[Federal Register Volume 61, Number 92 (Friday, May 10, 1996)]
[Proposed Rules]
[Pages 21847-21854]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10692]




Federal Register / Vol. 61, No. 92 / Friday, May 10, 1996 / Proposed 
Rules

[[Page 21847]]



DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM96-11-000]


Capacity Reservation Open Access Transmission Tariffs

April 24, 1996.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) is 
proposing a rule that specifies filing requirements to be followed by 
public utilities in making transmission tariff filings based on 
capacity reservations for all transmission users. The proposed capacity 
reservation open access transmission tariff, if adopted, would replace 
the open access transmission tariff required by the Commission in 
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. para. 31,036 (1996). The Commission is seeking public 
comment on whether to require this type of tariff for all public 
utilities that must comply with the Commission's open access 
requirements, and on the specific provisions that should be contained 
in a capacity reservation tariff. The Commission will convene a 
technical conference on these issues.

DATES: Written comments must be received by the Commission by August 1, 
1996. The Commission also will convene a technical conference to be 
held over two days in September 1996 at the Commission, 888 First 
Street NE., Washington, D.C. 20426. The Commission will announce the 
dates, time, and agenda of the technical conference at a later date.

FOR FURTHER INFORMATION CONTACT:
Jan Macpherson (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street NE., Washington, 
D.C. 20426, Telephone: (202) 208-0921
Roland W. Wentworth (Technical Information), Office of Economic Policy, 
Federal Energy Regulatory Commission, 888 First Street NE., Washington, 
D.C. 10426, Telephone: (202) 208-1288.

ADDRESSES: Send comments to: Office of the Secretary, Federal Energy 
Regulatory Commission, 888 First Street NE., Washington, D.C. 20426.

SUPPLEMENTARY INFORMATION: In addition to publishing the full text of 
this document in the Federal Register, the Commission also provides all 
interested persons an opportunity to inspect or copy the contents of 
this document during normal business hours in the Public Reference Room 
at 888 First Street NE., Washington, D.C. 20426.
    The Commission Issuance Posting System (CIPS), an electronic 
bulletin board service, provides access to the texts of formal 
documents issued by the Commission. CIPS is available at no charge to 
the user and may be accessed using a personal computer with a modem by 
dialing 202-208-1997 if dialing locally or 1-800-856-3520 if dialing 
long distance. CIPS is also available through the Fed World system (by 
modem or Internet). To access CIPS, set your communications software to 
19200, 14400, 12000, 9600, 7200, 4800, 2400, or 1200 bps, full duplex, 
no parity, 8 data bits and 1 stop bit. The full text of this order will 
be available on CIPS indefinitely in ASCII and WordPerfect 5.1 format. 
The complete text on diskette in WordPerfect format may also be 
purchased from the Commission's copy contractor, La Dorn Systems 
Corporation, also located in the Public Reference Room at 888 First 
Street NE., Washington, D.C. 20426.

I. Introduction

    The Federal Energy Regulatory Commission (Commission) is today 
adopting a final rule (Open Access Final Rule) <SUP>1 requiring each 
public utility that owns, operates or controls facilities used for the 
transmission of electric energy in interstate commerce to file an open 
access non-discriminatory transmission tariff (Final Rule tariff). The 
Open Access Final Rule also requires these utilities to take 
transmission service for their own wholesale sales and purchases of 
electric energy under this tariff. The Final Rule tariff specifies that 
service is to be provided on both a network basis and a flexible point-
to-point basis; the network service is a load-based service, while the 
point-to-point service is based on transmission capacity reservations.
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    \1\ Promoting Wholesale Competition Through Open Access Non-
discriminatory Transmission Services by Public Utilities, Docket No. 
RM95-8-000, Order No. 888, FERC Stats. & Regs. para. 31,036 (1996). 
The Open Access Final Rule is being published concurrently in the 
Federal Register.
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    This Notice of Proposed Rulemaking (``NOPR'') requests comment on 
whether there are certain disadvantages inherent in offering 
transmission service on both a network and a point-to-point basis. If 
so, the Commission requests comment on whether comparability of 
transmission service can be better accomplished by requiring that 
transmission service be rendered using a single methodology. In 
particular, the Commission requests comment on the capacity reservation 
tariff (``CRT'') approach described herein. The Commission also 
requests comment on whether there are other methodologies that can 
fulfill the policy goals served by a single capacity allocation 
methodology as well as, or better than, the proposed CRT approach.
    The proposed CRT approach would be based on the point-to-point 
service in the Final Rule tariff and would allow all transmission 
customers to have the same degree of flexibility in reserving and using 
transmission service. This NOPR proposes that no later than December 
31, 1997, the Open Access Final Rule's network and point-to-point 
tariff be replaced by a CRT that provides only reservation-based 
transmission service for all jurisdictional service.
    The Commission will hold a technical conference on this proposal 
prior to adopting a final rule.

