Federal Register: June 6, 2006 (Volume 71, Number 108)
DOCID: FR Doc 06-4904
DEPARTMENT OF ENERGY
Veterans Employment and Training Service
CFR Citation: 18 CFR Parts 35 and 37
Docket ID: [Docket Nos. RM05-25-000 and RM05-17-000]
NOTICE: Part II
DOCUMENT ACTION: Notice of proposed rulemaking.
Preventing Undue Discrimination and Preference in Transmission Service
DATES: Comments are due August 7, 2006. Reply comments are due September 5, 2006.
The Federal Energy Regulatory Commission is proposing amendments to its regulations adopted in Order Nos. 888 and 889, and to the pro forma open access transmission tariff, to ensure that transmission services are provided on a basis that is just, reasonable and not unduly discriminatory or preferential.
Energy Department, Federal Energy Regulatory Commission,
DOCUMENT BODY 2:
May 19, 2006.
Table of Contents
A. Historical Antecedent
B. Order No. 888 and Subsequent Reforms
C. EPAct 2005 and Recent Developments
III. The Need for Reform of Order No. 888
A. Opportunities for Undue Discrimination Continue To Exist
B. A Lack Of Transparency Undermines Confidence in Open Access and Impedes Enforcement of Open Access Requirements
C. Congestion and Inadequate Infrastructure Development Impede Customers' Use of the Grid
D. A Consistent Method of Measuring ATC Has Not Been Established
E. A Number of Transmission Pricing Policies May Impede the Use of the Grid
F. EPAct 2005 Emphasized Certain Policies and Priorities for the Commission
IV. Summary, Scope and Applicability of the Proposed Rule
A. Summary of Proposed Reforms .
B. Core Elements of Order No. 888 That Are Retained
1. Federal/State Jurisdiction
2. Native Load Protection
3. The Types of Transmission Services Offered
4. Functional Unbundling
C. Applicability of the Proposed Rule
1. Public Utility Transmission Providers
2. NonPublic Utility Transmission Providers/Reciprocity V. Proposed Modifications of the OATT
A. Consistency and Transparency of ATC Calculations
B. Transmission PlanningCoordinated, Open and Transparent Planning
C. Transmission Pricing
2. Credits for Network Customers
3. Capacity Reassignment
4. ``Operational'' Penalties
a. Unauthorized Use Penalties
b. How Transmission Providers Should Pay Operational Penalties
5. ``Higher of'' Pricing Policy
D. NonRate Terms and Conditions
1. Potential Modifications to LongTerm Firm PointtoPoint Service
2. Hourly Firm Service
3. Rollover Rights
4. Modification of Receipt or Delivery Points
5. Acquisition of Transmission Service
a. Processing of Service Requests
b. Queue Processing Business Practices
c. Reservation Priority
6. Designation of Network Resources
a. Qualification as a Network Resource
b. Documentation for Network Resources
c. Undesignation of Network Resources
7. Clarifications Related to Network Service
8. Transmission Curtailments
9. Standardization of Rules and Practices
10. OATT Definitions
1. General Policy
a. Compliance Review Regime
b. Use of Independent Third Party Audits
2. Civil Penalties
b. Whether Civil Penalties Should Be Specified in the OATT
c. Whether Transmission Providers Should Be Subject to Revocation of Their MarketBased Rates for OATT Violations.
d. Whether Certain OATT Violations Should Be Considered Market
Manipulation Under the Market Behavior Rules and Section 1283 of EPAct 2005
VI. Information Collection Statement
VII. Environmental Analysis
VIII. Regulatory Flexibility Act Analysis
IX. Comment Procedures
X. Document Availability
Appendix A: Commenter Acronyms
Appendix B: Pro Forma Open Access Transmission Tariff
1. Ten years have passed since the Commission issued its landmark
Order No. 888.\1\ Named after our new headquarters in Washington, DC,
Order No. 888 sought to eradicate undue discrimination in the provision
of transmission service in interstate commerce. It did so by requiring
that each public utility that owns, operates, or controls facilities
used for transmission in interstate commerce offer unbundled
transmission service pursuant to a standard Open Access Transmission
Tariff (pro forma OATT) and separate its transmission and merchant
generation functions pursuant to a companion order issued that same
day, Order No. 889.\2\ These remedies reduced barriers to entry, led to
greater competition in bulk power markets and provided the foundation
for subsequent regulatory reforms at both the federal and state level.
\1\ Promoting Wholesale Competition Through Open Access Non
discriminatory Transmission Services by Public Utilities; Recovery
of Stranded Costs by Public Utilities and Transmitting Utilities,
Order No. 888, 61 FR 21540 (May 10, 1996), FERC Stats. & Regs. ]
31,036 (1996), order on reh'g, Order No. 888A, 62 FR 12274 (Mar.
14, 1997), FERC Stats. & Regs. ] 31,048 (1997), order on reh'g,
Order No. 888B, 81 FERC ] 61,248 (1997), order on reh'g, Order No.
888C, 82 FERC ] 61,046 (1998), aff'd in relevant part sub nom.
Transmission Access Policy Study Group v. FERC, 225 F.3d 667 (D.C.
Cir. 2000) (TAPS v. FERC), aff'd sub nom. New York v. FERC, 535 U.S. 1 (2002).
\2\ Open Access SameTime Information System (Formerly RealTime Information Networks) and Standards of Conduct, Order No. 889, 61 FR 21737 (May 10, 1996), FERC Stats. & Regs. ] 31,035 (1996), order on reh'g, Order No. 889A, FERC Stats. & Regs. ] 31,049 (1997), order on reh'g, Order No. 889B, 81 FERC ] 61,253 (1997).
2. Although Order No. 888 has been successful in many important
respects, the need for reform of the Order No. 888 pro forma OATT has
been apparent for some time. In 1999, the Commission held, in adopting Order No. 2000,\3\ that
the pro forma OATT could not fully remedy undue discrimination because transmission providers retained both the incentive and the ability to discriminate against third parties, particularly in areas where the pro forma OATT left the transmission provider with significant discretion.\4\ The Commission in Order No. 2000 thus encouraged utilities to voluntarily join independent regional transmission organizations (RTOs) that would operate their transmission facilities on a nondiscriminatory basis and administer the OATT. The Commission based Order No. 2003 on a similar finding, explaining that the interconnection process includes opportunities for undue discrimination that may lead to delays that benefit generationowning transmission utilities and undermine competition.\5\ While many regions of the country now have independent grid operators, not all do, and changes to the pro forma OATT are necessary to reduce the opportunity for transmission providers to engage in undue discrimination. In the past ten years new investment has faltered and many regions now experience chronic transmission congestion and inadequate infrastructure. Congress, through the Energy Policy Act of 2005 (EPAct 2005),\6\ recognized this problem and provided the Commission not only new tools to encourage infrastructure but also made clear that the Commission should use its existing authority to ensure an adequate infrastructure to support a vibrant economy.
