75 FERC 61,080 UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION 18 CFR Parts 35 and 385 [Docket Nos. RM95-8-000 and RM94-7-001] 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 FINAL RULE (Issued April 24, 1996) AGENCY: Federal Energy Regulatory Commission. ACTION: Final Rule. SUMMARY: The Federal Energy Regulatory Commission (Commission) is issuing a Final Rule requiring all public utilities that own, control or operate facilities used for transmitting electric energy in interstate commerce to have on file open access non- discriminatory transmission tariffs that contain minimum terms and conditions of non-discriminatory service. The Final Rule also permits public utilities and transmitting utilities to seek recovery of legitimate, prudent and verifiable stranded costs associated with providing open access and Federal Power Act section 211 transmission services. The Commission's goal is to remove impediments to competition in the wholesale bulk power marketplace and to bring more efficient, lower cost power to the Nation's electricity consumers. EFFECTIVE DATE: This Final Rule will become effective on [insert - 2 - date 60 days after date of publication in the Federal Register]. FOR FURTHER INFORMATION CONTACT: David D. Withnell (Legal Information -- Docket No. RM95-8-000) Office of the General Counsel Federal Energy Regulatory Commission 888 First Street, N.E. Washington, D.C. 20426 (202) 208-2063 Deborah B. Leahy (Legal Information -- Docket No. RM94-7-001) Office of the General Counsel Federal Energy Regulatory Commission 888 First Street, N.E. Washington, D.C. 20426 (202) 208-2039 Michael A. Coleman (Technical Information) Office of Electric Power Regulation Federal Energy Regulatory Commission 888 First Street, N.E. Washington, D.C. 20426 (202) 208-1236 SUPPLEMENTARY INFORMATION: In addition to publishing the full text of this document in the Federal Register, the Commission also provides all interested persons an opportunity to inspect or copy the contents of this document during normal business hours in the Public Reference Room at 888 First Street, N.E., Washington, D.C. 20426. The Commission Issuance Posting System (CIPS), an electronic bulletin board service, provides access to the texts of formal documents issued by the Commission. CIPS is available at no charge to the user and may be accessed using a personal computer with a modem by dialing 202-208-1397 if dialing locally, or 1- 800-856-3920 if dialing long distance. CIPS is also available through the Fed World system (by modem or Internet). To access - 3 - CIPS, set your communications software to 19200, 14400, 12000, 9600, 7200, 4800, 2400, or 1200 bps, full duplex, no parity, 8 data bits and 1 stop bit. The full text of this order will be available on CIPS indefinitely in ASCII and WordPerfect 5.1 format. The complete text on diskette in Wordperfect format may also be purchased from the Commission's copy contractor, La Dorn Systems Corporation, also located in the Public Reference Room at 888 First Street, N.E., Washington, D.C. 20426. TABLE OF CONTENTS I. INTRODUCTION/SUMMARY ................................. 1 II. PUBLIC REPORTING BURDEN .............................. 11 III. BACKGROUND ........................................... 13 IV. DISCUSSION ........................................... 51 A. Scope of the Rule ............................... 51 1. Introduction ............................... 51 2. Functional Unbundling ...................... 52 3. Market-based Rates ......................... 61 4. Merger Policy .............................. 75 5. Contract Reform ............................ 78 6. Flow-based Contracting and Pricing ......... 92 B. Legal Authority ................................. 98 - ii - ii 1. Bases for Legal Authority .................. 98 2. Response to Commenters Opposing our Legal Authority .................................. 112 C. Comparability ................................... 152 1. Eligibility to Receive Non-discriminatory Open Access Transmission ................... 152 2. Service that Must be Provided by Transmission Provider ...................... 159 3. Who Must Provide Non-discriminatory Open Access Transmission ........................ 161 4. Reservation of Transmission Capacity by Transmission Customers ..................... 165 5. Reservation of Transmission Capacity for Future Use by Utility ...................... 170 6. Capacity Reassignment ...................... 173 7. Information Provided to Transmission Customers .................................. 182 - iii - iii 8. Consequences of Functional Unbundling ...... 184 D. Ancillary Services .............................. 198 1. Definitions and Descriptions ............... 202 2. Obligations of Transmission Providers and Transmission Customers with Respect to Ancillary Services ......................... 225 3. Unbundling and Bundling Ancillary Services . 242 4. Reassignment of Ancillary Services ......... 246 5. Pricing of Ancillary Services .............. 247 6. Accounting for Ancillary Services .......... 252 E. Real-Time Information Networks .................. 255 F. Coordination Arrangements: Power Pools, Public Utility Holding Companies, Bilateral Coordination Arrangements, and Independent System Operators .. 256 1. Tight Power Pools .......................... 270 - iv - iv 2. Loose Pools ................................ 272 3. Public Utility Holding Companies ........... 274 4. Bilateral Coordination Arrangements ........ 277 G. Pro Forma Tariff ................................ 286 1. Tariff Provisions That Affect The Pricing Mechanism .................................. 289 2. Priority for Obtaining Service ............. 320 3. Curtailment Provisions ..................... 333 4. Specific Tariff Provisions ................. 339 H. Implementation .................................. 389 I. Federal and State Jurisdiction: Transmission/Local Distribution ................. 400 J. Stranded Costs .................................. 442 1. Justification for Allowing Recovery of Stranded Costs ............................. 442 - v - v 2. Cajun Electric Power Cooperative, Inc. v. FERC ....................................... 458 3. Responsibility for Wholesale Stranded Costs (Whether to Adopt Direct Assignment to Departing Customers) ....................... 470 4. Recovery of Stranded Costs Associated with New Wholesale Requirements Contracts ....... 492 5. Recovery of Stranded Costs Associated with Existing Wholesale Requirements Contracts .. 501 6. Recovery of Stranded Costs Caused by Retail- Turned-Wholesale Customers ................. 524 7. Recovery of Stranded Costs Caused by Retail Wheeling ................................... 537 8. Evidentiary Demonstration Necessary -- Reasonable Expectation Standard ............ 559 9. Calculation of Recoverable Stranded Costs .. 573 10. Stranded Costs in the Context of Voluntary Restructuring .............................. 614 - vi - vi 11. Accounting Treatment for Stranded Costs .... 615 12. Definitions, Application, and Summary ...... 618 K. Other ........................................... 629 1. Information Reporting Requirements for Public Utilities ........................... 629 2. Small Utilities ............................ 633 3. Regional Transmission Groups ............... 638 4. Pacific Northwest .......................... 642 5. Power Marketing Agencies ................... 645 6. Tennessee Valley Authority ................. 651 7. Hydroelectric Power ........................ 652 8. Residential Customers ...................... 655 V. ENVIRONMENTAL STATEMENT .............................. 656 VI. REGULATORY FLEXIBILITY ACT CERTIFICATION ............. 757 - vii - vii VII. INFORMATION COLLECTION STATEMENT ..................... 762 VIII.EFFECTIVE DATE ....................................... 764 REGULATORY TEXT ...................................... 766 APPENDICES (These Appendices will not appear in the Code of Federal Regulations) A. List of Section 211 Applications B. List of Commenters in Docket Nos. RM95-8-000 and RM94- 7-001 C. Allegations of Public Utilities Exercising Transmission Dominance D. Pro Forma Open Access Transmission Tariff E. List of Group 1 Public Utilities F. List of Group 2 Public Utilities G. Legal Analysis of Commission Jurisdiction Over the Rates, Terms and Conditions of Unbundled Retail Transmission In Interstate Commerce - viii - viii H. U.S. NOx Emissions Statement of Commissioner Hoecker Statement of Commissioner Massey