II. Public Reporting Burden

    The proposed rule specifies filing requirements to be followed by 
public utilities in making tariff filings that reflect transmission 
capacity reservations for all wholesale transmission customers and any 
unbundled retail transmission customers and would replace the open 
access transmission tariffs required by the Commission in the Open 
Access Final Rule. The information collection requirements of the 
proposed rule are attributable to FERC-516 ``Electric Rate Schedule 
Filings.'' The current total annual reporting burden for FERC-516 is 
828,300 hours.
    The proposed rule requires public utilities filing capacity 
reservation transmission tariffs to provide certain information to the 
Commission. The public reporting burden for the information collection 
requirements contained in the proposed rule is estimated to average 250 
hours per response. This estimate includes time for reviewing the 
requirements of the Commission's regulations, searching existing data 
sources, gathering and maintaining the necessary data, completing and 
reviewing the collection of information, and filing the required 
information.
    There are approximately 328 public utilities, including marketers 
and wholesale generation entities. The Commission estimates that 
approximately 166 of these entities own, operate, or control facilities 
used for the

[[Page 21848]]

transmission of electric energy in interstate commerce and will respond 
to the information collection. The respondents would be the same as 
those for the Open Access Final Rule, i.e., all public utilities 
required to file non-discriminatory open access tariffs. Accordingly, 
the public reporting burden is estimated to be 41,000 hours.
    Interested persons may send comments regarding the burden estimates 
or other aspects of this collection of information, including 
suggestions for reducing this burden, to the Federal Energy Regulatory 
Commission, 888 First Street NE., Washington, DC 20426 [Attention: 
Michael Miller, (202) 208-1415], and to the Office of Information and 
Regulatory Affairs of the Office of Management and Budget, Washington, 
DC 20503 (Attention: Desk Officer for the Federal Energy Regulatory 
Commission (202) 395-3087).

III. Background

    In the Open Access Final Rule, the Commission has adopted a pro 
forma tariff containing the minimum acceptable terms and conditions of 
transmission service for network service and for flexible point-to-
point service. This type of tariff, in conjunction with other 
requirements imposed in the Open Access Final Rule and in the related 
final rule in Open Access Same-Time Information System,<SUP>2 is 
sufficient to remedy undue discrimination in the provision of 
transmission services. However, in analyzing the comments in the Open 
Access proceeding, it became apparent that a single service open access 
tariff might better accommodate competitive changes occurring in the 
industry while ensuring that all interstate transmission service 
subject to the Commission's jurisdiction is provided in a fair and non-
discriminatory manner.
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    \2\ Open Access Same-Time Information System (formerly Real-Time 
Information Networks) and Standards of Conduct, Docket No. RM95-9-
000, Order No. 889, FERC Stats. & Regs. para. 31,037 (1996) (OASIS 
Final Rule). This rule also is being published concurrently in the 
Federal Register.
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    Network transmission service, in the Open Access Final Rule, 
defines rights and sets prices based on customer load. It allows the 
transmission customer to use the transmission provider's entire grid to 
serve designated loads from designated resources without having to pay 
a separate charge for each pairing of resource and load. Thus, network 
service enables the transmission customer to use the network flexibly 
to integrate its resources and loads efficiently and to dispatch 
economically its system, in the same way as the owner of the 
transmission system.
    Firm flexible point-to-point service in the Open Access Final Rule, 
on the other hand, defines rights and sets prices based on transmission 
capacity reservations. The transmission user designates points of 
delivery (PODs) and points of receipt (PORs) and makes a capacity 
reservation for each POD and for each POR. Consistent with the 
comparability principle that is one of the cornerstones of the Open 
Access Final Rule, firm point-to-point transmission service provided to 
a customer must be comparable to that which the utility provides to 
itself. For example, the customer should be able to use any available 
unreserved service without an additional charge, as long as the use 
does not exceed its capacity reservation.
    The Commission proposes to replace the network and point-to-point 
services in the Open Access Final Rule tariff with a CRT that would 
accommodate both network and point-to-point needs. The CRT would be 
based on the point-to-point service in the Final Rule tariff and would 
allow all jurisdictional transmission customers to have the same degree 
of flexibility in reserving and using transmission service. Under the 
CRT, all transmission customers would specify the amount of power to be 
received and delivered at multiple receipt and delivery points, and 
would have substantial flexibility in rearranging these receipt and 
delivery points. All nominations for capacity reservations would be 
evaluated in the same manner.<SUP>3
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    \3\ A ``nomination'' is a request; a ``reservation'' is a 
confirmed nomination that can be held or traded.
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IV. Reasons for Proposing a CRT

