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pdf126 FERC ¶ 61,254
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
18 CFR Part 42
(Docket No. RM06-8-002; Order No. 681-B)
Long-Term Firm Transmission Rights in Organized Electricity Markets
(Issued March 20, 2009)
AGENCY: Federal Energy Regulatory Commission.
ACTION: Final Rule; Order on Rehearing and Clarification
SUMMARY: The Federal Energy Regulatory Commission is issuing an order on
rehearing and clarification of Long-Term Firm Transmission Rights in Organized
Electricity Markets, Order No. 681-A, 71 Fed. Reg. 68,440 (November 16, 2006). The
order on rehearing affirms, with certain clarifications, the fundamental determinations
made in Order No. 681, as clarified by Order No. 681-A.
EFFECTIVE DATE: Order No. 681 became effective on August 31, 2006. This order
on rehearing and clarification will become effective [insert date that is thirty days after
publication in the FEDERAL REGISTER].
FOR FURTHER INFORMATION CONTACT:
Roland Wentworth (Technical Information)
Office of Energy Market Regulation
Federal Energy Regulatory Commission
888 First Street, N.E.
Washington, D.C. 20426
(202) 502-8262
Docket No. RM06-8-002
Michael P. McLaughlin (Technical Information)
Office of Energy Market Regulation
Federal Energy Regulatory Commission
888 First Street, N.E.
Washington, D.C. 20426
(202) 502-6135
Heidi Werntz (Legal Information)
Office of the General Counsel
Federal Energy Regulatory Commission
888 First Street, N.E.
Washington, D.C. 20426
(202) 502-8910
Richard Wartchow (Legal Information)
Office of the General Counsel
Federal Energy Regulatory Commission
888 First Street, N.E.
Washington, D.C. 20426
(202) 502-8744
SUPPLEMENTARY INFORMATION:
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126 FERC ¶ 61,254
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Long-Term Firm Transmission Rights in Organized
Electricity Markets
Docket No. RM06-8-002
ORDER NO. 681-B
ORDER ON REHEARING AND CLARIFICATION
(Issued March 20, 2009)
TABLE OF CONTENTS
Paragraph Numbers
I. Introduction .................................................................................................................... 1.
II. Background ................................................................................................................... 4.
A. Energy Policy Act of 2005 ....................................................................................... 4.
B. Notice of Proposed Rulemaking............................................................................... 5.
C. Final Rule: Order No. 681 ....................................................................................... 6.
D. Rehearing Order: Order No. 681-A ...................................................................... 11.
III. Discussion .................................................................................................................. 15.
A. Procedural Matters ................................................................................................. 15.
B. Requests for Rehearing and/or Clarification .......................................................... 16.
1. Contract with Transmission Owner Rather than Transmission Organization .... 16.
Commission Determination ..................................................................................... 19.
2. Lack of a Transmission Agreement .................................................................... 20.
Commission Determination ..................................................................................... 22.
3. Clarification of Paragraph 80 of Order No. 681-A ............................................. 24.
Commission Determination ..................................................................................... 26.
4. Comparable Treatment for External and Internal Load Serving Entities ........... 29.
Commission Determination ..................................................................................... 35.
5. Marginal Losses .................................................................................................. 38.
Commission Determination ..................................................................................... 43.
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Before Commissioners: Jon Wellinghoff, Chairman;
Suedeen G. Kelly, Marc Spitzer,
and Philip D. Moeller.
Long-Term Firm Transmission Rights in Organized
Electricity Markets
Docket No. RM06-8-002
ORDER NO. 681-B
ORDER ON REHEARING AND CLARIFICATION
(Issued March 20, 2009)
I.
Introduction
1.
In this order we affirm, with certain clarifications, the fundamental determinations
made in Order Nos. 681 and 681-A. 1 In Order No. 681, as reaffirmed and clarified in
Order No. 681-A, the Commission required each transmission organization that is a
public utility with one or more organized electricity markets to make available long-term
firm transmission rights that satisfy each of seven guidelines. 2
2.
Under guideline (5), the Commission permits transmission organizations to place
reasonable limits on the amount of capacity used to support long-term firm transmission
1
Long-Term Firm Transmission Rights in Organized Electricity Markets, Order
No. 681, 71 Fed. Reg. 43,564 (Aug. 1, 2006), FERC Stats. & Regs. ¶ 31,226, reh’g
denied, Order No. 681-A, 117 FERC ¶ 61,201 (2006).
2
Order No. 681, FERC Stats. & Regs. ¶ 31,226 at P 1, 23; Order No. 681-A,
117 FERC ¶ 61,201 at P 1.
Docket No. RM06-8-002
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rights. 3 Recognizing that “transmission capacity is limited and the amount that can
reasonably be made available for long-term transmission rights may be lesser still,” 4 the
Commission construed new section 217 of the Federal Power Act (FPA) to provide a
general preference for load serving entities to obtain transmission service. 5 On rehearing,
in discussing priority when transmission capacity is limited, the Commission declined to
draw a broad conclusion that it would always be unreasonable for a transmission
organization to treat external and internal load serving entities differently in allocating
long-term firm transmission rights. 6 Three parties filed requests for clarification or, in
the alternative, rehearing of Order Nos. 681 and 681-A, focusing primarily on issues
associated with the allocation of long-term firm transmission rights to load serving
entities serving load located outside the transmission organization (external load serving
entities). Rehearing was also requested on the Commission’s determination that the
statute does not require a hedge for marginal loss charges.
3.
In this order, we grant certain clarifications concerning allocation of long-term
firm transmission rights to external load serving entities and deny requests for rehearing.
3
Order No. 681, FERC Stats. & Regs. ¶ 31,226 at P 318.
4
Id. P 320.
5
Order No. 681, FERC Stats. & Regs. ¶ 31,226 at P 318 (construing EPAct 2005,
section 217; Pub. L. No. 109-58, § 1233, 119 Stat. 594, 957 (2005); 16 U.S.C. § 824q
(2006)).
