purchase generation from outside of its control area if it would
facilitate a firm transaction. We note that at least one redispatch
provisions currently in use contemplates the use of third-party
generation for redispatch. See Deseret Generation and Transmission
Cooperative, Inc. (Deseret) FERC Electric Tariff, First Revised
Volume No. 2 (Deseret OATT), accepted for filing in Deseret
Generation and Transmission Cooperative, Inc., Docket No. ER01-2642-
000 (Aug. 27, 2001) (unpublished letter order). Attachment J of
Deseret's OATT states, in part: ``If redispatch services are
provided under this Attachment J, the [t]ransmission [p]rovider will
in good faith attempt to relieve the constraint by the least-cost
means, whether by seeking a change in generation output from the
[t]ransmission [p]rovider's [m]erchant [f]unction or from any other
feasible generator or by other means including facilitating the
payment of firm transmission customers to temporarily give up their
rights to relieve the constraint.'' Deseret OATT, Attachment J, Part
I.D, Original Sheet No. 340 (effective July 1, 2001).
---------------------------------------------------------------------------

    310. Another issue that arises is how the redispatch option should
be priced. The pro forma OATT caps the cost of redispatch at the cost
of constructing the network upgrades needed to facilitate the requested
transmission service. Some commenters discuss what costs should be
included in a redispatch rate, such as start-up costs, higher
maintenance costs and fuel differentials, and state that inclusion of
these charges would send clearer price signals and induce transmission
investments.\292\
---------------------------------------------------------------------------

    \292\ E.g., Ameren, EEI, Progress Energy, and Southern.
---------------------------------------------------------------------------

    311. Establishing a formula rate for redispatch costs may be one
way to ensure greater use of this option, both to facilitate long-term
requests for service and to grant customers greater flexibility in
choosing resources on a daily or hourly basis. A redispatch pricing
proposal could include a MW quantity, the incremental cost of fuel
(increasing the supply of fuel) at the point of delivery, and the
decremental cost of fuel (decreasing the supply of fuel) at the point
of receipt capped at the price of fuel. These costs could be calculated
based 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.\293\ We invite comments on whether including such a formula in
the transmission provider's OATT would facilitate redispatch and
whether it should account for other, hard-to-quantify costs such as
those listed by EEI: Start-up costs, higher capital costs due to
shorter life and accelerated replacement, higher maintenance costs, and
potential emergency power purchases to serve load in constrained areas.
One option might be to establish a standard per kWh fee for such costs,
as was initially done for ancillary service costs.
---------------------------------------------------------------------------

    \293\ For example, redispatch costs = 75 MW x ($60 incremental
cost at the point of delivery - $15 decremental cost at the point of
receipt) = $3,375.
---------------------------------------------------------------------------

    312. There are few examples of functioning redispatch programs on
which to base any kind of generic change to the pro forma OATT.
However, the Commission has approved OATT provisions for SPP \294\
(prior to its becoming an RTO) and Deseret.\295\
---------------------------------------------------------------------------

    \294\ See Southwest Power Pool, Inc., 82 FERC ] 61,267,
modified, 82 FERC ] 61,285, order on reh'g, 85 FERC ] 61,031 (1998);
Southwest Power Pool, Inc., 84 FERC ] 61,055 (1998).
    \295\ See supra note 291.
---------------------------------------------------------------------------

    313. The redispatch provisions in SPP's OATT permitted a
transmission customer facing a constrained path to decide whether to:
(1) Go forward with its requested transmission service, (2) obtain
relinquished capacity (solicit from holder of firm transmission rights
the price at which they would relinquish their rights subject to the
caps), (3) reduce transmission service to match the level of ATC
without redispatch, (4) pay for redispatch, or (5) forego the
transmission transaction.
    314. Under Attachment H of SPP's OATT (Redispatch Procedures and
Redispatch Costs for Short-Term-Firm Point-to-Point Transmission
Service Subject to Redispatch Cost) the charges to be paid by the
transmission customer for redispatch service could not exceed the
charges the transmission customer would have paid under SPP's point-to-
point tariffs. Stated differently, SPP capped the redispatch charges at
a level

that ensures that total charges did not exceed the total charges the
customer would have paid under individual company tariffs. For
generation resources, the redispatch included the higher of incremental
or replacement fuel costs and incremental operation and maintenance
costs of generation facilities necessary to relieve constraints on the
transmission system.
    315. The redispatch provisions in Deseret's OATT are designed to
track cost causation with redispatch costs and contains features
similar to the SPP OATT provisions such as providing customers with the
opportunity to obtain relinquished capacity. Like SPP, the redispatch
costs in Deseret's OATT are capped at the cost incurred by the
transmission provider to provide the requested service. Under
Attachment J of Deseret's OATT (Redispatch Protocol), generally the
redispatch costs are calculated by multiplying the redispatch quantity,
in MWh, that is required to satisfy the transmission customer's
schedule in that hour by the redispatch price. Attachment J of
Deseret's OATT also includes provisions for crediting and netting of
redispatch costs.
    316. We also are concerned that there is a great deal of complexity
and fuel price risk in projecting years into the future the hours of
redispatch that will be required to grant the transmission request and
the cost of that redispatch in those hours. Moreover, because of the
need for involvement of the transmission provider's generation arm to
project costs associated with redispatch and the need to factor in
unpredictable fuel costs, we are concerned about the degree of
discretion involved in determining redispatch costs. Understandably,
the transmission provider does not want to bear the price risk
associated with projected fuel costs, nor does the customer.
PacifiCorp, in its comments, describes a possible proposal that would
calculate redispatch costs monthly and charge the higher of redispatch
or the OATT rate each month. We request comment on whether PacifiCorp's
proposal may be a way of addressing the complexity and risk associated
with determining redispatch costs over a long period and allow greater
access to otherwise unused transmission capacity on a firm basis.
    317. We ask for comment on whether all or a portion of SPP's,
Deseret's, or PacifiCorp's proposals should form the basis for a
generic redispatch provision that could be included in the pro forma
OATT, as a means of ensuring that redispatch service is available and
priced on a just and reasonable basis.
    318. Finally, we recognize that a transmission provider may need to
coordinate with marketing affiliate or energy affiliate employees to
arrange generation redispatch.\296\ However, such communication and
coordination raise potential problems for the transmission provider
regarding compliance with the Commission's Standards of Conduct, which
require separating transmission function employees from wholesale
marketing and energy affiliate employees.\297\ We seek comment on what
communication and coordination protocols can be established to permit
the provision of generation redispatch in a manner that is not unduly
discriminatory or preferential, and consistent with the Standards of
Conduct.
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    \296\ In this discussion, we use the terms ``transmission
function,'' ``marketing affiliate'' and ``energy affiliate'' as
those terms are used in the Standards of Conduct regulations. See 18
CFR 358.3 (2005).
    \297\ See Order No. 2004 at P 85-94.
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Conditional Firm Service
    319. The Commission seeks comment on whether a modified form of
long-term point-to-point service would be preferable to the redispatch
service described above. This conditional firm service option would
address the problem of reliability limitations during certain peak
hours by allowing the transmission provider to provide non-firm service
to the customer in those hours. We note that at least one transmission
provider currently provides this service pursuant to amendments to the
partial interim service provision of its OATT,\298\ with only modest
differences from the service described below.
---------------------------------------------------------------------------

    \298\ See PacifiCorp, 98 FERC ] 61,224 at 61,885 (accepting
revisions to section 19.7), order on reh'g, 99 FERC ] 61,259 (2002).
---------------------------------------------------------------------------

    320. As an initial matter, in response to requests for
clarification of the partial interim service in section 19.7 of the pro
forma OATT, we will summarize the Commission's precedent on this
service. The Commission has clarified that partial interim service has
a partial duration element, as well as a partial quantity element.\299\
For example, in Morgan Stanley, the Commission found that had the
customer requested long-term service for a two-year period, but only
one year was available, the transmission provider would have been
obligated to offer service for that one available year.\300\ The
Commission was clear, however, that partial interim service does not
require the transmission provider to treat a request for annual service
as if it necessarily included a request for all subsumed monthly or
weekly durations of service during the requested year.\301\ In other
words, a transmission provider does not need to respond to a request
for one year of service with an offer of monthly service. The
Commission has also interpreted section 19.7 to apply to requests for
transmission service that have not undergone or do not necessarily
require a system impact study or facilities study.\302\ Further, the
Commission has required transmission providers to offer partial interim
service even where third-parties must provide upgrades in order to
provide for the full transmission service request.\303\ Although
partial interim service has a duration component, it differs from
conditional firm service, which would require the transmission provider
to treat the request for service as if it included a request for
monthly, weekly, daily, and hourly firm service during the year.
---------------------------------------------------------------------------

    \299\ See, e.g., Idaho Power Co. v. Bonneville Power
Administration, 96 FERC ] 61,031 at 61,080-81 (2001) (Idaho Power v.
Bonneville) (interpreting section 19.7 to require Bonneville to
offer 277 MW of monthly short-term firm transmission capacity
interim service to the entity next in the queue with a request of
577 MW); Morgan Stanley Capital Group v. Illinois Power Co., 93 FERC
] 61,081 at 61,220 (2000) (Morgan Stanley) (``Illinois Power should
have offered as much transmission capacity as it could provide
continuously for the duration of the request, i.e., as many MW of
transmission service as available for the entire one-year period
Morgan Stanley requested.''); accord Idaho Power Co., 90 FERC ]
61,009 at 61,018-19 (2000) (directing transmission provider to
provide 18 months of partial interim service for a customer
requesting eight years of service).
    \300\ Morgan Stanley at 61,220. In response to Bonneville, the
Commission clarifies that a customer does not lose its queue
position for its original request when it accepts a counteroffer for
less service than originally requested.
    \301\ Id. at 61,220; Tenaska Power Services Co. v. Southwest
Power Pool, Inc., 93 FERC ] 61,082 at 61,222-23 (2000) (both
concluding that transmission provider has no obligation to respond
to a long-term request with an offer of short-term service).
    \302\ See, e.g., Idaho Power v. Bonneville at 61,080-81
(requiring an offer of partial interim service for short-term firm
service where a system impact study is not applicable); Morgan
Stanley Capital Group v. Illinois Power Co., 83 FERC ] 61,204 at
61,912 (ordering partial interim service without requiring a system
impact study or facility study), clarification granted, 83 FERC ]
61,299 (1998), reh'g granted in part, 93 FERC ] 61,081 (2000).
    \303\ Bonneville Power Administration, 110 FERC ] 61,001 at P
36-37 (directing Bonneville to offer to provide customer with
whatever portion of the request it could provide on a firm basis
after the customer's generation project was energized without
upgrades to PacifiCorp's system and to amend the agreement after
upgrades are completed to provide for the full amount), reh'g
denied, 110 FERC ] 61,094 (2005).
---------------------------------------------------------------------------

    321. If we decline to adopt the redispatch proposal above, any
conditional firm service that we would order would be made available
only to customers who request long-term firm point-to-point service.
When the long-

term firm point-to-point service is not available, and the customer
requests conditional firm service, the transmission provider would
evaluate transmission availability for the portion of the long-term
request that cannot be filled due to lack of ATC. The evaluation of
conditional firm availability should occur prior to a system impact
study or facilities study. In offering conditional firm service, the
transmission provider must identify the number of hours during the year
in which the conditional firm customer will have service identical to
any other firm point-to-point service, and specify the maximum number
of hours of the year during which firm transmission service may be
unavailable. The conditional firm service agreement would identify the
conditional curtailment hours, i.e., the number of potential hours
during those conditional times when the customer could have its
reservations cut or reduced prior to any firm customer reductions.
Conditional firm service would include an annual cap to the conditional
curtailment hours and we seek comment on whether it should also include
monthly caps for each conditional month. Capacity commitments for
conditional firm service would be accounted for in the ATC calculations
prior to new sales of short-term firm transmission service, thus not
degrading the value of the conditional firm transmission product.
    322. We propose that conditional firm service would be curtailed
before firm uses until such time as curtailment of the conditional firm
service has reached the annual or monthly caps, after which time the
service would be treated as firm. We propose that conditional firm
service, during conditional curtailment hours, be treated equivalent to
secondary network service.\304\ We decline to adopt the proposed quasi-
firm curtailment priority because it would require creation of a new
curtailment classification including a determination concerning the
appropriate type of curtailment, i.e., choosing between pro rata
curtailment currently used for firm transactions or full transaction
curtailment currently used for non-firm transactions. Institution of a
new curtailment class would require changes to curtailment protocols
and reliability coordinators' procedures, which is potentially
burdensome and costly. Further, as discussed below, we believe that
conditional firm point-to-point service, as proposed, is analogous to
the secondary network service currently used by network customers and
therefore both services should enjoy the same curtailment priority.
---------------------------------------------------------------------------

