Subject: RE: FERC rulemaking on Generator Interconnection
From: [email-masked]
To: [email-masked]
Cc: [email-masked], [email-masked]
Date: Wed, 31 Oct 2001 13:05:45 -0800 (PST)

Jim --

The quick answer to your question on the Barton bill is that, yes, it does appear to address this tax issue involving interconnections, at least in part.  There is language in Title VIII on various tax issues.  One of them exludes from gross income certain amounts received by electric utilities, specifically including connection fees.  In the example in the e-mail, the issue was not fees paid directly, but assets paid for by the generator that are then transferred to the utility.  Will check on that angle.

In any event, Title VIII (while in the Barton bill) is not in the jurisdiction of Barton's subcommittee.  Instead, the tax title would have to go through the Ways and Means Committee.  There were some energy tax provisions in the House-passed energy bill last August.  Chris and I will consult tomorrow to see if this issue was included in that bill.

Aside from the tax issue, Barton bill would require the type of interconnection rulemaking that FERC is now conducting (both for connections to local distribution and to transmission).  In each case, the cost of interconnection would have to be comparable to what the utility charges others similarly situated.  I will go back to double check, but off the top of my head I recall that the Bingaman draft specifically "socializes" the costs of interconnection.

John

-----Original Message-----
From: Steffes, James D. 
Sent: Wednesday, October 31, 2001 1:40 PM
To: Shelk, John
Subject: FW: FERC rulemaking on Generator Interconnection

John --

Does the Barton proposal deal with this issue of tax on facilities for generators?

Jim

-----Original Message-----
From: Nicolay, Christi L. 
Sent: Wednesday, October 31, 2001 11:47 AM
To: Parquet, David; Lindberg, Susan; Hueter, Barbara A.; Rasmussen,
Dale; Dieball, Scott; Tweed, Sheila; Booth, Chris; Carnahan, Kathleen;
Churbock, Scott; Comeaux, Keith; Gimble, Mathew; Grube, Raimund;
Hausinger, Sharon; Inman, Zachary; Jacoby, Ben; Keenan, Jeffrey;
Kellermeyer, Dave; Krause, Greg; Krimsky, Steven; Kroll, Heather; Mitro,
Fred; Moore, John; Tapscott, Ron; Whitaker, Rick; Baughman, Edward D.;
Coulter, Kayne; Day, Smith L.; Gilbert, Gerald; Kinser, John; May, Tom;
Miller, Jeffrey; Will, Lloyd; Twiggs, Thane; Ryall, Jean; Jones, Karen
E.; Mann, Kay; Sole III, Carlos; Calger, Christopher F.
Cc: Comnes, Alan; Fulton, Donna; Novosel, Sarah; Steffes, James D.;
Wehn, Samuel; Fillinger, Mark; Hartsoe, Joe; Shapiro, Richard;
Robertson, Linda; Hoatson, Tom
Subject: RE: FERC rulemaking on Generator Interconnection

Thanks Dave,

The Nov. 1 meeting will be focused more on establishing the procedure that FERC will follow to tackle the interconnection issues other than costs (such as timelines, basic procedures).  ERCOT will present its agreement and procedures and EPSA will present a list of problems that members have had.  Enron worked closely with other EPSA members over the past several years on problems that we have encountered in the interconnection procedures and IAs.  EEI will also make a presentation.  (Additionally, as you are probably aware, over the past several years we have discussed problems with FERC hotline and have also had FERC staff call us to inquire about general interconnection issues -- this ANOPR is meant to address many of those issues.)

At the end of the Nov. 1 meeting, other meeting participants will have a brief amount of time to raise issues.  Donna Fulton will attend for Enron.  FERC then plans to convene a series of meetings to establish generic interconnection procedures and parts of an IA (results due to FERC Dec 14).  We will then also submit Enron comments on the ERCOT IA and procedures by Dec. 21.  

FERC IS NOT addressing the cost issues during this stage of the proceedings; therefore, it will most likely not be dealing with the tax gross-up and crediting issues yet.  It plans to deal with cost issues in a subsequent rulemaking.  (We certainly understand that cost issues are typically the most problematic part of interconnection negotiations, but this is the way FERC wants to proceed.  FERC will continue to deal with cost issues in orders when disputed IAs are filed at FERC unexecuted.)

