necessary to eliminate undue discrimination between network customers
serving network load and the transmission provider serving its load.
    119. NRECA acknowledges that network customers may designate
network resources any time firm transmission is available and use
secondary network service to access resources when firm service is not
available. NRECA notes, however, that the Commission justified granting
conditional firm service to point-to-point customers by stating that it
made little sense to ask point-to-point customers to cobble together a
collection of firm and non-firm requests when only the transmission
provider has information about when service may be available or
unavailable.\76\ NRECA argues that network customers should not be
required to cobble together service comparable to that enjoyed by the
transmission provider by designating a resource at some times and
accessing it through secondary network service at others.
---------------------------------------------------------------------------

    \76\ Citing Order No. 890 at P 925.
---------------------------------------------------------------------------

    120. NRECA also argues that the Commission improperly assumed that
secondary network service can provide a service that resembles
conditional firm service. NRECA contends that the curtailment priority
of secondary network service is inferior to conditional firm service.
NRECA provides a scenario in which the transmission provider, a
conditional firm customer and a network customer using secondary
network service are taking power from the same generator in a location
that is constrained ten hours per year. NRECA argues that the network
customer will be curtailed before the transmission owner and before the
conditional firm customer. NRECA adds that conditional firm customers
are considered firm customers and will be able to request service far
in advance and to the detriment of secondary network customers. NRECA
concludes that a network customer can only protect itself from loss of
service and loss of scheduling priority by paying for a network
upgrade, which is an obligation not imposed on either the transmission
provider or the point-to-point customer.
    121. TAPS agrees that the rights of network customers are
significantly inferior to those of conditional firm customers. TAPS
contends that a network customer would be required to have perfect
knowledge, at the time of a network resource designation, as to the
effects of constraints in order to limit its decision to periods when
transmission is adequate to accommodate the request. TAPS argues that
information about constraints gained as a result of an initial
designation request is of minimal value since a reframed request would
take a later place in the queue.
    122. TAPS also argues that the clarification provided in Order 890-
A that excess capacity created by transmission upgrades should be
allocated first to conditional firm customers based on their initial
order in the queue further degrades the benefit of network service.
Even if network customers could predict periods for which to request
secondary network service and firm designations, TAPS argues that they
still could not create a service comparable to conditional firm service
given the potential benefit of being firmed up by excess capacity
produced by later upgrades. TAPS contends that the exclusion of network
customers is discriminatory given the Commission's finding that
transmission providers provide conditional service to themselves and
the requirement under section 28.2 of the pro forma OATT that
transmission providers ``designate resources and loads in the same
manner as any Network Customer under Part III of this Tariff.'' TAPS
further asserts that the Commission should clarify whether the customer
supporting the upgrade is protected from having its upgrade sized to
meet the needs of earlier-queued conditional firm customers.
Commission Determination
    123. The Commission again affirms the decision not to create a
conditional firm network service.\77\ As the Commission explained in
Order No. 890-A, the flexibility to use designated network resources
and secondary network service to access undesignated resources already
provides a service that is like conditional firm service that can be
used to integrate new resources. The Commission also revised section
32.3 of the pro forma OATT to make clear that network customers have
the right to request the study of special protection schemes like those
used by transmission providers in designating resources for their
native loads.\78\ Further, Order No. 890 provided that network
customers may designate off-system resources supported by conditional
firm point-to-point service.\79\ All of these provisions collectively
allow network customers to designate resources in the same manner that
transmission providers designate resources for their loads. We
therefore reject arguments that denial of conditional firm network
service results in network service that is inferior to the transmission
provider's own use of the system to serve its load.
---------------------------------------------------------------------------

    \77\ Order No. 890-A at P 558.
    \78\ Id. P 559.
    \79\ Order No. 890 at P 1091.
---------------------------------------------------------------------------

    124. While we agree with NRECA that conditional firm customers will
be able to request service in advance of secondary network customers,
we find this provides no reason to create a new conditional firm
service for network customers. Those seeking conditional firm service
should have the ability to request service ahead of secondary network
service, a non-firm service. Network customers seeking to designate
their resources and avoid the use of secondary network service may
request the study of special protection schemes in their system impact
study. Taken together, the rights of network customers are therefore
not inferior to those of conditional firm customers. Indeed, network
customers enjoy advantages over conditional firm customers, including
access to reliability redispatch to avoid curtailment of their loads.
In any event, we remind NRECA and TAPS that network service and point-
to-point service were not designed to be identical and the rights and
obligations of each type of customer need not be the same.\80\
Comparability does not require the same service be made available to
network customers and point-to-point customers; rather, the concept
applies to the service taken for transmission provider's load by the
transmission provider as compared to the service for network customer
loads.
---------------------------------------------------------------------------

    \80\ Order No. 890-A at P 559.
---------------------------------------------------------------------------

    125. Additionally, we disagree with the conclusions that NRECA
draws from its hypothetical scenario involving a network customer using
secondary network service, a conditional firm customer, and the
transmission provider taking power from the same generator. NRECA's
assertion that the transmission provider will not curtail its own
deliveries from the resource incorrectly assumes that the transmission
provider will employ redispatch instead of something akin to
conditional firm service. If the transmission provider is

designating network resources using service analogous to conditional
firm service, it will use a special protection scheme to curtail or
limit the transmission service for the resource at the same time a
network customer's secondary network service is curtailed. The
conditional firm customer also should be curtailed about the same
amount as the secondary network service customer because the
conditional firm service, by definition, should be subject to
curtailment at the secondary network service level during the forecast
constraints.\81\ NRECA's objection to conditional firm service is
therefore based on a misunderstanding of the new service and the way
that transmission providers use similar mechanisms to designate
resources on their systems.
---------------------------------------------------------------------------

    \81\ We note, however, that network customer load is unlikely to
be curtailed due to provision of reliability redispatch. In
contrast, conditional firm customers' transactions are more likely
to be curtailed during conditional periods because reliability
redispatch is not required for point-to-point service.
---------------------------------------------------------------------------

    126. In Order No. 890-A, the Commission clarified that customers
supporting upgrades have priority access to the capability created by
those upgrades even if conditional firm customers earlier in the queue
opt not to support upgrades.\82\ The Commission also stated that ``any
capacity created in excess of the service request should be allocated
to those planning redispatch and conditional firm customers earlier in
the queue, based on their order in the queue.'' \83\ TAPS requests
clarification of the former determination and objects to the latter
determination. We clarify that customers supporting upgrades, whether
through direct assignment or rolled-in pricing, will not have their
upgrades sized based on the needs of planning redispatch and
conditional firm customers that opt not to support upgrades. Upon
further consideration, we grant rehearing of Order No. 890-A with
regard to how excess capacity created by upgrades should be allocated
among transmission customers.\84\ We conclude that it is premature to
make this determination given that the complicated series of events
leading to such an allocation may never come to pass.\85\ Should
transmission providers encounter this series of events, they should
file, prior to completion of the transmission upgrades, proposed tariff
provisions to address the allocation of the transmission capacity.
---------------------------------------------------------------------------

    \82\ Order No. 890-A at P 584.
    \83\ Id.
    \84\ We note that the clarification provided in Order No. 890-A
with regard to the allocation of excess capacity was not required to
address the original issue raised by Southern. See id. P 571, 584.
    \85\ For this circumstance to present itself, all of the
following, at a minimum, must occur: (1) Conditional firm or
planning redispatch service is granted to a customer unwilling to
support upgrades; (2) a customer seeking service over the same
transmission capacity agrees to support transmission upgrades to
secure its service; (3) the upgrade construction is completed; (4)
the upgrades create additional capacity that the customer supporting
the upgrades did not request; and (5) the conditional firm or
planning redispatch customer will be taking service when
construction is completed.
---------------------------------------------------------------------------

b. Implementation of Planning Redispatch and Conditional Firm Service
(1) Characteristics of Service
    127. The Commission reiterated in Order No. 890-A that both the
transmission provider and reliability coordinator play a role in
ensuring that adequate reliability is maintained when a customer uses
third-party provided reliability dispatch. The Commission stated that
this would entail review of redispatch plans submitted by the
customers, coordination between the transmission provider and
reliability coordinator, and signaling third-party generators when the
redispatch is needed. It is the customer's ultimate responsibility,
however, to ensure that any technical arrangements required by the
reliability coordinator are in place in order to maintain reliability.
    128. With regard to the conditional firm option, the Commission
reiterated that transmission providers are allowed to add a risk factor
to their calculation of annual curtailment hours to account for
forecasting risks. The Commission clarified that the modeling of
conditions to determine the number of non-firm curtailments for any
conditional firm request should not incorporate unexpected events, such
as hurricanes and ice storms.

Requests for Rehearing and Clarification

    129. E.ON U.S. requests that the Commission clarify that the
reliability coordinator oversees third-party-provided planning
redispatch to ensure there is no conflict with reliability redispatch.
E.ON U.S. also states, however, that third-party planning redispatch
may have a negative impact on system reliability and ATC and,
therefore, the transmission provider should not be completely separated
from the third-party planning redispatch process. E.ON U.S. nonetheless
argues that the reliability coordinator is in the best position to
monitor the reliability impacts of third-party planning redispatch.
E.ON U.S. notes that the reliability coordinator and transmission
provider sometimes are separate entities, as in E.ON U.S.'s case where
Tennessee Valley Authority is the reliability coordinator.
    130. E.ON U.S. asks for further clarification that unexpected
events that are not incorporated into the calculation of annual
curtailment hours for a conditional firm customer do not impact the
number of hours the customer can be curtailed. Although the Commission
acknowledged in Order No. 890-A the need for flexibility in modeling
various conditions, E.ON U.S. notes the Commission did not specify a
level of appropriate risk factor to apply when making annual
curtailment calculations and further found that unexpected events
should not be included in calculating annual curtailment analysis.\86\
E.ON U.S. requests that the Commission clarify whether unexpected
events that are not included in the curtailment hours calculation also
do not count towards the annual curtailment hours for customers taking
conditional firm service.
---------------------------------------------------------------------------

    \86\ Citing Order No. 890-A at P 588.
---------------------------------------------------------------------------

Commission Determination
    131. In Order No. 890, the Commission directed transmission
providers to modify their OASIS sites to allow for posting of third-
party offers for planning redispatch and to work with NAESB to develop
the OASIS functionality and any necessary business practice standards
to allow for third-party planning redispatch.\87\ The Commission noted
that provision of third-party planning redispatch required coordination
between the customer, transmission provider and reliability
coordinator, but determined that the customer bears the burden to
ensure that the necessary contractual and technical arrangements are in
place to maintain reliability.
---------------------------------------------------------------------------

    \87\ Order No. 890 at P 1007.
---------------------------------------------------------------------------

    132. We clarify in response to E.ON U.S. that the role of the
reliability coordinator in coordinating third-party planning redispatch
is very limited. The transmission provider should have primary
responsibility for overseeing the coordination of third-party planning
redispatch. For example, if third-party planning redispatch impacts
ATC, as E.ON U.S. suggests, the transmission provider will make this
determination and relay that information to the customer. It is
important to distinguish reliability redispatch, for which reliability
coordinators generally play a larger role, from planning redispatch.
Planning redispatch is used to create additional transmission capacity
in order to accommodate a request for

long-term firm transmission service.\88\ The transmission provider or
third-party generation operator must plan to dispatch its generator(s)
so that the requested transmission service, otherwise shown unavailable
by the transmission provider's ATC model, may be granted. In
comparison, reliability redispatch is used to relieve actual system
constraints that would otherwise cause curtailment of network customer
or transmission provider loads. While the reliability coordinator has a
larger role to play in reliability redispatch, its role in coordinating
third-party provision of planning redispatch is very limited.
---------------------------------------------------------------------------

