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Exhibit D-2
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
)
Wisconsin Electric Power Company ) Docket No. EC00-___-000
)
APPLICATION OF
WISCONSIN ELECTRIC POWER COMPANY
FOR AUTHORIZATION TO TRANSFER JURISDITIONAL
TRANSMISSION ASSETS PURSUANT TO SECTION 203
OF THE FEDERAL POWER ACT
Larry Salustro Clifford S. Sikora
Vice President-Legal, Regulatory and R. Michael Sweeney, Jr.
Government Affairs Troutman Sanders LLP
Wisconsin Electric Power Company 1300 I Street, N.W.
231 West Michigan Avenue Suite 500 East
Milwaukee, WI 53203 Washington, D.C. 20005-3314
(414) 221-2345 (telephone) (202) 274-2950 (telephone)
(202) 274-2994 (facsimile)
Dated: December 30, 1999
Washington, D.C.
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UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
)
Wisconsin Electric Power Company ) Docket No. EC00-___-000
)
APPLICATION OF
WISCONSIN ELECTRIC POWER COMPANY
FOR AUTHORIZATION TO TRANSFER JURISDITIONAL
TRANSMISSION ASSETS PURSUANT TO SECTION 203
OF THE FEDERAL POWER ACT
I. INTRODUCTION.
Pursuant to Section 203 of the Federal Power Act, 16 U.S.C. (S) 824b
(1994), and Part 33 of the Commission's regulations, 18 C.F.R. (S) 33.1 et seq.
(1999), Wisconsin Electric Power Company ("WEPCO"), a Wisconsin corporation,
hereby tenders this application ("Application") with the Federal Energy
Regulatory Commission ("FERC" or the "Commission") for authorization of the sale
or transfer of FERC-jurisdictional transmission assets ("Divestiture
Transaction") to a separate transmission company to be formed in accordance with
the laws of Wisconsin ("Transco"). The assets to be sold or transferred comprise
the integrated, high-voltage transmission system currently owned and operated by
WEPCO ("WEPCO Transmission System"). Pursuant to the Divestiture Transaction:
(1) WEPCO will divest its 100 percent equity interest in the WEPCO Transmission
System through the sale or transfer of these assets to
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Transco; and (2) Transco will acquire control over, and the entire equity
interest in, the WEPCO Transmission System.
Consistent with the requirements of 1999 Wisconsin Act 9 ("Reliability 2000
Legislation"), WEPCO hereby agrees that it will not withdraw the instant
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Application in the event that the Commission conditions its approval of the
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Divestiture Transaction on changes that are consistent with federal law. See
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Wisconsin Stats. (S) 196.485(5)(a)(5).
Although WEPCO is filing this request for Section 203 approval of the
Divestiture Transaction in order to meet certain requirements of the Reliability
2000 Legislation,/1/ WEPCO notes that many of the specifics of the proposed
Divestiture Transaction (which would ordinarily be necessary for the Commission
to grant section 203 approval), have not yet been agreed upon by all
stakeholders in Wisconsin. Nonetheless, WEPCO requests that the Commission
accept this Section 203 application for filing now, notwithstanding the fact
that the Application may require the filing of supplemental amendments or
information as the details of formation of the Transco become more clear.
Indeed, the Reliability 2000 Legislation was only very recently enacted on
October 27, 1999, and Wisconsin stakeholders are currently in the process of
implementing the transco provisions of the new law through discussions and
negotiations. This legislation contemplates: (1) the formation of a single-
purpose transmission company which will, at the very least, own and operate
transmission grid assets located within the State of Wisconsin; (2) that the new
transco will charge a single fee for use of the grid under an open access
transmission tariff to be filed with this Commission; and (3) Wisconsin
utilities or holding
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/1/ Pursuant to Section 196.485(5)(a)(5) of the Reliability 2000 Legislation,
in order to increase WEPCO's ability to expand its non-utility investments
beyond currently-established limitations, WEPCO must file a petition with this
Commission requesting approval of the contribution of WEPCO's transmission
assets to the Transco. The instant Application meets this state law requirement.
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companies, such as Wisconsin Energy Corporation, will own shares of stock in
Transco proportionate to the transmission assets contributed. However, the
Reliability 2000 Legislation does not specify -- and transmission owning
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utilities and other interested parties in Wisconsin have not yet determined --
the exact form of the corporate transaction which will result in the formation
of Transco, or the exact make-up and corporate form of Transco itself.
Accordingly, WEPCO requests that the Commission accept this Application for
filing, subject to subsequent amendments "filling in the details" of the
Divestiture Transaction, as such details become available.
Still, notwithstanding the fact that this Application does not yet contain
all of the details of the Divestiture Transaction, the Commission should be
assured that WEPCO does fully intend to carry out the sale or transfer of its
transmission assets to a transco consistent with Wisconsin law and the Federal
Power Act. Indeed, with respect to the Divestiture Transaction, and consistent
with the relevant provisions of the Reliability 2000 Legislation,
contemporaneously with this filing, WEPCO is today filing with the Public
Service Commission of Wisconsin ("PSCW") an unconditional, irrevocable and
binding commitment to: (1) contribute to a transco, no later than September 30,
2000, all of the transmission facilities that it owns or operates in Wisconsin;
and (2) to cause each entity into which WEPCO merges or consolidates, or to
which it transfers substantially all of its transmission assets, to contribute
to a transco any transmission facility in Wisconsin the ownership or control of
which it acquires after the effective date of the new law which is October 29,
1999./2/ These commitments should assure this Commission that it will indeed be
reviewing the merits of a real and "live" transaction with respect to the
formation
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/2/ Wisconsin Stat. (S) 196.485(5)(a)(2), (3).
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of the Transco, and will not be spending its time reviewing this application in
order to render a decision in the nature of an advisory opinion or declaratory
ruling.
Completion of the Divestiture Transaction is expected to occur on or
before September 30, 2000. Accordingly, WEPCO hereby requests review and
approval of the Divestiture Transaction under FPA Section 203 to the extent
necessary to accommodate this date, as set by the Reliability 2000 Legislation.
As demonstrated below, the Divestiture Transaction fully satisfies the standard
set forth in Order No. 592, Inquiry Concerning the Commission's Merger Policy
Under the Federal Power Act: Policy Statement, FERC Stats. & Regs. (Regulations
Preambles) (P) 31,044(1996), order on reconsideration, Order No. 592-A, 79 FERC
(P) 61,321 (1997) ("Merger Policy Statement")./3/ WEPCO, therefore, respectfully
requests that the Commission approve this Application without an evidentiary
hearing by September 30, 2000.