    \304\ Secondary network service (section 28.4 of the pro forma
OATT) refers to transmission service for network customers from
resources other than designated network resources provided on an as-
available basis. Section 14.7 of the pro forma OATT provides that
secondary network service is curtailed or interrupted before firm
network or point-to-point service but after non-firm point-to-point
service.
---------------------------------------------------------------------------

    323. We propose that customers pay the long-term firm point-to-
point rate for conditional firm service and have a right of first
refusal when firm service becomes available for the hours in which they
have agreed to be curtailed. This rate for conditional firm service is
consistent with the Commission's pricing policies that promote
maximization of long-term uses of the grid. Also, this rate makes this
service more equivalent to secondary network service because network
customers using secondary network service already have paid for the
long-term use of the grid. Further, it avoids gaming incentives that a
discounted rate could provide. For example, a discounted rate might
provide incentives for customers to request a year of service where
they know only three months of service is available. We seek to prevent
this type of gaming by requiring the payment of a long-term firm rate.
In this regard, we also expect that the long-term firm point-to-point
rate will tend to limit the type and number of requests for conditional
firm service. Customers will weigh the value of the service, including
the probability of curtailment, against the cost of paying the full
long-term firm rate, in deciding whether to queue for conditional firm
service where customers earlier in the queue are offered, for example,
50, 100 or 150 conditional curtailment hours.
    324. Further, we propose that customers with conditional firm
service would qualify for rollover rights provided that they meet the
other rollover right conditions proposed herein. The service agreement
for conditional firm service would specify the number of conditional
curtailment hours. The transmission provider would not be required to
plan for service to the conditional firm customer during the
conditional curtailment hours. We seek comment on the application of
rollover rights to the conditional firm service.
    325. The Commission is not convinced that it is necessary to make
this service available to network customers. Network customers enjoy
flexibility that point-to-point customers do not, given the ability of
network customers to use secondary network service to access resources
other than designated resources on an as-available basis under section
28.4 of the pro forma OATT. For example, if a network customer's
request to designate a new network resource was denied due to lack of
ATC, the network customer could seek secondary network service for the
resource and receive service on an as-available basis. Such service
would be curtailed only after all non-firm point-to-point uses sharing
the same flowgate were curtailed. This is similar to the service that
we now propose for point-to-point customers in the form of conditional
firm service. We therefore tentatively conclude that conditional firm
service is not needed by network customers, though we seek comment on
that preliminary finding.\305\
---------------------------------------------------------------------------

    \305\ Network customers pay for long-term use of the system and
should maintain priority use of the system for secondary network
service over those paying for non-firm use. However, because
conditional firm customers will pay for long-term use, they should
also maintain, for the conditional curtailment hours, a curtailment
priority over non-firm uses equal to the curtailment priority for
secondary network service.
---------------------------------------------------------------------------

    326. We acknowledge that the obligation to provide conditional firm
service may require the transmission provider to model its transmission
system and the uses of its system with greater specificity. We
recognize that all transmission providers do not use a single standard
engineering approach to evaluate firm transmission service requests:
some transmission providers have a single powerflow base case for each
year studied; some use a single base case powerflow model to represent
several future years; and others may have several seasonal base case
powerflows for the study of future years. Transmission providers also
use different methods to establish generator dispatch for input into
the powerflow base case models: some transmission providers use heat-
rates without fuel prices for determining generator output in future
years' models; some use economic unit commitment order; and others use
projected fuel prices to establish base case powerflow generation
output. Some transmission providers use an economic dispatch model to
determine unit dispatch prior to establishing powerflow base cases.
Additionally, some transmission providers must take into account
environmental considerations, such as the pricing of emissions
allowances, in establishing generator output for powerflow base case
models.
    327. Regardless of the engineering approach used, in responding to
a conditional firm request, the transmission provider would need to
specify for the requesting customer the number of hours of firm service
available in the year for each MW of firm service requested. This may
require

[[Continued on page 32685]]

]

[[pp. 32685-32734]] Preventing Undue Discrimination and Preference in Transmission
Service

[[Continued from page 32684]]

that the transmission provider produce and examine additional powerflow
cases or make other process changes. In order to determine the number
of hours that the requested firm transmission capacity is unavailable,
the transmission provider may need to model varying load conditions,
generation and transmission planned outages, and time-contingent or
condition-contingent generation dispatches. Generally, the greater the
number of conditions studied, the lower the risk to the transmission
provider of an inaccurate estimate of conditional curtailment hours. We
recognize that there are limits to the accuracy of any prediction of
hours of curtailment, no matter how detailed the system study.
    328. There are a number of ways for a transmission provider to
determine the number of hours in a year when firm service is
unavailable, i.e., the conditional curtailment hours. One method
involves scaling down the powerflow base case. Using this method, the
transmission provider could scale down the load and generation in the
base case until the entire conditional firm request is available on the
studied flowgate. For example, a base case might need to be scaled down
to 95 percent of the summer peak demand in order to accommodate the
conditional firm request as firm point-to-point service. The
transmission provider would then calculate the number of hours the
seasonal load is forecast to be 95 percent or higher to come up with
the number of seasonal hours of curtailment for the conditional firm
customer.
    329. Another method involves an inventory of generation and demand
shift factors. Using this method, the transmission provider could
determine conditional curtailment hours by adding up all the
outstanding generation and load shift factors on the relevant flowgate.
Once the transmission provider determines the load shift factor on the
flowgate, it can calculate the reduction needed in regional demand to
accommodate the conditional firm request by comparing the impact of the
request on the power flows. The demand reduction would not necessarily
correspond perfectly with the requested amount of service. For
instance, a 200 MW reduction might be required to accommodate a 100 MW
conditional firm request. Once the transmission provider determines a
reduced load level that would accommodate the conditional firm request,
the transmission provider would examine load forecasts to calculate the
number of hours the load is expected to exceed this reduced load level.
This alternative method of calculating conditional curtailment hours
might be more burdensome than scaling down the powerflow base case
because it requires additional data collection and analysis.
    330. Both of these methods rely on average system conditions and do
not take into account extreme weather years or unexpected outages.
Thus, the methods would provide an optimistic view of bulk power
facility availability. These methods can be used to determine the
portion of time (hours) that transmission capability will most likely
be available and give general information on when (seasons, months)
firm service is available.
    331. We seek comment on the most appropriate method of modeling the
transmission system to determine the number of conditional curtailment
hours. We also recognize that additional studies may cause additional
costs. We seek comment on methods of ensuring recovery of these
additional costs.
    332. We also acknowledge that provision of conditional firm service
may require some modification to current transaction tracking
procedures in use by the industry and require development of additional
mechanisms. Today, transmission providers track transactions with
curtailment priorities so that when congestion occurs transactions are
curtailed consistent with OATT requirements, i.e., non-firm uses are
cut before firm uses and short-term transactions are cut before longer-
term transactions. In order to implement the conditional firm service,
transmission providers would need to determine in advance of scheduling
deadlines whether the service should be tracked as a long-term firm use
or to reflect the use of the conditional curtailment hours.\306\ If the
service is treated as firm during a certain period, the transaction
would not be cut before other firm uses. The transmission provider
would have to perform a calculus, taking into account forecast load and
transmission and generation availability, to determine the need to cut
the conditional firm transaction in the next period prior to scheduling
the transaction as conditional firm. While we do not view this as an
insurmountable problem, we note that the decision to curtail a
conditional firm transaction prior to other firm uses simply cannot be
made in real time. We also note that the transmission provider would
need to develop a mechanism to track the number of annual conditional
curtailment hours in each service agreement and its annual or monthly
use of those hours. Such a tracking mechanism would ensure that the
transmission provider did not exceed the annual or monthly cap on
conditional curtailment hours in any particular service agreement.
---------------------------------------------------------------------------

    \306\ We propose that during conditional curtailment hours, the
transaction would be tagged with the network non-firm tag (currently
used for secondary network service).
---------------------------------------------------------------------------

2. Hourly Firm Service
    333. The pro forma OATT contains a one-day minimum term for firm
point-to-point service. In Order No. 888, the Commission chose a one-
day minimum over a one-hour minimum because of concerns expressed by
commenters.\307\ There, commenters argued that comparability would not
be achieved if some point-to-point customers were permitted to take
service for one hour and receive the same priority as native load and
other long-term customers that have to pay the fixed cost of the
transmission system every hour of the year. They also expressed concern
that a one-hour minimum term for firm point-to-point service (hourly
firm) would promote selective use of the transmission system, impair
the ability of a utility to plan its system, and adversely affect
longer term transactions. Finally, some expressed concern that a one-
hour firm service may encourage speculative requests for service during
the system peak day (a practice known as ``cream skimming'').
---------------------------------------------------------------------------

    \307\ Order No. 888 at 31,752.
---------------------------------------------------------------------------

    334. In the NOI, the Commission noted that several public utility
transmission providers have individually filed for and received
Commission authorization to modify their OATTs to provide hourly firm
point-to-point service.\308\ In the NOI, the Commission sought comment
on whether the concerns expressed in Order No. 888 remain valid, and
whether hourly firm service should now be required. The Commission also
asked whether hourly firm requests should be batched to allow the
transmission provider to evaluate them as if they were a single
request, and whether scheduling timelines for firm and non-firm hourly
transmission service should differ.
---------------------------------------------------------------------------

    \308\ The NOI cited Entergy Services, Inc., 85 FERC 61,163
(1998), order on reh'g, 91 FERC 61,153 (2000) and El Paso Electric
Co., Docket No. ER04-567-000 (Apr. 9, 2004) (unpublished letter
order).
---------------------------------------------------------------------------

Comments
    335. Some commenters support requiring transmission providers to

adopt hourly firm service.\309\ Alberta Intervenors and TransAlta argue
that hourly firm service encourages trade and market liquidity.
Regarding the concerns cited in Order No. 888, EPSA argues that, as a
practical matter, daily firm service already receives an equal priority
to native load and other long-term customers, and none of the concerns
expressed in Order No. 888 have materialized. ``Cream skimming'' should
not be a problem, EPSA continues, because firm transmission
reservations are not cost-free, and transmission customers are unlikely
to commit financial resources for speculative purposes. Constellation
argues that there should be no concern that comparability will be
eroded because hourly firm service provides additional flexibility to
the competitive markets. PPL argues that in non-ISO/RTO regions like
the western United States, hourly firm service could help to maximize
the use of existing transmission facilities, increase efficiencies in
wholesale markets, and allow customers to purchase only the amount of
firm transmission service that they need.
---------------------------------------------------------------------------

    \309\ E.g., Alberta Intervenors, Alcoa, Calpine, Constellation,
EPSA, HQ Energy, PPL, and TransAlta.
---------------------------------------------------------------------------

