Federal Register / Vol. 61, No. 92 / Friday, May 10, 1996 / Proposed Rules 21847

1Promoting Wholesale Competition Through

Open Access Non-discriminatory Transmission

Services by Public Utilities, Docket No. RM95–8–

000, Order No. 888, FERC Stats. & Regs. ¶ 31,036

(1996). The Open Access Final Rule is being

published concurrently in the Federal Register.

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.

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 Nondiscriminatory Transmission Services

by Public Utilities; Recovery of

Stranded Costs by Public Utilities and

Transmitting Utilities, Order No. 888,

FERC Stats. & Regs. ¶ 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) 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.

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
21848 Federal Register / Vol. 61, No. 92 / Friday, May 10, 1996 / Proposed Rules

2Open 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. ¶ 31,037 (1996)

(OASIS Final Rule). This rule also is being

published concurrently in the Federal Register.

3A ‘‘nomination’’ is a request; a ‘‘reservation’’ is

a confirmed nomination that can be held or traded.

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 nondiscriminatory 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,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 nondiscriminatory manner.

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 pointto-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.3

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
Federal Register / Vol. 61, No. 92 / Friday, May 10, 1996 / Proposed Rules 21849

4This 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.

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 pointto-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 4 while the

network customer pays only 40 percent.

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, megawattmile 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
21850 Federal Register / Vol. 61, No. 92 / Friday, May 10, 1996 / Proposed Rules

5As discussed below, this is not the same as

requiring bundled retail customers to take service

under the CRT.

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 flowbased 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 twoservice 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.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.

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-topoint 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-topoint 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.
Federal Register / Vol. 61, No. 92 / Friday, May 10, 1996 / Proposed Rules 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 underrecovery 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 nondiscriminatory. 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 nonfirm 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.
21852 Federal Register / Vol. 61, No. 92 / Friday, May 10, 1996 / Proposed Rules

6 5 U.S.C. §§ 601–612.

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 efficiencyenhancing 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.
Federal Register / Vol. 61, No. 92 / Friday, May 10, 1996 / Proposed Rules 21853

7 773 F.2d 327, 340–343 (D.C. Cir. 1985) (MidTex).

8The 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.

10See 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).

11 5 CFR 1320.12.

In Mid-Tex Electric Coop., Inc. v.

FERC,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,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).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.

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.10

IX. Information Collection Statement

The Office of Management and

Budget’s (OMB) regulations 11 require

that OMB approve certain information

and recordkeeping requirements

imposed by an agency.

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 31⁄2 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:

§ 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. ll, (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
21854 Federal Register / Vol. 61, No. 92 / Friday, May 10, 1996 / Proposed Rules

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