4 January 2016
On December 22, 2015, the US Federal Energy Regulatory Commission (FERC or Commission) granted a petition for declaratory order by Starwood Energy Global Group and certain of its Project Companies that are jurisdictional public utilities (together, Petitioners) relating to current and future investments in public utilities made through various limited liability private equity investment funds managed or controlled by Starwood Energy Group (collectively, Starwood Funds). FERC found that:
(i) Current and future LP Interests in the Starwood Funds1 are passive investments that do not allow the LP Investors2 to manage, direct or control the activities of the Starwood Funds, the Project Companies or future Commission jurisdictional public utilities;
(ii) Transactions resulting in the purchase and sale of LP Interests do not require case-specific approval pursuant to section 203 of the Federal Power Act (FPA) and, to the extent relevant, qualify for the benefit of the blanket authorization in section 33.1(c)(2)(i) of the Commission’s regulations regarding non-voting securities;
(iii) The Starwood Funds and their affiliates do not need to identify the LP Investors in any future section 203 application, market-based rate application under section 205 of the FPA, notice of change in status or updated market power analysis; and
(iv) The Commission does not have jurisdiction under section 201 of the FPA over the Starwood Funds and the LP Investors, as public utilities, and the LP Investors are not holding companies under the Public Utility Holding Company Act of 2005.
While this order is consistent with past FERC orders,3 it usefully explains the basis for these findings and provides detail that is likely relevant to other similar investments by other investment funds (for example, investment funds formed to make tax equity investments in qualifying projects that are jurisdictional public utilities). This detail could also help affected market participants significantly reduce the otherwise-required, ongoing monitoring of investment fund limited partners and, as applicable, simplify any related notices and applications to FERC.
1 Described by the Petitioners as “purely passive in nature and in no case involve an exercise of control, including voting or equivalent rights, in connection with any of the Project Companies or any other FPA jurisdictional facility through their investment in the Starwood Funds.”
2 Described by the Petitioners as “consist[ing] of a mix of sovereign wealth funds, insurance companies, pension funds, superannuation funds, fund[s] of funds, charitable endowments, family offices, high net worth individuals and banking institutions.” As such, none of the LP Investors has a principal business of producing, selling or transmitting electric power.
3 For example, AES Creative, 129 FERC ¶ 61,239, Richard A. Meserve, 150 FERC ¶ 61,070 (2015) and , 102 FERC ¶ 61265 (2003)