[Federal Register Volume 76, Number 37 (Thursday, February 24, 2011)]
[Notices]
[Pages 10353-10359]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-4079]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. RM11-9-000]


Locational Exchanges of Wholesale Electric Power

AGENCY: Federal Energy Regulatory Commission.

ACTION: Notice of Inquiry.

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SUMMARY: In this Notice of Inquiry (NOI), the Commission seeks comment 
that would assist the Commission in providing guidance as to the 
circumstances under which locational exchanges of electric power should 
be permitted generically and circumstances under which the Commission 
should consider locational exchanges on a case-by-case basis.

DATES: Comments are due April 25, 2011.

ADDRESSES: Commenters may submit comments, identified by docket number 
by any of the following methods:
    <bullet> Agency Web Site: http://www.ferc.gov. Documents created 
electronically using word processing software should be filed in native 
applications or print-to-PDF format and not in a scanned format.
    <bullet> Mail/Hand Delivery: Commenters unable to file comments 
electronically must mail or hand deliver an original copy of their 
comments to: Federal Energy Regulatory Commission, Secretary of the 
Commission, 888 First Street, NE., Washington, DC 20426. Additional 
requirements can be found on the Commission's Web site, see, e.g., the 
``Quick Reference Guide for Paper Submissions,'' available at http://www.ferc.gov/docs-filing/efiling.asp, or via phone from FERC Online 
Support at 202-502-6652 or toll-free at 1-866-208-3676.

FOR FURTHER INFORMATION CONTACT:
Andrew Knudsen (Legal Information), Federal Energy Regulatory 
Commission, Office of the General Counsel, 888 First Street, NE., 
Washington, DC 20426, (202) 502-6527, <a href="/cdn-cgi/l/email-protection#c0a1aea4b2a5b7eeabaeb5a4b3a5ae80a6a5b2a3eea7afb6"><span class="__cf_email__" data-cfemail="52333c362037257c393c273621373c12343720317c353d24">[email protected]</span></a>.
Andrew Weinstein (Legal Information), Federal Energy Regulatory 
Commission, Office of the General Counsel, 888 First Street, NE., 
Washington, DC 20426, (202) 502-6230, <a href="/cdn-cgi/l/email-protection#5d3c33392f382a732a3834332e293834331d3b382f3e733a322b"><span class="__cf_email__" data-cfemail="21404f455344560f5644484f525544484f61474453420f464e57">[email protected]</span></a>.
Melissa Lozano (Technical Information), Federal Energy Regulatory 
Commission, Office of Energy Market Regulation, 888 First Street, NE., 
Washington, DC 20426, (202) 502-6267, <a href="/cdn-cgi/l/email-protection#264b434a4f555547084a495c474849664043544508414950"><span class="__cf_email__" data-cfemail="127f777e7b6161733c7e7d68737c7d52747760713c757d64">[email protected]</span></a>.
Thomas Dautel (Technical Information), Federal Energy Regulatory 
Commission, Office of Energy Policy & Innovation, 888 First Street, 
NE., Washington, DC 20426, (202) 502-6196, <a href="/cdn-cgi/l/email-protection#bbcfd3d4d6dac895dfdacecfded7fbdddec9d895dcd4cd"><span class="__cf_email__" data-cfemail="88fce0e7e5e9fba6ece9fdfcede4c8eeedfaeba6efe7fe">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:
    Before Commissioners: Jon Wellinghoff, Chairman; Marc Spitzer, 
Philip D. Moeller, John R. Norris, and Cheryl A. LaFleur.
    Issued February 17, 2011.

    1. The Commission seeks comment regarding circumstances in which 
locational exchanges of electric power should be permitted generically 
or considered by the Commission on a case-by-case basis. Because 
locational exchanges, in different circumstances, might look either 
like wholesale power transactions that make efficient use of the 
transmission system or like the functional equivalent of transmission 
service, we also seek comments as to whether and how different types of 
locational exchanges are consistent with our core principles that 
transmission service must be available on a transparent and not unduly 
discriminatory basis. While the Commission has spoken to locational 
exchanges in the past and that guidance continues to apply today, any 
policy determinations made in this proceeding will only be applied 
prospectively.

