Long-Term Firm Transmission Rights in Organized Electricity Markets, 13103-13111 [E9-6698]
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Federal Register / Vol. 74, No. 57 / Thursday, March 26, 2009 / Rules and Regulations
CRI ratings, PTT significantly
outperformed PET on the heaviest of the
three wear cycles. Specifically, in the
vast majority of trials, PET performed
below an acceptable rating (i.e., 3) while
PTT performed at or above a 3 rating in
all trials.73 Moreover, the central
tendency of each data set shows a
difference of over one full interval.
Second, Petitioners tested carpet
weights that consumers typically
purchase, whereas Invista’s Vettermann
Drum testing utilized heavier carpet that
only a small percentage of consumers
actually buy.74 Finally, Invista’s
assertion that Petitioners tested PET and
PTT of different fiber weights (dpf) is
not at issue because Petitioners did, in
fact, test the same weight PET and PTT
carpet fibers.75 Accordingly, the Petition
satisfies the second criterion for
granting a new generic fiber subclass
name.
Third, Petitioners have demonstrated
that PTT’s distinctive properties are of
importance to the general public. As
discussed earlier, Mohawk’s consumer
survey shows that consumers shopping
for carpet consider durability/resiliency
to be very important attributes.
Specifically, a 2004 study that Mohawk
commissioned found that 67% of
respondents rated carpet durability/
resiliency as a very important trait.
Thus, the Petition satisfies the third
criterion for granting a new generic fiber
subclass name.
Finally, PTT’s enhanced durability is
the result of substantially differentiated
physical characteristics. Specifically,
Petitioners explained that the molecular
structure of PTT is more coil-like than
PET’s straight-wire structure. Thus, PTT
fibers are better able to recover without
permanently deforming and developing
a crushed appearance.76 The
Commission’s textile expert reviewed
the material that Petitioners submitted
and confirmed this fact.77 Accordingly,
the Petition satisfies the final criterion
for granting a new generic fiber subclass
name.
Because the Petition meets all the
criteria for establishing a new generic
subclass fiber name, the Commission
Petition at 14-15.
Invista also submitted the results of several
other tests purporting to show that PTT does not
perform significantly better than PET. See supra
note 37. The record does not indicate that any of
these tests are current or former industry standard
tests. In addition, some of them involved heavier
weight PET and PTT carpet than the weight of
carpet consumers typically purchase and, for
others, the record does not indicate the weight of
the carpets tested. Therefore, we accord these test
results less weight.
75 DuPont #535294-00017 at 13.
76 Petition at 7-8.
77 Expert Report.
73
74
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13103
amends Rule 7(c) to define the generic
subclass ‘‘triexta’’ and to allow use of
the name ‘‘triexta’’ as an alternative to
the generic name ‘‘polyester’’ for PTT
fiber.78 Because ‘‘triexta’’ is the second
subclass generic designation for
‘‘polyester,’’ we have moved the first
subclass designation to its own
subsection, (c)(1), for clarity. Finally,
based on this decision, the temporary
designation ‘‘PTT001’’ is revoked as of
the effective date of this amendment.
L. 104-13, 109 Stat. 163, 44 U.S.C.
chapter 35 (as amended), and its
implementing regulations, 5 CFR 1320
et seq. Those procedures for establishing
generic names that do constitute
collections of information, 16 CFR
303.8, have been submitted to OMB,
which has approved them and assigned
them control number 3084-0101.
VI. Effective Date
The Commission is making the
amendment effective today, March 26,
2009, as permitted by 5 U.S.C. 553(d),
because the amendment does not create
new obligations under the Textile Rules;
rather, it merely creates a fiber name
and definition that covered companies
may use to comply with the Textile
Rules.