6
Order No. 681-A, 117 FERC ¶ 61,201 at P 81.
Docket No. RM06-8-002
II.
Background
A.
4.
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Energy Policy Act of 2005
On August 8, 2005, EPAct 2005 7 was signed into law. Section 1233 of EPAct
2005 added a new section to the FPA, section 217, which provides:
The Commission shall exercise the authority of the Commission under
this Act in a manner that facilitates the planning and expansion of
transmission facilities to meet the reasonable needs of load-serving
entities to satisfy the service obligations of the load-serving entities, and
enables load-serving entities to secure firm transmission rights (or
equivalent tradable or financial rights) on a long-term basis for long-term
power supply arrangements made, or planned, to meet such needs. 8
The statute further required the Commission to implement section 217 of the FPA within
one year of the effective date of EPAct 2005. 9
B.
5.
Notice of Proposed Rulemaking
As a first step towards implementing FPA section 217, on February 2, 2006, the
Commission issued a Notice of Proposed Rulemaking (NOPR) that proposed to amend its
regulations to require each transmission organization that is a public utility with one or
more organized electricity markets to make available long-term firm transmission rights
7
Pub. L. No. 109-58, 119 Stat. 594 (2005).
8
16 U.S.C. § 824q (2006).
9
119 Stat. 594, 960. “Transmission organization” is defined in EPAct 2005 as “a
Regional Transmission Organization, Independent System Operator, independent
transmission provider, or other transmission organization finally approved by the
Commission for the operation of transmission facilities.” Pub. L. No. 109-58, § 1291,
119 Stat. 594, 985. In Order Nos. 681 and 681-A, we adopted this definition with slight
modifications for the purposes of the Final Rule.
Docket No. RM06-8-002
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that satisfy guidelines established by the Commission. 10 The NOPR proposed eight
guidelines, and sought comments on various issues raised by the introduction of longterm firm transmission rights in the organized electricity markets.
C.
6.
Final Rule: Order No. 681
On July 20, 2006, the Commission issued a Final Rule in this proceeding, Order
No. 681. Consistent with EPAct 2005, in Order No. 681, the Commission required
independent transmission organizations that oversee electricity markets to make available
long-term firm transmission rights that satisfy each of the seven guidelines ultimately
established by the Commission in that order. The Commission further directed
transmission organizations subject to the Final Rule to file, no later than January 29,
2007, either: (1) tariff sheets and rate schedules that make available long-term firm
transmission rights that satisfy each of the seven guidelines; or (2) an explanation of how
the transmission organization’s tariff and rate schedules already provide for long-term
firm transmission rights that satisfy each of the guidelines. The Commission also
required entities that subsequently meet the statutory definition of transmission
organization after January 29, 2007 to satisfy the requirements of the Final Rule. 11
7.
In issuing Order No. 681, the Commission explained that it sought to provide
increased certainty regarding the congestion cost risks of long-term firm transmission
10
Long-Term Firm Transmission Rights in Organized Electricity Markets, NOPR,
71 Fed. Reg. 6,693 (Feb. 9, 2006), FERC Stats. & Regs. ¶ 32,598 (2006).
11
Order No. 681, FERC Stats. & Regs. ¶ 31,226 at P 494.
Docket No. RM06-8-002
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service in organized electricity markets in order to facilitate new investments and other
long-term power supply arrangements. 12 The guidelines adopted in Order No. 681 were
intended to ensure that the long-term firm transmission rights made available by
transmission organizations subject to the rule would support long-term power supply
arrangements. 13 Moreover, the Commission emphasized that it would not compel
transmission organizations to provide rights that are infeasible based on the existing
system, nor would the Commission guarantee that a load serving entity will be able to
obtain long-term firm transmission rights sufficient to hedge its entire resource portfolio
or be able to obtain all of its requested long-term firm transmission rights. 14 Rather, the
Commission concluded that transmission organizations and their stakeholders should
each have flexibility to determine the level at which a load serving entity may nominate
long-term firm transmission rights, as long as that level does not fall below the entity’s
“reasonable needs.” 15 By reasonable needs, the Commission meant that long-term firm
transmission rights should be sufficient to hedge the congestion associated with providing
12
Id. P 16.
13
Id.
14
Id. P 17-18.
15
Id. P 323.
Docket No. RM06-8-002
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baseload service. 16 Once an entity obtains long-term firm transmission rights, Order No.
681 requires these rights to be fully funded over their entire term. 17
8.
Significantly, Order No. 681 adopted guidelines rather than prescriptive
requirements for long-term firm transmission rights. While transmission organizations
are required to satisfy each guideline, the Commission gave them the flexibility to design
long-term firm transmission rights that reflect regional preferences and accommodate
regional market designs. 18
9.
Many of the rehearing requests focus on guideline (5), which gives load serving
entities priority to transmission rights on the existing system:
Load serving entities must have priority over non-load
serving entities in the allocation of long-term firm
transmission rights that are supported by existing capacity.
The transmission organization may propose reasonable limits
on the amount of existing capacity used to support long-term
firm transmission rights. 19
10.
In the preamble to guideline (5), the Commission rejected the NOPR proposal for
an absolute preference for load serving entities with long-term power supply
16
Id.
17
Id. P 18.
18
Id. P 2. The Commission recognized the possibility that the flexible regional
approach adopted in the Final Rule could create seams issues, and directed each
transmission organization to explain in its compliance filing how its proposal addresses
potential seams issues. Id. P 107.
19
Id. P 325; 18 C.F.R. § 42.1(d)(5) (2008).