I. Background

A. Docket No. EL10-71-000

    2. On June 4, 2010, Puget Sound Energy Inc. (Puget) filed a 
petition for declaratory order seeking a finding that a locational 
exchange is a wholesale power transaction and not transmission service 
subject to an open access transmission tariff (OATT). Puget defines a 
locational exchange as

* * * a pair of simultaneously arranged wholesale power transactions 
between the same counterparties in which party A sells electricity 
to party B at one location, and party B sells the same volume of 
electricity to party A at a different location with the same 
delivery period, but not necessarily at the same price.\1\
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    \1\ Puget, Petition for Declaratory Order, Docket No. EL10-71-
000, at p. 1 (filed June 4, 2010) (Puget's Petition).

    3. In an order issuing contemporaneously with this NOI, the 
Commission finds that Puget's Petition raises significant policy issues 
for market participants in the electric industry and that the record in 
Docket No. EL10-71-000 provides insufficient basis to make the 
determination requested by Puget.\2\ The Commission has initiated this 
proceeding to develop the record necessary to address the proper 
regulatory treatment of locational exchanges.
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    \2\ 134 FERC ]61,122 (2011).
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B. Prior Commission Policy

    4. Prior to Puget's Petition, the Commission discussed transactions 
similar to locational exchanges in Order No. 888 \3\ and subsequent 
Commission orders. As part of its statutory obligation under sections 
205 and 206 of the Federal Power Act \4\ to remedy undue 
discrimination, the Commission adopted Order No. 888, which prohibits 
public utilities from using their monopoly power over transmission to 
engage in undue discrimination against others. In Order No. 888, the

[[Page 10354]]

Commission discussed certain ``buy-sell arrangements'' that could be 
used ``to obfuscate the true transactions taking place and thereby 
allow parties to circumvent Commission regulation of transmission in 
interstate commerce.'' \5\ The Commission further noted in Order No. 
888-A that ``[we] reserve our authorities to ensure that public 
utilities and their customers are not able to circumvent non-
discriminatory transmission in interstate commerce.'' \6\ Moreover, the 
Commission recognized that a wide range of existing programs and 
transactions might fall within a category of arrangements that look 
similar to buy-sells and indicated that it would address these on a 
case-by-case basis.\7\
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    \3\ 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 (1996), order on reh'g, 
Order No. 888-A, FERC Stats. & Regs. ] 31,048, 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).
    \4\ 16 U.S.C. 824d.
    \5\ Order No. 888, FERC Stats. & Regs. at 31,785. The Commission 
discussed a specific type of transaction in which ``an end user 
arranges for the purchase of generation from a third-party supplier 
and a public utility transmits that energy in interstate commerce 
and re-sells it as part of a `bundled' retail sale to the end 
user.'' Notice of Proposed Rulemaking, FERC Stats. & Regs. ] 32,514, 
at 33,082-83 (1995).
    \6\ Order No. 888-A, FERC Stats. & Regs. at 30,344.
    \7\ Id. The Commission has subsequently enforced this 
prohibition against ``buy-sell'' arrangements. See New York State 
Electric and Gas Corporation, 77 FERC ] 61,044 (1996), reh'g denied, 
83 FERC ]61,203 (1998).
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    5. Subsequent to Order No. 888, the Commission has considered 
exchanges of power resembling those proposed by Puget on at least two 
occasions. In UAMPS, the Commission prohibited an arrangement in which 
a transmission customer sold electricity to a transmission provider's 
merchant affiliate at one location, and the transmission provider's 
merchant affiliate sold the same volume of electricity to the 
transmission customer at a different location.\8\ Prior to entering 
into the exchange, the transmission customer had sought to interconnect 
additional generation to the transmission provider's system. However, 
because this customer was operating under a grandfathered bilateral 
agreement and not the OATT adopted under Order No. 888, the 
transmission customer did not have a right to demand the redispatch 
necessary to place the generation on the transmission provider's 
network. As an alternative to obtaining redispatch, the customer 
entered into an exchange with the transmission provider's merchant 
affiliate. Subsequently, the customer filed a complaint with the 
Commission alleging that the transmission provider had failed to 
maintain functional separation between its transmission and merchant 
functions. The Commission prohibited this transaction, finding that it 
effectuated transmission service and violated the separation of 
functions between the merchant affiliate and the transmission provider. 
The Commission explained,
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    \8\ Utah Associated Municipal Power Systems v. PacifiCorp, 83 
FERC ] 61,337, at 62,367 (1998) (UAMPS I), reh'g denied and 
clarification granted, 87 FERC ] 61,044, at 61,187-88 (1999) (UAMPS 
II) (collectively, UAMPS).

