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By Adam
Wenner and A. Cory Lankford
At
its October 2015 meeting, the Federal Energy Regulatory Commission
("FERC") issued Order No. 816, a final rule adopting proposals to
update its market-based rate program. In addition, FERC denied
rehearing and granted clarification of its Order No. 807, a ruling
that waived open access requirements for owners of "gen-tie"
interconnection facilities and established a rebuttable presumption
that for the first five years following commercial operation, the
gen-tie owner and its affiliates will have priority rights to unused
capacity on the gen-tie. (See Orrick's client alert on Order
No. 807, below.)
Both policy reforms have been addressed in prior Orrick client
alerts available here
and here.
Order No. 816
Under FERC's market-based rate policies, FERC-regulated
generation owners and power marketers that sell wholesale energy,
capacity, or ancillary services must obtain authorization from FERC
to sell at "market-based rates," which are rates, terms and
conditions established by mutual agreement, as opposed to rates
based on the seller's cost-of-service or other traditional
ratemaking policies. FERC grants requests for market-based
rate authority to sellers that demonstrate that they and their
affiliates lack or have adequately mitigated horizontal and vertical
market power in the relevant geographic market. A seller that
obtains market-based rate authority is subject to ongoing compliance
obligations to demonstrate that it continues to lack or has
adequately mitigated market power in its relevant market.
FERC uses two indicative screens to assess an applicant's
horizontal market power: the "pivotal supplier analysis" and the
"wholesale market share analysis." Under each screen, FERC
considers all of the generation owned or controlled by an applicant
and its affiliates in the relevant market as compared to the supply
of generation within that market. FERC uses a seller's
balancing authority area ("BAA") or the relevant regional
transmission organization or independent system operator market, as
applicable, as the default geographic market. FERC also
reviews a seller's "vertical" market power, which is based on its
control of "inputs" to power generation, including fuel supplies and
transportation and electric transmission.
In Order No. 816, FERC revised its policies for obtaining and
maintaining market-based rate authority. The reforms and
clarifications adopted by FERC include the following:
- FERC clarified that a seller is not required to submit
indicative market power screens if it demonstrates that the
generation it and its affiliates control within the relevant
geographic market is fully-committed. FERC further clarified
that in order to qualify as "fully-committed," none of the
capacity can be available to the seller or its affiliates for one
year or longer. As defined by FERC, the relevant market
includes the seller's BAA and adjacent BAAs ("first-tier"
markets).
- FERC required market-based rate sellers to report long-term
firm purchases of power in their indicative market power screens
and in their asset appendices, regardless of whether the seller
has operational control of the generation capacity supplying the
purchased power.
- In recent years, FERC has advised market-based rate sellers to
include "behind-the-meter" generation in their indicative market
screens and asset appendices – although FERC permitted sellers to
aggregate behind-the-meter capacity by BAA. In Order No.
816, FERC ruled that market-based rate sellers are not required to
report behind-the-meter generation either in their indicative
market power screens or in their asset appendices.
- Similarly, FERC determined that market-based rate sellers are
no longer required to include qualifying small power production
facilities ("QFs") with a capacity of 20 MW or smaller in their
market screens or asset appendices, because such facilities are
exempt from Section 205 of the Federal Power Act, including FERC's
market-based rate rules thereunder. FERC required that any
affiliated QF with market-based rate authority must be included in
the seller's indicative market power screens and asset appendices.
- FERC historically has permitted sellers submitting indicative
screens and asset appendices to use either nameplate or seasonal
ratings in reporting their and their affiliates' generating
capacities. FERC also has permitted sellers with
"energy-limited" generation facilities – generation whose
production is constrained by available wind, water or other
resources – to use generation capacity ratings based on a
five-year production average. However, FERC has required
sellers to use nameplate ratings for solar projects. In its
notice of proposed rulemaking, FERC considered requiring sellers
to identify solar technologies as energy-limited generation
resources and allowing sellers of solar resources to use either
nameplate or five-year historical average capacity ratings.
In response to comments, FERC allowed sellers to report solar
thermal generation using either nameplate or a five-year
historical average capacity rating, but required sellers to use
nameplate capacity for solar photovoltaic units. (Solar
developers may seek rehearing of this holding, since the "net"
capacity of their projects is often lower than the nameplate
rating, due to power losses incurred in converting power from
direct current, as it is produced, to alternating current.)
- FERC adopted its proposal to require market-based rate sellers
to submit appendices to market-based rate filings that set forth
the indicative market power screens and list sellers' energy
affiliates in an electronic spreadsheet format that can be
searched, sorted, and otherwise accessed using electronic tools
(i.e., in Excel). FERC will post to its website a
pre-programmed website that sellers can use as a template.
