C. The New Transmission Service

1. To address the discrimination described in Section III above and in Appendix C, we will require Independent Transmission Providers to provide a nondiscriminatory, standard transmission service to all customers. This new service, Network Access Service, combines features of both the existing open access transmission services – Network Integration Transmission Service and Point-to-Point Transmission Service. The Network Access Service is grounded in the flexibility of network integration transmission service, but adds a measure of reassignability similar to that available under firm Point-to-Point Transmission Service. Thus, Network Access Service will give all customers the opportunity to have tradable Congestion Revenue Rights⁸5 that will expand their transmission options and enhance competition in wholesale electric markets. It also will result in all transmission services being performed under a single set of rules.

2. To complement Network Access Service and implement the Standard Market Design, Independent Transmission Providers will manage congestion using LMP. Management of transmission grid congestion is difficult to do through bilateral transactions alone; thus a spot market is required to manage congestion efficiently. We believe that congestion management, balancing of load and generation in real time, and the provision of ancillary services can be accomplished most reliably and efficiently by a bid-based, security-constrained spot market.

3. In addition to administering a spot market to manage congestion, the Independent Transmission Provider will also use it to handle imbalances and the procurement of ancillary services. The Independent Transmission Provider would operate markets for energy, regulation, operating reserve - spinning and operating reserve - supplemental. These markets would be security-constrained, bid-based markets operated in two time frames: (1) a day ahead of real-time operations, and (2) in real time. Transmission services will be scheduled through the day-ahead and real-time markets. The Independent Transmission Provider would establish schedules for transmission service, and sales and purchases of energy, regulation, and both operating reserves, to ensure the most efficient use of the transmission grid. Although the Independent Transmission Provider will not be required to operate an organized market for either short- or long-term bilateral transactions, its scheduling process must accommodate such bilateral trades.

1. Basic Rights

4. Network Access Service builds upon the existing Order No. 888 Network Integration Transmission Service and will be available to all eligible customers. As with Network Integration Transmission Service, Network Access Service offers flexible use of the transmission grid – it allows the load-serving entity to choose to serve its load with any available resource on the system (or access any interface to import power from a neighboring system), consistent with the Network Resource Interconnection Service discussed in the Generator Interconnection proposed rule.⁸6 Network Access Service allows a customer to have the Independent Transmission Provider integrate, dispatch and regulate the customer's current and planned resources to serve its load as is currently done under the pro forma tariff. Customers, including generators and marketers, can also use this service for through-and-out service, to aggregate resources for resale, and to perform hub-to-hub transactions similar to Point-to-Point Transmission Service. In addition, Network Access Service allows the customer (1) to trade (reassign) its Congestion Revenue Rights and (2) to access points, which, under the current pro forma tariff, are secondary points that may be fully subscribed, by paying all applicable congestion charges.

5. Network Access Service is premised on dispatching of the regional transmission grid so that the customers that value transmission service the most will get it. All requested transactions must be physically feasible under a security-constrained dispatch. Where there are transmission constraints, the LMP system we propose will price out all transactions and redispatch available generation as needed to accommodate all requests for service.⁸7

6. Network Access Service gives the customer the right to transmit power between any number of combinations of receipt and delivery points. A receipt point is defined here as the location where a transaction originates, and a delivery point is defined as the location where a transaction terminates. Receipt and delivery points include both individual nodes as well as aggregated points, e.g., trading hubs. Thus, a Network Access Service customer could use this service to move power from a generator (receipt point) to a load (delivery point), from a generator (receipt point) to a trading hub (delivery point), from one trading hub to another, or from a trading hub (receipt point) to a load (delivery point). A Network Access Service customer would have access to all receipt and delivery points on the system and would be able to substitute receipt points on a daily or hourly basis through the day-ahead and real-time scheduling processes.

7. Any customer using transmission service, whether a load-serving entity, generator, or marketer, would take Network Access Service. However, as explained more fully in Section IV.D.1, only those customers taking power off of the grid would pay the access charge. (All customers would pay congestion costs and losses associated with their particular transaction.) We expect that, in most instances, it would be a load-serving entity, rather than a generator or marketer, that would be the customer for transactions that result in power leaving the grid, and thus, the load-serving entity would be the entity paying the access charge.⁸8

2. Access to Transmission Service

8. Under the existing pro forma tariff, "firm" transmission service implies certainty both with respect to delivery and price. Once a customer taking firm service under the existing pro forma tariff agrees to pay the transmission rate and schedules service, it has full assurance that it will be able to transmit power between its chosen receipt and delivery points without service interruption (absent force majeure or curtailment) and without being subject to any additional costs (e.g., redispatch). However, there are times when a transmission provider cannot offer a guarantee of service availability (absent the long-term solution of a customer agreeing to pay for system expansion). At these times, under the existing pro forma tariff, only non-firm transmission service (which can be interrupted for economic reasons)⁸9 is available at the stated maximum rate. Thus, the existing pro forma transmission service begins with the basic premise of price certainty, but includes a measure of uncertainty regarding service availability that is resolved only if firm service can be secured. In sum, the customer is generally assured of the rate it will pay for transmission service, but, unless it has secured firm transmission service between the specified points, is not necessarily assured that it will receive transmission service.

