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Power & Pipes

FERC, CFTC, and State Energy Law Developments

On July 19, the Federal Energy Regulatory Commission (FERC or Commission) issued a Notice of Proposed Rulemaking (NOPR) proposing to revise its regulations restricting certain officers and directors of public utilities from holding “interlocking” positions (i.e., positions in which an individual is simultaneously a director or officer of two different types of business entities covered by the regulations). The NOPR proposes a limited measure of relief from some of the Commission’s longstanding regulatory hurdles for public utility executives.

FERC’s interlock rules implement Section 305(b) of the Federal Power Act, which was enacted to ensure arm’s-length dealings between public utilities and the organizations furnishing financial services or electrical equipment to those utilities. Under the regulations, any person seeking to hold any of the following interlocking positions must file an application for approval from FERC before being appointed:

  • Officer or director of more than one public utility
  • Officer or director of a public utility and of any bank, trust company, banking association, or firm that is authorized by law to underwrite or participate in the marketing of securities of a public utility
  • Officer or director of a public utility and of any company supplying electrical equipment to a public utility

Certain other interlocking positions that do not present the same conflicts of interest are automatically authorized, so long as the individual holding those positions submits an informational report prior to performing or assuming any of his or her duties and responsibilities.

In addition to some housekeeping changes, FERC proposed to incorporate the following new provisions in its interlocking directorate regulations:

  • New Automatic Authorization. The Commission proposed to automatically authorize an applicant for an interlocking position between a public utility and a bank, trust company, banking association, or firm authorized to market public utility securities. A number of these interlocks had already been authorized by legislation, to which FERC had not conformed its regulations. FERC explained that it intends to permit these interlocks when certain safeguards are in place to ensure arm’s-length bargaining between the entities supporting the interlocking position (e.g., the individual does not participate in certain deliberations on behalf of the utility to select the financial institution, the public utility selects underwriters by competitive solicitation, or the issuance of securities by the public utility is approved by the appropriate regulatory bodies). The Commission also proposed to revise its regulations on automatic interlocks to recognize that public utilities can be owned not just by a corporate entity, but by a natural person as well.
  • Consideration of Untimely Applications and Informational Reports. The Commission’s regulations inflexibly dictate that late-filed applications for interlocking positions and informational reports for automatically authorized interlocks will be automatically denied. However, the NOPR recognized that good-faith errors and administrative oversight can lead to late submissions, and that categorically denying untimely filings does nothing to prevent the abuses contemplated by Congress when it enacted Section 305 of the Federal Power Act. Therefore, the NOPR proposed to allow late-filed applications and informational reports to be considered on a case-by-case basis. An untimely interlock filer should consider carefully whether a good-faith basis exists for the late filing, or whether the traditional means of correcting the untimely appointment (by temporary resignation and reappointment with simultaneous FERC interlock filings) will be necessary.
  • Streamlined Filing Requirements. Under the current rules, individuals seeking interlocking positions must provide a significant amount of information in their applications, and are required to provide status updates to the Commission in the event of “material or substantial changes.” The NOPR proposed to streamline some of those requirements by eliminating the need for applications to list public utilities that do not have officers or directors, and exempting interlock holders from filing notices of change when assuming new, but similar, corporate positions.

Comments are due 60 days after publication in the Federal Register.