United States: FERC Order No. 856-A Clarifies Regulations Regarding Interlocking Directorates Of Public Utilities And Certain Other Entities

The Federal Energy Regulatory Commission in Order No. 856-A on July 18, 2019 granted in part and denied in part a request for rehearing of Order No. 856. Order No. 856 eased restrictions on current or potential interlocking officers and directors, where the circumstances would not involve substantial opportunities for conflicts of interest or self-dealing. Order No. 856 and 856-A will be helpful to individuals employed at financial institutions or at public utilities who seek to or currently hold positions across both types of businesses. As described in detail below, the orders' clarifications limited the instances when applicants would be required to obtain Commission approval or file notice of changes, permitted certain temporary appoints, and also eased FERC's prior position regarding late filings.

  1. Order No. 856 clarified that an applicant ( e.g., an interlocking officer or director) no longer has to obtain the Commission's approval to hold interlocking positions between a public utility and entities authorized by law to underwrite or participate in the marketing of public securities where they meet one or more of four conditions:

    • Such person does not participate in public utility's decisions regarding the financing company that is underwriting or marketing that utility's securities, if the subject person is a director, officer, of a bank, trust company, banking association or firm that is under consideration in the deliberation process regarding the financing;
    • The financial institution where the person is an officer does not underwrite or participate in the marketing of securities of the public utility where the person holds the position of officer or director;
    • The public utility where the individual serves or wants to serve as an officer or director selects underwriters by competitive procedures; or
    • The issuance of the securities of the public utility where the person serves or wants to serve as an officer or director has been approved by all Federal and State regulatory agencies having jurisdiction over the issuance.
  2. Order No. 856 changed the Commission's position regarding late filings, so that late filings will not automatically result in an automatic denial, but instead will be considered on a case-by-case basis to accommodate for errors and oversights in the filings. The errors or oversights must be promptly identified and expeditiously rectified in order for any consideration to be made regarding the late application not being automatically denied.
  3. Order No. 856 clarified that an interlock holder is not required to file a notice of change when just changing positions within a holding company. Additional clarifications are as follows:

    • Supplemental applications and notices of change are not necessary when the person already authorized to hold interlocks assumes new positions that are still among those identified under 18 CFR 45.9(a) The notice of change is still required when the person no longer holds any interlocking positions because that constitutes a "material or substantial change."
    • Notices of change do not need to be filed for a person already authorized to hold interlocks identified in 18 CFR 45.9(a) when such person assumes new or different positions that are already identified under 18 CFR 45.9(a) (with certain clarifications detailed below).
    • In the case of interlocking positions that are identified in 18 CFR 45.9(a), a notice of change only needs to be filed when the officer/director resigns or withdraws as an officer or director from ALL previously held interlocking officer and director positions. When they resign from only one positions out of several for which such person has already received authorization, the change only needs to be included on the annual Form No. 561s filing.
    • No new filing is required when an officer or director has a new or different interlocking position within a holding company system compared to what was original reported when filing an information report under 18 CFR 45.9. Instead, they only need to include the new or different interlocking position in the annual Form No. 561s filing.
    • When applicable, a notice of change must be filed within 60 days of the triggering event.
  4. Applicants do not need to list in their applications public utilities that do not have officers or directors. This change does not carry much significance, because the number of public utilities without officers is very small; historically there have been no applications where the public utilities does not have any officer or directors; and under 18 CFR 45.2(a), the obligation to make the appropriate filings extends to any person elect or appointed to perform executive duties or functions similar to those ordinarily performed by presidents, vice presides, directors and others (even if not formally identified as an Officer or Director). As such, this change will not materially affect the Commission's oversight of jurisdictional interlocking positions.
  5. Revised regulations regarding public utilities owned by a natural person. The Commission changed 18 CFR 45.9 to add the word "person" when defining the corporate relationships within the scope of the automatic authorizations addressed in 18 CFR 45.9, because public utilities can be owned by natural people and not just corporations.
  6. Updating definitions (under 18 CFR 46.2(b)) which are obsolete. Such changes reference the now-repealed PUHCA 1935 and changing the name "Rural Electrification Administration" to "Rural Utilities Service".
  7. Temporary Appointments: a person seeking to hold an interlocking position covered by 18 CFR 45.2 that would otherwise require an automatic authorization filing under 18 CFR 45.9 may be appointed to fill for 90 days or less a vacant position without seeking Commission approval or reporting in annual Form No. 561s, if that person has never held any other interlock positions and is not re-appointed for after 90 days. After 90 days, the necessary authorization must be obtained.

Order No. 856-A clarified that :

  1. Change Limited to Interlocks Covered by 18 CFR 45.9(a). As discussed above, Order No. 856 provided that supplemental applications and notices of change are not required where a person is already authorized to hold interlocks under 18 CFR 45.9(a) where such person assumed or holds new positions that are still among those identified by 18 CFR 45.9(a), because the change was already covered in the annual Form No. 561, and the supplemental filings would be duplicative. El Paso requested that the exception for the supplemental filings not be limited to those interlocks under 18 CFR 45.9, but that the revision apply to all interlocks under 18 CFR 45. In Order No. 856-A, the Commission denied El Paso's request because its rationale for making the reporting changes under Order 856 was that any changes in positions among related public utilities are already reported in the annual Form No. 561s, so supplemental filings are unnecessary and duplicative. Pursuant to Order No. 856-A, this same rationale does not apply to any and all interlocks under 18 CFR 45 because such changes may not be covered under Form No. 561s, and thus there remains a requirement that an officer or director that seeks a new or different interlocking positions, or leaves a position, which entities are covered under 18 CFR 45.2 and not subject to automatic authorization of 18 CFR 45.9(a) must file supplemental applications and notices of change so that the Commission can review the proposed new or different positions and grant approval as necessary.
  2. Past Grants of Authorization for Interlocks that No Longer Require Commission Approval. As discussed above, Order 856 provided certain circumstances where an applicant for certain interlocking positions won't be required to obtain authorization from the Commission to hold such positions. In Order No. 856-A, the Commission clarified an additional circumstance in which the Commission's authorization is no longer required. More specifically, if a person holds interlocking positions that once required Commission approval, but such person no longer needs to obtain Commission approval (and thus comply with the requirements under 18 CFR 45 or 18 CFR 46) because of changes to the Federal Power Act, then such person is not required to receive any approval from the Commission. Instead, such person must file a notice of change under 18 CFR 45.5 on or before the date that is 45 days following the Effective Date of Order No. 856-A, which date is 60 days after the publication of Order No. 856-A in the Federal Register, advising that Commission approval is no longer required.

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