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Security obligation nixed when financial or ownership ties exist

SPP says changes avoid imposition of needless expenses

Washington — The US Federal Energy Regulatory Commission has cleared Southwest Power Pool to nix financial security obligations tied to the construction of transmission system upgrades under certain circumstances.

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Although transmission project sponsors and customers are responsible for paying for the construction of system upgrades, transmission owners are on the hook to actually build those upgrades. Thus, SPP requires payment security to protect transmission owners' interests.

While this is helpful in the majority of cases, stakeholders in the region expressed concern that posting financial security could be redundant, unnecessary, and even unhelpful when a financial or ownership tie exists between the entity requesting the upgrade and the transmission owner expected to construct that upgrade.

In such situations, the requirements intended to protect transmission owners may actually be subjecting them to fees associated with credit arrangements or otherwise making their own funds unavailable as security against nonpayment, SPP contended in an August filing proposing tariff changes (ER19-2669) to avoid the imposition of the expenses.

FERC on Tuesday approved that proposal, effective October 20, to reduce the risk of incurring unnecessary financial security expenses.

APPLICABLE UPGRADES

The tariff changes apply to so-called sponsored upgrades associated with projects that are proposed by an entity that will assume the cost of the new facilities and are not part of any SPP transmission planning processes, as well as system upgrades needed to fulfill eligible customers' requests for long-term transmission service.

Sponsored upgrades and upgrades required to satisfy requests for transmission service represent about 15% of SPP's $4.7 billion portfolio of approved transmission projects, according to the grid operator's latest quarterly project tracking report, which was released November 4.

That report listed four sponsored upgrades, consisting of a combined 11 miles of line rebuilds at an estimated cost of $10 million. There were 105 transmission service upgrades listed with an estimated total cost of $699 million. Those upgrades included 245 miles of new line, 178 miles of line rebuilds and 106 miles of voltage conversion.

TARIFF CHANGES

Under the tariff revisions, no payment security will be required when the project sponsor and transmission owner constructing the sponsored upgrade are the same entity. This eliminates the potential for an entity to incur unnecessary expenses involved in providing payment security to itself.

SPP's payment security requirements will also be waived when the transmission owner building an upgrade to meet a customer service request notifies the grid operator it has already received sufficient payment security from the customer. In this scenario, the transmission owner must agree to not seek recovery from SPP in the event that the customer fails to satisfy its payment obligations for the upgrade.

SPP said in its filing that such a "revision provides an opportunity for the transmission owner and eligible customer to avoid needless expense in the rare event the two entities are affiliated in some manner and would thus be effectively expending shared resources."

For cases where the security requirement is not waived, the new tariff language clarifies that security should only be posted for upgrades that will actually be built. Prior tariff language caused confusion as it said security had to be posted within 30 days of filing a request to SPP's system for obtaining transmission service.