[Federal Register Volume 77, Number 142 (Tuesday, July 24, 2012)]
[Proposed Rules]
[Pages 43184-43189]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-18012]
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DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
18 CFR Parts 2 and 35
[Docket Nos. AD12-9-000 and AD11-11-000]
Allocation of Capacity on New Merchant Transmission Projects and
New Cost-Based, Participant-Funded Transmission Projects; Priority
Rights to New Participant-Funded Transmission
AGENCY: Federal Energy Regulatory Commission, DOE.
ACTION: Proposed Policy Statement.
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SUMMARY: The Commission seeks comment on this proposed policy
statement, which clarifies and refines current policies governing the
allocation of capacity for new merchant transmission projects and new
nonincumbent, cost-based, participant-funded transmission projects. The
Commission proposes to allow developers of such projects to select a
subset of customers, based on not unduly discriminatory or preferential
criteria, and negotiate directly with those customers to reach
agreement on the key terms and conditions for procuring capacity, when
the developers (1) broadly solicit interest in the project from
potential customers, and (2) file a report with the Commission
describing the solicitation, selection and negotiation process. The
Commission proposes these policy reforms to ensure transparency in the
capacity allocation process while providing developers the ability to
bilaterally negotiate rates, terms, and conditions for the full amount
of transmission capacity with potential customers.
DATES: Comments on the proposed policy statement are due on or before
September 24, 2012.
FOR FURTHER INFORMATION CONTACT:
Becky Robinson, Office of Energy Policy and Innovation, 888 First
Street NE., Washington, DC 20426, (202) 502-8868,
becky.robinson@ferc.gov.
Andrew Weinstein, Office of General Counsel, 888 First Street NE.,
Washington, DC 20426, (202) 502-6230, andrew.weinstein@ferc.gov.
Brian Bak, Office of Energy Policy and Innovation, 888 First Street
NE., Washington, DC 20426, (202) 502-6574, brian.bak@ferc.gov.
SUPPLEMENTARY INFORMATION:
140 FERC ] 61,061
Before Commissioners: Jon Wellinghoff, Chairman; Philip D. Moeller,
John R. Norris, Cheryl A. LaFleur, and Tony T. Clark.
Proposed Policy Statement
Issued July 19, 2012.
I. Introduction
1. The Commission seeks comment on this proposed policy statement,
which clarifies and refines current policies governing the allocation
of capacity for new merchant transmission projects and new
nonincumbent, cost-based, participant-funded transmission projects. In
recent years, a number of merchant and nontraditional transmission
developers have sought guidance from the Commission regarding
application of open access principles to new transmission facilities
through petitions for declaratory orders. As the Commission addressed
these requests, its policies have evolved over time to provide
potential customers adequate opportunities to obtain service while also
providing transmission developers adequate certainty to assist with
financing transmission projects. As a result of these evolving
policies, different rules have been adopted regarding capacity
allocation for merchant transmission projects and nonincumbent, cost-
based, participant-funded transmission projects.
2. With the benefit of experience regarding the unique
characteristics of merchant and other nontraditional transmission
project proposals, and in consideration of industry input on Commission
policies regarding the allocation of capacity on such projects, the
Commission proposes to streamline its capacity allocation policies by
establishing consistent policies regarding capacity allocation for both
merchant transmission projects and nonincumbent, cost-based,
participant-funded transmission projects. Specifically, the Commission
proposes to allow developers of such projects to select a subset of
customers, based on not unduly discriminatory or preferential criteria,
and negotiate directly with those customers to reach agreement on the
key terms and conditions for procuring capacity, when they (1) broadly
solicit interest in the project from potential customers, and (2)
submit a report to the Commission describing the solicitation,
selection and negotiation process. The Commission proposes these policy
reforms to ensure transparency in the capacity allocation process while
providing developers the ability to negotiate bilaterally with
potential customers the rates, terms, and conditions for the full
amount of transmission capacity. These policy reforms would be
implemented within the existing four factor analysis used to evaluate
requests for negotiated rate authority.\1\ The Commission seeks comment
regarding this proposed change in policy, as discussed below.
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\1\ See infra note 29.
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II. Background
3. The Commission first granted negotiated rate authority to a
merchant transmission project developer over a decade ago, finding that
merchant transmission can play a useful role in expanding competitive
generation alternatives for customers.\2\ Unlike
[[Page 43185]]
traditional utilities recovering their costs-of-service from captive
and wholesale customers, investors in merchant transmission projects
assume the full market risk of development.\3\ Over the course of a
number of early proceedings, the Commission developed ten criteria to
guide its analysis in making a determination as to whether negotiated
rate authority would be just and reasonable for a given merchant
transmission project.\4\ Two of these criteria were that (1) an open
season process should be employed to initially allocate all
transmission capacity and (2) the results of the open season should be
posted on an Open Access Same-Time Information System (OASIS) and filed
in a report with the Commission.\5\
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\2\ TransEnergie U.S., Ltd. 91 FERC ] 61,230, at 61,838 (2000)
(TransEnergie).
