[Federal Register Volume 70, Number 112 (Monday, June 13, 2005)]
[Rules and Regulations]
[Pages 34190-34301]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-11307]



[[Page 34189]]

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Part II





Department of Energy





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Federal Energy Regulatory Commission



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18 CFR Part 35



Standardization of Small Generator Interconnection Agreements and 
Procedures; Final Rule

  Federal Register / Vol. 70 , No. 112 / Monday, June 13, 2005 / Rules 
and Regulations  

[[Page 34190]]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM02-12-000; Order No. 2006; 111 FERC 61,220]


Standardization of Small Generator Interconnection Agreements and 
Procedures

Issued: May 12, 2005
AGENCY: Federal Energy Regulatory Commission.

ACTION: Final rule.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) is 
amending its regulations under the Federal Power Act to require public 
utilities that own, control, or operate facilities for transmitting 
electric energy in interstate commerce to amend their open access 
transmission tariffs to include standard generator interconnection 
procedures and an agreement that the Commission is adopting in this 
order and to provide interconnection service to devices used for the 
production of electricity having a capacity of no more than 20 
megawatts. A non-public utility that seeks voluntary compliance with 
the reciprocity condition of an open access transmission tariff may 
satisfy this condition by adopting these procedures and agreement.

DATES: Effective Date: This Final Rule will become effective August 12, 
2005.

FOR FURTHER INFORMATION CONTACT:
    Kumar Agarwal (Technical Information), Office of Market, Tariffs 
and Rates, Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426. (202) 502-8923.
    Bruce Poole (Technical Information), Office of Market, Tariffs and 
Rates, Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426. (202) 502-8468.
    Kirk Randall (Technical Information), Office of Market, Tariffs and 
Rates, Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426. (202) 502-8092.
    Patrick Rooney (Technical Information), Office of Market, Tariffs 
and Rates, Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426. (202) 502-6205.
    Abraham Silverman (Legal Information), Office of the General 
Counsel, Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426. (202) 502-6444.

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

I. Introduction

    1. This Final Rule requires all public utilities \1\ to adopt 
standard rules for interconnecting new sources of electricity no larger 
than 20 megawatts (MW). It continues the process begun in Order No. 
2003 of standardizing the terms and conditions of interconnection 
service for Interconnection Customers of all sizes.\2\ It will reduce 
interconnection time and costs for Interconnection Customers and 
Transmission Providers,\3\ preserve reliability, increase energy 
supply, lower wholesale prices for customers by increasing the number 
and types of new generation that will compete in the wholesale 
electricity market, facilitate development of non-polluting alternative 
energy sources, and help remedy undue discrimination, as sections 205 
and 206 of the FPA require.\4\ Public utilities must amend \5\ their 
open access transmission tariffs (OATTs) to include a Small Generator 
Interconnection Procedures document (SGIP--Appendix E to this Preamble) 
and a Small Generator Interconnection Agreement (SGIA--Appendix F to 
this Preamble).
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    \1\ For purposes of this Final Rule, a public utility is a 
utility that owns, controls, or operates facilities used for 
transmitting electric energy in interstate commerce, as defined by 
the Federal Power Act (FPA). 16 U.S.C. 824(e) (2000). A non-public 
utility that seeks voluntary compliance with the reciprocity 
condition of an open access transmission tariff may satisfy that 
condition by adopting these procedures and agreement.
    \2\ Standardization of Generator Interconnection Agreements and 
Procedures, Order No. 2003, 68 FR 49845 (Aug. 19, 2003), FERC Stats. 
& Regs. ] 31,146 (2003) (Order No. 2003), order on reh'g, Order No. 
2003-A, 69 FR 15932 (Mar. 26, 2004), FERC Stats. & Regs. ] 31,160 
(2004) (Order No. 2003-A), order on reh'g, Order No. 2003-B, 70 FR 
265 (Jan. 4, 2005), FERC Stats. & Regs. ] 31,171 (2005), reh'g 
pending (Order No. 2003-B). See also Notice Clarifying Compliance 
Procedures, 106 FERC ] 61,009 (2004). We refer to the large 
generator interconnection rulemaking as Order No. 2003 throughout 
this document. The Order No. 2003 Large Generator Interconnection 
Agreement and Large Generator Interconnection Procedures, as amended 
by Order Nos. 2003-A and 2003-B, are referred to in this Final Rule 
as the LGIA and the LGIP, respectively.
    \3\ Capitalized terms used in this Final Rule have the meanings 
specified in the Glossaries of Terms or the text of the Small 
Generator Interconnection Procedures (SGIP) or the Small Generator 
Interconnection Agreement (SGIA). Small Generating Facility means 
the device for which the Interconnection Customer has requested 
interconnection. The owner of the Small Generating Facility is the 
Interconnection Customer. The utility entity with which the Small 
Generating Facility is interconnecting is the Transmission Provider. 
A Small Generating Facility is a device used for the production of 
electricity having a capacity of no more than 20 MW. The 
interconnection process formally begins with the Interconnection 
Customer submitting an application for interconnection, called an 
Interconnection Request, to the Transmission Provider.
    We are omitting from the SGIP and SGIA glossaries terms that are 
defined through their use in the documents themselves or are in such 
common use in the industry that a definition is unnecessary. Many 
terms that were capitalized in the Small Generator Interconnection 
Notice of Proposed Rulemaking are therefore not capitalized in this 
Preamble, SGIP, and SGIA.
    The documents put forward in the Small Generator Interconnection 
NOPR are called the ``Proposed SGIP'' and the ``Proposed SGIA'' in 
this Preamble. The documents that are being adopted in this Final 
Rule for inclusion in a Transmission Provider's OATT are called 
simply the SGIP and SGIA. Provisions of the SGIP are referred to as 
``sections'' and provisions of the SGIA are referred to as 
``articles.''
    \4\ 16 U.S.C. 824d and 824e (2000).
    \5\ Compliance procedures are discussed in Part II.I, below.
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    2. The SGIP contains the technical procedures the Interconnection 
Customer and Transmission Provider (the Parties) must follow once the 
Interconnection Customer requests interconnection of its Small 
Generating Facility. It provides three ways to evaluate the 
Interconnection Request. They are the default Study Process that could 
be used by any Small Generating Facility, and two procedures that use 
technical screens to evaluate proposed interconnections: (1) The Fast 
Track Process for a certified Small Generating Facility no larger than 
2 MW \6\ and (2) the 10 kW Inverter Process for a certified inverter-
based Small Generating Facility no larger than 10 kW.\7\ All three are 
designed to ensure that the proposed interconnection will not endanger 
the safety and reliability of the Transmission Provider's Transmission 
System.
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    \6\ A Small Generating Facility equipment package is considered 
certified if it has been submitted, tested, and listed by a 
nationally recognized testing and certification laboratory. The 
Small Generator Interconnection NOPR used the term ``precertified'' 
to describe such a facility. We adopt in this Final Rule the term 
``certified'' to be consistent with industry usage. To avoid further 
confusion, we also use ``certified'' when describing the Small 
Generator Interconnection NOPR. See the SGIP, especially Attachments 
3 and 4.
    \7\ An inverter is a device that converts the direct current 
voltage and current of a DC generator to alternating voltage and 
current. For example, the output of a solar panel is direct current. 
The solar panel's output must be converted by an inverter to 
alternating current before it can be interconnected with a utility's 
alternating current electric system.
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    3. The SGIA contains contractual provisions appropriate for the 
interconnection of a Small Generating Facility, including provisions 
for the payment for modifications made to the Transmission Provider's 
Transmission System to accommodate the interconnection. The SGIA is 
signed by the Parties after they have successfully completed the 
evaluation of a proposed interconnection under the SGIP Study Process 
or Fast Track Process. The SGIA

[[Page 34191]]

does not apply to requests to interconnect submitted under the 10 kW 
Inverter Process, however, which uses a simplified all-in-one 
application form/procedures/terms and conditions document that is 
included in SGIP Attachment 5.
    4. We conclude that general consistency between the Commission's 
interconnection procedures document and interconnection agreement 
adopted in this Final Rule and those of the states will be helpful to 
removing roadblocks to the interconnection of Small Generating 
Facilities. To a large extent, this Final Rule harmonizes state and 
federal practices by adopting many of the best practices 
interconnection rules recommended by the National Association of 
Regulatory Utility Commissioners (NARUC). By doing so, we hope to 
minimize the federal-state division and promote consistent, nationwide 
interconnection rules. We hope that states that do not currently have 
interconnection rules for small generators will look to the documents 
presented in this Final Rule and NARUC as guides for their own. In 
particular, the ``Fast Track Process'' and the ``10 kW Inverter 
Process'' should go a long way towards harmonizing state-federal 
interconnection practices.
    5. Finally, the application of this Final Rule is the same as with 
Order No. 2003 for Large Generating Facilities. Specifically, this 
Final Rule applies only to interconnections with facilities that are 
already subject to the Transmission Provider's OATT at the time the 
Interconnection Request is made.
    6. The SGIP and SGIA include separate definitions for 
``Transmission System'' and ``Distribution System'' to account for the 
distinct engineering and cost allocation implications of an 
interconnection with a Distribution System. The SGIP and SGIA, like 
Order No. 2003, define ``Transmission System'' as ``[t]he facilities 
owned, controlled or operated by the Transmission Provider or the 
Transmission Owner that are used to provide transmission service under 
the Tariff.'' Any interconnection with a Transmission System (under an 
OATT) by a Small Generating Facility is subject to this Final Rule.
    7. The SGIP and the SGIA, like Order No. 2003, also use the term 
``Distribution System.'' ``Distribution System'' is defined as ``[t]he 
Transmission Provider's facilities and equipment used to transmit 
electricity to ultimate usage points such as homes and industries 
directly from nearby generators or from interchanges with higher 
voltage transmission networks which transport bulk power over longer 
distances. The voltage levels at which Distribution Systems operate 
differ among areas.'' If a Small Generating Facility proposes to 
interconnect with a portion of the Distribution System subject to an 
OATT for the purpose of making wholesale sales, then this Final Rule 
would apply.\8\ However, an interconnection to a portion of a 
Distribution System that is not already subject to an OATT would not be 
subject to this Final Rule.
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    \8\ See Detroit Edison v. FERC, 334 F.3d 48 (DC Cir. 2003) 
(Detroit Edison). There, the court explained that:
    When a local distribution facility is used to delivery [sic] 
energy to an unbundled retail customer, FERC lacks any statutory 
authority, and the state has jurisdiction over that transaction. By 
contrast, when a local distribution facility is used in a wholesale 
transaction, FERC has jurisdiction over that transaction pursuant to 
its wholesale jurisdiction under FPA Section 201(b)(1). In sum, FERC 
has jurisdiction over all interstate transmission service and over 
all wholesale service, but FERC has no jurisdiction over unbundled 
retail distribution service--i.e., unbundled retail service over 
local distribution facilities.
    Id. at 51 (citations omitted).
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    8. ``Distribution'' is a vague term, usually used to refer to non-
networked, often lower-voltage facilities, that carry power in one 
direction. Commission-jurisdictional facilities with these 
characteristics are referred to as ``Distribution Systems subject to an 
OATT'' throughout this Final Rule. This Final Rule's use of the term 
``Distribution System'' has nothing to do with whether the facility is 
under this Commission's jurisdiction; some ``distribution'' facilities 
are under our jurisdiction and others are ``local distribution 
facilities'' subject to state jurisdiction.\9\ This Final Rule does not 
violate the FPA section 201(b)(1) provision that the Commission does 
not have jurisdiction over local distribution facilities ``except as 
specifically provided * * *.'' \10\ This is because the Final Rule 
applies only to interconnections to facilities that are already subject 
to a jurisdictional OATT at the time the interconnection request is 
made and that will be used for purposes of jurisdictional wholesale 
sales. Because of the limited applicability of this Final Rule, and 
because the majority of small generators interconnect with facilities 
that are not subject to an OATT, this Final Rule will not apply to most 
small generator interconnections. Nonetheless, our hope is that states 
may find this rule helpful in formulating their own interconnection 
rules.
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    \9\ See Detroit Edison, 334 F.3d at 51. (``For our purposes, the 
most important result of these jurisdictional determinations is that 
customers can take any FERC-jurisdictional service under a utility's 
open access tariff, which the utility is required to file with FERC. 
Customers must take non FERC-jurisdictional service, such as 
unbundled retail distribution, under a state tariff.'')
    \10\ 16 U.S.C. 824 (2000).
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A. Background

    9. This Final Rule responds to business and technology changes in 
the electric industry. Where the electric industry was once primarily 
the domain of vertically integrated utilities generating power at large 
centralized plants, advances in technology have created a burgeoning 
market for small power plants that may offer economic, reliability, or 
environmental benefits.
    10. With these developments in mind, the Commission continues in 
this rulemaking to work to encourage fully competitive bulk power 
markets. The effort took its first significant step with Order No. 
888,\11\ which required public utilities to provide other entities 
comparable access to their Transmission Systems. The effort continued 
with Order No. 2000,\12\ which began the process of developing Regional 
Transmission Organizations (RTOs). Most recently, the Commission 
established a standard Large Generator Interconnection Procedures 
document (LGIP) and a standard Large Generator Interconnection 
Agreement (LGIA) for generating facilities larger than 20 MW.\13\
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    \11\ Promoting Wholesale Competition Through Open Access Non-
Discriminatory Transmission Services by Public Utilities: Recovery 
of Stranded Costs by Public Utilities and Transmitting Utilities, 
Order No. 888, 61 FR 21540 (May 10, 1996), FERC Stats. & Regs. ] 
31,036 (1996), order on reh'g, Order No. 888-A, 62 FR 12274 (Mar. 
14, 1997), FERC Stats. & Regs. ] 31,048 (1997), order on reh'g, 
Order No. 888-B, 81 FERC ] 61,248 (1997), order on reh'g, Order No. 
888-C, 82 FERC ] 61,046 (1998), aff'd in part sub nom. Transmission 
Access Policy Study Group v. FERC, 225 F.3d 667 (DC Cir. 2000), 
aff'd sub nom. New York v. FERC, 535 U.S. 1 (2002) (TAPS v. FERC).
    \12\ Regional Transmission Organizations, Order No. 2000, 65 FR 
810 (Jan. 6, 2000), FERC Stats. & Regs. ] 31,089 (1999), order on 
reh'g, Order No. 2000-A, 65 FR 12088 (Mar. 8, 2000), FERC Stats. & 
Regs. ] 31,092 (2000), aff'd sub nom. Public Util. Dist. No. 1 v. 
FERC, 272 F.3d 607 (DC Cir. 2001).
    \13\ See Order No. 2003 passim.
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    11. The Commission, pursuant to its responsibility under sections 
205 and 206 of the FPA to remedy undue discrimination, is requiring all 
public utilities that own, control, or operate facilities for 
transmitting electric energy in interstate commerce to append to their 
OATTs the SGIP and SGIA we are adopting in this Final Rule. These 
documents provide just and reasonable terms and conditions of 
interconnection service. They also strike a reasonable balance between 
the competing goals of uniformity and flexibility while ensuring safety 
and reliability are protected.

[[Page 34192]]

B. Need for a Standard Generator Interconnection Procedures and 
Agreement

    12. In fulfilling its responsibilities under sections 205 and 206 
of the FPA, the Commission is required to remedy undue discrimination. 
The Commission must also ensure that the rates, contracts, and 
practices affecting jurisdictional transmission service do not reflect 
an undue preference or advantage for Transmission Providers and their 
affiliates and are just and reasonable. The Commission's regulatory 
authority under the FPA ``clearly carries with it the responsibility to 
consider, in appropriate circumstances, the anticompetitive effects of 
regulated aspects of interstate utility operations* * *.'' \14\
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    \14\ Gulf States Utils. Co. v. FPC, 411 U.S. 747, 758-59 (1973); 
see City of Huntingburg v. FPC, 498 F.2d 778, 783-84 (DC Cir. 1974) 
(noting the Commission's duty to consider the potential 
anticompetitive effects of a proposed interconnection agreement).
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    13. The record underlying Order No. 888 showed that public 
utilities owning or controlling jurisdictional transmission facilities 
had the incentive to engage in, and had engaged in, unduly 
discriminatory transmission practices.\15\ The Commission in Order No. 
888 thoroughly discussed the legislative history and case law involving 
sections 205 and 206, concluded that it has the authority and 
responsibility to remedy the undue discrimination it found by requiring 
open access, and decided to do so through a rulemaking on a generic, 
industry-wide basis.\16\ The Supreme Court affirmed the Commission's 
decision to exercise this authority by requiring non-discriminatory 
(comparable) open access as a remedy for undue discrimination.\17\ 
However, Order No. 888 did not specifically address interconnection 
service.\18\
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    \15\ Order No. 888 at 31,679-84; Order No. 888-A at 30,209-10.
    \16\ Order No. 888 at 31,668-73, 31,676-79; Order No. 888-A at 
30,201-12; TAPS v. FERC at 687-88.
    \17\ New York v. FERC, 535 U.S. 1 (2002).
    \18\ Order No. 888-A, FERC Stats. & Regs ] 31,048 at 30,230-31.
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    14. In Tennessee Power,\19\ the Commission clarified that 
interconnection is a critical component of open access transmission 
service and thus is subject to the requirement that utilities offer 
comparable service under the OATT. The Commission encouraged, but did 
not require, each Transmission Provider to revise its OATT to include 
interconnection procedures, including a standard interconnection 
agreement and specific criteria, procedures, milestones, and timelines 
for evaluating applications for interconnection.\20\
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    \19\ Tennessee Power Co. (Tennessee Power), 90 FERC ] 61,238 at 
61,761 (2000), reh'g denied, 91 FERC ] 61,271 (2000).
    \20\ See, e.g., Commonwealth Edison Co., 91 FERC ] 61,083 
(2000).
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    15. As discussed in Order No. 2003, interconnection is a critical 
component of transmission service, and having a standard 
interconnection procedures and a standard agreement applicable to Small 
Generating Facilities will (1) limit opportunities for transmitting 
utilities to favor their own generation, (2) remove unfair impediments 
to market entry for small generators by reducing interconnection costs 
and time, and (3) encourage investment in generation and transmission 
infrastructure, where needed.\21\ We expect the SGIP and SGIA adopted 
here will resolve most disputes, minimize opportunities for undue 
discrimination, foster increased development of economic Small 
Generating Facilities, and protect system reliability.
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    \21\ Order No. 2003 at P 10.
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C. The Large and Small Generator Interconnection Rulemaking Proceedings

    16. In the Advance Notice of Proposed Rulemaking (ANOPR) issued in 
Docket No. RM02-1-000, the Commission initiated a collaborative process 
where members of the public, electric industry participants, and 
federal and state agencies (collectively, stakeholders) were invited to 
draft proposed generator interconnection procedures and a generator 
interconnection agreement.\22\ The stakeholders filed their consensus 
documents in January 2002. The Commission then issued a Notice of 
Proposed Rulemaking (Large Generator Interconnection NOPR) \23\ 
proposing standard interconnection procedures and a standard 
interconnection agreement that generally followed the consensus 
documents. The Large Generator Interconnection NOPR also proposed 
solutions to issues left unresolved in the consensus documents.
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    \22\ Standardizing Generator Interconnection Agreements and 
Procedures, Advance Notice of Proposed Rulemaking, 66 FR 55140 (Nov. 
1, 2001), FERC Stats. & Regs. ] 35,540 (2002).
    \23\ Standardization of Generator Interconnection Agreements and 
Procedures, Notice of Proposed Rulemaking, 67 FR 22250 (May 2, 
2002), FERC Stats. & Regs. ] 32,560 (2002).
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    17. Although the Large Generator Interconnection NOPR provided 
special treatment for Small Generating Facilities, some commenters 
urged the Commission to initiate a separate proceeding to develop 
standard interconnection procedures and agreements that addressed the 
unique concerns of Small Generating Facilities.\24\ They proposed one 
set of simplified interconnection rules for Small Generating Facilities 
no larger than 2 MW, and another for facilities larger than 2 MW but no 
larger than 20 MW. Persuaded that different procedures and agreements 
were indeed needed, the Commission severed Small Generating Facilities 
from the Large Generator Interconnection proceeding and issued a Small 
Generator Interconnection Advance Notice of Proposed Rulemaking (ANOPR) 
in August 2002.\25\ The Small Generator Interconnection ANOPR proposed 
two SGIPs and two SGIAs (ANOPR SGIPs and SGIAs) using 2 MW as a 
breakpoint. It encouraged stakeholders to pursue consensus on the ANOPR 
SGIPs and SGIAs. To that end, the Commission convened a series of 
public meetings designed to enable them to discuss and reach as much 
consensus as possible.
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    \24\ Those commenters included the Solar Energy Industries 
Association, the U.S. Fuel Cell Council, the American Solar Energy 
Society, the U.S. Combined Heat and Power Association, the 
International District Energy Association, and the American Wind 
Energy Association.
    \25\ Standardization of Small Generator Interconnection 
Agreements and Procedures, Advance Notice of Proposed Rulemaking, 67 
FR 54749 (Aug. 26, 2002), FERC Stats. & Regs. ] 35,544 (2002).
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    18. The negotiating parties, who we refer to collectively as Joint 
Commenters, then filed SGIPs and SGIAs (Joint Commenters' SGIPs and 
SGIAs) with the Commission.\26\ While Joint Commenters reached 
consensus on some issues, many remained unresolved. Joint Commenters' 
SGIPs included two procedures for evaluating whether a proposed Small 
Generating Facility could be interconnected safely and without 
degrading reliability. The first was a standard Study Process that

[[Page 34193]]

used a scoping meeting and three technical studies to evaluate a 
proposed interconnection. The second was a streamlined procedure that 
used technical screens to identify those proposed interconnections that 
clearly would not jeopardize the safety and reliability of the 
Transmission Provider's electric system. Public comments on the Small 
Generator Interconnection ANOPR were filed shortly thereafter.
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    \26\ This group refers to itself as the Coalition. However, in 
this Final Rule we shall refer to the group as ``Joint Commenters'' 
to distinguish it from the similarly named Small Generator 
Coalition. With the exception of these early references to Joint 
Commenters' comments submitted in response to the ANOPR, all 
references in the remainder of this Preamble to Joint Commenters are 
to its supplemental comments. Joint Commenters did not file initial 
comments in response to the Small Generator Interconnection NOPR, 
only supplemental comments. Joint Commenters is a diverse group of 
stakeholders that includes:
     Over 25 small generator trade groups, promoters, and 
equipment manufacturers, who refer to themselves collectively as the 
``Small Generator Coalition,''
     State regulatory agencies represented by the National 
Association of Regulatory Utility Commissioners,
     American Public Power Association (which did not 
participate in the filing of Joint Commenters' supplemental 
comments), and
     Transmission Providers represented by Edison Electric 
Institute (EEI) and National Rural Electric Cooperative Association 
(NRECA)
    A list of commenter acronyms may be found in Appendix A.
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    19. In July 2003, the Commission issued Order No. 2003, which 
established standard procedures and an interconnection agreement for 
the interconnection of large generators and explained the Commission's 
jurisdiction over interconnections. The Commission simultaneously 
issued the Small Generator Interconnection NOPR.\27\ Certain provisions 
in the Large Generator Interconnection Final Rule as well as Joint 
Commenters' SGIPs/SGIAs influenced the Small Generator Interconnection 
NOPR.\28\ The Commission asked commenters to address whether Small 
Generating Facilities should be treated differently from Large 
Generating Facilities under the LGIP and LGIA adopted in Order No. 
2003.
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    \27\ Standardization of Small Generator Interconnection 
Agreements and Procedures, Notice of Proposed Rulemaking, 60 FR 
49974 (Aug. 19, 2003), FERC Stats. & Regs. ] 32,572 (2003) (Small 
Generator Interconnection NOPR).
    \28\ See, e.g., Proposed SGIA articles 4.1, 5.1.2, 5.1.2.1, 5.2, 
6.1-6.9, 6.12-6.20, 7, and 8.
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    20. Sixty-five entities submitted initial comments in response to 
the Small Generator Interconnection NOPR. The comments generally 
support the Commission's effort to remove barriers to the development 
of Small Generating Facilities. Following the issuance of the Small 
Generator Interconnection NOPR and the initial comment due date, NARUC 
in October 2003 updated its own interconnection procedures and 
agreement, referred to here as the NARUC Model. NARUC stated that the 
NARUC Model is based on the best practices of the state regulatory 
agencies that have interconnection procedures for small generators. 
NARUC encouraged state regulators to use the NARUC Model as a basis for 
developing their interconnection procedures and suggested that the 
Commission's documents reflect these ``best practices.'' On July 7, 
2004, the Commission staff added to the record in this proceeding the 
latest version of the NARUC Model.\29\ A few commenters favor 
terminating this proceeding or, in the alternative, adopting the NARUC 
Model.
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    \29\ NARUC members had participated in the ANOPR discussions 
fostered by the Commission; there was much similarity between the 
provisions of the NARUC Model and the Small Generator 
Interconnection NOPR.
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    21. The Commission then issued a Notice of Request for Supplemental 
Comments, observing that the small generator industry had continued to 
evolve since the Commission first received comments in this 
proceeding.\30\ In the notice, the Commission observed that several 
states had recently adopted new guidelines for small generator 
interconnections, and that the stakeholders who participated in the 
Commission's ANOPR process were continuing to work toward resolving 
various SGIP and SGIA issues. The Commission invited joint supplemental 
comments describing new consensus positions but discouraged 
resubmissions of prior positions.
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    \30\ See Notice of Request for Supplemental Comments, 69 FR 
51024 (Aug. 17, 2004). The Commission then granted two extensions of 
time at the request of Joint Commenters. See Notices issued on 
September 30, 2004 and November 30, 2004 in Docket No. RM02-12-000.
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    22. Joint Commenters, which as noted above represents a diverse 
group of small generator interests, Transmission Providers, and state 
regulators who participated in the ANOPR process, was the only group to 
file a consensus position. Some Joint Commenters--Small Generator 
Coalition, NRECA, and NARUC--filed their own supplemental comments as 
well. Ten other entities (mostly state regulatory commissions \31\) 
submitted supplemental comments.\32\
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    \31\ CT DPUC, Minnesota PUC, and Massachusetts DTE submitted 
copies of their recently enacted small generator interconnection 
rules.
    \32\ The supplemental commenters are listed in Appendix A.
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    23. In its supplemental comments, Joint Commenters endorsed a 
single SGIP and single SGIA for Small Generating Facilities no larger 
than 20 MW. Joint Commenters recommended several revised provisions in 
areas where they had not been able to reach consensus during the ANOPR 
process. These included dispute resolution, confidentiality, insurance, 
equipment certification, and technical screens, among others. Joint 
Commenters, which includes NARUC, also endorsed a greatly simplified 
all-in-one application form/procedures/terms and conditions document 
for the interconnection of certified inverter-based Small Generating 
Facilities no larger than 10 kW.
    24. In Order No. 2003-A, the Commission determined that the LGIP 
and LGIA were designed around the needs of traditional synchronous 
technology generators and that generators relying on non-synchronous 
technologies, such as wind plants, may find that a specific requirement 
is inapplicable or that a different approach is needed.\33\ 
Accordingly, the Commission added a blank Appendix G (Requirements of 
Generators Relying on Non-Synchronous Technologies) to the LGIA as a 
placeholder for requirements specific to non-synchronous 
technologies.\34\ At a September 24, 2004 technical conference on the 
interconnection requirements of non-synchronous technologies, panelists 
were asked whether Appendix G type requirements should apply to Small 
Generating Facilities. They responded that special capabilities, such 
as low voltage ride-through, simply were not needed for any Small 
Generating Facility, whether wind powered or not. As a result, the Wind 
NOPR issued shortly thereafter applies only to the interconnection of 
wind powered generators 20 MW or larger.\35\ In its supplemental 
comments, National Grid asks the Commission to implement standards for 
Small Generating Facilities that are similar to those proposed for 
Large Generating Facilities in the Wind NOPR. This Final Rule does not 
include such standards. The wind generating facilities that will 
interconnect under this Final Rule will be small and will have minimal 
impact on the Transmission Provider's electric system. The reliability 
requirements proposed for wind powered Large Generating Facilities are 
not needed for small wind generating facilities.
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    \33\ Order No. 2003-A at P 407, n. 86.
    \34\ Id.
    \35\ Interconnection for Wind Energy and Other Alternative 
Technologies, Notice of Proposed Rulemaking, 70 FR 4791 (Jan. 31, 
2005) (Wind NOPR).
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    25. In crafting this Final Rule, we considered all of the comments 
received throughout the course of this proceeding, including the 
initial documents submitted by Joint Commenters in response to the 
ANOPR, the Small Generator Interconnection NOPR and the comments filed 
in response, the NARUC Model, and the supplemental comments. We 
considered all comments filed in response to the Small Generator 
Interconnection NOPR before April 29, 2005, and they are part of the 
record in this proceeding.\36\
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    \36\ Comments addressing issues filed in other dockets (for 
instance, the Wind NOPR) are not part of this proceeding even if 
they were cross-filed in Docket No. RM02-12-000.
---------------------------------------------------------------------------

II. Discussion

    26. Part A of this discussion (Descriptions of the SGIP and SGIA) 
describes in general terms the interconnection procedures document 
(SGIP) and interconnection agreement

[[Page 34194]]

(SGIA) we are adopting in this Final Rule.
    27. Part B (Overview of the Interconnection Process for Small 
Generating Facilities) describes the processes that the Interconnection 
Customer and the Transmission Provider must follow to interconnect the 
Small Generating Facility with the Transmission Provider's Transmission 
System.
    28. Part C (Issues Related to Both the SGIP and the SGIA) addresses 
issues that are common to the interconnection procedures and agreement 
documents.
    29. Part D (Issues Related to the Interconnection Request) 
addresses issues related to the Interconnection Request (application 
form) that the Interconnection Customer submits to the Transmission 
Provider to request interconnection of its Small Generating Facility.
    30. Part E (Issues Related to the SGIP) addresses issues related 
only to the interconnection procedures document.
    31. Part F (Issues Related to the SGIA) addresses issues related 
only to the interconnection agreement.
    32. Part G (The 10kW Inverter Process) describes the simplified 
all-in-one application form/procedures/terms and conditions document 
for the interconnection of certified inverter-based Small Generating 
Facilities no larger than 10 kW.
    33. Part H (Other Significant Issues) addresses the pricing of 
Interconnection Facilities and Upgrades, jurisdictional issues, 
variations from the Final Rule, the availability of waivers for small 
entities, the effect of this Final Rule on the OATT reciprocity 
provisions, and others.
    34. Finally, Part I (Compliance Issues) addresses issues pertaining 
to the requirement that a Transmission Provider file conforming 
amendments to its existing OATT, the treatment to be accorded to 
existing interconnection agreements (grandfathering), and how a 
Transmission Provider is to file executed and unexecuted 
interconnection agreements.

A. Descriptions of the SGIP and SGIA

    35. In Order No. 2003, the Commission adopted two documents that 
are to be used for the interconnection of Large Generating Facilities--
the Large Generator Interconnection Procedures document and the Large 
Generator Interconnection Agreement. The LGIP describes how the 
Interconnection Customer's Interconnection Request (i.e., application) 
is to be evaluated from an engineering perspective using a four-step 
process. These are the scoping meeting, the feasibility study, the 
system impact study, and the facilities study. The purpose of the 
evaluation is to determine the impact the proposed interconnection will 
have on the Transmission Provider's electric system and identify new 
equipment and modifications needed to accommodate the interconnection. 
The LGIA, which is signed after the proposed interconnection has been 
successfully evaluated using the provisions contained in the LGIP, 
describes the legal relationships of the Parties, including who pays 
for equipment modifications to the Transmission Provider's electric 
system.
    36. The SGIP and SGIA we adopt in this Final Rule serve the same 
purposes as the LGIP and LGIA. The SGIP includes the same four-step 
process for evaluating an Interconnection Request as does the LGIP, 
except that it is simplified in several aspects and includes timelines 
to accelerate the interconnection of Small Generating Facilities. In 
the SGIP, this procedure is termed the ``Study Process.'' The SGIP also 
includes special procedures for evaluating two subgroups of Small 
Generating Facilities, (1) a ``Fast Track Process'' that uses technical 
screens to evaluate a certified Small Generating Facility no larger 
than 2 MW, and (2) a ``10 kW Inverter Process'' that uses the same 
technical screens to evaluate a certified inverter-based Small 
Generating Facility no larger than 10 kW. The SGIA serves the same 
purpose for the interconnection of a Small Generating Facility as the 
LGIA does for a Large Generating Facility. It describes the legal 
relationships of the Parties, including who will pay for equipment 
modifications to the Transmission Provider's electric system.
    37. The Commission received many comments proposing modifications 
to the Proposed SGIP and Proposed SGIA, which helped greatly to shape 
this Final Rule. NARUC argued that the Commission should adopt portions 
of its Model to harmonize federal interconnection rules with those 
found in states with interconnection rules. Small Generator Coalition 
recommended that the Commission in this proceeding adopt the NARUC 
Model instead of the Proposed SGIP and Proposed SGIA. Some of the 
provisions proposed by Joint Commenters (which includes NARUC 
representation) in its supplemental comments also followed the NARUC 
Model. We are adopting in this Final Rule many of these consensus 
provisions as well as those proposed by NARUC because they are just and 
reasonable and serve the twin goals of removing barriers to the 
development of small generation while preserving the safety and 
reliability of the nation's electric system.
    38. The SGIP, while relying heavily on NARUC's and Joint 
Commenters' proposals, is not a significant departure from the Proposed 
SGIP. Both use nearly identical interconnection study processes 
(``Study Process'') to evaluate Interconnection Requests that do not 
qualify for special handling. Regarding special handling, both use 
technical screens to identify Small Generating Facilities no larger 
than 2 MW that can be interconnected with no adverse impact on safety 
or reliability. The SGIP we adopt in this Final Rule, however, includes 
two such special procedures, the Fast Track Process and the 10 kW 
Process. The choice of which one the Interconnection Customer may use 
depends on the size and technology of the Small Generating Facility. 
The SGIP also includes the Interconnection Request (application form) 
that is to be used by all Interconnection Customers except those 
eligible to use the 10 kW Process, and feasibility study, system impact 
study, and facilities study agreements that are to be used in the Study 
Process.\37\
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    \37\ Note that the scope and payment provisions of the 
feasibility, system impact, and facilities studies are contained in 
the actual study agreements which are included as Attachments 6, 7, 
and 8 to the SGIP, not section 3 of the SGIP.
---------------------------------------------------------------------------

    39. The SGIA is to be used for the interconnection of all Small 
Generating Facilities subject to this Final Rule, with the exception of 
certain very small inverter-based generators that use an all-in-one 
application form/procedures/terms and conditions document (the 10 kW 
Inverter Process document). The Proposed SGIA included several 
provisions that were similar to those contained in the LGIA that was 
issued concurrent with the Small Generator Interconnection NOPR. Some 
commenters complained that the Proposed SGIA was too long and complex 
for owners of Small Generating Facilities, who may be small businesses 
or operators of small farms, for example. We are streamlining and 
simplifying the SGIA in many ways to address these concerns. We are 
adopting Joint Commenters' proposals submitted in its supplemental 
comments where appropriate and have given consideration to the 
recommendations contained in the NARUC Model and those suggested by 
other commenters. In particular, the SGIA does away with the 
requirement that Interconnection Customers maintain multiple kinds of 
insurance, instead requiring only that they maintain a reasonable 
amount based on the specific characteristics of

[[Page 34195]]

the interconnection. We also adopt a streamlined dispute resolution 
provision designed to resolve disputes as quickly and inexpensively as 
possible. We have also shortened the contract termination provisions 
and the various liability related provisions.
    40. We adopt in the SGIA the same pricing policy for Network 
Upgrades to the Transmission Provider's Transmission System as in Order 
No. 2003. For a Small Generating Facility interconnecting with a non-
independent entity such as a vertically integrated utility, the 
Interconnection Customer initially funds the cost of any required 
Network Upgrades (i.e., Upgrades to the Transmission System at or 
beyond the Point of Interconnection) and it is then subsequently 
reimbursed for this upfront payment by the Transmission Provider. 
However, we expect that, for most interconnections of Small Generating 
Facilities, there will be no Network Upgrades. We also allow more 
pricing flexibility for a Transmission System that is operated by an 
independent entity such as an RTO or Independent System Operator (ISO). 
The costs of Distribution Upgrades are directly assigned to the 
Interconnection Customer.
    41. In conclusion, we encourage the standardization of 
interconnection practices across the nation, using as a starting point 
the SGIP and SGIA found in this Final Rule. We hope to foster seamless 
interconnection procedures for Interconnection Customers and 
Transmission Providers. Equipment manufacturers will have compatible 
technical specifications to meet. New generation will be located on the 
basis of what works best for the Interconnection Customer and the 
Transmission Provider, not jurisdictional differences in 
interconnection rules.

B. Overview of the Interconnection Process for Small Generating 
Facilities

    42. Before submitting its Interconnection Request, the 
Interconnection Customer may informally discuss the proposed 
interconnection with the Transmission Provider.\38\ The Interconnection 
Customer then submits an Interconnection Request to the Transmission 
Provider and the Transmission Provider assigns the Interconnection 
Customer's project a Queue Position based on the date and time the 
Interconnection Request is received by the Transmission Provider. The 
Interconnection Request must be accompanied by a deposit that goes 
toward the cost of the feasibility study, unless it is submitted under 
the Fast Track Process or the 10 kW Inverter Process, which have small 
processing fees.
---------------------------------------------------------------------------

    \38\ Flowcharts depicting interconnection procedures are 
presented in Appendices B (Study Process), C (Fast Track Process), 
and D (10 kW Inverter Process).
---------------------------------------------------------------------------

    43. As noted above, an Interconnection Request can be evaluated in 
one of three ways. The Study Process is the default method; it relies 
on the scoping meeting and standard feasibility, system impact, and 
facilities studies to evaluate the safety and reliability of the 
proposed interconnection. It is identical in concept to the evaluation 
procedure that is used for the interconnection of Large Generating 
Facilities. Two optional methods are available to Interconnection 
Customers whose Small Generating Facilities are certified and no larger 
than 2 MW. The 10 kW Inverter Process is available for owners of 
inverter-based Small Generating Facilities no larger than 10 kW and the 
Fast Track Process is available for owners of any kind of Small 
Generating Facility no larger than 2 MW.
    44. The Study Process normally consists of a scoping meeting, a 
feasibility study, a system impact study, and a facilities study. At 
the scoping meeting, the Parties discuss the proposed interconnection 
and review any existing studies that could aid in the evaluation of the 
proposed interconnection. The feasibility study is a preliminary 
technical assessment of the proposed interconnection. The system impact 
study is a more detailed assessment of the effect the interconnection 
would have on the Transmission Provider's electric system and Affected 
Systems. The facilities study determines what modifications to the 
Transmission Provider's electric system are needed, including the 
detailed costs and scheduled completion dates for these modifications. 
These studies identify adverse system impacts \39\ that need to be 
addressed before the Small Generating Facility may be interconnected 
and any equipment modifications required to accommodate the 
interconnection. The Interconnection Customer pays the Transmission 
Provider's actual cost of performing the studies. Once the 
Interconnection Customer agrees to fund any needed Upgrades, the 
Parties execute an SGIA that, among other things, formalizes 
responsibility for construction and payment for Interconnection 
Facilities and Upgrades.\40\
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    \39\ An adverse system impact means that technical or 
operational limits on conductors or equipment are exceeded under the 
interconnection, which may compromise the safety or reliability of 
the electric system.
    \40\ The Study Process is similar to the LGIP. However, we 
expect that the interconnection of a Small Generating Facility will 
take substantially less time and cost substantially less than a 
Large Generating Facility.
---------------------------------------------------------------------------

    45. A Fast Track Process is available for certified Small 
Generating Facilities no larger than 2 MW. Under this process, in place 
of the scoping meeting and three interconnection studies, technical 
screens are used to quickly identify reliability or safety issues. If 
the proposed interconnection passes the screens, the Transmission 
Provider offers the Interconnection Customer an SGIA. If the proposed 
interconnection fails the screens, but the Transmission Provider 
determines that the Small Generating Facility may nevertheless be 
interconnected without affecting safety and reliability, the 
Transmission Provider also offers the Interconnection Customer an SGIA. 
However, if the Transmission Provider is concerned that the 
interconnection could degrade the safety and reliability of its 
electric system, the Parties may conduct a customer options meeting to 
discuss how to proceed. In that meeting, the Transmission Provider must 
offer to perform a supplemental review of the proposed interconnection, 
paid for by the Interconnection Customer, to identify Upgrades needed 
to accommodate the interconnection. Once the Interconnection Customer 
agrees to pay for any Upgrades called for in the supplemental review, 
the Parties execute an SGIA. If, after the supplemental review, the 
Transmission Provider still is unsure whether the proposed 
interconnection will degrade the safety and reliability of its electric 
system, the Interconnection Request is evaluated using the Study 
Process described above; i.e., scoping meeting, feasibility, system 
impact, and facilities studies, followed by the execution of an SGIA.
    46. Finally, the 10 kW Inverter Process is available for the 
interconnection of certified inverter-based generators no larger than 
10 kW. The all-in-one 10 kW Inverter Process document includes a 
simplified application form, interconnection procedures, and a brief 
set of terms and conditions (akin to an interconnection agreement). The 
10 kW Inverter Process uses the same technical screens to evaluate the 
safety and reliability of the proposed interconnection as the Fast 
Track Process. Unless the Transmission Provider demonstrates that the 
Small Generating Facility cannot be

[[Page 34196]]

interconnected safely and reliably based on the results of an analysis 
using the screens, the Transmission Provider approves the application. 
Once the Interconnection Customer certifies that equipment installation 
is complete and upon a satisfactory inspection by the Transmission 
Provider, the Transmission Provider authorizes the interconnection. To 
further simplify the interconnection process, what would normally be 
considered a separate interconnection agreement has been distilled into 
a terms and conditions document that the Interconnection Customer 
agrees to at the time the Interconnection Request is submitted to the 
Transmission Provider. The all-in-one 10 kW Process document is 
included in Attachment 5 to the SGIP.

C. Issues Related to Both the SGIP and the SGIA

    47. This discussion, and those that follow, addresses the evolution 
of the SGIP and SGIA from the Proposed SGIP and Proposed SGIA. As is 
the custom in most Commission rulemakings, we use the Small Generator 
Interconnection NOPR as our point of reference, discussing each issue 
in turn, describing the comments addressed to the topic, and closing 
with the Commission conclusion. There are differences between the 
Proposed SGIP and SGIA and the documents we adopt in this Final Rule 
that reflect the helpful comments filed in this rulemaking. For 
example, we have in some instances adopted terminology more compatible 
with that used in state interconnection documents. This should make for 
simpler, more easily understood documents for small generators that are 
compatible across jurisdictions for both Interconnection Customers and 
Transmission Providers. However, the SGIP and SGIA also need to be 
interpreted in the broader context of the entire collection of 
generator interconnection documents that will appear in a Transmission 
Provider's OATT, including the LGIP and LGIA. Thus, there are some 
instances where consistency among generator interconnection documents 
within a single tariff makes it necessary to adopt Large Generator 
Interconnection terminology or policy. The Commission asked for 
comments in the Small Generator Interconnection NOPR addressing this 
topic, and it is the first to be addressed in the discussion that 
follows.
    48. Many of the issues in this rulemaking also arose in the Large 
Generator Interconnecting rulemaking and we will not address them again 
here at any great length. Where there is no compelling reason to depart 
from prior precedent, we affirm the Commission's prior decisions 
without detailed discussion. Therefore, this order focuses on those 
issues needing a small-generator-specific resolution.
    49. Finally, we note that the 10 kW Inverter Process for certified 
inverter-based Small Generating Facilities is an all-in-one application 
form/procedures/terms and conditions document that does not lend itself 
easily to the separate discussions of the Proposed SGIP/SGIA and the 
SGIP and SGIA discussions that follow. We will address it in the 
separate Part G discussion, below. We emphasize, however, that the 
intent of this Final Rule is that the 10 kW Inverter Process fits 
within the framework of the SGIP and SGIA, and it is for that reason 
that we encourage Interconnection Customers and Transmission Providers 
to use this Preamble, the SGIP, and the SGIA for assistance in 
interpreting the 10 kW Inverter Process should a dispute arise.
Consistency Between the Large Generator and Small Generator Documents
    50. In the Small Generator Interconnection NOPR, the Commission 
asked commenters to address the need for consistency between the 
provisions of the LGIP/LGIA and the SGIP/SGIA.
Comments
    51. NARUC argued that the Small Generator Interconnection NOPR was 
too complicated for most small generator interconnections. Instead, the 
Commission should adopt portions of the NARUC Model or otherwise 
simplify the interconnection process. NARUC pointed out that many Small 
Generating Facilities (including most inverter-based generators) will 
interconnect with low voltage facilities, whether Commission-
jurisdictional or state-jurisdictional. Thus, this Final Rule should be 
as consistent with state interconnection rules as possible to encourage 
national consistency and discourage forum-shopping. Joint Commenters 
also supports this outcome.
    52. AEP supports consistency between the large and small generator 
documents. However, it notes that Joint Commenters developed consensus 
positions on many issues during the ANOPR process. Where such agreement 
was reached, AEP proposes that the Commission adopt that position.
    53. Midwest ISO argues that the Commission should ensure 
consistency between the large and small generator documents, wherever 
possible, because all stakeholders will benefit from a consistent 
approach to the interconnection of generation facilities.
    54. PJM, on the other hand, proposes that the Commission simply use 
the LGIA for all interconnections, arguing that having different rules 
for large and small generator interconnections would be overly 
burdensome. PJM also states that its own interconnection rules take 
this approach and are hailed as being very successful.
    55. Baltimore G&E argues that the Commission should require the 
same terms for all generators, regardless of size, unless there is a 
specific reason not to do so. Therefore, it requests that the 
Commission provide a clear explanation wherever these Final Rule 
provisions differ from those in Order No. 2003. Southern Company 
agrees, arguing that Large and Small Generating Facilities should be 
treated similarly ``because both can have * * * significant impacts 
upon the Transmission Provider's electric system.'' \41\
---------------------------------------------------------------------------

    \41\ Southern Company at 19.
---------------------------------------------------------------------------

    56. BPA argues that the procedures and technical requirements 
applicable to large generators ``should not apply to the 
interconnection of small generators that have minimal impacts on a 
transmission grid.'' \42\ However, where the Commission does use 
``substantially similar or consistent procedures, contract terms, and 
other requirements'' for both Large and Small Generating Facilities, 
``the Commission should strive to provide consistency between its large 
and small generator rules.'' \43\
---------------------------------------------------------------------------

    \42\ BPA at 3.
    \43\ Id.
---------------------------------------------------------------------------

    57. Nevada Power also supports the concept of having the provisions 
applicable to Small Generating Facilities similar to those in Order No. 
2003. According to Nevada Power, ``[t]hese commonalities will avoid the 
confusion of differing terminologies, facilitate consistent and fair 
implementation, and minimize the need for separate, parallel 
administrative processes to administer the agreements.'' \44\ However, 
Nevada Power also argues that consistency should not compromise the 
goals of simplifying and expediting the interconnection of Small 
Generating Facilities. Instead, this Final Rule should be designed to 
``enable a common language and common administrative procedures to be 
implemented and still maintain appropriate distinctions between the 
small generators and the large generators.'' \45\ Nevada Power argues 
that the benefits of consistency are illustrated by Proposed SGIA 
article

[[Page 34197]]

5.1.2.1, which specifies the refund process for advances made by the 
Interconnection Customer for Network Upgrades. By having the same 
refund process for the amounts advanced for Network Upgrades in the 
SGIA and the LGIA, the Transmission Provider can set up one system, 
instead of two separate systems, to track and make any such refunds.
---------------------------------------------------------------------------

    \44\ Nevada Power at 4.
    \45\ Nevada Power at 4-5.
---------------------------------------------------------------------------

    58. In their supplemental comments, NARUC and the other Joint 
Commenters proposed SGIP and SGIA provisions that balance the need for 
simplicity with the need of Transmission Providers to ensure the safety 
and reliability of the Transmission Provider's electric system. In 
addition, Joint Commenters also proposed a process for certified 
inverter-based Small Generating Facilities no larger than 10 kW that 
can also be used as a model for the states.
Commission Conclusion
    59. Unless expressly changed in this Final Rule, the Commission's 
existing interconnection precedent and Order No. 2003 are relevant to 
this Final Rule and should be used as guidance for interpretation and 
implementation. We have tried to be consistent between the rules for 
Large and Small Generating Facilities, unless there is a specific 
reason to do otherwise, while considering NARUC's call for federal-
state consistency and the recommendations of other commenters.
    60. We note Joint Commenters' proposal of much simpler 
interconnection procedures and agreement for inverter-based generators 
no larger than 10 kW.\46\ Taking these extremely small units out of the 
mix has allowed us to adopt standard rules for larger Small Generating 
Facilities. According to NARUC, the process of interconnecting with a 
state-jurisdictional facility should not be substantially different 
from the process for interconnecting with a Commission-jurisdictional 
facility. Standard interconnection procedures are especially important 
for Interconnection Customers and manufacturers of off-the-shelf 
generating equipment.
---------------------------------------------------------------------------

    \46\ The 10 kW Inverter Process is largely based on the work of 
the Massachusetts DTE and its stakeholders group.
---------------------------------------------------------------------------

    61. In general, we are including standard contractual provisions in 
the SGIA that are consistent with their counterparts in the LGIA. 
However, in many cases commenters stressed the need to simplify those 
provisions to avoid burdening Small Generating Facilities. Many 
commenters offered ways to shorten and simplify those provisions. Where 
possible, we accept those proposals. These streamlined provisions 
adequately protect the Parties while lowering the transaction costs of 
entering into an interconnection agreement. The SGIP closely tracks the 
revised NARUC Model but adopts the single screen that NARUC and the 
other Joint Commenters later proposed in supplemental comments. Last, 
we have ensured that provisions common to the SGIP and SGIA (such as 
dispute resolution and confidentiality) are consistent.
    62. Definitions of Terms Used in the SGIP and SGIA--NARUC and 
others propose that the Commission use the defined terms in the NARUC 
Model instead of those found in the Small Generator Interconnection 
NOPR. We conclude that several of the terms defined in the Proposed 
SGIP and SGIA are either unnecessary or add complexity to the 
interconnection process. We are simplifying the SGIP and SGIA by 
deleting those definitions. Comments on specific terms are discussed 
below.
    63. Emergency Condition--The Proposed SGIA defined Emergency 
Condition as a situation that, in the judgment of the Party making the 
claim, is imminently likely to (1) endanger life or property, (2) have 
an adverse impact on the safety or reliability of the Transmission 
Provider's or an affected third party's electric system (Affected 
System), or (3) have a material adverse effect on the safety or 
operation of the Interconnection Customer's facilities. If there is an 
Emergency Condition, the Transmission Provider may take necessary and 
appropriate actions to protect the safety and reliability of its 
electric system, including interrupting, suspending, or curtailing 
interconnection service. While system restoration and black start are 
considered Emergency Conditions, the Small Generating Facility is not 
obligated to have black start capability.
Comment
    64. Bureau of Reclamation objects to the provision that the Small 
Generating Facility is not obligated by the SGIA to have black start 
capability. Black start capability is an issue best handled by the 
control area rather than the Transmission Provider and that mentioning 
black start here raises the question of by whom and when black start 
capability could be required of the Small Generating Facility. In 
addition, Bureau of Reclamation proposes that the definition of 
Emergency Condition also include a ``threat or danger to the 
environment.''
Commission Conclusion
    65. We see no need to modify the definition of Emergency Condition. 
The SGIA does not interfere with the control area's ability to 
establish a voluntary restoration plan, including black start. The SGIA 
requires the Parties to adhere to all Applicable Laws and Regulations 
relating to pollution and protection of the environment or natural 
resources. Therefore, Bureau of Reclamations' proposed revision is not 
necessary.
    66. Network Upgrades--Comments concerning the definition of Network 
Upgrades are addressed in Part II.H (Pricing/Cost Recovery for 
Interconnection Facilities and Upgrades).
    67. Use of Calendar Days v. Business Days--The Proposed SGIP and 
Proposed SGIA used both calendar days and Business Days to establish 
deadlines for particular activities.
Comments
    68. Ameren, EEI, and NYTO request that all references to calendar 
day be changed to ``Business Day.'' Ameren and EEI state that doing so 
would make the SGIP and SGIA consistent. They also state that this is 
particularly important for the three and five day time limits, 
especially where the Transmission Provider may not have sufficient 
staff to respond within the required time. Ameren and NYTO argue that 
using both calendar days and Business Days is confusing. NYTO further 
notes that using Business Days rather than calendar days gives the 
Parties more time to meet deadlines. In addition, NYTO states that 
using calendar days does not account for normal business delays, 
including those caused by storm emergencies.
Commission Conclusion
    69. We agree that references to the passage of time should be 
consistent. Accordingly, we are changing calendar days to Business Days 
throughout the SGIP and SGIA, with two exceptions. First, using 
calendar days is proper in the SGIA's billing and payment provisions 
because these activities are traditionally tied to calendar days. 
Second, SGIA article 7.6.1 Default provisions are stated in terms of 
calendar days to be consistent with the Commission's regulations that 
require at least 60 calendar days notice of a proposed cancellation or 
termination of a contract. Where we have replaced calendar days with 
Business Days, we have adjusted the number of days to reflect about the 
same passage of time. Arguments relating to the amount of time a Party 
has to complete an action are discussed below.

