Settlement filed in Pennsylvania on FirstEnergy’s proposal to transfer certain transmission assets to new affiliate

Mid-Atlantic Interstate Transmission (MAIT), Metropolitan Edison (Met-Ed) and Pennsylvania Electric (Penelec) (collectively, the joint applicants), along with such Pennsylvania entities as the Office of Consumer Advocate (OC), on March 4 filed a joint petition for settlement with Pennsylvania state regulators in relation to FirstEnergy’s (NYSE:FE) proposal to transfer certain transmission assets to the new affiliate, MAIT.

The joint petition submitted to the Pennsylvania Public Utility Commission (PUC) also involved the Bureau of Investigation and Enforcement (I&E), the Office of Small Business Advocate (OSBA), the Met-Ed Industrial Users Group (MEIUG) and the Penelec Industrial Customer Alliance (PICA) – collectively, the “Industrials” – along with the Pennsylvania State University (PSU) and the International Brotherhood of Electrical Workers Locals 459 and 777 (the Labor Intervenors) – all referred to as the joint petitioners in the filing.

The joint petitioners requested that the administrative law judges (ALJs) and the PUC approve, subject to the terms and conditions set forth in the joint petition, the June 2015 joint application of MAIT, Met-Ed and Penelec, authorizing the transfer of certain transmission assets from Met-Ed and Penelec to MAIT, conferring upon MAIT the status of a Pennsylvania public utility, and approving certain affiliate interest agreements.

As noted in the joint petition, at the same time that the joint application was filed, two proceedings were initiated before other regulatory authorities:

  • Jersey Central Power & Light (JCP&L), which together with Met-Ed, Penelec and MAIT are referred to as the operating companies, filed an application seeking the New Jersey Board of Public Utilities’ (BPU) approval to contribute its transmission assets to MAIT; for MAIT to be granted public utility status in New Jersey; and for approval of certain affiliated interest agreements
  • The operating companies and FirstEnergy Transmission (FET) filed at FERC an application seeking approval of the transfer of the operating companies’ transmission assets to MAIT

FERC last month issued a final order granting the application and the approvals requested, the joint petition added.

The principal elements of the transaction include that the operating companies will make a one-time contribution of their existing transmission assets to MAIT as a tax-free transfer in exchange for Class B membership interests in MAIT. As owners of Class B membership interests, the operating companies will have voting rights over various fundamental structural matters, namely, the filing of a voluntary petition in bankruptcy, a merger or the sale of substantially all the assets of MAIT, the joint petition added.

The principal elements also include that as a result of the transaction, the operating companies will no longer own facilities serving a transmission function, and all transmission services over the transmission facilities will be provided by MAIT under the terms of PJM Interconnection’s open access transmission tariff (OATT), which is consistent with the current operation of those facilities by the operating companies. The transmission facilities will remain subject to the terms of the PJM OATT, the joint petition added, noting that rates for transmission service will remain subject to FERC jurisdiction as administered by PJM through its OATT.

Negotiations were conducted by the joint petitioners to try to achieve a settlement of some or all of the issues in the case, and as a result, the joint petitioners were able to agree to the settlement set forth in the joint petition, providing a a reasonable resolution of the issues in the case.

The joint petition further noted that as part of the settlement, the joint petitioners agree that the PUC should issue a certificate of public convenience to MAIT conferring public utility status, and Met-Ed and Penelec should each be issued certificates of public convenience approving the contribution of their transmission assets to MAIT on the terms set forth in the joint application, as modified by the terms of the joint petition, and thereby reflecting a finding that the transaction will not adversely affect the competitive retail electric market in Pennsylvania. Furthermore, the joint petitioners agree that the PUC should approve the affiliated interest agreements filed by the joint applicants.

Upon issuing those certificates of public convenience and granting the approvals, the joint applicants will have all of the approvals required from the PUC to consummate the transaction, the joint petition added.

Other terms and conditions include that MAIT agrees that, after the transaction is consummated, the PUC will retain the same jurisdiction over MAIT’s transmission assets that the PUC currently retains over the transmission assets of Met-Ed and Penelec. Also, MAIT is to finance new capital investments over the next five to 10 years through the issuance of debt in its own name, and is to not use equity financing to finance new capital investments unless MAIT’s actual capital structure is within the range of FERC-approved capital structures, or MAIT is unable to raise the necessary capital through the issuance of debt.

