via federal express ., ‘7 · coordinator of state & regional programs1 . state of west...
TRANSCRIPT
klectric Power Supply Association Ad”ocati”g me power Of campemor 140: ? S!res:~ N’K
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~ May 2,200O
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VIA FEDERAL EXPRESS ., ‘7
West Virginia Public Service Commission The Honorable Sandra Squire Executive Secretary Office of the Executive Secretary 201 Brook Street Charleston, WV 25301
Re: Proposed Rulemaking Related to R&structuring the Electric Utility Industry in West Virginia (General Ordet 255) Case No. 98-0452-E-G/
Enclosed please find one original and twelve (12) copies for filing in the above referenced proceeding. 1
Respectfully submitted,
’ Samantha M. Slater I
Coordinator of State & Regional Programs1
STATE OF WEST VIRGINIA BEFORE THE
WEST VIRGINIA PUBLIC SERVICE
Proposed Rulemaking Related to Restructuring the Electric Utility Industry In West Virginia (General Order 255)
Case No. 9%0452-E-GI
)
COMMENTS OF THE ELECTRIC POWER SUPPLY ASSOCIATION
The Electric Power Supply Association (EPSA)’ appreciates the opportunity to
submit the following comments on the West Virginia Public Service Commission’s
proposed rulemaking concerning interconnection issues, codes of conduct and the
licensing of power suppliers. EPSA applauds the Commission’s efforts to move
forward with the implementation of rulemakings and other proceedings resulting from
the state’s 2000 restructuring law.
EPSA is the national trade association representing competitive power
suppliers active in domestic and global power markets. EPSA’s members, which
include power generators, power marketers and suppliers of goods and services to
the electric power supply industry, share a commitment to bring the benefits of
competition to all electric customers. EPSA members generate reliable,
competitively priced electricity, steam and other useful energy using a broad
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spectrum of fossil-fuel and renewable technologies from environmentally-responsible
facilities. EPSA represents competitive power suppliers on a national scale, and
brings a national perspective to the fundamental issues associated with the effort to
restructure the electric utility industry. Therefore, we will not address those elements
of the proposed rulemaking that present aspects unique to West Virginia. However,
EPSA has helped develop policies on a host of common restructuring issues
confronting many states today. We believe that these positions provide valuable
guidance on many of the important issues facing the Commission.
EPSA is committed to the successful creation of well-functioning competitive
wholesale and retail markets, which will benefit consumers with enhanced reliability,
better prices and new choices of innovative products and services. Across the
country, state legislators and regulators are addressing key transition issues that will
have a significant impact on the workability of competitive markets. Likewise, West
Virginia also must discover the best means of establishing healthy electricity markets
so that its citizens can enjoy the benefits of restructuring as soon as possible.
We appreciate the efforts of the Commission in addressing the important
issues of the registration of power suppliers, codes of conduct and interconnection.
We urge the Commission to establish rules that promote competition and the
promise of robust markets, To assist the Commission in its efforts, I have attached
’ The comments contained in this tiling represent the position of EPSA as an organization, but not necessarily the view of any particular member with respect to any specific issue.
2
EPSA’s policy statements on the Registration of New Sellers and Retail Energy
Marketing Affiliafe Codes of Conduct. The position statements are part of EPSA’s
white paper, Refail Competition: Getting It Rigbf!, which is available on our website at
www.epsa.org or by calling EPSA at (202) 789-7200. I have also attached for your
review our latest policy statement, A Bill of Rights for New Generation
Interconnection.
EPSA thanks the Commission for this opportunity to express its views on the
issues raised in this proceeding. EPSA strives to be a valuable resource for state
legislators, regulators and other policymakers. EPSA hopes that its Comments will
help the Commission in determining how to proceed on the important matters before
it. Please contact me if you need any additional information or if I can assist your
efforts in any other way.
Dated: May 2, 2000
Respectfully submitted,
ELECTRIC POWER SUPPLY - ASSOCIATION 1401 H Street, N.W., Suite 760 Washington, D.C. 20005 Telephone: (202) 789-7200
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EPSA POSITION STATEMENT ON THE REGISTRATION OF NEW SELLERS (January 1999)
To safeguard consumers and the electricity system, all retail service providers should be registered in the states where they conduct business. Registration requirements should treat all retail providers equally, but should not create anti-competitive barriers to entry into the market. For example, regulators must ensure against “over regulation” of market entrants; that is, subjecting them to regulatory burdens originally designed for integrated utilities. Regulatory requirements should explicitly recognize the significant differences among customers. Large industrial customers generally have sufficient size, sophistication and access to legal counsel to protect their interests in competitive transactions. Many large commercial customers also have demonstrated the same ability to protect themselves. Small commercial and residential customers, in contrast, may need governmental assistance to protect them from inappropriate or illegal marketing tactics. Many consumer protection rules clearly distinguish between large and small consumers. Marketers serving large, sophisticated customers should not be burdened with regulations designed to protect smaller consumers.
