costs to build upgrades in order to resolve a constraint in a two-month
period could raise the costs of the conditional firm service to a
prohibitive level for little additional benefit to the customer.
---------------------------------------------------------------------------

    \618\ E.g., APPA, PNM-TNMP, and Southern.
---------------------------------------------------------------------------

Commission Determination
    977. As we explain above, the Commission finds that both planning
redispatch and conditional firm point-to-point service must be offered
under certain circumstances for the provision of reliable and non-
discriminatory point-to-point transmission service. We set forth below
the parameters of this service, keeping in mind the concerns expressed
by commenters.
    978. First, the planning redispatch and conditional firm options
need only be made available to customers who request firm point-to-
point service of more than a year in duration. When the requested firm
point-to-point service is not available and the customer agrees to a
system impact study, the transmission provider must evaluate the
planning redispatch and conditional firm option at the customer's
request. If the customer requests study of the planning redispatch or
conditional firm options, the system impact study must identify the
following: (1) The system constraints, identified by transmission
facility or flowgate, causing the need for the system impact study; (2)
additional direct assignment facilities or network upgrades required to
provide the requested service; (3) redispatch options, including an
estimate of the incremental costs of redispatch and the relevant
congested transmission facilities for which redispatch will be
provided; and (4) conditional firm options, including the number of
conditional curtailment hours and the specific system conditions during
which conditional curtailment may occur. Transmission providers may
recover the costs of studying these options through the system impact
study agreement.
    979. Second, we adopt limitations on the nature of the planning
redispatch and conditional firm options to reflect the two different
types of customers that may request the service: customers who support
the construction of upgrades and those who do not.
    980. For customers supporting the construction of upgrades, the
planning redispatch or conditional firm options will serve as a bridge
until upgrades are constructed to remedy the congested transmission
facilities. For these customers, the transmission provider must offer
planning redispatch or conditional firm service until the time when the
upgrades are constructed. The conditions or redispatch applicable to
this period must be specified in the service agreement and are not
subject to change. We impose this requirement

because customers who commit to support transmission upgrades are
typically those financing and constructing new resources. These
customers require certainty both with regard to upgrade costs and,
before upgrades can be constructed, the redispatch requirements or
curtailment conditions that may apply to their service. We disagree
with Williams and BP Energy that requiring transmission providers to
offer this bridge product will present more opportunities for undue
discrimination. As we note above, available information on transmission
providers' current uses of redispatch and curtailment plans for their
retail native load indicates that the mechanisms are used for
relatively short periods of time until upgrades are completed to
resolve the transmission insufficiencies. Comparable services for long-
term point-to-point customers should therefore be similarly limited to
shorter time periods or otherwise linked to transmission upgrades.
    981. For customers choosing not to support the construction of new
facilities, the planning redispatch or conditional firm options also
must be made available as a reassessment product, i.e., subject to
certain limitations. Although many transmission providers argue that
planning redispatch and conditional firm service should be offered only
to customers who seek to upgrade the grid, we disagree. We find that
there are legitimate circumstances under which customers may not choose
to support system upgrades--either because the costs of construction
are too high or because the term of service (e.g., less than five
years) does not merit the construction of additional facilities. We
will therefore make planning redispatch and conditional firm service
available to such customers, but subject to certain limitations to
reflect the nature of the services. Specifically, we must select a
limitation on the term for the conditions that permit interruption or
redispatch, given that, for these customers, the term is not
circumscribed by the period during which upgrades are constructed. We
adopt two years as the appropriate time period to allow the
transmission provider to reassess the conditions under which planning
redispatch or conditional firm service is provided. The transmission
provider will retain the right to reassess the planning redispatch and
conditional firm option after the first two years of service, and every
two years thereafter. The transmission provider shall reassess (1) the
redispatch required to keep the service firm or (2) the conditions or
hours under which the transmission provider may conditionally curtail
the service. The customer will receive service for the requested term
unless the transmission provider determines through its biennial
reassessment that the firm point-to-point service can no longer be
reliably provided. The customer may also choose to terminate the
service at the time of reassessment if the service no longer meets it
needs.
    982. We select two years as providing a reasonable balance between
the concerns of potential customers and transmission providers. We
recognize that a shorter period would increase the reliability of
predictions, as sought by certain transmission providers, but find that
a two-year period is consistent with the bridge concept, given that two
years is often less than the typical time to construct new facilities.
While this is a shorter period than some transmission customers would
desire, customers who require greater certainty over the long-term can
obtain that certainty by agreeing to support the construction of new
facilities. In the long run, all firm transmission customers, including
conditional firm customers, should support the expansion of the grid to
reliably serve load.
    983. We decline to adopt any of the suggestions to address unique
circumstances that may arise in which upgrades are prohibitively
expensive. Specifically, we will not adopt Constellation's suggestion
that customers be able to rebut the presumption that required upgrades
are just and reasonable. In this Final Rule, we provide customers with
the option of obtaining planning redispatch or conditional firm service
for a long term, with the ability to roll over a five-year or longer
reservation, subject to a limitation that the underlying restrictions
on the service, i.e., the conditions for redispatch or curtailment, may
be reassessed by the transmission provider every two years. We believe
that this option is superior to that proposed by Constellation because
it will provide the customer with rollover rights while ensuring that
transmission providers can reliably operate their transmission systems.
Additionally, since issues of lumpy capacity are present in the
provision of transmission services generally, we will not address such
issues in this Final Rule as they do not present issues unique to
planning redispatch or conditional firm options.
    984. Contrary to the assertion of several commenters, we believe
that transmission providers would take greater risk in committing to
conditions for the entire term of a 10-year conditional option than
they take today in committing to provide unconditioned firm point-to-
point transmission service for a similar period. Planning for reliable
service for existing transmission customers is a difficult process, but
it is much more difficult to plan over an extended long-term period for
reliable service when the service is firm for most of the hours of the
year and less firm for other hours. This is because many transmission
providers use annual hourly peak load for two to 10-year planning
purposes. They would need to substantially change their planning
methods to ensure no change in service for a conditional firm customer
that is not expected to be served during the peak hour. We therefore
adopt a two year assessment window to provide an appropriate degree of
flexibility for transmission providers' planning needs.
    985. We acknowledge, however, that some commenters, such as
Bonneville and Nevada Power, state that they may be able to provide
conditional firm service over a period longer than two years, without
the need for reassessment. The Commission encourages the provision of
planning redispatch or conditional firm service for longer periods
where it is practical. In the event a transmission provider is able to
extend the assessment period, we will allow the transmission provider
to waive or extend its right to reassess the availability of the
option, provided that the waiver or extension is provided consistently
for all similarly situated service.
    986. With regard to timing of the study of planning redispatch and
conditional firm options, the Commission finds that study of both
options is appropriate in the system impact study. The obligation for
the transmission provider to study planning redispatch options in the
system impact phase is already present in the existing OATT.\619\ The
Commission clarifies in this Final Rule the specific requirements
necessary to meet this obligation. Transmission providers, when
requested by potential customers, must provide non-binding estimates of
the incremental costs of planning redispatch and identify the relevant
congested transmission facilities for which redispatch will be
provided. Transmission providers will not be required to estimate the
number of hours of redispatch that may be required to accommodate the
requested service as proposed in the NOPR. The Commission is persuaded
by commenters that such an estimate is of limited use to potential
customers and is difficult, expensive and time consuming for
transmission

providers to calculate with any accuracy.
---------------------------------------------------------------------------

    \619\ See pro forma OATT section 19.3.
---------------------------------------------------------------------------

    987. Finally, the Commission disagrees that the study of planning
redispatch options must necessarily go hand in hand with the study of
the costs and construction requirements of facility upgrades. Again,
the obligation to study planning redispatch in the system impact study
is not new. Our action in reinforcing this existing obligation cannot
violate comparability or, in itself, cause the slowing of study
processes. We have moved to a later study of conditional firm options
so that both options can be studied in tandem. Furthermore, we note
that the structure of the reassessment product requires the study of
both options at the system impact study phase, since by definition
customers opting for the reassessment product are not likely to enter
into a facilities study agreement. We acknowledge that the few changes
that we are making to the planning redispatch obligation may increase
requests for study of the option and certainly the new conditional firm
option will need more study than in the past. While we recognize the
tension between the adoption of requirements to speed study completion
and the increase in studies' complexity caused by the conditional firm
option,\620\ we will not forego a beneficial new option for customers
because of this tension. We expect that transmission providers will be
diligent in completing the system impact studies and in bringing to our
attention any difficulties in meeting deadlines caused by the study of
the two options.
---------------------------------------------------------------------------

    \620\ In section V.D.5.a, we adopt a requirement that
transmission providers post metrics on their performance in
processing system impact studies and facilities studies.
---------------------------------------------------------------------------

(B) Who Must Provide Planning Redispatch and Conditional Firm
NOPR Proposal
    988. In the NOPR, the Commission requested comment on the
applicability of these two options to transmission providers who
operate as RTOs and ISOs. The Commission also requested comment on
which resources should be required in the provision of planning
redispatch. First, the Commission proposed that the planning redispatch
requirement apply to the redispatch of the transmission provider's own
generation resources, but not to obligate transmission providers to
purchase new resources to provide the service. If a transmission
provider cannot accommodate a long-term firm point-to-point
transmission request through planning redispatch, the Commission
proposed requiring the transmission provider to identify additional
generators in other control areas that could relieve the constraint.
The Commission also requested comment on whether the planning
redispatch obligation should be expanded to require the use of network
customer resources in addition to transmission provider resources or
expanded to require that transmission providers contract to purchase
off-system resources to facilitate the planning redispatch.
(i) Application to RTOs and ISOs
Comments
    989. RTOs state that reforms regarding planning redispatch and
conditional firm services are unnecessary in RTO markets with financial
congestion management because these markets already provide sufficient
redispatch inside RTOs and sufficient interconnection service for
generators located at RTO boundaries to address the Commission's point-
to-point service concerns.\621\ Ameren and MISO add that the options
could disrupt the distribution of financial transmission rights in RTO
markets. Others disagree and argue that planning redispatch should be
used by RTOs to define the current and future operational environment
to ensure that systems are not overbuilt.\622\ AWEA contends that,
since RTOs and ISOs vary considerably in the services they offer, RTOs
and ISOs should be required to demonstrate that their services are
consistent with or superior to planning redispatch and conditional firm
services. In particular, AWEA argues that RTOs that do not provide
financial rights should be required to provide both of these services.
Exelon states on reply that the Commission has proposed minor changes
to the existing planning redispatch requirement that should not be
impractical or too burdensome for RTOs to administer.
---------------------------------------------------------------------------

    \621\ E.g., MISO, PJM, California Commission, and ISO New
England.
    \622\ E.g., AWEA, Indianapolis Power Reply, and Exelon Reply.
---------------------------------------------------------------------------

    990. In its reply comments, California Commission adds that capping
the frequency or costs of redispatch in an RTO market would
inappropriately shift the costs of congestion to others. Although SPP
has successfully used planning redispatch to facilitate short-term firm
transmission service and to address interim circumstances associated
with long-term firm transmission service,\623\ it argues that the
Commission's proposed expanded planning redispatch service would slow
its batch processing of transmission service, require significant
investment of time to evaluate the options given the scope of an RTO,
and create speculative redispatch estimates at best. SPP adds that RTOs
should simply assist the customer with identification of planning
redispatch options so that the customer can bilaterally contract with
the generation owners of its choice.
---------------------------------------------------------------------------

    \623\ Citing Attachment AC of the SPP OATT (Optimal Reservation
Processing Method for Short Term Firm Transmission Services).
---------------------------------------------------------------------------