The settlement also noted that MAIT will propose in its FERC formula rate filing a two-year commitment to use a transitional capital structure of 50% equity/50% debt, with the two-year commitment beginning on the effective date of the formula rate approved by FERC as part of MAIT’s formula rate proceeding.

The joint petition further noted that the joint applicants commit to exclude all costs to achieve the transaction from distribution and transmission rates, with transition costs defined as costs to integrate assets into the acquiring utility as a result of the transaction, and are incurred after the transaction is consummated.

Among other things, the settlement also noted that MAIT is to be permitted to seek a return on equity incentive or premium at FERC, except that MAIT is to not, in any future FERC filing, seek an incentive or premium on the basis that it is a new company with no credit rating or that it is a single purpose entity, which causes greater risk.

The joint petition added that the settlement provides for various conditions and commitments that, for instance, set forth extensive provisions dealing with financing of MAIT, distributions by MAIT to the operating companies, various financial matters, ratemaking matters and periodic reporting requirements, all of which are designed to further protect the interests of the customers of Met-Ed and Penelec, the joint petition said.

Among other things, an appendix to the joint petition noted that there are projects being undertaken or in the planning stages at Met-Ed and Penelec that are considered as part of FirstEnergy’s Energizing the Future (ETF) and reliability enhancement (RE) programs. In response to a question about to what extent are ETF/RE projects currently in the PJM regional transmission expansion plan (RTEP) process, the joint applicants said that baseline PJM RTEP projects within the Met-Ed and Penelec portions of the proposed MAIT footprint that have in-service dates after Jan. 1, 2017 include:

  • Rebuilding and reconductoring a 115-kV line from East Towanda to S. Troy and upgrading terminal equipment at East Towanda, Tenneseee Gas and South Troy in the Penelec transmission zone, at an estimated cost of $40m; the projected in-service date is June 1, 2017
  • Building a new 115-kV line from Central City West to Bedford North in the Penelec transmission zone, at an estimated cost of $37.5m; the projected in-service date is June 1, 2018
  • Reconductoring the North Meshoppen–Oxbow–Lackawanna 230-kV circuit and upgrading terminal equipment (Penelec portion) in the Penelec transmission zone, at an estimated cost of $26.5m; the projected in-service date is June 1, 2019

New Jersey denies request

As noted in Feb. 24 BPU statement, the BPU has denied the request by JCP&L and MAIT to have MAIT be considered a New Jersey “public utility” subject to the BPU’s jurisdiction for certain limited purposes.

Last December, Rate Counsel filed a motion requesting that the BPU resolve the “public utility” status for MAIT and for a stay on the procedural schedule pending a BPU decision resolving that issue.

The BPU added that after reviewing that motion and the petitioners’ response, and considering the complexity and critical nature of the issue, BPU President Richard Mroz ordered the parties to file initial briefs on the issue of whether MAIT can qualify as a “public utility” under New Jersey law by Jan. 22, 2016, and ordered any reply briefs be filed by Jan. 29.

At the BPU agenda meeting held on Feb. 24, the BPU denied the motion of JCP&L and MAIT and deemed that MAIT cannot be a “public utility” as defined by the Electric Discount and Energy Competition Act (EDECA) of 1999. An “electricity distribution system, plant or equipment” is needed for public utility status, which MAIT, as a transmission-only company, does not possess, the BPU added.

While a transmission system, plant or equipment may be added to the distribution system without loss of public utility status, neither the EDECA nor any other state statute grants public utility status to a transmission-only company, the BPU said.

Jurisdiction of interstate transmission-only companies belongs with FERC under the Federal Power Act, the BPU said, adding that while there is certain limited authority that is reserved to the state pertaining to transmission companies, that limited authority does not allow a transmission-only company to be recognized as a public utility in New Jersey.

Six other actions requested by the joint petitioners remain pending before the BPU, according to the statement. As noted in the order, the other six actions include BPU approval of the transfer of all of JCP&L transmission assets to MAIT, as well as approval that, for those transmission projects for which the BPU granted JCP&L siting authority but which have not yet been placed in service, will be placed in MAIT.

That order went into effect on March 5.

About Corina Rivera-Linares 3294 Articles
Corina Rivera-Linares, chief editor for TransmissionHub, has covered the U.S. power industry for the past 16 years. Before joining TransmissionHub, Corina covered renewable energy and environmental issues, as well as transmission, generation, regulation, legislation and ISO/RTO matters at SNL Financial. She has also covered such topics as health, politics, and education for weekly newspapers and national magazines. She can be reached at clinares@endeavorb2b.com.