[Federal Register Volume 70, Number 79 (Tuesday, April 26, 2005)]
[Proposed Rules]
[Pages 21349-21361]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-8201]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket Nos. RM05-10-000 and AD04-13-000]


Imbalance Provisions for Intermittent Resources Assessing the 
State of Wind Energy in Wholesale Electricity Markets

April 14, 2005.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Notice of Proposed Rulemaking.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) is 
proposing to amend its regulations to require public utilities to 
append to their open access transmission tariffs (OATTs) an 
intermittent generator imbalance service schedule.
    The intent of the amendment is to clarify the imbalance tariff 
provisions that have become outdated and have become unjust, 
unreasonable, unduly discriminatory or preferential, as applied to 
intermittent resources.

DATES: Comments are due May 26, 2005.

ADDRESSES: Comments may be filed electronically via the eFiling link on 
the Commission's Web site at http://www.ferc.gov . Commenters unable to 
file comments electronically must send an original and 14 copies of 
their comments to: Federal Energy Regulatory Commission, Office of the 
Secretary, 888 First Street, NE., Washington, DC 20426. Refer to the 
Comment Procedures section of the preamble for additional information 
on how to file comments.

FOR FURTHER INFORMATION CONTACT:

Matthew J. Deal (Technical Information), Office of Markets, Tariffs and 
Rates, Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-6363.
Bruce Poole (Technical Information), Office of Markets, Tariffs and 
Rates, Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-8468.
Jeffrey Sanders (Technical Information), Office of Market Oversight and 
Investigations, Federal Energy Regulatory Commission, 888 First Street, 
NE., Washington, DC 20426, (202) 502-6455.
Jignasa Gadani (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-8608.
David Withnell (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-8421.

SUPPLEMENTARY INFORMATION:

Introduction

    1. In this Notice of Proposed Rulemaking (NOPR or proposed rule), 
we propose to clarify and amend the imbalance tariff provisions that 
have become outdated and have become unjust, unreasonable, unduly 
discriminatory or preferential, as applied to intermittent 
resources.\1\ At the time Order No. 888 \2\ was issued, intermittent 
resources were not a significant source of generation and typically 
energy from intermittent resources was sold to the host utility. In the 
years since the issuance of Order No. 888, intermittent resources have 
grown at an annual average rate of approximately 20 percent and want to 
avail themselves of the open access transmission tariff (OATT or 
tariff) for opportunities to make sales more broadly, but are hesitant 
to do so because of the application of imbalance provisions that were 
designed to apply to resources with the ability to control fuel input 
and thus schedule their energy with precision. These imbalance 
provisions were not designed to apply to intermittent resources that by 
nature are weather-driven. In order to remove the unjust, unreasonable, 
unduly discriminatory or preferential imbalance tariff provisions, 
while still providing an incentive to intermittent resources to 
schedule as accurately as possible, the Commission, pursuant to its 
authority under sections 205 and 206 of the Federal Power Act,\3\ 
proposes to establish a standardized schedule under the Order No. 888 
pro forma OATT to address generator imbalances created by

[[Page 21350]]

intermittent resources \4\ and clarify the application of the current 
energy imbalance provision of the Order No. 888 pro forma tariff. 
Therefore, under this NOPR, intermittent resources will be assessed 
generator imbalances pursuant to this new schedule and will not be 
subject to any existing generation imbalance provisions under the OATTs 
that contain them.\5\ The existing Schedule 4 Energy Imbalance Charge 
would continue to apply to transmission customers only for any net 
hourly deviations in scheduled load as the Commission had intended in 
Order No. 888.
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    \1\ For purposes of this rulemaking, an intermittent resource is 
an electric generator that is not dispatchable and cannot store its 
fuel source and therefore cannot respond to changes in system demand 
or respond to transmission security constraints.
    \2\ Promoting Wholesale Competition Through Open Access Non-
discriminatory Transmission Services by Public Utilities and 
Recovery of Stranded Costs by Public Utilities and Transmitting 
Utilities, Order No. 888, 61 FR 21,540 (May 10, 1996), FERC Stats. & 
Regs. ] 31,036 (1996), order on reh'g, Order No. 888-A, 62 FR 12,274 
(March 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, 
remanded in part on other grounds sub nom. Transmission Access 
Policy Study Group, et al. v. FERC, 225 F.3d 667 (DC Cir. 2000), 
aff'd sub nom. New York v. FERC, 535 U.S. 1 (2002).
    \3\ 16 U.S.C. 824d-e (2000).
    \4\ Attached to this NOPR as Attachment A--Schedule XYZ: 
Intermittent Generator Imbalance Service Schedule. ``XYZ'' is only a 
placeholder to allow the transmission provider the flexibility to 
label this new schedule with the next available number in its OATT.
    \5\ If the Commission adopts this proposal as a Final Rule, all 
public utilities that currently have generator imbalance schedules 
in their OATTs on file would be required to update those existing 
schedules to exempt intermittent resources. The applicability of 
this proposed rule is limited to situations where the generator 
imbalance provisions are not already addressed in existing 
interconnection agreements between the generator and the 
transmission provider. To the extent there are existing 
interconnection agreements that contain generator imbalance service 
provisions, such agreements should be listed in Appendix 1 to 
Schedule XYZ.
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    2. The adverse impact of certain pro forma OATT provisions on the 
ability of a wind generator to avail itself of open access transmission 
service came to light through discussions with participants in 
wholesale electricity markets, including wind generators. The 
Commission began exploring the issues through a conference held on 
December 1, 2004, in Denver, Colorado to ``assess the state of wind 
energy in wholesale electricity markets'' in order ``to explore 
possible policy changes that would better accommodate the participation 
of wind energy in wholesale markets.'' \6\ Prior to the conference, 
Commission staff issued a briefing paper that discussed several issues 
that wind energy resources encounter in securing interconnection and 
transmission service at just and reasonable rates, terms and 
conditions.\7\ Among the issues explored at the December 1 conference 
was whether the current imbalance provisions contained in the pro forma 
OATT were unjust, unreasonable, unduly discriminatory or preferential 
for intermittent resources, and thus in need of reform. Subsequent 
outreach by Commission staff to industry and comments filed by various 
entities in this proceeding highlighted the need to revisit and reform 
imbalance provisions.
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    \6\ Notices of Technical Conference, October 4, 2004, November 
18, 2004, November 22, 2004 and December 21, 2004, Docket No. AD04-
13-000.
    \7\ Commission Staff's Briefing Paper attached to the November 
22, 2004, Notice of Technical Conference, Docket No. AD04-13-000 
(Briefing Paper).
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    3. Order No. 888 defined and established certain terms and 
conditions for energy imbalance service to promote good scheduling 
practices by transmission customers. Under the energy imbalance service 
provision of the Order No. 888 pro forma tariff, a transmission 
customer submits a schedule for transmission service and load is 
permitted to deviate +/-1.5 percent from that schedule. The pricing for 
energy within and outside of this bandwidth was left for public 
utilities to propose on a case-by-case basis.
    4. Since the issuance of Order No. 888, the Commission has approved 
energy imbalance service pricing provisions on a case-by-case basis. 
Generally, transmission providers proposed energy imbalance charges, 
including penalties for scheduling deviations set at multiples of the 
energy price. The purpose of this was to promote good scheduling 
practices by transmission customers.
    5. Order No. 888 also distinguished energy imbalances from 
generator imbalances. Generator imbalance was defined as the difference 
between the scheduled and actual delivery of energy from the generator, 
as compared to the energy imbalance in the pro forma tariff that 
focused on deviations between scheduled energy and load fluctuations. 
While the Commission adopted an energy imbalance schedule for the pro 
forma OATT, it did not adopt a pro forma generator imbalance schedule. 
It explained that a generator should be able to deliver its scheduled 
hourly energy with precision and expressed concern that if a generator 
was allowed to deviate from its schedule by 1.5 percent without 
penalty, it would discourage good generator operating practices.\8\ 
Therefore, it concluded that the requirements for the generator to meet 
its schedule and any consequence for persistent failure to meet its 
schedule should be specified in each generator's interconnection 
agreement with its transmission provider or control area \9\ operator. 
As discussed below, it also noted that the pro forma OATT contained 
several mechanisms to help generators match their output to their 
schedules.\10\
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    \8\ Order No. 888-A at 30,230.
    \9\ We note that, since the advent of Order No. 888, North 
American Electric Reliability Council (NERC) has been updating its 
reliability functions and considering whether the reliability 
functions that control areas have traditionally performed should be 
unbundled. Accordingly, NERC is developing a Functional Model to 
enable it to rewrite its reliability standards in terms of the 
responsible entity which now performs a given reliability function. 
In particular, with regard to the balancing function, a Balancing 
Authority is identified under NERC's Functional Model as having the 
responsibility to maintain the load-resource balance within a 
Balancing Authority Area. A Balancing Authority Area, in turn, is 
defined as the collection of generation, transmission, and loads 
within the metered boundaries of the Balancing Authority. See Final 
Report on the Functional Model--Reliability Standards Coordination 
Task Force, March 11, 2005. NERC's ``Version 0'' reliability 
standards became effective April 1, 2005.
    \10\ These include allowing the modification of schedule closer 
to real-time, negotiation of more favorable imbalance provisions and 
dynamic scheduling.
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    6. Notwithstanding the Commission's direction in Order No. 888 that 
generator imbalances should be addressed in a generator's 
interconnection agreement, several transmission providers have sought 
Commission approval to include in their OATTs generator imbalance 
service schedules that resemble the energy imbalance service schedules 
in their tariffs. In accepting these schedules, the Commission 
clarified that generator imbalance service was not an ancillary 
service. Thus, while energy imbalances and generator imbalances are 
different, some transmission providers use similar provisions to settle 
them. In addition to these types of generator interconnection service 
schedules in the OATTs, certain entities have revised their tariffs to 
reflect the uniqueness of wind energy; and the California Independent 
System Operator Corporation (California ISO) has a program in place 
that it claims allows wind resources to compete on a comparable basis 
as other generators with regard to imbalance provisions.\11\
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    \11\ The Commission-approved California ISO Participating 
Intermittent Resources Program (PIRP) that exempts wind from hourly 
imbalance penalties and substitutes monthly netting of imbalances in 
return for centralized wind delivery forecasting, is an example of 
tariff reforms that could facilitate wind development. California 
Independent System Operator Corp., 98 FERC ] 61,327, order accepting 
compliance filing, 99 FERC ] 61,309 (2002). The California ISO's 
voluntary PIRP was created to accommodate projected growth of wind 
generation attributable to California's renewable supply 
requirements.
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    7. At the time Order No. 888 was developed and issued, wind 
generation was not a significant energy source in the wholesale 
electricity market. U.S. wind capacity in 1996 was approximately 1,698 
MW.\12\ By 2004, installed wind capacity, while still approximately 
less than one percent of U.S. total installed capacity, has grown to 
6,740 MW, an annual growth rate of approximately 20 percent over the 
last

