On June 18, 2009, the Federal Energy Regulatory Commission ("FERC") issued Order No. 697-C, the latest in a series of requests for rehearing and clarification concerning FERC's regulations on Market-Based Rates for Wholesale Sales of Electric Energy, Capacity and Ancillary Services by Public Utilities. In this order, FERC modified the reporting requirements for the acquisition by market-based rate sellers of sites for new generation capacity development. In addition, FERC rejected challenges to its limitations on market-based sales by a mitigated seller at the metered boundary of the balancing area in which the seller is mitigated.

Reporting on the Acquisition of Sites for New Generation Capacity Development

Under 18 C.F.R. § 35.42, a market-based rate seller "must timely report to the Commission any change in status that would reflect a departure from the characteristics the Commission relied upon in granting market-based rate authority." A change in status includes the acquisition of control of sites for new generation capacity development. Order No. 697-B set forth a broad definition of "sites for new generation capacity development," which included ownership of land that could potentially be used for generation in addition to sites that already have permits for new generation or where construction for new generation is underway. Petitioner, the American Wind Energy Association (AWEA), requested rehearing, expressing concern that this expansive definition would substantially increase the regulatory compliance burden of market-based rate sellers and could potentially create competitive risks through disclosure of proprietary information related to land acquisition and potential development plans.

FERC adopted these reporting requirements in order to monitor the vertical market power of market-based rate sellers and their ability to erect barriers to entry through the acquisition of sites for new generation capacity development. But, in response to AWEA's arguments, FERC agreed to modify its reporting requirements in § 35.42 to require reporting of a seller's acquisition of sites for new generation capacity development when site control has been demonstrated in the interconnection process and when the potential number of megawatts that are reasonably commercially feasible on the sites equals 100 MWs or more. If the seller elects to provide a monetary deposit to secure the right to demonstrate site control at a later time in the interconnection process, then the date on which the deposit is made will trigger the reporting requirements as long as the new generation capacity development that is reasonably commercially feasible on the sites is equal to 100 MWs or more. This reporting only has to be done on a quarterly basis, 30 days after the end of the calendar quarter in which the triggering event (demonstrating site control or paying the deposit) occurs, rather than the 30-day timeframe required for reporting other changes in status.

The quarterly report on sites for new generation capacity development must include: (a) the number of sites acquired; (b) the relevant geographic market in which the sites are located and (c) the maximum potential number of megawatts that are reasonably commercially feasible on the reported sites. The information on sites for new generation capacity development can be listed on an aggregate basis for each relevant geographic market, thereby reducing the risk of competitive harm from reporting the location sites.

In determining site control, FERC adopted the definition used in the Standard Large Generator Interconnection Procedures. Site control is defined there as "documentation reasonably demonstrating: (1) ownership of, a leasehold interest in, or a right to develop a site for the purpose of constructing the Generating Facility; (2) an option to purchase or acquire a leasehold site for such purpose; or (3) an exclusivity or other business relationship between Interconnection Customer and the entity having the right to sell, lease or grant Interconnection Customer the right to possess or occupy a site for such purpose."

In addition, to prevent a developer from acquiring sites with the purpose of preventing others from developing generation capacity, a market-based rate seller must also report any sites it has acquired, taken a leasehold interest in, obtained an option to purchase or lease, or entered into an exclusivity or other arrangement to acquire for the purpose of developing generation if it has not demonstrated site control (as discussed above) within three years of its acquisition and if development of 100 MWs or more of new generation on the sites is reasonably commercially feasible. The change in status notice for such an acquisition is due by January 1 of the year following the calendar year in which the triggering event occurs (that is, the third anniversary of the acquisition). Sites that have been held for three or more years prior to the effective date of this order (and which have not been previously reported and are not reported this year based on site control) must be reported in a change in status notice by January 1, 2010.

Limitations on the Mitigated Sales Tariff Provision

In Order No. 697-C, FERC also denied a request for rehearing concerning the tariff provision established in Order No. 697-B governing market-based sales by a seller who has been found to have market power (a "mitigated seller") at the metered boundary of the balancing area in which the seller is mitigated. Order No. 697-B revised the pro forma market-based sales tariff to provide that if a mitigated seller sells at market-based rates at the metered boundary between the balancing authority area in which it is mitigated and one in which it has market-based rate authority, then the seller and its affiliates cannot sell back into that mitigated balancing authority area from outside. Order No. 697-C upheld this restriction, but clarified that it is the seller's actions, not its intentions, that trigger this provision and therefore revised the pro forma tariff provision accordingly.

While petitioners claimed that the mitigated sales tariff provision would interfere with certain of their obligations (such as must-offer and reliability requirements and reserve sharing agreements), FERC noted that a mitigated seller does not have to make market-based rate sales at the metered border. Instead, the mitigated seller or its affiliates can make sales at cost-based rates into the balancing authority area in which it is mitigated or at the metered boundary of the balancing area authority in which it is mitigated. Also, a mitigated seller can comply with these rules by making market-based sales at the metered boundary if it ensures that title passes at or beyond the metered boundary between the mitigated and non-mitigated areas—or it may limit its market-based sales at the metered boundary to end-users.

This limitation on mitigated sales will not affect any existing agreement. The seller only needs to abide by these restrictions in any new agreement into which it enters.

This order on rehearing will become effective 30 days from publication in the Federal Register.

Please also refer to our previous Client Alert on the original Order No. 697, available here.