FERC Filings
Request of EPSA for Clarification and Rehearing of Order No. 2003-A re: Standardization of Generator Interconnection Agreements and Procedures
Transmission Service Credits
A. Availability of Transmission Service Credits
In making changes to the rules governing the Interconnection Customer’s upfront payments for Network Upgrades and the payment of credits and reimbursements the Commission departs significantly from the policies crafted in Order No. 2003. In identifying our concerns, it is important to revisit the concepts underlying the upfront payment by Interconnection Customers. As the Commission reiterates in Order No. 2003-A, the upfront payment by Interconnection Customers is not a rate for interconnection service, nor is it a rate for transmission service. Rather, as the Commission notes, it is “simply a financing mechanism that is designed to facilitate the efficient construction of Network Upgrades.” Order No. 2003-A goes on to explain that the upfront payment by the Interconnection Customer provides the Transmission Provider with a source of funds to construct the Network Upgrades, thus alleviating any delay in identifying a source of funds for the project. Second, because the Interconnection Customer is initially at risk for the full cost of the Network Upgrades, the upfront payment creates a strong incentive to make only good faith requests for Interconnection Service.
With this understanding of the role of transmission credits, it simply makes no sense for the Commission, as it did in Order No. 2003-A, to restrict transmission credits solely to transmission services that includes the Generating Facility in question as the source of the transmission service. The electric network operates as an integrated unit. Once constructed, Network Upgrades funded by the Interconnection Customer provide system benefits to the entire system. For that reason, the funder of those Network Upgrades should be allowed to utilize credits for any transmission transaction on the system. Simply put, once the Interconnection Customer funds the Network Upgrade, all transactions involving other customers are immediately able to utilize those facilities without sharing in the costs of those Network Upgrades, but the Interconnection Customer’s contribution of those facilities to the system is recognized only for transactions when its Generation Facility is the source. This result makes no sense.
As envisioned in Order Nos. 2003 and 2003-A, credits are simply a substitute for dollars invested in Network Upgrades refunded on a dollar-for-dollar basis as the upgrade funder takes and pays for transmission service. Accordingly, the restriction imposed by Order No. 2003-A is illogical and inequitable. Moreover, because credits are applied towards transmission charges that would otherwise be paid to the Transmission Provider, contrary to the premise underlying the Commission’s grant of rehearing, flexible transmission credits do not challenge the Commission’s commitment to “or” pricing.
Aside from the policy objective, there is a more fundamental reason why the Commission’s decision to depart from the approach adopted in Order No. 2003 is problematic. Not all facilities will require transmission service on a schedule that makes the crediting mechanism meaningful if it is limited to transmission service for the specific Generating Facility. For example, a peaking facility may require very little transmission service on an annual basis.
If the Commission is inclined to retain its new policy of limiting credits for transmission service, the Commission should, at a minimum, allow crediting for any service taken on the Transmission Provider’s system if such service relates to new transmission transactions occurring on the system. This would not violate the Commission’s adoption of “or” pricing in the Pricing Policy Statement.
In any event, if the Commission retains the policy of limiting credits to transmission service that includes the Generating Facility as the source of the power transmitted, there are several issues that must be clarified. First, the Commission should clarify that credits will be applied to the total reservation payment for any service obtained to support the delivery of the generator, whether energy is scheduled in any particular hour of the reservation period and whether or not the power customers take advantage of redirect options provided under the pro forma OATT to all point-to-point customers. Second, the Commission should clarify that credits will be applied to network services whenever a network customer designates the generator as a network resource or substitute resource, regardless of whether the generator produces energy during each hour of the designation. Finally, the Commission must clarify that credits must be provided by the Transmission Provider when it designates the generator as a network resource or substitute resource for meeting its native load requirements, whether the Transmission Provider actually enters into a service agreement under the OATT. These clarifications are consistent with the Commission’s current administration of credits that is tied to the generating facility. The Commission’s determination not to adopt a more flexible approach for credits provides no basis to retreat from the practices that were in place prior to the issuance of Order No. 2003.