[[Page 21351]]

eight years.\13\ As discussed in the Briefing Paper, wind energy, while 
a relatively new market entrant, is the fastest growing electricity 
generation technology in the world today. Increasingly attractive 
economics and technological advances are combining to drive wind 
industry development. State renewable portfolio standards, federal 
production tax credits (PTC) \14\ and historically high natural gas 
prices \15\ are also driving wind development. While there has been 
significant progress towards integrating wind resources into suppliers' 
and loads' portfolios, some challenges may result from the terms and 
conditions of transmission service required by transmission providers.
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    \12\ American Wind Energy Association (AWEA), Wind Power: U.S. 
Installed Capacity (Megawatts), 1981-2004 (visited Apr. 11, 2005) 
http://www.awea.org/faq/instcap.html.
    \13\ Commission staff's analysis is based on data collected from 
AWEA, Wind Energy Projects Throughout the United States of America 
(last modified Mar. 24, 2005) http://www.awea.org/projects/ and 
Platts' PowerDat.
    \14\ The PTC, as renewed in October 2004, provides a credit of 
1.8 cents/kWh produced for ten years from the date a facility is put 
into operation. To qualify, a wind facility must be operational 
before the PTC expires (currently slated for December 2005).
    \15\ NYMEX spot natural gas prices in nominal dollars.
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    8. Recently, proponents of wind generation have been arguing that 
the deviation between a wind generator's hourly output and its schedule 
(generator imbalance) is not influenced by the threat of a penalty. 
Rather, they assert, such imbalances are weather-dependent. Moreover, 
they note, while improved forecasting could mitigate some imbalances, 
significant imbalances would remain that cannot be controlled as can 
thermal generation. Thus, they maintain that wind generators are 
susceptible to high imbalance charges and/or penalties that discourage 
the development of and opportunities for wind resources to serve load.
    9. The Commission has a duty to prevent unduly discriminatory 
practices in transmission access. Since deviations by wind generators 
from their schedules are much more driven by weather than by 
controllable factors (compared to most other generators), the generator 
imbalance provisions in transmission providers' OATTs are impeding 
access to transmission by intermittent resources in such a manner as to 
be unduly discriminatory under section 206 of the Federal Power Act. A 
case-by-case analysis of these OATTs would be burdensome and would only 
serve to delay access to the transmission grid by intermittent 
resources. Accordingly, we are proposing a new generator imbalance 
service schedule applicable to intermittent resources to be included in 
the pro forma tariff for adoption by all transmission providers in 
their OATTs.\16\ This new schedule would effectively supersede the 
current OATT generator imbalance provisions for intermittent resources. 
In particular, we propose that the service reflect a bandwidth of +/-10 
percent (with a minimum of 2 MW) and allow net hourly intermittent 
generator imbalances within the bandwidth to be settled at the system 
incremental cost \17\ at the time of the imbalance. We reiterate that 
transmission customers are and must be allowed to change their schedule 
up to 20 minutes before the hour.\18\ We also reiterate our policy that 
a transmission provider may only charge the transmission customer for 
net hourly generator imbalances or net hourly energy imbalances for the 
same imbalance, but not both.\19\ Thus, in the situation where the 
transmission provider has a choice to charge a transmission customer an 
energy imbalance or generator imbalance, we propose that the 
transmission customer would be charged for the net hourly imbalance 
under the proposed intermittent generator imbalance schedule.
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    \16\ Any non-public utility that seeks voluntary compliance with 
the reciprocity condition of an OATT may satisfy this condition by 
adopting the proposed new schedule. Therefore, public power entities 
and other non-public utilities with reciprocity tariffs must add the 
final Schedule XYZ to their reciprocity tariffs if they wish to 
continue to have safe harbor protection.
    \17\ ``Incremental costs are defined as the transmission 
provider's actual average hourly cost of the last 10 MW dispatched 
to supply the transmission provider's native load, based on the 
replacement cost of fuel, unit heat rates, start-up costs, 
incremental operation and maintenance costs, and purchased and 
interchange power costs and taxes.'' Consumers Energy Co., 87 FERC ] 
61,170 at 61,679 (1999) (Consumers).
    \18\ Section 13.8 of the pro forma OATT.
    \19\ The Commission found that where a transmission customer 
schedules 20 MW to serve a 20 MW load, but only 15 MW is delivered 
to the transmission provider and the load is only 15 MW, the 
transmission customer should not be charged for a 5 MW energy 
deviation imbalance and a 5 MW generator deviation imbalance. 
Niagara Mohawk Power Corp., 86 FERC ] 61,009 at 61,028, order on 
reh'g, 87 FERC ] 61,148 (1999) (Niagara Mohawk). Further in 
situations where, for example, if a transmission customer schedules 
20 MW to serve a 20 MW load, but only 15 MW (or 25 MW) is delivered 
and load is 25 MW (or 15 MW), then a transmission provider would be 
allowed to charge the transmission customer both a 5 MW energy 
imbalance deviation and a 5 MW generator imbalance deviation. We 
seek comment on these and other possible scenarios where it would be 
appropriate or inappropriate to charge for generator imbalances and/
or energy imbalances. Also, we seek comment on how to expand 
Schedule XYZ to address the various scheduling deviation situations.
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    10. In proposing the generator imbalance service approach for 
intermittent generation resources, the Commission is mindful of its 
long-standing concerns regarding the maintenance of system reliability 
and the obligation of public utilities to conform to good utility 
practices and abide by NERC's reliability standards.\20\ When the 
Commission adopted order No. 888, it took a conservative approach to 
ensure that system reliability was maintained. For instance, in Order 
No. 888-A, the Commission explained that the energy imbalance service, 
in the pro forma OATT, was not intended to be used as a substitute for 
operating reserves.\21\ The Commission also indicated that a 
transmission customer may not decline the transmission provider's offer 
of energy imbalance service unless it demonstrates that it has acquired 
the services from another source and shows that the alternative 
arrangement for energy imbalance service is adequate and consistent 
with good utility practice.\22\ Further, the Commission denied a 
request to expand the energy imbalance service bandwidth for a 
transmission customer purchasing spinning and supplemental reserves 
because such reserves provide generating capacity that responds to 
contingency situations (e.g., loss or failure of facilities) and noted 
that energy supplied within an expanded bandwidth might be provided 
from reserve capacity that could be needed for maintaining system 
reliability.\23\ In this NOPR, we recognize that intermittent 
resources, unlike dispatchable generation, have a limited ability to 
predict and control their output. Additionally, we expect that the 
penetration rates of these resources for most transmission systems will 
be relatively small in comparison to total generation and transmission 
on any system. As such, small variations in output caused by these 
entities should be easily managed and not unduly threaten system 
reliability.\24\ The intent of the proposals in this NOPR is to not 
allow intermittent resources carte blanche to vary output and threaten 
system reliability. We fully expect that to the extent that a specific 
transmission system configuration may require that additional measures 
be taken to

[[Page 21352]]

maintain system reliability,\25\ we would entertain such proposals to 
undertake such additional measures, on a case-by-case basis. We seek 
comment on what impact the proposed bandwidth of +/-10 percent with 
regard to intermittent generator imbalances and scheduling flexibility 
might have on the operation of the transmission providers' system and 
reliability of the system.
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    \20\ Policy Statement on Matters Related to Bulk Power System 
Reliability, 107 FERC ] 61,052, order granting request for 
clarification, 108 FERC ] 61,288 (2004).
    \21\ Order No. 888-A at 30,230.
    \22\ Order No. 888-A at 30,231.
    \23\ Order No. 888-A at 30,232-33.
    \24\ See New York State Energy Research and Development 
Authority, The Effects of Integrating Wind Power on Transmission 
System Planning, Reliability and Operations Report on Phase 2: 
System Performance Evaluation prepared by GE Energy, Energy 
Consulting ( March 2005) and Xcel Energy and the Minnesota 
Department of Commerce, Wind Integration Study Final Report prepared 
by EnerNex Corp. and WindLogics (September 2004).
    \25\ For example, as the ratio of intermittent resource capacity 
to generation dispatchable capacity increases, beyond some point it 
becomes unmanageable with normal operating tools, and thereby 
destabilizes the system and threatens system reliability.
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    11. These proposed changes should encourage the development of wind 
resources by removing barriers that affect intermittent resources' 
access to the transmission grid. This will bring benefits to energy 
customers and support increased reliability by increasing the diversity 
of energy supplies.
    12. The impetus for this proposed rule has been provided by the 
wind industry. We also recognize that run-of-river hydroelectric and 
solar power, as well as other emerging technologies, may be similarly 
situated to wind power with respect to the issues presented here. 
Accordingly, we request comments on whether there are other 
technologies that may be subject to this rule and whether the proposal 
will work for those technologies. We also seek comments on the 
Commission's proposed definition of intermittent resources as stated in 
footnote 1 of this NOPR.

