

[Federal Register: May 16, 2006 (Volume 71, Number 94)]
[Rules and Regulations]               
[Page 28421-28446]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16my06-22]                         


[[Page 28421]]

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Part II





Department of Energy





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Federal Energy Regulatory Commission



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18 CFR Parts 2, 33, 101, et al.



Federal Power Act--Order on Rehearing and Denial for Rehearing, and 
Implementation of Federal Public Utility Holding Company Act of 2005 
and Repeal of Federal Public Utility Holding Company Act of 1935; Final 
Rules and Proposed Rule


[[Page 28422]]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 2 and 33

[Docket No. RM05-34-001; Order No. 669-A]

 
Transactions Subject to FPA Section 203

Issued April 24, 2006.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Final rule; order on rehearing.

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SUMMARY: In this order on rehearing, the Federal Energy Regulatory 
Commission (Commission) reaffirms its determinations in part and grants 
rehearing in part of Order No. 669, which revised 18 CFR 2.26 and 18 
CFR part 33 to implement amended section 203 of the Federal Power Act 
(FPA).

EFFECTIVE DATE: June 15, 2006.

FOR FURTHER INFORMATION CONTACT:

Andrew P. Mosier, Jr. (Legal Information), Office of the General 
Counsel, Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426. (202) 502-6274.
Phillip Nicholson (Technical Information), Office of Energy, Markets, 
and Reliability--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 Energy, Markets, and 
Reliability--West, Federal Energy Regulatory Commission, 888 First 
Street, NE., Washington, DC 20426. (202) 502-8101.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Introduction
II. Background
    A. Pre-EPAct 2005 Standards
    B. EPAct Revisions to Section 203 and Order No. 669
III. Discussion
    A. 18 CFR Part 33
    1. Section 33.1(b)(3)--Definition of ``Value''
    2. Section 33.1(b)(4)--Definitions of ``Electric Utility 
Company'' and ``Holding Company''
    3. Section 33.1(c)(1)--Blanket Authorizations: Intrastate 
Commerce, Local Distribution, and Internal Corporate Reorganizations
    4. Blanket Authorizations for Cash Management Programs, Money 
Pools, and Intra-Holding Company Financing Arrangements
    5. Section 33.1(c)(2)-(c)(4)--Blanket Authorizations: Purchases 
of Voting and Non-Voting Securities Under Section 203
    6. Other Requested Blanket Authorizations--Holding Company 
Purchasing Its Own Securities, Fiduciary Investments and Bank 
Underwriting/Hedging
    7. Section 33.2(j)--General Information Requirements Regarding 
Cross-Subsidization
    8. Section 33.11(b)--Commission Procedures for Consideration of 
Applications Under Section 203 of the FPA
    B. Amendments to 18 CFR 2.26--The Merger Policy Statement
    1. Rehearing Requests
    2. Commission Determination
IV. Information Collection Statement
V. Document Availability
VI. Effective Date