9. With Network Access Service, all customers who want physically feasible service will be able to receive service; however, uncertainty can arise as to the rate paid to receive the service. In addition to the access charge (which recovers the embedded costs of the transmission system), the customer would be subject to the cost of congestion between its chosen receipt and delivery points. To achieve certainty with respect to price and avoid congestion costs, the customer would have to acquire the Congestion Revenue Rights associated with its specific receipt point-delivery point combination(s).⁹0 Thus, Network Access Service, coupled with Congestion Revenue Rights for the desired points, provides the customer with certainty with respect to delivery and price, comparable to the existing pro forma tariff's firm service.

10. Accordingly, customers desiring service comparable to (but actually more dependable than) existing firm transmission service would need to acquire Congestion Revenue Rights for their receipt and delivery points and schedule service between those points in the day-ahead market. With the allocation process we propose in Section IV.H.2, customers under existing contracts will receive Congestion Revenue Rights that match their current use of the system, which will ease and simplify the conversion process. Customers using non-firm transmission service under the existing pro forma tariff could request service when needed in the day-ahead or real-time markets. To the extent the customer is willing to pay congestion costs and transmission losses, its requested transmission service would be available and provided.⁹1 A customer also has the option of placing a limit on the amount of congestion charges it is willing to pay – to the extent that amount is exceeded, the customer would not take transmission service for that receipt point-delivery point combination during the requested time period. This means no separate non-firm transmission service option is needed under Network Access Service.

3. Service Limitations in the Existing Pro Forma Tariff

11. The existing pro forma tariff limits how the Network Integration Transmission Service and Point-to-Point Transmission Service can be used. It limits the use of interface capability by Network Integration Transmission Service customers to the amount of the customer's load. Under the LMP system that we are proposing, transmission service would be available to any customer up to the full amount of the transfer capability, so long as the customer is willing to pay the applicable congestion charges. The specifics of scheduling power across interfaces is discussed in a later section.

12. The existing pro forma tariff also requires the network customer to take Point-to-Point Transmission Service for any additional third-party sales transaction or to serve load on another transmission provider's system. This will no longer be necessary with Network Access Service, which will be used for all transmission services, including third-party sales transactions and transmission service for load on another transmission provider's system. A customer, however, may prefer to have separate service agreements for service to particular loads for accounting or tracking purposes.

4. Conditions for Receiving Service

13. To receive Network Access Service, a customer must meet the same requirements as those under the existing pro forma tariff for acquiring the right to schedule transmission service: all customers must meet creditworthiness and other eligibility standards, complete an application for service, and meet certain operating standards (e.g., reliability maintenance of customer-owned facilities for integration with the transmission provider's system, including metering and communications equipment) as defined in the current pro forma tariff. Similarly, the customer must have a service agreement to take service under the tariff. A load-serving entity would also need a network operating agreement, which would detail how the Independent Transmission Provider's system under the SMD Tariff and the load-serving entity's system would work together (similar to a generator interconnection agreement).⁹2 These standards are largely unchanged from the existing pro forma tariff. In addition, the customer must agree to pay any congestion charges and transmission losses associated with its request⁹3 and any customer serving load located within the Independent Transmission Provider's system must agree to pay the applicable access charge.

5. Scheduling Transmission Service and Acquiring

Congestion Revenue Rights

14. As noted above, a customer would acquire Congestion Revenue Rights to assure price and delivery certainty for its transactions. Anyone can hold Congestion Revenue Rights. Congestion Revenue Rights can be acquired through a variety of means, including: (1) direct allocation that is based on some measure of current or historical rights to the system; (2) periodic auctions; or (3) some combination of these methods. The initial process for acquiring these rights is discussed in Section IV.H.2.

15. Transmission service will be scheduled through the day-ahead market with deviations accounted for in the real-time market, as discussed in later sections. These scheduling opportunities are comparable to the existing pro forma tariff's requirements (e.g., firm point-to-point transmission service scheduled by no later than 10 a.m. the day before, with schedules submitted after that time accommodated, if practicable, and allowance to make changes to that "day-ahead" schedule prior to the start of the next clock hour). However, the new service synchronizes the scheduling of transmission service and energy, and relies on a transmission customer holding Congestion Revenue Rights or its willingness to pay the cost of congestion, rather than on a firm/non-firm, first-come, first served method, to ration capacity.

