A seemingly mundane request for a waiver of an SPP Tariff requirement last week prompted a rare philosophical dispute between FERC’s two Republican members (ER20-966).

At issue was a request by Montana-Dakota Utilities for a one-time waiver of a one-year notice requirement for rolling over its network integration transmission service (NITS).

Under SPP’s Tariff, an existing firm transmission customer with a contract of at least five years has the right to continue taking service from a transmission provider when its contract expires, rolls over or is renewed. But the RTO’s rules stipulate that the customer must notify the provider that it is exercising its reservation priority no later than one year before the end of its existing contract.

In May 2016, FERC approved a partial settlement among Montana-Dakota, SPP, the Western Area Power Administration and Basin Electric Power Cooperative that memorialized an agreement among the parties to resolve seams issues related to the integration of WAPA and Basin into the RTO.

One of the issues the partial settlement was intended to resolve was the provision of network customer transmission credits to Montana-Dakota according to section 30.9 of SPP’s Tariff. The settlement also described the terms and conditions of the NITS agreement (NITSA) signed by Montana-Dakota and SPP. The RTO filed the NITSA on July 27, 2016, retroactively effective Oct. 1, 2015, and to expire five years later.

On Oct. 19, 2019, Montana-Dakota submitted revisions to the NITSA to include additional facilities eligible for the section 30.9 credits. While that revised NITSA was still pending before FERC, the utility was notified by SPP on Jan. 28, 2020, that its original NITS was set to expire on Sept. 30. Montana-Dakota said it contacted SPP the next day to express its wish to roll over the NITS. Because the service was set to expire Oct. 1, Montana-Dakota had been required to notify SPP on Oct. 1, 2019, but the utility said SPP had been on notice of the utility’s intent to do so throughout negotiations for the revised NITSA.

Montana-Dakota contended that it met the four criteria laid out by FERC for granting Tariff waivers: that it acted in good faith; that the waiver is limited in scope; that it solves a “concrete problem”; and that it does not harm third parties.

The utility said it incorrectly assumed that the NITSA was effective as long as the partial settlement remained in effect and that it was unaware SPP’s Tariff required it to provide notification of its intent to roll over. It said the waiver would protect it from substantial network upgrade costs that it and its customers would incur in obtaining new NITS.

Both WAPA and Basin said they supported the waiver; SPP said it did not oppose the request.

In a brief finding, Chairman Neil Chatterjee and Democratic Commissioner Richard Glick voted to grant the waiver, agreeing that Montana-Dakota’s request met FERC’s four requirements. “Montana-Dakota’s failure to comply with the current one-year notice requirement appears to have been inadvertent, and Montana-Dakota states that it notified SPP the day after it was informed that it missed the deadline, providing SPP with notice approximately eight months prior to expiration of its NITSA,” they said.

No Authority

More substantial than the order itself was the dissent issued by Commissioner James Danly, along with a concurrence from Chatterjee that firmly faulted Danly’s legal reasoning.

In his dissent, Danly argued that the commission lacks the authority to grant such a request. “Even if we were to put that infirmity aside, Montana-Dakota’s request fails our four-factor test,” he added.

FERC Commissioner James Danly at his confirmation hearing in November 2019 | © RTO Insider

Danly wove a complicated legal argument that left open the question what latitude — if any — that FERC has in approving waiver requests. He argued that the filed rate doctrine and FERC’s rule against retroactive ratemaking restrict the commission’s ability to grant retroactive waivers. He noted that while those doctrines were developed in cases regarding utility rates, the logic of the doctrines “applies equally” to non-rate tariff cases.

“Because a waiver request is in essence a request that the commission permit a one-time change to a tariff provision, the commission is legally barred by the filed rate doctrine and the rule against retroactive ratemaking from granting a retroactive waiver request unless one of two judicially recognized exceptions applies: (1) the parties had notice that the tariff provision could be waived retroactively; or (2) the tariff provision is embodied in a private contract between the parties, who have agreed in that contract to make the agreed-upon rate effective prior to filing that contract with the commission. Neither of these exceptions apply here,” Danly said.

He said that while the commission “may enjoy some latitude to interpret this precedent,” it must “at least acknowledge that its authority to grant such a waiver is at issue and then identify the source of its legal authority to approve the request.” FERC had failed to meet that standard in the Montana-Dakota docket, he argued.

But even if FERC had the authority to grant the waiver, Danly said Montana-Dakota failed the four-factor test because the utility asserted that the waiver would maintain the status quo through its ability to continue to take NITS to serve its load and maintain the long-term benefits of the partial settlement for the utility and SPP members.

“But the fact that granting the waiver preserves the status quo is exactly why the waiver harms third parties,” Danly argued.

“Preserving the status quo for Montana-Dakota when application of SPP’s tariff would cause it to lose its rollover rights will cause entities that have submitted requests for service to incur substantial network upgrade costs to obtain service to which they would otherwise be entitled absent the waiver, or else be denied service,” Danly said. “The record does not inform us as to the number of requests that would be affected by granting this waiver. Nevertheless, even in the absence of that evidence, we know, based on Montana-Dakota’s own submission, that the request must run afoul of the no-harm-to-third-parties factor.”

Danly said he recognized that denying the request could have “serious consequences” for Montana-Dakota in the form of network upgrade costs passed on to its customers, which “would only have been exacerbated” by FERC’s “inexcusable” eight-month delay in acting on the request, preventing the utility from meeting SPP’s May deadline for participating in the transmission open season.

“Though Montana-Dakota and its customers may be due sympathy, to ignore the consequences of the waiver to other utilities is to take a one-sided view of the equities,” Danly said.

‘Regulatory Inflexibility’

“The dissent, at its core, argues for an approach to waiver requests that requires flawless adherence to all administrative tariff deadlines and denies the commission a modicum of regulatory flexibility to address ministerial or inadvertent errors on a case by-case basis,” Chatterjee countered in his concurrence. “Such an approach ignores the business realities facing public utilities. And it harms consumers. Recent challenges posed by the COVID-19 pandemic have underscored the value of regulatory flexibility when circumstances warrant.”

FERC Chairman Neil Chatterjee | © RTO Insider

Chatterjee noted that Danly acknowledged the potential harm to Montana-Dakota customers and said that neither the Federal Power Act nor the filed rate doctrine require such an outcome for an “inadvertently” missed administrative deadline where there is no evidence of harm to third parties.

“The dissent does not sufficiently grapple with the record evidence here that granting the instant waiver not only will avoid harm to customers of Montana-Dakota, but also will avoid harm to specific third parties,” Chatterjee wrote.

The chairman cited WAPA’s comments that failure to grant the waiver could jeopardize the partial settlement, which preventing pancaked rates for WAPA’s Upper Great Plains Region, Basin Electric members and other load-serving entities in the Upper Missouri Zone.

Danly shot back regarding Chatterjee’s criticism of the dissent’s “regulatory inflexibility.”

“It is the law that denies us that regulatory flexibility, inadvertency and circumstance-specific challenges notwithstanding,” Danly said. “To deny a waiver under circumstances such as these might appear inflexible. But the doctrines that constrain us make no allowance for such considerations.”