native load customers. Rather, as we explain above, it is the type of
LD provision that is controlling. A power purchase contract with a
``make whole'' remedy could be used to serve native load customers.
    1459. We disagree with Duke and EEI's argument that there is a
conflict between the policy guidance given in Dynegy (that a power
purchase agreement which is interruptible for reasons other than
reliability is not eligible for designation as a network resource) and
the guidance given in WPPI (that a power purchase agreement which
permits curtailment to serve the seller's native load is eligible for
designation as a network resource). We reiterate the Commission's
finding in WPPI that a power purchase agreement properly designated as
a network resource may permit curtailment to serve the seller's native
load. Consistent with the long-standing definition in Order No. 888,
``curtailment'' contemplates a reduction in service as a result of
system reliability conditions, not economic reasons.
    1460. Although we find that the LD provision contained in the WSPP
Schedule C agreement does not impair the firmness of that agreement, we
note that the agreement otherwise allows interruptions in generation
service ``to meet [the] Seller's public utility or statutory
obligations to its customers.'' Thus, the WSPP Schedule C agreement
appears to allow interruptions for reasons other than reliability and,
as a result, would not be eligible for designation as a network
resource under the Dynegy or WPPI precedent. We find that the provision
in the WSPP Schedule C agreement allowing for interruption of
generation service in order to serve native load would need to be
revised to explicitly prohibit interruptions for reasons other than
reliability of service to native load in order for that provision to
meet the requirements established under Dynegy and WPPI.
    1461. Maintaining the standard for eligibility established in
Dynegy and WPPI will further the Commission's goals of preventing undue
discrimination, promoting comparable treatment of customers, and
increasing the accuracy of ATC calculations. However, we acknowledge
that some may currently be relying on the WSPP Schedule C agreement in
designating network resources and that there may be disruption if we
were to invalidate the designations of the existing WSPP Schedule C
resources. Thus, we exercise our discretion not to invalidate existing
designations of the WSPP Schedule C agreements as a result of
noncompliance with this particular requirement until the earlier of the
following: (1) The expiration of the current term of a power purchase
agreement or (2) redesignation of a previously designated WSPP Schedule
C resource following a period of temporary or indefinite termination
pursuant to sections 30.2 and 30.3 of the pro forma OATT.
Alternatively, parties may voluntarily reform the offending contract
terms in order to preserve their eligibility for network service.
(2) Off-System Resources
Comments
    1462. Many commenters request clarification or reconsideration of
the information that is required to be specified in section 29.2(v) of
the pro forma OATT in order to designate a seller's choice contract or
system sale as a network resource. Northwest Parties agree with the
proposal in the NOPR that system sales may be designated by providing
the control area from which the sale is made, transmission
arrangements, and delivery points to the transmission provider's
transmission system.\870\ For system sales, Northwest

Parties argue that unit-specific information is not needed because such
sales are, by definition, from a variety of resources and, in any
event, the resource-specific information is typically not available to
the purchaser. This is particularly true, they argue, for sales from
large hydroelectric systems, which are operated as one interconnected
unit. For purchase contracts, they argue that unit-specific information
is not needed because it is provided in the generation interconnection
agreement to the control area where the resource is located. Northwest
Parties contend that not requiring unit-specific information for
purchase of power, including purchases of system power, is consistent
with the Commission's description in the NOPR of the requirements to
designate a network resource.
---------------------------------------------------------------------------

    \870\ Northwest Parties request similar clarification for
designation of purchase contracts from one or more specified,
individual resources.
---------------------------------------------------------------------------

    1463. Pinnacle argues that the Final Rule should recognize that the
level of detail required by section 29.2(v) may vary depending on
circumstances and permit the transmission provider to determine the
level of information necessary for the evaluation of the network
resource. In some cases, a power purchase agreement may, they argue,
appropriately refer to more general information than a specific single
control area or single source of supply.
    1464. In cases where a power purchase agreement is being sourced by
generating units from an external control area, Entergy contends on
reply that simply identifying the control area is sufficient for
purposes of studying the deliverability of that resource. However, in
cases where the power is sourced by generating units internal to the
transmission provider's control area, Entergy argues that identifying
only the control area does not provide sufficient information to study
deliverability. In that case, Entergy argues that the customer must
provide the specific information required by section 29.2(v) of the pro
forma OATT, including the location of the specific generating units. If
such information is not available at the time of the network resource
designation, Entergy argues that the customer should still be able to
designate the agreement as a network resource, but that the customer
would have to confirm resource deliverability prior to actually
scheduling the service.
    1465. TDU Systems argue in their reply comments that specifying the
control area and the interface over which power will enter the
transmission provider's transmission system from a designated network
resource in an external control area is sufficient for purposes of
studying the deliverability of that resource. TDU Systems also argue
that, for competitive reasons, an LSE should never be required to
identify the generator or the transmission zone where the generator is
located.
    1466. In contrast, EEI requests that the Commission modify section
29.2(v) to clearly state that the transmission provider has the
discretion to require the network customer to identify the location of
the generator with more specificity than simply specifying the control
area in which the network resource is located, since the location will
affect the flowgate over which the energy will be transmitted. EEI
argues that it is necessary to narrow the location of the source of a
power purchase to the system of a particular transmission owner, rather
than a control area. PNM-TNMP and Duke also support requirements that
network customers provide more information concerning the location of
off-system network resources and purchase agreements so that the
transmission provider can properly evaluate the impact on its system.
Duke states that Duke Carolinas are now receiving requests to designate
as network resources power purchase agreements that list the point of
delivery as ``the PJM control area'' or ``into Southern.''
    1467. Dynegy argues in its reply comments that the Commission has
never explained how a transmission customer designating a firm LD
contract as a network resource could ever comply with section 29.2 of
the pro forma OATT, which requires specific information about the
generation resource being designated. Dynegy contends that, just like a
seller's choice contract, a customer is not entitled to any information
about particular generating assets when entering a firm LD purchase
contract such as the EEI Firm LD Product. As a result, Dynegy states
that it is unclear how a network customer would ever be able to
legitimately designate such contracts as a network resource.
    1468. In order to help ensure that all network resources are in
fact backed by capacity, Dynegy argues that the Commission should
require identification of more than just the control area when
designating a network resource. Dynegy argues that the Commission
should require the generation owner or trading agent for the generation
to positively verify that capacity was sold to the entity designating
that particular generator as a network resource, and that the
designation is appropriate pursuant to the parties' agreement, as is
currently required in PJM.
    1469. Because some regions of the country determine ATC using a
flow-based methodology and other regions use a rated path methodology,
EEI argues that section 29.2(v) should be modified to permit
transmission providers to require a network customer to designate the
point to which the energy is delivered and from which the transmission
provider will provide network service if it is not delivered at the
generator bus.
    1470. Duke requests that the Commission resolve an inconsistency
between the NOPR's statement at P 408 that ``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,'' and the statement in the very next
sentence that a ``power purchase agreement that is structured so that a
network customer cannot specify all of the information required by
section 29.2(v) cannot be designated as a network resource.'' Duke
notes that significantly more information is required by section
29.2(v) (unit size, VAR capability, operating restrictions, variable
generating cost for redispatch computations, etc.) than the ``control
area from which the power will originate.''
    1471. Morgan Stanley contends that the information required in
section 29.2(v) must not disallow designation of seller's choice
contracts as network resources. They assert that transmission providers
use security constrained economic dispatch under which the source of
supply in a contract is generally irrelevant from a planning or
operational perspective and is therefore not needed. Morgan Stanley
also argues that, if the underlying network customer's contract permits
the seller to curtail its dispatch and substitute a source from the
market, the transmission provider would never actually know the
location where a network customer's power is coming from and, thus, it
is unclear why the specification of that source should be a
requirement. Therefore, Morgan Stanley requests that the Commission
consider revising 29.2(v) to eliminate the inclusion of information
that is not necessary or make the provision of such information
required ``to the extent practicable.''
    1472. Duke replies that Morgan Stanley accurately portrays what
typically happens under seller's choice contracts, but reaches the
wrong conclusion about a remedy. Duke argues that, if network customers
are permitted

to designate as network resources contracts that may be relatively
long-term, but under which the seller has no obligation to identify the
source of the power any sooner than on a day-ahead basis, then ATC may
be reserved even though there is no intent to use it. Duke also argues
that allowing seller's choice contracts would hamper the transmission
provider's ability to plan its system. In Duke's view, it would be
appropriate to permit a seller's choice contract to be a designated
network resource at the time transmission service is granted for the
period such transmission service lasts, as at that point the customer
will have designated a source and sink.
    1473. Fayetteville recognizes that there are problems related to
modeling and reliability in contracts for energy which do not specify
particular units as sources, but argues that these problems are exactly
the same as those that exist within any vertically integrated utility
which names its generation fleet as network resources for its native
load.
Commission Determination
    1474. Many comments were received with respect to seller's choice
and system purchases. Some comments refer not only to seller's choice
and system purchases, but also to other possible off-system
transactions, including sourcing from owned generation located off-
system. We therefore use the term ``off-system resources'' here to
refer to all such resources.
    1475. The existing requirements in section 29.2(v) are intended to
ensure that the network customer designating resources on other
transmission systems provides sufficient information to allow the local
transmission provider to determine the effect on ATC. Conversely,
network customers should not be permitted to designate off-system
resources which are so vaguely defined that the effects on ATC cannot
be determined. In light of the requests that the Commission clarify
exactly what information must be provided in order to designate network
resources located off-system, and what information required by section
29.2(v) must be posted on OASIS, we will revise section 29.2(v) of the
pro forma OATT to specify exactly what information is required.
    1476. As revised by the Final Rule, section 29.2(v) of the pro
forma OATT will require the following information to be provided with
the request and posted on OASIS when designating an off-system
resource: (1) Identification of the resource as an off-system resource;
(2) amount of power to which the customer has rights; (3)
identification of the control area(s) from which the power will
originate; (4) delivery point(s) to the transmission provider's
transmission system; and (5) transmission arrangements on the external
transmission system(s). Additionally, section 29.2(v) is revised to
require that the following information be provided with such
designation, but such information must be masked on OASIS to prevent
the release of commercially sensitive information including (1) any
operating restrictions (periods of restricted operation, maintenance
schedules, minimum loading level of resource, normal operating level of
resource); and, (2) approximate variable generating cost ($/MWH) for
redispatch computations. Requests to designate off-system network
resources submitted on or after the effective date of this Final Rule
must include all of the information listed above.
    1477. We direct transmission providers to develop OASIS
functionality to (1) allow all of the information required for a
request to designate network resources to be provided electronically,
(2) mask information about operating restrictions and generating cost
on OASIS, and (3) allow for queries of all information provided with
designation requests in accordance with section 37.6 of the
Commission's regulations.\871\ As provided in paragraph 385, we also
direct transmission providers to work in conjunction with NAESB to
develop business practice standards describing procedural requirements
for submitting designations over any new OASIS functionality.
Transmission providers need not implement this new OASIS functionality
and any related business practices until NAESB develops appropriate
standards. Prior to implementation of this new OASIS functionality, any
information that cannot be provided electronically may be submitted by
transmitting the information to the transmission provider by telefax or
providing the information by telephone over the transmission provider's
time recorded telephone line.
---------------------------------------------------------------------------

