Standardization of Generator Interconnection Agreements and Procedures

Federal RegisterMar 26, 2004

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

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

Standardization of Generator Interconnection Agreements and Procedures

Issued March 5, 2004.

AGENCY:

Federal Energy Regulatory Commission, DOE.

ACTION:

Order on rehearing.

SUMMARY:

The Federal Energy Regulatory Commission (Commission) reaffirms its determinations in Order No. 2003 and clarifies certain provisions. Order No. 2003 requires all public utilities that own, control, or operate facilities for transmitting electric energy in interstate commerce to file revised open access transmission tariffs containing standard generator interconnection procedures and a standard agreement that the Commission adopted in that order and to provide interconnection service under them to electric generating facilities having a capacity of more than 20 megawatts. Any non-public utility that seeks voluntary compliance with the reciprocity condition of an open access transmission tariff may satisfy this condition by adopting these revised procedures and agreement.

EFFECTIVE DATE:

April 26, 2004.

FOR FURTHER INFORMATION CONTACT:

Patrick Rooney (Technical Information), Office of Markets, Tariffs and Rates, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, (202) 502-6205.

Roland Wentworth (Technical Information), Office of Markets, Tariffs and Rates, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, (202) 502-8262.

Bruce Poole (Technical Information), Office of Markets, Tariffs and Rates, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, (202) 502-8468.

Abraham Silverman (Legal Information), Office of the General Counsel, Federal Energy Regulatory Commission, 888 First Street, NE.,Washington, DC 20426, (202) 502-6444.

Michael G. Henry (Legal Information), Office of the General Counsel, Federal Energy Regulatory Commission, 888 First Street, NE.,Washington, DC 20426, (202) 502-8532.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction and Summary

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

1. Jurisdiction

2. Pricing and Cost Recovery Provisions

3. Interconnection Products and Services

4. Summary of Substantive Clarifications or Grants of Rehearing for the Large Generator Interconnection Procedures

5. Summary of Substantive Clarifications or Grants of Rehearing for the Large Generator Interconnection Agreement

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

1. Non-Independent Transmission Provider Compliance with this Order and Requests for Variations

2. Independent Transmission Provider Compliance with this Order and Requests for Variations

3. Other Compliance and Variation Issues

C. Procedural Discussion

II. Discussion

A. Definitions Used in the LGIP and LGIA

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

Section 2.3—Base Case Data

Section 3.1—Interconnection Requests—General

Section 3.3.1—Initiating an Interconnection Request

Section 3.3.4—Scoping Meeting

Section 3.5—Coordination with Affected Systems

Section 4.1—Queue Position—General

Section 4.3—Transferability of Queue Position

Section 4.4—Queue Position—Modifications

Section 5.1.1—Queue Position for Pending Requests

Section 5.2—Prior Interconnection Requests—New Transmission Provider

Section 6—Interconnection Feasibility Study, Section 7—Interconnection System Impact Study, Section 8—Interconnection Facilities Study, and Section 10—Optional Interconnection Study

Section 11.1—Tender

Section 12.2.3—Advancing Construction of Network Upgrades that are Part of an Expansion Plan of the Transmission Provider

Section 13.1—Confidentiality

Appendix 1—Interconnection Request

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

Article 2.2—Term of Agreement

Article 2.3.1—Written Notice

Article 2.3.2—Default

Article 2.4—Termination Costs

Article 2.5—Disconnection

Article 3—Regulatory Filings

Article 4.3—Generator Balancing Service Arrangements

Article 5.1.3—Option to Build

Article 5.2—General Conditions Applicable to Option to Build

Article 5.3—Liquidated Damages

1. How the Liquidated Damages Provision Should Work

2. Legal Arguments Against a Liquidated Damages Clause

3. Calculation of Liquidated Damages and Miscellaneous Issues

4. Public Power Entities and Liquidated Damages

5. Subcontractors and Third Party Exemption

Article 5.4—Power System Stabilizers & Article 5.10.3—ICIF Construction

Article 5.10—Interconnection Customer's Interconnection Facilities

Article 5.12—Access Rights

Article 5.13—Lands of Other Property Owners

Article 5.14—Permits

Article 5.16—Suspension

Article 5.17—Taxes

Article 5.17.3—Indemnification for the Cost Consequences of Current Tax Liability Imposed upon the Transmission Provider

Article 5.17.4—Tax Gross-Up Amount

Article 5.17.5—Private Letter Ruling or Change or Clarification of Law

Article 5.17.6—Subsequent Taxable Events

Article 5.17.7—Contests

Article 5.17.8—Refund

Article 5.17.9—Taxes Other Than Income Taxes

Article 5.17.10—Transmission Owners Who Are Not Transmission Providers

Article 5.18—Tax Status

Article 6.4—Right to Inspect

Article 7—Metering

Article 9.1—Operations—General

Article 9.3—Transmission Provider Obligations

Article 9.6.1—Power Factor Design Criteria

Article 9.6.3—Payment for Reactive Power

Article 9.7.1.2—Outage Schedules

Article 10.5—Operating and Maintenance Expenses

Article 11.5—Provision of Security

Article 12.3—Invoice—Payment

Article 13.1—Emergencies—Definition

Article 13.6—Emergencies—Interconnection Customer Authority

Article 14.1—Regulatory Requirements

Article 16—Force Majeure

Article 17.1—Default

Article 18.2—Consequential Damages

Article 18.3—Insurance

Article 19.1—Assignment

Article 21—Comparability

Article 22—Confidentiality

Article 25.3—Audit Rights

Article 29—Joint Operating Committee

D. Other Significant Policy Issues

1. Interconnection Products and Scope of Service

a. Requests to Clarify or Eliminate Network Resource Interconnection Service

b. Delivery Service Implications of Energy Resource Interconnection Service and Network Resource Interconnection Service

c. Conflicts with Network Integration Transmission Service

d. Coordinating the Network Resource Interconnection Service Queue with the Transmission Delivery Service Queue

e. Responsibility for Additional Studies and Network Upgrades

f. Miscellaneous Requests Regarding Energy Resource Interconnection Service and Network Resource Interconnection Service

2. Interconnection Pricing Policy

a. Summary of the Principal Determinations in Order No. 2003

b. Fairness of the Order No. 2003 Pricing Policy: Applicability of the Commission's ‘Higher of’ Ratemaking Policy

c. Legal Challenges to the Interconnection Pricing Policy

d. Rules Governing the Interconnection Customer's Upfront Payment and the Payment of Credits and Reimbursement

e. Economic Efficiency Implications of the Order No. 2003 Pricing Policy for a Non-Independent Transmission Provider

f. Credits for Network Upgrades on Affected Systems

g. Credits for the Costs of Expediting Construction

h. Compensation for Line Outage Costs and Rescheduled Maintenance

i. Transmission Provider's Recovery of Costs of Network Upgrades

j. Transmission Provider's Recovery of Its Costs of Interconnection Facilities

k. Generator Balancing Service Arrangements

l. Miscellaneous Issues Regarding Interconnection Pricing for the Non-Independent Transmission Provider

m. Interconnection Pricing Policy for the Independent Transmission Provider

3. Commission Jurisdiction Under the Federal Power Act

a. The Detroit Edison Case Precedent

b. Transmission Provider Facilities Subject to Order No. 2003

c. Interconnections to Low-Voltage Facilities for the Purpose of Making Wholesale Sales

d. Net Metering Issues

e. Non-Public Utilities and Order No. 2003

4. Variations From the Final Rule

5. OATT Reciprocity Requirements

6. Two vs. Three Party Agreements

III. Information Collection Statement

IV. Regulatory Flexibility Act Certification

V. Document Availability

VI. Effective Date

Appendix A—Petitioner Acronyms

Appendix B—Revised Standard Large Generator Interconnection Procedures and Standard Large Generator Interconnection Agreement

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

I. Introduction and Summary

1. On July 24, 2003, the Commission issued a Final Rule (Order No. 2003)

requiring all public utilities that own, control, or operate facilities used for transmitting electric energy in interstate commerce to have on file standard procedures and a standard agreement for interconnecting generating facilities capable of producing more than 20 megawatts of power (Large Generators) to their transmission facilities.

Order No. 2003 requires that all public utilities subject to it modify their open access transmission tariffs(OATTs) to incorporate the Large Generator Interconnection Procedures (LGIP) and Large Generator Interconnection Agreement (LGIA).

Standardization of Generator Interconnection Agreements and Procedures, Order No. 2003, 68 FR 49845 (Aug. 19, 2003), FERC Stats. & Regs. ¶ 31,146 (2003).

Capitalized terms used in this Order on Rehearing have the meanings specified in Section 1 of the Final Rule Large Generator Interconnection Procedures (LGIP) and Article 1 of the Final Rule Large Generator Interconnection Agreement (LGIA), as amended herein, or the open access transmission tariff (OATT). Generating Facility means the device for which the Interconnection Customer has requested interconnection. The owner of the Generating Facility is the Interconnection Customer. The entity (or entities) with which the Generating Facility is interconnecting is the Transmission Provider. A Large Generator is any energy resource having a capacity of more than 20 megawatts, or the owner of such a resource.

Provisions of the LGIP are referred to as “Sections” whereas provisions of the LGIA are referred to as “Articles.”

2. Interconnection plays a crucial role in bringing much-needed generation into national energy markets to meet the growing needs of electricity customers. Currently, the interconnection process is fraught with delays and lack of standardization that discourage merchant generators from entering into the energy marketplace, in turn stifling the growth of competitive energy markets. The delays and lack of standardization inherent in the current system undermine the ability of generators to compete in the market and provide an unfair advantage to utilities that own both transmission and generation facilities. As a result, the Commission concluded in Order No. 2003 that there is a pressing need for a single, uniformly applicable set of procedures and agreements to govern the process of interconnecting Large Generators to a Transmission Provider's Transmission System.

In another rulemaking, the Commission proposed a separate set of procedures and an agreement applicable to Small Generators (defined as any energy resource having a capacity of no larger than 20 MW, or the owner of such a resource) that seek to interconnect to facilities of jurisdictional Transmission Providers that are already subject to an OATT.

See

Standardization of Small Generator Interconnection Agreements and Procedures, Notice of Proposed Rulemaking, 60 FR 49974 (Aug. 19, 2003), FERC Stats. & Regs. ¶ 32,572 (2003).

3. We reaffirm here the legal and policy conclusions on which Order No. 2003 is based. Adoption of the LGIP and LGIA will prevent undue discrimination, preserve reliability, increase energy supply, and lower wholesale prices for customers by increasing the number and variety of generation resources competing in wholesale electricity markets while ensuring that the reliability of the Transmission System is protected. At its core, Order No. 2003 ensures that generators independent of Transmission Providers and generators affiliated with Transmission Providers are offered Interconnection Service on comparable terms.

4. We recognize that issues will arise that are not covered by the LGIP and LGIA. When that happens, we expect the Parties to follow the spirit of Order No. 2003 and to deal with one another in good faith. Transmission Providers should not use the fact that the LGIP and LGIA do not explicitly cover a particular situation to delay or deny Interconnection Service. While we expect that the vast majority of Interconnection Requests will be efficiently processed under Order 2003, the Commission will continue to step in where necessary and resolve any disputes on a case-by-case basis.

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

1. Jurisdiction

5. Order No. 2003 requires that each public utility that owns, controls, or operates facilities used for transmitting electric energy in interstate commerce to amend its OATT to include interconnection procedures and an interconnection agreement for electric generating facilities having a capacity of more than 20 megawatts.

6. We reaffirm our jurisdictional holding that Order No. 2003 does not expand the Commission's jurisdiction beyond that asserted in Order No. 888 and upheld in court.

The Final Rule applies only to interconnection to transmission facilities that are already subject to an OATT. Order No. 2003 applies to an interconnection to a public utility's Transmission System that, at the time the interconnection is requested, is used either to transmit electric energy in interstate commerce or to sell electric energy at wholesale in interstate commerce under a Commission-filed OATT. Additionally, we continue to assert that dual use

facilities (those used both for wholesale and retail transactions) are subject to Order No. 2003 if the facilities are subject to an OATT on file with the Commission when the Interconnection Request is submitted.

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

FERC,

225 F.3d 667 (DC. Cir. 2000),

aff'd sub nom.

New York

FERC,

535 U.S. 1 (2002) (

TAPS

FERC)

2. Pricing and Cost Recovery Provisions

7. In general, we reaffirm the pricing policy adopted in Order No. 2003 for the recovery of the costs of Network Upgrades associated with an interconnection.

That is, the Commission's existing pricing policy continues to apply to non-independent Transmission Providers, and an independent Transmission Provider may propose a customized pricing policy to fit its circumstances. We also reaffirm that all Distribution Upgrades (upgrades to the Transmission Provider's “distribution” or lower voltage facilities that are subject to an OATT) are to be paid for by the Interconnection Customer (direct assignment).

