By Robert Mullin

FERC last week approved GridLiance West’s acquisition of Valley Electric Association’s 230-kV transmission network in a deal valued at about $200 million (EC17-49).

The deal will provide GridLiance with a strategic foothold in an area that bridges the CAISO market with the interior West. (See Valley Electric Board Approves Sale of 230-kV Network to GridLiance.)

The commission also granted GridLiance’s request for incentive rate treatment for operating the network. And while FERC accepted the company’s formula rate template for filing, those rates will be subject to a further evidentiary hearing before a settlement judge to determine the reasonableness of proposed rate inputs, return on equity and income tax allowance (ER17-706).

The decision to approve the transaction came despite objections from some CAISO members who contended that the transaction would result in increased in costs to ISO stakeholders.

GridLiance will be taking over 164 miles of 230-kV lines linking Valley Electric’s base in Pahrump, Nev., with both Las Vegas and the Mead substation — a major delivery point for power wheeled into California — as well as substations along the length of the system. The sale will earn Valley Electric 2.4 times its investment in the system, which significantly increased in value when the cooperative joined the ISO in 2013.

In a filing with FERC, GridLiance said that incorporating its revenue requirement into CAISO’s High Voltage Access Charge will increase that charge by about 0.48%, or $10.8 million. The company attributed the rate bump to the differing business structures of Valley Electric, which is a nonprofit rural electric cooperative, and GridLiance, a for-profit startup that will incur greater costs for overhead, administrative costs and taxes.

GridLiance argued that the increased cost would be offset by the benefit of having the transmission network of a well-funded transmission company that would add competition to the CAISO market and be focused on expansion and enhancement of the ISO transmission system.

The Transmission Agency of Northern California (TANC) contended that, although GridLiance had promised not to recover through rates any acquisition premium paid for the Valley Electric network, the $10.8 million increase in the ISO’s transmission revenue requirement (TRR) constituted such a premium. TANC noted that the increase represented a near doubling of the TRR for the network — without GridLiance having incurred any costs for improvements or modifications. The agency also argued that the transaction would not result in any “quantifiable or non-quantifiable” benefits that would offset the increased costs.

Southern California Edison (SCE) contended that the initial revenue requirement included in GridLiance’s proposed formula rate may be “unjust and unreasonable” and possibly included “improper and unsubstantiated costs and expenses.” SCE argued that the commission could not decide about the acquisition without fully vetting the impact of GridLiance’s formula rate filing.

The “Six Cities” utilities of Anaheim, Azusa, Banning, Colton, Pasadena and Riverside raised many of the same concerns, asking why the revenue requirement for the transmission facilities will increase just because of a transfer of ownership.

FERC came down firmly on the side of GridLiance, saying the 0.48% increase in the access charge was “not unexpected” given the company’s capital structure, tax obligations and “need to earn a return.” The commission also determined that GridLiance had presented evidence that increased costs would result in offsetting benefits.

“GridLiance West represents that it intends to develop needed upgrades and important transmission projects that will improve system reliability and increase transmission capacity to meet growing demand for renewable resources, including, and in particular, exports out of the Valley Electric area,” the commission said.

Valley Electric said that it would be unable to perform those necessary upgrades in a timely manner.

“Due to its singular focus on developing and owning transmission facilities, GridLiance West will not face the difficult decisions Valley Electric has faced in allocating its limited financial resources among the various infrastructure development needs within its service territory,” the commission said.