Docket No. RM06-8-002
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arrangements. 20 Instead, the Commission opted for a general preference for load-serving
entities over non-load serving entities, although transmission organizations, on a regional
basis, are not precluded from giving allocation priority to holders of long-term contracts
over other load serving entities when capacity is limited. 21 Further, with respect to
priority of eligibility, the Commission explained that “long-term firm transmission rights
should be made available first to those entities that have an obligation to serve load
within the transmission organization’s service territory and are required to contribute to
the embedded cost of the transmission organization’s transmission system.” 22 The
Commission concluded that “[a]ny entity that has neither an obligation to serve load on
the transmission organization’s transmission system, nor an obligation to pay the
embedded costs of that system, should not be given a preference to acquire long-term
firm transmission rights supported by the system’s existing capacity.” 23 Further, the
Commission explained that “long-term firm transmission rights must be available to all
market participants.” 24 Guideline (5) “serves only as a ‘tiebreaker’ between load serving
entities and non-load serving entities when existing transmission capacity is limited.” 25
20
Order No. 681, FERC Stats. & Regs. ¶ 31,226 at P 318.
21
Id. P 321.
22
Id. P 328.
23
Id.
24
Id. P 329.
25
Id.
Docket No. RM06-8-002
D.
11.
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Rehearing Order: Order No. 681-A
On rehearing, the Commission upheld its determinations in Order No. 681 and
offered certain clarifications. Specifically, on the issue of priority for load serving
entities with load outside the region, the Commission stated that a load serving entity
should receive preference in the allocation of long-term firm transmission rights within a
transmission organization’s region “only to the extent that the transmission organization
plans and constructs its transmission system to support the load of the load serving entity,
and the load serving entity contributes to the cost that the transmission organization
incurs for that purpose.” 26 The Commission found that it would be unreasonable to
provide a preference where the load has not contributed to the system’s embedded costs,
and the transmission organization has not planned and built its system to accommodate
the load. 27
12.
The Commission provided two examples where external load serving entities
should be given a preference in the allocation of long-term firm transmission rights
equivalent to the preference accorded to load serving entities with loads that lie within the
transmission organization’s region. First, the Commission recognized that a load serving
entity that has an existing agreement with the transmission organization to pay a share of
the embedded costs of the transmission system on a long-term basis to support load
26
Order No. 681-A, 117 FERC ¶ 61,201 at P 78.
27
Id.
Docket No. RM06-8-002
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outside the region should be entitled to receive this preference. 28 Second, external loadserving entities should qualify for the preference where pancaked rates between the
transmission organization and the other transmission provider(s) have been eliminated, as
long as the agreement with the load-serving entity provides for cost sharing in accordance
with the non-pancaked rates currently in effect. 29
13.
In addition, the Commission stated that, where there is no agreement between an
external load serving entity and the transmission organization:
a load serving entity with load that sinks outside the
transmission organization’s region is entitled to receive longterm firm transmission rights from existing system capacity to
support that load to the extent that capacity is available after
the needs of the load serving entities whose loads are within
the region have been met. However, in such cases, we expect
that the load serving entity would be required to contribute,
on a long-term basis, toward the embedded cost of the
transmission system, by paying either pancaked or nonpancaked rates, as applicable. 30
14.
The Commission also denied the Sacramento Municipal Utility District (SMUD)
request to clarify that it would be unreasonable for a transmission organization to allocate
long-term firm transmission rights based on whether load is located in the transmission
organization’s control area or has agreed to cede control of its transmission facilities to
that organization. The Commission noted that it is not unduly discriminatory for a
28
Id. P 79.
29
Id.
30
Id. P 80.
Docket No. RM06-8-002
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transmission organization to impose additional requirements on external load as a
precondition to receiving such rights. 31 The Commission declined to draw a broad
conclusion in a rulemaking of general applicability that it may never be reasonable to
treat external load differently from internal load for purposes of allocating long-term firm
transmission rights. 32
III.
Discussion
A.
15.
Procedural Matters
Timely requests for rehearing and/or clarification were filed by the following
entities: Long Island Power Authority and its wholly-owned operating subsidiary, LIPA
(LIPA), Modesto Irrigation District (Modesto), and SMUD.
B.
Requests for Rehearing and/or Clarification
1.
16.
Contract with Transmission Owner Rather than Transmission
Organization
Modesto states that the Final Rule allowed load serving entities that pay the
embedded costs of a transmission organization’s system to qualify for priority in
receiving long-term firm transmission rights, even if located outside of the transmission
organization’s control area. Modesto argues that in so doing, however, the Commission
created “an unjust and unreasonable and unduly discriminatory condition” in that such
31
Id. P 81 (erroneously citing New England Power Pool, 100 FERC ¶ 61,287, at
P 85 (2002); correctly citing Cal. Indep. Sys. Operator Corp., 116 FERC ¶ 61,274, at
P 766 (2006) (MRTU Order), order on reh’g, 119 FERC ¶ 61,076 (2007) (MRTU
Rehearing Order)).
32
Id.
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load-serving entities must contract directly with the transmission organization, rather than
with entities within the transmission organization’s footprint, to pay the embedded cost of
the transmission system, in order to qualify for priority in receiving long-term firm
transmission rights. 33
17.
Modesto explains that it is a load serving entity located outside of and adjacent to
the California Independent System Operator (CAISO). To meet its native load
obligations, Modesto states that it often must wheel power over the CAISO-controlled
grid from resources located inside and outside of the CAISO control area. Modesto states
that one of its pre-existing arrangements through which it facilitates transmission of its
electricity through the CAISO control area is with Pacific Gas & Electric Company
(PG&E), a participating transmission owner of the CAISO.
18.
Modesto asserts that, through its payments to PG&E, it contributes to the
embedded costs of the transmission system that is under the CAISO’s operational control.
Modesto argues that, under Order No. 681-A, it would be denied a priority for obtaining
long-term firm transmission rights because its agreement is with a participating
transmission owner, PG&E, and not with the CAISO. Modesto argues that conditioning
eligibility for allocation of long-term firm transmission rights on whether an agreement is
with a transmission organization rather than a participant of that organization unduly
discriminates against entities that are similarly situated. Specifically, Modesto complains
that entities that are contributing to the embedded costs of the transmission organization’s
33
Modesto Rehearing Request at 4-5.
Docket No. RM06-8-002
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system through pre-existing arrangements with the transmission organization are unduly
discriminated against, compared with entities that have pre-existing arrangements with
transmission owners who have turned their transmission over to the operational control of
the transmission organization.
