The Federal Energy Regulatory Commission (FERC) has proposed to provide developers of new merchant transmission projects and new cost-based, participant-funded transmission projects with increased flexibility to offer terms and conditions of service that may be desired by potential transmission service customers.  Under this proposal, transmission developers would be permitted to allocate up to 100% of the capacity in such projects through bilateral negotiations with individual customers relating to the key terms and conditions under which transmission capacity is to be provided.  Although the FERC is not proposing to extend such flexibility to incumbent transmission owners, which “have a clearly defined set of existing obligations under their OATTs with regard to new transmission development, including participation in regional planning processes and the processing of transmission service request queues,” it stated that it would review requests by incumbent transmission owners for a waiver of any OATT requirement needed for them to pursue transmission development that is just, reasonable, and not unduly discriminatory.

Current FERC policies permit developers of merchant transmission projects to sell a portion of the capacity on such projects to individual “anchor tenants” at non-cost-based rates established through bilateral negotiations, but require the remainder of the capacity on such projects to be offered to all potential purchasers at standard rates, terms and conditions through an open season solicitation. The proposed policy is intended to enable developers of merchant transmission projects and all potential customers to negotiate mutually-agreeable rates, terms and conditions of service, and therefore to facilitate expansion of the transmission grid in a non-discriminatory manner.

In order to benefit from the flexibility available under the proposed policy, merchant transmission project developers must engage in a broad solicitation of interest in their projects from potential transmission customers, and to submit a report on the details of allocation of capacity after all arrangements had been negotiated.  A similar process would apply to non-incumbent developers of new cost-based participant-funded transmission facilities.  However, the FERC would review the transmission rates charged by such developers to ensure that they are consistent with FERC policies regarding rates for cost-based transmission service.

To be acceptable to the FERC, the solicitation of interest in a proposed project would need to be widely disseminated and to provide potential transmission customers with detailed information about the technical specifications of the project, proposed contract terms, and criteria to be used by the developer in identifying transmission customers to participate in further negotiations.  The merchant transmission project developer could then negotiate details of the arrangements (e.g., points of delivery and receipt, construction schedules, term of service, cost-sharing arrangements) with those customers that are interested in obtaining service and qualified to do so.  The policy would permit a single transmission customer to acquire 100% of the transmission capacity available on a particular project in this manner if it desired to do so.

In order to ensure that the process of allocating capacity on new merchant transmission projects is open and transparent and that it is not the result of undue discrimination, the FERC is also proposing to require project developers to submit a report discussing the solicitation process.  The report would describe the nature and extent of the solicitation, the criteria used by the developer to identify transmission customers selected to participate in detailed negotiations, and factors affecting a developer’s decision to offer terms to certain customers that are different from those granted to other customers.  The report would also be expected to discuss decisions regarding prorating of capacity if the project is oversubscribed and/or the potential for increasing capacity in the project under such circumstances.

In prepared remarks regarding the proposal, FERC Chairman Wellinghoff explained that “this proposal finds the appropriate balance between the flexibility to negotiate rates, terms and amounts of capacity potential customers want, which many developers told us they need to secure financing, with new safeguards to ensure that these rates are not unduly discriminatory or preferential and are just and reasonable.”  Similar remarks were offered by Commissioner Philip Moeller.  Commissioner John Norris further noted that what he described as the “spaghetti lines” dilemma arising from construction of multiple transmission facilities would be addressed through the requirement that the transmission developer discuss its response in the event capacity on the project is over-subscribed.

The proposal to revise the FERC’s policies for allocation of transmission capacity being developed by non-incumbent transmission owners is contained in a Proposed Policy Statement issued July 19, 2012 in Allocation of Capacity on New Merchant Transmission Projects and New Cost-based, Participant-Funded Transmission Projects, FERC Docket Nos. AD12-9-000 and AD11-11-000, 140 FERC ¶ 61,061 (2012).  Comments on the proposed Policy Statement are due to be filed within 60 days after it has been published in the Federal Register.