FERC Proposes New Policy Restricting Third-Party Use of Interconnection Facilities

by Orrick, Herrington & Sutcliffe LLP
Contact

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.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Orrick, Herrington & Sutcliffe LLP | Attorney Advertising

Written by:

Orrick, Herrington & Sutcliffe LLP
Contact
more
less

Orrick, Herrington & Sutcliffe LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.