115 FERC ¶ 61,237

UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

Before Commissioners: Joseph T. Kelliher, Chairman;

Nora Mead Brownell, and Suedeen G. Kelly.

California Independent System Docket Nos. ER04-445-011

Operator Corporation ER04-445-012

ER04-445-013

ER04-445-014

Pacific Gas and Electric Company Docket Nos. ER04-443-009

ER04-443-010

ER04-443-011

San Diego Gas & Electric Company Docket Nos. ER04-441-009

ER04-441-010

Southern California Edison Company Docket Nos. ER04-435-015

ER04-435-016

ER04-435-018

(Not Consolidated)

ORDER ACCEPTING IN PART AND REJECTING IN PART WITH

MODIFICATIONS LARGE GENERATOR INTERCONNECTION COMPLIANCE

FILINGS, REJECTING OFFER OF SETTLEMENT, AND CLARIFYING PRIOR

ORDER

(Issued May 24, 2006)

1.  In this order, the Commission accepts in part and rejects in part
    with modifications the Large Generator Interconnection Procedures
    (LGIP) filed by California Independent System Operator Corporation
    (CAISO) to comply with Order No. 2003-C[^1] and with the
    Commission's July 1, 2005 Order accepting in part and rejecting in
    part CAISO's interconnection compliance filings and August 26, 2005
    Order granting clarification and denying a request for
    rehearing.[^2] In addition, the Commission accepts in part and
    rejects in part with modifications the Large Generator
    Interconnection Agreement (LGIA) jointly filed by CAISO and the
    three Participating Transmission Owners (PTOs) (collectively, the
    Filing Parties), also to comply with the July 1, 2005 Order and
    August 26, 2005 Order.[^3] We also reject Pacific Gas and Electric's
    (PG&E) Offer of Settlement (Settlement).

### I. [Background]{.underline}

#### A. [Prior Filings to Comply with Large Generator Interconnection Orders]{.underline}

2.  In Order No. 2003,[^4] the Commission, pursuant to its
    responsibility under sections 205 and 206 of the Federal Power Act
    (FPA)[^5] to remedy undue discrimination and in order to achieve
    greater standardization of interconnection terms and conditions,
    directed all public utilities that own, control, or operate
    facilities for transmitting electric energy in interstate commerce
    to append the Commission's *pro forma* LGIP and LGIA to their open
    access transmission tariffs (OATTs). In Order Nos. 2003-A, 2003-B,
    and 2003-C, the Commission reaffirmed the legal and policy
    conclusions that formed the basis of Order No. 2003 and modified a
    number of the provisions of the Commission's *pro* *forma* LGIP and
    LGIA.

3.  CAISO is the Transmission Provider that exercises operational
    control over the transmission facilities owned by the Southern
    California Edison Company (SoCal Edison), PG&E, and San Diego Gas &
    Electric Company (SDG&E). The Commission has issued several orders
    that rejected the series of proposed LGIP and LGIA filings submitted
    in the first quarter of 2004.[^6]

4.  In the July 1, 2005 Order, the Commission accepted in part and
    rejected in part proposed revisions to the Commission's *pro forma*
    LGIP filed by CAISO and proposed revisions to the Commission's *pro
    forma* Large Generator Interconnection Agreement (LGIA) filed by the
    Filing Parties. The Commission also accepted Transmission Owner
    Tariff (TO Tariff) amendments filed by the PTOs to transfer from the
    PTOs to CAISO procedural control over the substantive provisions for
    interconnecting Large Generators to the CAISO Controlled Grid.

#### B. [PTOs' Request for Clarification and Rehearing]{.underline}

5.  On August 1, 2005, the PTOs filed a joint request for clarification
    and/or rehearing (Joint Request for Rehearing) of two directives in
    the July 1, 2005 Order. The PTOs requested clarification of the
    extent to which they would be permitted to participate in the
    Commission-directed centralized transmission system study
    process.[^7] The PTOs also requested an extension of at least six
    months to develop and file centralized study procedures with CAISO.
    Lastly, the PTOs requested rehearing of the Commission's

    rejection of their proposal to require additional security from
    Interconnection Customers upon termination of an LGIA.[^8]

6.  On August 10, 2005, CAISO filed an answer in qualified support of
    the PTOs' extension request, stating that a six week extension until
    October 14, 2005, as opposed to the minimum of six months that the
    PTOs had requested, would be enough time to file the centralized
    study procedures.

7.  On August 26, 2005, the Commission partially granted the PTOs'
    request for additional time. It extended the centralized studies
    compliance deadline to October 14, 2005.[^9] The Commission
    clarified that CAISO must collaborate with stakeholders and the PTOs
    to develop the centralized study procedures.[^10] The Commission
    also clarified that the PTOs may, subject to certain conditions,
    participate in the centralized study process. Additionally, the
    Commission denied the PTOs' rehearing request regarding their
    proposed modification of the LGIA that would have required
    additional security, finding that it would be unduly burdensome for
    Interconnection Customers and could discourage construction of new
    generating capacity.

### II. [Summary of Revised LGIP, LGIA, and Related Filings]{.underline}

####  [LGIP and LGIA Filings]{.underline}

8.  CAISO filed the first round of revisions to its proposed LGIP on
    August 30, 2005.[^11] The Filing Parties also filed their proposed
    LGIA on August 30, 2005.[^12] CAISO requests that the proposed
    interconnection system study procedures it filed on February 18,
    2005 be used on an interim basis until procedures for centralized
    studies are accepted by the Commission and implemented in the
    California market.

9.  CAISO filed its proposal for centralized system study procedures on
    November 1, 2005. It proposes a Roles and Responsibilities Agreement
    (R&R Agreement) to allocate interconnection study responsibilities,
    as provided in the proposed LGIP, LGIA, and Interconnection Study
    Agreements, between CAISO and the PTOs. CAISO requests approval of
    separate R&R Agreements for itself and for each of the Filing
    Parties. However, it did not include an R&R Agreement rate schedule
    for PG&E. It says that PG&E will separately file an R&R Agreement if
    the Commission accepts the PG&E Offer of Settlement or if PG&E finds
    the Commission's determinations in this proceeding to be acceptable.

10. On August 30, 2005, PG&E submitted an informational filing to
    apprise the Commission of ministerial revisions added to section
    G2.17 of the PG&E Interconnection Handbook (handbook). PG&E revised
    section G2.17 to comply with the July 1, 2005 Order, which stated
    that the PTOs must file any handbook section that affects rates,
    terms, and conditions of interconnection service. In the July 1,
    2005 Order, the Commission also directed PG&E to file section G2.17
    of its handbook because section G2.17 appeared to include
    requirements that could affect costs assigned to customers.[^13]

11. PG&E states that the mention in section G2.17 of system costs
    required to interconnect new generation is a cross-reference to the
    LGIA section 6.1, pre-commercial operation testing and
    modifications. PG&E further states that it is reviewing other
    sections of its handbook for similar cross-references and will
    revise or remove any provisions that affect rates, terms, or
    conditions of service.

12. On November 1, 2005, PG&E filed a Settlement, which PG&E states
    would resolve (1) all issues associated with the centralized study
    process requirement and (2) a pending appeal of these directives
    that PG&E filed with the U. S. Court of Appeals for

    the District of Columbia Circuit.[^14] Under the Settlement, PG&E
    requests that the Commission accept without modification the CAISO
    and PTO November 1, 2005 compliance filings. The Settlement further
    requests that the Commission vacate certain portions of its orders
    that mandate a centralized study process and the transfer of study
    functions from the PTOs to CAISO. If the Commission does this, PG&E
    will withdraw, with prejudice, its petition for review.

13. On September 23, 2005, SoCal Edison filed to reinstate its pre-Order
    No. 2003 interconnection procedures to apply to Small Generating
    Facilities[^15] and grandfathered Large Generating Facilities that
    wish to connect to the SoCal Edison portion of the CAISO Controlled
    Grid.[^16]

### III. [Notices of Filings, Interventions, Protests, and Answers]{.underline} 

14. Notice of the Filing Parties' August 30, 2005 LGIA filing was
    published in the *Federal Register*, 70 Fed. Reg. 53,789 (2005),
    with interventions and protests due on or before September 20, 2005.
    The California Electricity Oversight Board and PPM Energy Inc. filed
    timely motions to intervene.

15. Notice of the Filing Parties' November 1, 2005 LGIA filing was
    published in the *Federal Register*, 70 Fed. Reg. 69,332 (2005),
    with interventions and protests due on or before November 22, 2005.
    Modesto Irrigation District (Modesto) filed a timely motion to
    intervene and protest.

16. Notice of CAISO's August 30, 2005 LGIP filing was published in the
    *Federal Register*, 70 Fed. Reg. 54,037 (2005), with interventions
    and protests due on or before September 20, 2005. The Cogeneration
    Association of California and Energy Producers and Users Coalition
    (together, QF Parties) filed a timely protest.[^17] The Cities of
    Anaheim, Azusa, Banning, Colton, and Riverside, California
    (together, Southern Cities) filed a timely protest. The Northern
    California Power Agency (NCPA) filed a protest out-of-time. CAISO
    filed an answer to the protests of Southern Cities and the QF
    Parties.

17. On November 1, 2005, PG&E filed a Settlement. Transmission Agency of
    Northern California (TANC) filed a timely protest contesting the
    Settlement. Modesto filed a motion to intervene out-of-time and
    protest contesting the Settlement. The PTOs jointly filed a reply
    and answer to the protests of Modesto and TANC and opposition to a
    late-filed intervention of Modesto.