Most states have consumer protection and consumer fraud statutes and regulations already in place. In many respects, electricity service, while an essential service, is no different than any number of other consumer products and services. While states should review their existing consumer protection rules to ensure that the introduction of retail electricity competition will not leave small consumers vulnerable, states should not rush to weigh down emerging markets with another layer of redundant consumer protection laws.
Protecting system reliability through registration requirements: State registration procedures should ensure that each registered electricity service provider is technically and financially qualified. Obtaining a registration certificate should be conditioned upon compliance with the regulations of all institutions charged with ensuring the reliability of the electricity system and all technical and financial regulations of the state.
Protecting consumers through registration requirements: Substantial violation of state or federal consumer protection requirements could result in the revocation or suspension of a registration certificate after adequate due process procedures have been followed. State consumer protection
EPSA Registration of New Sellers Position Statement 2
requirements specific to the provision of electricity service to small cu,stomers might include:
. posting a bond:
. informing consumers of all terms and conditions of the service to be provided prior to the commencement of service;
. setting up prescribed dispute resolution procedures;
. protecting the confidentiality of consumer information;
. establishing procedures for switching consumers to another provider, such as independent confirmation to ensure that proper authorization has been obtained; and,
. allowing customers the right to cancel contracts within a short time after requesting a different provider.
Electric Power Supply Association ,40, H StiBef NW ndvocathg the powe Of competitio” Suite 760
Washington, DC 2wo.5 20m89.7200 20a789.7201 fax wwwepsa.org
EPSA POSITION STATEMENT ON RETAIL ENERGY MARKETING AFFILIATE CODES OF CONDUCT (April 1998)
As state legislatures and public utility commissions unbundle existing electric utilities to promote customer choice and competition in the generation industry, some states are adopting rules to ensure that transactions between regulated utilities and their non- regulated affiliates neither result in cross-subsidization nor hinder competition, These rules provide that confidential information, which could give an affiliate an advantage in the marketplace, is not disclosed by the utility in a discriminatory manner. In addition, these rules are designed to prevent the utility from cross-subsidizing its affiliates, again giving the affiliate an unfair advantage in a competitive market.
EPSA believes that, with respect to utilities and retail energy-marketing affiliates operating within the service territory of their parent utilities, such standards should include the following principles:
I. Require Nondiscriminatory Access to Utility Services and Information: In a competitive energy market, it is important to ensure that utilities not offer discriminatory treatment to their own retail energy-marketing affiliates. All market participants must have access to essential facilities and information on comparable terms and conditions. Robust markets cannot exist if utilities are permitted to favor their own affiliates with preferential access to utility services or market information.
2. Avoid Cross-Subsidization and Cost Shifting: To assure that all market participants compete on a level playing field, it is critical that opportunities for cross- subsidization and cost shifting be eliminated. Utilities cannot be permitted to use their regulated business to make up losses incurred by their unregulated affiliates and subsidiaries. Such activities will ultimately reduce the number of participants in the marketplace, thus minimizing, or even eliminating, the benefits of competition. To avoid cross-subsidization and cost shifting, state regulatory commissions must retain access to all utility books and records, require utilities and their retail energy- marketing affiliates to maintain separate books and records, and require shared support functions to be reported and allocated properly.
3. Safeguard Commercially Sensitive Information: Utilities cannot be permitted to share market-sensitive information with their retail energy-marketing affiliates or to disclose market-sensitive information to their retail energy-marketing affiliates. To enforce rules against preferential treatment; it is critical to ensure that appropriate
EPSA Position Statement on Affiliate Codes of Conduct 2
safeguards, such as physical separation and “firewalls,” exist to prevent utility employees from handling both sides of a transaction. In addition, as noted above, utilities should be required to provide information to all market participants on a non- discriminatory basis.
4. Prevent Unfair Marketing Opportunities: As competitive retail markets develop, it is important to ensure that utilities are not permitted to take unfair advantage of their incumbency. For example, utilities cannot be permitted to condition or tie the provision of any aspect of utility service to the purchase of goods or services from its retail energy-marketing affiliate, discriminatorily assign customers to its retail energy- marketing affiliate, or recommend customers exclusively to its retail energy- marketing affiliate.
