Commissioner James Danly Statement
December 15, 2022
EC22-26-000
On December 22, 2021, Liberty Utilities Co. (Liberty), Kentucky Power Company (Kentucky Power), and AEP Kentucky Transmission Company, Inc. (Kentucky Transco, and, together with Kentucky Power, the Kentucky Companies) (collectively, Applicants) filed a joint application under section 203(a)(1) and (a)(2) of the Federal Power Act (FPA),[1] requesting authorization for the disposition of jurisdictional facilities that would result from the acquisition by Liberty of all issued and outstanding common shares of the Kentucky Companies from American Electric Power Company, Inc. and AEP Transmission Company, LLC (Proposed Transaction).[2] One year later, after having done nothing for the last six months, the Commission now denies the merger.
I concur with the Commission’s decision because I agree that Applicants have failed to satisfy the requirement that they demonstrate that the Proposed Transaction will have no adverse effect on rates. I concur despite the fact that I am embarrassed that the Commission has waited almost a year to issue its order. Such an order might have been acceptable had the Commission issued it six months ago. But the Commission has failed to act responsibly by delaying its decision until now, especially when it could have explored options such as further data requests or soliciting a submission of a proposal to mitigate the transaction’s rate effects in order to afford the Commission the opportunity to consider approving the transaction conditioned upon the implementation of that proposal. This could easily have been done and it appears, by the plain language of section 203 of the FPA, to be a permissible option.[3]
Applicants requested in a filing on June 3, 2022 that the Commission “issue an order authorizing the Transaction no later than June 21, 2022 to allow the Transaction to close in mid-2022 as scheduled.”[4] Instead, on June 17, 2022, the Commission issued an Order Tolling Time for Action Under FPA Section 203.[5] In that order, the Commission stated, that it required “additional time to fully analyze the application as supplemented on May 5, 2022,” found “based on good cause, that further consideration [was] required to determine whether the proposed transaction meets the standards of section 203(a)(4) of the FPA,” and therefore tolled the time to act on the Application for an additional 180 days.[6] While I voted for that order, in hindsight, that was the wrong course of action. The Commission received Applicants’ response to the Commission’s April 25, 2022 deficiency letter on May 5, 2022. The statutory deadline for the Commission to act on the application was June 20, 2022. Therefore, the Commission had 46 days to review the Applicants’ response to its April 25, 2022 deficiency letter and to issue a decision on the merits.
We should have simply denied the application without prejudice within the statutory deadline or explored the possibility of approving subject the conditions necessary to allay our concerns regarding the transaction’s rate effects. There was no reason to have taken any other course of action. Why did we need the tolling period to determine that we were unable to assess the transaction’s effect on rates? Why did the Commission not request further information during the tolling period in order to assist with that assessment? Had we denied the application by the original 180-day deadline, perhaps the applicants would have been able to file a new application with the information that the Commission needed and obtained our approval.
Instead, having waited six months to reach the same conclusion we had come to before—that we did not have enough information—we have merely impeded the actions that the Applicants could have taken to move ahead with the proposed transaction, such as filing a new application with needed information, perhaps after consultation with Commission staff.
Delays and uncertainty when discharging our duties under section 203 can have profound consequences, perhaps even more so than under the other statutes we administer.[7] It is nearly impossible to rationally allocate capital and conduct business responsibly when it is unclear who will own that business or when the decision regarding the disposition of jurisdictional assets will be made. When we delay these decisions employees and leadership of both entities live under a cloud of uncertainty. Shareholders are unable to properly determine the value of their shares.
If we had conditioned our approval of the Proposed Transaction upon a proposed rate mitigation commitment, an appropriate commitment could have been submitted, examined, and, if appropriate, approved. Section 203 of the FPA explicitly gives us the power to grant approvals “upon such terms and conditions as it finds necessary or appropriate.”[8] Rejection of the Proposed Transaction without prejudice will do nothing more than require Applicants to develop the exact same rate mitigation commitment, but also to prepare all of the other information required for an application, including detailed competition modeling and analysis. The bottom line is that preparation and approval of a new application likely will take nine months to a year, or longer, if the Commission acts at the same pace that it has allowed itself in this docket. All to get essentially the same rate commitment that could have been obtained in one or two months had the Commission requested further information or a proposal to mitigate the transaction’s rate effects.
