FERC Grants Negotiated Rate Authority for Tres Amigas, Declines to Disclaim Jurisdiction on Interconnection with ERCOT

On March 18, 2010, FERC approved Tres Amigas LLC’s (“Tres Amigas”) request to sell transmission service at negotiated rates, with conditions on anchor customers and initial capacity offerings. In a separate order, FERC declined the petition to disclaim jurisdiction over the transmission facilities that will interconnect the Tres Amigas project with the Electric Reliability Council of Texas (“ERCOT”) transmission system in Texas.

Tres Amigas is planning to construct a three-way alternating current/direct current superstation near Clovis, New Mexico that would include three interconnection points to transmit power between the Eastern Interconnection, ERCOT, and the Western Electricity Coordinating Council (“WECC”) transmission grids for the first time. The interconnection points will be tied together with several miles of underground direct current transmission lines to each of the separate transmission grids.

Negotiated Rate Authority

The Commission analyzed the project under its four-pronged approach in a similar case, Chinook Power Transmission, LLC, 126 FERC 61,134 at P 37. First, FERC determined that the granting negotiated rate authority would result in just and reasonable rates. FERC accepted the project’s proposal to enter into anchor customer agreements for up to 50% of the capacity, however the Commission modified the open season auction process so that all initial capacity not purchased by an anchor customer is made available at all times during the open season. FERC also determined that there were sufficient checks on market power, and the project did not provide barriers to market entry for competitors.

Second, FERC found that to alleviate concerns about undue discrimination, the project is required to offer the same rates and terms it offers to anchor customer to any customer in open season auction. FERC also granted the power to enter into bilateral contracts up to 50% of initial capacity. Once the project has started the project must make books, records, and financial statements available to the Commission.

Third, FERC determined that the project presented no undue preference and affiliate concerns in light of the applicant’s commitments to seek prior Commission authorization for any affiliate transactions.

Fourth, FERC found that the project meets regional reliability and operational efficiency requirements with its commitment to participate in the Order No. 890 planning process and comply with WECC requirements.

Disclaimer of Jurisdiction

Historically, FERC has not had jurisdiction over electric utilities in ERCOT because their facilities are not used for transmission and sales of electric energy in interstate commerce. The interconnection of the Tres Amigas superstation to ERCOT would necessarily mean that electricity generated in ERCOT would be transmitted to another state for consumption. Without an exemption provided through sections 210 and 211 of the Federal Power Act, the proposed interconnection with Tres Amigas would result in ERCOT and ERCOT utilities becoming subject to FERC’s jurisdiction as public utilities.

The Commission said that the interconnections could be structured in such a way that FERC would possibly grant a section 210 or 211 exemption, but that the current project application does not provide enough information right now to make such a determination. FERC stated that if an application is filed by a transmitting utility to interconnect with Tres Amigas from ERCOT pursuant to section 211 that meets the requirements of that section, the Commission may grant the application.

Both orders are available at www.ferc.gov under the dockets EL10-22 and ER10-396.