    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) 
\1\ was signed into law. Section 1289 (Merger Review Reform) of Title 
XII, Subtitle G (Market Transparency, Enforcement, and Consumer 
Protection),\2\ of EPAct 2005 amends section 203 of the Federal Power 
Act (FPA).\3\ Amended section 203: (1) Increases (from $50,000 to $10 
million) the value threshold above which certain transactions are 
subject to section 203; (2) extends the scope of section 203 to include 
transactions involving certain transfers of generation facilities and 
certain public utility 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 transactions under section 203.
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    \1\ Energy Policy Act of 2005, Pub. L. 109-58, 119 Stat. 594 
(2005).
    \2\ EPAct 2005 at 1281 et seq.
    \3\ 16 U.S.C. 824b (2000).
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    2. On October 3, 2005, the Commission issued a notice of proposed 
rulemaking (NOPR) requesting comment on its proposal to amend its 
regulations to implement amended section 203.\4\ As discussed below, on 
December 23, 2005, the Commission issued a final rule (Order No. 669) 
\5\ adopting certain modifications to 18 CFR 2.26 and 18 CFR part 33 to 
implement amended section 203. Generally, Order No. 669:
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    \4\ Transactions Subject to FPA Section 203, 70 FR 58636 (Oct. 
7, 2005), FERC Stats. & Regs. ] 32,589 (2005).
    \5\ Transactions Subject to FPA Section 203, Order No. 669, 71 
FR 1348 (Jan. 6, 2006), FERC Stats. & Regs. ] 31,200 (2005). On 
January 10, 2006, the Commission issued an errata notice to Order 
No. 669 revising parts of the regulatory text to conform to the 
version of the order that was issued in the Federal Register. 
Transactions Subject to FPA Section 203, 114 FERC ] 61,018 (2006). 
As relevant here, in instruction 7, at 18 CFR 33.11(b)(2), a 
footnote was added after ``(2) transactions that do not require 
Appendix A analysis,'' reading: ``Inquiry Concerning the 
Commission's Merger Policy Under the FederalPower Act: Policy 
Statement,'' Order No. 592, 61 FR 68595 (Dec. 30, 1996), FERC Stats. 
& Regs. ] 31,044 (1996), reconsideration denied, Order No. 592-A, 62 
FR 33340 (June 19, 1997), 79 FERC ] 61,321 (1997) (Merger Policy 
Statement).

    (1) Implemented the new applicability of amended section 203;
    (2) Granted blanket authorizations, in some instances with 
conditions, for certain types of transactions, including 
acquisitions of foreign utilities by holding companies, intra-
holding company system financing and cash management arrangements, 
certain internal corporate reorganizations, and certain acquisitions 
of securities of transmitting utilities and electric utility 
companies;
    (3) Defined terms, including ``electric utility company,'' 
``holding company,'' and ``non-utility associate company;''
    (4) Defined ``existing generation facility;''
    (5) Adopted rules on the determination of ``value'' as it 
applies to various section 203 transactions;
    (6) Set forth a section 203 applicant's obligation to 
demonstrate that a proposed transaction will not result in cross-
subsidization of a non-utility associate company or the pledge or 
encumbrance of utility assets for the benefit of an associate 
company; and
    (7) Provided for expeditious consideration of completed 
applications for the approval of transactions that are not 
contested, do not involve mergers, and are consistent with 
Commission precedent.

    3. In Order No. 669, the Commission also announced that, at a 
technical conference on the Public Utility Holding Company Act of 2005 
(PUHCA 2005),\6\ to be held within the next year,\7\ we will

[[Page 28423]]

also address certain issues raised in this proceeding. These include 
whether the blanket authorizations granted in Order No. 669 should be 
revised and whether additional protection against cross-subsidization 
and pledges or encumbrance of utility assets is needed.\8\
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    \6\ EPAct 2005 at 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, 70 FR 55805, FERC Stats. 
& Regs. ] 31,197 (2005) (PUHCA 2005 Final Rule).
    \7\ PUHCA 2005 Final Rule at P 17. The Commission stated that we 
intend to hold a technical conference no later than one year after 
PUHCA 2005 became effective to evaluate whether additional 
exemptions, different reporting requirements, or other regulatory 
actions need to be considered. The PUHCA 2005 Final Rule took effect 
on February 8, 2006.
    \8\ Order No. 669 at P 4.
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    4. In this order, the Commission grants rehearing in part, grants 
clarification in part, and denies rehearing in part of its Order No. 
669. Our actions here will necessitate further changes in the 
regulations. In light of the number of regulatory text changes, the 
Commission is including the revised regulations in their entirety. In 
addition, for the convenience of interested persons, we will include a 
version of the revised regulations in their entirety that highlights 
the changes from Order No. 669 as a separate attachment. (See Appendix 
B.) This attachment will not be published in the Federal Register.

