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Exhibit D-4
Commission Opinions, Orders and Notices
Edison Sault Electric Company
Docket No. EC00-131-000
Order Authorizing Disposition of Jurisdictional Facilities
(Issued November 9, 2000)
Before Commissioners: James J. Hoecker, Chairman; William L. Massey, Linda
Breathitt, and Curt H (acute)ebert, Jr.
I. Introduction
On August 28, 2000, Edison Sault Electric Company (Edison Sault) filed an
application pursuant to Section 203 of the Federal Power Act (FPA), 16 U.S.C.
(S) 824(b) (1994), for Commission authorization to transfer ownership and
operational control of certain jurisdictional transmission assets (Divestiture)
Transaction) to American Transmission Company LLC (ATC). [FN1] Pursuant to the
Divestiture Transaction, these jurisdictional transmission assets comprise the
integrated, high-voltage (50 kV and above) transmission system that Edison Sault
currently owns and operates. As discussed below, we will authorize the transfer
of jurisdictional facilities as consistent with the public interest.
II. Background
A. Description of the Parties to the Transaction
Edison Sault is a public utility operating company that owns electric
generation, transmission, and distribution facilities located in the State of
Michigan. It provides retail electric service to approximately 22,000 customers
located on Michigan's Eastern Upper Peninsula. Edison Sault also transmits and
sells electric energy at wholesale. It is a member of the East Central Area
Reliability Council. Currently, Edison Sault's only transmission customer,
Cloverland Electric Cooperative (Cloverland), takes service under a pre-Order
No. 888 transmission agreement. Edison Sault proposes to assign this contract to
ATC, which will take over Edison Sault's rights and responsibilities to provide
and receive transmission service under the contract. [FN2]
ATC is a for-profit transmission company created by Wisconsin law that will
be owned by Edison Sault and certain other utilities. [FN3] ATC will take
ownership and operational control of the contributing transmission systems in
Eastern Wisconsin (i.e., that part of
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Wisconsin that is within the Mid-American Interconnected Network, Inc.) and in
limited areas of Michigan and Illinois. All but one of the Participating
Entities are investor-owned utilities and will receive equity ownership in ATC
in proportion to the net book value of the transmission facilities each utility
contributes. [FN4]
ATC and its member utilities will join the Midwest Independent Transmission
System Operator, Inc. (Midwest ISO) and transfer operational control of the ATC
transmission assets to the Midwest ISO as soon as the Midwest ISO begins
operations. [FN5] Until the Midwest ISO begins operations, ATC will provide
transmission service and ancillary services under its own Order No. 888 Open
Access Transmission Tariff (OATT). After the Midwest ISO begins operating, ATC's
transmission customers will become transmission customers of the Midwest ISO. At
that time, the Midwest ISO will become the Transmission Provider and provide
service under its OATT.
B. Description of the Proposed Transaction
Edison Sault requests Commission authorization to transfer its transmission
assets to ATC in exchange for an equity interest in ATC. The jurisdictional
assets being transferred include all of Edison Sault's transmission facilities
rated 50 kV and above (including transmission lines, transformers and
substations), as well as related books, records, contracts, tariffs and rate)
schedules pursuant to which Edison Sault provides transmission service at
wholesale. ATC will acquire ownership and operational control over these assets
as a result of the transfer.
The application states that in order to avoid potential adverse tax
consequences, Edison Sault may choose not to directly transfer its transmission
assets to ATC, but instead to transfer those assets first to an affiliated
company that would then ultimately transfer those assets to ATC.
C. Applicant's Statement of Public Interest
Edison Sault argues that the proposed transfer of transmission assets is
consistent with the public interest. Edison Sault points out that its proposed
transfer is the same as the proposed transfers by other utilities that have
already been approved by the Commission. [FN6]
Edison Sault contends that the proposed transaction will have a beneficial
effect on competition in the electric generation market and no adverse impact on
the regulated transmission market. Edison Sault argues that the proposed
transaction goes beyond the requirements of Order No. 888 because it is
corporate unbundling. Edison Sault notes that generation markets should become
less concentrated once ATC transfers operation and control of the transmission
facilities to the Midwest ISO because this will expand the geographic scope of
relevant generation markets, providing greater sources of supply. Edison Sault
also notes that the proposed transaction does not involve the disposition of )
any generating assets.
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Edison Sault also contends that the proposed transaction will have a
beneficial or neutral impact on rates. Edison Sault claims that rates for
transmission service on the facilities will remain the same or decline, and the
rates charged for generation-based ancillary services will also be unchanged.
Finally, Edison Sault contends that the proposed transaction will have no
negative impact on regulation at either the state or Federal level. Edison Sault
will continue to be subject to Commission jurisdiction for wholesale sales. The
proposed transaction will not result in the formation of a registered holding
company. Edison Sault points out further that ATC will also be a public utility
subject to the Commission's authority. Edison Sault also notes that it will
continue to be fully subject to the jurisdiction of the Michigan Public Service
Commission for its retail rates.
