Energy Legal Blog

FERC to Reprise Open Access Nearly Ten Years after Its Launch

Finding that today’s electric industry has changed considerably since it “functionally unbundled” transmission services nearly a decade ago in Order No. 888, FERC questions in a recent Notice of Inquiry (NOI) whether that bold step has sufficiently overcome the “economic self-interest of transmission monopolists, particularly those with high-cost generation assets, to deny transmission or offer transmission on a basis that is inferior to that which they provide to themselves.”   By opening this inquiry, FERC acknowledges that the efficacy of “functional unbundling” (as opposed to structural reforms such as divestiture or the surrendering of operational transmission control to an independent transmission operator) is a contentious topic.  To minimize the potential for acrimony, the agency asks those who participate in the NOI to avoid the “more polarizing elements of this debate” and instead focus on reforms targeted to specific problems that persist under Order No. 888.  Comments will be due 60 days after publication of the notice in the federal register, likely sometime in late November 2005.

 Many of the reforms contemplated in the questions of the NOI were proposed earlier as part of the transmission component of FERC’s comprehensive, yet controversial and now abandoned, standard market design or SMD.  Noteworthy areas of inquiry in the NOI are:

·        A transmission provider operating under the Order No. 888 open-access tariff is not required to offer transmission at the same price and on the same terms and conditions that it provides transmission to itself, but it is allowed to “bundle” transmission with its retail delivery service to native load customers, making the transmission component of that service wholly opaque.  In the NOI FERC does not propose to change this treatment, but notes that in section 1233 of the new Domenici-Barton Energy Policy Act of 2005 (EPA 2005) Congress defined native load service obligation and directed that providers of this service are entitled to transmission sufficient to fulfill their obligation.  FERC asks whether this entitlement is consistent with the existing practice of bundled transmission.  Arguably, in order to ensure that it properly implements the new entitlement, FERC may feel compelled to unbundled transmission service from retail delivery service so that it can oversee the right of first refusal implicitly called for in section 1233. 

·        Also with reference to EPA 2005, FERC notes that section 1231 of the new law authorizes it to require non-public (governmental or cooperatively owned) utilities to provide open-access transmission whereas, under Order No. 888, such utilities were required only to provide open access on a reciprocal basis to public utilities that provided open access transmission to them.  In the NOI FERC asks whether it should exercise this new authority and, if so, whether on a case-by-case basis or across-the-board in a rulemaking.

·        With regard to the types of transmission service offerings, FERC in the NOI asks (as it proposed in SMD) whether the current offerings of network service and point-to-point should be conflated into a single transmission offering that (unlike network) can readily trade in secondary (reassignment) markets.  Should transmission providers be required to offer firm service for periods as short as one hour; if so, should customers be allowed to batch hourly rights into longer-term firm service?

·        FERC also asks whether transmission pricing should be reconsidered.  Are there more efficient alternative to locational marginal pricing?  Should the price cap on transmission reassigned in secondary markets be lifted?

·        And perhaps of most immediate consequence for transmission sellers and customers, FERC asks what use it should make of the authority that EPA 2005 grants it to impose new and more-severe civil penalties for violations of the Federal Power Act.  Should the agency adopt uniform sanctions applicable to specific violations of open-access transmission tariffs by either transmission providers or transmission customers?  FERC also asks whether certain infractions, such as “setting aside more transmission capacity than is needed to serve native load and using the capacity for third-party sales,” should be considered the type of market manipulation that new section 1283 of EPA 2005 prohibits and subjects to the new civil penalties.

Consistent with the agency’s policy priority of encouraging utilities to join in and surrender operational control of their transmission to independent regional operators, FERC pointedly asks whether some of the reforms discussed in the NOI need only be applied to transmission systems that are independently operated.  [Preventing Undue Discrimination and Preference in Transmission Services, 112 FERC ¶ 61,299 (2005)]  [NEW MATTER]