TMCnet News
FERC Issues Order Authorizing Disposition of Jurisdictional Facilities re MACH Generation, LLC et al Under EL14-16(Targeted News Service Via Acquire Media NewsEdge) WASHINGTON, April 1 -- The U.S. Department of Energy's Federal Energy Regulatory Commission issued the text of the following delegated order: MACH Generation, LLC New Harquahala Generating Company, LLC New Athens Generating Company, LLC Millennium Power Partners, L.P. Docket No. EC14-46-000 ORDER AUTHORIZING DISPOSITION OF JURISDICTIONAL FACILITIES (Issued April 1, 2014) On January 27, 2014, MACH Generation, LLC (MACH Gen) and certain of its wholly-owned subsidiaries, Millennium Power Partners, L.P. (Millennium), New Athens Generating Company, LLC (New Athens), and New Harquahala Generating Company, LLC (New Harquahala, and together with Millennium and New Athens, the Project Companies) (the Project Companies, and collectively with MACH Gen, Applicants) filed an application pursuant to section 203(a)(1) of the Federal Power Act (FPA) requesting Commission authorization for the disposition of jurisdictional facilities of the Project Companies. The proposed transaction is being undertaken pursuant to a plan of reorganization in which MACH Gen's Second Lien Holders will receive their pro rata share of 93.5 percent of the new common voting equity in MACH Gen and the indirect equity interests in the Project Companies (New Equity Holdings). Additionally, the holders of the existing equity interests in MACH Gen will receive, in full satisfaction of their existing equity holdings, 6.5 percent of the New Equity Holdings (Transaction). The jurisdictional facilities involved in the Transaction include market-based rate tariffs and interconnection facilities related to the Project Companies' power generation facilities. Applicants state that MACH Gen, New Athens and New Harquahala are each Delaware limited liability companies, and Millennium is a Delaware limited partnership. New Athens is an exempt wholesale generator (EWG) within the meaning of the Public Utility Holding Company Act of 2005 (PUHCA), and possesses Commission authorization to charge market-based rates. Millennium and New Harquahala are also EWGs and possess Commission authorization to charge market-based rates. Applicants state that the Project Companies own and operate the following three power facilities: - Millennium owns and operates the Millennium power facility, a 326 megawatt (MW) electric generating plant located in Charlton, Massachusetts. The Millennium facility is located in the New England Power Pool market operated by the ISO New England Inc. (ISO-NE). - New Athens owns and operates the New Athens power facility, a 945 MW electric generating plant located in Athens, New York. The New Athens facility is located in the New York Independent System Operator, Inc. (NYISO) market. - Applicants state that New Harquahala owns and operates the New Harquahala power facility, a 1,092 MW electric generating plant located in Arizona. The New Harquahala facility is interconnected through the Hassayampa Switchyard, which is owned by a consortium of utilities, operated by the Salt River Project and located in the balancing authority area of Arizona Public Service Company (APS) within the Western Electricity Coordinating Council market. New Harquahala's electric interconnection facilities consist of a 22-mile, 500 kV sole-use radial transmission line and a dedicated 500 kV switchyard. Applicants state that the Transaction is connected with a proposed restructuring (Restructuring) of Applicants pursuant to a joint pre-packaged plan of reorganization (Plan) under chapter 11 of title 11 of the United States Code, 11 U.S.C. sections 101-1532 (as amended, the Bankruptcy Code). Applicants submit that the Restructuring has the full support of the majority of their key economic stakeholders, will eliminate approximately $1 billion of debt from Applicants' balance sheet, will result in the holders of certain first lien claims (Second Lien Holders) being converted pursuant to a new first lien credit and guaranty agreement in connection with the Applicants' exiting chapter 11 Bankruptcy Code Cases. Applicants state that the Plan contemplates that 93.5 percent of the New Equity Holdings will be distributed to Second Lien Holders in satisfaction of their second lien claims. Applicants state that three Second Lien Holders: Silver Oak Capital, LLC (Silver Oak); Deutsche Bank AG, London Branch (Deutsche Bank); and SOLA Ltd (SOLA), Solus Core Opportunities Master Fund, Ltd (Solus Core), and Ultra Master Ltd (Ultra) (collectively, Solus Entities), will each hold in excess of 10 percent of the New Equity Holdings. Applicants expect that Silver Oak will hold approximately 34.2 percent of the New Equity Holdings on behalf of the Silver Oak Principals (defined below). Applicants state that the sole purpose of Silver Oak is to be the nominee owner for principals affiliated with Angelo, Gordon & Co., L.P., (Silver Oak Principals) of certain financial instruments, including