Background

Order No. 888

    13. In Order No. 888, the Commission concluded that six ancillary 
services must be included in an OATT.\26\ One of those ancillary 
services is energy imbalance service (Schedule 4 of the pro forma 
OATT).\27\ The Commission explained that energy imbalance service ``is 
provided when the transmission provider makes up for any difference 
that occurs over a single hour between the scheduled and the actual 
delivery of energy to a load located within its control area.'' \28\ 
The Commission recognized that the amount of energy taken by load in an 
hour is variable and not subject to the control of either a wholesale 
seller or a wholesale requirements buyer.\29\
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    \26\ Order No. 888 at 31,703.
    \27\ Id.
    \28\ Id. at 31,960.
    \29\ Order No. 888-A at 30,230.
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    14. The Commission also found that the energy imbalance service 
should have an energy deviation band or bandwidth appropriate for load 
variations and a price for exceeding the bandwidth that is appropriate 
for excessive load variations.\30\ The bandwidth established by the 
Commission is an hourly deviation band of +/-1.5 percent (with a 
minimum of 2 MW) for energy imbalance.\31\ The Commission further 
explained that this bandwidth promotes good scheduling practices by 
transmission customers and that it is important that the implementation 
of each scheduled transaction not overly burden others.\32\
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    \30\ Id.
    \31\ Order No. 888 at 31,960-61. In Order No. 888-A, the 
Commission recognized the needs of small customers and raised the 
minimum energy imbalance from one megawatt per hour to two megawatts 
per hour. In doing so, the Commission sought to balance its primary 
goal of promoting good scheduling practices with its commitment to 
provide as much relief as possible to small customers. Order No. 
888-A at 30,232-33 and 30,540.
    \32\ Order No. 888-A at 30,232.
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    15. With respect to the hourly energy deviation band, the 
Commission explained that for energy imbalances within the deviation 
band, the transmission customer may make up the difference within 30 
days (or other reasonable period generally accepted in the region) by 
adjusting its energy deliveries to eliminate the imbalance (i.e., 
return energy in kind within 30 days).\33\ In addition, the Commission 
explained that the transmission customer must compensate the 
transmission provider for an imbalance that falls outside the hourly 
deviation band and for accumulated minor imbalances that are not made 
up within 30 days.\34\
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    \33\ Id. at 30,229. In Niagara Mohawk, the Commission rejected 
the return-in-kind energy compensation approach, reiterating its 
concern in Order No. 888-A that generators might intentionally 
undergenerate during high-cost hours and make it up by 
overgenerating during low-cost hours. Id. at 86 FERC at 61,028.
    \34\ Order No. 888-A at 30,229.
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    16. The Commission further stated that to help customers with the 
difficulty of forecasting loads far in advance of the hour, the pro 
forma OATT permits schedule changes up to twenty minutes before the 
hour at no charge.\35\ The Commission added that it would allow the 
transmission provider and the customer to negotiate and file another 
bandwidth more flexible to the customer, if the same bandwidth is made 
available on a not unduly discriminatory basis.\36\
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    \35\ Order No. 888-A at 30,233.
    \36\ Id.
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    17. With respect to the price of energy imbalance service, the 
Commission explained that the Final Rule intentionally did not provide 
detailed pricing requirements.\37\ Instead, the Commission required 
transmission providers to apply to the Commission for appropriate rates 
for energy imbalance service.\38\
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    \37\ Id. at 30,234.
    \38\ Id.
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    18. While the Commission found that energy imbalance service was an 
ancillary service, it also recognized that differences arise between 
energy scheduled for delivery from the generator's control area and the 
amount of energy actually generated in an hour (generator 
imbalance).\39\ It concluded, however, that a generator should be able 
to deliver its scheduled hourly energy with precision and expressed 
concern that if it were to allow the generator to deviate from its 
schedule by 1.5 percent without penalty, as long as it returned the 
energy in kind at another time, it would discourage good generator 
operating practices.\40\ The Commission stated that a generator will 
have an interconnection agreement with its transmission provider or 
control area operator, and that this agreement should specify the 
requirements for the generator to meet its schedule, and for any 
consequence for persistent failure to meet its schedule.\41\ The 
Commission concluded that these arrangements should be done on an 
agreement-by-agreement basis, and that it preferred not to set these 
standards generically for all parties.\42\
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    \39\ Id. at 30,230.
    \40\ Id.
    \41\ Id.
    \42\ Id. at 30,230-31.
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    19. In Order No. 888, the Commission decided not to designate 
dynamic scheduling service as an ancillary service.\43\ Dynamic 
scheduling was considered a special service that was not only used 
infrequently in the industry, but used advanced technology and required 
a great level of coordination. Thus, the Commission stated that each 
dynamic scheduling application has unique costs for special telemetry 
and control equipment, making it difficult to post a standard price for 
the service. Therefore, transmission providers were not required to 
offer this service to a transmission customer, although it was allowed 
to do so voluntarily.\44\ If the customer wanted to purchase this

[[Page 21353]]

service from a third party, the transmission provider was directed to 
make a good faith effort to accommodate the necessary arrangements 
between the customer and the third party for metering and communication 
facilities.\45\
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    \43\ Dynamic Scheduling provides the metering, telemetering, 
computer software, hardware, communications, engineering, and 
administration required to allow remote generators to follow closely 
the moment-to-moment variations of a local load. In effect, dynamic 
scheduling electronically moves load out of the control area in 
which it is physically located and into another control area. Order 
No. 888 at 31,709-10.
    \44\ Order No. 888-A at 31,710.
    \45\ Id.
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Case Precedent

    20. Although transmission providers have different energy imbalance 
charges set forth in Schedule 4 of their OATTs, typical pricing 
provisions provide that the parties correct energy imbalances within 
the deviation band through return in kind or financial settlement which 
requires the transmission customer to pay a charge for under-deliveries 
of energy equal to 100 percent of the transmission provider's system 
incremental cost for the hour the deviation occurred, and for energy 
over-deliveries the transmission customer would receive a payment equal 
to 100 percent of the transmission provider's decremental cost for the 
hour the deviation occurred.\46\ Outside the deviation band, utilities 
typically charge the transmission customer for under-delivery of energy 
a charge equal to the greater of $100/MWh or 110 percent of the 
utility's system incremental cost, and pay the transmission customer 
for over-delivery of energy a payment equal to 90 percent of the 
utility's system decremental cost.\47\
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    \46\ See, e.g., Schedule 4 (Energy Imbalance Charge) of Arizona 
Public Service Company and Public Service Company of New Mexico 
(PNM).
    \47\ Id.
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    21. The Commission has accepted a number of modifications to the 
OATT to include generator imbalance provisions.\48\ The first case 
involved a filing by Niagara Mohawk Power Corp. (Niagara Mohawk) 
proposing a separate tariff to deal with generator imbalances.\49\ The 
Commission rejected that approach, but addressed the filing as an 
amendment to Niagara Mohawk's OATT and accepted generator imbalance 
provisions for inclusion in Niagara Mohawk's OATT. Subsequently, the 
Commission accepted a variety of filings submitted by public utilities 
to amend their OATTs to include generator imbalance provisions.
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    \48\ See, e.g., Niagara Mohawk Power Corp., 86 FERC ] 61,009 
(1999); PacifiCorp, 95 FERC ] 61,145, order on reh'g and 
clarification, 95 FERC ] 61,467 (2001); Alliant Energy Corporate 
Services, Inc., 93 FERC ] 61,340 (2000) (orders on rehearing and 
court appeal sought on other tariff issues); Wolverine Power Supply 
Cooperative, Inc., 93 FERC ] 61,330 (2000); Commonwealth Edison Co., 
93 FERC ] 61,021 (2000); FirstEnergy Operating Cos., 93 FERC ] 
61,200 (2000), order denying reh'g & granting clarification, 94 FERC 
] 61,184 (2001); Tampa Electric Co., 90 FERC ] 61,330 (2000), reh'g 
denied, 95 FERC ] 61,101 (2001); Florida Power Corp., 89 FERC ] 
61,263 (1999); and Consumers, 87 FERC ] 61,170.
    \49\ Niagara Mohawk, 86 FERC at 61,024-29.
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Order No. 2003

    22. In the NOPR in Docket No. RM02-1-000, Standardization of 
Generator Interconnection Agreements and Procedures, the proposed Large 
Generator Interconnection Agreement (LGIA) Article 4.3.1 amendment to 
the OATT required the interconnection customer to make appropriate 
generator balancing service arrangements \50\ before submitting any 
schedules for delivery service that identified the generating facility 
as the point of receipt for the scheduled delivery.\51\ Specifically, 
the interconnection customer would have to ensure that the generating 
facility's actual output matched its scheduled delivery, on an 
integrated clock basis, including ramping in and out of its schedule. 
Also, the interconnection customer was required to arrange for the 
supply of energy when there was a difference between the actual output 
and the scheduled delivery. The proposed Article 4.3 allowed the 
interconnection customer to make generator balancing service 
arrangements in a variety of ways.
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    \50\ A generator balancing service arrangement is a provision of 
the interconnection agreement that makes the interconnection 
customer responsible for matching the generating facility's actual 
output with its scheduled delivery, and requires the interconnection 
customer to arrange for the supply of energy when there is a 
difference between the actual output and the scheduled delivery.
    \51\ Standardization of Generator Interconnection Agreements and 
Procedures, Notice of Proposed Rulemaking, 67 FR 22,250 (May 2, 
2002), FERC Stats. & Regs. 32,560 (2002).
---------------------------------------------------------------------------

    23. On rehearing of Order No. 2003, based on objections to the 
balancing service requirement of Article 4.3, the Commission deleted 
Article 4.3 (and Article 4.3.1) from the LGIA on the basis that this 
requirement is more closely related to delivery service than to 
interconnection service.\52\ In Order No. 2003-A, the Commission noted 
that delivery service requirements are addressed elsewhere in the OATT, 
and therefore a balancing service requirement, and requirements related 
to ancillary services generally, should not appear in the LGIA.\53\
---------------------------------------------------------------------------

    \52\ Standardization of Generator Interconnection Agreements and 
Procedures, Order No. 2003, 68 FR 49,845 (Aug. 19, 2003), FERC 
Stats. & Regs., Regulations Preambles ] 31,146 (2003) (Order No. 
2003), order on reh'g, 69 FR 15,932 (Mar. 24, 2004), FERC Stats. & 
Regs., Regulations Preambles ] 31,160 at 667 (2004) (Order No. 2003-
A), order on reh'g, 70 FR 265 (January 4, 2005), FERC Stats. & 
Regs., Regulations Preambles ] 31,171 (2004) (Order No. 2003-B), 
reh'g pending; see also Notice Clarifying Compliance Procedures, 106 
FERC ] 61,009 (2004).
    \53\ Order No. 2003-A at P 667.
---------------------------------------------------------------------------

