179 FERC ¶ 61,113
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Before Commissioners: Richard Glick, Chairman;
James P. Danly, Allison Clements,
Mark C. Christie, and Willie L. Phillips.
GridLiance High Plains LLC
Docket No.
EC22-24-000
ORDER AUTHORIZING DISPOSITION
OF JURISDICTIONAL FACILITIES
(Issued May 19, 2022)
On December 10, 2021, pursuant to section 203(a)(1) of the Federal Power Act
(FPA)
1
and part 33 of the Commission’s regulations,
2
GridLiance High Plains LLC
(Applicant) filed an application requesting authorization for the disposition of
jurisdictional facilities resulting from a transaction (Proposed Transaction) involving
the sale of certain existing transmission lines and related assets to the Missouri Joint
Municipal Electric Utility Commission (Missouri Municipal Commission).
3
We have reviewed the Proposed Transaction under the Commission’s Merger
Policy Statement.
4
As discussed below, we authorize the Proposed Transaction as
consistent with the public interest.
1
16 U.S.C. § 824b(a)(1).
2
18 C.F.R. pt. 33 (2021).
3
GridLiance High Plains LLC, Application for Authorization for Disposition of
Jurisdictional Facilities, Docket No. EC22-14-000, at 1 (filed Dec. 10, 2021)
(Application).
4
Inquiry Concerning the Commission’s Merger Pol’y Under the Fed. Power Act:
Pol’y Statement, Order No. 592, FERC Stats. & Regs. ¶ 31,044 (1996) (cross-referenced
at 77 FERC ¶ 61,263) (Merger Policy Statement), reconsideration denied, Order
No. 592-A, 79 FERC ¶ 61,321 (1997); see also FPA Section 203 Supplemental Pol’y
Statement, 120 FERC ¶ 61,060 (2007) (Supplemental Policy Statement), order on
clarification and reconsideration, 122 FERC ¶ 61,157 (2008); Transactions Subject to
FPA Section 203, Order No. 669, 113 FERC ¶ 61,315 (2005), order on reh’g, Order
No. 669-A, 115 FERC ¶ 61,097, order on reh’g, Order No. 669-B, 116 FERC ¶ 61,076
Docket No. EC22-24-000 - 2 -
I. Background
A. Description of Parties
1. Applicant
Applicant explains that it is a transmission-only company that owns transmission
lines and related facilities within the Southwest Power Pool, Inc. (SPP) market.
Applicant states that, in March 2018, it acquired from the City of Nixa, Missouri (Nixa),
the following transmission lines and related assets (collectively, Assets): (1) a 3.92-mile
161 kilovolt (kV) line operated at 69 kV that connects the City Utilities of Springfield’s
James River plant to Nixa’s Northeast substation; (2) a 2.31-mile 69 kV line that
connects Nixa’s Northeast substation to Nixa’s Tracker substation; (3) a 1.8-mile 69 kV
line that connects Nixa’s Tracker substation to Nixa’s Downtown substation; (4) a 1.24-
mile 69 kV that connects Nixa’s Downtown substation to Nixa’s ESPY substation;
(5) a 1.55-mile 69 kV line that connects Nixa’s ESPY substation to Southwestern Power
Administration’s Nixa substation; and (6) associated terminal equipment, including
ten 69 kV breakers, the real estate interests held by Nixa for the assets, and certain
miscellaneous materials and supplies.
5
Applicant explains that it placed the Assets under SPP’s operational control in
April 2018. Applicant states that the Commission accepted, subject to hearing and
settlement judge procedures, SPP’s request to incorporate Applicant’s annual
transmission revenue requirement and formula rate template into the SPP Open Access
Transmission Tariff (Tariff) and to place the Assets into SPP Zone 10. Applicant
explains that a hearing commenced on the proceeding in March 2019, and supplemental
hearing commenced in August 2021. Applicant states that an initial decision by the
Administrative Law Judge was issued on December 6, 2021. Applicant states that, in
addition to the Assets, it owns and operates transmission lines and related facilities in
Oklahoma and Kansas.
6
Applicant states that it is a wholly owned subsidiary of GridLiance Eastern
Holdings LLC, which also owns GridLiance East LLC and GridLiance Heartland LLC.
Applicant explains that GridLiance Heartland LLC owns and operates six 161 kV
(2006); Revised Filing Requirements Under Part 33 of the Commission’s Reguls., Order
No. 642, FERC Stats. & Regs. ¶ 31,111 (2000) (cross-referenced at 93 FERC ¶ 61,164),
order on reh’g, Order No. 642-A, 94 FERC ¶ 61,289 (2001).