[[Page 34198]]

    70. Maximum Size of a Small Generating Facility--In the Small 
Generator Interconnection NOPR, the maximum size of a Small Generating 
Facility is 20 MW. Where there is more than one unit generating power 
at a particular site, the Commission proposed to aggregate the total 
capacity of all generation units using the same Point of 
Interconnection. The Commission sought comments on a circumstance when 
the Interconnection Customer desires to increase the capacity of an 
existing generating facility. The Commission proposed that the total 
size of the facility would be determined by the sum of the existing and 
the incremental capacity. Thus, a 10 MW addition to an existing 15 MW 
facility would be treated as a 25 MW facility. The Commission also 
sought comments on how to evaluate an Interconnection Request that 
specifies a level of capacity below the maximum rating of the Small 
Generating Facility. Finally, the Commission invited comments on 
whether Small Generating Facilities with multiple Points of 
Interconnection should be treated separately for queuing and 
interconnection study purposes.
Comments
Revising the Maximum Size of a Small Generating Facility
    71. Ameren, EEI, and NRECA ask the Commission to reduce the maximum 
size of a Small Generating Facility from 20 MW to 10 MW. They argue 
that the lower size limit would help ensure safety and reliability of 
the Transmission Provider's electric system. They also note that it 
would also be consistent with IEEE Standard 1547,\47\ and argue that 
the 20 MW size limit is particularly challenging for Transmission 
Providers because of the types of analyses required to evaluate their 
interconnection and the restrictive time limits placed on performing 
them.
---------------------------------------------------------------------------

    \47\ IEEE Standard 1547, approved in June 2003, is the Institute 
of Electrical and Electronics Engineers' standard for 
interconnecting distributed resources with electric power systems. 
The standard applies only to generating equipment no larger than 10 
MW.
---------------------------------------------------------------------------

    72. EEI similarly argues that many states have adopted 10 MW as the 
maximum size of a Small Generating Facility and that the Commission 
should follow suit. It argues that a 10 MW size limit is better suited 
to the Small Generating Facility configurations most likely to be 
proposed under the Final Rule. While reducing the size limit to 10 MW 
creates a gap between the Large and Small Generating Facility 
interconnection provisions, that gap can be easily remedied by making 
the LGIP and LGIA applicable to generating facilities larger than 10 
MW.
    73. NRECA notes in its initial comments that 10 MW is the upper 
limit for small generators in Texas, California, New York, and Ohio, 
and that no state currently has rules that apply to the interconnection 
of generators larger than 10 MW. According to NRECA, the Commission's 
statement in the Small Generator Interconnection NOPR that the 20 MW 
maximum size would ``encourage the development of a greater number of 
small generators and promote the development of innovative small 
generation technologies'' is not supported by engineering reality and 
industry practice. NRECA participated with Joint Commenters in 
developing consensus provisions for the SGIP and SGIA that were 
submitted in Joint Commenters' supplemental comments. Based on those 
provisions, and in particular the technical screens contained in the 
SGIP, NRECA states that, ``while it still believes that 20 MW is too 
large a generator to be considered `small,' * * * [Joint Commenters'] 
SGIA and SGIP will work for all generators up to that size.'' \48\
---------------------------------------------------------------------------

    \48\ NRECA Supplemental Comments at 5. NRECA also ``believes 
that the screens adopted for review of generators up to 2 MW in 
capacity reasonably consider the impact that generators of those 
sizes will have on distribution systems.'' Id. The technical screens 
of which NRECA speaks are the same screens adopted in this Final 
Rule.
---------------------------------------------------------------------------

    74. Cummins argues that the 20 MW size limit would result in more 
widespread use of on-site Small Generating Facilities.
Commission Conclusion
    75. We agree with commenters that generator size does matter when 
evaluating the effect of the Small Generating Facility on the 
Transmission Provider's electric system. However, we are keeping the 20 
MW size limit for Small Generating Facilities because the 
interconnection studies and screens will identify any safety and 
reliability problems. In particular, the screens we adopt in the SGIP 
are supported by small generators, state regulators, and Transmission 
Provider representatives such as EEI and NRECA, as being appropriate to 
evaluate the safety and reliability of interconnections of Small 
Generating Facilities that are eligible for screening. We believe the 
higher threshold will remove barriers to the development of a greater 
number of Small Generating Facilities and promote the development of 
innovative small generation technologies.
Increasing the Capacity of an Existing Small Generating Facility
    76. The Small Generator Interconnection NOPR proposed to evaluate 
increases in capacity to existing Small Generating Facilities using the 
total capacity of the modified facility, and the Commission invited 
comments on whether the proposal was reasonable.
Comments
    77. Several Transmission Providers \49\ support the NOPR's 
proposal. They add that if, for example, the capacity of an existing 18 
MW Small Generating Facility were to be increased by 5 MW, the 
resulting 23 MW facility should be evaluated under the LGIP. This would 
keep the Interconnection Customer from gaming the system by 
incrementally increasing the size of an existing Small Generating 
Facility so that the capacity addition does not exceed the 20 MW 
maximum, even though the ultimate capacity of the facility does. BPA 
and ISO New England state that processing the Interconnection Request 
for such an expansion on the basis of the total capacity would better 
protect the safety and reliability of the Transmission Provider's 
electric system. Tangibl, on the other hand, argues that evaluating the 
Interconnection Request based on the total increased capacity of the 
Small Generating Facility would discourage such increases and hinder 
the increased entry of generators into the energy markets.
---------------------------------------------------------------------------

    \49\ E.g., BPA, ISO-New England, NRECA, NYTO, PG&E, and Western.
---------------------------------------------------------------------------

Commission Conclusion
    78. We are persuaded by BPA and ISO New England that when an 
existing Small Generating Facility is expanded, the Interconnection 
Request should be evaluated based on the total capacity of the facility 
as opposed to the incremental amount of the expansion. Similarly, an 
existing Large Generator seeking to increase its capacity by less than 
20 MW would also have to follow the Large Generator rule, because the 
total capacity of the expanded facility would be more than 20 MW. 
Section 4.10.1 of the SGIP reflects this conclusion.
Evaluating the Generating Facility Based on Less Than Its Maximum Rated 
Capacity
    79. In the Small Generator Interconnection NOPR, the Commission 
sought comments on whether the maximum capacity of the Small Generating 
Facility should be used to evaluate the Interconnection Request

[[Page 34199]]

when the Interconnection Customer specified an output level below the 
facility's maximum capability. For example, the Commission asked 
whether an Interconnection Request for a generating facility with a 
maximum capacity of 22 MW but seeking an interconnection for only 20 MW 
(and agreeing to restrict delivery to the Transmission Provider's 
Transmission System to that level) should be evaluated under the SGIP 
or the LGIP.
Comments
    80. Several Transmission Providers \50\ argue that the 
Interconnection Request should be evaluated on the basis of the maximum 
capacity of the Small Generating Facility to ensure that safety and 
reliability are not jeopardized. They argue that the Commission should 
not allow a 22 MW generator to be treated as a 20 MW generator based on 
a promise by the Interconnection Customer that it will never generate 
more than 20 MW. This would result in an additional administrative 
burden on the Commission or market monitors. They also argue that 
evaluating the Small Generating Facility at less than its maximum rated 
capacity would not ensure that Interconnection Facilities and Upgrades 
are properly designed and installed.
---------------------------------------------------------------------------

    \50\ E.g., AEP, Ameren, Avista, BPA, CA ISO, Central Maine, 
MidAmerican, MISO, NYTO, PG&E, SoCal Edison, and Western.
---------------------------------------------------------------------------

    81. BPA argues that evaluating a Small Generating Facility on the 
basis of maximum rated capacity would prevent gaming by an 
Interconnection Customer and would prevent it from submitting a request 
to interconnect its Small Generating Facility at a lower capacity when 
it really intend to operate the facility at a higher capacity. Further, 
evaluating a Small Generating Facility based on its maximum operational 
capacity would avoid the need to perform a reevaluation each time the 
Interconnection Customer seeks to operate at a higher output level.
    82. Likewise, NYTO claims that even if a Small Generating Facility 
supplies local load and delivers only half of its output, it still 
contributes its full fault current to the electric system if there is 
an electrical fault. Also, stability analysis is based on the full 
physical characteristics of the facility, such as maximum power 
capability and rotation inertia. It further argues that if the 
Commission adopts a value other than the maximum capability of the 
Small Generating Facility, the Interconnection Customer could ``forum 
shop'' between the Large and Small Generating Facility interconnection 
provisions to get the ``best deal.''
    83. On the other hand, Allegheny states that if the Interconnection 
Customer is willing to accept the economic risks of its decision to 
limit the output of its generating facility, the Interconnection 
Request should be evaluated at the lower capacity.
    84. American Forest, Cummins, Nevada Power, NRECA, and Tangibl also 
state that the Interconnection Request should be evaluated on the basis 
of requested capacity, not the maximum capability of the generator, if 
the Interconnection Customer commits to restrict the output. American 
Forest says that this is important for generators that consume most of 
their electrical output on-site in various manufacturing processes and 
export only a small fraction of their output. In its supplemental 
comments, Small Generator Coalition proposes a special set of tests 
that could be used to determine whether these kinds of configurations 
jeopardize safety and reliability.
Commission Conclusion
    85. We are persuaded that the Interconnection Request should be 
evaluated based on the Small Generating Facility's maximum rated 
capacity. We agree with commenters that evaluating the proposed 
interconnection at less than the maximum rated capacity of the 
generating facility does not ensure that proper protective equipment is 
designed and installed and the safety and reliability of the 
Transmission Provider's electric system can be maintained.
    86. Nevada Power and other commenters propose that the 
Interconnection Request be evaluated on the basis of requested capacity 
if the Interconnection Customer agrees to restrict the output of its 
facility. We agree with NYTO, however, that even if the Small 
Generating Facility delivers only a portion of its capability, it still 
contributes its full fault current to the Transmission Provider's 
electric system if there is an electrical fault. Therefore, the maximum 
capacity of the Small Generating Facility should be used to evaluate 
the Interconnection Request (See section 4.10.3 of the SGIP).
Evaluating Small Generating Facilities With Multiple Points of 
Interconnection
    87. The Small Generator Interconnection NOPR invited comments on 
whether Small Generating Facilities with multiple Points of 
Interconnection (such as for a wind farm or an industrial cogeneration 
project serving multiple facilities) should be treated as separate 
projects or as a single project for queuing and interconnection study 
purposes.
Comments
    88. BPA, CA ISO, ISO New England, and Tangibl argue that Small 
Generating Facilities with multiple Points of Interconnection should be 
treated as a single project for queuing and interconnection study 
purposes. BPA states that this promotes greater efficiency and accuracy 
because the effects of all the generators can be evaluated in one 
study. According to commenters, evaluating each Point of 
Interconnection as a discrete facility may not account for the 
aggregate effects when multiple generation resources are 
interconnected.
    89. Tangibl recommends adopting PJM's approach of one 
Interconnection Request for each Point of Interconnection. Tangibl 
states that the Interconnection Customer should aggregate the capacity 
of the multiple wind or solar projects that lie in close proximity to 
one another. However, for geographically dispersed wind or solar 
projects, it recommends that the project developer be able to ask the 
Transmission Provider to treat each project individually for 
interconnection study purposes.
    90. Central Maine, Idaho Power, and others argue that evaluating 
Interconnection Requests based upon a single Point of Interconnection 
may produce flawed results because it may identify Upgrades 
incorrectly.
    91. NYTO recommends that the Transmission Provider have the option, 
subject to Good Utility Practice, to either treat such projects 
separately for queuing and interconnection study purposes, or as a 
single Point of Interconnection. This is because each proposed Point of 
Interconnection presents numerous technical, operational, and 
reliability issues.
Commission Conclusion
    92. We adopt NYTO's proposal for the reasons cited by NYTO. The 
Transmission Provider's evaluation of a project with multiple Points of 
Interconnection should be performed, using Good Utility Practice, based 
on the project's unique engineering and geographic needs.
    93. Dispute Resolution (Proposed SGIA Article 8 and Proposed SGIP 
Section 2.11) \51\--The Commission

[[Page 34200]]

proposed adopting the same dispute resolution procedures contained in 
the LGIA and LGIP. This was a departure from Joint Commenters' proposal 
submitted in response to the ANOPR which obliged the Commission to 
supply technical experts to resolve disputes between the Parties.
---------------------------------------------------------------------------

    \51\ In the remainder of this Preamble, ``Proposed SGIA Article 
xxx'' refers to a numbered article in the Small Generator 
Interconnection NOPR, not the SGIA adopted in this Final Rule. The 
same follows for references to the Proposed SGIP. This is because 
the numbering of the SGIP and SGIA does not follow the Proposed SGIP 
and SGIA.
---------------------------------------------------------------------------

Comments
    94. Commenters were split as to which type of dispute resolution 
procedures should be adopted by the Commission. Small generator 
proponents generally support allowing either Party to require binding 
arbitration, while Transmission Providers generally oppose such 
provisions. However, all commenters stress the need for quick and cost-
effective dispute resolution.
    95. CT DPUC argues that the procedures in the Small Generator 
Interconnection NOPR are too cumbersome and that state commissions are 
best positioned to resolve disputes in a fair manner, especially 
disputes over dual use facilities.
    96. NRECA and BPA support adopting the dispute resolution 
procedures in the LGIA. However, BPA opposes binding arbitration and 
asserts that the Parties should keep whatever appeal rights they have.
    97. Small Generator Coalition argues that most Interconnection 
Customers that own Small Generating Facilities do not have the 
resources to enter into protracted dispute resolution procedures with 
the larger Transmission Provider. It argues that complex dispute 
resolution procedures may discourage Small Generating Facilities from 
seeking to interconnect with Commission-jurisdictional facilities. 
Small Generator Coalition questions why the Commission would propose 
retreating from the ANOPR consensus result. It fears that Transmission 
Providers will simply refuse to submit to arbitration, forcing an 
Interconnection Customer to engage in expensive and undefined 
litigation. This is particularly true for owners of Small Generating 
Facilities no larger than 2 MW.
    98. AEP proposes that either Party be able to require binding 
arbitration. It states that this approach is consistent with the 
consensus reached during the ANOPR process. Cummins agrees, asserting 
that otherwise one Party can obstruct the process. It points out that 
Interconnection Customers often lack the financial resources to pursue 
their rights before the Commission or in court, and need access to low-
cost, binding dispute resolution procedures.
    99. American Forest proposes allowing the Parties to agree on other 
arbitration procedures if they want to further tailor the procedures to 
the needs of the specific Parties. It claims that this is the approach 
common in the industry.
    100. Midwest ISO recommends that where an RTO has Commission-
approved dispute resolution procedures, it be allowed to apply those 
procedures to interconnection disputes.
    101. NARUC requests that the Commission adopt the dispute 
resolution provisions found in its Model. It argues that ``[e]ach State 
already has in place a variety of avenues for dispute resolution 
oriented to protect the interests of the retail customer, ranging from 
a simple phone call to a State commission or consumer advocate 
`consumer hotline' to a full-blown complaint proceeding conducted by 
the State Commission.''\52\ Specifically, the NARUC Model states that 
``[i]f a dispute arises at any time during these procedures [the 
Parties] may seek immediate resolution through complaint procedures 
available'' through the state regulatory commission.\53\ The Model (1) 
states that the Interconnection Customer's Queue Position is not to be 
affected by its decision to pursue dispute resolution, (2) allows 
either Party to require binding arbitration, (3) allows the Parties to 
request that the state regulatory agency appoint a ``technical master'' 
to conduct the dispute resolution process, and (4) states that ``where 
possible, dispute resolution will be conducted in an informal, 
expeditious manner in order to reach resolution with minimal costs and 
delay. When appropriate and available, the dispute resolution may be 
conducted by phone or through Internet communications.'' \54\
---------------------------------------------------------------------------

    \52\ NARUC at 12-13.
    \53\ NARUC Model at F.
    \54\ Id.
---------------------------------------------------------------------------

    102. Joint Commenters, in its supplemental comments, proposes that 
the Commission's Dispute Resolution Service (FERC DRS) assist Parties 
in resolving their disputes. Under Joint Commenters' proposal, one 
Party would give the other Party written notice that they have reached 
an impasse. As soon as two days afterwards, either Party may consult 
with FERC DRS for guidance on how best to resolve the dispute. FERC DRS 
may provide the Parties with a neutral venue to work out their dispute 
or may recommend alternative avenues of dispute resolution including, 
but not limited to, mediation, settlement judge talks, early neutral 
evaluation, or arbitration. The Parties could agree to make such 
outcomes binding, but would not be required to so agree, or even to 
participate in alternative dispute resolution procedures before FERC 
DRS.
Commission Conclusion
    103. We are adopting a dispute resolution provision for both the 
SGIP and SGIA that closely resembles the consensus recommendation of 
Joint Commenters. As the widely disparate recommendations show, 
different types of interconnection disputes require different types of 
dispute resolution procedures. Small Generator Coalition and others 
emphasize the need to avoid expensive and time consuming arbitration 
provisions. According to these commenters, if a project is forced to go 
to arbitration, it will likely never be built. Instead, Joint 
Commenters reached consensus on a set of principles designed to 
encourage the Transmission Provider and the Interconnection Customer to 
use fast and low cost alternative dispute resolution procedures to work 
through their differences.
    104. Because the nature of the disputes that may arise are so 
varied, this approach will allow FERC DRS to make specific 
recommendations to the Parties designed to resolve the dispute quickly 
and inexpensively. In some cases, FERC DRS may simply provide the 
Parties a neutral venue to discuss their differences. In other cases, 
FERC DRS may recommend that the Parties put their case before a 
settlement judge or technical master for either mediation or 
arbitration. The Parties are free to specify whether the outcome of 
this alternative dispute resolution is binding.
    105. As recommended by Joint Commenters, we will not mandate that 
the Parties use the FERC DRS' resources. Alternative dispute resolution 
is, by its nature, a collaborative and voluntary process. However, both 
Parties must work in good faith to resolve their disputes. 
Additionally, the provision specifies that each Party is responsible 
for paying one-half of the cost of a neutral third-party employed to 
assist in settling the dispute.
    106. We agree with CT DPUC, NARUC, and Joint Commenters (in its 
supplemental comments) that a state regulatory agency may often be the 
best place to quickly resolve a dispute. As mentioned above, the FERC 
DRS is well-equipped to recommend to Parties the best avenue for 
resolving a dispute. In many cases, that may be a state

[[Page 34201]]

regulatory agency, if that body is willing to mediate or arbitrate the 
dispute.\55\
---------------------------------------------------------------------------

    \55\ The Commission does not require states to serve a dispute 
resolution function; it lacks the statutory authority to do so. 
However, because commenters argue that state participation could be 
beneficial, we encourage states that have the expertise, resources, 
and interest to help resolve these disputes as they arise.
---------------------------------------------------------------------------

    107. While we are allowing Parties to select a dispute resolution 
process, we count on FERC DRS to ensure that both Parties are treated 
fairly. Thus, we disagree with American Forest that the Parties should 
be able to deviate from the established dispute resolution procedures 
without Commission guidance or oversight. While flexibility is 
important, as many commenters have pointed out, the Parties are rarely 
on an equal footing. Thus, we will scrutinize the process to ensure 
that Interconnection Customers are treated fairly, especially by non-
independent Transmission Providers.
    108. In response to Midwest ISO's request to include ISO-specific 
dispute resolution rules, under the independent entity variation, it 
and other independent Transmission Providers may propose such a plan in 
their compliance filings.
    109. Confidentiality (Proposed SGIA Article 7 and Proposed SGIP 
Section 2.11)--These provisions detailed the rights and 
responsibilities of each Party to keep any Confidential Information 
shared during the interconnection process.
Comments
    110. Avista and Idaho Power assert that the confidentiality 
provisions should give state regulators conducting an investigation the 
same access to confidential information as is provided to the 
Commission when it conducts an investigation. Avista also requests that 
the Commission address recent rulings by the Internal Revenue Service 
applicable to confidential transactions. Similarly, NARUC is concerned 
that the proposed confidentiality provisions might prevent state 
regulators from getting the information they need in the course of 
conducting an investigation. The NARUC Model SGIP includes a 
confidentiality provision that is similar to that proposed in the Small 
Generator Interconnection NOPR. The NARUC Model SGIA simply leaves a 
place holder to be filled in by the Parties.
    111. Southern Company argues that Proposed SGIA article 7.1 should 
specify that information supplied ``as part of this [interconnection] 
agreement'' be confidential rather than information supplied ``prior to 
execution of this agreement.'' It also says that Proposed SGIA article 
7.12 allows a broader class of information to qualify for confidential 
treatment than does article 7.1, and proposes deleting article 7.12. 
Finally, article 7.4 should be revised to prohibit the Interconnection 
Customer from sharing Confidential Information with ``potential 
purchasers or assignees of the Interconnection Customer.''
    112. In its supplemental comments, Joint Commenters propose the 
following provision in lieu of the proposal:

    Confidential Information is as defined in this Agreement but 
does not include information previously in the public domain, 
required to be publicly submitted or divulged by Governmental 
Authorities (after notice to the other party and after exhausting 
any opportunity to oppose such publication or release), or necessary 
to be divulged in an action to enforce this agreement. Each party 
receiving Confidential Information shall hold such information in 
confidence and shall not disclose it to any third party nor to the 
public without the prior written authorization from the party 
providing that information, except to fulfill obligations under this 
agreement, or to fulfill legal or regulatory requirements. Each 
party shall employ at least the same standard of care to protect 
Confidential Information obtained from the other party as it employs 
to protect its own Confidential Information. Each party is entitled 
to equitable relief, by injunction or otherwise, to enforce its 
rights under this provision to prevent the release of Confidential 
Information without bond or proof of damages, and may seek other 
remedies available at law or in equity for breach of this provision.
Commission Conclusion
    113. We are adopting confidentiality provisions in both the SGIP 
and SGIA that closely resemble those proposed by Joint Commenters. 
While the provisions we adopt here are shorter than those in the LGIP 
and LGIA, they are similar in content.
    114. To clarify the Commission's right to otherwise Confidential 
Information during an investigation, we include an SGIA provision 
similar to LGIA article 22.1.10.\56\ This addition also clarifies that 
a Party is not prohibited from disclosing Confidential Information to a 
state regulatory body where the state regulatory body has the authority 
to request the information.
---------------------------------------------------------------------------

    \56\ See Order No. 2003-A at P 486.
---------------------------------------------------------------------------

    115. We deny Southern Company's request to remove proposed language 
allowing the Interconnection Customer to share Confidential Information 
with potential assignees and financers. The Interconnection Customer 
must be able to share such information to secure financing and remain 
competitive. However, we are modifying the provision to specify that 
any such person receiving Confidential Information agree to abide by 
the same confidentiality rules as the Parties.\57\ We agree with 
Southern Company that confidentiality should apply to all information 
shared between the Parties; however, its proposal is obviated by the 
new language.
---------------------------------------------------------------------------

    \57\ Id. at P 490.
---------------------------------------------------------------------------

    116. Keeping the Small Generator Interconnection Rules Current--The 
Small Generator Interconnection NOPR did not envision that the SGIP and 
SGIA would be periodically revised.
Comment
    117. In its supplemental comments, Small Generator Coalition asks 
the Commission to adopt a mechanism to allow periodic revisiting of its 
interconnection rules as the industry evolves. It proposes that the 
Commission encourage or charter a stakeholder committee to meet 
periodically to consider and recommend consensus proposals for changes.
Commission Conclusion
    118. We commend the persistence of the Joint Commenters who met on 
numerous occasions over the duration of this proceeding to aid the 
Commission in its decision-making. As one can see in the contents of 
this Final Rule, those negotiations have been very successful. We 
believe Small Generator Coalition's proposal has merit. We ask the 
Joint Commenters to take the lead in this process, and encourage 
interested entities to continue to work together on small generator 
interconnection issues. We are asking this informal group to meet 
biennially, beginning two years from the issuance of this order, to 
consider and recommend consensus proposals for changes in the 
Commission's rules for small generator interconnection. The Commission 
will provide appropriate resources to facilitate the process. To the 
extent that this group identifies needed changes, they may file a 
petition to amend the Commission's regulations. The Commission will 
review the petition and, if appropriate, notice that petition for 
public comment.

D. Issues Related to the Interconnection Request

    119. The Interconnection Request is the application form that the 
Interconnection Customer uses to start the process of interconnecting 
its Small Generating Facility with the Transmission Provider's 
Transmission System. The issues discussed below either did not arise in 
the Large

[[Page 34202]]

Generator Interconnection proceeding or we conclude that a different 
conclusion should apply to Small Generating Facilities.
    120. Processing Fees and Study Deposits--The Proposed SGIP set out 
a fixed processing fee schedule for processing all Interconnection 
Requests. The amount of the fee was to be tied to the size of the Small 
Generating Facility. Small Generating Facilities no larger than 2 MW in 
size would be charged the greater of (1) $0.50/kVA rating, or $100 for 
single phase generators no larger than 25 kVA or (2) $500 for 
generators larger than 25 kVA. The fee for a Small Generating Facility 
larger than 2 MW but no larger than 10 MW would be $1,000, and the fee 
for one larger than 10 MW would be $2,000. In addition, if the Small 
Generating Facility was to be evaluated using the interconnection 
studies, the Interconnection Customer would pay a deposit prior to each 
study that would be applied to the Transmission Provider's actual costs 
of performing the study.
Comments
    121. NARUC urges that the processing fee be cost-based so that 
there is no subsidization by either the Transmission Provider or the 
Interconnection Customer.
    122. NRECA generally supports a fixed processing fee approach, but 
says that the proposed fees are unrelated to the actual cost of 
conducting the analysis under the screens. It asks the Commission to 
let each Transmission Provider file fees that are designed to recover 
the actual cost of conducting the analysis under the screens.
    123. NYTO asks the Commission to clarify that the proposed fee 
covers administrative and engineering costs not covered by other fees. 
PacifiCorp states that it does not appear that the owner of a Small 
Generating Facility no larger than 2 MW would pay any fee other than 
the fee to conduct the analysis under the screens. It asks the 
Commission to require the owner of such a generator to pay the actual 
cost of interconnection, if any, beyond the processing fee.
    124. Southern Company states that the proposed processing fee 
schedule conflicts with the deposit provisions of the proposed 
interconnection study agreements. It argues that a Small Generating 
Facility interconnecting at the transmission level should submit an 
interconnection feasibility study deposit rather than the application 
fee because it appears that the processing fee is a charge for 
conducting the analysis under the screens. Southern Company also states 
that evaluating an Interconnection Request for a non-certified Small 
Generating Facility requires time and effort, and the Interconnection 
Customer should pay twice the processing fee assessed to the owner of a 
certified Small Generating Facility.
Commission Conclusion
    125. Under this Final Rule, the Interconnection Customer shall 
submit with its Interconnection Request a processing fee or feasibility 
study deposit, but not both, depending on how the Interconnection 
Request is to be evaluated. If it is to be evaluated using the Study 
Process, which usually includes a scoping meeting and feasibility, 
system impact, and facilities studies, the Interconnection Customer 
shall make a deposit towards the cost of the feasibility study at the 
time the Interconnection Request is submitted to the Transmission 
Provider. The amount of the deposit is the lesser of 50 percent of the 
good faith estimated feasibility study costs or $1,000. If the 
Interconnection Request is to be evaluated using the Fast Track 
Process, it is to be accompanied by a $500 processing fee. If the 
Interconnection Request is to be evaluated using the 10 kW Inverter 
Process, it is to be accompanied by a $100 processing fee.
    126. The purpose of the $100 and $500 processing fees is to recover 
the Transmission Provider's costs of evaluating Interconnection 
Requests under the 10 kW Inverter Process and Fast Track Process, 
respectively. This approach to fees is simple, easy to administer, and 
gives many Interconnection Customers the cost certainty they need to 
move forward with their projects. However, because administratively 
fixed fees will sometimes either under- or over-recover a particular 
Transmission Provider's costs, we will allow the Transmission Provider 
to charge a cost-based fee for processing Interconnection Requests if 
it has first made an appropriate rate filing with appropriate detailed 
cost justification under FPA section 205.\58\ If the Transmission 
Provider decides to revise its processing fee schedule through a rate 
filing, the revised fees would, of course, apply prospectively to all 
new Interconnection Requests under the Fast Track Process or the 10 kW 
Inverter Process. Otherwise, the processing fees in the SGIP will serve 
as a default.
---------------------------------------------------------------------------

    \58\ 16 U.S.C. 824d (2000); see also 18 CFR Sec.  35.12 (2004).
---------------------------------------------------------------------------

    127. Given our concerns about the need for many Interconnection 
Customers to know beforehand the costs they will incur for the 
evaluation of their Interconnection Request under the screens, we will 
disallow formula rates or true up provisions in any rate submission. 
The cost support for the filed fixed processing fee schedule (designed 
in a manner similar to the processing fees in the SGIP) shall reflect 
the Transmission Provider's costs for processing Interconnection 
Requests under the Fast Track and the 10 kW Inverter Processes, as it 
would for the embedded cost based pricing of any other jurisdictional 
service.
    128. Southern Company's first comment highlights an unintended 
inconsistency in the NOPR. To clarify, the fixed processing fee 
schedule delineated above is only for submissions under the10 kW 
Inverter Process and the Fast Track Process which use the technical 
screens. A submission under the Study Process instead will include a 
deposit towards the Transmission Provider's cost of performing the 
feasibility study, not both a deposit and a processing fee. However, an 
Interconnection Customer whose proposed interconnection fails the Fast 
Track Process or the 10 kW Inverter Process and is then evaluated under 
the Study Process would pay both the fixed processing fee with the 
initial submission and then a feasibility study deposit before the 
Study Process begins.
    129. Receipt Confirmation and Requests for Additional Data--
Proposed SGIP sections 3.2 and 4.2 govern the submission and receipt of 
the Interconnection Customer's Interconnection Request.
Comments
    130. Central Maine argues that the Transmission Provider should be 
able to use alternative methods to mail, such as fax and overnight 
delivery services, to tell the Interconnection Customer that it has 
received the Interconnection Request. It also asks that the Commission 
increase the Transmission Provider's notification time period from ten 
to fifteen Business Days. Central Maine and EEI note that the 
Interconnection Customer does not have a deadline to supply missing 
information. They recommend that the Commission establish ten Business 
Days as the deadline and to state that failure to provide such 
information within that time will result in the Interconnection Request 
being deemed withdrawn.
Commission Conclusion
    131. We agree that the Transmission Provider may use alternate 
methods of confirming receipt of the Interconnection Request. The 
notification requirement is needed

[[Page 34203]]

because it provides a date certain for affirming that the Transmission 
Provider has received the Interconnection Request. We also decline to 
increase the time by which the Interconnection Customer must be told 
whether the Interconnection Request is complete. Ten Business Days is 
sufficient time for the Transmission Provider to make an initial 
assessment as to whether the requisite information has been provided; 
an in-depth evaluation of the project is not required during this 
period. However, we agree with Central Maine and EEI that the Proposed 
SGIP does not address when the Interconnection Customer must furnish 
the missing information. Accordingly, the SGIP provides that the 
Interconnection Customer has ten Business Days after receipt of the 
notice to submit the missing information or to provide an explanation 
as to why extension of time is needed to provide such information. If 
the Interconnection Customer does not provide the missing information 
or a request for an extension of time within the deadline, the 
Interconnection Request shall be deemed withdrawn.
    132. Interconnection Products and Service Options--The Proposed 
Interconnection Request would have directed the Interconnection 
Customer to state whether it intends to participate as a ``Network 
Resource,'' ``Energy-Only Resource,'' ``Non-Exporting Resource 
Participating in a Wholesale Market,'' or ``Other.''
Comments
    133. Alabama PSC, EEI, Mississippi PSC, Southern Company, and 
others are concerned that the Interconnection Request could be 
construed to mean that a Small Generating Facility is eligible for the 
same Network Resource Interconnection Service that Order No. 2003 makes 
available to Large Generating Facilities. They argue that this service 
should not be provided to a Small Generating Facility. For example, 
Alabama PSC and Mississippi PSC argue that a Small Generating Facility 
does not meet the basic prerequisites to receive a ``network'' type of 
service. They state that Small Generating Facilities almost universally 
interconnect with either ``distribution'' or sub-transmission 
facilities that are not ``networked'' but are radial in nature. The 
costs to make such facilities networked to provide such a service would 
be prohibitive. Southern Company asks that the references to resource 
options be deleted. TAPS states that the Small Generator 
Interconnection NOPR correctly dispenses with Order No. 2003's Network 
Resource Interconnection Service, which TAPS claims is incompatible 
with Network Integration Transmission Service under the OATT.
    134. Taking the opposite view, National Grid states that the 
Commission should establish two interconnection products for Small 
Generating Facilities, arguing that Energy Resource Interconnection 
Service and Network Resource Interconnection Service are just as 
important for a Small Generating Facility as they are for a Large 
Generating Facility. National Grid states that Network Resource 
Interconnection Service has important market implications for new 
resources, because only generating facilities that meet this 
interconnection standard should qualify for installed capacity credits. 
It argues that Small Generating Facilities should have the option of 
being studied as deliverable network resources so that they may be 
eligible for such credits. If the Commission does not mandate two 
separate interconnection products for Small Generating Facilities, 
National Grid requests that, at a minimum, the single interconnection 
product ensure deliverability of generating facility output, consistent 
with the Commission's ruling in New England with respect to large 
generator interconnections.\59\
---------------------------------------------------------------------------

    \59\ New England Power Pool (New England), 109 FERC ] 61,155 at 
P 43-44 (2004).
---------------------------------------------------------------------------

    135. NARUC asks the Commission to remove the category ``non-
exporting resource participating in a wholesale market'' from the 
Interconnection Request. It notes that the Interconnection Request 
instructs the Interconnection Customer to declare its intention to sell 
electricity at wholesale in interstate commerce. However, the phrase 
``non-exporting resource participating in a wholesale market,'' which 
is used nowhere else in the Small Generator Interconnection NOPR, 
raises unnecessary questions and extends its reach far beyond its 
stated intention.
    136. PacifiCorp states that none of these service categories is 
defined in the Proposed SGIP and that the significance of each 
designation is unknown. It argues that the different service options 
must be defined in the SGIP and that the additional information needed 
to permit a Transmission Provider to conduct studies must be provided. 
PacifiCorp asks the Commission to explain the significance of ``Non-
Exporting Resource Participating in a Wholesale Market'' and ``Other.'' 
It adds that there should be an opportunity for comment on the 
workability of these proposals and on what information a Transmission 
Provider may need to provide this kind of interconnection service.
    137. SoCal Edison seeks clarification that, to interconnect a Small 
Generating Facility with a Distribution System, the Transmission 
Provider must study deliverability \60\ on the system, even if no 
delivery service is sought on either the Transmission or Distribution 
System. In studying distribution-level interconnections, the Small 
Generating Facility is assumed to be running at maximum output and the 
power is flowing onto the directly attached distribution facility. 
SoCal Edison argues that there is no way to study an interconnection 
with the Distribution System without assuming power flows on that 
Distribution System.
---------------------------------------------------------------------------

    \60\ Deliverability refers to the ability of the electric system 
to accept the Small Generating Facility's output without regard to 
the ultimate point of delivery.
---------------------------------------------------------------------------

    138. SoCal Edison further argues that, unlike an energy resource on 
a Transmission System, the generator cannot for safety and reliability 
reasons opt to generate only when distribution ``capacity'' is 
available because the characteristics of a Distribution System (i.e., 
radial) differ from those of a Transmission System (i.e., network). 
Given how a Distribution System operates, the provision of distribution 
interconnection service in the absence of a wholesale distribution 
service request is a meaningless exercise, and there are considerable 
efficiencies in requesting and studying the two services at the same 
time. Also, SoCal Edison is concerned that some Interconnection 
Customers may not realize that a separate rate may be charged to use 
the Distribution System in addition to the Transmission System. It 
states that the Commission should clarify that both interconnection and 
wholesale delivery service may be required. Although SoCal Edison does 
not believe that the Commission needs to require that wholesale 
distribution service and distribution-level interconnection service be 
provided only on a bundled basis, it asks the Commission to permit 
``bundled'' applications like those under SoCal Edison's Wholesale 
Distribution Access Tariff.
Commission Conclusion
    139. We clarify that the resource options listed in the Small 
Generator Interconnection NOPR's Interconnection Request are not 
interconnection service options. Rather, they are merely the possible 
ways the Interconnection Customer may use its Small Generating

[[Page 34204]]

Facility once delivery service begins. The purpose of this information 
is to give the Transmission Provider an early indication of how the 
Small Generating Facility is likely to operate. The one interconnection 
service that the Commission proposed to make available to the Small 
Generating Facility is similar to the Energy Resource Interconnection 
Service that is offered under the LGIA. Nevertheless, based on the 
comments, we are concerned that requesting service-related information 
in the Interconnection Request could lead to misunderstanding. Because 
the information is related to the delivery component of transmission 
service, not interconnection service, it is not needed in the SGIP's 
Interconnection Request form. Therefore, we are removing this 
information from the Interconnection Request. This should address the 
concerns of most commenters.
    140. In response to National Grid, we note that the LGIA's more 
expansive Network Resource Interconnection Service is intended to give 
the Interconnection Customer broad access to the backbone of the 
Transmission Provider's Transmission System. In essence, it allows the 
generating facility to pre-qualify as a Network Resource for any 
Network Customer on the Transmission System and, as National Grid 
notes, may make it eligible for installed capacity credits. Because 
Network Resource Interconnection Service entails high technical 
standards, we expect that an Interconnection Customer, particularly one 
interconnecting at a lower voltage, would rarely find this service to 
be efficient or practical. Nevertheless, we do not want to preclude it 
from choosing this option. If it wishes to interconnect its Small 
Generating Facility using Network Resource Interconnection Service, it 
may do so. However, it must request interconnection under the LGIP and 
execute the LGIA.
    141. In response to SoCal Edison's request for clarification, we 
note that the SGIP lets the Transmission Provider study the potential 
impacts of the proposed interconnection on the Distribution System. 
Also, we clarify that nothing in this Final Rule (which concerns 
interconnection service only) prevents the Transmission Provider from 
evaluating the Interconnection Request and requests for wholesale 
distribution service and transmission delivery service simultaneously. 
However, the Transmission Provider may not require the Interconnection 
Customer to request wholesale distribution service or transmission 
delivery service as a condition for granting a request for 
interconnection service. We expect the Transmission Provider to explain 
to the Interconnection Customer what delivery services may be needed to 
meet its needs.
    142. Ministerial Changes to the Interconnection Request--The 
Proposed Interconnection Request was crafted largely by Joint 
Commenters in response to the ANOPR. It is similar in many respects to 
the NARUC Model. Joint Commenters in its supplemental comments 
submitted ministerial changes to the Proposed Interconnection Request. 
Other commenters \61\ also seek changes to the Interconnection Request, 
most reflecting misplaced or missing technical information. The 
Interconnection Request we adopt in this Final Rule largely tracks the 
NARUC Model version and also reflects many of the changes proposed by 
the commenters.
---------------------------------------------------------------------------

    \61\ E.g., Bureau of Reclamation, Central Maine, Cummins, EEI, 
Joint Commenters, Northwestern Energy, NYTO, PacifiCorp, PG&E, and 
Small Generator Coalition.
---------------------------------------------------------------------------

E. Issues Related to the SGIP

    143. Using Voltage Level to Determine Which Procedures Apply--The 
Proposed SGIP divided Interconnection Requests into two groups for 
initial processing based on the voltage level of the interconnection. 
Interconnections to High-Voltage (at or above 69 kV) would be evaluated 
using the interconnection studies. Interconnection to Low-Voltage 
(below 69 kV) would be processed differently depending upon the size 
and the certification status of the Small Generating Facility as 
explained below. An Interconnection Request for a certified Small 
Generating Facility no larger than 2 MW interconnecting at Low-Voltage 
would be evaluated using super-expedited screening criteria; an 
Interconnection Request for a Small Generating Facility no larger than 
10 MW interconnecting at Low-Voltage would be evaluated using expedited 
screening criteria; and an Interconnection Request for a Small 
Generating Facility larger than 10 MW but no larger than 20 MW 
interconnecting at Low-Voltage would be evaluated using the 
interconnection studies. If an Interconnection Request did not pass the 
super-expedited screening criteria or expedited screening criteria, it 
would be evaluated using interconnection studies.
Comments
    144. Several commenters \62\ object to using voltage level to 
distinguish which review process initially applies to an 
Interconnection Request. They argue that the distinction should be 
based on whether the Small Generating Facility is being interconnected 
with distribution or transmission facilities. The decision should be 
consistent with the physical facilities and operational realities of 
the electric system. They also contend that electric system 
configurations vary widely in terms of voltage levels and that the 
effect of an interconnection is not necessarily determined by voltage, 
but also by location and size of the Small Generating Facility. In 
addition, they state that this distinction was not a part of the ANOPR 
proposal and that using voltage to distinguish which set of procedures 
applies is confusing.
---------------------------------------------------------------------------

    \62\ E.g., CA ISO, EEI, Idaho Power, PG&E, PSE&G, SoCal Edison, 
and Southern Company.
---------------------------------------------------------------------------

    145. In its supplemental comments, Joint Commenters propose using 
whether the proposed interconnection is with a transmission line (i.e., 
interconnections with transmission lines may not be evaluated using the 
technical screens) to determine whether screens may be used to evaluate 
the proposed interconnection.
Commission Conclusion
    146. For the reasons given above, we agree with commenters that 
interconnection voltage should not be used as a determinative factor 
for whether the Interconnection Request may be evaluated using the 
technical screens. Instead, we are adopting the technical screens 
proposed by Joint Commenters in its supplemental comments. The SGIP 
specifies that an Interconnection Request for a certified Small 
Generating Facility no larger than 2 MW shall be evaluated using the 
technical screens, either under the Fast Track Process or the 10 kW 
Inverter Process, whichever applies. Under the first provision of the 
screens, SGIP section 2.2.1.1, the proposed Small Generating Facility's 
Point of Interconnection must be on a portion of the Transmission 
Provider's Distribution System that is subject to the Tariff.\63\
---------------------------------------------------------------------------

    \63\ As noted above, ``transmission'' is both an engineering 
term of art and a term used in the FPA. As used in the technical 
screens, ``transmission'' is used in the engineering sense, not in a 
jurisdictional sense. Likewise, references in other technical 
screens to ``radial distribution circuits,'' ``3-phase primary 
distribution lines,'' and other uses of the word distribution are 
used in an engineering sense, not in a jurisdictional sense. In no 
case do we intend that this Final Rule applies to non-Commission-
jurisdictional facilities.
---------------------------------------------------------------------------

    147. Certification of the Small Generating Facility (Proposed SGIP 
Section 3.1)--In the Small Generator Interconnection NOPR, the 
Commission proposed that Interconnection Requests for certified 
generators no larger than 2

[[Page 34205]]

MW would be reviewed using the super-expedited screening criteria that 
employed technical screens. The Commission also noted that Joint 
Commenters (in its response to the ANOPR) preferred that the Commission 
itself implement a single, uniform, nationwide process for the 
certification of Small Generating Facility equipment packages no larger 
than 2 MW.\64\ The Commission proposed, however, that this function 
instead be performed by an industry-recognized testing organization. In 
addition, the Commission requested comments as to whether IEEE 1547 
(Standard for Interconnecting Distributed Resources with Electric Power 
Systems), together with other technical industry documents, could be 
the basis for a national certification standard.
---------------------------------------------------------------------------

    \64\ A ``certified'' Small Generating Facility is one that has 
been certified by a nationally recognized laboratory before the 
Interconnection Request is submitted to the Transmission Provider. 
Such a facility is said to be ``certified'' for purposes of the 
interconnection process.
---------------------------------------------------------------------------

Comments
    148. Commenters generally agree with the value of having a 
certification process for Small Generating Facilities. They believe 
that such a process can speed interconnection and eliminate the need to 
``reinvent the wheel'' each time an interconnection is made. In 
general, commenters agree that IEEE 1547, in conjunction with other 
standards, could be the basis for a certification standard.
    149. NYTO requests that the Commission adopt the process and 
registry proposal described in the November 12, 2002 Joint Commenters 
filing. That would have the Commission maintain a list of certified 
equipment and to centralize the registry function. It claims that this 
would provide certainty to the industry as to which equipment has been 
certified and would avoid the development of competing and potentially 
inconsistent lists of certified equipment, which could lead to disputes 
and slow down the interconnection process.
    150. The NARUC Model certification provision relies on Nationally 
Recognized Testing Laboratories (NRTL) to test and certify the safety 
of electrical equipment used for the production of electricity. That 
provision, which was developed for use by state regulators, requires 
that the NRTL be used by the state regulatory authority or approved by 
the U.S. Department of Energy.
    151. American Forest and others state that if the Commission 
chooses not to certify and maintain a registry of equipment, it should 
establish and oversee a stakeholder process for the development of 
certification criteria. Without the Commission's involvement, the 
process of establishing certification standards will languish.
    152. Cummins and others, however, argue that a nationally 
recognized testing laboratory and agencies like the Department of 
Energy should oversee the certification process. They also note that a 
national testing laboratory, such as Underwriter Laboratories, 
typically not only tests and verifies the performance of prototype 
equipment, but also provides follow-up services to verify that 
production equipment is designed and manufactured to the same standards 
as the tested equipment.
    153. Ameren and others complain that the NOPR does not explain what 
industry operational and safety standards are applicable. Likewise, the 
NOPR does not specify what is needed to qualify as a national testing 
laboratory. They claim that leaving these issues open could lead to 
unnecessary or improper testing. They recommend that the Commission (1) 
adopt a specific set of standards for operation and safety requirements 
that are continually updated to meet current safety and reliability 
requirements set forth by NERC or the regional reliability councils, 
and (2) maintain a list of qualified national testing laboratories.
    154. Allegheny Energy argues that certification guarantees the 
safety and reliability of the equipment in a stand-alone mode only, but 
not safety and reliability when the equipment becomes part of an 
integrated system.
    155. Joint Commenters, in its supplemental comments, proposes a 
consensus equipment certification provision that it states was 
developed under a stakeholder process convened by the U.S. Department 
of Energy's Office of Electric Transmission and Distribution. The 
participants in the process included Joint Commenter members 
representing small generator interests, state regulators, and 
Transmission Providers, as well as experts from the electrical 
equipment manufacturing industry and testing laboratories. Joint 
Commenters' proposed certification provision provides that Small 
Generating Facility equipment shall be considered certified if (1) it 
has been tested in accordance with industry standards for continuous 
utility interactive operation in compliance with the appropriate codes 
and standards by any NRTL recognized by the United States Occupational 
Safety and Health Administration to test and certify interconnection 
equipment pursuant to the relevant codes and standards, (2) it has been 
labeled and is publicly listed by such NRTL at the time the 
Interconnection Request is made, and (3) such NRTL makes readily 
available for verification all test standards and procedures it 
utilized in performing such equipment certification and, with consumer 
approval, the test data itself.
Commission Conclusion
    156. We agree with Cummins that nationally recognized laboratories 
should oversee the certification process and maintain registries of 
certified equipment. A NRTL not only tests and verifies the performance 
of prototypes, but it provides follow-up services to verify that 
production equipment is designed and manufactured to the same standards 
as the tested equipment. In this Final Rule, we are adopting Joint 
Commenters' proposal. This certification provision was vetted by a 
diverse group of stakeholders and is fundamentally consistent with the 
Proposed SGIP as well as the provision contained in the NARUC Model. We 
are especially encouraged by the report from Joint Commenters that one 
well-known NRTL intends to begin the certification of equipment as soon 
as the summer of 2005. This should hasten the development of certified 
Small Generating Facilities no larger than 2 MW under the Fast Track 
and 10 kW Inverter Processes. The certification provision we adopt in 
this Final Rule is contained in Attachments 3 and 4 of the SGIP.
    157. Finally, we acknowledge Allegheny Energy's concerns. Electric 
system safety and reliability issues are to be addressed when the 
proposed interconnection of the certified equipment is evaluated under 
the Fast Track Process or the 10 kW Inverter Process.
    158. Super-Expedited Procedures (Proposed SGIP Section 3) and 
Expedited Procedures (Proposed SGIP Section 4.3)\65\--In the NOPR, 
proposed SGIP section 3 stated that if the proposed Small Generating 
Facility is certified, no larger than 2 MW, and the interconnection is 
with Low-Voltage facilities, the interconnection would be evaluated 
using super-expedited screens. Proposed SGIP section 4.3 stated that if 
the proposed Small Generating Facility is no larger than 10 MW and the 
interconnection is with Low-Voltage facilities, the

[[Page 34206]]

interconnection would be evaluated using expedited screens. Proposed 
SGIP section 4.3 also provided that the expedited screens would be used 
to evaluate proposed interconnections that failed the super-expedited 
screens.
---------------------------------------------------------------------------

    \65\ In the Small Generator Interconnection NOPR, the term 
Super-Expedited Procedure referred to the process that used the 
super-expedited screens and Expedited Procedure referred to the 
process that used the expedited screens. In this Final Rule, we are 
adopting only one set of screens, which are used in both the Fast 
Track Process and the 10 kW Inverter Process.
---------------------------------------------------------------------------

    159. The NOPR proposed that if the Transmission Provider determines 
that the proposed interconnection fails the super-expedited screens and 
is not satisfied that the Small Generating Facility can be 
interconnected safely and reliably, the Interconnection Customer can 
pay for an additional review. The review would not exceed six hours and 
would determine whether minor modifications to the Transmission 
Provider's electric system (e.g., changing meters, fuses, relay 
settings) could enable the interconnection to be made safely and 
reliably. If the results of the review were positive and the 
Interconnection Customer agreed to pay for these minor modifications, 
the Transmission Provider would tender an executable SGIA to the 
Interconnection Customer.
Comments
    160. Joint Commenters, Small Generator Coalition, and NARUC 
recommend that the Commission require the use of screens to evaluate 
Interconnection Requests. NARUC and Small Generator Coalition initially 
proposed using two sets of screens. However, Joint Commenters (which 
includes both NARUC and Small Generator Coalition) now recommends 
adopting a single set of screens that serves the same purpose as the 
two initially proposed.
    161. Several commenters \66\ asked that the screens be clarified, 
modified, or eliminated. EEI recommended that the screens be available 
only for interconnection with radial facilities.
---------------------------------------------------------------------------

    \66\ E.g., ameren, BPA, Bureau of Reclamation, Central Maine, 
Cinergy, EEI, Exelon, MISO, NRECA, NYPSC, NYTO, PR&E, PJM, and 
Southern Company.
---------------------------------------------------------------------------

    162. Cinergy, EEI, Idaho Power, NYTO, and others maintain that even 
if the Small Generating Facility is certified and passes the screens, 
there is no assurance that safety and reliability or the quality of 
service is not degraded as a result of the interconnection. Cinergy and 
EEI argue the rule should require a showing that the interconnection 
does not degrade safety and reliability.
    163. BPA and Central Maine oppose limiting the additional review to 
six hours, arguing that each interconnection is unique.
    164. PJM argues that the Final Rule should not allow screens to be 
used in lieu of the feasibility study. It claims that while screens 
allow a project to be expedited, they do not necessarily provide the 
type of information needed by the Interconnection Customer to determine 
whether the project is viable (e.g., information concerning the 
estimated cost of interconnection or the effects on other projects).
    165. BPA claims that it is unreasonable to hold the Transmission 
Provider to stringent deadlines without establishing corresponding 
deadlines for the Interconnection Customer. MISO and BPA contend that 
the timelines do not give the Transmission Provider sufficient time to 
review the Interconnection Request. MISO proposes that the Transmission 
Provider be permitted to notify the Interconnection Customer if it is 
unable to meet the target date, along with the reasons for delay.
    166. NRECA and others ask the Commission to reduce the maximum size 
of a facility that may be evaluated under the screens to as small as 3 
kW. In its supplemental comments, Small Generator Coalition argues 
against imposing any size limits.
    167. Southern Company argues that certain base case assumptions are 
necessary for an accurate representation of the electric system when an 
Interconnection Request is evaluated under screens. It would like the 
evaluation to include all pending higher-queued Interconnection 
Requests because only then could the effect of an Interconnection 
Request be truly determined.
Commission Conclusion
    168. In SGIP section 2.2.1, we are adopting a single set of screens 
submitted by Joint Commenters in its supplemental comments, with minor 
editorial changes. These are the screens that would be applied in the 
Fast Track and the 10 kW Inverter Processes. We are adopting only one 
set of screens rather than the two in the NARUC Model and the Small 
Generator Interconnection NOPR. The individual screening criteria in 
this set are very similar to those in the NARUC Model and closely track 
both those contained in the Small Generator Interconnection NOPR and 
those proposed by Joint Commenters in the ANOPR process.
    169. The NOPR did not contain a screen that would permit 
interconnection with a secondary network \67\ and Joint Commenters were 
unable to agree on one. We are also not adopting any additional screen 
that would permit interconnection with a secondary network in this 
Final Rule.
---------------------------------------------------------------------------

    \67\ A secondary network is a type of distribution system that 
is generally used in large metropolitan areas that are densely 
populated in order to provide high reliability of service to 
multiple customers. (Source: Standard Handbook for Electrical 
Engineers, 11th edition, Donald Fink, McGraw Hill Book Company).
---------------------------------------------------------------------------

    170. We are deleting ``and must comply with all requirements of 
approved industry standards for interconnection technical 
specifications and requirements'' from one of Joint Commenters' 
proposed screens because this language is redundant; a Small Generating 
Facility that is being evaluated under the Fast Track Process or 10 kW 
Inverter Process must meet the codes, standards, and certification 
requirements of Attachments 3 and 4 of the SGIP.
    171. Concerns raised by commenters that screens do not accurately 
reflect the true effect of the interconnection on safety and 
reliability are unfounded. We believe the thresholds used in the 
screens to be conservative and that there is negligible chance that a 
proposed interconnection could pass the screens and actually impact the 
safety and reliability of the Transmission Provider's electric system. 
These thresholds have been vetted by Transmission Providers, small 
generator developers, and representatives of state regulators alike.
    172. We reject Small Generator Coalition's argument that there 
should be no size restrictions for Small Generating Facilities whose 
interconnections may be evaluated using the screens. We are retaining 
the proposed 2 MW threshold for certified generators as a critical 
eligibility criterion for using the screens. It helps ensure the safety 
and reliability of the Transmission Provider's electric system. Small 
Generator Coalition, together with a number of Transmission Providers 
and representatives of state regulatory agencies, vetted the threshold 
when submitting the package of screens through Joint Commenters' 
supplemental comments.
    173. In response to objections to the NOPR's expedited screening 
procedures, the Final Rule SGIP does not include any screens for Small 
Generating Facilities larger than 2 MW. Accordingly, only a request to 
interconnect a certified Small Generating Facility no larger than 2 MW 
shall be evaluated using the screens. A request to interconnect a Small 
Generating Facility larger than 2 MW or a Small Generating Facility of 
any size that is not certified shall be evaluated using the Study 
Process.
    174. BPA and others oppose limiting the additional review to six 
hours. We

[[Page 34207]]

are eliminating this restriction.\68\ The SGIP includes a customer 
options meeting where the Transmission Provider may propose 
modifications to the proposed interconnection or the Small Generating 
Facility itself, or perform a supplemental review if the 
Interconnection Customer agrees to pay for it. This allows the 
Transmission Provider to determine the modifications needed to 
accommodate the interconnection without the need for detailed and more 
costly interconnection studies.
---------------------------------------------------------------------------

    \68\ In the Proposed SGIP, the Commission termed this 
``additional review.'' In the SGIP, we adopt the NARUC Model's term 
``supplemental review.''
---------------------------------------------------------------------------

    175. Southern Company and Joint Commenters (in its supplemental 
comments) argue that the Transmission Provider should be allowed to 
consider the effects of all pending higher-queued Interconnection 
Requests when evaluating the Interconnection Request under the screens. 
We agree.
    176. Queuing Priority (Proposed SGIP Section 4.4)--In the NOPR, the 
Commission proposed that each Transmission Provider maintain a single 
queue per geographic area. A queue lists Interconnection Requests in 
the order in which they are received. The Queue Position determines the 
order of performing interconnection studies, if required, and the 
Interconnection Customer's cost responsibility for any Upgrades to the 
Transmission Provider's electric system. In Order No. 2003, the 
Commission decided that the Transmission Provider should maintain a 
single integrated queue per geographic region. However, RTOs and ISOs 
have flexibility to propose queues and queuing rules designed to meet 
their regional needs.\69\ We are adopting the same provision here, for 
the same reasons. Accordingly, there is no need to separately address 
again the same comments raised in this proceeding on that issue.
---------------------------------------------------------------------------

