[Senate Report 115-253]
[From the U.S. Government Publishing Office]
Calendar No. 420
115th Congress } { Report
SENATE
2d Session } { 115-253
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AMENDING SECTION 203 OF THE FEDERAL POWER ACT
_______
May 21, 2018.--Ordered to be printed
_______
Ms. Murkowski, from the Committee on Energy and Natural
Resources, submitted the following
R E P O R T
[To accompany H.R. 1109]
[Including cost estimate of the Congressional Budget Office]
The Committee on Energy and Natural Resources, to which was
referred the bill (H.R. 1109) to amend section 203 of the
Federal Power Act, having considered the same, reports
favorably thereon with an amendment in the nature of a
substitute, and recommends that the bill, as amended, do pass.
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. CLARIFICATION OF FACILITY MERGER AUTHORIZATION.
Section 203(a)(1) of the Federal Power Act (16 U.S.C. 824b(a)(1))
is amended by striking subparagraph (B) and inserting the following:
``(B) merge or consolidate, directly or indirectly, its
facilities subject to the jurisdiction of the Commission, or
any part thereof, with the facilities of any other person, or
any part thereof, that are subject to the jurisdiction of the
Commission and have a value in excess of $10,000,000, by any
means whatsoever;''.
SEC. 2. NOTIFICATION FOR CERTAIN TRANSACTIONS.
Section 203(a) of the Federal Power Act (16 U.S.C. 824b(a)) is
amended by adding at the end the following new paragraph:
``(7)(A) Not later than 180 days after the date of enactment
of this paragraph, the Commission shall promulgate a rule
requiring any public utility that is seeking to merge or
consolidate, directly or indirectly, its facilities subject to
the jurisdiction of the Commission, or any part thereof, with
those of any other person, to notify the Commission of such
transaction not later than 30 days after the date on which the
transaction is consummated if--
``(i) the facilities, or any part thereof, to be
acquired are of a value in excess of $1,000,000; and
``(ii) such public utility is not required to secure
an order of the Commission under paragraph (1)(B).
``(B) In establishing any notification requirement under
subparagraph (A), the Commission shall, to the maximum extent
practicable, minimize the paperwork burden resulting from the
collection of information.''.
SEC. 3. EFFECTIVE DATE.
The amendment made by section 1 shall take effect 180 days after
the date of enactment of this Act.
SEC. 4. FEDERAL ENERGY REGULATORY COMMISSION REPORT.
(a) In General.--Not later than 2 years after the date of enactment
of this Act, the Federal Energy Regulatory Commission shall submit to
Congress a report that assesses the effects of the amendment made by
section 1.
(b) Requirements.--In preparing the report under subsection (a),
the Federal Energy Regulatory Commission shall--
(1) take into account any information collected under
paragraph (7) of section 203(a) of the Federal Power Act (16
U.S.C. 824b(a)) (as added by section 2); and
(2) provide for public notice and comment with respect to the
report.
Purpose
The purpose of H.R. 1109 is to amend section 203 of the
Federal Power Act (FPA) to correct the misinterpretation by the
Federal Energy Regulatory Commission (FERC or Commission) of
the merge or consolidate clause within that section of the Act,
and to thereby reduce the compliance burden of certain
transactions valued under $10 million, including significant
legal and regulatory costs which are collected from customers.
Background and Need
Between 1935 and 2005, section 203 of the FPA provided that
no public utility could dispose or merge assets in excess of
$50,000 in value without first securing an order of the
Commission authorizing it to do so. (See 16 U.S.C. 824d note.)