    In adopting the Final Rule tariff in the Open Access Final Rule, 
our purpose was to remedy undue discrimination in the provision of 
interstate transmission service, not to reform traditional tariff 
design. We believe that the Final Rule tariff, in conjunction with the 
OASIS Final Rule, remedies undue discrimination in transmission 
service. The network section of the Final Rule tariff is based on the 
prevailing industry practice of traditional load-ratio pricing.
    Many commenters responded to our initial proposed open access pro 
forma tariffs by asking us to adopt either more flexible or more 
innovative tariffs in the Open Access Final Rule. Some commenters 
suggested that the basic design of the Open Access NOPR pro forma 
tariffs may be too inflexible to accommodate industry innovations. The 
capacity reservation tariff proposed here is an alternative that may 
better suit the needs of the changing electric power industry.
    The Final Rule tariff offers two types of transmission service. 
Network service provides enough transmission capacity to satisfy a 
customer's consumption of electric power. Point-to-point service sets 
aside as much transmission capacity as the customer reserves. Thus, 
network service is based on use, and point-to-point service is based on 
reservations.
    Network customers get and pay for the capacity they use, and point-
to-point customers get and pay for the capacity they reserve. The fixed 
costs of the transmission system are allocated among network customers 
on the basis of use, that is, the customers' loads. The fixed costs of 
the transmission system are allocated among point-to-point customers on 
the basis of their reservations, that is, their contract demands.
    Offering two types of service in one tariff may have disadvantages. 
At the end of this NOPR we ask questions about whether this is so. If 
it is, a solution may be to put all jurisdictional transmission users 
on the same basis: The transmission provider would serve and charge all 
customers (including its own jurisdictional uses of the system) on the 
basis of how much transmission capacity they either use or ask for. 
That is, it would make the entire tariff either load-based or 
reservation-based. If we do reform the tariff to put all transmission 
users on the same basis, we believe that, for the reasons set out next, 
putting all on a reservation basis may be more consistent with the 
industry's direction in its competitive restructuring. We seek comment 
on whether this premise concerning reservation-based service is in fact 
correct.
    First, reservation-based service appears to be more compatible with 
our new OASIS and the requirement that market participants know how 
much transmission is available for their use. In the OASIS Final Rule, 
we require public utilities to post electronically their available 
transmission capability, or ATC. They must do this by calculating total 
transmission capability and subtracting transmission capacity committed 
to other uses. It is relatively easy to subtract point-to-point service 
reservations, but there is no amount of transmission capacity 
explicitly reserved for network customers or for the transmission 
provider's own network uses.
    The transmission provider is committed to having available enough 
transmission capacity to serve its native

[[Page 21849]]

load and the loads of its network customers. But the transmission 
provider knows only the customers' historical loads, not their future 
loads. Although the customers (as well as the transmission provider 
itself) must forecast their loads, they may have no incentive to 
forecast accurately because the utility must meet all transmission 
needs for serving load regardless of the forecast. This requires the 
transmission provider to predict its future native load and that of 
each of its network customers in order to determine its ATC.
    While this process can work reasonably well in a regime in which 
utilities make bundled generation and transmission sales to 
requirements customers, it may not work as well now that various kinds 
of power sellers and marketers are eligible for unbundled network 
service. The transmission provider may not have any good way to 
forecast the increases or decreases in the loads of customers that it 
has no obligation to serve. It seems appropriate to ask all 
transmission customers, including the transmission provider, to state 
explicitly how much transmission capacity they want set aside for their 
needs. In this way, they effectively would be making a capacity 
reservation. This would simplify the transmission provider's 
determination of ATC and make the information available on the OASIS.
    Under a CRT approach, each transmission customer (including the 
transmission provider for its own uses) would have to state its 
transmission capacity needs, as in the current point-to-point tariff. 
The requirement that reservations be stated in order to be subtracted 
from total transmission capability would ensure that all customers are 
treated comparably without the transmission provider having to make 
forecasts only for some.
    On the other hand, an argument can be made that the CRT approach 
may lead to an understatement of ATC. For example, in reserving 
transmission service, customers might base such reservations on an 
estimate of their maximum non-coincident peak (``NCP'') load. This 
conceivably could result in an understatement of ATC, because the 
diversity of customer loads at the time of the system peak would no 
longer be a relevant factor in determining ATC. The Commission requests 
comment on whether in practice this would be a problem and, if so, 
whether it can be remedied.
    Second, a reservation-based tariff would put all jurisdictional 
transmission customers, including the transmission provider for its own 
jurisdictional uses, on the same basis. All customers would not only 
have to reserve transmission capacity but also would have to pay for 
the transmission capacity that they reserve.
    It may be disadvantageous to have different bases for the pricing 
of two services in a tariff. For example, suppose a transmission 
provider has two nearly identical transmission customers. Each has a 
load of 50 MW, and each thinks its load next year could be as little as 
40 MW or as much as 60 MW. However, one takes network service, and the 
other takes 60 MW of point-to-point service. Suppose these are the only 
customers on the system and they have coincident peak loads; if each 
actually uses 60 MW next year, each pays half the cost of the 
transmission system. But if each uses 40 MW, the point-to-point 
customer pays 60 percent of the cost <SUP>4 while the network customer 
pays only 40 percent.
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    \4\ This is based on a 60-MW reservation divided by the sum of 
the network loads and the capacity reservations at the time of 
system peak.
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    Customers also may attempt to exploit to their advantage the 
different terms and conditions of the two services. As commenters in 
the Open Access proceeding pointed out, the many differences between 
capacity reservation-based (point-to-point) and load-based (network) 
services mean that transmission customers are treated differently. 
Having two services in a tariff may create an incentive for a customer 
to switch back and forth from one service to another in a way that may 
allow it to avoid paying a fair share of system costs. This would not 
be the case if all customers are served under a reservation-based (or 
load-based) tariff.
    Third, a reservation-based approach may be a better basis for 
accommodating electric industry innovations and pricing reforms. The 
industry is in a period of rapid change, and many ideas are being 
considered for independent system operators (ISOs), regional 
transmission groups, regional power exchanges, generation divestiture, 
distribution company spin-offs, unified regional transmission 
ownership, regional transmission tariffs, megawatt-mile transmission 
pricing, marginal cost pricing, and congestion pricing, among other 
innovations. Innovations are being considered or implemented in such 
places as California, the Midwest, the large eastern power pools, and 
other places. Most proposals assume that all jurisdictional users of 
the transmission system will be treated alike.
    Many commenters in the Open Access proceeding raised concerns that 
our pro forma tariffs with two separate services, one based on load and 
another based on capacity reservation, may be an obstacle to putting 
all transmission customers on the same basis and hence an obstacle to 
innovation. For example, the Commission would need to make special 
tariff accommodations to permit California public utilities to carry 
out the reforms mandated by the California Public Utilities Commission 
for an ISO, a regional power exchange, and congestion pricing. Although 
we have indicated that we are prepared to accept other tariff designs 
that further the goal of fostering robust competition in the bulk power 
market, the number of parties concerned with the traditional nature of 
our tariff suggests that our tariff may inhibit other parties from 
considering innovative industry structures and pricing policies.
    This NOPR, among other things, indicates that the Commission is not 
committed to traditional tariff design. Further, it proposes a tariff 
design that supports calculation of ATC and treats all jurisdictional 
transmission users alike. We believe that the proposed CRT concept 
would provide a flexible base on which industry participants can build 
a variety of innovative tariff designs. We expect the CRT concept to be 
more compatible with various ISO and power pool pricing proposals than 
the traditional Open Access Final Rule tariff. We ask for comment on 
whether this is so. In addition, we request comment on whether there 
are other transmission capacity allocation methodologies (for instance, 
an ``all network service'' methodology) that, when compared to the two-
service approach in the Final Rule, are more compatible with proposed 
and contemplated marketplace innovations.
    In particular, we expect that a CRT would provide a better basis 
for regional flow-based transmission pricing. In the comments we 
received in the Open Access proceeding, a large number of industry 
participants stressed that the Commission should not codify contract 
path pricing in its Final Rule. As we explain more fully in the Open 
Access Final Rule, they were concerned that the proposed pro forma 
tariffs would codify the contract path approach to pricing. We explain 
in the Open Access Final Rule that this is not our intention; we 
continue to encourage the industry to explore solutions to regional 
loop flow problems through innovative regional flow-based pricing 
proposals.
    It is unlikely that an efficient tariff for a large region would 
allocate some transmission costs on the basis of various subregional 
loads and other costs on the basis of capacity reserved over various 
multipath interfaces within

