[Federal Register: March 15, 2007 (Volume 72, Number 50)]
[Rules and Regulations]
[Page 12265-12531]
[DOCID:fr15mr07-22]

-----------------------------------------------------------------------

Part II

Department of Energy

-----------------------------------------------------------------------

Federal Energy Regulatory Commission

-----------------------------------------------------------------------

18 CFR Parts 35 and 37

Preventing Undue Discrimination and Preference in Transmission Service;
Final Rule

-----------------------------------------------------------------------

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 35 and 37

[Docket Nos. RM05-17-000 and RM05-25-000; Order No. 890]

Preventing Undue Discrimination and Preference in Transmission
Service

Issued February 16, 2007.

AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Federal Energy Regulatory Commission is amending the
regulations and the pro forma open access transmission tariff adopted
in Order Nos. 888 and 889 to ensure that transmission services are
provided on a basis that is just, reasonable and not unduly
discriminatory or preferential. The final rule is designed to:
Strengthen the pro forma open-access transmission tariff, or OATT, to
ensure that it achieves its original purpose of remedying undue
discrimination; provide greater specificity to reduce opportunities for
undue discrimination and facilitate the Commission's enforcement; and
increase transparency in the rules applicable to planning and use of
the transmission system.

EFFECTIVE DATE: This rule will become effective May 14, 2007.

FOR FURTHER INFORMATION CONTACT: Daniel Hedberg (Technical
Information), Office of Energy Markets and Reliability, Federal Energy
Regulatory Commission, 888 First Street, NE., Washington, DC 20426,
(202) 502-6243.
    W. Mason Emnett (Legal Information), Office of the General
Counsel--Energy Markets, Federal Energy Regulatory Commission, 888
First Street, NE., Washington, DC 20426,<PHONE_NUMBER>.
    Kathleen Barr[oacute]n (Legal Information), Office of the General
Counsel--Energy Markets, Federal Energy Regulatory Commission, 888
First Street, NE., Washington, DC 20426,<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

                                                               Paragraph
                      Table of Contents                          Nos.

I. Introduction.............................................           1
II. Background..............................................           9
    A. Historical Antecedent................................           9
    B. Order No. 888 and Subsequent Reforms.................          14
    C. EPAct 2005 and Recent Developments...................          22
III. Need for Reform of Order No. 888.......................          26
    A. Opportunities for Undue Discrimination Continue to             26
     Exist..................................................
    B. Lack of Transparency Undermines Confidence in Open             44
     Access and Impedes Enforcement of Open Access
     Requirements...........................................
    C. Congestion and Inadequate Infrastructure Development           52
     Impede Customers' Use of the Grid......................
    D. A Consistent Method of Measuring ATC Is Needed.......          62
    E. Discriminatory Pricing of Imbalances.................          70
    F. Redispatch/Conditional Firm..........................          73
    G. EPAct 2005 Emphasized Certain Policies and Priorities          79
     for the Commission.....................................
IV. Summary, Scope and Applicability of the Final Rule......          82
    A. Summary of Reforms...................................          83
    B. Core Elements of Order No. 888 That Are Retained.....          91
        1. Federal/State Jurisdiction.......................          92
        2. Native Load Protection...........................          95
        3. The Types of Transmission Services Offered.......         110
        4. Functional Unbundling............................         117
    C. Applicability of the Final Rule......................         124
        1. Non-ISO/RTO Public Utility Transmission Providers         124
        2. ISO and RTO Public Utility Transmission Providers         143
         and Transmission Owner Members of ISOs and RTOs....
        3. Non-Public Utility Transmission Providers/                162
         Reciprocity........................................
V. Reforms of the OATT......................................         193
    A. Consistency and Transparency of ATC Calculations.....         193
    B. Coordinated, Open and Transparent Planning...........         418
    C. Transmission Pricing.................................         603
        1. General..........................................         603
        2. Energy and Generation Imbalances.................         627
        3. Credits for Network Customers....................         729
        4. Capacity Reassignment............................         778
        5. ``Operational'' Penalties........................         826
            a. Unreserved Use Penalties.....................         826
            b. Distribution of Operational Penalties........         850
            c. Applicability of Operational Penalties                866
             Proposal to RTOs and Other Independent or Non-
             Profit Entities................................
        6. ``Higher of'' Pricing Policy.....................         870
        7. Other Ancillary Services.........................         886
    D. Non-Rate Terms and Conditions........................         901
        1. Modifications to Long-Term Firm Point-to-Point            901
         Service............................................
            a. Planning Redispatch and Conditional Firm              901
             Options........................................
            b. Proposals for Transparent Redispatch.........        1095
            c. Other Requested Service Modifications........        1165
        2. Hourly Firm Service..............................        1177
        3. Rollover Rights..................................        1214
        4. Modification of Receipt or Delivery Points.......        1268
        5. Acquisition of Transmission Service..............        1296
            a. Processing of Service Requests...............        1296
            b. Reservation Priority.........................        1394
        6. Designation of Network Resources.................        1432
            a. Qualification as a Network Resource..........        1432

            b. Documentation for Network Resources..........        1507
            c. Undesignation of Network Resources...........        1534
        7. Clarifications Related to Network Service........        1592
            a. Secondary Network Service....................        1592
            b. Behind the Meter Generation..................        1614
        8. Transmission Curtailments........................        1620
        9. Standardization of Rules and Practices...........        1633
            a. Business Practices...........................        1633
            b. Liability and Indemnification................        1662
        10. OATT Definitions................................        1678
    E. Enforcement..........................................        1714
        1. General Policy...................................        1715
        2. Civil Penalties..................................        1724
VI. Information Collection Statement........................        1752
VII. Environmental Analysis.................................        1758
VIII. Regulatory Flexibility Act Analysis...................        1759
IX. Document Availability...................................        1760
X. Effective Date and Congressional Notification............        1763
Appendix A: Summary of Compliance Filing Requirements
Appendix B: Commenting Party Acronyms
Appendix C: Pro Forma Open Access Transmission Tariff

Before Commissioners: Joseph T. Kelliher, Chairman; Suedeen G. Kelly,
Marc Spitzer, Philip D. Moeller, and Jon Wellinghoff.

I. Introduction

    1. This Final Rule addresses and remedies opportunities for undue
discrimination under the pro forma Open Access Transmission Tariff
(OATT) adopted in 1996 by Order No. 888.\1\ This landmark rulemaking
fostered greater competition in wholesale power markets by reducing
barriers to entry in the provision of transmission service. In the ten
years since Order No. 888, however, the Commission has found that the
OATT contains flaws that undermine realizing its core objective of
remedying undue discrimination. In the Notice of Proposed Rulemaking
(NOPR) issued on May 19, 2006, the Commission proposed to remedy those
flaws.\2\ After receiving approximately 6,500 pages of comments from
close to 300 parties, we now take final action. We highlight below the
most critical reforms being adopted today.
---------------------------------------------------------------------------

    \1\ Promoting Wholesale Competition Through Open Access Non-
discriminatory Transmission Services by Public Utilities; Recovery
of Stranded Costs by Public Utilities and Transmitting Utilities,
Order No. 888, 61 FR 21540 (May 10, 1996), FERC Stats. & Regs. Sec.
31,036 (1996), order on reh'g, Order No. 888-A, 62 FR 12274 (Mar.
14, 1997), FERC Stats. & Regs. Sec.  31,048 (1997), order on reh'g,
Order No. 888-B, 81 FERC Sec.  61,248 (1997), order on reh'g, Order
No. 888-C, 82 FERC Sec.  61,046 (1998), aff'd in relevant part sub
nom. Transmission Access Policy Study Group v. FERC, 225 F.3d 667
(D.C. Cir. 2000) (TAPS v. FERC), aff'd sub nom. New York v. FERC,
535 U.S. 1 (2002).
    \2\ Preventing Undue Discrimination and Preference in
Transmission Service, Notice of Proposed Rulemaking, 71 FR 32,636
(Jun. 6, 2006), FERC Stats. & Regs. Sec.  32,603 (2006).
---------------------------------------------------------------------------

    2. First, the Final Rule will increase nondiscriminatory access to
the grid by eliminating the wide discretion that transmission providers
currently have in calculating available transfer capability (ATC).\3\
The calculation of ATC is one of the most critical functions under the
OATT because it determines whether transmission customers can access
alternative power supplies. Despite this, the existing OATT does not
prescribe how ATC should be calculated because the Commission sought to
rely on voluntary efforts by the industry to develop consistent methods
of ATC calculation. This voluntary industry effort has not proven
successful. The Commission therefore acts today to require public
utilities, working through the North American Electric Reliability
Corporation (NERC), to develop consistent methodologies for ATC
calculation and to publish those methodologies to increase
transparency. This important reform will eliminate the wide discretion
that exists today in calculating ATC and ensure that customers are
treated fairly in seeking alternative power supplies.
---------------------------------------------------------------------------

    \3\ The Commission used the term ``Available Transmission
Capability'' in Order No. 888 to describe the amount of additional
capability available in the transmission network to accommodate
additional requests for transmission services. To be consistent with
the term generally accepted throughout the industry, the Commission
revises the pro forma OATT to adopt the term ``Available Transfer
Capability.''
---------------------------------------------------------------------------

    3. Second, the Final Rule will increase the ability of customers to
access new generating resources and promote efficient utilization of
transmission by requiring an open, transparent, and coordinated
transmission planning process. Transmission planning is a critical
function under the pro forma OATT because it is the means by which
customers consider and access new sources of energy and have an
opportunity to explore the feasibility of non-transmission
alternatives. Despite this, the existing pro forma OATT provides
limited guidance regarding how transmission customers are treated in
the planning process and provides them very little information on how
transmission plans are developed. These deficiencies are serious, given
the substantial need for new infrastructure in this Nation.\4\ We act
today to remedy these deficiencies by requiring transmission providers
to open their transmission planning process to customers, coordinate
with customers regarding future system plans, and share necessary
planning information with customers.
---------------------------------------------------------------------------

    \4\ Congress placed special emphasis on the development of
transmission infrastructure, including the consideration of advanced
transmission technologies, in the Energy Policy Act of 2005 (EPAct
2005). See Pub. L. 109-58, 119 Stat. 594 (to be codified in
scattered titles of the U.S.C.). The Commission has taken steps to
implement that goal in numerous contexts, including recent
rulemaking proceedings that address the promotion of transmission
investment through pricing reform and the siting of certain
transmission facilities. See Promoting Transmission Investment
through Pricing Reform, Order No. 679, 71 FR 43294 (Jul. 31, 2006),
FERC Stats. & Regs. Sec.  31,222 (2006), order on reh'g, Order No.
679-A, 72 FR 1152 (Jan. 10, 2007), FERC Stats. & Regs. Sec.  31,236
(2007), reh'g pending; Regulations for Filing Applications for
Permits to Site Interstate Electric Transmission Facilities, Order
No. 689, 71 FR 69440 (Dec. 1, 2006), FERC Stats. & Regs. Sec.
31,234 (2006), reh'g pending. As discussed herein, several actions
taken in this Final Rule also relate to the need for investments in
transmission infrastructure and are consistent with the Commission's
responsibilities under EPAct 2005.
---------------------------------------------------------------------------

