service customers when obtaining ATC, since network customers pay no
additional cost for transmission they cannot use.
    785. Southern suggests that the Commission allow transmission
providers working through NAESB sufficient time to develop procedures
for processing competing pre-confirmed requests, including how a
request whose evaluation is in progress should or should not be
impacted by a new pre-confirmed request received prior to such
evaluation being completed.
Commission Determination
    786. The Commission affirms the decision in Order No. 890 to give
priority based on pre-confirmed status only to short-term firm and
long-term non-firm requests for service. As the Commission explained in
Order No. 890, the Commission was mindful that the pre-confirmation
process could disrupt the transmission study process, undermine longer-
term uses of the transmission system, or disadvantage transmission
customers that are not in a position to pre-confirm their requests.
Restricting the scope of transmission service requests receiving
priority for pre-confirmation status to short-term firm and long-term
non-firm service requests is necessary in order to minimize disruptions
with existing study procedures and power procurement practices in place
for long-term firm service requests. We believe this appropriately
balances the need to promote long-term transmission rights against the
need for increased certainty for customers seeking shorter-term firm
and non-firm service.\299\ Similarly, we decline to alter the
Commission's long-standing policy of giving longer duration requests
for service priority over shorter duration requests. To do so would
undermine the Commission's goal of encouraging longer term uses of the
transmission system.
---------------------------------------------------------------------------

    \299\ As we explain in section III.D.2.c, a customer exercising
a rollover right is only required to match a bona fide competing
commitment to take service, evidenced for example by a pre-confirmed
transmission request or the execution of a contingent service
contract.
---------------------------------------------------------------------------

    787. We clarify in response to E.ON U.S. that, in the event an
offer for service on a pre-confirmed request can only be accommodated
by additions to the transmission provider's transmission system, the
transmission customer may: (1) Take a shorter term of service, if
available; (2) agree to undertake any upgrades that may be necessary to
accommodated the transmission requests; or (3) decline service. The
Commission rejects Tenaska's proposal to adopt a deadline prior to
which a transmission customer may withdraw a pre-confirmed transmission
service request. Providing an opportunity to pre-confirm applications
is intended to reduce overloading of transmission study queues and
minimize the amount of transmission requests later withdrawn from the
study queue, increasing the efficiency of processing transmission
service requests. Allowing transmission customers to withdraw pre-
confirmed transmission service requests without reason or penalty as
suggested by Tenaska would undermine the very reason pre-confirmation
status has been given a priority.
    788. We decline Southern's request to extend the effectiveness of
the reforms regarding pre-confirmation priority pending development of
related business practices by NAESB. We believe that Order No. 890
provides sufficient guidance for transmission providers to implement
this priority in advance of any standardization efforts that may be
undertaken through the NAESB process.
    789. With respect to TranServ's question regarding application of
the right of first refusal for eligible customers with requests for
service over multiple days, the Commission clarifies that a competing
request must exceed the total term of service in order to trigger the
right of first refusal. Thus, in order for a competing request of equal
price to preempt a reservation for three conservative days of daily
service, that request must be for four consecutive days or longer and
must be received at least one day before the first day of the original
customer's three-day term of service.
    790. Upon review of tariff provisions governing pre-confirmation of
transmission service requests, the Commission has determined that the
language adopted in Order No. 890 did

not fully capture the Commission's intent of allowing all eligible
customers the opportunity to pre-confirm short-term firm and non-firm
reservations. As currently written, the language of sections 1.39, 17.2
and 18.2 of the pro forma OATT make pre-confirmation available only to
those that are already transmission customers, rather than all eligible
customers. The Commission has revised those sections of the pro forma
OATT to more accurately reflect our intent that pre-confirmation
service should be available to all eligible customers seeking short-
term firm and non-firm transmission services.
(2) Price as a Tie-Breaker
    791. In Order No. 890, the Commission added price as a tie-breaker
in determining reservation queue priority when the transmission
provider is willing to discount transmission service, so that price
will serve as a tie breaker after pre-confirmation status. The
Commission clarified that, in the event a later queued short-term
request for transmission service preempts a conditionally confirmed
short-term request for transmission service based on price, the
conditionally confirmed request has a right to match the price offer of
the later queued request.
Requests for Rehearing and Clarification
    792. E.ON U.S. requests clarification that the use of price as a
tie-breaker means that a customer that is receiving service and that is
not otherwise subject to a discount will receive a reservation priority
over one who receives a discount. E.ON U.S. states that transmission
service is not provided at market-based rates and, thus, using price as
a tie-breaker cannot mean that a customer offering a market-based price
is to be rewarded with reservation priority.
Commission Determination
    793. We agree with E.ON U.S. that use of price as a tie-breaker
does not mean that a customer is offering to be charged a market-based
rate by the transmission provider. Under section 13.2 of the pro forma
OATT, price serves as a tie-breaker among competing service requests of
equal duration only when the transmission provider has offered a
discount or a ``below ceiling rate'' on transmission service.
Transmission providers may not charge rates above those stated in their
OATT for primary transmission capacity.\300\
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    \300\ The Commission addresses the reassignment of transmission
service in the secondary market in section III.C.3.
---------------------------------------------------------------------------

(3) Five-Minute Window for Requests
    794. The Commission determined in Order No. 890 that the first-
come, first-served policy for transmission service under the pro forma
OATT should remain largely intact. The Commission allowed, but did not
generally require, transmission providers to propose a window within
which all transmission service requests the transmission provider
receives will be deemed to have been submitted simultaneously. Only
transmission providers that have adopted a ``no earlier than'' time for
submitting transmission service requests were required to treat
transmission service requests received within a specified period of
time as having been received simultaneously. The Commission stated that
the submittal window for these transmission providers must be open for
at least five minutes unless the transmission provider can present a
compelling rationale to justify a shorter submittal window. The
Commission required these and any other transmission providers deeming
requests submitted within a specified period as having been submitted
simultaneously to propose a method for allocating transmission capacity
if requests submitted within the same time period exceed available
capacity.
Requests for Rehearing and Clarification
    795. Powerex and Southern protest the Commission's departure from
the long-standing first-come, first-served priority scheme. Powerex
contends that, of the commenters supporting a simultaneous-priority
window, none presented evidence that they were less sophisticated, had
fewer financial resources, or had encountered prohibitively high
software and other costs associated with operating an efficient
transmission reservation desk. Powerex argues that the Commission
mischaracterized support for the window proposal, stating that half of
the critics of the proposed window provide and/or use transmission
predominantly within the Western Interconnection.
    796. Powerex, Southern, and Tenaska suggest that use of a
simultaneous priority window will lead to implementation and
operational problems, requiring transmission providers to allocate
transmission capacity among multiple requesting customers, resulting in
customers potentially receiving unusable blocks of capacity. Powerex
contends that the Commission has relied on first-come, first-served
priority in other contexts based on a similar concern that pro rata
allocation of scarce capacity may result in blocks too small for the
customer to use.\301\ If the Commission does not grant rehearing on
this issue, Southern asks the Commission, at a minimum, to clarify that
NAESB will be permitted to address and resolve in a uniform fashion the
numerous operational issues associated with treating all requests
received within a certain timeframe as having been received
simultaneously.
---------------------------------------------------------------------------

    \301\ Citing Trailblazer Pipeline Co., 108 FERC ] 61,049 (2004).
---------------------------------------------------------------------------

    797. Powerex further argues that, with a pro rata window approach,
transmission customers with multiple affiliates will be able to secure
more usable blocks of capacity by pooling their requests through
reassignment, while single-entity customers will confront numerous
transaction obstacles to obtain a similar result. Powerex again points
to precedent in the gas context, arguing that the Commission recognized
similar concerns to support a first-come, first-served approach for
reserving pipeline capacity.\302\ Powerex argues that the Commission
failed to address these concerns. Finally, Powerex objects to the
Commission's characterization of the first-come, first-served priority
structure as arbitrary, arguing that a specified window is equally
arbitrary since it separates by a millisecond those that fall within
the simultaneous window and those that fall outside.
---------------------------------------------------------------------------

    \302\ Citing id.
---------------------------------------------------------------------------

    798. If the Commission declines to grant rehearing of the use of a
simultaneous priority window, Powerex requests clarification regarding
its implementation. First, Powerex contends that a simultaneous window
must commence at the start of the ``no later than'' hour and conclude
five minutes later, and not be a ``rolling window'' that groups
together service requests submitted within five minutes of each other.
Second, Powerex requests clarification that the simultaneous priority
window would not apply to hourly transmission service, to the extent it
is offered by the transmission provider, arguing that there is
insufficient time for customers to monitor the multitude of various
transmission providers' windows for hourly requests and that potential
pro rata allocations of hourly service would have little value to
customers.
    799. Tenaska similarly argues that the Commission must provide
clear, uniform guidance as to what methods will, and will not, be
acceptable for allocating transmission capacity when there is
insufficient capacity to satisfy requests deemed to have been submitted
simultaneously, as well as further guidance regarding the window period

that a transmission provider may designate. Tenaska contends that the
Commission has given transmission providers too much discretion by
allowing them to propose a method for allocating transmission capacity
if sufficient capacity is not available to meet all requests submitted
within the specified time period. Tenaska argues that such discretion
is a potential breeding ground for undue discrimination and, therefore,
that the Commission should provide additional guidance to ensure that
the methods for allocating transmission capacity minimize the
opportunity for gaming.
    800. Ameren asks the Commission to clarify that any proposal to
voluntarily adopt an equivalent priority standard must be clearly
defined and supported. Ameren suggests that an applicant submitting a
proposal for a five-minute equivalent priority standard must make clear
whether it is proposing to use a rolling five-minute window or whether
it will use a series of discrete five-minute windows. Ameren contends
the applicant also should be required to clearly explain what sort of
tie-breaking mechanisms it will use.
    801. EEI asks the Commission to clarify the requirement to adopt a
submittal window is not triggered by a ``no earlier than'' time for
requests for non-firm service. EEI notes that section 18.3 of the pro
forma OATT requires all transmission providers to impose limits on how
early a request for non-firm service may be submitted. EEI therefore
argues that the requirement to adopt a submittal window should apply
only to transmission providers that have established a ``no earlier
than'' time for requests for firm point-to-point or network service.
Commission Determination
    802. The Commission denies rehearing of the Commission's decision
in Order No. 890 to require transmission providers that have adopted a
``no earlier than'' time for submitting requests for firm transmission
service to treat all requests received within a specified period of
time as having been received simultaneously.\303\ We agree with
petitioners that the Commission's long-standing first-come, first-
served policy is a simple and efficient way for transmission providers
to allocate firm transmission capacity among competing service
requests. For this reason, Order No. 890 generally grants transmission
providers the discretion to determine which transmission services, if
any, will be subject to a submittal window. The Commission recognized
only one exception to this rule: when the transmission provider has
established dates before which requests for firm transmission service
will not be accepted.
---------------------------------------------------------------------------

    \303\ We agree with EEI that the requirement to establish a
submittal window applies to those transmission providers that have
adopted a ``no earlier than'' time for the submission of firm point-
to-point or network service. The pro forma OATT contains a ``no
earlier than'' time that applies to requests for non-firm point-to-
point service, which we do not intend to trigger the requirement to
establish a submittal window.
---------------------------------------------------------------------------

