ÿ UNITED STATES OF AMERICA79 FERC 61,182 FEDERAL ENERGY REGULATORY COMMISSION Before Commissioners: Elizabeth Anne Moler, Chair; Vicky A. Bailey, James J. Hoecker, William L. Massey, and Donald F. Santa, Jr. Promoting Wholesale Competition ) Docket No. RM95-8-004 Through Open Access ) Non-discriminatory Transmission ) Services by Public Utilities ) ) Recovery of Stranded Costs by ) Docket No. RM94-7-005 Public Utilities and Transmitting ) Utilities ) ORDER CLARIFYING ORDER NO. 888 RECIPROCITY CONDITION AND REQUESTING ADDITIONAL INFORMATION (Issued May 16, 1997) On May 2, 1997, Ontario Hydro filed a motion for stay pending judicial review of the provision of Order No. 888 1/ "requiring transmission-owning foreign electric utilities to provide open-access transmission services as a condition to receiving transmission access from transmission-owning public utilities in the United States (the 'Open-Access Condition')." 2/ As set forth below, we provide clarification with respect to the reciprocity condition as it applies to Canadian sales of electric power to U.S. utilities at the United States/Canada border. We further request that Ontario Hydro provide additional information necessary to determine whether a stay should be granted. 1/ 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 (1996), FERC Stats. & Regs.  31,036 (1996), order on reh'g, Order No. 888-A, 62 Fed. Reg. 12,274 (1997), FERC Stats. & Regs.  31,048 (1997), reh'g pending. 2/ Motion at 1. On May 9, 1997, Ontario Hydro submitted a letter to the Commission indicating its concern that the Commission had not acted in the seven days since it filed its motion for stay.ÿ ÿ Docket Nos. RM95-8-004 -2- and RM94-7-005 I. Background A. Motion for Stay Ontario Hydro is a Canadian utility that historically has sold electric power to U.S. purchasers. It claims that the Open- Access Condition will "disrupt" its entire $235 million (Canadian) per year U.S. export business and that it will have no opportunity to recover any of its losses. Ontario Hydro interprets the Open-Access Condition as applying "not only to sales by Ontario Hydro that require delivery by Ontario Hydro to points within the U.S., but also to sales by Ontario Hydro to U.S. purchasers at the Canadian border, which do not require delivery by Ontario Hydro to points within the U.S." 3/ It asserts that it will lose all of these sales because it "cannot allow the required open-access into Ontario without the approval of the Ontario Government, which will require a complete restructuring of the Province's electric power system and the resolution of a number of very complex financial and other issues." 4/ Ontario Hydro asserts that its motion for stay satisfies the test for granting a stay and maintains, among other things, that it will sustain substantial irreparable injury without a stay. B. Response On May 13, 1997, Consumers Energy Company (Consumers) and Detroit Edison Company (Detroit Edison) filed a preliminary joint answer opposing the motion for stay. They explain that Consumers, Detroit Edison and Ontario Hydro are parties to an Interconnection Agreement under which Ontario Hydro continues to sell power into the United States through buy-sell transactions. 5/ Thus, they argue, Ontario Hydro cannot show that it will be harmed by a denial of a stay because it is able to sell power in 3/ Motion at 2. 4/ Id. 5/ Attached to their answer was the affidavit of Jon E. West, Staff Engineer, Transmission Operations, for the Michigan Electric Power Coordinating Center. A chart attached to that affidavit shows that during 1996, Ontario Hydro sold approximately $50 million pursuant to the Interchange Agreement and approximately $24 million during the first four months of 1997. Thus, this information indicates that there has been no drop off in these sales after Order No. 888 became effective on July 9, 1996. Docket Nos. RM95-8-004 -3- and RM94-7-005 the United States despite the reciprocity condition of Order No. 888 and Ontario Hydro's lack of a reciprocal open access tariff. II. Discussion As an initial matter, there appears to be some confusion as to the applicability of the reciprocity condition to sales by Canadian utilities. Ontario Hydro appears to be mis-reading, at least in part, the applicability of the reciprocity provision. We therefore take this opportunity to explain and further clarify how the reciprocity condition applies to foreign utilities. In Order Nos. 888 and 888-A, we concluded that a foreign entity that owns or controls transmission facilities and that takes transmission service under a U.S. public utility's open access tariff must comply with the reciprocity provision in the tariff, unless the public utility voluntarily waives the reciprocity condition contained in its open access tariff or unless an entity obtains waiver of the reciprocity condition from the Commission. 