    991. MISO adds that conditional firm is inconsistent with RTO
market mechanisms, requires burdensome changes to curtailment protocols
and reliability coordinator's procedures, and would impact every tool
used in real time for congestion management in RTOs. In its reply
comments, MISO adds that adoption of conditional firm service would
require revisions to seams agreement protocols. California Commission
states on reply that the added administrative complexity of conditional
firm service is unnecessary in the CAISO because the ISO's transmission
service model makes no distinction between firm and non-firm service
and provides prospective new customers with information to objectively
estimate curtailments. FirstEnergy and MISO express concern regarding
disruption of existing RTO communication protocols if these services
are required in RTOs.
Commission Determination
    992. Notwithstanding the requirements of section IV.C of this Final
Rule, the Commission finds that it would be inappropriate to require
RTOs and ISOs with real-time energy markets to adopt the provisions for
conditional firm point-to-point service. Customers transacting in RTOs
and ISOs are able to buy through transmission congestion in the RTOs'
real-time energy markets and need no prior reservation in order to
access transmission. Voluntary curtailment in order to access
transmission is thus not an attractive option given the range of
options available for customers transacting in RTOs and ISOs. Further,
in RTOs and ISOs with financial transmission rights, conditional firm
service may disrupt the distribution of these rights. We therefore
believe that there is no need to reform existing RTO and ISO procedures
to satisfy concerns underlying the adoption of the conditional firm
option.
    993. The Commission directs, however, RTOs and ISOs that already

provide planning redispatch pursuant to section 13.5 of the pro forma
OATT to modify the relevant provisions of their tariffs consistent with
our directives in this Final Rule.\624\ RTOs and ISOs need not amend
their tariffs if the Commission has previously found that these tariffs
were just and reasonable without the inclusion of pro forma section
13.5 planning redispatch provisions. We will not require incorporation
of the more limited planning redispatch obligations adopted in this
Final Rule if RTOs and ISOs have already been excused from the planning
redispatch obligations of the existing pro forma OATT.
---------------------------------------------------------------------------

    \624\ This includes the transmission provider's obligation to
post monthly redispatch costs for each transmission facility over
which planning and reliability redispatch are provided.

    (ii) Generation Resources Required for Planning Redispatch
Comments
    994. Most commenters agree that resources in addition to the
transmission provider's resources can and should participate in the
provision of planning redispatch. Commenters differ as to whether this
participation should be mandatory or voluntary. A few commenters
maintain that participation by resources outside the transmission
provider's control area could have adverse impacts on reliability in
the control area.\625\
---------------------------------------------------------------------------

    \625\ E.g., Ameren, PNM-TNMP, Xcel, and WAPA.
---------------------------------------------------------------------------

    995. In arguing for mandatory participation, EEI and others contend
that all generation resources owned or operated by all jurisdictional
transmission customers in the control area or balancing authority area
should be obligated to redispatch to accommodate new requests for
service in order to avoid undue discrimination.\626\ Exelon argues that
transmission providers should redispatch resources of its network
customers, subject to appropriate compensation. SPP contends that
generation affiliated with transmission owners that have transferred
functional control of their transmission assets to an RTO should not
have any greater planning redispatch obligation than unaffiliated
generation. In its reply comments, Entergy states that the Commission
at a minimum should continue to allow network customers to request that
transmission providers redispatch network customer resources in order
for the customer to designate a new network resource.
---------------------------------------------------------------------------

    \626\ E.g., Southern, FirstEnergy, MidAmerican, and Community
Power Alliance.
---------------------------------------------------------------------------

    996. Others argue for a least-cost economic dispatch to relieve
real-time system constraints, including not only the transmission
provider's own resources and those of its network customers, but also
all non-affiliated resources both within and outside its footprint that
choose to be included.\627\ EPSA explains that this redispatch would:
Require transmission providers to solicit offers from resources to
provide energy and perhaps ancillary services; be based on a resource's
offer of service and take into account generating resource and
transmission operating limits; include performance assurance terms,
unit commitment procedures, billing, compensation and bidding
protocols, confidentiality protections, and information-sharing
protocols; and dispute resolution procedures to avoid disputes rising
to the level that would require judicial or regulatory intervention.
AWEA supports Deseret's OATT provisions that require the transmission
provider to relieve constraints by the least cost means, whether by
seeking a change in generation output from the transmission provider's
merchant function or from any other feasible generator. Williams
suggests that independent generators must be allowed to participate in
the provision of planning redispatch service through submission of a
formulary rate to the transmission provider. If the Commission intends
to have non-affiliated generators participate in planning redispatch,
PPL states that the Commission should require transmission providers to
negotiate agreements with generators on their systems.
---------------------------------------------------------------------------

    \627\ E.g., AWEA, Project for Sustainable FERC Energy Policy,
Exelon, Powerex, Constellation, Williams, Sempra Global, PJM, EPSA,
and Entegra Reply. Sempra Global contends that the Commission should
require transmission providers to offer redispatch of non-affiliated
resources both within and outside its footprint, subject to pre-
existing contractual commitments.
---------------------------------------------------------------------------

    997. TranServ, MidAmerican, and Nevada Companies support a planning
redispatch service similar to that employed by the Mid-Continent Area
Power Pool, whereby customers arrange for their own redispatch through
bilateral or centralized energy markets and submit plans for approval
to their transmission provider and reliability coordinator.
    998. Several commenters discuss the need for market development in
conjunction with the planning redispatch obligation. TranServ and Xcel
state that the planning redispatch option may force transmission
providers without generation assets to develop some form of energy
market to arrive at the costs of redispatch. Southern and Progress
Energy add that forced adoption of such a market would raise
significant political opposition and be contrary to the Commission's
commitment in the NOPR to avoid such restructuring.
    999. EPSA, AWEA and PJM support such market development. When a
generator in another control area is called upon to relieve a
constraint in regions not administered by an RTO, PJM states that the
Commission must direct the development of an alternate LMP pricing
scheme to establish ``system marginal costs'' that are consistent with
transparent generator pricing in RTO markets. EPSA and PJM argue that
vertically integrated utilities in non-RTO areas should turn over
functional control of their dispatch function to a disinterested entity
or replicate the transparency by publishing generation dispatch. EPSA
suggests that the Commission require this transparency to ensure
nondiscriminatory redispatch.
    1000. A few commenters state that any requirement for the
transmission provider to purchase generation from outside the control
area to facilitate planning redispatch is functionally unworkable and
would adversely impact reliability.\628\ EEI supports the Commission's
proposal to have transmission providers identify off-system resources
that could provide planning redispatch but requests clarification that
no additional investigations or studies are required to identify these
additional options. MidAmerican adds that the coordinated, open and
transparent planning provisions of the NOPR should provide customers
with the ability to identify off-system resources. EEI and Southern
state that any redispatch on adjacent systems should be arranged by
transmission customers and the service should be curtailed prior to
other firm uses of the system if the off-system generator fails to
perform. WAPA and Bonneville argue against the use of off-system
redispatch, stating that lack of control over these resources could
cause reliability problems on the originating transmission system. WAPA
also believes that off-system redispatch would not provide the price
certainty needed by customers because the redispatched megawatts will
differ based on the transmission system parameters, and customers would
be required to pay for any loop flow resulting from the off-system
redispatch.
---------------------------------------------------------------------------

    \628\ E.g., Xcel, PNM-TNMP, and Public Power Council Reply.
---------------------------------------------------------------------------

    1001. In its reply comments, EEI adds that a requirement for
transmission providers to solicit planning redispatch

proposals from generators inside and outside their control areas would
require that transmission personnel become involved in generation and
power sales matters in violation of the Commission's Standards of
Conduct. Duke argues on reply that such an approach would require that
third party generators reveal their costs to the transmission provider
and that a means of estimating costs for all generators subject to
planning redispatch would need to be set forth in the pro forma OATT.
    1002. LPPC, APPA and TAPS oppose any requirement that transmission
providers redispatch their network customer's resources as well as
their own to provide planning redispatch, stating that this action
would appropriate resources beyond the Commission's jurisdiction,
result in endless conflict between transmission providers and resource
owners, and interfere with network customer's use of their limited
resources.
Commission Determination
    1003. Order No. 888 compelled transmission providers to provide
planning redispatch from their own resources.\629\ The Commission
declines to expand that obligation to require transmission providers to
solicit third party resources in order to provide planning redispatch.
We will, however, require transmission providers to identify in the
system impact study (1) generation resources located within the
transmission provider's control area, including its own resources, that
can relieve the congested transmission facility at issue, and (2) the
impact of each identified resource on the congested facilities, e.g.,
the generator shift factor. The resources identified in the system
impact study need not be available to provide the redispatch. Customers
must simply be provided with the set of generators that could, if
available, make a significant contribution toward relieving the
constrained facility at issue. This information, in addition to the
information provided through congestion planning studies, will provide
the necessary information to customers wishing to solicit third party
resources to relieve congested facilities in order to accommodate long-
term firm point-to-point service. We note that this information is
readily accessible by the transmission provider, as it is the same
information used to determine pro rata curtailments of firm resources
in contingency situations.
---------------------------------------------------------------------------

    \629\ See pro forma OATT section 13.5. With respect to SPP's
assertion that transmission owners' affiliated generation should
have no greater redispatch obligations than unaffiliated generation
in RTOs, we find that relevant redispatch obligations in the RTO
tariff and transmission owners' tariffs govern this issue. See
Southwest Power Pool, Inc., 110 FERC ] 61,133 at P 17 (2005)
(rejecting proposed provisions that would have removed the
obligation for transmission owners to provide planning redispatch).
---------------------------------------------------------------------------

    1004. In addition to identifying generation resources within the
control area, the Commission also requires identification of resources
outside the control area that may be able to relieve congested
transmission facilities. To the extent the transmission provider is
aware of generation resources outside of its control area that can
relieve the constraint, the transmission provider must inform the
customer of these resources. To be clear, this does not require the
transmission provider to undertake any additional investigation or
study to identify generation options located outside of the control
area. To the extent the transmission provider has such information,
however, it must provide it to the customer.
    1005. The Commission will not mandate the use of network customer
resources or other third party resources in the provision of planning
redispatch.\630\ If they choose, network customers and third parties
may voluntarily provide planning redispatch services. A seller is free
to post its price to relieve a specific congested transmission facility
and its ability to relieve the congestion. To facilitate provision of
such service by third parties, we direct transmission providers to
modify their OASIS sites to allow for posting of these third party
offers. Accordingly, we direct transmission providers to work in
conjunction with NAESB to develop this new OASIS functionality and any
necessary business practice standards. Transmission providers need not
implement this new OASIS functionality and any related business
practices until NAESB develops appropriate standards.
---------------------------------------------------------------------------

    \630\ Network customers will continue, however, to be obligated
to make their network resources available to the transmission
provider for reliability redispatch in real time.
---------------------------------------------------------------------------

    1006. Customers may then contract in advance with these third
parties or use their own resources to secure planning redispatch
services in lieu of or in addition to service from the transmission
provider. In this way, customers can arrange for their own planning
redispatch through bilateral markets and submit plans for approval to
their transmission provider and reliability coordinator. The
arrangements must, however, be sufficiently detailed and coordinated
with the transmission provider to ensure that reliability is
maintained.
    1007. We therefore direct in this Final Rule that transmission
providers work with customers to facilitate the use of third party
generation, where available, in provision of planning redispatch. This
entails review of redispatch plans submitted by customers, coordination
between the transmission provider and reliability coordinator, and
signaling third party generators when the redispatch is needed. These
arrangements will require close coordination between the transmission
provider, third party generators and transmission customers. The
arrangements must be sufficiently detailed to allow the transmission
provider to maintain reliability. Although we will not allow
transmission providers to unreasonably deny customers the use of third-
party resources to provide planning redispatch, it is the customers'
ultimate responsibility to ensure that all the necessary contractual
and technical arrangements are in place to maintain reliability. We
clarify for Entergy that this would allow transmission providers to
continue to provide planning redispatch for network customers from the
network customers' resources. We also clarify that transmission
providers may curtail transmission customers if a third-party resource
fails to perform its contractual redispatch obligation. This or any
other remedy for non-performance must be specified in writing between
the parties prior to commencement of the service.
    1008. For the reasons discussed below regarding the TDA proposal,
we decline to adopt the bid-based redispatch model suggested by EPSA.
In section V.C.1 of this Final Rule, we similarly reject proposals to
impose LMP and independent control of the dispatch function. We believe
that a bid-based generation market design is not necessary to remedy
undue discrimination in the provision of transmission service. We also
believe that our modifications to the planning redispatch requirement,
including the OASIS changes directed herein and the requirement that
transmission providers make available information on generators capable
of providing planning redispatch, will provide potential customers with
greater information about redispatch choices and enable greater
opportunities for planning redispatch and comparable service.