5
Application at 3 (citing S. Cent. MCN LLC, 162 FERC ¶ 61,214 (2018) (South
Central MCN)).
6
Id. at 4-5.
Docket No. EC22-24-000 - 3 -
transmission lines ranging from 8 to 10 miles in length, two 161 kV substations, and
associated auxiliary equipment in Kentucky and Illinois. Applicant states that four of the
lines are under the functional control of the Midcontinent Independent System Operator,
Inc. (MISO), whereas the remaining lines are subject to GridLiance Heartland LLC’s
Tariff.
7
Applicant explains that GridLiance Eastern Holdings LLC is a wholly owned
subsidiary of GridLiance Heartland Holdings LLC, which itself is a wholly owned
subsidiary of GridLiance Holdco, LLC. Applicant states that GridLiance Holdco, LLC
also owns GridLiance Management, LLC, GridLiance Texas Holdings LLC, and
GridLiance Western Holdings LLC. Applicant explains that GridLiance Texas Holdings
LLC wholly owns GridLiance Texas LLC and that GridLiance Western Holdings LLC
wholly owns GridLiance West LLC. Applicant states that GridLiance West LLC owns
and operates a high voltage transmission system consisting of approximately 165 miles of
230 kV transmission lines and related substation infrastructure that runs through rural
Southern Nevada and has been incorporated into the grid controlled by California
Independent System Operator Corporation (CAISO) and is subject to the terms of the
CAISO Tariff.
8
Applicant states that, as part of a transaction approved by the Commission in
March 2021, GridLiance Holdco, LLC became a wholly owned subsidiary of NextEra
Energy Transmission, LLC (NEET).
9
Applicant explains that NEET is a wholly owned,
indirect subsidiary of NextEra Energy, Inc. (NextEra), whose shares are publicly traded
on the New York Stock Exchange. Applicant states that NEET was formed in 2007 to
develop, own, and operate, directly or through subsidiaries, transmission facilities across
the United States and Canada.
10
Applicant explains that the jurisdictional transmission assets of NEET’s
subsidiaries include transmission projects and facilities in New Hampshire, California,
New York, and Indiana.
11
Applicant states that NextEra’s competitive power subsidiary is NextEra Energy
Resources, LLC (NextEra Resources) and that NextEra Resources’ subsidiaries own or
7
Id. at 5-6.
8
Id. at 6.
9
Id. (citing NextEra Energy Transmission, LLC, 174 FERC ¶ 61,215 (2021)).
10
Id.
11
Id. at 6-8.
Docket No. EC22-24-000 - 4 -
operate merchant generating facilities in 37 states and Canada with a combined net
generating capacity of approximately 24,000 megawatts (MW), including interests in
some facilities owned by NextEra Energy Partners, LP (NEP). Applicant explains that
these subsidiaries own various interconnection facilities used solely for connecting
generating facilities to the transmission grid and have been granted blanket waivers from
the Commission’s open access and Open Access Same-time Information System
requirements in Order No. 807.
12
In addition, Applicant states that NextEra owns Florida Power & Light Company
(FPL), a franchised public utility that provides wholesale and retail electric service to
customers in Florida. Applicant explains that FPL owns approximately 29,000 MW of
net generating capacity in Florida and has been granted market-based rate authority in
certain balancing authority areas. Applicant states that FPL’s transmission facilities in
peninsular Florida are administered pursuant to the FPL Tariff, which is on file with the
Commission, and that FPL’s transmission facilities in the Florida Panhandle remain
administered under the Gulf Power Company (Gulf Power) Tariff following the January
2021 merger of Gulf Power into FPL for a limited, transitional period.
13
Applicant explains that NEP and NextEra indirectly own several Hinshaw
Pipelines that are exempt from Commission jurisdiction pursuant to section 1(c) of the
Natural Gas Act.
14
Applicant also states that NextEra indirectly owns Pivotal Utility
Holdings, Inc. (Florida City Gas), a gas local distribution company that serves natural gas
customers in certain counties in Florida. Applicant explains that Florida City Gas does
not provide natural gas to any plants that directly generate electricity but does provide
natural gas to a biomass plant that uses natural gas for various purposes in conjunction
with generating electricity.
15
2. Missouri Municipal Commission
Applicant states that Missouri Municipal Commission is a joint action agency and
corporate and political body of the State of Missouri and, as a result, is not subject to the
Commission’s review under section 203.
