UNITED STATES OF AMERICA85 ferc  61, 141 FEDERAL ENERGY REGULATORY COMMISSION Before Commissioners: James J. Hoecker, Chairman; Vicky A. Bailey, William L. Massey, Linda Breathitt, and Curt H‚bert, Jr. New England Power Pool ) Docket No. ER98-3853-000 ORDER CONDITIONALLY ACCEPTING COMPLIANCE FILING, AS MODIFIED, AND ACCEPTING, IN PART, AND REJECTING, IN PART, PROPOSED TARIFF CHANGES, AS MODIFIED (Issued October 29, 1998) In this order, we conditionally accept the July 22, 1998 compliance filing submitted by the Executive Committee of the New England Power Pool (NEPOOL), subject to the modifications ordered herein. In addition, we accept, in part, and reject, in part, certain tariff changes proposed by NEPOOL in connection with its compliance filing. Background By order issued April 20, 1998, in Docket No. OA97-237-000, et al., 1/ the Commission conditionally authorized a proposal for the restructuring of NEPOOL and, among other things, conditionally accepted for filing NEPOOL's proposed open access transmission tariff (NEPOOL Tariff) and power pool agreement (Restated NEPOOL Agreement). We also conditionally certified NEPOOL as a Regional Transmission Group (RTG). The Commission accepted NEPOOL's restructuring proposal subject to certain modifications. Among other changes, we directed NEPOOL to (1) revise the NEPOOL Tariff provisions on expansion cost pricing to conform to the Commission's pricing policy; (2) eliminate charges for the use of interconnections with neighboring regions, including NEPOOL's proposed Tie Benefit Service Charge, the Outside Transaction Adjustment (OTA), and Non-Use Charge; and (3) reinstate point-to-point service as an option for delivering power within NEPOOL. 2/ 1/ New England Power Pool, 83 FERC  61,045 (1998) (April 20 Order), reh'g pending. 2/ On April 29, 1998, NEPOOL filed a motion seeking an extension of time to comply with the requirements of the April 20 Order. On May 14, 1998, the Commission granted NEPOOL's motion to extend the due date for its compliance filing through and including July 20, 1998. Due to (continued...) Docket No. ER98-3853-000 -2- In its compliance filing, NEPOOL states that in order to effect compliance with the April 20 Order, its members were required to agree to amendments to the Restated NEPOOL Agreement and NEPOOL Tariff that are in some instances broader than the changes required by the April 20 Order. NEPOOL submits these portions of its filing pursuant to section 205 of the Federal Power Act (FPA). 3/ The principal features of NEPOOL's compliance filing, including its proposed section 205 changes, are summarized below. 1. Interconnection Requirements NEPOOL proposes to add a new Section 49 to the NEPOOL Tariff which establishes procedures for new generators to interconnect to the NEPOOL grid. The procedures address, inter alia, the performance of System Impact Studies (SIS) to determine whether the addition of a new generating unit will require expansion of the transmission grid. NEPOOL also proposes to add a new Section 50 to the NEPOOL Tariff which provides that if a new generator complies with Section 49 and Schedule 11, it "will have rights equal to all other firmly integrated resources" and will not be assessed costs of any subsequent expansions to the system. NEPOOL's proposed Section 49 provides that the transmission costs relating to a transmission upgrade will be apportioned pursuant to the formula set forth in Schedule 11. Section 11 generally provides for the direct assignment of at least half of the network upgrade costs occasioned by a new generating unit. However, if the expansion costs exceed the average plant investment cost of existing pool transmission facilities multiplied by the capability of the new generating unit, all of the excess costs are assigned directly to the new generating unit. NEPOOL states that its pricing proposal represents a compromise among negotiating parties, some of whom advocated full roll-in of upgrade costs and others who argued for an allocation of all incremental costs to the new generation owner. 2. In-Service Charges for Use of Interconnections NEPOOL proposes to add to the NEPOOL Tariff a new Section 22A (In-Service Transactions) dealing with firm import transactions. NEPOOL proposes that network customers make a specific reservation to use firm import capacity and pay an additional point-to-point charge to the extent they do not fully utilize their reservation. A customer serving load within 2/ (...continued) coordination delays within NEPOOL, the compliance filing was not made by NEPOOL until July 22, 1998. 3/ 16 U.S.C.  824d (1994). Docket No. ER98-3853-000 -3- NEPOOL, using Regional Network Service or Internal Point-to-Point service, will be deemed to fully utilize its reservation and avoid the assessment of an additional charge if it schedules energy equal to its reserved amount in every hour or uses its reservation to access a resource that is used to satisfy its capacity obligations to the pool. NEPOOL argues that this approach is needed because the demand for use of interconnections to import power from other regions is likely to exceed the supply and a mechanism is needed to discourage hoarding. 3. Reinstatement of Point-to-Point Service In its initial restructuring proposal in Docket Nos. OA97- 237-000, et al., NEPOOL sought to eliminate point-to-point service as an option for delivering power within the pool, in order to avoid administrative complexity and prevent customers from switching back and forth between different services to avoid paying their load ratio share of regional transmission costs. In the April 20 Order, we held that NEPOOL had failed to demonstrate that its proposal to eliminate point-to-point service within the pool is consistent with, or superior to, the terms and conditions of the pro forma tariff. In its compliance filing, NEPOOL states that it has amended the NEPOOL Tariff to provide load serving entities with the option of taking point-to-point service for transactions within NEPOOL in lieu of network service at particular points of delivery. NEPOOL requests that its compliance filing be made effective October 1, 1998. Notice of NEPOOL's compliance filing was published in the Federal Register, 4/ with comments, protests and interventions due on or before August 11, 1998. Interventions, Comments and Protests Notices of intervention, motions to intervene, comments and protests were timely filed by the parties listed in Attachment A. Untimely motions to intervene and protests were filed by the parties listed in Attachment B. 5/ The principal issues raised by the intervenors are summarized below. 1. Protests and Comments Addressing NEPOOL's Interconnection Requirements United Illuminating Company (United) argues that NEPOOL's interconnection requirements for new generators are unclear, contain terms which are undefined, and establish rights which are 4/ 63 Fed. Reg. 42,390 (1998). 