(C) Pricing of Planning Redispatch
NOPR Proposal
    1009. In the NOPR, the Commission sought comment on which type of
redispatch pricing would ensure effective use of the planning
redispatch option. The Commission described one type of pricing, a
formula rate, to include a MW quantity, the incremental cost of fuel at
the point of delivery, and the decremental cost of fuel at the point of
receipt capped at the price of fuel. The Commission sought further
comment on whether it would facilitate planning redispatch to base
calculations of the various costs for input into the formula on the
difference between the cost of ramping up a generator at the point of
delivery and ramping down a generator at the point of receipt. The
Commission also described a redispatch pricing proposal to calculate
redispatch charges monthly and charge the higher of actual redispatch
costs or the OATT rate each month made by PacifiCorp in response to the
NOI.
Comments
    1010. While many specific comments were received on the pricing of
planning redispatch service, there is little consensus on this subject.
Several commenters state that pricing challenges associated with
planning redispatch are difficult if not insurmountable.\631\
---------------------------------------------------------------------------

    \631\ E.g., Powerex, Manitoba Hydro, Seattle, NRECA, Ameren, and
E.ON.
---------------------------------------------------------------------------

    1011. MidAmerican and EEI argue that the current cap on planning
redispatch at the costs of upgrades should be removed because a
customer will always choose planning redispatch and the risks that
redispatch costs exceed construction costs falls to the transmission
provider and is either unrecoverable or passed on to other customers.
    1012. According to several commenters, requiring the transmission
provider to establish a standard fee for planning redispatch, either on
the overall system or on a path-by-path basis, would accomplish cost
certainty for the customer and hold the transmission provider
accountable for the accuracy of the studies used to assess redispatch
requirements.\632\ These commenters support a standardized formula-rate
for planning redispatch or a capped amount at, or close to, the
embedded cost rate. Entegra and TransAlta state that the redispatch
pricing proposal may allow transmission providers discretion to charge
redispatch costs without providing customers a practical way to verify
that claimed redispatch costs have actually been incurred. PGP states
that the Commission should allow for regional differences in planning
redispatch pricing. APPA does not support a departure from the current
redispatch pricing approach, while Seattle states that the existing
section 13.5 is unworkable because the cost of planning redispatch is
difficult to calculate for both historical and near-term operating
horizons, much less over a multi-year planning horizon.
---------------------------------------------------------------------------

    \632\ E.g., Utah Municipals, Public Power Council, PPM, Entegra,
Constellation, TransAlta and TAPS.
---------------------------------------------------------------------------

    1013. EPSA and AWEA believe that the pricing mechanisms suggested
in the NOPR would be open-ended and highly variable over the duration
of the reservation and, thus, not meet the needs of customers. EPSA and
AWEA assert that, consistent with Commission precedent,\633\ a utility
must identify and justify its costs in excess of average system costs
before service commences in a manner that meets the customer's needs to
charge a rate in excess of average system costs, i.e., some customers
may require a firm estimate upfront to obtain financing while others
may be willing to negotiate a rate based on estimates.\634\ EEI states
on reply that the policy in American Electric Power related to an
expansion cost rate, which is inapposite to redispatch costs because
the costs of new construction are easier to estimate in advance than
are the costs of planning redispatch. EEI contends that the planning
redispatch customer's interest in price certainty is not a sufficient
basis for shifting costs to other customers or to the transmission
provider.
---------------------------------------------------------------------------

    \633\ American Electric Power Service Corp, 64 FERC ] 61,279
(1993) (American Electric Power).
    \634\ Id. at 62,976.
---------------------------------------------------------------------------

    1014. EPSA and AWEA suggest that, when the cost of planning
redispatch is estimated to exceed the transmission rate, the
transmission provider should offer either: a formula rate for
incremental redispatch costs with the number of hours of redispatch,
the resources to be redispatched and the conditions under which
redispatch would occur defined in advance or, an incremental cost rate
determined at the time of the reservation to cover the reservation
period that may include a risk adder for the transmission provider.
Morgan Stanley argues that planning redispatch options should include
the following: Redispatch priced at a market index; where market prices
are not available, the price should be the incremental costs; full cost
pricing should be allowed for ``life of service'' (total dollar cost
for unlimited redispatch over the term of a contract) or fixed rate
contracts for actual redispatch agreed to at the time of contracting;
and redispatch costs provided from a third-party provider. Morgan
Stanley opposes ``higher of'' pricing that would allow for monthly
charges for redispatch costs or long-term firm transmission service
rate.
    1015. In contrast, many transmission providers and EEI ask the
Commission to allow for recovery of actual costs of redispatch, rather
than the estimated costs, with the customer obligated to pay all
costs.\635\ Since providing accurate estimates of redispatch costs and
hours are difficult, especially with respect to longer-term service
requests given the variability of fuel costs, transmission providers
contend that they should not bear the risks of inaccurate cost
estimates for a service that benefits only the point-to-point
customer.\636\ Indianapolis Power adds that planning redispatch should
be priced to discourage inefficient dispatch of generation. In its
reply comments, PPM agrees that planning redispatch is unworkable
without certainty of cost recovery for the transmission provider, but
believes that with enough information customers can evaluate the risks
and gain certainty required for a workable product.
---------------------------------------------------------------------------

    \635\ E.g., Southern, MidAmerican, Entergy, FirstEnergy, Ameren,
Nevada Companies, E.ON, and South Carolina E&G.
    \636\ E.g., EEI, Entergy, LPPC, NRECA, MidAmerican, Ameren, and
FirstEnergy.
---------------------------------------------------------------------------

    1016. Southern argues that the current pro forma OATT language
unreasonably places the risk of uncertainty in estimating redispatch
costs on the transmission provider and its native load customers,
contrary to basic cost causation principles and native load protections
in Order No. 888. Southern suggests that the Commission follow the
approach in the Deseret and SPP tariffs, which allow for the
transmission provider to recover its actual costs of redispatch. Ameren
states that a standard per kWh fee is simpler to administer, but should
be structured to recover all of the costs of planning redispatch,
including opportunity costs.
    1017. Various commenters argue that the Commission should allow the
following redispatch costs to be recovered: Fuel; variable operations
and maintenance; increased maintenance costs due to cycling; start-up
and ramp-down costs; emergency purchases; costs of additional operating
reserves; environmental costs; and lost opportunity costs.\637\
MidAmerican also argues that a transmission provider should be able to
recover the costs of

redispatch energy purchased in response to a pre-schedule by a planning
redispatch customer regardless of schedule changes by the customer and
regardless of any pro rata curtailments affecting such customers due to
system reliability.
---------------------------------------------------------------------------

    \637\ E.g., LDWP, EEI, Ameren, MidAmerican, and Southern.
---------------------------------------------------------------------------

    1018. EEI and Southern argue that customers that choose planning
redispatch should pay the cost of transmission service and the cost of
redispatch. EEI asserts that allowing recovery of both costs is not
prohibited ``and'' pricing because the services differ, as one is
provided by the transmission system and one is provided by generators,
and native load and network customers pay pro rata shares of
reliability redispatch costs to relieve constraints on the system as
well as the basic costs of transmission service. TAPS and TDU Systems
take the opposite view and state that the Commission should require
planning redispatch pricing consistent with the Commission's ``higher
of'' or ``or pricing'' policy. In addition, they state that the
redispatch charges must be capped up front at fixed dollars and hours
at or close to the embedded cost rate.
    1019. Arkansas Commission agrees with the PacifiCorp pricing method
in which redispatch costs are recalculated monthly and customers are
charged the higher of the redispatch cost rate or the monthly OATT
transmission rate. TAPS states that this method avoids ``and'' pricing,
but does not address the complexity or risks associated with
determining redispatch costs over a long period. APPA argues that the
PacifiCorp proposal, if applied after the fact, could lead to
uncertainty and disruption of market transactions. Southern opposes any
pricing method that caps the total costs that a planning redispatch
customer would bear, including the PacifiCorp proposal, stating that
caps allow the planning redispatch customer to shift costs to the
transmission provider and its native load customers.
    1020. E.ON points to an inherent problem in planning redispatch
pricing: Transmission providers should be kept whole with regard to
actual real-time redispatch costs but customers may not know until
after the fact that the planning redispatch was not economic for their
purposes. E.ON foresees difficulty in allocating redispatch costs among
multiple planning redispatch service customers and requests that the
Commission adopt a specific methodology for calculating each request's
impact on the system.
Commission Determination
    1021. Although there is no consensus regarding which form of
pricing methodology is most appropriate for planning redispatch
service, there is general agreement among the commenters that the
current pricing rules fail to meet the needs of either customers or
transmission providers and consequently fail to make planning
redispatch an attractive means for customers to obtain access to the
grid. Transmission providers and customers both express concern
regarding the variability of redispatch costs. Customers worry that
actual redispatch costs may greatly exceed estimates and thus seek cost
certainty over the term of the service. Conversely, transmission
providers claim that accurately estimating future redispatch costs for
long duration service is extremely difficult. In fact, transmission
providers state that the uncertainty in forecasting long-term
redispatch costs is much greater than any uncertainty inherent in
determining the costs of transmission upgrades.
    1022. The Commission has carefully considered these comments and
agrees that the current method for pricing planning redispatch service
is no longer just, reasonable or not unduly discriminatory. The
Commission takes three principal actions to address the concerns of
customers and transmission providers.
    1023. The Commission therefore adopts a new pricing method for
planning redispatch service. We will no longer require the capping of
redispatch costs over the term of the service at the costs of
expansion. This change is inextricably linked with the change in the
obligation to provide planning redispatch, i.e., the removal of the
open-ended requirement to provide planning redispatch as long as it is
more economical than transmission upgrades. We have shortened the
planning redispatch obligation to apply before upgrades are built as a
bridge product or to apply as part of a reassessment product. In prior
cases, the Commission expressed the view that capping cost recovery for
long-term transmission service at the costs of expanding the
transmission system provides an incentive for transmission providers to
undertake expansion when it is warranted.\638\ The expansion cost cap
should not be applied to the bridge product because (1) upgrades will
in fact be constructed and should be paid for by the customer under the
``higher of'' policy, and (2) an expansion cost cap does not serve as
an incentive for expansion because the transmission provider already
will have started the process of building transmission facilities for
the customer who opts for the bridge product. If planning redispatch is
provided as part of a reassessment product, the customer has chosen not
to pay for upgrades and thus, the expansion cost cap cannot provide an
incentive for transmission expansion.
---------------------------------------------------------------------------