    The redispatch transaction offered by PacifiCorp's Merchant 
Function is, unquestionably, a transmission service; the sole result 
of the transaction is to deliver a Utah Municipal Systems resource 
from a receipt point on PacifiCorp's system to a delivery point on 
PacifiCorp's system.\9\
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    \9\ UAMPS I, 83 FERC at 62,367.

The Commission further explained that all transmission service must be 
provided under an OATT or under grandfathered bilateral arrangements. 
The Commission reiterated that the only permissible way for a customer 
to arrange transmission service on a transmission provider's system 
through the merchant affiliate is via re-assignment of point-to-point 
transmission service. On rehearing, the Commission affirmed the 
prohibition on the transaction in which a transmission provider's 
merchant function purchased power from a transmission customer at 
receipt points on the transmission provider's system and simultaneously 
sold the same amount of power to the transmission customer at delivery 
points again on the transmission provider's transmission system.\10\ 
Characterizing the exchange as redispatch of generation resources that 
effectuated transmission service, the Commission emphasized that 
transmission service can only be provided under the OATT.
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    \10\ UAMPS II, 87 FERC at 61,188.
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    6. In El Paso, however, the Commission reached a different decision 
based on a different set of facts and found that the specific 
locational exchange proposed by El Paso and a counterparty (Phelps 
Dodge) was permissible.\11\ In El Paso, the parties submitted their 
agreement to the Commission for approval and provided additional 
information in response to data requests from Commission staff. In 
permitting the exchange in El Paso, the Commission expressly 
distinguished the factual circumstances related to the exchange in El 
Paso from the exchange in UAMPS. The Commission observed that, unlike 
the facts presented in UAMPS, in El Paso (1) The generation substations 
at which the sales occurred and the lines interconnecting the 
substations were owned jointly by multiple parties, not just El Paso, 
and thus El Paso's counterparty could have obtained service from 
another source; (2) the counterparty had not requested redispatch, nor 
was redispatch needed to complete the transaction; (3) the counterparty 
was not an existing transmission customer of El Paso, so it was not 
paying twice for the same service and had not requested nor had it been 
denied transmission service; and (4) the swap could have been entered 
into with another power marketer instead of El Paso's merchant 
affiliate.\12\
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    \11\ El Paso Electric Co., 115 FERC ] 61,312 (2006) (El Paso).
    \12\ El Paso, 115 FERC ] 61,312 at p. 18-22.
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II. Subject of the Notice of Inquiry

    7. The Commission seeks comments regarding circumstances in which 
locational exchanges of electric power should be permitted generically 
or considered by the Commission on a case-by-case basis. The Commission 
specifically requests comments addressing the topics identified below, 
as well as any other relevant issues identified by interested parties.