The Energy Policy Act of 2005 (EPAct '05, Public Law 109-
58) amended the FPA to raise the threshold for review of
certain transactions from the $50,000 level established in 1935
to $10 million. Section 1289 of EPAct '05 appeared to subdivide
the Commission's authority to review merger or disposal of
assets into four subsections. Three of these subsections
explicitly identified a threshold of $10 million, while also
preserving the existing structure of the FPA. However, given
that the existing structure of the Act was used in the 2005
amendment, the words ``$10 million'' did not appear in the
fourth subsection. Based on that absence, FERC interpreted that
one subsection as eliminating the $50,000 exception altogether,
so that now FERC would require itself to review every covered
transaction in that subsection, effectively reducing the
transaction threshold to zero dollars, when the threshold had
been $50,000 since 1935. Transactions Subject to FPA Section
203, 113 FERCpara.61,315 at P 32 (2005) (Order No. 669).
FERC reasoned that ``where Congress includes particular
language in one section of a statute but omits it in another
section of the same Act, it is generally presumed that Congress
acts intentionally and purposely in the disparate inclusion or
exclusion.'' Order No. 669 at P 32 (quoting Russello v. U.S.,
464 U.S. 16, 23 (1983)). FERC did not address the canon of
statutory construction providing that when Congress reenacts
provisions of an existing law in an amendment to that law, the
reenacted provisions are considered a continuation of the
previous law as they were previously understood and
interpreted. See 1A N. Singer, Statutes and Statutory
Construction Sec. 22.33 at 392-396 (6th ed. 2002 rev.)
(``Provisions of the original act or section which are repeated
in the body of the amendment, either in the same or equivalent
words, are considered a continuation of the original law.'').
In 1935, the original section of the Act provided that:
``No public utility shall sell, lease, or otherwise
dispose of the whole of its facilities subject to the
jurisdiction of the Commission, or any part thereof of
a value in excess of $50,000, or by any means
whatsoever, directly or indirectly, merge or
consolidate such facilities or any part thereof with
those of any other person, or purchase, acquire, or
take any security of any other public utility, without
first having secured an order of the Commission
authorizing it to do so.''
Breaking the sentence down structurally, this sentence provided
that:
``No public utility shall [--]
[1] sell, lease, or otherwise dispose of the whole of
its facilities subject to the jurisdiction of the
Commission, or any part thereof of a value in excess of
$50,000, or
[2] by any means whatsoever, directly or indirectly,
merge or consolidate such facilities or any part
thereof with those of any other person, or
[3] purchase, acquire, or take any security of any
other public utility,
[--]without first having secured an order of the
Commission authorizing it to do so.''
Prior to the creation of FERC in 1977, the Federal Power
Commission (FPC) administered this part of the FPA, stumbling
over certain aspects of this sentence. The FPC's principal
difficulty was over whether it applied to local distribution
facilities. ``Between 1944 and 1962, . . . the Commission no
less than five times shifted its position as to the
applicability of the `merge or consolidate' clause to
acquisitions of non-jurisdictional facilities.'' Duke Power Co.
v. FPC, 401 F.2d 930, 951 (D.C. Cir. 1968).
Nevertheless, the FPC does not appear to have stumbled over
the absence of a dollar amount in the ``merge or consolidate''
clause. Although the codification of its rules, which first
appeared in the Federal Register in 1947, said nothing about a
dollar amount, the early case law shows that the FPC was
already applying the $50,000 threshold in the sell, lease, or
otherwise dispose clause to the merge or consolidate clause
even before the 1947 rule codification. See California Electric
Power Co., 4 FPC 601, 602 (May 31, 1944); Idaho Power Co. and
West Coast Power Co., 4 FPC 663, 664 (July 26, 1944); Montana-
Dakota Utilities Co., 4 FPC 1072, 1074 (Oct. 17, 1945);
regarding codification of its rules, see 12 Fed. Reg. 8495
(Dec. 19, 1947).
The FPC eventually amended its rules in 1963 to reflect
what was by then a decades-old interpretation. Section 33.1(2)
of the FPC's rules was amended to say that the FPC authority
under section 203 extended to ``The merger or consolidation,
directly or indirectly of the facilities of a public utility
with those of any other person having a value in excess of
$50,000.'' 28 Fed. Reg. 2900 (Mar. 23, 1963).