16
Applicant explains that Missouri Municipal
12
Id. (citing Open Access & Priority Rights on Interconnection Customer’s
Interconnection Facilities, Order No. 807, 150 FERC ¶ 61,211 (2015)).
13
Id. at 8-9 (citing Gulf Power Co., 173 FERC ¶ 61,031 (2020)).
14
Id. at 9-10.
15
Id. at 10-11.
16
Id. at 11.
Docket No. EC22-24-000 - 5 -
Commission is authorized by legislation to construct, operate, and maintain jointly owned
transmission and generation facilities for the production and transmission of electric
power for its members, to purchase and sell electric power and energy, and to enter into
agreements with any person for the transmission of electric power. Applicant states that
Missouri Municipal Commission’s membership includes 70 municipal utilities in
Missouri and four advisory members in Arkansas, and that Missouri Municipal
Commission’s members serve approximately 347,000 retail electric customers, with a
combined peak load of approximately 2,600 MW.
17
Applicant states that, since January 2000, pursuant to its authority under state law,
Missouri Municipal Commission has been administering full-requirement power pools
formed by some of Missouri Municipal Commission’s member municipal utilities.
Applicant explains that, currently, Missouri Municipal Commission has three full-
requirement power pools comprised of 50 of Missouri Municipal Commission’s
members, with a 2021 combined peak load of approximately 680 MW. Applicant states
that those three Missouri Municipal Commission power pools have loads and/or
resources located within the transmission systems of SPP and MISO.
18
Applicant explains that, other than the Assets that are the subject of the
Application, Missouri Municipal Commission currently owns no transmission assets.
Applicant states that Missouri Municipal Commission does own generation facilities used
to serve Missouri Municipal Commission’s loads in SPP and MISO. Applicant explains
that Missouri Municipal Commission has also contracted for power through power
purchase agreements with generating facilities fueled by coal, landfill gas, wind, solar,
and hydropower. Applicant adds that Missouri Municipal Commission has access to
member-owned generating facilities that provide power from a combined heat and power
unit and local peaking units.
19
B. Description of the Proposed Transaction
Applicant states that, in October 2021, Missouri Municipal Commission entered
into the Asset Purchase Agreement with Applicant under which Applicant would sell to
Missouri Municipal Commission and Missouri Municipal Commission would buy from
Applicant the Assets. Applicant explains that, upon consummation of the Proposed
Transaction, ownership of the Assets will transfer to Missouri Municipal Commission,
but will remain under the operational control of SPP. Applicant states that Missouri
17
Id.
18
Id.
19
Id. at 12.
Docket No. EC22-24-000 - 6 -
Municipal Commission will recover an annual transmission revenue requirement on the
Assets pursuant to a formula rate template contained in the SPP Tariff.
20
II. Notice of Filing and Responsive Pleadings
Notice of the Application was published in the Federal Register, 86 Fed. Reg.
72,596 (Dec. 22, 2021), with interventions and protests due on or before January 3, 2022.
The Missouri Public Service Commission filed a notice of intervention. ARKMO
Cities;
21
American Electric Power Service Corporation; Western Farmers Electric
Cooperative; Evergy Kansas Central, Inc., Evergy Metro, Inc., and Evergy Missouri
West, Inc.; Xcel Energy Services Inc.; and Associated Electric Cooperative, Inc. filed
motions to intervene. Missouri Municipal Commission filed a motion to intervene and
comments in support of the Proposed Transaction. ARKMO Cities filed a limited
protest. Missouri Municipal Commission filed a motion for leave to answer and answer
in opposition of ARKMO Cities’ limited protest.
Commission staff issued a deficiency letter on March 7, 2022. Applicant
submitted a response to the deficiency letter on March 9, 2022 (Response). Notice of the
Response was published in the Federal Register, 87 Fed. Reg. 18,011 (Mar. 29, 2022),
with interventions and protests due on or before March 30, 2022. Missouri Municipal
Commission submitted a response to the Response.
III. Discussion
A. Procedural Matters
Pursuant to Rule 214 of the Commission’s Rules of Practice and Procedure,
22
the
timely, unopposed motions to intervene and notice of intervention serve to make the
entities that filed them parties to the proceeding.
Rule 213(a)(2) of the Commission’s Rules of Practice and Procedure
23
prohibits
an answer to a protest unless otherwise ordered by the decisional authority. We accept
20
Id. at 12-13.
