Energy Legal Blog

FERC Says the Court Was Confused in Affirming Generator Interconnection Decision on Remand

Responding to a judicial demand that FERC explain an apparent change in policy, FERC decreed on May 6 that its 2002 order providing GenWest LLC (GenWest) transmission credits for network upgrades built to interconnect with Nevada Power Company’s (Nevada Power) grid was no change at all. 

Beginning with  FERC’s mid-1990s orders mandating that transmission-owning utilities open their systems to third parties, FERC has generally required that the costs of constructing upgrades to interconnect a customer be spread across all network customers, provided the upgrades are beneficial to the transmission system as a whole.  This is typically done by requiring the customer to advance initial funding for the construction costs and later receive a credit for those costs against future transmission charges.  By contrast, if FERC deems a particular upgrade to benefit only the interconnecting customer, the generator is not entitled to any reimbursement.  The key issue is how to determine who benefits from a particular upgrade ― just the interconnecting customer or all users of the transmission grid. 

In this case, FERC found that the one-line terminal GenWest LLC funded was a network upgrade that benefited all system users because it was located “at or beyond” the point at which the customer interconnected with Nevada Power’s grid.  Nevada Power, joined by Southern Company Services, Inc., and Entergy Services, Inc., challenged FERC’s use of the “at or beyond” language as an unexplained change from how FERC previously determined who benefits from a particular upgrade.  Apparently concerned about how the “at or beyond” language conforms to FERC’s earlier rulings, an appeals court instructed FERC to explain itself.  See UPDATE (12/29/04).  

            FERC’s response was a simple, and predictable:  “Change?  What change?”  FERC rationalized its decision to use the phrase “at or beyond” as a way to clear the fog surrounding some of its ealier descriptions of network upgrades.  According to FERC, the court misunderstood FERC’s distinction between interconnection facilities (which benefit, and hence are paid for by, only the interconnection customer) and network upgrades (which benefit, and hence are paid for by, all grid customers).  Because interconnection facilities are almost never “at or beyond” the point at which the customer interconnects to the grid, they are almost always located on the generator’s side of that point.  The costs at issue in the earlier Consumers Energy case that concerned the court, FERC said, were for run-of-the-mill interconnection facilities that were not “at or beyond” the point of interconnection.  Hence, requiring the customer alone to bear their costs was appropriate under FERC’s cost allocation policy, regardless of the language FERC used to describe them.  [Nevada Power Company, 111 FERC ¶ 61,161 (2005)] [UPDATE]