FERC on July 19 approved granting voting rights to a member of American Electric Power’s board of directors who was appointed by investment firm Icahn Group (EC24-60).
The commission is required by Federal Power Act Section 203 to approve appointments of investment company officers to public utilities’ boards. AEP told FERC it had agreed in February to add Hunter Gary, Icahn senior managing director, to its board, but he was unable to vote until the commission gave its approval. Icahn, founded and controlled by investor Carl Icahn, also was able to appoint a new independent director and a non-voting observer to the board under the deal.
The commission found the arrangement met its rules around mergers; would not have any impact on competition, rates or regulation; and would not result in cross-subsidization.
Public Citizen filed a protest against the deal, arguing the non-voting board members already had forced a change of control at AEP with their role in the “involuntary termination” of former CEO and board Chair Julie Sloat. (See Interim CEO Fowke Explains AEP Leadership Change.) The consumer group argued FERC should find that the deal and subsequent firing of Sloat violated Section 203, which also requires public utilities to seek commission approval before any attempted change in control.
AEP argued it met FERC’s public interest requirements, and that Public Citizen’s “inflammatory and unsupported allegations” should be dismissed. Icahn Group itself did not execute the removal of Sloat, which was in compliance with the law and the company’s bylaws, AEP said.
FERC agreed with AEP, saying the issues Public Citizen raised “do not impact the factors addressed by the commission in evaluating” such deals. “Public Citizen does not present other evidence that the proposed transaction fails to satisfy our public interest criteria,” it said.
But the commission did chide AEP for its late request, filed March 15, after Gary already had been appointed.
“Contrary to the requirements of FPA Section 203, AEP failed to file a timely request for approval of the appointment of the Icahn Group designee to the AEP board,” FERC said. “AEP is reminded that it must submit required filings on a timely basis or face possible sanctions by the commission.”
The order drew a concurrence from Commissioner Mark Christie, who agreed the application met FERC’s policies and regulations, but that investors’ impact on public utilities is a growing area of concern that might warrant some changes in those rules.
Christie has said in other proceedings that utilities are not typical for-profit, shareholder-owned companies, and it is essential for regulators to ensure investors’ interests do not conflict with utilities’ public service obligations.
“Where there is the potential for a conflict — and there always is — it is the commission’s responsibility, under Section 203, to ensure that transactions are consistent with the public interest,” Christie said. “In my view, this must involve balancing consumer protection and potential impacts to reliability with the interests of investors in addition to evaluating traditional market power concerns.”
Christie argued that the only reason investors seek board seats on public companies is to exert influence on their decision-making and actions. Even directors “independent” of firms like Icahn take actions to benefit utility shareholders, including those who got them the position, he said.
“Investor influence on public utilities and public utility holding companies continues to grow, and in ways that may conflict with public utility service obligations. It is incumbent on the commission to account for and address this influence,” Christie said. “These issues are ripe for action, and I look forward to continued consideration of them with my colleagues.”
Commissioners Lindsay See and Judy Chang, who recently joined FERC, did not participate in the order.