21
ARKMO Cities are comprised of Paragould Light Water & Cable, Paragould
Light Commission, Poplar Bluff Municipal Utilities, Kennett Board of Public Works,
City of Piggott Municipal Light Water & Sewer, and the City of Malden. ARKMO
Cities January 3, 2022 Limited Protest at 1.
22
18 C.F.R. § 385.214 (2021).
23
18 C.F.R. § 385.213(a)(2) (2021).
Docket No. EC22-24-000 - 7 -
Missouri Municipal Commission’s answer because it has provided information that
assisted us in our decision-making process.
B. Substantive Matters
1. FPA Section 203 Standard of Review
FPA section 203(a)(4) requires the Commission to approve proposed dispositions,
consolidations, acquisitions, or changes in control if the Commission determines that the
proposed transaction will be consistent with the public interest.
24
The Commission’s
analysis of whether a proposed transaction is consistent with the public interest generally
involves consideration of three factors: (1) the effect on competition; (2) the effect on
rates; and (3) the effect on regulation.
25
FPA section 203(a)(4) also requires the
Commission to find that the proposed transaction “will not result in cross-subsidization
of a non-utility associate company or the pledge or encumbrance of utility assets for the
benefit of an associate company, unless the Commission determines that the cross-
subsidization, pledge, or encumbrance will be consistent with the public interest.”
26
The Commission’s regulations establish verification and informational requirements
for entities that seek a determination that a proposed transaction will not result in
inappropriate cross-subsidization or pledge or encumbrance of utility assets.
27
2. Analysis of the Proposed Transaction
a. Effect on Competition
i. Applicant’s Analysis
Applicant argues that the Proposed Transaction will have no adverse effect on
horizontal competition. Applicant maintains that the Proposed Transaction does not
24
16 U.S.C. § 824b(a)(4). Approval of the Proposed Transaction is also required
by other regulatory agencies pursuant to their respective statutory authorities before the
Proposed Transaction may be consummated. See Application at 24. Our findings under
FPA section 203 do not affect those agencies’ evaluation of the Proposed Transaction
pursuant to their respective statutory authorities.
25
Merger Policy Statement, FERC Stats. & Regs. ¶ 31,044 at 30,111.
26
16 U.S.C. § 824b(a)(4).
27
18 C.F.R. § 33.2(j) (2021).
Docket No. EC22-24-000 - 8 -
involve the disposition of any generating assets, and, thus, will not result in any change in
market concentration for generation.
28
Applicant claims that the Proposed Transaction will not have an adverse effect on
vertical competition. Applicant represents that the Proposed Transaction involves the
change in ownership over only transmission and related assets and no changes in control
over electric products or inputs to electric products and that, as a result, no vertical
competitive analysis is required under the Commission’s regulations.
29
In addition,
Applicant maintains that transmission service provided by Missouri Municipal
Commission will be provided pursuant to a Tariff that has been filed with, and accepted
for filing by the Commission, and that vertical market power concerns regarding the
control of transmission facilities are adequately mitigated when those facilities are
subject to a Tariff. Applicant argues thus that there are no vertical market power
concerns with Missouri Municipal Commission.
30
ii. Commission Determination
In analyzing whether a proposed transaction will adversely affect horizontal
competition, the Commission examines the effects on concentration in the relevant
geographic markets and whether the proposed transaction otherwise creates the incentive
and ability to engage in behavior harmful to competition, such as withholding of
generation.
31
We find that the Proposed Transaction will not have an adverse effect on
horizontal competition because the Proposed Transaction does not involve any change in
ownership or control of any generating facilities.
32
In analyzing whether a proposed transaction presents vertical market power
concerns, the Commission considers the vertical combination of upstream inputs, such as
transmission or natural gas, with downstream generating capacity. As the Commission
has previously found, transactions that combine electric generation assets with inputs to
generating power (such as natural gas, transmission, or fuel) can harm competition if the
transaction increases an entity’s ability or incentive to exercise vertical market power in
28
Application at 15.
29
Id.
30
Id. at 15-16.
31
Nev. Power Co., 149 FERC ¶ 61,079, at P 28 (2014).
32
S. Cent. MCN, 162 FERC ¶ 61,214 at P 27.
Docket No. EC22-24-000 - 9 -
wholesale electricity markets. For example, by denying rival entities access to inputs or
by raising their input costs, an entity created by a transaction could impede entry of new
competitors or inhibit existing competitors’ ability to undercut an attempted price
increase in the downstream wholesale electricity market.