By way of background on ERCOT, as I understand it, ERCOT basically rolls in the interconnection costs (network-type upgrades) to the entire grid through TCOS (an uplift).  However, TCOS are not allowed to be unlimited -- ERCOT has the ability to decide whether the generator interconnection is in the best interest of the grid.  Some attribute all the new generation in ERCOT to this method.  We will need to formulate Enron's view in the next phase of the interconnection proceeding.

For Thurs. meeting, I think Donna should raise these issues:
-- While certain basic aspects of the IA should be standardized to eliminate the waste of time we usually face dealing with the same problems over and over, the IA should be flexible enough to allow for individual business circumstances (for example, the notice to proceed that we have been including.)

-- While having timelines and procedures are fine, the larger problem has been getting utilities to actually follow their own filed procedures (for example, Entergy was one of the first to file procedures, yet seems to have a problem sticking to their timelines.)  This yet again means that RTOs are critical to stop the discriminatory practices and to provide incentives to treat us as customers.

--There needs to be more discussion on best practice No.2 below -- Energy resource or capacity resource.  This should be reviewed in the context of FERC's NOPR on icap (Enron just submitted comments that "capacity" as a separate payment is not necessary in functioning markets.  In addition, "capacity" is not a separately required "payment" in most parts of the US outside of current ISOs (ERCOT does not have icap)).

Attached is the ANOPR, ERCOT IA and procedures.  Susan Lindberg will be circulating a draft of Enron comments on the agreement and procedures.  Included on p. 11 of the ANOPR are "best practices" which include:

1. Comparable treatment for IPPs (allowed to be competing network resources for load without having to be designated as a "network" resouce)
2. Multiple interconnection products:  Energy resource and capacity resource
3. Small generator exemption
4. Queueing with reasonable milestones (10 days to correct deficiencies)
5. Deposits (with deposits over actual cost refunded)
6. Siting: TPs would post optimal and non-optimal sites for locating generators (this is something that we had asked some new ITCs to provide.  Most TPs have been reluctant to provide this service.)
7. Timelines (very similar to currently approved timelines)

Please provide any thoughts/comments to Susan Lindberg, Donna Fulton, Sarah Novosel and me.  Thanks.  Christi 37007  

-----Original Message-----
From: Parquet, David 
Sent: Friday, October 26, 2001 11:47 AM
To: Lindberg, Susan; Hueter, Barbara A.; Rasmussen, Dale; Dieball,
Scott; Tweed, Sheila; Booth, Chris; Carnahan, Kathleen; Churbock, Scott;
Comeaux, Keith; Gimble, Mathew; Grube, Raimund; Hausinger, Sharon;
Inman, Zachary; Jacoby, Ben; Keenan, Jeffrey; Kellermeyer, Dave; Krause,
Greg; Krimsky, Steven; Kroll, Heather; Mitro, Fred; Moore, John;
Tapscott, Ron; Whitaker, Rick; Baughman, Edward D.; Coulter, Kayne; Day,
Smith L.; Gilbert, Gerald; Kinser, John; May, Tom; Miller, Jeffrey;
Will, Lloyd
Cc: Comnes, Alan; Fulton, Donna; Nicolay, Christi L.; Novosel, Sarah;
Steffes, James D.; Wehn, Samuel; Fillinger, Mark
Subject: RE: FERC rulemaking on Generator Interconnection

I skimmed the attached NOPR looking for the approach FERC was proposing to take to the key issue we fought over here in CA a couple of years ago.  Although I did not see the word "congestion", the implication of what I read is that the generator would pay for his extension cord plus any congestion impacts that it makes on the grid.  The implication of the last statement is that the generator would put the grid back into the condition it was in "but for" the new generator.  That is great, assuming I did not skim from too high an altitude.  Did I?

I also read the thing from the point of view of an issue that I had forgotten about until recently.  That is, if the generator pays for all of this upgrade and "but for" stuff, and then "gives" it to the utility, are there taxes due on the "gift"?  When we developed our project in Pittsburg, CA, PG&E's initial position was that we owed them for the upgrades AND for the taxes on the upgrades (about 35 - 40% additional charge), which they turned over to the state and fed.  (This is potentially A LOT of money to "waste" on an interconnect, if it is an expensive one.)  Working with Enron's tax dept (I do not remember specifically with whom), we convinced PG&E that taxes were probably not due for various reasons, and we mutually agreed to get a private letter ruling from the IRS confirming.  (We also agreed that IF the taxes were ever due, that we would pay them.)  I understand that that IRS ruling was put in abeyance, pending some sort of law congress was considering.  (I may be making this up here as I go along because Calpine bought the project from us and I lost track of the various machinations.)  The point of all of this.  Is it reasonable in this NOPR process on interconnection to address the tax issue?  Is it too late?  Is it irrelevant to the FERC process?  Does anyone know the status of the law making process?  

