United States: FERC Proposes To Clarify And Streamline Its Interlocking Directorate Regulations

On July 19, 2018, the Federal Energy Regulatory Commission (FERC or the “Commission”) issued a Notice of Proposed Rulemaking (NOPR) to update and clarify its regulations1 covering “interlocking directorate” positions (i.e., those officers, directors or other persons concurrently performing executive-level duties or functions)2 for more than one public utility or a public utility and certain other entities. If enacted as proposed, the revisions should reduce filing and regulatory burdens for public utilities and individuals holding, or seeking to hold, covered interlocking positions by (i) expanding the circumstances that do not require prior Commission authorization or notice of change filings, (ii) softening the Commission’s policy of automatically denying late-filed applications and informational reports, and (iii) streamlining certain filing requirements.

Current Regulations – 18 C.F.R. Parts 45 and 46

Section 305(b) of the Federal Power Act prohibits individuals without prior Commission authorization from concurrently holding positions as an officer or director of more than one public utility or concurrently holding the positions of officer or director of a public utility and certain other entities.3  Specifically, Part 45 of the Commission’s regulations, promulgated under Section 305(b), requires prior Commission authorization for public utility officers and directors to concurrently hold interlocking positions with (i) another public utility; (ii) a “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”; or (iii) “any company supplying electrical equipment to a public utility.”4  However, certain interlocking positions, such as those between public utilities owned and controlled by the same holding company, are covered by an “automatic authorization.”5  Still, persons covered by that “automatic authorization” must file a brief “informational report” before “performing or assuming the duties and responsibilities of the [second] position,” unless they are already authorized to hold interlocking positions covered by the “automatic authorization.”6

Parts 45 and 46 also describe various filing and reporting requirements for holders of interlocking positions, including notice-of-change filings in the event of resignation, withdrawal or the conclusion of a position’s term, and annual reports listing all interlocking directorate positions held during the prior calendar year.7   

Proposed Revisions

In addition to some ministerial language updates, the NOPR proposes the following substantive revisions:

  • No Prior Authorization Necessary for Certain Interlocks Between Public Utilities and Banks, Trust Companies, Banking Associations, or Underwriting and Securities Firms

To conform with amendments to Section 305(b)(2) in 1999, the Commission proposes to revise Section 45.2 of its regulations such that prior authorization to hold interlocking positions between a public utility and any “bank, trust company, banking association, or firm that is authorized by law to underwrite or participate in the marketing of public utility securities” is not required when: 

  1. the individual does not assist his/her public utility in selecting the bank or firm under consideration to perform such functions when he/she also serves as an officer or director of such bank or firm
  2. such bank or firm does not engage in the underwriting of, or participate in the marketing of, securities of the public utility
  3. the public utility selects underwriters by competitive procedures or
  4. the issuance of securities of the public utility for which he/she serves, or proposes to serve, has been approved by all federal and state regulatory agencies with jurisdiction over the issuance.8

This change would extend the exemption for such interlocks already present in Section 305(b)(2) to the Commission’s regulations, eliminating a source of potential confusion regarding whether certain interlocks require prior authorization.

  • Elimination of “Automatic Denials” for Late-Filed Applications and Informational Reports

The Commission’s regulations currently provide for the automatic denial of late-filed applications and informational reports (i.e., those filed after an individual has assumed or begun performing the duties of a covered officer or director position).9  Recognizing that “good faith errors and oversights may occasionally result in the inadvertent violation of the timing of section 305(b)’s filing requirements,” the Commission proposes to eliminate this provision and instead consider late-filed applications and informational reports on a “case-by-case” basis.10  This is because untimely filings “do not impede the Commission’s ability to . . . determine whether the holding of otherwise-proscribed interlocks adversely affects neither public nor private interests,” and because automatic denials can “cause unnecessary inefficiencies for companies.”11   Importantly, the Commission emphasizes that it “expects that applicants will be attentive to their obligation to timely file for the required authorizations and make every effort to ensure they act in accordance with the statutory directives in section 305(b).”12  It also “expects . . . errors and oversights will be expeditiously identified and rectified, and applications to hold interlocking director positions promptly filed.”13  As such, it “would look unfavorably on” applications “where an applicant has not been attentive to his/her obligation to file for the required authorization.”14

This change would reduce burdens on, and compliance risk for, public utilities and covered persons resulting from inadvertent failures to file required applications or informational reports, which sometimes require officers or directors to resign from, and then be reelected or reappointed to, covered interlocking positions that are not automatically authorized or for which they did not obtain prior authorization.

  • Supplemental Applications and Notices of Change No Longer Required When Assuming New or Different Positions Covered by Automatic Authorization

The Commission also proposes to revise Sections 45.4 and 45.5 of its regulations to clarify that supplemental applications and notice-of-change filings are not required of individuals covered by the automatic authorization in Section 45.9(a) when assuming new or different positions also covered by Section 45.9(a), such as a “promotion within a holding company system.”15  Such filings are duplicative, the Commission notes, since public utility officers or directors currently report these changes via annual Form 561 filings. However, such persons would still be required to file a notice of change within 30 days of “when he/she no longer holds any [covered] interlocking positions,” which would constitute a “material or substantial change.”16

  • Streamlined Filing Requirements to Reduce Regulatory Burdens

The Commission also proposes to revise Section 45.8(c)(1) of its regulations such that applicants would “not need to list in their applications those public utilities that do not have officers or directors,” citing the “growing complexity of corporate structures” and the benefits of “reducing regulatory burdens.”17

Next Steps

Comments on the NOPR are due October 1, 2018. Public utilities and other persons who support or oppose the proposed changes, or have other ideas about how the Commission could further clarify or enhance its interlocking directorate regulations, should take this opportunity to share their positions with the Commission.

Footnotes

1 18 C.F.R. Parts 45, 46 (2018).

2 Id. § 45.2(a). Such positions “include those of any person elected or appointed to perform the duties or functions ordinarily performed by a president, vice president, secretary, treasurer, general manager, comptroller, chief purchasing agent, director or partner, or to perform any other similar executive duties or functions.”  Id.

3 16 U.S.C. § 825d(b) (2012).

4 18 C.F.R. § 45.1.

5 Id. § 45.9(a).

6 Id. §§ 45.9(b), (c).

7 Id. §§ 45.5, 45.9(c), Part 46.  

8 NOPR at P 6 (citing 16 U.S.C. § 825d(b)(2)).

9 18 C.F.R. §§ 45.3(a), 45.9(b).

10 NOPR at P 8.

11 Id.

12 Id. P 9.

13 Id.

14 Id.

15 Id. P 10. 

16 Id.

17 Id. P 11.

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