Energy Legal Blog

Long-Term Transmission Rights Proposed for Organized Markets

Responding to yet another directive of the Energy Policy Act of 2005 (EPAct 2005), FERC has proposed a new rule requiring transmission organizations with organized electricity markets to make available to load servers long-term firm transmission rights (FTRs) that satisfy certain guidelines.  FTRs have been valuable tools for all participants in organized power markets, particularly those that use locational marginal pricing.  In light of a Congressional mandate that favors load servers, it remains to be seen how FERC will accommodate the needs of non-load servers, such as independent generators or marketers, to hedge against the costs of transmission congestion.  Comments on the proposed rule are due March 13 and reply comments on March 27.

To date most of the FTR instruments available for hedging congestion risks have been no longer than one-year in duration.  Certain load servers and other parties had complained that the lack of long-term FTRs in organized electric markets precluded hedging the financial risks created by transmission congestion.  In EPAct 2005, Congress responded to these complaints by ordering FERC to allow load servers to "secure [FTRs] (or equivalent tradable or financial rights) on a long term basis for long term power supply arrangements . . . ."  Congress directed FERC to make these longer-term FTRs available within one year of EPAct 2005's passage.

In response, FERC has initiated a rulemaking that would require transmission organizations with organized electric markets ― currently, NYISO, ISO-NE, PJM, MISO and CAISO ― either to propose tariff changes giving load-servers these FTRs or explain how they already makes such rights available.  FERC proposes eight guidelines for designing and administering long-term FTRs.  Specifically, FTRs should

·         be point-to-point with a specific source, sink and MW-size;

·         hedge against locational-marginal pricing congestion charges, and remain unmodified during their term;

·         be allocated to those who pay for upgrades that create them;

·         be long enough to hedge long-term power supply arrangements made or planned to satisfy a retail service obligation;

·         afford a priority to load servers with long-term power supply arrangements to meet a retail service obligation;

·         be re-assignable to another entity that succeeds to a retail service obligation;

·         not require participation in an auction for their initial allocation; and

·         be allocated initially in a manner that minimizes economic distortions between those who receive and those who do not receive the FTRs. 

The affected organized markets will have to submit their responses to FERC no later than six months after the rule is finalized. [Long-Term Firm Transmission Rights in Organized Electricity Markets, 114 FERC ¶ 61,097 (2006)]