facilities Study.

8.5 Re-Study

    If Re-Study of the Interconnection Facilities Study is required 
due to a higher queued project dropping out of the queue or a 
modification of a higher queued project pursuant to Section 4.4, 
Transmission Provider shall so notify Interconnection Customer in 
writing. Such Re-Study shall take no longer than sixty (60) Calendar 
Days from the date of notice. Any cost of Re-Study shall be borne by 
the Interconnection Customer being re-studied.

Section 9. Engineering & Procurement (``E&P'') Agreement

    Prior to executing an LGIA, an Interconnection Customer may, in 
order to advance the implementation of its interconnection, request 
and Transmission Provider shall offer the Interconnection Customer, 
an E&P Agreement that authorizes the Transmission Provider to begin 
engineering and procurement of long lead-time items necessary for 
the establishment of the interconnection. However, the Transmission 
Provider shall not be obligated to offer an E&P Agreement if 
Interconnection Customer is in Dispute Resolution as a result of an 
allegation that Interconnection Customer has failed to meet any 
milestones or comply with any prerequisites specified in other parts 
of the LGIP. The E&P Agreement is an optional procedure and it will 
not alter the Interconnection Customer's Queue Position or In-
Service Date. The E&P Agreement shall provide for the 
Interconnection Customer to pay the cost of all activities 
authorized by the Interconnection Customer and to make advance 
payments or provide other satisfactory security for such costs.

[[Page 49942]]

    The Interconnection Customer shall pay the cost of such 
authorized activities and any cancellation costs for equipment that 
is already ordered for its interconnection, which cannot be 
mitigated as hereafter described, whether or not such items or 
equipment later become unnecessary. If Interconnection Customer 
withdraws its application for interconnection or either party 
terminates the E&P Agreement, to the extent the equipment ordered 
can be canceled under reasonable terms, Interconnection Customer 
shall be obligated to pay the associated cancellation costs. To the 
extent that the equipment cannot be reasonably canceled, 
Transmission Provider may elect: (i) To take title to the equipment, 
in which event Transmission Provider shall refund Interconnection 
Customer any amounts paid by Interconnection Customer for such 
equipment and shall pay the cost of delivery of such equipment, or 
(ii) to transfer title to and deliver such equipment to 
Interconnection Customer, in which event Interconnection Customer 
shall pay any unpaid balance and cost of delivery of such equipment.

Section 10. Optional Interconnection Study

10.1 Optional Interconnection Study Agreement

    On or after the date when the Interconnection Customer receives 
Interconnection System Impact Study results, the Interconnection 
Customer may request, and the Transmission Provider shall perform a 
reasonable number of Optional Studies. The request shall describe 
the assumptions that the Interconnection Customer wishes the 
Transmission Provider to study within the scope described in Section 
10.2. Within five (5) Business Days after receipt of a request for 
an Optional Interconnection Study, the Transmission Provider shall 
provide to the Interconnection Customer an Optional Interconnection 
Study Agreement in the form of Appendix 5.
    The Optional Interconnection Study Agreement shall: (i) Specify 
the technical data that the Interconnection Customer must provide 
for each phase of the Optional Interconnection Study, (ii) specify 
Interconnection Customer's assumptions as to which Interconnection 
Requests with earlier queue priority dates will be excluded from the 
Optional Interconnection Study case and assumptions as to the type 
of interconnection service for Interconnection Requests remaining in 
the Optional Interconnection Study case, and (iii) the Transmission 
Provider's estimate of the cost of the Optional Interconnection 
Study. To the extent known by the Transmission Provider, such 
estimate shall include any costs expected to be incurred by any 
Affected System whose participation is necessary to complete the 
Optional Interconnection Study. Notwithstanding the above, the 
Transmission Provider shall not be required as a result of an 
Optional Interconnection Study request to conduct any additional 
Interconnection Studies with respect to any other Interconnection 
Request.
    The Interconnection Customer shall execute the Optional 
Interconnection Study Agreement within ten (10) Business Days of 
receipt and deliver the Optional Interconnection Study Agreement, 
the technical data and a $10,000 deposit to the Transmission 
Provider.

10.2 Scope of Optional Interconnection Study

    The Optional Interconnection Study will consist of a sensitivity 
analysis based on the assumptions specified by the Interconnection 
Customer in the Optional Interconnection Study Agreement. The 
Optional Interconnection Study will also identify the Transmission 
Provider's Interconnection Facilities and the Network Upgrades, and 
the estimated cost thereof, that may be required to provide 
transmission service or Interconnection Service based upon the 
results of the Optional Interconnection Study. The Optional 
Interconnection Study shall be performed solely for informational 
purposes. The Transmission Provider shall use Reasonable Efforts to 
coordinate the study with any Affected Systems that may be affected 
by the types of Interconnection Services that are being studied. The 
Transmission Provider shall utilize existing studies to the extent 
practicable in conducting the Optional Interconnection Study.

10.3 Optional Interconnection Study Procedures

    The executed Optional Interconnection Study Agreement, the 
prepayment, and technical and other data called for therein must be 
provided to the Transmission Provider within ten (10) Business Days 
of Interconnection Customer receipt of the Optional Interconnection 
Study Agreement. The Transmission Provider shall use Reasonable 
Efforts to complete the Optional Interconnection Study within a 
mutually agreed upon time period specified within the Optional 
Interconnection Study Agreement. If the Transmission Provider is 
unable to complete the Optional Interconnection Study within such 
time period, it shall notify the Interconnection Customer and 
provide an estimated completion date and an explanation of the 
reasons why additional time is required. Any difference between the 
study payment and the actual cost of the study shall be paid to the 
Transmission Provider or refunded to the Interconnection Customer, 
as appropriate. Upon request, the Transmission Provider shall 
provide the Interconnection Customer supporting documentation and 
workpapers and databases or data developed in the preparation of the 
Optional Interconnection Study, subject to confidentiality 
arrangements consistent with Section 13.1.

Section 11. Standard Large Generator Interconnection Agreement (LGIA)

11.1 Tender

    Simultaneously with the issuance of the draft Interconnection 
Facilities Study report to the Interconnection Customer, the 
Transmission Provider shall tender to the Generator a draft LGIA 
together with draft appendices completed to the extent practicable. 
The draft LGIA shall be in the form of the Transmission Provider's 
Commission-approved standard form LGIA, which is in Appendix 6. 
Within thirty (30) Calendar Days after the issuance of the draft 
Interconnection Facilities Study Report, the Transmission Provider 
shall tender the completed draft LGIA appendices.

11.2 Negotiation

    Notwithstanding Section 11.1, at the request of the 
Interconnection Customer the Transmission Provider shall begin 
negotiations with the Interconnection Customer concerning the 
appendices to the LGIA at any time after the Interconnection 
Customer executes the Interconnection Facilities Study Agreement. 
The Transmission Provider and the Interconnection Customer shall 
negotiate concerning any disputed provisions of the appendices to 
the draft LGIA for not more than sixty (60) Calendar Days after 
tender of the final Interconnection Facilities Study Report. If the 
Interconnection Customer determines that negotiations are at an 
impasse, it may request termination of the negotiations at any time 
after tender of the LGIA pursuant to Section 11.1 and request 
submission of the unexecuted LGIA with FERC or initiate Dispute 
Resolution procedures pursuant to Section 13.5. If the 
Interconnection Customer requests termination of the negotiations, 
but within sixty (60) Calendar Days thereafter fails to request 
either the filing of the unexecuted LGIA or initiate Dispute 
Resolution, it shall be deemed to have withdrawn its Interconnection 
Request. Unless otherwise agreed by the Parties, if the 
Interconnection Customer has not executed the LGIA, requested filing 
of an unexecuted LGIA, or initiated Dispute Resolution procedures 
pursuant to Section 13.5 within sixty days of tender of completed 
draft of the LGIA appendices, it shall be deemed to have withdrawn 
its Interconnection Request. The Transmission Provider shall provide 
to the Interconnection Customer a final LGIA within fifteen (15) 
Business Days after the completion of the negotiation process.

11.3 Execution and Filing

    Within fifteen (15) Business Days after receipt of the final 
LGIA, the Interconnection Customer shall provide the Transmission 
Provider (A) reasonable evidence that continued Site Control or (B) 
posting of $250,000, non-refundable additional security, which shall 
be applied toward future construction costs. At the same time, 
Interconnection Customer also shall provide reasonable evidence that 
one or more of the following milestones in the development of the 
Large Generating Facility, at the Interconnection Customer election, 
has been achieved: (i) The execution of a contract for the supply or 
transportation of fuel to the Large Generating Facility; (ii) the 
execution of a contract for the supply of cooling water to the Large 
Generating Facility; (iii) execution of a contract for the 
engineering for, procurement of major equipment for, or construction 
of, the Large Generating Facility; (iv) execution of a contract for 
the sale of electric energy or capacity from the Large Generating 
Facility; or (v) application for an air, water, or land use permit.
    The Interconnection Customer shall either: (i) Execute two 
originals of the tendered

[[Page 49943]]

LGIA and return them to the Transmission Provider; or (ii) request 
in writing that the Transmission Provider file with FERC an LGIA in 
unexecuted form. As soon as practicable, but not later than ten (10) 
Business Days after receiving either the two executed originals of 
the tendered LGIA (if it does not conform with a Commission-approved 
standard form of interconnection agreement) or the request to file 
an unexecuted LGIA, the Transmission Provider shall file the LGIA 
with FERC, together with its explanation of any matters as to which 
the Interconnection Customer and the Transmission Provider disagree 
and support for the costs that the Transmission Provider proposes to 
charge to the Interconnection Customer under the LGIA. An unexecuted 
LGIA should contain terms and conditions deemed appropriate by the 
Transmission Provider for the Interconnection Request. If the 
Parties agree to proceed with design, procurement, and construction 
of facilities and upgrades under the agreed-upon terms of the 
unexecuted LGIA, they may proceed pending Commission action.

11.4 Commencement of Interconnection Activities

    If the Interconnection Customer executes the final LGIA, the 
Transmission Provider and the Interconnection Customer shall perform 
their respective obligations in accordance with the terms of the 
LGIA, subject to modification by FERC. Upon submission of an 
unexecuted LGIA, both Interconnection Customer and Transmission 
Provider shall promptly comply with the unexecuted LGIA, subject to 
modification by FERC.

Section 12. Construction of Transmission Provider's Interconnection 
Facilities and Network Upgrades

12.1 Schedule

    The Transmission Provider and the Interconnection Customer shall 
negotiate in good faith concerning a schedule for the construction 
of the Transmission Provider's Interconnection Facilities and the 
Network Upgrades.

12.2 Construction Sequencing

12.2.1 General

    In general, the In-Service Date of an Interconnection Customers 
seeking interconnection to the Transmission System will determine 
the sequence of construction of Network Upgrades.

12.2.2 Advance Construction of Network Upgrades That Are an Obligation 
of an Entity Other Than the Interconnection Customer

    An Interconnection Customer with an LGIA, in order to maintain 
its In-Service Date, may request that the Transmission Provider 
advance to the extent necessary the completion of Network Upgrades 
that: (i) Were assumed in the Interconnection Studies for such 
Interconnection Customer, (ii) are necessary to support such In-
Service Date, and (iii) would otherwise not be completed, pursuant 
to a contractual obligation of an entity other than the 
Interconnection Customer that is seeking interconnection to the 
Transmission System, in time to support such In-Service Date. Upon 
such request, Transmission Provider will use Reasonable Efforts to 
advance the construction of such Network Upgrades to accommodate 
such request; provided that the Interconnection Customer commits to 
pay Transmission Provider: (i) Any associated expediting costs and 
(ii) the cost of such Network Upgrades.
    The Transmission Provider will refund to the Interconnection 
Customer both the expediting costs and the cost of Network Upgrades, 
in accordance with Article 11.4 of the LGIA. Consequently, the 
entity with a contractual obligation to construct such Network 
Upgrades shall be obligated to pay only that portion of the costs of 
the Network Upgrades that Transmission Provider has not refunded to 
the Interconnection Customer. Payment by that entity shall be due on 
the date that it would have been due had there been no request for 
advance construction. The Transmission Provider shall forward to the 
Interconnection Customer the amount paid by the entity with a 
contractual obligation to construct the Network Upgrades as payment 
in full for the outstanding balance owed to the Interconnection 
Customer. The Transmission Provider then shall refund to that entity 
the amount that it paid for the Network Upgrades, in accordance with 
Article 11.4 of the LGIA

12.2.3 Advancing Construction of Network Upgrades That Are Part of an 
Expansion Plan of the Transmission Provider

    An Interconnection Customer with an LGIA, in order to maintain 
its In-Service Date, may request that the Transmission Provider 
advance to the extent necessary the completion of Network Upgrades 
that: (i) Are necessary to support such In-Service Date and (ii) 
would otherwise not be completed, pursuant to an expansion plan of 
the Transmission Provider, in time to support such In-Service Date. 
Upon such request, Transmission Provider will use Reasonable Efforts 
to advance the construction of such Network Upgrades to accommodate 
such request; provided that the Interconnection Customer commits to 
pay Transmission Provider any associated expediting costs. The 
Interconnection Customer shall be entitled to transmission credits, 
if any, for any expediting costs paid.

12.2.4 Amended Interconnection System Impact Study

    An Interconnection System Impact Study will be amended to 
determine the facilities necessary to support the requested In-
Service Date. This amended study will include those transmission and 
Large Generating Facilities that are expected to be in service on or 
before the requested In-Service Date.

Section 13. Miscellaneous

13.1 Confidentiality

    Confidential Information shall include, without limitation, all 
information relating to a Party's technology, research and 
development, business affairs, and pricing, and any information 
supplied by either of the Parties to the other prior to the 
execution of an LGIA.
    Information is Confidential Information only if it is clearly 
designated or marked in writing as confidential on the face of the 
document, or, if the information is conveyed orally or by 
inspection, if the Party providing the information orally informs 
the Party receiving the information that the information is 
confidential.
    If requested by either Party, the other Party shall provide in 
writing, the basis for asserting that the information referred to in 
this Article warrants confidential treatment, and the requesting 
Party may disclose such writing to the appropriate Governmental 
Authority. Each Party shall be responsible for the costs associated 
with affording confidential treatment to its information.

13.1.1 Scope

    Confidential Information shall not include information that the 
receiving Party can demonstrate: (1) Is generally available to the 
public other than as a result of a disclosure by the receiving 
Party; (2) was in the lawful possession of the receiving Party on a 
non-confidential basis before receiving it from the disclosing 
Party; (3) was supplied to the receiving Party without restriction 
by a third party, who, to the knowledge of the receiving Party after 
due inquiry, was under no obligation to the disclosing Party to keep 
such information confidential; (4) was independently developed by 
the receiving Party without reference to Confidential Information of 
the disclosing Party; (5) is, or becomes, publicly known, through no 
wrongful act or omission of the receiving Party or Breach of the 
LGIA; or (6) is required, in accordance with Section 13.1.6, Order 
of Disclosure, to be disclosed by any Governmental Authority or is 
otherwise required to be disclosed by law or subpoena, or is 
necessary in any legal proceeding establishing rights and 
obligations under the LGIA. Information designated as Confidential 
Information will no longer be deemed confidential if the Party that 
designated the information as confidential notifies the other Party 
that it no longer is confidential.

13.1.2 Release of Confidential Information

    Neither Party shall release or disclose Confidential Information 
to any other person, except to its employees, consultants, or to 
parties who may be or considering providing financing to or equity 
participation with Interconnection Customer, or to potential 
purchasers or assignees of Interconnection Customer, on a need-to-
know basis in connection with these procedures, unless such person 
has first been advised of the confidentiality provisions of this 
Section 13.1 and has agreed to comply with such provisions. 
Notwithstanding the foregoing, a Party providing Confidential 
Information to any person shall remain primarily responsible for any 
release of Confidential Information in contravention of this Section 
13.1.

13.1.3 Rights

    Each Party retains all rights, title, and interest in the 
Confidential Information that each Party discloses to the other 
Party. The disclosure by each Party to the other Party of 
Confidential Information shall not be deemed a waiver by either 
Party or any other person or entity of the right to protect the 
Confidential Information from public disclosure.

[[Page 49944]]

13.1.4 No Warranties

    By providing Confidential Information, neither Party makes any 
warranties or representations as to its accuracy or completeness. In 
addition, by supplying Confidential Information, neither Party 
obligates itself to provide any particular information or 
Confidential Information to the other Party nor to enter into any 
further agreements or proceed with any other relationship or joint 
venture.

13.1.5 Standard of Care

    Each Party shall use at least the same standard of care to 
protect Confidential Information it receives as it uses to protect 
its own Confidential Information from unauthorized disclosure, 
publication or dissemination. Each Party may use Confidential 
Information solely to fulfill its obligations to the other Party 
under these procedures or its regulatory requirements.

13.1.6 Order of Disclosure

    If a court or a Government Authority or entity with the right, 
power, and apparent authority to do so requests or requires either 
Party, by subpoena, oral deposition, interrogatories, requests for 
production of documents, administrative order, or otherwise, to 
disclose Confidential Information, that Party shall provide the 
other Party with prompt notice of such request(s) or requirement(s) 
so that the other Party may seek an appropriate protective order or 
waive compliance with the terms of the LGIA. Notwithstanding the 
absence of a protective order or waiver, the Party may disclose such 
Confidential Information which, in the opinion of its counsel, the 
Party is legally compelled to disclose. Each Party will use 
Reasonable Efforts to obtain reliable assurance that confidential 
treatment will be accorded any Confidential Information so 
furnished.

13.1.7 Remedies

    The Parties agree that monetary damages would be inadequate to 
compensate a Party for the other Party's Breach of its obligations 
under this Section 13.1. Each Party accordingly agrees that the 
other Party shall be entitled to equitable relief, by way of 
injunction or otherwise, if the first Party Breaches or threatens to 
Breach its obligations under this Section 13.1, which equitable 
relief shall be granted without bond or proof of damages, and the 
receiving Party shall not plead in defense that there would be an 
adequate remedy at law. Such remedy shall not be deemed an exclusive 
remedy for the Breach of this Section 13.1, but shall be in addition 
to all other remedies available at law or in equity. The Parties 
further acknowledge and agree that the covenants contained herein 
are necessary for the protection of legitimate business interests 
and are reasonable in scope. No Party, however, shall be liable for 
indirect, incidental, or consequential or punitive damages of any 
nature or kind resulting from or arising in connection with this 
Section 13.1.

13.1.8 Disclosure to FERC or Its Staff

    Notwithstanding anything in this Section 13.1 to the contrary, 
and pursuant to 18 CFR 1b.20, if FERC or its staff, during the 
course of an investigation or otherwise, requests information from 
one of the Parties that is otherwise required to be maintained in 
confidence pursuant to the LGIP, the Party shall provide the 
requested information to FERC or its staff, within the time provided 
for in the request for information. In providing the information to 
FERC or its staff, the Party must, consistent with 18 CFR 388.112, 
request that the information be treated as confidential and non-
public by FERC and its staff and that the information be withheld 
from public disclosure. Parties are prohibited from notifying the 
other Party prior to the release of the Confidential Information to 
the Commission or its staff. The Party shall notify the other Party 
to the LGIA when its is notified by FERC or its staff that a request 
to release Confidential Information has been received by FERC, at 
which time either of the Parties may respond before such information 
would be made public, pursuant to 18 CFR 388.112.
    13.1.9 Subject to the exception in Section 13.1.8, any 
information that a Party claims is competitively sensitive, 
commercial or financial information (``Confidential Information'') 
shall not be disclosed by the other Party to any person not employed 
or retained by the other Party, except to the extent disclosure is 
(i) required by law; (ii) reasonably deemed by the disclosing Party 
to be required to be disclosed in connection with a dispute between 
or among the Parties, or the defense of litigation or dispute; (iii) 
otherwise permitted by consent of the other Party, such consent not 
to be unreasonably withheld; or (iv) necessary to fulfill its 
obligations under this LGIP or as a transmission service provider or 
a Control Area operator including disclosing the Confidential 
Information to an RTO or ISO or to a subregional, regional or 
national reliability organization or planning group. The Party 
asserting confidentiality shall notify the other Party in writing of 
the information it claims is confidential. Prior to any disclosures 
of the other Party's Confidential Information under this 
subparagraph, or if any third party or Governmental Authority makes 
any request or demand for any of the information described in this 
subparagraph, the disclosing Party agrees to promptly notify the 
other Party in writing and agrees to assert confidentiality and 
cooperate with the other Party in seeking to protect the 
Confidential Information from public disclosure by confidentiality 
agreement, protective order or other reasonable measures.
    13.1.10 This provision shall not apply to any information that 
was or is hereafter in the public domain (except as a result of a 
Breach of this provision).
    13.1.11 The Transmission Provider shall, at Interconnection 
Customer's election, destroy, in a confidential manner, or return 
the Confidential Information provided at the time of Confidential 
Information is no longer needed.

13.2 Delegation of Responsibility

    The Transmission Provider may use the services of subcontractors 
as it deems appropriate to perform its obligations under this LGIP. 
Transmission Provider shall remain primarily liable to the 
Interconnection Customer for the performance of such subcontractors 
and compliance with its obligations of this LGIP. The subcontractor 
shall keep all information provided confidential and shall use such 
information solely for the performance of such obligation for which 
it was provided and no other purpose.

13.3 Obligation for Study Costs

    Transmission Provider shall charge and Interconnection Customer 
shall pay the actual costs of the Interconnection Studies. Any 
difference between the study deposit and the actual cost of the 
applicable Interconnection Study shall be paid by or refunded, 
except as otherwise provided herein, to Interconnection Customer or 
offset against the cost of any future Interconnection Studies 
associated with the applicable Interconnection Request prior to 
beginning of any such future Interconnection Studies. Any invoices 
for Interconnection Studies shall include a detailed and itemized 
accounting of the cost of each Interconnection Study. 
Interconnection Customer shall pay any such undisputed costs within 
thirty (30) Calendar Days of receipt of an invoice therefor. The 
Transmission Provider shall not be obligated to perform or continue 
to perform any studies unless Interconnection Customer has paid all 
undisputed amounts in compliance herewith.

13.4 Third Parties Conducting Studies

    If (i) at the time of the signing of an Interconnection Study 
Agreement there is disagreement as to the estimated time to complete 
an Interconnection Study, (ii) the Interconnection Customer receives 
notice pursuant to Sections 6.3, 7.4 or 8.3 that the Transmission 
Provider will not complete an Interconnection Study within the 
applicable timeframe for such Interconnection Study, or (iii) the 
Interconnection Customer receives neither the Interconnection Study 
nor a notice under Sections 6.3, 7.4 or 8.3 within the applicable 
timeframe for such Interconnection Study, then the Interconnection 
Customer may require the Transmission Provider to utilize a third 
party consultant reasonably acceptable to Interconnection Customer 
and Transmission Provider to perform such Interconnection Study 
under the direction of the Transmission Provider. At other times, 
Transmission Provider may also utilize a third party consultant to 
perform such Interconnection Study, either in response to a general 
request of the Interconnection Customer, or on its own volition.
    In all cases, use of a third party consultant shall be in accord 
with Article 26 of the LGIA (Subcontractors) and limited to 
situations where the Transmission Provider determines that doing so 
will help maintain or accelerate the study process for the 
Interconnection Customer's pending Interconnection Request and not 
interfere with the Transmission Provider's progress on 
Interconnection Studies for other pending Interconnection Requests. 
In cases where the Interconnection Customer requests use of a third 
party consultant to perform such Interconnection Study, 
Interconnection Customer and Transmission Provider shall negotiate 
all of the pertinent terms and conditions, including

[[Page 49945]]

reimbursement arrangements and the estimated study completion date 
and study review deadline. Transmission Provider shall convey all 
workpapers, data bases, study results and all other supporting 
documentation prepared to date with respect to the Interconnection 
Request as soon as practicable upon Interconnection Customer's 
request subject to the confidentiality provision in Section 13.1. In 
any case, such third party contract may be entered into with either 
the Interconnection Customer or the Transmission Provider at the 
Transmission Provider's discretion. In the case of (iii) the 
Interconnection Customer maintains its right to submit a claim to 
Dispute Resolution to recover the costs of such third party study. 
Such third party consultant shall be required to comply with this 
LGIP, Article 26 of the LGIA (Subcontractors), and the relevant OATT 
procedures and protocols as would apply if the Transmission Provider 
were to conduct the Interconnection Study and shall use the 
information provided to it solely for purposes of performing such 
services and for no other purposes. The Transmission Provider shall 
cooperate with such third party consultant and Interconnection 
Customer to complete and issue the Interconnection Study in the 
shortest reasonable time.

13.5 Disputes

13.5.1 Submission

    In the event either Party has a dispute, or asserts a claim, 
that arises out of or in connection with the LGIA, the LGIP, or 
their performance, such Party (the ``disputing Party'') shall 
provide the other Party with written notice of the dispute or claim 
(``Notice of Dispute''). Such dispute or claim shall be referred to 
a designated senior representative of each Party for resolution on 
an informal basis as promptly as practicable after receipt of the 
Notice of Dispute by the other Party. In the event the designated 
representatives are unable to resolve the claim or dispute through 
unassisted or assisted negotiations within thirty (30) Calendar Days 
of the other Party's receipt of the Notice of Dispute, such claim or 
dispute may, upon mutual agreement of the Parties, be submitted to 
arbitration and resolved in accordance with the arbitration 
procedures set forth below. In the event the Parties do not agree to 
submit such claim or dispute to arbitration, each Party may exercise 
whatever rights and remedies it may have in equity or at law 
consistent with the terms of this LGIA.

13.5.2 External Arbitration Procedures

    Any arbitration initiated under these procedures shall be 
conducted before a single neutral arbitrator appointed by the 
Parties. If the Parties fail to agree upon a single arbitrator 
within ten (10) Calendar Days of the submission of the dispute to 
arbitration, each Party shall choose one arbitrator who shall sit on 
a three-member arbitration panel. The two arbitrators so chosen 
shall within twenty (20) Calendar Days select a third arbitrator to 
chair the arbitration panel. In either case, the arbitrators shall 
be knowledgeable in electric utility matters, including electric 
transmission and bulk power issues, and shall not have any current 
or past substantial business or financial relationships with any 
party to the arbitration (except prior arbitration). The 
arbitrator(s) shall provide each of the Parties an opportunity to be 
heard and, except as otherwise provided herein, shall conduct the 
arbitration in accordance with the Commercial Arbitration Rules of 
the American Arbitration Association (``Arbitration Rules'') and any 
applicable FERC regulations or RTO rules; provided, however, in the 
event of a conflict between the Arbitration Rules and the terms of 
this Section 13, the terms of this Section 13 shall prevail.

13.5.3 Arbitration Decisions

    Unless otherwise agreed by the Parties, the arbitrator(s) shall 
render a decision within ninety (90) Calendar Days of appointment 
and shall notify the Parties in writing of such decision and the 
reasons therefor. The arbitrator(s) shall be authorized only to 
interpret and apply the provisions of the LGIA and LGIP and shall 
have no power to modify or change any provision of the LGIA and LGIP 
in any manner. The decision of the arbitrator(s) shall be final and 
binding upon the Parties, and judgment on the award may be entered 
in any court having jurisdiction. The decision of the arbitrator(s) 
may be appealed solely on the grounds that the conduct of the 
arbitrator(s), or the decision itself, violated the standards set 
forth in the Federal Arbitration Act or the Administrative Dispute 
Resolution Act. The final decision of the arbitrator must also be 
filed with FERC if it affects jurisdictional rates, terms and 
conditions of service, Interconnection Facilities, or Network 
Upgrades.

13.5.4 Costs

    Each Party shall be responsible for its own costs incurred 
during the arbitration process and for the following costs, if 
applicable: (1) The cost of the arbitrator chosen by the Party to 
sit on the three member panel and one half of the cost of the third 
arbitrator chosen; or (2) one half the cost of the single arbitrator 
jointly chosen by the Parties.

Appendices to LGIP

Appendix 1--Interconnection Request
Appendix 2--Interconnection Feasibility Study Agreement
Appendix 3--Interconnection System Impact Study Agreement
Appendix 4--Interconnection Facilities Study Agreement
Appendix 5--Optional Interconnection Study Agreement
Appendix 6--Standard Large Generator Interconnection Agreement

Appendix 1 to LGIP--Interconnection Request

    1. The undersigned Interconnection Customer submits this request 
to interconnect its Large Generating Facility with the Transmission 
Provider's Transmission System pursuant to a Tariff.
    2. This Interconnection Request is for (check one):

--A proposed new Large Generating Facility.
--An increase in the generating capacity or a Material Modification 
of an existing Generating Facility.

