Promoting Wholesale Competition Through Open Access Non- discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities; Notice of Intent to Prepare an Environmental Impact Statement for the Notice of Proposed Rulemaking and Request for Comments on Environmental Issues

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket Nos. RM95-8-000 and RM94-7-001]

Promoting Wholesale Competition Through Open Access Non-

discriminatory Transmission Services by Public Utilities; Recovery of

Stranded Costs by Public Utilities and Transmitting Utilities; Notice

of Intent to Prepare an Environmental Impact Statement for the Notice

of Proposed Rulemaking and Request for Comments on Environmental Issues

July 12, 1995.

AGENCY: Federal Energy Regulatory Commission, DOE.

[[Page 36753]]

ACTION: Notice of intent to prepare an environmental impact statement

for the notice of proposed rulemaking and request for comments on

environmental issues.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) has

directed staff to prepare an environmental impact statement to assess

the environmental impacts of the proposed rule ``Promoting Wholesale

Competition Through Open Access Non-discriminatory Transmission

Services by Public Utilities/Recovery of Stranded Costs by Public

Utilities and Transmitting Utilities''.1 The notice requests

commenters to send relevant information that will assist the Commission

in conducting an accurate and thorough analysis of the potential

impacts of the proposed rule. The notice also provides for a public

scoping meeting.

\1\ 60 FR 17662, Apr. 7, 1995.

DATES: Scoping comments are due on or before August 11, 1995; the

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public scoping meeting will be held on September 8, 1995.

FOR FURTHER INFORMATION CONTACT:

Willam Meroney, Office of Economic Policy, Federal Energy Regulatory

Commission, 825 North Capitol Street, N.E., Washington, D.C. 20426,

Telephone: (202) 208-1069, Fax: (202) 208-1010

Leon Lowry, Office of Electric Power Regulation, Federal Energy

Regulatory Commission, 825 North Capitol Street, N.E., Washington, D.C.

20426, Telephone: (202) 208-0919, Fax: (202) 208-0180

ADDRESSES: Comments should be filed with the Office of the Secretary,

Federal Energy Regulatory Commission, 825 North Capitol Street, N.E.,

Washington, D.C. 20426; the scoping meeting will be held in Hearing

Room 1, 810 First St., N.E., Washington, D. C.

SUPPLEMENTARY INFORMATION: In addition to publishing the full text of

this document in the Federal Register, the Commission also provides all

interested persons an opportunity to inspect or copy the contents of

this document during normal business hours in Room 3401, at 941 North

Capitol Street, N.E., Washington, D.C. 20426.

The Commission Issuance Posting System (CIPS), an electronic

bulletin board service, provides access to the texts of formal

documents issued by the Commission. CIPS is available at no charge to

the user and may be accessed using a personal computer with a modem by

dialing (202) 208-1397. To access CIPS, set your communications

software to 19200, 14400, 12000, 9600, 7200, 4800, 2400, or 1200, full

duplex, no parity, 8 data bits and 1 stop bit. The full text of this

document will be available on CIPS for 60 days from the date of

issuance in ASCII and WordPerfect 5.1 format. After 60 days the

document will be archived, but still accessible. The complete text on

diskette in WordPerfect format may also be purchased from the

Commission's copy contractor, La Dorn Systems Corporation, also located

in Room 3104, 941 North Capitol Street, N.E., Washington, D.C. 20426.

SUPPLEMENTARY INFORMATION: The Commission has directed staff to prepare

an environmental impact statement (EIS) to assess the environmental

impacts of the proposed rule ``Promoting Wholesale Competition Through

Open Access Non-discriminatory Transmission Services by Public

Utilities/Recovery of Stranded Costs by Public Utilities and

Transmitting Utilities''. In general, the proposed rule would require

all public utilities owning or controlling facilities used for

transmitting electric energy in interstate commerce to file non-

discriminatory, open access wholesale transmission tariffs and to take

transmission service (including ancillary services) for their own

wholesale sales and purchases of electric energy under the open access

tariffs. In addition, the proposed rule would allow public utilities to

recover legitimate and verifiable stranded costs associated with

transmission access. The EIS will satisfy the requirements of the

National Environmental Policy Act of 1969 (NEPA).

Introduction

The Commission's goal in the proposed rule is to encourage lower

electricity rates by reducing impediments to wholesale transmission

access and to promote the development of competitive bulk power

markets. A key to competitive bulk power markets is the availability of

transmission services on an open and non-discriminatory basis.

Transmission is the vital link between buyers and sellers of

electricity. All traders of bulk power must have equal access to the

transmission grid if the Nation is to achieve the benefits of robust,

competitive power markets. Market power over transmission service is

the single greatest impediment to such competition. Limitations on

transmission access by transmission owners is preventing efficient

trading from taking place, resulting in consumers paying unnecessarily

high electricity prices.

