FERC Clarifies Rule on Reporting of Changes in Status by Sellers of Electricity at Market-Based Rates

On June 16, the Federal Energy Regulatory Commission (FERC) issued an order on rehearing of Order No. 652. Order No. 652 modified the reporting obligations of sellers of electricity at market-based rates by requiring sellers to notify FERC within 30 days of any change in the facts and circumstances on which FERC relied in granting market-based rate authority. Such changes include increases in the ownership or control of generation capacity (subject to a 100 MW cumulative threshold), increases in ownership or control of transmission facilities or inputs to electric power production, and affiliation with any entity that owns or controls generation or transmission facilities, inputs to electric power production, or has a franchised service territory. (Van Ness Feldman’s February 11, 2005 issue alert entitled “FERC Issues New Rule on Reporting of Changes in Status by Sellers with Market-Based Rates” further describes Order No. 652.)

The June 16 order clarified that the following events trigger the obligation to file a notice of change in status:

• Production of test power from new generation facilities (subject to the 100 MW cumulative threshold). Construction contracts also must be reported if test power is generated;
• Contracts for a fixed quantity of delivered energy that confer control to the buyer (e.g. by allowing the buyer to determine when the power is to be delivered or dispatched);
• Fuel supply agreements, to the extent they grant the supplier control over a generator (e.g. tolling agreements or arrangements in which the gas supplier receives the electric output as payment for the gas);
• The acquisition of ownership or control of intrastate natural gas facilities or storage facilities; and
• The affiliation with an entity that owns or controls intrastate natural gas facilities or storage facilities.

The Commission also clarified that the following events do not trigger a reporting obligation:

• Increases in transmission facilities that result from a utility’s own upgrades or construction and not from acquisitions;
• The acquisition of capacity on a non-affiliated pipeline;
• The acquisition of ownership or control of — or the affiliation with — an interstate natural gas pipeline; and
• Any changes that were already taken into account in prior FERC market-based rate applications or triennial updates.

For purposes of calculating the 100 MW threshold for increases in generation capacity, the Commission indicated that sellers may net decreases in generation capacity (e.g. de-rates or expiration of purchase contracts) against any increase. FERC also found that contracts transferring control over generation facilities must be filed within 30 days of the legal or effective date of the contract, regardless of the date of physical delivery or commencement of service.

When multiple transactions are entered into under a single, integrated master agreement, FERC clarified that the duration of the agreement — and not the length of each individual transaction — determines whether the agreement is long-term (i.e. 1 year or longer) and therefore must be reported. The duration of the master agreement is the maximum period contemplated by the agreement. If the duration is unspecified or indefinite, the agreement is treated as long-term. Discrete transactions that are not entered into pursuant to a master agreement should be considered separately for purposes of determining whether they are long-term, provided they are not a series of back-to-back trades that constitutes a single, integrated transaction.

FERC declined to further clarify the definition of “control,” finding that the issue of what constitutes “control” is fact-specific and depends on the specific terms and conditions of the contract in question. However, the Commission confirmed that an agent or a broker acting on behalf of a client would not be deemed to control generating capacity to the extent that, under the contract, the client ultimately decides whether to enter a transaction and the price, and the agent or broker cannot affect the ability of the capacity to reach the relevant market (including discretion as to how, when, and to whom power can be sold).

The Commission also clarified that changes in status that occurred before the effective date of Order No. 652 (March 21, 2005) do not need to be reported within 30 days of the occurrence, but must be reported to FERC in accordance to any applicable pre-existing reporting obligations.