

[Federal Register: January 6, 2006 (Volume 71, Number 4)]
[Rules and Regulations]               
[Page 1347-1376]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06ja06-6]                         


[[Page 1347]]

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Part III





Department of Energy





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Federal Energy Regulatory Commission



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18 CFR Parts 2 and 33



Transactions Subject to FPA Section 203; Final Rule


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 2 and 33

[Docket No. RM05-34-000; Order No. 669]

 
Transactions Subject to FPA Section 203

Issued December 23, 2005.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Final rule.

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SUMMARY: Under Subtitle G (Market Transparency, Enforcement, and 
Consumer Protection), section 1289 (Merger Review Reform), of Title XII 
(Electricity Modernization Act of 2005), of the Energy Policy Act of 
2005 (EPAct 2005), Public Law 109-58, 119 Stat. 594 (2005), the Federal 
Energy Regulatory Commission (Commission) amends 18 CFR 2.26 and 18 CFR 
part 33 to implement amended section 203 of the Federal Power Act 
(FPA).\1\
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    \1\ 16 U.S.C. 824b (2000).

DATES: Effective Date: This Final Rule will become effective on 
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February 8, 2006.

FOR FURTHER INFORMATION CONTACT:
Sarah McWane (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426. (202) 502-8372.
Phillip Nicholson (Technical Information), Office of Markets, Tariffs 
and Rates--West, Federal Energy Regulatory Commission, 888 First 
Street, NE., Washington, DC, 20426. (202) 502-8240.
Jan Macpherson (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426. (202) 502-8921.
James Akers (Technical Information), Office of Markets, Tariffs and 
Rates--West, Federal Energy Regulatory Commission, 888 First Street, 
NE., Washington, DC 20426. (202) 502-8101.

SUPLEMENTARY INFORMATION:

                            Table of Contents
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                                                         Paragraph Nos.
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I. Introduction.......................................                1.
II. Background........................................                5.
    A. Commission Merger Policy Before Effective Date                 5.
     of Amended FPA Section 203.......................
    B. Section 203 As Amended By EPAct 2005...........               15.
    C. Notice of Proposed Rulemaking on Transactions                 25.
     Subject to FPA Section 203.......................
III. Discussion.......................................               27.
    A. Amendments to 18 CFR Part 33...................               27.
    1. Section 33.1(a)--Applicability.................               28.
    2. Section 33.1(b)--Definitions of ``Associate                   33.
     Company,'' ``Holding Company,'' ``Holding Company
     System,'' ``Transmitting Utility,'' and
     ``Electric Utility Company''.....................
    3. Section 33.1(b)--Definition of ``Existing                     74.
     Generation Facility''............................
    4. Section 33.1(b)--Definition of ``Non-Utility                  88.
     Associate Company''..............................
    5. Section 33.1(b)--Definition of ``Value''.......               94.
    6. Compliance with Section 203....................              127.
    7. Cash Management Arrangements, Intra-Holding                  133.
     Company System Financing, Securities Under
     Amended Section 203, and Blanket Authorizations..
    8. Section 33.2(j)--General Information                         146.
     Requirements Regarding Cross-Subsidization.......
    9. Section 33.11--Commission Procedures for                     172.
     Consideration of Applications under Section 203
     of the FPA.......................................
    B. Amendments to 18 CFR 2.26--The Merger Policy                 195.
     Statement........................................
    1. Comments.......................................              198.
    2. Commission Determination.......................              202.
IV. Information Collection Statement..................              203.
V. Environmental Analysis.............................              207.
VI. Regulatory Flexibility Act Certification..........              208.
VII. Document Availability............................              210.
VIII. Effective Date and Congressional Notification...              213.
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Before Commissioners: Joseph T. Kelliher, Chairman; Nora Mead 
Brownell, and Suedeen G. Kelly.

I. Introduction

    1. On August 8, 2005, the Energy Policy Act of 2005 (EPAct 2005) 
\2\ was signed into law. Section 1289 (Merger Review Reform) of Title 
XII, Subtitle G (Market Transparency, Enforcement, and Consumer 
Protection),\3\ of EPAct 2005 amends section 203 of the Federal Power 
Act (FPA).\4\ Amended section 203: (1) Increases (from $50,000 to 
greater than $10 million) the value threshold for certain transactions 
being subject to section 203; (2) extends the scope of section 203 to 
include transactions involving certain transfers of generation 
facilities and certain holding companies' transactions with a value in 
excess of $10 million; (3) limits the Federal Energy Regulatory 
Commission's (Commission) review of a public utility's acquisition of 
securities of another public utility to transactions greater than $10 
million; (4) requires that the Commission, when reviewing proposed 
section 203 transactions, examine cross-subsidization and pledges or 
encumbrances of utility assets; and (5) directs the Commission to 
adopt, by rule, procedures for the expeditious consideration of 
applications for the approval of dispositions, consolidations, or 
acquisitions under section 203.
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    \2\ Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 594 
(2005).
    \3\ EPAct 2005 Sec. Sec.  1281 et seq.
    \4\ 16 U.S.C. 824b (2000).
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    2. As discussed below, on October 3, 2005, the Commission issued a 
notice of proposed rulemaking (NOPR) in which it proposed certain 
modifications to 18 CFR 2.26 and 18 CFR part 33 to implement amended 
section 203.\5\ Numerous comments were filed by a variety of entities.
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    \5\ Transactions Subject to FPA Section 203, 70 FR 58,636 
(October 7, 2005), FERC Stats. & Regs. ] 32,589 (2005).
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    3. In this Final Rule, the Commission adopts some of the proposals 
in the

[[Page 1349]]

NOPR as well as many of the commenters' recommendations. Specifically, 
this Final Rule:
    (1) Implements the new applicability of amended section 203 of the 
FPA;
    (2) Grants blanket authorizations for certain types of 
transactions, including foreign utility acquisitions by holding 
companies, intra-holding company system financing and cash management 
arrangements, certain internal corporate reorganizations, and certain 
investments in transmitting utilities and electric utility companies;
    (3) Adopts many of the NOPR's proposed defined terms, including 
``electric utility company,'' ``holding company,'' and ``non-utility 
associate company,'' but clarifies the application of these terms to 
certain entities;
    (4) Amends the proposed definition of ``existing generation 
facility;'
    (5) Adopts a simpler rule than was proposed in the NOPR with 
respect to the determination of ``value'' as it applies to various 
section 203 transactions;
    (6) Clarifies and refines the NOPR's proposal with respect to a 
section 203 applicant's obligation to file evidentiary support to 
demonstrate that a proposed transaction will not result in cross-
subsidization of a non-utility associate company or pledge or 
encumbrance of utility assets for the benefit of an associate company; 
and
    (7) Adopts the NOPR's proposal that the Commission provide 
expeditious consideration of completed applications for the approval of 
transactions that are not contested, do not involve mergers, and are 
consistent with Commission precedent.
    4. Our goal is to carry out the expanded authorities and 
requirements contained in the new section 203 amendments to ensure that 
all jurisdictional transactions subject to section 203 are consistent 
with the public interest and at the same time ensure that our rules do 
not impede day-to-day business transactions or stifle timely investment 
in transmission and generation infrastructure. We believe we have 
accomplished this result with the rules herein. However, at the 
technical conference we announced in our final rule implementing the 
Public Utility Holding Company Act of 2005 (PUHCA 2005),\6\ to be held 
within the next year,\7\ we will also address issues raised in this 
proceeding, including the appropriateness of the blanket authorizations 
granted herein and whether additional steps are needed to protect 
against cross-subsidization and pledges or encumbrance of utility 
assets.
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    \6\ EPAct 2005 sections 1261 et seq. Repeal of the Public 
Utility Holding Company Act of 1935 and Enactment of the Public 
Utility Holding Company Act of 2005, Order No. 667, FERC Stats. & 
Regs. ] 31,197 (2005) (PUHCA 2005 Final Rule).
    \7\ PUHCA 2005 Final Rule at P 17. Specifically, in the PUHCA 
Final Rule, the Commission stated that we intend to hold a technical 
conference no later than one year after PUHCA 2005 becomes effective 
to evaluate whether additional exemptions, different reporting 
requirements, or other regulatory actions need to be considered. The 
Commission's regulations implementing PUHCA 2005 take effect on 
February 8, 2006.
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II. Background

A. Commission Merger Policy Before Effective Date of Amended FPA 
Section 203

    5. Section 203 of the FPA \8\ currently provides that: No public 
utility shall sell, lease or otherwise dispose of the whole of its 
facilities subject to the jurisdiction of the Commission, or any part 
thereof of a value in excess of $50,000, or by any means whatsoever, 
directly or indirectly, merge or consolidate such facilities or any 
part thereof with those of any other person, or purchase, acquire, or 
take any security of any other public utility, without first having 
secured an order of the Commission authorizing it to do so.

    \8\ EPAct 2005's amendments to FPA section 203 take effect on 
February 8, 2006. We will generally refer to EPAct 2005's amended 
section 203 of the FPA as ``amended'' or ``new'' section 203. All 
other references to FPA section 203 are as it exists now.
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The Commission shall approve such transactions if they are ``consistent 
with the public interest.''
    6. In 1996, the Commission issued the Merger Policy Statement \9\ 
updating and clarifying the Commission's procedures, criteria, and 
policies concerning public utility mergers. The purpose of the Merger 
Policy Statement was to ensure that mergers are consistent with the 
public interest and to provide greater certainty and expedition in the 
Commission's analysis of merger applications.
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    \9\ Inquiry Concerning the Commission's Merger Policy Under the 
Federal Power Act: Policy Statement, Order No. 592, 61 FR 68,595 
(Dec. 30, 1996), FERC Stats. & Regs. ] 31,044 (1996), 
reconsideration denied, Order No. 592-A, 62 FR 33,340 (June 19, 
1997), 79 FERC ] 61,321 (1997) (Merger Policy Statement).
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    7. The Merger Policy Statement sets out three factors the 
Commission generally considers when analyzing whether a proposed 
section 203 transaction \10\ is consistent with the public interest: 
Effect on competition; effect on rates; and effect on regulation.
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    \10\ Although the Commission applies these factors to all 
section 203 transactions, not just mergers, the filing requirements 
and the level of detail required may differ. Id. at 30,113 n.7. See 
also 18 CFR 2.26 (2005) (codifying the Merger Policy Statement).
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    8. With respect to the first factor, the effect on competition, the 
Merger Policy Statement adopts the Department of Justice (DOJ)/Federal 
Trade Commission (FTC) 1992 Horizontal Merger Guidelines (Guidelines) 
\11\ as the analytical framework for examining horizontal market power 
concerns. The Merger Policy Statement also uses an analytical screen 
(Appendix A analysis) to allow early identification of transactions 
that clearly do not raise competitive concerns.\12\ As part of the 
screen analysis, applicants must define the relevant products sold by 
the merging entities, identify the customers and potential suppliers in 
the geographic markets that are likely to be affected by the proposed 
transaction, and measure the concentration in those markets. Using the 
Delivered Price Test to identify alternative competing suppliers, the 
concentration of potential suppliers included in the defined market is 
then measured by the Herfindahl-Hirschman Index (HHI) and used as a 
screen to determine which transactions clearly do not raise market 
power concerns.
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    \11\ U.S. Department of Justice and Federal Trade Commission, 
Horizontal Merger Guidelines, 57 FR 41,552 (1992), revised, 4 Trade 
Reg. Rep. (CCH) ] 13,104 (Apr. 8, 1997).
    \12\ Merger Policy Statement at 30,119-20.
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    9. The Commission stated in the Merger Policy Statement that it 
will examine the second factor, the effect on rates, by focusing on 
customer protections designed to insulate consumers from any harm 
resulting from the transaction.\13\
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    \13\ See id. at 30,121-24.
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    10. The Merger Policy Statement set forth a third factor for 
examination, the effect on regulation. This includes both state 
regulation and the Commission's regulation, including any potential 
shift in regulation from the Commission to the Securities and Exchange 
Commission (SEC) due to a transaction creating a registered public 
utility holding company under the Public Utility Holding Company Act of 
1935 (PUHCA 1935).\14\ The Merger Policy Statement explained that, 
unless applicants commit themselves to abide by this Commission's 
policies with regard to affiliate transactions involving non-power 
goods and services, we will set the issue of the effect on regulation 
for hearing.\15\
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    \14\ 15 U.S.C. 79a et seq. (2000).
    \15\ Merger Policy Statement at 30,125; see also Atlantic City 
Electric Co. and Delmarva Power & Light Co., 80 FERC ] 61,126 at 
61,412, order denying reh'g, 81 FERC ] 61,173 (1997). With respect 
to a transaction's effect on state regulation, where the state 
commissions have authority to act on the transaction, the Commission 
stated that it intends to rely on them to exercise their authority 
to protect state interests.

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[[Page 1350]]

    11. The Commission later issued the Filing Requirements Rule,\16\ a 
final rule updating the filing requirements under 18 CFR part 33 of the 
Commission's regulations for section 203 applications. The Filing 
Requirements Rule implements the Merger Policy Statement and provides 
detailed guidance to applicants for preparing applications. The revised 
filing requirements also assist the Commission in determining whether 
section 203 transactions are consistent with the public interest, 
provide more certainty, and expedite the Commission's handling of such 
applications.
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    \16\ Revised Filing Requirements Under Part 33 of the 
Commission's Regulations, Order No. 642, 65 FR 70,983 (Nov. 28, 
2000), FERC Stats. & Regs., July 1996-Dec. 2000 ] 31,111 (2000), 
order on reh'g, Order No. 642-A, 66 FR 16,121 (Mar. 23, 2001), 94 
FERC ] 61,289 (2001) (codified at 18 CFR Part 33 (2005)) (Filing 
Requirements Rule).
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    12. Further, the Filing Requirements Rule codified the Commission's 
screening approach, provided specific filing requirements consistent 
with Appendix A of the Commission's Merger Policy Statement, 
established guidelines for vertical competitive analysis, and set forth 
filing requirements for mergers that may raise vertical market power 
concerns.
    13. The Filing Requirements Rule also reduced the information 
burden for transactions that clearly raise no competitive concerns. The 
Commission explained that for certain transactions, abbreviated filing 
requirements are appropriate because it is relatively easy to determine 
that they will not harm competition and, thus, a full-fledged 
horizontal screen analysis or vertical competitive analysis is not 
required.\17\
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    \17\ Filing Requirements Rule at 31,902 & 31,907. The Commission 
clarified that, if it later determined that a filing raised 
competitive issues, the Commission would evaluate those issues and 
direct the applicant to submit any data needed to satisfy the 
Commission's concerns. Id. at n.79.
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    14. The Commission stated in the Filing Requirements Rule that it 
intended to continue processing section 203 applications expeditiously, 
with a goal of issuing an initial order for most mergers within 150 
days of a completed application.\18\ Further, the Commission stated 
that it intended to continue processing uncontested non-merger 
applications within 60 days of filing and protested non-merger 
applications within 90 days of filing.\19\
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    \18\ Id. at 31,873.
    \19\ Id. at 31,876.
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B. Section 203 as Amended by EPAct 2005

    15. EPAct 2005 revises section 203(a) of the FPA as follows:
    16. Amended section 203(a)(1) states that no public utility shall, 
without first having secured an order of the Commission authorizing it 
to do so: (A) Sell, lease, or otherwise dispose of the whole of its 
facilities subject to the jurisdiction of the Commission, or any part 
thereof of a value in excess of $10 million; (B) merge or consolidate, 
directly or indirectly, such facilities or any part thereof with those 
of any other person, by any means whatsoever; (C) purchase, acquire, or 
take any security with a value in excess of $10 million of any other 
public utility; or (D) purchase, lease, or otherwise acquire an 
existing generation facility: (i) That has a value in excess of $10 
million; and (ii) that is used for interstate wholesale sales and over 
which the Commission has jurisdiction for ratemaking purposes.
    17. Section 203(a)(2) adds the entirely new requirement that no 
holding company in a holding company system that includes a 
transmitting utility or an electric utility shall purchase, acquire, or 
take any security with a value in excess of $10 million of, or, by any 
means whatsoever, directly or indirectly, merge or consolidate with, a 
transmitting utility, an electric utility company, or a holding company 
in a holding company system that includes a transmitting utility, or an 
electric utility company, with a value in excess of $10 million without 
prior Commission authorization.
    18. Like the existing section 203(a), amended section 203(a)(3) 
provides that upon receipt of an application for such approval, the 
Commission shall give reasonable notice in writing to the Governor and 
state commission of each of the states in which the physical property 
affected is situated, and to such other persons as it may deem 
advisable.
    19. Amended section 203(a)(4) states that after notice and 
opportunity for hearing, the Commission shall approve the proposed 
disposition, consolidation, acquisition, or change in control if it 
finds that the transaction will be consistent with the public interest. 
It also specifically provides that the Commission must find that the 
transaction will not result in cross-subsidization of a non-utility 
associate company or pledge or encumbrance of utility assets for the 
benefit of an associate company, unless that cross-subsidization, 
pledge, or encumbrance will be consistent with the public interest.
    20. Section 203(a)(5) adds the entirely new requirement that the 
Commission shall: By rule, adopt procedures for the expeditious 
consideration of applications for the approval of dispositions, 
consolidations, or acquisitions, under this section. Such rules shall 
identify classes of transactions, or specify criteria for transactions, 
that normally meet the standards established in paragraph (4). The 
Commission shall provide expedited review for such transactions. The 
Commission shall grant or deny any other application for approval of a 
transaction not later than 180 days after the application is filed. If 
the Commission does not act within 180 days, such application shall be 
deemed granted unless the Commission finds, based on good cause, that 
further consideration is required to determine whether the proposed 
transaction meets the standards of paragraph (4) and issues an order 
tolling the time for acting on the application for not more than 180 
days, at the end of which additional period the Commission shall grant 
or deny the application.
    21. Section 203(a)(6), which is also new, provides that for 
purposes of this subsection, the terms ``associate company,'' ``holding 
company,'' and ``holding company system'' have the meaning given those 
terms in PUHCA 2005.
    22. Section 1289(b) provides that the amendments made by this 
section shall take effect six months after the date of enactment of 
EPAct 2005, or February 8, 2006. This is the same date on which the 
repeal of PUHCA 1935 and enactment of the PUHCA 2005, are to take 
effect.\20\
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    \20\ Id. Sec. Sec.  1261, 1274. PUHCA 2005 Final Rule at P 1.
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    23. Section 1289(c) provides that the amendments made by subsection 
(a) shall not apply to any section 203 application that was filed on or 
before the date of enactment of EPAct 2005.
    24. Section 203(b) of the FPA remains unchanged.\21\
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    \21\ Section 203(b) states:
    The Commission may grant any application for an order under this 
section in whole or in part and upon such terms and conditions as it 
finds necessary or appropriate to secure the maintenance of adequate 
service and the coordination in the public interest of facilities 
subject to the jurisdiction of the Commission. The Commission may 
from time to time for good cause shown make such orders supplemental 
to any order made under this section as it may find necessary or 
appropriate.
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C. Notice of Proposed Rulemaking on Transactions Subject to FPA Section 
203

    25. On October 7, 2005, the Commission's NOPR on Transactions 
Subject to FPA Section 203 was published in the Federal Register.\22\ 
As discussed in more detail below, in the

[[Page 1351]]

NOPR the Commission proposed to revise 18 CFR part 33 and 18 CFR 2.26 
of its rules to implement amended section 203 of the FPA. Comments were 
due on or before November 7, 2005.\23\
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    \22\ 70 FR 58,636 (October 7, 2005). On October 19, 2005, an 
errata notice was published in the Federal Register (70 FR 60,748), 
correcting Paragraph 1, footnote 4 of the NOPR to refer to February 
8, 2006, as opposed to February 3, 2006.
    \23\ The commenters are listed in an appendix to this order.
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    26. This Final Rule will be effective on the date on which amended 
section 203 of the FPA takes effect, February 8, 2006.

