By Adam Wenner and Cory Lankford
On March 19, 2015, the Federal Energy Regulatory Commission
(FERC) issued Order No. 807, a rule that makes it easier for
developers of non-utility transmission lines that connect power
projects to the grid to avoid having to offer unused capacity on
those lines to third parties. The rule also waives open-access
transmission related obligations that otherwise apply to
transmission owners. When generation developers build new
power plants, they ordinarily construct and own new interconnecting
power lines – called "gen-tie lines" – and related equipment, such
as substations, referred to as "Interconnection Customer's
Interconnection Facilities" (ICIF) 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 require owners of transmission lines
to function as common carriers by making unused capacity available
to third parties. They also require transmission owners to
maintain websites providing information on transmission availability
(Open Access Same-Time Information System - OASIS) and impose
"Standards of Conduct" requirements that the transmission owner's
power sales functions be separated from its transmission
activities. Under FERC's prior policies, gen-tie owners had to
file case-specific requests for waivers of OASIS obligations and
Standards of Conduct. Also, upon receipt of a request for
transmission, FERC would require the gen-tie owner to file an Open
Access Transmission Tariff (OATT) and provide transmission service
to the requesting party, unless the owner could demonstrate to FERC
that it had developed specific plans to construct generation that
would use the excess transmission capacity and that it had made
material progress toward meeting its scheduled construction
milestones for development.
For developers who have borne the risk of developing and
financing these lines, these open access requirements have been
problematic, imposing costs and regulatory burdens and limiting
their incentive to undertake the risk of development only to have a
competitor wait on the sidelines and then obtain priority rights to
use transmission capacity on the ICIF if the developer successfully
completes it.
The rule adopted by FERC provides a blanket waiver from the open
access requirements to eligible ICIF owners and establishes a
five-year "safe harbor" from the date that ICIF are first used for
commercial sales, during which there is a rebuttable presumption
that the ICIF owner has specific plans to use 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 the current
process of simply making a request for interconnection to the ICIF
owner.
Background
FERC's former policies imposed 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 ICIF with
more capacity than is immediately needed, which is available for
future projects that the developer or its affiliates might
pursue. Because FERC's policies encouraged transmission access
on a first-come, first-served basis, developers have been exposed to
the risk of a third-party request for service that could interfere
with the developer's planned use of its interconnection
facilities.
As discussed in more detail below, FERC has adopted 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
In its final rule, FERC amends its regulations to grant a blanket
waiver of its open access requirements to any public utility that is
subject to such requirements solely because it owns, controls, or
operates ICIF. FERC determined that "[s]uch a waiver is
justified because the usually limited and discrete nature of ICIF
and ICIF's dedicated interconnection purpose means that such
facilities do not typically present the concerns about
discriminatory conduct that [FERC's open access requirements] were
intended to address." In addition, FERC stated that its
"existing policy [created] too low a bar for third-party requests
for service."
Under FERC's new approach, the blanket waiver from the open
access requirements will not be automatically revoked by a
third-party request for service over the ICIF. Rather, a
third-party must file a petition with FERC under Sections 210, 211,
and 212 of the FPA, requesting FERC to direct the ICIF owner to
provide transmission. FERC will grant such access only if the
request satisfies numerous criteria set forth in the FPA, including
a demonstration that it is in the public interest to give the
third-party request priority over the developer's planned use of the
excess capacity. Accordingly, under FERC's new approach, it
will be much more difficult for a third-party to obtain
interconnection rights over the objection of the ICIF
owner.
Initially, FERC proposed to offer the blanket waiver only to
generator owners that also own ICIF, and not to independent gen-tie
owners. FERC reasoned that this limitation was necessary to
ensure that the ICIF owners were subject to the mandatory
interconnection requirements set forth in Sections 210, 211, and 212
of the FPA, which apply to generator owners that make wholesale
sales of energy. Importantly, Section 210 only authorizes FERC
to require an "electric utility" – defined as an entity that
sells electricity – to interconnect if FERC determines that such
interconnection is in the public interest. However, many
generation developers prefer to establish a separate entity that
does not sell electricity to own, operate, and manage the
ICIF. Accordingly, FERC expanded the definition of eligible
ICIF owners to include ICIF owners that do not sell electricity,
provided that they file with FERC a statement that they commit "to
comply with and be bound by the obligations and procedures
applicable to electric utilities under section 210 of the FPA."
Safe Harbor
The final rule also adopts a five-year safe harbor period during
which there is a "rebuttable presumption" that the ICIF owner has
definitive plans to use its capacity without having to make a
demonstration through a showing of specific plans and
milestones. During the safe harbor, in order to overcome the
presumption, a third-party requesting service over ICIF must submit
evidence showing that the ICIF owner does not have definitive plans
to use its capacity and demonstrate that, under Sections 210 and 211
of the FPA, it is in the public interest to grant it priority rights
to use the ICIF capacity. In response, the ICIF owner can
defend its priority through a showing of specific plans and
milestones to use the ICIF. FERC states that, under this
approach, the "ICIF owner gains a degree of protection through the
reduced likelihood that a third-party requester could rebut the
presumption that an ICIF owner has plans to use of its capacity."
To take advantage of the safe harbor, ICIF owners must file with
FERC an informational notice stating: (1) the ICIF commercial
operation date, (2) sufficient detail to identify the ICIF,
including location and point of interconnection, and (3)
identification of the ICIF owner(s). The five-year safe harbor
period starts on the date that the ICIF are first used to transmit
energy for sale, excluding use for on-site testing and commissioning
of the planned generating facility (i.e., the commercial
operation date of the first project to use the ICIF). For ICIF
that are already in operation, the ICIF owner can still file a
notice to obtain a safe harbor to expire on the fifth anniversary of
the ICIF commercial operation date.
Interconnection Pursuant to FPA Sections 210 and
211
Following the safe harbor period, third parties can 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.
The final rule will be published in the Federal Register within
the next few weeks, and will become effective 90 days later.
Accordingly, FERC will accept informational filings from ICIF owners
to claim their safe harbor rights beginning in July 2015, if not
sooner.
A copy of Order No. 807 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 |