“Lite Regulation” Is Not “Deregulation”
Project developers and lenders should remember that the term “deregulation” is not completely accurate when applied to electric utility generation and sales.
For example, in some of the recent New York state generation divestitures, the New York Public Service Commission refused to disclaim jurisdiction over the financing by the buyer of divested generation units. It approved the financing, but nonetheless retained jurisdiction over the assumption of liability by the divested generation facility owner.
Similarly, the Federal Energy Regulatory Commission has recently broadened its interpretation of its own jurisdiction, perhaps in light of what it perceives as lessening jurisdiction elsewhere, such as under the Public Utility Holding Company Act, or PUHCA. FERC has asserted jurisdiction in a variety of new areas, such as over holding company mergers, the Automated Power Exchange in California (that owns neither physical utility facilities nor sales contracts), over certain acquisitions (consolidations) of jurisdictional facilities (including wholesale contracts), and over foreign-domestic mergers. Moreover, the FERC recently withdrew waivers of filing requirements for long-term service contracts that it had previously granted to sellers with approval to sell at market-based rates.
Although both state and federal agencies are usually supportive of generation divestiture and competitive electric suppliers (and sometimes mandate them), regulatory agencies are nonetheless jealous of their jurisdiction ultimately to control electric utilities if competition does not appear to be working. Given the fact that almost all voters pay electric bills, this is unlikely to change.
For this reason, it is generally better to assume that both state and federal agencies may assert jurisdiction over a transaction, and even to accede to it, in order not to delay financial closings or other scheduled milestones. It is also important to remember that “lite” regulation still carries with it certain ongoing responsibilities, such as reporting requirements, including the reporting of interlocking directors, the payment of annual charges at the federal level, and various reporting requirements at the state level.
by Lynn Hargis, in Washington