    803. As the Commission explained in Order No. 890, the first-come,
first-served policy can disadvantage certain transmission customers
when a ``no earlier than'' restriction is in place.\304\ Such a
restriction forces transmission customers competing for transmission
capacity to precisely time their requests for service such that they
are received after the ``no earlier than'' time, yet before other
customers. This has the potential of disadvantaging transmission
customers that are less sophisticated and have fewer financial
resources. The Commission stated in Order No. 890 that, when
considering requests for firm transmission service received after the
``no earlier than'' time has expired, there is no meaningful difference
between those received seconds ahead of another because one customer's
computer is slower than another and no petitioner argues otherwise on
rehearing.\305\
---------------------------------------------------------------------------

    \304\ See Order No. 890 at P 1419.
    \305\ Id.
---------------------------------------------------------------------------

    804. We clarify in response to Ameren and Powerex that each
transmission provider has discretion to determine how its submittal
window will be implemented, including the point at which the window
goes into effect. Although the Commission agrees with Powerex, in
principle, that it would be logical for submittal windows to begin on
the first minute of the ``no earlier than'' time, we will not
categorically dismiss alternatives to this arrangement since these
procedures are best reviewed on a case-by-case basis. Similarly, any
transmission provider that has implemented hourly firm point-to-point
service should address how the submittal window would be implemented
for that service, including any limitations on the use of a submittal
window for that product. It is more appropriate for the Commission to
consider customer concerns regarding use of a submittal window for
hourly firm transmission service in the context of the transmission
provider's particular proposal.
    805. The Commission recognizes that developing methods to allocate
capacity among requests received during a submittal window may require
detailed procedures, particularly when transmission requests received
simultaneously exceed available capacity. As the Commission explained
in Order No. 890, however, we believe that each transmission provider
is in the best position to develop allocation procedures that are
suitable for its system. This does not preclude transmission providers
from working through NAESB to develop standardized practices, as
suggested by Southern. For example, as we pointed out in Order No. 890,
allocation methods such as that used by PJM to allocate monthly firm
point-to-point transmission service could provide useful guidance in
developing general allocation procedures.\306\
---------------------------------------------------------------------------

    \306\ See id. at P 1422.
---------------------------------------------------------------------------

    806. The Commission disagrees with Tenaska that allowing
transmission providers to develop a methodology to allocate
insufficient capacity will lead to undue discrimination. As Ameren
suggests, each transmission provider must clearly define and support
its allocation methodology in its tariff and, thus, customers can raise
any concerns regarding the potential for discrimination during the
Commission's review of the relevant tariff language. Once the tariff
language is in place, transmission customers can, and should, bring to
the Commission's attention any failure by the transmission provider to
follow its tariff. While the Commission could remove transmission
provider discretion in this area by adopting a single, one-size-fits-
all approach, such as a mandatory pro rata distribution methodology,
this approach may not produce the best result in all cases. As the very
precedent cited by petitioners acknowledges, every allocation
methodology has advantages and disadvantages.\307\ We reiterate our
belief that transmission providers are in the best position to
determine which allocation mechanism works best for their systems.
---------------------------------------------------------------------------

    \307\ See Trailblazer Pipeline Co., 108 FERC ] 61,049 at P 41.
The Commission in that case accepted a pipeline's proposal not to
use pro rata allocations in the event tie breaking was necessary out
of a concern that resulting amounts of capacity would be too small
to be of real use to a shipper. Shippers, however, had argued for
use of pro rata allocations to increase the number of parties that
could serve a market. Based on the circumstances of that case, the
Commission accepted the proposal to use a first-in-time tiebreaking
methodology. It does not follow, however, that use of a pro rata
allocation would be inappropriate in all circumstances.
---------------------------------------------------------------------------

(4) Right of First Refusal and Preemption
    807. The Commission declined in Order No. 890 to otherwise change
the ``first come, first served'' nature of the

[[Continued on page 3083]]

]

[[pp. 3083-3132]] Preventing Undue Discrimination and Preference in Transmission
Service

[[Continued from page 3082]]

reservation process or right of first refusal process. The Commission
explained that, when a longer-term request seeks capacity allocated to
multiple shorter-term requests, the shorter-term customers should have
simultaneous opportunities to exercise the right of first refusal. The
Commission also stated that, to minimize the potential for gaming, a
preempting longer request must be for a fixed capacity over the term of
the request. The Commission also revised section 13.2(iii) of the pro
forma OATT to more clearly distinguish between the use of the terms
``request'' and ``reservation'' for purposes of administering the right
of first refusal.
Requests for Rehearing and Clarification
    808. TranServ contends that the Commission did not fully address in
Order No. 890 the procedures governing the right of first refusal
competition and its potential for gaming. If a longer-term request
initiates a right of first refusal competition among multiple shorter-
term customers, TranServ requests clarification of whether there should
be rounds of bidding and, if so, what the timing of that process should
be. TranServ also asks what should happen in the event that a longer
duration (not pre-confirmed) request is withdrawn in the middle of a
competition, i.e., whether those customers that opted to match are
allowed out of their longer duration reservations and whether those
that opted not to match are re-instated to their original capacity.
TranServ suggests that, before any preemptions are initiated, the
longer duration, higher priority request must be confirmed and locked
in with the competing customer before turning to the right of first
refusal rights holders and seeking their intent to match to preserve
their service priority. In addition to locking in the longer duration
customer prior to initiating preemption and right of first refusal,
TranServ argues that the transmission provider should be required to
provide a ``counter-offer'' matching request to the customer being
preempted that they may then elect to ignore or withdraw, or confirm to
retain their service priority. TranServ further questions what the
transmission provider's obligation is if the customer being preempted
exercises its right of first refusal by submitting a longer duration
request which cannot be granted without preemption of yet another
request.
    809. TranServ also questions implementation of the right of first
refusal in the event transmission capacity is reassigned. Assuming that
a customer with a confirmed reservation for one week resells capacity
for one day, TranServ asks whether the reseller, the assignee, or both
have responsibility to match a competing longer-term request received
by the transmission provider. TranServ states that this issue was
considered by NAESB during WEQ discussions and that, during those
discussions, there was serious consideration given to not allowing the
resale of short-term firm prior to its unconditional deadline.
    810. TranServ further questions what a shorter-term transmission
customer's obligation is if the longer-term service request only
preempts a portion of the short-term customer's service. TranServ
suggests that the term ``match'' in such instances be limited to an
exact match of duration with no option for the preempted customer to go
beyond those bounds and that the capacity of the match should be in the
amount that would need to be recalled from the preempted customer to
satisfy the longer duration request.
    811. Duke argues that the right of first refusal regime for
transactions as short as one day for firm and one hour for non-firm is
overly complicated and will leave customers confused and unsatisfied as
to whether and when they can be assured that they have secured
transmission capacity. Duke provides detailed hypotheticals of the
right of first refusal competition process, arguing that the process is
cumbersome and could lead to anomalous and unwarranted outcomes. Duke
urges that the Commission place the following limits on the right of
first refusal: Require that matching requests be pre-confirmed and at
full tariff price, and that they be for the same amount (MW) and
duration as the competing requests; and, provide that rights of first
refusal are only offered when there is no impact on reservations that
are not on constrained interfaces. With these limitations in place,
Duke contends that the transmission provider will not have had to
entertain multiple right of first refusal rounds that in some instances
may leave capacity on the table and force customers to buy more service
than they may have required.
    812. Bonneville seeks clarification as to how duration, pre-
confirmation status, price and time of response should be used to
determine the order in which the multiple, preempted shorter-term
requests may exercise the right of first refusal. By providing several
hypotheticals, Bonneville states that it cannot envision a circumstance
in which a right of first refusal is offered to a request when the
transmission provider does not have capacity to satisfy that request.
Bonneville requests that the Commission either delete the two sentences
in section 13.2(iii) of the pro forma OATT concerning this issue or
clarify how the transmission provider is expected to apply them.
    813. Bonneville also requests clarification regarding which
customers have a right of first refusal under section 13.2 of the pro
forma OATT. Although the Commission amended the second sentence in
section 13.2(iii) of the pro forma OATT to grant eligible customers
with a ``reservation'' a right of first refusal to match longer-term
``requests,'' other sentences in that section still refer to preemption
of shorter-term ``requests'' for service instead of ``reservations.''
Bonneville states that this suggests that shorter-term requests
maintain a right of first refusal. Bonneville also contends that the
first sentence of section 13.2(iii), providing that ``requests'' for
longer term service may preempt ``requests for shorter term service''
up to specified deadlines, suggests that a longer duration request
simply preempts a shorter duration request, which is not offered a
right of first refusal. Bonneville argues that this would violate the
first-come, first-served rule, yet if the longer duration request is
offered a right of first refusal, it would contradict the amended
language of section 13.2(iii), under which only longer duration
``reservations'' have a right of first refusal.
Commission Determination
    814. The Commission affirms the decision in Order No. 890 not to
change the ``first-come, first served'' nature of the reservation
process and the right of first refusal. These policies have worked well
in the past and, as we explain in Order No. 890, benefit transmission
providers and customers alike by facilitating the administration of the
reservation process and removing confusion about how to comply.
    815. We disagree with Duke and TranServ that the right of first
refusal policies should be revised based on complex hypotheticals
involving the preemption of multiple short-term reservations. The
complexities pointed to by these commenters do not by themselves
warrant changing the right of first refusal rule. Even though we
recognize the potential for complexities to arise under the right of
first refusal rule, we believe them to be relatively limited. In the
off-chance that multiple eligible customers with short-term
reservations choose to exercise their right of first refusal for the
same capacity simultaneously, the Commission believes that they should
have a right to do so.
    816. We therefore decline to expand upon the language of the pro
forma

OATT to account for every factual scenario that could arise under
sections 13.2 and 14.2 of the pro forma OATT. Sections 13.2 and 14.2 of
the pro forma OATT set forth adequate guidance for transmission
providers to fairly administer competing requests, including the
priorities for determining which reservations or requests trump one
another as well as the timeframes for eligible customers to respond to
competing requests. As noted above, we recognize that certain unique
cases can present difficult allocation issues, but conclude that these
extreme cases arise infrequently in the normal course of business. In
the vast majority of cases, we believe the right of first refusal rules
are efficient and easy to administer without further amending the
governing tariff language, as Bonneville and Southern suggest.
    817. To the extent necessary, the Commission clarifies that a
``competing request'' under sections 13.2 and 14.2 of the pro forma
OATT may include a transmission service request that overlaps with only
part of another existing transmission service reservation since both
requests cannot be granted simultaneously. Accordingly, a ``competing
request'' for purposes of sections 13.2 and 14.2 may also include a
transmission service request for which transmission capacity cannot be
accommodated without preempting one or more existing transmission
reservations of parts thereof.
    818. In response to TranServ and Duke, we clarify that sections
13.2 and 14.2 allow an eligible customer to retain its original
reservation by matching the competing service request's cost or
duration terms exactly or by exceeding one or more of the terms of a
competing transmission service request. Since any ``match'' by an
eligible customer in response to a potentially preempting request, by
definition, either exceeds the costs, duration or both of the eligible
customer's original reservation, we do not believe eligible customers
opting to match a competing request have a strong incentive, if any, to
``match'' a competing request with terms that exceed the competing
request. Nevertheless, we do not see any harm resulting from a match
that exceeds the exact terms of a competing request and therefore
believe it would not be appropriate to preclude the ability of eligible
customers to make such a request.
    819. With regard to reassignments of capacity in the secondary
market, we clarify that the associated right of first refusal under
sections 13.2 and 14.2 of the pro forma OATT to match a competing
transmission service request applies to the primary transmission
service, not the reassignment of scheduling rights. Using TranServ's
example, the reassignment of one day of a customer's weekly service
would not cause the assignor or the assignee to match a competing three
day request for service since the initial one week reservation already
exceeded the competing request. The fact that one day of service has
been reassigned does not alter the assignor's entitlement to use
service for the remaining week reserved.
    820. Finally, we grant rehearing to revise sections 13.2 and 14.2
of the pro forma OATT to clarify, as Bonneville requests, the terms and
obligations of sections 13.2 and 14.2 of the pro forma OATT.
5. Designation of Network Resources
    821. In Order No. 890, the Commission addressed certain issues with
respect to the qualification, documentation and undesignation of
resources by a network customer. A number of petitioners request
rehearing and clarification of the Commission's rulings on these
issues. We address each of these issues in turn.
a. Qualification as a Network Resource
(1) LD Contracts
    822. In Order No. 890, the Commission affirmed its existing policy
that a power purchase agreement may be designated as a network resource
provided it is not interruptible for economic reasons, does not allow
the seller to fail to perform under the contract for economic reasons,
and requires the network customer to pay for the purchase. The
Commission concluded that power purchases with a firm liquidated
damages (LD) provision may be eligible for designation as a network
resource if the contract obligates the supplier, in the case of
interruption for reasons other than force majeure, to make the
aggrieved buyer financially whole by reimbursing them for the
additional costs, if any, of replacement power. The Commission found
that the ``make whole'' LD provisions in the EEI firm LD product and
the WSPP Schedule C agreement satisfy this requirement.\308\
---------------------------------------------------------------------------