The Commission intends to manage the transition to competition in

an orderly fashion. Moving to competitive power markets will change

long-standing commercial and regulatory relationships. Utilities have

invested billions of dollars to meet their existing obligations. These

investments have been made under a regulatory compact whereby utility

shareholders expect to recover prudently incurred costs. Competition

may render some of these prudent investments uneconomic. The Commission

believes that past contractual and regulatory practices must be

recognized and past investment decisions made under a regulatory

compact should be honored in the interim during the transition to

competition.

Proposed Action and Principal Alternative

Two cases are proposed to be examined. The proposed rule includes a

generic requirement for public utilities to provide open access non-

discriminatory transmission service, and a framework to govern recovery

of stranded costs. The alternative case involves the Commission

pursuing similar policies on transmission access and stranded cost

recovery, but through a case-by-case approach. The discussion below

will serve as the basis for preparing the EIS. Comments are solicited

on specific analytic elements of the outlined study. The proposed rule

is described below along with the principal alternative to the rule.

This is followed by a discussion of a study to assess the environmental

impacts of the proposed rule and the alternative.

Proposed Rule

The Commission seeks to achieve increased economic efficiency in

wholesale power markets through competition and to allow recovery of

prudently incurred costs stranded by the use of transmission access.

Increased efficiency is promoted through the requirement that all

public utilities file non-discriminatory, open access transmission

tariffs to make transmission service available to all wholesale market

participants. The Commission intends to require all public utilities to

take transmission service for their own wholesale power transactions

under this tariff. Recovery of transition costs is addressed by

proposing that public utilities be allowed to recover prudent,

legitimate, and verifiable stranded costs and to assign directly such

costs to certain departing wholesale customers.

[[Page 36754]]

Through the combination of open access and stranded cost policies,

the Commission intends to provide a smooth transition period that takes

the electricity industry from traditional regulation of localized

wholesale power transactions to competitive power markets that have a

regional, or perhaps national, scope. The Commission does not expect

that power markets will become competitive overnight. How rapidly

competition evolves will be determined, in part, by the markets

themselves. The Commission cannot dictate such progress--it can only

accommodate the needed changes. Consequently, the Commission believes

that progress toward efficient power trading will not happen all at

once and that any environmental consequences of changed trading

patterns will occur at a corresponding pace.

The Commission's proposed rule will not unilaterally bring

competition to an industry where it otherwise would be absent. Rather,

the proposed rule will hasten and rationalize the progress toward

competitive power markets already under way. Congress endorsed

competition in wholesale power markets in the Energy Policy Act of 1992

(EPAct). To some extent, evolving competition is being accommodated

under the Commission's authority to order transmission service under

Section 211 of the Federal Power Act as modified by EPAct, and under

case-by-case exercise of the Commission's authority under section 205

of the FPA to ensure that rates, terms and conditions of service are

not unduly discriminatory. The proposed rule is intended to make this

transition in a more consistent and non-discriminatory manner than

would be possible under a case-by-case application of our authority

under Section 211 or other provisions of the Federal Power Act. In

addition, power markets are becoming more competitive through actions

of customers desiring cheaper power. These factors must be considered

when examining the environmental consequences of the proposed rule.

The proposed rule has the potential to increase the availability,

diversity, and competitiveness of power. The potential benefits

include:

Reducing the cost of electricity to consumers by promoting

access of buyers and sellers to one another;

Promoting the efficient use of facilities and resources by

electric utilities;

Avoiding wasteful investments under the current system of

regulation of generation; and

Providing a number of indirect benefits, such as reducing

administrative burdens and costly litigation.

Principal Alternative

The principal alternative to the proposed rule is that of no-

action, i.e., case-by-case implementation by the Commission. That is,

the Commission could choose not to address generically the issues

raised in the proposed rule. Under this alternative, transmission users

would seek transmission access under section 211 or through open access

tariffs filed under Section 205. The resulting patchwork of

transmission service conditions could inhibit the development of

regional bulk power markets. And under this alternative, the Commission

would consider whether to allow public utilities to recover stranded

costs on a case-by-case basis, should they seek such recovery. Compared

to a generic rule on stranded cost recovery, this could increase

uncertainty for market participants.

Proposed Study and Analytic Issues

The basic approach of the analysis will be to postulate likely

market responses to the proposed rule and then to analyze the resulting

effects on utility decisionmaking, institutions, and the environment.

The results of the analysis will be used to assess the economic and

environmental impacts of the proposed rule. The analysis will have a

national scope--but with significant regional detail--to assess

potential environmental impacts of the proposed rule.

The principal effect of the proposed rule could be to change

historical patterns of wholesale electricity trade in the United

States. Buyers and sellers of bulk power will have expanded

opportunities to trade with market participants that were previously

not available because of a lack of transmission access. In the near

term, the proposed rule may cause changes in the dispatch and operation

of generators. Some regions may experience changes in fuel use. This

would have certain economic consequences, as well as certain

environmental consequences. In the long term, a different pattern of

newly constructed generation plants and transmission lines may emerge

as a result of the proposed rule.

