1 KEY TAPS REGULATORY ACTIVITIESCindy Bogorad Will Huang September 12, 2016
2 FERC Transition ContinuesWellinghoff left in November 2013 LaFleur became Acting Chairman of 4-member Commission Bay nominated to fill 5th seat and act as Chairman July 15, 2014 confirmation of LaFleur (until 6/30/19) and Bay (until 6/30/18)
3 FERC Transition ContinuesLaFleur Chairman effective July 30, 2014 Norris resigned effective August 20, 2014 Honorable confirmed December 2014 (until 6/30/17) Bay became FERC Chairman on April 15,
4 FERC Transition ContinuesMoeller, FERC Commissioner since July , left October 2015 Clark to depart after September 22 FERC meeting Three member, all Democrat, FERC until ??? Potential issues if recusal
5 Bay Commission Enforcement/Data-focusedFERC access to market participant/reliability information Intent to employ sophisticated approach to analyze data Proposed new relational database approach for MBR and enforcement purposes
6 Bay Commission Pledged to be thoughtful on price formationPJM Capacity Market Performance dissents Details ― analyzing real costs and benefits 4:1 ― unable to bring even Honorable along Heard from APPA about growing recognition of need to rethink eastern capacity market construct
7 Eastern Capacity MarketsSeptember 25, 2013: Technical Conference October 29, 2013: TAPS met with FERC Staff January 8, 2014: TAPS follow-up comments February 10, 2014: TAPS joined APPA and 28 others in letter on key principles No generic action; individual RTO evolution
8 July 19, 2016 TAPS – FERC MeetingsMet with Bay, LaFleur, Honorable advisors, and FERC staff We highlighted tension with clean power and self-supply, urged FERC to make mandatory capacity markets residual (supporting APPA), acknowledging need for a transition Mandatory capacity markets should not be spread where traditional state regulation
9 July 19, 2016 TAPS – FERC MeetingsBay: Once adopted, mandatory capacity markets are difficult to unwind; what “no regrets” actions should FERC take? LaFleur: Eastern markets do a good job keeping the lights on at least cost, but may need to transition to something that better accommodates state policies; partial re- regulation?; open to considering alternatives
10 July 19, 2016 TAPS – FERC MeetingsHonorable advisors highly engaged FERC Staff: When and how FERC might frame a broader industry conversation on capacity markets; FERC is interested in exploring new capacity market solutions No one expressed an appetite to expand mandatory capacity markets
11 Data Collection for MBR and Market Surveillance NOPRReplaces Connected Entity NOPR in a way that avoids application to public power Also replaces MBR Ownership NOPR But issues re sufficiency for MBR purposes Available to discuss our draft comments (due September 19)
12 Order 1000: Competitive Transmission DevelopmentOpens door to non-incumbents by largely eliminating Federal rights of first refusal Requires a not unduly discriminatory process for submission, evaluation, and selection of projects for regional cost allocation Regional flexibility Cost-contained bids not required
13 Beyond Order 1000: Competitive Transmission DevelopersJuly 28, 2015: ITC Declaratory Petition to never recover less than “binding bid[s] with exemptions” TAPS protested: contrary to ratemaking principles, Order 1000, FPA Section 219 March 17, 2016: FERC dismissed, but noticed June Competitive Transmission Development Technical Conference August 3: Follow up questions (due October 3)
14 Beyond Order 1000: Competitive Transmission DevelopersFERC: Concerns raised by ITC Petition are “from applying the law as it currently exists, not uncertainty about what the law requires or whether the law applies to particular facts” Current law requires cost-of-service rates Transmission is a monopoly service Recover cost, including a reasonable rate of return
15 Beyond Order 1000: Competitive Transmission DevelopersCurrent law: ROE incentives can be granted consistent with 2012 Policy Statement, but only within cost-based “zone of reasonableness” Limited exception for merchant transmission developers, who can charge market-based rates—but only voluntary customers pay
16 Beyond Order 1000: Competitive Transmission DevelopersFERC is contemplating a basic shift from cost-based to market-based transmission rates In contrast to merchant transmission, CTD rates would be rolled into the transmission revenue requirement paid by all load Core question: How can FERC assure just and reasonable rates as required by FPA?
17 Role of Cost-Contained Bids?Selection process? Sponsorship v. Competitive Solicitation Characteristics of bids? Scope (include ROE)? Standardization? Qualification for ROE incentives? Implications for FERC ratemaking?
18 Tentative Position: Non-RTO marketsSponsorship selection model spurs interest and innovation Cost-containment not a basis for selection (apples and oranges) or incentives Transparent on ROE, capital structure and incentives developer will seek Cost-of-service rates subject to commitments
19 Tentative Position: RTO MarketsPotential for competition to drive bids with lower ROE than FERC would authorize To be meaningful and achieve purpose, cost- contained bids must be standardized and include ROE Prefer phase 2 competitive solicitation process for project identified in phase 1, with % of selection based on cost
20 Tentative Position: RTO MarketsCost-contained bids (if standardized by FERC and inclusive) would typically trump estimates in selection process If cost-contained bids are not standardized and inclusive, treat same as estimate in selection process
21 Tentative Position: RTO MarketsFERC ratemaking treatment of estimates and non-standard cost-contained bids Cost-of-service rates subject to cost containment commitments Cost containment never basis for incentives Same if cost is not primary basis for selection in competitive solicitation
22 Open issue: Rate treatment of cost-contained bids selected in RTO competitive solicitation?Cost containment is never basis for ROE incentive But if cost-containment provision is standardized and inclusive of ROE, and cost is the primary basis for selection in competitive solicitation, how to treat the bid in FERC ratemaking?
23 Open issue: Rate treatment of cost-contained bids selected in RTO competitive solicitation?What if actual costs below bid? Lower of actual cost or bid? Rebuttable presumption bid J&R? For how long? Protections for departure from cost-based rates? Competitiveness?
24 Open issue: Rate treatment of cost-contained bids selected in RTO competitive solicitation?What if actual costs exceed bid? Hold rates to bid? Even if circumstances beyond control? FPA prohibits confiscatory rates where public interest would be harmed
25 Open issue: In between – quasi-performance based rate?Developer would get portion of actual costs above the cost-contained bid; public would get portion of savings between actual costs and the cost-contained bid? Too much of a departure from cost-based rates? Cost increases outside developer’s control?
26 We welcome your input! On tentative positions included in annotationsOn core issues identified above Provide guidance in answering FERC’s questions and further developments to come
27 SPIEGEL & MCDIARMID LLPQUESTIONS? CINDY BOGORAD WILLIAM HUANG Partners SPIEGEL & MCDIARMID LLP 1875 Eye Street Suite 700 Washington, DC 20006