    3. The type of interconnection service requested (check one or 
both as appropriate):

--[It is intended that the types of interconnection services 
specified in Article 4 of the LGIA be placed here.]

    4. The Interconnection Customer provides the following 
information:
    a. Address or location or the proposed new Large Generating 
Facility site (to the extent known) or, in the case of an existing 
Generating Facility, the name and specific location of the existing 
Generating Facility;
    b. Maximum summer at -- degrees C and winter at -- degrees C 
megawatt electrical output of the proposed new Large Generating 
Facility or the amount of megawatt increase in the generating 
capacity of an existing Generating Facility;
    c. General description of the equipment configuration;
    d. Commercial Operation Date by day, month, and year;
    e. Name, address, telephone number, and e-mail address of the 
Interconnection Customer's contact person;
    f. Approximate location of the proposed Point of Interconnection 
(optional); and
    g. Interconnection Customer Data (set forth in Attachment A).
    5. Applicable deposit amount as specified in the LGIP.
    6. Evidence of Site Control as specified in the LGIP (check 
one):

--Is attached to this Interconnection Request.
--Will be provided at a later date in accordance with this LGIP.

    7. This Interconnection Request shall be submitted to the 
representative indicated below:

[To be completed by Transmission Provider]

    8. Representative of the Interconnection Customer to contact:

[To be completed by Interconnection Customer]

    9. This Interconnection Request is submitted by:

Name of Interconnection Customer:
-----------------------------------------------------------------------
By (signature):--------------------------------------------------------
Name (type or print):--------------------------------------------------
Title:-----------------------------------------------------------------
Date:------------------------------------------------------------------

Large Generating Facility Data Unit Ratings

kVA ------ [deg]F ------ Voltage ------
Power Factor ------
Speed (RPM) ------ Connection (e.g. Wye) ------
Short Circuit Ratio ------ Frequency, Hertz ------
Stator Amperes at Rated kVA ------ Field Volts ------
Max Turbine MW ------[deg]F ------

Combined Turbine-Generator-Exciter Inertia Data

Inertia Constant, H= -------- kW sec/kVA
Moment-of-Inertia, WR2 = -------- lb. ft.2

[[Page 49946]]



------------------------------------------------------------------------
                                   Direct axis         Quadrature axis
------------------------------------------------------------------------
Reactance Data (Per Unit-
 Rated KVA):
    Synchronous--saturated..  Xdv ______            Xqv ______
    Synchronous--unsaturated  Xdi ______            Xqi ______
    Transient--saturated....  X'dv ______           X'qv ______
    Transient--unsaturated..  X'di ______           X'qi ______
    Subtransient--saturated.  X'dv ______           X'qv ______
    Subtransient--unsaturate  X'di ______           X'qi ______
     d.
    Negative Sequence--       X2v ______
     saturated.
    Negative Sequence--       X2i ______
     unsaturated.
    Zero Sequence--saturated  X0v ______
    Zero Sequence--           X0i ______
     unsaturated.
    Leakage Reactance.......  Xlm ______
Field Time Constant Data
 (Sec):
    Open Circuit............  T'do ______           T'qo ______
    Three-Phase Short         T'd3 ______           T'q ______
     Circuit Transient.
    Line to Line Short        T'd2 ______
     Circuit Transient.
    Line to Neutral Short     T'd1 ______
     Circuit Transient.
    Short Circuit             T'd ______            T'q ______
     Subtransient.
    Open Circuit              T'do ______           T'qo ______
     Subtransient.
Armature Time Constant Data
 (Sec):
    Three Phase Short         Ta3 ______
     Circuit.
    Line to Line Short        Ta2 ______
     Circuit.
    Line to Neutral Short     Ta1 ______
     Circuit.
------------------------------------------------------------------------


    Note: If requested information is not applicable, indicate by 
marking ``N/A.''

MW Capability and Plant Configuration Large Generating Facility Data

Armature Winding Resistance Data (Per Unit)

Positive R1--------
Negative R2--------
Zero R0--------

Rotor Short Time Thermal Capacity I22t = --------
Field Current at Rated kVA, Armature Voltage and PF = -------- amps
Field Current at Rated kVA and Armature Voltage, 0 PF = -------- 
amps
Three Phase Armature Winding Capacitance = -------- microfarad
Field Winding Resistance = --------ohms ------ [deg]C
Armature Winding Resistance (Per Phase) = -------- ohms ------[deg]C

Curves

    Provide Saturation, Vee, Reactive Capability, Capacity 
Temperature Correction curves. Designate normal and emergency 
Hydrogen Pressure operating range for multiple curves.

Generator Step-Up Transformer Data

Ratings

Capacity Self-cooled/maximum nameplate
------------kVA

Voltage Ratio Generator side/System side
------------kV

Winding Connections Low V/High V (Delta or Wye)
------------

Fixed Taps Available---------------------------------------------------
Present Tap Setting----------------------------------------------------

Impedance

Positive Z1 (on self-cooled kVA rating)-------- % ------ X/R
Zero Z0 (on self-cooled kVA rating)-------- % ------ X/R

Excitation System Data

    Identify appropriate IEEE model block diagram of excitation 
system and power system stabilizer (PSS) for computer representation 
in power system stability simulations and the corresponding 
excitation system and PSS constants for use in the model.

Governor System Data

    Identify appropriate IEEE model block diagram of governor system 
for computer representation in power system stability simulations 
and the corresponding governor system constants for use in the 
model.

Wind Generators

Number of generators to be interconnected pursuant to this 
Interconnection Request: ----
Elevation: ----
    ----Single Phase
    ----Three Phase
Inverter manufacturer, model name, number, and version:
-----------------------------------------------------------------------
List of adjustable setpoints for the protective equipment or 
software:
-----------------------------------------------------------------------

    Note: A completed General Electric Company Power Systems Load 
Flow (PSLF) data sheet must be supplied with the Interconnection 
Request. If other data sheets are more appropriate to the proposed 
device then they shall be provided and discussed at Scoping Meeting.

Induction Generators

(*) Field Volts:-------------------------------------------------------
(*) Field Amperes:-----------------------------------------------------
(*) Motoring Power (kW):-----------------------------------------------
(*) Neutral Grounding Resistor (If Applicable):------------------------
(*) I2\2\t or K (Heating Time Constant):--------------------
(*) Rotor Resistance:--------------------------------------------------
(*) Stator Resistance:-------------------------------------------------
(*) Stator Reactance:--------------------------------------------------
(*) Rotor Reactance:---------------------------------------------------
(*) Magnetizing Reactance:---------------------------------------------
(*) Short Circuit Reactance:-------------------------------------------
(*) Exciting Current:--------------------------------------------------
(*) Temperature Rise:--------------------------------------------------
(*) Frame Size:--------------------------------------------------------
(*) Design Letter:-----------------------------------------------------
(*) Reactive Power Required In Vars (No Load):-------------------------
(*) Reactive Power Required In Vars (Full Load):-----------------------
(*) Total Rotating Inertia, H: ------Per Unit on KVA Base--------------

    Note: Please consult Transmission Provider prior to submitting 
the Interconnection Request to determine if the information 
designated by (*) is required.

Appendix 2 to LGIP--Interconnection Feasibility Study Agreement

    This Agreement is made and entered into this----day of------, 
20--by and between--------, a-------- organized and existing under 
the laws of the State of--------, (``Interconnection Customer,'') 
and -------- a -------- existing under the laws of the State of----
----, (``Transmission Provider''). Interconnection Customer and 
Transmission Provider each may be referred to as a ``Party,'' or 
collectively as the ``Parties.''

Recitals

    Whereas, Interconnection Customer is proposing to develop a 
Large Generating Facility or generating capacity addition to an 
existing Generating Facility consistent with the Interconnection 
Request submitted by the Interconnection Customer dated --------; 
and
    Whereas, Interconnection Customer desires to interconnect the 
Large Generating Facility with the Transmission System; and
    Whereas, Interconnection Customer has requested the Transmission 
Provider to perform an Interconnection Feasibility Study to assess 
the feasibility of interconnecting the proposed Large Generating 
Facility to the

[[Page 49947]]

Transmission System, and of any Affected Systems;
    Now, therefore, in consideration of and subject to the mutual 
covenants contained herein the Parties agreed as follows:
    1.0 When used in this Agreement, with initial capitalization, 
the terms specified shall have the meanings indicated in the 
Transmission Provider's Commission-approved LGIP.
    2.0 Interconnection Customer elects and Transmission Provider 
shall cause to be performed an Interconnection Feasibility Study 
consistent with Section 6.0 of this LGIP in accordance with the 
Tariff.
    3.0 The scope of the Interconnection Feasibility Study shall be 
subject to the assumptions set forth in Attachment A to this 
Agreement.
    4.0 The Interconnection Feasibility Study shall be based on the 
technical information provided by Interconnection Customer in the 
Interconnection Request, as may be modified as the result of the 
Scoping Meeting. Transmission Provider reserves the right to request 
additional technical information from Interconnection Customer as 
may reasonably become necessary consistent with Good Utility 
Practice during the course of the Interconnection Feasibility Study 
and as designated in accordance with Section 3.3.4 of the LGIP. If, 
after the designation of the Point of Interconnection pursuant to 
Section 3.3.4 of the LGIP, Interconnection Customer modifies its 
Interconnection Request pursuant to Section 4.4, the time to 
complete the Interconnection Feasibility Study may be extended.
    5.0 The Interconnection Feasibility Study report shall provide 
the following information:

--Preliminary identification of any circuit breaker short circuit 
capability limits exceeded as a result of the interconnection;
--Preliminary identification of any thermal overload or voltage 
limit violations resulting from the interconnection; and
--Preliminary description and non-bonding estimated cost of 
facilities required to interconnect the Large Generating Facility to 
the Transmission System and to address the identified short circuit 
and power flow issues.

    6.0 The Interconnection Customer shall provide a deposit of 
$10,000 for the performance of the Interconnection Feasibility 
Study.
    Upon receipt of the Interconnection Feasibility Study the 
Transmission Provider shall charge and Interconnection Customer 
shall pay the actual costs of the Interconnection Feasibility Study.
    Any difference between the deposit and the actual cost of the 
study shall be paid by or refunded to the Interconnection Customer, 
as appropriate.
    7.0 Miscellaneous. The Interconnection Feasibility Study 
Agreement shall include standard miscellaneous terms including, but 
not limited to, indemnities, representations, disclaimers, 
warranties, governing law, amendment, execution, waiver, 
enforceability and assignment, that reflect best practices in the 
electric industry, and that are consistent with regional practices, 
Applicable Laws and Regulations, and the organizational nature of 
each Party. All of these provisions, to the extent practicable, 
shall be consistent with the provisions of the LGIP and the LGIA.
    In witness whereof, the Parties have caused this Agreement to be 
duly executed by their duly authorized officers or agents on the day 
and year first above written.

[Insert name of Transmission Provider or Transmission Owner, if 
applicable]

By:--------------------------------------------------------------------
Title:-----------------------------------------------------------------
Date:------------------------------------------------------------------

By:--------------------------------------------------------------------
Title:-----------------------------------------------------------------
Date:------------------------------------------------------------------

[Insert name of Interconnection Customer]

By:--------------------------------------------------------------------
Title:-----------------------------------------------------------------
Date:------------------------------------------------------------------

Assumptions Used in Conducting the Interconnection Feasibility Study

    The Interconnection Feasibility Study will be based upon the 
information set forth in the Interconnection Request and agreed upon 
in the Scoping Meeting held on--------:

Designation of Point of Interconnection and configuration to be 
studied.
Designation of alternative Point(s) of Interconnection and 
configuration.

    [Above assumptions to be completed by Interconnection Customer 
and other assumptions to be provided by Interconnection Customer and 
Transmission Provider]

Appendix 3 to LGIP--Interconnection System Impact Study Agreement

    This agreement is made and entered into this----day of------, 
20-- by and between--------, a -------- organized and existing under 
the laws of the State of --------, (``Interconnection Customer,'') 
and -------- a --------existing under the laws of the State of------
-- , (``Transmission Provider''). Interconnection Customer and 
Transmission Provider each may be referred to as a ``Party,'' or 
collectively as the ``Parties.''

Recitals

    Whereas, Interconnection Customer is proposing to develop a 
Large Generating Facility or generating capacity addition to an 
existing Generating Facility consistent with the Interconnection 
Request submitted by the Interconnection Customer dated --------; 
and
    Whereas, Interconnection Customer desires to interconnect the 
Large Generating Facility with the Transmission System;
    Whereas, the Transmission Provider has completed an 
Interconnection Feasibility Study (the ``Feasibility Study'') and 
provided the results of said study to the Interconnection 
Customer;\1\ and
---------------------------------------------------------------------------

    \1\ This recital to be omitted if Interconnection Customer has 
elected to forego the Interconnection Feasibility Study.
---------------------------------------------------------------------------

    Whereas, Interconnection Customer has requested the Transmission 
Provider to perform an Interconnection System Impact Study to assess 
the impact of interconnecting the Large Generating Facility to the 
Transmission System, and of any Affected Systems;
    Now, therefore, in consideration of and subject to the mutual 
covenants contained herein the Parties agreed as follows:
    1.0 When used in this Agreement, with initial capitalization, 
the terms specified shall have the meanings indicated in the 
Transmission Provider's Commission-approved LGIP.
    2.0 Interconnection Customer elects and Transmission Provider 
shall cause to be performed an Interconnection System Impact Study 
consistent with Section 7.0 of this LGIP in accordance with the 
Tariff.
    3.0 The scope of the Interconnection System Impact Study shall 
be subject to the assumptions set forth in Attachment A to this 
Agreement.
    4.0 The Interconnection System Impact Study will be based upon 
the results of the Interconnection Feasibility Study and the 
technical information provided by Interconnection Customer in the 
Interconnection Request, subject to any modifications in accordance 
with Section 4.4 of the LGIP. Transmission Provider reserves the 
right to request additional technical information from 
Interconnection Customer as may reasonably become necessary 
consistent with Good Utility Practice during the course of the 
Interconnection Customer System Impact Study. If Interconnection 
Customer modifies its designated Point of Interconnection, 
Interconnection Request, or the technical information provided 
therein is modified, the time to complete the Interconnection System 
Impact Study may be extended.
    5.0 The Interconnection System Impact Study report shall provide 
the following information:

--Identification of any circuit breaker short circuit capability 
limits exceeded as a result of the interconnection;
--Identification of any thermal overload or voltage limit violations 
resulting from the interconnection;
--Identification of any instability or inadequately damped response 
to system disturbances resulting from the interconnection and
--Description and non-binding, good faith estimated cost of 
facilities required to interconnect the Large Generating Facility to 
the Transmission System and to address the identified short circuit, 
instability, and power flow issues.

    6.0 The Interconnection Customer shall provide a deposit of 
$50,000 for the performance of the Interconnection System Impact 
Study. The Transmission Provider's good faith estimate for the time 
of completion of the Interconnection System Impact Study is [insert 
date].
    Upon receipt of the Interconnection System Impact Study, 
Transmission Provider shall charge and Interconnection Customer 
shall pay the actual costs of the Interconnection System Impact 
Study.
    Any difference between the deposit and the actual cost of the 
study shall be paid by or refunded to the Interconnection Customer, 
as appropriate.
    7.0 Miscellaneous. The Interconnection System Impact Study 
Agreement shall

[[Page 49948]]

include standard miscellaneous terms including, but not limited to, 
indemnities, representations, disclaimers, warranties, governing 
law, amendment, execution, waiver, enforceability and assignment, 
that reflect best practices in the electric industry, that are 
consistent with regional practices, Applicable Laws and Regulations 
and the organizational nature of each Party. All of these 
provisions, to the extent practicable, shall be consistent with the 
provisions of the LGIP and the LGIA.]
    In witness thereof, the Parties have caused this Agreement to be 
duly executed by their duly authorized officers or agents on the day 
and year first above written.

[Insert name of Transmission Provider or Transmission Owner, if 
applicable]

By:--------------------------------------------------------------------
Title:-----------------------------------------------------------------
Date:------------------------------------------------------------------

By:--------------------------------------------------------------------
Title:-----------------------------------------------------------------
Date:------------------------------------------------------------------

[Insert name of Interconnection Customer]

By:--------------------------------------------------------------------
Title:-----------------------------------------------------------------
Date:------------------------------------------------------------------

Assumptions Used in Conducting the Interconnection System Impact Study

    The Interconnection System Impact Study will be based upon the 
results of the Interconnection Feasibility Study, subject to any 
modifications in accordance with Section 4.4 of the LGIP, and the 
following assumptions:
Designation of Point of Interconnection and configuration to be 
studied.
Designation of alternative Point(s) of Interconnection and 
configuration.
[Above assumptions to be completed by Interconnection Customer and 
other assumptions to be provided by Interconnection Customer and 
Transmission Provider]

Appendix 4 to LGIP--Interconnection Facilities Study Agreement

    This agreement is made and entered into this ---- day of ------, 
20 -- by and between --------, a -------- organized and existing 
under the laws of the State of --------, (``Interconnection 
Customer,'') and -------- a -------- existing under the laws of the 
State of --------, (``Transmission Provider''). Interconnection 
Customer and Transmission Provider each may be referred to as a 
``Party,'' or collectively as the ``Parties.''

Recitals

    Whereas, Interconnection Customer is proposing to develop a 
Large Generating Facility or generating capacity addition to an 
existing Generating Facility consistent with the Interconnection 
Request submitted by the Interconnection Customer dated --------; 
and
    Whereas, Interconnection Customer desires to interconnect the 
Large Generating Facility with the Transmission System;
    Whereas, the Transmission Provider has completed an 
Interconnection System Impact Study (the ``System Impact Study'') 
and provided the results of said study to the Interconnection 
Customer; and
    Whereas, Interconnection Customer has requested the Transmission 
Provider to perform an Interconnection Facilities Study to specify 
and estimate the cost of the equipment, engineering, procurement and 
construction work needed to implement the conclusions of the 
Interconnection System Impact Study in accordance with Good Utility 
Practice to physically and electrically connect the Large Generating 
Facility to the Transmission System.
    Now, therefore, in consideration of and subject to the mutual 
covenants contained herein the Parties agreed as follows:
    1.0 When used in this Agreement, with initial capitalization, 
the terms specified shall have the meanings indicated in the 
Transmission Provider's Commission-approved LGIP.
    2.0 Interconnection Customer elects and Transmission Provider 
shall cause an Interconnection Facilities Study consistent with 
Section 8.0 of this LGIP to be performed in accordance with the 
Tariff.
    3.0 The scope of the Interconnection Facilities Study shall be 
subject to the assumptions set forth in Attachment A and the data 
provided in Attachment B to this Agreement.
    4.0 The Interconnection Facilities Study report (i) shall 
provide a description, estimated cost of (consistent with Attachment 
A), schedule for required facilities to interconnect the Large 
Generating Facility to the Transmission System and (ii) shall 
address the short circuit, instability, and power flow issues 
identified in the Interconnection System Impact Study.
    5.0 The Interconnection Customer shall provide a deposit of 
$100,000 for the performance of the Interconnection Facilities 
Study. The time for completion of the Interconnection Facilities 
Study is specified in Attachment A.
    Transmission Provider shall invoice Interconnection Customer on 
a monthly basis for the work to be conducted on the Interconnection 
Facilities Study each month. Interconnection Customer shall pay 
invoiced amounts within thirty (30) Calendar Days of receipt of 
invoice. Transmission Provider shall continue to hold the amounts on 
deposit until settlement of the final invoice.
    6.0 Miscellaneous. The Interconnection Facility Study Agreement 
shall include standard miscellaneous terms including, but not 
limited to, indemnities, representations, disclaimers, warranties, 
governing law, amendment, execution, waiver, enforceability and 
assignment, that reflect best practices in the electric industry, 
and that are consistent with regional practices, Applicable Laws and 
Regulations, and the organizational nature of each Party. All of 
these provisions, to the extent practicable, shall be consistent 
with the provisions of the LGIP and the LGIA.
    In witness whereof, the Parties have caused this Agreement to be 
duly executed by their duly authorized officers or agents on the day 
and year first above written.

[Insert name of Transmission Provider or Transmission Owner, if 
applicable]

By:--------------------------------------------------------------------
Title:-----------------------------------------------------------------
Date:------------------------------------------------------------------

By:--------------------------------------------------------------------
Title:-----------------------------------------------------------------
Date:------------------------------------------------------------------

[Insert name of Interconnection Customer]
By:--------------------------------------------------------------------
Title:-----------------------------------------------------------------
Date:------------------------------------------------------------------

Interconnection Customer Schedule Election for Conducting the 
Interconnection Facilities Study

    The Transmission Provider shall use Reasonable Efforts to 
complete the study and issue a draft Interconnection Facilities 
Study report to the Interconnection Customer within the following 
number of days after of receipt of an executed copy of this 
Interconnection Facilities Study Agreement:

--Ninety (90) Calendar Days with no more than a +/-20 percent cost 
estimate contained in the report, or
--One hundred eighty (180) Calendar Days with no more than a +/-10 
percent cost estimate contained in the report.

Data Form To Be Provided by Interconnection Customer With the 
Interconnection Facilities Study Agreement

    Provide location plan and simplified one-line diagram of the 
plant and station facilities. For staged projects, please indicate 
future generation, transmission circuits, etc.
    One set of metering is required for each generation connection 
to the new ring bus or existing Transmission Provider station. 
Number of generation connections:
    On the one line indicate the generation capacity attached at 
each metering location. (Maximum load on CT/PT)
    On the one line indicate the location of auxiliary power. 
(Minimum load on CT/PT) Amps
    Will an alternate source of auxiliary power be available during 
CT/PT maintenance? --Yes --No
    Will a transfer bus on the generation side of the metering 
require that each meter set be designed for the total plant 
generation?'' --Yes --No (Please indicate on one line).
    What type of control system or PLC will be located at the 
Interconnection Customer's Large Generating Facility?
-----------------------------------------------------------------------
    What protocol does the control system or PLC use?
-----------------------------------------------------------------------
    Please provide a 7.5-minute quadrangle of the site. Sketch the 
plant, station, transmission line, and property line.
-----------------------------------------------------------------------
    Physical dimensions of the proposed interconnection station:
-----------------------------------------------------------------------
    Bus length from generation to interconnection station:
-----------------------------------------------------------------------
    Line length from interconnection station to Transmission 
Provider's transmission line.
-----------------------------------------------------------------------
    Tower number observed in the field. (Painted on tower leg)*
-----------------------------------------------------------------------
    Number of third party easements required for transmission 
lines:*
-----------------------------------------------------------------------
    * To be completed in coordination with Transmission Provider.


[[Page 49949]]


    Is the Large Generating Facility in the Transmission Provider's 
service area?

--Yes --No Local provider:
-----------------------------------------------------------------------
    Please provide proposed schedule dates:

Begin Construction:

Date: --------------------

Generator step-up transformer: receives back feed power
Date: --------------------

Generation Testing:
Date: --------------------

Commercial Operation:
Date: --------------------

Appendix 5 to LGIP--Optional Interconnection Study Agreement

    This agreement is made and entered into this ---- day of ------, 
20 -- by and between --------, a -------- organized and existing 
under the laws of the State of --------, (``Interconnection 
Customer,'') and -------- a -------- existing under the laws of the 
State of --------, (``Transmission Provider''). Interconnection 
Customer and Transmission Provider each may be referred to as a 
``Party,'' or collectively as the ``Parties.''

Recitals

    Whereas, Interconnection Customer is proposing to develop a 
Large Generating Facility or generating capacity addition to an 
existing Generating Facility consistent with the Interconnection 
Request submitted by the Interconnection Customer dated --------;
    Whereas, Interconnection Customer is proposing to establish an 
interconnection with the Transmission System; and
    Whereas, Interconnection Customer has submitted to Transmission 
Provider an Interconnection Request; and
    Whereas, on or after the date when the Interconnection Customer 
receives the Interconnection System Impact Study results, 
Interconnection Customer has further requested that the Transmission 
Provider prepare an Optional Interconnection Study;
    Now, therefore, in consideration of and subject to the mutual 
covenants contained herein the Parties agree as follows:
    1.0 When used in this Agreement, with initial capitalization, 
the terms specified shall have the meanings indicated in the 
Transmission Provider's Commission-approved LGIP.
    2.0 Interconnection Customer elects and Transmission Provider 
shall cause an Optional Interconnection Study consistent with 
Section 10.0 of this LGIP to be performed in accordance with the 
Tariff.
    3.0 The scope of the Optional Interconnection Study shall be 
subject to the assumptions set forth in Attachment A to this 
Agreement.
    4.0 The Optional Interconnection Study shall be performed solely 
for informational purposes.
    5.0 The Optional Interconnection Study report shall provide a 
sensitivity analysis based on the assumptions specified by the 
Interconnection Customer in Attachment A to this Agreement. The 
Optional Interconnection Study will identify the Transmission 
Provider's Interconnection Facilities and the Network Upgrades, and 
the estimated cost thereof, that may be required to provide 
transmission service or interconnection service based upon the 
assumptions specified by the Interconnection Customer in Attachment 
A.
    6.0 The Interconnection Customer shall provide a deposit of 
$10,000 for the performance of the Optional Interconnection Study. 
The Transmission Provider's good faith estimate for the time of 
completion of the Optional Interconnection Study is [insert date].
    Upon receipt of the Optional Interconnection Study, the 
Transmission Provider shall charge and Interconnection Customer 
shall pay the actual costs of the Optional Study.
    Any difference between the initial payment and the actual cost 
of the study shall be paid by or refunded to the Interconnection 
Customer, as appropriate.
    7.0 Miscellaneous. The Optional Interconnection Study Agreement 
shall include standard miscellaneous terms including, but not 
limited to, indemnities, representations, disclaimers, warranties, 
governing law, amendment, execution, waiver, enforceability and 
assignment, that reflect best practices in the electric industry, 
and that are consistent with regional practices, Applicable Laws and 
Regulations, and the organizational nature of each Party. All of 
these provisions, to the extent practicable, shall be consistent 
with the provisions of the LGIP and the LGIA.
    In witness whereof, the Parties have caused this Agreement to be 
duly executed by their duly authorized officers or agents on the day 
and year first above written.

[Insert name of Transmission Provider or Transmission Owner, if 
applicable]

By:--------------------------------------------------------------------
Title:-----------------------------------------------------------------
Date:------------------------------------------------------------------

 By:-------------------------------------------------------------------
 Title:----------------------------------------------------------------
 Date:-----------------------------------------------------------------

[Insert name of Interconnection Customer]

By:--------------------------------------------------------------------
Title:-----------------------------------------------------------------
Date:------------------------------------------------------------------

Assumptions Used in Conducting the Optional Interconnection Study

[To be completed by Interconnection Customer consistent with Section 
10 of the LGIP.]