\3\ Id. at 61,836.
\4\ Id.; Neptune Regional Transmission System, LLC, 96 FERC ]
61,147, at 61,633 (2001) (Neptune); Northeast Utilities Service Co.,
97 FERC ] 61,026, at 61,075 (2001) (Northeast Utilities I);
Northeast Utilities Service Co., 98 FERC ] 61,310, at 62,327 (2002)
(Northeast Utilities II).
\5\ The ten criteria are: (1) The merchant transmission facility
must assume full market risk; (2) the service should be provided
under the open access transmission tariff (OATT) of the Independent
System Operator (ISO) or Regional Transmission Organization (RTO)
that operates the merchant transmission facility and that
operational control be given to that ISO or RTO; (3) the merchant
transmission facility should create tradable firm secondary
transmission rights; (4) an open season process should be employed
to initially allocate transmission rights; (5) the results of the
open season should be posted on the OASIS and filed in a report to
the Commission; (6) affiliate concerns should be adequately
addressed; (7) the merchant transmission facility not preclude
access to essential facilities by competitors; (8) the merchant
transmission facilities should be subject to market monitoring for
market power abuse; (9) physical energy flows on merchant
transmission facilities should be coordinated with, and subject to,
reliability requirements of the relevant ISO or RTO; and (10)
merchant transmission facilities should not impair pre-existing
property rights to use the transmission grids of inter-connected
RTOs or utilities. E.g., Northeast Utilities I, 97 FERC at 61,075.
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4. In Chinook, the Commission refined its approach to evaluating
merchant transmission by adopting a four-factor analysis.\6\ Under this
analysis, the Commission continues to rely upon an open season and a
post-open season report as a means to provide transparency in the
allocation of initial transmission capacity and ensure against undue
discrimination among potential customers in the award of transmission
capacity. Specifically, the Commission evaluates the terms and
conditions of the open season as part of ensuring no undue
discrimination (second factor),\7\ and uses the open season as an added
protection in overseeing any affiliate participation, to ensure no
undue preference or affiliate concerns (third factor).
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\6\ The four factors are: (1) the justness and reasonableness of
rates; (2) the potential for undue discrimination; (3) the potential
for undue preference, including affiliate preference; and (4)
regional reliability and operational efficiency requirements. E.g.,
Chinook Power Transmission, LLC, 126 FERC ] 61,134, at P 37 (2009)
(Chinook).
\7\ Also, the Commission looks to a developer's own OATT
commitments or its commitment to turn operational control over to an
RTO or ISO. See id. P 40. Guidance given in this policy statement
with regards to satisfying the second factor is directed at the open
season requirement; the Commission will continue to require merchant
and other transmission developers either to file an OATT or to turn
over control to an RTO or ISO.
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5. The Chinook order also marked a change in Commission policy on
capacity allocation, as in that order the Commission for the first time
authorized developers to allocate some portion of capacity through
anchor customer presubscriptions, while requiring that the remaining
portion be allocated in a subsequent open season. The Commission
implemented this policy to achieve the dual goals of requiring an open
season process that ensures capacity on a merchant transmission project
is allocated transparently in an open, fair, and not unduly
discriminatory manner, while permitting an anchor customer model that
enables developers of merchant transmission projects to meet the
financial challenges unique to merchant transmission development.\8\
Since the Chinook order, the Commission has issued orders on several
new merchant and other nontraditional transmission development
proposals, including granting requests to allocate up to 75 percent of
a transmission project's capacity to anchor customers.\9\
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\8\ See id. P 46.
\9\ See, e.g., Champlain Hudson Power Express, Inc., 132 FERC ]
61,006 (2010); Rock Island Clean Line LLC, 139 FERC ] 61,142 (2012);
Southern Cross Transmission LLC, 137 FERC ] 61,207 (2011).