    4. Third, the Final Rule will also increase the efficient
utilization of

transmission by eliminating artificial barriers to use of the grid. The
existing pro forma OATT allows a transmission provider to deny a
request for long-term point-to-point service if the request cannot be
satisfied in only one hour of the requested term. This practice
discourages the efficient use of the existing grid and precludes access
to alternative power supplies. We reform this practice by requiring
that a conditional firm option be offered to customers seeking long-
term point-to-point service, i.e., conditional firm service. We also
modify the redispatch obligations of transmission providers to increase
the efficient utilization of the grid, while also ensuring that
reliability to native load customers is maintained.
    5. Fourth, by adopting these and other reforms, the Final Rule
facilitates the use of clean energy resources such as wind power.
Conditional firm service is particularly important to wind resources
that can provide significant economic and environmental value even if
curtailed under limited circumstances. Open and coordinated
transmission planning will enhance the ability of customers to access
clean energy resources as part of their future resource portfolio. The
Final Rule also benefits clean energy resources by reforming energy and
generator imbalance charges. These reforms are particularly important
to intermittent resources such as wind power because these resources
have limited ability to control their output and, hence, must be
assured that imbalance charges are no more than required to provide
appropriate incentives for prudent behavior.
    6. Fifth, the Final Rule will strengthen compliance and enforcement
efforts. We are increasing the transparency of pro forma OATT
administration, thereby increasing the ability of customers and our
Office of Enforcement to detect undue discrimination. We are adopting
operational penalties for clear violations of an OATT, thereby
enhancing compliance while also reducing the burdens on our Office of
Enforcement. We are also increasing the clarity of many other OATT
requirements, thereby facilitating compliance by transmission providers
with our regulations. This Final Rule thus reflects the close
integration of our Office of Enforcement into policy development at the
Commission. Several of the reforms we adopt today are informed by our
experience with OATT administration through oversight, audits, and
investigations performed by the Office of Enforcement.
    7. Finally, we modify and improve several provisions of the pro
forma OATT using our experience over the past ten years and clarify
others that have proven ambiguous. For example, we reform our rollover
rights policy to ensure that the rights and obligations of rollover
customers are consistent with the resulting obligations of transmission
providers to plan and upgrade the system to accommodate rollovers. We
remove the price cap on reassigned capacity because it is not necessary
to remedy market power and doing so will otherwise increase the
efficient use of existing capacity. We increase the efficient use of
existing capacity by providing a priority to certain ``pre-confirmed''
requests for service. We increase certainty by providing greater
clarity regarding the wholesale contracts that qualify as network
resources. We also adopt numerous clarifications that should assist
transmission providers and customers in implementing and using the pro
forma OATT
    8. Our actions in this proceeding have been informed to a great
extent by the comments received in response to our notices of inquiry
in the above-captioned dockets and the subsequent NOPR.\5\ We
appreciate the time and thoughtfulness of all sectors of the industry
in preparing comments. We have found them very informative and useful
in reaching our decisions in this Final Rule.
---------------------------------------------------------------------------

    \5\ Preventing Undue Discrimination and Preference in
Transmission Services, Notice of Inquiry, 112 FERC ] 61,299 (2005)
(NOI); Information Requirements for Available Transfer Capability,
Notice of Inquiry, 111 FERC ] 61,274 (2005) (ATC NOI).
---------------------------------------------------------------------------

II. Background

A. Historical Antecedent

    9. In the NOPR, the Commission explained the historical background
that led up to the issuance of Order No. 888, and the initiation of
this rulemaking proceeding. We repeat that history here to place in
context the actions we take today.
    10. In the first few decades after enactment of the Federal Power
Act (FPA) in 1935, the industry was characterized mostly by self-
sufficient, vertically integrated electric utilities, in which
generation, transmission, and distribution facilities were owned by a
single entity and sold as part of a bundled service to wholesale and
retail customers. Most electric utilities built their own power plants
and transmission systems, entered into interconnection and coordination
arrangements with neighboring utilities, and entered into long-term
contracts to make wholesale requirements sales (bundled sales of
generation and transmission) to municipal, cooperative, and investor-
owned utilities connected to each utility's transmission system. Each
system covered a limited service area, which was defined by the retail
franchise decisions of State regulatory agencies. This structure of
separate systems arose naturally primarily due to cost and the
technological limitations on the distance over which electricity could
be transmitted.
    11. A number of statutory, economic, and technological developments
in the 1970s led to an increase in coordinated operations and
competition. Among those was the passage of the Public Utility
Regulatory Policies Act of 1978 (PURPA),\6\ which was designed to
lessen dependence on foreign fossil fuels by encouraging the
development of alternative generation sources and imposing a mandatory
purchase obligation on utilities for generation from such sources.
PURPA also enabled the Commission to order wheeling of electricity
under limited circumstances.\7\ The rapid expansion and performance of
the independent power industry following the enactment of PURPA
demonstrated that traditional, vertically integrated public utilities
need not be the only sources of reliable power. During this period, the
profile of generation investment began to change, and a market for non-
traditional power supply beyond the purchases required by PURPA began
to emerge. The economic and technological changes in the transmission
and generation sectors helped encourage many new entrants in the
generating markets that could sell electric energy profitably with
smaller scale technology at a lower price than many utilities selling
from their existing generation facilities at rates reflecting cost.
However, it became increasingly clear that the potential consumer
benefits that could be derived from these technological advances could
be realized only if more efficient generating plants could obtain
access to the regional transmission grids. Because many traditional
vertically integrated utilities still did not provide open access to
third parties and favored their own generation if and when they

provided transmission access to third parties, access to cheaper, more
efficient generation sources remained limited.
---------------------------------------------------------------------------

    \6\ Pub. L. 95-617, 92 Stat. 3117 (1978) (codified in U.S.C.
titles 15, 16, 26, 30, 42, and 43).
    \7\ Section 211 of the FPA, 16 U.S.C. 824j. In earlier years, a
few customers were able to obtain access as a result of litigation,
beginning with the U.S. Supreme Court's decision in Otter Tail Power
Company v. United States, 410 U.S. 366 (1973). Additionally, some
customers gained access by virtue of Nuclear Regulatory Commission
license conditions and voluntary preference power transmission
arrangements associated with Federal power marketing agencies. See,
e.g., Consumers Power Co., 6 NRC 887, 1036-44 (1977); Toledo Edison
Co., 10 NRC 265, 327-34 (1979); Florida Municipal Power Agency v.
Florida Power and Light Co., 839 F. Supp. 1563 (M.D. Fla. 1993).
---------------------------------------------------------------------------

    12. The Commission encouraged the development of independent power
producers (IPPs), as well as emerging power marketers, by authorizing
market-based rates for their power sales on a case-by-case basis, and
by encouraging more widely available transmission access on a case-by-
case basis. Market-based rates helped to develop competitive bulk power
markets by allowing generating utilities to move more quickly and
flexibly to take advantage of short-term or even long-term market
opportunities than those utilities operating under traditional cost-of-
service tariffs. In approving these market-based rates, the Commission
required that the seller and its affiliates lack market power or
mitigate any market power that they may have had.\8\ The major concern
of the Commission was whether the seller or its affiliates could limit
competition and thereby drive up prices. A key inquiry became whether
the seller or its affiliates owned or controlled transmission
facilities in the relevant service area and therefore, by denying
access or imposing discriminatory terms or conditions on transmission
service, could foreclose other generators from competing. Beginning in
the late 1980s, in order to mitigate their market power to meet the
Commission's conditions, public utilities seeking Commission
authorization for blanket approval of market-based rates for generation
services under section 205 of the FPA filed ``open access''
transmission tariffs of general applicability.\9\ The Commission also
approved proposed mergers under section 203 of the FPA on the condition
that the merging companies remedy anticompetitive effects potentially
caused by the merger by filing ``open access'' tariffs. The early
tariffs submitted in market-based rate proceedings under section 205
and merger proceedings under section 203 did not, however, provide
access to the transmission system that was comparable to the service
the transmission providers used for their own purposes. Rather, they
typically made available only point-to-point transmission service,
i.e., service from a single point of receipt to a single point of
delivery. As these early tariffs were offered only by transmission
providers that volunteered to provide service to third parties, they
resulted in a patchwork of open access that was not sufficient to
facilitate wholesale generation markets.
---------------------------------------------------------------------------

    \8\ See, e.g., Dartmouth Power Associates Limited Partnership,
53 FERC ] 61,117 (1990); Commonwealth Atlantic Limited Partnership,
51 FERC ] 61,368 (1990); Doswell Limited Partnership, 50 FERC ]
61,251 (1990); Citizens Power & Light Co., 48 FERC ] 61,210 (1989);
Ocean State Power, 44 FERC ] 61,261 (1988); and Orange and Rockland
Utilities, Inc., 42 FERC ] 61,012 (1988).
    \9\ See Order No. 888 at 31,644 n.52.
---------------------------------------------------------------------------

    13. In response to the competitive developments following PURPA,
and the fact that limited transmission access and significant
regulatory barriers continued to constrain the development of
generation by independent power producers, Congress enacted Title VII
of the Energy Policy Act of 1992 (EPAct 1992).\10\ EPAct 1992 reduced
regulatory barriers to entry by creating a class of ``Exempt Wholesale
Generators'' that were exempt from the requirements of the Public
Utility Holding Company Act of 1935.\11\ EPAct 1992 also expanded the
Commission's authority to approve applications for transmission
services under sections 211 and 212 of the FPA.\12\ Though the
Commission aggressively implemented expanded section 211, it ultimately
concluded that the procedural limitations in section 211 thwarted the
Commission's ability to effectively eliminate undue discrimination in
the provision of transmission service.
---------------------------------------------------------------------------

    \10\ Pub. L. 102-486, 106 Stat. 2776 (1992) (codified at, among
other places, 15 U.S.C. 79z-5a and 16 U.S.C. 796 (22-25), 824j-l).
    \11\ 15 U.S.C. 79a, repealed by EPAct 2005 sec. 1263; see Repeal
of the Public Utility Holding Company Act of 1935 and Enactment of
the Public Utility Holding Company Act of 2005, Order No. 667, 70 FR
75592 (Dec. 20, 2005), FERC Stats. & Regs. ] 31,197 (2005), order on
reh'g, Order No. 667-A, 71 FR 28446 (May 16, 2006), FERC Stats. &
Regs. ] 31,213 (2006), order on reh'g, Order No. 667-B, 71 FERC
42750 (Jul. 28, 2006), FERC Stats. & Regs. ] 31,224 (2006), reh'g
pending.
    \12\ 16 U.S.C. 824j (authorizing the Commission to require
transmission utilities to provide service in certain circumstances);
16 U.S.C. 824k (establishing rates for service provided pursuant to
an order under section 211).
---------------------------------------------------------------------------

B. Order No. 888 and Subsequent Reforms

    14. In April 1996, as part of its statutory obligation under
sections 205 and 206 of the FPA to remedy undue discrimination, the
Commission adopted Order No. 888 prohibiting public utilities from
using their monopoly power over transmission to unduly discriminate
against others. In that order, the Commission required all public
utilities that own, control or operate facilities used for transmitting
electric energy in interstate commerce to file open access non-
discriminatory transmission tariffs that contained minimum terms and
conditions of non-discriminatory service. It also obligated such public
utilities to ``functionally unbundle'' their generation and
transmission services. This meant public utilities had to take
transmission service (including ancillary services) for their own new
wholesale sales and purchases of electric energy under the open access
tariffs, and to separately state their rates for wholesale generation,
transmission and ancillary services.\13\ Each public utility was
required to file the pro forma OATT included in Order No. 888 without
any deviation (except a limited number of terms and conditions that
reflect regional practices).\14\ After the effectiveness of their
OATTs, public utilities were allowed to file, pursuant to section 205
of the FPA, deviations that were consistent with or superior to the pro
forma OATT's terms and conditions. Because certain owners, controllers
or operators of interstate transmission facilities were not subject to
the Commission's jurisdiction under sections 205 and 206 and thus were
not subject to Order No. 888, the Commission adopted a reciprocity
provision in the pro forma OATT that conditions the use by a non-public
utility of a public utility's open access services on an agreement to
offer non-discriminatory transmission services in return.
---------------------------------------------------------------------------

    \13\ This is known as ``functional unbundling'' because the
transmission element of a wholesale sale is separated or unbundled
from the generation element of that sale, although the public
utility may provide both functions. See infra section IV.B.4 of this
Final Rule.
    \14\ See Order No. 888 at 31,769-70 (noting that the pro forma
OATT expressly identified certain non-rate terms and conditions,
such as the time deadlines for determining available transfer
capability in section 18.4 or scheduling changes in sections 13.8
and 14.6, that may be modified to account for regional practices if
such practices are reasonable, generally accepted in the region, and
consistently adhered to by the transmission provider).
---------------------------------------------------------------------------

    15. In addition to imposing the functional unbundling requirement,
the Commission also encouraged broader reforms through the formation of
independent system operators (ISOs). The Commission stated that ISOs
can provide significant benefits such as enhancing regional
efficiencies and further remedying undue discrimination.\15\ While the
Commission declined to mandate ISOs, it set forth eleven principles for
assessing ISO proposals submitted to the Commission.\16\
---------------------------------------------------------------------------

    \15\ Order No. 888 at 31,655.
    \16\ Id. at 31,730-32.
---------------------------------------------------------------------------

