FERC Issues Order to Chestnut Flats Wind, LLC Chestnut Flats Lessee, LLC on Order Authorizing Disposition of Jurisdictional Facilities

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

Chestnut Flats Wind, LLC Docket No. EC13-116-000

Chestnut Flats Lessee, LLC

ORDER AUTHORIZING DISPOSITION OF JURISDICTIONAL FACILITIES

On June 11, 2013, Chestnut Flats Wind, LLC (Chestnut Flats Wind) and Chestnut Flats Lessee, LLC (Chestnut Flats Lessee) (collectively, Applicants) filed a joint application under sections 203(a)(1) of the Federal Power Act (FPA) requesting authorization by the Commission for the disposition of jurisdictional facilities associated with (1) a proposed upstream transfer of ownership interests in a 38 megawatt (MW) wind energy project located in Blair and Cambria Counties, Pennsylvania (Facility) and (2) Chestnut Flats Lessee's lease of the Facility from Chestnut Flats Wind (Proposed Transaction). Applicants state that the proposed transfer of upstream interests and the proposed lease to Chestnut Flats Lessee, which will operate and sell electric energy from the Facility, is to effectuate structured lease financing for the Facility (Sale/Leaseback Transaction).

The jurisdictional facilities consist of interconnection facilities, market-based rate tariff, and associated books, records, and accounts.

Chestnut Flats Wind (Owner-Lessor), a Delaware limited liability company, owns a 38 MW wind-powered generating facility in Blair and Cambria Counties, Pennsylvania. Owner-Lessor is indirectly, wholly-owned by EDF Renewable Energy, Inc. (EDF-RE). The Facility is interconnected to the transmission system owned by Pennsylvania Electric Company and operated by PJM Interconnection, L.L.C. (PJM). Owner-Lessor has a long-term power purchase agreement with Delmarva Power & Light Company (Delmarva) under which all of the electrical output of the Facility is committed to be sold on a long-term basis.

Chestnut Flats Lessee (Lessee), a Delaware limited liability company, is indirectly wholly-owned by EDF-RE. Lessee is contemporaneously filing an exempt wholesale generator (EWG) self-certification and for market-based rate authority. Lessee has been created to manage and operate the Facility under the Sale/Leaseback Transaction so that operational control of the Facility will be retained by an entity indirectly wholly-owned by EDF-RE.

Applicants state that Owner-Lessor and Chestnut Flats Lessee are currently indirectly wholly-owned by EDF-RE. EDF-RE is a holding company that is wholly-owned by EDF Energies Nouvelles S.A., a company organized under the laws of France, which in turn, is wholly-owned by Electricite de France, S.A. (EDF S.A.). EDF S.A. is owned by the French Government (84.44 percent), with a small percentage of shares held by the employees (1.84 percent) and the remaining shares owned by the public. Applicants state that, with the exception of the direct or indirect ownership interests discussed below, EDF S.A. does not: (a) directly or indirectly own or control any generation or transmission facilities in the United States; (b) engage in wholesale sales of electric energy, or any other Commission jurisdictional transactions in the United States; (c) hold electric transmission rights and natural gas transportation rights in the United States, or (d) directly or indirectly own or control a franchised utility.

In addition, it does not directly or indirectly own any physical natural gas transportation facilities or own or control other physical inputs to electric generation or transmission in the United States.

Applicants state that EDF-RE develops, operates and manages renewable energy projects throughout North America. Through another subsidiary, EDF-RE provides operations and maintenance services to wind turbines across the country but the turbine owners retain ultimate decision-making authority over turbine operations. Applicants state that EDF-RE is not, and does not, own or control, a franchised utility in North America. Applicants note that EDF-RE holds an equity interest in the Sagebrush Partnership (Sagebrush) through its ownership interests in Oasis Power Partners, LLC. Sagebrush, in turn, owns and operates a 46-mile, 230 kV transmission line that extends from the Tehachapi region of California to Southern California Edison Company's Vincent Substation. Other than its indirect interest in Sagebrush, EDF-RE does not directly or indirectly own or control any transmission facilities in North America. Applicants also state that EDF-RE owns two landfill gas production facilities and gas gathering lines in Pennsylvania but does not own or control any physical natural gas transportation, storage or distribution facilities or own or control other physical inputs to electric generation or transmission. Applicants note that EDF-RE holds, through its subsidiaries, only those natural gas and electric energy transportation rights necessary to enable the delivery of natural gas from its landfill gas production or electric energy generated by its subsidiaries to a customer's point of receipt under long-term purchase agreements.