A. General Information

    8. The Commission seeks comment regarding the characteristics of 
locational exchanges and whether the definition set forth by Puget's 
Petition sufficiently accounts for those characteristics. Puget defined 
a locational exchange as ``[a] pair of simultaneously arranged 
wholesale power transactions between the same counterparties in which 
party A sells electricity to party B at one location, and party B sells 
the same volume of electricity to party A at a different location with 
the same delivery period, but not necessarily at the same price.'' \13\ 
Puget also describes the locational exchanges it is proposing as 
different from the buy-sell transactions discussed in Order No. 888. 
Puget explains that, in Order No. 888, the Commission was concerned 
about exchanges in which one party wanted to transmit power from one 
location to another location, and a second party with transmission 
capacity on that path simply purchased the power from the first party 
at the point of delivery, moved the power to the point of receipt using 
its transmission capacity, and sold the same power back to the first 
party at the point of receipt. In contrast to such buy-sell 
transactions, Puget explains, the parties to a locational exchange both 
have power at the respective sides of the transaction, which is 
exchanged bilaterally resulting in exchanges that ``are simply 
symmetrical swaps of power

[[Page 10355]]

at two points.'' \14\ We encourage commenters to identify other 
transactions that may be different in form from the types of 
transactions encompassed by Puget's proposal but should be considered 
by the Commission as part of this proceeding.
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    \13\ Puget's Petition, at p. 1.
    \14\ Puget Petition at p. 15. Puget elaborates that ``Party A 
has power at Point X and wants to market or use it at Point Y and 
Party B has power at Point Y and wants to market or use it at Point 
X.'' Id. at 14-15.
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    9. Moreover, the Commission understands that various parties, at 
least in the Northwest, believe that locational exchanges provide 
certain benefits, including the ability to streamline operations.\15\ 
For example, as discussed more fully below, some parties assert that 
locational exchanges may reduce transmission congestion and improve 
system reliability by offering an alternative mechanism to serve load 
while avoiding the transmission of electricity over congested 
transmission paths. Parties also assert that locational exchanges (1) 
Facilitate access to distant energy resources, including wind power and 
other variable resources located far from native load; (2) allow market 
participants to take advantage of price spreads at different locations; 
(3) enable market participants to more efficiently utilize their 
existing transmission capacity rights; (4) ease scheduling burdens by 
eliminating the need for hourly and daily scheduling of transmission 
between the exchange points; and (5) allow entities such as power 
marketers the ability to avoid having to return small amounts of in-
kind power to the transmission provider in order to manage transmission 
service-related imbalances.
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    \15\ E.g., Puget's Petition; Xcel Energy Services Inc., 
Comments, Docket No. EL10-71-000, (filed July 6, 2010); Portland 
General Electric Co., Docket No. EL10-71-000 (filed July 6, 2010); 
Financial Institutions Energy Group, Comments, Docket No. EL10-71-
000 (filed July 6, 2010).
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    10. Moreover, it is the Commission's understanding that locational 
exchanges typically occur outside of organized markets. To the extent 
that the exchange involves power located inside an organized market, 
the other side of the exchange typically involves power located outside 
of an organized market. The Commission also understands that locational 
exchanges may vary in duration, as many of them are for only a few 
hours or days whereas others may be for longer periods. The Commission 
understands that these exchanges may be arranged several months to 
several days in advance or shortly before the exchange is initiated.
    11. The Commission seeks information regarding the characteristics 
of locational exchanges to help the Commission understand how market 
participants use and benefit from these arrangements, as well as how 
these arrangements affect the electric power system. In particular, the 
Commission encourages commenters to address the following questions:
    (1) How common are locational exchanges?
    (2) What types of parties use locational exchanges (affiliate, 
marketer, generator)? How common is it for an affiliate of the 
transmission provider to be one of the parties to a locational 
exchange?
    (3) In what regions of the country and in what types of organized 
and non-organized markets are locational exchanges used?
    (4) In a typical locational exchange how much power (in megawatts) 
is being exchanged? To the extent the amount of power varies 
significantly, please give a range.
    (5) Do locational exchanges typically involve short-term or long-
term contracts? How many days in advance is a locational exchange 
typically arranged?
    (6) Under what circumstances, and for what purposes are locational 
exchanges used? How are locational exchanges arranged (bilateral 
negotiation via e-mail, phone call, or instant message; broker; 
electronic exchange)?
    (7) What are the benefits of locational exchanges? In identifying 
the benefits of these arrangements, please describe the type of 
circumstances in which the locational exchange provides this benefit 
and why the locational exchange serves as a means to achieve the 
specified benefit. The Commission also urges commenters to provide 
specific examples demonstrating particular benefits.