The D.C. Circuit eventually addressed the question of
whether the merge or consolidate clause applied to non-
jurisdictional local distribution facilities, and in doing so,
it confirmed that the FPC had correctly interpreted the $50,000
threshold in that clause. In 1966, the FPC held that Duke
Power's acquisition of Clemson University's distribution
facilities, since they had a value of more than $50,000, fell
within the Commission's section 203 jurisdiction. The D.C.
Circuit rejected that view of FPC's authority. Duke Power Co.
v. FPC, 401 F.2d 930 (D.C. Cir. 1968). The court said that the
text and legislative history of the FPA showed that the FPC's
merger authority did not extend to non-jurisdictional
facilities. While the question of the dollar threshold never
came up, the court addressed the language in the merge or
consolidate clause.
In particular, the court emphasized that the clause speaks
of the merger or consolidation of ``such facilities or any part
thereof with those of any other person.'' 401 F.2d at 933. The
FPC had no difficulty reading ``such facilities'' as referring
to the acquiring utility's ``facilities subject to the
jurisdiction of the Commission . . . . '' ``[T]he Commission
concede[d] that the meaning of `such facilities' is
crystallized by their grammatical antecedent, `facilities
subject to the jurisdiction of the Commission'.'' Id. at 940.
The dispute in the case was whether ``the latter phrase also
fixes the meaning of `those'.'' Id. ``Duke argue[d] that the
antecedent of `those' is the phrase, `such facilities,'
language in turn referring to `facilities subject to the
jurisdiction of the Commission,' and point[ed] out that
Clemson's [local] distribution system fell outside the latter
category. The Commission, on the other hand, would have us
ascribe to the phrase `those (facilities) of any other person'
sufficient breadth to include both jurisdictional and
nonjurisdictional facilities.'' Id. at 933-934. The D.C.
Circuit agreed with Duke rather than the FPC: ``those''
facilities referred to ``such facilities,'' which referred to
``facilities subject to the jurisdiction of the Commission,''
and, we may infer by extension, ``or any part thereof of a
value in excess of $50,000.''
The FPC amended its rules in 1970 to reflect the court's
decision. Section 203, the FPC now said, extends to ``The
merger or consolidation, directly or indirectly of the
facilities subject to the Commission's jurisdiction with those
of any other person having a value in excess of $50,000.'' 62
Fed. Reg. 5321 (Mar. 31, 1970).
The first sentence of section 203 was then amended in
section 1289 of the Energy Policy Act of 2005. The purpose of
the amendment was to raise the dollar threshold from $50,000 to
$10 million and to add to the existing three clauses a fourth
covering the ``purchase, lease, or'' other acquisition of an
existing generation facility ``that has a value in excess of
$10,000,000'' that is subject to FERC's jurisdiction. Congress
thus adopted a complete substitute to section 203(a) to add
more structure and additional paragraphs. But the merge or
consolidate clause itself, was reenacted, word-for-word, except
for the addition of a new subparagraph designation, and the
reordering of the ``directly or indirectly'' and the ``by any
means whatsoever'' subclauses. The critical phrases ``such
facilities'' and ``those of any other person,'' which the FPC
and FERC had long interpreted as referring to and incorporating
by reference the dollar threshold in the sell, lease, or
otherwise dispose clause into the merge or consolidate clause,
were not changed.
This legislation clarifies the amendments made in the EPAct
'05, by explicitly providing that the threshold for Commission
authority begins at $10 million for disposals or mergers of
utility assets. In addition, this legislation adds a
notification requirement for certain merger or consolidation
transactions in excess of a $1 million threshold.
Legislative History
H.R. 1109 was introduced on February 16, 2017, by
Representatives Walberg, Dingell, Hudson, McNerney, and Mullin
in the House of Representatives and referred to the Energy and
Commerce Committee. On June 7, 2017, the Energy and Commerce
Committee reported the bill by unanimous consent, and on June
12, 2017, H.R. 1109 passed the House by voice vote. On June 13,
2017, the Senate received it and referred it to the Committee
on Energy and Natural Resources.
