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Wind Investors Seek Certified Question To Texas PUC Concerning Whether Approval Needed For Passive Transfers Of Interests In Generation

August 9, 2017

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

Several wind investors have, in separate applications raising the same question, sought to certify to the Texas PUC the question of whether transactions in which only passive interests in a generator are transferred, and in which there is no transfer of any ability for the investors to manage or control the operations of the project companies, require PUC review and approval under PURA § 39.158

The various investors include, in various separate applications, EFS Renewables Holdings, LLC, BAL Investment & Advisory, Inc., Siemens Financial Services, Inc., and BNP Paribas US Wholesale Holdings, Corp.

The investors in various applications seek to certify essentially the same question to the PUC, specifically: "In an instance where an entity owning electric generation facilities in Texas proposes to sell, and a third-party investor wishes to purchase, private equity shares in the entity where no right to manage or control the entity owning the electric generation facilities in Texas is sold or purchased (other than consent or approval rights granted to passive investors to preserve the value of their investments, which in any event do not include the right to dispatch the electric generation facilities or determine at what price power is sold), is the Commission required to approve such a transaction under the provisions of PURA § 39.158?"

The various investor applicants' position is that the answer to this question is, "No."

"Applicant contends that Commission approval of transactions in which passive, non-controlling equity interests that are sold in entities that directly or indirectly own electric generation facilities -- such as the Transaction here and those associated with tax equity investments generally -- is not contemplated by PURA § 39.158. In this type of transaction, an equity investor purchases shares of an entity that owns, either directly or indirectly, electric generation facilities that offer electricity for sale in Texas. The distinction from other such types of investment is that this equity purchase is of a passive share of the entity. The investor does not obtain shares that confer, directly or indirectly, any authority to manage or control the operations of the electric generation project, its holding entity, or any other entity with ownership or control of the project and its facilities. The passive equity interests have no associated voting interests over the management or control of the project, but instead possess only limited consent rights associated with and to the limited extent necessary to preserve the investor's investment value. These distinctions are important in light of the express language of PURA § 39.158 and the types of transactions that it clearly intends to govern," one of the groups of investors said in one of the applications

"Section 39.158 specifies that review of a transaction is required where an owner of electric generation facilities that offers electricity for sale in the state 'proposes to merge, consolidate, or otherwise become affiliated with another owner of electric generation facilities that offers electricity for sale in this state . . . .' The purchase of equity shares in the entities at issue here does not constitute a merger or consolidation of the Investors with the Applicant. Further, this type of transaction also does not result in the Investors and Applicant becoming 'affiliated.' Specifically, PURA defines an 'affiliate' as a person that owns or holds (or holds in a successive chain of ownership) at least five percent of the voting securities of a public utility. Thus, in order for one of the Investors to become an affiliate of the Applicant, the equity interests would need to (1) exceed five percent threshold and (2) carry the right to vote in order to direct or control the management of the project entity. As noted above, the passive equity interests that are being transferred in the Transaction (and that are typically transferred in these types of transactions in general) do not contain the right to vote on the management or control of the Project Companies," one of the groups of investors said in one of the applications

Docket 47481 et. al.

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