Tn the Matter of the Application of Southwest Power Pool, Inc
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TN THE MATTER OF THE APPLICATION OF SOUTHWEST POWER POOL, INC. FOR A CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY FOR THE LIMITED DOCKET NO. 04-137-U PURPOSE OF MANAGING AND ORDERNO. 6 COORDINATING THE USE OF CERTAIN FACILITIES LOCATED WITHIN THE STATE OF ARKANSAS IN THE MATTER OF THE APPLICATION OF ) OKLAHOMA GAS & ELECTRIC COMPANY ) FOR APPROVAL OF ITS PARTICIPATION IN ) DOCKET NO. 04- 1 11 -U THE SOUTHWEST POWER POOL REGIONAL ) ORDERNO. 1 TRANSMISSION ORGANIZATION 1 IN THE MATTER OF A PROTECTIVE ORDER ) FOR THE COST BENEFIT STUDY 1 REGARDING THE SOUTHWEST POWER ) DOCKET NO. 04-129-U POOL REGIONAL TRANSMISSION 1 ORDERNO. 2 ORGANIZATION IN THE MATTER OF THE APPLICATION OF ) SOUTHWESTERN ELECTRIC POWER ) COMPANY’S RELATIONSHIP TO THE ) DOCKET NO. 04-143-U SOUTHWEST POWER POOL REGIONAL ORDERNO. 1 TRANSMISSION ORGANIZATION ) IN THE MATTER OF THE EMPIRE DISTRICT ) ELECTRIC COMPANY APPLICATION TO TRANSFER FUNCTIONAL CONTROL OF 1 DOCKET NO. 05-132-U CERTAIN TRANSMISSION ASSETS TO THE ) ORDERNO. 1 SOUTHWEST POWER POOL, INC. ) ORDER In this Order, the Commission (a) grants the Application of Southwest Power Pool, Inc. (“SPP”) for a Certificate of Public Convenience and Necessity (“CCN’) to transact the business Dockets No. 04-137-U; 04-1 11-U; 04-129-U; 04-143-U; 05-132-U Orders No. 6, 1, 2, 1, & 1 respectively Page 2 of 40 of a public utility in Arkansas by asserting functional control of certain transmission facilities in Arkansas; (b) denies SPP’s request for waiver of the applicability of various provisions of state law; and (c) grants, subject to certain conditions, the Applications of Southwestern Electric Power Company (“SWEPCO”), Oklahoma Gas & Electric (“OG&E”) and Empire District Electric Company (“Empire”) to transfer functional control of their Arkansas transmission facilities to SPP. This Order is organized as follows: Section I is the procedural history of the dockets; Section I1 reviews the background facts that are applicable to all the applications before the Commission; Section I11 addresses SPP’s Application for a CCN; Section IV addresses SPP’s request for the Commission to declare that certain Arkansas statutes are inapplicable; and Section V addresses the various utility Applications for authority to transfer fwnctional control of transmission assets to SPP. 1. Procedural History A. SPP’s Application for CCN and Request for Declaration of Inapplicability of Certain Arkansas Statutes SPP is a Regional Transmission Organization (“RTO”) approved by the Federal Energy Regulatory Commission (“FERC”). As an RTO, SPP provides transmission service over transmission facilities owned by its public utility and non-public utility members. On October 12, 2004, SPP filed in Docket No. 04-137-U an Application for a Certzjicate of Public Convenience and Necessity (“Application”). SPP requests a CCN “to transact the business of an electric public utility in the State of Arkansas only to the extent that it will be asserting functional control over those transmission assets which will be placed under SPP’s Dockets No. 04-137-U; 04-1 11-U; 04-129-U; 04-143-U; 05-132-U Orders No. 6, 1, 2, 1, & 1 respectively Page 3 of 40 control upon this Commission‘s approval of the applications of the affected jurisdictional utilities that are members of SPP.” Application at 7 13. SPP also requests “that the Commission declare those regulatory statutes which otherwise would apply to traditional electric utilities to be inapplicable to SPP.” Application at 7 16. SPP’s Application included Testimony and Exhibits in support of its Application. On August 4, 2005, SPP filed Supplemental Testimony including a Cost-Benefit Analysis (“Study”) of implementation of a regional Energy Imbalance Service (“EIS”) market within SPP. B. The Utilities’ Applications to Transfer Control In separate dockets, four utilities have sought permission to transfer functional control of their transmission facilities to the SPP RTO. On October 2 1,2004, SWEPCO filed its request in Docket No. 04-143-U. OG&E filed its request in Docket No. 04-1 1 1-U on August 5, 2004 and Empire filed its request on November 4,2005 in Docket No. 05- 132-U. C. Consolidation and Hearing On September 29, 2005, the Commission issued Orders consolidating Docket Nos. 04-1 11-U, 04-129-U, and 04-143-U with the SPP CCN docket, Docket No. 04-137-U. On November 22, 2005, Docket No. 05-132-U was consolidated with Docket No. 04-137-U by Commission Order. The Commission held a public hearing to consider the consolidated Applications on April 4, 2006. Entering appearances at the hearing were SPP, SWEPCO, OG&E, Empire, the Attorney General of the State of Arkansas (“AG”), and the General Staff of the Commission (“Staff ’). Dockets No. 04-137-U; 04-1 11-U; 04-129-U; 04-143-U; 05-132-U Orders No. 6, 1,2, 1, & 1 respectively Page 4 of 40 11. Background