This article comes from the law firm Troutman Sanders (troutman.com) and authors Jeffrey M. Jakubiak and Karen J. Kruse
In February 2012, the Federal Energy Regulatory Commission defined the scope of permissible locational exchanges of electric energy in response to Puget Sound Energy, Inc.’s 2010 petition for a declaratory order. In doing so, the Commission held that certain exchanges that occur at one or more locations on an affiliate’s transmission system require special authorization.
The Commission’s order, in short, defined what it considered to be simultaneous locational exchanges and stated that a public utility must seek prior Commission approval before engaging in any such transactions that involve the public utility’s or an affiliated transmission provider’s system. It noted, however, that it “will not impose this obligation upon simultaneous exchanges that are or have been effective prior to the date of this order’s issuance” and would also consider on a case-by-case basis any requests to permit the marketing function of a transmission provider to engage in such exchanges.
As regards what constitute simultaneous locational exchanges, the Commission expressed concern that Puget’s focus on transactions with the same deliperiod may unduly restrict the category of transactions at issue. Therefore, the Commission referred to “simultaneous exchanges” that involve overlapping delivery periods, and it defined such transactions as follows:
“Simultaneous exchanges occur when a pair of simultaneously arranged (i.e., part of the same negotiations) wholesale power transactions between the same counterparties in which party A sells an electricity product to party B at one location and party B sells a similar electricity product to party A at a different location have an overlapping delivery period. The simultaneous exchange is the overlapping portion ( in volume and delivery period) of these wholesale power transactions.”
The Commission found that this definition encompassed the locational exchanges as described by Puget, as well as additional transactions in which the deliperiods overlap but are not identical.
The Commission held that when the simultaneous exchange transaction involves the marketing function of a public utility transmission provider, the public utility must seek prior approval from the Commission if the transaction involves the public utility’s affiliated transmission provider’s system. The Commission clarified that “involvement of the transmission provider’s system” means that “one point of the simultaneous exchange is either within or on the border of the transmission provider’s system.” The Commission, however, granted Puget’s petition in part by finding that all other simultaneous exchange transactions do not require prior Commission approval (beyond the necessary authorization under section 205 of the Federal Power Act for the sale for resale of electric energy).
In explaining the limitations applied to simultaneous-exchange transactions involving the marketing function of a transmission provider on that transmission provider’s system, the Commission discussed its concern regarding simultaneous exchanges. In particular, the Commission believes that certain of these transactions: (1) may resemble transmission service because they involve a party placing power onto the power grid at one delivery point and then simultaneously receiving power at another delivery point; and (2) may appear to enable the marketing function to effectively provide service on its transmission provider’s system without the reservation of service on that system. Thus, the Commission stated that the marketing function of a transmission provider could utilize the complexity of simultaneous exchanges to effectively perform transmission functions where the transactions involve the transmission provider’s system, which would circumvent the Commission’s regulations involving open access transmission service.
Troutman Sanders LLC
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