III. Discussion

A. Amendments to 18 CFR Part 33

    27. In the NOPR, the Commission proposed to amend 18 CFR part 33 
by: Revising the title to read ``Applications Under Federal Power Act 
Section 203;'' amending section 33.1(a) to clarify what transactions 
are subject to amended section 203 and part 33 as a result of amended 
sections 203(a)(1)(A)-(D) and (a)(2) of the FPA; adding a new 
subsection 33.1(b) that defines certain new terms used in amended 
section 203 that are not defined in EPAct 2005; adding a new subsection 
33.2(j) to implement amended section 203(a)(4) regarding cross-
subsidization and pledge or encumbrance issues; and adding new sections 
33.11(a) and (b) to implement amended section 203(a)(5) regarding the 
Commission's procedures for the consideration of applications under 
section 203 of the FPA.
1. Section 33.1(a)--Applicability
    28. Proposed section 33.1(a) clarifies what transactions are 
subject to amended section 203 and part 33 as a result of amended 
sections 203(a)(1)(A)-(D) and (a)(2) of the FPA.\24\
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    \24\ Because proposed section 33.1(a) is almost identical, with 
minor exceptions, to amended sections 203(a)(1)(A)-(D) and (a)(2), 
which are summarized in section II.B. above and set forth in the 
regulatory text, we will not recite that text here.
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a. Comments
    29. Several commenters raise concerns, described in more detail 
below, regarding the applicability of amended section 203 to 
transactions involving foreign utility companies (FUCOs), qualifying 
facilities (QFs), exempt wholesale generators (EWGs),\25\ rural 
electric cooperatives, local distribution companies, stand-alone 
generation and retail sales, as well as intrastate transactions, i.e., 
transactions wholly within the Electric Reliability Council of Texas 
(ERCOT), Alaska, or Hawaii. They generally argue that Congress did not 
intend to expand significantly the Commission's jurisdiction under 
amended section 203 and, therefore, did not convey to the Commission 
jurisdiction over these types of transactions. Commenters also express 
concern over any potential overlap between the Commission's scope of 
review under amended section 203 and the scope of review by state 
commissions. They state that the Commission should not use its new 
section 203 authority to preempt state regulatory authority over rates 
and approvals of utility mergers and acquisitions.
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    \25\ PUHCA 2005 Sec.  1266(a).
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    30. Electric Power Supply Association (EPSA) requests that the 
Commission modify the text of proposed section 33.1(a)(1)(ii) to 
clarify that any merger or consolidation must exceed the $10 million 
threshold before section 203 filing approval is required. It states 
that the Commission should not alter its past practice of applying the 
statutory dollar threshold to all types of transactions requiring 
section 203 approval, including mergers and acquisitions. EPSA explains 
that the mergers and acquisitions clause of the currently effective 
section 203 and section 203 as amended by EPAct 2005 are substantially 
the same and do not specify a value amount. EPSA points out, however, 
that although the currently effective statutory language, like the 
newly enacted EPAct 2005 language, did not codify the monetary 
threshold with respect to mergers and consolidations, for decades the 
Commission's regulations (section 33.1(a)(2)) have required section 203 
applications for mergers, consolidations and acquisitions only if they 
meet the $50,000 threshold (which on February 8, 2006 will become $10 
million). EPSA states that the NOPR provides no reason for the 
Commission to change its interpretation of section 203.
b. Commission Determination
    31. Most of the concerns regarding the applicability of amended 
section 203 involve new section 203(a)(2) and the Commission's proposed 
definitions of ``electric utility company'' and ``holding company.'' 
Accordingly, these comments are discussed in greater detail in those 
sections below. Similarly, concerns regarding any potential overlap 
between the scope of review of the Commission under amended section 203 
and that of state commissions are also discussed with the proposed 
definition of ``electric utility company,'' below.
    32. We reject EPSA's request that we revise proposed section 
33.1(a)(1)(ii) to clarify that any merger or consolidation must also 
exceed a monetary threshold before section 203 filing approval is 
required. The plain language of amended section 203(a)(1)(B) does not 
permit such an interpretation. Under amended section 203(a)(1)(B): ``No 
public utility shall * * * merge or consolidate, directly or 
indirectly, such facilities [facilities subject to the jurisdiction of 
the Commission] or any part thereof with those of any other person, by 
any means whatsoever.'' This provision, on its face, does not impose a 
dollar threshold on mergers or consolidations and proposed section 
33.1(a)(1)(ii) is consistent with the statutory provision. While 
Congress included a $10 million threshold for amended subsections 
203(a)(1)(A), (C), (D), and 203(a)(2) (dispositions of jurisdictional 
facilities; acquisitions of securities of public utilities; purchases 
of existing generation facilities; holding company acquisitions), 
Congress clearly did not adopt a monetary threshold for mergers and 
consolidations in amended subsection 203(a)(1)(B). We note that 
``[w]here Congress includes particular language in one section of a 
statute but omits it in another section of the same Act, it is 
generally presumed that Congress acts intentionally and purposely in 
the disparate inclusion or exclusion.'' \26\ In light of the 
unambiguous statutory language, we are not convinced by EPSA's 
unsupported assertion that the failure to include a monetary threshold 
as to mergers and consolidations was an ``oversight'' and that 
``Congress did not intend to change [the currently effective] statutory 
and regulatory structure.'' \27\ While our regulations previously 
applied a dollar threshold to mergers and consolidations, such an 
approach is no longer tenable, since it is inconsistent with the plain 
language of amended section 203. Thus, we will not revise section 
33.1(a)(1)(ii) to include a $10 million threshold.
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    \26\ Russello v. United States, 464 U.S. 16, 23 (1983) (internal 
citations omitted).
    \27\ EPSA Comments at 5.
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2. Section 33.1(b)--Definitions of ``Associate Company,'' ``Holding 
Company,'' ``Holding Company System,'' ``Transmitting Utility,'' and 
``Electric Utility Company''
    33. As noted above, section 203(a)(2) adds an entirely new 
requirement to the FPA:

    No holding company in a holding company system that includes a 
transmitting utility or an electric utility shall purchase, acquire, 
or take any security with a value in excess of $10 million of, or, 
by any means whatsoever, directly or indirectly, merge or 
consolidate with, a transmitting utility, an electric utility 
company, or a holding company in a holding company system that 
includes a transmitting utility, or an electric utility company, 
with a value in excess of $10 million without first

[[Page 1352]]

having secured an order of the Commission authorizing it to do so.
a. Definition of ``Electric Utility Company''
    34. The scope of amended section 203(a)(2) turns in large part on 
the Commission's interpretation of the term ``electric utility 
company'' which, in turn, affects whether an entity is a holding 
company subject to section 203(a)(2). The FPA does not include a 
definition of ``electric utility company'' and the Commission proposed 
that the term, as used in amended section 203(a)(2), have the same 
meaning as in PUHCA 2005, which is ``any company that owns or operates 
facilities used for the generation, transmission, or distribution of 
electric energy for sale.'' \28\
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    \28\ EPAct 2005 Sec.  1262(5).
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i. Comments
    35. The proposed definition of ``electric utility company'' was one 
of the most commented-on issues in the NOPR. While certain commenters, 
including the American Public Power Association and the National Rural 
Electric Cooperative Association (APPA/NRECA), Indiana Utility 
Regulatory Commission (Indiana Commission), and Southern Company 
Services, Inc. (Southern Companies), support the Commission's adoption 
of the PUHCA 2005 definition of ``electric utility company,'' several 
commenters expressed concerns about the scope of the Commission's 
jurisdiction under the proposed definition. Specifically, they object 
to the proposed definition of the term ``electric utility company'' or 
seek clarification as to what types of entities are considered 
``electric utility companies,'' for purposes of amended section 
203(a)(2), to determine whether or not they must seek section 203 
approval.
    36. Many commenters argue that Congress did not intend to give the 
Commission jurisdiction over acquisitions of foreign companies.\29\ 
Certain commenters assert that if Congress had intended the PUHCA 2005 
definition to apply to ``electric utility company'' as used in amended 
section 203(a)(2), it would have said so as it did for the other terms 
listed in amended section 203(a)(6). They explain that, while the term 
``electric utility'' is used once in amended section 203(a)(2) and 
``electric utility company'' is used twice, the terms should be read 
similarly and should not affect the interpretation of the section. 
Accordingly, commenters assert that it is reasonable to read the term 
``electric utility company,'' not as used in PUHCA 2005, where the term 
includes foreign utility companies, but rather to have the same meaning 
as ``electric utility,'' which is defined in the FPA as ``a person or 
Federal or State agency * * * that sells electric energy.'' \30\ They 
argue that the use of the term ``electric utility'' in the FPA and in 
the Public Utility Regulatory Policies Act of 1978 (PURPA) \31\ makes 
clear that ``electric utilities'' are domestic entities (i.e., ones 
selling electricity in the U.S.), not foreign.\32\
---------------------------------------------------------------------------

    \29\ E.g., Congressman Joe Barton (Chairman Barton), The AES 
Corporation (AES), Edison Electric Institute (EEI), Entergy 
Services, Inc. (Entergy), E.ON AG (E.ON), EPSA, GE Energy Financial 
Services (GE EFS), Cogentrix Energy, Inc. and The Goldman Sachs 
Group, Inc. (Independent Sellers), National Grid USA (National 
Grid), PNM Resources, Inc. (PNM), Progress Energy, Inc. (Progress 
Energy), Scottish Power plc (Scottish Power), and SUEZ Energy North 
America (Suez).
    \30\ EPAct 2005 1291(b)(22).
    \31\ 16 U.S.C. 824a-3 (2000).
    \32\ See, e.g., AES Comments at 5. For example, AES states that, 
unless ``electric utility'' is implicitly defined only to include 
domestic entities, the provisions of sections 111-117 of PURPA, 
which relate in part to the actions of state commissions as they 
affect ``electric utilities,'' become a complete non sequitur.
---------------------------------------------------------------------------

    37. Similarly, EEI, Entergy, E.ON, PNM, and Progress Energy 
maintain that, in order to be consistent with the Commission's FPA 
jurisdiction, the Commission should define an ``electric utility 
company'' as ``a person that sells electric energy in interstate 
commerce.'' Suez states that, based on an analysis of and the 
legislative purpose behind EPAct 2005, the Commission should exempt the 
acquisition of foreign utility assets by jurisdictional holding 
companies without captive customers by adding the word 
``jurisdictional'' before ``transmitting utility'' and ``electric 
utility company'' at the end of proposed section 33.1(a)(2).
    38. Other commenters add that the Commission did not have 
jurisdiction over foreign acquisitions before EPAct 2005 and that 
nothing in EPAct 2005 explicitly gives the Commission jurisdiction over 
foreign acquisitions. Commenters assert that Commission jurisdiction 
over foreign acquisitions is contrary to Congressional intent and poor 
public policy, because Commission review will become an impediment to 
U.S. investment in foreign entities and may discourage international 
investment in the U.S. utility industry.\33\ They assert that the 
Commission should not review the numerous and/or routine foreign 
transactions that are not connected to the Commission's role of 
overseeing U.S. wholesale electric markets and the public interest. 
Certain commenters maintain that, at minimum, the Commission should 
exempt from review a holding company's acquisition of a FUCO where the 
holding company has no captive U.S. ratepayers.
---------------------------------------------------------------------------

    \33\ E.g., E.ON, Chairman Barton, and Suez.
---------------------------------------------------------------------------

    39. Several commenters argue that if the PUHCA 2005 definition of 
``electric utility company'' is adopted in the Final Rule, the 
definition should incorporate the exemptions to that definition set 
forth in the PUHCA 2005, including the exemption for FUCOs.\34\
---------------------------------------------------------------------------

    \34\ E.g., EEI, Entergy, E.ON, Independent Sellers, National 
Grid, Progress Energy, and Scottish Power (citing, e.g., PUHCA 2005 
Sec. Sec.  1264 & 1266).
---------------------------------------------------------------------------

    40. As indicated above, commenters argue that part II of the FPA 
applies to interstate commerce; therefore, section 203 should not be 
read to extend to transactions that are not in interstate commerce.\35\ 
Several commenters object to the proposed definition of ``electric 
utility company'' if it includes transactions typically reserved for 
state commission consideration (including transactions involving local 
distribution companies, stand-alone generation, retail sales and 
exclusively intrastate transactions), which the commenters maintain are 
beyond the Commission's jurisdiction.\36\
---------------------------------------------------------------------------

    \35\ See, e.g., Chairman Barton Comments at 3.
    \36\ E.g., Chairman Barton, EEI, Hawaiian Electric Company, Inc. 
(HECO), National Association of Regulatory Utility Commissioners 
(NARUC), National Grid, PNM, and Progress Energy.
---------------------------------------------------------------------------

    41. Specifically, Chairman Barton maintains that Congress did not 
intend to give the Commission jurisdiction over mergers in ERCOT. EEI, 
as supported by E.ON, PNM, and Progress Energy, maintains that its 
alternative definition for ``electric utility company,'' which is ``a 
person that sells electric energy in interstate commerce,'' would 
properly exclude local distribution companies from the Commission's 
authority under amended section 203.
    42. Further, many commenters are concerned that the proposed 
definition of ``electric utility company'' applies to QFs.\37\ ACC, 
EPSA, GE EFS, and Independent Sellers ask that the Commission clarify 
that QFs continue to be exempt from the Commission's section 203 
authority. ACC asks the Commission to exclude QFs that are not 
affiliated with traditional utilities, transmission providers, or other 
non-QF power producers in order to ensure that the parent companies of 
such QFs are not subject to amended section 203.
---------------------------------------------------------------------------

    \37\ E.g., American Chemistry Counsel (ACC), APPA/NRECA, EPSA, 
GE EFS, Independent Sellers, and Transmission Access Policy Study 
Group (TAPSG).
---------------------------------------------------------------------------

    43. Similarly, EPSA, GE EFS, and Independent Sellers request that 
we exclude a QF's upstream owners from Commission oversight under 
amended 203. They state that section 210(e) of

[[Page 1353]]

PURPA \38\ supports this finding. Independent Sellers also maintain 
that Congressional testimony suggests that amended 203(a)(2) should 
regulate only transactions of holding companies with public utilities 
in their holding company systems.\39\
---------------------------------------------------------------------------

    \38\ 16 U.S.C. 824a-3 (2000). Section 210(e) provides certain 
exemptions for cogeneration and small power producers.
    \39\ Independent Sellers Comments at 9.
---------------------------------------------------------------------------

    44. Several commenters, including GE EFS and Morgan Stanley Capital 
Group Inc. (Morgan Stanley), express concern about whether the proposed 
definition of ``electric utility company'' includes EWGs. Morgan 
Stanley agrees with the use of the PUHCA 2005 definition of ``electric 
utility company,'' stating that applying the same definition in both 
statutes accords with traditional principles of statutory construction. 
However, it asks the Commission to construe that definition consistent 
with the exemptions set forth in PUHCA 2005; this would exempt EWGs.
    45. APPA/NRECA seek clarification that ``a State, any political 
subdivision of a State, or any agency, authority or instrumentality of 
a State or political subdivision of a State'' is not an ``electric 
utility company'' under amended section 203(a)(2).
    46. Finally, the Energy Program of Public Citizen, Inc. (Public 
Citizen) asks the Commission to interpret its jurisdiction under 
amended FPA section 203 more extensively. It argues that certain 
``suspect'' categories of utility owners are not addressed in the NOPR 
or in current merger policy. These include investment banks, electric 
equipment suppliers, natural gas system owners, oil companies, and 
construction and other ``service'' companies. Public Citizen also 
states that the Commission must formulate a policy as to how it will 
protect American ratepayers if foreign holding companies are allowed to 
acquire, or continue to own, U.S. public utilities. Public Citizen 
criticizes the SEC's practice of allowing foreign holding companies to 
declare their own domestic utilities to be FUCOs under section 33 of 
PUHCA 1935, even though Congress did not intend to provide for 
this.\40\ Public Citizen asks for greater protections for domestic 
ratepayers given the absence of a requirement for ``registration for 
foreign holding companies and comprehensive PUHCA 1935 regulation of 
their financial transaction with their U.S. public utilities.'' \41\ It 
also states that the Commission should require a strong showing that 
acquisition by a foreign company without any experience in owning 
utilities is consistent with the public interest.
---------------------------------------------------------------------------

    \40\ Public Citizen Comments at 10.
    \41\ Id. at 10-11.
---------------------------------------------------------------------------

ii. Commission Determination
    47. A number of commenters make various arguments to support the 
contention that the term ``electric utility company,'' as used in 
amended section 203(a)(2), should not have the same meaning contained 
in PUHCA 2005. As discussed in greater detail below, we have carefully 
considered this issue and will retain the NOPR's proposed definition of 
the term. Additionally, we continue to believe that the most reasonable 
interpretation of section 203(a)(2) is that it applies to purchases or 
acquisitions of foreign utility companies. However, consistent with 
Congressional intent, we do not want to impede foreign investments and 
we will grant blanket authorizations of foreign utility company 
acquisitions subject to certain conditions to protect U.S. captive 
customers. We also offer further clarifications below regarding the 
application of the definition of ``electric utility company'' in 
specific circumstances and provide blanket authorizations for certain 
transactions.
    48. As noted above, new section 203(a)(2) provides:

    No holding company in a holding company system that includes a 
transmitting utility or an electric utility shall purchase, acquire, 
or take any security with a value in excess of $10,000,000 of, or, 
by any means whatsoever, directly or indirectly, merger or 
consolidate with, a transmitting utility, an electric utility 
company, or a holding company in a holding company system that 
includes a transmitting utility, or an electric utility company, 
with a value in excess of $10,000,000 * * *.\42\
---------------------------------------------------------------------------

    \42\ EPAct 2005 1289(a).

Canons of statutory construction require that effect be given to every 
term used in a statute.\43\ In new section 203(a)(2), Congress uses the 
term ``electric utility'' (already defined in the FPA) one time, and 
the term ``electric utility company'' (undefined in the FPA, but 
defined in both PUHCA 1935 and PUHCA 2005) two times in the same 
sentence. We cannot ignore the fact that Congress used two different 
terms within the same sentence. Had Congress intended ``electric 
utility'' to be used in three places instead of one, it would have done 
so.
---------------------------------------------------------------------------

    \43\ See Reiter v. Sonotone Corp., 442 U.S. 330, 339 (1979) 
(finding that settled principles of statutory construction require 
giving ``effect, if possible, to every word Congress used''); see 
also 2A Statutes and Statutory Construction Sec.  46.06 (N. Singer 
6th Ed. 2000 Revision) (a statute must be construed so that no part 
will be void or insignificant).
---------------------------------------------------------------------------

    49. However, the precise meaning of the term ``electric utility 
company'' is not clear. It is not a defined term in the FPA. Amended 
section 203(a)(6) provides that certain other terms used in amended 
section 203 (``associate company,'' ``holding company,'' and ``holding 
company system'') are to have the same meanings given those terms in 
PUHCA 2005, but does not address ``electric utility company.'' Thus 
there is Congressional silence as to the meaning of the term. We are 
therefore left to apply a reasonable meaning to the term in light of 
the simultaneous amendments to FPA section 203 and enactment of PUHCA 
2005.
    50. One of the arguments commenters raise in seeking an alternative 
definition of ``electric utility company,'' is that ``nothing compels'' 
the Commission to use the PUHCA 2005 definition of the term.\44\ We 
agree that such a result is not ``compelled,'' because the term is 
ambiguous. However, in determining what Congress might have meant by 
``electric utility company,'' the only reference points the Commission 
has in the context of federal electric utility regulatory terminology 
is the meaning of the term as used in PUHCA 1935 and in PUHCA 2005.\45\ 
Further, while certain commenters maintain that Congress intended to 
use the term ``electric utility'' instead of ``electric utility 
company'' in section 203(a)(2), there is no reliable legislative 
history to support this conclusion and, moreover, we do not believe 
that proper statutory construction permits us to simply substitute a 
term that Congress did not use.\46\ Additionally, as discussed below, 
substitution of the FPA term ``electric utility'' would not by itself 
resolve the issue as sought by commenters.
---------------------------------------------------------------------------

    \44\ Commenters' alternative proposed definitions are also 
discussed below in the specific context of the requested exemptions 
of foreign transactions.
    \45\ While both the FPA and PURPA contain definitions of 
``electric utility,'' neither contains a definition of ``electric 
utility company.''
    \46\ See, e.g., Indiana Michigan Power Co. v. Dept. of Energy, 
88 F.3d 1272, 1276 (DC Cir. 1996) (vacating an agency's decision 
where the agency's ``treatment of [a] statute is not an 
interpretation but a rewrite''); United States v. Plaza Health 
Laboratories, Inc., 3 F.3d 643, 655 (2nd Cir. 1993), cert. denied 
sub nom. United States v. Villegas, 512 U.S. 1245 (1994) (``neither 
agencies nor courts should rewrite the statute to be more 
`reasonable' * * * than Congress intended'').
---------------------------------------------------------------------------

    51. We conclude that the most reasonable interpretation of 
``electric utility company,'' as used in section 203(a)(2) of the FPA, 
particularly in light of the fact that section 203(a)(2) will become 
effective simultaneous with the repeal of PUHCA 1935 and enactment of 
PUHCA 2005, is the meaning in PUHCA 2005: ``any company that owns or 
operates facilities used for the generation, transmission, or 
distribution of electric energy for sale.'' We also find that it is 
reasonable to

[[Page 1354]]

interpret section 203(a)(2) as applying to foreign utility 
acquisitions, in light of the legitimate concern that there be federal 
oversight to ensure that U.S. captive customers do not cross-subsidize 
foreign transactions and that U.S. utility assets used to serve captive 
customers are not encumbered in order to support foreign acquisitions. 
The legislative history relevant to new section 203(a)(2) evidences 
this concern.\47\ However, the legislative history also makes clear 
that the provision was not intended to impede foreign investments, 
particularly where there are no U.S. captive customers that could be 
affected. Accordingly, we will interpret ``electric utility company'' 
to include foreign utility companies, but, as discussed infra, we will 
grant blanket authorizations for certain foreign acquisitions, with 
conditions to protect U.S. customers.
---------------------------------------------------------------------------

    \47\ The only legislative history on this issue is a colloquy 
between Senators Bingaman and Domenici, Ranking Member and Chairman, 
respectively, of the Senate Committee on Energy and Natural 
Resources. See Senate Floor Statements by Senators Bingaman (D-NM) 
and Domenici (R-NM), H.R. 6, Energy Policy Act of 2005, 151 Cong. 
Rec. S9359 (July 29, 2005) (discussing concerns regarding Commission 
approval of certain foreign transactions outside of the United 
States).
---------------------------------------------------------------------------

    52. We reject commenters' specific alternatives to the proposed 
definition of ``electric utility company.'' We do not believe that 
those proposed alternative definitions properly resolve the issue as to 
whether amended section 203(a)(2) applies to acquisitions of foreign 
utility companies. As noted above, the term ``electric utility 
company'' is defined in PUHCA 2005 as ``any company that owns or 
operates facilities used for the generation, transmission, or 
distribution of electric energy for sale.'' \48\ In contrast, 
``electric utility'' (which some commenters would have us substitute) 
is defined in the FPA, as modified by EPAct 2005, as ``a person or 
Federal or State agency * * * that sells electric energy.'' \49\ 
Neither of these terms, on its face, is limited to domestic 
transactions or even to interstate transactions. ``Electric utility,'' 
as defined in the FPA, both pre- and post-EPAct 2005, means persons 
that sell electric energy. Thus, we reject the argument that the 
Commission should insert the term ``electric utility'' into section 
203(a)(2) and then re-define it to mean persons that sell electric 
energy ``in interstate commerce.'' Not only has the modifier in 
``interstate commerce'' not been included in the FPA definition of 
``electric utility'' either pre- or post-EPAct 2005, but these 
commenters would require us to write into the statute words that are 
not there.\50\
---------------------------------------------------------------------------

    \48\ EPAct 2005 Sec.  1262(5).
    \49\ Id. Sec.  1291(b)(22).
    \50\ In fact, the key FPA provisions in which the term 
``electric utility'' is used are sections 210 and 211. Section 210, 
both pre- and post-EPAct 2005, permits the Commission to order an 
interconnection with the facilities of persons that sell energy in 
interstate or intrastate commerce. The current interconnection 
between ERCOT and the interstate grid was pursuant to a Commission 
order under sections 210 and 211 of the FPA. See Central Power & 
Light Co., 17 FERC ] 61,078 (1981), order on reh'g, 18 FERC ] 61,100 
(1982). Although commenters are correct that most of part II of the 
FPA is limited to interstate commerce, Congress has made specific 
exceptions in certain FPA provisions, and that includes the 
definition of ``electric utility.'' Cf. Indiana Michigan Power Co. 
v. Dept. of Energy, 88 F.3d 1272, 1276 (DC Cir. 1996) (``The 
[agency's] treatment of this statute is not an interpretation but a 
rewrite.''); United States v. Plaza Health Laboratories, Inc., 3 
F.3d 643, 655 (2nd Cir. 1993) (stating ``neither agencies nor courts 
should rewrite the statute to be more `reasonable' * * * than 
Congress intended''); Newman v. Love, 962 F.2d 1008, 1013 (Fed. Cir. 
1992) (rejecting an agency's ``attempt to rewrite'' a statute to 
contain costs or to avoid what it views as an inappropriate 
allocation of benefits).
---------------------------------------------------------------------------

    53. We also reject the alternative, proposed by Suez, by which the 
Commission would exclude foreign acquisitions by jurisdictional holding 
companies without captive customers by adding the word 
``jurisdictional'' before ``transmitting utility'' and ``electric 
utility company'' at the end of proposed section 33.1(a)(2) (which 
reflects new section 203(a)(2)). Congress in other provisions of the 
FPA, including section 203, has specifically limited certain 
authorizations to jurisdictional facilities, but chose not to do so in 
section 203(a)(2). We do not believe it is appropriate to insert into 
the statute modifiers that Congress did not include.
    54. A number of commenters raised concerns about the definition of 
``electric utility company'' and the applicability of the Commission's 
authority under amended section 203 to transactions wholly within 
ERCOT, Alaska, or Hawaii, transactions involving QFs, local 
distribution companies, stand-alone generation, retail sales and other 
intrastate transactions. Several of these commenters rely on the 
argument, as stated above, that Congress did not intend to expand 
significantly the Commission's jurisdiction and, therefore, did not 
convey to the Commission jurisdiction over transactions typically 
reserved for state commission consideration. Others argue for 
exemptions from the definition of ``electric utility company.''
    55. While we do not believe it is reasonable to interpret section 
203(a)(2) as being limited solely to holding company acquisitions and 
mergers involving wholesale sales or transmission in interstate 
commerce, we nevertheless conclude that commenters have raised valid 
concerns and that there would be no benefit from the Commission's case-
by-case evaluation of certain transactions under section 203(a)(2).\51\
---------------------------------------------------------------------------

