The members of the Federal Energy Regulatory Commission on Feb. 4 approved an application covering certain “right of first offer” power plants of NextEra Energy (NYSE: NEE).
In August 2014, NextEra Energy Partners LP and a group of power plant operatoes called the “US Project Companies” submitted a petition for a declaratory order requesting that the commission disclaim jurisdiction over the future public offering and sale of certain public securities, and the future acquisition of certain public utilities by NextEra Partners. In the alternative, applicants requested approval under section 203 of the Federal Power Act (FPA) for the future public offering and sale of the public securities, and the future acquisition of the public utilities by NextEra Partners.
The US Project Companies are: Elk City Wind LLC; Genesis Solar LLC; Northern Colorado Wind Energy LLC; Perrin Ranch Wind LLC; and Tuscola Bay Wind LLC.
“As discussed below, we grant the Petition in part, and grant authorization under FPA section 203(a)(2) in part, subject to certain conditions, for the future acquisitions of interests in certain public utilities by NextEra Partners,” said the Feb. 4 order.
NextEra Partners is a financing vehicle formed by NextEra Energy for the purpose of raising equity capital. NextEra Partners owns indirect interests in the US Project Companies, each of which is a public utility subject to the commission’s jurisdiction, and that all of the output of the US Project Companies is committed pursuant to long-term contracts. As a result of holding indirect interests in the US Project Companies, NextEra Partners receives “predictable and stable cash flows” and has committed to distribute its available cash to investors holding limited partnership interests in NextEra Partners. Applicants state that while NextEra Partners is similar in purpose and function to other entities that have monetized the value of contracted for, clean generation resources through public offerings, such as NRG Yield, NextEra Partners differs in that the Common Units sold to the public are “passive, non-voting securities.”
Applicants also explained that there is a right of first offer agreement among NextEra Resources LLC, an indirect owner of NextEra Partners; NextEra Energy Operating Partners LP, an indirect owner of the US Project Companies; and NextEra Partners, which holds direct and indirect ownership interests in NextEra Operating. NextEra Operating “has a right of first offer for six years to acquire some or all of certain designated wind and solar electric generation subsidiaries of NextEra Resources that are or will be jurisdictional public utilities, prior to any proposed sale, transfer, or other disposition of such subsidiaries by NextEra Resources to third parties,” called the “ROFO Transactions.” Applicants explained that although not addressed in the ROFO Agreement, NextEra Resources may choose, in the future, to extend this right of first offer to cover additional subsidiaries that are or will be public utilities. Applicants further explained that NextEra Resources has no obligation to sell to NextEra Operating any of the public utilities currently designated in the ROFO Agreement or any future public utilities that may become subject to the right of first offer.
In the petition, applicants requested that the commission issue a declaratory order determining that, under the conditions specified in the petition, the Common Units are passive, non-voting securities such that (i) the future public offering and sale of additional Common Units, regardless of the amount sold and acquired, and (ii) the potential acquisition by NextEra Partners of additional indirect interests in other public utility subsidiaries of NextEra through exercise of a right of first offer, will not require Commission approval pursuant to FPA section 203. Applicants also requested that the commission find that, to the extent relevant, the proposed transactions will qualify for the benefit of the blanket authorization for non-voting securities.
Each of the US Project Companies is an indirect, wholly-owned subsidiary of NextEra Operating, in which NextEra Partners holds direct and indirect ownership interests. Each of the US Project Companies’ generating facilities is operated by an affiliate, NextEra Energy Operating Services, which provides field and maintenance services to the US Project Companies, but does not direct or control them. Applicants describe each of the US Project Companies as follows:
- Elk City is a wholly-owned, direct subsidiary of Elk City Wind Holdings LLC, which is a wholly-owned, indirect subsidiary of NextEra Operating. Elk City owns a wind facility with a power production capacity of 98.9 MW (Elk City Facility). All of the output of the facility is committed to Public Service Co. of Oklahoma under a long-term contract and is sold pursuant to market-based rate authority granted by the commission. The Elk City Facility is interconnected with the transmission system owned by Public Service Co. of Oklahoma.
- Genesis Solar is a wholly-owned, direct subsidiary of Genesis Solar Funding Holdings LLC, which is a wholly-owned, indirect subsidiary of NextEra Operating. Genesis Solar owns a parabolic trough solar thermal generating facility with a power production capacity of 250 MW (Genesis Solar Facility). All of the output of the facility is committed under a long-term power purchase agreement with Pacific Gas & Electric. The Genesis Solar Facility is interconnected to Southern California Edison‘s transmission system.
- Northern Colorado is a wholly-owned, indirect subsidiary of Mountain Prairie Wind Holdings LLC, which is a wholly-owned, indirect subsidiary of NextEra Operating. Northern Colorado owns a wind facility with a power production capacity of 174.3 MW. All of the output of the facility is committed pursuant to a long-term power purchase agreement with Public Service Co. of Colorado. Northern Colorado also owns certain interconnection facilities that interconnect with a transmission line owned by Peetz Logan Interconnect LLC, an affiliate of Northern Colorado. That transmission line transmits output from Northern Colorado and two other generating facilities to the transmission system owned by Public Service Co. of Colorado.
- Perrin Ranch is a wholly-owned, indirect subsidiary of Canyon Wind Holdings LLC, which is a wholly-owned, indirect subsidiary of NextEra Operating. Perrin Ranch owns a wind facility with a power production capacity of 99.2 MW (Perrin Ranch Facility). All of the output of the facility is committed pursuant to a long-term power purchase agreement with Arizona Public Service. The Perrin Ranch Facility owns interconnection facilities and is interconnected to the Navajo Project Southern Transmission System.
- Tuscola Bay is also a wholly-owned, indirect subsidiary of Canyon Holdings. Tuscola Bay owns a wind facility with a power production capacity of 120 MW (Tuscola Bay Facility). All of the output of the facility is committed pursuant to a long-term power purchase agreement with DTE Electric (formerly known as Detroit Edison). The Tuscola Bay Facility is interconnected to the transmission system of Michigan Electric Transmission, which is located within the Midcontinent Independent System Operator Balancing Authority Area.
On June 27, 2014, NextEra Partners raised about $438m in an initial public offering and sale of Common Units. Despite NextEra Partners’ indirect ownership interests in the US Project Companies, no advance commission approval of the June 2014 IPO was required under FPA section 203 because purchasers of the Common Units sold in the June 2014 IPO were, under the terms of NextEra Partners’ partnership agreement, prevented from exercising 10% or more of the voting power of NextEra Partners.
Said the Feb. 4 FERC approval: “We find that the ROFO Transactions will not have an adverse effect on competition. Specifically, under the circumstances described in the Petition, the ROFO Transactions will not produce a change in market concentration, and therefore do not raise horizontal or vertical market power concerns. The acquisition of the Designated and Future ROFO Utilities by NextEra Partners from NextEra or NextEra subsidiaries will not result in new affiliations between the US Project Companies or any of the Designated and Future ROFO Utilities and third-party generation assets because third-party investors will own passive interests in NextEra Partners as a result of the Common Units Transactions.
“We note that our finding on this issue is based upon Applicants’ representation that the Designated and Future ROFO Utilities are or will be subsidiaries of NextEra at the time of the transactions, and we condition our approval of the ROFO Transactions on that representation. Further, we will authorize the ROFO Transactions for a three-year period, rather than on a permanent basis. We find that a three-year limitation balances the Applicants’ need to operate under the requested authorizations with our duty to provide adequate regulatory oversight under FPA section 203. Accordingly, the authorizations expire three years from the date of this order, without prejudice to requests to extend the authorizations.”