5/ On October 5, 1998, NEPOOL filed an answer objecting to the motion to intervene out-of-time filed by Hydro-Quebec. Docket No. ER98-3853-000 -4- undefined. United notes, for example, that there is no definition for the "rights [of] firmly integrated resources." United adds that NEPOOL's transmittal letter interprets Section 50 more broadly than drafted as ensuring that new generators will "enjoy firm transmission rights for moving power from their units anywhere in New England, regardless of who owns the unit or when that unit first became operational" and ensuring that each "unit will benefit from Firm Transmission Rights equal to those of existing generators." United also argues that the term "Firm Transmission Rights" is not defined in the NEPOOL Tariff. Other intervenors criticize the evaluation criteria used to consider the need for transmission expansion. ISO New England, Inc. (ISO-New England) seeks guidance from the Commission on the need for changes to the SIS procedures. 2. Protests and Comments Addressing Expansion Costs In general, the intervenors objecting to NEPOOL's expansion cost proposal can be divided into two camps, i.e., parties representing the interests of new generators who are seeking access to the NEPOOL grid and parties representing the interests of NEPOOL's existing generators. Intervenors espousing the interests of the new generators object to NEPOOL's expansion cost proposal on the grounds that it fails to allocate a reasonable level of transmission upgrade costs to the transmission grid as a whole. On the other hand, intervenors representing the interests of NEPOOL's existing generators object to NEPOOL's expansion cost proposal on the grounds that it will allocate too high a level of costs to existing load. Intervenors on both sides of the roll-in issue argue that NEPOOL's pricing proposal violates the "or" pricing principle, 6/ and that the pricing proposal also violates the Commission's policy prohibiting tariff changes not directed or otherwise authorized by Commission order. 7/ 6/ Compare Protest of Bangor Hydro-Electric Company (Bangor) at 4 and Protest of the Northeast TDUs at 14. 7/ Compare Protest of Braintree Municipal Light Department; Reading Municipal Light Department; and Taunton Municipal Lighting Plant (Braintree, et al.) at 11-12, citing Southern Company Services, Inc., 63 FERC 61,217 at 62,595, n.3, 62,596 (1993), reh'g denied, 68 FERC  61,098 (1994) and Protest of Bangor at 2-3. Docket No. ER98-3853-000 -5- 3. Protests and Comments Addressing NEPOOL's Proposed In- Service Charge A number of the intervenors argue that NEPOOL's proposed In- Service Charge simply repackages the Non-Use Charge which we rejected in the April 20 Order, because it is based on the costs of the ties that are already recovered in the basic transmission charge. 8/ Bangor argues that the proposed charge is anticompetitive because it (1) creates a cost advantage for generators located within NEPOOL over off-system generators; (2) may discourage transactions with off-system generators because the charge is uncertain and determined after-the-fact; (3) and may result in double charges for the same service. TransEnergie U.S. Ltd. (TransEnergie) argues that because the charge only applies to external generation and the reservation must be confirmed before the results of the NEPOOL PX bidding are known, it places external generation at a competitive disadvantage. The intervenors also take issue with NEPOOL s professed concern about hoarding. Bangor argues that there is no evidence of a hoarding problem that needs to be addressed and notes that the Commission has already stated that it will deal with hoarding on a case-by-case basis, ensuring that the least anticompetitive approach is adopted. United argues that this provision will not discourage hoarding, in any event, because it permits the capacity to be idled as long as the reservation is used to reach a generating resource that satisfies the capacity obligations of the pool. Answers On August 19, 1998, NEPOOL filed a motion requesting an opportunity to answer the protests and comments. In a notice issued August 20, 1998, we permitted NEPOOL and other interested parties to file answers on or before September 10, 1998. Answers were timely filed by NEPOOL, the Northeast TDUs, ISO-New England, and FPL Energy, Inc. (FPL Energy). In addition, NEPOOL filed a supplemental answer on September 17, 1998 and Indeck Maine Energy, L.L.C. (Indeck Maine) filed an answer on September 25, 1998. 9/ 8/ Protest of Braintree, et al. at 18-19; Protest of Westcoast Power Inc. and Engage Energy, U.S., L.P. (Westcoast and Engage) at 2; Protest of Massachusetts Municipal Wholesale Electric Company (MMWEC) at 6; Protest of Maine Public Service Company at 4-6; Protest of Hydro-Quebec at 4-7; and Protest of Bangor at 3-4. 9/ In its 88-page answer, which included affidavits and documentary evidence, NEPOOL provided a great deal of (continued...) Docket No. ER98-3853-000 -6- 1. NEPOOL's September 10, 1998 Answer NEPOOL's answer addresses a number of points, including its assertions that (1) the combined compliance and section 205 filing was appropriate due to the internal debate within NEPOOL on the issues presented; (2) NEPOOL's revised provisions for Regional Network Service are appropriate in light of the changes it was required to make regarding its point-to-point services; (3) the prospect of hoarding justifies its proposed In-Service Charge; and (4) the amount of expansion costs that would be allocated to new generators under its expansion cost proposal are reasonable. 2. Intervenors' Answers The Northeast TDUs reiterate the position set forth in their protest that the Northeast TDUs are being doubled charged and that NEPOOL's compliance filing should have (but did not) eliminate the double charge. ISO-New England addressed issues relating to the procedures and assumptions utilized by ISO-New England to perform SIS. ISO-New England states that NEPOOL's existing SIS procedures, which rely on a "full integration" principle to ensure reliability, should be replaced by a congestion management system , including location-based pricing and transmission rights consistent with the Commission's open access principles. ISO-New England adds, however, that a congestion mangement system will not obviate the need for an SIS. Discussion Procedural Issues Pursuant to Rule 214 of the Commission's Rules of Practice and Procedure, 10/ the notices of intervention and timely, unopposed motions to intervene filed by the entities listed on Attachment A serve to make them parties to this proceeding. In 9/ (...continued) information that it could have included in its initial filing. Incomplete filings by power pools and ISO's have been a recurring problem, possibly due to the concerns these entities may have about appearing partial to the various factions within their memberships. Regardless, incomplete filings are not acceptable. In the future, NEPOOL and other power pools and ISOs are advised to comply with the Commission's filing procedures, and provide a full explanation for their proposals in their initial filings instead of their answers to intervenors, to the maximum extent possible. 