In an order issued February 19, 2009, FERC approved a new financial arrangements for merchant transmission projects. Applicants explained that the projects would deliver energy from wind power projects to the Southwest electric markets. Modifying its prior policy, FERC
- permitted two project developers to presubscribe a substantial portion of the project capacity to anchor customers before holding open season auctions to allocate the rest; and
- replaced its ten-factor test for authorizing negotiated, rather than cost-based, rates with a simpler, flexible, four-factor test.
In the order, the Commission applied the new test to merchant transmission projects that proposed delivery of renewable energy projects
Background
- Chinook Power Transmission, LLC, a merchant transmission project developer, proposed the development of a 1,000-mile, 500 kV high-voltage direct current ("DC") transmission line from Montana to Nevada.
- Zephyr Power Transmission, LLC ("Zephyr"), also a merchant transmission project developer, proposed the development of an 1,100-mile, 500 kV high-voltage DC transmission line from Wyoming to Nevada.
Each of the proposed lines is expected to be in service in 2014 and will deliver approximately 3,000 MW of generation to the southwest United States. Neither Chinook nor Zephyr will have captive ratepayers.
Presubscription with Anchor Customers
In last week's order, FERC authorized Chinook and Zephyr to charge negotiated rates for proposed merchant transmission projects that will presubscribe fifty percent of the projects' capacity to anchor customers. Prior to this decision, the Commission had required each project developer to hold an open season to auction all of the project's initial capacity.
Chinook and Zephyr each has entered into agreements with a wind generation developer that will share the initial development costs (including costs of permitting, siting, the Western Electricity Coordinating Council's path rating, and other development activities) and become an "anchor customer" conditioned on the negotiation of a precedent agreement at arms' length. Chinook and Zephyr told the Commission they would need to presubscribe fifty percent of the capacity to their anchor customers to achieve commercial viability. They proposed that the rest of the capacity be allocated in an open season auction. Each anchor customer's capacity would be guaranteed in that it would not be subject to pro-ration if open season bids for capacity exceed available capacity. In approving the proposals, the Commission noted that "the financial commitments made by anchor customers prior to an open season provide crucial early support and certainty to merchant transmission developers, which enables them to gain the critical mass necessary to develop these projects."
The Four-Factor Test
In the order, the Commission also introduced a four-factor analysis which will replace the ten-factor analysis the Commission has applied to requests for negotiated transmission rate authority for several years. The four factors are:
- the justness and reasonableness of rates;
- the potential for undue discrimination;
- the potential for undue preference, including affiliate preference and affiliate concerns; and
- regional reliability and operational efficiency requirements.