\3\ Regional Transmission Organizations, Order No. 2000, 65 FR 809 (Jan. 6, 2000), FERC Stats. & Regs. ] 31,089 (1999), order on reh'g, Order No. 2000A, 65 FR 12088 (Mar. 8, 2000), FERC Stats. & Regs. ] 31,092 (2000), aff'd sub nom. Public Utility District No. 1 of Snohomish County, Washington v. FERC, 272 F.3d 607 (D.C. Cir. 2001).
\4\ Order No. 2000 at 31,015.
\5\ See Order No. 2003 at P 1112.
\6\ Pub. L. 10958, 119 Stat. 594 (to be codified in scattered itles of the U.S.C.).
3. The reforms we propose today are intended to address
deficiencies in the pro forma OATT that have become apparent since 1996
and to facilitate improved planning and operation of transmission
facilities. We summarize these reforms in Part IV.A below, but note the
major focus of this reform effort here. As a general matter, the
purpose of this rulemaking is to strengthen the pro forma OATT to
ensure that it achieves its original purposeremedying undue
discriminationnot to create new market structures. We propose to
achieve this goal by increasing the clarity and transparency of the
rules applicable to the planning and use of the transmission system and
by addressing ambiguities and the lack of sufficient detail in several
important areas of the pro forma OATT. The lack of specificity in the
pro forma OATT creates opportunities for undue discrimination as well
as making the undue discrimination that does occur more difficult to
detect. First, we propose to improve transparency and consistency in
several critical areas, such as the calculation of available transfer
capability (ATC).\7\ We propose to direct public utilities, under the
auspices of the North American Electric Reliability Council (NERC) and
the North American Energy Standards Board (NAESB), to provide for
greater consistency in ATC calculation. By reducing unnecessarily broad
discretion in this and other areas, we will reduce the ability of
transmission providers to unduly discriminate and provide them greater
certainty to facilitate compliance with our regulations. Second, we
propose to reform the transmission planning requirements of the pro
forma OATT to eliminate potential undue discrimination and support the
construction of adequate transmission facilities to meet the needs of
all loadserving entities. The pro forma OATT contains only minimal
requirements regarding transmission planning, which have proven to be
inadequate as the Nation faces inadequate transmission investment in
many areas. We propose to require public utilities to engage in an open
and transparent planning process at both the local and regional levels.
Third, we propose to remedy certain portions of the pro forma OATT that
may have permitted utilities to discriminate against new merchant
generation, including intermittent generation. For example, we propose
to modify the energy imbalance provisions of the pro forma OATT and
adopt certain other tariff modifications. Fourth, we provide for
greater transparency in the provision of transmission service to allow
transmission customers better access to information to make their
resource procurement and investment decisions, as well as to increase
our ability to detect any remaining incidents of undue discrimination.
Finally, we provide for reform and greater clarity in areas that have
generated recurring disputes over the past 10 years, such as rollover rights, ``redirects,'' and generation redispatch.
\7\ We note that the Commission used the term ``Available Transmission Capability'' in Order No. 888 to describe the amount of additional capability available in the transmission network to accommodate additional requests for transmission services. To be consistent with the term generally accepted throughout the industry, the Commission is proposing to revise the pro forma OATT to adopt the term ``Available Transfer Capability.''
4. Although the reforms being proposed in these areas are
significant, we wish to underscore that we propose to maintain many of
the core elements of Order No. 888. For example, we are retaining the
comparability requirement under which each public utility must treat
third parties in a manner comparable to its service to bundled
customers. We are retaining the basic nature of the services being
offerednetwork service and pointtopoint service. We are retaining
the protection of native load customers embodied in Order No. 888,
consistent with EPAct 2005's new requirement that loadserving entities
be provided transmission rights to meet their service obligations.\8\
We are retaining our decision to exercise jurisdiction over unbundled
transmission service, but not transmission service provided as part of
a bundled retail service. We are retaining the use of functional
unbundling to address undue discrimination, rather than requiring
corporate unbundling. We are retaining the use of an OATT to facilitate
the development of competitive wholesale markets by reducing barriers
to entry through the control of transmission assets, not imposing any particular market structure on the industry.
\8\ EPAct 2005 sec. 1233 (to be codified at section 217(b)(4) of the FPA, 16 U.S.C. 824q).
5. In proposing to reform Order No. 888, we have relied heavily on
the comments received in response to our notices of inquiry in the
abovecaptioned dockets.\9\ We appreciate the time and thoughtfulness
of all sectors of the industry in preparing comments on these notices
of inquiry. We have found them very informative and useful and this
Notice of Proposed Rulemaking (NOPR) incorporates many of the
commenters' suggestions. We invite further comments on this NOPR. We
also are scheduling technical conferences to more fully address the topics of ATC calculation and transmission planning.
\9\ Preventing Undue Discrimination and Preference in
Transmission Services, Notice of Inquiry, 112 FERC ] 61,299 (2005) (NOI); Information Requirements for Available Transfer Capability, Notice of Inquiry, 111 FERC ] 61,274 (2005) (ATC NOI).
A. Historical Antecedent
6. In the first few decades after enactment of the Federal Power
Act (FPA) in 1935, the industry was characterized mostly by self
sufficient, vertically integrated electric utilities, in which
generation, transmission, and distribution facilities were owned by a
single entity and sold as part of a bundled service to wholesale and
retail customers. Most electric utilities built their own power plants
and transmission systems, entered into interconnection and coordination arrangements with neighboring utilities,
and entered into longterm contracts to make wholesale requirements sales (bundled sales of generation and transmission) to municipal, cooperative, and other investorowned utilities connected to each utility's transmission system. Each system covered a limited service area, which was defined by the retail franchise decisions of state regulatory agencies. This structure of separate systems arose naturally due primarily to the cost and technological limitations on the distance over which electricity could be transmitted.
7. A number of statutory, economic, and technological developments
in the 1970s led to an increase in coordinated operations and
competition. Among those was the passage of the Public Utility
Regulatory Policies Act of 1978 (PURPA),\10\ which was designed to
lessen dependence on foreign fossil fuels by encouraging the
development of alternative generation sources and imposing a mandatory
purchase obligation on utilities for generation from such sources.