    \88\ See Order No. 890-A at P 603.
---------------------------------------------------------------------------

    133. With regard to our determination that unexpected events should
not be incorporated into the analysis to determine the number of annual
curtailment hours applying in any transmission service agreement, we
clarify that whether such events impact the accounting for annual
curtailment hours depends on the curtailment priority of the service at
the time of the event. If an unexpected event occurs when the
conditional firm customer is curtailed pursuant to a firm curtailment
priority, then the curtailment will not count against the annual hours.
In determining whether the annual conditional curtailments are met,
transmission providers should count curtailments made when the service
is otherwise conditional, i.e., tagged with a secondary network
curtailment priority, regardless of whether the curtailment occurred
during an unexpected event.
(2) Pricing of Planning Redispatch
    134. The Commission affirmed the determination in Order No. 890
that customers taking long-term point-to-point service with planning
redispatch will have the option of paying either (i) the higher of (a)
actual incremental costs of redispatch or (b) the applicable embedded
cost transmission rate on file with the Commission or (ii) a fixed rate
for redispatch to be negotiated by the transmission provider and
customer and subject to a cap representing the total fixed and variable
costs of the resources expected to provide the service. The Commission
clarified that, in months in which generation-related payments are
collected for planning redispatch, these payments should be treated as
a revenue credit to offset the native load customers' fuel adjustment
clause. In months in which the embedded cost rate of transmission is
collected for planning redispatch, those revenues should be included in
the numerator of the rate calculation as a revenue credit. The
Commission stated that transmission providers may propose in an FPA
section 205 filing any rate design change that may be necessary through
an amendment to its formula rate or in a single rate case filing.
Requests for Rehearing and Clarification
    135. E.ON U.S. and EEI request rehearing of the Commission's
pricing provisions with respect to the crediting of transmission
revenues from planning redispatch. Both repeat arguments that the
Commission has forced transmission providers' native load to bear the
cost of planning redispatch on behalf of point-to-point customers. They
ask the Commission to grant rehearing to require that, when
transmission revenues exceed the cost of planning redispatch on a
monthly basis, only the amount of the excess transmission revenues
should be credited against the cost of transmission service and the
remainder should be credited against the fuel adjustment clause. In the
alternative, EEI asks the Commission to clarify that, when the
transmission revenues exceed the cost of redispatch, all of the
revenues should be included as a credit in developing the transmission
cost of service that is used to determine the transmission rate, and
the generation redispatch costs should be included as a debit in
determining the transmission cost of service and also should be
credited against the fuel adjustment clause.
    136. Southern repeats arguments made on rehearing of Order No. 890
that transmission providers should be able to charge planning
redispatch customers the embedded costs of transmission as well as the
generation-related costs of providing redispatch. Southern contends
that it is unduly discriminatory and arbitrary and capricious to allow
a transmission customer to be charged both the costs of generation
redispatch and the embedded transmission rate when the redispatch is
provided by a third party, but not when redispatch is provided by the
transmission provider. In months in which redispatch costs are higher
than the embedded cost rate, Southern contends that the transmission
provider is similarly situated to a third party generator that provides
redispatch because neither would receive transmission revenues for the
additional transmission capability created by their redispatch.
Southern therefore argues that the policy against ``and pricing'' is
unduly discriminatory as applied to transmission providers and that
this disparate treatment of transmission providers and third-party
providers of planning redispatch does not withstand scrutiny.
    137. Southern also repeats arguments that the Commission
incorrectly concluded in Order No. 890-A that planning redispatch
creates additional transmission capacity and does not take away firm
service from native load and network customers. Southern contends that
planning redispatch merely reallocates, rather than creates,
transmission capability by forcing certain generators to run and others
not to run, thereby changing power flows. Southern, raising a new
argument, asserts that the provision of planning redispatch could
result in reduced subsequent, later-queued sales of long-term or short-
term transmission service that might have produced higher transmission
revenues than the provision of planning redispatch. Southern adds that
planning redispatch could prevent a network customer from designating a
new network resource by taking all of the transmission capacity near a
generating source. Southern therefore contends that the Commission's
conclusion in Order No. 890-A that the provision of planning redispatch
provides purely incremental service without effect to existing
transmission capacity is arbitrary and capricious.
Commission Determination
    138. The Commission grants clarification regarding the rate
treatment of generation-related revenues and revenues from the embedded
cost rate of transmission associated with planning redispatch. In Order
No. 888, the Commission concluded that revenues from direct assignment
of redispatch costs must be credited to the costs of fuel and purchased
power expense included in the transmission provider's wholesale fuel
adjustment clause.\89\ This rate treatment is appropriate for all
generation-related incremental costs, whether the customer pays the
embedded cost transmission rate or the costs of planning redispatch in
any particular month. Therefore, we direct that in months in which the
embedded cost transmission rate is higher than the generation-related
costs of providing redispatch, the revenues in excess of the
generation-related costs should be credited against the costs of
transmission service and the remaining revenues, those representing the
monthly costs of reconfiguring generation resources, should be credited
against the fuel adjustment clause.
---------------------------------------------------------------------------

    \89\ See Order No. 888 at 31,740.
---------------------------------------------------------------------------

    139. We affirm our decision in Order No. 890-A to deny requests to
depart

from our long-standing prohibition of ``and'' pricing for planning
redispatch service first adopted in Order No. 888 and followed in Order
No. 890.\90\ In Order No. 890, the Commission modified pre-existing
planning redispatch obligations and lessened the impact on transmission
providers (and their customers) with the continuing support of many
transmission providers, including Southern. The Commission also
modified pricing provisions to allow for the comparison of monthly
generation-related costs of planning redispatch to determine the
applicable rate. In directing this monthly comparison, the Commission
rejected the former provisions for basing the charge on a life of the
contract comparison, concluding that it was appropriate to make
planning redispatch service more attractive for transmission providers
to provide.\91\
---------------------------------------------------------------------------

    \90\ See Order No. 890 at P 1028.
    \91\ Order No. 890 at P 1025.
---------------------------------------------------------------------------

    140. We also affirm, as the Commission did in Order Nos. 890 and
890-A, the determination in Order No. 888 that planning redispatch
creates additional transmission capability.\92\ We agree with Southern
that provision of planning redispatch may have an impact on subsequent,
later-queued requests to use the transmission grid. It is the nature of
networked transmission grids that granting any firm point-to-point or
network service will impact the ability of those seeking to use the
system in the future. The impact of planning redispatch, or any other
firm service, on subsequent uses of the grid does not provide a valid
reason for lifting the long-standing prohibition on ``and'' pricing,
nor does it undermine the determination in Order No. 888-A that
planning redispatch creates additional transmission capacity. To the
extent that Southern argues it could collect additional revenues from
network customers' designation of additional resources were Southern
not providing planning redispatch, we find this unconvincing as network
customers are charged for service based on their load not the number of
resources designated.
---------------------------------------------------------------------------

    \92\ Order No. 888-A at 30,267; Order No. 890 at P 1028; Order
No. 890-A at P 602, n.241.
---------------------------------------------------------------------------

2. Rollover Rights
    141. In Order No. 890-A, the Commission affirmed the decision in
Order No. 890 to limit rollover rights to contracts with a minimum term
of five years. The Commission rejected requests to condition
application of the minimum five-year term on a demonstration that the
relevant generation markets support five-year power supply contracts.
The Commission explained that the purpose of its reform of the rollover
policy is to align the rights and obligations of the customer with
those of the transmission provider, not with the availability of
supplies within a market or particular commercial practices in a
region. The Commission noted that a point-to-point customer does not
need to have a five-year power contract in order to secure a five-year
transmission service contract and that the length of the network
customer's service agreement, not the length of the power contract
supporting a network resource designation, determines whether a
customer is eligible for rollover.
    142. The Commission also affirmed the decision in Order No. 890 not
to eliminate the requirement to match competing requests in order to
retain rollover rights. With regard to the effectiveness of the
rollover reforms, the Commission acknowledged that requiring a five-
year contract term for pending transmission service requests could
cause significant disruption to those transmission customers already in
the transmission queue at the time of the effective date of Order No.
890. The Commission therefore revised section 2.2 of the pro forma OATT
to provide that the current one-year contract commitment requirement
will continue to apply to all transmission service requests that were
in a transmission provider's transmission queue as of the effective
date of the reforms adopted in Order No. 890 (i.e., July 13, 2007).
Requests for Rehearing and Clarification
    143. Entergy objects to the Commission's statement in Order No.
890-A that the term of the network customer's underlying service
agreement establishes whether a network service reservation is eligible
for rollover rights, rather than the term of the relevant designated
network resources.\93\ Entergy argues that this determination is an
unexplained departure from existing rollover policy providing that a
network service reservation's eligibility for a rollover is based on
the term of the underlying network resource.\94\ Entergy argues that
network customers most often execute long-term service agreements,
sometimes up to as many as 30 years in length, that act as umbrella
agreements under which network customers designate and undesignate
different network resources as needed to serve network load. Entergy
explains that the transmission provider studies these reservations as
they are submitted and, if they are deliverable to the relevant network
load on a firm basis, then they are designated as network resources.
---------------------------------------------------------------------------

    \93\ Citing Order No. 890-A at P 645.
    \94\ Citing Wis. Pub. Power, Inc. v. Wis. Pub. Serv. Corp., 84
FERC ] 61,120, at 61,659 (1998) (WPPI).
---------------------------------------------------------------------------

    144. Entergy argues that granting rollover rights based solely on
the term of a network service agreement, rather than the term of the
network resource designation, would effectively ignore the firm
deliverability requirement underlying all network resources, allowing a
network customer to execute a multi-year service agreement and obtain
rollover rights even though it actually may have only designated
network resources for as little as one day. Entergy contends that this
is not the intent of allowing transmission customers to designate
network resources on a short-term basis and constitutes bad
transmission policy and undermines reliability.
    145. Cargill objects to the revision of section 2.2 of the pro
forma OATT requiring existing customers to match the longest-term
competing request in order to rollover service. Cargill contends that
the Commission in Order No. 890 determined that a rollover customer
must agree to another five-year contract term or match any longer-term
competing request in order to be eligible for a subsequent
rollover,\95\ but imposed no similar requirement when exercising a
rollover right when a subsequent rollover is not desired. Cargill
argues that the new requirement to match the longest-term competing
request in order to roll over service violates the first-come, first-
served principles affirmed in Order No. 890. Cargill suggests, for
example, that one potential customer could submit a competing request
well in advance of the incumbent's rollover, followed by a second
longer-term competing request submitted by another potential customer
closer in time to the incumbent's rollover. Cargill contends that the
revision to section 2.2 would allow the second customer to effectively
preempt the earlier submitted competing request simply because both are
vying for capacity subject to the incumbent's rollover right.
---------------------------------------------------------------------------

    \95\ Citing Order No. 890 at P 1231.
---------------------------------------------------------------------------

    146. Cargill argues that the revised language of section 2.2
therefore violates the first-come, first-served principle of section
13.2 of the pro forma OATT and Commission precedent regarding the
application of rollover rights,\96\ nullifying the benefit of being the
first competitor to submit a competing

request for capacity subject to a rollover right. Cargill contends that
the Commission provided no justification in Order No. 890-A for
revising its rollover policy to require a customer to match the
longest-term competing request in order to rollover its service.
Cargill also argues that the Commission provided no notice or
opportunity to comment on this change in Commission policy.
---------------------------------------------------------------------------

    \96\ Citing Tenaska Power Services Co. v. Midwest ISO, 106 FERC
] 61,230 at P 28, reh'g denied, 107 FERC ] 61,308 (2004) (Tenaska).
---------------------------------------------------------------------------