    \51\ An acquisition or merger involving ``any company that owns 
or operates facilities used for the generation, transmission, or 
distribution of electric energy for sale'' is not on its face 
limited to interstate facilities.
---------------------------------------------------------------------------

    56. Our core jurisdiction under part II of the FPA continues to be 
transmission and sales for resale of electric energy in interstate 
commerce and we believe that a major impetus behind section 203(a)(2) 
was to clarify the Commission's jurisdiction over mergers of holding 
companies that own public utilities as defined in the FPA.\52\ However, 
the fact is that the language in section 203(a)(2) does more than 
address this issue, and we must implement the provision in a way that 
recognizes the expansion of authority, yet retains our primary focus on 
interstate wholesale energy markets and does not interfere unduly with 
historical state jurisdiction. Accordingly, we conclude that it is 
consistent with the public interest to grant blanket authorizations in 
the Final Rule for the following:
---------------------------------------------------------------------------

    \52\ Illinois Power Co., 67 FERC ] 61,136 (1994) (noting that 
the Commission does not have jurisdiction over public holding 
company mergers or consolidations, but concluding that, ordinarily, 
when public utility holding companies merge, an indirect merger 
involving their public utility subsidiaries also takes place, and 
that Commission approval under section 203 would be required).
---------------------------------------------------------------------------

    (1) Section 203(a)(2) purchases or acquisitions by holding 
companies of companies that own, operate, or control facilities used 
solely for transmission or sales of electric energy in intrastate 
commerce; and
    (2) Section 203(a)(2) purchases or acquisitions by holding 
companies of facilities used solely for local distribution and/or sales 
at retail regulated by a state commission.
    57. We conclude that these blanket authorizations are consistent 
with the public interest for several reasons. First, the identified 
categories do not raise concerns with respect to competitive wholesale 
markets for sales in interstate commerce or protection of wholesale 
captive customers served by Commission-regulated public utilities--
matters within this Commission's core responsibility and expertise. 
Second, to the extent these categories raise competitive issues in 
intrastate commerce, i.e., in ERCOT, Hawaii, and Alaska,\53\ those 
issues are within the

[[Page 1355]]

expertise of, and more appropriately addressed by, state commissions. 
Third, to the extent retail competition and retail ratepayer protection 
issues are raised by a holding company acquisition of local 
distribution or other retail facilities, these issues also are within 
the expertise of, and more appropriately addressed by, state 
commissions. We will thus grant the identified blanket authorizations 
and not impose any type of filing requirement with respect to such 
transactions.
---------------------------------------------------------------------------

    \53\ Similarly, although not raised by commenters, the blanket 
authorization would apply to any organized Territory of the United 
States.
---------------------------------------------------------------------------

    58. In response to the request of APPA/NRECA that we clarify that 
``a State, any political subdivision of a State, or any agency, 
authority or instrumentality of a State or political subdivision of a 
State'' is not an ``electric utility company'' under amended section 
203(a)(2), and therefore, not subject to amended section 203, we 
clarify that even if a governmental entity were to meet the definitions 
of ``electric utility company'' or ``holding company,'' section 
203(a)(2) would not impose on the governmental entity any filing 
requirements under section 203. This is discussed in further detail 
infra. However, if a non-governmental public utility holding company 
were to seek to acquire a governmental utility (e.g., a municipal 
utility) that owns interstate transmission facilities or facilities 
used for wholesale sales in interstate commerce (and thus meets the 
definitions of ``electric utility company''), and turn it into a 
private company subsidiary, then section 203(a)(2) should apply to the 
public utility holding company's acquisition. While no section 203 
filing requirement would be imposed on the governmental entity, it 
would be imposed on the private entity.
    59. We reject commenters' request that we explicitly exclude QFs 
and EWGs from the definition of ``electric utility company.'' 
Regardless of their status under PUHCA 2005, the exemptions set forth 
under PUHCA 2005 are not dispositive as to the scope of the 
Commission's amended FPA section 203 authority. These PUHCA 2005 
exemptions are set forth in the context of federal access to books and 
records and, more importantly, unlike PUHCA 2005, FPA section 203 does 
not give us any express authority to exempt persons or classes of 
transactions.\54\
---------------------------------------------------------------------------

    \54\ While QFs themselves currently are exempt from section 
203's filing requirements by virtue of the Commission's PURPA 
regulations, PURPA does not give us authority to exempt holding 
companies that own QFs.
---------------------------------------------------------------------------

    60. Additionally, were the Commission to interpret ``electric 
utility company'' for purposes of FPA section 203(a)(2) not to include 
EWGs or QFs, this could preclude review of certain acquisitions of 
securities of EWGs or QFs even by holding companies whose systems 
contain traditional public utilities with transmission facilities and/
or captive customers. We do not believe that such transactions should 
be excluded from review under section 203 and conclude that it is 
reasonable to interpret the statute not to exclude them.\55\ We 
recognize the arguments of some commenters that we should not apply 
section 203(a)(2) to holding company acquisitions of securities of EWGs 
and QFs, or at a minimum should not apply it to such acquisitions by 
holding companies that are holding companies solely by virtue of owning 
or controlling one or more EWGs, FUCOs, or QFs, because it would impede 
investments in QFs and EWGs or result in unnecessary regulation of 
upstream owners of QFs and EWGs.\56\ In response, we believe the 
blanket authorizations granted herein for certain holding company 
acquisitions of non-voting securities and up to 9.9 percent of voting 
securities in electric utility companies will adequately address the 
concerns raised. To the extent additional blanket authorizations are 
needed or appropriate, we will consider those on a case-by-case basis.
---------------------------------------------------------------------------

    \55\ We note that a holding company acquisition of securities of 
an EWG would in some circumstances trigger section 203 review in any 
event by virtue of section 203(a)(1). This is because the EWG could 
well be a public utility and, to the extent the holding company 
acquired ``control'' of the EWG, we would construe the EWG to be 
``disposing'' of its jurisdictional facilities and thus required to 
file for approval under section 203(a). A similar situation 
involving acquisition of securities of a QF would not trigger 
section 203 review, since QFs currently are exempted from FPA 
section 203 filing requirements by the Commission's PURPA 
regulations.
    \56\ See, e.g., GE EFS and Independent Sellers.
---------------------------------------------------------------------------

    61. Public Citizen makes broad comments on the scope of the 
Commission's jurisdiction and the standards articulated in the 
Commission's existing merger policy. We reject the request that we 
treat various types of utility owners or transactions as ``suspect.'' 
As discussed below, the Commission is adopting the definition of 
``holding company'' as required by amended section 203(a)(6), and is 
adopting a definition of ``electric utility company'' that is 
reasonable, in light of the statutory construction of amended section 
203 and Congressional silence. We note that several of the scenarios 
discussed by Public Citizen in its comments fall under the Commission's 
amended section 203 authority, as clarified herein. As with all such 
transactions under its review, the Commission will carefully examine 
the proposed transaction to ensure it is consistent with the public 
interest. Moreover, Public Citizen will have an opportunity to present 
its concerns in these specific cases.
b. Definitions of ``Associate Company,'' ``Holding Company,'' ``Holding 
Company System,'' and ``Transmitting Utility''
    62. In the NOPR, the Commission explained that the term 
``transmitting utility'' is already defined in amended section 3 of the 
FPA \57\ as ``an entity (including an entity described in section 
201(f)) that owns, operates, or controls facilities used for the 
transmission of electric energy--(A) in interstate commerce; (B) for 
the sale of electric energy at wholesale.'' \58\
---------------------------------------------------------------------------

    \57\ 16 U.S.C. 796 (2000).
    \58\ NOPR at P 38 (citing EPAct 2005 1291(b)(1)(B)(23)).
---------------------------------------------------------------------------

    63. The Commission also proposed that, consistent with amended 
section 203(a)(6), the terms ``associate company,'' ``holding 
company,'' and ``holding company system'' shall have the meaning given 
those terms in PUHCA 2005.\59\
---------------------------------------------------------------------------

    \59\ Id. at P 39 (citing EPAct 2005 1262(2), (8), & (9)).
---------------------------------------------------------------------------

i. Comments

    64. No comments were filed specifically in response to these 
proposed definitions of ``transmitting utility,'' ``associate 
company,'' or ``holding company system.'' However, several commenters 
object to the proposed definition of ``holding company'' or seek 
exemption from that definition for purposes of amended section 
203(a)(2). They seek to limit the scope of the Commission's definition 
of ``holding company.'' \60\ Amended section 203(a)(2) provides 
explicitly, for the first time, that ``holding companies'' must seek 
Commission approval prior to certain mergers and acquisitions. 
Commenters seek clarification as to the types of entities that meet the 
definition of ``holding company'' to confirm whether or not they will 
be subject to this new filing requirement.
---------------------------------------------------------------------------

    \60\ E.g., GE EFS, HECO, Independent Sellers, and the 
Electricity Consumers Resource Council, the American Iron and Steel 
Institute, the American Chemistry Council, and the PJM Industrial 
Customer Coalition (collectively, Industrial Consumers).
---------------------------------------------------------------------------

    65. GE EFS asks the Commission to construe the term ``holding 
company'' to include only companies that own traditional utilities and 
that would have been deemed to be holding companies under PUHCA 1935. 
This would exclude companies that are holding companies only by virtue 
of owning QFs, EWGs, or FUCOs. Industrial

[[Page 1356]]

Consumers also seek to limit the definition of ``holding company,'' 
asking the Commission to clarify that ``industrials and other entities 
whose on-site generation investment meets the statutory definition of 
EWGs' are not included in the definition.\61\ Independent Sellers asks 
the Commission to confirm that a ``holding company,'' for purposes of 
amended section 203(a), does not include entities owning new electric 
generation facilities that have not yet begun commercial operation.
---------------------------------------------------------------------------

    \61\ Industrial Consumers Comments at 6.
---------------------------------------------------------------------------

    66. APPA/NRECA seek clarification that ``a State, any political 
subdivision of a State, or any agency, authority or instrumentality of 
a State or political subdivision of a State,'' does not meet the 
definition of ``holding company.'' \62\ It also seeks clarification 
that rural electric cooperatives are not ``holding companies'' under 
amended section 203(a)(2).
---------------------------------------------------------------------------

    \62\ APPA/NRECA Comments at 18.
---------------------------------------------------------------------------

    67. HECO seeks clarification that an entity that meets the 
definition of holding company for purposes of section 203(a)(2) solely 
because it is the upstream owner of an electric utility company that is 
not a public utility under FPA, and that is not otherwise subject to 
Commission jurisdiction under any other provision of part II of the 
FPA, will not be subject to the Commission's merger authority. HECO 
explains that this would exclude from the Commission's jurisdiction 
under section 203(a)(2) acquisitions of holding companies with 
subsidiaries located only in Hawaii, Alaska, ERCOT, and foreign 
countries. HECO contends that Commission oversight of holding company 
acquisitions in this context is not necessary to protect the public 
interest.
ii. Commission Determination
    68. Because the term ``transmitting utility'' is already defined in 
amended section 3 of the FPA and amended section 203(a)(6) provides 
that the terms ``associated company'' and ``holding company system'' 
shall have the meaning provided in PUHCA 2005, the Final Rule adopts 
them, as set forth in the NOPR.\63\ We also note that no commenters 
oppose these proposed definitions.
---------------------------------------------------------------------------

    \63\ We note that, prior to EPAct 2005, the FPA term 
``transmitting utility'' was not limited to entities that own or 
operate transmission facilities used ``in interstate commerce.'' 
EPAct 2005, however, modified the definition to, among other things, 
limit it to facilities used in interstate commerce.
---------------------------------------------------------------------------

    69. The Final Rule also adopts the NOPR's proposed definition of 
the term ``holding company.'' Amended section 203(a)(6) mandates that 
the term ``holding company'' shall have the meaning provided in PUHCA 
2005. This statutory directive is unambiguous.
    70. The Commission therefore rejects requests for clarification 
that only companies that own traditional utilities, and not those that 
own solely FUCOs, EWGs and/or QFs, should be deemed ``holding 
companies'' under amended section 203. ``Holding Company'' in PUHCA 
2005, as reflected in the rules adopted herein, means ``any company 
that directly or indirectly owns, controls, or holds, with the power to 
vote, 10 percent or more of the outstanding voting securities of a 
public utility company or of a holding company of any public utility 
company; * * *'' \64\ There is no limitation within the plain words of 
this definition that can be read to exclude holding companies that own 
or control EWGs, FUCOs, or QFs. Additionally, even under PUHCA 2005, 
persons that own or control only EWGs, FUCOs, or QFs are considered 
holding companies but are explicitly exempted from PUHCA 2005 by 
section 1266. There is no similar exemption in amended section 203 and 
we conclude that it is reasonable to interpret section 203(a)(2) review 
to include acquisitions of generation or transmission facilities or 
companies by holding companies owning only FUCOs, QFs, and/or EWGs.
---------------------------------------------------------------------------

    \64\ EPAct 2005 1262(8).
---------------------------------------------------------------------------

    71. In response to the clarification sought by HECO, as indicated 
above, amended section 203(a)(6) mandates the adoption of the PUHCA 
2005 definition of ``holding company.'' That definition includes the 
upstream owners of an electric utility company that is not a public 
utility under the FPA and that is not otherwise subject to Commission 
ratemaking jurisdiction under part II of the FPA. As discussed above 
regarding the definition of ``electric utility company,'' we have 
concluded that this definition is not limited to interstate commerce. 
Therefore, holding companies that own ``electric utility companies'' 
whose businesses are solely intrastate technically fall under amended 
section 203(a)(2). However, we agree that reviewing transactions 
involving Hawaii, Alaska, and ERCOT would involve matters outside our 
expertise and the core focus of part II of the FPA, and therefore we 
have granted blanket authorizations, as discussed above.
    72. As requested by Independent Sellers, we clarify that a 
``holding company,'' for purposes of amended section 203(a), does not 
include entities owning new electric generation that have not yet begun 
commercial operation.
    73. We grant APPA/NRECA's request that the Commission clarify that 
a state or any political subdivision of a state or agency thereof is 
not a ``holding company'' under amended section 203(a)(2). While the 
definition of holding company possibly could be construed to include 
governmental entities or electric power cooperatives, we believe a more 
reasonable interpretation is that Congress did not intend to give the 
Commission authority over acquisitions by such entities. Section 201(f) 
of the FPA \65\ excludes from most FPA part II provisions governmental 
entities and electric power cooperatives financed by the Rural 
Electrification Act of 1936,\66\ and there is no indication that 
Congress intended to impose any section 203 filing requirements on such 
entities. Accordingly, we will not interpret section 203(a)(2) to apply 
to governmental entities and electric power cooperatives.
---------------------------------------------------------------------------

    \65\ 16 U.S.C. 824(f) (2000).
    \66\ 7 U.S.C. 901 et seq.
---------------------------------------------------------------------------

3. Section 33.1(b)--Definition of ``Existing Generation Facility''
    74. The Commission proposed that subsection 33.1(b) would define 
``existing generation facility'' for section 203 purposes as a 
generation facility that is operational at the time the transaction is 
consummated.\67\ The Commission stated that, as reflected in proposed 
section 33.1(a)(1)(iv)(b), if such a generation facility is intended to 
be used in whole or in part for wholesale sales in interstate commerce 
by a public utility, it is subject to our jurisdiction for ratemaking 
purposes and thus is covered under amended section 203(a)(1)(D). The 
Commission explained that, although the statute refers to a facility 
that ``is'' used for wholesale sales (and over which the Commission has 
jurisdiction for ratemaking purposes), we believed that a reasonable 
interpretation is that the provision would apply to newly constructed 
facilities that have already been energized at the time the transaction 
is consummated and are intended to be used in whole or in part for 
wholesale sales in interstate commerce by public utilities. The 
Commission also noted that if it can be demonstrated that a facility is 
used exclusively for retail sales, then amended section 203(a)(1)(D) 
does not apply.
---------------------------------------------------------------------------

    \67\ NOPR at P 37.

---------------------------------------------------------------------------

[[Page 1357]]

a. Comments
    75. The definition of ``existing generation facility'' drew 
extensive comment from state regulatory commissions, traditional public 
utilities, public/cooperative entities and retail customer and other 
groups.
    76. One comment raised by EEI and Progress Energy is that the 
Commission should construe the term ``existing'' to mean only 
facilities that existed as of the date of enactment of EPAct 2005 
(August 8, 2005). They claim that had Congress meant to apply amended 
section 203 to facilities that become operational after August 8, 2005, 
it would have used different language. APPA/NRECA takes the decidedly 
opposite view that applying amended section 203 only to facilities that 
existed when EPAct 2005 was enacted would eventually mean the demise of 
section 203 review, without any indication that Congress intended such 
a result.
    77. Most commenters focused on the term ``existing'' in its 
operational and temporal context, as reflected in the NOPR's proposal 
to assert jurisdiction over transfers of facilities that ``are 
operational at the time the transaction is consummated.'' Commenters 
generally focused on whether the facilities are in the construction or 
development stage, at or near ``operation,'' or in retired or 
mothballed status. Contrary to most commenters, Kentucky Public Service 
Commission (Kentucky Commission) and National Association of State 
Utility Consumer Advocates (NASUCA) would have the Commission assert 
jurisdiction over transfers of facilities that are under construction 
or development. NASUCA argues that section 203 should apply if the 
facilities have received any kind of federal or state permit or have 
applied for market-based rate authority or generator interconnection 
status with an independent system operator (ISO) or regional 
transmission organization (RTO). It contends that such facilities are 
already influencing the market, particularly if they are being sold to 
provide future capacity or ancillary services. By the same token, 
NASUCA and TAPSG want us to assert jurisdiction over transfers of units 
that are mothballed or retired, especially if the units can be brought 
back on line and retain the permits or authorities. FirstEnergy Service 
Company (FirstEnergy) recommends that the Commission clarify its rules 
to deal with a mothballed facility that is slated to be refurbished and 
with a facility that is shut down where the site and equipment has been 
sold. Neither FirstEnergy nor Progress Energy believe that section 203 
should apply to transfers of facilities removed from service and from 
the Commission's accounting and thus are not physically or otherwise 
capable of making wholesale sales.
    78. Although all commenters agree that section 203 review should 
encompass facilities that are ``operational,'' they disagree as to how 
to define ``operational'' and ``ability to make sales.'' They also 
disagree as to the point in time at which a jurisdictional 
determination is to be made, particularly for substantially completed 
plants that are at or near the ``operational stage.'' APPA/NRECA finds 
the Commission's proposed approach reasonable, but is concerned that 
defining a facility on the basis of whether the facility is energized 
may allow companies to evade section 203 by delaying the 
interconnection process. NASUCA shares this concern, asserting that 
whether the plant is producing electricity at the time of the 
transaction is irrelevant to whether section 203 jurisdiction should 
apply. NARUC, Progress Energy, and Southern Companies take the view 
that for a generation facility to be deemed ``operational,'' it must be 
interconnected and synchronized with the system so that it is capable 
of making wholesale sales. Other commenters suggest that a facility 
actually be in service and making jurisdictional sales. Most commenters 
agree with the Commission's proposal that the jurisdictional 
determination should be made on the basis of whether the facility is 
operational, or is projected to be operational when the transaction is 
(or is expected) to be consummated. NARUC, however, suggests that the 
jurisdictional determination should be made on the basis of whether the 
facility is operational at the time the underlying transaction 
agreement has been entered into and submitted for Commission approval.
    79. Wisconsin Electric Power Company (Wisconsin Electric) expresses 
concern regarding the application of the term ``operational.'' It 
requests that the Commission clarify either that ``consummated'' refers 
to when the transaction, as defined by the lease and associated 
commitments, is executed or that ``operational'' is restricted to 
operations in the ordinary course of the business of the non-acquiring 
party.
    80. EEI and Ameren Services Company (Ameren) argue that the 
``intent'' language in proposed section 33.1(a)(1)(iv)(b) exceeds the 
statutory authority of amended section 203(a)(1)(D)(ii). They also 
insist that an ``intent'' standard is unworkable because ``intent'' 
would be difficult to ascertain. Southern is also concerned that the 
``intent'' language would introduce confusion as to the jurisdictional 
status of transfers of facilities that are merely under construction. 
Chairman Barton questions whether requiring only an intent to use 
facilities in interstate commerce will unduly burden potential 
transactions and results in unnecessary review, particularly when, 
after the facilities are placed in service, the Commission has 
authority under FPA sections 205 \68\ and 206 \69\ over the facility 
and its rates. Although not specifically referring to either the 
``intent'' language or the ``exclusive use for retail sales'' language, 
the North Carolina Utilities Commission (North Carolina Commission) 
emphasizes that nothing in amended section 203(a)(1)(D) expands the 
Commission's jurisdiction to include generation resource adequacy for 
retail service; EPAct 2005 expressly reserves authority over generation 
resource adequacy to the states. It urges that the final rule recognize 
this limitation.
---------------------------------------------------------------------------

    \68\ 16 U.S.C. 824d (2000).
    \69\ 16 U.S.C. 824e (2000).
---------------------------------------------------------------------------

    81. Other commenters, such as Utility Workers Union of America, 
AFL-CIO (UWUA) and APPA/NRECA, generally support the ``intent'' 
language. APPA/NRECA and TAPSG, however, believe that a very high 
standard should be set for demonstrating that a facility is exclusively 
used for retail sales. TAPSG points out that utilities do not 
ordinarily dispatch their units separately for wholesale sales and 
retail sales. Both commenters also contend that amended section 203 
should apply to facilities that received an exemption initially from 
section 203 on the basis of retail use only but that later are used for 
wholesale sales. Owners of such facilities should be subject to the 
Commission's expanded penalty authority. APPA/NRECA and TAPSG argue 
that the Commission should explicitly state that section 203 approval 
is required for the acquisition of a QF; they ask us to clarify that 
QFs may be ``existing generation facilities'' under amended section 
203(a)(1)(D).
b. Commission Determination
    82. The Commission will clarify and modify a number of aspects of 
its proposal for determining whether a generation facility is an 
existing generation facility for purposes of amended section 
203(a)(1)(D). We will also address other questions raised by commenters 
with regard to the NOPR.
    83. Initially, the Commission will reject EEI's and Progress 
Energy's

