On February 3, 2014, FERC accepted an agreement for firming service and energy exchange (“Agreement”) between Arizona Public Service Company (“APS”) and the City of Azusa, California (“Azusa”).  In doing so, FERC found that the transaction under the Agreement was indeed a simultaneous exchange that required prior FERC authorization based on FERC precedent established in Puget Sound Energy (see February 17, 2012 edition of the WER), but that the transaction did not raise open access transmission service concerns.

In Puget, which is currently pending rehearing, FERC defined the scope of permissible simultaneous exchanges, holding that certain exchanges that occur at one or more locations on an affiliate’s transmission system require special authorization.  In short, the Commission’s order defined what it considered to be simultaneous exchanges and stated that a public utility must seek prior Commission approval before engaging in any such transactions that involve the public utility’s or an affiliated transmission provider’s system.  FERC explained its concern that these transactions: (1) may resemble transmission service because they involve a party placing power onto the power grid at one delivery point and then simultaneously receiving power at another delivery point; and (2) may appear to enable the marketing function to effectively provide service on its transmission provider’s system without the reservation of service on that system.  Thus, the Commission stated that the marketing function of a transmission provider could utilize the complexity of simultaneous exchanges to effectively perform transmission functions where the transactions involve the transmission provider’s system, which would circumvent the Commission’s regulations involving open access transmission service. 

In that same order, the Commission also listed examples of the type of information that applicants seeking approval of simultaneous exchange transactions should provide to support their applications, including: (1) identification of all the parties to the transaction; (2) specification of the delivery and receipt points involved; (3) description of the terms and conditions, including any charges or compensation; (4) provision of the details of ultimate power sources and sinks; (5) identification of available competitive alternatives (accounting for physical constraints or whether transmission service for a related transaction has previously been denied); (6) description of the operational implications, including any potential reliability and curtailment issues; (7) provision of the power levels of the exchange; and (8) specification of the desired dates and times for the exchange.

On December 6, 2013, APS filed its Agreement with the Commission, stating its belief that the factual circumstances at issue in this particular arrangement mitigate the Commission’s concerns related to simultaneous exchange transactions.  APS explained that the Agreement allows it to take delivery of up to 29 MW of Azusa’s unit-contingent power at four possible delivery points, one of which is Palo Verde 500 kV.  In exchange, Azusa can take a like amount of firm power from APS at Palo Verde 500 kV.  APS stated that any time it elects to receive power at a delivery point other than Palo Verde 500 kV, the Agreement could fall within the definition of a simultaneous exchange as defined in Puget.  APS stated, however, that APS is not effectively offering transmission service to Azusa because Azusa already has rights to receive delivery at Palo Verde 500 kV under the terms of a legacy agreement between Azusa and Southern California Public Power Authority using Tucson Electric Power Company’s transmission system.  APS also pointed out that it has the option under the Agreement to elect to receive unit-contingent energy product at Palo Verde 500 kV and prevent the Agreement from falling within the definition of a simultaneous exchange altogether. 

In its order on APS’s filing, FERC agreed that the transaction does in fact constitute a simultaneous exchange as defined in Puget, and it is the type of simultaneous exchange transaction that requires prior Commission approval.  In addition, FERC found that APS provided sufficient information about the transaction to allow the Commission to perform a full evaluation.  FERC then held that the transaction does not raise open access transmission concerns or appear to involve the implicit provision of transmission service on APS’s transmission system, highlighting that, as APS noted, Azusa already has rights to receive delivery from APS by way of Tucson Electric’s transmission rights under a grandfathered agreement.

A copy of the order is available here.