Public Citizen, Inc. v. CenterPoint Energy, Inc., 174 F.E.R.C. P61,101; 2021 FERC LEXIS 194; 2021 WL 646530

Public Citizen, Inc. v. CenterPoint Energy, Inc., 174 F.E.R.C. P61,101; 2021 FERC LEXIS 194; 2021 WL 646530

Opinion

1. On October 5, 2020, Public Citizen, Inc. and Citizens Action Coalition (together, Public Citizen), pursuant to section 206 of the Federal Power Act (FPA), ¹ filed a complaint alleging that, following an equity transaction between CenterPoint Energy, Inc. (CenterPoint) and hedge funds Elliott International, L.P. and Elliott Associates, L.P. (together, Elliott), Southern Indiana Gas and Electric Company (Southern Indiana), an indirect wholly owned subsidiary of CenterPoint, should have submitted a change in status filing, and arguing that CenterPoint and Elliott should be deemed affiliates (Complaint). For the reasons discussed below, we deny the Complaint.

I. Background

2. In the Complaint, Public Citizen raises concerns with an equity investment made by Elliott in CenterPoint (Equity Investment). Detailed in a Form 8-K filed with the Securities and Exchange Commission on May 7, 2020, CenterPoint announced: (1) an approximately $ 1.4 billion investment made by Elliott and other funds in CenterPoint; (2) the appointment of two new independent directors to CenterPoint's Board [*2]  (Board); and (3) the Board's establishment of a new Business Review and Evaluation Committee (BREC). ² 

3. First, pursuant to a Preferred Stock Purchase Agreement (Stock Purchase Agreement), Elliott would purchase 625,000 shares of non-voting mandatory convertible preferred stock for a purchase price of $ 625 million, which, upon conversion, would equal less than 10% of CenterPoint's outstanding shares of voting common stock. ³ 

4. Second, pursuant to the Governance Arrangement Agreement (Governance Agreement), CenterPoint agreed to appoint two new independent outside directors -- David Lesar and Barry Smitherman -- to the Board, increasing its size from 8 to 10. With regard to the appointment of the new [*3]  directors, the Form 8-K states that there are no arrangements or understandings between Messrs. Lesar and Smitherman and any other person pursuant to which they were selected as directors. The Governance Agreement also requires that these new directors be independent of Elliott, providing both that (1) the new directors not be an employee, officer, director, other agent of Elliott, and not have any agreement or arrangement with Elliott nor its affiliates regarding such person's service as director; and (2) neither Elliott nor its affiliates will pay any compensation to the new directors for their service on the Board. In the event either new director is unable to serve, Elliott and CenterPoint will cooperate to mutually select a new independent director. Elliott may not unilaterally appoint or remove a director, or even require CenterPoint to agree to appoint a replacement. The Governance Agreement also makes clear that any replacement directors also must be independent of Elliott. ⁴ 

5. Third, the Governance Agreement also establishes the BREC "to assist the Board in evaluating and optimizing the various businesses, assets and ownership [*4]  interests" of CenterPoint and its subsidiaries. ⁵ The BREC will conduct a strategic business review of CenterPoint's operations and "provide advice and recommendations to the Board regarding analyzing and executing on a comprehensive range of potential value-maximizing strategic business actions and alternatives related to [CenterPoint's] current configuration." ⁶ Pursuant to the BREC Charter, the BREC was required to provide its recommendations to the CenterPoint Board by October 15, 2020, and will remain in place "until the later of such time that the Board formally determines to not proceed with the BREC's recommendations or such time that [CenterPoint] consummates the strategic actions and alternatives that may be recommended by the BREC and approved by the Board." ⁷ The BREC's Charter states that its recommendations to the Board are "non-binding." ⁸ The membership of the BREC consists of independent directors and the CEO of CenterPoint (and will include Messrs. Smitherman and Lesar, the latter of whom is the new CEO of CenterPoint).

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