FERC Issues Order to KEF Equity Investment Corp. on Order Authorizing Disposition of Jurisdictional Facilities

WASHINGTON, March 12 -- The U.S. Department of Energy'sFederal Energy Regulatory Commission issued the text of the following delegated order:

KEF Equity Investment Corp.

Docket No. EC13-71-000

ORDER AUTHORIZING DISPOSITION OF JURISDICTIONAL FACILITIES

On February 6, 2012, KEF Equity Investment Corp. (KEF Equity or Applicant) filed an application pursuant to section 203(a)(1) of the Federal Power Act (FPA) requesting Commission authorization of a proposed transaction (Proposed Transaction) in which KEF Equity will transfer its passive, direct or indirect, equity interests in two public utilities to Threshold Holdings, II LLC (Threshold Holdings). Threshold Holdings will be owned by a wholly-owned subsidiary of Threshold Power Corporation (Threshold Power) and JPM Capital Corporation (JPM Capital). The two public utilities are Blue Canyon Windpower LLC (Blue Canyon) and Caprock Wind LLC (Caprock) (collectively, "Project Companies"). Each of the Project Companies is engaged in the wind-powered generation of electric energy. KEF Equity states that its direct or indirect equity interests in the Project Companies are passive, non-managing interests. The jurisdictional facilities involved in the Proposed Transaction are the Project Companies' market-based rate tariffs and related books, records and interconnection equipment associated with the facility.

Although Applicant states that the proposed transaction may not require Commission approval under section 203, 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 corporation based in Colorado and a wholly-owned subsidiary of KeyCorp, a publicly traded corporation based in Ohio (KeyCorp). KeyCorp is a financial holding company that is regulated by the Board of Governors of the Federal Reserve System. 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 own any electric transmission or interstate natural gas pipeline facilities (other than the limited interconnection facilities). 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 control, or are affiliated with any entity that controls, any essential inputs to generation in the relevant markets, including any intrastate pipeline facilities.

Subsidiaries of KeyCorp may hold other debt, equity and financing positions from time to time in energy companies in connection with their banking activities. These activities involve transitory, non-controlling interests that change frequently, are passive, and, according to Applicant, do not give KeyCorp or its subsidiaries any discretion as to how and when power may be sold.

Threshold Holdings will be formed as a joint venture between JPM Capital and Threshold Wind I, LLC, (Threshold Wind I) a wholly-owned subsidiary of Threshold Power. Threshold Power is a Delaware Corporation and an independent power producer that was formed to invest in operational clean energy assets. Threshold Power states that it expects to consummate the acquisition of KEF Equity's interests in the Project Companies by forming Threshold Wind I, which will be a Delaware limited liability company, in which Threshold Power will be the sole member. Threshold Wind I will be a co-managing partner of Threshold Holdings, with the other managing member being JPM Capital

Threshold Power is a wholly-owned subsidiary of Threshold Power Holdings, Inc. (Canadian Holdco), which is a corporation based in Ontario. Canadian Holdco is a wholly-owned subsidiary of Threshold Power Trust (Trust) an unincorporated open-ended limited purpose trust established under the laws of the Province of Ontario, Canada for the purpose of acquiring equity interests in U.S. power projects.

Trust is owned 6.43 percent by Persimmon Tree Capital Fund, L.P.; a Delaware limited partnership (Persimmon Tree Capital Fund), which is owned by an individual trust, which does not, as a limited partner, exercise control over Persimmon Tree Capital Fund, and by its general partner, Persimmon Tree Capital Associates, LLC. a Delaware limited liability company (Persimmon Tree Capital Associates), which exercises sole control over Persimmon Tree Capital Fund. Persimmon Tree Capital Management, LLC. a Delaware limited liability company, is the manager of Persimmon Tree Capital Associates, which, together with Persimmon Tree Capital Associates, is owned by two individuals, Alexis G. Sant, a resident of the District of Columbia, and Jason A. Hicks, a resident of Maryland. None of the Persimmon entities or these individuals own, or have the power to vote, shares or ownership interests of more than 10 percent, or otherwise control, any public utility or holding company over which the Commission has jurisdiction.

In addition, Trust is 6.43 percent owned by Roger W. Sant Revocable Living Trust, as to which Roger W. Sant and Victoria P. Sant, both residents of the District of Columbia, are trustees.

