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Part II
Department of
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Federal Energy Regulatory Commission
sroberts on PROD1PC70 with RULES
18 CFR Parts 35 and 37
Preventing Undue Discrimination and
Preference in Transmission Service; Final
Rule
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Federal Register / Vol. 72, No. 50 / Thursday, March 15, 2007 / Rules and Regulations
DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
18 CFR Parts 35 and 37
[Docket Nos. RM05–17–000 and RM05–25–
000; Order No. 890]
Preventing Undue Discrimination and
Preference in Transmission Service
Issued February 16, 2007.
AGENCY: Federal Energy Regulatory
Commission, DOE.
ACTION: Final rule.
SUMMARY: The Federal Energy
Regulatory Commission is amending the
regulations and the pro forma open
access transmission tariff adopted in
Order Nos. 888 and 889 to ensure that
transmission services are provided on a
basis that is just, reasonable and not
unduly discriminatory or preferential.
The final rule is designed to: Strengthen
the pro forma open-access transmission
tariff, or OATT, to ensure that it
achieves its original purpose of
remedying undue discrimination;
provide greater specificity to reduce
opportunities for undue discrimination
and facilitate the Commission’s
enforcement; and increase transparency
in the rules applicable to planning and
use of the transmission system.
EFFECTIVE DATE: This rule will become
effective May 14, 2007.
FOR FURTHER INFORMATION CONTACT:
Daniel Hedberg (Technical Information),
Office of Energy Markets and Reliability,
Federal Energy Regulatory Commission,
888 First Street, NE., Washington, DC
20426, (202) 502–6243.
W. Mason Emnett (Legal Information),
Office of the General Counsel—Energy
Markets, Federal Energy Regulatory
Commission, 888 First Street, NE.,
Washington, DC 20426, (202) 502–6540.
Kathleen Barrón (Legal Information),
Office of the General Counsel—Energy
Markets, Federal Energy Regulatory
Commission, 888 First Street, NE.,
Washington, DC 20426, (202) 502–6461.
SUPPLEMENTARY INFORMATION:
Paragraph
Nos.
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Table of Contents
I. Introduction ...........................................................................................................................................................................................
II. Background ...........................................................................................................................................................................................
A. Historical Antecedent ..................................................................................................................................................................
B. Order No. 888 and Subsequent Reforms .....................................................................................................................................
C. EPAct 2005 and Recent Developments .......................................................................................................................................
III. Need for Reform of Order No. 888 ....................................................................................................................................................
A. Opportunities for Undue Discrimination Continue to Exist .....................................................................................................
B. Lack of Transparency Undermines Confidence in Open Access and Impedes Enforcement of Open Access Requirements
C. Congestion and Inadequate Infrastructure Development Impede Customers’ Use of the Grid ...............................................
D. A Consistent Method of Measuring ATC Is Needed ..................................................................................................................
E. Discriminatory Pricing of Imbalances ..........................................................................................................................................
F. Redispatch/Conditional Firm .......................................................................................................................................................
G. EPAct 2005 Emphasized Certain Policies and Priorities for the Commission .........................................................................
IV. Summary, Scope and Applicability of the Final Rule .....................................................................................................................
A. Summary of Reforms ....................................................................................................................................................................
B. Core Elements of Order No. 888 That Are Retained ..................................................................................................................
1. Federal/State Jurisdiction ......................................................................................................................................................
2. Native Load Protection ..........................................................................................................................................................
3. The Types of Transmission Services Offered ......................................................................................................................
4. Functional Unbundling .........................................................................................................................................................
C. Applicability of the Final Rule ....................................................................................................................................................
1. Non-ISO/RTO Public Utility Transmission Providers .........................................................................................................
2. ISO and RTO Public Utility Transmission Providers and Transmission Owner Members of ISOs and RTOs ...............
3. Non-Public Utility Transmission Providers/Reciprocity .....................................................................................................
V. Reforms of the OATT ..........................................................................................................................................................................
A. Consistency and Transparency of ATC Calculations .................................................................................................................
B. Coordinated, Open and Transparent Planning ...........................................................................................................................
C. Transmission Pricing ....................................................................................................................................................................
1. General ....................................................................................................................................................................................
2. Energy and Generation Imbalances .......................................................................................................................................
3. Credits for Network Customers .............................................................................................................................................
4. Capacity Reassignment ..........................................................................................................................................................
5. ‘‘Operational’’ Penalties .........................................................................................................................................................
a. Unreserved Use Penalties ...............................................................................................................................................
b. Distribution of Operational Penalties ............................................................................................................................
c. Applicability of Operational Penalties Proposal to RTOs and Other Independent or Non-Profit Entities ...............
6. ‘‘Higher of’’ Pricing Policy ....................................................................................................................................................
7. Other Ancillary Services .......................................................................................................................................................
D. Non-Rate Terms and Conditions .................................................................................................................................................
1. Modifications to Long-Term Firm Point-to-Point Service ...................................................................................................
a. Planning Redispatch and Conditional Firm Options ...................................................................................................
b. Proposals for Transparent Redispatch ...........................................................................................................................
c. Other Requested Service Modifications ........................................................................................................................
2. Hourly Firm Service ..............................................................................................................................................................
3. Rollover Rights .......................................................................................................................................................................
4. Modification of Receipt or Delivery Points ..........................................................................................................................
5. Acquisition of Transmission Service ....................................................................................................................................
a. Processing of Service Requests ......................................................................................................................................
b. Reservation Priority ........................................................................................................................................................
6. Designation of Network Resources .......................................................................................................................................
a. Qualification as a Network Resource .............................................................................................................................
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Paragraph
Nos.
Table of Contents
b. Documentation for Network Resources .........................................................................................................................
c. Undesignation of Network Resources ............................................................................................................................
7. Clarifications Related to Network Service ............................................................................................................................
a. Secondary Network Service ...........................................................................................................................................
b. Behind the Meter Generation .........................................................................................................................................
8. Transmission Curtailments ....................................................................................................................................................
9. Standardization of Rules and Practices ................................................................................................................................
a. Business Practices ...........................................................................................................................................................
b. Liability and Indemnification ........................................................................................................................................
10. OATT Definitions ................................................................................................................................................................
E. Enforcement ..................................................................................................................................................................................
1. General Policy ........................................................................................................................................................................
2. Civil Penalties ........................................................................................................................................................................
VI. Information Collection Statement ......................................................................................................................................................
VII. Environmental Analysis ....................................................................................................................................................................
VIII. Regulatory Flexibility Act Analysis ................................................................................................................................................
IX. Document Availability .......................................................................................................................................................................
X. Effective Date and Congressional Notification ...................................................................................................................................
Appendix A: Summary of Compliance Filing Requirements
Appendix B: Commenting Party Acronyms
Appendix C: Pro Forma Open Access Transmission Tariff
Before Commissioners: Joseph T.
Kelliher, Chairman; Suedeen G.
Kelly, Marc Spitzer, Philip D.
Moeller, and Jon Wellinghoff.
I. Introduction
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1. This Final Rule addresses and
remedies opportunities for undue
discrimination under the pro forma
Open Access Transmission Tariff
(OATT) adopted in 1996 by Order No.
888.1 This landmark rulemaking
fostered greater competition in
wholesale power markets by reducing
barriers to entry in the provision of
transmission service. In the ten years
since Order No. 888, however, the
Commission has found that the OATT
contains flaws that undermine realizing
its core objective of remedying undue
discrimination. In the Notice of
Proposed Rulemaking (NOPR) issued on
May 19, 2006, the Commission
proposed to remedy those flaws.2 After
receiving approximately 6,500 pages of
comments from close to 300 parties, we
now take final action. We highlight
below the most critical reforms being
adopted today.
1 Promoting Wholesale Competition Through
Open Access Non-discriminatory Transmission
Services by Public Utilities; Recovery of Stranded
Costs by Public Utilities and Transmitting Utilities,
Order No. 888, 61 FR 21540 (May 10, 1996), FERC
Stats. & Regs. § 31,036 (1996), order on reh’g, Order
No. 888–A, 62 FR 12274 (Mar. 14, 1997), FERC
Stats. & Regs. § 31,048 (1997), order on reh’g, Order
No. 888–B, 81 FERC § 61,248 (1997), order on reh’g,
Order No. 888–C, 82 FERC § 61,046 (1998), aff’d in
relevant part sub nom. Transmission Access Policy
Study Group v. FERC, 225 F.3d 667 (D.C. Cir. 2000)
(TAPS v. FERC), aff’d sub nom. New York v. FERC,
535 U.S. 1 (2002).
2 Preventing Undue Discrimination and
Preference in Transmission Service, Notice of
Proposed Rulemaking, 71 FR 32,636 (Jun. 6, 2006),
FERC Stats. & Regs. § 32,603 (2006).
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2. First, the Final Rule will increase
nondiscriminatory access to the grid by
eliminating the wide discretion that
transmission providers currently have
in calculating available transfer
capability (ATC).3 The calculation of
ATC is one of the most critical functions
under the OATT because it determines
whether transmission customers can
access alternative power supplies.
Despite this, the existing OATT does not
prescribe how ATC should be calculated
because the Commission sought to rely
on voluntary efforts by the industry to
develop consistent methods of ATC
calculation. This voluntary industry
effort has not proven successful. The
Commission therefore acts today to
require public utilities, working through
the North American Electric Reliability
Corporation (NERC), to develop
consistent methodologies for ATC
calculation and to publish those
methodologies to increase transparency.
This important reform will eliminate the
wide discretion that exists today in
calculating ATC and ensure that
customers are treated fairly in seeking
alternative power supplies.
3. Second, the Final Rule will
increase the ability of customers to
access new generating resources and
promote efficient utilization of
transmission by requiring an open,
transparent, and coordinated
transmission planning process.
Transmission planning is a critical
3 The Commission used the term ‘‘Available
Transmission Capability’’ in Order No. 888 to
describe the amount of additional capability
available in the transmission network to
accommodate additional requests for transmission
services. To be consistent with the term generally
accepted throughout the industry, the Commission
revises the pro forma OATT to adopt the term
‘‘Available Transfer Capability.’’
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function under the pro forma OATT
because it is the means by which
customers consider and access new
sources of energy and have an
opportunity to explore the feasibility of
non-transmission alternatives. Despite
this, the existing pro forma OATT
provides limited guidance regarding
how transmission customers are treated
in the planning process and provides
them very little information on how
transmission plans are developed. These
deficiencies are serious, given the
substantial need for new infrastructure
in this Nation.4 We act today to remedy
these deficiencies by requiring
transmission providers to open their
transmission planning process to
customers, coordinate with customers
regarding future system plans, and share
necessary planning information with
customers.
4. Third, the Final Rule will also
increase the efficient utilization of
4 Congress placed special emphasis on the
development of transmission infrastructure,
including the consideration of advanced
transmission technologies, in the Energy Policy Act
of 2005 (EPAct 2005). See Pub. L. 109–58, 119 Stat.
594 (to be codified in scattered titles of the U.S.C.).
The Commission has taken steps to implement that
goal in numerous contexts, including recent
rulemaking proceedings that address the promotion
of transmission investment through pricing reform
and the siting of certain transmission facilities. See
Promoting Transmission Investment through
Pricing Reform, Order No. 679, 71 FR 43294 (Jul.
31, 2006), FERC Stats. & Regs. § 31,222 (2006), order
on reh’g, Order No. 679–A, 72 FR 1152 (Jan. 10,
2007), FERC Stats. & Regs. § 31,236 (2007), reh’g
pending; Regulations for Filing Applications for
Permits to Site Interstate Electric Transmission
Facilities, Order No. 689, 71 FR 69440 (Dec. 1,
2006), FERC Stats. & Regs. § 31,234 (2006), reh’g
pending. As discussed herein, several actions taken
in this Final Rule also relate to the need for
investments in transmission infrastructure and are
consistent with the Commission’s responsibilities
under EPAct 2005.
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transmission by eliminating artificial
barriers to use of the grid. The existing
pro forma OATT allows a transmission
provider to deny a request for long-term
point-to-point service if the request
cannot be satisfied in only one hour of
the requested term. This practice
discourages the efficient use of the
existing grid and precludes access to
alternative power supplies. We reform
this practice by requiring that a
conditional firm option be offered to
customers seeking long-term point-topoint service, i.e., conditional firm
service. We also modify the redispatch
obligations of transmission providers to
increase the efficient utilization of the
grid, while also ensuring that reliability
to native load customers is maintained.
5. Fourth, by adopting these and other
reforms, the Final Rule facilitates the
use of clean energy resources such as
wind power. Conditional firm service is
particularly important to wind resources
that can provide significant economic
and environmental value even if
curtailed under limited circumstances.
Open and coordinated transmission
planning will enhance the ability of
customers to access clean energy
resources as part of their future resource
portfolio. The Final Rule also benefits
clean energy resources by reforming
energy and generator imbalance charges.
These reforms are particularly important
to intermittent resources such as wind
power because these resources have
limited ability to control their output
and, hence, must be assured that
imbalance charges are no more than
required to provide appropriate
incentives for prudent behavior.
6. Fifth, the Final Rule will strengthen
compliance and enforcement efforts. We
are increasing the transparency of pro
forma OATT administration, thereby
increasing the ability of customers and
our Office of Enforcement to detect
undue discrimination. We are adopting
operational penalties for clear violations
of an OATT, thereby enhancing
compliance while also reducing the
burdens on our Office of Enforcement.
We are also increasing the clarity of
many other OATT requirements,
thereby facilitating compliance by
transmission providers with our
regulations. This Final Rule thus reflects
the close integration of our Office of
Enforcement into policy development at
the Commission. Several of the reforms
we adopt today are informed by our
experience with OATT administration
through oversight, audits, and
investigations performed by the Office
of Enforcement.
7. Finally, we modify and improve
several provisions of the pro forma
OATT using our experience over the
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past ten years and clarify others that
have proven ambiguous. For example,
we reform our rollover rights policy to
ensure that the rights and obligations of
rollover customers are consistent with
the resulting obligations of transmission
providers to plan and upgrade the
system to accommodate rollovers. We
remove the price cap on reassigned
capacity because it is not necessary to
remedy market power and doing so will
otherwise increase the efficient use of
existing capacity. We increase the
efficient use of existing capacity by
providing a priority to certain ‘‘preconfirmed’’ requests for service. We
increase certainty by providing greater
clarity regarding the wholesale contracts
that qualify as network resources. We
also adopt numerous clarifications that
should assist transmission providers
and customers in implementing and
using the pro forma OATT
8. Our actions in this proceeding have
been informed to a great extent by the
comments received in response to our
notices of inquiry in the abovecaptioned dockets and the subsequent
NOPR.5 We appreciate the time and
thoughtfulness of all sectors of the
industry in preparing comments. We
have found them very informative and
useful in reaching our decisions in this
Final Rule.
II. Background
A. Historical Antecedent
9. In the NOPR, the Commission
explained the historical background that
led up to the issuance of Order No. 888,
and the initiation of this rulemaking
proceeding. We repeat that history here
to place in context the actions we take
today.
10. In the first few decades after
enactment of the Federal Power Act
(FPA) in 1935, the industry was
characterized mostly by self-sufficient,
vertically integrated electric utilities, in
which generation, transmission, and
distribution facilities were owned by a
single entity and sold as part of a
bundled service to wholesale and retail
customers. Most electric utilities built
their own power plants and
transmission systems, entered into
interconnection and coordination
arrangements with neighboring utilities,
and entered into long-term contracts to
make wholesale requirements sales
(bundled sales of generation and
transmission) to municipal, cooperative,
5 Preventing Undue Discrimination and
Preference in Transmission Services, Notice of
Inquiry, 112 FERC ¶ 61,299 (2005) (NOI);
Information Requirements for Available Transfer
Capability, Notice of Inquiry, 111 FERC ¶ 61,274
(2005) (ATC NOI).
