On June 22, 2012, the Federal Energy Regulatory Commission (“FERC”) issued Order No. 764, which is intended to remove barriers to the integration of variable energy resources into the electric grid. Variable energy resources (such as wind and solar) are devices used for the production of electricity that use a renewable energy source that cannot be stored and have variability that is beyond the control of the facility owner or operator. Because variable energy resources represent an increasing percentage of generation capacity, FERC concluded that it must prevent public utility transmission providers from treating these customers in an unduly discriminatory manner. Order No. 764 therefore requires each transmission provider to modify its open access transmission tariff (“OATT”) and pro forma Large Generator Interconnection Agreement (“LGIA”).

Under FERC’s pro forma OATT, a generating resource is assessed generator imbalance charges for any deviations between its scheduled deliveries of energy for a particular hour and the actual amount of energy it generates in such hour. FERC found that existing rules do not give generators the opportunity to mitigate generator imbalance charges because transmission providers are not required to give their customers the opportunity to adjust their schedules within the hour to reflect changes in output. As variable energy resources have large output changes within a relatively short period of time, FERC explained, they are particularly at risk of incurring imbalance charges. It found that this exposes variable energy resources to excessive or unduly discriminatory generator imbalance charges. Order No. 764 therefore requires transmission providers to amend their pro forma OATTs and offer all generators, including variable energy resources, the option of scheduling transmission service at 15-minute intervals. In the alternative, the rule permits transmission providers to submit specific proposals that are consistent with or superior to the intra-hourly scheduling requirements of Order No. 764. Although FERC recognized that the costs to move from an hourly to a 15 minute transmission schedule may be substantial, it noted that it will potentially reduce the amount of imbalance energy that a transmission provider is responsible for and thus provide opportunities for the transmission provider to lower reserve-related costs.

Recognizing that it is challenging for transmission providers to manage variable resource input into the grid appropriately, Order No. 764 also requires modifications to transmission providers’ pro forma LGIAs to require variable energy resources to provide meteorological and operational data to transmission providers that engage in power production forecasting. Transmission providers are given flexibility in identifying the specific types of data that will be required and may negotiate the frequency and timing of the data reporting requirements with their interconnection customers. In response to industry comments on a method for recovery of costs for developing and implementing power production forecasts, FERC stated that it will evaluate cost-recovery requests on a case-by-case basis rather than prescribe a single method for cost-recovery.

Transmission providers have 12 months from the effective date of the rule to submit compliance filings amending their pro forma provisions. The rule takes effect 60 days after publication in the Federal Register.