FERC Issues Order Authorizing Disposition of Jurisdictional Facilities re KEF Equity Investment Corp Under EC14-104

WASHINGTON, July 16 -- The U.S. Department of Energy'sFederal Energy Regulatory Commission issued the text of the following delegated order:

KEF Equity Investment Corp. Docket No. EC14-104-000

ORDER AUTHORIZING DISPOSITION OF JURISDICTIONAL FACILITIES

(Issued July 16, 2014)

On June 16, 2014, KEF Equity Investment Corp. (KEF Equity or Applicant) filed an application under section 203(a)(1)(A) of the Federal Power Act (FPA) requesting Commission authorization for the disposition of jurisdictional facilities in which KEF Equity will transfer its passive, non-managing equity interests in two public utilities, Blue Canyon Windpower LLC (Blue Canyon) and Caprock Wind LLC (Caprock) (collectively, the Project Companies), to GS Power Holdings LLC (GS Power Holdings) (Proposed Transaction). The jurisdictional facilities associated with the Proposed Transaction consist of the Project Companies' market-based rate tariffs, interconnection equipment, and associated contracts, books and records.

Although KEF Equity states that the Proposed Transaction may not require Commission approval under FPA section 203 (a)(1), it nevertheless asks the Commission to approve the application. This order approves the Proposed Transaction without making any determination of jurisdiction.

KEF Equity is a Colorado corporation and wholly-owned subsidiary of KeyCorp (KeyCorp). KeyCorp is a financial holding company regulated by the Board of Governors of the Federal Reserve System. Applicant states that KEF Equity and KeyCorp are not primarily engaged in energy-related business activities and do not directly own or control any electric generating or transmission assets or generation output. None of KEF Equity's affiliates owns any electric transmission or interstate natural gas pipeline facilities (other than limited interconnection facilities). Applicant states that neither KEF Equity nor KeyCorp has any subsidiaries that own interests in electric generation facilities other than those at issue in the instant application. Neither KEF Equity nor KeyCorp controls or is affiliated with any entity that controls any essential inputs to generation, including any intrastate pipeline facilities, in the Southwest Power Pool, Inc. (SPP) balancing authority area (BAA), the relevant geographic market where the Project Companies are located. GS Power Holdings, a Delaware limited liability company, is a direct wholly-owned subsidiary of the Goldman Sachs Group, Inc. (GS Group). GS Group is a bank holding company incorporated in Delaware under the Bank Holding Company Act. GS Group, together with its subsidiaries, is a global investment banking, securities, and investment management firm.

GS Group is affiliated with J. Aron & Company (J. Aron) and New Page Energy Services, Inc. (New Page Services). J. Aron is an international commodities dealer engaged in the purchase, sale, storage, and transportation of electricity, natural gas, crude oil, and petroleum products. The Commission has authorized J. Aron to sell energy, capacity, and ancillary services at market-based rates. Applicant states that J. Aron does not own or control any generation in the SPP BAA. New Page Services is a power marketer authorized to sell energy, capacity, and ancillary services at market-based rates. New Page Services sells power at retail to affiliated qualifying facilities in Maine and Maryland. Applicant states that New Page Services does not own or control any generation, transmission, or distribution assets or any inputs to electric power production. Applicant states that GS Group is affiliated with certain entities that own or control electric generation facilities in the United States, but none of these facilities is located in the SPP BAA. Investment vehicles associated with GS Group hold interests in Energy Future Holdings Corp. (Energy Future). Energy Future is a holding company whose energy assets are mainly located in the Electric Reliability Council of Texas, Inc. (ERCOT). An affiliate of Energy Future, Oncor Electric Delivery Company LLC (Oncor), owns and operates electric transmission facilities located in ERCOT with the exception of a 100 MW undivided interest in the East High Voltage Direct Current Interconnection (EHVDC Interconnection) between ERCOT and SPP. Oncor provides interconnection and transmission service over the EHVDC Interconnection pursuant to an open-access transmission tariff (OATT). Applicant states that, aside from the EHVDC Interconnection, neither GS Group nor any of its affiliates owns a 10 percent or greater voting interest in, controls, or operates any other electric transmission facilities used for the transmission of electricity in interstate commerce in the United States, except for limited interconnection facilities necessary to connect individual generation facilities to the grid. Applicant states that GS Group is not affiliated with any inputs to electricity products or electric power production in the SPP BAA. Blue Canyon is a Texas limited liability company that owns and operates a 74.25 MW wind-powered generation facility in Comanche and Caddo Counties, Oklahoma (Blue Canyon Facility), within the SPP BAA. The Blue Canyon Facility is interconnected to the electric transmission system owned by Western Farmers Electric Cooperative (WFEC) and operated by SPP. Blue Canyon is an exempt wholesale generator (EWG) and is authorized to sell energy, capacity, and ancillary services at market-based rates. All of the output of the Blue Canyon Facility is committed to WFEC under a long-term agreement.