Commission Determination
19.
We grant Modesto’s requested clarification. In Order No. 681-A, the Commission
did not intend to restrict unnecessarily the types of contractual vehicles by which a load
serving entity with load outside a transmission organization’s region may demonstrate
that it is entitled to receive a preference in the allocation of long-term firm transmission
rights supported by the region’s existing transmission capacity. The salient issue here is
whether the external load serving entity has historically contributed and will continue to
contribute on an ongoing basis to the embedded costs of the transmission system. 34 As
long as the external load serving entity can demonstrate that it has paid and will continue
to pay the embedded costs of the transmission system, the precise vehicle by which this is
accomplished is not important. Thus, a commitment to pay an appropriate share of
embedded costs could be achieved through a contractual agreement with the transmission
organization itself, through a pre-existing agreement with one or more transmission
owners that have turned operational control of their transmission system over to the
34
See, e.g., New England Power Pool, 100 FERC ¶ 61,287, at P 85 (2002).
Docket No. RM06-8-002
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transmission organization, or by some other verifiable means. 35 We further note that,
while Modesto’s specific contractual issue is beyond the scope of this general rulemaking
proceeding, it appears to have been favorably resolved in the compliance phase of this
proceeding. 36
2.
20.
Lack of a Transmission Agreement
SMUD asks the Commission to clarify whether a load serving entity outside an
ISO/RTO control area could qualify for an allocation priority equivalent to that of a load
serving entity within the control area where its lack of an existing long-term firm service
arrangement is the transmission organization’s “fault.” 37 Asserting that this question is
not purely “academic,” SMUD explains that it had a long-term firm transmission
arrangement for more than 35 years, which, according to SMUD, lapsed due to the
CAISO’s delay in developing long-term firm transmission rights. Pointing out that the
CAISO was initially ordered to develop long-term firm transmission rights in 1997,
SMUD argues that it would have continued to have a long-term firm transmission
35
See, e.g., PJM Interconnection, L.L.C., 119 FERC ¶ 61,144, at P 40 & n.34,
order on clarification, 121 FERC ¶ 61,073 (2007) (upholding PJM’s proposal to allow an
external load serving entity to receive long-term firm transmission rights in stage 1A if it
is a transmission customer taking and paying for firm service and if it was serving load
from resources within a zone at the time that zone was integrated into PJM).
36
See Cal. Indep. Sys. Operator Corp., 120 FERC ¶ 61,023, at P 188 (2007), reh’g
denied, 124 FERC ¶ 61,095, at P 42-45 (2008) (accepting MRTU Tariff section 36.9,
which establishes an external load serving entity’s eligibility for firm transmission rights
based on a forward-looking showing of need).
37
SMUD Rehearing Request at 14. “ISO” refers to “Independent System
Operator” and “RTO” refers to “Regional Transmission Operator.”
Docket No. RM06-8-002
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agreement in place and would have qualified for a priority equivalent to that accorded
load serving entities within the CAISO control area if the CAISO had developed those
long-term rights on a timely basis. 38
21.
SMUD states that it is willing to provide assurances to the CAISO that it will
continue to pay a share of the fixed costs of the transmission grid operated by the CAISO.
SMUD insists that absent clarification, however, Order No. 681-A does not provide a
clear opportunity for SMUD and other similarly situated load serving entities to provide
such assurances. 39 SMUD asks the Commission to clarify that a load serving entity
located outside an ISO/RTO control area that lacks an existing long-term firm
transmission agreement can qualify for the same treatment accorded a load serving entity
with an existing long-term firm transmission agreement, if it can demonstrate: (1) its
reliance on the ISO/RTO transmission grid; (2) its commitment to continue to contribute
to the fixed costs of the system; and (3) that its lack of a long-term transmission
agreement with the ISO/RTO was outside of its control. 40
Commission Determination
22.
We grant in part and deny in part the clarification requested by SMUD. First, we
decline to adopt SMUD’s three-part test for determining whether an external load serving
entity should qualify for a preference in the allocation of long-term firm transmission
38
Id.
39
Id. at 14-15.
40
Id.
Docket No. RM06-8-002
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rights. 41 However, we grant clarification regarding the broader issue SMUD raises,
which is whether an external load serving entity may qualify for a preference if it
contributes to the embedded cost of the regional transmission system, but is not a party to
a qualifying agreement for long-term transmission service at the time of its request. We
clarify that the lack of an existing long-term service agreement with the transmission
organization or a participating transmission owner does not necessarily disqualify an
external load serving entity from receiving a preference in the allocation of long-term
firm transmission rights that are supported by the existing capacity of the transmission
organization’s system. If the external load serving entity has maintained a continuous
service relationship with the transmission organization or transmission owner, through
which it continues to contribute to the embedded costs of the transmission system for the
duration of the long-term firm transmission rights it seeks, that entity may be entitled to
an allocation of long-term firm transmission rights. However, the entity must also satisfy
all of the other eligibility requirements of the transmission organization, and it must
provide the transmission organization with appropriate assurances that it will continue to
satisfy these requirements going forward.
23.
With regard to the status of SMUD’s long-term contractual relationship with the
CAISO or any of its Participating Transmission Owners, including the question of which
41
See MRTU Rehearing Order, 119 FERC ¶ 61,076 at P 373 (rejecting request to
give external load serving entities the opportunity to demonstrate reliance on the CAISO
grid in order to avoid prepaying for the transmission service necessary to qualify for
allocation of congestion revenue rights, which can be converted into long-term firm
transmission rights).
Docket No. RM06-8-002
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party may be at fault for causing a prior agreement to lapse, we note that this is a casespecific matter and, as such, is beyond the scope of this proceeding. 42
3.
24.