    336. Some commenters offer qualified support for hourly firm
service.\310\ For example, South Carolina E&G states that before the
Commission requires hourly firm service, it should obtain empirical
market information on transmission providers' ability to provide such
service. In its reply comments, Powerex explains that there is a
potential for a detrimental effect if a transmission provider is not
able to accurately determine its ATC, and before making hourly firm
service mandatory, the Commission should ensure that the rights of
long-term firm customers will not be negatively affected.
---------------------------------------------------------------------------

    \310\ E.g., APPA, Northwestern, Powerex, Public Power Council,
Salt River, and South Carolina E&G.
---------------------------------------------------------------------------

    337. Among commenters who oppose requiring the adoption of hourly
firm service,\311\ many repeat arguments that appeared in Order No.
888. For example, several commenters express concern that hourly firm
service will lead to ``cream skimming,'' result in unfairness to
longer-term firm transmission customers who would have to be curtailed
pro rata along with customers who have only made hourly firm
commitments, or create inefficiencies by having a higher reservation
priority than subsequently submitted load-based services such as
secondary network service.\312\ But other commenters who oppose
requiring hourly firm service state that the concerns expressed in
Order No. 888 may no longer be a major problem, and may be addressed by
allowing hourly firm service to be pre-empted by longer term firm
service requests.\313\
---------------------------------------------------------------------------

    \311\ E.g., Ameren, APS, Duke, EEI, KCP&L, LG&E, LPPC,
MidAmerican, NRECA, Progress Energy, Snohomish, Southern, TAPS, TVA,
TDU Systems, and WAPA.
    \312\ E.g., LG&E, Progress Energy, Southern, and TAPS.
    \313\ E.g., EEI and WAPA.
---------------------------------------------------------------------------

    338. TVA argues that reservations for hourly firm service would
nearly always end up being bumped by requests for longer service and as
such would waste valuable time and increase administrative costs with
no real benefit.
Processing
    339. On the issue of whether a transmission customer should be
permitted to batch requests for service, those in favor generally state
that batching allows for greater efficiencies.\314\ For example,
Bonneville states that batching in the hourly market would decrease the
response time for all requests in the hourly queue. Salt River states
that a potential customer should be able to submit a batch of requests
(e.g., a block of hours) that is useful in shaping the service to its
load-serving needs. Snohomish states that in the day-ahead schedule
submittals, batching of hourly firm transmission requests for
evaluation as a single request should be permitted, but for periods
prior to day-ahead, batching of hourly requests should not be allowed
due to the potential for ``cream skimming.''
---------------------------------------------------------------------------

    \314\ E.g., Alberta Intervenors, Bonneville, Constellation,
EPSA, and South Carolina E&G.
---------------------------------------------------------------------------

    340. Among those opposed to or expressing reservations regarding
batching, Ameren and EEI argue that transmission providers already have
the ability to process multiple requests from the same party, but they
caution that batching requests for simultaneous modeling purposes
(e.g., transmission from points A to B and B to A simultaneously) would
be difficult to implement. WAPA states that, in its experience, the
majority of hourly firm transmission requests must be uniquely
identified and evaluated for potential conflicts with longer-term firm
transmission requests.
Scheduling
    341. The pro forma OATT currently requires that schedules for firm
and non-firm service be submitted on different timelines. Schedules for
hourly non-firm point-to-point service must be submitted to the
transmission provider no later than 2 p.m. the day before service is to
commence.\315\ For all firm services, schedules must be submitted to
the transmission provider no later than 10 a.m. the day before service
is to commence.\316\
---------------------------------------------------------------------------

    \315\ See pro forma OATT section 14.6 (also allowing schedules
to be submitted by a reasonable time that is generally accepted in
the region).
    \316\ See pro forma OATT section 13.8 (also allowing schedules
to be submitted by a reasonable time that is generally accepted in
the region).
---------------------------------------------------------------------------

    342. Some commenters argue that firm and non-firm hourly services
should be subject to the same scheduling timeline.\317\ To do
otherwise, Snohomish argues, would be administratively burdensome and
without benefit to the transmission provider or transmission customer.
Those arguing for different scheduling timelines generally argue that
the scheduling time-frames for firm and non-firm transmission service
should remain different, at least on a pre-schedule or day-ahead basis,
because the transmission provider must know the full extent of firm
utilization before non-firm offerings can be determined.\318\
---------------------------------------------------------------------------

    \317\ E.g., Ameren, Constellation, PNM-TNMP, Powerex, Salt
River, Snohomish, and South Carolina E&G.
    \318\ E.g., Ameren, Northwestern, and Southern.
---------------------------------------------------------------------------

Discussion
    343. The Commission proposes to add point-to-point hourly firm
service to the pro forma OATT because it will eliminate a barrier to
the development of markets and thereby decrease opportunities for undue
discrimination. The terms of service we propose will ensure that hourly
firm customers are offered service in a manner consistent with
comparability principles, and pay their fair share of system costs. We
conclude that hoarding and speculation should not be a major concern
because requests for hourly firm service are subject to preemption by
longer-term requests for service. We also conclude that the provision
of hourly firm should have no effect on investment in the grid because
a transmission provider does not plan its system to meet hourly firm,
or any other short-term firm, transmission requests. In addition, the
expected effect of hourly firm on long-term transactions is no
different than the effect of other short-term firm services. For
example, though commenters are correct that hourly firm will be
curtailed pro rata with longer term firm point-to-point service, this
is already true of daily firm point-to-point service. As noted in the
NOI, many transmission providers already offer this service and there
appear to be no technical impediments to offering it, nor have
customers on these systems

expressed any concern about the effect of hourly firm on long-term firm
services or curtailments. Therefore, we conclude that the concerns
expressed in Order No. 888 regarding unduly discriminatory effects of
hourly firm service have proven unfounded, and we propose that hourly
firm service be a required offering in the pro forma OATT.
    344. As for the pricing of hourly firm service, consistent with
Commission precedent, we propose to use the ``IES Method'' and apply
different pricing for hourly firm service based on whether the service
is taken during peak or off-peak hours.\319\ Pricing for hourly firm
service during peak periods would be based on 4,160 hours annually of
peak usage over 52, 5-day weeks of 16-hour days (52 x 5 x 16 = 4,160),
rather than all 8760 hours of the year. In other words, the rate is
derived from the hours during which the facilities are likely to be
used, rather than the total hours in the year. It is premised on the
assumption that a customer using the transmission system for the 16
peak hours of the day should pay the same contribution to fixed costs
as a customer who has reserved capacity on a daily basis.\320\ But
because hourly service is unlikely to be taken only during peak hours,
we propose to allow pricing for hourly firm service for off-peak hours
based on 8,760 hours of usage.\321\ This is appropriate because
customers using short-term service during off-peak hours do not
constrict the system during the peak period, and should pay less than
what they pay during the peak period.\322\ To ensure that hourly
customers do not pay more than their fair share of fixed costs,
consistent with the pricing principles set forth in Order No. 888, the
total charge in any day for hourly service cannot exceed the stated
daily rate multiplied by the maximum hourly capacity reservation during
such day.\323\ We conclude that using the IES Method to price hourly
firm service at a higher rate during peak periods will ensure that
hourly firm customers pay a fair share of the costs of the transmission
system and, as a result, mitigate ``cream-skimming'' concerns.
---------------------------------------------------------------------------

    \319\ The Method is named for a proceeding in which peak and
off-peak pricing was applied to hourly non-firm transmission
service. IES Utilities, Inc., 81 FERC ] 61,187 at 61,833-34 (1997),
reh'g denied, 82 FERC ] 61,089, aff'd on other grounds sub nom,
Wisconsin Public Power Inc., v. FERC, 1999 U.S. App. LEXIS 3998
(Feb. 23, 1999) (unpublished opinion); see New York State Electric &
Gas Corp., 92 FERC ] 61,169 at 61,593-94(2000) (approving
application of the IES Method for time-differentiated hourly non-
firm rate design), order on reh'g, 100 FERC ] 61,021 (2002).
    \320\ Peak period pricing is referred to as the ``Appalachian
Method'' or ``AEP Method,'' and takes its name from the proceeding
in which it originated. Appalachian Power Co., 30 FERC ] 61,296
(1987). The Appalachian Method is consistent with the premise that
firm transmission service be priced based on the system's peak
periods of usage. See Entergy Services, Inc. 85 FERC ] 61,163, at
61,645 (1998) (approving application of the method for firm service
on an hourly basis during peak hours), reh'g denied, 91 FERC ]
61,153 (2000).
    \321\ See IES Utilities, Inc., 81 FERC at 61,833-34 (approving
use of an 8,760 hour year to calculate rates for non-firm service on
an hourly basis during off-peak hours); Entergy Services, Inc., 85
FERC at 61,645 (approving use of an 8,760 hour year to calculate
rates for firm service on an hourly basis during off-peak hours).
    \322\ Appalachian Power Co., 39 FERC at 61,965; see American
Electric Power Service Corp., 88 FERC ] 61,141 at 61,453-54 (1999).
    \323\ And, in turn, the total demand charge in any week pursuant
to a reservation for hourly or daily service cannot exceed the
weekly rate multiplied by the maximum hourly capacity reservation in
any hour during such week. See pro forma OATT schedules 7 and 8; see
also Entergy Services, Inc., 85 FERC ]61,163 at 61,645 (1998)
(applying these principles to a proposal for firm service on an
hourly basis), reh'g denied, 91 FERC ]61,153 (2000).
---------------------------------------------------------------------------

    345. As for allowing transmission customers to batch requests for
service, we conclude that allowing such batching creates administrative
efficiencies for the transmission customer and transmission provider
alike. Therefore, we propose allowing transmission customers to batch
requests and schedules for hourly firm service that will be provided
within the same day.
    346. The Commission also concludes that the current scheduling
practices can accommodate the scheduling of hourly firm transmission
service. To require that both firm and non-firm hourly services be
scheduled at the same time would require that the existing procedures
be revised, with no discernible benefit to the transmission customer or
transmission provider. Even with the addition of this new service, it
remains reasonable to require that the transmission provider have all
firm schedules at the same time, and in advance of the deadline for
non-firm schedules. Therefore, we propose that schedules for firm
hourly service, like all other firm schedules, will be due by 10 a.m.
the day before the service is to commence.
    347. Finally, we propose that, consistent with other durations of
service, the confirmation period for hourly firm service specified in
section 13.2 of the pro forma OATT will allow longer-term requests for
service to preempt shorter hourly firm requests for service until one
hour before the commencement of hourly firm service.
3. Rollover Rights
    348. Section 2.2 of the pro forma OATT allows existing firm
transmission service customers--wholesale requirements and
transmission-only customers with contracts of one year or more--the
right to continue to take transmission service from the transmission
provider when the customer's contract expires, rolls over or is
renewed. The pro forma OATT provides that the transmission reservation
priority is independent of whether the existing customer continues to
purchase capacity and energy from the transmission provider or elects
to purchase capacity from another supplier. This transmission
reservation priority for existing firm transmission service customers,
which is also referred to as a right of first refusal or a rollover
right, is an ongoing right that may be exercised at the end of all firm
contract terms of one year or longer. A transmission customer must give
notice of whether it will exercise its right of first refusal 60 days
before the expiration of its service agreement.
    349. In Order No. 888, the Commission provided that, if a
transmission customer subject to the rollover right selects a new power
supplier that substantially changes the location or direction of its
power flows, the customer's right to continue taking service from the
transmission provider may be affected by transmission constraints
associated with the change.\324\ The Commission also provided that a
transmission provider may reserve existing capacity for retail native
load and network load growth reasonably forecasted within the
transmission provider's current planning horizon, but that any capacity
so reserved must be posted on the transmission provider's OASIS and
made available to others until the capacity is needed for the
anticipated network or retail native load use.\325\ The Commission also
has held that a transmission provider may restrict a right of first
refusal based on pre-existing contracts that commence in the future if
the transmission provider knows at the time of the execution of the
original service agreement that ATC used to serve a customer will be
available for only a particular time period, after which time it is
already committed to another transmission customer under a previously
confirmed transmission request.\326\ Once a

transmission provider evaluates the impact on its system of serving a
long-term firm transmission customer and grants the transmission
customer existing capacity, the transmission provider must plan and
operate its system with the expectation that it will continue to
provide service to the transmission customer should the transmission
customer exercise the right of first refusal. If constraints arise
after a transmission provider enters into a long-term agreement with
the transmission customer (and that agreement does not contain an
allowed restriction on the transmission customer's right of first
refusal), the obligation is on the transmission provider to determine
whether or not to build additional facilities to accommodate new
transmission customers.\327\ A transmission provider is obligated to
curtail service pursuant to its OATT or expand its system when its
system becomes constrained such that it cannot satisfy existing
transmission customers, including the exercise of their rollover
rights, because it should have planned and operated its system with the
expectation that each long-term firm transmission customer will
exercise its rollover rights.\328\
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    \324\ Order No. 888 at 31,665 n.176.
    \325\ Id. at 31,694.
    \326\ E.g., Southwest Power Pool, Inc., 109 FERC ] 61,041 at P 6
(2004).
    \327\ Id. at P 9.
    \328\ Id.
---------------------------------------------------------------------------

