FERC Approves Funding Plan for Major International Transmission Line Over Protests

In a May 22 order, FERC approved a cost-based, participant-funded proposal by Northeast Utilities Service Co. and NSTAR Electric Co. to develop a new transmission project linking ISO New England with Hydro-Québec. The project, a 1200-MW, high-voltage direct-current transmission line, will cross the US-Canadian border and connect Hydro- Québec's system with a point in southern New Hampshire. The line will bring large amounts of hydropower from Québec into ISO New England, displacing some of the existing gas-fired generation in New England. FERC Commissioners hailed the project as a way to get substantial amounts of low-cost, clean energy into ISO New England.

FERC approved Northeast Utilities' and NSTAR's funding proposal for the line despite protests that the proposed funding mechanism is anti-competitive and inconsistent with FERC's prior precedent for merchant transmission lines. In previous cases, FERC has permitted new transmission projects to sell their transmission capacity at market-based rates so long as they offer their capacity in open-season auctions. This project, in contrast, will be funded exclusively by Hydro-Québec, which will then have sole rights to the capacity at cost-based rates for a 20-year term (although it will make any unused capacity available to third party shippers).

FERC dismissed the protests by finding, somewhat opaquely, that the project is not a merchant transmission line and therefore is not subject to merchant transmission requirements, including the open season auction. FERC's decision may signal an invitation for participant-funded electric transmission projects in the future and a possible move away from the open-access requirements that FERC has imposed on merchant projects, at least where relatively clean or green power is involved.