### IV. [Discussion]{.underline}

#### A. [Procedural Matters]{.underline}

18. Pursuant to Rule 214 of the Commission's Rules of Practice and
    Procedure, 18 C.F.R. § 385.214 (2005), the timely, unopposed motions
    to intervene serve to make the entities that filed them parties to
    this proceeding. We will accept NCPA's late protest because it will
    not disrupt the proceeding or place additional burdens on the other
    parties. We will also accept Modesto's motion to intervene
    out-of-time and protest because it has provided us with information
    that has assisted us in our decision-making process.

19. Rule 213(a)(2) of the Commission's Rules of Practice and Procedure,
    18 C.F.R. § 385.213(a)(2) (2005), prohibits an answer or an answer
    to a protest unless otherwise ordered by the decisional authority.
    We will accept CAISO's answer and the PTOs' reply and answer because
    they have provided information that has assisted us in our
    decision-making process.

####  B. [Proposed Revisions to LGIP and LGIA]{.underline} 

20. In the July 1, 2005 Order, the Commission accepted CAISO's proposal
    to offer a base-level Interconnection Service for reliable
    interconnection. The Commission also accepted the proposed
    Deliverability Assessment Test, which can, at the Interconnection
    Customer's option, be used to obtain a higher level of
    Interconnection Service. In addition, the Commission accepted the
    CAISO proposal to offer an Interconnection Customer a choice between
    financial transmission rights or cash reimbursement as compensation
    for funding Network Upgrades. However, each of these provisions is
    subject to further review by CAISO to ensure that they comport with
    the rules in place for the broader market when CAISO's Market
    Redesign and Technology Upgrade is implemented.

21. Also in the July 1, 2005 Order, the Commission rejected certain of
    CAISO's Large Generator Interconnection compliance proposals and
    directed modifications. For example, the Commission rejected the
    proposal to allow the PTOs to perform informational assessments of
    affected PTOs' transmission facilities.[^18] Instead, the Commission
    directed CAISO to centralize its interconnection system study
    procedures.

22. The July 1, 2005 Order rejected other CAISO proposals, including the
    Economic Test,[^19] the proposal to withdraw the Maintenance of
    Encumbrances[^20] provision from the CAISO OATT, and the proposal to
    eliminate, pending issuance of Order No. 2006, the 20 megawatt size
    distinction between Large and Small Generators.[^21] It also
    rejected the Filing Parties' proposal to change the indemnification
    obligation in LGIA article 5.17.3 and their proposal to remove the
    10-year limit on the occurrence of a subsequent taxable event in
    LGIA article 5.17.6.

23. In reviewing the August and November 2005 compliance filings, we
    find that the Filing Parties have, for the most part, complied with
    Order No. 2003 and with the Commission's findings in the July 1,
    2005 and August 26, 2005 Orders. We accept the tariff sheets that
    include the proposed LGIP, LGIA, Interconnection Studies, and the
    R&R Agreement, with certain modifications, as discussed below. In
    addition, the Commission will also accept the PG&E informational
    filing regarding section G2.17 of its handbook. Lastly, we will
    accept SoCal Edison's adoption of its pre-Order No. 2003
    interconnection procedures, effective July 1, 2005, to be applied to
    Small Generating Facilities and "grandfathered" Large Generating
    Facilities that are in the process of interconnecting to SoCal
    Edison's portion of the CAISO Controlled Grid during the transition
    to Large and Small Generation Interconnection Procedures.

24. However, the Commission directs the Filing Parties to remove all
    references, including the reference in the definition of Feasibility
    Study, to informational assessments, since this provision was
    rejected by the Commission in the July 1, 2005 Order. A discussion
    of certain of the proposed compliance filing provisions that warrant
    additional consideration and modification follows.

    1.  **[LGIP Section 11.4: Commencement of Interconnection
        Activities]{.underline}**

25. Section 11 of the Commission's *pro forma* LGIP contains procedures
    for the development, proffer, necessary negotiation, execution or
    non-execution, and filing of an interconnection agreement. It also
    includes procedures for the commencement of interconnection
    activities.

26. The Commission's *pro forma* LGIP section 11.3, pertains to the
    execution and filing of an interconnection agreement. It states in
    relevant part that: (1) "not later than ten (10) Business Days after
    receiving...the request to file an unexecuted LGIA, the Transmission
    Provider shall file the LGIA with FERC, together with its
    explanation of any matters as to which the Interconnection Customer
    and Transmission Provider disagree, and support for the costs that
    the Transmission Provider proposes to charge to Interconnection
    Customer under the LGIA"; (2) "\[a\]n unexecuted LGIA should contain
    terms and conditions deemed appropriate by the Transmission Provider
    for the Interconnection Request"; (3) "\[i\]f the Parties agree to
    proceed with design, procurement, and construction of facilities and
    upgrades under the agreed-upon terms of the unexecuted LGIA, they
    may proceed, pending Commission action."

27. The Commission's *pro forma* LGIP section 11.4 pertains to the
    commencement of interconnection activities under the LGIA: "If the
    Interconnection Customer executes the final LGIA, Transmission
    Provider and Interconnection Customer shall perform their respective
    obligations in accordance with the terms of the LGIA, subject to
    modification by FERC. Upon submission of an unexecuted LGIA,
    Interconnection Customer and Transmission Provider shall promptly
    comply with the unexecuted LGIA, subject to modification by FERC."

######  [CAISO Proposal]{.underline}

28. In its January 20, 2005 compliance filing, which the Commission
    accepted in the July 1, 2005 Order,[^22] CAISO proposed a revision
    to the second sentence of the Commission's *pro forma* LGIP section
    11.4, quoted above, so that it would read, as follows, "Upon
    submission of an unexecuted LGIA, the Interconnection Customer,
    Participating TO and ISO may proceed to comply with the unexecuted
    LGIA, pending FERC action." CAISO stated that the revision
    acknowledged that the parties to the LGIA may move forward with its
    terms and conditions while awaiting action by the Commission.

    [**Protests: Southern Cities and NCPA**]{.underline}

29. Southern Cities filed a protest of CAISO's August 30, 2005 LGIP
    compliance filing, taking issue with the already accepted change
    described above. Southern Cities is concerned that allowing CAISO or
    a PTO to decline to begin Interconnection Service under an
    unexecuted interconnection agreement until after Commission action
    could block or delay Interconnection Service. It requests that the
    Commission reject the modification.[^23]

30. Southern Cities adds that to allow this delay changes the balance of
    rights and obligations between CAISO and the Interconnection
    Customer. It also says that the modification is inconsistent with
    the Commission's requirement in Order No. 888[^24] that a
    Transmission Provider begin to provide transmission service under an
    unexecuted transmission service agreement as long as the
    transmission customer agrees to abide by the terms and conditions
    ultimately found by the Commission to be just and reasonable.

31. NCPA filed an out-of-time protest, on October 5, 2005, to agree with
    Southern Cities. It adds that requiring the service provider to
    provide service under an unexecuted agreement has long been
    recognized as an important curb on market power, as it prevents the
    service provider from denying service until the customer agrees to
    whatever terms the service provider dictates.

######  [CAISO Answer]{.underline} 

32. CAISO objects on procedural grounds, arguing that these protests are
    beyond the scope of the compliance filing. CAISO also argues that
    the protests lack merit. It says that the revision is consistent
    with the Commission's *pro forma* LGIP procedures for filing a
    customer-specific LGIA and that these procedures allow the
    Transmission Provider to delay Interconnection Service in many, if
    not most, circumstances, by requiring the Transmission Provider's
    consent on the design, procurement, and construction of facilities
    and upgrades before parties proceed with service obligations under
    an unexecuted LGIA that is pending before the Commission.

33. CAISO adds that, under Order No. 2003, where the Transmission
    Provider and Transmission Owner are one in the same, there is less
    potential for disagreement over the terms of an unexecuted LGIA than
    in the California market where the Transmission Provider and Owner
    are separate entities. CAISO asserts that it would be problematic to
    require the Transmission Owner to begin procurement and construction
    activities with unresolved issues pending before the Commission in
    the unexecuted LGIA.

34. CAISO further points out that the Interconnection Customer has
    recourse if a dispute between CAISO and a PTO affects the timing or
    implementation of Interconnection Service. The Interconnection
    Customer could request expedited Commission review of the unexecuted
    LGIA.

######  [Commission Determination]{.underline}

35. The CAISO revision to the Commission's *pro forma* LGIP section 11.4
    is consistent with the Commission's *pro forma* LGIP section
    11.3,[^25] which CAISO did not revise, and therefore is consistent
    with the Commission's *pro forma* LGIP section 11 procedures for
    promptly filing an unexecuted LGIA. The July 1, 2005 Order approved
    this provision as part of the revisions accepted, if not otherwise
    discussed under the independent entity variation standard. Under
    this standard of review, CAISO, as the independent Transmission
    Provider, must be flexible and impartial while the parties negotiate
    disputed issues pending the Commission's ultimate findings.[^26]

36. Southern Cities failed to request rehearing of the July 1, 2005
    Order. The protest at this stage is beyond the scope of the
    compliance filing and constitutes a collateral attack on the July 1,
    2005 Order, and we therefore reject it. However, we will discuss the
    balance of rights and obligations that Southern Cities and NCPA
    raise, and the comparability requirement that must exist among
    CAISO, the PTO(s), and the Interconnection Customer under an
    unexecuted interconnection agreement as relevant to the role and
    responsibilities, discussed later on in this order, that each party
    has to the others in the interconnection process.

