the transmission provider for study costs, with any amount in excess of
the study costs payable to the transmission customer, in recognition of
the harm to transmission customers when required studies are not
completed expeditiously. CREPC asks the Commission to clarify how it
plans to determine which unaffiliated transmission customers will
receive operational penalty payments. CREPC also asks the Commission
whether the $500 per day penalty is a flat rate that would be pro-rated
among eligible non-offending, unaffiliated transmission customers or if
the $500 is a rate paid to each eligible transmission customer.
    1335. Commenters affiliated with RTOs and one transmission customer
support the Commission's proposal to exempt RTOs from penalties for
late studies.\810\ MISO asserts that RTOs do not have incentives to
delay the processing of transmission service requests, as they have no
affiliates to favor and because their Commission-approved design and
internal procedures ensure their independence. MISO argues further that
all transmission service requests benefit some RTO member and, as a
result, RTOs have no disincentive to approve service so long as
reliability is maintained. MISO/PJM States asserts that the NOPR
proposal to exempt RTOs from operational penalties for late studies is
appropriate because a penalty does not serve a useful purpose with
respect to RTOs. TDU Systems state that an RTO should not be
financially penalized for late studies because RTO independence should
minimize incentives for affiliate preference and RTO members indirectly
pay for all RTO incurred costs in any event.
---------------------------------------------------------------------------

    \810\ E.g., MISO, MISO/PJM States, TDU Systems, and Indianapolis
Power Reply.
---------------------------------------------------------------------------

    1336. Most of those commenters not affiliated with an RTO oppose
the proposal to exempt RTOs from penalties for late studies.\811\
Southern argues that given that the Commission is seeking to increase
transparency in the system, the Commission would undercut that goal by
omitting a significant segment of the industry. TAPS argues that RTOs
may still fail to complete studies on a timely basis due to competing
internal priorities or bureaucratic indifference. Progress notes that
the Commission has found that RTOs and ISOs should be subject to
penalties for failure to meet reliability standards. Salt River argues
that RTOs should be subject to operational penalties because the impact
on the customer is identical if the request processing deadline is not
met regardless of the type of provider conducting the study. Xcel notes
that, historically, transmission owners need to complete facility
studies in concert with RTOs, thereby giving the customer the most up-
to-date and coordinated analysis. Consequently, Xcel believes it is
imperative that both transmission owners and RTOs operate under the
same rules, reporting obligations, and performance metrics in the OATT.
---------------------------------------------------------------------------

    \811\ E.g., Southern, TAPS, Progress Energy, Salt River, and
Xcel.
---------------------------------------------------------------------------

    1337. In its reply comments, WPS disagrees with the Commission's
proposal to exempt RTOs from penalties for their repeated failure to
meet the 60-day due diligence requirements. WPS asserts that the
Commission should impose penalties and prohibit the recovery of
associated revenue where appropriate. WPS argues that RTO independence
does not guarantee RTO competence or compliance in every instance. WPS
believes imposing reporting obligations and penalties for failure to
comply with tariff requirements, particularly tariff deadlines, will
help to motivate compliance by ensuring that RTOs devote resources to
tariff compliance. WPS acknowledges that a non-profit RTO has no
dividends to cancel and likely no property to liquidate to cover these
shortfalls, yet believes that such organizations can exercise cost-
cutting measures, especially regarding rewards for employee
performance, and thereby bear some financial responsibility and
accountability for their operational violations. In the event of a
penalty, WPS believes the Commission could require an RTO to take steps
to cover its penalty-related revenue shortfall by cutting its budget,
eliminating management bonuses and demonstrating that it has taken
reasonable corrective steps before the Commission permits recovery of
the remaining penalty revenue from its members and customers. To the
extent some portion of an RTO's penalties are passed through to its
market participants, including transmission owners, WPS argues that
those market participants would be in a position to take actions
similar to the actions taken by shareholders of a publicly traded
company to motivate the RTO either by changing the RTO's processes or
its Board of Directors.
    1338. TAPS states that some adaptation of the penalties may be
necessary to make them appropriate and effective in the non-profit RTO/
ISO context, for example, by requiring a reduction in management
compensation. TDU Systems recommend that RTOs be subject to the
notification filing requirement that is part of the Commission's
penalty

proposal, regardless of whether RTOs are subject to pay penalties. TDU
Systems believe this reporting requirement would provide an objective
measure of RTO efficiency. APPA believes steps should be taken to
remedy tardy RTO processing of service requests, suggesting that
performance incentives for RTO employees, if carefully designed, could
be useful. In its reply comments, Duke argues that although
transmission owners in RTOs should not pay the price for RTOs failures
to abide by the tariff, RTOs lack of performance should be addressed by
the Commission, perhaps in a separate proceeding.
    1339. Transmission providers that have retained an independent
tariff administrator suggest that these independent entities should
also be exempt from operational penalties related to study completion
times.\812\ In their view, these independent entities also have no
incentive to discriminate when completing service request studies.
Similarly, NorthWestern argues that a transmission provider without an
affiliate that could benefit from a delay in completing service request
studies also should be exempt from paying the proposed operational
penalties.
---------------------------------------------------------------------------

    \812\ E.g., Duke, MidAmerican, and TranServ.
---------------------------------------------------------------------------

Commission Determination
    1340. The Commission adopts the NOPR proposal to subject
transmission providers to operational penalties when they routinely
fail to meet the 60-day due diligence deadlines prescribed in sections
19.3, 19.4, 32.3 and 32.4 of the pro forma OATT. Transmission providers
must have a meaningful stake in meeting study time frames. As discussed
above, a transmission provider will be required to make a notification
filing with the Commission indicating that it has not completed request
studies on a timely basis and may present evidence that extenuating
circumstances prevented it from completing studies on a timely basis.
The transmission provider then will be subject to an operational
penalty if the transmission provider continues to be out of compliance
with the deadlines prescribed in the pro forma OATT for each of the two
quarters following its notification filing and the Commission
determines that no extenuating circumstances exist to excuse the
transmission provider's non-compliance. The transmission provider will
be deemed to be out of compliance if it completes 10 percent or more of
non-affiliates' system impact studies and facilities studies outside of
the deadlines prescribed in the pro forma OATT. The operational penalty
will be assessed on a quarterly basis, starting with the quarter
following the notification filing and continuing until the transmission
provider completes at least 90 percent of all studies within 60 days
after the study agreement has been executed. For any system impact
study or facilities study completed during that quarter and more than
60 days after the study agreement was executed, the penalty will equal
$500 for each day the transmission provider takes to complete the study
beyond 60 days. For any system impact study or facilities study that is
still pending at the end of the quarter and that has been in the study
queue for more than 60 days, the penalty will equal $500 for each day
the study has been in the study queue beyond 60 days.
    1341. The late study penalty regime described in this Final Rule
will become effective at the same time as the rest of the new pro forma
OATT. The penalty regime is designed so that the transmission provider
has to be out of compliance for at least three quarters before it is
subject to late study penalties. We believe nine months is sufficient
time for the transmission provider to adjust its operations to the new
requirements in this Final Rule, including penalties for late studies.
That is, we believe transmission providers should be able to reallocate
employees to study requests for service and hire new staff, to the
extent these steps are necessary, by the time the transmission provider
will be subject to civil penalties.
    1342. The procedures underlying the operational penalty regime
adopted in this Final Rule ensure that the due process rights of
transmission providers are protected. In their notification filing,
transmission providers will have the right to document and describe any
unique complexities that particular requests introduce into the study
process and that prevent the transmission provider from completing the
study within a the 60-day due diligence time frame. Thus the 60-day
time frame will continue to be a flexible deadline, especially given
that the transmission provider is not required to complete all studies
within 60 days. These due process rights provide a de facto case-by-
case review of the transmission provider's efforts to complete studies
on a timely basis.
    1343. On review of a notification filing, we will waive operational
penalties if a transmission provider establishes that its non-
compliance is the result of factors or events that are truly beyond its
control, including delays caused by the transmission customer. We will
not, however, exempt all transmission projects that cross seams from
operational penalties, as CREPC urges. We will consider the specific
facts surrounding studies of such projects based on a transmission
provider's notification filing. In response to TDU Systems, we
acknowledge that the procedures for addressing a transmission
provider's failure to conform to the 60-day time frame are not the same
as the procedures applicable to a transmission customer that is
assessed an operational penalty under the pro forma OATT. We believe
such different procedures are justified in this instance. The other
operational penalties in the pro forma OATT are assessed for failure to
remain in compliance with strict requirements, while the study time
frame is based on the transmission provider using its due diligence to
complete studies within 60 days. The Commission recognizes that the
transmission provider must have flexibility, within reason, to complete
studies outside of this time frame. At the same time, the notification
and penalty procedures we adopt in this Final Rule will ensure that
this flexibility is not abused.
    1344. We do not find the remaining comments in opposition to the
operational penalty for late studies to be compelling, particularly
given the flexibility built into our penalty regime. We would not
expect a transmission provider to prematurely deny a request for
service simply to avoid an operational penalty. According to section
17.5 of the pro forma OATT, a transmission provider must either grant
service or offer the transmission customer a system impact study. The
transmission provider does not have the option to simply deny the
request for service. We therefore interpret comments that the
transmission provider may prematurely deny a request to mean that the
transmission provider will not explore all possible system upgrades or
redispatch options as required by section 19.3 of the pro forma OATT or
any conditional firm options discussed in section V.D.1. Such behavior
would be a tariff violation that should be brought to our attention.
The transmission provider is required under the pro forma OATT to
provide a complete study and corresponding work papers to the
transmission customer. If a transmission customer feels a system impact
study is incomplete, it has recourse to call the Commission's
Enforcement Hotline or file a formal complaint with the Commission.
    1345. We also do not expect a transmission provider to accept a

