[Federal Register Volume 77, Number 142 (Tuesday, July 24, 2012)]
[Proposed Rules]
[Pages 43184-43189]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-18012]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 2 and 35

[Docket Nos. AD12-9-000 and AD11-11-000]


Allocation of Capacity on New Merchant Transmission Projects and 
New Cost-Based, Participant-Funded Transmission Projects; Priority 
Rights to New Participant-Funded Transmission

AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Proposed Policy Statement.

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SUMMARY: The Commission seeks comment on this proposed policy 
statement, which clarifies and refines current policies governing the 
allocation of capacity for new merchant transmission projects and new 
nonincumbent, cost-based, participant-funded transmission projects. The 
Commission proposes to allow developers of such projects to select a 
subset of customers, based on not unduly discriminatory or preferential 
criteria, and negotiate directly with those customers to reach 
agreement on the key terms and conditions for procuring capacity, when 
the developers (1) broadly solicit interest in the project from 
potential customers, and (2) file a report with the Commission 
describing the solicitation, selection and negotiation process. The 
Commission proposes these policy reforms to ensure transparency in the 
capacity allocation process while providing developers the ability to 
bilaterally negotiate rates, terms, and conditions for the full amount 
of transmission capacity with potential customers.

DATES: Comments on the proposed policy statement are due on or before 
September 24, 2012.

FOR FURTHER INFORMATION CONTACT: 

Becky Robinson, Office of Energy Policy and Innovation, 888 First 
Street NE., Washington, DC 20426, (202) 502-8868, 
becky.robinson@ferc.gov.
Andrew Weinstein, Office of General Counsel, 888 First Street NE., 
Washington, DC 20426, (202) 502-6230, andrew.weinstein@ferc.gov.
Brian Bak, Office of Energy Policy and Innovation, 888 First Street 
NE., Washington, DC 20426, (202) 502-6574, brian.bak@ferc.gov.

SUPPLEMENTARY INFORMATION:

140 FERC ] 61,061

    Before Commissioners: Jon Wellinghoff, Chairman; Philip D. Moeller, 
John R. Norris, Cheryl A. LaFleur, and Tony T. Clark.

Proposed Policy Statement

Issued July 19, 2012.

I. Introduction

    1. The Commission seeks comment on this proposed policy statement, 
which clarifies and refines current policies governing the allocation 
of capacity for new merchant transmission projects and new 
nonincumbent, cost-based, participant-funded transmission projects. In 
recent years, a number of merchant and nontraditional transmission 
developers have sought guidance from the Commission regarding 
application of open access principles to new transmission facilities 
through petitions for declaratory orders. As the Commission addressed 
these requests, its policies have evolved over time to provide 
potential customers adequate opportunities to obtain service while also 
providing transmission developers adequate certainty to assist with 
financing transmission projects. As a result of these evolving 
policies, different rules have been adopted regarding capacity 
allocation for merchant transmission projects and nonincumbent, cost-
based, participant-funded transmission projects.
    2. With the benefit of experience regarding the unique 
characteristics of merchant and other nontraditional transmission 
project proposals, and in consideration of industry input on Commission 
policies regarding the allocation of capacity on such projects, the 
Commission proposes to streamline its capacity allocation policies by 
establishing consistent policies regarding capacity allocation for both 
merchant transmission projects and nonincumbent, cost-based, 
participant-funded transmission projects. Specifically, the Commission 
proposes to allow developers of such projects to select a subset of 
customers, based on not unduly discriminatory or preferential criteria, 
and negotiate directly with those customers to reach agreement on the 
key terms and conditions for procuring capacity, when they (1) broadly 
solicit interest in the project from potential customers, and (2) 
submit a report to the Commission describing the solicitation, 
selection and negotiation process. The Commission proposes these policy 
reforms to ensure transparency in the capacity allocation process while 
providing developers the ability to negotiate bilaterally with 
potential customers the rates, terms, and conditions for the full 
amount of transmission capacity. These policy reforms would be 
implemented within the existing four factor analysis used to evaluate 
requests for negotiated rate authority.\1\ The Commission seeks comment 
regarding this proposed change in policy, as discussed below.
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    \1\ See infra note 29.
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II. Background

    3. The Commission first granted negotiated rate authority to a 
merchant transmission project developer over a decade ago, finding that 
merchant transmission can play a useful role in expanding competitive 
generation alternatives for customers.\2\ Unlike

