ARIZONA BLOCKS TRANSMISSION LINE, FEDERAL FACE-OFF LOOMS

A recent decision by the Arizona Corporation Commission (ACC) to deny a construction permit for a new transmission line between Arizona and Southern California has broad implications for new infrastructure construction in the power sector.

*Potential federal versus state battle looms. The decision by the ACC may lead to the first test of the strength of the National Interest Transmission Corridor (NITC) provision from the Energy Policy Act of 2005 (EPAct 2005), which transferred some transmission siting authority from the states to the federal government. If the sponsor of the line appeals to the federal government to override Arizona's decision, the federal government's decision, and in particular the criteria used to approve or deny the line, will illuminate the strength of the NITC provision from the EPAct 2005.

*Creation of liquid trading hubs and access to renewables. Inability to build regional, as opposed to local, transmission lines is likely to reduce market liquidity and increase risk for merchant generators. This could adversely affect merchant generation development just as the industry gears up for the next round of infrastructure buildout. Such a development would particularly affect wind generation which is location specific and remote from load.

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