Network Upgrades are facilities on the Transmission Provider's side of the Point of Interconnection with the Transmission Provider's Transmission System.

8. In this Order on Rehearing, we clarify that, consistent with the Commission's “higher of” ratemaking policy, a non-independent Transmission Provider continues to have the option to charge the Interconnection Customer the “higher of” an average embedded cost (rolled-in) rate or an incremental cost rate for the Network Upgrades needed for either Energy Resource Interconnection Service and Network Resource Integration Service. Incremental pricing is not the same as direct assignment.

9. We reaffirm the Order No. 2003 requirement that, unless the Transmission Provider and the Interconnection Customer agree otherwise, the Interconnection Customer must initially fund the cost of any Network Upgrades associated with the interconnection of its Generating Facility to a non-independent Transmission Provider's transmission system and that the Transmission Provider must reimburse the funded amount on a dollar-for-dollar basis with interest. This reimbursement is in the form of credits against the rates the Interconnection Customer pays for the delivery component of transmission service. However, we are granting rehearing on two aspects of the Order No. 2003 crediting policy. First, we are requiring the Transmission Provider to provide credits to the Interconnection Customer only against transmission delivery service taken with respect to the interconnecting Generating Facility. The Transmission Provider need not provide credits against other Transmission Services. Second, we are giving the Transmission Provider two options regarding the payment of credits. At the end of five years from the Commercial Operation Date of the Generating Facility, the Transmission Provider may either: (1) reimburse the Interconnection Customer for the remaining balance of the upfront payment, plus accrued interest, or (2) continue to provide credits to the Interconnection Customer until the total of all credits equals the Interconnection Customer's upfront payment, plus accrued interest.

10. In addition, we are eliminating the requirement that any Affected System Operator refund an Interconnection Customer's upfront payments for Network Upgrades built on the Affected System as a consequence of the interconnection of the Generating Facility. We instead are requiring the Affected System to provide credits toward the Interconnection Customer's upfront payment only when transmission service is taken by the Interconnection Customer on the Affected System.

11. These modifications ensure that the Transmission Provider can recover the “higher of” the incremental cost rate of the Network Upgrades or the embedded cost transmission rate, which in turn ensures that the native load and other Transmission Customers of the Transmission Provider and the Affected System will not subsidize Network Upgrades required to interconnect merchant generation.

3. Interconnection Products and Services

12. We reaffirm the decision in Order No. 2003 to have the Transmission Provider offer both Energy Resource Interconnection Service and Network Resource Interconnection Service. We more fully explain these services, clarifying two elements. First, neither Energy Resource Interconnection Service nor Network Resource Interconnection Service guarantees delivery service. Although these services both provide the Interconnection Customer with the capability to deliver the output of the Generating Facility into the Transmission System at the Point of Interconnection, neither service provides the Interconnection Customer with the right to withdraw power at any particular Point of Delivery. However, when an Interconnection Customer wants to deliver the output of the Generating Facility to a particular load (or set of loads) regardless of whether it has chosen Energy Resource Interconnection Service or Network Resource Integration Service, it may simultaneously request Network Interconnection Transmission Service or Point to Point Transmission Service under the OATT. Second, Network Resource Interconnection Service is not the same as, or a substitute for Network Integration Transmission Service under the OATT.

13. Also, this Order on Rehearing clarifies certain study requirements for Network Resource Interconnection Service.

4. Summary of Substantive Clarifications or Grants of Rehearing for the Large Generator Interconnection Procedures

14. Section numbers refer to the LGIP, which appears in Appendix B, attached.

15. Section 2.3—Base Case Data—We reiterate the importance of keeping energy infrastructure information secure and clarify that we expect all Parties to comply with the recommendations of the National Infrastructure Protection Center, as well as any best practice recommendations or requirements that may be issued by the North American Electric Reliability Council (NERC) or other electric reliability authorities. We also clarify section 2.3 to emphasize that the Transmission Provider is permitted to require that the Interconnection Customer sign a confidentiality agreement before the release of commercially sensitive information or Critical Energy Infrastructure Information in the Base Case data.

16. Section 3.1—Interconnection Requests—General—We clarify that the Interconnection Customer may select multiple Points of Interconnection to be evaluated in the Interconnection Feasibility Study. After receiving the results, the Interconnection Customer must select its Point of Interconnection. Before completing the Interconnection Facilities Study, the Interconnection Customer may request changes in the engineering details of the proposed interconnection (per LGIP sections 8.3 and 8.4), but may not alter the location of the Point of Interconnection (unless it submits a new Interconnection Request).

17. Section 3.3.4—Scoping Meeting—We clarify issues relating to the sharing of information between the Transmission Provider and its Affiliates.

18. Section 4.1—Queue Position—General—We clarify that the Transmission Provider may allocate the cost of the common upgrades for clustered Interconnection Requests without regard to Queue Position.

19. Section—4.4—Queue Position—Modifications “ We clarify that Queue Position will not be lost when a change in the requested Point of Interconnection is acceptable under any provision of the LGIP that expressly allows a minor change in the Point of Interconnection.

20. Section 6—Interconnection Feasibility Study—The Transmission Provider and the Interconnection Customer may agree to skip the Interconnection Feasibility Study. We also clarify that a lower queued Interconnection Request is not to be included in the Interconnection Feasibility Study, unless the study is for a cluster.

21. Section 11.1—LGIA—Tender—We modify this section to allow an additional 30 days after the Interconnection Customer submits comments to the Transmission Provider for the Transmission Provider to complete the draft appendices. We give the Interconnection Customer an additional 30 days to execute and return the draft appendices.

22. Section 13.6—Local Furnishing Bonds—This new provision is applicable only to a Transmission Provider that has financed facilities for the local furnishing of electric energy with tax-exempt bonds. Such a Transmission Provider is not required to provide Interconnection Service to an Interconnection Customer if the provision of such Transmission Service would jeopardize the tax-exempt status of any local furnishing bond(s) used to finance Transmission Provider's facilities that would be used in providing such Interconnection Service.

23. Appendix 1—We make some ministerial changes to the Interconnection Request and revise Item 3 to state more clearly that the Interconnection Customer must request either Energy Resource Interconnection Service or Network Resource Interconnection Service. In addition, if it requests the latter, we permit it to request that the Generating Facility be also studied for the former.

5. Summary of Substantive Clarifications or Grants of Rehearing for the Large Generator Interconnection Agreement

24. Article numbers refer to the LGIA, which appears in Appendix B, attached.

25. Article 2.3.1—Written Notice—We revise this article to state that the Interconnection Customer may terminate the LGIA after giving the Transmission Provider 90 Calendar Days advance written notice, or by the Transmission Provider notifying the Commission after the Generating Facility permanently ceases Commercial Operation.

26. Article 4.3—Generator Balancing Service Arrangements—We delete this article because we now recognize that this requirement is more closely related to delivery service than to Interconnection Service. Because delivery service requirements are addressed elsewhere in the OATT, the balancing service requirement, and requirements related to Ancillary Services generally, should not appear in the LGIA.

27. Article 5.2—General Conditions Applicable to Option to Build—We modify this article to state that the Interconnection Customer cannot retain ownership of the Transmission Provider's Interconnection Facilities or Stand Alone Network Upgrades unless the Transmission Provider agrees.

28. Article 5.3—Liquidated Damages—We reiterate that the Transmission Provider is not required to agree to liquidated damages and further explain the process for selecting construction milestones and the possible inclusion of a liquidated damages provision. We also explain that if liquidated damages are selected, they are the Interconnection Customer's exclusive remedy for the Transmission Provider's failure to meet its schedule.

29. Article 5.4—Power System Stabilizers & Article 5.10.3—ICIF Construction—We revise these articles to state that the Interconnection Customer is exempt from these provisions if the Generating Facility is a wind generator.

30. Article 5.13—Lands of Other Property Owners—We clarify that the Transmission Provider must assist the Interconnection Customer in siting Interconnection Facilities and Network Upgrades in a manner comparable to that it provides to itself and its Affiliates.

31. Article 5.16—Suspension—We clarify that the period during which work may be suspended will begin on the date for which the suspension is requested in the written notice to the Transmission Provider, or on the date of the notice if no date is specified. We also clarify that the Interconnection Customer may not suspend work for a cumulative period of more than three years for each project.

32. Article 5.17—Taxes—We clarify the Parties' indemnification and security obligations to better reflect the specific risks that the Transmission Provider faces with respect to taxation.

33. Article 6.4—Right to Inspect—We make the confidentiality requirement reciprocal.

34. Article 9.6.1—Power Factor Design Criteria—We exempt wind generators from the requirements of this article.

35. Article 9.6.3—Payment for Reactive Power—If the Transmission Provider pays its generators or those of an Affiliate for reactive power service within the established range, it must also pay the Interconnection Customer.

36. Article 18.3—Insurance—We modify this article to require that self-insuring entities obtain minimum insurance coverage. Furthermore, we clarify that additional insurance to cover the interconnection is not required if the Transmission Provider's existing insurance satisfies Article 18.3.6 and that each Party to the interconnection agreement complies with the notification requirements contained in Article 18.3.9. The notification requirement in Article 18.3.9 is also expanded to require notification if a Party self-insures or intends to rely on existing insurance.

37. Article 19.1—Assignment—We amend Article 19.1 to provide that any financing arrangement entered into by the Interconnection Customer shall provide that prior to or upon the exercise of the secured party's, trustee's or mortgagee's assignment rights pursuant to said arrangement, the secured creditor, the trustee or mortgagee will notify the Transmission Provider of the date and particulars of any such exercise of assignment rights, including providing the Transmission Provider with proof that it meets the requirements of Articles 11.5 and 18.3. We also clarify that the Interconnection Customer, not the assignee, must inform the Transmission Provider of any assignment for purposes of providing collateral.

38. Article 22—Confidentiality—We are amending this article to give state regulatory bodies conducting an investigation greater access to information that would otherwise be considered Confidential Information.

39. Appendix G—Requirements of Generators Relying on Newer Technologies—We include an appendix which may be used to provide requirements for generators relying on newer technologies, such as wind generators.

B. Compliance Issues and Variations From the

Pro Forma

LGIP & LGIA

40. Order No. 2003 said that it would become effective 60 days after publication in the

Federal Register

. However, the Commission later delayed

the effective date until January 20, 2004.

A September 26, 2003 order (unpublished) extended the effective date of the Final Rule until January 20, 2004 for independent Transmission Providers. The October 7, 2003 order (105 FERC ¶ 61,043) granted the same extension to non-independent Transmission Providers.

41. On January 8, 2004, the Commission issued a notice clarifying the compliance process.

The OATTs of all non-independent Transmission Providers were deemed to include the

pro forma

LGIA and LGIP as of January 20, 2004. Every independent Transmission Provider was required to make a compliance filing on or before January 20, 2004 by filing either (1) a notice that it intended to adopt the

pro forma

LGIP and LGIA, or (2) new standard interconnection procedures and agreement developed according to Order No. 2003's “independent entity variation” standard.

Notice Clarifying Compliance Procedures, 69 FR 2,135 (Jan. 14, 2004) (Compliance Notice).

Order No. 2003 at P 827.

42. Order 2003-A takes effect 30 days after its publication in the

Federal Register

1. Non-Independent Transmission Provider Compliance With This Order and Requests for Variations

43. As with the January 20, 2004 compliance process, the Commission will deem the OATT of a non-independent Transmission Provider to be revised to adopt the Order No. 2003-A

pro forma

LGIA and LGIP on its effective date. All Transmission Providers are directed to make ministerial filings reflecting the revisions in this order upon their next filing(s) with the Commission.

All Order No. 2003 compliance filings should be made under the “ER04-” docket heading. The ministerial filing must include the entire

pro forma

LGIP and LGIA and be included in the entity's first filing (of any type) with the Commission after the effective date of this order.

44. Several

pro forma

LGIP and LGIA provisions specifically allow the Transmission Provider to follow “Good Utility Practice” or otherwise adopt region-specific practices or standards. Moreover, Order No. 2003 allows the Transmission Provider to justify variations to any provision based on regional reliability requirements.

However, the Commission will accept a regional variation from the

pro forma

LGIP and LGIA only if it is an existing and established regional reliability standard.

See

Order No. 2003 at P 824.

See

Order No. 2003 at P 823.

45. A non-independent Transmission Provider seeking variations from Order No. 2003-A's

pro forma

LGIA and LGIP based on existing regional reliability standards must file them with the Commission on or before the effective date of this order.

Regional variation filings must specify the proposed changes and explain why such changes are necessary. The Commission will solicit comments on these filings before acting on them. Non-independent Transmission Providers need not re-file regional reliability variations they filed on or before the January 20, 2004 effective date of Order No. 2003.

Requests for regional variations will be treated as compliance filings under the Commission's Regulations.

46. A non-independent Transmission Provider also continues to have the right to file proposed changes to its LGIP and LGIA under section 205 of the FPA using the “consistent with or superior to” standard.