A BILL OF RIGHTS FOR NEW GENERATION INTERCONNECTION (March 2000)
1. SUMMARY
Over 154,000 MW of merchant generating capacity is planned for
development over the next several years. The Electric Power Supply Association
(“EPSA”) believes that this merchant capacity, in conjunction with the Federal Energy
Regulatory Commission’s (“FERC” or “Commission”) open access transmission policies
will be the bulwark of future competitive electric power markets. New and expanded
generation projects enhance competition, promote diversity in products and services
offered to the market, mitigate market power of Incumbent utilities, and contribute to
overall market liquidity. But, if this merchant generation is to be built it must be
expeditiously and predictably interconnected to the grid.
Presently, however, certain transmission owners, including those operating
within existing independent system operator (“ISO”) structures, have impeded the
interconnection process and, thereby, new generation construction. This is done by
imposing cumbersome and oftentimes largely secretive review processes,
unreasonable queuing procedures, delays in the negotiation of pertinent agreements,
and other burdensome interconnection requirements, including, for example, tying
interconnection to transmission service, insisting upon unnecessary system upgrades,’
’ By “system upgrades,” EPSA is referring to any moditI6ations, upgrades, and additions to the transmission system that are required solely to interconnect the generating facility to the transmission (footnote continued on next page)
~ EPSA Bill of Rights for New Generation Interconnection 2
or requiring excessive security deposits. The full benefits of competition cannot be
assured, and likely will not occur, unless the interconnection process is reformed. Put
simply, developers planning to build new generating facilities require: (1) more clearly
defined rules and procedures to govern their requests for new interconnection; and (2) a
knowledgeable, independent entity to timely respond to interconnection requests, to
timely execute study agreements and to timely~execute interconnection agreements and
complete the interconnection.
Although the Commission recently has clarified certain aspect of its
interconnection policy* the Commission has not comprehensively addressed the
specific rights of new interconnecting generators in the form of a policy statement.
EPSA intends for this Bill of Rights For New Generation Interconnection (“Bill of Rights”)
to establish the framework for a future Commission interconnection policy statement.
Specifically, a new generating project planning to interconnect to the
interstate transmission grid should have the right to:
4 secure a long-term right to inject power into the grid at the point of interconnection without having to procure any transmission service;
4 request interconnection service pursuant to a FERC- approved nondiscriminatory interconnection service tariff or other clearly defined rules and procedures governing requests for new transmission interconnections;
4 have all interconnection studies and analyses performed by an ISOlRTO or other qualified independent contractor (operating under the direction and control of the ISOIRTO, once established)
system, and not any modifications to the transmission sjlstem which may be necessary to transmit the
generation on the transmission system.
’ Tennessee Power Company, 90 FERC 7 61,238 (ZOO!).
~ EPSA Bill of Rights for New Generation Interconnection 3
participate in the interconnection study process and to have the new interconnection completed in an expeditious manner;
execute a FERC-approved interconnection agreement that comprehensively delineates exactly what is necessary in order for the project safely and reliably to interconnect to the grid; ~
receive a binding commitment as to all interconnection costs and to own certain of the new interconnection facilities;
receive a binding commitment as to the construction schedule, with rights to liquidated damages if the interconnection service provider fails to perform on schedule;
at its option, ensure the deliverability of its generation when it requests interconnection service; and
obtain the benefit of any transmission system upgrades or enhancements for which the generator has paid.
II. INTERCONNECTION SERVICE REhUlREMENTS
A. A New interconnecting Generator Should Have The Right To Secure A Long-Term Right To Inject Povver Into The Grid At Its Point Of Interconnection Without Havinq To Procure Anv Transmission Service.
A new generator should not have to procure transmission service in order to
interconnect its project to the grid. Even though generators frequently are not the
transmission customers -- particularly where a power marketer purchases a generating
facility’s entire output -- they nonetheless have~been required in many instances to
procure transmission service or pay for systems upgrades not associated with the
interconnection in order to obtain interconnection service or as a condition to initiating
the interconnection process. Since developers of merchant power are often unable to
identify specific points of delivery, they often are unable to submit to the transmission
providers the information necessary for such providers to process requests for new
interconnection and transmission service. Many transmission providers also refuse to
EPSA Bill of Rights for New Generation Interconnection 4
offer network transmission service to merchan’ generators, and are often reluctant to I;
waive or otherwise modify the requirements set forth in their open access tariffs to
accommodate the unique circumstances presented by merchant generators
Furthermore, because few utilities have filed separate interconnection service tariffs or
other procedures governing new transmission ~interconnection, generators have been 1
forced to engage in prolonged and costly caselby-case negotiations with each
transmission provider and other entities poten #rally affected by the ultimate delivery of {
the proposed new generator’s electrical output.