37. Order No. 2003 provides that where LGIA obligations include such
    matters as facilities construction that may be undertaken by the
    Transmission Owner or the Interconnection Customer, disputed issues
    must be negotiated by all three Parties (Provider, Owner, and
    Customer).[^27] With this type of obligation, the parties need more
    flexibility to determine whether to proceed with service commitments
    for those terms and conditions that are not under dispute, once the
    unexecuted agreement is filed and while they await Commission
    resolution.[^28] The independent oversight exercised by CAISO in
    this process will guard against the concern that a Transmission
    Owner could receive preferential treatment.[^29] Further, if the
    Interconnection Customer believes that it has been treated unfairly,
    it may invoke Dispute Resolution or bring the matter to the
    attention of the Commission.

38. We further point out that the CAISO LGIP section 11.4 revision is
    consistent with the LGIP section 11 procedures, which require prompt
    action, where the Interconnection Customer requests that an
    unexecuted agreement be filed. With regard to the Parties' attempts
    to reach agreement while waiting for Commission resolution of the
    unresolved issues, no one party's consent may be unreasonably
    withheld, and each party's efforts toward resolution must be
    substantially equivalent to those the party would use to protect its
    own interests. Therefore, we find that the revision will not create
    an opportunity to delay or prevent interconnection service, and we
    deny the intervenors' requests that the revision be rejected.

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1.  **[Proposal to Centralize the Interconnection System Study
    Process]{.underline}**

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39. In its January 2005 interconnection compliance filing, CAISO said
    that it did not have the staff resources to conduct interconnection
    studies for the entire CAISO Controlled Grid, and proposed to have
    the PTOs, with historical and technical knowledge of their
    respective systems, continue to conduct the studies. However, the
    Commission found that CAISO must manage its interconnection policy
    and procedures, including its system study process.[^30] The
    Commission clarified that the PTOs could participate in the
    centralized study process, including conducting certain studies
    under the direction and oversight of CAISO, but that the
    participation should generally be limited to areas where the PTOs
    have very specific and non-transferable expertise or data and where
    it is more efficient and cost effective for the PTOs rather than
    CAISO to conduct those studies.[^31]

40. The PTOs requested clarification that they would have review and
    consent rights where CAISO physically conducts interconnection
    studies. They said that where there is a dispute, they should be
    able to use CAISO's dispute resolution process. The Commission
    clarified that if CAISO physically conducts interconnection studies,
    the PTOs have a right to make recommendations, but that granting the
    PTOs consent rights would allow them to control the study process.
    Lastly, the Commission clarified that in the event of a dispute, any
    party may use CAISO's dispute resolution process.[^32]

######  [CAISO Proposal]{.underline}

41. In its November 1, 2005 transmittal letter, CAISO states that its
    proposed centralized study process would strike an appropriate
    balance between CAISO's primary and independent role in conducting
    Interconnection Studies and evaluating grid-wide effects and
    solutions, and the PTOs' ownership interest, specialized knowledge,
    experience, and engineering expertise, thus ensuring the safety and
    reliability of the CAISO Controlled Grid.

42. CAISO proposes to revise the LGIP Roles and Responsibilities service
    provision to state that CAISO will conduct or cause to be performed
    the required Interconnection Studies, and will direct the PTOs to
    perform portions of studies where CAISO and the PTOs conclude in
    advance that the PTOs have specific and non-transferable expertise
    or data, and can conduct those portions of the studies more
    efficiently and cost effectively than CAISO.[^33] In section 3.1 of
    the R&R Agreement, the Filing Parties recognize that CAISO, as the
    Transmission Provider under the CAISO OATT, is responsible for the
    reliable operation of the CAISO Controlled Grid, but that it does
    not own any transmission facilities. Section 3.1 of the R&R
    Agreement also states that the PTOs own, construct, maintain, and
    may construct or modify the transmission facilities to which Large
    Generating Facilities are to be interconnected. Lastly, R&R
    Agreement section 3.1 includes a statement that all Interconnection
    Studies, whether performed by CAISO, a PTO, and/or a third-party
    contractor, are under the direction and oversight of and must be
    approved by CAISO.

######  [Protests by Modesto Irrigation District and TANC]{.underline} 

43. Modesto states that it owns and operates transmission facilities
    which are interconnected to the CAISO Controlled Grid. Modesto adds
    that it is a member of several municipal power agencies that have
    transmission service entitlements purchased from PG&E, the
    Department of Water and Power of the City of Los Angeles, and SoCal
    Edison. For example, Modesto, as a member of TANC, has a share of
    TANC's entitlement to capacity on the California-Oregon Transmission
    Project and a share of TANC's transmission service entitlement on
    the PG&E transmission system under the South of Tesla Principles.

44. Modesto argues that the Filing Parties' centralized study proposal
    does not comport with the Commission's directive that CAISO exercise
    its independent status in the Interconnection Study process. Modesto
    believes that CAISO has relinquished its responsibility for
    conducting the studies, allowing the PTOs to either take a primary
    role in or to retain consent authority over the study process. It
    cites to LGIP and LGIA language regarding CAISO's revised
    definitions of interconnection studies. Each definition of a
    particular study states that CAISO will "cause" a study to be
    performed, instead of stating that CAISO will perform the study.
    Additionally, Modesto says that CAISO has modified the LGIP/LGIA to
    state that CAISO will cause studies to be performed "in coordination
    with" the applicable PTO instead of indicating that CAISO has
    primary consent authority. Modesto concludes that with these
    revisions CAISO is undermining its independent entity status and
    circumventing the Commission's directives.

45. Similarly, TANC argues that the Filing Parties have developed a
    decentralized study process that gives the PTOs control by allowing
    them to perform the short circuit analyses and the detailed
    engineering design, assessments of costs, and construction
    scheduling, as well as allowing the PTOs to review CAISO's
    recommendations concerning the various study functions performed by
    CAISO.

######  [PTOs' Answer]{.underline} 

46. The PTOs say that Modesto and TANC neither claim to own or operate
    any large generators connected to the CAISO Controlled Grid nor to
    have such projects in development. They also note that Modesto and
    TANC have publicly announced plans to turn over control of their
    primary transmission assets to the Sacramento Municipal Utility
    District control area. This suggests that they do not have a
    compelling interest in the interconnection studies for new Large
    Generators on the CAISO Controlled Grid. Finally, the PTOs state
    that the compliance filings were the product of a
    Commission-directed stakeholder process where no other party
    objected to the centralized study proposal.

######  [CAISO Answer]{.underline}

47. CAISO states that neither entity provided any comments to CAISO.

######  [Commission Determination]{.underline}

48. In California, ownership and operation of transmission facilities is
    bifurcated. Generators interconnect to transmission facilities that
    are constructed, owned, maintained, and modified to allow
    interconnection service by a PTO while the entity which provides
    transmission service is CAISO. Order No. 2003 states that an ISO's
    compliance filing may propose modified interconnection service
    arrangements that provide different respective rights and
    obligations in the region.[^34]

49. We find that the centralized study proposal complies with the
    Commission's prior orders and meets the independent entity variation
    standard. It strikes the appropriate balance between CAISO, as an
    independent Transmission Provider with grid-wide responsibilities,
    and the PTOs, as Transmission Owners with specialized knowledge of
    their respective systems. It is an efficient, cost-effective, and
    reasonable basis on which to facilitate Generator interconnection
    under Order No. 2003.

50. In Order No. 2003-A, the Commission found that while Interconnection
    Studies and transmission planning must be controlled by the
    Transmission Provider, construction scheduling and other
    construction-related matters must involve and be negotiated by the
    Transmission Provider, the Transmission Owner, and the
    Interconnection Customer. The Commission added that the independent
    oversight exercised by the regional transmission organization (RTO)
    or independent system operator (ISO) will guard against any one
    party receiving preferential treatment.[^35]

51. In compliance with the July 1, 2005 Order and as clarified in the
    August 26, 2005 Order, CAISO proposes a centralized study procedure
    under which it will execute the interconnection study agreements,
    collect funds, and coordinate, oversee, and approve all aspects of
    the interconnection studies for the entire CAISO Controlled Grid.
    CAISO will examine each interconnection to determine if it will
    affect more than one PTO's service territory, and, if it does, CAISO
    will ensure that the Interconnection Study will examine the entire
    CAISO Controlled Grid.[^36] In the July 1, 2005 Order, the
    Commission said that a decentralized study process would unduly
    burden interconnecting generators by forcing them to coordinate
    multiple studies with multiple PTOs.[^37] We find that CAISO's
    proposal will prevent this kind of duplication of interconnection
    studies making the study procedures more cost-efficient and less
    burdensome on Interconnection Customers. We also find that CAISO's
    proposed centralized study process ensures its primary and
    independent role in conducting interconnection studies, and
    evaluating grid-wide impacts and solutions while making use of the
    PTOs\' specialized knowledge of their respective portions of the
    CAISO Controlled Grid.

