The pending merger of El Paso Electric Co. (EPE) and Central and South West Services, Inc. (CSW) keeps going and going and going. But the issue of "comparability" has yet to be left in the dust. And so another landmark case looms large, giving the Federal Energy Regulatory Commission (FERC) another opportunity to shape future wheeling and merger transactions.
CSW has asked for rehearing of a FERC order holding that the proposed merger between CSW and the bankrupt EPE cannot be approved unless the parties agree to provide comparable transmission services (Docket Nos. EC94-7-000 and ER94-898-000). The comparability standard, created last year in a case involving American Electric Power Service Corp., says that an open-access transmission tariff, to qualify as not unduly discriminatory or anticompetitive, must offer parties access on a comparable basis, under the same terms and conditions as the transmission provider's use of the system (Docket No. ER93-540-001).
CSW is challenging the application of the new policy to its proposed merger, claiming that the FERC has departed from precedent without a clear factual basis and has exceeded its authority under the Federal Power Act (FPA). Traditionally, the FERC looked to see whether a merger would adversely affect competition in relevant markets. If so, it considered whether point-to-point open-access tariffs would serve to mitigate the harm. Although CSW offered point-to-point transmission services, the FERC found these inadequate.
Southwestern Public Service Co. (SPS), which tried to derail the merger last year so that it could acquire EPE, is an intervenor. The rehearing focuses on two issues (em merger benefits and comparability (em and SPS has challenged both. Last year, CSW asked the FERC for authority to transmit electricity over SPS lines under section 211 of the FPA. (SPS is located between the service territories of CSW and EPE, and federal law requires that utility holding company systems be interconnected.) SPS objected, claiming that section 211 cannot be used to effectuate a merger (see Public Utilities Fortnightly, 2/15/94).
That argument has now been raised again. David T. Hudson, SPS senior engineer of rate research, takes issue with CSW's claim that using the SPS transmission system would save $33.5 million in production costs. Hudson says that SPS calculates "no capacity cost savings, little if any energy cost savings, and transmission costs that will wipe out any savings." He claims that CSW seeks to use SPS lines to meet PUHCA interconnection requirements, not to achieve production savings.
Hudson also argues that EPE's customer base likely will decrease if the City of Las Cruces, NM, municipalizes its system. According to G. Holman King, CSW vice president, mergers and acquisitions, the Las Cruces issue has potential to derail the merger, depending on whether Las Cruces clears all the legal hurdles involved in municipalizing, and also on how much EPE receives in compensation. King says that Las Cruces wants to condemn and buy just the EPE distribution system for $27 million; CSW wants about $175 million (Las Cruces represents about 7.8 percent of EPE system load): "The way I characterized it to the judge, its like going out and making a contract to buy a four-bedroom house and suddenly you're about to wind up with a three-bedroom house." He notes that CSW's merger agreement imposes consideration of whether an existing governmental order has a "material adverse effect on the value of the asset." King observes that a large load loss without adequate compensation would be such a material adverse effect.
Meanwhile, King argues that SPS's real objective is to serve the Las Cruces load. King explains that SPS has only two means of transmission access to the West. One is the 200-megawatt Eddie County tie (em EPE owns two-thirds, and Texas-New Mexico Power Co. owns the other third. SPS currently uses the tie to sell power to EPE, but King questions whether SPS can reserve enough capacity on the Eddie County tie to serve Las Cruces, or whether the utility would have to pay for the expense of that facility. King says that the heart of the matter involves comparability (em whether SPS/Las Cruces should have the same rights to use the Eddy County tie as EPE does.
Whatever the outcome of the proceedings (em an initial FERC decision is due March 24 (em the result is sure to set precedent. Comparability has become the touchstone for open-access transmission as well as merger completion. t
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