    \638\ See, e.g., Florida Power & Light Co., 70 FERC ] 61,158 at
61,484 (1995).
---------------------------------------------------------------------------

    1024. We will therefore adopt a new pricing methodology. We believe
that the PacifiCorp proposal described in the NOPR is the one that
balances the competing concerns of transmission customers and
transmission providers. Under this pricing methodology, customers will
have the option of paying (1) the higher of (a) actual incremental
costs of redispatch or (b) the applicable embedded cost transmission
rate on file with the Commission or (2) a fixed rate for redispatch to
be negotiated by the transmission provider and customer and subject to
a cap representing the total fixed and variable costs of the resources
expected to provide the service. If the customer selects the higher of
incremental cost or the embedded-cost rate, the transmission provider
shall calculate the costs of redispatch monthly and charge the higher
of redispatch or the embedded cost rate each month.
    1025. We have selected a monthly comparison of embedded costs and
redispatch costs on the basis of a number of factors. The Commission
has rejected basing the comparison on the life of a long-term firm
transmission contract.\639\ For administrative efficiency, a
transmission provider should be allowed to close its books and not be
subject to possible refunds or surcharges at the end of its billing
cycle. The standard billing cycle in the industry is one month.
Allowing transmission providers to finalize accounting entries will
provide certainty to both the transmission provider with regard to
revenue recovery and to the transmission customer with regard to cost
exposure. We therefore find that a monthly comparison of embedded and
incremental cost is appropriate. This method retains ``higher of''
pricing for customers, but does not subject transmission providers to
open-ended liability for refunds and otherwise should make planning
redispatch service more attractive for transmission providers to
provide. Further, given that redispatch often occurs only in selected
time periods within a year (e.g., during

the peak season, shoulder months, etc.), it is just and reasonable to
allow the transmission provider to perform the higher of calculation in
each month when the service is provided, not spread those costs over
the entire year.
---------------------------------------------------------------------------

    \639\ Id. at 61,483.
---------------------------------------------------------------------------

    1026. For purposes of calculating planning redispatch charges,
incremental costs shall include fuel or purchase power costs caused by
ramping up generator(s) at the point of delivery and ramping down
generator(s) at the point of receipt. Additionally, where applicable,
transmission providers may specify in customer service agreements other
incremental costs for inclusion in the monthly actual incremental
costs, including opportunity costs. Identification and derivation of
these costs must be included in the service agreement. We reiterate our
existing requirement that all information necessary to calculate and
verify opportunity costs must be made available to the transmission
customer.\640\ We clarify that the actual costs of redispatch need not
be determined annually or at the time that the service agreement is
executed; rather, actual redispatch cost should be determined on a
monthly basis.
---------------------------------------------------------------------------

    \640\ See Order No. 888 at 31,740.
---------------------------------------------------------------------------

    1027. With respect to MidAmerican's request to be able to recover
the purchase power costs for a customer requiring planning redispatch,
we reiterate that transmission providers are under no obligation to
purchase power to provide planning redispatch services. Should the
transmission provider take on the obligation to contract with a third
party to provide planning redispatch at the customer's request,
however, the customer should be obligated to pay the purchase power
costs, including any reservation charge for the power. The flow-through
of purchase power costs must be negotiated between customers and
transmission providers in a stand-alone agreement if the transmission
provider agrees to make purchases on the customer's behalf.
    1028. The Commission will not adopt proposals suggested by several
transmission providers to allow for recovery of the embedded cost
transmission rate and the full costs of redispatch. The Commission's
``higher of'' pricing policy prohibits the transmission provider from
charging both embedded costs and incremental costs such as redispatch
costs.\641\ We reject EEI's assertion that we should adopt such pricing
because native load and network customers pay a load ratio share of
redispatch costs and the embedded cost transmission rate. Planning
redispatch differs from the reliability redispatch for which
transmission providers are only obligated to provide network customers
with ability to avoid real-time curtailments. Rather, planning
redispatch is a means of creating additional transmission
capacity,\642\ not a generation service, and thus planning redispatch
is appropriately priced by applying the Commission's ``or'' pricing
policy. We decline to revisit that longstanding policy in this
rulemaking.
---------------------------------------------------------------------------

    \641\ See Pennsylvania Electric Company, 58 FERC ] 61,278,
62,871-75, reh'g denied, 60 FERC ] 61,034 (1992), aff'd sub nom.
Pennsylvania Electric Co. v. FERC, 11 F.3d 207 (D.C. Cir. 1993); see
also Entergy Services, Inc., 71 FERC ] 61,139, 61,452 (1995)
(regarding the pricing of redispatch service, the Commission stated
``[i]t is a well-settled matter that the Commission will not
authorize ``and'' pricing, i.e., embedded cost pricing plus
opportunity (incremental) cost pricing.'').
    \642\ Order No. 888A at 30,267.
---------------------------------------------------------------------------

    1029. With respect to concerns that the expansion cost cap was
adopted to provide rate certainty to customers over the term of the
service,\643\ we believe that the modified pricing policy adopted here
will continue to provide appropriate certainty to customers, while also
allowing transmission providers to recover just and reasonable costs.
For customers purchasing the bridge product, the cost of redispatch
will be incurred only during the initial term of the service agreement
while new facilities are being constructed. During this term, the cost
of redispatch service represents a legitimate cost of providing the
service and therefore should be fully recoverable under the higher of
policy. Although it is true that redispatch costs are difficult to
project, and hence create uncertainty for customers, this does not mean
that the transmission provider should not be allowed to recover the
legitimate and verifiable costs of providing the service. Moreover, if
the customer desires greater certainty regarding redispatch costs
during this period, it can elect the fixed rate option discussed above
and negotiate a fixed redispatch charge with the transmission provider.
Once upgrades are constructed, however, the customer will receive the
certainty of paying a fixed rate for transmission costs and,
importantly, any expansion cost will be fixed at the time the initial
service agreement is signed. Finally, for customers who do not select
the bridge product because they do not want to fund upgrades, it would
be unreasonable to cap the cost of redispatch at the cost of upgrades.
In such an instance, the customer has elected to forego the price
certainty that can be gained by funding the upgrades to remove the
constraint that is causing the transmission provider to incur
redispatch costs.
---------------------------------------------------------------------------

    \643\ Florida Power & Light Co., 70 FERC ] 61,158 at 61,483
(1995).
---------------------------------------------------------------------------

(D) Standards of Conduct and Planning Redispatch
NOPR Proposal
    1030. In the NOPR, the Commission requested comment on the
interaction of planning redispatch requirements with the Commission's
Standards of Conduct.
Comments
    1031. Commenters generally argue that the independent functioning
requirement and the information sharing prohibitions under the
Standards of Conduct are irreconcilable with the expanded planning
redispatch proposal in the NOPR.\644\ Southern, TranServ and Progress
Energy contend that the planning redispatch option would require close
coordination and communication with market participants including the
marketing or energy affiliate, which may create confidentiality and
Standards of Conduct problems. For instance, they state that close
coordination and sharing of non-public transmission and customer
information would be required to determine the generating units that
can be redispatched, the impact that planned and forced outages of
redispatched generators will have on the availability of transmission
service and the transmission line loadings, and the costs of
redispatch. Some commenters request that the Commission adopt an
exception to the Standards of Conduct to permit communication between
transmission providers and marketing and energy affiliates, acting as
generation operators, for the transmission provider to instruct the
generation operator to vary its generator's output.\645\
---------------------------------------------------------------------------

    \644\ E.g., Nevada Companies, Community Power Alliance, Progress
Energy, LPPC, Southern, WAPA, and APPA.
    \645\ E.g., E.ON, Ameren, and APPA.
---------------------------------------------------------------------------

    1032. MidAmerican suggests that it is unlikely that any
communication protocols could be established that would both comply
with the Commission's current Standards of Conduct and permit a
transmission provider to coordinate with its marketing affiliate
employees to arrange planning redispatch. Rather, MidAmerican argues
that the transmission customer would have to waive the Standards of
Conduct to enable the transmission function employees to share the
necessary information with their marketing affiliate counterparts.

    1033. Other commenters argue that violations of the Standards of
Conduct can be avoided by various means. PPM suggests that publication
of redispatch costs similar to ancillary service costs and elimination
of case-by-case sharing of information between the transmission
provider and the generation operators would avoid Standards of Conduct
issues. MidAmerican states that sole reliance upon bilateral agreements
with third parties to provide planning redispatch would resolve the
need to modify the Standards of Conduct. In their reply comments, Utah
Municipals state that they do not believe the Standards of Conduct pose
a barrier to provision of planning redispatch since transmission
providers redispatch to serve their own loads currently, but that if so
the Commission should make small modifications to the standards.
Commission Determination
    1034. The Commission does not believe that any changes to its
Standards of Conduct are required for transmission providers to
implement the planning redispatch provisions adopted in this Final
Rule. The information at issue, e.g., generation redispatch cost, is
held by the marketing affiliate and there is no prohibition under our
Standards of Conduct on the marketing affiliate transferring such
information to the transmission provider. The information sharing
prohibitions under the Standards of Conduct are ``one way,'' i.e., they
restrict only communications of non-public transmission information
from the transmission provider to the marketing affiliate, not vice
versa. Therefore, the flow of information from marketing affiliates to
transmission providers relating to the costs and availability of
generation resources for planning redispatch is not prohibited under
the Commission's Standards of Conduct.\646\
---------------------------------------------------------------------------

    \646\ 18 CFR 358.5.
---------------------------------------------------------------------------

    1035. We next turn to the flow of information from the transmission
provider to the marketing affiliate. Initially, in order for
transmission providers to evaluate planning redispatch options, they
must identify the impacted transmission facilities, e.g., flowgates,
and determine the marketing affiliate's generators that could provide
redispatch over those facilities. Transmission providers already have
this information to enable them to provide least cost reliability
redispatch. However, transmission providers need not provide
information regarding the impacted transmission facilities to its
marketing affiliates. Rather, in order for transmission providers to
evaluate the future availability of redispatch and estimate the costs
of redispatch, they need only tell the marketing affiliate which of its
generators would be suitable for redispatch, thus identifying those
that require study. This sharing of information relating to the
marketing affiliate's generation is not prohibited by the Commission's
Standards of Conduct.
    1036. In addition, the transmission provider may also need to
provide its marketing affiliate with transmission-related information
from the transmission customer's service request, such as service
quantity and term, to determine the required duration and amount of the
redispatch required. We find that such information provided from the
transmission provider to the marketing affiliate is not a prohibited
transfer of non-public information because such details of the
transmission customer's service request are available via OASIS. The
only customer transmission request information not readily available
via OASIS is the source and sink information.\647\ We see no need for
the transmission provider to provide such masked source and sink
transmission information to its marketing affiliate as part of this
redispatch evaluation process. We do not believe that any further
information need be provided by the transmission provider to their
marketing affiliates to evaluate the generators available for planning
redispatch and their costs. Accordingly, we find there is no need to
create an exception to the Standards of Conduct for the sharing of this
generation-related information and publicly available transmission
customer request information.
---------------------------------------------------------------------------

    \647\ See Open-Access Same-Time Information System and Standards
of Conduct, 83 FERC ] 61,360 at 62,456 (1998), reh'g denied, 86 FERC
] 61,139, reh'g denied, 87 FERC ] 61,382 (1999).
---------------------------------------------------------------------------

