Federal Energy Regulatory Commission (“FERC”) has issued a declaratory order confirming that no approval under Section 203 of the Federal Power Act (“FPA”) is required in connection with the transfer or issuance of passive tax equity interests in public utilities or public utility holding companies.
Under Section 203, FERC’s prior authorization is required “if a public utility wishes to sell, lease or otherwise dispose of jurisdictional facilities,” which, as FERC previously ruled, includes a transfer of control over such facilities. FERC has now confirmed that passive tax equity interests do not constitute voting securities, and thus do not grant their holder control, for the purposes of Section 203 analysis.
FERC identified the following key characteristics of a passive tax equity ownership interest: (1) the ownership interest does not give its holder the authority to manage or control the day-to-day operations or a jurisdictional facility; (2) the rights of the passive equity investors are limited, generally to consent/veto rights designed protects their economic investment; and (3) the tax equity investor has a principal business other than that of producing, selling or transmitting electric power.
FERC had previously ruled in AES Creative Resources, L.P. et al., 129 FERC ¶ 61,239 (2009) that such interests do not grant their holders control for the purposes of the FPA Section 205 market power analysis, but has not until now expressly extended its holding to Section 203. The decision should bring additional clarity in determining whether a transaction requires Section 203 approval, and reduce the number of “abundance of caution” filings. The order also confirmed that the acquisition of such tax equity interests by a holding company qualifies for blanket authorization under FERC’s regulations at 18 C.F.R. § 33.1(c)(2)(i) .