Applicants state that EDF-RE is affiliated with EDF Inc. (formerly EDF Development, Inc). EDF Inc. is a Delaware corporation and an indirect wholly-owned subsidiary of EDF S.A. EDF International S.A.S. (EDF International) owns 82.5 percent of EDF Inc., and EDF Trading Ltd. (U.K.) owns 17.5 percent of EDF Inc.EDF Inc. has a 49.99 percent ownership interest in Constellation Energy Nuclear Group, LLC (CENG), which owns several MBR entities (the "CENG MBR entities"), which in turn owns, in whole or in part, five operating nuclear generator units: Calvert Cliffs Unit 1 (873 MW) and Calvert Cliffs Unit 2 (862 MW), located in the PJM region, Ginna (582 MW), located in the New York ISO region, and Nine Mile Point Unit 1 (620 MW) and Nine Mile Point Unit 2 (1,380 MW), also locate in the New York ISO region.

EDF-RE is also affiliated with EDF Trading North America, LLC (EDF Trading), a Texas limited liability company. EDF Trading is a power marketer authorized by the Commission to engage in wholesale sales of electricity and related services at market-based rates. Applicants state that EDF Trading does not directly or indirectly own or control any electric generation, transmission, distribution facilities, or inputs to generation and does not have a franchise service territory or captive ratepayers. EDF Trading directly and wholly owns three limited liability companies with market-based rate authority: EDF Industrial Power Services (IL), LLC; EDF Industrial Power Services (NY), LLC, and EDF Industrial Power Services (CA), LLC.

Except for their market-based rate tariffs, neither of these entities owns jurisdictional facilities.

Applicants state that EDF Trading also has a minority ownership interest in Champion Energy Marketing LLC (CEM), a Delaware limited liability company that engages in energy-related transactions in the United States. CEM wholly-owns two subsidiaries, Champion Energy Services, LLC (CES) and Champion energy, LLC (Champion) (collectively, Champion MBR Entities).

Applicants assert that while all three Champion MBR Entities have been granted MBR authority, none of them owns or controls electric generation, transmission, distribution facilities, or inputs to generation.

Furthermore, none of the Champion MBR Entities has a franchise service territory or captive ratepayers.

Applicant's affiliates within the relevant region are Calvert Cliffs Unit 1 (873 MW) and Calvert Cliffs Unit 2 (862 MW). Thus, Applicants and their affiliates own or control approximately 1773 MW of generation capacity in the PJM balancing authority area.

Applicants state that all of the ownership interests in Chestnut Flats Wind will initially be sold to investor Metropolitan Life Insurance Company (MetLife), a direct or indirect wholly-owned subsidiary of MetLife, or a trust in which MetLife or a direct or indirect wholly-owned subsidiary owns 100 percent of the beneficial interests. MetLife is an insurance company organized under the laws of the State of New York and a wholly-owned subsidiary of MetLife, Inc.MetLife and its affiliates are not public utilities and are not primarily engaged in the electricity business.

MetLife and its affiliates currently do not own, directly or indirectly, equity interests in generating or transmission facilities located in the PJM balancing authority area.

MetLife and its affiliates may, from time to time, own debt securities and loans issued by entities that may own or control facilities used for the generation, sale, distribution or transmission of electric energy, or for the production, gathering, storage, liquefaction, sale, transmission or distribution of natural gas or other inputs to electric generation. MetLife and its affiliates also may, from time to time, own passive limited partnership interests (or similar passive interests) in private investment funds (such as private equity funds and hedge funds), some of which may have direct or indirect ownership interests in entities that own or control facilities used for the generation, sale, distribution or transmission of energy, or for the production, gathering, storage, liquefaction, sale, transmission or distribution of natural gas and other inputs to electric generation. Management control of such private investment funds resides solely with the relevant general partner/managing member. In no case is any such controlling general partner/managing member affiliated with MetLife or any of its affiliates. In certain cases, personnel of MetLife or its affiliates may be members of advisory boards or certain private investment funds. Neither MetLife nor its affiliates have management, operation or control over any underlying energy facilities as a result of membership on advisory boards of private investment funds.

