[Federal Register Volume 70, Number 2 (Tuesday, January 4, 2005)]
[Rules and Regulations]
[Pages 265-284]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-15]
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DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
18 CFR Part 35
[Docket No. RM02-1-005; Order No. 2003-B]
Standardization of Generator Interconnection Agreements and
Procedures
December 20, 2004.
AGENCY: Federal Energy Regulatory Commission.
ACTION: Order on rehearing and directing compliance.
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SUMMARY: The Federal Energy Regulatory Commission (Commission) affirms,
with certain clarifications, the fundamental determinations in Order
No. 2003-A.
Effective Date: January 19, 2005.
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;
P. Kumar Agarwal (Technical Information), Office of Markets,
Tariffs and Rates, Federal Energy Regulatory Commission, 888 First
Street, NE., Washington, DC 20426, (202) 502-8923;
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
II. Background
III. Discussion
A. Jurisdiction
B. Pricing and Cost Recovery Provisions
1. Transmission Credits
2. Credits Under Change in Ownership
3. Protecting Native Load and Other Existing Transmission
Customers
4. Interconnection Products and Services
5. Generator Balancing Service Arrangements
C. Independent Transmission Provider Obligations
D. Issues Related to the Large Generator Interconnection
Agreement
1. Stand Alone Network Upgrades
2. Permits and Licensing Requirements
3. Tax Issues
a. Security Requirements
b. Elimination of the Interconnection Customer's Right to
Contest or Appeal Taxes
[[Page 266]]
c. Transmission Credits for Tax Payments
4. Applicable Reliability Council Operating Requirements
5. Power Factor Design Criteria
6. Payment for Reactive Power
7. Security
8. Assignment
9. Disclosure of Confidential Information
E. Issues Related to the Large Generator Interconnection
Procedures
1. Scoping Meeting and OASIS Posting
F. Ministerial Changes to the Pro Forma LGIP and LGIA
G. Compliance
IV. Information Collection Statement
V. Regulatory Flexibility Act Certification
VI. Document Availability
VII. Effective Date
Appendix A--Petitioner Acronyms
Appendix B--Changes to the Pro Forma LGIP and LGIA
Before Commissioners: Pat Wood, III, Chairman, Nora Mead Brownell,
Joseph T. Kelliher, and Suedeen G. Kelly.
Order on Rehearing and Directing Compliance
I. Introduction and Summary
1. In this order, we affirm, with certain clarifications, the
fundamental determinations made in Order Nos. 2003\1\ and 2003-A.\2\
Adopting the pro forma Large Generator Interconnection Procedures
(LGIP) and Large Generator Interconnection Agreement (LGIA) will help
prevent undue discrimination, preserve the reliability of the nation's
transmission system, and lower prices for customers by increasing the
number and variety of generation resources competing in wholesale
electricity markets. At its core, the Commission's interconnection
policy enunciated in this series of orders ensures that all Generating
Facilities are offered Interconnection Service on comparable terms.
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\1\ Standardization of Generator Interconnection Agreements and
Procedures, Order No. 2003, Final Rule, 68 FR 49845 (Aug. 19, 2003),
FERC Stats. & Regs. ] 31,146 (2003.)
\2\ Standardization of Generator Interconnection Agreements and
Procedures, Order No. 2003-A, Order on Rehearing, 69 FR 15932 (Mar.
26, 2004), FERC Stats. & Regs. ] 31,160 (2004).
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2. This order reaffirms that an important objective of the
Commission's pricing policy is the protection of the Transmission
Provider's existing Transmission Customers, including native load, from
subsidizing Network Upgrades required to interconnect merchant
generators. This order also reaffirms the Order No. 2003-A crediting
policy for Network Upgrades. Order No. 2003-A gave the Transmission
Provider the option, after five years from the Commercial Operation
Date of the Interconnection Customer's Generating Facility, of either
fully reimbursing the Interconnection Customer for its upfront payment
for Network Upgrades or continuing to make dollar-for-dollar credits
against charges for Transmission Service. Order No. 2003-A provided no
date certain for full reimbursement of the upfront payment.
3. On rehearing, petitioners \3\ argue that a date certain is
needed for a variety of reasons. In particular, they state that a date
certain is needed to make the crediting policy consistent with the
notion that the upfront payment is primarily a mechanism for financing
Network Upgrades. This order addresses their concerns by clarifying
that if the Transmission Provider chooses not to fully reimburse the
Interconnection Customer after five years, it must continue to provide
dollar-for-dollar credits to the Interconnection Customer, or develop
an alternative schedule that is mutually agreeable and provides for the
return of all amounts advanced for Network Upgrades not previously
repaid. However, full reimbursement shall not extend beyond twenty (20)
years from the Commercial Operation Date.
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\3\ Thirteen petitioners filed requests for rehearing of Order
No. 2003-A. See Appendix A.
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4. This order takes effect 30 days after issuance by the
Commission. As with the Order No. 2003 compliance process, the
Commission will deem the open access transmission tariff (OATT) of each
non-independent Transmission Provider to be amended to adopt the
revisions to the pro forma LGIP and LGIA contained herein on the
effective date of this order. Unlike the Order No. 2003 compliance
process, however, each non-independent Transmission Provider will be
required to amend its OATT to include the LGIP and LGIA revisions
contained herein within 60 days after issuance of this order by the
Commission. Also, within 60 days after issuance of this order, each
independent Transmission Provider must submit revised tariff sheets
incorporating its revisions to its OATT or an explanation under the
independent entity variation standard as to why it is not proposing to
adopt each change described in this order.
II. Background
5. Order No. 2003 required 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 Systems.\4\ Order No. 2003 also required that all such
public utilities modify their OATTs to include the pro forma LGIP and
LGIA.
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\4\ Provisions of the LGIP are referred to as ``sections,''
whereas provisions of the LGIA are referred to as ``articles.''
Capitalized terms used in this order have the meanings specified in
section 1 of the pro forma LGIP and article 1 of the LGIA, as
amended herein, or the 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 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.
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6. Order No. 2003 stated that interconnection plays a crucial role
in bringing generation into national energy markets to meet the growing
needs of customers and to obtain for customers the benefits of
increased competition. It noted that the then-existing interconnection
process was fraught with delays and lack of standardization that
discouraged merchant generators from entering the energy marketplace,
in turn stifling the growth of competitive energy markets. It concluded
that the delays and lack of standardization inherent in the then-
current system undermined the ability of generators to compete in the
market and provided an unfair advantage to utilities that own both
transmission and generation facilities. As a result, the Commission
concluded that there was a pressing need for a single, uniformly
applicable set of procedures and agreements to govern the process of
interconnecting a Large Generator to a Transmission Provider's
Transmission System.\5\
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\5\ 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
with 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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7. Order No. 2003-A affirmed the legal and policy conclusions on
which Order No. 2003 was based. It held that Order No. 2003 did not
expand the Commission's jurisdiction beyond that asserted in Order No.
888 and upheld in court.\6\ For example, it reaffirmed that
[[Page 267]]
Order No. 2003 applies only to an interconnection with 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 deliver electric energy sold at wholesale in interstate
commerce under a Commission-filed OATT. It also reaffirmed that dual
use facilities (those used both for wholesale and retail transactions)
are subject to Order No. 2003 (1) if the facilities are subject to an
OATT on file with the Commission when the Interconnection Request is
submitted and (2) the interconnection will facilitate a wholesale sale.
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\6\ 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 (D.C.
Cir. 2000), aff'd sub nom. New York v. FERC, 535 U.S. 1 (2002) (TAPS
v. FERC).
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8. Order No. 2003-A also generally affirmed the pricing policy
adopted in Order No. 2003 for the recovery of the costs of Network
Upgrades associated with an interconnection.\7\ That is, the
Commission's existing pricing policy continues to apply to a non-
independent Transmission Provider, but an independent Transmission
Provider such as a Regional Transmission Organization (RTO) or an
Independent System Operator (ISO) has greater flexibility to propose a
customized pricing policy to fit its circumstances. It also reaffirmed
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 without
reimbursement (direct assignment).
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\7\ Network Upgrades reside on the Transmission Provider's side
of the Point of Interconnection with the Transmission Provider's
Transmission System.
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9. In addition, Order No. 2003-A clarified that, consistent with
the Commission's transmission ratemaking policy, a non-independent
Transmission Provider continues to have the option to charge the
Interconnection Customer a transmission rate that is the ``higher of''
an average embedded cost (rolled-in) rate or an incremental cost rate
for the Network Upgrades needed for the interconnection. It also
explained that incremental pricing is not the same as direct
assignment.
10. Order No. 2003-A reiterated that, unless the Transmission
Provider and the Interconnection Customer agree otherwise, the
Interconnection Customer must initially fund the cost of any Network
Upgrades used to interconnect its Generating Facility with a non-
independent Transmission Provider's Transmission System. The
Transmission Provider must then reimburse the Interconnection Customer
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. In Order No. 2003-
A, however, the Commission granted rehearing on two aspects of the
mechanics of crediting. First, Order No. 2003-A required the
Transmission Provider to provide credits to the Interconnection
Customer only against transmission delivery service taken from the
interconnecting Generating Facility, as opposed to Transmission Service
taken elsewhere on the Transmission System. Second, it eliminated the
requirement that transmission credits be refunded at the end of five
years from the Commercial Operation Date of the Generating Facility and
instead gave the Transmission Provider the option of either (1)
reimbursing the Interconnection Customer for the remaining balance of
the upfront payment, plus accrued interest, five years from the
Commercial Operation Date of the Generating Facility or (2) continuing
to provide credits until the upfront payment has been repaid, with
accrued interest. Order No. 2003-A also eliminated the requirement that
any Affected System Operator refund the Interconnection Customer's
upfront payments for Network Upgrades built on the Affected System as a
consequence of the interconnection of the Generating Facility, and
instead required 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. Order No. 2003-A also clarified that neither Energy Resource
Interconnection Service (ERIS) nor Network Resource Interconnection
Service (NRIS) guarantees delivery service. It explained that while
both services give the Interconnection Customer the capability to
deliver the output of its Generating Facility into the Transmission
System at the Point of Interconnection, neither allows the
Interconnection Customer the right to withdraw power at any particular
Point of Delivery. It also clarified that when an Interconnection
Customer wants to deliver the output of its Generating Facility to a
particular load (or set of loads), regardless of whether it has chosen
ERIS or NRIS, it may simultaneously request Network Interconnection
Transmission Service or Point-to-Point Transmission Service under the
OATT. Order No. 2003-A also clarified that NRIS is not the same as or a
substitute for Network Integration Transmission Service under the OATT.
III. Discussion
A. Jurisdiction
Rehearing Requests
12. SoCal Edison claims that in Order No. 2003-A the Commission
rejected its argument that all interconnections of generators intending
to sell power to ``wholesale entities,'' except interconnections of
Qualifying Facilities that will sell all of their output to host
utilities under the Public Utilities Regulatory Policy Act of 1978,\8\
should be subject to Commission jurisdiction. In particular, SoCal
Edison objects to the Commission's explanation that states have
jurisdiction over an interconnection when the facility with which the
Generating Facility is being interconnected is not subject to a
Commission-approved OATT at the time the Interconnection Request is
submitted, even if the Interconnection Customer intends to make a
jurisdictional wholesale sale.\9\ This conclusion is legally erroneous
and a significant departure from established policy and precedent.
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\8\ 16 U.S.C. 2601 et seq. (2000).
\9\ Order No. 2003-A at P 735.
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13. SoCal Edison further argues that Order No. 888 states that
wholesale transmission is within the Commission's exclusive
jurisdiction. It cites to TAPS v. FERC, where the Supreme Court
affirmed Order No. 888.\10\ Because interconnection is a form of
Transmission Service, it should not matter whether an interconnection
is with a facility that is subject to an OATT or already in use by a
wholesale customer. Furthermore, SoCal Edison claims that it ``can cite
to myriad orders involving its distribution system alone where [the
Commission] accepted jurisdiction under Section 205 over the
interconnection of generation to distribution facilities used at the
time by no other wholesale customers but the interconnecting
generator.''
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\10\ See also Detroit Edison Co. v. FERC, 334 F. 3d 48, 51 (D.C.
Cir. 2003).
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Commission Conclusion
14. The passage in Order No. 2003-A that SoCal Edison objects to
states as follows: ``States will retain jurisdiction over
interconnection to dual use facilities when * * * 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.''\11\
[[Page 268]]
This statement was in error. We grant rehearing to clarify that this
statement was based on the false premise that a dual use facility may
not be subject to an OATT at the time the Interconnection Request is
made. In fact, a facility may be considered dual use only if it serves
both state- and Commission-jurisdictional functions at the time the
Interconnection Request is submitted. As a result, a dual use facility
must be subject to an OATT. And if an Interconnection Customer seeks to
interconnect with a dual use facility to make a wholesale sale, that
interconnection will be subject to Order No. 2003. This is consistent
with Order No. 2003 and other statements in Order No. 2003-A, where the
Commission stated that an interconnection with dual use
``distribution'' facilities \12\ that already serve a Commission-
jurisdictional transmission function (and are subject to an OATT) for
the purpose of facilitating a jurisdictional wholesale sale of
electricity is subject to Order No. 2003.\13\ In conclusion, Order No.
2003-A incorrectly suggested that a state regulatory agency would have
jurisdiction over an interconnection with a dual use facility when the
Interconnection Customer intends to make a jurisdictional wholesale
sale. Because this is the only statement on which SoCal Edison's
request for rehearing is based, there is no need to address its other
arguments.
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\11\ Order No. 2003-A at P 735.
