[Federal Register Volume 69, Number 59 (Friday, March 26, 2004)]
[Rules and Regulations]
[Pages 15932-16051]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-5989]



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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; 
Order on Rehearing; Rule

  Federal Register / Vol. 69, No. 59 / Friday, March 26, 2004 / Rules 
and Regulations  

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM02-1-001; Order No. 2003-A]


Standardization of Generator Interconnection Agreements and 
Procedures

Issued March 5, 2004.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Order on rehearing.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) 
reaffirms its determinations in Order No. 2003 and clarifies certain 
provisions. Order No. 2003 requires all 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 adopted in that order and to provide 
interconnection service under them to electric generating facilities 
having a capacity of more than 20 megawatts. 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 revised procedures and agreement.

EFFECTIVE DATE: April 26, 2004.

FOR FURTHER INFORMATION CONTACT:

Patrick Rooney (Technical Information), Office of Markets, Tariffs and 
Rates, Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-6205.
Roland Wentworth (Technical Information), Office of Markets, Tariffs 
and Rates, Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-8262.
Bruce Poole (Technical Information), Office of Markets, Tariffs and 
Rates, Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-8468.
Abraham Silverman (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street, NE.,Washington, 
DC 20426, (202) 502-6444.
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 and Summary
    A. Summary of Order Nos. 2003 and 2003-A
    1. Jurisdiction
    2. Pricing and Cost Recovery Provisions
    3. Interconnection Products and Services
    4. Summary of Substantive Clarifications or Grants of Rehearing 
for the Large Generator Interconnection Procedures
    5. Summary of Substantive Clarifications or Grants of Rehearing 
for the Large Generator Interconnection Agreement
    B. Compliance Issues and Variations From the Pro Forma LGIP & 
LGIA
    1. Non-Independent Transmission Provider Compliance with this 
Order and Requests for Variations
    2. Independent Transmission Provider Compliance with this Order 
and Requests for Variations
    3. Other Compliance and Variation Issues
    C. Procedural Discussion
II. Discussion
    A. Definitions Used in the LGIP and LGIA
    B. Issues Related to the Standard Large Generator 
Interconnection Procedures (LGIP)
    Section 2.3--Base Case Data
    Section 3.1--Interconnection Requests--General
    Section 3.3.1--Initiating an Interconnection Request
    Section 3.3.4--Scoping Meeting
    Section 3.5--Coordination with Affected Systems
    Section 4.1--Queue Position--General
    Section 4.3--Transferability of Queue Position
    Section 4.4--Queue Position--Modifications
    Section 5.1.1--Queue Position for Pending Requests
    Section 5.2--Prior Interconnection Requests--New Transmission 
Provider
    Section 6--Interconnection Feasibility Study, Section 7--
Interconnection System Impact Study, Section 8--Interconnection 
Facilities Study, and Section 10--Optional Interconnection Study
    Section 11.1--Tender
    Section 12.2.3--Advancing Construction of Network Upgrades that 
are Part of an Expansion Plan of the Transmission Provider
    Section 13.1--Confidentiality
    Appendix 1--Interconnection Request
    C. Issues Related to the Standard Large Generator 
Interconnection Agreement (LGIA)
    Article 2.2--Term of Agreement
    Article 2.3.1--Written Notice
    Article 2.3.2--Default
    Article 2.4--Termination Costs
    Article 2.5--Disconnection
    Article 3--Regulatory Filings
    Article 4.3--Generator Balancing Service Arrangements
    Article 5.1.3--Option to Build
    Article 5.2--General Conditions Applicable to Option to Build
    Article 5.3--Liquidated Damages
    1. How the Liquidated Damages Provision Should Work
    2. Legal Arguments Against a Liquidated Damages Clause
    3. Calculation of Liquidated Damages and Miscellaneous Issues
    4. Public Power Entities and Liquidated Damages
    5. Subcontractors and Third Party Exemption
    Article 5.4--Power System Stabilizers & Article 5.10.3--ICIF 
Construction
    Article 5.10--Interconnection Customer's Interconnection 
Facilities
    Article 5.12--Access Rights
    Article 5.13--Lands of Other Property Owners
    Article 5.14--Permits
    Article 5.16--Suspension
    Article 5.17--Taxes
    Article 5.17.3--Indemnification for the Cost Consequences of 
Current Tax Liability Imposed upon the Transmission Provider
    Article 5.17.4--Tax Gross-Up Amount
    Article 5.17.5--Private Letter Ruling or Change or Clarification 
of Law
    Article 5.17.6--Subsequent Taxable Events
    Article 5.17.7--Contests
    Article 5.17.8--Refund
    Article 5.17.9--Taxes Other Than Income Taxes
    Article 5.17.10--Transmission Owners Who Are Not Transmission 
Providers
    Article 5.18--Tax Status
    Article 6.4--Right to Inspect
    Article 7--Metering
    Article 9.1--Operations--General
    Article 9.3--Transmission Provider Obligations
    Article 9.6.1--Power Factor Design Criteria
    Article 9.6.3--Payment for Reactive Power
    Article 9.7.1.2--Outage Schedules
    Article 10.5--Operating and Maintenance Expenses
    Article 11.5--Provision of Security
    Article 12.3--Invoice--Payment
    Article 13.1--Emergencies--Definition
    Article 13.6--Emergencies--Interconnection Customer Authority
    Article 14.1--Regulatory Requirements
    Article 16--Force Majeure
    Article 17.1--Default
    Article 18.2--Consequential Damages
    Article 18.3--Insurance
    Article 19.1--Assignment
    Article 21--Comparability
    Article 22--Confidentiality
    Article 25.3--Audit Rights
    Article 29--Joint Operating Committee
    D. Other Significant Policy Issues
    1. Interconnection Products and Scope of Service
    a. Requests to Clarify or Eliminate Network Resource 
Interconnection Service
    b. Delivery Service Implications of Energy Resource 
Interconnection Service and Network Resource Interconnection Service
    c. Conflicts with Network Integration Transmission Service
    d. Coordinating the Network Resource Interconnection Service 
Queue with the Transmission Delivery Service Queue
    e. Responsibility for Additional Studies and Network Upgrades

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    f. Miscellaneous Requests Regarding Energy Resource 
Interconnection Service and Network Resource Interconnection Service
    2. Interconnection Pricing Policy
    a. Summary of the Principal Determinations in Order No. 2003
    b. Fairness of the Order No. 2003 Pricing Policy: Applicability 
of the Commission's `Higher of' Ratemaking Policy
    c. Legal Challenges to the Interconnection Pricing Policy
    d. Rules Governing the Interconnection Customer's Upfront 
Payment and the Payment of Credits and Reimbursement
    e. Economic Efficiency Implications of the Order No. 2003 
Pricing Policy for a Non-Independent Transmission Provider
    f. Credits for Network Upgrades on Affected Systems
    g. Credits for the Costs of Expediting Construction
    h. Compensation for Line Outage Costs and Rescheduled 
Maintenance
    i. Transmission Provider's Recovery of Costs of Network Upgrades
    j. Transmission Provider's Recovery of Its Costs of 
Interconnection Facilities
    k. Generator Balancing Service Arrangements
    l. Miscellaneous Issues Regarding Interconnection Pricing for 
the Non-Independent Transmission Provider
    m. Interconnection Pricing Policy for the Independent 
Transmission Provider
    3. Commission Jurisdiction Under the Federal Power Act
    a. The Detroit Edison Case Precedent
    b. Transmission Provider Facilities Subject to Order No. 2003
    c. Interconnections to Low-Voltage Facilities for the Purpose of 
Making Wholesale Sales
    d. Net Metering Issues
    e. Non-Public Utilities and Order No. 2003
    4. Variations From the Final Rule
    5. OATT Reciprocity Requirements
    6. Two vs. Three Party Agreements
III. Information Collection Statement
IV. Regulatory Flexibility Act Certification
V. Document Availability
VI. Effective Date
Appendix A--Petitioner Acronyms
Appendix B--Revised Standard Large Generator Interconnection 
Procedures and Standard Large Generator Interconnection Agreement

Before Commissioners: Pat Wood, III, Chairman, Nora Mead Brownell, 
Joseph T. Kelliher, and Suedeen G. Kelly.

I. Introduction and Summary

    1. On July 24, 2003, the Commission issued a Final Rule (Order No. 
2003)\1\ requiring 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 generating facilities capable of producing more than 20 
megawatts of power (Large Generators) to their transmission 
facilities.\2\ Order No. 2003 requires that all public utilities 
subject to it modify their open access transmission tariffs(OATTs) to 
incorporate the Large Generator Interconnection Procedures (LGIP) and 
Large Generator Interconnection Agreement (LGIA).\3\
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    \1\ Standardization of Generator Interconnection Agreements and 
Procedures, Order No. 2003, 68 FR 49845 (Aug. 19, 2003), FERC Stats. 
& Regs. ] 31,146 (2003).
    \2\ Capitalized terms used in this Order on Rehearing have the 
meanings specified in Section 1 of the Final Rule Large Generator 
Interconnection Procedures (LGIP) and Article 1 of the Final Rule 
Large Generator Interconnection Agreement (LGIA), as amended herein, 
or the open access transmission tariff (OATT). Generating Facility 
means the device for which the Interconnection Customer has 
requested interconnection. The owner of the Generating Facility is 
the Interconnection Customer. The entity (or entities) with which 
the Generating Facility is interconnecting is the Transmission 
Provider. A Large Generator is any energy resource having a capacity 
of more than 20 megawatts, or the owner of such a resource.
    \3\ Provisions of the LGIP are referred to as ``Sections'' 
whereas provisions of the LGIA are referred to as ``Articles.''
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    2. Interconnection plays a crucial role in bringing much-needed 
generation into national energy markets to meet the growing needs of 
electricity customers. Currently, the interconnection process is 
fraught with delays and lack of standardization that discourage 
merchant generators from entering into the energy marketplace, in turn 
stifling the growth of competitive energy markets. The delays and lack 
of standardization inherent in the current system undermine the ability 
of generators to compete in the market and provide an unfair advantage 
to utilities that own both transmission and generation facilities. As a 
result, the Commission concluded in Order No. 2003 that there is a 
pressing need for a single, uniformly applicable set of procedures and 
agreements to govern the process of interconnecting Large Generators to 
a Transmission Provider's Transmission System.\4\
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    \4\ In another rulemaking, the Commission proposed a separate 
set of procedures and an agreement applicable to Small Generators 
(defined as any energy resource having a capacity of no larger than 
20 MW, or the owner of such a resource) that seek to interconnect to 
facilities of jurisdictional Transmission Providers that are already 
subject to an OATT. See Standardization of Small Generator 
Interconnection Agreements and Procedures, Notice of Proposed 
Rulemaking, 60 FR 49974 (Aug. 19, 2003), FERC Stats. & Regs. ] 
32,572 (2003).
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    3. We reaffirm here the legal and policy conclusions on which Order 
No. 2003 is based. Adoption of the LGIP and LGIA will prevent undue 
discrimination, preserve reliability, increase energy supply, and lower 
wholesale prices for customers by increasing the number and variety of 
generation resources competing in wholesale electricity markets while 
ensuring that the reliability of the Transmission System is protected. 
At its core, Order No. 2003 ensures that generators independent of 
Transmission Providers and generators affiliated with Transmission 
Providers are offered Interconnection Service on comparable terms.
    4. We recognize that issues will arise that are not covered by the 
LGIP and LGIA. When that happens, we expect the Parties to follow the 
spirit of Order No. 2003 and to deal with one another in good faith. 
Transmission Providers should not use the fact that the LGIP and LGIA 
do not explicitly cover a particular situation to delay or deny 
Interconnection Service. While we expect that the vast majority of 
Interconnection Requests will be efficiently processed under Order 
2003, the Commission will continue to step in where necessary and 
resolve any disputes on a case-by-case basis.

A. Summary of Order Nos. 2003 and 2003-A

1. Jurisdiction
    5. Order No. 2003 requires that each public utility that owns, 
controls, or operates facilities used for transmitting electric energy 
in interstate commerce to amend its OATT to include interconnection 
procedures and an interconnection agreement for electric generating 
facilities having a capacity of more than 20 megawatts.
    6. We reaffirm our jurisdictional holding that Order No. 2003 does 
not expand the Commission's jurisdiction beyond that asserted in Order 
No. 888 and upheld in court.\5\ The Final Rule applies only to 
interconnection to transmission facilities that are already subject to 
an OATT. Order No. 2003 applies to an interconnection to a public 
utility's Transmission System that, at the time the interconnection is 
requested, is used either to transmit electric energy in interstate 
commerce or to sell electric energy at wholesale in interstate commerce 
under a Commission-filed OATT. Additionally, we continue to assert that 
dual use

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facilities (those used both for wholesale and retail transactions) are 
subject to Order No. 2003 if the facilities are subject to an OATT on 
file with the Commission when the Interconnection Request is submitted.
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    \5\ 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) (TAPS 
v. FERC).
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2. Pricing and Cost Recovery Provisions
    7. In general, we reaffirm the pricing policy adopted in Order No. 
2003 for the recovery of the costs of Network Upgrades associated with 
an interconnection.\6\ That is, the Commission's existing pricing 
policy continues to apply to non-independent Transmission Providers, 
and an independent Transmission Provider may propose a customized 
pricing policy to fit its circumstances. We also reaffirm that all 
Distribution Upgrades (upgrades to the Transmission Provider's 
``distribution'' or lower voltage facilities that are subject to an 
OATT) are to be paid for by the Interconnection Customer (direct 
assignment).
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    \6\ Network Upgrades are facilities on the Transmission 
Provider's side of the Point of Interconnection with the 
Transmission Provider's Transmission System.
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    8. In this Order on Rehearing, we clarify that, consistent with the 
Commission's ``higher of'' ratemaking policy, a non-independent 
Transmission Provider continues to have the option to charge the 
Interconnection Customer the ``higher of'' an average embedded cost 
(rolled-in) rate or an incremental cost rate for the Network Upgrades 
needed for either Energy Resource Interconnection Service and Network 
Resource Integration Service. Incremental pricing is not the same as 
direct assignment.
    9. We reaffirm the Order No. 2003 requirement that, unless the 
Transmission Provider and the Interconnection Customer agree otherwise, 
the Interconnection Customer must initially fund the cost of any 
Network Upgrades associated with the interconnection of its Generating 
Facility to a non-independent Transmission Provider's transmission 
system and that the Transmission Provider must reimburse the funded 
amount on a dollar-for-dollar basis with interest. This reimbursement 
is in the form of credits against the rates the Interconnection 
Customer pays for the delivery component of transmission service. 
However, we are granting rehearing on two aspects of the Order No. 2003 
crediting policy. First, we are requiring the Transmission Provider to 
provide credits to the Interconnection Customer only against 
transmission delivery service taken with respect to the interconnecting 
Generating Facility. The Transmission Provider need not provide credits 
against other Transmission Services. Second, we are giving the 
Transmission Provider two options regarding the payment of credits. At 
the end of five years from the Commercial Operation Date of the 
Generating Facility, the Transmission Provider may either: (1) 
reimburse the Interconnection Customer for the remaining balance of the 
upfront payment, plus accrued interest, or (2) continue to provide 
credits to the Interconnection Customer until the total of all credits 
equals the Interconnection Customer's upfront payment, plus accrued 
interest.
    10. In addition, we are eliminating the requirement that any 
Affected System Operator refund an Interconnection Customer's upfront 
payments for Network Upgrades built on the Affected System as a 
consequence of the interconnection of the Generating Facility. We 
instead are requiring the Affected System to provide credits toward the 
Interconnection Customer's upfront payment only when transmission 
service is taken by the Interconnection Customer on the Affected 
System.
    11. These modifications ensure that the Transmission Provider can 
recover the ``higher of'' the incremental cost rate of the Network 
Upgrades or the embedded cost transmission rate, which in turn ensures 
that the native load and other Transmission Customers of the 
Transmission Provider and the Affected System will not subsidize 
Network Upgrades required to interconnect merchant generation.
3. Interconnection Products and Services
    12. We reaffirm the decision in Order No. 2003 to have the 
Transmission Provider offer both Energy Resource Interconnection 
Service and Network Resource Interconnection Service. We more fully 
explain these services, clarifying two elements. First, neither Energy 
Resource Interconnection Service nor Network Resource Interconnection 
Service guarantees delivery service. Although these services both 
provide the Interconnection Customer with the capability to deliver the 
output of the Generating Facility into the Transmission System at the 
Point of Interconnection, neither service provides the Interconnection 
Customer with the right to withdraw power at any particular Point of 
Delivery. However, when an Interconnection Customer wants to deliver 
the output of the Generating Facility to a particular load (or set of 
loads) regardless of whether it has chosen Energy Resource 
Interconnection Service or Network Resource Integration Service, it may 
simultaneously request Network Interconnection Transmission Service or 
Point to Point Transmission Service under the OATT. Second, Network 
Resource Interconnection Service is not the same as, or a substitute 
for Network Integration Transmission Service under the OATT.
    13. Also, this Order on Rehearing clarifies certain study 
requirements for Network Resource Interconnection Service.
4. Summary of Substantive Clarifications or Grants of Rehearing for the 
Large Generator Interconnection Procedures
    14. Section numbers refer to the LGIP, which appears in Appendix B, 
attached.
    15. Section 2.3--Base Case Data--We reiterate the importance of 
keeping energy infrastructure information secure and clarify that we 
expect all Parties to comply with the recommendations of the National 
Infrastructure Protection Center, as well as any best practice 
recommendations or requirements that may be issued by the North 
American Electric Reliability Council (NERC) or other electric 
reliability authorities. We also clarify section 2.3 to emphasize that 
the Transmission Provider is permitted to require that the 
Interconnection Customer sign a confidentiality agreement before the 
release of commercially sensitive information or Critical Energy 
Infrastructure Information in the Base Case data.
    16. Section 3.1--Interconnection Requests--General--We clarify that 
the Interconnection Customer may select multiple Points of 
Interconnection to be evaluated in the Interconnection Feasibility 
Study. After receiving the results, the Interconnection Customer must 
select its Point of Interconnection. Before completing the 
Interconnection Facilities Study, the Interconnection Customer may 
request changes in the engineering details of the proposed 
interconnection (per LGIP sections 8.3 and 8.4), but may not alter the 
location of the Point of Interconnection (unless it submits a new 
Interconnection Request).
    17. Section 3.3.4--Scoping Meeting--We clarify issues relating to 
the sharing of information between the Transmission Provider and its 
Affiliates.
    18. Section 4.1--Queue Position--General--We clarify that the 
Transmission Provider may allocate the cost of the common upgrades for 
clustered Interconnection Requests without regard to Queue Position.

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    19. Section--4.4--Queue Position--Modifications `` We clarify that 
Queue Position will not be lost when a change in the requested Point of 
Interconnection is acceptable under any provision of the LGIP that 
expressly allows a minor change in the Point of Interconnection.
    20. Section 6--Interconnection Feasibility Study--The Transmission 
Provider and the Interconnection Customer may agree to skip the 
Interconnection Feasibility Study. We also clarify that a lower queued 
Interconnection Request is not to be included in the Interconnection 
Feasibility Study, unless the study is for a cluster.
    21. Section 11.1--LGIA--Tender--We modify this section to allow an 
additional 30 days after the Interconnection Customer submits comments 
to the Transmission Provider for the Transmission Provider to complete 
the draft appendices. We give the Interconnection Customer an 
additional 30 days to execute and return the draft appendices.
    22. Section 13.6--Local Furnishing Bonds--This new provision is 
applicable only to a Transmission Provider that has financed facilities 
for the local furnishing of electric energy with tax-exempt bonds. Such 
a Transmission Provider is not required to provide Interconnection 
Service to an Interconnection Customer if the provision of such 
Transmission Service would jeopardize the tax-exempt status of any 
local furnishing bond(s) used to finance Transmission Provider's 
facilities that would be used in providing such Interconnection 
Service.
    23. Appendix 1--We make some ministerial changes to the 
Interconnection Request and revise Item 3 to state more clearly that 
the Interconnection Customer must request either Energy Resource 
Interconnection Service or Network Resource Interconnection Service. In 
addition, if it requests the latter, we permit it to request that the 
Generating Facility be also studied for the former.
5. Summary of Substantive Clarifications or Grants of Rehearing for the 
Large Generator Interconnection Agreement
    24. Article numbers refer to the LGIA, which appears in Appendix B, 
attached.
    25. Article 2.3.1--Written Notice--We revise this article to state 
that the Interconnection Customer may terminate the LGIA after giving 
the Transmission Provider 90 Calendar Days advance written notice, or 
by the Transmission Provider notifying the Commission after the 
Generating Facility permanently ceases Commercial Operation.
    26. Article 4.3--Generator Balancing Service Arrangements--We 
delete this article because we now recognize that this requirement is 
more closely related to delivery service than to Interconnection 
Service. Because delivery service requirements are addressed elsewhere 
in the OATT, the balancing service requirement, and requirements 
related to Ancillary Services generally, should not appear in the LGIA.
    27. Article 5.2--General Conditions Applicable to Option to Build--
We modify this article to state that the Interconnection Customer 
cannot retain ownership of the Transmission Provider's Interconnection 
Facilities or Stand Alone Network Upgrades unless the Transmission 
Provider agrees.
    28. Article 5.3--Liquidated Damages--We reiterate that the 
Transmission Provider is not required to agree to liquidated damages 
and further explain the process for selecting construction milestones 
and the possible inclusion of a liquidated damages provision. We also 
explain that if liquidated damages are selected, they are the 
Interconnection Customer's exclusive remedy for the Transmission 
Provider's failure to meet its schedule.
    29. Article 5.4--Power System Stabilizers & Article 5.10.3--ICIF 
Construction--We revise these articles to state that the 
Interconnection Customer is exempt from these provisions if the 
Generating Facility is a wind generator.
    30. Article 5.13--Lands of Other Property Owners--We clarify that 
the Transmission Provider must assist the Interconnection Customer in 
siting Interconnection Facilities and Network Upgrades in a manner 
comparable to that it provides to itself and its Affiliates.
    31. Article 5.16--Suspension--We clarify that the period during 
which work may be suspended will begin on the date for which the 
suspension is requested in the written notice to the Transmission 
Provider, or on the date of the notice if no date is specified. We also 
clarify that the Interconnection Customer may not suspend work for a 
cumulative period of more than three years for each project.
    32. Article 5.17--Taxes--We clarify the Parties' indemnification 
and security obligations to better reflect the specific risks that the 
Transmission Provider faces with respect to taxation.
    33. Article 6.4--Right to Inspect--We make the confidentiality 
requirement reciprocal.
    34. Article 9.6.1--Power Factor Design Criteria--We exempt wind 
generators from the requirements of this article.
    35. Article 9.6.3--Payment for Reactive Power--If the Transmission 
Provider pays its generators or those of an Affiliate for reactive 
power service within the established range, it must also pay the 
Interconnection Customer.
    36. Article 18.3--Insurance--We modify this article to require that 
self-insuring entities obtain minimum insurance coverage. Furthermore, 
we clarify that additional insurance to cover the interconnection is 
not required if the Transmission Provider's existing insurance 
satisfies Article 18.3.6 and that each Party to the interconnection 
agreement complies with the notification requirements contained in 
Article 18.3.9. The notification requirement in Article 18.3.9 is also 
expanded to require notification if a Party self-insures or intends to 
rely on existing insurance.
    37. Article 19.1--Assignment--We amend Article 19.1 to provide that 
any financing arrangement entered into by the Interconnection Customer 
shall 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 rights, including providing the Transmission 
Provider with proof that it meets the requirements of Articles 11.5 and 
18.3. We also clarify that the Interconnection Customer, not the 
assignee, must inform the Transmission Provider of any assignment for 
purposes of providing collateral.
    38. Article 22--Confidentiality--We are amending this article to 
give state regulatory bodies conducting an investigation greater access 
to information that would otherwise be considered Confidential 
Information.
    39. Appendix G--Requirements of Generators Relying on Newer 
Technologies--We include an appendix which may be used to provide 
requirements for generators relying on newer technologies, such as wind 
generators.

B. Compliance Issues and Variations From the Pro Forma LGIP & LGIA

    40. Order No. 2003 said that it would become effective 60 days 
after publication in the Federal Register. However, the Commission 
later delayed

[[Page 15936]]

the effective date until January 20, 2004.\7\
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    \7\ A September 26, 2003 order (unpublished) extended the 
effective date of the Final Rule until January 20, 2004 for 
independent Transmission Providers. The October 7, 2003 order (105 
FERC ] 61,043) granted the same extension to non-independent 
Transmission Providers.
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    41. On January 8, 2004, the Commission issued a notice clarifying 
the compliance process.\8\ The OATTs of all non-independent 
Transmission Providers were deemed to include the pro forma LGIA and 
LGIP as of January 20, 2004. Every independent Transmission Provider 
was required to make a compliance filing on or before January 20, 2004 
by filing either (1) a notice that it intended to adopt the pro forma 
LGIP and LGIA, or (2) new standard interconnection procedures and 
agreement developed according to Order No. 2003's ``independent entity 
variation'' standard.\9\
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    \8\ Notice Clarifying Compliance Procedures, 69 FR 2,135 (Jan. 
14, 2004) (Compliance Notice).
    \9\ Order No. 2003 at P 827.
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    42. Order 2003-A takes effect 30 days after its publication in the 
Federal Register.
1. Non-Independent Transmission Provider Compliance With This Order and 
Requests for Variations
    43. As with the January 20, 2004 compliance process, the Commission 
will deem the OATT of a non-independent Transmission Provider to be 
revised to adopt the Order No. 2003-A pro forma LGIA and LGIP on its 
effective date. All Transmission Providers are directed to make 
ministerial filings reflecting the revisions in this order upon their 
next filing(s) with the Commission.\10\
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    \10\ All Order No. 2003 compliance filings should be made under 
the ``ER04-'' docket heading. The ministerial filing must include 
the entire pro forma LGIP and LGIA and be included in the entity's 
first filing (of any type) with the Commission after the effective 
date of this order.
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    44. Several pro forma LGIP and LGIA provisions specifically allow 
the Transmission Provider to follow ``Good Utility Practice'' or 
otherwise adopt region-specific practices or standards. Moreover, Order 
No. 2003 allows the Transmission Provider to justify variations to any 
provision based on regional reliability requirements.\11\ However, the 
Commission will accept a regional variation from the pro forma LGIP and 
LGIA only if it is an existing and established regional reliability 
standard.\12\
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    \11\ See Order No. 2003 at P 824.
    \12\ See Order No. 2003 at P 823.
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    45. A non-independent Transmission Provider seeking variations from 
Order No. 2003-A's pro forma LGIA and LGIP based on existing regional 
reliability standards must file them with the Commission on or before 
the effective date of this order.\13\ Regional variation filings must 
specify the proposed changes and explain why such changes are 
necessary. The Commission will solicit comments on these filings before 
acting on them. Non-independent Transmission Providers need not re-file 
regional reliability variations they filed on or before the January 20, 
2004 effective date of Order No. 2003.
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    \13\ Requests for regional variations will be treated as 
compliance filings under the Commission's Regulations.
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    46. A non-independent Transmission Provider also continues to have 
the right to file proposed changes to its LGIP and LGIA under section 
205 of the FPA using the ``consistent with or superior to'' standard.
    47. Pending Commission approval of any variations, the pro forma 
LGIP and LGIA will remain in effect.
2. Independent Transmission Provider Compliance With This Order and 
Requests for Variations
    48. Under Order No. 2003, an independent Transmission Provider has 
greater flexibility to tailor the LGIP and LGIA than does a non-
independent Transmission Provider. Under the ``independent entity 
variation'' standard, an independent Transmission Provider may propose 
customized interconnection procedures and a customized interconnection 
agreement that fit the needs of its region instead of the pro forma 
LGIP and LGIA.
    49. An independent Transmission Provider that on January 20, 2004 
elected to adopt Order No. 2003's pro forma LGIP and LGIA must file on 
or before the effective date of this Order on Rehearing either (1) a 
notice that it intends to adopt the Order No. 2003-A pro forma LGIP and 
LGIA, or (2) new standard interconnection procedures and agreements 
developed according to Order No. 2003's ``independent entity 
variation'' standard.
    50. An independent Transmission Provider that filed its own 
tailored interconnection agreement and procedures under Order No. 
2003's independent entity variation on or before January 20, 2004 is 
not required to re-file its interconnection agreement and procedures 
with the Commission unless a change is needed to reflect this Order on 
Rehearing.
    51. In either event, the independent Transmission Provider's 
currently effective OATT will remain in effect pending any necessary 
Commission action. After submitting its compliance filing, an 
independent Transmission Provider will continue to have the right to 
propose changes to its LGIP and LGIA using the ``independent entity 
variation'' standard.
3. Other Compliance and Variation Issues
    52. We clarify that for a non-independent Transmission Owner 
belonging to an RTO or ISO, the RTO's or ISO's Commission-approved 
standards and procedures shall govern all interconnections with 
facilities under the operational control of the RTO or ISO.\14\
---------------------------------------------------------------------------

    \14\ See Compliance Notice.
---------------------------------------------------------------------------

    53. A non-independent Transmission Provider that belongs to an RTO 
or ISO, but also retains operational control over portions of the 
Transmission System, must follow the compliance procedures for a non-
independent Transmission Provider.\15\ Such entities will have two sets 
of interconnection agreements and procedures: One governing 
interconnections to the portions of the Transmission System under the 
control of the RTO or ISO, and a pro forma LGIA and LGIP governing 
interconnections to the portion of the Transmission System over which 
it retains operational control.
---------------------------------------------------------------------------

    \15\ Id.
---------------------------------------------------------------------------

    54. In regards to the portion of the Transmission System over which 
it retains operational control, the Transmission Provider is 
responsible for meeting all of the requirements of Order No. 2003 to 
the same extent as a Transmission Provider who does not happen to 
belong to an RTO or ISO. A non-independent Transmission Provider does 
not receive special consideration simply because a portion of its 
Transmission System is independently operated.
    55. A non-independent Transmission Provider that belongs to an RTO 
or ISO and has turned over control of all of its Transmission System to 
the RTO or ISO may request that the Commission waive Order No. 2003's 
requirement that it adopt the LGIA and LGIP. If waiver is granted, then 
the non-independent entity would be free to request (under FPA Section 
205) amendments to its OATT that would harmonize its interconnection 
procedures with the RTO's or ISO's interconnection procedures.
    56. If an RTO or ISO adopts the pro forma LGIA and LGIP, it must 
also enter into a contractual agreement with its Transmission Owners 
allocating responsibility for the interconnection process between the 
Transmission Owner and the Transmission Provider. In addition, both the 
Transmission

[[Page 15937]]

Provider and the Transmission Owner must sign the LGIA.\16\ In such 
situations, the Interconnection Customer should file its 
Interconnection Request with the independent Transmission Provider. The 
independent Transmission Provider must then work with the Transmission 
Owner to fulfill the Interconnection Customer's Interconnection 
Request.
---------------------------------------------------------------------------

    \16\ See Order No. 2003 at P 909.
---------------------------------------------------------------------------

    57. A non-public utility with a ``safe harbor'' OATT must adopt the 
pro forma LGIA and LGIP if it wishes to retain its safe harbor 
status.\17\ Doing so will require all public utility Transmission 
Providers to offer the non-public utility open access to the public 
utility's Transmission System.
---------------------------------------------------------------------------

    \17\ Non-jurisdictional entities should make their filings under 
the ``NJ04-'' docket heading.
---------------------------------------------------------------------------

C. Procedural Discussion

    58. The Commission received 47 timely requests for rehearing or for 
clarification of Order No. 2003.
    59. Under Section 313(a) of the Federal Power Act (FPA),\18\ 
requests for rehearing of a Commission order were due within thirty 
days after issuance of Order No. 2003, i.e., no later than August 25, 
2003. Because the 30-day rehearing deadline is statutorily based, it 
cannot be extended. Therefore, the Commission rejects all requests for 
rehearing or clarification filed after August 25, 2003 as a matter of 
law.\19\ However, the Commission will consider these late filed 
requests for rehearing as requests for reconsideration.
---------------------------------------------------------------------------

    \18\ 16 U.S.C. 8251(a) (2003).
    \19\ Consumers Energy Company's request for clarification was 
filed on September 23, 2003 and Hydro One Networks, Inc. filed its 
request for rehearing on September 7, 2003. NARUC filed its second 
request for rehearing on October 1, 2003 and Reliant filed its on 
October 3, 2003.
---------------------------------------------------------------------------

    60. The South Carolina PSC filed a motion to intervene out-of-time. 
When late intervention is sought after the issuance of a dispositive 
order, the prejudice to other parties and burden upon the Commission of 
granting the late intervention may be substantial. Thus, movants bear a 
higher burden to demonstrate good cause for the granting of such late 
intervention. We find, however, that in this instance the burden of 
allowing the intervention is minimal and find good cause to allow it.

II. Discussion

A. Definitions Used in the LGIP and LGIA

    61. The LGIP and LGIA adopted in Order No. 2003 use a common set of 
definitions, several of which are addressed by petitioners.
    62. Commercial Operation Date--The LGIP and LGIA define Commercial 
Operation Date to mean the date on which the Interconnection Customer 
begins Commercial Operation of the Generating Facility after Trial 
Operation of such unit has been completed. The Interconnection Customer 
notifies the Transmission Provider of this event using a form provided 
in the LGIA.
Rehearing Request
    63. Central Maine \20\ notes that ``commercial operation'' is 
itself undefined. It proposes that Commercial Operation Date should be 
defined as the date on which dispatch of the Generating Facility is 
turned over to the Control Area.
---------------------------------------------------------------------------

    \20\ Petitioner acronyms are defined in Appendix A.
---------------------------------------------------------------------------

Commission Conclusion
    64. We reject Central Maine's proposed definition because the 
Interconnection Customer will not always turn over the Generating 
Facility to the Control Area for dispatch.
    65. Since the definition of Commercial Operation Date includes the 
term ``commercial operation,'' it is necessary to define the latter. 
Therefore, we are adding ``Commercial Operation'' to the list of LGIP 
and LGIA definitions and are defining it as follows: ``Commercial 
Operation shall mean the status of a Generating Facility that has 
commenced generating electricity for sale, excluding electricity 
generated during Trial Operation.''
    66. Control Area--The LGIP and LGIA define Control Area to 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. Order No. 2003 states that 
the Control Area is to be certified by the North American Electric 
Reliability Council (NERC).
Rehearing Request
    67. Duke Energy notes that the Applicable Reliability Council 
certifies a Control Area, not NERC, and asks that the definition be so 
revised.
Commission Conclusion
    68. We agree with Duke Energy and revise the definition of Control 
Area.
    69. Network Resource--The LGIP and LGIA define Network Resource to 
mean that portion of a Generating Facility that is (1) integrated with 
the Transmission Provider's Transmission System, (2) designated as a 
Network Resource under the terms of the OATT, and (3) subject to 
redispatch directives as ordered by the Transmission Provider under the 
OATT.
Rehearing Request
    70. APS states that the term Network Resource is already defined in 
the OATT and that the term should have a consistent definition in the 
LGIP, LGIA, and OATT.
Commission Conclusion
    71. We agree with APS and adopt the OATT's definition of Network 
Resource in the LGIP and LGIA.
    72. Network Upgrades--The LGIP and LGIA define Network Upgrades to 
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.
Rehearing Requests
    73. Reliant argues that the Commission should clarify that the 
Transmission Provider can own transmission facilities on the 
generator's side of the Point of Interconnection. According to Reliant, 
this is important because some Transmission Providers may attempt to 
confuse the Commission's definitions of Network Upgrades and 
Transmission Provider's Interconnection Facilities.
    74. EEI seeks clarification that ``Network Upgrades occur at or 
beyond the Point of Interconnection, that is, where the Interconnection 
Facilities (including the Transmission Provider's Interconnection 
Facilities) connect to the Transmission System--not where the 
Interconnection Customer interconnects to the Transmission System.''
    75. NRECA-APPA asks the Commission to clarify that improvements to 
radial lines that serve Network Load, whether through Transmission 
Service or Interconnection Service, are Network Upgrades.
Commission Conclusion
    76. We agree that using the phrase ``at or beyond the point at 
which the Interconnection Customer interconnects to the Transmission 
Provider's Transmission System'' in the definition of Network Upgrades 
could cause confusion. Therefore, we are revising this part of the 
definition to be ``at or beyond the point at which the Interconnection 
Facilities connect to the Transmission Provider's Transmission 
System.'' We also note that the Transmission Provider's

[[Page 15938]]

Interconnection Facilities are direct assignment facilities owned by 
the Transmission Provider on the Interconnection Customer's side of the 
Point of Interconnection whereas the Transmission Provider's 
Transmission System consists of facilities at or beyond the Point of 
Interconnection. These changes resolve the concerns raised by Reliant 
and EEI.\21\
---------------------------------------------------------------------------

    \21\ The revised definition reads as follows: ``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 Facilities connect to the 
Transmission Provider's Transmission System to accommodate the 
interconnection of the Large Generating Facility to the Transmission 
Provider's Transmission System.''
---------------------------------------------------------------------------

    77. NRECA-APPA has not provided any rationale for treating 
improvements to radial lines that serve Network Load as Network 
Upgrades in this rulemaking proceeding. Accordingly, we deny its 
request.
    78. Point of Receipt--Point of receipt is used in LGIA Article 4.3 
in the context of the Generator Balancing Service Agreement that 
requires the Interconnection Customer to identify the Generating 
Facility as the point of receipt for any delivery service. The LGIP and 
LGIA do not define point of receipt.
Rehearing Request
    79. APS claims that LGIA Article 4.3 capitalizes the term ``point 
of receipt,'' implying that it is defined, when in fact it is not. APS 
seeks clarification that the OATT definition for this term is the 
intended definition.
Commission Conclusion
    80. Since the term is used only once in the LGIA, in Article 4.3, 
and we are deleting that article (see discussion in section II.D.2 
(Interconnection Pricing Policy), the issue is moot.
    81. Reasonable Efforts--The LGIP and LGIA define Reasonable Efforts 
(with respect to an action required to be attempted or taken by a Party 
under the interconnection agreement) as 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.
Rehearing Requests
    82. NYTO and National Grid argue that the ``substantially 
equivalent'' standard does not recognize that the Transmission 
Provider's fiduciary responsibility is to its shareholders and 
customers, and that it cannot be expected to apply the same standard to 
another Party's interests. National Grid asks that the definition 
incorporate ``due diligence'' rather than ``substantially equivalent 
efforts.''
Commission Conclusion
    83. We affirm our decision in Order No. 2003 that ``substantially 
equivalent'' is the correct standard since it ensures comparable 
treatment for all.\22\ It is a fundamental requirement of FPA Sections 
205 and 206 that a public utility provide comparable service to non-
Affiliates, and we do indeed expect it to provide this service.
---------------------------------------------------------------------------

    \22\ Order No. 2003 at P 68.
---------------------------------------------------------------------------

    84. Transmission Provider and Transmission Owner--The LGIP and LGIA 
define Transmission Provider to mean the public utility (or its 
designated agent) that owns, controls, or operates facilities used for 
the transmission of electricity in interstate commerce and provides 
Transmission Service under the OATT. The term includes the Transmission 
Owner when it is distinct from the Transmission Provider. The LGIP and 
LGIA define Transmission Owner to mean the entity that owns, leases, or 
otherwise possesses an interest in the portion of the Transmission 
System at the Point of Interconnection.
Rehearing Requests
    85. EEI seeks clarification as to whether both the Transmission 
Provider and the Transmission Owner must make a compliance filing when 
the former is an RTO or ISO. It argues that there may be instances when 
the interests of the Transmission Owner and Transmission Provider 
diverge.
    86. MSAT argues that the Commission's definitions of Transmission 
Owner and Transmission Provider will cause uncertainty as to which 
Party has the duty to fulfill the contractual obligations in the 
interconnection agreement. This could lead to disputes during the 
construction of Interconnection Facilities. MSAT asserts that in the 
context of an RTO or ISO, every use of the term ``Transmission 
Provider'' in the LGIP and LGIA requires a determination as to whether 
the provision applies to the RTO or ISO, the Transmission Owner, or to 
both. It also argues that even LGIP and LGIA provisions that use both 
terms are confusing. It is not clear how the provision is to be applied 
to each entity because the Commission has not clearly distinguished the 
rights and responsibilities of the Transmission Provider and 
Transmission Owner. MSAT urges the Commission to adopt an LGIP and LGIA 
tailored specifically for RTOs and ISOs or, at a minimum, to clearly 
distinguish the rights and responsibilities of the Transmission 
Provider and Transmission Owner in the context of an RTO or ISO. It 
argues for the former because the latter would require that the term 
``Transmission Owner'' not be subsumed within the definition of the 
term ``Transmission Provider,'' necessitating numerous revisions to the 
LGIP and LGIA.
Commission Conclusion
    87. With respect to concerns raised about the rights and 
responsibilities of the Transmission Provider and Transmission Owner 
not being spelled out in the LGIA, the independent entity variation 
gives RTOs and ISOs broad discretion in the final design of their LGIP 
and LGIA, and we encourage each RTO or ISO to spell out such rights and 
responsibilities in its compliance filing.
    88. We are addressing in section I.B (Compliance Issues and 
Variations From the Pro Forma LGIP and LGIA) the issue of whether both 
the Transmission Provider and the Transmission Owner must submit a 
compliance filing when the two entities are separate and their 
interests diverge.

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

    89. Section 2.3--Base Case Data--LGIP section 2.3 provides that the 
Transmission Provider shall make available (1) base power flow, (2) 
short circuit and stability databases (including all underlying 
assumptions), and (3) a listing of contingency operations used in the 
Interconnection Studies upon request (subject to confidentiality 
provisions). Such databases and lists, referred to as Base Cases, 
include all generation projects and 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.
Rehearing Requests
    90. Cinergy, MSAT, National Grid, and NYTO state that Base Case 
information may include Critical Energy Infrastructure Information. 
Notwithstanding the LGIP and LGIA provisions for the handling of 
Confidential Information, they argue that the scope of the data to be 
provided to the Interconnection Customer is overbroad, exposes the 
Transmission Provider to an inordinate risk of liability, and is 
inconsistent with its responsibilities under various Commission rules, 
including Order Nos. 889 and 630. They argue that the requirement to 
disclose Base Case data

[[Page 15939]]

is inconsistent with LGIP section 13.1 and LGIA Article 22, both of 
which require that significant amounts of data concerning individual 
Interconnection Customers remain confidential and not be disclosed to 
other Interconnection Customers.
    91. National Grid states that the data used in Interconnection 
Studies typically is made up of commercially sensitive information and 
that project developers have legitimate commercial reasons to avoid 
revealing specific operating characteristics of their equipment. The 
Commission itself has made clear recently that certain power flow data 
(the same data underlying short circuit calculations) routinely 
provided in Form 715 is Critical Energy Infrastructure Information and 
must be redacted from public versions of Form 715. National Grid argues 
that the confidentiality provisions in the LGIP and LGIA may not 
provide adequate protection for such sensitive data.
Commission Conclusion
    92. As the Commission noted in Order No. 2003 \23\ and we emphasize 
here, the security of energy infrastructure information is essential. 
We expect all Transmission Providers, market participants, and 
Interconnection Customers to comply with the recommendations of the 
National Infrastructure Protection Center, as well as any best practice 
recommendations or requirements that may be issued by NERC or any other 
electric reliability authority. In particular, the Transmission 
Provider is expected to meet basic standards for system infrastructure 
and operational security, including physical, operational, and cyber-
security practices. If the Transmission Provider considers it necessary 
to protect commercially sensitive information or the energy 
infrastructure, it may require that the Interconnection Customer sign a 
confidentiality agreement before the release of commercially sensitive 
or Critical Energy Infrastructure Information contained in the Base 
Case data. However, all Transmission Providers are put on notice that 
they are not to abuse this privilege in an effort to withhold 
information that lacks legitimate commercial sensitivity or Critical 
Energy Infrastructure Information status.
---------------------------------------------------------------------------

    \23\ Order No. 2003 at P 84.
---------------------------------------------------------------------------

    93. Section 3.1--Interconnection Requests--General--LGIP section 
3.1 allows the Transmission Provider and the Interconnection Customer 
to identify an alternative Point of Interconnection at the Scoping 
Meeting. It further states that the Interconnection Customer will 
select the Interconnection Point(s) to be studied no later than the 
time of execution of the Interconnection Feasibility Study Agreement.
Rehearing Requests
    94. AEP argues that the Transmission Provider, who has ultimate 
responsibility for its Transmission System, must have the final say as 
to the details and configuration of the interconnection (e.g., location 
of the Point of Interconnection).
    95. Old Dominion argues that the LGIP gives the Interconnection 
Customer too much discretion in terms of where and how to interconnect 
with the Transmission Provider's Transmission System. The Commission 
should require RTOs to conduct forward-looking Transmission System 
planning studies to formulate strong regional Transmission System 
expansion plans, which would influence the Interconnection Customer's 
decisions as to where and how to interconnect.
Commission Conclusion
    96. We provide the following clarification. The Interconnection 
Customer will select alternative Points of Interconnection to be 
evaluated in the Interconnection Feasibility Study. Based upon the 
results of that study, the Interconnection Customer, in consultation 
with the Transmission Provider, shall select the Point of 
Interconnection. In the process of conducting the Interconnection 
System Impact Study and the Interconnection Facilities Study, the 
Transmission Provider will develop the engineering design and 
electrical configuration of the interconnection. Before completing the 
Interconnection Facilities Study, the Interconnection Customer may 
request changes in the engineering design details of the 
interconnection (per LGIP sections 8.3 and 8.4), but not the location 
of the Point of Interconnection. No change to the LGIP is needed to 
reflect this clarification.
    97. Regarding Old Dominion's argument, we note that the Commission 
encourages RTOs to conduct forward-looking Transmission System planning 
studies to formulate strong regional Transmission System growth plans 
that will inform the Interconnection Customer's decision as to where 
and how to interconnect. However, we will not take away any options 
available to the Interconnection Customer under the LGIP to select the 
Interconnection Points to be studied in the Interconnection Feasibility 
Study.
    98. Section 3.3.1--Initiating an Interconnection Request--LGIP 
section 3.3.1 provides that the date the Interconnection Request is 
received by the Transmission Provider may precede the Generating 
Facility's In-Service Date by up to ten years, or longer where the 
Parties agree, such agreement not to be unreasonably withheld.
Rehearing Request
    99. NYTO states that the ten year provision is unreasonably long. 
It argues that most new generators can be built in three to four years. 
It proposes that section 3.3.1 be amended to impose a limit of five 
years with an additional extension of up to two years for project 
delays.
Commission Conclusion
    100. We decline to adopt NYTO's proposal. We recognize that the use 
of a ten year limit is a matter of judgment and that no specific number 
can be objectively verified as the best. However, the ten year 
provision was originally developed by negotiation during the Advance 
Notice of Proposed Rulemaking (ANOPR) process by representatives of the 
Interconnection Customer and Transmission Provider communities. Order 
No. 2003 noted that proponents of large coal fired generators and wind 
powered generators have argued that this period should be longer than 
ten years, not shorter.\24\ We continue to believe that the choice of 
ten years fairly balances the advantages for some plant types of a 
longer period and the advantages for the Transmission Provider's 
limiting the time for completing an interconnection. Finally, NYTO has 
not demonstrated objectively that five years is a more appropriate time 
period or that ten years creates a problem for the Transmission 
Provider.
---------------------------------------------------------------------------

    \24\ Order No. 2003 at P 99.
---------------------------------------------------------------------------

    101. Section 3.3.4--Scoping Meeting--LGIP section 3.3.4 requires 
the Transmission Provider and the Interconnection Customer to hold a 
Scoping Meeting within 30 Calendar Days from receipt of the 
Interconnection Request to discuss the proposed interconnection, 
including (1) general facility loadings, (2) general instability 
issues, (3) general short circuit issues, (4) general voltage issues, 
(5) general reliability issues and (6) alternate Points of 
Interconnection.
Rehearing Request
    102. Entergy asks that the Commission clarify whether the 
Transmission Provider would violate the Commission's Standards of 
Conduct or Code of Conduct if it shares technical

[[Page 15940]]

information concerning its Transmission System with an Interconnection 
Customer which is an Affiliate.
Commission Conclusion
    103. Both the Commission's Standards of Conduct and Code of Conduct 
prohibit the preferential sharing of information between the 
Transmission Provider and its Affiliate. The Standards of Conduct were 
enacted in 1996 \25\ and revised in 2003.\26\ The Standards of Conduct 
require that if the Transmission Provider discloses transmission or 
market information to its wholesale merchant function or power 
marketing Affiliate, it must also disclose such information 
simultaneously to the public.\27\
---------------------------------------------------------------------------

    \25\ Open Access Same-Time Information System (Formerly Real-
Time Information Network) and Standards of Conduct, Order No. 889, 
61 FR 21737 (May 10, 1996), FERC Stats. & Regs., Regulations 
Preambles 1991-1996 ] 31,035 (Apr. 24, 1996); Order No. 889-A, order 
on reh'g, 62 FR 12484 (Mar. 14, 1997), FERC Stats. & Regs., 
Regulations Preambles 1996-2000 ] 31,049 (Mar. 4, 1997); Order No. 
889-B, reh'g denied, 62 FR 64715 (Dec. 9, 1997), FERC Stats. & 
Regs., Regulations Preambles 1996-2000 ] 31,253 (Nov. 25, 1997).
    \26\ Standards of Conduct for Transmission Providers, Order No. 
2004, 68 FR 69134 (Dec. 11, 2003), FERC Stats. & Regs. Vol. III, 
Regulations Preambles ] 31,155 (Nov. 25, 2003), reh'g pending.
    \27\ See 18 CFR 37.4(3) and (4) 2003 and section 358.5 (not yet 
codified).
---------------------------------------------------------------------------

    104. In contrast, the Code of Conduct is imposed on a case-by-case 
basis when the Commission grants market-based rate authorization. 
Generally, the Code of Conduct contains a provision that all market 
information shared between the public utility (i.e., Transmission 
Provider) and the Affiliate is to be disclosed simultaneously to the 
public.\28\
---------------------------------------------------------------------------

    \28\ See Northeast Utilities Service Company, 87 FERC ] 61,063 
at 61,276 (1999).
---------------------------------------------------------------------------

    105. In Order No. 2004, the Commission granted an exception to the 
information-sharing prohibitions of Section 358.5(b)(1) of the 
Commission's Regulations, which implements the Standards of Conduct. 
Section 358.5(b)(5) allows the Transmission Provider to share 
information with its Affiliate relating to its Transmission System 
without contemporaneously releasing that information to the public as 
long as the information relates solely to a specific request for 
Transmission Service.\29\ Order No. 2004 defines Transmission Service 
to include Interconnection Service.\30\ This addresses Entergy's 
concern about violating the Standards of Conduct when it holds a 
Scoping Meeting with an Affiliate.
---------------------------------------------------------------------------

    \29\ Order No. 2004 at P 143.
    \30\ 18 CFR 358.3--Definitions.
---------------------------------------------------------------------------

    106. With respect to Entergy's request for clarification concerning 
the Commission's Code of Conduct requirements, the Code of Conduct 
requires that all market information shared between the Transmission 
Provider and the Affiliate be disclosed simultaneously to the public. 
This includes any communication concerning the Transmission Provider's 
power or transmission business, present or future, positive or 
negative, concrete or potential.
    107. To balance the need to treat affiliated and non-affiliated 
Interconnection Customers alike, adhere to the intent of the Code of 
Conduct and Standards of Conduct, and ensure that Critical Energy 
Infrastructure Information is not released to the public, we are 
adopting an approach here that is similar to the one taken in Order No. 
2004. We will allow the Transmission Provider to share technical 
information related to its Transmission System with an Affiliate 
without having to simultaneously release the information to the public 
as long as the information relates solely to a valid request for 
Interconnection Service.\31\ In addition, we will require the following 
additional safeguards: The Transmission Provider must (1) post an 
advance notice to the public on its OASIS of its intent to conduct a 
Scoping Meeting with its Affiliate, (2) transcribe the meeting in its 
entirety, and (3) retain the transcript for three years. When a request 
from a member of the public is made for the release of the transcript, 
the Transmission Provider shall release the transcript in its entirety 
to the requester if the Transmission Provider determines that it 
contains no Critical Energy Infrastructure Information or commercially 
sensitive information of the Affiliate that would competitively 
disadvantage the Affiliate. However, if the Transmission Provider 
believes that the transcript contains such information, the 
Transmission Provider must release a redacted copy of the transcript to 
the requester along with an explanation for the redactions (such as 
Critical Energy Infrastructure Information). If the requester believes 
that the Transmission Provider has withheld information 
inappropriately, it may file a complaint with the Commission, along 
with a notice to the Transmission Provider. Upon receipt of the notice, 
the Transmission Provider will file both unredacted and redacted copies 
of the transcript with the Commission, including a written 
justification to explain the redactions. The redacted copy will be 
available to the public; the unredacted copy will remain confidential 
unless and until the Commission decides otherwise. The Commission will 
decide the appropriateness of the redactions and, once a decision is 
made, direct the Transmission Provider to take any necessary action.
---------------------------------------------------------------------------

    \31\ We will deem the Code of Conduct amended to include this 
exception.
---------------------------------------------------------------------------

    108. Section 3.5--Coordination with Affected Systems--LGIP section 
3.5 requires the Transmission Provider to coordinate Interconnection 
Studies and planning meetings with Affected Systems.
Rehearing Requests
    109. National Grid seeks clarification that the Transmission 
Provider does not have to proceed with an interconnection if an 
Affected System does not cooperate in performing the Interconnection 
Studies in a timely manner, or if the Transmission Provider believes 
that proceeding with the interconnection could lead to reliability or 
other problems. Similarly, NYTO asks that the Commission give the 
Transmission Provider extra time to complete Interconnection Studies 
when it is necessary to evaluate the proposed interconnection's effect 
on Affected Systems.
    110. NYTO also asks that section 3.5 be amended to include the 
following sentence from P 121of Order No. 2003: ``Neither the LGIP nor 
the LGIA is intended to expose the Transmission Provider to liability 
as a result of delays by the Affected System.'' Similarly, PacifiCorp 
points out that the Transmission Provider may not be able to obtain 
sufficient cooperation from non-FERC jurisdictional entities to conduct 
Interconnection Studies in a timely manner. Since obtaining such 
cooperation may take time, the Transmission Provider should be held 
harmless for any resulting delays in the Interconnection Study process. 
PacifiCorp also asks that the Commission clarify that the Transmission 
Provider is required only to make a good faith effort to coordinate its 
Interconnection Studies with Affected Systems.
    111. According to PacifiCorp, the Commission should specify that 
the Transmission Provider is not responsible for any Breach of 
confidentiality by an Affected System or its representatives and that 
the Transmission Provider's obligation should be limited to informing 
the Affected System of the Commission's confidentiality procedures.

