On the Acquisition of Upstream Interests in New York Energy Operating Companies - an Uncharted Area?

Article excerpt

The State of New York has not attempted to bring holding companies under the jurisdiction of this Commission except so far as they are directly involved in the affairs of operating companies under our jurisdiction. It would obviously be impossible for a single state to supervise the operations of a holding corporation which extended over several states and perhaps into the territories. So far as an operating company is also a holding company (this is true of a number in the State of New York), that company is subject to the jurisdiction of the Commission as to all matters concerning which duties and powers have been conferred upon this Commission.

New York State Public Service Commission - 19361

Synopsis: For years, practitioners involved in upstream transfers of indirect ownership interests in New York State electric and/or gas operating companies, through mergers, acquisitions, or restructurings of holding companies, have deemed it necessary, or at least certainly desirable, to obtain prior authorizations of these activities from the New York Public Service Commission. The Commission, without analysis of the history of New York Public Service Law, has assumed jurisdiction to review and then approve, or not approve, such upstream activities wherever located and regardless of how far removed from New York State operating companies. Over the past two years, the Commission has expanded its authority not only to reach investment companies and funds seeking to acquire certain levels of stock ownership interests in upstream holding companies, but also to review the capitalization of holding companies. The Commission has further ruled in several recent orders that minority interests in upstream holding companies could render the owner thereof an "electric corporation," and thus subject to some degree of Commission regulation under New York Public Service Law. The Commission?s decisions and orders in all these matters have gone unreviewed by New York courts.

This Article undertakes a long overdue examination of the history of New York Public Service Law and documents the absence of legal support for the Commission?s assertions of jurisdiction where upstream transactions are undertaken by entities which are not also operating companies. Commission authority over holding companies and other non-operating owners of upstream interests is strictly limited to (i) reviews of direct acquisitions of controlling interests in operating companies, and (ii) rights of access to certain types of information regarding direct relations of holding companies and/or affiliates with operating companies. The implications of this determination extend far beyond New York State, as New York Public Service Law was a model statute for state regulatory schemes across the country. To the extent other state commissions have construed their statutory grants of authority as conferring jurisdiction over holding companies and other upstream entities, or are contemplating such constructions, the commissions and the parties appearing before them should take note of the history of New York Public Service Law discussed herein and determine whether their respective state legislative bodies have indeed delegated such authority.

Compelling reasons can support, and refute, state commission regulation of holding companies, and the upstream activities thereof. This Article does not resolve such policy issues. It merely concludes that, except under a theory of alter-ego liability rejected decades ago by the Commission, the New York State Legislature has delegated to the Commission no supervisory authority under New York Public Service Law over mere holding companies and investors therein, or over the upstream activities of such non-operating entities. The Article strongly recommends prompt legislative resolution of the important issue of asserted Commission regulation over these entities.

I. INTRODUCTION

History - legislative, judicial, and institutional - has successfully eluded the New York State Public Service Commission (PSC or Commission) for a number of years. …