transmission service request to the detriment of system reliability
simply to meet the study time frame. First, the transmission provider
is not required to complete every request study within 60 days. Second,
to the extent our new requirements that the transmission provider
consider conditional firm options and participate in regional planning
cause study delays, the transmission provider can document and describe
such delays in its notification filing. Finally, the transmission
provider has been required to consider redispatch in the system impact
study since Order No. 888 was issued, so the 60-day due diligence time
frame should continue to be consistent with the long standing
requirement to consider redispatch in the system impact study.
    1346. As we discuss below, we believe NAESB's queue hoarding and
queue flooding business practices, as well as additional reforms
adopted in this Final Rule, will address the problem surrounding the
submission of multiple requests. With regard to requests for a
technical conference or further procedures to consider the effect of
our operational penalty regime, we believe the commenters' proposals
would largely provide anecdotal information and speculation on the
impacts of the new planning and coordination requirements. Our
experience from the last ten years, and the comments provided in
response to the NOI and NOPR, provide a sufficient basis to develop a
penalty regime. In addition, the very requirement that transmission
customers post performance metrics and submit notification filings
prior to assessment of operational penalties will provide actual
experience with the new regime. As explained above, the notification
procedures adopted today will ensure that we will not assess a penalty
for late studies unless justified by the circumstances. We can propose
additional changes to the study process or penalty regime based on the
actual experience under this Final Rule if our experience warrants it.
    1347. As described above, we adopt the proposal to set the
operational penalty for late studies equal to $500 per day per late
study. We believe $500 per day per late study is in line with the cost
the transmission provider would incur to focus additional resources on
processing requests studies. In addition, the penalty for being one
month late, $15,000, is in line with the overall cost of the study. We
conclude that the $500 per day per late study penalty is high enough to
provide the incentive to transmission providers to comply with study
processing deadlines in the pro forma OATT, while not being
unnecessarily punitive. We believe that a penalty in the range of
$10,000 per day per late study would be unnecessarily punitive. The
proposal to set the penalty equal to the higher of the lost opportunity
cost to the customer resulting from the delay, if any, or $1,000 for
each day is administratively cumbersome and could result in
administrative costs that are not justified. Finally, we believe the
due process afforded the transmission provider is an important element
of the penalty regime, so we decline to impose penalties automatically,
without a notification filing to the Commission.
    1348. As indicated in the NOPR, we may order other remedial actions
in addition to the operational penalties described above, consistent
with the Policy Statement on Enforcement. We will determine any other
remedial action on a case-by-case basis. The decision to order other
remedial actions will be based, among other things, on whether we
believe the transmission provider is using the same due diligence to
complete studies for non-affiliated customers as it uses to complete
studies for itself. We do not believe it would be appropriate, as a
general matter, to require a transmission provider to engage an
independent transmission administrator to the extent its posted
performance metrics are not accurate. As a threshold matter, Commission
audit staff may audit the accuracy of a transmission provider's posted
metrics. If we are concerned about the accuracy of a transmission
provider's metrics, we will evaluate the use of third-party audits at
that time. We will not prejudge which remedial actions we will consider
if a transmission provider persistently fails to adhere to the relevant
timelines. Rather, we will review each such instance on a case-by-case
basis and determine the appropriate remedial action consistent with the
Commission's Policy Statement on Enforcement.
    1349. We clarify that a transmission provider is not subject to
operational penalties if it can make a showing that its failure to meet
the compliance threshold following its notification filing is due to
extenuating circumstances, as we agree that the transmission provider
should not be penalized for factors out of its control. The submission
of a notification of extenuating circumstances will not, however,
suspend the obligation of a transmission provider to process at least
90 percent of the study requests within the proposed deadlines, until
such time as the Commission issues a final determination on the
notification of extenuating circumstances. At the same time, we will
not require the transmission provider to distribute its operational
penalty while we are still considering the transmission provider's
notification filing. The transmission provider nonetheless remains
liable for paying the operational penalty for all request studies
completed or outstanding after the notification filing and not
completed within 60 days. This timing will balance the transmission
provider's due process rights with the need to provide an incentive to
the transmission provider to complete studies on a timely basis.
    1350. We clarify that the processing time is measured from the
point that the customer returns its executed study agreement to the
transmission provider. By the time the transmission provider offers a
system impact study agreement, it should have all the information it
needs to complete the study. Pursuant to section 17.4 of the pro forma
OATT, the transmission provider can deem a transmission service request
deficient if the transmission customer does not provide all information
the transmission provider needs to evaluate the request for service. We
expect the transmission provider to use informal means to communicate
the information it needs from the transmission customer before it deems
a transmission service request deficient.
    1351. We adopt the NOPR proposal to have the transmission provider
distribute the operational penalty for late studies to all non-
affiliated transmission customers, as discussed in section V.C.5.b of
this Final Rule. We believe that a transmission provider that is not
processing studies on a timely basis potentially harms all transmission
customers, not just those with requests in the study queue. For
instance, a transmission customer may decide against requesting service
that it believes will require a system impact study if the transmission
provider is not processing transmission service requests on a timely
basis. Therefore, we will not adopt suggestions to distribute penalty
revenue only to transmission customers that have request studies that
are not completed within 60 days. We clarify that the penalty is $500
per day per late study, with the resulting total penalty revenue
distributed to unaffiliated transmission customers as discussed in
section V.C.5.b of this Final Rule. We clarify that the transmission
provider will propose a method to determine how unaffiliated
transmission customers will receive operational penalty payments, as
discussed in section V.C.5.b of this Final Rule.

    1352. We will not alter the 60-day study completion timeframe
currently embodied in sections 19.3, 19.4, 32.3 and 32.4 of the pro
forma OATT. We continue to believe, absent concrete evidence to the
contrary, that the existing timeframe adequately balances the need for
expeditious resolution of request studies and the need to ensure that
the transmission provider can reliably accommodate the transmission
service reserved. Moreover, we believe the penalty regime defined in
this Final Rule protects the transmission provider in the event studies
take longer to complete due to the new planning requirements defined in
section V.B of this Final Rule or the new requirement to consider
conditional firm options as defined in section V.D.1 of this Final
Rule. We will not adopt the suggestion to restart the 60-day due
diligence period for any study that experiences a delay that can not
properly be attributed to the transmission provider. We reiterate that
the transmission provider is not subject to penalties for late studies
if it can establish that delays are due to factors the transmission
provider cannot control.
    1353. The Commission declines to adopt the NOPR proposal to exempt
RTOs from operational penalties for completing studies on an untimely
basis. We agree with those commenters that argue that RTO independence
does not guarantee RTO competence or compliance in every instance and
that RTOs may fail to complete studies on a timely basis due to
competing internal priorities or staffing issues. Imposing penalties
for failure to comply with the due diligence timeframe for completing
studies will provide RTOs an appropriate incentive to comply with the
pro forma OATT requirements and ensure that they devote adequate
resources to tariff compliance. Finally, we note that subjecting RTOs
to operational penalties for late studies is consistent with the
Commission's decision to subject RTOs and ISOs to penalties for failure
to meet reliability standards.\813\ We believe that all transmission
providers, including RTOs, should operate under the same rules,
reporting obligations, and performance metrics in the OATT. We will
nonetheless keep in mind the nature of an RTO's operations and the
RTO's unique characteristics when we consider whether penalties would
be appropriate. We agree that RTOs do not have an incentive to
discriminate (which is one of the bases for this policy) and we agree
that imposing a penalty raises the issue of cost recovery, as most RTOs
are not-for-profit entities. We will therefore consider these and all
other relevant factors in exercising our discretion whether to impose a
penalty in a given circumstance.
---------------------------------------------------------------------------

    \813\ Rules Concerning Certification of the Electric Reliability
Organization; and Procedures for the Establishment, Approval, and
Enforcement of Electric Reliability Standards, Order No. 672-A, 71
FR 19814 (Apr. 18, 2006), FERC Stats. & Regs. ] 31,212 at P 56
(2006) (``It is not arbitrary and capricious to treat all operators
alike, including RTOs and ISOs, in terms of their liability for
violation of a Reliability Standard.'').
---------------------------------------------------------------------------

    1354. Consistent with the treatment of RTOs, we will not exempt
independent entities that provide tariff administration from penalties
for late completion of studies. As with RTOs, independence does not
guarantee competence or compliance in every instance. Independent
entities have a similar incentive to limit the personnel committed to
processing request studies in an effort to reduce overhead costs. We
believe that all entities administering the tariff should operate under
the same rules, reporting obligations, and performance metrics in the
pro forma OATT.
(3) Recovery Through Rates
NOPR Proposal
    1355. The Commission proposed that a transmission provider cannot
recover for ratemaking purposes any operational penalty it pays for
failing to process transmission service studies on a timely basis.
Comments
    1356. CREPC noted that, while it may be reasonable for an investor-
owned utility to pay penalties without being allowed to recover the
penalties in rates, this approach will be problematic for utilities
that do not have shareholders.
Commission Determination
    1357. We will prohibit all jurisdictional transmission providers
from recovering penalties for late studies from transmission customers.
We believe that all entities administering the tariff should operate
under the same rules, reporting obligations, and performance metrics in
the pro forma OATT. Non-profit transmission providers have other
sources of money to pay penalties beyond the revenue they collect for
sales of transmission service. Therefore, we require non-profit
transmission providers to pay operational penalties for late studies
from their other sources of money. This notwithstanding, we may
consider factors such as an entity's financial ability to absorb a
penalty in determining whether to impose penalties in the first
instance.
(4) Fee for Multiple Self-Competing Transactions
NOPR Proposal
    1358. In the NOPR, the Commission sought comment on a fee structure
that could provide a disincentive for transmission customers to submit
duplicative requests without penalizing transmission customers that
have legitimate requests for transmission service. The Commission asked
for detailed recommendations, including any proposed tariff language,
regarding the standards it should use to identify requests that would
be subject to a fee. The Commission also sought recommendations on the
level of a fee that balances its policy goals to discourage requests
for transmission service that the transmission customer does not intend
to confirm while not discouraging legitimate requests for transmission
service. Finally, the Commission sought comment regarding the
circumstances, if any, under which the processing fee would be refunded
to or credited to the transmission customer.
Comments
    1359. A number of commenters express support for a fee for
duplicative requests.\814\ CREPC believes that queue blocking behavior
should be discouraged so that legitimate requests lower in the queue
are not disadvantaged. MISO believes the transmission provider should
be allowed to charge a fee that is small enough to not create a barrier
to entry yet high enough to ``add up'' for anyone wishing to flood the
queue. MISO and Seattle suggest that the fee be based on the
transmission provider's cost to review a request and handle the initial
processing. MISO also believes the transmission provider should be able
to charge a fixed dollar amount for any accepted requests that the
customer wants to retract. Southern suggests that the Commission
consider a procedure whereby transmission customers place a deposit
with transmission providers to cover a certain number of requests that
is forfeited once the requests reach a certain threshold and are deemed
self-competing. TranServ suggests that the fee apply to requests for
long-term firm transmission service and be based on duration of the
request and not capacity requested as an incentive to the transmission
customer to submit fewer combined requests where possible. TranServ
suggests this fee could be

waived if the service request is submitted pre-confirmed.
---------------------------------------------------------------------------

    \814\ E.g., MidAmerican, MISO, Seattle, Southern, TranServ,
TAPS, and CREPC.
---------------------------------------------------------------------------

    1360. Most of the transmission customers and some transmission
providers oppose the creation of a fee structure for duplicative
requests for transmission service.\815\ Several commenters argue that
the Commission should determine whether the newly-adopted NAESB
business practices and other reforms proposed in the NOPR can reduce
the number of requests that the transmission customer does not intend
to confirm.\816\ Nevada Companies and Great Northern assert that the
current deposit requirement serves to discourage multiple self-
competing requests. Constellation asserts that the Commission should
focus on narrowly-tailored penalties to deter market participants from
intentionally jamming the queue.
---------------------------------------------------------------------------

    \815\ E.g., EEI, Nevada Companies, Powerex, and Suez Energy NA.
    \816\ E.g., EEI, Powerex, Suez Energy NA, and Entegra.
---------------------------------------------------------------------------

    1361. Several commenters suggest that a transmission provider that
makes a showing that it is experiencing a significant problem with
respect to customers' submission of multiple competing requests should
be allowed to propose a fee to combat the problem.\817\ MISO notes that
the Commission has rejected a fee for unconfirmed requests in the
past.\818\
---------------------------------------------------------------------------

    \817\ E.g., EEI and TAPS.
    \818\ See Midwest Independent Transmission System Operator,
Inc., 97 FERC ] 61,269 (2001) (rejecting a proposal to include a fee
for non-confirmed transmission service requests for firm point-to-
point transmission service of one week or longer).
---------------------------------------------------------------------------