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6. The Commission also has received proposals from transmission
developers regarding the allocation of capacity on cost-based,
participant-funded transmission projects. These proceedings involved
incumbent transmission developers,\10\ while one involved a
nonincumbent transmission developer.\11\ In NU/NSTAR, the Commission
approved the structure of a transaction whereby a customer was granted
usage rights to transmission capacity in exchange for funding the
transmission expansion, under the reasoning that any potential
transmission customer has the right to request transmission service
expansion from a transmission owning utility, and that utility is
obligated to make any necessary system expansions and offer service at
the higher of an incremental cost or an embedded cost rate to the
transmission customer. More recently, in National Grid, the Commission
found again that participant funding of transmission projects by
incumbent transmission providers is not inconsistent with the
Commission's open access requirements.\12\ Cost-based participant-
funded projects are similar to merchant projects in that both involve
willing customers assuming part of the risk of a transmission project
in return for defined capacity rights; i.e., there is no direct
assignment of costs to captive customers. Cost-based participant-funded
projects differ between incumbents and nonincumbents, in that incumbent
transmission providers have a clearly defined set of existing
obligations under their tariffs for the expansion of their existing
transmission facilities, whereas nonincumbents have no existing
obligation to build any transmission facilities.
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\10\ See, e.g., Northeast Utilities Service Company, NSTAR
Electric Company, 127 FERC ] 61,179 (2009) (NU/NStar), order denying
reh'g. and clarification, 129 FERC ] 61,279 (2009); National Grid
Transmission Services Corporation and Bangor Hydro Electric Company,
139 FERC ] 61,129 (2012) (National Grid).
\11\ See Grasslands Renewable Energy, LLC, 133 FERC ] 61,225
(2010).
\12\ National Grid, 139 FERC ] 61,129 at P 29.
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7. To gain feedback regarding the Commission's capacity allocation
policies, the Commission held a technical conference in March 2011 to
discuss the extent to which nonincumbent developers of transmission
should be provided flexibility in the allocation of rights to use
transmission facilities developed on a cost-of-service or negotiated
rate basis.\13\ Participants at that conference and subsequent
commenters acknowledged the value in widely soliciting new customers,
but they also expressed the desire to be able to allocate 100 percent
of their projects' capacity through bilateral negotiations with
identified customers.\14\ Based on these comments, the Commission held
a follow up workshop in February 2012 to obtain input on potential
reforms to the Commission's capacity allocation policies.\15\ Many
participants at the
[[Page 43186]]
2012 workshop suggested that the need for flexibility required
something less structured than the traditional open season process.
Specifically, some commenters, including transmission developers,
emphasized the inherent incentive transmission developers have to
solicit interest widely and attract potential customers to their
project, so that they can identify customers that are most likely to be
successful in their own generation projects and therefore provide the
greatest certainty that they will be successful in becoming
transmission customers.\16\ In this respect, these commenters argued
that their incentives harmonize with the Commission's goals of open
access. Further, they argue that their class of transmission developers
does not raise the same concerns that motivated the Commission in Order
No. 888,\17\ where vertically-integrated utilities had an economic
incentive to favor their own generation and discriminate against
competitors when providing transmission service.\18\
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\13\ ``Priority Rights to New Participant-Funded Transmission,''
AD11-11-000, March 15, 2011. This technical conference also
addressed generator lead lines, but those facilities are not the
subject of this proposed policy statement.
\14\ See, e.g., Clean Line Energy Partners May 5, 2011 Comments
at 7 (Clean Line); LS Power Transmission, LLC May 5, 2011 Comments
at 3-4 (LSPT); Transmission Developers, Inc., May 5, 2011 Comments
at 4-5 (TDI); Western Independent Transmission Group May 5, 2011
Comments at 6 (WITG); and Tonbridge Power Inc. April 19, 2011
Comments at 2 (Tonbridge).
\15\ ``Allocation of Capacity on New Merchant Transmission
Projects and New Cost-Based, Participant-Funded Transmission
Projects,'' Docket No. AD12-9-000 (February 28, 2012).
\16\ See, e.g., MATL LLP and Montana Alberta Tie, Ltd. March 29,
2012 Comments at 3 (MATL).
\17\ 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, order on reh'g, Order No.
888-B, 81 FERC ] 61,248 (1997), order on reh'g, Order No. 888-C, 82
FERC ] 61,046 (1998), aff'd in relevant part sub nom. Transmission
Access Policy Study Group v. FERC, 225 F.3d 667 (DC Cir. 2000),
aff'd sub nom. New York v. FERC, 535 U.S. 1 (2002).
\18\ SunZia Transmission, LLC March 29, 2012 Comments at 7
(SunZia).