On September 26, 2017, similar legislation, S. 1860, was
introduced by Senators Inhofe and Heinrich, which was referred
to the Committee on Energy and Natural Resources. The Senate
Subcommittee on Energy held a hearing on H.R. 1109 and S. 1860
on October 3, 2017.
The Committee on Energy and Natural Resources met in open
business session on March 8, 2018, and ordered H.R. 1109
favorably reported, as amended.
Committee Recommendation
The Senate Committee on Energy and Natural Resources, in
open business session on March 8, 2018, by a majority voice
vote of a quorum present, recommends that the Senate pass H.R.
1109, if amended as described herein.
Committee Amendment
During its consideration of H.R. 1109, the Committee
adopted an amendment in the nature of a substitute. The
substitute amendment makes clear that the threshold for
Commission authority begins at $10 million for disposals or
mergers of utility assets. In addition, the substitute
amendment adds a notification requirement for certain merger or
consolidation transactions in excess of a $1 million threshold.
The amendment is further described in the section-by-section
analysis.
Section-by-Section Analysis
Section 1. Clarification of facility merger authorization
Section 1 amends section 203(a)(1)(B) of the FPA to ensure
that the threshold is for facilities to be acquired having a
value in excess of $10 million.
Section 2. Notification for certain transactions
Section 2 establishes a notification requirement for merger
or consolidation transactions in section 203(a)(1)(B) of the
Act that exceed a $1 million threshold. For those transactions
exceeding $1 million, but less than $10 million, this section
provides that the public utility is not required to seek an
order of the Commission under section 203(a)(1)(B) of the Act.
Section 3. Effective date
Section 3 provides that the amendment made by section 1
shall take effect 180 days after the date of enactment.
Section 4. Federal Energy Regulatory Commission report
Section 4 requires FERC to submit a report to Congress on
the effects of the amendment made by section 1 within two years
of enactment.
Cost and Budgetary Considerations
The following estimate of the costs of this measure has
been provided by the Congressional Budget Office:
Under the Federal Power Act, the Federal Energy Regulatory
Commission (FERC) oversees and regulates interstate
transmission of electricity, natural gas, oil, and a variety of
other energy-related activities. Under section 203 of that act,
public utilities subject to its provisions must seek FERC's
approval before engaging in certain transactions, including
corporate mergers and consolidations of facilities. Currently,
FERC must review all such mergers and consolidations. H.R. 1109
would amend that section to specify that only mergers and
consolidations involving facilities valued at more than $10
million would require FERC's approval. The legislation also
would require FERC to report to the Congress, within two years
of enactment, on the subsequent effects of that proposed
change.
CBO estimates that implementing H.R. 1109 would have no
significant net effect on the federal budget. Using information
from FERC about average annual costs to review mergers and
consolidations under current law, CBO estimates that specifying
a minimum threshold for such reviews would reduce the agency's
administrative costs by less than $500,000 annually. However,
because FERC recovers 100 percent of its costs through user
fees, any change in that agency's costs (which are controlled
through annual appropriation acts) would be offset by an equal
change in fees that the commission charges, resulting in no net
change in federal spending.
Enacting H.R. 1109 would not affect direct spending or
revenues; therefore, pay-as-you-go procedures do not apply. CBO
estimates that enacting H.R. 1109 would not increase net direct
spending or on-budget deficits in any of the four consecutive
10-year periods beginning in 2028.
H.R. 1109 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act.
On June 12, 2017, CBO transmitted a cost estimate for H.R.
1109 as ordered reported by the House Committee on Energy and
Commerce on June 7, 2017. The two versions of the legislation
are similar, and the estimated budgetary effects are the same.
The CBO staff contact for this estimate is Megan Carroll.
The estimate was approved by H. Samuel Papenfuss, Deputy
Assistant Director for Budget Analysis.