    1362. TAPS believes the fee revenue should be shared with network
customers on a load-ratio share basis. TAPS also suggests that the fee
apply to the transmission provider's merchant arm in a meaningful way.
    1363. CREPC urges the Commission to adopt a simple, straightforward
standard for determining duplicative requests, such as the same points
of receipt and delivery, same source and sink, same time frame, and
same firmness, as well as the same project at multiple locations.
Powerex recommends that the Commission be very specific in describing
the types of multiple transmission requests it believes to be a problem
and the fee structure that would be applied to such problematic
requests. For example, Powerex believes the Commission should clarify
that requests subject to the fee must be multiple, not pre-confirmed,
and with identical quantity, point of receipt, point of delivery, start
time, end time, and firmness. In its reply comments, Santa Clara
disagrees with Powerex. Santa Clara urges the Commission to examine the
practice of queue hoarding and punish those entities that are acting in
an anticompetitive and manipulative manner. Further, Santa Clara urges
the Commission to refrain from being too specific in its ruling, as a
more general explanation of the behavior to be avoided would go a long
way in preventing entities from making an end-run around a ruling
against queue hoarding.
    1364. MidAmerican believes that if a fee is imposed, the fee should
not be refunded as the administrative costs and difficulty of
administering the refunds would be an unreasonable burden on the
transmission provider. CREPC believes refunding or crediting the
processing fee would defeat the purpose of having one in the first
place, although the processing fee could be refunded if the duplicative
service request attached to it actually comes to fruition. Suez Energy
NA suggests that the processing fee be refunded whenever the
transmission provider exceeds the 60-day request study due diligence
deadline. TAPS suggests that the fee be structured to provide for
exceptions where the failure to confirm reflects a legitimate purpose,
not jamming. TAPS cites as examples transmission requests associated
with requests for proposals, alternative sites for planned generation,
and the inability to secure timely confirmation of all legs of a multi-
system path. TAPS notes that the current pro forma OATT accommodates
multiple submissions in relation to the same competitive solicitation
in sections 19.2(ii) and 32.2(ii).
Commission Determination
    1365. The Commission will not require transmission providers to
charge a fee for duplicative requests for transmission service. We will
instead first consider whether the newly adopted NAESB queue flooding
and queue hoarding business practices reduce the number of requests
that the transmission customer does not intend to confirm. We are
concerned that benefits to market participants would not justify the
administrative costs of a new fee if the NAESB business practices can
effectively discourage transmission service requests the transmission
customer does not intend to confirm. We also believe that the current
deposit mechanism in section 17.3 of the pro forma OATT should have the
same effect as a fee based on the transmission provider's cost to
process the request for transmission service, like the fee MISO and
CREPC propose. Pursuant to section 17.3, in the event a transmission
customer retracts or withdraws a request, the transmission provider is
allowed to deduct from the transmission customer's deposit the costs
the transmission provider incurred to process the request. As a result,
we do not believe any other fee structure is necessary to make the
transmission provider whole when a transmission customer submits a
transmission service request it does not expect to confirm.
    1366. A transmission provider that continues to experience problems
related to submission of multiple duplicative requests for transmission
service is free to file a tariff modification that includes a fee to
combat the problem. This filing should explain why the transmission
provider is unable to handle the submission of multiple duplicative
requests for transmission service through NAESB's queue hoarding and
queue flooding business practices.
(5) Clustering Transmission Service Request Studies
NOPR Proposal
    1367. In the NOPR, the Commission sought comment regarding whether
a transmission provider should be required to study requests for
transmission service in a group if the transmission provider fails to
complete studies on a timely basis. If so, the Commission sought
comment on the circumstances that should trigger such a requirement and
the appropriate method of implementing the requirement. The Commission
sought further comment regarding whether transmission providers should
be required to study requests for transmission service in a group if
all the transmission customers in the group agree to cluster their
requests. Finally, the Commission sought comment regarding how to
select the requests that belong to a cluster so that transmission
customers cannot ``cherry-pick'' clusters to avoid transmission system
upgrade costs.
Comments
    1368. A few commenters, primarily transmission customers, believe
transmission providers should be required to study requests for
transmission service in a group.\819\ CREPC believes transmission
providers should have the discretion to develop the criteria for
clustering so that transmission customers do not have the opportunity
to ``cherry pick'' study clusters. If transmission providers are
required to study requests in a group, Powerex believes customers
should be

given the option of paying the transmission provider to perform an
individual study. Suez Energy NA believes studying requests that are
clustered voluntarily will partially incorporate the value of
counterflows in the study process. PGP believes transmission customers
should have the opportunity to join a cluster, but only if the customer
is bound to accept the study results.
---------------------------------------------------------------------------

    \819\ E.g., CREPC, Powerex, and Suez Energy NA.
---------------------------------------------------------------------------

    1369. A number of commenters, primarily transmission providers,
state that transmission providers should be allowed, but not required,
to study requests for transmission service in a group.\820\ Bonneville
argues that the transmission provider is in the best position to
determine whether requests should be studied individually or in groups.
EEI asserts that clustering does not necessarily ensure timely
completion of transmission studies. FirstEnergy believes each
transmission service request should stand on its own merits and be
directly assigned costs associated with its own request so that
requests in one part of the request queue do not end up subsidizing
requests in another part of the request queue. MISO believes giving the
transmission provider discretion to cluster requests will address the
Commission's concerns with respect to transmission customers cherry-
picking clusters to avoid paying upgrade costs. Arkansas Commission and
East Texas Cooperatives suggest that the Commission allow clustering
through an open season procedure similar to the procedure SPP currently
uses pursuant to Attachment Z of SPP's OATT.
---------------------------------------------------------------------------

    \820\ E.g., Bonneville, EEI, MISO, Nevada Companies, Southern,
Entegra, and PNM-TNMP.
---------------------------------------------------------------------------

Commission Determination
    1370. The Commission will not require transmission providers to
study transmission requests in a cluster, although we encourage
transmission providers to cluster request studies when it is
reasonable. We do, however, require transmission providers to consider
clustering studies if the customers involved request the cluster and
the transmission provider can reasonably accommodate the request. We
believe clustering request studies offers potential benefits as the
needed transmission upgrades are frequently large enough that the
upgrade can accommodate more than one transmission service request. In
addition, jointly modeling transmission service requests can allow the
transmission provider to more efficiently design transmission system
upgrades. Clustering also allows the transmission provider to include,
to the extent it is consistent with good utility practice, the
potential counterflows created by the clustered requests. We do not
agree, as suggested by commenters, that clustering necessarily leads to
one set of transmission customers subsidizing another set of
transmission customers.
    1371. We therefore require each transmission provider to include
tariff language in its compliance filing that describes how it will
process a request to cluster request studies and how it will structure
the transmission customers' obligations when they have joined a
cluster. We will give the transmission provider discretion to determine
whether a transmission customer can opt out of a cluster and request an
individual study. We are giving each transmission provider discretion
to develop the clustering procedures it will use because we believe the
transmission provider is in the best position to determine the
clustering procedures that it can accommodate. We also believe that the
transmission provider is in the best position to develop a clustering
procedure that prevents a transmission customer from strategically
selecting the clusters in which it participates in an attempt to avoid
responsibility for needed transmission system upgrades.
(6) Standardization of Business Practices for Study Queue Processing
NOPR Proposal
    1372. In the NOPR, the Commission sought comment on whether
additional standardization of request queue processing is necessary. If
so, the Commission sought comment on the specific issues commenters
believe are not clearly prescribed in Order No. 676 or the NOPR and
that require additional mandatory queue processing business practices.
Comments
    1373. Several commenters identified issues where a transmission
customer needs coordinated responses across several transmission
systems in order to serve its load.\821\ Seattle and NRECA suggest that
the Commission amend the pro forma OATT so that a customer's
applications for service across multiple systems that are intended to
serve a single sink from an identified resource will be considered a
single application for purposes of establishing the deadlines for
rendering an agreement for service, revising queue status, eliciting
deposits and finally commencing service. Seattle believes the
Commission should permit coordination and implementation of these
requirements by a third party such as wesTTrans.net and sub-regional
planning organizations. At a minimum, these commenters ask the
Commission to develop business practices to protect a transmission
customer caught between two systems with uncoordinated deadlines.
---------------------------------------------------------------------------

    \821\ E.g., NRECA, TDU Systems, and Seattle.
---------------------------------------------------------------------------

    1374. Exelon states that the Commission should require all
transmission providers to allow transmission customers to link
consecutive requests for service (e.g., monthly firm service requests
for December, January and February) and to evaluate such request as a
single request. Exelon argues that this service, which is currently
provided by some transmission providers, would increase uniformity and
use of the transmission system, and enhance competitiveness without
burdening transmission providers or adding administrative complexity.
    1375. TDU Systems indicate that several of its members have
experienced difficulty related to the lack of standardized business
practices, particularly in practices related to timing, application
requirements, and requirements relating to methods of proving that a
network customer has executed a power purchase agreement prior to
designating the power purchase agreement as a network resource.
    1376. PNM-TNMP does not believe that additional clarity or business
practices are necessary beyond those already provided in Order No. 676.
However, to the extent additional issues arise, PNM-TNMP believes
NAESB's WEQ forum is the appropriate place to address them. Similarly,
NorthWestern recommends that transmission providers work together
within regional groups to develop a common set of business practices
that will be followed by all transmission providers within each region,
instead of the Commission using the NOPR comments it receives to
develop a prescriptive set of business practices by which all
transmission providers must abide. In its reply comments, Powerex
argues that either the entire transmission process has to be integrated
via an RTO, or coordination of requests across multiple control areas
has to be done transmission provider by transmission provider. Powerex
suggests that NorthWestern's suggestion for regional development of
business practices may be a more pragmatic approach to address concerns
about coordination of requests across multiple systems.

Commission Determination
    1377. The Commission agrees that transmission requests across
multiple transmission systems should be coordinated by the relevant
transmission providers. We will not, however, amend the pro forma OATT
to require such coordination. Rather, we require transmission providers
working through NAESB to develop business practice standards related to
coordination of requests across multiple transmission systems. In order
to provide guidance to NAESB, we will articulate the principles that
should govern processing across multiple systems. All the transmission
providers involved in a request across multiple systems should consider
a request that requires studies across multiple systems to be a single
application for purposes of establishing the deadlines for rendering an
agreement for service, revising queue status, eliciting deposits and
commencing service. In order to preserve the rights of other
transmission customers with studies in the queue, the priority for the
single application should be based on the latest priority across the
transmission providers involved in the multiple system request. We note
that regional entities like wesTTrans are already coordinating requests
across multiple transmission systems and we believe such coordination
is an acceptable solution to this issue.
    1378. We interpret Exelon's request that we require all
transmission providers to allow transmission customers to link
consecutive requests for firm point-to-point transmission service and
to evaluate such requests as a single request as asking us to (1) allow
transmission customers to require the transmission provider to either
grant service for the entire period, deny service for the entire
period, or offer the same partial quantity for the entire period and
(2) require the transmission provider to consider the full duration of
the linked requests when determining reservation priority pursuant to
sections 13.2 of the pro forma OATT (short-term firm point-to-point
transmission service). We require transmission providers working
through NAESB to develop business practice standards to allow a
transmission customer to rebid a counteroffer of partial service so the
transmission customer is allowed to take the same quantity of service
across all linked transmission service requests. Transmission providers
need not implement these business practice standards until NAESB
develops appropriate standards. We note that the transmission customer
should not be required to take the same quantity of service across
consecutive transmission service requests, it should simply have the
option to do so. On the second issue, we reiterate that, according to
existing NAESB business practice standard 001-4.16, the transmission
provider is required to consider the full duration of the linked
requests when determining reservation priority pursuant to section 13.2
of the pro forma OATT.
    1379. We believe most of the standardization issues TDU Systems
raise (application requirements, requirements relating to methods of
proving that a network customer has executed a power purchase agreement
prior to designating the power purchase agreement as a network
resource, and timing) have been addressed in this Final Rule. In
particular, we describe the information a network customer is required
to provide when designating a new network resource in section V.D.6.b
of this Final Rule. We also indicate in section V.D.6.b that the
transmission provider is not allowed to require a network customer to
provide contract terms and conditions when it designates a power
purchase agreement as a network resource. The network customer is
required to provide a statement that attests, among other things, that
it has executed a power purchase agreement prior to confirming its
request to designate a new network resource. We will continue to give
transmission providers discretion in determining whether to impose
restrictions on the earliest time at which it will accept a request for
transmission service. We believe the transmission provider is in the
best position to determine whether it needs to restrict the time at
which it will accept requests for transmission service in order to
process transmission service requests in an orderly fashion consistent
with the requirements in the pro forma OATT.
(7) Additional Processing Proposals
Comments
    1380. A number of commenters propose changes to queue processing
requirements that were not addressed in the NOPR.
    1381. Powerex believes that OASIS practices should be modified to
ensure that short-term firm and non-firm point-to-point service
requests are processed based on the ATC posted at the time the requests
were queued. Powerex argues that a transmission provider should not be
permitted to grant transmission service requests at a time when its
OASIS indicates there is no ATC. In its view, any such requests should
be automatically denied. Powerex also suggests that confirmation time
periods be shortened for short-term firm point-to-point service
requests to discourage behaviors that have the effect of delaying queue
processing. In its reply comments, Powerex asserts that requiring
transmission provider responses to be based on posted ATC, as well as
increasing standardization in transmission provider response time for
short-term transmission requests, would enhance a transmission
customer's ability to manage multiple transmission provider requests
within the context of the pro forma tariff.
    1382. Occidental suggests in reply that the Commission should
introduce meaningful tariff-based sanctions for unauthorized deviations
from the standards and modeling assumptions it proposes to include in
Attachment C of the pro forma OATT, the transmission provider's
description of its ATC calculation methodology.
    1383. Several commenters make suggestions to allow the transmission
provider to terminate idle transmission service requests. TDU Systems
recommends that the Commission provide a sunset date by which all
requests not pursued by the transmission customer would be terminated.
MidAmerican and Northwest IOUs ask the Commission to clarify in the
Final Rule that the transmission provider may deem a transmission
service application withdrawn and terminated if a customer revises its
application or if such customer fails to timely pay the annual
reservation fee pursuant to section 17.7 of the pro forma OATT.
    1384. Constellation asks the Commission to require transmission
providers to release study results as soon as a study is completed,
rather than holding them until the end of the 60 days.
    1385. NorthWestern believes an appropriate modification to the
study process would be to allow the transmission provider to have an
opportunity to verify and correct the system impact study results at
the beginning of the facilities study and again before construction
begins.
    1386. With the exception of very short-term transmission service
(for which a bid-based system is impractical to manage), LDWP suggests
that the queue process be transformed into a competitive process in
which awards of transmission service are allocated in a manner similar
to the provisions in section 4.4 of Order No. 638.
    1387. TranServ notes that OASIS standards allow the customer to
turn a request into a pre-confirmed request, but not vice versa. If the
Commission's