FERC explained that the revised submission requirements will aid
sellers in developing their appendices and minimize the need for
follow-up inquiries from FERC staff.
- FERC has previously required market-based rate sellers to
submit quarterly reports of acquisitions of sites for potential
generation development. However, for purposes of evaluating
the potential market power of a seller, FERC established a
rebuttable presumption that ownership or control of, or
affiliation with entities that own or control, sites for
generation development does not create barriers to entry into the
relevant electric market. In Order No. 816, FERC adopted its
proposal to eliminate the land acquisition reporting
requirements. However, FERC will retain the right to request
additional information at any time if it has reason to believe
that a seller's acquisition of land has created a barrier to entry
or otherwise been used to exercise vertical market power.
- FERC has previously required market-based rate sellers to file
a notice of change in status demonstrating that they continue to
satisfy the requirements for market-based rate authority if the
sellers become affiliated with any new entity or with 100 MW or
more of generating capacity in any relevant market. In Order
No. 816, FERC established a 100 MW threshold for reporting
affiliations with new entities that own or control generation
within the seller's relevant market. For example, a seller
is not required to report a new affiliation with an entity that
owns a 45 MW generating facility within the seller's relevant
market unless and until the seller becomes affiliated with an
additional 55 MW of generation in that market. Consistent
with the requirement described above, market-based rate sellers
must include long-term firm purchases of capacity and/or energy in
calculating their newly affiliated capacity for purposes of
determining whether they meet the 100 MW threshold for the
requirement to file a notice of change in status.
The final rule will become effective 90 days after publication in
the Federal Register, which means that the rule will take effect in
the first quarter of 2016. A copy of Order No. 816 can be
found here.
Order No. 807-A
In Order No. 807, FERC revised its regulations to establish a presumption that developers of power projects and related transmission assets (“gen-ties”) necessary to interconnect projects with a local utility’s distribution or transmission system (collectively referred to as interconnection customer interconnection facilities or “ICIF”) are entitled to priority rights over the unused capacity of the ICIF for a period of five years from their commercial operation date. FERC also adopted procedures to grant automatic waivers of FERC’s open access requirements to ICIF owners. The National Rural Electric Cooperative Association (“NRECA”) and the American Public Power Association and the Transmission Access Policy Study Group (“APPA and TAPS”) subsequently requested FERC to revise its ruling, as described below.
NRECA requested FERC to establish an exception to the presumption
that the ICIF owner is entitled to priority rights for five years
on unused ICIF capacity if the entity seeking to use the ICIF is a
traditional utility, or "load serving entity," that needs access on
the ICIF to "serve native load efficiently." FERC rejected
NRECA's request, pointing out that the presumption granting priority
to the ICIF owner is rebuttable, and noted that even during the
five-year priority period, an ICIF owner is required to expand the
gen-tie facility to accommodate an additional user if the potential
user is willing to "carry the burden associated with that
expansion."
In their request for rehearing, APPA and TAPS asserted that by
waiving open access transmission tariff ("OATT") requirements for
ICIF owners, Order No. 807 unreasonably departs from FERC's and the
Federal Power Act's open access transmission policies. APPA
and TAPS further stated that the reforms adopted by FERC in Order
No. 807 (1) promote inefficient use and development of the
transmission grid that is increasingly being expanded to accommodate
renewable resources, (2) allow ICIF owners to monopolize the
transmission grid, and (3) are inconsistent with Order No. 1000's
objectives of efficient and cost-effective grid expansion. In
denying the APPA and TAPS requests, FERC reiterated its conclusion
that Order No. 807 appropriately balanced the need for open access
on gen-tie facilities with the concern that, absent the grant of
priority for future use, "there would be little incentive for a
developer to shoulder the extra expense of ICIF sized larger than
the initial phase of the project." FERC also found that many
requirements set forth in FERC's OATT, such as provisions relating
to network service, ancillary services and planning requirements, do
not apply to the transmission services provided over an
interconnection customer's gen-tie facilities.
Finally, FERC granted a requested clarification that "non-public
utility ICIF owners" – namely cooperative utilities with funding
from the Rural Utilities Service, municipal utilities, and federal
entities not regulated by FERC under the Federal Power Act – that
provide open access transmission under Order No. 888 "reciprocity"
provisions are entitled to the OATT waiver and five-year priority
safe harbor period.
A copy of Order No. 807-A can be found here.
For more information about these matters, please contact:
Adam
Wenner
Partner
awenner@orrick.com
(202)
339-8515
A.
Cory Lankford
Managing Associate
clankford@orrick.com
(202)
339-8620 |