52. We find that CAISO's management of Interconnection Services,
    including direction and oversight of all aspects of the centralized
    study process, with participation from the PTOs, is reasonable, will
    facilitate the interconnection process, and will thereby support the
    reliable transmission of electric energy in the California market.
    We also find that allowing the PTOs to participate and conduct
    certain studies under the direction and oversight of CAISO is
    consistent with our directive that CAISO adopt a centralized study
    process. Further, we find that CAISO's proposal is consistent with
    the study procedures in other RTOs and ISOs that allow PTOs to
    conduct certain studies. As with other RTOs and ISOs, the CAISO will
    oversee and resolve any disputes involving: study methods;
    assumptions; weighing pre-existing grid problems; demand parameters;
    generation dispatch; or other inputs necessary for just and fair
    interconnection study evaluation. We therefore reject Modesto's and
    TANC's arguments that the PTOs' participation in the Interconnection
    Study process will decentralize it and compromise CAISO's role as
    independent service provider.

53. Finally, we note that Attachment A of the R&R Agreement allocates
    interconnection study responsibilities, and clarifies how CAISO will
    conduct the interconnection study process and assign portions of the
    Interconnection Studies to the relevant PTOs, under the direction,
    oversight, and approval of CAISO. CAISO states that where it
    performs the System Study Load Flow, Post Transient, and Stability
    analyses to determine grid impacts and evaluate mitigation
    solutions, the potentially affected PTOs may perform these studies
    as part of the review process and recommend alternative solutions.

54. We find that while, under the CAISO LGIP study procedures,[^38] the
    PTOs have the right to review applicable study results, they are not
    permitted to duplicate studies performed by CAISO or a third party
    contractor, at the Interconnection Customer's expense. We direct
    CAISO to clarify that where a study is performed, that study may not
    be duplicated at the Interconnection Customer's expense.

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2.  **[R&R Agreement]{.underline}**

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55. The Commission's *pro forma* LGIP sets forth procedures that
    Interconnection Customers and Transmission Providers must follow
    during the interconnection process, while the Commission's *pro
    forma* LGIA enumerates the legal rights and obligations of each of
    the parties, addresses cost responsibility issues, and establishes a
    process for resolving disputes.[^39] In Order Nos. 2003 and 2003-A,
    the Commission required that when the Transmission Owner and
    Transmission Provider are separate, they both must sign the LGIA, to
    allow one-stop shopping for Interconnection Customers where the
    interconnection is to a facility that is under the operational
    control of an RTO or ISO. The Commission further found, in
    *Southwest Power Pool, Inc.*, that when the Transmission Provider
    and Transmission Owner are separate entities, interconnection
    service roles and responsibilities in the Commission's *pro forma*
    LGIP, LGIA, and Interconnection Study Agreements can be clarified in
    a separate agreement between the Transmission Provider and
    Transmission Owner.[^40] Therefore, we find that CAISO's proposed
    R&R Agreement is consistent with Order No. 2003 and with Commission
    orders recognizing that the parties may wish to allocate
    interconnection service responsibilities.

56. CAISO proposes to separately designate the R&R Agreement as a rate
    schedule for itself and for each of the PTOs. We reject the proposed
    designation because it is inconsistent with the Order No. 2003
    requirement that interconnection procedures must be appended to the
    Transmission Provider's OATT.[^41] We direct CAISO to append the R&R
    Agreement to its OATT in the same manner as the LGIP, LGIA, and
    Interconnection Study Agreements.

57. These findings are consistent with our July 1, 2005 Order where we
    rejected the Filing Parties' request to designate their proposed
    LGIA and Interconnection Study Agreements as stand-alone
    documents.[^42] The Commission found that Order No. 2003 is explicit
    in requiring "public utilities that own, control, or operate
    facilities for transmitting electric energy in interstate commerce
    to file revised \[OATTs\] to add" the Commission's *pro forma* LGIP
    and LGIA.[^43] The Commission further found that since the study
    agreements directly affect customer rates and services and are part
    of the LGIP, they must also be appended to the CAISO OATT.

58. CAISO also proposes, in section 3.2 of the R&R Agreement, that if
    there is a conflict between provisions of the R&R Agreement and a
    customer-specific Interconnection Study Agreement, or between the
    R&R Agreement and the CAISO OATT, the R&R Agreement would control.
    We reject CAISO's proposal to have the R&R Agreement govern, in the
    event of a conflict.

59. The Commission's July 1, 2005 Order found that where a proposed LGIA
    provision that dictates rights and obligations between CAISO and the
    PTO, or between CAISO and the Interconnection Customer, is
    inconsistent with the OATT, the OATT would govern.[^44] The
    Commission further stated that a service agreement must be
    consistent with its governing tariff. The Commission added that in
    order to further the goal of standardization, the LGIA should be
    interpreted under a single tariff, in this case the CAISO OATT, even
    though it would also be a service agreement under the PTO's tariff.

#### [Joint Request for Rehearing and PG&E Offer of Settlement Regarding]{.underline} [Centralized Study Process]{.underline}

60. The August 26, 2005 Order granted the clarifications requested
    regarding the centralized study process, with modifications, and
    therefore denied rehearing. The Commission denied the Joint Request
    for Rehearing on the issue of consent rights, clarifying that
    granting the PTOs consent rights would allow the PTOs to control the
    study process. The August 26, 2005 Order clarified that, if CAISO
    does physically conduct interconnection studies, the PTOs should
    have adequate review and recommendation rights. However, granting
    the PTOs consent rights would be equivalent to allowing the PTOs to
    control the study process.

61. The August 26, 2005 Order also clarified that CAISO should
    collaborate with interested stakeholders, including the PTOs, to
    develop a proposal for a centralized system study process. The
    Commission stated that, during the interim period, before the
    Commission accepts a full proposal for system study centralization,
    the PTOs may continue to physically conduct the studies, under the
    direction and oversight of CAISO.

62. On November 1, 2005, PG&E filed the Settlement, stating that it
    would resolve all issues associated with the centralized study
    process requirements of the Commission's July 1, 2005 and August 26,
    2005 Orders. PG&E: (1) requests that the Commission approve, without
    modification, the November 1, 2005 compliance filings submitted by
    CAISO and CAISO/PTOs in Docket No. ER04-445, *et al.*; (2) requests
    that the Commission vacate certain specified portions of the July 1,
    2005 and August 26, 2005 Orders; and (3) states that upon issuance
    of a final Commission order taking the above-described actions, PG&E
    will file with the Court of Appeals a request to withdraw, with
    prejudice, its petition for review of the Commission's July 1, 2005
    and August 26, 2005 orders.

63. PG&E asserts that the Commission should approve, without
    modification, the November 1, 2005 compliance filings submitted by
    CAISO and the PTOs. PG&E states that these compliance filings are
    the product of an extensive stakeholder process and achieve the
    Commission's goal of a centralized, more streamlined interconnection
    study function, while also preserving an important role for the PTOs
    in the study process.

64. PG&E requests vacatur of certain portions of the July 1, 2005 Order
    and August 26, 2005 Order that require transfer of responsibility
    for the study function from the PTOs to CAISO. Specifically, PG&E
    requests that certain language be stricken from paragraphs 55 and 56
    of the July 1, 2005 Order. PG&E also requests that the Commission
    strike paragraph 57 of the July 1, 2005 Order in its entirety. The
    portions of the July 1, 2005 Order that PG&E requested be vacated
    are the following:

    55\. CAISO has proposed, consistent with the Commission's
    interconnection policy, to standardize the system study process to
    provide a more uniform approach to studies for the CAISO Controlled
    Grid. We note, however, that although the proposed studies would be
    standardized, they would still be conducted by the individual PTO
    looking only at its own service territory. With each affected PTO
    conducting system studies, a generator could be required to
    coordinate and pay for studies conducted by all three PTOs instead
    of having one set of studies that would examine the effect of the
    interconnection and additional generation on the CAISO grid as a
    whole. A centralized study process ensures that the studies are
    coordinated to assess the impact of new generation beyond a single
    service territory, with the intent of maintaining or improving
    reliability levels and generally improving electric service. If, as
    proposed, the interconnecting PTO continues to conduct the studies,
    there is a risk that separate transmission investments will work at
    cross-purposes and possibly even hurt reliability. ~~Furthermore,
    allowing the PTOs to conduct the studies undermines the very
    independence on which the Commission relies when it approves an
    ISO's deviations from Order No. 2003 under the more flexible
    independent entity variation standard.^39^~~

    56\. We are also concerned that from a broader transmission system
    planning and expansion perspective, a decentralized approach for
    conducting system studies may not be the most efficient or
    forward-looking method in the long run. ~~We direct CAISO and the
    PTOs to adopt a centralized study process and conform their
    procedures so that an interconnecting generator would not be unduly
    burdened by coordinating multiple studies with multiple PTOs, and
    the study findings include the overall effect of the interconnection
    on the Grid as a whole, where appropriate.~~

    57\. ~~Therefore, CAISO must adopt a centralized study process, in
    which CAISO itself conducts the studies, and submit the necessary
    tariff revisions in the compliance filing submitted in response to
    this order.~~

65. Further, PG&E requests that certain language be stricken from
    paragraphs 21 and 22, and also from paragraph 3 of the August 26,
    2005 Order which reaffirmed the Commission's directive that CAISO
    must adopt a centralized study process and stating that the PTOs
    should not be granted consent rights where CAISO physically conducts
    the interconnection studies.

66. PG&E claims that the Commission's August 26, 2005 Order did not
    address PG&E's argument that until now the PTOs have had primary
    responsibility for performing all interconnection studies under the
    CAISO and PTO Commission-approved tariffs, and because the PTOs did
    not propose in their filings in this case to transfer that function
    to CAISO, the Commission cannot require such a transfer without
    satisfying the requirements of FPA section 206. PG&E states that, in
    essence, this would require the Commission to find, on the basis of
    substantial record evidence, that the PTOs have not been performing
    this function adequately. It asserts that there is no basis in the
    record of this case for such a finding.