Appendix 6 to LGIP--Standard Large Generator Interconnection Agreement

Standard Large Generator Interconnection Agreement (LGIA)

(Applicable to Generating Facilities That Exceed 20 MW)

Table of Contents

Article 1. Definitions
Article 2. Effective Date, Term and Termination
    2.1 Effective Date
    2.2 Term of Agreement
    2.3 Termination Procedures
    2.3.1 Written Notice
    2.3.2 Default
    2.4 Termination Costs
     2.4.1
    2.4.2
    2.4.3
    2.5 Disconnection
    2.6 Survival
Article 3. Regulatory Filings
    3.1 Filing
Article 4. Scope of Service
    4.1 Interconnection Product Options
    4.1.1 Energy Resource Interconnection Service
    4.1.1.1 The Product
    4.1.1.2 Transmission Delivery Service Implications
    4.1.2 Network Resource Interconnection Service
    4.1.2.1 The Product
    4.1.2.2 Transmission Delivery Service Implications
    4.2 Provision of Service
    4.3 Generator Balancing Service Arrangements
    4.3.1
    4.4 Performance Standards
    4.5 No Transmission Delivery Service
    4.6 Interconnection Customer Provided Services
Article 5. Interconnection Facilities Engineering, Procurement, and 
Construction
    5.1 Options
    5.1.1 Standard Option
    5.1.2 Alternate Option
    5.1.3 Option to Build
    5.1.4 Negotiated Option
    5.2 General Conditions Applicable to Option to Build
    5.3 Liquidated Damages
    5.4 Power System Stabilizers
    5.5 Equipment Procurement
    5.5.1
    5.5.2
    5.5.3
    5.6 Construction Commencement
    5.6.1
    5.6.2
    5.6.3
    5.6.4
    5.7 Work Progress
    5.8 Information Exchange
    5.9 Limited Operation
    5.10 Interconnection Customer Interconnection Facilities 
(``ICIF'')
    5.10.1 Large Generating Facility Specifications
    5.10.2 Transmission Provider's Review
    5.10.3 ICIF Construction
    5.11 Transmission Provider Interconnection Facilities 
Construction
    5.12 Access Rights
    5.13 Lands of Other Property Owners
    5.14 Permits
    5.15 Early Construction of Base Case Facilities
    5.16 Suspension
    5.17 Taxes
    5.17.1 Interconnection Customer Payments Not Taxable
    5.17.2 Representations And Covenants
    5.17.3 Indemnification for Taxes Imposed Upon Transmission 
Provider
    5.17.4 Tax Gross-Up Amount
    5.17.5 Private Letter Ruling or Change or Clarification of Law

[[Page 49950]]

    5.17.6 Subsequent Taxable Events
    5.17.7 Contests
    5.17.8 Refund
    5.17.9 Taxes Other Than Income Taxes
    5.17.10 Transmission Owners Who Are Not Transmission Providers
    5.18 Tax Status
    5.19 Modification
    5.19.1 General
    5.19.2 Standards
    5.19.3 Modification Costs
Article 6. Testing and Inspection
    6.1 Pre-Commercial Operation Date Testing and Modifications
    6.2 Post-Commercial Operation Date Testing and Modifications
    6.3 Right to Observe Testing
    6.4 Right to Inspect Article
Article 7. Metering
    7.1 General
    7.2 Check Meters
    7.3 Standards
    7.4 Testing of Metering Equipment
    7.5 Metering Data
Article 8. Communications
    8.1 Interconnection Customer Obligations
    8.2 Remote Terminal Unit
    8.3 No Annexation
Article 9. Operations
    9.1 General
    9.2 Control Area Notification
    9.3 Transmission Provider Obligations
    9.4 Interconnection Customer Obligations
    9.5 Start-Up and Synchronization
    9.6 Reactive Power
    9.6.1 Power Factor Design Criteria
    9.6.2 Voltage Schedules
    9.6.2.1 Governors and Regulators
    9.6.3 Payment for Reactive Power
    9.7 Outages and Interruptions
    9.7.1 Outages
    9.7.1.1 Outage Authority and Coordination
    9.7.1.2 Outage Schedules
    9.7.1.3 Outage Restoration
    9.7.2 Interruption of Service
    9.7.2.1
    9.7.2.2
    9.7.2.3
    9.7.2.4
    9.7.2.5
    9.7.3 Under-Frequency and Over-Frequency Conditions
    9.7.4 System Protection and Other Control Requirements
    9.7.4.1 System Protection Facilities
    9.7.4.2
    9.7.4.3
    9.7.4.4
    9.7.4.5
    9.7.4.6
    9.7.5 Requirements for Protection
    9.7.6 Power Quality
    9.8 Switching and Tagging Rules
    9.9 Use of Interconnection Facilities by Third Parties
    9.9.1 Purpose of Interconnection Facilities
    9.9.2 Third Party Users
    9.10 Disturbance Analysis Data Exchange
Article 10. Maintenance
    10.1 Transmission Provider Obligations
    10.2 Interconnection Customer Obligations
    10.3 Coordination
    10.4 Secondary Systems
    10.5 Operating and Maintenance Expenses
Article 11. Performance Obligation
    11.1 Interconnection Customer Interconnection Facilities
    11.2 Transmission Provider's Interconnection Facilities
    11.3 Network Upgrades and Distribution Upgrades
    11.4 Transmission Credits
    11.4.1 Refund of Amounts Advanced for Network Upgrades
    11.4.2 Special Provisions for Affected Systems
    11.4.3
    11.5 Provision of Security
    11.5.1
    11.5.2
    11.5.3
    11.6 Interconnection Customer Compensation
    11.6.1 Interconnection Customer Compensation for Actions During 
Emergency Condition
Article 12. Invoice
    12.1 General
    12.2 Final Invoice
    12.3 Payment
    12.4 Disputes
Article 13. Emergencies
    13.1 Definition
    13.2 Obligations
    13.3 Notice
    13.4 Immediate Action
    13.5 Transmission Provider Authority
    13.5.1 General
    13.5.2 Reduction and Disconnection
    13.6 Interconnection Customer Authority
    13.7 Limited Liability
Article 14. Regulatory Requirements and Governing Laws
    14.1 Regulatory Requirements
    14.2 Governing Law
    14.2.1
    14.2.2
    14.2.3
Article 15. Notices
    15.1 General
    15.2 Billings and Payments
    15.3 Alternative Forms of Notice
    15.4 Operations and Maintenance Notice
Article 16. Force Majeure
    16.1
    16.2
Article 17. Default
    17.1 Default
    17.1.1 General
    17.1.2 Right to Terminate
Article 18. Indemnity, Consequential Damages, and Insurance
    18.1 Indemnity
    18.1.1 Indemnified Person
    18.1.2 Indemnifying Party
    18.1.3 Indemnity Procedures
    18.2 Consequential Damages
    18.3 Insurance
    18.3.1
    18.3.2
    18.3.3
    18.3.4
    18.3.5
    18.3.6
    18.3.7
    18.3.8
    18.3.9
    18.3.10
    18.3.11
Article 19. Assignment
    19.1 Assignment
Article 20. Severability
    20.1 Severability
Article 21. Comparability
    21.1 Comparability
Article 22. Confidentiality
    22.1 Confidentiality
    22.1.1 Term
    22.1.2 Scope
    22.1.3 Release of Confidential Information
    22.1.4 Rights
    22.1.5 No Warranties
    22.1.6 Standard of Care
    22.1.7 Order of Disclosure
    22.1.8 Termination of Agreement
    22.1.9 Remedies
    22.1.10 Disclosure to FERC or its Staff
    22.1.11
    22.1.12
Article 23. Environmental Releases
    23.1
Article 24. Information Requirements
    24.1 Information Acquisition
    24.2 Information Submission by Transmission Provider
    24.3 Updated Information Submission by Interconnection Customer
    24.4 Information Supplementation
Article 25. Information Access and Audit Rights
    25.1 Information Access
    25.2 Reporting of Non-Force Majeure Events
    25.3 Audit Rights
    25.4 Audit Rights Periods
    25.4.1 Audit Rights Period for Construction-Related Accounts and 
Records
    25.4.2 Audit Rights Period for All Other Accounts and Records
    25.5 Audit Results
Article 26. Subcontractors
    26.1 General
    26.2 Responsibility of Principal
    26.3 No Limitation by Insurance
Article 27. Disputes
    27.1 Submission
    27.2 External Arbitration Procedures
    27.3 Arbitration Decisions
    27.4 Costs
Article 28. Representations, Warranties and Covenants
    28.1 General
    28.1.1 Good Standing
    28.1.2 Authority
    28.1.3 No Conflict
    28.1.4 Consent and Approval
Article 29. Joint Operating Committee
    29.1 Joint Operating Committee
    29.1.1
    29.1.2
    29.1.3
    29.1.4
    29.1.5
    29.1.6
Article 30. Miscellaneous
    30.1 Binding Effect
    30.2 Conflicts
    30.3 Rules of Interpretation
    30.4 Entire Agreement
    30.5 No Third Party Beneficiaries
    30.6 Waiver
    30.7 Headings

[[Page 49951]]

    30.8 Multiple Counterparts
    30.9 Amendment
    30.10 Modification by the Parties
    30.11 Reservation of Rights
    30.12 No Partnership

Appendices

Appendix A--Interconnection Facilities, Network Upgrades and 
Distribution Upgrades
Appendix B--Milestones
Appendix C--Interconnection Details
Appendix D--Security Arrangements Details
Appendix E--Commercial Operation Date
Appendix F--Addresses for Delivery of Notices and Billings

Standard Large Generator Interconnection Agreement

    This standard large generator interconnection agreement 
(``Agreement'') is made and entered into this ---- day of ------ 20, 
-- by and between --------, a -------- organized and existing under 
the laws of -------- the State/Commonwealth of (``Interconnection 
Customer'' with a Large Generating Facility), and --------, a 
[corporation] organized and existing under the laws of the State/
Commonwealth of -------- (``Transmission Provider and/or 
Transmission Owner''). Interconnection Customer and Transmission 
Provider each may be referred to as a ``Party'' or collectively as 
the ``Parties.''

Recitals

    Whereas, Transmission Provider operates the Transmission System; 
and
    Whereas, Interconnection Customer intends to own, lease and/or 
control and operate the Generating Facility identified as a Large 
Generating Facility in Appendix C to this Agreement; and,
    Whereas, Interconnection Customer and Transmission Provider have 
agreed to enter into this Agreement for the purpose of 
interconnecting the Large Generating Facility with the Transmission 
System;
    Now, therefore, in consideration of and subject to the mutual 
covenants contained herein, it is agreed:
    When used in this Standard Large Generator Interconnection 
Agreement, terms with initial capitalization that are not defined in 
Article 1 shall have the meanings specified in the Article in which 
they are used.

Article 1. Definitions

    Adverse System Impact shall mean the negative effects due to 
technical or operational limits on conductors or equipment being 
exceeded that may compromise the safety and reliability of the 
electric system.
    Affected System shall mean an electric system other than the 
Transmission Provider's Transmission System that may be affected by 
the proposed interconnection.
    Affected System Operator shall mean the entity that operates an 
Affected System.
    Affiliate shall mean, with respect to a corporation, partnership 
or other entity, each such other corporation, partnership or other 
entity that directly or indirectly, through one or more 
intermediaries, controls, is controlled by, or is under common 
control with, such corporation, partnership or other entity.
    Ancillary Services shall mean those services that are necessary 
to support the transmission of capacity and energy from resources to 
loads while maintaining reliable operation of the Transmission 
Provider's Transmission System in accordance with Good Utility 
Practice.
    Applicable Laws and Regulations shall mean all duly promulgated 
applicable federal, state and local laws, regulations, rules, 
ordinances, codes, decrees, judgments, directives, or judicial or 
administrative orders, permits and other duly authorized actions of 
any Governmental Authority.
    Applicable Reliability Council shall mean the reliability 
council applicable to the Transmission System to which the 
Generating Facility is directly interconnected.
    Applicable Reliability Standards shall mean the requirements and 
guidelines of NERC, the Applicable Reliability Council, and the 
Control Area of the Transmission System to which the Generating 
Facility is directly interconnected.
    Base Case shall mean the base case power flow, short circuit, 
and stability data bases used for the Interconnection Studies by the 
Transmission Provider or Interconnection Customer.
    Breach shall mean the failure of a Party to perform or observe 
any material term or condition of the Standard Large Generator 
Interconnection Agreement.
    Breaching Party shall mean a Party that is in Breach of the 
Standard Large Generator Interconnection Agreement.
    Business Day shall mean Monday through Friday, excluding Federal 
Holidays.
    Calendar Day shall mean any day including Saturday, Sunday or a 
Federal Holiday.
    Clustering shall mean the process whereby a group of 
Interconnection Requests is studied together, instead of serially, 
for the purpose of conducting the Interconnection System Impact 
Study.
    Commercial Operation Date of a unit shall mean the date on which 
Interconnection Customer commences commercial operation of the unit 
at the Generating Facility after Trial Operation of such unit has 
been completed as confirmed in writing substantially in the form 
shown in Appendix E to the Standard Large Generator Interconnection 
Agreement.
    Confidential Information shall mean any confidential, 
proprietary or trade secret information of a plan, specification, 
pattern, procedure, design, device, list, concept, policy or 
compilation relating to the present or planned business of a Party, 
which is designated as confidential by the Party supplying the 
information, whether conveyed orally, electronically, in writing, 
through inspection, or otherwise.
    Control Area shall mean an electrical system or systems bounded 
by interconnection metering and telemetry, capable of controlling 
generation to maintain its interchange schedule with other Control 
Areas and contributing to frequency regulation of the 
interconnection. A Control Area must be certified by NERC.
    Default shall mean the failure of a Breaching Party to cure its 
Breach in accordance with Article 17 of the Standard Large Generator 
Interconnection Agreement.
    Dispute Resolution shall mean the procedure for resolution of a 
dispute between the Parties in which they will first attempt to 
resolve the dispute on an informal basis.
    Distribution System shall mean the Transmission Provider's 
facilities and equipment used to transmit electricity to ultimate 
usage points such as homes and industries directly from nearby 
generators or from interchanges with higher voltage transmission 
networks which transport bulk power over longer distances. The 
voltage levels at which distribution systems operate differ among 
areas.
    Distribution Upgrades shall mean the additions, modifications, 
and upgrades to the Transmission Provider's Distribution System at 
or beyond the Point of Interconnection to facilitate interconnection 
of the Generating Facility and render the transmission service 
necessary to effect Interconnection Customer's wholesale sale of 
electricity in interstate commerce. Distribution Upgrades do not 
include Interconnection Facilities.
    Effective Date shall mean the date on which the Standard Large 
Generator Interconnection Agreement becomes effective upon execution 
by the Parties subject to acceptance by the Commission, or if filed 
unexecuted, upon the date specified by the Commission.
    Emergency Condition shall mean a condition or situation: (1) 
That in the judgement of the Party making the claim is imminently 
likely to endanger life or property; or (2) that, in the case of a 
Transmission Provider, is imminently likely (as determined in a non-
discriminatory manner) to cause a material adverse effect on the 
security of, or damage to Transmission Provider's Transmission 
System, Transmission Provider's Interconnection Facilities or the 
electric systems of others to which the Transmission Provider's 
Transmission System is directly connected; or (3) that, in the case 
of Interconnection Customer, is imminently likely (as determined in 
a non-discriminatory manner) to cause a material adverse effect on 
the security of, or damage to, the Generating Facility or 
Interconnection Customer's Interconnection Facilities. System 
restoration and black start shall be considered Emergency 
Conditions; provided, that Interconnection Customer is not obligated 
by the Standard Large Generator Interconnection Agreement to possess 
black start capability.
    Energy Resource Interconnection Service (ER Interconnection 
Service) shall mean an Interconnection Service that allows the 
Interconnection Customer to connect its Generating Facility to the 
Transmission Provider's Transmission System to be eligible to 
deliver the Generating Facility's electric output using the existing 
firm or nonfirm capacity of the Transmission Provider's Transmission 
System on an as available basis. Energy Resource Interconnection 
Service in and of itself does not convey transmission service.
    Engineering & Procurement (E&P) Agreement shall mean an 
agreement that

[[Page 49952]]

authorizes the Transmission Provider to begin engineering and 
procurement of long lead-time items necessary for the establishment 
of the interconnection in order to advance the implementation of the 
Interconnection Request.
    Environmental Law shall mean Applicable Laws or Regulations 
relating to pollution or protection of the environment or natural 
resources.
    Federal Power Act shall mean the Federal Power Act, as amended, 
16 U.S.C. 791a et seq.
    FERC shall mean the Federal Energy Regulatory Commission 
(Commission) or its successor.
    Force Majeure shall mean any act of God, labor disturbance, act 
of the public enemy, war, insurrection, riot, fire, storm or flood, 
explosion, breakage or accident to machinery or equipment, any 
order, regulation or restriction imposed by governmental, military 
or lawfully established civilian authorities, or any other cause 
beyond a Party's control. A Force Majeure event does not include an 
act of negligence or intentional wrongdoing.
    Generating Facility shall mean Interconnection Customer's device 
for the production of electricity identified in the Interconnection 
Request, but shall not include the Interconnection Customer's 
Interconnection Facilities.
    Generating Facility Capacity shall mean the net capacity of the 
Generating Facility and the aggregate net capacity of the Generating 
Facility where it includes multiple energy production devices.
    Good Utility Practice shall mean any of the practices, methods 
and acts engaged in or approved by a significant portion of the 
electric industry during the relevant time period, or any of the 
practices, methods and acts which, in the exercise of reasonable 
judgment in light of the facts known at the time the decision was 
made, could have been expected to accomplish the desired result at a 
reasonable cost consistent with good business practices, 
reliability, safety and expedition. Good Utility Practice is not 
intended to be limited to the optimum practice, method, or act to 
the exclusion of all others, but rather to be acceptable practices, 
methods, or acts generally accepted in the region.
    Governmental Authority shall mean any federal, state, local or 
other governmental regulatory or administrative agency, court, 
commission, department, board, or other governmental subdivision, 
legislature, rulemaking board, tribunal, or other governmental 
authority having jurisdiction over the Parties, their respective 
facilities, or the respective services they provide, and exercising 
or entitled to exercise any administrative, executive, police, or 
taxing authority or power; provided, however, that such term does 
not include Interconnection Customer, Transmission Provider, or any 
Affiliate thereof.
    Hazardous Substances shall mean any chemicals, materials or 
substances defined as or included in the definition of ``hazardous 
substances,'' ``hazardous wastes,'' ``hazardous materials,'' 
``hazardous constituents,'' ``restricted hazardous materials,'' 
``extremely hazardous substances,'' ``toxic substances,'' 
``radioactive substances,'' ``contaminants,'' ``pollutants,'' 
``toxic pollutants'' or words of similar meaning and regulatory 
effect under any applicable Environmental Law, or any other 
chemical, material or substance, exposure to which is prohibited, 
limited or regulated by any applicable Environmental Law.
    Initial Synchronization Date shall mean the date upon which the 
Generating Facility is initially synchronized and upon which Trial 
Operation begins.
    In-Service Date shall mean the date upon which the 
Interconnection Customer reasonably expects it will be ready to 
begin use of the Transmission Provider's Interconnection Facilities 
to obtain back feed power.
    Interconnection Customer shall mean any entity, including the 
Transmission Provider, Transmission Owner or any of the Affiliates 
or subsidiaries of either, that proposes to interconnect its 
Generating Facility with the Transmission Provider's Transmission 
System.
    Interconnection Customer's Interconnection Facilities shall mean 
all facilities and equipment, as identified in Appendix A of the 
Standard Large Generator Interconnection Agreement, that are located 
between the Generating Facility and the Point of Change of 
Ownership, including any modification, addition, or upgrades to such 
facilities and equipment necessary to physically and electrically 
interconnect the Generating Facility to the Transmission Provider's 
Transmission System. Interconnection Customer's Interconnection 
Facilities are sole use facilities.
    Interconnection Facilities shall mean the Transmission 
Provider's Interconnection Facilities and the Interconnection 
Customer's Interconnection Facilities. Collectively, Interconnection 
Facilities include all facilities and equipment between the 
Generating Facility and the Point of Interconnection, including any 
modification, additions or upgrades that are necessary to physically 
and electrically interconnect the Generating Facility to the 
Transmission Provider's Transmission System. Interconnection 
Facilities are sole use facilities and shall not include 
Distribution Upgrades, Stand Alone Network Upgrades or Network 
Upgrades.
    Interconnection Facilities Study shall mean a study conducted by 
the Transmission Provider or a third party consultant for the 
Interconnection Customer to determine a list of facilities 
(including Transmission Provider's Interconnection Facilities and 
Network Upgrades as identified in the Interconnection System Impact 
Study), the cost of those facilities, and the time required to 
interconnect the Generating Facility with the Transmission 
Provider's Transmission System. The scope of the study is defined in 
Section 8 of the Standard Large Generator Interconnection 
Procedures.
    Interconnection Facilities Study Agreement shall mean the form 
of agreement contained in Appendix 4 of the Standard Large Generator 
Interconnection Procedures for conducting the Interconnection 
Facilities Study.
    Interconnection Feasibility Study shall mean a preliminary 
evaluation of the system impact and cost of interconnecting the 
Generating Facility to the Transmission Provider's Transmission 
System, the scope of which is described in Section 6 of the Standard 
Large Generator Interconnection Procedures.
    Interconnection Feasibility Study Agreement shall mean the form 
of agreement contained in Appendix 2 of the Standard Large Generator 
Interconnection Procedures for conducting the Interconnection 
Feasibility Study.
    Interconnection Request shall mean an Interconnection Customer's 
request, in the form of Appendix 1 to the Standard Large Generator 
Interconnection Procedures, in accordance with the Tariff, to 
interconnect a new Generating Facility, or to increase the capacity 
of, or make a Material Modification to the operating characteristics 
of, an existing Generating Facility that is interconnected with the 
Transmission Provider's Transmission System.
    Interconnection Service shall mean the service provided by the 
Transmission Provider associated with interconnecting the 
Interconnection Customer's Generating Facility to the Transmission 
Provider's Transmission System and enabling it to receive electric 
energy and capacity from the Generating Facility at the Point of 
Interconnection, pursuant to the terms of the Standard Large 
Generator Interconnection Agreement and, if applicable, the 
Transmission Provider's Tariff.
    Interconnection Study shall mean any of the following studies: 
The Interconnection Feasibility Study, the Interconnection System 
Impact Study, and the Interconnection Facilities Study described in 
the Standard Large Generator Interconnection Procedures.
    Interconnection System Impact Study shall mean an engineering 
study that evaluates the impact of the proposed interconnection on 
the safety and reliability of Transmission Provider's Transmission 
System and, if applicable, an Affected System. The study shall 
identify and detail the system impacts that would result if the 
Generating Facility were interconnected without project 
modifications or system modifications, focusing on the Adverse 
System Impacts identified in the Interconnection Feasibility Study, 
or to study potential impacts, including but not limited to those 
identified in the Scoping Meeting as described in the Standard Large 
Generator Interconnection Procedures.
    Interconnection System Impact Study Agreement shall mean the 
form of agreement contained in Appendix 3 of the Standard Large 
Generator Interconnection Procedures for conducting the 
Interconnection System Impact Study.
    IRS shall mean the Internal Revenue Service.
    Joint Operating Committee shall be a group made up of 
representatives from Interconnection Customers and the Transmission 
Provider to coordinate operating and technical considerations of 
Interconnection Service.
    Large Generating Facility shall mean a Generating Facility 
having a Generating Facility Capacity of more than 20 MW.

[[Page 49953]]

    Loss shall mean any and all losses relating to injury to or 
death of any person or damage to property, demand, suits, 
recoveries, costs and expenses, court costs, attorney fees, and all 
other obligations by or to third parties, arising out of or 
resulting from the other Party's performance, or non-performance of 
its obligations under the Standard Large Generator Interconnection 
Agreement on behalf of the indemnifying Party, except in cases of 
gross negligence or intentional wrongdoing by the indemnifying 
Party.
    Material Modification shall mean those modifications that have a 
material impact on the cost or timing of any Interconnection Request 
with a later queue priority date.
    Metering Equipment shall mean all metering equipment installed 
or to be installed at the Generating Facility pursuant to the 
Standard Large Generator Interconnection Agreement at the metering 
points, including but not limited to instrument transformers, MWh-
meters, data acquisition equipment, transducers, remote terminal 
unit, communications equipment, phone lines, and fiber optics.
    NERC shall mean the North American Electric Reliability Council 
or its successor organization.
    Network Resource shall mean that portion of a Generating 
Facility that is integrated with the Transmission Provider's 
Transmission System, designated as a Network Resource pursuant to 
the terms of the Tariff, and subjected to redispatch directives as 
ordered by the Transmission Provider in accordance with the Tariff.
    Network Resource Interconnection Service (NR Interconnection 
Service) shall mean an Interconnection Service that allows the 
Interconnection Customer to integrate its Large Generating Facility 
with the Transmission Provider's Transmission System (1) in a manner 
comparable to that in which the Transmission Provider integrates its 
generating facilities to serve native load customers; or (2) in an 
RTO or ISO with market based congestion management, in the same 
manner as all other Network Resources. Network Resource 
Interconnection Service in and of itself does not convey 
transmission service.
    Network Upgrades shall mean the additions, modifications, and 
upgrades to the Transmission Provider's Transmission System required 
at or beyond the point at which the Interconnection Customer 
interconnects to the Transmission Provider's Transmission System to 
accommodate the interconnection of the Large Generating Facility to 
the Transmission Provider's Transmission System.
    Notice of Dispute shall mean a written notice of a dispute or 
claim that arises out of or in connection with the Standard Large 
Generator Interconnection Agreement or its performance.
    Optional Interconnection Study shall mean a sensitivity analysis 
based on assumptions specified by the Interconnection Customer in 
the Optional Interconnection Study Agreement.
    Optional Interconnection Study Agreement shall mean the form of 
agreement contained in Appendix 5 of the Standard Large Generator 
Interconnection Procedures for conducting the Optional 
Interconnection Study.
    Party or Parties shall mean Transmission Provider, Transmission 
Owner, Interconnection Customer or any combination of the above.
    Point of Change of Ownership shall mean the point, as set forth 
in Appendix A to the Standard Large Generator Interconnection 
Agreement, where the Interconnection Customer's Interconnection 
Facilities connect to the Transmission Provider's Interconnection 
Facilities.
    Point of Interconnection shall mean the point, as set forth in 
Appendix A to the Standard Large Generator Interconnection 
Agreement, where the Interconnection Facilities connect to the 
Transmission Provider's Transmission System.
    Queue Position shall mean the order of a valid Interconnection 
Request, relative to all other pending valid Interconnection 
Requests, that is established based upon the date and time of 
receipt of the valid Interconnection Request by the Transmission 
Provider.
    Reasonable Efforts shall mean, with respect to an action 
required to be attempted or taken by a Party under the Standard 
Large Generator Interconnection Agreement, efforts that are timely 
and consistent with Good Utility Practice and are otherwise 
substantially equivalent to those a Party would use to protect its 
own interests.
    Scoping Meeting shall mean the meeting between representatives 
of the Interconnection Customer and Transmission Provider conducted 
for the purpose of discussing alternative interconnection options, 
to exchange information including any transmission data and earlier 
study evaluations that would be reasonably expected to impact such 
interconnection options, to analyze such information, and to 
determine the potential feasible Points of Interconnection.
    Site Control shall mean documentation reasonably demonstrating: 
(1) Ownership of, a leasehold interest in, or a right to develop a 
site for the purpose of constructing the Generating Facility; (2) an 
option to purchase or acquire a leasehold site for such purpose; or 
(3) an exclusivity or other business relationship between 
Interconnection Customer and the entity having the right to sell, 
lease or grant Interconnection Customer the right to possess or 
occupy a site for such purpose.
    Small Generating Facility shall mean a Generating Facility that 
has a Generating Facility Capacity of no more than 20 MW.
    Stand Alone Network Upgrades shall mean Network Upgrades that an 
Interconnection Customer may construct without affecting day-to-day 
operations of the Transmission System during their construction. 
Both the Transmission Provider and the Interconnection Customer must 
agree as to what constitutes Stand Alone Network Upgrades and 
identify them in Appendix A to the Standard Large Generator 
Interconnection Agreement.
    Standard Large Generator Interconnection Agreement (LGIA) shall 
mean the form of interconnection agreement applicable to an 
Interconnection Request pertaining to a Large Generating Facility, 
that is included in the Transmission Provider's Tariff.
    Standard Large Generator Interconnection Procedures (LGIP) shall 
mean the interconnection procedures applicable to an Interconnection 
Request pertaining to a Large Generating Facility that are included 
in the Transmission Provider's Tariff.
    System Protection Facilities shall mean the equipment, including 
necessary protection signal communications equipment, required to 
protect (1) the Transmission Provider's Transmission System from 
faults or other electrical disturbances occurring at the Generating 
Facility and (2) the Generating Facility from faults or other 
electrical system disturbances occurring on the Transmission 
Provider's Transmission System or on other delivery systems or other 
generating systems to which the Transmission Provider's Transmission 
System is directly connected.
    Tariff shall mean the Transmission Provider's Tariff through 
which open access transmission service and Interconnection Service 
are offered, as filed with the Commission, and as amended or 
supplemented from time to time, or any successor tariff.
    Transmission Owner shall mean an entity that owns, leases or 
otherwise possesses an interest in the portion of the Transmission 
System at the Point of Interconnection and may be a Party to the 
Standard Large Generator Interconnection Agreement to the extent 
necessary.
    Transmission Provider shall mean the public utility (or its 
designated agent) that owns, controls, or operates transmission or 
distribution facilities used for the transmission of electricity in 
interstate commerce and provides transmission service under the 
Tariff. The term Transmission Provider should be read to include the 
Transmission Owner when the Transmission Owner is separate from the 
Transmission Provider.
    Transmission Provider's Interconnection Facilities shall mean 
all facilities and equipment owned, controlled or operated by the 
Transmission Provider from the Point of Change of Ownership to the 
Point of Interconnection as identified in Appendix A to the Standard 
Large Generator Interconnection Agreement, including any 
modifications, additions or upgrades to such facilities and 
equipment. Transmission Provider's Interconnection Facilities are 
sole use facilities and shall not include Distribution Upgrades, 
Stand Alone Network Upgrades or Network Upgrades.
    Transmission System shall mean the facilities owned, controlled 
or operated by the Transmission Provider or Transmission Owner that 
are used to provide transmission service under the Tariff.
    Trial Operation shall mean the period during which 
Interconnection Customer is engaged in on-site test operations and 
commissioning of the Generating Facility prior to commercial 
operation.