    \69\ Order No. 2003 at P 147.
---------------------------------------------------------------------------

Comments
    177. Small Generator Coalition requests that the Commission 
establish separate queues for Large and Small Generating Facilities. 
Failing that, the Commission should clarify that the interconnection 
study periods identified in the SGIP are binding without regard to the 
Queue Position of other generating facilities. Alternatively, Small 
Generating Facilities should be clustered for study purposes within a 
given time frame (e.g., 90 days). It states that requiring a single 
queue for all generating facilities undercuts whatever progress has 
been made in interconnecting Small Generator Facilities. Small 
Generator Coalition, Solar Turbines, and others state that, in light of 
their relatively simple interconnection requirements, use of off-the-
shelf equipment, and minimal effects on the Transmission Provider's 
electric system, Small Generating Facilities should be able to be 
interconnected quickly. They complain that the interconnection can be 
delayed by higher-queued Large Generating Facilities that require 
longer, more frequent, and more expensive interconnection studies and 
restudies.
Commission Conclusion
    178. We disagree with Small Generator Coalition that a single queue 
is unfavorable to Small Generating Facilities. Although Queue Position 
determines the order of the interconnection studies and the cost 
responsibility for the Network Upgrades necessary to accommodate the 
interconnection, it does not determine the order in which the 
interconnections are completed.
    179. For many Transmission Providers, the requirement to maintain 
two queues could actually delay, rather than speed up, the 
interconnection process. Thus, we are requiring a Transmission Provider 
to use a single queue for all Generating Facilities, regardless of 
size. Also, the SGIP allows Small Generating Facilities to be 
interconnected without going through the Study Process if they pass the 
screens. However, under the independent entity variation available to 
RTOs and ISOs under this Final Rule, such entities may propose multiple 
queues in their compliance filings.\70\
---------------------------------------------------------------------------

    \70\ See Order No. 2003 at P 185.
---------------------------------------------------------------------------

    180. Small Generator Coalition is correct that a non-clustering 
Transmission Provider must meet all deadlines established in the SGIP 
without regard to queue position or queue-related delays.
    181. We reiterate that clustering is the Commission's preferred 
method for conducting interconnection studies, and should be seriously 
considered by all Transmission Providers.\71\ Clustering of studies 
allows the Transmission Provider to study multiple Interconnection 
Requests simultaneously, thereby maximizing the effectiveness of its 
staff. Clustering may also reduce interconnection study and Upgrade 
costs; for example, multiple Interconnection Customers can share the 
cost of Upgrades.
---------------------------------------------------------------------------

    \71\ Id. at P 155.
---------------------------------------------------------------------------

    182. Scoping Meeting (Proposed SGIP Section 4.5)--Proposed SGIP 
section 4.5 would require the Parties to hold a scoping meeting within 
ten Business Days after the Interconnection Request is deemed complete 
by the Transmission Provider. The purpose of the meeting is to review 
the characteristics of the Transmission Provider's electric system, 
discuss the technical aspects of the proposed interconnection, and 
review existing studies and the results of the application of the 
technical screens, if applicable. If the Parties agree that a 
feasibility study is needed, the Transmission Provider would provide 
the Interconnection Customer with a feasibility study agreement.
Comments
    183. Central Maine asks that the Transmission Owner also be 
included in the scoping meeting. Small Generator Coalition asks that 
the provision be revised to allow the Parties to conduct the scoping 
meeting by telephone.
Commission Conclusion
    184. In the SGIP, Transmission Provider is defined to include both 
the Transmission Provider and Transmission Owner, when they are 
separate entities. Accordingly, the Transmission Owner may attend the 
scoping meeting. Also, there was nothing in the Proposed SGIP that 
mandates that the scoping meeting be held face-to-face. We encourage 
the Parties to conduct the interconnection process in the most 
expeditious manner possible and to take advantage of telephone, fax, 
and e-mail. Finally, as in Order No. 2003-A, we are requiring that any 
scoping meeting between the Transmission Provider and an affiliate be 
announced publicly and transcribed, with the transcripts made available 
upon request for a period of three years.\72\ While the Transmission 
Provider may redact portions of the transcripts deemed to be 
commercially sensitive or containing Critical Energy Infrastructure 
Information, the Commission will decide which redacted portions are to 
be made public.
---------------------------------------------------------------------------

    \72\ Order No. 2003-A at P 101-107.
---------------------------------------------------------------------------

    185. Interconnection Studies (Proposed SGIP Sections 4.6, 4.7, and 
4.8)--Proposed SGIP sections 4.6, 4.7, and 4.8 and the associated study 
agreements described the feasibility, system impact, and facilities 
studies (collectively, interconnection studies) and the Interconnection 
Customer's cost responsibility for each study. For a Small Generating 
Facility larger than 2 MW but no larger than 10 MW interconnecting at 
Low-Voltage, the Proposed SGIP would first evaluate the

[[Page 34208]]

proposed interconnection using expedited screens. However, if the 
Transmission Provider believed that the interconnection would undermine 
safety and reliability even though the proposed interconnection passed 
the screens, the Transmission Provider would pay for the feasibility 
study if that study subsequently identified no adverse system impact. 
The cost of the system impact and facilities studies, however, would 
always be paid by the Interconnection Customer.
Comments--Study Cost Obligations
    186. Central Maine, Exelon, and PacifiCorp argue that the 
Interconnection Customer should always pay for interconnection studies, 
regardless of the conclusions reached. Small Generator Coalition 
maintains that the Transmission Provider should pay for the feasibility 
study only if it shows no adverse impact.
Commission Conclusion
    187. The Interconnection Customer should pay for all of the 
interconnection studies, regardless of the conclusions reached, because 
it is unreasonable to shift this cost to other transmission customers 
that do not benefit from the studies, which is what would occur if the 
Transmission Provider were to pay for them. The Transmission Provider 
should, of course, use existing studies instead of performing 
additional analyses to reduce costs for the Interconnection Customer, 
whenever possible. The Interconnection Customer is not to be charged 
for such existing studies; however, it is responsible for costs 
associated with any new study and any modification to an existing study 
that is reasonably necessary to evaluate the proposed interconnection.
Comments--Study Requirements
    188. PJM and Southern Company argue that a system impact study 
should always be performed to detect adverse impacts that may not have 
been detected in the feasibility study. Small Generator Coalition 
argues that in many situations only a feasibility study or a system 
impact study is needed, but not both; Parties should be able to agree 
to skip the feasibility study. PacifiCorp states that, for a small 
project, the feasibility study is not much different from the system 
impact study and recommends that the former be eliminated. SoCal Edison 
argues that the provisions of the SGIP dealing with interconnection 
studies should refer to the distribution provider, if applicable, and 
the Transmission Provider. Bureau of Reclamation asks the Commission to 
clarify that the Transmission Provider should perform flicker and 
voltage drop studies.
Commission Conclusion
    189. We agree that, on occasion, there may be some overlap between 
the feasibility study and the system impact study. For a small project, 
the distinction may not be enough to require that both studies be 
performed. In such cases, it may be reasonable to skip the feasibility 
study entirely. Therefore, as the Commission did for Large Generating 
Facilities in Order No. 2003-A, we are allowing the Parties to skip the 
feasibility study upon mutual agreement. As to SoCal Edison's comment, 
we do not see any need to include the term ``distribution provider'' 
when referring to SGIP provisions. Transmission Provider is already 
defined as ``[t]he public utility (or its designated agent) that owns, 
controls, or operates transmission or distribution facilities used for 
the transmission of electricity in interstate commerce and provides 
transmission service under the Tariff.'' As to Bureau of Reclamation's 
request for clarification, voltage drop, voltage limit violation, and 
grounding studies are indeed included in the study process.
Comments--Study Deadlines and Restudy
    190. Southern Company, PG&E, and others contend that the proposed 
interconnection study deadlines are too short. NARUC proposes giving 
the Transmission Provider 30 Business Days to complete the feasibility 
study, 30 Business Days to complete the distribution system impact 
study, 45 Business Days to complete the transmission system impact 
study, 30 Business Days to complete the facilities study when no 
Upgrades are required, and 45 Business Days to complete the facilities 
study when Upgrades are required.
    191. PacifiCorp states that a restudy provision should be included 
in the SGIP so that the Interconnection Request could be restudied if a 
higher-queued Interconnection Customer drops out. It argues that the 
LGIP included a restudy provision for each of the three studies.
Commission Conclusion
    192. We are adopting the deadlines proposed by NARUC and 
incorporating them in the interconnection study agreements. They strike 
a good balance, allowing sufficient time to complete the studies while 
ensuring that Small Generating Facilities can be interconnected within 
a reasonable time. Also, as noted above, with the exception of payment 
provisions, we are replacing ``calendar days'' with ``Business Days'' 
in the SGIP and SGIA. However, where appropriate, we are revising the 
number of days to correspond to the actual passage of time.
    193. We disagree that a restudy provision is needed in the SGIP. 
The very purpose of the Small Generator Final Rule is to expedite 
interconnections of Small Generating Facilities by removing unnecessary 
delays. While a restudy provision in the LGIP context is meaningful 
because system conditions may change between completion of a particular 
study and the Parties' signing the LGIA, it is unlikely that any 
significant change in system conditions will occur that was not 
foreseen by the Transmission Provider at the time of study because the 
SGIP has a much shorter timeline.
Comments--Post-Operational Evaluation of the Interconnection
    194. PacifiCorp argues that, after the Small Generating Facility is 
operational, an interconnection may cause problems that were unforeseen 
when the project was initially evaluated. For example, wind generators 
may need to fine tune their reactive power output. Also, because the 
certification and screening processes are new, the Transmission 
Provider should be permitted to perform post-interconnection reviews 
and adjustments, including additional Upgrades, if necessary, to be 
paid for by the Interconnection Customer.
Commission Conclusion
    195. The purpose of the evaluation processes in the SGIP is to 
determine the effect the interconnection will have on the Transmission 
Provider's electric system. Such evaluations are also performed to 
ascertain the Interconnection Customer's cost responsibility for 
Interconnection Facilities and Upgrades. We reject PacifiCorp's 
proposal because accepting it would make determination of cost 
responsibility open-ended and create uncertainty for the 
Interconnection Customer. Should unforeseen problems arise, the Parties 
may make a filing with the Commission and request expedited 
consideration.
    196. Execution of the SGIA--Although the Proposed SGIP required the 
Transmission Provider to deliver an executable SGIA to the 
Interconnection Customer within a time certain, the Interconnection 
Customer had no deadline to sign and return the document to the 
Transmission Provider.

[[Page 34209]]

Comment
    197. In its supplemental comments, Joint Commenters propose that 
the Interconnection Customer have 30 Business Days to sign and return 
the SGIA.
Commission Conclusion
    198. We adopt Joint Commenters' proposal. The Transmission Provider 
needs to know whether the proposed project will go forward. Giving the 
Interconnection Customer a deadline within which to act gives the 
Transmission Provider the certainty it needs for system planning 
purposes. The SGIP states that, after receiving an interconnection 
agreement from the Transmission Provider, the Interconnection Customer 
shall have 30 Business Days or another mutually agreeable timeframe to 
sign and return the SGIA, or request that the Transmission Provider 
file an unexecuted SGIA with the Commission. If that is not done, the 
Interconnection Request shall be deemed withdrawn.

F. Issues Related to the SGIA

    199. Responsibilities of the Parties (Proposed SGIA Article 2.2)--
Article 2.2 of the Proposed SGIA set out each Party's responsibilities 
under the SGIA. It included the obligation of the Interconnection 
Customer to interconnect, operate, and construct its facilities in a 
safe manner and to follow Good Utility Practice. It would similarly 
require the Transmission Provider to operate its electric system in a 
safe and reliable manner.
Comments
    200. BPA asserts that Proposed SGIA article 2.2 should require the 
Interconnection Customer to abide by national and regional reliability 
rules, such as those developed by NERC and the Western Electricity 
Coordinating Council, that are generally applicable to all generators 
in a control area or geographic region. Furthermore, according to BPA, 
the interconnection agreement should require the Interconnection 
Customer to abide by any technical requirements established by the 
Transmission Provider to govern the safe interconnection of generating 
facilities.
    201. NARUC offers alternative language laying out the 
responsibilities of the Parties, consistent with its Model. 
Specifically, NARUC proposes replacing article 2.2 with the following:

    Each Party will, at its own cost and expense, operate, maintain, 
repair, and inspect, and shall be fully responsible for the facility 
or facilities which it now or hereafter may own or lease unless 
otherwise specified in Exhibit A. Maintenance of Interconnection 
Customer's Small Resource and interconnection facilities shall be 
performed in accordance with the applicable manufacturer's 
recommended maintenance schedule.
    The Parties agree to cause their facilities or systems to be 
constructed in accordance with specifications provided by the 
National Electrical Safety Code, the National Electric Code, and as 
approved by the American National Standards Institute, and 
interconnected in accordance with the Institute of Electrical and 
Electronics Engineers standards where applicable.
    Interconnection Provider and Interconnection Customer shall each 
be responsible for the safe installation, maintenance, repair and 
condition of their respective lines and appurtenances on their 
respective sides of the Point Of Common Coupling. The 
Interconnection Provider or the Interconnection Customer, as 
appropriate, shall provide interconnection facilities that 
adequately protect the Interconnection Provider's distribution 
system, personnel, and other persons from damage and injury. The 
allocation of responsibility for the design, installation, 
operation, maintenance and ownership of the Interconnection 
Facilities shall be made part of this agreement as Exhibit C.

    202. Avista states that ``the Interconnection Customer should be 
required not only to construct its generating facility in accordance 
with operating requirements to be set forth in Appendix 4 to the 
Proposed SGIA, but also to maintain and operate its [Small Generating 
Facility] in accordance with such operating requirements.'' \73\
---------------------------------------------------------------------------

    \73\ Avista at 14.
---------------------------------------------------------------------------

    203. Nevada Power asserts that the IEEE 1547 standards referred to 
in Proposed SGIA article 2.2.4 were never designed to be applied to 
generating facilities larger than 10 MW and that in fact ``there is no 
extant national standard that can be reasonably applied to govern the 
Interconnection Facilities for Generating Facilities greater than ten 
megawatts.'' \74\ Instead, Nevada Power proposes that until a national 
standard is developed to address this 10-20 megawatt gap, the 
Commission modify article 2.2.4 to read:
---------------------------------------------------------------------------

    \74\ Nevada Power at 15.

    Interconnection Customer agrees to cause its facilities or 
systems to be constructed in accordance with applicable 
specifications that meet or exceed those provided by the National 
Electrical Safety Code, the American National Standards Institute, 
IEEE, Underwriter's Laboratory, Operating Requirements, and, where 
the Generating Facility will have a capacity greater than ten 
megawatts, the Transmission Provider's applicable Interconnection 
Facility standards in effect at the time of construction * * 
---------------------------------------------------------------------------
*.[\75\]

    \75\ Id. (Emphasis added to show the new language proposed by 
Nevada Power.)
---------------------------------------------------------------------------

    204. PacifiCorp notes that the Proposed SGIA assumes that the 
Interconnection Customer and the Transmission Provider are each 
responsible for the maintenance of equipment on its side of the point 
of change of ownership. But as a practical matter, more flexibility is 
needed because non-utility companies cannot usually maintain certain 
equipment, such as communications equipment, that is critical to the 
protection of the Transmission Provider's electric system. Moreover, 
the Transmission Provider often owns and maintains revenue meters on 
the customer's side of the point of change of ownership. Therefore, 
argues PacifiCorp, the SGIA should clarify that unless provided 
otherwise in an attachment, each Party is responsible for the equipment 
on its side of the point of change of ownership.
    205. Small Generator Coalition requests that the Commission 
restrict the ability of the Transmission Provider to impose additional 
technical requirements on the Small Generating Facility. Otherwise, it 
fears that Interconnection Customers will be subjected to additional 
requirements under the guise of reliability rules that make it 
difficult to interconnect in a cost-effective manner. On the other 
hand, Southern Company contends that the standards for operating in 
parallel should be codified in the SGIA. This way, the Transmission 
Provider can then confirm that all the requirements are met before 
granting the authorization to operate.
    206. In its supplemental comments, Joint Commenters recommends 
several changes to Proposed SGIA article 2.2. Specifically, Joint 
Commenters recommend clarifying that the Transmission Provider must 
coordinate with an Affected System operator to complete the 
interconnection, but need not negotiate on behalf of the 
Interconnection Customer. Joint Commenters also propose changing the 
last sentence of proposed article 2.2.4 to read:

    Interconnection Customer agrees to design, install, maintain, 
and operate, or cause the design, installation, maintenance, and 
operation of the Generating Facility and Interconnection Customer 
Interconnection Facility so as to reasonably minimize the likelihood 
of a disturbance, originating on such equipment affecting or 
impairing the system or equipment of Transmission Provider, or 
Affected Systems.\76\

    \76\ Emphasis added to show the language proposed by the Joint 
Commenters.

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

[[Page 34210]]

Commission Conclusion
    207. We are adopting a version of this provision that is based on 
the NARUC Model and Joint Commenters' proposals. Redrafting article 2.2 
as requested by commenters clarifies the rights and responsibilities of 
the Parties and aids them in better understanding their roles in the 
interconnection process.
    208. Several commenters also ask the Commission to clarify the 
right of the Transmission Provider to include supplemental 
``Interconnection Guidelines,'' either in the SGIA or as an attachment 
to it. As the Commission stated in Order No. 2003-A, the Transmission 
Provider may include supplemental interconnection requirements if (1) 
they are authorized by the applicable reliability council and (2) the 
Transmission Provider imposes such requirements on itself and all other 
Interconnection Customers, including its affiliates.\77\ We see no 
reason to depart from this standard. The Commission has consistently 
held that an Interconnection Customer must adhere to established 
reliability practices within the control area with which it is 
interconnecting.\78\ The same would be true for including supplemental 
guidelines for generators larger than 10 MW, as requested by Nevada 
Power.
---------------------------------------------------------------------------

    \77\ Order No. 2003-A at P 399.
    \78\ See, e.g., Order No. 2003-A at P 44, Order No. 2003 at P 
823, and Order No. 888 at 31,770.
---------------------------------------------------------------------------

    209. In response to Nevada Power's comments about the applicability 
of the IEEE 1547 standard to generating facilities no larger than 10 
MW, we note that the SGIA states that this standard is required only 
``where applicable.''
    210. The SGIA also addresses PacifiCorp's concerns over using the 
point of change of ownership as the basis for establishing the Parties' 
respective roles and allows the Parties to specify their respective 
roles in SGIA Attachment 2.
    211. Metering (Proposed SGIA Article 2.4)--Proposed SGIA article 
2.4 would specify that the Interconnection Customer is responsible for 
the Transmission Provider's reasonable cost for the purchase, 
installation, operation, maintenance, testing, repair, and replacement 
of any metering and data acquisition equipment. It also would require 
that the Interconnection Customer's metering equipment conform to 
applicable industry rules and operating requirements.
Comment
    212. CA ISO argues that Proposed SGIA article 2.4 should require 
any Small Generating Facility larger than 1 MW to provide real-time 
telemetry to the Transmission Provider to better maintain reliability 
and meet regional requirements.
Commission Conclusion
    213. We are not requiring Small Generating Facilities to provide 
real-time telemetry because doing so may hamper their development and 
we are not convinced that it is necessary in every instance. However, 
if regional reliability requirements dictate real-time telemetry for 
Small Generating Facilities, we expect the Interconnection Customer to 
meet such requirements.
    214. Equipment Testing and Inspection (Proposed SGIA Article 3.1)--
Proposed SGIA article 3.1 described the pre-operational testing and 
inspection requirements for the Small Generating Facility.
Comments
    215. Central Maine argues that the Interconnection Customer should 
periodically test the Small Generating Facility and Interconnection 
Facilities after they achieve commercial operation and that the 
Transmission Provider should be allowed to witness such testing. The 
purpose of such testing is to ensure that the Interconnection 
Customer's equipment is operating properly. Southern Company argues 
that the Interconnection Customer should pay the Transmission 
Provider's expenses for such pre-operational testing.
Commission Conclusion
    216. We decline to expand the provisions of this article to require 
generically that every Interconnection Customer perform periodic 
testing of its Small Generating Facility, regardless of circumstances. 
To so do would be burdensome on the Interconnection Customer, costly, 
and potentially allow a self-interested Transmission Provider to impose 
multiple rounds of costly testing on competing generators. However, 
should the Transmission Provider believe in good faith that the Small 
Generating Facility or the Interconnection Facilities is affecting 
safety and reliability, the Transmission Provider may, upon advance 
written notice, require the Interconnection Customer to perform 
reasonable additional post-operational testing. The Transmission 
Provider may witness such testing. The Transmission Provider and the 
Interconnection Customer shall be responsible for their own staff, 
equipment, and other costs associated with the testing and inspection.
    217. Right of Access (Proposed SGIA Article 3.3)--The Proposed SGIA 
would give the Transmission Provider access to land owned or controlled 
by the Interconnection Customer to construct Interconnection Facilities 
or for other specified purposes.
Comment
    218. NARUC urges the Commission to adopt the following right of 
access provision from its Model:

    Upon reasonable notice, the Interconnection Provider may send a 
qualified person to the premises of the Interconnection Customer at 
or immediately before the time the Small Resource first produces 
energy to inspect the interconnection, and observe the commissioning 
of the Small Resource (including any required testing), startup, and 
operation for a period of up to no more than three days after 
initial start-up of the unit. In addition, the Interconnection 
Customer shall notify the Interconnection Provider at least seven 
days before conducting any on-site Verification Testing of the Small 
Resource. Following the initial inspection process described above, 
at reasonable hours, and upon reasonable notice, or at any time 
without notice in the event of an emergency or hazardous condition, 
Interconnection Provider shall have access to Interconnection 
Customer's premises for any reasonable purpose in connection with 
the performance of the obligations imposed on it by this Agreement 
or if necessary to meet its legal obligation to provide service to 
its [customers].
Commission Conclusion
    219. We largely adopt NARUC's proposal. It uses the concepts found 
in the Small Generator Interconnection NOPR, but shortens and 
simplifies the provisions. However, we are adding that each Party is 
responsible for its own staff, equipment, and other costs in carrying 
out this provision.
    220. Term of Agreement (Proposed SGIA Article 4.2)--Proposed SGIA 
article 4.2 would require that the interconnection agreement remain in 
effect for ten years, or longer by request, and that it can be 
automatically renewed for each successive one year period thereafter.
Comments
    221. BPA argues that the interconnection agreement should remain in 
effect as long as the Small Generating Facility remains interconnected, 
subject to the termination provision of the SGIA or as agreed to by the 
Parties. The article unnecessarily requires the Parties to negotiate a 
follow-on agreement after ten years.
    222. Central Maine requests that the SGIA terminate after a set 
number of

[[Page 34211]]

years agreed to by the Parties. It states that the provision is 
unacceptable because it allows the Interconnection Customer to 
unilaterally select the term of the interconnection agreement.
Commission Conclusion
    223. We deny BPA's and Central Maine's requests to revise the term 
of the interconnection agreement. These issues were addressed in Order 
No. 2003, and neither commenter raises any new arguments here.\79\
---------------------------------------------------------------------------

    \79\ Order No. 2003 at P 302-304.
---------------------------------------------------------------------------

    224. Termination (Proposed SGIA Article 4.3) and Default (Proposed 
SGIA Article 6.17)--Proposed article 4.3.1 would grant the 
Interconnection Customer the right to terminate the SGIA at any time by 
giving 30 days written notice. Proposed article 4.3.2 would allow the 
Transmission Provider to terminate the interconnection agreement if a 
material change in law or regulations would either prevent performance 
of the interconnection agreement or impose on the Transmission Provider 
substantial additional costs that are not reimbursed by another entity. 
Proposed article 6.17 described when a Default takes place and the 
Parties' right to cure upon notice of a Default. Because these 
provisions are closely related, we discuss them together.
Comments
    225. Several commenters ask the Commission to grant the 
Transmission Provider termination rights comparable to those given the 
Interconnection Customer.\80\ PG&E and Southern Company request that 
the Transmission Provider have the right to terminate the 
interconnection agreement if the Small Generating Facility is either 
shut down or abandoned. Southern Company asks that the Transmission 
Provider be allowed to terminate the agreement if the Small Generating 
Facility either does not begin commercial operation or is inactive for 
three years. Absent changes to this provision, the only remedy 
available to the Transmission Provider is to file an application to 
terminate with the Commission.
---------------------------------------------------------------------------

    \80\ See, e.g., BPA, Central Maine, PG&E, and Southern Company.
---------------------------------------------------------------------------

    226. Central Maine, Joint Commenters, and PacifiCorp ask that if 
the Interconnection Customer terminates the SGIA, neither the 
Transmission Provider nor its customers should have to pay the costs of 
termination, including the cost of site restoration. Central Maine says 
these costs should be paid by the Interconnection Customer if it 
defaults on the interconnection agreement. PacifiCorp requests that the 
SGIA require the Interconnection Customer to pay any outstanding costs 
under the SGIP or SGIA during the 30 day notice period, or else 
termination shall not become effective. Joint Commenters also propose 
including a provision specifying that a Party remains liable for 
expenses incurred under the SGIA even after it has terminated. Central 
Maine states that certain critical provisions, such as access, 
confidentiality, invoicing, limitation of liability, and 
indemnification, should survive any expiration or earlier termination 
of an agreement.
    227. NARUC urges the Commission to adopt its Model interconnection 
agreement, which allows the Interconnection Customer to terminate the 
agreement for any reason, including default, provided 60 days' written 
notice is given. Alternatively, the Transmission Provider may terminate 
the agreement if the Small Generating Facility does not generate energy 
in parallel with the Transmission Provider's Transmission System by the 
later of two years from the date of the agreement or 12 months after 
interconnection is completed.
    228. NARUC also requests clarification that the Transmission 
Provider may terminate the interconnection agreement for Default. Both 
NARUC and Joint Commenters propose adding a provision specifying that a 
Transmission Provider may terminate the SGIA if there is a material 
change in a rule or statute concerning interconnection and parallel 
operation of the Small Generating Facility that would impose additional 
costs on the Transmission Provider. Finally, the NARUC Model clarifies 
that termination does not relieve either Party of its obligations to 
the other Party.
    229. Central Maine and NYTO ask the Commission to clarify the 
difference between ``Default'' and ``Breach,'' as it did in the LGIA. 
Specifically, Central Maine states that a Breach, if uncured, becomes a 
Default and may result in termination.
Commission Conclusion
    230. As Order No. 2003 stated, there is no reason to allow the 
Transmission Provider to terminate the interconnection agreement if the 
Interconnection Customer has met all its obligations.\81\ As we have 
noted elsewhere in this Final Rule, the interests of a Transmission 
Provider may be adverse to those of the Interconnection Customer, and 
it has an incentive to discriminate against the Interconnection 
Customer. The Interconnection Customer's business decision not to 
operate its Small Generating Facility for an extended period of time 
should not result in the loss of its rights under the SGIA.
---------------------------------------------------------------------------

    \81\ Order No. 2003 at P 313.
---------------------------------------------------------------------------

    231. We adopt NARUC's proposal that a Party be given 60 calendar 
days in which to cure a Default once notified that it is in Default. If 
at the end of the 60 calendar days, the Default continues to exist, the 
non-defaulting Party may terminate the interconnection agreement. This 
is consistent with the Commission's regulations that require an entity 
to notify the Commission of the proposed cancellation or termination of 
a contract at least 60 calendar days before the cancellation or 
termination is proposed to take effect. However, to allow for 
situations where 60 calendar days are not sufficient time to cure the 
default, the SGIA allows up to six months in which to cure the Default 
so long as the Party ``continuously and diligently'' works towards 
curing the Default.
    232. Joint Commenters and Central Maine propose provisions that 
address the cost responsibility of the Parties if the SGIA is 
terminated. Both the Termination and Default provisions now clarify 
that the Parties' financial obligations and other responsibilities 
survive the termination of the SGIA. The SGIA also addresses 
PacifiCorp's concern that the Interconnection Customer would be able to 
terminate the interconnection agreement and escape financial 
responsibility for costs it has already incurred.
    233. The Proposed SGIA included a provision allowing the 
Transmission Provider to terminate the SGIA should there be a 
regulatory change that would impose additional costs on the 
Transmission Provider. Consistent with the LGIA, we are not including 
such a provision in the SGIA. Should a significant regulatory change 
take place, the Transmission Provider may request termination of the 
interconnection agreement under section 205 of the FPA.
    234. Central Maine and NYTO are correct that the term ``breach'' 
does not appear in the SGIA. Upon discovering a Default, the non-
defaulting Party gives notice of the Default to the defaulting Party. 
The defaulting Party then has time to cure the Default. If it does not 
do so, the SGIA may then be terminated. We are revising the SGIA 
accordingly.
    235. Emergency Conditions (Proposed SGIA Article 4.4.1)--Proposed 
SGIA article 4.4.1 would give the Transmission Provider the right to 
immediately suspend interconnection service and temporarily disconnect 
the

[[Page 34212]]

Small Generating Facility under Emergency Conditions.
Comment
    236. SoCal Edison proposes adding the term ``Distribution 
Provider's Distribution System'' to each place where the definition of 
Emergency Condition says ``Transmission Provider's Transmission 
System.'' \82\
---------------------------------------------------------------------------

    \82\ SoCal Edison does not give any rationale for its proposed 
change, only modified tariff sheets.
---------------------------------------------------------------------------

Commission Conclusion
    237. The owner of the Commission-jurisdictional facility with which 
the Interconnection Customer interconnects is the ``Transmission 
Provider'' regardless of how the facility may be classified by the 
Transmission Provider. As defined by this Final Rule, ``Transmission 
Provider'' means ``the public utility * * * that owns, controls, or 
operates transmission or distribution facilities used for the 
transmission of electricity in interstate commerce and provides 
transmission service under the Tariff'' (emphasis added). The change 
suggested by SoCal Edison would be redundant.\83\
---------------------------------------------------------------------------

    \83\ If the Small Generatiing Facility is interconntected with 
nonjurisdictional lines, then this Final Rule does not reach the 
issue of whether a jurisdictional Transmission Provider may 
disconnect the Small Generating Facility in an emergency. The 
Transmission Provider would have to deal with the non-jurisdictional 
utility.
---------------------------------------------------------------------------

    238. Temporary Disconnection--Routine Maintenance, Construction, 
and Repair (Proposed SGIA Article 4.4.2) and Forced Outages (Proposed 
SGIA Article 4.4.3)--Proposed SGIA article 4.4.2 would require that the 
Transmission Provider give five Business Days' notice before 
interrupting interconnection service, curtailing the output of the 
Small Generating Facility, or temporarily disconnecting the Small 
Generating Facility for routine maintenance, construction, and repairs. 
Proposed SGIA article 4.4.3 would give the Transmission Provider the 
right to suspend interconnection service to make repairs during forced 
outages. It would also require the Transmission Provider to give the 
Interconnection Customer written documentation to explain the 
circumstances of the disconnection if prior notice was not given. Both 
provisions would require the Transmission Provider to use its best 
efforts to coordinate disconnections, curtailments, and forced outages 
with the Interconnection Customer.
Comments
    239. PG&E states that it has thousands of small solar projects 
interconnected with its ``Distribution System'' and requests that the 
five Business Day notice requirement be waived for distribution level 
generators because it would interfere with a Distribution System 
owner's ability to work on its facilities.
    240. Empire District argues that it should not take five days to 
shut down a Small Generating Facility. If some minimum notice is 
required, it should apply only to Small Generating Facilities larger 
than 2 MW. Empire District also questions the need for an ``individual 
notice'' to every generator and whether it is really necessary to 
notify the operators of small certified units under 100 kW in size. If 
individual notifications are required, the Interconnection Customer 
should have a method in place whereby ``nearly instantaneous, two-way 
communication'' (notification and verification of receipt of notice) 
can be made within 24 hours.
    241. EEI, PacifiCorp, and Southern Company ask that the term 
``reasonable efforts'' be used instead of ``best efforts'' in Proposed 
SGIA articles 4.4.2 and 4.4.3, noting that ``reasonable efforts'' was 
used in the ANOPR consensus document.
    242. EEI and PacifiCorp ask the Commission to clarify that the 
Transmission Provider must provide written documentation to the 
Interconnection Customer only when the latter requests it.
Commission Conclusion
    243. We are not convinced that a five Business Day notice is unduly 
burdensome to the Transmission Provider or that it should apply only to 
Small Generating Facilities larger than 2 MW. Even if PG&E has 
thousands of small solar projects interconnected with its Distribution 
System subject to an OATT, as it states, it is highly unlikely that it 
will ever have to provide notice to all of them simultaneously.
    244. We agree that the term ``reasonable efforts'' should be used 
instead of ``best efforts'' in the SGIA. We are making this change 
throughout the SGIA.
    245. Finally, we are persuaded that written documentation need be 
provided only upon request by the Interconnection Customer, and the 
SGIA reflects this change.
    246. Temporary Disconnection--Adverse Operating Effects (Proposed 
SGIA Article 4.4.4)--Proposed SGIA article 4.4.4 said that after being 
notified that its Small Generating Facility may degrade the reliability 
of the Transmission Provider's electric system, the Interconnection 
Customer must be given reasonable time to make necessary corrections. 
If it does not make the corrections within that time, the Transmission 
Provider must provide a second notice to the Interconnection Customer 
stating that the Small Generating Facility may be disconnected in five 
Business Days.
Comments
    247. Several commenters \84\ contend that the five day notice 
period is unreasonable, restricts the Transmission Provider's ability 
to respond to reliability concerns, and could be misinterpreted to mean 
that an Interconnection Customer whose Small Generating Facility is 
causing adverse operating conditions has priority over other customers.
---------------------------------------------------------------------------

    \84\ E.g., Ameren, EEI, National Grid, PacifiCorp, PG&E, and 
Southern Company.
---------------------------------------------------------------------------

    248. EEI recommends that the last sentence of Proposed SGIA article 
4.4.4 be revised to read: ``Transmission Provider shall provide 
Interconnection Customer notice of such disconnection within a 
reasonable time period, unless the provisions of article 4.4.1 
[Emergency Conditions] apply.''
    249. National Grid states that some form of advance notice and the 
ability to cure is generally reasonable before disconnection; however, 
such steps cannot be mandated all the time. It proposes language giving 
the Transmission Provider the right to take unilateral action to avoid 
service disruptions to other customers or damage to facilities caused 
by the Small Generating Facility.
    250. According to Small Generator Coalition, the Transmission 
Provider should notify the Interconnection Customer if, based on sound 
engineering judgment, it concludes that adverse operating conditions 
exist.
Commission Conclusion
    251. This article applies only if the Transmission Provider 
determines that the Small Generating Facility may adversely affect its 
electric system and the Interconnection Customer has failed to take the 
necessary remedial action within the time specified by the Transmission 
Provider. We are not convinced that the notice period is too long, 
could endanger reliability or safety, or unnecessarily expose the 
Transmission Provider to liability claims when damage and disruption to 
its electric system is imminent. There could be legitimate reasons for 
the Interconnection Customer not to make the necessary corrections 
within the allotted time (e.g., replacement parts are on back order). 
SGIA article 3.4.1 provides that the Transmission Provider

[[Page 34213]]

may declare an emergency and disconnect the Small Generating Facility 
if there is an imminent threat to its electric system, which provides 
the Interconnection Customer with ample incentive to promptly resolve 
any adverse operating effects. Accordingly, we reject the request to 
eliminate the notification period from this article. However, we are 
revising this provision to specify that no notice is necessary in order 
to resolve an Emergency Condition.
    252. We agree with Small Generator Coalition that the Transmission 
Provider should immediately notify the Interconnection Customer when 
operation of the Small Generating Facility may cause disruption or 
deterioration of service to other customers and that this finding must 
be based on and supported by sound engineering principles. We also 
stress that all documentation supporting the problem must be provided 
to the Interconnection Customer upon request.
    253. Temporary Disconnection--Modification of the Generating 
Facility (Proposed SGIA Article 4.4.5)--Proposed SGIA article 4.4.5 
would require the Interconnection Customer to secure written 
authorization from the Transmission Provider before making any material 
modification to the Small Generating Facility, or it can be 
disconnected.
Comment
    254. EEI recommends that the phrase ``material modification'' be 
replaced with ``modification.'' This revised language is used in LGIA 
article 5.19.2.
Commission Conclusion
    255. We agree with EEI that the term ``material modification'' 
could be ambiguous. Accordingly, we are revising this article to 
provide that Transmission Provider written approval is required before 
the Interconnection Customer may modify its Small Generating Facility 
in such a way that could materially impact the safety or reliability of 
the Transmission Provider's electric system. We are also requiring that 
any modifications be done according to Good Utility Practice.
    256. Temporary Disconnection--Reconnection (Proposed SGIA Article 
4.4.6)--Proposed SGIA article 4.4.6 would require the Parties to 
cooperate with each other to restore the Small Generating Facility, the 
Interconnection Facilities, and the Transmission Provider's electric 
system to their normal operating state as soon as reasonably 
practicable following any temporary disconnection.
Comments
    257. Southern Company contends that this article should state that 
restoration is required only when the events causing the temporary 
disconnection are over. Small Generator Coalition asks that the 
provision use ``interruption and curtailment'' instead of 
``reduction.''
    258. In its supplemental comments, Joint Commenters propose the 
following alternative language: ``the Parties shall cooperate with each 
other to restore the Generating Facility, Interconnection Facilities, 
and Transmission Provider's Transmission System to their normal 
operating state as soon as reasonably practicable following a temporary 
disconnection.''
Commission Conclusion
    259. We are adopting the proposed language submitted by Joint 
Commenters because it removes unnecessary jargon and simply requires 
that the Parties work to restore normal interconnection service as 
quickly as possible. This language addresses Southern Company's and 
Small Generator Coalition's concerns as well.
    260. Financial Security Arrangements (Proposed SGIA Article 5.2)--
Proposed SGIA article 5.2 provided that the Interconnection Customer 
provide financial security to the Transmission Provider for the 
construction of Interconnection Facilities or Upgrades through a 
guarantee, surety bond, letter of credit, or other form of credit that 
meets certain standards. The type of financial security arrangement and 
issuing entity would have to be reasonably acceptable to the 
Transmission Provider and have (1) terms and conditions that guarantee 
payment up to an agreed upon amount, (2) a reasonable date of 
expiration, (3) be issued at least 20 days before construction, and (4) 
be consistent with the Uniform Commercial Code of the jurisdiction 
where the Point of Interconnection is located.
Comments
    261. PacifiCorp argues that this article does not refer to design 
costs. It asserts that this could lead to unnecessary confusion over 
whether design costs should be included with procurement, resulting in 
the burden of design costs falling on the Transmission Provider and its 
customers.
    262. Southern Company offers proposed changes to provide protection 
for the Transmission Owner and the Transmission Provider. It asks the 
Commission to delete any references to surety bonds as an acceptable 
form of payment on the grounds that they are not specifically mentioned 
in the OATT and are not generally accepted as a form of payment. It 
also requests that the SGIA state clearly that the terms of any letter 
of credit, guarantee or other security must be reasonably acceptable to 
the Transmission Provider.
    263. In an effort to avoid fraudulent conveyance issues or problems 
with the enforcement of any guarantee through bankruptcy procedures, 
Southern Company proposes that the parent of the Interconnection 
Customer (if any) serve as the source of any guarantee, specifically 
excluding affiliates from proposing any guarantee. Additionally, any 
proposed guarantor should have a credit rating of BBB+ to protect 
against rapid credit downgrades.
    264. Southern Company also argues that the dollar-for-dollar 
reduction of security as payments are made to the Transmission Provider 
is arbitrary and capricious and imposes risks under bankruptcy and 
fraudulent conveyance law upon the Transmission Provider. At a minimum, 
the Commission should not require that security be reduced until the 
expiration of any potential bankruptcy preference period. Southern 
Company also asks the Commission to clarify that credit support is not 
to be reduced by payments made to the Transmission Provider that are 
unrelated to the actions designated in this article. It also proposes 
the expansion of credit to cover all other obligations of the 
Interconnection Customer under the interconnection agreement.
    265. Finally, NYTO proposes that the Interconnection Customer 
demonstrate its creditworthiness in its Interconnection Request.
Commission Conclusion
    266. We agree with PacifiCorp that design costs are a part of the 
development process that should be covered and are including such a 
provision in the SGIA.
    267. While Southern Company opposes using surety bonds as an 
acceptable form of payment, we are following in this Final Rule the 
same approach taken in the LGIA, which states that the Interconnection 
Customer has the right to select a form of security that is acceptable 
to the Transmission Provider and consistent with commercial 
practices.\85\ Because SGIA article 6.3 grants the Transmission 
Provider the discretion to reject a form of security (if it is 
reasonable to do so), we reject Southern Company's proposal to 
eliminate the surety bond as an acceptable form of credit. Giving the

[[Page 34214]]

Interconnection Customer a choice of security is not unreasonable.\86\ 
Furthermore, granting the Transmission Provider absolute discretion on 
what forms of security to allow would provide too great an opportunity 
to erect hurdles to new small generation.\87\
---------------------------------------------------------------------------

    \85\ Order No. 2003 at P 597.
    \86\ See Florida Power & Light Company, 98 FERC ] 61,226 at 
61,893-94, reh'g granted in part on other grounds, 99 FERC ] 61,318 
(2002); Florida Power & Light Company, 98 FERC ] 61,324 at 62,358-59 
(noting that the Transmission Provider's practice of limiting 
interconnection customers to a letter of credit is unreasonable), 
reh'g rejected as moot, 100 FERC ] 61,094 (2002).
    \87\ Southwest Power Pool, Inc., 100 FERC ] 61,096 at P 12 
(2002).
---------------------------------------------------------------------------

    268. For the same reasons, we reject Southern Company's proposals 
to (1) limit the source of any guarantee to a parent of the 
Interconnection Customer and (2) require any proposed guarantor to have 
a credit rating of BBB+. These are hurdles that could be exploited to 
discourage Small Generating Facilities. The SGIA grants the 
Transmission Provider the discretion to reject a form, source, or 
issuing entity of security only if doing so is reasonable. Giving the 
Transmission Provider absolute discretion on these choices would create 
too great an opportunity for exploitation.
    269. We are requiring the reduction of the security amount on a 
dollar-for-dollar basis as payments are made because this protects the 
Interconnection Customer against providing too much security while 
ensuring that the Transmission Provider is sufficiently protected 
against its real cost exposure.\88\ We recognize that reducing the 
security as the Interconnection Customer pays its bills may cause a 
small increase in risk to the Transmission Provider, but the chilling 
effect of requiring the Interconnection Customer to maintain the full 
security during the length of the interconnection process would 
seriously discourage new small generation.
---------------------------------------------------------------------------

    \88\ See Order No. 2003 at P 264.
---------------------------------------------------------------------------

    270. We clarify that credit support is not to be reduced by 
payments made to the Transmission Provider that are unrelated to the 
actions listed in this article. In response to NYTO, we note that the 
Interconnection Customer is already required to give appropriate 
financial guarantees before the Transmission Provider begins 
construction. Thus, the Interconnection Customer need not demonstrate 
its creditworthiness when it submits its Interconnection Request.
    271. Milestones (Proposed SGIA Article 5.3)--Proposed SGIA article 
5.3 stated that the Parties are to agree on milestones that each Party 
is responsible for meeting. These milestones are part of the 
interconnection agreement. Article 5.3 further specified that if either 
Party does not meet a milestone, it must compensate the other Party for 
its losses (i.e., pay liquidated damages).
Comments
    272. Several commenters ask the Commission to remove references to 
liquidated damages from the SGIA. Others claim that the Commission 
lacks the legal authority to impose liquidated damages.
    273. EEI seeks the elimination of this article entirely. The 
provision is vague and confusing because conflicting milestone 
requirements appear in other areas of the Proposed SGIA and Proposed 
SGIP. NYTO contends that Appendix 3 of the Proposed SGIA, which 
requires the Parties to list agreed upon milestones, is unnecessary.
    274. Midwest ISO requests that the Commission adopt the same 
liquidated damages clause as in the LGIA. It states that this will make 
the large and small generator tariff provisions consistent.
    275. PacifiCorp requests that Proposed SGIA articles 5.3.1 and 
5.3.2 be deleted. It contends that the accomplishment of milestones 
should be subject to a ``reasonable efforts'' or ``good faith efforts'' 
standard rather than liquidated damages being applied. As a matter of 
policy, good faith efforts should not be penalized, since the 
Transmission Provider does not profit from interconnections.
    276. In its supplemental comments, Joint Commenters suggest 
replacing this provision in its entirety. The proposed replacement 
requires the Parties to agree to extend milestone deadlines if the 
milestone was missed in ``reasonable good faith.'' However, the Party 
affected by the failure to meet a milestone is not required to agree to 
an extension if:

    (1) It will suffer significant uncompensated economic or 
operational harm from the delay and believes that the delay is not 
or was not unavoidable, (2) attainment of the same milestone has 
previously been delayed, or (3) it has reason to believe that the 
delay in meeting the milestone is intentional or unwarranted 
notwithstanding the circumstances explained by the party proposing 
the amendment.

    277. Joint Commenters also suggest making the provision bilateral 
and removing the monetary penalty for missing a milestone. 
Additionally, Joint Commenters would require the Party missing the 
milestone to fully explain to the other Party why the milestone was 
missed. Finally, Joint Commenters propose adding a statement that any 
dispute as to this provision should be resolved according to the 
dispute resolution portions of the SGIA.
Commission Conclusion
    278. This Final Rule adopts many concepts proposed by Joint 
Commenters, including the notice provisions and the preference that the 
Parties agree to extend deadlines instead of declaring that the other 
Party has defaulted on the SGIA.
    279. Regarding Joint Commenters' proposal to add a statement 
regarding dispute resolution, such a statement is not needed because 
the SGIA's dispute resolution provision applies to the entire document.
    280. We reject PacifiCorp's proposal to delete SGIA milestone 
provisions. These provisions provide a single reference to the relevant 
milestones. They will assist the Parties and will minimize 
disagreements. Removing them would create uncertainty for the Parties.
    281. Because we are not imposing in this Final Rule a financial 
penalty on the Transmission Provider for missing milestones, there is 
no need to discuss commenters' arguments on that issue.
    282. Billing and Payment (Proposed SGIA Article 5.4)--Proposed SGIA 
article 5.4 would provide that billing and payment obligations are to 
be performed under the terms of the SGIA.
Comments
    283. PacifiCorp requests that this article be revised to include 
billing and payment requirements for Distribution Upgrades or Network 
Upgrades. It also states that billing and payment for miscellaneous 
costs, such as restudy costs, should be addressed.
Commission Conclusion
    284. We agree with PacifiCorp in part and are revising this article 
to clarify that billing and payment requirements are for Distribution 
Upgrades and Network Upgrades. However, we see no need to identify 
specific miscellaneous costs because the obligations listed in SGIA 
article 6.1 are for services rendered, which already includes such 
costs.
    285. Billing Procedure for Interconnection Facilities Construction 
(Proposed SGIA Article 5.4.1) and Final Accounting (Proposed SGIA 
Article 5.4.2)--Under Proposed SGIA article 5.4.1, the Transmission 
Provider would bill monthly for expenditures for the design, 
engineering and construction of, or for other charges related to, 
Interconnection Facilities. The Interconnection Customer would remit 
payment within 30 calendar days after receipt of the bill.
    286. Proposed SGIA article 5.4.2 would require that the 
Transmission

[[Page 34215]]

Provider submit a final accounting report to the Interconnection 
Customer within 45 calendar days after installing the Transmission 
Provider's Interconnection Facilities.
Comments
    287. PacifiCorp suggests that Proposed SGIA article 5.4.1 also 
include procurement costs. Small Generator Coalition argues that 
alternative arrangements for payment of the bill should be allowed if 
the Parties agree. With respect to Proposed SGIA article 5.4.2, 
numerous commenters \89\ argue that 45 calendar days is not enough time 
for the Transmission Provider to prepare a final accounting report. 
They offer an array of alternative deadlines ranging from 60 Business 
Days to 90 days after the Small Generating Facility begins commercial 
operation. BPA complains that there is not a similar deadline for any 
additional payments owed by the Interconnection Customer. It proposes 
that any unpaid bill must be paid within 30 days after the bill is 
submitted by the Transmission Provider.
---------------------------------------------------------------------------

    \89\ E.g., BPA, Central Maine, NYTO, PGE, and Southern Company.
---------------------------------------------------------------------------

Commission Conclusion
    288. We agree with PacifiCorp that procurement costs should be 
included. We are also revising the provision to allow the Parties to 
make other reasonable payment arrangements should they agree to do so, 
as requested by Small Generator Coalition.
    289. While we agree with commenters that the proposed deadline for 
submitting the final accounting report may be too short, tying it to 
commercial operation of the Small Generating Facility is unrealistic 
because that event may happen long after construction is complete. A 
more realistic deadline, and one that provides sufficient time for the 
Transmission Provider to compile the expenditures and process the final 
accounting report, is three months from the date construction of the 
facilities is completed. We are so revising this provision.
    290. BPA is correct that proposed SGIA article 5.4.2 did not 
include a deadline for the Interconnection Customer to pay its final 
accounting bill. We are including in the SGIA 30 calendar days for the 
Interconnection Customer to make payment to the Transmission Provider.
    291. Finally, we are consolidating Proposed LGIA articles 5.2, 5.3, 
and 5.4 because they are so closely related. The new article is 
entitled ``Billing, Payment, Milestones, and Financial Security.''
    292. Assignment (Proposed SGIA Article 6.5)--Proposed SGIA article 
6.5 would allow the Parties to assign their rights under the 
interconnection agreement to others under certain circumstances.
Comments
    293. Southern Company contends that the proposed assignment 
provision unreasonably allows one Party to freely assign its rights to 
an affiliate without consent from the other Party. It argues that this 
subjects the Transmission Provider to unnecessary risk from which it 
cannot protect itself by requiring that the assignee have a credit 
rating equivalent to that of the assignor; Transmission Providers 
typically rely on guarantees or letters of credit, which are personal 
to the obligor and would likely not cover the assignee. Bureau of 
Reclamation emphasizes that its policies allow assignment of an 
interconnection agreement only if both Parties agree to the assignment 
and the assignor agrees to remain bound by the original terms of the 
SGIA.
    294. Southern Company also argues that it is unreasonable to make 
the Transmission Provider get the Interconnection Customer's agreement 
before it can assign the interconnection agreement as collateral, while 
at the same time allowing the Interconnection Customer to assign the 
interconnection agreement as collateral without the Transmission 
Provider's permission. Southern Company contends that such assignments 
could unfairly deprive the Transmission Provider of the right to 
require the assignee or purchaser in foreclosure to assume the 
obligations of the assignor and to fulfill performance. In addition, 
the Transmission Provider could lose the right to require collateral 
assignees to cure Defaults of the assignor, thereby allowing assignees 
or purchasers in foreclosure to gain greater rights under the 
interconnection agreement than would have been permitted to the 
original Interconnection Customer. The requirement that notice of 
collateral assignment be provided by the secured party, trustee, or 
mortgagee is unworkable, as there would be no enforceable penalties for 
breach of this obligation. Not only do these parties lack contractual 
privity with the Transmission Provider, but they are also not typically 
subject to Commission jurisdiction.
    295. Southern Company contends that this article should provide 
Transmission Providers and Transmission Owners indemnification rights 
for any losses, costs, and expenses they may incur in connection with 
assignments or foreclosures. In addition, Southern Company seeks 
clarification of the conditions under which the Transmission Provider 
must recognize foreclosure rights and assignments. The provision as 
written could expose the Transmission Provider to uncompensated risks, 
forcing its native load to bear the costs.
    296. Small Generator Coalition requests that this article allow the 
Interconnection Customer to assign its rights and obligations under the 
interconnection agreement without consent of the Transmission Provider 
if the Interconnection Customer sells or transfers the Small Generating 
Facility and the real property on which it is located.
    297. NARUC urges adoption of its Model interconnection agreement 
language, which allows assignment by the Interconnection Customer in 
two situations. First, assignment may be made to a corporation or other 
limited liability entity upon the consent of the Transmission Provider. 
Such consent is not to be withheld unless the Transmission Provider 
``can demonstrate that the corporate entity is not reasonably capable 
of performing the obligations of the assigning Interconnection 
Customer.'' Second, the Interconnection Customer may assign the 
interconnection agreement to a person who is either the ``owner, 
lessee, or is otherwise responsible for the Small [Generating 
Facility].''
    298. In its supplemental comments, Joint Commenters recommend two 
changes to the Proposed SGIA: (1) Deleting the sentence requiring the 
assignee to notify the other Party before exercising its assignment 
rights and (2) requiring the assigning Party to give the other Party 15 
days to object to an assignment.
Commission Conclusion
    299. The assignment provision proposed by Joint Commenters is 
similar to the provision in the Small Generator NOPR. However, Joint 
Commenters propose two minor changes that we will adopt. First, Joint 
Commenters propose to remove a very technical sentence relating to 
financing from the provision that is not well suited to smaller 
projects. Second, Joint Commenters require that a Party seeking to 
assign the SGIA merely inform the other Party of the pending 
assignment. Should the Party not object, the assignment may go forward. 
If the Party does object, then the remainder of the provision will 
apply. Making these changes to the assignment provision should reduce 
the administrative

[[Page 34216]]

burden on the Parties without diminishing their substantive rights.
    300. In Order No. 2003-A,\90\ the Commission modified the 
assignment provision of the LGIA in order to address Southern Company's 
concerns relating to protecting native load customers. We make 
corresponding changes here, clarifying that (1) an Interconnection 
Customer assigning its rights under the SGIA is required to notify the 
Transmission Provider of the assignment and (2) an assignee is 
responsible for meeting the same insurance and financial security 
obligations as a normal Interconnection Customer upon exercising its 
right of assignment.\91\ This is in addition to a sentence specifying 
that ``an assignment under this provision shall not relieve a Party of 
its obligations * * *.'' We also make various editorial changes that 
make the provision easier to read. Southern also requests that a 
Transmission Provider be allowed to assign the interconnection 
agreement as collateral. We reject that request for the same reasons 
discussed in Order No. 2003-A.\92\
---------------------------------------------------------------------------

    \90\ See Order No. 2003-A at P 470.
    \91\ See Id. P 471.
    \92\ See Id. P 475.
---------------------------------------------------------------------------

    301. Insurance (Proposed SGIA Article 6.16)--In the Small Generator 
Interconnection NOPR, the Commission asked whether insurance should be 
required for Small Generating Facility interconnections and if so, how 
much. While the Proposed SGIA itself contained insurance provisions, 
the Commission did not specify dollar amounts and requested proposals 
from commenters. The Commission also requested comments on three 
specific issues. First, should insurance coverage vary with the size of 
the facility? Should, for example, a 20 MW Small Generating Facility be 
subject to higher coverage amounts than a 10 MW facility, which itself 
would be subject to higher coverage amounts than a 5 MW facility? 
Second, should coverage types and amounts vary according to the type of 
generator so that, for example, solar or wind facilities would require 
different insurance coverage than gas-fired facilities? Third, should 
there be a size cutoff that would exempt certain facilities from some 
insurance requirements?
Comments
    302. The NARUC Model, while not requiring insurance, proposes that 
state regulators recommend that every Interconnection Customer 
``protect itself with insurance or other suitable financial instrument 
sufficient to meet its construction, operating and liability 
responsibilities * * *.'' \93\
---------------------------------------------------------------------------