II. Background

    5. The background to Order No. 669 is set forth in detail in that 
order. We will summarize it here.

A. Pre-EPAct 2005 Standards

    6. Prior to EPAct 2005, section 203 provided 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 do so.

    The Commission applied the ``public interest'' standard in 
approving proposed transactions. 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. The Merger Policy 
Statement sets out three factors the Commission generally considers 
when analyzing whether a proposed section 203 transaction is consistent 
with the public interest: Effect on competition; effect on rates; and 
effect on regulation. The Commission later issued the Filing 
Requirements Rule,\9\ 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 
provide for expedited review of such applications.
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    \9\  Revised Filing Requirements Under Part 33 of the 
Commission's Regulations, Order No. 642, 65 FR 70984 (Nov. 28, 
2000), FERC Stats. & Regs., July 1996-Dec. 2000 ] 31,111 (2000), 
order on reh'g, Order No. 642-A, 66 FR 16121 (Mar. 23, 2001), 94 
FERC ] 61,289 (2001) (codified at 18 CFR part 33 (2005)) (Filing 
Requirements Rule).
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B. EPAct Revisions to Section 203 and Order No. 669

    7. 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.
    8. 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.
    9. 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. 
This standard was contained in the pre-EPAct 2005 section 203 as well. 
Amended section 203(a)(4) also provides a new specific requirement 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.
    10. Section 203(a)(5) adds the entirely new requirement that the 
Commission shall adopt procedures for the expeditious consideration of 
applications for the approval of section 203 transactions. Such rules 
shall identify classes of transactions, or specify criteria for 
transactions, that normally meet the section 203 standards for 
approval. The Commission shall provide expedited review for such 
transactions. It further provides that the Commission must act on a 
proposed section 203 transaction within 180 days of filing but may 
extend the time for not more than an additional 180 days for good 
cause.
    11. Section 203(a)(6), which is also new, provides that for 
purposes of this section, the terms ``associate company,'' ``holding 
company,'' and ``holding company system'' have the meaning given those 
terms in PUHCA 2005.\10\
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    \10\ EPAct 2005 at 1262.
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    12. Order No. 669 became effective on February 8, 2006. The aspects 
of Order No. 669 on which rehearing were filed are described in more 
detail below.\11\
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    \11\ The entities that filed requests for rehearing are listed 
in an appendix to this order.
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III. Discussion

A. 18 CFR Part 33

1. Section 33.1(b)(3)--Definition of ``Value''
    13. Section 33.1(b)(3)(i) generally uses market value as the 
appropriate measure of value for transfers of physical facilities 
(transmission facilities and generation facilities) for purposes of 
determining whether the $10 million jurisdictional threshold is 
met.\12\ The rule states that when a transaction occurs between non-
affiliates, the Commission will rebuttably presume that 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, or original book cost,\13\ as applicable.
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    \12\ Order No. 669 at P 116. Section 33.1(b)(3)(iii) provides 
that for securities, value means market value, which is rebuttably 
presumed to be transaction price.
    \13\ Book cost, as used here, refers to original book cost.
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    14. Section 33.1(b)(3)(ii) provides that value as applied to 
transfers of wholesale contracts between non-affiliates also means the 
market value. The Commission will rebuttably presume that market value 
is the

[[Page 28424]]