As the Commission stated in Tennessee Power,’ new generators should not
be required to commit to a particular level or type of transmission service in order to
physically interconnect to the grid. Rather, generators, at their option, should be
allowed to request interconnection service separate from transmission service, and
existing ISOs, future RTOs, and other intercon~nection service providers4 should be
required to process requests for interconnect@ independent of requests for
transmission service.
6. A New Interconnecting Genedator Should Have The Right To Request Interconnection Service Pursuant To A FERC-Approved Nondiscriminatory lnterconnebtion Service Tariff Or Other Clearly Defined Rules And Procedures Governing Requests For New Transmission Interconnections.
Generators should not have to guess how to request interconnection service.
Rather, developers planning to interconnect their generation projects to the grid should
be able to identify the procedures for requesting, and to request, interconnection service
3 Tennessee Power Co., 90 FERC n 61,238 (2000). ~
4 Although, in most cases, interconnection service providers and transmission providers will be one and the same entity, since the services being provided by s&h entities are distinct, EPSA will refer to such entities as interconnection service providers.
~ EPSA Bill of Rights for New Generation interconnection 5
as readily as eligible transmission customers are able to identify the procedures for
requesting, and to request, transmission service under an open access transmission
tariff. Thus, consistent with Tennessee Power! interconnection service providers
(optimally, RTOs) should be required to amend their existing open access transmission
tariffs to provide specific rules and procedures~for requesting new generation
interconnection. While these interconnection-specific procedures should be consistent
with the Commission’s existing pro forma tariff ~procedures, EPSA notes that the
Commission’s pro forma tariff does not address all of the topics for which
interconnection procedures are needed.5 Such rules and procedures should clearly set
forth the requirements, processes, and response deadlines for obtaining interconnection
and for executing an interconnection agreement setting forth the rates, terms and
conditions for interconnection service. ~
There also should be clear lines of authority in the tariff for controlling the
entire interconnection process, including procedures clearly delineating the standards
for performing interconnection studies, who will perform interconnection studies, the
time-frame for initiating and completing such studies and executing study and
interconnection agreements, and standards for allocating all interconnection-related
costs consistent with Commission policies. To the extent practicable, the timelines for
all interconnection service provider actions should be standardized. Absent a
demonstrated basis for doing so, it makes little sense for one provider to impose one set
of deadlines and requirements and for a different provider to impose a completely
different set. Indeed, standardization of interconnection rules would help to ensure that
5 For example, the pro forma tariff does not address propedures dealing with construction sequencing and
priority. ~
~ EPSA Bill of Rights for New Generation interconnection 6
new generation is installed at the most efficient~locations. Otherwise, generation siting
decisions will be skewed towards the regions v$th the rules that are most conducive to
development, even if congestion is created elsewhere or optimal siting is in another
service territory or control area.
i Finally, the Commission should require prospective customers and
interconnection service providers to negotiate off of a FERC-approved model
interconnection agreement, EPSA cautions against mandating rigid adherence to any
particular interconnection agreement, Interconnection agreements necessarily must be
tailored to reflect each interconnecting generator’s unique operational, financial and
business arrangements. A model interconnect/on agreement could establish a
framework for negotiations and, if necessary, could serve as the default agreement in
the absence of a mutually negotiated bilateral agreement.
C. A New Interconnecting Generator Should Have The Right To Have All Interconnection Studies And Analyses Performed By An ISOlRTO Or Other Qualified Independent Contractor (Operating Under The Direction And Control Of The ISOIRTO. Once Established).
For those regions with FERC-approved ISOs/RTOs, the Commission should
clearly establish the ISOlRTO as the “lead agency” for new interconnections, with
individual transmission owners’ roles limited to acting at the behest of the RTO. In other
words, the RTO should assume the preeminent role in coordinating such analyses and
should actively supervise the entire study process, and not simply defer to actions taken
or assumptions applied by the transmission owners. Transmission-owning utilities --
which often are either direct competitors of prospective new generators seeking
interconnection service or have disparate interests with respect to transmission
improvements -- should have no opportunity to, unduly influence the preparation of
system impact and facilities studies which determine the availability and ultimate cost of
EPSA Bill of Rights for New Generation Interconnection 7
new interconnections. The fact is that all transmission providers, whether unbundled or
not, have an incentive to prefer “transmission” to “generation” solutions to supply and
reliability constraints, and to build more transmission than might actually be necessary
for a given interconnection request. In light of these incentives, all transmission
providers have, to a greater or lessor extent, the incentive to discriminate against, and
to delay, generators seeking interconnection through manipulation of system impact
studies and other analyses, to fail to negotiate in good faith, and to otherwise stonewall
the generator during contract negotiations.
