Tightens postings rules for transmission discounts; expands jurisdiction on stranded costs in municipal annexations.

The Federal Energy Regulatory Commission on Feb. 26 revisited its Order 888 open-access transmission decision, reaffirming its core framework but making changes by granting rehearing on two key issues.

Stranded-cost recovery associated with municipal annexation was revisited. In addition, the FERC updated the discounting of transmission services (See, Order 888-A, Docket Nos. RM95-8-001, RM94-7-001, and RM95-9-001). The FERC also reaffirmed Order 889, the Open Access Same-Time Information System (OASIS) decision, with minor changes.

Transmission Discounts

In the original open-access order, the FERC had allowed differing rules depending on who was offered the discount by the transmission provider. Different rules applied for discounts offered to independent third parties, versus discounts that the transmission owner might offer to its own division, facilities or affiliates. On rehearing, the FERC made three changes to the discounting requirements. The changes enhance the identification of discriminatory discounting practices, while providing greater discount flexibility. Two of those changes apply to OASIS: 1) Discounts now must be made only over OASIS; and 2) Details of the discounts (price, delivery/receipt points, and service length) must immediately be posted on OASIS.

Finally, discounts now are limited to unconstrained paths that go to the same points of delivery as the discounted service provided on the transmission provider's system. The discount will extend for the same time period and must be offered to all transmission customers. (Previously, transmission providers were forced to offer discounts over all unconstrained system paths).

Stranded-Cost Recovery

The FERC changed its mind on stranded-cost recovery involving existing municipal utilities that annex retail service territories. In Order 888, the FERC had said that the states should serve as the primary forum for settling stranded-cost recovery in such cases. Now, however, the FERC has said that it will decide recovery.

Second, the FERC clarified the opportunity for recovery of stranded costs associated with retail-turned-wholesale customers. The FERC said the opportunity applies regardless of whether the customer or its new wholesale supplier is the one requesting and contracting for the transmission service. To that end, the FERC has revised the definition of "wholesale stranded cost."

Nevertheless, the FERC's new stance did not win complete acceptance among its members. By asserting jurisdiction over stranded-cost recovery involving municipal annexation of retail service territories, the decision spurred dissenting opinions from commissioners James Hoecker and William Massey. Hoecker predicted that the Commission's new policy would lead to forum shopping. He added that the "felony is compounded with the new rule on annexation." But with that one exception Hoecker noted he was "pleased" to vote for the order. Massey also disagreed with the majority. The commissioner called it a "mistake" to federalize the issue of municipal stranded-cost recovery. He also said that there was no reason to preempt states in such matters.

Mobile-Sierra Contracts

The FERC clarified how it will deal with existing contracts that contain Mobile-Sierra clauses. Under the clauses, one or both parties agree not to seek modification of contract terms unless such modification becomes required as a matter of public interest.

In Order 888 the FERC had said that contracts containing Mobile-Sierra clauses could be reformed on a case-by-case basis. On rehearing, the commission affirmed that public utilities (the sellers in rate contracts that contain Mobile-Sierra clauses) can apply to amend their contracts to recover stranded costs without having to make a public interest showing that such cost recovery should be permitted. Utilities will bear the burden of proving they had a "reasonable expectation" of continuing to serve the departing customer after the contract term. If the utilities seek to modify provisions not relating to stranded costs, they will have the burden of showing the provisions are contrary to the public interest.

Customers may file to amend Mobile-Sierra contracts. However, the customer must demonstrate the provisions they wish to modify no longer are "just and reasonable." Customers also can file to terminate the contracts. The FERC reaffirmed its conclusion that customers seeking to end or shorten a contract will remain liable to provisions allowing stranded-cost recovery by the supplying utility.

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