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8. However, commenters also focused on the need for negotiation
flexibility during the capacity allocation process,\19\ pointing out
that the transmission developer and customer need to address a variety
of issues, including points of delivery and receipt, project timing and
what happens if schedules change, termination rights of parties at
various development stages, development cost-sharing, length and
payments of the initial term of service, extensions of the term and
associated payments.\20\ These commenters argued that a rigid open
season process that requires developers to offer all customers the same
terms and conditions does not allow for the bilateral exchange of
information to address the unique needs of developers and their
potential customers. Moreover, these commenters pointed out that there
have been no claims of undue discrimination resulting from any of the
anchor customer proposals the Commission has approved, to date,\21\ and
that parties who feel they were unduly discriminated against have had,
as an added protection, the right to file a section 206 complaint.\22\
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\19\ See, e.g., WITG March 28, 2012 Comments at 5; Clean Line
March 28, 2012 Comments at 5-7; SunZia March 29, 2012 Comments at 3-
6, 9; LSPT March 29, 2012 Comments at 2-4; and Pattern Transmission
March 28, 2012 Comments at 6-7 (Pattern).
\20\ LSPT March 29, 2012 Comments at 2-3.
\21\ TransWest Express LLC March 28, 2012 Comments at 7.
\22\ Duke Energy Corporation March 29, 2012 Comments at 7-8; 16
U.S.C. 824e (2006).
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9. However, other commenters at the 2012 workshop voiced concerns
with the merchant transmission model in general, and the opportunity
for potentially unduly discriminatory deals.\23\ They argued that
allowing more flexibility for merchant transmission developers is
tantamount to reverting to the pre-open access Order No. 888 days of
transmission regulation, and discouraged the Commission from pursuing
policies that enable anchor customers to exclude or burden generation
competitors or engage in other abusive practices the Commission sought
to eradicate in Order No. 888. Such commenters favor requiring merchant
transmission developer participation in the regional planning
process.\24\ The staff of the Federal Trade Commission similarly
questions how the Commission will restrain merchant transmission
developers from exercising market power.\25\
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\23\ See, e.g., Transmission Access Policy Study Group March 29,
2012 Comments at 6-9 (TAPS); Transmission Dependent Utility Systems
March 29, 2012 Comments at 2-4; New Jersey Division of Rate Counsel
March 29, 2012 Comments at 2-4; and the Federal Trade Commission
staff June 14, 2012 Comments at 6-9 (FTC staff).
\24\ This latter argument is outside the scope of this
proceeding and was addressed in Order No. 1000-A. Transmission
Planning and Cost Allocation by Transmission Owning and Operating
Public Utilities, Order No. 1000, FERC Stats. & Regs. ] 31,323
(2011), order on reh'g, Order No. 1000-A, 139 FERC ] 61,132, at P
297 (2012).
\25\ FTC staff June 14, 2012 Comments at 9.
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10. The Commission believes that there is a role within its
transmission development policies for both bilateral negotiations for
transmission service and uniform rules and processes through the pro
forma OATT for all customers at all times. The policy of open access
and comparable treatment is the underpinning of the Commission's
approach to ensuring against undue discrimination and permeates many,
if not all, of the Commission's programs. However, this does not mean
that the Commission cannot be flexible in how it accomplishes open
access and comparable treatment. As Order No. 1000 \26\ is implemented
around the country, the Commission expects that more transmission needs
will be identified and addressed through the open and transparent
regional transmission planning process. Nonetheless, bilateral
negotiation between transmission developers and potential customers may
be another appropriate vehicle for new merchant transmission projects
and new nonincumbent, cost-based, participant-funded transmission
projects to move forward. In fact, Order No. 1000 allowed for such a
vehicle, noting that some projects may not seek to pursue regional or
interregional cost allocation.\27\ In addition, there may be projects
that are considered in the regional planning process that, although not
ultimately selected in a regional plan for purposes of cost allocation,
have sufficient value for individual potential customers such that they
wish to pursue them through bilateral negotiations with a potential
developer. This proposed policy statement is intended to provide a
``roadmap'' for entities to pursue those projects, while also serving
to ensure transparency in the allocations of capacity resulting from
such bilateral negotiation and, in turn, to ensure that transmission
service is provided at rates, terms and conditions that are just and
reasonable and not unduly discriminatory.
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\26\ Transmission Planning and Cost Allocation by Transmission
Owning and Operating Public Utilities, Order No. 1000, FERC Stats. &
Regs. ] 31,323 (2011), order on reh'g, Order No. 1000-A, 139 FERC ]
61,132 (2012).
\27\ See Order No. 1000, FERC Stats. & Regs. ] 31,323 at P 725;
Order No. 1000-A, 139 FERC ] 61,132 at PP 728-729 (``[N]othing in
Order No. 1000 forecloses the opportunity for a transmission
developer, a group of transmission developers, or one or more
individual transmission customers to voluntarily assume the costs of
a new transmission facility * * *. Transmission developers who see
particular advantages in participant funding remain free to use it
on their own or jointly with others. This simply means they would
not be pursuing regional or interregional cost allocation.'').
