On March 6, 2019, FERC denied GridLiance GP, LLC’s (“GridLiance”) proposal (“Proposed Transaction”) to acquire from People’s Electric Cooperative certain transmission lines and related facilities (“Assets”). In its order, FERC concluded that GridLiance failed to demonstrate that the benefits of its ownership of the facilities would offset the rate increases that GridLiance acknowledged would result from the Proposed Transaction. However, because FERC denied the proposal without prejudice, GridLiance can make a new filing that, according to FERC “proposes adequate ratepayer protection and demonstrates specific additional benefits to offset a rate increase.”
On July 13, 2018, GridLiance filed its application to acquire approximately 55 miles of 138 kV lines and related facilities, as well as the associated terminal equipment and the real estate interests held by People’s Electric Cooperative. GridLiance also proposed to allow the People’s Electric Cooperative to retain its distribution assets and continue to provide distribution service and retail sales to its customers. In its application, GridLiance admitted the estimated purchase price for the Assets was higher than the net book value of the Assets but explained it would not seek authorization for rate recovery for any amount above the Assets’ net book value.
FERC, in making its determination, stressed that its analysis focused on the effect the Proposed Transaction would have on jurisdictional 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 Proposed Transaction. FERC also recognized that GridLiance’s Proposed Transaction resembled previous transactions approved by FERC involving a transco’s proposed acquisition of transmission assets.
In its order however, FERC found that GridLiance failed to demonstrate that the benefits of owning the Assets would offset the rate increases that GridLiance acknowledged would result from the Proposed Transaction. FERC noted that the Assets GridLiance proposed to acquire were radial lines currently being used to provide distribution service to retail customers. As a result, FERC questioned whether transco ownership of those Assets would provide benefits similar to other cases where FERC found that the benefits of transco ownership outweighed any associated rate increase. FERC explained that, unlike the prior cases where the applicant detailed plans for expansion or other upgrades to the transmission facilities being acquired, GridLiance admitted that it did not have any plans to upgrade, enhance, or add to the Assets. FERC also determined that the benefits of increasing the reliability of service to this relatively small amount of retail load was insufficient to offset the rate increase resulting from GridLiance’s acquisition of the Assets. Finally, FERC ruled that GridLiance failed to demonstrate how placing the Assets under Southwest Power Pool Inc.’s control would maximize the use of the Assets, minimize the need for new transmission, or provide new avenues for transmission expansion.
Because FERC found that GridLiance failed to show that the benefits of the Proposed Transaction were enough to offset the adverse effect on rates, FERC denied the Proposed Transaction. However, because FERC’s denial was without prejudice, GridLiance can make a new filing that addresses FERC’s concerns regarding adequate ratepayer protection and demonstrates additional benefits to offset a rate increase.
Click here to read the FERC Order.