On July 3, 2023, FERC affirmed its earlier determination that Bluescape Energy Partners, LLC’s (“Bluescape”) appointment of a non-independent director to Evergy Inc.’s (“Evergy”) Board of Directors overcomes the rebuttable presumption of a lack of control under FERC’s regulations that normally applies when a company owns less than 10 percent of another company’s equity (see October 27, 2022 edition of the WER).  Additionally, FERC clarified that the appointment of a non-independent director is a per se finding of control and found affiliation between Bluescape and Evergy, and therefore between Bluescape and Evergy’s public utility subsidiaries, pursuant to the definition of “affiliate” under FERC’s rules.

In an October 20, 2022 order on a change in status filed by several Evergy subsidiaries, FERC held that Evergy was an affiliate of Bluescape based on FERC’s finding that the appointment of a non-independent director from Bluescape to the Evergy Board rebutted the presumption of lack of control under Section 35.36(a)(9)(v) of FERC’s regulations that applies when a company owns less than 10 percent of another company’s equity.  In doing so, FERC stated that where an investor’s non-independent director or other appointee accountable to the investor is appointed to the board of a public utility or its holding company, that appointment rebuts the presumption of lack of control under Section 35.36(a)(9)(v).

In its July 3 order in response to Evergy’s rehearing request, FERC first continued to find that the appointment of a non-independent director or other appointee accountable to the investor rebuts the presumption of a lack of control under Section 35.36(a)(9)(v) and, in fact, is a per se finding of control.  In making this finding, FERC rejected Evergy’s argument that a single director could not exert control over a thirteen-member board.  Second, FERC found that such appointments preclude arms-length bargaining because of a non-independent board member’s access to non-public information on commercial strategy and operations.  FERC thus found affiliation between Bluescape and Evergy under Section 35.36(a)(9)(iii) of FERC’s regulations, which defines “affiliate” to include a person that FERC determines, after appropriate notice, to stand in such relation to a specified company that there is liable to be an absence of arm’s-length bargaining between them as to make it necessary for the companies to be treated as affiliates.  FERC also found that the notice requirements of this section were satisfied in the change in status proceeding, where parties filed rounds of pleadings and FERC issued deficiency letters.

Chairman Willie Phillips issued a separate concurrence, stating that while he agrees with the conclusion, FERC should have instituted a proceeding under section 206 of the Federal Power Act and ordered briefing on the application of Section 35.36(a)(9)(iii) to the relationship between Bluescape and Evergy.  Commissioner James Danly dissented from the decision, arguing that FERC did not fully respond to Evergy’s rehearing request.

A copy of FERC’s order can be found here.