Academic journal article Energy Law Journal

Report of the Finance & Transactions Committee

Academic journal article Energy Law Journal

Report of the Finance & Transactions Committee

Article excerpt

The period covered by this report is December 2012 through December 2013.*

I. UPDATE ON SECTIONS 203 AND 205 OF THE FEDERAL POWER ACT (FPA)

A. Orders Denying Disposition of Jurisdictional Facilities

1. MACH Gen, LLC

On March 7, 2013, the Federal Energy Regulatory Commission (FERC or Commission) denied an application under section 203 (a)(1) of the FPA to approve the sale by MACH Gen, LLC (MACH Gen) of its outstanding membership interests in New Harquahala Generating Company, LLC (New Harquahala) to Saddle Mountain Power, LLC (Saddle Mountain).1 The applicants acknowledged that absent any mitigation measures, the proposed transaction would result in the failure of the Commission's screens for horizontal market power.2 Accordingly, the application presented a proposed mitigation plan to "eliminate the possibility that New Harquahala and its affiliates would have market power following the proposed transaction."3 In a break with its expected practice, the Commission denied approval of the proposed transaction, rather than conditionally accepting the transaction contingent upon further mitigation.4 The Commission ruled that it was denying the application without prejudice to applicants making a new filing that proposes mitigation that would be sufficient to remedy the screen failures in its competition analysis.5

New Harquahala is the owner of the 1,054 megawatt (MW) Harquahala natural gas fired combined cycle facility located in the balancing authority area of Arizona Public Service Company (APS).6 Saddle Mountain is a wholly owned subsidiary of an investment fund managed by Wayzata Investment Partners LLC (Wayzata).7 Wayzata also indirectly owns two natural gas fired combined cycle generating units at the Gila River Facility, located within the same balancing authority area as the Harquahala facility.8

The application presented a delivered price test for the APS balancing authority area using both Economic Capacity and Available Economic Capacity.9 Under the Economic Capacity analysis, the market is highly concentrated and the changes in the Herfindahl-Hirschman index (HHI) exceeded the Commission's threshold for seven of ten seasons/load periods.10 Under the Available Economic Capacity analysis, HHI changes exceeded the Commission's threshold for seven of ten seasons.11 As a result of the numerous screen failures, the applicants proposed a mitigation plan to "eliminate the possibility that New Harquahala and its affiliates would have market power following the proposed transaction."12 The proposed mitigation plan would require New Harquahala to enter into an energy management agreement (EMA) with an independent third party, Twin Eagle Resource Management, LLC (Twin Eagle).13 Under the EMA, Twin Eagle's responsibilities would "include the economic dispatch, marketing, and execution of short-term transactions for capacity and related energy products, scheduling transmission, administering settlement and payment for its transactions, procuring fuel and scheduling and tagging power."14 Applicants claimed that under the EMA, New Harquahala would relinquish control to Twin Eagle of all available capacity and authority to dispatch the facility on a rolling twelve-month basis.15 In addition, Twin Eagle would not provide New Harquahala any material, non-public information regarding sales and dispatch of the facility at a point when such information would provide a market advantage.16 The EMA would limit Twin Eagle's ability to engage in transactions to the short-term markets.17 New Harquahala also committed to only entering into long-term agreements for energy or capacity from the facility that would commence at least one year after the date of execution of such long-term agreements, and to submit any such long-term agreements to the Commission for approval prior to their commencement.18

The FERC, however, determined that the applicants "failed to show that the [p]roposed [t]ransaction [would] not have an adverse effect on competition within the APS [balancing authority area]. …

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