On October 17, 2013, FERC issued an order clarifying its policy regarding the filing of reactive power rate schedules where there is no rate charged (“Clarification Order”).  Specifically, FERC clarified that, going forward, all entities must file reactive power rate schedules containing the rates, terms, and conditions for reactive power service, even if there is no charge for such service.  Furthermore, FERC directed FERC Staff to conduct a workshop to explore the mechanics of such filings.

FERC’s Clarification Order resulted from a multi-year proceeding that began when Chehalis Power Generating L.P. (“Chehalis”) filed a rate schedule for “initial” reactive power service in 2005 (“2005 Filing”).  FERC determined that the rate schedule was a changed rate – as opposed to an initial rate – because Chehalis was already providing reactive power service to the Bonneville Power Administration (“BPA”) at no charge pursuant to a separate interconnection agreement.  Accordingly, FERC accepted the rate, suspended it subject to refund, and established settlement proceedings.  Eventually Chehalis petitioned the U.S. Court of Appeals for the D.C. Circuit (“D.C. Circuit”) for review of FERC’s order.

The D.C. Circuit remanded the case back to FERC to address Chehalis’ argument that “only rates that are subject to [the Federal Power Act Section] 205(e)’s suspension and refund provisions are those that change a rate already on file with FERC.”  On remand, FERC held that the reactive power rate schedule at issue should have been filed with FERC and, therefore, the 2005 Filing was a changed rate subject to Section 205(e)’s suspension and refund provisions.  FERC reasoned that it was immaterial whether a pre-existing rate had ever been filed with FERC, as it is not an element in FERC’s test as to what constitutes a changed rate versus an initial rate.  Instead, FERC stated that its test for an “initial rate” depends on whether the rate is for both a new service and a new customer.  And, because Chehalis had been providing reactive power service to BPA since 2003, FERC determined that the 2005 Filing was neither for a new service or new customer.  After FERC denied a request for rehearing of its remanded order, Chehalis again appealed FERC’s decision to the D.C. Circuit.

On further remand from the D.C. Circuit, FERC stated in its Clarification Order that, going forward, all jurisdictional reactive power service agreements for both new and existing generators must be filed with FERC, regardless of whether or not any compensation is received for such service.  FERC explained in its Clarification Order that this policy is designed to protect electric customers from excessive or exploitative rates that may arise from regulatory lag, which could result in unjust and reasonable rates.  FERC also held that because it was clarifying its policy, it would not institute an enforcement action against any entity that previously failed to file a rate schedule for a reactive power service agreement that received no compensation in return.  With regard to Chehalis, FERC determined that it was entitled to recover the amount previously refunded to BPA in earlier proceedings as a result of Chehalis’ improper calculation of the rate schedule. 

Finally, FERC directed FERC Staff to convene a workshop to explore the generall mechanics of filing a reactive power rate schedule where there is no compensation involved.  Details of such a workshop have not yet been released.

A copy of the order is available here.