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and investor-owned utilities connected
to each utility’s transmission system.
Each system covered a limited service
area, which was defined by the retail
franchise decisions of State regulatory
agencies. This structure of separate
systems arose naturally primarily due to
cost and the technological limitations
on the distance over which electricity
could be transmitted.
11. A number of statutory, economic,
and technological developments in the
1970s led to an increase in coordinated
operations and competition. Among
those was the passage of the Public
Utility Regulatory Policies Act of 1978
(PURPA),6 which was designed to
lessen dependence on foreign fossil
fuels by encouraging the development of
alternative generation sources and
imposing a mandatory purchase
obligation on utilities for generation
from such sources. PURPA also enabled
the Commission to order wheeling of
electricity under limited
circumstances.7 The rapid expansion
and performance of the independent
power industry following the enactment
of PURPA demonstrated that traditional,
vertically integrated public utilities
need not be the only sources of reliable
power. During this period, the profile of
generation investment began to change,
and a market for non-traditional power
supply beyond the purchases required
by PURPA began to emerge. The
economic and technological changes in
the transmission and generation sectors
helped encourage many new entrants in
the generating markets that could sell
electric energy profitably with smaller
scale technology at a lower price than
many utilities selling from their existing
generation facilities at rates reflecting
cost. However, it became increasingly
clear that the potential consumer
benefits that could be derived from
these technological advances could be
realized only if more efficient generating
plants could obtain access to the
regional transmission grids. Because
many traditional vertically integrated
utilities still did not provide open
access to third parties and favored their
own generation if and when they
6 Pub. L. 95–617, 92 Stat. 3117 (1978) (codified
in U.S.C. titles 15, 16, 26, 30, 42, and 43).
7 Section 211 of the FPA, 16 U.S.C. 824j. In earlier
years, a few customers were able to obtain access
as a result of litigation, beginning with the U.S.
Supreme Court’s decision in Otter Tail Power
Company v. United States, 410 U.S. 366 (1973).
Additionally, some customers gained access by
virtue of Nuclear Regulatory Commission license
conditions and voluntary preference power
transmission arrangements associated with Federal
power marketing agencies. See, e.g., Consumers
Power Co., 6 NRC 887, 1036–44 (1977); Toledo
Edison Co., 10 NRC 265, 327–34 (1979); Florida
Municipal Power Agency v. Florida Power and Light
Co., 839 F. Supp. 1563 (M.D. Fla. 1993).
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provided transmission access to third
parties, access to cheaper, more efficient
generation sources remained limited.
12. The Commission encouraged the
development of independent power
producers (IPPs), as well as emerging
power marketers, by authorizing marketbased rates for their power sales on a
case-by-case basis, and by encouraging
more widely available transmission
access on a case-by-case basis. Marketbased rates helped to develop
competitive bulk power markets by
allowing generating utilities to move
more quickly and flexibly to take
advantage of short-term or even longterm market opportunities than those
utilities operating under traditional
cost-of-service tariffs. In approving these
market-based rates, the Commission
required that the seller and its affiliates
lack market power or mitigate any
market power that they may have had.8
The major concern of the Commission
was whether the seller or its affiliates
could limit competition and thereby
drive up prices. A key inquiry became
whether the seller or its affiliates owned
or controlled transmission facilities in
the relevant service area and therefore,
by denying access or imposing
discriminatory terms or conditions on
transmission service, could foreclose
other generators from competing.
Beginning in the late 1980s, in order to
mitigate their market power to meet the
Commission’s conditions, public
utilities seeking Commission
authorization for blanket approval of
market-based rates for generation
services under section 205 of the FPA
filed ‘‘open access’’ transmission tariffs
of general applicability.9 The
Commission also approved proposed
mergers under section 203 of the FPA
on the condition that the merging
companies remedy anticompetitive
effects potentially caused by the merger
by filing ‘‘open access’’ tariffs. The early
tariffs submitted in market-based rate
proceedings under section 205 and
merger proceedings under section 203
did not, however, provide access to the
transmission system that was
comparable to the service the
transmission providers used for their
own purposes. Rather, they typically
made available only point-to-point
transmission service, i.e., service from a
single point of receipt to a single point
8 See, e.g., Dartmouth Power Associates Limited
Partnership, 53 FERC ¶ 61,117 (1990);
Commonwealth Atlantic Limited Partnership, 51
FERC ¶ 61,368 (1990); Doswell Limited Partnership,
50 FERC ¶ 61,251 (1990); Citizens Power & Light
Co., 48 FERC ¶ 61,210 (1989); Ocean State Power,
44 FERC ¶ 61,261 (1988); and Orange and Rockland
Utilities, Inc., 42 FERC ¶ 61,012 (1988).
9 See Order No. 888 at 31,644 n.52.
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B. Order No. 888 and Subsequent
Reforms
14. In April 1996, as part of its
statutory obligation under sections 205
and 206 of the FPA to remedy undue
discrimination, the Commission
adopted Order No. 888 prohibiting
public utilities from using their
monopoly power over transmission to
unduly discriminate against others. In
that order, the Commission required all
public utilities that own, control or
operate facilities used for transmitting
electric energy in interstate commerce to
file open access non-discriminatory
transmission tariffs that contained
minimum terms and conditions of nondiscriminatory service. It also obligated
such public utilities to ‘‘functionally
unbundle’’ their generation and
transmission services. This meant
public utilities had to take transmission
service (including ancillary services) for
their own new wholesale sales and
purchases of electric energy under the
open access tariffs, and to separately
state their rates for wholesale
generation, transmission and ancillary
services.13 Each public utility was
required to file the pro forma OATT
included in Order No. 888 without any
deviation (except a limited number of
terms and conditions that reflect
regional practices).14 After the
effectiveness of their OATTs, public
utilities were allowed to file, pursuant
to section 205 of the FPA, deviations
that were consistent with or superior to
the pro forma OATT’s terms and
conditions. Because certain owners,
controllers or operators of interstate
transmission facilities were not subject
to the Commission’s jurisdiction under
sections 205 and 206 and thus were not
subject to Order No. 888, the
Commission adopted a reciprocity
provision in the pro forma OATT that
conditions the use by a non-public
utility of a public utility’s open access
services on an agreement to offer nondiscriminatory transmission services in
return.
15. In addition to imposing the
functional unbundling requirement, the
Commission also encouraged broader
reforms through the formation of
independent system operators (ISOs).
The Commission stated that ISOs can
provide significant benefits such as
enhancing regional efficiencies and
further remedying undue
discrimination.15 While the
Commission declined to mandate ISOs,
it set forth eleven principles for
assessing ISO proposals submitted to
the Commission.16
16. Order No. 888 also clarified the
Commission’s interpretation of the
Federal and State jurisdictional
boundaries over transmission and local
distribution. While Order No. 888
reaffirmed that the Commission has
exclusive jurisdiction over the rates,
10 Pub. L. 102–486, 106 Stat. 2776 (1992)
(codified at, among other places, 15 U.S.C. 79z–5a
and 16 U.S.C. 796 (22–25), 824j–l).
11 15 U.S.C. 79a, repealed by EPAct 2005 sec.
1263; see Repeal of the Public Utility Holding
Company Act of 1935 and Enactment of the Public
Utility Holding Company Act of 2005, Order No.
667, 70 FR 75592 (Dec. 20, 2005), FERC Stats. &
Regs. ¶ 31,197 (2005), order on reh’g, Order No.
667–A, 71 FR 28446 (May 16, 2006), FERC Stats.
& Regs. ¶ 31,213 (2006), order on reh’g, Order No.
667–B, 71 FERC 42750 (Jul. 28, 2006), FERC Stats.
& Regs. ¶ 31,224 (2006), reh’g pending.
12 16 U.S.C. 824j (authorizing the Commission to
require transmission utilities to provide service in
certain circumstances); 16 U.S.C. 824k (establishing
rates for service provided pursuant to an order
under section 211).
13 This is known as ‘‘functional unbundling’’
because the transmission element of a wholesale
sale is separated or unbundled from the generation
element of that sale, although the public utility may
provide both functions. See infra section IV.B.4 of
this Final Rule.
14 See Order No. 888 at 31,769–70 (noting that the
pro forma OATT expressly identified certain nonrate terms and conditions, such as the time
deadlines for determining available transfer
capability in section 18.4 or scheduling changes in
sections 13.8 and 14.6, that may be modified to
account for regional practices if such practices are
reasonable, generally accepted in the region, and
consistently adhered to by the transmission
provider).
15 Order No. 888 at 31,655.
16 Id. at 31,730–32.
of delivery. As these early tariffs were
offered only by transmission providers
that volunteered to provide service to
third parties, they resulted in a
patchwork of open access that was not
sufficient to facilitate wholesale
generation markets.
13. In response to the competitive
developments following PURPA, and
the fact that limited transmission access
and significant regulatory barriers
continued to constrain the development
of generation by independent power
producers, Congress enacted Title VII of
the Energy Policy Act of 1992 (EPAct
1992).10 EPAct 1992 reduced regulatory
barriers to entry by creating a class of
‘‘Exempt Wholesale Generators’’ that
were exempt from the requirements of
the Public Utility Holding Company Act
of 1935.11 EPAct 1992 also expanded
the Commission’s authority to approve
applications for transmission services
under sections 211 and 212 of the
FPA.12 Though the Commission
aggressively implemented expanded
section 211, it ultimately concluded that
the procedural limitations in section
211 thwarted the Commission’s ability
to effectively eliminate undue
discrimination in the provision of
transmission service.
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terms, and conditions of unbundled
retail transmission in interstate
commerce by public utilities, it
nevertheless recognized the legitimate
concerns of State regulatory authorities
regarding the transmission component
of bundled retail sales. The Commission
therefore declined to extend its
unbundling requirement to the
transmission component of bundled
retail sales. On appeal, the U.S.
Supreme Court affirmed this element of
Order No. 888, finding that the
Commission made a statutorily
permissible choice.17
17. The same day it issued Order No.
888, the Commission issued a
companion order, Order No. 889,18
addressing the separation of vertically
integrated utilities’ transmission and
merchant functions, the information
transmission providers were required to
make public, and the electronic means
they were required to use to do so.
Order No. 889 imposed Standards of
Conduct governing the separation of,
and communications between, the
utility’s transmission and wholesale
power functions, to prevent the utility
from giving its merchant arm
preferential access to transmission
information. All public utilities that
owned, controlled or operated facilities
used in the transmission of electric
energy in interstate commerce were
required to create or participate in an
Open Access Same-Time Information
System (OASIS) that was to provide
existing and potential transmission
customers the same access to
transmission information.
18. Among the information public
utilities were required to post on their
OASIS was the transmission provider’s
calculation of ATC. Though the
Commission acknowledged that beforethe-fact measurement of the availability
of transmission service is ‘‘difficult,’’ it
concluded that it was important to give
potential transmission customers ‘‘an
easy-to-understand indicator of service
availability.’’ 19 Because formal methods
did not then exist to calculate ATC and
total transfer capability (TTC), the
Commission encouraged industry efforts
to develop consistent methods for
calculating ATC and TTC.20 Order No.
889 ultimately required transmission
providers to base their calculations on
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17 New York v. FERC, 535 U.S. 1 (2002).
18 Open Access Same-Time Information System
(Formerly Real-Time Information Networks) and
Standards of Conduct, Order No. 889, 61 FR 21737
(May 10, 1996), FERC Stats. & Regs. ¶ 31,035 (1996),
order on reh’g, Order No. 889–A, FERC Stats. &
Regs. ¶ 31,049 (1997), order on reh’g, Order No.
889–B, 81 FERC ¶ 61,253 (1997).
19 Order No. 889 at 31,605.
20 Id. at 31,607.
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‘‘current industry practices, standards
and criteria’’ and to describe their
methodology in their tariffs.21 The
Commission noted that the requirement
that transmission providers purchase
only ATC that is posted as available
‘‘should create an adequate incentive for
them to calculate ATC and TTC as
accurately and as uniformly as
possible.’’ 22
19. The electric industry continued to
undergo economic and regulatory
changes in the years following the
issuance of Order No. 888. Retail access
was adopted by approximately 25 states
in the late 1990s.23 This State
restructuring activity spurred significant
changes at the wholesale level as well
by encouraging or requiring the
divestiture of generation plants by
traditional electric utilities and the
development of ISOs that could manage
short-term energy markets necessary to
support retail access. At the same time,
there was a significant increase in the
number of mergers between traditional
electric utilities and between electric
utilities and gas pipeline companies,
and large increases in the number of
power marketers and independent
generation facility developers entering
the marketplace. Trade in bulk power
markets increased significantly and the
Nation’s transmission grid was used
more heavily and in new ways as
customers took advantage of the pro
forma OATT and purchased power from
competitive sellers.
20. In the wake of these changes, in
December 1999, the Commission
adopted Order No. 2000.24 That
rulemaking recognized that Order No.
888 set the foundation upon which
competitive electric markets could
develop, but did not eliminate the
potential to engage in undue
discrimination and preference in the
provision of transmission service.25 The
rulemaking also recognized that Order
No. 888 did not address the regional
nature of the grid, including the
treatment of parallel flows, pancaked
rates, and congestion management.
Thus, the Commission encouraged the
creation of RTOs to address important
operational and reliability issues and
21 Id.
22 Id.
23 See Energy Information Administration, Retail
Unbundling—U.S. Summary (2005), http://www.
eia.doe.gov/oil_gas/natural_gas/restructure/state/
us.html.
24 Regional Transmission Organizations, Order
No. 2000, 65 FR 809 (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
Utility District No. 1 of Snohomish County,
Washington v. FERC, 272 F.3d 607 (D.C. Cir. 2001).
25 Order No. 2000 at 31,015.
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eliminate any residual discrimination in
transmission services that can occur
when the operation of the transmission
system remains in the control of a
vertically integrated utility. The
Commission found that RTOs would
increase the efficiency of wholesale
markets by eliminating pancaked rates,
internalizing parallel flow, managing
congestion efficiently, and operating
markets for energy, capacity and
ancillary services. The Commission
established an open, collaborative
process that relied on voluntary regional
participation to design RTOs tailored to
the specific needs of each region. The
Commission noted, however, that ‘‘[i]f
the industry fails to form RTOs under
this approach, the Commission will
reconsider what further regulatory steps
are in the public interest.’’26
21. Following Order No. 2000, RTOs
were approved in several regions of the
country including the Northeast (PJM;
ISO New England),27 the Midwest
(MISO) and the South (SPP). In most
cases, RTOs have assumed
responsibility for calculating ATC
across the footprint of the RTO, as well
as the planning and expansion of the
transmission grid, at least for facilities
necessary for maintaining system
reliability. However, large areas of the
Nation have not developed RTOs using
the voluntary structure adopted by the
Commission in Order No. 2000.
Moreover, transmission customers have
complained that even in RTO markets
there are instances when comparable
transmission service is not provided,
particularly in the area of transmission
planning.
