On September 17, 2015, the Federal Energy Regulatory Commission ("FERC") issued a notice of proposed rulemaking ("NOPR") proposing to significantly expand the information that entities would be required to disclose in order to participate in the wholesale markets administered by Regional Transmission Organizations ("RTO") and Independent System Operators ("ISO"). Notably, while market participants already are required to disclose certain affiliate relationships to the RTOs and ISOs in which they participate, FERC's proposal would require market participants to provide additional information regarding a broad array of contractual, employee, and other business relationships. In the NOPR, FERC proposes to require each RTO/ISO to amend its tariff to require market participants to identify and describe their relationships with "Connected Entities" and to require RTOs/ISOs to electronically transmit this information to FERC. A "Connected Entity" is defined broadly to include any entity, including a natural person, that falls within one of the following categories:
- An entity that directly or indirectly owns, controls, or holds with power to vote, 10% or more of the ownership instruments of the market participant, including but not limited to voting and non-voting stock and general and limited partnership shares; or an entity 10 percent or more of whose ownership instruments are owned, controlled, or held with power to vote, directly or indirectly, by a market participant; or an entity engaged in Commission-jurisdictional markets that is under common control from the market participant;
- The chief executive officer, chief financial officer, chief compliance offer, and the traders of a market participant (or employees who function in those roles, regardless of their titles);
- An entity that is the holder or issuer of a debt interest or structured transaction that gives it the right to share in the market participant's profitability, above a de minimis amount, or that is convertible to an ownership interest that, in connection with other ownership interests, gives the entity, directly or indirectly, 10 percent or more of the ownership instruments of the market participant; or an entity 10 percent of more of whose ownership instruments could, with the conversion of debt or structured products and in combination with other ownership interests, be owned or controlled, directly or indirectly, by a market participant; or
- Entities that have entered into an agreement with the market participant that relates to the management of resources that participate in Commission-jurisdictional markets, or otherwise relates to operational or financial control of such resources, such as a tolling agreement, an energy management agreement, an asset management agreement, a fuel management agreement, an operating management agreement, and energy marketing agreement, or the like.
- While power sellers already are required to identify and report contractual arrangements that confer control over generation facilities in their market-based rate filings, FERC's proposed definition of Connected Entity appears to go one step further and would encompass parties to any agreement that "relates to the management of resources that participate in Commission-jurisdictional markets." The term "management of resources" is left undefined. However, FERC's discussion suggests that it could encompass a wide range of activities, including billing and bundling of services and products.
- For purposes of FERC's existing regulations, affiliate is typically defined as any person that owns, controls, or holds with power to vote, 10 percent or more of the outstanding "voting securities" of a specified company. Again, FERC's definition of Connected Entity appears to go beyond existing requirements by requiring market participants to identify entities holding non-voting or purely passive interests.
- FERC's NOPR also leaves open the question of what constitutes a "de minimis" interest in a market participant's profitability and requests comment on what an appropriate threshold may be.