\12\ 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 Co. v. FERC,
334 F.3d 48 (D.C. Cir. 2003) (Detroit Edison), used the terms
``distribution'' and ``local distribution'' interchangeably. The
court recognized that certain ``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 cse, the court viewed the Commission's
jurisdiction as extending only tot he 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.
\13\ Order No. 2003 at P 804; Order No. 2003-A at P 730, 736.
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B. Pricing and Cost Recovery Provisions
1. Transmission Credits
15. In Order No. 2003-A, the Commission noted that requiring the
Transmission Provider to provide the Interconnection Customer with
credits against transmission service unrelated to the Generating
Facility, and to fully reimburse the Interconnection Customer after
only five years, tends to shift risk from the entity in control of the
investment (i.e., the Interconnection Customer) to native load and
other Transmission Customers. The Commission stated that this shifting
of risk may result in inefficient siting decisions, and may require
native load or other Transmission Customers to bear the cost of the
Network Upgrades when the Interconnection Customer takes little
additional transmission service with the new Generating Facility as the
source, or where the Interconnection Customer elects to retire the
Generating Facility early. Therefore, to place an appropriate level of
risk on the Interconnection Customer, the Commission in Order No. 2003-
A revised the Final Rule policy (1) to make credits available only for
transmission service that has the Generating Facility as the source of
the power transmitted, and (2) to eliminate the guarantee of full
reimbursement of the upfront payment in five years.
Rehearing Requests
16. Several petitioners object to the revisions made in Order No.
2003-A.\14\ Specifically, they argue that the Commission (1) should not
have limited the applicability of credits to transmission service that
has the Generating Facility as the source, (2) should not have given
the Transmission Provider the option to fully reimburse the
Interconnection Customer's upfront payment, plus interest, after five
years, or to 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, and
(3) should not have excused an Affected System from having to provide
credits except when transmission service is taken on the Affected
System and has the Generating Facility as the source.
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\14\ See, e.g., Calpine, EPSA, Integen, PSEG, and Reliant.
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17. Calpine states that in Order No. 2003-A, the Commission has
destroyed the balance and fairness of the Order No. 2003 policies.\15\
It argues that the Commission is now obligating the Interconnection
Customer to finance Network Upgrades under terms that virtually
guarantee that the Interconnection Customer will not be made whole for
its upfront funding.
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\15\ Calpine also states that, as a member of EPSA, it endorses
and supports EPSA's request for rehearing of Order No. 2003-A.
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18. Reliant, PSEG, and Intergen state that, contrary to the
Commission's stated rationale, the revised crediting rules will not
cause the Interconnection Customer to make more efficient siting
decisions, and they are not needed to protect native load or other
Transmission Customers from bearing the costs of Network Upgrades if
the Generating Facility is retired early. Intergen objects to the new
policies for a number of reasons. First, Network Upgrade costs cannot
influence siting decisions because the costs are typically unknown when
siting decisions are made. Second, the Interconnection Customer must
take multiple factors into consideration when making siting decisions.
For example, the Interconnection Customer must consider the ability to
access particular markets, fuel and water supply access, air quality
issues, tax issues, and zoning issues, among other things. Third,
because a Generating Facility is a multi-hundred million dollar
investment, the Interconnection Customer has tremendous risk exposure,
and adding a few million dollars in Network Upgrade costs will not
shift the risk of commercial infeasibility or poor siting decisions to
others. Fourth, oversight by state regulatory authorities is an
important constraint on where the Interconnection Customer chooses to
site its facility. Fifth, the amount of Network Upgrades needed is
directly tied to the condition in which the Transmission Provider keeps
its Transmission System. If the Transmission Provider has been properly
upgrading and expanding its facilities, then fewer Network Upgrades are
likely to be needed. Also, Reliant claims that continuing to require
that the Interconnection Customer fund the Network Upgrade costs
upfront mitigates any lack of incentive that the Interconnection
Customer may otherwise have to make efficient siting decisions.
19. With regard to the need to protect native load and other
transmission customers, Intergen states that an Interconnection
Customer has strong incentives to maximize its use of the Transmission
System, since it makes money only when it sells the output of its
Generating Facility. Even under a worst case scenario, in which all
Network Upgrade costs are assigned to existing customers, they would
not suffer a significant rate increase. Intergen argues that concerns
about
[[Page 269]]
native load customers being harmed by early retirements are overblown
and do not recognize the significant benefits of increased competition
in the generation market.
20. PSEG states that, by allowing the full reimbursement of upfront
payments to be delayed beyond the five-year period, the Commission is
discouraging development of RTOs. What will happen, for example, to an
Interconnection Customer's transmission credits when the non-
independent Transmission Provider to which it is interconnected joins
an RTO? PSEG argues that permitting generators to ``cash out'' their
credits on a date certain would alleviate these complexities and
engender a smoother transition to an RTO system in which the
interconnecting generator receives well-defined property rights rather
than credits. Also, Intergen states that allowing the time for
repayment to be extended indefinitely is inconsistent with the
Commission's underlying ``financing'' policy for Network Upgrades and
forces the Interconnection Customer to bear the full costs of a below-
market interest rate.
21. Calpine points out that there are also Transmission Systems
where the Interconnection Customer does not directly pay for
transmission service. As a result, the Interconnection Customer does
not receive a bill for transmission services to which credits can be
applied. This is the situation, for example, in the California ISO,
where load pays for transmission service. However, under Order No.
2003-A, the dollar-for-dollar offset against transmission service
payments is the only way explicitly provided to receive transmission
credits, and this might allow someone to argue that credits need not be
paid in areas such as California. Under the Order No. 2003 language in
article 11.4.1 of the pro forma LGIA, this argument could not have been
made because that provision required that all upfront payments for
Network Upgrades had to be refunded within five years, and the Parties
had to agree on a mechanism to do so. Because Order No. 2003-A dropped
the mandatory five-year repayment provision, there is no explicit
provision as to how an Interconnection Customer that does not pay
directly for transmission service is to receive its credits. Therefore,
Calpine proposes adding the following sentence to article 11.4.1 of the
LGIA:
In the event there is not a direct payment to Transmission
Provider or Affected System Operator for transmission service to
deliver power from the Large Generating Facility against which a
repayment credit may be used, Transmission Provider, Affected System
Operator and Interconnection Customer shall agree on a repayment
schedule that would be comparable to one where transmission service
was directly paid for, or such other mutually agreeable schedule.
22. Reliant and others state that the Commission departed from the
balanced approach of Order No. 2003 by deciding that transmission
credits must be given by the Transmission Provider only for
transmission service that has the Generating Facility as the source of
the power transmitted. Reliant argues that certain Generating
Facilities, such as peakers, require transmission service on a very
limited schedule and, as a result, owners of such facilities may find
it difficult to recover the sums advanced to the Transmission Provider
under Order No. 2003-A. Reliant claims that the new policy creates a
barrier to entry for exactly the type of facility needed during tight
supply conditions.
23. Reliant and Intergen argue that the Commission's new policy on
credits effectively takes away a fundamental right that Order No. 888
provided to the Transmission Customer. That is, the use of credits for
any service taken on a Transmission Provider's system must be equated
to the right of a Transmission Customer to change its Point of Receipt
or Point of Delivery under Point-to-Point Transmission Service. If the
Transmission Provider can provide service from the new points, it
grants the service with no additional charge to the Transmission
Customer. Petitioners argue that, similarly, the Transmission Customer
should be allowed to use its credits at alternate points of receipt or
delivery without paying an additional charge to the Transmission
Provider.
24. Intergen states that Order No. 2003 mitigated adverse cost
impacts by giving the Interconnection Customer flexibility in
determining how best to use the credits it received for the costs of
Network Upgrades. The ability to transfer credits to other entities for
which the Generating Facility is not the source of the power
transmitted may be crucial for an Interconnection Customer that must
meet its debt obligations, but has limited ability to acquire
transmission service or sell its output. Also, because the interest
accruing on the credits does not fully compensate the Interconnection
Customer for its upfront payment, an Interconnection Customer has a
strong incentive to transfer the credits to another entity that can use
the credits immediately.
25. TAPS states that a problem would arise if a Transmission
Provider were to seek to restrict credits to a Network Customer by
basing the credits on the energy output, rather than the capacity, of a
Generating Facility used as a Network Resource. TAPS asks the
Commission to revise or clarify Order No. 2003-A to provide that a
Network Customer that designates an interconnecting Generating Facility
as a Network Resource will receive credits based on the full capacity
of the Network Resource (or the amount reserved by the Network Customer
if it is less), not just the energy delivered from the resource.
26. EPSA states that if the Commission retains the policy of
limiting credits to transmission service that has the Generating
Facility as the source, there are several issues that must be
clarified. First, the Commission should clarify that credits will be
applied to the total reservation payment for any service obtained to
support the delivery of the generator, whether or not energy is
scheduled in any particular hour of the reservation period and whether
or not the power customers take advantage of the options to use
alternative receipt or delivery points provided under the pro forma
OATT to all point-to-point customers. Second, the Commission should
clarify that credits will be applied to network services whenever a
Network Customer designates the Generating Facility as a Network
Resource or substitute resource, regardless of whether the Generating
Facility produces energy during each hour of the designation. Finally,
EPSA asks the Commission to clarify that credits must be provided by
the Transmission Provider when it designates the Generating Facility as
a Network Resource or substitute resource for meeting its native load
requirements, whether or not the Transmission Provider actually enters
into a service agreement under the OATT.
27. TAPS states that changes described in P 675 of Order No. 2003-A
suggest that only credits equal to the OATT's embedded cost rates must
be provided, even if the Transmission Provider charges an incremental
transmission rate.\16\ The Rule should be revised or clarified to
address this discrepancy. A Transmission Provider that seeks
transmission charges based on the incremental cost of Network Upgrades
should be required to provide the Interconnection Customer that paid
for those upgrades upfront with credits
[[Page 270]]
applied against the full amount of the incremental transmission
charges, until the Interconnection Customer's upfront payment, plus
interest, has been completely reimbursed.
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\16\ Paragraph 675 stated 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.
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28. PSEG states that under Order No. 2003-A, a non-independent
Transmission Provider may have an incentive to ``tack on'' unnecessary
Network Upgrade requirements (for which ultimate compensation to the
generator has now been made considerably less certain) or not to build
Network Upgrades that would allow transmission service to be taken from
the Generating Facility (for which credits would have to be given).
PSEG claims that this will discourage the construction of new
generation and create incentives for preferential treatment of
affiliated generation.
29. Intergen states that unlike merchant units, the Transmission
Provider's generating facilities never had to pay the upfront costs of
their Network Upgrades. Thus, Transmission Provider facilities never
had to assume any of the risks associated with Network Upgrades that
the merchant generators do. To mitigate these competitive
disadvantages, Intergen asserts that the Commission should allow the
Interconnection Customer to receive credits for service sourcing at
points other than the Generating Facility.
30. PSEG argues that Network Upgrades benefit the entire
Transmission System, and this common benefit is what distinguishes
Network Upgrades from sole use facilities. The Interconnection
Customer's financing of investment in the network of a non-independent
Affected System benefits all Network Customers and all network
transactions. It is unduly discriminatory to limit the Interconnection
Customer's recovery of the funds it advances for Network Upgrades on an
Affected System simply because the Interconnection Customer is unable
to make direct use of them.
31. EPSA urges the Commission to reverse its decision to modify the
crediting policy with respect to Network Upgrades funded by an
Interconnection Customer on an Affected System. A Generating Facility
will be less likely to use transmission service on an Affected System
than on the Transmission System to which it is interconnected, and this
will unreasonably delay repayment. This is especially true in the West,
where network facilities affected by an interconnection are often
jointly owned by a number of Transmission Providers. These Transmission
Providers are often far removed from the Transmission Provider to which
the Generation Facility is interconnected. According to EPSA, an
Interconnection Customer is unlikely to take transmission service on
the Transmission System of a Transmission Provider that jointly owns
these affected facilities. Therefore, the Interconnection Customer will
have little ability to use the credits to which it is entitled.
Commission Conclusion
32. In Order No. 2003-A, the Commission revised the rules governing
transmission credits to place the Interconnection Customer at greater
risk for the cost of Network Upgrades occasioned by the Interconnection
Request. The Commission was concerned that to do otherwise would not
lead to efficient siting decisions and would not adequately protect
native load and other Transmission Customers from having to bear
Network Upgrade costs if the Generating Facility were to retire early.
In their arguments opposing the modifications, Intergen and others
state that the cost of Network Upgrades is typically small compared to
the cost of the Generating Facility and that the Interconnection
Customer will often embark on a project even though Network Upgrade
costs are unknown. This suggests that placing the risk for the cost of
Network Upgrades on the Interconnection Customer does not place a
significant burden on the Interconnection Customer and thus is
completely appropriate. Also, Intergen states that the Interconnection
Customer has a strong incentive to maximize its use of the Transmission
System because it only makes money if it is selling output from its
Generating Facility. The crediting policy, however, reinforces that
incentive by linking transmission credits directly to the output of the
Generating Facility.
33. We strongly encourage policies that promote efficient
investment decisions and protect native load and other Transmission
Customers from having to bear the burden of the Interconnection
Customer's Network Upgrade costs. Given these concerns, we continue to
find that the Order No. 2003-A crediting policy provides a reasonable
balance between the objectives of promoting competition and
infrastructure development, protecting the interests of Interconnection
Customers, and protecting native load and other Transmission Customers.
34. Intergen states that extending the reimbursement timeframe
indefinitely is inconsistent with the Commission's determination that
the upfront payment is merely a mechanism for financing the cost of the
Network Upgrades. In addition, PSEG states that the indefinite
timeframe will make the transition to RTO development more complex, and
Calpine claims that an uncertain timeframe for reimbursement will
create problems in areas such as California where the Interconnection
Customer does not receive directly a bill for transmission service to
which credits can be applied.