[[Page 43185]]

traditional utilities recovering their costs-of-service from captive 
and wholesale customers, investors in merchant transmission projects 
assume the full market risk of development.\3\ Over the course of a 
number of early proceedings, the Commission developed ten criteria to 
guide its analysis in making a determination as to whether negotiated 
rate authority would be just and reasonable for a given merchant 
transmission project.\4\ Two of these criteria were that (1) an open 
season process should be employed to initially allocate all 
transmission capacity and (2) the results of the open season should be 
posted on an Open Access Same-Time Information System (OASIS) and filed 
in a report with the Commission.\5\
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    \2\ TransEnergie U.S., Ltd. 91 FERC ] 61,230, at 61,838 (2000) 
(TransEnergie).
    \3\ Id. at 61,836.
    \4\ Id.; Neptune Regional Transmission System, LLC, 96 FERC ] 
61,147, at 61,633 (2001) (Neptune); Northeast Utilities Service Co., 
97 FERC ] 61,026, at 61,075 (2001) (Northeast Utilities I); 
Northeast Utilities Service Co., 98 FERC ] 61,310, at 62,327 (2002) 
(Northeast Utilities II).
    \5\ The ten criteria are: (1) The merchant transmission facility 
must assume full market risk; (2) the service should be provided 
under the open access transmission tariff (OATT) of the Independent 
System Operator (ISO) or Regional Transmission Organization (RTO) 
that operates the merchant transmission facility and that 
operational control be given to that ISO or RTO; (3) the merchant 
transmission facility should create tradable firm secondary 
transmission rights; (4) an open season process should be employed 
to initially allocate transmission rights; (5) the results of the 
open season should be posted on the OASIS and filed in a report to 
the Commission; (6) affiliate concerns should be adequately 
addressed; (7) the merchant transmission facility not preclude 
access to essential facilities by competitors; (8) the merchant 
transmission facilities should be subject to market monitoring for 
market power abuse; (9) physical energy flows on merchant 
transmission facilities should be coordinated with, and subject to, 
reliability requirements of the relevant ISO or RTO; and (10) 
merchant transmission facilities should not impair pre-existing 
property rights to use the transmission grids of inter-connected 
RTOs or utilities. E.g., Northeast Utilities I, 97 FERC at 61,075.
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    4. In Chinook, the Commission refined its approach to evaluating 
merchant transmission by adopting a four-factor analysis.\6\ Under this 
analysis, the Commission continues to rely upon an open season and a 
post-open season report as a means to provide transparency in the 
allocation of initial transmission capacity and ensure against undue 
discrimination among potential customers in the award of transmission 
capacity. Specifically, the Commission evaluates the terms and 
conditions of the open season as part of ensuring no undue 
discrimination (second factor),\7\ and uses the open season as an added 
protection in overseeing any affiliate participation, to ensure no 
undue preference or affiliate concerns (third factor).
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    \6\ The four factors are: (1) the justness and reasonableness of 
rates; (2) the potential for undue discrimination; (3) the potential 
for undue preference, including affiliate preference; and (4) 
regional reliability and operational efficiency requirements. E.g., 
Chinook Power Transmission, LLC, 126 FERC ] 61,134, at P 37 (2009) 
(Chinook).
    \7\ Also, the Commission looks to a developer's own OATT 
commitments or its commitment to turn operational control over to an 
RTO or ISO. See id. P 40. Guidance given in this policy statement 
with regards to satisfying the second factor is directed at the open 
season requirement; the Commission will continue to require merchant 
and other transmission developers either to file an OATT or to turn 
over control to an RTO or ISO.
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    5. The Chinook order also marked a change in Commission policy on 
capacity allocation, as in that order the Commission for the first time 
authorized developers to allocate some portion of capacity through 
anchor customer presubscriptions, while requiring that the remaining 
portion be allocated in a subsequent open season. The Commission 
implemented this policy to achieve the dual goals of requiring an open 
season process that ensures capacity on a merchant transmission project 
is allocated transparently in an open, fair, and not unduly 
discriminatory manner, while permitting an anchor customer model that 
enables developers of merchant transmission projects to meet the 
financial challenges unique to merchant transmission development.\8\ 
Since the Chinook order, the Commission has issued orders on several 
new merchant and other nontraditional transmission development 
proposals, including granting requests to allocate up to 75 percent of 
a transmission project's capacity to anchor customers.\9\
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    \8\ See id. P 46.
    \9\ See, e.g., Champlain Hudson Power Express, Inc., 132 FERC ] 
61,006 (2010); Rock Island Clean Line LLC, 139 FERC ] 61,142 (2012); 
Southern Cross Transmission LLC, 137 FERC ] 61,207 (2011).
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    6. The Commission also has received proposals from transmission 
developers regarding the allocation of capacity on cost-based, 
participant-funded transmission projects. These proceedings involved 
incumbent transmission developers,\10\ while one involved a 
nonincumbent transmission developer.\11\ In NU/NSTAR, the Commission 
approved the structure of a transaction whereby a customer was granted 
usage rights to transmission capacity in exchange for funding the 
transmission expansion, under the reasoning that any potential 
transmission customer has the right to request transmission service 
expansion from a transmission owning utility, and that utility is 
obligated to make any necessary system expansions and offer service at 
the higher of an incremental cost or an embedded cost rate to the 
transmission customer. More recently, in National Grid, the Commission 
found again that participant funding of transmission projects by 
incumbent transmission providers is not inconsistent with the 
Commission's open access requirements.\12\ Cost-based participant-
funded projects are similar to merchant projects in that both involve 
willing customers assuming part of the risk of a transmission project 
in return for defined capacity rights; i.e., there is no direct 
assignment of costs to captive customers. Cost-based participant-funded 
projects differ between incumbents and nonincumbents, in that incumbent 
transmission providers have a clearly defined set of existing 
obligations under their tariffs for the expansion of their existing 
transmission facilities, whereas nonincumbents have no existing 
obligation to build any transmission facilities.
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    \10\ See, e.g., Northeast Utilities Service Company, NSTAR 
Electric Company, 127 FERC ] 61,179 (2009) (NU/NStar), order denying 
reh'g. and clarification, 129 FERC ] 61,279 (2009); National Grid 
Transmission Services Corporation and Bangor Hydro Electric Company, 
139 FERC ] 61,129 (2012) (National Grid).
    \11\ See Grasslands Renewable Energy, LLC, 133 FERC ] 61,225 
(2010).
    \12\ National Grid, 139 FERC ] 61,129 at P 29.
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    7. To gain feedback regarding the Commission's capacity allocation 
policies, the Commission held a technical conference in March 2011 to 
discuss the extent to which nonincumbent developers of transmission 
should be provided flexibility in the allocation of rights to use 
transmission facilities developed on a cost-of-service or negotiated 
rate basis.\13\ Participants at that conference and subsequent 
commenters acknowledged the value in widely soliciting new customers, 
but they also expressed the desire to be able to allocate 100 percent 
of their projects' capacity through bilateral negotiations with 
identified customers.\14\ Based on these comments, the Commission held 
a follow up workshop in February 2012 to obtain input on potential 
reforms to the Commission's capacity allocation policies.\15\ Many 
participants at the