[[Page 21850]]

the region. Most regional tariff proposals would allocate costs on the 
latter basis alone, recognizing, of course, that the configuration of 
regional loads is a starting point for any load flow study. For this 
reason, we believe that the proposed CRT approach to tariff design may 
be more compatible with the intent of some in the industry to move to 
flow-based pricing than a tariff that combines services based on usage 
and reservations. We ask for comments on whether this is the case. In 
addition, we ask for comment on whether there are other non-CRT 
approaches that may be more compatible with flow-based pricing.
    Fourth, as discussed in the Open Access Final Rule, load-based 
network service generally cannot be resold. This reduces the amount of 
transmission products and services that can enter the secondary market. 
As a result, the secondary market could be thinner and less effective 
as a risk management tool for market participants. In addition, 
independent generators and marketers could be hampered in making 
efficiency-enhancing transactions that do not involve a load-serving 
entity, such as trading power between generators in different market 
centers. The Commission seeks comments on whether a capacity 
reservation service or some other alternative to the two-service 
approach in the Final Rule would better allow market participants to 
freely make efficient deals that involve combining transmission 
entitlements with power products in new and creative ways.
    Fifth, we believe that additional comments should be received on 
whether the goal of unbundling transmission and generation services can 
be fully achieved under load-based network service. It would appear 
that transmission service would be fully unbundled from generation 
service under a CRT because the generation and transmission products 
are reserved and used independently. For example, reservations for 
flexible grid use, including interface capacity, could be held 
independently of load. In addition, generation resources and load would 
not need to be designated as under the network service; a transmission 
customer would have to pay for the capacity it reserved at PODs and 
PORs, but it would not have to designate any resources or loads.
    Sixth, a capacity reservation approach may facilitate transmission 
planning. Under a CRT, all wholesale transmission users and unbundled 
retail transmission customers would be required to specify and pay for 
all of their transmission needs, including capacity needed for 
contingencies. The costs of contingency margins needed by only some 
users would not be allocated to all users of the grid. A CRT would 
allow each customer flexibility in managing its own risk, e.g., a 
customer could factor reasonable reserve margins into its reservation 
for contingencies. This approach may be consistent with some innovative 
proposals that seek to accommodate customer-driven transmission 
expansion, in addition to traditional utility-planned transmission 
expansion.
    Finally, some commenters in the Open Access proceeding encouraged 
us to treat the retail function of a public utility transmission 
provider as a separate wholesale customer for purposes of the 
transmission tariff. While we do not require this in the Open Access 
Final Rule, we propose here that the transmission used on behalf of the 
transmission provider's bundled retail native load be nominated and 
reserved in the same way as all other transmission service.<SUP>5 
Requiring the same reservation system for all transmission capacity 
needs would help to assure that all uses of the transmission system are 
treated in a comparable, non-discriminatory manner. We seek comment on 
whether the retail function of a public utility transmission provider 
should be treated as a separate wholesale customer for purposes of the 
CRT tariff.
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    \5\ As discussed below, this is not the same as requiring 
bundled retail customers to take service under the CRT.
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V. Capacity Reservation Service

