• FERC Clarifies that the “Last-in, First-out” Curtailment Methodology is Discriminatory for All Classes of Transmission Service
  • September 27, 2013 | Authors: Peter S. Glaser; Kevin C. Greene; Daniel L. Larcamp; Clifford S. Sikora; Lara L. Skidmore
  • Law Firms: Troutman Sanders LLP - Washington Office ; Troutman Sanders LLP - Atlanta Office ; Troutman Sanders LLP - Washington Office ; Troutman Sanders LLP - Portland Office
  • On September 12, 2013, FERC issued an order (“September 12 Order”) granting in part and denying in part requests for clarification filed by Puget Sound Energy, Inc. (“Puget”) and Powerex Corporation (“Powerex”) of a May 20, 2013 order (“May 20 Order”) accepting for filing certain non-conforming service agreements for conditional firm point-to-point transmission service executed between Puget and Morgan Stanley Capital Group, Inc. (“Morgan Stanley”).  In the May 20 Order, FERC had found that Puget’s business practice of last-in, first-out curtailment for similarly situated conditional firm transmission service is inconsistent with the requirement of Order Nos. 888-A and 890 for transmission providers to curtail service on a non-discriminatory basis.  In the September 12 Order, FERC explained “that the last-in, first-out methodology is discriminatory, regardless of whether applied to contracts for firm service, conditional firm service, or non-firm service” reasoning that “[o]therwise, if two entities signed identical contracts for the same service, the entity that signs first would obtain a higher curtailment priority, even though the contracts were otherwise identical.”

    On March 21, 2013 and March 29, 2013, Puget submitted with FERC the conditional firm service agreements executed with Morgan Stanley.  Morgan Stanley and Powerex each intervened in the docket.  The parties disagreed on how the conditional firm service, as a partially firm product, should be subjected to curtailment.  Subsequently, FERC issued the May 20 Order accepting the service agreements, but finding that during non-conditional periods, conditional firm is curtailed along with other firm service.  During conditional periods, conditional firm service has a curtailment priority akin to secondary network, which is a priority that is lower than firm, but still higher than non-firm point-to-point service.  During periods where conditional firm service is conditional, it is curtailed prior to firm service, but pro rata with other transmission service within the same curtailment priority during the conditional period.

    In response, Puget requested that FERC clarify whether it intended the May 20 Order to require a pro rata curtailment scheme for all classes of transmission service, or whether the ruling was limited to conditional firm transmission service.  Powerex also filed a request for clarification, asking whether the May 20 Order only applies prospectively to service agreements executed after the issuance of that order.  Both companies noted with concern that in the Western United States, the use of the last-in, first-out curtailment methodology is common practice for the provision of non-firm transmission service.

    In the September 12 Order, FERC reiterated that Puget’s last-in, first-out curtailment method for conditional firm and non-firm customers is inconsistent with the requirement of Order Nos. 888-A and 890 to curtail on a non-discriminatory basis.  FERC also clarified that while pro rata curtailment is an acceptable, non-discriminatory approach, it is not an approach required by FERC.  FERC stated that transmission providers are free to propose and justify another non-discriminatory approach for FERC to consider on a case-by-case basis.  Finally, FERC rejected Powerex’s request to clarify that the May 20 Order only applies to service agreements executed after the issuance of that order.  FERC explained that its policy with respect to nondiscriminatory curtailment of like transmission customers is long-standing, and that Powerex’s reliance on Puget’s discriminatory last-in, first-out policy when making certain business decisions does not justify permitting the continuation of a practice that disadvantages other similarly-situated customers.