    \93\ NARUC Model--Interconnection Agreement at article 7.
---------------------------------------------------------------------------

    303. NARUC argues that the Commission's proposal to require seven 
different types of insurance is excessive and makes federal 
interconnection rules incompatible with state rules. The very act of 
requiring insurance would drive up prices because insurance companies 
would then have a captive market that must have insurance. Workers' 
compensation and automobile insurance are already required by state 
law; accordingly, they should not be mandated by the federal 
government. NARUC also asserts that state regulators will have more 
flexibility to assure low insurance rates if this Final Rule does not 
require insurance. Finally, NARUC reports that while California 
requires insurance for most projects, the majority of other states 
(including New York, Texas, and Ohio) do not. Therefore, requiring 
insurance would be inconsistent with the practice in most states.
    304. NYPSC reports that its own efforts to establish minimum 
insurance requirements were unsuccessful. While it recognizes the risk 
Small Generating Facilities pose to the Transmission Provider, 
mandatory insurance ``created a substantial barrier to the 
proliferation of distributed generation units.'' \94\ The biggest 
barrier to entry is not the cost of insurance (though that is a 
factor), but the fact that insurance is unavailable at any price in 
many situations. Insurance companies are not yet familiar with the 
risks posed by the interconnection of Small Generating Facilities and 
often will not insure them. NYPSC instead proposes allowing the market 
to determine insurance requirements. It reports that the market has at 
least partially responded to this need, creating insurance pools to 
spread the risk to multiple entities. It also notes that manufacturers 
sometimes bundle insurance coverage along with the equipment.
---------------------------------------------------------------------------

    \94\ NYPSC at 9.
---------------------------------------------------------------------------

    305. ISO New England recognizes that smaller generators generally 
pose less risk than larger ones, but argues that the level of risk 
should be evaluated on a case-by-case basis. This Final Rule should let 
an independent Transmission Provider waive the insurance requirement if 
it determines that the project poses little risk to its electric 
system. For many smaller facilities, the liability, indemnity, and 
insurance requirements typically required of larger facilities may cost 
too much. Likewise, MISO supports making the amount of insurance 
required a function of the risk of the particular interconnection. 
However, MISO also supports establishing minimum standard insurance 
requirements (although it does not offer specific amounts).
    306. Some Transmission Providers \95\ want the Commission to keep 
the proposed insurance limits. Central Maine and NYTO, among others, 
point out that most small projects would not have the financial 
resources to pay any judgment against them and argue that insurance is 
necessary to protect the interests of the Transmission Provider, and 
ultimately, its customers. EEI favors using the same insurance limits 
as the LGIA.
---------------------------------------------------------------------------

    \95\ E.g., AEP, Allegheny Energy, Avista, BPA, Central Maine, 
Cinergy, EEI, NRECA, NYTO, and Southern Company.
---------------------------------------------------------------------------

    307. AEP also argues that there is no reason why standard insurance 
provisions should be different for a 1 MW facility than for a 20 MW 
facility. Likewise, Allegheny Energy, Central Maine, NYTO, and others 
argue that even a very small generating facility can damage the 
Transmission Provider's electric system.
    308. Empire District, Nevada Power, NRECA, and PG&E assert that the 
amount of insurance required should vary with generator size. As NRECA 
puts it, ``a residential consumer installing a 3 kW Small Generating 
Facility should not have to acquire $1 million in insurance * * *.'' 
\96\ Even so, NRECA states that it would oppose any attempt to create a 
minimum megawatt threshold below which insurance would not be required.
---------------------------------------------------------------------------

    \96\ NRECA at 34.
---------------------------------------------------------------------------

    309. PG&E states that California has long required insurance for 
all projects larger than 10 kW and that this requirement has not 
noticeably dampened the market for on-site Small Generating Facilities.
    310. While Nevada Power agrees that solar and wind projects present 
less risk than does a traditional gas-fired generator, it opposes 
insurance requirements that differ by fuel type. The market already 
recognizes these reduced risks by charging proportionately less for 
some types of insurance than others. NRECA also opposes distinguishing 
between different fuel types, arguing that this is only one of many 
factors that determine a project's risk.
    311. In contrast, Tangibl supports basing the required amount of 
insurance on the type of generator being interconnected. It argues that 
the risks posed by Small Generating Facilities are largely 
environmental, such as fuel

[[Page 34217]]

spills. Tangibl also argues that Small Generating Facilities pose less 
risk than do large generators because the former need smaller amounts 
of fuel to be stored on site. This risk is even less for renewable 
sources such as wind or solar.
    312. Nevada Power says that knowing how much insurance is going to 
be required at the outset of the project is important to its success.
    313. While AEP supports including standard insurance terms in this 
Final Rule, the Parties should be able to negotiate additional terms if 
warranted by the physical characteristics of the project. NRECA argues 
for permitting the Transmission Provider to determine the necessary 
level of insurance on a case-by-case basis.
    314. Cinergy also argues for increased flexibility. It would let 
the Transmission Provider reduce or eliminate the required insurance 
provisions on a case-by-case basis if it believes in good faith that 
the full amount of insurance is not required to safeguard its 
interests. Cinergy also argues that this Final Rule should provide a 
mechanism for dealing with insurance requirements that simply do not 
apply to a given generator, such as requiring workers' compensation 
insurance for a generator that does not have any on-site employees.
    315. National Grid proposes that the Commission not set required 
levels of insurance, and instead leave it to the Transmission Provider 
and state law. It points out that several states have, or are in the 
process of developing, specific insurance requirements for Small 
Generating Facilities. The Commission should not second-guess the 
attempt of various states to encourage on-site Small Generating 
Facilities. Specifically, National Grid points to a proposal developed 
by a working group of the Massachusetts Public Utilities Commission 
that proposes varying levels of insurance depending on the capacity of 
the project.\97\
---------------------------------------------------------------------------

    \97\ The proposal requires no insurance for projects smaller 
than 10 kW; $500,000 for projects between 10 kW and 100 kW ($500,000 
aggregate); $1 million for projects between 100 kW and 1 MW ($1 
million aggregate); $2 million for projects larger than 1 MW and no 
larger than 5 MW ($5 million aggregate); and $5 million for projects 
larger than 5 MW ($5 million aggregate). See National Grid Comments, 
Appendix A (citing Tariff to Accompany Proposed Uniform Standards 
for Interconnecting Distributed Generation in Massachusetts, 
Submitted by the Distributed Generation Interconnection 
Collaborative to the Massachusetts Department of Telecommunications 
and Energy in Compliance with DTE Order No. 02-38-A (May 15, 2003)).
---------------------------------------------------------------------------

    316. NYTO makes a similar request, arguing that the Transmission 
Provider should be allowed to fill in specific insurance amounts based 
on state law, established local practice or, absent those, its own 
business judgment.
    317. Avista states that the Parties should be allowed to negotiate 
alternative mechanisms such as self-insurance. It argues that even a 
Transmission Provider facing financial difficulty can always raise 
rates to cover any potential liability. Southern Company also proposes 
revisions to clarify the meaning of this article.
    318. NRECA, while it supports the Commission's insurance proposal, 
opposes making the provision bilateral. It argues that the Transmission 
Provider's operation of its electric system does not create any greater 
risk to the Interconnection Customer than to any other customer. The 
interconnection of the Small Generating Facility, on the other hand, 
increases the risks to the Transmission Provider. Furthermore, 
according to NRECA, most Transmission Providers are already required to 
either self-insure or otherwise carry insurance sufficient to cover any 
liability that may arise from operation of their electric systems, so 
requiring further insurance is duplicative.
    319. Empire District supports requiring the Transmission Provider 
to be named as an additional insured for generators larger than 5 or 10 
kW, while Avista opposes such a size-related requirement.
    320. Avista notes that workers' compensation requirements vary 
significantly by state. It argues that the Commission should not 
attempt to federally preempt these long-standing practices. According 
to Avista and Nevada Power, the interconnection agreement should simply 
require compliance by each Party with the applicable state workers' 
compensation laws.
    321. Cinergy states that while insurance may be a significant 
barrier to entry for some Interconnection Customers, the Commission 
should heed the insurance market's independent assessment of the risk 
of a particular project. Fundamental economic principles require 
Interconnection Customers to bear the costs of the risks they impose on 
third parties, and there is no sound basis for the Commission to shift 
that cost to the Transmission Provider and its customers. Nevada Power 
and NRECA make similar arguments. NRECA also argues that if 
Interconnection Customers do not have insurance, insurance companies 
will be forced to raise the cost of insurance for Transmission 
Providers, and that in turn will be paid by all users of the 
Transmission System.
    322. Small Generator Coalition, like most commenters representing 
Small Generating Facilities, argues that purchasing insurance is a 
business decision and that the level and nature of the insurance should 
be established by each business according to its needs, not mandated by 
the federal government. It argues that requiring insurance would create 
a major barrier to small generator interconnections and would prevent 
utility customers (as opposed to commercial generation projects) from 
pursuing interconnection because the administrative and financial 
barriers to entry would simply be too great. It asserts that the 
insurance requirements for a small wind turbine should be less than for 
a nuclear power plant or other large generator. Small Generator 
Coalition is particularly vehement in its opposition to insurance 
requirements for projects under 2 MW in size. Overall, Small Generator 
Coalition supports NARUC's comments and asks the Commission to use the 
NARUC Model in lieu of the Proposed SGIA.
    323. Small Generator Coalition states that if the Commission does 
include insurance requirements in its Final Rule, it should exempt 
facilities no larger than 2 MW and require only $1 million in general 
liability insurance for projects 2 MW or larger.
    324. In general, Transmission Providers support requiring an 
insurance regime with larger policy limits and a broad array of 
coverage. Interconnection Customers and NARUC generally support 
requiring smaller amounts of insurance or none at all. Southern Company 
proposes revisions to Proposed SGIA article 6.16.11 to clarify the 
conditions under which one Party must notify the other of accidents and 
injuries arising out of the interconnection agreement.
    325. Central Maine proposes requiring the following policies: $1 
million in employer's liability and workers' compensation insurance; $1 
million in Commercial General Liability Insurance (with a $2 million 
aggregate combined limit); comprehensive automobile liability insurance 
of $1 million (with a $2 million aggregate combined limit); and an 
additional $1 million in excess public liability insurance (with a $5 
million aggregate cap).
    326. Nevada Power proposes requiring $1 million in general 
liability coverage from projects greater than or equal to 200 kW and 
$500,000 if the project is no larger than 200 kW. It also proposes 
requiring excess public liability insurance of $10 million if the 
facility is greater than or equal to 10 MW in size ($10 million 
aggregate); $5

[[Page 34218]]

million for projects between 5 and 10 MW ($5 million aggregate); $2 
million for projects between 200 kW and 5 MW ($2 million aggregate); 
and none for projects less than 200 kW.
    327. Southern Company is in favor of requiring a flat level of 
coverage for all Small Generating Facilities, regardless of size, and 
proposes requiring $1 million workers' compensation insurance ($1 
million aggregate); $2 million general liability insurance ($6 million 
aggregate); $2 million comprehensive automobile liability insurance; 
and $10 million excess public liability insurance ($10 million 
aggregate).
    328. Tangibl proposes differing levels of insurance requirements 
based on both size and type of the generator. For solar or wind 
generators, Tangibl proposes requiring $2 million in insurance for 
facilities larger than 10 MW; non-solar or wind facilities larger than 
10 MW would maintain $4 million. However, for facilities no larger than 
10MW, Tangibl proposes $500,000 in workers' compensation insurance; $1 
million Commercial General Liability Insurance ($2 million aggregate); 
$1 million comprehensive automobile insurance ($1 million aggregate); 
and $5 million excess public liability insurance ($5 million 
aggregate).
    329. SoCal Edison urges the Commission to adopt the same insurance 
requirements that the California Public Utilities Commission (CPUC) 
requires, asserting that California's extensive experience with small 
generators should serve as a model for the Commission. Specifically, 
California's Rule 21 requires general liability coverage in the amount 
of $2 million for projects larger than 100 kW; $1 million for projects 
larger than 20 kW and no larger than 100 kW; and $500,000 for projects 
no larger than 20 kW. Rule 21 also creates a special reduced insurance 
requirement of $200,000 for facilities no larger than 10 kW associated 
with a retail customer. Rule 21 exempts some classes of solar and wind 
generators from its insurance requirements entirely, and provides for 
waiver of the insurance requirements for some small residential 
interconnections if insurance is not easily obtainable.
    330. In its supplemental comments, Joint Commenters propose 
requiring the Interconnection Customer to maintain insurance in an 
amount ``sufficient to insure against all reasonably foreseeable direct 
liabilities given the size and nature of the generating equipment being 
interconnected, the interconnection itself, and the characteristics of 
the system to which the interconnection is made.'' It also specifies 
that the provision shall not require the Interconnection Customer to 
obtain additional insurance if the insurance it already has is 
sufficient. The Interconnection Customer is required to document its 
insurance coverage no later than ten days before the anticipated 
commercial operation date of the Small Generating Facility, and 
afterwards as requested by the Transmission Provider. The proposed 
provision also allows the Interconnection Customer to self insure when 
appropriate and requires the Transmission Provider to maintain 
insurance ``consistent with the Transmission Provider's commercial 
practice.'' While Joint Commenters were able to reach consensus on the 
insurance requirement for most Small Generating Facilities, they were 
not able to reach consensus on the issue of insurance requirements for 
inverter-based generators no larger than 10 kW.
Commission Conclusion
    331. The wide range of insurance recommendations points out the 
difficulties in establishing a set dollar amount or type of insurance 
appropriate to every Small Generating Facility. Insurance can add 
significant costs to a Small Generating Facility and may affect the 
project's economic feasibility. Nevertheless, a mismanaged 
interconnection can harm the Transmission Provider's electric system 
and affect power customers, potentially subjecting the Parties to 
liability.
    332. We adopt in its entirety Joint Commenters' proposal, which 
reflects appropriate compromises regarding this diversity of insurance 
needs. We are pleased that such a diverse group of stakeholders could 
reach consensus on this difficult issue.
    333. The level of risk in interconnecting a 50 kW photovoltaic 
system with the Transmission Provider's Transmission System is very 
different from the risk involved in interconnecting a 10 MW generator. 
Mandating that the Interconnection Customer maintain a reasonable 
amount of insurance based on the specific characteristics of its 
interconnection avoids the one-size-misfits-all problem and addresses 
the differing needs of different Interconnection Customers and 
Transmission Providers.
    334. Joint Commenters, however, could not reach consensus on any 
insurance provision for certified inverter-based generators no larger 
than 10 kW. Commenters have convinced us that the risk of 
interconnecting these small inverter-based generators is low and we 
therefore decline to impose a generic insurance requirement in this 
Final Rule.\98\ Instead, we adopt the approach proposed by NARUC which 
is that each Party be required to ``follow all applicable insurance 
requirements imposed by the state in which the Point of Interconnection 
is located. All insurance policies must be maintained with insurers 
authorized to do business in that state.'' Given that most generators 
of this size and type will be interconnecting with state-jurisdictional 
facilities, it makes sense to coordinate our approach with the approach 
recommended by NARUC. This will also avoid forum shopping. This is also 
similar to the approach adopted in Order No. 2003-A, which deferred to 
state insurance laws rather than imposing specific dollar amounts for 
these types of insurance.\99\
---------------------------------------------------------------------------

    \98\ See, e.g., Cinergy, Empire District, ISO New England, 
NRECA, NYPSC, PG&E, and Small Generator Coalition. But see, e.g., 
AEP, Central Maine, EEI, NYTO, and Southern Company.
    \99\ See Order No. 2003-A at P 462.
---------------------------------------------------------------------------

    335. However, because any uninsured risk will fall squarely on the 
Transmission Provider's customers, who would effectively subsidize the 
costs of the interconnection, we reject proposals that we completely 
waive insurance requirement. Several commenters also advise the 
Commission to leave the issue of insurance to state regulators. While 
this makes sense for small inverter-based generators, for larger Small 
Generating Facilities, having insurance requirements vary by state 
would hamper our effort to promulgate national small generator 
interconnection standards.
    336. Cinergy asks that the Transmission Provider be allowed to 
waive or reduce insurance requirements for a given project if it 
concludes that it poses little risk to its electric system. The 
provision proposed by Joint Commenters would allow this type of 
flexibility. If the Parties agree that the interconnection is safe, 
then they can agree that insurance is not necessary. However, 
Transmission Providers must waive or reduce the insurance requirements 
on a non-discriminatory basis that does not favor affiliated 
facilities.
    337. We also clarify that an RTO or ISO may propose additional or 
different insurance requirements under the independent entity variation 
provision contained in this Final Rule.
    338. Reservation of Rights (Proposed SGIA Article 6.20)--Some 
commenters pointed out that Proposed SGIA article 6.20 contained a 
typographical error, which we are correcting.
    339. Signatures and Parties to the SGIA (Proposed SGIA Article 9)--

[[Page 34219]]

Proposed SGIA article 9 required both the Transmission Provider and the 
Transmission Owner to sign the interconnection agreement. This is the 
same approach taken in Order No. 2003.\100\ In an RTO or ISO where the 
Transmission Provider is not the Transmission Owner, the RTO's or ISO's 
compliance filing may propose a modified interconnection agreement that 
provides the Transmission Provider and Transmission Owner different 
rights and obligations.
---------------------------------------------------------------------------

    \100\ Order No. 2003 at P 909.
---------------------------------------------------------------------------

Comments
    340. ISO New England supports the approach taken in Order No. 2003, 
allowing Transmission Owners and Transmission Providers to propose a 
modified interconnection agreement when the Transmission Provider is an 
entity distinct from the Transmission Owner. It contends that this 
approach is necessary if the Commission wishes to establish a single 
interconnection agreement for a region encompassed by an RTO or ISO.
    341. NYISO argues that the SGIA should assign certain basic 
responsibilities to either the Transmission Owner or Transmission 
Provider.
    342. Midwest ISO asserts that it is the RTO's role as an 
independent entity ``to ferret out unnecessary studies or inappropriate 
contingencies.''\101\ However, it argues that the ``NOPR's failure to 
fully distinguish between a transmission provider and transmission 
owner belies the independence of the RTO,'' \102\ and both it and other 
commenters \103\ request clarification of the respective roles of the 
RTO and the Transmission Owner.
---------------------------------------------------------------------------

    \101\ Midwest ISO at 6.
    \102\ Id.
    \103\ E.g., NYTO and PG&E.
---------------------------------------------------------------------------

    343. National Grid argues that defining ``Transmission Provider'' 
to include both the Transmission Provider and the Transmission Owner 
confuses the issue and adds ambiguity into the interconnection process. 
The Commission should clearly define the role of each Party. National 
Grid also notes that the Small Generator Interconnection NOPR did not 
account for the role of stand-alone distribution companies.
    344. Central Maine asks the Commission to clarify that the 
Transmission Owner (or distribution company, where applicable) must 
sign the interconnection agreement and to clarify whether the 
Transmission Provider needs to be a Party to the agreement. It asserts 
that the division of functions between the Transmission Owner and the 
Transmission Provider varies by region and depends on the role that the 
RTO or ISO plays in the region. A request for interconnection with a 
Distribution System may require that a distribution company be a Party 
to the interconnection agreement, in lieu of a Transmission Owner or 
Transmission Provider. Central Maine concludes that the standard 
interconnection agreement resulting from this proceeding must 
ultimately be a contract between the Interconnection Customer and the 
entity that owns the Transmission System (i.e., the Transmission Owner 
or the distribution company).
    345. In RTO or ISO regions, if the Commission determines that the 
Transmission Provider must also sign the interconnection agreement, 
Central Maine asks the Commission to clarify that, under section 205 of 
the FPA, the Transmission Owner has the right to file the agreement, 
consistent with Atlantic City Electric Co., et al. v. FERC, 329 F.3d 
856, 858-59 (D.C. Cir. 2003) (explaining that while an ISO may have 
certain FPA section 205 rights, the individual utility also has FPA 
section 205 rights). Central Maine also says that the Transmission 
Owner, not the Transmission Provider, has the right to file executed or 
unexecuted interconnection agreements.
    346. In lieu of requiring the signatures of both the Transmission 
Owner and the Transmission Provider, EEI contends that the Commission 
should require the signature only of the Transmission Owner. 
Additionally, the Commission should encourage ISOs and RTOs with 
operational roles that cause this distinction to clearly delineate the 
rights and responsibilities in their operations agreements and 
protocols. The interconnection agreement can specifically refer to the 
OATT already approved by the Commission, thereby eliminating the need 
to have both a separate agreement between the Transmission Provider and 
the Interconnection Customer and a three-party agreement.
    347. PG&E argues that RTOs and ISOs do not need to become Parties 
to interconnection agreements for distribution level projects because 
such entities only operate transmission systems. These entities have 
very little interest in the smallest projects interconnected with 
Distribution Systems and therefore, should not be the ones to receive 
Interconnection Requests or maintain the queue for distribution level 
interconnections. The Commission should designate the distribution 
provider to fulfill these roles.
    348. NYTO asserts that since an independent RTO or ISO has no right 
to bind a Transmission Owner, the RTO or ISO should not sign the 
interconnection agreement.
Commission Conclusion
    349. As in Order No. 2003, we are requiring three-party agreements 
in areas where the Transmission Provider and Transmission Operator are 
different entities.\104\ In other regions of the country where the 
Transmission Provider and the Transmission Owner are the same entity, 
there is no need for a second signature block.\105\
---------------------------------------------------------------------------

    \104\ Order No. 2003 at P 909.
    \105\ We note that whether a public utility characterizes itself 
as a ``transmission'' provider or a ``distribution'' provider does 
not matter, since the Transmission Provider is defined to be the 
``public utility * * * that owns, controls, or operates transmission 
or distribution facilities used for the transmission of electricity 
in interstate commerce and provides transmission service under the 
Tariff.''
---------------------------------------------------------------------------

    350. Given that RTOs and ISOs have distinct characteristics and 
challenges, we have permitted each RTO or ISO to propose, on 
compliance, an interconnection procedures document and agreement 
tailored to its individual needs.\106\ Such proposals should allocate 
to each entity the appropriate rights and obligations. As the Order No. 
2003 compliance process demonstrated, the Transmission Provider and 
Transmission Owner are capable of dividing responsibility among 
themselves.
---------------------------------------------------------------------------

    \106\ Order No. 2003 at P 909.
---------------------------------------------------------------------------

    351. Finally, Central Maine asks the Commission to specify that, 
under section 205 of the FPA, the Transmission Owner, not the 
Transmission Provider, must file the interconnection agreement. This is 
an issue better resolved on a case-by-case basis through the compliance 
process. It would be premature to conclude that in all circumstances 
the Transmission Owner, and not the Transmission Provider, has the 
right to file the interconnection agreement.
    352. Liability--In the Proposed SGIA, the Commission proposed 
including provisions in the SGIA governing the apportionment of 
liability between the Parties. These provisions (indemnity, 
consequential damages, and Force Majeure) were similar to the 
provisions in the LGIA. The Commission requested comments on whether 
Small Generating Facilities should be treated differently from Large 
Generating Facilities with respect to liability. We discuss our general 
approach to the liability provisions first, followed by a more detailed 
discussion of each provision.

[[Page 34220]]

General Approach
Comments
    353. In general, Transmission Providers support liability 
provisions similar to those in the LGIA, arguing that interconnecting a 
Small Generating Facility raises as many safety and reliability issues 
as interconnecting a Large Generating Facility.\107\
---------------------------------------------------------------------------

    \107\ For instance, AEP, BPA, EEI, and Nevada Power argue that 
the LGIA and the SGIA should be consistent. Nevada Power argues that 
such provisions would not discourage well-run generators from 
interconnecting with the Transmission Provider.
---------------------------------------------------------------------------

    354. Small Generator Coalition and NARUC generally argue that these 
provisions should be tailored specifically to Small Generating 
Facilities, arguing that the Proposed SGIA was simply too complicated 
for many Small Generating Facilities. They first argue that a Small 
Generating Facility poses less danger to the Transmission Provider's 
electric system than a Large Generating Facility. Second, they argue 
that imposing liability provisions similar to those in the LGIA on 
Small Generating Facilities would be a major financial barrier to entry 
and deter the development of new Small Generating Facilities. Third, 
they point out that the Transmission Provider has an incentive to 
include onerous liability provisions in the SGIA to deter competition.
    355. ISO New England similarly argues that Small Generating 
Facilities do not present the same risks as do Large Generating 
Facilities. It asks the Commission to permit independent entities to 
determine, on a case-by-case basis, whether to waive or relax the 
liability provisions for individual generators.
    356. Avista asks the Commission to follow Midwest Independent 
System Operator, Inc., et al., 100 FERC ] 61,144 (2002), which allows 
the Parties to propose customized liability limitations. It argues that 
the August 14, 2003 Northeast Blackout is evidence of the need for a 
comprehensive look at liability limitations. Avista argues that the 
interconnection agreement should have a savings clause to let an RTO 
conform the liability and dispute resolution provisions (and possibly 
others) to the standards and procedures being implemented by the RTO. 
Otherwise, the Commission's rule could unnecessarily grandfather 
inconsistent provisions.\108\ For example, the Agreement Limiting 
Liability Among Western Interconnected Systems (``WIS Agreement'') 
\109\ should continue to be an option for generators and utilities. 
Avista argues that the SGIA should have a savings clause for the WIS 
Agreement.
---------------------------------------------------------------------------

    \108\ Avista at 18.
    \109\ ``The WIS Agreement * * * is a multi-lateral agreement 
among parties in the Pacific Northwest that operates to limit 
liability among the signatories.'' Id.
---------------------------------------------------------------------------

Commission Conclusion
    357. Many commenters, including NARUC and independent entities like 
ISO New England, agree that the Commission should modify the proposed 
liability provisions for Small Generating Facilities in this Final 
Rule. We agree that the provisions can generally be simplified without 
increasing the liability of any Party. The liability provisions adopted 
here use many of the proposals made by NARUC and other commenters. They 
address the Transmission Provider's need to protect its electric system 
while removing unreasonable barriers to entry for Interconnection 
Customers.
    358. We agree with ISO New England that an independent Transmission 
Provider (via the independent entity variation standard) may propose on 
compliance to evaluate each Interconnection Request on a case-by-case 
basis and fashion liability requirements that are suitable to that 
particular entity.
    359. We deny Avista's request for caps on the amount of liability 
the Transmission Provider may be subject to, or that we allow it to 
develop its own liability rules.\110\ The liability rules discussed in 
the interconnection context are distinct from the liability rules in 
the rest of the OATT.\111\ In the interconnection context, the 
indemnity provision is two-sided (or three-sided, in the case of an 
independent Transmission Provider). This means that the indemnity 
provisions found in the SGIA are very different than the indemnity 
provisions found in the OATT. Many of Avista's comments have more to do 
with the liability provisions found in the transmission portions of the 
OATT than they do with interconnection. While we agree that liability 
protection is important, this rulemaking is not the place to decide 
such an issue. We also deny Avista's request to insert a savings clause 
into the liability provision. Avista has not explained how the 
Transmission Provider's participation in the WIS Agreement would be 
affected by this Final Rule. If Avista wishes, it may seek to include 
such a provision on compliance under the ``consistent with or superior 
to'' standard.
---------------------------------------------------------------------------

    \110\ In Puget Sound Energy, Inc., 107 FERC ] 61,287 (2004), the 
Commission denied a request by Puget Sound to include the WIS 
Agreement in its tariff because Puget Sound did not explain why such 
inclusion was ``consistent with or superior to'' the pro forma OATT. 
However, the Commission did not foreclose the possibility that a WIS 
Agreement member may be able to make such a showing in a future 
compliance filing.
    \111\ Order No. 2003 at P 636 (``Commenters have convinced us 
that interconnection presents a greater risk of liability than 
exists for the provision of transmission service and that, therfore, 
the OATT indemnity provision is not suitable in the interconnection 
context.'')
---------------------------------------------------------------------------

Consequential Damages (Proposed SGIA Article 6.19)
    360. Proposed SGIA article 6.19 used the LGIA consequential damages 
provision, which states that neither Party is liable to the other for 
special or consequential damages except as expressly provided for in 
the interconnection agreement.
Comments
    361. Central Iowa Coop is concerned that the phrase ``[o]ther than 
as expressly provided for in this agreement'' could make the Parties 
subject to consequential damages when read in conjunction with the 
indemnification provision in Proposed SGIA article 6.13. It asks the 
Commission to clarify that the bar against consequential damages 
applies in all circumstances, except when the Parties have reached an 
express agreement to the contrary.
    362. Central Maine asks the Commission to clarify that indemnity 
payments to a third party are not consequential damages.
    363. NARUC proposes that the Commission adopt its Model language, 
which is less complicated than the proposed provision. Specifically, 
NARUC proposes replacing Proposed SGIA article 6.19 with a generic 
statement at the beginning of the liability article:

    Each Party's liability to the other Party for any loss, cost, 
claim, injury, liability, or expense, including reasonable 
attorney's fees, relating to or arising from any act or omission in 
its performance of this agreement, shall be limited to the amount of 
direct damage actually incurred. In no event shall either Party be 
liable to the other Party for any indirect, special, consequential, 
or punitive damages of any kind whatsoever.
Commission Conclusion
    364. We retain the provision as proposed. This is a contractual 
term and no commenter has convinced us that it is necessary to deviate 
from the approach taken in Order No. 2003.
    365. Several commenters appear to have misunderstood the 
relationship between the indemnity and consequential damages provisions 
in the Proposed SGIA. The bar against

[[Page 34221]]

consequential damages does not apply in the indemnity context. Instead, 
the indemnification of one Party by another is comprehensive, and the 
indemnifying Party is responsible for all of the indemnified Party's 
costs, regardless of whether those costs are compensatory or punitive. 
While the consequential damages provision adopted in this Final Rule 
prevents one Party from seeking consequential damages against another 
Party, the purpose of the indemnification provision is different; it 
protects the indemnified Party from liability to third parties (those 
who are not Parties to the interconnection agreement). Requiring the 
indemnifying Party to reimburse the indemnified Party for, say, only 
compensatory damages and not punitive damages would not make the 
indemnified Party whole. We are adding language to the beginning of the 
indemnity section to make this clear.
Indemnity (Proposed SGIA Article 6.13)
    366. Indemnification is compensating another for a loss suffered 
due to a third party's act or default.\112\ The Proposed SGIA contained 
indemnity provisions similar to those contained in the LGIA. The 
proposal would require the Transmission Provider and the 
Interconnection Customer to indemnify each other for any damages, 
losses, claims, and obligations by or to third parties arising from 
performance of the Transmission Provider's or Interconnection 
Customer's obligations under the interconnection agreement on behalf of 
the other contracting party. Indemnity protection would include the 
amount of the indemnified Party's loss, net of any insurance recovery, 
but would not apply where there is gross negligence or intentional 
wrongdoing. The proposed provision also set forth detailed procedures 
for pursuing an indemnity claim and allowed recovery of legal costs in 
some cases.
---------------------------------------------------------------------------

    \112\ Black's Law Dictionary 772 (7th ed. 1999).
---------------------------------------------------------------------------

Comments
    367. AEP, BPA, Idaho Power, and Nevada Power generally agree that 
Small and Large Generating Facilities should be treated consistently 
with respect to indemnity protections.
    368. Central Iowa Coop, Georgia Transmission, and NYTO request that 
the Commission replace the mutual indemnity provision with a one-way 
indemnity provision in favor of the Transmission Provider. They argue 
that the Transmission Provider receives no benefit from an 
interconnection, but does face additional safety, reliability, and 
power quality concerns as a result of it. To require the Transmission 
Provider to indemnify the Interconnection Customer unfairly shifts the 
costs and risks to the Transmission Provider's other customers.
    369. Central Maine contends that Proposed SGIA article 6.13 should 
not exclude ``insurance or other recovery'' from amounts owed to an 
indemnified party. It argues that this is commercially unreasonable and 
undermines the very intent of the indemnity provision.
    370. ISO New England argues that applying the liability provisions 
contained in the LGIA to Small Generating Facilities is unreasonable 
because the risks associated with interconnecting the latter are not 
comparable to those associated with interconnecting Large Generating 
Facilities. The Commission should permit independent entities such as 
RTOs and ISOs to determine, on a case-by-case basis, whether a waiver 
or relaxation of the indemnity provisions used for Large Generating 
Facilities should be permitted based on the actual risk the Small 
Generating Facility presents. Permitting this type of flexibility would 
minimize the cost of interconnection and ensure adequate protection for 
the Transmission Provider.
    371. Southern Company argues that the proposed indemnity provision 
is not workable. The provision requires each Party to indemnify the 
other for damages arising out of such other Party's ``performance of 
obligations under this Agreement on behalf of the indemnifying Party.'' 
\113\ It argues that it is unclear whether the indemnity provision 
would ever apply because the Parties do not perform obligations on 
behalf of each other at all. It proposes that each Party indemnify the 
other from any liabilities or damages resulting from activities on the 
indemnifying Party's own side of the point of change of ownership. 
Additionally, each Party should indemnify the other for the 
indemnifying Party's failure to adhere to operating requirements and 
for breaches of the interconnection agreement. Southern Company also 
takes issue with the provision's limitation of expenses paid for the 
legal defense of an indemnified Party. If an indemnified Party has 
additional legal defenses, the proposed article requires the 
indemnifying Party to pay for only one attorney.\114\ Southern Company 
requests that the Commission revise the provision to require the 
payment of the indemnified party's reasonable legal expenses.
---------------------------------------------------------------------------

    \113\ Southern Company at 34.
    \114\ See Proposed SGIA article 6.13.
---------------------------------------------------------------------------

    372. In its Model interconnection agreement, NARUC proposes a 
different approach to indemnity. There, the Transmission Provider and 
the Interconnection Customer would assume liability and indemnify each 
other for claims and expenses resulting from their own negligence as it 
relates to the design, construction, and operation of their facilities. 
A Party indemnifies the other only for claims brought by claimants who 
could directly recover from the Party itself. Indemnity for both 
Parties includes monetary losses, reasonable legal fees for defending a 
third party action, damages related to the death/injury of a third 
party, damages to the Party's property or property of a third party, 
and damages for disruption of a third party's business. Neither the 
Transmission Provider nor the Interconnection Customer assumes 
liability for consequential, special, incidental, or punitive damages, 
and neither is responsible for disruption of the other's business or 
for the costs and expenses of pursuing legal action against the other.
Commission Conclusion
    373. We are adopting a streamlined indemnity provision in this 
Final Rule.
    374. Several commenters appear to have misunderstood the relation 
between the proposed indemnity provision and the bar against 
consequential damages provision (now called Limitation of Liability). 
We are therefore including in the SGIA an explanation that claims under 
the indemnity provision are exempt from the bar against consequential 
damages contained in the Limitation of Liability provision.
    375. Many of the comments addressing indemnity are identical to 
those addressed in Order No. 2003 and do not argue that Small 
Generating Facilities should be treated differently from Large 
Generating Facilities. We will not repeat the discussion in those 
orders. For instance, the Commission addressed comments about the 
bilateral nature of the provision in Order No. 2003 at P 637, and 
comments on which side of the Point of Interconnection work is 
conducted in Order No. 2003 at P 638.
    376. Because the purpose of indemnification is to pay another for 
actual losses, the exclusion of ``insurance or other recovery'' from 
amounts owed to an indemnified Party does not undermine the intent of 
this provision, as Central Maine argues. Forcing an indemnifying Party 
to pay

[[Page 34222]]

damages already covered under an insurance policy would allow the 
indemnified Party to profit at the expense of the indemnifying Party. 
Excluding insurance and other recoverable amounts avoids 
overcompensating an indemnified Party.
    377. In response to Southern Company's request that the provision 
cover an indemnifying Party's failure to meet operating requirements or 
its breach of the SGIA, we note that it covers damages from actions or 
inactions under the interconnection agreement. However, in response to 
Southern Company's comments, we are modifying the provision to add: 
``arising out of or resulting from the other Party's actions or failure 
to meet its obligations under this SGIA.''
Force Majeure (Proposed SGIA Article 6.14)
    378. Proposed SGIA article 6.14 provided that no Party is 
considered to be in default with respect to contractual obligations, 
other than payment of money due, if it is prevented from fulfilling 
such obligations by a Force Majeure event. The affected Party is to 
exercise due diligence to remove the disability and provide adequate 
notice to the other Party. These provisions are consistent with those 
in the LGIA. The Commission requested comments concerning whether a 
different approach should be taken for Small Generating Facilities.
Comments
    379. AEP, BPA, Idaho Power, and Nevada Power generally agree that 
all generating facilities should be treated the same with respect to 
Force Majeure. AEP argues that because Force Majeure can happen for 
either type of interconnection, there is no reason that the contractual 
protection should differ according to generator size. Nevada Power 
contends that consistent treatment does not interfere with having a 
simplified and expedited interconnection process for Small Generating 
Facilities.
    380. While NARUC's Model and the Proposed SGIA included similar 
Force Majeure clauses, NARUC recommends that the Commission remove the 
statement that economic hardship is not considered a Force Majeure 
Event. It also proposes that the Commission require that an affected 
Party use ``reasonable efforts'' instead of ``due diligence'' to resume 
its performance as soon as possible. Additionally, NARUC proposes 
changing the definition of Force Majeure to include events that ``the 
affected Party is unable to prevent or provide against by exercising 
reasonable diligence.'' \115\
---------------------------------------------------------------------------

    \115\ NARUC Model--Definitions.
---------------------------------------------------------------------------

Commission Conclusion
    381. We agree with NARUC that some modification to the Proposed 
SGIA is needed and we are adopting a Force Majeure clause that melds 
the best aspects of NARUC's and the Commission's proposals. For 
instance, this Final Rule provision allows the Party asserting the 
Force Majeure Event to call or write to the other Party to make the 
required notification. Easy notification ensures that both Parties know 
of a Force Majeure Event as soon as possible.
    382. We are not adopting all of NARUC's proposals, however. The 
NARUC Model would not allow a Party to invoke Force Majeure if it could 
have prevented the event through the exercise of ``reasonable 
diligence.'' Our SGIA uses the terms ``negligence'' and ``intentional 
wrongdoing,'' which are commonly accepted legal terms.
    383. Finally, we are moving the definition of Force Majeure Event 
to the body of the SGIA from an appendix.
    384. Reactive Power--The Proposed SGIA did not include a separate 
provision for reactive power; however, the LGIA does.
Comments
    385. CA ISO and Southern Company ask the Commission to include a 
provision for reactive power in the interconnection agreement. CA ISO 
argues that this provision is essential for the reliability of the 
Western Interconnection because the entire region is afflicted by 
voltage instability. A Small Generating Facility interconnecting at the 
transmission level should meet the reactive power requirements of the 
CA ISO tariff and abide by reactive power dispatch instructions from 
the control area operator. Moreover, a Small Generating Facility 
interconnecting at the ``distribution'' level should meet reactive 
power requirements specified in the Wholesale Distribution Access 
Tariff and abide by any reactive power dispatch instructions from the 
Distribution System operator.
    386. Southern Company notes that the LGIA has a reactive power 
provision and argues that one should be included in the SGIA as well. 
Otherwise, a Small Generating Facility could become a burden on the 
Transmission Provider's electric system. The Transmission Provider 
should be provided real-time information on the status and output of 
each generator to ensure safe and reliable operation.
Commission Conclusion
    387. We are requiring the Interconnection Customer's Small 
Generating Facility to maintain a power factor within the range of 0.95 
leading to 0.95 lagging, unless the Transmission Provider establishes 
and the Commission approves different requirements that apply to all 
similarly situated generators. There is no reactive power requirement 
for wind powered Small Generating Facilities.
    388. Generator Balancing Requirements--The Proposed SGIA did not 
include a separate generator balancing provision.
Comment
    389. Southern Company argues that the SGIA should include 
provisions for generator balancing service, and presents several 
arguments in support of its position.
Commission Conclusion
    390. In Order No. 2003-A, the Commission determined that generator 
balancing service is more closely related to delivery service than to 
interconnection service, and because delivery service requirements are 
addressed elsewhere in the OATT, the balancing service requirement need 
not appear in the interconnection agreement. On rehearing, the 
Commission in Order No. 2003-B did not add a generator balancing 
service provision to the LGIA, but it did permit the Transmission 
Provider to include a provision for generator balancing service in 
individual interconnection agreements. We reach the same conclusion 
here.\116\ Any such provision should be tailored to the Parties' 
specific circumstances and is subject to Commission approval.
---------------------------------------------------------------------------

    \116\ Order No. 2003-B at P 72-75.
---------------------------------------------------------------------------

    391. Appendices to the SGIA--The Proposed SGIA included five 
appendices (called attachments in the Final Rule SGIA) that set forth 
technical and operating information, including: (1) A description and 
statement of the costs of the Small Generating Facility, 
Interconnection Facilities, and metering equipment; (2) a one-line 
diagram depicting the Small Generating Facility, Interconnection 
Facilities, metering equipment and Upgrades; (3) project milestones; 
(4) additional operating requirements for the Transmission Provider's 
electric system and Affected Systems needed to support the 
Interconnection Customer's needs; and (5) the Transmission Provider's

[[Page 34223]]

description of its Network Upgrades and Distribution Upgrades and a 
best estimate of their costs.
Comments
    392. Central Maine and NYTO state that these appendices would 
require information that is not needed. They ask that the appendices 
include only: (1) Small Generating Facility description, (2) one-line 
diagram, (3) description of the Interconnection Facilities, (4) 
operation and maintenance (O&M) costs, and (5) operating procedures. 
They state that additional operating procedures may have to be 
developed with input from the Transmission Owner and the 
Interconnection Customer to ensure system integrity and reliability.
Commission Conclusion
    393. We are not persuaded that any change in the appendices is 
warranted. With the exception of O&M costs, all the items that Central 
Maine and NYTO would have us include in the appendices are already 
there. We agree with Central Maine and NYTO that additional operating 
procedures with input from both the Transmission Provider and the 
Interconnection Customer may be needed, and we encourage such efforts. 
The treatment of O&M costs is discussed in more detail in Part II.H 
below (Responsibility for Operation and Maintenance Costs).

G. The 10 kW Inverter Process

    394. In the Small Generator Interconnection NOPR, the Proposed SGIP 
included a default interconnection Study Process for Small Generating 
Facilities and a simplified procedure that used technical screens for 
certified Small Generating Facilities no larger than 2 MW. The Proposed 
SGIA, however, would be used for the interconnection of all Small 
Generating Facilities, up to and including 20 MW in size. The NOPR did 
not include a separate procedures document or interconnection agreement 
for very small generators, although some commenters urged, in comments 
submitted in response to the ANOPR, that 0-50 kW facilities (especially 
facilities that use inverters to convert the direct current output of 
the generator to alternating current) need a separate and simpler 
process than other generators.
Comments
    395. Some commenters argue that the Proposed SGIP and Proposed SGIA 
are too complicated for very small Interconnection Customers. Small 
Generator Coalition states that unless the Commission is willing to 
modify the NOPR in fundamental ways, many of its members believe that 
development of Small Generating Facilities would be better served if 
the NOPR were simply withdrawn. It claims that, under the Proposed SGIP 
and Proposed SGIA, the only method by which even a small photovoltaic 
system, say 10 kW, could interconnect with the Transmission Provider is 
to follow the same process that would apply to generators 1,000 times 
larger. It asks the Commission to ``recognize the simplicity of the 
very smallest generators and [to] include an exception for small 
inverter-based systems.'' Plug Power, also representing small generator 
interests, states that a special process should be adopted for very 
small generators because their interconnection requirements are 
fundamentally different from those of larger facilities. Moreover, 
adopting simpler requirements would foster the growth of ``plug and 
play'' equipment.
    396. NRECA, which represents a wide variety of cooperative 
utilities that interconnect with small generators, states that it has 
adopted special procedures for evaluating very small generators because 
they generally interconnect at low voltage and have different technical 
requirements from larger ones.
    397. Some state regulatory authorities already have a simplified 
process for very small generators. NJ BPU points out that it has 
adopted simplified procedures for qualified very small inverter-based 
generators. NARUC, in its updated Model, supports a simplified 
Interconnection Request (application) for very small generators.
    398. Joint Commenters submits in its supplemental comments a 
streamlined process for certified inverter-based generators no larger 
than 10 kW. This consists of a simplified Interconnection Request, 
simplified procedures, and a brief set of terms and conditions (that is 
essentially a highly simplified interconnection agreement )--all 
contained in a single document. This Joint Commenter proposal consists 
of the following steps: (1) The Interconnection Customer completes an 
abbreviated Interconnection Request and signs the terms and conditions 
when it submits its Interconnection Request to the Transmission 
Provider; (2) the Transmission Provider uses the Fast Track Process 
technical screens to evaluate the Interconnection Request; (3) if the 
proposed interconnection passes the technical screens, the Transmission 
Provider approves the application; (4) once the Interconnection 
Customer's equipment has been installed, it sends a certificate of 
completion to the Transmission Provider; and (5) the Transmission 
Provider then inspects the equipment installation and, if satisfied 
that it is safe for operation, authorizes the interconnection.
Commission Conclusion
    399. The comments demonstrate a near universal agreement of the 
need for special provisions for very small generators, a need that is 
being met at least in part by some state regulatory authorities. We 
agree with the commenters who state that the Proposed SGIP and Proposed 
SGIA are too complicated for very small generators, and we recognize 
the desire to accommodate their interconnection needs. However, a 
single document tailored for the needs of the smallest generators would 
be unsuitable for the interconnection of larger small generators; their 
technical evaluations and their legal rights and responsibilities must 
be set out in greater detail.
    400. We conclude that a balanced response to the comments is to 
issue two sets of documents--an SGIP and SGIA that serve the needs of 
most small generators, and a simplified document that meets the needs 
of very small generators.
    401. Joint Commenters' proposed process for the interconnection of 
very small generators, which enjoys broad support from a variety of 
stakeholder interests, is simple to implement while ensuring the safety 
and reliability of the Transmission Provider's electric system. 
Accordingly, we are adopting it in this Final Rule with minor 
modification under the name ``10 kW Inverter Process.'' The simplified 
10 kW Inverter Process consists of an Interconnection Request, 
simplified procedures, and a brief set of terms and conditions 
applicable to inverter-based 0-10 kW generators. It is included as 
Attachment 5 to the SGIP. This ``all-in-one'' document combines the 
attributes of both an interconnection procedures document and an 
interconnection agreement. We are including it in the SGIP because it 
is the SGIP that the Interconnection Customer will first encounter in 
the process of interconnecting its Small Generating Facility with the 
Transmission Provider. A flowchart showing the 10 kW Inverter Process 
may be found in Appendix D of this Final Rule.
    402. The 10 kW Inverter Process is user friendly and a 
straightforward interconnection should be accomplished in short order. 
To accelerate the process, by signing the application at the time of 
submission,

[[Page 34224]]

the Interconnection Customer executes what essentially is an 
interconnection agreement, in the form of standard terms and conditions 
with which it agrees. This eliminates the additional step of signing an 
interconnection agreement if the proposed interconnection passes the 
screens.
    403. The 10 kW Inverter Process, by its very name, applies only to 
equipment that is interconnected with the Transmission Provider's 
electric system through an inverter. Inverter-based equipment has a 
very small likelihood of causing safety and reliability concerns on the 
Transmission Provider's electric system because it can quickly 
disconnect from the electric system when a disturbance occurs. 
Nonetheless, while the 10 kW Inverter Process should facilitate the 
interconnection of this class of Small Generating Facilities, the 
technical requirements for interconnection are just as rigid as those 
for all Small Generating Facilities up to 2 MW in size that elect to 
use the Fast Track Process. Specifically, they must be certified by a 
Nationally Recognized Testing Laboratory and the proposed 
interconnection must pass the technical screens. Consequently, 
interconnections will not be permitted if they jeopardize the safety 
and reliability of the Transmission Provider's electric system.
    404. Although the Interconnection Customer signs an abbreviated set 
of terms and conditions when it submits its Interconnection Request 
under the 10 kW Inverter Process, it is a legal instrument nonetheless. 
Its provisions are consistent with the SGIA. Should a dispute arise, we 
encourage the Parties to use this rulemaking for assistance in 
interpreting the terms and conditions of the 10 kW Inverter Process. 
Moreover, because the intent of the terms and conditions in this 
document are the same as those of the SGIA, no separate discussion of 
them is necessary here again in this Final Rule.
    405. The 10 kW Inverter Process is quick, inexpensive, and user 
friendly. Including it in this Final Rule removes barriers to the 
development and interconnection of this class of Small Generating 
Facilities, both at the federal and state jurisdiction levels. Its 
adoption should promote standardization of interconnection rules across 
the nation. We encourage states that do not have interconnection 
procedures for very small generators to consider using this as a model 
for their own rules.

H. Other Significant Issues

    406. A number of issues, such as interconnection pricing policy, 
variations permitted for independent transmission entities, and legal 
issues such as liquidated damages, transcend individual provisions of 
the SGIP and SGIA. Accordingly, we address them below.
Pricing/Cost Recovery for Interconnection Facilities and Upgrades 
(Proposed SGIA Article 5.1)
    407. In the Small Generator Interconnection NOPR, the Commission 
proposed to retain its then existing pricing policy for the 
interconnection of a Generating Facility with a Transmission System 
that is operated by a non-independent entity. That policy, as set forth 
in Order No. 2003, was to allocate the costs of the new or upgraded 
transmission facilities based on a locational test: Whether they are at 
or beyond the Point of Interconnection. Facilities that are on the 
Small Generating Facility's side of the Point of Interconnection would 
be considered Interconnection Facilities, while those that are at or 
beyond the Point of Interconnection would be considered Network 
Upgrades. The Interconnection Customer would be directly assigned the 
costs of all Interconnection Facilities because they are sole use 
facilities. The Interconnection Customer would initially fund the 
Network Upgrades required for the interconnection unless the 
Transmission Provider chooses to pay for them itself. However, the 
Interconnection Customer would be entitled to a refund equal to the 
total amount paid to the Transmission Provider and the Affected System 
operator, if any, for Network Upgrades, including any tax-related 
payments. Order No. 2003 called for these refunds to be paid to the 
Interconnection Customer, with interest, as credits on a dollar-for-
dollar basis for the non-usage sensitive portion \117\ of transmission 
charges, as payments are made under the Transmission Provider's tariff 
and the Affected System's tariff for any transmission services taken by 
the Interconnection Customer on the respective systems, whether or not 
the Generating Facility is the source of the power being 
transmitted.\118\ Order No. 2003 permitted the Interconnection 
Customer, Transmission Provider, and Affected System operator to adopt 
any alternative payment schedule that is mutually agreeable provided 
all amounts paid by the Interconnection Customer for Network Upgrades 
are refunded, with interest, within five years of the generating 
facility's commercial operation date.\119\ The Interconnection Customer 
would be allowed to assign its refund rights to any person.
---------------------------------------------------------------------------

    \117\ Non-usage sensitive transmission charges include all 
transmission charges except those for items that vary with the 
amount of power transmitted, such as congestion charges, line 
losses, and Ancillary Services.
    \118\ In Order No. 2003-A, this policy was revised to make 
credits available only for transmission service that has the 
generating facility as the source of the power transmitted.
    \119\ The five year refund period was subsequently changed to 20 
years in Order No. 2003-B.
---------------------------------------------------------------------------

    408. Because a Small Generating Facility may interconnect with a 
Transmission Provider's Distribution System subject to an OATT in order 
to make a sale of electricity at wholesale in interstate commerce, the 
Small Generator Interconnection NOPR also addressed cost recovery for 
Distribution Upgrades at or beyond the Point of Interconnection.\120\ 
Consistent with Order No. 2003, the Commission proposed that the costs 
of Distribution Upgrades be directly assigned to the Interconnection 
Customer because Distribution Upgrades do not generally benefit all 
users.
---------------------------------------------------------------------------

    \120\ The costs of all Interconnection Facilities, whether owned 
by the Interconnection Customer or the Transmission Provider, are 
directly assigned to the Interconnection Customer.
---------------------------------------------------------------------------

    409. The Commission sought comments on whether this approach should 
also apply to Small Generating Facilities. The Commission also invited 
commenters to recount their recent experiences with interconnecting 
small generators with the ``Distribution System,'' in particular the 
process for determining whether Distribution Upgrades are necessary, 
and the cost assignment of those Upgrades.
    410. For a Transmission Provider that is an independent entity, 
such as an RTO or ISO, the Commission's policy, as adopted in Order No. 
2003, is to allow more pricing flexibility, subject to Commission 
approval. Also in Order No. 2003, we permitted a Regional State 
Committee to establish criteria that an independent entity would use to 
determine which Network Upgrades should be subject to ``participant 
funding.'' Order No. 2003 also permitted, for a period of transition to 
the start of RTO or ISO operations, not to exceed a year, participant 
funding to be used for Network Upgrades as soon as an independent 
entity has been approved by the Commission and the affected states. In 
the Small Generator Interconnection NOPR, the Commission proposed to 
adopt the same policies for Small Generating Facilities that 
interconnect with a Transmission System operated by an independent 
entity. The Commission sought comments on this approach.