    147. TranServ requests clarification of the Commission's
determination regarding the application of the new rollover policies to
customer requests queued prior to the effective date of the reforms
adopted in Order 890. TranServ states that there is continued confusion
over exactly when customers would be required to request long-term
service for five years or longer to be granted rollover rights.
TranServ contends that customers submitting long-term service requests
after July 13, 2007, but prior to the effectiveness of revised section
2.2 of the OATT, are not granted the right to rollover service under
the previous one-year term rollover policy. TranServ suggests that it
may be more appropriate to allow transmission customers that submitted
requests for one year or longer after July 13, 2007, but executed a
service agreement prior to the effective date of the revised section
2.2, to also be allowed to operate under the one-year term rollover
policy through their first rollover date.
Commission Determination
    148. The Commission affirms the determination in Order No. 890-A
that the length of a network customer's network service agreement, not
the length of a power contract supporting a network service agreement,
determines whether the network customer is eligible for rollover
rights.\97\ A network customer's eligibility for rollover rights is
distinct from its ability to rollover a particular resource
designation. In order for a network customer to qualify for rollover
rights, it must have a network service agreement that satisfies the
minimum term necessary for rollover rights. The network customer may
then continue to designate and undesignate resources pursuant to that
service agreement, subject to the availability of adequate transmission
capability to accommodate the request.
---------------------------------------------------------------------------

    \97\ See Order No. 890-A at P 645.
---------------------------------------------------------------------------

    149. This does not, as Entergy argues, depart from Commission
precedent regarding the network customer's eligibility for rollover
rights. At issue in WPPI was whether a network customer is required to
compete with other firm uses of the system in order to continue its
resource designation at the time of rollover.\98\ In considering that
issue, the Commission first addressed whether rollover rights are
available to network customers, concluding that all network customers
of the transmission system are long-term users of the system and,
therefore, meet the minimum term required to qualify for rollover
rights. That determination was appropriate when the one-year contract
commitment was in effect, since network service agreements are not
short-term in nature. However, when the Commission extended the minimum
contract commitment for rollover rights from one year to five years, it
was necessary to state more clearly that a network customer's threshold
eligibility for rollover rights is linked to the term of its network
service agreement.
---------------------------------------------------------------------------

    \98\ See WPPI, 84 FERC at 61,659.
---------------------------------------------------------------------------

    150. We disagree that this determination undermines the ability of
the transmission provider to study the potential impact that future
resource designations may have on the system. Although a network
customer rolling over its network service may match a competing point-
to-point request by extending its network service agreement rather than
the power contract supporting the resource designation, the Commission
specifically noted that any subsequent request to designate a network
resource would remain subject to the requirements of the pro forma
OATT, as with any other request to designate a network resource.\99\
The transmission provider will therefore continue to be able to
consider the deliverability of a particular resource at the time of
designation. We note that this does not relieve the transmission
provider of its obligation under section 28.2 of the pro forma OATT to
plan, construct, operate and maintain its transmission system in order
to provide the network customer with network service over the
transmission system.
---------------------------------------------------------------------------

    \99\ See Order No. 890-A at P 666, n.264. With regard to
competing network resource designations, the Commission affirmed in
Order No. 890-A that the network customer seeking rollover must
match the term of the competing network resource power contract,
consistent with WPPI. See Order No. 890-A at P 666.
---------------------------------------------------------------------------

    151. We agree with Cargill, however, that the revisions to the
language of section 2.2 of the pro forma OATT adopted in Order No. 890-
A do not properly reflect the obligation of customers rolling over
their service to match competing requests for service. Section 2.2 of
the Order No. 888 pro forma OATT required customers rolling over their
service to accept a contract term for their new service at least as
long as that offered by another potential customer.\100\ This
obligation was independent of the separate requirement for the rollover
customer to request a term of at least one year in order to be eligible
for rollover rights on the new service. In amending section 2.2 in
Order No. 890, the Commission inadvertently misstated the matching
requirement as requiring the customer to match the longer of the term
of a competing request or five years in order to roll over its
service.\101\ That was incorrect, as the requirement to commit to at
least five years of service is relevant only to whether the new service
has rollover rights, not to whether the customer may roll over its
existing service.
---------------------------------------------------------------------------

    \100\ See Order No. 888 at 31,665.
    \101\ See Order No. 890 at Appendix C, pro forma OATT section
2.2.
---------------------------------------------------------------------------

    152. The Commission corrected this misstatement in Order No. 890-A
by amending section 2.2 to require customers rolling over the service
to match the longest competing request.\102\ As Cargill points out, the
Commission's reference to the longest-term competing request could
require a rollover customer taking long-term service to match the
length of any competing long-term request. Under the Commission's
existing precedent regarding section 2.2 of the pro forma OATT,
however, there would be only one potential competitor for rollover
customers seeking long-term service, i.e., the first customer in the
queue requesting competing service.\103\ We did not intend to modify
this policy and, therefore, revise the language of section 2.2 to
require customers rolling over their service to accept a contract term
at least equal to a competing request. Any such competing request
should be identified by the transmission provider consistent with the
reservation priorities stated in the pro forma OATT.
---------------------------------------------------------------------------

    \102\ See Order No. 890-A at P 695 (``An existing customer may
rollover its service for a term of less than five years, but will
not then retain a rollover right for this service. We revise section
2.2 of the pro forma OATT to make these requirements clear.'').
    \103\ See Tenaska, 106 FERC ] 61,230 at P 48; see also Cargill
Power Marketers, LLC v. Southwest Power Pool, Inc., 122 FERC ]
61,068 (2008) (distinguishing the ``equal to a competing request''
language of section 2.2 of the pro forma OATT from the ``longest
confirmed competing request'' language of SPP's tariff).
---------------------------------------------------------------------------

    153. We affirm the decision in Order No. 890-A to continue to apply
the current one-year contract commitment requirement to all
transmission service requests that were in the transmission provider's
transmission queue as of the effective date of the reforms adopted in
Order No. 890, i.e., July 13, 2007.\104\ This does not mean, as
TranServ implies, that the five-year contract

commitment requirement applies to a customer executing a service
agreement after that date, but prior to the effectiveness of rollover
reforms for the particular transmission provider. The Commission
reiterated in Order No. 890-A that the previously existing rollover
provisions will remain in effect for the transmission provider until
such time as the Commission accepts the transmission provider's
Attachment K compliance filing.\105\ We therefore agree with TranServ
that the one-year contract commitment requirement continues to apply to
any customer executing a service agreement prior to the effective date
of the transmission provider's revised section 2.2, regardless of when
the customer's service request was submitted.
---------------------------------------------------------------------------

    \104\ See Order No. 890-A at P 691.
    \105\ See id. P 684.
---------------------------------------------------------------------------

    154. Finally, we take this opportunity to clarify the statement in
Order No. 890-A that the transmission provider may file the revised
rollover language only after the transmission provider's Attachment K
planning process is accepted by the Commission.\106\ Transmission
providers may file the revised rollover language adopted in this
proceeding at any point after the Commission has accepted the
transmission provider's Attachment K compliance filing, even if such
acceptance is subject to further compliance obligations, unless
otherwise provided by the Commission in the order addressing the
Attachment K compliance filing. The effective date of that revised
tariff language should be commensurate with the date of the filing
containing the revised language.
---------------------------------------------------------------------------

    \106\ See id.
---------------------------------------------------------------------------

3. Acquisition of Transmission Service
a. Reservation Priority
    155. The Commission confirmed in Order No. 890-A that longer
duration service requests will continue to have priority over shorter
duration service requests, with pre-confirmation serving as a tie-
breaker for requests of equal duration. Order No. 890-A also affirmed
the decision to limit priority for pre-confirmation status to short-
term firm and long-term non-firm requests for service. The Commission
also revised sections 1.39, 17.2 and 18.2 of the pro forma OATT to make
clear that pre-confirmation service should be available to all eligible
customers seeking short-term firm and non-firm transmission services.
Requests for Rehearing and Clarification
    156. Schedule 20A Service Providers request rehearing of the
Commission's decision to revise the pro forma OATT to allow pre-
confirmation by eligible customers that have not yet executed service
agreements. They argue that this revision is inconsistent with how
service is reserved on the Phase I/II HVDC-TR transmission system
operated by ISO New England and Hydro-Quebec TransEnergie. The Schedule
20A Service Providers state that they have therefore requested approval
of a variation from the pro forma OATT in their October 11, 2007
compliance filing to accommodate their reservation practices.
    157. The Schedule 20A Service Providers also argue more generally
that OASIS is not set up to take pre-confirmed applications and,
therefore, there is no means by which an eligible customer that is not
yet a transmission customer can request pre-confirmed service. They
argue that limiting pre-confirmation status to transmission customers
does not preclude new customers from seeking service on an equal
footing since the obligation to execute a service agreement does not
impose an undue burden. To the contrary, they argue that substantial
implementation difficulties would arise if transmission providers are
forced to recognize pre-confirmation status for eligible customers that
do not have access to OASIS. The Schedule 20A Service Providers
therefore ask the Commission to grant rehearing to provide that the
modifications to sections 1.39, 17.2 and 18.2 of the pro forma changes
are not necessary or appropriate when applications are not a means for
requesting service through OASIS.
Commission Determination
    158. The Commission affirms the decision in Order No. 890-A to
allow eligible customers to submit pre-confirmed requests for
transmission service.\107\ The ability to submit pre-confirmed requests
should not be limited to existing short-term and non-firm transmission
customers. To the extent this policy conflicts with the operations of
any given transmission provider, as the Schedule 20A Service Providers
suggest, the transmission provider may seek a variation from the terms
and conditions of the pro forma OATT as necessary to accommodate its
operations. We note, for example, that the Commission approved the
variation requested by the Schedule 20A Service Providers in Docket No.
ER08-54-000.\108\
---------------------------------------------------------------------------

    \107\ Order No. 890-A at P 790.
    \108\ See ISO New England, Inc., 123 FERC ] 61,133 (2008).
---------------------------------------------------------------------------

b. Right of First Refusal and Preemption
    159. The Commission affirmed in Order No. 890-A the decision not to
change the first-come, first-served nature of the reservation process
and the right of first refusal. In response to comments that
administration of the right of first refusal has the potential to
create complicated scenarios, such as when scarce capacity exists, the
Commission declined to expand upon the language of the pro forma OATT
to account for every factual scenario that could arise. The Commission
recognized that certain unique cases can present difficult allocation
issues, but concluded that such cases arise infrequently and that
sections 13.2 and 14.2 of the pro forma OATT provide adequate guidance
for the vast majority of requests.
Request for Rehearing and Clarification
    160. Duke asks the Commission to clarify that a transmission
provider need not offer a right of first refusal if it cannot be done
in a single offering to other eligible customers. Duke argues that it
is unduly complicated to offer a right of first refusal when the offer
triggers other transmission customers' rights of first refusal. If it
is the Commission's intention that the transmission provider offer
cascading rights of first refusal, Duke requests guidance that can be
used by NAESB to develop adequate business practices.
Commission Determination
    161. The Commission declines to address in this rulemaking
proceeding how transmission providers should resolve complicated and
fact-specific scenarios such as the cascading rights of first refusal
described by Duke. Sections 13.2 and 14.2 of the pro forma OATT provide
adequate guidance for transmission providers to fairly administer the
vast majority of competing requests, including priorities for
determining which reservations or requests trump one another as well as
the timeframes for eligible customers to respond to competing requests.
As the Commission explained in Order No. 890-A, we expect that more
complex circumstances such as those suggested by Duke will be
relatively limited and, therefore, are best addressed on a case-by-case
basis.\109\ Transmission providers remain free, however, to develop
through the NAESB process standard procedures for processing
complicated request scenarios.
---------------------------------------------------------------------------

    \109\ See Order No. 890-A at P 816.

