VIA FEDERAL EXPRESS ., ‘7 · Coordinator of State & Regional Programs1 . STATE OF WEST VIRGINIA...

klectric Power Supply Association Ad”ocati”g me power Of campemor 140: ? S!res:~ N’K

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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

1

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

3

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 nondiscriminatory 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


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.


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


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


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.


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.


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.


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


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,


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.

VIA FEDERAL EXPRESS ., ‘7 · Coordinator of State & Regional Programs1 . STATE OF WEST VIRGINIA...

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