PURPA also enabled the Commission to order wheeling of electricity
under limited circumstances.\11\ The rapid expansion and performance of
the independent power industry following the enactment of PURPA
demonstrated that traditional, vertically integrated public utilities
need not be the only sources of reliable power. During this period, the
profile of generation investment began to change, and a market for non
traditional power supply beyond the purchases required by PURPA began
to emerge. The economic and technological changes in the transmission
and generation sectors helped encourage many new entrants in the
generating markets that could sell electric energy profitably with
smaller scale technology at a lower price than many utilities selling
from their existing generation facilities at rates reflecting cost.
However, it became increasingly clear that the potential consumer
benefits that could be derived from these technological advances could
be realized only if more efficient generating plants could obtain
access to the regional transmission grids. Because many traditional
vertically integrated utilities still did not provide open access to
third parties and favored their own generation if and when they
provided transmission access to third parties, access to cheaper, more efficient generation sources remained limited.
\10\ Pub. L. 95617, 92 Stat. 3117 (1978) (codified in U.S.C. titles 15, 16, 26, 30, 42, and 43 (2000)).
\11\ Section 211 of the FPA, 16 U.S.C. 824j (2000). In earlier years, a few customers were able to obtain access as a result of litigation, beginning with the U.S. Supreme Court's decision in Otter Tail Power Company v. United States, 410 U.S. 366 (1973). Additionally, some customers gained access by virtue of Nuclear Regulatory Commission license conditions and voluntary preference power transmission arrangements associated with federal power marketing agencies. See, e.g., Consumers Power Co., 6 NRC 887, 1036 44 (1977); Toledo Edison Co., 10 NRC 265, 32734 (1979); Florida Municipal Power Agency v. Florida Power and Light Company, 839 F. Supp. 1563 (M.D. Fla. 1993).
8. The Commission encouraged the development of independent power
producers (IPPs), as well as emerging power marketers, by authorizing
marketbased rates for their power sales on a casebycase basis and by
encouraging more widely available transmission access on a casebycase
basis. Marketbased rates helped to develop competitive bulk power
markets by allowing generating utilities to move more quickly and
flexibly to take advantage of shortterm or even longterm market
opportunities than those utilities operating under traditional costof
service tariffs. In approving these marketbased rates, the Commission
required that the seller and its affiliates lack market power or
mitigate any market power that they may have possessed.\12\ The major
concern of the Commission was whether the seller or its affiliates
could limit competition and thereby drive up prices. A key inquiry
became whether the seller or its affiliates owned or controlled
transmission facilities in the relevant service area and therefore, by
denying access or imposing discriminatory terms or conditions on
transmission service, could foreclose other generators from competing.
Beginning in the late 1980s, in order to mitigate their market power to
meet the Commission's conditions, public utilities seeking Commission
authorization for blanket approval of marketbased rates for generation
services under section 205 of the FPA filed ``open access''
transmission tariffs of general applicability.\13\ The Commission also
approved proposed mergers under section 203 of the FPA on the condition
that the merging companies remedy anticompetitive effects potentially
caused by the merger by filing ``open access'' tariffs. The early
tariffs submitted in marketbased rate proceedings under section 205
and merger proceedings under section 203 did not, however, provide
access to the transmission system that was comparable to the service
the transmission providers used for their own purposes. Rather, they
typically made available only pointtopoint transmission service,
i.e., service from a single point of receipt to a single point of
delivery. As these early tariffs were offered only by transmission
providers that volunteered to provide service to third parties, they
resulted in a patchwork of open access that was not sufficient to facilitate wholesale generation markets.
\12\ See, e.g., Dartmouth Power Associates Limited Partnership, 53 FERC ] 61,117 (1990); Commonwealth Atlantic Limited Partnership, 51 FERC ] 61,368 (1990); Doswell Limited Partnership, 50 FERC ] 61,251 (1990); Citizens Power & Light Co., 48 FERC ] 61,210 (1989); Ocean State Power, 44 FERC ] 61,261 (1988); and Orange and Rockland Utilities, Inc., 42 FERC ] 61,012 (1988).
\13\ See Order No. 888 at 31,644 n.52.
9. In response to the competitive developments following PURPA, and
the fact that limited transmission access and significant regulatory
barriers continued to constrain the development of generation by
independent power producers, Congress enacted Title VII of the Energy
Policy Act of 1992 (EPAct 1992).\14\ EPAct 1992 reduced regulatory
barriers to entry by creating a class of ``Exempt Wholesale
Generators'' that were exempt from the requirements of the Public
Utility Holding Company Act of 1935.\15\ EPAct 1992 also expanded the
Commission's authority to approve applications for transmission
services under sections 211 and 212 of the FPA. Though the Commission
aggressively implemented expanded section 211, it ultimately concluded
that the procedural limitations in section 211 thwarted the
Commission's ability to effectively eliminate undue discrimination in the provision of transmission service.
\14\ Pub. L. 102486, 106 Stat. 2776 (1992) (codified at, among other places, 15 U.S.C. 79z5a and 16 U.S.C. 796 (2225), 824jl (2000)).
\15\ 15 U.S.C. 79a (2000), repealed by EPAct 2005 sec. 1263; see Repeal of the Public Utility Holding Company Act of 1935 and Enactment of the Public Utility Holding Company Act of 2005, Order No. 667, 70 FR 75592 (Dec. 20, 2005), FERC Stats. & Regs. ] 31,197 (2005).
B. Order No. 888 and Subsequent Reforms
10. In April 1996, as part of its statutory obligation under
sections 205 and 206 of the FPA to remedy undue discrimination, the
Commission adopted Order No. 888 prohibiting public utilities from
using their monopoly power over transmission to unduly discriminate
against others. In that order, the Commission required all public
utilities that own, control or operate facilities used for transmitting
electric energy in interstate commerce to file open access non
discriminatory transmission tariffs that contained minimum terms and
conditions of nondiscriminatory service. It also obligated such public
utilities to ``functionally unbundle'' their generation and
transmission services. This meant public utilities had to take transmission service (including ancillary services) for
their own new wholesale sales and purchases of electric energy under the open access tariffs, and to separately state their rates for wholesale generation, transmission and ancillary services.\16\ Each public utility was required to file the pro forma OATT included in Order No. 888 without any deviation (except a limited number of terms and conditions that reflect regional practices).\17\ After the effectiveness of their OATTs, public utilities were allowed to file, pursuant to section 205 of the FPA, deviations that were consistent with or superior to the pro forma OATT's terms and conditions. Because certain owners and controllers or operators of interstate transmission facilities were not subject to the Commission's jurisdiction under sections 205 and 206 and thus were not subject to Order No. 888, the Commission adopted a reciprocity provision in the pro forma OATT which conditions the use by nonpublic utilities of public utilities' open access services on an agreement to offer open access services in return.
\16\ This is known as ``functional unbundling'' because the transmission element of a wholesale sale is separated or unbundled from the generation element of that sale, although the public utility may retain ownership over both functions. See infra Part IV.B.4.
