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January 25, 2010 |
FERC Issues NOPR to Address Control and Affiliation Concerns On January 21, 2010, the Federal Energy Regulatory Commission ("the Commission") issued a Notice of Proposed Rulemaking ("NOPR") regarding the Commission's proposed amendments to its regulations pursuant to sections 203 and 205 of the Federal Power Act ("FPA"). The NOPR proposes amendments to the Commission's regulations regarding the amount of stock ownership that results in "control" of a company and the definition of corporate "affiliate." The Commission's actions were motivated by the petition for guidance filed by the Electric Power Supply Association ("EPSA") on September 2, 2008.1 EPSA sought guidance regarding the concepts of control and affiliation in transactions subject to the Commission's jurisdiction under sections 203 and 205 of the FPA. EPSA asserted that uncertainty over whether certain investments would result in affiliation with a public utility threatened to discourage investment in energy infrastructure and also created potential compliance problems for competitive power supply companies with market-based rates. After review of the petition and comments of various parties, the Commission determined that although EPSA's petition only sought guidance on the issues, the issues involved called for more formal treatment To address the concerns about control, the Commission proposes a new blanket authorization under section 203(a)(2) of Part 33 of its regulations to allow a holding company to acquire voting securities from a public utility or a holding company. The proposed blanket authorization allows a holding company to acquire 10 percent, but less than 20 percent, of a utility's or another holding company's voting securities if the investor files an Affirmation with the Commission on newly-developed Form 519-C within 10 days following the acquisition. The Affirmation, which creates a rebuttable presumption that the investor does not control the public utility, requires detailed information from the acquiring holding company and must be certified by a corporate office of the company. The Commission also proposes to amend the definition of "affiliate" of a specified company in section 35.36(a)(9) of its market-based rate program regulations to mean "any person that controls, is controlled by or is under common control with, such specified company." The current regulation creates a rebuttable presumption that a person owning less than 10 percent of the outstanding voting securities of a public utility lacks control of that utility. The amended regulation would provide that if an investor owns 10 percent, but less than 20 percent of the outstanding voting securities of a public utility, market-based filing requirements are not triggered, and the public utility is exempt from certain restrictions applicable to affiliates if the acquiring person has filed an Affirmation and continues to comply with all of the other conditions and reporting obligations. 1 Control and Affiliation for Purposes of Market-Based Rate Requirements under Section 205 of the Federal Power Act and the Requirements of Section 203 of the Federal Power Act, 130 FERC ¶ 61,046 (2010). ABOUT SCHIFF HARDIN LLP Energy industry stakeholders face unprecedented challenges in everyday operations as they seek to comply with changing market rules, evolving compliance obligations, and potential enforcement actions. Buying and selling energy in often difficult market conditions has become more complicated in the face of anticipated yet undefined climate change legislation and regulation. For the managers and general counsel of many energy companies, success in uncertain times has been the result of the counsel and representation provided by Schiff Hardin attorneys in the Energy and Public Utilities group. For more information, contact us. |