10/ 18 C.F.R.  385.214 (1998). Docket No. ER98-3853-000 -7- addition, the Commission will accept the late filed motions to intervene and protests listed on Attachment B, given the early stage of the proceeding and the absence of undue delay or prejudice. Pursuant to Rule 213(a)(2) of the Commission's Rules of Practice of Procedure, 11/ we will reject the answers filed by NEPOOL and Indeck Maine, respectively, on September 17, 1998 and September 25, 1998. NEPOOL's Section 205 Proposals As noted above, in addition to the proposals that are intended to comply with the April 20 Order, NEPOOL submitted additional changes pursuant to section 205, including (1) revised application procedures for new generators seeking to interconnect with NEPOOL; (2) revised expansion cost allocation rules; and (3) a proposed In-Service Charge covering firm import transactions. 1. NEPOOL's Entitlement to Seek Section 205 Changes As a threshold matter, several intervenors challenge NEPOOL's compliance filing on the grounds that it proposes changes that are not required by the April 20 Order. NEPOOL concedes that some of its proposals were not directed by the Commission, but states that it has submitted these proposals pursuant to section 205. Normally, a compliance filing should include only those changes expressly directed by the Commission. 12/ Under the circumstances presented in the instant case, however, we will allow NEPOOL to combine its compliance filing proposals with its section 205 proposals. The compliance directives set forth in the April 20 Order required significant reworking of NEPOOL's rate schedules which, in turn, warranted changes to other provisions in the NEPOOL Tariff and Restated NEPOOL Agreement. The section 205 changes proposed by NEPOOL, moreover, will not undo or otherwise contravene NEPOOL s compliance filing requirement. Therefore, it is appropriate that the merits of these proposals be considered in this proceeding. 2. Application Procedures for New Generator Interconnection Proposed Section 49 of the NEPOOL Tariff addresses the interconnection of new generating units. We will consider both the specific language proposed and (for the reasons discussed 11/ 18 C.F.R.  385.213(a)(2) (1998). 12/ Southern Company Services, Inc., 63 FERC  61,217 at 62,595, n.3 (1993), reh'g denied, 68 FERC  61,098 (1994). Docket No. ER98-3853-000 -8- below) other, broader issues relating to NEPOOL's criteria for evaluating project expansion requests. a. NEPOOL's Evaluation Criteria As discussed below, we find that NEPOOL's evaluation criteria are unrealistic and unreasonable. ISO-New England argues that these criteria should be changed without delay, as do other intervenors. We agree. NEPOOL's existing criteria assume that, in addition to ensuring that the interconnection of a generator does not affect the reliability and stability of the transmission system, each planned generator must be guaranteed an exclusive and unconstrained firm transmission path to reach every load serving entity in NEPOOL. Applications are considered on a first-come, first-served basis. The SIS for a proposed project assumes that all proposed projects already in the queue for service under the NEPOOL Tariff are completed and placed in operation. Currently, NEPOOL s new generation requests total approximately 30,000 MW of capacity. Since the existing resources within NEPOOL (25,000 MW) are presently in general equilibrium with load and reserve requirements, if all of these generation projects are developed, there would be a surplus of generating capacity within NEPOOL. Accordingly, it is unlikely that all of these generation projects will be constructed and, if constructed, it is likely that many will displace more expensive resources in serving existing load. If transmission expansion were based on the unrealistic assumption that all planned projects will be constructed and that all need a separate and exclusive firm transmission path to reach all load in NEPOOL, the transmission system would be significantly oversized. A number of the intervenors argue that this process is flawed and will result in the unnecessary overbuilding of transmission upgrades and deter many competitive generation projects. 13/ Some of these intervenors argue that a more realistic assumption is that NEPOOL's planned congestion management proposal (to become effective in late-1999) will be used to allocate capacity among generators offering power to the NEPOOL markets and that the expansion projects predicted by the system study project will never be constructed. Hydro-Quebec and others complain that the first-come, first-served queuing process also creates significant delays and uncertainty in processing applications (because each builds upon the results of the studies performed for those earlier in the queue). 13/ See, e.g., Protest of Hydro-Quebec at 13-15 and Protest of Conservation Law Foundation at 4-5. Docket No. ER98-3853-000 -9- ISO-New England contends that it is required to adopt these unreasonable assumptions because it has no authority to depart from the status quo. ISO-New England asks the Commission to bring reason into this process by directing changes to the system study and expansion evaluation processes. ISO-New England takes the position that the implementation of a comprehensive congestion management system (including location-based pricing and transmission rights) is critical to any change in these procedures. 14/ ISO-New England notes that NEPOOL is committed to implement a revised congestion management proposal by the year 2000, which is the same time frame when the planned new generators are likely to go on line and cause the system to be congested. ISO-New England concludes that changes to the system study and expansion evaluation processes can be implemented now, but only for any generator that agrees not to complete its interconnection with the NEPOOL system until the new congestion management system is in place to govern the allocation of any limited transmission capacity. 15/ ISO-New England also expresses concerns about the existing first-come, first served approach to evaluating project applications. ISO-New England states that these issues are already under discussion and have resulted in a white paper which identifies defects in the present system, but does not resolve these matters. ISO-New England asks the Commission for guidance and identifies a number of alternatives to the first-come, first- served rule which may be appropriate for NEPOOL: (1) queuing on the basis of in-service date; (2) aggregating projects for study based on factors such as application date, in-service date and location; (3) assessing the "bona fides" of each project and queuing on the basis of likely completion of the project; (4) considering the likelihood that new generators will displace existing generators in serving load; and (5) requiring deposits. 16/ ISO-New England adds that another issue concerning changes to the queuing system is whether to change this method retroactively. We agree with ISO-New England's conclusion that NEPOOL s existing SIS procedures are cumbersome and ineffective. However, 14/ Answer of ISO-New England at 8-9. 15/ ISO-New England explains that, if it receives such a commitment, it could limit its system study to an analysis of the impact on local and region-wide reliability levels. 