47. Pending Commission approval of any variations, the

pro forma

LGIP and LGIA will remain in effect.

2. Independent Transmission Provider Compliance With This Order and Requests for Variations

48. Under Order No. 2003, an independent Transmission Provider has greater flexibility to tailor the LGIP and LGIA than does a non-independent Transmission Provider. Under the “independent entity variation” standard, an independent Transmission Provider may propose customized interconnection procedures and a customized interconnection agreement that fit the needs of its region instead of the

pro forma

LGIP and LGIA.

49. An independent Transmission Provider that on January 20, 2004 elected to adopt Order No. 2003's

pro forma

LGIP and LGIA must file on or before the effective date of this Order on Rehearing either (1) a notice that it intends to adopt the Order No. 2003-A

pro forma

LGIP and LGIA, or (2) new standard interconnection procedures and agreements developed according to Order No. 2003's “independent entity variation” standard.

50. An independent Transmission Provider that filed its own tailored interconnection agreement and procedures under Order No. 2003's independent entity variation on or before January 20, 2004 is not required to re-file its interconnection agreement and procedures with the Commission unless a change is needed to reflect this Order on Rehearing.

51. In either event, the independent Transmission Provider's currently effective OATT will remain in effect pending any necessary Commission action. After submitting its compliance filing, an independent Transmission Provider will continue to have the right to propose changes to its LGIP and LGIA using the “independent entity variation” standard.

3. Other Compliance and Variation Issues

52. We clarify that for a non-independent Transmission Owner belonging to an RTO or ISO, the RTO's or ISO's Commission-approved standards and procedures shall govern all interconnections with facilities under the operational control of the RTO or ISO.

See

Compliance Notice.

53. A non-independent Transmission Provider that belongs to an RTO or ISO, but also retains operational control over portions of the Transmission System, must follow the compliance procedures for a non-independent Transmission Provider.

Such entities will have two sets of interconnection agreements and procedures: One governing interconnections to the portions of the Transmission System under the control of the RTO or ISO, and a

pro forma

LGIA and LGIP governing interconnections to the portion of the Transmission System over which it retains operational control.

Id.

54. In regards to the portion of the Transmission System over which it retains operational control, the Transmission Provider is responsible for meeting all of the requirements of Order No. 2003 to the same extent as a Transmission Provider who does not happen to belong to an RTO or ISO. A non-independent Transmission Provider does not receive special consideration simply because a portion of its Transmission System is independently operated.

55. A non-independent Transmission Provider that belongs to an RTO or ISO and has turned over control of all of its Transmission System to the RTO or ISO may request that the Commission waive Order No. 2003's requirement that it adopt the LGIA and LGIP. If waiver is granted, then the non-independent entity would be free to request (under FPA Section 205) amendments to its OATT that would harmonize its interconnection procedures with the RTO's or ISO's interconnection procedures.

56. If an RTO or ISO adopts the

pro forma

LGIA and LGIP, it must also enter into a contractual agreement with its Transmission Owners allocating responsibility for the interconnection process between the Transmission Owner and the Transmission Provider. In addition, both the Transmission

Provider and the Transmission Owner must sign the LGIA.

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

See

Order No. 2003 at P 909.

57. A non-public utility with a “safe harbor” OATT must adopt the

pro forma

LGIA and LGIP if it wishes to retain its safe harbor status.

Doing so will require all public utility Transmission Providers to offer the non-public utility open access to the public utility's Transmission System.

Non-jurisdictional entities should make their filings under the “NJ04-” docket heading.

C. Procedural Discussion

58. The Commission received 47 timely requests for rehearing or for clarification of Order No. 2003.

59. Under Section 313(a) of the Federal Power Act (FPA),

requests for rehearing of a Commission order were due within thirty days after issuance of Order No. 2003,

i.e.,

no later than August 25, 2003. Because the 30-day rehearing deadline is statutorily based, it cannot be extended. Therefore, the Commission rejects all requests for rehearing or clarification filed after August 25, 2003 as a matter of law.

However, the Commission will consider these late filed requests for rehearing as requests for reconsideration.

16 U.S.C. 8251(a) (2003).

Consumers Energy Company's request for clarification was filed on September 23, 2003 and Hydro One Networks, Inc. filed its request for rehearing on September 7, 2003. NARUC filed its second request for rehearing on October 1, 2003 and Reliant filed its on October 3, 2003.

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

II. Discussion

A. Definitions Used in the LGIP and LGIA

61. The LGIP and LGIA adopted in Order No. 2003 use a common set of definitions, several of which are addressed by petitioners.

62. Commercial Operation Date—The LGIP and LGIA define Commercial Operation Date to mean the date on which the Interconnection Customer begins Commercial Operation of the Generating Facility after Trial Operation of such unit has been completed. The Interconnection Customer notifies the Transmission Provider of this event using a form provided in the LGIA.

Rehearing Request

63. Central Maine

notes that “commercial operation” is itself undefined. It proposes that Commercial Operation Date should be defined as the date on which dispatch of the Generating Facility is turned over to the Control Area.

Petitioner acronyms are defined in Appendix A.

Commission Conclusion

64. We reject Central Maine's proposed definition because the Interconnection Customer will not always turn over the Generating Facility to the Control Area for dispatch.

65. Since the definition of Commercial Operation Date includes the term “commercial operation,” it is necessary to define the latter. Therefore, we are adding “Commercial Operation” to the list of LGIP and LGIA definitions and are defining it as follows: “Commercial Operation shall mean the status of a Generating Facility that has commenced generating electricity for sale, excluding electricity generated during Trial Operation.”

66. Control Area—The LGIP and LGIA define Control Area to mean an electrical system or systems bounded by interconnection metering and telemetry, capable of controlling generation to maintain its interchange schedule with other Control Areas and contributing to frequency regulation of the interconnection. Order No. 2003 states that the Control Area is to be certified by the North American Electric Reliability Council (NERC).

Rehearing Request

67. Duke Energy notes that the Applicable Reliability Council certifies a Control Area, not NERC, and asks that the definition be so revised.

Commission Conclusion

68. We agree with Duke Energy and revise the definition of Control Area.

69. Network Resource—The LGIP and LGIA define Network Resource to mean that portion of a Generating Facility that is (1) integrated with the Transmission Provider's Transmission System, (2) designated as a Network Resource under the terms of the OATT, and (3) subject to redispatch directives as ordered by the Transmission Provider under the OATT.

Rehearing Request

70. APS states that the term Network Resource is already defined in the OATT and that the term should have a consistent definition in the LGIP, LGIA, and OATT.

Commission Conclusion

71. We agree with APS and adopt the OATT's definition of Network Resource in the LGIP and LGIA.

72. Network Upgrades—The LGIP and LGIA define Network Upgrades to mean the additions, modifications, and upgrades to the Transmission Provider's Transmission System required at or beyond the point at which the Interconnection Customer interconnects to the Transmission Provider's Transmission System.

Rehearing Requests

73. Reliant argues that the Commission should clarify that the Transmission Provider can own transmission facilities on the generator's side of the Point of Interconnection. According to Reliant, this is important because some Transmission Providers may attempt to confuse the Commission's definitions of Network Upgrades and Transmission Provider's Interconnection Facilities.

74. EEI seeks clarification that “Network Upgrades occur at or beyond the Point of Interconnection, that is, where the Interconnection Facilities (including the Transmission Provider's Interconnection Facilities) connect to the Transmission System—not where the Interconnection Customer interconnects to the Transmission System.”

75. NRECA-APPA asks the Commission to clarify that improvements to radial lines that serve Network Load, whether through Transmission Service or Interconnection Service, are Network Upgrades.

Commission Conclusion

76. We agree that using the phrase “at or beyond the point at which the Interconnection Customer interconnects to the Transmission Provider's Transmission System” in the definition of Network Upgrades could cause confusion. Therefore, we are revising this part of the definition to be “at or beyond the point at which the Interconnection Facilities connect to the Transmission Provider's Transmission System.” We also note that the Transmission Provider's

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

The revised definition reads as follows: “Network Upgrades shall mean the additions, modifications, and upgrades to the Transmission Provider's Transmission System required at or beyond the point at which the Interconnection Facilities connect to the Transmission Provider's Transmission System to accommodate the interconnection of the Large Generating Facility to the Transmission Provider's Transmission System.”

77. NRECA-APPA has not provided any rationale for treating improvements to radial lines that serve Network Load as Network Upgrades in this rulemaking proceeding. Accordingly, we deny its request.

78. Point of Receipt—Point of receipt is used in LGIA Article 4.3 in the context of the Generator Balancing Service Agreement that requires the Interconnection Customer to identify the Generating Facility as the point of receipt for any delivery service. The LGIP and LGIA do not define point of receipt.

Rehearing Request

79. APS claims that LGIA Article 4.3 capitalizes the term “point of receipt,” implying that it is defined, when in fact it is not. APS seeks clarification that the OATT definition for this term is the intended definition.

Commission Conclusion

80. Since the term is used only once in the LGIA, in Article 4.3, and we are deleting that article (see discussion in section II.D.2 (Interconnection Pricing Policy), the issue is moot.

81. Reasonable Efforts—The LGIP and LGIA define Reasonable Efforts (with respect to an action required to be attempted or taken by a Party under the interconnection agreement) as efforts that are timely and consistent with Good Utility Practice and are otherwise substantially equivalent to those a Party would use to protect its own interests.

Rehearing Requests

82. NYTO and National Grid argue that the “substantially equivalent” standard does not recognize that the Transmission Provider's fiduciary responsibility is to its shareholders and customers, and that it cannot be expected to apply the same standard to another Party's interests. National Grid asks that the definition incorporate “due diligence” rather than “substantially equivalent efforts.”

Commission Conclusion

83. We affirm our decision in Order No. 2003 that “substantially equivalent” is the correct standard since it ensures comparable treatment for all.

It is a fundamental requirement of FPA Sections 205 and 206 that a public utility provide comparable service to non-Affiliates, and we do indeed expect it to provide this service.

Order No. 2003 at P 68.

84. Transmission Provider and Transmission Owner—The LGIP and LGIA define Transmission Provider to mean the public utility (or its designated agent) that owns, controls, or operates facilities used for the transmission of electricity in interstate commerce and provides Transmission Service under the OATT. The term includes the Transmission Owner when it is distinct from the Transmission Provider. The LGIP and LGIA define Transmission Owner to mean the entity that owns, leases, or otherwise possesses an interest in the portion of the Transmission System at the Point of Interconnection.

Rehearing Requests

85. EEI seeks clarification as to whether both the Transmission Provider and the Transmission Owner must make a compliance filing when the former is an RTO or ISO. It argues that there may be instances when the interests of the Transmission Owner and Transmission Provider diverge.

86. MSAT argues that the Commission's definitions of Transmission Owner and Transmission Provider will cause uncertainty as to which Party has the duty to fulfill the contractual obligations in the interconnection agreement. This could lead to disputes during the construction of Interconnection Facilities. MSAT asserts that in the context of an RTO or ISO, every use of the term “Transmission Provider” in the LGIP and LGIA requires a determination as to whether the provision applies to the RTO or ISO, the Transmission Owner, or to both. It also argues that even LGIP and LGIA provisions that use both terms are confusing. It is not clear how the provision is to be applied to each entity because the Commission has not clearly distinguished the rights and responsibilities of the Transmission Provider and Transmission Owner. MSAT urges the Commission to adopt an LGIP and LGIA tailored specifically for RTOs and ISOs or, at a minimum, to clearly distinguish the rights and responsibilities of the Transmission Provider and Transmission Owner in the context of an RTO or ISO. It argues for the former because the latter would require that the term “Transmission Owner” not be subsumed within the definition of the term “Transmission Provider,” necessitating numerous revisions to the LGIP and LGIA.

Commission Conclusion

87. With respect to concerns raised about the rights and responsibilities of the Transmission Provider and Transmission Owner not being spelled out in the LGIA, the independent entity variation gives RTOs and ISOs broad discretion in the final design of their LGIP and LGIA, and we encourage each RTO or ISO to spell out such rights and responsibilities in its compliance filing.

88. We are addressing in section I.B (Compliance Issues and Variations From the

Pro Forma

LGIP and LGIA) the issue of whether both the Transmission Provider and the Transmission Owner must submit a compliance filing when the two entities are separate and their interests diverge.

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

89. Section 2.3—Base Case Data—LGIP section 2.3 provides that the Transmission Provider shall make available (1) base power flow, (2) short circuit and stability databases (including all underlying assumptions), and (3) a listing of contingency operations used in the Interconnection Studies upon request (subject to confidentiality provisions). Such databases and lists, referred to as Base Cases, include all generation projects and transmission projects, including merchant transmission projects that are proposed for the Transmission System for which a transmission expansion plan has been submitted and approved by the applicable authority.