A. Discussion

    The Commission's CRT proposal is as follows. Each public utility 
subject to the Open Access Final Rule would be required to file a CRT 
no later than December 31, 1997. Under the CRT, which would replace 
existing transmission tariffs, all firm transmission users, including 
the transmission owner on behalf of its wholesale requirements and 
bundled retail customers, would nominate and reserve transmission 
capacity; they would nominate and reserve firm rights to receive 
specific amounts of power at specific grid PORs and to deliver specific 
amounts of power at specific grid PODs. PORs could include 
interconnections with other systems or generator bus bars. PODs could 
include interconnections with other systems or substations where the 
transmission provider's transmission and distribution systems are 
connected. Reservation holders could flexibly schedule power among some 
or all of their PORs and PODs within their reservation limits and could 
reassign their reservations. Thus, capacity reservation service could 
be used both for point-to-point types of transactions and in a network 
manner (integration of a set of generating resources with a dispersed 
load).
    The capacity reservation approach would be based on the flexible 
point-to-point service in the Open Access Final Rule. A customer could 
specify a single POR and a single POD, or it could reserve service from 
multiple PORs to multiple PODs. The transmission provider would set 
aside sufficient transmission capacity to satisfy its firm reservation 
needs for any potential combinations of power receipts and deliveries 
among the designated receipt and delivery points.
    An entity with dispersed generation and load could use CRT service 
to dispatch its generation economically within its capacity 
reservation. When one generating unit is ramped down, the customer 
could ramp up another generating unit located at another designated 
receipt point. The flexibility to serve load when the transmission 
customer is using less than its capacity reservation would be the same 
as under Final Rule network service. CRT service could also be used for 
simple point-to-point transactions if the customer does not want or 
need much flexibility.
    Under a CRT, a customer also could have the flexibility to 
rearrange, or modify, its firm reservation to deal with unforeseen 
circumstances. Such a rearrangement could be accomplished as long as 
the customer's capacity reservation is not exceeded and firm 
transmission capacity is available. The flexibility of the proposed CRT 
service would not be unlimited, however. For example, a transmission 
customer might have very little flexibility to modify its reservation 
on a firm basis to accommodate an unanticipated dispatch pattern when 
the grid is operating at or close to capacity. Under such conditions, 
modifications likely would infringe on other firm reservations. To 
manage this risk, the customer would have two basic options. One would 
be to take non-firm transmission or ancillary service on an as-
available basis (and potentially pay opportunity costs) when the need 
to alter the planned operation arises. The other option would be to 
subscribe to sufficient firm capacity in advance so as to build in the 
desired operating flexibility. While either option would have financial 
risks, all jurisdictional transmission customers would have the same 
opportunity to manage this risk, since the transmission service would 
be the same for all users.

[[Page 21851]]

    Under a CRT, all unbundled transmission service in interstate 
commerce, including unbundled retail service, would be taken under the 
tariff unless the Commission in an individual case determined otherwise 
(as discussed in the Open Access Final Rule in Section IV.I). The 
rates, terms, and conditions for unbundled transmission service would 
be in accordance with the tariff. In addition, all public utilities 
would nominate and reserve firm transmission service under the tariffs, 
including nominating and reserving transmission used for native load 
(i.e., bundled wholesale requirements and bundled retail customers). 
This means that nominations and reservations would have to be made for 
specific receipt and delivery points for all firm transmission 
services. The purpose of this requirement would be that it may better 
ensure comparability. Moreover, the requirement for utilities to hold 
reservations on behalf of bundled wholesale and retail customers would 
be consistent with our responsibility under FPA section 213(b) to make 
information available about ATC and transmission constraints. The 
physical quantities of transmission service available to unbundled 
users cannot be measured accurately as long as the physical quantities 
used for bundled service are not measured in the same way.
    However, we wish to emphasize that we are not proposing to set the 
rates, terms or conditions for the transmission component of bundled 
retail service. Nor would we determine the amount of capacity to be 
reserved for retail load. Traditional ratemaking prerogatives of state 
commissions would be unchanged by this nomination and reservation 
requirement. If the CRT is adopted, the Commission would allocate 
transmission costs based on the sum of all reservations for wholesale 
customers, unbundled retail customers, and bundled retail customers. 
State commissions could adopt a similar approach; however, they would 
remain free to use an inter-jurisdictional allocation formula of their 
own choosing, just as they may now. We note that in the Open Access 
Final Rule we have provided for procedures to facilitate jurisdictional 
line-drawing regarding cost allocation, and for deference to state 
recommendations. Therefore, we do not expect significant conflicts.
    Under a CRT, a public utility would have an opportunity to recover 
all of its transmission fixed costs, just as it does today. While it is 
possible that the federal and state allocations could add up to less or 
more than 100 percent of the utility's fixed transmission costs, that 
is a risk that a utility faces anytime it is subject to the rate 
jurisdiction of more than one regulatory authority. Moreover, we would 
work with state commissions to develop compatible cost allocation 
procedures and to minimize the possibility of any over- or under-
recovery of transmission costs.