(E) Attributes of Conditional Firm
NOPR Proposal
    1037. In the NOPR, the Commission described conditional firm
service as a modified form of point-to-point service that includes non-
firm service in a defined number of hours of the year when firm point-
to-point service is not available. The Commission proposed that the
conditional firm service agreement would identify the conditional
curtailment hours and include an annual or monthly cap on those hours.
The Commission further proposed that conditional firm service would be
curtailed before firm uses until such times as the conditional
curtailment hours were exceeded, after which time the service would be
treated as firm. The curtailment priority during the conditional period
was proposed as the same as secondary network service. The Commission
proposed that customers using the conditional firm option would pay the
long-term firm point-to-point rate. The Commission also proposed that
conditional firm service qualify for rollover rights, provided that it
meets the other rollover right conditions proposed in the Final Rule.
(i) General Terms and Conditions
Comments
    1038. Most commenters support pricing conditional firm service at
the long-term firm OATT rate and no commenter suggested a different
pricing method. Nevada Companies and Bonneville state that the customer
seeking conditional firm service should pay the actual costs of the
study required to provide the number of conditional curtailment hours.
    1039. EPSA and AWEA support the following components of the
Commission's conditional firm proposal: Conditional firm is available
only to customers that first request long-term service; it would
provide a year round, long-term product that is firm during all hours
of the year except at well-defined periods when the transmission
provider is unable to provide the service; and, in all hours that are
not conditional, conditional firm service would be treated as any other
firm service with the same curtailment priority as long-term firm
network and point-to-point rights.
    1040. EEI proposes that conditional firm service be firm in periods
when firm service is available according to ATC calculations and non-
firm, with a monthly non-firm curtailment priority, for periods when
firm ATC is not available. CREPC, Exelon and MidAmerican argue that the
Commission should not require conditional firm service until all
attributes of the service are clearly defined and key implementation
issues are resolved, including modification of NAESB and NERC
processes. NAESB states that the Commission can reduce the amount of
time required to develop OASIS and transmission loading relief
protocols by clearly defining the conditional firm service.
    1041. In its supplemental comments, EEI states that the Commission
should not require all transmission providers to adopt terms and
conditions for conditional firm service that are only workable for some
systems, e.g., transmission providers in the Western Interconnection
using the rated path

methodology compared to many in the Eastern Interconnection using a
flow-based methodology; rather, the Commission should allow flexibility
in the offer of conditional firm service so that transmission providers
are not foreclosed from offering the service.
    1042. Several commenters state that transmission providers and
customers collectively should design the conditional firm service that
best accommodates their respective needs.\648\ In supplemental
comments, Bonneville states that the transmission provider, not the
customer, must determine the conditions to offer in response to a given
request. Bonneville also requests that the Commission clarify that
there would be no separate queue for conditional firm service.
---------------------------------------------------------------------------

    \648\ E.g., LPPC Supplemental, PPL Supplemental, Williams
Supplemental, Community Power Alliance Supplemental, Entergy
Supplemental, and Southern Supplemental.
---------------------------------------------------------------------------

Commission Determination
    1043. The Commission adopts the conditional firm option as a
modified form of long-term firm point-to-point service that includes
less-than-firm service in a defined number of hours of the year or
during defined system conditions when firm point-to-point service is
not available. The service can be curtailed solely for reliability
reasons during the defined system conditions or defined number of
hours. We reject EEI's suggestion to use a monthly non-firm curtailment
because it would allow for curtailment of the conditional service for
economic reasons.
    1044. In this Final Rule, we define the minimum attributes of the
conditional firm option rather than allow individual transmission
providers to develop any form of service that could conceivably be
labeled conditional firm service. The Commission has been considering a
conditional firm product and has been discussing it with the industry
for some time. In early 2005, the Commission held a technical workshop
to:

    Work with market participants to develop clear definitions for
additional wholesale electric transmission services, e.g.,
conditional firm transmission service, develop applicable pro forma
tariff language that could be included in public utilities' open
access transmission tariffs and address attendant issues.\649\

    \649\ Potential New Wholesale Transmission Services, Notice of
Final Agenda for Technical Workshop, 70 FR 12865 (Mar. 16, 2005).
---------------------------------------------------------------------------

    Although commenters in that proceeding stated that the Commission
need not require new services in transmission providers' OATTs because
they would be voluntarily developed,\650\ no individual transmission
provider developed new services in response to the workshop. In fact,
seemingly, only one transmission provider in the Eastern or Western
Interconnection offers a service that is similar to the conditional
firm service adopted in this Final Rule.\651\
---------------------------------------------------------------------------

    \650\ E.g., Bonneville Workshop Comments at 1-2 (April 13, 2005)
(stating that Bonneville believes the result of the workshop ``will
be the development of one or more new transmission products.''),
TAPS Workshop Comments at 2 (April 13, 2005) (suggesting that the
Commission should invite and consider proposals by individual
utilities rather than act by rulemaking).
    \651\ In the NOPR, the Commission noted PacifiCorp's 2002
modifications to partial interim service. See NOPR at P 319 n.298.
PacifiCorp's service is similar to that proposed by EEI with the
exception that customers are charged a pro rated long-term firm
rate.
---------------------------------------------------------------------------

    1045. Since the issuance of the NOPR, the Commission has provided
the industry with three formal opportunities to provide comments on
implementation of the conditional firm option. The Commission held a
technical conference on implementation issues after issuance of the
NOPR and held many informal technical discussions with industry
representatives. We have taken these steps in order to make the most
reasoned decision concerning the minimum attributes of the conditional
firm option. These conferences and workshops have been helpful and have
informed our decision on the minimum attributes of conditional firm
service. As noted herein, although we are establishing certain minimum
attributes, we also allow for some measure of flexibility in provision
of the service. We will not, however, approve conditional firm as a
concept only. Given our past experience, this would provide little
benefit to customers seeking to use the service and no certainty to
transmission providers seeking to comply with our regulations.
    1046. Further, as discussed in more detail below, we disagree that
NERC must modify its processes in order to allow transmission providers
to implement this product. However, we will allow for a sufficient
period of time for development of business practices and tracking
mechanisms to implement the product. We recognize that there may be
some regional variation in the way transmission providers approach the
provision of conditional firm service beyond the minimum attributes
that we establish in this Final Rule. Thus, we do not direct that
transmission providers work with NAESB to develop business practices
for implementation of the conditional firm service. Rather, we direct
transmission providers located in the same region to coordinate such
development among themselves. We also encourage participation of non-
public utility transmission providers in the region and interested
transmission customers in the development of these business practices.
Public utility transmission providers should make efforts to include
these interested parties in their regional coordination efforts. We
direct transmission providers to implement these mechanisms and
business practices within 180 days after the publication of this Final
Rule in the Federal Register.
    1047. The Commission adopts the proposal in the NOPR that customers
using the conditional firm service pay the long-term firm point-to-
point rate. We will not allow complete flexibility in defining the
conditional firm option as suggested by EEI because such an option
could provide a substantially lower quality service for which
transmission providers would be able to recover the long-term firm
rate. We also reject EEI's proposal that the service be a mix of firm
and non-firm periods. We envision the conditional firm option as one in
which firm service is available most of the period of a year. EEI seems
concerned about tailoring the product to situations where congestion is
so acute that the ``conditions'' require frequent interruptions. We do
not believe this concern is well founded. Because a conditional firm
customer is obligated to pay the long-term firm point-to-point rate, we
assume that few, if any, customers would accept the service in
circumstances where the interruptions (or ``conditions'') are so
frequent or pervasive to make the service unattractive.
    1048. Finally, we clarify for Bonneville that customers seeking the
conditional firm option must first request long-term firm service. When
ATC is unavailable, the transmission provider must study the
conditional firm option at the customer's request. There is no separate
queue for the conditional firm option.
(ii) Specified System Conditions and Conditional Hours
Comments
    1049. Several transmission providers state that they cannot
accurately predict the conditional curtailment hours because there are
too many variables to consider and ATC analysis does not provide this
level of granularity.\652\ These commenters contend that load flow
modeling for a wide range of

possible system conditions required to estimate the conditional
curtailment hours would be complex, time-consuming and costly. Given
this concern, Southern, PNM-TNMP, and MidAmerican state that any
conditional firm service should be subject to a ``reasonable efforts''
standard and not represent a guarantee of service or a binding estimate
of conditional curtailment hours from the transmission provider.
Progress Energy states that it would be difficult to determine a
specific number of hours that firm service is available, given that the
industry uses seasonal models. Ameren states that the conditional
curtailment hours should be spelled out in the transmission service
agreement.
---------------------------------------------------------------------------

    \652\ E.g., Imperial, Duke, Progress Energy, MidAmerican, PNM-
TNMP, Southern, and EEI.
---------------------------------------------------------------------------

    1050. Several commenters state that the transmission provider
should provide customers a choice between defined system conditions and
conditional curtailment hours.\653\ In supplemental comments, EPSA and
AWEA state that neither option should be arbitrarily excluded; rather,
they argue that transmission providers should consult with each
customer in determining the defined conditions that could form the
basis of the conditional firm service. EPSA and AWEA propose that
conditional firm should be firm during all hours of the year except in
those hours in which a defined contingency occurs, and the transmission
provider is actually unable to provide service. EPSA and AWEA also
propose that the system impact study should describe the reliability
contingency and the transmission service agreement should clearly
define the contingency.
---------------------------------------------------------------------------

    \653\ E.g., Barrick Supplemental, Bonneville Supplemental, BP
Energy Supplemental, and EPSA and AWEA Supplemental.
---------------------------------------------------------------------------

    1051. EPSA and AWEA state that conditional firm should only be
curtailed after all non-firm services are curtailed on the same
constrained path during the period of the defined contingency. Finally,
AWEA and EPSA state that transmission providers must maintain the
committed capacity subject to the defined contingency only, reflect
capacity commitments for conditional firm service in their ATC
calculations, and be prevented from further curtailing conditional firm
service due to load growth after the execution of the initial service
agreement.
    1052. AWEA proposes that if a service agreement specifies
conditional curtailment hours, the transmission provider must provide
firm service except in the curtailable hours defined in the service
agreement and the service must be treated as firm unless the
transmission provider is actually required to curtail transactions to
meet reliability requirements and all non-firm transactions have been
curtailed. Once the transmission provider has reached the annual cap on
curtailable hours, AWEA argues the customer's service should convert to
traditional firm service for the remainder of that annual period.
    1053. Utah Municipals reply that transmission providers should be
bound by their calculations of the availability of firm service, even
if the firm service is not available year-round.
    1054. FirstEnergy and Nevada Companies state that monthly caps, as
opposed to annual caps of curtailment hours, would be preferable
because they provide more information to the customer and are more
appropriate for transmission systems with mostly seasonal constraints.
According to Nevada Companies, a curtailment based upon the maximum
number of hours per year, without taking into account the specific
times or conditions for those curtailments, would be unworkable in the
context of a seasonal peak system, such as exists with Nevada
Companies.
    1055. Several commenters support a variation on conditional firm
service that would allow a transmission provider to specify either the
transmission facilities/elements that may become constrained or the
operating conditions that will result in curtailments of a particular
conditional firm service.\654\ Many of these commenters propose a
defined system condition as the trigger for non-firm curtailment of the
service rather than the use of conditional curtailment hours.\655\
Entergy and LPPC propose that such curtailments have the same priority
as secondary network service. Entergy contends that this service would
be superior to the conditional firm service described in the NOPR
because it would be more comparable with the service transmission
providers make available to network customers and would minimize the
risk to other customers who might otherwise bear the cost of inaccurate
conditional curtailment hours, as well as disputes between the
transmission provider and the transmission customer regarding the
number of conditional curtailment hours. Seattle and Santee Cooper
suggest that defining the limitations on the service based on operating
conditions, with non-binding estimates of hours of curtailment, would
lead to more effective and reliable operation of the transmission
system that is consistent with regional requirements.
---------------------------------------------------------------------------