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11. Accordingly, the Commission proposes to clarify and refine its
policies governing the allocation capacity for new merchant
transmission projects and new nonincumbent, cost-based, participant-
funded transmission projects to ensure that it is done in an open and
transparent manner, giving all interested parties a chance to
participate. The Commission believes that the proposed capacity
allocation process outlined here satisfies our statutory
responsibilities, provides sufficient transparency and protections to
market participants, and is responsive to the industry concerns.
[[Page 43187]]
III. Discussion
A. Merchant Transmission Projects
12. The Commission proposes to revise its merchant transmission
policy to streamline the process by which capacity may be allocated on
new merchant transmission projects and to expect more detail and
transparency in the report describing the developer's capacity
allocation approach. While the Commission's fundamental concerns
continue to be that new transmission capacity be allocated in a not
unduly discriminatory or preferential manner, the Commission's
experience with new merchant transmission projects and comments
received during the technical conference and workshop suggest that we
can provide more flexibility while addressing these concerns. The
Commission proposes to allow merchant transmission developers to
allocate up to 100 percent of their projects' capacity through
bilateral negotiations.\28\ With the transparency protections discussed
below, the Commission also proposes to allow capacity allocation to
affiliates, when done in a transparent manner, so that other interested
parties can voice concern if they believe the affiliate was treated
preferentially at the expense of another party.\29\
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\28\ Commenters in the technical conference and in the workshop
specifically requested that the Commission clarify circumstances
under which merchant transmission developers would be allowed to
allocate up to 100 percent of their project's capacity through
bilateral negotiations.
\29\ By proposing to adopt the policies herein, the Commission
seeks to encourage merchant transmission developers intending to
seek negotiated rate authority to utilize the guidelines discussed
below. To the extent that a merchant transmission developer
substantially complies with any such policies ultimately adopted by
the Commission, the developer would be deemed to have satisfied the
second (undue discrimination) and third (undue preference) factors
of the four-factor analysis.
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13. The flexibility we propose to afford under the policy outlined
below is complemented by the emphasis on additional detail in reports
describing the developer's capacity allocation approach. The Commission
agrees with commenters that each merchant transmission project has
unique characteristics that require the ability to negotiate risk-
sharing and other details. The Commission also acknowledges that
merchant transmission developers have inherent incentives to solicit
interest widely in a potential project. However, other commenters point
out that counter-incentives may exist that motivate a developer to
unduly prefer one or more customers. To protect against undue
discrimination, the Commission proposes to allow merchant transmission
developers to engage in an open solicitation to identify potential
transmission customers, but with the expectation that they will submit
to the Commission reports regarding the processes that led to the
identification of customers and execution of relevant capacity
arrangements. The Commission believes that this approach, when coupled
with the existing opportunity to file complaints under FPA section 206,
serves the interest of customers and developers alike.\30\
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\30\ See Chinook, 126 FERC ] 61,134 at P 41.
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1. Open Solicitation Process
14. In the past, the Commission has required an open season for the
allocation of capacity on new merchant transmission projects. The open
season requirement was to ensure open access to transmission capacity
and prevent the withholding of transmission capacity from interested
transmission customers, and also to enable the developer to assess the
size of the market. However, beginning with the Chinook order, the
Commission also began to allow the allocation of a portion of
transmission capacity through bilateral negotiations prior to an open
season. Thus, current Commission policy allows a merchant transmission
developer to solicit interest through bilateral negotiations for a
portion of its capacity so long as it makes the remainder available
through an open season.
15. Based on the Commission's experience with prior cases and
information received from the technical conference and workshop, the
Commission believes that bilateral negotiations, if conducted in a
transparent manner, may serve the same purpose as an open season
process by ensuring against undue discrimination or preference in the
provision of transmission service. Hence, the Commission proposes that,
in seeking negotiated rate authority, merchant transmission developers
should also engage in an open solicitation of interest in their
projects from potential transmission customers (without the previous
requirement of an open season). Such open solicitation should include a
broad notice issued in a manner that ensures that all potential and
interested customers are informed of the proposed project. For example,
such notice may be placed in trade magazines, regional energy
publications, communications with regional transmission planning
groups, and email distribution lists addressing transmission-related
matters. Such notice should include transmission developer points of
contact and pertinent project dates, as well as sufficient technical
specifications and contract information to inform interested customers
of the nature of the project, including:
Technical specifications
[ssquf] Project size/Capacity: MW and/or kV rating (specific
value or range of values)
[ssquf] End points of line (as specific as possible such as
points of interconnection to existing lines and substations,
although it may be potentially broad, such as Montana to Nevada, if
the project is very early in development)
[ssquf] Projected construction and/or in-service dates
[ssquf] Type of line--for example, AC, DC, bi-directional
Contract information
[ssquf] Precedent agreement (if developed)
[ssquf] Other capacity allocation arrangements (including how it
will address potential oversubscription of capacity)
16. The developer should also specify in the notice the criteria it
plans to use to select transmission customers, such as credit rating;
``first mover'' status, i.e., customers who respond early and take on
greater project risk; and customers' willingness to incorporate project
risk-sharing into their contracts. This will contribute to the
transparency of the process, and help interested entities know at the
outset the features of the project and how the bids to the merchant
transmission developer will be considered.