The Commission should be advised that: (1) it is intended that the Transco
will transfer operation control of its transmission assets to the Midwest
Transmission System Operator, Inc. ("MISO"); and (2) WEPCO has become, and will
continue to be, a member of the MISO. See Midwest Independent Transmission
System Operator, Inc., 84 FERC (P) 61,231, order on reconsideration, 85 FERC (P)
61,250, order on reh'g, 85 FERC (P) 61,372 (1998)("MISO Order"). On September
16, 1998, the Commission approved, as consistent with the public interest under
Section 203 of the FPA, the transfer of operational control of a substantial
portion of the WEPCO Transmission System to the MISO. Pursuant to the MISO
Order, MISO will assume
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/3/ The Commission recently issued a Notice of Proposed Rulemaking ("NOPR")
which sets forth specific filing requirements and revisions to the Part 33
filing requirements consistent with the Merger Policy Statement. See Revised
Filing Requirements Under Part 33 of the Commission's Regulations, IV FERC
Stats. & Regs. (P) 32,528 (1998)("Merger Filing NOPR"). Although these proposed
regulations have not gone into effect, WEPCO has attempted to conform this
filing to the principles articulated in the Merger Filing NOPR to the extent
practical.
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control over the transmission facilities of its members' transmission systems,
including portions of the WEPCO Transmission System, rated 100 kV and higher,
but it will not own these facilities.
In contrast, upon consummation of the Divestiture Transaction, Transco will
acquire control over, and the entire equity interest in, the WEPCO Transmission
System. Pending commencement of MISO operations in 2001, Transco will assert
control over the WEPCO Transmission System. However, once MISO commences
operations, Transco is legally obligated to transfer operational control over
its transmission facilities to MISO.
WEPCO clarifies that, currently, it is not intended that Transco itself
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will necessarily meet all of the requirements of the Commission's final rule on
regional transmission organizations ("RTOs"). See Order No. 2000, Regional
Transmission Organizations, 89 FERC (P) 61,285 (1999). Nonetheless, WEPCO
intends that, as public utilities subject to Order No. 2000, both WEPCO and
Transco will meet the requirements of Order No. 2000 through membership in the
MISO, and that the MISO, instead, will meet all Order No. 2000 requirements.
Because the Reliability 2000 Legislation requires Transco to transfer
operational control of all of its transmission facilities to MISO, the
Commission may assure itself that Transco will not seek to meet the requirements
of Order No. 2000 by intending to constitute itself as a RTO. Accordingly,
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WEPCO does not believe it is necessary that the Commission condition approval of
this Section 203 application on Transco itself meeting the requirements of Order
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No. 2000.
WEPCO notes that in Docket No. EC00-33-000, Wisconsin Power & Light Company
filed a similar request to transfer its jurisdictional transmission facilities
to Transco. In addition, other Wisconsin utilities including, Madison Gas and
Electric Company, Wisconsin Public
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Service Corporation, Northern States Power Company-Wisconsin, and Wisconsin
Public Power, Inc. may soon determine that it is appropriate to transfer their
jurisdiction transmission assets to Transco. WEPCO would not oppose the
consolidation of these proceedings involving the transfer of transmission assets
to Transco.
II. DESCRIPTION OF APPLICANT.
A. Wisconsin Electric Power Company and Relevant Affiliates.
1. Wisconsin Energy Corporation.
WEPCO is a wholly-owned subsidiary of Wisconsin Energy Corporation
("Wisconsin Energy"). Wisconsin Energy is a public utility holding company
exempt from registration under Section 3(a)(1) of the Public Utility Holding
Company Act ("PUHCA") of 1935, 15 U.S.C. (S) 79c(a)(1). Wisconsin Energy does
not directly own, operate, or control any facilities used for the generation,
transmission or distribution of electric energy in interstate commerce.
Wisconsin Energy has five subsidiaries described below which own, or will own,
FPA-jurisdictional facilities.
2. Wisconsin Electric Power Company.
WEPCO is an electric and natural gas public utility operating company which
owns electric generation, transmission and distribution facilities and natural
gas distribution facilities located in the States of Wisconsin and Michigan.
WEPCO provides retail electric service to approximately one million customers
and retail natural gas service to approximately 380,000 customers located
throughout portions of southeastern, central and northern Wisconsin and the
Upper Peninsula of Michigan. WEPCO's retail operations are subject to the
jurisdiction of the Public Service Commission of Wisconsin ("PSCW"), and the
Michigan Public Service Commission ("MPSC"). WEPCO also transmits and sells
electric energy at wholesale subject to
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the Commission's jurisdiction under Part II of the FPA. WEPCO also sells steam
service in the downtown Milwaukee area.
In addition to its generating assets, WEPCO owns approximately 2,760 miles
of transmission facilities with ratings from 69 to 345 kilovolts. These
facilities are interconnected with the following entities: Commonwealth Edison
Company, Madison Gas and Electric Company, Marquette Board of Public Utilities,
Northern States Power Company-Wisconsin, Upper Peninsula Power Company, Alliant
Energy Corporation, Wisconsin Public Power System, Inc., and Wisconsin Public
Service Corp. WEPCO is a member of the Mid-American Interconnected Network,
Inc. and, as noted herein, is a participant in MISO.
3. Edison Sault Electric Company.
Edison Sault Electric Company ("Edison Sault") is a direct, wholly-owned
subsidiary of Wisconsin Energy. Edison Sault is an electric public utility
operating company that owns electric generation, transmission and distribution
facilities located in the State of Michigan. Edison Sault provides retail
electric service to approximately 21,000 customers located on Michigan's Eastern
Upper Peninsula. Edison Sault's retail operations are subject to the
jurisdiction of the MPSC. Edison Sault also transmits and sells electric energy
at wholesale subject to the Commission's jurisdiction under Part II of the FPA.
In addition to its generating assets, Edison Sault owns approximately 340 miles
of transmission facilities with ratings from 69 to 138 kilovolts. These
facilities are interconnected with Consumers Energy Company and Cloverland
Cooperative. Edison Sault is a member of the East Central Area Reliability
Council and, on December 29, 1999, filed with this Commission its request to
become a member of MISO.
