Energy Law Alert: Order No. 890: FERC Creates New Transmission Service Rules for Wind Energy; ‘Prying Open The Black Box'

FERC’s long-awaited order reforming its open access transmission tariff ("OATT") rules includes several changes intended to improve transparency of transmission service and address transmission barriers for wind projects. Although FERC has touted the reforms as facilitating the use of clean energy sources, such as wind, additional transmission-related barriers remain for wind energy, and several important questions remain unresolved.

New Transmission Service Options: Conditional Firm and Redispatch
In Order No. 890, FERC acknowledges that its existing regulatory scheme creates inefficient use of the nation’s transmission system by creating artificial barriers to use of the grid. Current OATT provisions forbid the sale of long-term firm transmission if firm available transmission capacity ("ATC") is unavailable for even one hour per year. The lack of firm transmission rights combined with the high cost of transmission upgrades or expansion thus serves as a substantial barrier to wind development and contributes to the inefficient use of the nation’s transmission grid. To address these concerns, FERC created two new options: conditional firm service and modified redispatch service. These two services provide new options for intermittent resources that can generally be constructed more quickly than the transmission upgrades necessary to deliver power on a firm basis. Conditional firm service addresses the "all or nothing" problem transmission customers currently face, in which a customer can be denied long-term point-to-point service if such service is unavailable in only one hour of the requested term of service. Conditional firm is a type of transmission service that wind advocates have promoted as a partial solution to the lack of available firm transmission. Under this service, a conditional firm customer could enter a long-term contract for the capacity that is available on a path. The customer would have firm service except for time periods designated in the contract and would have priority over non-firm service for the hours in which ATC is not available. The modified redispatch service, which adjusts the output of various generators to allow transactions that would otherwise be blocked by congestion on certain transmission paths, is routinely used by integrated utilities (those with transmission and generation) to serve native load and network customers and to make off-system sales. The Final Rule requires transmission providers to offer and study the use of redispatch service to create additional long-term firm capacity on a transmission system. Under the rule, customers would agree to pay the costs of redispatch service during the periods when firm ATC is not available.

Imbalance Carve-out for Wind
The Final Rule also provides improved standards for pricing energy and generator imbalance services. FERC found that current imbalance charges varied widely, were excessive, and penalized transmission customers whose actual generator or energy imbalances deviated from corresponding schedules without reference to the actual cost of providing imbalance service. This approach made sense if customers could predict generation output with a high degree of accuracy and control the quantity dispatched. FERC recognized, however, that the penalty did not make sense when applied to intermittent generation, which cannot be forecasted as reliably and for which the customer has little control over dispatchability. Accordingly, FERC revised existing Schedule 4 energy imbalance pricing and adopted a new Schedule 9 for generator imbalances. Both schedules will calculate charges for schedule deviations based on the tiered approach, similar to that used by the Bonneville Power Administration. The new imbalance pricing scheme creates three deviation bands, with increasing imbalance charges as the imbalance increases into the next largest band. Intermittent resources, as defined by FERC, are not subject to the highest deviation band.

"Pry Open the Black Box"
Order No. 890 also includes reforms intended to usher in a new era of transparency in OATT administration. According to Chairman Kelliher, the reforms are designed to "pry open the black box" that is the source of frustration for many transmission customers.

• The Final Rule provides for increased transparency in ATC calculations through inclusion in the OATT schedules of the specific ATC calculation methodology used by the transmission provider and posting of other relevant data and models on the provider’s OASIS web site.
• The Final Rule requires transmission providers to participate in a coordinated, open and transparent planning process on both local and regional levels. A description of the planning process must be included in the OATT.
• The Final Rule also requires the transmission providers to post on their public web sites, with a link to this information on OASIS, all business rules, practices and standards related to the transmission services offered under their OATTs, as well as a description of the transparent process for amending the rules, standards and practices.
• Transmission providers are required to post and report performance information related to their completion of studies required to evaluate transmission requests under the OATT. Penalties will be assessed for failure to meet study deadlines for prolonged periods.
• Finally, FERC will require transmission providers to include credit review procedures in their OATTs, including, among other things, the qualitative and quantitative criteria the transmission providers use to determine the level of secured and unsecured credit required, a list of acceptable types of collateral and descriptions of processes for changes in the credit levels or collateral requirements.

Other Issues
In addition to these significant reforms, FERC also adopted a number of other changes, including new rollover provisions that apply to contracts with a longer minimum duration than the present tariff, capacity reassignment rules, reservation priority rules and new rules for designating network resources.