    \308\ The Commission further concluded that the WSPP Schedule C
agreement appeared to allow interruptions for reasons other than
reliability and, as a result, was ineligible for designation as a
network resource. The Commission exercised its discretion not to
invalidate existing designations of the WSPP Schedule C agreement
except under certain conditions. WSPP subsequently amended the
Schedule C agreement to expressly prohibit interruptions for reasons
other than reliability. See Western Systems Power Pool, 119 FERC ]
61,123 (2007).
---------------------------------------------------------------------------

Requests for Rehearing and Clarification
    823. NCPA contends that the EEI Firm LD Product does not provide
recovery for certain types of penalties that a buyer may incur as a
result of non-delivery and, therefore, does not make buyers
sufficiently whole to justify designation as a network resource. NCPA
states that Section 1.51 of the EEI Firm LD Product prohibits the
reimbursement price from including ``any penalties, ratcheted demand or
similar charges.'' NCPA states that its contract with the California
ISO provides for significant penalties if NCPA operates outside of its
deviation band, but there is no avenue under the EEI Firm LD Product to
recover those costs if occasioned by a seller's failure to deliver.
    824. NCPA also contends that the WSPP Schedule C contract fails to
explicitly allow buyers to recover their costs if they decide to cover
a non-delivery by running their own more expensive generation. NCPA
states that the issue has been discussed at WSPP meetings, but there
appears to be no clear consensus that sellers are obligated to pay
compensation for internal generation under the current language of the
agreement when it is more expensive than the market cost of power. NCPA
argues that this interpretation could be particularly problematic for
entities such as NCPA, as NCPA may prefer to run even very expensive
generation to avoid penalties imposed by the California ISO.
    825. NCPA argues that the Commission established a clear and
straightforward standard that an LD clause was acceptable if it
required the buyer to be made whole in the event of a failure to
deliver. NCPA argues that the Commission can resolve the factual issues
by directing that these form contracts be amended to require sellers
who elect not to deliver (other than for force majeure) to make the
buyer whole in all respects, including contractual or market penalties
and the costs of the buyer operating its own resources.
    826. Ameren argues that the Commission's decision that purchase
agreements containing make whole LD provisions can qualify as network
resources ignores reliability. Ameren maintains that the key issue is
whether such LD products can function as a resource to provide power,
not whether the power purchaser will be adequately compensated in the
event of a breach. Even with a make whole payment provision in place,
Ameren argues that it may still be in the economic interest of the
seller to interrupt delivery. While the Commission has appropriately

recognized that this self-interest warrants finding that other types of
LD contracts cannot be designated as network resources, Ameren contends
that the Commission fails to explain why it should not apply the same
standard to purchase agreements with make whole LD provisions.
    827. Ameren also expresses concern that purchase agreements with
make whole LD provisions may be double-counted when determining
capacity, resulting in inadequate physical supplies to meet the
simultaneous capacity needs of all purchasers in the event replacement
power is needed. Ameren argues that allowing these types of contracts
to qualify as network resources is inconsistent with the pro forma OATT
because under such contracts there are no specific resources that can
be called on. Ameren questions whether LD products are sufficiently
firm to meet the applicable NERC or regional reliability council
requirements for firm resources or as capacity resources.
    828. PJM raises a similar concern, asking the Commission to confirm
that firm power purchase agreements with make whole LD provisions do
not qualify as capacity resources in the PJM region even if they can be
designated as network resources under the pro forma OATT. PJM argues
that service as a capacity resource in the PJM region raises different
considerations than those addressed in Order No. 890.
    829. Noting that parties often modify form agreements to suit their
particular transactions, Duke requests clarification that a purchase
based on the EEI Master Agreement qualifies as a designated network
resource only to the extent that the network customer has, in fact,
contracted for a firm resource that may be interrupted only for
reliability purposes. Duke also requests clarification that an
agreement that is not modeled after the EEI Master Agreement will
qualify as a designated network resource only if it provides for
delivery of a product similar to the EEI Firm LD Product (i.e., it
cannot be interrupted for economic reasons).
    830. EPSA requests clarification that the Commission's statement in
Order No. 890 that firm LD contracts create for the buyer a contractual
right to generation was not intended to require that a firm LD contract
include a contractual right to the output of a specific generating
facility.
    831. PNM seeks confirmation that a particular long-term power
purchase agreement between itself and Southwestern Public Service
Company (SPS) is eligible for designation as a network resource. While
the terms of this agreement allow for a specified level of curtailment
by SPS each month for any reason, the operating procedures governing
the agreement provide for curtailment and interruption only for system
emergencies. PNM argues that this agreement is therefore sufficiently
firm to be designated as a network resource.\309\
---------------------------------------------------------------------------

    \309\ Citing Consolidated Edison v. Pub. Serv. Elec. & Gas Co.,
101 FERC ] 61,282 (2002).
---------------------------------------------------------------------------

Commission Determination
    832. The Commission affirms the finding in Order No. 890 that the
make whole LD provisions in the EEI firm LD product and the WSPP
Schedule C agreement are sufficiently firm to make those agreements
eligible for designation as a network resource. In Order No. 890, the
Commission distinguished between LD provisions that make the aggrieved
buyer financially whole by reimbursing the additional costs, if any, of
replacement power and LD provisions that establish penalties at a
fixed-dollar amount, cap penalties at some level, or are otherwise not
equivalent to a general make whole provision.\310\ The Commission
explained that, under the latter type of LD provision, the seller need
only compare its savings from interruption with the specified LD
penalty when deciding whether to interrupt. The EEI firm LD product and
the WSPP Schedule C agreement make the buyer adequately whole and,
therefore, appropriately qualify for designation as a network resource.
---------------------------------------------------------------------------

    \310\ See Order No. 890 at P 1453.
---------------------------------------------------------------------------

    833. With respect to the EEI firm LD product, section 1.51 of the
EEI Master Agreement defines the replacement price as either the
prevailing market price or, at the buyer's option, the price at which
the buyer purchases a replacement product plus costs reasonably
incurred in purchasing the substitute product and any reasonably
incurred transmission charges to deliver the product. While the
replacement price does not exclude penalties, ratcheted demand, or
similar charges, as NCPA points out, that does not mean a supplier has
inadequate incentives to deliver under the contract. The aggrieved
buyer is explicitly allowed to cover the costs reasonably incurred to
purchase a substitute product and, therefore, the seller must take into
consideration the buyer's actual cost of replacement power, which is
our principal concern.
    834. With respect to the WSPP Schedule C product, the Commission
did not require that contracts make the buyer more than whole in the
event it chooses not to purchase less expensive energy available in the
market. Again, the Commission is concerned that suppliers providing
resources that have been designated by network customers take into
consideration the cost of replacing that power should the supplier
decide to interrupt. It is therefore adequate for a firm LD contract,
such as the WSPP Schedule C agreement, to provide for recovery of the
market price of replacement power in the event the buyer decides to run
its more expensive generation to cover the interruption.
    835. We disagree with Ameren that allowing power purchase
agreements containing make whole LD provisions to qualify for
designation as network resources will compromise reliability. Firm
energy purchases need not be backed by capacity to qualify as network
resources since they are by definition firm, consistent with the
Commission's finding in Illinois Power.\311\ We appreciate Ameren's
concerns that system reliability be maintained and would not expect
double-counting of supplies to result from our designation rules. The
proper mechanism for addressing system reliability is through the
reliability standards, and not through restrictions on eligibility for
network resource status. The requirements for eligibility for network
resource status are intended to provide the proper incentives to
network customers designating network resources, and not to replace or
replicate reliability requirements.
---------------------------------------------------------------------------

    \311\ Illinois Power Co., 102 FERC ] 61,257 at P 14 (2003),
reh'g denied, 108 FERC ] 61,175 (2004) (Illinois Power).
---------------------------------------------------------------------------

    836. Our decision is not, as Ameren claims, inconsistent with the
structure of the pro forma OATT. As the Commission acknowledged in
Order No. 890, there may be situations in which the supplier of a firm
LD product is presented with a net financial gain and has an incentive
to interrupt, but those incentives are similar to those faced by the
owner of a generating unit that has been designated as a network
resource.\312\ Ameren offers no reasons to require power purchase
agreements not tied to a particular generating unit to be more firm
than those that are in order to serve as a network resource under the
pro forma OATT.
---------------------------------------------------------------------------

    \312\ See Order No. 890 at P 1454.
---------------------------------------------------------------------------

    837. We clarify in response to Duke that we are not concerned with
the particular form used to contract for resources. Each power purchase
agreement designated as a network resource must meet the relevant
requirements. Whether a contract meets