    16. Order No. 888 also clarified the Commission's interpretation of
the Federal and State jurisdictional boundaries over transmission and
local distribution. While Order No. 888 reaffirmed that the Commission
has exclusive jurisdiction over the rates,

terms, and conditions of unbundled retail transmission in interstate
commerce by public utilities, it nevertheless recognized the legitimate
concerns of State regulatory authorities regarding the transmission
component of bundled retail sales. The Commission therefore declined to
extend its unbundling requirement to the transmission component of
bundled retail sales. On appeal, the U.S. Supreme Court affirmed this
element of Order No. 888, finding that the Commission made a
statutorily permissible choice.\17\
---------------------------------------------------------------------------

    \17\ New York v. FERC, 535 U.S. 1 (2002).
---------------------------------------------------------------------------

    17. The same day it issued Order No. 888, the Commission issued a
companion order, Order No. 889,\18\ addressing the separation of
vertically integrated utilities' transmission and merchant functions,
the information transmission providers were required to make public,
and the electronic means they were required to use to do so. Order No.
889 imposed Standards of Conduct governing the separation of, and
communications between, the utility's transmission and wholesale power
functions, to prevent the utility from giving its merchant arm
preferential access to transmission information. All public utilities
that owned, controlled or operated facilities used in the transmission
of electric energy in interstate commerce were required to create or
participate in an Open Access Same-Time Information System (OASIS) that
was to provide existing and potential transmission customers the same
access to transmission information.
---------------------------------------------------------------------------

    \18\ Open Access Same-Time Information System (Formerly Real-
Time Information Networks) and Standards of Conduct, Order No. 889,
61 FR 21737 (May 10, 1996), FERC Stats. & Regs. ] 31,035 (1996),
order on reh'g, Order No. 889-A, FERC Stats. & Regs. ] 31,049
(1997), order on reh'g, Order No. 889-B, 81 FERC ] 61,253 (1997).
---------------------------------------------------------------------------

    18. Among the information public utilities were required to post on
their OASIS was the transmission provider's calculation of ATC. Though
the Commission acknowledged that before-the-fact measurement of the
availability of transmission service is ``difficult,'' it concluded
that it was important to give potential transmission customers ``an
easy-to-understand indicator of service availability.'' \19\ Because
formal methods did not then exist to calculate ATC and total transfer
capability (TTC), the Commission encouraged industry efforts to develop
consistent methods for calculating ATC and TTC.\20\ Order No. 889
ultimately required transmission providers to base their calculations
on ``current industry practices, standards and criteria'' and to
describe their methodology in their tariffs.\21\ The Commission noted
that the requirement that transmission providers purchase only ATC that
is posted as available ``should create an adequate incentive for them
to calculate ATC and TTC as accurately and as uniformly as possible.''
\22\
---------------------------------------------------------------------------

    \19\ Order No. 889 at 31,605.
    \20\ Id. at 31,607.
    \21\ Id.
    \22\ Id.
---------------------------------------------------------------------------

    19. The electric industry continued to undergo economic and
regulatory changes in the years following the issuance of Order No.
888. Retail access was adopted by approximately 25 states in the late
1990s.\23\ This State restructuring activity spurred significant
changes at the wholesale level as well by encouraging or requiring the
divestiture of generation plants by traditional electric utilities and
the development of ISOs that could manage short-term energy markets
necessary to support retail access. At the same time, there was a
significant increase in the number of mergers between traditional
electric utilities and between electric utilities and gas pipeline
companies, and large increases in the number of power marketers and
independent generation facility developers entering the marketplace.
Trade in bulk power markets increased significantly and the Nation's
transmission grid was used more heavily and in new ways as customers
took advantage of the pro forma OATT and purchased power from
competitive sellers.
---------------------------------------------------------------------------

    \23\ See Energy Information Administration, Retail Unbundling--
U.S. Summary (2005), http://www.eia.doe.gov/oil_gas/natural_gas/restructure/state/us.html
.

---------------------------------------------------------------------------

    20. In the wake of these changes, in December 1999, the Commission
adopted Order No. 2000.\24\ That rulemaking recognized that Order No.
888 set the foundation upon which competitive electric markets could
develop, but did not eliminate the potential to engage in undue
discrimination and preference in the provision of transmission
service.\25\ The rulemaking also recognized that Order No. 888 did not
address the regional nature of the grid, including the treatment of
parallel flows, pancaked rates, and congestion management. Thus, the
Commission encouraged the creation of RTOs to address important
operational and reliability issues and eliminate any residual
discrimination in transmission services that can occur when the
operation of the transmission system remains in the control of a
vertically integrated utility. The Commission found that RTOs would
increase the efficiency of wholesale markets by eliminating pancaked
rates, internalizing parallel flow, managing congestion efficiently,
and operating markets for energy, capacity and ancillary services. The
Commission established an open, collaborative process that relied on
voluntary regional participation to design RTOs tailored to the
specific needs of each region. The Commission noted, however, that
``[i]f the industry fails to form RTOs under this approach, the
Commission will reconsider what further regulatory steps are in the
public interest.''\26\
---------------------------------------------------------------------------

    \24\ Regional Transmission Organizations, Order No. 2000, 65 FR
809 (Jan. 6, 2000), FERC Stats. & Regs. ] 31,089 (1999), order on
reh'g, Order No. 2000-A, 65 FR 12088 (Mar. 8, 2000), FERC Stats. &
Regs. ] 31,092 (2000), aff'd sub nom. Public Utility District No. 1
of Snohomish County, Washington v. FERC, 272 F.3d 607 (D.C. Cir.
2001).
    \25\ Order No. 2000 at 31,015.
    \26\ Id. at 30,993.
---------------------------------------------------------------------------

    21. Following Order No. 2000, RTOs were approved in several regions
of the country including the Northeast (PJM; ISO New England),\27\ the
Midwest (MISO) and the South (SPP). In most cases, RTOs have assumed
responsibility for calculating ATC across the footprint of the RTO, as
well as the planning and expansion of the transmission grid, at least
for facilities necessary for maintaining system reliability. However,
large areas of the Nation have not developed RTOs using the voluntary
structure adopted by the Commission in Order No. 2000. Moreover,
transmission customers have complained that even in RTO markets there
are instances when comparable transmission service is not provided,
particularly in the area of transmission planning.
---------------------------------------------------------------------------

    \27\ A list of commenter acronyms can be found in Appendix B.
---------------------------------------------------------------------------

C. EPAct 2005 and Recent Developments

    22. Enacted on August 8, 2005, EPAct added a number of new
authorities and priorities for the Commission and emphasized certain of
its existing obligations. Among other things, EPAct 2005 recognized the
importance of adequate transmission infrastructure development and its
role in facilitating the development of competitive wholesale markets.
The Congressional directives in EPAct 2005 are intended to reverse the
decline in transmission infrastructure investment. For example,
Congress required the Commission to adopt a rule establishing incentive
ratemaking for transmission infrastructure to help promote reliability
and reduce congestion.\28\ Congress also

directed the Commission to encourage the deployment of advanced
technologies.\29\ Congress further directed the Commission to
``exercise its authority'' under EPAct 2005 ``in a manner that
facilitates the planning and expansion of transmission facilities to
meet the reasonable needs of load-serving entities.''\30\ Congress also
gave the Commission certain ``backstop'' transmission siting authority,
and authorized the creation of interstate compacts establishing
transmission siting agencies.\31\ EPAct 2005 also authorized the
Commission to require unregulated transmitting utilities (except for
certain small entities) to provide access to their transmission
facilities on a comparable basis.\32\ Congress further ordered the
Department of Energy (DOE) to study the benefits of economic dispatch
and required the Commission to convene regional joint boards to develop
a report to Congress containing recommendations for the use of security
constrained economic dispatch within each region.\33\ Congress also
directed the Commission to facilitate price transparency in markets for
the sale and transmission of electric energy in interstate commerce,
having due regard for the public interest, the integrity of those
markets, fair competition, and the protection of consumers, and it
authorized the Commission to prescribe rules to provide for the
dissemination of information about the availability and price of
wholesale electric energy and transmission service.\34\ Finally,
Congress emphasized compliance with the Commission's regulations,
adopting and increasing the civil and criminal penalties for violations
of Commission-administered statutes and regulations.\35\
---------------------------------------------------------------------------

    \28\ EPAct 2005 sec. 1241 (to be codified at section 219 of the
FPA, 16 U.S.C. 824s).
    \29\ EPAct 2005 sec. 1223 (to be codified at 42 U.S.C. 16422).
Indeed, Congress provided specific guidance as to the types of
advanced technologies that should be encouraged in infrastructure
improvements to include, among others, optimized transmission line
configurations (including multiple phased transmission lines),
controllable load, distributed generation (including PV, fuel cells,
and microturbines), and enhanced power device monitoring. Id.
    \30\ EPAct 2005 sec. 1233(a) (to be codified at section
217(b)(4) of the FPA, 16 U.S.C. 824q).
    \31\ EPAct 2005 sec. 1221(a) (to be codified at section 216 of
the FPA, 16 U.S.C. 824p).
    \32\ EPAct 2005 sec. 1231 (to be codified at section 211A of the
FPA, 16 U.S.C. 824j-1)
    \33\ EPAct 2005 sec. 1234 (to be codified at 42 U.S.C. 16432);
EPAct 2005 sec. 1298 (to be codified at section 223 of the FPA, 16
U.S.C. 824w). EPAct 2005 sec. 1234(b) defined economic dispatch as
``the operation of generation facilities to produce energy at the
lowest cost to reliably serve consumers, recognizing any operational
limits of generation and transmission facilities.''
    \34\ EPAct 2005 sec. 1281 (to be codified at section 220 of the
FPA, 16 U.S.C. 824t).
    \35\ EPAct 2005 sec. 1284(d) (to be codified at section 316 of
the FPA, 16 U.S.C. 825o); EPAct 2005 sec. 1284(e) (to be codified at
section 316A of the FPA, 16 U.S.C. 825o-1).
---------------------------------------------------------------------------

    23. Recognizing the need for reform of Order No. 888 in light of
the Commission's continuing concern regarding whether the pro forma
OATT adequately remedies undue discrimination, the Commission issued an
NOI on September 16, 2005 \36\ seeking comments on appropriate reforms
of the Order No. 888 pro forma OATT. In the NOI, the Commission
expressed its preliminary view that reforms to the pro forma OATT and
public utilities' OATTs are necessary to avoid undue discrimination or
preference in the provision of transmission service. The NOI sought
comments on how best to accomplish the Commission's goals, specifically
with respect to enhancements that are needed to (1) Remedy any unduly
discriminatory or preferential application of the pro forma OATT or (2)
improve the clarity of the Order No. 888 pro forma OATT and the
individual public utility tariffs in order to more readily identify
violations and facilitate compliance.
---------------------------------------------------------------------------

    \36\ See supra note 5.
---------------------------------------------------------------------------

    24. The Commission received over 4,000 pages of initial and reply
comments on the NOI. Based on these comments, the comments submitted in
response to the ATC NOI,\37\ our experience in implementing Order No.
888, and the changes in the industry since we adopted it, the
Commission proposed to reform the pro forma OATT in a number of ways.
The Commission issued the NOPR on May 19, 2006 proposing a number of
reforms aimed at remedying undue discrimination in the provision of
open access transmission service and improving the clarity of the pro
forma OATT and the individual tariffs of transmission providers in
order to more readily identify violations and facilitate compliance.
The Commission received over 5,700 pages of initial and reply comments
in response. In response to comments on the particular issue of
redispatch and conditional firm service (discussed in more detail
below), the Commission issued a Notice of Request for Supplemental
Comments on November 15, 2006,\38\ that resulted in receipt of an
additional 750 pages of comments.
---------------------------------------------------------------------------

    \37\ Id.
    \38\ Preventing Undue Discrimination and Preference in
Transmission Service, 117 FERC ] 61,185 (2006).
---------------------------------------------------------------------------

    25. Based on this voluminous record, the Commission concludes that
reform of the pro forma OATT and associated amendments to its
regulations are necessary to reduce the potential for undue
discrimination and provide clarity in the obligations of transmission
providers and customers alike. We turn next to a more complete
explanation of this need for reform.