33
Because the Proposed Transaction does not involve the transfer of generation
facilities or inputs to electric power generation, or the combination of transmission
facilities with affiliated generation in the same market, we find that it will not have an
adverse effect on vertical competition.
34
b. Effect on Rates
i. Applicant’s Analysis
Applicant represents that the Proposed Transaction will not have an adverse effect
on any wholesale rates for electric power.
In addition, Applicant states that, with respect to transmission rates, Missouri
Municipal Commission will recover its revenue requirement for the Assets through a
formula rate included SPP’s Tariff, just as Applicant did before it. Applicant states that
the Missouri Municipal Commission annual transmission revenue requirement associated
with its ownership of the Assets will be lower than Applicant’s annual transmission
revenue requirement attributable to the Assets, resulting in a decrease in both Schedule 9
and Schedule 11 zonal rates for Zone 10 (the Southwestern Power Administration zone)
in which the Assets are located.
35
Applicant explains that the Missouri Municipal Commission annual transmission
revenue requirement is approximately 32.2% lower than Applicant’s annual transmission
revenue requirement for the Assets. Applicant states that the lower Missouri Municipal
Commission annual transmission revenue requirement is attributable primarily to two
factors: (1) as a non-profit entity, Missouri Municipal Commission pays no property or
income taxes and has a lower cost of debt, which results in a lower weighted-average
cost of capital; and (2) Missouri Municipal Commission is projected to have lower
administrative and general expenses related to ownership of the Assets. Applicant
represents that, because the Proposed Transaction will result in a lower annual
transmission revenue requirement for the Assets and lower rates for SPP customers,
33
Upstate N.Y. Power Producers, Inc., 154 FERC ¶ 61,015, at P 15 (2016);
Exelon Corp., 138 FERC ¶ 61,167, at P 112 (2012).
34
S. Cent. MCN, 162 FERC ¶ 61,214 at P 27.
35
Application at 16-17.
Docket No. EC22-24-000 - 10 -
the Proposed Transaction will have no adverse effect on wholesale rates for electric
power or transmission service.
36
ii. Protest and Answer
ARKMO Cities represent that they do not protest the transfer of the Assets
from Applicant to Missouri Municipal Commission. Rather, ARKMO Cities protest
the representations and calculations in the Application that presume an allocation of
100% of the costs of Missouri Municipal Commission’s annual transmission revenue
requirement associated with the Assets into SPP Pricing Zone 10. ARKMO Cities
state that the zonal placement and cost allocation of the annual transmission revenue
requirement associated with the Assets is subject to pending litigation in Docket
No. ER18-99-005. Accordingly, ARKMO Cities request that the Commission not
prejudge or otherwise rule on the zonal placement and cost allocation of the annual
transmission revenue requirement for the Assets in the instant proceeding.
37
In its answer, Missouri Municipal Commission states that ARKMO Cities do not
protest the Proposed Transaction and contends that whether the Proposed Transaction is
consistent with the public interest is the only issue raised by the Application that needs to
be resolved by the Commission. Missouri Municipal Commission argues that nothing in
this proceeding will impact the cost allocation issue raised by ARKMO Cities in Docket
No. ER18-99. Missouri Municipal Commission adds that the presumption in the
Application that the Assets will remain in SPP Pricing Zone 10 is simply a reflection of
the determination made by SPP under its Transmission Owner Zonal Placement Process
and recently confirmed by the Initial Decision in Docket No. ER18-99. Missouri
Municipal Commission asserts that there is no basis to claim that the change of
ownership of the Assets should result in a change in the zonal placement decision.
For these reasons, Missouri Municipal Commission contends that ARKMO Cities’
limited protest cannot be viewed as a protest of the Proposed Transaction.
38
iii. Deficiency Letter and Response
Commission staff issued a deficiency letter, which requested further information
on the Proposed Transaction’s effect on rates. In the Response, Applicant explains that,
as consideration for the Proposed Transaction, Missouri Municipal Commission will pay
to Applicant as the purchase price the net property, plant and equipment value of the
Assets and any improvements thereto as reflected on Applicant’s asset register based on
36
Id. at 18.
37
ARKMO Cities January 3, 2022 Limited Protest at 1-2, 5.
38
Missouri Municipal Commission January 4, 2022 Answer at 2-3.
Docket No. EC22-24-000 - 11 -
Applicant’s financial statements reduced by accumulated depreciation, according to the
Commission’s Uniform System of Accounts.