Under the Proposed Transaction, Chestnut Flats Wind, the Owner-Lessor, will lease the Facility and assign its existing power purchase agreement with Delmarva to Chestnut Flats Lessee, the Lessee (which is indirectly wholly owned by EDF-RE). As part of the transaction, 100 percent of the ownership interests in Owner-Lessor will be transferred to MetLife, or a trust in which MetLife or such wholly-owned subsidiaries own the beneficial interests. Applicants also seeks authority for MetLife to transfer some of such ownership interests, either prior to or after the consummation of the transaction, to investors who would have a principal business other than that of a public utility and would not be in business of producing or selling electric power other than through similar passive arrangements or equity investments that do not involve management or operational control.

Applicants state any such transfers will be reported to the Commission.

Following consummation of the transaction, during the term of the lease, Chestnut Flats Wind will cancel its tariff and will cease to be a public utility, and Chestnut Flats Lessee will operate and control the facility and sell the full output of the Facility to Delmarva.

Applicants state that the Proposed Transaction is consistent with the public interest and will have no adverse effect on competition, rates, or regulation, nor will it result in any cross-subsidization or the pledge or encumbrance of utility assets to any associated company. With respect to competition, Applicants state that the Proposed Transaction does not raise any horizontal or vertical market power concerns. The application states that Applicants and their affiliates control approximately 1,773 MW of the total 181,986 MW of installed capacity in the PJM balancing authority area representing less than 1 percent of the generating capacity in the PJM region. Applicants state that MetLife does not own or control any generation facilities or capacity in the PJM balancing authority area, although it holds approximately 11 percent of the passive Class A Membership Interests in the holding company for Grand Ridge Energy, LLC, which owns a 99 MW facility located in La Salle County, Illinois. Applicants state that before and after the consummation of the Sale/Leaseback Transaction, the Facility will be operated by a company that is indirectly wholly-owned by EDF-RE and, therefore, there will be no change in the ultimate control over the Facility. Applicants state that the Sale/Leaseback Transaction does not require a horizontal or vertical competitive screen analysis, and the Commission should conclude the same.

With regard to the effect on rates, Applicants state that following the Sale/Leaseback Transaction, Chestnut Flats Lessee will make sales of electric energy from the Facility at market-based rates as authorized by the Commission, and the Commission has established that market-based wholesale power sales do not raise concerns about a transaction's possible adverse effect on rates.

With respect to the effect on regulation, Applicants state that the Proposed Transaction will not deprive the Commission or any other federal or state agency of jurisdiction it had prior to the Sale/Leaseback Transaction, and the Commission will be able to exercise the same regulatory authority over the sale of electricity at wholesale that it did prior to the Sale/Leaseback Transaction.

Applicants assert that based on facts and circumstances known to them or that are reasonably foreseeable, the Proposed Transaction will not result in, at the time of the closing or in the future, cross-subsidization of a non-utility associate company or the pledge or encumbrance of assets of a traditional public utility that has captive customers or that owns or provides transmission service over jurisdictional facilities for the benefit of an associate company. Applicants state that the Proposed Transaction will not result in, now 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 11, 2013, with comments, protests, or interventions due on or before July 2, 2013. 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) (2012). Any opposed or untimely filed motion to intervene is governed by the provisions of Rule 214.

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.

When a controlling interest in a public utility is acquired by another company, whether a domestic company or a foreign company, the Commission's ability to adequately protect public utility customers against inappropriate cross-subsidization may be impaired absent access to the parent company's books and records. Section 301 (c) of the FPA 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. The approval of this transaction is based on such examination ability.

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 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 Applicants' affiliated qualifying facilities, if any, an appropriate filing for recertification pursuant to 18 C.F.R. section 292.207 (2012) shall be made;

(6)Applicants shall make appropriate filings under section 205 of the FPA, as necessary, to implement the Proposed Transaction; and

(7)Applicants 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 (2012). 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 (2012).

Steve P. Rodgers

Director

Division of Electric Power Regulation - West

TNS 30TacordaCheng-130717-4426620 30TacordaCheng