Interlocking Officer and Director Reporting 101: Practice Pointers on FERC Form 561

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1 Interlocking Officer and Director Reporting 101: Practice Pointers on FERC Form 561 Presented by: Daniel E. Frank Sutherland Energy Bar Association Young Lawyers Committee 101 Lunchtime Presentation March 10, 2010

2 First Things First Who Cares? Officers and directors of public utilities Part of the company s culture of compliance Statutory obligations 2

3 Overview of Interlocking Director Regulations Two sets of requirements: Initial approval of interlocks FPA Section 305(b) prohibits, absent prior FERC approval, an individual from holding an officer or director position in one public utility and an officer or director position in certain other companies See 16 U.S.C. 825d(b); 18 C.F.R. Part 45 Annual filing FPA Section 305(c) requires an annual filing of positions held by an officer or director of a public utility in certain other companies See 16 U.S.C. 825d(c); 18 C.F.R. Part 46 3

4 Prior-Approval Requirement (Part 45) Absent prior FERC approval, an individual is prohibited from holding an officer or director position in one public utility and an officer or director position in: Another public utility (including an affiliated public utility); A bank or other firm authorized by law to underwrite or participate in the marketing of public utility securities (some exceptions apply); or A company that supplies electrical equipment to the public utility See 18 C.F.R. 45.2(b) (2009) 4

5 Positions Covered by Part 45 Positions covered include: Chief Executive Officer President Vice President Secretary Treasurer Controller General Manager Chief Purchasing Agent Other executive positions with similar duties and functions (including directors and partners) See 18 C.F.R. 45.2(a) (2009) 5

6 Automatic Authorizations No waivers allowed; abbreviated filing process eliminated But, certain authorizations granted upon filing of an Informational Report, including for interlocking officer and director positions between two public utilities if: The same holding company appoints or elects the officers and directors of the two public utilities, One public utility is owned by the other and its primary business is to own or operate transmission or generating facilities to provide transmission service or electric for sale to its owners, or If the officer or director is already authorized to hold different positions in the two public utilities where the two public utilities are affiliates See 18 C.F.R. 45.9(a) (2009) 6

7 Changes and Revocation A material or substantial change in an interlocking position, such as resignation, withdrawal or failure to be reelected or reappointed to the interlocking position, must be reported to FERC within 30 days of the change See 18 C.F.R. 45.5(b) (2009) Authorization to hold interlocking positions is subject to revocation after due notice to the applicant and opportunity for hearing See 18 C.F.R (b) (2009) 7

8 Annual Reporting Requirement (Part 46) Form 561 Annual Report of Interlocking Positions Any person who is an officer or director of a public utility must annually identify to FERC any officer or director positions held by the person in certain other specified types of companies during all or part of the preceding calendar year See 18 C.F.R Filing deadline: April 30 See 18 C.F.R. 46.6(d)(1) 8

9 Scope of Entities Covered by Part 46 Positions requiring disclosure include those in: Another public utility, including traditional utility, power marketer, independent generator, etc. Insurance company Mutual savings bank Savings and loan association Investment bank, bank holding company, or foreign bank or subsidiary thereof doing business in the U.S. Any firm or organization primarily engaged in the business of providing financial services or credit 9

10 Scope of Entities Covered by Part 46 (cont.) Positions requiring disclosure include those in: Any entity authorized by law to underwrite or participate in the marketing of securities of a public utility Any entity which produces or supplies electrical equipment for the use of any public utility Any entity which produces or supplies coal, natural gas, oil, nuclear fuel or other fuel for the use of any public utility An entity that was one of the 20 largest purchasers of electricity from the public utility in the last 3 years Any entity controlled by any of the foregoing entities See 18 C.F.R (2009) 10

11 Scope of Positions Covered by Part 46 Positions covered include: Director Chief Executive Officer President Vice President Secretary Treasurer General Manager Comptroller 11

12 Scope of Positions Covered by Part 46 (cont.) Positions covered include: Chief Purchasing Agent Partner Representative authorized to transact business on behalf of the company (other than lawyers and accountants) Advisor on policy or management decisions of the company Any person performing similar executive duties or functions See 18 C.F.R (2009) 12

13 Form 561 Required Information The following information must be included on each Form 561: The person s full name and business address; The full legal name of the companies in which reportable interlocking positions were held in the prior calendar year; The reportable interlocking positions (FERC provides drop down menus); The nature of the company (FERC provides a list of abbreviations to be used); and Signature of the person on whose behalf it is being filed 13

14 Form 561 Other Requirements The following information also is required (if applicable): Total revenues (for electrical equipment suppliers); and Interlocking Director ( ID ) docket number and authorization date 14

15 FERC Form

16 Do s and Don t s of Form 561 Do: Name each electronic Form 561 file using the naming convention: Lastname Firstname Middleinitial 2009.xls Complete a separate form for each individual Use the current Form 561 (FERC will reject prior versions) Don t: File an Adobe PDF Embed the Excel file with other files Stack files or create multiple tabs within one file 16

17 Filing FERC Form 561 There are 4 parts to an official filing: Cover letter (list the name of each officer and director for whom the company is filing) The interlocking director (ID) docket number for each person, if applicable Contact information of a company contact person Completed Form 561 for each officer and director listed in the cover letter The filing may be made electronically at: 17

18 FERC s Annual Notice FERC s practice is to send an annual reminder to entities that have filed FERC Form 561s the prior year FERC generally includes an instructional letter, a copy of the current Form 561, and a file of the entity s Form 561 filings made the preceding year Entities should not rely on the filing made the preceding year 18

19 Top Ten Tips for Form Start early. It always takes more time than you think. 2. The filing obligation is on the individual. Be sure the officers and directors know that it can facilitate cooperation, and it will help focus your collection and review of the necessary data. 3. The scope of entities covered by the Part 46 rules is broader than the scope of entities covered by Part 45. Just because someone did not require approval under Part 45 does not mean that he or she is in the clear. 4. Non-ERCOT QFs selling power at wholesale are public utilities. Part 46 is issued under FPA Section 305(c), from which QFs are not exempt. 5. Affiliates are separate legal entities and should be reported as such on the Form

20 Top Ten Tips for Form 561 (cont.) 6. A Form 561 should still be filed for individuals who are no longer with the company if they held their position at any point during the relevant year. 7. Look behind the titles. Ask who is performing what functions. 8. When collecting position data, be overbroad ask for everything. The lawyers or compliance professionals should decide whether a position should be reported. 9. The million dollars a day civil penalty provision does not apply to Part 46 violations, but that does not excuse errors, omissions and other problems. The policies outlined in FERC s Policy Statements on Compliance and Enforcement still apply. 10.In grey areas, use a rule of reason, be consistent, and document your decision and the basis for it. You can always call FERC Staff to ask for assistance, but be prepared to live with the advice or guidance that you receive. 20

21 For More Information FERC s website: Form 561 Frequently Asked Questions 21

22 Interlocking Officer and Director Reporting 101: Practice Pointers on FERC Form 561 Questions? Dan Frank Sutherland