The Public Utility Commission (PUC) of Texas will consider a draft preliminary order at its March 24 open meeting in the matter concerning Southwestern Public Service’s (SPS) proposed transaction with Xcel Energy Southwest Transmission (XEST) that consists of SPS creating the subsidiary, Hitchland Lamar, to which SPS would contribute certain transmission assets located in Oklahoma and Kansas.
As noted in the draft preliminary order filed by Commission Advising, SPS filed its application for PUC approval of the transaction last October. The assets consist of about 230 miles of 345-kV transmission facilities, the Finney switching station located in Kansas, the Border Reactor Station in Oklahoma, and other property rights associated with those assets, the draft preliminary order noted. The net book value of the assets was about $103m, as of Dec. 31, 2015.
SPS would then sell its interest in Hitchland Lamar to an affiliate, XEST, at the net book value of the assets owned by Hitchland Lamar. Finally, the draft preliminary order noted, Hitchland Lamar would merge with and into XEST, and XEST would assume ownership of the assets of Hitchland Lamar.
After the transaction, SPS employees would continue to provide the services and materials necessary for the operation and maintenance of those facilities, and has entered into an operations and maintenance agreement between SPS and XEST under which SPS agrees to provide operations and maintenance services to XEST in exchange for compensation.
The draft preliminary order added that SPS has also entered into an administrative services agreement with XEST setting forth the terms under which the parties would provide good and services to each other. Accordingly, SPS requested that the PUC approve a transmission operations and maintenance agreement and the administrative services agreement between SPS and XEST, as well as an administrative services agreement between SPS and another affiliate, Xcel Energy Transmission Development (XETD).
The draft preliminary order also said that SPS requested that the PUC approve SPS’ right to recover in retail rates the wholesale transmission charges attributable to the assets owned by XEST on the same terms and to the same extent as SPS recovers other charges assessed under the Southwest Power Pool (SPP) open access transmission tariff.
In its October 2015 application, SPS noted that before the issuance of FERC Order 1000, SPS and other incumbent transmission owners in SPP had the right to build new transmission facilities located in their retail service areas. Order 1000 removed that right insofar as federal law is concerned, although it preserved the rights of states to enact or retain legislation allowing incumbent utilities to build transmission facilities in their own service areas, SPS said. The company added that it has a right to build transmission facilities in the Texas portion of its service area, although no such state-created right exists at this time in SPS’ New Mexico service area.
Xcel Energy (NYSE:XEL), the parent company of SPS, has created three electric transmission companies that will compete for transmission projects in states that do not grant incumbent utilities the right to build transmission projects in their service areas:
- XEST to compete for transmission projects in SPP
- XETD to compete for projects in the Midcontinent ISO
- Xcel Energy West Transmission (XEWT) to compete for projects in WestConnect, a regional planning entity located in the Western Interconnection
The draft preliminary order noted that the PUC must provide to the administrative law judge a list of issues or areas to be addressed in any proceeding referred to the State Office of Administrative Hearings (SOAH); the docket was referred to the SOAH in January. After reviewing the pleadings submitted by the parties in the case, the draft preliminary order noted that the PUC identifies certain issues that must be addressed in the docket, including:
- Is the transaction consistent with the public interest?
- Are the final amounts related to the transaction currently known such that the PUC can evaluate whether it is in the public interest?
- Will the transaction result in the reduction or avoidance of regulatory authority or regulatory oversight, or will the transaction facilitate regulatory oversight?
- How will the transaction impact the rates of Texas customers?
- How will the impact rates of the XEST transmission-only company compared to SPS?
The draft preliminary order said that the PUC takes the position that this issue need not be addressed in the proceeding:
- Whether SPS may recover in retail rates the wholesale transmission charges attributable to the assets owned by XEST on the same terms and to the same extent as SPS recovers other charges under the SPP open access transmission tariff
Among other things, the draft preliminary order said that that issue would be best addressed in a rate case so that the parties can fully explore the treatment, for purposes of ratemaking, of all charges and revenues to SPS under the SPP open access transmission tariff.
In a March 17 memo to the PUC, Commission Advising said that any modifications to the draft preliminary order that are proposed by one or more commissioner(s) will be filed simultaneously prior to the consideration of the matter at the March 24 open meeting.