Regulatory Impact Evaluation
In compliance with paragraph 11(b) of rule XXVI of the
Standing Rules of the Senate, the Committee makes the following
evaluation of the regulatory impact which would be incurred in
carrying out H.R. 1109. The bill is not a regulatory measure in
the sense of imposing Government-established standards or
significant economic responsibilities on private individuals
and businesses.
No personal information would be collected in administering
the program. Therefore, there would be no impact on personal
privacy.
Little, if any, additional paperwork would result from the
enactment of H.R. 1109, as ordered reported.
Congressionally Directed Spending
H.R. 1109, as ordered reported, does not contain any
congressionally directed spending items, limited tax benefits,
or limited tariff benefits as defined in rule XLIV of the
Standing Rules of the Senate.
Executive Communications
The testimony provided by the Federal Energy and Regulatory
Commission at the October 3, 2017, hearing on H.R. 1109
follows:
Testimony of James Danly, General Counsel, Federal Energy Regulatory
Commission, Before the United States Senate Committee on Energy and
Natural Resources, Subcommittee on Energy
S. 1860 (the ``Parity Across Reviews Act'' or the ``PARs Act'' and H.R.
1109)
The bills are identical and would add a minimum dollar
value to Subsection 203(a)(1)(B) of the FPA such that public
utilities would only need prior Commission approval to ``merge
or consolidate'' (that is, to acquire) facilities subject to
the Commission's jurisdiction if the facilities have a value in
excess of $10 million. In other words, mergers or acquisitions
of facilities with a value less than that amount would not need
Commission approval.
The bills would align this provision of the FPA with the
other three subsections of Section 203(a)(1). Subsections (A),
(C), and (D) only require Commission approval if the
transaction at issue exceeds $10 million in value. Subsection
203(a)(1)(A) requires Commission approval before a public
utility sells, leases, or otherwise disposes of facilities
worth more than $10 million. Subsection 203(a)(1)(C) imposes
the same obligation for the acquisition of more than $10
million in securities of another public utility. Finally,
Subsection 203(a)(1)(D) mandates Commission approval before the
acquisition of a generating facility worth more than $10
million.
While the current statute is the result of the Energy
Policy Act of 2005, the requirement for merger approval dates
back to the original 1935 Federal Power Act. The prior version
of Section 203 combined the current statutory mandates of
Subsections 203(a)(1)(A)-(C) in a single subsection that
included a $50,000 threshold. Under this statutory language,
the Commission had issued regulations imposing a $50,000
threshold exception for all of the provisions. After the 2005
legislation that subdivided the section, added what is now in
Subsection (D), and imposed the three $10 million thresholds,
the Commission interpreted the statute as precluding the
Commission from applying a $10 million dollar threshold to the
``merge and consolidate'' clause. As a result, the requirement
for approval now applies even to acquisitions of jurisdictional
facilities that are less than $50,000. Adding a $10 million
threshold to the ``merge and consolidate'' clause in Subsection
203(a)(1)(B) would, to some extent, return the statute to the
situation that existed prior to the 2005 legislation where the
same minimum threshold applies equally to every subsection of
the statute.
In my view, the proposal to add a $10 million threshold to
Subsection 203(a)(1)(B) of the FPA would ease the regulatory
burden on industry without impeding the Commission's regulatory
responsibilities. Transactions below the proposed threshold are
unlikely to impose a significant negative impact on competition
or the rates of utility customers.
Previously, Commission staff has noted that one potential
concern involves serial mergers. That is, under the proposed
bill, the Commission would no longer have the authority to
review and approve mergers and acquisitions valued at less than
$10 million even in situations where the transaction took place
as one of a series of transactions that exceeded the limit in
total. I believe that the Commission would have tools to
protect consumers and the public interest if such circumstances
arose.
For one, the proposed bills would add a new Subsection
203(a)(7)(A) to establish an additional reporting requirement
on certain transactions under the $10 million threshold.
Specifically, a public utility undertaking a merger or
acquisition where the facilities being acquired have a value in
excess of $1 million but less than $10 million would have to
notify the Commission of the transaction 30 days after
consummation. This after-the fact reporting would be for
informational purposes only--that is, the Commission would not
take action as to any of these transactions. However, the
notifications would provide the Commission and the public with
greater transparency as to these types of transactions.