17. Finally, the merchant transmission developer would be expected
to update its posting if there are any material changes to the nature
of the project or the status of capacity allocation.
18. Under this proposed process, once a subset of customers has
been identified by the developer through the open solicitation process,
the Commission would allow developers to engage in bilateral
negotiations with each potential customer on the specific terms and
conditions for procuring transmission capacity, as the Commission
recognizes that developers and potential customers may need to
negotiate individualized terms that meet their unique needs.\31\ In
these
[[Page 43188]]
negotiations, the Commission proposes to allow for distinctions among
prospective customers based on transparent and not unduly
discriminatory or preferential criteria--so long as the differences in
negotiated terms recognize material differences and do not result in
undue discrimination or preference --with the potential result that a
single customer may be awarded up to 100 percent of capacity. For
instance, developers might offer ``first mover'' customers more
favorable terms and conditions than later customers.
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\31\ While negotiations for the allocation of initial
transmission rights may address terms and conditions of the
transmission service to be ultimately taken once the facilities are
in service, the Commission will adhere to its policy, regardless of
any negotiated agreement, that any deviations from the Commission's
pro forma OATT must be justified as consistent with or superior to
the pro forma OATT when the transmission developer files its OATT
with the Commission and any deviations will be evaluated on that
basis by the Commission when they are submitted. See Chinook, 126
FERC ] 61,134 at PP 47, 63.
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2. Reporting
19. In the past, the Commission required that developers file a
report, shortly after the close of the open season, on the results of
the open season and any anchor customer presubscription, including
information on the notice of the open season, the method used for
evaluating bids, the identity of the parties that purchased capacity,
and the amount, term, and price of that capacity.\32\ The Commission
required this report to provide transparency to the allocation of
initial transmission rights, and to enable unsuccessful bidders to
determine if they were treated in an unduly discriminatory manner so
that they may file a complaint if they believe they were.\33\
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\32\ Chinook, 126 FERC ] 61,134 at PP 41, 43.
\33\ See Chinook, 126 FERC ] 61,134 at P 41; Montana Alberta
Tie, Ltd., 116 FERC ] 61,071, at P 37 (2006).
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20. The Commission now proposes to place more emphasis on
reporting, as the success of the capacity allocation approach proposed
here and its ability to prevent undue discrimination relies, to a
noticeable degree, on the transparency this report provides. Open
access requires not only that everyone is given an opportunity to seek
access, but also that entities know how their bids were evaluated and,
if they were not selected in the initial allocation of transmission
rights, on what basis that decision was made. If a party feels it was
treated in an unduly discriminatory way, it may file a complaint under
section 206 of the FPA; however, parties must have access to the
relevant information on the outcomes of the capacity allocation process
to evaluate whether or not they were treated fairly.
21. To prevent against undue discrimination by merchant
transmission developers, a report should be submitted shortly after the
completion of the open solicitation process and the resulting
negotiations describing the processes that led to the identification of
transmission customers and the execution of the relevant contractual
arrangements. The merchant transmission developer should describe the
criteria used to select customers, any price terms, and any risk-
sharing terms and conditions that served as the basis for identifying
transmission customers selected versus those that were not. The
Commission proposes that the developer should include, at a minimum,
the following information in the report to provide sufficient
transparency to the Commission and interested parties:
(1) Steps the developer took to provide broad notice;
(2) Identity of the parties that purchased capacity, and the
amount, term, and price of that capacity;
(3) Basis for the developer's decision to prorate, or not to
prorate, capacity, if a proposed project is oversubscribed;
(4) Basis for the developer's decision not to increase capacity
for a proposed project if it is oversubscribed (including the
details of any relevant technical or financial bases for declining
to increase capacity);
(5) Justification for offering more favorable terms to certain
customers, such as ``first movers'' or those willing to take on
greater project risk-sharing;
(6) Criteria used for distinguishing customers and the method used
for evaluating bids. This should include specific details on how each
potential transmission customer (including both those who were and
those who were not allocated capacity) was evaluated and compared to
other potential transmission customers, both at the early stage when
the developer chooses with whom to enter into bilateral negotiations
and subsequently when the developer chooses in the negotiation phase to
whom to award transmission capacity;
(7) Explanation of decisions used to select and reject specific
customers. In particular, the report should identify the facts,
including any terms and conditions of agreements unique to individual
customers that led to their selection, and relevant information about
others that led to their rejection. If a selected customer is an
affiliate, the Commission will look more carefully at the basis for
reaching that determination.