\17\ See Order No. 888 at 31,76970 (noting that the pro forma OATT expressly identified certain nonrate terms and conditions, such as the time deadlines for determining available capability in section 18.4 or scheduling changes in sections 13.8 and 14.6, that may be modified to account for regional practices if such practices are reasonable, generally accepted in the region, and consistently adhered to by the transmission provider).
11. In addition to imposing the functional unbundling requirement,
the Commission also encouraged broader reforms through the formation of
independent system operators (ISOs). The Commission stated that ISOs
``have the potential to provide significant benefits (e.g., to help
provide regional efficiencies, to facilitate economically efficient
pricing, and, especially in the context of power pools, to remedy undue
discrimination and mitigate market power) and will further our goal of
achieving a workably competitive market.'' \18\ While the Commission
declined to mandate ISOs, it set forth eleven principles for assessing ISO proposals submitted to the Commission.\19\
\18\ Order No. 888 at 31,655.
\19\ Id. at 31,73032.
12. Order No. 888 also clarified the Commission's interpretation of the federal/state jurisdictional boundaries over transmission and local distribution. While it reaffirmed that the Commission has exclusive jurisdiction over the rates, terms, and conditions of unbundled retail transmission in interstate commerce by public utilities, it nevertheless recognized the legitimate concerns of state regulatory authorities regarding the transmission component of bundled retail sales. The Commission therefore declined to extend its unbundling requirement to the transmission component of bundled retail sales. On appeal, the U.S. Supreme Court affirmed this element of Order No. 888, finding that the Commission made a statutorily permissible choice.\20\ \20\ New York v. FERC, 535 U.S. 1 (2002).
13. The same day it issued Order No. 888, the Commission issued a companion order, Order No. 889, addressing both the separation of vertically integrated utilities' transmission and merchant functions, the information transmission providers were required to make public and the electronic means they were required to use to do so. Order No. 889 imposed Standards of Conduct governing the separation of, and communications between, the utility's transmission and wholesale power functions, to prevent the utility from giving its merchant arm preferential access to transmission information. All public utilities that owned, controlled or operated facilities used in the transmission of electric energy in interstate commerce were required to create or participate in an Open Access SameTime Information System (OASIS) that was to provide existing and potential transmission customers the same access to transmission information.
14. Among the information required to be posted by Order No. 889
was the transmission provider's calculation of ATC. Though the
Commission acknowledged that beforethefact measurement of the
availability of transmission service is ``difficult,'' it concluded
that it was important to give potential transmission customers ``an
easytounderstand indicator of service availability.'' \21\ Because
formal methods did not then exist to calculate ATC and total transfer
capability (TTC), the Commission encouraged industry efforts to develop
consistent methods for calculating ATC and TTC.\22\ Order No. 889
ultimately required transmission providers to base their calculations
on ``current industry practices, standards and criteria'' and to
describe their methodology in their tariffs.\23\ The Commission noted
that the requirement that transmission providers purchase only ATC that
is posted as available ``should create an adequate incentive for them
to calculate ATC and TTC as accurately and as uniformly as possible.'' \24\
\21\ Order No. 889 at 31,605.
\22\ Id. at 31,607.
15. The electric industry continued to undergo economic and
regulatory changes in the years following the issuance of Order No.
888. Retail access was adopted by approximately 25 states in the late
1990s.\25\ This state restructuring activity spurred significant
changes at the wholesale level as well by encouraging or requiring the
divestiture of generation plants by traditional electric utilities and
the development of ISOs that could manage shortterm energy markets
necessary to support retail access. At the same time, there was a
significant increase in the number of mergers between traditional
electric utilities and between electric utilities and gas pipeline
companies, and large increases in the number of power marketers and
independent generation facility developers entering the marketplace.
Trade in bulk power markets increased significantly and the Nation's
transmission grid was used more heavily and in new ways as customers
took advantage of the pro forma OATT and purchased power from competitive sellers.
\25\ See Energy Information Administration, Retail Unbundling U.S. Summary (2005), http://www.eia.doe.gov/oil_gas/natural_gas/restructure/state/us.html .
16. In the wake of these changes, in December 1999, the Commission
adopted Order No. 2000.\26\ That rulemaking recognized that Order No.
888 set the foundation upon which competitive electric markets could
develop, but did not eliminate the potential to engage in undue
discrimination and preference in the provision of transmission
service.\27\ The rulemaking also recognized that Order No. 888 did not
address the regional nature of the grid, including the treatment of
parallel flows, pancaked rates, and congestion management. Thus, the
Commission encouraged the creation of RTOs to address important
operational and reliability issues and eliminate any residual
discrimination in transmission services that can occur when the
operation of the transmission system remains in the control of a
vertically integrated utility. The Commission found that RTOs would
increase the efficiency of wholesale markets by eliminating pancaked
rates, internalizing parallel flow, managing congestion efficiently and
operating markets for energy, capacity and ancillary services. The Commission
established an open, collaborative process that relied on voluntary regional participation to design RTOs tailored to the specific needs of each region. The Commission noted, however, that ``[i]f the industry fails to form RTOs under this approach, the Commission will reconsider what further regulatory steps are in the public interest.'' \28\ \26\ See supra note 3.
\27\ Order No. 2000 at 31,015.
\28\ Id. at 30, 993.
17. Following Order No. 2000, RTOs were approved in several regions of the country including the Northeast (PJM Interconnection, Inc.; ISO New England), the Midwest (MISO) and the South (SPP). In most cases, RTOs have assumed responsibility for calculating ATC across the footprint of the RTO, as well as the planning and expansion of the transmission grid, at least for facilities necessary for maintaining system reliability. However, large areas of the Nation have not developed RTOs using the voluntary structure adopted by the Commission in Order No. 2000. Moreover, transmission customers have complained that even in RTO markets there are instances when comparable transmission service is not provided, particularly in the area of transmission planning.