Clarification of Paragraph 80 of Order No. 681-A
LIPA asks the Commission to clarify that, consistent with paragraph 78 of
Order No. 681-A, there should be no distinction between the treatment of internal and
external load serving entities when allocating long-term firm transmission rights, where
the transmission organization plans and constructs its transmission system to support the
external load serving entity’s requirements and the load serving entity is obligated to
contribute to the costs the ISO/RTO incurs for that purpose. LIPA’s concern centers on
paragraph 80 of Order No. 681-A, which provides that:
in cases where [an external load serving entity does not have an existing
agreement to pay embedded system costs], a load serving entity with load
that sinks outside the transmission organization’s region is entitled to
receive long-term firm transmission rights from existing system capacity to
support that load to the extent that capacity is available after the needs of
the load serving entities whose loads are within the region have been met. 43
42
We note that the D.C. Circuit Court upheld the Commission’s finding that
PG&E’s notice of termination of its long-term contract with SMUD was just and
reasonable. Sacramento Municipal District v. FERC, 474 F.3d 797, 801 (D.C. Cir. 2007).
Nevertheless, the CAISO allows an external load serving entity such as SMUD to obtain
long-term firm transmission rights through a combination of pre-payment of wheeling
access charges and ownership of or contract for generation within the CAISO. See
generally MRTU Tariff § 36.9. In addition, the MRTU Tariff allows SMUD to rollover a
short-term firm transmission right indefinitely and use this to hedge CAISO congestion
charges, as long as this does not interfere with the simultaneous feasibility of other
allocated rights. Id. § 36.9.5.
43
Order No. 681-A, 117 FERC ¶ 61,201 at P 80.
Docket No. RM06-8-002
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In LIPA’s view, the allocation preference expressed in paragraph 80 only applies with
respect to the initial allocation of long-term firm transmission rights to an external load
serving entity that has no existing agreement with the ISO/RTO or does not hold longterm rights for which such ISO/RTO plans and constructs its transmission system.
25.
LIPA argues specifically that firm transmission withdrawal rights in PJM meet the
standard articulated by the Commission in paragraph 78 of Order No. 681-A and,
according to LIPA, these withdrawal rights should entitle external load serving entities to
the same rights as internal load serving entities. As LIPA explains, PJM awards firm
transmission withdrawal rights for merchant transmission lines that include the right to
withdraw energy and capacity from the PJM system up to a specific megawatt level.
LIPA explains that PJM first subjects the award of such firm transmission withdrawal
rights to system impact studies through the interconnection process and considers any
potential system upgrades. Next, according to LIPA, PJM includes such firm
transmission withdrawal rights in its Regional Transmission Enhancement Plan (RTEP)
and thereby plans for and constructs its system to ensure the availability of such firm
transmission withdrawal rights. LIPA further states that PJM has proposed (and the
Commission has agreed) that the costs of RTEP upgrades to support such withdrawal
rights may be allocated to merchant transmission lines. LIPA adds that the use of
withdrawal rights also requires scheduling of transmission service over the PJM system,
for which the customer also then pays a “Border Rate” charged to exports from the
system, and through which PJM recovers the embedded system costs. LIPA asks the
Docket No. RM06-8-002
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Commission to clarify that the lower allocation priority and potential for reduced
allocation of long-term firm transmission rights discussed in paragraph 80 does not apply
to holders of long-term firm transmission rights such as firm withdrawal rights. Further,
LIPA argues that any reduction contemplated under paragraph 80 should only be
triggered when, as part of the evaluation of all internal and external load serving entity
requests, there is a binding constraint that does not allow a full allocation of long-term
firm transmission rights to qualifying load serving entities. LIPA states that, in such a
case, the initial request for long-term firm transmission rights may be prorated downward
to ensure that an internal load serving entity or external load serving entity with an
existing agreement or long-term rights receives its full allocation of long-term firm
transmission rights.
Commission Determination
26.
We grant in part and deny in part LIPA’s requested clarification. First, we clarify
that an external load serving entity may receive the same allocation priority as an internal
load serving entity if the external load serving entity can demonstrate that the
transmission organization plans and constructs its transmission system to support the
external load serving entity’s load serving requirements and the external load serving
entity contributes to the costs incurred for such purpose. We further clarify that
paragraph 80 of Order No. 681-A is intended to apply only to situations where a load
serving entity with load external to the region makes an initial request to obtain long-term
firm transmission rights. That is, paragraph 80 serves only to establish the initial priority
for the allocation of long-term firm transmission rights to an external load serving entity
Docket No. RM06-8-002
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that has not historically contributed to the embedded costs of the transmission system,
and for whom the transmission organization has not planned and constructed its
transmission system. 44
27.
LIPA also requests clarification of the conditions under which a reduced allocation
of long-term firm transmission rights is contemplated under paragraph 80. We clarify
that an external load serving entity may be allocated fewer long-term firm transmission
rights than it requests in a situation where its initial request for long-term firm
transmission rights cannot be accommodated by the system capacity that is available after
the needs of the load serving entities whose loads are within the region have been met.
This rule would apply to an initial request where the transmission organization has not
historically planned and constructed its system to meet the external load serving entity’s
load serving needs.
28.
However, we decline to grant LIPA’s requested clarification that its firm
transmission withdrawal rights in PJM meet the standard articulated by the Commission
in paragraph 78 of Order No. 681-A, such that these rights should entitle external load
serving entities like LIPA to be granted the same rights as internal load serving entities.
Whether these firm withdrawal rights qualify LIPA for receipt of long-term firm
44
See Midwest Indep. Transmission Sys. Operator, Inc., 121 FERC ¶ 61,062, at
P 40-41 (2007), order on reh’g, 123 FERC ¶ 61,178 (2008), and Midwest Indep.
Transmission Sys. Operator, Inc., 121 FERC ¶ 61,063, at P 53-54 (2007) (finding that
stage 2 eligibility for long-term firm transmission rights to cover transmission service
obtained after the reference year is not unduly discriminatory).
Docket No. RM06-8-002
- 20 -
transmission rights in PJM requires a fact-based determination that is outside the scope of
a general rulemaking proceeding. 45
4.
29.