Article 2. Effective Date, Term and Termination

    2.1 Effective Date. This LGIA shall become effective upon 
execution by the Parties subject to acceptance by FERC (if

[[Page 49954]]

applicable), or if filed unexecuted, upon the date specified by 
FERC. Transmission Provider shall promptly file this LGIA with FERC 
upon execution in accordance with Article 3.1, if required.
    2.2 Term of Agreement. Subject to the provisions of Article 2.3, 
this LGIA shall remain in effect for a period of ten (10) years from 
the Effective Date or such other longer period as the 
Interconnection Customer may request (Term to be Specified in 
Individual Agreements) and shall be automatically renewed for each 
successive one-year period thereafter.
    2.3 Termination Procedures. This LGIA may be terminated as 
follows:
    2.3.1 Written Notice. The Interconnection Customer may terminate 
this LGIA after giving the Transmission Provider ninety (90) 
Calendar Days advance written notice; or
    2.3.2 Default. Either Party may terminate this LGIA in 
accordance with Article 17.
    Notwithstanding the foregoing, no termination shall become 
effective until the Parties have complied with all Applicable Laws 
and Regulations applicable to such termination, including the filing 
with FERC of a notice of termination of this LGIA, which notice has 
been accepted for filing by FERC.
    2.4 Termination Costs. If a Party elects to terminate this 
Agreement pursuant to Article 2.3 above, each Party shall pay all 
costs incurred (including any cancellation costs relating to orders 
or contracts for Interconnection Facilities and equipment) or 
charges assessed by the other Party, as of the date of the other 
Party's receipt of such notice of termination, that are the 
responsibility of the Terminating Party under this LGIA. In the 
event of termination by either Party, both Parties shall use 
commercially Reasonable Efforts to mitigate the costs, damages and 
charges arising as a consequence of termination. Upon termination of 
this LGIA, unless otherwise ordered or approved by FERC:
    2.4.1 With respect to any portion of the Transmission Provider's 
Interconnection Facilities that have not yet been constructed or 
installed, the Transmission Provider shall to the extent possible 
and with Interconnection Customer's authorization cancel any pending 
orders of, or return, any materials or equipment for, or contracts 
for construction of, such facilities; provided that in the event 
Interconnection Customer elects not to authorize such cancellation, 
Interconnection Customer shall assume all payment obligations with 
respect to such materials, equipment, and contracts, and the 
Transmission Provider shall deliver such material and equipment, 
and, if necessary, assign such contracts, to Interconnection 
Customer as soon as practicable, at Interconnection Customer's 
expense. To the extent that Interconnection Customer has already 
paid Transmission Provider for any or all such costs of materials or 
equipment not taken by Interconnection Customer, Transmission 
Provider shall promptly refund such amounts to Interconnection 
Customer, less any costs, including penalties incurred by the 
Transmission Provider to cancel any pending orders of or return such 
materials, equipment, or contracts.
    If an Interconnection Customer terminates this LGIA, it shall be 
responsible for all costs incurred in association with that 
Interconnection Customer's interconnection, including any 
cancellation costs relating to orders or contracts for 
Interconnection Facilities and equipment, and other expenses 
including any Network Upgrades for which the Transmission Provider 
has incurred expenses and has not been reimbursed by the 
Interconnection Customer.
    2.4.2 Transmission Provider may, at its option, retain any 
portion of such materials, equipment, or facilities that 
Interconnection Customer chooses not to accept delivery of, in which 
case Transmission Provider shall be responsible for all costs 
associated with procuring such materials, equipment, or facilities.
    2.4.3 With respect to any portion of the Interconnection 
Facilities, and any other facilities already installed or 
constructed pursuant to the terms of this LGIA, Interconnection 
Customer shall be responsible for all costs associated with the 
removal, relocation or other disposition or retirement of such 
materials, equipment, or facilities.
    2.5 Disconnection. Upon termination of this LGIA, the Parties 
will take all appropriate steps to disconnect the Large Generating 
Facility from the Transmission System. All costs required to 
effectuate such disconnection shall be borne by the terminating 
Party, unless such termination resulted from the non-terminating 
Party's Default of this LGIA or such non-terminating Party otherwise 
is responsible for these costs under this LGIA.
    2.6 Survival. This LGIA shall continue in effect after 
termination to the extent necessary to provide for final billings 
and payments and for costs incurred hereunder, including billings 
and payments pursuant to this LGIA; to permit the determination and 
enforcement of liability and indemnification obligations arising 
from acts or events that occurred while this LGIA was in effect; and 
to permit each Party to have access to the lands of the other Party 
pursuant to this LGIA or other applicable agreements, to disconnect, 
remove or salvage its own facilities and equipment.

Article 3. Regulatory Filings

    3.1 Filing. The Transmission Provider shall file this LGIA (and 
any amendment hereto) with the appropriate Governmental Authority, 
if required. Any information related to studies for interconnection 
asserted by Interconnection Customer to contain competitively 
sensitive commercial or financial information shall be maintained by 
the Transmission Provider and identified as ``confidential'' under 
seal stating that Interconnection Customer asserts such information 
is Confidential Information and has requested such information be 
kept under seal. If requested by the Transmission Provider, 
Interconnection Customer shall provide the Transmission Provider, in 
writing, with the Interconnection Customer's basis for asserting 
that the information referred to in this Article 3.1 is 
competitively sensitive information, and the Transmission Provider 
may disclose such writing to the appropriate Governmental Authority. 
Interconnection Customer shall be responsible for the costs 
associated with affording confidential treatment of such 
information. If the Interconnection Customer has executed this LGIA, 
or any amendment thereto, the Interconnection Customer shall 
reasonably cooperate with Transmission Provider with respect to such 
filing and to provide any information reasonably requested by 
Transmission Provider needed to comply with applicable regulatory 
requirements.

Article 4. Scope of Service

    4.1 Interconnection Product Options. Interconnection Customer 
has selected the following (checked) type of Interconnection 
Service:
    4.1.1 Energy Resource Interconnection Service (ER 
Interconnection Service).
    4.1.1.1 The Product. ER Interconnection Service allows 
Interconnection Customer to connect the Large Generating Facility to 
the Transmission System and be eligible to deliver the Large 
Generating Facility's output using the existing firm or non-firm 
capacity of the Transmission System on an ``as available'' basis. To 
the extent Interconnection Customer wants to receive ER 
Interconnection Service, the Transmission Provider shall construct 
facilities consistent with the studies identified in Attachment A. 
ER Interconnection Service does not in and of itself convey any 
transmission delivery service.
    4.1.1.2 Transmission Delivery Service Implications. Under ER 
Interconnection Service, the Interconnection Customer will be able 
to inject power from the Large Generating Facility into and deliver 
power across the interconnecting Transmission Provider's 
Transmission System on an ``as available'' basis up to the amount of 
MW's identified in the applicable stability and steady state studies 
to the extent the upgrades initially required to qualify for ER 
Interconnection Service have been constructed. Where eligible to do 
so (e.g., PJM, ISO-NE, NYISO), the Interconnection Customer may 
place a bid to sell into the market up to the maximum identified 
Large Generating Facility output, subject to any conditions 
specified in the interconnection service approval, and the Large 
Generating Facility will be dispatched to the extent the 
Interconnection Customer's bid clears. In all other instances, no 
transmission delivery service from the Large Generating Facility is 
assured, but the Interconnection Customer may obtain point-to-point 
transmission delivery service or be used for secondary network 
transmission service, pursuant to the Transmission Provider's 
Tariff, up to the maximum output identified in the stability and 
steady state studies. In those instances, in order for the 
Interconnection Customer to obtain the right to deliver or inject 
energy beyond the Large Generating Facility Point of Interconnection 
or to improve its ability to do so, transmission delivery service 
must be obtained pursuant to the provisions of the Transmission 
Provider's Tariff. The Interconnection Customer's ability to inject 
its Large Generating Facility output beyond the Point of 
Interconnection, therefore, will depend on the existing capacity of 
the Transmission Provider's Transmission

[[Page 49955]]

System at such time as a transmission service request is made that 
would accommodate such delivery. The provision of firm point-to-
point transmission service may require the construction of 
additional Network Upgrades.
    4.1.2 Network Resource Interconnection Service (NR 
Interconnection Service).
    4.1.2.1 The Product. The Transmission Provider must conduct the 
necessary studies and construct the Network Upgrades needed to 
integrate the Large Generating Facility (1) in a manner comparable 
to that in which the Transmission Provider integrates its generating 
facilities to serve native load customers; or (2) in an ISO or RTO 
with market based congestion management, in the same manner as all 
other Network Resources. NR Interconnection Service in and of itself 
does not convey any transmission delivery service.
    4.1.2.2 Transmission Delivery Service Implications. NR 
Interconnection Service allows the Interconnection Customer's Large 
Generating Facility to be designated by any Network Customer under 
the Tariff on the Transmission Provider's Transmission System as a 
Network Resource, up to the Large Generating Facility's full output, 
on the same basis as all other existing Network Resources 
interconnected to the Transmission Provider's Transmission System, 
and to be studied as a Network Resource on the assumption that such 
a designation will occur. Although NR Interconnection Service does 
not convey a reservation of transmission service, any Network 
Customer under the Tariff can utilize its network service under the 
Tariff to obtain delivery of energy from the interconnected 
Interconnection Customer's Large Generating Facility in the same 
manner as it accesses other Network Resources. A Large Generating 
Facility receiving NR Interconnection Service may also be used to 
provide Ancillary Services after technical studies and/or periodic 
analyses are performed with respect to the Large Generating 
Facility's ability to provide any applicable Ancillary Services, 
provided that such studies and analyses have been or would be 
required in connection with the provision of such Ancillary Services 
by any existing Network Resource. However, if an Interconnection 
Customer's Large Generating Facility has not been designated as a 
Network Resource by any load, it cannot be required to provide 
Ancillary Services except to the extent such requirements extend to 
all Generating Facilities that are similarly situated.
    NR Interconnection Service does not necessarily provide the 
Interconnection Customer with the capability to physically deliver 
the output of its Large Generating Facility to any particular load 
on the Transmission Provider's Transmission System without incurring 
congestion costs. In the event of transmission constraints on the 
Transmission Provider's Transmission System, the Interconnection 
Customer's Large Generating Facility shall be subject to the 
applicable congestion management procedures in the Transmission 
Provider's Transmission System in the same manner as all other 
Network Resources.
    There is no requirement either at the time of study or 
interconnection, or at any point in the future, that the 
Interconnection Customer's Large Generating Facility be designated 
as a Network Resource by a Network Service Customer under the Tariff 
or that the Interconnection Customer identify a specific buyer (or 
sink). To the extent a Network Customer does designate the Large 
Generating Facility as a Network Resource, it must do so pursuant to 
the Transmission Provider's Tariff.
    Once an Interconnection Customer satisfies the requirements for 
obtaining NR Interconnection Service, any future transmission 
service request for delivery from the Large Generating Facility 
within the Transmission Provider's Transmission System of any amount 
of capacity and/or energy, up to the amount initially studied, will 
not require that any additional studies be performed or that any 
further upgrades associated with such Large Generating Facility be 
undertaken, regardless of whether or not such Large Generating 
Facility is ever designated by a Network Customer as a Network 
Resource and regardless of changes in ownership of the Large 
Generating Facility. To the extent the Interconnection Customer 
enters into an arrangement for long term transmission service for 
deliveries from the Large Generating Facility outside the 
Transmission Provider's Transmission System, such request may 
require additional studies and upgrades in order for the 
Transmission Provider to grant such request.
    4.2 Provision of Service. Transmission Provider shall provide 
Interconnection Service for the Large Generating Facility at the 
Point of Interconnection.
    4.3 Generator Balancing Service Arrangements. Interconnection 
Customer must demonstrate, to the Transmission Provider's reasonable 
satisfaction, that it has satisfied the requirements of this Article 
4.3 prior to the submission of any schedules for delivery service to 
such Transmission Provider identifying the Large Generating Facility 
as the Point of Receipt for such scheduled delivery.
    4.3.1 Interconnection Customer is responsible for ensuring that 
its actual Large Generating Facility output matches the scheduled 
delivery from the Large Generating Facility to the Transmission 
Provider's Transmission System, consistent with the scheduling 
requirements of the Transmission Provider's FERC-approved market 
structure, including ramping into and out of such scheduled 
delivery, as measured at the Point of Interconnection, consistent 
with the scheduling requirements of the Transmission Provider's 
Tariff and any applicable FERC-approved market structure.
    Interconnection Customer shall arrange for the supply of energy 
when there is a difference between the actual Large Generating 
Facility output and the scheduled delivery from the Large Generating 
Facility (the ``Generator Balancing Service Arrangements'').
    Interconnection Customer may satisfy its obligation for making 
such Generator Balancing Service Arrangements by:
    (a) Obtaining such service from another entity that (i) has 
generating resources deliverable within the applicable Control Area, 
(ii) agrees to assume responsibility for providing such Generator 
Balancing Service Arrangement to the Interconnection Customer, and 
(iii) has appropriate coordination service arrangements or 
agreements with the applicable Control Area that addresses Generator 
Balancing Service Arrangements for all generating resources for 
which the entity is responsible within the applicable Control Area;
    (b) Committing sufficient additional unscheduled generating 
resources to the control of and dispatch by the applicable Control 
Area operator that are capable of supplying energy not supplied by 
the Interconnection Customer's scheduled Large Generating Facility, 
and entering into an appropriate coordination services agreement 
with the applicable Control Area that addresses Generator Balancing 
Service Arrangements obligations for the Large Generating Facility;
    (c) Entering into an arrangement with another Control Area to 
dynamically schedule the Interconnection Customer's Large Generating 
Facility out of the applicable Control Area and into such other 
Control Area;
    (d) Entering into a Generator Balancing Service Arrangements 
with the applicable Control Area; or
    (e) In the event the load/generation balancing function of the 
applicable Control Area is accomplished through the function of its 
market structures approved by FERC, by entering into an arrangement 
consistent with such FERC-approved market structure.
    In the event Interconnection Customer fails to demonstrate to 
the Transmission Provider that it has otherwise complied with this 
Article 4.3, the Interconnection Customer shall be deemed to have 
elected to enter into a Generator Balancing Service Arrangements 
with the applicable Control Area.
    Nothing in this provision shall prejudice either Party from 
obtaining a FERC-approved tariff addressing its obligations and 
rights with respect to Generator Balancing Service Arrangements.
    4.4 Performance Standards. Each Party shall perform all of its 
obligations under this LGIA in accordance with Applicable Laws and 
Regulations, Applicable Reliability Standards, and Good Utility 
Practice, and to the extent a Party is required or prevented or 
limited in taking any action by such regulations and standards, such 
Party shall not be deemed to be in Breach of this LGIA for its 
compliance therewith. If such Party is the Transmission Provider or 
Transmission Owner, then that Party shall amend the LGIA and submit 
the amendment to the Commission for approval.
    4.5 No Transmission Delivery Service. The execution of this LGIA 
does not constitute a request for, nor the provision of, any 
transmission delivery service under the Transmission Provider's 
Tariff.
    4.6 Interconnection Customer Provided Services. The services 
provided by Interconnection Customer under this LGIA are set forth 
in Article 9.6 and Article 13.5.1. Interconnection Customer shall be 
paid for such services in accordance with Article 11.6.

[[Page 49956]]

Article 5. Interconnection Facilities Engineering, Procurement, and 
Construction

    5.1 Options. Unless otherwise mutually agreed to between the 
Parties, Interconnection Customer shall select the In-Service Date, 
Initial Synchronization Date, and Commercial Operation Date; and 
either Standard Option or Alternate Option set forth below for 
completion of the Transmission Provider's Interconnection Facilities 
and Network Upgrades as set forth in Appendix A, Interconnection 
Facilities and Network Upgrades, and such dates and selected option 
shall be set forth in Appendix B, Milestones.
    5.1.1 Standard Option. The Transmission Provider shall design, 
procure, and construct the Transmission Provider's Interconnection 
Facilities and Network Upgrades, using Reasonable Efforts to 
complete the Transmission Provider's Interconnection Facilities and 
Network Upgrades by the dates set forth in Appendix B, Milestones. 
The Transmission Provider shall not be required to undertake any 
action which is inconsistent with its standard safety practices, its 
material and equipment specifications, its design criteria and 
construction procedures, its labor agreements, and Applicable Laws 
and Regulations. In the event the Transmission Provider reasonably 
expects that it will not be able to complete the Transmission 
Provider's Interconnection Facilities and Network Upgrades by the 
specified dates, the Transmission Provider shall promptly provide 
written notice to the Interconnection Customer and shall undertake 
Reasonable Efforts to meet the earliest dates thereafter.
    5.1.2 Alternate Option. If the dates designated by 
Interconnection Customer are acceptable to Transmission Provider, 
the Transmission Provider shall so notify Interconnection Customer 
within thirty (30) Calendar Days, and shall assume responsibility 
for the design, procurement and construction of the Transmission 
Provider's Interconnection Facilities by the designated dates.
    If Transmission Provider subsequently fails to complete 
Transmission Provider's Interconnection Facilities by the In-Service 
Date, to the extent necessary to provide back feed power; or fails 
to complete Network Upgrades by the Initial Synchronization Date to 
the extent necessary to allow for Trial Operation at full power 
output, unless other arrangements are made by the Parties for such 
Trial Operation; or fails to complete the Network Upgrades by the 
Commercial Operation Date, as such dates are reflected in Appendix 
B, Milestones; Transmission Provider shall pay Interconnection 
Customer liquidated damages in accordance with Article 5.3, 
Liquidated Damages, provided, however, the dates designated by 
Interconnection Customer shall be extended day for day for each day 
that the applicable RTO or ISO refuses to grant clearances to 
install equipment.
    5.1.3 Option to Build. If the dates designated by 
Interconnection Customer are not acceptable to Transmission 
Provider, the Transmission Provider shall so notify the 
Interconnection Customer within thirty (30) Calendar Days, and 
unless the Parties agree otherwise, Interconnection Customer shall 
have the option to assume responsibility for the design, procurement 
and construction of Transmission Provider's Interconnection 
Facilities and Stand Alone Network Upgrades. Both Transmission 
Provider and Interconnection Customer must agree as to what 
constitutes Stand Alone Network Upgrades and identify such Stand 
Alone Network Upgrades in Appendix A to the LGIA. Except for Stand 
Alone Upgrades, Interconnection Customer shall have no right to 
construct Network Upgrades under this option.
    5.1.4 Negotiated Option. If the Interconnection Customer elects 
not to exercise its option under Article 5.1.3, Option to Build, 
Interconnection Customer shall so notify Transmission Provider 
within thirty (30) Calendar Days, and the Parties shall in good 
faith attempt to negotiate terms and conditions (including revision 
of the specified dates and liquidated damages, the provision of 
incentives or the procurement and construction of a portion of the 
Transmission Provider's Interconnection Facilities and Stand Alone 
Network Upgrades by Interconnection Customer) pursuant to which 
Transmission Provider is responsible for the design, procurement and 
construction of the Transmission Provider's Interconnection 
Facilities and Network Upgrades. If the Parties are unable to reach 
agreement on such terms and conditions, Transmission Provider shall 
assume responsibility for the design, procurement and construction 
of the Transmission Provider's Interconnection Facilities and 
Network Upgrades pursuant to 5.1.1, Standard Option.
    5.2 General Conditions Applicable to Option to Build. If 
Interconnection Customer assumes responsibility for the design, 
procurement and construction of the Transmission Provider's 
Interconnection Facilities and Stand Alone Network Upgrades,
    (1) The Interconnection Customer shall engineer, procure 
equipment, and construct the Transmission Provider's Interconnection 
Facilities and Stand Alone Network Upgrades (or portions thereof) 
using Good Utility Practice and using standards and specifications 
provided in advance by the Transmission Provider;
    (2) Interconnection Customer's engineering, procurement and 
construction of the Transmission Provider's Interconnection 
Facilities and Stand Alone Network Upgrades shall comply with all 
requirements of law to which Transmission Provider would be subject 
in the engineering, procurement or construction of the Transmission 
Provider's Interconnection Facilities and Stand Alone Network 
Upgrades;
    (3) Transmission Provider shall review and approve the 
engineering design, equipment acceptance tests, and the construction 
of the Transmission Provider's Interconnection Facilities and Stand 
Alone Network Upgrades;
    (4) Prior to commencement of construction, Interconnection 
Customer shall provide to Transmission Provider a schedule for 
construction of the Transmission Provider's Interconnection 
Facilities and Stand Alone Network Upgrades, and shall promptly 
respond to requests for information from Transmission Provider;
    (5) At any time during construction, Transmission Provider shall 
have the right to gain unrestricted access to the Transmission 
Provider's Interconnection Facilities and Stand Alone Network 
Upgrades and to conduct inspections of the same;
    (6) At any time during construction, should any phase of the 
engineering, equipment procurement, or construction of the 
Transmission Provider's Interconnection Facilities and Stand Alone 
Network Upgrades not meet the standards and specifications provided 
by Transmission Provider, the Interconnection Customer shall be 
obligated to remedy deficiencies in that portion of the Transmission 
Provider's Interconnection Facilities and Stand Alone Network 
Upgrades;
    (7) The Interconnection Customer shall indemnify the 
Transmission Provider for claims arising from the Interconnection 
Customer's construction of Transmission Provider's Interconnection 
Facilities and Stand Alone Network Upgrades under the terms and 
procedures applicable to Article 18.1 Indemnity;
    (8) The Interconnection Customer shall transfer control of 
Transmission Provider's Interconnection Facilities and Stand Alone 
Network Upgrades to the Transmission Provider; and
    (9) Transmission Provider shall approve and accept for operation 
and maintenance the Transmission Provider's Interconnection 
Facilities and Stand Alone Network Upgrades to the extent 
engineered, procured, and constructed in accordance with this 
Article 5.2.
    5.3 Liquidated Damages. The actual damages to the 
Interconnection Customer, in the event the Transmission Provider's 
Interconnection Facilities or Network Upgrades are not completed by 
the dates designated by the Interconnection Customer and accepted by 
the Transmission Provider pursuant to subparagraphs 5.1.2 or 5.1.4, 
above, may include Interconnection Customer's fixed operation and 
maintenance costs and lost opportunity costs. Such actual damages 
are uncertain and impossible to determine at this time. Because of 
such uncertainty, any liquidated damages paid by the Transmission 
Provider to the Interconnection Customer in the event that 
Transmission Provider does not complete any portion of the 
Transmission Provider's Interconnection Facilities or Network 
Upgrades by the applicable dates, shall be an amount equal to \1/2\ 
of 1 percent per day of the actual cost of the Transmission 
Provider's Interconnection Facilities and Network Upgrades, in the 
aggregate, for which Transmission Provider has assumed 
responsibility to design, procure and construct.
    However, in no event shall the total liquidated damages exceed 
20 percent of the actual cost of the Transmission Provider 
Interconnection Facilities and Network Upgrades for which the 
Transmission Provider has assumed responsibility to design, procure, 
and construct. The foregoing payments will be made by the 
Transmission Provider to the Interconnection Customer as

[[Page 49957]]

just compensation for the damages caused to the Interconnection 
Customer, which actual damages are uncertain and impossible to 
determine at this time, and as reasonable liquidated damages, but 
not as a penalty or a method to secure performance of this LGIA.
    No liquidated damages shall be paid to Interconnection Customer 
if: (1) Interconnection Customer is not ready to commence use of the 
Transmission Provider's Interconnection Facilities or Network 
Upgrades to take the delivery of power for the Large Generating 
Facility's Trial Operation or to export power from the Large 
Generating Facility on the specified dates, unless the 
Interconnection Customer would have been able to commence use of the 
Transmission Provider's Interconnection Facilities or Network 
Upgrades to take the delivery of power for Large Generating 
Facility's Trial Operation or to export power from the Large 
Generating Facility, but for Transmission Provider's delay; (2) the 
Transmission Provider's failure to meet the specified dates is the 
result of the action or inaction of the Interconnection Customer or 
any other Interconnection Customer who has entered into an LGIA with 
the Transmission Provider or any cause beyond Transmission 
Provider's reasonable control or reasonable ability to cure; (3) the 
interconnection Customer has assumed responsibility for the design, 
procurement and construction of the Transmission Provider's 
Interconnection Facilities and Stand Alone Network Upgrades; or (4) 
the Parties have otherwise agreed.
    5.4 Power System Stabilizers. The Interconnection Customer shall 
procure, install, maintain and operate Power System Stabilizers in 
accordance with the guidelines and procedures established by the 
Applicable Reliability Council. Transmission Provider reserves the 
right to reasonably establish minimum acceptable settings for any 
installed Power System Stabilizers, subject to the design and 
operating limitations of the Large Generating Facility. If the Large 
Generating Facility's Power System Stabilizers are removed from 
service or not capable of automatic operation, the Interconnection 
Customer shall immediately notify the Transmission Provider's system 
operator, or its designated representative.
    5.5 Equipment Procurement. If responsibility for construction of 
the Transmission Provider's Interconnection Facilities or Network 
Upgrades is to be borne by the Transmission Provider, then the 
Transmission Provider shall commence design of the Transmission 
Provider's Interconnection Facilities or Network Upgrades and 
procure necessary equipment as soon as practicable after all of the 
following conditions are satisfied, unless the Parties otherwise 
agree in writing:
    5.5.1 The Transmission Provider has completed the Facilities 
Study pursuant to the Facilities Study Agreement;
    5.5.2 The Transmission Provider has received written 
authorization to proceed with design and procurement from the 
Interconnection Customer by the date specified in Appendix B, 
Milestones; and
    5.5.3 The Interconnection Customer has provided security to the 
Transmission Provider in accordance with Article 11.5 by the dates 
specified in Appendix B, Milestones.
    5.6 Construction Commencement. The Transmission Provider shall 
commence construction of the Transmission Provider's Interconnection 
Facilities and Network Upgrades for which it is responsible as soon 
as practicable after the following additional conditions are 
satisfied:
    5.6.1 Approval of the appropriate Governmental Authority has 
been obtained for any facilities requiring regulatory approval;
    5.6.2 Necessary real property rights and rights-of-way have been 
obtained, to the extent required for the construction of a discrete 
aspect of the Transmission Provider's Interconnection Facilities and 
Network Upgrades;
    5.6.3 The Transmission Provider has received written 
authorization to proceed with construction from the Interconnection 
Customer by the date specified in Appendix B, Milestones; and
    5.6.4 The Interconnection Customer has provided security to the 
Transmission Provider in accordance with Article 11.5 by the dates 
specified in Appendix B, Milestones.
    5.7 Work Progress. The Parties will keep each other advised 
periodically as to the progress of their respective design, 
procurement and construction efforts. Either Party may, at any time, 
request a progress report from the other Party. If, at any time, the 
Interconnection Customer determines that the completion of the 
Transmission Provider's Interconnection Facilities will not be 
required until after the specified In-Service Date, the 
Interconnection Customer will provide written notice to the 
Transmission Provider of such later date upon which the completion 
of the Transmission Provider's Interconnection Facilities will be 
required.
    5.8 Information Exchange. As soon as reasonably practicable 
after the Effective Date, the Parties shall exchange information 
regarding the design and compatibility of the Parties' 
Interconnection Facilities and compatibility of the Interconnection 
Facilities with the Transmission Provider's Transmission System, and 
shall work diligently and in good faith to make any necessary design 
changes.
    5.9 Limited Operation. If any of the Transmission Provider's 
Interconnection Facilities or Network Upgrades are not reasonably 
expected to be completed prior to the Commercial Operation Date of 
the Large Generating Facility, Transmission Provider shall, upon the 
request and at the expense of Interconnection Customer, perform 
operating studies on a timely basis to determine the extent to which 
the Large Generating Facility and the Interconnection Customer 
Interconnection Facilities may operate prior to the completion of 
the Transmission Provider's Interconnection Facilities or Network 
Upgrades consistent with Applicable Laws and Regulations, Applicable 
Reliability Standards, Good Utility Practice, and this LGIA. 
Transmission Provider shall permit Interconnection Customer to 
operate the Large Generating Facility and the Interconnection 
Customer Interconnection Facilities in accordance with the results 
of such studies.
    5.10 Interconnection Customer's Interconnection Facilities 
(``ICIF''). Interconnection Customer shall, at its expense, design, 
procure, construct, own and install the ICIF, as set forth in 
Appendix A, Interconnection Facilities, Network Upgrades and 
Distribution Upgrades.
    5.10.1 Large Generating Facility Specifications. Interconnection 
Customer shall submit initial specifications for the ICIF, including 
System Protection Facilities, to Transmission Provider at least one 
hundred eighty (180) Calendar Days prior to the Initial 
Synchronization Date; and final specifications for review and 
comment at least ninety (90) Calendar Days prior to the Initial 
Synchronization Date. Transmission Provider shall review such 
specifications to ensure that the ICIF are compatible with the 
technical specifications, operational control, and safety 
requirements of the Transmission Provider and comment on such 
specifications within thirty (30) Calendar Days of Interconnection 
Customer's submission. All specifications provided hereunder shall 
be deemed confidential.
    5.10.2 Transmission Provider's Review. Transmission Provider's 
review of Interconnection Customer's final specifications shall not 
be construed as confirming, endorsing, or providing a warranty as to 
the design, fitness, safety, durability or reliability of the Large 
Generating Facility, or the ICIF. Interconnection Customer shall 
make such changes to the ICIF as may reasonably be required by 
Transmission Provider, in accordance with Good Utility Practice, to 
ensure that the ICIF are compatible with the telemetry, 
communications, and safety requirements of the Transmission 
Provider.
    5.10.3 ICIF Construction. The ICIF shall be designed and 
constructed in accordance with Good Utility Practice. Within one 
hundred twenty (120) Calendar Days after the Commercial Operation 
Date, unless the Parties agree on another mutually acceptable 
deadline, the Interconnection Customer shall deliver to the 
Transmission Provider ``as-built'' drawings, information and 
documents for the ICIF, such as: a one-line diagram, a site plan 
showing the Large Generating Facility and the ICIF, plan and 
elevation drawings showing the layout of the ICIF, a relay 
functional diagram, relaying AC and DC schematic wiring diagrams and 
relay settings for all facilities associated with the 
Interconnection Customer's step-up transformers, the facilities 
connecting the Large Generating Facility to the step-up transformers 
and the ICIF, and the impedances (determined by factory tests) for 
the associated step-up transformers and the Large Generating 
Facilities. The Interconnection Customer shall provide Transmission 
Provider specifications for the excitation system, automatic voltage 
regulator, Large Generating Facility control and protection 
settings, transformer tap settings, and communications.
    5.11 Transmission Provider's Interconnection Facilities 
Construction. The Transmission Provider's Interconnection