III. Need for Reform of Order No. 888

A. Opportunities for Undue Discrimination Continue To Exist

    26. Although Order No. 888 has been successful in many important
respects, the need for reform of the Order No. 888 pro forma OATT has
been apparent for some time. In 1999, the Commission held, in adopting
Order No. 2000, that the pro forma OATT could not fully remedy undue
discrimination because transmission providers retained both the
incentive and the ability to discriminate against third parties,
particularly in areas where the pro forma OATT left the transmission
provider with significant discretion.\39\ The Commission made a similar
finding in Order No. 2003,\40\ holding that opportunities for undue
discrimination continue to exist in areas where the pro forma OATT
leaves transmission providers with substantial discretion.\41\ The NOPR
reaffirmed these findings, preliminarily concluding that opportunities
for undue discrimination continue to exist in the provision of open
access transmission service. The Commission therefore proposed a number
of reforms to the pro forma OATT to address the opportunities and
incentives transmission providers have to unduly discriminate.
---------------------------------------------------------------------------

    \39\ Order No. 2000 at 31,105.
    \40\ See Standardization of Generator Interconnection Agreements
and Procedures, Order No. 2003, 68 FR 49845 (Aug. 19, 2003), FERC
Stats. & Regs. ] 31,146 at P 11-12 (2003), order on reh'g, Order No.
2003-A, 69 FR 15932 (Mar. 26, 2004), FERC Stats. & Regs. ] 31,160
(2004), order on reh'g, Order No. 2003-B, 70 FR 265 (Jan. 4, 2005),
FERC Stats. & Regs. ] 31,171 (2004), order on reh'g, Order No. 2003-
C, 70 FR 37,661 (Jun. 30, 2005), FERC Stats. & Regs. ] 31,190
(2005), aff'd sub nom. National Association of Regulatory Utility
Commissioners v. FERC, No. 04-1148, 2007 U.S. App. LEXIS 626 (D.C.
Cir. Jan. 12, 2007).
    \41\ Order No. 2003 at P 11-12.
---------------------------------------------------------------------------

Comments
    27. Many commenters agree with the Commission that reforms to the
pro forma OATT are needed because there continue to be both the
opportunity and incentive for transmission providers to engage in undue
discrimination.\42\
---------------------------------------------------------------------------

    \42\ E.g., APPA, EPSA, East Texas Cooperatives, Fayetteville,
NRG, Occidental, TAPS, TDU Systems, Williams, Entegra Reply, and
NRECA Reply.
---------------------------------------------------------------------------

    28. Several commenters offered examples of their experiences with
transmission providers, where they believe transmission providers have
acted in an unduly discriminatory

fashion.\43\ Constellation claims that on multiple occasions it has
been denied a transmission request when the transmission provider's
OASIS indicates that ATC is available, but Constellation had no
effective and timely way to challenge that determination because of the
ATC ``black box.'' Constellation states that given that its needs for
transmission service are often near-term or immediate--e.g., to
facilitate a load-serving obligation or wholesale transaction that must
be consummated quickly--seeking redress at the Commission for
improperly denied service generally is not time- or cost-effective.
Instead, Constellation asserts, it is often forced to accept the
determination of the transmission provider that ATC is not available
(even though its OASIS may indicate otherwise) and seek alternate
transmission paths and/or products to consummate its transaction.
---------------------------------------------------------------------------

    \43\ See, e.g., Dow, Fayetteville, Occidental, and Williams.
---------------------------------------------------------------------------

    29. Powerex also describes instances where a transmission provider
has granted short-term firm point-to-point transmission service
requests to transmission customers who have been allowed to remain in
the queue, even when zero ATC is posted, in the hopes that a
transmission provider's OASIS site wrongly indicates zero ATC or will
soon be updated. Powerex asserts that such practices clog the short-
term point-to-point transmission queue with multiple requests and
result in duplicative requests for service that reflect customers'
attempts to secure service, rather than the actual quantity of service
needed. Moreover, Powerex argues, transmission provider discretion in
this area and the lack of transparency raise customer concerns about
preferential treatment.
    30. Occidental claims that it has first-hand experience with a
vertically integrated transmission provider that, despite having an
OATT, appears to have persistently used its transmission system to
preferentially benefit its merchant function. Similarly, Williams
alleges that its interests have been consistently and significantly
compromised by the discretion afforded transmission providers in the
interpretation of the OATT and the lack of transparency in requesting,
scheduling and interrupting of transmission service.
    31. Other commenters, however, argue that the Commission's proposed
reforms are based on unsupported allegations of undue discrimination.
EEI maintains that any opportunities to engage in undue discrimination
have been largely mitigated by current regulatory policies and changes
in the industry. EEI explains that, unlike the situation that existed
when the Commission enacted Order No. 888, much of the country's
transmission facilities are now under the control of RTOs and ISOs. In
addition, EEI states, other transmission providers have transferred (or
are in the process of transferring) the administration of their OATTs
and OASIS functions to independent transmission service coordinators.
Even among the transmission providers who have taken neither of those
steps, EEI argues that the open access requirements of Order No. 888
and the Standards of Conduct of Order Nos. 889 and 2004 have largely
eliminated the ability of transmission providers to engage in undue
discrimination in the provision of transmission service.\44\ In
addition, EEI states, the Commission's expanded civil penalty authority
added to the FPA by EPAct 2005 gives the Commission a powerful tool
that will further eliminate any remaining incentive of transmission
providers to engage in undue discrimination in the provision of
transmission service. Therefore, EEI asserts, any modifications to the
OATT should be narrowly tailored to address the perceptions of residual
undue discrimination. To the extent that such perceptions exist,
however, Community Power Alliance states that, in the absence of
concrete record evidence, they are just that--perceptions.
---------------------------------------------------------------------------

    \44\ See also Southern Reply.
---------------------------------------------------------------------------

    32. Although Duke strongly supports, as a policy matter, OATT
reforms that will eliminate the perception that undue discrimination is
possible and/or likely, Duke argues that the FPA does not provide the
Commission the authority to remedy mere ``opportunities'' to
discriminate. Duke states that, in some cases, the Commission is
attempting to remedy an opportunity for undue discrimination that does
not exist or is proposing to impose a remedy that does not actually
remedy the perceived opportunity. Duke notes, however, that some OATT
terms and conditions are subject to multiple interpretations and argues
that the Commission can, and should, justify the OATT reforms proposed
in the NOPR as reforms needed to provide clarity to existing policies.
    33. With regard to specific allegations made by commenters, several
transmission providers respond that the examples given by transmission
customers do not illustrate instances of undue discrimination. Rather,
they assert, these examples demonstrate the transmission customers'
lack of understanding of the OATT requirements, and the data available
on OASIS.\45\
---------------------------------------------------------------------------

    \45\ See, e.g., Entergy Reply, Progress Energy Reply, and
Southern Reply.
---------------------------------------------------------------------------

    34. New Mexico Attorney General argues that the traditional State-
regulated, vertically-integrated cost-of-service world is not in need
of reform. Contrary to the ``conspiracy theorists'' who argue that
utilities have an incentive to engage in undue discrimination and
preference in transmission services, New Mexico Attorney General
asserts that utilities have an incentive to maximize throughput and
revenue between State-level rate cases because incremental transmission
revenue is not deducted from the State-jurisdictional retail revenues
between rate cases. Similarly, Southern, in its reply comments, asserts
that broad claims of undue discrimination fail to take into
consideration that vertically-integrated utilities have more of an
incentive to act appropriately than do independent utilities because
the former have more to lose (e.g., loss of market-based rates, state
prudence reviews of costs, etc.) if they are found to have engaged in
wrong-doing. Southern states that any OATT revisions ultimately adopted
by the Commission must be reasonably tailored to address an identified
problem or to provide a specific improvement.
    35. Other commenters argue that the Commission's focus should be on
transmission providers in non-organized markets, arguing that remaining
concerns about undue discrimination have already been addressed in the
world of ISOs and RTOs.\46\ According to ISO/RTO Council, this
proceeding provides an opportunity for the Commission to harmonize the
worlds of organized and non-organized markets in a manner that
encourages competition, promotes non-discriminatory access, and
maximizes the flow of electricity across various ISO/RTO and non-ISO/
RTO regions. ISO/RTO Council states that, in the existing regulatory
environment, a utility that is not a member of an ISO or RTO can sell
into, or purchase from, an ISO or RTO market even though the non-ISO/
RTO utility operates under tariff rules that are less open and
transparent, particularly in terms of access to generation resources
and pricing/system information, than their competitors that belong to
an ISO or RTO. Such asymmetry, ISO/RTO Council argues, operates as an

impediment to fair and non-discriminatory transmission access and
management of grid congestion.
---------------------------------------------------------------------------

    \46\ E.g., Indicated New York Transmission Owners, ISO/RTO
Council, and Northeast Utilities.
---------------------------------------------------------------------------

    36. ISO/RTO Council states that its members do not seek to impose
their market designs on the rest of the nation. At the same time, ISO/
RTO Council argues that meaningful reform should ensure a level of
transparency (of both price and the dispatch utilized by non-ISO/RTO
vertically-integrated entities) in regions without an ISO or RTO that
can assist the flow of electricity and enhance reliability and planning
in both ISO/RTO and non-ISO/RTO regions.
    37. Exelon urges the Commission to hold the transmission providers
outside ISOs or RTOs to the same standard of non-discrimination that
exists within those organizations. Further, MISO/PJM States argue that
in order to achieve some level of independence in non-RTO regions, non-
independent transmission providers should be encouraged to turn over
operational control of their transmission systems to an independent
coordinator of transmission whose functions would include security
coordination, determination of ATC, granting of transmission service
and oversight for transmission planning.
    38. Finally, EPSA suggests that the Commission establish a one-year
review period for the reformed pro forma OATT. EPSA urges the
Commission to revisit this Final Rule after one year of operation under
the reformed pro forma OATT to ensure that the revisions adopted here
do, in fact, protect against non-discriminatory or preferential
behavior by transmission providers. NRECA responds that, after this
comprehensive rulemaking process, there is simply no need for another
major look at the OATT in one year. Moreover, NRECA states, one year is
likely too short a period for the Commission and industry participants
to fully appreciate all of the consequences of those elements of OATT
reform resulting from this proceeding. At the same time, NRECA agrees
that the Commission should carefully monitor implementation of the
reformed OATT. This monitoring, NRECA states, must be an ongoing
process and cannot wait a year to begin.
Commission Determination
    39. The Commission concludes that reforms are needed to address
deficiencies in the pro forma OATT that have become apparent since
1996, by limiting remaining opportunities for undue discrimination. As
the Commission found in Order No. 888, it is in the economic self-
interest of transmission monopolists, particularly those with high-cost
generation assets, to deny transmission or to offer transmission on a
basis that is inferior to that which they provide to themselves.\47\
Such an incentive can lead to unduly discriminatory behavior against
third parties, particularly if public utilities have unnecessarily
broad discretion in the application of their tariffs. This discretion
also can create problems for transmission providers seeking to comply
with our regulations in good faith because so many issues are left for
their interpretation, thereby increasing the possibility of disputes
with transmission customers and enforcement actions by the
Commission.\48\ Transmission customers also have found ways to use the
tariffs to their own advantage, particularly in the scheduling and
queuing processes.\49\
---------------------------------------------------------------------------

    \47\ Order No. 888 at 31,682.
    \48\ See, e.g., Order No. 2003 at P 11-12.
    \49\ See, e.g., Potomac Economics, Ltd., 2004 State of the
Market Report: Midwest ISO at 30-31, 34-35 (Jun. 2005), http://www.midwestmarket.org/publish/Document/2b8a32_103ef711180_-7bf20a48324a/2004%20MISO%20SOM%20Report.pdf?action=download&_property=Attachment
 (explaining that the queuing process, by giving

eport.pdf?action=download&_property=Attachment
 (explaining that the queuing process, by giving

provides a low- or no-cost option that restricts other customers'
access to congested interfaces, and the scheduling process, by
allowing customers to leave transmission requests unconfirmed,
provides a free option that may invite hoarding or result in
underutilized capacity).
---------------------------------------------------------------------------

    40. As some commenters note, opportunities for undue discrimination
persist, particularly in areas where the pro forma OATT leaves the
transmission provider with substantial discretion. The Commission has a
responsibility under section 206 of the FPA to remedy undue
discrimination. Indeed, the court concluded in Associated Gas
Distributors v. FERC,\50\ that, like the Natural Gas Act,\51\ the FPA
``fairly bristles'' with concern over undue discrimination. Based on
AGD, the Commission determined in Order No. 888 that:

    \50\ 824 F.2d 981 (D.C. Cir. 1987) (AGD).
    \51\ 15 U.S.C. 717.
---------------------------------------------------------------------------