these requirements by being modeled after any specific form contract
has no bearing on whether the contract is eligible for designation as a
network resource. Consistent with Illinois Power, a firm LD contract
need not represent a contractual right to the output of any specific
generating facility. Whether or not such power purchase agreements may
serve as a capacity resource under PJM's Reliability Pricing Model
(RPM) is governed by the relevant RPM rules adopted by PJM, which were
not addressed in Order No. 890.
    838. In response to PNM, we decline here to rule on whether a
particular purchase qualifies as a network resource because the
contract is not before us in this rulemaking. We reiterate, however,
that power purchase agreements that are not interruptible for economic
reasons may qualify for designation as a network resource. If the
binding rules governing a particular agreement allow the seller to
curtail or interrupt service only for system emergencies, then that
agreement would be eligible for designation as a network resource,
provided it complied with the remaining requirements of section 29.2(v)
of the pro forma OATT.
(2) Off-System Resources
    839. In order to ensure that transmission providers have sufficient
information to determine the effect on ATC associated with the
designation of an off-system network resource, the Commission in Order
No. 890 modified section 29.2(v) of the pro forma OATT to specify
exactly what information must be provided to designate an off-system
network resource. As revised by Order No. 890, section 29.2(v) of the
pro forma OATT requires the following information to be provided with
the request and posted on OASIS when designating an off-system
resource: (1) Identification of the resource as an off-system resource;
(2) amount of power to which the customer has rights; (3)
identification of the control area from which the power will originate;
(4) delivery point(s) to the transmission providers' transmission
system; and (5) transmission arrangements on the external transmission
system(s). Additionally, Order No. 890 revised section 29.2(v) of the
pro forma OATT to require that the following information be provided
with off-system designations, but that such information must be masked
on OASIS to prevent the release of commercially sensitive information
including (1) any operating restrictions (periods of restricted
operation, maintenance schedules, minimum loading level of resource,
normal operating level of resource); and (2) approximate variable
generating cost ($/MWH) for redispatch computations.
Requests for Rehearing and Clarification
    840. Duke argues that the Commission's finding that network
customers need only identify the control area from which power will
originate for an off-system resource is inappropriate in an era in
which many control areas encompass the transmission systems of multiple
operating companies. Duke requests rehearing, arguing that the
Commission should require network customers to provide more specific
information for multi-company systems (like Southern) or for ISOs or
RTOs. Duke argues that designations such as ``the Southern system'' or
``the PJM system'' do not provide sufficient granularity to accurately
model a transaction. Duke maintains that a network customer should at
least be required to specify the transmission system (e.g., Georgia
Power Company for Southern, or Dominion Virginia Power Company for PJM)
from which the power will originate.
    841. Duke acknowledges that the Commission stated in Order No. 890
that transmission providers could seek amendments to their OATT via an
FPA section 205 filing if they believe that they face unique
circumstances that require deviations from the pro forma OATT to
require additional granularity in order to allow them to determine the
effects of designating network resources on ATC. Duke argues that this
is an inadequate response to the problem, stating that the standard for
receiving Commission approval of a variation from the pro forma OATT
has proved to be a significant bar. Duke also argues that transmission
providers could undermine consistency by developing different manners
in which to study and analyze such designations. Instead, Duke argues,
this issue ought to be resolved ``up front'' and on a consistent basis,
rather than in subsequent case-by-case skirmishes that may not provide
guidance for future disagreements.
    842. TDU Systems disagree with Duke in their post-technical
conference comments, arguing that the requirement to identify the
control area within which an off-system resource is located provides
the appropriate balance. TDU Systems contend that identification of the
control area allows control area operators to calculate the effects on
ATC of the designation of an off-system resource while protecting
commercially sensitive information about the specific location of a
customer's generation resources. Southern agrees that (at least in the
Eastern Interconnection) requiring the identification of the ``control
area(s)'' gives the transmission provider sufficient information to
reliably plan its system while also providing the market with the
flexibility afforded by such off-system seller's choice contracts.
    843. Several petitioners request clarification that specification
of the control area is not required within purchase agreements for
generators located off-system.\313\ These petitioners argue that only
the actual delivery point for power (which could be a physical
resource, a liquid trading hub, and interface point, or some other
location) is necessary for transmission system modeling purposes.
Information about the originating control area, they contend, is almost
never known with certainty at the time the request for designation as a
network resource is made and, therefore, requiring such specificity
will effectively invalidate such contracts as network resources.
Financial Service Joint Requestors and Idaho Power contend that such a
requirement could have serious adverse effects on liquidity,
competition, and risk management by limiting the ability of marketers
to participate in those markets, restricting resource options for LSEs.
Financial Service Joint Requestors maintain that participation in the
market by companies like its members augments the number of highly
creditworthy counterparties willing and able to supply power over mid-
to-long tenors to LSEs.
---------------------------------------------------------------------------

    \313\ E.g., Financial Service Joint Requestors, Idaho Power,
Washington IOUs, and Morgan Stanley, joined by Barrick Goldstrike
Mines in its post-technical conference comments. Washington IOUs
also argues that the requirement to identify the originating control
area ``constitutes a direct restriction on the ability of a utility
to serve its bundled retail load, and thus violates the limitations
on the Commission's jurisdiction over transmission in bundled retail
transaction, citing Northern States Power Co. v. FERC, 176 F.3d 1090
(8th Cir. 1999) and Order No. 890 at P 92-94.
---------------------------------------------------------------------------

    844. In their post-technical conference comments, Financial Service
Joint Requestors argue that the Final Rule's acceptance of LD contracts
conflicts with the requirement in section 29.2(v) to specify the
control area(s) from which the power is sourced, since an LD contract
may not provide that information. Financial Service Joint Requestors
also argue that Order No. 890 could be interpreted to allow a contract
to qualify as a network resource by identifying multiple control areas
of origin of the resource, although not the resource itself. Financial
Service Joint Requestors state that there is likely to be a wide range
of control areas from which power might ultimately be sourced and
listing each and every possible originating control area (such

as listing all 33 control areas in the Western Interconnection) seems
to be unduly burdensome and cumbersome.
    845. APS and EEI, and Financial Service Joint Requestors, joined by
Southwestern Utilities in their post-technical conference comments,
argue that transmission providers should have discretion to waive the
requirement to provide originating control area information for
proposed network resources when such information is not needed or is
not meaningful for determining impacts on ATC. APS and EEI state that
it uses an approved rated path methodology to determine ATC, under
which the control area of an off-system purchase delivered to one of
its liquid trading hub border interfaces (Palo Verde or Four Corners)
has no effect on ATC calculations. APS and EEI state that this
contrasts with a flow-based ATC methodology, where the specification of
the originating control area can affect the ATC on a transmission
provider's system and, therefore, be necessary to calculate ATC. APS
and EEI argue that requiring the source control area for all purchased
power network resources will significantly reduce the liquidity of
physical power markets at Palo Verde and potentially elsewhere in the
West. APS and EEI argue that concerns about discrimination could be
addressed by directing transmission providers to post a
nondiscriminatory policy on its OASIS or directing NAESB to include
this issue in its business practices.
    846. APS and EEI, and Southwestern Utilities agree, in their post-
technical conference comments, that the Eastern and Western
Interconnections have very different physical configurations, operating
modes and planning modes that have implications for the Commission's
rules for designating off-system network resources. In the Eastern
Interconnect, EEI argues, contract paths have little bearing on how
electrons actually flow, and thus it is critical for transmission
planners to know the location, at least at the control area level, of
the generation when reviewing requests to designate network resources.
In the Western Interconnection, which uses a rated path ATC calculation
methodology, APS and EEI, and Southwestern Utilities argue that
identification of the source generation for an off-system resource is
not important. EEI explains that the physical layout in the West is
more of a hub-and-spoke model where the only information required to
evaluate a request to designate a network resource is the point at
which power is delivered (often a trading hub). For these reasons, EEI
argues, seller's choice contracts are not appropriate for network
resource status in the Eastern Interconnection, but work well in the
Western Interconnection.
    847. Pacific Northwest IOUs also agree, in their post-technical
conference comments, that it is not necessary in the Western
Interconnection for a transmission provider to know the source control
area of a remote resource in order to determine its effect on ATC,
since WECC path ratings incorporate parallel flows and other
operational conditions. Pacific Northwest IOUs state that it is only
necessary for a transmission provider in the WECC to know the border
location at which power will be delivered to its system in order to
determine the effect of the designation on ATC.
    848. Morgan Stanley similarly argues, in its post-technical
conference comments, that, at a minimum, source control area
information for network resources should not be required in control
areas where participants agree that such information is not needed for
planning purposes. Morgan Stanley suggests that the Commission should
create a default approach that explicitly allows designations for off-
system network resources to not specify the resource location.
    849. APS and EEI state, in its post-technical conference comments,
that the kinds of seller's choice contracts at issue (the WSPP Schedule
C contracts) are firm, physical contracts that require a seller to
deliver power at a specified location. Such contracts, APS and EEI
argue, are an important resource for most network customers, because
they are not unit contingent, and so sellers must find alternative
sources of power and continue to perform even in the event of an outage
of a particular generator. These contracts, APS and EEI contend, are
more dependable than contracts that specify a specific generator or
control area.
    850. APS and EEI further contend that allowing flexibility of
supply when it does not adversely affect the transmission provider is
critical to maintaining liquid power markets in the West. The types of
contracts which are at issue, particularly when they are executed with
banks, allow physical transactions that could not otherwise occur due
to credit quality issues. If the banks conclude that the regulatory
constraints are too limiting and choose to move to a financial rather
than a physical approach to trading power, an important market, that is
currently available to APS and their customers, will be adversely
affected.
    851. MISO and Duke oppose allowing a seller's choice contract that
does not meet all of the section 29.2 requirements to qualify as a
designated network resource. MISO argues that the specification of the
origin of supply resources or control area improves reliability in a
tightly interconnected grid. Duke agrees that, as amended, section
29.2(v) appropriately requires identification of the control area(s)
from which the power will originate. Duke argues, however, that there
is a facial conflict between this tariff requirement and the preamble,
which indicates that off-system seller's choice contracts may be
designated network resources. Duke maintains that, unlike a system sale
that designated a control area from which the power will originate, a
seller's choice contract does not require that power actually originate
from the control area designated.
    852. Southern notes, in its post-technical conference comments,
that the more information that can be provided to the transmission
provider, the more accurately it can model its system and, in turn,
calculate ATC. Thus, Southern requests clarification that network
customers that have designated such an off-system seller's choice
contract as a network resource should provide to the transmission
provider as much information as the customer has regarding the actual,
underlying generating facilities from which the power will be sourced.
    853. On rehearing, TDU Systems request clarification that a
``delivery point'' as contemplated by section 29.2(v) of the pro forma
OATT includes any point on an interface where deliveries are made. TDU
Systems argue that it is common in the industry to purchase a system
product from off-system and deliver that product to any interconnection
point on the interface between the system where the customer's native
load is embedded and the system in which the generation is sourced. TDU
Systems contend that this is how the term ``delivery point'' is used
throughout the industry generally and, in particular, in the NAESB WEQ
Glossary Subcommittee's Preliminary Draft Glossary which states that
``a delivery point can be a delivery node, an aggregation of delivery
nodes, an interface or trading hub.'' TDU Systems contend that NERC's
Glossary of Terms Used in Reliability Standards similarly contemplates
that a delivery point may include an interface, defining ``Point of
Delivery'' as ``a location * * * where an Interchange Transaction
leaves or a Load-Serving Entity receives its energy.'' TDU Systems
further argue that current RTO markets embrace the concept of
interfaces as delivery points, referring to a statement in section 30.2

of the PJM OATT that ``in the event that the Network Resource to be
designated will use interface capacity'' contemplates interfaces as
delivery points.
    854. Several post-technical conference comments raised questions
regarding the need to specify a firm transmission path for the upstream
delivery of off-system firm LD contracts designated as network
resources.\314\ Morgan Stanley argues that sellers of firm LD contracts
typically hedge the risk of non-delivery by purchasing a portfolio of
paths and sources for supply. If a non-firm path is available that can
enable delivery of power used to source a designated network resource,
Morgan Stanley contends that the use of that path should be an option
for the seller. Morgan Stanley maintains that its experience has shown
that firm transmission is often no more reliable than non-firm
transmission and is often less reliable. By utilizing more flow
options, especially during high-load periods, Morgan Stanley argues
that existing transmission capacity is better utilized, as opposed to
forcing users into arbitrary firm paths.
---------------------------------------------------------------------------

    \314\ E.g., Barrick Goldstrike Mines, Morgan Stanley, and
Southwestern Utilities.
---------------------------------------------------------------------------