Therefore, EPSA respectfully urges the Commission to return to the conclusions reached in Order No. 2003 with respect to the transmission service for which credits will apply and permit Interconnection Customers to receive credits for new transmission service on the Transmission Provider’s system, regardless of whether it involves service from the Generating Facility.
For all of the same reasons, EPSA urges the Commission to reverse its decision to modify the credit policy with respect to upgrades funded by an Interconnection Customer on an Affected System as well. In concluding that credits should be available only to the extent the Interconnection Customer takes service on the Affected System, the Commission disregards the policy reasons underlying the credit procedures. In this area as well, the Interconnection Customer has made an upfront payment for Network Upgrades and is entitled to recover this investment over a reasonable period of time. A Generating Facility will be less likely to utilize transmission service on Affected Systems than on the system to which it interconnected, thus unreasonably delaying repayment. This is especially true in the West.
In the West, network facilities impacted by an interconnection are often jointly owned by a number of Transmission Providers. These Transmission Providers are often far removed from the Transmission Provider to which the Generation Facility is interconnected. There is little likelihood that a Generation Facility will take transmission service on the transmission system of a Transmission Provider that jointly owns these impacted facilities. Therefore there will be little ability to work off credits through transmission service on the Transmission Provider that jointly owns the impacted facility. In the Final Rule, the Commission addressed this situation by providing for the payment of credits over a five-year period, regardless of whether the Generation Facility has contracted for delivery service. By moving away from this decision and requiring transmission service on the transmission system of the affected Transmission Provider, there is little likelihood that credits will be provided on a timely basis unless the Transmission Provider on the Affected System agrees to reimburse the generator after a five- year period. For that reason, the Commission should, on rehearing, reverse itself on this issue.
B. Five-year repayment period
EPSA is also quite concerned about the Commission’s decision to allow Transmission Providers to choose between continuing to provide credits or reimbursing the remaining balance of the Interconnection Customer’s upfront payment, plus interest at the end of a five year period. Order No. 2003 had required that the transmission crediting be repaid within five years.
While EPSA appreciates the Commission’s inclusion of interest in the crediting regime, the extension of the five-year period for reimbursement is problematic, particularly if the Commission rejects EPSA’s arguments above and limits credits to transmission service involving the Generating Facility. These two issues are interlinked in that the significant limitations imposed on credits could make the repayment period extremely lengthy. For example, the peaker mentioned above that takes only limited transmission service on an annual basis could take decades to recover its investment costs.
If the Commission retains this approach, EPSA suggests several modifications and clarifications to Order No. 2003-A to make the result less onerous for Interconnection Customers. First, EPSA is concerned that the current interest rate provided for upfront payments is based on Treasury bonds, which is far below that available commercially for project financing. Therefore, if the five-year timeframe for reimbursement is maintained, EPSA urges the Commission to provide a rate of interest on upfront payments made by Interconnection Customers equal to the rate of return that the Transmission Provider would receive if it paid for the facilities. This is consistent with the Commission’s policy, discussed in depth above, that upfront payments are designed to provide a funding mechanism for the Network Upgrades and relieve the Transmission Provider of the responsibility to obtain financing for the project.
Second, the Commission needs to realize that one benefit of the five-year repayment window is that it avoids the need to revisit the “but for” analysis that indicated initially the cost that should be allocated to the Interconnection Customer. If the credit repayment is extended over the life of the project, the underlying analysis may no longer be valid and could require a reassessment that results in money being refunded to the Interconnection Customer because the facilities no longer satisfy the “but for” criteria. In other words, absent the upgrades, the Transmission Provider would need to add additional facilities to its system but those expansions can now be avoided as a result of the upgrades previously constructed at the time of the interconnection request. If the Commission retains its expansion of the refund period, it should provide for periodic reassessments of the “but for” determination.