Passive limited partner investors in private equity funds that make FERC-regulated investments are not themselves subject to FERC’s corporate regulatory regime.
Those that own interests in businesses that sell electricity in commerce and those that own interests in electric power generation, transmission, and distribution facilities are subject to extensive and microscopic federal corporate and financial regulation and disclosure obligations unique to the electric power sector. On December 22, the Federal Energy Regulatory Commission (FERC) issued an order confirming that passive limited partner investors (LPs) in private equity funds that make FERC-regulated investments are not themselves subject to FERC’s corporate regulatory regime.
Almost every business (whether a corporation, a partnership, a limited liability entity, or even an unincorporated group of persons) that sells or transmits electricity in interstate commerce is a “public utility” under the Federal Power Act (FPA), and in many cases, is a “public-utility company” under the Public Utility Holding Company Act (PUHCA). This applies even to businesses that transmit electricity within a single state (using any interconnection to the interstate power grid), and those that engage in other lines of business. FERC regulates the sale, disposition, or other direct or indirect transfers (for example, by merger) of control of public utilities by voting securities or their equivalents, such as partnership or limited liability company interests. FERC regulation of control transactions can be triggered by sales of voting or equivalent interests as small as 10%, and related-entity owners of interests are aggregated by FERC. Transfers of indirect interests in a public utility (such as acquiring stock or membership interests in a public utility’s parent company) are subject to FERC authorization in the same manner as direct purchases of a public utility’s stock or partnership interests. Typically, FERC analyzes ownership and market power by aggregating the interests of related or “affiliated” entities, such that two funds that are under the ultimate control of a common entity are—to FERC—one single entity.
Investors that own or control 10% or more of a public utility’s voting securities generally become subject to FERC jurisdiction (including the regulation of other energy-sector investments) and to comprehensive FERC disclosure requirements, including the public identification of their US electric and gas-related investments and on-demand FERC access to books and records.
Although some interests in what are typically smaller renewable and cogeneration facilities can be immune from FERC change-in-control requirements, the FERC requirements can attach to both those that purchase interests and to FERC-regulated public utilities themselves. FERC jurisdiction over control-related transactions—even minority-interest transactions—is difficult to avoid. In the last year, FERC reviewed and issued orders on substantially more than 200 applications for approvals of transactions.
Most private equity funds and similar investment vehicles receive capitalization from LPs that do not manage or control that fund or its public utility investments. Such a fund is typically controlled by general partners, frequently through an affiliated fund management entity. LPs have typically been treated by FERC as not holding the equivalent of voting interests, and have not been subject to FERC’s FPA or PUHCA ownership transaction approval requirements, although explicit case law that provided fund and LP comfort has not been abundant.
FERC ruled that
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Mark C. Williams
 Starwood Energy Group Global, L.L.C., et al., Docket No. EL15-87-000, 153 FERC ¶ 61,332 (2015) (the Order).
 Note that some state utility commissions (such as New York’s Public Service Commission) regulate the acquisition of assets and interests in energy businesses located in those states.
 The Order strongly suggests that investors in co-investment vehicles that exhibit governance features, and limitations on investor rights, should be viewed as similar to LPs in funds.
 As defined by the petitioners, LP investors “consist of a mix of sovereign wealth funds, insurance companies, pension funds, superannuation funds, fund[s] of funds, charitable endowments, family offices, high net worth individuals and banking institutions.” Id. at 6–7. By this definition, none of the LP investors has a principal business of producing, selling, or transmitting electric power.
 See, e.g., Notice of Proposed Rulemaking, Docket No. RM15-23-000, Collection of Connected Entity Data from Regional Transmission Organizations and Independent System Operators, 152 FERC ¶ 61,219 (2015).