    \871\ 18 CFR 37.6.
---------------------------------------------------------------------------

    1478. Duke argues that there is an inconsistency between the
following statements in P 408 of the NOPR: (1) ``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''; and (2) the statement in the
very next sentence that a ``power purchase agreement that is structured
so that a network customer cannot specify all of the information
required by section 29.2(v) cannot be designated as a network
resource.'' We disagree. The first statement only provided guidance on
what could be provided in lieu of the source of supply information (as
required in the last bullet of section 29.2(v) of the existing pro
forma OATT) and was not intended to excuse customers from providing all
of the relevant information for an off-system purchase other than the
specific source of supply. However, the revisions to section 29.2(v) we
adopt in this Final Rule remove any confusion.
    1479. We disagree with Dynegy's argument that no firm LD contracts
would be able to meet the requirements for designation. We note that
all of the information required for off-system resources should be
available for a seller's choice contract. Even firm LD contracts have
variable generating costs (energy cost) and may have maintenance and
other operating constraints. If no such constraints are contractually
specified, or if no such constraints are relevant to an owned
generation resource being designated, then that should be reflected in
the information posted on OASIS.
    1480. We reject Dynegy's request that the Commission require
additional verification by sellers that capacity was in fact sold to an
entity designating that particular generator as a network resource and
that the network resource designation is appropriate pursuant to the
parties' agreement. As the Commission explained in Illinois Power,\872\
a firm energy purchase need not be backed by capacity to qualify as a
designated network resource.
---------------------------------------------------------------------------

    \872\ 102 FERC ] 61,257 at P 14.
---------------------------------------------------------------------------

    1481. We disagree with commenters who argue that more specific
information than the control area must be provided with each request to
designate system purchases or seller's choice contracts as network
resources. In particular, we disagree with EEI's and Duke's argument
that customers designating seller's choice contracts as network
resources must be required, on a generic basis, to identify the
specific transmission system, rather than the more general control
area, in which the physical resources are located. EEI argues that such
specificity is required for transmission providers to identify the
individual flowgates over which the power will flow into their system.
The existing section 29.2(v) of the pro forma OATT requires that
customers designating network resources identify

the ``delivery point(s) to the transmission provider's transmission
system.'' We agree with Entergy and TDU Systems that providing both the
control area in which off-system resources are located as well as the
delivery point(s) to the transmission provider's transmission system is
usually sufficiently specific to allow a transaction to be evaluated
for its effect on the ATC of the local transmission system. However, we
acknowledge Duke's concern about receiving requests to designate as
network resources purchase agreements that list the point of delivery
as only vague statements such as ``the PJM control area'' or ``into
Southern.'' If any transmission provider believes that it faces unique
circumstances that require deviations from the pro forma OATT in order
to allow them to determine the effects of designations of network
resources on ATC, it can, in a filing pursuant to FPA section 205,
propose terms and conditions that it demonstrates are consistent with
or superior to the pro forma OATT.
    1482. Because some regions of the country determine ATC using a
flow-based methodology and other regions use a rated path methodology,
EEI argues that section 29.2(v) should be modified to permit
transmission providers to require a network customer to designate the
point to which the energy is delivered and from which the transmission
provider will provide network service if it is not delivered at the
generator bus. It is unclear what specific changes EEI is requesting.
We note that, with respect to off-system purchases, section 29.2(v) of
the pro forma OATT already requires that the delivery point(s) to the
transmission provider's transmission system be included in the
description of the network resource.
    1483. In response to Entergy's request, we clarify that a customer
may not designate as a network resource a seller's choice power
purchase agreement which is sourced by generating units internal to the
transmission provider's control area, since evaluating the effect on
ATC would be problematic. We disagree with Entergy that a customer
should be able to designate such a resource, even without specifying
the location of the specific generating units, provided that the
customer's network service from those units is contingent upon
confirming resource deliverability prior to actually scheduling the
service, because such a policy would still significantly obscure the
evaluation of ATC. If a customer wishes to have a choice of resources
that are internal to the particular transmission provider's control
area from which to dispatch power, it must designate each of the
resources as network resources.
    1484. We disagree with Morgan Stanley's unsupported comments that
the source of supply in a contract is irrelevant. We find that location
of resources is a critical factor to the transmission provider's ATC
calculations and its ability to model and evaluate the proposed network
resource, regardless of whether the transmission providers use security
constrained economic dispatch.
(3) Ability To Serve Native Load
Comments
    1485. Many parties contend that the Commission's policy with regard
to the qualification of network resources affects their ability to
serve native load. EEI argues that energy purchases are an integral
part of the resources many utilities use to serve their loads, yet
often such projected energy purchases are not under contract until
shortly before the power is needed. According to EEI, the requirement
that a purchase contract be executed to qualify as a network resource
jeopardizes the ability of such utilities to serve their native loads
because they will not be able to reserve transmission capacity and
other users may receive all of the ATC before their contracts are
executed.
    1486. APPA, EEI and Nevada Companies argue that restrictions on the
types of generation and power supply arrangements that qualify for
network service may violate section 217 of the FPA. EEI notes that
section 217 provides that LSEs are entitled to use firm transmission
rights to deliver the output of their generators or purchased energy to
meet their service obligations to their loads. In EEI's view, section
217 requires the Commission to exercise its authority in a manner that
enables LSEs to secure firm transmission rights on a long term basis
for long term power supply arrangements made, or `planned,' to meet
such needs and, therefore, a requirement that network customers and
transmission providers not reserve transmission capacity to serve their
network loads and native loads unless they either own generation or
have executed contracts that specify the source of the energy is
inconsistent with section 217. APPA notes that section 217 does not
distinguish among the types of power supply arrangements that an LSE
must enter into to be protected and that section 217(b)(1)(A) refers to
a broad universe of owned or contracted generation that would suffice,
so long as the power supplies are for the purpose of meeting a service
obligation.
    1487. Newmont Mining disagrees that the Commission's requirements
for designation of network resources are contrary to the new FPA
section 217(b)(2). Newmont Mining argues the legislative history of
section 217(b)(2) shows that it was intended essentially to codify
Order No. 888 \873\ and that the resource designation requirements do
not deny LSEs any right to use their transmission, but rather prescribe
how they are to implement that right.
---------------------------------------------------------------------------

    \873\ In its reply comments, Newmont Mining cites (through
reference to its own NOI reply comments) the statement in H.R. Rep
No. 108-65 at 171 (2003) that ``[t]his section is intended to be
consistent with the Commission's Order No. 888,'' as well as the
statement in S. Rep. No. 109-78 at 50 (2005) that section 217 ``does
not affect the Commission's authority under sections 205 and 206 [of
the FPA] to ensure that rates are just and reasonable and not unduly
discriminatory or preferential.''
---------------------------------------------------------------------------

    1488. EEI, Nevada Companies, PNM-TNMP and South Carolina E&G on
reply also argue that the Commission's requirements for eligibility for
designation as a network resource may impermissibly conflict with
state-mandated procurement plans. EEI and South Carolina E&G contend
that, by imposing restrictions on the ability of LSEs to serve their
native load, the Commission is indirectly asserting jurisdiction over
state-regulated procurement practices, which they further argue is
prohibited under Northern States Power Co. v. FERC.\874\
---------------------------------------------------------------------------

    \874\ 176 F.3d 1090, 1096 (8th Cir. 1999), cert. denied, 528
U.S. 1182 (2000).
---------------------------------------------------------------------------

    1489. Nevada Companies argue that the type of contracts that the
Commission has determined to be eligible for qualification as network
resources tend to be the most expensive. They point out that state
regulatory agencies might determine that other types of contracts are
more cost-effective without unnecessarily jeopardizing reliability.
Even more troubling, they argue, is the problem created when
transmission providers have peak loads that can more effectively be
served by purchasing power on a short-term period (i.e., less than one
year). To reserve the transmission required to serve a needle peak that
can occur anytime within a four month period would require the purchase
of thousands of megawatt hours of power that Nevada Power knows it will
not need, resulting in a disallowance by the Public Utility Commission
of Nevada, which approves all open positions, options and hedges for
Nevada Power.
    1490. Nevada Companies contend that the network designation process
should not be changed on systems where the process works reasonably
well,

particularly on systems where transmission providers are required to
make significant purchases of power to meet their retail loads. Nevada
Companies argue that the Commission should therefore give transmission
providers the option of instituting a reservation-based contract demand
service similar to that previously approved in Florida Power.\875\
---------------------------------------------------------------------------

    \875\ Florida Power Corp, 81 FERC ] 61,247 (1997) (Florida
Power).
---------------------------------------------------------------------------

    1491. Newmont Mining replies that Nevada Companies proposal is not
similar to the Florida Power proposal or other approved contract demand
network service arrangements, as those services were offered at the
request of a network customer; designed to deal with a particular
circumstance of the network customer; and offered as an option to, not
as a replacement for, standard network integration services. Utah
Municipals in their reply comments agree that utilities should not be
permitted to unilaterally impose a contract demand ``reservation
based'' methodology on its network customers.
    1492. Newmont Mining argues that Nevada Companies' request to
maintain an open position for a portion of their resource portfolio, in
accordance with their required resource planning process, does have
some basis, but that Nevada Companies' proposal is not the right
solution. If the Commission is inclined to provide some relief to
Nevada Companies, Newmont Mining argues that such relief should come,
if at all, only after an investigation of how similar problems are
handled on other systems and that such relief should be limited. The
limitations Newmont Mining suggests include, among other things,
excusing Nevada Companies from the requirement, if at all, only to the
extent that a specific open portfolio position is contained in a
resource plan approved in accordance with applicable law; requiring
that the reservation be posted on OASIS; not granting a reservation to
Nevada Companies over a competing application for network service by a
potential network customer that actually has a designated network
resource; and permitting other network customers to hold similar open
positions.
Commission Determination
    1493. We generally disagree with arguments that the Commission's
restrictions on the designation of network resources may violate
section 217 of the FPA. Congress did not require that LSEs be able to
take transmission service without limitations of any kind in order to
serve their native load, and nothing in section 217 suggests that LSEs
should not be required to comply with reasonable requirements that are
necessary to prevent undue discrimination and maintain a reliable
transmission system. The conditions that have been established for
taking network transmission service are reasonable and support these
goals, and we therefore disagree that such conditions are inconsistent
with the requirements of section 217. Furthermore, as Newmont Mining
points out, the legislative history of section 217(b)(2) supports the
interpretation that section 217 was intended to be consistent with the
Commission's authority under sections 205 and 206 of the FPA to ensure
that rates are just and reasonable and not unduly discriminatory or
preferential, under which the designation requirements in Order No. 888
were adopted.
    1494. We also disagree with commenter arguments that the
Commission's requirements for eligibility for designation as a network
resource impermissibly conflicts with state-mandated procurement plans.
We point out that, with the exception of some clarifications on the
types of LD provisions that are acceptable in designated firm LD
products and what information a customer designating a system purchase
or a seller's choice contract must provide, the requirements for
designation of network resources are not new. Order No. 888 has long
required that contracts be executed and imposed reasonable restrictions
on the types of resources that may be designated as network resources.
    1495. To the extent that individual transmission providers have
unique circumstances or needs that justify a variation from the pro
forma OATT, those parties can request such a variation and explain why
their proposed variation is consistent with or superior to the
requirements of the pro forma OATT in a section 205 filing. In
particular, Nevada Companies' request for approval of a contract demand
service in order to address certain issues presented by their unique
situation would properly be made in the context of a section 205 filing
requesting a deviation from the pro forma OATT. We agree with Newmont
Mining and Utah Municipals that approved variations, if any, must be
applied on a comparable basis to both the transmission provider's
merchant function and the other network customers.
(4) General
Comments
    1496. A number of commenters raised other general concerns
regarding the designation of network resources. TAPS requests that the
Commission clarify that conditional firm transmission service is
sufficiently firm to meet the requirement that third-party transmission
arrangements to deliver a designated purchase to the network be
noninterruptible. TAPS also requests that the Commission provide for
designation of network resources within the control area on a
conditional firm basis.
    1497. In its reply comments, South Carolina E&G request
clarification of the content and process of making information postings
in accordance with section 29.2 of the pro forma OATT. South Carolina
E&G argues that, taken literally, section 29.2 requires that everything
in an application for network service be posted. South Carolina E&G
contends, however, that the contents of an application do not fit on
OASIS as currently configured, and that making such information
available on OASIS is not necessary for the Commission's purposes,
particularly given the Commission's representations in favor of
preserving the integrity of customer confidential information. South
Carolina E&G suggests the Commission require only the following
information to be posted on OASIS: identification of the service type
as ``network''; identification of the source by name of the generator
or system; identification of the sink by name of the network customer's
load; identification of the point of receipt by specification of the
interface at which the network customer intends to deliver to the
resource into the transmission provider's transmission area; and
identification of the point of delivery and sink.
    1498. South Carolina E&G also requests clarification on how
designated network resources are to be posted. South Carolina E&G asks,
for instance, whether the Commission expects transmission providers to
develop an OASIS template that network customers can update, as
necessary, for network resources to simply be posted in PDF format, or
be accomplished via the comment section of an OASIS reservation. South
Carolina E&G argues that posting via the comment section of OASIS
allows for operational ease, but provides limited transparency and
includes administrative challenges due to character limitations and
formatting constraints. Alternatively, South Carolina E&G argues, new
functionality on OASIS that allows customers to post,