4. Wisvest Corporation.
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Wisvest Corporation ("Wisvest") is a wholly-owned subsidiary of Wisconsin
Energy. Through a wholly-owned subsidiary, Wisvest-Connecticut, L.L.C.
("Wisvest-Connecticut"), Wisvest owns an indirect 100 percent interest in
certain generating facilities formerly owned by United Illuminating Company.
See United Illuminating Company, et al., 86 FERC (P) 62,162 (1999). The
Commission authorized Wisvest- Connecticut to engage in sales of electric energy
at wholesale and sales of ancillary services at market-based rates within the
energy market administered by ISO-New England, Inc. See Wisvest-Connecticut,
L.L.C., 86 FERC (P) 61,133 (1999). Wisvest-Connecticut is an "exempt wholesale
generator" as defined in Section 32 of PUHCA.
5. Minergy Corp.
Minergy Corp. ("Minergy") is a wholly-owned subsidiary of Wisconsin
Electric engaged in the business of marketing technologies designed to convert
high-volume industrial and municipal wastes into value-added products. Minergy
owns patent rights to technology that manufactures a lightweight aggregate
product from combustion ash, municipal waste-water sludge, and paper mill
sludge. The technology recently has been commercialized and Minergy is actively
developing other technologies to convert high volume industrial wastes into
value-added products.
6. Griffin Power Marketing, L.L.C.
Griffin Power Marketing, L.L.C. ("Griffin Power") is an indirect wholly-
owned subsidiary of Wisconsin Energy engaged in the business of the brokering
and marketing of electric energy and power, natural gas, and other energy
service at wholesale and retail throughout North America. The Commission
authorized Griffin Power to transact wholesale
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sales of electric energy and power at market-based rates in Docket
No. ER97-4168-000. See Griffin Power Marketing, L.L.C., 81 FERC (P) 61,133
(1997).
III. OVERVIEW OF THE PROPOSED DIVESTITURE TRANSACTION.
A. Reliability 2000 Legislation.
On October 27, 1999, the Wisconsin legislature enacted legislation
restructuring the state's electric utility industry which, among other things,
contemplates the formation of a single-purpose transmission company for purposes
of owning and operating transmission grid assets located, at a minimum, within
the State of Wisconsin./4/ As enacted, the Reliability 2000 Legislation provides
specific incentives for public utility affiliates of holding company systems in
Wisconsin, including WEPCO, to voluntarily transfer ownership of their
transmission assets to a transco./5/ For example, as an incentive for public
utility operating companies to transfer their jurisdictional transmission assets
to a transco, the Reliability 2000 Legislation provides Wisconsin public utility
holding companies partial relief from the strict limits currently placed on the
ownership of non-utility affiliates./6/
As a functional matter, the Reliability 2000 Legislation obligates Transco
to plan, construct, operate, maintain, and expand its transmission facilities to
provide adequate, reliable transmission services and charge a single fee for use
of its systems located within Wisconsin under an open access transmission tariff
to be filed with the Commission (the "Transco Tariff")./7/
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/4/ 1999 Wisconsin Act 9, Sections 2335tr to 2335uh (Assembly Amendment to
Assembly Subcommittee Amendment 1 to 1999 Assembly Bill 133).
/5/ Wisconsin Stats. (S) 196.485(5).
/6/ Id.
/7/ The Transco Tariff will be filed with the Commission, to be effective
November 1, 2000. It is expected that the Transco Tariff will be a "license
plate" transmission tariff.
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Pursuant to the Reliability 2000 Legislation statutory directive, Transco should
promote and support robust competition in energy markets, with no favoritism
towards any participant, while meeting the needs of end-users who are dependent
upon it. Consistent with the relevant provisions of the Reliability 2000
Legislation, in order to take advantage of certain relaxed restrictions on non-
utility investment, WEPCO must make an unconditional, irrevocable and binding
commitment to the PSCW to transfer operational control of the jurisdiction
facilities that it owns to a transco by no later than September 30, 2000./8/
B. Proposed Corporate Structure of Transco.
Transco does not currently own, operate, or control any facilities used for
the generation, transmission or distribution of electric energy. However, upon
consummation of the Divestiture Transaction, Transco will be a "public utility,"
as that term is defined under Section 201(e) of the FPA, 16 U.S.C. (S) 824(e),
and will be subject to the jurisdiction of this Commission under Part II of the
FPA.
Although the corporate structure pursuant to which Transco will be formed
is not yet finalized, WEPCO anticipates that Transco will be a corporation or
limited liability company ("LLC") with a Board of Directors ranging from 5 to 14
members (or managers, if the LLC structure is adopted). At least 4
directors/managers will be elected by majority vote of the shareholders and may
not be persons employed by or engaging in natural gas or electric businesses;
one manager/director will be appointed by each contributor of transmission
facilities; and the other directors will be appointed based on minimum ownership
criteria.
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/8/ Id.
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Additionally, with respect to operations and service within the State of
Wisconsin, Transco will have the exclusive right to construct and own
transmission facilities in geographic areas served by Wisconsin public utilities
that have contributed their transmission facilities to Transco./9/ The
Reliability 2000 Legislation defines the transmission facilities to be
transferred to a transco as any "facility that is not a radial facility and is
designed to operate above 130 kV."/10/ A facility from 50 kv through 130 kV
which is not a radial facility also is presumed to be a transmission facility,
unless it is demonstrated to the PSCW that the facility is not a transmission
facility (based on this Commission's standard Seven Factor Test)./11/
The Reliability 2000 Legislation prohibits Transco from directly serving
retail customers and further prohibits Transco from bypassing distribution
systems./12/ Radial facilities or those facilities designed to operate at 50 kV
or less are presumed not to be transmission facilities, unless the contrary is
demonstrated to the PSCW.
C. Operation of the WEPCO Transmission System by Transco.
As noted above, Transco is under a statutory mandate to transfer control of
its jurisdictional facilities located within the State of Wisconsin to MISO,
upon commencement of
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/9/ Id. (S) 196.485(lm).
/10/ Id. (S) 196.485(5).
