Interlocking Officers and Directors; Requirements for Applicants and Holders, 35824-35825 [2019-15715]

Agencies

• DEPARTMENT OF ENERGY
• Federal Energy Regulatory Commission

[Federal Register Volume 84, Number 143 (Thursday, July 25, 2019)]
[Rules and Regulations]
[Pages 35824-35825]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15715]



[[Page 35824]]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 45 and 46

[Docket No. RM18-15-001; Order No. 856-A]


Interlocking Officers and Directors; Requirements for Applicants 
and Holders

AGENCY: Federal Energy Regulatory Commission, Department of Energy.

ACTION: Order on rehearing.

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SUMMARY: In this order on rehearing, the Federal Energy Regulatory 
Commission grants in part and denies in part rehearing and 
clarification regarding certain revisions to its regulations related to 
interlocking officers and directors.

DATES: This order on rehearing will become effective September 23, 
2019.

FOR FURTHER INFORMATION CONTACT: 
Lindsay Orphanides (Technical Information), Office of Energy Market 
Regulation, Federal Energy Regulatory Commission, 888 First Street NE, 
Washington, DC 20426, (202) 502-8372, [email protected]
Mary Ellen Stefanou (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street NE, Washington, 
DC 20426, (202) 502-8989, [email protected]

SUPPLEMENTARY INFORMATION:

I. Background

    1. On February 21, 2019, the Commission issued Order No. 856.\1\ 
Order No. 856 revised parts 45 and 46 of the Commission's regulations 
related to interlocking officers and directors to clarify and update 
the requirements for both applicants and holders. In particular, Order 
No. 856: (1) Updated the Commission's regulations to reflect statutory 
changes to the circumstances in which an applicant who would otherwise 
require Commission authorization to hold an interlocking position need 
not do so; (2) revised the Commission's regulations and clarified the 
Commission's position on late-filed applications and informational 
reports; (3) revised the Commission's regulations and clarified that an 
interlock holder is not required to file a notice of change when merely 
changing positions within a holding company; (4) revised the 
Commission's regulations and stated that applicants do not need to list 
in their applications public utilities that do not have officers or 
directors; (5) revised the Commission's regulations with regard to 
public utilities owned by a natural person; (6) created an exemption 
from the filing requirements for interlocking positions of 90 days or 
less; and (7) removed Sec.  46.2(b) of the Commission's regulations, 
which contained definitions and phrases now rendered obsolete.
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    \1\ Interlocking Officers and Directors; Requirements for 
Applicants and Holders, Order No. 856, 84 FR 7274 (March 4, 2019), 
166 FERC ] 61,119 (2019).
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    2. On March 25, 2019, El Paso Electric Company (El Paso) filed a 
request for rehearing of Order No. 856, seeking clarification or 
rehearing of two revisions made by the final rule. We address these 
issues below.