Comparable Treatment for External and Internal Load Serving
Entities
LIPA asks the Commission to clarify that “qualifying” external load serving
entities are able to participate in the same phase of long-term firm transmission rights
allocation as internal load serving entities and receive a long-term firm transmission right
of the same length and attributes as an internal load serving entity. 46 LIPA states that, as
noted in Order No. 681-A, Order No. 681 provides that transmission organizations must
make long-term firm transmission rights available to load serving entities with term
lengths and/or renewal rights that are sufficient to meet load serving entities’ need to
hedge long-term power supply arrangements. LIPA points out that the Commission
required long-term firm transmission rights to have a specific term length and/or use of
45
Indeed, it appears this issue has been appropriately asked and answered in the
compliance phase of this rulemaking proceeding. See PJM Interconnection, L.L.C.,
119 FERC ¶ 61,144 at P 37-44, clarified on other grounds, 121 FERC ¶ 61,073 (denying
LIPA’s request for preferential allocation of long-term firm transmission rights in PJM
because LIPA did not take service from PJM during the historical reference year, nor
does it continue to pay the embedded cost of the PJM transmission system). The
Commission notes, however, that on Jan. 28, 2009, in Docket No. ER09-585-000, PJM
filed tariff revisions that would allow external load-serving entities, including holders of
firm withdrawal rights, to obtain long-term firm transmission rights, provided certain
conditions are met.
46
LIPA states that, for purposes of its clarification request, qualifying external
load serving entities are those entities for which the transmission organization plans and
constructs its transmission system to support the load serving entity’s load and the load
serving entity contributes to the cost that the transmission organization incurs for that
purpose. LIPA Rehearing Request at 3 & n.9.
Docket No. RM06-8-002
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renewal rights to provide firm coverage for at least a 10-year period. 47 LIPA states that a
10-year term length, renewal rights, and firmness of coverage are the “backbone” of
long-term firm transmission rights, which LIPA argues should not differ regardless
whether a load serving entity is internal or external to the ISO or RTO.
30.
Also focusing on this issue, SMUD challenges the Commission’s ruling that only
load serving entities in a transmission organization’s control area or those load serving
entities with existing long-term firm service contracts would qualify for a first-tier
allocation 48 of long-term firm service rights. SMUD argues that this ruling prejudices
those load serving entities located outside the CAISO’s control area whose long-term
firm service agreements lapsed, with no long-term firm service replacement, due to the
CAISO’s “history of procrastination” in developing such rights.
31.
Furthermore, SMUD asserts that the Commission failed to engage in reasoned
decision-making by inconsistently applying its precedent and suggesting that a
transmission organization may give preference to load serving entities located in its own
control area over those located outside its control area. SMUD states that the
Commission offered no valid grounds for its departure from Order No. 888, and cases
47
48
Id. at 4 & n.10.
SMUD refers to the fact that the CAISO, like other ISOs/RTOs, uses
nomination tiers to allocate long-term firm transmission rights. In each tier, a load
serving entity is allowed to nominate a percentage of the total amount of transmission
rights it is eligible to request. The ISO/RTO then runs a simultaneous feasibility test on
all nominated rights to determine the feasible set of rights that it can award. Load serving
entities typically nominate their most highly-valued rights in the first tier. See generally
Cal. Indep. Sys. Operator Corp., 125 FERC ¶ 61,153 (2008).
Docket No. RM06-8-002
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interpreting Order No. 888, which SMUD argues require transmission providers to offer
service to all customers on a non-discriminatory basis. 49 In addition, SMUD argues that
the Commission’s proposal to distinguish among load serving entities on the basis of
control area is inconsistent with section 217 of the FPA. Specifically, SMUD asserts that
allowing transmission organizations to impose a prepayment obligation 50 on external load
serving entities is unduly discriminatory.
32.
First, SMUD argues that the principle that a transmission provider may place
preconditions on a customer’s right to service based on whether it is located inside or
outside of the transmission provider’s control area “turns Order No. 888 on its head.” 51
Citing the NOPR for Order No. 890, 52 SMUD asserts that the Commission has made
clear that transmission organizations covered by Order No. 681 must continue to offer
49
SMUD Rehearing Request at 6-7 (referencing 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, FERC Stats. & Regs. ¶ 31,036 (1996), order on reh’g, Order No. 888-A, 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 (D.C. Cir. 2000),
aff’d sub nom. New York v. FERC, 535 U.S. 1 (2002)).
50
By “prepayment obligation,” SMUD refers to the fact that the CAISO, for
example, requires an external load serving entity to agree in advance to pay a year’s
worth of wheeling access charges to be eligible for allocation of long-term firm
transmission rights on the same basis as internal load serving entities. See MRTU Order,
116 FERC ¶ 61,274 at P 706-15; MRTU Rehearing Order, 119 FERC ¶ 61,076 at P 358
(discussing prepayment in connection with short-term firm transmission rights, which
may be converted to long-term rights); Cal. Indep. Sys. Operator Corp., 120 FERC
¶ 61,023 at P 266.
51
SMUD Rehearing Request at 6.
Docket No. RM06-8-002
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service as good as or superior to that offered under an Order No. 888 Open Access
Transmission Tariff (OATT). SMUD states that under Order No. 888, a transmission
provider is required to provide customers non-discriminatory access to the grid
equivalent to the transmission service it provides itself. 53 SMUD posits that if a
transmission owner with a traditional OATT were to treat a customer outside its control
area differently than it treats its own control area load, that transmission owner would be
engaging in blatantly discriminatory conduct. SMUD insists that the Commission’s
interpretation of New England Power Pool leads to the conclusion that transmission
owners with OATTs could turn control of their facilities over to an ISO and then have the
ISO discriminate against those same customers, customers still dependent on their
transmission, but now located outside the ISO’s control area.
33.
