GridLiance acquires Valley Electric Association’s high voltage transmission system

GridLiance Holdco L.P., on Sept. 20 said that it has completed its acquisition of Valley Electric Association, Inc.’s (VEA) high voltage transmission system, including more than 160 miles of 230-kV transmission lines and related substation equipment.

GridLiance said that it also acquired a 230-kV transmission line project to physically connect the VEA system to the rest of the California ISO (CAISO).

As noted in the statement, GridLiance is backed by Blackstone Energy Partners, an affiliate of Blackstone (NYSE:BX). As part of the transaction, VEA and GridLiance have entered into an agreement whereby VEA will continue to operate and maintain the system, which preserves local jobs and ensures VEA’s capabilities and experience will continue to benefit the high voltage transmission system, according to the statement.

“We are grateful that our orders were among the first issued by FERC after a quorum was restored,” GridLiance President and CEO Calvin Crowder said in the statement. “We are excited about the benefits the transaction brings to the region and we value immensely our ongoing partnership with VEA. There is great potential here for project development that will improve reliability and provide Nevada and California greater access to low-cost renewable energy, and GridLiance is poised to realize that potential.”

As TransmissionHub reported, FERC on Feb. 3 said that it issued an order delegating additional authority to agency staff to continue certain agency operations in the absence of a quorum of commissioners. Former FERC Chairman Norman Bay, in a Jan. 26 letter to President Donald Trump, said he is resigning his appointment from FERC, effective as of Feb. 3, and, as noted in a Jan. 26 FERC statement, Trump named FERC Commissioner Cheryl LaFleur acting chairman.

Prior to Bay’s resignation, there were already two vacancies at FERC, following the departures of former Commissioners Philip Moeller and Tony Clark.

According to the Code of Federal Regulations, a quorum for the transaction of business consists of at least three members present; after Bay resigned, only LaFleur and former Commissioner Colette Honorable remained at FERC. In June, Honorable left FERC, which, along with LaFleur, now has two new commissioners – Neil Chatterjee and Robert Powelson.

As noted in GridLiance’s Sept. 20 statement, because of the acquisition, VEA will be able to expand its broadband communications network, ensure reliable power, provide rate stability, pay down debt, and share with its members a significant cash premium for the assets.

“This sale marks a pivotal moment in the history of our cooperative,” VEA CEO Thomas Husted said in the statement. “The partnership with GridLiance will provide benefits to our members well into the future – including cash benefits from the sale, many years of rate stability, further investment in high-speed communications for their benefit, and community investment on a scale unlike any other in Pahrump’s history. We built this high-voltage system to provide reliability for our members, and that will continue – along with opportunity to service and maintain the 230-kV system for decades.”

A VEA spokesperson on Sept. 21 told TransmissionHub that the lines sold by VEA to GridLiance were four segments of 230-kV transmission line.

Those lines go from the Western Area Power Administration’s (WAPA) Mead substation near Boulder City, Nev., to the Pahrump substation located in Pahrump, Nev., (Mead-Pahrump 230 kV), the spokesperson said. From Pahrump, the transmission line continues north to near the Nevada National Security Site west of Indian Springs, Nev., (Pahrump Substation-Innovation Substation 230 kV) and continue on to north west Las Vegas, to interconnect with NV Energy’s Northwest substation (Innovation-Desert View 230 kV and Desert View-Northwest 230 kV), the spokesperson said.

FERC orders

As noted in a FERC order (Docket No. EC17-49-000) issued on Aug. 17, GridLiance West Transco LLC (GridLiance West) in December 2016 filed an application seeking authorization to acquire from Valley Electric Transmission Association, LLC (VETA) certain existing transmission assets that comprise VETA’s high voltage transmission system, which is currently under functional control of CAISO.

FERC said that it has reviewed the proposed transaction under its merger policy statement, and that it authorizes the proposed transaction as consistent with the public interest.