Rehearing Requests

90. Cinergy, MSAT, National Grid, and NYTO state that Base Case information may include Critical Energy Infrastructure Information. Notwithstanding the LGIP and LGIA provisions for the handling of Confidential Information, they argue that the scope of the data to be provided to the Interconnection Customer is overbroad, exposes the Transmission Provider to an inordinate risk of liability, and is inconsistent with its responsibilities under various Commission rules, including Order Nos. 889 and 630. They argue that the requirement to disclose Base Case data

is inconsistent with LGIP section 13.1 and LGIA Article 22, both of which require that significant amounts of data concerning individual Interconnection Customers remain confidential and not be disclosed to other Interconnection Customers.

91. National Grid states that the data used in Interconnection Studies typically is made up of commercially sensitive information and that project developers have legitimate commercial reasons to avoid revealing specific operating characteristics of their equipment. The Commission itself has made clear recently that certain power flow data (the same data underlying short circuit calculations) routinely provided in Form 715 is Critical Energy Infrastructure Information and must be redacted from public versions of Form 715. National Grid argues that the confidentiality provisions in the LGIP and LGIA may not provide adequate protection for such sensitive data.

Commission Conclusion

92. As the Commission noted in Order No. 2003

and we emphasize here, the security of energy infrastructure information is essential. We expect all Transmission Providers, market participants, and Interconnection Customers to comply with the recommendations of the National Infrastructure Protection Center, as well as any best practice recommendations or requirements that may be issued by NERC or any other electric reliability authority. In particular, the Transmission Provider is expected to meet basic standards for system infrastructure and operational security, including physical, operational, and cyber-security practices. If the Transmission Provider considers it necessary to protect commercially sensitive information or the energy infrastructure, it may require that the Interconnection Customer sign a confidentiality agreement before the release of commercially sensitive or Critical Energy Infrastructure Information contained in the Base Case data. However, all Transmission Providers are put on notice that they are not to abuse this privilege in an effort to withhold information that lacks legitimate commercial sensitivity or Critical Energy Infrastructure Information status.

Order No. 2003 at P 84.

93. Section 3.1—Interconnection Requests—General—LGIP section 3.1 allows the Transmission Provider and the Interconnection Customer to identify an alternative Point of Interconnection at the Scoping Meeting. It further states that the Interconnection Customer will select the Interconnection Point(s) to be studied no later than the time of execution of the Interconnection Feasibility Study Agreement.

Rehearing Requests

94. AEP argues that the Transmission Provider, who has ultimate responsibility for its Transmission System, must have the final say as to the details and configuration of the interconnection (

e.g.,

location of the Point of Interconnection).

95. Old Dominion argues that the LGIP gives the Interconnection Customer too much discretion in terms of where and how to interconnect with the Transmission Provider's Transmission System. The Commission should require RTOs to conduct forward-looking Transmission System planning studies to formulate strong regional Transmission System expansion plans, which would influence the Interconnection Customer's decisions as to where and how to interconnect.

Commission Conclusion

96. We provide the following clarification. The Interconnection Customer will select alternative Points of Interconnection to be evaluated in the Interconnection Feasibility Study. Based upon the results of that study, the Interconnection Customer, in consultation with the Transmission Provider, shall select the Point of Interconnection. In the process of conducting the Interconnection System Impact Study and the Interconnection Facilities Study, the Transmission Provider will develop the engineering design and electrical configuration of the interconnection. Before completing the Interconnection Facilities Study, the Interconnection Customer may request changes in the engineering design details of the interconnection (per LGIP sections 8.3 and 8.4), but not the location of the Point of Interconnection. No change to the LGIP is needed to reflect this clarification.

97. Regarding Old Dominion's argument, we note that the Commission encourages RTOs to conduct forward-looking Transmission System planning studies to formulate strong regional Transmission System growth plans that will inform the Interconnection Customer's decision as to where and how to interconnect. However, we will not take away any options available to the Interconnection Customer under the LGIP to select the Interconnection Points to be studied in the Interconnection Feasibility Study.

98. Section 3.3.1—Initiating an Interconnection Request—LGIP section 3.3.1 provides that the date the Interconnection Request is received by the Transmission Provider may precede the Generating Facility's In-Service Date by up to ten years, or longer where the Parties agree, such agreement not to be unreasonably withheld.

Rehearing Request

99. NYTO states that the ten year provision is unreasonably long. It argues that most new generators can be built in three to four years. It proposes that section 3.3.1 be amended to impose a limit of five years with an additional extension of up to two years for project delays.

Commission Conclusion

100. We decline to adopt NYTO's proposal. We recognize that the use of a ten year limit is a matter of judgment and that no specific number can be objectively verified as the best. However, the ten year provision was originally developed by negotiation during the Advance Notice of Proposed Rulemaking (ANOPR) process by representatives of the Interconnection Customer and Transmission Provider communities. Order No. 2003 noted that proponents of large coal fired generators and wind powered generators have argued that this period should be longer than ten years, not shorter.

We continue to believe that the choice of ten years fairly balances the advantages for some plant types of a longer period and the advantages for the Transmission Provider's limiting the time for completing an interconnection. Finally, NYTO has not demonstrated objectively that five years is a more appropriate time period or that ten years creates a problem for the Transmission Provider.

Order No. 2003 at P 99.

101. Section 3.3.4—Scoping Meeting—LGIP section 3.3.4 requires the Transmission Provider and the Interconnection Customer to hold a Scoping Meeting within 30 Calendar Days from receipt of the Interconnection Request to discuss the proposed interconnection, including (1) general facility loadings, (2) general instability issues, (3) general short circuit issues, (4) general voltage issues, (5) general reliability issues and (6) alternate Points of Interconnection.

Rehearing Request

102. Entergy asks that the Commission clarify whether the Transmission Provider would violate the Commission's Standards of Conduct or Code of Conduct if it shares technical

information concerning its Transmission System with an Interconnection Customer which is an Affiliate.

Commission Conclusion

103. Both the Commission's Standards of Conduct and Code of Conduct prohibit the preferential sharing of information between the Transmission Provider and its Affiliate. The Standards of Conduct were enacted in 1996

and revised in 2003.

The Standards of Conduct require that if the Transmission Provider discloses transmission or market information to its wholesale merchant function or power marketing Affiliate, it must also disclose such information simultaneously to the public.

Open Access Same-Time Information System (Formerly Real-Time Information Network) and Standards of Conduct, Order No. 889, 61 FR 21737 (May 10, 1996), FERC Stats. & Regs., Regulations Preambles 1991-1996 ¶ 31,035 (Apr. 24, 1996); Order No. 889-A,

order on reh'g,

62 FR 12484 (Mar. 14, 1997), FERC Stats. & Regs., Regulations Preambles 1996-2000 ¶ 31,049 (Mar. 4, 1997); Order No. 889-B,

reh'g denied,

62 FR 64715 (Dec. 9, 1997), FERC Stats. & Regs., Regulations Preambles 1996-2000 ¶ 31,253 (Nov. 25, 1997).

Standards of Conduct for Transmission Providers, Order No. 2004, 68 FR 69134 (Dec. 11, 2003), FERC Stats. & Regs. Vol. III, Regulations Preambles ¶ 31,155 (Nov. 25, 2003),

reh'g pending.

See

18 CFR 37.4(3) and (4) 2003 and section 358.5 (not yet codified).

104. In contrast, the Code of Conduct is imposed on a case-by-case basis when the Commission grants market-based rate authorization. Generally, the Code of Conduct contains a provision that all market information shared between the public utility (

i.e.,

Transmission Provider) and the Affiliate is to be disclosed simultaneously to the public.

See

Northeast Utilities Service Company, 87 FERC ¶ 61,063 at 61,276 (1999).

105. In Order No. 2004, the Commission granted an exception to the information-sharing prohibitions of Section 358.5(b)(1) of the Commission's Regulations, which implements the Standards of Conduct. Section 358.5(b)(5) allows the Transmission Provider to share information with its Affiliate relating to its Transmission System without contemporaneously releasing that information to the public as long as the information relates solely to a specific request for Transmission Service.

Order No. 2004 defines Transmission Service to include Interconnection Service.

This addresses Entergy's concern about violating the Standards of Conduct when it holds a Scoping Meeting with an Affiliate.

Order No. 2004 at P 143.

18 CFR 358.3—Definitions.

106. With respect to Entergy's request for clarification concerning the Commission's Code of Conduct requirements, the Code of Conduct requires that all market information shared between the Transmission Provider and the Affiliate be disclosed simultaneously to the public. This includes any communication concerning the Transmission Provider's power or transmission business, present or future, positive or negative, concrete or potential.

107. To balance the need to treat affiliated and non-affiliated Interconnection Customers alike, adhere to the intent of the Code of Conduct and Standards of Conduct, and ensure that Critical Energy Infrastructure Information is not released to the public, we are adopting an approach here that is similar to the one taken in Order No. 2004. We will allow the Transmission Provider to share technical information related to its Transmission System with an Affiliate without having to simultaneously release the information to the public as long as the information relates solely to a valid request for Interconnection Service.

In addition, we will require the following additional safeguards: The Transmission Provider must (1) post an advance notice to the public on its OASIS of its intent to conduct a Scoping Meeting with its Affiliate, (2) transcribe the meeting in its entirety, and (3) retain the transcript for three years. When a request from a member of the public is made for the release of the transcript, the Transmission Provider shall release the transcript in its entirety to the requester if the Transmission Provider determines that it contains no Critical Energy Infrastructure Information or commercially sensitive information of the Affiliate that would competitively disadvantage the Affiliate. However, if the Transmission Provider believes that the transcript contains such information, the Transmission Provider must release a redacted copy of the transcript to the requester along with an explanation for the redactions (such as Critical Energy Infrastructure Information). If the requester believes that the Transmission Provider has withheld information inappropriately, it may file a complaint with the Commission, along with a notice to the Transmission Provider. Upon receipt of the notice, the Transmission Provider will file both unredacted and redacted copies of the transcript with the Commission, including a written justification to explain the redactions. The redacted copy will be available to the public; the unredacted copy will remain confidential unless and until the Commission decides otherwise. The Commission will decide the appropriateness of the redactions and, once a decision is made, direct the Transmission Provider to take any necessary action.

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

108. Section 3.5—Coordination with Affected Systems—LGIP section 3.5 requires the Transmission Provider to coordinate Interconnection Studies and planning meetings with Affected Systems.

Rehearing Requests

109. National Grid seeks clarification that the Transmission Provider does not have to proceed with an interconnection if an Affected System does not cooperate in performing the Interconnection Studies in a timely manner, or if the Transmission Provider believes that proceeding with the interconnection could lead to reliability or other problems. Similarly, NYTO asks that the Commission give the Transmission Provider extra time to complete Interconnection Studies when it is necessary to evaluate the proposed interconnection's effect on Affected Systems.

110. NYTO also asks that section 3.5 be amended to include the following sentence from P 121of Order No. 2003: “Neither the LGIP nor the LGIA is intended to expose the Transmission Provider to liability as a result of delays by the Affected System.” Similarly, PacifiCorp points out that the Transmission Provider may not be able to obtain sufficient cooperation from non-FERC jurisdictional entities to conduct Interconnection Studies in a timely manner. Since obtaining such cooperation may take time, the Transmission Provider should be held harmless for any resulting delays in the Interconnection Study process. PacifiCorp also asks that the Commission clarify that the Transmission Provider is required only to make a good faith effort to coordinate its Interconnection Studies with Affected Systems.

111. According to PacifiCorp, the Commission should specify that the Transmission Provider is not responsible for any Breach of confidentiality by an Affected System or its representatives and that the Transmission Provider's obligation should be limited to informing the Affected System of the Commission's confidentiality procedures.

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

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

Commission Conclusion

113. In response to reliability concerns, we reiterate that Interconnection Service is separate from the delivery component of Transmission Service and that the mere interconnection of the Generating Facility is unlikely to harm reliability on Affected Systems.

Also, the Transmission Provider must take the same steps to integrate the Interconnection Customer's Generating Facility into its Transmission System—including coordinating the interconnection with Affected Systems—that it would take for its own affiliated generation.

See

Tennessee Power Company, 90 FERC ¶ 61,238 at 61,761-62 and n.5,

order denying reh'g

, 91 FERC ¶ 61,271 (2000);

accord

, Arizona Public Service Company, 96 FERC ¶ 61,055 at 61,165 (2001).

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

See

Tampa Electric Co., 103 FERC ¶ 61,047 (2003).

115. In response to APS, we are revising section 3.5 to require that the results of any study of the effect of the interconnection on any Affected System be included in the Interconnection Study “if available.” The “if available” phrase is appropriate because it recognizes that studies of the Affected System may not be completed within the time specified in the LGIP. This language allows the interconnection process to proceed, even in the face of delays or non-response by the Affected System.

116. We deny NYTO's request that the text it quotes from Order No. 2003 be added to section 3.5. However, we clarify that the sentence refers to the possibility of liquidated damages being imposed on the Transmission Provider because of delays caused by third parties. It should not be interpreted as shielding the Transmission Provider from any non-liquidated damages liability that may result from the interconnection. This is in accord with the liquidated damages provisions of the LGIA.

