On Thursday, FERC approved new flexible rate mechanisms for two merchant transmission projects. Chinook Power Transmission, LLC (“Chinook”) and Zephyr Power Transmission, LLC (“Zephyr”) plan to build 2,100 miles of transmission to deliver wind power from Montana and Wyoming to customers in Nevada and other Southwestern states.

On December 19, 2008, Chinook and Zephyr filed applications for authorization to charge negotiated rates for transmission rights on their proposed transmission projects as well as waivers of certain Commission regulations, pursuant to section 205 of the Federal Power Act.

Chinook has proposed to build a 1,000-mile, 500 kV line from Harlowtown, Montana to Las Vegas, Nevada. Zephyr plans to build a 1,100 mile, 500 kV line from Medicine Bow, Wyoming to Las Vegas. The companies expect both lines to be in service by 2014 and will run parallel to one another for a significant portion of their routes.

In the past, open access has been interpreted to require merchant transmission developers to offer capacity on the same terms to any interested takers. As a practical matter, this meant merchant transmission developers usually had to assume the risk up front for development of the line as few customers have been willing to commit to buy capacity on a highly speculative transmission line. FERC’s order will allow Chinook and Zephyr to negotiate terms with an “anchor” customer who can commit to purchasing a large amount of transmission, in this case 50% of the line’s capacity over 25 years. The term “anchor shipper” has its origins in the natural gas industry, where pipeline developers have long been permitted to offer different terms to high-volume customers.

The proposed Chinook and Zephyr transmission projects are in an area where there is no Regional Transmission Organization (“RTO”) or Independent System Operator (“ISO”), therefore, they cannot turn over operational control to an RTO or ISO. In addition, both companies will submit an Open Access Transmission Tariff (“OATT”) under Order No. 890. Their OATTs will provide for tradable secondary transmission rights and any initial sale of transmission rights will be structured to ensure the availability of secondary transmission rights.

A copy of the order can be found at: http://www.ferc.gov/whats-new/comm-meet/2009/021909/E-15.pd