Energy and Utilities Alert
April 2007
Authors:
Harvard P. Spigal
503.226.5788
harvard.spigal@klgates.com
Eric E. Freedman
206.370.7627
eric.freedman@klgates.com
Roger D. Stark
202.778.9435
roger.stark@klgates.com
Donald A. Kaplan
202.661.6266
don.kaplan@klgates.com
Lisa H. Tucker
202.661.6211
lisa.tucker@klgates.com
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Order 890: Framing the Costs of
Transmission Access
On February 16, 2007, the Federal Energy Regulatory Commission (the “Commission,”
or “FERC”) adopted Order No. 890, Preventing Undue Discrimination and Preferences
in Transmission Service (“Order 890”), which amends FERC’s regulations governing the
provision of transmission service and requires revisions to the pro forma Open Access
Transmission Tariff (“OATT”) adopted in Order Nos. 888 and 889.1 Transmission providers
are required to submit filings revising their OATTs within two to seven months after the
formal publication of Order 890 on March 15, 2007.
Order 890 is intended to expand “nondiscriminatory access” to the transmission grid,
increase customer access to new generating resources, facilitate the increased use of
renewable energy (in part, by including “conditional firm” transmission service that
responds to the needs of renewable energy generators), and enhance overall access to the
grid by requiring transmission providers to calculate, in a uniform and transparent manner,
the amount of capability available in the transmission network to accommodate additional
requests for transmission services.
• As discussed below, Order 890 also may have effects beyond those expressly
contemplated by the Commission. For example:
• As more transmission capacity becomes available to independent generators,
short and medium term needs for additional generation may decrease;
• Increased transmission access may affect locational-based capacity markets,
and in particular capacity charges in such markets;
• The change in rules regarding the “rolling over” of transmission reservations
may free up previously committed transmission capacity; and
• Expanded access to the transmission grid may result in increased costs for
owners of intermittent generation resources.
Collectively, Order 890’s changes to the pro forma OATT should make more transmission
capacity available by requiring greater uniformity in the calculation of transmission capacity,
creating greater opportunities for transmission customers to reassign unused transmission
capacity and discouraging “warehousing” of unused capacity. The key components of Order
890, and their potential consequences, are discussed in further detail below.
Discussion
Order 890 will have important ramifications for existing stakeholders and prospective
investors. As highlighted below, various provisions of the order are expected to provide
increased opportunities to secure valuable transmission capacity.
1. Numerous requests for rehearing have been filed with respect to Order 890. Thus certain elements of the rule as
proposed and as discussed below may change.
Energy and Utilities Alert
Consistency and Transparency
of Available Transfer Capability
Calculations
Summary. Order 890 gives the electric industry
specific guidance regarding the calculation of the
amount of capability available in a transmission
network to accommodate additional requests for
transmission services (referred to as “available transfer
capability,” or “ATC”). Order 890 at P 207. Order
890 also establishes a firm deadline for implementing
requirements to increase consistency in the processes
for calculating ATC and exchanging ATC data among
transmission providers. Order 890 at P 223.
Implications. For years transmission customers
and interconnecting generators have struggled with
inconsistent calculations of ATC. Requiring consistency
in the calculation of ATC will have an impact on the
ability of generators and other transmission customers
to move power under firm transmission arrangements.
Requiring such consistency will free up new capacity in
some cases, but in other cases will eliminate previously
available capacity. The requirement will, for example,
make it more difficult for transmission providers to
vary from published ATC figures, leaving them little
flexibility to accept or reject transmission requests
close to their published limits.
Coordinated, Open and Transparent
Transmission Planning
Summary. Order 890 requires coordinated, open and
transparent transmission planning on both a subregional and regional level. Order 890 at P 435. It
adopts nine planning principles that each transmission
provider will be required to follow. Each transmission
provider must develop a proposal for implementing
these principles within 75 days after the formal
publication of Order 890 on March 15, 2007, and must
incorporate such principles in its OATT within seven
months after such date. Order 890 at P 442.
Implications. The Order 890 transmission planning
reforms will extend to all transmission owners the
wide-open stakeholder processes that currently take
place within regional transmission organizations.
These requirements may move to the federal arena
many issues that previously were resolved at the state
level. Forcing transmission providers to participate in
regional planning processes is likely to result in larger
facilities being built across multiple transmission areas.
Regional planning may also lead to a more regional
allocation of costs for such facilities. Over time, the
requirement that transmission owners participate in
regional planning processes addressing congestion
as well as reliability concerns may have a significant
impact on energy prices.
Transmission Pricing Reforms
Summary. Order 890 reforms several of the transmission
and ancillary service pricing provisions of the pro
forma OATT:
• Energy and Generator Imbalance Charges.
