The Federal Energy Regulatory Commission (FERC) recently denied an application by GridLiance High Plains LLC for authorization to acquire certain transmission assets from People’s Electric Cooperative, a rural electric cooperative in Oklahoma. FERC found that the transaction would have an adverse impact on FERC-jurisdictional rates and would not result in any meaningful offsetting benefits. GridLiance is a transmission-only or “transco” company. Operating control over the transmission facilities of GridLiance has been transferred to the Southwest Power Pool (SPP), which is a FERC-approved regional transmission organization. In July 2018, GridLiance requested authorization from the FERC pursuant to Section 203 of the Federal Power Act to acquire approximately 55 miles of 138 kV transmission lines and associated equipment from People’s Electric Coop. Although the transmission lines currently are operated as radial lines, GridLiance claimed that the lines were constructed as a loop and may be capable of being operated as non-radial transmission lines, which would enhance system reliability. GridLiance proposed to transfer operational control over those lines to SPP after the transaction closed.

In accordance with its Merger Policy Statement, the FERC generally considers the potential impact of proposed transactions on competition, on FERC-jurisdictional rates, and on regulation. The FERC also considers the potential for cross-subsidization of a non-utility associate company. Even if a transaction is likely to have an adverse effect on rates, the transaction may nevertheless be acceptable under the Merger Policy Statement if there are resulting countervailing benefits.

Although it was undisputed that the transaction would cause an increase in transmission rates paid by SPP customers, GridLiance did not propose to adopt any ratepayer protection measures. Instead, GridLiance claimed that there would be offsetting benefits similar to those which had been found by the FERC in other proceedings to justify approval of proposed transmission facility acquisitions. In its order, the FERC concluded that there was insufficient evidence of any meaningful benefits arising from the acquisition of the facilities by GridLiance. The asserted benefits of this transaction, and the reasons given by the FERC for rejecting them, are as follows:

A. Improving the reliability of People’s Electric Coop’s existing system—GridLiance asserted that if it acquired the transmission lines, it could close the interconnections between the transmission lines and existing facilities on the SPP system and operate those lines as networked lines, thereby improving the reliability of service to customers of People’s Electric Coop. Because the amount of load served on those lines by Peoples Electric Coop. is relatively small (less than 50 MW), the FERC concluded that the benefit of improved reliability would not offset the rate increase to customers of SPP.

B. Promoting transco ownership of transmission facilities—GridLiance sought to rely on FERC assertions that ownership of transmission facilities by a transmission-only entity generally is beneficial. Although the transaction would result in transfer of ownership of transmission lines from a load-serving entity to a transmission-only company, FERC concluded that the benefits derived from the transfer would not be sufficient to offset the resulting rate increase.

C. Enhancing the operations and efficiency of SPP—GridLiance suggested that transfer of operational control over the transmission lines at issue to SPP after they had been acquired by GridLiance would provide planning and operational efficiencies by allowing those lines to be integrated with the SPP system. However, the lines would continue to be used primarily to serve industrial customers of People’s Electric Coop., and GridLiance acknowledged that it did not have any plans to upgrade, enhance, or add to the facilities after it acquired them. The FERC therefore concluded that there was no indication that existing customers of SPP would receive any material benefit from having those lines included as part of the SPP system.

D. Increasing public power’s participation in SPP transmission planning—The FERC acknowledged that participation by public power entities in regional transmission organizations is generally considered to be beneficial, but explained that “FPA section 203 requires GridLiance to explain how it can achieve benefits as a result of its acquisition of the Assets.” FERC found that the transaction would not add substantial benefits: “the addition of 55 miles of transmission facilities whose only use is to deliver power to industrial customers does not materially add to the size or scope of SPP nor has it been shown to provide other material benefits to SPP.”

Although the FERC denied the request by GridLiance to acquire specified transmission assets from People’s Electric Coop., the FERC emphasized that its decision was based on the record developed by GridLiance, and that it would be open to reconsidering its decision if GridLiance proposes to adopt adequate ratepayer protection mechanisms or demonstrates specific additional benefits to offset the rate increase.