1. FERC-Lite: Implementation Issues For Public Power Susan N. Kelly VP of Policy Analysis and General Counsel American Public Power Association APPA November 2005 Legal Seminar

2. FERC-Lite: Long Anticipated and Now Here Part of the Electricity Title of EPACT 2005 Adds new Section 211A to Federal Power Act (note Sections 211/212 are still in place) Applies to limited universe of public power/cooperative entities that Own/operate transmission facilities used to transmit electricity in interstate commerce and which are “necessary for operating an interconnected transmission system” (or portion of it) Sell more than 4 million MW hours per year

3. What Powers Does Section 211A Give FERC? FERC “may, by rule or order” require subject utilities to provide transmission service At “rates comparable to those that the unregulated utility charges itself” On terms and conditions that are “comparable to those under which the unregulated transmitting utility provides transmission services to itself and that are not unduly discriminatory or preferential” FERC’s authorities under Section 211A shall not apply to facilities used for “local distribution”

4. How Does the Process Work? Not much is clear, but PROCEDURES for rate changes set out in FPA Sections 205(c) and (d) will apply under Section 211A Filing of rates, charges and classifications (and contracts related to such rates) with the Commission Generally 60 days notice of rate change is required Just and reasonable standard for rates and suspension/hearing provisions of FPA are set out in Sections 205(a), (b) and (e), so it seems clear these do NOT apply--Congress only mentions (c) and (d)

5. How Does the Process Work-II What we don’t know exceeds what we do FERC can proceed by general rule or individual orders (or not at all, given the “may” language) FERC “may remand transmission rates to an unregulated transmitting utility for review and revision if necessary” to meet the comparability standard (so does this mean it does not have to do so???) The procedures used “at home” to develop rates, terms and conditions may well prove important (was due process provided?)

6. How Might FERC Implement FERC-Lite? No time deadline in section by which FERC must act FERC issued 8/8/05 EPACT2005 “Implementation Overview” with four pages of “mandatory” obligations it must carry out— many rulemakings, reports, etc. FERC-Lite listed on fifth and last page under “Other Rulemakings/Actions” “There are only so many horses in the stable”

7. FERC-Lite and Revision of the Order No. 888 OATT Chairman Kelliher wants to update the Order No. 888 Open Access Transmission Tariff (OATT); concerned about lingering remaining discrimination by public utilities not in RTOs FERC issued “Notice of Inquiry” in FERC Docket No. RM05-25, Preventing Undue Discrimination and Preference in Transmission Service, on 9/16/05; comments are due on 11/22/05 FERC has asked about FERC-Lite in the NOI

8. FERC’s Questions About FERC- Lite-I “Should the Commission require unregulated transmission utilities to provide transmission service under rates that are comparable to those they charge themselves and under terms and conditions that are comparable to those they apply to themselves and that are not unduly discriminatory or preferential?” [Seems like a “yes”?]

9. FERC’s Questions-II “If so, should the Commission impose this requirement on all unregulated transmission utilities through a rulemaking proceeding, or should the Commission apply this new law on a case-by-case basis, through complaints, motions seeking enforcement or sua sponte action by the Commission?”

10. FERC’s Questions--III “.... Can terms and conditions be both comparable and unduly discriminatory or preferential or are comparable terms and conditions necessarily not unduly discriminatory or preferential?”

11. FERC-Lite Raises Complicated Issues for Public Power Issues of Statutory Construction Issues of Strategy Issues of Policy APPA members have very different views Some that are subject to Section 211A have over 2,000 miles of transmission, but others much less (e.g., 23 miles), so one size does not fit all Some depend on other non-J TOs’ transmission facilities

12. What Does “Comparability” Mean? The “plain construction” school: it means just what it says—we are only obligated to provide to others what we provide ourselves The “put it in context” school: FERC has been using the “comparability” standard for 10 years, and has built up a body of “safe harbor” OATT case law--hence it means the moral equivalent of the Order No. 888 OATT’s requirements plus the subsequent “upgrades” FERC has ordered for FERC-regulated public utilities

13. “Not Unduly Discriminatory or Preferential” Section 211A says terms and conditions must not be “unduly discriminatory or preferential” FERC asks if this is essentially duplicates the “comparability” requirement or if the phrase has separate meaning These words appear in FPA 206, which FERC used to impose the Order No. 888 OATT (and more); therefore some argue Congress meant the OATT (plus all subsequent upgrades) to apply Others note FPA Section 206 was not incorporated by reference in Section 211A—phrase refers to the non-J TOs’ treatment of its various customers

14. Should FERC Proceed By Rule or Order? A number of non-jurisdictional TOs have “reciprocity tariffs” based on the original Order No. 888 OATT on file with FERC— shouldn’t these be enough? Some will likely argue that any new/stiffer terms and conditions coming out of OATT revision should apply to non-jurisdictional TOs These reciprocity OATTs generally have not been “upgraded” to take into account more recent FERC OATT-related rulings (generator interconnection procedures, standards of conduct, etc.)

15. Should FERC Proceed By Rule Or Order? -- II Some non-J TOs have no reciprocity tariff on file with FERC, but do have a standard offer of transmission service Others do not have a standard offer, in some cases because little commercial interest has been expressed in their transmission facilities (which were designed to serve their own loads)

16. Should FERC Proceed By Rule Or Order? -- III Co-ops may argue status quo works well and proceeding case-by-case is sufficient (but some public power systems have beefs with co-op TOs) If FERC proceeds case-by-case, and the first case has bad facts, result could be detrimental to all non-J TOs (hard cases make bad law dept….)

17. APPA’s 11/22/05 Comments Still in flux as this is being written FERC-Lite is called FERC-Lite for a reason— comparability is not the same as full FERC jurisdiction over “private parties” (APPA Resolution No. 03-4) Probably better to get the ground rules developed rather than wait for that first bad case (generic action, not case by case) Trying to find the middle ground between public power transmission owners and transmission customers

18. We All Need to Remember… …The words of that giant of FERC jurisprudence, Mick Jagger: “You can’t always get what you want, but if you try sometime, you just might find you get what you need…” …The No. 1 Rule of FERC Practice: “Pigs get fat, hogs get slaughtered.”