proposal on granting priority to pre-confirmed requests is adopted,
TranServ believes this capability should be removed from OASIS as it
would seem to invite gaming and confuse transmission providers
attempting to process requests in proper queue order.
    1388. PGP states that OASIS platforms should be accessible from
different computer platforms using a variety of browsers, not just one
operating system/browser combination (Windows/Explorer), which is
currently the case.
Commission Determination
    1389. We will not adopt Powerex's proposal to require the
transmission provider to accept or deny in all cases non-firm and
short-term firm point-to-point transmission service requests solely
based on posted ATC. The issue Powerex raises is ultimately a question
of how the transmission provider is going to exercise its discretion
under the tariff. Under the pro forma OATT, the transmission provider
can use its knowledge of the system to exercise its discretion to offer
transmission service even if posted ATC is not sufficient to
accommodate the requested service. Alternatively, the transmission
provider can use its discretion to update posted ATC in response to a
transmission customer's verbal request to update ATC.\822\ In both
situations, the transmission provider may provide transmission service
in instances when posted ATC is not sufficient to accommodate a
transmission service request at the time the transmission customer
requests service. We do not wish to discourage transmission providers
from making transmission service available at times when posted ATC is
not accurate. Therefore, we will continue to allow the transmission
provider to accept transmission service requests in instances when
posted ATC is not sufficient but the transmission provider believes it
can accommodate the service. The transmission provider must use its
discretion to grant service when posted ATC is not sufficient on a non-
discriminatory basis. In order to ensure that it does so, we expect the
transmission provider to log such instances as an act of discretion and
post the log as required in section 37.6(g)(4) of the Commission's
regulations.\823\
---------------------------------------------------------------------------

    \822\ See, e.g., Florida Power Corp., 111 FERC ] 61,243 at P 5
(2005).
    \823\ 18 CFR 37.6(g)(4).
---------------------------------------------------------------------------

    1390. We will not modify the pro forma OATT to address requests to
allow the transmission provider to terminate idle transmission service
requests. NAESB's business practice 001-4.11 allows the transmission
provider to retract a request if the transmission customer does not
respond to an acceptance within the time established in NAESB business
practice standard 001-4.13. Therefore, we interpret TDU Systems
comments to refer to circumstances when a transmission customer fails
to respond to the transmission provider's request for additional
information during the course of a request study. As discussed above,
by the time the transmission provider offers a system impact study
agreement, it should have all of the information that it needs to
complete the study. Pursuant to section 17.4 of the pro forma OATT, the
transmission provider can deem a transmission service request deficient
if the transmission customer does not provide all of the information
the transmission provider needs to evaluate the request for service. We
will revise section 17.7 of the pro forma OATT so that the transmission
provider is able to terminate a request for transmission service if a
transmission customer that is extending the commencement of service
does not pay the required annual reservation fee within 15 days of
notifying the transmission provider that it would like to extend the
commencement of service. We will not change the pro forma OATT to allow
the transmission provider to terminate a transmission service request
if the transmission customer changes its application for service. We
believe the existing pro forma OATT is sufficient to allow a
transmission provider to manage situations where the transmission
customer modifies its application for service to the point that the
customer is requesting transmission service that is meaningfully
different than its initial request.
    1391. We clarify that sections 19.3 and 32.3 of the pro forma OATT
require the transmission provider to release study results as soon as a
study is completed, rather than holding them until the end of the 60
days.
    1392. Commenters also suggest changes to the OASIS protocols,
including prohibiting transmission customers from changing a request
into a pre-confirmed request and requiring OASIS platforms to be
accessible on non-Windows/Explorer computers. We believe these issues
are best addressed by NAESB.
    1393. Commenters proposed a number of additional modifications to
the pro forma OATT that we do not believe are necessary. These
proposals would (1) allow the transmission provider to verify and
correct studies between each step in the study process, (2) transform
the queue process into competitive process, (3) shorten the
confirmation time periods for short-term firm point-to-point service
requests and (4) introduce penalties when the transmission provider
deviates from the ATC calculation procedures detailed in Attachment C
of the pro forma OATT. We believe the pro forma tariff is just and
reasonable without such modifications and the commenters have not
demonstrated that reforms in these areas are required at this time to
prevent the exercise of undue discrimination.
b. Reservation Priority
    1394. Section 13.2 of the pro forma OATT requires transmission
providers to process requests for long-term firm point-to-point service
on a first-come, first-served basis and to process requests for short-
term firm point-to-point service on a first-come, first-served basis
conditional on the duration of the request. Section 14.2 of the pro
forma OATT requires transmission providers to process requests for non-
firm point-to-point service on a first-come, first-served basis
conditional on the duration of the request to the extent transmission
capacity beyond that needed by native load customers, network customers
and firm point-to-point transmission customers is available. In the
NOPR, the Commission made a number of proposals and requested comment
regarding various aspects of the reservation priority rules.
(1) Priority for Pre-confirmed Requests
NOPR Proposal
    1395. In the NOPR, the Commission proposed to change the priority
rules to give priority to pre-confirmed requests for firm point-to-
point transmission service. Specifically, the Commission proposed that
a pre-confirmed short-term request for firm transmission service would
preempt any non-pre-confirmed short-term requests, regardless of
duration. Similarly, the Commission proposed that a pre-confirmed
request for long-term firm transmission service would preempt a request
for long-term transmission service that is not pre-confirmed. Under the
Commission's proposal, a pre-confirmed request for short-term
transmission service would not pre-empt a non-pre-confirmed request for
long-term transmission service.
Comments
    1396. A number of commenters generally support the Commission's
proposal to give priority to pre-

confirmed requests.\824\ Commenters who support the proposal note that
giving reservation priority to pre-confirmed requests for transmission
service could help alleviate the problems that arise when a
transmission customer submits multiple identical requests for service
with no intention of confirming all accepted requests.\825\ Supporters
of the proposal also note that the proposal would allow the
transmission provider to focus its attention on those requests that
appear most likely to result in an actual reservation of transmission
service.\826\ Although Nevada Companies do not oppose the proposal,
they note that concerns regarding withdrawal of pre-confirmed requests
might otherwise be alleviated by requiring a non-refundable deposit on
requests.
---------------------------------------------------------------------------

    \824\ E.g., Nevada Companies, Seattle, LDWP, PGP, PNM-TNMP, Salt
River, and Suez Energy NA.
    \825\ E.g., Ameren, Santa Clara, Entegra, Entergy, and TVA.
    \826\ E.g., Ameren and NorthWestern.
---------------------------------------------------------------------------

    1397. Several commenters suggest that establishing reservation
priority first based on pre-confirmation status and then based on
duration would ultimately result in transmission customers with
relatively shorter term requests getting transmission service instead
of transmission customers with relatively longer term requests.\827\
EEI asserts that this result would be inconsistent with the
Commission's desire to promote longer-term uses of the transmission
system. Several transmission providers suggest that the Commission
modify its proposal to ensure that longer duration requests continue to
have a priority over shorter duration requests.\828\ EEI suggests that
the Commission should use pre-confirmation as a tie-breaker for short-
term requests for transmission service with the same duration. Southern
argues further that a pre-confirmed daily or hourly request should not
preempt a weekly request that has not been pre-confirmed.
---------------------------------------------------------------------------

    \827\ E.g., CREPC and EEI.
    \828\ E.g., Entergy, Southern, and NorthWestern.
---------------------------------------------------------------------------

    1398. Opponents of the proposal identify a number of operational
difficulties in implementing a system that gives priority to pre-
confirmed requests. Several commenters note that transmission customers
are not bound to take service because they pre-confirm a request for
transmission service.\829\ They argue, for instance, a transmission
customer is not bound to take service in the event the transmission
provider offers a study or counteroffers the request with a partial
quantity of service. Similarly, MidAmerican notes that a transmission
customer may withdraw a pre-confirmed request for transmission service
at any time prior to acceptance by a transmission provider. Opponents
also argue that giving priority to pre-confirmed requests would disrupt
the study process.\830\ This disruption would occur when a transmission
provider receives a pre-confirmed request for transmission service
while it is actively studying a request for service that has not been
pre-confirmed. Under these circumstances, the transmission provider
would be required to suspend the study of one request in order to study
a request with a higher reservation priority. In its reply comments,
Indianapolis Power asks the Commission to clarify if this
interpretation of the NOPR proposal is accurate. TranServ, suggesting
that the Commission has not proposed to give a priority to pre-
confirmed requests for non-firm transmission service, asserts that
having different priority rules for firm and non-firm transmission
service introduces unnecessary complexity. Finally, Southern believes
that a pre-confirmed service request submitted within close proximity
to the actual commencement of service should not preempt an existing
non-pre-confirmed request, if doing so would be disruptive to the
operations of the transmission provider or to the reliability of the
system itself.
---------------------------------------------------------------------------

    \829\ E.g., Bonneville and EEI.
    \830\ E.g., Bonneville, EEI, and MidAmerican.
---------------------------------------------------------------------------

    1399. Opponents also argue that giving a priority to pre-confirmed
requests would unfairly disadvantage transmission customers who are not
in a position to pre-confirm their requests, such as those requesting
service in response to a request for proposals.\831\ EEI notes that the
Commission addressed this issue when it issued Order No. 638 and
decided that giving priority to pre-confirmed requests would
disadvantage customers who are requesting service from multiple
transmission providers.\832\ In the event the Commission decides to
proceed with its proposal, TAPS suggests that the Commission limit the
priority for pre-confirmed requests to non-firm and short-term firm
requests for transmission service.
---------------------------------------------------------------------------