    350. If a transmission provider's transmission system cannot
accommodate all of the requests for transmission service at the end of
the contract term, the existing long-term transmission customer must
agree to match the rate offered by the potential customer, up to the
transmission provider's maximum rate, and to accept a contract term at
least as long as that offered by the potential customer. However, a
competitor's offer does not have to be ``substantially similar in all
respects'' to the existing transmission customer's.\329\
---------------------------------------------------------------------------

    \329\ Idaho Power Co. v. FERC, 312 F.3d 454, 462 (D.C. Cir.
2002).
---------------------------------------------------------------------------

The NOI
    351. In the NOI, the Commission sought comment on whether
transmission providers have hindered transmission customers under pre-
Order No. 888 agreements from rolling over their contracts that allow
purchase of capacity and energy from another supplier. The Commission
also asked whether the language in section 2.2 of the pro forma OATT
needs to be reformed to ensure that rollover rights are provided when
transmission customers are seeking access to alternative supply
sources, or whether the issue was an enforcement matter. The Commission
sought comment on whether the rollover right policy determinations made
subsequent to Order No. 888 should be included in the pro forma OATT.
The Commission inquired whether there were other problems with section
2.2, either as written or as implemented by transmission providers,
that need to be addressed. The Commission also asked whether potential
transmission customers are denied transmission access by the exercise
of rollover rights. Finally, the Commission asked whether it should
reconsider the concept of rollover rights and whether the one-year
service with rollover rights is consistent with the need to create
incentives for transmission investment or should a longer minimum term
of service be adopted to qualify for rollover rights.\330\
---------------------------------------------------------------------------

    \330\ NOI at P 18.
---------------------------------------------------------------------------

Comments
    352. Many transmission providers and APPA argue that, because a
transmission provider may not know until 60 days prior to termination
whether a contract would be renewed, rollover rights in contracts as
short as one year inhibit the ability of transmission providers to plan
their systems.\331\ Transmission providers also argue that the right of
first refusal results in the denial of transmission that leads to an
inefficient use of transmission capacity.\332\ They explain that the
transmission provider must hold back capacity from the market for
existing transmission customers that have a right of first refusal but
that have not yet indicated whether they intend to exercise it. By the
time the termination notice is given, other transmission customers that
may have wanted to reserve the newly freed capacity have been turned
away and have made other arrangements. They assert that the result is
an inefficient use of capacity. In addition, these transmission
providers argue that the 60-day notice provision does not allow them
adequate time to re-market any capacity when it is freed-up by the
terminating customer. Further, certain transmission providers argue
that the right of first refusal unfairly gives transmission customers a
valuable ``free call option'' on transmission capacity without any
obligation to take the capacity at the end of the contract or to
compensate the transmission provider for the value of the option.\333\
To avoid these problems, many transmission providers suggest that the
rollover right should apply to firm transmission contracts with minimum
terms of between two and ten years.\334\ In addition, these commenters
suggest that, if the Commission lengthens the term of the firm
contracts eligible for the right of first refusal, the 60-day renewal
provision also should be extended.
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    \331\ E.g., APPA, Bonneville, Duke, LPPC, Nevada Companies,
Progress, and Salt River.
    \332\ E.g., Ameren, Duke, EEI, North Carolina Commission, Santa
Clara, and South Carolina E&G.
    \333\ E.g., Ameren, Entergy, and Nevada Companies.
    \334\ E.g., APPA, Bonneville, Cinergy, LDWP, MidAmerican, Nevada
Companies, Progress, Santee Cooper, South Carolina E&G, and
Southern.
---------------------------------------------------------------------------

    353. Certain transmission customers argue that the Commission
should retain the right of first refusal in its present form, or change
it only after the Commission requires regional planning or other events
occur.\335\ Transmission customers stress the need for the rollover
rule as a means to ensure long-term service. According to
Constellation, transmission customers subject to rollover rights are
not temporary customers but are long-term customers that happen to take
their service under year-to-year agreements. Likewise, EPSA asserts
that rollover rights are important in planning for the long-term needs
of loads and generation located on the grid and that ``the ability to
roll over a firm transportation contract (by matching the contract term
and the rate of competing shippers) is the only way that market
participants can ensure that their needs will be met.''
---------------------------------------------------------------------------

    \335\ E.g., AMP-Ohio, Calpine, Constellation, and EPSA.
---------------------------------------------------------------------------

    354. Numerous commenters address the impact of native load growth
on the right of first refusal rule. As previously indicated, the
Commission permits transmission providers to restrict a firm
transmission customer's right of first refusal based on the
transmission provider's reasonable projections of native load growth.
Several commenters argue, however, that the Commission has not provided
adequate guidance as to the information a transmission provider must
submit to demonstrate native load growth.\336\ Further, commenters
argue that the Commission should allow transmission providers a means
to update their native load data to address any load growth that was
not anticipated at the time of the original contract. In addition, some
commenters argue that the Commission's rejection of native load growth
projections in prior cases, and the provision for pro rata curtailment
of service in the event of capacity shortfalls due to the exercise of a
right of first refusal, fail to respect the native load preference
adopted in Order No. 888, as well as in section 217 of the FPA as added
by section 1233 of EPAct

2005. They argue that new section 217 of the FPA reverses Commission
precedent that limits the ability of transmission providers to recall
capacity for native load once it is subject to a right of first
refusal.
---------------------------------------------------------------------------

    \336\ E.g., Duke, EEI, Entergy, Nevada Companies, Progress
Energy, Santee Cooper, and Salt River.
---------------------------------------------------------------------------

Discussion
    355. The comments filed in response to the NOI demonstrate a need
to retain, but revise, the right of first refusal provision in the pro
forma OATT. The Commission proposes to revise the right of first
refusal provision in the pro forma OATT to apply to wholesale
requirements and transmission-only contracts that have a minimum term
of five years, rather than the current minimum term of one year. In
addition, the Commission proposes that a transmission customer under a
rollover agreement must provide notice of whether or not it will
exercise its right of first refusal no less than one year prior to the
expiration date of the transmission service agreement. We agree with
APPA that these changes strike an appropriate balance between providing
customers meaningful rollover rights and encouraging long-term
contracting, new investment and long-term planning. Finally, if the
existing customer seeks to exercise its rollover right and there is
insufficient transmission capacity on the system at the end of the
contract term to accommodate all of the requests for transmission
service, the existing customer would have to agree to accept a contract
term at least equal to a competing request by any new customer or five
years, whichever is longer, and to pay the current just and reasonable
rate, as approved by the Commission, for such service.
    356. The Commission's proposal is consistent with the transmission
customers' comments that the right of first refusal should be designed
to ensure long-term service. Extending the minimum term of the right of
first refusal agreements to five years will encourage long-term use of
the grid. In addition, the one-year prior notice requirement should
allow adequate time for transmission providers to re-market unused
capacity that may result from a transmission customer choosing not to
roll over a service agreement. The one-year notice provision also
should limit the instances when the transmission provider must turn
away a transmission request only to find out that it could accommodate
the request after the transmission customer elected not to roll over.
These changes should result in a more efficient use of the transmission
grid.
    357. If we adopt the proposed minimum five year/one year right of
first refusal provision in the pro forma OATT, we propose to allow this
provision to become effective upon Commission acceptance of the
transmission provider's coordinated and regional planning process set
forth in Attachment K of its OATTs. Thus, all new transmission service
agreements executed after the effective date of Attachment K will be
subject to the five year/one year right of first refusal rule. The
Commission proposes that transmission service agreements subject to a
right of first refusal entered into prior to the effective date of
revised section 2.2, unless terminated, will become subject to the five
year/one year right of first refusal rule on the first rollover date
after the effective date of revised section 2.2.
    358. Our existing policy allows the transmission provider to limit
a transmission customer's right of first refusal by reserving capacity
to accommodate reasonably forecasted and verifiable native and network
load growth at the time the initial service agreement is executed. Many
transmission providers argue that this right should be extended to
allow the transmission provider to limit the right of first refusal
each time the right of first refusal is exercised, not only at the time
the initial service agreement is executed. We believe that our proposal
to extend the term of the right of first refusal from one to five years
should address, in many respects, the concern of transmission providers
that the existing right of first refusal is unfair to native load
customers. Under this proposal, a right of first refusal will no longer
be granted to users of the grid on an annual basis, but rather only to
those making longer-term commitments to the grid, as do native load
customers. In addition, while we expect a transmission provider to be
continually updating its forecast for native load growth and applying
this updated projection to new requests for service, applying this to
contracts at rollover may require an additional change to the right of
first refusal process. Specifically, the transmission provider would
have to compete for the capacity rather than reclaim it through its
rights to reserve capacity for native load growth. We seek comment on
whether this change would be appropriate. Further, while we have
addressed requests to limit the right of first refusal on the basis of
native load growth on a case-by-case basis, we recognize that this
approach has not yet resulted in a clear and transparent method for
demonstrating forecasted native load growth. Accordingly, we seek
comment on whether there is a sufficiently clear, consistent, and
transparent method that could be implemented on a generic basis to
address the need for a transmission provider to demonstrate its
forecast of native load growth and its effect on capacity reserved by
right of first refusal customers.
    359. Many transmission providers argue that our current right of
first refusal policy is inconsistent with the native load protections
contained in section 217(b) of the FPA. We disagree, but note that the
reforms being proposed here should moot this argument. We are proposing
to extend the minimum term of the right of first refusal to a period
(five years) that is more consistent with the planning horizons of
transmission providers. In addition, limiting the right of first
refusal to agreements with terms of five years or more will ensure that
the right of first refusal is used by customers with long-term
obligations to purchase capacity rather than as a means for customers
with shorter-term transactions to use capacity for non-load-serving-
entity transactions.\337\ This is consistent with FPA section
217(b)(4), which states that the Commission shall exercise its
authority ``in a manner that facilitates the planning and expansion of
transmission facilities to meet the reasonable needs of load-serving
entities to satisfy the service obligations of the load-serving
entities.'' Our proposal also is consistent with FPA section 217(b)(2)
because it continues to allow the transmission provider to limit the
right of first refusal to accommodate reasonably forecasted and
verifiable native load growth.
    360. Under the proposed rule, transmission providers still will be
required to plan their systems with the expectation that a transmission

customer with a long-term transmission agreement subject to a right of
first refusal will exercise its rollover right at the end of its term.
We believe it is important to reiterate the obligation on transmission
providers to maintain ATC for existing transmission customers with
rollover rights and our expectation that transmission providers will
include all customers with rollover rights in their long-term
planning.\338\ We understand that some existing reliability procedures
or practices may encourage transmission providers to exclude certain
transmission service contracts from their base-case models, even if
those contracts contain a rollover right. This is inconsistent with
Commission policy and undermines the purpose of the rollover right,
which is to facilitate system planning and reliability.
4. Modification of Receipt or Delivery Points
    361. Section 22 of the pro forma OATT provides that a transmission
customer taking firm point-to-point service may modify its receipt and
delivery points on either a non-firm or a firm basis. Section 22.1
(Modifications on a Non-Firm Basis) provides that, subject to certain
conditions, a firm point-to-point customer may request transmission
service on a non-firm basis over receipt and delivery points other than
those specified in its service agreement (known as secondary receipt
and delivery points) in amounts not to exceed its firm capacity
reservation, without incurring an additional non-firm point-to-point
service charge or executing a new service agreement. Section 22.2
(Modifications on a Firm Basis) provides that any request to modify
receipt and delivery points on a firm basis shall be treated as a new
request for service in accordance with section 17 of the pro forma OATT
(Procedures for Arranging Firm Point-to-Point Transmission Service),
except that the transmission customer shall not be obligated to pay any
additional deposit if the capacity reservation does not exceed the
amount reserved in the existing service agreement. While such new
request is pending, the transmission customer retains its priority for
service at the existing firm receipt and delivery points specified in
its service agreement.
---------------------------------------------------------------------------