39
In addition, Applicant clarifies that
Missouri Municipal Commission intends to recover the net book value of the Assets
through its annual transmission revenue requirements under a formula rate through the
SPP Tariff. Applicant adds that Missouri Municipal Commission has not requested and
does not plan to request the rate recovery of any amount associated with the Assets other
than the net book value paid to Applicant.
40
Missouri Municipal Commission confirms the accuracy of the Response as to its
recovery of an annual transmission revenue requirement associated with the Assets,
which is currently pending in Docket No. ER22-709-000.
41
iv. Commission Determination
Based on Applicant’s representations, we find that the Proposed Transaction will
not have an adverse effect on rates. First, there is no effect on wholesale power rates
because the Proposed Transaction does not involve the transfer of generation facilities.
42
We also find that the Proposed Transaction will not have an adverse effect on
transmission rates. We note that ownership of the Assets is changing from a for-profit
business to a not-for-profit utility, which has a different capital structure, tax obligation,
and return on equity.
43
In addition, Applicant confirms that Missouri Municipal
Commission intends to only recover the net book value of the Assets through its annual
transmission revenue requirement. Based on these representations, we find that the
change in rates resulting from the change in ownership due to the Proposed Transaction is
not an adverse effect on rates.
44
Regarding ARKMO Cities’ concerns as to the rate treatment of the Assets under
FPA section 205, the rate treatment of assets is addressed under FPA section 205, not
under FPA section 203. Our decision here is limited to the effect that the Proposed
39
Response at 2.
40
Id.
41
Missouri Municipal Commission March 24, 2022 Response at 1.
42
NextEra Energy Transmission, LLC, 174 FERC ¶ 61,215, at P 41 (2021).
43
Cf. S. Cent. MCN, 162 FERC ¶ 61,214 at P 45; GridLiance W. Transco LLC,
160 FERC ¶ 61,002, at P 52 (2017).
44
South Central MCN, 162 FERC ¶ 61,214 at P 45.
Docket No. EC22-24-000 - 12 -
Transaction has on rates, whether that effect is adverse, and whether any adverse effect
will be offset or mitigated by benefits that are likely to result from the transaction.
45
As a
result, the rate treatment of the Assets that are the subject of the Proposed Transaction
will be addressed in Docket No. ER18-99 and related proceedings. We also note that
ARKMO Cities do not take issue with the Proposed Transaction itself; rather, their
comments relate to the rate treatment of the Assets underlying the Proposed Transaction.
c. Effect on Regulation
i. Applicant’s Analysis
Applicant represents that the Proposed Transaction will not impair the ability of
the Commission or any state regulatory authority to regulate either it or Missouri
Municipal Commission or their affiliates. Applicant explains that, after the Proposed
Transaction is consummated, the Assets will remain under the functional control of
SPP and transmission service will be provided pursuant to the SPP Tariff on file with the
Commission. Applicant states that, while Missouri Municipal Commission itself will not
be subject to the Commission’s plenary jurisdiction pursuant to FPA section 201(f),
46
the
Commission nonetheless will be able to exercise the same jurisdiction that it currently
exercises with respect to transmission service provided over the Assets. Applicant claims
that the Proposed Transaction will have no effect on state regulation, and that other
approvals from other regulatory bodies will be obtained promptly if necessary. Applicant
explains that the Proposed Transaction therefore will not have an adverse effect on
regulation.
47
ii. Commission Determination
The Commission’s review of a transaction’s effect on regulation focuses on
ensuring that it does not result in a regulatory gap.
48
As to whether a proposed
transaction will have an effect on state regulation, the Commission explained in the
Merger Policy Statement that it ordinarily will not set the issue of the effect of a proposed
transaction on state regulatory authority for a trial-type hearing where a state has
authority to act on the proposed transaction. However, if the state lacks this authority and
raises concerns about the effect on regulation, the Commission may set the issue for
45
Id. P 43; see also Silver Merger Sub, Inc., 145 FERC ¶ 61,261, at P 65 (2013);
Merger Policy Statement, FERC Stats. & Regs. ¶ 31,044 at 30,123.
46
16 U.S.C. § 824(f).
47
Application at 19.
48
Merger Policy Statement, FERC Stats. & Regs. ¶ 31,044 at 30,124.
Docket No. EC22-24-000 - 13 -
hearing and it will address such circumstances on a case-by-case basis.
