There is a sharp divide in comments in an ongoing rulemaking regarding determinations of “control” and “affiliation” market based rate and transfer of control proceedings. The Transmission Access Policy Study Group (TAPS) and other representatives of municipal and rural utilities accused the Electric Power Supply Association (EPSA) and Financial Investors Energy Group (FIEG) of seeking “modifications that would gut” the newly proposed rules.
The proposed rules are intended to simplify and clarify the approval process. For example, FERC has broad authority under §203 of the Federal Power Act to regulate and limit transfers of control and investments over $10,000,000 in public utility companies. Under current rules, FERC has granted a blanket approval for acquisitions of securities representing less than 10 percent of the voting shares in a public utility. An investor seeking to acquire a larger interest in a public utility must obtain specific approval from FERC.
The 10 percent threshold is also used to define a public utility's affiliate group for market-based rate purposes under § 205 of the Federal Power Act. A company that owns less than 10 percent of the voting securities in a public utility is presumed not to have control and, consequently, not to be an affiliate. Since only affiliates are considered by FERC in evaluating a public utility's market power, investments larger than 10 percent can adversely effect a utility's application for market-based rate authority.
In 2008, EPSA filed a petition asking FERC to clarify the rules governing investors who purchase between 10 percent and 20 percent of a public utility's voting securities. EPSA expressed concern that existing rules create uncertainty and discourage investment in energy infrastructure. Specifically, EPSA is worried that, because holding companies often invest beyond the 10-percent threshold in several companies, technical compliance by public utilities with the affiliate rules is often impractical. A public utility company may not be aware of its investors' other investments; it may not even know who its affiliates are.
In response to the petition, FERC proposed new rules providing blanket authorization for acquisitions of 10 – 20 percent of a public utility's voting securities if the investor will certify that it does not and will not attempt to control the public utility. Further, FERC would disregard, in its market-based rate decisions, reporting requirements for affiliates falling within that blanket authorization.
To qualify under either part of this proposal, an investor will be required to submit a standardized form called an “Affirmation in Support of Exemption from Affiliation Requirements.” The form asks for basic information about the transaction and the investor's existing utility holdings. Additionally, a senior executive officer must certify that the “acquisition was not for the purpose, or with the effect, of changing or influencing control over the public utility” and agree to several conditions limiting the investor's control over its investment.
Commenting on the proposal, EPSA suggested that FERC should allow public utility companies, rather than investors, to affirm the lack of control. FIEG proposed a rule that does not require certification by an investor's officer. The TAPS Group argues that EPSA's proposal would “frustrate or defeat” FERC's goals and that FIEG is trying to shield officers and directors from liability and responsibility. Until final rules are promulgated, the dispute will remain unresolved. Nonetheless, it appears likely that some form of FERC's proposal will be implemented that will simplify and encourage investment in energy infrastructure projects while clarifying regulatory and reporting obligations.