[[Page 43186]]

2012 workshop suggested that the need for flexibility required 
something less structured than the traditional open season process. 
Specifically, some commenters, including transmission developers, 
emphasized the inherent incentive transmission developers have to 
solicit interest widely and attract potential customers to their 
project, so that they can identify customers that are most likely to be 
successful in their own generation projects and therefore provide the 
greatest certainty that they will be successful in becoming 
transmission customers.\16\ In this respect, these commenters argued 
that their incentives harmonize with the Commission's goals of open 
access. Further, they argue that their class of transmission developers 
does not raise the same concerns that motivated the Commission in Order 
No. 888,\17\ where vertically-integrated utilities had an economic 
incentive to favor their own generation and discriminate against 
competitors when providing transmission service.\18\
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    \13\ ``Priority Rights to New Participant-Funded Transmission,'' 
AD11-11-000, March 15, 2011. This technical conference also 
addressed generator lead lines, but those facilities are not the 
subject of this proposed policy statement.
    \14\ See, e.g., Clean Line Energy Partners May 5, 2011 Comments 
at 7 (Clean Line); LS Power Transmission, LLC May 5, 2011 Comments 
at 3-4 (LSPT); Transmission Developers, Inc., May 5, 2011 Comments 
at 4-5 (TDI); Western Independent Transmission Group May 5, 2011 
Comments at 6 (WITG); and Tonbridge Power Inc. April 19, 2011 
Comments at 2 (Tonbridge).
    \15\ ``Allocation of Capacity on New Merchant Transmission 
Projects and New Cost-Based, Participant-Funded Transmission 
Projects,'' Docket No. AD12-9-000 (February 28, 2012).
    \16\ See, e.g., MATL LLP and Montana Alberta Tie, Ltd. March 29, 
2012 Comments at 3 (MATL).
    \17\ Promoting Wholesale Competition Through Open Access Non-
Discriminatory Transmission Services by Public Utilities; Recovery 
of Stranded Costs by Public Utilities and Transmitting Utilities, 
Order No. 888, 61 FR 21540 (May 10, 1996), FERC Stats. & Regs. ] 
31,036 (1996), order on reh'g, Order No. 888-A, 62 FR 12274 (Mar. 
14, 1997), FERC Stats. & Regs. ] 31,048, 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), aff'd in relevant part sub nom. Transmission 
Access Policy Study Group v. FERC, 225 F.3d 667 (DC Cir. 2000), 
aff'd sub nom. New York v. FERC, 535 U.S. 1 (2002).
    \18\ SunZia Transmission, LLC March 29, 2012 Comments at 7 
(SunZia).
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    8. However, commenters also focused on the need for negotiation 
flexibility during the capacity allocation process,\19\ pointing out 
that the transmission developer and customer need to address a variety 
of issues, including points of delivery and receipt, project timing and 
what happens if schedules change, termination rights of parties at 
various development stages, development cost-sharing, length and 
payments of the initial term of service, extensions of the term and 
associated payments.\20\ These commenters argued that a rigid open 
season process that requires developers to offer all customers the same 
terms and conditions does not allow for the bilateral exchange of 
information to address the unique needs of developers and their 
potential customers. Moreover, these commenters pointed out that there 
have been no claims of undue discrimination resulting from any of the 
anchor customer proposals the Commission has approved, to date,\21\ and 
that parties who feel they were unduly discriminated against have had, 
as an added protection, the right to file a section 206 complaint.\22\
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    \19\ See, e.g., WITG March 28, 2012 Comments at 5; Clean Line 
March 28, 2012 Comments at 5-7; SunZia March 29, 2012 Comments at 3-
6, 9; LSPT March 29, 2012 Comments at 2-4; and Pattern Transmission 
March 28, 2012 Comments at 6-7 (Pattern).
    \20\ LSPT March 29, 2012 Comments at 2-3.
    \21\ TransWest Express LLC March 28, 2012 Comments at 7.
    \22\ Duke Energy Corporation March 29, 2012 Comments at 7-8; 16 
U.S.C. 824e (2006).
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    9. However, other commenters at the 2012 workshop voiced concerns 
with the merchant transmission model in general, and the opportunity 
for potentially unduly discriminatory deals.\23\ They argued that 
allowing more flexibility for merchant transmission developers is 
tantamount to reverting to the pre-open access Order No. 888 days of 
transmission regulation, and discouraged the Commission from pursuing 