Blue Canyon has two classes of membership interests. The Class B managing membership interests in Blue Canyon are held by EDP Renewables North America LLC, Acciona Wind Energy USA LLC (Acciona), and Blue Canyon 1 Member LLC. The Class A non-managing membership interests in Blue Canyon are held by KEF Equity, Infigen Energy US JD LLC (Infigen Energy), and The Northwestern Mutual Life Insurance Company (Northwestern Mutual). The Class A non-managing membership interests in Blue Canyon are passive and non-controlling, provide only limited veto or consent rights over certain major decisions necessary to protect the holder's economic investment interests, and do not permit the Class A members to exercise day-to-day management or control over Blue Canyon or Blue Canyon's jurisdictional facilities.

Caprock, a Delaware limited liability company, owns and operates an 80 MW wind-powered electric generation facility in Quay County, New Mexico (Caprock Facility) that is interconnected to the electric transmission system of Southwestern Public Service Company (Southwestern) in the SPP BAA. Caprock is an EWG and is authorized to sell energy and capacity at market-based rates. The Caprock Facility's power is fully committed under a long-term power purchase contract with Southwestern.

The Class B managing membership interests in Caprock are held by Caprock Member I, LLC, which is an indirect wholly-owned subsidiary of Infigen Energy. The Class A non-managing membership interests in Caprock are held by KEF Equity, IJA Portfolio LLC, Northwestern Mutual, and Bankers Commercial Corporation. The Class A non-managing membership interests in Caprock are passive and non-controlling, provide only limited veto or consent rights over certain major decisions necessary to protect the holder's economic investment interests, and do not permit the Class A members to exercise day-to-day management or control over Caprock or Caprock's jurisdictional facilities.

Pursuant to a purchase agreement between KEF Equity and GS Power Holdings (the Purchase Agreement), KEF Equity will sell, and GS Power Holdings will acquire, all of KEF Equity's existing direct and indirect Class A membership interests in the Project Companies. Applicant states that the Class B members of the Project Companies, which are not affected by the Proposed Transaction, will continue to own all of the managing membership interests in the Project Companies.

Applicant states that the Proposed Transaction is consistent with the public interest and will not have an adverse effect on competition, rates, or regulation. With regard to horizontal market power, the Applicant states that the Proposed Transaction raises no concerns. Applicant states that the only effect of the Proposed Transaction is that the non-managing, direct and indirect, Class A membership interests in the Project Companies owned by KEF Equity will be transferred to GS Power Holdings. Applicant asserts that the passive nature of the Class A membership interests will not change as a result of the Proposed Transaction. Applicant states that GS Power Holdings will not be able to control the output of the Project Companies' electric generation facilities or otherwise control the day-to-day management of the Project Companies as a result of its acquisition of a portion of the Class A interests in the Project Companies. Applicant states that each of the Project Companies will continue to be managed by its respective managing members after consummation of the Proposed Transaction. In addition, Applicant states that GS Power Holdings does not own or control any electric generation facilities in the relevant geographic market. Applicant further states that all of the output from the Project Companies' electric generation facilities is committed to unaffiliated third parties under long-term contracts. Therefore, Applicant represents that the Proposed Transaction will not result in any adverse horizontal competitive effects.

With respect to vertical market power, Applicant writes that the Proposed Transaction will not result in adverse vertical competitive effects. Applicant states that no transmission facilities are involved in the Proposed Transaction, except for the limited interconnection facilities necessary to connect the electric generation facilities of the Project Companies to the electric transmission grid. Applicant states that GS Power Holdings' affiliation with Oncor will not affect the Project Companies' vertical market power because service on the EHVDC Interconnection is subject to an OATT. Furthermore, Applicant states that neither GS Power Holdings nor any of its affiliates own a 10% or greater voting interest in, control, or operate any additional electric transmission facilities used for the transmission of electricity in interstate commerce in the United States, other than the limited equipment necessary to connect individual generating facilities to the transmission grid. Lastly, Applicant writes that GS Power Holdings and its affiliates do not own or control any inputs to electricity products in the relevant market. Applicant thus concludes that the Proposed Transaction will not raise any concerns with respect to vertical market power.