[[Page 1358]]

argument that ``existing generation facility'' should be construed to 
encompass only those generation facilities in existence as of the date 
of enactment of EPAct 2005 (i.e., August 8, 2005). They submit that any 
other interpretation would effectively write ``existing'' out of the 
statute and that if Congress had intended amended section 203 to apply 
to generation facilities that come into existence after August 8, 2005, 
it would have used plainly different language. We do not agree. First, 
such an interpretation is not, as Progress Energy suggests, required as 
a textual matter. Congress could have, but chose not to, use the term 
``existing on the effective date of this Act.'' Rather, it simply used 
the term ``existing.'' Second, such an interpretation would make little 
sense. It would eventually write amended section 203(a)(1)(D) out of 
existence as pre-EPAct 2005 generation facilities are retired and only 
post-EPAct 2005 generation facilities remain. There is only a brief 
mention of the term ``existing,'' without any explanation, in the 
legislative history of amended section 203. However, the legislative 
history suggests that Congress intended for the Commission to not only 
continue, but to expand our review of activities that would affect 
wholesale competition and ratepayers.\70\ Therefore, we reject EEI's 
and Progress Energy's argument.
---------------------------------------------------------------------------

    \70\ See, e.g., Senate Floor Statement by Senator Bingaman (D-
NM), H.R. 6, Energy Policy Act of 2005, Congressional Record at 
S9258 (July 28, 2005) (stating that ``in the area of electric 
utility mergers, we have expanded the jurisdiction of [the 
Commission] over mergers involving existing generation plants; that 
is, plants that are in existence at the time the merger takes 
place.'').
---------------------------------------------------------------------------

    84. The Commission adopts the NOPR's proposal that an ``existing 
generation facility'' is a generation facility that is operational at 
or before the time the transaction is consummated. However, we are 
deleting language in proposed section 33.1(a)(iv)(b) stating that 
section 203 applies if the generation facility ``is intended to be 
used'' in whole or in part for wholesale sales in interstate commerce 
by a public utility. Below we explain various aspects of this 
definition.
    85. We note first that ``the time the transaction is consummated'' 
refers to the point in time when the transaction actually closes and 
control of the facility changes hands. The Commission will construe 
``operational'' to mean a generation facility for which construction is 
complete (i.e., it is capable of producing power). An ``existing 
generation facility'' would not include generation plants that are only 
in the development or construction stage. However, an ``existing 
generation facility'' would include a mothballed facility, so long as 
the facility was operational at any time before the transaction is 
consummated.
    86. With regard to the issue of wholesale versus retail sales, the 
Commission will eliminate the language ``intended to be'' from proposed 
section 33.1(a)(1)(iv)(b). We agree with some commenters that 
``intent'' is difficult to discern and could introduce unnecessary 
confusion about plants that are under construction and clearly not 
being used for wholesale sales. Rather, the Commission will adopt a 
rebuttable presumption that amended section 203(a) applies to the 
transfer of any existing generation facility unless the utility can 
demonstrate with substantial evidence that the generator is used 
exclusively for retail sales. In our experience, utilities do not 
ordinarily separate the dispatch of their plants for retail sales and 
wholesale sales; rather, they dispatch all their units on an integrated 
basis to serve all load (retail and wholesale). Therefore a utility 
proposing an unusual procedure by which it dispatches certain plants 
``only'' for retail load will have the burden to demonstrate that any 
particular generating facility will never be used to make wholesale 
sales.
    87. Finally, in response to commenters' requests that section 203 
approval be required for the acquisition of a QF, we clarify that if a 
public utility acquires an existing generation facility used for 
Commission-jurisdictional sales, whether a QF or any other type of 
generation facility, the transaction is subject to section 203. 
Although certain QFs themselves are exempted from any filing 
requirements under section 203 by virtue of our PURPA regulations, this 
does not mean that public utilities that acquire QFs are exempt. 
Additionally, there is no limitation in amended section 203(a)(1)(D) on 
the type of generation facilities that trigger section 203 review, if 
they are used for interstate wholesale sales and the Commission has 
jurisdiction over them for ratemaking purposes. Further, even if the 
Commission had the discretion to exempt QF acquisitions from section 
203 review, we do not think it would be necessarily consistent with the 
public interest to do so in light of EPAct 2005's elimination of QF 
ownership restrictions.
4. Section 33.1(b)--Definition of ``Non-Utility Associate Company''
    88. The Commission proposed to interpret the term ``non-utility 
associate company'' to mean any associate company in a holding company 
system other than a public utility or electric utility company that has 
wholesale or retail customers served under cost-based regulation.\71\ 
Therefore, we proposed that a non-utility associate company would 
include, for example, a power marketer, a generator that does not have 
captive customers, a gas marketer, a fuel supply company or other 
company that provides inputs to power production, or a company that is 
involved in business activities not related to the generation, 
transmission, distribution, or sale of electricity.\72\ This definition 
is relevant because of the new section 203(a)(4) requirement that we 
find that a proposed transaction does not result in inappropriate 
cross-subsidization or pledge or encumbrance of utility assets. The 
Commission sought comment on whether it should use a narrower 
definition, for example, whether we should define a ``non-utility 
associate company'' as a company that is in a business not related to 
the generation, transmission, distribution, or sale of electricity.
---------------------------------------------------------------------------

    \71\ NOPR at P 44.
    \72\ These are examples only. This list is not intended to be 
exhaustive.
---------------------------------------------------------------------------

a. Comments
    89. Many state commissions and other commenters from the industry 
agree that the Commission's proposed broad definition of ``non-utility 
associate company'' should be adopted in order to afford the greatest 
protection against cross-subsidization, as Congress intended in EPAct 
2005.\73\ Indiana Commission and NARUC explain that the cross-
subsidization of an entity involved in a business unrelated to the 
electric industry and the cross-subsidization of an entity involved in 
``unregulated,'' electricity-related activities are equally 
inappropriate. On the other hand, FirstEnergy and Southern Companies 
urge the Commission to adopt the narrower definition.
---------------------------------------------------------------------------

    \73\ E.g., APPA/NRECA, Indiana Commission, Kentucky Commission, 
NARUC, NASUCA, and New Jersey Board of Public Utilities (New Jersey 
Board).
---------------------------------------------------------------------------

    90. American Electric Power Service Corporation (AEP) asserts that 
both the Commission's broader definition proposed in the NOPR and the 
narrower definition (proposed as an alternative) are unnecessarily 
broad, ensnaring companies that are providing essentially ancillary 
services to the regulated utility and that thus present no risk of 
cross-subsidization. AEP maintains that amended section 203(a)(4) is 
simply designed to ensure that a transaction does not result in cross-
subsidization,

[[Page 1359]]

which, by definition, only occurs when a competitive affiliate of the 
utility is unduly enriched by use of regulated assets. AEP states that 
the Commission has already defined these energy affiliate companies in 
the Standards of Conduct,\74\ and states that we should define a ``non-
utility associate company'' by adopting the same definition used to 
describe an ``energy affiliate'' in 18 CFR 358.3(d).
---------------------------------------------------------------------------

    \74\ 18 CFR part 358 (2005).
---------------------------------------------------------------------------

b. Commission Determination
    91. We agree with the majority of the commenters that the NOPR's 
proposed broader definition of the term ``non-utility associate 
company'' is reasonable. Our goal in defining this term is to ensure 
that public utilities with captive customers do not cross-subsidize 
``non-regulated'' associate companies, i.e., companies that are not 
subject to traditional cost-based regulation.\75\ As it relates to this 
objective, there is no difference between the propriety of cross-
subsidizing associate energy companies that are not subject to 
traditional cost-based regulation versus an entity that is involved in 
a business completely unrelated to the energy industry. Since the 
purpose is to protect customers, whether the company inappropriately 
subsidized is an associate company in the energy industry or not is 
irrelevant.
---------------------------------------------------------------------------

    \75\ NOPR at P 42.
---------------------------------------------------------------------------

    92. We disagree with AEP's contention that cross-subsidization 
occurs only when using traditionally regulated assets to subsidize a 
competitive affiliate of the utility company. Congress was concerned 
with the potential for abuse when a traditionally regulated public 
utility (i.e., one that is subject to the Commission's traditional 
cost-based regulation) subsidizes an ``unregulated'' affiliate company 
within the same holding company system. Defining a non-utility 
associate company based on whether or not that ``unregulated'' 
affiliate company is a competitor of the utility company is too narrow 
to prevent abuses; consequently, the Standards of Conduct definition of 
an ``energy affiliate'' is not appropriate here.\76\
---------------------------------------------------------------------------

    \76\ 18 CFR 358.3(d).
---------------------------------------------------------------------------

    93. Accordingly, we will adopt the broader definition of a ``non-
utility associate company,'' which is any associate company in a 
holding company system other than a public utility or electric utility 
company that has wholesale or retail customers served under cost-based 
regulation. A non-utility associate company would include, among 
others, a power marketer, a generator that does not have captive 
customers, a gas marketer, a fuel supply company or company that 
provides inputs to power production, or a company that is involved in 
business activities not related to the generation, transmission, 
distribution or sale of electricity.
5. Section 33.1(b)--Definition of ``Value''
    94. In the NOPR, the Commission proposed to generally rely on a 
``market value'' approach for determining whether asset transfers, with 
the exception of wholesale contracts, meet the value threshold 
necessary to require approval under amended section 203. This would 
base value on expected future earnings or profits over the life of the 
asset. This is in contrast to our current regulations, which define 
value as original cost undepreciated as defined in the Commission's 
Uniform System of Accounts; in other words the amount paid for 
installing an original plant and equipment and additions thereto.\77\ 
As described below, the Commission proposed certain measures of value 
for each of four types of asset transactions, inviting comment and 
suggestions for alternative approaches.
---------------------------------------------------------------------------

    \77\ 18 CFR 33.1(b) (2005).
---------------------------------------------------------------------------

    95. Specifically, the Commission proposed that section 33.1(b) 
would define ``value,'' as applied to jurisdictional facilities and 
existing generation facilities (addressed by amended subsections 
203(a)(1)(A) and (D)), as the market value of such facilities.\78\ The 
Commission recognized that determining the market value of transmission 
facilities could be difficult in some instances. We proposed that, in 
the absence of a readily ascertainable market value, original cost 
undepreciated would be used. For transactions involving transfers of 
facilities between non-affiliates, the Commission stated that market 
value will, in most circumstances, be reflected in the transaction 
price. For transactions between affiliates, the Commission recognized 
that we cannot assume that market value will be reflected in 
transaction price. We suggested undepreciated original cost as a 
possible alternative measure of value.
---------------------------------------------------------------------------

    \78\ NOPR at P 30.
---------------------------------------------------------------------------

    96. The Commission also proposed that section 33.1(b) would define 
``value,'' with respect to a merger or consolidation with a 
transmitting utility, an electric utility company, or a holding company 
in a holding company system that includes a transmitting utility, or an 
electric utility company, with a value in excess of $10 million, as 
used in amended section 203(a)(2)) as ``market value.'' We stated that 
in most instances market value would be reflected in the transaction 
price for transactions between non-affiliates.
    97. Turning to how to value paper jurisdictional facilities, the 
Commission proposed that the value of any wholesale contract included 
in the transaction would be based on total expected contract revenues 
over the remaining life of the contract.\79\ We noted that market value 
was an alternative approach and that it could be based on the price or 
consideration paid for the contract.
---------------------------------------------------------------------------

    \79\ Id. at P 32.
---------------------------------------------------------------------------

    98. The Commission proposed to define the ``value'' of a security, 
as discussed in amended sections 203(a)(1)(C) and (a)(2), as the market 
price at the time the security is acquired.\80\ For transactions 
between non-affiliated companies, the Commission proposed to rebuttably 
presume that the market value is the agreed-upon transaction price. We 
sought comments on how to determine value for security transactions 
involving affiliates if the securities are not widely traded. Further, 
the Commission sought comments as to whether it should give particular 
weight to evidence of non-affiliate transactions involving either non-
affiliated buyers or sellers of securities of similarly situated 
utilities or assets.
---------------------------------------------------------------------------

    \80\ Id. at P 33.
---------------------------------------------------------------------------

a. Comments on Definition of ``Value'' as Applied to Transmission and 
Generation Facilities
    99. Nearly all commenters support the use of market value. Most 
commenters support using transaction price to measure market value in 
most situations.\81\
---------------------------------------------------------------------------

    \81\ Chairman Barton does not take a position on the appropriate 
measure of value, but believes that the Commission should consider 
whether the use of market value, by bringing more transactions under 
section 203, will unnecessarily increase regulatory burden because 
of the potential for disputes concerning the market value of 
transactions. He also suggests that some utilities will make section 
203 filings needlessly to show the Commission that section 203 does 
not apply. He notes that undepreciated original cost value is a 
simple way to value transactions. Chairman Barton Comments at 6.
---------------------------------------------------------------------------

    100. APPA/NRECA and TAPSG contend that market value should be 
replaced by ``fair'' market value. They recommend that the Commission 
measure ``fair'' market value based on standards to be adopted by the 
Financial Accounting Standards Board that use both a market approach 
and an income approach. Because the market value standard could 
introduce some

[[Page 1360]]

uncertainty into the process, FirstEnergy urges the Commission to 
provide clear guidance to the industry and the investment community 
explaining how a market value standard would be used in certain 
situations. It suggests that we create a ``safe harbor'' that clearly 
defines methods and components used to assess market value. EEI argues 
that when a state commission has reviewed or made a determination of 
value for a particular transaction, a company should be able to rely on 
that value for purposes of determining value under section 203; the 
company should not have to pay penalties if the Commission later 
determines that the value of the transaction exceeds $10 million.
    101. Virtually all commenters recognize that a market value 
standard, particularly one based on transaction price, may need to be 
modified or even replaced in some circumstances. As explained below, 
these circumstances involve transactions that include non-
jurisdictional facilities in addition to jurisdictional facilities or 
generation facilities; transactions where market value may not be 
ascertainable; and transactions not conducted at arms'-length (such as 
affiliate transactions). Alternative suggested measures of market value 
or value are the following: (1) Market value as determined by market-
based results of an Edgar-type analysis \82\ or independent valuation 
process; (2) original cost undepreciated; (3) the higher of market 
value or original cost undepreciated; and (4) net book value (original 
cost depreciated).
---------------------------------------------------------------------------

    \82\ Boston Edison Co. Re: Edgar Electric Energy Co., 55 FERC ] 
61,382 (1991) (Edgar). The Edgar standard of review is designed to 
prevent affiliate abuse and to ensure prices that are consistent 
with competitive outcomes.
---------------------------------------------------------------------------

    102. Focusing first on transactions between non-affiliates, many 
commenters agree that, in most circumstances, transaction price is the 
appropriate measure of market value.\83\ EEI, Duke Energy Corporation 
and Cinergy Corp. (Duke/Cinergy), and Progress Energy urge the 
Commission to rebuttably presume that market value is the agreed-on 
transaction price. EEI, Duke/Cinergy, Entergy, and FirstEnergy, argue 
that the market value determination should be based only on the value 
of jurisdictional transmission assets or generation assets. They state 
that a single transaction price will not measure the market value for a 
transaction that also includes assets other than jurisdictional 
transmission assets or generation assets. EEI proposes determining the 
transaction price for the jurisdictional transmission facilities or 
generation facilities based on their relative net book value (original 
cost depreciated).
---------------------------------------------------------------------------

    \83\ E.g., Indiana Commission, Kentucky Commission, New Jersey 
Board, International Transmission Company (International 
Transmission), EPSA, Scottish Power, TAPSG, and UWUA.
---------------------------------------------------------------------------

    103. Commenters differ significantly as to the appropriate measure 
of value where the transaction is between affiliates. As a first 
backstop in scenarios involving affiliated transactions, several 
commenters contend that transaction price is still a reasonable measure 
of market value, provided that the transaction price is shown to be 
consistent with the results of an Edgar-type analysis or independent 
valuation process.\84\ However, other commenters, including the New 
Jersey Board, NASUCA, and APPA/NRECA, would compare a market value or 
``fair'' market value with original cost undepreciated and select the 
higher of the two. They argue that the Commission must evaluate the 
widest possible range of transactions to determine the public interest 
implications of transactions; utilities will attempt to understate 
value and thereby avoid section 203 review.
---------------------------------------------------------------------------

    \84\ E.g., EEI, Duke/Cinergy, TAPSO, Indiana Commission, 
Kentucky Commission, Progress Energy, and Scottish Power.
---------------------------------------------------------------------------

    104. When a market-based determination of value is not possible or 
practical, commenters are divided, mainly between original cost 
undepreciated and net book value. Commenters who advocate the use of 
net book value urge the Commission to reject any use of original cost 
undepreciated, particularly for non-affiliate transactions, since it 
does not reflect the deterioration (wear) of the facility.\85\ Rather, 
they would encourage the use of net book value, since it is the basis 
of transmission rates.
---------------------------------------------------------------------------

    \85\ E.g., EEI, Ameren, Progress Energy, Southern Companies, and 
Duke/Cinergy.
---------------------------------------------------------------------------

    105. Other commenters suggest a modification of the original cost 
undepreciated and net book value concepts. Missouri Public Utilities 
Commission (Missouri Commission) would rely on reproduction cost (the 
costs of replicating the same plant today with the same assets and same 
technology). As a proxy for this measure, Missouri Commission suggests 
that the original cost could be escalated by appropriate wholesale 
price indices. Scottish Power would adjust net book value by converting 
it to current dollars.
b. Comments on Definition of ``Value'' as Applied to Transmitting 
Utilities, Electric Utility Companies, or Holding Companies
    106. Nearly all commenters support the market value approach as 
measured by the transaction price to determine the value of a 
transaction involving transmitting utilities, electric utility 
companies, or holding companies. NASUCA proposes the higher of market 
value or original cost undepreciated to limit the possibility that a 
merger of two independent transmission companies would escape review. 
It also asserts that market value is not necessarily the same as market 
price. FirstEnergy believes that the transaction price should reflect 
only the value of the underlying jurisdictional or generation 
facilities. The Commission should also establish other parameters for 
determining the market price, such as the point in time at which the 
determination is to be made, such as the date of the agreement, the 
date of filing of the application, or the date of consummation of the 
transaction. To the extent the Commission does not adopt transaction 
price, FirstEnergy urges the Commission to otherwise specifically 
define market value and specify safe harbor standards.
c. Comments on Definition of ``Value'' as Applied to Paper 
Jurisdictional Facilities
    107. Many commenters, including state commissions and consumer 
groups generally favor total expected revenues over the contract's 
remaining life as the appropriate measure of value for transfers of 
wholesale contracts.\86\ This is regardless of whether affiliates or 
non-affiliates are involved. Revenues will be a function of quantities 
of supply and thus are an indirect measure of the contract's 
contribution to market supply, in much the same way that the value of 
generation assets will be related to generator size. These commenters 
also point out that a revenues approach would be much easier to apply 
than an expected net profits standard, which can be unpredictable on 
the basis of varying assumptions and is likely to be measured 
inaccurately.
---------------------------------------------------------------------------

    \86\ NARUC, Missouri Commission, the Public Utilities Commission 
of Ohio (Ohio Commission), APPA/NRECA, NASUCA, and Constellation 
Energy Group Inc. (Constellation).
---------------------------------------------------------------------------

    108. Constellation adds that the use of nominal revenues avoids 
confidentiality issues raised by how buyers and sellers value contracts 
on the basis of transaction price. This is particularly true where it 
is necessary to determine value for individual contracts that are part 
of a portfolio of contracts and non-

[[Page 1361]]

jurisdictional assets. Some commenters point out that in some 
instances, for individual contracts, the seller may actually pay the 
buyer and the buyer may have the option to buy the power at a market 
price, which may be lower than contract price. Thus, the transaction 
price would either be negative or much smaller than under a revenues 
approach. This would increase the likelihood that the transaction would 
not fall under section 203.
    109. On the other hand, many commenters urge the Commission to 
adopt transaction price as the measure of value.\87\ They contend that 
value is closely tied to expected profits, which considers supply 
costs, unlike the revenue approach, and thus will be more accurately 
reflected in transaction price than in revenues. FirstEnergy comments 
that a revenues approach would be difficult to apply if the contract 
rates are not fixed. If the Commission decides not to use transaction 
price, commenters suggest a variety of other measures, including 
discounted value of future cash flows reduced by obligations, net 
present value of non-fuel revenues, and expected profits.
---------------------------------------------------------------------------

    \87\ E.g., EEI, First Energy, Ameren, Duke/Cinergy, Entergy, 
International Transmission, EPSA, Independent Sellers, Scottish 
Power, Morgan Stanley, Indiana Commission, and Missouri Commission.
---------------------------------------------------------------------------

    110. For affiliate transactions, many of these same commenters 
generally agree that transaction price is appropriate if it is 
supported by Edgar-type evidence. However, another measure favored by 
EEI, Entergy, and Duke/Cinergy would apply ``mark to market'' pricing 
\88\ to determine the value of a contract between affiliates. Entergy, 
citing Order No. 627,\89\ asserts that the Commission has taken the 
same approach in requiring utilities to report in Form 1 changes to the 
fair market value of certain derivative instruments and activities.
---------------------------------------------------------------------------

    \88\ In this context, ``mark to market'' refers to the process 
whereby the book value or collateral value of an asset such as a 
multiyear contract or power purchase agreement is adjusted to 
reflect current market value for the applicable period.
    \89\ Accounting and Reporting of Financial Instruments, 
Comprehensive Income, Derivatives and Hedging Activities, Order No. 
627, 67 FR 67,691 (Oct. 10, 2002), FERC Stats. & Regs. ] 32,558 
(2002).
---------------------------------------------------------------------------

d. Comments on Definition of ``Value'' as Applied to Securities in 
Excess of $10 Million
    111. Generally all of the commenters from the various segments of 
the industry, including regulatory commissions, public power, and 
customer groups, support the Commission's proposal to value security 
transactions between non-affiliates at market value. Nearly all appear 
to accept our proposal to rebuttably presume that price is the 
appropriate measure of market value. FirstEnergy requests, however, 
that the Commission provide more specificity as to which price is 
relevant, i.e., the agreed-to-price or a publicly traded price, and as 
to what is meant by time of the transaction--the time of agreement or 
the time of consummation. FirstEnergy also asks whether the transaction 
value used should take into consideration the fact that non-regulated 
assets may be included in the transaction as well. EEI and 
International Transmission argue that to give regulatory certainty to 
the transacting parties, the relevant price should be the agreed-to 
price.
    112. EEI suggests that for securities transactions between 
affiliated parties, market price is reasonable when the securities are 
widely traded. However, several parties support assessing market value 
based on an application of Edgar standards, particularly when the 
securities are not widely traded. On the other hand, FirstEnergy and 
NASUCA contend that an Edgar approach will not work well because any 
group of non-affiliate transactions will be vastly different in terms 
and other factors that affect value or price. When Edgar-type evidence 
is not available, EEI and Ameren propose certain formulaic measures 
involving company-specific variables; \90\ NARUC suggests that the 
Commission simply use paid-in capital equity. Indiana Commission 
suggests that an affiliate transaction be constructed to evade section 
203 jurisdiction could be used to subsidize a non-jurisdictional 
affiliate, but Southern Companies asserts that transaction thresholds 
are so low there will no meaningful opportunities to evade jurisdiction 
by such means.
---------------------------------------------------------------------------