[[Page 34225]]

    411. In the Small Generator Interconnection NOPR, the Commission 
also proposed certain pricing provisions that are consistent with, but 
have no direct parallel with, the Order No. 2003 pricing provisions. 
The Proposed SGIA provided that costs associated with Interconnection 
Facilities could be shared with other entities that may benefit from 
such facilities by agreement of the Interconnection Customer, such 
other entities, and the Transmission Provider. It also proposed that, 
if the Parties agree that the Small Generating Facility benefits the 
Transmission Provider's electric system, the Interconnection Customer's 
cost responsibility for the Transmission Provider's Interconnection 
Facilities or Upgrades would be reduced. The benefits would have to be 
measurable and verifiable. Where there are multiple Interconnection 
Requests and each requires Network Upgrades, Interconnection Customers 
would be assigned costs or benefits separately if effects can be 
attributed to different projects. Where such attribution is not 
possible, Interconnection Customers would share costs or benefits in 
proportion to their projected Small Generating Facility capacities.
Pricing Comments That the Commission Already Addressed in the Large 
Generator Interconnection Proceeding
Comments
    412. Several commenters object to various features of the 
Commission's current interconnection pricing policy, presenting 
arguments that the Commission has addressed in Order No. 2003. For 
example, Alabama PSC and others argue that prohibiting the direct 
assignment of the cost of Network Upgrades means that native load 
customers subsidize the cost of Network Upgrades that benefit only the 
Interconnection Customer. They argue that this may also cause the 
Interconnection Customer to make inefficient siting decisions. 
Mississippi PSC objects to the requirement that the Transmission 
Provider pay interest on unused credits and that it make a lump sum 
payment to the Interconnection Customer for credits that remain unused 
after five years. Alabama PSC argues that transmission credits should 
be provided only for Network Upgrades that provide a system benefit and 
only when the Small Generating Facility is the source of power for the 
transaction.
    413. NRECA argues that if a merchant generator has not committed to 
serve network and native load customers within the Transmission 
Provider's footprint on a long-term basis, the generator and the 
Transmission Provider's own generators are not comparable. It asserts 
that credits are appropriate only where the Small Generating Facility 
is committed to customers in the Transmission Provider's footprint.
    414. Central Maine requests clarification that transmission credits 
should be required only when the Interconnection Customer is taking and 
paying for transmission service on the Transmission System on which the 
Network Upgrade was made for the output of its facility. Central Maine 
also requests clarification that cost responsibility for Network 
Upgrades required by an Affected System is consistent with cost 
responsibility for Network Upgrades required by the Transmission Owner 
with whom an Interconnection Customer is directly interconnecting; that 
is, that transmission credits are required only when the 
Interconnection Customer takes and pays for transmission service from 
the Transmission Owner or Affected System for the output of its 
facility. It also asks that the contractual provisions concerning cost 
responsibility and payment obligations among Affected Systems and 
Interconnection Customers be in a separate agreement, not in the 
interconnection agreement.
    415. Avista, Alabama PSC, and Mississippi PSC argue that allowing 
pricing flexibility to an independent Transmission Provider such as an 
RTO or ISO is unduly discriminatory. They state that this policy 
penalizes the retail customers of the non-independent Transmission 
Provider because it forces them to bear the cost of Network Upgrades 
that benefit only the Interconnection Customer. Idaho Power argues that 
having different pricing for an independent and a non-independent 
Transmission Provider is bad public policy, arbitrary and capricious, 
and discriminatory. TAPS states that the NOPR incorrectly proposes 
participant funding for Upgrades to a Transmission System operated by 
an independent entity.
Commission Conclusion
    416. All of the comments summarized above relate to the 
Commission's general pricing policy, and each was discussed in Order 
No. 2003.\121\ We adopt here the general conclusions adopted in those 
orders. However, those orders did not address the specific question of 
whether the Commission's general interconnection pricing policy is 
suitable for Small Generating Facilities. Several commenters raise this 
question, and we address their comments below.
---------------------------------------------------------------------------

    \121\ See Order No. 2003 at P 675-750, Order No. 2003-A at P 
562-697, and Order No. 2003-B at P 15-57.
---------------------------------------------------------------------------

Applicability of the Commission's Interconnection Pricing Policy to the 
Interconnection of Small Generating Facilities
Comments
    417. Several commenters support the use of the Commission's current 
interconnection pricing policy. Western supports the Commission's 
proposal to have the Interconnection Customer initially fund 
interconnections and associated Transmission System improvements and 
states that this approach is consistent with the budgetary realities 
that Western faces. Georgia PSC agrees that Interconnection Facilities 
are sole use facilities and, accordingly, should be directly assigned 
to (paid for by) the Interconnection Customer.
    418. Nevada Power states that interconnection pricing policies must 
be consistent for both Small and Large Generating Facilities to avoid 
the possibility of pricing manipulation. It opposes credits for 
facilities that do not increase transfer capability, but states that 
the requirement that the Interconnection Customer initially fund the 
Network Upgrade costs is an important safeguard to ensure that the 
Transmission Provider and other customers do not subsidize what would 
otherwise be an uneconomic project. SoCal Edison states that the Small 
Generator Interconnection NOPR correctly mirrors the Large Generator 
Final Rule with respect to the pricing policies for Network Upgrades 
and sole use Interconnection Facilities. BPA generally supports 
consistency between pricing for Small and Large Generating Facility 
interconnections, provided the Commission clearly articulates the 
physical boundary between Interconnection Facilities and Network 
Upgrades.
    419. AEP and Midwest ISO agree that an independent Transmission 
Provider should be allowed interconnection pricing policy flexibility, 
subject to Commission approval. Midwest ISO states that few 
circumstances would warrant an approach for Small Generating Facilities 
that differs from the approach that an RTO would establish for a Large 
Generating Facility. A common approach makes good business sense, 
assures comparability and makes the interconnection process more 
effective. Also, BPA generally supports RTO pricing flexibility, 
provided it does not conflict with an

[[Page 34226]]

RTO's obligations under its governing agreements.
    420. Cummins, however, argues that the Commission should adopt 
different pricing rules for Small Generating Facilities because the 
Commission's current policy gives the Transmission Provider the 
discretion to place a huge cost burden on the Small Generating 
Facility. These costs may even exceed the installation and operating 
costs of a Small Generating Facility, completely destroying project 
economics. Cummins argues that this problem can be addressed only by 
specific performance standards (which Cummins does not describe) that 
only the Commission can establish. Also, if the Interconnection 
Customer is deemed to be the only beneficiary of the Upgrade or 
interconnection, the five year refund mechanism would be of no benefit, 
as the project would not go forward.
    421. The Small Generator Interconnection NOPR asked for specific 
examples of situations where a Transmission Provider has seemingly 
applied excessive fees for Upgrades. Cummins describes two examples 
that highlight its concerns:

    A manufacturer installed a 300 kW synchronous generator and 
cogeneration system, and provided the interconnection equipment 
specified by the [Transmission Provider]. The system was approved by 
the [Transmission Provider] and went into successful operation. When 
the owner decided to expand the facility to include a second 300 kW 
generator, they were informed that the distribution system would 
need upgrades that would cost in excess of $140,000. On further 
investigation, it was learned that the upgrades included only 
``block closing'' provisions on a recloser. This device is 
effectively a simple voltage sensing relay that would interconnect 
into the existing infrastructure at a substation. After intensive 
negotiations and investigations, the customer was able to get the 
cost reduced to under $50,000, and the project went forward. The 
$50,000 cost was still far more than the upgrade should have cost, 
but the customer was forced to pay it because the generator was key 
to the viability of the customer's business. This represented a 10% 
increase in the overall project.
    In another case, a customer installed a 2 MW synchronous 
generator with equipment that allowed it to parallel with the 
utility for 1/10th of a second. The equipment included timer 
functions that prevented the machine from staying in parallel for 
more than 1 second, as required by local rules. The [Transmission 
Provider], unsatisfied with the ``quality'' or ``performance'' of 
the relay in the customer's device, forced the customer to install a 
new relay costing over $2,000 for the 1 second time function. This 
was an excessively expensive piece [of] equipment to perform a 
simple operation; however the Interconnection Customer needed the 
equipment to operate, and had to pay the price.

    422. Small Generator Coalition argues that the Small Generator 
Interconnection NOPR's cost allocation provisions appear to guarantee 
pancaked wheeling charges on energy produced by Small Generating 
Facilities, contrary to the Commission's goal of eliminating such 
pancaking.\122\
---------------------------------------------------------------------------

    \122\ By ``pancaking,'' we presume that Small Generator 
Coalition is referring to the possibility that the Interconnection 
Customer may be required to pay for Distribution Upgrades and to 
make an up-front payment for Network Upgrades.
---------------------------------------------------------------------------

    423. MidAmerican states that a Commission rule requiring a 
Transmission Provider to pay any interconnection-related costs could 
supersede state policy and also would affect the ability of states to 
set retail rates following well-established cost causation principles. 
MidAmerican argues that the rules should permit the Transmission 
Provider to directly assign all costs to the Interconnection Customer 
unless that violates state regulatory policy.
Commission Conclusion
    424. We recognize that the Interconnection Facilities, Distribution 
Upgrades, and Network Upgrades required to interconnect a generator can 
be costly. Indeed, such costs can be a significant portion of the total 
project costs. Nevertheless, each Generating Facility, whether large or 
small, must bear its fair share of the cost of the facilities and 
Upgrades from which it benefits; otherwise, the facility simply does 
not make economic sense.
    425. To this end, the Small Generator Interconnection NOPR proposed 
to apply to Small Generating Facility interconnections the same pricing 
policy that the Commission adopted for Large Generating Facilities in 
Order No. 2003. Among other things, this means that the Interconnection 
Customer must bear the cost of necessary Interconnection Facilities and 
Distribution Upgrades. Also, the Interconnection Customer must 
initially fund the cost of Network Upgrades, but is entitled to credits 
against its charges for transmission delivery service equal to the 
amount funded, plus interest. None of the arguments presented here 
convinces us that the policies adopted in Order No. 2003 should not 
also apply to Small Generating Facility interconnections. In 
particular, contrary to the assertions of Cummins and Small Generator 
Coalition, we do not view the policy as creating rate pancaking or an 
undue burden for the Small Generating Facility. Thus, we adopt the 
Order No. 2003 pricing policies for small generator interconnections in 
this Final Rule.
    426. With regard to Cummins's concern that the Transmission 
Provider may be able to force the Small Generating Facility to bear 
unreasonable costs, we note that our principal purpose in adopting a 
standardized procedures document and agreement for generator 
interconnections, and making them part of the Transmission Provider's 
tariff, is to eliminate much of the opportunity for the Transmission 
Provider to act in this manner. Indeed, adoption of this Final Rule 
should greatly reduce the likelihood of the two negative experiences 
that Cummins describes, if indeed the cost were unreasonable.
    427. In response to MidAmerican, this Final Rule applies only to 
generator interconnections that are under the jurisdiction of the 
Commission. It does not apply where we do not have jurisdiction. 
Although state regulators or other rate-making authorities may model 
their own policies after those adopted herein, or the similar NARUC 
Model, they are free to establish whatever rules for determining cost 
responsibility that they deem reasonable for interconnections under 
their jurisdiction.
    428. The Commission modified and clarified its pricing policy for 
Large Generator Interconnections in Order Nos. 2003-A and 2003-B, which 
were issued after the Small Generator Interconnection NOPR in this 
proceeding. Upon review of the revisions to the Commission's pricing 
policy included in those orders, we conclude that they should apply to 
the interconnection of Small Generating Facilities as well. Therefore, 
we are revising the Proposed SGIA to reflect our current 
interconnection pricing policy as modified by Order Nos. 2003-A and 
2003-B. (See articles 4 and 5 of the SGIA).
Implementation of the Interconnection Pricing Policy for Small 
Generating Facilities
Comments
    429. Midwest ISO notes that Chart 1 of the Proposed SGIP shows a 
difference between the Point of Interconnection and the ``point of 
common coupling'' \123\ and says that equipment Upgrades may sometimes 
be needed between these two points. Midwest ISO asks who is to be 
responsible for such Upgrades and whether transmission service credits 
will be provided to the Interconnection Customer if it finances the 
Upgrades.
---------------------------------------------------------------------------

    \123\ The term ``Point of Common Coupling'' is not used in the 
SGIP and SGIA.
---------------------------------------------------------------------------

    430. Empire District agrees that Upgrades that are directly 
assigned,

[[Page 34227]]

such as radial extensions to the generator, should not be paid for (or 
reimbursable to the Interconnection Customer) by the Transmission 
Provider. In addition, it states that interconnection costs should be 
treated in a manner similar to the crediting methods used by the 
Southwest Power Pool (which Empire District does not describe).
    431. Many commenters support the Commission's proposal to directly 
assign the cost of Distribution Upgrades to the Interconnection 
Customer.\124\ For example, AEP states that a Distribution Upgrade that 
is required to accommodate the proposed generator does not benefit all 
users; rather, its sole purpose is to accommodate one customer. AEP 
contends, therefore, that it is entirely reasonable for the 
Interconnection Customer to be responsible for the cost of the 
Distribution Upgrade. Cinergy states that such responsibility follows 
from the radial nature of the Distribution System and is consistent 
with the LGIA. Baltimore G&E states that the Commission must guarantee 
that distribution utilities receive full cost recovery from 
interconnecting Small Generating Facilities to avoid subsidization by 
retail customers.
---------------------------------------------------------------------------

    \124\ See, e.g., AEP, Alabama PSC, Baltimore G&E, Central Maine, 
Cinergy, Consumers, MidAmerican, Mississippi PSC, Nevada Power, 
NRECA, and SoCal Edison.
---------------------------------------------------------------------------

    432. Nevada Power agrees that the cost of Distribution Upgrades 
should be directly assigned to the Interconnection Customer, but is 
concerned that Proposed SGIA article 5.1.3 does not adequately protect 
the Transmission Provider from having to bear such costs. This article 
could be construed to say that wholesale transactions by the 
Interconnection Customer change the segment of the distribution 
facilities to which the Interconnection Customer connects into 
transmission facilities. Nevada Power argues that the Proposed SGIA 
definition of Transmission System illustrates this concern: 
``Transmission System shall mean the facilities owned, controlled or 
operated by the Transmission Provider or Transmission Owner that are 
used to provide transmission service under the Tariff.'' An inference 
can be drawn that what was previously a distribution facility is now a 
transmission facility because it provides transmission service, and is 
therefore subject to the crediting process. To address this concern, 
Nevada Power proposes specific changes to Proposed SGIA article 5.1.3.
    433. SoCal Edison notes that in the Small Generator Interconnection 
NOPR, Distribution Upgrades and Network Upgrades are both defined as 
being at or beyond the Point of Interconnection. Distribution Upgrades 
are defined as upgrades to the Distribution System, while Network 
Upgrades are defined as upgrades to the Transmission System. However, 
``Transmission System'' is defined to include any facility, be it 
transmission or distribution, that is subject to an OATT. Therefore, 
SoCal Edison contends that because ``Transmission System'' is defined 
to include portions of the Distribution System, the definition of 
Network Upgrades (in combination with other provisions of the SGIP and 
SGIA) is confusing. SoCal Edison argues that keeping the terms 
Transmission System and Distribution System distinct is crucial. For 
this reason, the definition of Transmission System needs to exclude 
distribution facilities, which facilities already are included in the 
term Distribution System.
    434. In a similar vein, PacifiCorp argues that the definition of 
Network Upgrades must be revised to prevent it from being applied to 
Upgrades to a Transmission Provider's Distribution System. The Proposed 
SGIA's definition of Network Upgrades could be read to include Upgrades 
to radial feeders or other facilities that are part of the Transmission 
Provider's Distribution System. In PacifiCorp's view, Network Upgrades 
should include only Upgrades to networked transmission or sub-
transmission facilities. Any Upgrades to radial feeders or other 
facilities that make up the Transmission Provider's Distribution System 
should be paid for by the Interconnection Customer without credits.
    435. PSE&G states that the definition of Network Upgrades should be 
modified as follows: ``[Network Upgrades] shall mean the additions, 
modifications and upgrades * * * required (strike out ``at or'') beyond 
the point at which the Interconnection Customer interconnects to the 
Transmission Provider's or Transmission Owner's or distribution owner's 
(strike out ``Transmission'' and add ``Distribution'') System to 
accommodate the Generating Facility * * *.''
    436. NRECA states that the Commission has an important role in 
determining whether facilities are distribution or transmission. The 
Commission should apply the seven-factor test where there are disputes 
and should not in doing so give undue deference to state or public 
utility classifications of facilities. As shown by cases such as 
Arkansas Power & Light,\125\ the Commission may conclude that a 
facility serves a transmission function even if it is lower voltage and 
serves a few end-use customers, if the predominant use of the facility 
is to provide wholesale transmission service.
---------------------------------------------------------------------------

    \125\ Arkansas Power & Light Co. v. FPC, 368 F. 2d 376 (8th Cir. 
1966) (Arkansas Power & Light).
---------------------------------------------------------------------------

    437. In addition, NRECA seeks clarification of the NOPR's statement 
that ``if a proposed interconnection passes either the super-expedited 
screening procedures or the expedited screening procedures, the 
Interconnection Customer would have no cost responsibility for 
Upgrades.'' NRECA contends that this contradicts article 5.1.3 of the 
Proposed SGIA (Distribution Upgrades), and thus is inconsistent with 
the Commission's proposal to require Distribution Upgrades to be 
directly assigned to the Interconnection Customer. Furthermore, the 
statement would shift costs from the Interconnection Customer to 
utilities and their other customers. Also, Cummins says that the 
proposal runs counter to, or may confuse the application of, screens 
that would expedite the interconnection process.
    438. Small Generator Coalition states that although Proposed SGIA 
article 5.1.5 gives the Interconnection Customer an opportunity to 
demonstrate benefits to the Transmission Provider's electric system 
that would reduce the Interconnection Customer's costs, the NOPR's 
discussion of Distribution Upgrades at P 72 appears to rule out any 
cost reductions for Distribution Upgrades. In addition, Small Generator 
Coalition argues that ambiguous NOPR provisions may permit Transmission 
Owners to require the Interconnection Customer to pay for Network 
Upgrades with no compensation to the Interconnection Customer or 
consideration of network benefits. Because downstream resources can 
benefit system reliability, Small Generator Coalition argues that the 
Commission's rule should allocate Upgrade costs according to benefits 
to all portions of an affected Transmission System, including 
facilities operating at distribution voltages.
    439. Alabama PSC and Mississippi PSC argue that distribution 
facilities should be directly assigned. However, because the Commission 
lacks jurisdiction over distribution facilities, cost responsibility 
for Distribution Upgrades is an issue for state regulators to address.
    440. Midwest ISO notes that Proposed SGIA article 5.1.5 provides 
that if the Parties agree that the Small Generating Facility benefits 
the Transmission

[[Page 34228]]

Provider's electric system, the Interconnection Customer's cost 
responsibility may be reduced accordingly. The Small Generator 
Interconnection NOPR says that, if multiple facilities are involved, 
pro rata allocation of the costs or benefits must be made. These 
provisions appear to conflict with the NOPR's proposal at P 71, which 
allows an RTO flexibility with respect to interconnection pricing.
Commission Conclusion
    441. With reference to Chart 1 of the Proposed SGIP, Midwest ISO 
asks who is responsible for the cost of Upgrades between the point of 
common coupling and the Point of Interconnection. Chart 1 was in error. 
The Point of Interconnection is the point identified as the point of 
common coupling, which is the point in the diagram where the 
Interconnection Facilities connect to the Transmission Provider's 
Distribution System subject to an OATT. Thus, the Upgrades to which 
Midwest ISO refers are in fact Interconnection Facilities, and their 
cost is directly assigned to the Interconnection Customer.
    442. In response to Empire District, we confirm that radial 
extensions to the Small Generating Facility are to be directly assigned 
to the Interconnection Customer if they are Interconnection Facilities; 
that is, if the radial line is a sole use facility located between the 
Small Generating Facility and the Point of Interconnection, its cost is 
directly assigned to the Interconnection Customer. Also, Empire 
District recommends that the Commission adopt a crediting policy that 
is similar to the methods set forth by the Southwest Power Pool. 
However, Empire District does not explain how its recommended methods 
differ from or are better than those proposed in the NOPR.
    443. In order to eliminate the confusion expressed by Nevada Power, 
SoCal Edison and others about the distinction between Distribution 
Upgrades and Network Upgrades, we are adding the following sentence to 
the definition of Network Upgrades: ``Network Upgrades do not include 
Distribution Upgrades.''
    444. NRECA seeks clarification of the Small Generator 
Interconnection NOPR's statement that ``if a proposed interconnection 
passes either the super-expedited screening procedures or the expedited 
screening procedures, the Interconnection Customer would have no cost 
responsibility for Upgrades.'' The issue of who pays for an Upgrade in 
the case of a proposed interconnection passing all the screens is moot 
because one of the provisions of SGIP section 2.2.1 is a requirement to 
pass a screen that the interconnection must not require an Upgrade.
    445. Small Generator Coalition is concerned that the Proposed SGIA 
may assign to the Interconnection Customer cost responsibility for 
Interconnection Facilities in a way that gives no recognition to the 
benefits that the Interconnection Facilities may bring to the 
Transmission Provider's electric system. In response, we clarify that 
the Interconnection Customer is responsible for the cost of 
Interconnection Facilities except when such cost is shared with other 
entities that may benefit from the Interconnection Facilities by 
agreement of the Interconnection Customer, the other entities, and the 
Transmission Provider. This provision for cost sharing is included in 
SGIA article 4.1.1.
    446. Small Generator Coalition also asks about sharing cost 
responsibility for Distribution Upgrades and initial funding 
responsibility for Network Upgrades. The Interconnection Customer is 
responsible for the upfront funding of Network Upgrades unless the 
Transmission Provider elects to provide the upfront funding itself. 
This payment option is included in SGIA article 5.2. However, we are 
not adopting the explicit cost sharing provisions of Proposed SGIA 
article 5.1.5 relating to Distribution Upgrades because they are not 
consistent with Order No. 2003 which specified that all Distribution 
Upgrades shall be directly assigned to the Interconnection 
Customer.\126\
---------------------------------------------------------------------------

    \126\ See LGIA article 11.3 (``The Interconnection Customer 
shall be responsible for all costs related to Distribution 
Upgrades.'')
---------------------------------------------------------------------------

    447. In response to Midwest ISO, we clarify that we are allowing 
flexibility for the pricing that an independent Transmission Provider 
may propose to adopt, subject to Commission approval, under the 
``independent entity'' variation. Accordingly, an independent 
Transmission Provider may propose a pricing method that differs from 
what this Final Rule otherwise requires.
    448. Alabama PSC and Mississippi PSC assert that cost 
responsibility for Distribution Upgrades is beyond the scope of the 
Commission's authority. As explained above, the Commission's assertion 
of jurisdiction here is no broader than in Order No. 888. This Final 
Rule applies to interconnections with a Transmission System or with a 
Distribution System subject to an OATT for the purpose of making 
wholesale sales. The Commission's authority over such interconnections 
with Distribution Systems, for the purposes of making a wholesale sale 
of electricity in interstate commerce, includes allocating the cost of 
all of the Transmission Provider's Upgrades needed to effect the 
interconnection. Otherwise, the Commission could not ensure that the 
costs incurred to provide a jurisdictional service are allocated 
appropriately. The pricing policy for Distribution Upgrades directly 
assigns costs to the Interconnection Customer so there is no impact on 
retail customers of the Distribution System.
Responsibility for Operation and Maintenance Costs
    449. Proposed SGIA article 5.1.4 stated that the Interconnection 
Customer is responsible for the operating and maintenance costs 
associated with the Interconnection Facilities that it owns as well as 
those owned by the Transmission Provider. The Proposed SGIA did not 
assign responsibility for O&M costs associated with Network Upgrades or 
Distribution Upgrades.
Comments
    450. Central Maine and NYTO ask the Commission to clarify that the 
Interconnection Customer is responsible for ongoing O&M costs 
associated with Network Upgrades when the Interconnection Customer does 
not take and pay for transmission service for the output of its Small 
Generating Facility.
    451. Southern Company contends that Proposed SGIA article 5.1.4 
contemplates that the Interconnection Customer is responsible for all 
reasonable expenses associated with operating and maintaining its own 
Interconnection Facilities and the Transmission Provider's 
Interconnection Facilities, but it is unclear whether all applicable 
O&M costs are covered. It notes that LGIA article 10.5 does not limit 
O&M cost recovery to the Transmission Provider's Interconnection 
Facilities, but explicitly provides that the Interconnection Customer 
is responsible for all reasonable O&M costs. Therefore, Southern 
Company proposes to revise article 5.1.4 to include Distribution 
Upgrades so as to ensure that all appropriate O&M costs are included.
    452. Robert L. Carrey contends that the Interconnection Customer 
should pay only the O&M costs of the Interconnection Facilities built 
on its behalf. He argues that the Interconnection Customer should not 
have to pay for routine O&M costs where no Interconnection Customer and 
Transmission Provider share the same poles and rights-of-way.
Commission Conclusion
    453. The Commission has long held that O&M costs associated with 
Network

[[Page 34229]]

Upgrades cannot be directly assigned to the Interconnection Customer, 
because Network Upgrades are part of the integrated transmission system 
from which all transmission users benefit.\127\ Therefore, we deny the 
requests of Central Maine and NYTO that the Commission require the 
Interconnection Customer to pay O&M costs associated with Network 
Upgrades.\128\
---------------------------------------------------------------------------

    \127\ See, e.g., PJM Interconnection, L.L.C., 109 FERC ] 61,326 
(2004) (holding that O&M costs associated with Network Upgrades may 
not be directly assigned to the Interconnection Customer). We note, 
however, that the Transmission Provider may propose to recover the 
cost of Network Upgrades from the Interconnection Customer through 
an incremental transmission rate. In that case, the Commission would 
entertain a proposal to include in the incremental rate O&M costs 
associated with the Network Upgrades. Order No. 2003-B at P 57.
    \128\ This issue was discussed at P 421-424 of Order No. 2003-A.
---------------------------------------------------------------------------

    454. While the SGIA authorizes the Transmission Provider to collect 
O&M costs associated with Interconnection Facilities, this Final Rule 
does not contain a rate recovery mechanism for collecting those costs, 
because such costs will vary from case to case. Therefore, if a 
Transmission Provider wishes, it may propose and justify its rate to 
recover such costs under section 205 of the FPA.\129\ In response to 
Southern Company, a Transmission Provider may make a similar filing to 
recover from the Interconnection Customer an appropriate share of any 
Commission-jurisdictional component of the O&M costs of Distribution 
Upgrades. Absent Commission approval of such a rate schedule, the 
Transmission Provider may not collect Commission-jurisdictional O&M 
costs associated with Interconnection Facilities or Distribution 
Upgrades.
---------------------------------------------------------------------------

    \129\ 16 U.S.C. 824d (2000); see also 18 CFR 35.12 (2004).
---------------------------------------------------------------------------

    455. In response to Mr. Carrey, the Transmission Provider is free 
to propose to recover these expenses in any manner it sees fit; 
however, the Commission will approve the Transmission Provider's 
proposed rate if it is shown to be just and reasonable and not unduly 
discriminatory or preferential.
Responsibility for the Construction of Upgrades
    456. Proposed SGIA article 5.1.2 stated that the Transmission 
Provider or Transmission Owner shall design, procure, construct, 
install, and own the Network Upgrades.
Comments
    457. PacifiCorp states that the Parties should be permitted to 
agree that the Network Upgrades will be built by the Interconnection 
Customer on its land. This could facilitate a faster interconnection. 
In addition, Proposed SGIA article 3.3 should be revised to give the 
Transmission Provider the right to inspect, operate, or maintain 
Network Upgrades on the Interconnection Customer's land.
    458. AMP-Ohio states that, in the region where its members' 
Distribution Systems are located, the Transmission Provider would be an 
RTO. It notes that Proposed SGIA article 5.1.3 stated that the 
``Transmission Provider or Transmission [Owner] shall design, procure, 
construct, install, and own the distribution Upgrades * * *'' AMP-Ohio 
is concerned that this article could be construed to allow the RTO to 
own and operate piecemeal sections of a member's electric system. The 
Commission should clarify that one entity cannot assert the right to 
own a portion of another's electric system.
Commission Conclusion
    459. In response to PacifiCorp, neither Proposed SGIA article 5.1.2 
nor article 5.1.3 precluded the Parties from agreeing that the 
Interconnection Customer may construct Network Upgrades or Distribution 
Upgrades on its own land. Nevertheless, we make this option explicit in 
SGIA articles 4.2 and 5.2. PacifiCorp's proposed revisions to Proposed 
SGIA article 3.3 are addressed above in our discussion of that article.
    460. In response to AMP-Ohio, we clarify that this Final Rule does 
not authorize any entity, including the Transmission Provider, to own a 
portion of another entity's Transmission System without the permission 
of the Transmission Owner.
Miscellaneous Pricing Issues
Comments
    461. PacifiCorp notes that Proposed SGIA article 5.1.2.1 would 
permit a refund to an Interconnection Customer whose Small Generating 
Facility does not achieve commercial operation, if another customer 
uses the Network Upgrades for which the first Interconnection Customer 
paid. PacifiCorp asks that this provision specify that a refund is 
available only if the second Interconnection Customer actually requires 
the Network Upgrades for its Small Generating Facility.
    462. TAPS states that the NOPR does not make the Transmission 
Provider remove its own Interconnection Facilities from rate base.
Commission Conclusion
    463. We agree with PacifiCorp that the first Interconnection 
Customer should not receive a refund of amounts it has advanced for 
Network Upgrades unless the later Interconnection Customer's Small 
Generating Facility actually would have required the construction of 
the Network Upgrades. However we believe that the SGIA, as written, 
makes this clear. To make a change to this provision would imply that 
it means something different from the similar provision adopted in the 
LGIA, and that is not our intent, therefore we decline to accept 
PacifiCorp's proposed modification.
    464. With regard to the issue that TAPS raises, the Commission 
addressed this matter in Order No. 2003. There the Commission required 
the Transmission Provider to remove from transmission rates the costs 
of Interconnection Facilities constructed by the Transmission Provider 
after March 15, 2000 to interconnect generating facilities owned by the 
Transmission Provider on the effective date of the Final Rule in the 
Large Generator Interconnection proceeding.\130\ The Commission's 
conclusion about the need for the Transmission Provider to remove its 
own Interconnection Facilities from rate base was not intended to be 
limited to Large Generating Facilities. We clarify here that it applies 
to all of the Transmission Provider's Interconnection Facilities, 
regardless of the size of the associated generating facility.
---------------------------------------------------------------------------

    \130\ See Order No. 2003 at P 744 and Order No. 2003-A at P 663.
---------------------------------------------------------------------------

Commission Jurisdiction Under the Federal Power Act
    465. Sections 205 and 206 of the FPA require the Commission to 
remedy undue discrimination by public utilities. In Order No. 888, the 
Commission found that public utilities owning or controlling 
jurisdictional transmission facilities had the incentive to engage in, 
and had engaged in, unduly discriminatory practices.\131\ Because 
interconnection is an element of transmission service that must be 
provided under the OATT, the Commission in Order No. 2003 established 
generic interconnection terms and procedures under its authority to 
remedy undue discrimination under sections 205 and 206.\132\ The Small 
Generator Interconnection NOPR proposed that its jurisdictional reach 
would be identical to Order No. 2003.
---------------------------------------------------------------------------

    \131\ Order No. 888 at 31,679-84; Order No. 888-A at 30,209-10.
    \132\ Order No. 2003 at P 18-20.

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

[[Page 34230]]

Comments
    466. NARUC, NRECA, several state regulatory commissions,\133\ and 
others \134\ argue that the Small Generator Interconnection NOPR 
unlawfully encroaches upon the jurisdiction of the states by proposing 
to regulate interconnections with ``local distribution'' facilities.
---------------------------------------------------------------------------

    \133\ E.g., Alabama PSC, CPUC, CT PUC, Florida PSC, Iowa 
Utilities Board, Mississippi PSC, North Carolina Commission, and 
NYPSC.
    \134\ E.g., Baltimore G&E, Central Maine, Consumers, EEI, Idaho 
Power, PacifiCorp, Progress Energy, and Southern Company.
---------------------------------------------------------------------------

    467. Many of the commenters opposing the Commission's exercise of 
jurisdiction over facilities used both for Commission-jurisdictional 
and for state-jurisdictional transactions (``dual-use'' facilities) 
cite Detroit Edison.\135\ They appear to have read Detroit Edison as 
forbidding the exercise of federal jurisdiction over any facilities 
used to any degree to distribute bundled power to end-users at retail, 
regardless of whether those facilities are also used for transactions 
that are under the Commission's jurisdiction.\136\ Other commenters, 
including Small Generator Coalition and SoCal Edison,\137\ assert that 
nothing in Detroit Edison prevents the Commission from asserting 
jurisdiction over all interconnections made to facilitate Commission-
jurisdictional activities.
---------------------------------------------------------------------------

    \135\ Shortly before comments were due in this docket, the DC 
Circuit issued Detroit Edison v. FERC, 334 F.3d 48 (DC Cir. 2003) 
(Detroit Edison). Since then, the Commission has issued both Order 
Nos. 2003-A (at P 705 et seq.) and 2003-B (at P 14), which discuss 
Detroit Edison at length.
    \136\ Alabama PSC at 4-5 (citing 16 U.S.C. 824(b) (2003), which 
states that ``[t]he Commission * * * shall not have jurisdiction * * 
* over facilities used in local distribution * * *.'')
    \137\ Id. at 10 (emphasis in original).
---------------------------------------------------------------------------

    468. Interconnections with ``distribution'' facilities, argues 
Alabama PSC, should be exclusively state-jurisdictional. It argues that 
``the Courts have long recognized and enforced the State's primacy over 
the regulation of distribution facilities.''\138\ CPUC makes a similar 
argument, stating that:
---------------------------------------------------------------------------

    \138\ Id. at 5 (citing Southern Co. Services, Inc. v. FCC, 293 
F.3d 1338, 1344 (11th Cir. 2002)).

federal law was meant to supplement--and not to supplant--state 
regulation of those utilities. The FPA was enacted to fill in gaps 
not covered by state regulation, not as a mechanism for avoiding 
state regulation of public utilities. In enacting the FPA, Congress 
did not purport to exercise all of the authority it might have 
exercised under the Commerce Clause, because its intention was to 
preserve, not override, state regulatory jurisdiction.\139\
---------------------------------------------------------------------------

    \139\ CPUC at 8 (citing Conn. Light & Power Co. v. FPC, 324 U.S. 
515, 529-30 (1945)).

    469. Alabama PSC, Mississippi PSC, and Southern Company also cite 
the preemption doctrine (that federal preemption of state law is not to 
be assumed unless Congress expresses a clear intent to do so) as 
another reason why the Commission is not permitted to exercise 
jurisdiction over ``distribution'' facilities. ``To the contrary,'' 
Alabama PSC argues, ``the FPA expressly provides that FERC does not 
have such jurisdiction.'' \140\
---------------------------------------------------------------------------

    \140\ Alabama PSC at 6 (citing 16 U.S.C. 824(b)).
---------------------------------------------------------------------------

    470. CT PUC asks the Commission to clarify that this Final Rule 
does not preempt state regulatory authority with respect to electric 
distribution company regulation, environmental protection (including 
Clean Air Act permitting), fire and building safety regulation, etc., 
as these may apply to Small Generating Facility interconnections with 
``distribution'' facilities.
    471. Idaho Power states that ``[t]he `dual use' theory leaves the 
``distribution'' facility owner that is trying to design an efficient 
and reliable ``distribution'' system in the untenable position of 
having two masters attempting to control the same physical line for 
differing purposes.'' \141\
---------------------------------------------------------------------------

    \141\ Idaho Power at 3.
---------------------------------------------------------------------------

    472. PacifiCorp cites forum shopping concerns and suggests that a 
Small Generating Facility interconnecting as a Qualifying Facility (QF) 
to a dual use facility could receive different treatment depending on 
whether it sells its output to the host utility under the Public 
Utility Regulatory Policies Act of 1978 (PURPA)\142\ or to a customer 
other than the host utility. In the first instance, the interconnection 
would be state-jurisdictional; in the second, Commission-
jurisdictional. PacifiCorp asserts that this is a confusing outcome and 
could be avoided if the Commission disclaims jurisdiction over low 
voltage and dual use facilities.
---------------------------------------------------------------------------

    \142\ 16 U.S.C. 824a-3 (2004).
---------------------------------------------------------------------------

    473. Small Generator Coalition argues that not asserting 
jurisdiction over all interconnections made to facilitate Commission-
jurisdictional activities means adopting a circuit-by-circuit approach 
to jurisdiction. This would be contrary to the Commission's approach 
taken in a variety of contexts, including assignment of system losses 
\143\ and recovery of fixed costs \144\ on a system-wide basis. 
Further, if the Commission allows a Transmission Provider to refuse 
interconnections with the low-voltage ``distribution'' portions of its 
system not already used for jurisdictional transactions, ``small 
resource development would be inhibited if not eliminated.'' \145\ 
Transmission Providers could ``pick and choose among interconnection 
applicants based on any criteria they elected to employ.'' \146\ 
Finally, Small Generator Coalition argues that the Commission 
adequately recognizes state jurisdiction by claiming jurisdiction over 
only interconnections with ``distribution'' facilities that are used 
for wholesale transactions.
---------------------------------------------------------------------------

    \143\ Small Generator Coalition at 37 (citing Northern States 
Power Co. v. FERC, 30 F.3d 177 (D. C. Cir. 1994)).
    \144\ Id. (citing Fort Pierce Utilities Authority v. FERC, 730 
F.2d 778, 782 (DC Cir. 1984)).
    \145\ Id. at 39.
    \146\ Id. at 39.
---------------------------------------------------------------------------

    474. NRECA argues that, as more and more distributed generators 
participate in the wholesale market, ``many if not most distribution 
facilities will carry a few wholesale electrons.'' \147\ Indeed, ``many 
if not most distribution facilities will become subject to Commission 
jurisdiction. The jurisdictional divide between the Federal Government 
and the States that Congress clearly intended in the FPA will have 
collapsed.'' \148\ Baltimore G&E asks the Commission to explain how it 
will avoid a ``chicken and egg'' situation where the jurisdictional 
status of a particular facility would change after the interconnection 
takes place.
---------------------------------------------------------------------------

    \147\ NRECA at 41.
    \148\ Id.
---------------------------------------------------------------------------

    475. Solar Turbines expresses concern that ``[a] utility apparently 
need merely deny that a particular line is currently being used for any 
transmission of power in interstate commerce or for any sales for 
resale, and can then refuse to accept an application for 
interconnection to that specific facility'' \149\ and requests that the 
Commission clarify what the Interconnection Customer should do if it 
finds itself in such a situation.
---------------------------------------------------------------------------

    \149\ Solar Turbines at 4.
---------------------------------------------------------------------------

    476. MidAmerican asks whether this Final Rule would apply to a net 
metering arrangement that allows a Small Generating Facility to net 
only a portion of its output and resell the remainder to the host 
utility. It also asks what happens if it sells the non-net metered 
portion of its output to a third party.
    477. Avista asks the Commission to address the effect of Detroit 
Edison on an interconnection for a purpose other than to ``engage in 
sale for resale in interstate commerce or to transmit electricity in 
interstate commerce.'' Avista differentiates ``load interconnections'' 
from ``generator interconnections,'' which are interconnections made to 
export power. It requests clarification that a load

[[Page 34231]]

interconnection to a dual use facility is an exclusively state-
jurisdictional interconnection ``except if and to the extent there is 
an OATT on file by the owner of the facilities that makes available new 
Commission-jurisdictional service over those facilities.'' \150\ Absent 
such a clarification, Avista argues that ``uncontrolled deregulation of 
service at the distribution level may occur, since any new load can 
seek to characterize its service as `wholesale' by inserting a 'sham 
utility' between the customer and the incumbent utility.'' \151\ Avista 
states that FPA section 212(h) already prohibits ``sham wholesale 
transactions'' \152\ and argues that ``the Commission has determined 
that Section 212(h) only applies to transmission orders, not 
interconnection requests.'' \153\ Without such a clarification, Avista 
fears that load interconnections with dual use facilities could be used 
to force otherwise non-Commission-jurisdictional ``distribution'' 
facilities into Commission-jurisdictional status.
---------------------------------------------------------------------------

    \150\ Avista at 9.
    \151\ Id. at 9-10 (citing, e.g., Snake River Valley Elec. Ass'n 
v. PacifiCorp, 238 F.3d 1189 (9th Cir. 2001)).
    \152\ 16 U.S.C. 824k(h) (2000).
    \153\ Avista at 9-10 (citing Laguna Irrigation District, 95 FERC 
] 61,305 (2001), aff'd sub nom. Pacific Gas & Electric Co. v. FERC, 
44 Fed. Appx. 170 (9th Cir. 2002) (unpublished opinion); City of 
Corona v. Southern California Edison Co., 101 FERC ] 61,240 at 
62,025-026 (2002)).
---------------------------------------------------------------------------

    478. USCHPA and Solar Turbines ask the Commission to exert 
jurisdiction over all load interconnections. Additionally, many 
cogeneration projects, USCHPA asserts, make sporadic sales of power 
when the economics favor doing so. Such projects should not be denied 
the benefits of standardized interconnection rules simply because their 
sales into the wholesale energy marketplace are sporadic. Solar 
Turbines argues that the needs of Small Generating Facilities are 
different and that there are good reasons to depart from the large 
generator precedent in this rulemaking. Specifically, Small Generating 
Facilities are more likely to be near to load, while Large Generating 
Facilities are more likely to be far from their load.
    479. Midwest ISO argues that all interconnections with 
``distribution'' facilities within an RTO or ISO to sell power at 
wholesale should be processed under a single set of rules. This would 
include both state- and Commission-jurisdictional facilities. Midwest 
ISO remarks that regardless of ``[w]hether the physical requirements of 
the interconnection come under the RTO's purview, the generating 
facility's operation will'' come under the RTO's jurisdiction. 
Therefore, the RTO should be able to ``evaluate the proposed 
interconnection with the generating facility's subsequent operation in 
mind.'' \154\
---------------------------------------------------------------------------

    \154\ Midwest ISO at 6.
---------------------------------------------------------------------------

    480. Finally, several comments address whether the use of a 69 kV 
cutoff in the SGIP affects the Commission's jurisdiction.
Commission Conclusion
    481. The Commission's assertion of jurisdiction in this Final Rule 
is identical to the jurisdiction asserted in Order Nos. 2003 and 888 
and upheld by the Supreme Court in New York v. FERC. Just as the 
Commission stated in Order No. 2003-A:

    There is no intent to expand the jurisdiction of the Commission 
in any way; if a facility is not already subject to Commission 
jurisdiction at the time interconnection is requested, the Final 
Rule will not apply. Thus, only facilities that already are subject 
to the Transmission Provider's OATT are covered by this rule. The 
Commission is not encroaching on the States' jurisdiction and is not 
improperly asserting jurisdiction over ``local distribution'' 
facilities.[\155\]
---------------------------------------------------------------------------

    \155\ Order No. 2003-A at P 700.

    482. Many commenters seek clarification of issues (particularly 
related to the Detroit Edison case) that were discussed at length in 
Order Nos. 2003-A and 2003-B, which were issued after comments on the 
Small Generator Interconnection NOPR were due.\156\ Since the 
jurisdiction asserted in this Final Rule is identical to that asserted 
in Order No. 2003, we adopt here our discussion from those orders 
rather than repeat the same information.
---------------------------------------------------------------------------

    \156\ See Order No. 2003-A at P 698 et seq. and Order No. 2003-B 
at P 12 et seq.
---------------------------------------------------------------------------

    483. However, several commenters focused on how the jurisdictional 
issues raised by small generator interconnections may differ from those 
raised in the Large Generator Interconnection rulemaking. Additionally, 
some commenters raised issues in this proceeding that were not 
addressed in Order Nos. 2003-A or 2003-B. These issues we discuss in 
more detail below.
    484. We disagree with Alabama PSC, Mississippi PSC, and Southern 
Company that the Commission is evading FPA section 201(b)(1) or 
preempting state law. In New York v. FERC, the U.S. Supreme Court 
approved the Commission's assertion of jurisdiction in Order No. 
888.\157\ The applicability of this Final Rule is identical to the 
applicability of Order No. 888.
---------------------------------------------------------------------------

    \157\ New York v. FERC, 535 U.S. 1 (2002).
---------------------------------------------------------------------------

    485. CT PUC is correct that this Final Rule in no way alters the 
permitting and other environmental requirements applicable to 
Interconnection Customers. Nor does this Final Rule affect any other 
state police powers.
    486. NRECA asserts that while there are now relatively few Small 
Generating Facility interconnections that are Commission-
jurisdictional, that number will increase as time passes. Small 
Generator Coalition complains that the number of lower voltage 
Commission-jurisdictional facilities is too small. Ultimately, however, 
the Commission's jurisdiction does not rest on how common dual use 
facilities may be or how many interconnections are Commission-
jurisdictional.
    487. Baltimore G&E asks if the jurisdictional status of a facility 
would change after an interconnection takes place. Whether a facility 
is subject to this rule depends on whether it is subject to an OATT at 
the time the Interconnection Request is filed. The use of a facility 
and thus its inclusion in an OATT can change over time. Nothing in this 
Final Rule (or Order No. 2003) alters the status of any facility.
    488. Avista is correct that some interconnections are made simply 
to receive power from the electric system. These ``load 
interconnections'' are not subject to this Final Rule.
    489. In response to USCHPA's concern over Interconnection Customers 
who may wish to make sporadic sales of power into the marketplace, we 
clarify that there is no requirement that an Interconnection Customer's 
participation in the wholesale marketplace be constant. An 
Interconnection Customer is free to request interconnection service and 
then wait until the economics are favorable before actually making a 
wholesale sale.
    490. In response to Midwest ISO's desire to process all 
interconnections (whether to Commission-jurisdictional or non-
Commission-jurisdictional facilities) under its tariff, we note that 
the Commission does not have the authority to order states to use 
Midwest ISO's tariff to process interconnections with state or other 
non-jurisdictional facilities. However, we encourage the states and 
others to use the Commission's interconnection rule or the NARUC Model 
as a starting point for developing their own interconnection rules.
    491. Many commenters also address the legality of the Small 
Generator Interconnection NOPR's proposed use of 69 kV to determine 
whether portions of

[[Page 34232]]

the SGIP would apply. Since the Commission has abandoned this 
distinction in this Final Rule, these arguments are moot.
Arguments that the Commission Should Delay or Abandon the Small 
Generator Interconnection Rulemaking
    492. Several commenters argue that the Proposed SGIP and Proposed 
SGIA are too complicated for small entities and would create a barrier 
to entry. Some commenters argue that the Commission should delay 
issuing a Final Rule and allow the various states and other entities to 
develop their own model rules. Others disagree.\158\
---------------------------------------------------------------------------

    \158\ CT DPUC at 1 (``The CT DPUC generally supports the effort 
by the Commission to initiate standardization of interconnection 
agreements and procedures * * * ''); see also Cummins at 1 (``We 
strongly support the Commission's continued work in this area.'')
---------------------------------------------------------------------------

    493. This Final Rule includes several provisions to address these 
concerns. First, we are adopting a separate application/procedures/
terms and conditions document for very small certified inverter-based 
Small Generating Facilities. This is a big step in facilitating quick 
interconnections at very little cost, as long as they can be made 
safely and without harming reliability. We are also simplifying many 
SGIA provisions at the request of commenters. This Final Rule borrows 
liberally from NARUC's Model interconnection rules, which are simpler 
than the Small Generator Interconnection NOPR.
    494. We address below specific comments relating to our decision to 
proceed with this Final Rule. We have divided commenters' arguments 
into three sections: (1) Arguments that the Commission should defer to 
the states to deal with small generator interconnections; (2) arguments 
that the Commission's NOPR is too complex; and (3) arguments that the 
Commission should adopt a policy statement or model rules instead of a 
Final Rule.
Arguments in Favor of Deferring to the States on Small Generator 
Interconnections
Comments
    495. NARUC proposes that the Commission adopt its Model, arguing 
that it ``would offer the greatest possibility of consistency between 
Federal and State interconnection policies'' \159\ It explains that 
``the NARUC Model was developed by melding the best practices of 
existing State distributed generation interconnection programs.'' \160\ 
NARUC argues in its supplemental comments that state programs are 
successful and that imposing an unnecessary layer of federal regulation 
will be disruptive to small generator developers and customers. 
Commission action can only create confusion and impede project 
development. Because states have better insight into local operating, 
planning, safety, reliability, and adequacy needs and conditions, they 
are in the best position to address the interconnection of small 
generators, regardless of what those generators may do with the output 
from their facilities or where they are interconnected. At bottom, 
NARUC urges the Commission to take no action on the Small Generator 
Interconnection NOPR. In the alternative, if the Commission implements 
small generator interconnection rules, it should grandfather existing 
state interconnection programs and the interconnections accomplished 
under such programs, and include a mechanism for granting deference to 
future state small generator interconnection programs.
---------------------------------------------------------------------------

    \159\ NARUC at 18.
    \160\ Id. at 8.
---------------------------------------------------------------------------

    496. CPUC states that California, New York, Ohio, and Texas all 
have interconnection procedures applicable to their state-regulated 
utility ``distribution'' systems.\161\ Because one third of the 
country's population already lives in states with standard 
interconnection rules, there is no need for Commission action. It also 
contends that (1) existing California interconnection rules meet the 
needs of small generators seeking to connect to state-jurisdictional 
utility ``distribution'' systems, (2) California procedures already 
provide small generators with one-stop shopping, and (3) there is no 
``actual or legitimate need for FERC assistance to cover 
interconnections to state-jurisdictional facilities in states where 
distributed generation interconnection rules are already in place.'' 
\162\
---------------------------------------------------------------------------

    \161\ Virginia, Massachusetts, and other states also have small 
generator interconnection rules.
    \162\ CPUC at 16.
---------------------------------------------------------------------------

    497. Furthermore, CPUC argues, only state-specific interconnection 
rules can account for ``regional practices.'' As an example, CPUC's 
rules allow it to exempt small Transmission Providers, but the Small 
Generator Interconnection NOPR lacks such needed flexibility.\163\ In 
sum, CPUC questions the need for the Commission's proposal and asserts 
that ``there is no legitimate public policy basis for the assertion of 
FERC jurisdiction over small generators that would result if the FERC 
proposal were adopted.'' \164\
---------------------------------------------------------------------------

    \163\ Id. at 18.
    \164\ Id. at 15.
---------------------------------------------------------------------------

    498. In contrast, Cummins argues that the Commission should assert 
jurisdiction over all interconnections, regardless of whether the 
interconnection is with a Commission-jurisdictional facility. Cummins 
argues that, although Small Generating Facilities often connect at the 
``distribution'' level, their effects can be felt on the Transmission 
System. It explains that, because Small Generating Facilities can 
relieve congestion on crowded transmission facilities, the effect of 
even on-site Small Generating Facilities is felt beyond the Point of 
Interconnection. Thus, it is important that the Commission use all its 
jurisdictional authority to apply this rule as broadly as possible. 
And, where the Commission does not have jurisdiction, Cummins 
encourages state regulators to develop interconnection rules that are 
consistent with this Final Rule.
    499. Plug Power claims that by not proposing standards applicable 
to interconnections with distribution facilities, the Commission's 
interconnection rules will not help small generators. Further, the 
rules proposed in the NOPR are inferior to those already in place in 
several states.
    500. EEI urges the Commission to work with states to better define 
the state-federal role in small generator interconnections. According 
to EEI, this approach would provide both Interconnection Customers and 
Transmission Providers with clear guidance as to which rules apply to 
which interconnections. Finally, EEI states that, with certain 
modifications, the interconnection procedures document and agreement 
could be a model for use by both federal and state authorities to 
process small generator Interconnection Requests.
    501. CT DPUC, while supporting the Commission's efforts, argues 
that this Final Rule should not lead to a loss of state jurisdiction.
Commission Conclusion
    502. We agree with commenters that general consistency between the 
Commission's interconnection procedures document and agreement and 
those of the states will be helpful to removing roadblocks to the 
interconnection of small generators. To a large extent, this Final Rule 
harmonizes state and federal practices by adopting many of the 
provisions proposed by NARUC and Joint Commenters. This Final Rule 
adopts

[[Page 34233]]

interconnection rules that are largely consistent with the ``best 
practices'' interconnection rules proposed by NARUC. By doing so, we 
hope to minimize the federal-state division and promote consistent, 
nationwide interconnection rules.\165\ We hope that states that do not 
currently have interconnection rules for small generators will look to 
the documents presented in this Final Rule and the NARUC Model as 
guides for their own rules. To grandfather existing state 
interconnection programs and grant deference to future state small 
generator interconnection programs would not fulfill the Commission's 
statutory mandate to regulate jurisdictional activities, of which 
generator interconnection is one. However, as discussed elsewhere, the 
all-in-one document for certified inverter-based generators no larger 
than 10 kW should go a long way towards harmonizing state-federal 
interconnection practices for this class of generators.
---------------------------------------------------------------------------

    \165\ A particular state's interconnection rules may also differ 
from the NARUC Model.
---------------------------------------------------------------------------

    503. Our hope is that states may find these interconnection rules 
helpful in formulating their own interconnection processes. In 
particular, we hope the Fast Track and 10 kW Inverter Processes will 
prove helpful as starting points from which to develop their own 
procedures and agreements.
    504. The concerns of CPUC and several other commenters that the 
Commission is claiming jurisdiction over interconnections with non-
Commission jurisdictional facilities are addressed elsewhere in more 
detail.
Arguments That the NOPR Is Too Complex
Comments
    505. CPUC argues that the Proposed SGIA and Proposed SGIP are too 
complicated for small Interconnection Customers, especially the 
smallest, to use. Small Generator Coalition argues that unless the 
Commission is willing to modify the NOPR in fundamental ways, many of 
its members believe that development of Small Generating Facilities 
would be better served if the NOPR were simply withdrawn. According to 
Small Generator Coalition, the NOPR's framing of

interconnection issues as a competition between maintaining system 
reliability and encouraging small resources is wholly inappropriate, 
and it gives disproportionate weight to the reliability `concerns' 
of transmission/distribution owners with generating units of their 
own. That system reliability must not be compromised goes without 
saying, but the need for system reliability does not compete with 
the goal of encouraging small resource development via affordable 
and clear interconnection terms and conditions. The compatibility of 
small resources with the grid was proven long ago--there are 
literally thousands of such small resources in place and operating 
in the United States, safely interconnected with the grid (such as 
the solar array on the roof of the Commission's own office 
building).[\166\]
---------------------------------------------------------------------------

    \166\ Small Generator Coalition at 7-8.