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4. Designation of Network Resources
    162. In Order No. 890-A, the Commission clarified certain
determinations regarding the qualification, documentation and
undesignation of resources by a network customer. A number of
petitioners request additional rehearing and clarification regarding
these issues. We address each of these issues in turn.
a. Qualification as a Network Resource
(1) LD Contracts
    163. In Order No. 890, the Commission affirmed its existing policy
that a power purchase agreement may be designated as a network resource
provided it is not interruptible for economic reasons, does not allow
the seller to fail to perform under the contract for economic reasons,
and requires the network customer to pay for the purchase. The
Commission concluded that power purchases with a firm liquidated
damages (LD) provision may be eligible for designation as a network
resource if the contract obligates the supplier, in the case of
interruption for reasons other than force majeure, to make the
aggrieved buyer financially whole by reimbursing them for the
additional costs, if any, of replacement power. The Commission found
that the ``make whole'' LD provisions in EEI's Master Power Purchase
and Sale Agreement's Firm LD product (EEI's Firm LD Product) and the
WSPP Service Schedule C agreement satisfy this requirement. In Order
No. 890-A, the Commission affirmed its finding that the make whole LD
provisions in the EEI Firm LD Product and the WSPP Service Schedule C
agreement are sufficiently firm to make those agreements eligible for
designation as a network resource.
Requests for Rehearing and Clarification
    164. Duke asks the Commission to confirm that firm LD contracts
that are not strictly limited to interruption for reliability reasons,
such as the EEI Master Agreement Firm LD Product, no longer can be
designated as network resources in the future. Duke contends that the
Commission's statement in Order No. 890-A that ``the make whole LD
provisions in the EEI firm LD product and WSPP Schedule C agreement are
sufficiently firm to make those agreements eligible for designation as
a network resource'' implies that LD contracts with make-whole
provisions may serve as network resources, even if not coupled with
provisions that also restrict interruption for reasons other than
reliability.\110\ Duke requests clarification that both a make-whole
provision and a restriction on the grounds for interruption, such as
the restriction added to the WSPP Schedule C agreement, are required
for an LD contract to be eligible for network resource status.
---------------------------------------------------------------------------

    \110\ Citing Order No. 890-A at 832.
---------------------------------------------------------------------------

Commission Determination
    165. The Commission reiterates that a power purchase agreement must
meet all of the requirements for designation as a network resource in
order to be designated by the network customer or transmission
provider's merchant function. The fact that a firm LD contract with a
make whole provision is sufficient to satisfy one aspect of these
requirements does not mean that it can be designated as a network
resource. The remaining requirements must also be met.\111\ As the
Commission made clear in Order No. 890, one of those other requirements
is that such contracts expressly prohibit interruption for reasons
other than reliability.
---------------------------------------------------------------------------

    \111\ See, e.g., id. P 864 (``The Commission did not state that
every firm LD contract can be designated as a network resource, but
rather that they are eligible for designation.'') (emphasis in
original); Order No. 890 at n. 869 and P 1460 (finding that the then
current WSPP Schedule C agreement, while meeting requirements for LD
provisions, otherwise allows interruptions for reasons other than
reliability and, as a result, would not be eligible for designation
as a network resource).
---------------------------------------------------------------------------

    166. We disagree with Duke that the EEI firm LD product fails to
prohibit interruptions for reasons other than reliability. Duke raised
a similar argument in its NOPR comments, suggesting that the EEI firm
LD product allows power to be interrupted for any reason. The
Commission expressly disagreed, finding that power cannot be
interrupted for economic reasons under the EEI firm LD product and that
the supplier is obligated to provide power except in cases of force
majeure.\112\ Duke is therefore mistaken in implying that the EEI firm
LD product is not eligible for designation under Commission policy
because of its interruptibility.
---------------------------------------------------------------------------

    \112\ Order No. 890 at P 1452.
---------------------------------------------------------------------------

(2) Off-System Resources
    167. In Order No. 890, the Commission modified section 29.2(v) to
state more clearly the information that must be provided for the
designation of off-system network resources. Among other things, the
network customer must provide its transmission arrangements on the
external transmission system(s). In Order No. 890-A, the Commission
clarified that this requirement applies to the transmission leg from
the resource being designated to the transmission provider's
transmission system. If an off-system power purchase is sufficiently
firm to satisfy the designation requirements, the transmission provider
need not be concerned with the upstream transmission leg(s) from the
generator(s) to the point where the buyer takes title of the firm
power. The Commission concluded that the firm contract itself is the
resource being designated and, therefore, it is not necessary to
demonstrate the firmness of the upstream transmission.
Requests for Rehearing and Clarification
    168. Entergy requests clarification that customers designating an
LD contract as an off-system network resource must still arrange a firm
transmission path from the generator to the transmission system in
order for the purchase to qualify as a network resource, regardless of
where title of energy and/or capacity actually passes. If the point
where title to energy and/or capacity underlying a network resource
transfers is now relevant, Entergy argues that the Commission at a
minimum should clarify how that information should be relayed to the
transmission provider in the network customer's attestation and the
procedures, if any, that the transmission provider must undertake in
order to ensure the veracity of information provided regarding title.
Entergy argues that elimination of the requirement to support an LD
contract with a firm transmission path from the source generator would
violate the long-standing obligation that third-party transmission
arrangements delivering purchases be firm and depart from prior
governing precedent without a reasoned explanation.\113\
---------------------------------------------------------------------------

    \113\ Citing WPPI, 84 FERC at 61,660.
---------------------------------------------------------------------------

Commission Determination
    169. The Commission affirms the determination in Order No. 890-A
that the requirement in section 29.2(v) of the pro forma OATT to
identify the transmission arrangements on external systems applies only
to the transmission leg from the resource being designated to the
transmission provider's transmission system.\114\ If an off-system
power purchase is sufficiently firm to satisfy the designation
requirements, then the transmission provider need not be concerned with
the upstream transmission leg(s) from the generator(s) to the point
where the buyer takes title of the firm power. As the Commission
explained in Order No. 890-A, the resource being designated is the firm

contract. The network customer therefore must provide to the
transmission provider information regarding its transmission
arrangements only from the point that the network customer takes title
to the power to the point of delivery to the transmission provider's
transmission system, to the extent such points are distinct.
---------------------------------------------------------------------------

    \114\ See Order No. 890-A at P 867.
---------------------------------------------------------------------------

    170. We disagree that this determination conflicts with the
Commission's decision in WPPI. In that case, the Commission clarified
that the transmission provider could require network customers to
document compliance with specific requirements for obtaining tariff
service and that such documentation might include contractual
materials.\115\ The Commission did not address whether those
requirements include the requirement to provide information regarding
transmission arrangements between a designated power purchase agreement
and the source generator. The Commission concluded in Order No. 890-A
that they do not, given that the designated purchased power contract is
itself firm.\116\ Entergy provides no justification for granting
rehearing of this determination, which is well-founded in the record of
this proceeding.\117\
---------------------------------------------------------------------------

    \115\ See WPPI, 84 FERC at 61,660.
    \116\ See Order No. 890-A at P 867.
    \117\ See id. P 854-55.
---------------------------------------------------------------------------

    171. We disagree that a network customer must separately identify
in its attestation the location at which the network customer takes
title of purchased power. Section 30.2 of the pro forma OATT requires
the network customer to attest that, among other things, the network
customer owns or has committed to purchase the resource being
designated. Implicit in the identification of a resource, then, is the
requirement that the network customer has or has committed to acquire
title to the resource at that location. As the Commission explained in
Order No. 890-A, it is the responsibility of the network customer to
assure that the requirements of the pro forma OATT are satisfied prior
to requesting the designation of a network resource and executing the
attestation.\118\ Review of the network customer's power supply
contracts by the transmission provider is therefore not necessary.
Submitting an attestation with incorrect information as to its
ownership of purchased power would violate section 30.2, subjecting the
network customer to potential penalties.\119\
---------------------------------------------------------------------------

    \118\ See id. P 921.
    \119\ See Order No. 890 at P 1523-25. As we note below, the
Commission can audit a network customer's compliance with a
transmission provider's OATT in a variety of circumstances.
---------------------------------------------------------------------------

b. General
    172. In Order No. 890-A, the Commission affirmed the decision to
allow off-system resources supported by conditional firm point-to-point
service to be designated as network resources. The Commission declined
to require a network customer with a designated off-system resource
supported by conditional firm service to obtain reserves or backup
resources to cover the periods when the resource supported with
conditional firm point-to-point transmission service might not be
delivered. The Commission explained that, in the event conditional firm
service is curtailed, the network customer would be required to serve
its network load from other resources, just as when the transmission
provider curtails the network customer's use of secondary network
service. The Commission reiterated that it is not the responsibility of
the transmission provider to ensure that the network customer has
sufficient resources to meet its load.
Requests for Rehearing and Clarification
    173. Duke argues that the Commission, in its finding that
transmission providers are not to serve as provider of last resort for
their network customers, did not explain how transmission providers can
realistically avoid this role or how transmission providers or their
merchant function should be compensated in the likely event that the
transmission provider will continue to provide power to network
customers that are short of energy resources. Duke argues that several
of the Commission's policies on designation of network resources create
or exacerbate risks that network customers may at times be short of
resources. First, Duke cites the Commission's decision to allow a
network customer to deliver power from off-system network resources
using conditional firm point-to-point service, which it argues may be
curtailed with much greater frequency than network resources supported
by firm point-to-point service. Second, Duke cites the Commission's
rejection of requests to allow transmission providers to verify that a
network resource is supported by firm transmission service upstream of
the location of the purchase. Third, Duke cites the Commission's policy
of allowing power sales contracts that permit interruption by the
seller in order to reliably serve native load to qualify as network
resources, arguing that such policy may permit double-counting of
resources. Fourth, Duke states concern regarding the grandfathering of
existing designations for resources that may be curtailed by the seller
for any reason. Finally, Duke argues that the Commission's attestation
requirement will not adequately curb the practice of designating
unqualified resources as network resources due to a lack of audit
resources.
    174. Duke requests clarification that transmission providers or
their merchant functions may make section 205 filings to provide for
penalty rates for network customers that fail to provide enough energy
to serve load because network resources were not delivered for reasons
that could be expected. Duke explains that the most severe penalty for
energy imbalance service under Schedule 4, 125 percent of incremental
cost, is not particularly onerous and thus may be insufficient to
motivate appropriate behavior. Duke suggests that a rate of two times
system incremental costs would be appropriate.
Commission Determination
    175. The Commission reiterates that it is not the responsibility of
the transmission provider to ensure that the network customer has
sufficient resources to meet its load. The Commission has made clear
that the requirements for the designation of network resources are not
intended to replace or replicate resource adequacy requirements, which
impose distinct obligations on the transmission provider and its
customers.\120\ To that end, the Commission has determined that a
resource's qualification for network resource status does not
necessarily mean that the resource can or should be counted as firm
capacity for the purposes of resource adequacy.\121\ We therefore
disagree with Duke that the Commission's policies regarding the
designation of network resources creates or exacerbates risks that
inadequate resources will be available to meet network load.
---------------------------------------------------------------------------

    \120\ See Order No. 890 at P 1584; Order No. 890-A at P 835,
837.
    \121\ Midwest Indep. Transmission Sys. Operator, Inc., 122 FERC
] 61,283, at PP 274-76 (2008), reh'g pending.
---------------------------------------------------------------------------

