FERC confirms regulatory immunity for PE fund LPs

In a recent order, the Federal Energy Regulatory Commission (FERC) cleared up an ambiguity in current regulation, confirming that limited partners (LPs) in private equity funds that make FERC-regulated investments are not themselves subject to FERC’s corporate regulatory regime.

Investors that own or control 10 percent or more of a public utility’s voting securities generally become subject to FERC jurisdiction (including the regulation of other energy-sector investments) and to comprehensive FERC disclosure requirements.

Last July, Starwood Energy Group filed a petition with FERC requesting a declaratory order to confirm LP immunity under FERC’s ownership transaction approval requirements. Although LPs have typically been treated by FERC as not holding the equivalent of voting interests, there has not been explicit case law to provide LPs comfort that they are immune from the regulatory burdens, Morgan Lewis partner Mark Williams noted in a legal alert on the order.

FERC also confirmed that the fund vehicle itself is not considered a public utility under the Federal Power Act (FPA), and an LP is not considered a “holding company” under Public Utility Holding Company Act, solely by virtue of its fund investment.