B. Effects of Locational Exchanges on System Congestion

    12. The Commission understands that some parties believe that 
certain types of locational exchanges may relieve physical congestion. 
In cases such as those contemplated in Puget's Petition,\16\ it would 
seem that the locations and magnitudes of the generation sources and 
load sinks on the system remain unchanged. Thus, although the parties 
to the locational exchange may eliminate their own risks of curtailment 
due to congestion over that path, the distribution of power flows on 
the transmission system before and after the locational exchange 
transactions appears to remain unchanged. The Commission seeks comment 
on this and on whether other types of locational exchanges (for 
example, as described in the example below and depicted in Figure 1, 
where one party replaces a source of power with a new source, rather 
than simply swapping pre-existing generator output) may actually 
increase congestion. Thus, the Commission encourages parties to comment 
on the effect of locational exchanges on system congestion and to 
provide examples of how these arrangements do or do not reduce system 
congestion.
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    \16\ Puget's Petition, Figure 1, 3, and 4. For instance, in 
Figure 3, both generators output is the same with and without a 
locational exchange. The benefit cited by Puget appears to be that 
Puget avoids the need to use a constrained transmission path.
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C. Merchant Affiliate Issues

    13. In both UAMPS and El Paso, the Commission focused specifically 
on locational exchanges involving a merchant affiliate as one of the 
parties to the exchange. In UAMPS, the Commission rejected the proposed 
locational exchange, finding that ``[a] public utility's merchant 
function may not provide transmission service.'' \17\ In El Paso, 
however, the Commission accepted the locational exchange involving a 
merchant affiliate as a permissible marketbased rate wholesale power 
sale due to the factual distinctions described previously.
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    \17\ UAMPS II, 87 FERC at 61,188.
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    14. The Commission seeks comment as to whether locational exchanges 
may offer opportunities for transmission providers and their merchant 
affiliates to discriminate unduly against or between non-affiliate 
transmission customers. We seek comment on whether a merchant affiliate 
of a transmission provider is uniquely positioned, due to its access to 
network transmission service, to provide locational exchanges on its 
affiliated transmission provider's system, and whether, in some cases, 
may be the only counterparty available for a customer seeking to enter 
into a locational exchange. We seek comment on whether, under these 
circumstances, the merchant affiliate of a transmission provider (or 
its parent company) could benefit from revenues that flow from the 
locational exchange, while the transmission provider continues to 
recover its transmission cost-of-service, effectively shifting costs to 
network and native load customers due to decreased use of point-to-
point transmission service pursuant to the OATT. Thus, the Commission 
seeks comment regarding potential concerns involving locational 
exchanges executed by a merchant affiliate on its affiliated 
transmission provider's system.

[[Page 10356]]

    15. Recognizing that there may be safeguards to address concerns 
regarding affiliate transactions, the Commission seeks comment on how 
industry participants now assure that such activities do not violate 
Commission policies. For example, do tagging obligations, Electric 
Quarterly Report (EQR) filings, standards of conduct rules and market-
based rates rules provide sufficient protections and transparency to 
mitigate against the possible risks related to locational exchanges 
involving a merchant affiliate transacting on its affiliated 
transmission provider's system? The Commission would also welcome 
comment on whether any additional regulatory safeguards are necessary.