modify and update network resources would satisfy the Commission's
requirements, but would involve added costs and time.
    1499. TranServ seeks clarification as to the minimum term, if any,
that the transmission provider must honor for designation of new
network resources. TranServ requests that network resources be allowed
to be designated for the same minimum time periods used for firm point-
to-point service, i.e., daily or hourly service. Conversely, South
Carolina E&G argues in its reply comments that requiring transmission
providers to update their list of designated network resources on an
hourly basis is too burdensome. South Carolina E&G requests that the
Commission allow alternative methods of designating network resources
on a short-term basis, such as adding comments to the appropriate
comment field on either eTags or OASIS reservations.
    1500. TDU Systems argue that the designation of network resources
(explicit or implicit) by some transmission providers is automatic,
while network customers are required to pay for elaborate studies of
every conceivable path affected by the addition of the resource. TDU
Systems request that the Commission clarify that the process of network
resource designation should be the same for all network users.
    1501. APPA, Fayetteville, NCPA, Northwest Parties, TAPS, and
Wolverine request that clarifications made to the Commission's policy
for qualification as a network resource apply prospectively and/or that
sufficient time be allowed after the adoption of the Final Rule such
that the necessary products, information systems and business practices
can be developed. Such commenters contend that the designated network
resources they currently rely upon were acquired and designated
consistent with prior Commission precedent, so that changes to the
network resource criteria established in this proceeding should not
invalidate the continued use of such resources. Because there may be
many existing designated network resources that do not meet the
standards that the Commission eventually sets, Duke suggests on reply
that the Commission may need to permit existing contractual designated
network resources that do not qualify under the new standard to retain
their designated status until the earlier of the expiration data of the
transaction or the expiration date of any necessary transmission
service supporting that network resource.
    1502. In its reply comments, Dynegy disagrees with request to
grandfather existing designated network resources, and argues that the
Commission's holding in Dynegy was erroneous and should be remedied in
its entirety, without the creation of yet another class of
grandfathered entities.
Commission Determination
    1503. The Commission agrees with TAPS that firm point-to-point
transmission service provided on a conditional firm basis is
sufficiently firm to be used for transmission to import a designated
network resource. Firm point-to-point transmission service provided on
a conditional firm basis meets the existing requirement that
transmission arrangements in other control areas delivering power
purchases designated as network resources to the network customer's
transmission provider must not be interruptible for economic reasons,
as explained further in section III.F of this Final Rule. With respect
to TAPS' second request for clarification to allow for designation of
network resources within the control area on a conditional-firm basis,
we note that such designation of network resources within the control
area will not be allowed, as discussed further in section III.F.
    1504. In response to South Carolina E&G's request, we reiterate
that not all of the information required by section 29.2 of the pro
forma OATT for designation of a network resource will be made publicly
available on OASIS. As discussed above, information about operating
restrictions and generating cost will be masked to protect commercially
sensitive information. South Carolina E&G has also requested
clarification of the Commission's intent with respect to how designated
network resource information is posted. Our existing regulations
specify the view, download, and query requirements for information
posted regarding network resource designations.\876\ The details of how
those informational postings are accomplished are best left to be
determined as part of the NAESB standards development process.
---------------------------------------------------------------------------

    \876\ See 18 CFR 37.6(a).
---------------------------------------------------------------------------

    1505. TranServ requests that the Commission clarify the minimum
term, if any, that a transmission provider must honor for designations
of new network resources. We agree with TranServ that the minimum term
should be the same as the minimum time period used for firm point-to-
point service (i.e., daily), unless otherwise demonstrated by the
transmission provider and approved by the Commission.\877\
---------------------------------------------------------------------------

    \877\ See, e.g., Entergy Services, Inc., 105 FERC ] 61,318
(2003), reh'g denied in relevant part, 109 FERC ] 61,216 (2004).
---------------------------------------------------------------------------

    1506. In response to TDU Systems' request for clarification that
the process of network resource designation should be the same for all
users, we note that section 28.2 of the pro forma OATT already provides
that ``[t]he Transmission Provider, on behalf of its Native Load
Customers, shall be required to designate resources and loads in the
same manner as any Network Customer under Part III of this Tariff.'' We
encourage parties to utilize the Commission's Enforcement Hotline to
report suspected abused of this process.
b. Documentation for Network Resources
NOPR Proposal
    1507. In the NOPR, the Commission noted that transmission providers
are responsible for verifying that the network customer has provided
all the information required in section 29.2, but 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. However, the Commission also explained that 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.
    1508. The Commission proposed to require the transmission
provider's merchant function as well as network customers to include a
statement with each application for network service or to designate a
new network resource 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.
    1509. If the network customer does not include an attestation when
it confirms its request, the Commission proposed that the transmission
provider will notify the network customer within 15 days of
confirmation that its request is deficient and that, wherever possible,
the transmission provider will attempt to remedy deficiencies in the
request through informal communications with the network customer. If
such efforts are unsuccessful, the Commission further

proposed that the status of the request on OASIS will be changed to
``retracted'' and the network customer's request will be terminated
without prejudice to the network customer submitting a new request that
includes the required attestation, after which the network customer
will be assigned a new priority consistent with the date of the new
request.
    1510. In the event that the transmission provider or any network
customer designates a network resource that it does not own or has not
committed to purchase, or that does not otherwise comport with the
requirements for designated network resources, the Commission proposed
that it will deem the network customer to be in violation of the pro
forma OATT and will consider assessing civil penalties on a case-by-
case basis consistent with the Commission's Policy Statement on
Enforcement. The Commission encouraged the transmission provider and
other market participants to use the Commission's Enforcement Hotline
to report instances when they believe a network customer has designated
as a network resource a resource that does not meet the criteria for
network resources.
Comments
    1511. Several commenters support the overall proposed changes
involving attestation requirements, claiming the proposal should help
to eliminate abuse, including the practice of some utilities denying
transmission requests in order to accommodate its merchant function's
plans to engage in future short-term purchases to serve native
load.\878\ Entegra explicitly supports the Commission's proposal to
treat failures to comply as violations of the pro forma OATT subject to
enforcement. Pinnacle notes that customers should make such
attestations in good faith, such that an inadvertent error or omission
would not automatically result in recourse to a legal remedy if it can
be corrected without adverse impacts.
---------------------------------------------------------------------------

    \878\ E.g., Ameren, Entegra, Pinnacle, Public Power Council, and
Southern.
---------------------------------------------------------------------------

    1512. Dynegy argues in its reply comments that transmission
customers who knowingly provide false or inaccurate information in
their network resource designations not only jeopardize reliability,
but are essentially engaging in theft. Dynegy argues that such parties
should be subject to the sanctions and penalties under the Market
Behavior Rule,\879\ including revocation of the violator's market-based
rate authority. APPA and TAPS argue that the new attestation
requirements should be consistently applied to all network customers,
including the transmission provider's merchant function and affiliates.
---------------------------------------------------------------------------

    \879\ See Investigation of Terms and Conditions of Public
Utility Market-Based Rate Authorizations, 105 FERC ] 61,218 (2003).
---------------------------------------------------------------------------

    1513. Several commenters support the Commission's determination
that transmission providers are not required to independently verify
the accuracy of an application for network service.\880\ Some
commenters request that the Commission clarify that transmission
providers or transmission owners can voluntarily seek information which
verifies that contractual terms meet the requirements in section 30.1
and 30.7 of the pro forma OATT.\881\ In its reply comments, Duke argues
that, without the ability to request the contracts supporting the
compliance with the requirement that the designated network resources
are firm enough, the Commission may not have authority to require that
the network customer support its designation in situations where the
network customer is nonjurisdictional.
---------------------------------------------------------------------------

    \880\ E.g., Ameren, EEI, Suez Energy NA, Nevada Companies, and
Utah Municipals.
    \881\ E.g., Ameren, Duke Reply, Entergy, and Pinnacle.
---------------------------------------------------------------------------

    1514. Pinnacle disagrees with the NOPR proposal that transmission
providers should continue to be responsible for verifying the firmness
of the network customers' transmission arrangements on other systems.
Instead, Pinnacle contends that the transmission customer should have
the obligation to ensure that their transmission arrangements meet the
requirements needed to ensure that their resources qualify as
designated network resources. In its reply comments, Detroit Edison
also requests that the Commission require proof that network customers
have obtained the requisite transmission service on external systems.
    1515. Dynegy, in its reply comments, requests that network resource
information and validity of designation be verified not only by the
designating customer, but also by the seller or owner of the
generation, in order to help ensure that all network resources are in
fact backed by capacity. Entegra similarly suggests that the Commission
require that entities designating network resources make periodic OASIS
postings that will permit verification that the entity designating a
generating facility as a network resource actually has rights to power
from that facility.
    1516. EEI and Entergy allege that the Commission's NOPR attestation
proposal may have unintended consequences. Some commenters contend that
the gap between the Commission's interpretation of the qualifications
of network resources and current procurement practices creates a
significant possibility that, if the Commission enforces its policies,
it could cause substantial disruptions of service to network and native
loads, reduce supply options, or expose network customers and
transmission providers to increased liability.\882\ EEI asserts that
this is because a significant number of network customers and
transmission providers are serving their network loads and native loads
using resources, particularly power purchase contracts, that may not
meet the Commission's requirement for designation as network resources.
Some commenters request that the Commission engage in a comprehensive
review of power purchase practices before implementing its proposed
attestation requirement, and apply any change in policies only to power
purchases entered into after the effective date of the Final Rule and
after the industry has had time to develop new products that meet the
Commission's requirements.\883\
---------------------------------------------------------------------------