    \90\ For example, EEI proposes that, for securities that are not 
widely traded, the Commission should allow companies to utilize the 
Edgar guidelines. If the Edgar guidelines are not applicable to a 
particular case, EEI suggests the following: For equity securities, 
a three part determination should be utilized to determine value: 
(i) Determining the value of the company that is the issuer of the 
equity securities based on the depreciated net book value of the 
company's assets; (ii) determining the fraction of the securities at 
issue by dividing the number of equity securities involved in the 
transaction by the total number of outstanding equity securities for 
the company; and (iii) multiplying (i) by (ii) (i.e., the value of 
the company multiplied by the fraction of the equity securities at 
issue). EEI Comments at 11.
---------------------------------------------------------------------------

e. Commission Determination
    113. The Commission notes the widespread support for using a market 
value approach (where feasible). After considering the comments of 
numerous parties, we remain convinced that market value is, in most 
instances, the most effective and reasonable approach (both for 
potential section 203 applicants and for the Commission) to determine 
which asset transfers, particularly those that involve acquisitions of 
physical facilities or securities, require section 203 approval.
    114. As one commenter suggests, however, using market value as the 
measurement standard is not straightforward in all circumstances. For 
example, where the transaction involves a single asset subject to 
section 203 being purchased and sold between non-affiliates, the 
agreed-upon price for the transaction is a straightforward measure of 
market value. However, there may be non-affiliate transactions that 
include a bundle of assets, both assets subject to section 203 and 
assets not subject to section 203, so that the transaction price does 
not reflect the market value of only the assets subject to section 203. 
Another example involves transactions between affiliates where the 
agreed-upon price for the exchange will not necessarily reflect market 
value. In both instances, other measures of market value would be 
required.
    115. It is important that the Commission provide as much guidance 
as possible to those contemplating business transactions regarding how 
the determination of value should be made and thus deciding whether 
section 203 review is required. Such guidance will enhance parties' 
certainty and will also contribute stability to investment decision-
making by utilities and non-utilities alike.
    116. For transfers of physical facilities (transmission and 
generation facilities) the Commission will adopt market value as the 
appropriate measure of value. When a transaction occurs between non-
affiliates, the Commission will rebuttably presume that market value is 
the transaction price. The most obvious complicating factor in applying 
this test is the need to consider only the value of the facilities 
subject to section 203; many transactions will include other assets not 
subject to section 203 as well. However, in such situations, the 
acquiring entity will probably have made a valuation analysis of the 
constituent parts of the transaction in order to guide its negotiations 
and/or properly record the value of those facilities on its balance 
sheet. Almost certainly included in that analysis will be a valuation 
of the physical facilities. In transactions involving both facilities 
subject to section 203 and facilities not subject to section 203, 
companies should rely on such valuations in

[[Page 1362]]

deciding whether to file for section 203 approval.
    117. If separate valuations of the physical assets were not 
performed, companies should rely on original cost undepreciated. 
Several commenters urge the Commission to reject the use of original 
cost undepreciated and adopt, instead, net book value. Our current 
regulations use original cost undepreciated as the appropriate 
measurement standard and we will continue to use that standard in 
applying amended section 203. Although net book value is a valuation 
method commonly used to establish cost-based rates, most generating 
facilities today sell power at market rates, and their market value is 
driven primarily by factors unrelated to the book depreciation of the 
facility. For example, many highly depreciated coal-fired assets have 
commanded significant premiums in generation divestitures. Hence, we 
believe that the continued use of original cost undepreciated is 
preferable to net book value.
    118. We also cannot rely on transaction price as a measure of 
market value when a transaction involving physical facilities occurs 
between affiliates. Instead, here too we will adopt original cost 
undepreciated. The alternatives to transaction price most frequently 
supported by commenters include: (1) Value based on an Edgar-type 
analysis (market value), (2) original cost undepreciated, (3) the 
higher of market value or original cost depreciated, and (4) net book 
value. As discussed above, as between the choices of original cost 
undepreciated and net book value, the Commission believes that original 
cost undepreciated is preferable and should continue to be used.
    119. The Edgar analysis is applied in section 205 proceedings to 
determine whether purchases from an affiliate are reasonable in light 
of other alternatives. The analysis is not intended to provide a 
bright-line easy-to-apply test of whether jurisdiction to approve a 
particular transaction exists in the first place. Rather, the analysis 
is often highly contentious and is used to determine the justness and 
reasonableness of a particular transaction, not for determining whether 
jurisdiction exists to review it in the first place. The Commission 
believes that, for purposes of section 203 applicability, a valuation 
based on original cost depreciated will be simpler and less ambiguous 
than one based on Edgar, particularly when most transactions will 
clearly exceed $10 million by any reasonable measure.
    120. With respect to determining value to be applied to transfers 
of wholesale contracts between non-affiliates, the Commission will 
rebuttably presume that market value is the transaction price. This is 
consistent with our use of market value and transaction price for other 
types of asset transfers. As with transfers of physical facilities, 
when assets not subject to section 203 are included in the transaction, 
the acquiring entity should rely on its valuation of the contracts 
component included in transaction price. The market valuation should be 
consistent with the value the applicant places on the contract for 
purposes of its audited financial statements and in keeping with 
generally accepted accounting principle (GAAP) requirements. One 
commenter has expressed confidentiality concerns about valuations for 
individual contracts as part of a portfolio of contracts that could 
likely arise if a utility's decision not to file for section 203 
approval was challenged. We believe that any such concerns can be 
addressed through our procedures that provide confidential treatment to 
certain proprietary materials.\91\ Furthermore, we note that any 
measurement standard (such as projected revenue stream) could also 
raise concerns over confidentiality in certain circumstances.
---------------------------------------------------------------------------

    \91\ 18 CFR 1.36 (2005).
---------------------------------------------------------------------------

    121. The issue of how to value contract transfers between 
affiliates is more difficult to resolve, since a transaction price, if 
it exists at all, will not necessarily reflect market value. For 
affiliate transfers of contracts, we agree with one commenter that 
total expected contract revenues are a simple, objective way to assess 
value and to provide increased certainty as to the need for a section 
203 filing. We therefore adopt this standard for valuing jurisdictional 
contracts between affiliates.
    122. Amended sections 203(a)(1)(C) and (a)(2) define the 
Commission's jurisdiction over certain acquisitions of securities by 
public utilities and holding companies. With respect to securities 
transactions between non-affiliates, the Commission will adopt 
transaction price, as explained more fully herein, for the acquisition 
of securities by either a public utility or a holding company. The 
Commission recognizes that the NOPR was not entirely clear as to how to 
determine the ``transaction price.'' Although we stated that the value 
of a security would be defined as the market price at the time the 
security is acquired, we also stated that the market value would be 
rebuttably presumed to be the agreed-on transaction price. Thus, 
FirstEnergy asks how market price should be defined--a publicly traded 
price or the price ultimately agreed on. It also asked the Commission 
to clarify the meaning of ``at the time the security is acquired.'' 
Specifically, does this language refer to the point in time an 
agreement is entered into or the actual time of consummation of the 
transaction?
    123. The Commission is mindful of the need to provide parties as 
much regulatory certainty as possible with respect to decisions as to 
whether section 203 approval is required for a particular transaction. 
In this case, the Commission finds that greater regulatory certainty is 
provided by relying on the agreed-to transaction price at the time the 
transacting parties enter into an agreement. However, the Commission 
will reject the argument that the value of securities transactions 
should be adjusted to reflect the fact that not all of the assets 
underlying the value of the securities are jurisdictional facilities or 
generation facilities. Amended section 203 does not permit any such 
interpretation, as it applies to the purchase of the ``security * * * 
of a * * * public utility,'' not to the ``securities applicable to the 
jurisdictional facilities of a public utility.''
    124. For securities transactions between affiliates, however, an 
agreed-on transaction price will not necessarily be consistent with 
market price. For that reason, if the securities are widely traded, the 
Commission will require that affiliates value the transaction based on 
the market price at the time the securities are acquired. If the 
securities are not widely traded, we will adopt, in a slightly modified 
manner, EEI's suggestion. For equity securities, we will utilize a 
three-part determination to determine value: (i) Determining the value 
of the company that is the issuer of the equity securities based on the 
total undepreciated book value of the company's assets; (ii) 
determining the fraction of the securities at issue by dividing the 
number of equity securities involved in the transaction by the total 
number of outstanding equity securities for the company; and (iii) 
multiplying (i) by (ii) (i.e., the value of the company multiplied by 
the fraction of the equity securities at issue). This method for 
securities transactions that are not widely traded is consistent with 
our use of original cost undepreciated to measure value for 
transactions between affiliates involving physical assets.
    125. Amended section 203(a)(2) addresses holding company mergers or 
consolidations with a transmitting utility, an electric utility 
company, or a

[[Page 1363]]

holding company in a holding company system that includes a 
transmitting utility, or an electric utility company, with a value in 
excess of $10 million. Regarding transactions between non-affiliates, 
market value will be the transaction price or consideration paid, as 
provided for in the agreement between the transacting entities. As with 
securities, we note there is no statutory provision or legislative 
history to suggest that the transaction price should be adjusted to 
reflect the fact that non-jurisdictional assets are also involved, and 
so we will not allow for such an adjustment.
    126. For mergers or consolidations involving affiliates, 
transaction price will not be an acceptable basis for establishing 
value. Several commenters recommend the use of an Edgar-type analysis 
to arrive at a market value. However, the Edgar approach is not a 
practical approach to applying the $10 million jurisdictional threshold 
for the reasons discussed above. Therefore, the Commission will, 
instead, use the book cost of all of a company's assets to measure the 
value of mergers or consolidations of affiliated companies.\92\
---------------------------------------------------------------------------

    \92\ Book cost, as used here, refers to original book cost.
---------------------------------------------------------------------------

6. Compliance With Section 203
    127. Given the increased significance of valuation of a transaction 
under amended section 203, the Commission solicited comments on whether 
our existing recordkeeping and reporting requirements, outside the 
section 203 context, will allow us and the public to effectively 
monitor jurisdictional entities' determinations of when a section 203 
application is required. For example, the Commission asked ``do FERC 
Form 1s or Order No. 652 \93\ market-based rate change in status 
reports provide sufficient information to monitor compliance with 
section 203?'' \94\
---------------------------------------------------------------------------

    \93\ Reporting Requirement for Changes in Status for Public 
Utilities with Market-Based Rate Authority, Order No. 652, 70 FR 
8,253 (Feb. 18, 2005), FERC Stats. & Regs. ] 31,175, order on reh'g, 
111 FERC ] 61,413 (2005).
    \94\ NOPR at P 35.
---------------------------------------------------------------------------

a. Comments
    128. Many commenters believe that the Commission's existing record-
keeping and reporting requirements will be enough.\95\ Some note that 
parties often seek section 203 authorization out of an abundance of 
caution, whenever there is a reasonable possibility that section 203 
approval is legally required, in order to remove regulatory uncertainty 
from a transaction, as an entire transaction can be placed at risk if 
required regulatory approvals are not obtained.
---------------------------------------------------------------------------

    \95\ E.g., Kentucky Commission, NARUC, Oklahoma Commission, 
Ameren, Constellation, EEI, FirstEnergy, Progress Energy, and 
Southern Companies. Some commenters argue that the Commission's 
existing record-keeping and reporting requirements, including the 
information supplied under the FERC Form 1, Order No. 652, and 
Change in Status reports, are more than adequate.
---------------------------------------------------------------------------

    129. However, some commenters suggest that the Commission's current 
record-keeping and reporting requirements are the minimum necessary for 
section 203 purposes and should not be reduced. NARUC states that our 
existing record-keeping and reporting requirements are adequate as they 
pertain to mergers. However, NARUC suggests that Commission review of 
merger applications could be enhanced by requiring the applicant to 
file pro forma consolidated financial reports showing the projected 
financial position of the merged entity after the proposed 
transaction.\96\
---------------------------------------------------------------------------

    \96\ NARUC Comments at 7-8.
---------------------------------------------------------------------------

    130. APPA/NRECA assert that the Commission's existing record-
keeping and reporting requirements do not provide sufficient 
information on fair market value for the Commission to ensure that 
companies are not improperly transacting without filing for approval. 
They state that the Commission should update our reporting 
requirements, including requiring applicants to adhere to GAAP 
principles for valuation determinations and to justify exemption from 
section 203 under both a cost and market value method of valuation. As 
for reporting requirements that might enable the Commission and the 
public to police compliance with section 203, APPA/NRECA suggest that 
the Commission should consider requiring public utilities to file 
annual reports of all transactions with a value exceeding, for example, 
$5 million, to enable the Commission to enforce the $10 million 
standard.
b. Commission Determination
    131. Most commenters state that the Commission's existing record-
keeping and reporting requirements are adequate. We agree and we will 
not adopt any additional compliance requirements at this time. We 
intend to keep our regulations as straightforward as possible so as not 
to increase regulatory burden on the industry while at the same time 
adequately monitoring jurisdictional entities' determinations of when 
section 203 applies to their transaction. The Commission agrees that 
parties have often sought section 203 authorization out of an abundance 
of caution because of a reasonable possibility that section 203 
approval was legally required. In this way, parties have sought to 
remove regulatory uncertainty from a transaction, as an entire 
transaction can be placed at risk if required regulatory approvals are 
not obtained. This incentive is even greater now that EPAct 2005 has 
authorized civil penalties for violating statutory requirements.\97\
---------------------------------------------------------------------------

    \97\ See 16 U.S.C. 825o-1 (2000), as amended by EPAct 2005 
1284(e).
---------------------------------------------------------------------------

    132. Although the majority of commenters assert that the current 
requirements are adequate, a few suggest that these requirements should 
be considered the minimum necessary for section 203 purposes and should 
not be reduced. We agree, and note that the NOPR did not propose to 
reduce our current requirements. We merely asked whether our existing 
record keeping and reporting requirements, outside the section 203 
context, provide an adequate basis for monitoring jurisdictional 
entities' determinations of when a section 203 application is required. 
We believe that those requirements, as well as other publicly available 
information (e.g., financial statements filed with the SEC), will give 
interested entities enough information to allow them to monitor 
compliance with section 203. For example, under SEC disclosure 
requirements, publicly traded entities must disclose material 
transactions such as mergers or asset acquisitions. Most of these 
transactions will easily exceed the $10 million threshold, so the 
public will be on notice of transactions that likely should be 
submitted to the Commission for approval under section 203. We will 
therefore not adopt the suggestions of NARUC and APPA/NRECA that we 
impose new and burdensome disclosure requirements for purposes of 
monitoring compliance with section 203.
7. Cash Management Arrangements, Intra-Holding Company System 
Financing, Securities Under Amended Section 203, and Blanket 
Authorizations
    133. The NOPR did not specifically address these issues, but we 
received comments on them. We note that section 203(a)(2) adds the 
entirely new requirement that no holding company in a holding company 
system that includes a transmitting utility or an electric utility 
shall purchase, acquire, or take any security with a value in excess of 
$10 million of, or, by any means whatsoever, directly or indirectly, 
merge or consolidate with, a transmitting utility, an electric utility 
company, or a holding company in a holding company system that includes 
a transmitting

[[Page 1364]]

utility, or an electric utility company, with a value in excess of $10 
million without Commission authorization.
a. Comments
    134. Many commenters, including EEI, Duke/Cinergy, and Entergy, 
request that the Commission clarify that it will continue to interpret 
section 203 to not apply to cash management \98\ and other financing 
arrangements routinely used in utility holding company systems. Thus, 
they request that the Commission continue to distinguish between the 
acquisition of voting securities and other instruments that confer 
control, which is subject to review under section 203, and the 
acquisition of loans and other financial instruments that do not confer 
control. They state that the issuance of these should remain subject to 
section 204 of the FPA \99\ and relevant state law, but should not 
require section 203 approval. EEI, Duke/Cinergy, and Entergy also 
explain that cash management rules are already in place to monitor any 
potential cross-subsidization concerns for these types of financial 
arrangements. Furthermore, they assert that requiring prior approval 
under section 203 for cash management arrangements would impair the 
ability of holding companies and their public utility subsidiaries to 
manage their short-term financing needs efficiently. Applying section 
203 to all intra-system financings would be contrary to Congress' 
intent and would create significant burdens for the Commission and 
utilities alike. Alternatively, should the Commission determine that 
section 203 applies to cash management programs, they request that the 
Commission allow companies to seek pre-approval (similar to the pre-
approval process and reporting requirements adopted for cash management 
agreements) or blanket authorization.
---------------------------------------------------------------------------

    \98\ While there are several different types of cash management 
programs, a cash management program generally involves pooling the 
cash resources of several affiliated companies into a ``money 
pool.'' Affiliates can then borrow against the funds in the pool, 
often at below market rates. Additionally, the parent company is 
often able to achieve a higher rate of return on its money pool 
investments than any single affiliate could on its own. For a more 
detailed discussion of cash management programs. See Regulation of 
Cash Management Practices, Order No. 634, 68 FR 40,500 (July 8, 
2003), III FERC Stats. & Regs. ] 31,145 (June 26, 2003), Order No. 
634-A, 68 FR 61,993 (Oct. 31, 2003), FERC Stats. & Regs. ] 31,152 
(Oct. 23, 2003) (Cash Management Rule).
    \99\ 16 U.S.C. 824c (2000).
---------------------------------------------------------------------------

    135. MidAmerican Energy Holdings Company (MidAmerican) also urges 
the Commission to grant a blanket authorization for intra-holding 
company system financings, contributions, or equity infusions in excess 
of $10 million undertaken by an upper tier company to fund a lower tier 
holding company, intermediate holding company, or public utility 
company within the same holding company system. It states that the 
purpose of these financial transactions is to fund the capital and 
operating requirements of the lower tier entities and, thus, that these 
transactions do not raise any cross-subsidization issues. MidAmerican 
explains that the utility company would still need to obtain Commission 
authorization under section 204 for the issuance of its own securities.
    136. Further, MidAmerican urges the Commission to grant another 
blanket authorization for the infusion of capital by a passive investor 
through the acquisition of holding company or public utility company 
securities, including debt and equity securities, subject to an 
aggregate limitation that the passive investor acquire less than ten 
percent of voting equity securities. It explains that one of the main 
objectives of repealing PUHCA 1935 was to encourage additional 
investment in the energy infrastructure by non-traditional, or passive 
investors (who make significant capital infusions in the utility 
industry either as lenders or equity investors), because existing 
investors are not providing sufficient money. There is no need for 
passive investors to follow the traditional section 203 approval 
process. It states that passive investments will not have any adverse 
effects on competition, rates, or regulation, and will not result in 
cross-subsidization. MidAmerican proposes that, to ensure that a 
passive investor will not be able to exercise control through ownership 
of a voting equity security, the passive investor be limited to an 
ownership interest of less than ten percent of voting securities. 
Further, MidAmerican states that when an investor acquires the debt or 
equity securities of an entity that has a de minimis interest in an 
electric utility company, we should grant the blanket authorization.
    137. MidAmerican suggests that the Commission require those who 
receive these types of blanket authorizations to report their 
transactions within 45 days of the closing of the transactions.
    138. Many commenters, including EPSA and Independent Sellers, 
request that the Commission clarify that the term ``securities,'' as 
used in amended section 203(a), means only ``voting securities,'' as 
that term is defined in section 1262(17) of PUHCA 2005, and does not 
apply, for example, to debt or other nonvoting securities. 
Alternatively, if the Commission is unable or unwilling to so clarify, 
the Commission should request a conforming amendment from Congress.
    139. Transmission Agency of Northern California (TANC) urges the 
Commission to modify its Cash Management Rule to apply to public 
utility holding companies, which would add an additional layer of 
protection to utilities and their customers.
b. Commission Determination
    140. As noted above, amended section 203(a)(2) expands the 
Commission's authority to include mergers, acquisitions, and purchases 
of securities \100\ of over $10 million involving holding companies 
within certain holding company systems. A major part of the 
Commission's past practice in reviewing section 203 transactions has 
been to determine whether a particular merger or acquisition results in 
a single entity having control over transmission or generation 
resources that would allow it exercise market power. This would also be 
a concern under the new section 203(a)(2) provision.
---------------------------------------------------------------------------

    \100\ The term ``security'' is defined in FPA section 3(16) as 
``any note, stock, treasury stock, bond, debenture, or other 
evidence of indebtedness of a corporation * * *.''
---------------------------------------------------------------------------

    141. However, as several commenters suggest, there are several 
classes of transactions covered by amended section 203(a)(2) that will 
not harm competition or captive customers. These include: (1) Routine 
cash management transactions and intra-holding company system financing 
transactions; (2) acquisition of non-voting securities (in any amount); 
\101\ and (3) acquisition of voting securities that would give the 
acquiring entity not more than 9.9 percent ownership of the outstanding 
voting securities. For these transactions, the Commission finds that it 
is consistent with the public interest to issue a blanket authorization 
in this Final Rule, for the reasons discussed below.
---------------------------------------------------------------------------

    \101\ We note, however, that it is possible, in some 
circumstances, for non-voting securities to convey sufficient 
``veto'' rights over management actions as to convey ``control'' 
that triggers section 203. The Commission has addressed similar 
issues for purposes of evaluating independence of entities that ask 
for RTO status, and the SEC considered similar issues through its 
``no action'' letter process in applying PUHCA 1935. We anticipate 
that our treatment of such issues under amended section 203 will 
generally be consistent with these precedents. If uncertainty exists 
as to whether significant veto rights could convey control, entities 
should seek a ruling from the Commission to determine whether 
section 203 approval is required.