    506. Small Generator Coalition says that on-site Small Generating 
Facilities actually enhance electric system reliability, and that 
complex technical provisions should therefore not be required.
    507. Plug Power asserts that unless the Commission adopts a simpler 
SGIA, the Commission's rulemaking will not help to reach national 
interconnection standards.\167\ Of particular concern to Plug Power are 
the Proposed SGIA's insurance requirements and what Plug Power terms 
its open-ended cost provisions.
---------------------------------------------------------------------------

    \167\ Plug Power at 3.
---------------------------------------------------------------------------

    508. CT DPUC urges the Commission to adopt rules that are not 
unnecessarily complicated to administer.
Commission Conclusion
    509. We agree with commenters that the Small Generator 
Interconnection NOPR contained some provisions that were overly 
complicated for many Small Generating Facility interconnections. 
Wherever possible, we have simplified the SGIP and SGIA. And, for very 
small certified Small Generating Facilities, this Final Rule includes 
the highly simplified 10 kW Inverter Process.
Arguments in Favor of a Non-Binding Model Rule
Comments
    510. CPUC states that it would support Commission efforts to 
establish non-binding guidelines, or a model rule, for use by states 
that have not yet adopted their own standards.
    511. NARUC comments that any standard interconnection procedures 
document and agreement issued by the Commission that disclaims 
jurisdiction over ``local distribution'' facilities has limited 
applicability. It also claims that states are better situated to handle 
small generator interconnections, and having two competing 
interconnection regimes for small generator interconnections would be 
confusing. NARUC therefore also urges the Commission to adopt a policy 
statement instead of a binding rule.
Commission Conclusion
    512. We conclude that as much standardization as possible of the 
rates, terms, and conditions of jurisdictional interconnection service 
will help eliminate undue discrimination. A non-binding policy 
statement would not end this undue discrimination. Further, not 
regulating jurisdictional interconnections would leave a regulatory gap 
where neither the states nor the Commission held sway. A gap of this 
sort would make it more difficult for Interconnection Customers wanting 
to interconnect and would in fact, leave them worse off than the owners 
of Large Generating Facilities.
    513. This Final Rule both fulfills the Commission's duty to remedy 
undue discrimination when covered by this rule and, when not covered by 
this rule, provides a model that state regulators may wish to use as a 
starting point for developing their own procedures and agreement. We 
hope that the SGIP and SGIA we adopt in this Final Rule are a step 
towards having a seamless interconnection process where 
interconnections with federal-jurisdictional facilities and state-
jurisdictional facilities will be handled in a similar fashion. By 
doing so, we intend to avoid the very federal-state clashes NARUC 
anticipates.
Issues Relating to Qualifying Facilities
    514. The NOPR did not address the issue of how QFs would be 
impacted by the small generator rulemaking.
Comments
    515. EEI and PacifiCorp ask the Commission to clarify that a QF 
that is not selling at wholesale, other than to a host utility under 
PURPA, should seek interconnection service through state procedures, 
not through Commission procedures. PacifiCorp states that the PURPA 
regulatory scheme for QFs involves considerable deference to state 
regulation with regard to the interconnection of QFs to state-regulated 
utilities. The Iowa Utilities Board agrees and asserts that this Final 
Rule should say that states have authority to establish standards for 
the interconnection of QFs. To avoid confusion, PacifiCorp proposes 
that the SGIP state clearly that a Small Generating Facility with QF 
status or one seeking such status is not eligible for interconnection 
under the Commission's rule. PacifiCorp recommends amending the 
Interconnection Request so that the Interconnection Customer must 
certify that it does not intend to seek QF status. If it then seeks QF 
status, PacifiCorp proposes to require a review of the interconnection 
to determine whether it meets state interconnection standards for QFs. 
The Interconnection Customer

[[Page 34234]]

would also pay any costs incurred by the Transmission Provider that a 
QF would have paid, if such costs would not be recovered by the 
Transmission Provider under the SGIP.
Commission Conclusion
    516. The Commission has regulations that govern a QF's 
interconnection with most electric utilities in the United States,\168\ 
including normally non-jurisdictional utilities.\169\ When an electric 
utility is required to interconnect under section 292.303 of the 
Commission's regulations, that is, when it purchases the QF's total 
output, the state has authority over the interconnection and the 
allocation of interconnection costs.\170\ But when an electric utility 
interconnecting with a QF does not purchase all of the QF's output and 
instead transmits the QF's power in interstate commerce, the Commission 
exercises jurisdiction over the rates, terms, and conditions affecting 
or related to such service, such as interconnections.\171\
---------------------------------------------------------------------------

    \168\ 18 CFR 292.303, 292.306 (2004).
    \169\ The absence of interstate commerce in Alaska, Hawaii, and 
portions of Texas and Maine, and Puerto Rico is not germane to the 
Commission's jurisdiction over QF matters under PURPA. See 16 U.S.C. 
2602 (2000).
    \170\ See Western Massachusetts Electric Co., 61 FERC ] 61,182 
at 61,661-62 (1992), aff'd sub nom. Western Massachusetts Electric 
Co. v. FERC, 165 F.3d. 922, 926 (D.C. Cir. 1999).
    \171\ Id. at 61,661-62. The Commission further clarified that 
``[t]he fact that the facilities used to support the jurisdictional 
service might also be used to provide various nonjurisdictional 
services, such as back-up and maintenance power for a QF, does not 
vest state regulatory authorities with authority to regulate matters 
subject to the Commission's exclusive jurisdiction.'' Id. at 61,662.
---------------------------------------------------------------------------

    517. The Commission thus exercises jurisdiction over a QF's 
interconnection if the QF's owner sells any of the QF's output to an 
entity other than the electric utility directly interconnected with the 
QF. This Final Rule applies when the owner of the QF seeks 
interconnection with a facility subject to the OATT to sell any of the 
output of the QF to a third party. This applies to a new QF that plans 
to sell any of its output to a third party and to an existing QF 
interconnected with an electric utility or on-site customer that 
decides in the future to sell any of its output to a third party. 
States continue to exercise authority over QF interconnections when the 
owner of the QF sells the output of the QF only to the interconnected 
utility or to on-site customers.
    518. PacifiCorp's proposal that the Commission require the 
Interconnection Customer to certify that it does not intend to seek QF 
status is unnecessary. This Final Rule only applies when the 
interconnection is subject to the Commission's jurisdiction. Other 
rules apply if the generator seeks to interconnect as a QF. PacifiCorp 
has provided no convincing rationale why this proposed amendment is 
necessary for this rulemaking.
Taxes
    519. The NOPR did not explicitly address the potential taxation of 
payments made by the Interconnection Customer to the Transmission 
Provider for Interconnection Facilities and Upgrades.
Comments
    520. A few commenters urge the Commission to address taxes. They 
argue that the Commission should adopt an approach similar to that 
taken in the LGIA so that any taxes incurred by the Transmission 
Provider are not shifted to its customers.
    521. Because payments received for Upgrades by the Transmission 
Provider may be taxed, EEI and Ameren ask the Commission to clarify how 
the Transmission Provider will recover those tax payments. Further, EEI 
argues that additional financial security may be required because such 
facilities could be jurisdictional to either the Commission or state 
utility commissions. Additional financial security would ensure that 
the utility is not forced to recover such costs from its entire 
customer base. EEI proposes that the following sentence be added to 
Proposed SGIA article 5.2: ``[The] Transmission Provider may request 
additional financial security to cover tax liabilities that it may 
incur as a result of a transaction being deemed by the Internal Revenue 
Service to have been a taxable event, for example, when an 
Interconnection Customer terminates a signed Interconnection 
Agreement.''
    522. Southern Company proposes a tax provision modeled after the 
ANOPR consensus documents. Under Proposed SGIA article 5.1.2.1, the 
refunds paid to the Interconnection Customer through transmission 
credits include ``any tax gross-up or other tax-related payments'' in 
connection with Network Upgrades required for interconnection. It 
argues that if the Interconnection Customer receives transmission 
credits for such payments, all other transmission customers will have 
to bear the tax liability created by the Interconnection Customer. 
Transmission credits should be provided to the Interconnection Customer 
for the cost of installing facilities only if those costs may 
facilitate transmission delivery service. Any tax gross-up paid by the 
Interconnection Customer would not facilitate transmission delivery 
service, but instead would be a tax liability created solely by the 
interconnection. Moreover, requiring the refund through credits of 
taxes paid, plus interest, would force the Transmission Provider to pay 
the full carrying cost of income taxes on the Interconnection 
Customer's assets with no means of recouping the expenditure.
Commission Conclusion
    523. The commenters are correct that payments received for Upgrades 
by the Transmission Provider may be taxed under certain circumstances. 
If construction of Upgrades is necessary, any associated taxes are to 
be handled consistent with Commission precedent and applicable tax 
rules and regulations. In particular, the Parties should then look to 
the LGIA's tax framework.\172\ We also reiterate that it is Commission 
policy that each Party must cooperate with the other Party to maintain 
the Transmission Provider's tax exempt status, where applicable.
---------------------------------------------------------------------------

    \172\ See, e.g., LGIA articles 5.17 and 5.18 and Order No. 2003-
A at P 324 et seq.
---------------------------------------------------------------------------

OATT Reciprocity Requirements
    524. The Small Generator Interconnection NOPR did not propose any 
changes to the existing reciprocity policy; accordingly, the Small 
Generator Interconnection NOPR did not discuss it.
Comments
    525. NRECA states that it ``applauds the Commission's decision to 
apply the reciprocity provision in the OATT and the reciprocity policy 
articulated in Order No. 888 [and] appreciates the sensitivity the 
Commission has demonstrated to the needs of non-jurisdictional service 
providers.'' \173\ However, it remains concerned that non-public 
utilities may be discouraged from interconnecting new generation out of 
fear that such an interconnection will make them subject to the 
jurisdiction of the Commission. To avoid this, NRECA advocates the 
creation of a safe harbor for non-jurisdictional entities that want to 
interconnect new generation, yet maintain their non-jurisdictional 
status. NRECA points to several Commission natural gas decisions that 
it asserts provide precedent for creating a safe harbor of the type it 
proposes. NRECA also states that the Commission could achieve the same 
result by ordering an interconnection under section 211 of the FPA.
---------------------------------------------------------------------------

    \173\ NRECA at 57.
---------------------------------------------------------------------------

    526. AMP-Ohio and LADWP ask the Commission to clarify that the

[[Page 34235]]

reciprocity condition applies only to the public utility over whose 
system the non-public utility takes transmission service. They also ask 
the Commission to clarify that there is no reciprocity obligation on 
the part of a non-public utility that owns only distribution 
facilities, not transmission facilities. The effect of most small 
generators is felt at the distribution level, LADWP argues, and these 
interconnections are more likely to affect retail customers. SMUD makes 
a similar argument.
    527. PacifiCorp requests that the Commission clarify that if a 
public utility is forced to offer interconnection service on its 
distribution lines to a non-public utility under the reciprocity 
condition, then the public utility must be offered similar rights to 
interconnect with the non-public utility. PacifiCorp argues that

[b]ecause many non-jurisdictional utilities own distribution systems 
that they do not consider `transmission,' even when the 
corresponding system of a public utility is considered transmission 
by the Commission, the potential for discriminatory impact is real. 
At a minimum, the definition of a non-jurisdictional utility's 
`transmission facilities' should be modified to include any 
distribution facility that would be considered `transmission' if it 
were owned by a jurisdictional utility.\174\
---------------------------------------------------------------------------

    \174\ PacifiCorp at 2-3.

    528. SMUD asks if reciprocity applies when the Interconnection 
Customer seeks to connect at distribution voltage to the non-
jurisdictional utility and proposes to engage in sales for resale. It 
also asks if reciprocity applies differently for non-jurisdictional 
utilities seeking bilateral agreements with public utilities than to 
non-jurisdictional utilities seeking approval of safe harbor tariffs.
    529. NRECA asks the Commission to clarify that a non-jurisdictional 
utility is not required to offer interconnection service if doing so 
would jeopardize its tax-exempt status.
    530. Finally, Bureau of Reclamation, BPA, and others assert that as 
federal agencies, they are not able to comply with all of the 
provisions of the Proposed SGIP and SGIA. For instance, BPA says its 
contracts must accommodate the Freedom of Information Act and that it 
could not comply with all aspects of the Commission's proposed 
confidentiality provisions. BPA and Bureau of Reclamation request 
clarification that they are not required to comply with these 
provisions.
Commission Conclusion
    531. Most of the comments focus on whether interconnections with 
``distribution'' systems are subject to the reciprocity condition. The 
answer is, to satisfy the reciprocity condition of Order No. 888, a 
non-public utility must offer to a public utility with an OATT service 
comparable to that offered to its own or affiliated Interconnection 
Customers.\175\
---------------------------------------------------------------------------

    \175\ Order No. 2003-A at P 775.
---------------------------------------------------------------------------

    532. PacifiCorp is correct that what the facility is termed by its 
owner does not affect its jurisdictional status. The reciprocity 
condition would apply to any facility used to offer services that would 
be Commission-jurisdictional if the non-public utility were a public 
utility.
    533. The reciprocity requirement in Order No. 888 permits a public 
utility to require, as a condition of providing open access service to 
a non-public utility that owns, controls, or operates transmission 
facilities, that the non-public utility provide reciprocal transmission 
service. In Order No. 2003-A, the Commission explained that the 
reciprocity provision applies to Interconnection Service in the same 
way.\176\
---------------------------------------------------------------------------

    \176\ See Order No. 2003-A at P 760 et seq.
---------------------------------------------------------------------------

    534. There are three ways a non-public utility may satisfy the 
reciprocity provision.\177\ First, it may provide service under a 
Commission-approved ``safe harbor'' tariff--a tariff that the 
Commission has determined offers truly open access service. Second, it 
may provide service to a public utility under a bilateral agreement 
that satisfies its reciprocity obligation. Third, the non-public 
utility may ask the public utility to waive the reciprocity condition.
---------------------------------------------------------------------------

    \177\ Id. at P 761.
---------------------------------------------------------------------------

    535. A non-public utility that has a ``safe harbor'' tariff that is 
modeled on the OATT must add to that tariff an interconnection 
procedures document and interconnection agreement that either are 
modeled on the OATT interconnection procedures document and agreement 
or are otherwise found to offer truly open access service if it wishes 
to continue to qualify for ``safe harbor'' treatment.\178\ A non-public 
utility that owns, controls, or operates transmission, has not filed 
with the Commission a ``safe harbor'' tariff, and seeks transmission 
service from a public utility that invokes the reciprocity provision 
must either satisfy its reciprocity obligation under a bilateral 
agreement or ask the public utility to waive the OATT reciprocity 
condition.
---------------------------------------------------------------------------

    \178\ Id.
---------------------------------------------------------------------------

    536. This Final Rule does not modify the Commission's reciprocity 
policy as laid out in Order Nos. 888 and 2003.
    537. LADWP also states that there are relatively few Commission-
jurisdictional Small Generating Facility interconnections and urges the 
Commission not to apply its reciprocity policy in the small generator 
context. The fact that there may be relatively few interconnections 
subject to this Final Rule does not justify abandoning long-standing 
reciprocity policy.
    538. As the Commission determined in Order Nos. 888 \179\ and 2003-
A,\180\ reciprocal service is not required if providing such service 
would jeopardize the tax-exempt status or bond status of the non-public 
utility.
---------------------------------------------------------------------------

    \179\ Order No. 888 at 31,762, n.499.
    \180\ Order No. 2003-A at P 782.
---------------------------------------------------------------------------

    539. As to BPA and Bureau of Reclamation's comments, we reiterate 
that reciprocity does not require federal entities to provide services 
or sign contracts that they cannot legally enter into. If such entities 
choose to amend their safe harbor tariffs on compliance, they may 
propose modifications to the SGIP and SGIA that address their concerns.
    540. Finally, we deny NRECA's proposed safe harbor provision. As it 
notes, section 211 of the FPA already allows a non-public utility to 
safeguard its non-jurisdictional status. We see no need to fix a system 
that does not appear to be broken.
Coordination With Affected Systems
    541. An Affected System is an electric system other than the 
Transmission Provider that may be affected by the proposed 
interconnection. In the Small Generator Interconnection NOPR, the 
Commission proposed to treat coordination between the Transmission 
Provider, Interconnection Customer, and any Affected Systems the same 
way as in the LGIA. Order Nos. 2003 and 2003-A required the 
Transmission Provider to coordinate with an Affected System. The 
Commission requested comments on whether there are any issues specific 
to Small Generating Facilities that necessitate a different policy.
Comments
    542. While no commenters present any arguments on this issue 
specific to the small generator context, some discuss the Affected 
System provision in terms of Distribution Systems.
Commission Conclusion
    543. We are adopting an Affected System provision comparable to the 
one

[[Page 34236]]

in the LGIP and LGIA. Regarding the comments addressing the Affected 
System provision in terms of Distribution Systems subject to an OATT, 
we note that the definition of Affected System includes not only 
transmission facilities. The definition is more inclusive; it is ``an 
electric system * * * that may be affected by the proposed 
interconnection.'' Thus, an Affected System may be any type of electric 
system.\181\
---------------------------------------------------------------------------

    \181\ We note that, similar to when the Affected System is a 
non-jurisdictional entity, the Commission does not have to have 
jurisdiction over the Affected System in order for the 
interconnection to proceed. See Order No. 2003-A at P 114-115.
---------------------------------------------------------------------------

I. Compliance Issues

Amendments to the Transmission Provider's OATT
    544. In this Final Rule, we are requiring all public utilities that 
own, control, or operate interstate transmission facilities to adopt 
the SGIP and SGIA, but are using a process different from the one used 
in Order No. 2003. On the effective date of Order No. 2003, the OATT of 
each Transmission Provider was deemed to have included the LGIP and 
LGIA.\182\ On the effective date of this Final Rule, as in Order No. 
2003,\183\ the OATTs of all non-independent Transmission Providers are 
deemed revised to include the Final Rule SGIP and SGIA. But unlike the 
Order No. 2003 process, where the Commission directed Transmission 
Providers to make ministerial filings to include the LGIP and LGIA in 
their next filings with the Commission, here the Commission will 
require no formal amendment until compliance is due in the Commission's 
rulemaking on Electronic Tariff Filings.\184\ This means that a non-
independent Transmission Provider that wishes to adopt the SGIP and 
SGIA (without variations) into its OATT need not formally add the 
documents to its OATT until it submits a compliance filing in response 
to the Commission's pending Electronic Tariff Filings rulemaking. A 
non-independent Transmission Provider that decides to take this option 
nevertheless must apply the SGIP and SGIA to any request for small 
generator interconnection that it receives after the effective date of 
this Final Rule, but before it complies with the rulemaking on 
Electronic Tariff Filings. The compliance obligation is different for 
non-independent Transmission Providers that seek variations from the 
Final Rule documents, as discussed further below.
---------------------------------------------------------------------------

    \182\ Order No. 2003 at P 910.
    \183\ See Standardization of Generator Interconnection 
Agreements and Procedures, Notice Clarifying Compliance Procedures, 
106 FERC ] 61,009 at P 2 (2004).
    \184\ Electronic Tariff Filings, Notice of Proposed Rulemaking, 
69 FR 43929 (July 23, 2004), FERC Stats. & Regs., Proposed 
Regulations, ] 32,575 (July 8, 2004).
---------------------------------------------------------------------------

    545. If an RTO or ISO wishes to adopt the SGIP and SGIA into its 
OATT, it may also await compliance with the Electronic Tariff Filings 
rulemaking before formally adding the documents to its OATT. But the 
RTO or ISO should notify the Commission by the effective date of this 
Final Rule that it will adopt the Final Rule documents and that 
requests for interconnection of Small Generating Facilities will be 
subject to the SGIP and SGIA in the interim period. An RTO or ISO that 
does not adopt the SGIP and SGIA will have additional time to submit 
its compliance filings to allow for the stakeholder process and other 
measures that must be taken before an RTO or ISO adopts tariff changes. 
Therefore, an RTO or ISO that seeks variations will have an additional 
90 days to submit its compliance filing. As in the Order No. 2003 
proceeding, until the Commission acts on the compliance filing of an 
RTO or ISO that seeks variations, the RTO's or ISO's existing 
Commission-approved interconnection procedures and agreement remain in 
effect.
Variations From the Final Rule
    546. As in Order No. 2003, the Commission will consider two 
categories of variations from the Final Rule submitted by a non-
independent Transmission Provider.\185\ First, the Commission will 
consider ``regional reliability variations'' that track established 
reliability requirements (i.e., requirements approved by the applicable 
regional reliability council). Any request for a ``regional reliability 
variation'' must be supported by references to established reliability 
requirements,\186\ and the text of the reliability requirements must be 
provided in support of the variation. If the variation is for any other 
reason, the non-independent Transmission Provider must demonstrate that 
the variation is ``consistent with or superior to'' the Final Rule 
provision. Blanket statements that a variation meets the standard or 
clarifies the Final Rule provision are not sufficient. Any request for 
application of this standard will be considered under FPA section 205 
and must be supported by arguments explaining how each variation meets 
the standard.
---------------------------------------------------------------------------

    \185\ Order No. 2003 at P 824-25.
    \186\ See also New York Independent System Operator, Inc., 108 
FERC ] 61,159 at P 95 (2004), reh'g pending.
---------------------------------------------------------------------------

    547. Requests for regional reliability variations are due on the 
effective date of this Final Rule. Requests for ``consistent with or 
superior to'' variations may be submitted on or after the effective 
date of the Final Rule. We note that the ``consistent with or superior 
to'' standard is difficult to meet because the burden of showing that a 
variation is ``consistent with or superior to'' the relevant provision 
or provisions in the Final Rule document is significant.
    548. Any request for a variation should be accompanied by a request 
to include the complete SGIP and SGIA into the Transmission Provider's 
OATT. The Commission will consider incomplete any request for a 
variation that does not also propose to append to the Transmission 
Provider's OATT the complete SGIP and SGIA. As explained above, an RTO 
or ISO will have 90 additional days (for a total of 150 days) to submit 
a compliance filing. That compliance filing must contain all proposed 
independent entity variations.
    549. With respect to an RTO or ISO, at the time its compliance 
filing is made, as explained in Order No. 2003, the Commission will 
allow it to seek ``independent entity variations'' from the Final Rule 
pricing and non-pricing provisions.\187\ The RTO or ISO should explain 
the basis for each variation.
---------------------------------------------------------------------------

    \187\ Order No. 2003 at P 827.
---------------------------------------------------------------------------

    550. Finally, for a non-independent Transmission Provider that 
belongs to an RTO or ISO, the RTO's or ISO's Commission-approved 
standards and procedures are to govern interconnection with its 
members' facilities that are under the operational control of the RTO 
or ISO. An interconnection with a Commission jurisdictional facility 
that is owned by a non-independent Transmission Provider but is not 
under the operational control of the RTO or ISO is to be conducted 
according to the non-independent Transmission Provider's procedures and 
agreement. A non-independent Transmission Provider, even if it belongs 
to an RTO or ISO, is not eligible for ``independent entity variations'' 
for procedures and agreements applicable to interconnection with 
facilities that remain within its operational control (and therefore, 
are subject to a tariff different from the RTO or ISO's OATT). To 
clarify, if a non-independent Transmission Provider belongs to an RTO 
or ISO, but keeps operational control of some jurisdictional 
facilities, and those facilities are not subject to the interconnection 
procedures under the OATT of the RTO or ISO, then the non-independent 
Transmission Provider must have a separate set of interconnection 
procedures and

[[Page 34237]]

agreement applicable to these facilities. To address the confusion that 
may arise from having inconsistent interconnection procedures and 
agreements applicable within an RTO or ISO region, we allow a non-
independent Transmission Provider that keeps control over some 
jurisdictional facilities to subject these facilities to an RTO- or 
ISO-controlled interconnection process. In such instance, the non-
independent Transmission Provider must agree to transfer to the RTO or 
ISO control over the significant aspects of the interconnection 
process, including the performance of all interconnection studies and 
cost determinations applicable to Network Upgrades.\188\
---------------------------------------------------------------------------

    \188\ See Order No. 2003-B at P 80.
---------------------------------------------------------------------------

Interconnection Requests Submitted Prior to the Effective Date of This 
Final Rule and Grandfathering of Existing Interconnection Agreements
    551. The grandfathering of existing agreements was not specifically 
addressed in the Small Generator Interconnection NOPR; however, the 
Commission did request comments on whether generic Commission policies 
applicable to Large Generating Facilities (such as grandfathering) 
should be applied to Small Generating Facilities.
Comments
    552. American Forest and National Grid seek clarification that 
small generators that are already interconnected are not subject to 
this rulemaking. To avoid unintended barriers to Small Generating 
Facilities, they urge the Commission to follow the Order No. 2003 
approach for grandfathering. American Forest states that generators 
should not have to undergo this new interconnection process, 
particularly where the generating facilities that are already 
interconnected have not changed their physical operations.
    553. California Wind Energy requests that, as in Order No. 2003, 
contract conversion of pre-existing interconnection contracts with 
former QFs should not trigger an obligation under this Final Rule to 
file an Interconnection Request because a change in contract status 
alone does not affect a generator's demand on the electric system. It 
also seeks clarification that, when the QF's interconnection agreement 
provides for greater capacity than what is to be sold to the 
interconnecting utility under the PURPA power purchase contract, upon 
contract conversion, the former QF should not have to submit an 
Interconnection Request if the transmission requirements are consistent 
with those provided for in the prior agreement.
    554. Finally, if the Commission adopts the approach used in Order 
No. 2003, California Wind Energy requests that the Commission clarify 
when a change in a QF's contract status triggers an obligation to file 
a new Interconnection Request. It notes that Order No. 2003 states that 
the owner of a QF formerly interconnected with a Transmission System 
has no obligation to file an Interconnection Request when its contract 
status changes if the output of its generator ``will be substantially 
the same as before.'' \189\ California Wind Energy asserts that the 
term ``output'' leaves ambiguous the effect of the Commission's 
criteria on projects that are to be repowered after contract 
conversion. It explains that when a QF repowers, it increases energy 
production while maintaining its maximum megawatt output. California 
Wind Energy seeks clarification that when a small generator increases 
energy production as a result of a post-PURPA contract repower, and 
there is no meaningful change in the generator's maximum output, there 
is no obligation to file a new Interconnection Request.
---------------------------------------------------------------------------

    \189\ Order No. 2003 at P 815.
---------------------------------------------------------------------------

Commission Conclusion
    555. As in Order No. 2003, the Commission is not requiring changes 
to interconnection agreements filed with the Commission before the 
effective date of this Final Rule. Interconnection agreements submitted 
for approval by the Commission before the effective date of this Final 
Rule are grandfathered and will not be rejected outright for failing to 
conform to the SGIA. Small Generating Facilities already interconnected 
that have not changed their physical operations in such a way as to 
require a new Interconnection Request are not subject to this 
rulemaking.
    556. We also note that the Small Generator NOPR did not address 
what happens to Interconnection Customers whose Interconnection 
Requests are pending at the time this Final Rule goes into effect. LGIP 
section 5 addresses how such interconnections are to be processed, and 
we adopt a shortened version of that provision in the SGIP as well. The 
new section 1.7 clarifies that nothing in this Final Rule is intended 
to affect an Interconnection Customer's Queue Position assigned prior 
to the effective date of this rule. It also states that the Parties 
shall continue to process any executed interconnection study agreements 
(or study agreements that have been filed unexecuted with the 
Commission) once this Final Rule becomes effective. However, we will 
require that any new interconnection study agreement entered into after 
this Final Rule becomes effective follow the pro forma study agreements 
contained in the SGIP. Any accommodation needed to process such 
Interconnection Requests (i.e., should the pre- and post-Final Rule 
study processes be significantly different) should be filed with the 
Commission and will be evaluated on a case-by-case basis.
    557. If an interconnection agreement has been executed prior to the 
effective date of this Final Rule, then no additional steps need to be 
taken. We agree with the commenters that an existing Interconnection 
Customer whose Small Generating Facility is already interconnected 
should not have to undergo a new interconnection process.
    558. We also reiterate that a change in an Interconnection 
Customer's contract status does not, by itself, trigger an obligation 
to file an Interconnection Request. As the Commission noted in Order 
Nos. 2003 and 2003-A, a former QF interconnected with a Transmission 
System that sells electric energy at wholesale in interstate commerce 
need not submit an Interconnection Request if it represents that the 
output of the generating facility is substantially the same as 
before.\190\ Under the Commission's regulations,\191\ a QF must provide 
electric energy to its interconnecting utility much like the 
interconnecting utility's other network resources because the utility 
must purchase the QF's power to displace its own generation. When the 
owner of a QF that was formerly interconnected with a Transmission 
System seeks to sell energy at wholesale and represents that the output 
of its generator will be substantially the same after conversion, it 
would be unreasonable for a Transmission Provider to require the former 
QF to join the interconnection queue.
---------------------------------------------------------------------------

    \190\ Order No. 2003 at P 815.
    \191\ 18 CFR 292.303 (2004).
---------------------------------------------------------------------------

    559. California Wind Energy also asks the Commission to clarify 
that a plant repowering at the time of contract conversion that does 
not increase plant capacity will not trigger an obligation to file an 
Interconnection Request. We clarify that a contract conversion that 
does not affect a generator's demands on the Transmission System does 
not trigger an obligation to file. When a QF's existing interconnection 
agreement provides for capacity greater than the capacity sold by the 
QF to the

[[Page 34238]]

interconnecting utility under the PURPA power purchase contract, the 
QF's contract conversion will not trigger an obligation to file an 
Interconnection Request if its transmission requirements are consistent 
with the capacity provided for in the existing interconnection 
agreement.
Order No. 2001 and the Filing of Interconnection Agreements
    560. Order No. 2001 \192\ revised how traditional public utilities 
and power marketers must satisfy their obligation, under section 205 of 
the FPA and Part 35 of the Commission's regulations, to file agreements 
with the Commission.\193\ Public utilities that have standard forms of 
agreement in their OATTs, cost-based power sales tariffs, or tariffs 
for other generally applicable services no longer need to file 
conforming service agreements with the Commission. The filing 
requirement for conforming agreements (those that follow the standard 
form) is now satisfied by filing the standard form of agreement and an 
Electronic Quarterly Report. Order No. 2001 also lifted the requirement 
that Parties to an expiring conforming agreement file a notice of 
cancellation or a cancellation tariff sheet with the Commission. The 
public utility may simply remove the agreement from its Electric 
Quarterly Report in the quarter after it terminates.
---------------------------------------------------------------------------

    \192\ Revised Public Utility Filing Requirements, Order No. 
2001, 67 FR 31043 (May 8, 2002), FERC Stats. & Regs. ] 31,127 
(2002); reh'g denied, Order 2001-A, 100 FERC ] 61,074 (2002); 
reconsideration and clarification denied, Order No. 2001-B, 100 FERC 
] 61,342 (2002); further order, Order No. 2001-C, 101 FERC ] 61,314 
(2002).
    \193\ Order No. 2001 pointed out that Part 35 of the 
Commission's regulations does not make a distinction between an 
interconnection agreement and other agreements for service that must 
be filed under the Commission's regulations. Order No. 2001, 
therefore, said that if an interconnection agreement conforms to a 
Commission-approved standard form of interconnection agreement, the 
utility does not have to file it, but must report it in the Electric 
Quarterly Reports. It also stated that the requirement to file 
contract data and transaction data begins with the first Electric 
Quarterly Report filed after service begins under an agreement, and 
continues until the Electric Quarterly Report filed after it expires 
or by order of the Commission. However, an interconnection agreement 
that does not precisely match the Transmission Provider's approved 
interconnection agreement or that is unexecuted must be filed with 
the Commission. The Transmission Provider must clearly show where 
the agreement does not conform to its standard interconnection 
agreement, preferably through red-lining and strike-out.
---------------------------------------------------------------------------

    561. Non-conforming agreements, which are agreements for 
transmission, cost-based power sales or other generally applicable 
services that do not conform to a standard form of agreement in a 
public utility's tariff, must continue to be filed with the Commission 
for approval before going into effect. This category includes 
unexecuted agreements and agreements that do not precisely match the 
standard form of agreement.
    562. Order No. 2003 explained that, under Order No. 2001, if an 
interconnection agreement conforms to a Commission-approved standard 
form of interconnection agreement, the Transmission Provider does not 
have to file it with the Commission, but must report it in its Electric 
Quarterly Reports. The same filing rules will apply to non-conforming 
SGIAs as for non-conforming LGIAs. However, an interconnection 
agreement that does not precisely match the Transmission Provider's 
Commission-approved standard interconnection agreements or that is 
unexecuted must be filed in its entirety. The Transmission Provider 
shall clearly show where the filed agreement does not conform to its 
standard interconnection agreement through red-lining and strike-out 
and justify the basis for the nonconformance.

III. Information Collection Statement

    563. The Office of Management and Budget (OMB) regulations require 
that OMB approve certain reporting and record keeping (collections of 
information) imposed by an agency.\194\ The information collection 
requirements in this Final Rule are identified under the Commission 
data collection, FERC-516A ``Standardization of Small Generator 
Interconnection Agreements and Procedures.'' Under section 3507(d) of 
the Paperwork Reduction Act of 1995,\195\ the proposed reporting 
requirements in the subject rulemaking will be submitted to OMB for 
review. Interested persons may obtain information on the reporting 
requirements by contacting the Federal Energy Regulatory Commission, 
888 First Street, NE., Washington, DC 20426 (Attention: Michael Miller, 
Office of the Executive Director, 202-502-8415) or from the Office of 
Management and Budget (Attention: Desk Officer for the Federal Energy 
Regulatory Commission, fax: 202-395-7285, e-mail: n.;[9 [email protected]).
---------------------------------------------------------------------------

    \194\ 5 CFR 1320.11 (2004).
    \195\ 44 U.S.C. 3507(d) (2000).
---------------------------------------------------------------------------

    564. The ``public protection'' provision of the Paperwork Reduction 
Act \196\ requires each agency to display a currently valid OMB control 
number and inform respondents that a response is not required unless 
the information collection displays a valid OMB control number on each 
information collection. This provision has two legal effects: (1) It 
creates a legal responsibility for the agency; and (2) it provides an 
affirmative legal defense for respondents if the information collection 
is imposed on respondents by the Commission through regulation or 
administrative means in order to satisfy a legal authority or 
responsibility of the Commission. If the Commission should fail to 
display an OMB control number, then it is the Commission not the 
respondent who is in violation of the law. ``Display'' is defined as 
publishing the OMB control number in regulations, guidelines or other 
issuances in the Federal Register (for example, in the preamble or 
regulatory text for the final rule containing the information 
collection).\197\ Therefore, the Commission may not conduct or sponsor, 
and a person is not required to respond to a collection of information 
unless the information collection displays a valid OMB control number.
---------------------------------------------------------------------------

    \196\ 44 U.S.C. 3512; 5 CFR 1320.5(b); 5 CFR 1320.6(a).
    \197\ See 1 CFR 21.35 and 5 CFR 1320.3(f)(3).
---------------------------------------------------------------------------

    565. Public Reporting Burden: The Commission did not receive 
specific comments concerning its burden estimates and uses the same 
estimates here in the Final Rule. Comments on the substantive issues 
raised in the NOPR are addressed elsewhere in the Final Rule.

----------------------------------------------------------------------------------------------------------------
                                                      No. of          No. of         Hours per     Total annual
                 Data collection                    respondents      responses       response          hours
----------------------------------------------------------------------------------------------------------------
FERC-516A
    SGIPs & SGIAs...............................             238               1              25           5,950
    Recordkeeping...............................             238               1               2             476
                                                 -----------------
        Totals..................................  ..............  ..............  ..............           6,426
----------------------------------------------------------------------------------------------------------------


[[Page 34239]]

    Total Annual Hours for Collection: 5,950 (reporting) [238 
respondents x 1 x 25 hours] + 476 hours (recordkeeping ) [238 hours x 1 
filing x 2 hours to retain interconnection documents] = 6,426.\198\
---------------------------------------------------------------------------

    \198\ Adjustments made to reflect an increase in the number of 
respondents from the estimate in the Small Generator Interconnection 
NOPR.
---------------------------------------------------------------------------

    566. Information Collection Costs: The Commission sought comments 
about the time needed to comply with these requirements. No comments 
were received. Staffing requirements to review and modify existing 
SGIPs and SGIAs = $309,400 [238 respondents x $1,300 (25 hours @ $52 
hourly rate)]. To be added to this cost are the annualized costs for 
operations and management (238 respondents x $34 [2 hours @ $17 hourly 
rate for recordkeeping] or $8,092)). Total costs of $317,492 for 
preparing filings for modification of the OATT and for recordkeeping of 
interconnection documents. There will be a one-time start up cost to 
comply with these requirements for the procedures and agreements and 
then an additional cost to maintain them.\199\
---------------------------------------------------------------------------

    \199\ Adjusted figures to reflect an increase in the number of 
respondents.
---------------------------------------------------------------------------

    Titles: FERC-516A ``Standardization of Small Generator 
Interconnection Agreements and Procedures
    Action: Revision of Currently Approved Collection of Information
    OMB Control Nos: 1902-0203.
    Respondents: Business or other for profit.
    Frequency of Responses: One occasion.
    Necessity of Information: The Final Rule revises the reporting 
requirements contained in 18 CFR part 35. The Commission promulgates a 
standardized SGIP and SGIA that public utilities must adopt. As noted 
in the Final Rule, adopting these procedures and agreement will (1) 
reduce interconnection costs and time for the owners of Small 
Generating Facilities and Transmission Providers alike; (2) limit 
opportunities for Transmission Providers to favor their own generation; 
(3) facilitate market entry for generation competitors; and (4) 
encourage needed investment in generator and transmission 
infrastructure.
    567. Interconnection plays a growing, crucial role in bringing 
generation into the market to meet the needs of electricity customers. 
However, requests for interconnection frequently result in complex 
technical disputes about interconnection feasibility, cost and cost 
responsibility. The Commission expects that a standardized SGIP and 
SGIA will reduce interconnection costs and time for Interconnection 
Customers and Transmission Providers, resolve most interconnection 
disputes, minimize opportunities for undue discrimination, foster 
increased development of economic generation, and improve system 
reliability.
    568. For information on the requirements, submitting comments on 
the collection of information and the associated burden estimates 
including suggestions for reducing this burden, please send your 
comments to the Federal Energy Regulatory Commission, 888 First Street, 
NE., Washington, DC 20426 (Attention: Michael Miller, Office of the 
Executive Director, (202) 502-8415) or send comments to the Office of 
Management and Budget (Attention: Desk Officer for the Federal Energy 
Regulatory Commission, fax: (202) 395-7285, e-mail [email protected]).

IV. Environmental Impact Statement

    569. Commission regulations require that an environmental 
assessment or an environmental impact statement be prepared for any 
Commission action that may have a significant adverse effect on the 
human environment.\200\ No environmental consideration is necessary for 
the promulgation of a rule that is clarifying, corrective, or 
procedural or does not substantially change the effect of legislation 
or regulations being amended,\201\ and also for information gathering, 
analysis, and dissemination.\202\ The Final Rule updates part 35 of the 
Commission's regulations and does not substantially change the effect 
of the underlying legislation or the regulations being revised or 
eliminated. In addition, the Final Rule involves information gathering, 
analysis, and dissemination. Therefore, this Final Rule falls within 
categorical exemptions provided in the Commission's regulations. 
Consequently, neither an environmental impact statement nor an 
environmental assessment is required.
---------------------------------------------------------------------------

    \200\ Regulations Implementing National Environmental Policy 
Act, Order No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs. 
] 30,783 (1987).
    \201\ 18 CFR 380.4(a)(2)(ii) (2004).
    \202\ 18 CFR 380.4(a)(5) (2004).
---------------------------------------------------------------------------

    570. While some Small Generating Facilities, such as reciprocating 
engines, may produce more pollution, others, such as photovoltaics and 
fuel cells, produce significantly less air, water and noise pollution 
than do new central station technologies. Others, such as micro-
turbines, provide opportunities to reduce emissions by improving the 
efficiency with which energy is consumed, through improved heat rates 
and combined heat and power applications. Small Generating Facilities 
may eliminate the need to run older, more polluting generating units 
and reduce power line losses. As one of the goals of this rule is to 
allow interconnection of Small Generating Facilities that can provide 
environmental and economic benefits, this rule will benefit customers 
by providing alternative generation sources.

V. Regulatory Flexibility Act

    571. The Regulatory Flexibility Act (RFA) \203\ requires that a 
rulemaking contain either a description and analysis of the effect that 
the proposed rule will have on small entities or a certification that 
the rule will not have a significant economic impact on a substantial 
number of small entities. However, the RFA does not define 
``significant'' or ``substantial'' instead leaving it up to any agency 
to determine the impacts of its regulations on small entities. In the 
NOPR, the Commission stated that the proposed regulations would impose 
requirements only on interstate Transmission Providers, which are not 
small businesses. The Commission certified that the proposed 
regulations would not have a significant adverse impact on a 
substantial number of small entities. In making its certification, the 
Commission determined that the rule applies only to public utilities 
that own, control, or operate facilities for transmitting electric 
energy in interstate commerce and not to electric utilities per se. 
Small entities that believe this rule will have a significant impact on 
them may apply to the Commission for waivers.
---------------------------------------------------------------------------

    \203\ 5 U.S.C. 601-612 (2000).
---------------------------------------------------------------------------

Comments
    572. NRECA questions this certification. NRECA argues that to 
lessen the impact of this rule on small entities, the Commission 
should: ``(1) Provide a durable blanket waiver of the NOPR requirements 
to all currently FPA-jurisdictional utilities, that qualify as 'small' 
public utilities under the Small Business Administration (SBA) utility 
size standards, and (2) provide a safe harbor for all `small' non-
jurisdictional providers that want to work with consumers to 
interconnect generation, but want to maintain their non-jurisdictional 
status.''
Commission Conclusion
    573. We are applying the same standards to any entity seeking a 
waiver of the requirements of this Final Rule. Because the possible 
scenarios under which small entities may seek waivers

[[Page 34240]]

are diverse, they are not susceptible to resolution on a generic basis, 
and we are requiring applications and fact-specific determinations in 
each instance. The Commission does not have jurisdiction over non-
public utilities' rate, terms and conditions of transmission service 
under sections 205 and 206 of the FPA, and Order No. 888 does not 
require that non-public utilities file open access transmission 
tariffs. In addition, under the waiver provisions of Order No. 888, 
small non-public utilities may seek waiver from the reciprocity 
provision. This waiver policy follows the SBA definition of a small 
utility.\204\ The SBA defines a small electric utility as one that 
disposes of 4 MWh or less of electric energy in a given year.\205\
---------------------------------------------------------------------------

    \204\ See 5 U.S.C. 601(3) and 601(6) and 15 U.S.C. 632(a).
    \205\ See 13 CFR 121.601.
---------------------------------------------------------------------------

    574. We disagree with NRECA that this Final Rule will have a 
significant economic effect on a substantial number of small entities. 
Of the 931 electric cooperatives in the 47 states across the country, 
686 receive financial assistance from the U.S. Department of 
Agriculture and therefore are not subject to the Commission's 
jurisdiction.\206\ Of the 67 members of NRECA who have generation and 
transmission facilities, only 34 electric cooperatives are subject to 
the Commission's jurisdiction. They are only a small subset of the 
entities considered when determining a significant impact on a 
substantial number of small entities. Within the subset of 34 entities, 
only a few own, control, or operate interstate transmission facilities.
---------------------------------------------------------------------------

    \206\ Source: Rural Utilities Service, U.S. Department of 
Agriculture, http://www.usdagov.rus/electric/borrowers/index.htm. 
April, 2005.
---------------------------------------------------------------------------

    575. As NRECA noted in its comments, the Commission has an 
important role in determining whether facilities are distribution or 
transmission, and as the Commission noted elsewhere in this Final Rule, 
the only facilities that are already subject to a Transmission's 
Provider's OATT are covered by this rule and apply only to a small 
percentage of small generator interconnections. The Commission 
recognizes that most small generators will interconnect with facilities 
that are not subject to the OATT.
    576. However, in drafting this rule the Commission has followed the 
provisions of both the RFA and the Paperwork Reduction Act to consider 
the potential impact of regulations on small business and other small 
entities. Specifically, the RFA directs agencies to consider four 
regulatory alternatives to be considered in a rulemaking to lessen the 
impact on small entities: Tiering or establishment of different 
compliance or reporting requirements for small entities, 
classification, consolidation, clarification or simplification of 
compliance and reporting requirements, performance rather than design 
standards, and exemptions. The Commission has adopted both tiering, and 
classification and simplification when developing technical accelerated 
procedures to apply to interconnections that will have no adverse 
effect on the Transmission Provider's electric system. By the use of 
tiering, the Commission is creating three ways to evaluate 
Interconnection Requests that can be applied to size and operating 
conditions of a small generating facility. As noted earlier, all Small 
Generating Facilities are subject to the Study Process, but in order to 
expedite the process and reduce the requirements on facilities smaller 
than 2 MW, technical screens were developed for certified Small 
Generating Facilities no larger than 2 MW (Fast Track) and certified 
inverter-based Small Generating Facilities no larger than 10 kW (10 kW 
Inverter Process). The latter process was further simplified as it does 
not use an SGIA, instead using an all-in-one document that includes the 
application form, interconnection procedures, and terms and conditions. 
In addition, many provisions of the SGIA are based on the NARUC Model 
which in turn is based on the experience of several states for 
implementing interconnections.
    577. A core issue has been whether standards could be developed 
that will allow for a cost effective interconnection solution without 
jeopardizing the safety and reliability of the Transmission System. One 
study showed that the typical cost of interconnection ranges from $50/
kW-$200/kW depending on the size of the generating facility, 
application and utility requirements.\207\ By simplifying both the 
interconnection procedures document and interconnection agreement, the 
costs of small generating facilities should be reduced, equipment 
manufacturers will be able to operate from a single set of technical 
specifications, and seamless procedures will be in place that do not 
jeopardize the safety and reliability of the Transmission System.
---------------------------------------------------------------------------

    \207\ Souce: Arthur D. Little, Distribution Generation: System 
Interfaces, Arthur D. Little, Inc., Cambridge, Massachusetts, 1999.
---------------------------------------------------------------------------

VI. Document Availability

    578. In addition to publishing the full text of this document in 
the Federal Register, the Commission provides all interested persons an 
opportunity to obtain this document from the Public Reference Room 
during normal business hours (8:30 a.m. to 5 p.m. Eastern Time) at 888 
First Street, NE., Room 2A, Washington, DC. The full text of this 
document is also available electronically from the Commission's 
eLibrary system (formerly called FERRIS) in PDF and Microsoft Word 
format for viewing, printing, and downloading. eLibrary may be accessed 
through the Commission's Home Page (http://www.ferc.gov). To access 
this document in eLibrary, type ``RM02-1-'' in the docket number field 
and specify a date range that includes this document's issuance date.
    579. User assistance is available for eLibrary and the Commission's 
Web site during normal business hours from our Help Line at (202) 502-
8222 or the Public Reference Room at (202) 502-8371 Press 0, TTY (202) 
502-8659. E-Mail the Public Reference Room at 
[email protected].

VII. Effective Date And Congressional Notification

    580. This Final Rule will take effect on August 12, 2005. The 
Commission has determined, with the concurrence of the Administrator of 
the Office of Information and Regulatory Affairs of the Office of 
Management and Budget, that this rule is not a ``major rule'' within 
the meaning of section 251 of the Small Business Regulatory Enforcement 
Fairness Act of 1996.\208\ The Commission will submit the Final Rule to 
both houses of Congress and the General Accounting Office.\209\
---------------------------------------------------------------------------

    \208\ 5 U.S.C. 804(2) (2000).
    \209\ 5 U.S.C. 801(a)(1)(A) (2000).
---------------------------------------------------------------------------

List of Subjects in 18 CFR Part 35

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

    By the Commission.
Linda Mitry,
Deputy Secretary.

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

PART 35--FILING OF RATE SCHEDULES AND TARIFFS

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

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


0
2. In Sec.  35.28, paragraph (f) is revised to read as follows:

[[Page 34241]]

Sec.  35.28  Non-discriminatory open access transmission tariff.

* * * * *
    (f) Standard generator interconnection procedures and agreements. 
(1) Every public utility that is required to have on file a non-
discriminatory open access transmission tariff under this section must 
amend such tariff by adding the standard interconnection procedures and 
agreement contained in Order No. 2003, FERC Stats. & Regs. ] 31,146 
(Final Rule on Generator Interconnection) and the standard small 
generator interconnection procedures and agreement contained in Order 
No. 2006, FERC Stats. & Regs. ]------ (Final Rule on Small Generator 
Interconnection), or such other interconnection procedures and 
agreements as may be approved by the Commission consistent with Order 
No. 2003, FERC Stats. & Regs. ] 31,146 (Final Rule on Generator 
Interconnection) and Order No. 2006, FERC Stats. & Regs. ]------ (Final 
Rule on Small Generator Interconnection).
    (i) The amendment to implement the Final Rule on Generator 
Interconnection required by paragraph (f)(1) of this section must be 
filed no later than January 20, 2004.
    Before Commissioners: Pat Wood, III, Chairman;
    (ii) The amendment to implement the Final Rule on Small Generator 
Interconnection required by paragraph (f)(1) of this section must be 
filed no later than August 12, 2005.
    (iii) Any public utility that seeks a deviation from the standard 
interconnection procedures and agreement contained in Order No. 2003, 
FERC Stats. & Regs. ] 31,146 (Final Rule on Generator Interconnection) 
or the standard small generator interconnection procedures and 
agreement contained in Order No. 2006, FERC Stats. & Regs. ]---- (Final 
Rule on Small Generator Interconnection), must demonstrate that the 
deviation is consistent with the principles of either Order No. 2003, 
FERC Stats. & Regs. ] 31,146 (Final Rule on Generator Interconnection) 
or Order No. 2006, FERC Stats. & Regs. ]---- (Final Rule on Small 
Generator Interconnection).
    (2) The non-public utility procedures for tariff reciprocity 
compliance described in paragraph (e) of this section are applicable to 
the standard interconnection procedures and agreements.
    (3) A public utility subject to the requirements of this paragraph 
pertaining to the Final Rule on Generator Interconnection may file a 
request for waiver of all or part of the requirements of this 
paragraph, for good cause shown. An application for waiver must be 
filed either:
    (i) No later than January 20, 2004, 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.
    (4) A public utility subject to the requirements of this paragraph 
pertaining to the Final Rule on Small Generator Interconnection may 
file a request for waiver of all or part of the requirements of this 
paragraph, for good cause shown. An application for waiver must be 
filed either:
    (i) No later than August 12, 2005, 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. 
[The following Appendices will not be published in the Code of Federal 
Regulations.]

 Appendix A--Commenter Acronyms \1\
---------------------------------------------------------------------------

    \1\ This list includes commenters who filed in response to the 
request for comments in the Notice of Proposed Rulemaking, the 
August 12, 2004 Request for Supplemental Comments, or both. 
Commenters who responded to the Request for Supplemental Comments 
are also listed separately at the end of this appendix.
---------------------------------------------------------------------------

    AEP--American Electric Power System
    Alabama PSC--Alabama Public Service Commission
    Allegheny Energy--Allegheny Energy Supply Company, LLC and 
Allegheny Power
    Ameren--Ameren Services Company
    American Forest--American Forest & Paper Association and the 
Process Gas Consumers Group
    AMP-Ohio--American Municipal Power--Ohio, Inc.
    Avista--Avista Corp. and Puget Sound Energy, Inc.
    Baltimore G&E--Baltimore Gas and Electric Company
    BPA--Bonneville Power Administration, U.S. Department of Energy
    Bureau of Reclamation--Bureau of Reclamation, U.S. Department of 
Interior
    CA ISO--California ISO
    California Wind Energy--California Wind Energy Association
    Capstone--Capstone Turbine Corp.
    Central Iowa Coop--Central Iowa Power Cooperative and Corn Belt 
Power Cooperative
    Central Maine--Central Maine Power Company, New York State 
Electric & Gas Corporation, and Rochester Gas & Electric Corporation
    Cinergy--Cinergy Services, Inc.
    Consumers--Consumers Energy Company
    CPUC--California Public Utilities Commission
    CT DPUC--Connecticut Department of Public Utility Control
    Cummins--Cummins, Inc.
    EEI--Edison Electric Institute
    Empire District--Empire District Electric Co.
    Encorp--Encorp, Inc.
    Exelon--Exelon Generation Company, LLC, Commonwealth Edison 
Company, PECO Energy Company, and Sithe Energies, Inc.
    FERC DRS--Dispute Resolution Service, Federal Energy Regulatory 
Commission
    Florida PSC--Florida Public Service Commission
    Garwin McNeilus--Mr. Garwin McNeilus
    Georgia PSC--Georgia Public Service Commission
    Georgia Transmission--Georgia Transmission Corporation
    Idaho Power--Idaho Power Company
    Iowa Utilities Board--Iowa Utilities Board
    ISO New England--ISO New England
    Joint Commenters--National Association of Regulatory Utility 
Commissioners, Small Generator Coalition (members listed below), 
American Public Power Association (who did not participate in the 
filing of supplemental comments), National Rural Electric 
Cooperative Association, and Edison Electric Institute
    LADWP--Los Angeles Department of Water and Power
    Massachusetts DTE--Massachusetts Department of 
Telecommunications and Energy
    MidAmerican--MidAmerican Energy Company
    Midwest ISO--Midwest Independent Transmission System Operator, 
Inc.
    Minnesota PUC--Minnesota Public Utilities Commission and the 
Minnesota Department of Commerce
    Mississippi PSC--Mississippi Public Service Commission
    NARUC--National Association of Regulatory Utility Commissioners
    National Grid--National Grid USA
    NEMA--National Electrical Manufacturers Association
    NEPOOL Participants--New England Power Pool Participants 
Committee
    Nevada Power--Nevada Power Company and Sierra Pacific Power 
Company
    NJ BPU--New Jersey Board of Public Utilities
    North Carolina Commission--North Carolina Utilities Commission 
and the Public Staff of the North Carolina Utilities Commission
    NorthWestern Energy--NorthWestern Energy
    NRECA--National Rural Electric Cooperative Association
    NYISO--New York Independent System Operator, Inc.
    NYPSC--New York State Public Service Commission
    NYTO--Central Hudson Gas and Electric Corp., Consolidated Edison 
Company of New York, Inc., Long Island Power Authority, New York 
Power Authority, New York State Electric and Gas Corp., Orange and 
Rockland Utilities, Inc., and Rochester Gas and Electric Corp.
    Ohio PUC--Public Utilities Commission of Ohio
    PacifiCorp--PacifiCorp
    PG&E--Pacific Gas and Electric Company
    PJM--PJM Interconnection, L.L.C.
    Plug Power--Plug Power, Inc.
    Progress Energy--Progress Energy, Inc., Carolina Power and Light 
Co., and Florida Power Corp.
    PSE&G--Public Service Electric and Gas Company

[[Page 34242]]

    Robert L. Carey--Mr. Robert L. Carey
    RW Beck--R.W. Beck, Inc.
    Small Generator Coalition--American Council for an Energy 
Efficient Economy; American Solar Energy Society; American Wind 
Energy Association; BP Solar; Citizens Action Coalition of Indiana; 
Coffman Electrical Equipment; Cummins Power Generation; Elliott 
Energy Systems; Encorp; Environmental Law & Policy Center; Kyocera 
Solar, Inc.; MAN Turbomachinery, Inc.; Natural Resources Defense 
Council; Northeast-Midwest Institute; Northwest Energy Coalition; 
Pace Energy Program; Pennsylvania Energy Project; Plug Power, Inc.; 
Power Equipment Associates; PowerLight Corporation; RWE SCHOTT 
Solar, Inc.; Shepherd Advisors; Solar Energy Industries Association; 
Spire Solar, Inc.; U.S. Combined Heat and Power Association; and 
University of Oregon Solar Radiation Monitoring Laboratory.
    SMUD--Sacramento Municipal Utility District
    SoCal Edison--Southern California Edison Company
    Solar Turbines--Solar Turbines, Inc.
    Southern Company--Southern Company Services, Inc.
    SW TDU Group--Southwest Transmission Dependent Utility Group 
(Aguila Irrigation District, Ak-Chin Electric Utility Authority, 
Buckeye Water Conservation and Drainage District, Central Arizona 
Water Conservation District, Electrical District No. 3, Electrical 
District No. 4, Electrical District No. 5, Electrical District No. 
6, Electrical District No. 7, Electrical District No. 8, Harquahala 
Valley Power District, Maricopa County Municipal Water District No. 
1, McMullen Valley Water Conservation and Drainage District, City of 
Needles, Roosevelt Irrigation District, City of Safford, Tonopah 
Irrigation District, Wellton-Mohawk Irrigation and Drainage 
District)
    Tangibl--Tangibl, LLC
    TAPS--Transmission Access Policy Study Group
    TDU Systems--Transmission Dependent Utility Systems (Alabama 
Electric Cooperative, Inc.; Arkansas Electric Cooperative 
Corporation; Golden Spread Electric Cooperative; Kansas Electric 
Power Cooperative, Inc.; Old Dominion Electric Cooperative; and 
Seminole Electric Cooperative, Inc.)
    USCHPA--U.S. Combined Heat and Power Association
    Western--Western Area Power Administration

Commenters Who Filed in Response to the Commission's Request for 
Supplemental Comments

    CT DPUC--Connecticut Department of Public Utility Control
    FERC DRS--Dispute Resolution Service, Federal Energy Regulatory 
Commission
    Joint Commenters--National Association of Regulatory Utility 
Commissioners, Small Generator Coalition (members listed above), 
National Rural Electric Cooperative Association, and Edison Electric 
Institute (American Public Power Association did not participate in 
the filing of supplemental comments)
    Massachusetts DTE--Massachusetts Department of 
Telecommunications and Energy
    Minnesota PUC--Minnesota Public Utilities Commission and the 
Minnesota Department of Commerce
    National Grid--National Grid USA
    NJ BPU--New Jersey Board of Public Utilities
    North Carolina Commission--North Carolina Utilities Commission 
and the Public Staff of the North Carolina Utilities Commission
    NRECA--National Rural Electric Cooperative Association
    Ohio PUC--Public Utilities Commission of Ohio
    PJM--PJM Interconnection, L.L.C.
    Small Generator Coalition (members listed above)
    USCHPA--U.S. Combined Heat and Power Association
BILLING CODE 6717-01-U

[[Page 34243]]

[GRAPHIC] [TIFF OMITTED] TR13JN05.000


[[Page 34244]]


[GRAPHIC] [TIFF OMITTED] TR13JN05.001


[[Page 34245]]



Appendix D--Flow Chart for Interconnecting a Certified Inverter-Based 
Small Generating Facility No Larger Than 10 kW Using the ``10 kW 
Inverter Process''
[GRAPHIC] [TIFF OMITTED] TR13JN05.002

BILLING CODE 6717--01--C

[[Page 34246]]

Appendix E to the Small Generator Interconnection Final Rule

SMALL GENERATOR INTERCONNECTION PROCEDURES (SGIP) (For Generating 
Facilities No Larger Than 20 MW)

Table of Contents

Section 1. Application
    1.1 Applicability
    1.2 Pre-Application
    1.3 Interconnection Request
    1.4 Modification of the Interconnection Request
    1.5 Site Control
    1.6 Queue Position
    1.7 Interconnection Requests Submitted Prior to the Effective 
Date of the SGIP
Section 2. Fast Track Process
    2.1 Applicability
    2.2 Initial Review
    2.2.1 Screens
    2.3 Customer Options Meeting
    2.4 Supplemental Review
Section 3. Study Process
    3.1 Applicability
    3.2 Scoping Meeting
    3.3 Feasibility Study
    3.4 System Impact Study
    3.5 Facilities Study
Section 4. Provisions That Apply to All Interconnection Requests
    4.1 Reasonable Efforts
    4.2 Disputes
    4.3 Interconnection Metering
    4.4 Commissioning
    4.5 Confidentiality
    4.6 Comparability
    4.7 Record Retention
    4.8 Interconnection Agreement
    4.9 Coordination With Affected Systems
    4.10 Capacity of the Small Generating Facility
    Attachment 1--Glossary of Terms
    Attachment 2--Small Generator Interconnection Request
    Attachment 3--Certification Codes and Standards
    Attachment 4--Certification of Small Generator Equipment 
Packages
    Attachment 5--Application, Procedures, and Terms and Conditions 
for Interconnecting a Certified Inverter-Based Small Generating 
Facility No Larger Than 10 kW (``10 kW Inverter Process'')
    Attachment 6--Feasibility Study Agreement
    Attachment 7--System Impact Study Agreement
    Attachment 8--Facilities Study Agreement

Section 1. Application

1.1 Applicability

    1.1.1 A request to interconnect a certified Small Generating 
Facility (See Attachments 3 and 4 for description of certification 
criteria) no larger than 2 MW shall be evaluated under the section 2 
Fast Track Process. A request to interconnect a certified inverter-
based Small Generating Facility no larger than 10 kW shall be 
evaluated under the Attachment 5 10 kW Inverter Process. A request 
to interconnect a Small Generating Facility larger than 2 MW but no 
larger than 20 MW or a Small Generating Facility that does not pass 
the Fast Track Process or the 10 kW Inverter Process, shall be 
evaluated under the section 3 Study Process.
    1.1.2 Capitalized terms used herein shall have the meanings 
specified in the Glossary of Terms in Attachment 1 or the body of 
these procedures.
    1.1.3 Neither these procedures nor the requirements included 
hereunder apply to Small Generating Facilities interconnected or 
approved for interconnection prior to 60 Business Days after the 
effective date of these procedures.
    1.1.4 Prior to submitting its Interconnection Request 
(Attachment 2), the Interconnection Customer may ask the 
Transmission Provider's interconnection contact employee or office 
whether the proposed interconnection is subject to these procedures. 
The Transmission Provider shall respond within 15 Business Days.
    1.1.5 Infrastructure security of electric system equipment and 
operations and control hardware and software is essential to ensure 
day-to-day reliability and operational security. The Federal Energy 
Regulatory Commission expects all Transmission Providers, market 
participants, and Interconnection Customers interconnected with 
electric systems to comply with the recommendations offered by the 
President's Critical Infrastructure Protection Board and best 
practice recommendations from the electric reliability authority. 
All public utilities are expected to meet basic standards for 
electric system infrastructure and operational security, including 
physical, operational, and cyber-security practices.
    1.1.6 References in these procedures to interconnection 
agreement are to the Small Generator Interconnection Agreement 
(SGIA).

