Energy Law

FERC Takes Action to Prevent Cross-Subsidization between Affiliates

By Andrea Kells

FERC continues to tweak its rules regarding mergers and acquisitions under section 203 of the Federal Power Act (FPA), issuing new regulations that impose restrictions on affiliate transactions between certain public utilities and their unregulated affiliates.  FERC explained that it intends to fill a perceived regulatory gap in its current affiliate sales rules, and stated that this final rule, combined with an order issued the same day allowing for grants of blanket authorization for a public utility to dispose of voting securities, marks the completion of the "initial implementation" of the rules governing transactions conducted under section 203. 

Order No. 707 extends the affiliate transaction restrictions already in place for entities with market-based rates and utilities requesting merger approval to franchised public utilities that have captive customers or that own or provide transmission service over jurisdictional transmission facilities.  Under the new rules, wholesale sales of power between such public utilities and power sales affiliates with market-based rate authority will require FERC approval.  In addition, such a public utility that sells non-power goods and services to an affiliate with market-based rate authority or an unregulated affiliate will be required to do so at a price that is the higher of either cost or market price.  Lastly, a public utility subject to the rules will not be permitted to purchase non-power goods or services from an affiliate at a price above market price, except that the public utility cannot receive non-power goods and services from a centralized service company above cost. 

Full post as published by Energy Legal Blog on March 04, 2008 (boomark / email).