    \831\ E.g., EEI, MISO, TAPS, Constellation, and TDU Systems.
    \832\ Open Access Same-Time Information System and Standards of
Conduct, Order No. 638, 65 FR 17370, FERC Stats. & Regs., ] 1996-
2000 ] 31,093 at 31,439 (2000).
---------------------------------------------------------------------------

    1400. Several commenters question whether a request that has been
accepted but not confirmed would be pre-empted by a new pre-confirmed
request.\833\ In a similar vein, TDU Systems suggests that the
Commission include a time window between acceptance of a request and
confirmation of the request, during which a request can not be
preempted by a pre-confirmed request for transmission service.
---------------------------------------------------------------------------

    \833\ E.g., MidAmerican and TranServ.
---------------------------------------------------------------------------

Commission Determination
    1401. The Commission generally agrees with those commenters that
argue that giving a priority to pre-confirmed requests can increase the
efficient utilization of the system by giving priority to customers who
are committed to purchase service over those who have not so committed,
including customers that submit multiple requests without any intent to
take service if each request is granted. However, we are mindful of
concerns that doing so could undermine the Commission's desire to
promote longer-term uses of the transmission system, disrupt the study
process, or disadvantage transmission customers that are not in the
position to pre-confirm their requests. As a result, we will modify the
NOPR proposal and give priority only to pre-confirmed non-firm point-
to-point transmission service requests and short-term firm point-to-
point transmission service requests. In addition, longer duration
requests for transmission service will continue to have priority over
shorter duration requests for transmission service, with pre-
confirmation serving as a tie-breaker for requests of equal duration.
This policy will still give an advantage to pre-confirmed requests
without imposing substantial implementation difficulties or undermining
the Commission's goals to encourage longer-term uses of the
transmission system. Our revised policy on priority for pre-confirmed
requests thus addresses the comments that we should preserve the
priority of longer duration requests for transmission service over
shorter duration requests for transmission service. For instance, a
pre-confirmed daily or hourly request will not preempt a weekly request
that has not been pre-confirmed. Pre-confirmed short-term service
requests therefore will not have a priority superior to that of long-
term service requests that have not been pre-confirmed.
    1402. We acknowledge that our revised policy on priority for pre-
confirmed requests may be less effective than the NOPR proposal in
alleviating the problems that arise when transmission customers submit
multiple identical requests for service. However, we have taken other
steps--notably accepting the NAESB business practices on queue flooding
and queue

hoarding \834\--that we believe will substantially reduce the instances
of multiple identical requests for service.
---------------------------------------------------------------------------

    \834\ See Order No. 676 at P 19.
---------------------------------------------------------------------------

    1403. The Commission also acknowledges the concerns expressed
regarding operational difficulties caused by giving priority to pre-
confirmed requests and clarify our policy as follows. First, we will
prohibit transmission customers from withdrawing pre-confirmed non-firm
and short-term firm point-to-point transmission service requests prior
to when the transmission customer is offered service or a system impact
study. This policy will address MidAmerican's concern that a
transmission customer may withdraw a pre-confirmed request for
transmission service at any time prior to acceptance by a transmission
provider. We believe prohibiting withdrawal of a pre-confirmed request
is less administratively burdensome than the non-refundable deposit on
requests proposed by Nevada Companies and achieves the same goals. The
Commission will allow transmission providers to invalidate a pre-
confirmed request at the request of the transmission customer in the
very near term following submittal of the request, in the event the
transmission customer makes an inadvertent error in submitting its
request. We expect the transmission provider to log such occurrences as
an act of discretion so we can verify that transmission customers are
not abusing this flexibility.
    1404. Second, while the Commission recognizes that a customer
submitting a pre-confirmed request is not bound to take service when
the transmission provider counteroffers the transmission customer's
initial request, we do not believe this fact alone warrants reversing
our proposal to give a priority to pre-confirmed requests. We are
satisfied that a transmission customer that pre-confirms its request is
obligated to take full service in the event the transmission provider
offers the service requested.
    1405. The Commission also believes the revised priority policy will
address Southern's comment that a pre-confirmed service request
submitted within close proximity to the actual commencement of service
should not preempt an existing non-pre-confirmed request if doing so
would be disruptive to the operations of the transmission provider or
to the reliability of the system itself. A pre-confirmed request for
transmission service will not pre-empt an equal duration request that
has already been confirmed. Therefore, the effects of the priority for
pre-confirmed requests will be resolved prior to the time when the
transmission provider would require an accepted request to be
confirmed. Handling priority for pre-confirmed requests should be no
more disruptive than giving a transmission customer time to confirm an
accepted request.
    1406. Excluding long-term requests for transmission service will
mitigate many of the concerns expressed by commenters who argued that
giving a priority to pre-confirmed requests will unfairly disadvantage
transmission customers who are requesting service in response to a
request for proposals and are therefore not in a position to pre-
confirm their requests. Such requests for proposals typically involve
long-term contracts for energy and/or generating capacity and,
therefore, would be linked most likely to long-term transmission
service requests. We disagree, however, with EEI's characterization of
the Commission's decision in Order No. 638 to give a priority to pre-
confirmed requests for non-firm service only if the request offers a
higher price. The Commission's decision in that proceeding was driven
by its interpretation that the proposed business practice addressed in
the part of Order No. 638 cited by Southern was not consistent with the
relevant section of the pro forma tariff. In addition, the Commission's
experience since Order No. 638 and the comments received to the NOPR
proposal indicate the value of giving a priority to pre-confirmed
requests, despite concerns that some transmission customers are not in
a position to pre-confirm their requests for transmission service.
    1407. In response to requests for clarification from MidAmerican
and TranServ, we clarify that a new pre-confirmed request for
transmission service would preempt a request of equal duration that has
been accepted by the transmission provider but not yet confirmed by the
transmission customer. Thus, we decline to adopt TDU Systems'
suggestion that the Commission include a time window between acceptance
of a request and confirmation of the request, during which a request
can not be preempted by a pre-confirmed request for transmission
service. This is consistent with our desire to give transmission
service first to those customers that are committed to taking the
transmission service if it is granted. In the case of monthly firm
point-to-point transmission service, the transmission customer has up
to four days to confirm an accepted request. This is a potentially long
delay when there is another transmission customer that is willing to
commit to take the same service. Moreover, this policy is consistent
with NAESB business standard 001-4.25, which allows a pre-confirmed
request for non-firm point-to-point transmission service to preempt a
request of equal duration and lower price that has been accepted but
not confirmed.\835\
---------------------------------------------------------------------------

    \835\ See Order No. 676.
---------------------------------------------------------------------------

(2) Price as a Tie-Breaker
NOPR Proposal
    1408. The NOPR also proposed to add price as a tie-breaker in
determining reservation queue priority when the transmission provider
is willing to discount transmission service. Under the Commission's
proposal, price would serve as a tie-breaker after pre-confirmation for
those requests that are not yet confirmed.
Comments
    1409. All of the commenters who address the Commission's proposal
to add price as a tie-breaker support the proposal, although some
request that it be modified or clarified. Several commenters ask the
Commission to clarify that an otherwise higher queued request has a
right to match the price offer of a request with a higher price.\836\
With regard to short-term service, WAPA believes that the Commission's
proposal to add price as a tie-breaker would overly complicate matters
after taking into account the many complex timing restrictions on
short-term service. As a result, WAPA proposes that the Commission
limit application of its proposal to requests for long-term
transmission service. MISO/PJM States suggest that the Commission
consider requiring point-to-point transmission customers to offer a
reservation price at which they would be willing to sell their
transmission service.
---------------------------------------------------------------------------

    \836\ E.g., EEI and MidAmerican.
---------------------------------------------------------------------------

Commission Determination
    1410. The Commission adopts the NOPR proposal to add price as a
tie-breaker in determining reservation queue priority when the
transmission provider is willing to discount transmission service. As a
result, price will serve as a tie-breaker after pre-confirmation for
those requests that have not yet been confirmed by the transmission
customer or have not yet been evaluated by the transmission provider.
Consistent with the principles currently embodied in the pro forma OATT
and articulated in Order No. 638, we clarify that, in the event a later
queued short-term request for

transmission service preempts a conditional confirmed short-term
request for transmission service based on price, then the conditional
confirmed request has a right to match the price offer of the later
queued request.\837\
---------------------------------------------------------------------------

    \837\ See Order No. 638 at 31,442.
---------------------------------------------------------------------------

    1411. We disagree with WAPA's proposal to limit application of the
NOPR proposal to requests for long-term transmission service. We
believe the addition of price as a tie-breaker for discounted firm
point-to-point transmission service is an economically efficient policy
for both short-term and long-term firm point-to-point transmission
service. We recognize that adding another element to the reservation
priority criteria adds additional complexity. However, we believe that
the efficiency gains warrant any additional complexity in the few cases
in which transmission customers bid for transmission service.
    1412. We do not agree with MISO/PJM States' suggestion that the
Commission require point-to-point transmission customers to offer a
reservation price at which they would be willing to sell their
transmission service. The transmission provider may already make
unscheduled firm transmission service available to other customers on a
non-firm basis and we have adopted proposals that we believe will
encourage transmission customers to voluntarily offer to sell firm
point-to-point transmission service on the secondary market as
described in section V.C.4 of this Final Rule. As a result, we see no
reason to require a firm point-to-point customer to offer its reserved
capacity for sale.
(3) Five-Minute Window for Requests
NOPR Proposal
    1413. In the NOPR, the Commission responded to comments that
transmission customers that have the financial resources to purchase
software and employ staff to continually monitor OASIS sites have an
unfair advantage under a first-come, first-served approach by seeking
comment on whether any such advantage would be mitigated if all
requests submitted within a five-minute window were deemed to have been
submitted simultaneously. The Commission also sought comment on whether
transmission customers could game a five minute equivalent priority
standard to request transmission service only after another
transmission customer has made a request. The Commission further sought
comment on how to allocate limited transmission capacity among
equivalent priority requests of equal duration, in the event a five
minute equivalent priority standard is adopted.
Comments
    1414. Many of the commenters in the West support the proposal to
treat transmission requests submitted within some specified period of
time as submitted simultaneously. Supporters of a time window within
which all requests would be deemed to have been submitted
simultaneously argue that the proposal would give transmission
customers who are less sophisticated and have fewer financial resources
equal access to transmission service.\838\ Other supporters argue that
such a time window would be particularly appropriate in circumstances
when a tariff calls for requests to be submitted ``no earlier than'' a
specific deadline.\839\ In its reply comments, NRECA argues that a
customer attempting to plan a request under such circumstances may miss
being the first in time by a matter of seconds because its computer is
slower than another customer's computer.
---------------------------------------------------------------------------

    \838\ E.g., Bonneville and Santa Clara.
    \839\ E.g., TDU Systems and NRECA.
---------------------------------------------------------------------------

    1415. Supporters of the proposal suggest a number of modifications
to the Commission's suggested five-minute window. A number of
commenters suggest a window longer than five minutes.\840\ For
instance, Bonneville proposes a system similar to PJM's 30 minute
window for monthly service. On the other hand, Manitoba Hydro suggests
a shorter window and a limit on the number and size of requests,
claiming this would reduce the potential for gaming and/or anti-
competitive behavior. A number of commenters also suggest that such a
system should be limited to short-term transmission service \841\ and/
or should not apply to requests for transmission service submitted
close to the hour that service commences.\842\ In its reply comments,
PNM-TNMP asserts that, if the Commission implements a five-minute
window policy, then the policy should not be limited to long-term
transactions. In its reply comments, NRECA argues that requests
submitted within a five-minute window should not be publicly available
until the window has closed in order to prevent competitors from
requesting the same service simply to disrupt the transmission service
procurement process. Similarly, Bonneville suggests that the
reservation process should be conducted like a blind auction, so that
requests are not visible on OASIS until the window closes.
---------------------------------------------------------------------------

