FERC Proposes Rule Clarifying Requirements for Market-Based Rate Sellers to Identify Owners and Affiliates

December 21, 2015


The Federal Energy Regulatory Commission (FERC) proposed on December 17, 2015, to amend its regulations to clarify the obligations of certain companies that sell electric energy to identify their owners and affiliates. This proposal applies to companies that seek or already have authorization to make wholesale electric sales at market-based rates (i.e., at rates negotiated between sellers and buyers rather than at rates based on the sellers’ costs of providing service). The clarification would help to resolve an issue that delayed the processing of many applications before FERC over the past year that sought authorization to make electric sales at market-based rates and largely conforms to suggestions that were made by many applicants that were the subject of those delays and their legal advisors (including attorneys at OMM). In general, the proposal would reduce the reporting obligations of market-based rate sellers compared to FERC Staff’s interpretation of FERC’s current regulations. This proposal to reduce the scope of reporting of ownership and affiliate information contrasts with another recent proposal by FERC to require reporting of “connected entity” data from participants in organized electric markets (as discussed in our client alert of November 11, 2015, available here). That “connected entity” proposal is currently pending before FERC, which recently held a technical conference to gather more information about it, so it is possible that this contrast in approaches will be addressed before these two proposals become final.

FERC only grants market-based rate authorization to companies that have demonstrated to FERC that they, together with their affiliates, do not have the ability to exercise horizontal or vertical market power in wholesale electric markets. Whereas many practitioners had interpreted FERC’s regulations to require disclosure to FERC of market-based rate sellers’ owners and affiliates only to the extent that they fell within the definition of “affiliate” in FERC’s regulations and to require disclosure of non-owner affiliates only to the extent that they engaged in activities relevant for purposes of FERC’s horizontal or vertical market power analyses, FERC Staff in many recent cases sought broader disclosures. FERC Staff based its position on language in footnote 258 in FERC Order No. 697-A, which is an order issued by FERC in 2008 in connection with comprehensive revisions to FERC’s market-based rate regulations. This led in many cases to FERC Staff requesting supplemental filings in market-based rate proceedings, which led to delays in granting approvals. It also created uncertainty about whether market-based rate sellers needed to notify FERC of certain changes in their owners or affiliates (or changes in the energy-related activities of such owners or affiliates).

The proposed rule would clarify that the owners and affiliates that must be disclosed in applications for market-based rate authorization and in certain filings required to maintain such authorization are owners that meet the definition of “affiliate” in FERC’s regulations. “Affiliates” generally are defined as: entities or persons that directly or indirectly own, control, or hold with power to vote, 10 percent or more of the outstanding voting securities in the specified company; entities in which the specified company directly or indirectly owns, controls, or holds with power to vote, 10 percent or more of the voting interests; or entities under common control with the specified company. This is a much narrower set of entities and persons than was required under the FERC Staff interpretation of footnote 258 of Order No. 697-A; Staff’s interpretation required disclosure of “all upstream owners,” even if such owners’ interests were below the 10 percent level or were not voting interests. Some applicants informed FERC that disclosure of all owners was not feasible in certain circumstances, such as where indirect ownership interests are frequently traded and where the owners of such interests have no obligation to report changes in ownership to the market-based rate seller.

The proposed rule also would clarify the types of affiliates that need to be disclosed, limiting the disclosure obligation to affiliates that engage in activities that are relevant for FERC’s horizontal and vertical market power analyses, which is narrower than FERC Staff’s interpretation of the broad language in footnote 258 of Order No. 697-A; Staff’s literal reading required disclosure of whether owners “are in any way involved in the energy industry” without limiting the interpretation of the undefined terms in this phrase to cover only activities relevant for FERC’s market power analyses.