In short, entities that may be economically advantaged by delaying new
interconnections, that may be inclined to favor transmission solutions over generation
solutions, and that stand to gain from having transmission upgrades paid for by
generators should not be charged with determining the nature and scope of a new
generator’s interconnection. For this reason, the Commission should clarify that the
RTO itself must be capable of performing whatever interconnection studies and
analyses are required in connection with requests for new generator interconnections.
Finally, generators always should have the option, particularly in regions not
subject to an ISOIRTO’s control, of performing or replicating interconnection studies
themselves or having such studies performed by a qualified independent contractor with
the results of such studies to be reviewed and accepted by the interconnection service
provider. Similarly, generators should be entitled to have the results of interconnection
studies that are prepared by interconnection service providers independently reviewed
and audited. To do so, however, generators should have access to all relevant data
relied upon in preparing the interconnection studies.6
’ Generator access to such data also will lead to more efficient siting of generation.
EPSA Bill of Rights for New Generation Interconnection 8
The bottom line is that regardless of who actually performs the
interconnection studies, generators must have the right to participate fully in the
interconnection study process, and the right to question the need for certain
interconnection facilities, the suppositions behind the need for any system upgrades
and the proposed cost of any such interconnection facilities and system upgrades. The
interconnection service provider’s tariff should set forth clear, definitive and
nondiscriminatory procedures under which all such studies will be prepared and
evaluated.
D. A New Interconnecting Generator Should Have The Right To Participate In The Interconnection Study Process And To Have The New Interconnection Comoleted In An Expeditious Manner.
In order to obtain project financing and to proceed with project development,
prospective generators need certainty with respect to their interconnections, and they
need that certainty within a reasonable time frame. To this end, generators that, at the
outset, propose to market their capacity and energy on a non-firm basis, or only when
firm transmission capacity is otherwise available on an unconstrained basis, should be
able to interconnect promptly without the need for lengthy studies regarding the possible
system impacts associated with the deliverability of their projects electrical output. The
generators (or their customers) in such cases would assume the risks associated with
the transmission from the generator’s facility. The transmission provider, in the case of
such interconnecting generators, already has adequate protection built into its open
access transmission tariff.
Accordingly, consistent with Tennessee Power, EPSA recommends that all
studies analyzing the system impacts associated with a proposed new interconnection,
and all agreements necessary to provide for such studies, as well as the final
EPSA Bill of Rights for New Generation lnterwnnection 9
interconnection agreement providing for whatever construction and payments are
associated with completing the physical interconnection, be completed within a
reasonable time frame commensurate with the scope of the interconnection service
request. Specifically, for safe and reliable “minimum” interconnections, the work
generally should be completed within four months’from the date the generator requests
interconnection service, absent mutual agreement or a FERC-authorized deferral on
account of extenuating circumstances. If, for good reason, the work cannot be
completed within that time frame, the interconnection service provider should be
obligated to inform the generator in writing as soon as possible why the work cannot be
completed on schedule and how much longer it will take to complete.
Requests for enhanced interconnection in which the generator has requested
particular “deliverability” or “operating” studies (in order to determine how much of its
product actually can be delivered to a customer) may require more time, but certainly
should be completed within six months from the date the generator requests
interconnection service, absent mutual agreement or a FERC-authorized deferral on
account of extenuating circumstances. For example, if, in its interconnection service
request, the generator requested an analysis of the system upgrades necessary to
assure that the generator could meet a given deliverability standard (or an analysis of
whatever operating limitations could be accepted in lieu of constructing one or more of
the stated upgrades),* the study may take longer than four months to complete, and the
generator should be told with some degree of certainty when to expect the results.
’ A four month period is consistent with the time frame for processing upgrade studies with respect to
transmission service requests under the Commission’s pro forma tariff.
* This option is discussed in more detail in Section H below.
EPSA Sill of Rights for New Generation Interconnection 10
The generator also should have the option of beginning to negotiate its
interconnection agreement prior to the completion of the interconnection study process.
There is no reason why the negotiation of the interconnection agreement cannot
proceed in parallel with the interconnection study work.
Since multiple projects in many regions may be vying for priority rights to
interconnect at a certain site, the process for evaluating interconnection requests and
for processing those requests must be applied in a consistent, predictable and non-
discriminatory manner. Prioritization of new generation projects must ensure fair and
non-discriminatory treatment of all proposed projects. While EPSA recognizes that
individual needs for confidentiality must be protected, it also believes that both the
interconnection procedures and the interconnection study requests should be
sufficiently transparent and publicly available so as to ensure comparable treatment of
all proposed projects.