C. EPAct 2005 and Recent
Developments
22. Enacted on August 8, 2005, EPAct
added a number of new authorities and
priorities for the Commission and
emphasized certain of its existing
obligations. Among other things, EPAct
2005 recognized the importance of
adequate transmission infrastructure
development and its role in facilitating
the development of competitive
wholesale markets. The Congressional
directives in EPAct 2005 are intended to
reverse the decline in transmission
infrastructure investment. For example,
Congress required the Commission to
adopt a rule establishing incentive
ratemaking for transmission
infrastructure to help promote reliability
and reduce congestion.28 Congress also
26 Id. at 30,993.
27 A list of commenter acronyms can be found in
Appendix B.
28 EPAct 2005 sec. 1241 (to be codified at section
219 of the FPA, 16 U.S.C. 824s).
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directed the Commission to encourage
the deployment of advanced
technologies.29 Congress further
directed the Commission to ‘‘exercise its
authority’’ under EPAct 2005 ‘‘in a
manner that facilitates the planning and
expansion of transmission facilities to
meet the reasonable needs of loadserving entities.’’30 Congress also gave
the Commission certain ‘‘backstop’’
transmission siting authority, and
authorized the creation of interstate
compacts establishing transmission
siting agencies.31 EPAct 2005 also
authorized the Commission to require
unregulated transmitting utilities
(except for certain small entities) to
provide access to their transmission
facilities on a comparable basis.32
Congress further ordered the
Department of Energy (DOE) to study
the benefits of economic dispatch and
required the Commission to convene
regional joint boards to develop a report
to Congress containing
recommendations for the use of security
constrained economic dispatch within
each region.33 Congress also directed the
Commission to facilitate price
transparency in markets for the sale and
transmission of electric energy in
interstate commerce, having due regard
for the public interest, the integrity of
those markets, fair competition, and the
protection of consumers, and it
authorized the Commission to prescribe
rules to provide for the dissemination of
information about the availability and
price of wholesale electric energy and
transmission service.34 Finally,
Congress emphasized compliance with
the Commission’s regulations, adopting
and increasing the civil and criminal
penalties for violations of Commissionadministered statutes and regulations.35
29 EPAct 2005 sec. 1223 (to be codified at 42
U.S.C. 16422). Indeed, Congress provided specific
guidance as to the types of advanced technologies
that should be encouraged in infrastructure
improvements to include, among others, optimized
transmission line configurations (including
multiple phased transmission lines), controllable
load, distributed generation (including PV, fuel
cells, and microturbines), and enhanced power
device monitoring. Id.
30 EPAct 2005 sec. 1233(a) (to be codified at
section 217(b)(4) of the FPA, 16 U.S.C. 824q).
31 EPAct 2005 sec. 1221(a) (to be codified at
section 216 of the FPA, 16 U.S.C. 824p).
32 EPAct 2005 sec. 1231 (to be codified at section
211A of the FPA, 16 U.S.C. 824j–1)
33 EPAct 2005 sec. 1234 (to be codified at 42
U.S.C. 16432); EPAct 2005 sec. 1298 (to be codified
at section 223 of the FPA, 16 U.S.C. 824w). EPAct
2005 sec. 1234(b) defined economic dispatch as
‘‘the operation of generation facilities to produce
energy at the lowest cost to reliably serve
consumers, recognizing any operational limits of
generation and transmission facilities.’’
34 EPAct 2005 sec. 1281 (to be codified at section
220 of the FPA, 16 U.S.C. 824t).
35 EPAct 2005 sec. 1284(d) (to be codified at
section 316 of the FPA, 16 U.S.C. 825o); EPAct 2005
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23. Recognizing the need for reform of
Order No. 888 in light of the
Commission’s continuing concern
regarding whether the pro forma OATT
adequately remedies undue
discrimination, the Commission issued
an NOI on September 16, 2005 36
seeking comments on appropriate
reforms of the Order No. 888 pro forma
OATT. In the NOI, the Commission
expressed its preliminary view that
reforms to the pro forma OATT and
public utilities’ OATTs are necessary to
avoid undue discrimination or
preference in the provision of
transmission service. The NOI sought
comments on how best to accomplish
the Commission’s goals, specifically
with respect to enhancements that are
needed to (1) Remedy any unduly
discriminatory or preferential
application of the pro forma OATT or
(2) improve the clarity of the Order No.
888 pro forma OATT and the individual
public utility tariffs in order to more
readily identify violations and facilitate
compliance.
24. The Commission received over
4,000 pages of initial and reply
comments on the NOI. Based on these
comments, the comments submitted in
response to the ATC NOI,37 our
experience in implementing Order No.
888, and the changes in the industry
since we adopted it, the Commission
proposed to reform the pro forma OATT
in a number of ways. The Commission
issued the NOPR on May 19, 2006
proposing a number of reforms aimed at
remedying undue discrimination in the
provision of open access transmission
service and improving the clarity of the
pro forma OATT and the individual
tariffs of transmission providers in order
to more readily identify violations and
facilitate compliance. The Commission
received over 5,700 pages of initial and
reply comments in response. In
response to comments on the particular
issue of redispatch and conditional firm
service (discussed in more detail
below), the Commission issued a Notice
of Request for Supplemental Comments
on November 15, 2006,38 that resulted
in receipt of an additional 750 pages of
comments.
25. Based on this voluminous record,
the Commission concludes that reform
of the pro forma OATT and associated
amendments to its regulations are
necessary to reduce the potential for
undue discrimination and provide
sec. 1284(e) (to be codified at section 316A of the
FPA, 16 U.S.C. 825o–1).
36 See supra note 5.
37 Id.
38 Preventing Undue Discrimination and
Preference in Transmission Service, 117 FERC
¶ 61,185 (2006).
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12271
clarity in the obligations of transmission
providers and customers alike. We turn
next to a more complete explanation of
this need for reform.
III. Need for Reform of Order No. 888
A. Opportunities for Undue
Discrimination Continue To Exist
26. Although Order No. 888 has been
successful in many important respects,
the need for reform of the Order No. 888
pro forma OATT has been apparent for
some time. In 1999, the Commission
held, in adopting Order No. 2000, that
the pro forma OATT could not fully
remedy undue discrimination because
transmission providers retained both the
incentive and the ability to discriminate
against third parties, particularly in
areas where the pro forma OATT left the
transmission provider with significant
discretion.39 The Commission made a
similar finding in Order No. 2003,40
holding that opportunities for undue
discrimination continue to exist in areas
where the pro forma OATT leaves
transmission providers with substantial
discretion.41 The NOPR reaffirmed these
findings, preliminarily concluding that
opportunities for undue discrimination
continue to exist in the provision of
open access transmission service. The
Commission therefore proposed a
number of reforms to the pro forma
OATT to address the opportunities and
incentives transmission providers have
to unduly discriminate.
Comments
27. Many commenters agree with the
Commission that reforms to the pro
forma OATT are needed because there
continue to be both the opportunity and
incentive for transmission providers to
engage in undue discrimination.42
28. Several commenters offered
examples of their experiences with
transmission providers, where they
believe transmission providers have
acted in an unduly discriminatory
39 Order No. 2000 at 31,105.
40 See Standardization of Generator
Interconnection Agreements and Procedures, Order
No. 2003, 68 FR 49845 (Aug. 19, 2003), FERC Stats.
& Regs. ¶ 31,146 at P 11–12 (2003), order on reh’g,
Order No. 2003–A, 69 FR 15932 (Mar. 26, 2004),
FERC Stats. & Regs. ¶ 31,160 (2004), order on reh’g,
Order No. 2003–B, 70 FR 265 (Jan. 4, 2005), FERC
Stats. & Regs. ¶ 31,171 (2004), order on reh’g, Order
No. 2003–C, 70 FR 37,661 (Jun. 30, 2005), FERC
Stats. & Regs. ¶ 31,190 (2005), aff’d sub nom.
National Association of Regulatory Utility
Commissioners v. FERC, No. 04–1148, 2007 U.S.
App. LEXIS 626 (D.C. Cir. Jan. 12, 2007).
41 Order No. 2003 at P 11–12.
42 E.g., APPA, EPSA, East Texas Cooperatives,
Fayetteville, NRG, Occidental, TAPS, TDU Systems,
Williams, Entegra Reply, and NRECA Reply.
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fashion.43 Constellation claims that on
multiple occasions it has been denied a
transmission request when the
transmission provider’s OASIS indicates
that ATC is available, but Constellation
had no effective and timely way to
challenge that determination because of
the ATC ‘‘black box.’’ Constellation
states that given that its needs for
transmission service are often near-term
or immediate—e.g., to facilitate a loadserving obligation or wholesale
transaction that must be consummated
quickly—seeking redress at the
Commission for improperly denied
service generally is not time- or costeffective. Instead, Constellation asserts,
it is often forced to accept the
determination of the transmission
provider that ATC is not available (even
though its OASIS may indicate
otherwise) and seek alternate
transmission paths and/or products to
consummate its transaction.
29. Powerex also describes instances
where a transmission provider has
granted short-term firm point-to-point
transmission service requests to
transmission customers who have been
allowed to remain in the queue, even
when zero ATC is posted, in the hopes
that a transmission provider’s OASIS
site wrongly indicates zero ATC or will
soon be updated. Powerex asserts that
such practices clog the short-term pointto-point transmission queue with
multiple requests and result in
duplicative requests for service that
reflect customers’ attempts to secure
service, rather than the actual quantity
of service needed. Moreover, Powerex
argues, transmission provider discretion
in this area and the lack of transparency
raise customer concerns about
preferential treatment.
30. Occidental claims that it has firsthand experience with a vertically
integrated transmission provider that,
despite having an OATT, appears to
have persistently used its transmission
system to preferentially benefit its
merchant function. Similarly, Williams
alleges that its interests have been
consistently and significantly
compromised by the discretion afforded
transmission providers in the
interpretation of the OATT and the lack
of transparency in requesting,
scheduling and interrupting of
transmission service.
31. Other commenters, however,
argue that the Commission’s proposed
reforms are based on unsupported
allegations of undue discrimination. EEI
maintains that any opportunities to
engage in undue discrimination have
43 See, e.g., Dow, Fayetteville, Occidental, and
Williams.
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been largely mitigated by current
regulatory policies and changes in the
industry. EEI explains that, unlike the
situation that existed when the
Commission enacted Order No. 888,
much of the country’s transmission
facilities are now under the control of
RTOs and ISOs. In addition, EEI states,
other transmission providers have
transferred (or are in the process of
transferring) the administration of their
OATTs and OASIS functions to
independent transmission service
coordinators. Even among the
transmission providers who have taken
neither of those steps, EEI argues that
the open access requirements of Order
No. 888 and the Standards of Conduct
of Order Nos. 889 and 2004 have largely
eliminated the ability of transmission
providers to engage in undue
discrimination in the provision of
transmission service.44 In addition, EEI
states, the Commission’s expanded civil
penalty authority added to the FPA by
EPAct 2005 gives the Commission a
powerful tool that will further eliminate
any remaining incentive of transmission
providers to engage in undue
discrimination in the provision of
transmission service. Therefore, EEI
asserts, any modifications to the OATT
should be narrowly tailored to address
the perceptions of residual undue
discrimination. To the extent that such
perceptions exist, however, Community
Power Alliance states that, in the
absence of concrete record evidence,
they are just that—perceptions.
32. Although Duke strongly supports,
as a policy matter, OATT reforms that
will eliminate the perception that undue
discrimination is possible and/or likely,
Duke argues that the FPA does not
provide the Commission the authority to
remedy mere ‘‘opportunities’’ to
discriminate. Duke states that, in some
cases, the Commission is attempting to
remedy an opportunity for undue
discrimination that does not exist or is
proposing to impose a remedy that does
not actually remedy the perceived
opportunity. Duke notes, however, that
some OATT terms and conditions are
subject to multiple interpretations and
argues that the Commission can, and
should, justify the OATT reforms
proposed in the NOPR as reforms
needed to provide clarity to existing
policies.
33. With regard to specific allegations
made by commenters, several
transmission providers respond that the
examples given by transmission
customers do not illustrate instances of
undue discrimination. Rather, they
assert, these examples demonstrate the
44 See also Southern Reply.
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transmission customers’ lack of
understanding of the OATT
requirements, and the data available on
OASIS.45
34. New Mexico Attorney General
argues that the traditional Stateregulated, vertically-integrated cost-ofservice world is not in need of reform.
Contrary to the ‘‘conspiracy theorists’’
who argue that utilities have an
incentive to engage in undue
discrimination and preference in
transmission services, New Mexico
Attorney General asserts that utilities
have an incentive to maximize
throughput and revenue between Statelevel rate cases because incremental
transmission revenue is not deducted
from the State-jurisdictional retail
revenues between rate cases. Similarly,
Southern, in its reply comments, asserts
that broad claims of undue
discrimination fail to take into
consideration that vertically-integrated
utilities have more of an incentive to act
appropriately than do independent
utilities because the former have more
to lose (e.g., loss of market-based rates,
state prudence reviews of costs, etc.) if
they are found to have engaged in
wrong-doing. Southern states that any
OATT revisions ultimately adopted by
the Commission must be reasonably
tailored to address an identified
problem or to provide a specific
improvement.
35. Other commenters argue that the
Commission’s focus should be on
transmission providers in non-organized
markets, arguing that remaining
concerns about undue discrimination
have already been addressed in the
world of ISOs and RTOs.46 According to
ISO/RTO Council, this proceeding
provides an opportunity for the
Commission to harmonize the worlds of
organized and non-organized markets in
a manner that encourages competition,
promotes non-discriminatory access,
and maximizes the flow of electricity
across various ISO/RTO and non-ISO/
RTO regions. ISO/RTO Council states
that, in the existing regulatory
environment, a utility that is not a
member of an ISO or RTO can sell into,
or purchase from, an ISO or RTO market
even though the non-ISO/RTO utility
operates under tariff rules that are less
open and transparent, particularly in
terms of access to generation resources
and pricing/system information, than
their competitors that belong to an ISO
or RTO. Such asymmetry, ISO/RTO
Council argues, operates as an
45 See, e.g., Entergy Reply, Progress Energy Reply,
and Southern Reply.
46 E.g., Indicated New York Transmission
Owners, ISO/RTO Council, and Northeast Utilities.
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impediment to fair and nondiscriminatory transmission access and
management of grid congestion.
36. ISO/RTO Council states that its
members do not seek to impose their
market designs on the rest of the nation.
At the same time, ISO/RTO Council
argues that meaningful reform should
ensure a level of transparency (of both
price and the dispatch utilized by nonISO/RTO vertically-integrated entities)
in regions without an ISO or RTO that
can assist the flow of electricity and
enhance reliability and planning in both
ISO/RTO and non-ISO/RTO regions.
37. Exelon urges the Commission to
hold the transmission providers outside
ISOs or RTOs to the same standard of
non-discrimination that exists within
those organizations. Further, MISO/PJM
States argue that in order to achieve
some level of independence in non-RTO
regions, non-independent transmission
providers should be encouraged to turn
over operational control of their
transmission systems to an independent
coordinator of transmission whose
functions would include security
coordination, determination of ATC,
granting of transmission service and
oversight for transmission planning.
38. Finally, EPSA suggests that the
Commission establish a one-year review
period for the reformed pro forma
OATT. EPSA urges the Commission to
revisit this Final Rule after one year of
operation under the reformed pro forma
OATT to ensure that the revisions
adopted here do, in fact, protect against
non-discriminatory or preferential
behavior by transmission providers.
NRECA responds that, after this
comprehensive rulemaking process,
there is simply no need for another
major look at the OATT in one year.
Moreover, NRECA states, one year is
likely too short a period for the
Commission and industry participants
to fully appreciate all of the
consequences of those elements of
OATT reform resulting from this
proceeding. At the same time, NRECA
agrees that the Commission should
carefully monitor implementation of the
reformed OATT. This monitoring,
NRECA states, must be an ongoing
process and cannot wait a year to begin.