Trust is also owned by various other corporations, foundations, families and individual investors. None of these individuals or corporations own more than a 10 percent interest in, or otherwise controls, any public utility or holding company over which the Commission has jurisdiction.

JPM Capital is incorporated in Delaware, is an indirect, wholly-owned subsidiary of JPMorgan Chase & Co (JP Morgan Chase). JPMorgan Chase is incorporated in Delaware and is a publically-owned corporation whose headquarters is in New York, New York.

JPM Capital and JPMorgan Chase do not directly engage in any energy-related business activities and do not directly own or control any electric generating or transmission assets or generation output. None of JPMorgan Chase's affiliates owns any electric transmission or interstate natural gas pipeline facilities (other than limited interconnection facilities). JP Morgan Chase does not control and is not affiliated with any entity that controls any essential inputs to generation in the relevant markets, including any intrastate pipeline facilities.

J.P. Morgan Ventures Energy Corporation (JPM Ventures), a non-banking affiliate of JPM Capital and an indirect subsidiary of JP Morgan Chase, is authorized by the Commission to sell energy, capacity, and ancillary services at market-based rates. Under full requirements power sales agreements with certain electric membership cooperatives in Georgia (EMCs), JPM Ventures supplies the full electric requirements of those EMCs. These agreements also convey to JPM Ventures the right to the output of generation facilities owned by the EMCs in Georgia. JPM Ventures also provides energy management services. JPM Ventures and its subsidiaries are parties to one or more tolling agreements that convey to each entity, respectively, the right to the output of generation facilities in various markets. According to the Applicant, numerous direct and indirect subsidiaries of JPM Capital are authorized to sell capacity, energy, and ancillary services in various regions. Other subsidiaries of JPM Ventures have varying interests in electric generation facilities.

According to the Applicant, there are additional subsidiaries of JPMorgan Chase that may hold debt and equity positions from time to time in energy companies in connection with their broker/dealer, financial trading, or banking activities. JPM Capital states that these are transitory, non-controlling interests that change frequently, are passive, and do not give JPMorgan Chase any discretion as to how and when power may be sold.

Other subsidiaries of JPMorgan Chase may be engaged in the management of mutual funds and/or other collective investment vehicles as a fiduciary on behalf of persons who hold interests in such funds or other investment vehicles, and such funds or investment vehicles may buy and sell securities of public utilities and other companies engaged in energy-related activities without exercising control over such public utilities or other companies.

FC Energy is a subsidiary of JPMorgan Chase Bank, National Association, and an indirect, wholly-owned subsidiary of JPMorgan Chase. FC Energy holds non-managing equity interests in the Project Companies, as discussed below.

Applicant states that pursuant to a purchase agreement between KEF Equity and Threshold Power (the "Purchase Agreement"), KEF Equity will sell, and Threshold Holdings will acquire, all of KEF Equity's existing direct and indirect interest in the Project Companies.

The Project Companies are as follows:

Blue Canyon is a limited liability company chartered in Texas that owns and operates a 74.25 MW wind-powered electric generation facility in Comanche and Caddo Counties, Oklahoma (Blue Canyon Facility). The Blue Canyon Facility is interconnected with the electric transmission system owned by Western Farmers Electric Cooperative (WFEC) and operated by the Southwest Power Pool, Inc. (SPP). Blue Canyon has been classified as a EWG and has been authorized by the Commission to sell energy and capacity 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, Babcock & Brown Blue Canyon LLC, a wholly-owned subsidiary of Infigen Energy Limited (Infigen Energy), and Acciona Wind Energy USA LLC (Acciona).

The Class A, non-managing membership interests in Blue Canyon are held by KEF Equity, FC Energy, and The Northwestern Mutual Life Insurance Company (Northwestern Mutual). Northwestern Mutual, based in Milwaukee, Wisconsin, is a mutual insurance company organized under the laws of the State of Wisconsin.

Caprock is a limited liability company chartered in Delaware that owns and operates an approximately 80 MW wind-powered electric generation facility (Caprock Facility) in Quay County, New Mexico. The Caprock Facility is interconnected with the electric transmission system of Southwestern Public Service Company (Southwestern) in the SPP region. The power produced by the Caprock Facility is committed under a long-term power purchase contract with Southwestern and is sold pursuant to Caprock's market-based rate authority. The Caprock Facility is a QF and was also determined to be a EWG.