Finally, reasonable non-discriminatory means must be used to assure that
only viable projects are allowed to proceed to execute an interconnection agreement
and to have facilities studies performed on their behalf. Moreover, if one project is
prepared to have the interconnection service provider begin construction, but another
project earJ& in the queue is not, the project “earlier” in the queue should be required to
decide if it wants to move forward. Examples of such means may include requiring
generators to show a serious commitment to interconnection at designated times in the
process by, for example, demonstrating site control. On the other hand, the use of
threshold criteria or milestones should not unduly burden generators by, for example,
requiring that they obtain all necessary environmental permits prior to completing the
interconnection process. The Commission should evaluate the reasonableness of
EPSA Bill of Rights for New Generation Interconnection 11
specifically proposed milestones on a case-by-case basis in connection with each RTO
and/or interconnection service provider tariff filing.
E. A Generator Should Have The Right To Execute A FERC-Approved Interconnection Agreement That Comprehensively Delineates Exactly What IsNecessary In Order For The Project Safely And Reliably To Interconnect To The Grid.
Interconnection agreements must balance the interests of both generators
and interconnection service providers. For this reason, EPSA proposes that the
Commission require interconnection service providers to file at FERC their standard
interconnection procedures and interconnection agreements which conform to the
requirements discussed above. The Commission should adopt a model interconnection
agreement, perhaps in a policy statement, as a form of agreement that likely will be
acceptable absent special circumstances. A model interconnection agreement would
be of significant value to the electric power industry and would hasten the development
of new generation and streamline the entire interconnection process. Unique project
conditions could be addressed through separately negotiated provisions or special
amendments, while the majority of the interconnection issues (e.g., provisions dealing
with facility maintenance, taxes, billing procedures, dispute resolution, insurance, etc.)
should be handled in a streamlined and consistent manner.
For regions with FERC-approved ISOslRTOs, new generators should be
required to execute only one interconnection agreement with the regional
interconnection service provider, and should not be required to execute separate
interconnection agreements with the RTO and individual transmission owners, as is
oftentimes the case today. Nor should generators be “whipsawed” between RTOs and
individual transmission owners, with each waiting for the other to take certain actions or
complete certain studies. As discussed above, there must be clear lines of authority
EPSA Bill of Rights for New Generation Interconnection 12
and responsibility for each stage of the interconnection process (i.e., requesting
interconnection service, analyzing and studying the proposed interconnection,
preparing, executing and filing an interconnection agreement, constructing the
interconnection facilities and any related system upgrades, and continuing to provide
interconnection services).
F. A New Interconnecting Generator Should Have The Right To Receive A Binding Commitment As To All Interconnection Costs And The Right To Own Certain Of The New Interconnection Facilities.
Overall interconnection cost exposure is often a significant issue confronting
generators, especially those seeking financing. Accordingly, an interconnection
agreement should clearly delineate what interconnection facilities and upgrades are
required to accommodate a new interconnection and the costs for which the generator
is directly responsible.’ Moreover, where a generator incurs significant costs in
constructing new interconnection facilities (separate from any transmission facilities that
may be constructed), the generator should be afforded the opportunity to own certain of
those facilities that are not part and parcel with the interconnection service provider’s
transmission and distribution system. New interconnecting generators that elect not to
construct the interconnection facilities should have the option to receive a binding
commitment, in the form of a fixed price interconnection agreement, as to all
interconnection costs for which they will be responsible, that assures the generator that
its interconnection will be completed on schedule and on budget.
At a minimum, a generator should be entitled to receive a good faith estimate
as to the costs of the interconnection facilities and system upgrades, if any, and should
’ I f the generator is willing, however, it should have the option of quickly entering into an interconnection
agreement before the facility design and engineering work is completed and, hence, before final costs are
known.
EPSA Bill of Rights for New Generation Interconnection 13
have a right (1) to be informed in advance of the amount and reason for any increase in
the estimated costs as soon as practicable after the interconnection service provider
becomes aware of such cost increase and (2) to approve any significant increases in
cost.” If the generator does not agree to pay such a cost increase, it should be entitled
to a refund of any sums paid to the interconnection service provider not already
expended or irrevocably committed by the interconnection service provider prior to the
generators refusal to authorize the cost increase. In addition, the generator should
have transferred to it ownership of equipment, materials and supplies purchased or
committed to be purchased by the transmission provider for which the generator has
paid. Under no circumstances, however, should the generator be responsible for any
costs incurred or irrevocably committed by the interconnection service provider at any
time in connection with work that exceeds the scope of work reflected in the
interconnection service provider’s good faith estimate without the generator’s express
consent. Furthermore, to the extent that the interconnection facilities are redesigned in
order to accommodate other customers of the interconnection service provider, any
increased costs should not be allocated to the original generator, but to those
customers that caused the need to redesign the facilities.