16. A Network Access Service customer would have to indicate the location of its receipt and delivery points when it schedules service in the day-ahead or real-time markets.⁹4 If a customer holds Congestion Revenue Rights between a set of receipt and delivery points in the day-ahead market, but later decides to take transmission service between a different set of points, the customer would no longer have full protection against congestion costs for its transaction in the day-ahead market and could incur different congestion costs than the congestion revenues associated with the Congestion Revenue Rights it holds. Similarly, to the extent that a customer's real-time transactions differ from its day-ahead schedule, the customer would be liable for any redispatch costs that occur in real time that are necessary to accommodate its real-time transactions.

6. Designating Resources and Loads

17. The existing pro forma tariff allows a Network Integration Transmission Service customer to designate resources that the customer owns or has committed to purchase pursuant to an executed, non-interruptible contract. The transmission provider must then plan and operate its system to be able to provide firm transmission service from these resources to the customer's load. Under the proposed Standard Market Design, the reservation of capacity for service is no longer required, since a transmission customer pays the congestion cost for transmission service. Thus, there is no longer a need for a Network Access Service customer to designate network resources to get transmission service. While the integration of resources and loads (including behind-the-meter generation) that occurs under Network Integration Transmission Service will continue, a Network Access Service customer will now request receipt and delivery points through the day-ahead scheduling process and real-time transactions.

18. Thus, we believe that the requirement to designate network resources to receive transmission service may no longer be needed. Further, we note that under the existing pro forma tariff the designation of network resources was used in addressing long-term resource adequacy concerns and in the planning process undertaken to ensure that the resources could be integrated. Because we are now proposing a resource adequacy requirement and a regional planning process to meet these requirements, the requirement to designate network resources may no longer be needed. (See Section IV.J). We request comment on whether designating network resources and loads is necessary for Network Access Service, particularly with respect to performing the integration of resources and loads.⁹5 Similarly, with respect to the information required to complete an application for service (Section 2 of the SMD Tariff), is it necessary for the Independent Transmission Provider to request information beyond the identity of and contact information for the customer, service term and commencement date, and receipt and delivery points for the requested service? Does the Independent Transmission Provider need to collect for each service request (but not for each transaction) the location and characteristics of the generation serving the load, detailed descriptions of the load and the customer's transmission system and owned generation?⁹6 In sum, do we need separate procedures for service to customers such as marketers, who do not serve load or own generation, or transmission systems and load-serving entities that have all these things? Does the integration aspect of Network Access Service require different information to be provided to the Independent Transmission Provider in order to initiate service? Should this information be provided through other means, and what would that be?

7. Substituting Receipt and Delivery Points

19. Under the existing pro forma tariff, choosing alternate resources to meet load required, in effect, placing a request in the queue for new service. If firm capacity were available, the customer would be permitted to use alternate points of receipt (or delivery) on a firm basis. If firm capacity were not available, the customer could choose the point(s) on a secondary, or non-firm, basis.

20. With Network Access Service, this process is no longer necessary. A Network Access Service customer can essentially access any point simply by requesting it through the day-ahead scheduling process or real-time transactions (and be willing to pay congestion costs and losses). To the extent the customer wanted to avoid the cost of congestion for the transaction, it could retain its existing Congestion Revenue Rights and acquire additional Congestion Revenue Rights for its new receipt and delivery points through an auction or secondary market.

21. Alternatively, the customer could request a "reconfiguration" of the Congestion Revenue Rights it holds, i.e., the customer could turn in the Congestion Revenue Rights for the old receipt and/or delivery point and request Congestion Revenue Rights from the new receipt point or to the new delivery point. We seek comment on the MW quantity of reconfigured Congestion Revenue Rights that the customer should be entitled to receive. There are at least three options. One option is to allocate to the customer the MW quantity that is available specifically as a result of turning in the old Congestion Revenue Rights. Under this option, the customer would receive rights that become available by turning in the old Congestion Revenue Rights. In such a case, the MW quantity of new Congestion Revenue Rights might be different (either larger or smaller) than the MW quantity of the old Congestion Revenue Rights.⁹7 A second option is to allocate any MW quantity of new Congestion Revenue Rights that are physically feasible (i.e., it does not adversely affect the Congestion Revenue Rights held by any other customer), including Congestion Revenue Rights that were available before turning in the old Congestion Revenue Rights. The MW quantity of new Congestion Revenue Rights under this option could also be different (either larger or smaller) than the MW quantity of older Congestion Revenue Rights. A third option is to allocate a MW quantity of new Congestion Revenue Rights that is either equal to the MW quantity of the old Congestion Revenue Rights, or, if that is not physically feasible, the largest MW quantity that is physically feasible. Under this third option, the MW quantity of new Congestion Revenue Rights could never exceed the MW quantity of the old Congestion Revenue Rights. The process for acquiring and reconfiguring Congestion Revenue Rights is further described in Section IV.E.3.

