16 January 2019

Implementation of Amended Section 203(a)(1)(B) of the Federal Power Act

On November 15, 2018, the Federal Energy Regulatory Commission (FERC) issued a rulemaking to revise its regulations relating to mergers or consolidations by a public utility.  See Implementation of Amended Section 203(a)(1)(B) of the Federal Power Act, 165 FERC ¶ 61,091 (2018).  These regulations would implement a law signed on September 28, 2018 establishing a $10 million threshold on transactions that will be subject to FERC’s review and authorization under section 203(a)(1)(B) of the Federal Power Act (FPA).  Previously, there was no dollar value threshold for FERC review of public utility “merge or consolidate” transactions under FPA section 203(a)(1)(B).  See 16 U.S.C. § 824b(a)(1)(B). 

This amendment aligns FPA section 203(a)(1)(B) with the other three subsections of Section 203(a)(1), which only require FERC approval if the transaction at issue exceeds $10 million in value.  Under the Energy Policy Act of 2005, Congress eliminated a specific value threshold for utility merger approvals while also increasing the threshold from $50,000 to $10 million for other types of sales and purchases requiring FERC approval.  Because the FPA was silent regarding a value threshold for utility merger approvals, FERC had interpreted its authority to extend to all utility mergers, regardless of the value of the facilities.  This resulted in application to FERC related to transactions involving assets of relatively low value (including some as low as $1).

Specifically, FERC’s proposal revises its regulations to establish that a public utility must seek authorization under amended FPA section 203(a)(1)(B) to merge or consolidate, directly or indirectly, its facilities subject to FERC’s jurisdiction, or any part thereof, with the facilities of any other person that are subject to FERC’s jurisdiction and have a value in excess of $10 million.  FERC clarified in its rulemaking that it interprets this amendment by Congress to FPA section 203(a)(1)(B) as establishing a $10 million threshold, but not removing FERC’s jurisdiction to review transactions with a higher value that involve a public utility’s acquisition of facilities from non-public utilities if those facilities will be subject to FERC’s jurisdiction after the transaction is consummated.

FERC’s regulations specify how the value is calculated for purposes of determining the applicability of the $10 million threshold.  For transactions between non-affiliated companies, FERC rebuttably presumes that the market value is the transaction price.  For transactions between affiliated companies, value means original cost undepreciated, as defined in FERC’s Uniform System of Accounts for public utilities and licensees.

In addition, FERC proposes to establish a 30-day post-closing notification requirement for mergers or consolidations by a public utility if the facilities to be acquired have a value in excess of $1 million and the public utility is not required to secure FERC authorization under amended section 203(a)(1)(B).  Accordingly, utility mergers and consolidations valued greater than $1 million and up to $10 million will be subject to this new 30-day post-closing notification requirement, with the potential for follow-up questions by FERC to the extent deemed necessary.

FERC’s rulemaking is still pending, with limited comments filed in December 2018.  Action in the rulemaking docket is anticipated prior to March 27, 2019, the date the law becomes effective.

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