6/ Order No. 888-A further provided, in language added to Section 6 of the pro forma open access tariff, that the reciprocity condition "applies not only to the Transmission Customer that obtains transmission service under the Tariff, but also to all parties to a transaction that involves the use of 6/ Order No. 888, 61 Fed. Reg. at 21,571, FERC Stats. & Regs. at 31,689; Order No. 888-A, 62 Fed. Reg. at 12,341-42, FERC Stats. & Regs. at 30,291-92. The Order Nos. 888 and 888-A reciprocity provision applies to transmission used for wholesale sales in interstate commerce. See also Section 35.28(e)(2), 61 Fed. Reg. at 21,695. Ontario Hydro has not sought a waiver pursuant to Section 35.28(e)(2). Docket Nos. RM95-8-004 -4- and RM94-7-005 transmission service under the Tariff, including the power seller, buyer and any intermediary, such as a power marketer." 7/ Ontario Hydro's motion is not entirely clear as to the range of circumstances to which it believes reciprocity applies. However, we clarify that the above quoted statement in the Section 6 reciprocity condition of the pro forma tariff does not impose the reciprocity condition in circumstances where a Canadian utility sells power to a U.S. utility located at the United States/Canada border, title to the electric power transfers to the U.S. border utility, and the power is then resold by the U.S. border utility to a U.S. customer that has no affiliation with, and no contractual or other tie to, the Canadian utility. 8/ The reciprocity provision thus does not in any way affect historical Canadian-United States buy-sell arrangements, i.e., those involving sales to U.S. border utilities who then resell power to purchasers that have no contractual or other transactional link to the Canadian seller. For these types of historical sales, a Canadian seller is no worse off under Order Nos. 888 and 888-A than it was prior to the orders' issuance. 9/ Additionally, Order Nos. 888 and 888-A do 7/ Pro Forma Tariff, Section 6, Original Sheet No. 26. Ontario Hydro's motion does not reference the actual pro forma tariff language that contains the reciprocity condition. Rather, it references the Order No. 888-A preamble discussion in which the Commission, in response to a clarification sought by Detroit Edison, stated that the reciprocity condition would apply to a wholesale purchaser if a generation seller obtains transmission service from a public utility to sell to such purchaser and such purchaser owns, operates or controls interstate transmission facilities, and that the same would be true where the seller owns, operates or controls interstate transmission facilities and the buyer arranges for the transmission service. The Commission further stated that, just as with marketers or other intermediaries, it did not intend to allow reciprocity to be defeated on the basis of whether the seller or buyer requests transmission. 62 Fed. Reg. at 12,339; FERC Stats. & Regs. at 30,287. 8/ The U.S. border utility would be a wholesale purchaser of electric energy. The entity that purchases from the U.S. border utility could be a traditional public utility, a power marketer, a non-public utility, or a retail customer. 9/ We further note that prior to Order Nos. 888 and 888-A, to the extent a Canadian utility sought transmission access within the United States, it had to rely solely on the (continued...) Docket Nos. RM95-8-004 -5- and RM94-7-005 not disrupt any pre-Order No. 888 power sales contracts under which Ontario Hydro sells to U.S. utilities, or any pre-Order No. 888 transmission contracts under which it purchases transmission from U.S. utilities. We emphasize that the above quoted language in Section 6 of the pro forma tariff was added to the reciprocity provision because of our specific concern that entities would structure future transactions specifically to avoid reciprocity. 10/ Ontario Hydro's motion does not contain sufficient information for the Commission to properly analyze whether a stay is appropriate. For example, Ontario Hydro claims that it will lose its $235 million export business, but does not adequately describe the kinds of transactions it believes can not take place as a result of Order Nos. 888 and 888-A. To fairly evaluate the stay request, the Commission needs specific information clarifying how the alleged harm is caused by the reciprocity condition. Ontario Hydro needs to clarify the extent to which the alleged $235 million loss of business is attributable to the kind of buy-sell transactions that we clarify are permissible under Orders 888 and 888-A. In addition, it is not clear whether Ontario Hydro in alleging its