The US Federal Energy Regulatory Commission (FERC) has issued a Notice of Proposed Rulemaking in which it has proposed waiving the Open Access Transmission Tariff (OATT) and associated requirements for public utilities that own, operate or control Interconnection Customer’s Interconnection Facilities (ICIF), or the tie-lines that connect electric generating units to the transmission grid.

In its Notice (RM14-11-0000), issued on May 15, 2014, FERC seeks comment on whether it should scale back the obligations of owners and operators of generator tie lines to provide open access transmission services on their tie lines. This proposed rulemaking has the potential to provide greater certainty to developers of generator plants and to substantially reduce up-front development expenses. It is a welcome change to FERC’s regulatory framework for open access transmission service.

Under current rules (18 C.F.R. § 35.28), a public utility that owns or operates such lines must either stand ready to provide open access transmission service on its lines to any third parties that request it, or must seek a waiver of this requirement from FERC. To obtain such a waiver, the public utility must demonstrate that its lines are limited and discrete and that there is no outstanding third-party access request or, if there is such a request outstanding, that it has specific, preexisting generator expansion plans with milestones for construction, and that it has made material progress toward meeting those milestones. In either case, FERC may grant the utility priority rights on its lines for future generation projects.

At present, FERC considers such waivers of the OATT requirements on a case-by-case basis only. As a result, utilities frequently file waiver requests preemptively in order to preserve capacity on their own lines for future projects and obligations. However, even with a waiver in place, if a utility receives a third-party request for access, the utility still must file an OATT within 60 days of the request and begin interconnection studies. A third party may file a request with minimal effort, including where it does not seriously intend to make use of the indicated capacity. Developers then have the burden of demonstrating that any uncontracted capacity can be reserved for their projects under development, a process that has led to FERC drawing sometimes controversial distinctions. This lopsided and inefficient process has imposed significant burdens on ICIF owners and created considerable uncertainty during the development phase of generator projects.

The Notice proposes to correct this situation by granting eligible existing and future ICIF owners blanket waivers of all OATT and associated requirements without the need to make a filing with FERC to obtain such waivers. To be eligible for a waiver, a utility must own a generating facility and sell electric energy, and must own, control or operate an ICIF, in whole or in part, used for transmission for the sale of electric energy at wholesale. Going forward, FERC would address all third-party requests to use ICIF on a case-by-case basis. If a third-party requests transmission service, the blanket waiver could be revoked by order if FERC determines that it is in the public interest to do so.  

In addition, the Notice proposes to define a “safe harbor” period for a project’s first five years of development, during which there would be a rebuttable presumption that the ICIF owner intends to use its capacity and should not be required to expand its facilities. Although a requesting third party could seek transmission service during this period, such party would bear the burden of showing that the developer does not have definitive plans to use its capacity.

The proposed blanket waiver would supersede any preexisting waivers on file. Moreover, although the proposed rule would not immediately affect arrangements under existing OATTs, the Notice indicates FERC’s willingness to consider individual requests to withdraw OATTs on file if no third party is taking service under them.

FERC has requested comments on a number of aspects of the proposed rule, including eligibility for the blanket waiver, the scope and duration of the safe harbor period and whether the proposed rule could incentivize vertically integrated utilities to structure their developments in a way that inappropriately excludes third parties from access to transmission lines. In particular, FERC has expressed interest in whether affiliates of public utility transmission providers should be eligible for blanket waivers within or adjacent to their affiliated utility’s footprint and, if not, what would be the appropriate mechanism for providing third-party access.

Comments are due 60 days after the Notice is published in the Federal Register.

For more information about the topics raised in this Legal Update, contact David Bloom, at +1 202 263 3204, J. Paul Forrester, at +1 312 701 7366 or Brantley Webb, at +1 202 263 3188.