Edison Sault also claims that the transfer is consistent with Order No.
2000 because it will facilitate greater separation of generation and
transmission ownership, and will allow Edison Sault to meet all of the RTO
criteria set out in Order No. 2000 through its membership in the Midwest ISO.
[FN7]
III. Notice of Filing, Interventions, Protests and Answers
Notice of the filing was published in the Federal Register, 65 Fed. Reg. 55,235
(2000), with comments, protests, and interventions due on or before September
18, 2000. ATC, Consumers Energy Company (Consumers Energy), and Wisconsin
Electric Power Company (Wisconsin Electric) filed timely motions to intervene
raising no issues. The Michigan Public Service Commission (Michigan Commission)
filed a notice of intervention and the State of Michigan filed a motion to
intervene. Cloverland filed a timely motion to intervene and protest. On October
3, 2000, Edison Sault filed an answer to Cloverland's motion to intervene and
protest.
Cloverland is a rural electric cooperative and a borrower from Rural
Utilities Services, and therefore is exempt from the Commission's jurisdiction
under the FPA. Cloverland and Edison Sault are parties to a Transmission
Coordination Agreement (Agreement) through which their transmission facilities
operate as a single integrated system. Each party invests in the combined,
integrated transmission system in proportion to its capacity requirements.
Cloverland supports Edison Sault's participation in ATC. However,
Cloverland believes that the application should address the effects of the
proposed transaction on Cloverland's and Edison Sault's Agreement. Cloverland
requests the Commission to condition its approval to ensure that Cloverland's
transmission costs will be treated the same as the transmission costs of other
ATC participants. Cloverland also requests the Commission to impose a condition
to ensure that Cloverland's facilities will be treated the same as Edison
Sault's facilities under the applicable OATTs vis-a-vis transmission credits, a
share of revenues for transmission service, or other similar recognition of
Edison Sault's facilities. Finally, Cloverland requests the Commission to
condition its approval upon a requirement that Cloverland and its transmission
facilities be treated the same as those of other ATC participants.
In its answer, Edison Sault argues that Cloverland's concerns should be
addressed in
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ATC's pending Section 205 application in Docket No. ER00-3316-000 and not in
this proceeding. Edison Sault contends that the methodology of computing cost
responsibility under the Agreement will not change once Edison Sault's
facilities are transferred to ATC. Edison Sault contends further that, if there
are circumstances in which Cloverland believes it is entitled to transmission
credits or other revenues, Edison Sault will be willing to discuss such
circumstances with Cloverland. Edison Sault also notes that Cloverland may seek
redress from the Commission in another proceeding for any transmission credits
or other revenues to which it believes it is entitled. Edison Sault points out
that Cloverland is free to transfer its transmission assets to ATC and become an
ATC participating member. It concludes that Cloverland's concerns about its
ability to participate in ATC do not relate to the Commission's approval of
Edison Sault's application in this proceeding.
IV. Discussion
A. Procedural Matters
Under Rule 214 of the Commission's Rules of Practice and Procedure, [FN8]
the notice of intervention of the Michigan Commission and the timely, unopposed
motions to intervene of ATC, Consumers Energy, Wisconsin Electric, Cloverland
and the State of Michigan serve to make them parties to this proceeding.
Rule 213 of the Commission's Rules of Practice and Procedure [FN9]
prohibits answers unless otherwise permitted by the decisional authority. We
find that good cause exists to allow Edison Sault's answer because it provides
additional information that assists us in the decision-making process.
B. Standard of Review and Analysis of the Application
Section 203(a) of the FPA provides that the Commission must approve a
disposition if it finds it "will be consistent with the public interest." [FN10]
The Commission's Merger Policy Statement provides that the Commission will
generally take account of three factors in its analysis: (1) the effect on
competition; (2) the effect on rates; and (3) the effect on regulation. [FN11]
For the reasons discussed below, we find that the proposed transaction is
consistent with the public interest. Accordingly, we will approve the proposed
disposition of facilities.
While the proposed transfer results in a change of ownership and control of
jurisdictional transmission facilities, it does not involve any transfer of
generating facilities. No party alleges an adverse effect on competition as a
result of this disposition. Therefore, we conclude the proposed transfer will
have no adverse effect on competition. We find that the proposed transaction
will not adversely affect rates. Cloverland, Edison Sault's only transmission
customer, and ATC can coordinate their operations under the coordinated
transmission system in the same fashion as was done in the pre-Order No. 888
Agreement between Edison Sault and Cloverland. We find no evidence that
Cloverland's rates for transmission service will increase. The rates charged for
generation-based ancillary services provided by Edison Sault under the
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WEC Operating Companies' OATT will also be unchanged. Therefore, we conclude
that the proposed transfer will not adversely affect rates.