[[Page 49958]]

Facilities shall be designed and constructed in accordance with Good 
Utility Practice. Upon request, within one hundred twenty (120) 
Calendar Days after the Commercial Operation Date, unless the 
Parties agree on another mutually acceptable deadline, the 
Transmission Provider shall deliver to the Interconnection Customer 
the following ``as-built'' drawings, information and documents for 
the Transmission Provider's Interconnection Facilities [include 
appropriate drawings and relay diagrams].
    The Transmission Provider will obtain control of the 
Transmission Provider's Interconnection Facilities and Stand Alone 
Network Upgrades upon completion of such facilities.
    5.12 Access Rights. Upon reasonable notice and supervision by a 
Party, and subject to any required or necessary regulatory 
approvals, a Party (``Granting Party'') shall furnish at no cost to 
the other Party (``Access Party'') any rights of use, licenses, 
rights of way and easements with respect to lands owned or 
controlled by the Granting Party and its agents that are necessary 
to enable the Access Party to obtain ingress and egress to 
construct, operate, maintain, repair, test (or witness testing), 
inspect, replace or remove facilities and equipment to: (i) 
Interconnect the Large Generating Facility with the Transmission 
System; (ii) operate and maintain the Large Generating Facility, the 
Interconnection Facilities and the Transmission System; and (iii) 
disconnect or remove the Access Party's facilities and equipment 
upon termination of this LGIA. In exercising such licenses, rights 
of way and easements, the Access Party shall not unreasonably 
disrupt or interfere with normal operation of the Granting Party's 
business and shall adhere to the safety rules and procedures 
established in advance, as may be changed from time to time, by the 
Granting Party and provided to the Access Party.
    5.13 Lands of Other Property Owners. If any part of the 
Transmission Provider or Transmission Owner's Interconnection 
Facilities and/or Network Upgrades is to be installed on property 
owned by persons other than Interconnection Customer or Transmission 
Provider or Transmission Owner, the Transmission Provider or 
Transmission Owner shall at Interconnection Customer's expense use 
efforts, similar in nature and extent to those that it typically 
undertakes on its own behalf, including use of its eminent domain 
authority, and to the extent consistent with state law, to procure 
from such persons any rights of use, licenses, rights of way and 
easements that are necessary to construct, operate, maintain, test, 
inspect, replace or remove the Transmission Provider or Transmission 
Owner's Interconnection Facilities and/or Network Upgrades upon such 
property. Upon receipt of a reasonable siting request, Transmission 
Provider shall provide siting assistance to the Interconnection 
Customer comparable to that provided to the Transmission Provider's 
own, or an Affiliate's generation.
    5.14 Permits. The LGIA shall specify the allocation of the 
responsibilities of the Transmission Provider or Transmission Owner 
and the Interconnection Customer to obtain all permits, licenses and 
authorizations that are necessary to accomplish the interconnection 
in compliance with Applicable Laws and Regulations. The Transmission 
Provider or Transmission Owner and the Interconnection Customer 
shall cooperate with each other in good faith in obtaining any such 
permits, licenses and authorizations. With respect to this 
paragraph, Transmission Provider or Transmission Owner shall provide 
permitting assistance to the Interconnection Customer comparable to 
that provided to the Transmission Provider's own, or an Affiliate's 
generation.
    5.15 Early Construction of Base Case Facilities. Interconnection 
Customer may request Transmission Provider to construct, and 
Transmission Provider shall construct, using Reasonable Efforts to 
accommodate Interconnection Customer's In-Service Date, all or any 
portion of any Network Upgrades required for Interconnection 
Customer to be interconnected to the Transmission System which are 
included in the Base Case of the Facilities Study for the 
Interconnection Customer, and which also are required to be 
constructed for another Interconnection Customer, but where such 
construction is not scheduled to be completed in time to achieve 
Interconnection Customer's In-Service Date.
    5.16 Suspension. Interconnection Customer reserves the right, 
upon written notice to Transmission Provider, to suspend at any time 
all work by Transmission Provider associated with the construction 
and installation of Transmission Provider's Interconnection 
Facilities and/or Network Upgrades required under this LGIA with the 
condition that the Transmission Provider shall be left in a safe and 
reliable condition in accordance with Good Utility Practice and the 
Transmission Provider's safety and reliability criteria. In such 
event, Interconnection Customer shall be responsible for all 
reasonable and necessary costs which Transmission Provider (i) has 
incurred pursuant to this LGIA prior to the suspension and (ii) 
incurs in suspending such work, including any costs incurred to 
perform such work as may be necessary to ensure the safety of 
persons and property and the integrity of the Transmission System 
during such suspension and, if applicable, any costs incurred in 
connection with the cancellation or suspension of material, 
equipment and labor contracts which Transmission Provider cannot 
reasonably avoid; provided, however, that prior to canceling or 
suspending any such material, equipment or labor contract, 
Transmission Provider shall obtain Interconnection Customer's 
authorization to do so.
    Transmission Provider shall invoice Interconnection Customer for 
such costs pursuant to Article 12 and shall use due diligence to 
minimize its costs. In the event Interconnection Customer suspends 
work by Transmission Provider required under this LGIA pursuant to 
this Article 5.16, and has not requested Transmission Provider to 
recommence the work required under this LGIA on or before the 
expiration of three (3) years following commencement of such 
suspension, this LGIA shall be deemed terminated.

5.17 Taxes

    5.17.1 Interconnection Customer Payments Not Taxable. The 
Parties intend that all payments or property transfers made by 
Interconnection Customer to Transmission Provider for the 
installation of the Transmission Provider's Interconnection 
Facilities and the Network Upgrades shall be non-taxable, either as 
contributions to capital, or as an advance, in accordance with the 
Internal Revenue Code and any applicable state income tax laws and 
shall not be taxable as contributions in aid of construction or 
otherwise under the Internal Revenue Code and any applicable state 
income tax laws.
    5.17.2 Representations And Covenants. In accordance with IRS 
Notice 2001-82 and IRS Notice 88-129, Interconnection Customer 
represents and covenants that (i) ownership of the electricity 
generated at the Large Generating Facility will pass to another 
party prior to the transmission of the electricity on the 
Transmission System, (ii) for income tax purposes, the amount of any 
payments and the cost of any property transferred to the 
Transmission Provider for the Transmission Provider's 
Interconnection Facilities will be capitalized by Interconnection 
Customer as an intangible asset and recovered using the straight-
line method over a useful life of twenty (20) years, and (iii) any 
portion of the Transmission Provider's Interconnection Facilities 
that is a ``dual-use intertie,'' within the meaning of IRS Notice 
88-129, is reasonably expected to carry only a de minimis amount of 
electricity in the direction of the Large Generating Facility. For 
this purpose, ``de minimis amount'' means no more than 5 percent of 
the total power flows in both directions, calculated in accordance 
with the ``5 percent test'' set forth in IRS Notice 88-129. This is 
not intended to be an exclusive list of the relevant conditions that 
must be met to conform to IRS requirements for non-taxable 
treatment.
    At Transmission Provider's request, Interconnection Customer 
shall provide Transmission Provider with a report from an 
independent engineer confirming its representation in clause (iii), 
above. Transmission Provider represents and covenants that the cost 
of the Transmission Provider's Interconnection Facilities paid for 
by Interconnection Customer will have no net effect on the base upon 
which rates are determined.
    5.17.3 Indemnification for Taxes Imposed Upon Transmission 
Provider. Notwithstanding Article 5.17.1, Interconnection Customer 
shall protect, indemnify and hold harmless Transmission Provider 
from income taxes imposed against Transmission Provider as the 
result of payments or property transfers made by Interconnection 
Customer to Transmission Provider under this LGIA, as well as any 
interest and penalties, other than interest and penalties 
attributable to any delay caused by Transmission Provider.
    Transmission Provider shall not include a gross-up for income 
taxes in the amounts it charges Interconnection Customer under this 
LGIA unless (i) Transmission Provider has determined, in good faith, 
that the payments or property transfers made by

[[Page 49959]]

Interconnection Customer to Transmission Provider should be reported 
as income subject to taxation or (ii) any Governmental Authority 
directs Transmission Provider to report payments or property as 
income subject to taxation; provided, however, that Transmission 
Provider may require Interconnection Customer to provide security, 
in a form reasonably acceptable to Transmission Provider (such as a 
parental guarantee or a letter of credit), in an amount equal to 
Interconnection Customer's estimated tax liability under this 
Article 5.17. Interconnection Customer shall reimburse Transmission 
Provider for such taxes on a fully grossed-up basis, in accordance 
with Article 5.17.4, within thirty (30) Calendar Days of receiving 
written notification from Transmission Provider of the amount due, 
including detail about how the amount was calculated.
    In the event that the Transmission Provider includes a gross-up 
upon its own determination that the payments or property transfers 
should be reported as income subject to taxation, the 
Interconnection Customer may require the Transmission Provider to 
provide security, in a form reasonably acceptable to the 
Interconnection Customer (such as a parental guarantee or a letter 
of credit) in an amount equal to the Interconnection Customer's 
estimated tax liability under this Article 5.17.
    The indemnification obligation shall terminate at the earlier of 
(1) the expiration of the 10-year testing period, as contemplated by 
IRS Notice 88-129, and the applicable statute of limitation, as it 
may be extended by the Transmission Provider upon request of the 
IRS, to keep these years open for audit or adjustment, or (2) the 
occurrence of a subsequent taxable event and the payment of any 
related indemnification obligations as contemplated by this Article 
5.17.
    5.17.4 Tax Gross-Up Amount. Interconnection Customer's liability 
for taxes under this Article 5.17 shall be calculated on a fully 
grossed-up basis. Except as may otherwise be agreed to by the 
parties, this means that Interconnection Customer will pay 
Transmission Provider, in addition to the amount paid for the 
Interconnection Facilities and Network Upgrades, an amount equal to 
(1) the current taxes imposed on Transmission Provider (``Current 
Taxes'') on the excess of (a) the gross income realized by 
Transmission Provider as a result of payments or property transfers 
made by Interconnection Customer to Transmission Provider under this 
LGIA (without regard to any payments under this Article 5.17) (the 
``Gross Income Amount'') over (b) the present value of future tax 
deductions for depreciation that will be available as a result of 
such payments or property transfers (the ``Present Value 
Depreciation Amount''), plus (2) an additional amount sufficient to 
permit the Transmission Provider to receive and retain, after the 
payment of all Current Taxes, an amount equal to the net amount 
described in clause (1).
    For this purpose, (i) Current Taxes shall be computed based on 
Transmission Provider's composite federal and state tax rates at the 
time the payments or property transfers are received and 
Transmission Provider will be treated as being subject to tax at the 
highest marginal rates in effect at that time (the ``Current Tax 
Rate''), and (ii) the Present Value Depreciation Amount shall be 
computed by discounting Transmission Provider's anticipated tax 
depreciation deductions as a result of such payments or property 
transfers by Transmission Provider's current weighted average cost 
of capital. Thus, the formula for calculating Interconnection 
Customer's liability to Transmission Owner pursuant to this Article 
5.17.4 can be expressed as follows: (Current Tax Rate x (Gross 
Income Amount - Present Value of Tax Depreciation))/(1-Current Tax 
Rate). Interconnection Customer's estimated tax liability in the 
event taxes are imposed shall be stated in Appendix A, 
Interconnection Facilities, Network Upgrades and Distribution 
Upgrades.
    5.17.5 Private Letter Ruling or Change or Clarification of Law. 
At Interconnection Customer's request and expense, Transmission 
Provider shall file with the IRS a request for a private letter 
ruling as to whether any property transferred or sums paid, or to be 
paid, by Interconnection Customer to Transmission Provider under 
this LGIA are subject to federal income taxation. Interconnection 
Customer will prepare the initial draft of the request for a private 
letter ruling, and will certify under penalties of perjury that all 
facts represented in such request are true and accurate to the best 
of Interconnection Customer's knowledge. Transmission Provider and 
Interconnection Customer shall cooperate in good faith with respect 
to the submission of such request.
    Transmission Provider shall keep Interconnection Customer fully 
informed of the status of such request for a private letter ruling 
and shall execute either a privacy act waiver or a limited power of 
attorney, in a form acceptable to the IRS, that authorizes 
Interconnection Customer to participate in all discussions with the 
IRS regarding such request for a private letter ruling. Transmission 
Provider shall allow Interconnection Customer to attend all meetings 
with IRS officials about the request and shall permit 
Interconnection Customer to prepare the initial drafts of any 
follow-up letters in connection with the request. If the private 
letter ruling concludes that such transfers or sums are not subject 
to federal income taxation, or a clarification of or change in law 
results in Transmission Provider determining in good faith that such 
transfers or sums are not subject to federal income taxation, 
Parties' obligations regarding a gross-up or security under this 
Article 5.17 shall be reduced accordingly.
    5.17.6 Subsequent Taxable Events. If, within 10 years from the 
date on which the relevant Transmission Provider Interconnection 
Facilities are placed in service, (i) Interconnection Customer 
Breaches the covenant contained in Article 5.17.2(i), (ii) a 
``disqualification event'' occurs within the meaning of IRS Notice 
88-129, or (iii) this LGIA terminates and Transmission Provider 
retains ownership of the Interconnection Facilities and Network 
Upgrades, the Interconnection Customer shall pay a tax gross-up for 
the taxes imposed on Transmission Provider, calculated using the 
methodology described in Article 5.17.4 and in accordance with IRS 
Notice 90-60.
    5.17.7 Contests. In the event any Governmental Authority 
determines that Transmission Provider's receipt of payments or 
property constitutes income that is subject to taxation, 
Transmission Provider shall notify Interconnection Customer, in 
writing, within thirty (30) Calendar Days of receiving notification 
of such determination by a Governmental Authority. Upon the timely 
written request by Interconnection Customer and at Interconnection 
Customer's sole expense, Transmission Provider shall appeal, 
protest, seek abatement of, or otherwise oppose such determination. 
Upon Interconnection Customer's written request and sole expense, 
Transmission Provider shall file a claim for refund with respect to 
any taxes paid under this Article 5.17, whether or not it has 
received such a determination. Transmission Provider reserves the 
right to make all decisions with regard to the prosecution of such 
appeal, protest, abatement or other contest, including the selection 
of counsel and compromise or settlement of the claim, but 
Transmission Provider shall keep Interconnection Customer informed, 
shall consider in good faith suggestions from Interconnection 
Customer about the conduct of the contest, and shall reasonably 
permit Interconnection Customer or an Interconnection Customer 
representative to attend contest proceedings.
    Interconnection Customer shall pay to Transmission Provider on a 
periodic basis, as invoiced by Transmission Provider, Transmission 
Provider's documented reasonable costs of prosecuting such appeal, 
protest, abatement or other contest. Transmission Provider will not 
be required to appeal or seek further review beyond one level of 
judicial review. At any time during the contest, Transmission 
Provider may agree to a settlement either with Interconnection 
Customer's consent or after obtaining written advice from 
nationally-recognized tax counsel, selected by Transmission 
Provider, but reasonably acceptable to Interconnection Customer, 
that the proposed settlement represents a reasonable settlement 
given the hazards of litigation. Interconnection Customer's 
obligation shall be based on the amount of the settlement agreed to 
by Interconnection Customer, or if a higher amount, so much of the 
settlement that is supported by the written advice from nationally-
recognized tax counsel selected under the terms of the preceding 
sentence. Any settlement without Interconnection Customer's consent 
or such written advice will relieve Interconnection Customer from 
any obligation to indemnify Transmission Provider for the tax at 
issue in the contest.
    5.17.8 Refund. In the event that (a) a private letter ruling is 
issued to Transmission Provider which holds that any amount paid or 
the value of any property transferred by Interconnection Customer to 
Transmission Provider under the terms of this LGIA is not subject to 
federal income taxation, (b) any legislative change or 
administrative announcement, notice, ruling or other determination 
makes it reasonably clear to Transmission Provider in good faith 
that any

[[Page 49960]]

amount paid or the value of any property transferred by 
Interconnection Customer to Transmission Provider under the terms of 
this LGIA is not taxable to Transmission Provider, (c) any 
abatement, appeal, protest, or other contest results in a 
determination that any payments or transfers made by Interconnection 
Customer to Transmission Provider are not subject to federal income 
tax, or (d) if Transmission Provider receives a refund from any 
taxing authority for any overpayment of tax attributable to any 
payment or property transfer made by Interconnection Customer to 
Transmission Provider pursuant to this LGIA, Transmission Provider 
shall promptly refund to Interconnection Customer the following:
    (i) Any payment made by Interconnection Customer under this 
Article 5.17 for taxes that is attributable to the amount determined 
to be non-taxable, together with interest thereon,
    (ii) On any amounts paid by Interconnection Customer to 
Transmission Provider for such taxes which Transmission Provider did 
not submit to the taxing authority, calculated in accordance with 
the methodology set forth in FERC's regulations at 18 CFR 
35.19a(a)(2)(ii) from the date payment was made by Interconnection 
Customer to the date Transmission Provider refunds such payment to 
Interconnection Customer, and
    (iii) With respect to any such taxes paid by Transmission 
Provider, any refund or credit Transmission Provider receives or to 
which it may be entitled from any Governmental Authority, interest 
(or that portion thereof attributable to the payment described in 
clause (i), above) owed to the Transmission Provider for such 
overpayment of taxes (including any reduction in interest otherwise 
payable by Transmission Provider to any Governmental Authority 
resulting from an offset or credit); provided, however, that 
Transmission Provider will remit such amount promptly to 
Interconnection Customer only after and to the extent that 
Transmission Provider has received a tax refund, credit or offset 
from any Governmental Authority for any applicable overpayment of 
income tax related to the Transmission Provider's Interconnection 
Facilities.
    The intent of this provision is to leave both parties, to the 
extent practicable, in the event that no taxes are due with respect 
to any payment for Interconnection Facilities and Network Upgrades 
hereunder, in the same position they would have been in had no such 
tax payments been made.
    5.17.9 Taxes Other Than Income Taxes. Upon the timely request by 
Interconnection Customer, and at Interconnection Customer's sole 
expense, Transmission Provider shall appeal, protest, seek abatement 
of, or otherwise contest any tax (other than federal or state income 
tax) asserted or assessed against Transmission Provider for which 
Interconnection Customer may be required to reimburse Transmission 
Provider under the terms of this LGIA. Interconnection Customer and 
Transmission Provider shall cooperate in good faith with respect to 
any such contest. Unless the payment of such taxes is a prerequisite 
to an appeal or abatement or cannot be deferred, no amount shall be 
payable by Interconnection Customer to Transmission Provider for 
such taxes until they are assessed by a final, non-appealable order 
by any court or agency of competent jurisdiction. In the event that 
a tax payment is withheld and ultimately due and payable after 
appeal, Interconnection Customer will be responsible for all taxes, 
interest and penalties, other than penalties attributable to any 
delay caused by Transmission Provider.
    5.17.10 Transmission Owners Who Are Not Transmission Providers. 
If the Transmission Provider is not the same entity as the 
Transmission Owner, then (i) all references in this Article 5.17 to 
Transmission Provider shall be deemed also to refer to and to 
include the Transmission Owner, as appropriate, and (ii) this LGIA 
shall not become effective until such Transmission Owner shall have 
agreed in writing to assume all of the duties and obligations of the 
Transmission Provider under this Article 5.17 of this LGIA.
    5.18 Tax Status. Each Party shall cooperate with the other to 
maintain the other Party's tax status. Nothing in this LGIA is 
intended to adversely affect any Transmission Provider's tax exempt 
status with respect to the issuance of bonds including, but not 
limited to, Local Furnishing Bonds.

5.19 Modification

    5.19.1 General. Either Party may undertake modifications to its 
facilities. If a Party plans to undertake a modification that 
reasonably may be expected to affect the other Party's facilities, 
that Party shall provide to the other Party sufficient information 
regarding such modification so that the other Party may evaluate the 
potential impact of such modification prior to commencement of the 
work. Such information shall be deemed to be confidential hereunder 
and shall include information concerning the timing of such 
modifications and whether such modifications are expected to 
interrupt the flow of electricity from the Large Generating 
Facility. The Party desiring to perform such work shall provide the 
relevant drawings, plans, and specifications to the other Party at 
least ninety (90) Calendar Days in advance of the commencement of 
the work or such shorter period upon which the Parties may agree, 
which agreement shall not unreasonably be withheld, conditioned or 
delayed.
    In the case of Large Generating Facility modifications that do 
not require Interconnection Customer to submit an Interconnection 
Request, Transmission Provider shall provide, within thirty (30) 
Calendar Days (or such other time as the Parties may agree), an 
estimate of any additional modifications to the Transmission System, 
Transmission Provider's Interconnection Facilities or Network 
Upgrades necessitated by such Interconnection Customer modification 
and a good faith estimate of the costs thereof.
    5.19.2 Standards. Any additions, modifications, or replacements 
made to a Party's facilities shall be designed, constructed and 
operated in accordance with this LGIA and Good Utility Practice.
    5.19.3 Modification Costs. Interconnection Customer shall not be 
directly assigned for the costs of any additions, modifications, or 
replacements that Transmission Provider makes to the Transmission 
Provider's Interconnection Facilities or the Transmission System to 
facilitate the interconnection of a third party to the Transmission 
Provider's Interconnection Facilities or the Transmission System, or 
to provide transmission service under the Transmission Provider's 
Tariff. Interconnection Customer shall be responsible for the costs 
of any additions, modifications, or replacements to the 
Interconnection Customer Interconnection Facilities that may be 
necessary to maintain or upgrade such Interconnection Customer 
Interconnection Facilities consistent with Applicable Laws and 
Regulations, Applicable Reliability Standards or Good Utility 
Practice.

Article 6. Testing and Inspection

    6.1 Pre-Commercial Operation Date Testing and Modifications. 
Prior to the Commercial Operation Date, the Transmission Provider 
shall test the Transmission Provider's Interconnection Facilities 
and Network Upgrades and Interconnection Customer shall test the 
Large Generating Facility and the Interconnection Customer 
Interconnection Facilities to ensure their safe and reliable 
operation. Similar testing may be required after initial operation. 
Each Party shall make any modifications to its facilities that are 
found to be necessary as a result of such testing. Interconnection 
Customer shall bear the cost of all such testing and modifications. 
Interconnection Customer shall generate test energy at the Large 
Generating Facility only if it has arranged for the delivery of such 
test energy.
    6.2 Post-Commercial Operation Date Testing and Modifications. 
Each Party shall at its own expense perform routine inspection and 
testing of its facilities and equipment in accordance with Good 
Utility Practice as may be necessary to ensure the continued 
interconnection of the Large Generating Facility with the 
Transmission System in a safe and reliable manner. Each Party shall 
have the right, upon advance written notice, to require reasonable 
additional testing of the other Party's facilities, at the 
requesting Party's expense, as may be in accordance with Good 
Utility Practice.
    6.3 Right to Observe Testing. Each Party shall notify the other 
Party in advance of its performance of tests of its Interconnection 
Facilities. The other Party has the right, at its own expense, to 
observe such testing.
    6.4 Right to Inspect. Each Party shall have the right, but shall 
have no obligation to: (i) Observe the other Party's tests and/or 
inspection of any of its System Protection Facilities and other 
protective equipment, including Power System Stabilizers; (ii) 
review the settings of the other Party's System Protection 
Facilities and other protective equipment; and (iii) review the 
other Party's maintenance records relative to the Interconnection 
Facilities, the System Protection Facilities and other protective

[[Page 49961]]

equipment. A Party may exercise these rights from time to time as it 
deems necessary upon reasonable notice to the other Party. The 
exercise or non-exercise by a Party of any such rights shall not be 
construed as an endorsement or confirmation of any element or 
condition of the Interconnection Facilities or the System Protection 
Facilities or other protective equipment or the operation thereof, 
or as a warranty as to the fitness, safety, desirability, or 
reliability of same. Any information that Transmission Provider 
obtains through the exercise of any of its rights under this Article 
6.4 shall be deemed to be confidential hereunder.

