On April 15, 2021, FERC issued a declaratory order confirming that under FERC Order No. 1000, incumbent New York Transmission Owners (“NYTOs”) have a federal right of first refusal (“ROFR”) for upgrades to their existing transmission facilities, including upgrades that are part of another Developer’s transmission project selected in the regional transmission plan for cost allocation. Specifically, FERC declared that the foundational agreements and Section 31.6.4 of the New York Independent System Operator, Inc. (“NYISO”) Open Access Transmission Tariff (“OATT”) established a ROFR of NYTOs to build, own and recover the cost of transmission upgrades to their existing facilities. In the same order, FERC denied requested clarification from the NYISO that such ROFR-exercising NYTOs could be considered “Developers” under the transmission planning process. FERC also provided additional clarity on the distinction between ROFR-eligible “upgrades” and new transmission facilities, indicating that different physical configurations resulting in power flow changes, increasing voltage/transfer capability, and performing different transmission functions, likely fall outside of traditional “upgrades.”
Among the various reforms in Order No. 1000, FERC sought to encourage competition in regional transmission planning by requiring public utilities to remove from their jurisdictional tariffs and agreements any federal ROFR in relation to constructing certain types of transmission facilities. In particular, FERC addressed ROFR provisions in relation to three categories of transmission facilities: 1) those selected in a regional transmission plan for purposes of cost allocation (“Category 1”), 2) an incumbent transmission provider’s upgrades to its own existing facilities (“Category 2”), and 3) an incumbent transmission provider’s local transmission facilities (“Category 3”). FERC required incumbent transmission providers to remove from their jurisdictional tariffs and agreements ROFR provisions related to Category 1 transmission facilities, but not for facilities in Categories 2 and 3.
On August 18, 2020, NYISO filed a petition for declaratory order, requesting that FERC (1) confirm that the NYTOs have a ROFR under NYISO’s foundational agreements and section 31.6.4 of NYISO’s OATT to build, own, and recover the cost of upgrades to their existing transmission facilities, as permitted under Order No. 1000; (2) confirmation that, if a NYTO exercises its federal ROFR for upgrades to its existing transmission facilities, the NYTO should be treated under the existing OATT as a Developer for the upgrade portion of the transmission project; and (3) clarification of the scope of the definition of “upgrade” under OATT section 31.6.4. Various parties protested NYISO’s petition, arguing among other things, that it was procedurally improper and that NYISO and NYTOs had essentially waived, or significantly limited, any ROFR provisions through their compliance filings.
In its order, FERC partially granted and partially denied NYISO’s petition. First, FERC granted NYISO’s first requested declaration and confirmed that, notwithstanding compliance filing statements indicating an intent by NYISO and NYTOs to limit any ROFRs to solely local transmission needs, the plain text of NYISO’s tariff affirms the NYTOs’ right to recover upgrade costs for their own transmission facilities. FERC denied NYISO’s second requested declaration—that a NYTO exercising its ROFR be considered a “Developer”—as that term, under NYISO’s tariff, refers to the limited context of bid submissions, not a NYTO upgrading its own transmission facilities.
Finally, FERC partially rejected and partially granted NYISO’s third requested declaration, seeking clarification concerning the definition of “upgrade” under NYISO OATT section 31.6.4. In its petition, NYISO raised various scenarios where it was unclear whether an investment would meet the definition of an “upgrade.” FERC rejected one scenario for lack of sufficient information and facts. In a second hypothetical, NYISO sought clarification regarding a Developer proposing to retire/remove an existing facility to build a new transmission line that connects with the system in a different configuration. FERC determined this would constitute an entirely new transmission system instead of an upgrade. facility. As FERC explained, NYISO’s hypothetical involved a new transmission facility, as opposed to a ROFR-eligible “upgrade” under Order No. 1000, because the facility would connect to the transmission system in a different configuration (i.e., connect to different buses and/or substations), result in a different power flow, increase voltage/transfer capability, and perform different transmission functions on the bulk power system as compared to the existing transmission line that was retired.
Many parties protesting NYISO’s petition voiced concerns that confirming NYTO’s have ROFRs over upgrades that are part of another Developer’s project would stifle competition. The Commission agreed that the issues raised by the protestors were important questions and that it would evaluate such implementation issues when NYISO proposes specific tariff provisions to implement the ROFR for upgrades.
Commissioner Clements concurred with the order in a separate statement, arguing that the decision was the most reasonable interpretation of NYISO’s tariff. However, she expressed concern for the potential chilling effect the decision could have on the competitive process in New York which has been a “bright spot” for the Order No. 1000 landscape. However, Commissioner Clements expressed optimism that the order will give the parties time to work out the issue, as part of the review and implementation of the tariff revisions.
A copy of the order, and Commissioner Clements’ concurrence, is available here.