67. PG&E asserts that the Joint Request for Rehearing explained that
    when CAISO was first established, the Commission rejected a proposal
    to transfer the study function from the PTOs to CAISO.[^45] PG&E
    asserts that, under FPA section 206 and the filed rate doctrine, the
    Commission cannot require a change in a Commission-approved tariff,
    unless it first finds, based on substantial record evidence, that
    the existing tariff provision for some reason has become unjust,
    unreasonable, or otherwise unlawful. PG&E asserts that the Joint
    Request for Rehearing demonstrated that these legal requirements
    were not satisfied here. Instead, PG&E states that CAISO has
    performed hundreds of interconnection studies under the
    Commission-approved tariffs heretofore in effect, in a timely,
    even-handed, and professionally competent manner. Therefore, the
    PTOs argued that the Commission lacked a legitimate basis for
    imposing the contested changes to the approved tariff provisions
    governing interconnection studies in California.

68. PG&E states that the Commission, in paragraphs 55-57 of the July 1,
    2005 Order, failed to cite any prior case in which the Commission,
    exercising its powers under FPA section 206, has purported to
    overrule an existing, Commission-approved tariff, in mandating a
    centralized study function to an ISO, against the wishes of the
    participating utilities. PG&E further argues that prior cases in
    which electric utilities may have voluntarily yielded to their ISO
    the responsibility for the interconnection study function are not a
    precedent for imposing such a structure on PTOs currently operating
    under Commission-approved tariffs giving them primary responsibility
    for the study function. It asserts that Commission decisions on
    governance issues, such as independence criteria applied to ISOs,
    are not pertinent to a technical and operational issue regarding the
    study function.

69. PG&E states that it understands that vacatur is an equitable remedy,
    and that the Commission does not ordinarily vacate its orders absent
    a showing of exceptional

    circumstances.[^46] However, PG&E believes that vacating portions of
    the July 1, 2005 and August 26, 2005 Orders is appropriate in the
    circumstances here. First, this case can be distinguished from the
    *Panhandle Eastern* ruling that vacatur should not be granted to a
    party who causes a case to become moot before the issuance of a
    Commission order on rehearing petitions, by agreeing to a
    settlement. PG&E claims that there is no mootness here because the
    Commission denied the PTOs' Joint Request for Rehearing and now the
    case is on appeal. Second, unlike in *Panhandle Eastern*, here the
    subject language at issue does not represent a Commission policy and
    is not the result of extensive hearings and Commission
    deliberations. Instead, PG&E states that the Settlement preserves
    the Commission's directive for a centralized study process, and
    simply focuses on procedural matters associated with FPA
    section 206. Third, vacatur of discrete portions of the July 1 and
    August 26, 2005 Orders would not be disruptive to the proceedings.

70. PG&E states that its request is modest in scope because it only
    seeks to vacate certain portions of the two orders.[^47] PG&E states
    that to its knowledge its request for vacatur is unopposed. No party
    requested that the Commission issue the original directive mandating
    centralization of the study function. PG&E further asserts that if
    any party does emerge unexpectedly at this late hour to oppose the
    Settlement, any such opposition should be given little weight in
    light of its lateness.

71. In response to the *Notice to the Public -- Information to be
    Provided with Settlement Agreements*[^48] issued by Chief
    Administrative Law Judge Curtis L. Wagner, Jr. on October 15, 2003,
    requesting information to be submitted with settlement agreements,
    PG&E states that the Settlement does not raise policy issues or have
    implications beyond this case, nor does it raise any issues of first
    impression. As specified in the R&R Agreement filed as part of the
    November 1 compliance filings, PG&E states that the applicable
    standard of review for future changes regarding responsibility for
    the study function will be the "public interest" standard set forth
    in *United Gas Pipe Line Co. v. Mobile Gas Service Corp.*,[^49] and
    *Federal Power Commission v. Sierra Pacific Power Co.*[^50]

    **[TANC Protest]{.underline}**

72. TANC protests the November 1 compliance filing and contests the
    Settlement. It states that the compliance filing gives the PTOs
    approval rights regarding the studies and actual interconnection
    procedures. CAISO would have the PTOs, including PG&E, perform the
    short-circuit analyses associated with the Interconnection Studies,
    do the detailed engineering design, assessments of costs, and
    construction scheduling, and have the PTOs review CAISO's
    recommendations concerning the various study functions performed by
    CAISO. Therefore, TANC states that this is still a decentralized
    study process that the PTOs would control. TANC states that the
    filing thus does not comply with the July 1 and the August 26, 2005
    Orders. For these reasons, TANC also requests that the Commission
    reject PG&E's Settlement.

#####  [Modesto Protest]{.underline}

73. Modesto states that PG&E's Settlement could result in CAISO losing
    its status as an independent entity, which would require evaluation
    of CAISO's LGIP and LGIA filings under the "consistent with or
    superior to" standard instead of the independent entity standard.
    Modesto says that PG&E is seeking veto authority over CAISO's
    centralized interconnection study process. Modesto states that
    because the Commission has already denied rehearing on this exact
    issue, PG&E's Settlement is a collateral attack on the Commission's
    July 1 and August 26, 2005 Orders.

74. Modesto notes the fact that PG&E requested the Commission to accept
    the CAISO and PTO filings submitted on November 1, 2005 without
    modification. PG&E is urging the Commission to accept these
    compliance filings without modification in the same pleading in
    which it is collaterally attacking the July 1 and August 26, 2005
    Orders. Modesto says this suggests that the compliance filings are
    not in compliance with the Commission's orders as they purport to
    be.

#####  [Commission Determination]{.underline}

75. Under Rule 602 of the Commission's Rules of Practice and Procedure,
    where an offer of settlement is contested by any party, the
    Commission may rule on the merits of the settlement if the record
    contains substantial evidence upon which to base a reasoned decision
    or there is no genuine issue of material fact.[^51] If the
    Commission finds that the record lacks substantial evidence or that
    the contesting parties or contested issues cannot be severed from
    the offer of settlement, the Commission may establish procedures for
    the purpose of receiving additional evidence before a presiding
    officer upon which a decision on the contested issues may reasonably
    be based, or take other action which the Commission determines is
    appropriate.[^52] Here, TANC and Modesto have contested the PG&E
    Settlement and, therefore, we will rule on the merits of the
    Settlement because the record contains substantial evidence upon
    which we can base a reasoned decision.

######  [Section 206 of the Federal Power Act]{.underline}

76. As noted above, PG&E asserts that the Commission's August 26, 2005
    Order failed to address the PTOs' claim that, under FPA section 206
    and the filed rate doctrine, the Commission cannot require a change
    in a Commission-approved tariff, unless the Commission first finds,
    based on substantial record evidence, that the existing tariff
    provision for some reason has become unjust, unreasonable, or
    otherwise unlawful.

77. The Commission, in Order No. 888, found that public utilities owning
    or controlling jurisdictional transmission facilities had the
    incentive to engage in, and had engaged in, unduly discriminatory
    transmission practices.[^53] The Commission, in Order No. 888, also
    thoroughly discussed the legislative history and case law involving
    sections 205 and 206, concluding that it had the authority and
    responsibility to remedy the undue discrimination it had found by
    requiring open access, and decided to do so through a rulemaking on
    a generic, industry-wide basis.[^54] The United States Court of
    Appeals for the District of Columbia Circuit found that "the
    Commission has the authority under FPA \[sections\] 205 and 206 to
    require open access as a generic remedy to prevent undue
    discrimination."[^55] The Supreme Court affirmed the Commission\'s
    decision to exercise this authority by requiring non-discriminatory
    (comparable) open access as a remedy for undue discrimination.[^56]

78. Interconnection is an element of transmission service that must be
    provided under the OATT.[^57] Thus, the Commission may order generic
    interconnection terms and procedures pursuant to its authority to
    remedy undue discrimination and preferences under FPA sections 205
    and 206. As a result, the Commission does not need to also make a
    specific determination that CAISO's existing interconnection study
    provisions have become unjust, unreasonable, or otherwise unlawful.

79. In requiring CAISO to centralize its interconnection study function,
    the Commission relied upon Order No. 2003.[^58] Order No. 2003 found
    that, in fulfilling its responsibilities under FPA sections 205 and
    206,[^59] the Commission is required to address, and has the
    authority to remedy, undue discrimination. It based its finding of
    undue discrimination on the record underlying Order No. 888 which
    found undue discrimination in transmission practices.[^60] Order No.
    2003 concluded that, because interconnection is an essential element
    of Transmission Service that is required to be provided under the
    OATT, the Commission may order generic interconnection terms and
    procedures under its authority to remedy undue discrimination and
    preferences under FPA sections 205 and 206.[^61] The Commission must
    ensure that the rates, contracts, and practices affecting
    jurisdictional transmission do not reflect an undue preference or
    advantage for non-independent Transmission Providers and are just
    and reasonable.