    855. Southwestern Utilities similarly request that network
customers only be required to specify transmission arrangements on
external systems from the point at which power is contractually
received to the delivery point specified on the transmission provider's
transmission system, rather than from the source generator or control
area. Sellers of firm LD contracts, Southwestern Utilities argue, would
frequently not be able to provide a description of the upstream
transmission arrangements on external transmission systems at the time
the sale to a network customer is made because, just as with control
area location, sellers are reluctant to limit their options well in
advance of delivery.
    856. EPSA argues in post-technical conference comments that the
Commission should require the identification of neither the control
area, nor the point of delivery, for ``into'' firm LD products. To do
so would be, in EPSA's view, inconsistent with allowing firm LD
contracts to qualify for network resource designation without
identification of specific physical generation resources.
    857. EPSA contends that, prior to the effectiveness of Order No.
890, LSEs have consistently been able to obtain network resource
designations for into-Entergy firm LD contracts, thereby ensuring that
the LSEs could rely on firm network transmission to deliver the energy
to their specific loads when their suppliers delivered energy into the
Entergy system. EPSA maintains that, beginning July 13, 2007, requests
to designate into-Entergy firm LD contracts as network resources, even
as daily network transmission, have been denied because LSEs have been
unable to provide Entergy with the source control area and information
about transmission arrangements associated with a firm transmission
reservation that will be used to deliver the firm LD contract.
    858. EPSA explains that LSEs cannot provide this information
because, until the energy is scheduled, the LSE does not know the
source control area and transmission information. EPSA maintains that,
under the flexible terms of the firm LD contract, however, the seller
takes full responsibility for ensuring that the energy will be
delivered into the specified control area. EPSA states that source and
transmission arrangement information is provided when energy is
scheduled, and scheduling is made possible only because appropriate
transmission arrangements have been made. If a seller cannot make the
appropriate transmission arrangements to provide energy into the
Entergy system, EPSA explains, it will have defaulted on its contract
to deliver a firm product into Entergy. EPSA argues that, as noted in
Order No. 890, the liquidated damages resulting from such a default
makes the buyer whole providing the basis for the Commission's
determination that firm LD contracts can be designated as network
resources.
    859. EPSA argues that, at a minimum, the Commission should clarify
that network customers are not required to provide information as to
source control area and transmission arrangements except on a day-ahead
basis when such information is made available through required
scheduling and tagging procedures.
    860. On rehearing, Washington IOUs argue that any reliability
concerns the Commission might have about lack of control area
information at the time of designation is alleviated by the fact that
the tagging information provided with a schedule for a designated
resource contains all information to ensure reliability.
Commission Determination
    861. The Commission affirms the decision in Order No. 890 to
continue to require identification of the control area in which an off-
system resource is located and the delivery point(s) to the
transmission provider's transmission system in order to designate the
resource as a network resource. Providing both the control area in
which the off-system resource is located and the delivery point(s) to
the transmission provider's system is usually sufficiently specific to
allow a transaction to be evaluated for its effects on ATC of the local
transmission system. As the Commission acknowledged in Order No. 890,
however, some transmission providers might need additional information
in order to determine the effects of designating off-system resources
on ATC and that such transmission providers could propose variations to
the pro forma OATT in an FPA section 205 filing.\315\ We continue to
believe that a generic rulemaking is not the appropriate venue to make
accommodations for system-specific issues faced by transmission
providers and, therefore, deny Duke's request to require more specific
information regarding the transmission system from which power will
originate.
---------------------------------------------------------------------------

    \315\ See Order No. 890 at P 1481.
---------------------------------------------------------------------------

    862. Similarly, we decline to generically relax the designation
requirements by eliminating the need to identify the source control
area for an off-system resource or delivery point(s) to the
transmission provider's transmission system. The Commission's policy
balances the need to accurately model transactions for ATC and related
purposes and the flexibility of a seller to source power from a range
of generators. We are unconvinced that identification of the source
control area and delivery point(s) is not needed to perform the ATC
analysis in every circumstance. We therefore reject requests to allow
designation of purchased power contracts that provide essentially no
advance information about the location or delivery of their power
sources. Waiting until the scheduling timeframe for tagging information
fails to address the up-front need for information in order to
accurately model ATC.
    863. Several parties raise arguments relevant to local and regional
concerns that merit consideration, but a generic rulemaking is not the
appropriate venue to address such concerns. Transmission providers that
believe that their circumstances warrant a variation from the
designation requirements of the pro forma OATT may make a proposal
under section 205 of the FPA. We have already approved one such request
for Puget Sound Energy, Inc., conditioned on that company demonstrating
that its tariff variation continues to be

appropriate after the ATC standardization process is complete.\316\
---------------------------------------------------------------------------

    \316\ See Puget Sound Energy, Inc., 120 FERC ] 61,232 (2007);
see also Arizona Public Service Company, 121 FERC ] 61,246 (2007).
---------------------------------------------------------------------------

    864. We disagree with Financial Service Joint Intervenors'
contention that there is an inconsistency between the requirement in
section 29.2(v) of the pro forma OATT that the network customer
identify the control area from which power is sourced and the finding
in Order No. 890 that firm LD contracts are eligible for designation as
network resources. The Commission did not state that every firm LD
contract can be designated as a network resource, but rather that they
are eligible for designation. Such contracts must also comport with the
other requirements of section 29.2 of the pro forma OATT, including
identifying the control area from which the power will originate, to
actually be designated as a network resource. A seller's choice firm LD
contract therefore cannot be designated until the source control area
is disclosed by the seller.\317\ The Commission's discussion of
particular aspects of firm LD contracts does not mean that remaining
requirements of section 29.2 no longer apply.
---------------------------------------------------------------------------

    \317\ See Order No. 890 at P 1481 (requiring identification of
source control area, rather than more specific transmission system,
prior to designation of off-system seller's choice contracts).
---------------------------------------------------------------------------

    865. We decline to grant Southern's request to generically require
that network customers provide as much information as they have
regarding the actual, underlying generating facilities from which power
will be sourced for an off-system seller's choice contract. We
encourage network customers to share such information when they have
it, and encourage transmission providers to develop business practices
to establish procedures through which network customers can provide
such information, but conclude that a formal requirement would be
cumbersome to administer and enforce. We believe that the existing
requirements generally provide sufficient information to evaluate a
designation request.
    866. Section 29.2(v) of the pro forma OATT requires identification
of the ``delivery point(s) to the transmission provider's transmission
system.'' To the extent necessary, we clarify that the term ``delivery
point'' does contemplate an interface between the local transmission
provider's transmission system and the neighboring transmission system
from which power is being received. In response to Financial Service
Joint Intervenors, we clarify that the use of the plural ``control
area(s)'' in the revisions to section 29.2(v) adopted in Order No. 890
was inadvertent and amend that language accordingly in this order. We
disagree that a network customer could satisfy the requirements of
section 29.2(v) by identifying multiple control areas, such as all 33
control areas in the Western Interconnection, from which a particular
transaction could be sourced.
    867. In response to Barrick Goldstrike Mines, Morgan Stanley, and
Southwestern Utilities, the Commission clarifies that the requirement
in section 29.2(v) of the pro forma OATT to identify the transmission
arrangements on external systems applies to the transmission leg from
the resource being designated to the transmission provider's
transmission system. If an off-system power purchase is sufficiently
firm to satisfy the designation requirements, then the transmission
provider need not be concerned with the upstream transmission leg(s)
from the generator(s) to the point where the buyer takes title of the
firm power. Because the contract itself is the resource being
designated, and that contract is firm in nature, it is not necessary to
demonstrate the firmness of the upstream transmission in order to
designate the contract as a network resource.
(3) On-System Resources
    868. In response to a commenter request, the Commission clarified
in Order No. 890 that a customer may not designate as a network
resource a seller's choice power purchase agreement that is sourced by
generating units internal to the transmission provider's control area,
since evaluating the effect on ATC would be problematic. The Commission
stated that, if a customer wishes to have a choice of resources that
are internal to the particular transmission provider's control area
from which to dispatch power, it must designate each of the resources
as network resources. The Commission did not specifically address on-
system system sales (i.e., purchases from a specified generation
system).\318\
---------------------------------------------------------------------------

    \318\ The Commission proposed in the NOPR to maintain its
current policy of allowing network customers to designate resources
from system purchases not linked to a specific generating unit. See
NOPR at P 407.
---------------------------------------------------------------------------

Requests for Rehearing and Clarification
    869. Various concerns were raised in post-technical conference
comments regarding a possible interpretation of Order No. 890 as
prohibiting the designation of on-system system sales as network
resources.\319\ Some argue that such an interpretation would be
inconsistent with statements in the NOPR and Order No. 890 that, when a
network customer is designating a system purchase as a new network
resource, the source information required in section 29.2(v) should
identify that the resource is a system purchase and should identify the
control area from which the power will originate.\320\ Given this
discussion in Order No. 890, TAPS and APPA argue that the deletion of
language requiring ``description of purchased power designated as a
Network Resource including source of supply, Control Area location,
transmission arrangements and delivery point(s) to the Transmission
Provider's Transmission System'' from section 29.2(v) of the pro forma
OATT may have been inadvertent. TAPS and APPA state that they are
unaware of any party having argued against the eligibility of on-system
system sales for designation as network resources and that, given the
absence of any indication of a problem with these types of contracts,
the Commission should not implement such a policy.
---------------------------------------------------------------------------

    \319\ E.g., Alabama Municipal, Hoosier, and TAPS and APPA.
    \320\ See NOPR at P 408; Order No. 890 at P 1435.
---------------------------------------------------------------------------

    870. Alabama Municipal argues in its post-technical conference
comments that designation of on-system system sales as network
resources does not contribute to difficulties in computing ATC. Alabama
Municipal argues that system sales contracts do identify the source of
power: the seller's whole generation fleet. Others argue in post-
technical conference comments that, because system power is what
utilities use to supply retail load, wholesale system power cannot do
any more harm to ATC calculations than the utility's service to its
retail customers.\321\
---------------------------------------------------------------------------

    \321\ E.g., Alabama Municipal, Hoosier, NRECA
---------------------------------------------------------------------------

    871. Wisconsin Electric argues that stand-alone transmission
providers and RTOs should be allowed to have different rules regarding
the designation of on-system system sales as network resources.
Wisconsin Electric contends that within MISO, for example,
deliverability studies are performed for each resource to assess
whether the designated capacity is deliverable to the MISO system and
that, once that deliverability test has been satisfied, another load
within MISO is able to designate the same resource as a network
resource. Wisconsin Electric further states that energy may not
actually be delivered from a designated resource in a particular hour
due to MISO decisions on which units are dispatched on an hour-by-hour
basis.