[[Page 15941]]

    112. APS asks the Commission to clarify that any study of the 
effect of the proposed interconnection on an Affected System conducted 
by the Transmission Provider be included in the results of the 
Interconnection Studies. Section 3.5 currently provides that such 
results will be provided ``if possible.'' \32\
---------------------------------------------------------------------------

    \32\ NRECA-APPA, NYTO, and PacifiCorp request rehearing on the 
Commission's pricing policy for Network Upgrades on Affected 
Systems. These requests are addressed in section II.D.2 
(Interconnection Pricing Policy).
---------------------------------------------------------------------------

Commission Conclusion
    113. In response to reliability concerns, we reiterate that 
Interconnection Service is separate from the delivery component of 
Transmission Service and that the mere interconnection of the 
Generating Facility is unlikely to harm reliability on Affected 
Systems.\33\ Also, the Transmission Provider must take the same steps 
to integrate the Interconnection Customer's Generating Facility into 
its Transmission System--including coordinating the interconnection 
with Affected Systems--that it would take for its own affiliated 
generation.
---------------------------------------------------------------------------

    \33\ See Tennessee Power Company, 90 FERC ] 61,238 at 61,761-62 
and n.5, order denying reh'g, 91 FERC ] 61,271 (2000); accord, 
Arizona Public Service Company, 96 FERC ] 61,055 at 61,165 (2001).
---------------------------------------------------------------------------

    114. With regard to concerns over timing, we clarify that delays by 
an Affected System in performing Interconnection Studies or providing 
information for such studies is not an acceptable reason to deviate 
from the timetables established in Order No. 2003 unless the 
interconnection itself (as distinct from any future delivery service) 
will endanger reliability. The Transmission Provider may not use third 
party actions or inactions as an excuse for not proceeding with the 
design, procurement, and construction of Interconnection Facilities and 
any necessary upgrades. We clarify, however, that the Transmission 
Provider must act under Applicable Reliability Standards even if such 
standards require that it keep a circuit to an interconnecting 
Generating Facility open.\34\
---------------------------------------------------------------------------

    \34\ See Tampa Electric Co., 103 FERC ] 61,047 (2003).
---------------------------------------------------------------------------

    115. In response to APS, we are revising section 3.5 to require 
that the results of any study of the effect of the interconnection on 
any Affected System be included in the Interconnection Study ``if 
available.'' The ``if available'' phrase is appropriate because it 
recognizes that studies of the Affected System may not be completed 
within the time specified in the LGIP. This language allows the 
interconnection process to proceed, even in the face of delays or non-
response by the Affected System.
    116. We deny NYTO's request that the text it quotes from Order No. 
2003 be added to section 3.5. However, we clarify that the sentence 
refers to the possibility of liquidated damages being imposed on the 
Transmission Provider because of delays caused by third parties. It 
should not be interpreted as shielding the Transmission Provider from 
any non-liquidated damages liability that may result from the 
interconnection. This is in accord with the liquidated damages 
provisions of the LGIA.
    117. Regarding the confidentiality concerns raised by PacifiCorp, 
we reiterate that the confidentiality provisions in LGIA Article 22 and 
LGIP Section 13 lay out the standards that the Transmission Provider 
must employ when sharing Confidential Information with third parties, 
including Affected Systems.
    118. Section 4.1--Queue Position--General--LGIP section 4.1 states 
that Queue Position determines the order of performing the 
Interconnection Studies and hence will determine cost responsibility 
for the facilities necessary to accommodate the Interconnection 
Request.
Rehearing Request
    119. APS seeks guidance on upgrade cost allocation among 
Interconnection Customers and whether Queue Position must always be the 
determining factor for cost allocation among clustered requests. If the 
Transmission Provider uses clustering for studying Interconnection 
Requests, it can study the joint effect of several generators 
interconnecting to the Transmission System. APS believes that such a 
study also will indicate the effect of each Generating Facility 
separately on the Transmission System. Therefore, the Transmission 
Provider will have many factors to consider for cost allocation among 
the generating facilities, including unit size and contribution to the 
faults on the existing transmission facilities.
Commission Conclusion
    120. We agree with APS and clarify that these additional factors 
may be considered in the allocation of costs to multiple 
Interconnection Customers when studied in a cluster. We also reiterate 
that we strongly encourage the use of clustering. 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. Sometimes, one 
generating facility interconnecting alone would not require a 
substantial upgrade to the Transmission System, but when clustered with 
others, a costly upgrade may be required. We clarify that the 
Transmission Provider may allocate the cost of the common upgrades for 
clustered Interconnection Requests and that Queue Position has no 
bearing on cost allocation for clustered Interconnection Requests.
    121. Section 4.3--Transferability of Queue Position--LGIP section 
4.3 provides that the Interconnection Customer may transfer its Queue 
Position to another entity only if the latter acquires the specific 
Generating Facility identified in the Interconnection Request and there 
is no change in the proposed Point of Interconnection.
Rehearing Requests
    122. NYTO and National Grid ask the Commission to amend Section 4.3 
to allow the Transmission Provider to use mitigation measures to offset 
the credit risk that can occur when a Queue Position is transferred 
from one Interconnection Customer to another. They argue that the 
acquiring Interconnection Customer must meet the same letters of credit 
requirements as the original Interconnection Customer.
Commission Conclusion
    123. NYTO and National Grid are not correct that a transfer in 
Queue Position will result in a greater credit risk for the 
Transmission Provider. There are no provisions in the LGIP which 
require the Interconnection Customer to provide the Transmission 
Provider with letters of credit or other financial guarantees. 
Construction of Network Upgrades, Interconnection Facilities, and 
Distribution Upgrades does not commence until the Parties sign the 
LGIA, which does require letters of credit or other financial 
guarantees. The LGIP requires the Transmission Provider to bill the 
Interconnection Customer monthly for the cost of the Interconnection 
Facilities Study, thus minimizing the risk that the Transmission 
Provider will be unable to recoup its costs from a non-creditworthy 
entity.
    124. Section 4.4--Queue Position--Modifications--LGIP section 4.4.1 
allows the Interconnection Customer to

[[Page 15942]]

make the following modifications to its Interconnection Request without 
losing its Queue Position, provided that it makes them before returning 
the executed Interconnection System Impact Study Agreement to the 
Transmission Provider: (1) A reduction of up to 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, and (3) 
modification of the interconnection configuration.
    125. Section 4.4.2 allows the Interconnection Customer to make the 
following modifications to its Interconnection Request provided that it 
makes them before it returns the executed Interconnection Facility 
Study Agreement to the Transmission Provider: (1) An additional 15 
percent decrease in the megawatt output of the Generating Facility as 
evaluated in the Interconnection System Impact Study, and (2) 
Generating Facility technical parameters associated with modifications 
to Generating Facility technology and transformer impedances. However, 
the incremental costs to the Transmission Provider associated with 
those modifications are the responsibility of the Interconnection 
Customer.
    126. Section 4.4.3 provides that any change to the Point of 
Interconnection is a Material Modification. A Material Modification is 
a change that increases the cost of or delays the schedule of a lower 
queued Interconnection Customer.
    127. Section 4.4.5 provides that extensions of less than three 
cumulative years in the Commercial Operation Date of the Generating 
Facility are not material and should be handled through construction 
sequencing.
Rehearing Requests
    128. Entergy and Southern argue that the modifications permitted 
under sections 4.4.1 and 4.4.2 could cause significant additional costs 
and delays for other Interconnection Customers. These provisions give 
the Interconnection Customer the ability to hold hostage the remainder 
of the interconnection queue by continually making modifications. 
Southern asserts that when the modifications are studied for a 
particular project, the lower queued Interconnection Requests will have 
to be restudied to identify any effects that the modification may have 
on them.
    129. AEP seeks clarification that any incremental costs associated 
with any ``actual'' change in plant size, not just those associated 
with the proposed changes, should also be directly assigned to the 
Interconnection Customer. For example, if the Interconnection Customer 
projects a 15 percent reduction in plant size, thus enabling it to 
maintain its position in the queue, but actually builds a much smaller 
plant, the InterconnectionCustomer should bear all of the costs 
associated with building Network Upgrades that turn out to be 
unnecessary as a result of the smaller-than-projected plant size.
    130. Duke Energy seeks clarification that, notwithstanding the 
sentence in section 4.4.3 stating that a change in Point of 
Interconnection shall constitute a Material Modification, a change in 
the Point of Interconnection acceptable under sections 4.4.1, 6.1, 7.2 
or any other provision of the LGIP that expressly allows for some minor 
change in the Point of Interconnection will not result in the loss of 
Queue Position.
    131. NYTO and Southern argue that the Commission should classify an 
extension of the Commercial Operation Date of the Generating Facility 
for three years as a Material Modification. They state that the 
Commission did not take into account the difficulties that may be 
encountered in the planning process. They argue that a generator should 
not be able to maintain its place in the interconnection process to the 
detriment of other generators for such an extended period of time.
Commission Conclusion
    132. We deny Entergy's and Southern's requests because many of the 
modifications permitted under section 4.4.1 take place before the 
Interconnection Customer submits an Interconnection System Impact Study 
Agreement, which is early in the study process, and many 
Interconnection Customers drop out after the Interconnection 
Feasibility Study. The need for restudies for lower queued generators 
would not be determined until the Interconnection System Impact Study 
is completed. Also, the cost of restudies should discourage the 
Interconnection Customer from making frivolous or excessive requests 
for modifications. Moreover, modifications permitted under section 
4.4.2 are much smaller than those under section 4.4.1.
    133. Regarding AEP's concerns, if the Interconnection Customer 
states that it will construct a significantly smaller facility than 
initially proposed, the size change is a Material Modification. The 
Interconnection Facilities Study would then have to be redone before 
construction and all cost effects, including the cost incurred for 
facilities that have become unnecessary due to the size reduction, will 
be the responsibility of the Interconnection Customer.
    134. With regard to NYTO's and Southern's concern about section 
4.4.5, we realize that permitting extensions for a cumulative period of 
three years places a burden on the Transmission Provider's expansion 
planning process, but as the Commission stated in Order No. 2003, these 
extensions in most cases are well within the scope of other unforeseen 
changes that affect the planning process.\35\ A planning process 
inevitably is affected by a variety of changes in circumstances. NYTO 
and Southern have not provided any new arguments to convince us to 
change our position.
---------------------------------------------------------------------------

    \35\ Order No. 2003 at P 177.
---------------------------------------------------------------------------

    135. We are adopting Duke Energy's proposal and are amending 
section 4.4.3 to clarify that, notwithstanding the wording elsewhere in 
that sentence, a change in the Point of Interconnection acceptable 
under sections 4.4.1, 6.1, 7.2 or any other provision of the LGIP that 
expressly allows for a change in the Point of Interconnection does not 
result in the loss of Queue Position.
    136. Section 5.1.1--Queue Position for Pending Requests--LGIP 
section 5.1.1.2 gives an Interconnection Customer with an executed 
Interconnection Study agreement as of the effective date of Order No. 
2003 the option of either completing further studies under the 
Transmission Provider's old procedures or switching to the LGIP for 
these studies. Section 5.1.1.3 provides that if an interconnection 
agreement has been submitted to the Commission for approval before the 
effective date of Order No. 2003, it is grandfathered.
Rehearing Requests
    137. Old Dominion requests clarification that existing, executed 
interconnection agreements must be honored (grandfathered).
    138. PacifiCorp states that the transition to the LGIP process 
should take place only after all Interconnection Studies are completed. 
If the Interconnection Customer elects to complete any Interconnection 
Studies under grandfathered procedures, then all the remaining studies 
should also be completed using grandfathered procedures.
Commission Conclusion
    139. We agree with Old Dominion's interpretation. LGIP section 
5.1.1.3 states that an interconnection agreement is grandfathered if it 
has been submitted

[[Page 15943]]

to the Commission before the effective date of the LGIP.
    140. We are denying PacifiCorp's request for rehearing. The only 
Interconnection Study completed during the transition period using the 
old interconnection procedures may be the Interconnection Feasibility 
Study. Forcing the Interconnection Customer to complete the remaining 
Interconnection System Impact Study and Interconnection Facilities 
Study under the old interconnection procedures could subject it to 
undue discrimination and discourage expeditious development of new 
generation (e.g., the Interconnection Customer under the old procedures 
would not have the more favorable opportunities that are provided by 
the pro forma LGIP).
    141. Section 5.2--Prior Interconnection Requests--New Transmission 
Provider--LGIP section 5.2 governs what happens if a Transmission 
Provider transfers control of its Transmission System to a successor 
Transmission Provider while an Interconnection Request is pending. The 
new Transmission Provider and the old Transmission Provider must 
coordinate their efforts to ensure completion of the interconnection in 
a timely manner. If the change of control takes place after the old 
Transmission Provider has tendered an unexecuted LGIA to the 
Interconnection Customer, the Interconnection Customer may complete 
negotiations with either the original Transmission Provider or the 
successor Transmission Provider.
Rehearing Request
    142. NYTO argues that once control transfers, the successor 
Transmission Provider is the only Party with whom the Interconnection 
Customer should negotiate an interconnection agreement.
Commission Conclusion
    143. We agree with NYTO and will grant rehearing on this issue. 
Allowing the Interconnection Customer to finalize negotiations with an 
entity that no longer has a stake in the negotiations would be unfair 
to the successor Transmission Provider. Once control passes to the 
successor Transmission Provider, any unexecuted interconnection 
agreements must be negotiated with it. Therefore, we modify the last 
sentence of section 5.2 to read: ``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 the Commission, any further 
negotiations must be conducted with the successor Transmission 
Provider.''
    144. We shall also require the two Transmission Providers to work 
together to ensure a smooth transition for pending Interconnection 
Requests by modifying the third sentence of section 5.2 to read: ``The 
original Transmission Provider shall coordinate with the successor 
Transmission Provider to complete any Interconnection Request 
(including Interconnection Studies), as appropriate, that the original 
Transmission Provider has begun but has not completed.''
    145. Section 6--Interconnection Feasibility Study, Section 7--
Interconnection System Impact Study, Section 8--Interconnection 
Facilities Study, and Section 10--Optional Interconnection Study--LGIP 
sections 6, 7, and 8 describe (1) the analyses to be conducted for each 
of the Interconnection Feasibility, Interconnection System Impact, and 
Interconnection Facilities Studies, (2) the Interconnection Customer's 
responsibility for the actual cost of each study and of any restudies 
that may be required, and (3) the right of the Interconnection Customer 
to maintain its Queue Position and substitute a Point of 
Interconnection, identified by either the Transmission Provider or the 
Interconnection Customer, if the Interconnection Studies yield a result 
that the Interconnection Customer and Transmission Provider did not 
contemplate during the Scoping Meeting. Section 10 provides that the 
Interconnection Customer may ask the Transmission Provider to perform a 
reasonable number of Optional Interconnection Studies. An Optional 
Interconnection Study is a sensitivity analysis based on assumptions 
provided by the Interconnection Customer. The purpose of the Optional 
Interconnection Study is to identify the Interconnection Facilities, 
Network Upgrades, and the costs that may be required to provide 
Transmission Service or Interconnection Service. Finally, although the 
Interconnection Customer pays the Transmission Provider various 
deposits prior to the latter performing the Interconnection 
Feasibility, System Impact, and Facilities Studies, the Interconnection 
Customer is responsible only for the actual cost of performing the 
studies.\36\
---------------------------------------------------------------------------

    \36\ See Article 6.0 of the pro forma Interconnection 
Feasibility Study Agreement, Article 6.0 of the Interconnection 
System Impact Study Agreement, and Article 5.0 of the 
Interconnection Facilities Study Agreement, all attached to the 
LGIP.
---------------------------------------------------------------------------

Rehearing Requests--General
    146. National Grid, NYTO, PacifiCorp, and Southern assert that the 
timelines prescribed in Order No. 2003 to conduct the Interconnection 
Studies will lead to poor quality studies and will require more 
personnel to perform the studies in a timely manner. PacifiCorp 
recommends that the Commission let the Transmission Provider adopt a 
longer timeline when the number of Interconnection Requests received 
exceeds what it can process using normal staffing levels. NYTO and 
Southern assert that the requirement for restudies is unrealistic 
because any restudy can either invalidate other Interconnection Studies 
or prompt lower queued Interconnection Customers to seek restudies of 
their projects.
    147. PacifiCorp notes that the capitalized and defined term 
``Generating Facilities'' rather than the generic term ``generating 
facilities'' is used in LGIP sections 6.2 and 7.3. It asserts that the 
term as used in the Interconnection Feasibility Study and 
Interconnection System Impact Study refers broadly to all the 
generating facilities with higher Queue Positions and not the narrowly 
defined ``Interconnection Customer's Generating Facility.'' The term 
``generating facilities'' is more appropriate as applied in LGIP 
sections 6.2 and 7.3.
    148. PacifiCorp seeks clarification as to whether the cost estimate 
provided in the Interconnection Study report includes the cost of 
Network Upgrades on Affected Systems.
    149. Central Maine claims that to perform the Interconnection 
Feasibility Study and the Interconnection System Impact Study 
adequately, the Transmission Provider will require the following from 
the Interconnection Customer: a one line relay diagram of the proposed 
Interconnection Facilities, a three line relay or AC elementary diagram 
of the proposed Interconnection Facilities, a DC elementary and control 
diagram for the proposed Interconnection Facilities, technical data on 
all circuit interrupting devices proposed for the Interconnection 
Facilities, technical data and winding connections for all instrument 
transformers proposed for the Interconnection Facilities, and proposed 
types and settings of all protective relays to be installed within the 
Interconnection Facilities.
Commission Conclusion--General
    150. We reaffirm that the timelines for the completion of the 
Interconnection Studies are reasonable. The LGIP

[[Page 15944]]

recognizes that the Transmission Provider may not be able to complete 
each study within the specified time.\37\ In such cases, the 
Interconnection Customer and the Transmission Provider will come to an 
acceptable accommodation. This gives the Transmission Provider 
flexibility when it needs it.
---------------------------------------------------------------------------

    \37\ See LGIP section 6.3 (Interconnection Feasibility Study 
Procedures), Section 7.4 (Interconnection System Impact Study 
Procedures), section 8.3 (Interconnection Facilities Study 
Procedures).
---------------------------------------------------------------------------

    151. We concur with PacifiCorp regarding the use of the term 
``generating facilities'' and are amending sections 6.2 and 7.3 to 
reflect the change.
    152. With regard to PacifiCorp's request for clarification, we 
conclude that it is unreasonable to expect the Transmission Provider to 
develop a cost estimate for Network Upgrades on an Affected System 
because the information required to develop the estimate is not readily 
available to the Transmission Provider. Accordingly, we deny 
PacifiCorp's request.
    153. Finally, we deny Central Maine's request to revise the LGIP to 
require the Interconnection Customer to provide, at the time of initial 
application for interconnection, relay and control diagrams, technical 
data on interrupting devices, data on instrument transformers, and 
types and settings of protective relays. This information relates 
mostly to System Protection Facilities, with requirements set forth in 
LGIA Articles 9.7.4 and 9.7.5. The specifications for System Protection 
Facilities are not established solely by the Interconnection Customer, 
but are determined during the Interconnection Studies, and would not 
necessarily be available at the time of application. For example, 
Article 9.7.4.2 states: ``Each Party's protection facilities shall be 
designed and coordinated with other systems in accordance with Good 
Utility Practice.''
Rehearing Requests--Interconnection Feasibility Study
    154. FPL Energy, PacifiCorp, and Southern ask that the Commission 
make the Interconnection Feasibility Study optional at the sole 
discretion of the Transmission Provider. FPL Energy asserts that in 
many cases the Transmission Provider already knows without additional 
study whether a particular project is feasible. Mandating this study in 
all circumstances increases costs both to the Transmission Provider and 
to the Interconnection Customer.
    155. APS seeks clarification whether an Interconnection Feasibility 
Study is always required. It notes that while the LGIP states at 
several places that the study is mandatory, the pro forma 
Interconnection System Impact Study Agreement includes a footnote that 
indicates that the Interconnection Customer can choose to forego the 
study.
    156. EEI seeks clarification whether it is possible to integrate 
the Interconnection Feasibility Study with the Interconnection System 
Impact Study because it believes that the two studies are similar.
    157. PacifiCorp asserts that Order No. 2003 is misleading where it 
states that the studies will include both higher and lower queued 
Interconnection Requests.\38\ It argues that inclusion of lower queued 
projects is neither contemplated by LGIP sections 6.2 and 7.3, nor is 
it logical, unless the study is a cluster study.
---------------------------------------------------------------------------

    \38\ Order No. 2003 at P 223.
---------------------------------------------------------------------------

    158. Ameren argues that the Interconnection Feasibility Study 
should include only those projects for which either an interconnection 
agreement or Engineering and Procurement Agreement has been signed. 
Otherwise, the studies will be meaningless and there will have to be a 
restudy every time a project drops out of the queue. Ameren claims that 
only 16 projects out of 130 it studied actually interconnected with its 
Transmission System.
Commission Conclusion--Interconnection Feasibility Study
    159. Because skipping the Interconnection Feasibility Study may 
expedite the interconnection process and lower costs for all Parties, 
we will make the study optional, provided that the Interconnection 
Customer and the Transmission Provider agree. In response to APS, we 
are revising the footnote on the Interconnection System Impact Study 
Agreement to state: ``This recital to be omitted if Transmission 
Provider does not require the Interconnection Feasibility Study.'' This 
also addresses EEI's concern about integrating the Interconnection 
Feasibility and Interconnection System Impact Studies. As to EEI's 
comment about the differences between the two studies, we note that the 
Interconnection System Impact Study is much more comprehensive than the 
Interconnection Feasibility Study. For example, the former includes 
stability analysis, whereas the latter does not.
    160. We clarify that lower queued generating projects are not to be 
included in the Interconnection Feasibility Study. However, if the 
Transmission Provider clusters the Interconnection Requests and an 
Interconnection System Impact Study is performed for the cluster, the 
study should include lower queued generating projects that are in the 
same cluster.
    161. We deny Ameren's request that the Interconnection Feasibility 
Study include only those generating projects for which either an 
interconnection agreement or an Engineering and Procurement Agreement 
has been signed. It would not be fair to require the Interconnection 
Customer to sign an interconnection agreement before the 
Interconnection Studies identify its requirements for Interconnection 
Facilities and Network Upgrades. We recognize that including all the 
higher queued projects will require a restudy when a higher queued 
projects drops out, but it is essential to include each higher queued 
project in the study because the Interconnection Studies will be 
meaningless if higher queued projects are not included.
    162. Ameren overstates the number of restudies required. Because 
many of the proposed projects drop out early in the process, e.g., 
after the Interconnection Feasibility Study, the number of restudies 
would be substantially less than Ameren suggests. Furthermore, since 
projects may be proposed in different geographical areas, the Network 
Upgrades associated with some projects may not be required for others, 
thus reducing the number of projects to be restudied.
Rehearing Requests--Interconnection System Impact Study
    163. NYTO asserts that the $50,000 and $100,000 deposits for the 
Interconnection System Impact Study and the Interconnection Facilities 
Study, respectively, are inadequate and that such low deposit amounts 
expose the Transmission Provider to the risk of non-payment by the 
Interconnection Customer. It claims that the Commission failed to take 
into account the fact that the studies may cost more than the deposit 
and that the Transmission Provider should be paid for assuming the risk 
of non-payment. It recommends that the Interconnection Customer pay an 
estimated monthly amount toward the cost of these studies and that the 
Transmission Provider hold such deposits until settlement of the final 
invoice. Finally, NYTO argues that non-payment for the Interconnection 
System Impact Study should lead to loss of Queue Position.
    164. National Grid asks the Commission to modify LGIP section 7.2 
to permit the Transmission Provider to require the Interconnection 
Customer to

[[Page 15945]]

deposit, on a monthly basis, the estimated cost of the Interconnection 
System Impact Study for the following month, with a true-up at the end 
of the study process. Failure to make monthly deposits would relieve 
the Transmission Provider of its obligation to continue with the study 
and the Interconnection Customer would lose its Queue Position.
Commission Conclusion--Interconnection System Impact Study
    165. With respect to NYTO's argument that the Interconnection 
Customer should deposit an estimated monthly cost so that the 
Transmission Provider can avoid any risk of non-payment, we note that 
LGIP Section 8.1.1 already provides for monthly payments of invoiced 
amounts for the Interconnection Facilities Study. We are not persuaded 
that a similar deposit is also warranted for the Interconnection System 
Impact Study because the deposit of $50,000 will cover its costs in 
most instances, and because the Interconnection Customer pays the 
actual final study cost when it is known, getting a refund of a portion 
of its deposit or paying the extra cost of the actual study. 
Furthermore, if the Transmission Provider uses clustering to perform 
the Interconnection System Impact Study, the cost of the study will be 
much lower, because the Transmission Provider will perform essentially 
one study for all Interconnection Requests that fall within the queue 
cluster window.
    166. With regard to National Grid's proposal that non-payment by 
the Interconnection Customer should relieve the Transmission Provider 
of its obligation to continue with the study, we note that LGIP section 
13.3 already so provides.
    167. Finally, in response to NYTO and National Grid, we note that 
LGIP section 3.6 already provides that failure to pay the study cost 
results in the loss of Queue Position.
Rehearing Requests--Interconnection Facilities Study
    168. APS seeks clarification that the monthly invoice referred to 
in section 8.1.1 is for the estimated cost of the study, and that a 
true-up would be performed using the actual expenses to prevent any 
overpayment by the Interconnection Customer or underrecovery by the 
Transmission Provider.
    169. National Grid urges the Commission to modify section 8.3 to 
prohibit any comments or questions from the Interconnection Customer 
when the study is in progress, since they would delay completion of the 
study and prejudice others in the interconnection queue.
    170. National Grid asks the Commission to delete from LGIP section 
8.3 the accuracy margins of +/-20 percent (for the 90 day 
Interconnection Facilities Study) and +/-10 percent (for the 180 day 
Interconnection Facilities Study) for cost estimates because of the 
multitude of factors that are outside the Transmission Provider's 
control. For example, the Transmission Provider does not have control 
over an equipment manufacturer. National Grid also argues that the 
Interconnection Customer cannot fairly assume that the costs will 
remain within the margin. Finally, National Grid argues that the 
accuracy margins serve no useful purpose and will cause disputes.
Commission Conclusion--Interconnection Facilities Study
    171. We clarify that the monthly invoice addressed in section 8.1.1 
is an estimate that would be trued-up against the final invoice.
    172. We decline to adopt National Grid's proposal that the 
Interconnection Customer be prohibited from posing questions and 
comments while the study is in progress. We expect the Parties to act 
reasonably and cooperatively while the study is in progress.
    173. Finally, we are not removing the accuracy margins for cost 
estimates. Margins are helpful because they give the Interconnection 
Customer some level of certainty with respect to its cost exposure. 
However, if factors outside the control of the Transmission Provider 
cause an estimate to change, and the Interconnection Customer disputes 
the change, the Parties may invoke Dispute Resolution.
Rehearing Requests--Optional Interconnection Study
    174. Entergy and Southern assert that multiple Optional 
Interconnection Studies will delay the interconnection process by tying 
up the Transmission Provider's resources. Southern argues that the 
Interconnection Customer can get Optional Interconnection Studies 
performed by its own contractor. At a minimum, the Transmission 
Provider should be allowed to charge market rates to price the studies 
so as to discourage the Interconnection Customer from using the 
Transmission Provider as a low-cost consultant.
Commission Conclusion--Optional Interconnection Study
    175. We will not limit the number of Optional Interconnection 
Studies because they may provide information useful to the 
Interconnection Customer. If performing Optional Interconnection 
Studies places too great a burden on the Transmission Provider, Order 
No. 2003 permits the use of a contractor at the Interconnection 
Customer's expense.\39\
---------------------------------------------------------------------------

    \39\ Order No. 2003 at P 225.
---------------------------------------------------------------------------

    176. Section 11.1--Tender--LGIP section 11.1 provides that when the 
Transmission Provider issues the draft Interconnection Facilities Study 
report, it shall tender to the Interconnection Customer a draft 
interconnection agreement and draft appendices completed to the extent 
practicable. Within 30 Calendar Days after the issuance of the draft 
Interconnection Facilities Study report, the Transmission Provider 
shall tender the completed draft appendices.
Rehearing Requests
    177. Several petitioners argue that these deadlines are too 
onerous. MSAT, National Grid, and NYTO argue that LGIP section 8.3 
(Interconnection Facilities Study Procedures) permits the 
Interconnection Customer to submit comments on the draft 
Interconnection Facilities Study report up to 30 days after receiving 
it and contemplates that additional studies and time may be required 
before a final Interconnection Facilities Study is issued. They argue 
that this results in the deadline for comments on the draft Facilities 
Study being the same day that the completed draft appendices are to be 
tendered. NYTO and National Grid request that the 30 day deadline be 
amended to reflect the possible delays associated with additional work 
prompted by comments from the Interconnection Customer. MSAT recommends 
that the Commission (1) retain the existing 30 day period for the 
Interconnection Customer to comment on the draft Interconnection 
Facilities Study report, (2) provide the Transmission Provider with 
another 30 day period after comments are submitted to tender completed 
draft appendices, and (3) give the Interconnection Customer an 
additional 30 days in which to execute and return the appendices.
Commission Conclusion
    178. We agree that the comments on the draft Interconnection 
Facilities Study report should not be due on the same day that 
completed draft appendices are tendered. We, therefore, retain the 
existing 30 day period for the Interconnection Customer to comment on 
the draft Interconnection Facilities Study report and grant an 
additional 30 days after comments are submitted to

[[Page 15946]]

tender the completed draft appendices. We will also give the 
Interconnection Customer an additional 30 days to execute and return 
the completed draft appendices.
    179. Section 12.2.3--Advancing Construction of Network Upgrades 
that are Part of an Expansion Plan of the Transmission Provider--LGIP 
section 12.2.3 permits the Interconnection Customer to ask the 
Transmission Provider to advance construction of Network Upgrades 
supporting other Interconnection Customers that were assumed to be 
completed in time to support the Interconnection Customer's Generating 
Facility's In-Service Date. The Interconnection Customer must pay for 
reasonable expediting costs, but is entitled to transmission credits 
for any such payments. The issues raised concerning LGIP section 12.2.3 
are discussed in section II.D.2 (Interconnection Pricing Policy).
    180. Section 13.1--Confidentiality--The issues raised concerning 
LGIP section 13.1 are discussed under LGIA Article 22 
(Confidentiality), below.
    181. Appendix 1--Interconnection Request--LGIP Appendix 1 is the 
application form for making an Interconnection Request by the 
Interconnection Customer. Attachment A to the Interconnection Request 
provides technical information pertaining to the Generating Facility 
and generator step-up transformer.
Rehearing Requests
    182. AEP states that page 4 of Appendix 1 of the Interconnection 
Request specifies that the Interconnection Customer must submit a 
completed General Electric Company Power Systems Load Flow data sheet 
with the Interconnection Request. It asks whether other formats are 
acceptable, since some Transmission Providers may not use the specified 
format.
    183. Central Maine and NYTO state that the Interconnection Request 
requires information about two-winding generator step-up transformers. 
They note that a generator step-up transformer may consist of more than 
two windings and request that the form be revised accordingly.
    184. PacifiCorp proposes various revisions to the Interconnection 
Request to help ensure that the Interconnection Customer does not 
mistakenly use this form for a generator that is not larger than 20 MW.
    185. PacifiCorp states that Item 3 of the Interconnection Request 
appears to offer the Interconnection Customer the opportunity to select 
either Energy Resource Interconnection Service or Network Resource 
Interconnection Service, or both. It argues that offering the 
Interconnection Customer the opportunity to select both services is a 
mistake.
Commission Conclusion
    186. We agree with AEP and are revising the Interconnection Request 
to state that the information may be submitted in other compatible 
formats, such as IEEE and PTI Power Flow formats.
    187. We also agree with Central Maine and NYTO that a generator 
step-up transformer may consist of more than two windings and that 
information pertaining to all windings should be provided. We are 
revising the Interconnection Request to reflect this.
    188. We are adopting the change proposed by PacifiCorp to clarify 
that the Interconnection Request is for a Large Generating Facility 
only.
    189. Finally, we are revising Item 3 to state more clearly that the 
Interconnection Customer must request either Energy Resource 
Interconnection Service or Network Resource Interconnection Service, 
but not both. We are also revising Item 4 to make clear that the 
Interconnection Customer has an additional option. Specifically, if the 
Interconnection Customer requests Network Resource Interconnection 
Service, it may request that the Generating Facility also be studied 
for Energy Resource Interconnection Service.

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

    190. Article 2.2--Term of Agreement--LGIA Article 2.2 provides that 
the interconnection agreement will be in effect for ten years, or 
longer by request, and will be automatically renewed for each 
successive one year period thereafter, until either Party terminates 
it.
Rehearing Request
    191. NYTO asserts that this provision does not recognize the 
potential for substantial changes in the regulatory and business 
environments over such an indefinite period. These provisions 
unreasonably require the Transmission Owner to have an unlimited 
obligation to provide Interconnection Service for a term that could be 
terminated by the Interconnection Customer upon 90 Calendar Days 
notice, or extended ad infinitum. Article 2.2 should provide that the 
interconnection agreement is limited to ten years, or longer only if 
the Parties mutually agree to such an extended term.
Commission Conclusion
    192. Order No. 2003 addresses this issue. NYTO raises no new 
arguments on rehearing and we reaffirm the decision for the same 
reasons.\40\
---------------------------------------------------------------------------

    \40\ Order No. 2003 at PP 302-304.
---------------------------------------------------------------------------

    193. Article 2.3.1--Written Notice--LGIA Article 2.3.1 provides 
that the Interconnection Customer may terminate the interconnection 
agreement after giving the Transmission Provider 90 Calendar Days 
advance written notice.
Rehearing Requests
    194. Cinergy objects to the fact that the Transmission Provider has 
no way to terminate unless the Interconnection Customer Defaults. 
Allowing the Interconnection Customer to terminate on only 90 days 
notice allows the interconnection agreement to continue in perpetuity, 
even following permanent closure of the Generating Facility, unless the 
Transmission Provider can create some sort of Default by the 
Interconnection Customer. This leaves the Transmission Provider with 
unnecessary reporting and other requirements. To provide closure to the 
interconnection agreement, the Transmission Provider should be 
permitted to file a notice of termination with the Commission if the 
Generating Facility permanently ceases Commercial Operation.
    195. APS states that Article 2.3.1 does not offer comparable 
treatment to the Transmission Provider and the Interconnection 
Customer. It contends that the Commission provided no justification for 
the inequitable treatment except to vaguely assert that such treatment 
is necessary to limit the Transmission Provider's market power.
    196. APS further states that while the Commission justified the ten 
year term for the interconnection agreement as being necessary to make 
the agreement consistent with Internal Revenue Service (IRS) policy, 
Article 2.3.1 allows the Interconnection Customer to terminate the 
interconnection agreement after giving the Transmission Provider 90 
Calendar Days advance written notice. It notes that the IRS safe harbor 
provisions (IRS Notices 88-129 and 2001-82) require that the 
interconnection agreement term be no less than ten years. The 90 day 
termination clause may violate the long-term agreement requirements set 
forth in the IRS Notices and is inconsistent with the term of agreement 
justification for Article 2.2, which refers to the IRS policy. Thus, 
the provision makes the IRS safe harbor ineffective protection.

[[Page 15947]]

Commission Conclusion
    197. We agree with Cinergy and APS that the Interconnection 
Customer and the Transmission Provider should have comparable treatment 
for terminating the interconnection agreement after the Generating 
Facility permanently ceases operation. We find that allowing the 
Transmission Provider to terminate the interconnection agreement upon 
permanent closure of the Generating Facility is reasonable because it 
prevents the interconnection agreement from continuing in perpetuity. 
We are revising Article 2.3.1 accordingly.
    198. We disagree with APS that the 90 day termination clause may 
violate the long-term agreement requirement of the IRS Notices. This 
issue is addressed in Order No. 2003,\41\ and since no new arguments 
are raised on rehearing, we will not change our decision.
---------------------------------------------------------------------------

    \41\ Order No. 2003 at P 426.
---------------------------------------------------------------------------

    199. Article 2.3.2--Default--LGIA Article 2.3.2 provides that 
either Party may terminate the interconnection agreement under LGIA 
Article 17.
Rehearing Requests
    200. APS seeks clarification that no notice of termination needs to 
be filed when the interconnection agreement has not been filed with the 
Commission because it was treated as a conforming agreement.
Commission Conclusion
    201. Under Order No. 2001,\42\ if a conforming LGIA is executed by 
the Parties, it need not be filed with the Commission if the public 
utility has a standard form of agreement on file and submits an 
Electronic Quarterly Report. Order No. 2001 also eliminated the 
requirement that parties to a conforming agreement that expires by its 
own terms file a notice of cancellation or a cancelled tariff sheet. In 
such cases, the public utility may simply remove the agreement from its 
Electric Quarterly Report in the quarter following the expiration of 
the LGIA. However any other modification to a conforming agreement 
(including terminations caused by something other than expiration of 
the agreement) must be submitted to the Commission unless the 
Interconnection Customer agrees to the modification.\43\
---------------------------------------------------------------------------

    \42\ Revised Public Utility Filing Requirements, Order No. 2001, 
67 FR 31044 (Jul. 8, 2002), FERC Stats. & Regs. ] 31,127 (2002).
    \43\ Id. at P 249 (``All proposals to change the terms of an 
agreement without the consent of the customer must be filed with the 
Commission.'').
---------------------------------------------------------------------------

    202. Article 2.4--Termination Costs--LGIA Article 2.4 requires that 
a Party terminating the interconnection agreement pay for all costs 
incurred by the other Party (including costs of canceling orders or 
contracts for Interconnection Facilities and equipment).
Rehearing Requests
    203. Central Maine and NYTO seek clarification that, if the 
Transmission Owner or Transmission Provider terminates an 
interconnection agreement because the Interconnection Customer is in 
Default, all costs associated with such termination are the 
responsibility of the Interconnection Customer. They state that while 
Order No. 2003 specifies the Interconnection Customer's responsibility 
for termination costs when it terminates the interconnection agreement, 
the cost responsibility for situations in which a Transmission Owner or 
Transmission Provider terminates the agreement due to the 
Interconnection Customer's Default is not clearly specified.
    204. AEP contends that while Article 2.4.1 allows the 
Interconnection Customer, in the case of termination, to assume payment 
obligations under the Transmission Provider's contracts for materials 
and equipment, it does not take into account the possible commercial 
interests of the vendor. For example, AEP states that the vendor may 
have pricing policies applicable to the Transmission Provider for which 
the Interconnection Customer is not eligible. Similarly, the terms and 
conditions of the vendor's contract may not permit reassignment. AEP 
requests that Article 2.4.1 be revised to require such rights of 
assumption to be subject to mutual agreement between the Parties.
Commission Conclusion
    205. With respect to Central Maine's and NYTO's request for 
clarification, we note that LGIA Article 17.1.2 gives the non-
defaulting Party the right to terminate the interconnection agreement 
and recover all amounts due if the Default cannot be cured. We agree 
that if the Transmission Owner or the Transmission Provider terminates 
the interconnection agreement due to the Interconnection Customer 
defaulting, the Interconnection Customer is responsible for any 
outstanding costs as if the Interconnection Customer were the 
terminating Party under LGIA Article 2.4. To do otherwise rewards the 
Interconnection Customer for choosing Default over termination. We are 
amending Article 17.1.2 to make this clear.
    206. We are not adopting AEP's proposal that we require that the 
rights of assumption be subject to mutual agreement by the Parties. If, 
as AEP argues, the vendor contract restricts the Transmission Provider 
from passing on some pricing discounts it receives under the 
interconnection agreement or prohibits reassignment, the Transmission 
Provider can take ownership of the materials and equipment and deliver 
them to the Interconnection Customer. Alternatively, the Transmission 
Provider can negotiate with the vendor to eliminate the restrictive 
provisions. If negotiation reaches an impasse, the Transmission 
Provider may find a replacement.
    207. Article 2.5--Disconnection--LGIA Article 2.5 provides that all 
costs of disconnecting the Generating Facility from the Transmission 
System will be borne by the terminating Party, unless the termination 
is the result of the non-terminating Party's Default.
Rehearing Request
    208. Central Maine seeks clarification that disconnection costs 
include the cost of site restoration.
Commission Conclusion
    209. Because Central Maine does not offer any rationale for this 
change, we will deny their request for rehearing. We are not convinced 
that site restoration should be included in disconnection costs.
    210. Article 3--Regulatory Filings--LGIA Article 3 requires that 
the Transmission Provider file the interconnection agreement with the 
appropriate Governmental Authorities.
Rehearing Requests
    211. NYTO and Central Maine seek confirmation that Article 3.1 is 
subject to the same confidentiality provisions set forth in more detail 
in Article 22.
    212. Central Maine requests that the Commission specify that the 
Transmission Owner, not the Transmission Provider, is required to make 
the filing. Central Maine cites to Atlantic City Elec. Co., et al. v. 
FERC, 295 F.3d 1 (DC. Cir. 2002) (Atlantic City) as support for its 
position that the Commission cannot prevent the Transmission Owner from 
making a filing under section 205 of the FPA.
Commission Conclusion
    213. We grant rehearing of Article 3.1 in response to NYTO's and 
Central Maine's concerns over confidentiality. Our intent is for the 
confidentiality provisions of Article 22 to govern. The discussion of 
confidentiality in Article 3.1 is abbreviated and only confuses the 
issue. Therefore, we are removing the discussion of confidentiality 
from Article 3.1.

[[Page 15948]]

    214. Central Maine's concern about FPA section 205 filing rights is 
based on a misunderstanding of Order No. 2003. We have defined the term 
Transmission Provider to include the Transmission Owner when the 
Transmission Provider is separate from the Transmission Owner. 
Therefore, when Article 3.1 states that the Transmission Provider may 
make filings with the Commission, it applies to the Transmission Owner 
as well. Therefore, Order No. 2003 does not restrict the rights of 
either the Transmission Owner or the Transmission Provider to file with 
the Commission. When the Transmission Provider and the Transmission 
Owner are different entities, they will work together and enter into a 
contractual relationship governing the rights and responsibilities of 
each entity, including which entity is responsible for filing with the 
appropriate Governmental Authority.
    215. Article 4.3--Generator Balancing Service Arrangements--We 
address requests for rehearing on Article 4.3 in section II.D.2 
(Interconnection Pricing Policy).
    216. Article 5.1.3--Option to Build--LGIA Article 5.1.3 provides 
that the Interconnection 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 construction 
completion dates.
Rehearing Requests
    217. SoCal Edison argues that the Interconnection Customer should 
bear the cost of construction oversight if the latter chooses to build. 
It asserts that costs associated with overseeing construction can be 
substantial. SoCal Edison cites construction oversight costs of 
$243,000 in one case and $303,000 in another. In both cases, the SoCal 
Edison states that it provided oversight throughout the design, 
procurement, and construction process to ensure that the facilities 
constructed complied with its standards and specifications. SoCal 
Edison further claims that both projects required several iterations of 
design review because it uncovered non-compliance with its standards 
and specifications.
Commission Conclusion
    218. We will not require that the Transmission Provider be 
reimbursed for construction oversight costs. If the Transmission 
Provider is concerned about non-recovery of oversight costs, it can 
itself construct the Transmission Provider's Interconnection Facilities 
and the Stand Alone Network Upgrades under three of the four options 
outlined in Article 5.1. The Interconnection Customer may exercise its 
right under the ``option to build'' only as a last resort if the 
Transmission Provider is unable to meet the milestones established by 
the Interconnection Customer.
    219. We expect the Interconnection Customer to comply with the 
Transmission Provider's standards and specifications for the 
construction of facilities. The Transmission Provider may engage in 
oversight activities to satisfy itself that the Interconnection 
Customer is, in fact, abiding by such standards and specifications. The 
expenses associated with such activities are part of the cost of doing 
business, and the Transmission Provider can avoid the expense by 
meeting the milestones itself.
    220. Article 5.2--General Conditions Applicable to Option to 
Build--LGIA Article 5.2 provides that if the Interconnection Customer 
elects to construct the facilities under the option to build, it shall 
transfer control of these facilities to the Transmission Provider. 
However, it may continue to own the facilities.
Rehearing Requests
    221. Several Transmission Owners \44\ oppose allowing the 
Interconnection Customer to own Interconnection Facilities and Stand 
Alone Network Upgrades. Georgia Transmission states that to protect 
reliability, the Transmission Provider must own these facilities. 
Ownership gives the right and the responsibility to upgrade and 
maintain such facilities, and ownership by the Interconnection Customer 
(which is not subject to any reliability rules and is driven purely by 
profit motives) could cause reliability problems on the Transmission 
System.
---------------------------------------------------------------------------

    \44\ E.g., Ameren, Georgia Transmission, MSAT, National Grid, 
NYTO, and SoCal Edison.
---------------------------------------------------------------------------

    222. MSAT argues that the Interconnection Customer should not 
retain ownership of these facilities because it might refuse to make 
alterations to such facilities to accommodate other Interconnection 
Requests, forcing the Transmission Provider to construct redundant or 
less efficient facilities, and owning such facilities could make the 
Interconnection Customer a utility under state law.
    223. National Grid seeks clarification that this provision does not 
imply that the Interconnection Customer has a right to own 
Interconnection Facilities and Network Upgrades that are constructed by 
the Transmission Provider.
    224. NYTO argues that the Commission should reverse itself on this 
issue because the ownership of transmission facilities is a matter of 
state, not federal law. It asserts that Transmission Owners have 
eminent domain authority under state law to condemn property to expand 
their systems and that they hold state certificates of public 
convenience and necessity which oblige them to maintain their 
facilities so that they operate in a safe and reliable manner. NYTO 
also argues that the August 2003 blackout underscores the importance of 
preserving the Transmission Owners' right to own the Transmission 
Provider's Interconnection Facilities and Stand Alone Network Upgrades.
    225. NYTO also asserts that the Commission did not explain its 
departure from legal precedent and that the case relied upon \45\ does 
not support the Commission's finding. NYTO notes that in Arizona, the 
company initially voluntarily allowed the Interconnection Customer to 
own the facilities, only later changing its position, and that the 
Commission simply held the company to its original position.
---------------------------------------------------------------------------

    \45\ Arizona Public Service Company, 102 FERC ] 61,303 (2003) 
(Arizona).
---------------------------------------------------------------------------

    226. Finally, NYTO argues that this policy will frustrate the 
ability of Transmission Owners to design and maintain integrated 
Transmission Systems and cannot be reconciled with the Transmission 
Owners' right to withdraw from an ISO under certain circumstances, as 
held in Atlantic City.
    227. SoCal Edison argues that allowing the Interconnection Customer 
to own facilities that are on the Transmission Provider's private 
property is a ``taking'' in violation of the Fifth Amendment of the 
Constitution. This policy will decrease the reliability and safety of 
the Transmission System and will create confusion about liabilities and 
responsibilities of the Parties.
    228. TDU Systems argues that the Commission erred in requiring the 
Interconnection Customer to transfer control of the Transmission 
Provider's Interconnection Facilities and Stand Alone Network Upgrades 
to a non-independent Transmission Provider. An Interconnection Customer 
with experience in operating similar transmission facilities should be 
able to operate what it builds and owns, particularly when such 
facilities are connected to its Transmission System, unless there is a 
showing of harm to reliability. Moreover, the requirement to

[[Page 15949]]

transfer operational control of the facilities to the Transmission 
Provider will unduly tilt the Parties' bargaining positions in favor of 
the Transmission Provider.
    229. SoCal Edison states that Article 5.11 correctly requires the 
Transmission Provider to provide to the Interconnection Customer ``as-
built'' drawings, relay diagrams, and other information related to the 
Transmission Provider's Interconnection Facilities. It asks that the 
Commission include a parallel provision in Article 5.2 requiring the 
Interconnection Customer to provide similar information to the 
Transmission Provider when the Interconnection Customer chooses to 
build.
Commission Conclusion
    230. We agree with NYTO that requiring the Transmission Provider to 
cede ownership of Stand-Alone Network Upgrades and the Transmission 
Provider's Interconnection Facilities to the Interconnection Customer 
is inconsistent with existing Commission precedent. Accordingly, we 
grant partial rehearing on this issue. However, consistent with 
Arizona,\46\ the Parties may agree that the Interconnection Customer 
may own these facilities.
---------------------------------------------------------------------------

    \46\ Id.
---------------------------------------------------------------------------

    231. Reliability concerns dictate that the Transmission Provider 
retain operational control over these facilities, regardless of who 
owns them.\47\
---------------------------------------------------------------------------

    \47\ See, e.g., Arizona at P 12.
---------------------------------------------------------------------------

    232. Concerns over who builds the Transmission Provider's 
Interconnection Facilities and Stand Alone Network Upgrades are 
misplaced. Order No. 2003 provides that the Transmission Provider sets 
the specifications governing construction (Article 5.2.1), approves the 
Interconnection Provider's construction plans (Article 5.2.3), has an 
unlimited right of inspection (Article 5.2.5), and has the right to 
require the Interconnection Customer to remedy any deficiencies 
(Article 5.2.6). These safeguards are sufficient to guarantee the 
reliability of these facilities. Also, the Parties must agree about 
which facilities are Stand Alone Network Upgrades and identify them in 
Appendix A to the interconnection agreement before the Interconnection 
Customer begins construction.
    233. We clarify that the Interconnection Customer's \48\ ownership 
or operation of any type of Network Upgrade typically makes it a public 
utility,\49\ subject to all the requirements of the FPA \50\ including 
the obligation to expand the facilities if necessary to provide service 
to other customers and the obligation to provide Interconnection 
Service to others.\51\
---------------------------------------------------------------------------

    \48\ Providing that the Interconnection Customer is not excluded 
by virtue of section 201(f) of the FPA (e.g., municipalities and 
power marketing administrations).
    \49\ But see section 201(f) of the FPA.
    \50\ See section 201(e) of the FPA (``The term `public utility' 
* * * means any person who owns or operates facilities subject to 
the jurisdiction of the Commission. * * *'').
    \51\ See section 15.4 of the OATT.
---------------------------------------------------------------------------

    234. The Atlantic City case, which NYTO cites, held that a 
Transmission Owner in an RTO or ISO may file under section 205 of the 
FPA. NYTO does not explain how this case answers the question of who 
owns Stand Alone Network Upgrades or the Transmission Provider's 
Interconnection Facilities. Order No. 2003 does not limit the rights of 
a Transmission Provider or Transmission Owner to make a section 205 
filing. However, NYTO's concern is resolved by the Commission's 
decision not to require that the Interconnection Customer be allowed to 
own facilities. The Transmission Provider is able to negotiate with the 
Interconnection Customer to protect its interests and its Transmission 
System.
    235. MSAT's concern about the Interconnection Customer that owns 
transmission facilities refusing to make needed changes to the 
facilities is moot since we do not now require the Transmission Owner 
to grant ownership of such facilities to the Interconnection Customer.
    236. We disagree with TDU Systems' concern that a Transmission 
Provider having operational control over the facilities unduly tilts 
the bargaining power in favor of the Transmission Provider. The 
Transmission Provider has the right to build, own, and control the 
facilities itself if it chooses to. The Interconnection Customer has 
the ``option to build'' only if the Transmission Provider declines to 
meet the construction milestones established by the Interconnection 
Customer. In response to TDU Systems' request that the Interconnection 
Customer be allowed to operate and maintain any facilities it may own, 
such a regime would fragment the Transmission System, thereby 
undermining reliability.
    237. Finally, in response to SoCal Edison's proposal, we are 
amending Article 5.2 to require the Interconnection Customer to provide 
``as-built'' drawings and other information to the Transmission 
Provider when the Interconnection Customer builds the facilities 
itself. Since we are granting partial rehearing on this matter, the 
Fifth Amendment takings argument advanced by several petitioners is 
moot.
    238. Article 5.3--Liquidated Damages--Order No. 2003 provides for 
liquidated damages in situations where the Transmission Provider agrees 
to certain milestones for completion of various stages of the 
interconnection and then fails to meet them.
    239. Liquidated damages come into play only if the Interconnection 
Customer selects LGIA Article 5.1.2 (Alternate Option) instead of 
Article 5.1.1 (Standard Option). Under the Alternate Option, the 
Interconnection Customer proposes enforceable milestones that the 
Transmission Provider is free to accept or reject. If the Transmission 
Provider accepts the proposed milestones, it faces liquidated damages 
if it fails to meet the milestones. If the Transmission Provider 
rejects the proposed milestones, the Interconnection Customer can then 
either build the facilities itself under Article 5.1.3 (Option to 
Build), or negotiate with the Transmission Provider to develop 
milestones agreeable to the Parties under Article 5.1.4 (Negotiated 
Option). Under the Negotiated Option, the Parties may include, but are 
not required to include, a liquidated damages provision. If the 
Parties, after negotiating in good faith, are unable to reach a 
negotiated agreement under Article 5.1.4, the Transmission Provider 
assumes responsibility for establishing the milestones and the 
interconnection proceeds under Article 5.1.1 (Standard Option).
    240. Liquidated damages are limited to 0.5 percent per Calendar Day 
of the actual aggregate costs of the Interconnection Facilities and 
Network Upgrades for which the Transmission Provider remains 
responsible, and are not to exceed 20 percent of the Transmission 
Provider's actual costs. Damages are not recoverable under certain 
circumstances, such as when the Interconnection Customer is not ready 
to begin using the facilities by the date specified (unless the 
Interconnection Customer was not ready due to delay on the part of the 
Transmission Provider) or when the delay is due to a cause beyond the 
reasonable control of the Transmission Provider, such as a Force 
Majeure event.
1. How the Liquidated Damages Provision Should Work Rehearing Requests
    241. NYTO explains that liquidated damages provisions are designed 
to establish damages for breach of contract where those damages would 
be difficult or impossible to quantify under

[[Page 15950]]

traditional contract law principles. NYTO asserts that there is no 
basis to assume either that an Interconnection Customer will suffer any 
damages when a Transmission Provider misses a milestone, or that if the 
Interconnection Customer does suffer damages, those damages will be 
difficult to calculate. NYTO suggests requiring the Interconnection 
Customer to demonstrate that it was materially and adversely affected 
by the delay in construction before allowing liquidated damages.
    242. Central Maine argues that the LGIA does not clearly allow the 
Transmission Owner to choose not to be exposed to liquidated damages. 
Moreover, Central Maine states that it is unclear from Article 5.1 
which Party chooses whether to proceed under the Standard Option or the 
Alternate Option. This could delay interconnecting new generation as 
the Parties argue.
    243. Several petitioners \52\ argue that requiring the Transmission 
Provider to relinquish construction responsibility to the 
Interconnection Customer in order to avoid the liquidated damages 
provision may cause further fragmentation of the transmission grid and 
may harm reliability. According to the petitioners, this approach will 
likely discourage cooperation between the Transmission Provider and the 
Interconnection Customer, slow the interconnection process, and 
increase costs.
---------------------------------------------------------------------------

    \52\ E.g., Central Maine, National Grid, and NYTO.
---------------------------------------------------------------------------

    244. MSAT argues that the provision favors the Interconnection 
Customer and suggests that the liquidated damages provision should be 
made bilateral so that the Transmission Provider has comparable 
protection from damages resulting from the actions or inactions of the 
Interconnection Customer.
    245. NYTO asserts that assessing liquidated damages against the 
Transmission Provider for failing to meet the milestones established by 
the Interconnection Customer gives the Interconnection Customer an 
incentive to propose unreasonable milestones.
    246. National Grid and NYTO argue that liquidated damages should 
begin accruing no earlier than 15 months from the date on which all 
conditions triggering such damages are present. This would delay the 
imposition of liquidated damages until 15 months from the date of 
equipment procurement and construction begins, and after all regulatory 
approvals and real property rights have been secured. Petitioners also 
argue that this 15 month period should be allowed to be increased to 
accommodate regional or local practices.
    247. National Grid and NYTO argue that, while P 885 of Order No. 
2003 states that liquidated damages are the exclusive remedy for the 
Transmission Provider's failure to meet its schedule, no provisions 
appear in either the LGIP or LGIA to implement this limitation.
    248. Finally, National Grid requests that the Commission adopt more 
reasonable construction schedules based on actual industry practice and 
permit the Interconnection Customer and the Transmission Provider to 
negotiate more aggressive schedules, but with symmetrical performance 
incentives.
Commission Conclusion
    249. Order No. 2003 does not require liquidated damages. Rather, it 
offers liquidated damages only when the Parties agree.\53\
---------------------------------------------------------------------------

    \53\ Order No. 2003 P 858.
---------------------------------------------------------------------------

    250. While we expect that the liquidated damages provision will 
play an important role in the Parties' negotiations, they need not 
agree to liquidated damages, even if the Interconnection Customer 
chooses to proceed under Article 5.1.2 (Alternate Option). The 
Transmission Provider must either agree to the liquidated damages or 
allow the Interconnection Customer to build the Transmission Provider's 
Interconnection Facilities and Stand-Alone Network Upgrades.
    251. We agree with NYTO and National Grid and are including in the 
LGIA a provision explaining that, in keeping with P 885 of Order No. 
2003, liquidated damages, when the Parties agree to them, are the 
exclusive remedy for the Transmission Provider's failure to meet its 
schedule.
    252. We reject NYTO's request that the Interconnection Customer be 
required to demonstrate that it was materially and adversely affected 
by the delay in construction. The whole point of liquidated damages is 
that they simplify matters when it is difficult to quantify the extent 
of actual damages.\54\ Construction delays can jeopardize the funding 
of an interconnection project and may make it more difficult for an 
Interconnection Customer to enter into long-term energy contracts. In 
addition, delays affecting the Generating Facility's In-Service Date 
would prevent the Interconnection Customer from making sales of 
electric energy. The types of damages the Interconnection Customer 
might suffer are varied and complex. Since damages are speculative and 
difficult to quantify, liquidated damages are appropriate in this 
circumstance, when the Parties agree to use them as a remedy.
---------------------------------------------------------------------------

    \54\ 22 Am. Jur. 2d Damages section 683 (1988).
---------------------------------------------------------------------------

    253. We disagree with Central Maine's characterization of Article 
5.1 as unclear. Article 5.1 explains that the Interconnection Customer 
may choose either the Standard or Alternate Option. The description of 
liquidated damages that appears in Article 5.3 refers only to its 
possible inclusion in Article 5.1.2 (Alternate Option) or Article 5.1.4 
(Negotiated Option). However, we do agree that Article 5.1.3 (Option to 
Build) should state that the ``dates designated by the Interconnection 
Customer'' are those designated as part of the Alternate Option.
    254. While petitioners are correct that the Transmission Provider 
is required to give the Interconnection Customer the opportunity to 
build any Stand-Alone Network Upgrades and Transmission Provider's 
Interconnection Facilities if the Transmission Provider rejects the 
Interconnection Customer's milestones proposed under the Alternate 
Option, we do not agree that this endangers reliability. There are 
safeguards built into the LGIA to ensure that any Stand-Alone Network 
Upgrades or Transmission Provider's Interconnection Facilities 
constructed by the Interconnection Customer will be reliable.\55\
---------------------------------------------------------------------------

    \55\ See discussion of LGIA Article 5.2, supra. See also Order 
2003 at P 356.
---------------------------------------------------------------------------

    255. We reject the suggestion that the Interconnection Customer 
should be liable for liquidated damages if it misses its construction 
milestones.\56\ The Transmission Provider is already protected by 
Article 5.17 against long delays by the Interconnection Customer. 
Moreover, the financial effect on the Transmission Provider of a delay 
by the Interconnection Customer is much less than the effect on the 
Interconnection Customer of delay by the Transmission Provider. 
(Additionally, if the Interconnection Customer's delay is long enough, 
the Transmission Provider can terminate the LGIA.) Therefore, no 
further provisions are needed to protect the Transmission Provider, 
including the 15 month delay recommended by National Grid and NYTO.\57\
---------------------------------------------------------------------------

    \56\ Order No. 2003 at P 885.
    \57\ See Order No. 2003 at P 360 (rejecting a request for a 
similar 15 month delay made by NYTO).
---------------------------------------------------------------------------

    256. Regarding NYTO's concern about the selection of unrealistic 
construction completion dates by an Interconnection Customer, the LGIA 
allows the Transmission Provider to avoid unrealistic construction 
completion dates by notifying the Interconnection Customer that it is 
unable to meet the

[[Page 15951]]

dates proposed by the Interconnection Customer under the Alternate 
Option.\58\ In addition, LGIP Section 12.1 requires that the Parties 
negotiate in good faith to develop schedules for the construction of 
Network Upgrades and Interconnection Facilities.
---------------------------------------------------------------------------

    \58\ See Order No. 2003 at P 355 (rejecting a similar request 
from NYTO).
---------------------------------------------------------------------------

    257. Finally, we correct a misstatement in P 858 of Order No. 2003 
that the Parties may immediately negotiate terms and conditions (the 
Negotiated Option) if the Transmission Provider rejects the schedule 
proposed by the Interconnection Customer under Article 5.1.2 (Alternate 
Option). Instead, if the Transmission Provider and the Interconnection 
Customer are unable to agree on a schedule under the Alternate Option, 
the Interconnection Customer has the right to proceed under the Option 
to Build before the Parties reach the Negotiated Option.
2. Legal Arguments Against a Liquidated Damages Clause Rehearing 
Requests
    258. NYTO argues that the Commission lacks statutory authority to 
impose a liquidated damages provision since they violate the filed rate 
doctrine by altering rates after service is rendered.\59\ NYTO asserts 
that the Commission's remedial authority under section 206 of the FPA 
is expressly limited and does not allow the imposition of liquidated 
damages.\60\
---------------------------------------------------------------------------

    \59\ NYTO cites Southern California Edison Co. v. FERC, 805 F.2d 
1068, 1070 n.2 (DC. Cir. 1986) and City of Piqua, Ohio v. FERC, 610 
F.2d 950, 955 (DC Cir. 1979), which discuss the filed rate doctrine.
    \60\ Order No. 2003 at P 857.
---------------------------------------------------------------------------

    259. Moreover, according to NYTO, the Commission may not mandate 
that the Transmission Owner pay damages to the Interconnection Customer 
without a finding that the Transmission Owner acted unreasonably and 
that those actions caused the Interconnection Customer economic harm 
unless the Commission authorizes those costs to be included in rates.
Commission Conclusion
    260. Order No. 2003 does not require liquidated damages. Rather, it 
offers liquidated damages as one of several construction options that 
each Party must agree to in order to make the liquidated damages 
provision enforceable.\61\ As Order No. 2003 explains, the liquidated 
damages provision is within the Commission's statutory authority 
because the Commission under Section 205 of the FPA exercises 
jurisdiction over agreements under which damages may arise.\62\
---------------------------------------------------------------------------

    \61\ Order No. 2003 at P 858.
    \62\ Order No. 2003 at P 857.
---------------------------------------------------------------------------

    261. We also disagree with the contention that the liquidated 
damages provision violates the filed rate doctrine. The filed rate 
doctrine forbids a regulated entity from charging rates for its 
services other than those properly filed with the Commission. 
Accordingly, neither the utility nor the Commission has the power to 
alter a rate retroactively.\63\ The Commission-approved OATT, however, 
is a filed rate. If liquidated damages are owed, they are payable as a 
term of that Commission-approved OATT; they are thus part of the filed 
rate. Thus, there would be no retroactive rate adjustment or violation 
of the filed rate doctrine. The filed rate doctrine cases cited by NYTO 
are inapposite because they do not address the liquidated damages issue 
before us.
---------------------------------------------------------------------------

    \63\ See, e.g., Associated Gas Distributors v. FERC, 893 F.2d 
349 (DC Cir. 1989) (finding that a Commission policy of allocating 
current take-or-pay expenses based on a customer's past purchasing 
patterns violated the filed rate doctrine).
---------------------------------------------------------------------------

3. Calculation of Liquidated Damages and Miscellaneous IssuesRehearing 
Requests
    262. NYTO argues that liquidated damages should not be calculated 
based on the cost of all of the facilities and upgrades for which the 
Transmission Provider has responsibility. They should be limited to the 
particular facilities that are not completed by the applicable 
milestone and that are related to the harm to the Interconnection 
Customer.
    263. National Grid and NYTO argue that the LGIA should provide that 
if the Transmission Provider is unable to recover from its Transmission 
Customers any costs associated with the Interconnection Facilities, 
including any liquidated damages, the Interconnection Customer must pay 
those costs. Otherwise, the Transmission Provider would have no means 
to recover liquidated damage expenses.
    264. NYTO notes that in ERCOT, where interconnection costs benefit 
all customers in Texas, the Transmission Owner does not incur any 
liability (including liquidated damages) that cannot be passed on to 
customers. If state regulators determine that the interconnection costs 
do not benefit all customers, these costs are borne entirely by the 
Interconnection Customer, including any liquidated damages that would 
have otherwise been imposed. Because the Interconnection Customer 
controls the site selection, the timing of the Interconnection Request, 
and in large part the timing of the execution of an interconnection 
agreement and the payment of up-front facilities costs or deposits, it 
is unreasonable to require other Transmission Customers, Transmission 
Owners, or Transmission Providers to bear the economic consequences of 
failing to meet an In-Service Date selected unilaterally by the 
Interconnection Customer. The better approach would be to provide that 
the In-Service Date, including any related incentives or penalties, is 
agreed to by the Interconnection Customer and Transmission Owner. Where 
the Parties cannot agree, the Transmission Owner should be required 
simply to make good faith Reasonable Efforts, consistent with Good 
Utility Practice, to meet the date selected by the Interconnection 
Customer.
Commission Conclusion
    265. We disagree with NYTO and conclude that the full cost of 
facilities and upgrades should be the basis for calculating liquidated 
damages. Allowing Transmission Providers to pay liquidated damages on 
only the portion of the facilities and upgrades that are not complete 
could lead to situations where the liquidated damages are too low to 
act as an effective deterrent to delay by the Transmission Provider. 
Since an Interconnection Customer is unlikely to be able to sell energy 
until all upgrades and facilities are completed, it would not be 
equitable to base liquidated damages on only the portion of the 
facilities and upgrades that had not been completed. In addition, 
because liquidated damages are capped at 20 percent of the total cost 
of upgrades and facilities, the Transmission Provider is already 
protected against unlimited financial risk should it miss a 
construction milestone and become subject to liquidated damages.
    266. NYTO and National Grid propose that if the Transmission 
Provider cannot recover from its Transmission Customers the cost of any 
liquidated damages, the Interconnection Customer shall remain liable 
for the balance. To reiterate what the Commission stated in P 844 of 
Order No. 2003, because liquidated damages liability is only incurred 
when the Transmission Provider is at fault, such damages will not be 
recoverable in transmission rates since they are not prudent 
expenditures. NYTO and National Grid have offered no arguments that 
convince us to change that position. In addition, the Transmission 
Provider is protected against unfair imposition of liquidated damages 
by Article 16.1, which allows