prospective loss under the reciprocity condition has taken into account transactions that intervenors show are continuing to occur under previously existing arrangements that were not abrogated by Order No. 888. Also, before Order No. 888, Ontario Hydro could not expect to serve wholesale purchasers in the United States except through voluntarily provided transmission service by a U.S. utility. Therefore, Ontario Hydro must document with some specificity the business transactions that cannot proceed because the reciprocity provision deprives Ontario Hydro of transmission service that would otherwise be available to it without this Commission's mandated open access tariffs. Finally, it would be helpful to us to understand the status of Ontario Hydro s efforts to seek changes in laws affecting its operation and why it is unable to meet the reciprocity condition. 9/ (...continued) voluntary agreement of the U.S. utility to provide such service. That is no different from relying on the voluntary agreement of the U.S. utility to waive the reciprocity condition contained in its open access tariff. 10/ For example, a power seller could seek to avoid reciprocity by having the power buyer obtain the transmission or the power seller or buyer could use an intermediary to obtain transmission. Docket Nos. RM95-8-004 -6- and RM94-7-005 In light of the lack of specific information supporting its claim of harm and in light of the clarification provided above, we request Ontario Hydro to provide further information concerning the details of its transactions with U.S. purchasers and the status of restructuring in Ontario and Canada. The specific questions to which we need responses are set forth on the Attachment to this order. Ontario Hydro should submit its responses to the Commission no later than seven days following issuance of this order. The Commission orders: (A) Ontario Hydro is requested to provide additional information no later than seven days following issuance of this order, as discussed in the body of this order. By the Commission. ( S E A L ) Lois D. Cashell, Secretary. ATTACHMENT Questions Concerning Ontario Hydro's Motion for Stay 1. Ontario Hydro states that the reciprocity condition will "disrupt" its entire $235 million per year U.S. export business. 1/ (a) Please explain if it is Ontario Hydro's position that with the reciprocity condition, as clarified, it will no longer have any exports of electric power to the United States? (b) Please provide a derivation of the $235 million per year by identifying each U.S. customer, the amount associated with that customer and the type of transaction involved (i.e., coordination v. long-term). (1) Please specify whether the sales involved are to a U.S. utility located at the United States/Canada border where title of power transfers to the U.S. border utility; or whether the sales are to other customers in the United States where title does not transfer to a U.S. utility located at the border. (2) For each of the transactions, if any, where title transfers to a customer other than a U.S. border utility, did Ontario Hydro itself, prior to Order Nos. 888 and 888-A, require access to the transmission system of a U.S. utility in order to reach the customer? If so, please attach a copy of the contract covering transmission service in the United States. (3) Please separately quantify the dollar amount of power sales occurring under contracts existing as of the effective date of Order No. 888 (July 9, 1996) and the amount that is occurring under new power sales contracts and explain whether any contracts effective after July 9, 1996 have required transmission by a U.S. utility. If so, please attach a copy of the contract covering transmission service in the United States. (c) Ontario Hydro states that prior to the issuance of Order Nos. 888 and 888-A it forecasted earnings of $235 million (Canadian) for 1997. Now that those orders have issued, please provide a copy of Ontario Hydro's 1/ In responding to these questions, please provide the amounts in Canadian dollars, as well as U.S. dollars. Docket Nos. RM95-8-004 -2- and RM94-7-005 most recent forecast of earnings from the sale of wholesale power to U.S. purchasers for 1997 and indicate what percentage this is to Ontario Hydro's total revenues for all power sales. If that forecast is not broken down in the same manner as requested in Question 1(b), please provide the relevant information. 2. Ontario Hydro states that it "generated $750 million (Canadian) in gross proceeds from the sale of wholesale power to U.S. purchasers over the last three years...." (a) Please provide a breakdown of the $750 million by year. (b) Please provide a breakdown of each annual amount in the same manner as requested in Question 1(b). 