    872. Others argue in post-technical conference comments that
prohibiting the designation of on-system system sales as network
resources and requiring the designation of specific generating capacity
would not be comparable to the way the transmission provider operates
when serving its load.\322\ Some contend that making system products
more difficult to use is contrary to the Commission's policy of
encouraging and facilitating use of long-term contracts and contrary to
the Commission's obligations under section 217(b)(4) of the FPA.\323\
---------------------------------------------------------------------------

    \322\ E.g., Alabama Municipal, Hoosier, TDU Systems, and TAPS
and APPA.
    \323\ E.g., Great Lakes, Hoosier, TDU Systems, and TAPS and
APPA.
---------------------------------------------------------------------------

    873. Many of the post-technical conference comments raise concerns
regarding the burdens that would be imposed on customers if they were
forced to re-structure their system purchase contracts in order to
micromanage the designation of their network resources. There is
general agreement that customers would be subject to unauthorized use
penalties and would lose the benefits of purchases from system products
if they were required to designate particular units within the seller's
system.\324\ In their view, requiring identification of each individual
generating station with fixed amounts of generation and fixed amounts
of delivery would be chaotic and overwhelming and would diminish
reliability.
---------------------------------------------------------------------------

    \324\ E.g., Alabama Municipal, Duke, Great Lakes, Hoosier,
Kansas Power Pool, NRECA, PNGC Power, TAPS and APPA, TDU Systems,
and Wisconsin Electric. PPL Parties also appear to support allowing
on-system system sales to be designated as network resources. PPL
Parties state that they support allowing designation of on-system
``seller's choice'' contracts, but their comments about increased
reliability and reduced costs when service is provided by a ``fleet
of generators'' suggest they are specifically in support of allowing
designation of on-system system sales, and not necessarily on-system
seller's choice contracts. Southern also argues that system sales
should be allowed to be designated so long as the underlying
generating facilities are individually capable of receiving firm
transmission service during the period of designation.
---------------------------------------------------------------------------

    874. TDU Systems and TAPS and APPA argue in their post-technical
conference comments that, if on-system system sales are not allowed to
be designated as network resources, customers will be motivated to seek
off-system system products instead, leading to pancaked transmission
rates and the loss of local transmission providers as possible
suppliers. TDU Systems also argue that disallowing on-system system
sales to be designated as network resources would, in some areas,
diminish the ability of the wholesale transmission-dependent utility
systems that provide virtually the only competition in retail
electricity markets before Order No. 888 to compete effectively. TAPS
and APPA state that an alternative would be for the on-system seller to
be the network customer and take on (or possibly avoid) the headache of
designating and undesignating resources. TAPS and APPA argue that this
would be practical, however, only if the network customer desires full-
requirements system power and that customers seeking to use other
resources in combination with the system power (as many transmission
dependent utilities do) would not have this option. TAPS and APPA also
point out that customers may own transmission facilities for which,
under the Commission's policy, credits are to be provided only where
the owner of the transmission assets is the network customer itself.
TAPS and APPA therefore conclude that a transmission dependent utility
may have good reason to want to be the network customer, rather than
allowing the transmission provider to assume that role.
    875. Great Lakes supports TAPS and APPA's position in its post-
technical conference comments, adding that requiring transmission
dependent utilities to be full-requirements customers of a system power
seller would effectively shut out entities that do not exclusively
utilize full-requirements system power contracts. Great Lakes adds that
transmission dependent utilities have begun to develop the requisite
expertise required to allow them to compete more effectively in the
wholesale market and should not be required to give up those benefits
in order to utilize system power contracts.
    876. Several petitioners argue that system sales contracts are not
the same as seller's choice contracts.\325\ These petitioners argue
that typically a seller's choice contract involves a situation where,
under certain delineated circumstances, a seller that would normally
sell power to the purchaser from one unit may choose to deliver power
from an alternate unit. These petitioners argue that the Commission's
ruling in Order No. 890 regarding the eligibility of seller's choice
contracts does not affect the eligibility of system sales.
---------------------------------------------------------------------------

    \325\ E.g., NRECA, TDU Systems and Wisconsin Electric. Duke
Energy Carolinas and Hoosier make similar arguments in their post-
technical conference comments.
---------------------------------------------------------------------------

    877. Duke Energy Carolinas contends in its post-technical
conference comments that the requirement in section 29.2(v) to provide
the delivery point for a resource sourced from purchased power could be
interpreted to require either an interface delivery point or a local
load delivery point. For system purchases that are sourced by
generators in the same control area as the load, Duke Energy Carolinas
argues, the only delivery point is the location of the load. Duke
Energy Carolinas states that a network load may have more than one load
delivery point, but all such points are where some network load is
located. Duke Energy Carolinas also distinguishes system sales from
seller's choice contracts, which it states allow the seller to select
on a daily basis the source of the physical power. Duke Energy
Carolinas contends that system sales do not fit within this category of
seller's choice contracts since the source control area is known and
there is no ``choice'' as to which units will be used to serve a
network customer's load, given that units are dispatched according to
economic and reliability dispatch principles.
    878. Duke Energy Carolinas also argues that disallowing on-system
system sales would be inconsistent with the Commission's longstanding
practice of accepting network integration transmission service
agreements with designated network resources such as ``Seller's
Generation System'' or ``Contract with Seller'' with no concern about
transmission providers calculating ATC. Duke Energy Carolinas further
argues that disallowing on-system system sales would be inconsistent
with allowing at least some wholesale customers to be classified as
native load customers and permitting the seller to serve such native
load customers from a choice of all of its network resources. If the
Commission does not allow on-system system sales to be designated as
network resources, Duke Energy Carolinas requests clarification of
whether a wholesale customer that entered into an on-system system
purchase contract with a transmission provider prior to July 13, 2007
can continue to designate the contract as a network resource. Duke
Energy Carolinas also requests various other clarifications regarding
the designation of system sales as network resources.
    879. TAPS and APPA state that, while the pro forma OATT does not
now appear to require it, they would not object to a requirement that
every network customer, as well as the transmission providers and
merchant affiliates, seeking to designate on-system system sales (or
generation fleet) list the generators in the portfolio that stands
behind it, provided that this not

translate to a requirement to assign particular generators or amounts
to serve the contract. These petitioners argue that the location of the
generators, which presumably the transmission provider knows anyway,
ought to be enough to permit the transmission provider to determine
whether the system sale can be delivered to the customer and, thus,
whether the designation of the network resource can be accepted.
    880. Bonneville argues that, because of the interconnected nature
of a hydroelectric power system, it cannot make power sales from
particular generating units and, therefore, all of its sales are system
sales. Bonneville states that the federal hydroelectric projects in the
Pacific Northwest are multi-purpose projects and that the operators
(the United States Corps of Engineers and Bureau of Reclamation) cannot
dedicate a given hydroelectric project to generate a given amount of
power every hour to serve a given contract or for any other purpose.
Bonneville states that almost 100 of its customers take network
transmission service and have included Bonneville system purchases of
power as network resources. Bonneville also notes that, under the
Northwest Power Act, it is obligated to sell electric power to each
Northwest utility to meet the firm power load, to the extent that the
utility's firm power load exceeds its resources.\326\ Bonneville
maintains that nothing in the Northwest Power Act contemplates sales
out of, or rates based on, individual resources, and that all of
Congress's directives treat federal generation as a whole and make no
distinction based on the individual resource. Bonneville argues that it
has addressed the ATC issues that the Commission has identified through
its AFC methodology. PNGC Power and PPC express support in their post-
technical conference comments for Bonneville's general position with
respect to the designation of on-system system sales from the
Bonneville's hydroelectric system.
---------------------------------------------------------------------------

    \326\ 16 U.S.C. 839a(10).
---------------------------------------------------------------------------

    881. Several of the post-technical conference comments address the
eligibility of on-system seller's choice contracts to be designated as
network resources. Southern states that it generally opposes allowing
on-system seller's choice contracts to be designated on a long-term
basis, but acknowledges that such contracts might be designated on a
short-term basis. Southern states that many seller's choice contracts
require the source to be named at least on a day-ahead basis. Southern
states that it would be acceptable to designate such resources on a
short-term basis once the delivery source is identified.
    882. Kansas Power Pool, however, argues, in its post-technical
conference comments, that all seller's choice contracts should be
eligible to serve as network resources. Kansas Power Pool argues that
it is the supplier, not the customer, of a seller's choice contract
that enjoys the flexibility to select resources or to determine which
resources will or will not be dispatched.
    883. Some post technical conference comments argue that seller's
choice contracts from on-system generation located in an unconstrained
system or zone (i.e., an area within which there are no internal paths
for which ATC is calculated) should be eligible for network resource
status.\327\ Conversely, Duke Energy Carolinas and EEI argue that, if a
system or zone has congestion (i.e., internal ATC paths), then unit
designation becomes necessary to be able to correctly calculate ATC.
South Carolina E&G argues that unconstrained transmission systems could
become constrained over time, but any possible need for the designation
of network resources to assist in calculating internal ATC will be
observable on OASIS. South Carolina E&G argues that a transmission
provider has no incentive to overstate ATC, so the Commission can be
assured that designation of network resources is unnecessary if OASIS
shows no constraints, and vice versa.
---------------------------------------------------------------------------

    \327\ E.g., Duke Energy Carolinas, EEI, Pacific Northwest IOUs,
South Carolina E&G, and Southwestern Utilities.
---------------------------------------------------------------------------

    884. Other post technical-conference comments oppose the proposal
for unconstrained transmission areas, at least as applied to on-system
system sales, arguing that the proposal appears to be motivated by the
incorrect assumption that the Commission in Order No. 890 found that
both on-system seller's choice contracts and on-system system sales are
eligible for designation as network resources.\328\ With regard to
seller's choice contracts, Hoosier and TDU Systems argue that adopting
an unconstrained transmission area approach would leave those LSEs
unfortunate enough to be located on constrained systems without the
transmission rights they had prior to Order No. 890. Hoosier and TDU
Systems argue that ATC would not be limited unless the transmission
provider has failed to expand its system to meet the needs of its
network customers, pointing to TLR statistics to emphasize concerns
regarding particular transmission providers. Hoosier contends that
restricting seller's choice contracts to particular areas of the
transmission provider's system would assume the existence of
constraints on a system to such a degree that the long-held rights of
network customers to designate their historical resources as network
resources would be eliminated. Hoosier and TDU Systems believe that the
Commission's policy should assume transmission providers have been
planning and expanding their systems appropriately, putting the burden
on the transmission provider whose system is so constrained that it
cannot evaluate internal ATC to make a filing proposing changes to its
OATT to accommodate their problems. Acceptance of the unconstrained
transmission area proposal, they argue, would be inconsistent with the
Commission's obligations under FPA sections 217. Hoosier and TDU
Systems argue that the transmission provider should experience no more
difficulty in calculating ATC for its network customers than it does to
serve its own retail native load.
---------------------------------------------------------------------------

    \328\ E.g., TAPS and APPA.
---------------------------------------------------------------------------

Commission Determination
    885. In the NOPR, the Commission proposed to continue to allow
resources from system purchases not linked to a specific generating
unit to be designated as network resources.\329\ The Commission did not
specifically address on-system system sales in Order No. 890, focusing
instead on on-system seller's choice contracts.\330\ Thus, the
Commission's existing policies regarding the eligibility of on-system
system sales for network resource status were not affected by the
reforms adopted in Order No. 890.
---------------------------------------------------------------------------

    \329\ See NOPR at P 407.
    \330\ See Order No. 890 at P 1483.
---------------------------------------------------------------------------

    886. Various concerns have nonetheless been expressed regarding the
treatment of on-system system sales in requests for rehearing and
clarification and at the technical conference held by Commission staff
on July 30, 2007 and in subsequent comments. TAPS and APPA, for
example, question whether the revisions to section 29.2(v) of the pro
forma OATT adopted in Order No. 890 were intended to alter the
designation requirements for on-system system sales. Alabama Municipal
and Wisconsin Electric argue that the Commission's concerns regarding
the accuracy of ATC calculations are not relevant in the context of
system sales. In order to respond to these concerns, and provide
guidance to the industry, we clarify that Order No. 890 was not
intended to change the requirements for

designating on-system system sales as network resources under the pro
forma OATT.\331\
---------------------------------------------------------------------------

    \331\ Slice-of-system sales are a type of system sale and,
therefore, our discussion below regarding on-system system sales
applies equally to on-system slice-of-system sales, as well as
system sales from hydroelectric systems.
---------------------------------------------------------------------------

