FERC Rules On Interpretation Of Affiliate Definition In Goldman Sachs MBR Case
April 28,2020
In granting electric market based-rate authority to Goldman Sachs Renewable Power Marketing LLC (Seller), FERC made findings with respect to the definition of an affiliate, which are of broader interest to the retail market and individuals holding securities in multiple retail suppliers
In the MBR order, FERC found that Seller is an affiliate of The Goldman Sachs Group, Inc. (Goldman Sachs).
Seller had argued that it is not an affiliate of Goldman Sachs
As described by FERC, "Seller states that it is a wholly owned subsidiary of Goldman Sachs Renewable Power Operating Company LLC, which in turn is a wholly owned subsidiary of Goldman Sachs Renewable Power LLC (Renewable Power). Seller explains that management and control of Renewable Power, and subsequently Seller, is held exclusively by Goldman Sachs Renewable Power’s Board of Directors (Board). According to Seller, the Board consists of three directors, who are independent of Goldman Sachs. Seller explains further that Goldman Sachs’s ownership in Renewable Power is less than five percent and that, for purposes of the Commission’s regulations, Renewable Power thus is not affiliated with Goldman Sachs or any of Goldman Sachs’s Commission-jurisdictional entities. Seller also represents that passive investors with only limited consent or veto rights similar to those recognized by the Commission in AES Creative Resources, L.P. also hold membership interests in Renewable Power. Seller states that none of the investors in Renewable Power, together with any of their affiliates, directly or indirectly owns or controls 10% or more of the outstanding voting securities of Renewable Power. In addition, Seller explains that Goldman Sachs Asset Management, L.P. (Asset Management) is Renewable Power’s investment manager."
Public Citizen protested Seller's filing, and argued that Seller is an affiliate of Goldman Sachs. Public Citizen asserted, among other things, that the three members of the Board of the Seller serve as corporate directors for 61 other companies, 55 of which share a principal address and phone number with Goldman Sachs.
FERC ultimately found that Seller and Goldman Sachs are affiliates
FERC stated, "[W]e find that Seller and Goldman Sachs are affiliates. Seller is correct that where a person owns, controls or holds with power to vote, less than 10% of the outstanding voting securities of a specified company, there is a rebuttable presumption of a lack of control. However, as discussed below, we find that Asset Management can exercise Renewable Power’s voting rights in Seller and therefore Asset Management controls the voting securities in Seller, which makes Asset Management an affiliate of Seller under section 35.36(a)(9)(i). Further, because Asset Management is a wholly owned subsidiary of Goldman Sachs, Goldman Sachs is an affiliate of Asset Management under section 35.36(a)(9)(i). Based on Goldman Sachs’s ownership of Asset Management and Asset Management’s control of voting securities in Seller, we find that Goldman Sachs is an affiliate of Seller under section 35.36(a)(9)(i); thus, the rebuttable presumption does not apply."
FERC said, "Pursuant to the Management Services Agreement, Asset Management has been granted the authority to 'do any and all acts on behalf of the Service Recipients, and exercise all rights of the Service Recipients [i.e., Renewable Power and its subsidiaries], with respect to any Service Recipient’s interests in any Person, including, the exercise of voting rights in any Person holding Portfolio Assets . . . .'"
FERC said, "Based on the Management Services Agreement, Asset Management is authorized to exercise all rights of Renewable Power, with respect to Renewable Power’s interests in any limited liability company, which includes the exercise of Renewable Power’s voting rights in Seller. In AES Creative, the Commission established that, for purposes of market-based rate regulations, 'voting security' means 'any security presently entitling the owner or holder thereof to vote in the direction or management of the affairs of a company.' We interpret Asset Management’s authority to exercise all rights of Renewable Power’s interests in entities such as Seller to constitute authority to manage, direct or control the activities of Seller. Thus, we find that Asset Management controls 10% or more of the outstanding voting securities of Seller. Accordingly, we conclude that Asset Management is an affiliate of Seller under section 35.36(a)(9)(i)."
FERC said, "In addition, we find that Goldman Sachs is an affiliate of Asset Management under section 35.36(a)(9)(i). Section 35.36(a)(9)(i) specifies that an affiliate is any person that directly or indirectly owns, controls, or holds with power to vote, 10% or more of the outstanding voting securities of the specified company. Because Asset Management is a wholly owned subsidiary of Goldman Sachs, Goldman Sachs is deemed an upstream affiliate of Asset Management under section 35.36(a)(9)(i), and thus is an affiliate of Seller. For this reason, we find that the rebuttable presumption in section 35.36(a)(9)(v) does not apply."
"We do not find Seller’s argument regarding section 6.5.10 of the LLC Agreement to be relevant to Asset Management’s control of Seller’s voting securities or its resulting affiliation with Seller under section 35.36(a)(9)(i). This provision establishes that Renewable Power’s dealings with Goldman Sachs will be resolved on commercially reasonable terms; however, this provision also provides that Asset Management determines what is commercially reasonable. Nonetheless, this provision does not change the fact that, under the Management Services Agreement, Asset Management has been delegated authority to exercise voting rights with respect to Renewable Power and its subsidiaries, including Seller such that it controls the outstanding voting securities of Seller, as discussed above," FERC said