Commission Determination
39. The Commission concludes that
reforms are needed to address
deficiencies in the pro forma OATT that
have become apparent since 1996, by
limiting remaining opportunities for
undue discrimination. As the
Commission found in Order No. 888, it
is in the economic self-interest of
transmission monopolists, particularly
those with high-cost generation assets,
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to deny transmission or to offer
transmission on a basis that is inferior
to that which they provide to
themselves.47 Such an incentive can
lead to unduly discriminatory behavior
against third parties, particularly if
public utilities have unnecessarily
broad discretion in the application of
their tariffs. This discretion also can
create problems for transmission
providers seeking to comply with our
regulations in good faith because so
many issues are left for their
interpretation, thereby increasing the
possibility of disputes with
transmission customers and
enforcement actions by the
Commission.48 Transmission customers
also have found ways to use the tariffs
to their own advantage, particularly in
the scheduling and queuing processes.49
40. As some commenters note,
opportunities for undue discrimination
persist, particularly in areas where the
pro forma OATT leaves the
transmission provider with substantial
discretion. The Commission has a
responsibility under section 206 of the
FPA to remedy undue discrimination.
Indeed, the court concluded in
Associated Gas Distributors v. FERC,50
that, like the Natural Gas Act,51 the FPA
‘‘fairly bristles’’ with concern over
undue discrimination. Based on AGD,
the Commission determined in Order
No. 888 that:
The Commission has a mandate under
sections 205 and 206 of the FPA to ensure
that, with respect to any transmission in
interstate commerce or any sale of electric
energy for resale in interstate commerce by
a public utility, no person is subject to any
undue prejudice or disadvantage. We must
determine whether any rule, regulation,
practice or contract affecting rates for such
transmission or sale for resale is unduly
discriminatory or preferential, and must
prevent those contracts and practices that do
not meet this standard. * * * AGD
demonstrates that our remedial power is very
broad and includes the ability to order
industry-wide non-discriminatory open
access as a remedy for undue discrimination.
47 Order No. 888 at 31,682.
48 See, e.g., Order No. 2003 at P 11–12.
49 See, e.g., Potomac Economics, Ltd., 2004 State
of the Market Report: Midwest ISO at 30–31, 34–35
(Jun. 2005), http://www.midwestmarket.org/
publish/Document/2b8a32_103ef711180_-7bf20a
48324a/2004%20MISO%20SOM%20Report.pdf?
action=download&_property=Attachment
(explaining that the queuing process, by giving
customers the opportunity to submit multiple
requests for service, provides a low- or no-cost
option that restricts other customers’ access to
congested interfaces, and the scheduling process, by
allowing customers to leave transmission requests
unconfirmed, provides a free option that may invite
hoarding or result in underutilized capacity).
50 824 F.2d 981 (D.C. Cir. 1987) (AGD).
51 15 U.S.C. 717.
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12273
Order No. 888 at 31,669. Through this
Final Rule, the Commission exercises
that remedial authority again to limit
further opportunities for undue
discrimination, by minimizing areas of
discretion, addressing ambiguities and
clarifying various aspects of the pro
forma OATT.
41. We disagree with commenters
who assert that the Commission is
relying on unsubstantiated allegations of
discriminatory conduct to justify OATT
reform. The courts have made clear that
the Commission need not make specific
factual findings of discrimination in
order to promulgate a generic rule to
eliminate undue discrimination.52 In
AGD, the court explained that the
promulgation of generic rate criteria
involves the determination of policy
goals and the selection of the means to
achieve them and that courts do not
insist on empirical data for every
proposition upon which the selection
depends: ‘‘[a]gencies do not need to
conduct experiments in order to rely on
the prediction that an unsupported
stone will fall.’’ 53 During this multi-year
proceeding, the Commission has
received many comments arguing that
commenters have either experienced or
perceived that they have experienced
unduly discriminatory conduct by
transmission providers. Even
transmission providers have
acknowledged that there is a continuing
perception that there is the opportunity
for them to unduly discriminate against
their competitors and, accordingly, they
state their support for our reform
effort.54 Moreover, it is undisputed that
the existing pro forma OATT provides
wide discretion in implementing some
of its basic requirements, such as the
assessment of whether sufficient ATC
exists to grant third party access to the
grid and the manner in which new
facilities are planned to satisfy third
party needs. This wide discretion, when
coupled with a transmission provider’s
incentive to discriminate, creates
opportunities for discrimination under
the pro forma OATT. We have an
obligation under section 206 to remedy
that discrimination.
42. It is thus clear to us that,
notwithstanding the Commission’s
efforts in Order No. 888, opportunities
to engage in undue discrimination can
and will persist unless the existing pro
forma OATT is reformed. We therefore
exercise our broad remedial authority
today to limit these remaining
52 TAPS v. FERC, 225 F.3d at 667, 688; National
Fuel Gas Supply Corp. v. FERC, 468 F.3d 831 (D.C.
Cir. 2006) (National Fuel).
53 824 F.2d at 1008.
54 See, e.g., Duke and EEI.
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opportunities for undue discrimination.
The Commission concludes that any
additional costs incurred by
transmission providers to implement
the reforms required in this Final Rule
are fully justified by the need to ensure
open, transparent and nondiscriminatory access to transmission
service. We also believe it is appropriate
to adopt these reforms by rulemaking,
rather than rely on complaints filed by
transmission customers or other parties.
Case-by-case application of the reforms
adopted in this Final Rule would be
inappropriate since the most
fundamental problems addressed here
arise from deficiencies in the pro forma
OATT itself, not simply the
implementation of the pro forma OATT
by a few transmission providers. Also,
we decline to establish a one-year
review period for the reformed pro
forma OATT, as EPSA recommends.
The Commission will continue to
actively monitor compliance with its
orders and, as necessary, institute
further proceedings to meet its statutory
obligation to remedy undue
discrimination.
43. The Commission will not catalog
each and every basis for its reform of the
pro forma OATT in this section. Rather,
we identify the bases for some of the
most fundamental reforms herein and,
in addition, we explain in each
individual section of the Final Rule the
inadequacies of the existing pro forma
OATT provisions being addressed there
and the reasons why our reforms are
necessary to remedy undue
discrimination or otherwise provide for
rates, terms and conditions of service
under the pro forma OATT that are just
and reasonable.
B. Lack of Transparency Undermines
Confidence in Open Access and
Impedes Enforcement of Open Access
Requirements
44. Following the issuance of the NOI,
the Commission received a number of
comments asserting that increased
transparency would aid transmission
customers in their participation in the
wholesale market. A common theme in
the comments was that a lack of
transparency could lead to claims of
discrimination and could make such
claims more difficult to resolve.
Commenters urged the Commission to
improve transparency in a number of
areas, particularly the evaluation of ATC
and the planning of the transmission
system, as well as the processing of
transmission service requests and
studies.
45. In the NOPR, the Commission
agreed that a lack of transparency both
increases the potential for undue
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discrimination and makes it more
difficult to detect. The Commission
reasoned that this lack of sufficient
transparency was caused in part by
inadequate compliance with the existing
OASIS regulations and in part by
inadequate transparency requirements.
The Commission stated that the
proposed reforms were intended to
address both elements of the problem in
an effort to increase confidence in open
access tariffs and to facilitate
compliance with the Commission’s
regulations and its enforcement of them.
Comments
46. Williams states that its interests
have been consistently and significantly
compromised by the discretion afforded
transmission providers in the
interpretation of the OATT and the lack
of transparency in requesting,
scheduling and interrupting of
transmission service. According to
Williams, simply being told that service
is being curtailed for reliability
purposes under opaque local
procedures, in the absence of a NERC
Transmission Loading Relief (TLR)
event, leaves market participants
suffering the consequences without
knowing on what basis the decision was
reached, and without assurance that the
decision was made in a nondiscriminatory manner. Ultimately,
Williams adds, the lack of transparency
and latitude taken by the transmission
provider to determine which requests
for service are confirmed or denied and
which are curtailed or interrupted in
real time frustrates the Commission’s
goal of preventing undue discrimination
and preference in the provision of
transmission service. Furthermore,
Williams states, the same lack of
transparency exists around the opaque
processes utilized, assumptions made,
and basis on which the results of
transmission planning studies are
conducted to grant or deny requests for
service.
47. APPA agrees that additional
transparency in the administration of
public utility transmission providers’
OATTs will be of material assistance to
both the Commission and transmission
customers. However, APPA argues that
the Commission must go beyond
increasing transparency in the
administration of public utility
transmission providers’ OATTs.
According to APPA, more transparency
will not change the basic industry
paradigm with transmission customers
depending on monopoly transmission
providers for service. In APPA’s view,
customers are often reluctant to file
complaints or bring problems to the
Commission’s attention because they
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depend on their transmission providers’
systems for the vital services they need
to serve their loads. APPA argues that
the Commission not only has an
obligation to act to remedy undue
discrimination when it sees it, but also
has an affirmative duty to look for it.
According to APPA, the Commission
must continue to actively regulate the
transmission services that public utility
transmission providers offer, even if full
transparency is achieved through the
revisions to the OATT implemented in
the instant docket.
48. EPSA agrees that greater
transparency will help enable market
participants and the Commission to
monitor and audit the behavior of
transmission providers. EPSA states that
the several ‘‘black boxes’’ shielding
discriminatory transmission service
over the past ten years must be opened.
However, EPSA argues, there must be
meaningful clarity and obligations set
out in the rules and OATT
requirements—transparency simply for
the sake of knowing why transmission
service has been denied only
illuminates a ‘‘bridge to nowhere’’ and
fails to satisfy the Federal Power Act.
49. Entergy also supports the
Commission’s efforts to provide greater
clarity in the rights and obligations of
transmission providers and
transmission customers under the
OATT. According to Entergy, many of
the improvements proposed by the
Commission will reduce the likelihood
of disputes and promote greater
confidence on the part of customers that
they are being treated fairly. Entergy
states that, while it recognizes that the
lack of clarity makes it difficult for the
Commission to detect instances of noncompliance by transmission providers,
Entergy also believes that this lack of
clarity often makes it easier for
transmission customers to convert every
practice or policy into a claim of
discrimination or other misconduct.
50. Although not convinced that there
is a compelling need for increased
transparency since transmission
providers are already required to
disclose voluminous amounts of
information, Southern states that it
recognizes that some reforms in the
availability of information may be
advantageous. However, Southern
asserts, providing additional
transparency must not simply impose
additional reporting requirements; any
such transparency-related reforms
should be made after taking into
consideration the extent and type of
data and information that is already
provided.
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Commission Determination
51. The Commission concludes that
inadequate transparency requirements,
combined with inadequate compliance
with existing OASIS regulations,
increases the opportunities for undue
discrimination under the pro forma
OATT and makes instances of undue
discrimination more difficult to detect.
We find that the reforms we adopt in
this Final Rule will improve
transparency in the OATT, reduce
opportunities for undue discrimination,
and increase our ability to detect undue
discrimination.
C. Congestion and Inadequate
Infrastructure Development Impede
Customers’ Use of the Grid
52. The Commission noted in the
NOPR that the ability and incentive to
discriminate increases as the
transmission system becomes more
congested. The Commission observed
that the pro forma OATT contained only
minimal requirements regarding
transmission planning, which have
proven to be inadequate as the Nation
faces insufficient transmission
investment in many areas. The
Commission preliminarily concluded
that the inadequacy of the existing
obligation to conduct transmission
system planning, coupled with the lack
of transparency surrounding system
planning generally, required reform of
the pro forma OATT to ensure that
transmission infrastructure is
constructed on a nondiscriminatory
basis and is otherwise sufficient to
support reliable and economic service to
all eligible customers. The Commission
therefore proposed to require public
utilities to engage in an open and
transparent planning process at both the
local and regional levels.
sroberts on PROD1PC70 with RULES
Comments
53. APPA agrees that the lack of
adequate transmission infrastructure is
one of the core problems facing the
electric utility industry. APPA supports
revisions to the pro forma OATT to
enhance and improve transmission
planning on both an individual system
and regional basis. Several commenters
go further, arguing that the proposed
reforms are insufficient and urging the
Commission to more strongly encourage
infrastructure development. EPSA
asserts that successful implementation
of the Congressional policy in favor of
wholesale competition and State
policies in favor of competitive
procurement is frustrated by the lack of
sufficient open access to the
transmission grid. According to EPSA,
new power plant investment is highly
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unlikely to occur, except by the
transmission provider or its affiliate on
a ‘‘sole source’’ or ‘‘no bid’’ basis
(despite Federal and State policies to
the contrary), if unaffiliated suppliers
cannot effectively and efficiently obtain
transmission service. EPSA argues that
failure to boldly reform the
Commission’s open access transmission
rules at this critical juncture would
effectively hand an undeserved victory
to the very transmission providers who,
by the Commission’s own findings, have
the motive and the opportunity to
discriminate. International
Transmission argues that tariff reform is
no substitute for prudent investment in
the transmission infrastructure needed
to increase the underlying physical
capability of the transmission system.
54. On the other hand, some
commenters dispute the Commission’s
assertion in the NOPR that verticallyintegrated utilities operating in nonRTO regions have an incentive to
discriminate and, therefore, are not
adequately expanding the transmission
grid to accommodate new entry by more
efficient competitors. New Mexico
Attorney General argues that verticallyintegrated utilities operating under the
traditional rate-base, rate-of-return
model of regulation in fact have been
historically criticized for having
incentives to overbuild. New Mexico
Attorney General asserts that most
transmission projects are in reality
derailed by strong ‘‘NIMBY’’ opposition
to the actual siting of transmission lines.
Another countervailing factor to the
utility’s incentive to overbuild, in New
Mexico Attorney General’s view, is the
fact that State regulators attempt to limit
capacity investment to reasonable levels
only necessary to serve native load.
55. Southern states that the
Commission’s assertion in the NOPR
that vertically-integrated utilities do not
have an incentive to expand the grid
overlooks the fact that many such
utilities are under State legal duties to
procure generation supplies through
open, non-discriminatory requests for
proposals, with the winners of those
requests for proposals often being
competitors of the vertically-integrated
utility. Southern maintains that the
winning competitive generation is then
integrated into the host utility’s
transmission system and dispatch, and
the transmission system is expanded to
ensure the deliverability of this
competitive generation. Furthermore,
Southern states, a competitive generator
can also have the output of its generator
planned into the transmission
provider’s system if it takes long-term
firm service under the OATT, with the
transmission provider then being under
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a legal duty to expand its transmission
system accordingly. Southern notes that
it alone has invested $3.2 billion in
transmission over the past decade and
plans to invest another $2.8 billion over
the next five years (2006–2010).
56. Community Power Alliance also
argues that the Commission’s own June
2005 ‘‘State of the Markets Report’’
contradicts the Commission’s assertion
that vertically-integrated utilities do not
have the proper incentives to expand
the grid. Community Power Alliance
contends that this report shows that the
amount of transmission investments
made in the non-RTO regions, where
vertically-integrated utilities typically
operate, substantially exceeds the
amount of transmission investments
made in RTO regions.
Commission Determination
57. The Commission concludes that
reforms are needed to ensure that
transmission infrastructure is evaluated,
and if needed, constructed on a
nondiscriminatory basis and is
otherwise sufficient to support reliable
and economic service to all eligible
customers. As noted above, verticallyintegrated utilities do not have an
incentive to expand the grid to
accommodate new entries or to facilitate
the dispatch of more efficient
competitors. Despite this, the existing
pro forma OATT contains very few
requirements regarding how
transmission planning should be
conducted to ensure that undue
discrimination does not occur.