I am concerned about taxes for two reasons.  First, many of the opponents to the proposed NOPR approach thought that all grid upgrades should be paid for by the utility and  included in rate base.  (In other words, "all generators are good and benefit the ratepayers.")  On fundamental grounds they will resist paying for upgrades.  If they believe that they will get the insult after injury treatment (pay for upgrades AND for taxes on the upgrades), they will resist the NOPR more strenously.  (FYI to everyone, Calpine strongly resisted paying for upgrades at Pittsburg and somehow got out of it.  And guess what?  Now with all of the new plants - ~1200MW added by Calpine within a 5 mile area of 2500 MW of existing - there are congestion problems around all of the projects, just as we forecasted.  ISO is now considering adding a new zone and/or charging PG&E and/or the projects for congestion.  Because PG&E did not, and probably never will in our lifetime, add the grid upgrades so as to include in ratebase, the projects will be hurt.  Because all of this is not forecastable in the context of developing a project in a timely manner, this outcome, exactly as we had forecasted, is why we supported the approach in the proposed NOPR.)  Second, perhaps naively, I am assuming that the tax issue is no different for gas pipeline upgrades than for electric transmission system upgrades.  On a project we are now developing in Roseville, CA, we are faced with significant gas pipeline system upgrades in PG&E's system.  Significant grossups for tax impacts of the "gift" are are being discussed as I remember for Pittsburg's electric transmission system upgrades.  Since it sounds like the same issue, sure would be nice if we could get some appropriate precedence going.  Any possibliity of dealing with the tax issues in this NOPR?

-----Original Message-----
From: Lindberg, Susan 
Sent: Friday, October 26, 2001 7:29 AM
To: Parquet, David; Hueter, Barbara A.; Rasmussen, Dale; Dieball, Scott;
Tweed, Sheila; Booth, Chris; Carnahan, Kathleen; Churbock, Scott;
Comeaux, Keith; Gimble, Mathew; Grube, Raimund; Hausinger, Sharon;
Inman, Zachary; Jacoby, Ben; Keenan, Jeffrey; Kellermeyer, Dave; Krause,
Greg; Krimsky, Steven; Kroll, Heather; Mitro, Fred; Moore, John;
Tapscott, Ron; Whitaker, Rick; Baughman, Edward D.; Coulter, Kayne; Day,
Smith L.; Gilbert, Gerald; Kinser, John; May, Tom; Miller, Jeffrey;
Will, Lloyd
Cc: Comnes, Alan; Fulton, Donna; Nicolay, Christi L.; Novosel, Sarah;
Steffes, James D.
Subject: FW: FERC rulemaking on Generator Interconnection

Please see the attached.  FERC has asked for preliminary comments on its proposal to adopt a standard generator interconnection agreement and procedures; the deadline for comments is December 21.  After it has considered the comments, FERC will issue a NOPR.

EPMI will participate in the Nov. 1 meeting at FERC; an update will be sent to you.  I will be taking the lead on drafting our comments.  

Please contact me if you need further information.

Susan Lindberg
713.853.0596

-----Original Message-----
From: Jackie Gallagher [mailto:[email-masked]]
Sent: Friday, October 26, 2001 8:57 AM
To: [email-masked]; Hawkins, Bernadette; Nersesian, Carin; Nicolay,
Christi L.; Fulton, Donna; Scheuer, Janelle; Hartsoe, Joe; Shelk, John;
[email-masked]; Noske, Linda J.; Robertson, Linda; Alvarez, Ray;
Shapiro, Richard; Novosel, Sarah; Mara, Susan; Lindberg, Susan; Hoatson,
Tom
Subject: FERC ANOPR on Generator Interconnection

Last night, FERC issued an Advanced Notice of Proposed Rulemaking (ANOPR) on Standardizing Generator Interconnection Agreements and Procedures.  The ANOPR incorporates the ERCOT interconnection procedures, modified by various "best practices" identified by the Commission in an attachment.  A public meeting has been scheduled for November 1st in Washington, although the notice of the meeting is not yet available.  We will forward it when it becomes available.  The ANOPR is attached.