    176. We decline to address Duke's suggestion that increased penalty
rates may be appropriate for network customers that fail to provide
enough energy to serve network load because their network resources
were not delivered for reasons that could be expected. The Commission
has already made clear that it will consider on a case-by-case basis
proposals to adopt enhanced imbalance penalties subject to

a showing that they are necessary under the circumstances.\122\
---------------------------------------------------------------------------

    \122\ Order No. 890 at P 676.
---------------------------------------------------------------------------

c. Documentation for Network Resources
    177. In Order No. 890, the Commission required network customers
and the transmission provider's merchant function to include a
statement with each application for network service or to designate a
new network resource that attests, for each new network resource
identified, that (1) the transmission customer owns the resource, or
has committed to purchase the resource pursuant to an executed contract
or where execution of a contract is contingent upon the availability of
transmission service, and (2) the resource comports with the
requirements for designated network resources. The Commission stated
that these attestations are not required to be submitted until the
service request is confirmed. In Order No. 890-A, the Commission
affirmed the requirement that each network customer designating network
resources must submit an attestation using the language set forth in
sections 29.2 and 30.2 of the pro forma OATT.
    178. The Commission also affirmed the decision to require each
transmission provider to verify that third-party transmission
arrangements used to deliver an off-system designated network resource
to the transmission provider's system are firm. The Commission
explained that, under normal circumstances, this verification
requirement should not present a significant burden for the
transmission provider because it only requires review of the
transmission arrangements from the designated network resource to the
transmission provider's system.
Requests for Rehearing and Clarification
    179. NRECA and TDU Systems seek confirmation that network customers
are not required to submit attestations until the customer confirms the
service request on OASIS. These petitioners state that clarification is
necessary because some of their members have been told by transmission
providers that this attestation is required at the time of application
for service, despite the Commission's guidance in the preambles of both
Order Nos. 890 and 890-A.\123\ NRECA and TDU Systems contend that the
language of section 29.2 of the pro forma OATT is inconsistent with the
preamble and should be amended because courts have held that language
in the preamble of a regulation is not controlling over the language in
the regulation itself.\124\ If the Commission actually intended to
require the attestation at the application stage, they request
rehearing on the grounds that a network customer cannot be expected to
commit to purchase a resource before the resource has even been studied
by the transmission provider.
---------------------------------------------------------------------------

    \123\ Citing Order No. 890 at P 1531; Order No. 890-A at P 909.
    \124\ Citing Wyoming Outdoor Council v. U.S. Forest Serv., 165
F.3d 43, 53 (D.C. Cir. 1999) (citing Jurgensen v. Fairfax County,
Va., 745 F.2d 868, 885 (4th Cir. 1984)) and Rowell v. Andrus, 631
F.2d 699, 705 (10th Cir. 1980).
---------------------------------------------------------------------------

    180. Duke states continued concern regarding the effectiveness of
the attestation requirement submitted by network customers that are not
subject to the Commission's ratemaking jurisdiction. Duke maintains
that, while the Commission plainly has the authority to penalize
nonjurisdictional entities that submit false attestations, the
Commission has never routinely audited such entities. Unless the
Commission begins an audit program that routinely reviews the
designation attestations and supporting contracts of nonjurisdictional
network customers, Duke argues that noncompliance could be viewed as
nearly risk-free. Duke contends that this would be inequitable given
that merchant functions of transmission providers are routinely
audited. If the Commission lacks the resources to begin routine, random
auditing of nonjurisdictional entities' attestations, Duke suggests
that the Commission consider permitting market monitors or independent
entities to at least perform spot checks and report to the Commission
if a questionable attestation has been made.
    181. TranServ requests clarification of the means by which a
transmission provider may comply with its obligation to verify the
firmness of off-system transmission service to deliver designated
network resources to the transmission provider's system. TranServ
requests that only long-term designations of network resources should
require an up-front verification of any off-system transmission
arrangements. For shorter-term designations, TranServ suggests that it
is sufficient for the transmission provider to verify that all
transmission arrangements upstream of the provider's system are
supported by firm transmission at the time the transactions from the
resource are scheduled. TranServ contends that this would allow more
flexibility on the part of the transmission customer in terms of
balancing the use of a portfolio of point-to-point transmission rights,
while still providing the necessary assurance to the transmission
provider that the designated resource is backed by firm transmission up
to the point of delivery to the provider's system.
Commission Determination
    182. The Commission grants rehearing to more accurately state the
requirement to provide an attestation supporting the designation of
network resources pursuant to sections 29.2(viii) and 30.2 of the pro
forma OATT. In order to designate a network resource, section 30.7 of
the Order No. 888 pro forma OATT required each network customer to
demonstrate that (i) it owns or has committed to purchase generation
pursuant to an executed contract or (ii) execution of a contract is
contingent upon the availability of transmission service in order to
designate a generating resource. In Order No. 890, the Commission
adopted the attestation requirement as the means by which the network
customer can make this demonstration, revising sections 29.2 and 30.2
accordingly. We affirm this requirement, consistent with the network
customer's obligations under section 30.7, and grant rehearing of the
Commission's statements in this proceeding indicating that the
attestation can instead be submitted at the time a resource designation
is confirmed, rather than requested.
    183. We disagree with NRECA and TDU Systems that a customer
submitting an attestation pursuant to section 29.2(viii) or 30.2 of the
pro forma OATT must commit to purchase the resources for which
designation is requested irrespective of the outcome of the network
service request. Consistent with section 30.7, a network customer may
attest that execution of a contract is contingent upon the availability
of transmission service under Part III of the pro forma OATT. Network
customers are therefore not required to commit to purchasing a resource
prior to submitting a request to designate that resource.
    184. In response to Duke, we disagree that it is necessary to
establish audit programs specifically for nonjurisdictional entities in
order to verify attestations supporting their network resource
designations. The Commission could audit any network customer's
compliance with a transmission provider's OATT in a variety of
circumstances. For instance, network customers (including
nonjurisdictional entities) and the transmission provider's merchant
function could be asked to support selected attestations during audits
of the transmission providers to whom the

attestations were submitted. Thus, no special audit programs are
necessary.
    185. We deny TranServ's request that the firmness of transmission
service used to deliver short-term designations of network resources be
verified at the time of scheduling, rather than at the time of
designation. The time of designation is when the transmission provider
determines that power from a network resource is deliverable to
associated network load and, therefore, it is appropriate to require
the verification of related transmission service at that time.
d. Undesignation of Network Resources
(1) Risk to ATC Rights
    186. In Order No. 890, the Commission clarified that a request for
termination of a network resource that is concurrently paired with a
request to redesignate that resource at a specific point in time will
not result in the network customer permanently forfeiting rights to use
that resource as a designated network resource. Any change in ATC that
is determined by the transmission provider to have resulted from the
temporary termination shall be posted on OASIS during this temporary
period. The Commission directed transmission providers to develop OASIS
functionality and, working through NAESB, business standards describing
the procedures for submitting temporary terminations of network
resources, including the identification of any related transmission
service requests to be evaluated concomitantly with the request for
temporary termination.
Requests for Rehearing and Clarification
    187. TranServ requests clarification of the sequence of events and
requirements for releasing transmission capability as a result of a
customer's request to undesignate one network resource and replace it
with an alternate resource. TranServ argues that the process should be
deemed similar in nature and treatment to a redirect of firm point-to-
point service or a network service request related to the temporary
termination of a resource designation, which must be evaluated
concomitantly.\125\ Although TranServ acknowledges that network
customers should not be ``first-in-line'' for ATC made available from
an undesignation, it contends that transmission providers should
evaluate simultaneous transmission service requests with the knowledge
that both resource designations will not run concurrently.
---------------------------------------------------------------------------

    \125\ Citing Order No. 890 at P 1541.
---------------------------------------------------------------------------

Commission Determination
    188. In Order No. 890, the Commission directed transmission
providers to evaluate as a single request a request for temporary
undesignation and related requests for transmission service.
Transmission providers were therefore directed to develop, working
through NAESB, business practices allowing for electronic
identification of related transmission service requests to be evaluated
concomitantly with the request for temporary undesignation. This was
appropriate in light of the Commission's decision to allow network
customers to temporarily undesignate their network resources without
forfeiting the right to use the resource at a specified point in the
future, provided they pair the temporary undesignation with a request
to redesignate the resource.
    189. We find that similar procedures for permanent undesignations
of network resources are unnecessary given the transmission provider's
obligation to consider clustering transmission service requests at the
request of customers. If a network customer or the transmission
provider's merchant function wishes for the transmission provider to
take into consideration the effect of a request to terminate a network
resource on a concomitant request to designate another network
resource, it may request the transmission provider to cluster the
requests. As TranServ acknowledges, this will not alter the priority of
the network customer or the transmission provider's merchant function
with regard to any ATC that may be made available by undesignating the
network resource.
(2) System Sales
    190. In Order No. 890-A, the Commission clarified the circumstances
in which a network customer must undesignate its resources on a unit-
specific basis when making a system sale. The Commission determined
that portions of the seller's individual network resources supporting a
sale of system power do not need to be undesignated so long as the
system sale is itself designated as a network resource by the buyer.
Instead, the seller should undesignate a portion of its system equal to
the amount of the system sale, but which is not attributed to any
specific generators. If the system sale is not designated as a network
resource by the buyer, the seller must submit undesignations for each
portion of each resource supporting the third-party sale. The
Commission stated that most, if not all, system sales sourced from
designated network resources are themselves designated as network
resources by the buyer and, therefore, few system sales would require
undesignation on a unit-by-unit basis.
Requests for Clarification and Rehearing
    191. Several petitioners request rehearing and clarification of the
requirement that generating units supporting a sale of system power
that is not designated as a network resource by the buyer must be
undesignated by the seller on a unit-by-unit basis.\126\ Petitioners
generally argue that a seller should not be required to undesignate
individual resources used to support any system sale of power.
---------------------------------------------------------------------------

    \126\ E.g., Deseret, Duke, EEI, NRECA, Pacific Northwest IOUs,
Southern, and TranServ.
---------------------------------------------------------------------------

    192. Various petitioners argue that requiring unit-by-unit
undesignations by sellers for system sales to buyers who use point-to-
point service to deliver the power to their load has certain
undesirable effects, including increased cost and administrative burden
for system sales, increased tendency of sellers to discriminate against
point-to-point buyers, foreclosed opportunities for transactions,
decreased liquidity, decreased revenues for sellers, decreased
efficiency in transmission use, and further discouragement of network
customers from making system sales that do not qualify for designation
by the buyer, such as sales into day-ahead RTO markets.\127\
---------------------------------------------------------------------------

    \127\ E.g., Deseret, NRECA, Southern, and TAPS.
---------------------------------------------------------------------------

    193. Deseret argues that an LSE's access to system sales, rather
than a unit-specific or hub-based sales, further assures delivery of a
product necessary to fulfill native load requirements. Deseret contends
that limiting the flexible undesignation of network resources
supporting system sales to instances where the buyer designates the
purchase as a network resource is therefore contrary to section 217 of
the FPA. Deseret also argues that the Commission's policy unduly
preferences buyers that designate the purchase as a network resource.
Deseret contends that the Commission has failed to justify why system
sales to point-to-point customers are more problematic than sales to
network customers, even where the two buyers would be using the
resource in the same way. Southern agrees, arguing that there is no
support in the record for the Commission's determination regarding the
undesignation of resources used for system sales.\128\ Duke states
similar concerns, noting that all commenters

addressing the issue took the opposite position with regard to slice-
of-system sales, i.e., that in all cases the slice, not units, should
be undesignated.
---------------------------------------------------------------------------

