On April 29, 2010, FERC issued a Notice of Proposed Rulemaking (“NOPR”) proposing to remove the price cap for transmission customers who reassign transmission capacity beyond October 1, 2010.  FERC stated in its NOPR that it hoped to develop capacity reassignment as an alternative market to primary capacity.  This NOPR seeks to make permanent what FERC has already done on an interim basis – remove the price cap on reassigned transmission capacity.

In Order No. 888, FERC capped the rate for reassigned capacity at the highest of: (1) the original transmission rate charged to the purchaser, (2) the transmission provider’s maximum stated firm transmission rate in effect at the time of the reassignment, or (3) the assignor’s own opportunity costs capped at the cost of expansion.  FERC removed this price cap in Order No. 890 and instructed FERC Staff to start to monitor reassignment data in quarterly reports from transmission providers.  FERC also asked its Staff to prepare a report summarizing their findings within 2 years.

FERC’s NOPR is the result of that 2-year study, culminating in the April 15, 2010 “Staff Report on Capacity Assignment” (“April 15th Report”).  FERC Staff notes in the April 15 Report that the price for capacity reassignment was fairly consistent and low for a majority of the transactions.  Staff also finds that higher volumes of capacity have been reassigned on an hourly, daily, monthly and yearly basis.  The April 15 Report credits the “below the cap” pricing to the low price spreads between markets and availability of primary capacity at market rates.  Additionally, the April 15 Report finds that less than 1 percent of transactions done by affiliates during this 2 year period were above the tariff rate.  The April 15 Report concludes that Order 890’s goal of developing the secondary market has been met and that the removal of the price cap “does not seem to be causing problems.”

In the NOPR, FERC proposes to remove the price cap on capacity reassignment permanently and revise section 23 of the pro forma OATT to reflect this change.  As such, transmission providers would have to file corresponding OATT revisions within 30 days of publication of the Final Rule in the Federal Register.  FERC is also seeking comments on the NOPR and whether or not there are other reforms which can help “create a more efficient and vibrant secondary market for transmission capacity.”  FERC also states in its NOPR that it will continue to monitor capacity reassignment because: (1) all sales of capacity must be conducted through or otherwise posted on the transmission provider’s OASIS website on or before the date of service; and, (2) assignees of transmission capacity must execute a service agreement prior to the date on which the reassigned service commences.

A copy of FERC’s NOPR can be found at www.ferc.gov under Docket No. RM10-22-000.
A copy of the April 15 Report can be found at http://www.ferc.gov/legal/staff-reports/04-15-10-capacity-reassignment.pdf