transaction price. For transfers of contracts between affiliates, value 
means total expected nominal revenues over the remaining life of the 
contract.\14\
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    \14\ Order No. 669 at P 120-21.
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    15. The Commission noted that a complicating factor in relying on 
transaction price as a measure of market value is that transactions 
will sometimes include assets whose transfer is not subject to amended 
section 203 (non-jurisdictional assets) and the problem arises as to 
how to value the jurisdictional assets included in the transaction. In 
this situation, the Commission instructed applicants to rely on a 
valuation analysis of the individual jurisdictional parts in deciding 
whether to file for section 203 authorization.
a. Rehearing Requests
    16. APPA/NRECA argue that the Commission should require that 
valuations of asset transactions between non-affiliates under section 
203(a)(1)(A) be consistent with generally accepted accounting 
principles (GAAP), particularly when the transaction also includes non-
jurisdictional assets. They assert that, without such a requirement, 
parties will be able to value jurisdictional assets or weight the value 
of non-jurisdictional assets to evade Commission review, while 
maintaining the same total purchase price for all assets.\15\
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    \15\ APPA/NRECA Rehearing Request at 24-25.
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    17. APPA/NRECA are concerned about a possible unintended 
``spillover effect'' of using market value.\16\ They request that the 
Commission confirm that valuation for purposes of determining whether 
section 203 approval is required will not affect the valuation placed 
on the assets for purposes of applying cost-based ratemaking standards, 
in particular, the Commission's policy concerning acquisition 
adjustments in cost-based jurisdictional rates.\17\
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    \16\ Id. at 26.
    \17\ Id. The Commission disallows acquisition adjustments in 
rates absent a showing of ratepayer benefit. See PSEG Power 
Connecticut, LLC., 110 FERC ] 61,020 at P 32 (2005), citing 
Utilicorp United, Inc., 56 FERC ] 61,031 at 61,120 and nn. 26-28, 
reh'g denied, 56 FERC ] 61,427, 62,528-29 (1991).
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    18. APPA/NRECA lastly argue that the Commission should require that 
valuations of wholesale contracts being transferred between non-
affiliates be based on the expected contract revenues rather than on 
market value. They contend that market value, which is based on 
expected profits, cannot be reliably determined and will be prone to 
abuse and manipulation. They suggest that ``expected profit'' has 
little meaning when the transaction is undertaken as much for risk 
mitigation purposes as for power supply. Using the same method to value 
contract transfers between non-affiliates as for affiliates, i.e., 
expected contract revenues, has the virtue of regulatory 
simplicity.\18\
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    \18\ APPA/NRECA Rehearing Request at 25.
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    19. NARUC argues that the record does not support using ``original 
cost un-depreciated'' as market value in transactions between 
affiliates. NARUC says that net book value is a better way to value the 
assets in affiliate transactions because it represents the remaining 
monetary value of an asset that is ``used and useful'' at the time of 
the proposed transaction. Net book value, unlike original cost 
undepreciated, reflects changes in value caused by wear and tear during 
use of the asset, obsolescence, the return of capital through annual 
depreciation expense, and any improvements that have been made since 
the asset was originally placed in service. These factors, particularly 
deterioration and improvements, NARUC contends, are typically reflected 
in the prices negotiated by unaffiliated buyers and sellers.\19\
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    \19\ NARUC Rehearing Request at 8.
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b. Commission Determination
    20. The Commission clarifies that GAAP must be used to value 
jurisdictional physical assets for purposes of amended section 203 when 
they are included with non-jurisdictional assets in a transaction 
between non-affiliates.\20\
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    \20\ As we held in Order No. 669 at P 117, if a valuation 
analysis is not performed, the standard of original cost 
undepreciated is to be used in determining whether section 203 
applies to the transaction.
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    21. Order No. 669 states that to place a value on wholesale 
contracts that are part of a transfer that also includes assets not 
subject to section 203, the parties should rely on valuation analyses 
consistent with the value used in audited financial statements and with 
GAAP requirements.\21\ A similar approach is required for the transfer 
of physical jurisdictional assets included in a transaction with non-
jurisdictional facilities.\22\ We note that an entity's decision not to 
seek section 203 approval for a transaction based on its determination 
of value of the assets, whether physical or paper facilities, can be 
reviewed based on a complaint or at the Commission's discretion.
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    \21\ Order No. 669 at P 120.
    \22\ Consistent with our ruling in Order No. 669 (at P 116), if 
a transaction between non-affiliates involves only jurisdictional 
assets, the Commission will rebuttably presume that market value is 
the transaction price.
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    22. The Commission also confirms that the use of the market value 
standard for section 203 purposes does not change the Commission's 
ratemaking policy, including the Commission's policy concerning 
acquisition adjustments.\23\
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    \23\ See supra note 17.
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    23. The Commission denies APPA/NRECA's request that value as 
applied to transfers of wholesale contracts between non-affiliates be 
based on expected contract revenues over the remaining life of the 
contract, rather than market value. We acknowledge that using expected 
contract revenues for both non-affiliate transfers and affiliate 
transfers would have a superficial consistency. However, we continue to 
believe that market value is the best way to value transactions between 
non-affiliates generally, and no party has presented a persuasive basis 
for treating wholesale contracts differently from other kinds of 
assets.
    24. The Commission will also deny NARUC's request that, for 
transactions between affiliates, value should be net book value rather 
than original cost undepreciated. We note that almost all generation 
transactions of any significant size will be jurisdictional under 
amended section 203, regardless of the measure used. We recognize that 
marginal cases may occur where the issue of jurisdiction might arise, 
particularly for older assets. We do not dispute that the deterioration 
or use which net book value attempts to capture affects the price a 
buyer is willing to pay for an asset. However, net book value does not 
reflect any appreciation of value of assets, as evident in the fact 
that generation facilities have often sold in recent years at prices 
significantly above net book value. The Commission has long employed 
the use of original cost undepreciated to measure value for purposes of 
determining the need for a section 203 application and finds its 
continued use appropriate in the context of affiliate transactions. 
Original cost undepreciated is a simpler, less ambiguous measure that 
will avoid debate as to the life of the facility, method of 
depreciation and other factors that are reflected in net book value.
2. Section 33.1(b)(4)--Definitions of ``Electric Utility Company'' and 
``Holding Company''
    25. A number of parties raised arguments about the Commission's