We also agree with Edison Sault and are satisfied that the proposed
transfer will not adversely affect Federal or state regulation. Edison Sault
will remain subject to our jurisdiction. We also note that Edison Sault will
continue to be subject to the jurisdiction of the Michigan Commission with
respect to retail rates charged by Edison Sault, either as a provider of
electricity or as a provider of electric delivery services for unbundled retail
electricity sales. To the extent that the Michigan Commission loses jurisdiction
over the transmission component of Edison Sault's retail sales, that component
will continue to be subject to Commission regulation and thus will not fall into
a regulatory gap. Finally, we note that the proposed transfer also is consistent
with the Wisconsin law that encourages utilities to transfer ownership of their
transmission assets to ATC. Therefore, we conclude that the transfer will not
impair regulation.
Cloverland asked the Commission to impose conditions relating to the
treatment of Cloverland's transmission costs and transmission facilities and to
impose a requirement that Cloverland and its facilities be treated the same as
those of any other participant in ATC. We decline to do so. Cloverland may
transfer its transmission assets to ATC and become a participating entity in ATC
on its own initiative, and the Commission will review at that time ATC's
acquisition of Cloverland's facilities. We find further that, if Cloverland has
any concerns regarding its ability to participate in the ATC on the same terms
as ATC's other participating members, Cloverland should raise those concerns in
ATC's pending Section 205 application in Docket No. ER00-3316-000.
C. Accounting Treatment
Edison Sault's transmission facilities will betransferred to ATC at a net
book value determined on the basis of the regulated books of the account at the
time of the transfer. The transfer should be accounted for in accordance with
Electric Plant Instruction No. 5 (Electric Plant Purchased or Sold) and Account
102 (Electric Plant Purchased or Sold) of the Uniform System of Accounts, 18
C.F.R Part 101 (1999). Edison Sault should file journal entries to clear
Account 102 within six months of the date of the sale. The filing should include
detailed journal entries and any narrative statements necessary to explain the
proposed accounting.
The Commission orders:
(A) The proposed transfer of Edison Sault's jurisdictional facilities is
hereby approved, as discussed in the body of this order.
(B) The Commission retains authority under Sections 203(b) and 309 of the
Federal Power Act to issue supplemental orders as appropriate.
(C) Edison Sault is directed to account for the transaction in accordance
with the Uniform System of Accounts and file journal entries to clear Account
102 within six months of the closing date of the transaction.
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(D) 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 cost, or any other matter
whatsoever now pending or which may come before the Commission.
(E) 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.
(F) Edison Sault is hereby directed to notify the Commission when the
transfer of jurisdictional facilities is completed, within 10 days of the
transfer.
FN1 ATC is a Wisconsin limited liability company created pursuant to the
State of Wisconsin's Reliability 2000 legislation for the purpose of owning and
operating a high voltage transmission system in Wisconsin.
FN2 Edison Sault notes, however, that Cloverland may choose to transfer its
transmission assets to ATC and become a participating entity in ATC.
FN3 The six companies besides Edison Sault that are initially transferring
their transmission assets to ATCare Wisconsin Electric Power Company (WEPCO),
Wisconsin Power & Light Company (WPL), Wisconsin Public Service Corporation
(WPS), South Beloit Water, Gas and Electric Company (SBWGE), Madison Gas &
Electric Company (MGE), and Wisconsin Public Power, Inc. (WPPI). Collectively,
all seven utilities are called the Participating Entities.
FN4 WPPI, a municipal joint action agency that provides bulk power energy
and other services to its municipal member-owners, does not own any transmission
facilities. It will contribute cash to ATC, andwill receive an equity ownership
interest in ATC approximately in proportion to the cash it contributes.
FN5 Edison Sault filed with the Commission on December 29, 1999 a request
to become a member of the Midwest ISO in Docket No. EC98-24-000. The Midwest ISO
will begin operations on November 1, 2001. Edison Sault represents that the
Midwest ISO intends to qualify itself as an RTO.
FN6 See Wisconsin Electric Power Co., 90 FERC P 61,346 (2000); and
Wisconsin Power & Light Co., 90 FERC P 61,347 (2000).
FN7 Order No. 2000, 65 Fed. Reg. 809 (January 6, 2000); FERC Statutes and
Regulations P 31,089 (December 20, 1999); and Order No. 2000-A, 65 Fed. Reg.
12,088 (March 8, 2000); FERC Statutes and Regulations P 31,092 (February 25,
2000).
FN8 18 C.F.R. (S) 385.214 (2000).
FN9 18 C.F.R. (S) 385.213(a) (2000).
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FN10 16 U.S.C. (S) 824(b) (1994).
)
FN11 See Inquiry Concerning the Commission's Merger Policy Under the Federal
Power Act: Policy Statement, Order No. 592, 61 Fed. Reg. 68,595 (1996), FERC
Statutes and Regulations P 31,044 (1996), order on reconsideration, Order No.
592-A, 62 Fed. 33,341 (1997), 79 FERC P 61,321 (1997) (Policy Statement).
Federal Energy Regulatory Commission
93 FERC P 61,146, 2000 WL 1687158 (F.E.R.C.)
END OF DOCUMENT
