FERC Lifts Price Cap on|Transmission Capacity

     WASHINGTON (CN) – Owners of excess transmission capacity on the nation’s electric grid will have the opportunity to sell it at whatever rate the market will bear, according to the Federal Energy Regulatory Commission.



After a 30-month study, the agency concluded that lifting the rate cap on capacity transfers will encourage greater competition and the building of new transmission lines in congested corridors.
     In 1996, the FERC issued Order No. 888 which required transmission providers to allow the reassignment of capacity on their electrical transmission lines through a secondary market. Because a few large providers controlled most of the surplus, the agency capped the price on resale capacity to prevent large providers from setting artificially high prices at peak times.
     The goal of Order No. 888 was to increase competition in the market for wholesale electricity by giving electrical generators the means to deliver power to distant markets when local markets did not need the power. In 2007, the FERC decided to lift the price caps on transmission capacity to see if the regular mechanism of supply and demand would control prices.
     According to the FERC study, prices seem to have remained stable during the test period, but critics, including the National Rural Electrification Cooperative Association-which represents small consumer owned electric utilities-argued that large, speculative wind-power developers are buying spare capacity years before their projects come online, driving up the price of transmission for the day to day movement of power from generators to consumers.
     FERC commissioners counter that rising prices on the transmission market will give the proper price-signals to developers who will build new capacity to meet rising demand. The National Rural Electric Cooperative Association, and other consumer utilities, are worried about how high prices will have to rise to make construction of new capacity attractive, given the expense and regulatory hurdles of building new transmission lines.
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