117. Regarding the confidentiality concerns raised by PacifiCorp, we reiterate that the confidentiality provisions in LGIA Article 22 and LGIP Section 13 lay out the standards that the Transmission Provider must employ when sharing Confidential Information with third parties, including Affected Systems.

118. Section 4.1—Queue Position—General—LGIP section 4.1 states that Queue Position determines the order of performing the Interconnection Studies and hence will determine cost responsibility for the facilities necessary to accommodate the Interconnection Request.

Rehearing Request

119. APS seeks guidance on upgrade cost allocation among Interconnection Customers and whether Queue Position must always be the determining factor for cost allocation among clustered requests. If the Transmission Provider uses clustering for studying Interconnection Requests, it can study the joint effect of several generators interconnecting to the Transmission System. APS believes that such a study also will indicate the effect of each Generating Facility separately on the Transmission System. Therefore, the Transmission Provider will have many factors to consider for cost allocation among the generating facilities, including unit size and contribution to the faults on the existing transmission facilities.

Commission Conclusion

120. We agree with APS and clarify that these additional factors may be considered in the allocation of costs to multiple Interconnection Customers when studied in a cluster. We also reiterate that we strongly encourage the use of clustering. The principal benefit of studying Interconnection Requests in clusters is that it allows the Transmission Provider to better coordinate Interconnection Requests with its overall transmission planning process, and, as a result, achieve greater efficiency in both the design of needed Network Upgrades and in the use of its planning resources. Sometimes, one generating facility interconnecting alone would not require a substantial upgrade to the Transmission System, but when clustered with others, a costly upgrade may be required. We clarify that the Transmission Provider may allocate the cost of the common upgrades for clustered Interconnection Requests and that Queue Position has no bearing on cost allocation for clustered Interconnection Requests.

121. Section 4.3—Transferability of Queue Position—LGIP section 4.3 provides that the Interconnection Customer may transfer its Queue Position to another entity only if the latter acquires the specific Generating Facility identified in the Interconnection Request and there is no change in the proposed Point of Interconnection.

Rehearing Requests

122. NYTO and National Grid ask the Commission to amend Section 4.3 to allow the Transmission Provider to use mitigation measures to offset the credit risk that can occur when a Queue Position is transferred from one Interconnection Customer to another. They argue that the acquiring Interconnection Customer must meet the same letters of credit requirements as the original Interconnection Customer.

Commission Conclusion

123. NYTO and National Grid are not correct that a transfer in Queue Position will result in a greater credit risk for the Transmission Provider. There are no provisions in the LGIP which require the Interconnection Customer to provide the Transmission Provider with letters of credit or other financial guarantees. Construction of Network Upgrades, Interconnection Facilities, and Distribution Upgrades does not commence until the Parties sign the LGIA, which does require letters of credit or other financial guarantees. The LGIP requires the Transmission Provider to bill the Interconnection Customer monthly for the cost of the Interconnection Facilities Study, thus minimizing the risk that the Transmission Provider will be unable to recoup its costs from a non-creditworthy entity.

124. Section 4.4—Queue Position—Modifications—LGIP section 4.4.1 allows the Interconnection Customer to

make the following modifications to its Interconnection Request without losing its Queue Position, provided that it makes them before returning the executed Interconnection System Impact Study Agreement to the Transmission Provider: (1) A reduction of up to 60 percent in the megawatt output of the proposed project, (2) modification of the technical parameters associated with the Generating Facility technology or the step-up transformer impedance characteristics, and (3) modification of the interconnection configuration.

125. Section 4.4.2 allows the Interconnection Customer to make the following modifications to its Interconnection Request provided that it makes them before it returns the executed Interconnection Facility Study Agreement to the Transmission Provider: (1) An additional 15 percent decrease in the megawatt output of the Generating Facility as evaluated in the Interconnection System Impact Study, and (2) Generating Facility technical parameters associated with modifications to Generating Facility technology and transformer impedances. However, the incremental costs to the Transmission Provider associated with those modifications are the responsibility of the Interconnection Customer.

126. Section 4.4.3 provides that any change to the Point of Interconnection is a Material Modification. A Material Modification is a change that increases the cost of or delays the schedule of a lower queued Interconnection Customer.

127. Section 4.4.5 provides that extensions of less than three cumulative years in the Commercial Operation Date of the Generating Facility are not material and should be handled through construction sequencing.

Rehearing Requests

128. Entergy and Southern argue that the modifications permitted under sections 4.4.1 and 4.4.2 could cause significant additional costs and delays for other Interconnection Customers. These provisions give the Interconnection Customer the ability to hold hostage the remainder of the interconnection queue by continually making modifications. Southern asserts that when the modifications are studied for a particular project, the lower queued Interconnection Requests will have to be restudied to identify any effects that the modification may have on them.

129. AEP seeks clarification that any incremental costs associated with any “actual” change in plant size, not just those associated with the proposed changes, should also be directly assigned to the Interconnection Customer. For example, if the Interconnection Customer projects a 15 percent reduction in plant size, thus enabling it to maintain its position in the queue, but actually builds a much smaller plant, the Interconnection Customer should bear all of the costs associated with building Network Upgrades that turn out to be unnecessary as a result of the smaller-than-projected plant size.

130. Duke Energy seeks clarification that, notwithstanding the sentence in section 4.4.3 stating that a change in Point of Interconnection shall constitute a Material Modification, a change in the Point of Interconnection acceptable under sections 4.4.1, 6.1, 7.2 or any other provision of the LGIP that expressly allows for some minor change in the Point of Interconnection will not result in the loss of Queue Position.

131. NYTO and Southern argue that the Commission should classify an extension of the Commercial Operation Date of the Generating Facility for three years as a Material Modification. They state that the Commission did not take into account the difficulties that may be encountered in the planning process. They argue that a generator should not be able to maintain its place in the interconnection process to the detriment of other generators for such an extended period of time.

Commission Conclusion

132. We deny Entergy's and Southern's requests because many of the modifications permitted under section 4.4.1 take place before the Interconnection Customer submits an Interconnection System Impact Study Agreement, which is early in the study process, and many Interconnection Customers drop out after the Interconnection Feasibility Study. The need for restudies for lower queued generators would not be determined until the Interconnection System Impact Study is completed. Also, the cost of restudies should discourage the Interconnection Customer from making frivolous or excessive requests for modifications. Moreover, modifications permitted under section 4.4.2 are much smaller than those under section 4.4.1.

133. Regarding AEP's concerns, if the Interconnection Customer states that it will construct a significantly smaller facility than initially proposed, the size change is a Material Modification. The Interconnection Facilities Study would then have to be redone before construction and all cost effects, including the cost incurred for facilities that have become unnecessary due to the size reduction, will be the responsibility of the Interconnection Customer.

134. With regard to NYTO's and Southern's concern about section 4.4.5, we realize that permitting extensions for a cumulative period of three years places a burden on the Transmission Provider's expansion planning process, but as the Commission stated in Order No. 2003, these extensions in most cases are well within the scope of other unforeseen changes that affect the planning process.

A planning process inevitably is affected by a variety of changes in circumstances. NYTO and Southern have not provided any new arguments to convince us to change our position.

Order No. 2003 at P 177.

135. We are adopting Duke Energy's proposal and are amending section 4.4.3 to clarify that, notwithstanding the wording elsewhere in that sentence, a change in the Point of Interconnection acceptable under sections 4.4.1, 6.1, 7.2 or any other provision of the LGIP that expressly allows for a change in the Point of Interconnection does not result in the loss of Queue Position.

136. Section 5.1.1—Queue Position for Pending Requests—LGIP section 5.1.1.2 gives an Interconnection Customer with an executed Interconnection Study agreement as of the effective date of Order No. 2003 the option of either completing further studies under the Transmission Provider's old procedures or switching to the LGIP for these studies. Section 5.1.1.3 provides that if an interconnection agreement has been submitted to the Commission for approval before the effective date of Order No. 2003, it is grandfathered.

Rehearing Requests

137. Old Dominion requests clarification that existing, executed interconnection agreements must be honored (grandfathered).

138. PacifiCorp states that the transition to the LGIP process should take place only after all Interconnection Studies are completed. If the Interconnection Customer elects to complete any Interconnection Studies under grandfathered procedures, then all the remaining studies should also be completed using grandfathered procedures.

Commission Conclusion

139. We agree with Old Dominion's interpretation. LGIP section 5.1.1.3 states that an interconnection agreement is grandfathered if it has been submitted

to the Commission before the effective date of the LGIP.

140. We are denying PacifiCorp's request for rehearing. The only Interconnection Study completed during the transition period using the old interconnection procedures may be the Interconnection Feasibility Study. Forcing the Interconnection Customer to complete the remaining Interconnection System Impact Study and Interconnection Facilities Study under the old interconnection procedures could subject it to undue discrimination and discourage expeditious development of new generation (

e.g.

, the Interconnection Customer under the old procedures would not have the more favorable opportunities that are provided by the

pro forma

LGIP).

141. Section 5.2—Prior Interconnection Requests—New Transmission Provider—LGIP section 5.2 governs what happens if a Transmission Provider transfers control of its Transmission System to a successor Transmission Provider while an Interconnection Request is pending. The new Transmission Provider and the old Transmission Provider must coordinate their efforts to ensure completion of the interconnection in a timely manner. If the change of control takes place after the old Transmission Provider has tendered an unexecuted LGIA to the Interconnection Customer, the Interconnection Customer may complete negotiations with either the original Transmission Provider or the successor Transmission Provider.

Rehearing Request

142. NYTO argues that once control transfers, the successor Transmission Provider is the only Party with whom the Interconnection Customer should negotiate an interconnection agreement.

Commission Conclusion

143. We agree with NYTO and will grant rehearing on this issue. Allowing the Interconnection Customer to finalize negotiations with an entity that no longer has a stake in the negotiations would be unfair to the successor Transmission Provider. Once control passes to the successor Transmission Provider, any unexecuted interconnection agreements must be negotiated with it. Therefore, we modify the last sentence of section 5.2 to read: “If the Transmission Provider has tendered a draft LGIA to the Interconnection Customer, but the Interconnection Customer has not either executed the LGIA or requested the filing of an unexecuted LGIA with the Commission, any further negotiations must be conducted with the successor Transmission Provider.”

144. We shall also require the two Transmission Providers to work together to ensure a smooth transition for pending Interconnection Requests by modifying the third sentence of section 5.2 to read: “The original Transmission Provider shall coordinate with the successor Transmission Provider to complete any Interconnection Request (including Interconnection Studies), as appropriate, that the original Transmission Provider has begun but has not completed.”

145. Section 6—Interconnection Feasibility Study, Section 7—Interconnection System Impact Study, Section 8—Interconnection Facilities Study, and Section 10—Optional Interconnection Study—LGIP sections 6, 7, and 8 describe (1) the analyses to be conducted for each of the Interconnection Feasibility, Interconnection System Impact, and Interconnection Facilities Studies, (2) the Interconnection Customer's responsibility for the actual cost of each study and of any restudies that may be required, and (3) the right of the Interconnection Customer to maintain its Queue Position and substitute a Point of Interconnection, identified by either the Transmission Provider or the Interconnection Customer, if the Interconnection Studies yield a result that the Interconnection Customer and Transmission Provider did not contemplate during the Scoping Meeting. Section 10 provides that the Interconnection Customer may ask the Transmission Provider to perform a reasonable number of Optional Interconnection Studies. An Optional Interconnection Study is a sensitivity analysis based on assumptions provided by the Interconnection Customer. The purpose of the Optional Interconnection Study is to identify the Interconnection Facilities, Network Upgrades, and the costs that may be required to provide Transmission Service or Interconnection Service. Finally, although the Interconnection Customer pays the Transmission Provider various deposits prior to the latter performing the Interconnection Feasibility, System Impact, and Facilities Studies, the Interconnection Customer is responsible only for the actual cost of performing the studies.

See

Article 6.0 of the

pro forma

Interconnection Feasibility Study Agreement, Article 6.0 of the Interconnection System Impact Study Agreement, and Article 5.0 of the Interconnection Facilities Study Agreement, all attached to the LGIP.

Rehearing Requests—General

146. National Grid, NYTO, PacifiCorp, and Southern assert that the timelines prescribed in Order No. 2003 to conduct the Interconnection Studies will lead to poor quality studies and will require more personnel to perform the studies in a timely manner. PacifiCorp recommends that the Commission let the Transmission Provider adopt a longer timeline when the number of Interconnection Requests received exceeds what it can process using normal staffing levels. NYTO and Southern assert that the requirement for restudies is unrealistic because any restudy can either invalidate other Interconnection Studies or prompt lower queued Interconnection Customers to seek restudies of their projects.

