Federal Energy Regulatory Commission Large Generator Interconnection Order on Rehearing (Order No A) RM March 3, 2004

Federal Energy Regulatory Commission 2 Order No Requires public utilities to amend their Open Access Transmission Tariff to include a standard interconnection agreement and procedures for generators larger than 20 MW Sets forth interconnection pricing rules for the non-independent Transmission Provider Provides additional pricing flexibility for the independent Transmission Provider

Federal Energy Regulatory Commission 3 Purpose of Order No Help preserve reliability, increase energy supply, and lower wholesale prices for the nation's customers by increasing the number and variety of generators that can compete in the wholesale electricity markets

Federal Energy Regulatory Commission 4 The Rulemaking Process ANOPR issued October 2001 initiating a stakeholder negotiation process Consensus document filed January 2002 NOPR issued April 2002 largely incorporating product of stakeholder negotiation process Order No issued July 24, 2003

Federal Energy Regulatory Commission 5 Order on Rehearing Reaffirms the legal and policy conclusions on which Order No is based Provides clarification and grants rehearing in limited areas Pricing and interconnection service options proved to be the areas of greatest concern

Federal Energy Regulatory Commission 6 Order No Pricing for the Non-Independent Trans. Provider Customer pays for Interconnection Facilities (i.e., from generator to the grid) Customer initially funds cost of Network Upgrades Customer receives transmission service credits toward the cost of Network Upgrades

Federal Energy Regulatory Commission 7 Pricing Concerns Raised on Rehearing Petitioners claimed that the Order No policy would: –Provide the customer with inappropriate subsidies –Lead to inefficient siting decisions –Violate the Commission’s “higher of” ratemaking policy

Federal Energy Regulatory Commission 8 “Higher of” Ratemaking Policy “Where rolling in the costs of network upgrades would have the effect of raising the average embedded cost rate paid by existing customers, the Transmission Provider may elect to charge an incremental cost rate to the interconnection customer and thereby fully insulate existing customers from the costs of any necessary system upgrades. However, under no circumstances may a non- independent Transmission Provider charge an Interconnection Customer both an incremental cost rate and an embedded cost rate associated with existing network transmission facilities.”

Federal Energy Regulatory Commission 9 Procedural History of the “Higher of” Ratemaking Policy Northeast Utilities Service Company (Re: Public Service Company of New Hampshire), Opinion No. 364-A, 58 FERC ¶ 61,070 (1992), reh'g denied, Opinion No. 364-B, 59 FERC ¶ 61,042, order granting motion to vacate and dismissing request for rehearing, 59 FERC ¶ 61,089, aff'd in part and remanded in part sub nom. Northeast Utilities Service Company v. FERC, 993 F.2d 937 (1st Cir. 1993), order on remand, 66 FERC ¶ 61,332, reh'g denied, 68 FERC ¶ 61,041 (1994) pet. denied; Pennsylvania Electric Company, 58 FERC ¶ 61,278, reh'g denied and pricing policy clarified, 60 FERC ¶ 61,034, reh'g denied, 60 FERC ¶ 61,244 (1992), aff'd sub nom. Pennsylvania Electric Co. v. FERC, 11 F.3d 207 (D.C. Cir. 1993) (Penelec).

Federal Energy Regulatory Commission 10 Order on Rehearing Response to Pricing Concerns Clarify that the Trans. Provider continues to have the option to charge the "higher of" an average embedded cost rate or an incremental cost rate for the Network Upgrades Clarify that upfront funding and crediting are only to facilitate financing of the Network Upgrades Modify two features of the crediting policy

Federal Energy Regulatory Commission 11 Rehearing Granted on Two Aspects of the Crediting Policy Consistent with the “higher of” policy (i.e., to better protect other customers): –Credits are required only for transmission delivery service taken with respect to the interconnecting Generating Facility –Trans. Provider has option after 5 years to return outstanding balance or continue to provide credits

Federal Energy Regulatory Commission 12 Order No Provisions re: Interconnection Service Options Energy Resource Interconnection Service (ERIS) –Provides as-available access to system Network Resource Interconnection Service (NRIS) –Allows Gen. Facility to be a Network Resource

Federal Energy Regulatory Commission 13 Concerns Related to Interconnection Service Options Raised on Rehearing Petitioners claimed : –Options improperly include trans. delivery service –Neither option meets the needs of network customers –Requirements for NRIS are unclear –NRIS does not allow the Trans. Provider to perform additional studies or construct upgrades, if necessary in the future

Federal Energy Regulatory Commission 14 Order on Rehearing Response to Interconnection Service Concerns Clarifies as follows: –Neither service includes delivery service –Network customers can ask for delivery service at time of interconnection and tailor it to their needs, just as they do now –Trans. Provider is free to perform additional studies and construct upgrades needed for delivery –Trans. Provider may propose NRIS procedures that are compatible with regional practices

Federal Energy Regulatory Commission 15 Pricing for Independent Transmission Provider The Order on Rehearing reaffirms the decision to allow pricing flexibility for a Transmission Provider that is independent of market participants

Federal Energy Regulatory Commission 16 Compliance Filing (Amendment to OATT) Public utilities must file amendments within 30 days from the date of publication in the Federal Register