The Federal Energy Regulatory Commission (“FERC”) has issued a Final Policy Statement to clarify and refine its policies governing the allocation of capacity for new transmission projects. FERC examines four factors in evaluating requests by merchant transmission developers for negotiated rate authority: (1) the justness and reasonableness of rates; (2) the potential for undue discrimination; (3) the potential for undue preferences, including affiliate preference; and (4) regional reliability and operational efficiency requirements.2 When analyzing the second and third factors, FERC previously relied upon a formal “open season” process to ensure against undue discrimination and preference in the allocation of new transmission capacity. However, in the Policy Statement, FERC announced that bilateral negotiations, if conducted in a transparent manner, may serve the same purpose as an open season process to ensure against undue discrimination or preference. As a result, FERC will allow merchant transmission developers to allocate up to 100 percent of their project’s capacity through bilateral negotiations if the developer: (1) broadly solicits interest in the project from potential customers and (2) demonstrates to FERC that the developer has satisfied the solicitation, selection and negotiation process criteria set forth below.

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