    \128\ Citing National Fuel Gas Supply Corp. v. FERC, 468 F.3d
831 (D.C. Cir. 2006).
---------------------------------------------------------------------------

    194. Several petitioners challenge the Commission's statement that
buyers taking advantage of system purchases are almost always network
customers.\129\ Deseret explains that, in part due to the remote nature
of its loads and the composition of the integrated transmission grid in
its region, it is more efficient, both from a cost perspective and a
transmission use perspective, for LSEs like itself to serve their loads
using point-to-point service, either pursuant to an OATT or under pre-
Order No. 888 transmission arrangements. NRECA and TAPS similarly argue
that some LSEs rely on point-to-point service instead of network
service to serve their native loads. Pacific Northwest IOUs state that
the majority of system purchases they make are not designated as
network resources, due at least in part to the fact that many purchases
are imported for short-term balancing purposes where flexibility is
important. Southern agrees that the bulk of system purchases occur in
the short-term markets and suggests that buyers may simply not want to
bother with designating the purchases as network resources.
---------------------------------------------------------------------------

    \129\ E.g., Deseret, NRECA, Pacific Northwest IOUs, Southern,
and TAPS.
---------------------------------------------------------------------------

    195. TAPS argues that the Commission's assumption that unit-
specific undesignations will rarely be required supports elimination of
the unit-specific undesignations for all transactions. TAPS argues that
the better course is to allow system-based undesignation for all system
sales given that the ATC refinement efforts remain under development by
NERC and NAESB and the Commission will have the opportunity to revisit
the undesignation requirements once that work is complete.
    196. Some petitioners challenge the Commission's underlying
concern, as expressed in Order No. 888 and referenced in Order No. 890-
A, that network customers may have an incentive to designate unlimited
generation resources absent a prohibition on network resources
including any portion of a resource that is committed for sale to a
third party.\130\ Pacific Northwest IOUs argue that a buyer's decision
as to whether or not to designate a system sale as a network resource
has no bearing on the seller's incentive or disincentive to
overdesignate network resources. Pacific Northwest IOUs contend that
the seller will designate those resources which it believes are
necessary to serve its load regardless of how a buyer chooses to use a
system sale from the seller. Southern agrees, arguing that the costs
associated with acquiring resources that meet all the requirements for
designation serve as an appropriate economic incentive not to
overdesignate. These petitioners note that the Commission already
addressed concerns regarding over-designation of network resources in
Order No. 888 by determining that ``a transmission customer, like a
transmission provider, has an incentive not to oversubscribe its
capacity requirements because the cost of excessive reserve margins
will be prohibitive.'' \131\ Pacific Northwest IOUs argue that the
procedural complexities associated with designating network resources
provide further incentives not to overdesignate and that such
incentives exist regardless of how a buyer uses a system purchase.
---------------------------------------------------------------------------

    \130\ E.g., EEI, Pacific Northwest IOUs, and Southern (citing
Order No. 888 at 31,753-53; Order No. 890 at P 951).
    \131\ Quoting Order No. 888 at 31,754.
---------------------------------------------------------------------------

    197. EEI contends that a seller will charge more for a power sale
that it cannot recall without paying a penalty, or that it cannot
recall at all, than it will charge for a sale that it can recall. EEI
argues that there is therefore an additional financial disincentive to
overdesignate network resources regardless of whether a seller
undesignates a slice of its entire system or a portion of each
generator involved in the sale. EEI acknowledges that transmission
service that the buyer takes in connection with a system sale might
affect ATC associated with the transaction. EEI suggests, however, that
the Commission address any concerns about reservations of transmission
service by buyers of slice-of-system energy directly through
requirements that apply to buyers rather than sellers. EEI argues that
restricting the type of transmission service the buyer may choose with
respect to a slice-of-system purchase violates the basic tenet of open
access transmission service that a transmission customer has the
freedom to take whatever transmission service is available to it under
the pro forma OATT.
    198. Some petitioners argue that the policy of requiring resource-
specific undesignations for system sales which are not designated as
network resources by the buyer creates implementation problems.\132\
These petitioners state that the entity making the sale may have no
knowledge as to whether the sale is being used as a network resource
and, thus, would not know which undesignation rule to apply.
Petitioners also note confusion over what the seller's undesignation
obligation would be were the buyer to undesignate its purchase after
the sale is made, particularly when such activity is not known to the
seller. E.ON U.S. requests clarification that the seller in a slice-of-
system sale will not have violated the transmission provider's OATT as
a result of its counterparty's failure to designate or undesignate the
network resource as required, so long as the seller treated the slice-
of-system sale appropriately by relying on the counterparty's actions
at the commencement of the transaction. Pacific Northwest IOUs question
whether an undesignation may be made on a project basis when the
resource has been designated on a project basis.
---------------------------------------------------------------------------

    \132\ E.g., Duke, E.ON U.S., EEI, and Pacific Northwest IOUs.
---------------------------------------------------------------------------

    199. Several petitioners question the relevance of an off-system
buyer's designation of a system sale as a network resource on another
transmission provider system. Duke argues that a sale by its merchant
function to an off-system network customer designating the purchase as
a resource and a sale by its merchant function to an off-system power
marketer intending to resale the power elsewhere must both be
accomplished by scheduling point-to-point service from Duke to the
neighboring system. Duke contends that it makes no sense to require its
merchant to undesignate generating units used to serve one sale but not
the other, particularly since its merchant would have no knowledge of
subsequent changes in the designation status of the resource purchased
by the off-system network customer.
    200. EEI states similar concern regarding the ability of a seller
to know the sink where energy from a system power sale is delivered to
an off-system buyer since the buyer may resell it to another customer.
EEI contends that the seller may not have access to the OASIS of the
transmission provider where the buyer is located and, therefore, may
not be able to determine whether the buyer has designated the purchase
as a network resource. EEI notes that, while the Commission directed
NERC and NAESB to develop processes to allow transmission personnel to
obtain access to the OASIS of other transmission providers to verify
the firmness of transmission arrangements delivering off-system
designated network resources, the Commission did not grant the same
level of OASIS access to the merchant function making sales of system
power.
    201. Pacific Northwest IOUs ask the Commission to specifically
clarify that

the limitations stated in Order No. 890-A apply only to on-system sales
and that sellers may undesignate a slice of their system used to
support off-system sales regardless of how the buyer treats,
designates, or uses the purchased power. Pacific Northwest IOUs state
that this would be consistent with the Commission's apparent focus on
on-system sales in its discussion of this issue in Order No. 890-A. In
support of their request, Pacific Northwest IOUs state that the off-
system buyer's use of the system sale has no impact on the seller's
transmission system, including ATC.
Commission Determination
    202. The Commission affirms the determination in Order No. 890-A
that a network customer and the transmission provider's merchant
function must undesignate each portion of each resource that is used to
support a sale of system power if the buyer has not designated the
purchase as a network resource.\133\ The requirement that network
customers undesignate their network resources when making firm third-
party sales was first imposed in Order No. 888 to ensure that all
designated network resources can, in fact, be called upon by the
transmission provider to serve network load:
---------------------------------------------------------------------------

    \133\ See Order No. 890-A at P 947.

    Absent a requirement that network resources always be available
to meet a customer's network loads, reliability of service to the
network customer as well as to native load and other network
customers could be affected * * *. If a network customer desires to
enter into a firm sale from its designated network resource * * *,
it must eliminate the appropriate resources or portions thereof from
its designated network resources pursuant to pro forma tariff
section 30.[134]
---------------------------------------------------------------------------

    \134\ See Order No. 888-A at 30,326.

    203. The restriction on third-party sales from designated network
resources therefore enhances the ability of the transmission provider
to plan and operate its system to integrate designated resources with
the customer's loads. Without the restriction, transmission providers
could reduce ATC by maintaining the same existing transmission
commitments for anticipated uses of the network customer's designated
resources even though the network customer has otherwise committed
those same resources to other parties on a firm basis.
    204. The Commission in Order No. 890 therefore retained the
requirement to undesignate network resources that are used to support
firm third-party sales, reiterating that the undesignation and
redesignation requirements work together to promote reliability,
prevent undue discrimination, promote comparable treatment of
customers, and increase the accuracy of ATC calculations.\135\ In Order
No. 890-A, however, the Commission clarified that the requirement to
undesignate on a resource-by-resource basis does not apply to system
sales in the event the buyer has also designated the purchase as a
network resource.\136\ This clarification was provided in response to
complaints by various petitioners that keeping track of individual
generating units and amounts of generation from each unit being used to
support system sales is unduly burdensome or impossible.\137\
---------------------------------------------------------------------------

    \135\ See Order No. 890 at P 1576.
    \136\ See Order No. 890-A at P 947.
    \137\ See id. P 936-37.
---------------------------------------------------------------------------

    205. At the outset, we note that the discussion in Order No. 890-A
appears to have caused confusion by not specifically stating that the
exception to the requirement to undesignate capacity supporting a
system sale on a resource-by-resource basis for system sales that are
designated as network resources by the buyer applies only to
transactions in which the buyer and seller are located on the same
transmission system. As the Commission explained in Order No. 890-A,
when a seller's network resources are used to support an on-system
system sale, the buyer meets the informational requirements of section
29.2(v) simply by identifying the seller's system as the resource,
because the detailed operating characteristics for those generators
were already provided when they were designated by the seller.\138\ The
transmission provider is therefore already modeling power transfers
from those resources to the seller's load. The designation of a system
sale as a network resource by the buyer provides the transmission
provider adequate information to also simulate power transfers from
that resource to the buyer's load given that the transmission provider
already has information on the system resources resulting from the
seller's designation of the underlying resources. It is not necessary
to require the seller to undesignate individual resources and, instead,
the undesignation can be done on a system basis, i.e., by undesignating
an aggregate portion of network resources equal to the amount of the
system sale, but which is not attributed to any specific resource.
---------------------------------------------------------------------------

    \138\ See id. P 889.
---------------------------------------------------------------------------

    206. In comparison, when the buyer does not designate the system
purchase as a resource, the buyer will not be using network service to
take delivery of associated energy. In order for the buyer to schedule
point-to-point service to take delivery, the transmission customer must
identify the points of receipt and delivery for the transaction, i.e.,
the points on the host transmission system where capacity and energy
will be received from the seller and delivered to the buyer.\139\ The
point-to-point transmission reservation and the corresponding resource-
specific undesignation provide the transmission provider with the
information it needs regarding location of the particular resources
being used by the seller to source the transaction in order to model
the effect of the transaction on its transmission system and set aside
ATC accordingly. Without this information, transmission capacity
associated with integrating the seller's resources with its load could
continue to be set aside for the seller's benefit, even though the
resources have been committed for sale to third parties on a firm
basis.\140\
---------------------------------------------------------------------------

    \139\ See pro forma OATT, sections 1.35, 1.36 and 13.7. The
Commission therefore stated in Order No. 890-A its expectation that
most, if not all, system sales sources from designated network
resources are themselves designated as network resources by the
buyer. See Order No. 890-A at P 947. Even if this is not the case,
as a number of petitioners argue, the Commission continues to be
concerned that system sales from units that are not designated by
the buyer as a network resource may impair the reliable planning and
operation of the transmission provider's system.
    \140\ We clarify in response to the Pacific Northwest IOUs that
the Commission's reference to the undesignation of ``units'' in
paragraph 947 of Order No. 890-A was unintentionally narrow. The
restriction on certain third-party sales from a designated network
resource applies to each resource or portion thereof under section
30.4 of the pro forma OATT.
---------------------------------------------------------------------------