    887. Prior to Order No. 890, section 29.2(v) of the pro forma OATT
did not distinguish between the designation of on-system and off-system
resources. In order to designate a network resource, the network
customer was required to provide information regarding the unit size,
the amount of capacity being designated, VAR capability, operating
restrictions, approximate variable cost, and arrangements governing the
third-party sales and deliveries. For off-system power purchases,
information was also required regarding the source of supply, control
area location, transmission arrangements, and delivery point(s) to the
transmission provider's system. These various requirements were stated
in a single series of bullets in section 29.2(v).
    888. In Order No. 890, the Commission restructured section 29.2(v)
to more clearly identify the information that must be provided for on-
system resources and off-system resources, breaking apart the series of
bullets into two separate lists. The basic requirements of designation
remain the same, except that the tariff language more clearly specifies
the information (i.e., source of supply, control area location,
transmission arrangements, and delivery point(s) to the system) that
applies only to off-system resources. This was implicit in the prior
tariff formulation, since the underlying information related to off-
system transactions. The Commission sought to more explicitly state the
information required under section 29.2(v) to facilitate compliance
with the new obligation for customers to provide an attestation that
the requirements for designation as a network resource have been met
for the particular resource being designated.
    889. These changes to the pro forma OATT therefore did not change
the substantive requirements for designating network resources as they
apply to on-system and off-system resources. For on-system resources,
network customers must continue to provide the same information in
their designation request: the unit size, the amount of capacity being
designated, VAR capability, operating restrictions, approximate
variable cost, and arrangements governing the third party sales and
deliveries. We understand that it is common practice in the industry
for transmission providers to consider the identification of the source
system for an on-system system sale sufficient to provide this
information, since the transmission provider already has the necessary
information for constituent generators on the system given that the
units supporting the system sale have otherwise been designated for use
by network or native load.\332\ Nothing in Order No. 890 imposed new
information requirements on transmission providers that previously
deemed the requirements of section 29.2(v) fulfilled by the
identification of the source system for an on-system system sale.
Network customers may therefore continue to designate such resources as
appropriate.
---------------------------------------------------------------------------

    \332\ It may be the case that identification of another system
within the transmission provider's control area, such as a fleet of
merchant generators, would trigger the need for additional
information under section 29.2(v). That type of transaction,
however, does not appear to be of concern to petitioners and thus we
do not address it here.
---------------------------------------------------------------------------

    890. To the extent there are concerns regarding the effect of
designating on-system system sales on ATC, we note that transmission
providers have been directed to address the effect on ATC of
designating and undesignating network resources as part of the on-going
NERC/NAESB standardization effort.\333\ Through that process,
transmission providers will develop consistent methodologies for
calculating the effect on ATC of designation resources, both on-system
and off-system. Until the standardization process is complete, however,
the Commission cannot know whether additional information is required
in order to accurately model the designation of an on-system system
sale. We will revisit the requirements of section 29.2(v) as necessary
after the NERC/NAESB ATC standardization effort is complete. Until such
time as those requirements change, transmission providers should
continue their existing practices regarding the designation of on-
system system sales as network resources. Further clarification as
requested by Duke is not necessary.
---------------------------------------------------------------------------

    \333\ See Order No. 693 at P 1041.
---------------------------------------------------------------------------

    891. The Commission affirms the finding in Order No. 890 that on-
system seller's choice contracts generally do not provide enough
information to satisfy the requirements for designation as a network
resource. For on-system resources, the location of the capacity is
necessary for determining the effect of a proposed designation on
transmission capacity, both for evaluating the acceptability of the
resource itself, and for allowing future transmission service requests
to be evaluated. We agree with Southern, however, that a contract that
may not provide enough information provided to be designated as a
network resource at one time may become eligible for designation as the
information becomes available. For instance, if a day before scheduling
the seller were to identify source generation for a seller's choice
contract for the following day, and if the contract were to bind the
seller to use the newly identified generation (at least for the period
that it was identified), then the resource would be eligible to be
designated for the period during which the source information is firm
(provided the resource complied with all other relevant requirements).
At that point, the agreement is effectively no longer a seller's choice
contract for the specified period. If, on the other hand, the seller
identifies only what it intends to source the power with, but no
contractual mechanism prevents the seller from sourcing the power from
an alternative source prior to scheduling, then the resource would
remain a seller's choice contract and would not be eligible for network
resource status.
    892. We disagree with Kansas Power Pool's argument that, because it
is not the customer that has the flexibility to select the generation
in a seller's choice contract, such contracts should be eligible for
network resource status. It is the inability to evaluate or determine
the proper transmission reservations for on-system seller's choice
contracts that is concerning, and not the fact that it is the seller or
the buyer who has the ``choice'' of how to dispatch the power.
    893. With regard to the proposal to allow the designation of on-
system seller's choice contracts within unconstrained transmission
areas, we believe that our clarification above that Order No. 890 did
not change the Order No. 888 requirements for designating on-system
system sales will alleviate most of the concerns expressed by
supporters of this proposal.
(4) Resource Information
    894. In Order No. 890, the Commission affirmed the requirement that
customers designating a network resource must provide a description of
the resource (current and 10-year projection) including, among other
things, approximate variable generating cost ($/MWH) for redispatch
computations and any operating restrictions.
Requests for Clarification and/or Rehearing
    895. EEI requests clarification that the operating restrictions
information required by section 29.2(v) of the pro forma OATT need not
be provided for

off-system system sales if that information is not contained in the
relevant contracts. EEI also suggests that the variable price of energy
specified in the contract and not the actual variable costs of the
units that supply the sale serve as the variable generating cost for
redispatch computations. EEI argues that the network customer generally
will not know the actual variable cost and that the price specified in
the contract is the relevant price for purposes of redispatch, since
that is the cost that the network customer will incur or avoid if its
contract is redispatched up or down. Bonneville and Duke Energy
Carolinas question in their post-technical conference comments what
variable costs should be provided for on-system system sales. Duke
Energy Carolinas states that the contract energy price is used as the
approximate variable generating cost for redispatch purposes.
    896. EPSA requests clarification that network customers are not
required to provide a redispatch cost for a firm LD contract, since
such contracts are effectively take-or-pay contracts and cannot, for
example, provide a source of incremental energy if Entergy is surveying
redispatch options to address a reliability event. EPSA argues that the
fact that not all network resources are suitable for redispatch options
is not unusual, since many units may be must-run in order to meet
reliability needs (such as voltage support) or contractual requirements
(such as QF purchases), or to reflect operating characteristics (such
as nuclear units that cannot be cycled off and on quickly). EPSA is
concerned that some transmission providers may believe that the
supplier of a firm LD contract is required to provide the network
customer with a contract-specific variable redispatch cost based on its
own supply alternatives which, as noted, is not possible. EPSA argues
that a determination that designation requests could be rejected for
lack of information that is not relevant to such contracts would be
contrary to the Commission determination that firm LD contracts can
serve as network resources.
Commission Determination
    897. The Commission clarifies in response to EEI that the operating
restrictions applicable to off-system system sales designated as
network resources are the restrictions set forth in the relevant
contracts, not the underlying units supplying the contracts. Similarly,
the approximate generating cost for redispatch purposes for a system
sale is the variable energy cost specified in the contract.
    898. We disagree with EPSA that a network customer should not be
required to provide a redispatch cost for a firm LD contract. When a
network customer designates a network resource, it agrees under section
30.5 of the pro forma OATT to redispatch its resource as requested by
the transmission provider pursuant to section 33.2 of the pro forma
OATT. A firm LD contract is like any other resource, redispatchable by
the transmission provider within the customer's rights to the resource,
as stated in the contract.
(5) General
    899. In Order No. 890, the Commission determined that firm point-
to-point service provided on a conditional firm basis is sufficiently
firm to be used for transmission to import an off-system designated
network resource. The Commission also denied a request to require the
validity of network resource designations to be verified by the seller
or owner of the generation, finding that such a verification is
unnecessary in light of the new attestation requirements. Finally, the
Commission clarified that the minimum term for designations of new
network resources should be the same as the minimum term used for firm
point-to-point service (i.e., daily), unless otherwise demonstrated by
the transmission provider and approved by the Commission.
Requests for Rehearing and Clarification
    900. Duke seeks clarification that network customers that designate
off-system resources supported by conditional firm point-to-point
transmission service are required to have in place or obtain from the
transmission provider reserves or backup resources to cover the periods
when the conditional firm point-to-point transmission service is not
available.
    901. Indicated Commenters argue that a network customer designating
a generating unit that it does not own should have an obligation to
provide contemporaneous notice of the designation to the owner of the
generating unit. Indicated Commenters argue that such notice should
indicate, at a minimum, the amount of capacity claimed to be under
contract and the duration of the claimed contractual right. Indicated
Commenters argue that their proposed notice requirement is appropriate
since designation as a network resource may subject the generation
owner to certain must-offer requirements (in organized markets) or
redispatch orders (in non-organized markets). Indicated Commenters also
contend that such a notice requirement would facilitate enforcement of
the OATT requirements by ensuring that generators are not obligated
without their knowledge and that false or questionable designations are
identified promptly. Indicated Commenters argue that the current system
of audits and increased penalty authority and other sanctions will have
some deterrent effect, but that it will do nothing to make generation
owners and other users of the transmission system whole after
violations occur.
    902. Pacific Northwest Parties, joined by PPC in its post-technical
conference comments, requests clarification that, to the extent a
transmission provider establishes a minimum term for designation of
network resources, it need not be the same as the minimum term offered
by the transmission provider for firm point-to-point service. Pacific
Northwest Parties argue that this clarification will promote hourly
firm energy markets by allowing transmission providers to offer hourly
firm point-to-point transmission service even if they cannot
accommodate a one-hour minimum term for designation of network
resources.
    903. Reliant asks in its post-technical conference comments that
the Commission carefully consider any variations from the network
service requirements of the pro forma OATT proposed by RTOs and ISOs in
their compliance filings. Reliant contends that requirement for proper
identification of network resources is intended to ensure that
transmission reserved for firm network use is used only to deliver
properly designated network resources and that no more than one LSE has
identified the same resource capacity as serving its load (i.e., to
avoid double-counting). Reliant asks the Commission to ensure that any
variations from the pro forma OATT proposed by RTOs and ISOs similarly
prevent double-counting.
Commission Determination
    904. The Commission declines Duke's request to require that a
network customer, as a condition of designating off-system resources
supported with conditional firm point-to-point transmission service,
have in place or obtain from the transmission provider reserves or
backup resources to cover the periods when the resource supported with
conditional firm point-to-point transmission service might not be
delivered. Duke appears to misunderstand the nature of conditional firm
service. A network customer utilizing conditional firm service would be
using firm transmission service