G. A New Interconnecting Generator Should Have The Right To Receive A Binding Commitment As To The Construction Schedule, With Rights To Liquidated Damages If The Interconnection Service Provider Fails To Perform On Schedule.
To control the costs identified above, the generator should have the option to
construct, or be responsible for the construction of, the interconnection facilities
“As discussed above, the generator’s costs for any transmission service should be governed separately
by the terms of the applicable transmission tariff.
EPSA Bill of Rights for New Generation Interconnection 14
identified by the interconnection studies. In doing so, the generator should be held to
the same standards which the interconnection service provider would apply to itself
were it directly responsible for the construction of the new interconnection and/or were it
interconnecting its own or its affiliates’ generating units. A new interconnecting
generator should be able to obtain a binding commitment from the interconnection
service provider that it will build, or allow the generator to build, the necessary direct
assignment facilities and any necessary system enhancements (or network upgrades)
on a timely basis pursuant to procedures and standards set forth in an interconnection
agreement. If the interconnection service provider is responsible for building such
facilities, it must be held accountable for failure to adhere to the agreed-upon schedule.
Obviously, the reason for such failure should be taken into account in formulating an
appropriate remedy. Any model interconnection agreement should clearly address the
reasonably anticipated scenarios.
For example, failure to perform due to a valid force majeure event should
excuse failure to timely construct the facilities altogether. An interconnection service
provider, however, should be held accountable for failure to timely construct the facilities
due to events within its control. Specifically, where the generator is unable to
commence use of the interconnection facilities by the commercial operation date as a
result of the interconnection service provider’s dilatory performance, the provider should
be required to pay liquidated damages to the generator including, where appropriate,
payments reflecting, for example, the generator’s lost opportunity cost of sales of power,
or lost revenues associated with other services for which the generator has contracted
to provide.
EPSA Bill of Rights for New Generation Interconnection 15
H. A New Interconnecting Generator Should Have The Option To Ensure The Deliverability Of Its Generation When It Requests Interconnection
When a generator submits a request for interconnection service, it should
have the option to: (1) execute an interconnection agreement without regard to the
deliverability of its generation, in which case there would be no need to assess whether
any transmission system upgrades (other than those necessary for a safe and reliable
interconnection) are required to provide transmission service from the point of
interconnection; (2) execute an interconnection agreement and concurrently purchase
transmission service, in which case the system impact and facilities studies jointly would
address the ability of the generator to deliver its generation; or (3) execute an
interconnection agreement and rely upon the interconnection study results to the extent
they indicated that the generator’s output would be deliverable at a particular
location(s).
The Commission already has affirmed Options I and 2 above, but, to date,
has not explicitly addressed Option 3. Even though transmission and interconnection
are different services, a generator should have the option to secure an interconnection
and to have a limited priority to sufficient transmission capacity in order to ensure that
its generation will in fact be deliverable to its potential customers should those
customers ultimately choose to secure transmission service. In other words, the
generator should have the right to require the interconnection service provider to
perform the same type of study as it would were the generator to have requested
transmission service. This option is necessary in order to allow a merchant generator to
assure itself or its potential “tolling arrangement” or “off-take agreement” partners that
its output will in fact be deliverable to a given point(s) or to a given customer without
EPSA Bill of Rights for New Generation Interconnection 16
requiring it or its future customers to prematurely reserve and pay for firm transmission
service that they may never need.
Today, the only means for ensuring deliverability is for the generator to
procure transmission service separate and apart from its request for interconnection
(Le., to exercise Option 2). There should, however, be a means for a generator to
ensure deliverability without having to procure transmission service at the time of its
interconnection service request, particularly in light of the dilemma facing many
merchant generators, who not only are unable to specify particular points of delivery,
but also usually do not know their customers at the time the interconnection studies are
to be performed. Without such option, generators are left with considerable uncertainty
as to the financial consequences of their investments and the fate of their projects.