[[Page 15952]]

it to declare a Force Majeure event if circumstances beyond its 
reasonable control prevents it from meeting the agreed upon milestones.
4. Public Power Entities and Liquidated Damages Rehearing Requests
    267. Georgia Transmission and NRECA-APPA seek rehearing on the 
payment of liquidated damages by cooperatives and public power 
providers, arguing that customer-owned entities should be exempted from 
the liquidated damages provisions of the LGIA. Because these entities 
have no outside shareholders to bear the costs of liquidated damages, 
any liquidated damages payments made by them would ultimately be borne 
by their retail member-customers.
    268. Georgia Transmission and NRECA-APPA argue that holding 
customer-owned Transmission Providers responsible for liquidated 
damages is inconsistent with the Commission's statement in Order No. 
2003 that ``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 * * * recoverable in transmission 
rates.''\64\ If a customer-owned entity is required to pay liquidated 
damages, Order No. 2003 does not explain where the money is to come 
from.
---------------------------------------------------------------------------

    \64\ Order no. 2003 at P 884.
---------------------------------------------------------------------------

Commission Conclusion
    269. The LGIA provides for liquidated damages only if the 
Transmission Provider so agrees. A Transmission Provider subject to the 
Alternate Option will have to decide whether to accept liquidated 
damages liability. Given the flexibility already built into the LGIA, 
we conclude that it is unnecessary to create a special accommodation 
for public power entities on this issue. If a non-public utility 
voluntarily adopts the Commission's OATT in order to ensure open access 
across the Transmission Systems of public utilities, the non-public 
utility may still decline to accept a construction schedule that 
includes liquidated damages.
5. Subcontractors and Third Party Exemption
    270. Order No. 2003 says that subcontractor delays are not 
circumstances beyond the control of the Transmission Provider that 
prevent liquidated damages liability.
Rehearing Requests
    271. Georgia Transmission and NRECA-APPA argue that the 
Transmission Provider should not be held accountable for the failure of 
third party suppliers, since it generally does not have control over 
their performance. The large manufacturers that supply transmission 
equipment typically do not pay liquidated damages if they can't meet 
delivery schedules. Under the LGIA, this would expose the Transmission 
Provider to risk even though it is not at fault.
    272. National Grid argues that the Transmission Provider should not 
have to pay liquidated damages if delay is the result of the action or 
inaction of the Interconnection Customer or any Affected System or 
other person with whom either the LGIA or the Interconnection Customer 
requires the Transmission Provider to coordinate. National Grid states 
that it is not reasonable to hold the Transmission Provider liable for 
delays caused by entities that are outside its control. Similarly, NYTO 
argues that liquidated damages should not be due when the Transmission 
Owner fails to meet a milestone as a result of the action or inaction 
of the Interconnection Customer or any other Interconnection Customer. 
The Transmission Owner should not be exposed to liability to one 
Interconnection Customer as the result of the actions of another over 
which it has no control.
    273. MSAT notes that Article 5.3 lists four instances in which the 
Transmission Provider may avoid liquidated damages and argues that the 
article should provide an exhaustive list of such instances. (MSAT does 
not say what should be included on the list.) Otherwise, the provision 
is too favorable to the Interconnection Customer because it does not 
adequately consider mitigating circumstances.
Commission Conclusion
    274. We agree with Georgia Transmission and NRECA-APPA that third 
party suppliers are not generally subcontractors of the Transmission 
Provider for purposes of determining liability for liquidated damages. 
Ordinarily, the acts of suppliers would not cause the Transmission 
Provider to incur liquidated damages if the suppliers' actions are 
beyond the Transmission Provider's ``reasonable control.'' \65\
---------------------------------------------------------------------------

    \65\ See LGIA Article 5.3.
---------------------------------------------------------------------------

    275. In response to National Grid, delays due to Affected Systems 
generally would also be considered circumstances beyond the 
Transmission Provider's reasonable control.
    276. NYTO asks the Commission to state clearly that the 
Transmission Provider will not be liable where the problem is caused by 
the Transmission Owner. Because the definition of ``Transmission 
Provider'' already includes ``Transmission Owner'' when the two 
entities are separate, the exception for actions or inactions of 
another Transmission Provider already applies to the Transmission 
Owner.
    277. Finally, we reject MSAT's suggestion that the Commission 
provide an exhaustive list of mitigating circumstances. The exemptions 
contained in Order No. 2003 (mutual agreement, two exemptions related 
to the responsibilities of the Interconnection Customer, and one 
exempting acts or inactions of third parties) are sufficiently detailed 
to allow the Parties to assess whether liability has been incurred.
    278. Article 5.4--Power System Stabilizers & Article 5.10.3--ICIF 
Construction--LGIA Article 5.4 provides that the Interconnection 
Customer shall install, maintain, and operate power system stabilizers 
under the guidelines and procedures established by the Applicable 
Reliability Council, and if the power system stabilizers are removed 
from service, the Interconnection Customer shall immediately notify the 
Transmission Provider. Article 5.10.3 provides that the Interconnection 
Customer shall provide the Transmission Provider with, among other 
things, specifications for the Generating Facility's excitation system 
and automatic voltage regulator.
Rehearing Request
    279. FPL Energy states that although these standards are 
appropriate for synchronous generators, wind generators should be 
exempt because power system stabilizers, excitation systems, and 
automatic voltage regulators do not exist for wind turbines--or at 
least have not yet been tried. It seeks clarification that the 
Commission did not mean to apply these standards to non-synchronous 
equipment such as wind generators.
Commission Conclusion
    280. We agree with FPL Energy that power system stabilizers, 
excitation systems, and automatic voltage regulators may not be 
appropriate for non-synchronous technologies such as wind generators, 
and are amending Articles 5.4 and 5.10.3 to state that the requirements 
of these provisions do not apply to wind generators.
    281. Article 5.10--Interconnection Customer's Interconnection 
Facilities--LGIA Article 5.10.1 (Large Generating Facility 
Specifications) requires the Interconnection Customer to submit initial 
specifications for the

[[Page 15953]]

Interconnection Customer's Interconnection Facilities (ICIF), including 
System Protection Facilities, to the Transmission Provider before the 
Initial Synchronization Date so that the Transmission Provider can 
review such specifications to ensure that the ICIF are compatible with 
the technical specifications, operational control, and safety 
requirements of the Transmission Provider. The specifications provided 
to the Transmission Provider are confidential. Article 5.10.2 
(Transmission Provider's Review) requires the Interconnection Customer 
to make changes to the ICIF that the Transmission Provider requires, 
under Good Utility Practice, to ensure that the ICIF are compatible 
with the telemetry, communications, and safety requirements of the 
Transmission Provider.
Rehearing Requests
    282. Cinergy argues that the title of Article 5.10.1 is misleading 
because it addresses the Interconnection Customer's Interconnection 
Facilities rather than the Generating Facility's. Cinergy also asks 
that the Commission delete the confidentiality provision because this 
type of information is required for transmission modeling purposes.
    283. Southern argues that Article 5.10.1 requires ICIF 
specifications to be compatible with the technical specifications, 
operational control, and safety requirements of the Transmission 
Provider, whereas Article 5.10.2 requires the Transmission Provider to 
ensure that the ICIF specifications are compatible with its telemetry, 
communications, and safety requirements. Southern asks that the 
Commission amend Article 5.10.2 to make it compatible with Article 
5.10.1 because telemetry and communications are merely a subset of 
overall technical specifications and operational control.
Commission Conclusion
    284. We are revising the title of Article 5.10.1 to be 
Interconnection Customer Interconnection Facility Specifications, as 
requested by Cinergy. However, we are denying its request to delete the 
confidentiality provision because it has not explained why the 
Transmission Provider cannot conduct transmission modeling while 
keeping this information confidential. Finally, we agree with 
Southern's position concerning the compatibility of Articles 5.10.1 and 
5.10.2 and are revising Article 5.10.2 accordingly.
    285. Article 5.12--Access Rights--LGIA Article 5.12 guarantees 
reasonable right of access by a Party to the property and lands of the 
other Party, or the agents of the other Party, to construct, operate, 
maintain, repair, test, inspect, replace, or remove facilities and 
equipment in connection with the interconnection process.
Rehearing Requests
    286. NYTO and Central Maine contend that Article 5.12 grants the 
access-seeking Party the right to enter onto lands not only owned by 
the access-granting party, but by the agents of the access-granting 
Party as well. Both question the Commission's legal authority to 
require their agents to grant the Interconnection Customer access to 
the lands of the agent.
    287. NYTO requests that the Commission require the Interconnection 
Customer to pay for any administrative or legal expenses incurred by 
the Transmission Provider in arranging for access to its property. It 
argues that any such visit would be for the purpose of Interconnection 
Service and that the costs of the visit therefore should be paid by the 
Interconnection Customer.
    288. Central Maine asks the Commission to clarify that the 
statement ``at no cost to the other Party'' does not include any legal 
and administrative costs associated with providing access rights.
    289. AEP requests that the Commission clarify that the Transmission 
Provider is not required to provide free land rights that it owns in 
the vicinity of an interconnection project that may be necessary for 
the Interconnection Customer to construct, operate, and maintain its 
own facilities.
Commission Conclusion
    290. NYTO's and Central Maine's concerns about the agency 
relationship are misplaced. If an agency relationship exists, then by 
definition the agent must act as directed by the principal, if those 
directions are within the scope of the agency.\66\ It would be 
unreasonable to require the Interconnection Customer to enter into one 
agreement with the Transmission Provider and separate agreements with 
each Affiliate or agent of the Transmission Provider. This could result 
in undue discrimination and gaming of the process by the Transmission 
Provider. However, because state law varies, we are revising Article 
5.12 to read: ``* * * with respect to land owned or controlled by the 
granting Party, its agents (if allowed under the applicable agency 
agreement), or any Affiliate, that are necessary to enable the access 
Party to obtain ingress and egress * * *.'' The parenthetical clause 
responds to NYTO's and Central Maine's concerns that ordering an agent 
to open its lands exceeds the scope of the agency. Furthermore, adding 
``Affiliates'' to the list clarifies that both the Transmission 
Provider and all entities over which it exercises control must 
cooperate in the interconnection process.
---------------------------------------------------------------------------

    \66\ See 3 Am. Jur. 2D Agency section 1 (2002). See also Am. 
Jur. 2D Agency section 213 (2002) (``An agent has a duty to obey all 
reasonable instructions and directions with regard to the manner of 
performing a service that he or she has contracted to perform and to 
adhere faithfully to them in all cases where they ought properly to 
be applied and in which they can be obeyed * * *.'').
---------------------------------------------------------------------------

    291. The phrase ``at no cost to the other Party'' is clear. The 
administrative and legal costs of complying with Article 5.12 are de 
minimis and are a general cost of doing business. Neither NYTO nor 
Central Maine has provided any cost estimates or other arguments that 
persuade us to allow for the recovery of administrative and legal 
expenses.
    292. In response to AEP's concern, Article 5.12 does not require 
the transfer of ownership of lands, nor does it give either Party carte 
blanche to use the lands of the other Party as its own. Instead, 
Article 5.12 allows Parties reasonable access onto the lands of the 
other Parties for the purpose of facilitating the interconnection 
process.
    293. Article 5.13--Lands of Other Property Owners--LGIA Article 
5.13 requires that if any part of the Transmission Provider's 
Interconnection Facilities or Network Upgrades is to be installed on 
property owned by a third party, the Transmission Provider shall assist 
the Interconnection Customer in securing rights to use that land. 
Specifically, the Transmission Provider is required to use similar 
efforts to those that it typically undertakes on its own behalf to site 
its own generating facilities. This includes any eminent domain 
authority the Transmission Provider has.
Rehearing Requests
    294. NYTO states that since the FPA does not give the Commission 
eminent domain authority, the Commission cannot do indirectly what it 
cannot do directly. It says that one entity cannot be required to seize 
property for the benefit of another. It also expresses concern that it 
could be required to use its eminent domain authority to interconnect 
the Interconnection Customer's Generating Facility, only to have the 
Interconnection Customer choose another Control Area. Southern makes a 
similar argument, stating that because eminent domain issues are 
governed exclusively by state law, the Commission is without 
jurisdiction to

[[Page 15954]]

impose requirements on the Transmission Provider with regard to how it 
must use its eminent domain authority.
    295. Cinergy states that the Commission erred in requiring the 
Transmission Provider to provide assistance to the Interconnection 
Customer in siting the Generating Facility. Instead, Cinergy proposes 
that any required siting assistance should be limited to the 
Transmission Provider's or Transmission Owner's Interconnection 
Facilities or Network Upgrades and should not require the Transmission 
Provider to assist the Interconnection Customer in siting the 
Generating Facility. MSAT, National Grid, and NYTO likewise request 
that the Commission clarify that such ``comparable assistance'' applies 
only to transmission-related property and not generation-related 
property.
    296. National Grid states that the comparable efforts language in P 
391 of Order No. 2003 \67\ overstates what is actually in Article 5.13. 
The Commission should clarify that the language found in the former 
does not supersede the language of Article 5.13. The ``comparable 
efforts'' language improperly purports to set standards for the 
Transmission Provider's use of its eminent domain authority and exceeds 
the Commission's statutory authority. National Grid also expresses 
concern that certain uses of eminent domain authority may not be valid 
under state law.
---------------------------------------------------------------------------

    \67\ ``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.''
---------------------------------------------------------------------------

    297. If the Commission declines to remove the eminent domain 
provision entirely, National Grid requests that Article 5.13 be altered 
to forbid the Transmission Provider from using its eminent domain 
authority in a discriminatory manner.
Commission Conclusion
    298. Since the Interconnection Customer is required to demonstrate 
site control when it first files its Interconnection Request, the 
Transmission Provider would not be asked to use its eminent domain 
authority to assist in siting the Generating Facility. However, to 
avoid confusion, we will delete the last sentence of LGIA Article 5.13 
which could be read as requiring a Transmission Provider to obtain land 
on which the Interconnection Customer could site the Generating 
Facility.\68\ To retain the Affiliate concept in the deleted text, we 
modify the first sentence of Article 5.12 to read: ``* * * shall at 
Interconnection Customer's expense use efforts, similar in nature and 
extent to those that it typically undertakes on its own behalf, or on 
behalf of its Affiliates, including use of its eminent domain authority 
* * *.'' Additionally, the Scoping Meeting provisions within the LGIP 
already require the Transmission Provider to assist the Interconnection 
Customer in planning and siting issues. Since the Scoping Meeting is 
one of the first steps in the Interconnection Process, these issues 
should be resolved long before the LGIA is signed.
---------------------------------------------------------------------------

    \68\ The deleted sentence reads: ``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.''
---------------------------------------------------------------------------

    299. NYTO's concern that an Interconnection Customer may choose to 
dynamically schedule its energy deliveries with another Control Area 
ignores the fact that the Interconnection Customer must still pay the 
Transmission Provider in whose Control Area the Generating Facility is 
physically located for Transmission Service. The Transmission Provider 
also benefits from having additional sources of VAR support in its 
Control Area, even if the Interconnection Customer dynamically 
schedules elsewhere. In addition, the Interconnection Customer is still 
required to initially fund the costs of the Network Upgrades associated 
with the interconnection of the Generating Facility to the Transmission 
System and the Transmission Provider will be free to recover the costs 
of the Network Upgrades once it has refunded the monies with interest 
back to the Interconnection Customer and filed for a change in rates 
with the appropriate regulatory Commission.
    300. NYTO, National Grid, and Southern all argue that state law may 
not allow the Transmission Provider to seize land for the benefit of 
another party or may otherwise be limited by state law. The Commission 
modified LGIA Article 5.13 in response to similar comments to the 
NOPR's proposal, and now requires that (a) any use of eminent domain 
power must be in accordance with state law, and (b) the Transmission 
Provider is required to use eminent domain only to the extent it uses 
eminent domain to site Interconnection Facilities or Network Upgrades 
for its own, or affiliated, generation.
    301. Article 5.14--Permits--LGIA Article 5.14 requires the 
Transmission Provider to assist the Interconnection Customer in 
obtaining all permits and licenses required to complete the 
interconnection. Article 5.14 requires the Transmission Provider to 
provide such assistance to the Interconnection Customer comparable to 
that provided to the Transmission Provider's own, or an Affiliate's 
generation.
Rehearing Request
    302. Cinergy requests that Article 5.14 merely require the 
Transmission Provider to help the Interconnection Customer obtain 
permits and licenses for the Transmission Provider's Interconnection 
Facilities and Network Upgrades, and not for the Interconnection 
Customer's Generating Facility and Interconnection Facilities.
Commission Conclusion
    303. We deny rehearing. Article 5.14 requires the Transmission 
Provider and Transmission Owner to cooperate with the Interconnection 
Customer, in good faith, to obtain any necessary permits, licenses and 
authorizations. This includes cooperating with the Interconnection 
Customer to obtain permits and licenses for Network Upgrades, the 
Transmission Provider's Interconnection Facilities, as well as the 
Interconnection Customer's Interconnection Facilities and Generating 
Facility. Specifically, the Transmission Provider is required to help 
the Interconnection Customer to the same extent that it assists its own 
generation or that of its Affiliates in obtaining all permits and 
authorizations. If it is disputed whether the assistance is of this 
sort, the Parties may invoke Dispute Resolution.
    304. Article 5.16--Suspension--LGIA Article 5.16 allows the 
Interconnection Customer, upon written notice to the Transmission 
Provider, to suspend at any time all work on Interconnection Facilities 
or Network Upgrades, if the Transmission System is left in a safe and 
reliable condition under Good Utility Practice and the Transmission 
Provider's safety and reliability criteria. The interconnection 
agreement is deemed to be terminated if the Interconnection Customer 
has not asked the Transmission Provider to recommence work within three 
years from the date of the suspension request.
Rehearing Requests
    305. Ameren asserts that this provision could undermine the safety 
and reliability of the Transmission System by postponing the 
construction of transmission facilities that have been planned for the 
Transmission System. It argues that once the interconnection agreement 
is executed, the

[[Page 15955]]

Interconnection Customer is bound by its terms and conditions and must 
continue with facility construction, unless it can show that it will be 
significantly harmed if the construction were to continue.
    306. NYTO and Entergy assert that the three year suspension of 
facility construction is unreasonable. NYTO contends that the three 
year period should begin on the date specified in the written notice 
submitted to the Transmission Provider, or the date of the notice if no 
date is specified, not ``following commencement of such suspension,'' 
as provided, because the language is ambiguous and could lead to 
unnecessary disputes between the Parties. NYTO further states that 
suspension could harm other projects in the queue and that the 
Transmission Provider should be indemnified for any third party claims 
resulting from the suspension.
    307. Entergy states that LGIP section 3.3.1 allows the Generating 
Facility's In-Service Date to be established ten years in advance of 
the initial request for interconnection. Thus, if the Interconnection 
Customer suspends construction for three years, available short circuit 
and stability upgrade capacity may be unused for up to 13 years. 
Entergy further states that the Interconnection Customer gains a 
property right to existing capacity on short circuit and stability-
related facilities necessary for that customer's interconnection to the 
Transmission System. Even if capacity is physically available, a 
subsequent Interconnection Customer may unnecessarily be forced to 
construct entirely new facilities because a previous Interconnection 
Customer has suspended, and ultimately may cancel, the construction of 
the Generating Facility. Entergy argues that the three year period may 
force other Interconnection Customers to finance additional and 
unnecessary upgrades. Entergy requests that the Commission reduce the 
suspension period to 18 months.
    308. Southern and SoCal Edison note that Article 5.16 does not set 
a limit on the number of times the Interconnection Customer can suspend 
work. Southern believes that the Interconnection Customer could request 
Interconnection Service to preserve its place in the queue, execute an 
interconnection agreement, and immediately suspend its project for an 
extended period of time, tying up its Queue Position without making any 
commitment. Accordingly, Article 5.16 should allow only a one-time 
right for the Interconnection Customer to suspend the project for a 
period of up to one year.
    309. SoCal Edison requests clarification that the total amount of 
time that the Interconnection Customer may suspend the construction 
schedule (even though it is entitled to multiple suspension requests) 
is three years. It is unclear whether the Commission meant to provide 
that (1) the Interconnection Customer has the right to ask for 
suspension of work an unlimited number of times for three years each 
time, or (2) the Interconnection Customer may ask for more than one 
suspension period, but the total of all of the suspension periods may 
not be more than three years. It claims that the latter interpretation 
is reasonable, because the former would obviate the three year rule and 
allow the Interconnection Customer to game the system.
    310. TDU Systems claims that assigning all of the associated 
Network Upgrade costs to the entity that happened to request a 
particular service at a particular time results in a ``tag, you're it'' 
approach to transmission facility funding. The Interconnection Customer 
may have to pay for substantial transmission upgrades that benefit many 
others. TDU Systems asks the Commission to modify Order No. 2003 to 
prevent a lower queued Interconnection Customer from being stuck with 
the Network Upgrade costs of a higher queued Interconnection Customer 
that suspends its project or drops out of the queue entirely.
    311. Cinergy argues that the Interconnection Customer should be 
responsible for Network Upgrades attributable to it as a result of 
suspension, changes, or cancellations by higher queued Interconnection 
Customers. It claims that P 409 of Order No. 2003 conflicts with other 
aspects of the Commission's interconnection pricing policies. For 
example, in various parts of Order No. 2003 the Commission states that 
the Interconnection Customer must pay up front for the cost of Network 
Upgrades attributable to it, subject to refunds through transmission 
credits after the Generating Facility achieves Commercial Operation. An 
Interconnection Customer that wants construction accelerated is 
required to pay for early construction of the other customer's Network 
Upgrades until the other customer needs them.
    312. Cinergy also notes that the Interconnection Customer has the 
flexibility to cancel its project and terminate the interconnection 
agreement on 90 days' notice. However, Cinergy interprets P 409 of 
Order No. 2003 to mean that the Interconnection Customer may not be 
required to pay for Network Upgrades attributable to it and to 
interconnect the Generating Facility to the Transmission System, as the 
result of suspensions or cancellations by higher queued Interconnection 
Customers.
    313. Cinergy contends that P 399 of Order No. 2003 leaves unclear 
what would occur if suspension, changes, or cancellations by a higher 
queued Interconnection Customer affects the Network Upgrades needed for 
the Interconnection Customer that would affect Network Upgrades as a 
result of suspension.
    314. Cinergy also asks: (1) What happens if the Interconnection 
Customer refuses to agree to the changes, (2) does the Commission 
intend for the Transmission Provider to interconnect the Generating 
Facility to the Transmission System without the necessary Network 
Upgrades in place, even though reliability would be harmed, or is the 
Transmission Provider not required to interconnect the Generating 
Facility until such Network Upgrades are completed, (3) if the 
Interconnection Customer does not pay the costs of the Network Upgrade, 
is it considered in Default, even though it has executed the 
interconnection agreement, and (4) who will pay for the needed Network 
Upgrades if the responsible Interconnection Customer refuses to accept 
the changes to the interconnection agreement? Cinergy requests that the 
Commission adopt a blanket contingency provision requiring, if 
necessary, the reevaluation of the needed Network Upgrades for the 
Interconnection Customer when there is a suspension, change or 
cancellation by a higher queued Interconnection Customer, and the 
resulting changes are made through an amendment to the interconnection 
agreement that could be protested as to the scope and cost of changes. 
In the event of a protest, Cinergy states that the Commission could 
resolve any disagreement over the scope and cost of the revised Network 
Upgrades. The needed upgrades would not be constructed until the 
Interconnection Customer agrees to pay for them. Cinergy argues that 
the LGIA should also provide that if the Interconnection Customer is 
unwilling to pay for the Network Upgrades attributable to it, the 
Interconnection Customer may terminate the interconnection agreement 
under Article 2.3.
    315. AEP requests clarification that suspension costs will not be 
repaid through credits.
    316. APS asks the Commission to clarify what happens if the 
Interconnection Customer elects to suspend construction or 
installation. It is not clear how the Parties should

[[Page 15956]]

proceed, and what the respective rights and obligations are to resume 
service under the interconnection agreement.
Commission Conclusion
    317. We disagree with Ameren that Article 5.16 endangers the safety 
and reliability of the Transmission System. That article clearly 
provides that if the construction and installation of the Transmission 
Provider's Interconnection Facilities or Network Upgrades required 
under the LGIA are suspended on behalf of the Interconnection Customer, 
the Transmission Provider's Transmission System shall be left in a safe 
and reliable condition pursuant to Good Utility Practice and the 
regional Transmission Provider's safety and reliability criteria. This 
article also provides that if there is a suspension, the 
Interconnection Customer is responsible for all reasonable and 
necessary costs the Transmission Provider has incurred to ensure the 
safety of persons and property and the integrity of the Transmission 
System during the suspension.
    318. We deny Entergy's request to reduce the total allowed 
suspension period from three years to 18 months. Entergy has not 
supported its claim that network capacity reserved for the 
Interconnection Customer may be unused for up to 13 years if the 
suspension period is raised from 18 months to three years. Network 
Upgrades should not be constructed until they are needed. If another 
Interconnection Customer is ready to proceed with its project, it 
should be allowed to use the capacity that has been earmarked for a 
higher queued Interconnection Customer that has suspended its 
project.\69\ The Network Upgrades can be built when the latter customer 
is ready to proceed. We do, however, grant NYTO's request to begin the 
three year period on the date for which the suspension is requested, or 
the date of the written notice to the Transmission Provider, if no 
effective date of the suspension is specified. Since it is reasonable 
to have an effective date for suspensions, we are revising Article 5.16 
accordingly.
---------------------------------------------------------------------------

    \69\ See Virginia Electric and Power Company, 104 FERC ] 61,249 
(2003) at p. 61,828.
---------------------------------------------------------------------------

    319. We clarify that the Interconnection Customer has the right to 
ask for several suspensions of work up to a cumulative period of three 
years for each Interconnection Request. For example, the 
Interconnection Customer can make a single request for a three year 
suspension or can make several requests for suspensions, if the sum of 
the suspensions does not exceed three years. This should not allow 
gaming of the queue. Moreover, if a higher queued Interconnection 
Customer tries to tie up a Queue Position without making a commitment, 
other Interconnection Customers may assert a claim under LGIA Article 
27 (Disputes).
    320. In response to Cinergy and TDU Systems, we clarify that the 
Interconnection Customer is responsible (and later may receive credits) 
for funding the cost of (1) All Network Upgrades (other than those 
already in the Transmission Provider's current expansion plan) that 
must be constructed to support that Interconnection Customer's In-
Service Date, (2) all Network Upgrades that are the ultimate 
responsibility of higher queued Interconnection Customers, the 
construction of which must be accelerated to meet the Interconnection 
Customer's In-Service Date, and (3) Network Upgrades that originally 
were the responsibility of a higher queued Interconnection Customer 
that then dropped out of the queue, if these Network Upgrades are 
necessary to support the interconnection of the Interconnection 
Customer's Generating Facility.\70\ We therefore deny TDU Systems' 
request to modify Order No. 2003. We recognize that this third category 
creates uncertainty for the Interconnection Customer, since it may 
cause the Interconnection Customer's initial funding requirements to 
increase above initial estimates. Nevertheless, with the withdrawal of 
the higher queued Interconnection Customer, such costs become a 
legitimate component of the Interconnection Customer's initial funding 
requirement. This is simply a business risk that Interconnection 
Customers must face; the Commission cannot protect them from all 
uncertainty. To help the Interconnection Customer manage this 
uncertainty, we are directing the Transmission Provider to provide an 
estimate of the Interconnection Customer's maximum possible funding 
exposure, if higher queued generating facilities drop out when the 
Transmission Provider tenders the draft LGIA. The Transmission Provider 
shall provide an estimate of the costs of any Network Upgrades that 
were assumed in the Interconnection Studies for the Interconnection 
Customer that are an obligation of an entity other than the 
Interconnection Customer and that have not yet been constructed.
---------------------------------------------------------------------------

    \70\ The Interconnection Customer is not responsible for the 
higher queued Interconnection Customer's termination costs.
---------------------------------------------------------------------------

    321. With respect to AEP's request for clarification that 
suspension costs should not be eligible for credits, we so clarify. 
However, these costs, which must be properly documented, must be 
incurred only to ensure the reliability and safety of the Transmission 
Provider's Transmission System, and must not include costs incurred 
before the effective date of the suspension.
    322. With respect to APS's request for clarification as to how the 
Parties should proceed after the suspension period, we will not attempt 
to codify this since the circumstances underlying each request will be 
different. However, the Interconnection Customer's written notice must 
include an estimated duration for the suspension and other information 
related to the request. The Parties must coordinate milestones or other 
factors related to the suspension, including any activities and costs 
needed to ensure the safety and reliability of the Transmission 
Provider's Transmission System during the suspension period.
    323. Finally, we note that the term ``Transmission Provider'' is 
used instead of ``Transmission System'' in the first sentence of LGIA 
Article 5.16. We are correcting Article 5.16 accordingly.
    324. Article 5.17--Taxes--LGIA Article 5.17 addresses 
responsibilities related to the income tax treatment of payments the 
Interconnection Customer makes for the Transmission Provider's 
Interconnection Facilities and Network Upgrades. It treats these two 
types of payments the same way. IRS policy, as expressed in IRS Notice 
2001-82 and IRS Notice 88-129, explains when the Interconnection 
Customer's payments to build these facilities do not create a current 
tax liability for the Transmission Provider (safe harbor provision). 
This ``safe harbor'' provision generally provides that the transaction 
is not a taxable transfer. To protect the Transmission Provider in case 
either (1) the IRS changes its policy, or (2) the transaction ceases to 
qualify for safe harbor protection (due, for example, to a ``subsequent 
taxable event'') and a current tax liability results, Article 5.17 
states that the Interconnection Customer must indemnify (hold harmless) 
the Transmission Provider for any such tax liability.
    325. Article 5.17.3--Indemnification for the Cost Consequences of 
Current Tax Liability Imposed upon the Transmission Provider--LGIA 
Article 5.17.3 requires that the Interconnection Customer indemnify the 
Transmission Provider from any income taxes that are imposed, as 
described above. The Transmission Provider may not charge the 
Interconnection Customer a tax

[[Page 15957]]

gross-up \71\ for income taxes unless either (1) it has made a good 
faith determination that the payment is subject to taxation, or (2) any 
Governmental Authority directs it to treat the payment or transfers as 
subject to taxation. Where the Transmission Provider has made a good 
faith determination that a payment should be reported as income subject 
to taxation and requires the Interconnection Customer to provide a 
gross-up, the Interconnection Customer may receive security from the 
Transmission Provider for the Interconnection Customer's gross-up 
payment.
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    \71\ A tax gross-up for income taxes is a dollar amount 
calculated to determine the Interconnection Customer's payment 
needed to indemnify the Transmission Owner for any current tax 
liability associated with payments the Interconnection Customer 
makes for Transmission Provider's Interconnection Facilities and 
Network Upgrades.
---------------------------------------------------------------------------

    326. Under Article 5.17.3, when a Transmission Provider in good 
faith makes a determination that a payment is not income subject to 
taxation, the Transmission Provider may 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 indemnification payment. This security is intended to 
protect the Transmission Provider if there is a subsequent taxable 
event that (1) makes taxable those payments that a utility had 
concluded were not taxable and (2) creates a current tax liability for 
the Transmission Provider. In such an event, the security would cover 
the cost consequence of any current tax liability.
Rehearing Requests
    327. APS argues that requiring the Transmission Provider to refund 
tax gross-up amounts as transmission credits, as required in LGIA 
Article 11.4.1, may result in the Transmission Provider bearing the 
entire incremental present value cost of including the Network Upgrades 
in taxable income, if the payments are deemed taxable income. It 
asserts that the intent of Article 5.17.3 is to make the Transmission 
Provider whole if it is compelled to include the Interconnection 
Customer's payments for Network Upgrades in taxable income (thereby 
achieving the same financial result as if the Network Upgrades were not 
taxable). The LGIA should be amended to provide that any credits paid 
by the Transmission Provider to the Interconnection Customer under 
Article 11.4.1 will exclude any income tax gross-up properly collected 
under Article 5.17.3. Southern likewise argues that the Interconnection 
Customer should not receive transmission credits for tax payments 
because this would require that all Transmission Customers bear tax 
liabilities created by the Interconnection Customer.
    328. APS also argues that the Transmission Provider must be 
indemnified for all taxes that the Transmission Provider has to pay as 
a result of the Interconnection Customer's payments for Network 
Upgrades, not just income taxes.
    329. SoCal Edison argues that it is illogical to require the 
Transmission Provider, under Article 5.17.5, to reduce the level of 
security provided by Article 5.17.3 if there is a favorable private 
letter ruling from the IRS. The security is intended to protect the 
Transmission Provider against the risk that the Interconnection 
Customer will not be able to meet its indemnification obligation if 
there is a subsequent taxable event. A private letter ruling stating 
that a payment is not presently income subject to taxation does nothing 
to mitigate the Transmission Provider's risk that a subsequent taxable 
event will occur and the Interconnection Customer will not meet its 
indemnification obligation.
    330. Entergy objects to requiring the Transmission Provider to 
provide security to the Interconnection Customer for a tax gross-up 
amount that may be refunded later to the Interconnection Customer. 
Security is expensive, and this requirement is unreasonably burdensome 
on the Transmission Provider in light of the low risk that it will be 
unable to pass on a tax refund it receives to the Interconnection 
Customer. If the Commission does not eliminate this security, it should 
only require a parental guaranty as security, since that is less 
expensive. NYTO and SoCal Edison also argue that the provision 
requiring security from the Transmission Provider should be deleted. 
SoCal Edison asserts that it is inconsistent with the Commission's 
treatment of other costs subject to possible refund, such as Network 
Upgrades.
    331. SoCal Edison argues that the Commission should provide the 
Transmission Provider and the Transmission Owner with a regulatory 
backstop so that if the Interconnection Customer does not meet its 
indemnification obligation, there would still be guaranteed recovery of 
these income taxes in transmission rates. It offers two ways for the 
Commission to ensure the Transmission Provider's cost recovery: (1) 
Allow it to retain complete security until the tax liability has 
expired, whether or not a private letter ruling is issued, or (2) allow 
it to retain a reduced level of security (or even an unsecured promise-
to-pay from the Interconnection Customer) and provide a regulatory 
backstop for the Transmission Provider. This would reduce the burden on 
the Interconnection Customer while protecting other Transmission 
Customers. NYTO likewise argues that the Transmission Provider should 
be allowed to recover any outstanding federal tax liability balances 
from other Transmission Customers.
    332. Southern argues that Article 5.17.3 improperly limits the 
indemnification obligation of the Interconnection Customer because a 
taxable event could occur after ten years but still fall within the 
statute of limitations.\72\ For instance, taxes may be imposed more 
than ten years after the Generating Facility is placed in service if 
there is a ``disqualification event'' or the LGIA is terminated. 
Because the Transmission Provider faces the risk that taxes may be 
imposed more than ten years after the Generating Facility is placed in 
service, the Commission should allow the Transmission Provider to 
require security. Article 5.17.3 should be amended to terminate the 
Interconnection Customer's indemnification obligation only when the 
statute of limitations is over or the Interconnection Customer pays its 
tax obligations (because of a ``subsequent taxable event,'' described 
in Article 5.17.6). This would ensure that the Transmission Provider is 
made whole while at the same time ensuring that the Interconnection 
Customer is not subject to an indefinite security obligation.
---------------------------------------------------------------------------

    \72\ Southern explains that, contrary to Article 5.17.3, IRS 
Notice 88-129 does not limit the Transmission Provider's income tax 
liability to a ten year testing period. Notice 88-129 simply 
requires that a power purchase contract be for at least ten years in 
order for the safe harbor to apply.
---------------------------------------------------------------------------

    333. NYTO argues that transmission credits will jeopardize the 
Interconnection Customer's efforts to treat up-front funding of 
interconnection costs as a non-taxable event.
    334. On the other hand, Calpine objects to allowing the 
Transmission Provider to require security in an amount up to the 
Transmission Provider's maximum theoretical tax liability. First, 
Calpine argues that the possibility of a triggering taxable event 
occurring is remote and does not justify a burdensome security 
obligation. Even if a disqualifying event occurs, the Interconnection 
Customer would be obligated under the LGIA to indemnify the 
Transmission Provider. And since the interconnection agreement is

[[Page 15958]]

essential to the value of a generating asset, the Interconnection 
Customer (or its creditors if it is bankrupt) would honor the LGIA's 
indemnity provisions.
    335. Second, Calpine argues that unless there is a private letter 
ruling from the IRS finding that the payments are taxable income, 
allowing the Transmission Provider to require security to be posted for 
up to ten years is excessive. Calpine draws a distinction between 
payments the Interconnection Customer makes to the Transmission 
Provider for Network Upgrades and payments an Interconnection Customer 
makes for directly assignable facilities. Payments the Interconnection 
Customer makes for Network Upgrades must be returned to the 
Interconnection Customer through transmission credits. Advance payments 
for Network Upgrades are really loans, not taxable, irrevocable 
contributions. Since the Transmission Provider faces no possible tax 
liability for these payments, it is not just and reasonable to allow 
the Transmission Provider to impose a security requirement. At a 
minimum, the level of security required by the Transmission Provider 
should be reduced pro rata by the amount of the ``loan'' repaid through 
transmission credits.
    336. Calpine also proposes that the Commission limit the security 
obligation to a percentage of the potential tax liability, and cites a 
settlement order that set the security obligation at 20 percent of 
potential liability. See Southern California Edison Co., Final Report 
of Settlement Judge, 104 FERC ] 63,025 (2003).
Commission Conclusion
    337. On reconsideration, we conclude that Article 5.17.3 should 
better reflect the specific risks that the Transmission Provider faces 
with respect to taxation
    338. Under Article 5.17.3, the Transmission Provider may require 
the Interconnection Customer to pay a tax gross-up only if the 
Transmission Provider makes a ``good faith'' determination that the 
payments or property transfers at issue should be reported as income 
subject to taxation. Order No. 2003 does not distinguish payments the 
Interconnection Customer makes to the Transmission Provider for Network 
Upgrades cost from the payments made for Interconnection Facilities. We 
are revising Article 5.17.3 to make clear that (1) the Transmission 
Provider is indemnified from the cost consequences associated with a 
taxable determination for Interconnection Facilities, and (2) with 
respect to the security option, the security amount will only cover the 
Transmission Provider's exposure to the cost consequence of any current 
tax liability as of January 1 of each year for Interconnection 
Facilities.
    339. The indemnification requirement and related payment under 
Article 5.17.3 are not intended to reimburse the Transmission Provider 
for any current income tax liability that might be associated with 
payments the Interconnection Customer makes for the Transmission 
Provider's Interconnection Facilities and Network Upgrades. It is 
instead payment for the present value of the costs the Transmission 
Provider will incur (such as interest expense) to fund that current 
income tax payment, if required, until it is recouped by the 
Transmission Provider through lower tax payments in future years by 
virtue of tax depreciation of the Interconnection Facilities and 
Network Upgrades.
    340. When Interconnection Facilities (which are directly assignable 
to the Interconnection Customer) are involved, the indemnification 
payment reimburses the Transmission Provider for costs it incurs 
related to the current tax liability. In other words, it is intended to 
provide for cost recovery. Should the Interconnection Customer be 
unable to make the indemnification payment, the Transmission Provider 
would be exposed to a loss since cost responsibility for 
Interconnection Facilities is directly assigned to the Interconnection 
Customer and the Transmission Provider could not recover these costs 
from other customers. Accordingly, a security requirement that covers 
the cost consequence of any current tax liability is appropriate for 
the indemnification payment associated with Interconnection Facilities.
    341. However, when Network Upgrades are involved, the 
indemnification payment is an additional amount of funding that must be 
provided by the Interconnection Customer related to the Network 
Upgrades. It is not reimbursement for costs incurred by the 
Transmission Provider related to Network Upgrades. In other words, it 
is not intended to provide for recovery of these costs. If treated as 
an embedded (versus incremental) cost, the cost of Network Upgrades is 
ultimately recovered from all Transmission Customers through 
transmission rates; it is included in the rate base and depreciated. 
Any determination that a payment for Network Upgrades is subject to 
current income tax would give rise to a deferred tax asset, which under 
Commission rate policies, would be added to the rate base. If treated 
as an incremental cost, the cost of all Network Upgrades is ultimately 
recovered from the Interconnection Customer as part of the incremental 
transmission rate. Therefore, the Transmission Provider's transmission 
rates provide for recovery of, and return on, all costs associated with 
Network Upgrades. Should the Interconnection Customer be unable to make 
the indemnification payment, the Transmission Provider would obtain the 
required funding for any current tax liability related to Network 
Upgrades from another source (such as banks or the equity capital 
markets, among others). The Transmission Provider, however, would be 
fully reimbursed for all its costs, including the cost of funding any 
related current tax liability, through its rates. In short, the 
Transmission Provider will remain whole. Under these circumstances, 
where Network Upgrades are involved, there is no reason to require the 
Interconnection Customer to maintain security for any potential 
indemnification payment.
    342. We disagree with APS that the indemnification should apply to 
taxes other than income taxes. Because APS has offered no justification 
for why indemnification should be applied to non-income taxes, or 
described why non-income taxes otherwise would be unrecoverable from 
the Interconnection Customer, we will not expand Article 5.17.3 to 
apply to non-income taxes.
    343. We agree with Calpine's argument that it is unreasonable to 
allow the Transmission Provider to require security for up to the 
maximum amount of the Transmission Provider's potential tax liability. 
Again, as discussed above, where Network Upgrades are involved, there 
is no reason to require the Interconnection Customer to maintain 
security for any potential indemnification payment. In addition, we are 
also clarifying Article 5.17.3 so that the security requirement for 
non-network, directly assigned Interconnection Facilities reflects only 
the Transmission Provider's exposure to the cost consequence of any 
current tax liability as of January 1 of each year. Our intent is for 
the security requirement to track the cost consequence of any current 
tax liability over time.
    344. The security provided in Article 5.17.3 protects the 
Transmission Provider against the possibility that the IRS will change 
its policy in a manner that makes the payments taxable or that there 
will be a subsequent taxable event. SoCal Edison makes a valid argument 
regarding the inconsistency between Articles 5.17.3 and 5.17.5. We 
conclude that it would be inappropriate to reduce

[[Page 15959]]

the security amount based upon a private letter ruling from the IRS 
because the private letter ruling does not reduce the risk to the 
Transmission Provider that the IRS will change its policy in a manner 
that makes the payments taxable or that a subsequent taxable event will 
occur, which is what the security is intended to address. We therefore 
delete from Article 5.17.5 the requirement that a security amount be 
reduced as a result of a private letter ruling determining that 
payments are a non-taxable event. This change obviates the need to 
address SoCal Edison's request for a regulatory backstop.
    345. Entergy, NYTO, and SoCal Edison all object to the Commission 
giving the Interconnection Customer the option of requiring security if 
the Transmission Provider requires a gross-up. Upon reconsideration, we 
conclude that because the gross-up will be refunded, the 
Interconnection Customer requires no further protection from the risk 
that the Transmission Provider will become insolvent. Accordingly, we 
will not allow the Interconnection Customer to require this security.
    346. Regarding Southern's concerns about tax liability extending 
beyond the indemnification obligation in Article 5.17.3, we disagree. 
The article provides indemnification protection until the applicable 
IRS statute of limitations has expired. Southern's proposal is not 
necessary because this provision limits the indemnification obligation 
so that it ends when there is no further risk of new tax liability.\73\ 
Since Southern has not convinced us that liability would extend beyond 
the applicable IRS statute of limitations (as extended), we reject its 
request.
---------------------------------------------------------------------------

    \73\ We agree with Southern that it is inappropriate to refer to 
IRS Notice 88-129 because that notice does not address the ten year 
testing period referred to in Article 5.17.3. We are deleting the 
reference to IRS Notice 88-129 in Article 5.17.3.
---------------------------------------------------------------------------

    347. In response to NYTO, whether credits indeed endanger the non-
taxable treatment of these payments is a matter for the IRS to decide. 
Article 5.17.3 addresses the possibility that the IRS would change its 
policy.
    348. Finally, we reject Calpine's request that we make the ten year 
limit on indemnification applicable to all existing interconnection 
agreements. Order No. 2003 does not require retroactive changes to 
individual interconnection agreements filed with the Commission before 
Order No. 2003's effective date and Calpine has provided no reason for 
why this particular provision should be imposed retroactively.\74\
---------------------------------------------------------------------------

    \74\ Order No. 2003 at P 911.
---------------------------------------------------------------------------

    349. Article 5.17.4--Tax Gross-Up Amount--Article 5.17.4 describes 
how the Parties calculate the tax gross-up amount, which is intended to 
reflect the cost consequence of the current tax liability on a fully 
grossed up basis for the interconnection related payments from the 
Interconnection Customer to the Transmission Provider.
Rehearing Requests
    350. FP&L argues that a tax gross-up provision will cause losses to 
the Transmission Provider, particularly when combined with the 
requirement to refund the tax payments, plus interest, to the 
Interconnection Customer. FP&L requests that the Commission make clear 
how the Transmission Provider is to be made whole if the IRS decides 
that Network Upgrade payments are taxable.
Commission Conclusion
    351. We note that the gross-up will be collectible only if the 
Transmission Provider makes a good faith determination that it will 
have to pay income taxes on the money it receives from the 
Interconnection Customer. Accordingly, the gross-up amount should be 
payable to the taxing authorities. As explained in the discussion of 
Article 5.17.3 above, the time value cost of Network Upgrade-related 
tax payments under embedded cost treatment is paid by all Transmission 
Customers (rolled into transmission rates) because the Transmission 
Provider records a deferred tax asset at the time the tax payment is 
made and that deferred tax asset is added to the rate base under the 
Commission's ratemaking policies. Under the incremental rate treatment, 
the time value costs would be recovered from the Interconnection 
Customer as part of the incremental transmission rate. The Transmission 
Provider is thus made whole for all prudently incurred costs related to 
Network Upgrades. On the other hand, we will not require the 
Transmission Provider to refund that portion of the tax gross-up amount 
intended to cover the costs related to directly assignable 
Interconnection Facilities because the Transmission Provider has no way 
of recovering these costs from other users. By excluding these costs 
from the tax gross-up amounts the Transmission Provider must refund to 
the Interconnection Customer, time value costs that otherwise may have 
arisen are eliminated. The exclusion of these amounts (that portion of 
the tax gross-up amount intended to cover the costs related to directly 
assigned Interconnection Facilities) is incorporated into Article 
11.4.1.
    352. Article 5.17.5--Private Letter Ruling or Change or 
Clarification of Law--LGIA Article 5.17.5 requires the Transmission 
Provider to ask the IRS, at the Interconnection Customer's request and 
expense, for a private letter ruling as to whether any property 
transferred or sums paid by the Interconnection Customer under the 
interconnection agreement are subject to federal income taxation. The 
point of obtaining such a ruling is to get a definitive answer 
regarding whether taxes will be due. If the private letter ruling 
concludes that such sums are not taxable, refunds would be payable in 
accordance with Article 5.17.8.
Rehearing Requests
    353. Calpine argues that there should be no security obligation 
when a private letter ruling finds that these payments are not taxable. 
Upon the issuance of the private letter ruling, the Transmission 
Provider should have 30 days to release any security for the potential 
tax liability that the Transmission Provider required. Even if a 
private letter ruling contains covenants or conditions, release of 
security should be required. Otherwise, the purpose of securing a 
private letter ruling would be undermined.
    354. NYTO and National Grid argue that the Commission should allow 
the Transmission Provider to require security even when a private 
letter ruling has determined that the payments are nontaxable, because 
changed circumstances could render the indemnity worthless.
    355. Article 5.17.5 requires that the Transmission Provider execute 
either a privacy act waiver or a limited power of attorney authorizing 
the Interconnection Customer to participate in all discussions with the 
IRS regarding a private letter ruling request. Entergy first argues 
that this provision departs from Commission precedent \75\ without a 
reasoned explanation.\76\ Second, Entergy argues that there cannot be 
efficient communication between the Transmission Provider and the IRS 
if the Interconnection Customer has to be involved in every such 
communication. Third, a limited power of attorney would provide the 
Interconnection Customer the broad right to represent the Transmission 
Provider in a private letter ruling proceeding. Consequently, all 
representations by the Interconnection Customer to the IRS would be 
binding on the Transmission

[[Page 15960]]

Provider. Entergy claims that the Transmission Provider does not need 
third parties to act as its representatives before the IRS. 
Alternatively, the provision should apply only after the Transmission 
Provider has received notice from the IRS that it is entitled to a 
``conference of right'' with the IRS because the IRS may object to the 
Transmission Provider's position. This revision would prevent 
unnecessary inefficiency and reduce the risk that the Interconnection 
Customer will misrepresent the facts, or the Transmission Provider's 
positions, without the latter's knowledge.
---------------------------------------------------------------------------

    \75\ Citing Cambridge Electric Light Co., 96 FERC ]61,205 at 
61,875 (2001) (Cambridge).
    \76\ Citing Greater Boston Television Corp. v. FCC, 444 F.2d 
841, 852 (DC Cir. 1970).
---------------------------------------------------------------------------

    356. Salt River Project urges the Commission to give non-public 
utilities flexibility so that they do not risk losing access to tax-
exempt financing. It asserts that Article 5.17.5 should not apply to a 
Transmission Provider that is not a public utility because the sums 
paid or collected in its rates are not prescribed by Order No. 2003.
Commission Conclusion
    357. We disagree with Calpine that the security obligation should 
be extinguished when a private letter ruling states that the 
Transmission Provider will not have to pay income taxes. We agree with 
NYTO and National Grid that security is allowed even when a private 
letter ruling has determined that the payments are not income subject 
to taxation because the private letter ruling does not protect against 
the risks of a subsequent taxable event or a change in IRS policy 
occurring.
    358. In response to Salt River Project, we clarify that the tax 
provisions in the LGIA are rate-related matters. Accordingly, a non-
public utility with a safe harbor reciprocity OATT need not make 
Article 5.17.5 available to Interconnection Customers as long as any 
analogous rate provisions are comparable to those that the Transmission 
Provider charges itself.\77\ We also reiterate that we will consider 
the legal and regulatory restrictions on non-public utilities' 
contractual rights and tax-exempt status when we evaluate any safe 
harbor reciprocity OATT filings.\78\
---------------------------------------------------------------------------

    \77\ Order No. 2003 at P 843.
    \78\ Id. at P 844.
---------------------------------------------------------------------------

    359. We do not agree with NYTO regarding the requirement that the 
Interconnection Customer be allowed to participate in discussions with 
the IRS. In Cambridge, the Commission denied the Interconnection 
Customer's request that the Transmission Provider include the 
Interconnection Customer in discussions with the IRS. 96 FERC ] 61,205 
at 61,875 (2001). However, in that case the Interconnection Customer 
was not obligated to pay for the costs associated with a private letter 
ruling. Given the Interconnection Customer's potential liability and 
its obligation to pay for the private letter ruling, we conclude that 
the Interconnection Customer's interests are significant enough to 
warrant its participation in any IRS discussions and its inclusion in 
all communications with the IRS with respect to the private letter 
ruling request.
    360. Finally, we disagree with the objection regarding the power of 
attorney. The power of attorney may be written to prevent the harm that 
Entergy fears. If the power of attorney is unsatisfactory, the Parties 
may sign a privacy act waiver. In either case, the Parties should be 
able to draft a document that allows the Interconnection Customer to 
participate in discussions with the IRS without affording the 
Interconnection Customer unnecessarily broad rights. Accordingly, we 
reject Entergy's request for rehearing.
    361. We also reject Calpine's request that we make the required 
reduction in security applicable to all existing interconnection 
agreements. Order No. 2003 does not require retroactive changes to 
individual interconnection agreements filed with the Commission before 
the rule's effective date and Calpine has not shown that this 
particular provision should be imposed retroactively.\79\
---------------------------------------------------------------------------

    \79\ Order No. 2003 at P 911.
---------------------------------------------------------------------------

    362. Article 5.17.6--Subsequent Taxable Events--LGIA Article 5.17.6 
explains the Parties'' obligations if a ``subsequent taxable event'' 
occurs that makes the facilities payments taxable and creates a current 
tax liability for the Transmission Provider.
Rehearing Requests
    363. NYTO argues that the Commission's reliance on cooperation 
among the Parties is insufficient and that the Commission should adopt 
Article 5.16.5 of the consensus LGIA submitted during the ANOPR 
process. That provision would ensure that the Transmission Owner is 
made whole when a contribution from the Interconnection Customer is 
non-taxable when made, but the IRS later imposes tax liability.
    364. Article 5.17.2 contains several covenants that the 
Interconnection Customer must meet in order to conform to the IRS 
requirements for non-taxable treatment and maintain safe harbor 
protection. Southern argues that Article 5.17.6 should require the 
Interconnection Customer to pay a tax gross-up for the taxes imposed 
upon the Transmission Provider if the Interconnection Customer breaches 
any of the covenants in Article 5.17.2, not just that in Article 
5.17.2(i). Because taxes may be imposed upon the Transmission Provider 
if the Interconnection Customer breaches Article 5.17.2(ii) and (iii) 
as well, Southern contends that Article 5.17.6 should be amended to 
refer to Article 5.17.2 in its entirety.
Commission Conclusion
    365. In Order No. 2003, the Commission rejected provisions proposed 
by NYTO because NYTO's concerns were fully addressed in Article 
5.17.\80\ Moreover, Article 5.17.6 protects the Transmission Provider. 
Also, Article 5.17.3 requires the Interconnection Customer to indemnify 
the Transmission Provider from the cost consequences of any current 
income tax liability until the statute of limitations expires.
---------------------------------------------------------------------------

    \80\ Order No. 2003 at P 422.
---------------------------------------------------------------------------

    366. We agree with Southern that Article 5.17.6 inappropriately 
limits the availability of a gross-up for subsequent taxable events. 
Accordingly, we are amending it to refer to the ``covenants contained 
in Article 5.17.2.''
    367. Article 5.17.7--Contests--LGIA Article 5.17.7 describes the 
obligations that 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 expense, the 
Transmission Provider shall appeal or oppose such a determination. 
Article 5.17.7 also describes the procedures for settling a contested 
ruling.
Rehearing Requests
    368. Entergy notes that the right to appeal exists regardless of 
whether the IRS has already considered that particular transaction's 
tax treatment during an audit. The requirement elevates the 
Transmission Provider's contractual obligations under the 
interconnection agreement above its responsibilities to the taxing 
authorities to file accurate returns. For example, if a taxing 
authority determines that the corporate officer who filed an amended 
return did not believe it was accurate, that officer may be prosecuted 
for perjury. Thus, the relevant provisions in Article 5.17.7 should be 
removed or revised so that the Transmission Provider is not required to 
submit a refund claim when the Transmission Provider does not believe, 
in good faith,

[[Page 15961]]

that such claim is true, accurate, and complete.
    369. Entergy argues that Article 5.17.7 is unnecessary and 
unreasonably grants the Interconnection Customer the right to 
participate in the Transmission Provider's appeals of tax audits and 
other tax-related litigation. This will limit the Transmission 
Provider's ability to negotiate with the taxing authorities. Moreover, 
because Article 5.17.5 already grants the Interconnection Customer the 
right to require the Transmission Provider to resolve issues through 
the private letter ruling process, the additional rights granted in 
Article 5.17.7 are not needed. The private letter ruling process is 
better because it allows resolution of tax issues early in the 
interconnection process, according to Entergy.
    370. NYTO argues that the Commission should oblige a Transmission 
Owner to contest a tax determination only if the Interconnection 
Customer provides an opinion by its counsel that there is a reasonable 
likelihood of success. The Transmission Owner should not be required to 
commit money and resources to contesting tax determinations if there is 
little chance of success.
    371. If the Transmission Provider pursues a settlement to resolve 
the contest with a Governmental Authority, Article 5.17.7 provides that 
the Interconnection Customer's settlement obligation shall be the 
settlement amount consented to by the Interconnection Customer, or any 
higher settlement that is supported by written advice from a 
nationally-recognized tax counsel. Southern explains that the 
Commission in Order No. 2003 refused to require the Interconnection 
Customer's obligation to indemnify the Transmission Provider for a 
settlement to be determined on a grossed-up basis. Article 5.17.7 
limits the Interconnection Customer's obligation to the settlement 
amount agreed to between the Transmission Provider and the Governmental 
Authority. Moreover, the reimbursement of the settlement by the 
Interconnection Customer will be considered income to the Transmission 
Provider in the year of payment. Under Article 5.17.7, the 
Interconnection Customer has no obligation to pay a tax gross-up on the 
amount included in the Transmission Provider's income. The Transmission 
Provider could include tax gross-up in the settlement calculation; 
however, this would simply increase the reimbursement obligation of the 
Interconnection Customer and the additional taxes the Transmission 
Provider would owe as a result of the reimbursement. Southern submits 
that requiring the Interconnection Customer's settlement obligation 
amount to be calculated on a fully grossed-up basis would ensure that 
the Transmission Provider is made whole.
Commission Conclusion
    372. We agree with Entergy that it is appropriate to give the 
Transmission Provider discretion over how best to contest a 
Governmental Authority's determination. We are modifying Article 5.17.7 
to clarify that the Transmission Provider has discretion as to whether 
to appeal, protest, seek abatement of, file a claim for refund, or 
oppose a determination. Article 5.17.7 states that the ``Transmission 
Provider reserves the right to make all decisions with regard to 
prosecution of such appeal.'' These decisions include how best to 
contest the determination in a manner that does not harm the 
Transmission Provider's interests.
    373. Also in response to Entergy, we conclude that Article 5.17.7 
is necessary because it allows the Interconnection Customer to 
participate in contest proceedings. As with the private letter ruling 
discussion above, the significant financial interest of the 
Interconnection Customer warrants its presence at contest proceedings. 
Contest rights to the private letter ruling right are appropriate 
because the Interconnection Customer should be entitled to one appeal, 
if it believes such appeal is necessary and it is willing to pay for 
the costs.
    374. We agree with Southern that in order to make the Transmission 
Provider whole with respect to settlement amounts, the Interconnection 
Customer must pay the settlement amount as calculated on a fully 
grossed-up basis to cover any related cost consequence of a current tax 
liability.
    375. The Commission considered and rejected NYTO's argument in 
Order No. 2003 and NYTO raises no new arguments here.\81\
---------------------------------------------------------------------------

    \81\ Order No. 2003 at P 475.
---------------------------------------------------------------------------

    376. Article 5.17.8--Refund--LGIA Article 5.17.8 describes the 
conditions under which the Transmission Provider must pay a refund to 
the Interconnection Customer for any payments the Interconnection 
Customer made related to income tax liability. It also sets forth the 
formula for calculating the refund.
Rehearing Request
    377. Cinergy wants to ensure that the Transmission Provider does 
not have to refund tax-related payments to the Interconnection Customer 
if the Transmission Provider has already provided transmission credits 
for the same items. It notes that Article 5.17.3 permits the 
Transmission Provider to charge a gross-up for income taxes if the 
Transmission Provider determines, in good faith, that the payments or 
property transfers made by the Interconnection Customer should be 
treated as income subject to taxation. Cinergy states that Article 
11.4.1 requires the Transmission Provider to refund to the 
Interconnection Customer, through transmission credits, the total 
amount paid to the Transmission Provider for Network Upgrades, 
including tax-related payments ``not refunded to Interconnection 
Customer pursuant to Article 5.17.8 or otherwise.'' Article 5.17.8 
directs the Transmission Provider to return to the Interconnection 
Customer any refund received from a taxing authority for overpayment 
without limiting such refunds if transmission credits already have been 
provided to the Interconnection Customer for such payments. Cinergy 
requests that, to avoid overpayment, the Commission should clarify that 
Article 5.17.8 does not require the Transmission Provider to refund tax 
payments to the Interconnection Customer if credits already have been 
provided for such payments.
Commission Conclusion
    378. We agree with Cinergy. We clarify here that Article 5.17.8 
does not require the Transmission Provider to refund tax payments to 
the Interconnection Customer if credits already have been provided for 
such payments under Article 11.4.1.
    379. Article 5.17.9--Taxes Other Than Income Taxes--LGIA Article 
5.17.9 describes the Parties' obligations if taxes other than income 
taxes are imposed. The Interconnection Customer may be required to 
reimburse the Transmission Provider under the LGIA. The article 
requires the Transmission Provider, at the Interconnection Customer's 
expense, to appeal, protest or contest a non-income tax assessment 
against the Transmission Provider until a final, non-appealable order 
by a court or agency is issued. Unless the payment of such taxes is a 
prerequisite to an appeal or abatement or cannot be deferred, the 
Interconnection Customer is not required to pay the Transmission 
Provider until the issue is resolved on a final basis.
Rehearing Requests
    380. Southern argues that although the Interconnection Customer 
must reimburse the Transmission Provider for the cost of the contest, 
the contest may