147. PacifiCorp notes that the capitalized and defined term “Generating Facilities” rather than the generic term “generating facilities” is used in LGIP sections 6.2 and 7.3. It asserts that the term as used in the Interconnection Feasibility Study and Interconnection System Impact Study refers broadly to all the generating facilities with higher Queue Positions and not the narrowly defined “Interconnection Customer's Generating Facility.” The term “generating facilities” is more appropriate as applied in LGIP sections 6.2 and 7.3.

148. PacifiCorp seeks clarification as to whether the cost estimate provided in the Interconnection Study report includes the cost of Network Upgrades on Affected Systems.

149. Central Maine claims that to perform the Interconnection Feasibility Study and the Interconnection System Impact Study adequately, the Transmission Provider will require the following from the Interconnection Customer: a one line relay diagram of the proposed Interconnection Facilities, a three line relay or AC elementary diagram of the proposed Interconnection Facilities, a DC elementary and control diagram for the proposed Interconnection Facilities, technical data on all circuit interrupting devices proposed for the Interconnection Facilities, technical data and winding connections for all instrument transformers proposed for the Interconnection Facilities, and proposed types and settings of all protective relays to be installed within the Interconnection Facilities.

Commission Conclusion—General

150. We reaffirm that the timelines for the completion of the Interconnection Studies are reasonable. The LGIP

recognizes that the Transmission Provider may not be able to complete each study within the specified time.

In such cases, the Interconnection Customer and the Transmission Provider will come to an acceptable accommodation. This gives the Transmission Provider flexibility when it needs it.

See

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

151. We concur with PacifiCorp regarding the use of the term “generating facilities” and are amending sections 6.2 and 7.3 to reflect the change.

152. With regard to PacifiCorp's request for clarification, we conclude that it is unreasonable to expect the Transmission Provider to develop a cost estimate for Network Upgrades on an Affected System because the information required to develop the estimate is not readily available to the Transmission Provider. Accordingly, we deny PacifiCorp's request.

153. Finally, we deny Central Maine's request to revise the LGIP to require the Interconnection Customer to provide, at the time of initial application for interconnection, relay and control diagrams, technical data on interrupting devices, data on instrument transformers, and types and settings of protective relays. This information relates mostly to System Protection Facilities, with requirements set forth in LGIA Articles 9.7.4 and 9.7.5. The specifications for System Protection Facilities are not established solely by the Interconnection Customer, but are determined during the Interconnection Studies, and would not necessarily be available at the time of application. For example, Article 9.7.4.2 states: “Each Party's protection facilities shall be designed and coordinated with other systems in accordance with Good Utility Practice.”

Rehearing Requests—Interconnection Feasibility Study

154. FPL Energy, PacifiCorp, and Southern ask that the Commission make the Interconnection Feasibility Study optional at the sole discretion of the Transmission Provider. FPL Energy asserts that in many cases the Transmission Provider already knows without additional study whether a particular project is feasible. Mandating this study in all circumstances increases costs both to the Transmission Provider and to the Interconnection Customer.

155. APS seeks clarification whether an Interconnection Feasibility Study is always required. It notes that while the LGIP states at several places that the study is mandatory, the

pro forma

Interconnection System Impact Study Agreement includes a footnote that indicates that the Interconnection Customer can choose to forego the study.

156. EEI seeks clarification whether it is possible to integrate the Interconnection Feasibility Study with the Interconnection System Impact Study because it believes that the two studies are similar.

157. PacifiCorp asserts that Order No. 2003 is misleading where it states that the studies will include both higher and lower queued Interconnection Requests.

It argues that inclusion of lower queued projects is neither contemplated by LGIP sections 6.2 and 7.3, nor is it logical, unless the study is a cluster study.

Order No. 2003 at P 223.

158. Ameren argues that the Interconnection Feasibility Study should include only those projects for which either an interconnection agreement or Engineering and Procurement Agreement has been signed. Otherwise, the studies will be meaningless and there will have to be a restudy every time a project drops out of the queue. Ameren claims that only 16 projects out of 130 it studied actually interconnected with its Transmission System.

Commission Conclusion—Interconnection Feasibility Study

159. Because skipping the Interconnection Feasibility Study may expedite the interconnection process and lower costs for all Parties, we will make the study optional, provided that the Interconnection Customer and the Transmission Provider agree. In response to APS, we are revising the footnote on the Interconnection System Impact Study Agreement to state: “This recital to be omitted if Transmission Provider does not require the Interconnection Feasibility Study.” This also addresses EEI's concern about integrating the Interconnection Feasibility and Interconnection System Impact Studies. As to EEI's comment about the differences between the two studies, we note that the Interconnection System Impact Study is much more comprehensive than the Interconnection Feasibility Study. For example, the former includes stability analysis, whereas the latter does not.

160. We clarify that lower queued generating projects are not to be included in the Interconnection Feasibility Study. However, if the Transmission Provider clusters the Interconnection Requests and an Interconnection System Impact Study is performed for the cluster, the study should include lower queued generating projects that are in the same cluster.

161. We deny Ameren's request that the Interconnection Feasibility Study include only those generating projects for which either an interconnection agreement or an Engineering and Procurement Agreement has been signed. It would not be fair to require the Interconnection Customer to sign an interconnection agreement before the Interconnection Studies identify its requirements for Interconnection Facilities and Network Upgrades. We recognize that including all the higher queued projects will require a restudy when a higher queued projects drops out, but it is essential to include each higher queued project in the study because the Interconnection Studies will be meaningless if higher queued projects are not included.

162. Ameren overstates the number of restudies required. Because many of the proposed projects drop out early in the process,

e.g.

, after the Interconnection Feasibility Study, the number of restudies would be substantially less than Ameren suggests. Furthermore, since projects may be proposed in different geographical areas, the Network Upgrades associated with some projects may not be required for others, thus reducing the number of projects to be restudied.

Rehearing Requests—Interconnection System Impact Study

163. NYTO asserts that the $50,000 and $100,000 deposits for the Interconnection System Impact Study and the Interconnection Facilities Study, respectively, are inadequate and that such low deposit amounts expose the Transmission Provider to the risk of non-payment by the Interconnection Customer. It claims that the Commission failed to take into account the fact that the studies may cost more than the deposit and that the Transmission Provider should be paid for assuming the risk of non-payment. It recommends that the Interconnection Customer pay an estimated monthly amount toward the cost of these studies and that the Transmission Provider hold such deposits until settlement of the final invoice. Finally, NYTO argues that non-payment for the Interconnection System Impact Study should lead to loss of Queue Position.

164. National Grid asks the Commission to modify LGIP section 7.2 to permit the Transmission Provider to require the Interconnection Customer to

deposit, on a monthly basis, the estimated cost of the Interconnection System Impact Study for the following month, with a true-up at the end of the study process. Failure to make monthly deposits would relieve the Transmission Provider of its obligation to continue with the study and the Interconnection Customer would lose its Queue Position.

Commission Conclusion—Interconnection System Impact Study

165. With respect to NYTO's argument that the Interconnection Customer should deposit an estimated monthly cost so that the Transmission Provider can avoid any risk of non-payment, we note that LGIP Section 8.1.1 already provides for monthly payments of invoiced amounts for the Interconnection Facilities Study. We are not persuaded that a similar deposit is also warranted for the Interconnection System Impact Study because the deposit of $50,000 will cover its costs in most instances, and because the Interconnection Customer pays the actual final study cost when it is known, getting a refund of a portion of its deposit or paying the extra cost of the actual study. Furthermore, if the Transmission Provider uses clustering to perform the Interconnection System Impact Study, the cost of the study will be much lower, because the Transmission Provider will perform essentially one study for all Interconnection Requests that fall within the queue cluster window.

166. With regard to National Grid's proposal that non-payment by the Interconnection Customer should relieve the Transmission Provider of its obligation to continue with the study, we note that LGIP section 13.3 already so provides.

167. Finally, in response to NYTO and National Grid, we note that LGIP section 3.6 already provides that failure to pay the study cost results in the loss of Queue Position.

Rehearing Requests—Interconnection Facilities Study

168. APS seeks clarification that the monthly invoice referred to in section 8.1.1 is for the estimated cost of the study, and that a true-up would be performed using the actual expenses to prevent any overpayment by the Interconnection Customer or underrecovery by the Transmission Provider.

169. National Grid urges the Commission to modify section 8.3 to prohibit any comments or questions from the Interconnection Customer when the study is in progress, since they would delay completion of the study and prejudice others in the interconnection queue.

170. National Grid asks the Commission to delete from LGIP section 8.3 the accuracy margins of +/-20 percent (for the 90 day Interconnection Facilities Study) and +/-10 percent (for the 180 day Interconnection Facilities Study) for cost estimates because of the multitude of factors that are outside the Transmission Provider's control. For example, the Transmission Provider does not have control over an equipment manufacturer. National Grid also argues that the Interconnection Customer cannot fairly assume that the costs will remain within the margin. Finally, National Grid argues that the accuracy margins serve no useful purpose and will cause disputes.

Commission Conclusion—Interconnection Facilities Study

171. We clarify that the monthly invoice addressed in section 8.1.1 is an estimate that would be trued-up against the final invoice.

172. We decline to adopt National Grid's proposal that the Interconnection Customer be prohibited from posing questions and comments while the study is in progress. We expect the Parties to act reasonably and cooperatively while the study is in progress.

173. Finally, we are not removing the accuracy margins for cost estimates. Margins are helpful because they give the Interconnection Customer some level of certainty with respect to its cost exposure. However, if factors outside the control of the Transmission Provider cause an estimate to change, and the Interconnection Customer disputes the change, the Parties may invoke Dispute Resolution.

Rehearing Requests—Optional Interconnection Study

174. Entergy and Southern assert that multiple Optional Interconnection Studies will delay the interconnection process by tying up the Transmission Provider's resources. Southern argues that the Interconnection Customer can get Optional Interconnection Studies performed by its own contractor. At a minimum, the Transmission Provider should be allowed to charge market rates to price the studies so as to discourage the Interconnection Customer from using the Transmission Provider as a low-cost consultant.

Commission Conclusion—Optional Interconnection Study

175. We will not limit the number of Optional Interconnection Studies because they may provide information useful to the Interconnection Customer. If performing Optional Interconnection Studies places too great a burden on the Transmission Provider, Order No. 2003 permits the use of a contractor at the Interconnection Customer's expense.

Order No. 2003 at P 225.

176. Section 11.1—Tender—LGIP section 11.1 provides that when the Transmission Provider issues the draft Interconnection Facilities Study report, it shall tender to the Interconnection Customer a draft interconnection agreement and draft appendices completed to the extent practicable. Within 30 Calendar Days after the issuance of the draft Interconnection Facilities Study report, the Transmission Provider shall tender the completed draft appendices.

Rehearing Requests

177. Several petitioners argue that these deadlines are too onerous. MSAT, National Grid, and NYTO argue that LGIP section 8.3 (Interconnection Facilities Study Procedures) permits the Interconnection Customer to submit comments on the draft Interconnection Facilities Study report up to 30 days after receiving it and contemplates that additional studies and time may be required before a final Interconnection Facilities Study is issued. They argue that this results in the deadline for comments on the draft Facilities Study being the same day that the completed draft appendices are to be tendered. NYTO and National Grid request that the 30 day deadline be amended to reflect the possible delays associated with additional work prompted by comments from the Interconnection Customer. MSAT recommends that the Commission (1) retain the existing 30 day period for the Interconnection Customer to comment on the draft Interconnection Facilities Study report, (2) provide the Transmission Provider with another 30 day period after comments are submitted to tender completed draft appendices, and (3) give the Interconnection Customer an additional 30 days in which to execute and return the appendices.

Commission Conclusion

178. We agree that the comments on the draft Interconnection Facilities Study report should not be due on the same day that completed draft appendices are tendered. We, therefore, retain the existing 30 day period for the Interconnection Customer to comment on the draft Interconnection Facilities Study report and grant an additional 30 days after comments are submitted to

tender the completed draft appendices. We will also give the Interconnection Customer an additional 30 days to execute and return the completed draft appendices.

179. Section 12.2.3—Advancing Construction of Network Upgrades that are Part of an Expansion Plan of the Transmission Provider—LGIP section 12.2.3 permits the Interconnection Customer to ask the Transmission Provider to advance construction of Network Upgrades supporting other Interconnection Customers that were assumed to be completed in time to support the Interconnection Customer's Generating Facility's In-Service Date. The Interconnection Customer must pay for reasonable expediting costs, but is entitled to transmission credits for any such payments. The issues raised concerning LGIP section 12.2.3 are discussed in section II.D.2 (Interconnection Pricing Policy).

180. Section 13.1—Confidentiality—The issues raised concerning LGIP section 13.1 are discussed under LGIA Article 22 (Confidentiality), below.

181. Appendix 1—Interconnection Request—LGIP Appendix 1 is the application form for making an Interconnection Request by the Interconnection Customer. Attachment A to the Interconnection Request provides technical information pertaining to the Generating Facility and generator step-up transformer.

