• FERC Confirms Blanket Authorizations and Eases Affiliate Transaction Restrictions
  • September 18, 2008 | Authors: Ronald Fisher; Nicholas A. Giannasca
  • Law Firms: Blank Rome LLP - Philadelphia Office; Blank Rome LLP - New York Office
  • In two orders issued in July, the Federal Energy Regulatory Commission (“FERC”) confirmed certain blanket authorizations under Section 203 of the Federal Power Act (“FPA”) and eased restrictions on certain affiliate transactions.

    Blanket Authorizations under FPA Section 203

    In Order No. 708-A, which was issued on July 17, 2008, FERC affirmed the five blanket authorizations established under Order No. 708 to facilitate investment in the electric utility industry and to protect customers from any adverse effects of such transactions. Most of the blanket authorizations established in Order No. 708 related to a public utility’s right under Section 203(a)(1) to transfer its outstanding voting securities to any holding company that met certain criteria (e.g., the holding company benefited from its own blanket authorization to acquire public utility voting securities under a separate provision of Section 203). Certain of these blanket authorizations included the requirement that the holding company and its associate companies and affiliates could not own 10 percent or more of the outstanding voting securities of the underlying public utility.

    The Order No. 708 blanket authorizations also included a grant to a public utility under Section 203(a)(1) to acquire or dispose of jurisdictional contracts where (a) neither the acquirer nor transferor has captive customers or owns or provides transmission service over jurisdictional transmission facilities, (b) the contract does not convey control over the operation of a generation or transmission facility, (c) the parties to the transaction are neither affiliates nor associate companies, and (d) the acquirer is a public utility.

    In Order No. 708-A, FERC agreed to amend its regulation in 18 C.F.R. § 33.1(c)(12) to authorize a public utility to transfer its outstanding securities “to any person other than a holding company” if, after the transfer, such person and any of its associate or affiliate companies will own less than 10 percent of the outstanding voting interests of such public utility. FERC issued a concurrent request for comments as to the appropriate reporting requirement for entities that transact under this blanket authorization. The blanket authorization will not become effective until a FERC determination on the reporting requirement becomes effective.

    FERC rejected requests to retract the blanket authorization under 18 C.F.R. § 33.1(c)(16) with respect to transfers of jurisdictional contracts, but FERC did agree to remove the criteria that the “parties to the transactions are neither associate nor affiliate companies.” FERC agreed that the clause inappropriately limited the blanket authorization to non-affiliated customers, contrary to blanket authorizations granted for internal corporate reorganizations. Finally, FERC clarified that the blanket authorization under 18 C.F.R. § 33.1(c)(6) regarding internal corporate reorganizations applies to certain transfers of assets from one non-traditional utility to another non-traditional utility whether accomplished through the acquisition of securities or through a merger or consolidation.

    Order No. 708-A became effective on August 25, 2008.

    Affiliate Transaction Restrictions

    In its Order No. 707, FERC amended its regulations to codify restrictions on affiliate transactions between franchised public utilities that have captive customers or that own or provide transmission service over jurisdictional transmission facilities, and their market-regulated power-sales affiliates or non-utility affiliates. These restrictions supplemented other restrictions FERC has in place that apply to public utilities with market-based rates and to public utilities seeking merger approval. Among the restrictions codified as a result of Order No. 707 is the requirement for FERC approval of all wholesale power sales between a franchised public utility with captive customers and a market-based regulated power-sales affiliate. FERC determined that these restrictions were necessary to protect against inappropriate cross-subsidization of a non-utility associate company, to ensure just and reasonable rates, and to protect captive customers of public utilities. In Order No. 707-A, which was issued on July 17, 2008, FERC clarified that affiliates within a single-state holding company system that does not have a centralized service company can provide each other general administrative and management services at cost, as long as they do not provide such services to entities outside of the holding company.

    FERC provided two additional clarifications. First, FERC confirmed that the wholesale-sale pre-authorization does not apply to qualifying facility (“QF”) sales under contracts based on a mandatory purchase obligation established under the Public Utility Regulatory Policies Act of 1978 where the QF (seller) has market-based rate authority. Additionally, FERC determined that the regulations issued under Order No. 707 pertaining to sales of non-power goods and services do not apply to fuel purchases covered by FERC’s fuel adjustment clause regulations.

    Order No. 707-A became effective on August 25, 2008.

    Conclusion

    With these orders, FERC has provided important clarifications and flexibility that will facilitate the investment of capital in the electric industry and reduce the regulatory burden for the provision of certain services among entities in a single-state holding company.