/11/ In Order No. 888, the Commission established a "functional-technical"
test that evaluates facilities on the basis of seven indicators of local
distribution. These factors include: (1) close proximity to retail customers;
(2) primarily radial in character; (3) power flows primarily into local
distribution systems; (4) power entering local distribution systems is not
reconsigned or transported on to some other market; (5) power entering a local
distribution system is consumed in a comparatively restricted geographic area;
(6) meter location near transmission/local distribution interface to measure
flows into the local distribution system; (7) reduced system voltage. See
Promoting Wholesale Competition Through Open Access Non-Discriminatory
Transmission Services by Public Utilities and Recovery of Stranded Costs by
Public Utilities and Transmitting Utilities, Reg. Preambles, Order No. 888, FERC
Stats. & Regs.(Regulations Preambles) (P) 31,036 at 31,771 (1996), order on
reh'g, Order No. 888-A, III FERC Stats & Regs. (P) 31,048 (1997), reh'g denied,
Order No. 888-B, 81 FERC (P) 61,248 (1997), order on reh'g, Order No. 888-C, 82
FERC (P) 61,046 (1998).
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operations by MISO in 2001. In the interim, however, Transco will: (1) own and
assert operational control over the transmission system contributed to it by
participating utilities; (2) operate an Open Access Same-Time Information System
("OASIS") in conformance with Order No. 889;/13/ and (3) administer the Transco
Tariff. Transco will be responsible for the maintenance of the transmission
facilities under its ownership and control,/14/ as well as engaging in
transmission system planning./15/ In addition, Transco will offer ancillary
services under the Transco Tariff. Since Transco will own no generating
facilities, it is expected that Transco will enter into agreements to purchase
ancillary services and must-run services from third-party generators located
within its control area. Finally, it should be noted that Transco will not
engage in the purchase and sale of energy other than to obtain necessary
ancillary services required by its customers./16/
Upon receipt of necessary regulatory approvals, Transco will commence
providing open access transmission service under the Transco Tariff to: (1)
WEPCO; (2) WEPCO's existing open access transmission customers; and (3) to any
other eligible customer requesting transmission service from Transco. Where
WEPCO is responsible for providing transmission service pursuant to agreements
or tariffs predating Order No. 888 ("Grandfathered Transmission Agreements"),
Transco will provide transmission service to WEPCO pursuant to the Network
_______________________________________________________________________________
/12/ Wisconsin Stats. (S)(S)196.485(3m).
/13/ Open Access Same-Time Information System (Formerly Real-Time
Information Network) and Standards of Conduct, Order No. 889, FERC Stats. &
Regs. (Regulations Preambles) (P) 31,035 (1996), order on reh'g, Order No. 889-
A, III FERC Stats. & Regs. (P) 31,049 (1997), reh'g denied, Order No. 889-B, III
FERC Stats. & Regs. P31,253 (November 25, 1997).
/14/ WEPCO anticipates that Transco initially will contract with WEPCO to
perform maintenance on the WEPCO Transmission System facilities transferred to
Transco.
/15/ Wisconsin Stats. (S)(S) 196.485(l)(ge) and 196.485(lm)(3m).
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Integration Service and Operating Agreement set forth under the Transco Tariff
in order to allow WEPCO to continue to provide comparable transmission service
to these customers.
D. Sale or Transfer of Jurisdictional Transmission Assets by WEPCO to
Transco.
It is currently contemplated that the Divestiture Transaction will be
effected in accordance with an asset purchase agreement ("Asset Purchase
Agreement") to be negotiated by WEPCO and Transco. Pursuant to the terms of the
Asset Purchase Agreement, it is contemplated that: (1) WEPCO will divest its 100
percent equity interest in the WEPCO Transmission System through the sale or
transfer of such assets to Transco; (2) Transco will acquire control over, and
the entire equity interest in, the WEPCO Transmission System; and (3) Wisconsin
Energy will own shares of stock in Transco proportionate to the value of the
transmission assets contributed by WEPCO.
The specific transmission facilities subject to transfer under the
Divestiture Transaction will be determined in a proceeding, currently pending
before the PSCW, to develop a methodology for classifying facilities owned and
operated by WEPCO as "transmission" or "local distribution" pursuant to the
Commission's Seven Factor Test ("Seven Factor Proceeding"). (See Attachment
1)./17/ Once the Seven Factor Proceeding is completed, WEPCO will file in this
docket a specific list of the transmission facilities to be transferred to
Transco. Consistent with Order No. 888, WEPCO anticipates that this Commission
will show substantial
_______________________________________________________________________________
/16/ Id.
/17/ See Investigation into the Classification of Transmission Facilities
Pursuant to Wis. Stat. (S) 196.485(1)(h), Docket No. 05-EI-119 (Oct. 19, 1999).
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deference to the transmission/distribution split decided upon by the PSCW in
the Seven Factor Proceeding.
Currently, it is anticipated that Transco will acquire from WEPCO certain
transmission facilities that operate at voltages of, generally, 345 kV, 230 kV
and 138 kV, as well as 69 kV facilities. These facilities will include:
. Transmission lines (including towers, poles, and conductors) and
transmission substations;
. Transformers providing transformation within the bulk transmission
system and between the bulk and area transmission systems;
. Lines providing connections to generation sources and step-up (plant)
substations;
. Radial taps from the transmission system up to, but not including,
the facilities that establish the final connection to distribution
facilities or retail customers ;
. Substations that provide primarily a transmission function; and
. Voltage control devices and power flow control devices directly
connected to the transmission system.
It is anticipated that the WEPCO facilities subject to the Divestiture
Transaction shall not include those facilities determined by the PSCW in the
Seven Factor Proceeding to be "local distribution" facilities used to provide
retail electric service. As such, it is currently anticipated that local
distribution facilities will include all facilities with voltages below 50 kV,
including the final circuit connection to substations providing transformation
or connection to any retail customer, regardless of voltage level.
WEPCO currently provides transmission service to certain wholesale
customers at delivery points less than 50 kV. In order to ensure the continuity
of service to such wholesale customers who elect to take service under the
Transco Tariff, WEPCO and Transco may enter
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into an agency agreement. Such an agreement likely would provide Transco with
the use of certain WEPCO local distribution facilities necessary to continue
transmission service to WEPCO wholesale customers served at delivery points
whose voltages are less than 50 kV. Transmission service to wholesale customers
over these local distribution facilities would be made available under the
Transco Tariff, and associated local distribution costs are expected to be
recovered in rates on a direct assignment basis. This procedure may be necessary
to ensure that existing wholesale customers served under Grandfathered
Transmission Arrangements at voltages below 50 kV will have access to comparable
transmission service.
