FERC on Thursday dismissed Public Citizen’s allegations that CenterPoint Energy concealed from the commission an infusion of cash from a hedge fund manager that brought new management on board.
The consumer advocate contended that Elliott International’s $625 million equity investment and subsequent leadership additions should have compelled CenterPoint subsidiary Southern Indiana Gas and Electric Co. — which has market-based rate authority — to file a change in status with FERC to show an affiliate status with its investor.
The commission disagreed and declined to order any action (EL21-2).
Public Citizen said that even though Elliott’s equity investment secured less than 10% ownership in CenterPoint, the cash essentially bought the appointment of two new independent directors on CenterPoint’s formerly eight-member board. It said the handpicked directors, David Lesar and Barry Smitherman, were “preferred by Elliott.” Months later, Lesar was installed as CenterPoint’s new CEO. (See New CenterPoint CEO Promises to ‘Simplify the Story’.)
Public Citizen also noted that CenterPoint’s board created a new Business Review and Evaluation Committee after the investment, the purpose of which is “to assist the board in evaluating and optimizing the various businesses, assets and ownership interests” of CenterPoint and its subsidiaries.
“The delivery of the cash was a quid pro quo for a management overhaul that results in the new investors exerting control over CenterPoint, and therefore the leader of these investors [Elliott] should now be considered an affiliate of CenterPoint,” Public Citizen said. It also alleged that two nonpublic confidentiality agreements between Elliott and CenterPoint “may convey certain rights and privileges” to Elliott.
“Elliott’s use of nonpublic negotiations and agreements, combined with their ongoing efforts to sway management to pursue their preferred agenda, should render them affiliates of CenterPoint,” Public Citizen said.
But FERC said Public Citizen did not meet its burden of proof that Southern Indiana should have filed a change in status. It pointed out that “owning or controlling less than 10% of the outstanding voting securities of a company creates a rebuttable presumption of lack of control.”
FERC also said Public Citizen did not establish “that there may be a lack of arm’s length dealing between CenterPoint and Elliott that would warrant a finding of affiliation.”
The commission found nothing amiss with Elliott’s provision that should one of the two board members step down, CenterPoint must “cooperate with [it] to mutually select an acceptable qualified candidate to be appointed to the board as a substitute outside director.” It said the provision did not convey control of CenterPoint by Elliott.
“While it appears that Elliott chose the two new directors, the governance agreement states that there are no arrangements or understandings between Messrs. Lesar and Smitherman and any other person pursuant to which they were selected as a director,” the commission wrote. It added that the “two new board members are not affiliated with Elliott, are not compensated by Elliott, are not removable by Elliott, and do not have any agreement or arrangement with Elliott regarding the person’s service as director.”
