United States: FERC Rule Gives Gen-Tie Owners Safe Harbor From Third-Party Transmission Requests

Last Updated: April 2 2015
Article by Adam Wenner and A. 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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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