Disclosure of corporate associations under the California cap-and-trade

 

Among specific legal effects of the existence of corporate associations between entities registered with the California cap-and-trade program are the obligation for the disclosure of these associations to the California regulator of the scheme (Air Resources Board) and the  consolidation of accounts for corporate associations (there is, however, possibility for opt-out of consolidation).

 

It is noteworthy that while the former of the above obligations covers direct as well as indirect associations, the latter relates only to the direct ones. Direct associations are also relevant for calculation of auction purchase limits and holding limits.

 

The criteria for differentiation between both forms of corporate associations in the meaning of the California cap-and-trade regulations, the extent and timelines for the discharge of the above obligations and other related specificities (in particular the influence on auction purchase limit and holding limit) are set out below.

 

 

Criteria for determining corporate associations

 

An entity has a corporate association with another entity if either one of these entities holds more than 20 percent of any class of listed shares, the right to acquire such shares, or any option to purchase such shares of the other entity;

- holds or can appoint more than 20 percent of common directors of the other entity;

- holds more than 20 percent of the voting power of the other entity;

- in the case of a partnership other than a limited partnership, holds more than 20 percent of the interests of the partnership;

or

- in the case of a limited partnership, controls the general partner.

 

Direct corporate association

 

An entity has a “direct corporate association” with another entity if either one of these entities:

 

- holds more than 50 percent of any class of listed shares, the right to acquire such shares, or any option to purchase such shares of the other entity;

- holds or can appoint more than 50 percent of common directors of the other entity;

- holds more than 50 percent of the voting power of the other entity;.

- in the case of a partnership other than a limited partnership, holds more than 50 percent of the interests of the partnership;

or

- in the case of a limited partnership, controls the general partner.

 

An entity has a “direct corporate association” with a second entity if the two entities are connected through a line of more than one direct corporate association.

 

An entity (A) has a “direct corporate association” with another entity (B) if the two entities share a common parent that is not registered into the California Cap-and-Trade Program and that parent has a direct corporate association with each entity (A and B) when applying the indicia of control contained above.

 

An entity with a “direct corporate association” with a second registered entity has a direct corporate association with any registered entity with whom the second registered entity has a direct corporate association.

 

Indirect corporate association

 

An entity has an “indirect corporate association” with another entity if:

 

- the two entities do not have a direct corporate association;

 

- the two entities are connected through a line of more than one corporate association; and

 

- the controlling entity’s percentage of ownership or other indicia of control indicated above of the indirectly controlled entity is more than 20 percent but less than or equal to 50 percent after multiplying the percentages at each link in the chain of corporate associations.

 

A publicly-owned electric utility or joint powers agency that is the operator of an electricity generating facility in California has a direct corporate association with the operator of another electricity generating facility in California if the same entity operates both generating facilities. A publicly-owned electric utility or joint powers agency that is the operator of an electricity generating facility in California has a direct corporate association with an electricity importer if the same entity operates the generating facility in California and is the entity importing electricity.

 

The California cap-and-trade regulation makes clear reservation that any registered entity subject to affiliate compliance rules promulgated by state or federal agencies is not required to disclose information or take other action that violates those rules.

 

The extent of the disclosure obligation

 

If an entity has a corporate, direct, or indirect association with another registered entity, or an unregistered entity involved in above determinations, it must disclose the following information for each associated entity:

 

1) information to identify the associated entity, including:

 

- name, contact information, and physical address of the entity;

- whether the entity is parent or subsidiary;

- holding account number, if applicable;

- primary account representative, if applicable;

- Data Universal Numbering System number, if assigned;

- U.S. federal tax Employer Identification Number, if assigned;

and

- place and date of incorporation, if applicable;

 

2) the type of corporate association and a brief description of the association, to include information sufficient to explain the entity’s evaluation of the measures used to determine the type of corporate association disclosed.

 

Timing for disclosure

 

The entity must disclose the above information to the ARB Executive Officer when registering with California the cap-and-trade program or at any time after registering when a corporate, direct, or indirect association is created or exists.

 

The disclosure obligation also materializes within 30 days of a change to the information disclosed and no later than the auction registration deadline (otherwise the entity may not participate in that auction).

 

Consolidation of accounts for corporate associations

 

By January 1, 2013 the accounts held by entities registered into the California cap-and-trade program that are part of a direct corporate association are to be consolidated into a consolidated set of accounts.

 

The accounts held by the individual member entities of the corporate association that have not opted out are subject to closure and all compliance instruments in these accounts must be transferred to the appropriate corporate association accounts.

 

To opt out of consolidation of accounts, the primary account representative or alternate account representative for an entity within the corporate association must provide to the ARB Executive Officer the appropriate submission by October 1, 2012 seeking exclusion of the account from the consolidated set of accounts to be created.

 

To consolidate the accounts for a corporate association the ARB Executive Officer will instruct the accounts administrator to create a single consolidated set of accounts for members of a corporate association that accept consolidation.

 

Given the specific character of the compliance and limited use holding accounts under the California cap-and-trade the said accounts will be included in a single consolidated set of accounts only for a corporate association with at least one member entity that accepts consolidation that is eligible for these accounts.

 

More information on legal regime for consolidated accounts is available in 'Consolidated account as a means of managing compliance instruments and compliance obligations for entities with a direct corporate relationship under California cap-and-trade.'

 

Application of the corporate association to the holding limit

 

The total number of allowances held by a group of entities with a direct corporate association  in their holding accounts must sum to less than or equal to the holding limits.

 

Entities that are part of a direct corporate association that choose to opt out of account consolidation must allocate shares of the holding limit among themselves. This holding limit allocation results in each entity having a specified percentage share of the group’s holding limit. The sum of the shares allocated among the entities must sum to one.

 

The primary account representatives or alternate account representatives of each of the associated entities must inform the accounts administrator of the allocation of the holding limit when registering.

 

The holding limit allocation will remain in effect until the primary account representatives or alternate account representatives of each of the associated entities informs the accounts administrator of subsequent changes to the allocation of the holding limit.

 

Application of the corporate association to the auction purchase limit

 

The total number of compliance instruments which may be purchased in a single auction by a group of entities with a direct corporate association is limited, these entities may, however, allocate shares of the purchase limit amongst themselves. Each entity will then have a specified percentage share of the association’s purchase limit. The sum of the shares allocated among the entities must sum to one.

 

Each associated entity’s allocated purchase limit share times the auction purchase limit assigned to the association becomes the purchase limit for that entity.

 

Some other effects of corporate association under the California cap-and-trade

 

It is also noteworthy that besides consequences mentioned at the beginning of this article, for transfers between entities with a direct corporate association disclosure of price to the CITSS accounts administrator (as part of a transfer request before any transfer of allowances can be recorded on the tracking system) is not required.



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Last Updated on Saturday, 22 September 2012 12:00
 

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