FERC ACCEPTS PRO FORMA AGREEMENT FOR TRANSMISSION PROJECT DEVELOPERS IN THE CAISO, ENABLING NEW OPPORTUNITY TO JOIN THE CAISO ONLY AS A PARTIAL PARTIC

12.11.14

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The Federal Energy Regulatory Commission (“FERC” or “Commission”) accepted, subject to certain conditions, the California Independent System Operator Corporation (“CAISO”) proposed pro forma Approved Project Sponsor Agreement (“APSA”) to be added as Appendix X to its Open Access Transmission Tariff (“Tariff”). See California Independent System Operator, 149 FERC ¶ 61,107 (2014).

The pro forma APSA establishes the terms and conditions for the construction of transmission facilities selected in the CAISO’s regional planning process by project developers selected to build and own such regional transmission facilities in the CAISO’s competitive selection process (i.e., Approved Project Sponsors). The pro forma APSA requires Approved Project Sponsors to become participating Transmission Owners (“TOs”) in the CAISO and sign the CAISO’s Transmission Control Agreement (“TCA”).  Notably, however, developers are only required to turn over to the CAISO’s operational control facilities they are selected to build and own in the CAISO’s competitive selection process. See California Independent System Operator, 146 FERC ¶ 61,237 (2014)(ruling on CAISO’s proposed Competitive Transmission Initiative).

This is a significant change because historically a transmission owner was required to turn all of its transmission facilities over to the operational control of the CAISO when joining the CAISO as a participating TO.  Now, transmission project developers, including potentially neighboring utilities transmitting renewable energy that is imported into the CAISO, have an opportunity to participate partially in the CAISO without losing the ability to serve their own existing wholesale or retail customers with other transmission facilities in their service areas under their own separate rates and tariffs.

In its order, FERC addressed various comments concerning the APSA’s requirement to enter into an interconnection agreement with the incumbent participating transmission owner. The CAISO does not have a process in its Tariff governing interconnection of transmission facilities similar to the well-established process for interconnection of generator facilities. Instead, the interconnection of transmission facilities in the CAISO is primarily governed by the incumbent participating transmission owner’s tariff and certain provisions of the CAISO TCA. Commenters raised concerns about putting Approved Project Sponsors in a position where they would have to negotiate an interconnection agreement with the same incumbent transmission owner with which they may have competed to build the transmission project and asked FERC to direct the CAISO to either: (i) be a party to these transmission facility interconnection agreements, or (ii) have the interconnection process for transmission projects included in the CAISO Tariff. FERC declined to order this particular change and was satisfied with protections provided pursuant to the contractual relationship between the CAISO and the participating TOs under the TCA and the CAISO Tariff.  FERC, however, directed the CAISO to revise the APSA in order to: (i) clarify that delays caused by the interconnecting participating TO should not be sufficient to justify reassignment of the project; (ii) clarify that the CAISO may facilitate coordination between the Approved Project Sponsor and the interconnecting participating TO; and (iii) specify that an Approved Project Sponsor may include additional just and reasonable costs, such as interconnection costs, for recovery in its Transmission Revenue Requirement filed with FERC. Notably, FERC also stated that costs incurred to comply with any additional specifications, beyond the initial functional requirements issued by the CAISO at the time of the competitive solicitation, will be excluded from any cap containment agreed to and included in an APSA.

FERC rejected proposals by an incumbent participating TO to: (i) require that Approved Project Sponsors post financial security to cover the incremental costs of construction resulting from a reassignment of the project due to default or abandonment; (ii) clarify that all rights associated with the project (including real and personal property rights and all rights under agreements associated with the project) will be transferred to the new project sponsor in the event of abandonment; and (iii) allow third parties to seek remedies for a party’s breach of the APSA so that the back-stop participating TO or the alternative project sponsor selected by the CAISO can bring an action to protect ratepayers. FERC also rejected proposals by other parties to: (i) expand the concept of force majeure, which CAISO defines to exclude economic hardship; and (ii) revise the APSA so that the CAISO would need only to approve major modifications to a project.

On December 3, 2014, the CAISO made a compliance filing in response to FERC’s order.