The Federal Energy Regulatory Commission (FERC) has initiated a proceeding1 to seek public input on how to consider transactions known as “locational exchanges” of electric power. A locational exchange is a pair of simultaneously arranged wholesale power transactions between the same counterparties in which party A sells electricity to party B at one location, and party B sells the same quantity of electricity to party A at a different location with the same delivery period, but not necessarily at the same price.

Locational exchanges of electric power can be efficient transactions, which was the reason FERC allowed a locational exchange in one case in the past,2 but they have the potential to open the door to undue discrimination by the transmission provider, as FERC found in one prior case when the locational exchange involved the merchant affiliate of the transmission provider.3 The current inquiry stems from a 2010 petition from Puget Sound Energy Inc. (“Puget”) asking FERC to rule that locational exchanges of electric power do not fall under FERC transmission service tariffs, and are instead permissible wholesale power sales transactions. One reason Puget is particularly interested in locational exchanges is that the majority of Puget’s retail customers are located on the western side of the Cascade Mountains, whereas the majority of its generation assets are located on the eastern side of the Cascade Mountains. The lack of transmission capacity across the Cascade Mountains results in a regional constraint in moving power from east to west across the Cascades, and locational exchanges could address many of the problems this creates for Puget. Rather than ruling on Puget’s petition, FERC has intiated this generic inquiry to obtain public input on the significant policy issues raised by locational exchanges.

FERC is interested in the general characteristics of locational exchanges, including understanding how market participants use and benefit from them, as well as how locational exchanges affect the electric power system. Among the benefits of locational exchanges cited by its proponents are helping to avoid unnecessary transmission usage, eliminating scheduling burdens and enhancing the deliverability of new wind power resources to market from remote generation locations. While FERC seeks comments regarding these, and any other, asserted benefits of locational exchanges, FERC is also interested in receiving comments addressing the potential concerns surrounding locational exchanges, including whether locational exchanges affect congestion or transmission system reliability, and whether locational exchanges offer opportunities for transmission providers and their affiliates to discriminate unduly against service customers. FERC is also interested in receiving comments on whether existing price reporting procedures ensure appropriate reporting of locational exchanges. Finally, FERC is asking whether it should consider granting authority to enter into these transactions on a generic or case-by-case basis.

The request for comments is in Docket No. RM11-9-000, and comments are due 60 days from the date of publication of FERC’s Notice of Inquiry in the Federal Register.