[[Page 28425]]

interpretation of new FPA section 203(a)(2). 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, 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 $10,000,000 without first having secured 
an order of the Commission authorizing it to do so.

    26. In particular, parties focus on the terms ``electric utility 
company'' and ``holding company'' as used in section 203(a)(2). In 
Order No. 669, the Commission concluded that the most reasonable 
interpretation of the terms are the definitions contained in PUHCA 
2005. Section 33.1(b)(4) provides that ``associate company,'' 
``electric utility company,'' ``foreign utility company,'' ``holding 
company,'' and ``holding company system'' have the meaning given those 
terms in PUHCA 2005. It also provides that 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.
a. ``Electric Utility Company''
    27. Section 33.1(b)(4) provides that the term ``electric utility 
company'' has the same meaning given that term in PUHCA 2005, which is 
``any company that owns or operates facilities used for the generation, 
transmission, or distribution of electric energy for sale.'' \24\ The 
definition thus is broader than the definition of ``public utility'' 
under the FPA; it is not limited to entities that engage in wholesale 
or interstate transactions.
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    \24\ EPAct 2005 at 1262(5).
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    28. The Commission explained in Order No. 669 that the precise 
meaning of the term ``electric utility company'' is not clear because 
it is not defined in the FPA. We pointed out that 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. However, section 203(a)(6) does not address ``electric utility 
company.'' Thus, there is Congressional silence in the FPA as to the 
meaning of the term. In determining what Congress might have meant by 
``electric utility company,'' the Commission stated that the only 
reference point we have in federal electric utility regulatory 
terminology is the meaning of the term as used in PUHCA 1935 \25\ and 
in PUHCA 2005. Congress, in its revisions to the FPA, relied on terms 
defined in the two PUHCA statutes. Therefore, the Commission concluded 
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) was enacted as part of 
coordinated, comprehensive legislation with the repeal of PUHCA 1935 
and the enactment of PUHCA 2005) is the meaning in PUHCA 2005.
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    \25\ 15 U.S.C. 79a et seq. (2000).
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    29. The Commission rejected requests that we explicitly exclude 
qualifying facilities (QFs) \26\ and exempt wholesale generators (EWGs) 
from the definition of ``electric utility company.'' We stated that:
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    \26\ Public Utility Regulatory Policies Act of 1978 (PURPA), 16 
U.S.C. 824a-3 (2000).