GridLiance West stated that it was formed to develop, acquire and operate transmission facilities within CAISO as an independent, transmission-only company, or transco. Under the terms of the proposed transaction, GridLiance West will purchase the transmission system from VETA for cash, funded by a combination of debt and equity contributions from Blackstone, FERC added. GridLiance West also states that, because it is a start-up that will not have its own operators in place at the time of closing, it has developed a transmission operator, operation and maintenance agreement with VETA for routine operations and maintenance of the transmission system.

FERC added that it finds that the proposed transaction will not have an adverse effect on horizontal competition, noting that the proposed transaction does not involve any change in ownership or control of any generating facilities. FERC also said that because the proposed transaction does not involve the transfer of generation facilities or inputs to electric power generation, FERC finds that it will not have an adverse effect on vertical competition.

FERC also said that it finds that the proposed transaction will not have an adverse effect on rates. FERC noted that while it acknowledges that the proposed transaction will lead to a 0.48% increase in the CAISO high voltage access charge, that rate increase is not unexpected given that Valley Electric is a not-for-profit rural electric distribution cooperative and GridLiance West is a for-profit business with a different capital structure, tax obligations, and the need to earn a return.  

Among other things, FERC said that GridLiance West has provided evidence that shows that transmission customers will benefit from its ownership of the transmission system, and that such benefits offset the increase in the CAISO high voltage access charge.

According to another FERC order (Docket No. ER17-706-000), which was issued on Aug. 17, GridLiance West in December 2016 submitted a proposed Transmission Owner (TO) Tariff under sections 205 and 219 of the Federal Power Act.

On Feb. 24, under the authority delegated to the director, Division of Electric Power Regulation – West, Office of Energy Market Regulation, in FERC’s Feb. 3 order delegating further authority to staff in absence of quorum, GridLiance West’s submittal was accepted for filing, suspended for a nominal period, to be effective as set forth in the Feb. 24 order, subject to refund and further FERC order.

GridLiance West, in its filing, requested these incentive rate treatments:

  • An RTO participation return on equity (ROE) adder of 50 basis points for its participation in CAISO
  • Approval of a start-up regulatory asset until GridLiance West has a rate base of $100m for all prudently incurred, non-capitalized costs
  • Authorization to include in rate base 100% of construction work in progress (CWIP) for the Bob Tap Project

FERC added that GridLiance West further requested approval of its TO Tariff and formula rate to become effective upon the date of transfer of the assets to GridLiance West, which had been planned for March 1, 2017.

“In this order, we grant the requested incentive rate treatments,” FERC said. “We also set the proposed TO Tariff, formula rate template, implementation protocols, and projected cost of service for hearing and settlement judge procedures, to be effective as set forth in the February 24, 2017 Order.”

FERC said that it grants GridLiance West’s request for a 50 basis point incentive ROE adder for its participation in CAISO, subject to the resulting ROE being within the zone of reasonableness established under certain hearing and settlement judge procedures. Specifically, FERC said, upon consummation of GridLiance West’s purchase of VETA’s high voltage transmission system, GridLiance West will own transmission facilities that are under CAISO’s operational control. FERC noted that it has accepted revisions to CAISO’s Transmission Control Agreement making GridLiance West a participating transmission owner in CAISO, effective upon the consummation of the transaction.

FERC also said that it grants GridLiance West’s request for the regulatory asset incentive, and approves the company’s request to defer recovery on non-capitalized pre-commercial and formation costs until it has exceeded $100m in rate base. Allowing GridLiance West to establish the regulatory assets will provide it with certainty that it will be able to recover those costs, consistent with the goals articulated by FERC in a previous order, FERC said.

Upon consummation of the transaction, GridLiance West will own assets that are under CAISO’s operational control and, therefore, it could assess its start-up costs to its rate base. However, FERC added, GridLiance West proposes to defer recovery until the $100m floor is met at which time GridLiance West will file with FERC, in a section 205 filing, an amortization schedule that allows it to collect those costs over a reasonable period of time.

Among other things, FERC said, “We find that this proposal protects GridLiance West’s customers from bearing the immediate and unamortized burden of its start-up costs.”

About Corina Rivera-Linares 3058 Articles
Corina Rivera-Linares, chief editor for TransmissionHub, has covered the U.S. power industry for the past 15 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.