IX. PART 303—RULES AND
REGULATIONS UNDER THE TEXTILE
FIBER PRODUCTS IDENTIFICATION
ACT
VII. Regulatory Flexibility Act
In the Request for Public Comment,79
the Commission tentatively concluded
that the provisions of the Regulatory
Flexibility Act relating to an initial
regulatory analysis, 5 U.S.C. 603-604,
did not apply to the Petition’s proposal
because the amendment, if promulgated,
would not have a significant economic
impact on a substantial number of small
entities. The Commission believed that
the proposed amendment would impose
no additional obligations, penalties, or
costs. The amendment simply would
allow covered companies to use a new
generic name as an alternative to an
existing generic name for that defined
subclass of fiber, and would impose no
additional labeling requirements. To
ensure, however, that the Commission
did not overlook any substantial
economic impact, the Commission
solicited public comment in the Request
for Public Comment on the effects of the
proposed amendment on costs, profits,
competitiveness of, and employment in
small entities.
The Commission did not receive any
comment in response. Accordingly, the
Commission hereby certifies, pursuant
to the Regulatory Flexibility Act, 5
U.S.C. 605(b), that the amendment
promulgated today will not have a
significant economic impact on a
substantial number of small entities.
VIII. Paperwork Reduction Act
This amendment does not constitute a
‘‘collection of information’’ under the
Paperwork Reduction Act of 1995, Pub.
78 The Commission has selected the name
‘‘triexta’’ because it was the one subclass name
proposed by Petitioners to which no commenter
objected.
79 72 FR 48600 (Aug. 24, 2007).
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List of Subjects in 16 CFR Part 303
Labeling, Textile, Trade practices.
1. The authority citation for part 303
continues to read as follows:
■
Authority: Sec. 7(c) of the Textile Fiber
Products Identification Act (15 U.S.C. 70e(c)).
2. In § 303.7, in paragraph (c),
designate the second sentence, which
follows the second chemical
description, as paragraph (c)(1) and add
new paragraph (c)(2) to read as follows:
■
§ 303.7 Generic names and definitions for
manufactured fibers.
*
*
*
*
*
(c) * * *
(2) Where the glycol used to form the
ester consists of at least ninety mole
percent 1,3-propanediol, the term
‘‘triexta’’ may be used as a generic
description of the fiber.
*
*
*
*
*
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. E9–6633 Filed 3–25–09: 8:45 am]
BILLING CODE 6750–01–S
DEPARTMENT OF ENERGY
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, DOE.
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 FR 68,440 (November 16,
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Federal Register / Vol. 74, No. 57 / Thursday, March 26, 2009 / Rules and Regulations
2006). The order on rehearing affirms,
with certain clarifications, the
fundamental determinations made in
Order No. 681, as clarified by Order No.
681–A.
DATES: Effective Date: Order No. 681
became effective on August 31, 2006.
This order on rehearing and clarification
will become effective April 27, 2009.
FOR FURTHER INFORMATION CONTACT:
Roland Wentworth (Technical
Information), Office of Energy Market
Regulation, Federal Energy Regulatory
Commission, 888 First Street, NE.,
Washington, DC 20426, (202) 502–8262.
Michael P. McLaughlin (Technical
Information), Office of Energy Market
Regulation, Federal Energy Regulatory
Commission, 888 First Street, NE.,
Washington, DC 20426, (202) 502–6135.
Heidi Werntz (Legal Information),
Office of the General Counsel, Federal
Energy Regulatory Commission, 888
First Street, NE., Washington, DC 20426,
(202) 502–8910.
Richard Wartchow (Legal
Information), Office of the General
Counsel, Federal Energy Regulatory
Commission, 888 First Street, NE.,
Washington, DC 20426, (202) 502–8744.
SUPPLEMENTARY INFORMATION:
Table of Contents
Paragraph
Numbers
I. Introduction .........................................................................................................................................................................................
II. Background .........................................................................................................................................................................................
A. Energy Policy Act of 2005 .........................................................................................................................................................
B. Notice of Proposed Rulemaking ................................................................................................................................................
C. Final Rule: Order No. 681 ..........................................................................................................................................................
D. Rehearing Order: Order No. 681–A ...........................................................................................................................................
III. Discussion .........................................................................................................................................................................................
A. Procedural Matters .....................................................................................................................................................................
B. Requests for Rehearing and/or Clarification .............................................................................................................................
1. Contract with Transmission Owner Rather than Transmission Organization .................................................................
Commission Determination .....................................................................................................................................................
2. Lack of a Transmission Agreement .....................................................................................................................................
Commission Determination .....................................................................................................................................................