35. These petitioners make valid points. To address the
Interconnection Customer's need for a date certain for reimbursement of
its upfront payment, we are specifying what the Transmission Provider
must do if it elects not to return to the Interconnection Customer any
portion of its upfront payment that remains due at the end of five
years. Specifically, in order to provide a definite end date for
reimbursement that is not to be exceeded, we are revising pro forma
LGIA article 11.4.1 to state that full reimbursement shall not extend
beyond twenty (20) years from the Commercial Operation Date. The
portion of this article that describes the Transmission Provider's
second repayment option now reads as follows:
(2) declare in writing that Transmission Provider or Affected
System Operator will continue to provide payments to Interconnection
Customer on a dollar-for-dollar basis for the non-usage sensitive
portion of transmission charges, or develop an alternative schedule
that is mutually agreeable and provides for the return of all
amounts advanced for Network Upgrades not previously repaid;
however, full reimbursement shall not extend beyond twenty (20)
years from the Commercial Operation Date.
36. All other crediting rules remain the same. This change
addresses Intergen's concern that Order No. 2003-A's removal of a date
certain for the repayment of Network Upgrade costs was inconsistent
with the notion that the upfront payment is, in essence, a loan to the
Transmission Provider designed to facilitate construction of the
Network Upgrades. The change also addresses PSEG's concern that the
lack of a date certain might create an obstacle to the development of
an RTO, which may require the Interconnection Customer's upfront
payment to be converted into financial transmission rights. Finally,
the change addresses Calpine's concern that, in the absence of a date
certain for repayment of Network Upgrade costs, a Transmission Provider
could conclude that credits need not be repaid in areas where the
Interconnection Customer does not pay directly for transmission
service. We further clarify that the Interconnection Customer is
entitled to full reimbursement for its upfront payment and the period
for reimbursement may
[[Page 271]]
not be longer than the period that would be required if the
Interconnection Customer paid for transmission service directly and
received credits on a dollar-for-dollar basis, or 20 years, whichever
is less. In short, the imposition of a 20-year date certain does not
mean that the Commission is switching from reimbursing through credits
to reimbursing over 20 years. Rather, if credits have not fully
reimbursed the upfront payment within 20 years, there will be a balloon
payment at the end of year 20.
37. Reliant argues that the owner of a Generating Facility, such as
a peaker, that requires transmission service on a limited schedule may
find it difficult or impossible to recover its upfront payment under
the Commission's rules as revised by Order No. 2003-A. We disagree. Any
Interconnection Customer whose Generating Facility is used as intended,
whether or not it is a peaker, normally will be required to take Firm
Point-to-Point Transmission Service or Network Integration Transmission
Service and therefore will have ample opportunity to use its
transmission credits to obtain reimbursement of its upfront payment.
Furthermore, reimbursement of any upfront payment must occur no later
than 20 years after the Commercial Operation Date.
38. Reliant and Intergen argue that limiting credits to
transmission service taken with the Generating Facility as the source
takes away the Transmission Customer's fundamental right under Order
No. 888 to change its Point of Receipt or Point of Delivery under
Point-to-Point Transmission Service without additional charge if the
Transmission Provider is able to grant the service at the alternate
points. Also, Intergen argues that the ability to transfer credits may
be crucial for an Interconnection Customer that must meet debt
obligations but is constrained in its ability to acquire transmission
service. The new policy does not revoke any rights provided by Order
No. 888. If the Interconnection Customer or other Transmission Customer
is taking firm Point-to-Point Transmission Service under the OATT with
the Generating Facility as the source of the power transmitted, the
customer continues to have all of the rights given under the OATT to
change temporarily Points of Receipt or Delivery, if capacity is
available, and is entitled to continue to receive credits toward the
cost of the transmission service while doing so.
39. TAPS and EPSA ask the Commission to revise or clarify Order No.
2003-A to provide that a Network Customer that designates a Generating
Facility as a Network Resource will receive credits based on the full
capacity of the Network Resource (or the amount reserved by the Network
Customer if it is less), not just the energy delivered from the
resource. We clarify that when a Generating Facility is designated as a
Network Resource or a substitute resource, the Interconnection Customer
is entitled to credits for the full amount of the reserved capacity of
the Generating Facility regardless of the amount of energy that is
scheduled for delivery in any particular hour. Also, TAPS states that
changes to the Final Rule described in P 675 of Order No. 2003-A
suggest that only credits equal to the Tariff's embedded cost rates
would be provided, even if the Transmission Provider chooses to charge
an incremental cost rate. We clarify that, if the Transmission Provider
chooses to charge an incremental cost rate, the Interconnection
Customer is entitled to receive credits, on a dollar-for-dollar basis,
at the incremental rate.
40. PSEG states that the new rules may provide a non-independent
Transmission Provider with an incentive to ``tack on'' unnecessary
Network Upgrades or omit necessary Network Upgrades. Also, Intergen
claims that, unlike a merchant developer, the Transmission Provider
never had to assume for its Generating Facilities any of the risks
associated with Network Upgrades, and this places the merchant
developer at a competitive disadvantage. We disagree. The Commission's
crediting policy assigns risk and cost responsibility in a reasonable
manner and applies to Interconnection Requests by entities affiliated
with the Transmission Provider and to Interconnection Requests by
unaffiliated merchant generators. We reiterate that the Transmission
Provider has an obligation to apply our interconnection policy in a
non-discriminatory manner to all new Interconnection Requests, whether
the Generating Facility is owned by the Transmission Provider, its
Affiliate, or a merchant developer.
41. EPSA and PSEG are concerned that the Interconnection Customer
may be unable to recoup upfront payments for Network Upgrades that are
constructed on an Affected System. We note that taking transmission
service on an Affected System is entirely at the option of the
Interconnection Customer. Whether or not the Interconnection Customer
exercises its option, the Network Upgrades on the Affected System
benefit the Interconnection Customer by making the minimum transmission
additions necessary for it to interconnect safely and reliably, as well
as by facilitating access to customers and markets that are outside the
Transmission Provider's electric system. Furthermore, if the
Interconnection Customer were to be reimbursed by the Affected System
Operator for the cost of the Network Upgrades without ever taking
service on the Affected System, other Transmission Customers on the
Affected System would have to bear the cost instead. This would create
a disincentive for the Affected System to construct the Network
Upgrades necessary for the Interconnection Customer to interconnect, a
problem that would be particularly difficult to address if the Affected
System were not a public utility.
42. In addition, EPSA states that when an Affected System is
jointly owned, an Interconnection Customer is unlikely to take
transmission service on the Transmission System of a Transmission
Provider that is far removed from the Affected System on which Network
Upgrades had to be constructed. We clarify that the Affected System
Operator must provide the Interconnection Customer with credits for
transmission service taken on the Affected System until the
Interconnection Customer's entire upfront payment has been reimbursed.
In the case of an Affected System that is jointly owned, it is the
responsibility of the Affected System Operator to provide the credits
and to seek reimbursement for any amounts that it believes it is owed
by the other owners. We note that this problem is not unique to an
Affected System. If a Transmission Provider provides transmission
service on a Transmission System that is jointly owned, that
Transmission Provider must follow a similar procedure.
2. Credits Under Change in Ownership
Rehearing Requests
43. Cinergy requests clarification of LGIA article 11.4.1, which
states that if the Generating Facility fails to achieve commercial
operation, but it or another Generating Facility is later constructed
and uses the Network Upgrades, the Transmission Provider and the
Affected System Operator shall at that time reimburse the
Interconnection Customer for the amounts advanced for Network Upgrades.
Specifically, where a Generating Facility fails to achieve commercial
operation, Cinergy argues that it would be difficult for a Transmission
Provider to determine who would be entitled to any eventual credit for
the costs of Network Upgrades. This is significant because, given the
uncertain state of the energy
[[Page 272]]
industry, the original entity constructing the Generating Facility
could have been either purchased in whole or in part by another
company, bankrupt, or simply no longer be in existence. Cinergy argues
that the obligation to keep track of who should receive such
reimbursement, if any, should not lie with the Transmission Provider
but rather with the Interconnection Customer or its successors.
44. In addition, Cinergy states that article 11.4.1 is not clear as
to whether interest accrues on the upfront payment made by an
Interconnection Customer whose Generating Facility fails to achieve
commercial operation. Cinergy argues that interest should not accrue
during what could possibly be an extended period of time where the
upgrades remain idle, unused by either another Generating Facility or
the Transmission Provider. Cinergy asks the Commission to clarify
article 11.4.1 accordingly.
Commission Conclusion
45. We agree with Cinergy that, when a Generating Facility does not
achieve commercial operation, the responsibility for keeping track of
the entity that is entitled to receive any transmission credits that
may be due should lie with the Interconnection Customer, or with any
successor entity that may later construct a Generating Facility that
makes use of the Network Upgrades. Therefore, we are adding the
following sentence to the final paragraph of LGIA article 11.4.1:
``Before any such reimbursement can occur, the Interconnection
Customer, or the entity that ultimately constructs the Generating
Facility, if different, is responsible for identifying the entity to
which reimbursement must be made.''
46. With regard to the accrual of interest on upfront payments in
cases where the Generating Facility fails to achieve commercial
operation, we clarify that interest continues to accrue provided the
interconnection agreement remains in effect. Interest does not accrue
after an interconnection agreement has been terminated by either Party
or during any period in which no interconnection agreement is in
effect.
3. Protecting Native Load and Other Existing Transmission Customers
Rehearing Requests
47. SWTransco and Southern Company argue that the Commission's
interconnection pricing policy, in certain circumstances, would not
protect native load and other customers from bearing the cost of
Network Upgrades required for interconnection.\17\ Moreover, these
petitioners argue that a policy of allowing the Transmission Provider
to charge the higher of an incremental rate or an embedded cost rate
does not always protect other customers from subsidizing the
Interconnection Customer.
---------------------------------------------------------------------------
\17\ Southern Company states that its request for rehearing does
not specifically address all of the requirements and issues in Order
No. 2003-A that it addressed in its Request for Rehearing filed in
response to Order No. 2003. Therefore, instead of restating all of
the arguments made in the request for rehearing, Southern Company
incorporates them by reference. Because the FPA requires that
applications for rehearing ``set forth specifically the ground or
grounds upon which such application is based, ``set forth
specifically the ground or grounds upon which such application is
based, ``16 U.S.C. Sec. 8251 (2000), Southern Company's arguments
from its request for rehearing of Order No. 2003 have been
considered in this order only to the extent the arguments were
specifically presented in its request for rehearing of Order No.
2003-A.
---------------------------------------------------------------------------
48. SWTransco states that to leave the other Transmission Customers
no worse off in certain situations, it is necessary to charge the
Interconnection Customer not only the Network Upgrade costs, but also
the share of the rolled-in costs attributable to any Generating
Facility that is displaced by the new Generating Facility. Also,
Southern Company states that charging the Interconnection Customer only
an incremental rate would not cover the Generating Facility's use of
the rest of the Transmission System.
49. Southern Company states that to truly prevent subsidies, the
Commission must either (1) allow the direct assignment of
Interconnection Facilities and NRIS facilities (because they do not
provide a system benefit) and require the generator (or its customer)
to pay the embedded transmission rate for delivery service or (2) allow
all Transmission Providers to implement participant funding. Southern
Company agrees that any disputes regarding participant funding
determinations may need to be resolved by an independent entity, but
asserts that, in the absence of an RTO or other independent entity, the
Commission is well equipped (and, indeed, charged under sections 205
and 206 of the Federal Power Act) to resolve such disputes.
50. Southern Company states that the subsidization issue is
generally not a concern if the Generating Facility is designated a
Network Resource of the Transmission Provider, or of its Network
Customers, contemporaneously with the execution of its interconnection
agreement. Southern Company argues that the subsidization issue arises
mainly when a merchant generator has no long-term reservations for
transmission delivery service from its plant contemporaneously with the
execution of the interconnection agreement, or when the Interconnection
Customer and the Transmission Customer are different entities.
51. On a related matter, some petitioners ask for guidance
regarding the implementation of incremental pricing in the context of
generator interconnections. For example, NRECA seeks answers to the
following questions. Over what period of time should the incremental
costs be presumed to be amortized? If the Interconnection Customer has
only a short-term contract for the output of the Generating Facility,
should the costs be amortized over that short period? If the
Interconnection Customer has only a short-term contract for the output
of the Generating Facility, but the Transmission Customer that requests
delivery of the Generating Facility's power is taking service under a
long-term transmission contract, should the cost of the Network
Upgrades be amortized over the length of the transmission contract?
Should the cost of Network Upgrades be amortized over their useful
life?
52. SWTransco claims that the interconnection procedures and
agreement in Order No. 2003-A do not appear to contain mechanics
sufficient to allow the pricing concept to be implemented. Southern
Company argues that the Transmission Provider will not be able to
calculate an incremental rate with any certainty because it often has
no reasonable idea regarding the amount of the delivery service that
might ultimately be taken from the facility (or which entities will
actually be requesting any such delivery service) or the duration of
any such service. This is because, in Southern Company's experience,
merchant generators normally do not seek interconnection and
transmission delivery services at the same time. At a minimum, the
Commission must clarify how the incremental pricing calculation could
be performed for a merchant generator that does not make a request for
transmission delivery service at the time of the execution of the
interconnection agreement or when the Interconnection Customer and the
Transmission Customer are separate entities.
53. TAPS states that it is unclear from Order No. 2003-A whether or
how the Commission intends that incremental pricing would be applied to
network Transmission Customers, given the load ratio share pricing
required by the OATT.