Order 890 adopts a new schedule to the pro
forma OATT that provides for generator
imbalance payments and credits, based on
specified deviation bands and reforms energy
imbalance pricing. Order 890 at P 627.
•C apacity Reassignment Pricing. Order
890 eliminates the existing price cap on the
reassignment of point-to-point transmission
capacity. Before Order 890, transmission
customers were limited to charging the
transmission provider’s filed rate for reassigned
capacity. Order 890 permits customers to
resell capacity at full market prices. Order 890
at P 808.
•Crediting of Customer-Owned Facilities. Order
890 removes the requirement that, in order to
be eligible for transmission credits, a facility
must be part of the transmission provider’s joint
planning process. Going forward, a network
transmission service customer can receive
credits against transmission service charges for
new transmission facilities if the facilities are
integrated into the operations of the transmission
provider’s facilities. Order 890 at P 753.
Implications. Order 890 permits transmission providers
to assess imbalance charges based on the transmission
provider’s actual incremental costs to supply the
imbalance energy. Such pricing will make the costs
for such services more difficult for customers to predict
and the charges associated with such services more
difficult for customers to audit. Order 890’s generation
imbalance charges are likely to increase the cost of
operating many generating units. Intermittent resources
are more susceptible to fluctuations in output and
thus will be more susceptible to imbalance charges.
April 2007 | Energy and Utilities Alert
The Commission has tried to temper the effects of
these charges by exempting intermittent resources
from the higher penalties associated with the highest
imbalance deviation band, but intermittent generation
will nonetheless remain subject to penalties in lower
bands.
Order 890’s transmission customer credit and capacity
resale provisions are important benefits for transmission
customers, particularly generation developers. The
credit provisions reduce the cost to developers of
interconnecting to a transmission provider’s system
where network upgrades are required. Eliminating
the requirement that customer-owned facilities be
part of the transmission provider’s joint transmission
plan should lead to more customer-owned facilities
being eligible for transmission credits and may also
make some generation interconnections possible by
providing funds to finance required network upgrades
that would not be otherwise eligible for credits. The
rule also eliminates any disincentive for transmission
providers to exclude customer-owned facilities from
the transmission provider’s joint transmission plan.
The resale provisions of Order 890 could be a source
of short and medium-term revenue for transmission
customers that commit to long-term reservations (as
they must do under the new rollover provisions of
the tariff) but that do not necessarily need all of the
capacity in the early years of that commitment.
Improvements to Point-to-Point Service
Summary. Order 890 adopts a “conditional firm”
component to long-term point-to-point service to
address circumstances in which firm service can
be provided for most, but not all, hours during the
period requested. Order 890 also reforms existing
requirements for the provision of redispatch service.
Order 890 at P 911.
Implications. Conditional firm service is designed in
part to provide a low-cost alternative for intermittent
renewable generation. Requiring transmission providers
to provide a conditional firm service will make more
transmission available on a firm basis. By definition,
however, such service may not be available during
peak service periods.
Reform of Rollover Rights
Summary. Order 890 increases from one to five years
the minimum term of a transmission service contract for
which a customer may seek rollover rights. Order 890
at P 1231. Order 890 also requires that a transmission
customer eligible for rollover rights provide one year’s
advance notice of whether or not it will exercise its
right to renew the contract. Order 890 at P 1245.
Implications. Increasing the minimum term of “rolled
over” transmission rights from one year to five years is
likely to decrease the number of transmission service
contracts that elect rollover treatment and thus to
make available transmission capacity that would have
otherwise remained committed. As noted above, the
Commission has removed the price cap on reassigning
point-to-point transmission capacity, thus making it
easier for long-term firm point-to-point customers
to trade excess capacity. This change also will tend
to increase the availability of transmission capacity
and may create a more robust secondary market for
transmission capacity.
Changes to Reservation Priority
Provisions
Summary. Order 890 requires that transmission
providers give certain pre-confirmed transmission
service requests priority over other requests submitted
in the same time period. Order 890 at P 1401. Order
890 adds price as a tie-breaker in determining priority
in the reservation queue when the transmission provider
is offering discounted transmission service. Order 890
at P 1410.
Implications. Giving priority to pre-confirmed
transmission requests will ensure that customers that
committed to securing transmission service will have
a greater likelihood of receiving such service. The
change will also prevent customers from hoarding
potential transmission service by submitting multiple
service requests that the customer does not intend to
honor. Order 890 requires transmission customers
with pre-confirmed transmission requests to take full
service in the event the transmission provider offers the
requested service. Order 890 also maintains the existing
incentive for long-term service in the pro forma OATT
by continuing to give priority to non-confirmed longterm service requests over pre-confirmed short-term
service requests.
April 2007 | Energy and Utilities Alert
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