USA Law and Practice Contributed by: David P. Flynn, Lindsey E. Haubenreich, Thomas F. Puchner, Dennis W. Elsenbeck and Zachary R. Hirschfeld, Phillips Lytle LLP
ings in the courts of the state in which the property is located (FERC Order No 689, Sections 225–227). 4.5 Monopoly Rights to Provide Transmission Services Under federal law, transmission entities do not have monopoly rights to provide transmission service with- in a specific geographic area. However, state law and utility commission regulation may provide for such rights under terms and conditions that will vary by state. While transmission lines were historically owned by private, vertically integrated entities, FERC required transmission services to be unbundled and provided pursuant to each utility’s FERC-approved OATT, which sets forth the terms and conditions of using the trans- mission system (FERC Order Nos 888, 889 and 890). FERC Order No 1000 built upon Order 890 to increase transmission development by requiring public utility transmission providers to participate in a regional transmission planning process to generate regional transmission plans. Recently, FERC built further open these orders with Order 1920, which requires transmission operators to conduct and periodically update long-term transmis- sion planning over a 20-year time horizon to anticipate future grid needs and comply with specified planning standards. After some states flagged issues to FERC regarding overlapping authority on transmission plan- ning, FERC amended Order 1920 to enhance the role of state regulators in the long-term regional transmis- sion planning process. 4.6 Transmission Charges and Terms of Service Laws Governing Transmission Charges Pursuant to the FPA, FERC has exclusive jurisdiction over: • the transmission of electrical energy in interstate commerce; • the sale of electrical energy at wholesale in inter- state commerce; and • all facilities for such transmission or sale of electri- cal energy.
This jurisdiction is conferred by Section 201 of the FPA, and the principal laws of such jurisdiction are codified at 16 USC Section 824, 824 (d) and 824 (e). Utilities providing transmission service subject to FERC’s jurisdiction must abide by an OATT, which sets forth non-discriminatory rates for transmission and ancillary services. Wholesale rates are set according to Sections 205 and 206 of the FPA. A rate case can be initiated by a utility filing for a rate change, by complaint from another person or entity, or by FERC’s own initiative. Upon hearing, FERC will determine whether the util- ity’s proposed rate is just and reasonable or will make appropriate modifications to the rate as necessary (16 USC Section 824e). Transmission providers must publish service rates and available capacity, as well as rules and standards related to their transmission services, on the Open Access Same-Time Information System (OASIS). FERC has authority to review and ensure that rates and terms of transmission service are just and reason- able and are not unduly discriminatory or preferential. Establishing Rates Through Formulas FERC’s general policy is to permit utilities to establish rates through formulas. FERC will generally approve of or formulate new rates that are based on the util - ity’s cost of service, to balance the interests of the utility and its customers. Under this approach, the aggregate costs – such as a reasonable return on investment – for providing each class of service are determined, and prices are set to recover those costs. FERC generally uses the formula E + d + T + (V − D) R, derived from a 12-month test period, to determine cost of service. In this formula: • E = operating expense – utilities are generally entitled to recover prudently incurred operating expenses that relate to the provision of wholesale service; • d = depreciation expense – depreciation means the loss in service value not restored by current main- tenance that is incurred in the course of service; • T = taxes – certain tax expenses associated with cost of service revenues;
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