C. EPAct 2005 and Recent Developments
18. EPAct 2005,\29\ enacted on August 8, 2005, added a number of
new authorities and priorities for the Commission and emphasized
certain of its existing obligations. Specifically, EPAct 2005
recognized the importance of adequate transmission infrastructure
development and its role in facilitating the development of competitive
wholesale markets. For example, Congress required the Commission to
adopt a rule establishing incentive ratemaking for transmission
infrastructure to help promote reliability and reduce congestion.\30\
Congress further directed the Commission to ``exercise its authority''
under EPAct 2005 ``in a manner that facilitates the planning and
expansion of transmission facilities to meet the reasonable needs of
loadserving entities.'' \31\ Congress also gave the Commission certain
``backstop'' transmission siting authority, and authorized the creation
of interstate compacts establishing transmission siting agencies.\32\
EPAct 2005 also authorized the Commission to require unregulated
transmitting utilities (except for certain small entities) to provide
access to their transmission facilities on a comparable basis.\33\
Congress further ordered the Department of Energy (DOE) to study the
benefits of economic dispatch and required the Commission to convene
regional joint boards to develop a report to Congress containing
recommendations for the use of security constrained economic dispatch
within each region.\34\ Congress also directed the Commission to
facilitate price transparency in markets for the sale and transmission
of electric energy in interstate commerce, having due regard for the
public interest, the integrity of those markets, fair competition, and
the protection of consumers, and it authorized the Commission to
prescribe rules to provide for the dissemination of information about
the availability and price of wholesale electric energy and
transmission service.\35\ Finally, Congress emphasized compliance with
the Commission's regulations, increasing the civil and criminal
penalties for violations of Commissionadministered statutes and regulations.\36\
\29\ See supra note 6.
\30\ EPAct 2005 sec. 1241 (to be codified at section 219 of the FPA, 16 U.S.C. 824s).
\31\ EPAct 2005 sec. 1233(a) (to be codified at section 217(b)(4) of the FPA, 16 U.S.C. 824q).
\32\ EPAct 2005 sec. 1221(a) (to be codified at section 216 of the FPA, 16 U.S.C. 824p).
\33\ EPAct 2005 sec. 1231 (to be codified at section 211A of the FPA, 16 U.S.C. 824j1).
\34\ EPAct 2005 sec. 1234 (to be codified at 42 U.S.C. 16432); EPAct 2005 sec. 1298 (to be codified at section 223 of the FPA, 16 U.S.C. 824w). EPAct 2005 defined economic dispatch as ``the operation of generation facilities to produce energy at the lowest cost to reliably serve consumers, recognizing any operational limits of generation and transmission facilities.'' EPAct 2005 sec. 1234 (b).
\35\ EPAct 2005 sec. 1281 (to be codified at section 220 of the FPA, 16 U.S.C. 824t).
\36\ EPAct 2005 sec. 1284(d) (to be codified at section 316 of the FPA, 16 U.S.C. 825o); EPAct 2005 sec. 1284(e) (to be codified at section 316A of the FPA, 16 U.S.C. 825o1).
19. Recognizing the need for reform of Order No. 888 in light of these developments and those described in the next section, the Commission issued an NOI in September 2005 seeking comments on the reforms needed to the Order No. 888 pro forma OATT to prevent undue discrimination and preference in the provision of transmission services. In the NOI, the Commission expressed its preliminary view that reforms to the pro forma OATT and public utilities' OATTs are necessary to avoid undue discrimination or preference in the provision of transmission service. The NOI sought comments on how best to accomplish the Commission's goals, specifically with respect to enhancements that are needed to: (1) Remedy any unduly discriminatory or preferential application of the pro forma OATT or (2) improve the clarity of the Order No. 888 pro forma OATT and the individual public utility tariffs in order to more readily identify violations and facilitate compliance.
20. The Commission received over 4,000 pages of initial and reply
comments on the NOI. Based on these comments, the comments submitted in
response to the ATC NOI, our experience in implementing Order No. 888,
and the changes in the industry since we adopted it, we conclude that
reform of the pro forma OATT is necessary, for the reasons we discuss next.
III. The Need for Reform of Order No. 888
A. Opportunities for Undue Discrimination Continue To Exist
21. In Order No. 2000, the Commission found that ``opportunities
for undue discrimination continue to exist that may not be remedied
adequately by [the] functional unbundling [remedy of Order No. 888].''
\37\ The Commission made a similar finding in Order No. 2003, holding
that opportunities for undue discrimination continue to exist in areas
where the pro forma OATT leaves transmission providers with substantial
discretion.\38\ The Commission has a responsibility under section 206
of the FPA to remedy undue discrimination.\39\ Our action today
proposes to fulfill that responsibility by proposing reforms to the pro
forma OATT that will address remaining opportunities for undue discrimination.
\37\ Order No. 2000 at 31,105.
\38\ Order No. 2003 at P 1112.
\39\ In Associated Gas Distributors v. FERC, 824 F.2d 981 (D.C. Cir. 1987), (AGD), the court concluded that, like the Natural Gas Act, the FPA ``fairly bristles'' with concern over undue
discrimination. Based on AGD, the Commission determined in Order No. 888 that:
The Commission has a mandate under sections 205 and 206 of the
FPA to ensure that, with respect to any transmission in interstate
commerce or any sale of electric energy for resale in interstate
commerce by a public utility, no person is subject to any undue
prejudice or disadvantage. We must determine whether any rule, regulation, practice or contract affecting rates for such
transmission or sale for resale is unduly discriminatory or preferential, and must prevent those contracts and practices that do not meet this standard. * * * AGD demonstrates that our remedial power is very broad and includes the ability to order industrywide nondiscriminatory open access as a remedy for undue discrimination.
Order No. 888 at 31,669.
22. As the Commission noted in Order No. 888, it is in the economic
selfinterest of transmission monopolists, particularly those with
highcost generation assets, to deny transmission or to offer
transmission on a basis that is inferior to that which they provide
themselves.\40\ Such an incentive can lead to unduly discriminatory behavior
against third parties, particularly if public utilities have unnecessarily broad discretion in the application of their tariffs. This discretion also can create problems for transmission providers seeking to comply with our regulations in good faith because so many issues are left for their interpretation, thereby increasing the possibility of disputes with transmission customers and enforcement actions by the Commission.\41\ Transmission customers also have found ways to use the tariffs to their own advantage, particularly in the scheduling and queuing processes.\42\ Finally, tariff provisions have been modified in numerous ways on a companybycompany basis, leading to uncertainties within the industry as to the proper interpretation of those provisions and to unnecessarily inconsistent treatment of transmission customers across public utilities.
\40\ Id. at 31,682.
\41\ See, e.g., Order No. 2003 at P 1112.
\42\ See, e.g., Potomac Economics, Ltd., 2004 State of the Market Report: Midwest ISO at 3031, 3435 (Jun. 2005) (explaining that the queuing process, by giving customers the opportunity to submit multiple requests for service, provides a low or nocost option that restricts other customers' access to congested interfaces, and the scheduling process, by allowing customers to leave transmission requests unconfirmed, provides a free option that may invite hoarding or result in underutilized capacity), http://www.midwestmarket. org/publish/Document/2b8a32 103ef711180
7bf20a48324a /2004%20MISO%20SOM%20Report. pdf?action=download& property=Attachment.