    \337\ This is consistent with the approach suggested by TAPS,
which argues that the current one-year minimum contract term allows
significant capacity on constrained interfaces to be tied up in
relatively short-term deals simply designed to hold the firm
reservation as a path for non-firm economy purchases and to block
competitors' firm access (e.g., inexpensive, one-year ``paper
capacity'' deals). TAPS also argues that any restriction on the
availability and flexibility of rollover rights be contingent on an
expansion of the transmission grid so that transmission customers
have reasonable access to competitive supplies. We agree that
expansion of the grid is critical and accordingly have proposed to
require coordinated transmission planning on both a local and
regional level to ensure that transmission customers' needs are
treated comparably to those of the transmission provider. This
enhanced transmission planning, combined with other reforms proposed
in this NOPR (e.g., improvements to the calculation of ATC), should
mitigate TAPS's concerns by improving the ability to access
competitive supplies.
    \338\ See, e.g., Southern Company Services, Inc., 104 FERC ]
61,140 at P 26-27 (2003).
---------------------------------------------------------------------------

    362. In the NOI, the Commission asked whether transmission
customers have experienced undue discrimination in attempting to
redirect to new receipt and delivery points pursuant to section 22.2
and whether any reforms were needed. The Commission did not
specifically ask about section 22.1, but some commenters nevertheless
addressed this section. Most commenters, however, did not distinguish
whether they were concerned with firm or non-firm redirects and instead
addressed redirects generally.
Comments
    363. APPA notes that many of its members have experienced
difficulties in changing receipt points, especially when such requests
involve new sources of supply. In many cases, APPA asserts that
transmission providers require major upgrades before they will grant a
redirect to new points. The Public Power Council points out that
redirecting to new points depends on ATC, and, therefore, the ability
to make changes would be improved by better public knowledge of ATC at
those points in all timeframes and by more information about ATC
calculation methodologies. EPSA asserts that difficulty in redirecting
to new points inhibits the ability to reassign capacity. Williams
complains about delays by transmission providers in answering requests
for redirects and urges the Commission to enforce OATT procedures and
to consider a ``fast-track'' process for reviewing requests to
redirect.
    364. Bonneville and EEI believe that any discrimination may be an
unintentional result of a lack of clarity in the pro forma OATT, and
are joined by MidAmerican, Progress Energy, and PNM-TNMP in calling for
a number of clarifications. MidAmerican believes that these
clarifications will provide flexibility to transmission customers and
will enhance the ability to reassign transmission service to customers
desiring different points of receipt or delivery.
    365. Southern and Ameren assert that because customers often make
redirect requests at the last minute, there is often not enough time
for the market to respond to capacity made available on an abandoned
path. Southern also highlights the administrative burdens and
complexity (particularly for reliability) of processing short-term
changes in service and suggests that the Commission consider measures
to encourage transmission customers to provide greater certainty as to
the expected paths along which they will schedule service and to do so
in a more timely manner. Southern, along with Bonneville, also urges
the Commission to clarify rollover rights when service is redirected to
new points. In general, however, Southern believes that the
Commission's current redirect policies are reasonable and practical.
    366. A number of commenters focus on other related transmission
issues, such as the flexibility afforded network service versus point-
to-point service or other network-service-related issues; \339\ the
lack of flexibility with point-to-point service generally; \340\ or
issues associated with the interconnection of network load at new
delivery points.\341\
---------------------------------------------------------------------------

    \339\ E.g., Alberta Intervenors, Calpine, and TAPS.
    \340\ E.g., Occidental.
    \341\ E.g., NRECA and TDU Systems.
---------------------------------------------------------------------------

Discussion
    367. The Commission believes that it has already addressed many of
the concerns raised by commenters with regard to reform of section 22
of the pro forma OATT in Docket No. RM05-5-000.\342\ In Order No. 676,
the Commission adopted the ``Standards for Business Practices and
Communication Protocols for Public Utilities'' developed by the NAESB's
Wholesale Electric Quadrant (WEQ).\343\ Order No. 676 incorporates the
aforementioned standards by reference into the Commission's
regulations; requires public utilities to implement the standards by
July 1, 2006; and requires public utilities to file revisions to their
OATTs to include these standards.\344\ The WEQ Standards recently
adopted by the Commission include a number of standards addressing
requirements for dealing with redirects on both a firm and non-firm
basis.\345\ In fact, all of the WEQ Standards dealing with redirects
were adopted by the Commission in Order No. 676, except for WEQ
Standard 001-9.7, which addresses the impact of a firm redirect on a
long-term firm transmission customer's rollover rights under section
2.2 of the pro forma OATT. The Commission directed the WEQ to
reconsider WEQ Standard 001-9.7 and to adopt a revised standard
consistent with the Commission's

policies.\346\ The Commission also offered guidance to assist the WEQ
in developing a standard that is consistent with Commission
policy.\347\
---------------------------------------------------------------------------

    \342\ Standards for Business Practices and Communication
Protocols for Public Utilities, Order No. 676, 71 FR 26199 (May 4,
2006), FERC Stats. & Regs. ] 31,216 (2006).
    \343\ The WEQ was established by NAESB in response to a
Commission order requesting the wholesale electric power industry to
develop business practice standards and communication protocols by
establishing a single consensus, industry-wide standards
organization for the wholesale electric industry. See id. at P 3-4.
    \344\ The standards will hereinafter be referred to as the WEQ
Standards. The Commission proposes to add a reference to the WEQ
standards in section 4 of the pro forma OATT, which identifies the
Commission's regulations containing the terms and conditions
relevant to the OASIS and standards of conduct.
    \345\ The requirements for dealing with redirects on a firm
basis are found at WEQ Standard 001-9, et seq., and the requirements
for dealing with redirects on a non-firm basis are found at 001-10,
et seq.
    \346\ Order No. 676 at P 52.
    \347\ Id. at P 53-61.
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    368. As noted above, we believe that a number of concerns raised by
commenters are addressed by the WEQ Standards. For example, we believe
that the request of commenters for clarification that redirect service
may be requested for only a portion of the original quantity of service
is addressed for firm and non-firm service by WEQ Standards 001-9.2 and
001-10.2, respectively, which provide that the transmission customer
``shall be allowed to request a Redirect on a [Firm/Non-Firm] basis for
a portion or all of the Capacity Available to Redirect.'' Likewise, the
request of commenters for clarification that it is not necessary for a
customer to redirect its service for the entire remaining term of
service is addressed for firm and non-firm service by WEQ Standards
001-9.3 and 001-10.3, respectively, which provide that the transmission
customer ``shall be allowed to request a Redirect on a [Firm/Non-Firm]
basis for a portion or all of the time period of the Parent
Reservation.'' While we believe that many concerns expressed by
commenters with regard to redirects in this proceeding have been
addressed by Order No. 676, we request that each commenter reconsider
its concerns in this area with the benefit of Order No. 676's adoption
of the WEQ Standards, and inform us if additional concerns remain. The
Commission notes that several of the most active commenters addressing
redirects in this proceeding also were commenters in Docket No. RM05-5-
000 and therefore should be familiar with whether a particular WEQ
Standard addresses the issues raised in the comments submitted in this
proceeding.\348\
---------------------------------------------------------------------------

    \348\ For example, Bonneville, EEI, NRECA, and Southern each
commented in Docket No. RM05-5-000.
---------------------------------------------------------------------------

    369. The Commission anticipates that a number of other concerns,
while perhaps not yet addressed (or addressed fully) by a WEQ Standard,
are nevertheless the types of issues appropriate for the WEQ process.
The Commission therefore proposes that each commenter that continues to
believe additional reform is necessary in this area also evaluate
whether its concerns would more appropriately be addressed by the WEQ
as it considers its next version of its standards.\349\ Specifically,
as noted above, the WEQ is in the process of reevaluating WEQ Standard
001-9.7, dealing with redirects and rollovers, so that it is consistent
with the Commission's guidance given in Order No. 676. The Commission
requests comment on whether the WEQ process, along with the guidance
provided by the Commission in Order No. 676, is sufficient to address
the concerns of commenters that seek clarification on the interplay
between redirects and rollovers.
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    \349\ The Commission notes in this regard that the WEQ's
procedures ensure that all industry members can have input into the
development of a business practice standard, whether or not they are
members of NAESB, and each standard it adopts is supported by a
consensus of the five industry segments: Transmission, generation,
marketers/brokers, distribution/load-serving entities, and end-
users. See Order No. 676 at P 5 & n.5.
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    370. The Commission understands, however, that there are also more
fundamental concerns with regard to section 22 that were raised in the
NOI. Many comments reflect concerns about the inability of transmission
customers to effectively redirect their transmission service to new
receipt and delivery points in order to accommodate a new transaction,
the reassignment of capacity, or the designation of a new supply
source. Generally, these commenters argue that their ability to
redirect to new points is stymied by a lack of ATC at the new points or
the need for major upgrades at the new points; or that the transmission
provider takes too long to process its redirect request. Transmission
providers, on the other hand, complain of the administrative burdens
and complexity (particularly with regard to reliability) of processing
transmission customers' short-term changes in service, and also assert
that there is often not enough time for the market to respond to
capacity made available on customers' original paths.
    371. The ability to redirect to new points is a function of whether
there is ATC at the new points. The Commission believes that its
proposed reforms requiring coordinated transmission planning between
transmission providers and their customers, as well as regional
transmission planning open to all stakeholders, will lead to a more
rationally planned transmission system that will result in fewer
transmission constraints and more ATC available to accommodate requests
to redirect to new points.\350\ Additionally, the Commission's proposed
reforms regarding the calculation of ATC and increased transparency
over the process will engender increased confidence among transmission
customers in their transmission providers' ATC postings.\351\ In short,
transmission customers will have more accurate and complete ATC
information to utilize in evaluating their redirect options. Moreover,
through increased transparency, transmission customers will have the
information they need to question a transmission provider's denial of a
request to redirect. Thus, we believe that our reforms in the area of
transmission planning and ATC calculation should go a long way toward
addressing transmission customer concerns in this area. Should
commenters believe that our proposed reforms in this area will not
address their concerns effectively, or that there is a better way of
addressing them, we encourage them to submit a specific proposal, along
with proposed revised pro forma OATT language.
---------------------------------------------------------------------------

    \350\ Supra Part V.B.
    \351\ Supra Part V.A.
---------------------------------------------------------------------------