[[Page 273]]
Commission Conclusion
54. Order No. 2003-A clarified that the Commission was not
abandoning any of the fundamental principles that have long guided its
transmission pricing policy. The Commission's interconnection pricing
policy continues to allow the Transmission Provider to charge the
Interconnection Customer a transmission rate that is the higher of the
incremental cost rate for Network Upgrades required to interconnect the
Generating Facility or an embedded cost rate for the entire
Transmission System (including the cost of the Network Upgrades). Order
No. 2003-A emphasized that this ``higher of'' policy ensures that other
Transmission Customers, including the Transmission Provider's native
load, will not subsidize Network Upgrades required to interconnect
merchant generation.
55. On rehearing, petitioners raise concerns regarding the
implementation of this policy and whether other customers are protected
from having to bear the costs of Network Upgrades under all
circumstances. Petitioners argue that they can devise certain
hypothetical cases in which the Transmission Provider must either
impose some new transmission costs on existing customers or violate the
Commission's prohibition against ``and'' pricing.
56. In response to these petitioners, we first reaffirm that an
important objective of our interconnection pricing policy continues to
be the protection of existing Transmission Customers, including the
Transmission Provider's native load, from adverse rate implications
associated with Interconnection Facilities and Network Upgrades
required to interconnect a new Generating Facility. Despite the
unsupported hypothetical generalizations of some petitioners, we have
not been presented with any evidence that native load and other
Transmission Customers cannot be held harmless under our existing
pricing policy. If a Transmission Provider (or an existing Transmission
Customer) believes that, for an actual interconnection, it faces
circumstances where native load and other customers are not held
harmless, it should make that demonstration in an actual transmission
rate filing. The Transmission Provider must explain the facts of the
case and the assumptions on which its calculation is based and provide
evidentiary support. While we cannot envision any circumstances where
our existing pricing policy will not fully protect native load and
other Transmission Customers, we are willing to consider alternative
pricing proposals under the facts of a specific case. We emphasize that
the Transmission Provider bears the full burden of showing that any
such proposal is just and reasonable and not unduly discriminatory or
preferential, and is appropriate under the circumstances.
57. Similarly, with regard to the calculation of incremental rates,
we are not prescribing generic rules at this time. Rather, we invite
the Transmission Provider, in the context of an actual interconnection
agreement or transmission rate filing, to propose a calculation method
that assigns appropriate cost responsibility to the Interconnection
Customer and is consistent with applicable Commission policy and
precedent.
4. Interconnection Products and Services
Rehearing Requests
58. Some petitioners seek clarification of the provisions of Order
No. 2003-A governing NRIS and ERIS.
59. NRECA requests that the Commission clarify that, consistent
with the OATT (1) only Interconnection Customers that are load serving
entities may request Network Integration Transmission Service under a
Transmission Provider's OATT, and (2) only Network Customers can
designate Network Resources.
60. TAPS asserts that, as clarified in Order No. 2003-A, the unique
feature of NRIS has nothing to do with being a ``Network Resource,''
which is defined by the OATT as a resource designated by a Network
Customer under Network Integration Transmission Service. Rather, NRIS
provides assurance that even absent any transmission service, ``the
Generating Facility, as well as other generating facilities in the same
electrical area, can be operated at peak load,'' and that the output of
the Generating Facility will not be ``bottled up'' under such
conditions. The name ``Network Resource Interconnection Service,''
therefore, is misleading. TAPS recommends an alternative name, such as
``Enhanced Interconnection Service,'' that more accurately describes
this Interconnection Service.
61. Also, TAPS states that the references to ``other Network
Resources'' in LGIA articles 4.1.2.1 and 4.1.2.2 and LGIP section 3 are
particularly confusing, because as noted above, ``Network Resource'' is
defined as a resource designated under Network Integration Transmission
Service. In other words, the references to ``other'' Network Resources
assume something that has not necessarily happened in the case of
resources taking NRIS.
62. TAPS states that article 4.1.2.2 suggests that generators
taking NRIS are different from generators taking ERIS with respect to
their ability to be designated as Network Resources. Specifically, the
introductory sentences of article 4.1.1.2, especially if read in
conjunction with LGIA article 4.1.2.2, suggest that NRIS is the
preferred route to obtaining a Network Resource designation under the
OATT. Although the preamble of Order No. 2003-A otherwise makes clear
that a resource with ERIS may be designated as a Network Resource, it
confusingly states elsewhere that ``Network Resource Interconnection
Service makes it possible for the Generating Facility to be designated
as a Network Resource.''
63. Similarly, TAPS states that LGIA article 4.1.1.1 and LGIP
section 3.2.2.1 continue to describe ERIS as providing ``as available''
access, without restricting application of that limit, i.e., without
adding language such as ``unless combined with Network Integration
Transmission Service or Firm Point-to-Point Transmission Service,''
which would be consistent with the preamble of Order No. 2003-A. TAPS
is concerned that LGIP section 3 lacks any reference to the ability of
an ERIS customer to obtain anything other than ``as available''
transmission service. The Commission should modify LGIP section 3 and
LGIA articles 4.1.1.1, 4.1.1.2, and 4.1.2.2 to eliminate any confusion.
64. EPSA states that the Commission has introduced some uncertainty
as to the additional studies or additional upgrades that might be
associated with NRIS. It asks the Commission to clarify that any
references to such studies or upgrades apply only to optional upgrades
to reduce congestion or to customer-specific delivery issues, not to
upgrades related to the designation of a NRIS generator as a Network
Resource. If the Commission does not clarify that the Interconnection
Customer's responsibility to pay for additional studies and upgrades is
to be limited to the circumstances described above, EPSA requests
rehearing on this issue. EPSA also urges the Commission to require
Transmission Providers to include in their compliance filings the
protocols and procedures they will use to determine when additional
studies or upgrades are needed.
65. Intergen asserts that the studies associated with NRIS and with
Network Integration Transmission Service are essentially identical.
Thus, a NRIS customer and a Network Integration Transmission Service
customer should
[[Page 274]]
build the same Network Upgrades. However, Intergen interprets the
clarification in Order No. 2003-A to mean that the NRIS customer will
not receive any delivery assurances despite the fact that it is
fronting the costs of the Network Upgrades needed to permit Network
Integration Transmission Service. The Commission's statement that the
Interconnection Customer's Generating Facility may have to be restudied
and pay for additional upgrades once it is designated as a Network
Resource, according to Intergen, eviscerates the value of NRIS.
66. In addition, Intergen states that, if the Network Integration
Transmission Service studies reveal that the Interconnection Customer
cannot acquire Network Integration Transmission Service without
significant upgrades, and the Interconnection Customer cannot use its
credits for service sourcing elsewhere on the Transmission Provider's
Transmission System, the credits could be ``locked'' into a facility
that cannot move its power. Intergen asks for further clarification or
rehearing of this aspect of Order No. 2003-A. Intergen also asks the
Commission to clarify that, because NRIS uses studies similar to those
used to determine whether Network Integration Transmission Service is
available, and because the Interconnection Customer is paying for the
upgrades associated with those studies, an NRIS generator does not need
to be restudied and does not need to construct additional Network
Upgrades when designated as a Network Resource.
67. NRECA states that NERC and others had stressed in earlier
comments to the Commission that the requirement in LGIP section 3.2.2.2
that the Transmission Provider study the Transmission System ``at peak
load, under a variety of severely stressed conditions * * *.'' was
insufficient to ensure the reliability of the Transmission System.
Order No. 2003-A failed to address NERC's concern over the wording of
section 3.2.2.2 of the LGIP. NRECA argues that, although the Commission
indicates that it will allow a Transmission Provider to petition for
changes to the study criteria subject to the ``consistent with or
superior to'' standard, such an ad hoc approach to this important
reliability issue is insufficient. It notes that Order No. 2003-A
indicated that a threshold requirement for obtaining the Commission's
permission to deviate from the pro forma LGIP will be whether there is
an accepted regional practice addressing this issue. However, NRECA
claims that in many regions there is no such established practice.
Consequently, a Transmission Provider in such regions would be barred
from making the necessary changes to the NRIS study criteria.
Commission Conclusion
68. Most of the questions and concerns raised by petitioners
concerning interconnection products and services were fully addressed
in Order No. 2003-A, and we will not repeat those conclusions here. We
remind petitioners that, to gain a full understanding of Order No.
2003-A's treatment of NRIS and ERIS, the preamble, LGIP and LGIA must
be read together. To include all of the relevant preamble discussion in
the LGIP and LGIA would make those documents unwieldy.
69. In response to TAPS's concerns about the descriptions of NRIS
and ERIS and the relationship between NRIS, ERIS and Network
Integration Transmission Service, we note that the Commission addressed
these matters in detail at P 530-537 of Order No. 2003-A. Also, we
disagree with TAPS's assertion that the name ``Network Resource
Interconnection Service'' is misleading. The name is suitable given
that the principal purpose of the service is to allow the Generating
Facility to qualify for designation as a Network Resource by a Network
Customer. However, we agree that the use of the word ``other'' as a
modifier of ``Network Resources'' in LGIP sections 1 and 3.2.2.1 and
LGIA articles 1 and 4.1.2.2 is confusing. Therefore, we are eliminating
it from those sections and articles. In response to NRECA, we clarify
that we are not changing the requirement of Order No. 888 that only a
load serving entity can become a Network Customer and only a Network
Customer can designate a Generating Facility as a Network Resource.
70. In response to EPSA's and Intergen's concerns that an
Interconnection Customer taking NRIS may be required to pay for
additional studies and additional upgrades to have the Generating
Facility designated as a Network Resource, we note that the Commission
addressed this matter at P 544-545 of Order No. 2003-A; no further
response is needed.
71. NRECA argues that the study criteria for NRIS are insufficient,
and is concerned that the Commission will not allow a Transmission
Provider to adopt different criteria if there is no established
practice addressing this issue in the Transmission Provider's region.
Our experience with the Order No. 2003 and Order No. 2003-A compliance
filings leads us to agree with NRECA that the orders' requirements
regarding the Transmission Provider's use of alternative NRIS study
criteria are unnecessarily burdensome. In their compliance filings, a
number of Transmission Providers proposed to modify the NRIS study
criteria to allow them to study the Transmission System under non-peak
load conditions. Some of these Transmission Providers supported their
requests with references to criteria documented in their reliability
region's planning standards, while others explained that the use of
their proposed criteria is a generally accepted regional practice. The
Commission generally accepted these proposals subject to certain
conditions.\18\ Based on our experience with these compliance filings,
we now conclude that it is no longer necessary to require the
Transmission Provider that wishes to include non-peak load criteria in
its NRIS study process to demonstrate that the use of such study
criteria is consistent with or superior to the requirements of pro
forma LGIP section 3.2.2.2. Rather, we will allow the non-independent
Transmission Provider to adopt study criteria that consider non-peak
load conditions if the Transmission Provider, upon request by the
Interconnection Customer, agrees to provide the Interconnection
Customer with a written justification for doing so. We emphasize,
however, that the Transmission Provider must provide comparable
service; that is, it must study non-peak conditions for the
interconnection of its own and its affiliates' Generating Facilities on
the same basis that it studies non-peak conditions for the non-
affiliated Interconnection Customer. To implement this change, we are
inserting the following sentences after the first sentence of LGIP
section 3.2.2.2:
---------------------------------------------------------------------------
\18\ See, e.g., Southern Company Services, Inc., 107 FERC ]
61,317, order on reh'g and compliance, 109 FERC ] 61,014 (2004);
South Carolina Electric & Gas Co., 108 FERC ] 61,018 (2004); Florida
Power & Light Co., 108 FERC ] 61,239 (2004).
The Transmission Provider may also study the Transmission System
under non-peak load conditions. However, upon request by the
Interconnection Customer, the Transmission Provider must explain in
writing to the Interconnection Customer why the study of non-peak
---------------------------------------------------------------------------
load conditions is required for reliability purposes.
This should simplify the compliance process and satisfy NRECA's
concerns.\19\
---------------------------------------------------------------------------
\19\ See also infra Part III.D.4 (explaining that a non-
independent Transmission Provider on compliance may propose
additional operating requirements that are not codified or
referencedinit Applicable Reliability council's standards.)
---------------------------------------------------------------------------
[[Page 275]]
5. Generator Balancing Service Arrangements
72. In Order No. 2003-A, the Commission deleted article 4.3 from
the pro forma LGIA, thereby eliminating any reference in the LGIA to
the Interconnection Customer's obligation to make generator balancing
service arrangements before submitting a schedule for delivery service
that identifies the Interconnection Customer's Generating Facility as
the Point of Receipt for the scheduled delivery.\20\
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\20\ Order No. 2003-A at P 663-667.
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Rehearing Requests
73. NRECA and Southern Company argue that Order No. 2003-A is at
odds with Order No. 888-A, which anticipated that generator balancing
service arrangements would be included in the interconnection
agreement.
Commission Conclusion
74. We disagree with NRECA and Southern Company. While it is true
that Order No. 888-A indicated that the Commission expected the
interconnection agreement to include a provision for generator
balancing service arrangements, it also included the following:
This agreement will be tailored to the parties' specific
standards and circumstances, and, although such arrangements must
not be unduly preferential or discriminatory (e.g., must be
comparable for all wholesale sellers, including the transmission
provider's own wholesale sales), we prefer not to set these
standards generically.\21\
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\21\ Order No. 888-A at 30,230.
75. The policies as set forth in Order No. 888-A remain unchanged.
Thus, we are not including a provision for generator balancing service
arrangements in the pro forma LGIA. However, we recognize that some
Transmission Providers may prefer to include such a provision in the
interconnection agreement that it enters into with the Interconnection
Customer, rather than in a separate agreement. Therefore, we are
permitting the Transmission Provider to include a provision for
generator balancing service arrangements in individual interconnection
agreements. Such provisions should be tailored to the Parties' specific
standards and circumstances, and are subject to Commission approval.
