Federal regulators on Monday identified a renewable energy company to be a legal affiliate of Goldman Sachs, in a move a consumer advocacy group says should raise the bar for regulatory scrutiny over such relationships.
Goldman Sachs previously denied its affiliation with the company Goldman Sachs Renewable Power Marketing because its subsidiary, Goldman Sachs Asset Management, owns less than 5% voting interest in the renewables venture. But Public Citizen Energy Program Director Tyson Slocum pressed the Federal Energy Regulatory Commission to legally define the tie between the investment giant and the renewables company in an effort to maximize transparency and prevent loopholes for market manipulation.
Goldman Sachs Renewable Power Marketing filed with FERC to secure market-based rate authority, which FERC also approved in its order. In an upcoming filing with JPMorgan Chase and Co., Slocum is hoping to force FERC to come to a similar conclusion on the affiliation question.
FERC determined defining affiliation was inconsequential in a previous case involving a financial vehicle backed by JPMorgan.
In April, the commission allowed Infrastructure Investments Fund, advised by JPMorgan, to acquire El Paso Electric, and declined to define whether the investment company was legally affiliated with the financial vehicle, finding applicants sufficiently demonstrated that making such a distinction "would not change the Commission's evaluation of the effect of the Proposed Transaction on competition, rates regulation, or cross-subsidization."
Slocum, who at the time asked FERC to define that relationship, plans to push the issue again when IIF files with the commission to get its purchase of an Xcel Energy natural gas plant approved. Now, he says, this ruling gives him more ammunition in that case and his appeal on the El Paso Electric case.
"The structures that Goldman Sachs uses for this Goldman Sachs renewable power private equity vehicle are very similar to JP Morgan's," Slocum told Utility Dive.
"The cornerstone of proven market manipulation is that different entities acted to benefit the parent company, and in order to show that to demonstrate that you have to demonstrate affiliation … if [FERC doesn't] deem these entities to be affiliates, then [it's] going to blow a massive loophole in [its] market manipulation authority."
Although Goldman Sachs Asset Management holds less than 5% of voting power, and less than 10% is small enough to assume "lack of control" on the part of Asset Management, FERC in its ruling found that Asset Management still controls the voting securities of the group.
"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 ... thus, the rebuttable presumption does not apply," the commission wrote.
But to prove such an affiliation, FERC was able to examine LLC and management services agreements from the investment company. In the El Paso Electric case, FERC did not require such disclosures because it chose not to explore the affiliation question.
"These LLC and management services agreements, think of them as sort of the DNA test of corporate personhood, to verify exactly who you are," said Slocum. "FERC needs to … start mandating the disclosure of these types of corporate DNA filings."
FERC told Utility Dive it had nothing to add on LLC requirements beyond the scope of what was in the Goldman Sachs order.
For Goldman Sachs, the actual implications of this decision are seemingly minimal. The company told FERC in its testimony that if it were to find these entities affiliated "there would be an increased and undue administrative and compliance burden imposed" on any affiliates of these companies if they were to engage in any other sort of "FERC-jurisdictional activities."
Goldman Sachs declined to give Utility Dive more detail on what those compliance costs might be or provide any other comment on the order.
Slocum plans to reference this case extensively in the appeal on the JPMorgan/El Paso case, as well as in his testimony when he intervenes in the JPMorgan/Xcel filing.
"I'm just waiting with bated breath for them to file because I'm very eager to raise these issues freshly again," he said.
"What this order demonstrates is that when FERC has a full, complete picture of corporate structure that then FERC can make an accurate determination of affiliation. So going forward, I am going to be referencing this order to emphasize the importance for FERC to obtain access to all corporate documents."