On February 3, 2017, Chairman Norman Bay will resign from the Federal Energy Regulatory Commission (FERC), leaving the five-member independent commission without a sufficient quorum to conduct official business. Prior to Chairman Bay’s resignation, FERC had been operating with a reduced panel of three Obama appointees and two vacant seats. With Chairman Bay’s resignation, FERC is left without a quorum and will not be able to resume official business until it has three sitting commissioners, with any new commissioners being appointed by the president and confirmed by the U.S. Senate. 

This unprecedented situation presents complex questions for ongoing federal regulatory matters. It is likely that FERC will continue to accept submissions through the secretary’s office, but until the Senate confirms additional commissioners, FERC will generally be unable to issue significant orders, rules, policy pronouncements, or entertain complaints. Those entities with commercial or financial transactions under development should be aware that FERC’s inability to conduct business may have an impact on the closing timeline. It is not clear if FERC staff may act under delegated authority during this time, but in the absence of delegated authority, parties engaging in commercial or financial transactions in the energy industry should be aware of the following: 

• Section 203 Filings: Section 203 of the Federal Power Act (FPA) provides that transfers of interests in jurisdictional assets, including transmission and wholesale generation facilities (including significant contracts), made without receipt of prior authorization from the Commission will be void. Without a quorum, the Commission will not be able to issue orders authorizing proposed transactions for the merger, sales, or transfers of interests in jurisdictional facilities, including certain financing transactions in which security interests are transferred.
• Section 205 Filings: By statute, filings submitted to FERC under FPA Section 205, including applications for market-based rate authority, go into effect as a matter of law if the Commission does not act on the filing within 60 days.  It is not clear if the Commission or its staff could enter tolling orders during this time, but without such orders, submissions made under Section 205 will go into effect as a matter of law. 

  In addition to Section 205 filings made by project companies, commercial parties should be aware that tariff submissions, including rates and market rules, made by a transmission-owning utility or independent operator (i.e., CAISO, MISO, PJM, SPP, ISO-NE, and NYISO) are submitted under Section 205, and these filings—some of which may impose additional costs that flow through to project companies and/or their investors—will also go into effect as a matter of law. 

• QF and EWG Submissions: QF self-certification filings are effective upon submission, whereas Exempt Wholesale Generator (EWG) submissions, which are required for many financing transactions, only become effective upon affirmative action by FERC. Action on EWG submissions will likely be delayed until FERC can resume official business, unless staff acts under delegated authority.   

It is not clear when FERC will reach a quorum, but at this early stage, parties to commercial and financing transactions should be aware that without active oversight, there may be an impact in the pricing produced by the competitive organized electric markets. While FERC has taken significant action to prevent the types of market dysfunctions that manifested in California during the summer of 2000, the markets have not since operated without a firm regulator at the helm. Parties to commercial transaction should begin preparation to address risks and liabilities in the event of uncertain market operations.