After a 30-month study of the competitive effects of removing the price cap on reassigned transmission capacity, FERC voted to permanently lift the cap for all such reassignments. The removal of the price cap will become effective on October 1, 2010 and is implemented to help facilitate the development of a market for electric transmission capacity reassignment as a competitive alternative to primary transmission capacity.
In Order No. 888, issued in 1996, FERC concluded that a transmission provider's pro forma Open Access Transmission Tariff must explicitly allow the voluntary reassignment of all or part of a holder's firm point-to-point capacity rights to any eligible customer. Concerning the appropriate rate for transmission capacity reassignment, FERC established that it could not permit reassignments at market-based rates because it was unable to determine whether the market for reassigned transmission capacity was competitive enough not to allow resellers to exert market power. As a result, FERC capped the rate at the highest of: (1) the original transmission rate charged to the purchaser (assignor); (2) the transmission provider's maximum stated transmission rate in effect at the time of the reassignment; or (3) the assignor's own opportunity costs capped at the cost of expansion.
More than a decade later, in 2007, FERC determined that to promote the development of a stronger secondary market for transmission capacity, it was appropriate to temporarily remove the price cap for all transmission customers reassigning transmission capacity. FERC directed the Staff to carefully monitor the reassignment-related data to spot any issues in the development of the secondary market, specifically, the potential exercise of market power. FERC Staff published the report of the two-year study period in April 2010, concluding that the secondary market has grown sufficiently and that resale prices reflected market fundamentals rather than exercise of market power. Based on the report and FERC's experience in the natural gas transportation market, FERC decided to lift the price cap for all reassignments of electric transmission capacity. FERC anticipates that removal of the price cap will help foster the development of a more robust secondary market for transmission capacity because point-to-point transmission service customers will have increased incentives to resell their service whenever others place a higher value on it.