1.2 Pre-Application

    The Transmission Provider shall designate an employee or office 
from which information on the application process and on an Affected 
System can be obtained through informal requests from the 
Interconnection Customer presenting a proposed project for a 
specific site. The name, telephone number, and e-mail address of 
such contact employee or office shall be made available on the 
Transmission Provider's Internet web site. Electric system 
information provided to the Interconnection Customer should include 
relevant system studies, interconnection studies, and other 
materials useful to an understanding of an interconnection at a 
particular point on the Transmission Provider's Transmission System, 
to the extent such provision does not violate confidentiality 
provisions of prior agreements or critical infrastructure 
requirements. The Transmission Provider shall comply with reasonable 
requests for such information.

1.3 Interconnection Request

    The Interconnection Customer shall submit its Interconnection 
Request to the Transmission Provider, together with the processing 
fee or deposit specified in the Interconnection Request. The 
Interconnection Request shall be date- and time-stamped upon 
receipt. The original date- and time-stamp applied to the 
Interconnection Request at the time of its original submission shall 
be accepted as the qualifying date- and time-stamp for the purposes 
of any timetable in these procedures. The Interconnection Customer 
shall be notified of receipt by the Transmission Provider within 
three Business Days of receiving the Interconnection Request. The 
Transmission Provider shall notify the Interconnection Customer 
within ten Business Days of the receipt of the Interconnection 
Request as to whether the Interconnection Request is complete or 
incomplete. If the Interconnection Request is incomplete, the 
Transmission Provider shall provide along with the notice that the 
Interconnection Request is incomplete, a written list detailing all 
information that must be provided to complete the Interconnection 
Request. The Interconnection Customer will have ten Business Days 
after receipt of the notice to submit the listed information or to 
request an extension of time to provide such information. If the 
Interconnection Customer does not provide the listed information or 
a request for an extension of time within the deadline, the 
Interconnection Request will be deemed withdrawn. An Interconnection 
Request will be deemed complete upon submission of the listed 
information to the Transmission Provider.

1.4 Modification of the Interconnection Request

    Any modification to machine data or equipment configuration or 
to the interconnection site of the Small Generating Facility not 
agreed to in writing by the Transmission Provider and the 
Interconnection Customer may be deemed a withdrawal of the 
Interconnection Request and may require submission of a new 
Interconnection Request, unless proper notification of each Party by 
the other and a reasonable time to cure the problems created by the 
changes are undertaken.

1.5 Site Control

    Documentation of site control must be submitted with the 
Interconnection Request. Site control may be demonstrated through:
    1.8.1 Ownership of, a leasehold interest in, or a right to 
develop a site for the purpose of constructing the Small Generating 
Facility;
    1.8.2 An option to purchase or acquire a leasehold site for such 
purpose; or
    1.8.3 An exclusivity or other business relationship between the 
Interconnection Customer and the entity having the right to sell, 
lease, or grant the Interconnection Customer the right to possess or 
occupy a site for such purpose.

1.6 Queue Position

    The Transmission Provider shall assign a Queue Position based 
upon the date- and time-stamp of the Interconnection Request. The 
Queue Position of each Interconnection Request will be used to 
determine the cost responsibility for the Upgrades necessary to 
accommodate the interconnection. The Transmission Provider shall 
maintain a single queue per geographic region. At the Transmission 
Provider's option, Interconnection Requests may be studied serially 
or in clusters for the purpose of the system impact study.

[[Page 34247]]

1.7 Interconnection Requests Submitted Prior to the Effective Date 
of the SGIP

    Nothing in this SGIP affects an Interconnection Customer's Queue 
Position assigned before the effective date of this SGIP. The 
Parties agree to complete work on any interconnection study 
agreement executed prior the effective date of this SGIP in 
accordance with the terms and conditions of that interconnection 
study agreement. Any new studies or other additional work will be 
completed pursuant to this SGIP.

Section 2. Fast Track Process

2.1 Applicability

    The Fast Track Process is available to an Interconnection 
Customer proposing to interconnect its Small Generating Facility 
with the Transmission Provider's Transmission System if the Small 
Generating Facility is no larger than 2 MW and if the 
Interconnection Customer's proposed Small Generating Facility meets 
the codes, standards, and certification requirements of Attachments 
3 and 4 of these procedures, or the Transmission Provider has 
reviewed the design or tested the proposed Small Generating Facility 
and is satisfied that it is safe to operate.

2.2 Initial Review

    Within 15 Business Days after the Transmission Provider notifies 
the Interconnection Customer it has received a complete 
Interconnection Request, the Transmission Provider shall perform an 
initial review using the screens set forth below, shall notify the 
Interconnection Customer of the results, and include with the 
notification copies of the analysis and data underlying the 
Transmission Provider's determinations under the screens.
    2.2.1 Screens.
    2.2.1.1 The proposed Small Generating Facility's Point of 
Interconnection must be on a portion of the Transmission Provider's 
Distribution System that is subject to the Tariff.
    2.2.1.2 For interconnection of a proposed Small Generating 
Facility to a radial distribution circuit, the aggregated 
generation, including the proposed Small Generating Facility, on the 
circuit shall not exceed 15% of the line section annual peak load as 
most recently measured at the substation. A line section is that 
portion of a Transmission Provider's electric system connected to a 
customer bounded by automatic sectionalizing devices or the end of 
the distribution line.
    2.2.1.3 For interconnection of a proposed Small Generating 
Facility to the load side of spot network protectors, the proposed 
Small Generating Facility must utilize an inverter-based equipment 
package and, together with the aggregated other inverter-based 
generation, shall not exceed the smaller of 5% of a spot network's 
maximum load or 50 kW.\1\
---------------------------------------------------------------------------

    \1\ A spot Network is a type of distribution system found within 
modern commercial buildings to provide high reliability of service 
to a single customer. (Standard Handbook for Electrical Engineers, 
11th edition, Donald Fink, McGraw Hill Book Company).
---------------------------------------------------------------------------

    2.2.1.4 The proposed Small Generating Facility, in aggregation 
with other generation on the distribution circuit, shall not 
contribute more than 10% to the distribution circuit's maximum fault 
current at the point on the high voltage (primary) level nearest the 
proposed point of change of ownership.
    2.2.1.5 The proposed Small Generating Facility, in aggregate 
with other generation on the distribution circuit, shall not cause 
any distribution protective devices and equipment (including, but 
not limited to, substation breakers, fuse cutouts, and line 
reclosers), or Interconnection Customer equipment on the system to 
exceed 87.5% of the short circuit interrupting capability; nor shall 
the interconnection proposed for a circuit that already exceeds 
87.5% of the short circuit interrupting capability.
    2.2.1.6 Using the table below, determine the type of 
interconnection to a primary distribution line. This screen includes 
a review of the type of electrical service provided to the 
Interconnecting Customer, including line configuration and the 
transformer connection to limit the potential for creating over-
voltages on the Transmission Provider's electric power system due to 
a loss of ground during the operating time of any anti-islanding 
function.

------------------------------------------------------------------------
                                        Type of
                                    interconnection
 Primary distribution line type       to primary       Result/ criteria
                                   distribution line
------------------------------------------------------------------------
Three-phase, three wire.........  3-phase or single   Pass screen.
                                   phase, phase-to-
                                   phase.
Three-phase, four wire..........  Effectively-        Pass screen.
                                   grounded 3 phase
                                   or Single-phase,
                                   line-to-neutral.
------------------------------------------------------------------------

    2.2.1.7 If the proposed Small Generating Facility is to be 
interconnected on single-phase shared secondary, the aggregate 
generation capacity on the shared secondary, including the proposed 
Small Generating Facility, shall not exceed 20 kW.
    2.2.1.8 If the proposed Small Generating Facility is single-
phase and is to be interconnected on a center tap neutral of a 240 
volt service, its addition shall not create an imbalance between the 
two sides of the 240 volt service of more than 20% of the nameplate 
rating of the service transformer.
    2.2.1.9 The Small Generating Facility, in aggregate with other 
generation interconnected to the transmission side of a substation 
transformer feeding the circuit where the Small Generating Facility 
proposes to interconnect shall not exceed 10 MW in an area where 
there are known, or posted, transient stability limitations to 
generating units located in the general electrical vicinity (e.g., 
three or four transmission busses from the point of 
interconnection).
    2.2.1.10 No construction of facilities by the Transmission 
Provider on its own system shall be required to accommodate the 
Small Generating Facility.
    2.2.2 If the proposed interconnection passes the screens, the 
Interconnection Request shall be approved and the Transmission 
Provider will provide the Interconnection Customer an executable 
interconnection agreement within five Business Days after the 
determination.
    2.2.3 If the proposed interconnection fails the screens, but the 
Transmission Provider determines that the Small Generating Facility 
may nevertheless be interconnected consistent with safety, 
reliability, and power quality standards, the Transmission Provider 
shall provide the Interconnection Customer an executable 
interconnection agreement within five Business Days after the 
determination.
    2.2.4 If the proposed interconnection fails the screens, but the 
Transmission Provider does not or cannot determine from the initial 
review that the Small Generating Facility may nevertheless be 
interconnected consistent with safety, reliability, and power 
quality standards unless the Interconnection Customer is willing to 
consider minor modifications or further study, the Transmission 
Provider shall provide the Interconnection Customer with the 
opportunity to attend a customer options meeting.

2.3 Customer Options Meeting

    If the Transmission Provider determines the Interconnection 
Request cannot be approved without minor modifications at minimal 
cost; or a supplemental study or other additional studies or 
actions; or at significant cost to address safety, reliability, or 
power quality problems, within the five Business Day period after 
the determination, the Transmission Provider shall notify the 
Interconnection Customer and provide copies of all data and analyses 
underlying its conclusion. Within ten Business Days of the 
Transmission Provider's determination, the Transmission Provider 
shall offer to convene a customer options meeting with the 
Transmission Provider to review possible Interconnection Customer 
facility modifications or the screen analysis and related results, 
to determine what further steps are needed to permit the Small 
Generating Facility to be connected safely and reliably. At the time 
of notification of the Transmission Provider's determination, or at 
the customer options meeting, the Transmission Provider shall:
    2.3.1 Offer to perform facility modifications or minor 
modifications to the Transmission Provider's electric system (e.g., 
changing meters, fuses, relay settings) and provide a non-binding 
good faith estimate of the limited cost to make such modifications 
to the Transmission Provider's electric system; or
    2.3.2 Offer to perform a supplemental review if the Transmission 
Provider concludes that the supplemental review might determine that 
the Small Generating Facility could continue to qualify for 
interconnection pursuant to the Fast Track Process, and provide a 
non-binding good faith estimate of the costs of such review; or
    2.3.3 Obtain the Interconnection Customer's agreement to 
continue evaluating the Interconnection Request under the section 3 
Study Process.

[[Page 34248]]

2.4 Supplemental Review

    If the Interconnection Customer agrees to a supplemental review, 
the Interconnection Customer shall agree in writing within 15 
Business Days of the offer, and submit a deposit for the estimated 
costs. The Interconnection Customer shall be responsible for the 
Transmission Provider's actual costs for conducting the supplemental 
review. The Interconnection Customer must pay any review costs that 
exceed the deposit within 20 Business Days of receipt of the invoice 
or resolution of any dispute. If the deposit exceeds the invoiced 
costs, the Transmission Provider will return such excess within 20 
Business Days of the invoice without interest.
    2.4.1 Within ten Business Days following receipt of the deposit 
for a supplemental review, the Transmission Provider will determine 
if the Small Generating Facility can be interconnected safely and 
reliably.
    2.4.1.1 If so, the Transmission Provider shall forward an 
executable an interconnection agreement to the Interconnection 
Customer within five Business Days.
    2.4.1.2 If so, and Interconnection Customer facility 
modifications are required to allow the Small Generating Facility to 
be interconnected consistent with safety, reliability, and power 
quality standards under these procedures, the Transmission Provider 
shall forward an executable interconnection agreement to the 
Interconnection Customer within five Business Days after 
confirmation that the Interconnection Customer has agreed to make 
the necessary changes at the Interconnection Customer's cost.
    2.4.1.3 If so, and minor modifications to the Transmission 
provider's electric system are required to allow the Small 
Generating Facility to be interconnected consistent with safety, 
reliability, and power quality standards under the Fast Track 
Process, the Transmission Provider shall forward an executable 
interconnection agreement to the Interconnection Customer within ten 
Business Days that requires the Interconnection Customer to pay the 
costs of such system modifications prior to interconnection.
    2.4.1.4 If not, the Interconnection Request will continue to be 
evaluated under the section 3 Study Process.

Section 3. Study Process

3.1 Applicability

    The Study Process shall be used by an Interconnection Customer 
proposing to interconnect its Small Generating Facility with the 
Transmission Provider's Transmission System if the Small Generating 
Facility (1) is larger than 2 MW but no larger than 20 MW, (2) is 
not certified, or (3) is certified but did not pass the Fast Track 
Process or the 10 kW Inverter Process.

3.2 Scoping Meeting

    3.2.1 A scoping meeting will be held within ten Business Days 
after the Interconnection Request is deemed complete, or as 
otherwise mutually agreed to by the Parties. The Transmission 
Provider and the Interconnection Customer will bring to the meeting 
personnel, including system engineers and other resources as may be 
reasonably required to accomplish the purpose of the meeting.
    3.2.2 The purpose of the scoping meeting is to discuss the 
Interconnection Request and review existing studies relevant to the 
Interconnection Request. The Parties shall further discuss whether 
the Transmission Provider should perform a feasibility study or 
proceed directly to a system impact study, or a facilities study, or 
an interconnection agreement. If the Parties agree that a 
feasibility study should be performed, the Transmission Provider 
shall provide the Interconnection Customer, as soon as possible, but 
not later than five Business Days after the scoping meeting, a 
feasibility study agreement (Attachment 6) including an outline of 
the scope of the study and a non-binding good faith estimate of the 
cost to perform the study.
    3.2.3 The scoping meeting may be omitted by mutual agreement. In 
order to remain in consideration for interconnection, an 
Interconnection Customer who has requested a feasibility study must 
return the executed feasibility study agreement within 15 Business 
Days. If the Parties agree not to perform a feasibility study, the 
Transmission Provider shall provide the Interconnection Customer, no 
later than five Business Days after the scoping meeting, a system 
impact study agreement (Attachment 7) including an outline of the 
scope of the study and a non-binding good faith estimate of the cost 
to perform the study.

3.3 Feasibility Study

    3.3.1 The feasibility study shall identify any potential adverse 
system impacts that would result from the interconnection of the 
Small Generating Facility.
    3.3.2 A deposit of the lesser of 50 percent of the good faith 
estimated feasibility study costs or earnest money of $1,000 may be 
required from the Interconnection Customer.
    3.3.3 The scope of and cost responsibilities for the feasibility 
study are described in the attached feasibility study agreement.
    3.3.4 If the feasibility study shows no potential for adverse 
system impacts, the Transmission Provider shall send the 
Interconnection Customer a facilities study agreement, including an 
outline of the scope of the study and a non-binding good faith 
estimate of the cost to perform the study. If no additional 
facilities are required, the Transmission Provider shall send the 
Interconnection Customer an executable interconnection agreement 
within five Business Days.
    3.3.5 If the feasibility study shows the potential for adverse 
system impacts, the review process shall proceed to the appropriate 
system impact study(s).

3.4 System Impact Study

    3.4.1 A system impact study shall identify and detail the 
electric system impacts that would result if the proposed Small 
Generating Facility were interconnected without project 
modifications or electric system modifications, focusing on the 
adverse system impacts identified in the feasibility study, or to 
study potential impacts, including but not limited to those 
identified in the scoping meeting. A system impact study shall 
evaluate the impact of the proposed interconnection on the 
reliability of the electric system.
    3.4.2 If no transmission system impact study is required, but 
potential electric power Distribution System adverse system impacts 
are identified in the scoping meeting or shown in the feasibility 
study, a distribution system impact study must be performed. The 
Transmission Provider shall send the Interconnection Customer a 
distribution system impact study agreement within 15 Business Days 
of transmittal of the feasibility study report, including an outline 
of the scope of the study and a non-binding good faith estimate of 
the cost to perform the study, or following the scoping meeting if 
no feasibility study is to be performed.
    3.4.3 In instances where the feasibility study or the 
distribution system impact study shows potential for transmission 
system adverse system impacts, within five Business Days following 
transmittal of the feasibility study report, the Transmission 
Provider shall send the Interconnection Customer a transmission 
system impact study agreement, including an outline of the scope of 
the study and a non-binding good faith estimate of the cost to 
perform the study, if such a study is required.
    3.4.4 If a transmission system impact study is not required, but 
electric power Distribution System adverse system impacts are shown 
by the feasibility study to be possible and no distribution system 
impact study has been conducted, the Transmission Provider shall 
send the Interconnection Customer a distribution system impact study 
agreement.
    3.4.5 If the feasibility study shows no potential for 
transmission system or Distribution System adverse system impacts, 
the Transmission Provider shall send the Interconnection Customer 
either a facilities study agreement (Attachment 8), including an 
outline of the scope of the study and a non-binding good faith 
estimate of the cost to perform the study, or an executable 
interconnection agreement, as applicable.
    3.4.6 In order to remain under consideration for 
interconnection, the Interconnection Customer must return executed 
system impact study agreements, if applicable, within 30 Business 
Days.
    3.4.7A deposit of the good faith estimated costs for each system 
impact study may be required from the Interconnection Customer.
    3.4.8 The scope of and cost responsibilities for a system impact 
study are described in the attached system impact study agreement.
    3.4.9 Where transmission systems and Distribution Systems have 
separate owners, such as is the case with transmission-dependent 
utilities (``TDUs'')--whether investor-owned or not--the 
Interconnection Customer may apply to the nearest Transmission 
Provider (Transmission Owner, Regional Transmission Operator, or 
Independent Transmission Provider) providing transmission service to 
the TDU to request project coordination. Affected Systems shall 
participate in the study and

[[Page 34249]]

provide all information necessary to prepare the study.

3.5 Facilities Study

    3.5.1 Once the required system impact study(s) is completed, a 
system impact study report shall be prepared and transmitted to the 
Interconnection Customer along with a facilities study agreement 
within five Business Days, including an outline of the scope of the 
study and a non-binding good faith estimate of the cost to perform 
the facilities study. In the case where one or both impact studies 
are determined to be unnecessary, a notice of the fact shall be 
transmitted to the Interconnection Customer within the same 
timeframe.
    3.5.2 In order to remain under consideration for 
interconnection, or, as appropriate, in the Transmission Provider's 
interconnection queue, the Interconnection Customer must return the 
executed facilities study agreement or a request for an extension of 
time within 30 Business Days.
    3.5.3 The facilities study shall specify and estimate the cost 
of the equipment, engineering, procurement and construction work 
(including overheads) needed to implement the conclusions of the 
system impact study(s).
    3.5.4 Design for any required Interconnection Facilities and/or 
Upgrades shall be performed under the facilities study agreement. 
The Transmission Provider may contract with consultants to perform 
activities required under the facilities study agreement. The 
Interconnection Customer and the Transmission Provider may agree to 
allow the Interconnection Customer to separately arrange for the 
design of some of the Interconnection Facilities. In such cases, 
facilities design will be reviewed and/or modified prior to 
acceptance by the Transmission Provider, under the provisions of the 
facilities study agreement. If the Parties agree to separately 
arrange for design and construction, and provided security and 
confidentiality requirements can be met, the Transmission Provider 
shall make sufficient information available to the Interconnection 
Customer in accordance with confidentiality and critical 
infrastructure requirements to permit the Interconnection Customer 
to obtain an independent design and cost estimate for any necessary 
facilities.
    3.5.5 A deposit of the good faith estimated costs for the 
facilities study may be required from the Interconnection Customer.
    3.5.6 The scope of and cost responsibilities for the facilities 
study are described in the attached facilities study agreement.
    3.5.7 Upon completion of the facilities study, and with the 
agreement of the Interconnection Customer to pay for Interconnection 
Facilities and Upgrades identified in the facilities study, the 
Transmission Provider shall provide the Interconnection Customer an 
executable interconnection agreement within five Business Days.

Section 4. Provisions That Apply to All Interconnection Requests

4.1 Reasonable Efforts

    The Transmission Provider shall make reasonable efforts to meet 
all time frames provided in these procedures unless the Transmission 
Provider and the Interconnection Customer agree to a different 
schedule. If the Transmission Provider cannot meet a deadline 
provided herein, it shall notify the Interconnection Customer, 
explain the reason for the failure to meet the deadline, and provide 
an estimated time by which it will complete the applicable 
interconnection procedure in the process.

4.2 Disputes

    4.2.1 The Parties agree to attempt to resolve all disputes 
arising out of the interconnection process according to the 
provisions of this article.
    4.2.2 In the event of a dispute, either Party shall provide the 
other Party with a written Notice of Dispute. Such Notice shall 
describe in detail the nature of the dispute.
    4.2.3 If the dispute has not been resolved within two Business 
Days after receipt of the Notice, either Party may contact FERC's 
Dispute Resolution Service (DRS) for assistance in resolving the 
dispute.
    4.2.4 The DRS will assist the Parties in either resolving their 
dispute or in selecting an appropriate dispute resolution venue 
(e.g., mediation, settlement judge, early neutral evaluation, or 
technical expert) to assist the Parties in resolving their dispute. 
DRS can be reached at 1-877-337-2237 or via the internet at http://www.ferc.gov/legal/adr.asp.
    4.2.5 Each Party agrees to conduct all negotiations in good 
faith and will be responsible for one-half of any costs paid to 
neutral third-parties.
    4.2.6 If neither Party elects to seek assistance from the DRS, 
or if the attempted dispute resolution fails, then either Party may 
exercise whatever rights and remedies it may have in equity or law 
consistent with the terms of this Agreement.

4.3 Interconnection Metering

    Any metering necessitated by the use of the Small Generating 
Facility shall be installed at the Interconnection Customer's 
expense in accordance with Federal Energy Regulatory Commission, 
state, or local regulatory requirements or the Transmission 
Provider's specifications.

4.4 Commissioning

    Commissioning tests of the Interconnection Customer's installed 
equipment shall be performed pursuant to applicable codes and 
standards. The Transmission Provider must be given at least five 
Business Days written notice, or as otherwise mutually agreed to by 
the Parties, of the tests and may be present to witness the 
commissioning tests.

4.5. Confidentiality

    4.5 Confidentiality information shall mean any confidential and/
or proprietary information provided by one Party to the other Party 
that is clearly marked or otherwise designated ``Confidential.'' For 
purposes of this Agreement all design, operating specifications, and 
metering data provided by the Interconnection Customer shall be 
deemed confidential information regardless of whether it is clearly 
marked or otherwise designated as such.
    4.5.2 Confidential Information does not include information 
previously in the public domain, required to be publicly submitted 
or divulged by Governmental Authorities (after notice to the other 
Party and after exhausting any opportunity to oppose such 
publication or release), or necessary to be divulged in an action to 
enforce this Agreement. Each Party receiving Confidential 
Information shall hold such information in confidence and shall not 
disclose it to any third party nor to the public without the prior 
written authorization from the Party providing that information, 
except to fulfill obligations under this Agreement, or to fulfill 
legal or regulatory requirements.
    4.5.2.1 Each Party shall employ at least the same standard of 
care to protect Confidential Information obtained from the other 
Party as it employs to protect its own Confidential Information.
    4.5.2.2 Each Party is entitled to equitable relief, by 
injunction or otherwise, to enforce its rights under this provision 
to prevent the release of Confidential Information without bond or 
proof of damages, and may seek other remedies available at law or in 
equity for breach of this provision.
    4.5.3 Notwithstanding anything in this article to the contrary, 
and pursuant to 18 CFR 1b.20, if FERC, during the course of an 
investigation or otherwise, requests information from one of the 
Parties that is otherwise required to be maintained in confidence 
pursuant to this Agreement, the Party shall provide the requested 
information to FERC, within the time provided for in the request for 
information. In providing the information to FERC, the Party may, 
consistent with 18 CFR 388.112, request that the information be 
treated as confidential and non-public by FERC and that the 
information be withheld from public disclosure. Parties are 
prohibited from notifying the other Party to this Agreement prior to 
the release of the Confidential Information to FERC. The Party shall 
notify the other Party to this Agreement when it is notified by FERC 
that a request to release Confidential Information has been received 
by FERC, at which time either of the Parties may respond before such 
information would be made public, pursuant to 18 CFR 388.112. 
Requests from a state regulatory body conducting a confidential 
investigation shall be treated in a similar manner if consistent 
with the applicable state rules and regulations.

4.6 Comparability

    The Transmission Provider shall receive, process and analyze all 
Interconnection Requests in a timely manner as set forth in this 
document. The Transmission Provider shall use the same reasonable 
efforts in processing and analyzing Interconnection Requests from 
all Interconnection Customers, whether the Small Generating Facility 
is owned or operated by the Transmission Provider, its subsidiaries 
or affiliates, or others.

4.7 Record Retention

    The Transmission Provider shall maintain for three years 
records, subject to audit, of all Interconnection Requests received 
under these procedures, the times required to complete 
Interconnection Request approvals and disapprovals, and 
justification for the actions taken on the Interconnection Requests.

[[Page 34250]]

4.8 Interconnection Agreement

    After receiving an interconnection agreement from the 
Transmission Provider, the Interconnection Customer shall have 30 
Business Days or another mutually agreeable timeframe to sign and 
return the interconnection agreement, or request that the 
Transmission Provider file an unexecuted interconnection agreement 
with the Federal Energy Regulatory Commission. If the 
Interconnection Customer does not sign the interconnection 
agreement, or ask that it be filed unexecuted by the Transmission 
Provider within 30 Business Days, the Interconnection Request shall 
be deemed withdrawn. After the interconnection agreement is signed 
by the Parties, the interconnection of the Small Generating Facility 
shall proceed under the provisions of the interconnection agreement.

4.9 Coordination With Affected Systems

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

4.10 Capacity of the Small Generating Facility

    4.10.1 If the Interconnection Request is for an increase in 
capacity for an existing Small Generating Facility, the 
Interconnection Request shall be evaluated on the basis of the new 
total capacity of the Small Generating Facility.
    4.10.2 If the Interconnection Request is for a Small Generating 
Facility that includes multiple energy production devices at a site 
for which the Interconnection Customer seeks a single Point of 
Interconnection, the Interconnection Request shall be evaluated on 
the basis of the aggregate capacity of the multiple devices.
    4.10.3 The Interconnection Request shall be evaluated using the 
maximum rated capacity of the Small Generating Facility.

Attachment 1--Glossary of Terms

    10 kW Inverter Process--The procedure for evaluating an 
Interconnection Request for a certified inverter-based Small 
Generating Facility no larger than 10 kW that uses the section 2 
screens. The application process uses an all-in-one document that 
includes a simplified Interconnection Request, simplified 
procedures, and a brief set of terms and conditions. See SGIP 
Attachment 5.
    Affected System--An electric system other than the Transmission 
Provider's Transmission System that may be affected by the proposed 
interconnection.
    Business Day--Monday through Friday, excluding Federal Holidays.
    Distribution System--The Transmission Provider's facilities and 
equipment used to transmit electricity to ultimate usage points such 
as homes and industries directly from nearby generators or from 
interchanges with higher voltage transmission networks which 
transport bulk power over longer distances. The voltage levels at 
which Distribution Systems operate differ among areas.
    Distribution Upgrades--The additions, modifications, and 
upgrades to the Transmission Provider's Distribution System at or 
beyond the Point of Interconnection to facilitate interconnection of 
the Small Generating Facility and render the transmission service 
necessary to effect the Interconnection Customer's wholesale sale of 
electricity in interstate commerce. Distribution Upgrades do not 
include Interconnection Facilities.
    Fast Track Process--The procedure for evaluating an 
Interconnection Request for a certified Small Generating Facility no 
larger than 2 MW that includes the section 2 screens, customer 
options meeting, and optional supplemental review.
    Interconnection Customer--Any entity, including the Transmission 
Provider, the Transmission Owner or any of the affiliates or 
subsidiaries of either, that proposes to interconnect its Small 
Generating Facility with the Transmission Provider's Transmission 
System.
    Interconnection Facilities--The Transmission Provider's 
Interconnection Facilities and the Interconnection Customer's 
Interconnection Facilities. Collectively, Interconnection Facilities 
include all facilities and equipment between the Small Generating 
Facility and the Point of Interconnection, including any 
modification, additions or upgrades that are necessary to physically 
and electrically interconnect the Small Generating Facility to the 
Transmission Provider's Transmission System. Interconnection 
Facilities are sole use facilities and shall not include 
Distribution Upgrades or Network Upgrades.
    Interconnection Request--The Interconnection Customer's request, 
in accordance with the Tariff, to interconnect a new Small 
Generating Facility, or to increase the capacity of, or make a 
Material Modification to the operating characteristics of, an 
existing Small Generating Facility that is interconnected with the 
Transmission Provider's Transmission System.
    Material Modification--A modification that has a material impact 
on the cost or timing of any Interconnection Request with a later 
queue priority date.
    Network Upgrades--Additions, modifications, and upgrades to the 
Transmission Provider's Transmission System required at or beyond 
the point at which the Small Generating Facility interconnects with 
the Transmission Provider's Transmission System to accommodate the 
interconnection with the Small Generating Facility to the 
Transmission Provider's Transmission System. Network Upgrades do not 
include Distribution Upgrades.
    Party or Parties--The Transmission Provider, Transmission Owner, 
Interconnection Customer or any combination of the above.
    Point of Interconnection--The point where the Interconnection 
Facilities connect with the Transmission Provider's Transmission 
System.
    Queue Position--The order of a valid Interconnection Request, 
relative to all other pending valid Interconnection Requests, that 
is established based upon the date and time of receipt of the valid 
Interconnection Request by the Transmission Provider.
    Small Generating Facility--The Interconnection Customer's device 
for the production of electricity identified in the Interconnection 
Request, but shall not include the Interconnection Customer's 
Interconnection Facilities.
    Study Process--The procedure for evaluating an Interconnection 
Request that includes the section 3 scoping meeting, feasibility 
study, system impact study, and facilities study.
    Transmission Owner--The entity that owns, leases or otherwise 
possesses an interest in the portion of the Transmission System at 
the Point of Interconnection and may be a Party to the Small 
Generator Interconnection Agreement to the extent necessary.
    Transmission Provider--The public utility (or its designated 
agent) that owns, controls, or operates transmission or distribution 
facilities used for the transmission of electricity in interstate 
commerce and provides transmission service under the Tariff. The 
term Transmission Provider should be read to include the 
Transmission Owner when the Transmission Owner is separate from the 
Transmission Provider.
    Transmission System--The facilities owned, controlled or 
operated by the Transmission Provider or the Transmission Owner that 
are used to provide transmission service under the Tariff.
    Upgrades--The required additions and modifications to the 
Transmission Provider's Transmission System at or beyond the Point 
of Interconnection. Upgrades may be Network Upgrades or Distribution 
Upgrades. Upgrades do not include Interconnection Facilities.
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Attachment 3--Certification Codes and Standards

IEEE1547 Standard for Interconnecting Distributed Resources with 
Electric Power Systems (including use of IEEE 1547.1 testing 
protocols to establish conformity)
UL 1741 Inverters, Converters, and Controllers for Use in 
Independent Power Systems
IEEE Std 929-2000 IEEE Recommended Practice for Utility Interface of 
Photovoltaic (PV) Systems
NFPA 70 (2002), National Electrical Code
IEEE Std C37.90.1-1989 (R1994), IEEE Standard Surge Withstand 
Capability (SWC) Tests for Protective Relays and Relay Systems
IEEE Std C37.90.2 (1995), IEEE Standard Withstand Capability of 
Relay Systems to Radiated Electromagnetic Interference from 
Transceivers
IEEE Std C37.108-1989 (R2002), IEEE Guide for the Protection of 
Network Transformers
IEEE Std C57.12.44-2000, IEEE Standard Requirements for Secondary 
Network Protectors
IEEE Std C62.41.2-2002, IEEE Recommended Practice on 
Characterization of Surges in Low Voltage (1000V and Less) AC Power 
Circuits
IEEE Std C62.45-1992 (R2002), IEEE Recommended Practice on Surge 
Testing for Equipment Connected to Low-Voltage (1000V and Less) AC 
Power Circuits
ANSI C84.1-1995 Electric Power Systems and Equipment--Voltage 
Ratings (60 Hertz)
IEEE Std 100-2000, IEEE Standard Dictionary of Electrical and 
Electronic Terms
NEMA MG 1-1998, Motors and Small Resources, Revision 3
IEEE Std 519-1992, IEEE Recommended Practices and Requirements for 
Harmonic Control in Electrical Power Systems
NEMA MG 1-2003 (Rev 2004), Motors and Generators, Revision 1

Attachment 4--Certification of Small Generator Equipment Packages

    1.0 Small Generating Facility equipment proposed for use 
separately or packaged with other equipment in an interconnection 
system shall be considered certified for interconnected operation if 
(1) it has been tested in accordance with industry standards for 
continuous utility interactive operation in compliance with the 
appropriate codes and standards referenced below by any Nationally 
Recognized Testing Laboratory (NRTL) recognized by the United States 
Occupational Safety and Health Administration to test and certify 
interconnection equipment pursuant to the relevant codes and 
standards listed in SGIP Attachment 3, (2) it has been labeled and 
is publicly listed by such NRTL at the time of the interconnection 
application, and (3) such NRTL makes readily available for 
verification all test standards and procedures it utilized in 
performing such equipment certification, and, with consumer 
approval, the test data itself. The NRTL may make such information 
available on its website and by encouraging such information to be 
included in the manufacturer's literature accompanying the 
equipment.
    2.0 The Interconnection Customer must verify that the intended 
use of the equipment falls within the use or uses for which the 
equipment was tested, labeled, and listed by the NRTL.
    3.0 Certified equipment shall not require further type-test 
review, testing, or additional equipment to meet the requirements of 
this interconnection procedure; however, nothing herein shall 
preclude the need for an on-site commissioning test by the parties 
to the interconnection nor follow-up production testing by the NRTL.
    4.0 If the certified equipment package includes only interface 
components (switchgear, inverters, or other interface devices), then 
an Interconnection Customer must show that the generator or other 
electric source being utilized with the equipment package is 
compatible with the equipment package and is consistent with the 
testing and listing specified for this type of interconnection 
equipment.
    5.0 Provided the generator or electric source, when combined 
with the equipment package, is within the range of capabilities for 
which it was tested by the NRTL, and does not violate the interface 
components' labeling and listing performed by the NRTL, no further 
design review, testing or additional equipment on the customer side 
of the point of common coupling shall be required to meet the 
requirements of this interconnection procedure.
    6.0 An equipment package does not include equipment provided by 
the utility.
    7.0 Any equipment package approved and listed in a state by that 
state's regulatory body for interconnected operation in that state 
prior to the effective date of these small generator interconnection 
procedures shall be considered certified under these procedures for 
use in that state.

Attachment 5--Application, Procedures, and Terms and Conditions for 
Interconnecting a Certified Inverter-Based Small Generating Facility No 
Larger Than 10 kW (``10 kW Inverter Process'')

    1.0 The Interconnection Customer (``Customer'') completes the 
Interconnection Request (``Application'') and submits it to the 
Transmission Provider (``Company'').
    2.0 The Company acknowledges to the Customer receipt of the 
Application within three Business Days of receipt.
    3.0 The Company evaluates the Application for completeness and 
notifies the Customer within ten Business Days of receipt that the 
Application is or is not complete and, if not, advises what material 
is missing.
    4.0 The Company verifies that the Small Generating Facility can 
be interconnected safely and reliably using the screens contained in 
the Fast Track Process in the Small Generator Interconnection 
Procedures (SGIP). The Company has 15 Business Days to complete this 
process. Unless the Company determines and demonstrates that the 
Small Generating Facility cannot be interconnected safely and 
reliably, the Company approves the Application and returns it to the 
Customer. Note to Customer: Please check with the Company before 
submitting the Application if disconnection equipment is required.
    5.0 After installation, the Customer returns the Certificate of 
Completion to the Company. Prior to parallel operation, the Company 
may inspect the Small Generating Facility for compliance with 
standards which may include a witness test, and may schedule 
appropriate metering replacement, if necessary.
    6.0 The Company notifies the Customer in writing that 
interconnection of the Small Generating Facility is authorized. If 
the witness test is not satisfactory, the Company has the right to 
disconnect the Small Generating Facility. The Customer has no right 
to operate in parallel until a witness test has been performed, or 
previously waived on the Application. The Company is obligated to 
complete this witness test within ten Business Days of the receipt 
of the Certificate of Completion. If the Company does not inspect 
within ten Business Days or by mutual agreement of the Parties, the 
witness test is deemed waived.
    7.0 Contact Information--The Customer must provide the contact 
information for the legal applicant (i.e., the Interconnection 
Customer). If another entity is responsible for interfacing with the 
Company, that contact information must be provided on the 
Application.
    8.0 Ownership Information--Enter the legal names of the owner(s) 
of the Small Generating Facility. Include the percentage ownership 
(if any) by any utility or public utility holding company, or by any 
entity owned by either.
    9.0 UL1741 Listed--This standard (``Inverters, Converters, and 
Controllers for Use in Independent Power Systems'') addresses the 
electrical interconnection design of various forms of generating 
equipment. Many manufacturers submit their equipment to a Nationally 
Recognized Testing Laboratory (NRTL) that verifies compliance with 
UL1741. This ``listing'' is then marked on the equipment and 
supporting documentation.
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Terms and Conditions for Interconnecting an Inverter-Based Small 
Generating Facility No Larger Than 10kW

1.0 Construction of the Facility

    The Interconnection Customer (the ``Customer'') may proceed to 
construct (including operational testing not to exceed two hours) 
the Small Generating Facility when the Transmission Provider (the 
``Company'') approves the Interconnection Request (the 
``Application'') and returns it to the Customer.

2.0 Interconnection and Operation

    The Customer may operate Small Generating Facility and 
interconnect with the Company's electric system once all of the 
following have occurred:
    2.1 Upon completing construction, the Customer will cause the 
Small Generating Facility to be inspected or otherwise certified by 
the appropriate local electrical wiring inspector with jurisdiction, 
and
    2.2 The Customer returns the Certificate of Completion to the 
Company, and
    2.3 The Company has either:
    2.3.1 Completed its inspection of the Small Generating Facility 
to ensure that all equipment has been appropriately installed and 
that all electrical connections have been made in accordance with 
applicable codes. All inspections must be conducted by the Company, 
at its own expense, within ten Business Days after receipt of the 
Certificate of Completion and shall take place at a time agreeable 
to the Parties. The Company shall provide a written statement that 
the Small Generating Facility has passed inspection or shall notify 
the Customer of what steps it must take to pass inspection as soon 
as practicable after the inspection takes place; or
    2.3.2 If the Company does not schedule an inspection of the 
Small Generating Facility within ten business days after receiving 
the Certificate of Completion, the witness test is deemed waived 
(unless the Parties agree otherwise); or
    2.3.3 The Company waives the right to inspect the Small 
Generating Facility.
    2.4 The Company has the right to disconnect the Small Generating 
Facility in the event of improper installation or failure to return 
the Certificate of Completion.
    2.5 Revenue quality metering equipment must be installed and 
tested in accordance with applicable ANSI standards.

3.0 Safe Operations and Maintenance

    The Customer shall be fully responsible to operate, maintain, 
and repair the Small Generating Facility as required to ensure that 
it complies at all times with the interconnection standards to which 
it has been certified.

4.0 Access

    The Company shall have access to the disconnect switch (if the 
disconnect switch is required) and metering equipment of the Small 
Generating Facility at all times. The Company shall provide 
reasonable notice to the Customer when possible prior to using its 
right of access.

5.0 Disconnection

    The Company may temporarily disconnect the Small Generating 
Facility upon the following conditions:
    5.1 For scheduled outages upon reasonable notice.
    5.2 For unscheduled outages or emergency conditions.
    5.3 If the Small Generating Facility does not operate in the 
manner consistent with these Terms and Conditions.
    5.4 The Company shall inform the Customer in advance of any 
scheduled disconnection, or as is reasonable after an unscheduled 
disconnection.

6.0 Indemnification

    The Parties shall at all times indemnify, defend, and save the 
other Party harmless from, any and all damages, losses, claims, 
including claims and actions relating to injury to or death of any 
person or damage to property, demand, suits, recoveries, costs and 
expenses, court costs, attorney fees, and all other obligations by 
or to third parties, arising out of or resulting from the other 
Party's action or inactions of its obligations under this agreement 
on behalf of the indemnifying Party, except in cases of gross 
negligence or intentional wrongdoing by the indemnified Party.

7.0 Insurance

    The Parties each agree to maintain commercially reasonable 
amounts of insurance.

8.0 Limitation of Liability

    Each party's liability to the other party for any loss, cost, 
claim, injury, liability, or expense, including reasonable 
attorney's fees, relating to or arising from any act or omission in 
its performance of this Agreement, shall be limited to the amount of 
direct damage actually incurred. In no event shall either party be 
liable to the other party for any indirect, incidental, special, 
consequential, or punitive damages of any kind whatsoever, except as 
allowed under paragraph 6.0.

9.0 Termination

    The agreement to operate in parallel may be terminated under the 
following conditions:

9.1 By the Customer

    By providing written notice to the Company.

9.2 By the Company

    If the Small Generating Facility fails to operate for any 
consecutive 12 month period or the Customer fails to remedy a 
violation of these Terms and Conditions.

9.3 Permanent Disconnection

    In the event this Agreement is terminated, the Company shall 
have the right to disconnect its facilities or direct the Customer 
to disconnect its Small Generating Facility.

9.4 Survival Rights

    This Agreement shall continue in effect after termination to the 
extent necessary to allow or require either Party to fulfill rights 
or obligations that arose under the Agreement.

10.0 Assignment/Transfer of Ownership of the Facility

    This Agreement shall survive the transfer of ownership of the 
Small Generating Facility to a new owner when the new owner agrees 
in writing to comply with the terms of this Agreement and so 
notifies the Company.