C. Independent Transmission Provider Obligations
76. Order No. 2003-A provided that if a non-independent
Transmission Owner's transmission facilities are under the operational
control of an RTO or ISO, the RTO's or ISO's Commission-approved
standards and procedures govern all interconnections with those
facilities. It also provided that a non-independent Transmission Owner
that belongs to an RTO or ISO but has operational control over some of
its Transmission System must have its own set of interconnection
agreements and procedures separate from the RTO's or ISO's that govern
interconnections with the portions of its Transmission System over
which it retains operational control.
Rehearing Requests
77. NYISO asks the Commission to not apply the pro forma LGIP and
LGIA to certain facilities under New York Transmission Owners' (NYTO)
control for the period between January 20, 2004, which was the date
that non-independent Transmission Providers were required to adopt the
pro forma LGIP and LGIA, and Commission action on NYISO's compliance
filing, which occurred August 6, 2004.
78. TAPS states that Order No. 2003-A suggested that a non-
independent Transmission Owner that is a member of an RTO or ISO could
have its own tariff for interconnections with transmission facilities
over which it retains operational control.\22\ According to TAPS, the
Commission should make clear that where the Interconnection Service is
necessary to effectuate service under the OATT of an RTO that has
operational control of transmission facilities owned by a non-
independent Transmission Owner, that Transmission Owner may not layer
on a separate set of interconnection procedures and agreements for
facilities over which it maintains operational control. TAPS contends
that such layering is inconsistent with Order No. 2003-A and Commission
precedent, which provide that the RTO or ISO must offer ``one-stop
shopping'' for interconnection.\23\ At a minimum, TAPS continues, the
Commission should subject any non-independent Transmission Owner within
an RTO to a heavy burden to demonstrate why an Interconnection Customer
should be unable to obtain through the RTO or ISO the necessary
interconnection with the Transmission Owner's facilities that are not
subject to the RTO's operational control.
---------------------------------------------------------------------------
\22\ Order No. 2003-A at P 53.
\23\ Id. at P 785; see also Delmarva Power & Light Company, 106
FERC ] 61,290 (2004) (addressing load-side interconnections).
---------------------------------------------------------------------------
Commission Conclusion
79. NYISO's concerns have been mooted by the Commission's orders in
response to compliance filings submitted by the New York utilities.\24\
Accordingly, there is no need to address them here.
---------------------------------------------------------------------------
\24\ New York Independent System Operator, Inc., 108 FERC ]
61,159 (2004), reh'g--pending (NYISO); ISO New England, 109 FERC ]
61,147 (2004).
---------------------------------------------------------------------------
80. In response to TAPS, we clarify that a Transmission Owner that
belongs to an RTO or ISO cannot require a separate set of
interconnection procedures or agreement for interconnection with
facilities within the RTO's or ISO's operational control; i.e., a
transmission facility cannot be governed by two separate sets of
interconnection procedures and agreements . If the Transmission Owner
retains operational control of some jurisdictional facilities, and
those facilities are not subject to the interconnection procedures
under the OATT of the RTO or ISO,\25\ then the Transmission Owner must
have a separate set of interconnection procedures and agreement
applicable to these facilities. An Interconnection Customer seeking to
interconnect with the facilities within the Transmission Owner's
operational control will be subject only to the Transmission Owner's
interconnection agreement and procedures. We acknowledge that this may
create inconsistent interconnection procedures and agreements within a
region controlled by an RTO or ISO, or result in confusion as to which
interconnections procedures and agreement applies to the facilities to
which the Interconnection Customer wishes to interconnect. To address
this issue, we are allowing a Transmission Owner that retains control
over some jurisdictional facilities to subject these facilities to an
RTO- or ISO-controlled interconnection process. In such instance, the
Transmission Owner must agree to transfer to the RTO or ISO control
over the significant aspects of the interconnection process under the
Transmission Owner's OATT interconnection process, including the
performance of all Interconnection Studies and cost determinations
applicable to Network Upgrades.\26\ Even
[[Page 276]]
under this modified approach, there should be only one applicable
interconnection agreement and one set of procedures for each
Interconnection Request for a Commission-jurisdictional
interconnection.
D. Issues Related to the Large Generator Interconnection Agreement
1. Stand Alone Network Upgrades
81. LGIA article 5.2 in Order No. 2003 provided, among other
things, that the Interconnection Customer assumes responsibility for
the design, procurement, and construction of Stand Alone Network
Upgrades, the Interconnection Customer shall transfer control of such
upgrades to the Transmission Provider. Order No. 2003-A revised LGIA
article 5.2 to provide that ``[u]nless Parties otherwise agree,
Interconnection Customer shall transfer ownership of Transmission
Provider's Interconnection Facilities and Stand Alone Network Upgrades
to Transmission Provider.'' \27\
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\25\ For example, the RTO or ISO conducts all studies,
determines costs, identifies necessary Network Upgrades, and
controls all aspects of the interconnection process.
\26\ See New England Power Pool, 109 FERC ] 61,155 at P 27, 74
(2004); see also NYISO at P 123-124. In NYISO, the Commission
conditionally waived the requirement that the Transmission Owners
adopt the pro forma LGIP and LGIA for transmission facilities over
which Transmission Owners retained operational control. Waiver was
granted due in part to the commitment by the Transmission Owners to
relinquish operational control over the relevant facilities to the
RTO or ISO upon Commission issuance of the NYISO order.
\27\ Order No. 2003-A, LGIA article 5.2(9).
---------------------------------------------------------------------------
Rehearing Request
82. NRECA seeks clarification that if a transmission-owning
Interconnection Customer is a load serving entity that has the right to
own or operate the Transmission Provider's Interconnection Facilities
or Stand Alone Network Upgrades under existing state or other law or
under pre-existing contracts, Order No. 2003-A does not supersede such
pre-existing contractual or legal/regulatory rights in a way that would
bar such a load serving entity from retaining ownership.
83. TAPS makes similar arguments. It argues that while it may be
reasonable for the Transmission Provider to operate and control the
Interconnection Facilities and Stand Alone Network Upgrades constructed
by the Interconnection Customer, compelling the Interconnection
Customer to give up ownership contributes to monopolization of
transmission ownership. Allowing Interconnection Customers that are
load serving entities to retain ownership does not mean that operation
and control of the Transmission System will be fragmented or that
reliability will be compromised; indeed, some TAPS members already own
transmission facilities. TAPS further notes that while Order No. 2003-A
states that allowing the Interconnection Customer to retain ownership
is ``inconsistent with existing Commission precedent,'' \28\ it does
not cite to the precedent.
---------------------------------------------------------------------------
\28\ Order No. 2003 at P 230.
---------------------------------------------------------------------------
84. TAPS further argues that where an Interconnection Customer has
constructed Interconnection Facilities and Stand Alone Network
Upgrades, the customer should have the option of owning the facilities
and receiving a lease payment or other credit recognizing the
contribution that the facilities make to the Transmission System (e.g.,
as a credit for customer-owned facilities consistent with section 30.9
of the pro forma OATT). Allowing transmission dependent utilities to
retain ownership takes advantage of these utilities' solid credit,
reduces regulatory conflicts, and facilitates siting through joint
planning and ownership of the Transmission System.
Commission Conclusion
85. Under ordinary circumstances, the Transmission Provider assumes
the risk and responsibility for reliably operating its Transmission
System. Giving the Interconnection Customer the option of owning
Transmission Provider's Interconnection Facilities or Stand Alone
Network Upgrades without the Transmission Provider's consent raises
reliability and liability issues arising from the operation of these
types of facilities by an entity not responsible for the rest of the
Transmission System.\29\ While TAPS highlights some of the benefits
that might result from giving the Interconnection Customer the
unilateral option of owning the Transmission Provider's Interconnection
Facilities or Stand Alone Network Upgrades, on balance, the risks
outweigh the benefits.
---------------------------------------------------------------------------
\29\ See, e.g., Virginia Electric & Power Co., 94 FERC ] 61,164
at 61,589 (2001) (explaining that it is appropriate for the
Transmission Provider to construct and own Transmission System
facilities, but stopping short of requiring ownership by the
Transmission Provider), order on remand on other grounds sub nom.
American Electric Power Service Corp., 99 FERC ] 61,177 (2002),
order on clarification, 100 FERC ] 61,150 (2002); Cambridge Electric
Light Co., 96 FERC ] 61,205 at 61,874 (2001) (refusing to require
generator ownership of certain Interconnection Facilities because of
questions of reliability and liability).
---------------------------------------------------------------------------
86. In response to NRECA, Order No. 2003-A did not supersede pre-
existing contractual or legal rights that would bar a load serving
entity from retaining ownership of any Transmission Provider's
Interconnection Facilities or Stand Alone Network Upgrades it
constructs. Such pre-existing agreements are grandfathered and are not
subject to Order No. 2003.
2. Permits and Licensing Requirements
87. Order No. 2003 required the Transmission Provider to provide
the Interconnection Customer with permitting assistance for the
Generating Facility.\30\ Order No. 2003-A did not change this
provision.
---------------------------------------------------------------------------
\30\ LGIA article 5.14.
---------------------------------------------------------------------------
Rehearing Request
88. Cinergy notes that Order No. 2003-A rejected its request for
rehearing which argued that the Commission should restrict this
requirement to the permitting of the Transmission Provider or
Transmission Owner's Interconnection Facilities or Network
Upgrades.\31\ Cinergy requests clarification that, consistent with LGIA
article 5.13, which addresses efforts by the Transmission Provider on
behalf of the Interconnection Customer regarding lands of other
property owners, the costs for any permitting assistance provided per
the provisions of LGIA article 5.14 shall be the responsibility of the
Interconnection Customer.
---------------------------------------------------------------------------
\31\ Order No. 2003-A at P 303.
---------------------------------------------------------------------------
Commission Conclusion
89. Although Cinergy's argument is untimely and should have been
presented in response to Order No. 2003, we will address the argument
to provide clarification. Cinergy points to article 5.13, where the
Commission requires the Interconnection Customer to pay for the
Transmission Provider's efforts to obtain access to the lands of other
property owners; however, the assistance provided under article 5.14 is
different. This is because article 5.13 requires the Transmission
Provider to participate, on the Interconnection Customer's behalf, in a
process that may include lengthy and contentious proceedings and
eminent domain proceedings.\32\ Article 5.14, on the other hand,
requires that the Parties merely assist and cooperate in good faith in
their efforts to secure the necessary permits. Such assistance is
reciprocal and imposes costs to be borne by each Party. The Commission
considers these costs a cost of doing business and is not requiring
compensation.
---------------------------------------------------------------------------
\32\ Order No. 2003 at P 251; Order No. 2003-A at P 300.
---------------------------------------------------------------------------
90. Article 5.14 contains language suggesting that the Parties
should amend their interconnection agreement to ``specify the
allocation of the responsibilities'' to obtain permits, licenses, and
authorizations. Because article 14.1 already contains language
addressing the Parties' rights and responsibilities, we are amending
article 5.14 to eliminate the suggestion that Parties should amend
their interconnection agreement to allocate these responsibilities.
[[Page 277]]
3. Tax Issues
a. Security Requirements
91. Order No. 2003 allowed the Transmission Provider to require the
Interconnection Customer to provide security, but not after the former
receives a private letter ruling from the Internal Revenue Service
(IRS) determining that the payments from the Interconnection Customer
to the Transmission Provider are not taxable as income to the
Transmission Provider. Order No. 2003-A revised the policy and allowed
the Transmission Provider to require security even if it secures such a
ruling.\33\
---------------------------------------------------------------------------
\33\ Order No. 2003-A at P 343-344.
---------------------------------------------------------------------------
Rehearing Requests
92. Southern Company argues that the security requirement, which
should reflect the cost consequences of any current tax liability as of
January 1 of each year, is impractical and may leave the Transmission
Provider with inadequate security. The IRS determines income based on
the fair market value, which will be based on all facts at the time the
``subsequent taxable event'' takes place.\34\ Southern Company argues
that it will be impractical to quantify a security amount that will
approximate the fluctuating current tax liabilities as of January 1 of
each year because the amount of recognizable income cannot be estimated
when the interconnection agreement is signed. The new policy could
leave the Transmission Provider at risk if the ``cost consequences''
are underestimated. Therefore, the Commission should restore the
original Order No. 2003 language that allowed the Transmission Provider
to require security based on estimated, maximum tax liability.
Alternatively, additional clarification is needed on the correct
methodology for calculating the security that the Transmission Provider
may demand from the Interconnection Customer to determine the ``current
income tax liability as of January 1 of each year.''
---------------------------------------------------------------------------
\34\ A ``subsequent taxable event'' is an occurrence that makes
taxable payments a Transmission Provider had concluded were not
taxable; it creates a current tax liability for the Transmission
Provider.
---------------------------------------------------------------------------
93. Southern Company also argues that the pro forma OATT and its
own OATT require that appropriate security be provided and
maintained.\35\ It argues that the phrase ``and maintain'' should be
added to LGIA article 5.17.3 to clarify that security not only must be
provided, but also maintained.
---------------------------------------------------------------------------
\35\ Citing pro forma OATT section 11, Southern Company OATT
section 11(b).
---------------------------------------------------------------------------
94. EPSA argues that the Commission should not extend the
Transmission Provider's right to require security beyond the point in
time when a favorable private letter ruling from the IRS is obtained.
Receipt of such a letter ruling significantly reduces the already small
risk of tax liability, and thus, the need for security. As an example
of the costs associated with the policy, EPSA explains that requiring
the Interconnection Customer to post a $3 million credit (assuming a 30
percent tax gross-up \36\ rate on a $10 million interconnection) would
have an ongoing cost of $20,000 to $60,000 per year to secure the risk.