E. Financial Aspects of the Transaction.
The WEPCO Transmission System will be conveyed by WEPCO to Transco at net
book value (original cost less accumulated book depreciation)./18/ When the
exact facilities to be transferred are determined, WEPCO will provide the dollar
value of the facilities to be transferred, as well as final accounting entries.
IV. COMMISSION'S PART 33 FILING REQUIREMENTS.
A. Applicant's Name and Principal Place of Business.
WEPCO is a Wisconsin corporation with its principal place of business at
231 West Michigan Street, PO Box 2046, Milwaukee, Wisconsin 53201.
B. Names and Addresses of the Persons Authorized to Receive Notices and
Communications with Respect to the Application.
WEPCO respectfully requests that notices, correspondence, and other
communications concerning this Application be directed to the following persons:
______________________
/18/ Wisconsin Stats. (S) 196.485(5).
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Clifford S. Sikora
R. Michael Sweeney, Jr.
Troutman Sanders LLP
1300 I Street, N.W., Suite 500 East
Washington, D.C. 20005-3314
(202) 274-2950 (telephone)
(202) 274-2994 (facsimile)
[email protected] (e-mail)
Larry Salustro
Vice President-Legal, Regulatory and
Government Affairs
Wisconsin Electric Power Company
231 West Michigan Avenue
Milwaukee, WI 53203
(414) 221-2345 (telephone)
[email protected]
C. Designation of Territories Served, by Counties and States.
WEPCO is an investor-owned public utility operating company engaged in the
business of furnishing retail electric service to approximately one million
customers and natural gas distribution service to approximately 380,000
customers located throughout the southeastern, central and northern portions of
the State of Wisconsin, as well as substantial portions of the Upper Peninsula
of Michigan. WEPCO's service territory includes approximately 2,760 miles of
interconnected transmission lines operated at voltages from 69 to 345 kilovolts.
Described below are the municipal electric franchises currently held by
WEPCO: Angelica; Appleton; Ashford; Ashippun; Auburn; Aurora; Aztalan; Barton;
Bayside; Belgium; Belle Plain; Black Creek; Bondeul; Brighton; Brillion;
Bristol; Brookfield; Brown Deer; Buchanan; Burlington; Butler; Byron; Caledonia;
Calumet; Campbellsport; Cedar Grove; Cedarburg; Center; Chase; Cicero; Clayton;
Cleveland; Combined Locks; Concord; Cottage Grove; Cudahy; Dale; Dayton;
Deerfield; Delafield; Delevan; Dousman; Dover; Eagle; East Troy; Eden; Elkhart
Lake; Ellington; Elm Grove; Emmet; Empire; Erin; Farmington; Florence;
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Forest; Fort Atkinson; Fox Point; Franklin; Fredonia; Freedom; Genesee; Geneva;
Germantown; Gillett; Glendale; Greendale; Grafton; Grand Chute; Greenbush;
Greendale; Greenfield; Greenville; Hales Corners; Harrison; Hartford; Hartland;
Herman; Hilbert; Holland; Hortonville; Hubbard; Hustisford; Ixonia; Jackson;
Jefferson; Johnson Creek; Kenosha; Kewaskum; Kimberly; Koshkonong; La Grange;
Lafayette; Lake Mills; La Larrabee; Lebanon; Leroy; Lima; Lind; Lisbon; Little
Wolf; Lomire; Lowell; Lydon; Lyons; Maple Grove; Marshall; Marshfield; Medina;
Meeme; Menasha; Menomonee Falls; Mequon; Milwaukee; Mt. Pleasant; Kukwa;
Mukwonago; Muskego; Neenah; New Berlin; New Holstein; New London; Niagara;
Norway; Oak Creek; Oak Grove; Oakland; Oconomowoc; Oneida; Oosburg; Osceola;
Ottawa; Paddock Lake; Palmyra; Paris; Pewaukee; Phelps; Pittsfield; Pleasant
Prairie; Plymouth; Polk; Port Washington; Pulaski; Racine; Randall; Random Lake;
Raymond; Rhine; Richfield; Richmond; River Hills; Rochester; Royalton; Rubicon;
Schleswig; Sherman; Shorewood; Silver Lake; Slinger; Somers; South Milwaukee;
Spring Prairie; St. Francis; Stockbridge; Sturtevant; Sugar Creek; Sullivan;
Summit; Sun Prairie; Sussex; Taycheedah; Theresa; Union Grove; Vandenbrock;
Veron; Vinland; Wales; Washington; Waukesha; Waupaca; Wauwatosa; Wayne; Wescott;
West Milwaukee; Weyauwaga; Wheatland; Whitefish Bay; Whitewater; Wind Point;
Wolf River; Woodville; and Yorkville.
D. Description of Jurisdictional Facilities.
WEPCO owns books and records and has on file with the Commission numerous
agreements, rate schedules, and tariffs pursuant to which it provides
transmission service and engages in sales of electric energy at wholesale. As
described in Section III.C above, the physical jurisdictional facilities which
are the subject of this Application are being determined by the PSCW in the
Seven-Factor Proceeding. Consistent with Order No. 888, WEPCO anticipates
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that this Commission will show substantial deference to the
transmission/distribution split decided upon by the PSCW in the Seven Factor
Proceeding. Order No. 888, FERC Stats. & Regs. (Regulations Preambles) at
31,770-771. Upon the issuance of an order by the PSCW stating which facilities
owned by WEPCO are properly classified as "transmission" or "local distribution"
pursuant to the Seven Factor Test, WEPCO will file an amendment in this docket
supplementing the record with such information.
E. Description of Transaction and Statement as to Consideration.
As described above in Section III.C, supra, pursuant to the Divestiture
Transaction, WEPCO will dispose of the WEPCO Transmission System through the
sale or transfer of these assets to Transco, who will acquire control of, and
the entire equity interest in, the WEPCO Transmission System. However, as
described above, the specific steps and form of the Divestiture Transaction have
yet to be determined. Again, WEPCO will supplement the record in this docket
with such information as soon as it becomes available.
F. Description of the Facilities to be Disposed of, Consolidated or
Merged.
See Section III.C, supra.
G. Statement of the Cost of the Facilities Involved in the Transaction.
The cost of the facilities subject to the Divestiture Transaction, as
described elsewhere in this Application, are yet to be determined because the
specific facilities to be transferred have yet to be determined. Cost data of
such facilities will be submitted by WEPCO as soon as it is available. WEPCO
hereby stipulates that the cost of these facilities is in excess of $50,000.
