Energy Legal Blog

FERC Embraces Some Industry-Endorsed Business Standards, Rejects Others

Pursuant to a December 2002 memorandum of understanding, the North American Electric Reliability Council (NERC) and the North American Energy Standards Board (NAESB) set standards for the operation of wholesale electric power markets, with NERC taking the lead on engineering and reliability standards and NAESB on commercial business standards, both of which are intended to complement each other.  In an April 25 Order No. 676, FERC approved some and rejected other new business standards that NAESB’s non-profit Wholesale Electric Quadrant (WEC) developed for public utilities.  The approved standards go into effect July 1, 2006.

Approved Standard WEQ-007 prescribes how inadvertent energy imbalances can be repaid.  It codifies the existing practice of allowing control area operators — called Balancing Authorities — to pay back in kind or in cash.  To the consternation of typically smaller utilities that rely on others for control-area services, non-control areas remain subject to a $100 per MWh imbalance charge and do not have the option of settling their imbalances in kind.  Whether to end this apparent discrimination FERC committed to resolve in a future rulemaking.  WEQ-007 is also problematic because it perpetuates the incentive to run negative imbalances during periods of high or peak demand when wholesale prices are high and then repay in kind during periods of low demand when prices are lower.  FERC dodged this issue by repeating that WEQ-007 deals only with “inadvertent” imbalances, whereas any pattern of leaning on one’s neighbors during periods of high demand would be “advertent” and subject to punishment, if detected.

For transmission customers, it is significant that FERC rejected proposed Standard 001-9.7 providing that long-term transmission that is redirected on a firm basis — i.e., the original receipt and/or delivery points are changed —  does not confer on the transmission customer renewal or “rollover” rights to the redirected path, unless otherwise mutually agreed.  FERC rejected this proposed standard because it contradicts the open-access transmission tariff, section 22.2.  That section gives a long-term firm transmission customer rollover rights to the original path until such time as that path is redirected on a firm basis, and then to any redirected firm path that has been granted and remains in effect at the end of the transmission service agreement.  These rollover rights can be defeated only by the transmission operator showing that the capacity at issue is needed to provide service to native retail load or is otherwise already contacted.

In the same order FERC ruled that it was powerless to prevent NAESB from charging a fee for access to its copyrighted standards.  So long as the standards are reasonably available, FERC can adopt them by reference (as it did in this order) and require compliance by all power industry participants subject to FERC’s jurisdiction.