80. Further, PG&E's claim that the Commission cannot require a change in
    a Commission-approved tariff, without a case-specific finding that
    the existing tariff provision has become unjust, unreasonable, or
    otherwise unlawful, is an impermissible and unwarranted collateral
    attack on Order No. 2003. Fundamental principles settled in orders
    cannot be attacked in subsequent proceedings before the
    Commission.[^62]

######  [Precedent Regarding Vacatur]{.underline}

81. We disagree with PG&E that vacating portions of the July 1, 2005
    Order and August 26, 2005 Order is appropriate. The Commission
    reviewed the merits of CAISO's proposed interconnection study
    procedures in the July 1 and August 26, 2005 Orders and directed
    CAISO to make modifications to these procedures in order to ensure a
    centralized study process. The Commission has reviewed the Filing
    Parties' November 1 compliance filings regarding the study
    procedures. Based upon this review and prior Commission orders, we
    hereby direct certain modifications to the R&R Agreement in order to
    meet the requirements of Order No. 2003.

82. As Modesto pointed out, the PG&E Settlement requests that the
    Commission accept the centralized study proposal without
    modification. However, the Settlement also requests vacatur of
    portions of the July 1 and August 26, 2005 Order that direct CAISO
    to develop procedures for centralized interconnection studies. We
    note that PG&E is requesting that the Commission vacate language
    from these orders that the Filing Parties have adopted in their
    centralized interconnection studies proposal. Therefore, it would
    not be reasonable to grant PG&E's requested vacatur while accepting
    without modification the centralized studies proposal, especially
    since we find, as previously stated, that the Filing Parties have
    complied with the intent of the centralized studies directive.

83. We disagree with PG&E's assertion that, unlike in *Panhandle
    Eastern*, this is not a case where the subject language to be
    vacated represents a Commission policy or is otherwise the result of
    extensive hearings and Commission deliberations. Agreeing to PG&E's
    proposed vacatur would open the door to the possibility that the
    interconnection study process will once again become decentralized,
    with each PTO analyzing the effect of interconnection to its service
    territory instead of an analysis of the effect on the
    CAISO-Controlled Grid as a whole. Further, as noted above, accepting
    PG&E's Settlement would amount to the Commission allowing a
    collateral attack on Order No. 2003, in direct contradiction of
    Commission-precedent. We reaffirm our findings in the July 1 and
    August 26, 2005 Orders and therefore we reject PG&E's proposed
    Settlement.

84. Finally, we disagree with PG&E's assertion that this case can be
    distinguished from the *Panhandle Eastern* ruling that vacatur
    should not be granted to a party who causes a case to become moot,
    prior to the issuance of a Commission order on rehearing petitions,
    by agreeing to a settlement. Here, PG&E has participated in the
    development of and agreed to the interconnection study process that
    the Filing Parties jointly filed with the Commission. The Commission
    is accepting those interconnection study procedures in this order,
    thereby making PG&E's case moot.

######  [TANC and Modesto Protests]{.underline}

85. We agree with TANC and Modesto that PG&E's Settlement should be
    rejected. The Settlement rehashes the same issues already raised in
    the Joint Request for Rehearing and answered by the Commission in
    the August 26, 2005 Order. Therefore, PG&E's Settlement is simply a
    collateral attack on the Commission's July 1 and August 26, 2005
    Orders.

86. With respect to TANC and Modesto's protests regarding the compliance
    filings, we have addressed those concerns in our prior discussion in
    this order.

####  D. [Generating Facility Capacity]{.underline}

87. The Commission's *pro forma* LGIP defines Generating Facility
    Capacity as the *net* capacity of the Generating Facility, and the
    aggregate *net* capacity of the Generating Facility where it
    includes multiple energy production devices.[^63]

#####  [CAISO Proposal]{.underline}

88. CAISO proposes to adopt a different definition of Generating
    Facility Capacity by eliminating the two references to "net." In its
    transmittal letter, CAISO states that for a consistent determination
    of whether to use Large or Small Generator interconnection
    procedures, a Generating Facility's ability to affect the grid is
    based on its gross rather than net capacity. The latter, CAISO
    states, may easily be adjusted by a Generating Facility by varying
    on-site loads to avoid using the proper interconnection
    procedures.[^64] CAISO adds that basing the value for gross capacity
    on the nameplate or maximum capacity rating of Generating Units
    being evaluated is consistent with the Commission's determinations
    for evaluating Small Generating Facilities in Order No. 2006.[^65]

    **[Protest: OF Parties]{.underline}**

89. The QF Parties request that the Commission deny the proposal to
    measure the effect that a Generator would have on transmission
    facilities on the basis of gross capacity. They argue that, since
    some station power load is essential to operate the Generator, it
    would be mechanically impossible to turn off the pumps and other
    auxiliary equipment and send gross capacity to the grid.

90. The QF Parties also contend that in the case of a cogeneration
    facility, a Generator is prohibited from supplying its nameplate
    capacity to the grid to the extent it is physically limited in the
    amount of electricity it can produce by its obligations to the
    utility to which it is interconnected. The QF Parties suggest that
    if there is a facility-specific question of what station power load
    is essential to operating the Generator, a technical conference or
    some other informal process to develop a mechanism for measuring a
    Generator's true effect on the grid may be appropriate.

    **[CAISO Answer]{.underline}**

91. CAISO argues that although its justification for use of gross load
    to measure a Generating Facility's effect on the grid was imprecise,
    it disagrees that the use of net capacity is more appropriate. It
    asserts that under the LGIP, a detailed evaluation of the effect of
    a Generator on the grid of interconnecting Generating Facilities
    includes load flow, short-circuit duty, stability, and
    post-transient analyses. And that, with the exception of load flow,
    each of these studies is primarily affected by the *gross* capacity
    of a Generating Facility, whether or not it is a Qualifying Facility
    (QF).

#####  [Commission Determination]{.underline}

92. We disagree with CAISO and find that revising the definition of
    Generating Facility Capacity to measure gross instead of net load is
    not necessary to accurately determine which set of interconnection
    procedures, Large or Small, to use. Instead, as further discussed
    below, Order No. 2006 contemplates numerous situations where a
    question of which set of interconnection procedures would apply. It
    further considers the implications of those procedures within a
    given set of interconnection circumstances. We further find that the
    proposed revision does not meet the independent entity variation
    standard defined in Order No. 2003 for an ISO.[^66] We also find
    that the proposed revision is beyond the scope of the compliance
    filings, and therefore we reject it.

93. In Order No. 2006, the Commission determined that the total size of
    a Generating Facility would be determined by the sum of the existing
    capacity and the proposed incremental increase in an Interconnection
    Request.[^67] This would ensure that the proper protective equipment
    is designed and installed and the safety and reliability of the
    Transmission Provider's electric system can be maintained.[^68]
    Similarly, an existing Large Generator, seeking to increase its
    capacity by less than 20 megawatts would still be evaluated under
    the Large Generator rule because the *total* capacity of the
    expanded facility would be more than 20 megawatts.[^69]

94. Also, in Order No. 2006, the Commission discussed whether Small
    Generating Facilities with multiple Points of Interconnection (such
    as a wind farm or an industrial cogeneration project serving
    multiple facilities) should be treated as separate projects or as a
    single project for queuing and interconnection study purposes. The
    Commission concluded that each proposed Point of Interconnection
    presents numerous technical, operational, and reliability issues.
    Whether they are treated separately by the Transmission Provider,
    for queuing and interconnection study purposes, or as a single Point
    of Interconnection, the evaluation of such a project should be
    performed using Good Utility Practice based on the unique
    engineering and geographic needs of the project.[^70]

95. In Order No. 2006, the Commission stated that it will exercise
    jurisdiction over all QFs in the same manner, regardless of the size
    of the QF(s), under Order No. 2003.[^71] Order No. 2003 applies: (1)
    when the owner of a QF seeks interconnection to sell *any* of the
    output of the QF to a third party; (2) to a new QF that plans to
    sell its output to a third party; and (3) to an existing QF that
    historically sold its total output to an interconnected utility or
    on-site customer and now plans to sell the output to a third party.
    Lastly, under Order No. 2003, the owner of a former QF that sells
    electric energy at wholesale in interstate commerce, need not submit
    an Interconnection Request if the former QF owner represents that
    the output of the generating facility will be substantially the same
    as before.[^72]

96. Regarding the definition of Generating Facility Capacity, we further
    note that historically the practice of vertically-integrated
    utilities has been to record the energy output of a generation
    facility as its gross output less station power, *i.e.*, the power
    consumed at the facility.[^73] Similarly, the Commission has
    considered the net output of a facility to be its send out after
    subtraction of the power used to operate auxiliary equipment in the
    facility that is necessary for power generation (such as pumps,
    blowers, fuel preparation machinery, and exciters), and for other
    essential electricity uses in the facility, from the gross generator
    output.[^74]

97. In Order No. 2003, the Commission has adopted the method of
    measuring Generating Facility Capacity on the basis of net rather
    than gross output. We believe, as discussed above, that Order No.
    2006 includes sufficient safeguards to inhibit, during the
    interconnection process, the type of manipulation of a Generating
    Facility's capacity to which CAISO refers. In addition, an
    evaluation of the effect of a facility's capacity on the grid, would
    be reviewed in the context of the facility's technical and
    operational characteristics, as well as the type of interconnection
    requested, when determining which set of procedures and/or studies
    to apply. We find that it is not necessary to revise the definition
    of Generating Facility Capacity to determine which set of
    interconnection procedures to apply and therefore CAISO's proposal
    does not meet the independent entity variation standard. Therefore,
    we reject CAISO's proposal.