    372. We believe that redirects should be as customer-friendly as
possible. Other pro forma OATT reforms proposed in this rulemaking
should improve the ability to redirect transmission service to new
points pursuant to section 22. For example, the modifications to firm
point-to-point service discussed above will be applicable to a request
to redirect on a firm basis, as such requests are treated as a new
request for service under pro forma OATT section 22.2. In addition,
reforms related to the acquisition of service discussed below (e.g.,
with regard to making and processing requests for service, queuing, and
reservation priority) should, among other things, help to address
transmission customer concerns that transmission providers are too slow
in processing redirect requests. These reforms also should help to
address transmission provider concerns that customers do not respond
completely and in a timely manner and that there is insufficient time
to re-market capacity on the original paths.
5. Acquisition of Transmission Service
a. Processing of Service Requests
    373. The pro forma OATT includes requirements that transmission
providers process requests for transmission service in a timely
fashion. Section 17.5 (Response to a Completed Application) and section
18.4 (Determination of Available Transmission Capability) of the pro
forma OATT provide that following the receipt of a completed
application for service, the transmission provider must respond to
transmission customer requests for determinations of the availability
of firm and non-firm

transmission capacity on a timely basis. The transmission provider must
make the determination as soon as reasonably practicable after receipt
but no later than certain specified time periods (or such time periods
generally accepted in the region). Section 19 (Additional Study
Procedures for Firm Point-to-Point Transmission Service Requests) of
the pro forma OATT provides deadlines that transmission providers must
adhere to in issuing system impact study agreements and facilities
studies agreements and that transmission customers must abide by in
responding to these study agreements. Section 19 requires transmission
providers to use due diligence to complete system impact studies and
facilities studies within 60 days. Section 32 of the pro forma OATT
(Additional Study Procedures for Network Integration Transmission
Service Requests) contains similar due diligence deadlines for
completing system impact studies and facilities studies associated with
requests for network service.
    374. In the NOI, the Commission sought comment on problems
transmission customers and transmission providers have experienced
regarding the timely processing of requests for transmission service.
In particular, the Commission sought comment regarding whether
transmission customers have experienced delays by transmission
providers in responding to requests for transmission service in general
and, in particular, what problems commenters have experienced as
transmission providers process the queue for requests for transmission
service that cannot be immediately granted due to a lack of ATC. We
also asked about the type of remedies the Commission should impose on
public utility transmission providers for missing deadlines set forth
in their OATTs. Another issue we sought comment on was whether
commenters have identified blocking issues, such as where a customer
submits multiple requests intending to proceed with a single request
specifically to keep others out of the queue; and if so, whether
allowing transmission providers to charge a processing fee would reduce
the incentive to submit multiple self-competing requests. Finally, we
sought comment on whether the Commission should require transmission
providers to study transmission requests as a group.
Comments
    375. A number of merchant generators articulated general concerns
regarding the time it takes transmission providers to process requests
for transmission service.\352\ EPSA notes that timeliness in responding
to transmission requests is a consistent problem. Constellation states
that the untimely processing of requests for transmission service is a
persistent problem under the OATT, particularly with respect to long-
term point-to-point service, network service, and modification of
network resource designations. Arkansas Cities adds that, under the
current OATT, utilities' lenient application of time periods needed for
the system impact study process and facilities study process cause
transmission customers to endure significant amounts of time to obtain
confirmed firm delivery service at a reasonable cost.
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    \352\ E.g., Constellation, EPSA, Powerex, and Williams.
---------------------------------------------------------------------------

    376. A number of commenters suggest that transmission providers
should inform the Commission when they miss the target deadlines for
completing system impact studies and facilities studies and/or post
performance statistics on their OASIS sites that detail the time it
takes them to process system impact studies and facilities
studies.\353\ EPSA states that it strongly believes that the new OATT
should require the transmission provider to notify the Commission when
it is not able to meet deadlines. TDU Systems suggests that one way to
address the difficulty of determining acceptable delays is to require
transmission providers to post statistics on their OASIS sites
providing information as to the length of time it might take to process
requests for transmission service. Cinergy proposes that adopting
specific reporting metrics that require transmission providers to
report certain statistics regarding their performance could result in
an improved quality of service.
---------------------------------------------------------------------------

    \353\ E.g., Cinergy, Constellation, EPSA, MidAmerican, Powerex,
and TDU Systems.
---------------------------------------------------------------------------

    377. A number of merchant generators propose that the Commission
assess operational penalties on transmission providers that fail to
meet the study deadlines detailed in the pro forma OATT.\354\ LG&E
recommends that the Commission consistently enforce the established
deadlines through penalties or other remedies unless good cause for
failure to comply can be shown, so as to promote nondiscriminatory
adherence to established deadlines. Powerex suggests that the
Commission: (a) Identify a threshold percentage rate of acceptable
compliance with response timelines, (b) require transmission providers
to monitor and post their own rates of compliance with Commission-
required timelines on a path-specific basis, as well as the reasons for
delays, (c) require transmission providers whose rate of compliance on
a particular path falls below the Commission's threshold to file a
compliance report with the Commission identifying the problem(s) and
corrective measures that will be undertaken (including a timeline for
implementation of the corrective measures), and (d) use a progressive
penalty system that begins with reporting and auditing requirements for
non-compliant transmission providers and then moves toward monetary
penalties in cases where a transmission provider exhibits a pattern of
uncorrected noncompliance, as well as in any case where actual bad
faith, discrimination or preferential treatment has occurred.
---------------------------------------------------------------------------

    \354\ E.g., EPSA, Powerex, and Williams.
---------------------------------------------------------------------------

    378. A number of transmission providers state that transmission
service request processing is slowed by excessive requests for
transmission service from the same transmission customer with
essentially the same service attributes (e.g., point of receipt, point
of delivery, start time, end time, firmness).\355\ A number of other
commenters also argue that some transmission customers submit multiple
requests for transmission service with no intent to confirm most of the
requests if and when the requests are accepted.\356\ MidAmerican states
that it is aware of cases where customers have submitted multiple
requests for service associated with a new generator where the location
of the new generator is not known but queue priority is being sought by
the transmission customer. MidAmerican adds that the submission of such
multiple requests for service affects the processing of other lower
queued transmission requests. South Carolina E&G states that there are
instances when a transmission customer submits multiple requests
intending to proceed with a single request, seemingly with the purpose
of keeping others out of the queue. AWEA states that transmission
queues are frequently jammed with many projects holding each other up.
AWEA asserts that there often are ``zombie'' projects blocking the
queue, without a power purchase agreement or other indication that they
are serious projects. Suez Energy NA responds that there are blocking
issues when a transmission customer submits multiple requests for
transmission

service but intends to proceed with a single request.
---------------------------------------------------------------------------

    \355\ E.g., MidAmerican, Progress Energy, South Carolina E&G,
and Southern.
    \356\ E.g., Alberta Intervenors, AWEA, Public Power Council, and
Suez Energy NA.
---------------------------------------------------------------------------

    379. Several federal power agencies suggest that charging a fee on
transmission service requests could provide the right incentive to
transmission customers to limit requests for transmission service to
only those requests they expect to confirm.\357\ Several other
commenters suggest a similar fee.\358\ Bonneville supports the
imposition of a processing fee for multiple requests to provide a
disincentive to blocking behavior. Bonneville suggests that the fee
should provide a disincentive for making multiple, ``self-competing''
requests. Bonneville suggests that, at a minimum, requests with the
same point of receipt, point of delivery, source, sink, and time-frame
should be considered ``self-competing.'' In addition, Bonneville
contends that transmission providers should be allowed to define
parameters to identify additional instances of ``self-competing''
requests on their systems. South Carolina E&G argues that there is
merit to the concept of charging a processing fee that would increase
with the duration of the requested service, to reduce the incentive to
submit multiple self-competing requests.
---------------------------------------------------------------------------

    \357\ E.g., Bonneville and TVA.
    \358\ E.g., Alberta Intervenors, Snohomish, and South Carolina
E&G.
---------------------------------------------------------------------------

    380. The majority of commenters were in favor of allowing, but not
requiring, transmission providers to study requests for transmission
service as a group, also known as clustering requests for transmission
service.\359\ APPA and Bonneville suggest amending the pro forma OATT
so that all requests received during a set time period are studied
together. EEI argues that the Commission should not require the
studying of transmission requests as a group, though transmission
providers should continue to have the discretion to cluster
transmission requests when it is efficient to do so. EPSA states that
clustering should not be required, but may be considered as a customer
option as part of a comprehensive planning process.
---------------------------------------------------------------------------

    \359\ E.g., EEI, EPSA, Nevada Companies, PacifiCorp, PNM-TNMP,
Powerex, and Southern.
---------------------------------------------------------------------------

    381. Bonneville suggests that the Commission adopt two NAESB
proposed business standards designed to reduce the number of self-
competing requests. In particular, Bonneville believes the Commission
should adopt NAESB's proposed queue hoarding business practice and
queue flooding business practice.
Discussion
    382. We agree with commenters who argue that requiring transmission
providers to report the length of time they take to complete studies
pursuant to sections 19 and 32 of the pro forma OATT would increase
transparency and improve the ability of transmission customers and the
Commission to detect undue discrimination. Therefore, we propose to
require transmission providers to post on their OASIS sites metrics
that track their performance in processing system impact studies and
facilities studies associated with requests for transmission service.
Transmission providers will be required to post the performance
metrics, outlined below, for each calendar quarter. Transmission
providers should begin tracking their performance upon the effective
date of the final rule in this proceeding and keep the quarterly
performance metrics posted on their OASIS sites for three calendar
years. The transmission provider will be required to post the quarterly
performance metrics within 15 days of the end of the quarter. The
performance metrics outlined below should be calculated separately for
affiliates' and non-affiliates' requests for short-term and long-term
transmission service. A transmission provider also will be required to
post performance metrics for studies that it conducts for RTOs.
    383. We propose to require transmission providers to post the
following set of performance metrics on a quarterly basis:
     Process Time from Initial Service Request to Offer of
System Impact Study Agreement pursuant to Sections 17.5, 19.1 and 32.1
of the pro forma OATT
    [cir] Number of new System Impact Study Agreements delivered to
Transmission Customers
    [cir] Number of new System Impact Study Agreements delivered to the
Transmission Customer more than 30 days after the Transmission Customer
submitted its request
    [cir] Average time (days) from request submittal to change in
request status
    [cir] Average time (days) from request submittal to delivery of
System Impact Study Agreement
    [cir] Number of new System Impact Study Agreements executed
     System Impact Study Processing Time pursuant to Sections
19.3 and 32.3 of the pro forma OATT
    [cir] Number of System Impact Studies completed
    [cir] Number of System Impact Studies completed more than 60 days
after receipt of executed System Impact Study Agreement
    [cir] Average time (days) from receipt of executed System Impact
Study Agreement to date when completed System Impact Study made
available to the Transmission Customer
    [cir] Average cost of System Impact Studies completed during the
period
     Service Requests Withdrawn from System Impact Study Queue
    [cir] Number of requests withdrawn from the System Impact Study
queue
    [cir] Number of System Impact Studies withdrawn more than 60 days
after receipt of executed System Impact Study Agreement
    [cir] Average time (days) from receipt of executed System Impact
Study Agreement to date when request was withdrawn from the System
Impact Study queue
     Process Time from Completed System Impact Study to Offer
of Facilities Study pursuant to Sections 19.4 and 32.4 of the pro forma
OATT
    [cir] Number of new Facilities Study Agreements delivered to
Transmission Customers
    [cir] Number of new Facilities Study Agreements delivered to
Transmission Customers more than 30 days after the completion of the
System Impact Study
    [cir] Average time (days) from completion of System Impact Study to
delivery of Facilities Study Agreement
    [cir] Number of new Facilities Study Agreements executed
     Facilities Study Processing Time pursuant to Sections 19.4
and 32.4
    [cir] Number of Facilities Studies completed
    [cir] Number of Facilities Studies completed more than 60 days
after receipt of executed Facilities Study Agreement
    [cir] Average time (days) from receipt of executed Facilities Study
Agreement to date when completed Facilities Study made available to the
Transmission Customer
    [cir] Average cost of Facilities Studies completed during the
period
    [cir] Average cost of recommended upgrades for Facilities Studies
completed during the period
     Service Requests Withdrawn from Facilities Study Queue
    [cir] Number of requests withdrawn from the Facilities Study queue
    [cir] Number of Facilities Studies withdrawn more than 60 days
after receipt of executed Facilities Study Agreement
    [cir] Average time (days) from receipt of executed Facilities Study
Agreement to date when request was withdrawn from the Facilities Study
queue
    384. We also propose to impose operational penalties when
transmission providers routinely fail to meet the 60-

