I skimmed the attached NOPR looking for the approach FERC was proposing to take to the key issue we fought over here in CA a couple of years ago.  Although I did not see the word "congestion", the implication of what I read is that the generator would pay for his extension cord plus any congestion impacts that it makes on the grid.  The implication of the last statement is that the generator would put the grid back into the condition it was in "but for" the new generator.  That is great, assuming I did not skim from too high an altitude.  Did I?

I also read the thing from the point of view of an issue that I had forgotten about until recently.  That is, if the generator pays for all of this upgrade and "but for" stuff, and then "gives" it to the utility, are there taxes due on the "gift"?  When we developed our project in Pittsburg, CA, PG&E's initial position was that we owed them for the upgrades AND for the taxes on the upgrades (about 35 - 40% additional charge), which they turned over to the state and fed.  (This is potentially A LOT of money to "waste" on an interconnect, if it is an expensive one.)  Working with Enron's tax dept (I do not remember specifically with whom), we convinced PG&E that taxes were probably not due for various reasons, and we mutually agreed to get a private letter ruling from the IRS confirming.  (We also agreed that IF the taxes were ever due, that we would pay them.)  I understand that that IRS ruling was put in abeyance, pending some sort of law congress was considering.  (I may be making this up here as I go along because Calpine bought the project from us and I lost track of the various machinations.)  The point of all of this.  Is it reasonable in this NOPR process on interconnection to address the tax issue?  Is it too late?  Is it irrelevant to the FERC process?  Does anyone know the status of the law making process?  

I am concerned about taxes for two reasons.  First, many of the opponents to the proposed NOPR approach thought that all grid upgrades should be paid for by the utility and  included in rate base.  (In other words, "all generators are good and benefit the ratepayers.")  On fundamental grounds they will resist paying for upgrades.  If they believe that they will get the insult after injury treatment (pay for upgrades AND for taxes on the upgrades), they will resist the NOPR more strenously.  (FYI to everyone, Calpine strongly resisted paying for upgrades at Pittsburg and somehow got out of it.  And guess what?  Now with all of the new plants - ~1200MW added by Calpine within a 5 mile area of 2500 MW of existing - there are congestion problems around all of the projects, just as we forecasted.  ISO is now considering adding a new zone and/or charging PG&E and/or the projects for congestion.  Because PG&E did not, and probably never will in our lifetime, add the grid upgrades so as to include in ratebase, the projects will be hurt.  Because all of this is not forecastable in the context of developing a project in a timely manner, this outcome, exactly as we had forecasted, is why we supported the approach in the proposed NOPR.)  Second, perhaps naively, I am assuming that the tax issue is no different for gas pipeline upgrades than for electric transmission system upgrades.  On a project we are now developing in Roseville, CA, we are faced with significant gas pipeline system upgrades in PG&E's system.  Significant grossups for tax impacts of the "gift" are are being discussed as I remember for Pittsburg's electric transmission system upgrades.  Since it sounds like the same issue, sure would be nice if we could get some appropriate precedence going.  Any possibliity of dealing with the tax issues in this NOPR?



-----Original Message-----
From: Lindberg, Susan 
Sent: Friday, October 26, 2001 7:29 AM
To: Parquet, David; Hueter, Barbara A.; Rasmussen, Dale; Dieball, Scott;
Tweed, Sheila; Booth, Chris; Carnahan, Kathleen; Churbock, Scott;
Comeaux, Keith; Gimble, Mathew; Grube, Raimund; Hausinger, Sharon;
Inman, Zachary; Jacoby, Ben; Keenan, Jeffrey; Kellermeyer, Dave; Krause,
Greg; Krimsky, Steven; Kroll, Heather; Mitro, Fred; Moore, John;
Tapscott, Ron; Whitaker, Rick; Baughman, Edward D.; Coulter, Kayne; Day,
Smith L.; Gilbert, Gerald; Kinser, John; May, Tom; Miller, Jeffrey;
Will, Lloyd
Cc: Comnes, Alan; Fulton, Donna; Nicolay, Christi L.; Novosel, Sarah;
Steffes, James D.
Subject: FW: FERC rulemaking on Generator Interconnection


Please see the attached.  FERC has asked for preliminary comments on its proposal to adopt a standard generator interconnection agreement and procedures; the deadline for comments is December 21.  After it has considered the comments, FERC will issue a NOPR.

EPMI will participate in the Nov. 1 meeting at FERC; an update will be sent to you.  I will be taking the lead on drafting our comments.  

Please contact me if you need further information.

Susan Lindberg
713.853.0596

-----Original Message-----
From: Jackie Gallagher [mailto:JGallagher@epsa.org]
Sent: Friday, October 26, 2001 8:57 AM
To: acomnes@enron.com; Hawkins, Bernadette; Nersesian, Carin; Nicolay,
Christi L.; Fulton, Donna; Scheuer, Janelle; Hartsoe, Joe; Shelk, John;
jsteffe@enron.com; Noske, Linda J.; Robertson, Linda; Alvarez, Ray;
Shapiro, Richard; Novosel, Sarah; Mara, Susan; Lindberg, Susan; Hoatson,
Tom
Subject: FERC ANOPR on Generator Interconnection


Last night, FERC issued an Advanced Notice of Proposed Rulemaking (ANOPR) on Standardizing Generator Interconnection Agreements and Procedures.  The ANOPR incorporates the ERCOT interconnection procedures, modified by various "best practices" identified by the Commission in an attachment.  A public meeting has been scheduled for November 1st in Washington, although the notice of the meeting is not yet available.  We will forward it when it becomes available.  The ANOPR is attached.