FERC proposed on April 29 to permanently lift the price cap on rates for reassignments of transmission capacity by wholesale transmission customers, following an April 15 study by FERC staff that found a temporary removal of the price cap had not led to any problems or price spikes. Comments on FERC’s proposal will be due sometime in early July.
Traditionally, rates for reassignments of transmission capacity by customers were capped at the higher of three different rates: the original transmission rate; the transmission provider’s maximum firm transmission rate in effect at the time of the reassignment; or the firm customer’s own opportunity cost. In Order No. 890, FERC lifted the price cap on a temporary basis until October 1, 2010, and directed its Staff to study reassignments occurring in the 2007-2010 period to determine whether lifting the cap encouraged the development of a robust secondary market in transmission reassignment. In its April 15 report, Staff concluded that the secondary transmission market had expanded fairly significantly since 2007, but found that very few capacity reassignments were above the price cap. It was thus unclear to Staff whether lifting the cap led to expansion of the secondary market. However, removal of the cap did not seem to cause any problems, as Staff did not find any evidence of misconduct by transmission resellers, including those that reassigned capacity on an affiliated transmission system. Rather, it appeared that resellers used the secondary market mainly to derive value from unneeded transmission capacity.
FERC echoed these findings in its April 29 proposal, and found that they supported a permanent lifting of the price cap on reassigned transmission. FERC sought comments as to whether there are other reforms it should undertake to create a more efficient and vibrant secondary market for transmission capacity. FERC also asked for comments on whether transmission customers have experienced affiliate abuse that would argue for maintaining the price cap, or if other safeguards are needed to protect against such abuse.