Article 7. Metering

    7.1 General. Each Party shall comply with the Applicable 
Reliability Council requirements. Unless otherwise agreed by the 
Parties, Transmission Provider shall install Metering Equipment at 
the Point of Interconnection prior to any operation of the Large 
Generating Facility and shall own, operate, test and maintain such 
Metering Equipment. Power flows to and from the Large Generating 
Facility shall be measured at or, at Transmission Provider's option, 
compensated to, the Point of Interconnection. Transmission Provider 
shall provide metering quantities, in analog and/or digital form, to 
Interconnection Customer upon request. Interconnection Customer 
shall bear all reasonable documented costs associated with the 
purchase, installation, operation, testing and maintenance of the 
Metering Equipment.
    7.2 Check Meters. Interconnection Customer, at its option and 
expense, may install and operate, on its premises and on its side of 
the Point of Interconnection, one or more check meters to check 
Transmission Provider's meters. Such check meters shall be for check 
purposes only and shall not be used for the measurement of power 
flows for purposes of this LGIA, except as provided in Article 7.4 
below. The check meters shall be subject at all reasonable times to 
inspection and examination by Transmission Provider or its designee. 
The installation, operation and maintenance thereof shall be 
performed entirely by Interconnection Customer in accordance with 
Good Utility Practice.
    7.3 Standards. Transmission Provider shall install, calibrate, 
and test revenue quality Metering Equipment in accordance with 
applicable ANSI standards.
    7.4 Testing of Metering Equipment. Transmission Provider shall 
inspect and test all Transmission Provider-owned Metering Equipment 
upon installation and at least once every two (2) years thereafter. 
If requested to do so by Interconnection Customer, Transmission 
Provider shall, at Interconnection Customer's expense, inspect or 
test Metering Equipment more frequently than every two (2) years. 
Transmission Provider shall give reasonable notice of the time when 
any inspection or test shall take place, and Interconnection 
Customer may have representatives present at the test or inspection. 
If at any time Metering Equipment is found to be inaccurate or 
defective, it shall be adjusted, repaired or replaced at 
Interconnection Customer's expense, in order to provide accurate 
metering, unless the inaccuracy or defect is due to Transmission 
Provider's failure to maintain, then Transmission Provider shall 
pay. If Metering Equipment fails to register, or if the measurement 
made by Metering Equipment during a test varies by more than two 
percent from the measurement made by the standard meter used in the 
test, Transmission Provider shall adjust the measurements by 
correcting all measurements for the period during which Metering 
Equipment was in error by using Interconnection Customer's check 
meters, if installed. If no such check meters are installed or if 
the period cannot be reasonably ascertained, the adjustment shall be 
for the period immediately preceding the test of the Metering 
Equipment equal to one-half the time from the date of the last 
previous test of the Metering Equipment.
    7.5 Metering Data. At Interconnection Customer's expense, the 
metered data shall be telemetered to one or more locations 
designated by Transmission Provider and one or more locations 
designated by Interconnection Customer. Such telemetered data shall 
be used, under normal operating conditions, as the official 
measurement of the amount of energy delivered from the Large 
Generating Facility to the Point of Interconnection.

Article 8. Communications

    8.1 Interconnection Customer Obligations. Interconnection 
Customer shall maintain satisfactory operating communications with 
Transmission Provider's Transmission System dispatcher or 
representative designated by Transmission Provider. Interconnection 
Customer shall provide standard voice line, dedicated voice line and 
facsimile communications at its Large Generating Facility control 
room or central dispatch facility through use of either the public 
telephone system, or a voice communications system that does not 
rely on the public telephone system. Interconnection Customer shall 
also provide the dedicated data circuit(s) necessary to provide 
Interconnection Customer data to Transmission Provider as set forth 
in Appendix D, Security Arrangements Details. The data circuit(s) 
shall extend from the Large Generating Facility to the location(s) 
specified by Transmission Provider. Any required maintenance of such 
communications equipment shall be performed by Interconnection 
Customer. Operational communications shall be activated and 
maintained under, but not be limited to, the following events: 
system paralleling or separation, scheduled and unscheduled 
shutdowns, equipment clearances, and hourly and daily load data.
    8.2 Remote Terminal Unit. Prior to the Initial Synchronization 
Date of the Large Generating Facility, a Remote Terminal Unit, or 
equivalent data collection and transfer equipment acceptable to both 
Parties, shall be installed by Interconnection Customer, or by 
Transmission Provider at Interconnection Customer's expense, to 
gather accumulated and instantaneous data to be telemetered to the 
location(s) designated by Transmission Provider through use of a 
dedicated point-to-point data circuit(s) as indicated in Article 
8.1. The communication protocol for the data circuit(s) shall be 
specified by Transmission Provider. Instantaneous bi-directional 
analog real power and reactive power flow information must be 
telemetered directly to the location(s) specified by Transmission 
Provider.
    Each Party will promptly advise the other Party if it detects or 
otherwise learns of any metering, telemetry or communications 
equipment errors or malfunctions that require the attention and/or 
correction by the other Party. The Party owning such equipment shall 
correct such error or malfunction as soon as reasonably feasible.
    8.3 No Annexation. Any and all equipment placed on the premises 
of a Party shall be and remain the property of the Party providing 
such equipment regardless of the mode and manner of annexation or 
attachment to real property, unless otherwise mutually agreed by the 
Parties.

Article 9. Operations

    9.1 General. Each Party shall comply with the Applicable 
Reliability Council requirements. Each Party shall provide to the 
other Party all information that may reasonably be required by the 
other Party to comply with Applicable Laws and Regulations and 
Applicable Reliability Standards.
    9.2 Control Area Notification. At least three months before 
Initial Synchronization Date, the Interconnection Customer shall 
notify the Transmission Provider in writing of the Control Area in 
which the Large Generating Facility will be located. If the 
Interconnection Customer elects to locate the Large Generating 
Facility in a Control Area other than the Control Area in which the 
Large Generating Facility is physically located, and if permitted to 
do so by the relevant transmission tariffs, all necessary 
arrangements, including but not limited to those set forth in 
Article 7 and Article 8 of this LGIA, and remote Control Area 
generator interchange agreements, if applicable, and the appropriate 
measures under such agreements, shall be executed and implemented 
prior to the placement of the Large Generating Facility in the other 
Control Area.
    9.3 Transmission Provider Obligations. Transmission Provider 
shall cause the Transmission System and the Transmission Provider's 
Interconnection Facilities to be operated, maintained and controlled 
in a safe and reliable manner and in accordance with this LGIA. 
Transmission Provider may provide operating instructions to 
Interconnection Customer consistent with this LGIA and Transmission 
Provider's operating protocols and procedures as they may change 
from time to time. Transmission Provider will consider changes to 
its operating protocols and procedures proposed by Interconnection 
Customer.
    9.4 Interconnection Customer Obligations. Interconnection 
Customer shall at its own expense operate, maintain and control the 
Large Generating Facility and the Interconnection Customer 
Interconnection Facilities in a safe and reliable manner and in 
accordance with this LGIA. Interconnection Customer shall operate 
the

[[Page 49962]]

Large Generating Facility and the Interconnection Customer 
Interconnection Facilities in accordance with all applicable 
requirements of the Control Area of which it is part, as such 
requirements are set forth in Appendix C, Interconnection Details, 
of this LGIA. Appendix C, Interconnection Details, will be modified 
to reflect changes to the requirements as they may change from time 
to time. Either Party may request that the other Party provide 
copies of the requirements set forth in Appendix C, Interconnection 
Details, of this LGIA.
    9.5 Start-Up and Synchronization. Consistent with the Parties' 
mutually acceptable procedures, the Interconnection Customer is 
responsible for the proper synchronization of the Large Generating 
Facility to the Transmission Provider's Transmission System.

9.6 Reactive Power

    9.6.1 Power Factor Design Criteria. Interconnection Customer 
shall design the Large Generating Facility to maintain a composite 
power delivery at continuous rated power output at the Point of 
Interconnection at a power factor within the range of 0.95 leading 
to 0.95 lagging, unless Transmission Provider has established 
different requirements that apply to all generators in the Control 
Area on a comparable basis.
    9.6.2 Voltage Schedules. Once the Interconnection Customer has 
synchronized the Large Generating Facility with the Transmission 
System, Transmission Provider shall require Interconnection Customer 
to operate the Large Generating Facility to produce or absorb 
reactive power within the design limitations of the Large Generating 
Facility set forth in Article 9.6.1 (Power Factor Design Criteria). 
Transmission Provider's voltage schedules shall treat all sources of 
reactive power in the Control Area in an equitable and not unduly 
discriminatory manner. Transmission Provider shall exercise 
Reasonable Efforts to provide Interconnection Customer with such 
schedules at least one (1) day in advance, and may make changes to 
such schedules as necessary to maintain the reliability of the 
Transmission System. Interconnection Customer shall operate the 
Large Generating Facility to maintain the specified output voltage 
or power factor at the Point of Interconnection within the design 
limitations of the Large Generating Facility set forth in Article 
9.6.1 (Power Factor Design Criteria). If Interconnection Customer is 
unable to maintain the specified voltage or power factor, it shall 
promptly notify the System Operator.
    9.6.2.1 Governors and Regulators. Whenever the Large Generating 
Facility is operated in parallel with the Transmission System and 
the speed governors (if installed on the generating unit pursuant to 
Good Utility Practice) and voltage regulators are capable of 
operation, Interconnection Customer shall operate the Large 
Generating Facility with its speed governors and voltage regulators 
in automatic operation. If the Large Generating Facility's speed 
governors and voltage regulators are not capable of such automatic 
operation, the Interconnection Customer shall immediately notify 
Transmission Provider's system operator, or its designated 
representative, and ensure that such Large Generating Facility's 
reactive power production or absorption (measured in MVARs) are 
within the design capability of the Large Generating Facility's 
generating unit(s) and steady state stability limits. 
Interconnection Customer shall not cause its Large Generating 
Facility to disconnect automatically or instantaneously from the 
Transmission System or trip any generating unit comprising the Large 
Generating Facility for an under or over frequency condition unless 
the abnormal frequency condition persists for a time period beyond 
the limits set forth in ANSI/IEEE Standard C37.106, or such other 
standard as applied to other generators in the Control Area on a 
comparable basis.
    9.6.3 Payment for Reactive Power. Transmission Provider is 
required to pay Interconnection Customer for reactive power that 
Interconnection Customer provides or absorbs from the Large 
Generating Facility only in those instances where the Transmission 
Provider requests the Interconnection Customer to operate its Large 
Generating Facility outside the agreed upon dead band. Payments 
shall be pursuant to Article 11.6 or such other agreement to which 
the Parties have otherwise agreed.

9.7 Outages and Interruptions

9.7.1 Outages

    9.7.1.1 Outage Authority and Coordination. Each Party may in 
accordance with Good Utility Practice in coordination with the other 
Party remove from service any of its respective Interconnection 
Facilities or Network Upgrades that may impact the other Party's 
facilities as necessary to perform maintenance or testing or to 
install or replace equipment. Absent an Emergency Condition, the 
Party scheduling a removal of such facility(ies) from service will 
use Reasonable Efforts to schedule such removal on a date and time 
mutually acceptable to both Parties. In all circumstances any Party 
planning to remove such facility(ies) from service shall use 
Reasonable Efforts to minimize the effect on the other Party of such 
removal.
    9.7.1.2 Outage Schedules. The Transmission Provider shall post 
scheduled outages of its transmission facilities on the OASIS. 
Interconnection Customer shall submit its planned maintenance 
schedules for the Large Generating Facility to Transmission Provider 
for a minimum of a rolling twenty-four month period. Interconnection 
Customer shall update its planned maintenance schedules as 
necessary. Transmission Provider may request Interconnection 
Customer to reschedule its maintenance as necessary to maintain the 
reliability of the Transmission System; provided, however, adequacy 
of generation supply shall not be a criterion in determining 
Transmission System reliability. Transmission Provider shall 
compensate Interconnection Customer for any additional direct costs 
that the Interconnection Customer incurs as a result of having to 
reschedule maintenance, including any additional overtime, breaking 
of maintenance contracts or other costs above and beyond the cost 
the Interconnection Customer would have incurred absent the 
Transmission Provider's request to reschedule maintenance. 
Interconnection Customer will not be eligible to receive 
compensation, if during the twelve (12) months prior to the date of 
the scheduled maintenance, the Interconnection Customer had modified 
its schedule of maintenance activities.
    9.7.1.3 Outage Restoration. If an outage on a Party's 
Interconnection Facilities or Network Upgrades adversely affects the 
other Party's operations or facilities, the Party that owns or 
controls the facility that is out of service shall use Reasonable 
Efforts to promptly restore such facility(ies) to a normal operating 
condition consistent with the nature of the outage. The Party that 
owns or controls the facility that is out of service shall provide 
the other Party, to the extent such information is known, 
information on the nature of the Emergency Condition, an estimated 
time of restoration, and any corrective actions required. Initial 
verbal notice shall be followed up as soon as practicable with 
written notice explaining the nature of the outage.
    9.7.2 Interruption of Service. If required by Good Utility 
Practice to do so, Transmission Provider may require Interconnection 
Customer to interrupt or reduce deliveries of electricity if such 
delivery of electricity could adversely affect Transmission 
Provider's ability to perform such activities as are necessary to 
safely and reliably operate and maintain the Transmission System. 
The following provisions shall apply to any interruption or 
reduction permitted under this Article 9.7.2:
    9.7.2.1 The interruption or reduction shall continue only for so 
long as reasonably necessary under Good Utility Practice;
    9.7.2.2 Any such interruption or reduction shall be made on an 
equitable, non-discriminatory basis with respect to all Generating 
Facilities directly connected to the Transmission System;
    9.7.2.3 When the interruption or reduction must be made under 
circumstances which do not allow for advance notice, Transmission 
Provider shall notify Interconnection Customer by telephone as soon 
as practicable of the reasons for the curtailment, interruption, or 
reduction, and, if known, its expected duration. Telephone 
notification shall be followed by written notification as soon as 
practicable;
    9.7.2.4 Except during the existence of an Emergency Condition, 
when the interruption or reduction can be scheduled without advance 
notice, Transmission Provider shall notify Interconnection Customer 
in advance regarding the timing of such scheduling and further 
notify Interconnection Customer of the expected duration. 
Transmission Provider shall coordinate with the Interconnection 
Customer using Good Utility Practice to schedule the interruption or 
reduction during periods of least impact to the Interconnection 
Customer and the Transmission Provider;
    9.7.2.5 The Parties shall cooperate and coordinate with each 
other to the extent necessary in order to restore the Large 
Generating Facility, Interconnection Facilities, and the 
Transmission System to

[[Page 49963]]

their normal operating state, consistent with system conditions and 
Good Utility Practice.
    9.7.3 Under-Frequency and Over-Frequency Conditions. The 
Transmission System is designed to automatically activate a load-
shed program as required by the Applicable Reliability Council in 
the event of an under-frequency system disturbance. Interconnection 
Customer shall implement under-frequency and over-frequency relay 
set points for the Large Generating Facility as required by the 
Applicable Reliability Council to ensure ``ride through'' capability 
of the Transmission System. Large Generating Facility response to 
frequency deviations of pre-determined magnitudes, both under-
frequency and over-frequency deviations, shall be studied and 
coordinated with the Transmission Provider in accordance with Good 
Utility Practice. The term ``ride through'' as used herein shall 
mean the ability of a Generating Facility to stay connected to and 
synchronized with the Transmission System during system disturbances 
within a range of under-frequency and over-frequency conditions, in 
accordance with Good Utility Practice.

9.7.4 System Protection and Other Control Requirements

    9.7.4.1 System Protection Facilities. Interconnection Customer 
shall, at its expense, install, operate and maintain System 
Protection Facilities as a part of the Large Generating Facility or 
the Interconnection Customer Interconnection Facilities. 
Transmission Provider shall install at Interconnection Customer's 
expense any System Protection Facilities that may be required on the 
Transmission Provider Interconnection Facilities or the Transmission 
System as a result of the interconnection of the Large Generating 
Facility and the Interconnection Customer Interconnection 
Facilities.
    9.7.4.2 Each Party's protection facilities shall be designed and 
coordinated with other systems in accordance with Good Utility 
Practice.
    9.7.4.3 Each Party shall be responsible for protection of its 
facilities consistent with Good Utility Practice.
    9.7.4.4 Each Party's protective relay design shall incorporate 
the necessary test switches to perform the tests required in Article 
6. The required test switches will be placed such that they allow 
operation of lockout relays while preventing breaker failure schemes 
from operating and causing unnecessary breaker operations and/or the 
tripping of the Interconnection Customer's units.
    9.7.4.5 Each Party will test, operate and maintain System 
Protection Facilities in accordance with Good Utility Practice.
    9.7.4.6 Prior to the In-Service Date, and again prior to the 
Commercial Operation Date, each Party or its agent shall perform a 
complete calibration test and functional trip test of the System 
Protection Facilities. At intervals suggested by Good Utility 
Practice and following any apparent malfunction of the System 
Protection Facilities, each Party shall perform both calibration and 
functional trip tests of its System Protection Facilities. These 
tests do not require the tripping of any in-service generation unit. 
These tests do, however, require that all protective relays and 
lockout contacts be activated.
    9.7.5 Requirements for Protection. In compliance with Good 
Utility Practice, Interconnection Customer shall provide, install, 
own, and maintain relays, circuit breakers and all other devices 
necessary to remove any fault contribution of the Large Generating 
Facility to any short circuit occurring on the Transmission System 
not otherwise isolated by Transmission Provider's equipment, such 
that the removal of the fault contribution shall be coordinated with 
the protective requirements of the Transmission System. Such 
protective equipment shall include, without limitation, a 
disconnecting device or switch with load-interrupting capability 
located between the Large Generating Facility and the Transmission 
System at a site selected upon mutual agreement (not to be 
unreasonably withheld, conditioned or delayed) of the Parties. 
Interconnection Customer shall be responsible for protection of the 
Large Generating Facility and Interconnection Customer's other 
equipment from such conditions as negative sequence currents, over- 
or under-frequency, sudden load rejection, over- or under-voltage, 
and generator loss-of-field. Interconnection Customer shall be 
solely responsible to disconnect the Large Generating Facility and 
Interconnection Customer's other equipment if conditions on the 
Transmission System could adversely affect the Large Generating 
Facility.
    9.7.6 Power Quality. Neither Party's facilities shall cause 
excessive voltage flicker nor introduce excessive distortion to the 
sinusoidal voltage or current waves as defined by ANSI Standard 
C84.1-1989, in accordance with IEEE Standard 519, or any applicable 
superseding electric industry standard. In the event of a conflict 
between ANSI Standard C84.1-1989, or any applicable superseding 
electric industry standard, ANSI Standard C84.1-1989, or the 
applicable superseding electric industry standard, shall control.
    9.8 Switching and Tagging Rules. Each Party shall provide the 
other Party a copy of its switching and tagging rules that are 
applicable to the other Party's activities. Such switching and 
tagging rules shall be developed on a non-discriminatory basis. The 
Parties shall comply with applicable switching and tagging rules, as 
amended from time to time, in obtaining clearances for work or for 
switching operations on equipment.

9.9 Use of Interconnection Facilities by Third Parties

    9.9.1 Purpose of Interconnection Facilities. Except as may be 
required by Applicable Laws and Regulations, or as otherwise agreed 
to among the Parties, the Interconnection Facilities shall be 
constructed for the sole purpose of interconnecting the Large 
Generating Facility to the Transmission System and shall be used for 
no other purpose.
    9.9.2 Third Party Users. If required by Applicable Laws and 
Regulations or if the Parties mutually agree, such agreement not to 
be unreasonably withheld, to allow one or more third parties to use 
the Transmission Provider's Interconnection Facilities, or any part 
thereof, Interconnection Customer will be entitled to compensation 
for the capital expenses it incurred in connection with the 
Interconnection Facilities based upon the pro rata use of the 
Interconnection Facilities by Transmission Provider, all third party 
users, and Interconnection Customer, in accordance with Applicable 
Laws and Regulations or upon some other mutually-agreed upon 
methodology. In addition, cost responsibility for ongoing costs, 
including operation and maintenance costs associated with the 
Interconnection Facilities, will be allocated between 
Interconnection Customer and any third party users based upon the 
pro rata use of the Interconnection Facilities by Transmission 
Provider, all third party users, and Interconnection Customer, in 
accordance with Applicable Laws and Regulations or upon some other 
mutually agreed upon methodology. If the issue of such compensation 
or allocation cannot be resolved through such negotiations, it shall 
be submitted to FERC for resolution.
    9.10 Disturbance Analysis Data Exchange. The Parties will 
cooperate with one another in the analysis of disturbances to either 
the Large Generating Facility or the Transmission Provider's 
Transmission System by gathering and providing access to any 
information relating to any disturbance, including information from 
oscillography, protective relay targets, breaker operations and 
sequence of events records, and any disturbance information required 
by Good Utility Practice.

Article 10. Maintenance

    10.1 Transmission Provider Obligations. Transmission Provider 
shall maintain the Transmission System and the Transmission 
Provider's Interconnection Facilities in a safe and reliable manner 
and in accordance with this LGIA.
    10.2 Interconnection Customer Obligations. Interconnection 
Customer shall maintain the Large Generating Facility and the 
Interconnection Customer Interconnection Facilities in a safe and 
reliable manner and in accordance with this LGIA.
    10.3 Coordination. The Parties shall confer regularly to 
coordinate the planning, scheduling and performance of preventive 
and corrective maintenance on the Large Generating Facility and the 
Interconnection Facilities.
    10.4 Secondary Systems. Each Party shall cooperate with the 
other in the inspection, maintenance, and testing of control or 
power circuits that operate below 600 volts, AC or DC, including, 
but not limited to, any hardware, control or protective devices, 
cables, conductors, electric raceways, secondary equipment panels, 
transducers, batteries, chargers, and voltage and current 
transformers that directly affect the operation of a Party's 
facilities and equipment which may reasonably be expected to impact 
the other Party. Each Party shall provide advance notice to the 
other Party before undertaking any work on such circuits, especially 
on electrical circuits involving circuit breaker trip and close 
contacts, current transformers, or potential transformers.

[[Page 49964]]

    10.5 Operating and Maintenance Expenses. Subject to the 
provisions herein addressing the use of facilities by others, and 
except for operations and maintenance expenses associated with 
modifications made for providing interconnection or transmission 
service to a third party and such third party pays for such 
expenses, Interconnection Customer shall be responsible for all 
reasonable expenses including overheads, associated with: (1) 
owning, operating, maintaining, repairing, and replacing 
Interconnection Customer Interconnection Facilities; and (2) 
operation, maintenance, repair and replacement of Transmission 
Provider's Interconnection Facilities.

Article 11. Performance Obligation

    11.1 Interconnection Customer Interconnection Facilities. 
Interconnection Customer shall design, procure, construct, install, 
own and/or control the Interconnection Customer Interconnection 
Facilities described in Appendix A, Interconnection Facilities, 
Network Upgrades and Distribution Upgrades, at its sole expense.
    11.2 Transmission Provider's Interconnection Facilities. 
Transmission Provider or Transmission Owner shall design, procure, 
construct, install, own and/or control the Transmission Provider's 
Interconnection Facilities described in Appendix A, Interconnection 
Facilities, Network Upgrades and Distribution Upgrades, at the sole 
expense of the Interconnection Customer.
    11.3 Network Upgrades and Distribution Upgrades. Transmission 
Provider or Transmission Owner shall design, procure, construct, 
install, and own the Network Upgrades and Distribution Upgrades 
described in Appendix A, Interconnection Facilities, Network 
Upgrades and Distribution Upgrades. The Interconnection Customer 
shall be responsible for all costs related to Distribution Upgrades. 
Unless the Transmission Provider or Transmission Owner elects to 
fund the capital for the Network Upgrades, they shall be solely 
funded by the Interconnection Customer.

11.4 Transmission Credits

    11.4.1 Refund of Amounts Advanced for Network Upgrades. 
Interconnection Customer shall be entitled to a cash refund, equal 
to the total amount paid to Transmission Provider and Affected 
System Operator, if any, for the Network Upgrades, including any tax 
gross-up or other tax-related payments, and not refunded to 
Interconnection Customer pursuant to Article 5.17.8 or otherwise, to 
be paid to Interconnection Customer on a dollar-for-dollar basis for 
the non-usage sensitive portion of transmission charges, as payments 
are made under the Transmission Provider's Tariff and Affected 
System's Tariff for transmission services with respect to the Large 
Generating Facility.
    Notwithstanding the foregoing, Interconnection Customer, 
Transmission Provider, and Affected System Operator may adopt any 
alternative payment schedule that is mutually agreeable so long as 
Transmission Provider and Affected System Operator refund all 
amounts paid by Interconnection Customer for the Network Upgrades, 
together with interest, within five (5) years from the Commercial 
Operation Date. Transmission Provider and Affected System Operator 
shall provide refunds to Interconnection Customer only after 
commercial operation of the Large Generating Facility has been 
demonstrated.
    If the Large Generating Facility fails to achieve commercial 
operation, but it or another Generating Facility is later 
constructed and makes use of the Network Upgrades, Transmission 
Provider and Affected System Operator shall at that time provide 
refunds to Interconnection Customer for the amounts advanced for the 
Network Upgrades. Any refund shall include interest calculated in 
accordance with the methodology set forth in FERC's regulations at 
18 CFR Sec.  35.19a(a)(2)(ii) from the date of any payment for 
Network Upgrades through the date on which the Interconnection 
Customer receives a refund of such payment pursuant to this 
subparagraph. Interconnection Customer may assign such refund rights 
to any person.
    11.4.2 Special Provisions for Affected Systems. Unless the 
Transmission Provider provides, under the LGIA, for the payment of 
refunds for amounts advanced to Affected System Operator for Network 
Upgrades, the Interconnection Customer and Affected System Operator 
shall enter into an agreement that provides for such payment. The 
agreement shall specify the terms governing payments to be made by 
the Interconnection Customer to the Affected System Operator as well 
as the payment of refunds by the Affected System Operator.
    Refunds are to be paid without regard to whether the 
Interconnection Customer contracts for transmission service on the 
Affected System. If the Interconnection Customer does not contract 
for transmission service, and in the absence of another mutually 
agreeable payment schedule, refunds shall be established at a level 
equal to the Affected System's rate for firm point-to-point 
transmission service multiplied by the output of the Large 
Generating Facility assumed in the Interconnection Facilities Study. 
All refunds must be paid within five years of the Commercial 
Operation Date.
    11.4.3 Notwithstanding any other provision of this LGIA, nothing 
herein shall be construed as relinquishing or foreclosing any 
rights, including but not limited to firm transmission rights, 
capacity rights, transmission congestion rights, or transmission 
credits, that the Interconnection Customer, shall be entitled to, 
now or in the future under any other agreement or tariff as a result 
of, or otherwise associated with, the transmission capacity, if any, 
created by the Network Upgrades, including the right to obtain 
refunds or transmission credits for transmission service that is not 
associated with the Large Generating Facility.
    11.5 Provision of Security. At least thirty (30) Calendar Days 
prior to the commencement of the procurement, installation, or 
construction of a discrete portion of a Transmission Provider's 
Interconnection Facilities, Network Upgrades, or Distribution 
Upgrades, Interconnection Customer shall provide Transmission 
Provider, at Interconnection Customer's option, a guarantee, a 
surety bond, letter of credit or other form of security that is 
reasonably acceptable to Transmission Provider and is consistent 
with the Uniform Commercial Code of the jurisdiction identified in 
Article 14.2.1. Such security for payment shall be in an amount 
sufficient to cover the costs for constructing, procuring and 
installing the applicable portion of Transmission Provider's 
Interconnection Facilities, Network Upgrades, or Distribution 
Upgrades and shall be reduced on a dollar-for-dollar basis for 
payments made to Transmission Provider under this LGIA during its 
term.
    In addition:
    11.5.1 The guarantee must be made by an entity that meets the 
creditworthiness requirements of Transmission Provider, and contain 
terms and conditions that guarantee payment of any amount that may 
be due from Interconnection Customer, up to an agreed-to maximum 
amount.
    11.5.2 The letter of credit must be issued by a financial 
institution reasonably acceptable to Transmission Provider and must 
specify a reasonable expiration date.
    11.5.3 The surety bond must be issued by an insurer reasonably 
acceptable to Transmission Provider and must specify a reasonable 
expiration date.
    11.6 Interconnection Customer Compensation. If Transmission 
Provider requests or directs Interconnection Customer to provide a 
service pursuant to Articles 9.6.3 (Payment for Reactive Power), or 
13.5.1 of this LGIA, Transmission Provider shall compensate 
Interconnection Customer in accordance with Interconnection 
Customer's applicable rate schedule then in effect unless the 
provision of such service(s) is subject to an RTO or ISO FERC-
approved rate schedule. Interconnection Customer shall serve 
Transmission Provider or RTO or ISO with any filing of a proposed 
rate schedule at the time of such filing with FERC. To the extent 
that no rate schedule is in effect at the time the Interconnection 
Customer is required to provide or absorb any Reactive Power under 
this LGIA, the Transmission Provider agrees to compensate the 
Interconnection Customer in such amount as would have been due the 
Interconnection Customer had the rate schedule been in effect at the 
time service commenced; provided, however, that such rate schedule 
must be filed at FERC or other appropriate Governmental Authority 
within sixty (60) Calendar Days of the commencement of service.
    11.6.1 Interconnection Customer Compensation for Actions During 
Emergency Condition. Transmission Provider or RTO or ISO shall 
compensate Interconnection Customer for its provision of real and 
reactive power and other Emergency Condition services that 
Interconnection Customer provides to support the Transmission System 
during an Emergency Condition in accordance with Article 11.6.

