The battleground between federal and state regulators over energy and environmental policy has moved into the arena of mergers and acquisitions, sharpening pain for the industry as it seeks to extend consolidation and wring efficiency out of existing power plants and transmission assets.
Regulators at the Federal Energy Regulatory Commission and various state level agencies are charged with reviewing large transactions among regional power companies to guarantee a variety of standards are met. The federal agency’s ruling on the issue is usually questioned over price and fairness of access, not environmental standards.
A recent Massachusetts motion from the commonwealth’s energy regulators represents an effort to change the rules of the game. Although FERC already approved a proposed merger of two New England electric and gas utilities, NStar and Northeast Utilities, on July 6, that decision is subject to requests for rehearing for up to 30 days. On July 14, the State of Massachusetts filed a motion to freeze the merger till a more information was disclosed from a 2012 rate case.
In its initial approval of the merger, FERC noted that both the Massachusetts Attorney General’s office and the Department of Energy Resources had hesitations about approving the business deal. At the time, the Massachusetts parties were concerned that the utilities did not include a plan to make back the money put out for the merger.
They were afraid that after the initial grace period of the merger, the utilities would boost prices to cover their merger costs. The state was also concerned with the affects on Cape Light, another Massachusetts electric utility.
But FERC did not deem the state’s concerns sufficient to stop the merger.
“We note that nothing in the application indicates that rates to customers will increase as a result of transaction-related costs created by the Proposed Transaction,” the FERC order said.
The State Objects
In its July 14 motion, the state of Massachusetts brought up reasons for stalling the merger that are outside of FERC’s traditional regulatory sphere, including a request that the utilities fully disclose a plan for capping greenhouse gas emissions and proposing a plan for climate change mitigation, Mark Sylvia, commissioner of the MA DOER told Breaking Energy.
“The Department’s standard of review, and the interests of customers, merit more than cavalier dismissal of required evidence,” the DOER motion says. “Put simply, the Companies should be required to provide a merger integration plan, a climate change impact analysis, and a proposed rate change schedule before this docket proceeds any further.”
In adding environmental concerns, the state changed the underlying nature of its complaint and posed a whole new set of questions about the role of state regulators.
“The Global Warming Solutions Act … requires the Department to ‘consider reasonably foreseeable climate change impacts, including additional greenhouse gas emissions, and effects, such as predicted sea level rise,’ in considering and issuing administrative approvals and decisions. Therefore, the Department has found that it must ‘consider the effect of the merger on these emissions, recognizing as well that the electric industry will bear a significant share of the Commonwealth’s burden of attaining the GWSA’s stringent greenhouse gas emissions reduction requirements.’ Interlocutory Order, at 26,” the motion says.
Push And Pull
The Supreme Court recently unanimously threw out the claim of several states against local utilities over emissions policy, with the court deciding that the federal Environmental Protection Agency has full jurisdiction over the matter.
“If EPA does not set emissions limits for a particular pollutant or source of pollution, States and private parties may petition for a rulemaking on the matter, and EPA’s response will be reviewable in federal court,” the judges wrote in American Electric Power Company v. Connecticut.
The state’s move is just the latest in an ongoing tug of war over jurisdictional energy and emissions issues between the federal government and regional bodies. With an active deal under the microscope, compliance issues are quickly emerging from the realm of the theoretical and becoming pain points for prominent energy companies.
Photo Caption: Massachusetts State Capital building in Boston, MA.