58. Our concern over this flaw is
heightened by the critical need for new
transmission infrastructure in this
Nation. As the Commission explained in
the NOPR, transmission capacity is
being constructed at a much slower rate
than the rate of increase in customer
demand, with transmission capacity per
MW of peak demand declining at an
average rate of 2.1 percent per year
during the period 1992 to 2002.55 The
projections suggest that this trend will
continue through 2012.56 As a result,
there has been a significant decrease in
transmission capacity relative to load in
every NERC region.57 In light of this
trend, there is a compelling need to
build new transmission and respond to
increasing demand through other
55 Eric Hirst, U.S. Transmission Capacity: Present
Status and Future Prospects (Aug. 2004), http://
www.eei.org/industry_issues/energy_infrastructure/
transmission/USTransCapacity10–18–04.pdf
(Present Status and Future Prospects).
56 Present Status and Future Prospects at v.
57 Brendan Kirby (Oak Ridge National Laboratory,
U.S. Department of Energy), Barriers to
Transmission Investment, Technical Conference
Presentation, (Docket No. AD05–5–000) (April 22,
2005).
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means. EEI estimates that capital
spending must increase by 25 percent,
from $4 billion annually to $5 billion
annually, to ensure system reliability
and to accommodate wholesale electric
markets.58 The legacy systems
constructed by vertically-integrated
utilities prior to the adoption of Order
No. 888 support ‘‘only limited amounts
of inter-regional power flows and
transactions. Thus, existing systems
cannot fully support all of society’s
goals for a modern electric-power
system.’’ 59
59. Expansion of the transmission
system, as well as more efficient use of
the grid, will alleviate the growth of
congestion in most regions of the
country. Transmission congestion has
created fairly small local load pockets in
primarily urban areas, e.g., New York
City, Long Island, Boston, parts of
Connecticut, and the San Francisco Bay
Area. Other load pocket concerns have
arisen in parts of northern Virginia, and
various load centers in SPP. Still other
constraints are more regional in scope:
from the Midwest to the Mid-Atlantic,
from the Midwest to TVA, into and
within California, from TVA and
Southern into Entergy, from MidAmerica Interconnected Network into
Wisconsin-Upper Michigan Systems,
and into Florida.
60. Transmission congestion can have
significant cost impacts on consumers.
In 2002, DOE issued a study estimating
the costs of congestion in four U.S.
regions: California, PJM, New York and
New England.60 DOE found that, despite
58 Energy Policy Act of 2005: Hearings before the
Subcommittee on Energy and Air Quality of the
House Committee on Energy and Commerce, 109th
Congress, First Sess. (2005) (Prepared statement of
Thomas R. Kuhn, President of EEI).
59 Present Status and Future Prospects at v.
60 U.S. Department of Energy, National
Transmission Grid Study at 11, 16–17 (May 2002),
available at http://www.ferc.gov/industries/electric/
indus-act/transmission-grid.pdf. To conduct this
study, DOE estimated the benefits of interregional
wholesale power markets using the Policy Office
Electricity Modeling System (POEMS). POEMS is a
national energy model designed specifically to
examine the impacts of electricity restructuring.
The model includes economic, regional, and
temporal detail that is needed to analyze the
economics of interregional trade. In the first step of
the study, DOE used POEMS to examine the cost
reductions that would occur if increased electricity
transfers across congested paths were allowed in
these four regions, assuming generators bid their
marginal costs. Under this assumption, consumer
costs declined by $157 million per year. In the
second step, DOE calculated the increase in
congestion costs under the assumption that
generators bid above their marginal operating costs
when supplies are tight and additional electricity
cannot be imported. The price spikes were assumed
to occur during hours when at least one
transmission link into a sub-region was congested
and demand was greater than 90 percent of peak
demand. When prices spike an additional $50 per
MWh (above the price predicted when generators
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the overall savings of wholesale
electricity markets that lowered
consumers’ electricity bills by nearly
$13 billion annually, interregional
transmission congestion cost consumers
hundreds of millions of dollars
annually. DOE concluded that relieving
bottlenecks in these four regions alone
could save consumers about $500
million annually.61 In 2006, DOE
released another study identifying two
areas of the country with severe existing
or growing congestion problems: the
Atlantic coastal area from metropolitan
New York southward through Northern
Virginia, and Southern California.62
61. The decline in transmission
investment and increase in transmission
congestion underscore our concerns
over inadequate planning provisions of
the existing pro forma OATT. The
existing pro forma OATT, as indicated
above, contains very little specificity
regarding how transmission planning
should be conducted, how customers’
needs are incorporated into that process,
and what information is publicly
available regarding the transmission
providers’ assumptions, criteria and
data used in the planning process.
These inadequacies are sufficiently
severe, standing alone, to merit reform
of the OATT. However, they are of even
greater concern given the current state
of the transmission grid. With
inadequate levels of investment in the
grid and increasing transmission
congestion, customers’ ability to access
alternatives to the transmission
provider’s resources is limited. It is
therefore imperative for the Commission
to ensure that the planning process
under each transmission provider’s
OATT is sufficient to prevent undue
discrimination and transparent enough
to detect any remaining instances of
undue discrimination. We have done so
in the reforms adopted and explained in
section V.B.
D. A Consistent Method of Measuring
ATC Is Needed
62. Another area in which
transmission providers have significant
discretion under the pro forma OATT is
the calculation of ATC. While Order No.
888 obligated each public utility to
calculate the amount of transfer
capability on its system available for
sale to third parties, the Commission
bid their marginal operating cost) during these
periods, congestion costs nearly double to $300
million.
61 Id. at xi and ii.
62 U.S. Department of Energy, National Electric
Transmission Congestion Study, Executive
Summary at 2 (August 2006), available at http://
www.ferc.gov/industries/electric/indus-act/doecongestion-study-2006.pdf.
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did not standardize the methodology for
calculating ATC, nor did it impose any
specific requirements regarding the
disclosure of the methodologies used by
each transmission provider.63 As a
result, there are a variety of ATC
calculation methodologies in use today
and very few clear rules governing their
use. Moreover, there is often very little
transparency about the nature of these
calculations, given that many
transmission providers have filed only
summary explanations of their ATC
methodologies in Attachment C to their
OATTs.
63. In the NOPR, the Commission
noted that, although the industry has
sought to pursue greater consistency in
ATC calculations through existing
NERC processes, these efforts to date
have been largely unsuccessful. The
Commission expressed its preliminary
determination that the lack of a
consistent, industry-wide methodology
for calculating ATC gives transmission
providers the ability and the
opportunity to unduly discriminate
against third parties. The Commission
therefore proposed a number of reforms
to the process of calculating ATC to
provide clarity and transparency to
users of the grid.
Comments
64. As discussed further in section
V.A below, most commenters support
the Commission’s goal of requiring
greater consistency in the manner in
which ATC is calculated and additional
transparency of ATC calculations.
Commenters generally favor the
Commission’s proposal to increase
consistency in the calculation of ATC,
including consistent definitions of its
components, data inputs, modeling
assumptions, and data exchange and
coordination protocols. For example,
Exelon argues that each ATC component
should be used in the same manner for
all purposes (e.g., granting transmission
service to third parties or for the
transmission provider’s own network
load). Some commenters assert that
industry-wide standardization of ATC
calculation might not be possible and
that the Commission should consider
interconnection-wide, regional or even
sub-regional standardization. Others
suggest allowing flexibility in order to
capture differences in system operation,
usage, market operations and topology.
65. At the technical conference
organized in this proceeding on October
12, 2006 (October 12 Technical
Conference), the entire panel agreed that
definitions must be consistent and a
panelist representing Constellation
63 Order No. 888 at 31,794 n.610.
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asserted that broad differences in the
core definitions of the ATC calculation
are neither rational nor explainable.64
NERC, however, recognized that the
goal of achieving consistency may not
mean that a single ATC methodology is
required.65 NERC explained that
consistency can be achieved with a
limited number of methodologies if the
requirements of those methodologies are
properly coordinated and
communicated.
66. Numerous commenters support
the Commission’s proposals to increase
transparency in the manner in which
transmission providers derive ATC,
including greater OASIS posting.
Commenters opposing the transparencyrelated reforms focus on the
Commission’s proposal to require the
posting of narratives on OASIS
explaining reasons for changes in
monthly and yearly ATC values on
constrained paths. They argue that such
a requirement would be too burdensome
and would not provide customers with
any significant new information.
67. Several commenters believe that
making substantial ATC calculation and
modeling data transparent will
compromise Critical Energy
Infrastructure Information (CEII) but
provide suggestions for resolving the
issue. Others express concern that the
data required for posting on OASIS is
not CEII but commercially sensitive.
Finally, commenters provide
suggestions regarding the requirement to
post metrics on OASIS related to the
provision of transmission service under
the pro forma OATT, including various
additional metrics the Commission
should consider. Others state that this
information is already available on
OASIS.
sroberts on PROD1PC70 with RULES
Commission Determination
68. We find that the lack of a
consistent and transparent methodology
for calculating ATC gives transmission
providers the ability and opportunity to
unduly discriminate in the provision of
open access transmission service. There
are few clear rules respecting ATC
calculation, and transmission providers
retain unnecessarily broad discretion in
this area. This resulting discretion is a
significant problem because calculation
of ATC, which varies greatly depending
on the criteria and assumptions used,
may allow the transmission provider to
discriminate in subtle ways against its
competitors. On systems where
64 Transcript of October 12 Technical Conference
at 149–50, available at Preventing Undue
Discrimination and Preference in Transmission
Service, Technical Conference (Docket No. RM05–
25–000).
65 Id. at 125–50.
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transmission capacity is congested, this
lack of consistency, coupled with a lack
of transparency, is of heightened
importance and has led to recurring
disputes over whether the transmission
provider is exercising its discretion to
discriminate against its competitors.
This discretion also hampers the
detection of undue discrimination and,
thereby, undermines the Commission’s
ability to enforce the general
requirement in Order No. 888 that
transmission service be provided on a
not unduly discriminatory basis.
69. As discussed more fully below in
section V.AIII.D, this Final Rule adopts
a number of reforms that address the
potential for remaining undue
discrimination in the determination of
ATC by requiring consistency in how
ATC is evaluated, as well as providing
greater transparency about how a
transmission provider calculates and
allocates ATC.
E. Discriminatory Pricing of Imbalances
70. Order No. 888 focused primarily
on the adoption of non-rate terms and
conditions of service, rather than
instituting broad reform of the
Commission’s transmission pricing
policies. Consistent with this focus, the
Commission did not propose broad
transmission pricing reform in the
NOPR, but rather focused on instances
where current pricing practices under
the pro forma OATT may no longer be
sufficient to remedy undue
discrimination or ensure just and
reasonable rates. One significant reform
proposed in the NOPR related to charges
for imbalance energy. The Commission
preliminarily found that the existing
policies provide wide discretion in the
development of these charges and hence
the potential for undue discrimination.
The Commission therefore proposed
certain principles to remedy that
potential and sought comment on
whether a specific imbalance pricing
method would be appropriate.
Comments
71. In general, transmission customers
complain about the level and scope of
energy and generator imbalance charges
that are levied under the pro forma
OATT and under individual
interconnection agreements.66
Customers complain that energy
imbalance charges are excessive and not
66 Energy imbalance charges, including penalties
on some systems, are imposed on a transmission
customer when the amount of energy scheduled for
delivery to the transmission grid does not equal the
amount of energy withdrawn by that customer.
Generator imbalance charges are levied on
generators for deviations between the amount of
energy they schedule and the amount they actually
deliver to the grid.
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related to the actual costs incurred by
transmission providers. They also argue
that the inconsistency between these
charges in different control areas is
unnecessary, and that other means of
compensating the transmission
provider, such as return-in-kind, should
be considered. Generators likewise
complain that generator imbalance
charges are excessive, that transmission
providers refuse to credit generators
with the revenues resulting from
imbalance penalties that are collected,
and that transmission providers prevent
unaffiliated generators from purchasing
or self-supplying generator imbalance
services. In addition, owners of
intermittent resources complain that
generator imbalance charges, which are
imposed to provide an incentive for
generators to schedule accurately, are
inappropriate given their lack of control
and ability to cure deviations.
Commission Determination
72. The Commission agrees that
imbalance charges should provide
appropriate incentives to keep
schedules accurate without being
excessive. We also find that consistency
in imbalance charges, both between and
among energy and generator imbalances,
is preferable to the wide variety of
imbalance provisions in place today. All
imbalances have the same net effect on
the transmission system in that they
require other generation to be ramped
up or down to compensate for the
imbalance. As such, the Commission
adopts two pro forma OATT provisions
(Schedule 4 for energy imbalances and
Schedule 9 for generator imbalances)
based on a tiered structure similar to the
imbalance provision used by
Bonneville, as described further below.
Such an approach recognizes the link
between escalating deviations and
potential reliability impacts on the
system while keeping imbalance charges
closely related to incremental costs. The
Commission finds, however, that
intermittent resources should be exempt
from the highest-tier deviation band. We
also require transmission providers to
credit to all non-offending transmission
customers the revenues they collect in
excess of incremental costs.
F. Redispatch/Conditional Firm
73. In the NOPR, the Commission
examined whether existing methods for
evaluating requests for long-term firm
point-to-point service continue to be
just and reasonable. When a
transmission provider considers a new
resource to serve native load, the
transmission provider does not
eliminate an otherwise economic option
because the resource may not be
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deliverable during a few hours of the
year. For transmission customers,
however, the transmission provider
evaluates whether service can be
granted in every hour of the year that is
modeled and, if not, it informs the
customer that service cannot be
provided out of existing transfer
capability. Only if the transmission
customer agrees to pay for facilities
studies does the transmission provider
evaluate redispatch options, including
whether they are less expensive than the
upgrade costs. The Commission
therefore proposed to reform the
existing pro forma OATT planning
redispatch 67 obligation, or, in the
alternative, to add a conditional firm
service to the pro forma OATT. As
proposed by the Commission,
conditional firm would have been a
long-term service allowing the
transmission provider to give a lower
curtailment priority than firm to the
transmission customer during a prespecified number of hours.
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Comments
74. Some commenters support the
inclusion of both a modified planning
redispatch obligation and a conditional
firm service in the pro forma OATT,
stating that both are required to remedy
undue discrimination and provide for
comparable transmission service. These
commenters urge the Commission to
require transmission providers to offer
planning redispatch and conditional
firm service and allow customers to
choose the option that best suits their
physical, commercial and economic
circumstances.
75. Others opine that conditional firm
service may be simpler and less costly
to implement. These commenters prefer
the development of conditional firm
service over the modifications to the
planning redispatch service because of
the complexities surrounding redispatch
costs and protocols. For example,
Entergy believes conditional firm
service can provide benefits to
transmission customers without unfairly
socializing costs to native load and
network customers of the transmission
provider.
76. On the other hand, many
commenters argue that the Commission
should not require either option because
the services are unnecessary,
operationally unworkable, and legally
unjustified, or because they would harm
reliability and the quality of existing
67 Although pro forma OATT section 13.5 refers
to ‘‘redispatch,’’ we refer to it here as ‘‘planning
redispatch’’ to distinguish it from the reliability
redispatch provisions in the network integration
transmission service sections of the pro forma
OATT. See infra notes 552 and 557.
