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Court rules against Kan. regulators on rates for SPP transmission projects

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Court rules against Kan. regulators on rates for SPP transmission projects

A federal appeals court has dismissed the Kansas Corporation Commission's challenge of formula rates that hypothetical subsidiaries of two competitive transmission project developers could charge for transmission facilities they may one day develop in the Southwest Power Pool's footprint.

Transource Kansas and Kanstar, subsidiaries of Transource Energy LLC and MPT Heartland Development, respectively, in 2015 asked for Federal Energy Regulatory Commission approval of formula rates allowing them to recover the costs of their investments in SPP transmission facilities. They also requested that FERC let other, yet-to-be-formed state-specific affiliates of the companies replicate those formula rates.

In separate Federal Power Act Section 205 filings, the companies made similar arguments that without advance approval of formula rates, they would be unable to participate in SPP's selection process for the right to develop transmission projects in the region. Each explained that due to statutory and regulatory differences among the states within SPP, they planned to create state-specific subsidiaries that would submit state-specific bids for SPP transmission projects.

KCC at the time argued that "pre-approving a formula rate for a future affiliate violated FERC's Section 205 mandate to ensure that charged rates are just and reasonable," according to an opinion released by the U.S. Court of Appeals for the District of Columbia Circuit.

However, FERC reasoned that the future affiliates would be "similarly situated with respect to risk and capital requirements" to their Kansas counterparts. The agency also concluded that pre-approving a formula rate for an existing Kansas affiliate without any active transmission facilities was "no different" from pre-approving a formula rate for future affiliates.

FERC accordingly signed off on the formula rates and denied a request for rehearing, triggering the KCC's petitions for review of those orders with the D.C. Circuit (Kansas Corporation Commission v. FERC, 16-1093 and 16-1164).

Orders improperly shift burden: KCC

In its court filings, the KCC contended that FERC's "principal error" was authorizing the replication of formula rates "at some unknown time in the future" without the affiliates having to submit Section 205 filings establishing the justness and reasonableness of those rates.

This, in effect, "shifted the burden to entities such as KCC to challenge the formula rates in a later Section 206 proceeding, in which the challenger must prove the rates are in fact unjust or unreasonable," the KCC said.

The D.C. Circuit on Feb. 6 ruled that the KCC "has not suffered an injury in fact sufficient to establish standing."

"A harm that will not occur unless a series of contingencies occurs at some unknown future time is not concrete, particularized, actual and imminent," the opinion, penned by Circuit Judge Karen LeCraft Henderson, said.

The court deemed that any harm to the KCC was "conjectural or hypothetical," as the effect of FERC's orders would not be felt by the state regulator unless an "attenuated chain of possibilities occurs."

Specifically, the parent company at issue would have to submit a bid for a transmission project, SPP would have to award that project to the parent company's then-formed subsidiary, the subsidiary would have to request use of the formula rates, and the KCC would have to initiate a Section 206 proceeding, before any harm would fall upon the KCC, the court explained.

Even if all of those steps occurred, which the KCC failed to show had a substantial probability, "the formula rates may not, in the end, turn out to be unjust or unreasonable at the time they are imposed. If that is so, KCC would have no reason to bring a Section 206 proceeding and there would be no harm," the court said.

"In sum, then, KCC's alleged harm 'stacks speculation upon hypothetical upon speculation, which does not establish an actual or imminent injury,'" the court added.

All of KCC's arguments made in an effort to satisfy the constitutional requirements for standing were rejected by the three-judge panel, which included Circuit Judges Douglas Ginsburg and Sri Srinivasan.

Jasmin Melvin is a reporter for S&P Global Platts, which, like S&P Global Market Intelligence, is owned by S&P Global Inc.