By Robert Mullin

FERC last week approved Macquarie Energy’s request to revise its market-based rate tariff to allow the company to engage in short-term simultaneous transactions along a key Pacific Northwest transmission system partly controlled by Puget Sound Energy — a Macquarie affiliate (ER16-2198).

The commission’s decision enables Macquarie to trade energy and capacity with an unaffiliated counterparty on the California Oregon Intertie (COI) north of the California Oregon Border (COB) trading hub while at the same time executing an opposite transaction at the John Day hub in central Oregon.

COB is a major delivery point for wheeling Northwest generation intended for markets in California. The John Day hub is predominantly used to price bilateral transactions involving output from hydroelectric and wind resources in central and eastern Oregon and Washington, often intended for delivery into California.

PSE is one of six holders of capacity on the northern portion of the COI, with Seattle City Light, Pacific Northwest Generating Cooperative, Snohomish County Public Utility District, Tacoma Power and PacifiCorp’s merchant arm making up the rest of the group. The COI’s owners — Bonneville Power Administration, PacifiCorp and Portland General Electric — also control capacity on the system, which consists of three parallel transmission lines.

Macquarie Energy and PSE are both subsidiaries of Australia-based investment bank Macquarie Group.

Headquartered in Houston, Macquarie Energy operates as an independent power marketer throughout the U.S. The company does not own or operate generation or transmission assets in the Northwest, controlling only a small amount of generation, in the PJM balancing authority area, through long-term contracts. PSE is a vertically integrated utility serving about 1.1 million electricity customers in northern Washington. The utility also operates a wholesale marketing arm.

In 2012, the commission ruled that “when a 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 its affiliated transmission provider’s system.” Approval of such transactions would be made on a case-by-case basis, the commission said.

Macquarie’s July 14 FERC filing requesting the tariff change contested the need for the company to obtain prior authorization to engage in transactions at COB and John Day. The company said that while it is technically an affiliate of PSE, it does not function as PSE’s wholesale marketer or buyer.

The commission rejected that contention.

“We are not persuaded by Macquarie Energy’s argument that, because Macquarie Energy neither markets any of Puget Sound’s generation nor purchases any power for or on behalf of Puget Sound and only purchases point-to-point transmission from Puget Sound, its affiliate relationship with Puget Sound is not equivalent to acting as the wholesale merchant function of a transmission provider and therefore merits different treatment,” the commission wrote, adding Macquarie could potentially perform PSE’s wholesale market function.

The commission nonetheless authorized Macquarie to engage in the proposed trades, saying the company provided FERC with sufficient information to evaluate the transactions.

“We find that Macquarie Energy has adequately addressed the commission’s concern regarding circumvention of open access requirements and has demonstrated that its proposed transactions are not an attempt to offer transmission service without reserving transmission,” the commission wrote.

More important to the commission was the fact that Macquarie cannot use PSE’s network transmission to engage in the transactions, but must instead purchase point-to-point service in order to move energy between COB and John Day.

“The inability to use network transmission service mitigates the concern that Macquarie Energy’s proposed transaction will allow Puget Sound to earn revenue from both the explicit sale of transmission service and the implicit sale of transmission service via Macquarie Energy’s proposed transactions,” the commission wrote.

Furthermore, given the diverse ownership of capacity on the COI, Macquarie is not limited to purchasing point-to-point service from just PSE.

“Moreover, any transmission service obtained by Macquarie Energy on the COI would be under the [tariff] of the entity providing the service, including Puget Sound,” the commission said.