[[Page 15962]]

still place an undue burden on the Transmission Provider if the contest 
is appealed through several levels of review. A lengthy appeal will 
require the Transmission Provider to devote administrative, accounting, 
and legal resources to a matter that may take years to resolve. 
Moreover, it is unclear under Article 5.17.9 to what extent these costs 
will be reimbursed by the Interconnection Customer. For these reasons, 
Article 5.17.9 should be amended to allow, but not require, the 
Transmission Provider to appeal or seek further reviews of tax 
assessments beyond one level of judicial review.
Commission Conclusion
    381. We conclude that the prospect of paying all the costs of 
securing a final, non-appealable ruling is a sufficient incentive for 
the Interconnection Customer not to pursue a frivolous appeal. While 
Southern claims that it is unclear that all costs will be reimbursed, 
Article 5.17.9 states that the process will be undertaken at the 
Interconnection Customer's ``sole expense.'' All reasonable costs of 
pursuing the appeal are recoverable. To provide greater clarity, 
however, we are adding to this article language that appears in Article 
5.17.7 that establishes the standard for recoverable costs and 
arrangements for their payment.
    382. Article 5.17.10--Transmission Owners Who Are Not Transmission 
Providers--Article 5.17.10 requires that if the Transmission Provider 
and Transmission Owner are not the same, (1) all references to 
Transmission Provider in Article 5.17 shall be deemed to include the 
Transmission Owner, and (2) the interconnection agreement shall not 
become effective until the Transmission Owner has agreed in writing to 
assume all duties and obligations of the Transmission Provider under 
Article 5.17.
Rehearing Requests
    383. EEI argues that the bilateral or tripartite nature of the LGIP 
and LGIA raises issues. It states that while ``Transmission Provider'' 
is generally intended to include ``Transmission Owner,'' the Commission 
should clarify why, under LGIA Article 5.17.10, the Transmission Owner 
has to explicitly assume the obligations of Article 5.16, but not under 
other provisions in which the Transmission Owner is separately 
identified, such as Articles 11.2 and 11.3.
Commission Conclusion
    384. We conclude that the written statement in Article 5.17.10 (ii) 
is unnecessary, since the Transmission Owner will sign the 
interconnection agreement and will be liable, when appropriate. 
Accordingly, we are deleting this text from Article 5.17.10. And since 
the definition of ``Transmission Provider'' already includes the 
Transmission Owner if the two entities are distinct, Article 5.17.10(i) 
is not needed. Article 5.17.10 is therefore deleted in its entirety.
    385. Article 5.18--Tax Status--LGIA Article 5.18 provides that the 
Parties shall cooperate with one another to maintain the Parties' tax 
status. It also explains that for a Transmission Provider with tax 
exempt status, the LGIA is not intended to endanger that status with 
respect to the issuance of bonds.
Rehearing Requests
    386. NYTO argues that Article 5.18 should use the same language 
regarding compliance with local furnishing bond limitations for tax 
free financing that are in the OATT.
    387. Order No. 2003 states that the Commission will act to ensure 
the continued tax-exempt status of bond funding by non-jurisdictional 
and jurisdictional entities.\82\ NRECA-APPA asks that the Commission 
also act to ensure the continued tax-exempt status of cooperatives.
---------------------------------------------------------------------------

    \82\ Order No. 2003 at P 489.
---------------------------------------------------------------------------

Commission Conclusion
    388. OATT section 5 allows the Transmission Provider to deny 
Transmission Service if doing so would jeopardize the tax-exempt status 
of any local furnishing bonds used to finance the Transmission 
Provider's facilities that would be used for such service. We conclude 
that in an agreement to be signed by the Parties, it is more 
appropriate to include a provision that requires each of them to 
cooperate to maintain the other Party's tax status. To fail to 
cooperate is to risk Breach, which would have the same result as 
denying service. The OATT section 5 rights are more appropriate for a 
set of procedures, since the Transmission Provider's right to reject 
the Interconnection Customer's request for interconnection should be 
established (and acted upon) before the Parties sign the 
interconnection agreement. And since no similar rights are described in 
the LGIP, we will include a comparable provision there--section 13.6 
(Furnishing Bonds).
    389. Article 6.4--Right to Inspect--LGIA Article 6.4 provides each 
Party with the right to inspect the other Party's facilities and states 
that any information that the Transmission Provider obtains shall be 
confidential.
Rehearing Request
    390. NYTO argues that any information either Party obtains under 
the article should be confidential.
Commission Conclusion
    391. We agree with NYTO and are revising the provision accordingly.
    392. Article 7--Metering--LGIA Article 7 requires each Party to 
comply with the Applicable Reliability Council requirements regarding 
metering. Article 7.4 specifies standards for the testing of metering 
equipment.
Rehearing Request
    393. SoCal Edison states that Article 7 conflicts with the 
California ISO Tariff and Meter Service Agreements. For example, it 
points out that Article 7.4 has different rules from the California ISO 
Tariff and Metering Protocol about meter testing. SoCal Edison seeks 
confirmation that, given the Commission's statements on flexibility for 
ISOs, its interconnection agreements can simply refer to the California 
ISO Tariff and Meter Service Protocol.
Commission Conclusion
    394. SoCal Edison asks the Commission to rule on whether (and in 
what manner) it may rely on the California ISO Tariff and Metering 
Protocol as a justification for a regional variation for LGIA Article 
7. This is a compliance issue and the Commission will, accordingly, 
address this issue when the compliance filing is considered.
    395. Article 9.1--Operations--General--LGIA Article 9.1 requires 
the Interconnection Customer and the Transmission Provider to comply 
with the Applicable Reliability Council operations requirements. It 
requires each Party to provide to the other Party all information that 
may reasonably be required to comply with Applicable Laws and 
Regulations and Applicable Reliability Standards.
Rehearing Request
    396. California Parties states that the Applicable Reliability 
Council requirements do not provide enough detail to ensure system 
protection and safety. It claims that the Western Electricity 
Coordinating Council (WECC) guidelines do not specify the types of 
protective relays and their tripping schemes and installation; such 
details are generally found in the Transmission Owner's interconnection 
handbook or similar documents that exist at the regional or sub-
regional level. Moreover, the WECC guidelines allow the individual 
utility to impose additional requirements. California

[[Page 15963]]

Parties argues that in most cases the Transmission Provider's planning 
guidelines are more voluminous and restrictive than the WECC 
guidelines. It therefore seeks clarification as to whether the 
Transmission Provider's interconnection requirements related to system 
protection and safety that are not covered in the WECC guidelines can 
be incorporated into the interconnection agreement by reference if it 
imposes such requirements on itself and all other Interconnection 
Customers, including its Affiliates.
    397. California Parties also argues that the Commission mistakenly 
omitted Appendix G from the LGIA, which was in the ANOPR, and is a 
blank page entitled ``Interconnection Guidelines.'' It asserts that the 
page was intentionally left blank during the ANOPR consensus process so 
that the Transmission Provider could include its own interconnection 
requirements. California Parties states that the Transmission Provider 
must be allowed to include additional interconnection requirements to 
maintain the safety and reliability of the Transmission System.
    398. Finally, California Parties seeks clarification that the 
provisions of the California ISO's approved Tariff governing technical 
standards for interconnections will remain in effect.
Commission Conclusion
    399. We agree that the Transmission Provider should be able to 
impose supplemental interconnection requirements not specifically 
delineated in the Applicable Reliability Council requirements, 
particularly those related to system protection and safety. However, 
the Applicable Reliability Council requirements must specifically 
provide for the inclusion of such additional requirements and the 
Transmission Provider must impose such requirements on itself and all 
other Interconnection Customers, including its Affiliates.\83\ LGIA 
Appendix G was omitted because most of the operational requirements are 
contained or referenced in the Applicable Reliability Council 
requirements. Nevertheless, if the Transmission Provider wishes to 
impose additional operational requirements, such as those related to 
system protection and safety that are not contained or referenced in 
the Applicable Reliability Council requirements, it may propose and 
justify such requirements in its compliance filing in the form of a 
separate Appendix.
---------------------------------------------------------------------------

    \83\ California Parties notes that the WECC guidelines refer to 
additional requirements that the Transmission Provider can impose 
upon the Interconnection Customer.
---------------------------------------------------------------------------

    400. We clarify that the California ISO's approved Tariff 
provisions governing technical standards for interconnections may 
remain in effect until the Commission acts on its compliance 
filing.\84\
---------------------------------------------------------------------------

    \84\ See Notice Clarifying Compliance Procedures (Issued Jan. 8, 
2004).
---------------------------------------------------------------------------

    401. Article 9.3--Transmission Provider Obligations--LGIA Article 
9.3 requires that the Transmission Provider operate, maintain, and 
control the Transmission System and the Transmission Provider's 
Interconnection Facilities in a safe and reliable manner.
Rehearing Request
    402. Southern asserts that it is inappropriate to impose broad 
obligations on the Transmission Provider's Transmission System in the 
interconnection agreement. It cites Commonwealth Edison Company, 92 
FERC ] 61,175, p. 61,621 (2000), which held that the Transmission 
Provider should not be required to indemnify the Interconnection 
Customer for liability arising from the operation of the entire 
Transmission System and that the only facilities governed by an 
interconnection agreement are the facilities necessary for the 
interconnection (including Interconnection Facilities and Network 
Upgrades). Southern contends that the LGIA should govern only 
interconnection and the Interconnection Facilities necessary to achieve 
the interconnection, not the entire Transmission System.
Commission Conclusion
    403. We deny Southern's request for rehearing because the LGIA 
already does what Southern wants. The LGIA's indemnification provision 
already limits the liability of the Transmission Provider to actions it 
takes on behalf of the Interconnection Customer. Indemnification is 
designed to protect a Party when it acts on behalf of the other Party 
under the LGIA. As explained in the discussion of Article 18.1, 
indemnification is not limited by geography or to specific types of 
facilities. This is consistent with the Commonwealth Edison Company 
precedent cited by Southern, which states that ``the indemnification 
provisions of the [interconnection agreement] deal only with the 
interconnection components of Transmission Service.''
    404. Article 9.3 requires the Transmission Provider to maintain and 
operate its Transmission System in a safe and reliable manner and in 
accordance with the LGIA. This is designed to protect the Transmission 
Provider if it is required by the LGIP or LGIA to take an action that 
could endanger the safety or reliability of its Transmission System. 
The Transmission Provider's obligation to maintain its Transmission 
System trumps its obligation to perform under the LGIP and LGIA.
    405. Article 9.6.1--Power Factor Design Criteria--LGIA Article 
9.6.1 requires the Interconnection Customer to design the Generating 
Facility to maintain a power factor at the Point of Interconnection 
within the range of 0.95 leading to 0.95 lagging, unless the 
Transmission Provider establishes different requirements that apply to 
all generators in its Control Area on a comparable basis.
Rehearing Request
    406. FPL Energy argues that wind generators for the most part 
cannot maintain the required power factor, simply because the necessary 
technology does not exist for wind generators. It states that most 
Transmission Providers realize this limitation and permit wind 
generators to maintain a power factor of unity. In fact, studies show 
that maintaining a power factor of 0.95 lagging at the Point of 
Interconnection would result in an over voltage condition that would 
trip the wind generator.
Commission Conclusion
    407. We agree with FPL Energy and are revising Article 9.6.1 to 
state that the requirements of this provision shall not apply to wind 
generators.\85\
---------------------------------------------------------------------------

    \85\ We recognize that the LGIA and LGIP are designed around the 
needs of large synchronous generators and that many generators 
relying on newer technologies may find that either a specific 
requirement is inapplicable or that it calls for a slightly 
different approach. We are granting clarifications regarding wind 
generators in our LGIA Article 5.4 (Power System Stabilizers), LGIA 
Article 5.10.3 (ICIF Construction), and LGIA Article 9.6.1 (Power 
Factor Design Criteria). We realize that there may be other areas of 
the LGIP and LGIA that may call for a slightly different approach 
for a generator relying on newer technology because it may have 
unique electrical characteristics. Accordingly, we are adding a new 
Appendix G (Requirements of Generators Relying on Newer 
Technologies) to the LGIA as a placeholder for inclusion of 
requirements specific to newer technologies.
---------------------------------------------------------------------------

    408. Article 9.6.3--Payment for Reactive Power--LGIA Article 9.6.3 
requires the Transmission Provider to pay the Interconnection Customer 
for reactive power the Interconnection Customer provides or absorbs 
only when the Transmission Provider requests the Interconnection 
Customer

[[Page 15964]]

to operate the Generating Facility outside a specified power factor 
range. Payments by the Transmission Provider are to be under the 
Interconnection Customer's rate schedule unless service is under a 
Commission-approved RTO or ISO rate schedule. If no rate schedule is in 
effect, the Interconnection Customer is to file one within 60 days of 
when reactive power service begins. The TransmissionProvider must pay 
the Interconnection Customer the amount that would have been due if the 
rate schedule had been in effect when service began.
Rehearing Requests
    409. TDU Systems seeks clarification as to whether a non-
jurisdictional generation and transmission (G&T) cooperative is 
required to file a rate schedule with the Commission in order to be 
paid for providing reactive power to the Transmission Provider.
    410. Calpine asks the Commission to clarify the following statement 
from P 544 of Order No. 2003: ``[T]he 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.'' Calpine interprets this statement to mean 
that the Transmission Provider may require the Interconnection Customer 
to run the Generating Facility solely for the purpose of providing 
reactive power and to operate it within the prescribed power factor 
range so that the Transmission Provider will not have to pay the 
Interconnection Customer for the service. It seeks clarification that 
absent a capacity purchase or a true emergency, the Interconnection 
Customer need not bring the Generating Facility on line to provide 
reactive power simply because it has an interconnection agreement with 
the Transmission Provider.
    411. Calpine also argues that comparability requires that the 
Interconnection Customer be paid for providing reactive power even 
within the established range if the Transmission Provider pays its own 
or affiliated generators for such service. It explains that a 
Transmission Provider may be paid for providing reactive power within 
the established range when it includes such costs in its revenue 
requirement.
    412. Similarly, Duke Energy and Reliant state that the LGIA should 
provide for compensation to the Interconnection Customer for reactive 
power provided within the established power factor range. It argues 
that the compensation for reactive power within the established power 
factor range should be decided (along with the compensation for 
reactive power provided outside the power factor range) when the 
Interconnection Customer submits its rate schedule for reactive power 
service.
    413. Reliant argues that Order No. 2003 conflicts with the approach 
for generator compensation for reactive power service adopted by PJM, 
and if not overturned on rehearing will lead to numerous disputes in 
PJM and elsewhere.
Commission Conclusion
    414. In response to TDU systems, we clarify that we are not 
requiring a non-public utility to file a rate schedule in order to be 
compensated for reactive power.
    415. With respect to Calpine's request for clarification, there is 
nothing in Article 9.6.3 requiring the Interconnection Customer to run 
the Generating Facility solely to provide reactive power to the 
Transmission Provider simply because it has an interconnection 
agreement with the Transmission Provider.
    416. We agree with Calpine that if the Transmission Provider pays 
its own or its affiliated generators for reactive power within the 
established range, it must also pay the Interconnection Customer. This 
also addresses Duke Energy's and Reliant's concerns. We are revising 
Article 9.6.3 accordingly.
    417. Article 9.7.1.2--Outage Schedules--LGIA Article 9.7.1.2 
requires the Transmission Provider to post transmission facility 
outages on its Open Access Same-Time Information System (OASIS) and 
requires the Interconnection Customer to schedule its maintenance on a 
rolling 24 month basis. The Transmission Provider may ask the 
Interconnection Customer to reschedule its maintenance as necessary to 
maintain the reliability of the Transmission System, but that adequacy 
of generation supply shall not be a criterion in determining 
Transmission System reliability. The Transmission Provider must pay the 
Interconnection Customer for any direct costs that the Interconnection 
Customer incurs as a result of having to reschedule maintenance.
Rehearing Requests
    418. Central Maine asserts that RTOs and ISOs should be allowed to 
request rescheduling of certain outages for any reliability reasons, 
including the adequacy of supply.
    419. NYTO observes that there does not appear to be a reciprocal 
requirement for the Interconnection Customer to pay the Transmission 
Provider for modifications to the Transmission Provider's maintenance 
schedule. Since the ISO is responsible for reliability it, not the 
Transmission Owner, should be required to pay the Interconnection 
Customer for any costs of rescheduling maintenance that is required for 
reliability. Payments under this provision should be made according to 
the ISO's Tariff.
Commission Conclusion
    420. We agree with Central Maine that an RTO or ISO may have 
greater flexibility in rescheduling certain outages. Order No. 2003 
states that an independent RTO or ISO may adopt provisions different 
from those in the LGIP and LGIA because they are much less likely to 
engage in undue discrimination. An RTO or ISO may file to reschedule 
outages for reliability reasons in its compliance filing and the 
Commission will consider the proposal at that time. The Commission will 
also consider proposals from an RTO or ISO as to who should compensate 
the Interconnection Customer for rescheduling maintenance. However, we 
deny NYTO's request for reciprocal compensation because we are not 
persuaded that it is warranted.
    421. Article 10.5--Operating and Maintenance Expenses--LGIA Article 
10.5 provides that, except for operation and maintenance expenses 
associated with modifications made to provide interconnection or 
Transmission Service to a third party, the Interconnection Customer 
shall be responsible for all reasonable expenses, including overheads, 
associated with (1) owning, operating, maintaining, repairing, and 
replacing the Interconnection Customer's Interconnection Facilities, 
and (2) operating, maintaining, repairing, and replacing the 
Transmission Provider's Interconnection Facilities.
Rehearing Requests
    422. Southern argues that the Interconnection Customer should also 
be responsible for expenses related to Network Upgrades that are 
required solely to accommodate the interconnection. Otherwise, the 
Transmission Provider and its Transmission Customers would subsidize 
the cost of facilities that may provide them no benefit.
    423. Central Maine states that in regions where Interconnection 
Customers do not pay for Transmission Service, such as New York and New 
England, not requiring them to pay expenses associated with Network 
Upgrades allows them to use the entire Transmission System without 
making

[[Page 15965]]

any contribution towards its associated costs. Central Maine emphasizes 
that it is not suggesting that the Interconnection Customer pay 
expenses for the entire Transmission System, just those associated with 
the specific Network Upgrades necessitated by its interconnection.
Commission Conclusion
    424. We deny Central Maine's and Southern's requests for rehearing. 
Since Network Upgrades provide a system-wide benefit, expenses 
associated with owning, maintaining, repairing, and replacing them 
shall be recovered from all Transmission Customers rather than being 
directly assigned to the Interconnection Customer.\86\ However, the 
Commission will entertain proposals of the type described by Central 
Maine and Southern from an RTO or ISO.
---------------------------------------------------------------------------

    \86\ Order No. 2003 at P 694.
---------------------------------------------------------------------------

    425. Article 11.5--Provision of Security--LGIA Article 11.5 
requires that at least 30 days before the start of procurement, 
installation, or construction of a discrete portion of the Transmission 
Provider's Interconnection Facilities, Network Upgrades, or 
Distribution Upgrades, the Interconnection Customer must provide the 
Transmission Provider with (at the Interconnection Customer's option) a 
guarantee, a surety bond, a letter of credit, or another form of 
security, sufficient to cover the costs of the procurement, 
installation, or construction of that facility. The security required 
is then reduced on a dollar-for-dollar basis as the Interconnection 
Customer pays off its bill. Articles 11.5.1-11.5.3 govern the nature of 
the security and requires that the security provided be reasonably 
acceptable to the Transmission Provider.
Rehearing Requests
    426. NYTO states that it is unreasonable to allow the 
Interconnection Customer to dictate the terms and conditions of the 
security instrument and that the Transmission Owner should have the 
right to request a specific type of security.
    427. NYTO also argues that the Commission should require the 
Interconnection Customer's security deposit to cover the full cost of 
the Network Upgrades.
    428. Southern asserts that requiring the amount of security to be 
reduced on a dollar-for-dollar basis as the Interconnection Customer 
makes payments to the Transmission Provider ignores the risks imposed 
upon the Transmission Provider under bankruptcy and fraudulent 
conveyance law. For example, payments made by the Interconnection 
Customer could be set aside or required to be refunded in a bankruptcy 
or insolvency action. If the security has been reduced by the amount of 
such payments, the Transmission Provider would have no reasonable 
prospect of being repaid for any payments required to be returned or 
set aside. Southern argues that the security should not be reduced 
until the expiration of any possible bankruptcy preference periods, 
during which time the Interconnection Customer's payments may be 
subject to being set aside.
    429. Southern also states that the credit support for Network 
Upgrades for the Transmission Provider's Interconnection Facilities 
should not be reduced by payments the Interconnection Customer makes to 
the Transmission Provider that are unrelated to such upgrades or the 
construction, procurement, and installation of the Transmission 
Provider's Interconnection Facilities.
Commission Conclusion
    430. In response to NYTO, we note that Article 11.5 already 
adequately protects the Transmission Provider. Article 11.5.1 requires 
that any guarantee meet the Transmission Provider's credit worthiness 
standards; Article 11.5.2 requires that any letter of credit be issued 
by a financial institution reasonable acceptable to the Transmission 
Provider; and Article 11.5.3 requires that any surety bond be issued by 
an insurer reasonable acceptable to the Transmission Provider.
    431. In response to Southern's concerns that the bankruptcy of the 
Interconnection Customer might create a financial hardship for the 
Transmission Provider, we recognize that reducing the security as the 
Interconnection Customer pays its bills may cause a small increase in 
exposure to the Transmission Provider. However, the chilling effect of 
requiring the Interconnection Customer to maintain the full security 
during the length of the interconnection process would seriously 
discourage new generation.
    432. We agree with Southern that the reduction in security as the 
Interconnection Provider pays its bills applies only to payments 
associated with the upgrade, construction, procurement, and 
installation of the Transmission Provider's Interconnection Facilities 
for which the security was provided. We are amending Article 11.5 
accordingly.
    433. Article 12.3--Invoice--Payment--LGIA Article12.3 provides that 
payment of invoices by the Interconnection Customer is not a waiver of 
any rights or claims it may have under the interconnection agreement.
Rehearing Requests
    434. Central Maine and NYTO assert that this article should be made 
reciprocal so that payment of an invoice by either Party will not waive 
any rights or claims such Party may have under the interconnection 
agreement.
Commission Conclusion
    435. We agree and are revising Article 12.3 accordingly.
    436. Article 13.1--Emergencies--Definition--LGIA Article 13.1 
defines Emergency Condition as a situation that (1) in the judgment of 
the Party making the claim, is imminently likely to endanger life or 
property, or (2) in the case of the Transmission Provider making the 
claim, is imminently likely (as determined in a non-discriminatory 
manner) to damage or cause a material adverse effect on the security of 
the Transmission System, the Transmission Provider's Interconnection 
Facilities, or the Transmission Systems of others to which the 
Transmission Provider is directly connected, or (3) 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.
Rehearing Requests
    437. Calpine states that the LGIA should provide that any situation 
caused by a lack of sufficient generating capacity to meet load 
requirements that results solely from economic conditions shall not, on 
its own, be an Emergency Condition. Otherwise, the Transmission 
Provider will be able to lean on others in the Control Area to meet 
load requirements instead of building new capacity to meet these needs. 
Alternatively, the Commission should provide for a capacity payment to 
the Interconnection Customer for making its generating capacity 
available to the Transmission Provider during Emergency Conditions.
Commission Conclusion
    438. In Order No. 2003, the Commission was concerned about the harm 
to the Transmission System if the Transmission Provider does not have 
the flexibility to respond during Emergency Conditions. We are not

[[Page 15966]]

adopting Calpine's proposal because it would take away the tools needed 
by the Transmission Provider in an Emergency Condition when the safety 
and reliability of the Transmission System are at risk.
    439. With respect to Calpine's alternative request that the 
Interconnection Customer should receive a capacity payment for making 
its generating capacity available during an Emergency Condition, 
Article 11.6.1 already provides that the Transmission Provider shall 
pay the Interconnection Customer for providing real power or other 
services during an Emergency Condition. Payment is to be made under the 
Interconnection Customer's rate schedule. Calpine may propose a charge 
for the real power and other services provided during an Emergency 
Condition when it files its rate schedule for such services.
    440. Article 13.6--Emergencies--Interconnection Customer 
Authority--LGIA Article 13.6 discusses Interconnection Customer 
authority during Emergency Conditions to take actions consistent with 
Good Utility Practice.
Rehearing Requests
    441. Central Maine and NYTO claim that it appears that the 
Commission intended to delete the following two sentences from the NOPR 
Article 13.6: ``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 Generating Facility. 
Upon request, Interconnection Customer shall provide Transmission 
Provider with documentation of any such alleged material adverse 
impact.'' They argue that the Transmission Provider must have the 
exclusive authority to provide directives and to ensure enforcement 
thereof in an Emergency Condition.
Commission Conclusion
    442. Article 13.6 provides that the ``* * * Interconnection 
Customer may take actions or inactions with regard to the Large 
Generating Facility or Interconnection Customer's Interconnection 
Facilities during an Emergency Condition in order to * * * (ii) 
preserve the reliability of the Large Generating Facility or 
Interconnection Customer's Interconnection Facilities, (iii) limit or 
prevent damage * * *.'' NERC proposed this language in its comments and 
the Commission adopted it in Order No. 2003. The Commission also 
intended to delete the two sentences that Central Maine and NYTO want 
removed, and we do so now on rehearing.
    443. Article 14.1--Regulatory Requirements--LGIA Article 14.1 
provides that a Party's obligation to perform under the LGIA begins 
only after any necessary governmental licenses or approvals are 
obtained. It also states that nothing in the interconnection agreement 
shall require the Interconnection Customer to take any action that 
could result in its inability to obtain, or its loss of, special status 
or exemptions under the FPA or the Public Utility Holding Company Act 
(PUHCA) of 1935, as amended.
Rehearing Request
    444. NYTO asks that the Commission amend Article 14.1 to state that 
if the Interconnection Customer's non-compliance with the 
interconnection agreement has a material and adverse effect on the 
Transmission Provider, they are to negotiate in good faith on an 
appropriate amendment to the interconnection agreement.
Commission Conclusion
    445. NYTO gives no examples of the type of problem it envisions. If 
there is a serious problem caused by the Interconnection Customer's 
special status under PUHCA or the FPA and corresponding inability to 
abide by the interconnection agreement, the Parties are free to come to 
the Commission, explain the problem, and provide alternative language 
that would be consistent with or superior to the present Tariff 
language.
    446. Finally, we note that the Commission inadvertently excluded 
the Public Utility Regulatory Policies Act of 1978 (PURPA) \87\ from 
the referenced laws. We are revising Article 14.1 to reference PURPA.
---------------------------------------------------------------------------

    \87\ See 16 U.S.C. 2601 et seq. (2000).
---------------------------------------------------------------------------

    447. Article 16--Force Majeure--LGIA Article 16 sets forth the 
conditions and procedures for declaring a Force Majeure event which 
excuses the Party declaring the Force Majeure event from performing its 
obligations under the LGIP and LGIA during the event. Economic hardship 
is not a Force Majeure.
Rehearing Request
    448. NYTO states that Order No. 2003 allows an act of negligence or 
intentional wrongdoing committed by an entity other than the Party 
claiming Force Majeure to qualify as a Force Majeure event. It asks the 
Commission to incorporate this determination into Article 16, as well 
as the definitions in the LGIP and LGIA.
Commission Conclusion
    449. We agree and are correcting the definition of ``Force 
Majeure;'' however, no change is needed in Article 16.1.
    450. Article 17.1--Default--LGIA Article 17 allows a defaulting 
Party 30 days in which to cure (or to begin to cure) the Default after 
being notified by the non-defaulting Party that there is a problem. 
Article 17.1.1 also states that no Default shall exist where the Breach 
is caused by Force Majeure or an act or omission of the non-defaulting 
party. If the Default is not cured within the time allowed under 
Article 17.1.1, Article 17.1.2 sets forth the rights of the non-
defaulting party, including, if it desires, termination of the 
interconnection agreement.
Rehearing Requests
    451. Central Maine and NYTO point out that the term ``Default'' in 
Article 17 is inconsistent with the definitions of ``Default'' and 
``Breach'' in Article 1. They request clarification that the sequence 
of events giving rise to termination under Article 17 is a ``Breach,'' 
which, if uncured, results in a ``Default,'' which may allow 
termination of the interconnection agreement.
Commission Conclusion
    452. We agree and are amending Article 17.1 accordingly.
    453. Article 18.2--Consequential Damages--LGIA Article 18.2 states 
that neither Party will be liable to the other for special, indirect, 
incidental, consequential, or punitive damages as a result of the 
interconnection agreement. It does, however, contain an exception for 
liquidated damages, which is discussed in section II.C--Article 5.3 
(Liquidated Damages).
Rehearing Request
    454. Central Maine requests that the Commission prohibit 
consequential damages from being paid as part of an indemnity claim. 
Central Maine suggests removing the portion of Article 18.2 that 
exempts indemnity payments from the general rule that no consequential 
damages are allowed under the LGIA.
Commission Conclusion
    455. We reject Central Maine's request for rehearing. The 
indemnification of one Party by another must be comprehensive and must 
include any liability the indemnified Party faces as a result of the 
indemnifying Party's misdeeds. While Article 18.2 prevents one Party 
from seeking consequential damages against another Party, the purpose 
of the indemnification

[[Page 15967]]

provision is different; it protects the Party not at fault from 
liability to third parties (those who are not Parties to the 
interconnection agreement). Requiring the indemnifying Party to 
reimburse the indemnified Party only for, say, compensatory damages and 
not for punitive damages that may be assessed against the indemnified 
Party would weaken the LGIA's protections and shield the indemnifying 
Party from full liability.
    456. Article 18.3--Insurance--LGIA Article 18.3 requires that each 
Party, at its own expense, maintain minimum insurance coverage as 
spelled out in Articles 18.3.1'18.3.9, or may self-insure subject to 
certain creditworthiness requirements.
Rehearing Requests
    457. Southern argues that all Parties, even those that self-insure, 
should have to comply with the minimum insurance requirements in 
Articles 18.3.1-18.3.9.
    458. NRECA-APPA requests that the Commission eliminate the 
requirement that the Transmission Provider maintain insurance coverage 
similar to that of the Interconnection Customer. It points out that 
many Transmission Providers already have coverage that exceeds the 
requirements of Article 18. In the alternative, the Commission should 
clarify that the Transmission Provider need not acquire additional 
insurance just to apply to the interconnection arrangement if it 
already has adequate coverage.
    459. Avista requests that Parties to the interconnection agreement 
be permitted to negotiate alternative self-insurance arrangements and 
that the Commission remove the creditworthiness requirements for self-
insurers. It notes that even in bankruptcy, a utility still can seek 
rate increases to cover its self-insurance obligations. Furthermore, 
mandating that the Interconnection Customer be entitled to ``named 
additional insured'' status on the utility's general liability policy 
could increase the cost of insurance. According to Avista, the number 
of Interconnection Customers potentially involved makes this 
requirement cumbersome and expensive. Avista also comments that it is 
not clear if the Commission intends that the other Party be entitled to 
``additional insured'' status or ``named additional insured'' status. 
This may impose different standards under state law, particularly with 
respect to notice of cancellation. Avista finally notes that workers' 
compensation requirements vary significantly by state; the Commission 
should not attempt to federally preempt these long-standing practices. 
Some states require third party insurance and have systems and carriers 
for that statutory framework. In other states, such as Washington, 
self-insurance is the primary program, with varying requirements for 
administration. According to Avista, the interconnection agreement 
should simply require compliance by each Party with the applicable 
state workers compensation laws.
Commission Conclusion
    460. We concur with Southern that self-insuring entities should be 
required to maintain the minimum insurance levels specified in Article 
18, and we are modifying Article 18 accordingly. Additionally, we 
clarify that self-insuring Parties must follow the notification 
requirements of Article 18.3.9.
    461. In response to NRECA-APPA's comment, we clarify that the 
Transmission Provider is not required to get additional insurance to 
cover the interconnection if its existing policies satisfy the 
requirements of Article 18.3.6 and if it complies with the notification 
requirements in Article 18.3.9.
    462. We agree with Avista that the relevant state law should govern 
the amount of worker's compensation coverage the Parties are required 
to maintain. Therefore, we will modify Article 18.3.1 to remove the 
minimum insurance amounts.
    463. Regarding whether the Transmission Provider is required to 
list the other Parties as an ``additional insured'' or as a ``named 
additional insured,'' we clarify that the other Party must be at least 
an ``additional insured.'' This will limit the administrative burden on 
the Parties while still adequately protecting them.
    464. Finally, we reject Avista's request that self-insurance 
(except where otherwise allowed by stated law in Article 18.3.1) be 
allowed without meeting credit rating requirements. Many public 
utilities sell power under state, not federal, oversight, and there is 
no guarantee that a rate increase to cover increased insurance costs 
would be approved by a state commission in a timely manner. We conclude 
that the credit requirements are a reasonable safeguard that protects 
all Parties.
    465. Article 19.1 `` Assignment `` LGIA Article 19.1 provides that 
the written consent of the non-assigning Party is ordinarily required 
to assign the interconnection agreement. However, the consent of the 
non-assigning Party is not required if the assignee is an Affiliate of 
the assignor and meets certain qualifications, such as a higher credit 
rating. No consent is required if the Interconnection Customer assigns 
the interconnection agreement for collateral security purposes to seek 
financing.
Rehearing Requests
    466. Southern is concerned that an assignee of the Interconnection 
Customer would receive preferential treatment under Article 19.1. The 
Interconnection Customer's assignee may not be equipped to follow 
through on the LGIA. The LGIA should ensure that the assignee agrees to 
pay and perform all obligations of the Interconnection Customer under 
the LGIA, including providing letters of credit or other guarantees 
sufficient to protect the Transmission Provider to the same extent as 
the Interconnection Customer.
    467. Additionally, Southern believes that the Interconnection 
Customer should not be allowed to assign the interconnection agreement 
to any person, including an Affiliate, without the consent of the 
Transmission Provider. This subjects the Transmission Provider to 
unnecessary risk. Among other things, assignment may undermine the 
Transmission Provider's billing and collection procedures and the 
ability of the Transmission Provider to collect under any outstanding 
guarantee or letter of credit. Southern also argues that the 
Interconnection Customer should not be able to assign the 
interconnection agreement for securitization purposes. It argues that 
this prevents the Transmission Provider from exercising any control 
over the assignment. Therefore, Southern requests that the Commission 
revise Article 19.1 to provide that the Interconnection Customer may 
not assign the interconnection agreement to any third party, including 
an Affiliate, for any purpose, including as collateral, without the 
written consent of the Transmission Provider.
    468. Southern also states that the Interconnection Customer, not 
the assignee, should notify the Transmission Provider of the 
assignment. The ``secured party, trustee or mortgagee'' is not in 
contractual privity with the Transmission Provider, cannot be required 
to notify the Transmission Provider of the assignment, and may not be 
subject to Commission jurisdiction.
    469. Additionally, Southern argues that it is unreasonable to allow 
the Interconnection Customer to assign the LGIA as collateral, subject 
only to very limited notice requirements, while not allowing the 
Transmission Provider to do the same.

[[Page 15968]]

Commission Conclusion
    470. We agree with Southern that an entity exercising its 
assignment rights should be subject to the same security and insurance 
requirements as the original Interconnection Customer. While Article 
19.1 already suggests that by requiring the entity exercising its right 
of assignment to ``step into the shoes'' of the assigning party, we are 
granting rehearing and modifying Article 19.1 to make this clear. The 
revised provision now requires that an assignee exercising its right of 
assignment notify the Transmission Provider of the date and particulars 
of any such exercise of assignment right(s), including providing the 
Transmission Provider with proof that it meets the requirements of 
Articles 11.5 and 18.3.
    471. We also agree with Southern that the Interconnection Customer, 
not the assignee, should inform the Transmission Provider of any 
assignment for collateral purposes and are amending Article 19.1 
accordingly.
    472. However, Southern's concern that an assignee may not be 
equipped to proceed with the interconnection is misplaced. Article 19.1 
already requires that the assigned party have the ``legal authority and 
operational ability to satisfy the obligations of the assigning 
Party.'' Additionally, Article 19.1 specifies that assignment does not 
expand or relieve the obligations of either Party, which protects the 
Parties from potential abuse.
    473. We disagree with Southern's assertion that the Interconnection 
Customer should be required to receive the written consent of the 
Transmission Provider before assigning the interconnection agreement to 
an Affiliate. The Transmission Provider is protected by the requirement 
that the Affiliate have a higher credit rating and the legal authority 
and operational abilities to meet its obligations under the agreement. 
If the Transmission Provider is concerned about the Affiliate's ability 
to meet these criteria, it may invoke Dispute Resolution.
    474. We also deny Southern's request that the Interconnection 
Customer be required to receive the Transmission Provider's permission 
before it assigns the interconnection agreement for financing purposes. 
In many instances, the Interconnection Customer's rights under the 
interconnection agreement are one of its most valuable assets and it is 
appropriate to allow it to pledge that asset in order to secure funds 
without first seeking the approval of a non-independent Transmission 
Provider.
    475. We also deny Southern's request that Transmission Providers 
also be given the right to collaterally assign the interconnection 
agreement without permission of the other Party. While the 
Interconnection Customer's ability to build a new Generating Facility 
is often dependent on its being able to raise substantial amounts of 
capital and to obtain outside financing, the Transmission Provider is 
not subject to similar constraints. Therefore, we are unwilling to make 
an exception in this instance from the general rule that a Party must 
seek permission of the other Party before assigning its rights under 
the LGIA.
    476. Finally, we will not require an entity, exercising its right 
to assignment, to be responsible for debts of the assigning Party as 
Southern requests. The Transmission Provider already is protected 
against an Interconnection Customer's default by the security 
provisions of Article 11.5. Additionally, a Transmission Provider is 
not harmed by allowing the interconnection process to go forward with a 
new entity; either way, the new entity is responsible for any new 
debts, while the original Interconnection Customer is responsible for 
debts up until the right of assignment is exercised.
    477. Article 21--Comparability--LGIA Article 21 requires that the 
Parties comply with all applicable comparability requirements and code 
of conduct laws, rules and regulations, as amended from time to time.
Rehearing Requests
    478. Avista asserts that this provision is too broad and does not 
specify which jurisdiction's rules and regulation the Parties are 
required to follow. It states that ``code of conduct'' and 
``comparability'' are not capitalized, but appear to be intended as a 
reference to a Commission requirement. Avista requests that this 
article refer to specific codes and rules. It further states that 
Parties should be given an opportunity to comment on the specific codes 
and rules proposed to be referenced.
Commission Conclusion
    479. Article 21 simply requires that the Parties comply with all 
applicable laws, rules and regulations relating to comparability and 
code of conduct.
    480. Article 22--Confidentiality--Article 22 describes what 
constitutes Confidential Information and the protection to be given 
such information when shared between the Parties. It sets forth 
procedures for the release of Confidential Information and guidelines 
about how Confidential Information should be treated when it is subject 
to a request from the Commission as part of an investigation. The 
information of the Parties is protected by this article provided the 
information is identified as Confidential Information.
Rehearing Requests
    481. Avista asks that Article 22.1.10 allow either Party to provide 
information to state regulatory staffs without providing notice to the 
other Party. The utility should not have to obtain a legal opinion as 
to whether state regulatory staff has the right to receive the same 
information that Commission staff may obtain to provide the information 
under other confidentiality provisions of the LGIA.
    482. Central Maine and NYTO request clarification that all 
information asserted or deemed to be confidential under the LGIA will 
be treated under Article 22. They also seek clarification that the 
Commission intends to treat the Parties' Confidential Information the 
same rather than to give more protection to the Interconnection 
Customer's Confidential Information.
    483. Central Maine is also concerned about Article 6.4, which 
states that ``[a]ny information a Transmission Provider obtains through 
the exercise of any of its rights under this Article 6.4 shall be 
deemed to be confidential hereunder.'' Given that Article 22 governs 
confidentiality, Central Maine maintains that information ``asserted by 
the Interconnection Customer'' to be confidential, under various 
sections of the LGIA, should instead be deemed ``Confidential 
Information'' per Article 22. Furthermore, to prevent disparate 
treatment, any Transmission Owner or Transmission Provider information 
obtained through the exercise of a right under the LGIA must be treated 
as ``Confidential Information'' under Article 22.
    484. NYTO and Southern argue that Articles 22.1.11 and 22.1.12 are 
redundant and should be deleted to avoid confusion, since most of the 
terms are covered elsewhere in Article 22.
    485. Southern states that Section 22.1.3 should allow the 
Transmission Provider to disclose information to an Affiliate and 
subcontractors, employees, and consultants on a need-to-know basis, if 
they agree to be bound by confidentiality requirements. These entities 
are essential to interconnection work.
Commission Conclusion
    486. In response to Avista's request, we clarify that, if state 
regulators have the authority to request Confidential Information, the 
exception in Article 22.1.11 permits disclosure. But Article 22.1.11, 
unlike Article 22.1.10, requires either Party to notify the other once 
it

[[Page 15969]]

receives a request for Confidential Information. If a state is 
conducting an investigation, it should be able to request information 
from one Party without that Party notifying the other. We are revising 
Articles 22.1.10 and Article 22.1.11 accordingly. We also agree with 
Central Maine that all information asserted to be Confidential 
Information should be treated per Article 22. To this end, we are also 
removing the discussion of confidentiality from Article 3.1.
    487. We likewise are revising Article 6.4, as Central Maine 
requests, to clarify that the information obtained by exercising the 
rights under Article 6.4 is Confidential Information under Article 22. 
We are not amending the provision to expressly include ``Transmission 
Owners,'' since the definition of Transmission Provider includes the 
Transmission Owner.
    488. Article 22.1.11, while it contains some provisions that are 
repeated elsewhere within Article 22, also provides a list of 
exceptions to the confidentiality rules that do not appear elsewhere in 
Article 22. For this reason, Article 22.1.11 shall remain in the LGIA. 
As for Article 22.1.12, we agree with NYTO that it is redundant because 
Article 22.1.2 covers the same exception and are therefore deleting 
Article 22.1.12.
    489. We are also making conforming changes to Section 13.1 of the 
LGIP.
    490. Finally, we are granting Southern's request and are revising 
Article 22.1.3 to allow the Transmission Provider to share Confidential 
Information with an Affiliate and subcontractors, employees, and 
consultants under Article 22.1.3 on a need-to-know basis. We are also 
clarifying that this extension of rights to Affiliates is limited by 
the Standards of Conduct to information necessary to effect the 
interconnection.
    491. Article 25.3 `` Audit Rights `` LGIA Article 25 provides that 
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 the 
interconnection agreement.
Rehearing Requests
    492. NYTO and Central Maine argue that the auditing Party should be 
responsible for the costs incurred to supervise and cooperate with the 
audit.
    493. NYTO and Central Maine also request that certain limitations, 
such as the number of audits allowed per year and the duration of each 
audit, be added to the provision. Central Maine proposes that the 
following new provision be added as Article 25.4.3:

    Audit Parameters--The Party seeking to audit pursuant to section 
25.4 (the ``Auditing Party'') shall provide the other Party fifteen 
(15) days prior written notice of a request to audit. Any data 
collection for such audit shall be performed continuously until 
complete and the Auditing Party shall utilize commercially 
reasonable efforts to complete the data collection for such audit 
within thirty (30) days, however, in no event shall any data 
collection for such audit continue for more that sixty (60) days. 
Each Party reserves the right to assess a reasonable fee to 
compensate for the use of its personnel in assisting any inspection 
or audit of its books, records or accounts by the Auditing Party.
Commission Conclusion
    494. We deny Central Maine's and NYTO's requests. Article 25.3 
clearly states that the Party requesting the audit is responsible for 
the audit costs. Given that the Party requesting the audit has to pay 
for it, we are not convinced that audit limitations are necessary.
    495. Article 29--Joint Operating Committee--LGIA Article 29 
requires the Transmission Provider to establish a Joint Operating 
Committee to coordinate operating and technical considerations of 
Interconnection Service for all of its Interconnection Customers. It 
also requires that any decisions or agreements made by the Joint 
Operating Committee shall be in writing.
Rehearing Request
    496. California Parties states that the duties of the Joint 
Operating Committee are unclear. P 523 of Order No. 2003 states that 
the Parties are expected to comply with the procedures established by 
the Joint Operating Committee. But, the list of prescribed duties in 
Articles 29.1.1--29.1.6 does not include the adoption of detailed 
technical and operational requirements. California Parties is concerned 
that the Joint Operating Committee, rather than the Transmission 
Provider, may be establishing the interconnection requirements.
Commission Conclusion
    497. California Parties misunderstands the purpose of the Joint 
Operating Committee, which is to provide an opportunity for 
Interconnection Customers to discuss practical difficulties faced by 
them in implementing the technical and operational requirements of the 
Transmission Provider and to seek resolution of those matters. The 
duties of the Joint Operating Committee are clearly laid out in 
Articles 29.1.1--29.1.6. They do not include the adoption of detailed 
technical and operational requirements for interconnection.

D. Other Significant Policy Issues

1. Interconnection Products and Scope of Service
    498. The LGIA provides for two Interconnection Service products 
from which the Interconnection Customer may 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. Neither is for the 
delivery component of Transmission Service, and neither requires the 
Interconnection Customer to identify a specific buyer (or sink) until 
it seeks to obtain delivery service under the Transmission Provider's 
OATT. LGIA Article 4 (Scope of Service) defines these products and sets 
forth specific Interconnection Study requirements for each. This 
article also describes the relationship between delivery service and 
Interconnection Services, as well as the rights and responsibilities 
that each Interconnection Service entails. In addition, LGIP Section 
3.2 sets forth the procedure that the Interconnection Customer must use 
to select an Interconnection Service. In particular, the 
Interconnection Customer requesting Network Resource Interconnection 
Service may also request that it be concurrently studied for Energy 
Resource Interconnection Service, up to the point when an 
Interconnection Facility Study Agreement is executed. The 
Interconnection Customer may then elect to proceed with Network 
Resource Interconnection Service or with a lower level of 
Interconnection Service (under which only certain upgrades will be 
completed).
    499. Energy Resource Interconnection Service allows the 
Interconnection Customer to connect the 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, 
Energy Resource Interconnection Service allows the Interconnection 
Customer to place a bid to sell into the market where the Generating 
Facility would be dispatched if the bid is accepted. No customer 
specific transmission delivery service is assured, but the 
Interconnection Customer may obtain point to point Transmission Service 
or gain access to secondary network Transmission

[[Page 15970]]

Service, under the Transmission Provider's OATT. Firm Point to Point 
Transmission Service may require the construction of additional 
upgrades. The Interconnection Studies to be performed for Energy 
Resource Interconnection Service must identify the Interconnection 
Facilities required as well as the Network Upgrades needed to allow the 
Generating Facility to operate at full output. In addition, the 
Interconnection Studies must identify the maximum allowed output of the 
Generating Facility without Network Upgrades.
    500. In contrast, Network Resource Interconnection Service is much 
broader. It requires 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 
generating facilities to serve native load customers. If the 
Transmission Provider is an RTO or ISO with market-based congestion 
management, it must integrate the Generating Facility as if it were a 
Network Resource. The Transmission Provider must 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 must assume that some portion of the capacity of 
existing Network Resources is displaced by the output of the new 
Generating Facility. However, 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 without incurring congestion costs. Nor does 
Network Resource Interconnection Service convey a right to deliver the 
output of the Generating Facility to any particular customer.\88\
---------------------------------------------------------------------------

    \88\ However, as discussed more fully below, when an 
Interconnection customer wants to deliver the output of the 
Generating Facility to a particular load (or set of loads), it may 
simultaneously request Network Interconnection Transmission Service 
under the OATT.
---------------------------------------------------------------------------

    501. Under Network Resource Interconnection Service, the 
Transmission Provider builds all the Network Upgrades needed to allow 
the Interconnection Customer to designate the Generating Facility as a 
Network Resource and obtain Network Integration Transmission Service. 
Thus, once the Interconnection Customer has obtained Network Resource 
Interconnection Service, requests for Network Integration Transmission 
Service from the Generating Facility to points inside the Transmission 
Provider's Transmission System will not require additional 
Interconnection Studies or additional upgrades.
    502. Under Network Resource Interconnection Service, requests for 
long-term Transmission Service for delivery service to points outside 
the Transmission Provider's Transmission System may require additional 
studies and upgrades. Also, requests for delivery service inside the 
Transmission Provider's Transmission System may require additional 
studies and upgrades if the latter are necessary to reduce congestion 
to acceptable levels. Network Resource Interconnection Service allows 
the Generating Facility to provide Ancillary Services. However, if the 
Generating Facility has not been designated as a Network Resource by 
any load, it is not required to provide Ancillary Services under this 
rule (although it may be by other requirements) unless all generating 
facilities that are similarly situated are required to provide them. 
Also, should the Transmission System become congested, the Generating 
Facility is subject to non-discriminatory congestion management 
procedures.
    503. LGIA Article 4.3 provides for generator balancing service 
arrangements. We address requests for rehearing on this article in 
section II.D.2.k (Interconnection Pricing Policy--Generator Balancing 
Service Arrangements).
Rehearing Requests
a. Requests To Clarify or Eliminate Network Resource Interconnection 
Service
    504. A number of petitioners state that Network Resource 
Interconnection Service is confusing and that the Commission should 
either clarify the nature of this service or eliminate it 
altogether.\89\ The Georgia PSC contends that the Commission should 
clearly identify the rights that the Interconnection Customer receives 
with Network Resource Interconnection Service. Entergy complains that 
Order No. 2003 provides virtually no guidance as to how the 
Transmission Provider is to evaluate a Network Resource Interconnection 
Service request. EEI recommends that the Commission clarify the 
Interconnection Customer's rights when it takes Network Resource 
Interconnection Service and the obligations that the service imposes on 
the Transmission Provider. Southern claims that because Network 
Resource Interconnection Service is so unclear and contains numerous 
inconsistencies, it may be impossible for the Transmission Provider to 
know how to plan the Transmission System reliably to provide this 
service and still be assured that it is complying with the requirements 
of Order No. 2003.\90\ Furthermore, Southern and the Mississippi PSC 
contend that the inconsistencies in the Network Resource 
Interconnection Service requirements violate due process. Southern 
argues that the inconsistencies violate the Administrative Procedure 
Act and will lead to numerous disputes with Interconnection Customers 
that have differing interpretations of Network Resource Interconnection 
Service.
---------------------------------------------------------------------------

    \89\ E.g., Alabama PSC, EEI, Entergy, Georgia PSC, Mississippi 
PSC, Southern, and TAPS.
    \90\ The inconsistencies that Southern refers to are in language 
in Order No. 2003 that, according to Southern, can be interpreted as 
contradicting the Commission's statements that Network Resource 
Interconnection Service does not provide the Interconnection 
Customer with a reservation of transmission capacity. Requests for 
rehearing or clarification of matters concerning the capacity 
reservation issue and other delivery service implications of Energy 
Resource Interconnection Service and Network Resource 
Interconnection Service are discussed below.
---------------------------------------------------------------------------

    505. Georgia Transmission and Southern argue that Network Resource 
Interconnection Service undermines rational system planning. Southern 
claims that, because Network Resource Interconnection Service requires 
upgrades to be constructed before the designation of the Generating 
Facility as a Network Resource, the valuable economic analysis of 
whether the Generating Facility, including the required transmission 
upgrades, is a prudent option would essentially be eliminated. This 
will lead to inefficient siting of new generation and transmission 
upgrades. Georgia Transmission interprets Order No. 2003 as requiring 
the Transmission Provider to expand its Transmission System so that the 
Generating Facility has sufficient capacity to perform as a Network 
Resource while maintaining the reliability of the Transmission System, 
while not requiring a demonstration of need by customers for the 
additional facilities.
Commission Conclusion
    506. We are not eliminating Network Resource Interconnection 
Service. Although the minimal Energy Resource Interconnection Service 
meets the needs of many Interconnection Customers, the more 
comprehensive Network Resource

[[Page 15971]]

Interconnection Service is also needed to provide the Interconnection 
Customer with the quality of transmission access needed to compete in 
the energy marketplace. This is especially important in markets that 
continue to be dominated by a Transmission Provider that has a vested 
interest in market outcomes.
    507. We disagree that Network Resource Interconnection Service 
undermines rational system planning. It is true that requiring the 
Transmission Provider to provide Network Resource Interconnection 
Service to any Interconnection Customer that requests it could result 
in a different pattern of generation and transmission investments than 
would occur under a traditional process by which a vertically 
integrated utility plans both generation and transmission expansions 
simultaneously. However, in the long run, customers are more likely to 
experience lower overall costs if the industry relies on robust 
wholesale competition to determine the appropriate level of generation 
and related transmission development than if it continues to rely on 
traditional integrated planning processes. That is, we fully expect the 
benefits of robust competition in wholesale generation to outweigh any 
short-term inefficiencies in the siting of new facilities that may 
result from the movement away from traditional planning approaches.
    508. We are nevertheless concerned that a number of petitioners 
believe that the description of Network Resource Interconnection 
Service in Order No. 2003 is unclear or that the service contains 
inconsistencies. Obviously, Order No. 2003 cannot achieve its purposes 
unless all market participants are able to understand the 
Interconnection Services that the rule prescribes. Therefore, to 
eliminate confusion and uncertainty, we provide several clarifications 
as discussed below.
b. Delivery Service Implications of Energy Resource Interconnection 
Service and Network Resource Interconnection Service
    509. Several petitioners argue that Energy Resource Interconnection 
Service and Network Resource Interconnection Service, as they are 
defined in Order No. 2003, effectively reserve delivery service for the 
Interconnection Customer, even though Order No. 2003 says that 
Interconnection Service does not include transmission delivery 
service.\91\ They ask the Commission to either remove the elements of 
delivery service from Interconnection Service or to require the 
Interconnection Customer to pay a reservation fee. For example, Ameren 
notes that Interconnection Service is defined in Order No. 2003 as a 
service that enables the Transmission Provider to ``receive electric 
energy and capacity from the Generating Facility at the Point of 
Interconnection.'' It contends that allowable Generating Facility 
output and upgrades related to output are not relevant to 
Interconnection Service and that Interconnection Service should not 
require the Transmission Provider to receive the output of the 
Generating Facility. The North Carolina Commission states that, if 
Interconnection Service does not include delivery service, then it is 
not clear that Interconnection Service is within the Commission's 
jurisdiction.
---------------------------------------------------------------------------

    \91\ E.g., Alabama PSC, Ameren, EEI, Entergy, FP&L, Georgia PSC, 
Georgia Transmission, Mississippi PSC, North Carolina Commission, 
PacifiCorp, Progress Energy, and Southern.
---------------------------------------------------------------------------

    510. PacifiCorp argues that, if the Transmission Provider must 
define the maximum amount of power that can be delivered on an ``as 
available'' basis without Network Upgrades (beyond the Point of 
Interconnection), as well as the Network Upgrades for full delivery of 
the Generating Facility output, the Interconnection Customer should be 
required to identify one delivery point for the power delivery. The 
Commission should also require the customer to identify delivery 
parameters to be used for these studies. PacifiCorp contends that 
Network Upgrades, except modifications at the Point of Interconnection 
itself, should not be assigned to the Energy Resource Interconnection 
Service Interconnection Customer, since deliveries that occur only on 
an ``as-available'' basis will not affect the Transmission System. It 
also asks the Commission to clarify whether Network Upgrades for Energy 
Resource Interconnection Service should include only upgrades at the 
Point of Interconnection, for purposes of the Interconnection 
Feasibility and Interconnection System Impact Studies. Alternatively, 
the Commission should set forth procedures or guidance for determining 
the costs necessary to implement Energy Resource Interconnection 
Service.
    511. EEI, the Mississippi PSC, and Southern state that, because 
Order No. 2003 assumes that a Generating Facility with Network Resource 
Interconnection Service will be designated as a Network Resource, a 
transmission reservation is also necessary so that service can be taken 
from the Generating Facility if it is ever so designated. Southern and 
EEI say that the Commission's assertions that Network Resource 
Interconnection Service does not provide a transmission capacity 
reservation are inconsistent with the language of LGIA Article 4.1.2.2, 
which strongly indicates that a reservation is required. In addition, 
Southern asserts that the Commission previously had required the 
``socialization'' only of facilities required for interconnection. With 
Network Resource Interconnection Service, however, the required 
upgrades could be quite costly because, Southern claims, they are 
needed also to ensure the delivery of the Generating Facility's output.
    512. Progress Energy believes that an Interconnection Customer 
taking Network Resource Interconnection Service should pay a fee for 
reserved, but unused, transmission capacity until the Interconnection 
Customer is designated as a Network Resource by a native load or 
Network Customer.
    513. FP&L states that the general industry understanding of what it 
means to study and construct transmission facilities necessary to 
``integrate'' generation is that the Generating Facility has firm 
delivery service to the load. It claims that, without clarification, 
that understood usage conflicts with the statement that ``Network 
Resource Interconnection Service in and of itself does not convey any 
transmission delivery service.''
    514. Georgia Transmission claims that when the Interconnection 
Customer requests Network Resource Interconnection Service, upgrades 
must be built for Network Integration Transmission Service and that the 
Transmission Provider must then reserve that capacity for the benefit 
of the Interconnection Customer, to be called upon at a future time, if 
ever. Therefore, Network Resource Interconnection Service provides the 
Interconnection Customer with delivery rights that properly belong to 
customers. The fact that the Interconnection Customer is not using 
those delivery rights because it has not yet executed a Network 
Integration Transmission Service agreement or been designated by a 
Network Customer as a Network Resource elevates form over substance. 
Georgia Transmission also seeks clarification of the Commission's 
statement that capacity created by Network Upgrades constructed to meet 
the Interconnection Customer's Network Resource Interconnection Service 
request will be available for use by all customers on an ``equal 
basis.'' Because Network Resource Interconnection Service gives the 
Interconnection

[[Page 15972]]

Customer the right to have the Generating Facility designated as a 
Network Resource and obtain Network Integration Transmission Service, 
other customers on the Transmission System would be able to use that 
capacity only on a non-firm basis, unless additional upgrades are made.
Commission Conclusion
    515. LGIP sections 3.2.1.1 (regarding Energy Resource 
Interconnection Service) and 3.2.2.2 (regarding Network Resource 
Interconnection Service) state that these Interconnection Services do 
not in and of themselves convey any right to the delivery component of 
Transmission Service. LGIA Article 4.4 (formerly Article 4.5) says the 
same.
    516. Some petitioners argue that in spite of this clear language, 
Interconnection Services do provide for transmission delivery service. 
We do agree that Energy Resource Interconnection Service and Network 
Resource Interconnection Service both provide the Interconnection 
Customer with the technical capability to inject the output of the 
Generating Facility onto the Transmission System at the Point of 
Interconnection, and Network Resource Interconnection Service makes it 
possible for the Generating Facility to be designated as a Network 
Resource. Thus, both services include a capability to move power onto 
the system. However, actual delivery service, which is provided as 
Point to Point Transmission Service or Network Integration Transmission 
Service under the OATT, requires the Transmission Customer to specify 
one or more Points of Delivery on the Transmission System at which the 
injected output will be withdrawn. Because the Interconnection Services 
do not provide the Interconnection Customer with the right to withdraw 
power at any particular Point of Delivery, they are not delivery 
services, per se. To eliminate confusion on this point, we are amending 
the LGIP and LGIA language cited above to state that Energy Resource 
Interconnection Service and Network Resource Interconnection Service do 
not ``convey any right to deliver electricity to any specific customer 
or Point of Delivery.''
    517. We recognize that, to provide these Interconnection Services, 
the Transmission Provider often must construct Network Upgrades to 
provide the Transmission System with the capacity to receive the output 
of the Generating Facility.\92\ Including this capability with 
Interconnection Services is appropriate because it allows the 
Interconnection Customer to obtain a minimal capability of delivery 
service under the Transmission Provider's OATT without the need to 
construct additional upgrades. The Interconnection Customer must 
arrange separately for delivery service. Once the Interconnection 
Customer has made the necessary arrangements, including the designation 
of a point or points of delivery, the Transmission Provider may charge 
a delivery service reservation fee. However, we will not allow the 
Transmission Provider to charge an additional reservation fee for the 
limited delivery capability that is included with the Interconnection 
Services.
---------------------------------------------------------------------------