16/ ISO-New England identifies potential problems with each of these methods, as well. For example, a queuing method based on projected in-service date can be circumvented by applicants if they specify an in-service date earlier than is realistically planned. Docket No. ER98-3853-000 -10- we do not agree with ISO-New England s characterization of the "status quo" within NEPOOL. ISO-New England correctly observes that the NEPOOL system has been generally unconstrained in the past. However, this reflected the fact that any utility seeking to rely on remote generating resources was required to make arrangements for a firm transmission path between its remote resource and its specific load. It appears that this practice has now been redefined as a requirement to expand the transmission system to ensure a firm path between each new generator and every load in NEPOOL because there is no longer a matching between generator and load as was the case in the past, i.e., generators will now sell through the NEPOOL PX to all loads in NEPOOL. This leap in logic is flawed. The PX will not match specific generators to load and transmit power on that basis; it will simply dispatch the generators offering the lowest bids to meet the combined loads of the pool. While there may be a need for system expansion as a consequence of the decisions generators as a group make as to where to locate in relation to the load centers, legitimate expansion projects will not be based on the extreme assumptions that ISO-New England is now being forced to use. As has always been the case, the transmission system will be influenced primarily by the size of the load, not the combined generation capacity that is available to meet those loads. We will grant ISO-New England's request to discard the existing assumption that each generator will have an exclusive and unconstrained firm path to reach every load in NEPOOL. Instead, ISO-New England may limit its analysis to the system reliability, stability and operating considerations of the actual interconnection. Moreover, we will not limit this approach to those generators that agree to delay their in-service date until a comprehensive congestion management proposal is in effect. As ISO-New England notes, most of these generators are projecting an in-service date that corresponds to the congestion management filing that NEPOOL has committed to make. In the unlikely event that a generator goes into service prior to that date, it will be subject to the existing congestion management arrangement (i.e., congestion costs are apportioned among all loads). While some existing generation owners may argue that the existing congestion management plan is adequate only in the context of the current generally unconstrained system, the consequences of delaying new entrants in anticipation of a different congestion management plan are more severe than placing those new entrants on the existing plan in the interim. Moreover, nothing prevents NEPOOL from accelerating the filing of a more comprehensive plan. Because the existing congestion management approach does not attribute transmission rights to specific market participants and the new plan is likely to reflect this approach, the fact that a new generator is placed on the existing congestion management plan does not indicate any Docket No. ER98-3853-000 -11- determination about how transmission rights will be allocated among existing and new generators in the future. Finally, we will not address in this order the issues relating to NEPOOL s queuing process. Rather, we will address this issue in the context of NEPOOL's December filing. We note, however, that our resolution of the major issues in dispute in this order should minimize concerns about the NEPOOL queuing process. b. Interconnection Requirements NEPOOL's proposed Section 49 requires the generation owner to "satisfy the applicable requirements under the local tariff of the Transmission Provider in whose Local Network the generator would be located or to which the interconnection would be connected, including the filing with the Commission of an interconnection agreement with that Transmission Provider." Section 49 would also require that an application be filed with ISO-New England. Finally, Section 49 would require the generation owner to take any actions that NEPOOL determines are necessary to address concerns raised by a NEPOOL member that the new generator adversely affects its system and for the generator to be "fully integrated with the NEPOOL system on a basis which permits firm delivery of the unit output." NEPOOL's proposed Section 50 states that if the generator complies with these interconnection requirements, it "will have rights equal to all other firmly integrated resources" and will not be assessed costs for any subsequent expansions of the system. Several of the intervenors argue that these provisions are unclear and that they contain terms which are undefined. United, in particular, notes that there is no definition for "rights [of] firmly integrated resources." We agree. NEPOOL's proposed procedures lack specificity and contain terms that are undefined or designed to maintain the evaluation criteria that we have rejected. Therefore, we will direct NEPOOL to revise these procedures to make them clear and specific and consistent with the discussion about expansion criteria above. In addition, we will direct NEPOOL to revise its proposed language in Section 49(a), noted above. The NEPOOL Tariff should provide for a single application process to be administered by ISO-New England. Each and every step in the process should be set forth clearly in the tariff. 17/ 17/ As evidenced by the companion complaint proceeding in Docket No. EL98-69-000, there is confusion about coordinating the requirements of each local transmission provider and NEPOOL. This result is inconsistent with the one-stop shopping (continued...) Docket No. ER98-3853-000 -12- 3. Pricing Policy As noted above, NEPOOL proposes an expansion cost pricing formula at Schedule 11 of the NEPOOL Tariff which it characterizes as a compromise among negotiating parties, some of whom advocate full roll-in of upgrade costs and others who favor an allocation of all incremental costs to the generation owners. We note that this is a case of first impression. New merchant generators are seeking to enter NEPOOL not necessarily to serve new load, but also to compete with existing generators. Previously, new generation was generally only added to serve new load and siting of new generation was a collaborative process between the customer and the generator, who were often one and the same. The generator had to consider the total cost effect of its decision on its prospective customer, whose only concern was the delivered price (cost of generation plus the incremental cost of transmission). Now, with an energy market in place in NEPOOL, the siting of generation is strictly the merchant generator's decision (since it does not have an identified customer -- it is selling into the energy market to