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H. Statement as to the Effect of the Sale or Transfer Upon any Contract
for the Purchase, Sale or Interchange of Electric Energy.
The effect of the Divestiture Transaction on transmission customers is
described elsewhere in this Application. As discussed above, WEPCO transmission
customers served under existing Grandfathered Transmission Agreements will have
the right to continue receiving transmission service under these arrangements
from WEPCO. WEPCO will take network integration service from Transco under the
proposed Transco Tariff.
I. Statement as to the Other Required Regulatory Approvals.
The following are the other regulatory approvals required in conjunction
with the transfer of jurisdictional assets described in this Application.
First, the sale or transfer of physical transmission facilities to Transco
requires that WEPCO file an unconditional, irrevocable and binding commitment to
contribute all of its transmission facilities to Transco no later than September
30, 2000 with PSCW pursuant to Wisconsin Stats. (S) 196.485(5)(a)(2).
Second, WEPCO will require an order from the Commission under Section 205
of the FPA accepting for filing an Interconnection Agreement to be negotiated
between WEPCO and Transco.
Third, WEPCO anticipates that it may be necessary to file with the
Securities and Exchange Commission for approval under the Public Utility Holding
Company Act of 1935, for the creation of a new public-utility company affiliate
of WEPCO, i.e., Transco.
J. Facts Showing that the Proposed Transactions will be Consistent with
the Public Interest.
See Section V, infra.
K. Brief Statement of Franchises Held.
20
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See Section IV.C., supra.
L. Form of Notice.
A form of notice suitable for publication in the Federal Register is
attached to the transmittal letter accompanying this Application. In addition,
an electronic version of this notice on a 3.5 inch computer diskette in
WordPerfect format is enclosed with this filing.
V. THE DIVESTITURE TRANSACTION IS CONSISTENT WITH THE PUBLIC INTEREST.
The Divestiture Transaction is consistent with the public interest and
therefore should be approved under Section 203 of the FPA. The Commission must
approve the proposed transfer of jurisdictional transmission facilities subject
to the Divestiture Transaction if it finds that this transaction "will be
consistent with the public interest."/19/ As general matter, when reviewing
divestiture transactions under Section 203 of the FPA, the Commission has
undertaken a public interest evaluation pursuant to the three-pronged test set
forth in the Merger Policy Statement./20/ FERC Stats. & Regs. (Regulations
Preambles) at 30,116-125. Under this test, the Commission examines the proposed
transaction's effect on competition, on rates, and on regulation. Id.
The proposed transaction satisfies the public interest requirements set
forth in the Commission's Merger Policy Statement as it: (i) will have a
beneficial effect on competition in
_______________________
/19/ Section 203(a) of the FPA, 16 U.S.C. (S) 824b, states:
No public utility shall sell, lease, or otherwise dispose of...its
facilities subject to the jurisdiction of the Commission...or by any means
whatsoever, directly or indirectly merge or consolidate such facilities or
any part hereof with those of any other person, or purchase, acquire, or
take any security of any other public utility, without first having secured
an order of the Commission authorizing to do so...After notice and
opportunity for hearing, if the Commission finds that the proposed
disposition, consolidation, acquisition, or control will be consistent with
the public interest it shall approve the same.
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the electric generation industry and no adverse impact whatsoever on the
regulated transmission industry; (ii) will have a beneficial or neutral impact
on rates; and (iii) will have no negative impact on regulation at either the
state or federal level.
A. The Divestiture Transaction is Consistent With the RTO Final Rule, and
Advances Commission Policy Supporting Functional Unbundling
Articulated in Order Nos. 888 and 889.
1. Order No. 2000.
--------------
WEPCO clarifies that, currently, it is not intended that Transco itself
--- ------
will necessarily meet all of the requirements of Order No. 2000, nor will
Transco seek to be constituted as an RTO. Nonetheless, WEPCO intends that, as
public utilities subject to Order No. 2000, both WEPCO and Transco will meet the
requirements of Order No. 2000 through membership in the MISO, and that the
MISO, instead, will meet all Order No. 2000 requirements. Because the
Reliability 2000 Legislation requires Transco to transfer all facilities to
MISO, the Commission should assure itself that Transco will not seek to meet the
requirements of Order No. 2000 by intending to constitute itself as a RTO.
------
Accordingly, WEPCO does not believe it is necessary that the Commission
condition approval of this Section 203 application on Transco itself meeting
------
the requirements of Order No. 2000. Instead, WEPCO believes that creation of the
Transco is consistent with Order No. 2000 because it will facilitate greater
separation of generation and transmission ownership, and will meet all of the
RTO criteria set out in Order No. 2000 through the MISO.
________________________________________________________________________________
/20/ Cambridge Electric Light Company, et al., 85 FERC (P) 61,217 (1998); New
England Power Company, et al., 82 FERC (P) 61,179 (1998), on reh'g, 83 FERC (P)
61,275 (1998); Boston Edison Company, 82 FERC (P) 61,311 (1998); Long Island
Lighting Company, 82 FERC (P) 61,129 (1998).
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2. Order No. 888.
-------------
In Order No. 888, the Commission determined that functional unbundling of
wholesale generation and transmission services is necessary to implement non-
discriminatory open access transmission service. In doing so, the Commission
stopped short of mandating corporate unbundling, which could include the
establishment of a separate corporate affiliate to manage a utility's
transmission assets. The Commission concluded that "functional unbundling of
wholesale services is necessary to implement non-discriminatory open access
transmission and . . .corporate unbundling should not now be required." FERC
Stats. & Regs. (Regulations Preambles) at 31,654.
Transco's acquisition and operation of the WEPCO Transmission System will
exceed the functional unbundling requirements of Order No. 888 and bring with it
greater corporate and organizational separation of transmission from generation.
Transco will be responsible for providing all open access transmission and
ancillary services under the Transco Tariff, and existing open access service
agreements entered into under WEPCO's open access transmission tariff,
designated by the Commission as Wisconsin Energy Corporation Operating Companies
FERC Electric Tariff, Original Volume No. 1 ("WEPCO OATT"), will be assigned to
Transco. WEPCO will remain responsible for obtaining transmission service
associated with Grandfathered Transmission Agreements. Upon consummation of the
Divestiture Transaction, WEPCO will become a network transmission customer of
Transco and will be required to secure transmission service from Transco in the
same manner as unaffiliated network transmission customers.
