Energy Alert: FERC Proposes New Transmission Policy Allowing Merchant Transmission Developers to Allocate up to 100% of New Transmission Capacity to an Affiliate

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New Process

To protect against possible discrimination, FERC will require transmission developers to broadly solicit interest in their projects from potential customers and submit a report describing the processes used. FERC believes that the transparency resulting from these requirements, coupled with an opportunity for an aggrieved party to file a complaint under section 206 of the Federal Power Act, strikes an appropriate balance between needs of developers and customers.

Broad Application

FERC would also apply the same proposed policies to non-incumbent, participant funded cost-based, transmission projects because they also involve willing customers assuming development risk in return for defined capacity rights. Nevertheless, these projects would merit additional FERC review of the transmission rate. FERC is not proposing to change its current, case-by-case evaluation of requests for cost-based participant funded transmission projects by incumbent transmission providers; the reason is that incumbent transmission providers have existing tariff obligations requiring them to expand their transmission system.

Impact of Proposed Policy

The proposed policy represents an attempt by FERC to encourage the development of new transmission facilities. The policy is a recognition that transmission projects must be financeable, and FERC is simply proposing to provide the developers sufficient flexibility to select their customers and finance their projects. The policy would allow a developer to right-size its project, while at the same time protect against late-comers, who sit on the sidelines and then undermine the deal negotiated between the developer and the anchor customer. Chairman Wellinghoff stated that the new policy would further "fair and open access to transmission service for customers and competitive generators who seek opportunities to participate in wholesale electricity markets." In addition, the Chairman explained that the new policy strikes "the appropriate balance between the flexibility to negotiate rates, terms and amount of capacity potential customers want, which many developers told us they need to secure financing…"

FERC Requests Comments

Rather than make the new policy effective immediately, FERC is instead taking a rather unusual step -- treating the proposed policy statement like a rulemaking and seeking comments. Companies wishing to comment on the new policy must do so within within 60 days of the proposal's publication in the Federal Register.

 

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