Joshua Belcher

February 23, 2007

On February 15, 2007, the Federal Energy Regulatory Commission released Order No. 890, a 1200-plus page reformation of its revolutionary Order Nos. 888 & 889. The Commission, recognizing continued potential for discrimination in electricity transmission despite its earlier orders, hopes to clarify and strengthen existing regulations and to increase transparency in transmission planning.

As the wholesale power market has expanded in recent decades, vertically integrated utilities, vestiges of state-sanctioned monopolization of the industry, have exerted market power by denying independent power producers access to transmission lines and favoring their own generation, even when more expensive. Order No. 888, issued in 1996, required utilities owning transmission facilities to "functionally unbundle," or separate their generation and transmission transactions. The order further required minimally conditioned transmission access to independent generators as well as transparency in the tariffs. Order No. 889 required information regarding transmission to be shared equally. Customers were thereby able to gain access to competitive rates.

Order No. 890 increases transparency by, among other things, requiring utilities to retain the open access transmission tariffs and to additionally open the transmission planning process by involving wholesale customers. The Commission, citing the importance of new infrastructure, expects increased coordination and information sharing to spur efficiency innovations in grid management.

Renewable energy generators stand to gain several benefits. Where transmission utilities once had discretion to determine capacity available for the transmission of alternative energy, the Commission has acted to standardize the calculation. This should enhance the ability of alternative energy providers to serve customers on short term notice.

Through what the Commission has termed "conditional firm service," alternative energy resources gain expanded opportunities to finance development. Where intermittent resources, like solar and wind, could not contract for a long-term commitment of "firm" power, it was difficult to procure financing for project development. "Conditional firm" contracting, while noting the risks of intermittency by giving transmission priority to "firm" providers, nevertheless enables developers to secure longer-term contracts for power, stabilizing the anticipated revenue stream and increasing financing opportunities.

Finally, Order No. 890 provides guidance on setting fair "imbalance charges." Intermittent resources are penalized when they cannot generate enough power to meet their contracted load. Any discriminatory effect of these charges, amounts assessed at the discretion of the transmission utility which has to make up the difference, will be reduced by adoption of consistent and reasonable penalty structures.

It is uncertain for now how the Commission's new order will play out. Many critics of the new rule call the allegations of current discriminatory treatment unfounded. Although it appears to have many provisions of promising potential for the prospects of alternative energy providers, it is not clear whether the rule will have an immediate practical impact. One can only hope this Order doesn't turn out to be a lot of hot air.

For more information:

Preventing Undue Discrimination and Preference in Transmission Service, Final Order (Feb. 16, 2007), available at http://www.ferc.gov/whats-new/comm-meet/2007/021507/E-1.pdf.

Preventing Undue Discrimination and Preference in Transmission Service, Notice of Proposed Rulemaking, 71 Fed. Reg. 32,636 (Jun. 6, 2006).

Open Access Transmission Tariff (OATT) Reform NOPR, Fed. Energy Reg. Comm'n, http://www.ferc.gov/industries/electric/indus-act/oatt-reform.asp.

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).

Open Access Same-Time Information System (Formerly Real-Time Information

Networks) and Standards of Conduct, Order No. 889, 61 Fed. Reg. 21,737 (May 10, 1996).