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[[Page 1365]]

i. Cash Management Programs and Intra-Holding Company Financing 
Arrangements
    142. As several commenters note, cash management programs, money 
pools, and other intra-holding company financing arrangements are a 
routine and important tool used by many large companies to lower the 
cost of capital for their regulated subsidiaries and to improve the 
rate of return the holding company and its subsidiaries can get on 
their money.\102\ The Commission does not intend to make it more 
difficult for companies to take advantage of these types of 
transactions. Since the companies participating in a cash management-
type agreement are already affiliated, allowing the transfer of funds 
between such companies does not generally present competitive problems. 
Thus, we find that it is consistent with the public interest to grant a 
blanket authorization to allow holding companies and their subsidiaries 
to take part in intra-system cash management-type programs, subject to 
the discussion below.
---------------------------------------------------------------------------

    \102\ See, e.g., EEI Comments at 27-31.
---------------------------------------------------------------------------

    143. TANC suggests that the Commission modify its Cash Management 
Rule to cover holding companies themselves. Currently, the Cash 
Management Rule only covers the cash management practices of a holding 
company's public utility subsidiaries.\103\ We disagree with TANC that 
additional generic cash management rules governing holding companies 
are necessary at this time to safeguard consumers. The focus of amended 
section 203 is partly to prevent inappropriate cross-subsidization, or 
encumbrances or pledges of utility assets by public utility 
subsidiaries. Applicants must adopt sufficient safeguards, including 
any necessary cash management controls (such as restrictions on 
upstream transfers of funds, ring fencing, etc.), to prevent any cross-
subsidization between holding companies and their new subsidiaries 
prior to receiving section 203 approval. Such safeguards ensure that 
consumers are protected, while permitting companies the flexibility to 
competitively manage their cost of capital via a cash management 
program. On balance, the Commission believes that the flexibility 
provided by this approach, combined with our existing cash management 
policies,\104\ is superior to the one-size-fits-all approach advocated 
by TANC.
---------------------------------------------------------------------------

    \103\ See Cash Management Rule at P 29.
    \104\ We also note that under our existing Cash Management Rule, 
changes to existing or new cash management agreements (including 
money pool arrangements and other internal corporate financing 
arrangements) must be filed with the Commission.
---------------------------------------------------------------------------

ii. Purchases of Non-Voting Securities by a Qualifying Holding Company
    144. We agree with the majority of commenters that there is no need 
for case-by-case examination of the purchase by a holding company of 
non-voting securities of a public utility or of another holding company 
under amended section 203. The purchase of such securities generally 
does not convey control and hence does not grant the purchasing holding 
company additional market power, harm competitive markets, or otherwise 
disadvantage captive customers.\105\ This is consistent with the intent 
of Congress that EPAct 2005 increase outside investment in the utility 
sector while protecting customers.\106\ As MidAmerican notes, the 
issuance of securities by a jurisdictional company is also governed by 
section 204 of the FPA. Thus, for the purposes of amended section 203, 
we find that it is consistent with the public interest to grant a 
blanket authorization for the purchase by a holding company of any 
amount of non-voting securities of a public utility or of another 
holding company. We will grant this blanket authorization and will not 
impose any type of filing requirement with respect to such 
transactions.
---------------------------------------------------------------------------

    \105\ See Cash Management Rule at P 29 (discussing exception for 
non-voting interests that convey significant veto rights).
    \106\ See, e.g., Senate Floor Statement by Senators Domenici (R-
NM), H.R. 6, Energy Policy Act of 2005, 151 Cong. Rec. S9256 (July 
28, 2005) (stating that ``this should bring much more capital 
investment into the utility companies that make up this powerful 
institution, this entity called the grid of the United States.'').
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iii. Purchases of Voting Securities Amounting to 9.9 Percent or Less of 
Outstanding Voting Securities
    145. As commenters note, a number of investors would like to invest 
in the utility sector, but have been prevented from doing so by the 
fear that they would become subject to regulation by the SEC as well as 
this Commission. To remedy this problem, a number of commenters suggest 
giving a blanket section 203 approval to institutional investors within 
holding company systems purchasing less than 10 percent of the 
outstanding voting securities. Commenters note that the SEC has 
traditionally given blanket approval to a holding company in a holding 
company system purchasing up to 9.9 percent of outstanding voting 
securities of a public utility or a holding company covered by the 
statute. We agree that this approach makes sense and that it is 
consistent with the public interest and Congressional intent in 
repealing the restrictions of PUHCA 1935 and encouraging incentives for 
additional investment. We will, however, condition the blanket 
authorization by requiring the purchaser of such securities to provide 
the Commission, not more than 45 days after the purchase, with the same 
information on the same basis that the holding company now provides to 
the SEC.\107\ We will issue notices of these filings for informational 
purposes only.
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    \107\ Accordingly, the Commission directs that the purchaser of 
such securities file with the Commission copies of SEC schedules 
13D, 13G, and 13F. SEC schedule 13D is required to be filed by any 
entity acquiring beneficial ownership of more than 5 percent of a 
class of a company's securities. The schedule 13D filing requires, 
among other things, a statement of the purpose(s) of the acquisition 
of the securities of the issuer and a description of any plans or 
proposals the reporting person may have that relate to or would 
result in the acquisition of additional securities of the issuer; 
any extraordinary corporate transactions, such as a merger, 
reorganization or liquidation of the issuer or its affiliates; and 
any changes in the board of directors or management of the issuer. 
Schedule 13G is the same form, but is used when the person or entity 
is making the purchase for investment only. Institutional investment 
managers who exercise investment discretion over $100 million or 
more must report their holdings on SEC schedule 13F. We note that 
these schedules required for a grant of blanket authorization under 
section 203(a)(2) should impose only a de minimis burden on the 
holding company, since we are requiring merely the same information 
that is filed with the SEC. Should the SEC change its reporting 
requirements, this information must continue to be filed with the 
Commission.
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8. Section 33.2(j)--General Information Requirements Regarding Cross-
Subsidization
    146. In the NOPR, the Commission proposed that new section 33.2(j) 
would implement section 203(a)(4) by requiring applicants to explain 
how they are providing assurance that the proposed transaction will not 
result in a cross-subsidization of a non-utility associate company or a 
pledge or encumbrance of utility assets for the benefit of an associate 
company. We proposed to require appropriate evidentiary support for 
that explanation. We proposed that if no such assurance can be 
provided, applicants must explain how such cross-subsidization, pledge, 
or encumbrance will be consistent with the public interest.\108\ This 
explanation would be Exhibit M to the applicant's section 203 
application. The Commission sought comment on what evidence parties 
should be required to submit to support any explanation offered under 
this subsection.
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    \108\ NOPR at P 45.
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    147. The Commission noted that it has sought to guard against 
potential

[[Page 1366]]

cross-subsidization and affiliate abuse when it reviews applications 
for cost-based or market-based rate authority under section 205 of the 
FPA \109\ or dispositions of jurisdictional facilities under section 
203 involving public utilities (or their affiliates) with captive 
customers.\110\ We also noted that the Commission has cash management 
rules to monitor proprietary capital ratios and money lending or other 
financial arrangements that can harm regulated companies.\111\ We 
stated that our primary focus has been on preventing a transfer of 
benefits from a traditional public utility's captive customers to 
shareholders of the public utility's holding company due to an intra-
system transaction that involves power or energy, generation 
facilities, or non-power goods and services. Thus, in light of the 
Congress' clear directive in EPAct 2005 that the Commission make 
findings regarding cross-subsidization and the pledge or encumbrance of 
utility assets in a section 203 order, we sought comments on what 
additional safeguards or conditions may need to be placed on section 
203 transactions. Specifically, the Commission solicited comments on 
the adequacy of its present policies preventing affiliate abuse and 
cross-subsidization, and whether conditions such as those imposed by 
state commissions may need to be imposed on section 203 transactions. 
The Commission also sought comment on whether additional conditions 
should be placed on section 203 approvals to ensure that there is no 
pledge or encumbrance that harms utility customers.
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    \109\ 16 U.S.C. 824d (2000).
    \110\ See, e.g., Sierra Pacific, 95 FERC ] 61,193; Boston Edison 
Co., 80 FERC ] 61,274 (1997).
    \111\ NOPR at P 46.
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a. Comments
    148. Many commenters generally support the Commission's proposal 
but recommend additional conditions or safeguards. They agree that the 
Commission should impose specific conditions or safeguards to protect 
against unfair competitive practices, cross-subsidization, and 
affiliate abuse.\112\ Some recommend that the Commission consider such 
protections on a case-by-case basis in consultation with affected state 
commissions. Proposed conditions include, for example: Utility company 
subsidiaries shall not loan any funds (or advance any credit or 
indemnity) to the holding company without appropriate regulatory 
approvals; a utility shall not incur any additional indebtedness, issue 
any additional securities, or pledge any assets to finance any part of 
a merger of holding companies without prior regulatory approvals; all 
debt at the holding company level shall be non-recourse to the utility; 
and the Commission should develop a process for periodic audits of 
inter-company transactions to be conducted in appropriate instances, as 
well as procedures for compliance monitoring, investigation, and 
complaints of cross-subsidization and affiliate abuse.
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    \112\ E.g., NARUC, New Jersey Board, Ohio Commission, Oklahoma 
Commission, Indiana Commission, APPA/NRECA, TANC, TAPSG, NASUCA, and 
UWUA.
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    149. The Oklahoma Corporation Commission (Oklahoma Commission) 
proposes that applicants provide: A report of the nature of affiliates' 
operations; description of the business intended to be done by 
subsidiaries; and an explanation and detailed rationale of any plans to 
make any material change in investment policy, business, corporate 
structure, or management.
    150. New Jersey Board states that it is not clear that proposed 
section 33.2(j) requires applicants to provide evidentiary support when 
claiming that a cross-subsidization, pledge, or encumbrance is 
consistent with the public interest. Therefore, it proposes that the 
text be revised to state ``An explanation, with appropriate evidentiary 
support for such explanation (to be identified as Exhibit M to this 
application):''.\113\
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    \113\ New Jersey Board Comments at 6 (emphasis in original).
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    151. To mitigate cross-subsidization risks to ratepayers, other 
commenters propose structural conditions on mergers of entities that 
include both public utility and non-utility businesses, as the facts 
require. This could include the separation of public utility business 
within companies that also engage in non-utility business and the 
separation of a public utility's books and records from those of non-
utility affiliates.
    152. Finally, Southern Companies request that when a public utility 
predominately serves customers at retail but has some jurisdictional 
facilities, the Commission accept as sufficient a showing that the 
public utility applicant is subject to general supervision by a state 
commission that has authority to review the transaction, and that such 
state commission approval is predicated upon a finding that the 
transaction will not impair the performance of public service 
obligations or result in cross-subsidy burdening utility assets or 
service.
    153. Other commenters generally state that there is no need to 
impose additional conditions or a new evidentiary requirement to ensure 
that transactions are consistent with the public interest.\114\ They 
assert that the Commission already has in ways to guard against cross-
subsidization or pledging or encumbering of utility assets, including: 
(1) Cash management rules; (2) code of conduct restrictions; (3) prior 
approval for certain power transactions; (4) access to, and auditing 
of, books and records; (5) expanded jurisdiction under EPAct 2005 with 
regard to books, accounts, and records; (6) standards of conduct; and 
(7) the application of Edgar standards to ensure that the sale price is 
not higher than would have been paid to a non-affiliate.
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    \114\ E.g., Duke/Cinergy, Entergy, EEI, AEP, Ameren, 
FirstEnergy, Progress Energy, International Transmission, National 
Grid, and Scottish Power.
---------------------------------------------------------------------------

    154. Duke/Cinergy, EEI, PNM, and Entergy assert that the Commission 
should allow applicants to avoid a detailed examination of cross-
subsidization and encumbrance concerns by making four verifications on 
a case-by-case basis that address those issues. These verifications 
would enable the Commission to quickly determine whether a transaction 
is consistent with the public interest. The verifications would be that 
the transaction results in: (1) No transfers of facilities between a 
traditional utility associate company with wholesale or retail 
customers served under cost-based rates and an associate company; (2) 
no new issuance of securities by traditional utility associate 
companies with wholesale or retail customers served under cost-based 
rates for the benefit of an associate company; (3) no new pledge or 
encumbrance of assets of a traditional utility associate company with 
wholesale or retail customers served under cost-based regulation for 
the benefit of an associate company; (4) no new affiliate contracts 
between non-utility associate companies and traditional utility 
associate companies with wholesale or retail customers served under 
cost-based rates, other than system allocation agreements subject to 
review under EPAct 2005 section 1275(b).\115\ In cases where an 
applicant is unable to make one or more of the accepted verifications, 
these commenters state that the applicant should bear the burden of 
submitting sufficient information in Exhibit M to demonstrate that 
there is no cross-subsidization issue or, if there is, that the 
transaction is consistent with the public interest.
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    \115\ See, e.g., EEI Comments at 20-21; Entergy Comments at 8; 
Duke/Cinergy Comments at 7.

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[[Page 1367]]

    155. Some commenters generally oppose imposing additional 
conditions or safeguards beyond or that would conflict with those 
imposed by state commissions. Many commenters believe that the 
Commission's current policies are more than adequate to address state 
commission conditions and that the Commission already imposes most of 
these conditions directly.\116\
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    \116\ E.g., Duke/Cinergy, EEI, Entergy, AEP, Ameren, Progress 
Energy, PNM, FirstEnergy, International Transmission, National Grid, 
and Scottish Power (citing NOPR at P 52.).
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    156. Oklahoma Commission suggests that the Commission allow state 
commissions to continue to exercise their autonomous authority in 
addressing possible affiliate abuse and cross-subsidization. Kentucky 
Commission states that any additional conditions imposed by the 
Commission should complement, not nullify or preempt, those imposed by 
state commissions.
    157. International Transmission states that because independent 
transmission companies, by definition, are not affiliated with market 
participants, concerns regarding transmission-specific cross-
subsidization that distort energy markets are minimized. National Grid 
states that the Commission should impose a merger condition only when 
it finds a proposed transaction, taken as a whole, is inconsistent with 
the public interest. Scottish Power states that the Commission should 
allow applicants to provide their own ways to demonstrate that there is 
no potential for cross-subsidization, on a case-by-case basis.
    158. FirstEnergy contends that a requirement that applications 
demonstrate that each company within a holding company system is 
unaffected by cross-subsidization would inundate the Commission with 
information that has no real import. If the Commission requires such an 
evidentiary showing, it must clearly define the types of evidentiary 
support that would be necessary and provide guidance on the types of 
activities that typically would result in a pledge or encumbrance and 
those that will be consistent with the public interest. FirstEnergy 
states that conditions should be placed on section 203 approvals only 
when the Commission finds that a pledge or encumbrance is not 
consistent with the public interest.
    159. Finally, Independent Sellers request that the Commission adopt 
a rebuttable presumption that no opportunity for cross-subsidization 
exists when a transaction involves only entities that are not 
affiliated with traditional public utilities with captive ratepayers.
    160. In addition, Kentucky Commission, APPA/NRECA, and TAPSG 
comment that the Commission should require as part of a section 203 
application the disclosure of all existing and/or future pledges and 
future encumbrances of utility assets. They state that applicants 
should have to explain how these existing pledges or encumbrances do 
not harm utility customers. However, International Transmission and 
FirstEnergy do not believe that all existing pledges and encumbrances 
should be disclosed in section 203 applications because this would be 
inconsistent with section 33.11(b)(3) of the regulations, which assumes 
that corporate reorganizations can occur that do not present cross-
subsidization issues.
    161. Missouri Commission states that the Commission should require, 
as a condition of approving mergers, the application of a ``lower of'' 
or ``higher of'' ``cost or market value'' standard. TANC states that 
requiring associate and affiliated companies to file cost allocation 
agreements with the Commission will help prevent excessive costs for 
non-power goods and services from being charged to utility companies 
and their customers. With regard to cost allocations for non-power 
goods and services, TANC asserts that the dual approach of a ``lower of 
cost or market'' standard has the advantage of ensuring that utilities 
and customers will not be harmed by an affiliate company relationship, 
regardless of whether market price exceeds costs for the non-power 
goods or services, or vice versa.
    162. AEP encourages the Commission to retain the ``at cost'' 
standard for intra-system non-power goods and services transactions due 
to the added cost, burden, and inconsistencies that would be created 
otherwise. It explains that the expense and effort of implementing a 
``lower of cost or market'' standard to the wide range of routine 
service company administrative and professional services would be 
immense, would result in lost efficiencies and, ultimately, would 
produce higher rates for regulated ratepayers. AEP states that the at-
cost standard is a fair, verifiable, and workable.\117\
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    \117\ AEP Comments at 6-7.
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    163. National Grid states that the Commission should continue to 
allow the use of the SEC's ``at no more than cost'' standard for 
pricing of intra-company transactions involving service companies. It 
explains that such companies were created to allow efficiently 
centralized support services for utility and non-utility associate 
companies within a holding company; therefore, a pricing system based 
on market prices would not be appropriate.
b. Commission Determination
    164. The Commission will adopt, with the modification explained 
below, our proposal to require section 203 applicants to include an 
explanation of either: (1) How they are providing assurances that the 
proposed transaction will not result in cross-subsidization or improper 
pledges or encumbrances of utility assets; or (2) if such results would 
occur, how those results are consistent with the public interest. We 
believe that this approach meets Congress' concern regarding cross-
subsidization in section 203 transactions. As we explained in the NOPR, 
the Commission has previously adopted a number of policies to address 
affiliate abuse and cross-subsidization activities as it carries out 
its section 203 and 205 responsibilities. Amended section 203, however, 
clearly shows that Congress intended that cross-subsidization and 
related concerns should be a focal point of the Commission's section 
203 analysis.
    165. We also agree with commenters that certain protections may be 
necessary, on a case-by-case basis, in order to protect against cross-
subsidization, pledge or encumbrance of utility assets, and affiliate 
abuse. We note that commenters who generally support the Commission's 
proposal, as well as some who generally do not support the proposal, 
advocate a case-by-case approach. Commenters suggest many valid 
conditions that applicants might propose or that the Commission might 
impose under revised FPA section 203(a)(4). However, many of these 
conditions may not be appropriate to every section 203 transaction.
    166. In our Merger Policy Statement, the Commission explained that, 
in determining whether a merger is consistent with the public interest, 
one of the factors we consider is the effect the proposed merger will 
have on rates. The Commission's main objective in applying this factor 
is to protect captive customers who are served under cost-based rates 
that could be adversely affected by a section 203 transaction.\118\

[[Page 1368]]

The new provision in amended section 203(a)(4) concerning cross-
subsidization is rooted in similar concerns. In our Merger Policy 
Statement, we held that an applicant that wishes to avoid a hearing on 
rate issues should submit a commitment that adequately protects captive 
customers, such as a hold harmless commitment or an open season. Also, 
as part of our policy authorizing market-based rates for traditional 
public utilities or their affiliates, we have required that these 
utilities adopt a code of conduct that addresses both power and non-
power transactions between them.\119\ We believe that these types of 
commitments also can, in appropriate circumstances, address concerns 
regarding the potential that a merger may permit cross-subsidization. 
We will therefore require applicants to offer protections to their 
captive customers that address the potential for cross-subsidization. 
We also note that, in addition to any such commitments, we have 
continuing jurisdiction over the rates of public utilities under 
section 205 by which to further protect captive customers.
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    \118\ Customers charged under market-based rates escape the 
potentially deleterious effects of cross-subsidization, or pledge or 
encumbrance of utility assets, because the prices are constrained by 
competition, regardless of the seller's costs. In contrast, captive 
customers (who pay cost-based rates) require protection. See, e.g., 
Alpena Power Generation, L.L.C., 110 FERC ] 61,199, at P 17 (2005) 
(finding affiliate abuse concerns were addressed with respect to 
market-based rate authority because, among other factors, there were 
no captive customers); Pinnacle West Capital Corp., 95 FERC ] 
61,300, at 62,024 (2001) (``The focus of the Commission's affiliate 
abuse concerns in cases involving sales between affiliates at 
market-based rates thus is protection of captive customers.''); 
Connectiv Energy Supply, Inc., 91 FERC ] 61,076, at 61,268 (2000) 
(``As the Commission has explained in previous cases, there is a 
concern whenever a public utility can transact with an affiliated 
power marketer in such a way as to transfer benefits from a power 
sale from captive ratepayers to its shareholders.''); The Detroit 
Edison Co., 84 FERC ] 61,197 (1998) (the Commission places no 
restrictions on power marketer transactions with affiliates that do 
not have captive customers).
    \119\ NOPR at P 48 and 49.
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    167. In sum, the concern about cross-subsidization is principally a 
concern over the effect of a transaction on rates. Accordingly, 
applicants proposing transactions under section 203 should proffer 
ratepayer protection mechanisms to assure that captive customers are 
protected from the effects of cross-subsidization. The applicant bears 
the burden of proof to demonstrate that customers will be 
protected.\120\ Applicants should attempt to resolve the matter with 
customers before filing. Among the types of protection mechanisms that 
could be proposed by applicants are: A general hold harmless provision, 
which must be enforceable and administratively manageable, where the 
applicant commits that it will protect wholesale customers from any 
adverse rate effects resulting from the transaction for a significant 
period of time following the transaction; or a moratorium on increases 
in base rates (rate freeze), where the applicant commits to freezing 
its rates for wholesale customers under a certain tariff for a 
significant period of time.\121\ The Commission will address the 
adequacy of the proposed mechanisms on a case-by-case basis. 
Furthermore, we agree that any additional conditions imposed by the 
Commission would complement, not nullify, those imposed by state 
commissions.
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    \120\ See Central Vermont Pub. Serv. Corp., 39 FERC ] 61,295, at 
61,960 (1987) (stating that in cases where the Commission finds 
sufficient potential for abuse, the Commission may disapprove the 
transaction or place appropriate conditions on it).
    \121\ These protection mechanisms are offered only as examples. 
Whether these types of protection mechanisms are appropriate in a 
particular case will depend on the circumstances and the details of 
the transaction in question. See, e.g., Merger Policy Statement at 
30,121-24.
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    168. What constitutes adequate ratepayer protection will depend on 
the particular circumstances of the transaction. Should parties be 
unable to reach an agreement on ratepayer protection, the Commission 
may still be able to approve the transaction on the basis of the 
parties' filings if we determine that the proposal protects ratepayers 
from harm, or after imposing conditions specific to the particular 
circumstances.
    169. We also agree with commenters that certain verifications in an 
application under amended section 203 could streamline the approval 
process by avoiding a detailed examination of cross-subsidization and 
encumbrance concerns. Such verifications, considered on a case-by-case 
basis in light of the given transaction, and explanations relating to 
those verifications, as well as other explanations of how the 
transaction will not result in cross-subsidization, pledge, or 
encumbrance of utility assets for the benefit of an associate company 
`` or if it does result in such, an explanation of how such cross-
subsidization, pledge, or encumbrance will be consistent with the 
public interest `` is to be included as Exhibit M to the application. 
Accordingly, along with any protection mechanisms as discussed above, 
we may accept on a case-by-case basis, in lieu of or in addition to any 
other explanation, the following four verifications. The application 
may verify that the proposed transaction does not result in, at the 
time of the transaction or in the future: (1) Transfers of facilities 
between a traditional utility associate company with wholesale or 
retail customers served under cost-based regulation and an associate 
company; (2) new issuances of securities by traditional utility 
associate companies with wholesale or retail customers served under 
cost-based regulation for the benefit of an associate company; (3) new 
pledges or encumbrances of assets of a traditional utility associate 
company with wholesale or retail customers served under cost-based 
regulation for the benefit of an associate company; (4) new affiliate 
contracts between non-utility associate companies and traditional 
utility associate companies with wholesale or retail customers served 
under cost-based regulation, other than non-power goods and services 
agreements subject to review under sections 205 and 206 of the FPA.
    170. We also agree with New Jersey Board that proposed section 
33.2(j) does not clearly require appropriate evidentiary support for 
the explanation in Exhibit M. We will therefore revise the text to 
read: ``An explanation, with appropriate evidentiary support for such 
explanation (to be identified as Exhibit M to this application): * * 
*'' Further, the Commission will monitor and periodically audit, where 
appropriate, to ensure that applicants abide by their commitments in 
Exhibit M and any requirements contained in Commission orders.
    171. With regard to comments on the ``at cost'' standard versus the 
``market'' standard for transactions involving non-power goods and 
services, we note that the Commission addressed this issue in the PUHCA 
2005 rulemaking.\122\
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    \122\ PUHCA 2005 Final Rule at P 166-73.
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9. Section 33.11--Commission Procedures for Consideration of 
Applications Under Section 203 of the FPA
    172. In the NOPR, the Commission proposed new subsections 33.11(a) 
and (b) to implement amended section 203(a)(5). Specifically, 
subsection 33.11(a) provides that the Commission will act on a 
completed application for approval of a transaction (i.e., an 
application that meets the requirements of Part 33), not later than 180 
days after the completed application is filed.\123\ If the Commission 
does not act within 180 days, such application shall be deemed granted 
unless the Commission finds, based on good cause, that further 
consideration is required and issues an