B. Proposed Principles

    A capacity reservation tariff might have terms and conditions very 
much like those for point-to-point service in the Final Rule tariff. 
These would need to be modified to accommodate former network service 
customers. It is premature to specify detailed terms and conditions of 
capacity reservation service in advance of the comments and technical 
conference. However, we propose certain general capacity reservation 
tariff principles for comment.
1. Purpose of Reservation Service
    Transmission products and services should be provided on an open 
access, comparable basis. In order to ensure comparability, 
transmission service should be nominated and reserved on a non-
discriminatory basis. Transmission for wholesale sales of electric 
energy should be made available on an unbundled basis.
2. Basic Service Concept
    All firm transmission service would be reserved, and all reserved 
service would be firm service. Reservations of transmission capacity 
should permit the customer to receive up to a specific amount of power 
into the grid at specified PORs, and to deliver up to a specific amount 
of power from the grid at specified PODs, on a firm basis. Individual 
PORs and PODs need not be ``paired'' with each other. The customer's 
capacity reservation would be the higher of either (1) the sum of the 
reservations at all PORs or (2) the sum of the reservations at all 
PODs. All nominations for a capacity reservation would be evaluated 
using the same standard; for example, the utility could apply a 
feasibility criterion that states that the grid must be able to 
accommodate the scheduled use of all capacity reservations 
simultaneously.
3. Use of Capacity Reservations
    A customer with a capacity reservation could use the reservation to 
deliver or receive any type of power product (such as firm or non-firm 
power). That is, use of the capacity reservation should not be 
restricted to particular power products. Any such restriction would be 
inconsistent with unbundling. This would allow the capacity reservation 
holder to combine transmission and power products in any way that 
satisfies its needs.
4. Applicability to All Customers
    Capacity reservations for all firm transmission service would be 
made under the CRT, including reservations nominated on behalf of the 
transmission provider's bundled wholesale and retail customers. This 
would make it possible to allocate capacity and costs comparably among 
all transmission users. This would not require the unbundling of the 
transmission component of bundled retail rates or affect state 
authority with regard to the rates, terms, and conditions of service to 
bundled retail customers.
5. Application of Penalties for Overuse
    Any charges for exceeding capacity reservations should be non-
discriminatory. If a CRT penalizes use in excess of reserved amounts, 
these penalties should be applied comparably to all reservations. Any 
dispositions of penalties assessed against the utility for violating 
bundled retail capacity reservations would be under the state 
commission's ratemaking authority. If penalties are not authorized by 
the state commission's ratemaking authority, the Commission would not 
authorize recovery of such penalties from other transmission customers.
6. Standard for Accepting Nominations
    A nomination for a capacity reservation would be accepted if the 
transmission provider determines that it can be reliably accommodated 
without infringing on other firm reservations. If transmission capacity 
expansion is needed and approved by state siting authorities, a 
nomination should be accepted if the nominating customer is willing to 
pay its appropriate share of the cost of the expansion.
7. Non-firm Transmission Service
    In addition to reserved firm service, transmission providers would 
offer non-firm transmission service. Non-firm service could be provided 
from transmission capacity not scheduled by customers with reservations 
or from capacity that is not previously reserved. Non-firm service 
would be allocated to the highest valued use by opportunity cost 
pricing as described in the Open Access Final Rule or by some other 
pricing consistent with the Commission's Transmission Pricing Policy 
Statement.

[[Page 21852]]

8. Open Season for New Facilities
    We would anticipate requiring a transmission provider to publicly 
announce its plans for capacity expansion projects to allow market 
participants to reserve capacity. Participants would pay an appropriate 
share of the costs of the project. All market participants would be 
treated comparably in securing additional transmission capacity 
reservations when the grid capacity is expanded.
9. Cost Allocation and Pricing
    The fixed costs of the transmission network would be allocated 
among reservation holders on the basis of their capacity reservations. 
Rates would be designed to recover these costs and would be revised 
from time to time to reflect changes in the level of fixed costs or 
changes in reserved amounts. In this way, transmission providers would 
have an opportunity to fully recover their fixed costs. Transmission 
providers would be expected to propose specific mechanisms for 
recovering fixed costs from transmission customers.
10. Standardized Products and Priority Protocols
     Just as the Commission has required under the Open Access Final 
Rule tariff, the CRT would offer standardized transmission products and 
services, defining reserved and non-reserved transmission service and 
setting reservation priorities and curtailment protocols. This would 
reduce uncertainty and facilitate the trading of any transmission 
capacity in a secondary market. Such trading can be an important tool 
in price discovery and risk management.
11. Service Modifications
    Customers with a capacity reservation would be allowed to modify 
their capacity reservations at no additional charge if the modification 
can be accommodated without infringing upon any other firm capacity 
reservations. Modifications should not result in the customer's 
capacity reservation being exceeded. Modifications could include 
reallocation among the customer's already specified receipt and 
delivery points or reallocation from existing to new receipt and 
delivery points.
12. Scheduling Flexibility
    Customers with capacity reservations would be given the option of 
scheduling (using) less than their full capacity reservation at each 
POR or POD. In addition, the transmission provider also could offer an 
``obligation'' type of capacity reservation under which the customer 
would be required to use all of the capacity it has reserved.
13. Reassigning Reservations
    Customers would be allowed to reassign their reservations to other 
entities eligible to take service under the CRT at no additional cost, 
subject to certain limitations, such as those in the Open Access Final 
Rule point-to-point tariff provisions.
14. Opportunity Cost Pricing
    Opportunity cost pricing would still be an option under a capacity 
reservation service. Under a CRT, a holder of a capacity reservation 
would not pay opportunity costs for use of its own capacity when the 
utility encounters a transmission constraint; instead, it would be 
eligible to receive opportunity cost payments if it did not use its 
full capacity reservation across the constrained interface. In 
contrast, a customer seeking a capacity reservation or using non-firm 
service might have to pay opportunity costs.
15. Planning Obligation
    Each market participant would be responsible for planning its own 
transmission needs. The transmission provider would not be responsible 
under Federal rules for planning the CRT nominations of others, even 
relatively small customers. Transmission providers, of course, would be 
free to enter voluntary arrangements to perform this task, or they may 
be required to do so under state laws. The Commission would consider 
approving negotiated rates and conditions between a small customer and 
a transmission utility that reflect different risks accepted by each 
party when one plans for the other.