And if the Applicants decide that they would rather terminate the Proposed Transaction rather than go through the same process for another year, then there is an additional adverse consequence. As Commissioner Phillips has pointed out, ratepayers in Kentucky will lose $30 million in rate benefits that Applicants have committed to provide in the state proceeding in which the Kentucky Public Service Commission has already approved the Proposed Transaction.[9] And Liberty could be liable for a $65 million termination fee because of us.[10]
The Commission has failed in its responsibilities. We should do better.
For these reasons, I respectfully concur.
[1] 16 U.S.C. § 824b(a)(1)-(2).
[2] Applicants, Joint Application for Authorization under Section 203 of the Federal Power Act for Disposition of Jurisdictional Facilities (filed Dec. 22, 2021) (Application).
[3] See 16 U.S.C. § 824b(b) (“The Commission may grant any application for an order under this section in whole or in part and upon such terms and conditions as it finds necessary or appropriate to secure the maintenance of adequate service and the coordination in the public interest of facilities subject to the jurisdiction of the Commission.”).
[4] Applicants June 3, 2022 Motion to Leave & Answer Joint Customer Group’s Protest, at 2.
[5] Liberty Utils. Co., 179 FERC ¶ 61,206 (2022).
[6] Id. P 2.
[7] Cf. Golden Pass LNG Terminal LLC, 180 FERC ¶ 61,058 (2022) (Danly, Comm’r, concurring in the judgment at P 11) (discussing the costs associated with delay in Commission action in Natural Gas Act section 7 proceedings); Adelphia Gateway, LLC, Withdrawal of Prior Notice, Docket No. CP21-14-000, at 2 (Oct. 12, 2021) (withdrawing a request to install and operate an additional electric-motor driven compressor unit at its already authorized Marcus Hook Compressor Unit because “as a result of the extension of the environmental review through the supplemental EIS process and a prolonged Commission review process, the Project has been delayed well beyond Adelphia’s expectations and, more specifically, there is significant uncertainty regarding when an order will issue in this docket” and“[i]n light of this, Adelphia has decided not to continue the development of the Project”); Eastern Gas Transmission & Storage, Letter Withdrawing its Applications for the Mid-Atlantic Cooler Project, Docket No. CP21-97-000, at 1 (Sept. 20, 2021) (withdrawing an application for an NGA section 7 certificate—which had been filed nearly six months prior and had requested permission to build minor upgrades to three compressor stations in Pennsylvania and Virginia—because, “despite [the project’s] limited scope, the Commission has not taken action to prepare an Environmental Assessment”); Dominion Energy Transmission Inc., Withdrawal of Certificate Application for Sweden Valley Project, Docket No. CP18-45-000 (June 28, 2019) (withdrawing an application for a project that “involved limited facilities, including modification of an existing compressor station and the construction of two measuring stations, approximately five miles of pipeline and related ancillary facilities” because “the Project has been adversely impacted” and “[t]he Project customer has opted to terminate the requested transportation service” as a result of the Commission’s inaction on the application nearly ten months after the issuance of an environmental assessment).
[8] 16 U.S.C. § 824b(b).
[9] Liberty Utils. Co., 181 FERC ¶ 61,212 (2022) (Phillips, Comm’r, concurring at P 3) (citing See Case No. 2021-00481, Electronic Joint Application of American Electric Power Company, Inc., Kentucky Power Company, and Liberty Utilities Co. for Approval of the Transfer of Ownership and Control of Kentucky Power Company, Order at 49 (Ky. PSC May 4, 2022)).
[10] See Stock Purchase Agreement at Art. VIII, § 8.3.