    \92\ Because these Network Upgrades may be required anywhere on 
the Transmission System, we deny PacifiCorp's request for 
clarification that Network Upgrades for Energy Resource 
Interconnection Service should include only transmission 
modifications at the Point of Interconnection.
---------------------------------------------------------------------------

    518. Finally, Georgia Transmission seeks clarification of the 
statement in Order No. 2003 that the capacity created by Network 
Upgrades constructed to meet a Network Resource Interconnection Service 
request will be available for use by all customers on an ``equal 
basis.'' This statement means that all customers must have equal access 
to any available (i.e., unused) capacity on the Transmission System for 
the period during which that capacity is available.
c. Conflicts With Network Integration Transmission Service
    519. Several petitioners contend that Network Resource 
Interconnection Service conflicts with the requirements of Network 
Integration Transmission Service under the OATT, or that it provides 
the Interconnection Customer with a service that is superior to that 
which the Transmission Provider provides for its own generating 
facilities.\93\ Ameren and Entergy note that a generating facility that 
is designated as a Network Resource is modeled to serve only the load 
that has designated it for the provision of Network Integration 
Transmission Service. They argue that Network Resource Interconnection 
Service may require the Interconnection Customer to be modeled and 
interconnected as if it is serving any, or all, load within a 
particular Control Area at any given time. Ameren asks the Commission 
to require the Interconnection Customer to designate the load it will 
serve and to separately obtain Transmission Service to such load. 
PacifiCorp asks that the Interconnection Request require an applicant 
for Network Resource Interconnection Service to indicate on the 
Interconnection Request which network load its resource should be 
assumed to serve. PacifiCorp claims that it has a number of Network 
Customers that are dispersed across a broad geographic territory, and 
that study assumptions may change depending on which of those Network 
Customers the resource intends to serve. It states that without 
information on the load delivery parameters for the study, 
Interconnection Feasibility and Interconnection System Impact studies 
cannot begin.
---------------------------------------------------------------------------

    \93\ E.g., Alabama PSC, Ameren, Entergy, Georgia Transmission, 
PacifiCorp, Southern, and TAPS.
---------------------------------------------------------------------------

    520. Entergy notes that Network Resource Interconnection Service 
does not require the Interconnection Customer to serve the Transmission 
Provider's native load and does not require the Generating Facility to 
be designated as a Network Resource by any Network Customer. Network 
Resource Interconnection Service creates interconnection rights that 
are superior to any Transmission Service under the OATT. Entergy asks 
that Network Resource Interconnection Service be made comparable with 
existing Transmission Services or delayed until a market structure that 
includes locational marginal pricing, financial transmission rights, 
and participant funding is in place. Similarly, Southern argues that a 
merchant Generating Facility that has not been designated by any 
Network Customer is not similarly situated to the Transmission 
Provider's (or any other) Network Resources. Designated Network 
Resources and generating facilities which are not Network Resources 
should be subject to different requirements (which are already in the 
OATT). Southern also claims that an Interconnection Customer taking 
Network Resource Interconnection Service receives an unfair advantage 
under LGIA Article 4.1.2.2. Under that provision, if the 
Interconnection Customer taking Network Resource Interconnection 
Service has not been designated as a Network Resource, it is not 
required to provide Ancillary Services, whereas other Network Resources 
are.
    521. Some petitioners are concerned that Network Resource 
Interconnection Service does not necessarily provide the capability to 
deliver the output of the Generating Facility to any particular network 
load on the Transmission System without incurring congestion costs.\94\ 
Georgia Transmission claims that Network Resource Interconnection 
Service allows the Generating Facility to

[[Page 15973]]

create congestion on the Transmission System that is then 
``socialized'' to the detriment of existing customers, either through 
Transmission Line Loading Relief (TLR), which can endanger reliability 
of service, or through congestion charges. Georgia Transmission states 
that Network Resource Interconnection Service leaves other transmission 
customers with the choice of either (1) paying for expansion of the 
Transmission System so that the Generating Facility can sell power to 
any customer anywhere in the Transmission Provider's service area 
without congestion, or (2) paying congestion charges caused by the 
addition of the new Generating Facility to the system without Network 
Upgrades. It claims that this approach is discriminatory.
---------------------------------------------------------------------------

    \94\ E.g., Alabama PSC, Georgia Transmission, Mississippi PSC, 
and TAPS.
---------------------------------------------------------------------------

    522. The Alabama PSC notes that the OATT does not include an LMP-
based congestion management system and that redispatch costs are borne 
pro rata on the basis of load by the Transmission Provider and its 
Network Customers. It and the Mississippi PSC argue that Network 
Resource Interconnection Service forces all of a Transmission 
Provider's customers to subsidize a Generating Facility that is 
designated as a Network Resource. The Alabama PSC states that this 
violates basic principles of cost causation, the Energy Policy Act of 
1992 (``EPAct'') \95\, and the Commission's Transmission Pricing Policy 
Statement. If Network Resource Interconnection Service requires the 
imposition of congestion or redispatch costs in lieu of building 
upgrades, the Commission must clarify that in a non-LMP system, the 
Transmission Provider may directly assign such costs to the 
Interconnection Customer or Network Customer.
---------------------------------------------------------------------------

    \95\ Energy Policy Act of 1992 (EPAct) section 722 (codified at 
16 U.S.C. 824k(a)).
---------------------------------------------------------------------------

    523. TAPS claims that Order No. 2003 improperly eliminates the 
OATT's specific deliverability requirement for Network Integration 
Transmission Service, allowing a Generating Facility that satisfies 
only an aggregate deliverability test to pre-qualify for designation as 
a Network Resource by any network load, while exposing load serving 
entities to crushing congestion charges. TAPS states that Order No. 
2003 undermines the delivered price certainty that load serving 
entities need to (1) finance the new generation essential to making 
Standard Market Design work, and (2) allow load serving entities to 
continue to provide reliable, affordable service to their customers. 
Order No. 2003 would substitute congestion management procedures for 
meaningful resource and transmission planning, and encourage market 
participants and Transmission Providers to abdicate responsibility for 
assuring that resources can be reliably delivered to loads. TAPS asks 
that the Interconnection Service products, particularly Network 
Resource Interconnection Service, be defined so that they are 
compatible with a model in which a load serving entity can designate 
Network Resources much as it does under OATT Network Integration 
Transmission Service.
    524. TAPS continues that Order No. 2003's ``aggregate'' 
deliverability test for qualifying for Network Resource Interconnection 
Service unduly favors market participants with the largest loads, such 
as large investor-owned utilities. Where a single load serving entity 
is the vast majority of load, TAPS interprets the test as requiring all 
new generating facilities seeking Network Resource status to satisfy 
the existing OATT standard for Network Resource designation by the 
dominant load serving entity. For example, a transmission dependent 
utility that builds a Generating Facility to serve its loads might be 
required to fund Network Upgrades to deliver the output of the 
Generating Facility to the surrounding investor-owned utility in order 
for the transmission dependent utility to designate the Generating 
Facility as a Network Resource, even if those upgrades are not 
necessary to assure firm delivery to the transmission dependent 
utility's loads. With Network Resource Interconnection Service, the 
transmission dependent utility could face (1) a requirement that it 
fund the Network Upgrades necessary to deliver the output of the 
Generating Facility to the loads of the surrounding investor-owned 
utility, and (2) hefty congestion charges (or perhaps the requirement 
that it fund additional, entirely different upgrades) to deliver the 
output of the Generating Facility to its loads.
    525. TAPS claims that Network Resource Interconnection Service 
appears to be modeled on the ``Capacity Resource'' concept developed by 
PJM to determine whether the Generating Facility can be used to meet 
the PJM capacity obligations of load serving entities and to 
participate in the PJM capacity credit and Ancillary Service markets. 
TAPS states that PJM imposes a two part deliverability requirement on 
generating facilities that seek capacity resource status. First, energy 
must be deliverable from the aggregate of resources available to the 
Control Area to load in portions of the Control Area experiencing a 
localized capacity or deficiency. Second, capacity resources within a 
given electrical area must, in aggregate, be exportable to other areas 
of the Control Area within some bounds that separate the reliability 
requirements of the Control Area from the reasonable economic function 
of the marketplace. TAPS argues that this standard does not assure the 
ability of a capacity resource to deliver non-interruptible service to 
any particular network load. It believes that an additional form of 
Interconnection Service beyond Energy Resource Interconnection Service 
may have value, but this service would be different from Network 
Resource Interconnection Service. Although TAPS believes that PJM's 
deliverability standard could provide one such approach, it recommends 
that the Commission not lock in a capacity resource market framework in 
this proceeding. Further, TAPS argues that such a capacity resource 
Interconnection Service should not be called ``Network Resource 
Interconnection Service'' and should not override the OATT process for 
designation of Network Resources.
    526. In summary, TAPS states that the Commission should modify 
Order No. 2003 either to eliminate Network Resource Interconnection 
Service, restrict its role (e.g., ``pre-qualifying'' generating 
facilities to be capacity resources under a PJM-type capacity market), 
or define it in a manner that is friendly to load serving entities 
consistent with proposals TAPS has made in the Standard Market Design 
proceeding, so that it does not undermine the delivered price certainty 
that TAPS says is needed to make Standard Market Design work for 
customers.
    527. Some petitioners, including FP&L, PacifiCorp, and Southern, 
offer interpretations of how Network Resource Interconnection Service 
should be implemented, and ask the Commission to clarify which, if any, 
of the possible interpretations is correct. For example, Southern 
proposes that Network Resource Interconnection Service be implemented 
based on three different assumptions: (1) That no ongoing reservation 
is provided (at least not until the Generating Facility is actually 
designated as a Network Resource), but that studies and upgrades can be 
performed if the Generating Facility is actually designated as a 
Network Resource, and that instead of charging the Interconnection 
Customer for such studies and upgrades, the Network Customer bears any 
such charges, (2) that no ongoing transmission reservation is provided 
and, once the Generating Facility is designated as a Network Resource,

[[Page 15974]]

whatever inefficiencies that result are treated as redispatch/
congestion costs or through Curtailment, which can be directly assigned 
to the Interconnection Customer or the Network Customer, or (3) that 
Network Resource Interconnection Service really does provide a 
reservation of transmission capacity, which would require the 
Interconnection Customer to pay a charge.
    528. FP&L states that outside a centrally dispatched RTO or ISO, 
one interpretation of LGIA Article 4.1.2.2 is that the Generating 
Facility must be studied so it may be designated at its full output by 
any Network Customer under the Transmission Provider's OATT. For 
example, assume that the Generating Facility is rated at 900 MW and 
there are three possible Network Customers, A, B, and C, with loads at 
three different locations. FP&L asks whether the Commission intends for 
the Transmission Provider to build sufficient transmission facilities 
so that any of the three Network Customers may designate all 900 MW, or 
whether the Transmission Provider should wait until one of the three 
Network Customers has designated all or a portion of the Generating 
Facility as a Network Resource and then build the transmission 
facilities necessary to provide firm network service from the 
Generating Facility to that Network Customer. This creates a quandary 
because, under the Network Service (delivery service) part of the OATT, 
multiple Network Customers cannot designate the same Generating 
Facility as a Network Resource for its full output, and thus cannot 
request the Transmission Provider to construct overlapping and 
unnecessary Network Upgrades. Instead of the Transmission Provider 
planning the Transmission System for the possibility of integrating 900 
MW three times to three different Network Customer's loads, FP&L asks 
the Commission to clarify that the Transmission Provider should plan to 
integrate only 900 MW in the aggregate to the sum of the loads at A, B, 
and C.
    529. FP&L proposes two ways to accomplish this. First, the 
Interconnection Customer could request specific amounts of output to go 
to each Network Customer load of A, B, and C (e.g., 300 MW to each 
load) for a total of 900 MW. Second, the Commission could clarify that 
the Transmission Provider is required to study the Interconnection 
Customer's Generating Facility as if it would be designated for any 
Network Customer, but the Transmission Provider will do a final study 
only after a specific Network Customer has, under the OATT, designated 
the Generating Facility as a Network Resource (for delivery service) 
and will construct only those Network Upgrades that result from this 
final study. FP&L states that it does not have a preference regarding 
which solution the Commission selects, but unless one is chosen, it is 
unclear how a Transmission Provider not in a centrally dispatched RTO 
or ISO is to model the Network Resource Interconnection Service study 
required in LGIA Articles 4.1.2.1 (2) and 4.1.2.2. FL&L further 
requests clarification that the study under LGIA Article 4.1.2.1(2) is 
appropriate only for an RTO or ISO that centrally dispatches Network 
Resources to an aggregate network load.
Commission Conclusion
    530. Petitioners raise a number of important questions about the 
relationship between Network Resource Interconnection Service and 
Network Integration Transmission Service. Some believe that Network 
Resource Interconnection Service is incompatible with Network 
Integration Transmission Service or that it provides the 
Interconnection Customer with a service that is superior to that which 
the Transmission Provider provides for its own generating facilities, 
or those of an Affiliate. Others object to the fact that Network 
Resource Interconnection Service does not ensure that the output of the 
Generating Facility can be delivered to a network load without 
incurring congestion costs. Some, including TAPS and Georgia 
Transmission, may have misconstrued Network Resource Interconnection 
Service as a replacement for Network Integration Transmission Service 
under the OATT.
    531. We first clarify the study requirements for Network Resource 
Interconnection Service. The purpose of Network Resource 
Interconnection Service is to provide for only those Network Upgrades 
needed to allow the aggregate of generation in the Generating 
Facility's local area to be delivered to the aggregate of load on the 
Transmission Provider's Transmission System, consistent with the 
Transmission Provider's reliability criteria and procedures. Network 
Resource Interconnection Service does not ensure physical delivery to 
specific loads or locations, and it does not provide delivery service 
rights to specific loads or locations. TAPS is correct that Network 
Resource Interconnection Service is similar to the procedures used by 
PJM and other ISOs to identify the Network Upgrades that are needed for 
the Generating Facility to qualify as a ``capacity resource.'' Network 
Resource Interconnection Service ensures that the Generating Facility, 
as well as other generating facilities in the same electrical area, can 
be operated simultaneously at peak load and that any output produced 
above peak load requirements can be transmitted to other electrical 
areas within the Transmission Provider's Transmission System. Thus, 
Network Resource Interconnection Service ensures that the output of the 
Generating Facility will not be ``bottled up'' during peak load 
conditions.
    532. We recognize that not all Transmission Providers apply the 
same procedures or reliability criteria in their studies to ensure that 
the aggregate of generation in any particular area can be delivered to 
the aggregate of load, and we do not intend to require any Transmission 
Provider to use a procedure that is not compatible with accepted 
regional practice. Therefore, subject to Commission approval under the 
``consistent with or superior to'' standard, each Transmission Provider 
may tailor Network Resource Interconnection Service by adopting 
reasonable procedures and criteria that are generally accepted in the 
region and consistently adhered to by the Transmission Provider. 
Accordingly, each Transmission Provider must include in a subsequent 
compliance filing a general description and justification of its 
proposed approach to Network Resource Interconnection Service.
    533. In response to TAPS and Georgia Transmission, we clarify that 
Network Resource Interconnection Service (which is an Interconnection 
Service) is not a replacement for Network Integration Transmission 
Service (which is a delivery service). Although LGIP section 3.2.2.1 
states that Network Resource Interconnection Service allows the 
Generating Facility to be designated as a Network Resource ``on the 
same basis as all other Network Resources interconnected to the 
Transmission Provider's Transmission System,'' our intent is merely to 
establish general requirements for Network Resource Interconnection 
Service, not to ensure physical delivery to specific network loads. 
Although Network Resource Interconnection Service may allow the 
Generating Facility to serve some loads without redispatching other 
generators or incurring congestion costs, it does not ensure that any 
particular Network Customer can designate the Generating Facility as a 
Network Resource and use the output of that Generating Facility to 
serve a particular Network Load without incurring congestion (or 
redispatch) costs. The Interconnection Customer or

[[Page 15975]]

Network Customer seeking to designate the Generating Facility as a 
Network Resource must do so under the requirements for Network 
Integration Transmission Service under the OATT. In response to the 
Alabama PSC, we clarify that we will consider proposals to allocate 
redispatch costs among Network Customers on a basis other than pro rata 
provided the proposal is shown to be just and reasonable and non-
discriminatory.
    534. In response to TAPS's concern that the Interconnection 
Customer may be required to fund Network Upgrades that allow the 
Generating Facility to serve loads other than those that the Network 
Customer wishes to serve, we note first that LGIP Section 3.2 makes it 
possible for the Interconnection Customer to obtain Network Integration 
Transmission Service without having to fund all of the Network Upgrades 
needed for full Network Resource Interconnection Service. This section 
provides that an Interconnection Customer that elects to be studied for 
Network Resource Interconnection Service has the option also to be 
studied for Energy Resource Interconnection Service and proceed with 
Network Resource Interconnection Service or a lower level 
Interconnection Service whereby only certain Network Upgrades will be 
completed. This option thus allows the Interconnection Customer to 
avoid having to fund Network Upgrades that it does not need. We 
emphasize, however, that the Interconnection Customer that declines to 
fund certain Network Upgrades should understand that this action may 
limit its opportunity to be designated in the future as a Network 
Resource for certain network loads.
    535. As a further clarification, we emphasize that this rule should 
not be construed as taking away any option that a Network Customer, or 
any other Transmission Customer, now has with respect to 
interconnecting a new Generating Facility and obtaining firm 
transmission service to load. Although obtaining Interconnection 
Service under this rule and obtaining transmission delivery service 
under the OATT is a two-step process, the Interconnection Customer has 
every right to request the two services at the same time, just as it 
did in the past. For example, a Network Customer that does not need all 
of the features of Network Resource Interconnection Service may 
determine that the most economical and practical approach to 
interconnecting a new Network Resource is to request Energy Resource 
Interconnection Service and at the same time request Network 
Integration Transmission Service under the Transmission Provider's 
OATT. This process would be completely analogous to the approach that a 
Network Customer now uses when it constructs a new Network Resource to 
serve its Network Load. The fact that Energy Resource Interconnection 
Service, by itself, allows access to the existing capacity of the 
Transmission System only on an ``as available'' basis should be of no 
concern to the Network Customer. The Network Customer can 
simultaneously obtain firm deliverability to its Network Loads by 
requesting the Transmission Provider to construct, under the terms of 
the Network Integration Transmission Service provisions of the OATT, 
any additional upgrades that may be necessary to ensure deliverability 
of the Network Resource to serve Network Load.
    536. Entergy, Southern and others claim that, because Network 
Resource Interconnection Service does not require the Interconnection 
Customer to serve native load or to have the Generating Facility 
designated as a Network Resource, Network Resource Interconnection 
Service is superior to other services under the OATT. This comparison 
to existing services is not appropriate. First, prior to Order No. 
2003, the OATT did not include specific provisions for Interconnection 
Service in any form, and comparisons between Interconnection Services 
and the OATT's delivery services are inapposite. Second, Network 
Resource Interconnection Service is available to all customers taking 
service under the OATT, including the Transmission Provider and its 
Affiliates. Third, in that Network Resource Interconnection Service 
allows the Interconnection Customer to defer to a future time the 
designation of the Generating Facility as a Network Resource, this 
Interconnection Service is similar to the service that the Transmission 
Provider provides for its own generating facilities when they are 
constructed in anticipation of serving future, uncertain loads.
    537. Southern also claims that the Generating Facility receives an 
undue advantage with respect to the requirement to provide Ancillary 
Services. We disagree. LGIA Article 4.1.2.2 states that if the 
Generating Facility has not been designated as a Network Resource, it 
cannot be required to provide Ancillary Services. However, LGIA Article 
4.1.2.2 also states that the Generating Facility can be required to 
provide Ancillary Services if that requirement applies to all 
generating facilities that are similarly situated. This provision 
allows for fully comparable treatment of the Generating Facility with 
respect to the requirement to provide Ancillary Services.
d. Coordinating the Network Resource Interconnection Service Queue With 
the Transmission Delivery Service Queue
    538. FL&L, Southern, and TAPS ask the Commission to clarify how the 
Transmission Provider should coordinate the queue for Network Resource 
Interconnection Service with the queue for transmission delivery 
service. TAPS asks the Commission to revise or clarify Order No. 2003 
to eliminate any provisions that conflict with the OATT.
    539. Southern asserts that, if Order No. 2003 provides rights to 
the Transmission System through Network Resource Interconnection 
Service, Interconnection Studies for Network Resource Interconnection 
Service must consider higher queued transmission delivery service 
requests. In addition, Southern states that changes in the transmission 
delivery service queue would also delay and cause frequent restudies of 
Network Resource Interconnection Service requests. Therefore, if 
Network Resource Interconnection Service is to provide transmission 
rights, Southern requests that the Commission address these issues and 
provide a workable manner in which Network Resource Interconnection 
Service queuing issues can be merged into transmission delivery service 
queuing issues and vice versa.
    540. FP&L states that Order No. 2003 is unclear as to whether an 
Interconnection Customer seeking Network Resource Interconnection 
Service or a Transmission Customer seeking Network Integration 
Transmission Service is entitled to existing transmission capability, 
and notes that the issue of priority is not addressed. It is also 
unclear as to how the queue for Network Resource Interconnection 
Service requests is to work in conjunction with the queue for network 
service requests under the OATT. One possible solution is to have the 
Interconnection Customer enter the network service queue when it 
applies for Network Resource Interconnection Service. According to 
FP&L, this would resolve many of the queue coordination issues.
Commission Conclusion
    541. Although interconnection and delivery are separate services, 
we agree that the queues for the two services must be closely 
coordinated. This means that in general, Interconnection Customers and 
transmission delivery

[[Page 15976]]

service customers should have equal access to available transmission 
capacity, with priority being established on a first come, first served 
basis according to the date on which service is requested. Furthermore, 
Interconnection Studies for Interconnection Services should be 
coordinated with the facilities studies performed for transmission 
delivery services. This ensures that all required upgrades are planned 
and designed in a least cost manner.
e. Responsibility for Additional Studies and Network Upgrades
    542. LGIA Article 4.1.2.2 states that once the Interconnection 
Customer satisfies the requirements for obtaining Network Resource 
Interconnection Service, any future Transmission Service request for 
delivery from the Generating Facility within the Transmission 
Provider's Transmission System up to the amount of capacity or energy 
initially studied will not require that any additional studies be 
performed or that any further upgrades be undertaken. Some petitioners 
find this provision confusing.\96\ NYTO believes that the provision is 
confusing because Network Resource Interconnection Service itself does 
not convey any right to delivery service. Alternatively, NYTO asks that 
the provision be deleted. The Alabama PSC states that the provision 
seems to indicate that even when upgrades are needed, the 
Interconnection Customer gets a ``free ride.'' It objects to such cost 
socialization policies. In addition, the Alabama PSC, the Mississippi 
PSC, and Southern argue that the provision threatens reliability by 
limiting the Transmission Provider's ability to perform transmission 
studies and to construct upgrades needed both to integrate the 
Generating Facility as a Network Resource and to maintain the 
reliability of the Transmission System once the Generating Facility is 
designated as a Network Resource.
---------------------------------------------------------------------------

    \96\ E.g., Alabama PSC, FP&L, Mississippi PSC, NYTO, Reliant, 
and Southern.
---------------------------------------------------------------------------

    543. Reliant asks the Commission to clarify that a Interconnection 
Customer that requests Network Resource Interconnection Service and 
funds the construction of Network Upgrades necessary to accommodate 
that request, has a right to be designated as a Network Resource by a 
Network Customer on the Transmission Provider's Transmission System, 
and that the Transmission Provider cannot then require the 
Interconnection Customer to bear the cost of additional studies or 
Network Upgrades.
Commission Conclusion
    544. We agree that LGIA Article 4.1.2.2 needs clarification. The 
intent of this portion of Article 4.1.2.2 is to state that the 
Interconnection Customer cannot be charged for additional studies or 
Network Upgrades merely by requesting to have the Generating Facility 
designated as a Network Resource by a Network Customer. This should 
satisfy Reliant's concern.
    545. However, we note that this provision is not intended to 
prevent the Transmission Provider from performing any additional 
studies or constructing any additional upgrades when necessary. For 
example, additional studies and upgrades may be needed to reduce the 
incidence of redispatch or congestion costs that may be incurred when 
the Generating Facility is designated as a Network Resource by a 
Network Customer and delivery service begins. Thus, we are adding the 
following sentence to Article 4.1.2.2: ``The provision of Network 
Integration Transmission Service or firm Point to Point Transmission 
Service may require additional studies and the construction of 
additional upgrades.'' We note, however, that because such studies and 
upgrades would be associated with a request for delivery service under 
the OATT, cost responsibility for the studies and upgrades would be 
determined in accordance with the Commission's policy for pricing 
delivery services.
f. Miscellaneous Requests Regarding Energy Resource Interconnection 
Service and Network Resource Interconnection Service
    546. TDU Systems notes that the Commission states in Order No. 2003 
that when the Transmission Provider is an independent entity, it ``may 
determine, subject to Commission approval, that the designation of 
Network Resources is not necessary.'' It argues that the Commission 
should not permit RTOs and ISOs to decide that designation of Network 
Resources is not necessary. Questions as to the continued need for 
designation of Network Resources have ramifications far beyond the 
realm of generator interconnections, and it is unreasonable for the 
Commission to determine in this proceeding that an RTO or ISO may 
declare such designation unnecessary.
    547. TAPS claims that the treatment of RTOs with multiple Control 
Areas is arbitrary and discriminatory.\97\ It argues that using Control 
Area borders to trigger extra deliverability requirements for Network 
Resource designation or Network Upgrade payment obligations is 
arbitrary, and will unduly favor certain market participants.
---------------------------------------------------------------------------

    \97\ Order No. 2003 at P 771.
---------------------------------------------------------------------------

    548. Calpine notes that P 785 of Order No. 2003, which states that 
the Commission ``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,'' does not track the ANOPR negotiations. 
It asks the Commission to clarify that RTOs and ISOs not be required to 
make their Network Resource interconnection criteria more stringent as 
a result of Order No. 2003.
    549. PacifiCorp asks for clarification with respect to Article 
4.1.1.2 that an RTO need not automatically grant an Interconnection 
Customer taking Energy Resource Interconnection Service the right to 
bid amounts to RTO markets above the megawatt cap applicable to that 
Generating Facility without conducting additional studies and 
determining if additional upgrades are needed to move additional plant 
output above the cap without exposing the Transmission Provider's other 
customers to possible congestion costs in excess of what they otherwise 
would experience. The RTO should be permitted to require the Energy 
Resource Interconnection Service Interconnection Customer to bear the 
cost of additional Network Upgrades before giving it the right to sell 
output beyond the capped amount into the RTO markets.
    550. EEI notes that LGIP Section 3.2.2.2 describes in general terms 
the Interconnection Study for Network Resource Interconnection Service. 
It requests clarification of the scope of the Interconnection 
Feasibility Study for Network Resource Interconnection Service. 
Specifically, EEI asks whether transmission contingencies or generation 
redispatch are to be considered.
    551. Calpine asks for clarification as to how Qualifying Facilities 
(QFs) under the Public Utility Regulatory Policies Act of 1978 (PURPA) 
\98\ are to obtain Network Resource Interconnection Service. At P 815 
of Order No. 2003, the Commission states that ``we conclude that the 
owner of a QF need not submit an Interconnection Request if it 
represents that the output of the facility will be substantially the 
same as before'' and further states that ``it would be unreasonable for 
the Transmission Provider to require the former QF to join the 
interconnection queue.'' Calpine recommends that the Transmission 
Provider be required to include in its

[[Page 15977]]

compliance filing a list of all of the QFs that automatically receive 
Network Resource Interconnection Service status by virtue of their 
current or prior status as a QF.
---------------------------------------------------------------------------

    \98\ See 16 U.S.C. 2601 et seq. (2000).
---------------------------------------------------------------------------

    552. Reliant notes that Network Resource Interconnection Service 
conveys the right for the Generating Facility to be designated as a 
Network Resource in the same manner as the Transmission Provider would 
designate its own resources. It proposes that the Commission limit the 
time that the Transmission Provider is required to hold this right for 
the Network Resource Interconnection Service Interconnection Customer. 
For example, if the resource is not designated as a Network Resource by 
a Network Customer within the Transmission Provider's planning period 
from the Commercial Operation Date of the Generating Facility, the 
Network Resource Interconnection Service Interconnection Customer might 
lose the right, but the right should not be lost before that time 
expires.
    553. Southern asserts that the conflicting requirements in Order 
No. 2003 about Network Resource Interconnection Service were not 
presented for comment in either the ANOPR or the NOPR, so the 
Commission's adoption of these provisions violates fundamental 
rulemaking requirements.
Commission Conclusion
    554. In response to TDU Systems, we clarify that we are not 
deciding in this Final Rule whether any particular RTO or ISO may adopt 
a policy that makes the designation of Network Resources unnecessary. 
We note that we have allowed existing ISOs to adopt different policies, 
and we will continue to allow ISOs and RTOs to present proposals for 
our consideration on a case-by-case basis.
    555. In response to Calpine, we clarify that Order No. 2003 does 
not necessarily require an RTO or ISO to adopt Network Resource 
interconnection criteria more stringent than those it currently uses, 
but such issues will be decided case-by-case on compliance.
    556. In response to PacifiCorp's request for clarification, we are 
not determining here what procedures an RTO must follow when the 
Interconnection Customer seeks to sell into the market an amount of 
energy that exceeds the Generating Facility's approved output. We will 
make such determinations on a case-by-case basis.
    557. In response to TAPS, we clarify that we are not establishing 
in this Final Rule any new policy about the way the Transmission 
Provider may use Control Area boundaries to determine deliverability 
requirements for Network Resources. We note, however, that we will not 
permit the Transmission Provider to adopt any requirements or 
procedures for Network Resources that are not comparable to those that 
the Transmission Provider uses for its own generating facilities.
    558. In response to EEI, we clarify that the Interconnection 
Feasibility Study must consider transmission contingencies, but not 
generation redispatch. Generation redispatch refers to decisions the 
system operator makes to manage congestion. These decisions take into 
account the relative running costs of the available generating 
facilities. LGIP section 3.2.2.2 states that the approach used to study 
Network Resource Interconnection Service assumes that some portion of 
existing Network Resources is displaced by the output of the Generating 
Facility. However, because the purpose of the Network Resource 
Interconnection Service study is only to determine whether the 
aggregate of generation in the local area can be delivered to the 
aggregate of load on the Transmission System, consistent with the 
Transmission Provider's reliability criteria and procedures, the 
generation that is displaced for study purposes is selected on the 
basis of its impact on Transmission System operation, not on the basis 
of the generating facilities' relative costs of producing energy.
    559. Regarding Calpine's request for clarification about the 
process by which a QF may obtain Network Resource Interconnection 
Service, the Interconnection Service available to an existing QF is 
that which is specified in its existing interconnection agreement. We 
are not requiring the Transmission Provider to identify QFs that would 
automatically receive Network Resource Interconnection Service status.
    560. In response to Reliant, we consider it reasonable for the 
Interconnection Customer to hold, through the life of the 
interconnection agreement, the right to use the Network Upgrade 
capacity that allows the Generating Facility to be designated as a 
Network Resource.
    561. Finally, in response to Southern, we note that all of the 
significant features of Network Resource Interconnection Service 
adopted in Order No. 2003 were also included in the NOPR that was 
presented for public comment. The Commission carefully reviewed the 
comments and drafted provisions for Network Resource Interconnection 
Service in Order No. 2003 that differ in only minor ways from the 
original proposal. The Commission has met the scope of notice 
requirement applicable to rulemakings.
2. Interconnection Pricing Policy
a. Summary of the Principal Determinations in Order No. 2003
    562. In Order No. 2003, the Commission adopted, for a non-
independent Transmission Provider, an interconnection pricing policy 
that generally reflects the Commission's existing policy for such 
entities. For an independent Transmission Provider, Order No. 2003 
continued the Commission's policy of allowing flexibility regarding the 
specific pricing approach that each such entity chooses, subject to 
Commission approval.
    563. The relevant pricing provisions of Order No. 2003 for the non-
independent Transmission Provider were included in LGIA Articles 4, 9, 
and 11 and LGIP Section 12.\99\ LGIA Articles 11.1 and 11.2 stated that 
the Interconnection Customer is solely responsible for the costs of all 
Interconnection Facilities and Article 11.3 stated that the 
Interconnection Customer is responsible for the costs of Distribution 
Upgrades. Article 11.3 stated that the Interconnection Customer must 
initially fund the Network Upgrades associated with the 
interconnection, and will be reimbursed by the Transmission Provider, 
unless the Transmission Provider chooses to pay for them itself. In 
addition, the Interconnection Customer is solely responsible for the 
costs of any Stand-Alone Network Upgrades that the Transmission 
Provider allows it to own. If the Transmission Provider owns them, the 
Interconnection Customer must fund them initially but is entitled to 
reimbursement by the Transmission Provider.
---------------------------------------------------------------------------

    \99\ In Article 11, the word ``refund'' was used throughout to 
describe the repayment of the amounts paid upfront by the 
Interconnection Customer for Network Upgrades. However, the use of 
``refund'' in this context is not consistent with the meaning of the 
term as it is used elsewhere in the Commission's Regulations. 
Therefore, in this order we are revising Article 11 to remove 
``refund'' and substituting other terms that preserve the meaning of 
the original language.
---------------------------------------------------------------------------

    564. LGIA Article 11.4 provided that the Interconnection Customer 
is entitled to a refund equal to the total amount paid to the 
Transmission Provider and the Affected System Operator,\100\ if any, 
for Network Upgrades, including any tax-related payments. The refunds 
were to be paid to the Interconnection Customer, with interest, as 
credits on a dollar-for-dollar basis for the non-usage

[[Page 15978]]

sensitive portion \101\ of transmission charges, as payments are made 
under the Transmission Provider's Tariff and the Affected System's 
Tariff for any Transmission Services taken by the Interconnection 
Customer on the respective systems, whether or not the Generating 
Facility is the source of the power being transmitted. The 
Interconnection Customer, Transmission Provider, and Affected System 
Operator were permitted to adopt any alternative payment schedule that 
is mutually agreeable provided all amounts paid by the Interconnection 
Customer for Network Upgrades were refunded, with interest, within five 
years of the Commercial Operation Date of the Generating Facility. 
Article 11.4 permitted the Interconnection Customer to assign its 
refund rights to any person.
---------------------------------------------------------------------------

    \100\ An Affected System is an electric system other than the 
Transmission Provider's Transmission System that may be affected by 
a proposed interconnection.
    \101\ Non-usage sensitive transmission charges include all 
transmission charges except those for items such as congestion 
charges, line losses and Ancillary Services.
---------------------------------------------------------------------------

    565. Order No. 2003 provided that, when Network Upgrades are 
constructed on an Affected System, the Interconnection Customer and 
Affected System Operator must enter into an agreement that provides for 
the Interconnection Customer's payments to the Affected System 
Operator, and the repayment of the Interconnection Customer's upfront 
payment by the Affected System Operator. Article 11.4.2 stated that 
refunds were to be paid whether or not the Interconnection Customer 
contracts for Transmission Service on the Affected System. All refunds 
were to be paid within five years of the Commercial Operation Date.
Rehearing Requests
    566. Many petitioners ask for clarification or rehearing of Order 
No. 2003's interconnection pricing policy, particularly as it applies 
to a non-independent Transmission Provider.
b. Fairness of the Order No. 2003 Pricing Policy: Applicability of the 
Commission's ``Higher of'' Ratemaking Policy
    567. Several petitioners argue that the Commission's 
interconnection pricing policy for a non-independent Transmission 
Provider inappropriately subsidizes the interconnection of a new 
Generating Facility, particularly when it is used to serve off-system 
customers. Some claim that the policy violates the Commission's 
``higher of'' ratemaking policy for transmission services, and one 
petitioner argues that the policy is inconsistent with the Commission's 
policy for pricing natural gas pipeline expansions.\102\
---------------------------------------------------------------------------

    \102\ Petitioners that raise fairness issues include Alabama 
PSC, Ameren, Entergy, Georgia PSC, Georgia Transmission, Kentucky 
PSC, Mississippi PSC, North Carolina Commission, NRECA-APPA, NYTO, 
Old Dominion, Salt River Project, South Carolina PSC, Southern, and 
TDU Systems.
---------------------------------------------------------------------------

    568. The South Carolina PSC states that requiring ``rolled-in'' 
pricing for Network Upgrades violates the principle of cost causation. 
The Kentucky PSC argues that the pricing policy subsidizes an 
unregulated supplier that has no apparent reciprocal obligation. 
Entergy and Southern assert that the Commission did not explain its 
abrupt departure from previous policies, particularly the system-wide 
benefit test, and that this is arbitrary and capricious.
    569. Entergy also asserts that Order No. 2003 eliminates the prior 
distinction between Interconnection Facilities and Network Upgrades and 
does not conform to the Commission's OATT. It claims that the OATT 
provides that interconnection switchyard facilities should be directly 
assigned to the Interconnection Customer requiring the construction of, 
and solely benefiting from, such facilities. Similarly, Southern and 
the Mississippi PSC ask the Commission to allow direct assignment to 
the Interconnection Customer of the costs of substations, circuit 
breakers, and stability modifications that are necessary to implement 
the interconnection but provide no benefit to other customers. Southern 
also claims that the Network Upgrades that would be required to provide 
Network Resource Interconnection Service would not necessarily benefit 
other Transmission Customers. The construction of such upgrades would 
be required before the Interconnection Customer even knows if it will 
have a Network Customer or if it would even make use of the upgrades 
constructed.
    570. Idaho Power argues that assigning the costs of Network 
Upgrades to Transmission Customers is discriminatory because, while 
they are held responsible for costs they cause, the Interconnection 
Customer is not being made responsible for the costs it causes. The 
Commission seems to assume that all Network Upgrades benefit all 
Transmission Customers. However, at the same time, the Commission 
suggests that this is not necessarily the case by allowing participant 
funding for an Independent Transmission Provider. When the Network 
Upgrades do not benefit all Transmission Customers, there is no basis 
for assigning the costs of the Network Upgrades to all Transmission 
Customers. Accordingly, Idaho Power requests that the Commission not 
limit the availability of the participant funding option to RTOs, ISOs, 
and Transmission Owners preparing to join an RTO or ISO.
    571. The Alabama PSC and Old Dominion support transmission credits 
for the cost of Network Upgrades that provide a system-wide benefit, 
but not for facilities that benefit only the Interconnection Customer. 
Old Dominion requests that the Commission require the Interconnection 
Customer to bear the costs of Network Upgrades unless it can 
affirmatively show that the Network Upgrades will benefit all users of 
the Transmission System or that the Generating Facility will serve load 
in the Transmission Provider's area. It also supports a policy that 
distinguishes between required and optional Network Upgrades. Required 
Network Upgrades would be those that the Transmission Provider 
determines are necessary to maintain the reliability and stability of 
the Transmission System and benefit all users of the Transmission 
System and, therefore, should be rolled into the rates paid by all 
Transmission Customers. Optional Network Upgrades would include any 
facilities beyond those required by the Transmission Provider and would 
be paid for by the Interconnection Customer.
    572. Various petitioners \103\ complain that Order No. 2003 
includes no requirement that the Interconnection Customer demonstrate 
that any portion of the output of the Generating Facility will be used 
to serve load on the Transmission Provider's Transmission System. 
Consequently, Transmission Customers could be unfairly burdened with 
the costs of Network Upgrades from which they will receive no benefit. 
The North Carolina Commission and the South Carolina PSC are concerned 
that the pricing policy will unfairly burden native load customers when 
Interconnection Customers locating in a state intend to sell power out 
of state (where, for example, the Generating Facility is located closer 
to a low-cost fuel supply than to its intended distant load).
---------------------------------------------------------------------------

    \103\ E.g., Georgia Transmission, North Carolina Commission, 
NRECA-APPA, Old Dominion, South Carolina PSC, and TDU Systems.
---------------------------------------------------------------------------

    573. NRECA-APPA contends that a merchant generator that has not 
committed in a long-term agreement to serve network and native load 
customers in the Transmission Provider's service area is not comparable 
to the Transmission Provider's own generating facilities.

[[Page 15979]]

NRECA-APPA asks the Commission to clarify that such a discriminatory 
approach was not intended. Nevertheless, it contends that Network 
Upgrades needed to interconnect a Generating Facility that will serve 
Network Load on the Transmission System should be rolled into the 
Transmission Provider's transmission rates. TDU Systems states that the 
Interconnection Customer should be required to designate the Generating 
Facility as a Network Resource or to undertake a long-term firm 
commitment to share in the fixed costs of the Transmission System to 
offset the subsidy effect of the pricing policy that would otherwise 
lead to excessive amounts of upgrades. It notes that NRECA-APPA has set 
out a compromise participant funding proposal that would call for the 
rolling-in of Network Upgrades costs if the Generating Facility in 
question will serve loads in the Transmission Provider's region as 
evidenced through long-term contractual arrangements.
    574. A number of petitioners argue that the Commission is 
abandoning in Order No. 2003 its ``higher of'' transmission pricing 
policy.\104\ AEP, PacifiCorp, and others argue that, although the 
Commission bases its pricing policy in part on its policy forbidding 
``and'' pricing, an Interconnection Customer that receives a refund of 
Network Upgrade costs but whose Generating Facility does not use a 
commensurate amount of Transmission Service pays neither the 
incremental cost of the Network Upgrades nor the embedded cost of the 
system.
---------------------------------------------------------------------------

    \104\ When, to meet a request for Transmission Service, a 
Transmission Provider must construct Network Upgrades, Commission 
policy has been to allow the Transmission Provider to charge 
customers the higher of embedded cost of transmission service (with 
the cost of the Network Upgrades rolled in) or the incremental cost 
of the Network Upgrades, but not the sum of the two. See American 
Electric Power Service Corporation, 91 FERC ] 61,308 (2000) and 
Consumers Energy Company, 95 FERC ] 61,233 (2001).
---------------------------------------------------------------------------

    575. Idaho Power claims that Order No. 2003 contradicts ``higher 
of'' pricing by requiring that the Interconnection Customer be refunded 
the costs of Network Upgrades after five years regardless of how much 
Transmission Service it has taken from the Generating Facility. There 
is no guarantee that the Transmission Provider will have an opportunity 
to recover from the Interconnection Customer the higher of the 
incremental costs of Network Upgrades or the embedded costs of the 
Transmission System via Transmission Service. Idaho Power believes that 
the policy, in effect, imposes on the Transmission Owner the potential 
for embedded-costs-only pricing.
    576. Southern states that the Commission's previous policy of 
allowing transmission credits only as service is taken from a 
particular Generating Facility, without a requirement that refunds be 
completed within five years, was arguably consistent with ``or 
pricing.'' However, if a full refund of upgrade costs is always 
required within five years, ``or pricing'' would be violated if 
insufficient Transmission Service is taken so that there is a remaining 
balance of credits.
    577. PacifiCorp contends that, even if the Interconnection Customer 
uses all its credits during the five years, to the extent those credits 
are for services not needed to deliver the output of the Generating 
Facility, the Transmission Provider has not recovered the contribution 
contemplated by the Commission's ``higher of'' pricing. Thus, the Order 
No. 2003 pricing provisions will likely result in cost shifts away from 
the Interconnection Customer to the customers or shareholders of the 
Transmission Provider. It asserts that this is both discriminatory and 
bad public policy. PacifiCorp and Idaho Power assert that the 
Commission's alleged departure from its ``higher of'' pricing policy 
was neither adequately explained nor justified in Order No. 2003.
    578. Finally, the Kentucky PSC states that the pricing policy is 
inconsistent with the Commission's policy for pricing natural gas 
pipeline upgrades. It is unreasonable to require customers that do not 
need upgrades to subsidize upgrades for an electric Transmission System 
but not for a natural gas pipeline. The Commission's statement that 
transmission-owning utilities unduly discriminate against other 
Transmission System users lacks evidentiary support and is insufficient 
to justify different pricing policies for electric utilities and 
natural gas pipelines.
Commission Conclusion
    579. As we stated in Order No. 2003, we adopted our interconnection 
pricing policy in order to achieve certain important goals. First, the 
policy enhances competition in bulk power markets by removing barriers 
to the construction of new generation, and by promoting the development 
of a robust and reliable transmission system through grid enhancements, 
particularly in areas where entry barriers due to unduly discriminatory 
transmission practices may still be significant. Second, the policy 
helps to ensure that all new generating facility interconnections are 
treated comparably. Third, the policy upholds our traditional 
restriction on ``and'' pricing by ensuring that the Interconnection 
Customer will not have to pay both an incremental cost rate and an 
average embedded cost rate for using the Transmission System.
    580. In Order No. 2003, the Commission did not intend to abandon 
any of the fundamental principles that have long guided our 
transmission pricing policy.\105\ In particular, the Commission had no 
intention to adopt a policy that is inconsistent with its ``higher of'' 
pricing standard for non-independent transmission providers. Thus, we 
clarify that under our interconnection pricing policy, the Transmission 
Provider continues to have the option to charge a transmission rate 
that is the higher of the incremental cost rate for network upgrades 
required to interconnect its generating facility or an embedded cost 
rate for the entire transmission system (including the cost of the 
Network Upgrades).\106\ This clarification applies to both Energy 
Resource Interconnection Service and to Network Resource 
Interconnection Service. Allowing transmission providers to charge the 
higher of an incremental cost rate or an embedded cost rate ensures 
that other transmission customers, including the Transmission 
Provider's native load, will not subsidize Network Upgrades required to 
interconnect merchant generation.
---------------------------------------------------------------------------

    \105\ See Inquiry Concerning the Commission's Pricing Policy for 
Transmission Services Provided by Public Utilities Under the Federal 
Act, Policy Statement, FERC Stats. And Reg. Preambles par. 31,005.
    \106\ Where rolling in the costs of network upgrades incurred 
for an interconnection would have the effect of raising the average 
embedded cost rate paid by existing customers, the Transmission 
Provider may elect to charge an incremental cost rate to the 
interconnection customer and thereby fully insulate existing 
customers from the costs of any necessary system upgrades. However, 
under no circumstances may a non-independent Transmission Provider 
charge an Interconnection Customer both an incremental cost rate and 
an embedded cost rate associated with existing network transmission 
facilities. See Northeast Utilities Service Company (Re: Public 
Service Company of New Hampshire), Opinion No. 364-A, 58 FERC ] 
61,070 (1992), reh'g denied, Opinion No. 364-B, 59 FERC ] 61,042, 
order granting motion to vacate and dismissing request for 
rehearing, 59 FERC ] 61,089, aff'd in part and remanded in part sub 
nom. Northeast Utilities Service Company v. FERC, 993 F.2d 937 (1st 
Cir. 1993), order on remand, 66 FERC ] 61,332, reh'g denied, 68 FERC 
] 61,041 (1994) pet. denied; Pennsylvania Electric Company, 58 FERC 
] 61,278, reh'g denied and pricing policy clarified, 60 FERC ] 
61,034, reh'g denied, 60 FERC ] 61,244 (1992), aff'd sub nom. 
Pennsylvania Electric Co. v. FERC, 11 F.3d 207 (DC Cir. 1993) 
(Penelec).
---------------------------------------------------------------------------

    581. Our experience indicates that the incremental rate associated 
with network upgrades required to

[[Page 15980]]

interconnect a new generator (dividing the costs of any necessary 
network upgrades by the projected transmission usage by the new 
generator) will generally be less that the embedded average cost rate 
(including the costs of the new facilities in the numerator and the 
additional usage of the system in the denominator). In other words, in 
most instances, the additional usage of the transmission system by a 
new Interconnection Customer will generally cause the average embedded 
cost transmission rate to decline for all remaining customers. 
Accordingly, we would expect that the Transmission Provider would want 
to roll-in the costs of any Network Upgrades necessary to interconnect 
the new generator to enable its existing transmission customers to 
benefit from this overall lower average embedded cost rate.\107\ This, 
in turn, is dependent upon an appropriate mechanism for returning any 
money contributed by the Interconnection Customer related to the 
initial financing of the necessary upgrades.
---------------------------------------------------------------------------

    \107\ In those instances where a Transmission Provider elects to 
charge an Interconnection Customer an incremental transmission rate 
for interconnection-related Network Upgrades because it results in a 
rate that is higher than the average embedded cost rate, the issue 
of whether crediting results in native load or other Transmission 
Customers ultimately bearing the cost of the Network Upgrades 
becomes somewhat irrelevant. This is because the incremental rate 
approach ensures that the costs associated with those Network 
Upgrades will not be included in the transmission rates charged to 
other customers. However, we emphasize that a non-independent 
Transmission Provider may not, under any circumstances, charge the 
Interconnection Customer both an incremental cost rate and an 
embedded cost rate for interconnecting to (or using) the integrated 
network.
---------------------------------------------------------------------------

    582. In this regard, we note that many of the petitioners' 
criticisms of the crediting and reimbursement provisions of Order No. 
2003 are misplaced. The Interconnection Customer's upfront payment, 
with the associated credits and reimbursements, serves simply as a 
financing mechanism that is designed to facilitate the construction of 
the Network Upgrades. This mechanism in no way undermines the 
Commission's fundamental ratemaking policy of allowing the Transmission 
Provider to charge the higher of an incremental or an average embedded 
cost rate for the services it provides. Nevertheless, we agree with 
petitioners that certain of the crediting and reimbursement provisions 
should be modified, and we are granting rehearing in two specific 
areas. We discuss these matters in greater detail below in the section 
on Rules Governing the Interconnection Customer's Upfront Payment and 
the Payment of Credits and Reimbursements.
    583. A number of petitioners argue that only the Interconnection 
Customer benefits from the Network Upgrades needed to interconnect the 
Generating Facility and, as a result, the Interconnection Customer 
should receive no credits toward the cost of the Network Upgrades. 
Rather, the petitioners assert that the cost of the Network Upgrades 
should be directly assigned to the Interconnection Customer. 
Petitioners argue that this is especially true when the Interconnection 
Customer sells the output of the Generating Facility off-system, and 
when the Interconnection Customer requests Network Resource 
Interconnection Service without making a commitment to be a Network 
Resource for any network load. Also, Southern and Entergy contend that 
the interconnection pricing policy, including the ``at or beyond'' test 
for separating Network Upgrades from sole-use facilities, departs from 
the policy of applying a system-wide benefit test.
    584. We disagree with these petitioners. In response to Southern 
and Entergy, we note that, in assessing the benefits of the Network 
Upgrades needed to interconnect new generating capacity, the 
Commission's approach to interconnection pricing looks beyond the 
direct usage related benefits usually associated with transmission 
system enhancements. That is, our approach also recognizes the 
reliability benefits of a stronger transmission infrastructure and more 
competitive power markets that result from a policy that facilitates 
the interconnection of new generating facilities. This approach was 
fully supported by the court in Entergy Services, which said ``[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.'' \108\
---------------------------------------------------------------------------

    \108\ Entergy Services, Inc. v. FERC, 319 F.3d 536 (DC Cir. 
2003) at 543-44.
---------------------------------------------------------------------------

    585. In response to the petitioners that want the cost of the 
Network Upgrades to be directly assigned to the Interconnection 
Customer, we note that the Commission has long held that the 
Transmission System is a cohesive, integrated network that operates as 
a single piece of equipment, and that network facilities are not ``sole 
use'' facilities but facilities that benefit all Transmission 
Customers.\109\ The Commission has reasoned that, even if a customer 
can be said to have caused the addition of a grid facility, the 
addition represents a system expansion used by and benefiting all users 
due to the integrated nature of the grid.\110\ For this reason, the 
Commission has consistently priced the transmission service of a non-
independent Transmission Provider based on the cost of the grid as a 
whole, and has rejected proposals to directly assign the cost of 
Network Upgrades.
---------------------------------------------------------------------------

    \109\ See, e.g., Public Service Company of Colorado, 59 FERC ] 
61,311 (1992), reh'g denied, 62 FERC ] 61,013 (1993).
    \110\ Id. at 61,061.
---------------------------------------------------------------------------

    586. This does not mean, however, that native load customers must 
subsidize the cost of the Network Upgrades. When rolling in the cost of 
Network Upgrades would cause the embedded cost rate paid by existing 
transmission customers to increase, we permit the non-independent 
Transmission Provider to charge an incremental rate (i.e., the rate 
associated with the costs of the Network Upgrades divided by the 
Interconnection Customer's units of service) to the Interconnection 
Customer. This will fully insulate existing customers from the cost of 
the Network Upgrades. We emphasize, however, that an incremental rate 
is not the same as direct assignment; the Interconnection Customer that 
pays an incremental rate is paying for Transmission Service over the 
entire Transmission System. Charging both the incremental cost of the 
Network Upgrades and an embedded cost transmission rate would be 
charging twice for the same service, i.e., ``and'' pricing, and we do 
not permit such pricing for the Transmission Services of a non-
independent Transmission Provider.
    587. As we explained in Order No. 2003, the Commission has made 
exceptions to its policy of prohibiting the direct assignment of 
Network Upgrade costs in cases where the Transmission Provider is 
independent of market participants. The Commission noted that, unlike a 
non-independent Transmission Provider, a Transmission Provider that is 
independent would have no incentive to use the cost determination and 
allocation process to unfairly advantage its own generation. This 
independence allows the Transmission Provider to utilize a more 
creative and flexible approach to competitive energy markets. For 
example, we have permitted the direct assignment of Network Upgrade 
costs by an independent Transmission Provider

[[Page 15981]]

when the Interconnection Customer receives well-defined congestion 
rights in return. Where the customer receives these rights in exchange 
for a direct cost assignment, and at the same time obtains access to 
the network in exchange for an embedded cost access fee, the Commission 
has found that the customer is paying separate charges for separate 
services.\111\ This issue is discussed more fully below.
---------------------------------------------------------------------------

    \111\ See Pennsylvania-New Jersey-Maryland Interconnection, 81 
FERC ] 61,257 at 62,259-60 (1997), order on reh'g. and 
clarification, 92 FERC ] 61,282 at 61,955-56 (2000), remanded on 
other grounds sub nom. Atlantic City Elec. Co. v. FERC, 295 F.3d 1 
(DC Cir. 2002).
---------------------------------------------------------------------------

    588. We also deny requests to directly assign the cost of Network 
Upgrades to the Interconnection Customer in cases where the customer 
sells off-system. When the Interconnection Customer chooses to sell the 
output of the Generating Facility off-system, other transmission 
customers are protected because the Transmission Customer has the 
assurance that it can recover from the Interconnection Customer the 
higher of incremental or embedded costs.
    589. We disagree with the Kentucky PSC's assertion that the 
interconnection pricing policy is inconsistent with the Commission's 
policy for pricing interstate natural gas pipeline facilities. The 
Commission's policy for pricing transmission services does not differ 
in any fundamental way from the pricing policy for natural gas pipeline 
expansions as set forth in our Statement of Policy.\112\ There the 
Commission adopted a threshold requirement of no financial subsidies 
for pipeline expansions in order to ensure that existing customers of 
the pipeline do not subsidize service to a new customer. In this order, 
we are clarifying that the Transmission Provider has the opportunity to 
charge the Interconnection Customer the higher of an incremental cost 
rate or embedded cost rate under all circumstances. Accordingly, our 
interconnection pricing policy is entirely consistent with our pricing 
policy for pipeline expansions.
---------------------------------------------------------------------------

    \112\ See, e.g., Certification of New Interstate Natural Gas 
Pipeline Facilities (Statement of Policy), 88 FERC ] 61,227 (1999) 
and Order Clarifying Statement of Policy, 90 FERC ] 61,128 (2000).
---------------------------------------------------------------------------

    590. In conclusion, we believe that our interconnection pricing 
policy is reasonable because it provides efficient incentives for new 
generation and transmission expansion, while our ``higher of'' 
ratemaking standard prevents subsidization of merchant generation and 
prevents undue discrimination by native load or other Transmission 
Customers. The policy ensures that all Transmission Customers 
(including the Interconnection Customer when it takes transmission 
delivery service) will bear a fair share of the cost of the 
Transmission System, reflecting the fact that all customers benefit 
from having a Transmission System that provides reliable service and 
supports new, competitive generation options.
c. Legal Challenges to the Interconnection Pricing Policy
    591. Southern and Entergy argue that the Commission's pricing 
policy violates Section 212 of the FPA. First, they argue that Section 
212 applies even though the Commission is acting under Section 205 of 
the FPA; Southern states that ``the directives of Section 212 apply 
regardless of the provision of the FPA under which the Commission 
chooses to require service to be provided. The Commission itself 
recognized this to be the case when it adopted its Transmission Pricing 
Policy * * *'' \113\
---------------------------------------------------------------------------

    \113\ Southern Request for Rehearing at 49, citing Inquiry 
Concerning the Commission's Pricing Policy for Transmission Services 
Provided by Public Utilities Under the Federal Power Act; Policy 
Statement, FERC Stats. & Regs., Reg. Preambles ] 31,005, at p. 
31,143 (1994).
---------------------------------------------------------------------------

    592. Southern goes on to argue that the pricing policy the 
Commission adopted for a non-independent Transmission Provider violates 
the standards of Section 212. It states that Section 722 of EPAct 
amended Section 212 of the FPA to impose the following restrictions 
when the Commission requires wholesale Transmission Service (including 
Interconnection Service) to be provided. Southern quotes section 212, 
with an omission, as follows:

    Rates, charges, terms, and conditions for transmission services 
provided pursuant to an order under section 211 shall ensure that, 
to the extent practicable, costs incurred in providing the wholesale 
transmission services * * * are recovered from the applicant for 
such order and not from a transmitting utility's existing wholesale, 
retail, and transmission customers.\114\

    \114\ Southern's Request for Rehearing at 49.
---------------------------------------------------------------------------

Southern characterizes section 212 as providing that when the 
Commission orders a utility to provide Transmission Service, other 
Transmission Customers must not be required to bear the cost of 
providing that service. It claims that the Commission's pricing policy 
violates section 212 because it forces other Transmission Customers to 
help pay for upgrades that benefit only the new Interconnection 
Customer.
    593. As further support for its claim that section 212 does not 
allow the pricing policy the Commission adopted for a non-independent 
Transmission Provider, Southern claims that the legislative history of 
section 212 shows that Congress intended to ensure that retail and 
other Transmission Customers are not required to bear the cost of 
facilities required to provide Interconnection Service to an 
Interconnection Customer. It cites various statements of Senator Wallop 
during the debates on the Energy Policy Act.
    594. NYTO argues that, unless facilities are voluntarily 
constructed by the Transmission Owner, Sections 210-212 of the FPA 
apply to expansion and interconnection activities. NYTO further argues 
that the Commission's decision in Nevada Power \115\ cannot be 
reconciled with Sections 210-212 of the FPA or the legislative history 
of those sections. NYTO states that Sections 210-212 also require the 
Commission to find that (1) the proposed activities are in the public 
interest, and (2) in accordance with Section 210 (interconnection) and 
Section 211 (mandatory wheeling/enlargement of facilities), that the 
cost recovery requirements of Section 212 have been met.
---------------------------------------------------------------------------

    \115\ Nevada Power Co., 97 FERC ] 61,227 (2001), reh'g denied, 
99 FERC ] 61,347 (2002) (Nevada Power). (``To hold new 
interconnecting generators responsible in the interconnection 
agreement * * * for upgrades on all interconnected systems, 
including not only the system to which the generator interconnects 
but other, more distant, systems as well, would create substantial 
obstacles to the construction of new generation at the very time 
that the Commission is trying to encourage the building of new 
generation.'')
---------------------------------------------------------------------------

    595. Entergy, Georgia Transmission, and Southern contend that the 
Commission's statement in Order No. 2003 that its interconnection 
pricing policy has ``withstood judicial review'' is overly broad.\116\ 
They argue that Entergy Services involved only the provision of 
transmission credits for short circuit and stability-related upgrades. 
The payment of transmission credits with interest for what Entergy 
describes as direct-connection interconnection facilities, as well as 
Order No. 2003's policies with respect to the use and ultimate payback 
of transmission credits in five years, have not yet been reviewed in 
court. Also, Southern claims that Entergy Services could not have 
addressed the ``at or beyond test'' because that test had not been used 
when the Commission's orders underlying that case were issued. The ``at 
or beyond test'' did not appear until January 11, 2002 in the

[[Page 15982]]

Commission's decision in Entergy Gulf States, Inc., 98 FERC ] 61,014 
(2002). Furthermore, the rationale for Entergy Services is not 
applicable to the expansive costs that are proposed to be subsidized 
under Order No. 2003. Claiming that Network Resource Interconnection 
Service requires transmission delivery upgrades, Southern asserts that 
Order No. 2003 is the first time that the Commission has required the 
socialization of such upgrades without a showing that they are needed 
to provide service to Network Customers.
---------------------------------------------------------------------------

    \116\ In support of the pricing policy, the Commission cites the 
case of Entergy Services, Inc. v. FERC, 319 F.3d 536 (DC Cir. 2003) 
(Entergy Services).
---------------------------------------------------------------------------

Commission Conclusion
    596. We do not agree with petitioners who argue that the 
Commission's pricing policy violates FPA Section 212. First, Section 
212 applies only to Transmission Service that is ordered under Section 
211, and we are acting under Section 206 here, not Section 211. The 
Commission's Transmission Pricing Policy Statement does not state that 
Section 212 applies to service under Sections 205 or 206 or that the 
two provisions are identical. What the Commission said was:

    As a general matter, transmission pricing should be fair and 
equitable. This has two important implications. First, EPAct 
requires that, to the extent practicable, existing wholesale, retail 
and transmission customers should not pay for the costs incurred in 
providing wholesale transmission services ordered under Section 211. 
Similarly, we do not believe that third-party transmission customers 
should subsidize existing customers. We believe this principle 
should apply equally to transmission services under both Section 211 
and Sections 205 and 206.\117\

    \117\ Transmission Pricing Policy Statement at 31,143-44.
---------------------------------------------------------------------------

    597. Second, as we explained above, under our ``higher of'' policy 
for transmission ratemaking, existing wholesale, retail and 
transmission customers are fully insulated from the costs incurred in 
providing transmission service, including Interconnection Service, to 
other customers. In the case of Interconnection Service, the 
Transmission Provider always has the option to charge the 
Interconnection Customer an incremental rate when rolling in the cost 
of Network Upgrades would otherwise cause the embedded cost rate paid 
by existing transmission customers to increase.
    598. We note, however, that even if section 212 did apply to this 
rulemaking, we do not agree that it forbids rolled-in pricing of an 
upgrade to the transmission grid simply because the immediate impetus 
for that upgrade is the interconnection of a new Generating Facility. 
When Southern quotes section 212, it omits an important phrase, 
underlined below:

    Rates, charges, terms, and conditions for transmission services 
provided pursuant to an order under section 211 shall ensure that, 
to the extent practicable, costs incurred in providing the wholesale 
transmission services, and properly allocable to the provision of 
such services, are recovered from the applicant for such order and 
not from a transmitting utility's existing wholesale, retail, and 
transmission customers.