####  E. [Clarification of July 1, 2005 Order Regarding Grandfathering]{.underline}

98. Paragraph 143 of the July 1, 2005 Order stated:

    143\. As stated earlier, the proposed revisions to the LGIP and LGIA
    will become effective on the date of issuance of this order.
    Regarding the transition from existing interconnection provisions to
    the provisions at issue here, the Commission's *pro forma* LGIP
    section on interconnection requests submitted prior to the effective
    date of the LGIP Procedures,**^68^** provides that if an
    Interconnection Agreement has been executed prior to the effective
    date of the LGIP, the agreement would be grandfathered. Further, if
    an Interconnection Customer has signed an Interconnection Study
    Agreement as of the LGIP effective date, the Interconnection
    Customer will have the option to either continue with the rest of
    its Interconnection Studies under the Transmission Provider's
    existing study process or to complete those remaining studies for
    which it does not have a signed Interconnection Study Agreement
    under the *pro forma* LGIP. . . .

99. We clarify that paragraph 143 incorrectly suggested that the date an
    LGIA is *executed* determines whether an agreement is grandfathered.
    Instead, under the Commission's *pro forma* LGIA and CAISO's LGIA
    accepted by the Commission in the July 1, 2005 Order, if a
    customer-specific LGIA was filed with the Commission prior to the
    effective date of the Commission's *pro forma* LGIP, then it is
    grandfathered.

[The Commission orders]{.underline}:

\(A\) The Commission hereby accepts, effective March 1, 2006, CAISO's
centralized Interconnection Study procedures in the OATT, LGIP,
Interconnection Studies, and R&R Agreement, with the modifications
discussed in the body of this order. The Commission hereby directs the
CAISO to make a compliance filing within 30 days of the date of issuance
of this order revising its centralized procedures as discussed in the
body of this order.

\(B\) The Commission hereby accepts, effective July 1, 2005, the CAISO's
revised LGIP compliance filings, including the accompanying OATT
amendments with the modifications discussed in the body of this order.
The Commission hereby directs the CAISO to make a compliance filing
within 30 days of the date of issuance of this order revising its LGIP
as discussed in the body of this order.[^75]

\(C\) The Commission hereby accepts the Filing Parties' LGIA compliance
filing, with the modifications discussed in the body of this order. The
Commission hereby directs the Filing Parties to make a compliance filing
within 30 days of the date of issuance of this order revising its LGIA
as discussed in the body of this order.

\(D\) The Commission accepts PG&E's informational filing of section
G2.17 of its handbook, and the SoCal Edison pre-Order No. 2003
interconnection procedures, effective July 1, 2005, as discussed in the
body of this order.

(E) The Commission rejects PG&E's offer of settlement, as discussed in
the body of this order.

By the Commission.

( S E A L )

Magalie R. Salas,

Secretary.

[^1]: *Standardization of Generator Interconnection Agreements and
    Procedures*, Order No. 2003-C, 111 FERC ¶ 61,401 (2005).

[^2]: *California Independent System Operator Corp.*, 112 FERC ¶ 61,009
    (July 1, 2005 Order), *clarifications and extension of time
    granted*, *reh'd denied*, 112 FERC ¶ 61,231 (2005) (August 26, 2005
    Order).

[^3]: The Filing Parties explain that the typographical corrections to
    the *pro forma* LGIA directed in Order No. 2003-C have already been
    adopted by an earlier submittal of their revised LGIA and were not
    rejected in the July 1, 2005 Order.

[^4]: *S**tandardization of Generator Interconnection Agreements and
    Procedures*, Order No. 2003, 68 Fed. Reg. 49,845 (Aug. 19, 2003),
    FERC Stats. & Regs. ¶ 31,146 (2003), *order on reh'g*, Order No.
    2003-A, 69 Fed. Reg. 15,932 (Mar. 26, 2004), FERC Stats. & Regs. ¶
    31,160 (2004), *order on reh'g*, Order No. 2003-B, 70 Fed. Reg. 265
    (Jan. 4, 2005), FERC Stats. & Regs. ¶ 31,171 (2005), *order on
    reh'g*, Order No. 2003-C, *supra*.

[^5]: 16 U.S.C. §§ 824d, 824e (2000).

[^6]: *California Independent System Operator Corporation*, 108 FERC ¶
    61,104 at P 24 (2004) (July 30, 2004) (rejecting without prejudice
    the Filing Parties' proposed LGIP and LGIA, filed on January 20,
    February 9, and April 26, 2004). *See also California Independent
    System Operator Corp.*, 108 FERC ¶ 61,315 (2004); and *California
    Independent System Operator Corp.*, 110 FERC ¶ 61,004 (2004). In
    these two orders the Commission granted a request for an extension
    of time, until January 5, 2005, for the Filing Parties to refile
    their LGIP and LGIA compliance filing, and also granted their
    request that the effective date of their revised LGIP and LGIA would
    not precede the Commission's approval of these documents.

[^7]: *See* July 1, 2005 Order, 112 FERC ¶ 61,009 at P 55-57.

[^8]: *Id.* at P 161 (where the Commission denied the PTOs' proposal to
    require Interconnection Customers, in LGIA article 11.5, to post an
    additional four months of security to cover operation and
    maintenance expenses and estimated costs to remove the PTOs'
    Interconnection Facilities upon termination of an LGIA).

[^9]: On October 14, 2005, CAISO was granted an extension of time, until
    November 1, 2005, to make its compliance filing.

[^10]: *See* August 26, 2005 Order, 112 FERC ¶ 61,231 at P 17. *See
    also* *Notice of Extension of Time* (Oct. 14, 2005).

[^11]: CAISO filed the August 30, 2005 LGIP in Docket No. ER04-445-012.
    It filed to amend the LGIP on November 1, 2005, in Docket No.
    ER04-445-013, by adding a proposal for centralized study procedures.

[^12]: The Filing Parties filed the August 30, 2005 LGIA in Docket Nos.
    ER04-445-011 (CAISO), ER04-443-009 (PG&E), ER04-441-009 (SDG&E), and
    ER04-435-015 (SoCal Edison). They revised the LGIA to adopt
    centralized study procedures and refiled the LGIA on November 1,
    2005, in Docket Nos. ER04-445-014 (CAISO), ER04-443-010 (PG&E),
    ER04-441-010 (SDG&E), and ER04-435-018 (SoCal Edison).

[^13]: *See* July 1, 2005 Order, 112 FERC ¶ 61,009 at P 162-169.

[^14]: *Pacific Gas and Electric Co. v. FERC,* D.C. Cir. No. 05-1401
    (filed Oct.18, 2005) (petition for review).

[^15]: *See* *Standardization of Small Generator Interconnection
    Agreements and Procedures*, Order No. 2006, 70 Fed. Reg. 34,100
    (Jun. 13, 2005), FERC Stats. & Regs., Regulations Preambles, Vol.
    III, ¶ 31,180, at 31,406-31,551 (2005) (Order No. 2006), *order on
    reh'g*, Order No. 2006-A, 70 Fed. Reg. 71,760 (Nov. 30, 2005), FERC
    Stats. & Regs., Regulations Preambles, Vol. III, ¶ 31,196 (2005),
    *reh'g pending*.

[^16]: The SoCal Edison TO Tariff amendment adds an Appendix VII, which
    includes the previously deleted provisions of sections 8.1.1 through
    8.1.6, and section 10 of the SoCal Edison TO Tariff.

[^17]: In their filing, the QF Parties note that they had already
    intervened in this matter on January 27, 2005.

[^18]: *See* July 1, 2005 Order, 112 FERC ¶ 61,009 at P 58-67. The
    informational assessment, as proposed by CAISO, would include a
    power flow analysis of an affected PTO's transmission facilities and
    short circuit duty calculations at boundaries with an affected PTO.

[^19]: [Economic Test]{.underline} -- review of economic viability of
    Network Upgrades that exceed the lesser of \$20 million or \$200,000
    per megawatt of installed capacity to determine whether overall
    resulting benefit to transmission system exceed cost of upgrade.
    *See* July 1, 2005 Order, 112 FERC ¶ 61,009 at P 102-115.

[^20]: [Maintenance of Encumbrances]{.underline} -- CAISO OATT section
    5.7.3 provides for the identification and mitigation of a new
    interconnection's adverse effect on the ability of the
    interconnecting PTO to honor its encumbrances existing when the
    interconnection is requested. *See* July 1, 2005 Order, 112 FERC ¶
    61,009 at P 124-130.

[^21]: July 1, 2005 Order, 112 FERC ¶ 61,009 at P 144-147.

[^22]: July 1, 2005 Order, 112 FERC ¶ 61,009.

[^23]: Southern Cities states that it previously protested, on January
    26, 2005, all CAISO revisions to the *pro forma* LGIP that altered
    the balance of rights and obligations between CAISO and the
    Interconnection Customer, although the protest did not focus
    specifically on LGIP section 11.4.

[^24]: 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, FERC Stats. & Regs.  31,036 at 31,679-84
    (1996), *order on reh\'g*, Order No. 888‑A, FERC Stats. & Regs.
     31,048 at 30,209-10 (1997), *order on reh\'g*, Order No. 888‑B, 81
    FERC  61,248 (1997), *order on reh\'g*, Order No. 888‑C, 82 FERC
     61,046 (1998), *aff\'d in relevant part sub nom*. *Transmission
    Access Policy Study Group v. FERC*, 225 F.3d 667 (D.C. Cir. 2000),
    *aff\'d sub nom. New York v. FERC*, 535 U.S. 1 (2002).