The Commission should restore the Order No. 2003 policy. This would be
consistent with the rulings in Order No. 2003-A that the security
should track the cost consequences of current tax liability over time
and that the security should be eliminated if the Transmission Provider
collects an indemnification payment from the Interconnection Customer
to cover the taxes payable.
---------------------------------------------------------------------------
\36\ A tax gross-up for income taxes is a dollar amount
calculated to determine the Interconnection Customer's payment
needed to indemnify the Transmission Provider for any current tax
liability associated with payments the Interconnection Customer
makes for the Transmission Provider's Interconnection Facilities and
Network Upgrades.
---------------------------------------------------------------------------
Commission Conclusion
95. Order No. 2003-A concluded that it was unreasonable to allow
the Transmission Provider to require security for the maximum amount of
potential tax liability.\37\ Providing some security helps to address
the risk that the Interconnection Customer will not be able to fulfill
its full indemnification obligations should the interconnection credits
be deemed taxable at some future time. Because the potential tax
liability will change over time, it is reasonable that the required
level of security also change over time. As Southern notes, there may
be a situation where the amount of the payment for Interconnection
Facilities deemed taxable can be based on the fair value of the
property transferred under IRS policy or procedure. If so, the
Interconnection Customer can be asked to pay the Transmission Provider
only the present value of the cost consequences of the current tax
liability based on that fair value, which also can change over time.
The possibility that the potential tax payment may be based on the fair
value of the property instead of some other measure does not justify
allowing a security requirement to be imposed in excess of the cost
consequences of the potential current tax liability determined as of
January 1 of each year. Southern's request for rehearing on this point
is denied. We, therefore, reiterate that it is excessive to require
that an Interconnection Customer maintain security equal to the maximum
theoretical tax liability calculated at the outset of the agreement.
---------------------------------------------------------------------------
\37\ Order No. 2003-A at P 343.
---------------------------------------------------------------------------
96. Although Southern Company's argument is untimely and should
have been presented in response to Order No. 2003, we will address the
argument to provide clarification. Article 5.17.3 allows the
Transmission Provider to require the Interconnection Customer to
provide security for Interconnection Facilities ``in an amount equal to
the cost consequences of any current tax liability under'' article
5.17. We believe it is unnecessary to specify that such security be
``maintained'' because this requirement is implicit in the provision's
reference to ``current tax liability.''
97. Order No. 2003-A explained that the security for tax liability
in LGIA article 5.17.3 protects the Transmission Provider against the
possibility that the IRS will change its policy or that there will be a
subsequent taxable event.\38\ A private letter ruling from the IRS does
not address these risks. While the ruling may show that the IRS does
not currently consider these payments taxable, the risk remains that
the IRS may change its policy or there will be a subsequent taxable
event. Thus, we reject EPSA's request for rehearing.
---------------------------------------------------------------------------
\38\ Id. at P 344.
---------------------------------------------------------------------------
b. Elimination of the Interconnection Customer's Right To Contest or
Appeal Taxes
98. Order No. 2003 gave the Interconnection Customer the right to
appeal, protest, seek abatement of, or otherwise protest a Government
Authority's determination that payments made to the Transmission
Provider are income subject to taxation. Order No. 2003-A gave to the
Transmission Provider in LGIA articles 5.17.7 and 5.17.9 the sole
discretion to protest such a determination.
Rehearing Requests
99. EPSA argues that the Commission should not have eliminated the
Interconnection Customer's right to contest or appeal taxes for which
the Interconnection Customer is ultimately liable. A Transmission
Provider with multiple controversial tax matters might be able to trade
off a concession on one matter for relief on another. In such a case,
the Transmission Provider would have a fiduciary responsibility to its
shareholders to concede to the IRS a tax issue for which it is fully
indemnified.
[[Page 278]]
Also, the Interconnection Customer's obligation to pay for any tax
controversies pursued on its behalf should ensure that it will not
force the Transmission Provider to undertake frivolous contests and
appeals.
100. Southern Company notes that although the Commission agreed
that the Interconnection Customer's settlement obligation in LGIA
article 5.17.7 should be subject to a tax gross-up to fully compensate
the Transmission Provider for income taxes, it did not amend the
article to confirm this intention.
Commission Conclusion
101. Order No. 2003-A allowed the Transmission Provider to
determine whether and how to contest a Governmental Authority's tax
determination.\39\ This is reasonable because otherwise the
Interconnection Customer could force the Transmission Provider to
pursue a claim that the Transmission Provider does not believe is
valid. Allowing the Interconnection Customer to participate in the
appeal process,\40\ however, should help to counteract the Transmission
Provider's ability to negotiate with the IRS in a manner detrimental to
the Interconnection Customer's interest.
---------------------------------------------------------------------------
\39\ Id. at P 372.
\40\ LGIA article 5.17.7 requires the Transmission Provider to
keep the Interconnection Customer informed of the contest's
progress, to consider in good faith the Interconnection Customer's
suggestions about conducting the contest, and to reasonably permit
the Interconnection Customer or its representative to attend contest
proceedings. The Transmission Provider may also agree to settle only
after obtaining either the Interconnection Customer's consent or
written advice from a nationally recognized tax counsel who is
reasonably acceptable to the Interconnection Customer.
---------------------------------------------------------------------------
102. We are amending LGIA article 5.17.7 in response to Southern
Company's comment.
c. Transmission Credits for Tax Payments
103. Order No. 2003 provided that, if the Transmission Provider
requires the Interconnection Customer to pay a tax gross-up, it will
refund all tax gross-up amounts as transmission credits. Order No.
2003-A amended article 11.4.1 to clarify that the Transmission Provider
need refund only the tax gross-up amounts associated with Network
Upgrades.\41\
---------------------------------------------------------------------------
\41\ Order No. 2003-A at P 351.
---------------------------------------------------------------------------
Rehearing Request
104. Southern Company repeats the argument it made in response to
Order No. 2003 that requiring the Transmission Provider to provide
transmission credits for tax gross-up or other related tax payments in
connection with Network Upgrades forces retail customers to subsidize
the Interconnection Customer.
Commission Conclusion
105. Order No. 2003-A excepted from the total dollars refundable as
transmission credits any amount related to the tax gross-up for
Interconnection Facilities.\42\ Order No. 2003-A distinguished tax
payments related to Network Upgrades from tax payments related to
Interconnection Facilities.\43\ Because the tax payments related to
Interconnection Facilities are not ultimately recoverable in
transmission rates, the Interconnection Customer must reimburse the
Transmission Provider for these payments to make the Transmission
Provider whole. For this reason, pro forma LGIA article 11.4.1 excludes
from the refundable total any costs related to tax payments for
Interconnection Facilities. And because all costs associated with
Network Upgrades are recoverable through transmission rates, including
the cost of funding any related current tax liability, the Transmission
Provider should refund to the Interconnection Customer as transmission
credits those tax gross-up or other related tax payments initially
funded by the Interconnection Customer.\44\
---------------------------------------------------------------------------
\42\ LGIA article 11.4.1.
\43\ Order No. 2003-A at P 338-341.
\44\ See id. at P. 341.
---------------------------------------------------------------------------
4. Applicable Reliability Council Operating Requirements
106. LGIA article 9.1 requires the Interconnection Customer and the
Transmission Provider to comply with the Applicable Reliability Council
operating requirements. The Transmission Provider may impose
supplemental interconnection requirements not specifically required by
the Applicable Reliability Council, particularly those related to
system protection and safety, if the Applicable Reliability Council
requirements specifically allow such requirements. The Transmission
Provider must also impose such requirements on itself and all other
Interconnection Customers, including its Affiliates.
Rehearing Request
107. NRECA complains that the Transmission Provider's inability to
impose supplemental interconnection requirements if they are not
referenced in the Applicable Reliability Council documents creates
significant risks to the safety and reliability of the Transmission
Provider's Transmission System.
Commission Conclusion
108. We deny NRECA's request for rehearing. Order No. 2003-A stated
that most operational requirements are already contained in or
referenced in the Applicable Reliability Council's standards. Where
such operational requirements are not specifically contained in or
referenced in those standards, we strongly encourage the Transmission
Provider to seek to have such requirements codified. As provided in
Order No. 2003-A, the Transmission Provider is free to propose
variations, provided that it can demonstrate that they are consistent
with or superior to the pro forma LGIP.
5. Power Factor Design Criteria
109. 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.
This provision does not apply to wind generators.
Rehearing Request
110. SoCal Edison argues that wind generators should not be
exempted from the power factor requirement. Such an exemption may lead
to uncontrolled voltage problems. It also contends that one commenter
misled the Commission when it asserted that wind generators are unable
to meet the power factor requirement; wind generating facilities have
been able to meet this requirement for many years.
Commission Conclusion
111. Order No. 2003-A adopted Appendix G of the LGIA (Requirements
of Generators Relying on Newer Technologies) as a placeholder for
future interconnection requirements specific to wind and other
alternative technologies.\45\ The Commission included Appendix G in the
LGIA because (1) a particular LGIA or LGIP requirement might not be
suitable for those technologies and (2) those technologies might call
for a slightly different approach to interconnection. This includes the
power factor design criteria requirement in LGIA article 9.6.1.
---------------------------------------------------------------------------
\45\ Order No. 2003-A at fn 85.
---------------------------------------------------------------------------
112. On September 24, 2004, Commission staff held a conference to
discuss the technical requirements for
[[Page 279]]
the interconnection of wind generators and other alternative
technologies, the needs of transmission operators for voltage support
from large wind farms, and the need for creating specific requirements
in Appendix G to accommodate their interconnection.\46\ Among other
things, the conferees spoke about whether the power factor design
criteria in Order No. 2003-A are reasonable for these technologies. The
Commission is still evaluating the transcript of the conference and
comments filed afterwards. Until the Commission decides how to proceed
based upon the record in that proceeding, it will continue to exempt
wind generators from the power factor design criteria in LGIA article
9.6.1.
---------------------------------------------------------------------------
\46\ Interconnection for Wind Energy and Other Alternative
Technologies, Docket No. PL04-15-000; Standardization of Small
Generator Interconnection Agreements and Procedures, Docket No.
RM02-12-000; and Standardizing Generator Interconnection Agreements
and Procedures, Docket Nos. RM02-1-001, RM002-1-005.
---------------------------------------------------------------------------
6. Payment for Reactive Power
113. LGIA article 9.6.3 requires the Transmission Provider to pay
the Interconnection Customer for reactive power the Interconnection
Customer provides or absorbs when the Transmission Provider asks the
Interconnection Customer to operate its Generating Facility outside a
specified power factor range, provided that if it pays its own or
affiliated generators for reactive power service within the specified
range, it must also pay the Interconnection Customer. Payments are to
be under the Interconnection Customer's rate on file with the
Commission, unless service is under a Commission-approved RTO or ISO
tariff. Order 2003-A clarified that there is nothing in LGIA article
9.6.3 that requires the Interconnection Customer to run its Generating
Facility solely to provide reactive power to the Transmission Provider
simply because it has an interconnection agreement with the
Transmission Provider.
Rehearing Requests
114. The Commission stated in Order No. 2003-A that there is
nothing in LGIA article 9.6.3 that requires the Interconnection
Customer to run its Generating Facility solely to provide reactive
power to the Transmission Provider simply because it has an
interconnection agreement with the Transmission Provider. AEP notes
that in Order No. 2003, the Commission agreed 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.'' These two statements are inconsistent,
claims AEP. The Transmission Provider is required to offer ``Reactive
Power and Voltage Control from Generation Resources Service'' (Schedule
2 Service) under Order No. 888. The Transmission Provider thus has a
responsibility to keep its own generators on line and be able to
provide reactive power to allow delivery service on demand anywhere on
its electric system. AEP notes that the Transmission Provider is
generally paid for providing this service to retail customers through a
bundled rate. The cost of providing this service to wholesale customers
is recovered through transmission rates--not through a payment to the
Transmission Provider's generators, as Calpine had suggested. In
contrast, the Interconnection Customer has no such obligation. AEP asks
the Commission to clarify that a Transmission Provider that is required
to provide Schedule 2 Service, and that charges for it accordingly, is
not ``paying its own generators'' for reactive power within the
established range and thus triggering a responsibility to pay the
Interconnection Customer in the same manner.
115. AEP also seeks clarification that Order No. 2003-A does not
prejudge the manner in which the Interconnection Customer should be
paid for providing reactive power service.
116. Calpine, EPSA, and PSEG argue that the Interconnection
Customer's right to be paid for providing reactive power should not
hinge on whether the Transmission Provider pays its own or its
Affiliate's generators. They contend that their generators provide
reactive power service that is similar to Schedule 2 Service and,
therefore, they should receive comparable compensation. They argue that
they should be paid for reactive power provided, whether within or
outside of the established power factor range. They also argue that the
Interconnection Customer incurs an opportunity cost when its Generating
Facility must provide reactive power when it reduces real power output.
Finally, they state that some regions have mechanisms to compensate for
providing reactive power \47\ and seek clarification that LGIA article
9.6.3 will not disturb those arrangements.
---------------------------------------------------------------------------
\47\ E.g., PJM, NYISO, and ISO New England.
---------------------------------------------------------------------------
117. Reliant states that Order No. 2003-A was an improvement over
Order No. 2003. However, it contends that the Commission should
reinstate the Advance Notice of Proposed Rulemaking (ANOPR) language,
which provided that an Interconnection Customer could file a tariff
with the Commission to secure compensation for reactive power service.
Reliant states that the ANOPR language is balanced and negotiated.