Facts Applicable to All Applications The Commission has before it four requests: SPP’s request for a CCN, and three utilities’ requests to transfer functional control of their transmission assets to SPP. Although SPP’s request involves a statutory provision different from that applicable to the utilities’ requests, there is a single question common to all four applications: will SPP’s functional control of the utilities’ transmission facilities benefit Arkansas ratepayers and serve the public interest? Because the facts necessary to answer this question are relevant to all four applications, we will set them forth here first; then apply them to the four applications. A. Electric Industry Changes Leading to the SPP RTO The emergence of RTOs is the consequence of three decades of federal policy efforts to introduce and foster wholesale electric generation competition. The main events leading to this point are as follows: Introduction of qualifying facilities: The Public Utility Regulatory Policies Act of 1978 (“PURPA”) created a new type of nonutility generator designated as a qualifying facility (“QF”). A QF was a cogenerator, or a small power producer, the latter usually producing renewable energy. PURPA required each electric utility to buy capacity and energy at the utility’s avoided cost. This utility obligation to purchase power from cogenerators stimulated the entry of many new generators into wholesale generation markets, demonstrating the fact that electric generation was not a natural monopoly, but could in fact be provided in the context of a competitive wholesale market. Introduction of exempt wholesale generators: Congress accelerated the market entry of wholesale generators with the Energy Policy Act of 1992. That Act established another Dockets No. 04-137-U; 04-1 11-U; 04-129-U; 04-143-U; 05-132-U Orders No. 6, 1,2, 1, & 1 respectively Page 5 of 40 category of electric generator, the exempt wholesale generator (“EWG”), and exempted it from the ownership restrictions of the Public Utility Holding Company Act of 1935 (“PUHCA”). The effect of the 1992 Act was to remove all limits on the types of entities permitted to own wholesale generation, and where they could own them.’ Utility-by-utility transmission access: Over the next four years, FERC recognized that wholesale electric generation markets could not grow if generation-owning utilities unilaterally controlled access to the transmission highways, because they would use that control to favor their own generation over the generation of their competitors. To address the problem, FERC issued its Order 888 in April 1996, based on its authority under the Federal Power Act (“FPA”) of 1935 to prevent undue discrimination in transmission service.2 Order 888 required all transmission-owning utilities subject to FERC jurisdiction to file a pro forma Open Access Transmission Tariff (“OATT”). The OATT: (a) obligates the transmission owner to make its transmission system available to wholesale generation competitors on terms comparable to how the owner uses its transmission system for its own generation; and (b) requires electric utilities to take transmission services for all of its wholesale sales and purchases of energy under that same tariff. Accompanying Order 888 was Order No. 889,3 requiring that all transmission ’ Congress repealed PUHCA in the Energy Policy Act of 2005. Energy Policy Act of 2005, Pub. L. No. 109-58, sec. 1263, 119 Stat. 594, (2005) (EPAct 2005). Promoting Wholesale Competition Through Open Access Nondiscriminatory Transmission Services by Public Utilities and Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Order No. 888, FERC Stats. & Regs. 31,036 (1996), order on reh‘g, Order No. 888-A, FERC Stats. & Regs. 31,048 (1997), order on reh’g, Order No. 888-B, 81 FERC 7 61,248 (1997), order on reh‘g, Order No. 888-C, 82 FERC 161,046 (1998), afd in relevant part sub nom. Transmission Access Policy Study Group v. FERC, 225 F.3d 667 (D.C. Cir. 2000), afdsub nom. New York v. FERC, 535 U.S. 1 (2002). Open Access Same-Time Information System (Formerly Real-Time Information Network) and Dockets No. 04-137-U; 04-1 1l-U; 04-129-U; 04-143-U; 05-132-U Orders No. 6, 1,2, 1, & 1 respectively Page 6 of 40 reservations made pursuant to the OATT be scheduled online, using an Open Access Same-Time Information System (“OASIS”) available to all potential transmission users. The purpose common to Orders 888 and 889 was independence: independence of transmission access and pricing from the influence of market participants, particularly electric utilities that owned both generation and transmission. Regional transmission service: Order 888 provided wholesale generators with transmission access on a utility-by-utility basis. FERC recognized that the transmission system is a inultistate, multi-utility machine, whose physical operation and planning is most efficiently conducted on a regional basis rather than a utility-by-utility basis.