Note

Hoarders: Clarifying FERC’s Policy, as Articulated in Order No. 888, Against Withholding Electric Transmission Capacity

Sandy Kugbei

Adopted in 1998 with the express goal of curbing undue discrimination in the interstate market for electric transmission, Order No. 888 has been referred to as the single largest step taken by the Federal Energy Regulatory Commission (FERC or the Commission) to foster competition in the market for wholesale electric transmission. Among its key features, Order No. 888 requires a utility within FERC’s jurisdiction to separate its transmission function from its wholesale merchant function and to charge separate rates for each of the services. The Order also requires any public utility that “own[s], control[s] or operate[s] transmission facilities which transmit electricity in interstate commerce to file with the FERC open access transmission tariffs.” These open access tariffs cannot be discriminatory or anticompetitive. Rather, the tariffs must “offer third parties access on the same or comparable basis, and under the same or comparable terms and conditions, as the transmission provider’s use of its system.” . . .

Part I provides a brief historical background of the electric utility industry, with an emphasis on significant changes that occurred prior to the adoption of Order No. 888. It segues through the traditional vertically integrated utility model and the concept of natural monopolies to reach the Commission’s fight against what FERC considers the foremost barrier to competition, undue discrimination. In doing so, Part I contextualizes many of the issues raised by this Note. Part II addresses the current need for reform. It begins by arguing that FERC’s hoarding policy, as described in Order No. 888, lacks both clarity and transparency. It contends that with rising mergers and acquisitions activity within the utility industry, FERC should expressly revisit its treatment of hoarding. Part III is concerned with establishing a comprehensive definition for capacity hoarding. Ultimately it defines capacity hoarding as “an electric utility’s retention of transmission capacity when such utility possesses market power or otherwise has an intention to exert market power through its retention of such capacity.” After establishing the definition, Part III concludes by suggesting that FERC adopt a modified use-it-or-lose-it approach to address hoarding.