Generation developers on the West Coast should take special note as the FERC orders described in this blog all involve facilities out West.

When an unwary generation developer builds a tie-line to the nearest transmission line, it might assume that the use of that line can be wholly dedicated to moving power from its generation facility to the grid.  But that assumption would be incorrect.  With the stroke of a pen (or a computer keystroke), a third-party can transform the generation developer into a transmission provider simply by requesting interconnection to that generation tie line.  When that happens, the generation developer instantaneously becomes subject to FERC’s open access rules, the same rules usually reserved for transmission-owning public utilities, including the requirement to file an open access transmission tariff (OATT). 

On April 19, FERC issued a Notice of Inquiry (NOI) asking for help in applying this policy.  Developers and others should consider speaking up.

FERC’s Current Policy

Under FERC’s current priority rights policy, there are three instances in which the owner of generator interconnection facilities can reserve priority rights to capacity on its line:  (i) for its “existing use” at the time of a third party request for service; (ii) for future use based on “specific, pre-existing generator expansion plans with milestones for construction of generation facilities” for which the owner can demonstrate that it has made “material progress toward meeting those milestones” that pre-dates a third party request for service; and (iii) for use by an affiliate that can meet the “specific plans and milestones” standard and to whom ownership of the interconnection facilities will be transferred.  FERC’s first articulated the “specific plans and milestones” standard in 2006 in its Aero Energy, LLC order.  Arguably, it wasn’t until 2009, in Milford Wind Corridor, LLC, that FERC provided some clarification of how a developer can satisfy the standard.  Even so, as we’ve seen in Terra-Gen Dixie Valley, LLC, what qualifies as “specific plans and milestones” still isn’t clear.  FERC’s priority rights policy borders on a “we’ll know it when we see it” approach, which does not leave a generator developer with much certainty.

Even if a generation tie line owner is able to secure priority rights for itself or its affiliates on its interconnection facilities, the OATT filing requirement still looms.  Under FERC’s current policy, a “valid” request to interconnect from an unaffiliated third party triggers the requirement to file a pro forma OATT within 60 days of the request, whether or not priority rights exist.  The generator is thereby forced to divert staff and financial resources to develop and maintain an OATT.  And while FERC typically grants waiver of several provisions in the pro forma that clearly do not apply to transmission service on a generation tie line, for example, network transmission service, the generator’s OATT must include potentially onerous provisions, such as transmission planning and calculations for available transfer capabilities. 

As my colleague Brian Gish discussed in his advisory on the subject: generation tie line owners also can be required to comply with NERC’s mandatory electric reliability standards for transmission facilities, in addition to the bevy of reliability obligations required for Generator Owners and Generator Operators.  This, too, can tax a generator’s financial and personnel resources.

What FERC’s Looking for in its NOI

Through the NOI process, FERC is seeking comments on “alternative approaches to govern third-party requests for service and priority rights.”  Considerations on the table include: use of a modified OATT, including a safe harbor period during which a third party may not submit interconnection requests to the generation tie owner; and in lieu of the OATT framework, use of the large generator interconnection procedures, permitting the parties to mutually agree to use of and compensation for the facilities. 

Notably missing from the NOI is discussion of the NERC implications of a generation tie line being used to provide transmission service.  We’ll have to await the outcome of NERC’s ongoing Project 2010-07, which involves proposed changes to generator requirements at the interface with the transmission grid, to get, hopefully, some clarity regarding the reliability obligations of generation owners and generation operators.  Stay tuned.

NOI comments are due June 11, 2012.