Commission Conclusion
118. We disagree with AEP's assertion that there is a contradiction
in the Commission's clarifications in Order No. 2003-A. The intent of
the first clarification was to ensure that the Transmission Provider
could not demand that the Interconnection Customer operate its
Generating Facility solely to provide reactive power. The
Interconnection Customer, however, may be required by the Transmission
Provider to provide reactive power from time to time when its
Generating Facility is in operation.
119. As to the second clarification, we further clarify that while
the Transmission Provider is not ``paying'' its own or affiliated
generators directly for providing reactive power within the specified
range, the owner of the generator is nonetheless being compensated for
that service when the Transmission Provider includes reactive power
related costs in its transmission revenue requirement. Therefore, the
``trigger'' to compensate the Interconnection Customer for providing
this service is not eliminated, as AEP argues. We require that an
Interconnection Customer be treated comparably with the Transmission
Provider and its Affiliates. Accordingly, we are requiring the
Transmission Provider to pay the Interconnection Customer for providing
reactive power within the specified range if the Transmission Provider
so pays its own generators or those of its Affiliates.
120. We also clarify that Order No. 2003-A does not prejudge how
the Interconnection Customer is to be compensated for providing
reactive power. LGIP article 9.6.3, as revised in Order No. 2003-A,
states that such payments are to be provided under a filed rate
schedule unless service is provided under a Commission-approved RTO or
ISO tariff.
121. We also clarify that there is nothing in LGIA article 9.6.3
that disturbs any present arrangements for reactive power compensation.
122. In response to Reliant, we decline to substitute the
referenced ANOPR language because the ANOPR language was, at best,
vague.
7. Security
123. LGIA article 11.5 requires the Interconnection Customer, among
other
[[Page 280]]
things, to provide a form of security ``reasonably acceptable to
Transmission Provider'' and ``consistent with the Uniform Commercial
Code.'' The security 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.''
Rehearing Request
124. Southern Company argues that LGIA article 11.5 should include
an obligation to maintain security. Requiring the amount of security to
be automatically and immediately reduced on a dollar-for-dollar basis
for payments made to the Transmission Provider under the
interconnection agreement is arbitrary and discriminatory, as it
ignores the risk this imposes on the Transmission Provider under
bankruptcy law. Specifically, section 547 of the U.S. Bankruptcy Code
provides that a Debtor in Possession or a Bankruptcy Trustee may avoid
preferential transfers made by the bankrupt entity on or within 90 days
before the filing of the relevant bankruptcy petition. If payments to
the Transmission Provider could be deemed ``preferential,'' the
Transmission Provider needs the protection given by the security
required under article 11.5 to be maintained and not reduced until such
payment is not subject to being avoided, set aside, or returned under
section 547. Language to this effect should be added to article 11.5;
otherwise the Transmission Provider would have no reasonable prospect
of being repaid for any payments required to be returned or set aside
under bankruptcy law, and the Transmission Provider would also incur
legal expenses associated with the defense of such claims.
Commission Conclusion
125. We reject Southern Company's requests for rehearing. Although
Southern Company's argument regarding the maintenance of security is
untimely and should have been raised in response to Order No. 2003, we
will address the argument here to provide clarification. The change
Southern Company proposes is unnecessary. Article 11.5 already requires
the security provided by the Interconnection Customer to be
``sufficient to cover'' the relevant costs and that a letter of credit
or surety bond specify ``a reasonable expiration date.'' \48\
Therefore, Southern Company's concern that an Interconnection Customer
would not be required to maintain the security is misplaced, as the
article requires that ``sufficient'' security be maintained for a
``reasonable'' period of time.
---------------------------------------------------------------------------
\48\ See LGIA article 11.5, 11.5.2, and 11.5.3.
---------------------------------------------------------------------------
126. Southern Company's arguments regarding bankruptcy were
presented and rejected in Order No. 2003-A,\49\ and Southern Company
offers no new arguments.
---------------------------------------------------------------------------
\49\ Order No. 2003-A at P 428, 431.
---------------------------------------------------------------------------
8. Assignment
127. LGIA article 19.1 provides that the written consent of the
non-assigning party is ordinarily required to assign the
interconnection agreement. However, the Interconnection Customer may
assign the agreement, without the consent of the Transmission Provider,
for collateral security purposes to aid in financing the Generating
Facility (i.e., collateral assignment).
Rehearing Request
128. Southern Company argues that several revisions to LGIA article
19.1 are needed to conform to the Uniform Commercial Code and to the
OATT. It seeks clarification that a party is not relieved of its
obligations if another party assigns the agreement. It adds that the
Interconnection Customer only has the right to assign the
interconnection agreement to another eligible customer. Southern
Company proposes that the Commission revise article 19.1 to subject the
collateral assignment of the agreement to the prior written consent of
the Transmission Provider if the collateral assignee is not an eligible
customer. Such consent is a suitable way for the Transmission Provider
to (1) obtain the collateral assignee's agreement and (2) transfer the
interconnection agreement in a foreclosure sale only to an eligible
customer.
129. Southern Company also argues that the Commission should revise
LGIA article 19.1 to address risks associated with adverse claims and
multiple assignments of the Interconnection Customer's rights. It
states that the exercise of assignment rights by an assignee should be
made subject to the Transmission Provider not having received a
contrary court order or notice of an unresolved contrary claim.
Otherwise, the Transmission Provider could be in violation of a court
order or have to resolve which claimant is legally entitled to exercise
assignment rights. Southern Company further claims that this
requirement is superior to the pro forma LGIA in that it helps assure
that the proper assignee receives the benefits of the LGIA and that a
Transmission Provider does not incorrectly recognize an improper or
subordinate assignee as being entitled to the Interconnection
Customer's rights under the LGIA.
130. Southern Company also proposes that the Transmission Provider
have the right to require the collateral assignee or its purchaser in
foreclosure to assume the interconnection agreement and also cure any
existing defaults before receiving the benefits of an assignee. It
states that if a defaulting Interconnection Customer had not assigned
its rights, the Transmission Provider would be free to require the
Interconnection Customer to either cure its defaults or terminate the
agreement. This ``perform'' or ``get out of the queue'' policy benefits
competing Interconnection Customers and potential competitors. The
Transmission Provider should not have to provide service to a
collateral assignee or purchaser in foreclosure if uncured defaults
exist or amounts are owed in arrears after the application of any
security provided to the Transmission Provider by the assignor.
Southern Company argues that to rule otherwise could result in
discrimination against the Transmission Provider and other
Interconnection Customers in the queue or desiring to join the queue if
the Transmission Provider continues to provide service, despite not
being made whole.
Commission Conclusion
131. LGIA article 19.1 already states that an assignment does not
relieve a Party of its obligations under the interconnection agreement.
As to Southern Company's concern about the assignee being an eligible
customer, article 19.1 already requires that the assignee have the
``legal authority and operational ability to satisfy the obligations of
the assigning Party.'' This ensures that the assignee is able to meet
the obligations under the agreement. And if the assignee is unable to
meet the obligations, article 19.1 requires the assignor to fulfill the
obligations under the agreement. We are not requiring that the assignee
be an ``Eligible Customer'' under Southern Company's OATT because
Southern Company has not explained why this designation should be
required of an assignee of an interconnection agreement. In response to
Southern Company's arguments regarding collateral assignment and the
assignment of debts, the Commission rejected these arguments in Order
No.
[[Page 281]]
2003-A,\50\ and Southern Company has offered no new information or
arguments that prompt us to change that conclusion.
---------------------------------------------------------------------------
\50\ Id. at P 475, 476.
---------------------------------------------------------------------------
9. Disclosure of Confidential Information
132. LGIA article 22.1.10 provides that a Party must provide any
information requested by the Commission or its staff, including
Confidential Information. Order No. 2003-A modified article 22 to
require a Party to provide requested information to a state regulator
conducting a confidential investigation, even if the Party otherwise
would be required to maintain this information in confidence.\51\
---------------------------------------------------------------------------
\51\ Id. at P 486.
---------------------------------------------------------------------------
Rehearing Request
133. EPSA notes that Order No. 2003-A revised LGIA articles 22.1.10
and 22.1.11, deleting the requirement that a Party be notified when
another Party receives a request from a state regulator for
Confidential Information.\52\ EPSA states that it has no objection to
state regulators receiving Confidential Information to which they are
entitled, but argues that fundamental fairness and due process should
preclude the secret release of Confidential Information. The issue of
providing state regulators with access to Confidential Information is
under discussion in other forums and, EPSA concludes, any policy
developed in this proceeding should be consistent with how the issue is
addressed elsewhere. As an example of one forum, EPSA notes that the
PJM Electricity Markets Committee (EMC) held several stakeholder
meetings to develop the principles under which state regulators should
be given access to Confidential Information. The principles developed
by the EMC with the input of the state commissions, and which the PJM
Members Committee approved, address a wide range of issues and require
notice of the request to the Party that provided the Confidential
Information. The Commission should reverse the conclusion reached in
Order No. 2003-A and, consistent with the PJM approach, return to its
Order No. 2003 policy of requiring notice to a Party before another
Party releases Confidential Information.
---------------------------------------------------------------------------
\52\ Id.
---------------------------------------------------------------------------
Commission Conclusion
134. We deny EPSA's rehearing request, but provide clarification.
In Order No. 2003-A, the Commission explained that it was deleting the
requirement that a Party be notified when another Party receives a
request for Confidential Information from a state regulator because a
state regulator should have the same rights to Confidential Information
as this Commission. We clarify here that the state regulator has the
right to request Confidential Information from one Party (without
notification to the other Party) only when the state commission has the
legal authority to do so. The pro forma LGIA should not be interpreted
as granting states access to Confidential Information where the state
lacks authority under state law. Nor should the pro forma LGIA be
interpreted as barring or limiting a state's access to information, or
the procedures through which a state may request such information,
where such access is permitted under state law. We are modifying
article 22.1.10 to clarify this point. As for EPSA's argument regarding
PJM, under the ``independent entity variation'' standard, an RTO like
PJM has greater flexibility to propose variations from the pro forma
LGIP and LGIA, including variations to those provisions applicable to
the release of Confidential Information to states. As a result, the RTO
or ISO may propose to treat Confidential Information differently from
the approach taken in Order No. 2003, to better suit regional needs.
E. Issues Related to the Large Generator Interconnection Procedures
1. Scoping Meeting and OASIS Posting
135. 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. If the Transmission Provider intends to hold
a Scoping Meeting with an Affiliate, it is required to announce the
meeting on its OASIS site, transcribe the Scoping Meeting, and make
copies of the transcript available to the public upon request. LGIP
section 3.4 requires the Transmission Provider to post on its OASIS a
list of all Interconnection Requests. It must post information such as
the location of the interconnection and the Generating Facility's
projected In-Service Date. The list is not to disclose the identity of
the Interconnection Customer until the latter executes an
interconnection agreement.
Rehearing Request
136. Southern Company claims that the requirement in LGIP section
3.4 to not disclose the identity of the Interconnection Customer on
OASIS conflicts with the requirement to give notice of a meeting with
an Affiliate. The requirement to disclose the identity of the Affiliate
is discriminatory because it does not apply to other competitors. This
puts the Affiliate at a competitive disadvantage. Southern Company also
claims that the requirement to notice Scoping Meetings with the
Affiliate conflicts with LGIP section 3.4, which requires that the
identity of the Interconnection Customer not be disclosed until the
Interconnection Customer has executed an interconnection agreement. It
asks that the notice and transcript requirements be eliminated or that
the Commission require all Scoping Meetings to be noticed and
transcribed.
Commission Conclusion
137. We deny Southern Company's request for rehearing. An
affiliated Interconnection Customer and one that is not an Affiliate of
the Transmission Provider are not similarly situated. That is, of
course, one of the reasons the Commission created the Code of Conduct
\53\ and Standards of Conduct \54\ for affiliated Interconnection
Customers. Order No. 2003-A balanced the need to treat affiliated and
nonaffiliated Interconnection Customers alike with the need to adhere
to the Code of Conduct and Standards of Conduct requirements. Finally,
we agree with Southern Company that there is a conflict between
sections 3.3.4 and 3.4 of the pro forma LGIP, and are revising the
latter to show that the restriction of section 3.4 (not to disclose the
identity of the Interconnection Customer) does not apply to an
affiliated Interconnection Customer.
---------------------------------------------------------------------------
\53\ 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 publicly utility (i.e., Transmission Provider)
and the Affiliate is to be disclosed simultaneously to the public.
See, e.g., Northeast Utilities Service Company, 87 FERC ] 61,063 at
61,276 (1999).
\54\ Standards of Conduct for Transmission Providers, Order No.
2004, 68 FR 69134 (Dec. 11, 2003), FERC Stats. & Regs., Regulations
Preambles ] 31,155 (2003), order on reh'g, Order No. 2004-A, 69 FR
23562 (Apr. 29, 2004), III FERC Stats. & Regs. ] 31,161 (2004), 107
FERC ] 61,032 (2004), order on reh'g, Order No. 2004-B, 69 FR 48371
(Aug. 10, 2004), III FERC Stats & Regs. ] 31,166 (2004), 108 FERC ]
61,118 (2004).
---------------------------------------------------------------------------
[[Page 282]]
F. Ministerial Changes to the Pro Forma LGIP and LGIA
138. Since Order No. 2003-A was issued, we have identified certain
sections of the LGIP and articles of the LGIA that require
modification. Because of the ministerial nature of these changes, no
further discussion is needed. The changes are included in Appendix B,
which also reports changes to the pro forma LGIP and LGIA that reflect
conclusions in this order.