Rehearing Requests

182. AEP states that page 4 of Appendix 1 of the Interconnection Request specifies that the Interconnection Customer must submit a completed General Electric Company Power Systems Load Flow data sheet with the Interconnection Request. It asks whether other formats are acceptable, since some Transmission Providers may not use the specified format.

183. Central Maine and NYTO state that the Interconnection Request requires information about two-winding generator step-up transformers. They note that a generator step-up transformer may consist of more than two windings and request that the form be revised accordingly.

184. PacifiCorp proposes various revisions to the Interconnection Request to help ensure that the Interconnection Customer does not mistakenly use this form for a generator that is not larger than 20 MW.

185. PacifiCorp states that Item 3 of the Interconnection Request appears to offer the Interconnection Customer the opportunity to select either Energy Resource Interconnection Service or Network Resource Interconnection Service, or both. It argues that offering the Interconnection Customer the opportunity to select both services is a mistake.

Commission Conclusion

186. We agree with AEP and are revising the Interconnection Request to state that the information may be submitted in other compatible formats, such as IEEE and PTI Power Flow formats.

187. We also agree with Central Maine and NYTO that a generator step-up transformer may consist of more than two windings and that information pertaining to all windings should be provided. We are revising the Interconnection Request to reflect this.

188. We are adopting the change proposed by PacifiCorp to clarify that the Interconnection Request is for a Large Generating Facility only.

189. Finally, we are revising Item 3 to state more clearly that the Interconnection Customer must request either Energy Resource Interconnection Service or Network Resource Interconnection Service, but not both. We are also revising Item 4 to make clear that the Interconnection Customer has an additional option. Specifically, if the Interconnection Customer requests Network Resource Interconnection Service, it may request that the Generating Facility also be studied for Energy Resource Interconnection Service.

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

190. Article 2.2—Term of Agreement—LGIA Article 2.2 provides that the interconnection agreement will be in effect for ten years, or longer by request, and will be automatically renewed for each successive one year period thereafter, until either Party terminates it.

Rehearing Request

191. NYTO asserts that this provision does not recognize the potential for substantial changes in the regulatory and business environments over such an indefinite period. These provisions unreasonably require the Transmission Owner to have an unlimited obligation to provide Interconnection Service for a term that could be terminated by the Interconnection Customer upon 90 Calendar Days notice, or extended

ad infinitum.

Article 2.2 should provide that the interconnection agreement is limited to ten years, or longer only if the Parties mutually agree to such an extended term.

Commission Conclusion

192. Order No. 2003 addresses this issue. NYTO raises no new arguments on rehearing and we reaffirm the decision for the same reasons.

Order No. 2003 at PP 302-304.

193. Article 2.3.1—Written Notice—LGIA Article 2.3.1 provides that the Interconnection Customer may terminate the interconnection agreement after giving the Transmission Provider 90 Calendar Days advance written notice.

Rehearing Requests

194. Cinergy objects to the fact that the Transmission Provider has no way to terminate unless the Interconnection Customer Defaults. Allowing the Interconnection Customer to terminate on only 90 days notice allows the interconnection agreement to continue in perpetuity, even following permanent closure of the Generating Facility, unless the Transmission Provider can create some sort of Default by the Interconnection Customer. This leaves the Transmission Provider with unnecessary reporting and other requirements. To provide closure to the interconnection agreement, the Transmission Provider should be permitted to file a notice of termination with the Commission if the Generating Facility permanently ceases Commercial Operation.

195. APS states that Article 2.3.1 does not offer comparable treatment to the Transmission Provider and the Interconnection Customer. It contends that the Commission provided no justification for the inequitable treatment except to vaguely assert that such treatment is necessary to limit the Transmission Provider's market power.

196. APS further states that while the Commission justified the ten year term for the interconnection agreement as being necessary to make the agreement consistent with Internal Revenue Service (IRS) policy, Article 2.3.1 allows the Interconnection Customer to terminate the interconnection agreement after giving the Transmission Provider 90 Calendar Days advance written notice. It notes that the IRS safe harbor provisions (IRS Notices 88-129 and 2001-82) require that the interconnection agreement term be no less than ten years. The 90 day termination clause may violate the long-term agreement requirements set forth in the IRS Notices and is inconsistent with the term of agreement justification for Article 2.2, which refers to the IRS policy. Thus, the provision makes the IRS safe harbor ineffective protection.

Commission Conclusion

197. We agree with Cinergy and APS that the Interconnection Customer and the Transmission Provider should have comparable treatment for terminating the interconnection agreement after the Generating Facility permanently ceases operation. We find that allowing the Transmission Provider to terminate the interconnection agreement upon permanent closure of the Generating Facility is reasonable because it prevents the interconnection agreement from continuing in perpetuity. We are revising Article 2.3.1 accordingly.

198. We disagree with APS that the 90 day termination clause may violate the long-term agreement requirement of the IRS Notices. This issue is addressed in Order No. 2003,

and since no new arguments are raised on rehearing, we will not change our decision.

Order No. 2003 at P 426.

199. Article 2.3.2—Default—LGIA Article 2.3.2 provides that either Party may terminate the interconnection agreement under LGIA Article 17.

Rehearing Requests

200. APS seeks clarification that no notice of termination needs to be filed when the interconnection agreement has not been filed with the Commission because it was treated as a conforming agreement.

Commission Conclusion

201. Under Order No. 2001,

if a conforming LGIA is executed by the Parties, it need not be filed with the Commission if the public utility has a standard form of agreement on file and submits an Electronic Quarterly Report. Order No. 2001 also eliminated the requirement that parties to a conforming agreement that expires by its own terms file a notice of cancellation or a cancelled tariff sheet. In such cases, the public utility may simply remove the agreement from its Electric Quarterly Report in the quarter following the expiration of the LGIA. However any other modification to a conforming agreement (including terminations caused by something other than expiration of the agreement) must be submitted to the Commission unless the Interconnection Customer agrees to the modification.

Revised Public Utility Filing Requirements, Order No. 2001, 67 FR 31044 (Jul. 8, 2002), FERC Stats. & Regs. ¶ 31,127 (2002).

Id.

at P 249 (“All proposals to change the terms of an agreement without the consent of the customer must be filed with the Commission.”).

202. Article 2.4—Termination Costs—LGIA Article 2.4 requires that a Party terminating the interconnection agreement pay for all costs incurred by the other Party (including costs of canceling orders or contracts for Interconnection Facilities and equipment).

Rehearing Requests

203. Central Maine and NYTO seek clarification that, if the Transmission Owner or Transmission Provider terminates an interconnection agreement because the Interconnection Customer is in Default, all costs associated with such termination are the responsibility of the Interconnection Customer. They state that while Order No. 2003 specifies the Interconnection Customer's responsibility for termination costs when it terminates the interconnection agreement, the cost responsibility for situations in which a Transmission Owner or Transmission Provider terminates the agreement due to the Interconnection Customer's Default is not clearly specified.

204. AEP contends that while Article 2.4.1 allows the Interconnection Customer, in the case of termination, to assume payment obligations under the Transmission Provider's contracts for materials and equipment, it does not take into account the possible commercial interests of the vendor. For example, AEP states that the vendor may have pricing policies applicable to the Transmission Provider for which the Interconnection Customer is not eligible. Similarly, the terms and conditions of the vendor's contract may not permit reassignment. AEP requests that Article 2.4.1 be revised to require such rights of assumption to be subject to mutual agreement between the Parties.

Commission Conclusion

205. With respect to Central Maine's and NYTO's request for clarification, we note that LGIA Article 17.1.2 gives the non-defaulting Party the right to terminate the interconnection agreement and recover all amounts due if the Default cannot be cured. We agree that if the Transmission Owner or the Transmission Provider terminates the interconnection agreement due to the Interconnection Customer defaulting, the Interconnection Customer is responsible for any outstanding costs as if the Interconnection Customer were the terminating Party under LGIA Article 2.4. To do otherwise rewards the Interconnection Customer for choosing Default over termination. We are amending Article 17.1.2 to make this clear.

206. We are not adopting AEP's proposal that we require that the rights of assumption be subject to mutual agreement by the Parties. If, as AEP argues, the vendor contract restricts the Transmission Provider from passing on some pricing discounts it receives under the interconnection agreement or prohibits reassignment, the Transmission Provider can take ownership of the materials and equipment and deliver them to the Interconnection Customer. Alternatively, the Transmission Provider can negotiate with the vendor to eliminate the restrictive provisions. If negotiation reaches an impasse, the Transmission Provider may find a replacement.

207. Article 2.5—Disconnection—LGIA Article 2.5 provides that all costs of disconnecting the Generating Facility from the Transmission System will be borne by the terminating Party, unless the termination is the result of the non-terminating Party's Default.

Rehearing Request

208. Central Maine seeks clarification that disconnection costs include the cost of site restoration.

Commission Conclusion

209. Because Central Maine does not offer any rationale for this change, we will deny their request for rehearing. We are not convinced that site restoration should be included in disconnection costs.

210. Article 3—Regulatory Filings—LGIA Article 3 requires that the Transmission Provider file the interconnection agreement with the appropriate Governmental Authorities.

Rehearing Requests

211. NYTO and Central Maine seek confirmation that Article 3.1 is subject to the same confidentiality provisions set forth in more detail in Article 22.

212. Central Maine requests that the Commission specify that the Transmission Owner, not the Transmission Provider, is required to make the filing. Central Maine cites to

Atlantic City Elec. Co., et al.

FERC

, 295 F.3d 1 (DC. Cir. 2002) (

Atlantic City

) as support for its position that the Commission cannot prevent the Transmission Owner from making a filing under section 205 of the FPA.

Commission Conclusion

213. We grant rehearing of Article 3.1 in response to NYTO's and Central Maine's concerns over confidentiality. Our intent is for the confidentiality provisions of Article 22 to govern. The discussion of confidentiality in Article 3.1 is abbreviated and only confuses the issue. Therefore, we are removing the discussion of confidentiality from Article 3.1.

214. Central Maine's concern about FPA section 205 filing rights is based on a misunderstanding of Order No. 2003. We have defined the term Transmission Provider to include the Transmission Owner when the Transmission Provider is separate from the Transmission Owner. Therefore, when Article 3.1 states that the Transmission Provider may make filings with the Commission, it applies to the Transmission Owner as well. Therefore, Order No. 2003 does not restrict the rights of either the Transmission Owner or the Transmission Provider to file with the Commission. When the Transmission Provider and the Transmission Owner are different entities, they will work together and enter into a contractual relationship governing the rights and responsibilities of each entity, including which entity is responsible for filing with the appropriate Governmental Authority.

215. Article 4.3—Generator Balancing Service Arrangements—We address requests for rehearing on Article 4.3 in section II.D.2 (Interconnection Pricing Policy).

216. Article 5.1.3—Option to Build—LGIA Article 5.1.3 provides that the Interconnection Customer may assume responsibility for the construction of the Transmission Provider's Interconnection Facilities and Stand Alone Network Upgrades if the Transmission Provider notifies the Interconnection Customer that it cannot meet the construction completion dates.

Rehearing Requests

217. SoCal Edison argues that the Interconnection Customer should bear the cost of construction oversight if the latter chooses to build. It asserts that costs associated with overseeing construction can be substantial. SoCal Edison cites construction oversight costs of $243,000 in one case and $303,000 in another. In both cases, the SoCal Edison states that it provided oversight throughout the design, procurement, and construction process to ensure that the facilities constructed complied with its standards and specifications. SoCal Edison further claims that both projects required several iterations of design review because it uncovered non-compliance with its standards and specifications.

Commission Conclusion

218. We will not require that the Transmission Provider be reimbursed for construction oversight costs. If the Transmission Provider is concerned about non-recovery of oversight costs, it can itself construct the Transmission Provider's Interconnection Facilities and the Stand Alone Network Upgrades under three of the four options outlined in Article 5.1. The Interconnection Customer may exercise its right under the “option to build” only as a last resort if the Transmission Provider is unable to meet the milestones established by the Interconnection Customer.

219. We expect the Interconnection Customer to comply with the Transmission Provider's standards and specifications for the construction of facilities. The Transmission Provider may engage in oversight activities to satisfy itself that the Interconnection Customer is, in fact, abiding by such standards and specifications. The expenses associated with such activities are part of the cost of doing business, and the Transmission Provider can avoid the expense by meeting the milestones itself.

220. Article 5.2—General Conditions Applicable to Option to Build—LGIA Article 5.2 provides that if the Interconnection Customer elects to construct the facilities under the option to build, it shall transfer control of these facilities to the Transmission Provider. However, it may continue to own the facilities.

Rehearing Requests

221. Several Transmission Owners

oppose allowing the Interconnection Customer to own Interconnection Facilities and Stand Alone Network Upgrades. Georgia Transmission states that to protect reliability, the Transmission Provider must own these facilities. Ownership gives the right and the responsibility to upgrade and maintain such facilities, and ownership by the Interconnection Customer (which is not subject to any reliability rules and is driven purely by profit motives) could cause reliability problems on the Transmission System.

