Commission Watch

Solving the dilemma.

The rationale from the Federal Energy Regulatory Commission (FERC) for eliminating through-and-out (T&O) rates while simultaneously imposing a Seams Elimination Charge/Cost Adjustment/Assignment (SECA) is an acknowledgement that FERC is conflicted on a fundamental economic principle: regional transmission organization (RTO) loads use the transmission systems of exporting RTOs; therefore, it is correct for importing customers to compensate exporting RTOs for the use of their transmission systems. It is unfair for importing loads to get "free" transmission service from neighboring exporting RTOs. At the same time, FERC is convinced that T&O rates have a negative impact on electricity markets. As a result, FERC wants to eliminate direct T&O charges while at the same time compensating exporting transmissions systems through inefficient uplift charges.

This view was first expressed by FERC in its Notice of Proposed Rulemaking (NOPR) in 2002.¹ FERC proposed eliminating T&O charges, instead charging all customers in an importing region for the exporting region's embedded transmission costs associated with imports. This would be done on an after-the-fact basis based upon the amount of power the region imported. But customers-not regions-import power.

To illustrate, suppose a customer in an RTO has purchased power to save $1.00/MWh in power costs. The exporting region's transmission provider would be paid its embedded transmission cost (say $2.00 per MWh) by all customers in the importing RTO. The cost of one customer's import decision ($2/MWh) would be socialized and disconnected from the purchase decision that caused that cost. How is that economically efficient?