On May 20, 2010, FERC rejected SunZia Transmission LLC’s (“SunZia”) request for a declaratory order that it may allocate firm transmission rights, reserve capacity to affiliated generators, and use negotiated rate authority for a proposed transmission project in New Mexico and Arizona.  However, FERC provided a description of how the project could be restructured in order to meet the Commission’s requirements.    

The transmission project would be comprised of two 500 kV transmission lines running 460 miles between Lincoln County, New Mexico and a new Arizona substation in Pinal County.  SunZia’s project is expected to have between 3,000 MW and 4,500 MW of transmission capacity.  SunZia expects to start construction in early 2012, and the in-service date is projected for late 2013 or early 2014.

SunZia Transmission, LLC (“SunZia”), (a subsidiary of SouthWestern Power Group II LLC (“SW Power”), ECP SunZia LLC (“ECP SunZia”), Shell WindEnergy Inc. (“Shell”), and Tucson Electric Co. (“Tucson Electric”)) owns 86 percent of the project, the Salt River Project Agricultural Improvement and Power District (“Salt River”) owns 13 percent, and Tri-State Generation and Transmission Association, Inc. (“Tri-State”) owns the remaining 1 percent.   SunZia’s 86-percent share of the Project will allocated among the SunZia owners as follows: SW Power and ECP SunZia, 40 percent each; Shell, 5 percent; and Tucson Electric, 1 percent.

On January 29, 2010, SunZia filed a petition for declaratory order asking FERC to declare that that it may: (1) allocate to each SunZia owner firm transmission rights based on their respective shares of the project; (2) allow SW Power, ECP SunZia, and Shell to use their entire pro rata share of the capacity to serve affiliated generators that are qualifying facilities (“QF”) or exempt wholesale generators (“EWG”) without jeopardizing their QF or EWG status; and (3) allow SW Power and ECP SunZia to allocate all of their pro rata share of capacity using pre-subscribed negotiated rate contracts.

Based on concerns about the potential for discrimination, FERC denied the requested approvals without prejudice and will allow SunZia to modify and refile its request, as outlined by the Commission.  FERC said ownership did not entitle owners to exclusive discretion over capacity of a line.  FERC stated owners of a transmission line may set aside transmission capacity for their own use, as long as it complies with Order No. 888 and firm transmission service rights are provided in a fair, open, and transparent manner.  For joint-owners of a transmission project, the Commission requires coordinated ownership and operating agreements.  Transmission line owners who intend to build to allow for generation development should submit to FERC specific plans with construction milestones.  Also transmission owners/providers are required to offer service on their line in a fair, open, and non-discriminatory manner until they are ready to use their own capacity. 

Although FERC has previously allowed an entity that funds a transmission project to be given priority on a line’s capacity, FERC found this instance different because entities involved with the SunZia project are acquiring transmission rights to be used by third parties, not the funding entities themselves.  FERC also disapproved of SW Power, ECP SunZia, and Shell using 100 percent of their share of the line to transmit to QFs and EWGs.  SunZia claimed the arrangement would operate similar to a tieline, but FERC said it could not categorize the transmission project as a tieline since it will consist of two lines running over 460 miles with multiple interconnection points.  Furthermore, the Commission wanted an explanation as to how the project could be a generator tieline, a network transmission facility, and transmission line with negotiated rates all at the same time. 

Finally, FERC said it could not approve negotiated rate authority because SunZia did not fully address the four required factors: 1) just and reasonable rates; 2) undue discrimination concerns; 3) potential for undue preference; and 4) regional reliability and operational efficiency requirements.  FERC said it was concerned with how SW Power and ECP SunZia will hold an open season that would be conducted to allocate initial capacity. 

The full opinion is available at www.ferc.gov under docket no. EL10-39.