On September 22, 2016, the Federal Energy Regulatory Commission (“FERC”) issued a Notice of Inquiry (“NOI”) exploring whether FERC should revise its approach to assessing mergers, acquisitions, and dispositions involving public utility assets under section 203 of the Federal Power Act (“FPA”), as well as applications for market-based rate authority under FPA section 205. The NOI also seeks comment regarding the scope of FERC’s review of transactions under section 203. The changes discussed in the NOI have the potential to increase or decrease the regulatory burden faced by parties that own, operate, and invest in FERC-jurisdictional utilities.
In the NOI, FERC indicates that it seeks to determine whether its current analysis of transactions and market-based rate applications effectively identifies potential market power issues and, if not, what improvements can be made. Specifically, FERC seeks comment on:
- whether FERC should more precisely define de minimis in the context of its analysis of competition under section 203 and develop a specific test for determining when a proposed transaction meets that definition such that a full Competitive Analysis Screen is unnecessary;
- whether FERC should add a requirement that applicants provide a supply curve analysis to analyze their transaction’s effect on competition under section 203;
- whether there is a need to modify the existing pivotal supplier analysis in reviewing a market-based rate application;
- whether adding a pivotal supplier analysis and/or a market share analysis to section 203 applications would help detect market power issues;
- whether FERC should specify how capacity covered by a long-term firm PPA should be attributed in the section 203 Competitive Analysis Screen; and
- whether to adopt a requirement that section 203 applicants submit certain merger-related documents, such as the reports that applicants submit to the Department of Justice and the Federal Trade Commission assessing the competitive effect of the merger.
FERC also seeks comment on whether there are additional types of transactions that should qualify for blanket authorizations, which exempt certain types of transactions from FERC approval. Of particular interest to private equity funds that invest in public utilities, the NOI provides acquisitions and dispositions of non-controlling (passive) interests in public utility assets as an example of the types of transactions that might warrant such an exemption. FERC also requests comment on whether certain mergers, such as those below a certain dollar threshold, could be subject to a reduced level of scrutiny and expedited processing. On the other hand, FERC also is seeking input on whether it should no longer provide a blanket authorization allowing holding companies that own only exempt wholesale generators (“EWGs”) to acquire additional EWGs.
Private equity funds should be prepared to comment to ensure that any revisions to FERC’s regulations reflect their concerns and expertise, and do not unduly discourage investment in utility assets.
The full text of the NOI can be found here.