23. Commenters suggest that enhanced clarity and consistency in the
pro forma OATT would go a long way toward eliminating the opportunities
for undue discrimination and the perception that it is occurring.\43\
Calpine notes that undue discrimination is most likely to occur when
the transmission provider retains discretion to implement an OATT
provision in a manner that favors its affiliated generation. APPA
asserts that the success of the OATT regime depends on public
utilities' ability to faithfully implement the OATT's provisions. Large
transmission providers share this view to some degree. Entergy notes
that a lack of clarity is at the heart of many disputes involving the
OATT, and urges the Commission to improve the OATT in a manner that
will minimize the potential for future violations. Duke posits that
tariff terms and conditions that are susceptible to multiple
interpretations present opportunities for discrimination and/or the
perception thereof. Progress Energy agrees that several OATT provisions
can be interpreted differently, leaving room for disagreement as to their meaning.
\43\ E.g., Calpine, Duke, and MidAmerican. (A list of commenter acronyms may be found in Appendix A). As the Commission noted in Order No. 2000, ``[p]erceptions of discrimination are significant impediments to competitive markets. Efficient and competitive markets will develop only if market participants have confidence that the system is administered fairly.'' Order No. 2000 at 31,017.
24. Perhaps the most obvious deficiency in this regard is ATC calculation. In Order Nos. 888 and 889, the Commission declined to require a specific methodology for ATC calculation. As a result, there are few clear rules respecting ATC calculation, and transmission providers, therefore, retain unnecessarily broad discretion in this area. On systems where transmission capacity is congested, this lack of consistency, coupled with a lack of transparency, has led to recurring disputes over whether the transmission provider is exercising its discretion to discriminate against its competitors.
25. There is a similar lack of clarity in the transmission
provider's planning obligations. Order No. 888 included a general
obligation on the part of the transmission providers to plan on a
comparable basis (i.e., comparable to the manner in which it would plan
for its own needs) to serve network loads and to construct new
facilities as necessary to respond to requests for firm service from
pointtopoint customers. However, there were no clear guidelines with
respect to whether transmission customers should be included in the
planning process, what standards and criteria should be used in system
planning, and whether the planning process should identify potential
economic upgrades that could benefit a wide range of customers, as
opposed to responding only to customerspecific requests. Here too,
this lack of clarity has led to significant disputes over whether
transmission providers are planning on a nondiscriminatory basis or are favoring service to their own loads.
B. A Lack of Transparency Undermines Confidence in Open Access and Impedes Enforcement of Open Access Requirements
26. A major focus of comments on the NOI is that increased
transparency would aid transmission customers in their participation in
the wholesale market.\44\ Constellation explains that the transmission
provider's unique position as the owner and operator of the
transmission system and often the majority of the generation assets in
its control area gives it better information than its transmission
customers. Moreover, the transmission provider, Constellation argues,
has financial incentives to use the system differently, and more
efficiently, to serve its own loads than to serve its other customers
under the pro forma OATT. TDU Systems urges the Commission to ensure
that transmission providers make their actions under the OATT
completely transparent on a timely basis to all transmission customers.
NARUC posits that enhanced reporting requirements, if sufficiently
targeted, would facilitate greater transparency in transmission
activities. Alberta Intervenors states that the current pro forma OATT
provides transmission customers with only a narrow glimpse of how the
system is being operated. For example, Bonneville notes that many terms
and conditions of native load service are not transparent to OATT
transmission customers.\45\ EEI also states that greater transparency,
such as with respect to ATC calculation, can increase confidence in
open access and potentially reduce claims of undue discrimination.
\44\ E.g., LG&E, MidAmerican, Midwest SATs, TDU Systems, and Williams.
\45\ Bonneville urges the Commission to require loadserving transmission providers to post the same information for bundled retail load that they must post for service to network customers.
27. Calpine argues that undue discrimination is difficult to detect given the lack of access to data, analytical assumptions, and processes used by transmission providers to determine transmission access and service. It recommends that the Commission increase reporting requirements for denials of transmission service, for congestion management mitigation events, including curtailments and redispatch, and for transmission expansion planning decisions. Powerex notes that the Commission already has posting standards, and urges the Commission to enforce them and to increase requirements to provide more meaningful posting of reliable ATC data, curtailment methodology and results, details relating to denials of service, and congestion information. Constellation agrees, urging the Commission to require OASIS posting of service metrics, such as all transmission requests approved, rejected, confirmed and curtailed.
28. A common theme in the comments is that the lack of transparency
can lead to claims of undue discrimination and can make such claims
more difficult to resolve.\46\ As such, National Grid asserts that
greater transparency will allow the Commission and transmission system users to understand when a transmission access decision is
motivated by a legitimate reason rather than an intent to discriminate. If transmission customers have more accurate information about the transmission service request process, National Grid contends, they also will have more accurate expectations and a better understanding of how to expedite the implementation of service. Though NRECA agrees that increased transparency will allow the Commission to deter undue discrimination and facilitate accountability, it urges the Commission to require not just raw data but meaningful, clear and understandable data, in a format that facilitates understanding.
\46\ E.g., Ameren, National Grid, and NRECA.
29. Commenters urge the Commission to improve the transparency of
transmission service in a number of areas, particularly the evaluation
of ATC and the planning of the transmission system.\47\ Another area
often cited as lacking sufficient transparency is the processing of
transmission service requests and studies. For example, several
commenters note that system impact studies are often not completed
within the tariffprescribed time limits, and that information about
that process is not available to transmission customers.\48\ TDU
Systems suggests that one way to address the difficulty of determining
acceptable delays is to require transmission providers to post
statistics on their OASIS sites providing information as to the length
of time it might take to process requests for transmission service.
Cinergy proposes that adopting such reporting metrics could result in an improved quality of service.
\47\ We discuss these specific aspects of the pro forma OATT below in Parts V.A. and V.B.
\48\ E.g., Constellation, EPSA, Powerex, and Williams.
30. We agree that a lack of transparency both increases the
potential for undue discrimination and makes it more difficult to
detect. We believe this lack of sufficient transparency is caused in
part by inadequate compliance with our existing OASIS regulations, and
in part by inadequate transparency requirements. Our reforms address
both elements of the problem in an effort to increase confidence in
open access tariffs and to facilitate compliance with our regulations and our enforcement of them.
C. Congestion and Inadequate Infrastructure Development Impede Customers' Use of the Grid
31. The ability and incentive to discriminate increases as the
transmission system becomes more congested. Vertically integrated
utilities do not have an incentive to expand the grid to accommodate
new entry or to facilitate the dispatch of more efficient competitors.
Even with the advent of RTOs, transmission infrastructure development
has not kept pace with the increase in demand for electricity.