II. Discussion

A. Sufficiency of Form No. 561 for Reporting Changes in Position

1. Final Rule
    3. In Order No. 856, the Commission amended Sec. Sec.  45.4 and 
45.5 of the Commission's regulations to state that supplemental 
applications and notices of change need not be filed in the case of a 
person already authorized to hold interlocks identified in Sec.  
45.9(a) who may assume new or different positions that are still among 
those identified by Sec.  45.9(a). The Commission stated that such 
changes in positions among related public utilities are already 
reported in the annual Form No. 561s,\2\ and separate filings under 
Sec.  45.4 or Sec.  45.5 are unnecessary.
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    \2\ 18 CFR 131.31 (Annual Report of Interlocking Positions). The 
Form No. 561 is an annual report of information detailing electric 
public utility officer and board of director positions that officers 
and directors held within and outside their affiliated public 
utility at any point during the preceding year.
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2. Request for Rehearing
    4. El Paso seeks clarification that supplemental applications and 
notices of change need not be filed in the case of a person already 
authorized to hold interlocks with respect to all interlocks authorized 
under part 45 generally, and is not limited solely to interlocks 
identified in Sec.  45.9. El Paso states that, when an officer or 
director holds a new or different interlocking position within any 
interlock authorized under part 45, it is reported in Form No. 561. El 
Paso asserts that ``the Commission's rationale for its clarification in 
Order No. 856 that Form No. 561 reporting is sufficient, and that 
supplemental applications and changes in notice need not be filed if/
when an officer or director assumes a new or different position within 
the same interlocking companies, applies equally to any interlock 
authorized under [p]art 45, and not merely to an interlock identified 
in [Sec.  ] 45.9.'' \3\
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    \3\ El Paso Request for Rehearing at 4.
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    5. El Paso states that, in the alternative, it seeks rehearing of 
Order No. 856 and requests that the Commission grant equal treatment to 
all interlocks authorized under part 45, on the basis that it is 
sufficient for changes in position for all authorized interlocks to be 
reported annually in Form No. 561, without the need for the filing of a 
supplemental application under Sec.  45.4 or a notice of change under 
Sec.  45.5.\4\
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    \4\ Id. (internal citations omitted).
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3. Commission Determination
    6. We deny El Paso's request for clarification or rehearing. The 
Commission's rationale for the change adopted in Order No. 856 that 
supplemental applications and notices of change need not be filed in 
the case of a person already authorized to hold interlocks identified 
in Sec.  45.9(a) stated that ``such changes in positions among related 
public utilities are already reported in the annual Form No. 561s, and 
separate filings under Sec.  45.4 or Sec.  45.5 are unnecessary.'' \5\ 
However, that rationale does not apply equally to ``any interlock 
authorized under [p]art 45.'' \6\ The Commission has recognized a 
difference between holding interlocks among two or more commonly-owned 
or -controlled public utilities, and holding an interlock between, for 
example, a public utility and an electrical equipment supplier. 
Interlocks that fall under Sec.  45.2 and are not between two or more 
commonly-owned or -controlled public utilities (and therefore are 
outside the scope of Sec.  45.9(a)) are reviewed by the Commission so 
that the Commission can be sure that the ``evils to be eliminated by 
the enactment of section 305(b)'' \7\ are not present. By contrast, for 
interlocks that fall under Sec.  45.9(a)'s automatic

[[Page 35825]]

authorization, the Commission has found that the evils to be eliminated 
by the enactment of Federal Power Act (FPA) section 305(b) are not 
present because the potential for abuse would be unlikely to result 
from such interlocks.\8\ Therefore, we will continue to require an 
officer or director who seeks a new or different interlocking position, 
or leaves a position, with entities covered by Sec.  45.2 and not 
subject to the automatic authorization of Sec.  45.9(a) to file 
supplemental applications and notices of change so that the Commission 
may review the new or different position to ensure that there continues 
to be no potential for abuse.
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    \5\ Order No. 856, 166 FERC ] 61,119 at P 12 (emphasis added).
    \6\ El Paso Request for Rehearing at 4.
    \7\ James S. Pignatelli, 111 FERC ] 61,496, at P 12 (2005) 
(quoting John Edward Aldred, 2 FPC 247, 261 (1940)). The ``evils to 
be eliminated by the enactment of section 305(b),'' include: ``[. . 
.] (3) the lack of arm's-length dealings between public utilities 
and organizations furnishing financial services or electrical 
equipment; (4) the employment of dummy directors designated solely 
for the purpose of executing the order of those in control, and 
nominal directors who give little time and attention to the affairs 
of the companies; and (5) violations of laws, ethics, and good 
business practices by those holding such interlocking positions 
whereby such relationship is employed for their own benefit or 
profit, or for the benefit or profit of any other person or persons 
and to the detriment of the companies, their security holders or the 
public interest.'' Id.; accord Hatch v. FERC, 654 F.2d 825, 831-32 
(D.C. Cir. 1981).
    \8\ See Automatic Authorization for Holding Certain Positions 
that Require Commission Approval Under Section 305(b) of the Federal 
Power Act, Order No. 446, 34 FERC 61,168 at 30,129-30,131 (1986).
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B. Past Grants of Authorization for Interlocks That No Longer Require 
Commission Authorization