The analysis will assess the consequences of the proposed rule in

two main areas:

Socioeconomic impacts.

Environmental impacts of changes in fuel mix of power

generation (coal, oil, gas, nuclear, wind, solar, etc.).

Potentially, the most significant of the impacts will be the level,

type, and location of air emissions. Selected regions will be

identified to indicate the types of changes in environmental risks

attributable to the proposed rule. The analysis would be designed to

assess the environmental impacts of the kinds of fuel mix changes that

might result from more open generating markets.

Limits on the Analysis

We do not plan to address site-specific impacts such as cultural

resources, noise levels, geology and soils, EMF effects or specific

terrestrial or aesthetic resource issues. It is impossible to identify

the location of individual powerplants or transmission lines that might

be built as a consequence of the proposed rule. Moreover, any site-

specific issues associated with siting such facilities will be subject

to required environmental reviews by state and local agencies. The

siting issues are not within the Commission's jurisdiction and thus are

excluded from the analysis. However, if commenters believe that such

impacts are identifiable and significant, the Commission requests

specific information that would aid in the evaluation of such impacts.

The EIS Scoping Process

NEPA requires the Commission to review and address concerns the

public may have about proposals that could result from a major Federal

action having a potential for significant impact on the quality of the

human environment. The main goal of issuing this ``scoping'' document

is to focus the analysis in the EIS on the important issues, and to

separate those issues that are insignificant and do not require

detailed study.

The EIS will discuss impacts that could occur as a result of

implementing the proposed rule. The Commission requests comments on the

environmental impacts that may result from implementing the proposed

rule. If commenters believe mitigation is necessary, commenters should

recommend specific mitigation to lessen or avoid impacts.

Preparation of the EIS

Our independent analysis of the issues will result in the

publication of a Draft EIS which will be mailed to federal, state and

local resource agencies, industry, other interested groups and

individuals, and the Commission's official service list for these

proceedings.

A 45-day comment period will be provided for reviewing the Draft

EIS. We will consider all comments on the Draft EIS and revise the

document, as

[[Page 36755]]

necessary, before issuing a Final EIS. The Final EIS will include our

response to each comment received. We expect the Final EIS to be

completed by March 1996.

Public Participation and Scoping Meeting

All commenters should send relevant information that will assist us

in conducting an accurate and thorough analysis of the potential

environmental impacts of the proposed rule. You should comment on the

identified environmental issues, the potential environmental effects

and alternatives of the proposed rule, and measures to avoid or lessen

environmental impact. The more specific your comments, the more useful

they will be.

Please file your comment letter and only relevant studies or

reports as noted below. In addition, commenters are requested to submit

a copy of their comments on a 3\1/2\ inch diskette formatted for MS-DOS

based computers. In light of our ability to translate MS-DOS based

materials, the text need only be submitted in the format and version

that it was generated (i.e., MS Word, WordPerfect, ASCII, etc.). It is

not necessary to reformat word processor generated text to ASCII. For

Macintosh users, it would be helpful to save the documents in Macintosh

word processor format and then write them to files on a diskette

formatted for MS-DOS machines. All comments should be submitted to the

Office of the Secretary, Federal Energy Regulatory Commission, 825

North Capitol Street, N.E., Washington, D.C. 20426, and should refer to

Docket Nos. RM95-8-000 and RM94-7-001.

Send a copy of the letter to the following individuals:

William Meroney, Office of Economic Policy, Federal Energy Regulatory

Commission, 825 North Capitol Street, N.E., Washington, D.C. 20426,

Telephone: (202) 208-1069, Fax: (202) 208-1010

Leon Lowery, Office of Electric Power Regulation, Federal Energy

Regulatory Commission, 825 North Capitol Street, N.E., Washington, D.C.

20426, Telephone: (202) 208-0919, Fax: (202) 208-0180

Scoping comments must be received no later than August 11,

1995.

In addition to asking for written comments, we invite you to attend

our public scoping meeting. This meeting will be held at 10:00 am,

Friday, September 8, 1995 in Hearing Room 1, 810 First Street, N.E.,

Washington, D.C.

The public meeting will provide another opportunity to offer

scoping comments. Those wanting to speak at the meeting can call the

EIS Project Manager, William Meroney, to pre-register their names on

the speaker list. Only those people on the speaker list prior to the

date of the meeting will speak. Priority will be given to people

representing groups. A transcript of the meeting will be made to

accurately record your comments.

Environmental Mailing List

If you do not want to send comments at this time but still want to

receive copies of the Draft and Final EIS, please return the

Information Request (see appendix 1 2) to either William Meroney

or Leon Lowery by mail or fax. If you do not return the Information

Request, you will be taken off the mailing list.

\2\ This appendix is not being published in the Federal

Register, but is available from the Commission's Public Reference

Room.

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Lois D. Cashell,

Secretary.

[FR Doc. 95-17523 Filed 7-17-95; 8:45 am]

BILLING CODE 6717-01-P