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network service and provide
disincentives for transmission
investment. Several commenters state
that these services would make
curtailments of existing firm service
more likely and limit opportunities for
use of secondary network service,
thereby harming native load protections
and reducing reliability, contrary to FPA
sections 215 and 217 respectively.
While it recognizes that conditional firm
service has been successful in parts of
the Western Interconnection, NRECA
contends that a mandate would
undermine responsible planning and
expansion of the transmission grid by
harnessing the transmission provider’s
planning and dispatch functions to
frame elaborate service conditions for
conditional firm service.
77. Several commenters argue that, if
the services are required, the
Commission should ensure that
reliability is not adversely affected.
Others urge the Commission to make the
new services an interim option until
transmission upgrades are in place to
provide firm service. Some commenters
believe planning redispatch and
conditional firm customers should bear
the actual costs of the services received,
including costs associated with system
operational changes needed to
accommodate the services. A few
commenters believe that the
Commission should allow for regional
differences in development of the new
services.
Commission Determination
78. The Commission believes it is
necessary to modify the manner in
which transmission providers assess
point-to-point service requests to
eliminate the potential for undue
discrimination in transmission service.
We find that both techniques—planning
redispatch and conditional firm
service—are currently used under
certain circumstances by transmission
providers to serve native load and,
therefore, that transmission customers
should have comparable services in
order to avoid undue discrimination,
facilitate the provision of long-term
transmission service and provide
customers with greater flexibility in
choosing resources to meet their needs.
We expect that both options will help
integrate new generation more quickly.
This can be particularly beneficial to
renewable generation resources, such as
wind, that can be constructed more
quickly than the transmission upgrades
necessary to deliver their power on a
firm basis over the long-run.
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G. EPAct 2005 Emphasized Certain
Policies and Priorities for the
Commission
79. Finally, we note that the reforms
adopted in this proceeding are
consistent with the policies and
priorities embodied in EPAct 2005, in
which Congress emphasized many of
the same principles reflected in this
Final Rule. First, in EPAct 2005,
Congress placed special emphasis on
the development of transmission
infrastructure. Congress required the
Commission to adopt a rule establishing
incentive-based rates for new
transmission infrastructure investment.
The stated purpose of new FPA section
219 is to benefit ‘‘consumers by
ensuring reliability and reducing the
cost of delivered power by reducing
transmission congestion.’’ 68 Among
other steps, FPA section 219 requires
the Commission to ‘‘(1) Promote reliable
and economically efficient transmission
and generation of electricity by
promoting capital investment in the
enlargement, improvement,
maintenance, and operation of all
facilities for the transmission of electric
energy in interstate commerce,
regardless of the ownership of the
facilities; (2) provide a return on equity
that attracts new investment in
transmission facilities (including related
transmission technologies); [and] (3)
encourage deployment of transmission
technologies and other measures to
increase the capacity and efficiency of
existing transmission facilities and
improve the operation of the
facilities.’’ 69 In addition, Congress
directed the Commission to encourage
the deployment of advanced
transmission technologies.70 Congress
also gave the Commission certain
‘‘backstop’’ transmission siting
authority, and authorized the creation of
interstate compacts establishing
transmission siting agencies.71 Finally,
the Commission was directed to
exercise its authority under EPAct 2005
‘‘in a manner that facilitates the
planning and expansion of transmission
facilities to meet the reasonable needs of
load-serving entities to satisfy the
68 EPAct 2005 sec. 1241 (to be codified at section
219 of the FPA, 16 U.S.C. 824s). The Commission
has issued a Final Rule implementing such an
incentive rate program. See Order Nos. 679 and
679–A.
69 FPA Sec. 219(b)(1).
70 EPAct 2005 sec. 1223 (to be codified at 42
U.S.C. 16442).
71 EPAct 2005 sec. 1221(a) (to be codified at
section 216 of the FPA, 16 U.S.C. 824p). The
Commission implemented new regulations in
accordance with this section to establish filing
requirements and procedures for entities seeking to
construct electric transmission facilities in Order
No. 689.
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service obligations of the load-serving
entities, and enables load-serving
entities to secure firm transmission
rights * * * on a long-term basis for
long-term power supply arrangements
made, or planned, to meet such
needs.’’ 72 Although these provisions
have been, or will be, addressed
primarily in other proceedings, we
conclude that the Final Rule is
consistent with these provisions
because it supports improvements in
infrastructure by reforming the
transmission planning process to ensure
that it is open, transparent and
nondiscriminatory.
80. Second, Congress emphasized the
need for greater transparency in
electricity markets, including
transmission service. EPAct 2005 added
section 220 to the FPA, which requires
the Commission to facilitate ‘‘price
transparency in markets for the sale and
transmission of electric energy in
interstate commerce, having due regard
for the public interest, the integrity of
[that market], fair competition, and the
protection of consumers.’’ 73 The
Commission was authorized to
‘‘prescribe such rules as the
Commission determines necessary and
appropriate to carry out the purposes
of’’ FPA section 220. Those rules ‘‘shall
provide for the dissemination, on a
timely basis, of information about the
availability and prices of wholesale
electric energy and transmission service
to the Commission, State commissions,
buyers and sellers of wholesale electric
energy, users of transmission services,
and the public.’’ This Final Rule
similarly will promote greater
transparency in the provision of
transmission service in many important
areas, including ATC calculation and
transmission planning.
81. Finally, Congress emphasized
compliance with the Commission’s
regulations, increasing the civil and
criminal penalties for violations of
Commission-administered statutes and
regulations.74 This new authority
buttresses the Commission’s efforts to
enforce public utility OATTs and the
regulations requiring transmission
information to be posted on OASIS. As
we explained in the Policy Statement on
Enforcement, however, this new
72 EPAct 2005 sec. 1233(a) (to be codified at
section 217(b)(4) of the FPA, 16 U.S.C. 824q). The
Commission implemented FPA section 217(b)(4) in
Long-Term Firm Transmission Rights in Organized
Electricity Markets, Order No. 681, 71 FR 43564
(Aug. 1, 2006), FERC Stats. & Regs. ¶ 31,226 (2006),
order on reh’g, Order No. 681–A, 117 FERC ¶ 61,201
(2006), reh’g pending.
73 EPAct 2005 sec. 1281 (to be codified at 16
U.S.C. 824t).
74 EPAct 2005 sec. 1284(e)(1) (to be codified at
section 316(A) of the FPA, 16 U.S.C. 825o–1).
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authority carries with it the
responsibility to ensure that
enforcement is firm but fair and that our
rules are as clear as practicable to
facilitate compliance.75 We conclude
that this Final Rule is fully consistent
with these principles because it clarifies
our rules, in many areas, which will
facilitate compliance by transmission
providers.
IV. Summary, Scope and Applicability
of the Final Rule
82. This section provides a summary
of the major components of the Final
Rule, a description of the core elements
of Order No. 888 that we retain, and a
discussion of the applicability of the
proposed rule to various entities.
A. Summary of Reforms
83. Consistency and transparency of
ATC calculations. The Commission
affirms the finding in the NOPR that the
lack of a consistent, industry-wide
methodology for calculating ATC, and
the lack of adequate transparency in
ATC calculations, increases the
potential for undue discrimination and
also makes undue discrimination more
difficult to detect. The lack of consistent
standards can facilitate undue
discrimination by giving a transmission
provider the discretion, and hence the
ability and opportunity, to favor itself
and its affiliates over third parties in
how it calculates and allocates ATC. In
this Final Rule, we give the industry
specific guidance regarding the
calculation of ATC and establish a firm
deadline to develop certain
requirements to make more consistent
the ATC calculation process and the
process of exchanging data between
transmission providers about ATC. In
addition, we amend pro forma OATT
requirements as well as our OASIS
regulations to increase the transparency
in how ATC is calculated.
84. Requirement for coordinated,
open and transparent transmission
planning. The Commission also affirms
the finding in the NOPR that Order No.
888 does not contain sufficient
protections to guard against undue
discrimination in transmission system
planning. Without adequate
coordination and open participation,
market participants have minimal input
or insight into whether a particular
transmission plan treats all loads and
generators comparably. To ensure that
truly comparable transmission service is
provided by all public utility
transmission providers, including RTOs
75 Enforcement of Statutes, Orders, Rules and
Regulations, Policy Statement on Enforcement, 113
FERC ¶ 61,068 (2005) (Policy Statement on
Enforcement).
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12279
and ISOs, we amend the pro forma
OATT to require coordinated, open, and
transparent transmission planning on
both a sub-regional and regional level.
To implement this remedy, we adopt
the eight planning principles proposed
in the NOPR, as well as one additional
principle, that each public utility
transmission provider will be required
to follow. We recognize that many
regions have made significant progress
in recent years in creating greater
openness and transparency in
transmission planning and believe our
proposed reforms will build upon,
strengthen, and improve this progress to
reform transmission planning.
85. Transmission Pricing Reforms.
Consistent with the focus of Order No.
888 on the non-rate terms and
conditions of open access, the
Commission does not initiate broad
reform of transmission pricing policy
through this Final Rule. However, we
have identified several pricing rules that
are part and parcel of OATT service that
merit reform.
• Energy and Generator Imbalance
Charges. We find that energy and
generator imbalance charges we have
previously accepted are excessive, too
varied, and otherwise unrelated to the
cost of providing the service and,
therefore, we reform energy and
generator imbalance pricing. We adopt
tiered pro forma OATT energy and
generator imbalance provisions similar
to those in use by Bonneville and
exempt intermittent resources from the
highest deviation band. In these new
provisions, imbalance charges are based
on incremental cost and escalate as the
imbalance increases. Any deviations
from these provisions must be
consistent with or superior to the pro
forma OATT as modified by this Final
Rule and must meet the following
criteria: the charges must (1) Be related
to the cost of correcting the imbalance,
(2) be tailored to encourage accurate
scheduling behavior, such as by
increasing the percentage of the adder as
the deviations become larger, and (3)
account for the special circumstances
presented by intermittent generators,
such as by waiving the higher ends of
the deviation penalties.
• Capacity Reassignment Pricing. We
find that the existing cap on the
reassignment of point-to-point service is
no longer just and reasonable and,
therefore, we eliminate the cap. We
believe that removing the cap will
eliminate an unnecessary impediment
to the resale of capacity, which in turn
should increase utilization of the grid
and otherwise ensure that point-to-point
service is just, reasonable, and not
unduly discriminatory.
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• Crediting of Customer-Owned
Facilities. We retain most elements of
our existing policy respecting the
crediting of customer-owned facilities,
including the requirement that such
facilities meet the integration standard.
However, we eliminate the requirement
that new facilities can receive credits
only if they are ‘‘jointly planned’’
because this requirement provides a
disincentive to coordinated planning.
Rather, we provide that such new
facilities are eligible for credits if such
facilities are integrated into the
operations of the transmission
provider’s facilities. Customer-owned
facilities shall be presumed to be
integrated if those facilities, if owned by
the transmission provider, would be
eligible for inclusion in the transmission
provider’s annual transmission revenue
requirement.
86. Improvements to Point-to-Point
Service. The Commission concludes that
the existing methods for evaluating
requests for long-term firm point-topoint service are no longer just,
reasonable, and not unduly
discriminatory. The existing pro forma
OATT allows the transmission provider
to deny a request for long-term point-topoint service if that service is not
available in a single hour of the period
studied. We find that this approach is
not comparable because, when a
transmission provider considers a new
resource to serve native load, the
transmission provider does not
eliminate an otherwise economic option
because the resource may not be
deliverable in a few hours of the year.
To remedy this problem, the
Commission adopts a ‘‘conditional
firm’’ component to long-term point-topoint service that addresses the
situation where firm service can be
provided for most, but not all, hours of
the period requested. We also reform the
existing requirements for the provision
of redispatch service to ensure that they
are of greater use to transmission
customers and more consistent with
reliability planning and operation of the
system.
87. Reform of rollover rights. The
Commission concludes that section 2.2
of the pro forma OATT, which grants an
ongoing right to transmission customers
to renew or ‘‘roll over’’ their contracts,
should be reformed. The current
rollover rights do not provide
consistency between the rights of
rollover customers and the resulting
obligations of transmission providers to
plan and upgrade the system to
accommodate rollovers. The
Commission therefore amends section
2.2 to ensure greater consistency with
transmission planning and construction
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timelines and modifies the minimum
term of the rollover rights to five years,
rather than the current minimum term
of one year. The Commission also
requires that a transmission customer
eligible for rollover rights provide notice
of whether or not it will exercise its
right of first refusal to renew the
contract no less than one year before the
expiration date of the transmission
service agreement, rather than within
the current 60-day period.
88. Increases in transparency to
lessen the opportunities to discriminate
and reduce transaction costs. In
addition to the increased transparency
we require regarding the calculation of
ATC and transmission planning, we
increase the transparency of
transmission service provided under the
pro forma OATT in several other
respects. For example, we require
transmission providers and their
network customers to use the
transmission providers’ OASIS to
request designation of a new network
resource and to terminate the
designation of an existing network
resource. In addition, we require
transmission providers to modify their
OASIS so that requests to designate and
terminate a network resource can be
queried, allowing all parties access to
such information. We also require
transmission providers to post a list of
their current designated network
resources and all network customers’
current designated network resources on
their OASIS. Finally, we require
transmission providers to post on
OASIS all their business rules, practices
and standards that relate to transmission
services provided under the pro forma
OATT.
89. Strengthening enforcement of the
pro forma OATT. The reforms adopted
in this Final Rule provide greater clarity
in the terms and conditions of the pro
forma OATT, resolving ambiguities in
the existing pro forma OATT that have
made undue discrimination easier to
accomplish and more difficult to detect.
Our new civil penalty authority under
EPAct 2005 gives us ample power to
remedy tariff violations, but it also
places upon us an increased
responsibility to make the rules as clear
as possible. We fulfill that responsibility
in the Final Rule by providing greater
clarity where appropriate to several
critical OATT provisions. We also adopt
a number of posting and reporting
requirements that will provide the
Commission and market participants
with information about each
transmission provider’s performance of
pro forma OATT obligations. For
example, we require transmission
providers to post specific performance
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metrics related to their completion of
studies required under the pro forma
OATT. We note that the Commission
will continue to audit compliance with
the pro forma OATT, and toward that
end require transmission information
kept on OASIS to be retained for audit
purposes for five years. Finally, we
adopt a number of reforms to
operational penalties assessed under the
pro forma OATT, including so-called
‘‘over-use’’ penalties and the treatment
of operational penalty revenues
collected from transmission providers
and their affiliates.
90. Miscellaneous OATT
improvements. Finally, we implement a
number of improvements to the terms
and conditions of the pro forma OATT
to incorporate the lessons learned over
the past ten years. We briefly note these
below:
• Designation of network resources.
We provide clarification regarding the
types of agreements that may be
designated as network resources, the
process for verifying whether
agreements meet the requirements in the
pro forma OATT, and the requirement
for transmission providers to designate
and undesignate network resources. We
also require customers to submit an
attestation with each application to
designate a new network resource.
• Reservation priorities. We change
the priority rules to give certain priority
to pre-confirmed transmission service
requests submitted in the same time
period. We also add price as a tiebreaker in determining reservation
queue priority when the transmission
provider is willing to discount
transmission service.
• Clarifications related to network
service. We provide clarification related
to use of network service on an ‘‘as
available basis’’ and to ‘‘redirects’’ of
network service.
B. Core Elements of Order No. 888 That
Are Retained
91. Although we are adopting many
important reforms to Order No. 888 and
the pro forma OATT in this Final Rule,
we emphasize that many of the core
elements of Order No. 888 are retained.