certain Second Lien Claims. Applicants expect that only one Silver Oak Principal, AG Capital Recovery Partners VI, L.P., will hold more than 10 percent (13.4 percent) of the New Equity Holdings. Applicants state that Silver Oak has no affiliates that: (a) directly or indirectly own or control any electric generation facilities in the United States; (b) engage in wholesale sales of electric energy, or any other Commission-jurisdictional transactions in the United States; (c) own or operate any electric transmission facilities or provide transmission services in the United States; (d) own or operate any intrastate natural gas pipelines, storage facilities or natural gas distribution facilities in the United States; (e) own or control any physical coal supply sources or coal transportation facilities or equipment, or other inputs to electric generation in the United States; or (f) directly or indirectly own or control a franchised utility. Applicants expect Deutsche Bank, a company organized under the laws of the Federal Republic of Germany, to hold 11.5 percent of the New Equity Holdings. ECP Polaris, Ltd. (ECP Polaris) currently has an indirect interest in Deutsche Bank's interest in the second lien claims by way of a total return swap (Swap) between ECP Polaris and Deutsche Bank. ECP Polaris is a limited company chartered in the Cayman Islands and a portfolio company of Energy Capital Partners II, LLC (Energy Partners II). Applicants state that ECP Polaris was formed for the sole purpose of entering into the Swap with Deutsche Bank in order to acquire an indirect interest in the second lien claims. Applicants state that Energy Partners II is focused on the development and acquisition of, and investment in, energy infrastructure assets, and related ownership, operation and management of these assets, including electric generation and inputs to electric generation in North America. Applicants state that they expect the Swap to be amended, in part, to allow ECP Polaris to request Deutsche Bank to vote Deutsche Bank's share in the New Equity Holdings, provided that Deutsche Bank may have the right to vote all or a portion of the shares in a different manner than that requested by ECP Polaris in certain circumstances. Applicants state that in order to expedite the Commission's review and allow the Applicants to emerge from the Chapter 11 Cases more quickly, Deutsche Bank and ECP Polaris have agreed that, regardless of whether ECP Polaris or Deutsche Bank has voting control over the 11.5 percent interest, neither will vote more than 9.9 percent of the New Equity Holdings (Voting Limitation) until the Commission has favorably ruled on a second application under section 203 which will describe the rights and obligations to be held by Deutsche Bank and ECP Polaris, and will make the necessary representations regarding the energy-related affiliates of Deutsche Bank and ECP Polaris. Applicants state that the second application will contain an Appendix A Analysis demonstrating that there are no market power issues resulting from the interests to be held by Deutsche Bank or ECP Polaris with respect to the New Equity Holdings. Applicants state that the Solus Entities are under the management of Solus Alternative Asset Management LP. SOLA and Solus Core together own approximately 11.42 percent of the existing equity securities of MACH Gen. Applicants expect that the Solus Entities will also close a trade totaling an additional 3.05 percent of the existing equity securities in MACH Gen prior to the effective date of the Restructuring and will, following the Restructuring, own approximately 0.94 percent of the New Equity Holdings. In addition, the Solus Entities are Second Lien Holders, and SOLA also has an economic interest in the Second Lien Claims pursuant to a total return swap (SOLA Swap) with SOL Loan Funding, LLC. (SOL). The Applicants expect that the Solus Entities' Second Lien Claims and SOLA's economic interest held pursuant to the SOLA Swap will convert to approximately 9.6 percent of the New Equity Holdings. In sum, Applicants expect the Solus Entities to hold approximately 10.54 percent of the New Equity Holdings following the Restructuring. The Solus Entities have one energy affiliate, La Paloma Generating Company, LLC, which owns and operates a generation facility in the California Independent System Operator market. La Paloma, however, does not conduct its activities in any of the geographic markets that are relevant to the Project Companies' facilities, namely the ISO-NE, NYISO and APS (collectively, the Relevant Markets). Applicants state that given that the Solus Entities already own more than 10 percent of the existing equity securities of MACH Gen, the Transaction does not constitute a transfer of control. SOL is a Delaware limited liability company with Citibank N.A. as its sole member. Applicants state that SOL was formed for the sole purpose of entering into the SOLA Swap with SOLA to acquire certain Second Lien Claims. Applicants state that SOL is not primarily