3. Clarification of Paragraph 80 of Order No. 681–A ............................................................................................................
Commission Determination .....................................................................................................................................................
4. Comparable Treatment for External and Internal Load Serving Entities .........................................................................
Commission Determination .....................................................................................................................................................
5. Marginal Losses ....................................................................................................................................................................
Commission Determination .....................................................................................................................................................
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
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
1 Long-Term
Firm Transmission Rights in
Organized Electricity Markets, Order No. 681, 71 FR
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.
3 Order No. 681, FERC Stats. & Regs. ¶ 31,226 at
P 318.
4 Id. P 320.
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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 longterm 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.
5 Order No. 681, FERC Stats. & Regs. ¶ 31,226 at
P 318 (construing EPAct 2005, section 217; Pub. L.
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.
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II. Background
A. Energy Policy Act of 2005
4. 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 loadserving 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
7 Public
Law No. 109–58, 119 Stat. 594 (2005).
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.’’ Public Law 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.
8 16
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B. Notice of Proposed Rulemaking
5. 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 that satisfy
guidelines established by the
Commission.10 The NOPR proposed
eight guidelines, and sought comments
on various issues raised by the
introduction of long-term firm
transmission rights in the organized
electricity markets.
C. Final Rule: Order No. 681
6. 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 longterm 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 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 longterm firm transmission rights made
available by transmission organizations
subject to the rule would support longterm power supply arrangements.13
10 Long-Term Firm Transmission Rights in
Organized Electricity Markets, NOPR, 71 FR 6,693
(Feb. 9, 2006), FERC Stats. & Regs. ¶ 32,598 (2006).
11 Order No. 681, FERC Stats. & Regs. ¶ 31,226 at
P 494.
12 Id. P 16.
13 Id.
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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 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 arrangements.20 Instead,
the Commission opted for a general
14 Id.
15 Id.
P 17–18.
P 323.
16 Id.
17 Id.
P 18.
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 CFR 42.1(d)(5) (2008).
20 Order No. 681, FERC Stats. & Regs. ¶ 31,226 at
P 318.
13105
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 ‘‘longterm 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
D. Rehearing Order: Order No. 681–A
11. 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
18 Id.
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21 Id.
22 Id.
P 321.
P 328.
23 Id.
24 Id.
P 329.
25 Id.
26 Order
No. 681–A, 117 FERC ¶ 61,201 at P 78.
27 Id.
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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 outside the region should be
entitled to receive this preference.28
Second, external load-serving 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 nonpancaked 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 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. 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 non-pancaked 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 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
28 Id.
P 79.
29 Id.
30 Id.
P 80.
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)).
31 Id.
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be reasonable to treat external load
differently from internal load for
purposes of allocating long-term firm
transmission rights.32
III. Discussion
A. Procedural Matters
15. 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. Contract With Transmission Owner
Rather Than Transmission Organization
16. 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
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 longterm 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 longterm firm transmission rights because its
agreement is with a participating
transmission owner, PG&E, and not with
the CAISO. Modesto argues that
32 Id.
33 Modesto
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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 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
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
34 See, e.g., New England Power Pool, 100 FERC
¶ 61,287, at P 85 (2002).
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).
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in the compliance phase of this
proceeding.36
2. Lack of a Transmission Agreement
20. 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 longterm firm transmission 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 longterm transmission agreement with the
ISO/RTO was outside of its control.40
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.’’
38 Id.
39 Id. at 14–15.
40 Id.
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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 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 party
may be at fault for causing a prior
agreement to lapse, we note that this is
a case-specific matter and, as such, is
beyond the scope of this proceeding.42
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).
42 We note that the DC 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 (DC 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
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3. Clarification of Paragraph 80 of Order
No. 681–A
24. 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
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 long-term 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
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.
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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 Commission to clarify
that the lower allocation priority and
potential for reduced allocation of longterm 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 longterm 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 longterm firm transmission rights. That is,
paragraph 80 serves only to establish the
initial priority for the allocation of longterm firm transmission rights to an
external load serving entity that has not
historically contributed to the
embedded costs of the transmission
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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 transmission rights in PJM requires
a fact-based determination that is
outside the scope of a general
rulemaking proceeding.45
4. Comparable Treatment for External
and Internal Load Serving Entities
29. 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
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).
