Dive Brief:
- Elliott Investment Management entities will be able to buy up to 20% of NRG Energy stock under an order issued Monday by the Federal Energy Regulatory Commission.
- FERC said the proposal meets its “merger policy” standards by not hurting market competition, rates or regulation. FERC dismissed arguments raised by Public Citizen that Elliott and NRG should be deemed affiliates because of the activist investor’s use of derivatives, such as cash-settled swaps and over-the-counter options to purchase cash-settled swaps, to control more than 10% of the power company.
- FERC also rejected Public Citizen’s arguments that Elliott was colluding with Bluescape Energy Partners to control Houston-based NRG, saying the issue was beyond the scope of the proceeding.
Dive Insight:
In a concurring statement, FERC Commissioner Mark Christie said that approval of the application by Elliott and NRG should not suggest the agency wasn’t interested in the issues raised by Public Citizen.
“Evaluating whether Elliott is an affiliate of NRG or of other jurisdictional utilities in which it may have an investment interest is an ongoing responsibility of the Commission,” Christie said. “Although today’s order does not make a finding of affiliation, the order nonetheless recognizes that the possibility of a finding of affiliation in the future remains.”
When an entity owns at least 10% of a company under FERC’s jurisdiction, it deems them affiliates, a status that triggers heightened oversight.
Christie urged interested parties to file in future cases information about investment practices in jurisdictional utilities that may indicate signs of influence related to corporate affiliation and control.
FERC last month launched an inquiry into its policy on providing blanket authorizations for investment companies to buy stock in utility companies, with initial comments due March 26.
“I welcome the Commission’s continued evaluation of the issues considered in the [notice of inquiry] and look forward to an opportunity for the Commission to pose questions like those raised here by Public Citizen for further examination in the appropriate procedural vehicle,” Christie said.
When FERC in October approved NiSource’s plan to sell a 19.9% indirect stake in its subsidiary Northern Indiana Public Service Co. to an affiliate of private equity firm Blackstone Infrastructure Partners, Christie said there is an “inherent tension” between profit-seeking investment firms and utilities with the duty to provide reliable power at just and reasonable rates.
In mid-July, when the Elliott-NRG application was filed at FERC, Elliott owned about 2.4% of NRG voting stock, plus nearly 10.8% non-voting interests, according to FERC’s decision. Elliott owned 4.6% of NRG common stock as of Sept. 29.
A month before the application was filed, Elliott urged NRG’s board of directors to replace then-CEO Mauricio Gutierrez, who the investing firm said had pursued a “deeply flawed” strategy. Gutierrez left NRG in November. At the same time, under a cooperation agreement with Elliott, four new members were named to NRG’s board.
NRG, with about 7.5 million customers, owns power plants totaling about 16 GW and sells electricity and gas to retail customers in 24 U.S. states, the District of Columbia, and eight Canadian provinces.