3. Order No. 888, including the reciprocity condition, became effective on July 9, 1996. Please describe all Ontario Hydro wholesale sales of power to U.S. purchasers since that date. Please provide the monthly amounts of such sales (from July 1996 through April 1997) and a breakdown of such sales in the same manner as requested in Question 1(b). 4. Ontario Hydro states that it is impossible for it to comply with the "Open-Access Condition" because it cannot allow the required open access into Ontario without the approval of the Ontario Government, "which will require a complete restructuring of the Province's electric power system and the resolution of a number of very complex financial and other issues." (a) Please provide Ontario Hydro's interpretation of the required transmission access it would have to provide under the reciprocity condition. In this regard, note that Order Nos. 888 and 888-A do not require Ontario Hydro to provide open access, i.e., access to any eligible customer, but rather only to provide access to those transmission providers from whom it receives open access transmission service (as well as the entities in the chain of the transaction). Additionally, reciprocity applies only to wholesale transmission access. Will this limited access require a complete restructuring of the Province's electric power system? (b) Please identify all U.S. utilities that have sought a commitment from Ontario Hydro to provide reciprocal access as a condition of using the utilities' open access tariffs, including any written response by such utilities and any written request for Docket Nos. RM95-8-004 -3- and RM94-7-005 service by Ontario Hydro. Have any specific requests been made to Ontario Hydro to provide reciprocal service? If so, please identify the requests by requesting party and provide a copy of any written request, and the disposition of each request and any written response from Ontario Hydro. Have any such general or specific requests been presented to the Ontario Government for approval? If so, please provide a copy of the Government's response (if no written response, please describe the response). (c) Please describe the status of any restructuring of the electric industry in Ontario and Canada. 5. With respect to the "interruption" of sales to a U.S. customer by the MECS utilities, did Ontario Hydro make sales to the same customer prior to Order No. 888, i.e., before July 9, 1996. Did the MECS utilities provide transmission access to Ontario Hydro prior to Order No. 888? If so, provide a copy of such contract. Did the MECS utilities seek from Ontario Hydro a commitment to provide reciprocal service upon request? What was Ontario Hydro's response? Did Ontario Hydro present any such request to the Ontario Government? Please provide copies of any documentation Ontario Hydro has in its possession concerning the interruption of this sale. How were Ontario Hydro's transactions with the MECS utilities structured prior to Order No. 888? How are they structured post-Order No. 888? 6. Please provide more details with respect to the unsuccessful attempt to obtain transmission service from Niagara Mohawk Power Corporation. Provide the same information as requested in Question 5. Mr. Mackay states that Niagara Mohawk "has not processed our application pending resolution of the reciprocity issue." Have any negotiations taken place between Ontario Hydro and Niagara Mohawk with respect to the reciprocity issue? If so, please describe those negotiations and include copies of any correspondence between the parties on this subject. Was the requested transmission service to serve a customer that had been served by Ontario Hydro prior to Order No. 888? 7. Ontario Hydro's motion (Mackay affidavit at 2 and attachments) refers to several RFPs for the supply of electric power by U.S. wholesale purchasers, and states that in most cases, RFPs require a respondent to make necessary transmission arrangements. Did Ontario Hydro participate in RFPs by U.S. purchasers prior to Order No. 888? If so, please specify the name of the wholesale purchasers that issued the RFPs, the dates issued, and whether and from whom Ontario Hydro obtained transmission access from U.S. Docket Nos. RM95-8-004 -4- and RM94-7-005 utilities necessary to participate in the RFPs, including any contracts for transmission service in the United States. With regard to the three RFPs attached to Ontario Hydro's motion, did Ontario Hydro seek transmission access from a U.S. utility in order to participate in any of these three RFPs? If so, was Ontario Hydro denied access and was such denial based on the reciprocity condition in the utility's Order No. 888 open access tariff? Please provide copies of any related correspondence.