    24. On rehearing of Order No. 2003-A, the Commission recognized 
that transmission providers may prefer to include generator balancing 
service arrangements in the pro forma LGIA. The Commission further 
recognized 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.\54\ 
Therefore, in Order No. 2003-B, the Commission permitted the 
transmission provider to include a provision for generator balancing 
service arrangements in individual interconnection agreements.\55\
---------------------------------------------------------------------------

    \54\ Order No. 2003-B at P 75.
    \55\ Id.
---------------------------------------------------------------------------

Summary of Comments in Docket No. AD04-13-000

    25. Several industry participants believe that it is appropriate 
for the Commission to address imbalance penalties and the effect of 
imbalance penalties on intermittent resources.\56\ Edison Electric 
Institute (EEI) supports review and potential revision to existing 
transactions scheduling business practices and procedures in order to 
better accommodate wind energy, provided system reliability is 
maintained in a cost-effective manner.\57\
---------------------------------------------------------------------------

    \56\ See, e.g., Electric Power Supply Association (EPSA) at 2 
and AWEA at 2-4 (Jan. 28, 2005 comments).
    \57\ EEI at 4.
---------------------------------------------------------------------------

    26. Certain entities argue that intermittent renewable resources, 
such as wind generators, lack the ability to control the circumstances 
affecting their output with the assurance required to maintain electric 
output schedules.\58\ They note that intermittent generators do not 
have the ability to modify their output as they rely on the weather for 
their energy source.\59\ Therefore, the commenters argue that penalties 
associated with generator deviations from filed schedules that were 
intended to prevent generators from gaming the market, do not encourage 
a wind generator to match its output with the schedule.\60\ While some 
industry participants seek changes to the imbalance provisions 
contained in public utilities' tariffs,\61\ others believe that wind 
resources should not be assessed any penalties.\62\
---------------------------------------------------------------------------

    \58\ See, e.g., AWEA at 2-4, Renewable Northwest Project (RNP) 
at 3-4 and Zilkha Renewable Energy (Zilkha) at 5-6.
    \59\ See, e.g., AWEA at 2-4 and RNP at 3-4.
    \60\ See, e.g., AWEA at 2-4 and RNP at 3-4.
    \61\ See, e.g., Calpine at 2 and RNP at 4.
    \62\ See, e.g., RNP at 3-4 and Zilkha at 5-6.
---------------------------------------------------------------------------

    27. The Arkansas Public Service Commission (Arkansas Commission)

[[Page 21354]]

recognizes that outside of RTOs, the pro forma tariff permits the 
transmission provider to impose substantial imbalance penalties which 
may pose a magnified burden on wind energy producers because they have 
trouble predicting their daily generation output.\63\ While the 
Arkansas Commission agrees a review of such charges under the pro forma 
tariff is appropriate and such charges should better reflect 
incremental costs, it opposes an exception for wind generators.\64\ 
NorthWestern Energy Corporation (NorthWestern Energy) states that it 
does not oppose the elimination of imbalance penalties for intermittent 
resources, provided that the Commission address whether the Federal 
Power Act's prohibition against undue preference and the Commission's 
policy concerning comparability would be undercut by affording 
preferential treatment for imbalance penalties to a generator based on 
fuel source.\65\
---------------------------------------------------------------------------

    \63\ Arkansas Commission at 6-7.
    \64\ Arkansas Commission at 6-7.
    \65\ Northwestern at 5-7.
---------------------------------------------------------------------------

    28. Oklahoma Municipal Power Authority (OMPA) states that it is the 
Commission's responsibility to ensure that non-control area and control 
area utilities have an equal and non-discriminatory opportunity to 
develop and utilize wind resources.\66\ Transmission Access Policy 
Study Group (TAPS) and OMPA argue that currently, wind generators who 
operate outside the purchasing utility's control area are exposed to 
imbalance penalties under Schedule 4 of the OATT for deviations, while 
control area utilities are able to treat deviations as inadvertent 
energy, subject to return-in-kind requirements.\67\ Calpine states that 
the Commission should re-evaluate imbalance penalties imposed by 
control area operators that operate outside of an Independent System 
Operator (ISO) or Regional Transmission Operator (RTO), whether the 
penalties apply to intermittent resources or to conventional 
resources.\68\
---------------------------------------------------------------------------

    \66\ OMPA at 2.
    \67\ OMPA at 2 and TAPS at 1-2 (Post-technical conference 
comments).
    \68\ Calpine at 2.
---------------------------------------------------------------------------

    29. Several commenters claim that the imbalance penalties are 
arbitrary and punitive and do not measure the true costs of over-
generating or under-generating.\69\ They assert that the penalties 
assessed may be significantly higher than the cost of energy itself 
and, therefore, are cost-prohibitive for these weather-dependent 
generators.\70\
---------------------------------------------------------------------------

    \69\ AWEA at 2-4, RNP at 3-4, National Grid at 5-7 and Zilkha at 
5-6.
    \70\ RNP at 3-4.
---------------------------------------------------------------------------

    30. Several solutions have been proposed for addressing imbalance 
charges and/or penalties. For example, National Grid USA (National 
Grid) and RNP states that the Commission should consider imbalance 
charges for wind resources that are cost-based.\71\ Zilkha advocates 
the elimination of under-generation penalties and supports the 
development of market mechanisms to address both regulation and energy 
imbalances resulting from under-generation.\72\ National Grid and 
NorthWestern Energy asserts that wind generators should be responsible 
for any actual costs incurred, such as system balancing and regulation 
service, to allow for integration of the wind resource.\73\ The 
Arkansas Commission also states that while eliminating an unwarranted 
penalty may be appropriate, imbalance charges should not be priced in a 
manner that subsidize the generator and harms the transmission provider 
because the transmission provider will likely flow the cost (an added 
cost of imbalance energy) through to native load customers.\74\ Thus, 
it suggests adjusting the imbalance charge to better reflect the 
incremental costs, which may be the transmission provider's opportunity 
cost.\75\ EEI suggests that all potential energy imbalance alternatives 
should explicitly consider whether and to what extent cost shifting 
and/or subsidization would occur.\76\ EEI recommends that the 
Commission should consider the ``incremental cost plus 10%'' approach 
that several entities already use for the entities that do not 
presently have energy imbalance markets.
---------------------------------------------------------------------------

    \71\ National Grid at 5-7.
    \72\ Zilkha at 5-6.
    \73\ Northwestern at 5-7.
    \74\ Arkansas Commission at 6-7.
    \75\ Arkansas Commission at 6-7.
    \76\ EEI at 4.
---------------------------------------------------------------------------

    31. According to National Grid, the proper allocation of actual 
imbalance costs should provide the necessary incentives for suppliers 
to remain in balance without resorting to additional punitive measures 
and cost-based imbalance charges would provide for necessary cost 
recovery.\77\ NorthWestern Energy believes that it is necessary to 
provide some incentive to intermittent generators to schedule 
accurately, if they are not charged penalties associated with 
generation imbalance.\78\
---------------------------------------------------------------------------

    \77\ National Grid at 5-7.
    \78\ Northwestern at 5-7.
---------------------------------------------------------------------------

    32. One request set forth by commenters is for the Commission to 
examine the scheduling and imbalance provisions of certain transmission 
providers that they believe are reasonable for intermittent generators, 
such as Bonneville Power Administration, PacifiCorp, or the California 
ISO.\79\
---------------------------------------------------------------------------

    \79\ See, e.g., AWEA at 2-4 and RNP at 3-4.
---------------------------------------------------------------------------

    33. Wind proponents support flexible scheduling practices to allow 
for schedule adjustments closer to real-time.\80\ According to the New 
York Independent System Operator, Inc. (NYISO), energy imbalance 
penalties may be reduced with improved tools for forecasting wind 
flows, which would help level the playing field for intermittent 
resources to compete with other resources.\81\
---------------------------------------------------------------------------

    \80\ See, e.g., AWEA at 2-4, RNP at 4.
    \81\ NYISO at 5-6.
---------------------------------------------------------------------------

    34. In addition, some entities ask the Commission to consider 
providing incentives for wind generators to use state-of-the-art 
forecasting technologies.\82\ On the other hand, Northwestern believes 
that at a minimum, wind generators should be expected to install and 
utilize the state-of-the-art tools to forecast the wind and resulting 
generation levels on an hourly basis.\83\ It believes that improved 
wind generation forecasts may help to reduce imbalance penalties, 
especially when compared to scheduling practices if the generator makes 
no effort to adjust real-time schedules from the pre-schedule submitted 
24 or more hours in advance.\84\ Moreover, it asserts that forecasts 
may help with the reliability concerns associated with a control area's 
obligation to balance resources and loads.\85\ Calpine argues that, 
although helpful as planning tools, improved wind forecasts are 
unlikely to directly affect imbalances that occur in real time. Calpine 
notes that what may be more promising as a means to reduce imbalances 
from intermittent resources would be to match up those resources' 
scheduling with the scheduling of non-intermittent resources that could 
act as back up. Calpine observes that intermittent resources need 
scheduling backstopping, especially at peak, when single and combined 
cycle units, with inherent cycling capability, can be matched to 
intermittent resources in a manner that optimizes the performance of 
both.\86\
---------------------------------------------------------------------------

    \82\ RNP at 4.
    \83\ Northwestern at 5-7.
    \84\ Northwestern at 8.
    \85\ Northwestern at 8.
    \86\ Calpine at 3.
---------------------------------------------------------------------------

    35. EEI states it is critical that additional scheduling 
flexibility for wind resources be accompanied by companion requirements 
that large wind facilities participate in state-of-the-art modeling 
activities.\87\ According

[[Page 21355]]

to EEI, changes to existing transactions scheduling requirements and 
procedures should recognize that the reliability of wind generation 
turbine technology has improved significantly and is becoming a 
reliable source of generation, and that wind energy remains a 
significantly less predictable source than thermal and hydroelectric 
generation.\88\
---------------------------------------------------------------------------