    599. As the Commission explained in the Transmission Pricing Policy 
Statement, the prohibition against improper subsidization forbids both 
improper subsidization by existing customers and improper subsidization 
by third parties. This basic pricing principle is consistent with the 
just and reasonable standard of FPA Sections 205, 206 and 212. With 
respect to the specific portion of Section 212 quoted above, we do not 
believe that the costs of Network Upgrades required to interconnect a 
Generating Facility to the Transmission System of a non-independent 
Transmission Provider are properly allocable to the Interconnection 
Customer through direct assignment because upgrades to the transmission 
grid benefit all customers, as we explained above. In addition to 
leaving out the statutory reference to ``properly allocable'' costs, 
Southern does not mention several other standards set forth in Section 
212(a); that provision also states that the rates for transmission 
service ordered under Section 211 ``shall promote the economically 
efficient transmission and generation of electricity and shall be just 
and reasonable, and not unduly discriminatory or preferential.'' As 
explained above, the Commission's pricing policy for interconnection to 
the Transmission System of a non-independent Transmission Provider 
promotes economic efficiency, is just and reasonable, and is needed to 
prevent the Transmission Provider that has an incentive to discourage 
competitors from unduly discriminating against those competitors. Thus, 
the Commission's pricing policy would not violate Section 212, even if 
that provision applied here.
    600. Southern's discussion of the legislative history of EPAct does 
not support a conclusion that Section 212 was intended to require a 
particular type of transmission pricing. There is ample evidence in the 
legislative history that Congress carefully decided not to either 
endorse or reverse the Commission's transmission pricing policies, 
although several representatives wished it to do so.\118\
---------------------------------------------------------------------------

    \118\ 138 Cong. Rec. S17613 (daily ed. October 8, 1992); 138 
Cong Rec. H11400 (daily ed. October 5, 1992).
---------------------------------------------------------------------------

    601. Some petitioners argue that the Commission's statement in 
Order No. 2003 that the interconnection pricing policy has withstood 
judicial review is overly broad. We disagree. Most importantly, the 
finding of the court in Entergy Services is not limited to short 
circuit and stability-related upgrades. Indeed, Entergy Services went 
beyond the narrow question of these specific upgrades to look at the 
broader issue of the Commission's ``standard policy that requires 
credits for customer-funded network upgrades.''\119\ The analysis was 
not restricted to the narrow question of whether specific ``evidence 
that the reliability upgrades are crucial to protect generation and 
other equipment,''\120\ had been found, but took a broader view that 
benefits from all Network Upgrades would enhance network expansion and 
encourage competition by reducing barriers to entry.\121\ Thus, Entergy 
Services is consistent with our conclusion that the crediting policy is 
appropriate for all customer-funded Network Upgrades.
---------------------------------------------------------------------------

    \119\ 319 F.3d at 543.
    \120\ Id.
    \121\ Id. at 543-44.
---------------------------------------------------------------------------

    602. Rolling in the costs of other types of Network Upgrades, such 
as those required for Network Resource Interconnection Service, is well 
within the scope of the policy objectives that were upheld by the court 
in Entergy Services. Indeed, the Network Upgrades needed for Network 
Resource Interconnection Service are likely to provide Transmission 
Customers with even greater benefits than do short circuit and 
stability-related Network Upgrades, because the former are more likely 
to reinforce the backbone facilities of the Transmission System. The 
court clearly affirmed the Commission's reasoning underlying rolled-in 
transmission rates and its view that all Transmission Customers benefit 
from an expanded, and thus more reliable, Transmission System.
d. Rules Governing the Interconnection Customer's Upfront Payment and 
the Payment of Credits and Reimbursements
    603. Many petitioners object to various details of how the 
Interconnection Customer is to be reimbursed for its upfront payment. 
In particular, petitioners object to the payment of interest on unpaid 
credits, Order No. 2003's five year repayment period, and the ability 
of the Interconnection Customer to receive

[[Page 15983]]

credits for Transmission Service taken anywhere on the Transmission 
Provider's Transmission System, even if the GeneratingFacility is not 
the source of power.\122\ Many argue that, because of these features, 
the policy provides a subsidy to merchant generation at the expense of 
retail and other transmission customers.
---------------------------------------------------------------------------

    \122\ E.g., AEP, Alabama PSC, Ameren, Central Maine, Cinergy, 
Duke Energy, Entergy, Georgia Transmission, Idaho Power, NRECA-APPA, 
NYTO, PacifiCorp, Progress Energy, and Southern.
---------------------------------------------------------------------------

    604. Various petitioners claim that crediting should be limited to 
the provision of Transmission Service with the Generating Facility as 
the Point of Receipt for the Transmission Service.\123\ Georgia 
Transmission asks how the pricing policy satisfies the ``used and 
useful test''\124\ if the Interconnection Customer is not required to 
move power from the Generating Facility across the facilities for which 
credits are being paid. It claims that the rate of crediting can be 
inappropriately accelerated if it is tied to other transmission 
transactions that greatly exceed the output capacity of the Generating 
Facility. Idaho Power and Central Maine would award credits only to an 
Interconnection Customer or its assignee taking Transmission Service 
with the Generating Facility as the source of the power. The Alabama 
PSC states that providing transmission credits in this manner avoids 
the socialization of upgrade costs in instances where the upgrades are 
of little or no benefit to the system.
---------------------------------------------------------------------------

    \123\ E.g., AEP, Alabama PSC, Central Maine, Cinergy, Entergy, 
Georgia Transmission, Idaho Power and Progress Energy.
    \124\ The Commission generally requires a showing that the 
Transmission Provider's assets are ``used and useful'' in providing 
Transmission Service before their costs can be included in 
transmission rates. See NEPCO Municipal Rate Committee v. FERC, 668 
F.2d 1327, 1333 (D.C. Cir. 1981).
---------------------------------------------------------------------------

    605. Entergy insists that requiring credits to be awarded against 
the rates for Transmission Service taken anywhere on the Transmission 
Provider's Transmission System will likely lead to unneeded 
construction of Network Upgrades because it removes any financial 
discipline that the Interconnection Customer might otherwise have 
regarding the facilities necessary to complete its interconnection. 
Cinergy argues that basing the amount of credits in a given billing 
period on the amount of charges for Transmission Service from the 
Generating Facility will preserve the theoretical underpinnings of the 
pricing policy and restore and stabilize cash flows for the 
Transmission Provider.
    606. Duke Energy and Progress Energy note an inconsistency between 
the Order No. 2003 preamble and LGIA Article 11.4.1. The latter ties 
credits to payments made ``for Transmission Services with respect to 
the Large Generating Facility.'' Duke Energy states that this phrase 
should be eliminated. However, Progress Energy recommends revising 
Article 11.4.1 to provide that credits will be paid only from the 
Commercial Operation Date of the Generating Facility and for 
Transmission Service that is provided for power from that specific 
Generating Facility.
    607. Some petitioners contend that the reimbursement of unused 
credits to the Interconnection Customer at the end of five years is 
unreasonable.\125\ Entergy and others argue that uncoupling the 
repayment of transmission credits from the facility with which they are 
associated exacerbates the arbitrariness of the five year credit 
payback period. This requirement shifts investment risk from the entity 
in control of such investment (the Interconnection Customer) to the 
Transmission Provider's retail customers and is contrary to the 
Commission's longstanding ratemaking principles. NRECA-APPA views this 
as a form of incentive rate policy, the application of which the 
Commission previously would consider only on a case-by-case basis.
---------------------------------------------------------------------------

    \125\ E.g., Ameren, Entergy, Georgia Transmission, NRECA-APPA, 
and Progress Energy.
---------------------------------------------------------------------------

    608. Georgia Transmission and NRECA-APPA contend that the crediting 
period should, at a minimum, be determined by the length of time it 
takes for the Interconnection Customer to use the credits properly 
applicable to its Transmission Service, whether the period is shorter 
or longer than five years. NRECA-APPA and others suggest that crediting 
over a period coterminous with the depreciation schedule of the Network 
Upgrades is more appropriate.
    609. AEP and others are concerned that the Interconnection Customer 
could declare Commercial Operation of the Generating Facility but 
produce only token amounts of electricity during the five year period 
and still be eligible for a full refund. Progress Energy seeks 
clarification of the requirement that the Generating Facility 
``continue to operate.'' It asks whether the Generating Facility must 
actually put power on the Transmission System in order for the 
Interconnection Customer to receive credits, and asks the Commission to 
clarify that the LGIA allows crediting to be interrupted or terminated 
when the Generating Facility is not in Commercial Operation. It asks 
for the following clarifications: (1) That the Interconnection Customer 
is not entitled to transmission credits when Commercial Operation of 
the Generating Facility is suspended or terminated, (2) that if 
Commercial Operation of the Generating Facility is suspended or 
terminated, this will suspend the five year repayment period required 
in LGIA Article 11.4.1 (Refunds of Amounts Advanced for Network 
Upgrades), and (3) that the five year repayment period may restart only 
after Commercial Operation has resumed. AEP proposes that limiting the 
credit to actual transmission usage by the Generating Facility solves 
the problem of determining whether the Generating Facility is in 
Commercial Operation, because transmission usage is easily verified.
    610. Regarding interest on unpaid credits, NYTO claims that basing 
the interest on Section 35.19a(a)(2)(ii) of the Commission's 
Regulations is excessive and not consistent with commercial bank 
interest rates. Southern asserts that the Interconnection Customer 
should not be entitled to receive interest. It claims that the third 
paragraph of LGIA Article 11.4 (Transmission Credits) is particularly 
inequitable because it requires interest to be accrued even when the 
upgrades are not being used. Southern adds that it should not be 
required to pay interest because neither the Transmission Provider nor 
its customers would be able to earn interest on the payments for the 
Network Upgrades received from the Interconnection Customer. Southern 
explains that the Interconnection Customer generally pays for Network 
Upgrades when costs for materials and labor are incurred and, 
consequently, the Transmission Provider is unable to utilize the funds 
for any other purpose and cannot earn any return on these monies.
    611. SoCal Edison notes that, when the Transmission System has some 
available capacity, certain Network Upgrades that would otherwise be 
the cost responsibility of the Interconnection Customer may not ever be 
needed if the Interconnection Customer is able to use the available 
capacity as a result of a higher queued customer dropping out of the 
queue. SoCal Edison recommends a specific revision to the crediting 
provisions of LGIA Article 11 that addresses this possibility.
Commission Conclusion
    612. Petitioners raise numerous objections to the provisions of 
Order No. 2003 concerning the Interconnection Customer's upfront 
payment and the mechanism for providing credits and reimbursements. 
However, as we

[[Page 15984]]

explained above, their concerns that these provisions will lead to 
improper subsidies are misplaced. This is because petitioners fail to 
recognize that the Interconnection Customer's upfront payment, with 
provisions for the payment of interest, credits and reimbursements, 
serves not as a rate for interconnection or transmission service, but 
simply as a financing mechanism that is designed to facilitate the 
efficient construction of Network Upgrades.
    613. The purpose of the upfront financial payment is twofold. 
First, by providing the Transmission Provider with a source of funds to 
construct the Network Upgrades, the upfront payment by the 
Interconnection Customer alleviates any delay that might result if the 
Transmission Provider were forced to secure funding elsewhere. Second, 
by placing the Interconnection Customer initially at risk for the full 
cost of the Network Upgrades, the upfront payment provides the 
Interconnection Customer with a strong incentive to make efficient 
siting decisions and, in general, to make good faith requests for 
Interconnection Service. However, the upfront payment is not a rate for 
service, and thus is not intended to be the means by which the 
Transmission Provider recovers the cost of the Network Upgrades. 
Rather, the Transmission Provider's right to charge for transmission 
service at the higher of an embedded cost rate, or an incremental rate 
designed to recover the cost of the Network Upgrades, provides the 
Transmission Provider with a cost recovery mechanism that ensures that 
native load and other transmission customers will not subsidize service 
to the Interconnection Customer.
    614. Nevertheless, we find merit in the arguments of petitioners 
that object to certain features of the crediting and reimbursement 
mechanisms. These features are the right of the Interconnection 
Customer to receive credits for transmission service that does not 
include the Generating Facility as the source of the power transmitted, 
and the right of the Interconnection Customer to receive a full 
reimbursement of the outstanding balance of its upfront payment after 
only five years. The Commission agrees that, in both instances, these 
features may serve to insulate the Interconnection Customer from the 
consequences of its siting decision, as well as other factors that can 
significantly affect the cost of the interconnection, because if the 
Interconnection Customer continues to be a Transmission Customer (and 
receives credits unrelated to service from the Generating Facility at 
issue), it does not bear an appropriate level of risk that the Network 
Upgrades may be rendered unnecessary should its facility become 
commercially infeasible. We note that, while all Transmission Customers 
benefit generally from upgrades to the transmission network, all 
customers do not necessarily benefit equally from upgrades that may be 
required for a particular interconnection. To help ensure that the 
Interconnection Customer makes efficient and cost-effective siting 
decisions, we conclude that it is appropriate that credits be given 
only for transmission service that includes the Generating Facility as 
the source of the power transmitted. We therefore grant rehearing with 
regard to these two features as described below.
    615. First, we will no longer require the Transmission Provider to 
provide credits to the Interconnection Customer for all of the 
transmission services that it takes on the system, but instead will 
limit credits to transmission service taken with respect to the 
Generating Facility. As petitioners have noted, allowing the 
Interconnection Customer to receive credits for services unrelated to 
the Generating Facility tends to shift risk from the entity in control 
of the investment to native load and other Transmission Customers. This 
shifting of risk may cause the construction of unneeded or more costly 
Network Upgrades. In addition, it may result in native load or other 
Transmission Customers having to bear the cost of the Network Upgrades 
in cases where the Interconnection Customer takes little additional 
transmission service that is associated with the new Generating 
Facility, or where the Interconnection Customer elects to retire the 
Generating Facility early. Therefore, we are restoring to Article 
11.4.1 language from the NOPR LGIA that required the Transmission 
Provider to provide the Interconnection Customer with dollar-for-dollar 
credits only for the payments that are made for transmission services 
taken with respect to the Generating Facility.\126\
---------------------------------------------------------------------------

    \126\ Duke Energy and Progress Energy point out an inconsistency 
between P 730 of Order No. 2003 and the first paragraph of LGIA 
Article 11.4.1, and state that the phrase ``for Transmission 
Services with respect to the Large Generating Facility'' should be 
deleted from Article 11.4.1. However, with the change to Article 
11.4.1. that we are requiring here, this phrase is now consistent 
with our pricing policy as revised. Therefore, we are allowing it to 
remain.
---------------------------------------------------------------------------

    616. Second, we are allowing the Transmission Provider to choose, 
five years from the Commercial Operation Date of the Generating 
Facility, one of the following two options: (1) Reimburse to the 
Interconnection Customer the remaining balance of the Interconnection 
Customer's upfront payment plus accrued interest, or (2) continue to 
provide credits to the Interconnection Customer until the total of all 
credits equals the Interconnection Customer's initial payment for the 
Network Upgrades, plus interest. As discussed above, this ensures that 
the Interconnection Customer bears the risk associated with Network 
Upgrades that were built to accommodate its interconnection request and 
provides an incentive for efficient and cost effective siting 
decisions. More importantly, this modification also helps to ensure 
that other Transmission Customers, including the Transmission 
Provider's native load, will not have to bear the cost of the Network 
Upgrades if the Interconnection Customer ceases operation of the 
Generating Facility prematurely.
    617. However, this revision also gives the Transmission Provider 
the option to credit the full amount of any customer contributed funds 
if it so chooses. By electing that option, the Transmission Provider 
can avoid the further accumulation of interest on the Interconnection 
Customer's upfront payment, and can charge, without credits, for the 
embedded cost of all transmission services taken with respect to the 
Generating Facility. We are substantially revising Article 11.4 to 
effect these changes.
    618. With respect to the payment of interest, the Commission 
continues to believe that the Interconnection Customer is entitled to 
be reimbursed for all of the costs that it incurs in financing the 
Network Upgrades, including a reasonable estimate of the carrying cost 
of the upfront payment. We conclude that using Section 35.19a(a)(2)(ii) 
of the Commission's Regulations as the basis for the interest 
calculation is appropriate because it ensures that the Interconnection 
Customer is fully and fairly compensated for the time value of its 
upfront payment for the Network Upgrades that it is required to 
finance. Arguments that the Section 35.19a(a)(2)(ii) interest rate is 
not compensatory with respect to the financing that could be obtained 
by the Transmission Provider are not relevant here. We note, however, 
that if the Transmission Provider believes it can obtain financing for 
the Network Upgrades at a more favorable rate, it always has the option 
to finance the Network Upgrades itself and immediately include the 
associated costs in rates. In so doing, the Transmission Provider 
avoids having to provide credits to the Interconnection Customer and 
can immediately seek to

[[Page 15985]]

recover its investment costs through transmission rates.
    619. On other matters, Progress Energy states that Order No. 2003 
does not clearly articulate what the phrase ``continue to operate'' 
means or how it should be applied. We agree and are defining Commercial 
Operation in the LGIP and LGIA as ``the status of a Generating Facility 
that has commenced generating electricity for sale, excluding 
electricity generated during Trial Operation.'' Also, we clarify that, 
once it achieves Commercial Operation, a generating Facility is deemed 
to ``continue to operate'' if the Interconnection Agreement between the 
Interconnection Customer and the Transmission Provider remains in full 
force and effect.
    620. Progress Energy also states that Order No. 2003 does not 
address what happens if the Generating Facility suspends or terminates 
Commercial Operation before it has been completely reimbursed through 
transmission credits. With the changes we are making to the crediting 
and reimbursement provisions of Article 11.4, this issue is moot. As 
AEP notes, tying credits to payments for transmission services taken 
with respect to the Generating Facility solves the problem of 
determining whether the Generating Facility is in Commercial Operation, 
because transmission usage is easily verified. Also, the payment of a 
lump sum reimbursement is now at the option of the Transmission 
Provider whether or not the Generating Facility continues to operate 
after five years.
    621. SoCal Edison requests clarification about credits for certain 
Network Upgrades that are the responsibility of a lower queued 
Interconnection Customer that become unneeded if a higher queued 
Interconnection Customer drops out of the queue. Such a situation can 
occur, for example, if the Transmission System has sufficient capacity 
to accommodate the higher queued Interconnection Customer's Generating 
Facility, but not enough to accommodate the lower queued 
Interconnection Customer's Generating Facility.\127\
---------------------------------------------------------------------------

    \127\ See, e.g., Virginia Electric and Power Company, 104 FERC ] 
61,249 (2003).
---------------------------------------------------------------------------

    622. We clarify as follows. If the lower queued Interconnection 
Customer chooses an In-Service Date for the Generating Facility that 
precedes that of the higher queued Interconnection Customer, the lower 
queued Interconnection Customer must be allowed to proceed using the 
capacity earmarked for the higher queued Interconnection Customer, to 
the extent possible. When the higher queued Interconnection Customer is 
ready to proceed, the Network Upgrades originally required for the 
lower queued Interconnection Customer would have to be built. Once 
those Network Upgrades are placed in service, the lower queued 
Interconnection Customer would be required to pay the associated cost. 
At the same time, the period would begin for crediting the amount that 
the lower queued Interconnection Customer has paid. However, if the 
higher queued Interconnection Customer ultimately drops out of the 
queue, then some or all of the Network Upgrades would not have to be 
built, eliminating at least in part the need for funding by the lower 
queued Interconnection Customer and for subsequent payment of credits. 
To address this situation, we are revising Article 11.4 to state that 
the crediting period begins on the later of the Commercial Operation 
Date or the date that the Network Upgrades are placed in service.
e. Economic Efficiency Implications of the Order No. 2003 Pricing 
Policy for a Non-Independent Transmission Provider
    623. A number of petitioners seeking rehearing of the 
interconnection pricing policy claim that it provides the 
Interconnection Customer with poor incentives to choose an efficient 
location for the Generating Facility. Some petitioners also are 
convinced the policy will lead to inefficient expansion of the 
Transmission System \128\ and create reliability risks.\129\
---------------------------------------------------------------------------

    \128\ E.g., Ameren, Georgia Transmission, Kentucky PSC, 
Mississippi PSC, Old Dominion, Salt River Project, South Carolina 
PSC, and Southern.
    \129\ E.g., Georgia Transmission and Salt River Project.
---------------------------------------------------------------------------

    624. For example, the South Carolina PSC and some other state 
commissions say that inefficiencies can occur because the costs of 
interconnection-related Network Upgrades must be passed on to other 
Transmission Customers regardless of whether they actually benefit from 
the Generating Facility or the related Network Upgrades. The Kentucky 
PSC argues that the policy will shield a merchant generator from the 
real costs of Network Upgrades and remove incentives to locate near 
load to minimize the costs of upgrades. However, Old Dominion argues 
that the Interconnection Customer should not be expected to bear the 
burden of determining the least cost, most efficient approach to 
generator interconnections. Rather, the Commission should require the 
Transmission Provider and RTOs to take the lead in assisting 
Interconnection Customers making decisions on where and how to 
interconnect by developing forward-looking studies of the most 
efficient interconnection voltage levels and locations for new 
generating facilities.
    625. Georgia Transmission complains that Network Resource 
Interconnection Service gives the Interconnection Customer little 
incentive to accommodate Transmission Provider planning and reliability 
activity because it does not require it to bear the costs of mitigating 
transmission-related problems that arise from its site selection. 
Georgia Transmission says that large numbers of alternate generation 
scenarios could arise from uncommitted potential Network Resources 
under Network Resource Interconnection Service. Georgia Transmission 
claims that the uncertainty created by many possible generation 
patterns complicates planning considerations and creates reliability 
risks in the operation of the Transmission System.
    626. Salt River Project contends that the Commission's decision to 
require the Transmission Provider to refund payments made for Network 
Upgrades is a disincentive to upgrade transmission facilities in 
response to an Interconnection Request. This can result in a decrease 
in reliability, according to Salt River Project. Southern maintains 
that it is questionable whether encouraging new generation is currently 
a legitimate goal, given the oversupply of capacity that exists in some 
areas of the country, or whether the five year refund period will 
actually promote the development of new generation.
Commission Conclusion
    627. Petitioners argue that the interconnection pricing policy will 
cause the Interconnection Customer to make inefficient siting decisions 
and require the Transmission Provider to expand and operate its 
Transmission System in an inefficient manner. We disagree. With regard 
to the Interconnection Customer's incentives, we note that the 
Interconnection Customer is required to provide the up front funding to 
finance the cost of the Interconnection Facilities required for its 
interconnection. We believe this will provide the Interconnection 
Customer with a strong incentive to make efficient siting decisions. We 
note, moreover, that a number of the factors that influence siting 
decisions are beyond the control of both the Interconnection Customer 
and the Commission. Most importantly, the approval and siting of new 
generating facilities is ultimately under the control of state 
authorities.

[[Page 15986]]

    628. With regard to the implications of the pricing policy for 
Transmission System expansion and operation, we disagree with Georgia 
Transmission that the pricing policy will give rise to large numbers of 
uncommitted potential Network Resources that will create a reliability 
risk. Georgia Transmission has not cited any provisions of the LGIP, 
LGIA or its tariff that support its claim that the pricing policy will 
create a reliability risk. Network Resource Interconnection Service is 
intended to be comparable to the service that the Transmission Provider 
provides to its own generating facilities. Moreover, the operation of 
these generating facilities, and all Transmission Services, must be 
scheduled with the Transmission Provider in accordance with the 
Transmission Provider's established procedures. Order No. 2003 does not 
require a Transmission Provider to either construct or operate its 
Transmission System in any way that departs from its established 
reliability criteria and operating protocols.
    629. We also disagree with Salt River Project's claim that the 
pricing policy will create an incentive for a Transmission Provider not 
to construct Network Upgrades needed for reliability. While we are not 
permitting the direct assignment of Network Upgrade costs by a non-
independent Transmission Provider, we are providing the Transmission 
Provider with the opportunity to recover the higher of incremental or 
embedded costs. This fully protects the Transmission Provider and its 
other customers from having to bear the cost of Network Upgrades needed 
to interconnect a new Generating Facility. Thus, the ``higher of'' 
policy removes any pricing incentive for a Transmission Provider to 
decide, contrary to its public service obligation, not to construct 
Network Upgrades when necessary to maintain reliability.
    630. We agree with Old Dominion that information about the most 
efficient locations and interconnection voltage levels for new 
generating facilities on the Transmission Provider's Transmission 
System would be useful. Although we are not requiring the Transmission 
Provider to develop the forward-looking studies that Old Dominion 
recommends, we support and encourage the Transmission Provider to make 
such information available to potential Interconnection Customers.
f. Credits for Network Upgrades on Affected Systems \130\
    631. Numerous petitioners object to the Commission's decision to 
apply the pricing policy to Affected Systems.\131\ They state that it 
is arbitrary and capricious to require the Affected System and its 
customers to pay for facilities needed to mitigate the harm of 
interconnecting the Generating Facility with a neighboring Transmission 
System. They note that the ANOPR and NOPR did not address this matter. 
NRECA-APPA protest that since the Commission's pre-Order No. 2003 
policy did not address how costs are to be allocated between the 
Transmission Provider, the Interconnection Customer, and the Affected 
System Operator, there is also no precedent for the approach adopted in 
Order No. 2003. The Georgia PSC and others argue that reasoned decision 
making requires that the Interconnection Customer, not the Affected 
System's customers, should bear these costs. They allege that Affected 
System's customers will not benefit from the upgrades unless the 
Interconnection Customer sells the output of the Generating Facility 
into the Affected System's market.
---------------------------------------------------------------------------

    \130\ The pro forma LGIP and LGIA define an Affected System as 
an electric system other than the Transmission Provider's 
Transmission system that may be affected by the proposed 
interconnection.
    \131\ E.g., APS, Georgia PSC, Central Maine, Georgia 
Transmission, Idaho Power, NRECA-APPA, NYTO, PacifiCorp, Salt River 
Project, and Southern.
---------------------------------------------------------------------------

    632. Salt River Project asserts that the rationale to support the 
payment of credits when the Interconnection Customer connects directly 
to a Transmission Provider's system does not apply to an Affected 
System. It maintains that, because the Interconnection Customer is not 
actually requesting interconnection to the Affected System, credits are 
not needed to prevent the Interconnection Customer from being treated 
in an unduly discriminatory manner vis-[agrave]-vis the Transmission 
Provider's own generating facilities. Salt River Project also contends 
that since there are legitimate factors justifying different treatment 
of costs of Network Upgrades on the Affected System and those on the 
Transmission System to which the Interconnection Customer actually 
interconnects, Entergy Services is factually distinguishable because 
here the Commission requires refunds to third party systems.
    633. Idaho Power, PacifiCorp, and others are concerned that an 
Affected System must refund the cost of any Network Upgrades to the 
Interconnection Customer within five years regardless of whether the 
Interconnection Customer pays anything toward the embedded costs of the 
Affected System through Transmission Service charges. NYTO and Central 
Maine argue that the Interconnection Customer should not receive 
transmission credits for Network Upgrades it funds on an Affected 
System if it does not take service on the Affected System.
    634. APS seeks revision of LGIA Article 11.4.1 so that there is no 
ambiguity as to which entity is responsible for crediting the 
Interconnection Customer for amounts it pays to the Affected System 
Operator, and to make the article consistent with provisions stating 
that the Affected System Operator should credit the Interconnection 
Customer directly. APS contends this matter would be of particular 
concern where the Affected System Operator is non-jurisdictional.
    635. Finally, Central Maine recommends that policies for Network 
Upgrades to Affected Systems be covered in a separate agreement rather 
than in the interconnection agreement.
Commission Conclusion
    636. With regard to the pricing of Network Upgrades on Affected 
Systems, the Commission concludes, as it did in Order No. 2003, that 
our interconnection pricing policy as it applies to an Affected System 
Operator that is not independent should be consistent with the policy 
we adopt for the non-independent Transmission Provider. That is, the 
Interconnection Customer must pay upfront for any Network Upgrades 
needed on the Affected System, but is entitled to credits for 
transmission service taken on the Affected System. As we explained in 
Order No. 2003, our pricing policy is designed in part to promote 
competition in markets that may still be dominated by non-independent 
Transmission Providers. If the Affected System Operator is not 
independent, it has the same incentives that the non-independent 
Transmission Provider has to frustrate development of new, competitive 
generation.\132\
---------------------------------------------------------------------------

    \132\ If the Affected System Operator is an independent 
Transmission Provider, we are allowing flexibility regarding the 
interconnection pricing policy (including participant funding) that 
the Affected System Operator may propose.
---------------------------------------------------------------------------

    637. We note, however, that revised Article 11 now requires the 
Affected System Operator to provide credits to the Interconnection 
Customer only to the extent that the Interconnection Customer takes 
transmission service on the Affected System. This should alleviate the 
concerns, expressed by

[[Page 15987]]

PacifiCorp, Idaho Power, NYTO, Central Maine and others, that the 
Interconnection Customer must be provided with credits or reimbursement 
even when it takes no transmission service on the Affected System and, 
as a result, the Affected System's customers allegedly receive no 
benefit from the Network Upgrades.
    638. We are not revising the first sentence of LGIA Article 11.4.1, 
as APS requests, because it is not necessary. When read in its 
entirety, Article 11.4 makes clear that the Transmission Provider and 
the Affected System Operator are each responsible for reimbursing only 
the amounts that each receives from the Interconnection Customer toward 
the cost of Network Upgrades.
    639. In response to Central Maine, Article 11.4.1 already provides 
that the Interconnection Customer shall enter into a separate agreement 
with the Affected System Operator unless, through coordination with the 
Affected System Operator, the Transmission Provider chooses to make 
separate arrangements associated with the Network Upgrades constructed 
on the Affected System on behalf of the Interconnection Customer.
g. Credits for the Costs of Expediting Construction
    640. LGIP section 12.2 allows the Interconnection Customer to 
request that the Transmission Provider advance the construction of 
Network Upgrades that the Transmission Provider already planned to 
build if the Network Upgrades are needed to support the Generating 
Facility's In-Service Date and would not otherwise be completed in 
time. The Transmission Provider must use Reasonable Efforts to advance 
the construction of the Network Upgrades, provided the Interconnection 
Customer agrees to finance any associated expediting costs. The 
Interconnection Customer is entitled to transmission credits for any 
expediting costs that it finances. However, the Interconnection 
Customer is not responsible for financing the original cost of the 
Network Upgrades that the Transmission Provider was already planning to 
build.
    641. A few petitioners \133\ oppose giving the Interconnection 
Customer the right to have the Transmission Provider construct upgrades 
contained in its expansion plan before the scheduled construction date. 
NRECA-APPA contends that Order No. 2003 should not have included the 
provision that allows the Interconnection Customer to seek expedited 
construction because the NOPR gave no opportunity for commenters to 
address this issue, and because all costs, including the additional 
cost of expediting construction, will be borne by the customers of the 
Transmission Provider. Ameren and Entergy object to providing credits 
for the costs of expediting construction because the Interconnection 
Customer is the only entity that benefits from the early construction. 
Entergy argues that the Interconnection Customer's right to request 
acceleration should be limited because an expansion plan changes as 
system conditions change, and because an expansion might not be 
constructed but for the Interconnection Customer's request for 
acceleration of its construction. Ameren asks the Commission to clarify 
that the right to acceleration is only for projects for which the 
Transmission Provider has received final approval and has funding.
---------------------------------------------------------------------------

    \133\ E.g., Ameren, APS, Entergy, and NRECA-APPA.
---------------------------------------------------------------------------

Commission Conclusion
    642. In response to NRECA-APPA, we note that all of the substantive 
provisions in Order No. 2003 that concern the Interconnection 
Customer's right to accelerate the construction of Network Upgrades and 
the treatment of expediting costs were included in the NOPR.
    643. In response to Ameren and Entergy, we conclude that it is 
unreasonable to require the Interconnection Customer to finance Network 
Upgrades that the Transmission Provider intends to construct anyway. 
The Transmission Provider may from time to time adjust its expansion 
plan. However, for purposes of this rule, we assume that any project 
included in the expansion plan at the time the Interconnection 
Facilities Study is undertaken is a project that the Transmission 
Provider intends to construct. Otherwise, the Transmission Provider 
could always claim that it did not intend to construct a project in its 
expansion plan. If such a project is required to meet the In-Service 
Date for the Interconnection Customer's Generating Facility, the 
Transmission Provider may require the Interconnection Customer to 
finance the expediting of the construction schedule for the project, 
but it may not require the Interconnection Customer to finance Network 
Upgrades that the Transmission Provider was planning to build.
h. Compensation for Line Outage Costs and Rescheduled Maintenance
    644. Order No. 2003 does not permit the Transmission Provider to 
charge the Interconnection Customer the costs, such as increased energy 
costs, that the former incurs when a transmission line must be taken 
out of service to complete an interconnection. However, LGIA Article 
9.7 provides that the Transmission Provider may direct the 
Interconnection Customer to reschedule Generating Facility maintenance 
as necessary to maintain the reliability of the Transmission System. 
The Transmission Provider must pay the Interconnection Customer for any 
direct costs that the Interconnection Customer incurs as a result of 
having to reschedule maintenance, including any additional overtime, 
breaking of maintenance contracts, and other costs above the cost the 
Interconnection Customer would have incurred absent the Transmission 
Provider's request to reschedule maintenance. However, the 
Interconnection Customer is not entitled to compensation if, during the 
twelve months before the scheduled maintenance, the Interconnection 
Customer modified its schedule of maintenance activities.
    645. A number of petitioners argue that the Transmission Provider 
should be able to assign interconnection-related line outage costs to 
the Interconnection Customer, since the Transmission Provider must 
reimburse the Interconnection Customer for the costs the 
Interconnection Customer incurs when it must reschedule maintenance 
activities at the Transmission Provider's request.\134\ The Alabama PSC 
maintains that this is a subsidy. Southern asserts that it is arbitrary 
and capricious and violates EPAct to require all Transmission Customers 
to share in these costs without considering a method of accurately 
quantifying them. AEP asks the Commission to consider using the cost of 
replacement energy as a proxy for the cost of a line outage. Even 
though the value of the replacement energy may not exactly match that 
of the displaced energy, it is a reasonable proxy and is certainly 
better than no compensation. The Mississippi PSC contends that these 
costs should be directly assigned to the Interconnection Customer 
because it causes them.
---------------------------------------------------------------------------

    \134\ E.g., AEP, Alabama PSC, Entergy, Mississippi PSC, NYTO, 
and Southern.
---------------------------------------------------------------------------

    646. NYTO and Entergy argue that the LGIA does not provide for 
comparable treatment of the Interconnection Customer and the 
Transmission Provider. They state that it is

[[Page 15988]]

unreasonable to require the Transmission Provider (or its Transmission 
Customers) to pay the Interconnection Customer for costs associated 
with rescheduling maintenance of the Generating Facility, including 
maintenance required to sustain reliability of the Transmission System, 
without the reciprocal requirement for the Interconnection Customer to 
pay the Transmission Provider for modifying the Transmission Provider's 
scheduled maintenance to accommodate the Interconnection Customer. 
Entergy asks the Commission to amend or remove the obligation. NYTO 
also asks that the Commission revise LGIA Article 9.7.1.2 (Outage 
Schedules) to say that the ISO, not the Transmission Owner, must pay 
the Interconnection Customer under an ISO Tariff.
Commission Conclusion
    647. We note that, in a recent decision, the United States Court of 
Appeals for the DC Circuit ruled that Southern is not entitled to 
recover outage costs from certain Interconnection Customers because 
Southern's Interconnection Agreements with these customers do not 
specifically authorize such recovery.\135\ However, the court left open 
the possibility that recovery of outage costs may be permissible in 
cases where the Interconnection Agreement specifically authorizes it. 
We agree that, if authorized contractually, recovery may be justified 
on a case-by-case basis, depending on the facts of individual cases, 
and will grant rehearing to allow the Transmission Provider to propose 
to recover line outage costs on a case-by-case basis.
---------------------------------------------------------------------------

    \135\ Southern Company Services, Inc. v. FERC, 353 F.3d 29 (DC 
Cir. 2003).
---------------------------------------------------------------------------

    648. With regard to compensation for rescheduled maintenance, we 
note that Order No. 2003 requires the Transmission Provider to pay the 
Interconnection Customer only for the nominal, direct costs of 
rescheduling maintenance, and only when the Interconnection Customer 
has not modified its schedule of maintenance activities during the year 
before the date of the originally scheduled maintenance. Without such a 
compensation requirement, the Transmission Provider could gain an undue 
competitive advantage over the Interconnection Customer by manipulating 
the maintenance scheduling process.
    649. In response to NYTO's request that we modify LGIA Article 
9.7.1.2 to make the ISO responsible for compensating the 
Interconnection Customer, we note that each RTO and ISO is free to 
propose such a compensation arrangement. In the interest of providing 
flexibility for RTOs and ISOs, we are not mandating such an approach 
here.
i. Transmission Provider's Recovery of Costs of Network Upgrades
    650. A number of Transmission Providers are concerned that they 
will not have a chance to recover through transmission rates the costs 
of Network Upgrades.\136\ Idaho Power argues that Transmission Owners 
should not be required to provide service for free or at a loss. The 
pricing policy forces the Transmission Provider or the Affected System 
Operator to pass the cost of transmission credits on to its native load 
customers to be made whole, even where the Network Upgrades may hardly 
be used by the Interconnection Customer. Idaho Power therefore requests 
that the five year payback period be eliminated.
---------------------------------------------------------------------------

    \136\ E.g., Ameren, Duke Energy, Idaho Power, NYTO, PacifiCorp, 
and SoCal Edison.
---------------------------------------------------------------------------

    651. Ameren argues that, due to regulatory lag, the Transmission 
Provider may have to pay credits for several years until the cost can 
be included in rates. PacifiCorp recommends that the Commission 
redesign the crediting provisions to prevent ``trapped costs'' that the 
Transmission Provider may never be able to recover from its retail 
customers. Because the Commission has left to the States the setting of 
bundled transmission rates, which could lead to ``trapped costs'' for 
the shareholders of integrated utilities, PacifiCorp states that it may 
challenge the application of Order No. 2003 to any action that it 
believes unlawfully imposes costs without providing a recovery 
mechanism.
    652. NYTO contends that, at a minimum, the Commission should allow 
the Transmission Provider to accrue the costs of credits with interest 
and include them in jurisdictional rate base along with the cost of the 
relevant facilities when it next files with the Commission to adjust 
its transmission rates. This should be under the Commission's 
Regulations at 18 CFR 35.19a (2003), with the deferred amounts recorded 
in Account No. 186. NYTO also asks: (1) When would any facility costs 
be included in transmission rates, and would related rate revisions be 
required each time a new Generating Facility interconnects, and (2) why 
or how would a Transmission Provider provide a credit for costs that 
are not yet reflected in its rate base due to the imposition of a 
periodic rate adjustment procedure or a rate freeze?
    653. SoCal Edison requests that the Commission clarify that its 
interconnection pricing policy is not intended to refund to the 
Interconnection Customer ``one-time costs'' that may not be allowed in 
rates. According to SoCal Edison, one-time costs ordinarily must be 
expensed as they occur. They are ineligible for recording in the plant 
accounts and may not otherwise be eligible for recovery in rates 
because they are non-recurring. If the Commission intends that one-time 
costs be subject to transmission credits, SoCal Edison requests that 
the Commission authorize a mechanism by which the Transmission Provider 
will be permitted to recover all prudently incurred one-time costs in 
future transmission rates. Otherwise, SoCal Edison seeks rehearing 
because such action is an unconstitutional taking in violation of the 
Fifth Amendment of the Constitution.
    654. Duke Energy seeks clarification that Order No. 2003 does not 
preclude a Transmission Provider from submitting proposals with 
selective rate treatment options, with the understanding that the 
Commission has not preauthorized this type of rate treatment and that 
the Transmission Provider would be required to justify its proposal and 
address any departures from the Commission's usual practices.
    655. Southern is concerned that rating agencies might view the 
balance of costs yet to be refunded through credits as a debt of the 
Transmission Provider. Southern argues that, if they do, this could 
cause the Transmission Provider's cost of capital to increase.
Commission Conclusion
    656. The concerns raised by Ameren, Idaho Power and PacifiCorp are 
addressed in Order No. 2003 and they have raised no new arguments on 
rehearing. In response to SoCal Edison, we note that the costs that are 
eligible for credits are those associated with investments in long-
lived facilities, which typically create one or more units of property. 
The prudently incurred costs of such investments are recoverable in 
transmission rates. For other costs that create no unit of property but 
are of a recurring nature, the Commission allows a representative test 
year expense projection for cost recovery purposes.\137\ Most one-time 
costs, such as the costs of

[[Page 15989]]

interconnection studies, are properly charged directly to the 
Interconnection Customer, therefore the Transmission Provider will be 
reimbursed for any out-of-pocket costs. The Commission's 
interconnection pricing policy should create few problems with regard 
to the recovery of one-time costs.
---------------------------------------------------------------------------

    \137\ See, e.g., Southern California Edison Company, 105 FERC ] 
61,080 (2003).
---------------------------------------------------------------------------

    657. In response to NYTO, we note that the Commission has explained 
the process by which the cost of Network Upgrades financed by the 
Interconnection Customer may be included in the Transmission Provider's 
cost of service.\138\ When the Interconnection Customer initially bears 
the entire cost of the Network Upgrades, the Transmission Provider, 
which initially bears none of the cost, clearly cannot include such 
cost in its rates. As we explained, the Transmission Provider cannot 
include the cost of the Network Upgrades in its transmission rates 
until it has provided credits to the Interconnection Customer, and as 
long as any part of the cost of the Network Upgrades remains the 
responsibility of the Interconnection Customer, that part of the cost 
cannot be recovered in transmission rates. This means that while all 
other transmission customers have access to the network, which includes 
the new Network Upgrades, they do not have to bear a full share of the 
cost responsibility until the crediting process is complete. In this 
regard, the accrual of interest is comparable to an Allowance for Funds 
Used During Construction, which recognizes a time value of funds used 
by the Transmission Provider for expansion prior to their inclusion in 
rate base.
---------------------------------------------------------------------------

    \138\ See Southern Company Services, 98 FERC ] 61,328 (2002).
---------------------------------------------------------------------------

    658. In response to Southern, we do not believe rating agencies 
will interpret the obligation to provide transmission credits as 
creating significant risk exposure for the Transmission Provider. 
Having granted rehearing regarding certain features of the crediting 
mechanism, the Transmission Provider now is under no obligation to 
provide credits or a reimbursement to the Interconnection Customer 
except to the extent that it takes Transmission Service with respect to 
the Generating Facility. In addition, the Transmission Provider always 
has the option to finance the Network Upgrades itself and immediately 
seek to recover the associated costs through its transmission rates.
    659. In response to Duke Energy, we will continue to require non-
independent Transmission Providers to adhere to the Commission's 
``higher of'' pricing policy.
j. Transmission Provider's Recovery of Its Costs of Interconnection 
Facilities \139\
    660. In Order No. 2003, the Commission ordered Transmission 
Providers in the future to remove from transmission rates the costs of 
Interconnection Facilities that were constructed after March 15, 2000 
to interconnect generating facilities that the Transmission Providers 
owned on the effective date of the order.
---------------------------------------------------------------------------

    \139\ The pro forma LGIP and LGIA define Interconnection 
Facilities as all facilities and equipment between the Generating 
Facility and the Point of Interconnection, including any 
modification, addition 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.
---------------------------------------------------------------------------

    661. TDU Systems and TAPS object to the Commission's decision to 
allow the Transmission Provider to continue to recover through 
transmission rates the costs of certain Interconnection Facilities 
constructed before March 15, 2000. TDU Systems asserts that Order No. 
2003 does not require comparable rate treatment of the costs of the 
Transmission Provider's own Interconnection Facilities and those of 
unaffiliated Interconnection Customers in a timely manner. The 
Commission should require the Transmission Provider in its compliance 
filing to explain its past interconnection-related cost allocation and 
rate design practices and, if necessary, submit a separate compliance 
filing to remedy any non-comparability by a date certain. TDU Systems 
further proposes that, if the costs at issue are not substantial, then 
a single rate readjustment should suffice, but if the costs are large, 
a phase-in period might be necessary.
    662. TAPS objects to continued rate base treatment (grandfathering) 
for the Transmission Provider's Interconnection Facilities constructed 
before March 15, 2000, along with Interconnection Facilities associated 
with generation the Transmission Provider has divested. It claims that 
some generating facilities have been divested without their 
Interconnection Facilities, which remain in rate base. Some utilities 
may have maintained records that make it difficult to isolate costs 
associated with Interconnection Facilities. TAPS therefore urges the 
Commission to require each Transmission Provider to demonstrate that 
removal of its Interconnection Facilities from rate base would be 
unjust and unreasonable. TAPS also urges the Commission to reject 
arguments that the lack of separate bookkeeping records for such 
facilities excuses noncompliance. Utilities can make estimates, as they 
do routinely in their ratemaking processes.
Commission Conclusion
    663. The arguments presented by TAPS and TDU Systems are not 
persuasive. First, with respect to the Transmission Provider's recovery 
of Interconnection Facility costs, the Commission's pricing policy 
treats the Transmission Provider and the Interconnection Customer in a 
fully comparable manner. Second, any Interconnection Facility costs 
that the Transmission Provider incurred before March 15, 2000, and that 
remain in the Transmission Provider's rate base on the effective date 
of Order No. 2003, could be hard to identify (because they are not 
recorded in separate accounts) and are likely to be small (i.e., 
largely depreciated). Also, the complexity of the rate adjustments does 
not end with the identification of plant balances. The rate adjustments 
would require adjustments to income taxes as well as allocation of 
operation and maintenance expenses, all of which require subjective 
assumptions. Our experience with such cost of service calculations 
indicates that the benefits of adjusting transmission rates to remove 
these costs are outweighed by the administrative burden that such 
adjustments would entail. Finally, petitioners may raise in appropriate 
rate proceedings the claim that some Transmission Providers retain in 
rate base interconnection facilities associated with divested 
generation facilities.
k. Generator Balancing Service Arrangements
    664. LGIA Article 4.3 requires the Interconnection Customer to make 
appropriate generator balancing service arrangements before submitting 
any schedules for delivery service that identify the Generating 
Facility as the point of receipt for the scheduled delivery. The 
Interconnection Customer is responsible for ensuring that the 
Generating Facility output matches the scheduled delivery, consistent 
with applicable scheduling requirements. It must also arrange for the 
supply of energy when there is a difference between the actual output 
and the scheduled delivery. Article 4.3 allows the Interconnection 
Customer to make generator balancing service arrangements in a variety 
of ways.
    665. Some petitioners object to the LGIA requirement that the 
Interconnection Customer arrange for balancing service before 
submitting a

[[Page 15990]]

schedule for delivery service.\140\ American Wind Energy and TAPS state 
that, in effect, the provision requires a new Ancillary Service under 
the OATT. TAPS argues that this should be considered in the Standard 
Market Design rulemaking, in which the Commission is proposing a new 
Transmission Service Tariff.\141\ TAPS further states that, while the 
Commission on occasion has approved generator balancing services as 
additions to some Transmission Providers' OATTs, this has been the 
exception.\142\ American Wind Energy asks why the Commission has 
decided to reverse its decision to allow RTOs the flexibility to 
determine Ancillary Service requirements. It also asserts that Order 
No. 2003 does not address whether the new requirement's ``point of 
receipt for such scheduled energy'' is consistent with Network 
Integration Transmission Service under the OATT or with existing 
bandwidth exceptions and intermittent scheduling rules the Commission 
has approved. The requirement will have a discriminatory effect on wind 
and other intermittent resources and thus will thwart the Commission's 
objective of eliminating bias against new market entrants. Accordingly, 
the Commission should delete LGIA Articles 4.3 (Generator Balancing 
Service Arrangements) and 4.3.1.
---------------------------------------------------------------------------

    \140\ E.g., American Wind Energy, TAPS, and TDU Systems.
    \141\ 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).
    \142\ TAPS cites Florida Power Corp., 89 FERC ] 61,263 (1999) as 
one example.
---------------------------------------------------------------------------

    666. TAPS alleges that the Commission has failed to consider the 
effect of the balancing requirement on the Interconnection Customer. 
TAPS offers the example of an Interconnection Customer in an RTO with 
an out-of-Control Area Generating Facility that will be required to pay 
both the generator balancing service arrangements charge to the Control 
Area in which the facility is located and an energy imbalance charge 
for mismatches between generation and load within the Control Area(s) 
where the load is located. TAPS further questions why the generator 
balancing service arrangements requirement is imposed only on a new 
Generating Facility. If TDU Systems objects to having to adhere to the 
new requirement whether or not there is a net imbalance on the 
Transmission Provider's Transmission System claiming that this could 
unjustly enrich the Transmission Provider.
Commission Conclusion
    667. The petitioners' objections to the balancing service 
requirement of Article 4.3 are well taken. Therefore, we are granting 
American Wind Energy's request for rehearing and are deleting Article 
4.3 (and Article 4.3.1) from the LGIA. We note that the purpose of this 
article was not to establish a new requirement for balancing service or 
to preclude any options currently available to the Interconnection 
Customer. However, we now recognize that this requirement is more 
closely related to delivery service than to Interconnection Service. 
Because delivery service requirements are addressed elsewhere in the 
OATT, the balancing service requirement, and requirements related to 
Ancillary Services generally, should not appear in the LGIA.
l. Miscellaneous Issues Regarding Interconnection Pricing for the Non-
Independent Transmission Provider
    668. Cinergy seeks clarification that LGIA Article 5.19.3 
(Modification Costs) does not eliminate the ability of the Transmission 
Provider to charge the Interconnection Customer for the cost of 
upgrades needed to provide Transmission Service. It requests 
modification of the following language in Article 5.19.3: 
``Interconnection Customer shall not be directly assigned 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 Transmission Provider's Interconnection Facilities 
or the Transmission System, or to provide Transmission Service to a 
third party under the Transmission Provider's Tariff.'' Cinergy states 
that this language could be read to eliminate the application of the 
Commission's ``higher of'' policy to transmission delivery service.
    669. Southern requests that LGIA Article 5.19.3 be clarified to 
state: ``Interconnection Customer shall be responsible for the costs of 
any such additions, modifications, or replacements to the Transmission 
Provider's Interconnection Facilities or the Transmission System to the 
extent they are necessitated by Interconnection Customer's additions, 
modifications, or replacements to Interconnection Customer's 
Interconnection Facilities.''
    670. Cinergy argues that the LGIA contemplates the possibility of 
the Generating Facility failing to achieve Commercial Operation ten 
years or more in the future. However, it would be practically 
impossible to do the analyses necessary to retroactively determine 
which other generating facilities made use of the upgrades that were 
funded by the Interconnection Customer with the failed project. It 
claims that this would not be the case with Stand Alone Network 
Upgrades, such as new switchyard facilities constructed for the 
Interconnection Customer, because they would be easy to track. Cinergy 
asks the Commission to provide for refunds to a canceling 
Interconnection Customer if Stand Alone Network Upgrades are later used 
by another Interconnection Customer.
    671. Duke Energy and EEI contend that Order No. 2003 is not clear 
about the provision of credits for the non-usage sensitive portion of 
transmission charges. Duke Energy is concerned that the language in 
Order No. 2003 and in the LGIA does not clearly delineate the crediting 
options the Commission has approved, and that this will lead to 
controversy. It recommends that the Commission clarify that credits are 
to be applied in full to reservation charges set forth in OATT Schedule 
7--Long-Term Firm and Short-Term Firm Point to point Transmission 
Service, Schedule 8--Non-Firm Point to point Transmission Service, and 
to the basic transmission charges based on Attachment H-Annual 
Transmission Revenue Requirement for Network Integration Transmission 
Service. However, credits should not be applied to other transmission-
related charges (e.g., line losses, Ancillary Services) in other 
provisions of the OATT. Duke Energy claims that this will ensure that 
the phrase ``usage sensitive charges'' does not refer to selective cost 
components of the transmission revenue requirement that underlies the 
basic transmission charge.
    672. Idaho Power asserts that the Commission does not justify 
departing from its prior policy of making credits payable only to the 
Transmission Customer taking service from the Generating Facility and 
instead has made credits a fungible commodity that may be assigned to 
anyone.
Commission Conclusion
    673. Cinergy states that Article 5.19.3 could be read to eliminate 
the application of the Commission's ``higher of'' policy to the 
delivery component of transmission service. The Commission's intent was 
to ensure that the Interconnection Customer is not directly assigned 
the costs of any additions, modifications or replacements that a 
Transmission Provider makes to its Interconnection Facilities or

[[Page 15991]]

Transmission System to facilitate the interconnection to the 
Transmission Provider's Interconnection Facilities or Transmission 
System or to provide delivery service to a third party. To eliminate 
confusion, we are adding the words ``to a third party'' before the 
phrase ``under the Transmission Provider's Tariff'' in Article 5.19.3. 
Southern's requested modification of Article 5.19.3 is a broad 
statement of cost responsibility with implications that are more 
appropriately addressed on a case-by-case basis.
    674. Cinergy argues that if the Interconnection Customer's 
Generating Facility does not achieve Commercial Operation, the 
Interconnection Customer should be entitled to a credit for only the 
cost of Stand Alone Network Upgrades constructed for that Generating 
Facility, when the Stand Alone Network Upgrades are later used by it or 
another Generating Facility. Cinergy argues that it is difficult to 
determine retroactively which Generating Facility, if any, made use of 
Network Upgrades that were constructed, perhaps several years earlier, 
for an Interconnection Customer that subsequently cancelled its 
Generating Facility. We do not agree. We recognize that such 
determinations may require judgment. However, the Transmission Provider 
should be able to estimate any savings in Network Upgrade costs that 
may accrue to a subsequent Generating Facility due to the presence of 
the earlier Network Upgrades. When such savings can be demonstrated, 
the original Interconnection Customer is entitled to a credit.
    675. Duke Energy makes a valid point with regard to credits for the 
non-usage sensitive portion of transmission charges, and we so clarify. 
That is, credits are to be applied in full to reservation charges set 
forth in OATT Schedule 7--Long-Term Firm and Short-Term Firm Point to 
Point Transmission Service, Schedule 8--Non-Firm Point to Point 
Transmission Service, and to the basic transmission charges based on 
Attachment H--Annual Transmission Revenue Requirement for Network 
Integration Transmission Service.
    676. We disagree with Idaho Power, however. The LGIA explicitly 
allows the Interconnection Customer to assign its rights to credits to 
any person. These are valuable rights whose value is maximized when 
they are assignable. Moreover, the Interconnection Customer, as owner 
of the Generating Facility, is rarely the customer that takes 
transmission delivery service. For this reason, effective 
implementation of the crediting provision requires that the credit 
rights be assignable.
m. Interconnection Pricing Policy for the Independent Transmission 
Provider
    677. The Commission stated in Order No. 2003 that it is continuing 
to allow flexibility, including participant funding, regarding the 
interconnection pricing policy that an independent Transmission 
Provider may propose. In addition, the Commission stated that it will 
permit an ``independent administrator'' to implement, for a one year 
transition period before the start of RTO or ISO operations, a 
participant funding policy for the Network Upgrades needed for 
generator interconnections. Any such independent administrator must 
first be approved by the Commission and the affected states, and it 
must perform transmission planning and related cost allocation for the 
regional Transmission System. The Commission invited a Regional State 
Committee to establish criteria that an independent entity would use to 
determine which Transmission System upgrades should be subject to a 
participant funding requirement.
    678. Numerous petitioners contend that allowing pricing flexibility 
for an independent Transmission Provider, but not a non-independent 
Transmission Provider, is unduly discriminatory.\143\ Others object to 
allowing an independent Transmission Provider to use participant 
funding.\144\ Some raise issues about the Commission's decision to 
allow an independent administrator to implement participant funding 
during a transition period.\145\
---------------------------------------------------------------------------

    \143\ E.g., Arkansas PSC, Entergy, Georgia PSC, Kentucky PSC, 
Idaho Power, Mississippi PSC, North Carolina Commission, NYTO, Old 
Dominion, Progress Energy, Salt River Project, South Carolina PSC, 
and Southern.
    \144\ E.g., TAPS and TDU Systems.
    \145\ E.g., Arkansas PSC, EEI, TAPS, and TDU Systems.
---------------------------------------------------------------------------

    679. Some petitioners argue that allowing flexibility only for an 
independent Transmission Provider causes a similarly situated customer 
not to be treated in a comparable manner. They claim that retail 
customers of the non-RTO or non-ISO Transmission Provider must pay for 
the costs of Network Upgrades, while retail customers of an independent 
Transmission Provider do not. Idaho Power asserts that while the 
Commission recognizes that participant funding is just and reasonable, 
it ignores this determination for some public utilities based solely on 
their identity as non-independent Transmission Providers. This 
contravenes the FPA requirement that all public utilities are entitled 
to the same just and reasonable standard. Entergy recommends the 
continued use of the system-wide benefits test to mitigate inequitable 
cost-shifting until the Commission authorizes the Transmission Provider 
to implement participant funding or such other funding as may be 
requested by an RTO or ISO.
    680. Old Dominion complains that participant funding for 
independent Transmission Providers is discriminatory because it creates 
a disincentive for the Generating Facility to be located in an RTO that 
opts for participant funding, since participant funding is more 
favorable to Transmission Providers. Participant funding limits the 
Interconnection Customer's compensation to Firm Transmission Rights for 
the amount of increased transfer capability that results from the 
Network Upgrades the Interconnection Customer pays for. In contrast, an 
Interconnection Customer locating its Generating Facility in a non-RTO 
region would recover the full costs of the Network Upgrades through 
credits.
    681. The Georgia PSC and other petitioners contend that the 
interconnection pricing policy is unnecessary to prevent undue 
discrimination, which has not been shown to exist in the Southeast. The 
North Carolina Commission and the Alabama PSC view Order No. 2003 as an 
improper attempt to coerce by indirect means participation in an 
independent transmission organization when the Commission cannot impose 
such a requirement directly.\146\ Salt River Project asserts that 
requiring participation in an RTO should not be the Commission's answer 
to Order No. 2003's inefficiencies in siting and unfair cost 
subsidization.
---------------------------------------------------------------------------

