In a move that could have a significant impact on electric generators, the Federal Energy Regulatory Commission (FERC) recently clarified its policy with respect to the provision of reactive power service.  The provision of reactive power is used to maintain voltage on the bulk transmission system within defined limits.  Generators often provide reactive power to transmission providers pursuant to FERC’s pro forma Large Generator Interconnection Agreement, and such service is generally not compensated if the generator is operating within certain power output ranges. In an order dated October 17, 2013, FERC found that all existing and new generators that provide jurisdictional reactive power service must file rate schedules containing the rates, term and conditions of that service, even if the generator receives no compensation. 

FERC’s decision arose out of a long-running proceeding in which Chehalis Power Generating L.P. (Chehalis) had proposed an initial rate schedule establishing the rates for it to provide reactive power service to Bonneville Power Administration (BPA).  FERC concluded that Chehalis’s rate schedule was not an initial rate, because Chehalis had previously been providing that service to BPA pursuant to an interconnection agreement, albeit free of charge.  FERC concluded that Chehalis’s proposal was for a “change in rates” rather than an “initial rate,” and thus its changed rate was subject to the suspension and refund provisions of Section 205(e) of the Federal Power Act.  FERC emphasized that an initial rate involves a new customer and a new service, whereas Chehalis had already been providing reactive power service to BPA under the interconnection agreement. 

Chehalis appealed the FERC decision to the U.S. Court of Appeal for the D.C. Circuit (D.C. Circuit), which remanded the case to FERC on the single issue as to whether Chehalis’s rate schedule should have been filed with FERC.  On remand, FERC concluded that Chehalis’s rate for the service it provided to BPA should have been filed, making Chehalis’s rate  a “changed rate” subject to suspension and refund.

Chehalis again appealed the FERC decision to the D.C. Circuit.  On voluntary remand, FERC reaffirmed in the October 17 order that Chehalis should have filed a rate schedule governing its provision of reactive power service under the interconnection agreement, thus making its filing a changed rate rather than an initial rate.  However, FERC recognized that there had been some uncertainty with respect to its previous policy, and therefore clarified that, on a prospective basis, both existing and new generators providing jurisdictional reactive power services (including uncompensated services under an interconnection agreement) must do so pursuant to a FERC-filed rate schedule.  FERC also clarified that it would not impose sanctions for a generator’s failure, prior to the October 17 order, to have a rate schedule on file for reactive power service provided without compensation.

FERC directed its staff to conduct a workshop to explore the mechanics for generators to file the required rate schedules when there is no compensation. The details of the workshop will be announced at a later date.