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.
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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
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,
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.
47 Id. at 4 & n.10.
48 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).
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and cases 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
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
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.
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 FR 2984 (Jan. 16, 2008), FERC
Stats. & Regs. ¶ 31,261 (2007), order on reh’g, Order
No. 890–B, 73 FR 39,092 (July 8, 2008), 123 FERC
¶ 61,299 (2008)).
53 Id. (citing Order No. 888, FERC Stats. & Regs.
¶ 31,036 at 31,760).
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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 MidContinent 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 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
54 SMUD Rehearing Request at 7 (citing MAPP, 87
FERC ¶ 61,075 at 61,309–10).
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13109
is not unduly discriminatory.55 For
example, to be eligible for an allocation
preference, the transmission
organization may require a load serving
entity to demonstrate that it has a longterm 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
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
55 See Regional Transmission Organizations,
Order No. 2000–A, 65 FR 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 (DC Cir. 2001).
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).
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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. Marginal Losses
38. 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 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 allow
hedging of losses.62 Significantly, we
57 Order No. 681, FERC Stats. & Regs. ¶ 31,226 at
P 478.
58 Id.
59 Order No. 681–A, 117 FERC ¶ 61,201 at P 105–
06.
60 Id. P 105.
61 Id. P 106.
62 Id.
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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 short-term
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 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)
63 Id.
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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 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 shortterm rights they now offer.67
Specifically, transmission organizations
with short-term rights do not provide
hedges for marginal losses, and EPAct
2005 does not expressly require a hedge
for marginal losses.
46. 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
64 Order No. 681, FERC Stats. & Regs. ¶ 31,226 at
P 478; Order No. 681–A, 117 FERC ¶ 61,201 at P
105–06.
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.
E:\FR\FM\26MRR1.SGM
26MRR1
Federal Register / Vol. 74, No. 57 / Thursday, March 26, 2009 / Rules and Regulations
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 cost-effectively.
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 longterm firm transmission rights and is
more appropriately resolved by each
transmission organization on a case-bycase 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.
Kimberly D. Bose,
Secretary.
[FR Doc. E9–6698 Filed 3–25–09; 8:45 am]
BILLING CODE 6717–01–P
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Food and Drug Administration
21 CFR Parts 1, 26, 201, 203, 206, 310,
312, 314, 320, and 600
[Docket No. FDA–2009–N–0133]
Change of Addresses and Names;
Technical Amendment
AGENCY:
Food and Drug Administration,
HHS.
ACTION: Final rule; technical
amendment.
SUMMARY: The Food and Drug
Administration (FDA) is amending its
regulations to reflect a change of address
for the Center for Drug Evaluation and
Research’s (CDER’s) Central Document
Room in Beltsville, MD; the relocation
of certain CDER offices to the White Oak
campus in Silver Spring, MD; and
changes of the names of certain CDER
organizational units. This action is
editorial in nature and is intended to
ensure the accuracy and clarity of the
agency’s regulations.
DATES: This rule is effective March 26,
2009.
FOR FURTHER INFORMATION CONTACT:
Wendy Aaronson, Center for Drug
Evaluation and Research, Food and
Drug Administration, 10903 New
VerDate Nov<24>2008
16:51 Mar 25, 2009
Jkt 217001
Hampshire Ave., Bldg. 22, rm. 1128,
Silver Spring, MD 20993–0002, 301–
796–0410.
SUPPLEMENTARY INFORMATION: FDA is
amending its regulations in parts 1, 26,
201, 203, 206, 310, 312, 314, 320, and
600 (21 CFR parts 1, 26, 201, 203, 206,
310, 312, 314, 320, and 600) to reflect
the following changes: (1) Names of
certain CDER organizational units; (2) a
change of address for CDER’s Central
Document Room in Beltsville, MD; and
(3) the relocation of certain CDER offices
to the White Oak campus in Silver
Spring, MD. The addresses are locations
to which applicants must submit
information related to marketing
applications or products regulated by
CDER or from which the public can
request information. Where appropriate,
Internet addresses for obtaining
information and forms are added and
outdated addresses are removed.