    \146\The Alabama PSC cites National Fuel Gas Supply Corp. v. 
FERC, 909 F.2d 1519, 1522 (DC Cir. 1990).
---------------------------------------------------------------------------

    682. Entergy and others argue that mere administrative convenience 
does not warrant adopting a generic pricing approach that imposes a 
penalty on customers outside an RTO, when the justness and 
reasonableness of the facilities at issue can be evaluated by the 
Commission on a case-by-case basis under the FPA. The North Carolina 
Commission asserts that the Commission should modify its transmission 
pricing policy to provide that the cost of upgrades will be borne by 
those causing the upgrades or expansions if an independent review of 
those cost allocations is conducted by a third party, such as the 
Commission,

[[Page 15992]]

upon request. Progress Energy proposes that an independent, impartial 
entity such as the state regulatory body or state-appointed 
administrator could review the criteria for participant funding and 
related cost allocations.
    683. The Arkansas PSC maintains that the Commission should allow 
participant funding whenever there is an independent administrator to 
implement transmission planning, cost determination and beneficiary 
assessment procedures. It therefore requests that the Commission 
eliminate the fixed time frame for transition to RTO approval, as well 
as the ultimate requirement of RTO implementation as the quid pro quo 
for use of participant funding. This will mitigate any detrimental 
effect on retail customers. EEI seeks clarification as to whether the 
Commission intends to allow participant funding for a transition period 
beginning on the effective date of Order No. 2003 or after approval of 
an independent administrator by the Commission and the affected states, 
or after the start of RTO or ISO operations.
    684. TAPS and TDU Systems oppose reliance on an independent 
administrator. It would likely be working based on the existing 
Transmission Provider's plans and would be too susceptible to the 
Transmission Provider's influence, since it would not be involved in 
the day-to-day operation of the Transmission System or have first-hand 
experience with the transmission facilities. This could also reduce the 
incentive for a Transmission Owner to join an RTO or ISO. In the 
alternative, the Commission should clarify that the one year transition 
deadline will be strictly enforced with retroactive transmission 
crediting where necessary.
    685. TAPS and other petitioners assert that participant funding for 
an independent Transmission Provider lacks a proven track record or a 
solid theoretical foundation and is inconsistent with the Commission's 
April 28, 2003 White Paper.\147\ TAPS urges instead that the costs of 
Network Upgrades be rolled in, leaving room for a form of participant 
funding where the upgrade to integrate new generation is outside the 
scope of the plan devised to meet regional needs. Old Dominion requests 
that, even in RTO regions, the cost of upgrades be rolled in only if 
the new generation and transmission facilities will actually benefit 
all customers. Firm Transmission Rights associated with increased 
transfer capability should be allocated to load if the Transmission 
Provider allocates the costs of the upgrades to load, or allocated to 
the Interconnection Customer if the Transmission Provider associates 
the costs of the upgrades with the Generating Facility.
---------------------------------------------------------------------------

    \147\ White Paper: Wholesale Power Market Platform, Docket No. 
RM01-12-000 (Apr. 28, 2003)(White Paper).
---------------------------------------------------------------------------

    686. NRECA-APPA asks that the Commission state clearly that RTOs 
and ISOs have the obligation to plan Network Upgrades to meet both the 
reliability and economic needs of their customers and that they must 
provide rolled-in treatment for both kinds of transmission upgrades. If 
an RTO or ISO plans only reliability upgrades, and thus leaves it to 
the market to develop all Network Upgrades required to relieve 
congestion, Order No. 2003 is arbitrary and capricious.
    687. TDU Systems asserts that allowing RTOs and ISOs to adopt 
participant funding violates the FPA by effectively delegating to 
Regional State Committees (RSC) determinations of when participant 
funding would be acceptable unless an RSC's role in setting criteria 
for the allocation of costs of Network Upgrades is advisory only.]
    688. NRECA-APPA asks the Commission to clarify that Order No. 2003 
does not prematurely establish a role for RSCs. NRECA-APPA states that 
the role of RSCs, if any, should be determined in the Commission's SMD 
rulemaking. If the Commission does give the RSCs a role in this 
rulemaking, NRECA-APPA asks that the Commission clarify that any 
criteria for participant funding to be established by the RSCs may not 
be inconsistent with NRECA-APPA's position on transmission cost 
allocation.
    689. NYTO states that the failure to grandfather existing 
Commission-approved ISO interconnection policies could result in a 
waste of the tremendous efforts undertaken to resolve interconnection 
issues within an ISO service area.
    690. Duke Energy seeks clarification that the Commission does not 
intend to prejudge the pricing mechanisms that a Transmission Provider 
may submit to the Commission as alternatives to the participant funding 
approach discussed in Order No. 2003.
Commission Conclusion
    691. We disagree that it is unduly discriminatory to allow an 
independent Transmission Provider to propose innovative cost recovery 
methods, including participant funding, while requiring a non-
independent Transmission Provider to continue to use more traditional 
pricing required by Order No. 2003 for new interconnections. This 
different treatment is fair because the two types of Transmission 
Providers are not similarly situated. As we have explained, when 
implemented by an independent Transmission Provider which does not have 
an incentive to discourage new generation by competitors, new cost 
recovery methods including participant funding can yield efficient 
competitive results. However, because of their inherent subjectivity, 
new approaches such as participant funding could allow a non-
independent Transmission Provider to propose methods that frustrate the 
development of new generating facilities that will compete with its 
own. For example, because RTOs and ISOs are independent, and neither 
own nor have affiliates that own generating facilities, we have less 
concern that existing utility-owned generating facilities will be 
favored over new generating facilities or that utilities will ``gold 
plate'' their systems at the Interconnection Customer's expense. The 
Commission gives some deference to RTOs and ISOs in many areas, not 
just interconnection, because they have no incentive to administer the 
Transmission System in a discriminatory manner.
    692. In addition, as we explained above, an independent 
Transmission Provider is in a position to implement a policy of direct 
assignment for Network Upgrades without violating our prohibition on 
``and'' pricing. For example, we have permitted the direct assignment 
of Network Upgrade costs by an independent Transmission Provider when 
the Interconnection Customer receives well-defined congestion rights in 
return.\148\ In this case, the customer is not paying twice for the 
same service but rather is paying separate charges for separate 
services.
---------------------------------------------------------------------------

    \148\ See Pennsylvania-New Jersey-Maryland Interconnection, 81 
FERC ] 61,257 at 62,259-60 (1997), order on reh'g. and 
clarification, 92 FERC ] 61,282 at 61,955-56 (2000), remanded on 
other grounds sub nom. Atlantic City elec. Co. v. FERC, 295 F.3d 1 
(DC Cir. 2002).
---------------------------------------------------------------------------

    693. We do not view our policy as penalizing the utility that does 
not join an RTO or ISO. The purpose of the policy is to ensure a level 
playing field. Indeed, Order No. 2003 pricing for new interconnections 
benefit the Transmission Customers of such a utility by increasing the 
supply of competitively priced power that might not otherwise be 
available and by enhancing Transmission System reliability.
    694. Continued reliance on the use of evidentiary proceedings, 
case-by-case adjudication of Interconnection Requests, or other third 
party review procedures will not ensure that new

[[Page 15993]]

interconnections are completed in a timely manner by the non-
independent Transmission Provider. Speeding up the interconnection 
process is a primary goal of this proceeding. Administrative review of 
complex technical matters is costly and time consuming. In today's 
competitive power market environment, allowing a Transmission Provider 
that is also a competitor in the wholesale power market to delay 
competitive entry or to propose subjective and potentially 
discriminatory pricing policies is unacceptable. Therefore, we continue 
to require the non-independent Transmission Provider to adhere to the 
Commission's ``higher of'' pricing policy.
    695. Contrary to the views of TAPS, TDU Systems, NRECA-APPA, and 
others, Order No. 2003 does not prescribe specific policies for RTOs 
and ISOs. In particular, we are not determining which types of 
transmission expansion projects should be participant funded or how any 
Firm Transmission Rights might be allocated to the Interconnection 
Customer. Order No. 2003 does not require an RTO or ISO to adopt a 
traditional pricing policy for projects that provide a system-wide 
benefit. The Commission has stated that it is allowing flexibility for 
an independent Transmission Provider to adopt policies of its choosing, 
subject to Commission approval. This is reasonable in light of the 
RTO's or ISO's independence and representative governance structure. If 
entities wish to object to specific RTO or ISO proposals, including the 
role of RSCs in setting criteria for the allocation of costs of Network 
Upgrades, they may do so in the compliance filing proceeding.
    696. With respect to the implementation of participant funding by 
an independent administrator, we deny the Arkansas PSC's request that 
the Commission eliminate the maximum one year transition period to an 
RTO or ISO. In addition, we will continue to permit an ``independent 
administrator'' to implement, for a one year transition period before 
the start of RTO or ISO operations, a participant funding policy for 
the Network Upgrades needed for generator interconnections. Any such 
independent administrator must first be approved by the Commission and 
the affected states, and it must perform transmission planning and 
related cost allocation for the regional Transmission System. Although 
an independent administrator alleviates many of our concerns about 
undue discrimination, we do not believe that an independent 
administrator provides an effective long-term solution to the problem 
of transmission planning and cost allocation, given its limited 
authority and what is likely to be an ongoing need to obtain and verify 
information from the Transmission Provider. However, we do not agree 
with TAPS and TDU Systems that an independent administrator would be so 
susceptible to Transmission Provider influence that its decisions would 
be compromised.
    697. Finally, in response to EEI, the one year transition period 
for an independent administrator begins on the effective date of the 
Commission's order approving the independent administrator or the 
effective date of this order, whichever is later.
3. Commission Jurisdiction Under the Federal Power Act
    698. Sections 205 and 206 of the FPA require the Commission to 
address and remedy undue discrimination by public utilities. 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. Because interconnection is an essential element of 
Transmission Service that is required to be provided under the OATT, 
the Commission concluded in Order No. 2003 that it may order generic 
interconnection terms and procedures under its authority to remedy 
undue discrimination and preferences under Sections 205 and 206 of the 
FPA.\149\
---------------------------------------------------------------------------

    \149\ Order No. 2003 at PP 18-20.
---------------------------------------------------------------------------

    699. It is evident that the Commission did not state clearly enough 
its intention with regard to jurisdiction and the applicability of 
Order No. 2003 and, as a result, many of the petitions for rehearing 
are based on a misunderstanding. The jurisdiction asserted by the 
Commission in Order No. 2003 is identical to that asserted in Order No. 
888 and affirmed by the Supreme Court in New York v. FERC.\150\ 
Further, it is consistent with the recent Detroit Edison Co. v. FERC 
case, which interpreted New York v. FERC. \151\
---------------------------------------------------------------------------

    \150\ TAPS v. FERC, 225 F.3d at 696. (affirming the Commission's 
assertion of jurisdiction in Order No. 888).
    \151\ 334 F.3d 48 (DC Cir. 2003) (Detroit Edison).
---------------------------------------------------------------------------

    700. There is no intent to expand the jurisdiction of the 
Commission in any way; if a facility is not already subject to 
Commission jurisdiction at the time interconnection is requested, the 
Final Rule will not apply. Thus, only facilities that already are 
subject to the Transmission Provider's OATT are covered by this rule. 
The Commission is not encroaching on the States' jurisdiction and is 
not improperly asserting jurisdiction over ``local distribution'' 
facilities. This should address most, if not all, of the arguments that 
the Commission is overreaching its jurisdiction.
a. The Detroit Edison Case Precedent
Rehearing Requests
    701. Several petitioners cite the recent Detroit Edison Co. v. FERC 
case for the proposition that the Commission lacks the jurisdiction to 
make Order No. 2003 applicable in the manner set forth in the 
order.\152\
---------------------------------------------------------------------------

    \152\ Id.
---------------------------------------------------------------------------

    702. Specifically, NYTO argues that Detroit Edison ``exhaustively 
considered the scope of the Commission's authority with respect to 
distribution facilities.'' It says that the court rejected the 
proposition that a state cedes jurisdiction over unbundled retail 
distribution if it unbundles retail service or if a public utility 
voluntarily provides such unbundled service. Detroit Edison, NYTO 
continues, made clear that ``there are no FERC jurisdictional 
distribution facilities.'' As a result, states have jurisdiction over 
the terms, conditions, and cost allocations related to distribution-
level interconnections.
    703. The North Carolina Commission says the Commission's 
jurisdictional claims are untenable in light of the ruling in Detroit 
Edison. There the court held that ``when a local distribution facility 
is used in a wholesale transaction, FERC has jurisdiction over that 
transaction pursuant to its wholesale jurisdiction under FPA Sec.  
201(b)(1).''\153\ When such a facility is used to deliver energy to a 
bundled or unbundled retail customer, however, the Commission lacks any 
authority over such a facility and the state has sole jurisdiction over 
that transaction.\154\ The North Carolina Commission concludes that 
because Order No. 2003 is a generic pronouncement based on Commission 
jurisdiction over Transmission Service, and is not limited to wholesale 
transactions, it exceeds the Commission's statutory jurisdiction.
---------------------------------------------------------------------------

    \153\ Id. at 51.
    \154\ Id.
---------------------------------------------------------------------------

    704. In addition, LPPC and the New York PSC argue that the 
Commission's assertion of jurisdiction for ``dual use'' facilities is 
inconsistent with Detroit Edison, which rejected the idea that the 
Commission may exercise jurisdiction over local distribution facilities 
because part of those facilities are used in an otherwise Commission-
jurisdictional manner. Avista argues that, in light of the holding in 
Detroit Edison, the

[[Page 15994]]

Commission should recognize that the States have jurisdiction with 
respect to new interconnections to dual use ``distribution'' facilities 
and that, if such interconnection is with respect to unbundled retail 
distribution service, the state's jurisdiction is exclusive.
Commission Conclusion
    705. Contrary to arguments made by petitioners, Detroit Edison does 
not prohibit the Commission from exercising jurisdiction in the manner 
intended in Order No. 2003. That case did not overrule TAPS, where the 
Supreme Court affirmed the Commission's jurisdiction, and since the 
Commission is asserting no jurisdiction beyond what it asserted in 
Order No. 888, Order No. 2003 cannot violate Detroit Edison.
    706. In Detroit Edison, the court prohibited the Commission from 
asserting exclusive jurisdiction over local distribution facilities 
used to provide unbundled retail distribution. In fact, the court in 
Detroit Edison contrasted the Commission's lack of jurisdiction over 
local distribution facilities used to deliver energy to an unbundled 
retail customer with the Commission's jurisdiction over the use of a 
local distribution facility for wholesale sales, and stated that ``when 
a local distribution facility is used in a wholesale transaction, FERC 
has jurisdiction over that transaction pursuant to its wholesale 
jurisdiction under FPA section 201(b)(1).''\155\ With respect to 
``distribution'' facilities, Order No. 2003 applies when the facilities 
are subject to a Commission-approved OATT and the purpose of the 
interconnection is to make wholesale sales.\156\ We thus conclude that 
the ``distribution'' interconnections to which Order No. 2003 applies 
are within the Commission's statutory authority.
---------------------------------------------------------------------------

    \155\ Detroit Edison, 334 F.3d at 51 (citing Order No. 888 and 
TAPS v. FERC). See also TAPS v. FERC, 225 F.3d at 696 (explaining 
that Section 201(a) of the FPA ``makes clear that all aspects of 
wholesale sales are subject to federal regulation, regardless of the 
facilities used'').
    \156\ Order No. 2003 at P 804.
---------------------------------------------------------------------------

b. Transmission Provider Facilities Subject to Order No. 2003
Rehearing Requests
    707. The North Carolina Commission challenges the Commission's 
statement that it is not extending its jurisdiction to any facility not 
already under its jurisdiction under a Commission-filed OATT.
    708. LPPC asks how one determines whether a particular facility is 
under the OATT. It argues that the Commission should use the seven-
factor test set forth in Order No. 888 to determine whether facilities 
used to deliver electric energy directly to an end user are under its 
jurisdiction or are ``local distribution'' facilities under state 
jurisdiction.
    709. NARUC argues that it may not be easy to determine whether a 
given distribution line is Commission-jurisdictional. The Transmission 
Owner's uniform system of accounts may not clearly indicate whether a 
given distribution line is under the OATT. Accordingly, the Commission 
should provide a method for determining when specific distribution 
facilities are covered by an OATT. NARUC's members are concerned that 
``in cases where distribution facilities are known to be included in an 
OATT, but it is difficult or impossible to identify whether specific 
facilities are covered by an OATT, some Parties may assert and the 
Commission may conclude that all the Transmission Owner's distribution 
facilities are covered by the OATT because distribution costs are 
recovered under the OATT on a rolled in basis.'' Accordingly, the 
Commission must clarify that unless distribution facilities are clearly 
identified as being subject to the OATT, all interconnections to those 
facilities are within state jurisdiction.
Commission Conclusion
    710. Order No. 2003 applies to interconnections to the facilities 
of a public utility's Transmission System that are subject to the 
public utility's OATT at the time the interconnection is requested. 
Facilities subject to the OATT are: Transmission facilities used to 
transmit electric energy in interstate commerce either at wholesale or 
for unbundled retail sales; and ``distribution'' facilities that are 
used for wholesale sales in interstate commerce. \157\ Order No. 2003 
thus applies to a request to interconnect to a public utility's 
``distribution'' facilities only if those facilities are used to 
deliver electric energy in interstate commerce to accommodate wholesale 
sales pursuant to a Commission-filed OATT. An Interconnection Customer 
is entitled to use the LGIP and LGIA to request interconnection to 
``distribution'' facilities owned, controlled, or operated by the 
Transmission Provider or the Transmission Owner, or both, but only if 
those distribution facilities are used to provide Transmission Service 
under an OATT that is on file at the Commission at the time of the 
Interconnection Request and the interconnection is for the purpose of 
facilitating a jurisdictional wholesale sale of electricity.
---------------------------------------------------------------------------

    \157\ As explained in Order No. 2003 at P 803, the term 
``distribution'' is usually used to refer to lower voltage lines 
that are not networked and that carry power in one direction. The 
term ``local distribution'' is a legal term, and under Section 
201(b)(1) of the FPA, the Commission lacks jurisdiction over ``local 
distribution'' facilities. The court in Detroit Edison used the 
terms ``distribution'' and ``local distribution'' interchangeably. 
The court recognized that certain ``distribution'' facilities serve 
a dual use function (i.e., they are used for both wholesale and 
retail sales) and that there could be Commission-jurisdictional uses 
of ``local distribution'' facilities; in such case, the court viewed 
the Commission's jurisdiction as extending only to the use of the 
facilities for purposes of the wholesale transaction. Detroit 
Edison, 334 F.3d at 51. Consistent with Detroit Edison, the Final 
Rule applies to a dual use facility only if the facility is already 
part of a Commission-filed OATT and the interconnection is for the 
purpose of making a jurisdictional sale of electric energy for 
resale in interstate commerce.
    We note that some facilities labeled by a utility as 
``distribution'' may actually carry out a transmission rather than a 
local distribution function and thus would be subject to Commission 
jurisdiction for accommodating wholesale as well as unbundled retail 
transactions. In this circumstance, we do not view the label as 
controlling.
---------------------------------------------------------------------------

    711. LPPC requests that the Commission apply the seven-factor test 
to distinguish ``local distribution'' and transmission facilities. As 
explained above, since we are asserting jurisdiction only over 
facilities that are already subject to an OATT, the availability of the 
facilities under a Commission-approved OATT, and not their nominal 
classification, determines eligibility for Commission-jurisdictional 
interconnection.\158\
---------------------------------------------------------------------------

    \158\ Pursuant to Order No. 888, the seven-factor test may be 
used to determine what facilities are jurisdictional to states and 
what facilities are or are not subject the Commission's open-access 
requirements. Order No. 888 at p. 31,770-71.
---------------------------------------------------------------------------

    712. In response to NARUC's request that there be a readily 
discernible method for determining which facilities are subject to an 
OATT, we note first that in most cases there will be no controversy 
about whether a facility is under the OATT. When there is, however, 
there is no simple method of deciding what facilities are under an 
OATT. Even if the Interconnection Customer consults the Transmission 
Provider's rate filings, it might be unable to determine whether a 
facility to which it seeks interconnection is subject to the OATT. We 
conclude that the only reasonable method for identifying which 
facilities are subject to a Transmission Provider's OATT is to rely on 
the Transmission Provider in the first instance to make this 
information available to the Interconnection Customer during the 
Scoping Meeting or earlier. If the Interconnection Customer disagrees 
with the Transmission Provider's conclusion that the facility in

[[Page 15995]]

question lies within or outsidethe Transmission Provider's OATT, it 
should bring the issue to the attention of the Commission.
c. Interconnections to Low-Voltage Facilities for the Purpose of Making 
Wholesale Sales
Rehearing Requests
    713. NARUC argues that Order No. 2003 violates the ``bright line'' 
distinguishing jurisdictional transmission from nonjurisdictional local 
distribution. It claims that Order No. 2003 adopts a murkier ``dual 
use'' theory that will hinder the development of a distributed 
generation market. NARUC asserts that the Commission has created the 
inaccurate impression that there is a significant amount of 
``distribution'' facilities over which it has authority. While the 
Commission concedes that Order No. 2003 does not apply to any facility 
not already under its jurisdiction under an OATT at the time the 
interconnection request is made, NARUC believes this is insufficient. 
Instead, NARUC believes that the Commission should admit that because 
the States are best situated to secure the safe, efficient, and 
reliable interconnection of generators to state-jurisdictional 
distribution systems, they should continue to have that authority.
    714. NRECA-APPA and Salt River argue that the Commission should 
disclaim jurisdiction over distribution-level interconnections as a 
matter of policy and that the LGIP and LGIA are designed with the high 
voltage system in mind and are inappropriate for distribution-level 
interconnections and smaller distribution companies with fewer 
resources. Additionally, NRECA-APPA argues that Order No. 2003 does not 
adequately address commenters' concerns that the Commission lacks the 
staff, experience, or expertise to oversee distribution-level 
interconnections.
    715. NRECA-APPA also argues that the Commission's regulation of 
distribution-level interconnections will not encourage the development 
of new distribution-level generation. The exception for distribution-
only facilities is extremely limited and ``is in fact a one-shot 
deal.'' For example, once a generator interconnects, if a non-public 
utility agrees to provide wheeling service over a theretofore 
distribution-only facility, it becomes a public utility subject to full 
Commission jurisdiction, including the obligation to file an OATT. If a 
second generator seeks interconnection to the Transmission Provider's 
system, then the LGIP and LGIA would apply, because at that time the 
Transmission Provider does have facilities subject to Commission 
jurisdiction, under an OATT. This creates a ``huge disincentive for 
Transmission Providers to interconnect the first generator, and even 
more so, to provide wheeling service to the interconnecting 
generator.'' On the other hand, the Commission would not slow 
interconnections by disclaiming jurisdiction over distribution-level 
interconnections, since states are filling any gap that the Commission 
may perceive in distribution interconnection rules. To this end, both 
NARUC and NRECA-APPA offer model interconnection documents that they 
argue will aid the states in exercising their regulatory 
responsibilities.
    716. NRECA-APPA further argues that if the Commission does not 
disclaim jurisdiction over all dual-use distribution facilities, 
including those owned by public utilities, it should create a safe 
harbor for non-public utilities that want to interconnect, but want to 
maintain their non-jurisdictional status under the FPA. It points to 
several examples of ``limited jurisdiction certificates'' from the 
Commission's experience regulating natural gas. The fact that the 
Commission lacks certificate authority under the FPA makes this goal 
easier to accomplish. The Commission could state that the safe harbor 
does not apply to entities that are already jurisdictional because they 
offer Commission-jurisdictional Transmission Services under an OATT on 
file with the Commission. If a non-public utility interconnects with a 
generator under a mutually satisfactory contract, that interconnection 
should not change the jurisdictional status of the entity.
    717. NRECA-APPA also argues that a similar result could be achieved 
through FPA Section 211. The Commission could permit non-public 
utilities to submit to the Commission agreements in the form of Section 
211 settlements stating that the non-public utility will provide 
wheeling service to the generators under agreed upon terms. This 
approach would permit the Commission and the Parties to bypass the 
extended dispute and hearing process required by Section 211. This is a 
``permissive policy choice'' about how and when to assert jurisdiction 
that the Commission should exercise.\159\
---------------------------------------------------------------------------

    \159\ NRECA-APPA cites New York v. FERC, 535 U.S. 1, 28 (2002).
---------------------------------------------------------------------------

    718. The North Carolina Commission concludes that because Order No. 
2003 is a generic pronouncement based on Commission jurisdiction over 
Transmission Service, and is not limited to wholesale transactions, it 
exceeds the Commission's statutory jurisdiction.
    719. Avista and the Washington UTC argue that the Commission should 
further clarify that a utility's past decision to allow an 
interconnection to distribution facilities does not convert such 
facilities to exclusive Commission jurisdiction. If this was indeed the 
Commission's intent, then Avista requests rehearing. It wants the rule 
to say that the States retain authority over new interconnections to 
dual use distribution facilities, unless there is an OATT on file by 
the owner of the facilities that makes available new Commission-
jurisdictional service over those facilities.
    720. The New York PSC asks the Commission to clarify what it means 
by ``distribution.'' The Commission should clarify whether it intends 
to refer to low voltage lines that could be subject to the Commission's 
jurisdiction as transmission lines, or to ``local distribution'' 
facilities that are not subject to the Commission's jurisdiction under 
the FPA. In the Commission's description of ``dual use'' facilities in 
particular, it is unclear whether the Commission seeks to assert 
jurisdiction over low voltage transmission lines or over ``local 
distribution'' facilities. Furthermore, even if sales for resale occur 
on a local distribution system, such sales would not support Commission 
jurisdiction over generator interconnection. Sales for resale would not 
affect Commission jurisdiction over the underlying facilities, which 
remain distribution facilities. The interconnection of such lines would 
be a purely ``local distribution'' function that remains exempt from 
Commission regulation.
    721. NRECA-APPA argues that even if the Commission and the courts 
ultimately conclude that any facility carrying a wholesale electron, 
including a local distribution facility, is under Commission 
jurisdiction, the Commission still will not have jurisdiction to 
regulate most distribution-level interconnections. In most 
distribution-level interconnections, no electrons from the generator 
will ever cross state lines and generators seldom, if ever, export 
power beyond the customer's meter. While the wholesale sale transaction 
may be in interstate commerce and subject to Commission jurisdiction, 
the transmission itself and the distribution facilities used for that 
purpose are not.
    722. NARUC argues that the intention of the Interconnection 
Customer to sell power to a wholesale buyer at some time in the future 
does not provide the Commission with jurisdiction over the

[[Page 15996]]

interconnection itself, although the wholesale power sale may be 
Commission-jurisdictional when made. The Commission should remove 
ambiguity by clearly disclaiming jurisdiction over interconnections to 
distribution facilities not covered by an OATT.
    723. LPPC seeks clarification that an interconnection request for 
the purpose of making sales in interstate commerce will not be under 
the LGIP and LGIA for facilities that are not otherwise under the 
Commission's jurisdiction at the time that the request is made. To do 
otherwise would impermissibly expand the Commission's jurisdiction to 
cover ``local distribution.'' NRECA-APPA seeks clarification that no 
OATT would be required when an entity voluntarily interconnects a 
generator to non-jurisdictional facilities and that customer then seeks 
wheeling service.
    724. The North Carolina Commission and PacifiCorp argue that 
because only Commission-jurisdictional service can be taken under an 
OATT, Commission jurisdiction over interconnection to a distribution 
facility must be determined on a case-by-case basis and must be solely 
for the purpose of regulating actual wholesale sales. The Commission 
has overreached its statutory authority, since Order No. 2003 requires 
neither an agreement for the delivery component of Transmission 
Service, nor a contract for the sale of the Generating Facility's 
output at the time of interconnection. The North Carolina Commission 
argues that because retail service in North Carolina is bundled, the 
Commission lacks authority over local distribution facilities except 
when they are actually being used to effectuate a wholesale sale. These 
facilities cannot be made subject to an OATT. The North Carolina 
Commission also argues that because the transmission component of 
bundled retail service is not provided under the OATT, it follows that 
interconnections or Network Upgrades related to the provision of 
bundled retail service are not subject to the OATT, the LGIP, or the 
LGIA. While Order No. 2003 refers to this issue, the LGIP and LGIA do 
not clearly make this distinction.
    725. PacifiCorp asks that the LGIP be amended to allow the 
Transmission Provider or state agency to have an opportunity to 
challenge the Interconnection Customer's plan to provide wholesale 
service.
    726. SoCal Edison asks if the Commission intends that a wholesale 
generator interconnecting to a local distribution facility currently 
used exclusively for retail would not be subject to SoCal Edison's 
Commission-approved wholesale distribution access tariff (WDAT), that 
SoCal Edison be permitted to continue to process all wholesale 
distribution interconnection requests under its WDAT.
    727. The South Carolina PSC argues that, absent express legislative 
authority, it cannot abdicate its responsibilities for the regulation 
of electric utilities in South Carolina. Resource and facility planning 
are matters subject to the jurisdiction of the individual states. The 
Commission should not attempt to stretch the boundaries of its limited 
statutory authority to conquer those areas over which the States are 
exercising regulatory authority. The Commission should revise Order No. 
2003 to remove any portion that invades a state's jurisdictional 
province. The Washington UTC makes a similar argument.
    728. SoCal Edison argues that Order No. 2003 would be clearer if 
the Commission recognized that facilities that deliver energy fall into 
only two categories--transmission facilities and local distribution 
facilities--and that the Commission has jurisdiction over wholesale 
transactions and services provided to wholesale customers over both 
sets of facilities.
    729. Finally, the Georgia PSC states that the Commission erred by 
determining that these rules are necessary to prevent undue 
discrimination. It argues that since it has not been shown that such 
undue discrimination exists in the Southeast, these rules are 
unnecessary in the Southeast.
Commission Conclusion
    730. Order No. 2003 provides that if a ``distribution'' facility is 
used for both wholesale and bundled retail sales, i.e., it has a dual 
use, ``the Final Rule applies to interconnections to these facilities 
only for the purpose of making sales of electric energy for resale in 
interstate commerce.''\160\ Thus, we are not ousting the States' 
jurisdiction. Several petitioners challenge this assertion, arguing 
that Detroit Edison prohibits this jurisdiction. We disagree. Because 
Detroit Edison does not prohibit the Commission from asserting 
jurisdiction over ``distribution'' facilities to the extent they are 
used for wholesale sales,\161\ we do not interpret it as prohibiting 
the Commission from exercising jurisdiction over an interconnection to 
dual use facilities if the interconnection is intended to facilitate a 
wholesale sale. And because the Commission has the authority to 
regulate all aspects of wholesale transactions in interstate 
commerce,\162\ it will exercise jurisdiction over interconnections to a 
``distribution'' facility when the facility is included in a public 
utility's Commission-filed OATT and the interconnection is for the 
purpose of facilitating a jurisdictional wholesale sale of electric 
energy. If the Interconnection Customer seeks interconnection to a 
``distribution'' facility that is already subject to the OATT, but does 
not intend to engage in a Commission-jurisdictional wholesale sale, 
then the Commission will not assert jurisdiction over the 
interconnection to the ``distribution'' facility.\163\
---------------------------------------------------------------------------

    \160\ Order No. 2003 at P 804 (emphasis in original).
    \161\ See Detroit Edison, 334 F.3d at 51.
    \162\ See also TAPS v. FERC, 225 F.3d at 696 (``FPA Sec.  201(a) 
makes clear that all aspects of wholesale sales are subject to 
federal regulation, regardless of the facilities used.''); Duke 
Power Co. v. FPC, 401 F.2d 930, 935-36 (DC Cir. 1968) (noting that 
the FPC regulates public utility facilities used in wholesale 
transmission or sales in interstate commerce); Arkansas Power & 
Light Co. v. FPC, 368 F.2d 376, 383 (8th Cir. 1966) (stating that 
the functional use of lines--wholesale versus retail--control); 
Wisconsin-Michigan Power Co., v. FPC, 197 F.2d 472, 477 (7th Cir. 
1952) (finding that facilities used at wholesale are not ``local 
distribution facilities'').
    \163\ The cases that SoCal Edison cites to support its position 
that the Commission should make interconnections for wholesale sales 
to all ``local distribution'' facilities subject to Order No. 2003 
rely on the authority granted by PURPA, which is not the source of 
Commission authority in Order No. 2003.
---------------------------------------------------------------------------

    731. Regarding dual-use facilities, the Commission in Order No. 888 
stated that ``[t]here are, of course, facilities that are used to 
provide delivery to both wholesale purchasers and end users. In those 
situations, we believe that the Commission and the States have 
jurisdiction to set rates for the services that are within their 
respective jurisdictions.''\164\ Order No. 2003 retains the same 
jurisdiction over dual-use facilities that the Commission exercised in 
Order No. 888.
---------------------------------------------------------------------------

    \164\ Order No. 888 at n.13.
---------------------------------------------------------------------------

    732. Some petitioners argue that there are practical considerations 
that make the Commission's exercise of jurisdiction over certain 
distribution-level interconnections inadvisable as a policy matter. 
They argue that states are best situated to regulate interconnections 
to ``distribution'' facilities. As noted above, we recognize that 
almost all interconnections to lower-voltage or ``distribution'' 
facilities will be under state jurisdiction.
    733. The New York PSC seeks clarification about the Commission's 
use of the term ``distribution.'' Order No. 2003 explains that 
``distribution'' is an imprecise term that is ``usually used to refer 
to lower-voltage lines that are not networked and that carry power in 
one

[[Page 15997]]

direction.''\165\ The New York PSC asks for clarification whether the 
Commission uses ``distribution'' to refer to low voltage lines that 
could be subject to Commission jurisdiction as transmission, or to 
``local distribution'' facilities not subject to the Commission's 
jurisdiction. We clarify that Order No. 2003 applies to all facilities 
subject to a Commission-approved OATT, regardless of how the facilities 
may be labeled by the Transmission Provider.\166\ Far from creating 
jurisdictional uncertainty, as NARUC contends, this approach sets forth 
a method for determining Commission jurisdiction that is consistent 
with statutory and judicial precedent and straightforward in its 
application.
---------------------------------------------------------------------------

    \165\ Order No. 2003 at P 803.
    \166\ See New York v. FERC, 535 U.S. at 12. See also Puget Sound 
Energy, 104 FERC ] 61,272 at P 16-18 (2003).
---------------------------------------------------------------------------

    734. In response to SoCal Edison's concern about its wholesale 
distribution access tariff (WDAT), this is a matter of specific 
applicability that is better suited to SoCal Edison's compliance 
filing.
    735. In response to Avista's and the Washington UTC's comments, we 
clarify that a public utility's past decision to allow an 
interconnection to distribution facilities does not convert such 
facilities to exclusive Commission jurisdiction. Order No. 2003 states 
that when any facility, including a ``distribution'' facility, is used 
to facilitate a jurisdictional wholesale sale, only the use of the 
facility for Commission-jurisdictional service is subject to Commission 
jurisdiction.\167\ All state-jurisdictional uses remain subject to 
state jurisdiction. States will retain jurisdiction over 
interconnection to dual use facilities when either (1) the 
interconnection to a facility subject to a Commission-approved OATT is 
not for a wholesale sale, or (2) the facility is not subject to a 
Commission-approved OATT at the time the Interconnection Request is 
made, even if the Interconnection Customer intends to make a 
jurisdictional wholesale sale.\168\
---------------------------------------------------------------------------

    \167\ Order No. 2003 at P 804 n.129.
    \168\ If a QF seeks interconnection to a non-OATT 
``distribution'' facility to make jurisdictional wholesale sales, 
the Commission exercises jurisdiction over these interconnections, 
even though Order No. 2003 does not apply See Western Massachusetts 
Electric Co. v. FERC, 165 F.3d 922, 926 (DC Cir. 1999) (noting that 
the Commission exercises jurisdiction over a QF's interconnection 
when it transmits power in interstate commerce).
---------------------------------------------------------------------------

    736. In response to the North Carolina Commission's request for 
clarification about bundled retail transmission, Order No. 2003 states 
that it applies to facilities subject to a Commission-filed OATT. If 
the facilities in question were used exclusively for bundled retail 
transmission facilities, the OATT would not apply. However, in 
practice, these facilities are likely to be used for wholesale sales 
and purchases as well as bundled retail sales. Further, as we have 
previously clarified in this order, if ``distribution'' facilities, at 
the time an interconnection to such facilities is requested, are being 
used for bundled retail sales as well as wholesale sales, Order No. 
2003 will apply only if the interconnection is to facilitate wholesale 
sales.
    737. NARUC, the North Carolina Commission, and PacifiCorp argue 
that intent to sell at wholesale is insufficient for providing the 
Commission with jurisdiction over the interconnection transaction. We 
will not require an Interconnection Customer seeking interconnection to 
facilities subject to a Commission-approved OATT to tender proof of a 
wholesale sale to secure Interconnection Service. That would be unduly 
burdensome for the Interconnection Customer and would serve no purpose. 
Given the potential for a long delay between the Interconnection 
Request and the Commercial Operation Date, it is unreasonable to expect 
that the Interconnection Customer will already have a contract for the 
sale of its power when it submits its Interconnection Request. 
Furthermore, if the Interconnection Customer decides that it will not 
sell its power at wholesale it would then be subject to state 
jurisdiction and state jurisdictional charges.
    738. NRECA-APPA and Salt River Project argue that the LGIP and LGIA 
are not appropriate for low-voltage interconnections. NRECA-APPA 
further argues that the Commission's willingness to accept modified 
Interconnection Studies in the unlikely event that such a request is 
received is not reasoned decisionmaking. We disagree. Order No. 2003 
explains that under most circumstances, generators larger than 20 MW 
are interconnected to high voltage facilities. Order No. 2003 also 
permits Transmission Providers to offer revised studies tailored to 
examine the effects that a generator larger than 20 MW would have on a 
low voltage facility. We conclude that the Interconnection Customer 
will be best served by a process that remains standardized to the 
extent practicable, even if the studies themselves will change. This 
will bring greater certainty to all.
    739. We disagree with NRECA-APPA's argument that Order No. 2003 
will do nothing to encourage the development of new generation 
interconnection to lower-voltage facilities. We recognize that Order 
No. 2003 does not apply to most distributed generation, since these 
facilities almost always interconnect to facilities that are not 
subject to an OATT. However, Order No. 2003 may be a useful model for 
states and others that are considering actively encouraging such 
generation.
    740. As we understand it, NRECA-APPA is primarily concerned with 
distribution cooperatives that do not receive Rural Utilities Service 
financing and, as a result, are not necessarily exempt from Commission 
jurisdiction. The concern appears to be that Order No. 2003 could allow 
an Interconnection Customer to force these otherwise nonjurisdictional 
entities into jurisdictional status. This is an incorrect understanding 
of Order No. 2003. While such an entity may voluntarily provide 
jurisdictional wheeling service, and thereby become Commission-
jurisdictional, Order No. 2003 in no way forces it to do so. If a non-
public utility offers jurisdictional service, then it--like all other 
public utilities--would be required to file an OATT and provide open 
access service, including Interconnection Service, unless it qualified 
for a waiver of Order No. 888 and 889 requirements.\169\ In deciding 
whether to wheel power, the entity would have to consider whether it 
wishes to become a public utility subject to the FPA. Order No. 2003 
does not substantially increase any burdens associated with public 
utility status.
---------------------------------------------------------------------------

    \169\ Non-jurisdictional entities faced this same scenario prior 
to adoption of Order No. 2003.
---------------------------------------------------------------------------

    741. Accordingly, we do not believe that an additional standardized 
element of Transmission Service will deter development of distributed 
generation. We expect that in most instances in which the Transmission 
Provider has an OATT in effect, the additional obligation of applying 
the LGIP and LGIA to ``distribution'' facilities already subject to an 
OATT will not create a significant burden.
    742. NRECA-APPA asks the Commission to create a safe harbor for 
non-public utilities that want to interconnect generation, but wish to 
do so without becoming jurisdictional under the FPA. There is no need. 
Order No. 2003 applies only to public utilities. The authority 
underlying this rule is the Commission's authority over public 
utilities under Sections 205 and 206 of the FPA. If a non-public 
utility does not wish to voluntarily provide Interconnection Service 
for fear of losing its non-public utility status, persons seeking an 
interconnection from

[[Page 15998]]

the non-public utility may file an application under Sections 210, 211, 
and 212 of the FPA. While interconnections ordered by the Commission 
pursuant to Sections 210, 211, and 212 make the non-public utility 
jurisdictional, they do so only for the purpose of carrying out those 
provisions and enforcing those provisions.\170\
---------------------------------------------------------------------------

    \170\ 16 U.S.C. 824(b)(2) (2000).
---------------------------------------------------------------------------

    743. Lastly, in response to the Georgia PSC, on appeal of Order No. 
888, the court concluded that the Commission acted within its authority 
when it based Order No. 888 on general findings of systemic monopoly 
conditions and the resulting potential for anticompetitive 
behavior.\171\ The Commission in Order No. 2003 acted under the same 
undue discrimination findings that formed the basis for Order No. 888. 
Moreover, the Commission does not have to make region-specific findings 
of undue discrimination.
---------------------------------------------------------------------------

    \171\ TAPS v. FERC, 225 F.3d at 688.
---------------------------------------------------------------------------

d. Net Metering Issues
    744. Net metering allows a retail electric customer to produce and 
sell power onto the Transmission System without being subject to the 
Commission's jurisdiction. A participant in a net metering program must 
be a net consumer of electricity--but for portions of the day or 
portions of the billing cycle, it may produce more electricity than it 
can use itself. This electricity is sent back onto the Transmission 
System to be consumed by other end-users. Since the program participant 
is still a net consumer of electricity, it receives an electric bill at 
the end of the billing cycle that is reduced by the amount of energy it 
sold back to the utility. Essentially, the electric meter ``runs 
backwards'' during the portion of the billing cycle when the load 
produces more power that it needs, and runs normally when the load 
takes electricity off the system.
Rehearing Requests
    745. NARUC argues that the Commission should clarify that a 
Generating Facility covered by a state's net metering policy will not 
be interconnected under Order No. 2003. The Commission has held that 
power flowing from a generator participating in a state-established net 
metering program back to its interconnecting electric utility (for 
which the generator receives a credit against its retail power 
purchases from the utility) is not a wholesale sale subject to 
Commission jurisdiction. The Commission should clarify that in cases of 
net metering, interconnection is state-jurisdictional, even when a net-
metered generator produces more power in a given time period than it 
consumes from its serving utility.
    746. The New York PSC argues that the Commission should not treat 
net metering by a generator on a distribution system as equivalent to a 
sale of electric energy for resale in interstate commerce. The 
Commission has recognized that it does not have jurisdiction over net 
energy metering by a small producer.\172\ Only when a generator 
actually produces energy resold to another entity would there be a 
jurisdictional sale under Section 201(d) of the FPA.
---------------------------------------------------------------------------

    \172\ The New York PSC cites to MidAmerican Energy Co., 94 FERC 
] 61,340 (2001).
---------------------------------------------------------------------------

Commission Conclusion
    747. In response to NARUC's and the New York PSC's arguments about 
net metering, under most circumstances the Commission does not exert 
jurisdiction over a net energy metering arrangement when the owner of 
the generator receives a credit against its retail power purchases from 
the selling utility.\173\ Only if the Generating Facility produces more 
energy than it needs and makes a net sale of energy to a utility over 
the applicable billing period would the Commission assert 
jurisdiction.\174\ In either event, the same rules about the 
applicability of Order No. 2003 apply to these scenarios. In order for 
the LGIP and LGIA to apply, the net metering customer at the time it 
requests interconnection has to both seek interconnection to a facility 
subject to a Commission-approved OATT and intend to make net sales of 
energy to a utility.
---------------------------------------------------------------------------

    \173\ See MidAmerican Energy Co., 94 FERC ] 61,340 at 62,263 
(2001) (Commission would not assert jurisdiction when an individual 
home owner or farmer or similar entity installs generation and 
accounts for its dealings with the utility through netting).
    \174\ See id. (if there is a net sale of energy to a utility, 
and the generator is not a QF, the generator's owner must comply 
with the requirements of the FPA).
---------------------------------------------------------------------------

e. Non-Public Utilities and Order No. 2003
Rehearing Requests
    748. NYTO argues that, ``despite the Commission's stated goal to 
standardize the interconnection process nationwide,'' Order No. 2003 
``is devoid of any discussion as to what extent it will apply the Final 
rule to ERCOT, and, if not, why not.''
    749. Order No. 2003 requires a jurisdictional public utility that 
owns facilities jointly with a non-public utility to apply the LGIP and 
LGIA to Interconnection Service provided by the public utility on its 
portion of a jointly owned facility. APS argues that this ignores the 
difference between use of transmission facilities, which can be dealt 
with through a joint owner's use rights associated with its undivided 
share of facilities, and interconnection, which inherently involves a 
physical connection between the facilities of the generator and all of 
the undivided ownership interests in the facilities in question, not 
just a portion thereof. Order No. 2003 does not acknowledge that for 
Interconnection Service, unlike Transmission Service, the ownership 
interests of the facilities are inseparable and a generator must 
interconnect with the whole facility or not interconnect at all. If a 
public utility is successful in convincing the non-public utility to 
adopt the requirements of Order No. 2003 in a reciprocity tariff, there 
may not be a problem. But should such negotiations be unsuccessful, it 
is unclear how the jurisdictional public utility can permit 
interconnection only to the public utility's ``portion'' of the 
facilities. APS asks that the Commission ensure that jurisdictional 
Transmission Providers are not held accountable for the non-compliance 
of non-public utilities that jointly own the facilities.
    750. APS also recommends that the Commission clarify that when 
there is joint ownership of a transmission facility with a non-public 
utility, the Interconnection Request should go to the participant with 
operational control over the facilities in question, who can coordinate 
with other owners and facilities as necessary.
Commission Conclusion
    751. NYTO argues that Order No. 2003 does not state whether it 
applies within the Electric Reliability Council of Texas (ERCOT). 
Because Commission jurisdiction under Sections 205 and 206 of the FPA, 
which we rely on here, is limited to transmission and wholesale sales 
of electric energy in interstate commerce,\175\ and there is no such 
interstate commerce in ERCOT, or Alaska and Hawaii for that matter, 
this rule does not apply in these regions.
---------------------------------------------------------------------------

    \175\ Section 201(b)(1) of the FPA, 16 U.S.C. 824(b)(1) (2000).
---------------------------------------------------------------------------

    752. APS argues that when a jurisdictional entity owns transmission 
facilities jointly with a non-public utility, the jurisdictional entity 
may not be able to interconnect, since the non-public utility may be 
uncooperative. Following the same principle described in Order No. 888, 
Order No. 2003 states that joint ownership does not affect the 
Commission's authority to regulate the

[[Page 15999]]

public utility. Accordingly, the LGIP and LGIA apply to Interconnection 
Service provided by the public utility on its portion of a jointly 
owned facility.
    753. As the Commission explained in Order No. 888, each public 
utility that owns interstate transmission facilities jointly with a 
non-public utility must offer OATT service over its share of joint 
facilities.\176\ If a portion of a facility is owned by a 
jurisdictional public utility, the Interconnection Customer seeking 
interconnection for a Commission-jurisdictional purpose will be able to 
secure interconnection to that facility under the terms of Order No. 
2003 through the jurisdictional co-owner of the facility.
---------------------------------------------------------------------------

    \176\ Order No. 888 at p. 31,692.
---------------------------------------------------------------------------

    754. As the Commission required in Order No. 888, should the joint 
ownership agreement prohibit or restrict the right of the public 
utility to offer interconnection service to third parties, the public 
utility must make a section 206 compliance filing containing proposed 
revisions (mutually agreeable or unilateral) to its contracts with the 
non-jurisdictional co-owners to remove those restrictions.\177\
---------------------------------------------------------------------------

    \177\ Id.
---------------------------------------------------------------------------

    755. If the non-public utility provides transmission and 
interconnection under a reciprocity ``safe harbor'' tariff, and the 
tariff applies to the Interconnection Customer, then the jurisdictional 
and non-jurisdictional co-owners should decide which one should receive 
and study the Interconnection Request. If the non-jurisdictional co-
owner does not have a reciprocity tariff, then the Interconnection 
Request should go to the Commission-jurisdictional co-owner, who must 
then work with its non-jurisdictional co-owner to coordinate the study 
process.
4. Variations From the Final Rule
    756. In Order No. 2003, the Commission states that, on compliance, 
if a non-RTO or non-ISO (or other non-independent) Transmission 
Provider offers a variation from the LGIP and LGIA and the variation is 
necessary to meet established reliability requirements (i.e., approved 
by the Applicable Reliability Council), 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 
justify the variation using the ``consistent with or superior to'' 
rationale that the Commission applies to variations from the OATT in 
Order No. 888. The Commission will afford an RTO or ISO greater 
flexibility in its compliance filing to seek ``independent entity 
variations'' from the provisions of Order No. 2003.
Rehearing Requests
    757. Salt River Project urges the Commission to give all 
Transmission Providers flexibility to adopt variations for purposes of 
preserving reliability. The Commission's decision to grant independent 
Transmission Providers greater flexibility is not supported by 
substantial evidence, is arbitrary and capricious, and is unduly 
preferential in violation of the FPA, according to Salt River Project. 
It concludes that the Commission's decision coerces those non-
independent Transmission Providers to join RTOs to avoid the rigid 
requirements of Order No. 2003, which some petitioners believe endanger 
reliability.
    758. The South Carolina PSC likewise claims that Order No. 2003 is 
discriminatory because it favors one group of generators and customers 
over another. By allowing independent Transmission Providers greater 
flexibility than non-independent Transmission Providers, the Commission 
is encouraging, rather than preventing, undue discrimination. Despite 
differences in compliance requirements, in the end all Tariff rates, 
terms, and conditions for both independent and non-independent 
Transmission Providers must be approved by the Commission.
Commission Conclusion
    759. We conclude that there is a rational basis for giving RTOs and 
ISOs more flexibility than non-independents, as discussed above. The 
foremost reason for different treatment is the fact that an RTO or ISO 
is independent and is less likely to act in an unduly discriminatory 
manner than is a Transmission Provider that is a market participant. 
The RTO or ISO also may have operating characteristics, such as a more 
complex market design, that are different from non-independents and 
that require more flexibility than provided by the ``regional 
differences'' justification.
5. OATT Reciprocity Requirements
    760. The reciprocity requirement permits a public utility to 
require, as a condition of providing open access service to another 
utility (including a non-public utility) that owns, controls, or 
operates transmission facilities to deny Transmission Service to the 
non-public utility unless that non-public utility provides reciprocal 
Transmission Service. In Order No. 2003, the Commission explains that 
the reciprocity provision applies to Interconnection Service in a 
manner consistent with the reciprocity provision in the OATT.
    761. A non-public utility may satisfy the reciprocity requirement 
in one of three ways. First, it may provide service under a Commission-
approved ``safe harbor'' Tariff--a Tariff that the Commission has 
determined offers truly open access service. Second, the non-public 
utility may provide service to a public utility under a bilateral 
agreement that satisfies its reciprocity obligation. Third, the non-
public utility may ask the public utility to waive the reciprocity 
condition.\178\ A non-public utility that has a ``safe harbor'' Tariff 
must add to that Tariff an interconnection agreement and 
interconnection procedures that substantially conform to or are 
superior to the LGIP and LGIA if it wishes to continue to qualify for 
``safe harbor'' treatment. A non-public utility that owns, controls, or 
operates transmission, has not filed with the Commission a ``safe 
harbor'' Tariff, and seeks Transmission Service from a public utility 
that invokes the reciprocity provision must either satisfy its 
reciprocity obligation under a bilateral agreement or ask the public 
utility to waive the OATT reciprocity condition.
---------------------------------------------------------------------------

    \178\ Order No. 2003 at P 841.
---------------------------------------------------------------------------

    762. Order No. 2003 does not require 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, the Commission's reciprocity 
policy requires that it contain rates comparable to the rates the non-
public utility charges itself. As for rates contained in a bilateral 
agreement, they will be subject to case-by-case review.
Rehearing Requests
    763. LPPC contends that there are inconsistent statements in Order 
No. 2003 as to the terms and conditions of service that a non-public 
utility must provide to satisfy the reciprocity requirement. 
Specifically, the Commission states: ``With the addition of the Final 
Rule LGIP and Final Rule LGIA to the OATT, in order to meet its 
reciprocity obligations, 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.'' \179\ Later, the Commission notes 
that ``we shall limit reciprocity compliance to those services

[[Page 16000]]

a non-public utility is capable of providing on its system.'' \180\ 
LPPC argues that in some cases, the service a non-public utility is 
capable of providing may be quite different from the service the non-
public utility receives from a public utility. To be consistent with 
Order No. 888's reciprocity requirement, LPPC seeks clarification that 
the Commission requires a non-public utility to provide Transmission 
Service in a manner comparable to the way it provides service to itself 
as a condition of obtaining Transmission Service from a jurisdictional 
public utility.
---------------------------------------------------------------------------

    \179\ Order No. 2003 at P 832 (emphasis added).
    \180\ Order No. 2003 at P 844.
---------------------------------------------------------------------------

    764. Salt River makes a similar argument, suggesting that the 
Commission intended to require a non-public utility to provide 
Interconnection Service under ``comparable'' terms and conditions 
(i.e., not unduly discriminatory), but did not intend to require it to 
adopt the ``same'' tariff provisions adopted by the public utility from 
whom the non-public utility receives service. Additionally, Salt River 
seeks clarification that offering Interconnection Service to its own or 
affiliated generation that it offers to all other Interconnection 
Customers would meet the reciprocity requirements.
    765. LPPC also cites the Commission's statement that a non-public 
utility would have to provide reciprocal service not only to the 
utility from which it takes Transmission Service, but also to all of 
that utility's Affiliates.\181\ It says this is contrary to the 
assurance that the Commission is not changing the reciprocity policy 
adopted in Order No. 888 \182\ and that it would inhibit voluntary 
participation of public power in restructured markets.
---------------------------------------------------------------------------

    \181\ Order No. 2003 at P 832.
    \182\ Order No. 2003 at P 840.
---------------------------------------------------------------------------

    766. LPPC and Salt River Project ask the Commission to clarify a 
non-public utility need not refund to the Interconnection Customer the 
payments the Interconnection Customer made for Network Upgrades over a 
five year period. Instead, the non-public utility should simply have to 
charge rates for interconnection comparable to what it charges itself 
to satisfy the reciprocity provision. According to LPPC, this is 
consistent with the Commission's intent not to expand the reciprocity 
provision of Order No. 888, which requires that a non-public utility 
use rates, terms and conditions comparable to what it charges itself.
    767. LIPA argues that a municipal utility participating in an RTO 
or ISO, should be allowed to depart from the Commission's standard cost 
recovery mechanisms, as long as it meets the Commission's comparability 
standard. So long as all Interconnection Customers--those affiliated 
with the non-public utility as well as other non-affiliated 
Interconnection Customers--recover costs in a comparable manner, LIPA 
argues that the Commission should not interfere with the cost recovery 
mechanism chosen by the non-public utility.
    768. APS argues that a non-public utility should be required to 
provide transmission credits to satisfy the reciprocity condition. This 
disparate treatment will provide perverse incentives for generators to 
interconnect with a jurisdictional rather than a non-jurisdictional 
Transmission Provider solely to obtain the credits or payments required 
by Order No. 2003. Hydro One understands from Order No. 2003 that non-
public utilities are not required to refund transmission upgrade costs, 
and seeks clarification that this is the Commission's position.
    769. LPPC requests clarification that an Affected System, that is 
not a public utility, need not provide transmission credits to 
Interconnection Customers to satisfy the reciprocity provisions of 
Order No. 2003.
    770. NRECA-APPA applauds the statement at P 840 of Order No. 2003 
``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.'' NRECA-APPA also notes 
that, while Order No. 2003 reiterates Order No. 888's statement that 
reciprocal service will not be required if such service would endanger 
a cooperative's bond status, the rule does not include a similar 
statement that reciprocal service is not required from a tax-exempt 
entity \183\ if providing such service would jeopardize its tax 
status.\184\
---------------------------------------------------------------------------

    \183\ See the Internal Revenue Service Code at 26 U.S.C. 
501(c)(12) (2002).
    \184\ Order No. 888 at P 31,762, n.499.
---------------------------------------------------------------------------

Commission Conclusion
    771. The Commission's reciprocity policy says that any non-public 
utility may gain access to a public utility's Transmission System under 
the public utility's OATT so long as the utility seeking the access 
agrees to offer comparable (not unduly discriminatory) service in 
return.\185\ Order No. 2003 does not alter the Commission's current 
reciprocity policy.
---------------------------------------------------------------------------

    \185\ Order No. 888-A at ] 30,285.
---------------------------------------------------------------------------

    772. The requirement that a non-public utility offer comparable 
service may be satisfied in one of three ways. First, the utility may 
provide service under a Commission-approved ``safe harbor'' Tariff--a 
Tariff that the Commission has determined offers truly open access 
service. Second, the utility may provide service under a bilateral 
agreement that satisfies its reciprocity obligation. Third, the non-
public utility may ask the public utility to waive the reciprocity 
condition.\186\
---------------------------------------------------------------------------

    \186\ Order No. 2003 at P 841.
---------------------------------------------------------------------------

    773. Under Order No. 2003, a non-public utility that has a ``safe 
harbor'' Tariff must add to that Tariff an interconnection agreement 
and interconnection procedures that substantially conform to or are 
superior to the pro forma LGIP and LGIA if it wishes to continue to 
qualify for ``safe harbor'' treatment. A non-public utility that owns, 
controls, or operates transmission facilities that does not have a 
``safe harbor'' Tariff and that seeks Transmission Service from a 
public utility that invokes the reciprocity provision, must either 
satisfy its reciprocity obligation under a bilateral agreement or ask 
the public utility to waive the reciprocity condition.
    774. The Commission's reciprocity policy requires that a ``safe 
harbor'' Tariff contain rates, terms and conditions comparable to the 
rates, terms and conditions the non-public utility applies to its own 
or affiliated generation. The easiest way for a non-public utility to 
satisfy the ``safe harbor'' Tariff condition is to adopt Order No. 
888's pro forma OATT. Rates, terms and conditions contained in a 
bilateral agreement are subject to case-by-case review.
    775. LPPC, LIPA, and Salt River are correct that a non-public 
utility need only offer comparable service in order to satisfy the 
reciprocity condition.\187\ The rates, terms and conditions of the 
reciprocal service are not required to be identical to those offered by 
the public utility. Offering Interconnection Service to all 
Interconnection Customers identical to that offered to its own or 
affiliated generation, as Salt River proposes, would be one way for a 
non-public utility to meet the reciprocity condition. In addition, LPPC 
and Salt River are correct that reciprocity is satisfied if the non-
public utility offers to provide to the public utility all services 
that the non-public utility provides, or is capable of providing, on 
its Transmission System.\188\
---------------------------------------------------------------------------

    \187\ LPPC and others appear to have confused P 832 of Order No. 
2003, which summarizes the NOPR discussion of reciprocity, with the 
Commission Conclusion.
    \188\ See Order No. 888-A at ] 30,286.