VI. Questions

    In addition to the questions discussed above, the Commission also 
seeks comments on the following questions:
    1. What are the advantages and disadvantages of having two services 
in one tariff?
    2. What are the advantages and disadvantages of having all 
transmission users on a load-based network service tariff? Are there 
ways of overcoming the disadvantages without moving away from network 
service?
    3. Does network service provide any transmission use that could not 
be provided under a CRT?
    4. Is the CRT or a network approach better suited to encouraging 
efficiency-enhancing transactions and encouraging wholesale power 
markets in which the greatest number of sellers have a chance to 
compete? Are they equally-suited to achieving these goals?
    5. The proposed rule would require that all transmission uses, 
including bundled retail service, be reserved. Is this appropriate? The 
Commission intends that bundled wholesale and retail load would have 
reservation priority and seeks comments on how best to achieve this. Is 
it appropriate or necessary to have federal rules regarding such 
matters as physical scheduling and reservation priority for bundled 
retail load as well as for other transmission customers? How can 
transmission service for bundled retail load be separated from 
transmission service for others and how would such a separation be 
implemented?
    6. Would a CRT requirement by the Commission facilitate or hinder 
any of the industry's current restructuring efforts?
    7. Would a CRT facilitate or hinder any of the innovative 
transmission pricing approaches now being considered by the industry? 
Specifically, would it accommodate flow-based pricing that does not 
depend on a contract path?
    8. Should nominations for longer-term capacity reservation receive 
priority over those for shorter terms? Are there other ways to allocate 
capacity nominations? Would an initial open season, with bundled 
wholesale and retail load priority, be appropriate?
    9. How should points of receipt and points of delivery be defined? 
Is the distinction between transmission and distribution relevant in 
determining eligible points?

VII. Regulatory Flexibility Act Certification

    The Regulatory Flexibility Act (RFA) \6\ requires rulemakings to 
contain either a description and analysis of the effect that the 
proposed rule will have on small entities or a certification that the 
rule will not have a significant economic impact on a substantial 
number of small entities. We note, if this proposed rule is adopted, 
only public utilities that are subject to the Open Access Final Rule 
will have to file CRTs. In other words, the proposed rule would be 
applicable to public utilities that own, control or operate interstate 
transmission facilities, not to electric utilities per se. Almost all 
public utilities that own, control or operate interstate transmission 
facilities do not fall within the RFA definition of small entities.
---------------------------------------------------------------------------

    \6\ 5 U.S.C. Secs. 601-612.

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[[Page 21853]]

    In Mid-Tex Electric Coop., Inc. v. FERC,<SUP>7 the court accepted 
with the Commission's conclusion that, since virtually all of the 
public utilities that it regulates do not fall within the meaning of 
the term ``small entities'' as defined in the RFA,<SUP>8 the Commission 
did not need to prepare a regulatory flexibility analysis in connection 
with its proposed rule governing the allocation of costs for 
construction work in progress (CWIP).<SUP>9 The CWIP rules applied to 
all public utilities. The proposed rule in contrast would apply to only 
those public utilities that own, control or operate interstate 
transmission facilities. These entities are a subset of the group of 
public utilities found not to require preparation of a regulatory 
flexibility analysis for the CWIP rule. Further, the Commission expects 
that public utilities for good cause shown could seek waivers of the 
proposed rule's requirement, just as they are able to seek waiver of 
the Open Access Final Rule.
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    \7\ 773 F.2d 327, 340-343 (D.C. Cir. 1985) (Mid-Tex).
    \8\ The RFA defines a ``small entity'' as ``one which is 
independently owned and operated and which is not dominant in its 
field of operation.'' See 5 U.S.C. 601(3) and 601(6) and 15 U.S.C. 
632(a)(1) (definition of ``small business concern'').
    \9\ Mid-Tex, 773 F.2d at 340-43.
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    Because: (a) Virtually all of the utilities that would be subject 
to the proposed rule are not ``small entities'' as defined in the RFA; 
and (b) the proposed rule will make adequate provision, through 
allowances for waivers, for mitigation of the effects of the rule, the 
Commission certifies that this proposed rule will not have a 
significant economic impact on a substantial number of small entities.

