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FERC Signals More Flexible Policy for Merchant Transmission Lines
By Brian R. Gish
[September 2005]
On September 15, 2005, in Sea Breeze Juan de Fuca Cable, L.P., the Federal Energy Regulatory Commission (FERC) approved the use of negotiated rates for a privately-funded non-utility electric transmission line proposed to connect the systems of the Bonneville Power Administration and British Columbia Transmission Corporation. Although FERC had approved several “merchant” transmission proposals before, the Sea Breeze order indicates new flexibility for approving such projects, motivated by FERC’s recognition of the need for additional investment in transmission facilities.
FERC Commissioners highlighted the Sea Breeze order at their regular public agenda meeting to emphasize their increased receptiveness to privately funded non-utility transmission projects. In previous proceedings addressing requests to use negotiated rates for merchant transmission lines, FERC developed 10 criteria that the applicant had to satisfy to obtain such authorization. One criterion was that the operation of the line had to be turned over to an ISO or RTO, and another required that the transactions over the line be subject to oversight by an independent market monitor. In the Sea Breeze order, FERC held that operation of the line did not have to be turned over to an ISO or RTO given that none were operating in the region, and that as a merchant facility, Sea Breeze did not need to be subject to a market monitor. The order suggested further flexibility by adding that FERC “is open to reconsidering the remaining criteria for these kinds of projects in a future proceeding.”
All three sitting FERC Commissioners made comments on the Sea Breeze order at the public meeting. Commissioner Nora Brownell noted that FERC has been advised of the existence of substantial capital willing to invest in transmission projects, and that barriers to entry should be lowered to allow this capital to be used to develop transmission projects. Commissioner Suedeen Kelley stated that there are multiple business models that could address transmission investment, and merchant transmission has a role to play. She indicated that merchant transmission should be addressed in FERC’s transmission incentive policy statement that will be issued in response to the 2005 Energy Policy Act. Chairman Joseph Kelliher emphasized that FERC is open to changing its test for merchant transmission to lower barriers to entry, and noted he would like to see merchant transmission achieve greater success.
One further interesting aspect of the Sea Breeze order was a jurisdictional determination by FERC. The Sea Breeze transmission line would connect a point in the United States with a point in Canada. The applicant maintained that in accordance with the Federal Power Act and previous FERC precedent, the transmission service should not be considered in “interstate” commerce and therefore would not be subject to FERC’s ratemaking jurisdiction. In its order, FERC disagreed with the applicant’s analysis and decided, apparently for the first time and without citing any precedent, that such an international transmission facility is subject to FERC’s ratemaking jurisdiction.
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