FERC last Thursday took up the issue of whether merchant transmission operators have an obligation to expand their facilities under Order 888 and found that in the case of participants in an underwater transmission cable stretching from Long Island to Connecticut such an obligation does not apply.

At its regular agenda meeting, the federal agency accepted tariff sheets filed by New England Power Pool (NEPOOL) that establish two provisions relating to the unique circumstances of the Cross Sound Cable merchant transmission project. The project is a 24-mile, 330 MW underwater cable system linking Connecticut to Long Island.

One provision allows Cross Sound Cable to have different reservation and curtailment priorities included in the NEPOOL tariff, as long as the priorities are approved by FERC in a Federal Power Act (FPA) Section 205 filing. The second provision specifies that Cross Sound Cable does not fall within Commission Order 888’s obligation to build additional facilities.

But the latter element of the order troubled Commissioner William Massey, who asked that the agency take the order up for discussion at the meeting.

“This is an important issue of FERC’s impression whether a merchant transmission provider has an obligation to build transmission facilities,” Massey said. “In accepting NEPOOL’s proposed tariff revisions, today’s order finds that participants in the Cross Sound Cable project do not have a building obligation.”

But Massey said he’s “not yet ready to reach that conclusion. I would like the benefit of a more thorough industry debate and more comment before this Commission determines any sort of policy that might be considered generic in this area.”

Whether merchant transmission providers should have an expansion obligation is a “significant policy question,” Massey went on to say. “This kind of transmission development has a great deal of potential to be an important source of much needed additional transmission capacity and we certainly know that we need substantial more capacity.”

Massey pointed out that merchant transmission developers “are not holding themselves out to be a utility-type service company and if the merchant sector is to grow we must avoid needlessly imposing obligations that could scare away development.”

At the same time, the Commissioner said there are “many aspects of the transmission business that still have monopoly characteristics and an expansion obligation may be appropriate in some instances.”

Massey noted FERC required, in Order 888, that public utility transmission providers expand facilities if expansion is needed to accommodate service requests. “That service obligation is based on undue discrimination and comparability in service,” Massey went on to say. “Those concerns may not be present with merchant providers, but I would ask the question — Are there other bases for expansion obligations?”

Massey also wondered whether the control of some transmission facilities represents a barrier to entry. “I believe we should consider that,” he said. “If so, shouldn’t control of entry barriers require expansion obligations?”

Massey said that “I’m not ready to conclude that the record in this case is sufficient to address” his concerns. “Indeed, I’m not aware of much discussion of the expansion obligation issue in current industry debate concerning the role of merchant transmission. Thus, I’m not ready to reach any general or even specific conclusions on this issue without the benefit of more comment.”

Meanwhile, Massey also said he was disturbed by items specific to the NEPOOL/Cross Sound Cable case. He noted that in the original order in this proceeding, FERC accepted negotiated rates for transmission service “on the grounds that the prices would be capped by the cost of transmission expansion.”

The order said that the expansion cost cap would be provided through the obligation of the New York ISO and ISO New England or their successors to expand transmission at cost-based rates to meet new requests for transmission service, including facilities to provide service across Long Island Sound.

“In today’s order, it’s not clear to me that a cost-based expansion cap will be effective with respect to expansion across Long Island Sound,” Massey said. “Today’s order finds that Cross Sound Cable’s participation in NEPOOL will not broaden NEPOOL’s responsibilities to build an interconnection to a neighboring region beyond its current scope,” he added.

But Massey wonders whether NEPOOL’s current scope is measured prior to Cross Sound Cable’s integration into the pool. “If so, does this mean that NEPOOL and its transmission-owning members do not have an obligation to build an interconnection across Long Island Sound to the neighboring regions of the New York ISO?” If neither transmission owners in NEPOOL nor Cross Sound Cable have an obligation to build across Long Island Sound “can we still rely on our cost-based expansion cap?,” Massey asked.

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