    \840\ E.g., Bonneville and CREPC.
    \841\ E.g., Bonneville and Nevada Companies.
    \842\ E.g., Bonneville and NRECA.
---------------------------------------------------------------------------

    1416. Many of the large power marketers and transmission providers
in the East oppose the notion of a submittal window. Opponents of a
time window within which all requests would be deemed to have been
submitted simultaneously suggest that the proposal is an unnecessary
complication and may actually be counterproductive to the Commission's
ultimate goal due to issues regarding how transmission service would be
allocated among simultaneous requests.\843\ EEI notes that there is no
limit on how far in advance a transmission customer may submit requests
for firm transmission service, so the likelihood that any two requests
are submitted within the same five minute period is low. Powerex argues
that the simplicity of the first-come, first served approach limits the
number of disputes. In its reply comments, Powerex argues that none of
the commenters that favor a five-minute window addressed the
operational problems that such a proposal would generate.
---------------------------------------------------------------------------

    \843\ E.g., EEI, MidAmerican, Ameren, Constellation, Entergy,
NorthWestern, PNM-TNMP, WAPA, Powerex, and Indianapolis Power Reply.
---------------------------------------------------------------------------

    1417. Some commenters argue that a pro rata allocation of
simultaneous requests of equal duration will result in all transmission
customers acquiring less transmission service than they need to
complete their wholesale transactions.\844\ As a result, these
commenters suggest that the need to provide transmission customers with
usable quantities of transmission service will necessarily lead to
developing an allocation protocol in addition to allocating based on
time submitted and duration of request.\845\ Powerex argues that any
system that creates a time window within which all requests would be
deemed to have been submitted simultaneously will lead transmission
customers to inflate the quantity of service they request in order to
get quantity of service they actually desire. Other commenters make
suggestions regarding the manner by which transmission service should
be allocated among simultaneously submitted requests. Bonneville
believes that each transmission provider should develop an allocation
method appropriate to its system. CREPC suggests that price be used as
a secondary tie-breaker after duration. TDU Systems argue that using
duration

as a tie-breaker for simultaneous requests could discriminate against
purchased power contracts that are designated as network resources.
---------------------------------------------------------------------------

    \844\ E.g., Powerex and TranServ.
    \845\ Id.
---------------------------------------------------------------------------

Commission Determination
    1418. Based on the comments received, it appears that the desire
for a time window within which all requests would be deemed to have
been submitted simultaneously is largely limited to market participants
in the Western Interconnection. With one exception, we will not mandate
a change to our current first-come, first-served policy to address an
issue that appears to be regional in nature. Rather, we will allow
transmission providers to propose a window within which all
transmission service requests the transmission provider receives will
be deemed to have been submitted simultaneously. Transmission providers
will have discretion to determine which transmission services will be
subject to a submittal window policy. We believe the transmission
provider is in the best position to determine whether it can
accommodate a submittal window for a specific transmission service and
the need for such a window.
    1419. In order to ensure that transmission service is not awarded
in an arbitrary fashion and to ensure that transmission customers who
are less sophisticated and have fewer financial resources have equal
access to transmission service, we will require transmission provider
who set a ``no earlier than'' time for request submittal to treat all
transmission service requests received within a specified period of
time as having been received simultaneously. We agree with those
commenters that argue that a time window within which all requests
would be deemed to have been submitted simultaneously is particularly
appropriate in circumstances when a tariff or business practice calls
for requests to be submitted no earlier than a specific deadline. As
NRECA argues, there is no meaningful difference between requests for
transmission service that are identical in all respects except that one
request is received by the transmission provider seconds ahead of
another request because one customer's computer is slower than another
customer's computer. EEI is correct that NAESB's uniform business
practices do not limit how far in advance a transmission customer may
submit requests for firm transmission service.\846\ However, a number
of transmission providers have modified their tariffs or adopted
business practices that mandate that requests can be submitted no
earlier than a specific deadline.\847\ In these instances, multiple
requests for transmission service can be submitted at approximately the
same time. We generally agree with Powerex's assertion that the
simplicity of the current first-come, first served approach limits the
number of disputes. However, when a transmission provider establishes a
``no earlier than'' deadline, submittals that are received by the
transmission provider within a matter of seconds cannot be meaningfully
differentiated. A transmission provider with such a business practice
or tariff provision will be required to modify its tariff to include
its proposed specified period of time. We will evaluate each proposal
on a case-by-case basis, as described below.
---------------------------------------------------------------------------

    \846\ See NAESB Business Practice Standard 001-4.13.
    \847\ For instance, Idaho Power Company has adopted a business
practice that requests for monthly firm transmission service cannot
be submitted earlier than 11 months prior to operation. Portland
General Electric has adopted a business practice that Daily Firm ATC
on the California-Oregon Intertie will be posted at or about 7:11
a.m. Pacific on the day prior to operation and that requests that
are submitted prior to ATC being posted will be refused. SPP has
modified its tariff so that requests for monthly firm transmission
service cannot be submitted more than 90 days prior to the first day
of operation.
---------------------------------------------------------------------------

    1420. We will allow transmission providers to propose the period of
time within which all requests would be deemed to have been submitted
simultaneously. We believe the transmission provider is in the best
position to identify the window it can operationally accommodate. We
expect the submittal window to be open for at least five minutes unless
the transmission provider can present a compelling rationale to justify
a shorter submittal window.
    1421. We agree with NRECA and Bonneville's suggestion that requests
submitted within a specified window should not be publicly available
until the window has closed in order to prevent competitors from
requesting the same service simply to disrupt the transmission service
procurement process.
    1422. We will require each transmission provider that is required
to, or decides to, deem all requests submitted within a specified
period as having been submitted simultaneously to propose a method for
allocating transmission capacity if sufficient capacity is not
available to meet all requests submitted within the specified time
period. We agree with Bonneville that the transmission provider is in
the best position to determine an allocation that is appropriate to its
system and that cannot be gamed in the manner suggested by Powerex and
TranServ. We believe that transmission providers will be able to
develop allocation methods, like the method PJM uses to allocate
monthly firm point-to-point transmission service, that address the
operational issues Powerex and TranServ raise.
(4) Right of First Refusal and Preemption
    1423. While not specifically addressed in the NOPR, a few
commenters use the Commission's proposed introduction of hourly firm
service, discussed above, to argue that the Commission should take the
opportunity to clarify or revise the right of first refusal for short-
term transmission service requests.
    1424. To understand commenter concerns, it is useful to note the
relevant components of the reservation and scheduling process in the
pro forma OATT. Reservations for short-term firm point-to-point
transmission service are available on a first-come, first-served basis
and are conditional based upon the length of the requested transaction
as explained further below. If the transmission system becomes
oversubscribed, longer-term service may preempt shorter-term service,
up to a specified period. The shorter-term reservation holder has a
right of first refusal to match the longer-term reservation, but such
right must be exercised within 24 hours of being notified of the
competing reservation, or earlier to comply with the scheduling
deadline.
Comments
    1425. Salt River argues that the time required to administer the
right of first refusal--which includes contacting customers and
allowing time to exercise the right of first refusal--is overwhelming.
Salt River argues that the current OASIS business practices do not
permit adequate time to implement these rules, and the industry lacks
the software to either streamline the effort or ensure quality control.
Salt River contends that for hourly, daily, and weekly requests, the
complexity and potentially unjust results of administering preemption
and the right of first refusal rules outweighs any potential benefits.
Accordingly, Salt River recommends revisions to the pro forma OATT that
make the right of first refusal available only to monthly requests for
service.
    1426. To address the complications arising from preemption and the
right of first refusal, Duke proposes several revisions to the pro
forma OATT: only

pre-confirmed requests would trigger preemption; confirmed requests
could not be displaced by longer-term requests; only monthly customers
subject to preemption would be given a right of first refusal (Salt
River proposes a similar OATT revision); and, profiled requests (i.e.,
requests for transmission that may have different MW values for each
hour of the day, and may even include some hours where the MW value is
zero) would not be granted priority over confirmed reservations.
TranServ also asks the Commission to provide guidance establishing the
earliest and latest submission times and maximum successive or
consecutive terms of service required. TranServ contends it is
unreasonable that a request for daily firm service could be submitted
years in advance and then have a right of first refusal to match any
longer-term request for service.
    1427. To eliminate the potential for more complexity, TranServ
requests that the Commission eliminate the conditional nature of short-
term point-to-point service under the OATT. Whether the Commission
adopts this recommendation, TranServ further recommends that the
Commission revise the timing provisions for requesting short-term
point-to-point service to reduce overlap for submission of requests
that would trigger the need for preemption. TranServ and Duke recommend
a reservation or bidding process in which one increment of service
(monthly, weekly, daily, and hourly) is available at a time, with each
successive shorter increment of service becoming available after the
reservation or bidding window for the preceding longer increment has
closed.
    1428. NorthWestern requests that the Commission clarify whether the
terms ``reservation'' and ``request'' used in section 13.2 (Reservation
Priority) are used interchangeably. If they are not used
interchangeably, and ``reservation'' is meant to be a confirmed
request, while ``request'' is a queued request that has not been
confirmed, NorthWestern suggests that the sentence that includes the
two uses of ``reservation'' creates confusion because, if both requests
are confirmed, then either sufficient capacity exists to accept both
requests, or the transmission provider accepted requests that exceed
the ATC. To avoid confusion, then NorthWestern recommends that the
second use of ``reservation'' should be changed to ``request.'' If so,
to avoid the suggestion that the section is attempting to distinguish
between requests that have been confirmed from those simply queued,
NorthWestern recommends that the Commission consider changing all of
the ``reservation'' references to ``request.''
Commission Determination
    1429. Based on the issues raised in comments, we find that changing
the ``first come, first served'' nature of the reservation process and
right of first refusal process is not warranted at this time. The
``first-come, first-served'' principle facilitates the administration
of the reservation process and benefits customers because there can be
little confusion about how to comply with it.
    1430. The remaining concerns regarding administering the right of
first refusal are addressed below. First, when a longer-term request
seeks capacity allocated to multiple shorter-term requests, the
shorter-term customers should have simultaneous opportunities to
exercise the right of first refusal. Duration, pre-confirmation status,
price, and time of response would then be used to determine which of
the shorter-term requests will be able to exercise the right of first
refusal, consistent with the Commission's tie breaking provision in
section 13.2(ii). Second, to minimize the potential for gaming, a
preempting longer request must be for a fixed capacity over the term of
the request.
    1431. We agree with NorthWestern's assertion that the sentence in
section 13.2(iii) of the pro forma OATT that includes the two uses of
``reservation'' creates confusion. Therefore, we clarify that the terms
``reservation'' and ``request'' are not used interchangeably;
``reservation'' is meant to be a confirmed request, while ``request''
is a queued request that has not been confirmed. To clarify the
distinction between use of the terms ``request'' and ``reservation'' in
section 13.2(iii), we will revise that section so that the sentence
``Before the conditional reservation deadline, if available transfer
capability is insufficient to satisfy all Applications, an Eligible
Customer with a reservation for shorter-term service has the right of
first refusal to match any longer-term reservation before losing its
reservation priority'' is replaced by the sentence ``Before the
conditional reservation deadline, if available transfer capability is
insufficient to satisfy all Applications, an Eligible Customer with a
reservation for shorter-term service has the right of first refusal to
match any longer-term request before losing its reservation priority.''
6. Designation of Network Resources
a. Qualification as a Network Resource
    1432. Taken together, the following sections of the pro forma OATT
describe the resources a network customer can appropriately designate
as a network resource. Section 30.1 of the pro forma OATT describes
network resources as all generation owned or purchased by the network
customer designated to serve network load under the tariff. Section
30.1 also indicates that network resources may not include resources
that are committed for sale to non-designated third-party load or
otherwise cannot be called upon to meet the network customer's network
load on a noninterruptible basis. Pursuant to section 30.7 of the pro
forma OATT, the network customer must demonstrate that it owns or has
committed to purchase generation pursuant to an executed contract in
order to designate a generating resource as a network resource.
Alternatively, the network customer may establish that execution of a
contract is contingent upon the availability of network service.
Section 29.2 requires the network customer to provide the following
information about a power purchase agreement that is to serve as a new
designated network resource: source of supply, control area location,
transmission arrangements and delivery point(s) to the transmission
provider's transmission system.
    1433. As the Commission noted in the NOPR, a number of orders
address what types of resources meet the criteria set out in sections
30.1 and 30.7 of the pro forma OATT. In MSCG, the Commission stated
that network resources must be generating resources owned by the
network customer or purchases of noninterruptible power under executed
contracts that require the network customer to pay for the
purchase.\848\ In WPPI, the Commission found that a network customer
can designate as a network resource a system purchase that is not
backed by a specific generator.\849\ The Commission found that
Wisconsin Public Service Corporation (WPS) had appropriately designated
a power purchase as a network resource, even though the power purchase
agreement did not require WPS to take energy around the clock and
allowed WPS to convert its energy purchase to a discounted product that
could be interrupted.\850\ In addition, the Commission stated that,
because the pro forma OATT requires a power purchase to be
noninterruptible, third-party transmission arrangements to deliver the
resource to the network have to be

noninterruptible as well.\851\ In Illinois Power, the Commission found
that a firm purchase need not be backed by a capacity purchase to
qualify as a network resource.\852\
---------------------------------------------------------------------------