[[Page 1369]]

order tolling the time for acting on the application for not more than 
180 days, at the end of which additional period the Commission shall 
grant or deny the application, as required by amended section 203 of 
the FPA.\124\
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    \123\ As explained in the Merger Policy Statement, a complete 
application is one that describes the merger being proposed and that 
contains all the information necessary to explain how the merger is 
consistent with the public interest, including an evaluation of the 
merger's effect on competition, rates, and regulation. Merger Policy 
Statement at 30,127. The Commission's review process will begin when 
the application is deemed to be complete.
    \124\ NOPR at P 56.
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    173. Proposed subsection 33.11(b) would provide for the expeditious 
consideration of completed section 203 applications that are not 
contested, are not mergers, and are consistent with Commission 
precedent, because they should typically meet the standards established 
in section 203(a)(4).\125\
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    \125\ Id. at P 57.
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    174. The Commission also stated that it could not provide a 
comprehensive description of all the classes or types of transactions 
that will receive the expedited review. However, the Commission 
proposed that transactions that would generally warrant expedited 
review include: (1) A disposition of only transmission facilities, 
particularly those that both before and after the transaction remain 
under the functional control of a Commission-approved RTO or 
independent system operator; (2) transfers involving generation 
facilities of a size that do not require an Appendix A analysis; (3) 
internal corporate reorganizations that do not present cross-
subsidization issues; and (4) the acquisition of a foreign utility 
company by a holding company with no captive customers in the United 
States.\126\
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    \126\ NOPR at P 59. The Commission noted that PUHCA 1935 
exempted from its requirements certain acquisitions of foreign 
utility companies by a holding company with operations in the United 
States. 15 U.S.C. 33 (2000); 17 CFR 250.57 (2005). However, amended 
section 203 appears to provide no such exemption.
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    175. With respect to the latter category, the Commission recognized 
that amended section 203's requirement for regulatory approval could 
have a chilling effect on investment--particularly if the transaction 
were subjected to a lengthy regulatory review. The Commission noted 
that such a transaction would not cause competitive concerns in the 
United States and, further, that there would be no concerns about 
cross-subsidization that harms captive customers in the United States. 
In addition, the Commission stated that even with respect to the 
acquisition of a foreign utility company by a holding company with 
captive customers in the United States, there may be safeguards that 
allow expedited approval of such transactions. Thus, the Commission 
sought comment on procedures the Commission might adopt, or safeguards 
it might require, to pre-approve or expedite such transactions while at 
the same time protecting U.S. captive customers.
    176. Further, the Commission stated that it expects to have a 60-
day notice period for section 203 applications that involve, contain, 
or require a competitive analysis per the part 33 and a 21-day notice 
period for all other section 203 applications, except for certain 
applications that may raise cross-subsidization concerns. The 
Commission stated that it expects to have a 60-day notice period for 
applications that seek authorization to transfer ownership of a 
generation plant from one affiliate or associate company to another 
company within the same corporate structure and for other applications 
that may raise cross-subsidization or pledge or encumbrance 
issues.\127\
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    \127\ NOPR at P 64-64. The Commission explained that not 
included in this category are transactions that merely change 
upstream ownership interests held by parent companies of public 
utilities or transactions that do not alter the terms of power 
supply or power supply costs for captive customers.
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a. Comments
    177. Many commenters, including TAPSG and UWUA, support the 
Commission's proposal regarding the criteria for expedited 
consideration (applications that are not contested, are not mergers, 
and are consistent with Commission precedent). APPA/NRECA and TANC, 
however, caution that uncontested section 203 applications should still 
be reviewed to ensure they are consistent with Commission precedent. 
International Transmission notes that limiting expedited review to non-
merger transactions is inconsistent with the Commission's recognition 
in the NOPR that not all merger transactions require the same level of 
analysis. Oklahoma Commission suggests that state commissions take over 
initial transaction review and that the Commission adopt a role of 
appellate review where there are disagreements between state 
commissions and the applicant.
    178. TAPSG and UWUA agree with the Commission's proposal not to 
provide a comprehensive description of the classes or types of 
transactions that generally fall into the expedited review category. 
However, TANC suggests that the Commission adopt an exhaustive list of 
section 203 transactions that are eligible for expedited review to 
provide customers with the utmost protection and certainty. 
International Transmission recommends that, in order to encourage 
investment in independent transmission, dispositions, consolidations, 
or acquisitions by independent transmission companies should receive 
expedited review, even if all of the criteria in section 33.11(b) of 
the proposed regulations are not met. Many commenters recommend that, 
for all four of the categories, the Commission automatically approve 
the application upon filing an informational report where the 
applicants make certain verifications.\128\
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    \128\ See EEI Comments at 22-23. For example, one verification 
that EEI proposes is that the proposed transaction results in no 
transfers of facilities between a traditional utility associate 
company with wholesale or retail customers served under cost-based 
regulation and an associate company. Thus, a transaction that 
results in a transfer of facilities into or out of a traditional 
utility with captive customers could not qualify for automatic 
approval.
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    179. With respect to proposed section 33.11(b)(4), commenters had a 
variety of responses on the procedures that the Commission might adopt, 
or safeguards it might require, to expedite or pre-approve transactions 
involving the acquisition of a FUCO by a holding company with no 
captive customers in the U.S. Many commenters request that the 
Commission not adopt any rules or policies that would impose undue 
regulatory burdens on holding companies that seek to invest in foreign 
utility companies.
    180. Many traditional public utility commenters and others 
generally support a 30-day expedited review or pre-approval for 
transactions involving acquisitions of FUCOs.\129\ Commenters suggest 
that the Commission automatically approve the application when the 
applicant provides certain cross-subsidization verifications (similar 
to those listed in EEI's comments), as well as assurances that the 
transaction will have no adverse effect on competition, rates, and 
regulation, if the filing is verified by a duly authorized corporate 
official of the holding company.\130\ The transaction should be deemed 
approved upon making such informational filing.
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    \129\ E.g., EEI, Duke/Cinergy, Entergy, AEP, Progress Energy, 
Ameren, AES, EPSA, Scottish Power, and E.ON.
    \130\ E.g., EEI Comments at 22-23, 25-26; National Grid Comments 
at 20-22; AES Comments at 15-19; EPSA Comments at 8-9.
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    181. State commission commenters, including NARUC, Ohio Commission, 
and New Jersey Board, generally suggest that, in order to protect 
domestic customers while expediting or pre-approving foreign utility 
transactions, the Commission should consider reviewing the financial 
condition and credit ratings of the acquiring utility holding company 
and its operating utility companies, or require applicants to submit 
service agreements, codes of

[[Page 1370]]

conduct, and affiliate rules.\131\ They recommend that the Commission 
also conduct a cursory ``due diligence'' review of historical 
information from annual FERC Form 1 filings by the holding company's 
operating utility companies to examine trends in the holding company's 
investment in its domestic operating utilities and in their quality of 
service. The Commission could get this information from state 
regulatory commissions.
---------------------------------------------------------------------------

    \131\ See, e.g., NARUC Comments at 15-16; Ohio Commission 
Comments at 8-9; New Jersey Board Comments at 9-10.
---------------------------------------------------------------------------

    182. Some commenters are cautious of the Commission's proposed 
expedited procedures for approving the acquisition of FUCOs. TAPSG 
states that the Commission should not decide in the abstract how 
reviews of such transactions can be expedited. Public Citizen urges the 
Commission to protect domestic ratepayers by requiring that a strong 
showing be made that such a transaction is consistent with the public 
interest and by evaluating whether attempts by off-shore companies to 
acquire or hold controlling shares in U.S. public utilities can be 
found to be consistent with the public interest.
    183. With respect to proposed section 33.11(b)(1) and expedited 
procedures for a disposition of transmission facilities only 
(particularly those that both before and after the transaction remain 
under the functional control of a Commission-approved RTO or ISO), TANC 
comments that expedited review should be used only where the facilities 
will remain under the functional control of the same Commission-
approved RTO or ISO after the transaction is completed. TANC also 
states that transmission-only dispositions should receive expedited 
review only when they involve entities that are non-dominant market 
participants. APPA/NRECA argues that dispositions of transmission-only 
facilities should not generally receive expedited review.
    184. With respect to proposed section 33.11(b)(2) and expedited 
procedures for transfers involving generation facilities of a size that 
do not require an Appendix A analysis, many traditional public utility 
commenters suggest that such expedited review be extended to include 
all transactions that do not require an Appendix A analysis. They 
recommend revising the proposed regulations to state: ``transactions 
that do not require an Appendix A analysis.'' \132\ They also state 
that, even in cases where an Appendix A analysis is required for a 
generation facility acquisition, the Commission should act 
expeditiously in certain circumstances, setting a 30-day comment period 
and issuing an order no later than 30 days thereafter. Southern 
Companies requests that the Commission provide guidance regarding when 
an Appendix A analysis is required.
---------------------------------------------------------------------------

    \132\ See, e.g., EEI Comments at 24-26; Duke/Cinergy Comments at 
10-11; Entergy Comments at 9-11.
---------------------------------------------------------------------------

    185. With regard to proposed section 33.11(b)(3), EEI, Entergy, and 
Duke/Cinergy support expedited procedures or pre-approval for internal 
corporate reorganizations that do not present cross-subsidization 
issues. National Grid, however, requests expedited procedures or pre-
approval for internal reorganizations that do involve mergers.\133\ It 
requests that the Commission facilitate all internal corporate 
reorganizations that do not either introduce new third-party interests 
or cross-subsidization issues, which are routine aspects of a company's 
financial operations, and do not need to be disrupted by formal 
proceedings, however expedited, under section 203.
---------------------------------------------------------------------------

    \133\ National Grid Comments at 33.
---------------------------------------------------------------------------

    186. EEI, Entergy, and Duke/Cinergy, state that the Commission 
could streamline the process further by granting blanket 
authorizations, for FUCO acquisitions involving holding companies that 
do not have captive customers in the U.S. and for internal corporate 
reorganizations involving public utility and holding company systems 
that do not involve traditional utility companies with captive 
customers.\134\
---------------------------------------------------------------------------

    \134\ See, e.g., EEI Comments at 26-27.
---------------------------------------------------------------------------

    187. Several commenters also made suggestions regarding notice 
periods and complete applications. Many commenters support the 
Commission's expected notice periods. However, some commenters 
recommend that, except in simple cases, the Commission provide for a 
60-day notice period. They suggest that the applicant bear the burden 
of demonstrating that a shorter notice period is appropriate. TAPSG and 
UWUA recommend that, where applications are not complete, the 
Commission should issue deficiency letters. TAPSG also suggests that 
the Commission not deem an application complete until after it has 
reviewed any interventions or protests, since they may identify 
deficiencies in the application. UWUA recommends that the 180-day clock 
on section 203 applications should not begin to run until a complete 
application has been submitted. It states that merger applicants should 
have an increased responsibility to submit complete applications that 
are supported with full explanations of the details of the proposed 
transaction, including testimony.
b. Commission Determination
    188. The Commission adopts the proposed criteria for expedited 
consideration in section 33.11(b). Expedited consideration will be 
available for applications that are not contested, are not mergers, and 
are consistent with Commission precedent. With respect to APPA/NRECA 
and TANC's concerns that the Commission should review even uncontested 
section 203 applications to ensure that they are consistent with 
Commission precedent, we note that the Commission has always reviewed 
section 203 applications, regardless of whether they are contested.
    189. Further, while some commenters recommend that the regulations 
contain an exhaustive list of the types of transactions that would 
generally warrant expedited review, we continue to believe that doing 
so could exclude transactions that may warrant expedited review, but 
that are not listed. Thus, as discussed below, we will not adopt an 
exhaustive list of such transactions. The Commission will not expressly 
provide expedited review for mergers or acquisitions involving 
independent transmission companies, as suggested by International 
Transmission, as review of such cases would be more appropriately 
addressed on an individual basis.\135\
---------------------------------------------------------------------------

    \135\ We note that although the Filing Requirements Rule 
provided that applicants for a transaction involving only 
transmission facilities need not provide a competitive analysis 
under Sec. Sec.  33.3 or 33.4 of the Commission's regulations, it 
also states that if the Commission determines that a filing 
nonetheless raises competitive issues, the Commission will evaluate 
those issues. Filing Requirements Rule at 31,902.
---------------------------------------------------------------------------

    190. Commenters have raised many valid arguments regarding the 
Commission's four proposed categories of transactions generally 
warranting expedited review. We will adopt the NOPR's proposal in 
section 33.11(b)(1) and will generally provide expedited review for a 
disposition of only transmission facilities, particularly those that 
both before and after the transaction remain under the functional 
control of a Commission-approved RTO or ISO. We note APPA/NRECA's 
concern that the consolidation of control of jurisdictional facilities 
should be carefully evaluated under section 203 and TANC's argument 
that expedited review should be limited to those facilities that will 
remain under the functional control of the same Commission-approved RTO 
or ISO after the transaction is completed. However,

[[Page 1371]]

we believe that ISOs and RTOs are pro-competitive and are effective at 
preventing market power abuse because they have Commission-approved 
market-monitoring and mitigation measures in place. Further, we 
continue to believe that, as stated in the Filing Requirements Rule, 
``the standards set forth in Order No. 2000 \136\ require extensive 
information from RTO applicants that we believe will demonstrate 
whether the proposal is in the public interest. It also has been our 
experience that anticompetitive effects are unlikely to arise with 
regard to internal corporate reorganizations or transactions that only 
involve the disposition of transmission facilities.'' \137\ For these 
reasons, we adopt section 33.11(b)(1) as proposed in the NOPR.
---------------------------------------------------------------------------

    \136\ Regional Transmission Organizations, Order No. 2000, 65 FR 
809 (Jan. 6, 2000), FERC Stats. & Regs. ] 31,089, at 31,108 (1999), 
order on reh'g, Order No. 2000-A, 65 FR 12,088 (Mar. 8, 2000), FERC 
Stats. & Regs. ] 31,092 (2000), aff'd sub nom. Public Utility 
District No. 1 of Snohomish County, Washington v. FERC, 272 F.3d 607 
(DC Cir. 2001).
    \137\ Filing Requirements Rule at 31,902.
---------------------------------------------------------------------------

    191. With respect to proposed section 33.11(b)(2), the Commission 
will adopt commenters' proposal and expand that section to generally 
provide expedited review for ``transactions that do not require an 
Appendix A analysis.'' On further consideration, the Commission finds 
that it is not necessary to limit the transactions that will receive 
expedited review based on the amount of generation that is being 
transferred in the transaction. First, we note that the amount as well 
as the type of generation involved can have different market power 
consequences, depending on the situation, in different markets. Second, 
our current regulations, which allow applicants to file an abbreviated 
competitive analysis (e.g., an analysis that does not include an 
Appendix A analysis) in certain circumstances, permit us to seek 
additional information if it is needed to allow us to evaluate the 
effects of the transaction. Therefore, although in the first instance 
the applicant must decide whether to perform a full-fledged analysis, 
it is the Commission that ultimately decides whether such analysis is 
necessary and thus whether the filing qualifies for expedited review.
    192. With respect to proposed section 33.11(b)(3), we agree with 
commenters that internal corporate reorganizations that do not present 
cross-subsidization issues are unlikely to cause anticompetitive 
effects. Thus, instead of providing expedited review for this category, 
the Commission is granting a blanket authorization for internal 
corporate reorganizations that do not present cross-subsidization 
issues and that do not involve a traditional public utility with 
captive customers.
    193. With respect to the last category, proposed section 
33.11(b)(4), we will not adopt the NOPR's proposal to expedite review 
for transactions involving the acquisition of a FUCO by a holding 
company with no captive customers in the U.S. Instead, we will grant a 
blanket authorization for any holding company in a holding company 
system that includes a transmitting utility or an electric utility 
company to acquire a foreign utility company. However, if such holding 
company or any of its affiliates, its subsidiaries, or associate 
companies within the holding company system have captive customers in 
the United States, the authorization is conditioned on the holding 
company verifying by a duly authorized corporate official of the 
holding company that the proposed transaction will not have any adverse 
effect on competition, rates, or regulation, and will not result in, at 
the time of the transaction or in the future: (1) Any transfer of 
facilities between a traditional utility associate company with 
wholesale or retail customers served under cost-based regulation and an 
associate company; (2) any new issuance of securities by traditional 
utility associate companies with wholesale or retail customers served 
under cost-based regulation for the benefit of an associate company; 
(3) any new pledge or encumbrance of assets of a traditional utility 
associate company with wholesale or retail customers served under cost-
based regulation for the benefit of an associate company; or (4) any 
new affiliate contracts between non-utility associate companies and 
traditional utility associate companies with wholesale or retail 
customers served under cost-based regulation, other than non-power 
goods and services agreements subject to review under sections 205 and 
206 of the FPA. Such transactions will be deemed approved only upon 
making a filing of these verifications.
    194. Regarding notice periods, the Final Rule adopts the NOPR 
approach. Some commenters recommend that the Commission's default rule 
for all section 203 applications should be to provide the public 60 
days to submit comments, and that the applicants should bear the burden 
or demonstrating that a shorter notice is appropriate. However, the 
Commission finds that the NOPR notice periods will allow us to continue 
processing section 203 applications quickly to allow reasonable 
business goals to be met. Accordingly, we expect to have a 60-day 
notice period for section 203 applications that involve, contain, or 
require a competitive analysis per the revised filing requirements, and 
a 21-day notice period for all other section 203 applications, except 
those that may raise cross-subsidization concerns. We will not 
formalize this policy by rule, so that we can be flexible to deal with 
varying circumstances. This will allow us to protect against some 
commenters' concerns that the public notice period would be 
``unnecessarily short-circuited,'' and ensure that it will only be 
streamlined as appropriate.

B. Amendments to 18 CFR 2.26--The Merger Policy Statement

    195. When the Commission considers a proposed transaction's effect 
on federal regulation, section 2.26(e)(1) states that ``[w]here the 
merged entity would be part of a registered public utility holding 
company, if applicants do not commit in their application to abide by 
this Commission's policies with regard to affiliate transactions, the 
Commission will set the issue for a trial-type hearing.''
    196. However, in the NOPR, the Commission explained that because 
EPAct 2005 repeals PUHCA 1935,\138\ activities of registered holding 
companies that were previously subject to SEC regulation, including 
inter-company transactions, will no longer be exempt from this 
Commission's regulation once PUHCA 1935 repeal takes effect on February 
8, 2006.\139\ Thus, the Commission stated that there is no longer a 
concern about any potential shift in regulation from this Commission to 
the SEC under the effect of regulation factor, and proposed to delete 
section 2.26(e)(1).\140\
---------------------------------------------------------------------------

    \138\ EPAct 2005 Sec.  1263.
    \139\ See 17 CFR part 250 (2005).
    \140\ NOPR at P 67. However, the Commission reiterated that 
applicants are still required to address whether the transaction 
will have any other effect on the Commission's regulation.
---------------------------------------------------------------------------

    197. Proposed new subsection 2.26(f) would state that the 
Commission will not approve a transaction that will result in cross-
subsidization of a non-utility associate company or pledge or 
encumbrance of utility assets for the benefit of an associate company 
unless that cross-subsidization, pledge, or encumbrance will be 
consistent with the public interest.
1. Comments
    198. Commenters did not specifically address the Commission's 
proposed section 2.26(e) and (f) amendments. However, some recommend 
that the Commission rethink its current merger policy and make 
important decisions as

[[Page 1372]]

to what ``consistent with the public interest'' means in light of 
amended section 203 and the repeal of PUHCA 1935. Some comment that the 
Commission should broaden its public interest inquiry to consider 
ratepayer benefits on an application-specific basis; namely, applicants 
could propose an open season guarantee under which their existing 
wholesale requirements customers could terminate their contracts if the 
applicants request a rate increase affecting those customers for the 
first five years after the merger is consummated.
    199. Ohio Commission comments that the Commission should consider 
factors in addition to those listed in section 2.26(b). It recommends 
that the Commission require that a holding company secure a letter of 
endorsement, or order, from any affected state regulatory commission in 
which the holding company has utility operations. It states that a 
similar endorsement requirement is used by the SEC to implement Rule 53 
\141\ regarding authority for registered holding company financings in 
connection with the acquisition of exempt wholesale generators.
---------------------------------------------------------------------------

    \141\ 17 CFR 250.53 (2005).
---------------------------------------------------------------------------

    200. Commenters also explain that, in light of amended section 203, 
the Commission should expect numerous section 203 applications seeking 
approval of ``cross-country'' (or interstate) mergers. They state that 
the Commission's current method for evaluating the effect of a proposed 
electric utility merger on competition, the Appendix A analysis, was 
developed when cross-country electric utility mergers were not common, 
because of PUHCA 1935. The ``impact on competition'' horizontal screen 
analysis looks primarily at whether competition will be lessened in the 
``common'' markets where the merger applicants operate. They state that 
continued use of the Appendix A analysis alone may result in 
substantial industry consolidation.
    201. TAPSG asserts that the Commission almost exclusively relies on 
the HHI aspect of the Appendix A analysis and fails to examine the 
other competitive effects of a transaction. It comments that the 
Commission should require applicants to submit documents and data, 
beyond those needed to perform the Appendix A analysis, including the 
kinds of information submitted to the antitrust agencies as part of the 
initial Hart-Scott-Rodino \142\ notification, and should require 
applicants to submit supply curve analyses for each relevant market.
---------------------------------------------------------------------------

    \142\ TAPSG explains that the Hart-Scott-Rodino notification is 
a far more limited submission required of all utilities subject to 
the Hart-Scott-Rodino filing requirements and described in 16 CFR 
part 803 (2005).
---------------------------------------------------------------------------

2. Commission Determination
    202. With respect to commenters' specific concerns regarding the 
Commission's merger policy, we are not persuaded at this time to change 
our current policies. Our standard of review is flexible enough to 
consider any changes in market structure that ultimately result from 
the EPAct 2005 and the repeal of PUHCA 1935. However, once the 
Commission has gained more experience in evaluating section 203 
applications under the new statute, we may consider reevaluating our 
merger policy in general. Accordingly, we adopt the proposal set forth 
in the NOPR with respect to amended sections 2.26(e) and (f).