The technical amendments made by
this document are largely related to
paper submissions; however, FDA is
committed to adapting its business
practices to evolving technology,
including using the significant
advancements in Web-based, electronic
systems. We anticipate that, in future
rulemakings, Web-based filing of most
submissions will eventually be required.
We anticipate that when a change to an
electronic submission system is
implemented, we will provide guidance
to address any technical questions
related to such submissions.
The technical amendments, reflected
in the regulatory text of this final rule,
are as follows:
• In § 1.101(d)(2)(ii), the address to
submit notifications for products
regulated by CDER exported under
section 802 of the Federal Food, Drug,
and Cosmetic Act (21 U.S.C. 382) is
changed to the White Oak campus.
• In Appendix E to subpart A of part
26, the contact information for CDER’s
Office of Compliance is updated to the
White Oak campus.
• In § 201.58, the address to submit
requests for waivers of labeling
requirements is updated to the Beltsville
Central Document Room.
• In § 203.12, the CDER address for
notification of an appeal from an
adverse decision regarding
reimportation of an insulin-containing
or prescription drug by a district office
is changed to the White Oak campus.
• In § 203.37(e), the address to submit
information regarding falsification of
drug sample records or loss or theft of
samples for prescription drugs and
biological products regulated by CDER
is changed to the White Oak campus.
• In § 203.70(b)(1), the address to
apply for a reward for providing
PO 00000
Frm 00057
Fmt 4700
Sfmt 4700
13111
information leading to a criminal
proceeding or conviction related to the
sale, purchase, or trade of a drug sample
is changed to the White Oak campus.
• In § 206.7(b)(1)(i), the address to
request exemptions from imprinting
requirements for solid oral dosage form
drugs is updated to the Beltsville
Central Document Room.
• In § 310.6(e), the address for
interested parties to submit the names of
drug products, and of their
manufacturers or distributors, that
should be subject to the same
purchasing and regulatory policies as
those reviewed by the Drug Efficacy
Study Group is changed to the White
Oak campus.
• In §§ 310.305(c) and 314.98(b), the
address to submit postmarketing safety
reports is updated to the Beltsville
Central Document Room. (Note that
applicants and any person other than
the applicant whose name appears on
the label of an approved drug product
as a manufacturer, packer, or distributor
may also elect to submit postmarketing
safety reports in electronic format.)
• In §§ 310.305(d)(4) and 314.80(f)(4),
the address to obtain reporting forms is
updated to reflect Internet availability.
• In §§ 310.501(e) and 310.515(d), the
name and address to request labeling
guidance for estrogen drug products are
updated to the Division of Reproductive
and Urologic Products and the White
Oak campus.
• In § 312.140(b), mailing instructions
are updated to ensure submissions are
addressed properly.
• In §§ 312.145(b) and 314.445(b), the
CDER unit from which to request a list
of CDER guidances is updated to the
Division of Drug Information. The
address is updated to the White Oak
campus, and an Internet address is
added to reflect the availability of the
list on the Internet.
• In § 314.80(d)(2) and (f)(3)(ii), the
CDER unit to contact regarding
alternative reporting formats is updated
to the Office of Surveillance and
Epidemiology.
• In § 314.81(b)(3)(i), the address to
obtain Form FDA–2253 (Transmittal of
Advertisements and Promotional
Labeling for Drugs for Human Use) is
updated to reflect Internet availability.
• In § 314.200(a)(3), the address to
request opinions of the applicability of
a notice of opportunity for a hearing
published in the Federal Register to a
specific product that may be identical,
related, or similar to a product listed in
the notice is changed to the White Oak
campus.
• In § 314.440(a), an outdated address
to submit applications, abbreviated
applications, and related
E:\FR\FM\26MRR1.SGM
26MRR1
]]>Agencies
[Federal Register Volume 74, Number 57 (Thursday, March 26, 2009)]
[Rules and Regulations]
[Pages 13103-13111]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-6698]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF ENERGY
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, DOE.
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 FR 68,440 (November
16,
[[Page 13104]]
2006). The order on rehearing affirms, with certain clarifications, the
fundamental determinations made in Order No. 681, as clarified by Order
No. 681-A.