engaged in energy-related business activities and has not submitted an Appendix B Asset Table to the Commission. Applicants expect that after completion of the Transaction, SOL will hold approximately 5.8 percent of the New Equity Holdings, subject to the Swap with SOLA. Applicants state that SOL has no affiliates operating in any of the relevant markets. Applicants state that, pursuant to the Restructuring Support Agreement (Restructuring Agreement), dated as of January 15, 2014, each of the Applicants expects to soon file voluntary petitions to commence the Chapter 11 Cases and effect the Plan. Applicants anticipate continuing to operate their businesses and manage their properties as debtors in possession pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code. Applicants state that, following the Transaction, the Project Companies will retain their market-based rate tariffs, and their direct ownership and existing operational control of their facilities. They continue that, although the Restructuring will result in changes in the upstream ownership of the Applicants, the Project Companies will retain direct ownership of and operational control over, their respective facilities. Moreover, the Project Companies will operate their businesses, including each of the facilities, in the ordinary course throughout the Restructuring. Applicants state that the Transaction is consistent with the public interest because it will have no adverse impact on competition, rates, or regulation and will not result in cross-subsidization or the pledge or encumbrance of utility assets for the benefit of an associate company. Applicants state that the Transaction will not have an adverse impact on horizontal competition because none of Silver Oak, the Solus Entities or any of their affiliates currently conduct business in the same geographic markets as the Project Companies. Applicants further submit that, even though affiliates of Deutsche Bank and/or ECP Polaris conduct business in some of the same geographic markets as the Project Companies, because of the Voting Limitation, neither is an affiliate of MACH Gen. Applicants conclude that there is thus no overlap of generating facilities under the common control of Deutsche Bank or ECP Polaris, and the Transaction raises no horizontal market power concerns. Applicants state that the Transaction does not have any adverse effect on vertical competition because none of the Applicants or their affiliates own or control electric transmission facilities in the relevant markets other than in respect of the de minimis interest as set out below and for the discrete and limited facilities necessary to interconnect the Project Companies' generating facilities to their relevant transmission grids. Further, Silver Oak and the Solus Entities (and their respective affiliates) do not own or control any transmission facilities or relevant inputs to electric power production namely, intrastate natural gas transportation, storage or distribution facilities, sites for generation capacity development, or physical sources of coal suppliers or transportation for coal supplies. Applicants state that because Deutsche Bank and ECP Polaris have agreed to the Voting Limitation, no vertical market power analysis with respect to Deutsche Bank, ECP Polaris, or their respective affiliates is necessary for the purposes of the Application. Applicants state that the Project Companies' rates will not be affected by the Transaction and all sales of electric energy, capacity and ancillary services from the respective facilities will continue to be made at the market-based-rates previously authorized by the Commission. Accordingly, Applicants submit that the Transaction will have no adverse effect on wholesale ratepayers or transmission customers. Applicants state that the Transaction will not diminish or affect in any way the manner or extent to which the Commission, any state, or any other federal agency may regulate the Applicants because the Project Companies will remain public utilities subject to the jurisdiction of the Commission under the FPA. Upon completion of the Transaction, the Applicants' generating facilities will remain subject to the jurisdiction of the Commission. Furthermore, the Transaction will have no effect on state commission regulation. Applicants state that the Transaction is within the scope of the safe harbor for transactions in which no franchised public utility with captive customers in involved in the transaction, and thus raises no cross-subsidization issues. Nevertheless, Applicants verify that, based on facts and circumstances known to them or that are reasonably foreseeable, the Transaction will not result in, at the time of the Transaction or in the future, cross-subsidization of a non-utility associate company or the pledge or encumbrance of utility assets of a traditional public utility associate company that has captive customers or that owns or provides transmission service over jurisdictional facilities for the benefit of an