8. System Impact and Facilities Studies

22. Most service requests will be resolved through the day-ahead security-constrained dispatch. Nevertheless, the Independent Transmission Provider will need to conduct system impact and/or facilities studies for service involving the interconnection of a new load or generator. The Independent Transmission Provider will also routinely perform simultaneous feasibility studies to determine the configurations of Congestion Revenue Rights that can be accommodated. Thus, except for adding references to the simultaneous feasibility studies that will be performed in response to requests for Congestion Revenue Rights, sections of the existing pro forma tariff addressing various studies will remain largely unchanged. However, as discussed in Section IV.C.8, these studies are now required to be performed by an Independent Transmission Provider.

9. Load Shedding and Curtailments

23. Under the existing pro forma tariff, load shedding and curtailment procedures were developed for inclusion in individual network operating agreements. These procedures should be uniform and, therefore, will be included in the SMD Tariff. In addition, we expect that the majority of constraints will be resolved through the LMP-based congestion management system, with only localized emergency/reliability contingencies (transmission line outage into a load pocket) needing to be addressed through load shedding or curtailment procedures.

24. This is a major improvement over the current tariff, as it should eliminate most or all TLRs. To the extent practicable, when system conditions require curtailment (in real time) that cannot be resolved through the congestion management system, the Independent Transmission Provider should curtail the customers whose transactions contribute to the constraint on a pro rata basis.⁹8 In addition, we propose that to the extent the Independent Transmission Provider is unable to schedule all requests for service made through the day-ahead scheduling process, those customers with Congestion Revenue Rights for their requested receipt point-delivery point combinations should be scheduled first. We seek comment as to whether this scheduling priority is appropriate. While it would grant Congestion Revenue Rights holders an additional measure of certainty of delivery, would this undermine the benefits of having a single transmission service for all customers?

25. We propose that an Independent Transmission Provider can assess a penalty for failure to curtail if a transmission customer fails to curtail after reasonable notice. The proposed penalty is the locational marginal price plus $1000 per MWh. The Commission has approved a minimum notice period of ten minutes if the curtailment is for reliability purposes.⁹9 We request comment on whether the Commission should continue this practice.

26. We also note that the Commission required transmission providers to incorporate procedures for addressing curtailment of parallel flows involving more than one transmission system (i.e., the Transmission Loading Relief Procedure developed by NERC) as a single generic amendment to the pro forma tariff.¹⁰0 Under Network Access Service, procedures for addressing non-discriminatory curtailment of parallel flows will continue to be needed under emergency conditions when the use of a regional congestion management procedure set out in this proposed rule does not completely relieve a constraint.¹⁰1 Language has been added to Section 9.3, Curtailments of Scheduled Deliveries, to reflect this change.

10. Trading (Reassigning) Congestion Revenue Rights

27. Network Access Service adds the tradability that currently exists for "firm" Point-to-Point Transmission Service, but was not available under Network Integration Transmission Service. Customers may be able to acquire Congestion Revenue Rights from a particular receipt point to a particular delivery point directly from the Independent Transmission Provider, through a formal auction, or through secondary markets. Once a customer has these point-specific Congestion Revenue Rights, the customer may sell them at any time to another entity, whether or not that entity intends to transmit power. The sale could be for all or a portion of the amount or duration of the Congestion Revenue Rights. All resales of Congestion Revenue Rights must be reported on and conducted through the OASIS. As is currently the case in some ISOs, Congestion Revenue Rights will be traded at the price at which purchasers value the rights. The procedures for the auctions and resale of Congestion Revenue Rights are discussed in Section IV.E.3.

28. Revenue Rights must be sold through the OASIS, or whether some bilateral sales may be made and only reported through OASIS after the sale.

11. Ancillary Services

The ancillary services provided as part of the current pro forma tariff will largely remain the same under Network Access Service. However, certain ancillary services will be provided through organized markets with appropriate market power mitigation, as discussed infra. The ancillary services markets are discussed in Sections IV.F.1.d and IV.F.3.b.

