Energy Law Alert: FERC Denies Appeal from Generator Tie-line Owner Registered on Compliance Registry as a Transmission Owner and Transmission Operator
5/20/2008
On May 16, 2008 the Federal Energy Regulatory Commission (the "Commission") issued an order upholding New Harquahala Generating Company's ("Harquahala") registration with the National Electric Reliability Corporation ("NERC") as a transmission owner and transmission operator. NERC typically requires transmission owners and transmission operators to comply with extensive reliability standards. The Commission's action may significantly impact the costs and responsibilities associated with an independent power producer's ownership of generation integration transmission facilities.
Harquahala owns and operates a 1,092 MW generating facility in northwestern Arizona that is interconnected to the Hassayampa substation via a radial 26-mile, 500 kV sole-use generation integration tie-line and a 500 kV switchyard. The Harquahala generator is not a reliability must-run unit, does not provide black start service or voltage support, and is not considered a critical facility. However, the Hassayampa substation, with which Harquahala is interconnected, impacts transmission of over 10,000 MW of other generation facilities — 4,100 MW of which interconnect directly at Hassayampa. This substation and others nearby collect and direct a large portion of the generation that serves Phoenix and Southern California loads.
NERC's Statement on Compliance Registry Criteria defines a transmission owner as "the entity that owns and maintains transmission facilities" and a transmission operator as "the entity responsible for the reliability of its local transmission system and [that] operates or directs the operations of transmission facilities." However, even when an entity does not meet the specified criteria, that entity may be registered on the compliance registry if it is a "bulk power system owner, or operates, or uses bulk power system assets, and is material to the reliability of the bulk power system." In its filing with the Commission, NERC cited various grounds for upholding the subject registration. NERC stated that Harquahala's generator tie-line constitutes "integrated transmission elements" because the line integrates the generator to the transmission grid and, most significantly, that the Harquahala interconnection facilities are material to the reliable operation of the bulk power system. On appeal, Harquahala stated that, among other things, compliance with the transmission owner and operator reliability standards would be unreasonable and that the transmission operator training requirements would cost it approximately $1 million per year.
The Commission ruled that NERC acted pursuant to NERC's plenary authority to register entities that own or operate facilities that are material to the reliability of the bulk power system. Further, the Commission stated that NERC correctly determined that the interconnection facilities between the Harquahala generator and Hassayampa substation are necessary for the reliable operation of the electric grid. In that regard, FERC found that a failure along the Harquahala interconnection facilities could have cascading effects within Hassayampa, potentially resulting in the loss of thousands of megawatts that serve major load centers. Notably, however, the Commission refused to address whether the Harquahala interconnection facilities were properly considered "integrated transmission elements."
The Commission did not focus on Harquahala's generation interconnection facilities themselves, but rather on the importance of and amount of generation flowing through the Hassayampa and surrounding substations. The Commission stated, "[t]he size and importance of Hassayampa, to which Harquahala is interconnected, necessitates careful consideration of the adverse impact that a severe fault involving any of the interconnected transmission elements could have on this critical infrastructure hub." In support, the Commission cited past switching errors (on another line) at Hassayampa that caused nearby nuclear units to trip offline—an occurrence that could have been avoided if the interconnection facilities were operated by "properly trained and NERC-certified transmission operators." The Commission found that "if adequate reliability requirements, including coordination of protection systems, operations and maintenance and properly trained and certified staff are not provided for on Harquahala's tie-line, there is a reliability risk that would affect a significant portion of the Bulk Power System in WECC." Thus the Commission stated that Harquahala should be required to comply with at least some of the reliability standards applicable to transmission owners and operators.
It is important to recognize that the Commission's ruling hinged not on whether interconnection facilities are "integrated transmission elements," but instead on the reliability and importance of the surrounding electric grid. Thus generators must now consider the surrounding electric grid and their points of interconnection to determine whether registration may be required.
This ruling does not mean that all generators with interconnection facilities will be registered for transmission functions. In fact, the Commission expressly stated that the ruling is "not a finding that all tie-line owners and operators should be registered as transmission owners and operators." Nor does this ruling automatically apply all reliability standards applicable to transmission owners and transmission operators to a generating facility that is registered for transmission functions. The Commission ordered the parties to consider which standards should apply and submit a compliance filing. However, more compelled registrations of this sort are likely, and generators should consider the risks and costs of being registered when assessing the economic viability of a project and also when negotiating power purchase agreements.
If you have further questions about the Commission's ruling or NERC reliability standards, please contact:
Pamela Jacklin at pljacklin@stoel.com or (503) 294-9406
Marcus Wood at mwood@stoel.com or (503) 294-9434
Jason A. Johns at jajohns@stoel.com or (503) 294-9618
Jennifer Martin at jhmartin@stoel.com or (503) 294-9852
______________
Stoel Rives is a business law firm providing counseling and litigation services to a wide range of clients throughout the United States. The firm has more than 350 attorneys operating out of 11 offices in seven states. Stoel Rives is regarded as a leader in energy, natural resources, environmental, litigation, corporate, labor and employment and intellectual property law. For more information, visit www.stoel.com.