FERC Tightens Rules on Interlocking Directorates: Eliminates Waiver for Market-Based Rate Sellers

Print PDFPeg Moore, Vincenzo Franco
September 21, 2005

On September 16, the Federal Energy Regulatory Commission (FERC) issued a final rule (Order No. 664) tightening its regulations on interlocking directorates. The new rule provides for automatic denial of any late-filed application to hold interlocking directorates. Moreover, FERC announced that it will no longer grant sellers at market-based rates a waiver of the requirement to seek prior authorization before holding interlocking positions.

FPA Requirements

Section 305(b) of the Federal Power Act (FPA) prohibits interlocking directorates between a public utility and (i) another public utility, (ii) a bank or firm authorized to underwrite or market securities of a public utility, or (iii) a supplier of electrical equipment, unless FERC authorizes the holding of interlocking positions. Section 305(c) of the FPA requires that officers and directors of public utilities file a list of certain interlocking positions by April 30 of every year.

Prior Approval Required

Order No. 664 clarified that individuals must file an application and obtain FERC authorization before holding interlocking directorates and defined “holding” to include acting as or otherwise performing the duties and responsibilities of officer or director. The Commission will deny automatically any application filed after the individual has begun holding interlocking positions. A timely application will be deemed granted if FERC does not act within 60 days of the filing.

The new rule also modified the conditions for automatic authorization of interlocking positions between certain affiliated public utilities. When two public utilities are owned by the same holding company or one is owned by the other, FERC’s regulations automatically authorize interlocking directorates if the person holding the interlock files an informational report before holding the position of officer or director. The automatic authorization is granted upon FERC’s receipt of a filed, completed informational report. Failure to timely file the informational report will result in automatic denial.

No Waivers for Market-Based Rate Sellers

In Order No. 664, FERC also announced that it will prospectively abandon its existing policy of waiving the requirement to seek prior authorization for interlocking positions of officers or directors of entities authorized to sell electricity at market-based rates. Therefore, officers or directors of market-based rate sellers will no longer be able to hold interlocking positions unless they first file an application and receive prior authorization, or timely submit an informational report for interlocks automatically authorized under FERC’s regulations.

Implementation

Order No. 664 will become effective 30 days after publication in the Federal Register. Individuals who are currently authorized to hold interlocking positions will not need to refile to continue to hold such positions, but will need to make the appropriate filings under the new rules for any different or additional interlocking position they intend to assume.

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