Moreover, I believe that the Commission has tools under its
existing statutory framework. For example, if an entity with
market-based rates obtained the opportunity to exercise market
power as a result of such transactions, the Commission could
limit or eliminate its ability to engage in transactions at
market-based rates. Additionally, the Commission has a range of
market power mitigation measures that limit market power within
the organized wholesale electric markets. Finally, if the
exercise of market power involves market manipulation or
violation of a Commission rule, regulation, order or tariff
provision, the Commission can bring an enforcement action.
One concern I should note about the proposed bills is the
placement of the $10 million threshold clause in revised
Subsection 203(a)(1)(B). As revised, Subsection 203(a)(1)(B)
would read: ``No public utility shall, without first having
secured an order of the Commission authorizing it to do so . .
. (B) merge or consolidate, directly or indirectly, such
facilities or any part thereof such facilities, or any part
thereof, of a value in excess of [$10 million] with those of
any other person, by any means whatsoever.'' There is some risk
that the statutory language could be read as modifying the
wrong set of facilities and imposing the $10 million threshold
on the value of the pre-existing assets of the acquiring public
utility rather than on the assets that are being acquired (that
is, the assets merged or consolidated with the pre-existing
assets of the acquiring public utility). Placing the $10
million threshold language after the ``any other person'' may
address this concern. Proposed Subsection 203(a)(7)(A) presents
a similar issue.
Changes in Existing Law
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, changes in existing law made by
the original bill, as reported, are shown as follows (existing
law proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
FEDERAL POWER ACT
The Act of June 10, 1920, Chapter 285, as Amended
* * * * * * *
PART II--REGULATION OF ELECTRIC UTILITY COMPANIES ENGAGED IN INTERSTATE
COMMERCE
* * * * * * *
DISPOSITION OF PROPERTY; CONSOLIDATION; PURCHASE OF SECURITIES
Sec. 203. (a)(1) No public utility shall, without first
having secured an order of the Commission authorizing it to do
so--
(A) sell, lease, or otherwise dispose of the whole of
its facilities subject to the jurisdiction of the
Commission, or any part thereof of a value in excess of
$10,000,000;
[(B) merge or consolidate, directly or indirectly,
such facilities or any part thereof with those of any
other person, by any means whatsoever;] (B) merge or
consolidate, directly or indirectly, its facilities
subject to the jurisdiction of the Commission, or any
part thereof, with the facilities of any other person,
or any part thereof, that are subject to the
jurisdiction of the Commission and have a value in
excess of $10,000,000, by any means whatsoever;
(C) purchase, acquire, or take any security with a
value in excess of $10,000,000 of any other public
utility; or
(D) purchase, lease, or otherwise acquire an existing
generation facility--
(i) that has a value in excess of
$10,000,000; and
(ii) that is used for interstate wholesale
sales and over which the Commission has
jurisdiction for ratemaking purposes.
* * * * * * *
(6) For purposes of this subsection, the terms
``associate company'', ``holding company'', and
``holding company system'' have the meaning given those
terms in the Public Utility Holding Company Act of
2005.
(7)(A) Not later than 180 days after the date of
enactment of this paragraph, the Commission shall
promulgate a rule requiring any public utility that is
seeking to merge or consolidate, directly or
indirectly, its facilities subject to the jurisdiction
of the Commission, or any part thereof, with those of
any other person, to notify the Commission of such
transaction not later than 30 days after the date on
which the transaction is consummated if--
(i) the facilities, or any part thereof, to
be acquired are of a value in excess of
$1,000,000; and
(ii) such public utility is not required to
secure an order of the Commission under
paragraph (1)(B).
(B) In establishing any notification requirement
under subparagraph (A), the Commission shall, to the
maximum extent practicable, minimize the paperwork
burden resulting from the collection of information.
* * * * * * *
[all]