DATES: Effective Date: Order No. 681 became effective on August 31,
2006. This order on rehearing and clarification will become effective
April 27, 2009.
FOR FURTHER INFORMATION CONTACT: Roland Wentworth (Technical
Information), Office of Energy Market Regulation, Federal Energy
Regulatory Commission, 888 First Street, NE., Washington, DC 20426,
(202) 502-8262.
Michael P. McLaughlin (Technical Information), Office of Energy
Market Regulation, Federal Energy Regulatory Commission, 888 First
Street, NE., Washington, DC 20426, (202) 502-6135.
Heidi Werntz (Legal Information), Office of the General Counsel,
Federal Energy Regulatory Commission, 888 First Street, NE.,
Washington, DC 20426, (202) 502-8910.
Richard Wartchow (Legal Information), Office of the General
Counsel, Federal Energy Regulatory Commission, 888 First Street, NE.,
Washington, DC 20426, (202) 502-8744.
SUPPLEMENTARY INFORMATION:
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 16
Transmission Organization.........................
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 29
Load Serving Entities.............................
Commission Determination........................... 35
5. Marginal Losses................................. 38
Commission Determination........................... 43
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\
---------------------------------------------------------------------------
\1\ Long-Term Firm Transmission Rights in Organized Electricity
Markets, Order No. 681, 71 FR 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.
---------------------------------------------------------------------------
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 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\ 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. 109-58, Sec. 1233, 119
Stat. 594, 957 (2005); 16 U.S.C. 824q (2006)).
\6\ Order No. 681-A, 117 FERC ] 61,201 at P 81.
---------------------------------------------------------------------------
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.
II. Background
A. Energy Policy Act of 2005
4. 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:
---------------------------------------------------------------------------
\7\ Public Law No. 109-58, 119 Stat. 594 (2005).
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\
---------------------------------------------------------------------------
\8\ 16 U.S.C. 824q (2006).
The statute further required the Commission to implement section
217 of the FPA within one year of the effective date of EPAct 2005.\9\
---------------------------------------------------------------------------
\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.'' Public Law No. 109-58, Sec.
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.
---------------------------------------------------------------------------
[[Page 13105]]
B. Notice of Proposed Rulemaking
5. 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 that satisfy guidelines established by the
Commission.\10\ The NOPR proposed eight guidelines, and sought comments
on various issues raised by the introduction of long-term firm
transmission rights in the organized electricity markets.
---------------------------------------------------------------------------
\10\ Long-Term Firm Transmission Rights in Organized Electricity
Markets, NOPR, 71 FR 6,693 (Feb. 9, 2006), FERC Stats. & Regs. ]
32,598 (2006).
---------------------------------------------------------------------------
C. Final Rule: Order No. 681
6. 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\
---------------------------------------------------------------------------
\11\ Order No. 681, FERC Stats. & Regs. ] 31,226 at P 494.
---------------------------------------------------------------------------
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 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 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\
---------------------------------------------------------------------------
\12\ Id. P 16.
\13\ Id.
\14\ Id. P 17-18.
\15\ Id. P 323.
\16\ Id.
\17\ Id. P 18.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\19\ Id. P 325; 18 CFR 42.1(d)(5) (2008).
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 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.
---------------------------------------------------------------------------
D. Rehearing Order: Order No. 681-A
11. 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\
---------------------------------------------------------------------------
\26\ Order No. 681-A, 117 FERC ] 61,201 at P 78.
\27\ Id.
---------------------------------------------------------------------------
[[Page 13106]]
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 outside the
region should be entitled to receive this preference.\28\ Second,
external load-serving 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\
---------------------------------------------------------------------------
\28\ Id. P 79.
\29\ Id.
---------------------------------------------------------------------------
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 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. 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 non-pancaked rates, as applicable.\30\
---------------------------------------------------------------------------
\30\ Id. P 80.
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 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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
III. Discussion
A. Procedural Matters
15. 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. Contract With Transmission Owner Rather Than Transmission
Organization
16. 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 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\
---------------------------------------------------------------------------
\33\ Modesto Rehearing Request at 4-5.
