H. System Impact Studies and Interconnection Requests

Several market participants raised concerns with Staff, about the lack of standard procedures and oversight for the conduct of system impact studies and processing interconnection requests. The participants complained about the length of time it took for transmission providers to handle system impact studies and interconnection requests and the costs associated with them.

Earlier this year, the Commission held that a transmission provider must process interconnection requests using the same procedures for handling transmission requests under the pro forma tariff. As a result, some transmission providers have filed tariff sheets with the Commission setting forth specific procedures dealing with interconnection requests.

A transmission provider may delay deciding on whether to grant a system interconnection and/or transmission request until it has conducted a system impact study to determine if it can grant all or part of the request. The Commission has held that a transmission provider should work diligently to complete a system impact study in 60 days, but may take more time as long as the transmission provider explains to the applicant the reasons that it needs additional time. However, a transmission provider cannot use the existence of a backlog of interconnection requests to excuse its failure to complete a system impact study within 60 days. Several market participants alleged that transmission providers did not provide adequate reasons for completing a system impact study in a period longer than 60 days. For example, one market participant alleged that its in-house engineers estimated that the study should take less than half of the 60 day time period.

These allegations that market participants made to Staff are consistent with some of the recent complaints handled by the Commission's Hotline, staffed by the Market Oversight and Enforcement section. One complaint handled in the summer of 2000 concerned a transmission provider in the Midwest that was including language in an interconnection agreement that was inconsistent with the reasons for extending the period permitted for a system impact study. Earlier this year, the Hotline also handled a complaint dealing with the time for doing system impact studies, but, as it also alleged that the utility in question discriminated against the complainant, it is discussed infra.

Staff also heard complaints from market participants during this investigation about the cost of system impact studies. One market participant alleged and documented that a utility required a deposit of almost the entire cost of its transmission request, with a full refund for charges on capacity that turned out not to be available. Other market participants generally alleged that they were able to get a transmission provider to greatly reduce the price of a system impact study after complaining about the cost or threatening to complain to the Commission.

While a number of market participants raised the above concerns relating to system impact studies and interconnection requests, other market participants informed Staff that they have not had problems with the timing for system impact studies and interconnection requests. Therefore, it is not clear whether this is a widespread problem in the Midwest or an isolated problem.

NERC attempted to address the problem of the lack of formal facility connection requirements by including in its 1999 Pilot Compliance Program a requirement for transmission providers to submit documents setting out such requirements by a date certain. The NERC Pilot Compliance Program found that this standard was the provision most commonly breached. There were 81 members who had four or more instances of non-compliance (not all in the Midwest), and a total of 115 members with at least one instance of non-compliance with these standards.

One reason for the complaints may be that transmission providers, as vertically integrated utilities, have no economic incentive to provide transmission access to a competitor, and in fact have incentives to discourage transmission access to competitors, particularly if such access would conflict with the transmission provider's service of its native load. The engineers and other technical staff who perform system impact studies on interconnection and transmission requests are the same personnel that perform such studies for native load. RTOs could provide the solution to this problem by handling all interconnection requests and system impact studies for their member transmission providers. Southwest Power Pool, Inc. 92 FERC 61,109 (2000). On the other hand, if existing control areas are maintained, the disincentive for processing third party interconnection and transmission requests would remain.

Regardless of whether problems relating to system impact studies and interconnection requests are widespread, the lack of standard procedures for those studies in the current regulations appear to have created uncertainty in the market, as public power and other market participants are forced to deal with different standards and procedures for every transmission provider for which they seek an interconnection request. This appears to inhibit the free flow of transactions within the region. Moreover, the lack of specific standards and procedures makes it difficult to pursue allegations of discriminatory conduct in this area. There may also be a compliance problem concerning transmission providers complying with the existing procedures in the Open Access Transmission Tariff for transmission service requests, which they are required to follow, under Tennessee Power, in the absence of separate tariff provisions dealing with interconnection requests.