policies that enable anchor customers to exclude or burden generation 
competitors or engage in other abusive practices the Commission sought 
to eradicate in Order No. 888. Such commenters favor requiring merchant 
transmission developer participation in the regional planning 
process.\24\ The staff of the Federal Trade Commission similarly 
questions how the Commission will restrain merchant transmission 
developers from exercising market power.\25\
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    \23\ See, e.g., Transmission Access Policy Study Group March 29, 
2012 Comments at 6-9 (TAPS); Transmission Dependent Utility Systems 
March 29, 2012 Comments at 2-4; New Jersey Division of Rate Counsel 
March 29, 2012 Comments at 2-4; and the Federal Trade Commission 
staff June 14, 2012 Comments at 6-9 (FTC staff).
    \24\ This latter argument is outside the scope of this 
proceeding and was addressed in Order No. 1000-A. Transmission 
Planning and Cost Allocation by Transmission Owning and Operating 
Public Utilities, Order No. 1000, FERC Stats. & Regs. ] 31,323 
(2011), order on reh'g, Order No. 1000-A, 139 FERC ] 61,132, at P 
297 (2012).
    \25\ FTC staff June 14, 2012 Comments at 9.
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    10. The Commission believes that there is a role within its 
transmission development policies for both bilateral negotiations for 
transmission service and uniform rules and processes through the pro 
forma OATT for all customers at all times. The policy of open access 
and comparable treatment is the underpinning of the Commission's 
approach to ensuring against undue discrimination and permeates many, 
if not all, of the Commission's programs. However, this does not mean 
that the Commission cannot be flexible in how it accomplishes open 
access and comparable treatment. As Order No. 1000 \26\ is implemented 
around the country, the Commission expects that more transmission needs 
will be identified and addressed through the open and transparent 
regional transmission planning process. Nonetheless, bilateral 
negotiation between transmission developers and potential customers may 
be another appropriate vehicle for new merchant transmission projects 
and new nonincumbent, cost-based, participant-funded transmission 
projects to move forward. In fact, Order No. 1000 allowed for such a 
vehicle, noting that some projects may not seek to pursue regional or 
interregional cost allocation.\27\ In addition, there may be projects 
that are considered in the regional planning process that, although not 
ultimately selected in a regional plan for purposes of cost allocation, 
have sufficient value for individual potential customers such that they 
wish to pursue them through bilateral negotiations with a potential 
developer. This proposed policy statement is intended to provide a 
``roadmap'' for entities to pursue those projects, while also serving 
to ensure transparency in the allocations of capacity resulting from 
such bilateral negotiation and, in turn, to ensure that transmission 
service is provided at rates, terms and conditions that are just and 
reasonable and not unduly discriminatory.
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    \26\ Transmission Planning and Cost Allocation by Transmission 
Owning and Operating Public Utilities, Order No. 1000, FERC Stats. & 
Regs. ] 31,323 (2011), order on reh'g, Order No. 1000-A, 139 FERC ] 
61,132 (2012).
    \27\ See Order No. 1000, FERC Stats. & Regs. ] 31,323 at P 725; 
Order No. 1000-A, 139 FERC ] 61,132 at PP 728-729 (``[N]othing in 
Order No. 1000 forecloses the opportunity for a transmission 
developer, a group of transmission developers, or one or more 
individual transmission customers to voluntarily assume the costs of 
a new transmission facility * * *. Transmission developers who see 
particular advantages in participant funding remain free to use it 
on their own or jointly with others. This simply means they would 
not be pursuing regional or interregional cost allocation.'').
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    11. Accordingly, the Commission proposes to clarify and refine its 
policies governing the allocation capacity for new merchant 
transmission projects and new nonincumbent, cost-based, participant-
funded transmission projects to ensure that it is done in an open and 
transparent manner, giving all interested parties a chance to 
participate. The Commission believes that the proposed capacity 
allocation process outlined here satisfies our statutory 
responsibilities, provides sufficient transparency and protections to 
market participants, and is responsive to the industry concerns.

