On July 12, 2012, FERC denied NorthWestern Corporation’s (“NorthWestern”) request for rehearing of a December 30, 2011 order (“December 30 Order”) which rejected, in part, NorthWestern’s proposal to modify Schedule 3, Regulation and Frequency Response Service (“Schedule 3”) of its Montana Open Access Transmission Tariff (“July 12 Rehearing Order”). The requested modifications rejected by the Commission included, among other things, creation of an explicit right for NorthWestern to apply certain Schedule 3 charges to customers who elect to self-supply regulating reserves.
NorthWestern operates a balancing authority area (“BAA”) within the State of Montana and must maintain regulating reserves in order to continually balance resources. Since NorthWestern’s predecessor divested the majority of its generation assets in 1999, NorthWestern constructed a generating station for the primary purpose of providing regulating reserve capacity to its BAA. On April 29, 2010, NorthWestern made a filing with FERC in Docket No. ER10-1138-000, requesting changes to Schedule 3 in an effort to recover the fixed and variable revenue requirements for the specially-purposed facility directly from Schedule 3 customers. This proceeding is currently at the hearing stage, and the proposed rate structure has not yet been addressed by FERC.
On November 1, 2011, NorthWestern made a second filing in Docket No. ER12-316-000, proposing additional revisions to its Schedule 3, stating that the filing would clarify certain aspects of its initial proposal. One of the proposed revisions was a prospective right to assess a charge to self-supplying customers for having regulation service on standby. NorthWestern argued that self-supplying customers may be tempted to “lean on” NorthWestern’s system because those customers know that the regulating reserve capacity is available, or they may vacillate between self-supply and purchasing Schedule 3 service from NorthWestern. Without advance knowledge of when a self-supplying customer may fall short of regulating reserves, or may terminate its self-supply arrangement, NorthWestern argued it must constantly maintain sufficient regulating reserves to meet the full regulating reserve needs for all of its customers at all times – even when customers have chosen to self-supply. NorthWestern indicated that because there are associated costs to holding regulation reserves on “standby,” and self-supplying customers are the cause of these costs, self-supplying customers should therefore pay for the benefit of this standby service.
In the December 30 Order, and July 12 Rehearing Order, FERC ruled that NorthWestern cannot assess Schedule 3 charges, in whole or in part, to customers that self-supply Schedule 3 service. FERC stated that the “proposal conflicts with Commission policy because it would force those customers that self-supply regulation service to pay an additional fee, not for any service provided to them by NorthWestern, but instead for a service that they expressly have decided not to take from NorthWestern.” FERC posited that this charge, added to the existing costs of self-supplying regulation services, would directly counter FERC policy by stifling competition. Additionally, FERC stated that because the merits of NorthWestern’s Schedule 3 rate structure have yet to be addressed by the Commission in Docket No. ER10-1138-000, NorthWestern’s proposal is “an improper attempt to bootstrap the proposed authority to impose a standby charge in this proceeding by reference to the proposed rate structure” in the earlier docket.
For a copy of the order, click here.