FERC Confirms, Clarifies Its Order On Transmission Rights

Nov 28, 2006 Public Power Weekly

The Federal Energy Regulatory Commission declined to revise any holdings in its final rule on long-term firm transmission rights, but a clarification on one key issue addressed in part a concern raised by APPA. In a Nov. 16 order on rehearing, FERC clarified that it expects regional transmission organizations to give priority to load-serving entities with long-term power supply arrangements in allocating long-term transmission rights when there's a shortage of such rights.

The commission affirmed the final rule's "broader preference for load-serving entities in general," but said that where existing transmission capacity cannot support the reasonable needs of all load-serving entities for long-term firm transmission rights, the final rule "allows the transmission organization to give priority to load-serving entities with long-term power supply arrangements in allocating the scarce capacity."

While not mandating priority for load-serving entities with long-term power supply arrangements, the commission said it expects RTOs to propose allocation rules that "include adequate protections for load-serving entities with long-term power supply arrangements."

The commission said it will intervene if load-serving entities with long-term power supply deals are allocated insufficient long-term firm transmission rights, or "if a compliance filing reveals the potential for such an outcome."

In response to APPA concerns about seams, the commission said each RTO should explain how its long-term transmission rights proposal addresses potential seams issues between itself and neighboring transmission providers.

FERC also clarified its stance on priority for load-serving entities with long-term power supply arrangements, but with loads that sink outside a transmission organization's boundaries. A load-serving entity in that situation should get preference if it pays a share of the embedded costs of the transmission system on a long-term basis to support load outside the region, the commission said. Absent such an arrangement with the RTO, a load-serving entity with outside load is entitled to receive long-term transmission rights only after the needs of loads within the region have been met, FERC said.

The commission denied a request by the Sacramento Municipal Utility District for clarification that an RTO cannot tie allocation of long-term rights to whether a customer cedes control of its transmission facilities to the RTO or is located in the transmission organization's control area. FERC noted that it previously ruled it is not discriminatory for an RTO to impose additional requirements on external customers.

The commission declined, "to draw a broad conclusion that it may never be reasonable to treat external load differently from internal load for purposes of allocation of long-term firm transmission rights."

FERC sidestepped SMUD's contention that the commission should require RTOs employing marginal loss charges either to: 1. offer long-term firm service customers a hedge against those charges; or 2. exempt such customers from those charges. Marginal losses are a function of locational energy prices and line loadings, but to date no organized market has developed a financial instrument or other means for hedging marginal losses, FERC noted.

The commission encouraged RTOs to explore ways to help load-serving entities and others obtain a hedge for marginal losses.

The commission firmly rebuffed a request by the New York Independent System Operator for an extension of the Jan. 29 2007 deadline for filing proposals for offering long-term firm transmission rights. Implementation of long-term transmission rights "is a directive from Congress," and if that requires an RTO "to reorder its market design initiatives, it should do so," the commission said.