Article 12. Invoice

    12.1 General. Each Party shall submit to the other Party, on a 
monthly basis, invoices of amounts due for the preceding month.

[[Page 49965]]

Each invoice shall state the month to which the invoice applies and 
fully describe the services and equipment provided. The Parties may 
discharge mutual debts and payment obligations due and owing to each 
other on the same date through netting, in which case all amounts a 
Party owes to the other Party under this LGIA, including interest 
payments or credits, shall be netted so that only the net amount 
remaining due shall be paid by the owing Party.
    12.2 Final Invoice. Within six months after completion of the 
construction of the Transmission Provider's Interconnection 
Facilities and the Network Upgrades, Transmission Provider shall 
provide an invoice of the final cost of the construction of the 
Transmission Provider's Interconnection Facilities and the Network 
Upgrades and shall set forth such costs in sufficient detail to 
enable Interconnection Customer to compare the actual costs with the 
estimates and to ascertain deviations, if any, from the cost 
estimates. Transmission Provider shall refund to Interconnection 
Customer any amount by which the actual payment by Interconnection 
Customer for estimated costs exceeds the actual costs of 
construction within thirty (30) Calendar Days of the issuance of 
such final construction invoice.
    12.3 Payment. Invoices shall be rendered to the paying Party at 
the address specified in Appendix F. The Party receiving the invoice 
shall pay the invoice within thirty (30) Calendar Days of receipt. 
All payments shall be made in immediately available funds payable to 
the other Party, or by wire transfer to a bank named and account 
designated by the invoicing Party. Payment of invoices by 
Interconnection Customer will not constitute a waiver of any rights 
or claims Interconnection Customer may have under this LGIA.
    12.4 Disputes. In the event of a billing dispute between 
Transmission Provider and Interconnection Customer, Transmission 
Provider shall continue to provide Interconnection Service under 
this LGIA as long as Interconnection Customer: (i) Continues to make 
all payments not in dispute; and (ii) pays to Transmission Provider 
or into an independent escrow account the portion of the invoice in 
dispute, pending resolution of such dispute. If Interconnection 
Customer fails to meet these two requirements for continuation of 
service, then Transmission Provider may provide notice to 
Interconnection Customer of a Default pursuant to Article 17. Within 
thirty (30) Calendar Days after the resolution of the dispute, the 
Party that owes money to the other Party shall pay the amount due 
with interest calculated in accord with the methodology set forth in 
FERC's Regulations at 18 CFR Sec.  35.19a(a)(2)(ii).

Article 13. Emergencies

    13.1 Definition. ``Emergency Condition'' shall mean a condition 
or situation: (i) That in the judgment of the Party making the claim 
is imminently likely to endanger life or property; or (ii) that, in 
the case of Transmission Provider, is imminently likely (as 
determined in a non-discriminatory manner) to cause a material 
adverse effect on the security of, or damage to the Transmission 
System, the Transmission Provider's Interconnection Facilities or 
the Transmission Systems of others to which the Transmission System 
is directly connected; or (iii) that, in the case of Interconnection 
Customer, is imminently likely (as determined in a non-
discriminatory manner) to cause a material adverse effect on the 
security of, or damage to, the Large Generating Facility or the 
Interconnection Customer Interconnection Facilities. System 
restoration and black start shall be considered Emergency 
Conditions; provided, that Interconnection Customer is not obligated 
by this LGIA to possess black start capability.
    13.2 Obligations. Each Party shall comply with the Emergency 
Condition procedures of the applicable ISO/RTO, NERC, the Applicable 
Reliability Council, Applicable Laws and Regulations, and any 
emergency procedures agreed to by the Joint Operating Committee.
    13.3 Notice. Transmission Provider shall notify Interconnection 
Customer promptly when it becomes aware of an Emergency Condition 
that affects the Transmission Provider's Interconnection Facilities 
or the Transmission System that may reasonably be expected to affect 
Interconnection Customer's operation of the Large Generating 
Facility or the Interconnection Customer's Interconnection 
Facilities. Interconnection Customer shall notify Transmission 
Provider promptly when it becomes aware of an Emergency Condition 
that affects the Large Generating Facility or the Interconnection 
Customer Interconnection Facilities that may reasonably be expected 
to affect the Transmission System or the Transmission Provider's 
Interconnection Facilities. To the extent information is known, the 
notification shall describe the Emergency Condition, the extent of 
the damage or deficiency, the expected effect on the operation of 
Interconnection Customer's or Transmission Provider's facilities and 
operations, its anticipated duration and the corrective action taken 
and/or to be taken. The initial notice shall be followed as soon as 
practicable with written notice.
    13.4 Immediate Action. Unless, in Interconnection Customer's 
reasonable judgment, immediate action is required, Interconnection 
Customer shall obtain the consent of Transmission Provider, such 
consent to not be unreasonably withheld, prior to performing any 
manual switching operations at the Large Generating Facility or the 
Interconnection Customer Interconnection Facilities in response to 
an Emergency Condition either declared by the Transmission Provider 
or otherwise regarding the Transmission System.

13.5 Transmission Provider Authority

    13.5.1 General. Transmission Provider may take whatever actions 
or inactions with regard to the Transmission System or the 
Transmission Provider's Interconnection Facilities it deems 
necessary during an Emergency Condition in order to (i) preserve 
public health and safety, (ii) preserve the reliability of the 
Transmission System or the Transmission Provider's Interconnection 
Facilities, (iii) limit or prevent damage, and (iv) expedite 
restoration of service.
    Transmission Provider shall use Reasonable Efforts to minimize 
the effect of such actions or inactions on the Large Generating 
Facility or the Interconnection Customer Interconnection Facilities. 
Transmission Provider may, on the basis of technical considerations, 
require the Large Generating Facility to mitigate an Emergency 
Condition by taking actions necessary and limited in scope to remedy 
the Emergency Condition, including, but not limited to, directing 
Interconnection Customer to shut-down, start-up, increase or 
decrease the real or reactive power output of the Large Generating 
Facility; implementing a reduction or disconnection pursuant to 
Article 13.5.2; directing the Interconnection Customer to assist 
with blackstart (if available) or restoration efforts; or altering 
the outage schedules of the Large Generating Facility and the 
Interconnection Customer Interconnection Facilities. Interconnection 
Customer shall comply with all of Transmission Provider's operating 
instructions concerning Large Generating Facility real power and 
reactive power output within the manufacturer's design limitations 
of the Large Generating Facility's equipment that is in service and 
physically available for operation at the time, in compliance with 
Applicable Laws and Regulations.
    13.5.2 Reduction and Disconnection. Transmission Provider may 
reduce Interconnection Service or disconnect the Large Generating 
Facility or the Interconnection Customer Interconnection Facilities, 
when such, reduction or disconnection is necessary under Good 
Utility Practice due to Emergency Conditions. These rights are 
separate and distinct from any right of curtailment of the 
Transmission Provider pursuant to the Transmission Provider's 
Tariff. When the Transmission Provider can schedule the reduction or 
disconnection in advance, Transmission Provider shall notify 
Interconnection Customer of the reasons, timing and expected 
duration of the reduction or disconnection. Transmission Provider 
shall coordinate with the Interconnection Customer using Good 
Utility Practice to schedule the reduction or disconnection during 
periods of least impact to the Interconnection Customer and the 
Transmission Provider. Any reduction or disconnection shall continue 
only for so long as reasonably necessary under Good Utility 
Practice. The Parties shall cooperate with each other to restore the 
Large Generating Facility, the Interconnection Facilities, and the 
Transmission System to their normal operating state as soon as 
practicable consistent with Good Utility Practice.
    13.6 Interconnection Customer Authority. Consistent with Good 
Utility Practice and the LGIA and the LGIP, the Interconnection 
Customer may take whatever actions or inactions with regard to the 
Large Generating Facility or the Interconnection Customer 
Interconnection Facilities during an Emergency Condition in order to 
(i) preserve public health and safety, (ii) preserve the reliability 
of the Large Generating Facility or

[[Page 49966]]

the Interconnection Customer Interconnection Facilities, (iii) limit 
or prevent damage, and (iv) expedite restoration of service. 
Interconnection Customer shall use Reasonable Efforts to minimize 
the effect of such actions or inactions on the Transmission System 
and the Transmission Provider's Interconnection Facilities. 
Transmission Provider shall use Reasonable Efforts to assist 
Interconnection Customer in such actions. Interconnection Customer 
shall not be obligated to follow Transmission Provider's 
instructions to the extent the instruction would have a material 
adverse impact on the safe and reliable operation of Interconnection 
Customer's Large Generating Facility. Upon request, Interconnection 
Customer shall provide Transmission Provider with documentation of 
any such alleged material adverse impact.
    13.7 Limited Liability. Except as otherwise provided in Article 
11.6.1 of this LGIA, neither Party shall be liable to the other for 
any action it takes in responding to an Emergency Condition so long 
as such action is made in good faith and is consistent with Good 
Utility Practice.

Article 14. Regulatory Requirements and Governing Law

    14.1 Regulatory Requirements. Each Party's obligations under 
this LGIA shall be subject to its receipt of any required approval 
or certificate from one or more Governmental Authorities in the form 
and substance satisfactory to the applying Party, or the Party 
making any required filings with, or providing notice to, such 
Governmental Authorities, and the expiration of any time period 
associated therewith. Each Party shall in good faith seek and use 
its Reasonable Efforts to obtain such other approvals. Nothing in 
this LGIA shall require Interconnection Customer to take any action 
that could result in its inability to obtain, or its loss of, status 
or exemption under the Federal Power Act or the Public Utility 
Holding Company Act of 1935, as amended.

14.2 Governing Law and Applicable Tariffs

    14.2.1 The validity, interpretation and performance of this LGIA 
and each of its provisions shall be governed by the laws of the 
state where the Point of Interconnection is located, without regard 
to its conflicts of law principles.
    14.2.2 This LGIA is subject to all Applicable Laws and 
Regulations.
    14.2.3 Each Party expressly reserves the right to seek changes 
in, appeal, or otherwise contest any laws, orders, rules, or 
regulations of a Governmental Authority.

Article 15. Notices

    15.1 General. Unless otherwise provided in this LGIA, any 
notice, demand or request required or permitted to be given by 
either Party to the other and any instrument required or permitted 
to be tendered or delivered by either Party in writing to the other 
shall be effective when delivered and may be so given, tendered or 
delivered, by recognized national courier, or by depositing the same 
with the United States Postal Service with postage prepaid, for 
delivery by certified or registered mail, addressed to the Party, or 
personally delivered to the Party, at the address set out in 
Appendix F, Addresses for Delivery of Notices and Billings.
    Either Party may change the notice information in this LGIA by 
giving five (5) Business Days written notice prior to the effective 
date of the change.
    15.2 Billings and Payments. Billings and payments shall be sent 
to the addresses set out in Appendix F.
    15.3 Alternative Forms of Notice. Any notice or request required 
or permitted to be given by either Party to the other and not 
required by this Agreement to be given in writing may be so given by 
telephone, facsimile or e-mail to the telephone numbers and e-mail 
addresses set out in Appendix F.
    15.4 Operations and Maintenance Notice. Each Party shall notify 
the other Party in writing of the identity of the person(s) that it 
designates as the point(s) of contact with respect to the 
implementation of Articles 9 and 10.

Article 16. Force Majeure

16.1 Force Majeure

    16.1.1 Economic hardship is not considered a Force Majeure 
event.
    16.1.2 Neither Party shall be considered to be in Default with 
respect to any obligation hereunder, (including obligations under 
Article 4), other than the obligation to pay money when due, if 
prevented from fulfilling such obligation by Force Majeure. A Party 
unable to fulfill any obligation hereunder (other than an obligation 
to pay money when due) by reason of Force Majeure shall give notice 
and the full particulars of such Force Majeure to the other Party in 
writing or by telephone as soon as reasonably possible after the 
occurrence of the cause relied upon. Telephone notices given 
pursuant to this Article shall be confirmed in writing as soon as 
reasonably possible and shall specifically state full particulars of 
the Force Majeure, the time and date when the Force Majeure occurred 
and when the Force Majeure is reasonably expected to cease. The 
Party affected shall exercise due diligence to remove such 
disability with reasonable dispatch, but shall not be required to 
accede or agree to any provision not satisfactory to it in order to 
settle and terminate a strike or other labor disturbance.

Article 17. Default

17.1 Default

    17.1.1 General. No Default shall exist where such failure to 
discharge an obligation (other than the payment of money) is the 
result of Force Majeure as defined in this LGIA or the result of an 
act or omission of the other Party. Upon a Default, the non-
defaulting Party shall give written notice of such Default to the 
defaulting Party. Except as provided in Article 17.1.2, the 
defaulting Party shall have thirty (30) Calendar Days from receipt 
of the Default notice within which to cure such Default; provided 
however, if such Default is not capable of cure within thirty (30) 
Calendar Days, the defaulting Party shall commence such cure within 
thirty (30) Calendar Days after notice and continuously and 
diligently complete such cure within ninety (90) Calendar Days from 
receipt of the Default notice; and, if cured within such time, the 
Default specified in such notice shall cease to exist.
    17.1.2 Right to Terminate. If a Default is not cured as provided 
in this Article, or if a Default is not capable of being cured 
within the period provided for herein, the non-defaulting Party 
shall have the right to terminate this LGIA by written notice at any 
time until cure occurs, and be relieved of any further obligation 
hereunder and, whether or not that Party terminates this LGIA, to 
recover from the defaulting Party all amounts due hereunder, plus 
all other damages and remedies to which it is entitled at law or in 
equity. The provisions of this Article will survive termination of 
this LGIA.

Article 18. Indemnity, Consequential Damages and Insurance

    18.1 Indemnity. The Parties shall at all times indemnify, 
defend, and save the other Party harmless from, any and all damages, 
losses, claims, including claims and actions relating to injury to 
or death of any person or damage to property, demand, suits, 
recoveries, costs and expenses, court costs, attorney fees, and all 
other obligations by or to third parties, arising out of or 
resulting from the other Party's action or inactions of its 
obligations under this LGIA on behalf of the indemnifying Party, 
except in cases of gross negligence or intentional wrongdoing by the 
indemnified Party.
    18.1.1 Indemnified Person. If an Indemnified Person is entitled 
to indemnification under this Article 18 as a result of a claim by a 
third party, and the indemnifying Party fails, after notice and 
reasonable opportunity to proceed under Article 18.1, to assume the 
defense of such claim, such Indemnified Person may at the expense of 
the indemnifying Party contest, settle or consent to the entry of 
any judgement with respect to, or pay in full, such claim.
    18.1.2 Indemnifying Party. If an Indemnifying Party is obligated 
to indemnify and hold any Indemnified Person harmless under this 
Article 18, the amount owing to the Indemnified Person shall be the 
amount of such Indemnified Person's actual Loss, net of any 
insurance or other recovery.
    18.1.3 Indemnity Procedures. Promptly after receipt by an 
Indemnified Person of any claim or notice of the commencement of any 
action or administrative or legal proceeding or investigation as to 
which the indemnity provided for in Article 18.1 may apply, the 
Indemnified Person shall notify the Indemnifying Party of such fact. 
Any failure of or delay in such notification shall not affect a 
Party's indemnification obligation unless such failure or delay is 
materially prejudicial to the indemnifying Party.
    The Indemnifying Party shall have the right to assume the 
defense thereof with counsel designated by such Indemnifying Party 
and reasonably satisfactory to the Indemnified Person. If the 
defendants in any such action include one or more Indemnified 
Persons and the Indemnifying Party and if the Indemnified Person 
reasonably concludes that there may be legal defenses available to 
it and/or other Indemnified Persons which are different from or 
additional to those available to the Indemnifying Party, the

[[Page 49967]]

Indemnified Person shall have the right to select separate counsel 
to assert such legal defenses and to otherwise participate in the 
defense of such action on its own behalf. In such instances, the 
Indemnifying Party shall only be required to pay the fees and 
expenses of one additional attorney to represent an Indemnified 
Person or Indemnified Persons having such differing or additional 
legal defenses.
    The Indemnified Person shall be entitled, at its expense, to 
participate in any such action, suit or proceeding, the defense of 
which has been assumed by the Indemnifying Party. Notwithstanding 
the foregoing, the Indemnifying Party (i) shall not be entitled to 
assume and control the defense of any such action, suit or 
proceedings if and to the extent that, in the opinion of the 
Indemnified Person and its counsel, such action, suit or proceeding 
involves the potential imposition of criminal liability on the 
Indemnified Person, or there exists a conflict or adversity of 
interest between the Indemnified Person and the Indemnifying Party, 
in such event the Indemnifying Party shall pay the reasonable 
expenses of the Indemnified Person, and (ii) shall not settle or 
consent to the entry of any judgement in any action, suit or 
proceeding without the consent of the Indemnified Person, which 
shall not be reasonably withheld, conditioned or delayed.
    18.2 Consequential Damages. Other than the Liquidated Damages 
heretofore described, in no event shall either Party be liable under 
any provision of this LGIA for any losses, damages, costs or 
expenses for any special, indirect, incidental, consequential, or 
punitive damages, including but not limited to loss of profit or 
revenue, loss of the use of equipment, cost of capital, cost of 
temporary equipment or services, whether based in whole or in part 
in contract, in tort, including negligence, strict liability, or any 
other theory of liability; provided, however, that damages for which 
a Party may be liable to the other Party under another agreement 
will not be considered to be special, indirect, incidental, or 
consequential damages hereunder.
    18.3 Insurance. Each party shall, at its own expense, maintain 
in force throughout the period of this LGIA, and until released by 
the other Party, the following minimum insurance coverages, with 
insurers authorized to do business in the state where the Point of 
Interconnection is located:
    18.3.1 Employers' Liability and Workers' Compensation Insurance 
providing statutory benefits in accordance with the laws and 
regulations of the state in which the Point of Interconnection is 
located. The minimum limits for the Employers' Liability insurance 
shall be One Million Dollars ($1,000,000) each accident bodily 
injury by accident, One Million Dollars ($1,000,000) each employee 
bodily injury by disease, and One Million Dollars ($1,000,000) 
policy limit bodily injury by disease.
    18.3.2 Commercial General Liability Insurance including premises 
and operations, personal injury, broad form property damage, broad 
form blanket contractual liability coverage (including coverage for 
the contractual indemnification) products and completed operations 
coverage, coverage for explosion, collapse and underground hazards, 
independent contractors coverage, coverage for pollution to the 
extent normally available and punitive damages to the extent 
normally available and a cross liability endorsement, with minimum 
limits of One Million Dollars ($1,000,000) per occurrence/One 
Million Dollars ($1,000,000) aggregate combined single limit for 
personal injury, bodily injury, including death and property damage.
    18.3.3 Comprehensive Automobile Liability Insurance for coverage 
of owned and non-owned and hired vehicles, trailers or semi-trailers 
designed for travel on public roads, with a minimum, combined single 
limit of One Million Dollars ($1,000,000) per occurrence for bodily 
injury, including death, and property damage.
    18.3.4 Excess Public Liability Insurance over and above the 
Employers' Liability Commercial General Liability and Comprehensive 
Automobile Liability Insurance coverage, with a minimum combined 
single limit of Twenty Million Dollars ($20,000,000) per occurrence/
Twenty Million Dollars ($20,000,000) aggregate.
    18.3.5 The Commercial General Liability Insurance, Comprehensive 
Automobile Insurance and Excess Public Liability Insurance policies 
shall name the other Party, its parent, associated and Affiliate 
companies and their respective directors, officers, agents, servants 
and employees (``Other Party Group'') as additional insured. All 
policies shall contain provisions whereby the insurers waive all 
rights of subrogation in accordance with the provisions of this LGIA 
against the Other Party Group and provide thirty (30) days advance 
written notice to the Other Party Group prior to anniversary date of 
cancellation or any material change in coverage or condition.
    18.3.6 The Commercial General Liability Insurance, Comprehensive 
Automobile Liability Insurance and Excess Public Liability Insurance 
policies shall contain provisions that specify that the polices are 
primary and shall apply to such extent without consideration for 
other policies separately carried and shall state that each insured 
is provided coverage as though a separate policy had been issues to 
each, except the insurer's liability shall not be increased beyond 
the amount for which the insurer would have been liable had only one 
insured been covered. Each Party shall be responsible for its 
respective deductibles or retentions.
    18.3.7 The Commercial General Liability Insurance, Comprehensive 
Automobile Liability Insurance and Excess Public Liability Insurance 
policies, if written on a Claims First Made Basis, shall be 
maintained in full force and effect for two (2) years after 
termination of this LGIA, which coverage may be in the form of tail 
coverage or extended reporting period coverage if agreed by the 
Parties.
    18.3.8 The requirements contained herein as to the types and 
limits of all insurance to be maintained by the Parties are not 
intended to and shall not in any manner, limit or qualify the 
liabilities and obligations assumed by the Parties under this LGIA.
    18.3.9 Within ten (10) days following execution of this LGIA, 
and as soon as practicable after the end of each fiscal year or at 
the renewal of the insurance policy and in any event within ninety 
(90) days thereafter, each Party shall provide certification of all 
insurance required in this LGIA, executed by each insurer or by an 
authorized representative of each insurer.
    18.3.10 Notwithstanding the foregoing, each Party may self-
insure to the extent it maintains a self-insurance program; provided 
that, such Party's senior secured debt is rated at investment grade, 
or better, by Standard & Poor's. For any period of time that a 
Party's senior secured debt is unrated by Standard & Poor's or is 
rated at less than investment grade by Standard & Poor's, such Party 
shall comply with the insurance requirements applicable to it under 
Articles 18.3.1 through 18.3.9. In the event that a Party is 
permitted to self-insure pursuant to this Article 18.3.10, it shall 
not be required to comply with the insurance requirements applicable 
to it under Articles 18.3.1 through 18.3.9.
    18.3.11 The Parties agree to report to each other in writing as 
soon as practical all accidents or occurrences resulting in injuries 
to any person, including death, and any property damage arising out 
of this LGIA.

Article 19. Assignment

    19.1 Assignment. This LGIA may be assigned by either Party only 
with the written consent of the other; provided that either Party 
may assign this LGIA without the consent of the other Party to any 
Affiliate of the assigning Party with an equal or greater credit 
rating and with the legal authority and operational ability to 
satisfy the obligations of the assigning Party under this LGIA; and 
provided further that the Interconnection Customer shall have the 
right to assign this LGIA, without the consent of the Transmission 
Provider, for collateral security purposes to aid in providing 
financing for the Large Generating Facility, provided that the 
Interconnection Customer will require any secured party, trustee or 
mortgagee to notify the Transmission Provider of any such 
assignment. Any financing arrangement entered into by the 
Interconnection Customer pursuant to this Article will provide that 
prior to or upon the exercise of the secured party's, trustee's or 
mortgagee's assignment rights pursuant to said arrangement, the 
secured creditor, the trustee or mortgagee will notify the 
Transmission Provider of the date and particulars of any such 
exercise of assignment right(s). Any attempted assignment that 
violates this Article is void and ineffective. Any assignment under 
this LGIA shall not relieve a Party of its obligations, nor shall a 
Party's obligations be enlarged, in whole or in part, by reason 
thereof. Where required, consent to assignment will not be 
unreasonably withheld, conditioned or delayed.

Article 20. Severability

    20.1 Severability. If any provision in this LGIA is finally 
determined to be invalid, void or unenforceable by any court or 
other Governmental Authority having jurisdiction, such determination 
shall not invalidate, void or make unenforceable any other 
provision,

[[Page 49968]]

agreement or covenant of this LGIA; provided that if the 
Interconnection Customer (or any third party, but only if such third 
party is not acting at the direction of the Transmission Provider) 
seeks and obtains such a final determination with respect to any 
provision of the Alternate Option (Article 5.1.2), or the Negotiated 
Option (Article 5.1.4), then none of these provisions shall 
thereafter have any force or effect and the Parties' rights and 
obligations shall be governed solely by the Standard Option (Article 
5.1.1).

Article 21. Comparability

    21.1 Comparability. The Parties will comply with all applicable 
comparability and code of conduct laws, rules and regulations, as 
amended from time to time.