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8⁵Congestion Revenue Rights entitle the holder to receive specified congestion revenues in the day-ahead market. To the extent that a customer's real-time schedule coincides with its day-ahead schedule and its Congestion Revenue Rights, these rights offer complete protection against uncertain congestion charges.

8⁶Standardization of Generator Interconnection Agreements and Procedures, FERC Stats. & Regs. ¶ 32,560. Network Resource Interconnection Service requires that sufficient network upgrades be built so that interconnecting generators can serve load as a Network Resource, as defined by the existing pro forma tariff.

8⁷In all but limited cases, this should allow the Independent Transmission Provider to satisfy all requests for service by customers willing to pay the applicable congestion charges.

8⁸An end-use customer in a state with retail access could be the entity taking transmission service and paying the access charge.

8⁹All services, including firm service, can be curtailed for reliability reasons.

9⁰Congestion Revenue Rights provide the rights holder with the revenues associated with congestion between the associated points; thus, any congestion costs it pays are fully offset by these revenues. To the extent the Congestion Revenue Rights holder opts not to schedule transmission service at those points, it would still receive the congestion revenues.

9¹As discussed in Section IV.D.3, customers exporting power from or transmitting through one region would not be subject to that region's access charge, but would be liable for the cost of congestion and transmission losses associated with its transaction.

9²Consistent with the existing pro forma tariff, a Network Access Service customer would retain the right to request that the Independent Transmission Provider file an unexecuted transmission agreement or network operating agreement if the two parties cannot agree on the terms and conditions of service.

9³As noted earlier and more fully explained in Section IV.E.3, a customer can protect itself against the costs of congestion by acquiring Congestion Revenue Rights in the amount of its load and between the receipt/delivery points where its desired resources and loads are located.

9⁴Further, consistent with the existing pro forma tariff and the Commission's decision regarding "tagging," the customer must identify the ultimate source and sink so that the various system operators in an interconnection can assess the simultaneous feasibility of all scheduled power flows. See Coalition Against Private Tariffs, 83 FERC ¶ 61,015 at 61,040, reh'g denied, 84 FERC ¶ 61,050 (1998).

9⁵The relevant sections of the SMD Tariff are Sections B.3 and B.4. While we believe that they may no longer be necessary, they remain in the tariff for ease of reference during the proposed rulemaking process. In the Final Rule, the Commission will determine if these or similar provisions need to be included in the SMD Tariff.

9⁶See Sections B.2.2.1(iv) and (v), and Sections B.2.2.2(iii) through (vi) of the SMD Tariff.

9⁷For example, a customer holding a 10 MW Congestion Revenue Right from A to B may want to exchange its existing rights for Congestion Revenue Rights from C to D. Suppose that both the A-to-B and C-to-D Congestion Revenue Rights relied on a common congested flowgate, so that the amount of A-to-B Congestion Revenue Rights and C-to-D Congestion Revenue Rights is limited by the capacity of the flowgate. However, suppose that the A-to-B Congestion Revenue Right relies more heavily on the congested flowgate than the C-to-D Congestion Revenue Right. That is, the proportion of the power flow (known as the “power flow distribution factor”) over the flowgate in transmission service from A to B is greater than the proportion in transmission service from C to D. Thus, giving up 10 MW of A-to-B Congestion Revenue Rights may create the ability to award more than 10 MW of Congestion Revenue Rights (e.g., 15 MW) from C to D. Conversely, a customer with 15 MW of C-to-D Congestion Revenue Rights could exchange them for only 10 MW of A-to-B Congestion Revenue Rights.

9⁸Because we are now proposing to exercise our jurisdiction over the transmission component of bundled retail transactions and to provide a single set of rules and regulations that apply to all transmission service, the limitation imposed by the United States Court of Appeals for the Eighth Circuit on the Commission's curtailment authority over bundled retail customers is no longer relevant. See Northern States Power Company (Minnesota) and Northern States Power Company (Wisconsin), 83 FERC ¶ 61,098, order on clarification, 83 FERC ¶ 61,338, reh'g denied, 84 FERC ¶ 61,128 (1998), Northern States Power Co., et al. v. FERC, 176 F.3d 1090 (8th Cir. 1999), cert. denied, 528 U.S. 1182 (2000), order on remand, 89 FERC ¶ 61,178 (1999).

9⁹See Allegheny Power System, Inc., 80 FERC ¶ 61,143 at 61,546 (1997), order on reh'g, 85 FERC ¶ 61,235 (1998)..

1⁰⁰See North American Electric Reliability Council, 87 FERC ¶ 61,160 (1999).

1⁰¹Such procedures may need to be refined in light of Standard Market Design.