Next, SMUD argues that the Commission’s interpretation of New England Power
Pool is an “unexplained departure” from its holding in Mid-Continent Area Power Pool,
87 FERC ¶ 61,075 (1999) (MAPP). SMUD quotes MAPP:
Order No. 888 requires that pool compliance tariffs provide service to
members and non-members alike. We stated that members of a loose
power pool, as well as non-members, must have access to the same
transmission services within that power pool on a comparable basis and pay
52
Id. (citing Preventing Undue Discrimination and Preference in Transmission
Service, Notice of Proposed Rulemaking, Docket Nos. RM05-17-000 and RM05-25-000,
FERC Stats. & Regs. ¶ 32,603, at P 100 (2006), order issuing final rule Order No. 890,
FERC Stats. & Regs. ¶ 31,241 (2007), order on reh’g, Order No. 890-A, 73 Fed. Reg.
2984 (Jan. 16, 2008), FERC Stats. & Regs. ¶ 31,261 (2007), order on reh’g, Order No.
890-B, 73 Fed. Reg. 39,092 (July 8, 2008), 123 FERC ¶ 61,299 (2008)).
53
Id. (citing Order No. 888, FERC Stats. & Regs. ¶ 31,036 at 31,760).
Docket No. RM06-8-002
- 24 -
the same or a comparable rate for those services. 54
SMUD argues that, just as transmission providers within a power pool cannot condition
access to transmission service on a customer’s willingness to join the pool, it is unduly
discriminatory to condition a transmission customer’s access to firm transmission service
on its location within a transmission provider’s control area.
34.
Third, SMUD argues that, far from supporting the notion that customers outside
the control area should be treated differently, New England Power Pool reaffirms the
principle that customers outside an ISO’s control area that are committed to contributing
to the ISO’s fixed costs under a long-term firm transmission agreement must be treated
on a non-discriminatory basis and that they should not be given lower priority based on
their location outside the transmission provider’s control area.
Commission Determination
35.
In response to the requests of LIPA and SMUD, we clarify that the transmission
organization’s criteria for determining a load serving entity’s eligibility to receive a
preference in the allocation of long-term firm transmission rights must not be unduly
discriminatory as between internal and external load serving entities. That is, the
transmission organization may apply a variety of eligibility criteria that are appropriate
for its region, as long as it applies those criteria in a manner that is not unduly
discriminatory. 55 For example, to be eligible for an allocation preference, the
54
55
SMUD Rehearing Request at 7 (citing MAPP, 87 FERC ¶ 61,075 at 61,309-10).
See Regional Transmission Organizations, Order No. 2000-A, 65 Fed. Reg.
(continued)
Docket No. RM06-8-002
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transmission organization may require a load serving entity to demonstrate that it has a
long-term power supply arrangement from a historical point of receipt to a historical
point of delivery, and that it will continue to contribute to the embedded cost of the
transmission system for the duration of the period for which the load serving entity
intends to hold the long-term firm transmission right. Such criteria would not be unduly
discriminatory if they are tailored to meet the transmission organization’s legitimate need
to verify entitlement to allocation of the long-term rights, i.e., that the external load
serving entity intends to use these rights to serve its customers. If the transmission
organization allocates long-term firm transmission rights using a system of stages or tiers,
we would expect all qualified load serving entities to be placed in the same allocation
stage or tier without regard to whether its load is internal or external to the region.
36.
In response to the assertion by SMUD that the Commission’s interpretation of
New England Power Pool is an unexplained departure from precedent, we clarify that the
citation to New England Power Pool in footnote 74 of Order No. 681-A was the result of
an inadvertent drafting error. Nevertheless, we reiterate our determination that it is not
unduly discriminatory for a transmission organization to impose reasonable, additional
requirements on customers external to the transmission organization’s control area as a
12,088 (2000), FERC Stats. & Regs. ¶ 31,092 at 31,385 (2000) (“We do not agree with
the premise of some of the petitioners who conclude that rate differences of any type
[between RTO participants and non-participants] would constitute undue
discrimination.”), aff’d sub nom., Public Util. Dist. No. 1 of Snohomish, Wash. v. FERC,
272 F.3d 607 (D.C. Cir. 2001).
Docket No. RM06-8-002
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precondition to receiving long-term firm transmission rights. 56 It is within the
transmission organization’s purview to create rules that aim to ensure equitable
allocation/distribution of these potentially valuable rights.
37.
However, in response to LIPA, we clarify that any differences in the attributes
(e.g., length, renewal rights and firmness of coverage) of long-term firm transmission
rights that are allocated among load serving entities should not be based on whether a
load serving entity is internal or external to the transmission organization.
5.
38.
Marginal Losses
In Order No. 681, we concluded that section 217(b)(4) does not address marginal
loss charges. 57 Noting that each transmission organization that operates an organized
electricity market has established methods for refunding marginal loss surpluses that
reflect regional preferences, which the Commission has approved, we decided not to
overturn those decisions in this proceeding. 58 In Order No. 681-A, we upheld our
statutory interpretation that section 217(b)(4) of the FPA does not address marginal loss
56
See MRTU Order, 116 FERC ¶ 61,274 at P 766 (stating that external load and
internal load are not similarly situated with respect to their reliance on the transmission
organization's grid); MRTU Rehearing Order, 119 FERC ¶ 61,076, at P 377 (2007)
(requiring external load serving entities to satisfy additional requirements to verify need
for long-term firm transmission rights does not violate Order No. 888 because external
load serving entities are not denied transmission service and all customers receive the
same service under the MRTU Tariff).
57
Order No. 681, FERC Stats. & Regs. ¶ 31,226 at P 478.
58
Id.
Docket No. RM06-8-002
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charges. 59 First, we explained that the issue of hedging long-term marginal loss charges
is distinct from the issue of hedging marginal congestion charges. Congestion charges,
we said, arise in part due to transmission constraints, and transmission organizations
allocate transmission rights to hedge these costs. Marginal loss charges, we noted, are
similar to congestion costs because they are a function of locational energy prices and
line loadings. However, significantly, “the development of a financial instrument or
other means for hedging of marginal losses has not been accomplished to date in any of
the organized electricity markets.” 60
39.