day due diligence deadlines prescribed in sections 19.3, 19.4, 32.3 and
32.4 of the pro forma OATT. We propose to require a transmission
provider to file a notice with the Commission in the event the
transmission provider processes more than 20 percent of non-affiliates'
studies outside of the 60-day due diligence deadlines in the pro forma
OATT for two consecutive quarters. For the purposes of calculating this
notification trigger, the transmission provider should aggregate all
system impact studies and facilities studies that it completes during
the quarter for non-affiliates.\360\ The transmission provider may
explain in its notification filing that it believes there are
extenuating circumstances that prevented it from meeting the deadlines
in the pro forma OATT. The transmission provider then will be subject
to an operational penalty if the transmission provider continues to be
out of compliance with the deadlines prescribed in the pro forma OATT
for each of the two quarters following its notification filing. The
transmission provider will be deemed to be out of compliance if it
completes 10 percent or more of non-affiliates' system impact studies
and facilities studies outside of the deadlines prescribed in the pro
forma OATT. The operational penalty will be assessed on a quarterly
basis, starting with the quarter following the notification filing and
continuing until the transmission provider completes at least 90
percent of all studies within 60 days after the study agreement has
been executed. For any system impact study or facilities study
completed during that quarter and more than 60 days after the study
agreement was executed, the penalty will equal $500 for each day the
transmission provider takes to complete the study beyond 60 days. For
any system impact study or facilities study that is still pending at
the end of the quarter and that has been in the study queue for more
than 60 days, the penalty will equal $500 for each day the study has
been in the study queue beyond 60 days. Because of their independence,
we do not believe that RTOs have an incentive to neglect their
obligation to process applications for service in a timely fashion. As
a result, we propose that RTOs will not be subject to this penalty
regime.
---------------------------------------------------------------------------

    \360\ For instance, if the transmission provider completes 4
non-affiliates' system impact studies during the quarter with 2
completed more than 60 days after the system impact study agreement
was executed and completes 2 non-affiliates' facilities studies
during the quarter with none completed more than 60 days after the
facilities study agreement was executed, then the transmission
provider will be deemed to have completed 2 out of 6 (33 percent)
studies outside of the deadlines in the pro forma OATT.
---------------------------------------------------------------------------

    385. In addition to the operational penalty described above, we
propose to require transmission providers to post on their OASIS sites
additional performance metrics after making a notification filing.
Transmission providers will have to post these performance metrics
until they process at least 90 percent of all system impact and
facilities studies within 60 days after the study agreement has been
executed. Starting the quarter following a notification filing, the
transmission provider will be required to post: (1) The average, across
completed system impact studies, of the employee-hours expended per
completed system impact study; (2) the average, across completed
facilities studies, of employee-hours expended per completed facilities
study, (3) the number of employees devoted to processing system impact
studies, and (4) the number of employees devoted to processing
facilities studies. These additional performance metrics should be
calculated separately for affiliates' and non-affiliates' requests for
transmission service and for short-term and long-term transmission
service.
    386. In addition to the operational penalties described above, we
may order other remedial actions, consistent with the Enforcement
Policy Statement. Any other remedial action will be determined on a
case-by-case basis. The transmission provider will pay the operational
penalty described above, consistent with the proposed rule discussed in
Part V.C.4.b. The transmission provider cannot recover for ratemaking
purposes any operational penalty it pays for failing to process
transmission service studies on a timely basis.
    387. With respect to the problem of multiple, self-competing
transmission service requests, we seek comment on a fee structure that
could provide a disincentive for transmission customers to submit such
duplicative requests without penalizing transmission customers that
have legitimate requests for transmission service. We seek detailed
recommendations, including any proposed tariff language, regarding the
standards we would use to identify requests that would be subject to a
fee. We also seek recommendations on the level of the fee that balances
our policy goals to discourage requests for transmission service that
the transmission customer does not intend to confirm while not
discouraging legitimate requests for transmission service. Finally, we
seek comment regarding the circumstances, if any, under which the
processing fee would be refunded to or credited to the transmission
customer.
    388. In Order No. 2003, we encouraged transmission providers to
study interconnection requests in clusters.\361\ We likewise encourage
transmission providers to study requests for transmission service in
clusters, though we will not require transmission providers to cluster
requests for transmission service for study purposes.\362\ As with
interconnection requests, studying requests for transmission service in
clusters allows the transmission provider to consider all requested
uses of the transmission system at one time. We seek comment regarding
whether transmission providers should be required to study requests for
transmission service in a group if the transmission provider fails to
complete studies on a timely basis; and, if so, we seek comment on the
circumstances that should trigger such a requirement and the
appropriate method of implementing the requirement. We further seek
comment regarding whether transmission providers should be required to
study requests for transmission service in a group if all the
transmission customers in the group agree to cluster their requests. We
also seek comment regarding how to select the requests that belong to a
cluster so that transmission customers cannot ``cherry-pick'' clusters
to avoid transmission system upgrade costs.
---------------------------------------------------------------------------

    \361\ Order No. 2003 at P 155.
    \362\ We note that we previously have allowed transmission
providers to study requests for transmission service in a group.
See, e.g., Southwest Power Pool, Inc., 110 FERC ] 61,028 at P 16
(2005).
---------------------------------------------------------------------------

    389. In Order No. 676, we incorporated by reference a number of
NAESB business practices, including the business standards on queue
hoarding and queue flooding.\363\ NAESB's queue hoarding business
practice allows transmission providers to deny a transmission
customer's identical requests for transmission service if the customer
elects not to accept an initial offer of identical, or substantially
identical, transmission service. NAESB's queue flooding business
practice allows a transmission provider to invalidate the submission of
additional identical requests for transmission service when the sum of
all previously submitted identical requests for transmission service
equals or exceeds the total transfer capability on the requested path
for any time period during the duration of the requests. We would
consider the decision by a transmission provider to

deny service under the queue hoarding business practice and the
decision to invalidate requests under the queue flooding business
practice to be an act of discretion under 18 CFR 37.6(g)(4) (2005). As
a result, the transmission provider is to log the actions it takes
under the queue flooding and queue hoarding business practices.
---------------------------------------------------------------------------

    \363\ See Order No. 676 at P 19.
---------------------------------------------------------------------------

b. Queue Processing Business Practices
    390. The set of uniform business practices adopted in Order No. 676
relating to transmission service price negotiation and on improving
interaction between transmission customers and transmission providers
over OASIS nodes. These business practices include standards for the
time limit within which (1) transmission providers must respond to
requests for transmission service, (2) transmission customers must
confirm service, and (3) transmission providers must respond to a rebid
from a transmission customer.\364\ These business practices also
include negotiation priority rules, including the terms under which a
request can be pre-empted and under which a request has the right-of-
first-refusal.\365\
---------------------------------------------------------------------------

    \364\ Id., Standards 001-4.6 and 001-4.13.
    \365\ Id., Standards 001-4.14 and 001-4.16.
---------------------------------------------------------------------------

    391. In the NOI, the Commission sought comment regarding whether
there are provisions of the pro forma OATT that need to be reformed to
better define the obligations of public utility transmission providers
in responding to requests for transmission service.
Comments
    392. Several commenters asked that the Commission require
transmission providers to post standard business practices that
describe how the transmission provider will process requests for
transmission service.\366\ MidAmerican suggests that transmission
providers should be required to post on their OASIS sites a business
practice documenting how they process their queues, requests outside
the queue, and expected completion times. Calpine believes that the
processing of requests for transmission service, and the deadlines
associated with that process, should be standardized for all
transmission service providers. For example, Calpine notes that
Entergy's OASIS business practices state that Entergy will respond to
fixed, hourly non-firm transmission service requests ``within 30
minutes of receiving the request for the requests received earlier than
1 hour before the service is to commence.'' By comparison, Calpine
continues, SPP's tariff explains that hourly, non-firm transmission
service requests for the next hour may be submitted no later than 20
minutes prior to the start of service.
---------------------------------------------------------------------------

    \366\ E.g., Calpine, MidAmerican, and TDU Systems.
---------------------------------------------------------------------------

Discussion
    393. Order No. 676 contains many of the business practices we
expect transmission providers to follow when they process requests for
transmission service, including the issue Calpine raises in its
comments about discrepancies between Entergy's and SPP's processes for
requests for hourly non-firm transmission service. Calpine's comment
addresses the deadline for transmission customers to submit requests
for non-firm hourly point-to-point service and the deadline for
transmission providers to respond to requests for non-firm hourly
point-to-point service. Standard 001-4.13 in Order No. 676 indicates
that transmission providers should use their best efforts to respond to
requests for non-firm hourly point-to-point service that are submitted
less than an hour prior to start and transmission providers should
respond within 30 minutes to requests that are submitted more than an
hour before start. In addition, in this NOPR we have provided
additional clarity regarding the calculation of ATC and requirements
for processing rollover requests. We also provide general guidance
regarding which business practices should be filed as part of a
transmission provider's OATT and which should be posted on OASIS. Given
this additional clarity and the business practices already mandated by
Order No. 676, we seek comment on whether commenters believe additional
standardization of request queue processing is necessary. If so, we
seek comment on the specific issues commenters believe are not clearly
prescribed in Order No. 676 or this NOPR and which require additional
mandatory queue processing business practices.
c. Reservation Priority
    394. Section 13.2 of the pro forma OATT requires transmission
providers to process requests for long-term firm point-to-point service
on a first-come, first-served basis. In the NOI, we asked whether the
first-come, first-served approach to reservation priorities has
resulted in a fair and equitable means of allocating transmission
capacity when the transmission system is oversubscribed. If not, we
asked whether an alternative approach should be implemented.
Comments
    395. Most transmission providers and federal power agencies respond
that the first-come, first-served approach to allocating transmission
service is the best alternative available.\367\ Several merchant
generators and public power entities concur that no better alternative
exists.\368\ Several commenters suggest that the first-come, first-
served approach may provide an advantage to transmission customers who
have the financial resources to purchase software and employ staff to
continually monitor OASIS sites.\369\ Santa Clara states that entities
that have superior software and are able to consistently procure
capacity to the exclusion of other market participants may have an
unfair advantage.
---------------------------------------------------------------------------

    \367\ E.g., Ameren, EEI, Nevada Companies, TVA, and WAPA.
    \368\ E.g., NRECA, Powerex, Public Power Council, Sempra, and
TDU Systems.
    \369\ E.g., Bonneville and Santa Clara.
---------------------------------------------------------------------------

    396. For the short-term market, Bonneville contends, the first-
come, first-served approach has two defects: (1) It advantages larger
and better-financed transmission customers, which can continually
monitor OASIS sites and submit requests electronically the moment new
ATC is posted; and (2) it results in arbitrary awards of transfer
capability when one customer's submission precedes a second customer's
submission by mere seconds. Bonneville suggests that the Commission
modify the first-come, first-served rule for awarding short-term firm
point-to-point service capacity so that all requests submitted within a
given time-frame are considered simultaneously submitted.
    397. Several commenters propose some version of priority preference
for requests for transmission service that are pre-confirmed.\370\
Bonneville states that transmission customers flood the queue with
unconfirmed requests to force competitors with higher queue positions
to extend the length of their requests to retain their queue positions.
---------------------------------------------------------------------------

    \370\ E.g., Bonneville, Entergy, and South Carolina E&G.
---------------------------------------------------------------------------

    398. Bonneville suggests that the Commission consider reducing the
time transmission customers have to confirm requests for short-term
transmission service after the transmission provider has accepted a
request for short-term transmission service. Bonneville states that a
shorter time-frame would clear the short-term firm transmission market
more quickly and make it more difficult for transmission customers to
tie up scarce transfer capability.