    \87\ EEI at 4-5.
    \88\ EEI at 4-5.
---------------------------------------------------------------------------

    36. Several other proposals to help manage imbalances have been put 
forth by other commenters. Calpine supports netting arrangements as an 
effective means of facilitating the participation of intermittent 
resources in the marketplace and as an efficient means to resolve 
imbalances generally.\89\ In addition, RNP states that the Commission 
should consider imbalance charges for wind resources that include 
monthly imbalance netting and settlement at market prices.\90\ Zilkha 
states that the Commission should exempt intermittent resources from 
imbalance penalties until structural mechanisms are in place that allow 
suppliers the flexibility to net and trade imbalances over an extended 
period of time for an entire wind development zone.\91\
---------------------------------------------------------------------------

    \89\ Calpine at 2.
    \90\ RNP at 4.
    \91\ Zilkha at 5-6.
---------------------------------------------------------------------------

    37. National Grid supports further development of aggregation of 
balancing responsibilities among wind developments and assignment or 
hedging of imbalance risks.\92\
---------------------------------------------------------------------------

    \92\ National Grid at 5-7.
---------------------------------------------------------------------------

    38. Several other issues were discussed by commenters. Zilkha also 
suggests that the Commission should require transmission providers to 
undertake studies to assess the extent to which wind generation can be 
exempt from imbalance and other under-generation charges without 
adversely affecting system operations.\93\
---------------------------------------------------------------------------

    \93\ Zilkha at 6.
---------------------------------------------------------------------------

    39. NorthWestern Energy also believes that the intermittent nature 
of the wind generator creates the need for regulation service beyond 
the amount a control area operator has available, therefore, the 
control area operator must have the ability to limit the wind generator 
to a level necessary to maintain reliability.\94\
---------------------------------------------------------------------------

    \94\ Northwestern at 5-7.
---------------------------------------------------------------------------

    40. According to the California Public Utilities Commission (CPUC), 
the PIRP in place in California is a key tool in helping intermittent 
resources to operate competitively in the California energy market, as 
well as contributing to meeting the renewable portfolio standard 
mandated by the California Legislature in 2002. San Diego Gas & 
Electric Company (SDG&E) expresses support for the California ISO's 
existing mechanism for settling wind energy imbalances. According to 
SDG&E, the California ISO's mechanism allows a Scheduling Coordinators' 
Ten-Minute Settlement Interval for Wind Energy Imbalances to be 
accumulated over a month. SDG&E explains that negative imbalances 
incurred in some settlement intervals can be offset by positive 
imbalances in other settlement intervals, with only the resulting net 
monthly imbalance settled financially. SDG&E states that because the 
settlement prices in different settlement intervals vary, the monthly 
accumulation and settlement of net imbalances creates implicit cost and 
revenue shifts, although SDG&E states that these shifts tend to be 
averaged over many market participants. SDG&E agrees that the benefits 
of promoting wind energy development offset the imprecise signals 
introduced through the monthly settlement mechanism for imbalances.\95\
---------------------------------------------------------------------------

    \95\ SDG&E at 8.
---------------------------------------------------------------------------

    41. The CPUC states that the incremental cost of ancillary services 
attributable to wind power is low at low wind penetration levels, but 
the CPUC recognizes that as the wind penetration level increases, so 
does the cost of ancillary services. The CPUC notes that the 
aggregation of intermittent resources effectively addresses this 
problem, to the ultimate benefit of ratepayers.\96\
---------------------------------------------------------------------------

    \96\ CPUC at 11.
---------------------------------------------------------------------------

Discussion

    42. The information gathered in the outreach discussions, together 
with the filed comments, assisted in our understanding of the issues 
facing wind energy resources securing transmission service using a pro 
forma tariff under Order No. 888. As a result of our examination of 
energy imbalance services under Order No. 888 and our subsequent cases 
regarding generator imbalance services to date, we seek comments on a 
proposal to establish a new generator imbalance service schedule under 
the pro forma OATT that would apply to intermittent resources. The new 
generator imbalance service schedule is necessary to address the unique 
operating characteristics and constraints of wind generation.\97\ The 
results of our review and our proposal are discussed below.
---------------------------------------------------------------------------

    \97\ In Order No. 888, the Commission recognized that the amount 
of energy taken by load in an hour is variable and not subject to 
the control of a wholesale seller or wholesale requirements 
customer. Accordingly, the Commission established a bandwidth for 
the energy imbalance service. Order No. 888-A at 30,230. The 
Commission also found that a generator should be able to deliver its 
scheduled hourly energy with precision. Id. We now recognize that 
intermittent generators have a limited ability to forecast actual 
deliveries because their fuel is weather-dependent and they may not 
be able to deliver scheduled hourly energy with precision. 
Accordingly, similar to the concern the Commission expressed in 
Order No. 888 for load, we are proposing to establish a bandwidth 
for our proposed intermittent generator service schedule that also 
reflects a wider bandwidth as compared to thermal generators.
---------------------------------------------------------------------------

Issues Discussed During Outreach

    43. As follow-up to the Commission's December 1, 2004 technical 
conference, Commission staff held outreach discussions with industry 
participants to further explore issues facing wind and other 
intermittent resources. Many of the outreach discussions echoed those 
written comments summarized above, however, the outreach discussions 
were beneficial in capturing some additional issues and possible 
solutions for Commission consideration. Generally, industry 
participants are supportive of the development of renewable resources, 
including wind-powered resources. Many states have established 
renewable energy portfolio standards which require the utility to 
maintain a certain percentage of renewable resources in its overall 
generation portfolio.
    44. Discussions with industry participants indicated that a 
significant percentage of the wind resources are presently contracted 
for as an integrated resource and used to serve native load on the 
incumbent transmission provider's system. However, considerable 
interest was expressed in a new business model, i.e., wind resources 
having the opportunity to access additional customers by, for example, 
taking transmission service as a customer or selling its output at the 
busbar to customers other than the incumbent transmission provider. As 
an entity selling power at the busbar, the wind generator fears that it 
could be assessed generator imbalance charges if it did not produce the 
amount scheduled for delivery. As a transmission delivery service 
customer of the incumbent transmission provider, a wind generator could 
be assessed a generator imbalance charge for not producing what was 
scheduled for delivery. Also, in both of these situations, the wind 
generator would be assessed an energy imbalance charge for not taking 
the amount of energy scheduled for delivery to load. However, if the 
wind generator is an integrated resource on the transmission provider's 
system serving native load, energy imbalances are absorbed by the

[[Page 21356]]

transmission provider relying on its total portfolio of generation 
resources.
    45. According to some industry participants, the only current 
profitable way to operate wind generation is as an integrated resource. 
This is due to the intermittent nature of the resource and the 
potential cost of imbalance penalties that could accrue. In effect, 
while wind generators have expressed an interest in availing themselves 
of the opportunities provided by the OATT, they find that the imbalance 
rules/requirements present a hurdle in doing so.
    46. With regard to imbalance penalties acting as a barrier for wind 
resource development, some industry participants support exempting wind 
from assessment of these penalties. However, others state that 
imbalance penalties were designed to promote prudent behavior and, even 
though a wind generator cannot control its fuel source, they believe 
that the elimination of imbalance penalties may lead to cost-shifts, 
leaning on the system, bad generator scheduling practices and gaming.
    47. Some entities believe that a separate generator imbalance 
service similar to the energy imbalance service (Schedule 4) should be 
added as a service schedule under the pro forma OATT, although they 
noted that there are entities that currently have a generator imbalance 
service under their OATTs, e.g., PacifiCorp. Certain entites that are 
developing large wind projects may have successfully negotiated 
favorable tariff changes with transmission providers, including 
imbalance penalty provisions that are workable for intermittent 
resources.
    48. Several industry participants believe that the integration of 
wind into transmission systems, including providing balancing services, 
will have a physical impact on grid operations and an economic impact 
on existing customers. However, others allege that most vertically 
integrated utilities simply use their own generation facilities to 
provide these services to their customers. Some fear that the costs 
will rise as increasing amounts of wind are integrated into a system, 
while others claim that the specific operating characteristics of a 
system, such as the size of the system and fuel mix, affect their 
ability to integrate wind.
    49. Certain wind interests suggest widening the bandwidth for 
imbalance deviations to 5 or 10 percent, allowing schedule changes 
closer to the delivery times, and using an index price/market price/
cost of replacement energy to financially settle energy imbalances. 
Some entities do not want to widen the bandwidths for wind because they 
believe the current bandwidth ensures scheduling accuracy, discourages 
gaming and helps maintain reliability.
    50. Although many entities believe that dynamic scheduling could be 
a useful tool for managing imbalances, they have mixed reactions 
regarding its cost and applicability. One entity stated that economies 
of scale allow dynamic scheduling to be cost-effective at 10 MW or 
more.
    51. Commission staff also heard that alternatives to the 
administratively prescribed $100/MWh adder penalty would improve the 
transparency and fairness of imbalance charges. Alternatives to the 
adder penalty include having imbalance penalties based either on system 
incremental costs or market indices.
    52. Some transmission owners also discussed how to demonstrate the 
costs of adding wind to the system so that wind could pay its share of 
the system integration costs. In addition, the issue of increased 
reserve requirements and how to account for the additional cost 
associated with such increase was discussed.