Next, we parsed the language of the statute and explained that the terms used in
section 217(b)(4) – “firm transmission rights” and “equivalent tradable or financial
rights” – “are consistent with terminology traditionally used to discuss hedging of
congestion, rather than marginal losses.” 61 We further explained that, since we do not
interpret EPAct 2005 as requiring transmission organizations to provide long-term firm
transmission rights with properties that are fundamentally different from those of the
short-term rights that they now offer, we do not interpret the statute as requiring hedging
of marginal losses. We emphasized that our interpretation of EPAct 2005 as not
requiring hedging of marginal losses does not preclude future market design changes that
59
Order No. 681-A, 117 FERC ¶ 61,201 at P 105-06.
60
Id. P 105.
61
Id. P 106.
Docket No. RM06-8-002
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allow hedging of losses. 62 Significantly, we encouraged transmission organizations to
explore methods to assist load serving entities and others to obtain a hedge for marginal
losses. 63
40.
On rehearing, SMUD argues that, in light of FPA requirements and Congress’
clear intent that “financially firm” transmission service would provide customers the
equivalent of firm physical rights, financial rights must include a hedge against marginal
losses. SMUD argues that the Commission contravened Order No. 888 and the plain
language of the FPA by concluding that long-term firm transmission rights need only be
similar to the short-term transmission rights now being offered by most transmission
organizations, and that long-term firm transmission rights need not include a hedge
against marginal losses because short-term rights do not include such a hedge. SMUD
argues that the Commission’s conclusion that long-term rights should be similar to shortterm rights with respect to their lack of a hedge against marginal losses has no record,
logical, or factual basis.
41.
According to SMUD, the purpose of section 217(b)(4) of the FPA, reflected in the
language of the statute, is to require transmission organizations to provide long-term firm
service based on financial rights that is equivalent to long-term service based on “firm,”
i.e., “physical” transmission rights. SMUD argues that, since, as a matter of historical
62
Id.
63
Id.
Docket No. RM06-8-002
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practice, long-term physical rights do not expose customers to marginal losses, then
neither should their financial rights counterparts.
42.
SMUD reiterates its initial comments in this proceeding, asserting that marginal
losses pose at least as big an uncertainty as congestion charges and, without hedges to
insulate parties from the risks marginal loss exposure creates, interregional trade will be
constrained. SMUD suggests that the Commission’s position is unsupported because
most transmission organizations did not include marginal losses when they started their
organized markets, and PJM only recently began offering them, so the past cannot be a
valid prologue for the future. SMUD argues that relying on the possibility that
transmission organizations may voluntarily offer hedges for marginal loss exposure is
insufficient to ensure equivalence between financial and physical rights-based firm
service. SMUD states that on rehearing the Commission should require transmission
organizations to either: (1) offer long-term firm service customers a hedge against
marginal losses; or (2) exempt long-term firm customers from those charges and charge
actual or estimated system average losses.
Commission Determination
43.
We deny SMUD’s request for rehearing concerning marginal losses, primarily for
the reasons discussed in Order Nos. 681 and 681-A. 64 First, as we explained in Order
No. 681-A, the issue of hedging long-term marginal loss charges is distinct from the issue
64
Order No. 681, FERC Stats. & Regs. ¶ 31,226 at P 478; Order No. 681-A,
117 FERC ¶ 61,201 at P 105-06.
Docket No. RM06-8-002
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of hedging long-term marginal congestion charges, and the language of section 217 of the
FPA is silent regarding marginal losses. 65
44.
We disagree with SMUD’s argument that the language of the statute mandates a
hedge against marginal losses for long-term firm service customers. SMUD argues that
the term “firm service” in the statute denotes physical transmission service, and longterm physical rights do not expose customers to marginal losses, so neither should their
financial counterparts. 66 However, SMUD ignores the fact that transmission losses and
congestion are distinct features of transmission service. While physical rights customers
may not have been exposed to marginal losses, they generally had contractual
arrangements concerning responsibility for losses on the transmission system.
45.
We further object to SMUD’s assertion that, in Order No. 681-A, the Commission
declared, without record, logical or factual basis, that long-term firm transmission rights
should have the same characteristics as short-term rights. Rather, the Commission simply
observed that it did not interpret EPAct 2005 as requiring transmission organizations to
provide long-term firm transmission rights that are fundamentally different from the
short-term rights they now offer.67 Specifically, transmission organizations with shortterm rights do not provide hedges for marginal losses, and EPAct 2005 does not
expressly require a hedge for marginal losses.
65
Order No. 681-A, 117 FERC ¶ 61,201 at P 105-06.
66
SMUD Rehearing Request at 12.
67
Order No. 681-A, 117 FERC ¶ 61,201 at P 106.
Docket No. RM06-8-002
46.
- 31 -
Hedging marginal losses is more complex than hedging congestion costs due to
the variable nature of losses. While it is theoretically possible to design a different type
of firm transmission right – an unbalanced firm transmission right – to hedge against both
congestion and marginal losses, such designs are only in the experimental stage. No
transmission organization has yet to implement a hedge for marginal losses.
Accordingly, we decline to order hedging of marginal losses at this time. Nevertheless,
we recognize that a marginal loss hedge could provide benefits to certain market
participants. The Commission supports development of a marginal loss hedging product
if its design progresses beyond the theoretical level and it can be developed costeffectively.
47.
The Commission also denies SMUD’s request to exempt long-term firm
transmission customers from marginal losses and charge them actual or estimated system
average losses. This raises a market design issue that has implications beyond the design
of long-term firm transmission rights and is more appropriately resolved by each
transmission organization on a case-by-case basis. Moreover, since we find that EPAct
2005 does not address marginal losses, this request is beyond the scope of this
rulemaking proceeding.
By the Commission.
(SEAL)
Kimberly D. Bose,
Secretary.
| File Type | application/pdf |
| File Title | RM06-8-002 Long-Term Firm Transmission Rights in Organized Electricity Markets |
| File Modified | 2012-12-17 |
| File Created | 2012-12-17 |