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III. Discussion

 A. Merchant Transmission Projects

    12. The Commission proposes to revise its merchant transmission 
policy to streamline the process by which capacity may be allocated on 
new merchant transmission projects and to expect more detail and 
transparency in the report describing the developer's capacity 
allocation approach. While the Commission's fundamental concerns 
continue to be that new transmission capacity be allocated in a not 
unduly discriminatory or preferential manner, the Commission's 
experience with new merchant transmission projects and comments 
received during the technical conference and workshop suggest that we 
can provide more flexibility while addressing these concerns. The 
Commission proposes to allow merchant transmission developers to 
allocate up to 100 percent of their projects' capacity through 
bilateral negotiations.\28\ With the transparency protections discussed 
below, the Commission also proposes to allow capacity allocation to 
affiliates, when done in a transparent manner, so that other interested 
parties can voice concern if they believe the affiliate was treated 
preferentially at the expense of another party.\29\
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    \28\ Commenters in the technical conference and in the workshop 
specifically requested that the Commission clarify circumstances 
under which merchant transmission developers would be allowed to 
allocate up to 100 percent of their project's capacity through 
bilateral negotiations.
    \29\ By proposing to adopt the policies herein, the Commission 
seeks to encourage merchant transmission developers intending to 
seek negotiated rate authority to utilize the guidelines discussed 
below. To the extent that a merchant transmission developer 
substantially complies with any such policies ultimately adopted by 
the Commission, the developer would be deemed to have satisfied the 
second (undue discrimination) and third (undue preference) factors 
of the four-factor analysis.
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    13. The flexibility we propose to afford under the policy outlined 
below is complemented by the emphasis on additional detail in reports 
describing the developer's capacity allocation approach. The Commission 
agrees with commenters that each merchant transmission project has 
unique characteristics that require the ability to negotiate risk-
sharing and other details. The Commission also acknowledges that 
merchant transmission developers have inherent incentives to solicit 
interest widely in a potential project. However, other commenters point 
out that counter-incentives may exist that motivate a developer to 
unduly prefer one or more customers. To protect against undue 
discrimination, the Commission proposes to allow merchant transmission 
developers to engage in an open solicitation to identify potential 
transmission customers, but with the expectation that they will submit 
to the Commission reports regarding the processes that led to the 
identification of customers and execution of relevant capacity 
arrangements. The Commission believes that this approach, when coupled 
with the existing opportunity to file complaints under FPA section 206, 
serves the interest of customers and developers alike.\30\
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    \30\ See Chinook, 126 FERC ] 61,134 at P 41.
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1. Open Solicitation Process
    14. In the past, the Commission has required an open season for the 
allocation of capacity on new merchant transmission projects. The open 
season requirement was to ensure open access to transmission capacity 
and prevent the withholding of transmission capacity from interested 
transmission customers, and also to enable the developer to assess the 
size of the market. However, beginning with the Chinook order, the 
Commission also began to allow the allocation of a portion of 
transmission capacity through bilateral negotiations prior to an open 
season. Thus, current Commission policy allows a merchant transmission 
developer to solicit interest through bilateral negotiations for a 
portion of its capacity so long as it makes the remainder available 
through an open season.
    15. Based on the Commission's experience with prior cases and 
information received from the technical conference and workshop, the 
Commission believes that bilateral negotiations, if conducted in a 
transparent manner, may serve the same purpose as an open season 
process by ensuring against undue discrimination or preference in the 
provision of transmission service. Hence, the Commission proposes that, 
in seeking negotiated rate authority, merchant transmission developers 
should also engage in an open solicitation of interest in their 
projects from potential transmission customers (without the previous 
requirement of an open season). Such open solicitation should include a 
broad notice issued in a manner that ensures that all potential and 
interested customers are informed of the proposed project. For example, 
such notice may be placed in trade magazines, regional energy 
publications, communications with regional transmission planning 
groups, and email distribution lists addressing transmission-related 
matters. Such notice should include transmission developer points of 
contact and pertinent project dates, as well as sufficient technical 
specifications and contract information to inform interested customers 
of the nature of the project, including:

Technical specifications
    [ssquf] Project size/Capacity: MW and/or kV rating (specific 
value or range of values)
    [ssquf] End points of line (as specific as possible such as 
points of interconnection to existing lines and substations, 
although it may be potentially broad, such as Montana to Nevada, if 
the project is very early in development)
    [ssquf] Projected construction and/or in-service dates
    [ssquf] Type of line--for example, AC, DC, bi-directional
Contract information
    [ssquf] Precedent agreement (if developed)
    [ssquf] Other capacity allocation arrangements (including how it 
will address potential oversubscription of capacity)

    16. The developer should also specify in the notice the criteria it 
plans to use to select transmission customers, such as credit rating; 
``first mover'' status, i.e., customers who respond early and take on 
greater project risk; and customers' willingness to incorporate project 
risk-sharing into their contracts. This will contribute to the 
transparency of the process, and help interested entities know at the 
outset the features of the project and how the bids to the merchant 
transmission developer will be considered.
    17. Finally, the merchant transmission developer would be expected 
to update its posting if there are any material changes to the nature 
of the project or the status of capacity allocation.
    18. Under this proposed process, once a subset of customers has 
been identified by the developer through the open solicitation process, 
the Commission would allow developers to engage in bilateral 
negotiations with each potential customer on the specific terms and 
conditions for procuring transmission capacity, as the Commission 
recognizes that developers and potential customers may need to 
negotiate individualized terms that meet their unique needs.\31\ In 
these

[[Page 43188]]

negotiations, the Commission proposes to allow for distinctions among 
prospective customers based on transparent and not unduly 
discriminatory or preferential criteria--so long as the differences in 
negotiated terms recognize material differences and do not result in 
undue discrimination or preference --with the potential result that a 
single customer may be awarded up to 100 percent of capacity. For 
instance, developers might offer ``first mover'' customers more 
favorable terms and conditions than later customers.
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    \31\ While negotiations for the allocation of initial 
transmission rights may address terms and conditions of the 
transmission service to be ultimately taken once the facilities are 
in service, the Commission will adhere to its policy, regardless of 
any negotiated agreement, that any deviations from the Commission's 
pro forma OATT must be justified as consistent with or superior to 
the pro forma OATT when the transmission developer files its OATT 
with the Commission and any deviations will be evaluated on that 
basis by the Commission when they are submitted. See Chinook, 126 
FERC ] 61,134 at PP 47, 63.
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2. Reporting
    19. In the past, the Commission required that developers file a 
report, shortly after the close of the open season, on the results of 
the open season and any anchor customer presubscription, including 
information on the notice of the open season, the method used for 
evaluating bids, the identity of the parties that purchased capacity, 
and the amount, term, and price of that capacity.\32\ The Commission 
required this report to provide transparency to the allocation of 
initial transmission rights, and to enable unsuccessful bidders to 
determine if they were treated in an unduly discriminatory manner so 
that they may file a complaint if they believe they were.\33\
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    \32\ Chinook, 126 FERC ] 61,134 at PP 41, 43.
    \33\ See Chinook, 126 FERC ] 61,134 at P 41; Montana Alberta 
Tie, Ltd., 116 FERC ] 61,071, at P 37 (2006).
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    20. The Commission now proposes to place more emphasis on 
reporting, as the success of the capacity allocation approach proposed 
here and its ability to prevent undue discrimination relies, to a 
noticeable degree, on the transparency this report provides. Open 
access requires not only that everyone is given an opportunity to seek 
access, but also that entities know how their bids were evaluated and, 
if they were not selected in the initial allocation of transmission 
rights, on what basis that decision was made. If a party feels it was 
treated in an unduly discriminatory way, it may file a complaint under 
section 206 of the FPA; however, parties must have access to the 
relevant information on the outcomes of the capacity allocation process 
to evaluate whether or not they were treated fairly.
    21. To prevent against undue discrimination by merchant 
transmission developers, a report should be submitted shortly after the 
completion of the open solicitation process and the resulting 
negotiations describing the processes that led to the identification of 
transmission customers and the execution of the relevant contractual 
arrangements. The merchant transmission developer should describe the 
criteria used to select customers, any price terms, and any risk-
sharing terms and conditions that served as the basis for identifying 
transmission customers selected versus those that were not. The 
Commission proposes that the developer should include, at a minimum, 
the following information in the report to provide sufficient 
transparency to the Commission and interested parties:

    (1) Steps the developer took to provide broad notice;
    (2) Identity of the parties that purchased capacity, and the 
amount, term, and price of that capacity;
    (3) Basis for the developer's decision to prorate, or not to 
prorate, capacity, if a proposed project is oversubscribed;
    (4) Basis for the developer's decision not to increase capacity 
for a proposed project if it is oversubscribed (including the 
details of any relevant technical or financial bases for declining 
to increase capacity);
    (5) Justification for offering more favorable terms to certain 
customers, such as ``first movers'' or those willing to take on 
greater project risk-sharing;