D. Flexible Use of Network Transmission Service to Effectuate 
Locational Exchanges

    16. The Commission seeks comment on whether locational exchanges 
could interact with network service rights in a manner that is 
inconsistent with the Commission's open access principles. One 
potential such transaction, shown in Figure 1 below, could involve an 
arrangement in which Party A operates expensive generation at Location 
X to serve its load at Location X. Party A wishes to replace its 
expensive generation with inexpensive generation it owns at Location Y, 
but the Y-to-X path is congested. Party A's solution is to enter into a 
locational exchange with Party B, which has network transmission 
service, network resources, and load straddling Locations X and Y. 
Parties A and B enter an agreement in which Party A sells its 
inexpensive generation at Location Y to Party B, and Party B sells to 
Party A some of its generation that is closer to Location X and 
unaffected by the constraint on the Y-to-X path.\18\ In this example, 
Party A's reduction in resources at Location X and Party B's new 
purchase of generation at Location Y may effectively transfer to Party 
A the inherent flexibility afforded to Party B as a network customer. 
The Commission further notes that this transaction has the effect of 
physically sending more power over the already congested Y-to-X path 
and onto Party A's load. More generally, the Commission is inquiring 
whether the interaction between network service rights and locational 
exchanges could create a risk that parties will be able to engage in 
the effective provision of transmission service in a non-transparent 
manner outside of an OATT.
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    \18\ In this example, Party B undesignates as a network resource 
the capacity it sells to Party A, and instead uses the generation at 
Location Y it has purchased from Party A.
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    17. Thus, the Commission seeks comment whether a party with network 
transmission rights could use locational exchanges to circumvent the 
Commission's open access principles.
BILLING CODE 6717-01-P

[[Page 10357]]

[GRAPHIC] [TIFF OMITTED] TN24FE11.002

BILLING CODE 5001-01-C

[[Page 10358]]

E. Potential Discriminatory Effects

    18. The Commission seeks comment as to whether locational exchanges 
allow some parties to obtain the functional equivalent of transmission 
service on more favorable terms or rates than those available to other 
parties. The Commission also seeks comment regarding the potential 
distortive effects of locational exchanges on billing determinants and 
how such distortions may affect transmission rates. Transmission rates 
are determined by distributing transmission costs among different 
transmission services (such as point-to-point and network service) and 
dividing those costs by billing determinants calculated based upon the 
power amounts served by each transmission service.\19\ If locational 
exchanges are not considered transmission service and are therefore not 
included in the billing determinants used to set transmission rates, 
locational exchanges that serve as an alternative to transmission 
service may increase transmission rates for remaining customers. Thus, 
the Commission seeks comment as to whether locational exchanges could 
increase charges for remaining transmission customers while allowing 
those entering into locational exchanges to avoid transmission charges.
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    \19\ Network service is priced based on the load ratio 
allocation method. ``Because network service is load based, it is 
reasonable to allocate costs on the basis of load for purposes of 
pricing network service.'' Order No. 888, FERC Stats. & Regs. at 
31,736. Pro forma OATT, section 34. For firm and non-firm point-to-
point service, the transmission customer will be billed for its 
reserved capacity under terms of schedule 7 and 8, respectively. Pro 
forma OATT, section 25; schedules 7 and 8. The transmission 
customer's reserved capacity is the maximum amount of capacity and 
energy that the transmission provider agrees to transmit for the 
transmission customer between the point of receipt and the point of 
delivery. Pro forma OATT, section 1.42.
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    19. The Commission seeks comments as to whether and, if so, how 
locational exchanges affect billing determinants or create other such 
potential market distortions. Moreover, if locational exchanges have an 
effect on billing determinants and the distribution of costs, the 
Commission seeks comment on whether certain types of customers are less 
likely to be able to enter into locational exchanges and thus may be 
forced to pay potentially increased transmission costs that result from 
the distorted billing determinants.