E.g.,

Ameren, Georgia Transmission, MSAT, National Grid, NYTO, and SoCal Edison.

222. MSAT argues that the Interconnection Customer should not retain ownership of these facilities because it might refuse to make alterations to such facilities to accommodate other Interconnection Requests, forcing the Transmission Provider to construct redundant or less efficient facilities, and owning such facilities could make the Interconnection Customer a utility under state law.

223. National Grid seeks clarification that this provision does not imply that the Interconnection Customer has a right to own Interconnection Facilities and Network Upgrades that are constructed by the Transmission Provider.

224. NYTO argues that the Commission should reverse itself on this issue because the ownership of transmission facilities is a matter of state, not federal law. It asserts that Transmission Owners have eminent domain authority under state law to condemn property to expand their systems and that they hold state certificates of public convenience and necessity which oblige them to maintain their facilities so that they operate in a safe and reliable manner. NYTO also argues that the August 2003 blackout underscores the importance of preserving the Transmission Owners' right to own the Transmission Provider's Interconnection Facilities and Stand Alone Network Upgrades.

225. NYTO also asserts that the Commission did not explain its departure from legal precedent and that the case relied upon

does not support the Commission's finding. NYTO notes that in

Arizona,

the company initially voluntarily allowed the Interconnection Customer to own the facilities, only later changing its position, and that the Commission simply held the company to its original position.

Arizona Public Service Company, 102 FERC ¶ 61,303 (2003) (

Arizona

226. Finally, NYTO argues that this policy will frustrate the ability of Transmission Owners to design and maintain integrated Transmission Systems and cannot be reconciled with the Transmission Owners' right to withdraw from an ISO under certain circumstances, as held in

Atlantic City.

227. SoCal Edison argues that allowing the Interconnection Customer to own facilities that are on the Transmission Provider's private property is a “taking” in violation of the Fifth Amendment of the Constitution. This policy will decrease the reliability and safety of the Transmission System and will create confusion about liabilities and responsibilities of the Parties.

228. TDU Systems argues that the Commission erred in requiring the Interconnection Customer to transfer control of the Transmission Provider's Interconnection Facilities and Stand Alone Network Upgrades to a non-independent Transmission Provider. An Interconnection Customer with experience in operating similar transmission facilities should be able to operate what it builds and owns, particularly when such facilities are connected to its Transmission System, unless there is a showing of harm to reliability. Moreover, the requirement to

transfer operational control of the facilities to the Transmission Provider will unduly tilt the Parties' bargaining positions in favor of the Transmission Provider.

229. SoCal Edison states that Article 5.11 correctly requires the Transmission Provider to provide to the Interconnection Customer “as-built” drawings, relay diagrams, and other information related to the Transmission Provider's Interconnection Facilities. It asks that the Commission include a parallel provision in Article 5.2 requiring the Interconnection Customer to provide similar information to the Transmission Provider when the Interconnection Customer chooses to build.

Commission Conclusion

230. We agree with NYTO that requiring the Transmission Provider to cede ownership of Stand-Alone Network Upgrades and the Transmission Provider's Interconnection Facilities to the Interconnection Customer is inconsistent with existing Commission precedent. Accordingly, we grant partial rehearing on this issue. However, consistent with

Arizona,

the Parties may agree that the Interconnection Customer may own these facilities.

Id.

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

See, e.g., Arizona

at P 12.

232. Concerns over who builds the Transmission Provider's Interconnection Facilities and Stand Alone Network Upgrades are misplaced. Order No. 2003 provides that the Transmission Provider sets the specifications governing construction (Article 5.2.1), approves the Interconnection Provider's construction plans (Article 5.2.3), has an unlimited right of inspection (Article 5.2.5), and has the right to require the Interconnection Customer to remedy any deficiencies (Article 5.2.6). These safeguards are sufficient to guarantee the reliability of these facilities. Also, the Parties must agree about which facilities are Stand Alone Network Upgrades and identify them in Appendix A to the interconnection agreement before the Interconnection Customer begins construction.

233. We clarify that the Interconnection Customer's

ownership or operation of any type of Network Upgrade typically makes it a public utility,

subject to all the requirements of the FPA

including the obligation to expand the facilities if necessary to provide service to other customers and the obligation to provide Interconnection Service to others.

Providing that the Interconnection Customer is not excluded by virtue of section 201(f) of the FPA (

e.g.

, municipalities and power marketing administrations).

But see

section 201(f) of the FPA.

See

section 201(e) of the FPA (“The term ‘public utility' * * * means any person who owns or operates facilities subject to the jurisdiction of the Commission. * * *”).

See

section 15.4 of the OATT.

234. The

Atlantic City

case, which NYTO cites, held that a Transmission Owner in an RTO or ISO may file under section 205 of the FPA. NYTO does not explain how this case answers the question of who owns Stand Alone Network Upgrades or the Transmission Provider's Interconnection Facilities. Order No. 2003 does not limit the rights of a Transmission Provider or Transmission Owner to make a section 205 filing. However, NYTO's concern is resolved by the Commission's decision not to require that the Interconnection Customer be allowed to own facilities. The Transmission Provider is able to negotiate with the Interconnection Customer to protect its interests and its Transmission System.

235. MSAT's concern about the Interconnection Customer that owns transmission facilities refusing to make needed changes to the facilities is moot since we do not now require the Transmission Owner to grant ownership of such facilities to the Interconnection Customer.

236. We disagree with TDU Systems' concern that a Transmission Provider having operational control over the facilities unduly tilts the bargaining power in favor of the Transmission Provider. The Transmission Provider has the right to build, own, and control the facilities itself if it chooses to. The Interconnection Customer has the “option to build” only if the Transmission Provider declines to meet the construction milestones established by the Interconnection Customer. In response to TDU Systems' request that the Interconnection Customer be allowed to operate and maintain any facilities it may own, such a regime would fragment the Transmission System, thereby undermining reliability.

237. Finally, in response to SoCal Edison's proposal, we are amending Article 5.2 to require the Interconnection Customer to provide “as-built” drawings and other information to the Transmission Provider when the Interconnection Customer builds the facilities itself. Since we are granting partial rehearing on this matter, the Fifth Amendment takings argument advanced by several petitioners is moot.

238. Article 5.3—Liquidated Damages—Order No. 2003 provides for liquidated damages in situations where the Transmission Provider agrees to certain milestones for completion of various stages of the interconnection and then fails to meet them.

239. Liquidated damages come into play only if the Interconnection Customer selects LGIA Article 5.1.2 (Alternate Option) instead of Article 5.1.1 (Standard Option). Under the Alternate Option, the Interconnection Customer proposes enforceable milestones that the Transmission Provider is free to accept or reject. If the Transmission Provider accepts the proposed milestones, it faces liquidated damages if it fails to meet the milestones. If the Transmission Provider rejects the proposed milestones, the Interconnection Customer can then either build the facilities itself under Article 5.1.3 (Option to Build), or negotiate with the Transmission Provider to develop milestones agreeable to the Parties under Article 5.1.4 (Negotiated Option). Under the Negotiated Option, the Parties may include, but are not required to include, a liquidated damages provision. If the Parties, after negotiating in good faith, are unable to reach a negotiated agreement under Article 5.1.4, the Transmission Provider assumes responsibility for establishing the milestones and the interconnection proceeds under Article 5.1.1 (Standard Option).

240. Liquidated damages are limited to 0.5 percent per Calendar Day of the actual aggregate costs of the Interconnection Facilities and Network Upgrades for which the Transmission Provider remains responsible, and are not to exceed 20 percent of the Transmission Provider's actual costs. Damages are not recoverable under certain circumstances, such as when the Interconnection Customer is not ready to begin using the facilities by the date specified (unless the Interconnection Customer was not ready due to delay on the part of the Transmission Provider) or when the delay is due to a cause beyond the reasonable control of the Transmission Provider, such as a Force Majeure event.

1. How the Liquidated Damages Provision Should Work Rehearing Requests

241. NYTO explains that liquidated damages provisions are designed to establish damages for breach of contract where those damages would be difficult or impossible to quantify under

traditional contract law principles. NYTO asserts that there is no basis to assume either that an Interconnection Customer will suffer any damages when a Transmission Provider misses a milestone, or that if the Interconnection Customer does suffer damages, those damages will be difficult to calculate. NYTO suggests requiring the Interconnection Customer to demonstrate that it was materially and adversely affected by the delay in construction before allowing liquidated damages.

242. Central Maine argues that the LGIA does not clearly allow the Transmission Owner to choose not to be exposed to liquidated damages. Moreover, Central Maine states that it is unclear from Article 5.1 which Party chooses whether to proceed under the Standard Option or the Alternate Option. This could delay interconnecting new generation as the Parties argue.

243. Several petitioners

argue that requiring the Transmission Provider to relinquish construction responsibility to the Interconnection Customer in order to avoid the liquidated damages provision may cause further fragmentation of the transmission grid and may harm reliability. According to the petitioners, this approach will likely discourage cooperation between the Transmission Provider and the Interconnection Customer, slow the interconnection process, and increase costs.

E.g.,

Central Maine, National Grid, and NYTO.

244. MSAT argues that the provision favors the Interconnection Customer and suggests that the liquidated damages provision should be made bilateral so that the Transmission Provider has comparable protection from damages resulting from the actions or inactions of the Interconnection Customer.

245. NYTO asserts that assessing liquidated damages against the Transmission Provider for failing to meet the milestones established by the Interconnection Customer gives the Interconnection Customer an incentive to propose unreasonable milestones.

246. National Grid and NYTO argue that liquidated damages should begin accruing no earlier than 15 months from the date on which all conditions triggering such damages are present. This would delay the imposition of liquidated damages until 15 months from the date of equipment procurement and construction begins, and after all regulatory approvals and real property rights have been secured. Petitioners also argue that this 15 month period should be allowed to be increased to accommodate regional or local practices.

247. National Grid and NYTO argue that, while P 885 of Order No. 2003 states that liquidated damages are the exclusive remedy for the Transmission Provider's failure to meet its schedule, no provisions appear in either the LGIP or LGIA to implement this limitation.

248. Finally, National Grid requests that the Commission adopt more reasonable construction schedules based on actual industry practice and permit the Interconnection Customer and the Transmission Provider to negotiate more aggressive schedules, but with symmetrical performance incentives.

Commission Conclusion

249. Order No. 2003 does not require liquidated damages. Rather, it offers liquidated damages only when the Parties agree.

Order No. 2003 P 858.

250. While we expect that the liquidated damages provision will play an important role in the Parties' negotiations, they need not agree to liquidated damages, even if the Interconnection Customer chooses to proceed under Article 5.1.2 (Alternate Option). The Transmission Provider must either agree to the liquidated damages or allow the Interconnection Customer to build the Transmission Provider's Interconnection Facilities and Stand-Alone Network Upgrades.

251. We agree with NYTO and National Grid and are including in the LGIA a provision explaining that, in keeping with P 885 of Order No. 2003, liquidated damages, when the Parties agree to them, are the exclusive remedy for the Transmission Provider's failure to meet its schedule.

252. We reject NYTO's request that the Interconnection Customer be required to demonstrate that it was materially and adversely affected by the delay in construction. The whole point of liquidated damages is that they simplify matters when it is difficult to quantify the extent of actual damages.

Construction delays can jeopardize the funding of an interconnection project and may make it more difficult for an Interconnection Customer to enter into long-term energy contracts. In addition, delays affecting the Generating Facility's In-Service Date would prevent the Interconnection Customer from making sales of electric energy. The types of damages the Interconnection Customer might suffer are varied and complex. Since damages are speculative and difficult to quantify, liquidated damages are appropriate in this circumstance, when the Parties agree to use them as a remedy.

22 Am. Jur. 2d

Damages

section 683 (1988).

253. We disagree with Central Maine's characterization of Article 5.1 as unclear. Article 5.1 explains that the Interconnection Customer may choose either the Standard or Alternate Option. The description of liquidated damages that appears in Article 5.3 refers only to its possible inclusion in Article 5.1.2 (Alternate Option) or Article 5.1.4 (Negotiated Option). However, we do agree that Article 5.1.3 (Option to Build) should state that the “dates designated by the Interconnection Customer” are those designated as part of the Alternate Option.

254. While petitioners are correct that the Transmission Provider is required to give the Interconnection Customer the opportunity to build any Stand-Alone Network Upgrades and Transmission Provider's Interconnection Facilities if the Transmission Provider rejects the Interconnection Customer's milestones proposed under the Alternate Option, we do not agree that this endangers reliability. There are safeguards built into the LGIA to ensure that any Stand-Alone Network Upgrades or Transmission Provider's Interconnection Facilities constructed by the Interconnection Customer will be reliable.

See

discussion of LGIA Article 5.2,

supra.