Article 22. Confidentiality

    22.1 Confidentiality. Confidential Information shall include, 
without limitation, all information relating to a Party's 
technology, research and development, business affairs, and pricing, 
and any information supplied by either of the Parties to the other 
prior to the execution of this LGIA.
    Information is Confidential Information only if it is clearly 
designated or marked in writing as confidential on the face of the 
document, or, if the information is conveyed orally or by 
inspection, if the Party providing the information orally informs 
the Party receiving the information that the information is 
confidential.
    If requested by either Party, the other Party shall provide in 
writing, the basis for asserting that the information referred to in 
this Article warrants confidential treatment, and the requesting 
Party may disclose such writing to the appropriate Governmental 
Authority. Each Party shall be responsible for the costs associated 
with affording confidential treatment to its information.
    22.1.1 Term. During the term of this LGIA, and for a period of 
three (3) years after the expiration or termination of this LGIA, 
except as otherwise provided in this Article 22, each Party shall 
hold in confidence and shall not disclose to any person Confidential 
Information.
    22.1.2 Scope. Confidential Information shall not include 
information that the receiving Party can demonstrate: (1) Is 
generally available to the public other than as a result of a 
disclosure by the receiving Party; (2) was in the lawful possession 
of the receiving Party on a non-confidential basis before receiving 
it from the disclosing Party; (3) was supplied to the receiving 
Party without restriction by a third party, who, to the knowledge of 
the receiving Party after due inquiry, was under no obligation to 
the disclosing Party to keep such information confidential; (4) was 
independently developed by the receiving Party without reference to 
Confidential Information of the disclosing Party; (5) is, or 
becomes, publicly known, through no wrongful act or omission of the 
receiving Party or Breach of this LGIA; or (6) is required, in 
accordance with Article 22.1.7 of the LGIA, Order of Disclosure, to 
be disclosed by any Governmental Authority or is otherwise required 
to be disclosed by law or subpoena, or is necessary in any legal 
proceeding establishing rights and obligations under this LGIA. 
Information designated as Confidential Information will no longer be 
deemed confidential if the Party that designated the information as 
confidential notifies the other Party that it no longer is 
confidential.
    22.1.3 Release of Confidential Information. Neither Party shall 
release or disclose Confidential Information to any other person, 
except to its employees, consultants, or to parties who may be or 
considering providing financing to or equity participation with 
Interconnection Customer, or to potential purchasers or assignees of 
Interconnection Customer, on a need-to-know basis in connection with 
this LGIA, unless such person has first been advised of the 
confidentiality provisions of this Article 22 and has agreed to 
comply with such provisions. Notwithstanding the foregoing, a Party 
providing Confidential Information to any person shall remain 
primarily responsible for any release of Confidential Information in 
contravention of this Article 22.
    22.1.4 Rights. Each Party retains all rights, title, and 
interest in the Confidential Information that each Party discloses 
to the other Party. The disclosure by each Party to the other Party 
of Confidential Information shall not be deemed a waiver by either 
Party or any other person or entity of the right to protect the 
Confidential Information from public disclosure.
    22.1.5 No Warranties. By providing Confidential Information, 
neither Party makes any warranties or representations as to its 
accuracy or completeness. In addition, by supplying Confidential 
Information, neither Party obligates itself to provide any 
particular information or Confidential Information to the other 
Party nor to enter into any further agreements or proceed with any 
other relationship or joint venture.
    22.1.6 Standard of Care. Each Party shall use at least the same 
standard of care to protect Confidential Information it receives as 
it uses to protect its own Confidential Information from 
unauthorized disclosure, publication or dissemination. Each Party 
may use Confidential Information solely to fulfill its obligations 
to the other Party under this LGIA or its regulatory requirements.
    22.1.7 Order of Disclosure. If a court or a Government Authority 
or entity with the right, power, and apparent authority to do so 
requests or requires either Party, by subpoena, oral deposition, 
interrogatories, requests for production of documents, 
administrative order, or otherwise, to disclose Confidential 
Information, that Party shall provide the other Party with prompt 
notice of such request(s) or requirement(s) so that the other Party 
may seek an appropriate protective order or waive compliance with 
the terms of this LGIA. Notwithstanding the absence of a protective 
order or waiver, the Party may disclose such Confidential 
Information which, in the opinion of its counsel, the Party is 
legally compelled to disclose. Each Party will use Reasonable 
Efforts to obtain reliable assurance that confidential treatment 
will be accorded any Confidential Information so furnished.
    22.1.8 Termination of Agreement. Upon termination of this LGIA 
for any reason, each Party shall, within ten (10) Calendar Days of 
receipt of a written request from the other Party, use Reasonable 
Efforts to destroy, erase, or delete (with such destruction, 
erasure, and deletion certified in writing to the other Party) or 
return to the other Party, without retaining copies thereof, any and 
all written or electronic Confidential Information received from the 
other Party.
    22.1.9 Remedies. The Parties agree that monetary damages would 
be inadequate to compensate a Party for the other Party's Breach of 
its obligations under this Article 22. Each Party accordingly agrees 
that the other Party shall be entitled to equitable relief, by way 
of injunction or otherwise, if the first Party Breaches or threatens 
to Breach its obligations under this Article 22, which equitable 
relief shall be granted without bond or proof of damages, and the 
receiving Party shall not plead in defense that there would be an 
adequate remedy at law. Such remedy shall not be deemed an exclusive 
remedy for the Breach of this Article 22, but shall be in addition 
to all other remedies available at law or in equity. The Parties 
further acknowledge and agree that the covenants contained herein 
are necessary for the protection of legitimate business interests 
and are reasonable in scope. No Party, however, shall be liable for 
indirect, incidental, or consequential or punitive damages of any 
nature or kind resulting from or arising in connection with this 
Article 22.
    22.1.10 Disclosure to FERC or its Staff. Notwithstanding 
anything in this Article 22 to the contrary, and pursuant to 18 CFR 
section 1b.20, if FERC or its staff, during the course of an 
investigation or otherwise, requests information from one of the 
Parties that is otherwise required to be maintained in confidence 
pursuant to this LGIA, the Party shall provide the requested 
information to FERC or its staff, within the time provided for in 
the request for information. In providing the information to FERC or 
its staff, the Party must, consistent with 18 CFR 388.112, request 
that the information be treated as confidential and non-public by 
FERC and its staff and that the information be withheld from public 
disclosure. Parties are prohibited from notifying the other Party to 
this LGIA prior to the release of the Confidential Information to 
the Commission or its staff. The Party shall notify the other Party 
to the LGIA when it is notified by FERC or its staff that a request 
to release Confidential Information has been received by FERC, at 
which time either of the Parties may respond before such information 
would be made public, pursuant to 18 CFR 388.112.
    22.1.11 Subject to the exception in Article 22.1.10, any 
information that a Party claims is competitively sensitive, 
commercial or financial information under this LGIA (``Confidential 
Information'') shall not be disclosed by the other Party to any 
person not employed or retained by the other Party, except to the 
extent disclosure is (i) required by law; (ii) reasonably deemed by 
the disclosing Party to be required to be disclosed in connection 
with a dispute between or among the Parties, or the defense of 
litigation or dispute; (iii) otherwise permitted by consent of the 
other Party, such consent not to be unreasonably withheld; or

[[Page 49969]]

(iv) necessary to fulfill its obligations under this LGIA or as a 
transmission service provider or a Control Area operator including 
disclosing the Confidential Information to an RTO or ISO or to a 
regional or national reliability organization. The Party asserting 
confidentiality shall notify the other Party in writing of the 
information it claims is confidential. Prior to any disclosures of 
the other Party's Confidential Information under this subparagraph, 
or if any third party or Governmental Authority makes any request or 
demand for any of the information described in this subparagraph, 
the disclosing Party agrees to promptly notify the other Party in 
writing and agrees to assert confidentiality and cooperate with the 
other Party in seeking to protect the Confidential Information from 
public disclosure by confidentiality agreement, protective order or 
other reasonable measures.
    22.1.12 This provision shall not apply to any information that 
was or is hereafter in the public domain (except as a result of a 
Breach of this provision).

Article 23. Environmental Releases

    23.1 Each Party shall notify the other Party, first orally and 
then in writing, of the release of any Hazardous Substances, any 
asbestos or lead abatement activities, or any type of remediation 
activities related to the Large Generating Facility or the 
Interconnection Facilities, each of which may reasonably be expected 
to affect the other Party. The notifying Party shall: (i) Provide 
the notice as soon as practicable, provided such Party makes a good 
faith effort to provide the notice no later than twenty-four hours 
after such Party becomes aware of the occurrence; and (ii) promptly 
furnish to the other Party copies of any publicly available reports 
filed with any Governmental Authorities addressing such events.

Article 24. Information Requirements

    24.1 Information Acquisition. Transmission Provider and the 
Interconnection Customer shall submit specific information regarding 
the electrical characteristics of their respective facilities to 
each other as described below and in accordance with Applicable 
Reliability Standards.
    24.2 Information Submission by Transmission Provider. The 
initial information submission by Transmission Provider shall occur 
no later than one hundred eighty (180) Calendar Days prior to Trial 
Operation and shall include Transmission System information 
necessary to allow the Interconnection Customer to select equipment 
and meet any system protection and stability requirements, unless 
otherwise mutually agreed to by both Parties. On a monthly basis 
Transmission Provider shall provide Interconnection Customer a 
status report on the construction and installation of Transmission 
Provider's Interconnection Facilities and Network Upgrades, 
including, but not limited to, the following information: (1) 
Progress to date; (2) a description of the activities since the last 
report; (3) a description of the action items for the next period; 
and (4) the delivery status of equipment ordered.
    24.3 Updated Information Submission by Interconnection Customer. 
The updated information submission by the Interconnection Customer, 
including manufacturer information, shall occur no later than one 
hundred eighty (180) Calendar Days prior to the Trial Operation. 
Interconnection Customer shall submit a completed copy of the Large 
Generating Facility data requirements contained in Appendix 1 to the 
LGIP. It shall also include any additional information provided to 
Transmission Provider for the Feasibility and Facilities Study. 
Information in this submission shall be the most current Large 
Generating Facility design or expected performance data. Information 
submitted for stability models shall be compatible with Transmission 
Provider standard models. If there is no compatible model, the 
Interconnection Customer will work with a consultant mutually agreed 
to by the Parties to develop and supply a standard model and 
associated information.
    If the Interconnection Customer's data is materially different 
from what was originally provided to Transmission Provider pursuant 
to the Interconnection Study Agreement between Transmission Provider 
and Interconnection Customer, then Transmission Provider will 
conduct appropriate studies to determine the impact on the 
Transmission Provider Transmission System based on the actual data 
submitted pursuant to this Article 24.3. The Interconnection 
Customer shall not begin Trial Operation until such studies are 
completed.
    24.4 Information Supplementation. Prior to the Operation Date, 
the Parties shall supplement their information submissions described 
above in this Article 24 with any and all ``as-built'' Large 
Generating Facility information or ``as-tested'' performance 
information that differs from the initial submissions or, 
alternatively, written confirmation that no such differences exist. 
The Interconnection Customer shall conduct tests on the Large 
Generating Facility as required by Good Utility Practice such as an 
open circuit ``step voltage'' test on the Large Generating Facility 
to verify proper operation of the Large Generating Facility's 
automatic voltage regulator.
    Unless otherwise agreed, the test conditions shall include: (1) 
Large Generating Facility at synchronous speed; (2) automatic 
voltage regulator on and in voltage control mode; and (3) a five 
percent (5 percent) change in Large Generating Facility terminal 
voltage initiated by a change in the voltage regulators reference 
voltage. Interconnection Customer shall provide validated test 
recordings showing the responses of Large Generating Facility 
terminal and field voltages. In the event that direct recordings of 
these voltages is impractical, recordings of other voltages or 
currents that mirror the response of the Large Generating Facility's 
terminal or field voltage are acceptable if information necessary to 
translate these alternate quantities to actual Large Generating 
Facility terminal or field voltages is provided. Large Generating 
Facility testing shall be conducted and results provided to the 
Transmission Provider for each individual generating unit in a 
station.
    Subsequent to the Operation Date, the Interconnection Customer 
shall provide Transmission Provider any information changes due to 
equipment replacement, repair, or adjustment. Transmission Provider 
shall provide the Interconnection Customer any information changes 
due to equipment replacement, repair or adjustment in the directly 
connected substation or any adjacent Transmission Provider-owned 
substation that may affect the Interconnection Customer 
Interconnection Facilities equipment ratings, protection or 
operating requirements. The Parties shall provide such information 
no later than thirty (30) Calendar Days after the date of the 
equipment replacement, repair or adjustment.

Article 25. Information Access and Audit Rights

    25.1 Information Access. Each Party (the ``disclosing Party'') 
shall make available to the other Party information that is in the 
possession of the disclosing Party and is necessary in order for the 
other Party to: (i) verify the costs incurred by the disclosing 
Party for which the other Party is responsible under this LGIA; and 
(ii) carry out its obligations and responsibilities under this LGIA. 
The Parties shall not use such information for purposes other than 
those set forth in this Article 25.1 and to enforce their rights 
under this LGIA.
    25.2 Reporting of Non-Force Majeure Events. Each Party (the 
``notifying Party'') shall notify the other Party when the notifying 
Party becomes aware of its inability to comply with the provisions 
of this LGIA for a reason other than a Force Majeure event. The 
Parties agree to cooperate with each other and provide necessary 
information regarding such inability to comply, including the date, 
duration, reason for the inability to comply, and corrective actions 
taken or planned to be taken with respect to such inability to 
comply. Notwithstanding the foregoing, notification, cooperation or 
information provided under this Article shall not entitle the Party 
receiving such notification to allege a cause for anticipatory 
breach of this LGIA.
    25.3 Audit Rights. Subject to the requirements of 
confidentiality under Article 22 of this LGIA, each Party shall have 
the right, during normal business hours, and upon prior reasonable 
notice to the other Party, to audit at its own expense the other 
Party's accounts and records pertaining to either Party's 
performance or either Party's satisfaction of obligations under this 
LGIA. Such audit rights shall include audits of the other Party's 
costs, calculation of invoiced amounts, the Transmission Provider's 
efforts to allocate responsibility for the provision of reactive 
support to the Transmission System, the Transmission Provider's 
efforts to allocate responsibility for interruption or reduction of 
generation on the Transmission System, and each Party's actions in 
an Emergency Condition. Any audit authorized by this Article shall 
be performed at the offices where such accounts and records are 
maintained and shall be limited to those portions of such accounts 
and records that relate to each Party's performance and satisfaction 
of obligations under this LGIA.

[[Page 49970]]

Each Party shall keep such accounts and records for a period 
equivalent to the audit rights periods described in Article 25.4.

25.4 Audit Rights Periods

    25.4.1 Audit Rights Period for Construction-Related Accounts and 
Records. Accounts and records related to the design, engineering, 
procurement, and construction of Transmission Provider's 
Interconnection Facilities and Network Upgrades shall be subject to 
audit for a period of twenty-four months following Transmission 
Provider's issuance of a final invoice in accordance with Article 
12.2.
    25.4.2 Audit Rights Period for All Other Accounts and Records. 
Accounts and records related to either Party's performance or 
satisfaction of all obligations under this LGIA other than those 
described in Article 25.4.1 shall be subject to audit as follows: 
(i) for an audit relating to cost obligations, the applicable audit 
rights period shall be twenty-four months after the auditing Party's 
receipt of an invoice giving rise to such cost obligations; and (ii) 
for an audit relating to all other obligations, the applicable audit 
rights period shall be twenty-four months after the event for which 
the audit is sought.
    25.5 Audit Results. If an audit by a Party determines that an 
overpayment or an underpayment has occurred, a notice of such 
overpayment or underpayment shall be given to the other Party 
together with those records from the audit which support such 
determination.

Article 26. Subcontractors

    26.1 General. Nothing in this LGIA shall prevent a Party from 
utilizing the services of any subcontractor as it deems appropriate 
to perform its obligations under this LGIA; provided, however, that 
each Party shall require its subcontractors to comply with all 
applicable terms and conditions of this LGIA in providing such 
services and each Party shall remain primarily liable to the other 
Party for the performance of such subcontractor.
    26.2 Responsibility of Principal. The creation of any 
subcontract relationship shall not relieve the hiring Party of any 
of its obligations under this LGIA. The hiring Party shall be fully 
responsible to the other Party for the acts or omissions of any 
subcontractor the hiring Party hires as if no subcontract had been 
made; provided, however, that in no event shall the Transmission 
Provider be liable for the actions or inactions of the 
Interconnection Customer or its subcontractors with respect to 
obligations of the Interconnection Customer under Article 5 of this 
LGIA. Any applicable obligation imposed by this LGIA upon the hiring 
Party shall be equally binding upon, and shall be construed as 
having application to, any subcontractor of such Party.
    26.3 No Limitation by Insurance. The obligations under this 
Article 26 will not be limited in any way by any limitation of 
subcontractor's insurance.

Article 27. Disputes

    27.1 Submission. In the event either Party has a dispute, or 
asserts a claim, that arises out of or in connection with this LGIA 
or its performance, such Party (the ``disputing Party'') shall 
provide the other Party with written notice of the dispute or claim 
(``Notice of Dispute''). Such dispute or claim shall be referred to 
a designated senior representative of each Party for resolution on 
an informal basis as promptly as practicable after receipt of the 
Notice of Dispute by the other Party. In the event the designated 
representatives are unable to resolve the claim or dispute through 
unassisted or assisted negotiations within thirty (30) Calendar Days 
of the other Party's receipt of the Notice of Dispute, such claim or 
dispute may, upon mutual agreement of the Parties, be submitted to 
arbitration and resolved in accordance with the arbitration 
procedures set forth below. In the event the Parties do not agree to 
submit such claim or dispute to arbitration, each Party may exercise 
whatever rights and remedies it may have in equity or at law 
consistent with the terms of this LGIA.
    27.2 External Arbitration Procedures. Any arbitration initiated 
under this LGIA shall be conducted before a single neutral 
arbitrator appointed by the Parties. If the Parties fail to agree 
upon a single arbitrator within ten (10) Calendar Days of the 
submission of the dispute to arbitration, each Party shall choose 
one arbitrator who shall sit on a three-member arbitration panel. 
The two arbitrators so chosen shall within twenty (20) Calendar Days 
select a third arbitrator to chair the arbitration panel. In either 
case, the arbitrators shall be knowledgeable in electric utility 
matters, including electric transmission and bulk power issues, and 
shall not have any current or past substantial business or financial 
relationships with any party to the arbitration (except prior 
arbitration). The arbitrator(s) shall provide each of the Parties an 
opportunity to be heard and, except as otherwise provided herein, 
shall conduct the arbitration in accordance with the Commercial 
Arbitration Rules of the American Arbitration Association 
(``Arbitration Rules'') and any applicable FERC regulations or RTO 
rules; provided, however, in the event of a conflict between the 
Arbitration Rules and the terms of this Article 27, the terms of 
this Article 27 shall prevail.
    27.3 Arbitration Decisions. Unless otherwise agreed by the 
Parties, the arbitrator(s) shall render a decision within ninety 
(90) Calendar Days of appointment and shall notify the Parties in 
writing of such decision and the reasons therefor. The arbitrator(s) 
shall be authorized only to interpret and apply the provisions of 
this LGIA and shall have no power to modify or change any provision 
of this Agreement in any manner. The decision of the arbitrator(s) 
shall be final and binding upon the Parties, and judgment on the 
award may be entered in any court having jurisdiction. The decision 
of the arbitrator(s) may be appealed solely on the grounds that the 
conduct of the arbitrator(s), or the decision itself, violated the 
standards set forth in the Federal Arbitration Act or the 
Administrative Dispute Resolution Act. The final decision of the 
arbitrator must also be filed with FERC if it affects jurisdictional 
rates, terms and conditions of service, Interconnection Facilities, 
or Network Upgrades.
    27.4 Costs. Each Party shall be responsible for its own costs 
incurred during the arbitration process and for the following costs, 
if applicable: (1) The cost of the arbitrator chosen by the Party to 
sit on the three member panel and one half of the cost of the third 
arbitrator chosen; or (2) one half the cost of the single arbitrator 
jointly chosen by the Parties.

Article 28. Representations, Warranties and Covenants

    28.1 General. Each Party makes the following representations, 
warranties and covenants:
    28.1.1 Good Standing. Such Party is duly organized, validly 
existing and in good standing under the laws of the state in which 
it is organized, formed, or incorporated, as applicable; that it is 
qualified to do business in the state or states in which the Large 
Generating Facility, Interconnection Facilities and Network Upgrades 
owned by such Party, as applicable, are located; and that it has the 
corporate power and authority to own its properties, to carry on its 
business as now being conducted and to enter into this LGIA and 
carry out the transactions contemplated hereby and perform and carry 
out all covenants and obligations on its part to be performed under 
and pursuant to this LGIA.
    28.1.2 Authority. Such Party has the right, power and authority 
to enter into this LGIA, to become a party hereto and to perform its 
obligations hereunder. This LGIA is a legal, valid and binding 
obligation of such Party, enforceable against such Party in 
accordance with its terms, except as the enforceability thereof may 
be limited by applicable bankruptcy, insolvency, reorganization or 
other similar laws affecting creditors' rights generally and by 
general equitable principles (regardless of whether enforceability 
is sought in a proceeding in equity or at law).
    28.1.3 No Conflict. The execution, delivery and performance of 
this LGIA does not violate or conflict with the organizational or 
formation documents, or bylaws or operating agreement, of such 
Party, or any judgment, license, permit, order, material agreement 
or instrument applicable to or binding upon such Party or any of its 
assets.
    28.1.4 Consent and Approval. Such Party has sought or obtained, 
or, in accordance with this LGIA will seek or obtain, each consent, 
approval, authorization, order, or acceptance by any Governmental 
Authority in connection with the execution, delivery and performance 
of this LGIA, and it will provide to any Governmental Authority 
notice of any actions under this LGIA that are required by 
Applicable Laws and Regulations.

Article 29. Joint Operating Committee

    29.1 Joint Operating Committee. Except in the case of ISOs and 
RTOs, Transmission Provider shall constitute a Joint Operating 
Committee to coordinate operating and technical considerations of 
Interconnection Service. At least six (6) months prior to the 
expected Initial Synchronization Date, Interconnection Customer and 
Transmission Provider shall each appoint one representative and one 
alternate to the Joint Operating Committee. Each Interconnection

[[Page 49971]]

Customer shall notify the Transmission Provider of its appointment 
in writing. Such appointments may be changed at any time by similar 
notice. The Joint Operating Committee shall meet as necessary, but 
not less than once each calendar year, to carry out the duties set 
forth herein. The Joint Operating Committee shall hold a meeting at 
the request of either Party, at a time and place agreed upon by the 
representatives. The Joint Operating Committee shall perform all of 
its duties consistent with the provisions of this LGIA. Each Party 
shall cooperate in providing to the Joint Operating Committee all 
information required in the performance of the Joint Operating 
Committee's duties. All decisions and agreements, if any, made by 
the Joint Operating Committee shall be evidenced in writing. The 
duties of the Joint Operating Committee shall include the following:
    29.1.1 Establish data requirements and operating record 
requirements.
    29.1.2 Review the requirements, standards, and procedures for 
data acquisition equipment, protective equipment, and any other 
equipment or software.
    29.1.3 Annually review the one (1) year forecast of maintenance 
and planned outage schedules of Transmission Provider's and 
Interconnection Customer's facilities at the Point of 
Interconnection.
    29.1.4 Coordinate the scheduling of maintenance and planned 
outages on the Interconnection Facilities, the Large Generating 
Facility and other facilities that impact the normal operation of 
the interconnection of the Large Generating Facility to the 
Transmission System.
    29.1.5 Ensure that information is being provided by each Party 
regarding equipment availability.
    29.1.6 Perform such other duties as may be conferred upon it by 
mutual agreement of the Parties.

Article 30. Miscellaneous

    30.1 Binding Effect. This LGIA and the rights and obligations 
hereof, shall be binding upon and shall inure to the benefit of the 
successors and assigns of the Parties hereto.
    30.2 Conflicts. In the event of a conflict between the body of 
this LGIA and any attachment, appendices or exhibits hereto, the 
terms and provisions of the body of this LGIA shall prevail and be 
deemed the final intent of the Parties.
    30.3 Rules of Interpretation. This LGIA, unless a clear contrary 
intention appears, shall be construed and interpreted as follows: 
(1) The singular number includes the plural number and vice versa; 
(2) reference to any person includes such person's successors and 
assigns but, in the case of a Party, only if such successors and 
assigns are permitted by this LGIA, and reference to a person in a 
particular capacity excludes such person in any other capacity or 
individually; (3) reference to any agreement (including this LGIA), 
document, instrument or tariff means such agreement, document, 
instrument, or tariff as amended or modified and in effect from time 
to time in accordance with the terms thereof and, if applicable, the 
terms hereof; (4) reference to any Applicable Laws and Regulations 
means such Applicable Laws and Regulations as amended, modified, 
codified, or reenacted, in whole or in part, and in effect from time 
to time, including, if applicable, rules and regulations promulgated 
thereunder; (5) unless expressly stated otherwise, reference to any 
Article, Section or Appendix means such Article of this LGIA or such 
Appendix to this LGIA, or such Section to the LGIP or such Appendix 
to the LGIP, as the case may be; (6) ``hereunder'', ``hereof'', 
``herein'', ``hereto'' and words of similar import shall be deemed 
references to this LGIA as a whole and not to any particular Article 
or other provision hereof or thereof; (7) ``including'' (and with 
correlative meaning ``include'') means including without limiting 
the generality of any description preceding such term; and (8) 
relative to the determination of any period of time, ``from'' means 
``from and including'', ``to'' means ``to but excluding'' and 
``through'' means ``through and including''.
    30.4 Entire Agreement. This LGIA, including all Appendices and 
Schedules attached hereto, constitutes the entire agreement between 
the Parties with reference to the subject matter hereof, and 
supersedes all prior and contemporaneous understandings or 
agreements, oral or written, between the Parties with respect to the 
subject matter of this LGIA. There are no other agreements, 
representations, warranties, or covenants which constitute any part 
of the consideration for, or any condition to, either Party's 
compliance with its obligations under this LGIA.
    30.5 No Third Party Beneficiaries. This LGIA is not intended to 
and does not create rights, remedies, or benefits of any character 
whatsoever in favor of any persons, corporations, associations, or 
entities other than the Parties, and the obligations herein assumed 
are solely for the use and benefit of the Parties, their successors 
in interest and, where permitted, their assigns.
    30.6 Waiver. The failure of a Party to this LGIA to insist, on 
any occasion, upon strict performance of any provision of this LGIA 
will not be considered a waiver of any obligation, right, or duty 
of, or imposed upon, such Party.
    Any waiver at any time by either Party of its rights with 
respect to this LGIA shall not be deemed a continuing waiver or a 
waiver with respect to any other failure to comply with any other 
obligation, right, duty of this LGIA. Termination or Default of this 
LGIA for any reason by the Interconnection Customer shall not 
constitute a waiver of the Interconnection Customer's legal rights 
to obtain an interconnection from the Transmission Provider. Any 
waiver of this LGIA shall, if requested, be provided in writing.
    30.7 Headings. The descriptive headings of the various Articles 
of this LGIA have been inserted for convenience of reference only 
and are of no significance in the interpretation or construction of 
this LGIA.
    30.8 Multiple Counterparts. This LGIA may be executed in two or 
more counterparts, each of which is deemed an original but all 
constitute one and the same instrument.
    30.9 Amendment. The Parties may by mutual agreement amend this 
LGIA by a written instrument duly executed by both of the Parties.
    30.10 Modification by the Parties. The Parties may by mutual 
agreement amend the Appendices to this LGIA by a written instrument 
duly executed by both of the Parties. Such amendment shall become 
effective and a part of this LGIA upon satisfaction of all 
Applicable Laws and Regulations.
    30.11 Reservation of Rights. Transmission Provider shall have 
the right to make a unilateral filing with FERC to modify this LGIA 
with respect to any rates, terms and conditions, charges, 
classifications of service, rule or regulation under section 205 or 
any other applicable provision of the Federal Power Act and FERC's 
rules and regulations thereunder, and Interconnection Customer shall 
have the right to make a unilateral filing with FERC to modify this 
LGIA pursuant to section 206 or any other applicable provision of 
the Federal Power Act and FERC's rules and regulations thereunder; 
provided that each Party shall have the right to protest any such 
filing by the other Party and to participate fully in any proceeding 
before FERC in which such modifications may be considered. Nothing 
in this LGIA shall limit the rights of the Parties or of FERC under 
sections 205 or 206 of the Federal Power Act and FERC's rules and 
regulations thereunder, except to the extent that the Parties 
otherwise mutually agree as provided herein.
    30.12 No Partnership. This LGIA shall not be interpreted or 
construed to create an association, joint venture, agency 
relationship, or partnership between the Parties or to impose any 
partnership obligation or partnership liability upon either Party. 
Neither Party shall have any right, power or authority to enter into 
any agreement or undertaking for, or act on behalf of, or to act as 
or be an agent or representative of, or to otherwise bind, the other 
Party.
    In witness whereof, the Parties have executed this LGIA in 
duplicate originals, each of which shall constitute and be an 
original effective Agreement between the Parties.

[Insert name of Transmission Provider or Transmission Owner, if 
applicable]

By:--------------------------------------------------------------------
Title:-----------------------------------------------------------------
Date:------------------------------------------------------------------

By:--------------------------------------------------------------------
Title:-----------------------------------------------------------------
Date:------------------------------------------------------------------

p[Insert name of Interconnection Customer]

By:--------------------------------------------------------------------
Title:-----------------------------------------------------------------
Date:------------------------------------------------------------------

Appendices to LGIA

Appendix A--Interconnection Facilities, Network Upgrades and 
Distribution Upgrades
Appendix B--Milestones
Appendix C--Interconnection Details
Appendix D--Security Arrangements Details
Appendix E--Commercial Operation Date
Appendix F--Addresses for Delivery of Notices and Billings

[[Page 49972]]


Appendix A to LGIA--Interconnection Facilities, Network Upgrades and 

    Distribution Upgrades1. Interconnection Facilities:

(a) [insert Interconnection Customer's Interconnection Facilities]:
(b) [insert Transmission Provider's Interconnection Facilities]:

    2. Network Upgrades:

(a) [insert Stand Alone Network Upgrades]:
(b) [insert Other Network Upgrades]:

    3. Distribution Upgrades:

Appendix B to LGIA--Milestones [Reserved]

Appendix C to LGIA--Interconnection Details [Reserved]

Appendix D to LGIA--Security Arrangements Details

    Infrastructure security of Transmission System equipment and 
operations and control hardware and software is essential to ensure 
day-to-day Transmission System reliability and operational security. 
The Commission will expect all Transmission Providers, market 
participants, and Interconnection Customers interconnected to the 
Transmission System to comply with the recommendations offered by 
the President's Critical Infrastructure Protection Board and, 
eventually, best practice recommendations from the electric 
reliability authority. All public utilities will be expected to meet 
basic standards for system infrastructure and operational security, 
including physical, operational, and cyber-security practices.

Appendix E to LGIA--Commercial Operation Date

    This Appendix E is a part of the LGIA between Transmission 
Provider and Interconnection Customer.

[Date]
[Transmission Provider Address]

Re: ------------Large Generating Facility

    Dear: ------------
    On [Date] [Interconnection Customer] has completed Trial 
Operation of Unit No. ------. This letter confirms that 
[Interconnection Customer] commenced commercial operation of Unit 
No. ---- at the Large Generating Facility, effective as of [Date 
plus one day].

     Thank you.

[Signature]
[Interconnection Customer Representative]

Appendix F to LGIA--Addresses for Delivery of Notices and Billings

Notices:

Transmission Provider:
    [To be supplied.]
Interconnection Customer:
    [To be supplied.]
    Billings and Payments:

Transmission Provider:
    [To be supplied.]
Interconnection Customer:
    [To be supplied.]
    Alternative Forms of Delivery of Notices (telephone, facsimile 
or email):

Transmission Provider:
    [To be supplied.]
Interconnection Customer:
    [To be supplied.]

[FR Doc. 03-20157 Filed 8-18-03; 8:45 am]
BILLING CODE 6717-01-P