Applicant states that the Proposed Transaction will have no effect on the rates charged by the Project Companies because they will continue to make sales pursuant to their existing long-term wholesale contracts. Applicant states that the Proposed Transaction will not change the rates, terms or conditions contained in any of the Project Companies' sales activities or the documents governing those activities. Applicant states that none of the Project Companies, GS Power Holdings, or any of GS Power Holdings' affiliates has captive customers that could be affected by the Proposed Transaction. Applicant states that none of KEF Equity or its affiliates, GS Power Holdings or its affiliates, or the Project Companies provides electric transmission service or owns a transmission system, other than limited interconnection facilities necessary to connect individual generation facilities to the electric transmission grid. Thus, Applicant argues that the Proposed Transaction will raise no concern regarding rates charged for wholesale power sales or transmission service.

With regard to regulation, the Applicant states that the Proposed Transaction will not have an adverse effect. Applicant states that, after the Proposed Transaction is consummated, the Commission will continue to exercise the same jurisdiction over the Project Companies and their sales of electric energy at wholesale as it exercises currently. Applicant states that the Proposed Transaction will have no effect on state commission regulation and is not subject to approval by any state commission.

Applicant states that the Proposed Transaction will not result in the cross-subsidization of a non-utility associate company or the pledge or encumbrance of utility assets for the benefit of an associate company. Applicant asserts that the Proposed Transaction falls within one of the "safe harbors" adopted by the Commission for which detailed explanation and evidentiary support to demonstrate a lack of cross-subsidization is not required. Applicant more specifically states that the Proposed Transaction does not involve a franchised public utility with captive customers.

Additionally, 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: (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 jurisdictional transmission facilities, other than non-power goods and service agreements subject to review under sections 205 and 206 of the FPA.

The filing was noticed on June 16, 2014, with comments, protests, or interventions due on or before July 7, 2014. None were received. Notices of intervention and unopposed timely filed motions to intervene are granted pursuant to the operation of Rule 214 of the Commission's Rules of Practice and Procedure (18 C.F.R. section 385.214) (2013).

Information and/or systems connected to the bulk system involved in this transaction may be subject to reliability and cybersecurity standards approved by the Commission pursuant to FPA section 215. 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, North America Electric Reliability Corporation or the relevant regional entity may audit compliance with reliability and cybersecurity standards.

Order No. 652 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. The foregoing authorization may result in a change in status. Accordingly, Applicants are advised that they must comply with the requirements of Order No. 652. In addition, Applicants shall make any necessary filings under section 205 of the FPA to implement the Proposed Transaction.

After consideration, it is concluded that the Proposed Transaction is consistent with the public interest and is authorized, subject to the following conditions:

(1) The Proposed Transaction is authorized upon the terms and conditions and for the purposes set forth in the application;

(2) 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;

(3) 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;

(4) The Commission retains authority under sections 203(b) and 309 of the FPA to issue supplemental orders as appropriate;

(5) If the Proposed Transaction results in changes in the status or upstream ownership of qualifying facilities, an appropriate filing for recertification pursuant to 18 C.F.R. section 292.207 (2013) shall be made;

(6) Applicant shall make appropriate filings under section 205 of the FPA, as necessary, to implement the Proposed Transaction; (7) Applicant must inform the Commission, within 10 business days of the change, of any change in circumstances that would reflect a departure from the facts the Commission relied upon in authorizing the Proposed Transaction; and (8) Applicant shall notify the Commission within 10 days of the date that the disposition of jurisdictional facilities has been consummated.

This action is taken pursuant to the authority delegated to the Director, Division of Electric Power Regulation - West, under 18 C.F.R. section 375.307 (2013). This order constitutes final agency action. Requests for rehearing by the Commission may be filed within 30 days of the date of issuance of this order, pursuant to 18 C.F.R. section 385.713 (2013).

Steve P. Rodgers

Director

Division of Electric Power Regulation - West

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