VIII. Environmental Statement

    The Commission concludes that promulgating the proposed rule would 
not represent a major federal action having a significant adverse 
impact on the human environment under the Commission's regulations 
implementing the National Environmental Policy Act.<SUP>10
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    \10\ See 18 CFR 380.4(a)(15) (categorically excluding electric 
tariff filings under sections 205 and 206 of the FPA from the 
obligation to prepare an environmental assessment or an 
environmental impact statement).
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IX. Information Collection Statement

    The Office of Management and Budget's (OMB) regulations <SUP>11 
require that OMB approve certain information and recordkeeping 
requirements imposed by an agency.
---------------------------------------------------------------------------

    \11\ 5 CFR 1320.12.
---------------------------------------------------------------------------

    The information collection requirements in the proposed rule are 
contained in FERC-516 ``Electric Rate Filings.'' The Commission uses 
the data collected in this information collection requirement to carry 
out its regulatory responsibilities under Part II of the Federal Power 
Act. The Commission's Office of Electric Power Regulation uses the data 
to review electric rate filings.
    The Commission is submitting notification of this proposed rule to 
OMB. Interested persons may obtain information on the reporting 
requirements by contacting the Federal Energy Regulatory Commission, 
888 First Street NE., Washington, DC 20426 (Attention: Michael Miller, 
Information Policy and Standards Branch, (202) 208-1415). Comments on 
the requirements of this proposed rule can also be sent to the Office 
of Information and Regulatory Affairs of OMB (Attention: Desk Officer 
for Federal Energy Regulatory Commission).

X. Public Comment Procedures

    The Commission invites comments on the proposed rule from 
interested persons. An original and 14 copies of written comments on 
the proposed rule must be filed with the Commission no later than 
August 1, 1996.
    In addition, commenters are requested to submit a copy of their 
comments on a 3\1/2\ inch diskette formatted for MS-DOS based 
computers. In light of our ability to translate MS-DOS based materials, 
the text need be submitted only in the format and version in which it 
was generated (i.e., MS Word, WordPerfect, ASCII, etc.). It is not 
necessary to reformat word processor text to ASCII. For Macintosh and 
Macintosh-based users, it would be helpful to save the documents in 
Macintosh word processor format and then to write them to files on a 
diskette formatted for MS-DOS machines. All comments should be 
submitted to the Office of the Secretary, Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426, and should 
refer to Docket No. RM96-11-000.
    All written comments will be placed in the Commission's public 
files and will be available for public inspection in the Commission's 
public reference room at 888 First Street, N.E., Washington, DC 20426, 
during regular business hours.

XI. Technical Conference

    The Commission intends to convene a technical conference for two 
days in September 1996 at the Commission's office, 888 First Street 
NE., Washington, DC 20426, at a date and time to be announced. The 
first day of the technical conference will address the issue of whether 
the Commission should require CRTs. The second day will address the 
issue of how to implement any such requirement.

List of Subjects in 18 CFR Part 35

    Electric power rates, Electric utilities, Reporting and 
recordkeeping requirements

    By direction of the Commission.
Lois D. Cashell,
Secretary.

    In consideration of the foregoing, the Commission proposes to amend 
part 35, chapter I, title 18, Code of Federal Regulations, as set forth 
below.

PART 35--FILING OF RATE SCHEDULES

    1. The authority citation for part 35 continues to read as follows:

    Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42 
U.S.C. 7101-7352.

    2. Section 35.28 is revised to read as follows:


Sec. 35.28  Non-discriminatory open access transmission tariffs.

    (a) Every public utility that owns, controls or operates facilities 
used for the transmission of electric energy in interstate commerce 
must have on file with the Commission a capacity reservation tariff of 
general applicability for transmission services, including ancillary 
services, over these facilities consistent with the requirements of 
Order No. ____, (Final Rule on Open Access Capacity Reservation 
Tariffs). Subject to the exception in paragraph (b) of this section, 
such tariff must be filed no later than the date on which the 
Commission accepts for filing any agreement under which such public 
utility would engage in a sale of electric energy at wholesale in 
interstate commerce, or any agreement under which such public utility 
would engage in the transmission of electric energy in interstate 
commerce.
    (b) If a public utility owns, controls or operates facilities used 
for the transmission of electric energy in interstate commerce as of 
July 9, 1996. it must file a capacity reservation tariff of general 
applicability for transmission services, including ancillary services, 
over these facilities consistent with the requirements of Order No. -- 
(Final Rule on Open Access Capacity Reservation Tariffs) no later than 
December 31, 1997.
    (c) Any public utility that owns, controls or operates facilities 
used for the transmission of electric energy in interstate commerce, 
and that uses those facilities to engage in wholesale sales and/or 
purchases of electric energy, or

[[Page 21854]]

unbundled retail sales of electric energy, must take transmission 
service for such sales and/or purchases under the tariff filed pursuant 
to this section.

[FR Doc. 96-10692 Filed 5-09-96; 8:45 am]
BILLING CODE 6717-01-P