Commission's Proposed Remedy

    53. The development of renewable sources of energy, including wind 
resources, brings benefits to energy customers by providing 
environmental benefits and supports increased reliability by increasing 
the diversity of energy supplies. Wind energy can satisfy certain 
federal and state-mandated programs for the development of renewable 
energy. On balance, however, we also recognize that there are 
additional costs incurred in integrating wind energy into the system 
and that each control area, based on its unique characteristics, will 
be able to accommodate different amounts of wind resources.
    54. As a remedy to the issues we have heard, we propose to 
establish a new generator imbalance service schedule under the pro 
forma OATT that would apply only to intermittent resources.\98\ In the 
case where a transmission provider's OATT currently includes a 
generator imbalance charge provision that is more lenient than the 
charge set forth in Schedule XYZ, we propose that the transmission 
provider would assess the lesser charge.\99\ Moreover, in recognition 
that some transmission providers assess generator imbalance charges 
through interconnection agreements rather than OATT provisions, we are 
soliciting comment on whether to require that, prospectively, any 
generator imbalance provisions in future interconnection agreements 
with intermittent generators conform to the provisions in Schedule XYZ.
---------------------------------------------------------------------------

    \98\ Attachment A to this NOPR is the proposed Schedule XYZ: 
Intermittent Generator Imbalance Schedule to be included in all 
public utilities' tariffs.
    \99\ We note that, through staff outreach, no intermittent 
resource indicated that there were not being assessed any imbalance 
charge.
---------------------------------------------------------------------------

    55. We are proposing not to modify any aspect of the existing 
energy imbalance service under Schedule 4 of the pro forma OATT, 
however, we are seeking comment on whether and how we should amend 
Schedule 4. We seek comment on whether our proposal to create a new and 
standard intermittent generator imbalance service schedule will help 
intermittent resources reduce their exposure to imbalance charges and/
or penalties.
    56. As noted previously, in Order No. 888, the Commission concluded 
that a generator should be able to deliver its scheduled hourly energy 
with precision, and declined to establish generic standards as part of 
the pro forma OATT. Instead, it noted that a generator would have an 
interconnection agreement with its transmission provider or control 
area operator, and that this agreement should specify the requirements 
for the generator to meet its schedule, and stipulate any consequence 
for persistent failure to meet that schedule.\100\ The Commission also 
expressed concern that if it were to allow a generator to deviate from 
its schedule by more than 1.5 percent without a generator imbalance 
penalty, even if the energy is returned in kind at another time, it 
would discourage good generator operating practices.
---------------------------------------------------------------------------

    \100\ Some parties have contractual arrangements for generator 
imbalance service outside the OATT, others have generator imbalance 
provisions within their OATT (e.g., generator interconnection 
agreements), and others apparently have been assessed energy 
imbalance penalties under Schedule 4 of the OATT for generation 
shortfalls.
---------------------------------------------------------------------------

    57. The current treatment of generator imbalances with respect to 
intermittent resources appears to be unduly discriminatory under 
section 206 of the Federal Power Act. The Commission allows utilities 
to charge penalties to deter conduct that could threaten system 
reliability or service to other customers and provide incentives to 
conform to good utility practices. A properly designed penalty should 
also have minimal impacts on market participation. However, penalties 
should be avoidable by customer actions, and should not limit market 
participation. Thermal generators are subjected to generator imbalance 
provisions that are tailored to their abilities and give them an unfair 
and

[[Page 21357]]

unduly discriminatory advantage over intermittent resources, which have 
much less control over their output. On the other hand, intermittent 
resources are faced with generator imbalance provisions that fail to 
recognize their unique needs and prevent them from competing on an 
equal basis with thermal generators. As noted above, penalties must be 
avoidable by customer actions, and should not limit market 
participation. Indeed, intermittent resources face charges that they 
cannot reasonably avoid, while thermal resources, which can control 
their generation schedules with much more precision, can generally 
avoid these charges. At this time, the Commission is concerned that 
existing generator imbalance provisions are unduly discriminatory 
against wind generators. Accordingly, the Commission is proposing to 
add a new Generator Imbalance Service, Schedule XYZ, under the pro 
forma OATT to address generator imbalances for intermittent 
resources.\101\
---------------------------------------------------------------------------

    \101\ We note that several transmission providers already have 
generator imbalance service provisions in their OATTs. However, we 
will not use these existing provisions as a basis for the new 
proposed Schedule XYZ since the existing provisions were adopted 
with thermal generators in mind and do not address the inherent 
scheduling problems associated with intermittent resources. If the 
Commission decides to adopt Schedule XYZ in a final rule, the 
conforming changes will be required to be submitted to the existing 
generator imbalance service schedules contained in the OATTs.
---------------------------------------------------------------------------

    58. A major feature of the intermittent generator imbalance service 
will be the use of a wider deviation bandwidth, which would serve a 
similar function as the deviation bandwidth for energy imbalance 
service (Schedule 4). We recognize the necessity of maintaining a 
deviation bandwidth from the perspective of the transmission provider, 
but also recognize that some flexibility is needed with respect to 
intermittent resources and that applying a narrow 1.5 percent bandwidth 
to intermittent resources would be unduly discriminatory. Specifically, 
we are proposing an intermittent generator imbalance bandwidth of 
10 percent for the amount scheduled to be generated for 
each generating hour (with a minimum of 2 megawatts). The intermittent 
generator imbalance service schedule will include the 2 MW minimum 
bandwidth in order to meet the needs of small generators. Thus, an 
intermittent generator of less than 20 MW will have a higher percentage 
bandwidth, for example, a 2 MW minimum bandwidth for an intermittent 
generator with a capacity of 10 MW is in effect a deviation bandwidth 
of 20 percent.
    59. The Commission proposes that net hourly deviations within the 
10 percent bandwidth will be priced at the transmission 
provider's system incremental cost at the time of the deviation. Net 
hourly deviations outside the stated bandwidth will be priced at the 
transmission provider's system incremental cost 10 percent. 
For example, if an intermittent generator generates in excess of 110 
percent of its schedule, it will be paid at 90 percent of the 
transmission provider's system decremental cost. If the intermittent 
generator produces less than 90 percent of its schedule, it will be 
charged 110 percent of the transmission provider's system incremental 
cost for the difference.\102\ While intermittent generators may be 
unable to change output in real time to meet schedules, with reasonable 
forecasting and changes to schedules up to 20 minutes before the hour, 
these generators should be able to limit the charges for exceeding the 
10 percent bandwidth on a net hourly basis. We note that the proposed 
pricing structure may create an incentive to underschedule in an effort 
to reduce exposure to being charged 110 percent of the transmission 
provider's system incremental cost. The Commission is soliciting 
comment on alternative pricing structures.
---------------------------------------------------------------------------

    \102\ This net hourly pricing mechanism is consistent with the 
mechanism most transmission providers typically use for energy 
imbalance service under Schedule 4 of the pro forma OATT. In 
addition, those transmission providers that have added a generator 
imbalance provision to their OATT, have typically priced imbalances 
using system incremental cost.
---------------------------------------------------------------------------

    60. In addition, the Commission is seeking comment regarding the 
merits of providing an evaluation that would identify systematic and/or 
significant deviations or biases in actual production as compared to 
the submitted schedule. Aggregation and netting of hourly schedule 
deviations over a 12 or 24 month time period could provide a reasonable 
time period for this evaluation. Any deviation would then be compared 
to a to-be-established bandwidth. We seek comments on evaluation 
methods and bandwidths to achieve this objective.
    61. The Commission seeks comment on this proposed bandwidth and the 
applicable pricing mechanisms. Particularly, the Commission is 
interested in comments addressing whether a different bandwidth is 
better suited for application to generation deviations for intermittent 
resources. The Commission is also interested in comments regarding the 
appropriate levels to price deviations inside the bandwidth and 
deviations that exceed the bandwidth. In addition, some wind resources 
have requested that there should be no bandwidth for imbalances 
incurred by intermittent resources. We believe that ``no bandwidth'' 
means that the transmission customer would be charged a fixed charge 
(e.g., 100 percent of system incremental cost or 90/110 percent of the 
system incremental cost) regardless of the size of the generator 
imbalance. Therefore, the Commission seeks comment on whether not 
having a bandwidth is appropriate for intermittent resources and, in 
the absence of a bandwidth, what are the appropriate levels to price 
deviations.

Scheduling Flexibility

    62. Under Order No. 888, all transmission customers must submit a 
schedule one day in advance. Order No. 888-A recognizes that 
transmission customers can reduce their costs by making schedule 
changes up to 20 minutes before the hour at no charge. It has been 
asserted that technological improvements since the issuance of Order 
No. 888 allow these schedules to be adjusted and acted on very close to 
real time at no additional cost to the transmission customer.
    63. Due to the nature of the intermittent resource, being able to 
schedule as close to the start of the operating hour as possible 
provides for the highest degree of accuracy.\103\ Market Participants 
have expressed concerns that not all transmission providers allow for 
schedule changes within the timeframe currently allowed under the pro 
forma tariff (i.e., 20 minutes before the hour). In addition, of those 
transmission providers that do conform to the pro forma scheduling 
provisions, it is claimed that some calculate deviations based on the 
difference between the amount generated and the amount scheduled in the 
Day-Ahead timeframe. This would appear to be inconsistent with the 
original intent of the Commission to allow for schedule changes up to 
20

[[Page 21358]]

minutes before the hour in order to minimize exposure to imbalances.
---------------------------------------------------------------------------

    \103\ Significant improvements in collecting and compiling 
accurate weather information and forecasting the speed of wind may 
have substantially reduced the difference between estimated and 
actual wind power production/transmission volumes. Two types of 
forecasting are done: ``State of the Art Forecasting'' which is 
characterized by the use of atmospheric modeling and/or mass motion 
modeling, and a basic persistence forecasting technique. A 
persistence forecast is accurate in the short term but degrades 
faster than a more robust State of the Art Forecast. These two 
methods of forecasting can result in varying expectations and 
planning time horizons between users. Electric Power Research 
Institute, California Wind Energy Forecasting System Development and 
Testing Phase 2: 12 Month Testing, July 2003 (EPRI Report No. 
1007339).
---------------------------------------------------------------------------

    64. We believe that the flexibility to modify a schedule up to 20 
minutes before the hour, as the pro forma tariff currently allows, will 
be a valuable tool to assist intermittent generators in minimizing 
exposure to the costs associated with imbalances. In addition, by 
allowing intermittent generators to modify their schedules closer to 
real-time based on more accurate forecast information, we believe that 
the transmission provider will have more accurate operating information 
and be better equipped to operate the system in a reliable and 
efficient manner. Therefore, we reiterate that our intent in Order No. 
888 was that transmission providers must allow transmission customers 
to modify schedules up to 20 minutes before the hour and that any net 
hourly imbalance calculation will be determined from the last accepted 
schedule. We seek comment on whether this scheduling flexibility, with 
other changes proposed above, will help encourage wind generators to 
schedule as accurately as possible and while avoiding generator 
imbalance charges outside the +/-10 percent bandwidth. We seek comment 
on whether allowing schedule changes up to 20 minutes before the hour 
and making a schedule financially binding will prevent or create a 
hardship in instances where the Commission has already accepted 
proposals based on existing regional variations.