---------------------------------------------------------------------------

[[Page 16001]]

    776. The Commission caused confusion when it discussed LADWP's 
comment on P 722 of Order No. 2003 regarding the crediting of Network 
Upgrade costs. While P 722 is correct for a public utility, a non-
public utility seeking to satisfy reciprocity must provide services it 
already provides, or is capable of providing, on a non-discriminatory 
and comparable basis.
    777. We agree with LIPA that a non-public utility must apply 
interconnection cost recovery and other terms and conditions of 
Interconnection Service to third parties in a manner comparable to the 
process it applies to itself in order to satisfy the reciprocity 
condition. This includes the ten year repayment period that applies to 
all non-independent public utilities.
    778. APS's concern that this will discourage Interconnection 
Customers from interconnecting with non-public utilities is misplaced, 
since reciprocity requires only that costs be recovered for third-party 
interconnections in a manner consistent with the way costs are 
recovered for interconnections of the non-public utility's own or 
affiliated generation. Since those costs must be recovered, only the 
method of funding those costs will vary. Similarly, in response to 
LPPC, we clarify that if an Affected System is a non-public utility, 
Order No. 2003 does not require that it provide refunds to the 
Interconnection Customer to satisfy the reciprocity condition. To 
satisfy reciprocity, the non-public utility must treat the upgrade 
payments in a manner comparable to how it treats its own upgrade costs.
    779. In response to LIPA's concerns regarding cost recovery for 
non-public utility facilities under the control of an independent 
Transmission Provider, we clarify that Transmission Systems operated by 
the independent Transmission Provider (regardless of whether those 
facilities are owned by a public or non-public utility) are subject to 
its Tariff. In such cases the ``safe harbor'' reciprocity Tariff is not 
applicable.
    780. In response to Hydro One, we clarify that a non-public utility 
will be required to refund transmission upgrade costs only if it 
affords itself comparable treatment. Otherwise, the non-public utility 
would not be required to refund transmission upgrade costs.
    781. Regarding Affiliates, we are not deviating from the approach 
taken in Order No. 888. LPPC is correct that Order No. 2003 does not 
require a non-public utility (that has not voluntarily filed a ``safe 
harbor'' tariff) to provide reciprocal service to all of the Affiliates 
of the public utility from which it takes Transmission Service. As 
described in Order No. 888 and 888-A, a non-public utility subject to a 
reciprocity condition must extend reciprocity rights only to the public 
utility from which it receives open access service and not to that 
public utility's Affiliates.\189\
---------------------------------------------------------------------------

    \189\ See Order No. 888, OATT section 6; see also Order No. 888-
A at ] 30,286.
---------------------------------------------------------------------------

    782. Finally, as NRECA-APPA suggests, we clarify that, as in Order 
No. 888, reciprocal service will not be required if providing such 
service would jeopardize the tax-exempt status of the non-public 
utility or the bond status of the non-public utility.\190\
---------------------------------------------------------------------------

    \190\ Order No. 888 at P 312,762, n. 499.
---------------------------------------------------------------------------

6. Two vs. Three Party Agreements
    783. Order No. 2003 requires that both the Transmission Provider 
and the Transmission Owner sign the LGIA, if they are not the same 
entity.
Rehearing Requests
    784. Old Dominion expresses concern that, in regions where RTOs 
exist, Order No. 2003 could let the Transmission Owner exert influence 
over the interconnection process, with potentially anticompetitive 
effects. It cites to the Commission's statement in PJM Interconnection, 
LLC, 96 FERC ] 61,061, 61,234 (2001) that ``efficient decision-making 
on investment in transmission facilities requires that the entire 
interconnection process must be under the decisional control of the 
RTO.'' Old Dominion fears that, while an independent RTO may be willing 
to negotiate in good faith with the Interconnection Customer, a self-
interested Transmission Owner may not be as flexible. However, Old 
Dominion does not categorically object to a three-party agreement, and 
requests clarification that, if three-party agreements are required, 
(1) the RTO has sole authority over the interconnection process and 
will not be unduly influenced by the Transmission Owner, and (2) the 
RTO must ensure that the interconnection standards for individual 
Transmission Owners are consistently applied to all Interconnection 
Customers.
Commission Conclusion
    785. In requiring three-party agreements in Order No. 2003, our 
intent was to allow ``one-stop shopping'' for Interconnection Customers 
interconnecting to a facility under the operational control of an RTO 
or ISO and to speed the sometimes lengthy interconnection process. It 
is our intent that, while the Transmission Owner is a necessary part of 
interconnecting to a facility under the operational control of an RTO 
or ISO, its role in negotiating the agreement will be a limited one. 
Interconnection Studies and transmission planning remain the providence 
of the Transmission Provider. However, construction scheduling and 
other construction-related matters must involve and be negotiated by 
all three Parties.
    786. In response to Old Dominion's concern that generating 
facilities associated with a Transmission Owner could receive 
preferential treatment, the independent oversight exercised by the RTO 
or ISO will guard against this sort of discrimination. If the 
Interconnection Customer believes that it has been treated unfairly, it 
may invoke Dispute Resolution or bring the matter to the attention of 
the Commission.

III. Information Collection Statement

    787. Order No. 2003 contains information collection requirements 
for which the Commission obtained approval from the Office of 
Management and Budget (OMB).\191\ Given that this Order on Rehearing 
makes only minor changes to Order No. 2003, OMB approval for this order 
is not necessary. However, the Commission will send a copy of this 
order to OMB for informational purposes.
---------------------------------------------------------------------------

    \191\ The OMB Control Number for this collection is 19021-0096.
---------------------------------------------------------------------------

IV. Regulatory Flexibility Act Certification

    788. The Regulatory Flexibility Act (RFA)\192\ requires rulemakings 
either to contain (1) a description and analysis of the effect that the 
proposed or Final Rule will have on small entities or (2) a 
certification that the rule will not have a significant economic effect 
on a substantial number of small entities. In Order No. 2003, the 
Commission certifies that the Final Rule would not have a significant 
economic effect on a substantial number of small entities.\193\
---------------------------------------------------------------------------

    \192\ 5 U.S.C. 601-612.
    \193\ Order No. 2003 at P 924.
---------------------------------------------------------------------------

Rehearing Request
    789. NRECA-APPA challenges this certification. According to NRECA-
APPA, there are nearly 40 rural electric cooperatives that are public 
utilities and that are ``small businesses'' as defined by the Small 
Business Administration. Further, the Commission identifies 176 public 
utilities that would have to modify their OATTs to incorporate the 
requirements of Order No. 2003. Of this number, the Commission 
estimates that ten percent of the respondents are small entities. 
NRECA-APPA contends that

[[Page 16002]]

the number is actually closer to 25 percent.
    790. NRECA-APPA also states that while the Commission indicated in 
Order No. 2003 that small entities would be eligible for a waiver, the 
Commission has not taken into consideration the burden and costs for 
applying for a waiver.\194\ Furthermore, small entities have no 
guarantee that upon filing for a waiver, they will ever receive one.
---------------------------------------------------------------------------

    \194\ The issue of waiver availability for small entities is 
discussed in Order No. 2003 at PP 828-831.
---------------------------------------------------------------------------

    791. NRECA-APPA recommends that the Commission (1) provide a 
blanket waiver of the Final Rule requirements to all currently FPA-
jurisdictional utilities that qualify as ``small'' public utilities 
under the SBA utility size standards, and (2) provide a safe harbor for 
all ``small'' non-jurisdictional providers that want to work with 
customers to interconnect generation, but want to maintain their non-
jurisdictional status.
Commission Conclusion
    792. We disagree with NRECA-APPA. The question is whether Order No. 
2003 has a significant economic effect on a substantial number of small 
entities. Order No. 2003 applies only to interconnections to facilities 
already subject to an OATT. Accordingly, the affected entities are only 
those entities that have OATTs at the time interconnection is 
requested. The number of such entities is not substantial. Moreover, 
because Order No. 2003 applies only to entities that already have 
OATTs, the amendment of these OATTs to add the LGIP and LGIA will not 
impose a significant economic burden.
    793. Regarding distribution cooperatives not currently offering 
wheeling, they are not relevant to this analysis because they are not 
required to adopt the provisions of Order No. 2003.
    794. As to the waiver option, securing a waiver should not pose a 
burden for two reasons. First, small entities that already have secured 
a waiver from compliance with Order No. 888 need not seek an additional 
waiver for Order No. 2003. Second, the cost of applying for a waiver is 
minimal. The blanket waiver NRECA-APPA requests is unnecessary and, as 
described in the discussion of ``distribution'' interconnections above, 
the Commission rejects NRECA-APPA's requested safe harbor.

V. Document Availability

    795. In addition to publishing the full text of this document in 
the Federal Register, the Commission provides all interested persons an 
opportunity to obtain this document from the 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 The full text of this 
document is also available electronically from the Commission's 
eLibrary system (formerly called FERRIS) in PDF and Microsoft Word 
format for viewing, printing, and downloading. eLibrary may be accessed 
through the Commission's Home Page (http://www.ferc.gov) . To access 
this document in eLibrary, type ``RM02-1-'' in the docket number field 
and specify a date range that includes this document's issuance date.
    796. User assistance is available for eLibrary and the Commission's 
Web site during normal business hours from our Help line at 202-502-
8222 or the Public Reference Room at 202-502-8371 Press 0, TTY 202-502-
8659. E-Mail the Public Reference Room at 
[email protected].

VI. Effective Date

    797. Changes to Order No. 2003 made in this order on rehearing will 
become effective on April 26, 2004.

List of Subjects in 18 CFR Part 35

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

    By the Commission.
Magalie R. Salas,
Secretary.
    The Appendices will not be published in the Code of Federal 
Regulations.

Appendix A--Petitioner Acronyms

AEP--American Electric Power System
Alabama PSC--Alabama Public Service Commission
American Wind Energy--American Wind Energy Association
APS--Arizona Public Service Company
Arkansas PSC--Arkansas Public Service Commission
Avista--Avista Corporation
California Parties--California Independent System Operator 
Corporation, Public Utilities Commission of the State of California, 
Pacific Gas and Electric Company, San Diego Gas & Electric Company, 
and Southern California Edison Company
Calpine--Calpine Corporation
Central Maine--Central Maine Power Company, New York State Electric 
& Gas Corporation, and Rochester Gas & Electric CorporationCinergy--
Cinergy Services, Inc.
CPUC--California Public Utilities Commission
Duke Energy--Duke Energy Corporation
Dynegy--Dynegy Power Corporation
EEI--Edison Electric Institute, Alliance of Energy Suppliers, EEI 
Transmission Group, EEI Distributed Generation Task Force and Tax 
Analysis Research Subcommittee
Entergy--Entergy Services, Inc.
FPL Energy--FPL Energy, LLC
FP&L--Florida Power & Light Company
Georgia Transmission--Georgia Transmission Corporation
Georgia PSC--Georgia Public Service Commission
Hydro One--Hydro One Networks Inc.
Idaho Power--Idaho Power Company
Kentucky PSC--Public Service Commission of the Commonwealth of 
Kentucky
LIPA--Long Island Power Authority
LPPC--Large Public Power Council
Louisiana PSC--Louisiana Public Service Commission
Midwest ISO TO--Midwest ISO Transmission Owners
Mississippi PSC--Mississippi Public Service Commission
MSAT--Midwest Stand Alone Transmission Companies (American 
Transmission Company LLC, GridAmerica LLC, International 
Transmission Company, and Michigan Electric Transmission Company, 
LLC)
NARUC--National Association of Regulatory Utility Commissioners
National Grid--National Grid USA
New York PSC--New York State Public Service Commission
North Carolina Commission--North Carolina Utilities Commission
NRECA-APPA--National Rural Electric Cooperative Association and the 
American Public Power Association
NYTO--New York Transmission Owners
Old Dominion--Old Dominion Electric Cooperative
PacifiCorp--PacifiCorp
Progress Energy--Progress Energy, Inc.
PSEG--The PSEG Companies
Reliant--Reliant Resources, Inc.
Salt River Project--Salt River Project Agricultural Improvement and 
Power District
SoCal Edison--Southern California Edison Company
South Carolina PSC--South Carolina Public Service Commission
Southern-- Southern Company Services, Inc.
TAPS--Transmission Access Policy Study Group
TDU Systems--Transmission Dependent Utility Systems
Washington UTC--Washington Utilities and Transportation Commission

Appendix B--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 MW)

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

[[Page 16003]]

    3.1 General
    3.2 Identification of Types of Interconnection Services
    3.2.1 Energy Resource Interconnection Service
    3.2.1.1 The Product
    3.2.1.2 The Study
    3.2.2 Network Resource 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
Section 5. Procedures for Interconnection Requests Submitted Prior 
to Effective Date of Standard Large Generator Interconnection 
Procedures
    5.1 Queue Position for Pending Requests
    5.2 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
    6.4 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
    8.2 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 
(LGIA)
    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 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
    13.2 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
    13.6 Local Furnishing Bonds
    13.6.1 Transmission Providers That Own Facilities Financed by 
Local Furnishing Bonds
    13.6.2 Alternative Procedures for Requesting Interconnection 
Service
Appendix 1--Interconnection Request for a Large Generating Facility
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

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 shall mean the status of a Generating Facility 
that has commenced generating electricity for sale, excluding 
electricity generated during Trial Operation.
    Commercial Operation Date of a unit shall mean the date on which 
the Generating Facility commences Commercial Operation as agreed to by 
the Parties pursuant to Appendix E to

[[Page 16004]]

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 an Applicable Reliability Council.
    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 FERC, or if filed unexecuted, upon 
the date specified by FERC.
    Emergency Condition shall mean 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 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 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 acts of negligence or 
intentional wrongdoing by the Party claiming Force Majeure.
    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.

[[Page 16005]]

    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 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 any designated generating resource 
owned, purchased, or leased by a Network Customer under the Network 
Integration Transmission Service Tariff. Network Resources do not 
include any resource, or any portion thereof, that is committed for 
sale to third parties or otherwise cannot be called upon to meet the 
Network Customer's Network Load on a non-interruptible basis.
    Network Resource Interconnection Service shall mean an 
Interconnection Service that allows the Interconnection

[[Page 16006]]

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 Facilities connect 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 FERC, 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

[[Page 16007]]

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

    Transmission Provider shall receive, process and analyze all 
Interconnection Requests in a timely manner as set forth in this LGIP. 
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 in 
LGIP Section 13.1. Transmission Provider is permitted to require that 
Interconnection Customer sign a confidentiality agreement before the 
release of commercially sensitive information or Critical Energy 
Infrastructure Information in the Base Case data. 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 Transmission Provider 
an Interconnection Request in the form of Appendix 1 to this LGIP and a 
refundable deposit of $10,000. Transmission Provider shall apply the 
deposit toward the cost of an Interconnection Feasibility Study. 
Interconnection Customer shall submit a separate Interconnection 
Request for each site and may submit multiple Interconnection Requests 
for a single site. 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 Energy Resource 
Interconnection Service or Network Resource Interconnection Service, as 
described; provided, however, any Interconnection Customer requesting 
Network Resource Interconnection Service may also request that it be 
concurrently studied for Energy Resource Interconnection Service, up to 
the point when an Interconnection Facility Study Agreement is executed. 
Interconnection Customer may then elect to proceed with Network 
Resource 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
    3.2.1.1 The Product. Energy Resource 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. Energy Resource 
Interconnection Service does not in and of itself convey any right to 
deliver electricity to any specific customer or Point of Delivery.
    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
    3.2.2.1 The Product. 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 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. Network Resource Interconnection Service Allows 
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 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 Network Resource 
Interconnection Service shall assure that Interconnection Customer's 
Large Generating Facility meets the requirements for Network Resource 
Interconnection Service and as a general matter, that such Large 
Generating Facility's interconnection is also studied with 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 Transmission 
Provider's Transmission System, consistent with Transmission Provider's 
reliability criteria and procedures. This approach assumes that some 
portion of existing Network Resources are displaced by the output of 
Interconnection Customer's Large Generating Facility. Network Resource 
Interconnection Service in and of itself does not convey any right to 
deliver electricity to any specific customer or Point of Delivery.

[[Page 16008]]

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 Transmission Provider's expansion planning period) not to exceed 
seven years from the date the Interconnection Request is received by 
Transmission Provider, unless 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 Transmission Provider by a period up to ten years, or 
longer where 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 
Transmission Provider. If an Interconnection Request fails to meet the 
requirements set forth in Section 3.3.1, Transmission Provider shall 
notify 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 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

    Transmission Provider will maintain on its OASIS a list of all 
Interconnection 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 Interconnection 
Customer until Interconnection Customer executes an LGIA or requests 
that Transmission Provider file an unexecuted LGIA with FERC. Before 
holding a Scoping Meeting with its Affiliate, Transmission Provider 
shall post on OASIS an advance notice of its intent to do so. 
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 Transmission 
Provider's OASIS site subsequent to the meeting between Interconnection 
Customer and Transmission Provider to discuss the applicable study 
results. Transmission Provider shall also post any known deviations in 
the Large Generating Facility's In-Service Date.

3.5 Coordination With Affected Systems

    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 (if available) in its applicable Interconnection 
Study within the time frame specified in this LGIP. Transmission 
Provider will include such Affected System Operators in all meetings 
held with Interconnection Customer as required by this LGIP. 
Interconnection Customer will cooperate with 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 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.

[[Page 16009]]

3.6 Withdrawal

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

    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 
Interconnection Customer provides such information in accordance with 
Section 3.3.3, then Transmission Provider shall assign 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. Transmission Provider may allocate the cost of the common 
upgrades for clustered Interconnection Requests without regard to Queue 
Position.

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 Energy Resource Interconnection Service or Network Resource 
Interconnection Service. The 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 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

    Interconnection Customer shall submit to Transmission Provider, in 
writing, modifications to any information provided in the 
Interconnection Request. 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 
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 acceptable to 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 Transmission Provider, modifications 
permitted under this Section shall include specifically: (a) A decrease 
of

[[Page 16010]]

up to 60 percent of electrical output (MW) 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 Transmission Provider, the modifications permitted 
under this Section shall include specifically: (a) Additional 15 
percent decrease of electrical output (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 Transmission Provider 
evaluate whether such modification is a Material Modification. In 
response to Interconnection Customer's request, Transmission Provider 
shall evaluate the proposed modifications prior to making them and 
inform Interconnection Customer in writing of whether the modifications 
would constitute a Material Modification. Any change to the Point of 
Interconnection, except those deemed acceptable under Sections 4.4.1, 
6.1, 7.2 or so allowed elsewhere, shall constitute a Material 
Modification. 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, Transmission Provider 
shall commence and perform any necessary additional studies as soon as 
practicable, but in no event shall 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, Transmission Provider must offer 
Interconnection Customer the option of either continuing under 
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 FERC for approval before 
the effective date of the LGIP, then the LGIA would be grandfathered.

5.1.2 Transition Period

    To the extent necessary, Transmission Provider and Interconnection 
Customers with an outstanding request (i.e., an Interconnection Request 
for which an LGIA has not been submitted to FERC 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 Transmission Provider; (ii) 
where the related interconnection agreement has not yet been submitted 
to FERC 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 Transmission 
Provider to the extent consistent with the intent and process provided 
for under this LGIP.

5.2 New Transmission Provider

    If 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 Transmission Provider has tendered a 
draft LGIA to Interconnection Customer but Interconnection Customer has 
not either executed the LGIA or requested the filing of an unexecuted 
LGIA with FERC, unless otherwise provided, Interconnection Customer 
must complete negotiations with the successor Transmission Provider.

Section 6. Interconnection Feasibility Study

6.1 Interconnection Feasibility Study Agreement

    Simultaneously with the acknowledgement of a valid Interconnection 
Request 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

[[Page 16011]]

Agreement the Point(s) of Interconnection and any reasonable 
alternative Point(s) of Interconnection. Within five (5) Business Days 
following 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. Interconnection 
Customer shall execute and deliver to 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 Transmission Provider, 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 purpose of this Section 6.1, if Transmission 
Provider and InterconnectionCustomer 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.
    If Interconnection Customer and Transmission Provider agree to 
forgo the Interconnection Feasibility Study, Transmission Provider will 
initiate an Interconnection System Impact Study under Section 7 of this 
LGIP and apply the $10,000 deposit towards the Interconnection System 
Impact Study.

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

    Transmission Provider shall utilize existing studies to the extent 
practicable when it performs the study. Transmission Provider shall use 
Reasonable Efforts to complete the Interconnection Feasibility Study no 
later than forty-five (45) Calendar Days after Transmission Provider 
receives the fully executed Interconnection Feasibility Study 
Agreement. At the request of Interconnection Customer or at any time 
Transmission Provider determines that it will not meet the required 
time frame for completing the Interconnection Feasibility Study, 
Transmission Provider shall notify Interconnection Customer as to the 
schedule status of the Interconnection Feasibility Study. If 
Transmission Provider is unable to complete the Interconnection 
Feasibility Study within that time period, it shall notify 
Interconnection Customer and provide an estimated completion date with 
an explanation of the reasons why additional time is required. Upon 
request, Transmission Provider shall provide 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 Interconnection Customer, 
Transmission Provider shall provide to 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 Interconnection Customer shall compensate Transmission 
Provider for the actual cost of the Interconnection System Impact 
Study. Within three (3) Business Days following the Interconnection 
Feasibility Study results meeting, 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

    Interconnection Customer shall execute the Interconnection System 
Impact Study Agreement and deliver the executed Interconnection System 
Impact Study Agreement to Transmission Provider no later than thirty 
(30) Calendar Days after its receipt along with demonstration of Site 
Control, and a $50,000 deposit.
    If Interconnection Customer does not provide all such technical 
data when it delivers the Interconnection System Impact Study 
Agreement, Transmission Provider shall notify Interconnection Customer 
of the deficiency within five (5) Business Days of the receipt of the 
executed Interconnection System Impact Study Agreement and 
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

[[Page 16012]]

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 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

    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. Transmission 
Provider shall utilize existing studies to the extent practicable when 
it performs the study. 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, 
Transmission Provider shall use Reasonable Efforts to deliver a 
completed Interconnection System Impact Study within ninety (90) 
Calendar Days after the close of the Queue Cluster Window. At the 
request of Interconnection Customer or at any time Transmission 
Provider determines that it will not meet the required time frame for 
completing the Interconnection System Impact Study, Transmission 
Provider shall notify Interconnection Customer as to the schedule 
status of the Interconnection System Impact Study. If Transmission 
Provider is unable to complete the Interconnection System Impact Study 
within the time period, it shall notify Interconnection Customer and 
provide an estimated completion date with an explanation of the reasons 
why additional time is required. Upon request, Transmission Provider 
shall provide 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 Interconnection Customer, Transmission Provider shall 
provide to Interconnection Customer an Interconnection Facilities Study 
Agreement in the form of Appendix 4 to this LGIP. The Interconnection 
Facilities Study Agreement shall provide that Interconnection Customer 
shall compensate Transmission Provider for the actual cost of the 
Interconnection Facilities Study. Within three (3) Business Days 
following the Interconnection System Impact Study results meeting, 
Transmission Provider shall provide to Interconnection Customer a non-
binding good faith estimate of the cost and timeframe for completing 
the Interconnection Facilities Study. Interconnection Customer shall 
execute the Interconnection Facilities Study Agreement and deliver the 
executed Interconnection Facilities Study Agreement to 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.

[[Page 16013]]

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

    Transmission Provider shall coordinate the Interconnection 
Facilities Study with any Affected System pursuant to Section 3.5 
above. Transmission Provider shall utilize existing studies to the 
extent practicable in performing the Interconnection Facilities Study. 
Transmission Provider shall use Reasonable Efforts to complete the 
study and issue a draft Interconnection Facilities Study report to 
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 Interconnection Customer requests a +/-10 percent cost 
estimate.
    At the request of Interconnection Customer or at any time 
Transmission Provider determines that it will not meet the required 
time frame for completing the Interconnection Facilities Study, 
Transmission Provider shall notify Interconnection Customer as to the 
schedule status of the Interconnection Facilities Study. If 
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 Interconnection 
Customer and provide an estimated completion date and an explanation of 
the reasons why additional time is required.
    Interconnection Customer may, within thirty (30) Calendar Days 
after receipt of the draft report, provide written comments to 
Transmission Provider, which Transmission Provider shall include in the 
final report. Transmission Provider shall issue the final 
Interconnection Facilities Study report within fifteen (15) Business 
Days of receiving Interconnection Customer's comments or promptly upon 
receiving Interconnection Customer's statement that it will not provide 
comments. Transmission Provider may reasonably extend such fifteen-day 
period upon notice to Interconnection Customer if Interconnection 
Customer's comments require Transmission Provider to perform additional 
analyses or make other significant modifications prior to the issuance 
of the final Interconnection Facilities Report. Upon request, 
Transmission Provider shall provide 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 Transmission Provider to begin engineering 
and procurement of long lead-time items necessary for the establishment 
of the interconnection. However, 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 Interconnection Customer to pay the cost of all activities 
authorized by Interconnection Customer and to make advance payments or 
provide other satisfactory security for such costs.
    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 Interconnection Customer receives 
Interconnection System Impact Study results, Interconnection Customer 
may request, and Transmission Provider shall perform a reasonable 
number of Optional Studies. The request shall describe the assumptions 
that Interconnection Customer wishes 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, 
Transmission Provider shall provide to Interconnection Customer an 
Optional

[[Page 16014]]

Interconnection Study Agreement in the form of Appendix 5. The Optional 
Interconnection Study Agreement shall: (i) Specify the technical data 
that 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) Transmission Provider's estimate of the cost of 
the Optional Interconnection Study. To the extent known by 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, 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.
    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 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 Interconnection Customer 
in the Optional Interconnection Study Agreement. The Optional 
Interconnection Study will also identify 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. 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. 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 Transmission Provider within ten (10) Business Days of 
Interconnection Customer receipt of the Optional Interconnection Study 
Agreement. 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 Transmission Provider is unable to complete the Optional 
Interconnection Study within such time period, it shall notify 
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 Transmission Provider or refunded to Interconnection 
Customer, as appropriate. Upon request, Transmission Provider shall 
provide 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

    Interconnection Customer shall tender comments on the draft 
Interconnection Facilities Study Report within thirty (30) Calendar 
Days of receipt of the report. Within thirty (30) Calendar Days after 
the comments are submitted, Interconnection Customer shall tender a 
draft LGIA, together with draft appendices completed to the extent 
practicable. The draft LGIA shall be in the form of Transmission 
Provider's FERC-approved standard form LGIA, which is in Appendix 6. 
Interconnection Customer shall execute and return the completed draft 
appendices within thirty (30) Calendar Days.

11.2 Negotiation

    Notwithstanding Section 11.1, at the request of Interconnection 
Customer Transmission Provider shall begin negotiations with 
Interconnection Customer concerning the appendices to the LGIA at any 
time after Interconnection Customer executes the Interconnection 
Facilities Study Agreement. Transmission Provider and 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 
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 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 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. Transmission Provider shall 
provide to 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, 
Interconnection Customer shall provide 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 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.
    Interconnection Customer shall either: (i) Execute two originals of 
the tendered LGIA and return them to Transmission

[[Page 16015]]

Provider; or (ii) request in writing that 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 
FERC-approved standard form of interconnection agreement) or the 
request to file an unexecuted LGIA, Transmission Provider shall file 
the LGIA with FERC, together with its explanation of any matters as to 
which Interconnection Customer and Transmission Provider disagree and 
support for the costs that Transmission Provider proposes to charge to 
Interconnection Customer under the LGIA. An unexecuted LGIA should 
contain terms and conditions deemed appropriate by 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 FERC action.

11.4 Commencement of Interconnection Activities

    If Interconnection Customer executes the final LGIA, Transmission 
Provider and 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, 
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

    Transmission Provider and Interconnection Customer shall negotiate 
in good faith concerning a schedule for the construction of 
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 Customer 
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 Interconnection Customer
    An Interconnection Customer with an LGIA, in order to maintain its 
In-Service Date, may request that 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 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 Interconnection Customer 
commits to pay Transmission Provider: (i) Any associated expediting 
costs and (ii) the cost of such Network Upgrades. Transmission Provider 
will refund to 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 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. Transmission Provider shall forward 
to 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 Interconnection Customer. 
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 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 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 Interconnection Customer commits to pay Transmission 
Provider any associated expediting costs. 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

[[Page 16016]]

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 Affiliates (limited by the Standards of 
Conduct requirements), 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.
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, Its Staff, or a State
    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 FERC 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. Requests from a state regulatory body conducting a 
confidential investigation shall be treated in a similar manner, 
consistent with applicable state rules and regulations.
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

[[Page 16017]]

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
    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

    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 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. 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) Interconnection Customer receives notice 
pursuant to Sections 6.3, 7.4 or 8.3 that Transmission Provider will 
not complete an Interconnection Study within the applicable timeframe 
for such Interconnection Study, or (iii) 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 Interconnection Customer may require 
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 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 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 Transmission Provider determines that doing so will help maintain 
or accelerate the study process for Interconnection Customer's pending 
Interconnection Request and not interfere with Transmission Provider's 
progress on Interconnection Studies for other pending Interconnection 
Requests. In cases where 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 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 Interconnection Customer or Transmission 
Provider at Transmission Provider's discretion.
    In the case of (iii) 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 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. 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

[[Page 16018]]

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.

13.6 Local Furnishing Bonds

13.6.1 Transmission Providers That Own Facilities Financed by Local 
Furnishing Bonds
    This provision is applicable only to a Transmission Provider that 
has financed facilities for the local furnishing of electric energy 
with tax-exempt bonds, as described in Section 142(f) of the Internal 
Revenue Code (``local furnishing bonds''). Notwithstanding any other 
provision of this LGIA and LGIP, Transmission Provider shall not be 
required to provide Interconnection Service to Interconnection Customer 
pursuant to this LGIA and LGIP if the provision of such Transmission 
Service would jeopardize the tax-exempt status of any local furnishing 
bond(s) used to finance Transmission Provider's facilities that would 
be used in providing such Interconnection Service.
13.6.2 Alternative Procedures for Requesting Interconnection Service
    If Transmission Provider determines that the provision of 
Interconnection Service requested by Interconnection Customer would 
jeopardize the tax-exempt status of any local furnishing bond(s) used 
to finance its facilities that would be used in providing such 
Interconnection Service, it shall advise the Interconnection Customer 
within thirty (30) days of receipt of the Interconnection Request.
    Interconnection Customer thereafter may renew its request for 
interconnection using the process specified in Article 5.2(ii) of the 
Transmission Provider's OATT.

Appendix 1 to LGIP--Interconnection Request for a Large Generating 
Facility

    1. The undersigned Interconnection Customer submits this request to 
interconnect its Large Generating Facility with 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):

---- Energy Resource Interconnection Service
---- Network Resource Interconnection Service

    4. ---- Check here only if Interconnection Customer requesting 
Network Resource Interconnection Service also seeks to have its 
Generating Facility studied for Energy Resource Interconnection Service
    5. 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 (Day, Month, and Year);
    e. Name, address, telephone number, and e-mail address of 
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)
    6. Applicable deposit amount as specified in the LGIP.
    7. 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

    8. This Interconnection Request shall be submitted to the 
representative indicated below: [To be completed by Transmission 
Provider]
    9. Representative of Interconnection Customer to contact: [To be 
completed by Interconnection Customer]
    10. This Interconnection Request is submitted by:

Name of Interconnection Customer:--------------------------------------

By (signature):--------------------------------------------------------

Name (type or print):--------------------------------------------------

Title:-----------------------------------------------------------------

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

Attachment A to Appendix 1--Interconnection Request

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,
    WR\2\ = -------- lb. ft.\2\

[[Page 16019]]



                   Reactance Data (Per Unit-Rated kVA)
 
                                   Direct axis         Quadrature axis
 
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--unsaturated...  X''di ____            X''qi ____
Negative Sequence--saturated  X2v ____
Negative Sequence--           X2i ____
 unsaturated.
Zero Sequence--saturated....  X0v ____
Zero Sequence--unsaturated..  X0i ____
Leakage Reactance...........  Xlm ____
 

Field Time Constant Data (SEC)

 
 
 
Open Circuit................  T'do ____             T'qo ____
Three-Phase Short Circuit     T'd3 ____             T'q ____
 Transient.
Line to Line Short Circuit    T'd2 ____
 Transient.
Line to Neutral Short         T'dl ____
 Circuit Transient.
Short Circuit Subtransient..  T''d ____             T''q ____
Open Circuit Subtransient...  T''do ____            T''qo ____
 

Armature Time Constant Data (SEC)

    Three Phase Short Circuit--
    Ta3 --------
    Line to Line Short Circuit--
    Ta2 --------
    Line to Neutral Short Circuit--
    Ta1 --------

    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 I2\2\t = --------
    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/Tertiary)
--------/--------/-------- kV
Winding Connections (Low V/High V/Tertiary 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 or other compatible formats, 
such as IEEE and PTI power flow models, 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):------------------------
(*) I22t 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.


[[Page 16020]]



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 Interconnection Customer dated ------; and
    Whereas, Interconnection Customer desires to interconnect the Large 
Generating Facility with the Transmission System; and
    Whereas, Interconnection Customer has requested Transmission 
Provider to perform an Interconnection Feasibility Study to assess the 
feasibility of interconnecting the proposed 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 Transmission 
Provider's FERC-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 Interconnection Customer shall provide a deposit of $10,000 for 
the performance of the Interconnection Feasibility Study.
    Upon receipt of the Interconnection Feasibility Study 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 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:------------------------------------------------------------------

Attachment A to Appendix 2--Interconnection Feasibility Study Agreement

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 Interconnection Customer dated ------; and
    Whereas, Interconnection Customer desires to interconnect the Large 
Generating Facility with the Transmission System;
    Whereas, Transmission Provider has completed an Interconnection 
Feasibility Study (the ``Feasibility Study'') and provided the results 
of said study to Interconnection Customer (This recital to be omitted 
if Transmission Provider does not require the Interconnection 
Feasibility Study.); and
    Whereas, Interconnection Customer has requested Transmission 
Provider to perform an Interconnection System Impact Study to assess 
the impact of interconnecting the Large Generating

[[Page 16021]]

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 Transmission 
Provider's FERC-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 Interconnection Customer shall provide a deposit of $50,000 for 
the performance of the Interconnection System Impact Study. 
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 Interconnection Customer, as 
appropriate.
    7.0 Miscellaneous. The Interconnection System Impact 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, 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:------------------------------------------------------------------

Attachment A To Appendix 3--Interconnection System Impact Study 
Agreement

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 Interconnection Customer dated ------; and
    Whereas, Interconnection Customer desires to interconnect the Large 
Generating Facility with the Transmission System;
    Whereas, Transmission Provider has completed an Interconnection 
System Impact Study (the ``System Impact Study'') and provided the 
results of said study to Interconnection Customer; and
    Whereas, Interconnection Customer has requested 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 Transmission 
Provider's FERC-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.

[[Page 16022]]

    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 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:------------------------------------------------------------------

Attachment A To Appendix 4--Interconnection Facilities Study Agreement

Interconnection Customer Schedule Election for Conducting the 
Interconnection Facilities Study

    Transmission Provider shall use Reasonable Efforts to complete the 
study and issue a draft Interconnection Facilities Study report to 
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.

Attachment B to Appendix 4--Interconnection Facilities Study Agreement

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 diagram indicate the generation capacity attached 
at each metering location. (Maximum load on CT/PT)
    On the one line diagram 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 diagram).
    What type of control system or PLC will be located at 
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.
    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 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 Interconnection Customer 
receives the Interconnection System Impact Study

[[Page 16023]]

results, Interconnection Customer has further requested that 
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 Transmission 
Provider's FERC-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 
Interconnection Customer in Attachment A to this Agreement. The 
Optional Interconnection Study will identify 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 
Interconnection Customer in Attachment A.
    6.0 Interconnection Customer shall provide a deposit of $10,000 for 
the performance of the Optional Interconnection Study. 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, 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 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:------------------------------------------------------------------

Appendix 6 to the Standard Large Generator Interconnection Procedures

Standard Large Generator Interconnection Agreement (LGIA)

Table of Contents

Recitals
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
    2.5 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 Performance Standards
    4.4 No Transmission Delivery Service
    4.5 Interconnection Customer Provided Services
Article 5. Interconnection Facilities Engineering, Procurement, & 
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
    5.6 Construction Commencement
    5.7 Work Progress
    5.8 Information Exchange
    5.9 Limited Operation
    5.10 Interconnection Customer's Interconnection Facilities 
(`ICIF')
    5.10.1 Interconnection Customer's Interconnection Facility 
Specifications
    5.10.2 Transmission Provider's Review
    5.10.3 ICIF Construction
    5.11 Transmission Provider's 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 the Cost Consequences of Current Tax 
Liability Imposed Upon the Transmission Provider
    5.17.4 Tax Gross-Up Amount
    5.17.5 Private Letter Ruling or Change or Clarification of Law
    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 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

[[Page 16024]]

    9.7.1.3 Outage Restoration
    9.7.2 Interruption of Service
    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
    9.7.5 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 Repayment of Amounts Advanced for Network Upgrades
    11.5 Provision of Security
    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 Law
    14.1 Regulatory Requirements
    14.2 Governing Law
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
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
Article 19. Assignment
Article 20. Severability
Article 21. 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, its Staff, or a State
Article 23. Environmental Releases
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
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
    30.8 Multiple Counterparts
    30.9 Amendment
    30.10 Modification by the Parties
    30.11 Reservation of Rights
    30.12 No Partnership
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
Appendix G--Requirements of Generators Relying on Newer Technologies

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 ---------- 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 or the Open Access Transmission Tariff (OATT).

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

[[Page 16025]]

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 shall mean the status of a Generating Facility 
that has commenced generating electricity for sale, excluding 
electricity generated during Trial Operation.
    Commercial Operation Date of a unit shall mean the date on which 
the Generating Facility commences Commercial Operation as agreed to by 
the Parties pursuant to 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 the Applicable Reliability Council.
    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 FERC, or if filed unexecuted, upon 
the date specified by FERC.
    Emergency Condition shall mean 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 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 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 caused beyond a Party's 
control. A Force Majeure event does not include acts of negligence or 
intentional wrongdoing by the Party claiming Force Majeure.

[[Page 16026]]

    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

[[Page 16027]]

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.
    SAIRS 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 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 any designated generating resource 
owned, purchased, or leased by a Network Customer under the Network 
Integration Transmission Service Tariff. Network Resources do not 
include any resource, or any portion thereof, that is committed for 
sale to third parties or otherwise cannot be called upon to meet the 
Network Customer's Network Load on a non-interruptible basis.
    Network Resource 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 Facilities connect 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.

[[Page 16028]]

    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 FERC, 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 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 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

    2.3.1 Written Notice. This LGIA may be terminated by 
Interconnection Customer after giving Transmission Provider ninety (90) 
Calendar Days advance written notice, or by Transmission Provider 
notifying FERC after the Generating Facility permanently ceases 
Commercial Operation.
    2.3.2 Default. Either Party may terminate this LGIA in accordance 
with Article 17.
    2.3.3 Notwithstanding Articles 2.3.1 and 2.3.2, 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 a Party, the 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 Transmission Provider's 
Interconnection Facilities that have not yet been constructed or 
installed, 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 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 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 Transmission Provider has incurred expenses and has not been 
reimbursed by 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

[[Page 16029]]

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

    Transmission Provider shall file this LGIA (and any amendment 
hereto) with the appropriate Governmental Authority, if required. 
Interconnection Customer may request that any information so provided 
be subject to the confidentiality provisions of Article 22. If 
Interconnection Customer has executed this LGIA, or any amendment 
thereto, 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
    4.1.1.1 The Product. Energy Resource 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 Energy Resource 
Interconnection Service, Transmission Provider shall construct 
facilities identified in Attachment A.
    4.1.1.2 Transmission Delivery Service Implications. Under Energy 
Resource Interconnection Service, Interconnection Customer will be 
eligible 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 
MWs identified in the applicable stability and steady state studies to 
the extent the upgrades initially required to qualify for Energy 
Resource Interconnection Service have been constructed. Where eligible 
to do so (e.g., PJM, ISO-NE, NYISO), 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 Interconnection Customer's bid clears. 
In all other instances, no transmission delivery service from the Large 
Generating Facility is assured, but Interconnection Customer may obtain 
Point-to-Point Transmission Service, Network Integration Transmission 
Service, or be used for secondary network transmission service, 
pursuant to Transmission Provider's Tariff, up to the maximum output 
identified in the stability and steady state studies. In those 
instances, in order for 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 
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 
Transmission Provider's Transmission 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 or 
Network Integration Transmission Service may require the construction 
of additional Network Upgrades.
4.1.2 Network Resource Interconnection Service
    4.1.2.1 The Product. 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 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 Network 
Resources. To the extent Interconnection Customer wants to receive 
Network Resource Interconnection Service, Transmission Provider shall 
construct the facilities identified in Attachment A to this LGIA.
    4.1.2.2 Transmission Delivery Service Implications. Network 
Resource Interconnection Service allows Interconnection Customer's 
Large Generating Facility to be designated by any Network Customer 
under the Tariff on Transmission Provider's Transmission System as a 
Network Resource, up to the Large Generating Facility's full output, on 
the same basis as existing Network Resources interconnected to 
Transmission Provider's Transmission System, and to be studied as a 
Network Resource on the assumption that such a designation will occur. 
Although Network Resource 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 Network 
Resource 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. The 
provision of Network Integration Transmission Service or firm Point-to-
Point Transmission Service may require additional studies and the 
construction of additional upgrades. Because such studies and upgrades 
would be associated with a request for delivery service under the 
Tariff, cost responsibility for the studies and upgrades would be in 
accordance with FERC's policy for pricing transmission delivery 
services.
    Network Resource Interconnection Service does not necessarily 
provide

[[Page 16030]]

Interconnection Customer with the capability to physically deliver the 
output of its Large Generating Facility to any particular load on 
Transmission Provider's Transmission System without incurring 
congestion costs. In the event of transmission constraints on 
Transmission Provider's Transmission System, Interconnection Customer's 
Large Generating Facility shall be subject to the applicable congestion 
management procedures in 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 Interconnection 
Customer's Large Generating Facility be designated as a Network 
Resource by a Network Service Customer under the Tariff or that 
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 Transmission 
Provider's Tariff.
    Once an Interconnection Customer satisfies the requirements for 
obtaining Network Resource Interconnection Service, any future 
transmission service request for delivery from the Large Generating 
Facility within 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. 
However, the reduction or elimination of congestion or redispatch costs 
may require additional studies and the construction of additional 
upgrades.
    To the extent Interconnection Customer enters into an arrangement 
for long term transmission service for deliveries from the Large 
Generating Facility outside Transmission Provider's Transmission 
System, such request may require additional studies and upgrades in 
order for 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 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 a 
Transmission Provider or Transmission Owner, then that Party shall 
amend the LGIA and submit the amendment to FERC for approval.

4.4 No Transmission Delivery Service

    The execution of this LGIA does not constitute a request for, nor 
the provision of, any transmission delivery service under Transmission 
Provider's Tariff, and does not convey any right to deliver electricity 
to any specific customer or Point of Delivery.

4.5 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.

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 
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. Transmission Provider shall design, procure, 
and construct Transmission Provider's Interconnection Facilities and 
Network Upgrades, using Reasonable Efforts to complete Transmission 
Provider's Interconnection Facilities and Network Upgrades by the dates 
set forth in Appendix B, Milestones. 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 Transmission Provider 
reasonably expects that it will not be able to complete Transmission 
Provider's Interconnection Facilities and Network Upgrades by the 
specified dates, Transmission Provider shall promptly provide written 
notice to 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, Transmission Provider 
shall so notify Interconnection Customer within thirty (30) Calendar 
Days, and shall assume responsibility for the design, procurement and 
construction of 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, Transmission 
Provider shall so notify 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 on the dates specified in 
Article 5.1.2. 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. Except for Stand Alone 
Network Upgrades, Interconnection Customer shall have no right to 
construct Network Upgrades under this option.
    5.1.4 Negotiated Option. If Interconnection Customer elects not to 
exercise its option under Article 5.1.3,

[[Page 16031]]

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 
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 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 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 Transmission Provider's Interconnection 
Facilities and Stand Alone Network Upgrades,
    (1) Interconnection Customer shall engineer, procure equipment, and 
construct 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 
Transmission Provider;
    (2) Interconnection Customer's engineering, procurement and 
construction of 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 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 
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 
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 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 Transmission 
Provider's Interconnection Facilities and Stand Alone Network Upgrades 
not meet the standards and specifications provided by Transmission 
Provider, Interconnection Customer shall be obligated to remedy 
deficiencies in that portion of Transmission Provider's Interconnection 
Facilities and Stand Alone Network Upgrades;
    (7) Interconnection Customer shall indemnify Transmission Provider 
for claims arising from 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) Interconnection Customer shall transfer control of Transmission 
Provider's Interconnection Facilities and Stand Alone Network Upgrades 
to Transmission Provider;
    (9) Unless Parties otherwise agree, Interconnection Customer shall 
transfer ownership of Transmission Provider's Interconnection 
Facilities and Stand-Alone Network Upgrades to Transmission Provider;
    (10) Transmission Provider shall approve and accept for operation 
and maintenance Transmission Provider's Interconnection Facilities and 
Stand Alone Network Upgrades to the extent engineered, procured, and 
constructed in accordance with this Article 5.2; and
    (11) Interconnection Customer shall deliver to Transmission 
Provider ``as-built'' drawings, information, and any other documents 
that are reasonably required by Transmission Provider to assure that 
the Interconnection Facilities and Stand-Alone Network Upgrades are 
built to the standards and specifications required by Transmission 
Provider.

5.3 Liquidated Damages

    The actual damages to Interconnection Customer, in the event 
Transmission Provider's Interconnection Facilities or Network Upgrades 
are not completed by the dates designated by Interconnection Customer 
and accepted by 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 Transmission Provider to 
Interconnection Customer in the event that Transmission Provider does 
not complete any portion of 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 
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 Transmission Provider's Interconnection 
Facilities and Network Upgrades for which Transmission Provider has 
assumed responsibility to design, procure, and construct. The foregoing 
payments will be made by Transmission Provider to Interconnection 
Customer as just compensation for the damages caused to 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. Liquidated 
damages, when the Parties agree to them, are the exclusive remedy for 
the Transmission Provider's failure to meet its schedule.
    No liquidated damages shall be paid to Interconnection Customer if: 
(1) Interconnection Customer is not ready to commence use of 
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 Interconnection Customer would have been able 
to commence use of 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) Transmission 
Provider's failure to meet the specified dates is the result of the 
action or inaction of Interconnection Customer or any other 
Interconnection Customer who has entered into an LGIA with Transmission 
Provider or any cause beyond Transmission Provider's

[[Page 16032]]

reasonable control or reasonable ability to cure; (3) the 
interconnection Customer has assumed responsibility for the design, 
procurement and construction of 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, 
Interconnection Customer shall immediately notify Transmission 
Provider's system operator, or its designated representative. The 
requirements of this paragraph shall not apply to wind generators.

5.5 Equipment Procurement

    If responsibility for construction of Transmission Provider's 
Interconnection Facilities or Network Upgrades is to be borne by 
Transmission Provider, then Transmission Provider shall commence design 
of 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 Transmission Provider has completed the Facilities Study 
pursuant to the Facilities Study Agreement;
    5.5.2 Transmission Provider has received written authorization to 
proceed with design and procurement from Interconnection Customer by 
the date specified in Appendix B, Milestones; and
    5.5.3 Interconnection Customer has provided security to 
Transmission Provider in accordance with Article 11.5 by the dates 
specified in Appendix B, Milestones.

5.6 Construction Commencement

    Transmission Provider shall commence construction of 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 Transmission Provider's Interconnection Facilities and 
Network Upgrades;
    5.6.3 Transmission Provider has received written authorization to 
proceed with construction from Interconnection Customer by the date 
specified in Appendix B, Milestones; and
    5.6.4 Interconnection Customer has provided security to 
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, Interconnection Customer determines 
that the completion of Transmission Provider's Interconnection 
Facilities will not be required until after the specified In-Service 
Date, Interconnection Customer will provide written notice to 
Transmission Provider of such later date upon which the completion of 
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 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 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 
Interconnection Customer's Interconnection Facilities may operate prior 
to the completion of 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 Interconnection Customer's 
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 Interconnection Customer's Interconnection 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 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 technical specifications, operational 
control, and safety requirements of 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, 
Interconnection Customer shall deliver to Transmission Provider

[[Page 16033]]

``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 
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 Facility. 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, if applicable.

5.11 Transmission Provider's Interconnection Facilities Construction

    Transmission Provider's Interconnection 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, Transmission Provider shall deliver to 
Interconnection Customer the following ``as-built'' drawings, 
information and documents for Transmission Provider's Interconnection 
Facilities [include appropriate drawings and relay diagrams].
    Transmission Provider will obtain control of 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, its agents (if 
allowed under the applicable agency agreement), or any Affiliate, 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 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, 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 or on behalf of its Affiliates, 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 Transmission Provider or 
Transmission Owner's Interconnection Facilities and/or Network Upgrades 
upon such property.

5.14 Permits

    The LGIA shall specify the allocation of the responsibilities of 
Transmission Provider or Transmission Owner and Interconnection 
Customer to obtain all permits, licenses and authorizations that are 
necessary to accomplish the interconnection in compliance with 
Applicable Laws and Regulations. Transmission Provider or Transmission 
Owner and 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 Interconnection Customer 
comparable to that provided to 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 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 Transmission 
System shall be left in a safe and reliable condition in accordance 
with Good Utility Practice and 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. The three-year period shall begin on the date

[[Page 16034]]

the suspension is requested, or the date of the written notice to 
Transmission Provider, if no effective date is specified.

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 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 Transmission Provider for 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 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 
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 the Cost Consequences of Current Tax 
Liability Imposed Upon the Transmission Provider. Notwithstanding 
Article 5.17.1, Interconnection Customer shall protect, indemnify and 
hold harmless Transmission Provider from the cost consequences of any 
current tax liability imposed against Transmission Provider as the 
result of payments or property transfers made by Interconnection 
Customer to Transmission Provider under this LGIA for Interconnection 
Facilities, 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 the cost 
consequences of any current tax liability 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 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 for Interconnection Facilities, in a form reasonably 
acceptable to Transmission Provider (such as a parental guarantee or a 
letter of credit), in an amount equal to the cost consequences of any 
current tax liability under this Article 5.17. Interconnection Customer 
shall reimburse Transmission Provider for such costs 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. The indemnification obligation shall terminate at the 
earlier of (1) the expiration of the ten year testing period and the 
applicable statute of limitation, as it may be extended by 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 the cost consequences of any current tax liability 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 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

[[Page 16035]]

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.
    5.17.6 Subsequent Taxable Events. If, within 10 years from the date 
on which the relevant Transmission Provider's Interconnection 
Facilities are placed in service, (i) Interconnection Customer Breaches 
the covenants contained in Article 5.17.2, (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, Interconnection 
Customer shall pay a tax gross-up for the cost consequences of any 
current tax liability 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 may appeal, protest, seek abatement of, 
or otherwise oppose such determination. Upon Interconnection Customer's 
written request and sole expense, Transmission Provider may 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. 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 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 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 Transmission Provider's Interconnection Facilities.
    The intent of this provision is to leave the 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 may 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 shall pay to Transmission Provider on a 
periodic basis, as invoiced by Transmission Provider, Transmission 
Provider's

[[Page 16036]]

documented reasonable costs of prosecuting such appeal, protest, 
abatement, or other contest. 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 
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 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 Transmission 
Provider's Interconnection Facilities or the Transmission System to 
facilitate the interconnection of a third party to Transmission 
Provider's Interconnection Facilities or the Transmission System, or to 
provide transmission service to a third party under Transmission 
Provider's Tariff. Interconnection Customer shall be responsible for 
the costs of any additions, modifications, or replacements to 
Interconnection Customer's Interconnection Facilities that may be 
necessary to maintain or upgrade such Interconnection Customer's 
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, Transmission Provider shall 
test Transmission Provider's Interconnection Facilities and Network 
Upgrades and Interconnection Customer shall test the Large Generating 
Facility and Interconnection Customer's 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 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 a Party obtains through the exercise of any 
of its rights under this Article 6.4 shall be deemed to be Confidential 
Information and treated pursuant to Article 22 of this LGIA.

[[Page 16037]]

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 the 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, 
Interconnection Customer shall notify Transmission Provider in writing 
of the Control Area

[[Page 16038]]

in which the Large Generating Facility will be located. If 
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 
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 Interconnection 
Customer's Interconnection Facilities in a safe and reliable manner and 
in accordance with this LGIA. Interconnection Customer shall operate 
the Large Generating Facility and Interconnection Customer's 
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, 
Interconnection Customer is responsible for the proper synchronization 
of the Large Generating Facility to 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. The requirements of this paragraph shall not apply to 
wind generators.
    9.6.2 Voltage Schedules. Once 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, 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 when 
Transmission Provider requests Interconnection Customer to operate its 
Large Generating Facility outside the range specified in Article 9.6.1, 
provided that if Transmission Provider pays its own or affiliated 
generators for reactive power service within the specified range, it 
must also pay Interconnection Customer. 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 the 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. Transmission Provider shall post 
scheduled outages of its transmission facilities on the OASIS. 
Interconnection Customer shall submit its planned maintenance schedules 
for the Large

[[Page 16039]]

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 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 
Interconnection Customer would have incurred absent 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, 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 Interconnection Customer using Good 
Utility Practice to schedule the interruption or reduction during 
periods of least impact to Interconnection Customer and 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 
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 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 
Interconnection Customer's Interconnection Facilities. Transmission 
Provider shall install at Interconnection Customer's expense any System 
Protection Facilities that may be required on Transmission Provider's 
Interconnection Facilities or the Transmission System as a result of 
the interconnection of the Large Generating Facility and 
Interconnection Customer's 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 
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

[[Page 16040]]

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 
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 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 
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 Interconnection Customer's 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.

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's 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 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.

[[Page 16041]]

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 
Transmission Provider or Transmission Owner elects to fund the capital 
for the Network Upgrades, they shall be solely funded by 
Interconnection Customer.

11.4 Transmission Credits

    11.4.1 Repayment of Amounts Advanced for Network Upgrades. 
Interconnection Customer shall be entitled to a cash repayment, 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 associated with Network Upgrades, 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 Transmission Provider's Tariff and 
Affected System's Tariff for transmission services with respect to the 
Large Generating Facility. Any repayment shall include interest 
calculated in accordance with the methodology set forth in FERC's 
regulations at 18 CFR 35.19a(a)(2)(ii) from the date of any payment for 
Network Upgrades through the date on which the Interconnection Customer 
receives a repayment of such payment pursuant to this subparagraph. 
Interconnection Customer may assign such repayment rights to any 
person.
    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 take one of the 
following actions no later than five years from the Commercial 
Operation Date: (1) Return to Interconnection Customer any amounts 
advanced for Network Upgrades not previously repaid, or (2) declare in 
writing that Transmission Provider or Affected System Operator will 
continue to provide payments to Interconnection Customer pursuant to 
this subparagraph until all amounts advanced for Network Upgrades have 
been repaid.
    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 reimburse Interconnection 
Customer for the amounts advanced for the Network Upgrades.
    11.4.2 Special Provisions for Affected Systems. Unless Transmission 
Provider provides, under the LGIA, for the repayment of amounts 
advanced to Affected System Operator for Network Upgrades, 
Interconnection Customer and Affected System Operator shall enter into 
an agreement that provides for such repayment. The agreement shall 
specify the terms governing payments to be made by Interconnection 
Customer to the Affected System Operator as well as the repayment by 
the Affected System Operator.
    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 
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 cash reimbursements 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 for these purposes.
    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, Transmission Provider agrees 
to compensate Interconnection Customer in such amount as would have 
been due 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.

[[Page 16042]]

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. 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 
Transmission Provider's Interconnection Facilities and the Network 
Upgrades, Transmission Provider shall provide an invoice of the final 
cost of the construction of 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 either Party will not 
constitute a waiver of any rights or claims either Party 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 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, 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 Interconnection Customer's 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 
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 
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 Interconnection Customer's Interconnection Facilities that 
may reasonably be expected to affect the Transmission System or 
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 Interconnection Customer's Interconnection 
Facilities in response to an Emergency Condition either declared by 
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 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 
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 
Interconnection Customer's 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 
Interconnection Customer to assist with blackstart (if available) or 
restoration efforts; or

[[Page 16043]]

altering the outage schedules of the Large Generating Facility and 
Interconnection Customer's 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 Interconnection Customer's 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 Transmission Provider 
pursuant to Transmission Provider's Tariff. When 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 Interconnection Customer using Good 
Utility Practice to schedule the reduction or disconnection during 
periods of least impact to Interconnection Customer and 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, 
Interconnection Customer may take actions or inactions with regard to 
the Large Generating Facility or Interconnection Customer's 
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 Interconnection Customer's 
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 Transmission Provider's Interconnection 
Facilities. Transmission Provider shall use Reasonable Efforts to 
assist Interconnection Customer in such actions.

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, the Public Utility 
Holding Company Act of 1935, as amended, or the Public Utility 
Regulatory Policies Act of 1978.

14.2 Governing Law

    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 a Party 
to the other and not required by this Agreement to be given in writing 
may be so given by telephone, facsimile or email to the telephone 
numbers and email 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.

[[Page 16044]]

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 of 
omission of the other Party. Upon a Breach, the non-breaching Party 
shall give written notice of such Breach to the breaching Party. Except 
as provided in Article 17.1.2, the breaching Party shall have thirty 
(30) Calendar Days from receipt of the Default notice within which to 
cure such Breach; provided however, if such Breach is not capable of 
cure within thirty (30) Calendar Days, the breaching 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 Breach specified in such notice shall cease to exist.
    17.1.2 Right to Terminate. If a Breach is not cured as provided in 
this article, or if a Breach is not capable of being cured within the 
period provided for herein, the non-breaching Party shall have the 
right to declare a Default and 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 breaching 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 hold 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 
judgment 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 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 judgment 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.
    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

[[Page 16045]]

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 meet the minimum insurance requirements of Articles 18.3.2 through 
18.3.8 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 and that its self-insurance program meets 
the minimum insurance requirements of Articles 18.3.2 through 18.3.8. 
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 18.3.2 through 18.3.9. In the event 
that a Party is permitted to self-insure pursuant to this article, it 
shall notify the other Party that it meets the requirements to self-
insure and that its self-insurance program meets the minimum insurance 
requirements in a manner consistent with that specified in Article 
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 
Interconnection Customer shall have the right to assign this LGIA, 
without the consent of Transmission Provider, for collateral security 
purposes to aid in providing financing for the Large Generating 
Facility, provided that Interconnection Customer will promptly notify 
Transmission Provider of any such assignment. Any financing arrangement 
entered into by 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 
Transmission Provider of the date and particulars of any such exercise 
of assignment right(s), including providing the Transmission Provider 
with proof that it meets the requirements of Articles 11.5 and 18.3. 
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, agreement or covenant of this 
LGIA; provided that if Interconnection Customer (or any third party, 
but only if such third party is not acting at the direction of 
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

[[Page 16046]]

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 22 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 Affiliates (limited by the Standards of Conduct 
requirements), subcontractors, 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, its Staff, or a State. Notwithstanding 
anything in this Article 22 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 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 FERC or its staff. The Party shall notify 
the other Party to the

[[Page 16047]]

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. Requests from a state regulatory 
body conducting a confidential investigation shall be treated in a 
similar manner, consistent with the applicable state rules and 
regulations.
    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 (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.

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 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 Interconnection Customer to select equipment and 
meet any system protection and stability requirements, unless otherwise 
agreed to by the 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 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, 
Interconnection Customer will work with a consultant mutually agreed to 
by the Parties to develop and supply a standard model and associated 
information. If 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 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 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 
Transmission Provider for each individual generating unit in a station. 
Subsequent to the Operation Date, Interconnection Customer shall 
provide Transmission Provider any information changes due to equipment 
replacement, repair, or adjustment. Transmission Provider shall

[[Page 16048]]

provide 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 Interconnection Customer's 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, Transmission 
Provider's efforts to allocate responsibility for the provision of 
reactive support to the Transmission System, 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. 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 
Transmission Provider be liable for the actions or inactions of 
Interconnection Customer or its subcontractors with respect to 
obligations of 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

[[Page 16049]]

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 Customer shall notify 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

[[Page 16050]]

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 Interconnection Customer shall not constitute a waiver of 
Interconnection Customer's legal rights to obtain an interconnection 
from 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 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 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:------------------------------------------------------------------

[Insert name of Interconnection Customer]

By:--------------------------------------------------------------------

Title:-----------------------------------------------------------------

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

Appendix A to LGIA

    Interconnection Facilities, Network Upgrades and Distribution 
Upgrades
    1. 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

Appendix C to LGIA--Interconnection Details

Appendix D to LGIA--Security Arrangements Details

    Infrastructure security of Transmission System equipment and 
operations and control hardware and

[[Page 16051]]

software is essential to ensure day-to-day Transmission System 
reliability and operational security. FERC 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.]

Appendix G to LGIA--Requirements of Generators Relying on Newer 
Technologies

[FR Doc. 04-5989 Filed 3-25-04; 8:45 am]
BILLING CODE 6717-01-P