    399. Powerex suggests that the Commission clarify its reservation
priority standards so that when transmission providers make use of
discounts in short-term service, price (not to exceed the ceiling
price) should be the third-level tie breaking mechanism, with higher-
priced requests of equal duration having greater priority and requests
earlier in the open access same-time information system having right of
first refusal to match subsequent requests. Powerex states that in the
presence of discounting, the open access transmission tariff allows a
higher value service (firm) to be sold at a lower price than a lower
value service (non-firm) even in the same operating horizon, because
price based displacement only applies to short-term non-firm
transmission services.
Discussion
    400. In response to comments that transmission customers that have
the financial resources to purchase software and employ staff to
continually monitor OASIS sites have an unfair advantage under a first-
come, first-served approach, we seek comment regarding whether any such
advantage would be mitigated if all requests submitted within a 5-
minute window, with duration as a tie breaker, were deemed to have been
submitted simultaneously. We also seek comment on whether transmission
customers could game a 5 minute equivalent priority standard to request
transmission service only after another transmission customer has made
a request. To the extent we adopt a 5 minute equivalent priority
standard, we propose to allocate capacity on a pro rata basis, though
we seek comment on other methods for allocating limited transmission
capacity among equivalent priority requests of equal duration.
    401. We also propose to change the priority rules to give priority
to pre-confirmed requests. As a result, a pre-confirmed short-term
request for firm transmission service would preempt any non-pre-
confirmed short-term requests, regardless of duration. Similarly, a
pre-confirmed request for long-term firm transmission service would
preempt a request for long-term transmission service that is not pre-
confirmed. We seek comment on whether this change to the reservation
priority rules will alleviate concerns commenters have expressed
regarding the flooding or jamming of the transmission queue by
transmission customers who submit multiple requests for transmission
service.
    402. We propose to add price as a tie-breaker in determining
reservation queue priority when the transmission provider is willing to
discount transmission service. Price would serve as a tie-breaker after
pre-confirmation for those requests that are not yet confirmed. As a
result, a pre-confirmed request for short-term firm point-to-point
service would preempt another pre-confirmed request for short-term firm
point-to-point service that has an earlier queue time, and an equal or
shorter duration but a lower offer price. However, a request for short-
term firm point-to-point service that is not pre-confirmed would not
preempt a pre-confirmed request for short-term firm point-to-point
service that has an earlier queue time, and an equal or shorter
duration but a lower offer price.
6. Designation of Network Resources
a. Qualification as a Network Resource
    403. Taken together, the following sections of the pro forma OATT
describe the resources a network customer can appropriately designate
as a network resource. Section 30.1 of the pro forma OATT describes
network resources as all generation owned or purchased by the network
customer designated to serve network load under the tariff. Section
30.1 also indicates that network resources may not include resources
that are committed for sale to non-designated third-party load or
otherwise cannot be called upon to meet the network customer's network
load on a noninterruptible basis. Pursuant to section 30.7 of the pro
forma OATT, the network customer must demonstrate that it owns or has
committed to purchase generation pursuant to an executed contract in
order to designate a generating resource as a network resource.
Alternatively, the network customer may establish that execution of a
contract is contingent upon the availability of network service.
Section 29.2 requires the network customer to provide the following
information about a power purchase agreement that is to serve as a new
designated network resource: source of supply, control area location,
transmission arrangements and delivery point(s) to the transmission
provider's transmission system.
    404. The Commission has issued a number of orders that clarify
which resources meet the criteria set out in sections 30.1 and 30.7 of
the pro forma OATT. In MSCG, the Commission stated that network
resources must be generating resources owned by the network customer or
purchases of noninterruptible power under executed contracts that
require the network customer to pay for the purchase.\371\ In WPPI, the
Commission found that a network customer can designate as a network
resource a system purchase that is not backed by a specific
generator.\372\ The Commission found that Wisconsin Public Service
Corporation (WPS) had appropriately designated a power purchase as a
network resource, even though the power purchase agreement did not
require WPS to take energy around the clock and allowed WPS to convert
its energy purchase to a discounted product that could be
interrupted.\373\ In addition, the Commission stated that because the
pro forma OATT requires a power purchase to be noninterruptible, third-
party transmission arrangements to deliver the resource to the network
have to be noninterruptible as well.\374\ In Illinois Power, the
Commission found that a firm purchase need not be backed by a capacity
purchase to qualify as a network resource.\375\
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    \371\ Morgan Stanley Capital Group v. Illinois Power Co., 83
FERC ] 61,204 at 61,911-12 (1998), order on reh'g, 93 FERC ] 61,081
(2000) (MSCG).
    \372\ Wisconsin Public Power Inc. v. Wisconsin Public Service
Corp., 84 FERC ] 61,120 at 61,650-51 (1998) (WPPI).
    \373\ Id.
    \374\ Id. at 61,660.
    \375\ Illinois Power Co., 102 FERC ] 61,257 at P 14 (2003),
reh'g denied, 108 FERC ] 61,175 (2004) (Illinois Power).
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    405. In the NOI, the Commission sought comment regarding whether
network resources consisting of firm contracts that do not specify
generation sources until the energy is scheduled (so-called ``seller's
choice contracts'') are a problem. The Commission also sought comment
on the specific difficulties entities have experienced with designation
of network resources and asked what reforms are needed to the
designations provision in the pro forma OATT.
Comments
    406. A number of commenters indicate that firm contracts that do
not specify generation sources are acceptable network resources as long
as the network customer specifies enough information for the
transmission provider to identify how the contract power will enter its
control area.\376\ Bonneville suggests that the customer should be
required to identify the point(s) of receipt on the transmission
provider's system whenever it designates a network resource. EEI states
that the designation of seller's choice contracts as network resources
is only problematic if the seller's choice contract permits the seller
to choose the

flowgate path over which the energy will be delivered. EEI further
explains that no issue is present if the seller is limited to a single
path or flowgate. On the other hand, PNM-TNMP argues that allowing
seller's choice contracts to be considered network resources
significantly complicates transmission planning, as virtually none of
the information required by section 29.2 of the OATT can be provided.
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    \376\ E.g., Bonneville, EEI, Nevada Companies, Public Power
Council, and TVA.
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    407. Several commenters cited specific difficulties with or
suggested specific modifications to the network designation provisions
of the tariff. APPA indicated that under the liquidated damages
provisions in the EEI contract, it is the buyer's responsibility to go
out into the market to purchase replacement supplies (cover), and the
seller then pays the buyer the difference between the contract price
and the cover price. APPA states that these provisions are not
consistent with the concept of having to specify generation resources
or contracts as network resources, since the actual source and supplier
of generation may well change at a time when both wholesale power
supplies and transmission capacity are at a premium. Ameren suggests
that the Commission clarify that liquidated damages products cannot be
designated network resources. Ameren states that a liquidated damages
contract allows a supplier to walk away from a deal if it can obtain a
price elsewhere high enough to offset the liquidated damages
provisions. Ameren argues that liquidated damages contracts are
financial instruments that produce no electricity. MidAmerican also
contends that provisions for designating liquidated damages contracts
as network resources should be eliminated. Southwestern urges the
Commission to reform the OATT to make it clear that a firm purchased
power contract with liquidated damages should be eligible to be
considered a designated network resource.
Discussion
    408. We propose to maintain our current policy regarding the power
purchase agreements that network customers may designate as network
resources. In particular, a network customer will continue to be able
to designate resources from system purchases not linked to a specific
generating unit, provided the purchase power agreement is not
interruptible for economic reasons, does not allow the seller to fail
to perform under the contract for economic reasons, and the executed
contract requires the network customer to pay for the purchase. In
addition, third party transmission arrangements to deliver the purchase
to the network have to be noninterruptible as well.
    409. In response to comments that seller's choice contracts are
problematic because the network customer can provide limited, if any,
information required by section 29.2 of the pro forma OATT, we
reiterate that a request to designate a new network resource must
include the information specified in section 29.2(v), including the
source of supply, control area location, transmission arrangements, and
delivery point(s) to the transmission provider's transmission system.
When a network customer is designating a system purchase as a new
network resource, the source information required in section 29.2(v)
should identify that the resource is a system purchase and should
identify the control area from which the power will originate. A power
purchase agreement that is structured so that a network customer cannot
specify all of the information required by section 29.2(v) cannot be
designated as a network resource.
    410. In response to suggestions that liquidated damages products
should not be designated network resources because they are
interruptible for economic reasons, we clarify that network customers
may not designate as network resources those power purchase agreements
that give the seller a contractual right to compensate the buyer
instead of delivering power even if the seller is able to deliver
power. For instance, a network customer may not designate as a network
resource a purchase agreement that allows the seller to interrupt
service for reasons other than reliability, but allows the buyer to
force delivery at a higher price. In addition, a network customer may
not designate as a network resource a purchase agreement that requires
a seller to pay the buyer's cost of replacement power when the seller
chooses not to deliver energy for economic reasons.
b. Documentation for Network Resources
    411. Section 30.2 of the pro forma OATT stipulates that a network
customer request the designation of a new network resource by a request
for modification of service pursuant to an application under section 29
of the pro forma OATT, and section 29.2 stipulates that the network
customer must provide specified information about its designated
network resources. The Commission found in WPPI that transmission
customers may need to document compliance with specific requirements
for obtaining tariff service, possibly including contractual
terms.\377\ The Commission went on to state that it expected a
transmission provider's merchant function to police its own compliance
with tariff obligations.\378\
---------------------------------------------------------------------------

    \377\ WPPI at 61,660.
---------------------------------------------------------------------------

Comments
    412. LG&E suggests that the pro forma OATT require the transmission
provider to have a process to verify that each load-serving entity has
a contractual right to the resources they are designating. LG&E argues
this would help eliminate concerns over double booking of resources by
two parties. EPSA states that transmission providers have attempted to
require customers to demonstrate that they have obtained contracts
covering an annual period, rather than allowing customers to provide
reasonable advance notice for each contract during the service period.
EPSA asks the Commission to prohibit this practice.
---------------------------------------------------------------------------

    \378\ Id.
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Discussion
    413. We clarify that transmission providers are not responsible for
verifying that the generating units and power purchase agreements
network customers designate as network resources satisfy the
requirements in sections 30.1 and 30.7 of the pro forma OATT. While
transmission providers are responsible for verifying that the network
customer has provided all the information section 29.2 requires the
network customer to provide, the transmission provider is not
responsible for obtaining contractual terms to verify requirements in
sections 30.1 and 30.7 of the pro forma OATT. The transmission provider
continues to have the responsibility to verify that third-party
transmission arrangements to deliver the purchase to the transmission
provider's system are firm.
    414. We propose to require the transmission provider's merchant
function as well as network customers to include a statement with each
application to designate a new network resource that attests that: (1)
The transmission customer owns or has committed to purchase the new
designated network resource, and (2) the new designated network
resource comports with the requirements for designated network
resources. The network customer should include this attestation in the
customer's comment section of the request when it confirms the request.
Similarly, we propose that all entities that submit an application for
network service be required to

include a statement with the application for service that attests that,
for each network resource identified in the application for service:
(1) The transmission customer owns or has committed to purchase the
designated network resource, and (2) the designated network resource
comports with the requirements for designated network resources.
    415. We propose that if the network customer does not include an
attestation when it confirms its request, the transmission provider
will notify the network customer within 15 days of confirmation that
its request is deficient. Wherever possible, the transmission provider
will attempt to remedy deficiencies in the request through informal
communications with the network customer. If such efforts are