    \654\ E.g., AWEA, EPSA, Project for Sustainable FERC Energy
Policy, Santee Cooper, Seattle, Entergy, and LPPC.
    \655\ E.g., Santee Cooper, Seattle, Entergy, LPPC, and Nevada
Supplemental.
---------------------------------------------------------------------------

    1056. In supplemental comments, Bonneville asserts that the
transmission provider should have the option of offering conditional
curtailment hours or specified system conditions in order that the
transmission provider can make a prudent choice based on available
historical system data.
    1057. In supplemental comments, TAPS argues that conditional firm
service should be limited to 100 hours per year of conditional
curtailment, subject to curtailment on the same basis as firm service
beyond those hours, and made available to and integrated with network
customers. In TAPS view, this would result in a more efficient use of
the grid, provide customers sufficient certainty to sign long-term
power purchase contracts and promote transmission construction. TAPS
also believes that the customer should have the option of expressing
the curtailment restriction on the basis of specified system conditions
in the 100-hour range.
    1058. In its supplemental comments, Entergy suggests that the
Commission allow more flexibility between the contracting parties to
identify the conditional nature of the service, i.e., the Commission
should not prescribe parameters of the conditional period that may
ignore real-time conditions on the transmission provider's system that
require a curtailment.
    1059. EEI, Duke, and PNM-TNMP object, in their supplemental
comments, to specifying system conditions or the maximum number of
curtailment hours per year, stating that requiring either would be
incompatible with current curtailment procedures and unfairly shift
risks of curtailment to other firm customers. EEI, Progress Energy and
Duke argue that the service should be curtailable during a particular
season, month or other defined period to provide more certainty to the
transmission customer and the transmission provider as to when the
service is subject to curtailment.
    1060. With regard to modeling methods for estimating the
conditional curtailment hours, EEI asks the Commission not to require
the transmission provider to use a specific methodology to evaluate
whether it can provide conditional firm service. Bonneville argues that
transmission providers need flexibility to modify their ATC
methodologies to appropriately model the new service and avoid planning
obligations to firm

up the conditional curtailment hours of a conditional firm reservation.
Nevada Companies suggest that the transmission provider use the
appropriate seasonal operating case with updated projections to
determine the amount of requested service that can be provided without
violating reliability criteria.
    1061. Ameren argues that when a transmission provider models system
contingency events, the events are not interchangeable with a number of
hours. According to Ameren, the two measurements will produce different
impacts for the transmission system, and the transmission provider
should not be required to make both options available at the customer's
option. LPPC and Public Power Council state that transmission providers
should not be required to limit the number of curtailments on a monthly
or yearly basis because of the inherent unpredictability of future
transmission constraints. APPA states that using curtailment based on a
specified number of hours will cause the transmission provider to
overestimate the number of curtailment hours.
    1062. NRECA believes that the Commission should allow for regional
flexibility in the determination of the parameters of the service and
transmission providers should have maximum flexibility to set
conditions that use conservative assumptions (e.g., based on the driest
weeks of the year, summer or winter peak period constraints). NRECA
believes such service should be conditioned on operating conditions as
well as with reference to a number of times of interruption. In
contrast, MISO supports the election of a consistent method of
curtailment applied to all customers, in order to make the service
easier to implement.
    1063. Powerex states that conditional firm service should be
offered only on paths where curtailment to existing long-term customers
is not expected to occur.
Commission Determination
    1064. The Commission requires that, when conducting the system
impact study for the conditional firm option, the transmission provider
shall identify: (1) The specific system condition(s) when conditional
curtailment may apply; and (2) the annual number of hours when
conditional curtailment may apply. A customer must select either
conditions or hours for incorporation into its conditional firm service
agreement.
    1065. We require the offer of specific system conditions during
which conditional curtailment may apply for several reasons. Specified
system conditions give certainty to the customer that it will only be
conditionally curtailed when forecasted reliability problems actually
occur. Transmission providers benefit from this option because they can
point to specific constraints on their system and implement a
curtailment plan when those transmission elements are constrained.
Additionally, designation of specific system conditions may allow for a
better fit of the conditional firm service to a specific transmission
provider's system. Consider the example of firm service that is not
available on a specific system because a transmission line is taken out
of service for maintenance about two weeks a year. The designation of
this line as the specific condition for conditional firm service would
allow the transmission provider to provide firm service without having
to worry if the maintenance on the line takes an extra week. The
conditional firm customer has fewer concerns about undue discrimination
by the transmission provider and could benefit from maintenance on the
line that was finished one week early. Additionally, we note that many
commenters representing transmission providers and customers support
this approach.
    1066. We will require specificity of system conditions. Acceptable
system conditions include, but are not limited to, designation of
limiting transmission elements, such as a transmission line, substation
or flowgate. We do not believe, however, that designation of system
load levels, standing alone, would qualify as an acceptable system
condition. Rather, load levels would have to be linked to a specific
constraint or transmission element that is associated with the request
for service, e.g., load levels in a constrained load pocket. Otherwise,
the system load level would not be specific to the part of the system
over which service is requested and, hence, have no necessary relation
to the problems, if any, created by the service being requested.
Furthermore, because most system loads experience load growth every
year, conditional curtailments would necessarily increase over a multi-
year conditional firm service term.
    1067. We recognize that modeling of the conditional curtailment
hours entails difficulties beyond those encountered in modeling ATC. To
address these difficulties we are allowing flexibility in determining
the number of hours. We clarify that we will not require a standardized
method of modeling the conditional curtailment hours. We also note that
the Commission's examination of modeling methods in the NOPR was not
meant to propose one method over another; rather, it was meant to
examine possible ways to determine a number of conditional curtailment
hours to encourage dialog on the issue. Additionally, we will allow
transmission providers to add a risk factor to their calculation of
annual curtailment hours to account for forecasting risks. Further, we
note that our adoption of the conditional bridge and reassessment
products, detailed above, address modeling difficulties by limiting the
number of years that a transmission provider must model in determining
both the number of hours and future system conditions. Moreover, we
clarify that if the customer selects the annual hourly cap option, the
transmission provider has the flexibility to conditionally curtail the
customer for any reliability reason during those hours, including but
not limited to, the system condition(s) identified in the system impact
study. Without this flexibility the hourly cap option and the specific
system condition option would be indistinguishable with a cap on the
number of hours that the system conditions interruption could occur.
    1068. We will require annual caps on the number of hours because
calculating an annual cap entails less risk for the transmission
provider and its existing firm customers than monthly or seasonal caps.
While we will not require monthly or seasonal caps, we encourage
transmission providers to offer them if they can overcome modeling
barriers because monthly or seasonal caps give more certainty to
customers about the particular aspects of their service. Though we
allow for flexibility in modeling and determining the number of
conditional curtailment hours for a particular service request, we
believe that this will have a minimal impact on conditional firm
customers. Transmission providers will be allowed to curtail only for
reliability purposes and conditional firm customers during conditional
curtailment hours will be curtailed only after all point-to-point non-
firm customers have been curtailed.
(iii) Conditional Curtailment Priority
Comments
    1069. Some commenters agree with the Commission's proposal that
conditional firm service should have secondary network curtailment
priority during conditional curtailment hours,\656\ while others
disagree. Bonneville supports the use of the secondary

network curtailment priority arguing that customers will value the
service more with the secondary network priority, thus increasing the
viability of conditional firm service as an alternative to transmission
upgrades. EPSA and AWEA argue that conditional firm service during
conditional curtailment hours should be curtailed after all non-firm
uses. In their reply comments, TDU Systems oppose EPSA and AWEA's
position, arguing that secondary network service should have at least
as high a priority as conditional firm service. In contrast, EEI argues
that setting the curtailment priority equal to secondary network
service would adversely impact the reliability of firm service by
reducing real-time redispatch options and contradict Order No. 888
precedent that provides priority non-firm service only for network
customers that pay a load ratio share of system costs.\657\ If
conditional firm service is implemented, Powerex states that
transmission providers should provide data and evidence demonstrating
that the rights of existing long-term firm customers will be protected.
EEI takes issue with the Commission's proposal to grant conditional
firm customers priority non-firm service during conditional curtailment
hours because they would pay for long-term use of the grid, stating
that all long-term point-to-point customers pay for service on a long-
term basis but, unlike network customers, they do not get priority non-
firm service.
---------------------------------------------------------------------------

    \656\ E.g., Bonneville, AWEA Reply, and EPSA Reply.
    \657\ Citing Order No. 888 at 31,750.
---------------------------------------------------------------------------

    1070. Commenters address implementation issues related to the
Commission's right of first refusal, tagging, tracking, and curtailment
priority proposals, as well as other implementation issues implicated
in the conditional firm service. Manitoba Hydro, Bonneville and Seattle
support the Commission's proposal that conditional firm service would
qualify for right of first refusal when firm service becomes available.
Several commenters believe that the Commission's proposal with regard
to right of first refusal should be refined to allow automatic
assignment to conditional firm customers of firm capacity as it becomes
available in the short term.\658\ Bonneville asserts that prior to
implementation of the new service the industry must work with NAESB to
develop a communications protocol to either employ automatic assignment
or right of first refusal.
---------------------------------------------------------------------------

    \658\ E.g., EEI, EPSA, TranServ, Bonneville, Constellation and
Seattle Reply.
---------------------------------------------------------------------------

    1071. Entergy and Exelon state that the standards for implementing
transmission loading relief, including the NERC's Interchange
Distribution Calculator (IDC), would need modification to allow for
curtailment. Specifically, Entergy contends that the Commission should
allow time for the IDC to be modified to specify a different
curtailment priority for the same transaction depending on the identity
of the constraining element. Imperial states that it may take over a
year to develop computer software to correctly handle new curtailment
priorities during an emergency. Bonneville disagrees and states that
conditional firm service does not present unique issues with respect to
curtailment and that it would be curtailable during real time like
secondary network service.
    1072. EEI states that the conditional firm service as currently
proposed would conflict with tagging protocols and NERC criteria
because there is currently no way to tag service as both firm and non-
firm. EEI states that, if conditional firm service is subject to
curtailment during a specific period, the tag can identify those
periods and curtailments will be implemented in conditional periods and
non-conditional periods in accordance with those tags. However, if
conditional service is curtailable in a certain number of hours, or
when specific conditions occur, the tag cannot be rewritten in a way
that will provide for curtailment without personal involvement of
balancing authority operators, which could lead to increased
curtailments of firm transmission customers.
    1073. Xcel states that limiting curtailments to a specified number
of hours per year could result in conditional firm service having
greater value than firm, while strictly adhering to a maximum number of
curtailment hours could potentially conflict with the reliability
standards in section 215 of the FPA. NRECA argues that conditional firm
service should be subject to pro rata curtailment with all other firm
users during non-conditional times.
Commission Determination
    1074. We adopt a secondary network curtailment priority to apply
for the hours or specific system conditions when conditional firm
service is conditional. During non-conditional periods, conditional
firm service is subject to pro rata curtailment consistent with
curtailment of other long-term firm service. Thus, secondary network
service and conditional firm service when it is conditional will share
the same curtailment priority. Also, there is no conflict with
reliability standards because conditional firm service will be subject
to pro rata curtailment with all other firm uses of the system once
conditional curtailment hours, if that is the option selected, are
exhausted.
    1075. The secondary network curtailment priority is appropriate
because the customer is paying the long-term firm point-to-point rate
and thus should receive the highest non-firm curtailment priority
during the conditional curtailment hours or during specified system
conditions. Adoption of this curtailment priority overcomes what could
otherwise be significant implementation hurdles. It allows for
implementation of the service without changes to existing NERC TLR
practices. NERC and members of the industry need not undertake the
time-consuming and expensive process of establishing a new curtailment
priority that is between firm and non-firm service as some commenters
requested. Use of this curtailment priority also avoids attendant
decisions relating to the method of curtailment that should apply,
i.e., pro rata or transactional curtailment, for a quasi-firm
curtailment priority. It is also consistent with existing interruption
provisions of the pro forma OATT which provide that secondary service
cannot be interrupted for economic reasons.\659\ This is consistent
with our determination that conditional firm service when it is
conditional is curtailable only to maintain reliable operation of the
transmission system.
---------------------------------------------------------------------------

