Energy Legal Blog

FERC Lessens Burden of Merger, Holding Company Rules

In two April 24 orders, FERC attempts to coordinate its overlapping merger and utility holding company rules.  FERC also aims to strengthen its protection of customers from risks perceived to arise from repeal of the Public Utility Holding Company Act of 1935 (1935 Act).  Driving these rules, FERC explains, is the agency's desire to stimulate investment in the electricity sector and accommodate public utilities' day-to-day financial operations. 

In Order No. 667-A, FERC tweaked its December 2005 Order No. 667, which implemented the Public Utility Holding Company Act of 2005 ("PUHCA 2005") primarily a recordkeeping statute that replaced the 1935 Act.  As originally proposed, these recordkeeping requirements were criticized as an unreasonable burden.  The April 24 order amplifies exemptions to the recordkeeping requirements.  For example, holding companies that own only QFs, EWGs, or FUCOs, while meeting the definition of a "holding company," would nevertheless be exempt from the recordkeeping requirements.  FERC also affirmed an exemption for holding companies that operate primarily within a single state, and explained that a company would qualify for this exemption if no more than 13% of its revenues from public utility operations were derived from outside that state.

FERC took the opportunity in Order No. 669-A to simplify its merger rules under Federal Power Act § 203.  FERC extended to domestic mergers the four-part test, which heretofore had applied only to foreign acquisitions.  A utility will now be required to verify that a transaction does not result in:  (1) transfer of facilities between traditional public utility associate companies with captive customers and associate companies; (2) new issuances of securities by traditional public utility associate companies with captive customers for the benefit of associate companies; (3) new pledges or encumbrances of assets of traditional public utility associate companies with captive customers in favor of associate companies; and (4) new affiliate contracts between non-utility associate companies and traditional public utility associate companies with captive customers.  If merger applicants cannot make these showings, then they may withdraw from the merger or undertake a more detailed demonstration that the transaction nonetheless would be consistent with the public interest.  FERC also clarified that companies owning only QFs, EWGs, or FUCOs are authorized to acquire securities of additional QFs, EWGs, or FUCOs.  Order No. 669-A also grants banks and financial institutions blanket authorization for the acquisition of securities  in connection with their fiduciary, underwriting, and hedging activities.  In addition, FERC expressed support for public utilities' participation in holding company intra-system cash management systems, and simplified its regulations to ensure that public utilities possess blanket authorization to acquire securities in connection with such money pools.