Juno Beach, Fla.
FPL Group Inc. expects to have its day in court Feb. 2. A U.S. federal court will consider whether to grant FPL`s request to release it from an $845 million deal to buy Central Maine Power`s (CMP) enerating assets. The reason-new Federal Energy Regulatory Commission (FERC) rulings on transmission access and other issues that changed the playing field for acquired plants in New England.
The situation arises from a recent FERC ruling which reversed New England Power Pool`s (NEPOOL) rules that assured the operations of existing generators would not be materially and adversely affected by new generators. The NEPOOL rule provided priority access to the transmission system for existing power plants. The FERC ruling effectively eliminated this priority access for power plants that change ownership, according to FPL.
“Access to the market, particularly NEPOOL, was a fundamental part of the bid solicitation, the preliminary and final bids, and the negotiation of the acquisition agreement,” FPL said in its filing with the U.S. District Court, Southern District of New York. “Without such priority access being assured, FPL Group would not have bid for the assets.”
FPL Group announced in January its agreement to buy CMP`s non-nuclear generating assets for about $845 million. Financial closing was expected in late 1998 or early 1999. FPL agreed to buy the plants with the understanding that it could operate them just as CMP had done historically. The FERC rulings, FPL said, will limit the company`s ability to get its power to market unconstrained by transmission limitations caused by new power plants being added to the NEPOOL system.
The company said recent FERC rulings constitute a material adverse effect under the purchase agreement and substantially lessen the value of the CMP generating assets. According to FPL, that event makes it impossible for CMP to deliver what was offered and negotiated in the bidding process.
“We regret that we must take this action but we have no alternative since we are not getting what we bargained for,” said Michael Yackira, FPL Energy`s president.
CMP, however, disagrees, saying FPL`s concerns are “without basis.” While noting the FERC orders remain subject to appeal, CMP Group President and CEO David T. Flanagan said they are not a critical issue for the sale. “Everyone involved in the bidding process understood very clearly that the electric industry is changing rapidly, and that changing state and federal regulations are part of that reality. More importantly, nothing in the sale contract negotiated with FPL Group requires that any particular set of transmission-access rules be in place for the sale to proceed. CMP has taken every action required of it, and will continue to do so. We hope that FPL Group will do the same while their issue is before the court.”
Ironically, the FERC approved the CMP sale to FPL about a week after FPL filed the civil action. Its approval included a statement addressing the transmission access issue. The FERC order said: “Acquired generators are not new units which bring with them system study and potential expansion concerns, but rather are already on the NEPOOL grid. This fact does not change simply because there is a new owner. By purchase of those units, FPL Energy Maine is stepping into the shoes of Central Maine. We do not believe it is unreasonable to allow the new owner to maintain the existing access to the transmission grid as an integral part of the acquisition.” FPL said the order does not rectify the effect of FERC`s earlier reversal of the NEPOOL rules. “FPL Energy continues to maintain that CMP is unable to satisfy the contract`s conditions to closing to deliver what was bargained for under the asset purchase agreement,” the company stated.
CMP, however, is pressing forward toward closing the deal. Flanagan said, “We hope this unscheduled side trip to the federal court system won`t unduly delay closing the sale.”