[^25]: In relevant part, LGIP section 11.3 states, "If the Parties agree
    to proceed with the design, procurement, and construction of
    facilities and upgrades under the agreed-upon terms of the
    unexecuted LFIA, they may proceed pending FERC action."

[^26]: Southern Cities filed a timely protest on January 26, 2005,
    requesting the rejection of many of CAISO's January 5, 2005 proposed
    revisions to the *pro forma* LGIP as unacceptable alterations of the
    balance of rights and obligations between Interconnection Customers
    and the Transmission Provider/Owner(s), as the Commission had
    adopted these rights in Order No. 2003. The Commission rejected some
    of the proposed revisions to which Southern Cities objected.
    However, the Commission found that other CAISO proposed revisions
    which establish procedures for system operations and contact between
    Generators and CAISO, to which Southern Cities objected, were
    reasonable and consistent with previously accepted provisions of the
    CAISO OATT. *See* July 1, 2005 Order, 112 FERC ¶ 61,009 at P 154.

[^27]: *See* Order No. 2003 at P 240.

[^28]: *Id.*

[^29]: *See* Order No. 2003-A at P 786.

[^30]: *See* July 1, 2005 Order, 112 FERC ¶ 61,009 at P 55-57.

[^31]: *See* August 26, 2005 Order, 112 FERC ¶ 61,231 at P 3, 21-22.

[^32]: *Id.* at P 22.

[^33]: In its January 5, 2005 LGIP filing, CAISO proposed to add a
    section 3.2, Roles and Responsibilities, to the LGIP to clarify
    roles and responsibilities among the parties. The Commission
    accepted this proposal as part of the revisions accepted if not
    otherwise discussed. July 1, 2005 Order, 112 FERC ¶ 61,009.

[^34]: *See* Order No. 2003 at P 909.

[^35]: *See* Order No. 2003-A at P 785-786.

[^36]: Attachment A of the R&R Agreement describes in detail the roles
    and responsibilities of CAISO and the PTOs with respect to each step
    of the new centralized study process. Specifically, CAISO will: (1)
    receive, assess, and process all Interconnection Requests; (2)
    manage the Interconnection queue; (3) receive payments from
    Interconnection Customers for interconnection study functions; (4)
    disburse payments, as appropriate, to the PTOs, to reimburse the
    PTOs and other third-party contractors for study services that they
    provide; (5) facilitate Scoping Meetings; (6) provide oversight,
    direction, and approval of all Interconnection Feasibility, System
    Impact, and Facilities Studies; (7) approve all Base Cases and study
    plans for all interconnection studies, including contingency lists
    to be studied; (8) ensure that all potential effects on the CAISO
    Controlled Grid will be studied; (9) perform the power flow,
    stability, and post-transient analysis associated with the
    Interconnection System Impact Study and recommend solutions where
    the ISO determines that effects on the CAISO Controlled Grid are
    probable; (10) finalize and approve all interconnection studies; and
    (11) deliver all interconnection studies to the Interconnection
    Customer, PTO, and any affected systems; and (12) be responsible to
    the Interconnection Customer for all cost inquiries and account
    reconciliations. The PTOs will: (1) perform the short circuit
    analyses associated with the Interconnection Studies, review the
    results of power flow, stability, and post-transient studies,
    perform the detailed engineering design, perform assessments of
    costs and construction scheduling, and review CAISO\'s
    recommendations concerning the various study functions performed by
    CAISO and (2) if no effects on the ISO Controlled Grid or congestion
    issues are identified by CAISO, the PTOs will perform, under the
    direction and oversight of CAISO, the Interconnection System Impact
    and Facilities Studies, and deliver these studies to CAISO.

[^37]: July 1, 2005 Order, 112 FERC ¶ 61, 009 at P 56.

[^38]: *See* LGIP sections 6.3, 7.4, and 8.3 (Interconnection
    Feasibility, System Impact, and Facilities Study Procedures).

[^39]: *See* Order No. 2003 at P 3.

[^40]: *See Southwest Power Pool, Inc.*, 106 FERC ¶ 61,254 at 61,925
    (2004).

[^41]: *See* Order No. 2003-A at P 1.

[^42]: *See* July 1, 2005 Order, 112 FERC ¶ 61,009 at P 176-186
    (discussing the LGIA and Study Agreements as stand-alone documents).

[^43]: *See Id.* at P 2.

[^44]: *See Id.* at P 170-173 (discussing inconsistencies between the
    LGIA and the CAISO OATT).

[^45]: *See Pacific Gas and Electric Co.*, 81 FERC ¶ 61,122 at 61,489
    (1997).

[^46]: *See Panhandle Eastern Pipe Line Co*., 83 FERC ¶ 61,008, reh'g
    denied, 83 FERC ¶ 61,353 (1998), *affirmed sub nom. Panhandle
    Eastern Co. v. FERC*, 198 F.3d 266 (D.C. Cir. 1999) (*Panhandle
    Eastern*).

[^47]: *See* *San Diego Gas & Electric Co. v. Sellers of Energy and
    Ancillary Services*, 107 FERC ¶ 61, 295 at P 11 (2004) (stating that
    the order did not depart from the intent of *Panhandle Eastern* or
    *Cascade Power Co.*, 74 FERC ¶ 61,240 (1996)). PG&E notes that, in
    those cases, parties sought vacatur of entire orders, not a discrete
    portion of an order, as is the case here.

[^48]: Notice to the Public -- Information to be Provided with
    Settlement Agreements (Oct. 15, 2003).

[^49]: *United Gas Pipe Line Co. v. Mobile Gas Service Corp.*, 350 U.S.
    332 (1956).

[^50]: *Federal Power Commission v. Sierra Pacific Power Co.*, 350 U.S.
    348 (1956).

[^51]: 18 C.F.R. § 385.602(h)(1)(i) (2005). *See also Mobil Oil Corp. v.
    FERC*, 417 U.S. 283, 314 (1974).

[^52]: 18 C.F.R. § 385.602(h)(1)(ii) (2005).

[^53]: Order No. 888, FERC Stats. & Regs.  31,036 at 31,679-84, *order
    on reh\'g*, Order No. 888‑A, FERC Stats. & Regs.  31,048 at
    30,209-10.

[^54]: Order No. 888, FERC Stats. & Regs 31,036 at 31,668-73, 31,676-79;
    *order on reh\'g*, Order No. 888-A, FERC Stats. & Regs 31,048 at
    30,201-12; *TAPS v. FERC*, 225 F.3d 667, at 687-88.

[^55]: *TAPS v. FERC*, 225 F.3d 667, at 687.

[^56]: *New York v. FERC*, 535 U.S. 1 (2002).

[^57]: *See* *Tennessee Power Co.*, 90 FERC  61,238 at 61,761, *reh\'g
    denied*, 91 FERC  61,271 (2000).

[^58]: Order No. 2003 at P 18-20.

[^59]: 16 U.S.C. §§ 824d, 824e (2000).

[^60]: *See* Order No. 888, FERC Stats. & Regs. 31,036 at 31,679-84,
    *order on reh\'g*, Order No. 888‑A, FERC Stats. & Regs.  31,048 at
    30,209-10.

[^61]: Order No. 2003 at P 18-20. *See also* Order No. 2003-A at P 698.

[^62]: *See Southwest Gas Corp. v. FERC*, 145 F.3d 365, 370 ("The
    Commission need not revisit the reasoning of a general order every
    time it applies to a specific circumstance.").

[^63]: *See pro forma* LGIP section 1, Definitions (defining both Large
    Generating Facility and Small Generating Facility).

[^64]: CAISO Aug. 30, 2005 LGIP Transmittal Letter at 14.

[^65]: *See* Order No. 2006 at P 79-86 (concluding that the maximum
    rated capacity of a Small Generating Facility should be used to
    evaluate a request to interconnect or to increase the Small
    Generating Facility's capacity).

[^66]: *See* Order No. 2003 at P 822 (stating that the Commission will
    allow an RTO or ISO greater flexibility than that allowed under the
    regional differences rationale to propose variations from the Final
    Rule provisions). We note that under the independent entity
    variation standard the provision must still be shown to be just and
    reasonable. *New York ISO*, 114 FERC ¶ 61,271 at 27 (2006). *See
    also PJM Interconnection, L.L.C.*, 108 FERC ¶ 61,025 at P 7 (2004).

[^67]: *See* Order No. 2006 at P 70-86.

[^68]: *Id.* at P 85.

[^69]: *Id.* at P 78.

[^70]: *Id.* at P 87-92.

[^71]: *See* Order No. 2006-A at P 100. *See also* Order No. 2006 at P
    516-518.

[^72]: *See* Order No. 2003 at P 814.

[^73]: *PJM Interconnection, L.L.C.*, 94 FERC ¶ 61,251 at 61,889, *reh'g
    denied* 95 FERC ¶ 61,333 (2001) (defining station power as electric
    energy used for the heating, lighting, air-conditioning, and office
    equipment needs of the buildings on a generating facility's site,
    and for operating the electric equipment that is on the generating
    facility's site).

[^74]: *Occidental Geothermal, Inc.*, 17 FERC ¶ 61,231 at 61,445 (1981).

[^75]: CAISO requested that the centralized study procedures become
    effective no sooner than March 1, 2006. Revisions to documents that
    were filed on November 1, 2005 will be effective as of March 1,
    2006. All other revisions filed to comply with the July 1, 2005
    Order are effective as of July 1, 2005.