1. Final Rule
    7. In Order No. 856, the Commission explained that Sec.  45.2 of 
the Commission's regulations describes the types of interlocking 
positions that require Commission authorization, including those 
between a public utility and entities authorized by law to underwrite 
or participate in the marketing of public utility securities.\9\ 
However, in 1999, Congress amended FPA section 305(b)(2) to provide 
that an applicant for certain interlocking positions is no longer 
required to obtain Commission authorization to hold such positions.\10\ 
In Order No. 856, consistent with the revision of the underlying 
statute, the Commission revised Sec.  45.2 of its regulations to add 
that an applicant for an interlocking position between a public utility 
and a ``bank, trust company, banking association, or firm that is 
authorized by law to underwrite or participate in the marketing of 
public utility securities'' \11\ does not need Commission authorization 
when certain circumstances are present; that is, when:
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    \9\ 18 CFR 45.2(b)(2).
    \10\ See Public Law 106-102, sec. 737, 113 Stat. 1338, 1479 
(1999) (known as the Gramm-Leach-Bliley Act).
    \11\ 18 CFR 45.2(b)(2).
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     The person does not participate in any deliberations or 
decisions of the public utility regarding the selection of the bank, 
trust company, banking association, or firm to underwrite or 
participate in the marketing of securities of the public utility, if 
the person serves as an officer or director of a bank, trust company, 
banking association, or firm that is under consideration in the 
deliberation process;
     the bank, trust company, banking association, or firm of 
which the person is an officer or director does not engage in the 
underwriting of, or participate in the marketing of, securities of the 
public utility of which the person holds the position of officer or 
director;
     the public utility for which he/she serves or proposes to 
serve as an officer or director selects underwriters by competitive 
procedures; or
     the issuance of securities of the public utility for which 
the person serves or proposes to serve as an officer or director has 
been approved by all Federal and State regulatory agencies having 
jurisdiction over the issuance.\12\
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    \12\ Order No. 856, 166 FERC ] 61,119 at P 6; see also 16 U.S.C. 
825d(b)(2).
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2. Request for Rehearing
    8. El Paso states that a member of its board of directors sought 
and received Commission approval for an interlock that was subsequently 
removed from the Commission's FPA jurisdiction as a result of the 
Gramm-Leach-Bliley Act. El Paso states that ``[t]he presence of this, 
and other, past grants of case-specific authorizations for interlocks 
no longer within the Commission's Federal Power Act jurisdiction 
creates the potential for confusion and uncertainty regarding whether 
those past applicants are expected to adhere to the requirements of 
[p]art 45 of the Commission's regulations governing Commission-approved 
interlocks.'' El Paso therefore seeks the Commission's grant of 
clarification in this regard, or, in the alternative, rehearing of 
Order No. 856.\13\
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    \13\ El Paso Request for Rehearing at 4-5.
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3. Commission Determination
    9. We grant El Paso's request for clarification and clarify that 
if, as a result of the change in FPA section 305(b)(2) in 1999 and the 
corresponding changes to Sec.  45.2 of the Commission's regulations 
made by Order No. 856, an individual no longer holds an interlock that 
requires Commission authorization, that individual no longer needs to 
adhere to the requirements of parts 45 and 46 of the Commission's 
regulations governing Commission approval of such interlocks. We direct 
those individuals holding interlocking positions that no longer require 
Commission authorization to make a notice of change filing under Sec.  
45.5 of the Commission's regulations, within 45 days of the effective 
date of this order, informing the Commission that they no longer hold 
such interlocks.

III. Document Availability

    10. In addition to publishing the full text of this document in the 
Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
internet through the Commission's Home Page (https://www.ferc.gov) and 
in the Commission's Public Reference Room during normal business hours 
(8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street NE, Room 2A, 
Washington, DC 20426.
    11. From the Commission's Home Page on the internet, this 
information is available on eLibrary. The full text of this document is 
available on eLibrary in PDF and Microsoft Word format for viewing, 
printing, and/or downloading. To access this document in eLibrary, type 
the docket number excluding the last three digits of this document in 
the docket number field.
    12. User assistance is available for eLibrary and the Commission's 
website during normal business hours from FERC Online Support at (202) 
502-6652 (toll free at 1-866-208-3676) or email at 
[email protected], or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. Email the Public Reference Room at 
[email protected].

    Issued: July 18, 2019.
Kimberly D. Bose,
Secretary.
[FR Doc. 2019-15715 Filed 7-24-19; 8:45 am]
BILLING CODE 6717-01-P