As the Commission noted in the NOPR,
many of these core elements enjoy broad
support from many sectors of the
industry. A variety of commenters—in
response to the NOI issued earlier in
this proceeding and again in response to
the NOPR—have urged the Commission
to focus on meaningful incremental
reforms to the pro forma OATT, rather
than on industry restructuring. We share
the view that Order No. 888 can be
strengthened without discarding its
fundamental structure. We discuss
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below the core elements that are being
retained and the comments received on
these points.
1. Federal/State Jurisdiction
92. In Order No. 888, the Commission
stated that it has exclusive jurisdiction
over the rates, terms, and conditions of
unbundled retail transmission in
interstate commerce.76 Though the
Commission adopted a test for
determining what constitute
Commission-jurisdictional transmission
facilities and what constitute Statejurisdictional local distribution facilities
in situations involving unbundled
wholesale wheeling and unbundled
retail wheeling,77 the Commission
stated that it generally would defer to
determinations by State regulatory
authorities concerning where to draw
the jurisdictional line under that test.78
The Commission declined to assert
jurisdiction over bundled retail
transmission, reasoning that ‘‘when
transmission is sold at retail as part and
parcel of the delivered product called
electric energy, the transaction is a sale
of electric energy at retail.’’ 79 The U.S.
Supreme Court affirmed the
Commission’s decision to assert
jurisdiction over unbundled but not
bundled retail transmission, finding that
the Commission made a statutorily
permissible choice.80 In the NOPR, the
Commission proposed to retain the
jurisdictional divide established in
Order No. 888.
Comments
93. Several commenters support the
Commission’s proposal to retain the
existing jurisdictional divide.81 Though
APPA concludes that the most politic
course at this juncture is to leave the
current jurisdictional boundaries in
place and develop cooperative
mechanisms in each region to
coordinate Federal policy
implementation with the relevant State
regulators, APPA notes that there is
disagreement among its members about
whether the current jurisdictional lines
are properly drawn. APPA explains that
a substantial number of its members
believe that all interstate transmission
services (both retail and wholesale)
should be provided under one
consistent set of tariff terms and
conditions. Other APPA members,
however, believe that the Commission
made the proper jurisdictional call in
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76 Order No. 888 at 31,781.
Order No. 888. NARUC urges the
Commission to clarify that its planning
proposals will not reopen or attempt to
change the jurisdictional split over
transmission facilities delineated in
Order No. 888.
Commission Determination
94. The Commission will retain the
existing jurisdictional divide that was
established in Order No. 888, which has
been affirmed by the U.S. Supreme
Court and accepted by the industry and
State regulatory authorities.82 We also
reiterate our recognition of the need for
heightened cooperation between Federal
and State regulators in areas where there
are overlapping Federal and State policy
concerns. As explained in greater detail
in the planning section below, and in
response to NARUC’s concern, the
planning reforms adopted in the Final
Rule contemplate coordinated and open
transmission planning, but do not
reopen or otherwise change the existing
jurisdictional divide for transmission
facilities.
2. Native Load Protection
95. In Order No. 888, the Commission
did not require transmission providers
to unbundle transmission service to
their retail native load. The Commission
also did not require that bundled retail
service be taken under the terms of the
pro forma OATT.83 Moreover, the
Commission allowed a transmission
provider to reserve, in its calculation of
ATC, transmission capacity necessary to
accommodate native load growth
reasonably forecasted in its planning
horizon.84 Order No. 888 also granted a
rollover right to existing firm service
customers,85 but allowed transmission
providers to restrict that rollover right if
the capacity was reasonably forecasted
as needed to serve native load
customers, as long as that restriction
was set forth in the customer’s initial
service contract.86
96. Congress, in section 1233 of EPAct
2005, added section 217 to the FPA,
entitled ‘‘Native Load Service
Obligation,’’ which addresses
transmission rights held by load-serving
entities (LSEs). FPA section 217 allows
LSEs to use their own and contractedfor transmission capacity to deliver
energy as required to meet their service
obligations, without being subject to
charges of unlawful discrimination. The
provision makes clear, however, that
this requirement does not abrogate any
77 Id. at 31,771 (setting forth the seven-factor test).
78 Id. at 31,781.
82 See New York v. FERC, 535 U.S. at 28.
79 Id.
83 Order No. 888 at 31,745.
80 See New York v. FERC, 535 U.S. at 28.
84 Id. at 31,694.
81 E.g., Ameren, APPA, North Carolina
85 Id.; see pro forma OATT section 2.2.
Commission Reply, PNM–TNMP, and Southern.
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86 Order No. 888–A at 30,198.
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contract or service agreement for firm
transmission service or rights in effect
as of the date of enactment of EPAct
2005.87 In the NOPR, the Commission
concluded that the protection of native
load embodied in Order No. 888 is
consistent with FPA section 217, and
reaffirmed its commitment to the
protection of native load.
Comments
97. Several commenters agree with
the Commission’s preliminary
conclusion that the protection of native
load embodied in Order No. 888 is
consistent with FPA section 217 and
support the Commission’s continued
commitment to the protection of native
load.88 While APPA 89 and TAPS
generally agree with the Commission
that the overall OATT regime is
consistent with section 217, they urge
the Commission to maintain and
reinforce the comparability requirement.
APPA urges the Commission to broaden
its preliminary conclusion in the NOPR
and conclude instead that the protection
of native load and the provision of fully
comparable transmission service to
other LSEs with long-term service
obligations, as embodied in Order No.
888, are consistent with FPA section
217. TAPS also supports the
Commission’s reading of FPA section
217 as consistent with the Order No.
888 pro forma OATT’s ‘‘native load’’
priority, recognizing that FPA section
217 reinforces the OATT’s commitment
to comparable treatment of all LSEs—
e.g., transmission providers and
network customers.
98. Other commenters dispute the
Commission’s preliminary conclusion
that the native load protection
embodied in Order No. 888 is consistent
with FPA section 217.90 Many
commenters argue that FPA section 217
protects all load, not just native load.91
Constellation states that the
Commission must recognize that there
are other market participants besides the
transmission providers themselves that
are LSEs under FPA section 217. Under
the definition of LSEs in FPA section
87 16 U.S.C. 217(f).
88 E.g., Ameren, E.ON, Tacoma, Arkansas
Commission, EPSA, Southern, and TAPS.
89 APPA argues that the proposed definition of
native load customers in section 1.21 is not
technically consistent with FPA section 217
because FPA section 217 does not distinguish
among the types of power supply arrangements that
an LSE must have to enjoy the protection of FPA
section 217. Nevertheless, APPA states that it
would not be fruitful to reopen the entire OATT
framework to address this technical (but very
important) definitional difference.
90 E.g., Arkansas Municipal, Constellation, Duke,
Salt River, and South Carolina E&G.
91 E.g., Constellation, EPSA, and South Carolina
E&G.
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217, EPSA argues that many entities
other than traditional, verticallyintegrated utilities are in the business of
serving load. The statute, EPSA asserts,
applies to any native load service
obligation, whether that obligation is
served by a competitive supplier, an
affiliate of the transmission provider, or
by the transmission provider itself. Salt
River contends that FPA section 217 is
self-implementing, though it urges the
Commission to act to remove
impediments to the full exercise of
rights granted to LSEs.
99. Constellation argues that the
Commission should require native load
and OATT customers to take service
under the same terms and conditions
because experience has proven that
discrimination has occurred as a result
of having two different sets of rules
applicable to transmission customers.
EPSA urges the Commission to further
clarify that the transmission provider
has an affirmative obligation to serve
native load in a non-discriminatory
manner. According to EPSA, section 217
supports the Commission’s paramount
statutory mission of ensuring nondiscrimination and makes clear that a
transmission provider, when utilizing
transmission capacity or rights reserved
to serve native load, must ‘‘put its
blinders on’’ to ensure that the load’s
needs are being met in the most
economical way available, whether that
decision means the deployment of its
own affiliated generation, or the
deployment of available non-utility
alternatives.
100. Arkansas Municipal asserts that
FPA section 217 recognizes the need to
give priority to LSEs in certain
situations, such as when the
transmission grid may be constrained
and one group of customers may be
denied service at the expense of other
customers. Arkansas Municipal states
that a priority list could be instituted in
this reform proceeding that places LSEs
at the top of the list in competing
requests for transmission service when
not all requests could be granted or
honored by the transmission provider.
101. New Mexico Attorney General
argues that native load is fundamentally
different than merchant load and
therefore, in the planning process, the
needs of merchants should not be
treated comparably with the needs of
New Mexico utilities’ native loads. New
Mexico Attorney General asserts that
New Mexico utilities have a statutory
obligation to serve retail load while
merchants are free to come and go with
cycles inherent in wholesale markets.
According to New Mexico Attorney
General, the transmission requirements
of the utilities’ native loads amount to
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an ongoing long-term firm contract,
while the transmission needs of
merchants are, by comparison, shortterm and speculative.
102. Several commenters urge the
Commission to revisit various aspects of
the reforms proposed in the NOPR in
order to enhance the protection of
native load. For example, some
commenters urge the Commission to
modify the rollover proposal in the
NOPR. Salt River argues that the
Commission’s regulations must include
a clear provision for a transmission
owner anticipating, or unexpectedly
facing, load growth to recapture
capacity temporarily made available to
the wholesale market. Arkansas
Commission disagrees with the
Commission’s proposal to require a
transmission provider to compete for
transmission capacity rather than
reclaim it through its rights to reserve
capacity for future load growth. The
proposal is inequitable, Arkansas
Commission argues, because native load
customers have historically paid for
most of the transmission providers’
assets and will continue to do so in the
future. Because of this, Arkansas
Commission asserts, native load
customers should be given preference in
the reservation of transmission capacity.
In response to Arkansas Commission’s
position, MDEA urges the Commission
to make clear, consistent with the
comparability principle adopted in
Order No. 888 and reaffirmed in the
NOPR, and with FPA section 217, that
any reservation of rights or preference
available to a transmission provider’s
native load customers must be available
to network customer loads as well.
South Carolina E&G argues that the
Commission’s interpretation of
‘‘reasonably forecasted’’ capacity under
section 2.2 of the pro forma OATT has
been effectively impossible to meet and,
therefore, the Commission should now
provide clear standards for evaluation of
native load protecting rollover
restrictions. A clear standard, South
Carolina E&G states, would have the
Commission consider rollover
restrictions in light of a utility’s
transmission planning process. On
reply, Progress Energy supports South
Carolina E&G’s comments. Progress
Energy urges the Commission to revisit
the rollover rights policy to develop a
policy by which an LSE may be assured
of future transmission service for
reasonably forecasted native load
growth.
103. South Carolina E&G also asks the
Commission to revise section 13.6 of the
pro forma OATT, regarding curtailment
of firm point-to-point transmission
service. South Carolina E&G urges the
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Commission to comply with the
mandate of Northern States Power Co. v.
FERC,92 which South Carolina E&G
asserts held that the Commission had
exceeded its authority in rejecting a
vertically-integrated transmission
provider’s proposal to modify section
13.6 of the OATT to give a higher
curtailment priority to native load.
According to South Carolina E&G, the
Commission has responded by applying
the court’s decision narrowly, but FPA
section 217 requires the Commission to
change that position and recognize the
primacy of service to native load in
section 13.6 of the OATT. In its reply
comments, Progress Energy supports the
comments of South Carolina E&G and
states that the Commission must
affirmatively recognize the priority of
service to LSEs in the application of the
curtailment priorities in section 13.6 of
the OATT.
104. Duke argues that several of the
Commission’s proposed reforms—such
as hourly firm service, redispatch, and
conditional firm service—actually
reduce the protection afforded native/
network load. Salt River suggests that
the Commission should modify its ATC
proposal to bring the Commission’s
native load priority policies in line with
FPA section 217. Salt River asserts that,
in calculating ATC, the transmission
provider must be able to exercise
reasonable professional judgment as to
the amount of transmission that must be
reserved to meet native load service
obligations; the Commission should not
get into the business of dictating
forecasting methodology. Salt River
proposes that a native load forecast that
is used by an LSE as the basis for
committing capital for generation
expansion or procurement should be
presumed to be valid for purposes of
establishing available capacity. EPSA,
however, argues that, unless and until
the Commission mandates a hard and
enforceable definition of ATC,
transmission-owning utilities that also
own affiliated generation will continue
to hide behind the native load service
obligation as an excuse for being unable
to find ATC for any but self-serving
purposes.
105. EPSA also argues that the
Commission must ensure that
transmission owners’ planning
accommodates all supply options. EPSA
urges the Commission to clarify that
transmission capacity reserved for
native load is to be made available
(including for study and other purposes)
to competitive suppliers who wish to
92 176 F.3d 1090, 1096 (8th Cir. 1999), cert.
denied sub nom. Enron Power Marketing, Inc. v.
Northern States Power Co., 528 U.S. 1182 (2000).
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serve native load as allowed by State
law. According to EPSA, all generation
assets ultimately serve load and the pro
forma OATT should be clarified to
ensure that the transmission system is
available on a non-discriminatory basis
now and in the future to ensure that
load is optimally served—regardless of
which generation resources are serving
that load. In its reply comments, EPSA
also challenges the initial comments of
New Mexico Attorney General, which
EPSA argues incorrectly interpret FPA
section 217 as drawing a distinction
between the types of generation that
serve load. EPSA argues that the statute
protects the customer load that all
suppliers would seek to serve regardless
of the source.
106. APPA agrees with the
Commission’s response in the NOPR to
Metropolitan Water District that the
specific issues related to an RTO’s
provision of long-term transmission
rights are better left to the rulemaking in
Docket Nos. RM06–8–000 and AD05–7–
000, and the proceedings in each RTO
region to implement the Final Rule
issued in those dockets on July 20, 2006.
APPA notes, however, that the
Commission has not proposed in this
docket to exempt RTOs from the
provisions of the NOPR. Rather, APPA
notes, departures from the pro forma
OATT, including departures in RTO
OATTs, must be justified under the
‘‘consistent with or superior to’’
standard. APPA argues that the
Commission should apply this standard
to long-term transmission rights, as well
as to the other terms and conditions of
OATT transmission service that RTOs
provide.
Commission Determination
107. In Order No. 888, the
Commission gave public utilities the
right to reserve existing transmission
capacity needed for native load growth
reasonably forecasted within the
utility’s current planning horizon. The
Commission also allowed transmission
providers to restrict rollover rights
based on reasonably forecasted need at
the time the contract is executed. We
continue to believe these protections for
native load are appropriate and do not
eliminate them in this Final Rule, as
suggested by some commenters. We also
believe that the protection of native load
embodied in Order No. 888, as
enhanced by the reforms adopted in this
Final Rule, is consistent with FPA
section 217, which protects the
transmission rights of entities with
service obligations to end-users or a
distribution utility, to the extent
required to meet their service
obligations. The additional reforms
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proposed by commenters are not
necessary at this time to remedy undue
discrimination. We conclude that the
native load priority established in Order
No. 888 continues to strike the
appropriate balance between the
transmission provider’s need to meet its
native load obligations and the need of
other entities to obtain service from the
transmission provider to meet their own
obligations.