The assumptions contained in the interconnection studies cannot be subject
to constant change, and a “deliverability” test cannot be a moving target, if there is to be
any certainty in the interconnection process. If the generator is told that its energy will
in fact be deliverable, the generator should be assured that the capacity initially
determined in the interconnection study process as available, and/or whatever capacity
would be created by any required system enhancements in order to assure the desired
deliverability, will in fact be available for purchase by the generator or its customer(s)
once the generating unit is energized. The purchase of this capacity would allow the
generator or its customer(s) to transmit the generator’s energy over the transmission
paths evaluated in the interconnection study. Thus, a generator should be able to ask
for and rely upon interconnection study results which indicate that the generator’s output
would be deliverable at particular locations.
EPSA Sill of Rights for New Generation Interconnection 17
Accordingly, in circumstances where a generator has requested an
interconnection study based upon a defined deliverability criteria, the interconnecting
generator should be afforded a right of first refusal with respect to network capacity
determined to be available to it under the conditions analyzed in its interconnection
study; and a subsequent request by a third party for transmission service involving the
same network capacity that existed at the time of the interconnection service request
should not automatically preempt the capacity associated with an earlier request for
interconnection service that was included in the deliverability study. EPSA is not
suggesting that the interconnecting generator not be required to pay for transmission
service when and if the network capacity that was assumed to exist at the time the
interconnection was studied, and that is necessary to assure its deliverability, is needed
to accommodate a third party’s subsequent request for transmission service. Rather, in
order to insure that the generator does not “lose” the very network capacity that it was
told existed at the time of its interconnection study, the generator should be given the
right to itself reserve such transmission capacity - by executing a transmission service
agreement - at the time of any subsequent request for transmission service by a third
party.”
In short, the Commission’s interconnection policy should affirm that a
generator, at its option, should be able to (1) request a safe and reliable interconnection
only, and, therefore, obtain studies as to what would be required mere/y to safely and
reliably attach to the system; (2) request an interconnection based upon defined
” For this reason, subsequent studies, be they transmission or interconnection studies, should take into
account the assumed transmission usage associated with the prior interconnection request, even if the interconnecting generator has not executed a service agreement for firm transmission service, so long as
the interconnecting generator is willing at that time to pay for transmission service.
EPSA Bill of Riihts for New Geneation lntemnnection 18
deliverability criteria, which would require the study of system enhancements or
operating limitations or procedures in order for the generator’s power to be “deliverable”
to whatever points the generator specified in its interconnection request; or (3) procure
transmission service in order not to lose whatever network capacity was assumed to
exist at the time of the deliverability study.
I. Obtain The Benefit Of Any Transmission System Upgrades Or Enhancements For Which The Generator Has Paid.
Although a generator may obtain an interconnection without regard to
whether transmission system upgrades or other enhancements are required to provide
transmission service from the point of interconnection, if a generator does financially
support an upgrade to the transmission system and enhances the system beyond what
is required under a minimum interconnection standard, it should receive transmission
rights and/or congestion revenues in proportion to the amount of capacity created by the
upgrade or enhancement. Alternatively, it should be compensated for its lost
opportunity costs resulting from being backed down as a result of another generator’s
interconnection.‘* In short, the Commission should recognize the difference between
those generators that elect to minimally interconnect, and those that voluntarily request
an interconnection based on a generator-specified standard of deliverability and the
rights and benefits that might attach to paying for such rights of deliverability (i.e., an
interconnecting generator whose investments actually enhance the transmission
transfer capability).
Finally, the Commission should clarify its “higher of’ policy as it applies to new
generators that choose to ensure deliverability by paying for system upgrades in excess
‘* Such rights could take the form of “financial congestion” or “firm transmission” rights,
EPSA Bill of Rights for New Generation Interconnection 19
of those needed merely to interconnect without simultaneously procuring transmission
service. Specifically, the Commission should clarify that, when and if such a generator
eventually requests transmission service, the Commission’s “higher of’ policy should be
applied so as to account for the generator’s having already paid for system
enhancements or upgrades. In no event should the generator be subjected to “and”
pricing simply because it did not procure transmission service at the time of its
interconnection, but, rather, ensured the deliverability of its generation by paying for
system enhancements.
III. CONCLUSION
EPSA believes that, in order for the electric power industry, and, ultimately,
the consumers of electricity, to realize the full benefits of competition, the
interconnection process must be reformed. The most efficient means of implementing
this reform is for the Commission to issue an interconnection policy statement, which
would address both the generator’s rights, as discussed above, and the interconnection
service provider’s obligations with respect to new interconnection requests. In
conjunction with its issuance of an interconnection policy statement, the Commission
should adopt a model interconnection agreement as well as interconnection specific
standardized rules and tariff procedures for requesting interconnection service, both of
which will streamline the entire interconnection process.