On September 21, 2023, the Commission found that J.P. Morgan Investment Management Inc. (“J.P. Morgan Investment”) is an affiliate of Mankato Energy Center, LLC and Mankato Energy Center II, LLC (“Mankato Companies”) through their upstream owner, IIF US Holding 2 LP (“IIF US Holding 2”) because there is liable to be an absence of arm’s-length bargaining in transactions between Mankato Companies and J.P. Morgan Investment. In doing so, FERC considered, among other things, the power delegated by IIF US Holding 2 to J.P. Morgan Investment, which serves as IIF US Holding 2’s investment advisor. Commissioner Danly concurred in the result in a separate statement, and Chairman Willie Phillips concurred in a separate statement.
On January 11, 2021, the Commission conditionally accepted the notice of change in status and revised market-based rate tariffs filed by Mankato Companies. In that order, the Commission instituted a Federal Power Act section 206 proceeding to determine whether Mankato Companies are affiliated with J.P. Morgan Investment through J.P. Morgan Investment’s relationship with Mankato Companies’ upstream owner, IIF US Holding 2. The Commission noted that it specifically sought to determine whether J.P. Morgan Investment’s connection to Mankato Companies makes it likely that there is an absence of arm’s-length bargaining in transactions between the two entities. Mankato Companies asserted that while providing advisory services to IIF US Holding 2, J.P. Morgan Investment operates under the ultimate authority and oversight of IIF 2 GP and its owners and can be terminated or have its advisory relationship altered at any time, indicating no affiliation. Mankato Companies also asserted that despite J.P. Morgan Investment making investment recommendations, final decision lies with IIF US Holding 2, and IIF US Holding 2 does not delegate any responsibilities related to the sale or production of electric energy to J.P. Morgan Investment or its affiliates. Separately, on January 19, 2021, Mankato Companies and other subsidiaries of IIF US Holding 2 filed a notice of change in status to inform the Commission of the acquisition of an approximately 33.3% membership interest In the general partner of IIF US Holding 2 (“January 2021 Change in Status”).
The Commission found that, based on the relationship between Mankato Companies, through IIF US Holding 2, and J.P. Morgan Investment, there is liable to be an absence of arm’s-length bargaining in transactions between Mankato Companies and J.P. Morgan Investment to make it appropriate for the protection of investors or consumers that they be treated as affiliates. The Commission considered (1) the close relationship between IIF US Holding 2 and J.P. Morgan Investment related entities demonstrated by evidence in the Investment Advisory Agreement and the Partnership Agreement filed in the docket (see June 13, 2023 edition of the WER) and by the fact that IIF US Holding 2 has no employees of its own; (2) the duties delegated to J.P. Morgan Investment under the Investment Advisory Agreement are broad; and (3) a J.P. Morgan Investment employee sits on the board of directors of Onward Energy Holdings, LLC, which is an intermediate holding company between IIF US Holding 2 and Mankato Companies, as IIF US Holding 2’s representative.
The Commission also directed Mankato Companies to file a notice of change in status to include updated asset appendix information to reflect affiliation with J.P. Morgan and its affiliates and updated horizontal and vertical market power analysis. Additionally, the Commission terminated the section 206 proceeding, and accepted the January 2021 Change in Status, and directed Mankato Companies to make a tariff filing.
Commissioner Danly issued a concurrence in the result, stating that any vote “concurring in the result” means that the author agrees with the result but does not support the reasoning in the Commission order justifying the result. Commissioner Danly argued that while he agrees that there is affiliation, he disagrees with how the Commission arrived at that conclusion. Chairman Phillips issued a concurring statement in response to Commissioner Danly’s concurrence in the result, stating that Commissioner Danly failed to cite Commission precedent supporting his conclusion that concurring in the result should be deemed a dissent.
FERC’s order, issued in Docket Nos. ER20-2705-001, et al., can be found here.