49
Based on
Applicant’s representations, we find no evidence that either state or federal regulation
will be impaired by the Proposed Transaction. Finally, we note that no party alleges that
regulation, state or federal, would be impaired by the Proposed Transaction, and no state
commission has requested that the Commission address the issue of the effect on state
regulation.
d. Cross-Subsidization
i. Applicant’s Analysis
Applicant represents that the Proposed Transaction does not pose a risk of cross-
subsidization and does not pledge or otherwise encumber utility assets. According to
Applicant, the Proposed Transaction is one of the classes of the transactions which the
Commission has recognized as unlikely to raise cross-subsidization concerns in that the
Proposed Transaction does not involve a franchised public utility with captive customers.
Applicant also explains that the Proposed Transaction falls into another class of
transactions identified by the Commission as unlikely to raise cross-subsidization
concerns, that is, the Proposed Transaction involves only non-affiliates.
50
In addition, Applicant verifies that, based on facts and circumstances known to it
or that are reasonably foreseeable, the Proposed Transaction will not result in, at the time
of the Proposed Transaction or in the future, any cross-subsidization of a non-utility
associate company or pledge or encumbrance of utility assets for the benefit of an
associate company, including: (1) any transfer of facilities between a traditional
public utility associate company that has captive customers or that owns or provides
transmission service over jurisdictional transmission facilities, and an associate company;
(2) any new issuance of securities by a traditional public utility associate company that
has captive customers or that owns or provides transmission service over jurisdictional
transmission facilities, for the benefit of an associate company; (3) any new pledge or
encumbrance of assets of a traditional public utility associate company that has captive
customers or that owns or provides transmission service over jurisdictional transmission
facilities, for the benefit of an associate company; or (4) any new affiliate contract
between a non-utility associate company and a traditional public utility associate
company that has captive customers or that owns or provides transmission service over
49
Id.
50
Application at 19-20.
Docket No. EC22-24-000 - 14 -
jurisdictional transmission facilities, other than non-power goods and service agreements
subject to review under sections 205 and 206 of the FPA.
51
ii. Commission Determination
Based on Applicant’s representations, we find that the Proposed Transaction will
not result in the cross-subsidization of a non-utility associate company by a utility
company, or in a pledge or encumbrance of utility assets for the benefit of an associate
company. We note that no party has argued otherwise.
3. Accounting Analysis
In Attachment 3 of the Application, Applicant provides its pro forma accounting
entries related to the sale of the Assets. Although Applicant proposes to clear the
Proposed Transaction through Account 102, Electric Plant Purchased or Sold, it did not
include associated balances carried in Account 114, Electric Plant Acquisition
Adjustments, and Account 115, Accumulated Provision for Amortization of Electric
Plant Acquisition Adjustments, related to previous transactions. The Commission’s
Uniform System of Accounts, Electric Plant Instruction No. 5(f), requires utilities that
sell an operating unit or system to clear the transaction through Account 102, including
amounts carried in Account 114.
52
In addition, Applicant proposes to use Account 411.7,
Losses from Disposal of Utility Plant, to record the loss on the Proposed Transaction;
however, this account is used only for losses related to disposal of plant assets recorded
in Account 105, Electric Plant Held for Future Use. The Commission’s accounting
regulations require the use of Account 421.2, Loss on Disposition of Property, to record
losses on disposition of plant assets that were previously in-service. Applicant is required
to submit its proposed accounting entries within six months of the date that the Proposed
Transaction is consummated, in accordance with Electric Plant Instruction No. 5 and
Account 102, and Account 421.2.
53
4. Other Issues
a. Protest
ARKMO Cities point out that Applicant has requested privileged and confidential
treatment of the Asset Purchase Agreement. ARKMO Cities explain that Applicant
51
Id. at Ex. M.
52
The associated amortization of Account 114 may be recorded in Account 115
and should likewise be included as part of the Account 102 clearance.
53
See 18 C.F.R. part 101, Definitions of Accounts 105, 411.7, & 421.2.
Docket No. EC22-24-000 - 15 -
claims that confidentiality is justified based on the fact that the Asset Purchase
Agreement contains commercially sensitive information that is not publicly available and
that such public release may harm the parties in future negotiations for similar
transactions and in structuring future investments. ARKMO Cities contend, however,
that Applicant has not demonstrated why the entire Asset Purchase Agreement is
confidential. ARKMO Cities request that the Commission require that Applicant file a
redacted, publicly available version of the Asset Purchase Agreement.
