PowerFacts
Fact Sheet: Overview of EPSA Answer to Protests Filed on Petition for Guidance Regarding Company Control and Affiliation
On September 2, 2008, the Electric Power Supply Association (EPSA) filed a Petition for Guidance Regarding "Control" and "Affiliation" with the Federal Energy Regulatory Commission (FERC). The petition requested targeted guidance that a narrow range of investments in publicly-held companies will not be deemed to convey "control" or to result in "affiliation" for purposes of market-based rate authority (MBRA) under Section 205 of the Federal Power Act (FPA) and merger and acquisitions regulations under Section 203 of the FPA. While a majority of intervenors, including the Edison Electric Institute (EEI), support EPSA's petition, protests were filed by the Transmission Access Policy Study Group (TAPS), and jointly by the American Public Power Association (APPA) and the National Rural Electric Cooperative Association (NRECA). EPSA filed an answer to these protests on October 15, 2008.
Background
A number of transactions have developed in 2008 that involve the acquisition of shares of publicly-traded power supply companies by financial entities. Some of these transactions have exceeded FERC's 10 percent trigger for questions of "control." In these cases, however, the investor has certified with the Securities and Exchange Commission (SEC) that the investment is not for the purpose of controlling or influencing the company. Uncertainty over the impact of these transactions threatens to discourage much needed investment in the electricity sector and could create potentially serious compliance issues for competitive suppliers.
EPSA has requested guidance on FERC's policies and requirements regarding such upstream securities acquisitions of less than 20 percent in two contexts - FPA Sections 203 and 205.
- Section 203 requires Commission authorization for mergers or consolidations involving the jurisdictional facilities of a public utility; the sale, lease or other disposition of jurisdiction facilities with a value in excess of $50,000; and, the purchase by a public utility of the securities of another public utility.
- Section 205 applies to market-based rate authority for wholesale power sales.
Currently, transactions surpassing the 10 percent "control" threshold will be approved by FERC under Section 203 if the transaction is "consistent with the public interest and will not result in cross-subsidization of a non-utility associate company." EPSA's concern is that due to current uncertainty over the interconnection of Sections 203 and 205, transactions between passive investors and competitive suppliers with MBRA could be approved under Section 203 without consideration of the Section 205 context. This could pose serious threats to FERC's market-based rate program. Findings of control or affiliation are not necessarily made in the Section 203 context, thus issues that might arise in the 205 context are not part of the initial 203 review of the transaction.
EPSA's Petition for Guidance
In its petition, EPSA is seeking guidance with respect to a specific and narrow subset of investment transactions in which passive investors acquire less than 20 percent of power supply companies with MBRA who do not intend to control or influence that company. EPSA asks that the Commission state that such investments, when supported by an SEC Schedule 13G filing, will be deemed not to convey "control" or to result in "affiliation" for purposes of both Sections 203 and 205. Specifically, EPSA asks the following:
- That the Commission state that investments in publicly-held companies by investors owning less than 20 percent of such companies' voting securities and making filings with the Securities and Exchange Commission (the SEC) on SEC Schedule 13G (with the 13G thereby certifying that the investment is not for the purpose of controlling the company) will not be deemed to convey "control" or to result in "affiliation" for MBRA and Section 203 purposes.
- EPSA urges the Commission to confirm that findings that a given entity does not "control" a publicly-held company made in the FPA Section 203 setting apply equally to that entity and its subsidiaries with MBRA.
- EPSA requests that the Commission confirm that investments by entities upstream of a publicly-held company in entities not otherwise related to the publicly-held company will not be deemed to be within the knowledge and control of the publicly-held company's subsidiaries with MBRA, and, therefore, those MBRA subsidiaries will not be required to file a notification of change in status or to include generation or inputs to generation owned or controlled by the other entities in future market power analyses.
The Petition enables the Commission and interested concerned parties, such as Protestors, to focus on filings related to transactions that may actually be relevant to the concerns that inform the Commission's MBR regime and the factors it considers under FPA Section 203, thus bringing such cases to the forefront and increasing transparency in the process.
The Protests
While the vast majority of interveners supported the Petition, the following claims have been made:
- Protestors claim that the Petition is an impermissible collateral attack on, or an untimely request for rehearing of, prior Commission orders and policy statements on FPA Section 203 and MBRA matters, including Order Nos. 652, 669, 697, 707 and 708 and the Commission's supplemental policy statement in the Order No. 669 proceeding, and ask that the Commission reject the Petition on that basis.
- APPA and NRECA allege that EPSA is requesting that the Commission "disclaim" jurisdiction over a class of transactions under Sections 203 and 205.
- Protestors argue that the requested guidance is unnecessary and inappropriate, particularly in light of recent turmoil in the financial markets.
- The Petition Is Neither A Collateral Attack On, Nor An Untimely Request For Rehearing of, Prior Commission Orders EPSA's Petition was prompted by a series of recent transactions, occurring after the Commission issued the final orders cited by Protesters. Due to the complex and lengthy series of orders and policy statements impacted by the requested guidance, a new docket is the most appropriate process to request the guidance sought. Each of the proceedings cited by Protestors related to either MBRA or FPA Section 203 matters. In contrast, the Petition seeks guidance relating to both MBRA and FPA Section 203 matters in order to ensure greater consistency between Commission policies on "control" and "affiliation" in the MBRA and Section 203 contexts. A new docket provides full notice and opportunity for comment to all interested persons and not just to persons involved in a particular, pre-existing proceeding.
Further, the protests claim that EPSA's petition is a collateral attack or untimely request for rehearing of prior Commission orders discussing "control" and/or "affiliation." That claim is based on the false assumption that the Commission intended its earlier pronouncements to be the last word. In fact, the Commission has never suggested that its actions in these other proceedings were intended to preclude interested persons from seeking additional guidance. The Commission has made it clear that it will monitor emerging issues and "re-evaluate our regulatory approach as appropriate." (Section 203 Supplemental Policy Statement, 2007) - The Petition Does Not Request that the Commission "Disclaim" Jurisdiction Under FPA Section 203 or FPA Section 205. The Petition does nothing of the kind. EPSA is simply requesting targeted guidance on when investments in publicly-held companies will be deemed to convey "control" or to result in "affiliation" for MBRA and Section 203 purposes. The Petition seeks guidance no different from the FPA Section 203(a)(1) policy guidance provided in the Supplemental Policy Statement with respect to transfers of less than 10 percent of a company's voting securities and dispositions of control that might otherwise be deemed to occur as a result of "secondary market transactions."
- Protestors' Policy Critiques are Without Merit
The requested guidance will remove unnecessary obstacles to investment in the electricity sector and facilitate compliance with the Commission's MBRA requirements. Further, as EEI and other interveners observe, the current turmoil in the financial markets makes the requested guidance all the more vital as the electricity industry as a whole is entering a period where significant investment will be necessary to ensure that electric loads continue to be served reliably. Significant new sources of capital, potentially including capital from passive investment entities, will be required to meet this challenge. Finally, as a result of the requested guidance, the process will be more transparent as investors would be required to file copies of the relevant Schedule 13G filings, as well as any amendments thereto, with FERC.
EPSA'S ANSWER
CONTACT: JOHN SHELK
(202) 349-0154or 703-472-8660
EPSA is the national trade association representing competitive power suppliers, including generators and marketers. These suppliers, who account for nearly 40 percent of the installed generating capacity in the United States, provide reliable and competitively priced electricity from environmentally responsible facilities serving global power markets. EPSA seeks to bring the benefits of competition to all power customers.