associate company, including: (1) any transfer of facilities between a traditional public utility associate company that has captive customers or that owns or provides transmission service over jurisdictional transmission facilities, and an associate company; (2) any new issuance of securities by a traditional public utility associate company that has captive customers or that owns, or provides transmission service over, jurisdictional transmission facilities, for the benefit of an associate company; (3) any new pledge or encumbrance of assets of a traditional public utility associate company that has captive customers or that owns or provides transmission service over jurisdictional transmission facilities, for the benefit of an associate company; or (4) any new affiliate contracts between a non-utility associate company and a traditional public utility associate company that has captive customers or that owns or provides transmission service over jurisdictional transmission facilities, other than non-power goods and service agreements subject to review under sections 205 and 206 of the FPA. The filing was noticed on January 27, 2014, with comments, protests or interventions due on or before February 14, 2014. None were filed. Notices of intervention and unopposed timely filed motions to intervene are granted pursuant to the operation of Rule 214 of the Commission's Rules of Practice and Procedure (18 C.F.R. section 385.214(2013)). Any opposed or untimely filed motion to intervene is governed by the provision of Rule 214. Order No. 652 requires that sellers with market-based rate authority timely report to the Commission any change in status that would reflect a departure from the characteristics the Commission relied upon in granting market-based rate authority. The foregoing authorization may result in a change in status. Accordingly, Applicants are advised that they must comply with the requirements of Order No. 652. In addition, Applicants shall make appropriate filings under section 205 of the FPA, to implement the Transaction. Information and/or systems connected to the bulk system involved in this transaction may be subject to reliability and cybersecurity standards approved by the Commission pursuant to FPA section 215. Compliance with these standards is mandatory and enforceable regardless of the physical location of the affiliates or investors, information database, and operating systems. If affiliates, personnel or investors are not authorized for access to such information and/or systems connected to the bulk power system, a public utility is obligated to take the appropriate measures to deny access to the information and/or the equipment/software connected to the bulk power system. The mechanisms that deny access to information, procedures, software, equipment, etc. must comply with all applicable reliability and cybersecurity standards. The Commission, NERC or the relevant regional entity may audit compliance with reliability and cybersecurity standards. After consideration, it is concluded that the Transaction is consistent with the public interest and is hereby authorized, subject to the following conditions: (1) The Transaction is authorized upon the terms and conditions described in this Order and for the purposes set forth in the application; (2) The foregoing authorization is without prejudice to the authority of the Commission or any other regulatory body with respect to rates, service, accounts, valuation, estimates or determination of cost or any other matter whatsoever now pending or which may come before the Commission; (3) Nothing in this order shall be construed to imply acquiescence in any estimate or determination of cost or any valuation of property claimed or asserted; (4) The Commission retains authority under sections 203(b) and 309 of the FPA, to issue supplemental orders as appropriate; (5) If the Transaction results in changes in the status or the upstream ownership of Applicants' affiliated Qualifying Facilities, if any, an appropriate filing for recertification pursuant to 18 C.F.R. section 292.207 (2013) shall be made; (6) Applicants shall make appropriate filings under section 205 of the FPA, as necessary, to implement the Transaction; (7) Applicants must inform the Commission of any change in circumstances that would reflect a departure from the facts the Commission relied upon in authorizing the Transaction; and (8) Applicants shall notify the Commission within 10 days of the date that the Transaction has been consummated. This action is taken pursuant to the authority delegated to the Director, Division of Electric Power Regulation - West under 18 C.F.R. section 375.307 (2013). This order constitutes final agency action. Requests for rehearing by the Commission may be filed within 30 days of the date of issuance of this order pursuant to 18 C.F.R. section 385.713 (2013). Steve P. Rodgers Director Division of Electric Power Regulation - West TNS 18EstebanLiz-140402-30FurigayJane-4687681 30FurigayJane (c) 2014 Targeted News Service |