108. In response to comments
regarding reforms needed to ATC
calculation and transmission planning
to bring the native load priority policies
in line with FPA section 217, we believe
that the Commission’s reforms in this
Final Rule appropriately reflect the
transmission provider’s obligation to
serve native load. As discussed more
fully in the ATC and planning sections
below, the processes we adopt herein
are open, transparent and nondiscriminatory and assume that the
transmission provider is meeting its
obligations, including its native load
service obligation. We disagree with
Duke’s assertion that the reforms
proposed in the NOPR will result in a
reduction of the protection afforded
native or network load. Not only have
we reaffirmed the fundamental
protections for native load contained in
Order No. 888, but we have modified,
where appropriate, the pro forma OATT
to ensure that a transmission provider’s
obligations can be met consistent with
maintaining the reliability to existing
customers, including native load. For
example, we are eliminating the current
requirement to provide planning
redispatch over long periods of time
(e.g., 10–30 years) because it is
unnecessary to remedy undue
discrimination and can create problems
in forecasting system conditions
consistent with maintaining reliability
to native load customers.93
109. With regard to APPA’s comments
regarding long-term transmission rights
in organized markets, we note that the
Commission has issued its Final Rule in
Docket Nos. RM06–8–000 and AD05–7–
000.94 As discussed more fully in the
applicability section of this rulemaking,
and in response to APPA’s comments,
we reiterate that any departures from
the pro forma OATT proposed by an
ISO or an RTO must be ‘‘consistent with
or superior to’’ the pro forma OATT in
this Final Rule.
93 Proposals related to other reforms, such as
curtailments and rollovers, are discussed in the
sections below dealing with each of those issues.
94 See supra note 72.
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3. The Types of Transmission Services
Offered
110. In Order No. 888, the
Commission required all public utilities
to offer, on a non-discriminatory, openaccess basis, firm network service and
firm and non-firm point-to-point
service. In the NOPR, the Commission
proposed to retain these services and
did not propose to require transmission
providers to adopt a network contract
demand service, either as a replacement
for network or point-to-point service or
as a third category of service under the
OATT.
Comments
111. Several commenters support the
Commission’s proposal to retain the
current services in the pro forma OATT
and to not adopt contract demand
service.95 While APPA supports the
Commission’s proposal, it states that the
Commission should remain open to
individual public utility transmission
provider’s proposals to add ‘‘hybrid’’
service to the base network and pointto-point services.
112. Other commenters, such as AMPOhio and Nevada Companies, argue that
the Commission should require all
transmission providers to offer network
contract demand service. Nevada
Companies argue that the Commission’s
network designation process can
substantially interfere with State
jurisdiction over resource acquisition,
especially for transmission providers
that are required to purchase substantial
amounts of power to serve their retail
customers instead of relying primarily
on their own generation. Nevada
Companies reason that allowing
transmission providers to move to a
contract demand-based network service
would remove them from the dilemma
of being forced to make resource
procurement decisions that are
inconsistent with State requirements.
On reply, MidAmerican, Newmont
Mining, and Utah Municipals oppose
the suggestion that the contract demand
service should be made a mandatory
service offering in the pro forma OATT.
In its reply comments, Newmont Mining
states that, if the Commission is
inclined to provide some relief to allow
Nevada Companies to comply with both
the pro forma OATT and their Stateapproved resource plans, that relief
should come only after an investigation
of how similar problems are handled on
other systems and should be a narrowly
and carefully monitored exception to
the resource designation requirements.
95 E.g., MISO/PJM States, TVA, and Southern.
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113. Alberta Intervenors argue that
undue discrimination is most likely to
occur in situations where there is a
single or dominant network customer
and that customer either has a dual
mandate for serving the network
customers or that customer has a ‘‘free
option’’ for procuring transmission.96
Alberta Intervenors recommend that the
Commission implement standardized
rules with respect to the ‘‘free option’’
concept while offering regional
flexibility to ensure the objectives of
open access and the absence of undue
discrimination continue to be advanced.
Alberta Intervenors also argue that,
despite the Commission’s proposal to
address undue discrimination against
transmission customers in attempting to
redirect to new receipt and delivery
points, undue discrimination remains a
concern since network customers retain
a flexibility of receipt and delivery
points that is not granted to third party
point-to-point customers. This
flexibility provided to the network
customer allows the use of the system
for activities known as ‘‘parking’’ 97 and
‘‘hubbing.’’ 98 Alberta Intervenors urge
the Commission to eliminate this unfair
competitive advantage under the OATT
by making a common service available
to all participants rather than differing
service for network customers, or
alternatively, by restricting the use of
96 Alberta Intervenors assert that the purchase of
point-to-point service by dominant network
customers results in an equal and offsetting
reduction to the network customer’s network
charges, resulting in a net cost of zero. They state
that point-to-point service is a net cost to all
competitors except the dominant network customer.
Thus, they argue, a dominant network customer can
buy point-to-point service for an extended period
and use this service for a limited number of hours
at little (or no) net cost compared to not purchasing
point-to-point service for an extended period. In
Alberta Intervenors’ view, this ‘‘free option’’
provides network customers with a competitive
advantage when reserving point-to-point service
because it enables the network customers to overconsume or buy excess point-to-point service than
they would if the true net cost were reflected.
Alberta Intervenors contend that such overconsumption reduces access to point-to-point
service for other customers.
97 Alberta Intervenors define ‘‘parking’’ as a
network customer reserving point-to-point service
using a network load point of delivery to purchase
energy that it intends to sell but where no buyer has
been identified at the time of the reservation. The
energy notionally reduces network load. Once a
buyer is found, the network customer completes the
sale by delivering the energy from freed-up
generation at a generation point of receipt to a
buyer’s point of delivery.
98 Alberta Intervenors define ‘‘hubbing’’ as a
practice very similar to ‘‘parking,’’ but involving
multiple buyers and sellers. The network customer
can reserve point-to-point transmission to purchase
energy from multiple sellers and to sell energy to
multiple buyers by creating a hub within its
network load. Alberta Intervenors explain that this
allows the network customer to organize purchases
and sales by physically matching the requirements
of multiple buyers and sellers.
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point-to-point services by the network
customer to exclude its use for
‘‘parking’’ and ‘‘hubbing.’’
114. MidAmerican states that in the
Western Interconnection, a utility’s
loads are not necessarily located within
a confined geographical boundary
served by a single transmission owner.
In these cases, MidAmerican argues,
neither network nor point-to-point
service under the current pro forma
OATT is suitable to serve those loads.
To remedy these shortcomings in
standard OATT service, MidAmerican
states that the Commission should
require the incorporation of dynamic
scheduling and long-term, seasonallyshaped, firm point-to-point as new
service offerings under the pro forma
OATT.
Commission Determination
115. The Commission will not alter
the types of services that we required in
Order No. 888. We continue to believe
that network and point-to-point services
are the appropriate base-line service
offerings in the OATT, and we will not
mandate that transmission providers
adopt new service offerings such as
network contract demand service.
Although the Commission has accepted
forms of network contract demand
service proposed by individual
transmission providers, and the service
may provide benefits to certain
customers, we do not believe the service
is necessary to remedy undue
discrimination. For example, the service
would require a departure from full
load-ratio pricing for network
customers, which may not be warranted
to the extent the transmission provider
plans its system to serve all native load.
However, while the Commission
concludes that it will not require all
transmission providers to offer this
service, in response to the arguments
raised by commenters such as AMPOhio and Nevada Companies, we
reiterate that the Commission already
has accepted forms of network contract
demand service and will continue to
entertain such proposals on a voluntary
basis from transmission providers.
116. The Commission also is not
persuaded by Alberta Intervenors’ and
MidAmerican’s arguments in support of
further alternative services under the
pro forma OATT. As with network
contract demand service, transmission
providers may propose such services if
appropriate for their region. We do not
believe mandating that such services be
provided by all transmission providers
is necessary at this time to prevent
undue discrimination.
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4. Functional Unbundling
117. In Order No. 888, the
Commission chose to mandate
functional, rather than corporate (in
which a public utility’s transmission
and generation assets would be placed
in separate corporate entities),
unbundling of transmission and
generation services. The Commission
explained that functional unbundling
has three components:
1. A public utility must take
transmission services (including
ancillary services) for all of its new
wholesale sales and purchases of energy
under the same tariff of general
applicability as do others;
2. A public utility must state separate
rates for wholesale generation,
transmission, and ancillary services;
3. A public utility must rely on the
same electronic information network
that its transmission customers rely on
to obtain information about its
transmission system when buying or
selling power.99
118. In the years following Order No.
888, a number of public utilities
nonetheless underwent corporate
unbundling. Many of these entities did
so as a result of State-mandated
restructuring laws. Others did so for
corporate or tax reasons. Some entities
divested all of their generation assets to
a non-affiliate, while others simply
restructured internally to place the
generation assets in a different corporate
subsidiary than the transmission assets.
There remain, however, a significant
number of vertically-integrated public
utilities that operate under the
functional unbundling approach.
119. In the NOPR, we proposed to
preserve the functional unbundling
approach adopted in Order No. 888,
rather than impose a corporate or
structural unbundling requirement.
While the Commission expressed its
continued support for voluntary efforts
to adopt structural changes (such as
transmission-only companies, RTOs, or
other reforms), the Commission found
that the more intrusive and costly
corporate unbundling was not necessary
at this time. The Commission also
declined to mandate an independent
transmission coordinator for all
transmission providers. Though the
Commission has previously found that
such entities may be appropriate in
certain circumstances and we support
voluntary efforts to rely on them,100 the
99 Order No. 888 at 31,654.
100 See Duke Power, 113 FERC ¶ 61,288 (2005);
MidAmerican Energy Co., 113 FERC ¶ 61,274
(2005); see also Entergy Services, Inc., 110 FERC
61,295 (2005), order on clarification, 111 FERC
¶ 61,222 (2005), order conditionally approving
filing, 115 FERC ¶ 61,095 (2006).
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Commission concluded that there was
not a sufficient basis for requiring them
as a generic remedy for undue
discrimination.
Comments
120. Commenters generally support
the Commission’s proposal to retain
functional unbundling.101 APPA also
supports the Commission’s decision not
to mandate an independent
transmission coordinator for all public
utility transmission providers.
Similarly, Tacoma supports the
Commission’s decision to continue to
view participation in an RTO or ISO as
voluntary actions. While PJM and EPSA
would prefer a structural remedy, they
generally support the Commission’s
proposal to retain functional
unbundling. However, EPSA states that
given the Commission’s proposal to
continue to rely on functional
unbundling, it is critical, particularly in
those areas without organized markets,
that OATT rules regarding unbundled
transmission service be clear,
transparent, consistent, and rigorously
enforced. APPA states that it will be
vital to obtain the cooperation of State
regulators in each region where the
OATT reforms will be implemented to
ensure that the current functional
unbundling regime in fact is sufficient
to do the job.
121. E.ON and TVA express concern
that the Commission may yet choose a
structural remedy. E.ON urges the
Commission to look at the full depth
and breadth of its existing powers to
monitor and fully redress any abuses in
the allocation of transmission services
before considering structural
unbundling. Similarly, TVA notes that
the Commission already has the option
to impose a structural remedy on a caseby-case basis.102
Commission Determination
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122. The Commission will, as
proposed in the NOPR, continue to
require functional—rather than
corporate or structural—unbundling. As
explained in the NOPR, for public
utilities that keep transmission and
generation assets in the same corporate
entity, the Commission has strict
Standards of Conduct that require the
separation of the utilities’ transmission
system operations and wholesale
101 E.g., Santee Cooper, LPPC, TVA, Tacoma,
Southern, MISO Transmission Owners, and E.ON.
102 Some commenters argue that adoption of the
‘‘open dispatch’’ proposals raised by commenters
such as Chandley-Hogan and PJM would constitute
a departure from functional unbundling. We
discuss the ‘‘open dispatch’’ and similar proposals
in section V.C below.
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marketing functions.103 These rules
require that employees engaged in
transmission functions operate
separately from employees of energy
affiliates and marketing affiliates. A
number of information sharing
restrictions also apply, which prohibit
transmission providers from allowing
employees of their energy and
marketing affiliates to obtain access to
transmission or customer information,
except via OASIS.
123. The Commission aggressively
enforces the Standards of Conduct and,
as referenced by APPA, cooperates with
State regulators to ensure that the
functional unbundling regime is
sufficient to prevent undue
discrimination. The Commission’s
Office of Enforcement is well-suited to
investigate potential violations of the
Standards of Conduct and to propose
remedies, including structural remedies
if necessary, to ensure that the
separation of functions and information
restrictions are fully implemented. We
believe that the increased clarity and
transparency adopted in other parts of
this Final Rule, when coupled with the
Standards of Conduct rules and our
rigorous enforcement program, will
ensure that the functional unbundling
requirement will serve its original
purpose.
C. Applicability of the Final Rule
1. Non-ISO/RTO Public Utility
Transmission Providers
124. In the NOPR, the Commission
proposed to apply the Final Rule to all
public utility transmission providers,
including those that are approved ISOs
and RTOs. With respect to non-ISO/
RTO transmission providers, the
Commission proposed to require all
103 The rules were first established in Order No.
889. See Order No. 889 at 31,595. The Standards
of Conduct rules were later replaced by a broader
set of rules adopted in Order No. 2004, which were
subsequently vacated in part by the United States
Court of Appeals pending remand proceedings
before the Commission. See Standards of Conduct
for Transmission Providers, Order No. 2004, 68 FR
69134 (Dec. 11, 2003), FERC Stats. & Regs. ¶ 31,155
(2003), order on reh’g, Order No. 2004–A, 69 FR
23562 (Apr. 29, 2004), FERC Stats. & Regs. ¶ 31,161
(2004), order on reh’g, Order No. 2004–B, 69 FR
48371 (Aug. 10, 2004), FERC Stats. & Regs. ¶ 31,166
(2004), order on reh’g, Order No. 2004–C, 70 FR 284
(Jan. 4, 2005), FERC Stats. & Regs. ¶ 31,172 (2005),
order on reh’g, Order No. 2004–D, 110 FERC
¶ 61,320 (2005), vacated, National Fuel, 468 F.3d
831. The Commission has issued an interim rule
promulgating temporary regulations consistent with
the Court’s decision and initiated a further
rulemaking to propose permanent regulations. See
Standards of Conduct for Transmission Providers,
Order No. 690, 72 FR 2427 (Jan. 19, 2007), FERC
Stats. & Regs. ¶ 31,327 (2007); Standards of Conduct
for Transmission Providers, Notice of Proposed
Rulemaking, 72 FR 3958 (Jan. 29, 2007), FERC Stats.
& Regs. ¶ 32,611 (2007) (Standards of Conduct
NOPR).
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12285
such transmission providers to submit
FPA section 206 compliance filings,
within 60 days after the publication of
the Final Rule in the Federal Register,
that contain the non-rate terms and
conditions set forth in the Final Rule.
The Commission also acknowledged
that certain non-rate terms and
conditions, such as Attachment C
(relating to the transmission provider’s
ATC calculation methodology) and
Attachment K (relating to the
transmission provider’s transmission
planning process), may require more
than 60 days to prepare and sought
comment on an appropriate time period
in which to require the submission of
these attachments.
125. Following their FPA section 206
compliance filings, the Commission
proposed that transmission providers
could submit filings under FPA section
205 proposing rates for the services
provided for in the tariff, as well as nonrate terms and conditions that differ
from those set forth in the Final Rule if
those provisions are ‘‘consistent with or
superior to’’ the pro forma OATT.
Comments
126. Several commenters ask the
Commission to clarify and/or revise the
proposal for dealing with previouslyapproved provisions that depart from
the existing (Order No. 888) pro forma
OATT. APPA contends that after this
multi-phase rulemaking (NOI/NOPR/
Final Rule) to revise the OATT, the
Commission should hold those public
utility transmission providers that
propose non-rate terms and conditions
differing from the new pro forma OATT
to a high standard of proof under the
‘‘consi
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