Updates to FERC's Merger and Acquisition Rules in the Works

In one of its latest move to implement the EPAct of 2005, FERC, on October 3, 2005, issued a notice of proposed rulemaking (NOPR) that proposes amendments to its merger policy regulations, in accordance with the EPAct amendments to section 203 of the Federal Power Act.  To be considered by the agency, public comments on the NOPR are due November 7, 2005.

Section 203 is the provision that requires FERC's authorization for certain mergers, acquisitions, and dispositions of jurisdictional assets.  Currently, FERC focuses on three major factors when analyzing whether a proposed transaction is consistent with the public interest, as required by section 203: the effect on competition; the effect on rates; and the effect on regulation.  The amended section 203 language adds a new factor to FERC's review process, requiring that FERC find that a transaction will not result in cross-subsidization, such as where a regulated utility subsidizes a non-utility associate company at ratepayer expense.  FERC seeks comment on what evidence parties should be required to submit to support their positions here.

EPAct 2005 also amends section 203 to include an increase in the value threshold from $50,000 to $10 million for certain transactions subject to section 203, and an extension of FERC's review to include transactions involving the transfer of electric generation facilities and the transfer of public utility holding companies.  With regard to the "value" threshold, FERC seeks comment on whether the "market value" is an appropriate benchmark for determining whether asset transfers or the sale of transmission facilities or existing generation facilities trigger the jurisdictional value threshold; for wholesale contracts, FERC proposes to define "value" based on total expected contract revenues over the remaining life of a contract.

EPAct 2005 also adds a requirement that FERC adopt an expedited review procedure for certain classes of transactions.  In its NOPR, FERC proposes that the following transactions generally receive expedited review: a disposition of only transmission facilities; certain transfers involving generation facilities that do not require an Appendix A analysis under FERC's Merger Policy Statement; internal corporate reorganizations that do not present cross-subsidization issues; and the acquisition of a foreign utility company by a holding company with no captive customers in the U.S.  It is intended that the new rules will take effect on February 8, 2006.  [Tansactions Subject to FPA Section 203, 113 FERC ¶ 61,006 (2005)]