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.\27\
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    \27\ Order No. 669 at P 59. The Commission also noted that while 
QFs themselves currently are exempt from section 203's filing 
requirements by our regulations promulgated under the Public Utility 
Regulatory Policies Act of 1978, PURPA does not give us authority to 
exempt holding companies that own QFs.


    30. Further, the Commission stated that were we 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 by holding companies whose 
systems contain traditional public utilities with transmission 
facilities and/or captive customers that could be affected by the 
acquisitions. The Commission stated that such transactions should not 
be excluded from review under section 203 and concluded that it was 
reasonable to interpret the statute not to exclude them.\28\ We 
recognized 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, QFs or foreign utility companies 
(FUCOs).\29\ These commenters said that applying section 203(a)(2) in 
these circumstances would impede investments in QFs and EWGs or result 
in unnecessary regulation of upstream owners of QFs and EWGs.\30\ In 
response, we stated that the blanket authorizations granted in Order 
No. 669 (for certain holding company acquisitions of non-voting 
securities and up to 9.9 percent of voting securities in electric 
utility companies) will ensure that investment will not be discouraged. 
The Commission also noted that we would consider on a case-by-case 
basis granting additional blanket authorizations for holding company 
acquisitions of securities of EWGs or QFs.
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    \28\ Order No. 669 at P 60.
    \29\ Id.
    \30\ Id.
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    31. In Order No. 669, the Commission explained that this 
interpretation of ``electric utility company'' includes FUCOs, but we 
granted blanket authorizations for certain foreign acquisitions, with 
conditions to protect U.S. customers.\31\ As discussed below, the 
Commission also provided other blanket authorizations for transactions 
that do not raise concerns about wholesale markets or protection of 
wholesale captive customers served by Commission-regulated public 
utilities.
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    \31\ See Section 33.1(c)(5). The regulation requires a company 
official to verify that the proposed transaction will not have an 
adverse effect on competition, rates or regulation and that, now or 
in the future, it will not result in the transfer of public utility 
facilities to an associate company, issuance of public utility 
securities or pledge or encumbrance of public utility assets for the 
benefit of an associate company and will not result in certain new 
affiliate contracts.
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b. ``Holding Company''
    32. As required by amended section 203(a)(6), section 33.1(b)(4) 
provides that the term ``holding company'' has the meaning given that 
term in PUHCA 2005.\32\
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    \32\ Order No. 669 at P 69 (citing EPAct 2005 at 1262(8)).
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    33. The Commission rejected requests that we state that only 
companies that own traditional utilities, and not those that own solely 
FUCOs, EWGs and/or QFs, are ``holding companies'' under amended section 
203.\33\ The Commission noted that ``holding company'' in PUHCA 2005 
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;

[[Page 28426]]

* * *'' \34\ PUHCA 2005 defines ``public-utility company'' to include 
an ``electric utility company.'' \35\ We explained that the plain words 
of this definition simply do not exclude holding companies that own or 
control only EWGs, FUCOs, or QFs. Additionally, the Commission stated 
that:
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    \33\ Id. at P 70.
    \34\ EPAct 2005 at 1262(8).
    \35\ Id. at 1262(14).

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.\36\
---------------------------------------------------------------------------

    \36\ Order No. 669 at P 70.

    34. The Commission also pointed out that amended section 203(a)(6) 
requires that we use the PUHCA 2005 definition of ``holding company,'' 
which, as explained above, includes the owner 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. We noted that the definition of ``electric utility 
company'' is not limited to entities that engage in interstate 
commerce. Therefore, the Commission also concluded that holding 
companies that own ``electric utility companies'' whose businesses are 
solely intrastate technically fall under section 203(a)(2).\37\
---------------------------------------------------------------------------