Other Proposals To Resolve Imbalances

    65. As noted above, several entities have proposed additional ways 
to reduce imbalances, and thus reduce or eliminate charges and/or 
penalties. These include matching up intermittent resources scheduling 
with the scheduling of non-intermittent resources that could act as a 
back up; netting arrangements; settling arrangements; trading 
arrangements; aggregation of balancing responsibility among wind 
developments; assignment or hedging of imbalance risks; and dynamic 
scheduling. We seek comment on how these terms and mechanisms or 
arrangements would reduce generator imbalances, as well as seek sample 
proposals of such mechanisms or arrangements that currently exist. We 
also seek comment on any other proposal not listed above that would 
reduce generator imbalances.

Miscellaneous

Control Area Utilities Versus Non-Control Area Utilities

    66. OMPA, TAPS and AWEA allege that under many tariffs today, non-
control area utilities are subject to energy imbalance penalty charges 
for deviations that control area utilities may treat as inadvertent 
energy subject to return-in-kind requirements, making it prohibitive 
for transmission dependent utilities that are not control areas to 
participate in wind generation.\104\ TAPS argues that a transmission 
dependent utility (OMPA) and a control area operator (Oklahoma Gas & 
Electric Company (OG&E)), demonstrate the highly discriminatory impacts 
of the imbalance penalties. It asks the Commission to promptly address 
the disparate and punitive treatment of energy imbalance under Schedule 
4 of the Open Access Transmission Tariff.
---------------------------------------------------------------------------

    \104\ TAPS argues that the inherently unpredictable and 
intermittent nature of wind power heightens the magnitude and 
discriminatory nature of this continued treatment, and discourages 
non-control area utilities from developing and participating in wind 
resources.
---------------------------------------------------------------------------

    67. TAPS asserts that not only is OG&E exempt from paying energy 
imbalance penalties, but it receives the imbalance charges levied upon 
OMPA furthering the competitive disadvantage. TAPS argues that 
transmission dependent utilities should not have to wait for 
introduction of real-time RTO energy markets in order to escape 
discriminatory treatment of imbalances. OMPA suggests that regardless 
of whether a customer is inside a control area or outside, if the 
tariff were applied equally, both customers would face the same costs.
    68. We believe that this issue is beyond the scope of this 
proceeding, and therefore, it will be addressed at a later time.

Variations From Schedule XYZ

    69. The Commission is proposing to permit public utilities to 
justify variations from the terms of the final Schedule XYZ using the 
approach taken in Order No. 2003. In Order No. 2003, the Commission 
modified the approach taken in Order No. 888,\105\ which allowed two 
types of variations. First, transmission providers may seek variations 
to the pro forma OATT based on regional reliability requirements.\106\ 
Second, transmission providers may argue that proposed changes to any 
OATT provision are ``consistent with or superior to'' the terms of the 
pro forma OATT.\107\ Additionally, since Order No. 2003 allows RTOs and 
ISOs greater flexibility in complying with its provisions,\108\ we are 
proposing to that they may seek an ``independent entity variation'' 
from the pricing and non-pricing provisions of the pro forma Schedule 
XYZ. The Commission intends to apply all three of these variation 
standards to the proposed variations from Schedule XYZ the Commission 
finally adopts in this proceeding.
---------------------------------------------------------------------------

    \105\ Order No. 888 at 31,760-1.
    \106\ See Order No. 2003 at P 823-24.
    \107\ See id. P 816.
    \108\ See id. at P 822-27; see also Order No. 2003-A at P 48.
---------------------------------------------------------------------------

Implementation

    70. As noted above, the Commission has previously accepted 
proposals by transmission providers to amend their OATTs to 
specifically include a generator imbalance schedule. In doing so, the 
Commission permitted the transmission provider to collect the generator 
imbalance charge from the transmission customer. Specifically, the 
Commission concluded that there was nothing inherently unreasonable 
about holding the transmission customer responsible for ensuring that 
the amount of energy scheduled for its transaction is delivered to the 
transmission provider.\109\ We note that the pro forma OATT currently 
does not contain a provision that would permit the transmission 
provider to collect the generator imbalance charge proposed herein from 
the generator.
---------------------------------------------------------------------------

    \109\ Florida Power Corporation, 89 FERC ] 61,263 (1999).
---------------------------------------------------------------------------

    71. Accordingly, the Commission is soliciting comments on how best 
to implement this new generator imbalance service schedule. 
Specifically, should the transmission provider collect generator 
imbalance charges from the transmission customer with the transmission 
customer recovering these charges through a separate agreement with the 
generator, or should the transmission provider collect generator 
imbalance charges from the generator pursuant to an arrangement in its 
interconnection agreement pursuant to Order No. 2003-B? If the 
transmission provider collects payment from the generator, how should 
the pro forma agreement between the transmission provider and the 
generator be structured?

Information Collection Statement

    72. Office of Management and Budget (OMB) regulations require OMB 
to approve certain information collection requirements imposed by 
agency rule.\110\ Comments are solicited on the

[[Page 21359]]

Commission's need for this information, whether the information will 
have practical utility, the accuracy of provided burden estimates, ways 
to enhance the quality, utility and clarity of the information to be 
collected, and any suggested methods for minimizing respondents' 
burden, including the use of automated information techniques.
---------------------------------------------------------------------------

    \110\ 5 CFR 1320.11 (2004).
---------------------------------------------------------------------------

    73. Public Reporting Burden:

----------------------------------------------------------------------------------------------------------------
                                                   No. of           No. of         Hours per       Total annual
               Data collection                  respondents       responses         response          hours
----------------------------------------------------------------------------------------------------------------
FERC-516....................................             238                1                2              476
----------------------------------------------------------------------------------------------------------------

    74. Information Collection Costs: The Commission seeks comments on 
the costs to comply with these requirements. It has projected the 
annualized cost for all respondents to be: Annualized Capital/Startup 
Costs-Staffing requirements to review and prepare an intermittent 
resource imbalance service schedule = $71,400. (238 respondents x $150 
hourly rate x 2 hours per respondent).
    75. The OMB regulations require OMB to approve certain information 
collection requirements imposed by agency rule.\111\ Accordingly, 
pursuant to OMB regulations, the Commission is providing notice of its 
proposed information collections to OMB.
---------------------------------------------------------------------------

    \111\ Id.
---------------------------------------------------------------------------

    Title: FERC-516, Electric Rate Schedule Filings.
    Action: Proposed Information Collection.
    OMB Control No.: 1902-0096.
    The applicant shall not be penalized for failure to respond to this 
collection of information unless the collection of information displays 
a valid OMB control number.
    Respondents: Business or other for profit.
    Frequency of Responses: One-time implementation.
    Necessity of Information: The proposed rule would revise the 
requirements contained in 18 CFR part 35. The Commission is seeking to 
create a new service schedule under the pro forma OATT to address 
generator imbalance energy for intermittent resources. In particular, 
the Commission will propose that public utilities add a new service 
schedule for under their OATTs which provides for generator imbalance 
service for intermittent resources. The new service schedule 
establishes a deviation bandwidth and stipulates pricing of 
intermittent resource imbalance energy inside and outside the 
bandwidth. The proposed rule would require that each public utility 
that owns, operates, or controls transmission facilities participate in 
one-time filings incorporating the new service schedule into their own 
open access transmission tariffs.
    Internal Review: The Commission has assured itself, by means of 
internal review, that there is specific, objective support for the 
burden estimates associated with the information collection 
requirements. The Commission's Office of Market, Tariffs and Rates will 
use the data included in filings under section 205 of the Federal Power 
to adopt provisions for imbalance services for intermittent resources. 
These information requirements conform to the Commission's plan for 
efficient information collection, communication, and management within 
the electric power industry. Interested persons may obtain information 
on the reporting requirements by contacting: Federal Energy Regulatory 
Commission, the difference between forward market schedules and metered 
output 888 First Street, NE., Washington, DC 20426, Attention: Michael 
Miller, Office of the Executive Director, phone: (202) 502-8415, fax: 
(202) 273-0873, e-mail: [email protected]. Comments on the 
proposed requirements of the subject rule may also be sent to the 
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Washington, DC 20503, Attention: Desk Officer for the Federal 
Energy Regulatory Commission, phone: (202) 395-4650.

Environmental Analysis

    76. The Commission is required to prepare an Environmental 
Assessment or an Environmental Impact Statement for any action that may 
have a significant adverse effect on the human environment.\112\ The 
Commission has categorically excluded certain actions from this 
requirement as not having a significant effect on the human 
environment. Included in the exclusion are rules that are clarifying, 
corrective, or procedural, or that do not substantially change the 
effect of the regulations being amended.\113\ The exclusion also 
includes information gathering, analysis, and dissemination.\114\ The 
rules proposed in this NOPR would update and clarify the application of 
a new generator imbalance service schedule to the Commission's pro 
forma to intermittent resources. Therefore, this NOPR falls within the 
categorical exemptions provided in the Commission's Regulations, and as 
a result neither an environmental impact statement nor an environmental 
assessment is required. Additionally, we note that this proposed rule 
will help the development and interconnection of wind plants, 
eliminating the airborne and other emissions that would result from 
constructing fossil fuel generating plants instead.
---------------------------------------------------------------------------

    \112\ Order No. 486, Regulations Implementing the National 
Environmental Policy Act, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & 
Regs. Preambles 1986-1990 ] 30,783 (1987).
    \113\ 18 CFR 380.4(a)(2)(ii) (2004).
    \114\ 18 CFR 380.4(a)(5) (2004).
---------------------------------------------------------------------------

Regulatory Flexibility Act Certification

    77. The Regulatory Flexibility Act of 1980 (RFA) \115\ generally 
requires a description and analysis of final rules that will have 
significant economic impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \115\ 5 U.S.C. 601-612.
---------------------------------------------------------------------------

    78. The Commission does not believe that this proposed rule would 
have such an impact on small entities. Most filing companies subject to 
the Commission's jurisdiction do not fall within the RFA's definition 
of a small entity.\116\ Further, the filing requirements contain 
standard generator interconnection procedures and agreement for 
interconnecting generators larger than 20 MW, which exceeds the 
threshold of the Small Business Size Standard of NAICS. Therefore, the 
Commission certifies that this rule will not have a significant 
economic impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \116\ 5 U.S.C. 601(3), citing to section 3 of the Small Business 
Act, 15 U.S.C. 632. Section 3 of the Small Business Act defines a 
``small-business concern'' as a business which is independently 
owned and operated and which is not dominant in its field of 
operation. The Small Business Size Standards component of the North 
American Industry Classification System defines a small utility as 
one that, including its affiliates is primarily engaged in the 
generation, transmission, or distribution of electric energy for 
sale, and whose total electric output for the preceding fiscal years 
did not exceed 4 MWh. 13 CFR 121.201 (Sector 22, Utilities, North 
American Industry Classification System, NAICS) (2004).

