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December 19, 2014

FERC Sides with Investor-Owned Utility in Municipalization Dispute

Motivated by a desire to reduce its carbon footprint, the City of Boulder, Colorado has been seeking to break away from Public Service Company of Colorado (PSCo) and form a municipal utility that would rely heavily on solar and wind energy. As in many municipalization cases, key to Boulder’s plan is taking the local assets of its existing public utility through condemnation. PSCo, which is battling Boulder on several fronts, has just won a significant victory by persuading FERC to rule by declaratory order that Commission approval under Section 203 of the Federal Power Act will be required before any transfer of FERC-jurisdictional transmission facilities from PSCo to Boulder can take place pursuant to a condemnation order. The case is Public Service Co. of Colorado, 149 FERC ¶ 61,228 (Dec. 18, 2014)(PSCo Order).

In its petition for a declaratory order, PSCo asserted that the need for FERC approval is clear from the language of Section 203(a)(1) of the Federal Power Act, which states that “No public utility shall, without first having secured an order of the Commission authorizing it to do so—(A) sell, lease or otherwise dispose of the whole of its facilities subject to the jurisdiction of the Commission, or any part thereof with a fair market value in excess of $10,000,000.” PSCo argued that this provision applies because PSCo is a public utility; Boulder is seeking to condemn transmission facilities with a fair market value in excess of $10 million that are FERC jurisdictional; and, if condemnation were ordered, PSCo would be disposing, albeit involuntarily, of those facilities.

PSCo also asked the FERC to find that in exercising Section 203 jurisdiction, the Commission will apply the longstanding criteria that consider, among other things, the effects on rates, regulation and reliability; and that the Commission’s exercise of Section 203 jurisdiction will not diminish the authority of the Colorado PUC to review the transfer of facilities.

For its part, Boulder offered two arguments why Section 203 does not apply. First, Boulder claimed that, as a political subdivision, it is not a public utility and has neither the right nor the obligation to make any application under Section 203. Second, it contended that the taking of facilities by condemnation is not a “disposition of facilities” within the meaning of Section 203. Boulder also sought dismissal of PSCo’s petition on the grounds that it was premature and speculative.

In its December 18, 2014 Order, the Commission sided with PSCo on all issues. At the outset, the Commission found that there was a controversy warranting the use of its declaratory order authority since the parties were in disagreement over whether condemnation could occur without Section 203 approval. By implication, the Commission rejected Boulder’s argument that the dispute was premature or speculative.

Turning to the merits, the Commission pointed to the legislative history of Section 203 indicating that “Congress’ intent was to ensure that the Commission maintain oversight of any transfer of jurisdictional utility property.”[1] The Commission also quoted from the Senate Report on the legislation, which stated that Section 203(a)

furnishes an essential check upon the development of the industry along uneconomic lines. It complements the [Public Utility Holding Company Act of 1935] by directing the Commission to prevent transfers or consolidations of property which could impair the ability of public utilities to render adequate service or impede, or tend to impede, the coordination in the public interest of facilities subject to the jurisdiction of the Commission.[2]

The Commission took this as a directive not to read the term “dispose” in Section 203 narrowly, since doing so would result in a jurisdictional void where some transfers of power facilities could escape Commission oversight. It also noted that it was well established that voluntary transfers of jurisdictional facilities to non-jurisdictional entities require Commission approval, and “there is no basis for finding that the involuntary nature of a transfer distinguishes it from this precedent and permits a jurisdictional void.”[3]

In granting PSCo’s further request for a declaration as to the standards that would apply in a Section 203 review, the Commission stated that it would apply a “public interest” standard, that would encompass the framework established in its Merger Policy Statement.[4]   That framework requires consideration of effects on competition, rates and regulation; whether the transaction will result in cross-subsidies of non-utility companies; and other factors on a case-by- case basis. “In short,” the Commission explained, “transfers by condemnation do not differ from other types of transfers with respect to the applicability of Section 203…”[5]

Finally, the Commission agreed with PSCo that exercising Section 203 authority would not diminish the authority of the Colorado PUC to regulate the transfer of facilities under its jurisdiction, a principle that was well-established.

The Commission’s broad interpretation of its Section 203 authority is not surprising. The Commission has spent many years overseeing the development of workably competitive markets for wholesale electric power. It could not be expected to make it easy for parties to remove parts of those markets from its regulatory supervision.

[1] PSCo Order, 149 FERC ¶61, 228 at P 33, quoting from Central Illinois Pub. Serv. Co., 42 FERC ¶61,073, at 61,328 (1998)(emphasis in original).

[2] PSCo Order, 149 FERC ¶61, 228 at P 33, quoting from Enova Corp., 79 FERC ¶61, 107, at 61,490 (1997).

[3] PSCo Order, 149 FERC ¶61, 228 at P 34.

[4] Inquiry Concerning the Commission’s Merger Policy Under the Federal Power Act, Order No. 592, FERC Stats. & Regs. ¶31,044 (1996), reconsideration denied, Order No, 592-A, 79 FERC ¶61, 321 (1997).

[5] PSCo Order, 149 FERC ¶61, 228 at P 36.

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