22. The Commission anticipates that, under this proposed policy,
those developers requesting negotiated rate authority will file this
report either in conjunction with their request for negotiated rate
authority or as a compliance filing to a Commission order approving a
request for negotiated rate authority.\34\ This will allow interested
entities to submit comments on the report, or otherwise protest the
contents or insufficiency of the report, to ensure that there is
sufficient transparency, as well as to provide Commission oversight in
the capacity allocation process.\35\
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\34\ This flexibility in timing acknowledges that parties have
filed and may continue to file requests for negotiated rate
authority at various stages of their project development process.
\35\ Commenters opposing the Commission's merchant transmission
policy generally express concern regarding the use and allocation of
scarce rights-of-way. The Commission appreciates the significance of
this issue, but has limited authority to address it directly.
Through Order Nos. 890 and 1000, the Commission has increased
transparency in local and regional transmission planning processes,
and through this proposed policy statement seeks to increase
transparency in the negotiation of capacity allocation with merchant
transmission and nonincumbent, cost-based, participant-funded
developers. For example, as noted above, the pre-open solicitation
notice requirement and post-open solicitation reporting requirement
proposed here require developers to provide information on any
oversubscription of a proposed project. The Commission anticipates
that this kind of information may be useful for relevant entities
(such as siting authorities) as they evaluate whether a proposed
transmission facility satisfies applicable requirements for use and
allocation of rights-of-way.
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23. Beyond the reporting process described above, the Commission
does not propose to change its existing requirement that developers
seek Commission approval, either when the developer requests negotiated
rate authority or files its report describing its capacity allocation
approach, if an affiliate is expected to participate as a customer on
the proposed merchant transmission project. Further, consistent with
Commission precedent, in order to allow affiliate participation, the
Commission will expect an affirmative showing that the affiliate is not
afforded an undue preference.\36\
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\36\ See Chinook, 126 FERC ] 61,134 at PP 49-50.
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B. Nonincumbent, Cost-Based, Participant-Funded Projects
24. The Commission proposes to apply the policy reforms above to
nonincumbent, cost-based, participant-funded transmission developers.
The Commission has similar concerns regarding the capacity allocation
process regardless of whether the project is a nonincumbent, cost-
based, participant-funded transmission project or a merchant
transmission project. That is, the Commission is concerned that access
is not unduly discriminatory or preferential. We believe that the
process outlined herein will address our concerns regardless of the
manner by which transmission rates are determined. Commenters and
workshop participants support the Commission's
[[Page 43189]]
application of these policy reforms to both merchant transmission
developers and nonincumbent, cost-based, participant-funded
transmission developers.\37\
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\37\ TAPS March 29, 2012 Comments at 24; Pathfinder Renewable
Wind Energy, LLC March 28, 2012 Comments at 3-4.
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25. However, use of this common process does not eliminate the
distinction between these types of projects. In particular, although
the negotiations between developers and potential customers could
address a transmission rate, among other issues, the Commission's
approach to reviewing such a rate would be different for a new merchant
transmission project than for a new nonincumbent, cost-based,
participant-funded transmission project. For a merchant transmission
project, the Commission relies on the processes it sets forth to ensure
against undue discrimination in the award of capacity and the
willingness of the transmission developer and customers to negotiate a
transmission rate and terms and conditions, understanding that the
customers are not captive customers.\38\ For a nonincumbent, cost-
based, participant-funded transmission project, the Commission would
review the transmission rate, including any agreed upon return on
equity, in greater detail to ensure that it satisfies Commission
precedent regarding cost-based transmission service.
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\38\ TransEnergie, 91 FERC ] 61,230 at 61,836.
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26. While we are proposing that this capacity allocation process
apply equally to nonincumbent, cost-based, participant-funded projects,
we are not proposing to evaluate such projects based on the other
aspects of the four factor analysis set forth in Chinook.\39\ To the
extent nonincumbent, cost-based, participant-funded transmission
projects wish to use an anchor customer-type model, the effect of the
proposed policy would be that the Commission will deem any capacity
allocation process that follows the guidelines of this proposed policy
statement to satisfy its concerns regarding undue discrimination and
undue preference.