    207. We therefore disagree that there is no support for
distinguishing sales of system power that have been designated as
network resources by the buyer and those that have not. Several
petitioners argue that the individual undesignation of network
resources used to supply system sales will not have an effect on ATC or
the reliable operation of the transmission system regardless of the
type of transmission service used to deliver the power to the buyer.
EEI, however, acknowledges that the type of transmission service used
by the buyer of system power may affect ATC associated with the
transaction, and we agree. It is for that reason that the Commission
directed transmission providers to address the effect on ATC of
designating and undesignating network resources as part of the on-going
NERC/NAESB ATC

standardization effort.\141\ This does not mean, as EEI suggests, that
distinguishing the seller's undesignation obligation on the actions of
the buyer undermines the buyer's access to service under the pro forma
OATT. The buyer is free to request either network or point-to-point
service as it believes best fits its needs in light of the resources it
wishes to deliver.
---------------------------------------------------------------------------

    \141\ See Mandatory Reliability Standards for the Bulk-Power
System, Order No. 693, FERC Stats. & Regs. ] 31,242, at P 1041,
order on reh'g, Order No. 693-A, 120 FERC ] 61,053 (2007).
---------------------------------------------------------------------------

    208. We disagree that it is unduly burdensome or complicated to
condition the seller's ability to make system sales from designated
network resources on the buyer's decision to designate the purchase as
a network resource. As explained above, the Commission has long
prohibited firm sales to third parties from any designated network
resource. The Commission has made an exception for system sales that
also have been designated as a network resource by a buyer located on
the same transmission system. This increases, not decreases,
opportunities for network customers and the transmission providers'
merchant functions to engage in transactions. Although the Commission
could further expand these opportunities by eliminating the
undesignation requirement altogether, to do so could adversely affect
the transmission provider's ability to reliably plan and operate its
system. Because the undesignation restrictions apply equally to all
designated resources and are necessary to ensure that the transmission
provider can provide reliable service to all customers, they are
therefore consistent with our obligations under FPA section 217.
    209. We also conclude that concerns regarding the ability to verify
or monitor the buyer's decision to designate a purchase of system power
as a network resource are overstated in light of the clarification that
the buyer and seller must be on the same transmission system. In Order
No. 890, the Commission directed transmission providers, working
through NERC, to develop OASIS functionality for the designation of
network resources and for queries of information provided with
designation requests.\142\ Parties to a sale of system power on the
same transmission system will therefore have ready access to the
treatment of the resource. Sellers also may rely on commitments made by
the buyer to designate the purchase as a network resource.
---------------------------------------------------------------------------

    \142\ See Order No. 890 at P 1477.
---------------------------------------------------------------------------

    210. We reiterate that, if the particular ATC methodology used by a
transmission provider allows for flexibility in implementing the
undesignation requirements for system sales, the transmission provider
may propose a variation to the pro forma OATT in an FPA section 205
filing. In Order No. 890-A, the Commission stated that such requests
should address the Commission's concern, as stated in Order No. 888,
that network customers may have the incentive to designate unlimited
generation resources absent a prohibition on network resources
including any portion of a resource that is committed for sale to a
third party.\143\ Several petitioners argue that the Commission
mischaracterized the concern stated in Order No. 888, since there the
Commission found that the cost of excessive reserve margins acts as a
financial disincentive to overdesignate resources.\144\ However, the
reason the cost of reserve margins acts as a disincentive to
overdesignate resources is because designated resources may be used
only for certain specified purposes. It therefore remains appropriate
to require those seeking a variation from the pro forma OATT with
respect to eligibility for network resource status to address the
Commission's concern regarding overdesignation of resources. In
addition, to the extent necessary, we clarify that the transmission
provider should also address the Commission's concern, also stated in
Order No. 888-A and reiterated above, that sales from designated
network resources not impair the reliable planning and operation of the
transmission provider's system.
---------------------------------------------------------------------------

    \143\ See Order No. 890-A at P 951.
    \144\ Quoting Order No. 888 at 31,754.
---------------------------------------------------------------------------

(3) General
    211. In response to requests for rehearing, the Commission in Order
No. 890-A amended sections 1.26 and 30.4 of the pro forma OATT to make
clear that network resources do not have to be undesignated before they
are used to support the provision of reserve energy under a Commission-
approved reserve sharing agreement.
Requests for Rehearing and Clarification
    212. E.ON U.S. requests clarification that the exception to the
requirement for undesignation for resources used to support the
provision of reserve energy under a Commission-approved reserve sharing
agreement also applies to back-up power sales, which E.ON U.S.
describes as long-term, cost-based sales aimed at substituting power
for generation that is not available for reasons such as planned or
forced outages, curtailments, or unit de-ratings. E.ON U.S. argues
that, like reserve sharing arrangements, back-up power sales are made
for reliability purposes and may require the provision of energy within
a timeframe that is too short for the seller to undesignate the
resource. E.ON U.S. states that back-up power sales are not limited to
per se emergency situations, but rather are necessary to avert
emergencies.
    213. TDU Systems seek clarification of the determination in Order
No. 890-A that network resources do not have to be undesignated before
they are used to support the provision of reserve energy under a
Commission-approved reserve sharing agreement. TDU Systems question
whether the Commission intended to impose an additional approval
process for reserve-sharing agreements being made from designated
network resources. TDU Systems seek guidance regarding which reserve
sharing agreements qualify as Commission-approved and what criteria a
reserve sharing agreement must meet in order to be approved. TDU
Systems ask whether, for example, existing Commission-approved
bilateral interchange agreements providing for emergency and
maintenance services between and among utilities qualify. TDU Systems
also seek clarification that Order No. 890-A is not excluding from this
exception interchange agreements or reserve-sharing agreements among
non-jurisdictional entities.
Commission Determination
    214. The Commission declines to expand the categories of third-
party sales that can be made from designated network resources to
include back-up power sales, as requested by E.ON U.S. Network
customers and the transmission provider's merchant function are
permitted to use designated network resources to fulfill obligations
under reserve-sharing agreements given the particular nature of those
transactions, which involve the need to deliver power to counterparties
promptly during emergency situations. E.ON. U.S. acknowledges that,
unlike reserve-sharing agreements, back-up power sales are not limited
to emergency situations. E.ON U.S. has not justified further expanding
the categories of third-party sales that may be made from designated
network resources.
    215. In response to TDU Systems, we grant rehearing of Order No.
890-A to eliminate the requirement that a reserve sharing program be
approved by the Commission in order for a network customer or the
transmission provider's

merchant function to use a designated network resource to meet its
reserve sharing obligations.\145\ As TDU Systems explain, certain
reserve sharing arrangements may not be subject to our jurisdiction,
and the Commission did not intend in Order No. 890-A to establish new
criteria for reviewing and approving reserve sharing arrangements in
this proceeding. We clarify, however, that, for purposes of sections
1.26 and 30.4 of the pro forma OATT, a reserve sharing program must
limit service to the sharing of contingency reserves among the members
for emergencies \146\ and the ability to use designated network
resources to support reserve sharing obligations does not extend to
other types of third-party sales. Any use of designated network
resources for reserve sharing events would be subject to justification
during an audit.
---------------------------------------------------------------------------

    \145\ We also revise sections 29.2(viii), 30.1 and 30.2 of the
pro forma OATT to include references to the use of network resources
to meet reserve sharing obligations. These tariff revisions do not
relieve participants to an otherwise jurisdictional reserve sharing
arrangement of any obligations they may have under FPA section 205
to obtain Commission approval for that arrangement.
    \146\ See, e.g., Sw. Reserve Sharing Group, 83 FERC ] 61,314
(1998), reh'g denied, 95 FERC ] 61,071 (2001).
---------------------------------------------------------------------------

5. Clarifications Related to Network Service
    216. In Order No. 890-A, the Commission reiterated that the pro
forma OATT permits transmission customers to exclude the entirety of a
discrete load from network service and serve such load with the
customer's behind the meter generation and through any needed point-to-
point service, thereby reducing the network customer's load ratio
share. In other situations, use of point-to-point service by network
customers is in addition to network service and, therefore, does not
serve to reduce their network load. With regard to concerns about
insufficient transmission to serve a network customers' entire load,
the Commission stated that it failed to understand how, under normal
circumstances, the transmission provider has no capacity to serve a
load that has been designated by the network customer. Once a load has
been designated, it is the obligation of the transmission provider to
serve that load and to plan its system so that the load can be
accommodated in the future.
Requests for Rehearing and Clarification
    217. Pacific Northwest IOUs request clarification that there is no
per se prohibition on a transmission customer using both point-to-point
and network service to serve load in the same balancing authority area,
provided that the point-to-point service is acquired in addition to the
customer's network service payment obligation and provided that all
other conditions for the use of point-to-point service are satisfied.
Pacific Northwest IOUs argue that, for certain compliance and
commercial reasons (e.g., lack of sufficient allocated network
service), point-to-point service can be an appropriate and important
adjunct to network service even considering the added cost of the
point-to-point purchase. Where load ratio share obligations are not at
issue, Pacific Northwest IOUs argue that transmission customers should
be permitted to use both point-to-point and network service.
    218. EEI and E.ON U.S. request clarification of the Commission's
statement in Order No. 890-A that, once a load has been designated by
the network customer, it is the obligation of the transmission provider
to serve that load and to plan its system so that the load can be
accommodated in the future.\147\ These petitioners ask the Commission
to confirm that a transmission provider has the obligation to serve and
plan for a network customer's load only to the extent that the customer
has designated sufficient network resources to serve that load. In
their view, section 28.2 of the pro forma OATT requires only that a
transmission provider plan for and construct transmission facilities
sufficient to deliver energy from the network customer's network
resources to meet the customer's network load on a basis comparable to
the transmission provider's delivery of its own generating and
purchased resources to its native load customers. EEI contends that the
requirement of section 29.2(v) to provide projections of network
resources further confirms that the transmission provider is only
required to plan for and construct transmission facilities required to
deliver the network customer's energy from resources designated or
forecasted by the network customer. E.ON U.S. argues that failure to
provide the requested clarification could result in transmission
providers having to guess where facilities will need to be built in
order to serve load.
---------------------------------------------------------------------------

    \147\ See Order No. 890-A at P 971.
---------------------------------------------------------------------------

Commission Determination
    219. The Commission clarifies, to the extent necessary, that there
is no per se prohibition on a transmission customer using both point-
to-point and network transmission service, but that any use of point-
to-point service by a network customer does not decrease the size of
the network customer's load for purposes of calculating its load ratio
share payment obligations except to the extent the discrete load being
served has been excluded in its entirety from network service. In
response to EEI and E.ON U.S., we clarify that the Commission did not
intend in Order No. 890-A to modify the obligation of transmission
providers under section 28.2 of the pro forma OATT to endeavor to
construct and place into service sufficient transfer capability to
deliver the network customer's network resources to serve its network
load on a basis comparable to the transmission provider's delivery of
its own generating and purchased resources to its native load
customers. The statement questioned by petitioners was made in response
to requests for an exception from load ratio pricing when a particular
network load cannot be entirely served by the transmission provider's
system without upgrades.\148\ The Commission rejected that request,
explaining that the transmission provider should be planning its system
to serve its network customers' designated loads and that situations in
which a particular designated load cannot be served are best addressed
on a case-by-case basis. We agree, however, that the obligation of the
transmission provider to adequately plan for the needs of its network
customers is of course dependent on the network customer designating
adequate network resources as well as providing information regarding
its forecasted loads and resources, as required under section 29.2 of
the pro forma OATT.
---------------------------------------------------------------------------

    \148\ See Order No. 890-A at P 971.
---------------------------------------------------------------------------

