FERC last week gave the green light to a proposal that will allow Ameren Energy Generating Co. (AEG) to move forward with the sale of two generating units to affiliate AmerenUE.

More broadly, FERC used the decision to articulate its policy for future acquisitions involving affiliates. The Commission believes this policy will protect wholesale customers and ensure that competition is not harmed in acquisitions involving affiliates.

AEG and AmerenUE are both subsidiaries of Ameren Corp. AEG owns and operates a 316 MW power plant in Pinckneyville, IL, and a 232 MW facility in Kinmundy, IL, both of which AEG intends to sell and transfer to AmerenUE.

The Commission subsequently set the case for hearing to determine whether there would be any harmful effects on competition as a result of the proposed disposition of facilities. FERC Administrative Law Judge (ALJ) Carmen Cintron in February issued an initial decision backing the proposed transfer of the two power plants.

FERC last Wednesday agreed with the ALJ’s findings that no affiliate abuse occurred and agreed that the proposed transaction would be consistent with the public interest, but concluded that there should be a more transparent solicitation process for such future approvals.

The Commission said that it would review the effect on competition of future Federal Power Act Section 203 transactions involving affiliates because of the concern that affiliate preference can adversely affect competition.

This review would be based on the standard developed in the so-called “Edgar” case. The Edgar standard can be met in one of three ways, a FERC staff member noted, “but the most direct and reliable way..to ensure no affiliate preference is through a competitive solicitation.”

FERC’s order further sets forth guidelines for conducting competitive solicitations. “The objective of these guidelines is to ensure that the conduct of competitive solicitations involving affiliates does not harm competitive markets by favoring those affiliates and foreclosing opportunities to competition,” the FERC staff member said.

“The guidelines are also intended to allow the Commission to more easily identify affiliate transactions that are unlikely to involve affiliate abuse, which can then be approved without a hearing,” she noted.

As set forth in the draft order, the guidelines rest upon four principles:

“Frankly, if you can’t meet those four principles, I’m not sure that the deal stands the laugh test,” FERC Commissioner Nora Brownell said. “So I think that this is fair and equitable and easily achievable and gives all of us — customers included — the assurance that these are the best deals that will add value for them.”

“I think that as the electricity market has evolved, we see today a market that’s different from what we have seen in the past,” FERC Commissioner Suedeen Kelly said. “Because competition has been in place and there are choices out there when assets are being acquired, we are focusing on the utility and its exercise of its monopoly power and the opportunities that it has to exercise that power are different. And so I think it’s appropriate that you have suggested to us that we look at that and use the Edgar standard.”

But FERC Commissioner Joseph Kelliher said that he couldn’t support application of the new competitive solicitations policy to acquisitions of facilities under Section 203.

“I believe the Commission’s interest in a 203 proceeding is fundamentally different from its interest in a 205 proceeding,” Kelliher said. “When we’re looking at a contract — and we do under 205 have a legal duty to assure just and reasonable rates and…I don’t think my colleagues disagree that an unfair solicitation process in solicitation of a power purchase contract can result in unjust and unreasonable rates.”

But Kelliher thinks that a Section 203 proceeding is different. “The just and reasonable standard is not in Section 203. We’re governed by a public interest standard and I just think this is going a little bit too far.”

Kelliher said that “the interest that would be guarded against in application of a competitive solicitation process to a[n] acquisition of facilities would seem that we’re guarding against the utility overpaying or underpaying in the acquisition of the asset.”

The rationale for applying that policy “assumes regulatory failure on the part of the states. I think that state commissions are certainly well prepared to review whether or not a public utility is overpaying in acquiring an asset. That’s their basic function and I think that we should not assume regulatory failure on the part of the states.”

FERC “should start from the assumption that states can regulate these acquisitions and that our interest in a 203 proceeding is different than 205.”

In response, FERC Chairman Patrick Wood said that he views the public interest standard “actually as a bit more demanding than the just and reasonable standard. For that reason, we do need to put some roadmarks out there as to what we’re looking for in the future.”

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