    (6) Criteria used for distinguishing customers and the method used 
for evaluating bids. This should include specific details on how each 
potential transmission customer (including both those who were and 
those who were not allocated capacity) was evaluated and compared to 
other potential transmission customers, both at the early stage when 
the developer chooses with whom to enter into bilateral negotiations 
and subsequently when the developer chooses in the negotiation phase to 
whom to award transmission capacity;
    (7) Explanation of decisions used to select and reject specific 
customers. In particular, the report should identify the facts, 
including any terms and conditions of agreements unique to individual 
customers that led to their selection, and relevant information about 
others that led to their rejection. If a selected customer is an 
affiliate, the Commission will look more carefully at the basis for 
reaching that determination.

    22. The Commission anticipates that, under this proposed policy, 
those developers requesting negotiated rate authority will file this 
report either in conjunction with their request for negotiated rate 
authority or as a compliance filing to a Commission order approving a 
request for negotiated rate authority.\34\ This will allow interested 
entities to submit comments on the report, or otherwise protest the 
contents or insufficiency of the report, to ensure that there is 
sufficient transparency, as well as to provide Commission oversight in 
the capacity allocation process.\35\
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    \34\ This flexibility in timing acknowledges that parties have 
filed and may continue to file requests for negotiated rate 
authority at various stages of their project development process.
    \35\ Commenters opposing the Commission's merchant transmission 
policy generally express concern regarding the use and allocation of 
scarce rights-of-way. The Commission appreciates the significance of 
this issue, but has limited authority to address it directly. 
Through Order Nos. 890 and 1000, the Commission has increased 
transparency in local and regional transmission planning processes, 
and through this proposed policy statement seeks to increase 
transparency in the negotiation of capacity allocation with merchant 
transmission and nonincumbent, cost-based, participant-funded 
developers. For example, as noted above, the pre-open solicitation 
notice requirement and post-open solicitation reporting requirement 
proposed here require developers to provide information on any 
oversubscription of a proposed project. The Commission anticipates 
that this kind of information may be useful for relevant entities 
(such as siting authorities) as they evaluate whether a proposed 
transmission facility satisfies applicable requirements for use and 
allocation of rights-of-way.
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    23. Beyond the reporting process described above, the Commission 
does not propose to change its existing requirement that developers 
seek Commission approval, either when the developer requests negotiated 
rate authority or files its report describing its capacity allocation 
approach, if an affiliate is expected to participate as a customer on 
the proposed merchant transmission project. Further, consistent with 
Commission precedent, in order to allow affiliate participation, the 
Commission will expect an affirmative showing that the affiliate is not 
afforded an undue preference.\36\
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    \36\ See Chinook, 126 FERC ] 61,134 at PP 49-50.
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B. Nonincumbent, Cost-Based, Participant-Funded Projects

    24. The Commission proposes to apply the policy reforms above to 
nonincumbent, cost-based, participant-funded transmission developers. 
The Commission has similar concerns regarding the capacity allocation 
process regardless of whether the project is a nonincumbent, cost-
based, participant-funded transmission project or a merchant 
transmission project. That is, the Commission is concerned that access 
is not unduly discriminatory or preferential. We believe that the 
process outlined herein will address our concerns regardless of the 
manner by which transmission rates are determined. Commenters and 
workshop participants support the Commission's

[[Page 43189]]

application of these policy reforms to both merchant transmission 
developers and nonincumbent, cost-based, participant-funded 
transmission developers.\37\
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    \37\ TAPS March 29, 2012 Comments at 24; Pathfinder Renewable 
Wind Energy, LLC March 28, 2012 Comments at 3-4.
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    25. However, use of this common process does not eliminate the 
distinction between these types of projects. In particular, although 
the negotiations between developers and potential customers could 
address a transmission rate, among other issues, the Commission's 
approach to reviewing such a rate would be different for a new merchant 
transmission project than for a new nonincumbent, cost-based, 
participant-funded transmission project. For a merchant transmission 
project, the Commission relies on the processes it sets forth to ensure 
against undue discrimination in the award of capacity and the 
willingness of the transmission developer and customers to negotiate a 
transmission rate and terms and conditions, understanding that the 
customers are not captive customers.\38\ For a nonincumbent, cost-
based, participant-funded transmission project, the Commission would 
review the transmission rate, including any agreed upon return on 
equity, in greater detail to ensure that it satisfies Commission 
precedent regarding cost-based transmission service.
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    \38\ TransEnergie, 91 FERC ] 61,230 at 61,836.
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    26. While we are proposing that this capacity allocation process 
apply equally to nonincumbent, cost-based, participant-funded projects, 
we are not proposing to evaluate such projects based on the other 
aspects of the four factor analysis set forth in Chinook.\39\ To the 
extent nonincumbent, cost-based, participant-funded transmission 
projects wish to use an anchor customer-type model, the effect of the 
proposed policy would be that the Commission will deem any capacity 
allocation process that follows the guidelines of this proposed policy 
statement to satisfy its concerns regarding undue discrimination and 
undue preference.
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    \39\ We note, however, that petitions regarding capacity 
allocation on nonincumbent, cost-based, participant-funded 
transmission projects must continue to be evaluated by the 
Commission in accordance with the Commissions' responsibilities 
under the FPA.
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 C. Incumbent, Cost-Based, Participant-Funded Projects