6. OATT Definitions
a. Non-Firm Sales
    220. In Order No. 890, the Commission adopted the following
definition of Non-Firm Sales to identify more clearly those types of
sales that are permitted from designated network resources: ``An energy
sale for which receipt or delivery may be interrupted for any reason or
no reason, without liability on the part of either the buyer or
seller.'' The Commission concluded that it would be inappropriate to
adopt commenter suggestions to relax the definition of a Non-Firm Sale
to include any sale that is not otherwise firm enough to be designated
as a network resource.
    221. In Order No. 890-A, the Commission clarified that, under
normal circumstances, a system sale that permits curtailment without
penalty to serve the seller's native load

would fall within the definition of a Non-Firm Sale since the seller
would have the right to rely on that capacity in the event it is needed
to serve native load, which the Commission stated is the principle
concern in restricting sales from designated network resources to non-
firm sales. The Commission disagreed with petitioners arguing that the
definition of Non-Firm Sales includes transactions that permit
interruption with financial liability, whether make whole or limited to
certain penalties, explaining that any interruption in service that
would create liability on the part of the seller would create
conflicting incentives regarding use of the network resource.
    222. The Commission also denied requests to amend the definition of
Non-Firm Sales to accommodate the particular market operations of each
RTO and ISO. The Commission acknowledged that centralized dispatch in
those markets may very well eliminate any effect that temporary
resource undesignations and redesignations have on dispatch or ATC
calculations and, therefore, tailoring the rules governing the
designation of network resources to each RTO/ISO market could be
appropriate.
Requests for Rehearing and Clarification
    223. TAPS argues that the Commission's determinations in Order No.
890 regarding the sales that may be made from a network resource
without undesignation leaves the OATT in a state of confusion that will
make compliance by transmission providers and network customers
hazardous. TAPS contends allowing sales that are curtailable for native
load reliability purposes, not economics, to be considered non-firm
sales is in conflict with the plain language of the definition, which
is strictly limited to sales that are interruptible for any or no
reason. TAPS contends this modifies without explanation the
Commission's clarification provided in Order No. 890 that energy sales
that can be interrupted to maintain system reliability are considered
firm sales.\149\
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    \149\ Citing Order No. 890 at P 1688, 1692.
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    224. TAPS argues that the Commission's focus in Order No. 890-A on
the ability to curtail sales (without liability) for native or network
load is inconsistent with the Non-Firm Sales definition and produces
illogical results, allowing the same recallable sale to be
simultaneously both non-firm for the seller and firm for the buyer and,
as a result, be designated twice. At the same time, TAPS argues, the
Commission expanded the class of sales that are neither firm nor non-
firm sales by clarifying that sales that may be interrupted for any
reason, but with potential liability, do not fall within the definition
of Non-Firm Sales. TAPS contends that finding a total bar on recall for
native load economic purposes, as in the case of curtailable sales, to
be less of a disincentive than the ability to recall for native load
with potential liability, no matter how small, defies common sense and
is not supported by evidence. TAPS notes that commenters at the July 30
technical conference in this proceeding stated that sellers were moving
away from participation in the Midwest ISO day-ahead market because of
uncertainties about redesignation if an undesignated resource selling
into that market were needed in real time to serve native load due to a
real-time contingency. TAPS argues that the obligation to pay the real-
time locational marginal price (LMP) would not create a disincentive to
recall the sale if needed for native load and, to the contrary, the
flexibility to interrupt for any reason or no reason to meet native
load needs is so valuable that uncertainties associated with
undesignation deter sales into RTO markets from resources that are
designated within and outside the RTO.
    225. TAPS contends that distinguishing between curtailable sales
that may be made from designated network resources and fully
interruptible sales that entail some financial liability runs counter
to the fundamental principle that it is the nature of the delivery
obligation, not the LD provisions, that determine whether a resource is
sufficiently firm to qualify for designation as a network
resource.\150\ TAPS states that Order No. 890 suggested that the
existence of any financial liability controls whether a sale may be
deemed a non-firm sale, regardless of the nature of the seller's
obligation to deliver, while Order No. 890-A relies on restrictions to
warrant exclusion of unit contingent sales from the definition of Non-
Firm Sales.\151\ TAPS argues that the Commission has failed to provide
any consistently applied standard that network customers and
transmission providers can use to determine whether a sale qualifies as
a non-firm sale, much less one that conforms to the new definition.
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    \150\ Citing id. P 1452; Dynegy Midwest Generation, Inc. v.
Commonwealth Edison Co., 101 FERC ] 61,295, at P 1 (2002), reh'g
dismissed as moot, 108 FERC ] 61,175 (2004).
    \151\ Citing Order No. 890-A at P 1016.
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    226. TAPS also argues that the Commission's determinations do not
make sense from the standpoint of freeing up ATC since sales that are
curtailable for reliability reasons may be designated as network
resources by both the buyer and seller. TAPS contends that dual
designation potentially double counts resources for ATC purposes, tying
up firm ATC potentially on a long-term basis. In contrast, TAPS
continues, day-ahead hourly sales that can be interrupted for any or no
reason, that have been treated as non-firm, and that are not and could
not be designated as network resources by the buyer require
undesignation because the potential for any financial consequence of
interruption disqualifies them as Non-Firm Sales. TAPS argues that the
only ATC that might be created by such undesignations would be very
short-term. Pending the results of on-going standards development work
with NERC and NAESB, TAPS contends it is not clear whether such short-
term undesignations will create firm capacity more useable than the
unused non-firm capacity released by the transmission provider without
undesignation.
    227. TAPS objects to the Commission's determination in Order No.
890-A that issues related to sales into RTO markets should be dealt
with in the context of individual requests for deviation from the pro
forma OATT. Although issues pertaining to the ability of a network
customer within an RTO to use its network resources to participate in
the RTO's day-ahead market can be addressed in the RTO tariff, TAPS
argues that restrictions on use by a network customer outside the RTO
of its network resources designated on another transmission provider's
system cannot be addressed through modifications to the RTO's tariff.
TAPS therefore argues that the Commission can avoid discouraging
network customers (and transmission providers) located outside an RTO
from selling into the RTO's day-ahead market only by modifying the pro
forma OATT.
    228. TAPS maintains that the Commission's application and
interpretation of the Non-Firm Sales definition creates new barriers to
precisely the type of cross-border sales the Commission is trying to
encourage.\152\ TAPS argues that supply limitations resulting from
applying undesignation requirements to sales into RTO day-ahead markets
could needlessly increase prices in such markets and potentially affect
reliability. Those located outside RTO markets, TAPS continues, would
be most reluctant to sell into RTO markets

during peak conditions, when transmission is scarce and there are
concerns about redesignation in the event the energy is needed for
native load, thus depriving RTOs of supply offers when they need them
the most.
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    \152\ Citing Wis. Pub. Serv. Corp. v. Midwest Indep.
Transmission Sys. Operator, Inc., 120 FERC ] 61,269, at P 58 (2007).
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    229. TAPS further argues that the lack of clarity in the
Commission's application of the Non-Firm Sales definition may
discourage sales into organized markets even in situations where there
is a trivial financial consequence to permissible interruptions that
the Commission could not rationally conclude would pose any
disincentive to recall for network load needs. TAPS states that RTO
scheduling deadlines may result in some short period of liability for
real-time LMPs even where market participants retain rights to change
their bids and schedules. For example, TAPS explains, market
participants submitting offers into MISO's real-time market from
external generators must provide notice prior to 30 minutes before the
operating hour in order to make effective their right to change their
offers in the real-time market, i.e., to interrupt for any or no
reason. TAPS states that the network customer seeking to recall its
interruptible sale would therefore be subject to financial consequences
during the notice period. TAPS questions whether that financial
responsibility is sufficient to bar sales without undesignation.
    230. TAPS suggests that the Commission reassess what it was seeking
to achieve through clarification of the non-firm sales that can be made
from network resources without undesignation, remove the definition of
Non-Firm Sales, and enunciate clear and consistent principles for
discerning whether, considering the nature of the delivery obligation,
a sale can be made from a network resource without undesignation. Such
principles, TAPS argues, should not assume that the mere existence of
any financial liability creates improper incentives, thereby giving
undue emphasis to what is likely to be a minor factor affecting a
network customer's ability to interrupt the sale in favor of native
load, assuming the contract permits interruption for any reason or no
reason. TAPS contends that the Commission should expressly permit
short-term sales, such as sales into organized day-ahead and real-time
markets, that involve no obligation to deliver (and can be entered by
virtual traders with nothing to deliver) to be made from a network
resource without undesignation.
    231. If the Commission retains the Non-Firm Sale definition, TAPS
asks the Commission to construe it consistently with the firmness of
the delivery obligation and make clear that it takes more than the
liabilities associated with sales into day-ahead, and to eliminate any
doubt same-day, RTO markets to disqualify such interruptible sales from
treatment as Non-Firm Sales. Because of the importance of supporting
short-term competitive markets, TAPS alternatively requests that the
Commission make this clear by creating an additional exception to
section 30.4 of the pro forma OATT, like the new exception for sales
pursuant to Commission-approved reserve sharing agreements, to permit
use of network resources without undesignation for day-ahead and same-
day sales that are subject to interruptions, without regard to the
liabilities associated with such interruptions.
    232. At a bare minimum, TAPS argues, the Commission should provide
more realistic guidelines for the level of liability it views as
providing incentives that disqualify an interruptible sale from being
considered a Non-Firm Sale so that concerns about avoiding potential
tariff violations do not discourage transactions that the Commission
intends to permit without undesignation. TAPS suggests, for example,
that the Commission might reasonably conclude that liabilities
restricted to notice periods applicable to the interruption of a sale
do not trigger the need for undesignation. TAPS argues that it is
plainly inconsistent with market realities for the Commission to assume
that any liability for interruption of a third-party sale, no matter
how insignificant, will create incentives incompatible with the use of
network resources for network load.
    233. E.ON U.S. agrees with TAPS that excluding sales into the
Midwest ISO market is a disincentive for sellers to participate in that
market because the Commission's undesignation requirements are not
easily adaptable to such market activity. E.ON U.S. also asks the
Commission to revise the definition of Non-Firm Sales to include sales
into organized RTO markets. In the alternative, E.ON U.S. requests that
the Commission clarify that it will consider transmission providers'
modifications to the definition of Non-Firm Sales in order to
accommodate sales into RTO/ISO markets.
Commission Determination
    234. The Commission affirms the decision in Order No. 890-A not to
amend the definition of Non-Firm Sales adopted in Order No. 890.\153\
Section 30.4 of the pro forma OATT, as amended in this order, restricts
the operation of a network customer's designated network resources such
that the output of those facilities does not exceed the sum of the
network customer's designated load, non-firm sales, losses, and sales
under a reserve sharing agreement. This prohibits the transmission
provider or a network customer from using a designated resource for
third-party sales that do not fall within one of the specified
categories. At times, the Commission has generally referred to this
prohibition as a limitation on firm third-party sales from designated
network resources.\154\ To be more specific, network customers may not
operate designated network resources except for those purposes
specified in section 30.4.
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    \153\ See Order No. 890-A at P 1016.
    \154\ See NOPR at P 422; Order No. 890 at P 1539; Order No. 890-
A at P 951.
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    235. The limitation on the use of designated network resources is
closely related to the restriction on the type of resources that may be
designated for use to serve network or native load. Together, these
rules ensure that only the appropriate amount of network resources is
designated and, in turn, that excessive amounts of transmission
capacity for network and native load uses are not set aside and
therefore made unavailable to others seeking transmission service. We
recognize that there is a trade off between the long-term structural
efficiencies promoted by the network resource rules and the real-time
market efficiencies that would come from allowing alternative, flexible