    \882\ E.g., EEI, TDU Systems, Indianapolis Power Reply, and
South Carolina E&G Reply.
    \883\ E.g., EEI and Indianapolis Power Reply.
---------------------------------------------------------------------------

    1517. Entegra replies that the expressed concern about the
attestation requirement by EEI is puzzling and troubling, because the
NOPR did not propose to change the current requirements of the pro
forma OATT regarding the qualification of network resources. Entegra
argues that the widespread non-compliance alleged by EEI makes adoption
of an attestation requirement more important and that EEI's allegations
may, at most, suggest that the Commission consider some sort of amnesty
for network customers and transmission providers willing to self-report
and commit to full compliance with the network resource rules going
forward.
    1518. To ensure that network customers can submit requests for new
network service without a final, executed contract, Entergy requests
that an attestation to designate a new network resource should not be
required until the service request is confirmed. If the request is pre-
confirmed, Entergy suggests that the attestation should be provided at
the time the request is submitted.
    1519. SPP requests that the Commission not require it to police the
additional restrictions on the designation of network resources
proposed in the NOPR. SPP states that it has neither the data nor the
personnel

necessary to perform this function and that the Commission should rely
on network customer verification, subject to Commission audits.
TranServ suggests that the exact nature of how the customer would make
the newly required attestation, as well as the treatment of OASIS
requests failing to provide the required attestation, should be
determined in the NAESB forum at the time when the technical
requirements for processing network service requests on OASIS are
established.
    1520. Several commenters request that the Commission amend section
30.2 of the pro forma OATT to require network customers that designate
network resources in an external control area also provide a
certification from that control area's administrator that the resource
being designated is not counted as a designated resource for another
load on or off of the system.\884\ TDU Systems disagree, arguing on
reply that the Commission should not require these types of
certifications. TDU Systems recommend, in the alternative, that LSEs on
multiple systems should not have to undesignate network resources to
serve off-system load, which would eliminate the need for such control
area certification for such transactions. TDU Systems also argues that,
in the absence of any evidence of abuse, the Commission should not
further complicate a process that most market participants would agree
is already overly complicated and burdensome.
---------------------------------------------------------------------------

    \884\ E.g., MISO, Indianapolis Power Reply, and Detroit Edison
Reply.
---------------------------------------------------------------------------

Commission Determination
    1521. The Commission adopts the NOPR proposal that transmission
providers continue to be responsible for verifying that third-party
transmission arrangements to deliver the purchase to the transmission
provider's system are firm, but 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. We also
adopt the proposal to require both the transmission provider's merchant
function and network customers to include a statement with each
application for network service or to designate a new network resource
that attests, for each network resource identified, that (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. The network customer
should include this attestation in the customer's comment section of
the request when it confirms the request on OASIS.
    1522. If the network customer does not include the attestation when
it confirms the request, the transmission provider must notify the
network customer within 15 days of confirmation that its request is
deficient, in accordance with the procedures in section 29.2 of the pro
forma OATT. Whenever possible, the transmission provider shall attempt
to remedy deficiencies in the request through informal communications
with the network customer. If such efforts are unsuccessful, the
transmission provider shall terminate the network customer's request
and change the status of the request on OASIS to ``retracted.'' This
termination shall be without prejudice to the network customer
submitting a new request that includes the required attestation. The
network customer shall be assigned a new priority consistent with the
date of the new request.
    1523. In the event that the transmission provider or any other
network customer designates a network resource that it does not own or
has not committed to purchase or that does not comport with the
requirements for designated network resources, we will deem the network
customer to be in violation of the pro forma OATT and will consider
assessing civil penalties on a case-by-case basis, consistent with the
Commission's Policy Statement on Enforcement.\885\ We encourage the
transmission provider and other market participants to use the
Commission's Enforcement Hotline to report instances where they believe
a network resource has been designated that does not meet the
Commission's requirements.
---------------------------------------------------------------------------

    \885\ See supra note 75.
---------------------------------------------------------------------------

    1524. In response to Pinnacle's request that an inadvertent error
or omission should not automatically result in a penalty if it can be
corrected without adverse impacts, we reiterate the policy established
in the Commission's Policy Statement on Enforcement that enforcement
actions will not be imposed ``automatically.'' Enforcement actions are
instead considered on a case-by-case basis after consideration of a
number of factors which may result in penalties being reduced or
eliminated.\886\ Among the many factors to be considered pursuant to
the Policy Statement on Enforcement is whether the violation is
willful.\887\ At the same time, consideration is provided for other
factors that may weigh for assessing civil penalties, even in
circumstances of inadvertent violations. For instance, the Commission
considers whether the violator has a history of violations and whether
the actions were recklessly or deliberately indifferent to the
results.\888\ While enforcement actions will not be automatic, and the
inadvertence of a violation would be a consideration when determining
what, if any, penalty to impose, there may be some instances where
inadvertent violations would be found, after consideration as
established in the Policy Statement on Enforcement, to warrant a
penalty.
---------------------------------------------------------------------------

    \886\ Policy Statement on Enforcement at P 13.
    \887\ Id. at P 20.
    \888\ Id.
---------------------------------------------------------------------------

    1525. Dynegy also requests that transmission customers who
knowingly provide false or inaccurate information in their network
resource designations be subject to the sanctions and penalties under
the Market Behavior Rules,\889\ including revocation of the violator's
market-based rate authority. We reiterate that violations will be dealt
with on a case-by-case basis in accordance with the Policy Statement on
Enforcement.
---------------------------------------------------------------------------

    \889\ Investigation of Terms and Conditions of Public Utility
Market-Based Rate Authorizations, 105 FERC ] 61,218 (2003).
---------------------------------------------------------------------------

    1526. We reject requests to allow the transmission provider to
voluntarily seek information which verifies that contractual terms meet
the requirements in sections 30.1 and 30.7 of the pro forma OATT.
Allowing transmission providers to verify terms and conditions of power
purchase agreements would put transmission providers in the position of
interpreting contracts and accepting or rejecting designations based on
their interpretations. We believe such authority is unnecessary in
light of the new attestation requirements and that instances of non-
compliance are better handled by the Commission's enforcement staff in
the context of audits and Enforcement Hotline reports. This applies
equally to jurisdictional and nonjurisdictional customers. Every
transmission customer must satisfy the requirements of the transmission
provider's OATT in order to take service. The Commission thus has
authority to require that all network customers support their
designations.
    1527. We disagree with Pinnacle's argument that transmission
providers should not be responsible for verifying the firmness of the
network customer's transmission arrangements on other systems. We find
that having

transmission providers verify firmness of such transmission
arrangements provides a significant benefit to the system and is not
unduly burdensome. The confirmation or lack thereof of service on the
third-party's system should be readily available on OASIS. If firm
third-party service is not confirmed in OASIS, the transmission
provider should attempt to remedy any information deficiency in the
request through informal communications with the network customer. If
such efforts are unsuccessful, the transmission provider should find
the request to designate the network resource deficient. Because this
information is available on OASIS, we disagree with Detroit Edison's
request that the Commission require proof that customers have obtained
requisite transmission service on external systems.
    1528. We also disagree with SPP's argument that it should not be
required to police the additional restrictions on the designation of
network resources, since it has neither the data nor the personnel
necessary to perform this function. The only ``additional''
restrictions that the transmission provider is called upon to police is
that network customers submit the appropriate attestations when
requesting designation of a network resource, which places a
particularly small burden on the transmission provider. We also do not
expect the requirement that transmission providers verify the firmness
of the network customer's transmission arrangements on other
transmission systems to require any additional data or personnel.
    1529. We reject Dynegy's request that the validity of network
resource designations be verified not only by the designating customer,
but also by the seller or owner of the generation, in order to help
ensure that all network resources are in fact backed by capacity.
Similarly, we deny Entegra's request that the customer be required to
make additional, periodic OASIS postings to demonstrate that it has
rights to the power from a designated resource. We find that such
additional verifications are unnecessary in light of the new
attestation requirements.
    1530. With regard to arguments that requiring an attestation may
disrupt service, the alleged confusion over the Commission's
requirements for designation of network resources seems primarily
concerned with whether the EEI Firm LD Product and similar products
were eligible to be designated as network resources and whether certain
resources can be designated both to serve native load and other network
customers. As we have addressed both of these questions above, we
believe that many of the concerns about the attestation requirement are
resolved. Commenters have not supported claims that the attestation
requirement will be either burdensome or that the requirement will
require substantial time to comply. As noted above, the minimal
additional network resource designation requirements impose in this
Final Rule beyond the existing requirements are not expected to be
unduly burdensome. While exceptions may be appropriate in cases of
legitimate emergencies, we disagree with the implication that a
customer should be granted general flexibility to designate a network
resource that otherwise may not be eligible.
    1531. In response to Entergy's request, we agree that attestations
will not be required to be submitted until the service request is
confirmed. However, if the request is pre-confirmed, we agree that the
attestation must be provided at the time the request is submitted.
    1532. In response to TranServ's request that the exact nature of
how the customer would make an attestation should be determined in the
NAESB forum, we note that the contents and the specific information
that is required to be provided with the attestation are specified in
the pro forma OATT, and we are requiring that the attestation be
submitted through OASIS with each request to designate a new network
resource. The appropriate subject for transmission providers to
coordinate with NAESB to resolve is limited to the appropriate
formatting of such information to be provided in OASIS. In response to
TranServ's request that NAESB should also determine the treatment of
OASIS requests where the customer fails to provide the necessary
attestation, we point out that we have already directed that such
requests are to be found deficient by the transmission provider and
treated in accordance with the procedures in section 29.2 of the pro
forma OATT.
    1533. We reject requests to require network customers designating
network resources in an external control area to provide certification
from that control area's administrator that the resource being
designated is not counted as a designated resource for another load on
or off the system. We find that, in absence of any evidence that the
Commission's new attestation requirements will be insufficient, this
requested verification appears unnecessary.
c. Undesignation of Network Resources
    1534. Section 28.2 of the pro forma OATT requires the transmission
provider, on behalf of its native load customers, to designate
resources and loads in the same manner as any network customer under
Part III of the pro forma OATT (Network Integration Transmission
Service). The information provided by the transmission provider must be
consistent with the information it uses to calculate ATC. Section 30.3
of the pro forma OATT previously allowed the network customer to
terminate the designation of all or part of a generating resource as a
network resource at any time, but stated that the network customer
should provide notification to the transmission provider as soon as
reasonably practicable.
    1535. In Order No. 888-B, the Commission clarified that the pro
forma OATT allows network customers to designate network resources over
shorter time periods. The Commission indicated that a network customer
that seeks to engage in firm sales from its currently designated
network resources may terminate the generating resource (or a portion
of it) as a network resource pursuant to section 30.3 of the pro forma
OATT and request that, as set forth in section 29 of the pro forma
OATT, the same generation resource be designated as a network resource
effective with the end of its power sale.\890\
---------------------------------------------------------------------------

    \890\ Order No. 888-B at 62,093.
---------------------------------------------------------------------------

NOPR Proposal
    1536. In the NOPR the Commission proposed to continue to allow
network customers to ``undesignate'' \891\ a portion of their network
resources on a short-term basis to make off-system sales. The
Commission reiterated that a network customer may redesignate the
resource by making a request to designate a new network resource.
Additionally, the Commission reiterated that the transmission provider
and all network customers must designate their network resources and
are prohibited from making firm third-party sales from designated
network resources. The Commission stated that, to the extent the
transmission provider or a network customer wants to make a firm sale
from a network resource, it must undesignate the resource pursuant to
section 30.3 of the pro forma OATT. The network customer, including the
transmission provider itself, could request to redesignate the resource
by making a request to designate a new network resource pursuant to
section 30.2 of the pro forma OATT.
---------------------------------------------------------------------------

    \891\ The general term ``undesignation'' refers to both
temporary terminations and indefinite terminations of network
resource status, as discussed below.