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\39\ We note, however, that petitions regarding capacity
allocation on nonincumbent, cost-based, participant-funded
transmission projects must continue to be evaluated by the
Commission in accordance with the Commissions' responsibilities
under the FPA.
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C. Incumbent, Cost-Based, Participant-Funded Projects
27. The Commission does not propose to change its case-by-case
evaluation of requests for cost-based participant-funded transmission
projects by incumbent transmission providers.\40\ As noted above,
incumbents differ from nonincumbents in that the former have a clearly
defined set of existing obligations under their OATTs with regard to
new transmission development, including participation in regional
planning processes and the processing of transmission service request
queues. Nonincumbent transmission developers do not yet own or operate
transmission facilities in the region that they propose to develop
transmission and, therefore, are not yet subject to an OATT in that
region. The proposed policy laid out above identifies the Commission's
policies regarding the allocation of capacity for merchant transmission
developers and nonincumbent, cost-based, participant-funded projects
during the development of a new transmission facility. In most
instances, we would expect that an incumbent transmission provider will
be able to use existing processes set forth in its OATT to allocate
capacity on a new transmission facility. These existing OATT processes
do not prohibit incumbent transmission owners from identifying projects
that could be constructed on a participant-funded basis in conjunction
with processing of transmission service requests or in addition to
meeting transmission needs through participation in a regional
transmission planning process.\41\ Furthermore, the Commission will
continue to entertain on a case-by-case basis requests for waiver of
any OATT requirements that may be needed for the incumbent transmission
owner to pursue innovative transmission development that is just,
reasonable, and not unduly discriminatory. For example, an incumbent
may seek waiver of serial queue processing requirements so that they
may cluster transmission service requests,\42\ or they may seek to
``ring fence'' a transmission project in order to ensure that new
transmission facilities developed for a particular customer or set of
customers do not adversely impact existing customers, including native
load.\43\ Incumbent developers should address the capacity allocation
issues in a manner that does not constitute undue discrimination or
preference and is consistent with the applicable Commission-accepted
tariffs.\44\
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\40\ See, e.g., NU/NSTAR; National Grid.
\41\ See, e.g., Subscription Process for Proposed PacifiCorp
Transmission Expansion Projects, available at http://www.oasis.pacificorp.com/oasis/ppw/SUBSCRIPTION_PROCESS.PDF (noting
incumbent's solicitation of interest from third parties in the
development of a cost-based transmission project in advance of
receipt of transmission service requests from third parties under
the incumbent's OATT).
\42\ See, e.g., Portland General Electric Co., 139 FERC ] 61,133
(2012) (granting waiver of serial queue processing requirements,
allowing a general facilities study for a cluster of transmission
and interconnection service requests).
\43\ See, e.g., Mountain States Transmission Intertie, LLC and
NorthWestern Corp., 127 FERC ] 61,270, at PP 2, 5 (2009) (incumbent
developing an export-only transmission project through a separate
stand-alone company so that their existing transmission customers
will not be required to subsidize the cost of a new transmission
facility to serve off-system markets; the Commission presented the
option of this project proceeding on a cost-of-service basis).
\44\ See National Grid, 139 FERC ] 61,129 at P 33.
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IV. Comment Procedures
28. The Commission invites comments on this proposed policy
statement September 24, 2012.
V. Document Availability
29. In addition to publishing the full text of this document in the
Federal Register, the Commission provides all interested persons an
opportunity to view and/or print the contents of this document via the
Internet through FERC's Home Page (http://www.ferc.gov) and in FERC's
Public Reference Room during normal business hours (8:30 a.m. to 5:00
p.m. Eastern time) at 888 First Street NE., Room 2A, Washington, DC
20426.
30. From FERC's Home Page on the Internet, this information is
available on eLibrary. The full text of this document is available on
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or
downloading. To access this document in eLibrary, type the docket
number excluding the last three digits of this document in the docket
number field.
31. User assistance is available for eLibrary and the FERC's Web
site during normal business hours from FERC Online Support at 202-502-
6652 (toll free at 1-866-208-3676) or email at
ferconlinesupport@ferc.gov, or the Public Reference Room at (202) 502-
8371, TTY (202)502-8659. Email the Public Reference Room at
public.referenceroom@ferc.gov.
By the Commission.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2012-18012 Filed 7-23-12; 8:45 am]
BILLING CODE 6717-01-P