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FERC announces policy for allocation of capacity on new merchant transmission projects

Kevin M. Downey

Kevin M. Downey,

Washington, D.C.

25 January 2013

FERC has issued a policy statement to “clarify and refine” its policies governing the allocation of capacity for two types of transmission projects: new merchant transmission projects and new non-incumbent, cost-based, participant-funded transmission projects. The policy statement, which applies to project filings submitted on or after January 17, 2013, is intended to provide more flexibility in the capacity allocation process for customers and transmission project developers, subject to protections against unduly discriminatory or preferential conduct.

FERC announces policy for allocation of capacity on new merchant transmission projects

In the past, FERC has authorized merchant transmission developers to allocate up to 75 percent of project capacity through presubscription by anchor customers, but has required some that at least some portion of project capacity to be allocated through an open season. Under the policy statement, a merchant transmission developer may select a subset of potential customers, based on criteria that are not unduly discriminatory or preferential, and negotiate directly with those customers over the rates, terms and conditions of service for procuring up to the full amount of project capacity. However, the developer must conduct an open solicitation process, including broad notice to potentially interested customers of the nature of the project and the criteria that the developer plans to use to select customers. In addition, the developer must demonstrate to FERC that the processes that led to the identification of transmission customers and the execution of the contractual arrangements are consistent with the policy statement and with open access principles.

Moreover, under FERC’s prior policy, a developer that reached agreement with one or more anchor customers was required to offer the same “anchor customer deal” in the open season to any other customer willing to make the same commitment as the anchor customer. The policy statement explicitly permits developers to offer “first mover” customers more favorable rates, terms and conditions of service than later customers, based upon transparent and not unduly discriminatory or preferential criteria.

FERC also has approved proposals by incumbent and non-incumbent transmission developers to allow customers rights to capacity on new transmission projects in exchange for providing project funding. The procedures outlined in the policy statement will apply to new non-incumbent, cost-based, participant-funded transmission projects, although FERC will continue to review the rates, terms and conditions of service for those projects more closely to ensure that they satisfy FERC precedent regarding cost-based transmission service. The policy statement will not apply to cost-based, participant-funded projects developed by incumbent transmission providers, however, because incumbent providers are subject to existing tariff-based obligations regarding the development of new transmission.

Kevin M. Downey

Kevin M. Downey,

Washington, D.C.

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