IV. Information Collection Statement

    203. Office of Management and Budget (OMB) regulations require that 
OMB approve certain reporting and recordkeeping requirements 
(collections of information) imposed by an agency.\143\ The information 
collection requirements in this Final Rule are identified under the 
Commission's data collection, FERC-519, ``Applications Under Federal 
Power Act Section 203.'' Under section 3507(d) of the Paperwork 
Reduction Act of 1995,\144\ the reporting requirements in this 
rulemaking will be submitted to OMB for review.
---------------------------------------------------------------------------

    \143\ 5 CFR 1320.11 (2005).
    \144\ 44 U.S.C. 3507(d) (2000).
---------------------------------------------------------------------------

    204. Respondents subject to the filing requirements of this Final 
Rule will not be penalized for failing to respond to this collection of 
information unless the collection of information displays a valid OMB 
control number. ``Display'' is defined as publishing the OMB control 
number in regulations, guidelines, forms or other issuances in the 
Federal Register (for example, in the preamble or regulatory text for 
the Final Rule containing the information collection).\145\
---------------------------------------------------------------------------

    \145\ See 1 CFR 21.35; 5 CFR 1320.3(f)(3).
---------------------------------------------------------------------------

    Public Reporting Burden: In the NOPR, the Commission stated that 
the regulations that it proposed should have a minimal impact on the 
current reporting burden associated with an individual application, as 
they would not substantially change the filing requirements with which 
section 203 applicants must currently comply. Further, the Commission 
stated that it did not expect the total number of section 203 
applications to increase substantially under amended section 203. The 
Commission received 42 comments on its NOPR and only GE EFS 
specifically addressed its estimates. GE EFS notes that the 
``Information Collection Statement'' in the NOPR states that ``the 
Commission does not expect the total number of section 203 applications 
under amended section 203 to increase substantially.'' \146\ GE EFS 
comments that, unless the Commission limits the overly broad scope of 
its proposed rules, the Commission will be burdened with applications 
for acquisitions of securities of QFs, which heretofore were exempted 
from section 203.\147\ As noted above, we believe that the blanket 
authorizations granted herein for certain holding company acquisitions 
of non-voting securities and up to 9.9 percent of voting securities in 
electric utility companies will adequately address GE EFS' concerns. To 
the extent additional blanket authorizations are needed or appropriate, 
we will consider those on a case-by-case basis. Thus, we believe that 
we have lessened the burden on applicants subject to the requirements 
of amended section 203, including for applicants seeking to acquire 
securities of QFs. Therefore, the Commission will retain its initial 
estimates.
---------------------------------------------------------------------------

    \146\ NOPR at P 70.
    \147\ GE EFS Comments at 2.
---------------------------------------------------------------------------

    The Commission is submitting a copy of this Final Rule to OMB for 
review and approval. In their notice of December 9, 2005, OMB took no 
action on the NOPR, instead deferring their approval until review of 
the Final Rule.
    Title: FERC-519, Applications Under Federal Power Act Section 203.
    Action: Proposed Information Collection.
    OMB Control No: 1902-0082.
    Respondents: Businesses or other for profit.
    Necessity of the Information: The information collected under the 
requirements of FERC-519 is used by the Commission to implement section 
203 of the Federal Power Act and the Code of Federal Regulations under 
18 CFR part 33 and 18 CFR 2.26. This Final Rule is limited to 
implementing amended section 203 of the FPA, which directs the 
Commission to adopt a rule to do so. Further, this Final Rule does not 
substantially change the current filing requirements or regulations 
that applicants must comply with for transactions subject to FPA 
section 203.
    205. Interested persons may obtain information on this information 
collection by contacting the following: Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC

[[Page 1373]]

20426, Attention: Michael Miller, Officer of the Executive Director, 
phone: (202) 502-8415, fax: (202) 273-0873, e-mail: 
michael.miller@ferc.gov.

    206. Comments concerning this information collection can be sent to 
the Office of Management and Budget, Office of Information and 
Regulatory Affairs, Washington, DC 20503 [Attention: Desk Officer for 
the Federal Energy Regulatory Commission, phone: (202) 395-4650, fax: 
(202) 395-7285].

V. Environmental Analysis

    207. The Commission is required to prepare an Environmental 
Assessment or an Environmental Impact Statement for any action that may 
have a significant adverse effect on the human environment.\148\ The 
Commission concludes that neither an Environmental Assessment or an 
Environmental Impact Statement is required for this Final Rule under 
section 380.4(a)(2)(ii) of the Commission regulations, which provides a 
``categorical exclusion for rules that do not substantively change the 
effect of legislation.''\149\
---------------------------------------------------------------------------

    \148\ Order No. 486, Regulations Implementing the National 
Environmental Policy Act, 52 FR 47,897 (Dec. 17, 1987), FERC Stats. 
& Regs. ] 30,783 (1987).
    \149\ 18 CFR 380.4(a)(2)(ii) (2005).
---------------------------------------------------------------------------

VI. Regulatory Flexibility Act Certification

    208. The Regulatory Flexibility Act of 1980 (RFA)\150\ generally 
requires a description and analysis of final rules that will have a 
significant economic impact on a substantial number of small 
entities.\151\ The Commission is not required to make such analyses if 
a rule would not have such an effect.
---------------------------------------------------------------------------

    \150\ 5 U.S.C. 601-12.
    \151\ The RFA definition of ``small entity'' refers to the 
definition provided in the Small Business Act, which defines a 
``small business concern'' as a business that is independently owned 
and operated and that is not dominant in its field of operation. 15 
U.S.C. 632. The Small Business Size Standards component of the North 
American Industry Classification System defines a small electric 
utility as one that, including its affiliates, is primarily engaged 
in the generation, transmission, and/or distribution of electric 
energy for sale and whose total electric output for the preceding 
fiscal years did not exceed 4 million MWh. 13 CFR 121.201 (2005).
---------------------------------------------------------------------------

    209. The Commission adheres to its certification in the NOPR that 
this rulemaking will not have a significant economic impact upon a 
substantial number of small entities. As stated in the NOPR, EPAct 2005 
directs the Commission to issue a rule adopting procedures for the 
expeditious consideration of applications for the approval of 
dispositions, consolidations, or acquisition, under this section. In 
accordance with this directive, this rule implements section 203 of the 
FPA. In particular, the rule increases the value threshold for filing a 
section 203 application with the Commission from transactions in excess 
of $50,000 to transactions in excess of $10 million (under amended 
section 203 of the FPA). Further, the RFA directs agencies to consider 
four regulatory alternatives to be considered in a rulemaking to lessen 
the impact on small entities: Tiering or establishment of different 
compliance or reporting requirements for small entities, 
classification, consolidation, clarification or simplification of 
compliance and reporting requirements, performance rather than design 
standards, and exemptions. In this Final Rule, the Commission has 
adopted tiering, and classification and simplification by classifying 
the types of holding acquisitions that qualify for a grant of blanket 
approval under section 203(a)(2). Further, the rule does not 
substantially change the current requirements and regulations that 
applicants must comply with for transactions subject to FPA section 
203. Therefore, the Commission certifies that this rule will not have a 
significant impact on a substantial number of small entities.

VII. Document Availability

    210. In addition to publishing the full text of this document in 
the Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
Internet through FERC's Home Page (http://www.ferc.gov) and in FERC's 

Public Reference Room during normal business hours (8:30 a.m. to 5 p.m. 
Eastern time) at 888 First Street, NE., Room 2A, Washington, DC 20426.
    211. From the Commission's Home Page on the Internet, this 
information is available in the Commission's document management 
system, eLibrary. The full text of this document is available on 
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or 
downloading. To access this document in eLibrary, type ``RM05-34'' in 
the docket number field.
    212. User assistance is available for eLibrary and the FERC's Web 
site during normal business hours. For assistance, please contact FERC 
Online Support at 1-866-208-3676 (toll free) or 202-502-6652 (e-mail at 
FERCOnlineSupport@FERC.gov), or the Public Reference Room at 202-502-

8371, TTY 202-502-8659 (e-mail at public.referenceroom@ferc.gov).

VIII. Effective Date and Congressional Notification

    213. This Final Rule will take effect on February 8, 2006. The 
Commission has determined, with the concurrence of the Administrator of 
the Office of Information and Regulatory Affairs of OMB, that this rule 
is not a major rule within the meaning of section 251 of the Small 
Business Regulatory Enforcement Fairness Act of 1996.\152\ The 
Commission will submit this Final Rule to both houses of Congress and 
the General Accountability Office.\153\
---------------------------------------------------------------------------

    \152\ See 5 U.S.C. 804(2).
    \153\ See 5 U.S.C. 801(a)(1)(A).
---------------------------------------------------------------------------

List of Subjects

18 CFR Part 2

    Administrative practice and procedure; Electric power; Natural gas; 
Pipelines; Reporting and recordkeeping requirements

18 CFR Part 33

    Electric utilities; Reporting and recordkeeping requirements; 
Securities

    By Order of the Commission.
Magalie R. Salas,
Secretary.

0
In consideration of the foregoing, the Commission amends Chapter I, 
Title 18, Code of Federal Regulations, as follows:

PART 2--GENERAL POLICY AND INTERPRETATIONS

0
1. The authority citation for part 2 is revised to read as follows:

    Authority: 5 U.S.C. 601; 15 U.S.C. 717-717w, 3301-3432; 16 
U.S.C. 792-825y, 2601-2645; 42 U.S.C. 4321-4361, 7101-7352; Pub. L. 
No. 109-58, 119 Stat. 594.2.


0
2. Section 2.26 is amended by revising paragraph (e) and by adding 
paragraph (f) to read as follows:


Sec.  2.26.  Policies concerning review of applications under section 
203.

* * * * *
    (e) Effect on regulation. (1) Where the affected state commissions 
have authority to act on the transaction, the Commission will not set 
for hearing whether the transaction would impair effective regulation 
by the state commissions. The application should state whether the 
state commissions have this authority.
    (2) Where the affected state commissions do not have authority to 
act on the transaction, the Commission may set for hearing the issue of 
whether the transaction would impair effective state regulation.
    (f) Under section 203(a)(4) of the Federal Power Act (16 U.S.C. 
824b), in

[[Page 1374]]

reviewing a proposed transaction subject to section 203, the Commission 
will also consider whether the proposed transaction will result in 
cross-subsidization of a non-utility associate company or pledge or 
encumbrance of utility assets for the benefit of an associate company, 
unless that cross-subsidization, pledge, or encumbrance will be 
consistent with the public interest.

PART 33--APPLICATIONS UNDER FEDERAL POWER ACT SECTION 203

0
3. The authority citation for part 33 is revised to read as follows:

    Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42 
U.S.C. 7101-7352; Pub. L. No. 109-58, 119 Stat. 594.


0
4. The heading of part 33 is revised to read as set forth above.

0
5. Section 33.1 is revised to read as follows:


Sec.  33.1.  Applicability, definitions, and blanket authorizations.

    (a) Applicability. (1) The requirements of this part will apply to 
any public utility seeking authorization under section 203 of the 
Federal Power Act to:
    (i) Sell, lease, or otherwise dispose of the whole of its 
facilities subject to the jurisdiction of the Commission, or any part 
thereof of a value in excess of $10 million;
    (ii) Merge or consolidate, directly or indirectly, such facilities 
or any part thereof with those of any other person, by any means 
whatsoever;
    (iii) Purchase, acquire, or take any security with a value in 
excess of $10 million of any other public utility; or
    (iv) Purchase, lease, or otherwise acquire an existing generation 
facility:
    (A) That has a value in excess of $10 million; and
    (B) That is used in whole or in part for wholesale sales in 
interstate commerce by a public utility.
    (2) The requirements of this part shall also apply to any holding 
company in a holding company system that includes a transmitting 
utility or an electric utility if such holding company seeks to 
purchase, acquire, or take any security with a value in excess of $10 
million of, or, by any means whatsoever, directly or indirectly, merge 
or consolidate with, a transmitting utility, an electric utility 
company, or a holding company in a holding company system that includes 
a transmitting utility, or an electric utility company, with a value in 
excess of $10 million.
    (b) Definitions. For the purposes of this part, as used in section 
203 of the Federal Power Act (16 U.S.C. 824b)
    (1) Existing generation facility means a generation facility that 
is operational at or before the time the section 203 transaction is 
consummated. ``The time the transaction is consummated'' means the 
point in time when the transaction actually closes and control of the 
facility changes hands. ``Operational'' means a generation facility for 
which construction is complete (i.e., it is capable of producing 
power). The Commission will rebuttably presume that section 203(a) 
applies to the transfer of any existing generation facility unless the 
utility can demonstrate with substantial evidence that the generator is 
used exclusively for retail sales.
    (2) Non-utility associate company means any associate company in a 
holding company system other than a public utility or electric utility 
company that has wholesale or retail customers served under cost-based 
regulation.
    (3) Value when applied to:
    (i) Transmission facilities, generation facilities, transmitting 
utilities, electric utility companies, and holding companies, means the 
market value of the facilities or companies for transactions between 
non-affiliated companies; the Commission will rebuttably presume that 
the market value is the transaction price. For transactions between 
affiliated companies, value means original cost undepreciated, as 
defined in the Commission's Uniform System of Accounts prescribed for 
public utilities and licensees in part 101 of this chapter, or original 
book cost, as applicable;
    (ii) Wholesale contracts, means the market value for transactions 
between non-affiliated companies; the Commission will rebuttably 
presume that the market value is the transaction price. For 
transactions between affiliated companies, value means total expected 
nominal contract revenues over the remaining life of the contract; and
    (iii) Securities, means market value for transactions between non-
affiliated companies; the Commission will rebuttably presume that the 
market value is the agreed-upon transaction price. For transactions 
between affiliated companies, value means market value if the 
securities are widely traded, in which case the Commission will 
rebuttably presume that market value is the market price at which the 
securities are being traded at the time the transaction occurs; if the 
securities are not widely traded, market value is determined by:
    (A) Determining the value of the company that is the issuer of the 
equity securities based on the total undepreciated book value of the 
company's assets;
    (B) Determining the fraction of the securities at issue by dividing 
the number of equity securities involved in the transaction by the 
total number of outstanding equity securities for the company; and
    (C) Multiplying the value determined in paragraph (b)(3)(iii)(A) of 
this section by the value determined in paragraph (b)(3)(iii)(B) of 
this section (i.e., the value of the company multiplied by the fraction 
of the equity securities at issue).
    (4) The terms associate company, electric utility company, foreign 
utility company, holding company, and holding company system have the 
meaning given those terms in the Public Utility Holding Company Act of 
2005. The term holding company does not include: A State, any political 
subdivision of a State, or any agency, authority or instrumentality of 
a State or political subdivision of a State; or an electric power 
cooperative.
    (c) Blanket Authorizations. (1) Any holding company in a holding 
company system that includes a transmitting utility or an electric 
utility is granted a blanket authorization under section 203(a)(2) of 
the Federal Power Act to purchase, acquire, or take any security of:
    (i) A transmitting utility or company that owns, operates, or 
controls only facilities used solely for transmission in intrastate 
commerce and/or sales of electric energy in intrastate commerce;
    (ii) A transmitting utility or company that owns, operates, or 
controls only facilities used solely for local distribution and/or 
sales of electric energy at retail regulated by a state commission; or
    (iii) A transmitting utility or company if the transaction involves 
an internal corporate reorganization that does not present cross-
subsidization issues and does not involve a traditional public utility 
with captive customers.
    (2) Any holding company in a holding company system that includes a 
transmitting utility or an electric utility is granted a blanket 
authorization under section 203(a)(2) of the Federal Power Act to 
purchase, acquire, or take:
    (i) Any non-voting security (that does not convey sufficient veto 
rights over management actions so as to convey control) in a 
transmitting utility, an electric utility company, or a holding company 
in a holding company system that includes a transmitting utility or an 
electric utility company; or
    (ii) Any voting security in a transmitting utility, an electric 
utility company, or a holding company in a holding company system that 
includes a

[[Page 1375]]

transmitting utility or an electric utility company if, after the 
acquisition, the holding company will own less than 10 percent of the 
outstanding voting securities; or
    (iii) Any security of a subsidiary company within the holding 
company system.
    (3) The blanket authorizations granted under paragraph (c)(2) of 
this section are subject to the conditions that the holding company 
shall not:
    (i) Borrow from any electric utility company subsidiary in 
connection with such acquisition; or
    (ii) Pledge or encumber the assets of any electric utility company 
subsidiary in connection with such acquisition;
    (4) A holding company granted blanket authorizations in section 
(c)(2) shall provide the Commission with the same information, on the 
same basis, that the holding company provides to the Securities and 
Exchange Commission in connection with any securities purchased, 
acquired or taken pursuant to this section.
    (5) Any holding company in a holding company system that includes a 
transmitting utility or an electric utility is granted a blanket 
authorization under section 203(a)(2) of the Federal Power Act to 
acquire a foreign utility company. However, if such holding company or 
any of its affiliates, its subsidiaries, or associate companies within 
the holding company system have captive customers in the United States, 
the authorization is conditioned on the holding company verifying by a 
duly authorized corporate official of the holding company that the 
proposed transaction:
    (i) Will not have any adverse effect on competition, rates, or 
regulation; and
    (ii) Will not result in, at the time of the transaction or in the 
future:
    (A) Any transfer of facilities between a traditional utility 
associate company with wholesale or retail customers served under cost-
based regulation and an associate company;
    (B) Any new issuance of securities by traditional utility associate 
companies with wholesale or retail customers served under cost-based 
regulation for the benefit of an associate company;
    (C) Any new pledge or encumbrance of assets of a traditional 
utility associate company with wholesale or retail customers served 
under cost-based regulation for the benefit of an associate company; or
    (D) Any new affiliate contracts between non-utility associate 
companies and traditional utility associate companies with wholesale or 
retail customers served under cost-based regulation, other than non-
power goods and services agreements subject to review under sections 
205 and 206 of the Federal Power Act.
    (iii) A transaction by a holding company subject to the conditions 
in paragraphs (c)(5)(i) and (ii) of this section will be deemed 
approved only upon filing the information required in paragraphs 
(c)(5)(i) and (ii) of this section.

0
6. Section 33.2 is amended to add paragraph (j) to read as follows:


Sec.  33.2.  Contents of application--general information requirements.

* * * * *
    (j) An explanation, with appropriate evidentiary support for such 
explanation (to be identified as Exhibit M to the application):
    (1) Of how applicants are providing assurance that the proposed 
transaction will not result in cross-subsidization of a non-utility 
associate company or pledge or encumbrance of utility assets for the 
benefit of an associate company; or
    (2) If no such assurance can be provided, an explanation of how 
such cross-subsidization, pledge, or encumbrance will be consistent 
with the public interest.

0
7. Section 33.11 is added to read as follows:


Sec.  33.11.  Commission procedures for the consideration of 
applications under section 203 of the FPA.

    (a) The Commission will act on a completed application for approval 
of a transaction (i.e., one that is consistent with the requirements of 
this part) not later than 180 days after the completed application is 
filed. If the Commission does not act within 180 days, such application 
shall be deemed granted unless the Commission finds, based on good 
cause, that further consideration is required to determine whether the 
proposed transaction meets the standards of section 203(a)(4) of the 
FPA and issues, by the 180th day, an order tolling the time for acting 
on the application for not more than 180 days, at the end of which 
additional period the Commission shall grant or deny the application.
    (b) The Commission will provide for the expeditious consideration 
of completed applications for the approval of transactions that are not 
contested, do not involve mergers, and are consistent with Commission 
precedent. The transactions that would generally warrant expedited 
review include:
    (1) A disposition of only transmission facilities, particularly 
those that both before and after the transaction remain under the 
functional control of a Commission-approved regional transmission 
organization or independent system operator; and
    (2) Transactions that do not require an Appendix A analysis.\1\
---------------------------------------------------------------------------

    \1\ Inquiry Concerning the Commission's Merger Policy Under the 
Federal Power Act: Policy Statement, Order No. 592, 61 FR 68,595 
(Dec. 30, 1996), FERC Stats. & Regs. ] 31,044 (1996), 
reconsideration denied, Order No. 592-A, 62 FR 33,340 (June 19, 
1997), 79 FERC ] 61,321 (1997) (Merger Policy Statement).

    Note: The following appendix will not appear in the Code of 
---------------------------------------------------------------------------
Federal Regulations.

Appendix List of Intervenors and Commenters

Intervenors

    California Public Utilities Commission.
    Edison Mission Energy, Edison Mission Marketing & Trading, Inc., 
and Midwest Generation EME, LLC.
    Public Service Commission of Wisconsin.
    Public Utilities Commission of Ohio.
    Southern California Edison Company.

                               Commenters
------------------------------------------------------------------------
              Acronym                               Name
------------------------------------------------------------------------
ACC...............................  American Chemistry Counsel.
AEP...............................  American Electric Power Service
                                     Corporation.
AES...............................  The AES Corporation.
Ameren............................  Ameren Services Company.
APPA/NRECA........................  American Public Power Association
                                     and the National Rural Electric
                                     Cooperative Association.
Chairman Barton...................  Congressman Joe Barton.
Constellation.....................  Constellation Energy Group Inc.
Duke/Cinergy......................  Duke Energy Corporation and Cinergy
                                     Corporation.
EEI...............................  Edison Electric Institute.

[[Page 1376]]


Entergy...........................  Entergy Services, Inc.
E.ON..............................  E.ON AG.
EPSA..............................  Electric Power Supply Association.
FirstEnergy.......................  FirstEnergy Service Company.
GE EFS............................  GE Energy Financial Services.
HECO..............................  Hawaiian Electric Company, Inc.
Independent Sellers...............  Cogentrix Energy, Inc. and The
                                     Goldman Sachs Group, Inc.
Indiana Commission................  Indiana Utility Regulatory
                                     Commission.
Industrial Consumers..............  Electricity Consumers Resource
                                     Council, the American Iron and
                                     Steel Institute, the American
                                     Chemistry Council, and the PJM
                                     Industrial Customer Coalition.
International Transmission........  International Transmission Company.
Kentucky Commission...............  Kentucky Public Service Commission.
MidAmerican.......................  MidAmerican Energy Holdings Company.
Missouri Commission...............  Missouri Public Utilities
                                     Commission.
Morgan Stanley....................  Morgan Stanley Capital Group Inc.
NAFC..............................  National Alliance for Fair
                                     Competition.
NARUC.............................  National Association of Regulatory
                                     Utility Commissioners.
NASUCA............................  National Association of State
                                     Utility Consumer Advocates.
National Grid.....................  National Grid USA.
New Jersey Board..................  New Jersey Board of Public
                                     Utilities.
North Carolina Commission.........  North Carolina Utilities Commission.
Ohio Commission...................  Public Utilities Commission of Ohio.
Oklahoma Commission...............  Oklahoma Corporation Commission.
PNM...............................  PNM Resources, Inc.
Progress Energy...................  Progress Energy, Inc.
Public Citizen....................  Energy Program of Public Citizen,
                                     Inc.
Scottish Power....................  Scottish Power plc.
Southern Companies................  Southern Company Services, Inc.
Suez..............................  SUEZ Energy North America.
TANC..............................  Transmission Agency of Northern
                                     California.
TAPSG.............................  Transmission Access Policy Study
                                     Group.
UWUA..............................  Utility Workers Union of America,
                                     AFL-CIO.
Wisconsin Electric................  Wisconsin Electric Power Company.
Xcel..............................  Xcel Energy Services, Inc.
------------------------------------------------------------------------

[FR Doc. 06-77 Filed 1-5-06; 8:45 am]

BILLING CODE 6717-01-P