except during the limited periods where such service is conditional.
Transmission service for those resources could be curtailed during such
periods, similar to how secondary network service may be curtailed
prior to curtailment of other firm transactions. In the event
conditional firm service is curtailed, the network customer would be
required to serve its network load from other resources, just as when
the transmission provider curtails the network customer's use of
secondary network service. It is not the responsibility of the
transmission provider to ensure that the network customer has
sufficient resources to meet its load.
    905. We disagree with Indicated Commenters that network customers
should be required to serve notice on sellers of power that is
designated as a network resource. The obligation to comply with the
designation requirements applies to the network customer, not the
resource owner. The appropriate place to impose obligations on the
resource owner is in the contract governing the sale. To the extent a
contract has been executed that meets the requirements for network
resource designation, it is not clear why the seller would be affected
by the actual designation of the resource, since the network resource
redispatch obligations do not go beyond the amount of power that is
available under the contract as designated by the network customer. If,
as Indicated Commenters argue, there are unique considerations in some
organized markets, a generic rulemaking is not the appropriate venue to
make accommodations for such system-specific issues.
    906. We also decline to grant the request of Pacific Northwest
Parties to generically allow transmission providers to establish a
minimum term for designations of network resources that is not the same
as the term for firm point-to-point service. Pacific Northwest Parties
do not explain why a transmission provider could accommodate hourly
point-to-point transmission service, but not hourly network service. To
the extent that a transmission provider has specific circumstances that
justify adoption of a different minimum term for network resource
designations, it should raise them in the context of an FPA section 205
filing.
    907. To the extent Reliant or any other party has a concern
regarding an RTO or ISO's compliance with the requirements of Order No.
890, the appropriate forum to consider those concerns is on review of
the underlying compliance filing.
b. Documentation for Network Resources
    908. The Commission concluded in Order No. 890 that transmission
providers should be responsible for verifying that third-party
transmission arrangements to deliver an off-system designated network
resource to the transmission provider's system are firm. However, the
Commission found that transmission providers should not be responsible
for verifying that the generating units and power purchase agreements
designated as network resources satisfy the requirements of section
30.1 and 30.7 of the pro forma OATT. The Commission instead required
network customers and the transmission provider's network function to
include a statement with each application for network service or to
designate a new network resource that attests, for each network
resource identified, that (1) the transmission customer owns or has
committed to purchase the designated network resource and (2) the
designated network resource comports with the requirements for
designated network resources.
    909. The Commission stated that network customers should include
this attestation in the customer's comments section of the request when
it confirms the request on OASIS. In the event that a transmission
provider or any other network customer designates a network resource
that it does not own or has not committed to purchase, or that does not
comport with the requirements for designated network resources, the
Commission will deem the network customer to be in violation of the pro
forma OATT and will consider assessing civil penalties on a case-by-
case basis, consistent with the Commission's Policy Statement on
Enforcement. The Commission rejected requests to allow transmission
providers to voluntarily verify terms and conditions of power purchase
agreements, concluding that such authority is unnecessary in light of
the new attestation requirement.
Requests for Rehearing and Clarification
    910. South Carolina E&G asks for clarification of the language
describing the attestation requirement in paragraph 1521 of Order No.
890, arguing that it is a less precise paraphrase of the language in
section 30.2 of the pro forma OATT. South Carolina E&G asks the
Commission to confirm that the precise language of section 30.2 governs
and that paragraph 1521 of Order No. 890 does not add any additional
requirements. South Carolina E&G also suggests that, because of space
limitations in the customer's comment section on OASIS, the attestation
can be made by a reference, such as ``the customer attests pursuant to
Section 30.2.''
    911. Several petitioners request rehearing of the Commission's
decision to not allow transmission providers to review power supply
contracts for power purchases designated as network resources.\334\
These petitioners argue that allowing such review would improve
reliability and/or allow transmission providers to more accurately
model their systems. Duke and EEI argue that transmission providers
should have the right, but not the obligation, to review such
contracts. They assert that transmission providers have a legitimate
interest in ensuring the reliability of energy service to network loads
on their systems, since interruptions and resulting imbalances may harm
the reliability of the entire system, and because the transmission
providers may be forced to provide backup energy in order to avoid
curtailment of network load. EEI complains that network customers who
incorrectly designate unqualified resources take transmission capacity
that otherwise would be used for transmission service from legitimate
network resources. Duke notes that it has routinely been provided
access upon request to underlying contracts, with commercially
sensitive information redacted.
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    \334\ E.g., Duke, EEI, and MISO.
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    912. EEI argues that reliance on attestations by network customers
that their power purchases qualify as network resources is insufficient
to adequately protect against improper designations. EEI states that
some of its transmission provider members have found, by comparing
customer contracts against network resource certifications that are
required by their business practices, that some customers are
incorrectly designating power purchase contracts that clearly do not
meet the Commission's criteria. EEI argues that after-the-fact audits
of customers' attestations do not address the system reliability
concerns of the misuse of the transmission system that results from the
designation of unqualified network resources.
    913. EEI acknowledges the Commission's reluctance to place
transmission providers in the position of policing whether customers'
contracts qualify as network resources, but argues that does not
warrant precluding voluntary review of network customers' purchased
power contracts. EEI

contends that the Standards of Conduct prohibit any transfer of
customer information to the transmission provider's marketing and
energy affiliates and that any residual concerns about transmission
providers deciding whether power purchase contracts qualify as network
resources could be addressed by permitting the transmission provider to
act in a purely advisory role. EEI suggests that transmission providers
could bring concerns about possibly incorrect attestations to the
attention of the customer or, if necessary, the Commission's
Enforcement Hotline. EEI argues that allowing such review by the
transmission provider would not supplant the obligation of the network
customer to attest to the validity of its designations of network
resources.
    914. MISO argues that a statement that the transmission customer
owns or has committed to purchase the designated network resource and
that the designated network resource comports with applicable
requirements does not provide the necessary level of assurance to the
transmission provider, particularly in those cases where the network
customer unduly relies on representations made by its supplying
marketers. MISO asks the Commission to supplement its existing
attestation requirements with a certification from an external control
area's administrator and/or the seller of the generation that the
resource being designated in that area is not counted as a designated
network resource for another load on or off the system.
    915. Joined by Southern, EEI also objects to making transmission
providers responsible for verifying the firmness of off-system
transmission service. Southern argues that the requirement that
transmission providers verify the firmness of off-system transmission
service is unduly burdensome and could result in unnecessary rejection
of requests to designate network resources on a day-ahead basis.
Southern contends that the specific transmission path(s) and
arrangements to deliver power to the network customer usually have not
been finalized at the time off-system resources are designated in the
``day-ahead'' cycle and, instead, are typically finalized the hour
before delivery. Southern and EEI suggest that sections 29.2(viii),
30.1, 30.2, and 30.7 of the pro forma OATT be amended to allow the
network customer to attest that the external resource is contractually
required to be delivered using firm transmission service, without
confirmation that an actual firm path has been scheduled and confirmed.
Southern argues that transmission customers also could be required to
attest to the firmness of their requested and expected transmission
service and face the possibility of complaint, audit or other inquiry
and, ultimately, sanction for false attestations.
    916. In the alternative, EEI requests further clarification that
transmission providers could obtain waiver of the verification
requirement if they demonstrate that verification of the firmness of
transmission service is not required because of the way in which
transmission service and markets operate on the transmission provider's
transmission system. EEI states that network resources in the West are
frequently designated at hubs such as the Palo Verde Hub prior to
tagging. EEI states that a network customer has very limited ability to
know the source of the energy that is being made available at a
specific hub and, indeed, has no need to know that information since
what is important is the seller's commitment that the energy is being
provided at that hub on a firm basis. EEI argues that the host
transmission provider has no ability or need to evaluate the firmness
of the external transmission path between the generator and hub. EEI
contends that the Commission's decision to require verification of the
firmness of transmission paths, in conjunction with other requirements
relating to off-system network resources, has caused financial
institutions to consider withdrawing from the market.
    917. EEI and Southern also argue that, in many instances,
transmission providers are unable to perform the verifications required
by the Commission. They state that some systems refuse to allow other
transmission providers access to their OASIS and refuse to perform the
verification themselves. EEI suggests that the Commission require each
transmission provider to grant ``read only'' access to its OASIS by any
computer that has an X509 security certificate (the security
certificate that is provided to transmission function personnel). EEI
requests that the Commission, at a minimum, delay the date by which
transmission providers must verify off-system transmission service for
180 days, in order to allow time for modifications to OASIS protocols
to grant access to transmission providers who are seeking to verify the
firmness of transmission service.
    918. If the Commission declines to amend the attestation
requirement, EEI requests clarification with regard to instances where
transmission providers cannot verify the firmness of off-system
transmission service because the information is not posted on OASIS.
EEI states that many non-jurisdictional transmission providers that do
not have reciprocity tariffs also do not have OASIS nodes on which the
firmness of service can be verified. EEI also states that grandfathered
transmission agreements frequently are not posted on OASIS or, if they
are posted, postings do not contain sufficient detail to enable off-
system transmission personnel to verify the firmness of the
transmission service.
Commission Determination
    919. The Commission clarifies, in response to South Carolina E&G's
request, that the language in paragraph 1521 of Order No. 890 is only
meant to be a paraphrase of the more detailed attestation to be
provided in the pro forma OATT itself. A network customer designating
network resources should submit an attestation using the language set
forth in sections 29.2(viii) and 30.2 of the pro forma OATT, as amended
in Order No. 890, not the language of the preamble. A network customer
is not permitted to merely reference the applicable section of the pro
forma OATT when completing the attestation requirement. If the OASIS
customer comment section does not currently allow enough space for a
network customer to provide its attestation, transmission providers
should modify, in coordination with NAESB, OASIS functionality to
accommodate the full attestation. In the interim, the transmission
provider should identify alternate means, such as by telefax or e-mail,
for the network customer to provide the attestation.
    920. We decline to require that network customers provide their
power supply contracts to transmission providers for review, whether
such review is advisory or otherwise. Allowing transmission providers
to review power sales contracts would put transmission providers in the
position of interpreting their network customer's contracts and
accepting or rejecting designations based on their interpretations.
Regardless of the protections provided by the Standards of Conduct, it
would be inappropriate for transmission providers to be in that
position. The new attestation requirement properly places the
responsibility of interpreting the terms of a power sales agreement on
the network customer, an actual party to the agreement. We believe that
the new attestation requirement, coupled with the prospect of
significant civil penalties for improper attestations, will prove
effective at providing the proper

incentives for network customers to not designate ineligible network
resources.
    921. Similarly, we decline to require, as requested by MISO, that
network customers designating off-system resources provide a
certification from the external control area's administrator and/or the
seller of the generation that the resource being designated is not
counted as a network resource for another load. Again, it is the
responsibility of the network customer to assure that the requirements
of the pro forma OATT are satisfied prior to requesting the designation
of a network resource. The network customer must take appropriate steps
to ensure that the resource has not been committed for sale to non-
designated third party load or is otherwise unable to be called upon to
meet the network customer's network load on a non-interruptible basis.
    922. We affirm the decision in Order No. 890 to require each
transmission provider to verify the firmness of off-system transmission
service to deliver designated network resources to the transmission
provider's system. Under normal circumstances, this verification
requirement should not present a significant burden for the
transmission provider because it only requires review of the
transmission arrangements from the designated network resource to the
transmission provider's system. Several of the arguments raised by
petitioners incorrectly assume that the transmission provider is under
an obligation to look beyond a power purchase designated as a network
resource to upstream transmission arrangements from the source
generator. There is no need for the transmission provider to consider
transmission arrangements upstream of the designated resource, since
the network customer has attested that the resource is sufficiently
firm to be designated as a network resource. We therefore do not
believe, as Southern argues, that the verification process will result
in unnecessary rejections of request to designate network resources.
    923. We recognize that, in some circumstances, the external
transmission provider may not have an OASIS or make relevant
information on its OASIS available to other transmission providers and,
therefore, the host transmission provider may be unable to use OASIS to
verify the firmness of transmission used to deliver the off-system
designated network resource. The Commission explained in Order No. 890
that the transmission provider should attempt to remedy such
information deficiencies through informal communications with the
customer.\335\ Network customers have every incentive to cooperate in
providing this information since, if the transmission provider is
unable to confirm the firmness of these transmission arrangements, the
request to designate the network resource is deficient. We agree with
EEI and Southern, however, that transmission providers should have
access to view other transmission providers' OASIS for this purpose. We
therefore direct transmission providers to allow such access and to
work through NAESB to modify business practices as necessary.\336\ We
decline to waive the verification requirement in the interim since
transmission providers are able to request this information directly
from customers.
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    \335\ See Order No. 890 at P 1527.
    \336\ Transmission providers are free to use the NAESB standards
development process to create automated OASIS functionality for
verifying third-party transmission service at the time a designation
request is submitted or any other processes to further minimize any
burden associated with the verification requirement.
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c. Undesignation of Network Resources
(1) Risk to ATC Rights