    The Commission has a mandate under sections 205 and 206 of the
FPA to ensure that, with respect to any transmission in interstate
commerce or any sale of electric energy for resale in interstate
commerce by a public utility, no person is subject to any undue
prejudice or disadvantage. We must determine whether any rule,
regulation, practice or contract affecting rates for such
transmission or sale for resale is unduly discriminatory or
preferential, and must prevent those contracts and practices that do
not meet this standard. * * * AGD demonstrates that our remedial
power is very broad and includes the ability to order industry-wide
non-discriminatory open access as a remedy for undue discrimination.
    Order No. 888 at 31,669. Through this Final Rule, the Commission
exercises that remedial authority again to limit further opportunities
for undue discrimination, by minimizing areas of discretion, addressing
ambiguities and clarifying various aspects of the pro forma OATT.
    41. We disagree with commenters who assert that the Commission is
relying on unsubstantiated allegations of discriminatory conduct to
justify OATT reform. The courts have made clear that the Commission
need not make specific factual findings of discrimination in order to
promulgate a generic rule to eliminate undue discrimination.\52\ In
AGD, the court explained that the promulgation of generic rate criteria
involves the determination of policy goals and the selection of the
means to achieve them and that courts do not insist on empirical data
for every proposition upon which the selection depends: ``[a]gencies do
not need to conduct experiments in order to rely on the prediction that
an unsupported stone will fall.'' \53\ During this multi-year
proceeding, the Commission has received many comments arguing that
commenters have either experienced or perceived that they have
experienced unduly discriminatory conduct by transmission providers.
Even transmission providers have acknowledged that there is a
continuing perception that there is the opportunity for them to unduly
discriminate against their competitors and, accordingly, they state
their support for our reform effort.\54\ Moreover, it is undisputed
that the existing pro forma OATT provides wide discretion in
implementing some of its basic requirements, such as the assessment of
whether sufficient ATC exists to grant third party access to the grid
and the manner in which new facilities are planned to satisfy third
party needs. This wide discretion, when coupled with a transmission
provider's incentive to discriminate, creates opportunities for
discrimination under the pro forma OATT. We have an obligation under
section 206 to remedy that discrimination.
---------------------------------------------------------------------------

    \52\ TAPS v. FERC, 225 F.3d at 667, 688; National Fuel Gas
Supply Corp. v. FERC, 468 F.3d 831 (D.C. Cir. 2006) (National Fuel).
    \53\ 824 F.2d at 1008.
    \54\ See, e.g., Duke and EEI.
---------------------------------------------------------------------------

    42. It is thus clear to us that, notwithstanding the Commission's
efforts in Order No. 888, opportunities to engage in undue
discrimination can and will persist unless the existing pro forma OATT
is reformed. We therefore exercise our broad remedial authority today
to limit these remaining

opportunities for undue discrimination. The Commission concludes that
any additional costs incurred by transmission providers to implement
the reforms required in this Final Rule are fully justified by the need
to ensure open, transparent and non-discriminatory access to
transmission service. We also believe it is appropriate to adopt these
reforms by rulemaking, rather than rely on complaints filed by
transmission customers or other parties. Case-by-case application of
the reforms adopted in this Final Rule would be inappropriate since the
most fundamental problems addressed here arise from deficiencies in the
pro forma OATT itself, not simply the implementation of the pro forma
OATT by a few transmission providers. Also, we decline to establish a
one-year review period for the reformed pro forma OATT, as EPSA
recommends. The Commission will continue to actively monitor compliance
with its orders and, as necessary, institute further proceedings to
meet its statutory obligation to remedy undue discrimination.
    43. The Commission will not catalog each and every basis for its
reform of the pro forma OATT in this section. Rather, we identify the
bases for some of the most fundamental reforms herein and, in addition,
we explain in each individual section of the Final Rule the
inadequacies of the existing pro forma OATT provisions being addressed
there and the reasons why our reforms are necessary to remedy undue
discrimination or otherwise provide for rates, terms and conditions of
service under the pro forma OATT that are just and reasonable.

B. Lack of Transparency Undermines Confidence in Open Access and
Impedes Enforcement of Open Access Requirements

    44. Following the issuance of the NOI, the Commission received a
number of comments asserting that increased transparency would aid
transmission customers in their participation in the wholesale market.
A common theme in the comments was that a lack of transparency could
lead to claims of discrimination and could make such claims more
difficult to resolve. Commenters urged the Commission to improve
transparency in a number of areas, particularly the evaluation of ATC
and the planning of the transmission system, as well as the processing
of transmission service requests and studies.
    45. In the NOPR, the Commission agreed that a lack of transparency
both increases the potential for undue discrimination and makes it more
difficult to detect. The Commission reasoned that this lack of
sufficient transparency was caused in part by inadequate compliance
with the existing OASIS regulations and in part by inadequate
transparency requirements. The Commission stated that the proposed
reforms were intended to address both elements of the problem in an
effort to increase confidence in open access tariffs and to facilitate
compliance with the Commission's regulations and its enforcement of
them.
Comments
    46. Williams states that its interests have been consistently and
significantly compromised by the discretion afforded transmission
providers in the interpretation of the OATT and the lack of
transparency in requesting, scheduling and interrupting of transmission
service. According to Williams, simply being told that service is being
curtailed for reliability purposes under opaque local procedures, in
the absence of a NERC Transmission Loading Relief (TLR) event, leaves
market participants suffering the consequences without knowing on what
basis the decision was reached, and without assurance that the decision
was made in a non-discriminatory manner. Ultimately, Williams adds, the
lack of transparency and latitude taken by the transmission provider to
determine which requests for service are confirmed or denied and which
are curtailed or interrupted in real time frustrates the Commission's
goal of preventing undue discrimination and preference in the provision
of transmission service. Furthermore, Williams states, the same lack of
transparency exists around the opaque processes utilized, assumptions
made, and basis on which the results of transmission planning studies
are conducted to grant or deny requests for service.
    47. APPA agrees that additional transparency in the administration
of public utility transmission providers' OATTs will be of material
assistance to both the Commission and transmission customers. However,
APPA argues that the Commission must go beyond increasing transparency
in the administration of public utility transmission providers' OATTs.
According to APPA, more transparency will not change the basic industry
paradigm with transmission customers depending on monopoly transmission
providers for service. In APPA's view, customers are often reluctant to
file complaints or bring problems to the Commission's attention because
they depend on their transmission providers' systems for the vital
services they need to serve their loads. APPA argues that the
Commission not only has an obligation to act to remedy undue
discrimination when it sees it, but also has an affirmative duty to
look for it. According to APPA, the Commission must continue to
actively regulate the transmission services that public utility
transmission providers offer, even if full transparency is achieved
through the revisions to the OATT implemented in the instant docket.
    48. EPSA agrees that greater transparency will help enable market
participants and the Commission to monitor and audit the behavior of
transmission providers. EPSA states that the several ``black boxes''
shielding discriminatory transmission service over the past ten years
must be opened. However, EPSA argues, there must be meaningful clarity
and obligations set out in the rules and OATT requirements--
transparency simply for the sake of knowing why transmission service
has been denied only illuminates a ``bridge to nowhere'' and fails to
satisfy the Federal Power Act.
    49. Entergy also supports the Commission's efforts to provide
greater clarity in the rights and obligations of transmission providers
and transmission customers under the OATT. According to Entergy, many
of the improvements proposed by the Commission will reduce the
likelihood of disputes and promote greater confidence on the part of
customers that they are being treated fairly. Entergy states that,
while it recognizes that the lack of clarity makes it difficult for the
Commission to detect instances of non-compliance by transmission
providers, Entergy also believes that this lack of clarity often makes
it easier for transmission customers to convert every practice or
policy into a claim of discrimination or other misconduct.
    50. Although not convinced that there is a compelling need for
increased transparency since transmission providers are already
required to disclose voluminous amounts of information, Southern states
that it recognizes that some reforms in the availability of information
may be advantageous. However, Southern asserts, providing additional
transparency must not simply impose additional reporting requirements;
any such transparency-related reforms should be made after taking into
consideration the extent and type of data and information that is
already provided.

Commission Determination
    51. The Commission concludes that inadequate transparency
requirements, combined with inadequate compliance with existing OASIS
regulations, increases the opportunities for undue discrimination under
the pro forma OATT and makes instances of undue discrimination more
difficult to detect. We find that the reforms we adopt in this Final
Rule will improve transparency in the OATT, reduce opportunities for
undue discrimination, and increase our ability to detect undue
discrimination.

C. Congestion and Inadequate Infrastructure Development Impede
Customers' Use of the Grid

    52. The Commission noted in the NOPR that the ability and incentive
to discriminate increases as the transmission system becomes more
congested. The Commission observed that the pro forma OATT contained
only minimal requirements regarding transmission planning, which have
proven to be inadequate as the Nation faces insufficient transmission
investment in many areas. The Commission preliminarily concluded that
the inadequacy of the existing obligation to conduct transmission
system planning, coupled with the lack of transparency surrounding
system planning generally, required reform of the pro forma OATT to
ensure that transmission infrastructure is constructed on a
nondiscriminatory basis and is otherwise sufficient to support reliable
and economic service to all eligible customers. The Commission
therefore proposed to require public utilities to engage in an open and
transparent planning process at both the local and regional levels.
Comments
    53. APPA agrees that the lack of adequate transmission
infrastructure is one of the core problems facing the electric utility
industry. APPA supports revisions to the pro forma OATT to enhance and
improve transmission planning on both an individual system and regional
basis. Several commenters go further, arguing that the proposed reforms
are insufficient and urging the Commission to more strongly encourage
infrastructure development. EPSA asserts that successful implementation
of the Congressional policy in favor of wholesale competition and State
policies in favor of competitive procurement is frustrated by the lack
of sufficient open access to the transmission grid. According to EPSA,
new power plant investment is highly unlikely to occur, except by the
transmission provider or its affiliate on a ``sole source'' or ``no
bid'' basis (despite Federal and State policies to the contrary), if
unaffiliated suppliers cannot effectively and efficiently obtain
transmission service. EPSA argues that failure to boldly reform the
Commission's open access transmission rules at this critical juncture
would effectively hand an undeserved victory to the very transmission
providers who, by the Commission's own findings, have the motive and
the opportunity to discriminate. International Transmission argues that
tariff reform is no substitute for prudent investment in the
transmission infrastructure needed to increase the underlying physical
capability of the transmission system.
    54. On the other hand, some commenters dispute the Commission's
assertion in the NOPR that vertically-integrated utilities operating in
non-RTO regions have an incentive to discriminate and, therefore, are
not adequately expanding the transmission grid to accommodate new entry
by more efficient competitors. New Mexico Attorney General argues that
vertically-integrated utilities operating under the traditional rate-
base, rate-of-return model of regulation in fact have been historically
criticized for having incentives to overbuild. New Mexico Attorney
General asserts that most transmission projects are in reality derailed
by strong ``NIMBY'' opposition to the actual siting of transmission
lines. Another countervailing factor to the utility's incentive to
overbuild, in New Mexico Attorney General's view, is the fact that
State regulators attempt to limit capacity investment to reasonable
levels only necessary to serve native load.
    55. Southern states that the Commission's assertion in the NOPR
that vertically-integrated utilities do not have an incentive to expand
the grid overlooks the fact that many such utilities are under State
legal duties to procure generation supplies through open, non-
discriminatory requests for proposals, with the winners of those
requests for proposals often being competitors of the vertically-
integrated utility. Southern maintains that the winning competitive
generation is then integrated into the host utility's transmission
system and dispatch, and the transmission system is expanded to ensure
the deliverability of this competitive generation. Furthermore,
Southern states, a competitive generator can also have the output of
its generator planned into the transmission provider's system if it
takes long-term firm service under the OATT, with the transmission
provider then being under a legal duty to expand its transmission
system accordingly. Southern notes that it alone has invested $3.2
billion in transmission over the past decade and plans to invest
another $2.8 billion over the next five years (2006-2010).
    56. Community Power Alliance also argues that the Commission's own
June 2005 ``State of the Markets Report'' contradicts the Commission's
assertion that vertically-integrated utilities do not have the proper
incentives to expand the grid. Community Power Alliance contends that
this report shows that the amount of transmission investments made in
the non-RTO regions, where vertically-integrated utilities typically
operate, substantially exceeds the amount of transmission investments
made in RTO regions.
Commission Determination
    57. The Commission concludes that reforms are needed to ensure that
transmission infrastructure is evaluated, and if needed, constructed on
a nondiscriminatory basis and is otherwise sufficient to support
reliable and economic service to all eligible customers. As noted
above, vertically-integrated utilities do not have an incentive to
expand the grid to accommodate new entries or to facilitate the
dispatch of more efficient competitors. Despite this, the existing pro
forma OATT contains very few requirements regarding how transmission
planning should be conducted to ensure that undue discrimination does
not occur.
    58. Our concern over this flaw is heightened by the critical need
for new transmission infrastructure in this Nation. As the Commission
explained in the NOPR, transmission capacity is being constructed at a
much slower rate than the rate of increase in customer demand, with
transmission capacity per MW of peak demand declining at an average
rate of 2.1 percent per year during the period 1992 to 2002.\55\ The
projections suggest that this trend will continue through 2012.\56\ As
a result, there has been a significant decrease in transmission
capacity relative to load in every NERC region.\57\ In light of this
trend, there is a compelling need to build new transmission and respond
to increasing demand through other

means. EEI estimates that capital spending must increase by 25 percent,
from $4 billion annually to $5 billion annually, to ensure system
reliability and to accommodate wholesale electric markets.\58\ The
legacy systems constructed by vertically-integrated utilities prior to
the adoption of Order No. 888 support ``only limited amounts of inter-
regional power flows and transactions. Thus, existing systems cannot
fully support all of society's goals for a modern electric-power
system.'' \59\
---------------------------------------------------------------------------

