These two orders represent a notable change in FERC’s regulation of public utility management, acquisitions, and dispositions, which previously relied heavily on the rebuttable (but usually unrebutted) presumption that an investor cannot control a public utility as long as it holds less than 10% of the voting interests in the public utility. Based on the conclusions of the October 20 orders, FERC may now find affiliations where an investor holds significantly less than a 10% interest in a utility or holding company if that investor has named a board member to that utility or holding company’s board and that board member is in some way accountable to the investor.
FERC’s reasoning in these orders focuses on whether a specific board appointee is independent from the investor nominating them. For example, FERC found that one investor’s nomination of its own executive chairperson to the board of a utility holding company created an affiliate relationship between the investor and the holding company once the investor’s chairperson assumed the new board position. But FERC also found that the same investor’s nomination of a former U.S. senator to the same utility holding company’s board did not confer an affiliate relationship once the former senator assumed the new board position because the former senator, although nominated by the investor, was independent from and not accountable to the investor that nominated them. FERC also specifically considered whether a board appointee receives compensation from an investor in determining whether their appointment confers control.
FERC’s findings in these orders do not modify FERC’s other regulations for individuals holding interlocking director positions, but represent additional considerations of which utility investors and board members should be mindful.