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

    1537. The Commission also sought comment on the amount of time
prior to operation that the transmission provider and other network
customers should be required to terminate a network resource to ensure
that the appropriate set of network resources are included in the ATC
calculation.
(1) Overview
Comments
    1538. Most commenters appear to support the Commission's proposal
to continue to allow network customers to undesignate a portion of
their network resources on a short-term basis to make off-system sales.
However, many commenters request clarification that a temporary
undesignation will not cause them to forfeit their rights to
transmission priority or ATC for any other time period. Several
commenters also request that formal undesignations not be required or
that the process not be burdensome. A wide range of comments were
received in response to the Commission's request for comments on the
amount of time prior to operation that the transmission provider and
other network customers should be required to terminate a network
resource to ensure that the appropriate set of network resources are
included in the ATC calculation.
Commission Determination
    1539. The Commission generally adopts the NOPR proposal to continue
to require network customers and the transmission provider's merchant
function to undesignate network resources or portions thereof in order
to make certain firm, third-party sales from those resources. In
particular, network customers and the transmission provider's merchant
function may only enter into a third-party power sale from a designated
network resource if the third-party power purchase agreement allows the
seller to interrupt power sales to the third party in order to serve
the designated network load. Such interruption must be permitted
without penalty, to avoid imposing financial incentives that compete
with the network resource's obligation to serve its network load.
    1540. We clarify that requests to undesignate network resources
that are submitted concurrently with a request to redesignate those
network resources at a specific point in time shall be considered
temporary terminations. Conversely, requests to undesignate network
resources submitted without any concurrent request to redesignate those
network resources shall be considered a request for indefinite
termination of those network resources.
    1541. We direct transmission providers to develop OASIS
functionality and, working through NAESB, business practice standards
describing the procedural requirements for submitting both temporary
and indefinite terminations of network resources, to allow network
customers to provide all required information for such terminations.
Such OASIS functionality should allow for electronic submittal of the
type of termination (temporary or indefinite), the effective date and
time of the termination, and identification and capacity of resource(s)
or portions thereof to be terminated. For temporary terminations, such
OASIS functionality should also allow for electronic submittal of (1)
effective date and time of redesignation, following the period of
temporary termination; (2) information and attestation for
redesignating the network resource following the temporary termination,
in accordance with section 30.2 of the pro forma OATT; and (3)
identification of any related transmission service requests to be
evaluated concomitantly with the request for temporary termination. In
response to TranServ's request, we clarify that the request for
temporary termination of the resource and the requests for the related
transmission service identified in item (3), if any, should be
evaluated as a single request, and approved or disapproved as such. We
specifically direct transmission providers, working through NAESB, to
develop business standards describing the procedures for submitting and
processing requests for concomitant evaluations of transmission
requests and temporary terminations. When processing such requests, the
evaluation of the transmission service requests identified in item (3)
should take into account the undesignation of the network resources
identified in the request for termination. However, the evaluation of
the transmission service requests in item (3) should be processed
taking proper account of all competing transmission service requests of
higher priority.
    1542. Consistent with the requirements for requests for designation
of new network resources, the new OASIS functionality should also allow
for queries of requests to undesignate and redesignate network
resources. In accordance with section 37.6 of the Commission's
regulations,\892\ such requests must be able to be queried by the
publicly available information posted on OASIS.
---------------------------------------------------------------------------

    \892\ 18 CFR 37.6.
---------------------------------------------------------------------------

    1543. Transmission providers need not implement this new OASIS
functionality and any related business practices until NAESB develops
appropriate standards. Prior to implementation of this new OASIS
functionality, requests for temporary or indefinite terminations of
network resources may be submitted by transmitting the required
information to the transmission provider by telefax or providing the
information by telephone over the transmission provider's time recorded
telephone line.
(2) Risk to ATC Rights
Comments
    1544. Most commenters request clarification that a temporary
undesignation of a network resource does not constitute a forfeiture of
priority followed by a new request to designate the network resource,
or otherwise put in jeopardy the ATC associated with the designation of
that resource for any period other than the period of
undesignation.\893\ Several commenters argue that virtually no network
customers will ever make a firm third-party sale if they are forced to
reapply for transmission service after a period of undesignation of
their resource, since they would run the risk of losing the ATC
associated with the resource.\894\ EEI and Entergy contend that the
result of such a policy would be that the industry would no longer be
able to take advantage of the diversity of peak loads to make firm
sales and purchases, and an almost immediate shortage of firm energy
sources to serve network and native loads. Duke argues that the
approach of not compelling network customers to risk losing the ATC
associated with their designated resources beyond the period that the
resource is designated would be the comparable approach vis-[agrave]-
vis point-to-point customers seeking to temporarily redirect their
service.
---------------------------------------------------------------------------

    \893\ E.g., Duke, EEI, Entergy, Exelon, MDEA Reply, Northwest
Parties, Pinnacle, Progress Energy, South Carolina E&G Reply,
Southern, TDU Systems Reply, TranServ, and WSPP Reply.
    \894\ E.g., Duke, EEI, Entergy, Progress Energy, South Carolina
E&G Reply, and TranServ.
---------------------------------------------------------------------------

    1545. Southern argues that to treat a redesignation as an entirely
new application for network resource designation would appear to depart
from existing tariff requirements and unnecessarily limit the
reliability of network customers' service. It also argues that such an
approach would be in contravention with section 217(b)(4) of the FPA,
which directs the

[[Continued on page 12465]]

]

[[pp. 12465-12514]] Preventing Undue Discrimination and Preference in Transmission
Service

[[Continued from page 12464]]

Commission to act in a manner that facilitates the planning and
expansion of facilities to meet the reasonable needs of LSEs to satisfy
the service obligations of the LSEs. Southern contends that the NOPR
proposal would create administrative burdens on transmission providers,
potentially treat network service as an inferior product to long term
point-to-point transmission service, and introduce a substantial
deterrent against optimization of network resources by network
customers.
    1546. On the other hand, Great Northern initially requests that ATC
not be set aside for a former network resource in anticipation that it
might be designated as a network resource at some time in the future.
In order to ensure comparable treatment for all transmission service
customers, Great Northern argues, the Commission should place new
requests to designate network resources at the end of the transmission
queue, regardless of the prior designation of those resources. Great
Northern clarifies on reply that, while ATC should not be set aside for
former network resources in anticipation that it might be designated as
a network resource at some unspecified time in the future, it has no
objection to setting aside ATC to be used by a formerly designated
network resource after a temporary, specified period of undesignation
such as one month or one season.
    1547. NorthWestern, in its reply comments, disagrees with Great
Northern's initial comments that new designations be placed at the end
of transmission service queue regardless of the prior designation of
those resources. NorthWestern argues that such a policy would unduly
discriminate against the network customer who is paying for the use of
the entire transmission system and grant an undue preference to the
point-to-point customer. NorthWestern also argues that the proposal
that ATC not be set aside for an undesignated network resource appears
to conflict with the Commission's standard interconnection procedures
for large and small generators. Once all upgrades specified through the
interconnection process have been installed, NorthWestern contends that
the generator can be specified as a network resource by any customer,
at the time of commercial operation for the generator or at any time in
the future.
    1548. TAPS appears to support a requirement that transmission
customers get back in the queue when re-designating resources, so long
as the rules apply to transmission providers as well as network
customers.
Commission Determination
    1549. In response to the many requests and comments, we clarify
that a request for termination of a network resource that is
concurrently paired with a request to redesignate that resource at a
specific point in time will not result in the network customer
permanently forfeiting rights to use that resource as a designated
network resource. Any change in ATC that is determined by the
transmission provider to have resulted from the temporary termination
shall be posted on OASIS during this temporary period. We agree that
requiring network customers making temporary terminations to
permanently forfeit rights to use this ATC would significantly reduce
or eliminate firm third-party power sales. We emphasize, however, that
a request to terminate a network resource that is not accompanied with
a request to redesignate that resource at a specific point in time is
to be considered an indefinite termination. After an indefinite
termination of a resource, the network customer has no continuing
rights to the use of such resource and future requests to designate
that resource would be processed consistent with section 30.2 as a
designation of new network resource.
    1550. We disagree with NorthWestern's argument that, once upgrades
specified through the interconnection process have been installed, the
generator can be specified as a network resource by any customer, at
the time of commercial operation of the generator or at any time in the
future. The Commission has long noted that the generator
interconnection process is separate and independent of the acquisition
of transmission service for the same generator.\895\ The fact that
system upgrades may be required to interconnect a generator does not
mean any network customer is entitled to the use of that generator at
all times, even in the event that the network customer indefinitely
terminates the designation of that resource. The integration of network
resources with different network customers presents different effects
and flows on the transmission system that must be evaluated by the
transmission provider.
---------------------------------------------------------------------------

    \895\ See, e.g., Order No. 2003 at P 118, 744.
---------------------------------------------------------------------------