---------------------------------------------------------------------------
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 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 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
[[Page 13107]]
in the compliance phase of this proceeding.\36\
---------------------------------------------------------------------------
\34\ See, e.g., New England Power Pool, 100 FERC ] 61,287, at P
85 (2002).
\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).
---------------------------------------------------------------------------
2. Lack of a Transmission Agreement
20. 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 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\
---------------------------------------------------------------------------
\37\ SMUD Rehearing Request at 14. ``ISO'' refers to
``Independent System Operator'' and ``RTO'' refers to ``Regional
Transmission Operator.''
\38\ Id.
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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\
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\39\ Id. at 14-15.
\40\ Id.
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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
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.
---------------------------------------------------------------------------
\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).
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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 party may be at fault for
causing a prior agreement to lapse, we note that this is a case-
specific matter and, as such, is beyond the scope of this
proceeding.\42\
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\42\ We note that the DC 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 (DC 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 Sec. 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. Sec.
36.9.5.
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3. Clarification of Paragraph 80 of Order No. 681-A
24. 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\
---------------------------------------------------------------------------
\43\ Order No. 681-A, 117 FERC ] 61,201 at P 80.
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 long-term 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
[[Page 13108]]
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 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 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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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 transmission rights in PJM requires a fact-based
determination that is outside the scope of a general rulemaking
proceeding.\45\
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\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.
---------------------------------------------------------------------------
4. Comparable Treatment for External and Internal Load Serving Entities
29. 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 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.
---------------------------------------------------------------------------
\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.
\47\ Id. at 4 & n.10.
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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.
---------------------------------------------------------------------------
\48\ 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).
---------------------------------------------------------------------------
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,
[[Page 13109]]
and cases 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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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 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.
---------------------------------------------------------------------------
\51\ SMUD Rehearing Request at 6.
\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 FR 2984 (Jan.
16, 2008), FERC Stats. & Regs. ] 31,261 (2007), order on reh'g,
Order No. 890-B, 73 FR 39,092 (July 8, 2008), 123 FERC ] 61,299
(2008)).
\53\ Id. (citing Order No. 888, FERC Stats. & Regs. ] 31,036 at
31,760).
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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 the same or a comparable rate for those services.\54\
---------------------------------------------------------------------------
\54\ SMUD Rehearing Request at 7 (citing MAPP, 87 FERC ] 61,075
at 61,309-10).
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 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.
---------------------------------------------------------------------------
\55\ See Regional Transmission Organizations, Order No. 2000-A,
65 FR 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 (DC Cir. 2001).
---------------------------------------------------------------------------
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 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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
37. However, in response to LIPA, we clarify that any differences
in the attributes (e.g., length, renewal rights
[[Page 13110]]
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. Marginal Losses
38. 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 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\
---------------------------------------------------------------------------
\57\ Order No. 681, FERC Stats. & Regs. ] 31,226 at P 478.
\58\ Id.
\59\ Order No. 681-A, 117 FERC ] 61,201 at P 105-06.
\60\ Id. P 105.
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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 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\
---------------------------------------------------------------------------
\61\ Id. P 106.
\62\ Id.
\63\ Id.
---------------------------------------------------------------------------
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 short-term 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 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 of hedging
long-term marginal congestion charges, and the language of section 217
of the FPA is silent regarding marginal losses.\65\
---------------------------------------------------------------------------
\64\ Order No. 681, FERC Stats. & Regs. ] 31,226 at P 478; Order
No. 681-A, 117 FERC ] 61,201 at P 105-06.
\65\ Order No. 681-A, 117 FERC ] 61,201 at P 105-06.
---------------------------------------------------------------------------
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 long-term 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.
---------------------------------------------------------------------------
\66\ SMUD Rehearing Request at 12.
---------------------------------------------------------------------------
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 short-term rights do not provide hedges
for marginal losses, and EPAct 2005 does not expressly require a hedge
for marginal losses.
---------------------------------------------------------------------------
\67\ Order No. 681-A, 117 FERC ] 61,201 at P 106.
---------------------------------------------------------------------------
46. 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
[[Page 13111]]
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 cost-
effectively.
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.
Kimberly D. Bose,
Secretary.
[FR Doc. E9-6698 Filed 3-25-09; 8:45 am]
BILLING CODE 6717-01-P
