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Order No. 681) 116 FERC ¶ 61,077 UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION 18 CFR Part 42 (Docket No. RM06-8-000; Order No. 681) Long-Term Firm Transmission Rights in Organized Electricity Markets (Issued July 20, 2006) AGENCY: Federal Energy Regulatory Commission. ACTION: Final Rule SUMMARY: The Federal Energy Regulatory Commission is amending its regulations under the Federal Power Act to require transmission organizations that are public utilities with organized electricity markets to make available long-term firm transmission rights that satisfy certain guidelines adopted by the Commission in this Final Rule. The Commission is taking this action pursuant to section 1233(b) of the Energy Policy Act of 2005, Pub. L. No. 109-58, § 1233(b), 119 Stat. 594, 960 (2005). EFFECTIVE DATE: This Final Rule will become effective [insert date 30 days after publication in the Federal Register]. FOR FURTHER INFORMATION CONTACT: Udi E. Helman (Technical Information) Office of Energy Markets and Reliability Federal Energy Regulatory Commission 888 First Street, N.E. Washington, DC 20426 (202) 502-8080 Docket No. RM06-8-000 - 2 - Roland Wentworth (Technical Information) Office of Energy Markets and Reliability Federal Energy Regulatory Commission 888 First Street, N.E. Washington, DC 20426 (202) 502-8262 Wilbur C. Earley (Technical Information) Office of Energy Markets and Reliability Federal Energy Regulatory Commission 888 First Street, N.E. Washington, DC 20426 (202) 502-8087 Harry Singh (Technical Information) Office of Enforcement, Division of Energy Market Oversight Federal Energy Regulatory Commission 888 First Street, N.E. Washington, DC 20426 (202) 502-6341 Jeffery S. Dennis (Legal Information) Office of the General Counsel Federal Energy Regulatory Commission 888 First Street, N.E. Washington, DC 20426 (202) 502-6027 SUPPLEMENTARY INFORMATION: UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION Long-Term Firm Transmission Rights in Organized Docket No. RM06-8-000 Electricity Markets TABLE OF CONTENTS Paragraph Numbers I. Background ..................................................................................................................... 3. A. The Development of ISOs and RTOs........................................................................ 3. B. Interest in Long-Term Firm Transmission Rights.................................................... 6. C. Staff Paper on Long-Term Transmission Rights..................................................... 11. D. Energy Policy Act of 2005 ..................................................................................... 14. E. Notice of Proposed Rulemaking ............................................................................. 15. II. Discussion.................................................................................................................... 16. A. Overview.................................................................................................................. 16. B. Definitions................................................................................................................ 24. 1. Organized Electricity Market ............................................................................... 24. 2. Load Serving Entity and Service Obligation........................................................ 34. 3. Long-Term Power Supply Arrangement.............................................................. 55. 4. Transmission Organization................................................................................... 63. C. Commission Interpretation of EPAct 2005 Requirements ...................................... 70. D. Commission’s Approach, Regional Flexibility, and Regional Seams Issues.......... 84. E. Guidelines for the Design and Administration of Long-Term Firm Transmission Rights in Organized Electricity Markets .................................................................... 108. Guideline (1) – Specify Source, Sink and Quantity ............................................... 108. Guideline (2) - Long-Term Hedge That Cannot Be Modified ............................... 122. Guideline (3) – Rights Made Available by Expansions Go to Parties That Pay for the Upgrade .................................................................................................................. 185. Guideline (4) – Term of Rights Must be Sufficient to Hedge Long-Term Power Supply Arrangements ............................................................................................. 217. Guideline (5) – Load Serving Entities with Long-Term Power Supply Arrangements Have Priority to the Existing System ..................................................................... 273. Guideline (6) – Rights are Reassignable to Follow Load ...................................... 331. Guideline (7) – Auction Not Required ................................................................... 361. Guideline (8) – Balance Adverse Economic Impacts ............................................ 394. F. Transmission Planning and Expansion .................................................................. 429. G. Alternative Designs for Long-Term Firm Transmission Rights ........................... 458. H. Miscellaneous Comments...................................................................................... 477. I. Implementation of the Final Rule and Compliance Issues ..................................... 479. III. Information Collection Statement ............................................................................ 496. IV. Environmental Analysis ........................................................................................... 500. V. Regulatory Flexibility Act Certification.................................................................... 501. VI. Document Availability ............................................................................................. 502. VII. Effective Date and Congressional Notification ...................................................... 505. UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION Before Commissioners: Joseph T. Kelliher, Chairman; Nora Mead Brownell, and Suedeen G. Kelly. Long-Term Firm Transmission Rights in Organized Docket No. RM06-8-000 Electricity Markets ORDER NO. 681 FINAL RULE (Issued July 20, 2006) 1. In this Final Rule, the Commission is amending its regulations to require each transmission organization that is a public utility with one or more organized electricity markets to make available long-term firm transmission rights that satisfy each of the guidelines established by the Commission in this Final Rule. We take this action pursuant to section 1233 of the Energy Policy Act of 2005 (EPAct 2005), which added new section 217 to the Federal Power Act (FPA).1 This Final Rule will require each transmission organization subject to its requirements to file with the Commission, no later than [INSERT DATE 180 DAYS AFTER PUBLICATION OF FINAL RULE IN THE FEDERAL REGISTER], either (1) tariff sheets and rate schedules that make available long-term firm transmission rights that satisfy each of the guidelines set forth in the final regulations, or (2) an explanation of how its current tariff and rate schedules already provide for long-term firm transmission rights that satisfy each of the guidelines. 1 Pub. L. No. 109-58, § 1233, 119 Stat. 594, 957 (2005). Docket No. RM06-8-000 - 2 - A transmission organization approved by the Commission for operation after [INSERT DATE 180 DAYS AFTER PUBLICATION OF FINAL RULE IN THE FEDERAL REGISTER] will be required to satisfy the requirements of this Final Rule. 2. The guidelines adopted in this Final Rule will give transmission organizations the flexibility to propose designs for long-term firm transmission rights that reflect regional preferences and accommodate their regional market designs, while also ensuring that the objectives of Congress expressed in new section 217(b)(4) of the FPA are met. As described in more detail below, the Commission will allow regional flexibility in setting the terms of the rights, but long-term firm transmission rights must be made available with terms (and/or rights to renewal) that are sufficient to meet the reasonable needs of load serving entities to support long-term power supply arrangements used to satisfy their service obligations. I. Background A. The Development of ISOs and RTOs 3. In Order No. 888, the Commission found that undue discrimination and anticompetitive practices existed in the provision of electric transmission service in interstate commerce.2 Accordingly, the Commission required all public utilities that 2 Promoting Wholesale Competition Through Open Access Non-discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Order No. 888, 61 FR 21540 (May 10, 1996), FERC Stats. & Regs. ¶ 31,036 at 31,682 (1996), order on reh’g, Order No. 888-A, 62 FR 12274 (March 14, 1997), FERC Stats & Regs. ¶ 31,048 (1997), order on reh’g, Order No. 888- (continued) Docket No. RM06-8-000 - 3 - own, control or operate facilities used for transmitting electric energy in interstate commerce to file open access transmission tariffs (OATTs) containing certain non-price terms and conditions and to “functionally unbundle” wholesale power services from transmission services.3 In addition, the Commission found in Order No. 888 that Independent System Operators (ISOs) had the potential to aid in remedying undue discrimination
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