unidentified buyers). Therefore, where the cost of grid facilities are fully rolled-in, the merchant generator can, unchecked, choose the site that is most beneficial to itself and disregard its decision s effect on the cost of transmission. There is merit in considering the intervenors opposing extremes. Full roll-in encourages new generator interconnections by reducing the cost of entry. Thus, it encourages competition by placing new generators on equal footing with old, and thus may tend to reduce energy prices paid by load. 18/ On the other end of the spectrum, direct assignment provides a strong incentive for siting the generator so as to reduce the need for transmission upgrades. NEPOOL s proposal is a compromise of divergent views. The proposal provides an economic incentive to site generation so as to reduce the need for transmission expansion. It is important for generators to consider the costs of transmission congestion and necessary transmission upgrades associated with their siting decisions. While it may be appropriate for generators to pay for a portion of transmission upgrade costs, generators should also have the option of paying redispatch costs in lieu of expansion costs, consistent with the pro forma tariff. 17/ (...continued) arrangement we expect of an ISO. 18/ This, however, also may result in a higher cost to native load for transmission than may be necessary. Further, there is no economic incentive to site generation in the most efficient location. Docket No. ER98-3853-000 -13- We note, however, that intervenors have raised various issues with this pricing proposal and we agree with the intervenors that the proposal cannot be considered separately from the soon-to-be filed congestion management plan. NEPOOL's proposal is intended to encourage efficient siting of generation. However, the forthcoming proposal regarding congestion pricing (including any associated transmission rights) will also create incentives affecting generation siting, and these incentives will interact with those created by a charge for transmission upgrades. It is important that the incentives underlying the two pricing proposals dovetail. Also, it is important to understand how expansion cost payments would factor into the allocation of any transmission rights. Therefore, the expansion cost pricing and congestion pricing proposals need to be considered together. Accordingly, we will defer action on this pricing proposal and all related issues raised by the intervenors until NEPOOL files its comprehensive congestion management proposal on March 31, 1999. 4. NEPOOL's Proposed In-Service Charge NEPOOL supports its proposed In-Service Charge on the grounds that it will discourage hoarding of capacity. NEPOOL concedes that this provision has attributes of the Non-Use Charge that we rejected in the April 20 Order, but suggests that the Commission's concern in rejecting the prior charges (including the Non-Use Charge) was their cumulative impact. NEPOOL argues that there are additional distinctions between the rejected proposal and its current proposal. NEPOOL states that the In- Service Charge would be assessed only for hours in which all requests for service cannot be satisfied. NEPOOL also states that the In-Service Charge would apply to all users, including the Tie Owners, and that the charge would never result in the customer paying more than twice the basic charge (the In-Service Charge plus the basic charge) unlike the Non-Use Charge which could go as high as three times the basic charge. Finally, NEPOOL states that there would be no auction process to set the charge or allocate capacity. In sum, NEPOOL claims that its proposed In-Service Charge balances its concerns over hoarding with the goal of promoting greater competition. We will reject NEPOOL's proposed In-Service Charge. Under the pro forma tariff, firm import transactions are treated no differently than other types of transactions and can be effected in one of two ways. A network customer can use firm import capacity to reach a designated off-system network resource, an action that does not increase the network customer's transmission charges. A point-to-point customer can obtain firm import access by designating the import tie as the point of receipt and designating a specific point of delivery. The point-to-point customer must pay a charge based on its reserved demand and must pay multiple charges if it wants to deliver imported power to Docket No. ER98-3853-000 -14- multiple delivery points. A point-to-point reservation cannot be used to deliver power to a point which is being used to deliver network service. A point-to-point customer may also reassign its reservation to another eligible point-to-point customer. NEPOOL claims that the fact that a single customer has reserved import capacity over the New York ties every month since the Commission issued its order is evidence that customers are hoarding. 19/ NEPOOL argues that uncertainty can be avoided by using the reservation to deliver energy around the clock or to import a resource that satisfies the pool's capacity obligations. NEPOOL concedes that utilities selling into the Interchange cannot avoid uncertainty in this way because they cannot be assured that their bids into the Interchange would be accepted. We are not persuaded that there is a hoarding problem on the NEPOOL system. The reservation of import capacity, which NEPOOL points to as evidence of hoarding, does not support NEPOOL's argument. The import ties are valuable because they can be used to reach economic resources located in other control areas. The reasonable conclusion, we believe, is that utilities seeking to serve loads in NEPOOL may wish to reserve this capacity in order to access off-system resources. The less probable conclusion is that entities seeking to access off-system generators would choose to leave the import capacity idle and refrain from marketing those resources in NEPOOL in order to prevent competitors from accessing off-system resources. Even if capacity is unutilized, moreover, NEPOOL is free to release it under the NEPOOL Tariff. In sum, NEPOOL has failed to justify its proposed In-Service Charge. Therefore, we reject it. 5. Reclassifying PTF Lines NEPOOL proposes to eliminate a long-standing provision that permits generators to reclassify a non-PTF line as a PTF line if it is used to connect generators to the grid. Reclassification relieves the generator of the requirement of paying a separate non-PTF charge in order to reach the NEPOOL grid, in addition to any PTF upgrade costs that may be imposed under the pricing provisions discussed above. Braintree, et al. argues that the existing provision is a necessary option that allows pool members to ensure that all generators used to serve loads on the NEPOOL grid can access that grid directly. Braintree, et al. is also concerned that NEPOOL's filing is drafted in such a way as to insulate from Commission review recent reclassifications of non-PTF to PTF on behalf of 19/ The same customer has not made the reservation each month. Rather, each month, a single customer reserved the entire amount. Docket No. ER98-3853-000 -15- utility generators. Indeck Maine notes that it is currently involved in a dispute about its request to invoke the provision that NEPOOL now proposes to eliminate. Indeck-Maine complains that lines connecting generators to the grid should be treated as PTF lines. This is so, it states, because these lines fall within the general definition of PTF facilities, 20/ and because any other outcome would extend a preference to utility-owned generation and disadvantage non-utility generators who, alone, must pay an additional non-PTF charge under a Local Network Tariff. Indeck-Maine argues that this result violates the Order No. 888 requirement that preferential transmission terms be excised from power pool agreements. 