G. Compliance
139. This order takes effect 30 days after issuance by the
Commission. As with the Order No. 2003 compliance process, the
Commission will deem the OATT of each non-independent Transmission
Provider to be amended to adopt the revisions to the pro forma LGIP and
LGIA contained herein on the effective date of this order. The Order
No. 2003 compliance process also required each non-independent
Transmission Provider to make a ministerial filing to include its pro
forma LGIP and LGIA in its next filing with the Commission. But because
it has taken longer than anticipated for all non-independent
Transmission Providers to make the necessary changes to their OATTs,
here we adopt different compliance procedure. We are requiring all
public utilities that own, control, or operate interstate transmission
facilities to adopt the revisions to the pro forma LGIP and pro forma
LGIA that appear in this order within 60 days after the issuance of
this order by the Commission. A non-independent Transmission Provider
that already has amended its OATT to add the pro forma LGIP and pro
forma LGIA should submit revised tariff sheets incorporating the
changes contained in this order. A non-independent Transmission
Provider that has not yet made the ministerial filing to reflect the
fact that its OATT now follows Order No. 2003, or that has not yet
filed the revisions to the pro forma LGIP or LGIA that appeared in
Order No. 2003-A, must take the necessary steps to ensure that its OATT
contains the pro forma LGIP and pro forma LGIA including the revisions
in this order within 60 days after issuance of this order by the
Commission. Within the same time frame, each RTO or ISO also must
submit either revised tariff sheets incorporating changes contained in
this order, or an explanation under the independent entity variation
standard as to why it is not adopting each change.
140. Also, in Order No. 2003 the Commission required that for any
non-conforming LGIAs submitted for approval, the Transmission Provider
``should clearly indicate where the agreement does not conform to its
standard Interconnection Agreement, preferably through red-lining and
strikeout.'' \55\ We clarify here that each Transmission Provider
submitting a non-conforming agreement for Commission approval must
explain its justification for each nonconforming provision and provide
a redline document comparing the nonconforming agreement to the
effective pro forma LGIA.
---------------------------------------------------------------------------
\55\ Order No. 2003 at P 915.
---------------------------------------------------------------------------
IV. Information Collection Statement
141. Order No. 2003-B contains information collection requirements
for which the Commission obtained approval from the Office of
Management and Budget (OMB).\56\ Given that this order makes only minor
changes to Order Nos. 2003 and 2003-A, OMB approval for this order is
not necessary. However, the Commission will send a copy of this order
to OMB for informational purposes.
---------------------------------------------------------------------------
\56\ The OMB Control Number for this collection of information
is 1902-0096.
---------------------------------------------------------------------------
V. Regulatory Flexibility Act Certification
142. The Regulatory Flexibility Act (RFA) \57\ requires rulemakings
to contain either (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 Nos. 2003 and 2003-
A, the Commission certified that the Final Rule would not have a
significant economic effect on a substantial number of small
entities.\58\
---------------------------------------------------------------------------
\57\ 5 U.S.C. 601-612
\58\ Order No. 2003 at P 924; Order No. 2003-A at P 792.
---------------------------------------------------------------------------
Rehearing Request
143. NRECA repeats the argument made previously that the Commission
has underestimated the number of utilities affected by Order No. 2003.
It asks the Commission to clarify that a cooperative with an existing
Order No. 888 waiver will not lose that waiver as soon as it receives
an Interconnection Request. It also requests clarification that if an
Interconnection Customer seeks Interconnection Service from a small
utility that believes that it would be overly burdened by the
requirements of Order Nos. 2003 and 2003-A, the small utility may seek
waiver of those requirements from the Commission.
Commission Conclusion
144. The Commission stated in Order No. 2003 that it is sympathetic
to the needs of small entities.\59\ However, NRECA raises no new
arguments that it did not raise in its rehearing request to Order No.
2003. We therefore reject its assertion that the Commission's RFA
analysis was unrealistic.\60\
---------------------------------------------------------------------------
\59\ See Order No. 2003 at P 830.
\60\ See, e.g., Order No. 2003-A at P 789 et seq.
---------------------------------------------------------------------------
145. As to its request for clarification, NRECA is correct that an
entity may at any time request waiver of the Commission's regulations.
However, as the Commission stated in Order No. 2003, waivers must be
made on a case-by-case basis.\61\ Absent the granting of such a waiver
request, however, NRECA is correct that a request for jurisdictional
service (including Interconnection Service) would mean that a utility
with a conditional waiver of Order No. 888 would lose that waiver.
---------------------------------------------------------------------------
\61\ Order No. 2003 at P 830-831.
---------------------------------------------------------------------------
VI. Document Availability
146. 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.
147. 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]
VII. Effective Date
148. Changes to Order Nos. 2003 and 2003-A made in this order on
rehearing will become effective on January 19, 2005.
Regulatory Text
List of Subjects 18 CFR Part 35
Electric power rates, Electric utilities, Reporting and
recordkeeping requirements.
[[Page 283]]
By the Commission. Commissioner Brownell dissenting in part with
a separate statement attached.
Linda Mitry,
Deputy Secretary.
The Appendices will not be published in the Code of Federal
Regulations.
Appendix A
Petitioner Acronyms
AEP--American Electric Power Service Corp.
Calpine--Calpine Corporation
Cinergy--Cinergy Services, Inc.
EPSA--Electric Power Supply Association
Intergen--Intergen Services, Inc. and Tenaska, Inc.
NRECA--National Rural Electric Cooperative Association
NYISO--New York Independent System Operator, Inc. and the New
York Transmission Owners
PSEG--PSEG Companies and GWF Energy LLC
Reliant--Reliant Resources, Inc.
SoCal Edison--Southern California Edison Company
Southern Company--Southern Company Services, Inc.
SWTransco--Southwest Transmission Cooperative, Inc.
TAPS--Transmission Access Policy Study Group
Appendix B
Changes To The Pro Forma LGIP and LGIA
------------------------------------------------------------------------
------------------------------------------------------------------------
Large Generator Interconnection Procedures (LGIP)
------------------------------------------------------------------------
Section 1--Definition of ``Force Change ``caused'' to ``cause''.
Majeure''.
Section 1--Definition of Network Change ``in the same manner as
Resource Interconnection Service. all other Network Resources''
to ``in the same manner as
Network Resources''.
Section 3.2.2.1....................... Remove two instances of ``all
other'' in this section:
``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 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
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.''
Section 3.2.2.2....................... At the end of this section, add
the following text: ``The
Transmission Provider may also
study the Transmission System
under non-peak load conditions.
However, upon request by the
Interconnection Customer, the
Transmission Provider must
explain in writing to the
Interconnection Customer why
the study of non-peak load
conditions is required for
reliability purposes.''
Section 3.4........................... In the third sentence, change
``The list will not * * *'' to
``Except in the case of an
Affiliate, the list will not *
* *''
Section 5.2........................... In the second sentence, change
text to read: ``* * * to the
Interconnection Customer, as
appropriate.''
Section 7.2........................... In the third paragraph, second
sentence, change text to read:
``For the purpose of this
section 7.2, * * *
Section 7.6........................... Change the first sentence to
read: ``If Re-Study of the
Interconnection System Impact
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 7.2 Transmission
Provider shall notify
Interconnection Customer in
writing.''
Section 9............................. In the second paragraph, second
sentence, change ``party'' to
``Party.''
Section 11.1.......................... In the second sentence, change
``'' Interconnection Customer
shall tender a draft LGIA,
together with draft appendices
completed to the extent
practicable'' to ``''
Transmission Provider shall
tender a draft LGIA, together
with draft appendices.''
Section 11.2.......................... In the third sentence, change
``* * * tender of the LGIA
pursuant to section 11.1 * *
*'' to ``* * * tender of the
draft LGIA pursuant to section
11.1 * * *''
In the fifth sentence, change
``* * * section 13.5 within
sixty days of tender of
completed draft of the LGIA
appendices'' to ``* * * section
13.5 within sixty (60) Calendar
Days of tender of draft LGIA.''
Section 13.4.......................... In the second paragraph, change
the reference to ``OATT'' to
``Tariff.''
Section 13.6.2........................ In the first sentence, change
the text to read: ``* * *
within thirty (30) Calendar
Days of receipt. * * *'' In the
second sentence, change
``OATT'' to ``Tariff.''
---------------------------------------
Large Generator Interconnection Agreement (LGIA)
------------------------------------------------------------------------
Article 1--Definition of ``Force Change ``caused'' to ``cause''.
Majeure''.
Article 1--Definition of Network Change ``in the same manner as
Resource Interconnection Service. all other Network Resources''
to ``in the same manner as
Network Resources''.
Recitals.............................. Change the last word from
``(OATT)'' to ``(Tariff).''
Article 4.1.2.2....................... Remove ``other'' from the
following sentence in the first
paragraph: ``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
Network Resources.''
Remove ``all other'' from the
following sentence in the
second paragraph: ``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 Network
Resources.''
[[Page 284]]
Article 5.14.......................... Delete the first two sentences
of this article and replace
them with the following
sentence: ``Transmission
Provider or Transmission Owner
and Interconnection Customer
shall cooperate with each other
in good faith in obtaining all
permits, licenses, and
authorizations that are
necessary to accomplish the
interconnection in compliance
with Applicable Laws and
Regulations.''
Article 5.17.7........................ In the second paragraph, before
the last sentence, add this new
sentence: ``The settlement
amount shall be calculated on a
fully grossed-up basis to cover
any related cost consequences
of the current tax liability.''
Article 5.17.8(ii).................... Add the word ``interest'' to the
beginning of this subsection,
revising it to read: ``(ii)
interest on any amount paid * *
*
Reference to 18 CFR
35.19a(a)(2)(ii) should be
changed to 18 CFR
35.19a(a)(2)(iii).
Article 11.4.1........................ In the second paragraph of this
article, replace ``(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.'' with ``(2) declare in
writing that Transmission
Provider or Affected System
Operator will continue to
provide payments to
Interconnection Customer on a
dollar-for-dollar basis for the
non-usage sensitive portion of
transmission charges, or
develop an alternative schedule
that is mutually agreeable and
provides for the return of all
amounts advanced for Network
Upgrades not previously repaid;
however, full reimbursement
shall not extend beyond twenty
(20) years from the Commercial
Operation Date.''
Add the following sentence to
the last paragraph of this
article: ``Before any such
reimbursement can occur, the
Interconnection Customer, or
the entity that ultimately
constructs the Generating
Facility, if different, is
responsible for identifying the
entity to which reimbursement
must be made.''
Reference to 18 CFR
35.19a(a)(2)(ii) should be
changed to 18 CFR
35.19a(a)(2)(iii).
Article 18.1.......................... Capitalize each reference to
``Indemnifying Party.''
Article 18.3.5........................ Revise the second sentence to
read ``* * * thirty (30)
Calendar Days advance written
notice * * *''
Article 18.3.6........................ In the first sentence, change
``polices'' to ``policies.''
Article 19.1.......................... In the second sentence, change
``party's'' to ``Party's.''
Article 22.1.10....................... Revise the last sentence to
read: ``Requests from a state
regulatory body conducting a
confidential investigation
shall be treated in a similar
manner if consistent with the
applicable state rules and
regulations.''
Article 28.1.2........................ In the first sentence, change
``party'' to ``Party.''
------------------------------------------------------------------------
Nora Mead BROWNELL, Commissioner dissenting in part:
On rehearing of Order No. 2003, the Commission made three
critical revisions to the procedures by which Interconnection
Customers obtain cost recovery for their up-front funding of Network
Upgrades. Specifically, the Commission eliminated the following key
protections afforded to Interconnection Customers: (1) The ability
to apply credits to transmission service taken from sources other
than the specific interconnecting generating facility; (2) the
ability to obtain full reimbursement within five years; and (3) the
ability to obtain reimbursement for upgrades made to adjacent
transmission systems (so-called ``Affected Systems'') on which the
Interconnection Customer does not take transmission service. I am
now convinced that the Commission erred in making these revisions,
and that today's order, by making the minor modification of
requiring full reimbursement after twenty years, does not go far
enough to correct that error.
In Order No. 2003-A, the Commission's primary justification for
modifying the cost recovery provisions was that the changes were
necessary to ensure that Interconnection Customers make efficient
decisions on where to site their generating facilities. Rehearing
petitioners make a convincing argument that there is no reason to
believe that these modifications will have any appreciable effect on
siting decisions, which are driven by state and local siting
regulations and fuel accessibility needs. Instead of attempting to
rebut this argument or develop a substitute rationale, the majority
simply treats petitioners' argument as an admission that Network
Upgrade costs are small and, therefore, concludes that
Interconnection Customers have no basis to complain about bearing
those costs. However, the relative size of Network Upgrade costs
compared to other siting costs is irrelevant to whether it is fair
to put Interconnection Customers at substantial risk of never
obtaining full reimbursement for upgrades that benefit all
customers.
The Commission has been quite explicit that up-front payment of
Network Upgrades costs by an Interconnection Customer is simply a
``financing mechanism that is designed to facilitate the efficient
construction of Network Upgrades,'' and is ``not a rate for
interconnection or transmission service.'' \1\ As the Commission
explained in Order No. 2003-A, ``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.'' \2\ The primary purpose of having the
Interconnection Customer finance the Network Upgrades was to
alleviate any delay that might result if the Transmission Provider
were forced to secure funding.\3\
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\1\ Standardization of Generator Interconnection Agreements and
Procedures, Order No. 2003-A, Order on Rehearing, 69 FR 15932 (Mar.
26, 2004), FERC Stats. & Regs. ] 31,160 at P 612 (2004).
\2\ Id. at P 613.
\3\ See, e.g., id.
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The issue, then, is whether we have exposed the Interconnection
Customer to undue risk in its role as financier of Network Upgrades
that benefit the system as a whole. I believe that we have.
Therefore, I would grant rehearing and return to the cost recovery
policies we announced in Order No. 2003.
Nora Mead Brownell
[FR Doc. 05-15 Filed 1-3-05; 8:45 am]
BILLING CODE 6717-01-P