    27. The Commission does not propose to change its case-by-case 
evaluation of requests for cost-based participant-funded transmission 
projects by incumbent transmission providers.\40\ As noted above, 
incumbents differ from nonincumbents in that the former have a clearly 
defined set of existing obligations under their OATTs with regard to 
new transmission development, including participation in regional 
planning processes and the processing of transmission service request 
queues. Nonincumbent transmission developers do not yet own or operate 
transmission facilities in the region that they propose to develop 
transmission and, therefore, are not yet subject to an OATT in that 
region. The proposed policy laid out above identifies the Commission's 
policies regarding the allocation of capacity for merchant transmission 
developers and nonincumbent, cost-based, participant-funded projects 
during the development of a new transmission facility. In most 
instances, we would expect that an incumbent transmission provider will 
be able to use existing processes set forth in its OATT to allocate 
capacity on a new transmission facility. These existing OATT processes 
do not prohibit incumbent transmission owners from identifying projects 
that could be constructed on a participant-funded basis in conjunction 
with processing of transmission service requests or in addition to 
meeting transmission needs through participation in a regional 
transmission planning process.\41\ Furthermore, the Commission will 
continue to entertain on a case-by-case basis requests for waiver of 
any OATT requirements that may be needed for the incumbent transmission 
owner to pursue innovative transmission development that is just, 
reasonable, and not unduly discriminatory. For example, an incumbent 
may seek waiver of serial queue processing requirements so that they 
may cluster transmission service requests,\42\ or they may seek to 
``ring fence'' a transmission project in order to ensure that new 
transmission facilities developed for a particular customer or set of 
customers do not adversely impact existing customers, including native 
load.\43\ Incumbent developers should address the capacity allocation 
issues in a manner that does not constitute undue discrimination or 
preference and is consistent with the applicable Commission-accepted 
tariffs.\44\
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    \40\ See, e.g., NU/NSTAR; National Grid.
    \41\ See, e.g., Subscription Process for Proposed PacifiCorp 
Transmission Expansion Projects, available at http://www.oasis.pacificorp.com/oasis/ppw/SUBSCRIPTION_PROCESS.PDF (noting 
incumbent's solicitation of interest from third parties in the 
development of a cost-based transmission project in advance of 
receipt of transmission service requests from third parties under 
the incumbent's OATT).
    \42\ See, e.g., Portland General Electric Co., 139 FERC ] 61,133 
(2012) (granting waiver of serial queue processing requirements, 
allowing a general facilities study for a cluster of transmission 
and interconnection service requests).
    \43\ See, e.g., Mountain States Transmission Intertie, LLC and 
NorthWestern Corp., 127 FERC ] 61,270, at PP 2, 5 (2009) (incumbent 
developing an export-only transmission project through a separate 
stand-alone company so that their existing transmission customers 
will not be required to subsidize the cost of a new transmission 
facility to serve off-system markets; the Commission presented the 
option of this project proceeding on a cost-of-service basis).
    \44\ See National Grid, 139 FERC ] 61,129 at P 33.
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IV. Comment Procedures

    28. The Commission invites comments on this proposed policy 
statement September 24, 2012.

V. Document Availability

    29. In addition to publishing the full text of this document in the 
Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
Internet through FERC's Home Page (http://www.ferc.gov) and in FERC's 
Public Reference Room during normal business hours (8:30 a.m. to 5:00 
p.m. Eastern time) at 888 First Street NE., Room 2A, Washington, DC 
20426.
    30. From FERC's Home Page on the Internet, this information is 
available on eLibrary. The full text of this document is available on 
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or 
downloading. To access this document in eLibrary, type the docket 
number excluding the last three digits of this document in the docket 
number field.
    31. User assistance is available for eLibrary and the FERC's Web 
site during normal business hours from FERC Online Support at 202-502-
6652 (toll free at 1-866-208-3676) or email at 
ferconlinesupport@ferc.gov, or the Public Reference Room at (202) 502-
8371, TTY (202)502-8659. Email the Public Reference Room at 
public.referenceroom@ferc.gov.

    By the Commission.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2012-18012 Filed 7-23-12; 8:45 am]
BILLING CODE 6717-01-P