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Open Access on Trial

The old rules don’t always fit with new commercial realities.

Fortnightly Magazine - December 2011

and a standard transmission line, and yet two different sets of standards continue to govern how capacity may be allocated in each and how affiliates or equity investors may participate. 15

Whereas generator lead lines are subject to different rules as to affiliate access to the line, they must follow open access requirements in other respects. Although FERC has generally exempted a generator lead line from a start-up requirement to operate under an OATT, it must file one if a third party ever requests service over the line in the future. The OATT includes an obligation on the part of the transmission owner to offer to the public excess capacity that may from time to time be unused and to build new facilities if the existing line doesn’t have sufficient capacity to meet a long-term, firm request for service. Generators whose transmission facilities are treated as generator lead lines argue that they shouldn’t be burdened with the very substantial administrative responsibilities of maintaining and operating under a full-blown OATT, 16 nor should they be required to provide transmission capacity to third parties that they require to serve their own future generation needs. 17 They argue that, as generators, they shouldn’t be required to expend their own credit and scarce capital to build new transmission facilities to serve competitor generators who could either build the necessary facilities themselves or, as a fallback, require the incumbent utility to provide the facilities under the utility’s OATT.

Redefining Discrimination

FERC’s challenge here and in the evolution of other aspects of its open season and capacity allocation policies is to balance its fear of promoting undue discrimination against unaffiliated third parties with the need to ensure that needed new transmission projects actually get built, or, at a minimum, that its policies aren’t the roadblocks that kill a project.

Parties have suggested that it isn’t undue discrimination, nor is it illegal under the Federal Power Act, for FERC to permit benefits or first-mover advantages to flow to those independent entities that financially commit to and support the development of needed new transmission. These benefits may include allowing affiliates to become anchor customers, allowing equity investors in a new transmission line to reserve future capacity on that line for the benefit of their affiliates, eliminating the obligation to build new capacity to serve future needs of third parties, permitting cost allocation mechanisms that reward those transmission customers whose initial contracts support the construction of a new line, and shifting other risks to future customers.

These suggestions would require FERC to discard the notion that the one-size-fits-all approach is necessary to avoid discrimination under the Federal Power Act and to adopt a set of rules and regulations for new entrants that embrace different treatment of different customers based on objective facts and designed to achieve important new additions to our transmission infrastructure.

 

Endnotes:

1. It’s also worthy of note that, although billions of dollars of new transmission investment are expected to be needed in the coming years, these costs appear to pale in relation to the projected savings in