(3) Minimum Lead-Time
Comments
    1551. EEI and Entergy argue that the Commission should not require
transmission providers or network customers to undesignate a network
resource for a specific amount of time prior to the commencement of an
off-system sale. In many instances, EEI argues, short-term firm power
sales are made with relatively little lead time, particularly after
events such as forced outages or unusual weather conditions. EEI and
PNM-TNMP argue that requiring transmission providers or network
customers to undesignate a specific amount of time prior to an off-
system sale would foreclose the possibility that firm sales could be
made with short lead times. That, EEI argues, would adversely affect
the sales market, without having any impact on ATC on the path used by
the network resource because the network resource would not be
undesignated. In EEI's view, imposing lead times on undesignations of
network resources would also result in treating network and native load
customers less favorably than point-to-point customers. EEI points out
that the pro forma OATT does not impose any minimum lead times on firm
redirects of point-to-point transmission service pursuant to section 22
of the pro forma OATT or reassignment of transmission service pursuant
to section 23 of the OATT, despite the fact that advance notice of
redirects might make the resultant ATC more marketable.
    1552. Most commenters, however, appear to support the establishment
of a minimum amount of time prior to operation that the transmission
provider and other network customers should be required to terminate a
network resource to ensure that the appropriate set of network
resources are included in the ATC calculation, although they express
widely varying opinions on what period of time would be appropriate.
    1553. Ameren and Pinnacle contend that the amount of time prior to
operation that the transmission provider and other network customers
should be required to terminate a network resource should be linked to
the frequency of the calculation that gets standardized in the ATC
process. Pinnacle contends that, if the undesignation and redesignation
are performed on OASIS as they propose, ATC could be recalculated and
posted immediately following the undesignation or redesignation. Ameren
contends that it cannot comment further until the parameters of the ATC
process are defined. FirstEnergy states that the amount of time should
be consistent with the time periods required in markets, and that
outside of markets, times should be established that coincide with such
markets. Southern argues that the current practice, under which a
resource is undesignated when

it schedules point-to-point transmission service for an off-system
sale, provides adequate time to ensure that the appropriate set of
network resources is included in the ATC calculation.
    1554. PJM notes that, under its system, a generator resource with
excess capacity can undesignate the excess resource on a ``day ahead''
basis. PJM believes that this is the proper amount of time needed to
ensure resource adequacy. PJM argues that a generator should not, under
any circumstance, change the designation of its resource ``same day.''
    1555. TranServ argues that, at a minimum, a request for
undesignation should be supplied no later than the firm scheduling
deadline so that released capacity may be acquired on a non-firm basis.
If that data were required to be submitted earlier than the scheduled
deadline, TranServ suggests the transmission provider may be able to
offer incremental capacity for firm sales. TranServ requests that the
Commission establish in the pro forma OATT some nominal timeframe for
network customers to provide to the transmission provider their planned
use of designated resources to serve loads.
    1556. Nevada Companies requests that, due to some system
emergencies, force majeure events, and hourly scheduling of tie-line
changes, they be allowed to change undesignation of network resources
at any time to handle these types of events.
Commission Determination
    1557. Commenters presented many alternative views in response to
the Commission's request in the NOPR for comments on the appropriate
minimum lead-time prior to operation that the transmission provider and
other network customers should be required to terminate a network
resource to ensure that the appropriate set of network resources are
included in the ATC calculation. In consideration of these comments,
the Commission finds that the appropriate requirement is that network
customers not be permitted to make firm third-party sales from any
designated network resource without (1) undesignating that resource for
the period of the third-party sale pursuant to pro forma OATT section
30.3 and (2) providing notice of such undesignation before the firm
scheduling deadline (10 a.m. the day before service commences). We find
that this requirement strikes the appropriate balance, allowing
undesignated capacity to be acquired on a non-firm basis but not
creating an undue adverse effect on third-party sales.
    1558. We find it unnecessary to incorporate into the pro forma OATT
provisions relaxed rules for changing the undesignation of network
resources at any time to handle system emergencies, force majeure
events, forced outages or unusual weather conditions, as suggested by
some commenters. Other procedures such as those in NERC's standard for
Capacity & Energy Emergencies, EOP-002-2, or the possible use of
capacity benefit margin, are more appropriate to deal with legitimate
system emergencies. Outside the context of legitimate system
emergencies, network customers should rely on appropriate planning and
operation, rather than relaxed rules for designation of network
resources.
    1559. We disagree with EEI's argument that requiring a minimum
lead-time will result in treating network and native load customers
less favorably than point-to-point customers. In particular, EEI is
incorrect in its statement that the OATT does not impose any minimum
lead times on firm redirects of point-to-point transmission service or
reassignments of transmission service. Firm point-to-point customers
are also subject to deadlines for scheduling redirects pursuant to
section 22.2 of the pro forma OATT. Furthermore, we find that EEI has
provided no compelling evidence to support its argument that the
adverse impacts on the market for firm energy with short lead times
justifies having no minimum lead time.
(4) General
Comments
    1560. Several commenters argue that the Commission should not
require network customers or the transmission provider to make formal
modifications to their designations of network resources when they make
firm sales to third parties from those resources.\896\ EEI and Southern
argue that the practice of most network customers and transmission
providers in the ten years since the Commission issued Order No. 888
has been that a network resource is undesignated for any period for
which the customer requests firm point-to-point transmission service
from the generator or a third party. This practice, EEI argues, has not
resulted in any adverse impacts on reliability or on the availability
of transmission service and that, to the contrary, selling energy from
network resources on a firm basis instead of a non-firm basis frees up
firm transmission capacity that otherwise would have to be reserved for
the network customer. EEI and NRECA contend that requiring formal
undesignations is substantially more cumbersome for network customers
and transmission providers making off-system sales.
---------------------------------------------------------------------------

    \896\ E.g., EEI, NRECA Reply, PNM-TNMP, and Southern.
---------------------------------------------------------------------------

    1561. Progress Energy and TranServ argue that network customers
should not have to go through the process of redesignating a network
resource as new when the network customer once again needs to use this
resource to serve network load. TranServ argues that such a transaction
is exactly analogous to a redirect of firm point-to-point service on a
firm basis and requests clarification of whether the provider should
evaluate a request to undesignate a network resource concomitantly with
the assessment of that same customer's point-to-point request, as is
done with redirects on a firm basis.
    1562. NRECA states that the undesignation requirement is too
burdensome and, therefore, the Commission should adopt a comparability
requirement that would allow network customers to utilize the practice
that many public utility transmission providers use today: i.e., use
designated resources for firm off-system transactions or third party
uses without having to go through the designation, undesignation and
redesignation process. NRECA argues that existing scheduling procedures
have allowed transmission providers to deliver power from their
designated network resources for off-system merchant purposes reliably
and should perform equally well for network customers, provided they
still pay a point-to-point charge for the ``outbound'' leg of a
delivery to a neighboring network to serve the customer's network load
on the neighboring network. NRECA argues in its reply comments that,
whatever the Commission decides to do, comparability is the most
important principle when considering the undesignation policy and that
``grandfathering'' agreements which would allow transmission providers
to essentially get around this requirement would allow undue
discrimination to continue. EEI disagrees in its reply comments with
NRECA's assertion that transmission providers currently have an
advantage over network customers, arguing that the same standards apply
to the transmission provider's merchant function and network customers
when they seek to make off-system sales from network resources.
    1563. PNM-TNMP contends that the Commission has held that formal
undesignation and redesignation are not required, so long as the
transmission

provider treats its own resources and the network resources of network
customers comparably. PNM-TNMP and Pinnacle further argue that to
require formal undesignation and redesignation would appear to do
nothing more than impose an extra layer of administration to the
management of network resources, making power sales more difficult and
potentially reducing financial benefits to end use customers.
Bonneville argues that the Commission's proposals regarding the use of
network resources for surplus sales are likely to raise the cost to
consumers.
    1564. Duke requests that the Commission clarify that any product
that is not ``designatable'' as a network resource by a buyer may be
sold by a seller that happens to be a network customer, without having
to undesignate any network resources.
    1565. Suez Energy NA requests that the Commission ensure that a
utility cannot use redesignation to hoard transmission capacity in
order to deprive independent power producers of access to the grid. It
contends that a utility could consistently hold transmission to serve
generation that never runs for economic reasons and, the day before
power flows, redesignate that transmission to accommodate a third-party
purchase, effectively using its ability to redesignate network
transmission capacity to hoard scarce ATC. In order to prevent
potential abuse, Suez Energy NA agrees with the NOPR proposal to
require transmission providers to use the same OASIS procedures to
designate and terminate network status for themselves that they apply
to network customers.
    1566. If the Commission requires formal designations and
undesignations, EEI asks the Commission to clarify whether it is
changing its policy that it is not necessary to modify service
agreements in such circumstances in order to avoid requiring
transmission providers to make numerous filings amending service
agreements.\897\ If formal undesignations are required, EEI argues on
reply that each transmission provider would be required to submit a
revised application for network service under section 29.2 of the pro
forma OATT both at the time the resource was undesignated and at the
time that resource was redesignated. EEI also argues that formal
undesignation would require the execution and filing of revised network
service agreements reflecting the changes.
---------------------------------------------------------------------------

    \897\ See Virginia Electric and Power Co., 81 FERC ] 61,125 at
61,111-12 (1997), reh'g denied, 82 FERC ] 61,034 (1998).
---------------------------------------------------------------------------

    1567. South Carolina E&G argues in its reply comments that off-
system sales of firm power are typically in the form of a slice-of-
system sale. South Carolina E&G requests that the Commission provide
guidance for how to treat such a sale of power, suggesting that the
transmission provider be permitted to undesignate a slice of a system
sufficient to support the firm power sale and then, at the conclusion
of the sale, redesignate that slice of the system as a network
resource.
    1568. While generally supporting the Commission's proposal to
continue to allow network customers and the transmission provider, with
respect to its native load, to undesignate network resources to allow
them to make sales to third parties, some commenters seek certain
changes, consideration, or clarification by the Commission.\898\ EEI,
joined by TDU Systems on reply, argue that the Commission should modify
its statement that network customers should be permitted to undesignate
network resources ``on a short-term basis to make off system sales.''
They argue that nothing in Order No. 888, the Commission's decisions,
or the public interest requires that network resources be undesignated
only for short-term sales. They further argue that such sales need not
be ``off-system.'' Progress Energy argues that the Commission should
only allow transmission customers to undesignate network resources to
make firm off-system sales for a term which the transmission customer
has adequate generation reserves to serve its network load. In its
view, the transmission provider also must have the authority to deny
the designation or undesignation of the network resources if the
transmission provider determines that it needs the network resources to
preserve the reliability of its transmission system or to ensure that
there is sufficient transmission capability to support the requested
changes. NRECA disagrees on reply, arguing that granting transmission
providers the authority to deny undesignation requests would give them
too much discretion and the perfect opportunity to discriminate.
---------------------------------------------------------------------------

    \898\ E.g., EEI, Pinnacle, and Progress Energy.
---------------------------------------------------------------------------

    1569. Progress Energy agrees with the Commission that network
service involves the entire transmission provider's system and does not
involve a contract path like point-to-point service. It also agrees
that the delivery of a network resource once inside the system does not
need to be redirected. Progress Energy notes that peaking resources
have low capacity factors and, therefore, their transmission
reservations are frequently underutilized. They request that network
customers be given the ability to optimize their transmission purchases
by bringing energy into the host transmission provider's system from
other designated network resources in times when they are not using
their peaking designated resources.
    1570. MDEA, Progress Energy, and Entergy request that, for
reliability and economic reasons, network customers be given the
flexibility to substitute new designated network resources without
abandoning the original transmission queue position of an existing
designated network resource.\899\ If the Commission does not change its
proposal in order to provide network customers with this flexibility,
Progress Energy contends that point-to-point service will be a superior
service to network service.
---------------------------------------------------------------------------

    \899\ In its reply comments, MDEA requests that any such
flexibility afforded to transmission providers also be available to
network customers on a non-discriminatory basis.
---------------------------------------------------------------------------