Transmission capacity is being constructed at a much slower rate than
the rate of increase in customer demand. Indeed, transmission capacity
per MW of peak demand declined at an average rate of 2.1 percent per
year during the period 1992 to 2002.\49\ Investment for the most recent
year available, 2003, was below 1975 levels,\50\ and projections
suggest that this trend will continue through 2012.\51\ As a result,
there has been a significant decrease in transmission capacity relative
to load in every NERC region.\52\ EEI estimates that capital spending
must increase by 25 percent, from $4 billion annually to $5 billion
annually, to ensure system reliability and to accommodate wholesale
electric markets.\53\ The legacy systems constructed by vertically
integrated utilities prior to the adoption of Order No. 888 support
``only limited amounts of interregional power flows and transactions.
Thus, existing systems cannot fully support all of society's goals for
a modern electricpower system.'' \54\ These systems were built to meet
the vertically integrated utilities' retail native load obligations, not to support the development of a bulk power market.
\49\ Eric Hirst, U.S. Transmission Capacity: Present Status and Future Prospects (Aug. 2004), available at http://www.eei.org/industry_issues/energy_infrastructure/transmission/USTransCapacity101804.pdf (Present Status and Future Prospects).
\50\ EEI, EEI Survey of Transmission Investment: Historical and Planned Capital Expenditures (19992008) at 3 (May 2005), available at http://www.eei.org/industry_issues/energy_infrastructure/transmission/Trans_Survey_Web.pdf .
\51\ Present Status and Future Prospects at v.
\52\ Brendan Kirby (Oak Ridge National Laboratory, U.S. Department of Energy, Barriers to Transmission Investment, Technical Conference Presentation, (Docket No. AD055000) (April 22, 2005) Transmission Independence and Investment.
\53\ Energy Policy Act of 2005: Hearings before the House Subcommittee on Energy and Commerce, 109th Congress, First Sess. (2005) (Prepared statement of Thomas R. Kuhn, President of EEI). \54\ Present Status and Future Prospects at v.
32. Inadequate expansion of the transmission grid has contributed to increasing transmission congestion in most regions of the country. Transmission congestion has created fairly small local load pockets in primarily urban areas, e.g., New York City, Long Island, Boston, parts of Connecticut, and the San Francisco Bay Area. Other load pocket concerns have arisen in parts of northern Virginia, and various load centers in SPP. Still other constraints are more regional in scope: (1) From the Midwest to the MidAtlantic, (2) from the Midwest to the Tennessee Valley Authority (TVA), (3) into and within California, (4) from TVA and Southern into Entergy, (5) from MidAmerica Interconnected Network into WisconsinUpper Michigan Systems, and (6) into Florida. The existence of these and other constraints affecting transmission systems can result in an increase in the frequency of denials of requests for transmission service, and an increase in the frequency of transmission service interruptions and/or curtailments of transmission service. While not all congestion needs to be remedied (i.e., if the cost of the congestion is less than the cost to relieve it), it is also true that undue discrimination and preferential treatment also are much more difficult to detect when the transmission grid is constrained, given the lack of transparency in ATC calculations and transmission system planning. Increased congestion also presents additional opportunities for undue discrimination. As a result, it is more difficult for the Commission to carry out its statutory responsibility to ensure that transmission providers provide nondiscriminatory open access transmission service.
33. In recognition of the lack of adequate infrastructure, a broad
crosssection of the industry supports greater coordination in the
planning and investment in transmission infrastructure between
transmission providers, transmission customers and state regulatory
agencies. A major focus of comments on our NOI was the need to plan and
build infrastructure to facilitate regional electricity markets. For
example, AEP argues that the most important issue faced by public
utilities and their customers is not daytoday OATT administration but
the planning and expansion of the transmission grid. EEI likewise
asserts that the focus should be on the need to develop energy
infrastructure necessary to facilitate growth in wholesale electric
market transactions. Santa Clara acknowledges that lack of needed
infrastructure causes the grid to become constrained and less reliable,
which sometimes provides even stronger incentives for owners to
restrict access by others. The Nevada Companies urge the Commission to
focus on ways Order No. 888 and the pro forma OATT can be revised to
eliminate disincentives to the construction of additional transmission facilities. Xcel suggests that the
Commission focus its efforts on ways to encourage investment in new energy infrastructure as a way of easing congestion and enabling growth in market transactions. Salt River contends that the Commission should increase incentives to participate in longterm regional planning processes. Midwest SATs argue that increased access for all transmission system users through policies that promote investment in transmission will do more to reduce undue discrimination than policies that seek to uncover and penalize such discrimination.
34. Customers also complain that there is often a lack of transparency in utility transmission planning processes, which the customers claim typically do not include economic system upgrades that would benefit nonaffiliate users of the system. Customers also note the lack of clarity in the existing planning obligations required of transmission providers. They assert that these failures have contributed to the inadequate development of the transmission grid.
35. Order No. 888 contemplated that ISOs would enhance infrastructure development through open and regional planning processes, but these efforts have stalled in many regions of the country. Even where RTOs have been established, there have been concerns that the planning process has not always been sufficiently robust, inclusive or transparent to ensure that transmission investment occurs where it is reasonably needed for all users of the grid. For example, in its reply comments, TDU Systems urges the Commission to include RTOs in its planning reforms, contending that many RTO planning processes are not open to all stakeholders, nor are they collaborative and inclusive. Many commenters argue that RTO transmission planning regimes have failed to get needed transmission facilities built.\55\ \55\ E.g., APPA, TDU Systems Reply Comments, and Williams Reply Comments.
36. We conclude that the inadequacy of the existing obligation to conduct joint and regional transmission system planning, coupled with the lack of transparency surrounding system planning generally, require reform of the pro forma OATT to ensure that transmission infrastructure is constructed on a nondiscriminatory basis and is otherwise sufficient to support reliable and economic service to all eligible customers. D. A Consistent Method of Measuring ATC Has Not Been Established
37. Under Order No. 888, each public utility calculates the amount
of transfer capability on its system that is available for sale to
third parties.\56\ However, Order No. 888 did not require that the
methodology for ATC calculation be standardized across the industry,
nor did it impose any specific requirements regarding the disclosure of
the methodologies used by each transmission provider. As a result,
there are a variety of ATC calculation methodologies in use today.
Moreover, there is often very little transparency regarding the nature
of these calculations, given that many transmission providers have
filed only summary explanations of their ATC methodologies in
Attachment C to the OATT. As a result, transmission providers retain
unnecessarily broad discretion in calculating ATC. The resulting
discretion is a significant problem because calculation of ATC, which
varies greatly depending on the criteria and assumptions used, may
allow the transmission provider to discriminate in subtle ways against
its competitors. This discretion, coupled with the lack of
transparency, also hampers the detection of undue discrimination and,
thereby, undermines the Commission's ability to enforce the general
requirement in Order No. 888 that transmission service be provided on a not unduly discriminatory basis.\57\
\56\ Order No. 888 at 31,794 n.610.