    \55\ Eric Hirst, U.S. Transmission Capacity: Present Status and
Future Prospects (Aug. 2004), http://www.eei.org/industry_issues/energy_infrastructure/transmission/USTransCapacity10-18-04.pdf

(Present Status and Future Prospects).
    \56\ Present Status and Future Prospects at v.
    \57\ Brendan Kirby (Oak Ridge National Laboratory, U.S.
Department of Energy), Barriers to Transmission Investment,
Technical Conference Presentation, (Docket No. AD05-5-000) (April
22, 2005).
    \58\ Energy Policy Act of 2005: Hearings before the Subcommittee
on Energy and Air Quality of the House Committee on Energy and
Commerce, 109th Congress, First Sess. (2005) (Prepared statement of
Thomas R. Kuhn, President of EEI).
    \59\ Present Status and Future Prospects at v.
---------------------------------------------------------------------------

    59. Expansion of the transmission system, as well as more efficient
use of the grid, will alleviate the growth of congestion in most
regions of the country. Transmission congestion has created fairly
small local load pockets in primarily urban areas, e.g., New York City,
Long Island, Boston, parts of Connecticut, and the San Francisco Bay
Area. Other load pocket concerns have arisen in parts of northern
Virginia, and various load centers in SPP. Still other constraints are
more regional in scope: from the Midwest to the Mid-Atlantic, from the
Midwest to TVA, into and within California, from TVA and Southern into
Entergy, from Mid-America Interconnected Network into Wisconsin-Upper
Michigan Systems, and into Florida.
    60. Transmission congestion can have significant cost impacts on
consumers. In 2002, DOE issued a study estimating the costs of
congestion in four U.S. regions: California, PJM, New York and New
England.\60\ DOE found that, despite the overall savings of wholesale
electricity markets that lowered consumers' electricity bills by nearly
$13 billion annually, interregional transmission congestion cost
consumers hundreds of millions of dollars annually. DOE concluded that
relieving bottlenecks in these four regions alone could save consumers
about $500 million annually.\61\ In 2006, DOE released another study
identifying two areas of the country with severe existing or growing
congestion problems: the Atlantic coastal area from metropolitan New
York southward through Northern Virginia, and Southern California.\62\
---------------------------------------------------------------------------

    \60\ U.S. Department of Energy, National Transmission Grid Study
at 11, 16-17 (May 2002), available at http://www.ferc.gov/industries/electric/indus-act/transmission-grid.pdf.
 To conduct this

study, DOE estimated the benefits of interregional wholesale power
markets using the Policy Office Electricity Modeling System (POEMS).
POEMS is a national energy model designed specifically to examine
the impacts of electricity restructuring. The model includes
economic, regional, and temporal detail that is needed to analyze
the economics of interregional trade. In the first step of the
study, DOE used POEMS to examine the cost reductions that would
occur if increased electricity transfers across congested paths were
allowed in these four regions, assuming generators bid their
marginal costs. Under this assumption, consumer costs declined by
$157 million per year. In the second step, DOE calculated the
increase in congestion costs under the assumption that generators
bid above their marginal operating costs when supplies are tight and
additional electricity cannot be imported. The price spikes were
assumed to occur during hours when at least one transmission link
into a sub-region was congested and demand was greater than 90
percent of peak demand. When prices spike an additional $50 per MWh
(above the price predicted when generators bid their marginal
operating cost) during these periods, congestion costs nearly double
to $300 million.
    \61\ Id. at xi and ii.
    \62\ U.S. Department of Energy, National Electric Transmission
Congestion Study, Executive Summary at 2 (August 2006), available at
http://www.ferc.gov/industries/electric/indus-act/doe-congestion-study-2006.pdf
.

---------------------------------------------------------------------------

    61. The decline in transmission investment and increase in
transmission congestion underscore our concerns over inadequate
planning provisions of the existing pro forma OATT. The existing pro
forma OATT, as indicated above, contains very little specificity
regarding how transmission planning should be conducted, how customers'
needs are incorporated into that process, and what information is
publicly available regarding the transmission providers' assumptions,
criteria and data used in the planning process. These inadequacies are
sufficiently severe, standing alone, to merit reform of the OATT.
However, they are of even greater concern given the current state of
the transmission grid. With inadequate levels of investment in the grid
and increasing transmission congestion, customers' ability to access
alternatives to the transmission provider's resources is limited. It is
therefore imperative for the Commission to ensure that the planning
process under each transmission provider's OATT is sufficient to
prevent undue discrimination and transparent enough to detect any
remaining instances of undue discrimination. We have done so in the
reforms adopted and explained in section V.B.

D. A Consistent Method of Measuring ATC Is Needed

    62. Another area in which transmission providers have significant
discretion under the pro forma OATT is the calculation of ATC. While
Order No. 888 obligated each public utility to calculate the amount of
transfer capability on its system available for sale to third parties,
the Commission did not standardize the methodology for calculating ATC,
nor did it impose any specific requirements regarding the disclosure of
the methodologies used by each transmission provider.\63\ As a result,
there are a variety of ATC calculation methodologies in use today and
very few clear rules governing their use. Moreover, there is often very
little transparency about the nature of these calculations, given that
many transmission providers have filed only summary explanations of
their ATC methodologies in Attachment C to their OATTs.
---------------------------------------------------------------------------

    \63\ Order No. 888 at 31,794 n.610.
---------------------------------------------------------------------------

    63. In the NOPR, the Commission noted that, although the industry
has sought to pursue greater consistency in ATC calculations through
existing NERC processes, these efforts to date have been largely
unsuccessful. The Commission expressed its preliminary determination
that the lack of a consistent, industry-wide methodology for
calculating ATC gives transmission providers the ability and the
opportunity to unduly discriminate against third parties. The
Commission therefore proposed a number of reforms to the process of
calculating ATC to provide clarity and transparency to users of the
grid.
Comments
    64. As discussed further in section V.A below, most commenters
support the Commission's goal of requiring greater consistency in the
manner in which ATC is calculated and additional transparency of ATC
calculations. Commenters generally favor the Commission's proposal to
increase consistency in the calculation of ATC, including consistent
definitions of its components, data inputs, modeling assumptions, and
data exchange and coordination protocols. For example, Exelon argues
that each ATC component should be used in the same manner for all
purposes (e.g., granting transmission service to third parties or for
the transmission provider's own network load). Some commenters assert
that industry-wide standardization of ATC calculation might not be
possible and that the Commission should consider interconnection-wide,
regional or even sub-regional standardization. Others suggest allowing
flexibility in order to capture differences in system operation, usage,
market operations and topology.
    65. At the technical conference organized in this proceeding on
October 12, 2006 (October 12 Technical Conference), the entire panel
agreed that definitions must be consistent and a panelist representing
Constellation

asserted that broad differences in the core definitions of the ATC
calculation are neither rational nor explainable.\64\ NERC, however,
recognized that the goal of achieving consistency may not mean that a
single ATC methodology is required.\65\ NERC explained that consistency
can be achieved with a limited number of methodologies if the
requirements of those methodologies are properly coordinated and
communicated.
---------------------------------------------------------------------------

    \64\ Transcript of October 12 Technical Conference at 149-50,
available at Preventing Undue Discrimination and Preference in
Transmission Service, Technical Conference (Docket No. RM05-25-000).
    \65\ Id. at 125-50.
---------------------------------------------------------------------------

    66. Numerous commenters support the Commission's proposals to
increase transparency in the manner in which transmission providers
derive ATC, including greater OASIS posting. Commenters opposing the
transparency-related reforms focus on the Commission's proposal to
require the posting of narratives on OASIS explaining reasons for
changes in monthly and yearly ATC values on constrained paths. They
argue that such a requirement would be too burdensome and would not
provide customers with any significant new information.
    67. Several commenters believe that making substantial ATC
calculation and modeling data transparent will compromise Critical
Energy Infrastructure Information (CEII) but provide suggestions for
resolving the issue. Others express concern that the data required for
posting on OASIS is not CEII but commercially sensitive. Finally,
commenters provide suggestions regarding the requirement to post
metrics on OASIS related to the provision of transmission service under
the pro forma OATT, including various additional metrics the Commission
should consider. Others state that this information is already
available on OASIS.
Commission Determination
    68. We find that the lack of a consistent and transparent
methodology for calculating ATC gives transmission providers the
ability and opportunity to unduly discriminate in the provision of open
access transmission service. There are few clear rules respecting ATC
calculation, and transmission providers retain unnecessarily broad
discretion in this area. This resulting discretion is a significant
problem because calculation of ATC, which varies greatly depending on
the criteria and assumptions used, may allow the transmission provider
to discriminate in subtle ways against its competitors. On systems
where transmission capacity is congested, this lack of consistency,
coupled with a lack of transparency, is of heightened importance and
has led to recurring disputes over whether the transmission provider is
exercising its discretion to discriminate against its competitors. This
discretion also hampers the detection of undue discrimination and,
thereby, undermines the Commission's ability to enforce the general
requirement in Order No. 888 that transmission service be provided on a
not unduly discriminatory basis.
    69. As discussed more fully below in section V.AIII.D, this Final
Rule adopts a number of reforms that address the potential for
remaining undue discrimination in the determination of ATC by requiring
consistency in how ATC is evaluated, as well as providing greater
transparency about how a transmission provider calculates and allocates
ATC.

E. Discriminatory Pricing of Imbalances

    70. Order No. 888 focused primarily on the adoption of non-rate
terms and conditions of service, rather than instituting broad reform
of the Commission's transmission pricing policies. Consistent with this
focus, the Commission did not propose broad transmission pricing reform
in the NOPR, but rather focused on instances where current pricing
practices under the pro forma OATT may no longer be sufficient to
remedy undue discrimination or ensure just and reasonable rates. One
significant reform proposed in the NOPR related to charges for
imbalance energy. The Commission preliminarily found that the existing
policies provide wide discretion in the development of these charges
and hence the potential for undue discrimination. The Commission
therefore proposed certain principles to remedy that potential and
sought comment on whether a specific imbalance pricing method would be
appropriate.
Comments
    71. In general, transmission customers complain about the level and
scope of energy and generator imbalance charges that are levied under
the pro forma OATT and under individual interconnection agreements.\66\
Customers complain that energy imbalance charges are excessive and not
related to the actual costs incurred by transmission providers. They
also argue that the inconsistency between these charges in different
control areas is unnecessary, and that other means of compensating the
transmission provider, such as return-in-kind, should be considered.
Generators likewise complain that generator imbalance charges are
excessive, that transmission providers refuse to credit generators with
the revenues resulting from imbalance penalties that are collected, and
that transmission providers prevent unaffiliated generators from
purchasing or self-supplying generator imbalance services. In addition,
owners of intermittent resources complain that generator imbalance
charges, which are imposed to provide an incentive for generators to
schedule accurately, are inappropriate given their lack of control and
ability to cure deviations.
---------------------------------------------------------------------------

    \66\ Energy imbalance charges, including penalties on some
systems, are imposed on a transmission customer when the amount of
energy scheduled for delivery to the transmission grid does not
equal the amount of energy withdrawn by that customer. Generator
imbalance charges are levied on generators for deviations between
the amount of energy they schedule and the amount they actually
deliver to the grid.
---------------------------------------------------------------------------

Commission Determination
    72. The Commission agrees that imbalance charges should provide
appropriate incentives to keep schedules accurate without being
excessive. We also find that consistency in imbalance charges, both
between and among energy and generator imbalances, is preferable to the
wide variety of imbalance provisions in place today. All imbalances
have the same net effect on the transmission system in that they
require other generation to be ramped up or down to compensate for the
imbalance. As such, the Commission adopts two pro forma OATT provisions
(Schedule 4 for energy imbalances and Schedule 9 for generator
imbalances) based on a tiered structure similar to the imbalance
provision used by Bonneville, as described further below. Such an
approach recognizes the link between escalating deviations and
potential reliability impacts on the system while keeping imbalance
charges closely related to incremental costs. The Commission finds,
however, that intermittent resources should be exempt from the highest-
tier deviation band. We also require transmission providers to credit
to all non-offending transmission customers the revenues they collect
in excess of incremental costs.

