Overview
On March 6, 2019 the Federal Energy Regulatory Commission (FERC) denied a transmission developer's request to purchase transmission assets from a non-profit cooperative.[1] Finding that the transaction would cause wholesale rate increases, and that the developer could not demonstrate sufficient offsetting benefits, FERC held that the developer had not met its burden under Section 203 of the Federal Power Act.[2] FERC has approved other, similar transactions in recent years, so its denial may signal discomfort with the transactions generally, or even a shift to a more exacting standard applicants must meet for Section 203 applications.
The applicant, GridLiance High Plains LLC, wanted to purchase transmission assets from People's Electric Cooperative, a small rural electric transmission and distribution cooperative and generation owner in Oklahoma. Once purchased, GridLiance planned to incorporate the transmission assets into the Southwest Power Pool, Inc. (SPP),[3] so SPP customers would have to pay for them in rates.
A number of SPP members protested the filing, saying that the transaction would have a negative impact on rates without sufficient offsetting benefits. Section 203 requires that the transaction be "consistent with the public interest,"[4] and an increase in rates "can be consistent with the public interest if there are countervailing benefits that derive from the transaction."[5]
GridLiance cited four main potential benefits: (1) that People's existing electric system would become more reliable; (2) that FERC promotes ownership of transmission facilities by "transcos," or transmission-only utilities, like GrdiLiance; (3) that the operations and efficiency of SPP would be enhanced; and (4) that the transaction would further Commission policy supporting increased public power participation in RTO transmission planning.[6]
FERC found each argument unpersuasive, highlighting that "the Assets…are radial lines currently being used…to provide distribution service to certain of [People's] retail customers," and that there were no "plans to upgrade, enhance, or add to the Assets."[7] FERC issued its order without prejudice, giving GridLiance the chance to re-file and try to demonstrate additional benefits of the proposed transaction.[8] GridLiance can also seek rehearing of FERC's order.
As FERC recognized in its Order, it has approved a number of similar transactions in recent years.[9] The Order signals that the Commission will take a hard look at "transco" purchases of formerly non-jurisdictional assets to ensure that they will result in demonstrable customer benefits (and not just more rate base), and may even signal a broader shift in Commission policy to require a more thorough demonstration of offsetting benefits when any proposed 203 transaction will raise rates. In either case, the energy attorneys at Steptoe, who have decades of experience in all aspects of Section 203 transactions, can help guide entities seeking to understand the 203 landscape and evaluate any proposed transactions.
[1] GridLiance High Plains LLC, 166 FERC ¶ 61,171 (2019) (the "Order").
[2] 16 U.S.C. § 824b (2012).
[3] SPP is a Regional Transmission Organization ("RTO") that oversees the bulk electric grid and wholesale power market across 14 states in the central United States.
[4] 16 U.S.C. § 824b(a)(4) (2012).
[5] Inquiry Concerning the Commission’s Merger Policy Under the Federal Power Act: Policy Statement, Order No. 592, FERC Stats. & Regs. ¶ 31,044 at 30,111 (1996) (subsequent history omitted).
[6] Order at PP 38-47.
[7] Id. at P 37.
[8] Id. at P 48.
[9] Id. at P 33 and n. 42.