Upon consummation of the Divestiture Transaction, the current functional
separation of WEPCO's wholesale merchant function employees from its
transmission system operations
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personnel will be implemented well beyond the requirements of Order Nos. 888 and
889. Specifically, WEPCO's transmission system operations personnel will become
employees of a separate company, Transco, which has its own board of
directors./21/
Transco will not be engaged in the electric power generation business, and
it will contract with WEPCO and others on the open market to provide ancillary
services on a least-cost basis. Transco will not own local distribution
facilities, and it will arrange for use of local distribution only to the extent
required to provide transmission services to wholesale customers served at
voltages below 50 kV under the Transco Tariff. Transco will focus solely on
efficiently and effectively operating and maintaining, and where necessary
expanding, its transmission system, and will be well suited to respond quickly
to customer needs.
In sum, by transferring all of its transmission facilities to a separate
corporation and by agreeing to take transmission and ancillary services under
that corporation's open access tariff for the delivery of all power sold by
WEPCO to wholesale and retail customers, the proposed Divestiture Transaction
goes well beyond the Commission's comparability and functional unbundling
requirements set forth in Order Nos. 888 and 889.
B. The Transaction Meets the Requirements of the Commission's Merger
Policy Statement.
As noted above, the Merger Policy Statement, sets forth the regulatory
framework for evaluating proposed transactions filed for approval under Section
203 of the FPA. See FERC Stats. & Regs. (Regulations Preambles) at 30,116-125.
Specifically, the Commission examines three factors in analyzing whether a
proposed transaction is consistent with the pubic interest: (1) the effect on
competition; (2) the effects on rates; (3) and the effect on regulation.
Consideration
__________________
/21/ Wisconsin Stats. (S) 196.485(3m).
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of these factors, as applied to the facts set forth in the instant Application,
demonstrate that the Divestiture Transaction is consistent with the public
interest and, therefore, the Divestiture Transaction should be approved by the
Commission.
1. Competition Will be Unaffected or Enhanced.
------------------------------------------
In the recent Merger Filing NOPR, the Commission noted that its
"competitive concerns in any type of merger involving jurisdictional electric
utilities is whether the merger will result in higher prices or reduced output
in electricity markets." Merger Filing NOPR, IV FERC Stats. & Regs. (P) 32,528
at 33,365. To evaluate this concern, the Merger Policy Statement sets forth
specific questions which parties are required to address in order to determine
if a proposed transaction is "consistent with the public interest." The
fundamental inquiry is:
Does the merger substantially reduce the alternatives available
to buyers of a product or service, relative to those existing
prior to the merger and will reduction in the alternatives reduce
substantially the degree of competition in the market?
The Commission requires that merging parties submit a competitive screen
analysis in answering this question. Because the proposed Divestiture
Transaction does not involve the merger of public utilities, and will not have
any adverse effect on competition in the markets for generation and transmission
services, WEPCO has not submitted a competitive screen analysis as described in
Appendix A of the Merger Policy Statement. Specifically, there is no need for a
competitive screen analysis because there will be no new generation market
"overlaps" or consolidations resulting from the Divestiture Transaction. In
fact, just the opposite will occur - because WEPCO is going beyond the
requirements of Order No. 888 by engaging in a corporate unbundling transaction,
and intends that the Transco will transfer operation and control of transmission
to the MISO (consistent with requirements of Order No. 2000), WEPCO contends
that generation markets will become less concentrated as a result of the
Divestiture Transaction
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because the resulting increase in non-discriminatory transmission access and
availability will increase the geographic scope of relevant generation markets.
Furthermore, as described elsewhere herein, the Divestiture Transaction
does not itself involve any disposition of generating assets and, therefore, the
transaction can have no negative competitive impact on the generation market as
a result of a change in generation ownership. Transco does not currently own or
operate any facilities used for the generation, distribution, or transmission of
electric energy. Upon consummation of the Divestiture Transaction, Transco will
neither own nor control any generation assets. The proposed corporate
unbundling transaction does not involve any different concentration of utility
or other generation capacity ownership.
WEPCO respectfully submits that consummation of the Divestiture Transaction
will not confer to Transco greater market power than WEPCO already possesses in
the relevant geographic market. As a result, the Divestiture Transaction will
have a neutral or beneficial effect on competition and, therefore, should be
approved by the Commission.
2. The Divestiture Transaction Will Have No Adverse Effect on Rates.
----------------------------------------------------------------
Under the Merger Policy Statement, the Commission must determine that FPA
Section 203 applicants' wholesale rates and transmission customers will be
protected from adverse rate impacts attributable to a proposed transaction. See
FERC Stats. &Regs. (Regulations Preambles) at 30,123. In this case, no such
adverse effects will result from the Divestiture Transaction.
The Reliability 2000 Legislation allows Transco the option of being
included in a single system zone, subject to certain provisions./22/
Specifically, in the event the transmission rates of
_________________________
/22/ Wisconsin Stats. (S) 196.485(3m).
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any "transmission utility," as that term is defined under Wisconsin law, are 10%
or more below the average transmission rates in the transmission area,/23/
Transco shall prepare a phase-in plan for "a combined single zone rate for the
purpose of pricing network use by users of the transmission system operated" by
MISO./24/ The Reliability 2000 Legislation specifically requires Transco to file
this plan with the Commission./25/ Accordingly, WEPCO contends that the creation
of Transco will have a positive impact on transmission customers, particularly
as a result of these protective provisions of the Reliability 2000 Legislation.
The rates charged for generation-based ancillary services by WEPCO under
its OATT will remain unchanged. Since Transco's rates for generation based
ancillary services will simply reflect a pass-through of such costs, and since
it will be free to purchase ancillary services from other suppliers where
technically feasible and where such services are cheaper, rates for these
ancillary services will remain the same or decline. Transmission customers will
benefit from Transco's transmission-only business focus from both a tariff
administration and system-planning standpoint.
Some of WEPCO's transmission-dependent customers take service under
Grandfathered Transmission Agreements executed prior to issuance of Order No.
