Merchant transmission

The prospect of merchant transmission as an enterprise unto itself poses several interesting business issues. Merchant transmission (as opposed to rate-regulated, tariff based revenue transmission) is a very different business proposition and poses its own set of issues for management, regulators and investors. Although these issues have some overlap and resemblance to the issues involved in more traditional transmission businesses that earn revenue to recover their investment and operating costs under regulated tariffs, the differences for merchant transmission are profound. As the merchant transmission company (MTC), seeks to identify viable projects and proceed to develop and operate them, the challenges and uncertainties are typically pervasive. At their core, the MTC projects that have emerged, represent the creation of a new transmission path connecting economically disparate markets. If two markets are already connected by multiple transmission paths that are rarely congested, the prices in the two markets would typically be similar (due to equilibration) and the economic impetus for merchant transmission would typically be absent. Only when the two markets are connected by few, if any paths and those that do exist are congested with some frequency, would it be logical for the markets to have disparate prices and thus for there be a sufficient economic value to creating access from one market to the other that the prospect of economic merchant transmission arises.