F. Redispatch/Conditional Firm

    73. In the NOPR, the Commission examined whether existing methods
for evaluating requests for long-term firm point-to-point service
continue to be just and reasonable. When a transmission provider
considers a new resource to serve native load, the transmission
provider does not eliminate an otherwise economic option because the
resource may not be

deliverable during a few hours of the year. For transmission customers,
however, the transmission provider evaluates whether service can be
granted in every hour of the year that is modeled and, if not, it
informs the customer that service cannot be provided out of existing
transfer capability. Only if the transmission customer agrees to pay
for facilities studies does the transmission provider evaluate
redispatch options, including whether they are less expensive than the
upgrade costs. The Commission therefore proposed to reform the existing
pro forma OATT planning redispatch \67\ obligation, or, in the
alternative, to add a conditional firm service to the pro forma OATT.
As proposed by the Commission, conditional firm would have been a long-
term service allowing the transmission provider to give a lower
curtailment priority than firm to the transmission customer during a
pre-specified number of hours.
---------------------------------------------------------------------------

    \67\ Although pro forma OATT section 13.5 refers to
``redispatch,'' we refer to it here as ``planning redispatch'' to
distinguish it from the reliability redispatch provisions in the
network integration transmission service sections of the pro forma
OATT. See infra notes 552 and 557.
---------------------------------------------------------------------------

Comments
    74. Some commenters support the inclusion of both a modified
planning redispatch obligation and a conditional firm service in the
pro forma OATT, stating that both are required to remedy undue
discrimination and provide for comparable transmission service. These
commenters urge the Commission to require transmission providers to
offer planning redispatch and conditional firm service and allow
customers to choose the option that best suits their physical,
commercial and economic circumstances.
    75. Others opine that conditional firm service may be simpler and
less costly to implement. These commenters prefer the development of
conditional firm service over the modifications to the planning
redispatch service because of the complexities surrounding redispatch
costs and protocols. For example, Entergy believes conditional firm
service can provide benefits to transmission customers without unfairly
socializing costs to native load and network customers of the
transmission provider.
    76. On the other hand, many commenters argue that the Commission
should not require either option because the services are unnecessary,
operationally unworkable, and legally unjustified, or because they
would harm reliability and the quality of existing network service and
provide disincentives for transmission investment. Several commenters
state that these services would make curtailments of existing firm
service more likely and limit opportunities for use of secondary
network service, thereby harming native load protections and reducing
reliability, contrary to FPA sections 215 and 217 respectively. While
it recognizes that conditional firm service has been successful in
parts of the Western Interconnection, NRECA contends that a mandate
would undermine responsible planning and expansion of the transmission
grid by harnessing the transmission provider's planning and dispatch
functions to frame elaborate service conditions for conditional firm
service.
    77. Several commenters argue that, if the services are required,
the Commission should ensure that reliability is not adversely
affected. Others urge the Commission to make the new services an
interim option until transmission upgrades are in place to provide firm
service. Some commenters believe planning redispatch and conditional
firm customers should bear the actual costs of the services received,
including costs associated with system operational changes needed to
accommodate the services. A few commenters believe that the Commission
should allow for regional differences in development of the new
services.
Commission Determination
    78. The Commission believes it is necessary to modify the manner in
which transmission providers assess point-to-point service requests to
eliminate the potential for undue discrimination in transmission
service. We find that both techniques--planning redispatch and
conditional firm service--are currently used under certain
circumstances by transmission providers to serve native load and,
therefore, that transmission customers should have comparable services
in order to avoid undue discrimination, facilitate the provision of
long-term transmission service and provide customers with greater
flexibility in choosing resources to meet their needs. We expect that
both options will help integrate new generation more quickly. This can
be particularly beneficial to renewable generation resources, such as
wind, that can be constructed more quickly than the transmission
upgrades necessary to deliver their power on a firm basis over the
long-run.

G. EPAct 2005 Emphasized Certain Policies and Priorities for the
Commission

    79. Finally, we note that the reforms adopted in this proceeding
are consistent with the policies and priorities embodied in EPAct 2005,
in which Congress emphasized many of the same principles reflected in
this Final Rule. First, in EPAct 2005, Congress placed special emphasis
on the development of transmission infrastructure. Congress required
the Commission to adopt a rule establishing incentive-based rates for
new transmission infrastructure investment. The stated purpose of new
FPA section 219 is to benefit ``consumers by ensuring reliability and
reducing the cost of delivered power by reducing transmission
congestion.'' \68\ Among other steps, FPA section 219 requires the
Commission to ``(1) Promote reliable and economically efficient
transmission and generation of electricity by promoting capital
investment in the enlargement, improvement, maintenance, and operation
of all facilities for the transmission of electric energy in interstate
commerce, regardless of the ownership of the facilities; (2) provide a
return on equity that attracts new investment in transmission
facilities (including related transmission technologies); [and] (3)
encourage deployment of transmission technologies and other measures to
increase the capacity and efficiency of existing transmission
facilities and improve the operation of the facilities.'' \69\ In
addition, Congress directed the Commission to encourage the deployment
of advanced transmission technologies.\70\ Congress also gave the
Commission certain ``backstop'' transmission siting authority, and
authorized the creation of interstate compacts establishing
transmission siting agencies.\71\ Finally, the Commission was directed
to exercise its authority under EPAct 2005 ``in a manner that
facilitates the planning and expansion of transmission facilities to
meet the reasonable needs of load-serving entities to satisfy the

service obligations of the load-serving entities, and enables load-
serving entities to secure firm transmission rights * * * on a long-
term basis for long-term power supply arrangements made, or planned, to
meet such needs.'' \72\ Although these provisions have been, or will
be, addressed primarily in other proceedings, we conclude that the
Final Rule is consistent with these provisions because it supports
improvements in infrastructure by reforming the transmission planning
process to ensure that it is open, transparent and nondiscriminatory.
---------------------------------------------------------------------------

    \68\ EPAct 2005 sec. 1241 (to be codified at section 219 of the
FPA, 16 U.S.C. 824s). The Commission has issued a Final Rule
implementing such an incentive rate program. See Order Nos. 679 and
679-A.
    \69\ FPA Sec. 219(b)(1).
    \70\ EPAct 2005 sec. 1223 (to be codified at 42 U.S.C. 16442).
    \71\ EPAct 2005 sec. 1221(a) (to be codified at section 216 of
the FPA, 16 U.S.C. 824p). The Commission implemented new regulations
in accordance with this section to establish filing requirements and
procedures for entities seeking to construct electric transmission
facilities in Order No. 689.
    \72\ EPAct 2005 sec. 1233(a) (to be codified at section
217(b)(4) of the FPA, 16 U.S.C. 824q). The Commission implemented
FPA section 217(b)(4) in Long-Term Firm Transmission Rights in
Organized Electricity Markets, Order No. 681, 71 FR 43564 (Aug. 1,
2006), FERC Stats. & Regs. ] 31,226 (2006), order on reh'g, Order
No. 681-A, 117 FERC ] 61,201 (2006), reh'g pending.
---------------------------------------------------------------------------

    80. Second, Congress emphasized the need for greater transparency
in electricity markets, including transmission service. EPAct 2005
added section 220 to the FPA, which requires the Commission to
facilitate ``price transparency in markets for the sale and
transmission of electric energy in interstate commerce, having due
regard for the public interest, the integrity of [that market], fair
competition, and the protection of consumers.'' \73\ The Commission was
authorized to ``prescribe such rules as the Commission determines
necessary and appropriate to carry out the purposes of'' FPA section
220. Those rules ``shall provide for the dissemination, on a timely
basis, of information about the availability and prices of wholesale
electric energy and transmission service to the Commission, State
commissions, buyers and sellers of wholesale electric energy, users of
transmission services, and the public.'' This Final Rule similarly will
promote greater transparency in the provision of transmission service
in many important areas, including ATC calculation and transmission
planning.
---------------------------------------------------------------------------

    \73\ EPAct 2005 sec. 1281 (to be codified at 16 U.S.C. 824t).
---------------------------------------------------------------------------

    81. Finally, Congress emphasized compliance with the Commission's
regulations, increasing the civil and criminal penalties for violations
of Commission-administered statutes and regulations.\74\ This new
authority buttresses the Commission's efforts to enforce public utility
OATTs and the regulations requiring transmission information to be
posted on OASIS. As we explained in the Policy Statement on
Enforcement, however, this new authority carries with it the
responsibility to ensure that enforcement is firm but fair and that our
rules are as clear as practicable to facilitate compliance.\75\ We
conclude that this Final Rule is fully consistent with these principles
because it clarifies our rules, in many areas, which will facilitate
compliance by transmission providers.
---------------------------------------------------------------------------

    \74\ EPAct 2005 sec. 1284(e)(1) (to be codified at section
316(A) of the FPA, 16 U.S.C. 825o-1).
    \75\ Enforcement of Statutes, Orders, Rules and Regulations,
Policy Statement on Enforcement, 113 FERC ] 61,068 (2005) (Policy
Statement on Enforcement).
---------------------------------------------------------------------------

IV. Summary, Scope and Applicability of the Final Rule

    82. This section provides a summary of the major components of the
Final Rule, a description of the core elements of Order No. 888 that we
retain, and a discussion of the applicability of the proposed rule to
various entities.

A. Summary of Reforms

    83. Consistency and transparency of ATC calculations. The
Commission affirms the finding in the NOPR that the lack of a
consistent, industry-wide methodology for calculating ATC, and the lack
of adequate transparency in ATC calculations, increases the potential
for undue discrimination and also makes undue discrimination more
difficult to detect. The lack of consistent standards can facilitate
undue discrimination by giving a transmission provider the discretion,
and hence the ability and opportunity, to favor itself and its
affiliates over third parties in how it calculates and allocates ATC.
In this Final Rule, we give the industry specific guidance regarding
the calculation of ATC and establish a firm deadline to develop certain
requirements to make more consistent the ATC calculation process and
the process of exchanging data between transmission providers about
ATC. In addition, we amend pro forma OATT requirements as well as our
OASIS regulations to increase the transparency in how ATC is
calculated.
    84. Requirement for coordinated, open and transparent transmission
planning. The Commission also affirms the finding in the NOPR that
Order No. 888 does not contain sufficient protections to guard against
undue discrimination in transmission system planning. Without adequate
coordination and open participation, market participants have minimal
input or insight into whether a particular transmission plan treats all
loads and generators comparably. To ensure that truly comparable
transmission service is provided by all public utility transmission
providers, including RTOs and ISOs, we amend the pro forma OATT to
require coordinated, open, and transparent transmission planning on
both a sub-regional and regional level. To implement this remedy, we
adopt the eight planning principles proposed in the NOPR, as well as
one additional principle, that each public utility transmission
provider will be required to follow. We recognize that many regions
have made significant progress in recent years in creating greater
openness and transparency in transmission planning and believe our
proposed reforms will build upon, strengthen, and improve this progress
to reform transmission planning.
    85. Transmission Pricing Reforms. Consistent with the focus of
Order No. 888 on the non-rate terms and conditions of open access, the
Commission does not initiate broad reform of transmission pricing
policy through this Final Rule. However, we have identified several
pricing rules that are part and parcel of OATT service that merit
reform.
     Energy and Generator Imbalance Charges. We find that
energy and generator imbalance charges we have previously accepted are
excessive, too varied, and otherwise unrelated to the cost of providing
the service and, therefore, we reform energy and generator imbalance
pricing. We adopt tiered pro forma OATT energy and generator imbalance
provisions similar to those in use by Bonneville and exempt
intermittent resources from the highest deviation band. In these new
provisions, imbalance charges are based on incremental cost and
escalate as the imbalance increases. Any deviations from these
provisions must be consistent with or superior to the pro forma OATT as
modified by this Final Rule and must meet the following criteria: the
charges must (1) Be related to the cost of correcting the imbalance,
(2) be tailored to encourage accurate scheduling behavior, such as by
increasing the percentage of the adder as the deviations become larger,
and (3) account for the special circumstances presented by intermittent
generators, such as by waiving the higher ends of the deviation
penalties.
     Capacity Reassignment Pricing. We find that the existing
cap on the reassignment of point-to-point service is no longer just and
reasonable and, therefore, we eliminate the cap. We believe that
removing the cap will eliminate an unnecessary impediment to the resale
of capacity, which in turn should increase utilization of the grid and
otherwise ensure that point-to-point service is just, reasonable, and
not unduly discriminatory.