54
ARKMO Cities state that they have requested access to the entire Asset Purchase
Agreement and will need to review the entire Asset Purchase Agreement in order to
assess how the agreement may affect ARKMO Cities. ARKMO Cities assert that, at
minimum, they should have access to the Asset Purchase Agreement under the terms of a
protective order to be issued in this proceeding. ARKMO Cities suggest that the Asset
Purchase Agreement could contain provisions and conditions that impact the zonal
placement and cost allocation of the Assets, thereby impacting the Commission-
jurisdictional rate that ARKMO Cities would be required to pay.
55
b. Deficiency Letter and Response
In its Response, Applicant states that to expedite the Commission’s review of the
Proposed Transaction, it has withdrawn its request for confidential treatment of the Asset
Purchase Agreement and attached the unredacted version of the Asset Purchase
Agreement. Applicant also notes that it provided an unredacted version of the Asset
Purchase Agreement after ARKMO Cities submitted signed non-disclosure certificates
under the protective order submitted with the Application.
56
c. Commission Determination
We find that Applicant’s withdrawal of its request for confidential treatment of the
Asset Purchase Agreement addresses ARKMO Cities’ concerns regarding the privileged
nature of the Asset Purchase Agreement.
5. Other Considerations
Information and/or systems connected to the Bulk Power System involved in
this transaction may be subject to reliability and cybersecurity standards approved
54
ARKMO Cities January 3, 2022 Limited Protest at 6.
55
Id.
56
Response at 2-3.
Docket No. EC22-24-000 - 16 -
by the Commission pursuant to FPA section 215.
57
Compliance with these standards
is mandatory and enforceable regardless of the physical location of the affiliates or
investors, information database, and operating systems. If affiliates, personnel or
investors are not authorized for access to such information and/or systems connected to
the Bulk Power System, a public utility is obligated to take the appropriate measures to
deny access to this information and/or the equipment/software connected to the Bulk
Power System. The mechanisms that deny access to information, procedures, software,
equipment, etc., must comply with all applicable reliability and cybersecurity standards.
The Commission, the North American Electric Reliability Corporation, or the relevant
regional entity may audit compliance with reliability and cybersecurity standards.
FPA section 301(c) gives the Commission authority to examine the books and
records of any person who controls, directly or indirectly, a jurisdictional public utility
insofar as the books and records relate to transactions with or the business of such public
utility.
58
The approval of the Proposed Transaction is based on such examination ability.
In addition, applicants subject to the Public Utility Holding Company Act of 2005
59
(PUHCA 2005) are subject to the record-keeping and books and records requirements of
PUHCA 2005.
Section 35.42 of the Commission’s regulations requires that sellers with market-
based rate authority timely report to the Commission any change in status that would
reflect a departure from the characteristics the Commission relied upon in granting
market-based rate authority.
60
To the extent that a transaction authorized under FPA
section 203 results in a change in status, sellers that have market-based rates are advised
that they must comply with the requirements of section 35.42.
The Commission orders:
(A) The Proposed Transaction is hereby authorized, as discussed in the body
of this order.
(B) Applicant must inform the Commission of any material change in
circumstances that departs from the facts or representations that the Commission relied
upon in authorizing the Proposed Transaction within 30 days from the date of the
material change in circumstances.
57
16 U.S.C. § 824o.
58
Id. § 825(c).
59
42 U.S.C. §§ 16451-63.
60
18 C.F.R. § 35.42 (2021).
Docket No. EC22-24-000 - 17 -
(C) The foregoing authorization is without prejudice to the authority of the
Commission or any other regulatory body with respect to rates, service, accounts,
valuation, estimates or determinations of costs, or any other matter whatsoever now
pending or which may come before the Commission.
(D) Nothing in this order shall be construed to imply acquiescence in any
estimate or determination of cost or any valuation of property claimed or asserted.
(E) The Commission retains authority under sections 203(b) and 309 of the
FPA to issue supplemental orders as appropriate.
(F) Applicant shall make any appropriate filings under section 205 of the FPA,
as necessary, to implement the Proposed Transaction.
(G) Applicant shall notify the Commission within 10 days of the date on which
the Proposed Transaction is consummated.
(H) Applicant shall account for the Proposed Transaction in accordance with
Electric Plant Instruction No. 5 and Account 102, Electric Plant Purchased or Sold, of
the Uniform System of Accounts, as directed above. Applicant shall submit proposed
accounting entries within six months of the date that the Proposed Transaction is
consummated, and the accounting submission shall provide all the accounting entries and
amounts related to the transfer along with narrative explanations describing the basis for
the entries.
By the Commission.
( S E A L )
Debbie-Anne A. Reese,
Deputy Secretary.