    \659\ See pro forma OATT section 14.7.
---------------------------------------------------------------------------

    1076. We reject EEI's argument that the curtailment priority for
conditional firm service is inconsistent with Commission precedent
regarding priority non-firm service only for network customers. EEI's
argument is inapposite. Long-term firm point-to-point customers taking
fully firm service without the conditional firm option do not need
access to priority non-firm service as EEI suggests. They have
assurance that their service will not be interrupted for economic
reasons and will only be curtailed on a comparable basis with network
service. This would not be the case for conditional firm customers. We
also find that EEI has failed to explain the connection between the
conditional firm transmission service and the availability of
reliability redispatch options, i.e., generators on its system that can
ramp up or down in response to a curtailment. We reject Powerex's
request that transmission providers be required to show that existing
long-term rights are protected. Each addition of a new long-term firm
transaction impacts

the rights of existing firm customers to some extent.
    1077. We disagree with commenters' suggestion that the NERC IDC
must be changed to accommodate conditional firm service. We reiterate
that we are not creating a new curtailment priority in this Final Rule.
We also disagree that new tags that combine a firm and non-firm
priority must be developed in order to implement the conditional firm
option. The curtailment priority in a tag can be changed ahead of the
operating hour based on a near-term forecast of system conditions.\660\
We are cognizant that daily and hourly operations to change the tags
for conditional firm customers likely involve the need for control room
coordination and development of an appropriate tracking process. As the
Commission described in the NOPR, new tracking and tagging business
practices for this service must be developed by each transmission
provider. Thus, we are allowing a sufficient period for the development
of these business practices, i.e., 180 days from the date of
publication of this Final Rule in the Federal Register. As directed
above, transmission providers must coordinate with other transmission
providers in their regions to develop these tracking and tagging
business practices.
---------------------------------------------------------------------------

    \660\ For example, in the Eastern Interconnection, tags can be
changed up to 35 minutes before the hour in which a TLR event is
scheduled. See NERC Standard IRO-006-3, Transmission Loading Relief
Procedures--Eastern Interconnection, section 6.2 (Communications and
Timing Requirements) at 23-25 (August 2, 2006).
---------------------------------------------------------------------------

    1078. Finally, we address requests to allow for automatic
assignment of short-term firm point-to-point service to conditional
firm customers. We agree that transmission providers must take into
account the conditional firm service in evaluating the availability of
short-term firm service. Because conditional firm is a long-term firm
use of the system, it should not be interrupted prior to short-term
firm service. However, short-term firm service reserved prior to the
reservation of conditional firm service should maintain priority over
conditional firm service in the periods when conditional firm service
is conditional, i.e., when specified system conditions exist or
conditional curtailment hours apply. Because the assignment proposal
meets both of these objectives, we direct transmission providers to
assign short-term firm service to conditional firm customers as the
service becomes available. Accordingly, we direct transmission
providers to work with NAESB to develop the appropriate communications
protocols to implement this attribute of conditional firm service.
Transmission providers need not implement this requirement until NAESB
develops appropriate communications protocols.
(iv) Rollover Rights
Comments
    1079. Several commenters support the Commission's proposal that
conditional firm service would qualify for rollover rights.\661\
Manitoba Hydro, Bonneville and Seattle state that rollover rights are
appropriate where the transmission provider does not have an obligation
to plan for service to the conditional firm customer during the
conditional curtailment hours. Bonneville adds that, in rolling over
conditional firm service, the transmission service agreement should
allow for no more than the same number of conditional curtailment hours
than in the original service agreement and provide for fewer hours of
curtailment if system conditions provide for more firm service. If
conditional firm service is used as an interim product until
transmission is built, APPA contends that rollover rights would be
appropriate.
---------------------------------------------------------------------------

    \661\ E.g., AWEA, EPSA, Manitoba Hydro, Bonneville, TranServ,
Seattle, and Utah Municipals Reply.
---------------------------------------------------------------------------

    1080. Others argue that rollover rights for conditional firm
service are inappropriate.\662\ These commenters do not support the
granting of rollover rights, nor do they support the designation of
conditional firm service as long-term service. In order to accommodate
conditional firm rollover rights, FirstEnergy contends that the
transmission provider would be required to model a number of off-peak
load flow cases and provide system reinforcements. Ameren states that
the number of hours that the service will be available at some future
date after the contract expires will not be known at the time the
initial contract is executed. EEI adds that estimating conditional
curtailment hours for 10 years of service is an impossible task. MISO
states that rollover rights would add more complexity to the AFC/ATC
calculation process and competition queues. Entergy and EEI state that,
while subsequent firm transmission service should not be placed ahead
of the conditional firm service, it is appropriate at the time of a
rollover request, and perhaps more frequently, to allow the
transmission provider to update the conditional firm service parameters
in order to take into account load growth and changes in load for prior
services.
---------------------------------------------------------------------------

    \662\ E.g., EEI, FirstEnergy, Ameren, SPP, and TDU Systems
Reply.
---------------------------------------------------------------------------

Commission Determination
    1081. The Commission finds that rollover rights are appropriate for
point-to-point service that is provided using planning redispatch or
conditional firm options and would otherwise be eligible for rollover
rights. The following discussion addresses only rollover rights for
service that is paired with a transmission provider's biennial
reassessment right. While the Commission agrees with commenters that
subsequent firm transmission service requests should not be placed
ahead of the conditional firm service, we note above our concerns with
the modeling requirements and reliability impacts of an ongoing service
that relies upon unchanging curtailment conditions or redispatch
requirements. The biennial assessment right, discussed above, addresses
the concern expressed by EEI that transmission providers cannot
accurately determine conditional curtailment hours or estimate
redispatch costs for a ten-year service. The biennial review in
conjunction with rollover rights allows the transmission provider to
update the parameters of the service in order to maintain reliable
operations and allows customers to keep their place in the queue ahead
of other customers seeking conditional firm, planning redispatch
options, or other firm services.
    1082. Rollover rights for the reassessment product can provide
significant value to the conditional firm customer. A conditional firm
customer opting to roll over will retain priority claim to the portion
of its service that is firm. For example, if a five-year conditional
firm service initially has a 100-hour annual cap on curtailments, but
the cap is later reassessed at 150 hours, the rollover right would
continue to give the customer first call on all but the 150 hours as
against all other subsequent requests for firm service.
    1083. We note that a customer taking conditional firm or planning
redispatch options as part of a five-year point-to-point service must
declare its intent to roll the service over in the fourth year of
service, coincident with the second biennial review. Thus, we task
transmission providers and customers, in negotiating their service
agreement, with coordinating the timing of the biennial review with the
deadline for declaring rollover intent. Specifically, customers
deciding whether to renew their service should have information on
additional conditions on the service or additional estimated redispatch
costs

at least 30 days prior to the relevant rollover deadline.
    1084. Additionally, because the biennial review provides the
transmission provider with the ability to plan for and maintain system
reliability, we will not allow the rollover right to infringe upon this
review. Thus, we direct that the transmission provider has a right to
review the conditions or redispatch requirements at the end of the
first year of a service that has been rolled over, i.e., year six of
service, as consistent with a biennial review of service.\663\
---------------------------------------------------------------------------

    \663\ Such a review would occur in the first year of a rolled
over service if the initial service term was for five years.
---------------------------------------------------------------------------

(v) Use of Conditional Firm Options in Designating Network Resources
Comments
    1085. Several commenters state that the Commission should not
modify current OATT requirements for designating network resources to
include resources delivered using conditional firm service; otherwise,
reliability would be threatened because network customers could lean on
the system during conditional periods.\664\ They oppose allowing a
resource taking conditional firm service to qualify as a network
resource when the associated resource is imported by a network customer
from an adjacent system. EEI and Duke agree with the Commission's NOPR
proposal that conditional firm service should not be available to
network customers and further assert that a product that includes a
non-firm portion is inappropriate for a load-following service like
network service. EEI asserts that because the Commission requires that
network resources be deliverable on a non-curtailable basis, resources
using conditional firm service cannot be designated as a network
resource until the maximum conditional curtailment hours have been
reached. EEI and Duke contend that establishing a defined period of
curtailment for conditional firm service, either seasonal, monthly, or
specific dates, eliminates issues with respect to the designation of
network resources because a resource using conditional firm service
would be eligible for designation for the part of the year when the
service was defined as firm. In its reply comments, Duke states that it
cannot reliably operate its system if it is required to serve unplanned
load when a network resource is undeliverable due to curtailment of
conditional firm service.
---------------------------------------------------------------------------

    \664\ E.g., Entergy Supplemental, Southern Supplemental, MISO
Supplemental, Community Power Alliance Supplemental, and Powerex
Supplemental.
---------------------------------------------------------------------------

    1086. Other commenters assert that the Commission should create an
exception to allow designation of network resources that use
conditional firm service.\665\ AWEA adds that resources should not lose
their designation when transactions are curtailed pursuant to
conditional firm service because this is not the way similar resources
with special protection systems are treated. Several commenters state
that conditional firm service should qualify as a network resource when
the associated resource is imported by a network customer.\666\ BP
Energy adds that more coordination between the two systems with respect
to specifying the set of conditions or specific set of hours is
required.
---------------------------------------------------------------------------

    \665\ E.g., AWEA, EPSA, TAPS, APPA, Utah Municipals Reply, and
Barrick Reply.
    \666\ E.g., Bonneville Supplemental, TDU Systems Supplemental,
PPL Supplemental, and BP Energy Supplemental.
---------------------------------------------------------------------------

    1087. Some commenters state that conditional firm service should be
made available to network customers because conditional firm service
may trump the provision or scheduling of secondary network service and
because network customers should have service that is at a minimum
equivalent with point-to-point service.\667\ These commenters suggest
that the Commission could permit network customers to designate a
conditional network resource that would be a firm resource for the
hours when a comparable conditional firm point-to-point service is
firm. In supplemental comments, NRECA and TAPS argue that ``on-system''
LSEs should be allowed to designate a network resource where
transmission is fully firm for all but the limited time each year,
e.g., to 100 hours or less, and ``off-system'' LSEs should be allowed
to treat a network resource supported by conditional firm service as a
resource on the host system where it takes network service. NRECA
believes that if the criteria for both network service resource
designations and for the proposed conditional firm service are based on
the physical, engineering characteristics of the transmission system,
the network customer should be able to designate the resource as
deliverable to load on a non-curtailable basis, except for the
specified conditions.
---------------------------------------------------------------------------

    \667\ E.g., NRECA, TDU Systems, TAPS, and Utah Municipals Reply.
---------------------------------------------------------------------------