F. Price Reporting

    20. The Commission seeks comment as to whether the current EQR 
procedures and requirements are sufficient to ensure appropriate 
locational exchange data reporting. Under Sec.  35.10b of the 
Commission's regulations, sellers of power are required to report data 
to the Commission's EQR system covering all services provided under 
part 35 of the Commission's regulations. The EQR data dictionary 
provides for a category of services called ``exchanges'' within which 
``the receiver accepts delivery of energy for a supplier's account and 
returns energy at times, rates, and amounts as mutually agreed if the 
receiver is not an RTO/ISO.'' \20\ However, there is no rule describing 
whether an exchange transaction must be reported in EQR as an exchange, 
or whether an exchange transaction may alternatively be reported in EQR 
as two separate power sale transactions (one report by each seller).
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    \20\ Revised Public Utility Filing Requirements for Electric 
Quarterly Reports, Order No. 2001-I, 125 FERC 61,103, at Appendix A. 
The Commission has stated that the definition of ``exchange'' 
includes simultaneous trades at different locations. Revised Public 
Utility Filing Requirements for Electric Quarterly Reports, Order 
No. 2001-G, 120 FERC ] 61,270, at P 53, order on reh'g and 
clarification, Order No. 2001-H, 121 FERC ] 61,289 (2007).
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    21. Because of the structure of a locational exchange, the price 
per megawatt hour at each side of the transaction does not appear to be 
of any immediate financial interest to the parties, except as those 
prices determine the price of the entire locational exchange position 
(or the spread). Thus, if an exchange were reported in EQR as two 
separate power sale transactions, parties may not have any financial 
incentive to establish and report realistic prices for the power at 
each location. For instance, parties would be indifferent between 
reporting prices of $5 and $10 versus $400 and $405, since in both 
cases the spread is $5. As a result, such reports could have the effect 
of distorting price data in the Commission's EQR system. With respect 
to this issue, we encourage parties to respond to the following 
questions:
    (1) How are locational exchanges typically reported to the EQR 
today?
    (2) Are additional rules needed to ensure that locational exchanges 
are reported in EQR as exchanges, and not reported as two separate 
power sales? \21\
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    \21\ We note that the Commission's rules provide that data for 
exchange transactions are not to be reported to developers of price 
indices. As such, there appears to be no concern related to 
locational exchanges affecting the accuracy of price indices. See 18 
CFR 35.41(c) and Commission's Policy Statement on Natural Gas and 
Electric Price Indices, 104 FERC ] 61,121, at P 34 (2003).
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G. System Reliability

    22. The Commission inquires as to whether locational exchanges 
affect the ability of system operators and any other relevant entities 
to obtain information or perform other functions necessary to maintain 
adequate system reliability. The Commission also seeks comment on the 
effects and implications of locational exchanges on the transmission 
system(s) and the operator's ability to comply with Commission approved 
North American Electric Reliability Corp. (NERC) reliability standards.
    23. Parties should describe (1) The potential effect of locational 
exchanges on system performance including inadvertent power flows and 
the availability of information regarding power flows to the 
transmission provider and other reliability entities; (2) how 
locational exchanges interact with scheduling and tagging requirements; 
and (3) how locational exchanges affect short-term and long-term system 
planning. The Commission also seeks information associated with the 
relationship between locational exchanges and curtailment issues and 
procedures.
    24. As parties provide this information, the Commission urges them 
to consider scenarios where a locational exchange is effectuated, 
including but not limited to, (a) within one balancing authority area; 
(b) within more than one balancing authority area; (c) over short 
distances as compared to long distances; (d) involving small amounts of 
MWs as opposed to large amounts of MWs; and (e) involving more than two 
points of exchanges in the context of the different scenarios listed in 
(a) through (d).

H. Pricing of Locational Exchanges

    25. If the Commission determines that a locational exchange is 
transmission service subject to an OATT, the Commission seeks comment 
as to whether there is an appropriate existing transmission pricing 
policy that should apply specifically to these types of arrangements. 
In the alternative, the Commission urges parties to propose a pricing 
mechanism that would efficiently price those exchanges that make use of 
the transmission system.