The Class B, managing interests in Caprock are held by Babcock & Brown Caprock, LLC, which is an indirect, wholly-owned subsidiary of Infigen Energy. The non-managing, Class A membership interests in Caprock are held by FC Energy, Northwestern Mutual, KEF Equity, and Bankers Commercial Corporation (BCC). BCC, an entity incorporated in California, is a wholly-owned subsidiary of UnionBanCal Corporation (UBC Corp.). UBC Corp. is incorporated in Delaware and is a publicly-owned holding company headquartered in San Francisco, California. UBC Corp. is regulated by the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956, as amended. Union Bank of California is wholly-owned by UBC Corp..

Applicant states that the Proposed Transaction is consistent with the public interest and will not adversely affect competition, rates or regulation.

With respect to competition, the application states that the Proposed Transaction raises no horizontal market power concerns. The application states that Threshold Power 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 indirect, non-managing interests in the Project Companies.

Applicant states that each of the Project Companies will continue to be managed by its respective managing member after consummation of the Proposed Transaction. The application also states that all of the output from the Project Companies' electric generation facilities is dedicated to sales to third parties under long-term contracts. Therefore, Applicant represents that the Proposed Transaction does not raise any horizontal market power concerns in the relevant markets.

Applicant states that the Proposed Transaction raises no vertical power concerns. The application states that neither Threshold Power nor any of its affiliates owns or controls any electric transmission facilities or inputs to electric generation in any of the relevant markets, except for the limited interconnection facilities necessary to connect the generating facilities to the transmission grid. Therefore, Applicant represents that the Proposed Transaction does not raise any vertical market power concerns in the relevant markets.

Applicant states that the Proposed Transaction will not adversely affect rates. The application states that the Project Companies will continue to make sales of electric energy at market-based rates and their existing long-term wholesale contracts. The application states that the Proposed Transaction will not change the rates, terms or conditions contained in any of the tariffs or long-term sales contracts on any of the Project Companies. The application states that neither JPM Capital, nor any of its affiliates nor Threshold Power and its affiliates nor the Project Companies has any captive customers that could be affected by the Proposed Transaction. Therefore, Applicant concludes that the Proposed Transaction will have no adverse effect on rates.

Applicant represents that the Proposed Transaction will have no adverse effect on state or federal regulation. Applicant states that the Project Companies will remain subject to the Commission's jurisdiction as public utilities after consummation of the Proposed Transaction.

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. The application states that none of Applicants' or their affiliates is a traditional public utility associate company that has captive ratepayers in the United States or that owns or provides transmission service over jurisdictional transmission facilities in the United States. Therefore, Applicant states that the Proposed Transaction is within the scope of the "safe harbor" for transactions in which "no franchised public utility with captive customers is involved in the transaction" and does not raise any issue with respect to cross-subsidization.

In addition, Applicant verifies that based on facts and circumstances known to it or that are reasonably foreseeable, that the Proposed Transaction will not result in, at the time of the Proposed Transaction or in the future: (1) any transfers 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 issuances 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 contracts between a non-utility associate company and a traditional public utility associate companies that has captive customers or that owns or provides transmission service over jurisdictional transmission facilities, other than non-power goods and services agreements subject to review under sections 205 and 206 of the FPA.

This filing was noticed on February 6, 2013, with comments, protests or interventions due on or before February 27, 2013. None was filed. 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). Any opposed or untimely filed motion to intervene is governed by the provision of Rule 214.

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, Applicant is advised that it must comply with the requirements of Order No. 652. In addition, Applicant shall make appropriate filings under section 205 of the FPA, to implement the Proposed Transaction. 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 the 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, NERC 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.

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

(1) The Proposed Transaction is authorized upon the terms and conditions described in this Order 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 determination of cost 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 the upstream ownership of the Project Companies' affiliated Qualifying Facilities, if any, an appropriate filing for recertification pursuant to 18 C.F.R. section 292.207 (2012) shall be made;

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

(7) Applicant must inform the Commission of any change in circumstances that would reflect a departure from the facts the Commission relied upon in authorizing the Transaction; and

(8)Applicant shall notify the Commission within 10 days of the date that the Proposed Transaction 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.