    \848\ Morgan Stanley Capital Group v. Illinois Power Co., 83
FERC ] 61,204 at 61,911-12 (1998), order on reh'g, 93 FERC ] 61,081
(2000) (MSCG).
    \849\ Wisconsin Public Power Inc. v. Wisconsin Public Service
Corp., 84 FERC ] 61,120 at 61,650-51 (1998) (WPPI).
    \850\ Id.
    \851\ Id. at 61,660.
    \852\ Illinois Power Co., 102 FERC ] 61,257 at P 14 (2003),
reh'g denied, 108 FERC ] 61,175 (2004) (Illinois Power).
---------------------------------------------------------------------------

NOPR Proposal
    1434. In the NOPR, the Commission proposed to maintain its current
policy regarding the power purchase agreements that network customers
may designate as network resources. In particular, the Commission
proposed that a network customer would continue to be able to designate
resources from system purchases not linked to a specific generating
unit, provided the power purchase agreement 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. In addition, the Commission reiterated that
third-party transmission arrangements to deliver the purchase to the
network must be noninterruptible.
    1435. Regarding seller's choice contracts, the Commission explained
that a power purchase agreement that is structured so that a network
customer cannot specify all of the information required by section
29.2(v) of the pro forma OATT cannot be designated as a network
resource. Specifically, the Commission reiterated that a request to
designate a new network resource must provide the information including
the source of supply, control area location, transmission arrangements,
and delivery point(s) to the transmission provider's transmission
system. The Commission proposed that, when designating a system
purchase as a new network resource, a network customer must identify
the resource as a system purchase as well as the control area from
which the power will originate.
    1436. In response to suggestions that liquidated damages (LD)
products should not be designated network resources because they are
interruptible for economic reasons, the Commission proposed to clarify
that network customers may not designate as network resources those
power purchase agreements that give the seller a contractual right to
compensate the buyer instead of delivering power even if the seller is
able to deliver power. For instance, the Commission proposed that a
network customer may not designate as a network resource a purchase
agreement that allows the seller to interrupt sales under the purchase
agreement for reasons other than reliability, but allows the buyer to
force delivery at a higher price. In addition, the Commission proposed
that a network customer may not designate as a network resource a
purchase agreement that requires a seller to pay the buyer's cost of
replacement power when the seller chooses not to deliver energy for
economic reasons.
Comments Overview
    1437. Most commenters argue that the Commission must provide
further clarification than given in the NOPR, particularly with regard
to the eligibility of firm LD power products and the information
required by section 29.2(v) of the pro forma OATT for seller's choice
contracts. Various commenters also argue that the Commission's
precedent on this issue is contradictory and that the Commission's
policy with respect to designation of network resources may violate
section 217 of the FPA and conflict with state jurisdiction.
(1) LD Contracts
Comments
    1438. Many commenters express general support for some or all of
the Commission's clarifications in the NOPR with regard to
ineligibility of resources which are interruptible for economic reasons
and/or that allow the seller to compensate the buyer instead of
delivering power even if the seller is able to deliver power.\853\
However, many commenters express concern about the clarity of the
policy.\854\
---------------------------------------------------------------------------

    \853\ E.g., Ameren, BART, Constellation, Duke, Entegra, Entergy,
Morgan Stanley, MISO, NorthWestern, Progress Energy, Sempra Global,
Southern, Suez Energy NA, and TranServ.
    \854\ E.g., AMP-Ohio, APPA, Duke, EEI, Entergy, Fayetteville,
Morgan Stanley, NCPA, Northwest IOUs, Northwest Parties, MISO/PJM
States, PGP, Pinnacle, PNM-TNMP, Salt River, Sempra Global,
Southern, TAPS, Utah Municipals, and WSPP.
---------------------------------------------------------------------------

    1439. In particular, several parties contend that it is in fact the
firmness of the contract and not the mere existence of an LD provision
describing the remedies in case of a failure to perform that determines
the eligibility of a power purchase agreement to be designated as a
network resource.\855\ TAPS argues that, in order to determine the
firmness of a purchase, one must look at the criteria for excusing a
failure to supply. AMP-Ohio, MISO, and NCPA also express support for
this position, pointing to the Commission's finding in Dynegy \856\
that the inclusion of an LD provision in EEI's Master Power Purchase
and Sale Agreement's Firm LD product (EEI's Firm LD Product) does not
inherently make that product less firm.
---------------------------------------------------------------------------

    \855\ E.g., AMP-Ohio, Northwest IOUs, NRECA Reply, PGP,
Pinnacle, Sempra Global, Strategic Energy Reply, and TAPS.
    \856\ Dynegy Midwest Generation, 101 FERC ] 61,295 (2002), reh'g
dismissed, 108 FERC ] 61,175 (2004) (Dynegy).
---------------------------------------------------------------------------

    1440. Several commenters argue that, when the Commission in Dynegy
considered the acceptability of EEI's Firm LD Product as a designated
network resource, it neglected to consider the presence of a provision
which appears to contradict its decision.\857\ They point to the
Commission's statement in Dynegy that EEI's Firm LD Product ``does not
permit the power to be interrupted for economic reasons, or at the
discretion of either party, but only if a force majeure occurs.'' \858\
Some contend that the Commission's conclusion ignored the fact that
EEI's Firm LD Product actually allows power to be interrupted for any
reason, including economic reasons, after which the agreement then
provides LDs as a remedy if the interruption was not due to a force
majeure event.\859\ Duke and EEI note that contracts under EEI's Firm
LD Product agreement or similar agreements have become commonplace
since the Commission's Dynegy decision and that clarification regarding
their use as network resources is required to address industry
confusion.
---------------------------------------------------------------------------

    \857\ E.g., Duke, Dynegy Reply, EEI, and Southern.
    \858\ Dynegy at P 21.
    \859\ E.g., Duke, EEI and Southern. EEI notes that its Firm LD
Product is distinct from its ``System Firm'' and ``Unit Firm''
products in its Master Power Purchase and Sale Agreement, each of
which excuses a failure to perform only for force majeure and
neither of which permits a party to fail to perform and pay
liquidated damages.
---------------------------------------------------------------------------

    1441. Several commenters disagree that the EEI Firm LD Product
gives parties the right to interrupt for any reason, including economic
reasons, provided that LDs are paid by the non-performing party.\860\
Hoosier argues on reply that EEI and Southern have misunderstood the
Commission's intent in Dynegy. Hoosier contends that the Commission
correctly found in Dynegy that the EEI Firm LD Product does not permit
power to be interrupted for economic reasons, or at the discretion of
either party, but only if a force majeure event occurs. Thus, Hoosier
argues, the EEI Firm LD Product does not give the seller a right to
interrupt for any reason other than force majeure, and any seller that
interrupts for economic reasons is clearly in breach of its obligations
to perform under the contract and must

pay damages. Hoosier acknowledges that a seller always has the choice
of not performing its obligations and paying damages, but that is not
peculiar to the EEI Firm LD Product. Hoosier maintains that any party
to any contract has the ability, but not the right, to breach its
obligations under the contract and pay damages. According to Hoosier,
the only difference in the case of the EEI Firm LD Product is that the
parties have stipulated beforehand as to the measure of the damages
required of a seller in breach, in order to minimize litigation over
damages. This stipulation, Hoosier argues, conveys no additional
substantive rights on either party.
---------------------------------------------------------------------------

    \860\ E.g., Hoosier Reply, Strategic Energy Reply, and Utah
Municipals.
---------------------------------------------------------------------------

    1442. Several parties note that firm LD contracts account for a
significant number of currently utilized products and that disallowing
these product to be designated as network resources may create
significant disruption.\861\ Commenters supporting continued use of
firm LD contracts as designated network resources argue that allowing
products structured on EEI's Firm LD Product has not created
reliability problems.\862\ Southern argues that the Commission should
not set criteria that would place in jeopardy an array of products that
have a firm LD dimension. Southern further states that such products
are among the most reliable in instances where market prices are very
high (where LDs could be quite substantial) and that just about any
power purchase/sale contract can be financially settled in real-time or
for a given period in lieu of physical delivery during that period. The
fact that some contracts set out in advance the terms of such
settlement (so to render commerce more efficient and liquid) does not,
Southern argues, render those contracts any less qualified for
designation as network resources. Thus, Southern encourages the
Commission to reconsider its revised guidance regarding the
ineligibility of contracts structured after EEI's Firm LD Product. Utah
Municipals agrees, and similarly requests that contracts under EEI's
Firm LD Product be allowed to qualify as network resources.
---------------------------------------------------------------------------

    \861\ E.g., APPA, Hoosier Reply, NCPA, Southern, Strategic
Energy Reply, and Utah Municipals.
    \862\ E.g., EEI, Hoosier Reply, Southern and NCPA.
---------------------------------------------------------------------------

    1443. Morgan Stanley argues that the notion that firm LD contracts
do not contribute as much to resource adequacy as contracts tied to
individual physical resources is inaccurate. Morgan Stanley contends
that the incentive to ensure performance is far greater with a firm LD
obligation than with unit contingent and system firm contracts. Morgan
Stanley explains that unit contingent and system firm contracts require
delivery if the unit or group of units performs and excuses delivery if
they do not, while a Firm LD obligation requires delivery so long as it
is physically possible to achieve delivery, regardless of the cost of
doing so. Thus, according to Morgan Stanley, firm LD products can
enhance supply security because they are not dependent upon the
performance of an individual unit or units, but rather put the burden
and opportunity on the supplier to use multiple physical resources to
meet its obligations.
    1444. APPA also requests reconsideration of this issue, arguing
that its members are often presented with power purchase agreements
based on EEI's Firm LD Product and that they are not always successful
in negotiating amendments to such agreements with suppliers. APPA
argues that an LSE can use a diverse resource portfolio, including firm
LD power purchase agreements, to serve its load economically, while
meeting reliability requirements and advancing other important policy
objectives (diverse fuel mix, use of renewable energy, etc.). APPA
urges the Commission to allow such use if it is consistent with the
commercial practices in a region.\863\
---------------------------------------------------------------------------

    \863\ MISO/PJM States similarly argue that whether a particular
contract with LD provisions can serve as a designated resource
should be decided within the RTO stakeholder process.
---------------------------------------------------------------------------