21/ Indeck-Maine further argues that NEPOOL has failed to provide any support or justification for its proposal, and that the proposal violates Section 21.11 of the NEPOOL Agreement which prohibits amendments that impose a burden on non-supporting members "which is materially different in nature or materially greater than that imposed on the Participants which have agreed to such amendment." Finally, if the Commission allows elimination of this provision, Indeck-Maine argues that existing applications under the prior provision should be grandfathered. NEPOOL states that the existing provision was adopted in order to induce a Maine utility to join NEPOOL. NEPOOL concludes that it is appropriate now to limit future additions to PTF to those that serve only a regional purpose. We will reject NEPOOL s proposed elimination of this provision. The existing rule provides a mechanism to reclassify lines from non-PTF to PTF in recognition of changes in usage that result from the interconnection of new generators. NEPOOL's proposal would eliminate the flexibility to consider changed uses and create a bias towards projects that interconnect directly to the PTF rather than the non-PTF in order to avoid the non-PTF charge. Neither of these consequences are desirable. 20/ That is, facilities owned by Participants rated 69 kV or above that are required to move energy from significant power sources. 21/ Promoting Wholesale Competition Through Open Access Non- discriminatory Transmission Services by Public Utilities and Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Order No. 888, 61 Fed. Reg. 21,540 (May 10, 1996), FERC Stats. & Regs.  31,036 (1996), order on reh'g, Order No. 888-A, 62 Fed. Reg. 12,274 (March 14, 1997), FERC Stats. & Regs.  31,048 (1997), order on reh'g, Order No. 888-B, 81 FERC  61,248 (1997), order on reh'g, Order No. 888-C, 82 FERC  61,046 (1998). Docket No. ER98-3853-000 -16- Compliance Filing Issues 1. Point-to-Point Service NEPOOL proposes to offer Internal Point-to-Point service subject to the same charge as regional network service, i.e., currently based on the cost of the transmission system where the point of delivery is located. The revised NEPOOL Tariff provides that the charge will generally be assessed against the buyer. For example, if point-to-point service is used to deliver power to the NEPOOL Interchange, the transmission charge would be paid by the purchaser from the Interchange, and no additional charge would be assessed to the seller. Internal Point-to-Point service differs from the point-to- point service set forth in the pro forma tariff. Under NEPOOL s proposal, multiple points of receipt will not be assessed a separate charge if the points of receipt reflect generating units located on NEPOOL's system. Also, purchases through the NEPOOL PX will be considered a single point of receipt, while sales through the NEPOOL PX will be considered a single point of delivery. A load-serving entity that takes point-to-point service is subject to a minimum Reserved Demand equal to the portion of its Installed Capacity requirement that is satisfied by the generating resources listed as its points of receipt. If the point-to-point customer is not a NEPOOL Participant, its minimum Reserved Demand is equal to "the portions of its reliability obligations to be satisfied with such resources." Nonfirm internal point-to-point service is available only if the customer demonstrates to the satisfaction of ISO-New England "a physical ability to interrupt its receipt of energy" and gives ISO-New England physical control to effect the interruption. NEPOOL states that it has also made revisions to the terms for Regional Network Service to reinstate some of the pro forma tariff differences between network and point-to-point service that had been eliminated in the earlier tariff given the absence of point-to-point service. For example, Regional Network Service will now be available only to integrate network resources and loads. The Commission will accept NEPOOL s proposed revisions. In particular, we find that NEPOOL s proposal to allow multiple generating units to be treated as a single point of receipt is reasonable in the context of a regional transmission arrangement that is designed to support a centralized market such as the NEPOOL Interchange. Braintree, et al. complains, without explanation, that the point-to-point terms favor interchange transactions over bilateral transactions. NEPOOL responds that it is uncertain how Braintree, et al. reaches this conclusion. NEPOOL notes that the only pertinent language appears to be Section 21 of the NEPOOL Tariff, which states that no charge is Docket No. ER98-3853-000 -17- payable for a delivery to the NEPOOL Interchange. NEPOOL states that this provision simply recognizes that customers that buy from the Interchange pay the transmission charge. We find no support for Braintree, et al.'s argument. Westcoast and Engage argue that NEPOOL s point-to-point service should be made retroactive to March 1, 1997. NEPOOL responds that it would be impracticable to do so and would serve no useful purpose. We agree. 2. Double Charges A number of intervenors complain that the compliance filing is incomplete because it fails to address the potential for double billing under the NEPOOL Tariff and bilateral agreements. This issue, however, has been raised on rehearing of the April 20 Order and will be dealt with in that proceeding. 3. PTF Definition NEPOOL proposes to revise the definition of PTF to expressly exclude any new high voltage, direct current (DC) lines from the PTF. Tractebel complains that the proposed revision removes DC facilities from ISO-New England's control and from the single system rate provisions of the NEPOOL Tariff. Tractebel argues that there is no basis to exclude future grid facilities from ISO-New England's control or access through a single system rate solely on the basis of their electrical configuration. Hydro- Quebec and others complain that the existing DC lines are not treated as PTF either. We will reject the proposed revision. NEPOOL's proposal to revise the definition of PTF is overreaching as it relates to future additions. Moreover, it is premature as it relates to existing DC facilities because NEPOOL's exclusion of those facilities from the NEPOOL Tariff is an issue pending further Commission action in the proceedings involving the individual tariffs filed by NEPOOL s Participants. 