    1088. In its reply comments, Bonneville states that since secondary
network service cannot be purchased on a long-term basis, the
Commission should evaluate whether the design and implementation
challenges of creating a conditional firm service for network customers
can be overcome. Bonneville also states that other options such as
seasonal firm and long-term reservation of secondary network service
should be explored in order to allow network customers similar access
to monthly ATC.
    1089. Nevada Companies state that network customers have load
service obligations and should always have unconditional firm service,
without exception. However, Nevada Companies state that network
customers could benefit from a service similar to conditional firm
service. According to Nevada Companies, if a network customer desires
to deliver its resources to a point of receipt that is not available
all seasons of the year, it could procure firm transmission capacity
that is available on a seasonal basis for the delivery of a network
resource.
    1090. Some commenters state that network customers should be
permitted to designate as network resources third party power supplies
that are supported by the supplier's conditional firm reservation.\668\
In supplemental comments, Xcel states that it does not oppose allowing
conditional firm to qualify as a network resource, but it should be
clear that the service is an exception to the otherwise ``firm is
firm'' policy that requires all firm users to be curtailed pro-rata.
---------------------------------------------------------------------------

    \668\ E.g., APPA Supplemental, EPSA and AWEA Supplemental.
---------------------------------------------------------------------------

Commission Determination
    1091. The Commission will allow conditional firm point-to-point
service to qualify as firm service that supports the designation of
network resources imported from other control areas. As we explain in
more detail in section V.D.6, the Commission has longstanding
limitations on network resources. Network resources cannot be
interrupted for economic reasons and third-party transmission
arrangements to deliver the resource to the network must be non-
interruptible.\669\ EEI is incorrect that, under our precedent, a
resource must be ``noncurtailable'' to qualify as a network resource
under the OATT. All resources are ``curtailable''--e.g., if a unit
trips off line, the resource is, by definition, curtailed. Network
resources may also be unavailable due to other reasons besides an
unplanned unit outage, such as unplanned transmission outages or
environmental restrictions. It is appropriate to allow conditional firm
service to support the

designation of network resources because the conditional firm option
only affects the transmission of the resource to the network, not the
interruptibility of the generating resource itself. Conditional firm
service satisfies the Commission's requirement for the delivery of the
resource to the network to be non-interruptible because such
transmission service is curtailable only for specific reliability
reasons, not economic reasons.
---------------------------------------------------------------------------

    \669\ Wisconsin Public Power Inc. v. Wisconsin Public Service
Corp., 84 FERC ] 61,120 at 61,660 (1998) (WPPI).
---------------------------------------------------------------------------

    1092. We decline, however, to adopt the conditional firm option for
network service. Commenters argue that conditional firm network service
should be made available to prevent conditional firm point-to-point
service from ``trumping'' the scheduling of secondary network service
and to ensure that network service is at a minimum equivalent to point-
to-point service. Concerns regarding conditional firm point-to-point
service ``trumping'' secondary network service would not be resolved by
creating conditional firm network service. The ``as available'' nature
of secondary network service will still permit all firm uses of the
system, including conditional firm service, to have a higher
reservation priority than secondary network service. Creating a
conditional firm network service would not change that reservation
priority.
    1093. Others argue that conditional firm network service should be
required in order to ensure that network service is equivalent to
point-to-point service. As noted above, however, the two services are
not precisely the same, nor were they intended to be identical. In
Order No. 888, the Commission attempted to strike a balance between
competing interests in designing network and point-to-point
transmission services, each service with its own costs and benefits. It
is therefore appropriate that we consider the need for conditional firm
service in each context. While we conclude that implementation of
conditional firm network service is not necessary to remedy undue
discrimination at this time, we note that allowing conditional firm
point-to-point service will nonetheless provide substantial benefits to
network customers by allowing the designation of network resources
delivered to the network from other control areas using conditional
firm point-to-point service. Conditional firm point-to-point service
will thereby allow network customers to access new alternative power
sources. Transmission providers are free to make a filing under FPA
section 205 proposing conditional firm network service.
    1094. Finally, in light of our conclusions above that conditional
firm service satisfies the Commission's requirements for designating
network resources because the delivery of the resource to the network
is not interruptible for economic reasons, we do not need to adopt a
seasonal, monthly or periodic method for determining the conditions
under which conditional service may be curtailed as suggested by EEI
and others.
b. Proposals for Transparent Redispatch
NOPR Proposal
    1095. In the NOPR, the Commission explained that the major focus of
this rulemaking was to strengthen the pro forma OATT in order to remedy
undue discrimination rather than create new market structures. The
Commission stated its intention to retain the use of an OATT to
facilitate the development of competitive wholesale markets by reducing
barriers to entry through the control of transmission assets, not
impose any particular market structure on the industry.
Comments
    1096. Several commenters argue that the Commission should expand
the planning redispatch requirements of the pro forma OATT to
incorporate third party provision of redispatch and bidding
protocols.\670\ In reply comments, Transparent Dispatch Advocates
submitted a proposal that, among other things, would require
transmission providers to (1) post the real-time cost estimate of
providing redispatch service from their resources at congested
locations, (2) accept offers from third parties to provide redispatch
service, and (3) provide real-time redispatch to resolve transmission
constraints. Transparent Dispatch Advocates argue that their proposal
is consistent with the scope of the rulemaking because it would not
require the adoption of LMP markets or other standardization; rather,
it would simply provide cost visibility and proper cost assignment of
the dispatch decisions made by transmission providers.
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    \670\ See section V.C.1 of this Final Rule for a discussion of
comments regarding independent dispatch and spot market development.
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    1097. In a notice issued on November 15, 2006, the Commission
sought further comment on the TDA proposal. The Commission asked, inter
alia, about implementation impediments and confidentiality issues
related to posting redispatch costs, whether the TDA proposal was
required to remedy undue discrimination, and whether third party
participation in redispatch would require market mechanisms.
Commission Determination
    1098. The Commission addresses below two distinct parts of the TDA
proposal: (1) Expansion of transmission provider's real-time
reliability redispatch obligation as well as inclusion of third-party
resources in provision of redispatch and (2) posting of real-time
redispatch costs or prices.\671\ The Commission has carefully
considered both the TDA proposal and the comments respecting it. We
agree with many of the public policy goals articulated by Transparent
Dispatch Advocates, such as increasing the transparency of information
and increasing the efficient use of existing infrastructure. However,
we also agree with many of the commenters that certain aspects of the
TDA proposal are unclear and, depending on its interpretation, may
require the creation of new services under the pro forma OATT or new
market structures. We are particularly cognizant of the arguments of
customer groups such as APPA, NRECA and TAPS that the TDA proposal may
be difficult to implement, contentious, and may not provide significant
benefits to customers. These customers also are concerned that it may
detract from other reforms considered in this proceeding that they
believe provide greater benefits, such as transmission planning reform.
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    \671\ Transparent Dispatch Advocates' proposal for mandatory
coordination agreements between transmission providers for provision
of redispatch service is addressed in section V.C.1 of this Final
Rule.
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    1099. After considering the views of all the parties, the
Commission has sought to strike a reasonable balance between the
positions of the commenters. On the one hand, we adopt certain reforms
that will provide additional information regarding redispatch costs in
a manner that benefits consumers. On the other hand, we will not adopt
the portions of the TDA proposal that would require the creation of new
services under the pro forma OATT or new market structures. We do not
believe that such fundamental changes are necessary or appropriate at
this time, nor do we have an adequate record upon which to adopt them.
    1100. Specifically, the Commission declines to adopt the TDA
proposal to expand transmission providers' real-time reliability
redispatch obligations and incorporate third party bids into
redispatch. As discussed in detail above, transmission providers will
continue to have an obligation to

perform reliability redispatch for network customers and provide the
planning redispatch described above for point-to-point customers.
Transmission providers will not be required, as Transparent Dispatch
Advocates request, to incorporate third party resources when providing
reliability redispatch or evaluating planning redispatch options for
point-to-point or network transmission service. We will, however,
institute a posting requirement so that the actual costs of redispatch
under existing and future redispatch agreements is made transparent to
potential customers. While we will not require posting of a real-time
estimate of redispatch prices as proposed by Transparent Dispatch
Advocates, the Commission concludes that the posting requirement
required herein will provide important information regarding the costs
of redispatch without revealing confidential information that might
harm existing markets.
(1) Expansion of Reliability Redispatch Obligation and Inclusion of
Third Party Resources
Comments
    1101. In reply comments filed September 20, 2006, Transparent
Dispatch Advocates argue that the Commission must bring transparency to
the dispatch function to make redispatch effective and fair and to
thereby remedy the potential for discriminatory provision of
transmission service. Transparent Dispatch Advocates assert that the
Commission should require each transmission provider to publish a
``dynamic real-time value of what it would charge to provide redispatch
service at specified congestion locations within the transmission
provider's system and at specified flowgates at the border of the
transmission provider's system.'' \672\ Transparent Dispatch Advocates
contend that the publication of this data would: Allow customers to
assess available real-time redispatch options; allow customers to
access redispatch at actual costs; allow customers to predict with
reasonable certainty the costs of redispatch; allow all resource owners
to voluntarily offer redispatch solutions and be properly compensated
for their efforts; and over time, support long-term transmission
service.
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    \672\ Transparent Dispatch Advocates Reply at 5.
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    1102. In reply comments, Transparent Dispatch Advocates further
request adoption of rules that would either require the transmission
provider to account for independent, third party resources in its
control area in establishing redispatch costs, or allow independent
resources to post real-time, cost-based price and quantity bids for
redispatch plus the resource's impact on the constraint on the
transmission provider's OASIS. Transparent Dispatch Advocates state
that the published redispatch values would be cost-based in non-market
environments.
    1103. On November 3, 2006, a summary of, and frequently asked
questions regarding, the TDA proposal (TDA Summary) was attached to
comments filed by San Diego G&E in response to the October 12 Technical
Conference and in support of the TDA proposal. In the TDA Summary,
Transparent Dispatch Advocates assert that the Commission need only
revise the existing redispatch provisions of the pro forma OATT to
require posting by the transmission providers of the nature of
congestion at pre-designated flowgates and data concerning the response
required to relieve congestion. Additionally, the TDA Summary states
that the transmission provider would have no obligation to provide for
real-time redispatch from its own or affiliated generation; rather, all
generators wishing to provide redispatch could volunteer to submit
bids. Transparent Dispatch Advocates state that these bids could be
either market or cost based depending on whether the bidder has market-
based rates within the control area. The transmission provider would be
obligated to evaluate the bids, publish the price for redispatch, and
call on generators to provide the requested redispatch in real time.
Transparent Dispatch Advocates suggest that transmission providers
calculate the price for redispatch by taking the difference between
bids received by those generators that the transmission provider would
call upon to increase output (i.e., to redispatch) and the costs the
transmission provider otherwise would have paid the generator whose
output is lowered to relieve the constraint. Transparent Dispatch
Advocates contend that their proposal differs from LMP markets because,
while LMP sets system-wide clearing prices, their transparent
redispatch proposal would apply only at selected flowgates and only
with respect to those transacting at those flowgates.
    1104. On December 15, 2006, in supplemental comments filed in
response to the Commission's November 15 Notice asking for comment on
the TDA proposal, Transparent Dispatch Advocates sought to clarify
their proposal. Transparent Dispatch Advocates propose that the
Commission impose upon transmission providers an obligation to do the
following: Provide reliability redispatch to point-to-point customers
in real-time for comparable treatment to that currently provided to
network customers and native load; consider their own resources,
network resources, and offers from non-network resources in providing
least cost redispatch in real-time; and, publish real-time information
about the cost of redispatch (including the prices submitted by non-