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[[Page 21360]]

Comment Procedures

    79. The Commission invites interested persons to submit comments on 
the matters and issues proposed in this notice to be adopted, including 
any related matters or alternative proposals that commenters may wish 
to discuss. Comments are due May 26, 2005. Comments must refer to 
Docket No. RM05-10-000, and must include the commenter's name, the 
organization they represent, if applicable, and their address in their 
comments. Comments may be filed either in electronic or paper format.
    80. Comments may be filed electronically via the eFiling link on 
the Commission's Web site at http://www.ferc.gov. The Commission 
accepts most standard word processing formats and commenters may attach 
additional files with supporting information in certain other file 
formats. Commenters filing electronically do not need to make a paper 
filing. Commenters that are not able to file comments electronically 
must send an original and 14 copies of their comments to: Federal 
Energy Regulatory Commission, Office of the Secretary, 888 First Street 
NE., Washington, DC 20426.
    81. All comments will be placed in the Commission's public files 
and may be viewed, printed, or downloaded remotely as described in the 
Document Availability section below. Commenters on this proposal are 
not required to serve copies of their comments on other commenters.

Document Availability

    82. In addition to publishing the full text of this document in the 
Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
Internet through FERC's Home Page (http://www.ferc.gov) and in FERC's 
Public Reference Room during normal business hours (8:30 a.m. to 5 p.m. 
Eastern time) at 888 First Street, NE., Room 2A, Washington DC 20426.
    83. From FERC's Home Page on the Internet, this information is 
available in the Commission's document management system, eLibrary. The 
full text of this document is available on eLibrary in PDF and 
Microsoft Word format for viewing, printing, and/or downloading. To 
access this document in eLibrary, type the docket number excluding the 
last three digits of this document in the docket number field.
    84. User assistance is available for eLibrary and the FERC's Web 
site during normal business hours. For assistance, please contact FERC 
Online Support at [email protected]. or toll free at (866) 
208-3676, or for TTY, (202) 502-8659. E-Mail the Public Reference Room 
at [email protected] or (202) 502-8371.

List of Subjects in 18 CFR Part 35

    Electric power rates, Electric utilities.

    By direction of the Commission.
Linda Mitry,
Deputy Secretary.

    In consideration of the foregoing, the Commission proposes to amend 
part 35, Chapter I, Title 18, Code of Federal Regulations, as follows.

PART 35--FILING OF RATE SCHEDULES AND TARIFFS

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

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

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


Sec.  35.28  Non-discriminatory open access transmission tariff.

* * * * *
    (d) Waivers. * * * Except as provided in paragraph (f) and (g) of 
this section, an application for waiver must be filed either:
* * * * *
    (g) Intermittent generator imbalance service. (1) For purposes of 
this section, an intermittent resource is an electric generator that is 
not dispatchable and cannot store its fuel source and therefore cannot 
respond to changes in system demand or respond to transmission security 
constraints.
    (2) Every public utility that is required to have on file a non-
discriminatory open access transmission tariff under this section must 
amend such tariff by adding the intermittent generator imbalance 
service schedule contained in Order No. ----, FERC Stats. & Regs. ] --
---- (Final Rule on Imbalance Provisions for Intermittent Resources), 
or such other intermittent generator imbalance service schedule as may 
be approved by the Commission consistent with the Final Rule on 
Imbalance Provisions for Intermittent Resources.
    (i) The amendment required by the preceding subsection must be 
filed no later than [insert date 60 days after publication of the final 
rule in the Federal Register].
    (ii) Any public utility that seeks a deviation from the 
intermittent generator imbalance schedule contained in Order No. ----, 
FERC Stats. & Regs. ] ---- (Final Rule on Imbalance Provisions for 
Intermittent Resources), must demonstrate that the deviation is 
consistent with the principles of Order No. ] ----, FERC Stats. & Regs. 
] ------ (Final Rule on Imbalance Provisions for Intermittent 
Resources).
    (3) The non-public utility procedures for tariff reciprocity 
compliance described in paragraph (e) of this section are applicable to 
the intermittent generator imbalance service schedule.
    (4) A public utility subject to the requirements of this paragraph 
(g) may file a request for waiver of all or part of the requirements of 
this paragraph (g), for good cause shown. An application for waiver 
must be filed either:
    (i) No later than [insert date 60 days after publication of the 
final rule in the Federal Register], or
    (ii) No later than 60 days prior to the time the public utility 
would otherwise have to comply with the requirements of this paragraph 
(g).


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

Attachment A

Schedule XYZ: Intermittent Generator Imbalance Service

    Intermittent Generator Imbalance Service is provided when a 
difference occurs between the output of an intermittent generator 
located in the Transmission Provider's Balancing Area and a delivery 
schedule from that generator to (1) another Balancing Area or (2) a 
load within the Transmission Provider's Balancing Area over a single 
hour. The Transmission Provider must offer this service when the 
transmission service is used to deliver energy from an Intermittent 
Generator located within its Balancing Area that is not identified 
in Appendix 1 to this Schedule. The Transmission Customer must 
either purchase this service from the Transmission Provider or make 
alternative comparable arrangements to satisfy its Intermittent 
Generator Imbalance Service obligation. To the extent the Balancing 
Authority performs this service for the Transmission Provider, 
charges to the Transmission Customer are to reflect only a pass-
through of the costs charged to the Transmission Provider by that 
Balancing Authority. For a single event where a Generator Imbalance 
occurs, but is offset by a corresponding Energy Imbalance, only the 
Generator Imbalance charge will be assessed. The Transmission 
Provider shall establish a deviation band of +/-10 percent (with a 
minimum of 2 MW) of the scheduled transaction to be applied on a net 
hourly basis to any Intermittent Generator Imbalance that occurs as 
a result of the Transmission Customer's scheduled transaction(s). 
All Intermittent Generator Imbalances will be subject to charges set 
forth below. All Intermittent Generator Imbalances will be subject 
to the lesser of the charges set forth below or the charges that 
would have been

[[Page 21361]]

assessed under this tariff if the Generator were not an Intermittent 
Generator.
    Charges for Intermittent Generator Imbalance Service: Described 
below is the methodology for calculating the charges applicable to 
Intermittent Generator Imbalances.
    (1) Net Hourly Intermittent Generator Imbalances Within the 
Deviation Band.
    For each hour when the Intermittent Generator's actual 
generation exceeds the amount of generation scheduled but is within 
the deviation band as provided in this Schedule, the Transmission 
Provider shall compensate the Transmission Customer at a rate equal 
to 100 percent of the Transmission Provider's System Decremental 
Cost at the time of the deviation.
    For each hour when the intermittent generator's actual 
generation is below the amount of generation scheduled but is within 
the deviation band as provided in this Schedule, the Transmission 
Customer shall compensate the Transmission Provider at a rate equal 
to 100 percent of the Transmission Provider's System Incremental 
Cost.
    (2) Net Hourly Generator Imbalances Outside the Deviation Band.
    For each hour when the Intermittent Generator's actual 
generation exceeds the amount of generation scheduled but is outside 
the deviation band (i.e., produces 110 percent or more its schedule) 
as provided in this Schedule, the Transmission Provider shall 
compensate the Transmission Customer at a rate equal to 90 percent 
of the Transmission Provider's System Decremental Cost at the time 
of the deviation.
    For each hour when the Intermittent Generator's actual 
generation is below the amount of generation scheduled but outside 
the deviation band (i.e., produces 90 percent or less of its 
schedule), as provided this Schedule, the Transmission Customer 
shall compensate the Transmission Provider at a rate equal to 110 
percent of the Transmission Provider's System Incremental Cost at 
the time of the deviation.

Attachment B: List of Commenters in Docket No. AD04-13-000

American Public Power Association
American Wind Energy Association (AWEA) (Filed pre- and post-
technical conference comments and March 10, 2005 comments.)
Arkansas Public Service Commission (Arkansas Commission)
California Edison Company
California Energy Commission
California Public Utilities Commission (California PUC)
California Wind Energy Association
Calpine Corporation (Calpine)
Edison Electric Institute, et al. (EEI)
Electric Power Supply Association (EPSA)
National Grid USA (National Grid)
National Wind Coordinating Committee
New York Independent System Operator, Inc. (NYISO)
New York State Department of Public Service
NorthWestern Energy Corporation (NorthWestern Energy)
Oklahoma Municipal Power Authority (OMPA)
PacifiCorp
Pacific Gas and Electric Company
PJM Interconnection L.L.C.
Renewable Northwest Project (RNP)
San Diego Gas and Electric (SDG&E) (Comments filed late.)
Transmission Access Policy Study Group (TAPS) (Filed pre- and post-
technical conference comments.)
Wind West Wires
Western Interstate Energy Board
Xcel Energy Services, Inc. (Xcel)
Zilkha Renewable Energy (Zilkha)

    Note: Not all the commenters listed above addressed the 
imbalance issue.


[FR Doc. 05-8201 Filed 4-25-05; 8:45 am]
BILLING CODE 6717-01-P