     Crediting of Customer-Owned Facilities. We retain most
elements of our existing policy respecting the crediting of customer-
owned facilities, including the requirement that such facilities meet
the integration standard. However, we eliminate the requirement that
new facilities can receive credits only if they are ``jointly planned''
because this requirement provides a disincentive to coordinated
planning. Rather, we provide that such new facilities are eligible for
credits if such facilities are integrated into the operations of the
transmission provider's facilities. Customer-owned facilities shall be
presumed to be integrated if those facilities, if owned by the
transmission provider, would be eligible for inclusion in the
transmission provider's annual transmission revenue requirement.
    86. Improvements to Point-to-Point Service. The Commission
concludes that the existing methods for evaluating requests for long-
term firm point-to-point service are no longer just, reasonable, and
not unduly discriminatory. The existing pro forma OATT allows the
transmission provider to deny a request for long-term point-to-point
service if that service is not available in a single hour of the period
studied. We find that this approach is not comparable because, when a
transmission provider considers a new resource to serve native load,
the transmission provider does not eliminate an otherwise economic
option because the resource may not be deliverable in a few hours of
the year. To remedy this problem, the Commission adopts a ``conditional
firm'' component to long-term point-to-point service that addresses the
situation where firm service can be provided for most, but not all,
hours of the period requested. We also reform the existing requirements
for the provision of redispatch service to ensure that they are of
greater use to transmission customers and more consistent with
reliability planning and operation of the system.
    87. Reform of rollover rights. The Commission concludes that
section 2.2 of the pro forma OATT, which grants an ongoing right to
transmission customers to renew or ``roll over'' their contracts,
should be reformed. The current rollover rights do not provide
consistency between the rights of rollover customers and the resulting
obligations of transmission providers to plan and upgrade the system to
accommodate rollovers. The Commission therefore amends section 2.2 to
ensure greater consistency with transmission planning and construction
timelines and modifies the minimum term of the rollover rights to five
years, rather than the current minimum term of one year. The Commission
also requires that a transmission customer eligible for rollover rights
provide notice of whether or not it will exercise its right of first
refusal to renew the contract no less than one year before the
expiration date of the transmission service agreement, rather than
within the current 60-day period.
    88. Increases in transparency to lessen the opportunities to
discriminate and reduce transaction costs. In addition to the increased
transparency we require regarding the calculation of ATC and
transmission planning, we increase the transparency of transmission
service provided under the pro forma OATT in several other respects.
For example, we require transmission providers and their network
customers to use the transmission providers' OASIS to request
designation of a new network resource and to terminate the designation
of an existing network resource. In addition, we require transmission
providers to modify their OASIS so that requests to designate and
terminate a network resource can be queried, allowing all parties
access to such information. We also require transmission providers to
post a list of their current designated network resources and all
network customers' current designated network resources on their OASIS.
Finally, we require transmission providers to post on OASIS all their
business rules, practices and standards that relate to transmission
services provided under the pro forma OATT.
    89. Strengthening enforcement of the pro forma OATT. The reforms
adopted in this Final Rule provide greater clarity in the terms and
conditions of the pro forma OATT, resolving ambiguities in the existing
pro forma OATT that have made undue discrimination easier to accomplish
and more difficult to detect. Our new civil penalty authority under
EPAct 2005 gives us ample power to remedy tariff violations, but it
also places upon us an increased responsibility to make the rules as
clear as possible. We fulfill that responsibility in the Final Rule by
providing greater clarity where appropriate to several critical OATT
provisions. We also adopt a number of posting and reporting
requirements that will provide the Commission and market participants
with information about each transmission provider's performance of pro
forma OATT obligations. For example, we require transmission providers
to post specific performance metrics related to their completion of
studies required under the pro forma OATT. We note that the Commission
will continue to audit compliance with the pro forma OATT, and toward
that end require transmission information kept on OASIS to be retained
for audit purposes for five years. Finally, we adopt a number of
reforms to operational penalties assessed under the pro forma OATT,
including so-called ``over-use'' penalties and the treatment of
operational penalty revenues collected from transmission providers and
their affiliates.
    90. Miscellaneous OATT improvements. Finally, we implement a number
of improvements to the terms and conditions of the pro forma OATT to
incorporate the lessons learned over the past ten years. We briefly
note these below:
     Designation of network resources. We provide clarification
regarding the types of agreements that may be designated as network
resources, the process for verifying whether agreements meet the
requirements in the pro forma OATT, and the requirement for
transmission providers to designate and undesignate network resources.
We also require customers to submit an attestation with each
application to designate a new network resource.
     Reservation priorities. We change the priority rules to
give certain priority to pre-confirmed transmission service requests
submitted in the same time period. We also add price as a tie-breaker
in determining reservation queue priority when the transmission
provider is willing to discount transmission service.
     Clarifications related to network service. We provide
clarification related to use of network service on an ``as available
basis'' and to ``redirects'' of network service.

B. Core Elements of Order No. 888 That Are Retained

    91. Although we are adopting many important reforms to Order No.
888 and the pro forma OATT in this Final Rule, we emphasize that many
of the core elements of Order No. 888 are retained. As the Commission
noted in the NOPR, many of these core elements enjoy broad support from
many sectors of the industry. A variety of commenters--in response to
the NOI issued earlier in this proceeding and again in response to the
NOPR--have urged the Commission to focus on meaningful incremental
reforms to the pro forma OATT, rather than on industry restructuring.
We share the view that Order No. 888 can be strengthened without
discarding its fundamental structure. We discuss

below the core elements that are being retained and the comments
received on these points.
1. Federal/State Jurisdiction
    92. In Order No. 888, the Commission stated that it has exclusive
jurisdiction over the rates, terms, and conditions of unbundled retail
transmission in interstate commerce.\76\ Though the Commission adopted
a test for determining what constitute Commission-jurisdictional
transmission facilities and what constitute State-jurisdictional local
distribution facilities in situations involving unbundled wholesale
wheeling and unbundled retail wheeling,\77\ the Commission stated that
it generally would defer to determinations by State regulatory
authorities concerning where to draw the jurisdictional line under that
test.\78\ The Commission declined to assert jurisdiction over bundled
retail transmission, reasoning that ``when transmission is sold at
retail as part and parcel of the delivered product called electric
energy, the transaction is a sale of electric energy at retail.'' \79\
The U.S. Supreme Court affirmed the Commission's decision to assert
jurisdiction over unbundled but not bundled retail transmission,
finding that the Commission made a statutorily permissible choice.\80\
In the NOPR, the Commission proposed to retain the jurisdictional
divide established in Order No. 888.
---------------------------------------------------------------------------

    \76\ Order No. 888 at 31,781.
    \77\ Id. at 31,771 (setting forth the seven-factor test).
    \78\ Id. at 31,781.
    \79\ Id.
    \80\ See New York v. FERC, 535 U.S. at 28.
---------------------------------------------------------------------------

Comments
    93. Several commenters support the Commission's proposal to retain
the existing jurisdictional divide.\81\ Though APPA concludes that the
most politic course at this juncture is to leave the current
jurisdictional boundaries in place and develop cooperative mechanisms
in each region to coordinate Federal policy implementation with the
relevant State regulators, APPA notes that there is disagreement among
its members about whether the current jurisdictional lines are properly
drawn. APPA explains that a substantial number of its members believe
that all interstate transmission services (both retail and wholesale)
should be provided under one consistent set of tariff terms and
conditions. Other APPA members, however, believe that the Commission
made the proper jurisdictional call in Order No. 888. NARUC urges the
Commission to clarify that its planning proposals will not reopen or
attempt to change the jurisdictional split over transmission facilities
delineated in Order No. 888.
---------------------------------------------------------------------------

    \81\ E.g., Ameren, APPA, North Carolina Commission Reply, PNM-
TNMP, and Southern.
---------------------------------------------------------------------------

Commission Determination
    94. The Commission will retain the existing jurisdictional divide
that was established in Order No. 888, which has been affirmed by the
U.S. Supreme Court and accepted by the industry and State regulatory
authorities.\82\ We also reiterate our recognition of the need for
heightened cooperation between Federal and State regulators in areas
where there are overlapping Federal and State policy concerns. As
explained in greater detail in the planning section below, and in
response to NARUC's concern, the planning reforms adopted in the Final
Rule contemplate coordinated and open transmission planning, but do not
reopen or otherwise change the existing jurisdictional divide for
transmission facilities.
---------------------------------------------------------------------------

    \82\ See New York v. FERC, 535 U.S. at 28.
---------------------------------------------------------------------------

2. Native Load Protection
    95. In Order No. 888, the Commission did not require transmission
providers to unbundle transmission service to their retail native load.
The Commission also did not require that bundled retail service be
taken under the terms of the pro forma OATT.\83\ Moreover, the
Commission allowed a transmission provider to reserve, in its
calculation of ATC, transmission capacity necessary to accommodate
native load growth reasonably forecasted in its planning horizon.\84\
Order No. 888 also granted a rollover right to existing firm service
customers,\85\ but allowed transmission providers to restrict that
rollover right if the capacity was reasonably forecasted as needed to
serve native load customers, as long as that restriction was set forth
in the customer's initial service contract.\86\
---------------------------------------------------------------------------

    \83\ Order No. 888 at 31,745.
    \84\ Id. at 31,694.
    \85\ Id.; see pro forma OATT section 2.2.
    \86\ Order No. 888-A at 30,198.
---------------------------------------------------------------------------

    96. Congress, in section 1233 of EPAct 2005, added section 217 to
the FPA, entitled ``Native Load Service Obligation,'' which addresses
transmission rights held by load-serving entities (LSEs). FPA section
217 allows LSEs to use their own and contracted-for transmission
capacity to deliver energy as required to meet their service
obligations, without being subject to charges of unlawful
discrimination. The provision makes clear, however, that this
requirement does not abrogate any contract or service agreement for
firm transmission service or rights in effect as of the date of
enactment of EPAct 2005.\87\ In the NOPR, the Commission concluded that
the protection of native load embodied in Order No. 888 is consistent
with FPA section 217, and reaffirmed its commitment to the protection
of native load.
---------------------------------------------------------------------------

    \87\ 16 U.S.C. 217(f).
---------------------------------------------------------------------------

Comments
    97. Several commenters agree with the Commission's preliminary
conclusion that the protection of native load embodied in Order No. 888
is consistent with FPA section 217 and support the Commission's
continued commitment to the protection of native load.\88\ While APPA
\89\ and TAPS generally agree with the Commission that the overall OATT
regime is consistent with section 217, they urge the Commission to
maintain and reinforce the comparability requirement. APPA urges the
Commission to broaden its preliminary conclusion in the NOPR and
conclude instead that the protection of native load and the provision
of fully comparable transmission service to other LSEs with long-term
service obligations, as embodied in Order No. 888, are consistent with
FPA section 217. TAPS also supports the Commission's reading of FPA
section 217 as consistent with the Order No. 888 pro forma OATT's
``native load'' priority, recognizing that FPA section 217 reinforces
the OATT's commitment to comparable treatment of all LSEs--e.g.,
transmission providers and network customers.
---------------------------------------------------------------------------

    \88\ E.g., Ameren, E.ON, Tacoma, Arkansas Commission, EPSA,
Southern, and TAPS.
    \89\ APPA argues that the proposed definition of native load
customers in section 1.21 is not technically consistent with FPA
section 217 because FPA section 217 does not distinguish among the
types of power supply arrangements that an LSE must have to enjoy
the protection of FPA section 217. Nevertheless, APPA states that it
would not be fruitful to reopen the entire OATT framework to address
this technical (but very important) definitional difference.