FERC Punts on Generators' Appeals of NERC Registrations

On June 16, 2011, FERC denied appeals of NERC determinations to register two wind generators with significant generator leads as "Transmission Owners" (TO) and "Transmission Operators" (TOP), but in the process may have given these generators the regulatory certainty they were seeking. The decision creates significant doubt, however, for other generators regarding their status as TO/TOPs and their reliability compliance obligations.

The dispute centered on the Western Electric Coordinating Council (WECC)'s decision to register two wind generators, Cedar Creek Wind Energy, LLC and Milford Wind Corridor Phase I, LLC, as TOs and TOPs based solely on ownership and operation of generator lead lines sized 100 kV or higher. This subjected the generators to extensive WECC and North American Electric Reliability Corporation (NERC) mandatory reliability standards applicable to TO/TOPs, violations of which can be enforced with significant monetary penalties.  NERC affirmed WECC's decisions, even while a NERC-commissioned task force report (GO/TO Report) addressed the overarching question of reliability impacts of generator leads owned by Generator Owners (GO) and Generator Operators (GOP). The GO/TO Report found there were minimal reliability impacts that could be resolved if a limited set of standards were required for lead lines. The GO/TO Report also recommended that NERC stop registering GO/GOPs as TO/TOPs.

Milford and Cedar Creek appealed the NERC registration decisions to FERC, arguing that NERC had failed to show these generators' lead lines were integrated transmission elements"”a prerequisite for being registered as a TO/TOP"”or that the generators were otherwise important to the reliability of the transmission grid. Milford and Cedar Creek also argued that their registrations as TO/TOPs would significantly increase compliance burdens, and, if applied to the industry as a whole, could have a significant chilling effect on the development of new generation resources, particularly renewable energy resources that are often located quite far from the transmission system and must use long generator lead facilities to reach the grid. NERC responded that, as these facilities were connected to the grid at voltages 100 kV or greater and connected a "critical resource" (a generator), they must be registered as TO/TOPs.

In its June 16 order, FERC agreed with NERC and WECC that both facilities should be registered as TO/TOPs. However, FERC's order significantly limited the consequences of such registration for Milford and Cedar Creek, identifying just 17 of the 623 NERC reliability requirements which each generator would be required to comply with. FERC also directed NERC, WECC, and the generators to negotiate as to any other applicable standards. FERC further "encouraged" NERC to generically address the issue of how to ensure reliability over generator lead facilities through the ongoing GO/TO process.

Despite the FERC order's 33-page length, there is little in the way of substantive analysis, and there are significant gaps in reasoning. In particular, FERC held that the analysis of an entity's registration status was "fact-specific." However, neither FERC nor NERC ever meaningfully discussed or analyzed the facts relevant to Milford or Cedar Creek, concluding instead that the wind generators were TO/TOPs based upon an ill-defined "reliability gap." FERC also explicitly declined to decide the question of whether Milford's and Cedar Creek's generator lead facilities actually constituted "integrated transmission elements."

While it is difficult to understand what facts render Milford and Cedar Creek TO/TOPs, FERC's decision provides a measure of certainty for the two wind generators at issue. The same cannot be said of the rest of the industry. By FERC making its finding fact-specific, all generators interconnected to the grid at 100 kV or higher are exposed to involuntary registration and the obligation to comply with the entire panoply of TO/TOP standards based upon NERC's existing analysis. This could have a particularly negative impact on renewable generators. Generators must now hope FERC's "encouragement" to NERC to implement the results of the GO/TO process will result in the project moving forward and this issue being thoughtfully resolved.