22/ 4. Billing Provisions NEPOOL has revised the billing provisions in Section 46.1 to cross-reference "Network Load," as defined in section 1.51. Braintree, et al. complains that the revised definitions are convoluted and unintelligible. We will reject the proposed revision. Section 1.51 simply reinstates the pro forma tariff terms for network load. 22/ See April 20 Order, 83 FERC at 61,231. Docket No. ER98-3853-000 -18- 5. Transmission Losses Braintree, et al. claims that NEPOOL has added language at Section 29.6 giving it the right to establish a market-based regime for allocation of transmission losses. Braintree, et al. complains that this innovation is not justified. Bangor also argues that, while NEPOOL has reverted to an average loss factor, it intends to post changed loss factors on the OASIS rather than making a section 205 filing. We will accept the proposed revision. The language simply recognizes that losses accounted for through the NEPOOL Interchange market will not be duplicatively assessed under the transmission tariff and does not establish a market-based regime for allocation of transmission losses. Also, while the Commission has historically required a transmission provider to make a filing to change its loss factor, here the loss factors are being computed by ISO-New England under standardized procedures. Posting the results of those standardized computations on the OASIS is reasonable in this circumstance. 6. Revenue Credits Braintree, et al. argues, without citation or support, that "the provisions for tracking Transmission Provider s revenues from non-firm and short-term firm point-to-point service appear to [be] designed [to] avoid appropriate accounting for revenue credits." 23/ NEPOOL responds that Braintree, et al. s argument is unsupported. We agree and will deny the protest. 7. Transmission Revenues Bangor states that while transmission revenues from Internal Point-to-Point service will be distributed to transmission owners on the basis of relative revenue requirement, the revenue distribution for other services also considers MW-mile impacts. Bangor argues that all revenue distributions should be consistent and based on revenue requirement alone because this approach minimizes cost shifts. The revenue distributions to which Bangor objects were approved in the April 20 Order, and will not be reconsidered here. 8. ISO-New England's Responsibility to Perform Facilities Studies The New England Conference of Public Utilities Commissioners, Inc. (NECPUC) complains that the NEPOOL Tariff Section 44.4 has been revised to provide for facilities studies to be performed by the transmission owners rather than ISO-New 23/ Protest of Braintree, et al. at 21. Docket No. ER98-3853-000 -19- England. NECPUC states that this appears to violate ISO Principle 8 which contemplates that facilities studies would be done by ISO-New England. ISO-New England clarifies that it is responsible for the studies, but necessarily relies on the transmission owners to assist in their preparation. We will direct NEPOOL to revise Section 44.4 to codify ISO- New England's responsibilities for facilities studies. 9. Pool Governance Tractebel asks the Commission to accelerate the reform of pool governance given the critically important unfinished business of devising a market system for the pool and serious conflicts over access to markets by new generation. We will deny Tractebel s request. As required by the April 20 Order, the timetable for changing the governance provisions requires a filing at the end of this year. 10. Security Tractebel protests NEPOOL's proposed changes to Schedule 11 regarding the issue of security for system upgrades. Schedule 11 (Additions to or Upgrades of PTF) requires ISO-New England to negotiate one of three options with regard to security of payment for system expansions. NEPOOL may require a new generator seeking to interconnect to the PTF to either (1) pay in full up- front for the new generator s portion of PTF upgrades; (2) make installment payments for the PTF upgrades; or (3) submit a letter of credit for the amount of the upgrades. Tractebel complains that it may be required to pay the full amount up-front. In addition, the Vermont Department of Public Service (VDPS) complains that NEPOOL's proposed language has been revised in a manner which could result in captive customers being harmed if the entity seeking new facilities defaults, since the provision states that the transmission provider "may," rather than "shall," require security of payment. We will accept NEPOOL's proposed changes. ISO-New England is charged with reviewing the creditworthiness of all applicants for service or interconnection and ensuring that all expansion costs are recovered through its tariff rates. These provisions give NEPOOL the reasonable discretion to exercise its authority. Moreover, any disputes about specific interconnection obligations can be raised by the customer when NEPOOL files an interconnection agreement. 11. Network Resources NEPOOL proposes to revise the definition of "Network Resource," at Section 1.54 and make a related change to Section 42.2. In Section 1.54, NEPOOL has added a definition for Network Docket No. ER98-3853-000 -20- Resource under which the following are automatically designated as Network Resources for NEPOOL participants: (1) all existing generating units within NEPOOL, including deactivated units which are reactivated; (2) generating resources located outside of NEPOOL if a member has an entitlement in the resource to serve its native load; and (3) any new generator that complies with NEPOOL's proposed Section 49 interconnection procedures. NEPOOL states that, by adding these pre-designations to its definition of Network Resource, it will obviate the need for separate designations by its network customers. In a related change, NEPOOL also seeks to revise Section 42.2 to require that changes in network resources other than those that are pre-designated under Section 1.54 are to be made on a monthly basis only. A number of the intervenors challenge these proposed changes. United notes that the third category under Section 1.54 is based on the proposed Section 49 evaluation procedures with which it disagrees. Westcoast and Engage argue that all off- system generators that have historically sold power into NEPOOL should be automatically designated under Section 1.54 even if not subject to long-standing contracts. Braintree, et al. concludes that, in order to reach generation that does not qualify as a network resource under the revised criteria of Section 42.2, network customers will be required to arrange and pay for point- to-point service, even though they are using the power to serve network loads. Braintree, et al. concludes that these rules effectively penalize network customers who attempt to use short- term, bilateral transactions to hedge against market risk by charging twice for the same service. TransEnergie argues that new DC interconnections with other control areas should be afforded the same rights as new internal generators. Tractebel