    1571. Entergy states that it is important for the Commission to
recognize that the undesignation of network resources can be used by
network customers as a means of allowing merchant generators the
opportunity to displace existing resources in serving network and
native load. It argues that the Commission should be wary of limiting
the ability of a network customer to undesignate network resources, as
any such restriction will have broader implications than just the
ability of network customers, including the transmission provider's
wholesale merchant function, to sell that resource off-system with
point-to-point service.
    1572. Entergy also requests that the Commission clarify that, while
network customers cannot redirect network service, nothing in this
prohibition prevents transmission providers from studying requests to
designate new network resources as displacements of existing network
resources. It argues that preventing network customers from using
automated study functions would significantly hinder the ability of
these customers to substitute their existing long-term resources with
short-term purchases of energy and capacity from merchant generators
when it is economical to do so.
    1573. TDU Systems argue that network customers (and transmission
providers to the extent they serve native load on other systems) should
be able to schedule output on a firm basis from

network resources on one system to serve their network loads on
neighboring systems without having to designate and redesignate network
resources among the various transmission providers' control areas. TDU
Systems state this would permit LSEs that serve across multiple systems
to come closer to replicating the economic dispatch of control area
operators, significantly reducing the cost of discharging their service
obligations to the customers they serve.
    1574. Xcel opposes requiring a transmission customer to undesignate
a network resource even in a situation where the resource is used only
transiently to provide off-system sales, arguing that such policy would
have significant adverse consequences for customers across the country.
It points out that it is native load customers that frequently benefit
from purchase of economy energy and that, if an undesignation was
required to deliver economy energy, most such transactions likely would
not occur. Xcel also argues the NOPR concepts relating to designation
of network resources and justification of economy energy purchases are
irrelevant in the context of an RTO where energy is procured and
dispatched throughout the RTO on a security constrained economic basis.
    1575. EEI, joined by TDU Systems on reply, requests that the
Commission clarify that any changes to the procedures for designating
and undesignating network resources apply only to designations made
after the Final Rule becomes effective, in order to avoid substantial
adverse impacts on the reliability of service to network and native
loads. Duke and Pinnacle request that the Commission require NAESB to
develop standards that address undesignation and redesignation and
allow sufficient time for the NAESB process and for OASIS tools to be
developed and approved, prior to the implementation of a new policy.
TranServ asks that the undesignation of network resources be supported
on OASIS.
Commission Determination
    1576. We disagree with commenters arguing that formal
undesignations and/or redesignations of resources used to make firm
third-party sales should not be required. The undesignation and
redesignation requirements exists not only to promote reliability, but
also to prevent undue discrimination, promote comparable treatment of
customers, and increase the accuracy of ATC calculations. We find that
the interest in advancing these policy goals overrides the minimal
burden and cost that submitting undesignations and/or redesignations
entails. We disagree with Xcel's argument that most economy energy
purchases that benefit its native load customers likely will not take
place if undesignation of network resources is required prior to firm,
third-party sales. First, the requirement to undesignate network
resources only applies to firm sales, while typical non-firm economy
energy transactions would not require undesignation. Second,
undesignating a network resource is not unduly burdensome, consisting
only of electronically submitting several items of information, as
described above. Therefore, we do not believe that a transaction
prevented purely as a result of the requirement to undesignate network
resources would have provided any significant economic value had it
taken place.
    1577. We find that requests to allow ``informal undesignations''
appear to be simply requests to not require undesignations at all.
Since the salient feature of requiring an undesignation is that the
proper account is taken of the effects on ATC, informal undesignations,
which do not take proper account of the fact that a resource is no
longer a designated network resource, appear to serve no purpose.
    1578. With regard to PNM-TNMP's argument that the Commission has
held that formal undesignation and redesignation are not required, so
long as the transmission provider treats its own resources and the
network customer's resources comparably, we believe PNM-TNMP
misunderstands our policies. We note that PNM-TNMP provides no citation
to Commission precedent to support its statement.
    1579. Duke requests clarification as to whether a network customer
must undesignate a network resource in order to make a third-party sale
from that resource if the third-party sale would not itself qualify to
be designated as a network resource. We reiterate the existing
requirement that designated network resources must not be committed for
sale to non-designated third-party load or include resources that
otherwise cannot be called upon to meet the network customer's network
load on a noninterruptible basis. We find that a resource is
``committed for sale to a non-designated third party load'' if a power
purchase agreement for the sale from that resource provides for
penalties if service to the third party is interrupted in order to
serve the designated network load.
    1580. In response to comments by EEI, NRECA, and Suez Energy NA, we
reiterate that all parties, including transmission providers serving
their native loads, are subject to these requirements for designation
and undesignation of network resources. Section 28.2 of the pro forma
OATT clearly provides that transmission providers are required to
designate resources and loads in the same manner as any network
customer. We encourage parties suspecting that transmission providers
or other network customers are not conforming to the requirements for
designating or undesignating network resources to report their concerns
using the Commission's Enforcement Hotline.
    1581. EEI has requested clarification of whether the Commission is
changing its policy that transmission providers do not need to modify
network service agreements when network resources are undesignated and
redesignated. We have not proposed and do not intend to begin requiring
that network customers file modified service agreements when network
resources are designated or undesignated. As we explained in Dayton
Power and Light Co.,\900\ ``changes in network resources may require
the customer to file a request under OASIS, but a change to the
information recorded initially in the network service agreement is not
a requirement.'' EEI also argues that, if formal undesignations are
required, then each transmission provider would be required to submit a
revised application for network service under section 29.2 of the pro
forma OATT, both at the time the resource was undesignated and the time
that resource was redesignated. We disagree. There is no requirement
that a transmission provider submit a revised application for network
service every time a resource is designated or undesignated.
---------------------------------------------------------------------------

    \900\ 93 FERC ] 61,331 at 62,128 (2000).
---------------------------------------------------------------------------

    1582. In response to a request by South Carolina E&G, we clarify
that firm third-party sales may be made from an undesignated portion of
a network customer's network resources (i.e., a ``slice-of-system
sale''), so long as all of the applicable requirements are met. In
particular, the network customer must submit undesignations for each
portion of each resource supporting the third-party sale. If the
undesignation is temporary, then the request must be accompanied by a
request to redesignate the resource(s) on a specific date. When the
undesignation takes effect, the network customer must update the
capacities specified in its list of designated network resources posted
on OASIS.
    1583. We agree with EEI and TDU Systems' comments that there should
be

no minimum term for undesignations. We also agree with EEI and TDU
Systems' arguments that network customers should not be restricted to
temporarily undesignating network resources only for use in off-system
sales, and clarify that network customers are not so restricted.
    1584. We agree with Progress Energy that network customers should
only make firm third-party sales when they have sufficient generation
reserves to serve their loads. However, the purpose of the pro forma
OATT is to provide nondiscriminatory transmission access, not to
enforce generation adequacy requirements.
    1585. With regard to Progress Energy's request for flexibility to
evaluate potential impacts to the transmission system related to the
undesignation and redesignation of network resources, we find that
situations where undesignations cannot be accommodated due to
transmission constraints should be extremely rare, such as highly-
extraordinary counterflow situations. In such rare situations, the
transmission provider should attempt to remedy the situation without
denying the undesignation. If it is determined that the resource cannot
be undesignated without jeopardizing reliability, then the transmission
provider may deny the request for undesignation.
    1586. We share NRECA's concern that allowing transmission providers
to deny undesignations for reliability reasons could give a direct
market competitor a significant opportunity to discriminate, but must
weigh this concern against our significant interest in preserving
reliability. We point out that transmission providers denying requests
for service or changes to service because of reliability concerns must
post a description of such denials in accordance with section
37.6(e)(2) of the Commission's regulations.\901\ Again, we encourage
any parties with concerns about denials of service or changes to
service by a transmission provider for reasons of reliability to report
their concerns to the Commission's Enforcement Hotline.
---------------------------------------------------------------------------

    \901\ 18 CFR 37.6(e)(2).
---------------------------------------------------------------------------

    1587. We deny requests by MDEA, Progress Energy, and Entergy that
network customers be given the flexibility to substitute new designated
network resources without abandoning the original transmission queue
position of an existing designated network resource. These parties seem
to be requesting that a network customer be allowed to be ``first in
line'' to use the ATC freed up by an undesignation of a network
resource, as long as the network customer uses that ATC to designate an
alternate resource. We disagree. Granting this request would, without
any apparent justification, put point-to-point customers seeking ATC
freed up by an undesignation at a disadvantage. We also disagree that,
if the Commission does not allow network customers this flexibility,
point-to-point service will be a superior service to network service.
Progress Energy seems to be arguing that the point-to-point customer's
ability to engage in a redirect affords that customer more flexibility
than the network customer. We point out that redirects of point-to-
point service on a firm basis are only on an ``as-available'' basis.
Firm point-to-point customers cannot redirect unless ATC is available
to support such a redirect after all higher-priority requests have been
accommodated.
    1588. Entergy has requested clarification that, while network
customers cannot redirect network service, nothing in this prohibition
prevents transmission providers from studying requests to designate new
network resources as displacements of existing network resources.
Although Entergy's request is unclear, we reiterate that redirects are
not allowed within the context of network service and that network
customers are not ``first in line'' to use ATC freed up by their
undesignation of another network resource. Such requests must be
processed taking proper account of all competing transmission service
requests of higher priority.
    1589. We disagree with TDU System's argument that network customers
should be able to schedule output on a firm basis from network
resources on one system to serve their network loads on neighboring
systems without having to designate and redesignate network resources
among the various transmission providers' control areas. Allowing
network customers to not formally undesignate and redesignate network
resources, even only when using those resources to serve their network
loads on neighboring systems, will necessarily result in inaccurate
evaluations of ATC. We reiterate that the burden associated with
undesignating and redesignating the resources is particularly light and
find that requiring network customers to make temporary undesignations
when making third-party firm sales is thus justified in light of the
ATC-related benefits.
    1590. Xcel argues that the concepts relating to designation of
network resources are irrelevant in the context of an RTO where energy
is procured and dispatched throughout the RTO on a security constrained
economic basis. We agree that Day 2 RTOs do not use the physical rights
model contemplated under the pro forma OATT and, hence, not all the
provisions discussed here are directly applicable to Day 2 markets.
However, as we explain in section IV.C.2, RTOs and ISOs must make the
necessary filings to comply with the Final Rule, or demonstrate that
their existing tariff provisions are consistent with or superior to the
terms of the revised pro forma OATT.
    1591. We agree with parties arguing that network customers should
not be required to use the new NAESB processes and OASIS tools to be
developed in response to this section until such time as the NAESB
standards and OASIS functionality have been developed and implemented.
However, once the new standards and functionality are in place, network
customers must use these new procedures to undesignate (whether
temporarily or as part of an indefinite termination) any network
resources, regardless of the date that those resources were originally
designated.
7. Clarifications Related to Network Service
a. Secondary Network Service
    1592. Section 28.4 of the existing pro forma OATT allows a network
customer to deliver energy to its network load from non-designated
network resources on an as-available basis without additional charge,
referred to as secondary network service. In Order No. 888, the
Commission described such energy as non-firm economy energy purchases
used to displace firm network resources.\902\
---------------------------------------------------------------------------

    \902\ Order No. 888 at 31,751.
---------------------------------------------------------------------------

    1593. The use of secondary network service to deliver purchased
power when a network customer is making off-system sales has been
raised in several Commission investigations and audits. In Idaho Power,
the Commission accepted a settlement with Idaho Power related to Idaho
Power's incorrect use of the native load priority to access its
transmission system.\903\ In Idaho Power, the utility's wholesale
merchant function purchased power outside of Idaho Power's control area
to facilitate an off-system sale and used secondary network service to
bring the purchases into Idaho Power's control area.\904\ In accepting
the settlement, the Commission stated that ``[i]t is axiomatic that the
native load priority

cannot be used to complete sales that are not necessary to serve native
load.'' \905\ In MidAmerican, the Commission issued an audit report
that contained a finding that MidAmerican's wholesale merchant function
used network service instead of point-to-point service to deliver
short-term energy purchases to its control area that were not used to
serve MidAmerican's native load.\906\
---------------------------------------------------------------------------