I. Commission Review of Locational Exchanges

    26. In addition, the Commission seeks comment regarding the 
potential effect of requiring parties to seek prior Commission approval 
for locational exchanges on a case-by-case basis.\22\ In particular, 
the Commission urges parties

[[Page 10359]]

to comment as to whether such a requirement would impose undue delays 
and other administrative burdens affecting the ability of market 
participants to use locational exchanges.
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    \22\ For example, in El Paso, the Commission accepted a 
particular locational exchange after the parties filed the agreement 
and provided additional data to the Commission. El Paso, 115 FERC ] 
61,312.
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    27. The Commission seeks comment regarding circumstances in which 
locational exchanges of electric power should be permitted generically. 
In this regard, the Commission seeks comment regarding criteria that 
might define a safe harbor within which a locational exchange would be 
deemed a permissible wholesale power transaction without prior 
Commission review of that transaction. Under this approach, those 
parties seeking to enter into exchanges that do not satisfy the safe 
harbor criteria could seek Commission approval on a case-by-case basis. 
To the extent that there are circumstances in which locational 
exchanges are permitted on a generic basis, the Commission seeks 
comment regarding any additional rules that may be necessary to 
regulate the exchanges.

J. Comment Procedures

    28. The Commission invites interested persons to submit comments, 
and other information on the matters, issues, and specific questions 
identified in this notice. Comments are due April 25, 2011. Comments 
must refer to Docket No. RM11-9-000, and must include the commenter's 
name, the organization they represent, if applicable, and their address 
in their comments.
    29. The Commission encourages comments to be filed electronically 
via the eFiling link on the Commission's Web site at http://www.ferc.gov. The Commission accepts most standard word processing 
formats. Documents created electronically using word processing 
software should be filed in native applications or print-to-PDF format 
and not in a scanned format. Commenters filing electronically do not 
need to make a paper filing.
    30. Commenters that are not able to file comments electronically 
must send an original copy of their comments to: Federal Energy 
Regulatory Commission, Secretary of the Commission, 888 First Street 
NE., Washington, DC 20426. The current copy requirements are specified 
on the Commission's Web site, see, e.g., the ``Quick Reference Guide 
for Paper Submissions,'' available at http://ww.ferc.gov.docs-filing/efiling.asp, or via phone from FERC Online Support at 202-502-6652 or 
toll-free at1-866-208-3676.
    31. All comments will be placed in the Commission's public files 
and may be viewed, printed, or downloaded remotely as described in the 
Document Availability section below. Commenters on this proposal are 
not required to serve copies of their comments on other commenters.

K. Document Availability

    32. In addition to publishing the full text of this document in the 
Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
Internet through FERC's Home Page (http://www.ferc.gov) and in FERC's 
Public Reference Room during normal business hours (8:30 a.m. to 5 p.m. 
Eastern time) at 888 First Street, NE., Room 2A, Washington DC 20426.
    33. From FERC's Home Page on the Internet, this information is 
available on eLibrary. The full text of this document is available on 
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or 
downloading. To access this document in eLibrary, type the docket 
number excluding the last three digits of this document in the docket 
number field.
    34. User assistance is available for eLibrary and the FERC's Web 
site during normal business hours from FERC Online Support at (202) 
502-6652 (toll free at 1-866-208-3676) or e-mail at 
<a href="/cdn-cgi/l/email-protection#690f0c1b0a06070500070c1a1c1919061b1d290f0c1b0a470e061f"><span class="__cf_email__" data-cfemail="01676473626e6f6d686f64727471716e737541676473622f666e77">[email protected]</span></a>, or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. E-mail the Public Reference Room at 
<a href="/cdn-cgi/l/email-protection#82f2f7e0eeebe1acf0e7e4e7f0e7ece1e7f0ededefc2e4e7f0e1ace5edf4"><span class="__cf_email__" data-cfemail="d3a3a6b1bfbab0fda1b6b5b6a1b6bdb0b6a1bcbcbe93b5b6a1b0fdb4bca5">[email protected]</span></a>.

    By direction of the Commission.
Kimberly D. Bose,
Secretary.
[FR Doc. 2011-4079 Filed 2-23-11; 8:45 am]
BILLING CODE 6717-01-P


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