The Energy Regulation and Markets Review - Stikeman Elliott

United States
entities, which led to the formation of ISOs in regions including the large majority of
electrical load in the United States.
The pro forma OATT requires transmitting utilities to provide open, not unduly
discriminatory, access to their transmission system to transmission customers and
addresses the terms of transmission service, including the terms for scheduling service,
curtailments and the provision of ancillary services. Transmitting utilities are permitted
to vary from the required pro forma terms of service if FERC finds that their proposed
variations are equally or more conducive to the OATT’s open access objectives. Order
No. 889 required codes of conduct governing how participants in the wholesale power
markets should interact with transmission service providers and the establishment of
electronic bulletin boards (open access same-time information systems) for the posting
of details regarding available transmission capacity.
Since Order Nos. 888 and 889, FERC has issued a range of major orders updating
and expanding its open access policies to address such matters as: the formation of and
participation in RTOs; pro forma procedures and agreements for interconnection of
generation to the bulk power grid; changes to the pro forma generator interconnection
procedures and agreements to facilitate interconnection of wind generators; general
rules to facilitate more open and transparent planning and use of wholesale transmission
facilities; and most recently, general rules regarding transmission planning and cost
allocation. FERC is currently considering whether reforms to its open access policies
are necessary to eliminate possible barriers to the integration of wind, solar and other
variable energy generation resources.
ii Rates
Economic regulation of most of the bulk power transmission system is administered
by FERC, including regulation of the rates, terms and conditions for the transmission
of electric energy in interstate commerce. Most FERC-regulated transmission services
are provided at embedded cost-of-service rates that provide a return of investment as
well as a FERC-determined reasonable rate of return on common equity. FERC also
has permitted so-called ‘merchant’ transmission projects (i.e., transmission that is not
included in a cost-of-service rate base) to charge negotiated rates for transmission service.
In 2005, Congress amended the FPA to direct FERC to develop rate incentives
to encourage certain transmission development. 2 In 2006, FERC issued regulations
to provide on a case-by-case basis a variety of cost-of-service rate incentives for new
transmission projects that improve reliability or reduce cost. These incentives include
incentive rates of return on equity for new investment, use of a hypothetical capital
structure during construction, full recovery of prudently incurred construction work
in progress in rate base during construction, full recovery of prudently incurred costs
of abandoned projects, and accelerated depreciation. To obtain one or more of these
incentives an applicant must show that there is a nexus between the incentive being
2 This legislative directive was prompted by the August 2003 electric grid blackout which
adversely affected large portions of the eastern United States and Ontario, Canada and a
concern that there had been a long relative decline in the level of transmission investment.
337