and others complain that deactivated generators that are returned to service within three years will not be treated as new generators and that modifications to existing generators will not cause them to be treated as new generators unless the capacity of the unit is increased. Tractebel concludes that these provisions provide existing generation with an undue preference. We will accept NEPOOL's proposed revisions to Section 1.54. United's concerns regarding Section 49 have been addressed above and NEPOOL has clarified that off-system resources can be added as Network Resources whenever a NEPOOL load-serving entity enters into a contract. Tractebel's concerns about new DC ties are premature and can be raised through the NEPOOL governance procedures when and if any new interconnections are established. Also, NEPOOL's proposal is reasonable to the extent it does not treat a reactivated generator as if it were a new resource until it has been in a deactivated status for more than three years, nor treat modified generators as new resources unless they increase capacity. This is consistent with the provision in the pro forma tariff that grandfathers all existing resources as network resources. Docket No. ER98-3853-000 -21- We reject NEPOOL's proposed changes to Section 42.2. NEPOOL has provided no basis to require new network resources to be added solely on a monthly basis. 12. Secondary Service NEPOOL proposes to revise Section 40.4 regarding secondary service for network customers. Under the pro forma tariff (and NEPOOL's previous version of this section), secondary service is available to deliver purchases from non-Network Resources at no additional charge. Under NEPOOL's proposed revision, secondary services are defined as purchases from and sales to the NEPOOL Interchange and, thus, is no longer available to deliver energy from resources that have not been designated as network resources. Braintree, et al. argues that this revision creates a transmission preference for Interchange Transactions, which are available only to pool members. NEPOOL, in response, claims that this change is intended to remove restrictions on the use of network service. NEPOOL may be concerned that network customers may be required to obtain and pay for Internal Point-to-Point service when selling power into the Interchange and, therefore, in order to avoid this result, is seeking to bring sales under the umbrella of secondary service. This concern, however, is misplaced since entities buying through the Interchange pay the transmission charge. Therefore, we will reject the proposed revision and require NEPOOL to reinstate the operative language from the pro forma tariff. Contrary to NEPOOL's stated objective, the proposed language introduces restrictions rather than limiting them. 13. Direct Assignment Facilities VDPS requests certain revisions in the definition of Direct Assignment Facilities. NEPOOL, however, has not revised the existing language which we accepted in the April 20 Order. This language, moreover, is consistent with the pro forma tariff. As such, it will not be reconsidered here. 14. Transmission Line Reliability Adjustment Braintree, et al. and others ask the Commission to address in this order concerns they have raised in another proceeding dealing with one element of the computation of the pool's installed capability obligation, i.e., the Transmission Line Reliability Adjustment Procedure. In support of their request, these parties argue that the provision at issue may be related to NEPOOL's proposed In-Service Charge (discussed above). We will deny the request because we have already rejected the In-Service Charge and the request properly belongs in another proceeding, not here. Docket No. ER98-3853-000 -22- The Commission orders: (A) The motions to intervene out-of-time listed on Attachment B are hereby granted, as discussed in the body of this order. (B) NEPOOL is hereby directed to submit a compliance filing as discussed in the body of this order within 15 days of the date of this order, to (i) revise the evaluation criteria set forth in Sections 49 and 50; (ii) delete the proposed In-Service Charge set forth at Section 22A; (iii) revise Section 44.4 by codifying ISO-New England's responsibilities for facilities studies; (iv) delete NEPOOL's proposed changes to Section 42.2; and (v) delete NEPOOL's proposed changes to Section 40.4 and reinstate the pro forma tariff language. (C) NEPOOL's compliance filing is hereby conditionally accepted for filing, as modified by Ordering Paragraph B, to become effective October 1, 1998, subject to the outcome of the hearing established by the April 20 Order and pending requests for rehearing. (D) NEPOOL's proposed tariff changes are hereby rejected, in part, and accepted in part for filing, as modified by Ordering Paragraphs B and E, as discussed in the body of this order. (E) Consideration of NEPOOL's expansion pricing proposal is hereby deferred, as discussed in the body of this order. By the Commission. ( S E A L ) David P. Boergers, Secretary. Attachment A Timely Notices of Intervention, Motions to Intervene, Protests and Comments * AES Enterprise, Inc. American National Power, Inc. * Bangor Hydro-Electric Company * Braintree Municipal Light Department; Reading Municipal Light Department, and Taunton Municipal Lighting Plant * Casco Bay Energy Company, L.L.C. * Citizens Power Sales Constellation Power Development, Inc. Duke Energy Trading and Marketing, L.L.C. Electric Clearinghouse, Inc. Energy Management Inc. Enron Power Marketing, Inc. * Indeck Maine Energy, L.L.C. * Industrial Energy Consumers Group ** ISO New England Inc. Irving Oil Limited * Massachusetts Municipal Wholesale Electric Company ** Maine Attorney General * Maine Public Service Company Maine Public Utilities Commission ** New England Conference of Public Utilities Commissioners ** New England Power Company * New Generators 24/ * New Hampshire Office of Consumer Advocate * The Northeast TDUs 25/ Polsky Energy Corp. * Public Advocate, State of Maine * RI Hope Energy, L.P. * Tractebel Energy Marketing, Inc. * TransEnergie U.S. LTD. U.S. Generating Company, USGen New England, Inc., and PG&E Energy Trading-Power, L.P. * Vermont Department of Public Service * Wallingford Energy, L.L.C. * Westcoast Power Inc. and Engage Energy, U.S., L.P. * Intervention includes a protest ** Intervention includes comments 24/ New Generators is comprised of American National Power, Inc.; Energy Management Inc.; and Williams Energy Group. 25/ The Northeast TDUs is comprised of Connecticut Municipal Electric Energy Cooperative; Chicopee Municipal Lighting Plant; Westfield Gas and Electric Light Department; and South Hadley Electric Light Department. Attachment B Untimely Motions to Intervene, Protests and Comments ** Central Maine Power Company ** Conservation Law Foundation Fitchburg Gas & Electric Light Co. * Hydro-Quebec FPL Energy, Inc. ** Northeast Utilities Service Company Power Development Company, L.L.C. * The United Illuminating Company Unitil Power Corp. Williams Energy Group * Intervention includes a protest ** Intervention includes comments