\57\ APPA submitted comments in Docket No. RM0517000 arguing that the calculation and posting of ATC ``sits at the pivot point among reliability, economic regulation and wholesale electric commerce.'' APPA at 5.
38. The comments on the NOI and the ATC NOI reflect these
underlying problems. Many market participants complain that there is
widespread misinformation regarding the actual ATC, which results in
missed opportunities for transactions. ATC calculation errors often
occur. A lack of transparency leaves transmission customers unaware of
why some transmission requests are granted and others are denied.\58\
Several ATC inputs, such as the capacity benefit margin (CBM) or the
transmission reliability margin (TRM), can be calculated using overly
conservative or otherwise faulty assumptions. Transmission customers
often complain that transmission providers designate unreasonably high
CBM or TRM levels, which limits the amount of remaining transfer capability available for other users of the system.
\58\ See, e.g., EEI at 18 (agreeing that the Commission should require transmission providers to make their ATC calculations more transparent).
39. As a result of these uncertainties, the Commission issued the
ATC NOI to address the lack of clear and consistent methodologies for
calculating ATC. In the ATC NOI, the Commission acknowledged that NERC
has been working on specific recommendations for calculating and
coordinating ATC and available flowgate capability (AFC).\59\ That NERC
effort culminated in a report and a number of recommendations. The
Commission asked for comments on those recommendations, as well as
comments on whether there should be common transmission calculation
methodologies among regions. The Commission has reviewed those comments as part of this proceeding.\60\
\59\ See NERC, LongTerm AFC/ATC Task Force Final Report (2005) (NERC Report) at 2, available at ftp://www.nerc.com/pub/sys/all_updl/mc/ltatf/LTATF_Final_Report_Revised.pdf .
\60\ Accordingly, we consolidate Docket No. RM0517000 with this proceeding. We will distinguish the comments received in the ATC NOI proceeding by the designation ``ATC NOI Comments.'' In addition, we also revise the name of the proceeding in Docket No. RM0517000 to ``Preventing Undue Discrimination and Preference in Transmission Service.''
40. Many commenters support the development of a consistent,
industrywide methodology for calculating ATC.\61\ These commenters
maintain that a requirement that all transmission providers use the
same methodology to determine ATC would not only remedy the lack of
clarity that surrounds these calculations and reservations, but would
provide regulatory certainty and assist transmission customers in predicting the outcome of transmission service requests.
\61\ E.g., Alcoa, AWEA, Constellation, Exelon, Occidental, and Renewable Energy.
41. We agree. Although the industry has sought to pursue greater
consistency in ATC calculations through existing NERC processes, those
efforts to date have been largely unsuccessful. The lack of a
consistent, industrywide methodology for calculating ATC gives
transmission providers the ability and the opportunity to unduly
discriminate against third parties. We therefore propose below a number
of reforms to the process of calculating ATC to provide clarity and transparency to users of the grid.
E. A Number of Transmission Pricing Policies May Impede the Use of the Grid
42. Transmission customers often complain about the level and scope
of imbalance charges that are levied under the pro forma OATT and under individual interconnection agreements.
Energy imbalance charges, including penalties on some systems, are imposed on a transmission customer when the amount of energy scheduled for delivery to the transmission grid does not equal the amount of energy withdrawn by that customer. Customers complain that these charges are excessive and not related to the actual costs incurred by transmission providers. They also argue that the inconsistency between these charges in different control areas is unnecessary, and that other means of compensating the transmission provider, such as returnin kind, should be considered. Generator imbalance charges are levied on generators for deviations between the amount of energy they schedule and the amount they actually deliver to the grid. Generators likewise complain that these charges are excessive, that transmission providers refuse to credit generators with the revenues resulting from imbalance penalties that are collected, and that transmission providers prevent unaffiliated generators from purchasing or selfsupplying generator imbalance services. In addition, owners of intermittent resources complain that generator imbalance penalties, which are imposed to provide an incentive for generators to schedule accurately, are inappropriate given their lack of control and ability to cure deviations.
43. Transmission providers and customers raise a number of concerns related to the pricing of transmission service under Order No. 888, contending that the Commission's pricing policies are in need of reform. For example, under the pro forma OATT, network customers can receive a credit toward their transmission charges for new facilities that they jointly plan with the transmission provider. Customers contend that this provision actually acts as a disincentive for joint planning because transmission providers can avoid granting credits if they fail to jointly plan with their transmission customers.
44. Finally, there is also concern about the appropriate rate for transmission capacity that has been resold by the original transmission customer. Under Order No. 888, such capacity may be priced at the higher of the original rate, the transmission provider's maximum stated firm rate, or the assignor's opportunity costs capped at the cost of expansion. Customers complain that this policy does not work when opportunity costs exceed the embedded cost rate, because the assignor must make a FPA section 205 filing with the Commission that estimates its opportunity cost over the term of the reassignment as well as the cost of system expansion. The time and effort required to complete the regulatory process appears to inhibit such reassignments.
45. Although Order No. 888 was primarily directed at establishing
the nonrate terms and conditions of open access, the rule did adopt
certain pricing policies that were associated with the form of open
access being ordered. After reviewing the comments, we believe certain
reforms are appropriate because some of the pricing policies associated
with the pro forma OATT are no longer just and reasonable or are
otherwise unduly discriminatory. However, we do not intend to pursue
generic reform of other pricing policies that are better addressed on a
regionor casespecific basis, such as the pricing of new transmission facilities.
F. EPAct 2005 Emphasized Certain Policies and Priorities for the Commission
46. The reforms we propose today also are consistent with the policies and priorities embodied in EPAct 2005, in which Congress emphasized many of the principles reflected in this NOPR.
47. First, Congress in EPAct 2005 placed special emphasis on the development of transmission infrastructure. Congress required the Commission to adopt a rule establishing incentivebased rates for new transmission infrastructure investment. The stated purpose of new FPA section 219 is to benefit ``consumers by ensuring reliability and reducing the cost of delivered power by reducing transmission congestion.'' \62\ FPA section 219 requires the Commission to ``promot[e] capital investment in the enlargement, improvement, ma
FOR FURTHER INFORMATION CONTACT
Daniel Hedberg (Technical Information), Office of Energy Markets and Reliability, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, (202) 5026243.
Kathleen Barron (Legal Information), Office of the General CounselEnergy Markets, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, (202) 5026461.
David Withnell (Legal Information), Office of the General Counsel Energy Markets, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426. (202) 5028421.