On November 5, 2018, the American Wind Energy Association and the Wind Coalition (together, the "Wind Developers") filed a complaint against Southwest Power Pool, Inc. ("SPP") regarding SPP's Bylaws and Membership Agreement. Specifically, the Wind Developers object to the sections of the Bylaws and Membership Agreement which impose financial obligations ("exit fees") on independent power producers ("IPPs"), other comparable non-transmission owners ("non-TOs"), and non-load-serving entities ("non-LSEs"). The Wind Developers argue that the exit fee violates cost causation principles, may pose a barrier to entry into SPP to vote on critical issues, directly affects jurisdictional rates, and that therefore, the exit fee is unjust, unreasonable, and unduly discriminatory.
SPP's Bylaws and Membership Agreement provide for members to forfeit an exit fee if they seek to withdraw from membership in SPP. Section 8.7 of SPP's Bylaws states that withdrawing members must pay for SPP's immediate or long-term costs, including "debts under all mortgages [and] loans," "all payment obligations under...leases," and "employee pension funds." Section 4.2.1 of SPP's Membership Agreement obligates withdrawing members to submit a withdrawal deposit of at most $150,000, and provides that SPP "will not accept a notice of intent to withdraw without a withdrawal deposit." The Membership Agreement also makes clear that SPP will not accept the deposit as being a full fulfillment of SPP's costs to formally withdraw a member from the organization. Although the exact fee is not known prior to withdrawal, the fee could range from $700,000 to $1 million.
In the complaint, the Wind Developers argue that the exit fee violates FERC's fundamental cost causation principle. Under the cost causation principle, FERC must ensure that a company recovers its costs from the entities that cause the company to incur those costs. The Wind Developers argue that the exit fee is used to underwrite a situation where a future member would seek to join SPP and would be used to satisfy future costs from which the withdrawing member would not benefit. The Wind Developers contend that the exit fee is for costs that "are unrelated to the exiting member," and members should not be responsible to "carry the risk and liability for costs that they are not responsible for causing in the SPP market."
The Wind Developers also claim that the exit fee could directly affect jurisdictional rates because it erects barriers to entry into SPP. The Wind Developers state that the ratio of IPPs/non-TOs/non-LSEs to full TOs and LSEs is extremely low as compared to other organizations, which leads SPP to be less reflective of the full interests of all market participants. The Wind Developers maintain that because there are more TOs and LSEs within SPP, the TOs and LSEs can dominate when SPP's policies come up for a vote. The Wind Developers further argue that IPPs, non-TOs, and non-LSEs currently do not have a "reasonable opportunity to develop, vote on, and determinate SPP's...rates, terms, and conditions of service." The Wind Developers therefore argue that this problem impinges on SPP's decision-making process to produce rates that are just and reasonable.
The Wind Developers request FERC to find that the membership exit fees, as applied to IPPs, non-TOs, and non-LSEs, are unjust and unreasonable, and to require SPP to adopt revisions to Sections 8.7 of its Bylaws and 4.2.1 of its Membership Agreement. Answers to and comments on the complaint are due by 5pm on November 26, 2018.
The complaint can be found here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
