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FERC Issues a Notice of Inquiry on Locational Exchange Transactions of Electric Power

By Vincenzo Franco, Sharon White, Van NEss Feldman

February 18, 2011

On February 17, 2011, the Federal Energy Regulatory Commission (FERC) issued a Notice of Inquiry (NOI) on locational exchanges of electric power.  A "locational exchange" refers to a pair of purchase and sale transactions involving the same quantity of power and the same parties, but at two different locations.  The NOI seeks comments to assist FERC in determining whether such transactions constitute sales of power or transmission services and under what circumstances locational exchanges should be authorized generically or on a case-by-case basis.

BACKGROUND The NOI stems from a June 2010 petition by Puget Sound Energy (Puget) seeking a declaration that a locational exchange is a wholesale power transaction and not a transmission transaction.  Puget filed its petition as a result of a FERC audit, which found that Puget's use of secondary network service to transmit power acquired in a locational exchange was a violation of its OATT, because the exchange constituted a transmission service.  In the declaratory order proceeding, Puget and other parties argued that locational exchanges, which are common in the Pacific Northwest, provide a number of benefits (including reduced transmission congestion and improved reliability) by providing alternative means to serve load in lieu of using congested transmission paths.

On February 17, 2011, FERC deferred action on Puget's petition for declaratory order pending the outcome of the NOI, finding that significant policy issues have been raised for market participants and a broader inquiry is required.

THE NOTICE OF INQUIRY In the NOI, FERC seeks general comments about the characteristics of locational exchange transactions, including how frequently they occur and in what markets, what types of parties use such exchanges, how much power is exchanged in a typical transaction, how market participants use and benefit from locational exchanges, and how the transactions affect the electric power system.  In addition, FERC seeks comments on the following specific subjects:

  • The effect of locational exchange transactions on system congestion;
  • Whether locational exchange transactions offer opportunities for transmission providers and their merchant affiliates to discriminate against non-affiliated customers;
  • Whether a party with network transmission rights could use locational exchange transactions to circumvent FERC's open access transmission principles;
  • Whether locational exchange transactions allow some parties to obtain the functional equivalent of transmission service on more favorable terms or rates than those available to other parties;
  • Whether the existing Electric Quarterly Report procedures ensure appropriate reporting of locational exchange transactions;
  • Whether locational exchanges affect the ability of system operators to maintain adequate system reliability and comply with mandatory North American Electric Reliability Corporation reliability standards;
  • If FERC determines that a locational exchange is transmission service subject to an OATT, what pricing policy should apply to these transactions; and
  • Whether FERC should grant authority to enter into locational exchange transactions generically or authorize them only on a case-by-case basis.
FERC's NOI states: "While the Commission has spoken to locational exchanges in the past and that guidance continues to apply today, any policy determinations made in this proceeding will only be applied prospectively."  This appears to indicate that any new guidance (beyond existing case precedents) that may emerge identifying locational exchanges as impermissible would not be applied retroactively.  Comments on the NOI are due 60 days after publication of the NOI in the Federal Register, and should be filed in Docket No. RM11-9-000.  

Van Ness Feldman represents Puget Sound Energy with respect to its petition for declaratory order on locational exchanges.  For additional information regarding the NOI, or for assistance in preparing comments, please contact Gary Bachman, Vincenzo Franco, Doug Smith, or any other member of Van Ness Feldman's Electric Practice at (202) 298-1800 in Washington, D.C., (206) 623-9372 in Seattle, or email electric@vnf.com

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