888. These customers will have the right to remain under their existing
arrangements, or at their option they may contract with Transco for transmission
services. Customers who choose to obtain transmission services under their
Grandfathered Transmission Agreements are free to do so, and will be included as
__________________
/23/ The Reliability 2000 Legislation defines "transmission area" as that part
of Wisconsin "that, on January 1, 1997, was served by the Mid-America
Interconnected Network, Inc., reliability council..." Wisconsin Stats. (S)
196.485(1)(g).
/24/ Wisconsin Stats. (S) 196.485(3m).
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<PAGE>
part of the Network Load of WEPCO. These customers will continue to pay the
same rates, and have the same rights and obligations as provided in their
Grandfathered Transmission Agreements.
The effect on rates to transmission-dependent customers who contract with
the Transco for network integration transmission service under the Transco
Tariff is almost entirely dependent on the individual circumstances of the
customer. Because existing arrangements provide a variety of rates for service
at voltages below 50 kV, the rate impact will vary from customer to customer.
However, due to the direct assignment of distribution costs, rates under the
Transco Tariff will more closely match the cost of providing service to
particular customers.
3. There Will be No Adverse Effect On Regulation.
---------------------------------------------
Under the Merger Policy Statement, the Commission requires parties to
evaluate the effect on regulation of a merger or other proposed transaction,
both at the federal and state level. The Commission has indicated that it may
set a Section 203 application for hearing if: (1) the merged entity would be
part of a registered holding company and the applicants do not commit to abide
by the Commission's policies on the pricing of non-power goods and services
between affiliates, or; (2) the affected state commissions do not have authority
to act on the transactions. See FERC Stats. & Regs. (Regulations Preambles) (P)
at 30,124-125. Neither of these concerns are raised by this Application, and
the Divestiture Transaction will not adversely affect federal and state
regulation.
For the following reasons, the Divestiture Transaction will not have any
adverse impact on federal regulation. First, WEPCO, the seller of the assets,
will continue to be fully subject to
________________________________________________________________________________
/25/ Id.
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Commission regulation with respect to all wholesale sales and transmission
services provided to its existing customers. Second, the sale of the WEPCO
Transmission System to Transco will not result in the formation of registered
holding company, but will result in a public utility fully subject to the
jurisdiction of the Commission. Accordingly, there should be no concern over the
Commission's ability to regulate effectively after the Divestiture Transaction
is consummated.
Furthermore, with regard to "affected state commissions," the Merger Policy
Statement reflects the Commission's concerns that state regulators should not be
divested of the authority to act on mergers of traditional vertically integrated
utilities with captive retail (as well as wholesale) customers. The Divestiture
Transaction does not involve a merger of vertically integrated utilities.
Pursuant to the Reliability 2000 Legislation, the Divestiture Transaction must
be reviewed by the PSCW. Additionally, upon consummation of the Divestiture
Transaction, WEPCO will continue to be fully subject to the jurisdiction of PSCW
with respect to retail rates charged by WEPCO, either as provider of electricity
or as a provider of electric delivery services for unbundled retail electricity
sales.
VI. REQUEST FOR APPROVAL.
WEPCO respectfully requests that the Commission approve the Divestiture
Transaction under Section 203 of the FPA by no later than September 30, 2000.
WEPCO has today filed with the PSCW an unconditional, irrevocable and binding
commitment to transfer its jurisdictional facilities to Transco by no later than
September 30, 2000. Accordingly, WEPCO seeks to secure all required regulatory
approvals necessary to consummate the Divestiture Transaction in advance of
September 30, 2000, and the proposed commencement of operations by Transco,
scheduled for November 1, 2000. In sum, the Divestiture Transaction is
consistent with the public interest and further facilitates the increasing
efforts to restructure and bring robust
29
<PAGE>
competition to the Nation's electric utility industry. WEPCO, therefore,
respectfully requests that the Commission act expeditiously and grant approval
of the proposed Divestiture Transaction as described in this Application.
VII. 18 C.F.R. (S) REQUIRED EXHIBITS.
As described elsewhere herein, many of the details of the Divestiture
Transaction, including Transco's corporate form, the transaction steps creating
Transco, and the list of facilities to be transferred by WEPCO to Transco, are
not now available. Accordingly, WEPCO requests waiver of the Part 33 filing
requirements until such time as the necessary information becomes available.
WEPCO commits to file such information as soon as it becomes available.
VIII. LIST OF EXHIBITS REQUIRED BY PART 33 OF THE COMMISSION'S REGULATIONS, 18
C.F.R. (S) 33.3.
Exhibit A. Copies of All Resolutions of Directors.
As explained in Section VII, above, WEPCO requests waiver of
this requirement until such time as this information becomes
available.
Exhibit B. Statement of Intercorporate Relationships.
As explained in Section VII, above, WEPCO requests waiver of
this requirement until such time as this information becomes
available.
Exhibit C. Statements A and B, FERC Form No, 1.
As explained in Section VII, above, WEPCO requests waiver of
this requirement until such time as this information becomes
available.
Exhibit F. Analysis of Retained Earnings.
As explained in Section VII, above, WEPCO requests waiver of
this requirement until such time as this information becomes
available.
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Exhibit G. Copies of All Applications Filed with any Other Federal and
State Regulatory Body in Connection with the Proposed
Transaction and Certified Copies of Each Order Relating
Thereto.
As explained in Section VII, above, WEPCO requests waiver of
this requirement until such time as this information becomes
available.
Exhibit H. Copies of All Contracts with Respect to the Transaction.
As explained in Section VII, above, WEPCO requests waiver of
this requirement until such time as this information becomes
available.
Exhibit I. Maps of Property Being Conveyed, Interconnections, and
Principal Cities Served.
As explained in Section VII, above, WEPCO requests waiver of
this requirement until such time as this information becomes
available.
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IX. CONCLUSION.
WEPCO respectfully requests that the Commission expeditiously authorize the
transfer to Transco of the facilities proposed herein under the terms and
conditions set forth in this application.
Respectfully submitted,
______________________________ _______________________________
Larry Salustro Clifford S. Sikora
Vice President-Legal, Regulatory and R. Michael Sweeney, Jr.
Government Affairs Troutman Sanders LLP
Wisconsin Electric Power Company 1300 I Street, N.W.
231 West Michigan Avenue Suite 500 East
Milwaukee, WI 53203 Washington, D.C. 20005-3314
(414) 221-2345 (202) 274-2950 (telephone)
(202) 274-2994 (facsimile)
Attorneys for
Wisconsin Electric Power Company
Dated: December 30, 1999
32