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    WHEREAS, Interconnection Customer has requested the Transmission 
Provider to perform a feasibility study to assess the feasibility of 
interconnecting the proposed Small Generating Facility with the 
Transmission Provider's Transmission System, and of any Affected 
Systems;
    NOW, THEREFORE, in consideration of and subject to the mutual 
covenants contained herein the Parties agreed as follows:
    1.0 When used in this Agreement, with initial capitalization, 
the terms specified shall have the meanings indicated or the 
meanings specified in the standard Small Generator Interconnection 
Procedures.
    2.0 The Interconnection Customer elects and the Transmission 
Provider shall cause to be performed an interconnection feasibility 
study consistent with the standard Small Generator Interconnection 
Procedures in accordance with the Open Access Transmission Tariff.
    3.0 The scope of the feasibility study shall be subject to the 
assumptions set forth in Attachment A to this Agreement.
    4.0 The feasibility study shall be based on the technical 
information provided by the Interconnection Customer in the 
Interconnection Request, as may be modified as the result of the 
scoping meeting. The Transmission Provider reserves the right to 
request additional technical information from the Interconnection 
Customer as may reasonably become necessary consistent with Good 
Utility Practice during the course of the feasibility study and as 
designated in accordance with the standard Small Generator 
Interconnection Procedures. If the Interconnection Customer modifies 
its Interconnection Request, the time to complete the feasibility 
study may be extended by agreement of the Parties.
    5.0 In performing the study, the Transmission Provider shall 
rely, to the extent reasonably practicable, on existing studies of 
recent vintage. The Interconnection Customer shall not be charged 
for such existing studies; however, the Interconnection Customer 
shall be responsible for charges associated with any new study or 
modifications to existing studies that are reasonably necessary to 
perform the feasibility study.
    6.0 The feasibility study report shall provide the following 
analyses for the purpose of identifying any potential adverse system 
impacts that would result from the interconnection of the Small 
Generating Facility as proposed:
    6.1 Initial identification of any circuit breaker short circuit 
capability limits exceeded as a result of the interconnection;
    6.2 Initial identification of any thermal overload or voltage 
limit violations resulting from the interconnection;
    6.3 Initial review of grounding requirements and electric system 
protection; and
    6.4 Description and non-bonding estimated cost of facilities 
required to interconnect the proposed Small Generating Facility and 
to address the identified short circuit and power flow issues.
    7.0 The feasibility study shall model the impact of the Small 
Generating Facility regardless of purpose in order to avoid the 
further expense and interruption of operation for reexamination of 
feasibility and impacts if the Interconnection Customer later 
changes the purpose for which the Small Generating Facility is being 
installed.
    8.0 The study shall include the feasibility of any 
interconnection at a proposed project site where there could be 
multiple potential Points of Interconnection, as requested by the 
Interconnection Customer and at the Interconnection Customer's cost.
    9.0 A deposit of the lesser of 50 percent of good faith 
estimated feasibility study costs or earnest money of $1,000 may be 
required from the Interconnection Customer.
    10.0 Once the feasibility study is completed, a feasibility 
study report shall be prepared and transmitted to the 
Interconnection Customer. Barring unusual circumstances, the 
feasibility study must be completed and the feasibility study report 
transmitted within 30 Business Days of the Interconnection 
Customer's agreement to conduct a feasibility study.
    11.0 Any study fees shall be based on the Transmission 
Provider's actual costs and will be invoiced to the Interconnection 
Customer after the study is completed and delivered and will include 
a summary of professional time.
    12.0 The Interconnection Customer must pay any study costs that 
exceed the deposit without interest within 30 calendar days on 
receipt of the invoice or resolution of any dispute. If the deposit 
exceeds the invoiced fees, the Transmission Provider shall refund 
such excess within 30 calendar days of the invoice without interest.
    IN WITNESS WHEREOF, the Parties have caused this Agreement to be 
duly executed

[[Page 34274]]

by their duly authorized officers or agents on the day and year 
first above written.
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Recitals

    WHEREAS, the Interconnection Customer is proposing to develop a 
Small Generating Facility or generating capacity addition to an 
existing Small Generating Facility consistent with the 
Interconnection Request completed by the Interconnection Customer 
on----------; and

    WHEREAS, the Interconnection Customer desires to interconnect 
the Small Generating Facility with the Transmission Provider's 
Transmission System;
    WHEREAS, the Transmission Provider has completed a feasibility 
study and provided the results of said study to the Interconnection 
Customer (This recital to be omitted if the Parties have agreed to 
forego the feasibility study.); and
    WHEREAS, the Interconnection Customer has requested the 
Transmission Provider to perform a system impact study(s) to assess 
the impact of interconnecting the Small Generating Facility with the 
Transmission Provider's Transmission System, and of any Affected 
Systems;
    NOW, THEREFORE, in consideration of and subject to the mutual 
covenants contained herein the Parties agreed as follows:
    1.0 When used in this Agreement, with initial capitalization, 
the terms specified shall have the meanings indicated or the 
meanings specified in the standard Small Generator Interconnection 
Procedures.
    2.0 The Interconnection Customer elects and the Transmission 
Provider shall cause to be performed a system impact study(s) 
consistent with the standard Small Generator Interconnection 
Procedures in accordance with the Open Access Transmission Tariff.
    3.0 The scope of a system impact study shall be subject to the 
assumptions set forth in Attachment A to this Agreement.
    4.0 A system impact study will be based upon the results of the 
feasibility study and the technical information provided by 
Interconnection Customer in the Interconnection Request. The 
Transmission Provider reserves the right to request additional 
technical information from the Interconnection Customer as may 
reasonably become necessary consistent with Good Utility Practice 
during the course of the system impact study. If the Interconnection 
Customer modifies its designated Point of Interconnection, 
Interconnection Request, or the technical information provided 
therein is modified, the time to complete the system impact study 
may be extended.
    5.0 A system impact study shall consist of a short circuit 
analysis, a stability analysis, a power flow analysis, voltage drop 
and flicker studies, protection and set point coordination studies, 
and grounding reviews, as necessary. A system impact study shall 
state the assumptions upon which it is based, state the results of 
the analyses, and provide the requirement or potential impediments 
to providing the requested interconnection service, including a 
preliminary indication of the cost and length of time that would be 
necessary to correct any problems identified in those analyses and 
implement the interconnection. A system impact study shall provide a 
list of facilities that are required as a result of the 
Interconnection Request and non-binding good faith estimates of cost 
responsibility and time to construct.
    6.0 A distribution system impact study shall incorporate a 
distribution load flow study, an analysis of equipment interrupting 
ratings, protection coordination study, voltage drop and flicker 
studies, protection and set point coordination studies, grounding 
reviews, and the impact on electric system operation, as necessary.
    7.0 Affected Systems may participate in the preparation of a 
system impact study, with a division of costs among such entities as 
they may agree. All Affected Systems shall be afforded an 
opportunity to review and comment upon a system impact study that 
covers potential adverse system impacts on their electric systems, 
and the Transmission Provider has 20 additional Business Days to 
complete a system impact study requiring review by Affected Systems.
    8.0 If the Transmission Provider uses a queuing procedure for 
sorting or prioritizing projects and their associated cost 
responsibilities for any required Network Upgrades, the system 
impact study shall consider all generating facilities (and with 
respect to paragraph 8.3 below, any identified Upgrades associated 
with such higher queued interconnection) that, on the date the 
system impact study is commenced--
    8.1 Are directly interconnected with the Transmission Provider's 
electric system; or
    8.2 Are interconnected with Affected Systems and may have an 
impact on the proposed interconnection; and

[[Page 34277]]

    8.3 Have a pending higher queued Interconnection Request to 
interconnect with the Transmission Provider's electric system.
    9.0 A distribution system impact study, if required, shall be 
completed and the results transmitted to the Interconnection 
Customer within 30 Business Days after this Agreement is signed by 
the Parties. A transmission system impact study, if required, shall 
be completed and the results transmitted to the Interconnection 
Customer within 45 Business Days after this Agreement is signed by 
the Parties, or in accordance with the Transmission Provider's 
queuing procedures.
    10.0 A deposit of the equivalent of the good faith estimated 
cost of a distribution system impact study and the one half the good 
faith estimated cost of a transmission system impact study may be 
required from the Interconnection Customer.
    11.0 Any study fees shall be based on the Transmission 
Provider's actual costs and will be invoiced to the Interconnection 
Customer after the study is completed and delivered and will include 
a summary of professional time.
    12.0 The Interconnection Customer must pay any study costs that 
exceed the deposit without interest within 30 calendar days on 
receipt of the invoice or resolution of any dispute. If the deposit 
exceeds the invoiced fees, the Transmission Provider shall refund 
such excess within 30 calendar days of the invoice without interest.
    IN WITNESS THEREOF, the Parties have caused this Agreement to be 
duly executed by their duly authorized officers or agents on the day 
and year first above written.
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Recitals

    WHEREAS, the Interconnection Customer is proposing to develop a 
Small Generating Facility or generating capacity addition to an 
existing Small Generating Facility consistent with the 
Interconnection Request completed by the Interconnection Customer 
on----------; and

    WHEREAS, the Interconnection Customer desires to interconnect 
the Small Generating Facility with the Transmission Provider's 
Transmission System;
    WHEREAS, the Transmission Provider has completed a system impact 
study and provided the results of said study to the Interconnection 
Customer; and
    WHEREAS, the Interconnection Customer has requested the 
Transmission Provider to perform a facilities study to specify and 
estimate the cost of the equipment, engineering, procurement and 
construction work needed to implement the conclusions of the system 
impact study in accordance with Good Utility Practice to physically 
and electrically connect the Small Generating Facility with the 
Transmission Provider's Transmission System.
    NOW, THEREFORE, in consideration of and subject to the mutual 
covenants contained herein the Parties agreed as follows:
    1.0 When used in this Agreement, with initial capitalization, 
the terms specified shall have the meanings indicated or the 
meanings specified in the standard Small Generator Interconnection 
Procedures.
    2.0 The Interconnection Customer elects and the Transmission 
Provider shall cause a facilities study consistent with the standard 
Small Generator Interconnection Procedures to be performed in 
accordance with the Open Access Transmission Tariff.
    3.0 The scope of the facilities study shall be subject to data 
provided in Attachment A to this Agreement.
    4.0 The facilities study shall specify and estimate the cost of 
the equipment, engineering, procurement and construction work 
(including overheads) needed to implement the conclusions of the 
system impact study(s). The facilities study shall also identify (1) 
the electrical switching configuration of the equipment, including, 
without limitation, transformer, switchgear, meters, and other 
station equipment, (2) the nature and estimated cost of the 
Transmission Provider's Interconnection Facilities and Upgrades 
necessary to accomplish the interconnection, and (3) an estimate of 
the time required to complete the construction and installation of 
such facilities.
    5.0 The Transmission Provider may propose to group facilities 
required for more than one Interconnection Customer in order to 
minimize facilities costs through economies of scale, but any 
Interconnection Customer may require the installation of facilities 
required for its own Small Generating Facility if it is willing to 
pay the costs of those facilities.
    6.0 A deposit of the good faith estimated facilities study costs 
may be required from the Interconnection Customer.
    7.0 In cases where Upgrades are required, the facilities study 
must be completed within 45 Business Days of the receipt of this 
Agreement. In cases where no Upgrades are necessary, and the 
required facilities are limited to Interconnection Facilities, the 
facilities study must be completed within 30 Business Days.
    8.0 Once the facilities study is completed, a facilities study 
report shall be prepared and transmitted to the Interconnection 
Customer. Barring unusual circumstances, the facilities study must 
be completed and the facilities study report transmitted within 30 
Business Days of the Interconnection Customer's agreement to conduct 
a facilities study.
    9.0 Any study fees shall be based on the Transmission Provider's 
actual costs and will be invoiced to the Interconnection Customer 
after the study is completed and delivered and will include a 
summary of professional time.
    10.0 The Interconnection Customer must pay any study costs that 
exceed the deposit without interest within 30 calendar days on 
receipt of the invoice or resolution of any dispute. If the deposit 
exceeds the invoiced fees, the Transmission Provider shall refund 
such excess within 30 calendar days of the invoice without interest.
    IN WITNESS WHEREOF, the Parties have caused this Agreement to be 
duly executed by their duly authorized officers or agents on the day 
and year first above written.
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Appendix F to the Small Generator Interconnection Final Rule

Small Generator Interconnection Agreement (SGIA) (For Generating 
Facilities No Larger Than 20 MW)

Table of Contents

Article 1. Scope and Limitations of Agreement
    1.5 Responsibilities of the Parties
    1.6 Parallel Operation Obligations
    1.7 Metering
    1.8 Reactive Power
Article 2. Inspection, Testing, Authorization, and Right of Access
    2.1 Equipment Testing and Inspection
    2.2 Authorization Required Prior to Parallel Operation.
    2.3 Right of Access
Article 3. Effective Date, Term, Termination, and Disconnection
    3.1 Effective Date
    3.2 Term of Agreement
    3.3 Termination
    3.4 Temporary Disconnection
    3.4.1 Emergency Conditions
    3.4.2 Routine Maintenance, Construction, and Repair
    3.4.3 Forced Outages
    3.4.4 Adverse Operating Effects
    3.4.5 Modification of the Small Generating Facility
    3.4.6 Reconnection
Article 4. Cost Responsibility for Interconnection Facilities and 
Distribution Upgrades
    4.1 Interconnection Facilities
    4.2 Distribution Upgrades
Article 5. Cost Responsibility for Network Upgrades
    5.1 Applicability
    5.2 Network Upgrades
    5.2.1 Repayment of Amounts Advanced for Network Upgrades
    5.3 Special Provisions for Affected Systems
    5.4 Rights Under Other Agreements
Article 6. Billing, Payment, Milestones, and Financial Security
    6.1 Billing and Payment Procedures and Final Accounting
    6.2 Milestones.
    6.3 Financial Security Arrangements
Article 7. Assignment, Liability, Indemnity, Force Majeure, 
Consequential Damages, and Default
    7.1 Assignment
    7.2 Limitation of Liability
    7.3 Indemnity
    7.4 Consequential Damages
    7.5 Force Majeure.
    7.6 Default
Article 8. Insurance
Article 9. Confidentiality
Article 10. Disputes
Article 11. Taxes
Article 12. Miscellaneous
    12.1 Governing Law, Regulatory Authority, and Rules
    12.2 Amendment
    12.3 No Third-Party Beneficiaries
    12.4 Waiver
    12.5 Entire Agreement
    12.6 Multiple Counterparts.
    12.7 No Partnership
    12.8 Severability
    12.9 Security Arrangements
    12.10 Environmental Releases
    12.11 Subcontractors
    12.12 Reservation of Rights
Article 13. Notices
    13.1 General
    13.2 Billing and Payment
    13.3 Alternative Forms of Notice
    13.4 Designated Operating Representative
    13.5 Changes to the Notice Information
Article 14. Signatures
Attachment 1--Glossary of Terms
Attachment 2--Description and Costs of the Small Generating 
Facility, Interconnection Facilities, and Metering Equipment
Attachment 3--One-line Diagram Depicting the Small Generating 
Facility, Interconnection Facilities, Metering Equipment, and 
Upgrades
Attachment 4--Milestones
Attachment 5--Additional Operating Requirements for the Transmission 
Provider's Transmission System and Affected Systems Needed to 
Support the Interconnection Customer's Needs
Attachment 6--Transmission Provider's Description of its Upgrades 
and Best Estimate of Upgrade Costs
BILLING CODE 6717-01-U

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BILLING CODE 6717-01-C

[[Page 34288]]

    In consideration of the mutual covenants set forth herein, the 
Parties agree as follows:

Article 1. Scope and Limitations of Agreement

    1.1 This Agreement shall be used for all Interconnection 
Requests submitted under the Small Generator Interconnection 
Procedures (SGIP) except for those submitted under the 10 kW 
Inverter Process contained in SGIP Attachment 5.
    1.2 This Agreement governs the terms and conditions under which 
the Interconnection Customer's Small Generating Facility will 
interconnect with, and operate in parallel with, the Transmission 
Provider's Transmission System.
    1.3 This Agreement does not constitute an agreement to purchase 
or deliver the Interconnection Customer's power. The purchase or 
delivery of power and other services that the Interconnection 
Customer may require will be covered under separate agreements. The 
Interconnection Customer will be responsible for separately making 
all necessary arrangements (including scheduling) for delivery of 
electricity with the applicable Transmission Provider.
    1.4 Nothing in this Agreement is intended to affect any other 
agreement between the Transmission Provider and the Interconnection 
Customer.

1.5 Responsibilities of the Parties

    1.5.1 The Parties shall perform all obligations of this 
Agreement in accordance with all Applicable Laws and Regulations, 
Operating Requirements, and Good Utility Practice.
    1.5.2 The Interconnection Customer shall construct, 
interconnect, operate and maintain its Small Generating Facility and 
construct, operate, and maintain its Interconnection Facilities in 
accordance with the applicable manufacturer's recommended 
maintenance schedule, in accordance with this Agreement, and with 
Good Utility Practice.
    1.5.3 The Transmission Provider shall construct, operate, and 
maintain its Transmission System and Interconnection Facilities in 
accordance with this Agreement, and with Good Utility Practice.
    1.5.4 The Interconnection Customer agrees to construct its 
facilities or systems in accordance with applicable specifications 
that meet or exceed those provided by the National Electrical Safety 
Code, the American National Standards Institute, IEEE, Underwriter's 
Laboratory, and Operating Requirements in effect at the time of 
construction and other applicable national and state codes and 
standards. The Interconnection Customer agrees to design, install, 
maintain, and operate its Small Generating Facility so as to 
reasonably minimize the likelihood of a disturbance adversely 
affecting or impairing the system or equipment of the Transmission 
Provider or Affected Systems.
    1.5.5 Each Party shall operate, maintain, repair, and inspect, 
and shall be fully responsible for the facilities that it now or 
subsequently may own unless otherwise specified in the Attachments 
to this Agreement. Each Party shall be responsible for the safe 
installation, maintenance, repair and condition of their respective 
lines and appurtenances on their respective sides of the point of 
change of ownership. The Transmission Provider and the 
Interconnection Customer, as appropriate, shall provide 
Interconnection Facilities that adequately protect the Transmission 
Provider's Transmission System, personnel, and other persons from 
damage and injury. The allocation of responsibility for the design, 
installation, operation, maintenance and ownership of 
Interconnection Facilities shall be delineated in the Attachments to 
this Agreement.
    1.5.6 The Transmission Provider shall coordinate with all 
Affected Systems to support the interconnection.

1.6 Parallel Operation Obligations

    Once the Small Generating Facility has been authorized to 
commence parallel operation, the Interconnection Customer shall 
abide by all rules and procedures pertaining to the parallel 
operation of the Small Generating Facility in the applicable control 
area, including, but not limited to; 1) the rules and procedures 
concerning the operation of generation set forth in the Tariff or by 
the system operator for the Transmission Provider's Transmission 
System and; 2) the Operating Requirements set forth in Attachment 5 
of this Agreement.

1.7 Metering

    The Interconnection Customer shall be responsible for the 
Transmission Provider's reasonable and necessary cost for the 
purchase, installation, operation, maintenance, testing, repair, and 
replacement of metering and data acquisition equipment specified in 
Attachments 2 and 3 of this Agreement. The Interconnection 
Customer's metering (and data acquisition, as required) equipment 
shall conform to applicable industry rules and Operating 
Requirements.

1.8 Reactive Power

    1.8.1 The Interconnection Customer shall design its Small 
Generating Facility to maintain a composite power delivery at 
continuous rated power output at the Point of Interconnection at a 
power factor within the range of 0.95 leading to 0.95 lagging, 
unless the Transmission Provider has established different 
requirements that apply to all similarly situated generators in the 
control area on a comparable basis. The requirements of this 
paragraph shall not apply to wind generators.
    1.8.2 The Transmission Provider is required to pay the 
Interconnection Customer for reactive power that the Interconnection 
Customer provides or absorbs from the Small Generating Facility when 
the Transmission Provider requests the Interconnection Customer to 
operate its Small Generating Facility outside the range specified in 
article 1.8.1. In addition, if the Transmission Provider pays its 
own or affiliated generators for reactive power service within the 
specified range, it must also pay the Interconnection Customer.
    1.8.3 Payments shall be in accordance with the Interconnection 
Customer's applicable rate schedule then in effect unless the 
provision of such service(s) is subject to a regional transmission 
organization or independent system operator FERC-approved rate 
schedule. To the extent that no rate schedule is in effect at the 
time the Interconnection Customer is required to provide or absorb 
reactive power under this Agreement, the Parties agree to 
expeditiously file such rate schedule and agree to support any 
request for waiver of the Commission's prior notice requirement in 
order to compensate the Interconnection Customer from the time 
service commenced.
    1.9 Capitalized terms used herein shall have the meanings 
specified in the Glossary of Terms in Attachment 1 or the body of 
this Agreement.

Article 2. Inspection, Testing, Authorization, and Right of Access

2.1 Equipment Testing and Inspection

    2.1.1 The Interconnection Customer shall test and inspect its 
Small Generating Facility and Interconnection Facilities prior to 
interconnection. The Interconnection Customer shall notify the 
Transmission Provider of such activities no fewer than five Business 
Days (or as may be agreed to by the Parties) prior to such testing 
and inspection. Testing and inspection shall occur on a Business 
Day. The Transmission Provider may, at its own expense, send 
qualified personnel to the Small Generating Facility site to inspect 
the interconnection and observe the testing. The Interconnection 
Customer shall provide the Transmission Provider a written test 
report when such testing and inspection is completed.
    2.1.2 The Transmission Provider shall provide the 
Interconnection Customer written acknowledgment that it has received 
the Interconnection Customer's written test report. Such written 
acknowledgment shall not be deemed to be or construed as any 
representation, assurance, guarantee, or warranty by the 
Transmission Provider of the safety, durability, suitability, or 
reliability of the Small Generating Facility or any associated 
control, protective, and safety devices owned or controlled by the 
Interconnection Customer or the quality of power produced by the 
Small Generating Facility.

2.2 Authorization Required Prior to Parallel Operation

    2.2.1 The Transmission Provider shall use Reasonable Efforts to 
list applicable parallel operation requirements in Attachment 5 of 
this Agreement. Additionally, the Transmission Provider shall notify 
the Interconnection Customer of any changes to these requirements as 
soon as they are known. The Transmission Provider shall make 
Reasonable Efforts to cooperate with the Interconnection Customer in 
meeting requirements necessary for the Interconnection Customer to 
commence parallel operations by the in-service date.
    2.2.2 The Interconnection Customer shall not operate its Small 
Generating Facility in parallel with the Transmission Provider's 
Transmission System without prior written authorization of the 
Transmission Provider. The Transmission Provider will provide such 
authorization once the Transmission Provider receives notification 
that the Interconnection Customer has complied with

[[Page 34289]]

all applicable parallel operation requirements. Such authorization 
shall not be unreasonably withheld, conditioned, or delayed.

2.3 Right of Access

    2.3.1 Upon reasonable notice, the Transmission Provider may send 
a qualified person to the premises of the Interconnection Customer 
at or immediately before the time the Small Generating Facility 
first produces energy to inspect the interconnection, and observe 
the commissioning of the Small Generating Facility (including any 
required testing), startup, and operation for a period of up to 
three Business Days after initial start-up of the unit. In addition, 
the Interconnection Customer shall notify the Transmission Provider 
at least five Business Days prior to conducting any on-site 
verification testing of the Small Generating Facility.
    2.3.2 Following the initial inspection process described above, 
at reasonable hours, and upon reasonable notice, or at any time 
without notice in the event of an emergency or hazardous condition, 
the Transmission Provider shall have access to the Interconnection 
Customer's premises for any reasonable purpose in connection with 
the performance of the obligations imposed on it by this Agreement 
or if necessary to meet its legal obligation to provide service to 
its customers.
    2.3.3 Each Party shall be responsible for its own costs 
associated with following this article.

Article 3. Effective Date, Term, Termination, and Disconnection

3.1 Effective Date

    This Agreement shall become effective upon execution by the 
Parties subject to acceptance by FERC (if applicable), or if filed 
unexecuted, upon the date specified by the FERC. The Transmission 
Provider shall promptly file this Agreement with the FERC upon 
execution, if required.

3.2 Term of Agreement

    This Agreement shall become effective on the Effective Date and 
shall remain in effect for a period of ten years from the Effective 
Date or such other longer period as the Interconnection Customer may 
request and shall be automatically renewed for each successive one-
year period thereafter, unless terminated earlier in accordance with 
article 3.3 of this Agreement.

3.3 Termination

    No termination shall become effective until the Parties have 
complied with all Applicable Laws and Regulations applicable to such 
termination, including the filing with FERC of a notice of 
termination of this Agreement (if required), which notice has been 
accepted for filing by FERC.
    3.3.1 The Interconnection Customer may terminate this Agreement 
at any time by giving the Transmission Provider 20 Business Days 
written notice.
    3.3.2 Either Party may terminate this Agreement after Default 
pursuant to article 7.6.
    3.3.3 Upon termination of this Agreement, the Small Generating 
Facility will be disconnected from the Transmission Provider's 
Transmission System. The termination of this Agreement shall not 
relieve either Party of its liabilities and obligations, owed or 
continuing at the time of the termination.
    3.3.4 This provisions of this article shall survive termination 
or expiration of this Agreement.

3.4 Temporary Disconnection

    Temporary disconnection shall continue only for so long as 
reasonably necessary under Good Utility Practice.
    3.4.1 Emergency Conditions--``Emergency Condition'' shall mean a 
condition or situation: (1) That in the judgment of the Party making 
the claim is imminently likely to endanger life or property; or (2) 
that, in the case of the Transmission Provider, is imminently likely 
(as determined in a non-discriminatory manner) to cause a material 
adverse effect on the security of, or damage to the Transmission 
System, the Transmission Provider's Interconnection Facilities or 
the Transmission Systems of others to which the Transmission System 
is directly connected; or (3) that, in the case of the 
Interconnection Customer, is imminently likely (as determined in a 
non-discriminatory manner) to cause a material adverse effect on the 
security of, or damage to, the Small Generating Facility or the 
Interconnection Customer's Interconnection Facilities. Under 
Emergency Conditions, the Transmission Provider may immediately 
suspend interconnection service and temporarily disconnect the Small 
Generating Facility. The Transmission Provider shall notify the 
Interconnection Customer promptly when it becomes aware of an 
Emergency Condition that may reasonably be expected to affect the 
Interconnection Customer's operation of the Small Generating 
Facility. The Interconnection Customer shall notify the Transmission 
Provider promptly when it becomes aware of an Emergency Condition 
that may reasonably be expected to affect the Transmission 
Provider's Transmission System or other Affected Systems. To the 
extent information is known, the notification shall describe the 
Emergency Condition, the extent of the damage or deficiency, the 
expected effect on the operation of both Parties' facilities and 
operations, its anticipated duration, and the necessary corrective 
action.
    3.4.2 Routine Maintenance, Construction, and Repair--The 
Transmission Provider may interrupt interconnection service or 
curtail the output of the Small Generating Facility and temporarily 
disconnect the Small Generating Facility from the Transmission 
Provider's Transmission System when necessary for routine 
maintenance, construction, and repairs on the Transmission 
Provider's Transmission System. The Transmission Provider shall 
provide the Interconnection Customer with five Business Days notice 
prior to such interruption. The Transmission Provider shall use 
Reasonable Efforts to coordinate such reduction or temporary 
disconnection with the Interconnection Customer.
    3.4.3 Forced Outages--During any forced outage, the Transmission 
Provider may suspend interconnection service to effect immediate 
repairs on the Transmission Provider's Transmission System. The 
Transmission Provider shall use Reasonable Efforts to provide the 
Interconnection Customer with prior notice. If prior notice is not 
given, the Transmission Provider shall, upon request, provide the 
Interconnection Customer written documentation after the fact 
explaining the circumstances of the disconnection.
    3.4.4 Adverse Operating Effects--The Transmission Provider shall 
notify the Interconnection Customer as soon as practicable if, based 
on Good Utility Practice, operation of the Small Generating Facility 
may cause disruption or deterioration of service to other customers 
served from the same electric system, or if operating the Small 
Generating Facility could cause damage to the Transmission 
Provider's Transmission System or Affected Systems. Supporting 
documentation used to reach the decision to disconnect shall be 
provided to the Interconnection Customer upon request. If, after 
notice, the Interconnection Customer fails to remedy the adverse 
operating effect within a reasonable time, the Transmission Provider 
may disconnect the Small Generating Facility. The Transmission 
Provider shall provide the Interconnection Customer with five 
Business Day notice of such disconnection, unless the provisions of 
article 3.4.1 apply.
    3.4.5 Modification of the Small Generating Facility--The 
Interconnection Customer must receive written authorization from the 
Transmission Provider before making any change to the Small 
Generating Facility that may have a material impact on the safety or 
reliability of the Transmission System. Such authorization shall not 
be unreasonably withheld. Modifications shall be done in accordance 
with Good Utility Practice. If the Interconnection Customer makes 
such modification without the Transmission Provider's prior written 
authorization, the latter shall have the right to temporarily 
disconnect the Small Generating Facility.
    3.4.6 Reconnection--The Parties shall cooperate with each other 
to restore the Small Generating Facility, Interconnection 
Facilities, and the Transmission Provider's Transmission System to 
their normal operating state as soon as reasonably practicable 
following a temporary disconnection.

Article 4. Cost Responsibility for Interconnection Facilities and 
Distribution Upgrades

4.1 Interconnection Facilities

    4.1.1 The Interconnection Customer shall pay for the cost of the 
Interconnection Facilities itemized in Attachment 2 of this 
Agreement. The Transmission Provider shall provide a best estimate 
cost, including overheads, for the purchase and construction of its 
Interconnection Facilities and provide a detailed itemization of 
such costs. Costs associated with Interconnection Facilities may be 
shared with other entities that may benefit from such facilities by 
agreement of the Interconnection Customer, such other entities, and 
the Transmission Provider.

[[Page 34290]]

    4.1.2 The Interconnection Customer shall be responsible for its 
share of all reasonable expenses, including overheads, associated 
with (1) owning, operating, maintaining, repairing, and replacing 
its own Interconnection Facilities, and (2) operating, maintaining, 
repairing, and replacing the Transmission Provider's Interconnection 
Facilities.

4.2 Distribution Upgrades

    The Transmission Provider shall design, procure, construct, 
install, and own the Distribution Upgrades described in Attachment 6 
of this Agreement. If the Transmission Provider and the 
Interconnection Customer agree, the Interconnection Customer may 
construct Distribution Upgrades that are located on land owned by 
the Interconnection Customer. The actual cost of the Distribution 
Upgrades, including overheads, shall be directly assigned to the 
Interconnection Customer.

Article 5. Cost Responsibility for Network Upgrades

5.1 Applicability

    No portion of this article 5 shall apply unless the 
interconnection of the Small Generating Facility requires Network 
Upgrades.

5.2 Network Upgrades

    The Transmission Provider or the Transmission Owner shall 
design, procure, construct, install, and own the Network Upgrades 
described in Attachment 6 of this Agreement. If the Transmission 
Provider and the Interconnection Customer agree, the Interconnection 
Customer may construct Network Upgrades that are located on land 
owned by the Interconnection Customer. Unless the Transmission 
Provider elects to pay for Network Upgrades, the actual cost of the 
Network Upgrades, including overheads, shall be borne initially by 
the Interconnection Customer.
    5.2.1 Repayment of Amounts Advanced for Network Upgrades
    The Interconnection Customer shall be entitled to a cash 
repayment, equal to the total amount paid to the Transmission 
Provider and Affected System operator, if any, for Network Upgrades, 
including any tax gross-up or other tax-related payments associated 
with the Network Upgrades, and not otherwise refunded to the 
Interconnection Customer, to be paid to the Interconnection Customer 
on a dollar-for-dollar basis for the non-usage sensitive portion of 
transmission charges, as payments are made under the Transmission 
Provider's Tariff and Affected System's Tariff for transmission 
services with respect to the Small Generating Facility. Any 
repayment shall include interest calculated in accordance with the 
methodology set forth in FERC's regulations at 18 CFR 
35.19a(a)(2)(iii) from the date of any payment for Network Upgrades 
through the date on which the Interconnection Customer receives a 
repayment of such payment pursuant to this subparagraph. The 
Interconnection Customer may assign such repayment rights to any 
person.
    5.2.1.1 Notwithstanding the foregoing, the Interconnection 
Customer, the Transmission Provider, and Affected System operator 
may adopt any alternative payment schedule that is mutually 
agreeable so long as the Transmission Provider and Affected System 
operator take one of the following actions no later than five years 
from the Commercial Operation Date: (1) Return to the 
Interconnection Customer any amounts advanced for Network Upgrades 
not previously repaid, or (2) declare in writing that the 
Transmission Provider or Affected System operator will continue to 
provide payments to the Interconnection Customer on a dollar-for-
dollar basis for the non-usage sensitive portion of transmission 
charges, or develop an alternative schedule that is mutually 
agreeable and provides for the return of all amounts advanced for 
Network Upgrades not previously repaid; however, full reimbursement 
shall not extend beyond twenty (20) years from the commercial 
operation date.
    5.2.1.2 If the Small Generating Facility fails to achieve 
commercial operation, but it or another generating facility is later 
constructed and requires use of the Network Upgrades, the 
Transmission Provider and Affected System operator shall at that 
time reimburse the Interconnection Customer for the amounts advanced 
for the Network Upgrades. Before any such reimbursement can occur, 
the Interconnection Customer, or the entity that ultimately 
constructs the generating facility, if different, is responsible for 
identifying the entity to which reimbursement must be made.

5.3 Special Provisions for Affected Systems

    Unless the Transmission Provider provides, under this Agreement, 
for the repayment of amounts advanced to Affected System operator 
for Network Upgrades, the Interconnection Customer and Affected 
System operator shall enter into an agreement that provides for such 
repayment. The agreement shall specify the terms governing payments 
to be made by the Interconnection Customer to Affected System 
operator as well as the repayment by Affected System operator.

5.4 Rights Under Other Agreements

    Notwithstanding any other provision of this Agreement, nothing 
herein shall be construed as relinquishing or foreclosing any 
rights, including but not limited to firm transmission rights, 
capacity rights, transmission congestion rights, or transmission 
credits, that the Interconnection Customer shall be entitled to, now 
or in the future, under any other agreement or tariff as a result 
of, or otherwise associated with, the transmission capacity, if any, 
created by the Network Upgrades, including the right to obtain cash 
reimbursements or transmission credits for transmission service that 
is not associated with the Small Generating Facility.

Article 6. Billing, Payment, Milestones, and Financial Security

6.1 Billing and Payment Procedures and Final Accounting

    6.1.1 The Transmission Provider shall bill the Interconnection 
Customer for the design, engineering, construction, and procurement 
costs of Interconnection Facilities and Upgrades contemplated by 
this Agreement on a monthly basis, or as otherwise agreed by the 
Parties. The Interconnection Customer shall pay each bill within 30 
calendar days of receipt, or as otherwise agreed to by the Parties.
    6.1.2 Within three months of completing the construction and 
installation of the Transmission Provider's Interconnection 
Facilities and/or Upgrades described in the Attachments to this 
Agreement, the Transmission Provider shall provide the 
Interconnection Customer with a final accounting report of any 
difference between (1) the Interconnection Customer's cost 
responsibility for the actual cost of such facilities or Upgrades, 
and (2) the Interconnection Customer's previous aggregate payments 
to the Transmission Provider for such facilities or Upgrades. If the 
Interconnection Customer's cost responsibility exceeds its previous 
aggregate payments, the Transmission Provider shall invoice the 
Interconnection Customer for the amount due and the Interconnection 
Customer shall make payment to the Transmission Provider within 30 
calendar days. If the Interconnection Customer's previous aggregate 
payments exceed its cost responsibility under this Agreement, the 
Transmission Provider shall refund to the Interconnection Customer 
an amount equal to the difference within 30 calendar days of the 
final accounting report.

6.2 Milestones

    The Parties shall agree on milestones for which each Party is 
responsible and list them in Attachment 4 of this Agreement. A 
Party's obligations under this provision may be extended by 
agreement. If a Party anticipates that it will be unable to meet a 
milestone for any reason other than a Force Majeure Event, it shall 
immediately notify the other Party of the reason(s) for not meeting 
the milestone and (1) propose the earliest reasonable alternate date 
by which it can attain this and future milestones, and (2) 
requesting appropriate amendments to Attachment 4. The Party 
affected by the failure to meet a milestone shall not unreasonably 
withhold agreement to such an amendment unless it will suffer 
significant uncompensated economic or operational harm from the 
delay, (2) attainment of the same milestone has previously been 
delayed, or (3) it has reason to believe that the delay in meeting 
the milestone is intentional or unwarranted notwithstanding the 
circumstances explained by the Party proposing the amendment.

6.3 Financial Security Arrangements

    At least 20 Business Days prior to the commencement of the 
design, procurement, installation, or construction of a discrete 
portion of the Transmission Provider's Interconnection Facilities 
and Upgrades, the Interconnection Customer shall provide the 
Transmission Provider, at the Interconnection Customer's option, a 
guarantee, a surety bond, letter of credit or other form of security 
that is reasonably acceptable to the Transmission Provider and is 
consistent with the Uniform Commercial

[[Page 34291]]

Code of the jurisdiction where the Point of Interconnection is 
located. Such security for payment shall be in an amount sufficient 
to cover the costs for constructing, designing, procuring, and 
installing the applicable portion of the Transmission Provider's 
Interconnection Facilities and Upgrades and shall be reduced on a 
dollar-for-dollar basis for payments made to the Transmission 
Provider under this Agreement during its term. In addition:
    6.3.1 The guarantee must be made by an entity that meets the 
creditworthiness requirements of the Transmission Provider, and 
contain terms and conditions that guarantee payment of any amount 
that may be due from the Interconnection Customer, up to an agreed-
to maximum amount.
    6.3.2 The letter of credit or surety bond must be issued by a 
financial institution or insured reasonably acceptable to the 
Transmission Provider and must specify a reasonable expiration date.

Article 7. Assignment, Liability, Indemnity, Force Majeure, 
Consequential Damages, and Default

7.1 Assignment

    This Agreement may be assigned by either Party upon 15 Business 
Days prior written notice and opportunity to object by the other 
Party; provided that:
    7.1.1 Either Party may assign this Agreement without the consent 
of the other Party to any affiliate of the assigning Party with an 
equal or greater credit rating and with the legal authority and 
operational ability to satisfy the obligations of the assigning 
Party under this Agreement;
    7.1.2 The Interconnection Customer shall have the right to 
assign this Agreement, without the consent of the Transmission 
Provider, for collateral security purposes to aid in providing 
financing for the Small Generating Facility, provided that the 
Interconnection Customer will promptly notify the Transmission 
Provider of any such assignment.
    7.1.3 Any attempted assignment that violates this article is 
void and ineffective. Assignment shall not relieve a Party of its 
obligations, nor shall a Party's obligations be enlarged, in whole 
or in part, by reason thereof. An assignee is responsible for 
meeting the same financial, credit, and insurance obligations as the 
Interconnection Customer. Where required, consent to assignment will 
not be unreasonably withheld, conditioned or delayed.

7.2 Limitation of Liability

    Each Party's liability to the other Party for any loss, cost, 
claim, injury, liability, or expense, including reasonable 
attorney's fees, relating to or arising from any act or omission in 
its performance of this Agreement, shall be limited to the amount of 
direct damage actually incurred. In no event shall either Party be 
liable to the other Party for any indirect, special, consequential, 
or punitive damages, except as authorized by this Agreement.

7.3 Indemnity

    7.3.1 This provision protects each Party from liability incurred 
to third parties as a result of carrying out the provisions of this 
Agreement. Liability under this provision is exempt from the general 
limitations on liability found in article 7.2.
    7.3.2 The Parties shall at all times indemnify, defend, and hold 
the other Party harmless from, any and all damages, losses, claims, 
including claims and actions relating to injury to or death of any 
person or damage to property, demand, suits, recoveries, costs and 
expenses, court costs, attorney fees, and all other obligations by 
or to third parties, arising out of or resulting from the other 
Party's action or failure to meet its obligations under this 
Agreement on behalf of the indemnifying Party, except in cases of 
gross negligence or intentional wrongdoing by the indemnified Party.
    7.3.3 If an indemnified person is entitled to indemnification 
under this article as a result of a claim by a third party, and the 
indemnifying Party fails, after notice and reasonable opportunity to 
proceed under this article, to assume the defense of such claim, 
such indemnified person may at the expense of the indemnifying Party 
contest, settle or consent to the entry of any judgment with respect 
to, or pay in full, such claim.
    7.3.4 If an indemnifying party is obligated to indemnify and 
hold any indemnified person harmless under this article, the amount 
owing to the indemnified person shall be the amount of such 
indemnified person's actual loss, net of any insurance or other 
recovery.
    7.3.5 Promptly after receipt by an indemnified person of any 
claim or notice of the commencement of any action or administrative 
or legal proceeding or investigation as to which the indemnity 
provided for in this article may apply, the indemnified person shall 
notify the indemnifying party of such fact. Any failure of or delay 
in such notification shall not affect a Party's indemnification 
obligation unless such failure or delay is materially prejudicial to 
the indemnifying party.

7.4 Consequential Damages

    Other than as expressly provided for in this Agreement, neither 
Party shall be liable under any provision of this Agreement for any 
losses, damages, costs or expenses for any special, indirect, 
incidental, consequential, or punitive damages, including but not 
limited to loss of profit or revenue, loss of the use of equipment, 
cost of capital, cost of temporary equipment or services, whether 
based in whole or in part in contract, in tort, including 
negligence, strict liability, or any other theory of liability; 
provided, however, that damages for which a Party may be liable to 
the other Party under another agreement will not be considered to be 
special, indirect, incidental, or consequential damages hereunder.

7.5 Force Majeure

    7.5.1 As used in this article, a Force Majeure Event shall mean 
``any act of God, labor disturbance, act of the public enemy, war, 
insurrection, riot, fire, storm or flood, explosion, breakage or 
accident to machinery or equipment, any order, regulation or 
restriction imposed by governmental, military or lawfully 
established civilian authorities, or any other cause beyond a 
Party's control. A Force Majeure Event does not include an act of 
negligence or intentional wrongdoing.''
    7.5.2 If a Force Majeure Event prevents a Party from fulfilling 
any obligations under this Agreement, the Party affected by the 
Force Majeure Event (Affected Party) shall promptly notify the other 
Party, either in writing or via the telephone, of the existence of 
the Force Majeure Event. The notification must specify in reasonable 
detail the circumstances of the Force Majeure Event, its expected 
duration, and the steps that the Affected Party is taking to 
mitigate the effects of the event on its performance. The Affected 
Party shall keep the other Party informed on a continuing basis of 
developments relating to the Force Majeure Event until the event 
ends. The Affected Party will be entitled to suspend or modify its 
performance of obligations under this Agreement (other than the 
obligation to make payments) only to the extent that the effect of 
the Force Majeure Event cannot be mitigated by the use of Reasonable 
Efforts. The Affected Party will use Reasonable Efforts to resume 
its performance as soon as possible.

7.6 Default

    7.6.1 No Default shall exist where such failure to discharge an 
obligation (other than the payment of money) is the result of a 
Force Majeure Event as defined in this Agreement or the result of an 
act or omission of the other Party. Upon a Default, the non-
defaulting Party shall give written notice of such Default to the 
defaulting Party. Except as provided in article 7.6.2, the 
defaulting Party shall have 60 calendar days from receipt of the 
Default notice within which to cure such Default; provided however, 
if such Default is not capable of cure within 60 calendar days, the 
defaulting Party shall commence such cure within 20 calendar days 
after notice and continuously and diligently complete such cure 
within six months from receipt of the Default notice; and, if cured 
within such time, the Default specified in such notice shall cease 
to exist.
    7.6.2 If a Default is not cured as provided in this article, or 
if a Default is not capable of being cured within the period 
provided for herein, the non-defaulting Party shall have the right 
to terminate this Agreement by written notice at any time until cure 
occurs, and be relieved of any further obligation hereunder and, 
whether or not that Party terminates this Agreement, to recover from 
the defaulting Party all amounts due hereunder, plus all other 
damages and remedies to which it is entitled at law or in equity. 
The provisions of this article will survive termination of this 
Agreement.

Article 8. Insurance

    8.1 The Interconnection Customer shall, at its own expense, 
maintain in force general liability insurance without any exclusion 
for liabilities related to the interconnection undertaken pursuant 
to this Agreement. The amount of such insurance shall be sufficient 
to insure against all reasonably foreseeable direct liabilities 
given the size and nature of the generating equipment being 
interconnected, the interconnection itself,

[[Page 34292]]

and the characteristics of the system to which the interconnection 
is made. The Interconnection Customer shall obtain additional 
insurance only if necessary as a function of owning and operating a 
generating facility. Such insurance shall be obtained from an 
insurance provider authorized to do business in the State where the 
interconnection is located. Certification that such insurance is in 
effect shall be provided upon request of the Transmission Provider, 
except that the Interconnection Customer shall show proof of 
insurance to the Transmission Provider no later than ten Business 
Days prior to the anticipated commercial operation date. An 
Interconnection Customer of sufficient credit-worthiness may propose 
to self-insure for such liabilities, and such a proposal shall not 
be unreasonably rejected.
    8.2 The Transmission Provider agrees to maintain general 
liability insurance or self-insurance consistent with the 
Transmission Provider's commercial practice. Such insurance or self-
insurance shall not exclude coverage for the Transmission Provider's 
liabilities undertaken pursuant to this Agreement.
    8.3 The Parties further agree to notify each other whenever an 
accident or incident occurs resulting in any injuries or damages 
that are included within the scope of coverage of such insurance, 
whether or not such coverage is sought.

Article 9. Confidentiality

    9.1 Confidential Information shall mean any confidential and/or 
proprietary information provided by one Party to the other Party 
that is clearly marked or otherwise designated ``Confidential.'' For 
purposes of this Agreement all design, operating specifications, and 
metering data provided by the Interconnection Customer shall be 
deemed Confidential Information regardless of whether it is clearly 
marked or otherwise designated as such.
    9.2 Confidential Information does not include information 
previously in the public domain, required to be publicly submitted 
or divulged by Governmental Authorities (after notice to the other 
Party and after exhausting any opportunity to oppose such 
publication or release), or necessary to be divulged in an action to 
enforce this Agreement. Each Party receiving Confidential 
Information shall hold such information in confidence and shall not 
disclose it to any third party nor to the public without the prior 
written authorization from the Party providing that information, 
except to fulfill obligations under this Agreement, or to fulfill 
legal or regulatory requirements.
    9.2.1 Each Party shall employ at least the same standard of care 
to protect Confidential Information obtained from the other Party as 
it employs to protect its own Confidential Information.
    9.2.2 Each Party is entitled to equitable relief, by injunction 
or otherwise, to enforce its rights under this provision to prevent 
the release of Confidential Information without bond or proof of 
damages, and may seek other remedies available at law or in equity 
for breach of this provision.
    9.3 Notwithstanding anything in this article to the contrary, 
and pursuant to 18 CFR 1b.20, if FERC, during the course of an 
investigation or otherwise, requests information from one of the 
Parties that is otherwise required to be maintained in confidence 
pursuant to this Agreement, the Party shall provide the requested 
information to FERC, within the time provided for in the request for 
information. In providing the information to FERC, the Party may, 
consistent with 18 CFR 388.112, request that the information be 
treated as confidential and non-public by FERC and that the 
information be withheld from public disclosure. Parties are 
prohibited from notifying the other Party to this Agreement prior to 
the release of the Confidential Information to FERC. The Party shall 
notify the other Party to this Agreement when it is notified by FERC 
that a request to release Confidential Information has been received 
by FERC, at which time either of the Parties may respond before such 
information would be made public, pursuant to 18 CFR 388.112. 
Requests from a state regulatory body conducting a confidential 
investigation shall be treated in a similar manner if consistent 
with the applicable state rules and regulations.

Article 10. Disputes

    10.1 The Parties agree to attempt to resolve all disputes 
arising out of the interconnection process according to the 
provisions of this article.
    10.2 In the event of a dispute, either Party shall provide the 
other Party with a written Notice of Dispute. Such Notice shall 
describe in detail the nature of the dispute.
    10.3 If the dispute has not been resolved within two Business 
Days after receipt of the Notice, either Party may contact FERC's 
Dispute Resolution Service (DRS) for assistance in resolving the 
dispute.
    10.4 The DRS will assist the Parties in either resolving their 
dispute or in selecting an appropriate dispute resolution venue 
(e.g., mediation, settlement judge, early neutral evaluation, or 
technical expert) to assist the Parties in resolving their dispute. 
DRS can be reached at 1-877-337-2237 or via the internet at http://www.ferc.gov/legal/adr.asp.
    10.5 Each Party agrees to conduct all negotiations in good faith 
and will be responsible for one-half of any costs paid to neutral 
third-parties.
    10.6 If neither Party elects to seek assistance from the DRS, or 
if the attempted dispute resolution fails, then either Party may 
exercise whatever rights and remedies it may have in equity or law 
consistent with the terms of this Agreement.

Article 11. Taxes

    11.1 The Parties agree to follow all applicable tax laws and 
regulations, consistent with FERC policy and Internal Revenue 
Service requirements.
    11.2 Each Party shall cooperate with the other to maintain the 
other Party's tax status. Nothing in this Agreement is intended to 
adversely affect the Transmission Provider's tax exempt status with 
respect to the issuance of bonds including, but not limited to, 
local furnishing bonds.

Article 12. Miscellaneous

12.1 Governing Law, Regulatory Authority, and Rules

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

12.2 Amendment

    The Parties may amend this Agreement by a written instrument 
duly executed by both Parties.

12.3 No Third-Party Beneficiaries

    This Agreement is not intended to and does not create rights, 
remedies, or benefits of any character whatsoever in favor of any 
persons, corporations, associations, or entities other than the 
Parties, and the obligations herein assumed are solely for the use 
and benefit of the Parties, their successors in interest and where 
permitted, their assigns.

12.4 Waiver

    12.4.1 The failure of a Party to this Agreement to insist, on 
any occasion, upon strict performance of any provision of this 
Agreement will not be considered a waiver of any obligation, right, 
or duty of, or imposed upon, such Party.
    12.4.2 Any waiver at any time by either Party of its rights with 
respect to this Agreement shall not be deemed a continuing waiver or 
a waiver with respect to any other failure to comply with any other 
obligation, right, or duty of this Agreement. Termination or default 
of this Agreement for any reason by Interconnection Customer shall 
not constitute a waiver of the Interconnection Customer's legal 
rights to obtain an interconnection from the Transmission Provider. 
Any waiver of this Agreement shall, if requested, be provided in 
writing.

12.5 Entire Agreement

    This Agreement, including all Attachments, constitutes the 
entire agreement between the Parties with reference to the subject 
matter hereof, and supersedes all prior and contemporaneous 
understandings or agreements, oral or written, between the Parties 
with respect to the subject matter of this Agreement. There are no 
other agreements, representations, warranties, or covenants which 
constitute any part of the consideration for, or any condition to, 
either Party's compliance with its obligations under this Agreement.

12.6 Multiple Counterparts

    This Agreement may be executed in two or more counterparts, each 
of which is deemed an original but all constitute one and the same 
instrument.

12.7 No Partnership

    This Agreement shall not be interpreted or construed to create 
an association, joint

[[Page 34293]]

venture, agency relationship, or partnership between the Parties or 
to impose any partnership obligation or partnership liability upon 
either Party. Neither Party shall have any right, power or authority 
to enter into any agreement or undertaking for, or act on behalf of, 
or to act as or be an agent or representative of, or to otherwise 
bind, the other Party.

12.8 Severability

    If any provision or portion of this Agreement shall for any 
reason be held or adjudged to be invalid or illegal or unenforceable 
by any court of competent jurisdiction or other Governmental 
Authority, (1) such portion or provision shall be deemed separate 
and independent, (2) the Parties shall negotiate in good faith to 
restore insofar as practicable the benefits to each Party that were 
affected by such ruling, and (3) the remainder of this Agreement 
shall remain in full force and effect.

12.9 Security Arrangements

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

12.10 Environmental Releases

    Each Party shall notify the other Party, first orally and then 
in writing, of the release of any hazardous substances, any asbestos 
or lead abatement activities, or any type of remediation activities 
related to the Small Generating Facility or the Interconnection 
Facilities, each of which may reasonably be expected to affect the 
other Party. The notifying Party shall (1) provide the notice as 
soon as practicable, provided such Party makes a good faith effort 
to provide the notice no later than 24 hours after such Party 
becomes aware of the occurrence, and (2) promptly furnish to the 
other Party copies of any publicly available reports filed with any 
governmental authorities addressing such events.

12.11 Subcontractors

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

12.12 Reservation of Rights

    The Transmission Provider shall have the right to make a 
unilateral filing with FERC to modify this Agreement with respect to 
any rates, terms and conditions, charges, classifications of 
service, rule or regulation under section 205 or any other 
applicable provision of the Federal Power Act and FERC's rules and 
regulations thereunder, and the Interconnection Customer shall have 
the right to make a unilateral filing with FERC to modify this 
Agreement under any applicable provision of the Federal Power Act 
and FERC's rules and regulations; provided that each Party shall 
have the right to protest any such filing by the other Party and to 
participate fully in any proceeding before FERC in which such 
modifications may be considered. Nothing in this Agreement shall 
limit the rights of the Parties or of FERC under sections 205 or 206 
of the Federal Power Act and FERC's rules and regulations, except to 
the extent that the Parties otherwise agree as provided herein.

Article 13. Notices

13.1 General

    Unless otherwise provided in this Agreement, any written notice, 
demand, or request required or authorized in connection with this 
Agreement (``Notice'') shall be deemed properly given if delivered 
in person, delivered by recognized national currier service, or sent 
by first class mail, postage prepaid, to the person specified below:
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[[Page 34294]]

[GRAPHIC] [TIFF OMITTED] TR13JN05.037

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[[Page 34295]]

13.2 Billing and Payment

    Billings and payments shall be sent to the addresses set out 
below:
[GRAPHIC] [TIFF OMITTED] TR13JN05.038

13.3 Alternative Forms of Notice

    Any notice or request required or permitted to be given by 
either Party to the other and not required by this Agreement to be 
given in writing may be so given by telephone, facsimile or e-mail 
to the telephone numbers and e-mail addresses set out below:

[[Page 34296]]

[GRAPHIC] [TIFF OMITTED] TR13JN05.039

13.4 Designated Operating Representative

    The Parties may also designate operating representatives to 
conduct the communications which may be necessary or convenient for 
the administration of this Agreement. This person will also serve as 
the point of contact with respect to operations and maintenance of 
the Party's facilities.

13.5 Changes to the Notice Information

    Either Party may change this information by giving five Business 
Days written notice prior to the effective date of the change.

Article 14. Signatures

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[[Page 34297]]

[GRAPHIC] [TIFF OMITTED] TR13JN05.040

    IN WITNESS WHEREOF, the Parties have caused this Agreement to be 
executed by their respective duly authorized representatives.

[[Page 34298]]

[GRAPHIC] [TIFF OMITTED] TR13JN05.041

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[[Page 34299]]

Attachment 1--Glossary of Terms

    Affected System--An electric system other than the Transmission 
Provider's Transmission System that may be affected by the proposed 
interconnection.
    Applicable Laws and Regulations--All duly promulgated applicable 
federal, state and local laws, regulations, rules, ordinances, 
codes, decrees, judgments, directives, or judicial or administrative 
orders, permits and other duly authorized actions of any 
Governmental Authority.
    Business Day--Monday through Friday, excluding Federal Holidays.
    Default--The failure of a breaching Party to cure its Breach 
under the Small Generator Interconnection Agreement.
    Distribution System--The Transmission Provider's facilities and 
equipment used to transmit electricity to ultimate usage points such 
as homes and industries directly from nearby generators or from 
interchanges with higher voltage transmission networks which 
transport bulk power over longer distances. The voltage levels at 
which Distribution Systems operate differ among areas.
    Distribution Upgrades--The additions, modifications, and 
upgrades to the Transmission Provider's Distribution System at or 
beyond the Point of Interconnection to facilitate interconnection of 
the Small Generating Facility and render the transmission service 
necessary to effect the Interconnection Customer's wholesale sale of 
electricity in interstate commerce. Distribution Upgrades do not 
include Interconnection Facilities.
    Good Utility Practice--Any of the practices, methods and acts 
engaged in or approved by a significant portion of the electric 
industry during the relevant time period, or any of the practices, 
methods and acts which, in the exercise of reasonable judgment in 
light of the facts known at the time the decision was made, could 
have been expected to accomplish the desired result at a reasonable 
cost consistent with good business practices, reliability, safety 
and expedition. Good Utility Practice is not intended to be limited 
to the optimum practice, method, or act to the exclusion of all 
others, but rather to be acceptable practices, methods, or acts 
generally accepted in the region.
    Governmental Authority--Any federal, state, local or other 
governmental regulatory or administrative agency, court, commission, 
department, board, or other governmental subdivision, legislature, 
rulemaking board, tribunal, or other governmental authority having 
jurisdiction over the Parties, their respective facilities, or the 
respective services they provide, and exercising or entitled to 
exercise any administrative, executive, police, or taxing authority 
or power; provided, however, that such term does not include the 
Interconnection Customer, the Interconnection Provider, or any 
Affiliate thereof.
    Interconnection Customer--Any entity, including the Transmission 
Provider, the Transmission Owner or any of the affiliates or 
subsidiaries of either, that proposes to interconnect its Small 
Generating Facility with the Transmission Provider's Transmission 
System.
    Interconnection Facilities--The Transmission Provider's 
Interconnection Facilities and the Interconnection Customer's 
Interconnection Facilities. Collectively, Interconnection Facilities 
include all facilities and equipment between the Small Generating 
Facility and the Point of Interconnection, including any 
modification, additions or upgrades that are necessary to physically 
and electrically interconnect the Small Generating Facility to the 
Transmission Provider's Transmission System. Interconnection 
Facilities are sole use facilities and shall not include 
Distribution Upgrades or Network Upgrades.
    Interconnection Request--The Interconnection Customer's request, 
in accordance with the Tariff, to interconnect a new Small 
Generating Facility, or to increase the capacity of, or make a 
Material Modification to the operating characteristics of, an 
existing Small Generating Facility that is interconnected with the 
Transmission Provider's Transmission System.
    Material Modification--A modification that has a material impact 
on the cost or timing of any Interconnection Request with a later 
queue priority date.
    Network Upgrades--Additions, modifications, and upgrades to the 
Transmission Provider's Transmission System required at or beyond 
the point at which the Small Generating Facility interconnects with 
the Transmission Provider's Transmission System to accommodate the 
interconnection of the Small Generating Facility with the 
Transmission Provider's Transmission System. Network Upgrades do not 
include Distribution Upgrades.
    Operating Requirements--Any operating and technical requirements 
that may be applicable due to Regional Transmission Organization, 
Independent System Operator, control area, or the Transmission 
Provider's requirements, including those set forth in the Small 
Generator Interconnection Agreement.
    Party or Parties--The Transmission Provider, Transmission Owner, 
Interconnection Customer or any combination of the above.
    Point of Interconnection--The point where the Interconnection 
Facilities connect with the Transmission Provider's Transmission 
System.
    Reasonable Efforts--With respect to an action required to be 
attempted or taken by a Party under the Small Generator 
Interconnection Agreement, efforts that are timely and consistent 
with Good Utility Practice and are otherwise substantially 
equivalent to those a Party would use to protect its own interests.
    Small Generating Facility--The Interconnection Customer's device 
for the production of electricity identified in the Interconnection 
Request, but shall not include the Interconnection Customer's 
Interconnection Facilities.
    Tariff--The Transmission Provider or Affected System's Tariff 
through which open access transmission service and Interconnection 
Service are offered, as filed with the FERC, and as amended or 
supplemented from time to time, or any successor tariff.
    Transmission Owner--The entity that owns, leases or otherwise 
possesses an interest in the portion of the Transmission System at 
the Point of Interconnection and may be a Party to the Small 
Generator Interconnection Agreement to the extent necessary.
    Transmission Provider--The public utility (or its designated 
agent) that owns, controls, or operates transmission or distribution 
facilities used for the transmission of electricity in interstate 
commerce and provides transmission service under the Tariff. The 
term Transmission Provider should be read to include the 
Transmission Owner when the Transmission Owner is separate from the 
Transmission Provider.
    Transmission System--The facilities owned, controlled or 
operated by the Transmission Provider or the Transmission Owner that 
are used to provide transmission service under the Tariff.
    Upgrades--The required additions and modifications to the 
Transmission Provider's Transmission System at or beyond the Point 
of Interconnection. Upgrades may be Network Upgrades or Distribution 
Upgrades. Upgrades do not include Interconnection Facilities.

Attachment 2--Description and Costs of the Small Generating Facility, 
Interconnection Facilities, and Metering Equipment

    Equipment, including the Small Generating Facility, 
Interconnection Facilities, and metering equipment shall be itemized 
and identified as being owned by the Interconnection Customer, the 
Transmission Provider, or the Transmission Owner. The Transmission 
Provider will provide a best estimate itemized cost, including 
overheads, of its Interconnection Facilities and metering equipment, 
and a best estimate itemized cost of the annual operation and 
maintenance expenses associated with its Interconnection Facilities 
and metering equipment.
BILLING CODE 6717-01-U

Attachment 3--One-Line Diagram Depicting the Small Generating Facility, 
Interconnection Facilities, Metering Equipment, and Upgrades

[[Page 34300]]

[GRAPHIC] [TIFF OMITTED] TR13JN05.042


[[Page 34301]]


[GRAPHIC] [TIFF OMITTED] TR13JN05.043

Attachment 5--Additional Operating Requirements for the Transmission 
Provider's Transmission System and Affected Systems Needed To Support 
the Interconnection Customer's Needs

    The Transmission Provider shall also provide requirements that 
must be met by the Interconnection Customer prior to initiating 
parallel operation with the Transmission Provider's Transmission 
System.

Attachment 6--Transmission Provider's Description of Its Upgrades and 
Best Estimate of Upgrade Costs

    The Transmission Provider shall describe Upgrades and provide an 
itemized best estimate of the cost, including overheads, of the 
Upgrades and annual operation and maintenance expenses associated 
with such Upgrades. The Transmission Provider shall functionalize 
Upgrade costs and annual expenses as either transmission or 
distribution related.

[FR Doc. 05-11307 Filed 6-10-05; 8:45 am]
BILLING CODE 6717-01-C