    1445. NCPA also opposes forbidding firm LD products without looking
more fully into their merits and the potential safeguards that could be
built into them. NCPA recognizes that firm LD contracts raise certain
issues under the pro forma OATT and also pose issues for planning where
a specific resource is not designated, but these problems are not
significantly different from the problems of a large transmission owner
designating its entire fleet as network resources for its entire load.
Rather than ban LD contracts from an important segment of the market,
several commenters suggest that the Commission convene a separate
proceeding or conference to further investigate the issue.\864\
---------------------------------------------------------------------------

    \864\ E.g., APPA Reply, Morgan Stanley, and NCPA.
---------------------------------------------------------------------------

    1446. Other commenters argue against allowing the designation as
network resources of contracts that permit the interruption of power
sales for reasons other than reliability as long as LDs are paid.\865\
Detroit Edison argues in its reply comments that a seller's decision to
pay the ``costs of `cover' '' under these contracts is of no value to
an LSE that lacks deliverable alternatives. Detroit Edison further
claims that, contrary to Southern's assumption that a failure to
deliver under a firm LD contract would result in substantial non-
delivery penalties, one would expect a supplier afforded the option to
divert power to a higher priced market that produces a net financial
gain would elect to interrupt service under the power sales contract
and pay the LDs. Detroit Edison contends that purchasers would be left
hanging during periods of supply shortage when firm physical supply is
most critical.
---------------------------------------------------------------------------

    \865\ E.g., Duke, Dynegy, and Detroit Edison Reply.
---------------------------------------------------------------------------

    1447. In its reply comments, Duke asserts that allowing firm LD
products to be designated as network resources would result in network
customers leaning on its system. Although it has doubts about whether
the EEI Firm LD Product actually contains language that prohibits
interruptions for economic reasons, Duke would find the inclusion of
such language in purchased power agreements to provide sufficient
firmness to allow the contract to be designated as a network resource.
In its reply comments, Dynegy argues that allowing designation of firm
LD products is simply inconsistent with the existing OATT requirements
that a transmission customer either own, purchase or have rights to
generation.
    1448. Northwest IOUs request that the Commission clarify whether
the limitations for qualification of a network resource, such as the
presence or absence of an LD clause, would prevent a transmission
provider from using such a resource for service to its bundled native
load customers. Northwest IOUs state that, if the non-rate terms and
conditions do not apply directly by requirement of the Final Rule, but
only under a comparability test where there is a comparison to network
customers, then that position should be made clear. They further note
that some transmission providers have no comparable network service, or
no service involving generating units within the transmission
provider's control area. Accordingly, Northwest IOUs request that the
Commission clarify whether, in those instances, the limitations for
qualification of a network resource would apply.
    1449. Many commenters also argue for the eligibility of service
provided under the WSPP Service Schedule C (Schedule C) agreement.\866\
In particular, WSPP argues that its Schedule C product satisfies the
Commission's requirements for designation as a network resource because
it requires the seller to deliver power except under very limited

circumstances, such as force majeure, and that the agreement itself
clearly provides that it is a firm product. However, WSPP notes that
its product, like most if not all wholesale power sales contracts,
contains a damages provision which could be characterized as an LD
provision. WSPP contends that such provision is used simply to avoid
the need to litigate damages and not to permit a seller to ignore its
delivery obligations by financially settling a firm power sale. WSPP
states that it is not intended that sellers be allowed to refuse to
deliver for economic reasons. Therefore, WSPP requests clarification
that its Schedule C product is eligible for designation as a network
resource, and notes the potential for significant disruptions in the
market and WSPP member sales of firm products if its Schedule C product
is not considered eligible for designation as a network resource.
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    \866\ E.g., APPA, EEI, Entergy, Northwest Parties, Salt River,
Utah Municipals, and WSPP.
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    1450. EEI and Northwest Parties note that, in some instances, both
the sellers and buyers of the Schedule C product designate that product
as a network resource, since it appears to meet the pro forma OATT
definition of a network resource for both parties because the agreement
allows interruptions to serve native loads. If only one party is found
to be able to designate the Schedule C product as a network resource,
EEI argues that the other party would run the risk of civil penalties
for making an incorrect attestation and may also lose the transmission
rights that it needs to serve its native load or network load.
Northwest Parties request specific clarification as to whether power
purchased under Schedule C from a seller with public utility or
statutory obligations to its customers is to be considered power
available to meet the purchaser's network load on a non-interruptible
basis, given that the seller may interrupt service under the power
sales contract to meet its public utility or statutory obligations. If
the Commission decides that the Schedule C transactions cannot be
designated as network resources, Northwest Parties asks the Commission
to state whether such transactions would be eligible if the WSPP
service agreement requires the seller to give the purchaser advance
notice of an interruption. Salt River also asks that, if Schedule C is
found to be ineligible, the Commission identify the specific changes
needed to that contract to allow for designation.
    1451. Beyond the eligibility of contracts with LDs to be designated
as network resources, EEI and Duke also argue that there is a conflict
between the policy guidance given in Dynegy (that a power purchase
agreement which is interruptible for reasons other than reliability is
not eligible for designation as a network resource) and the guidance
given in WPPI \867\ (that a power purchase agreement which permits
curtailment to serve the seller's native load is eligible for
designation as a network resource). Duke argues that, since the type of
contracts contemplated in WPPI are clearly interruptible for reasons
other than reliability, WPPI should no longer be deemed valid case law
in light of the Commission's proposed clarifications in the NOPR. Duke
argues that allowing such contracts to be designated as network
resources creates reliability risks and likely permits two entities to
designate the same generation as network resources. While Duke
acknowledges that exceptions to this rule may be necessary in the
Western Interconnection, it does not support an exception for the
Eastern Interconnection. EEI argues that the conflict between the
Dynegy and WPPI standards has resulted in different transmission
providers and customers using different standards for designation of
network resources. EEI therefore asks the Commission to clarify
precisely what contracts qualify as a network resource before it
implements its proposed attestation requirement.
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    \867\ WPPI, 84 FERC at 61,652.
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Commission Determination
    1452. Many commenters seek clarification of the eligibility of
power purchase agreements with LD provision to be designated as network
resources. In clarifying our policy concerning firm LD products, we
turn first to the apparent confusion surrounding the Commission's
findings in Dynegy. Duke, Dynegy, EEI, and Southern argue that the
Commission incorrectly found in Dynegy that the EEI Firm LD Product
could not be interrupted for economic reasons. These parties argue that
the EEI Firm LD product actually allows power to be interrupted for any
reason, including economic reasons, after which LDs are assessed if the
interruption was not due to a force majeure event. We disagree. As
Hoosier points out, the EEI Firm LD Product does not permit power to be
interrupted for economic reasons. While any party to any contract can
choose to fail to perform, that does not convey a contractual right to
fail to perform. The EEI contract clearly obligates the supplier to
provide power, except in cases of force majeure. Thus, the contract
does not allow interruption for economic reasons. The presence of an LD
provision in the EEI Firm LD Product does not permit the seller to
violate the terms of the contract, but rather merely specifies the
damages that must be paid if the seller fails to perform under the
contract. As noted by many commenters, it is the firmness of a power
purchase contract, and not simply the presence or absence of an LD
provision, that determines the eligibility of that power purchase to be
designated as a network resource.
    1453. We conclude, however, that the firmness of an obligation to
provide under a contract with an LD provision is informed by the
particular terms of the LD provision. The type of LD provision commonly
seen in firm LD products, such as the EEI Firm LD Product, 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. In
contrast to this ``make whole'' type of LD provision, other types of LD
provisions establish penalties at a fixed-dollar amount, cap penalties
at some level, or are otherwise not equivalent to a general ``make
whole'' type provision. Under these other types of LD provisions,
suppliers only need to compare their savings from interrupting with the
specified LD penalty when deciding whether to interrupt power sales.
Because such a consideration may not take into account the cost of
replacement power, such LD provisions could lead to inefficient
supplier interruption and economic harm to the buyer.
    1454. We find that a ``make whole'' LD provision, such as that
found in the EEI Firm LD Product and in the WSPP Schedule C agreement,
does not create incentives that are incompatible with the firmness of
the overall product. ``Make whole'' LDs require the seller to consider
the price of the replacement power, if it is available, to its original
buyer if the seller fails to perform under the contract. There could,
of course, be situations where the supplier is still presented with a
net financial gain and has an incentive to interrupt, but those
incentives would seem to be the same incentives faced by a designated
network resource that is a specific generating plant owned by the
network customer. In such an instance, the network customer may
determine, from time to time, that it is more economic to substitute
power from an alternate source in order to allow the originally
designated resource to either shut down or to sell its output into the
wholesale market. We find no reason to create financial incentives that
make purchased power designated as a

network resource financially ``more firm'' than owned generation.
    1455. Accordingly, we find that the inclusion of a ``make whole''
LD provision in a power purchase agreement does not disqualify that
agreement from being designated as a network resource. However, other
types of LD provisions may create incentives that are incompatible with
the firmness of a power purchase agreement. Thus, as of the effective
date of this Final Rule, power purchase agreements designated as
network resources may only contain LD provisions that are of the ``make
whole'' type. Conversely, power purchase agreements containing LD
provisions that provide penalties of a fixed amount, that are capped at
a fixed amount, or that otherwise do not require the seller to pay an
aggrieved buyer the full cost of replacing interrupted power, are not
acceptable. Any contract which contains an unacceptable LD provision,
but otherwise qualifies for designation as a network resource and has
been properly designated as a network resource prior to the effective
date of this Final Rule, will be grandfathered only until the earlier
of (1) the expiration of the current term of the power purchase
agreement or (2) an indefinite termination \868\ of the power purchase
agreement as a designated network resource pursuant to section 30.3 of
the pro forma OATT. In response to the many comments received, we
confirm that the LD provisions in both the EEI Firm LD Product and the
WSPP Schedule C agreement are acceptable.\869\
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    \868\ As discussed below, in section V.D.6.c, termination of
network resource status may either be temporary or indefinite. A
firm LD contract that does not have a ``make whole'' LD provision
and which is grandfathered here may continue to be temporarily
terminated in order to make third-party sales without jeopardizing
its eligibility to be redesignated after a third-party sale.
However, once a network resource is indefinitely terminated, it must
comport with the requirements for LD provisions, and all other
requirements for designation of network resources, before it can be
redesignated.
    \869\ As discussed below, however, we otherwise find that the
WSPP Schedule C agreement does not comply with the requirements for
designation as a network resource because it allows for interruption
for reasons other than reliability. We therefore do not need to
address requests to clarify that both the buying and selling party
to a WSPP Schedule C contract can designate network resources
associated with the contract.
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    1456. Detroit Edison argues that a seller's obligation to pay the
cost of replacement power under firm LD contracts is of no value to an
LSE that lacks deliverable alternatives. Detroit Edison appears to
assume that, as long as an LSE purchasing power had no deliverable
alternatives from which to procure power, a designated supplier would
not be liable for damages if it chose to interrupt power sales to the
buyer for reasons other than force majeure. We disagree. Detroit Edison
is addressing the fairly unusual circumstance where a power supply is
interrupted, there are no available alternatives in the market, and
firm load therefore must be interrupted. We fail to see why this
circumstance, and the difficulty of calculating damages for lost load
when it occurs, provides a reason why a particular network resource (an
LD contract) should not qualify under the pro forma OATT as a network
resource.
    1457. We also disagree with Dynegy's argument that allowing the
designation of firm LD products is inconsistent with the existing OATT
requirement that a transmission customer own, purchase or have rights
to generation. As discussed, firm LD contracts that meet the
Commission's requirements for designation do create for the buyer a
contractual right to generation and do not contain damage provisions
which make the actual incentives under such contracts incompatible with
those present in owned generation.
    1458. In response to Northwest IOUs' request, we also clarify that
the presence or absence of an LD provision does not prevent a
transmission provider from using such a resource to serve its bundled