Under the new proposal, FERC would require disclosure of:

  • “ultimate affiliate owner(s)” of the market-based rate seller, defined as “the furthest upstream affiliate(s) in the ownership chain.” The identity of such ultimate upstream owners would be required to be disclosed regardless of what activities they engage in. The use of the term “affiliate” in this definition indicates that the reporting obligation is limited to such owners that directly or indirectly own, control, or hold, with power to vote, 10 percent or more of the voting interests in the market-based rate seller.
  • “affiliate owner(s)” of the market-based rate seller that engage in any of the following activities:
    - have a franchised service area; 
    - have market-based rate authority; 
    - directly own or control: [electric] generation; [electric] transmission; intrastate natural gas transportation, storage or distribution facilities; physical coal supply sources or ownership of or control over who may access transportation of coal supplies.

    The term “affiliate owner” is defined as “any owner of the Seller that is an affiliate of the Seller as defined in [18 C.F.R.] § 35.36(a)(9).” This does not require reporting of affiliates of the market-based rate seller that are not owners of, but rather are owned by—or under common control with—the market-based rate seller; however, disclosure of such affiliates may still be required pursuant to other FERC regulations.

    Other issues addressed in the proposed rule include the following:
  • requiring disclosure of any foreign government entities that directly or indirectly own or control the market-based rate seller.
  • clarifying how to determine ownership interests in various scenarios (including not using a derivative share method to determine ownership interests and requiring aggregation of affiliated interests for purposes of determining if the 10 percent voting interest standard has been met).
  • requiring market-based rate sellers to provide supporting information if they wish to demonstrate that certain owners of the seller are passive and therefore should not be considered to be affiliates (applying current FERC precedent under AES Creative Resources, L.P., 129 FERC ¶ 61,239 (2009)).
  • clarifying circumstances in which a notice of change in status is required, including any change in the seller’s ultimate affiliate owner.

Interested parties may file comments with FERC, which are due 60 days after the proposal is published in the Federal Register.

1Ownership Information in Market-Based Rate Filings, Docket No. RM16-3-000, 153 FERC ¶ 61,309 (2015). A copy of the proposed rule is available here
2Market-Based Rates for Wholesale Sales of Electric Energy, Capacity and Ancillary Services by Public Utilities, Order No. 697, FERC Stats. & Regs. ¶ 31,252, clarified, 121 FERC ¶ 61,260 (2007), order on reh’g, Order No. 697-A, FERC Stats. & Regs. ¶ 31,268 at n. 258, clarified, 124 FERC ¶ 61,055, order on reh’g, Order No. 697-B, FERC Stats. & Regs. ¶ 31,285 (2008), order on reh’g, Order No. 697-C, FERC Stats. & Regs. ¶ 31,291 (2009), order on reh’g, Order No. 697-D, FERC Stats. & Regs. ¶ 31,305 (2010), aff’d sub nom. Mont. Consumer Counsel v. FERC, 659 F.3d 910 (9th Cir. 2011), cert. denied, 133 S. Ct. 26 (2012) (“A seller seeking market-based rate authority must provide information regarding its affiliates and its corporate structure or upstream ownership. To the extent that a seller’s owners are themselves owned by others, the seller seeking to obtain or retain market-based rate authority must identify those upstream owners. Sellers must trace upstream ownership until all upstream owners are identified. Sellers must also identify all affiliates. Finally, an entity seeking market-based rate authority must describe the business activities of its owners, stating whether they are in any way involved in the energy industry.”) (emphasis added).
3Companies with market-based rate authorization are required to notify FERC of certain changes in status, such as acquisition of or affiliation with additional electric generating or transmission capacity or certain inputs to electric generation. Also, such companies that, together with their affiliates, own or control more than 500 MW of electric generation capacity in any region or that meet certain other criteria relevant to FERC’s vertical market power analyses are required to file with FERC an updated market power analysis on a three-year cycle. 18 C.F.R. §§ 35.42 and 35.37.
4See 18 C.F.R. § 35.36(9).
5See, e.g., 18 C.F.R. §§ 35.37(a)(4) (requiring submission of an asset appendix showing all affiliated interests in electric generation and transmission capacity and market-based rate sellers) and 35.37(e) (requiring submission of information relevant to FERC’s vertical market power analysis).