By Adam
Wenner and A.
Cory Lankford
On May 15, 2014, the Federal Energy Regulatory Commission (FERC)
proposed new rules and policies that would make it easier for the
developers of non-utility transmission lines that connect their
power projects to the grid to avoid having to offer unused capacity
on those lines to third parties, and instead to reserve that
capacity for their own future use. When non-utility generators
build new power plants, they ordinarily construct and own new
interconnecting power lines - called "gen-tie lines" and related
equipment, such as substations, collectively referred to as
"Interconnection Customer's Interconnection Facilities" (ICIFs) in
FERC parlance. In many instances, these gen-tie lines are a
few hundred feet, but for solar, wind and geothermal plants, which
are often located in less populated areas, they can extend dozens or
even hundreds of miles.
FERC's "open access" policies, which are designed to ensure that
traditional utilities cannot use their monopoly over the
transmission grid to stifle competition, require owners of
transmission lines - including ICIFs - to function as common
carriers, by making unused capacity available to third parties any
time such service is requested. For developers of power
projects that include ICIFs, who have borne the risk of developing
and financing these lines, these open access policies have been
problematic, imposing costs and regulatory burdens, and limiting
their incentive to undertake the risk of development only to have a
competitor benefit equally from the line if it is successfully
completed.
In order to restore a more appropriate balance between its open
access policies, and to reduce the burdens on project developers,
FERC proposes to amend its regulations to: (i) provide a blanket
waiver to eligible ICIF owners, and (ii) establish a five year "safe
harbor," from the date that ICIFs are energized, during which third
parties are not permitted to obtain interconnection service over the
ICIF. After the five year period, third parties can seek to
interconnect their facilities with the ICIF by filing with FERC a
request for interconnection under Sections 210 and 211 of the
Federal Power Act (FPA) - which is a much more burdensome process
than simply making a request for interconnection.
Background
Currently, absent a waiver, FERC-jurisdictional generator owners
that own no transmission facilities other than ICIFs must comply
with FERC's open access requirements, which provide that unless it
obtains a FERC order granting a waiver, a generator owner must file
an open access transmission tariff (OATT) and comply with FERC's
standards of conduct and open-access same-time information system
requirements. Even if a generator owner does obtain a waiver from
the OATT filing requirement, the waiver is effective only until a
third party requests service over the interconnection facilities, at
which time the generator owner has 60 days to file an OATT.
FERC's current policies also impose burdensome requirements on
ICIF owners by awarding priority to use available capacity on
interconnection facilities based on the timing of an interconnection
request. It is common for generation developers to have excess
capacity on their interconnection facilities because they plan to
develop their generation facilities in phases, or because economies
of scale in transmission provide incentives to develop IFICs with
more capacity than is immediately needed, which is available for
future projects that the developer or its affiliates might
pursue. Because FERC's current policies encourage transmission
access on a first-come, first-served basis, developers are exposed
to the risk of a third-party request for service that could
interfere with the developer's planned use of its interconnection
facilities.
FERC has developed a process whereby generation developers can
request a FERC declaratory order that confirms the developers'
priority rights to their excess gen-tie capacity. FERC often
grants such requests, but the process is burdensome and
expensive. The declaratory order process, which includes a
$24,260 filing fee and can include significant legal fees, requires
the developer demonstrate to FERC that it has "specific,
pre-existing" generator expansion plans with milestones for
construction of generation facilities and that it has made material
progress toward meeting those milestones.
In practice, FERC's open access policies, as applied to
interconnection facilities, have yielded little benefit in the
promotion of competitive transmission markets at a great cost to
generation developers. Third-party requests for service over
interconnection facilities have been rare, and the requests for
interconnection service can be abandoned after the IFIC owner has
incurred the expense of preparing and filing an OATT. As noted
in the NOPR, only four requests for service from third parties have
resulted in actual interconnections under the current process.
As discussed in more detail below, FERC proposes three key
revisions to its policies relating to third-party use of
interconnection facilities that are intended to reduce regulatory
burdens and costs to generation developers, while ensuring open
access by permitting third-party interconnections only when they are
in the public interest.
Blanket Waiver
FERC proposes to amend its regulations to grant generator owners
that (i) are a FERC-jurisdictional "public utility," (ii) sell
electric energy, and (iii) own an ICIF, a blanket waiver from FERC's
open access requirements. (In order to qualify for the blanket
waiver, the generator owner must be potentially subject to an
interconnection order under Section 210 of the FPA. Section
210 authorizes FERC to require an "electric utility" to
interconnect. The FPA defines "electric utility" as "a person or
Federal or State agency...that sells electric energy," which is why
FERC proposes to impose the requirement that the entity sell
electric energy.)
FERC explains that it is appropriate to grant a blanket waiver to
such entities because of the limited and discrete nature of their
interconnection facilities. Unlike an integrated utility grid,
access to which is essential for non-utility generators to compete,
gen-tie lines and related interconnection facilities simply plug a
generator into the grid, and in most cases do not provide the
owner an opportunity to thwart competition by denying access to
competitors.
To qualify for the blanket waiver, the ICIF owner must be a
FERC-jurisdictional "public utility" that sells electric
energy. In recent years, generation developers have
increasingly chosen to establish a separate entity, referred to as
the "gen-tie owner," to own their interconnection facilities.
Under FERC's proposed rules, these gen-tie owners are not eligible
for the blanket waiver. However, they would be permitted to
seek an individual waiver from FERC's open access
requirements.
Safe Harbor
FERC also proposes to adopt a safe harbor period of five years,
beginning on the date that the interconnection facilities are
energized, during which, as a general rule, FERC will not require
the ICIF owner to provide transmission access to a third
party. (There is no prohibition on establishing
voluntary arrangements for sharing use of ICIF or providing
transmission service over them.) During the safe harbor
period, FERC will rely on a rebuttable presumption that the ICIF
owner has definitive plans to use the full capacity of its
interconnection facilities. A third party may attempt to rebut
these presumptions, but it also would have the burden of proving
that the public interest is better served by FERC granting access to
the third party over the interconnection facilities that were
designed to the serve the ICIF owner's planned
use.
Interconnection Pursuant to FPA Sections 210 and
211
Following the safe harbor period, third parties could use
procedures set forth in Sections 210 and 211 of the FPA to request
interconnection with interconnection facilities that are subject to
the blanket waiver. Under Section 210 of the FPA, FERC can
require ICIF owners to interconnect a third-party generating
facility if FERC determines that such interconnection is in the
public interest and would encourage conservation of energy or
capital, optimize efficient use of facilities and resources, or
improve reliability. Similarly, under Section 211 of the FPA,
FERC can require ICIF owners to provide transmission service to
third parties if FERC determines that ordering such transmission
service is in the public interest. The third party must
compensate the ICIF owner for the costs of any expansions required
to interconnect and provide transmission service to the third
party. FERC precedent is unclear, however, on whether a third
party must compensate the interconnection facility owner for
incremental line losses caused by the third-party
interconnection.
Companies that may be affected by these proposed policies have
the opportunity to have their views considered by FERC by submitting
comments to FERC prior to the deadline, which is July 29, 2014.
A copy of FERC's proposed rulemaking can be found here.
For more information about this matter, please contact:
Adam
Wenner Partner [email protected] (202)
339-8515
Cory
Lankford Managing Associate [email protected] (202)
339-8620 |