    \903\ Idaho Power Co., 103 FERC ] 61,182 at P 2 (2003) (Idaho
Power).
    \904\ Id. at P 4.
    \905\ Id.
    \906\ MidAmerican Energy Co., 112 FERC ] 61,346 at P 6 (2005).
---------------------------------------------------------------------------

NOPR Proposal
    1594. In the NOPR, the Commission proposed to clarify that a
network customer may not use secondary network service to import energy
onto its system to support an off-system sale if the purchased power
does not displace the customer's own higher cost generation. The
Commission therefore proposed to modify section 28.4 of the pro forma
OATT to state that a network customer may use secondary network service
only to deliver economy energy and to define ``economy energy'' as
energy purchased by a network customer that displaces the customer's
own higher cost generation for the purpose of serving the customer's
designated network loads. The Commission further explained that all
participants engaging in purchases for resale must compete on a
comparable basis and use point-to-point service to complete all
segments of a purchase for resale off-system.
(1) Overview
Comments
    1595. Several commenters agree with the Commission and support the
proposed clarification regarding the use of secondary network
service.\907\ Alberta Intervenors state that such a restriction ensures
fair competition among network customers and preserves the entitlement
of native load customers.
---------------------------------------------------------------------------

    \907\ E.g., Alberta Intervenors, Southern, Suez Energy NA, and
TAPS.
---------------------------------------------------------------------------

    1596. Other participants oppose the proposal, arguing that it is
too broad and would interfere with legitimate activity by network
customers.\908\ EEI points out that, if a network customer is using all
available network resources but is still purchasing energy from non-
designated network resources to meet its peak native load, the network
customer would need to rely on secondary service to transmit this
purchase. In EEI's view, the Commission's proposal would prevent this
customer from using secondary service for this non-economy energy,
thereby interfering with its service obligations. To avoid such cases,
EEI, Pinnacle, and PGP recommend that secondary service not be limited
to economy energy only. NRECA states that the Commission's proposed
limitation on the use of secondary service would prevent network
customers from meeting their native load obligations in cases of
extreme weather and power outages. NRECA asks the Commission to state
explicitly in section 28.4 of the pro forma OATT that secondary service
may not be used to facilitate off-system third party sales, but rather
must be used to import power needed to serve network load economically
and efficiently. Entergy suggests the Commission abandon the limitation
and specify simply that secondary service cannot be used to serve loads
other than the network or native load.
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    \908\ E.g., EEI, Entergy, Northwest Parties, NRECA, Pinnacle,
PGP, Southern, and Xcel.
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    1597. Others argue that the restriction of secondary service to
only economy energy would have unintended consequences regarding the
purchase of renewable resources. Emerald, Flathead, and the Northwest
Parties state that, for reasons of customer demand or contractual
obligation, network customers may be required to purchase renewable
power that generally is more expensive than traditional thermal or
hydro electric generation. These purchases could displace less
expensive non-renewable resources, resulting in the need for the
network customer to make off-system sales of the non-renewable
resources. Emerald, Flathead, and Northwest Parties suggest that the
Commission revise the definition of ``economy energy'' to include an
exception for renewable energy. TAPS raises a similar issue, asking the
Commission to clarify that economy purchases as well as substitute
resources qualify for use of secondary service.
    1598. EEI argues that the proposed limitation on secondary service
would require all network customers to engage in a specific form of
Commission-regulated economic dispatch, while requiring transmission
providers to evaluate each resource and become ``dispatch police.''
Entergy, SPP, and PGP agree. They assert that calculating the ``cost''
of power is problematic, inherently subjective and burdensome because
transmission providers lack the necessary knowledge to perform this
analysis. EEI, Entergy, SPP, and PGP instead suggest that the
Commission conduct periodic audits of secondary service to ensure
compliance with the requirements of OATT section 28.4 rather than
transmission providers.
    1599. Although Powerex supports the Commission's restriction on the
proper use of secondary service, it also states that determining
whether or not an import would qualify as ``economy energy'' would be
difficult. Powerex requests that the Commission implement specific
rules in advance of such transactions to resolve uncertainty. It
suggests a capacity test to prevent preferential acquisition of
generation capacity, a tariff prohibition on the use by the network
customer or its energy affiliates of any export transmission capacity
made available on another intertie, and the modification of business
practices governing curtailment. In reply, Alberta Intervenors agree
with Powerex's proposed changes to curtailment practices, but disagree
with the other two elements. Alberta Intervenors assert that the tariff
prohibition causes inefficient use of ATC and that the capacity test is
not a stand-alone test and, as a result, would only be helpful as a
supplement to the ``economy energy'' test.
    1600. Some participants raise other issues not addressed in the
NOPR. South Carolina E&G asks that the Commission clarify its policy on
purchases of economy energy, as well as provide a clear definition of
the acceptable trading practices--notably parking, hubbing, and
lending--under the current pro forma OATT. Emerald and Flathead request
the Commission to revise the definition of ``network load'' in section
1.24 of the pro forma OATT to allow point-to-point and network service
to the same discrete point of delivery. Morgan Stanley asks that the
Commission explain why using secondary service to make an off-system
purchase while there is any off-system sale during the same interval is
improper and whether the Commission will prohibit such activity only if
the off-system purchase and sale are part of a single transaction.
Finally, Xcel argues that the concepts relating to designation of
network resources are irrelevant in the context of an RTO where energy
is procured and dispatched throughout the RTO on a security constrained
economic basis.
Commission Determination
    1601. In general, the Commission agrees with parties that favor an
expansion of the proper use of secondary network service. Although we
affirm our finding in MidAmerican,\909\ the Commission

recognizes that there are instances outside the proposed definition of
economy energy that warrant the use of secondary service in order to
serve network loads reliably. The Commission therefore declines to
adopt the definition of economy energy proposed in the NOPR and,
instead, will retain the existing section 28.4 that permits use of
secondary network service ``to deliver energy to its Network Loads.''
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    \909\ MidAmerican Energy Co., 112 FERC ] 61,346 at P 6 (2005)
(MidAmerican). Following an audit, the Commission found that
MidAmerican's wholesale merchant function used network service
instead of point-to-point service to deliver short-term energy
purchases to its control area that were not used to serve
MidAmerican's native load. The Commission stressed that the use of
secondary network service is not for the purpose of serving off-
system sales. Id. at P 6. The modifications to section 28.4 adopted
in this Final Rule do not alter that limitation.
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    1602. With respect to Powerex's comments, we reject the requested
clarifications as Powerex has not fully supported the use of its
proposed capacity test or other measures and has not demonstrated that
such test would not preclude legitimate uses of this priority as noted
in the NOPR. If parties suspect inappropriate use of secondary network
service, they may report the suspected activity to the Commission's
Enforcement Hotline or file a compliant with the Commission pursuant to
FPA section 206. Furthermore, the Commission's staff will continue to
provide oversight of all tariff-related activities through its
enforcement program.
(2) ``On an as-available basis''
    1603. Section 28.4 of the existing pro forma OATT allows a network
customer to use secondary network service to deliver energy purchases
to its network load from non-designated resources ``on an as-available
basis.'' However, the current pro forma OATT does not specify how a
network customer must arrange for secondary network service.
NOPR Proposal
    1604. In the NOPR, the Commission proposed to modify section 28.4
of the pro forma OATT to clarify that a network customer does not need
to file an application for network service to receive secondary
service. Instead, the customer must merely request such service on
OASIS in a manner consistent with pro forma OATT sections 18.1 and 18.2
(Procedures for Arranging Non-Firm Point-to-Point Transmission
Service).
Comments
    1605. TDU Systems requests that the Commission clarify that time
constraints located in OATT section 18.3 are not applicable to
secondary service. Section 18.3 provides that requests for non-firm
point-to-point service shall not be made before certain specified
periods (more than 60 days in advance for monthly service, more than 14
days in advance for weekly service, etc.). TDU Systems states that some
of its members currently use secondary service to access economy off-
system purchases where intervening transmission constraints preclude
the designation of those resources as network resources for long
periods of time. Application of the non-firm point-to-point service
request deadlines would impair TDU Systems' ability to rely on
secondary service in those instances since they would extend beyond the
timing requirements set forth in section 18.3.
Commission Determination
    1606. The Commission clarifies that secondary service must be
requested in accordance with section 18, including the timing
restrictions set forth in section 18.3, of the pro forma OATT.
Secondary service is on an as-available basis, and network customers
should not be permitted to lock in such service in advance of other
non-firm uses of available transmission. Allowing lower-priority
secondary service to have a scheduling advantage over non-firm
transmission would be inappropriate and would discourage the use of
non-firm transmission service, thereby minimizing the revenue credits
from non-firm transmission service that benefit all firm transmission
customers.
(3) Redirect of Network Service
    1607. The current pro forma OATT does not include any provision to
change the point of receipt for an off-system designated network
resource in a manner similar to redirect of point-to-point service. We
are aware, however, that several transmission providers have posted
business practices that allow network customers either to substitute an
off-system non-designated network resource for a designated network
resource or to redirect the point of receipt associated with an
existing network resource.
NOPR Proposal
    1608. The Commission proposed to clarify that network customers may
not redirect network service in a manner comparable to redirect of
point-to-point service, as network service involves no identified
contract path and is, therefore, not a directable service. Should a
network customer wish to substitute one designated network resource for
another, the Commission stated that it must terminate the existing
resource and designate a new one. The Commission explained that the
network customer could also request to redesignate its original network
resource by making a request to designate a new network resource.
Alternatively, a network customer could use secondary network service
when it wants to substitute a non-designated network resource for a
designated network resource on an as-available basis.
Comments
    1609. MISO strongly supports the Commission's clarification stating
that network service is not a directable service and believes that the
proposal appropriately clarifies the Commission's policy on redirect
service. TDU Systems and NRECA, however, believe that the Commission
should allow redirects of network service to deliver an LSE's
resources. TDU Systems assert that redirect of network service is
critical to LSEs serving native load across multiple transmission
systems because it allows the amount of flexibility necessary to manage
power supply costs. In addition, in TDU Systems' view, redirects have
no effect on system reliability.
    1610. EEI argues on reply that it is unclear why redirects of
network service should be allowed. The advantage of redirecting firm
point-to-point service is that the customer does not have to pay an
additional charge for transmission service. However, both TDU Systems
and NRECA agree that network customers should pay an additional charge
for transmission service from network resources to off-system loads.
    1611. Sacramento alternatively recommends that the Commission
remove the ban on off-system sales in order to maximize efficiency in
allocating transmission capacity. Occidental requests that the
Commission place all transmission, including on behalf of native load,
under the OATT guidelines to ensure that service is provided in a non-
discriminatory fashion.
Commission Determination
    1612. The Commission clarifies that network customers may not
redirect network service in a manner comparable to the way customers
redirect point-to-point service. Point-to-point service consists of a
contract-path with a designated point of receipt and point of delivery.
Network service has no identified contract-path and is therefore not a
directable service. Network service instead provides for the
integration of new network resources and permits designation of another