    \37\ However, as discussed below, we agreed in Order No. 669 
that reviewing transactions involving Hawaii, Alaska, and Electric 
Reliability Council of Texas (ERCOT) would involve matters outside 
our expertise and the core focus of Part II of the FPA, and 
therefore we granted certain blanket authorizations.
---------------------------------------------------------------------------

c. Rehearing Requests
    35. NARUC and Occidental assert that the Commission should not have 
used the PUHCA 2005 definition of ``electric utility company'' in its 
regulations under section 203. They say that this is contrary to 
Congressional intent and fundamental rules of statutory construction. 
They point out that section 203(a)(6) specifically states that certain 
terms (``associate company,'' ``holding company,'' and ``holding 
company system'') have the same meaning in both section 203 and PUHCA 
2005; however, section 203(a)(6) does not refer to PUHCA 2005's 
definition of ``electric utility company.'' \38\ NARUC and Occidental 
argue that the Commission's reliance on the simultaneous enactment of 
section 203 and PUHCA 2005 is invalid in the face of this statutory 
language.
---------------------------------------------------------------------------

    \38\ NARUC Rehearing Request at 3-4; Occidental Rehearing 
Request at 8-9. NARUC states the maxim expressio unius est exlusio 
alterius (the expression of one thing is the exclusion of another) 
supports its argument.
---------------------------------------------------------------------------

    36. NARUC also asserts that using the PUHCA 2005 definition of 
``electric utility company'' improperly extends the Commission's 
authority under amended section 203 to include facilities used for 
transmission or sales of electric energy in intrastate commerce, 
facilities used for local distribution, and facilities used for making 
retail sales. It asserts that such facilities fall under exclusive 
state commission jurisdiction and that the Commission's regulations 
implementing FPA section 203 should apply to Commission-jurisdictional 
facilities only.\39\
---------------------------------------------------------------------------

    \39\ NARUC Rehearing Request at 5-6 (citing New York v. FERC, 
535 U.S. 1 (2002); Detroit Edison Co. v. FERC, 334 F.3d 48 (D.C. 
Cir. 2003); 16 U.S.C. 824 (2000)).
---------------------------------------------------------------------------

    37. Occidental requests that the Commission reconsider its 
determination to subject parent companies of QFs to the Commission's 
authority under section 203(a)(2) by importing the definition of 
``electric utility company'' from PUHCA 2005. It argues that the 
Commission's reliance solely on the ``reference point'' of the 
``electric utility company'' definition violates the Commission's 
continuing duty to encourage cogeneration and small power production 
under section 210(e) of PURPA \40\ and without addressing the statutory 
QF exemption in PUHCA 1935 and PUHCA 2005, is arbitrary and 
capricious.\41\ It argues that nothing in amended section 203 requires 
that QFs lose the long-standing exemption from section 203 that the 
Commission adopted in accordance with PURPA section 210(e). Thus, 
Occidental argues the Commission should adopt a blanket authorization 
under section 203, instead of using a case-by-case approach, for 
companies that are holding companies solely by virtue of owning 
QFs.\42\
---------------------------------------------------------------------------

    \40\ 16 U.S.C. 824a-3 (2000). Section 210(e) of PURPA provides 
that the Commission may grant certain exemptions for cogeneration 
and small power producers.
    \41\ Occidental also points to the PUHCA 2005 Final Rule, where 
the Commission stated that ``[a]s for QFs, QFs previously received 
an exemption from PUHCA pursuant to the Commission's regulations 
under [PURPA]. Nothing in PUHCA 2005 changes that.'' Occidental 
Rehearing Request at 10-11.
    \42\ Occidental Rehearing Request at 10-11.
---------------------------------------------------------------------------

    38. Similarly, BofA/JPMorgan and Industrial Consumers assert that 
the Commission erred by requiring pre-acquisition approval under 
section 203(a)(2) of utility interests by companies that qualify as 
``holding companies'' solely by virtue of their ownership interests in 
QFs and EWGs. They explain that under PUHCA 1935, a company that owned 
or controlled 10 percent or more of the outstanding voting securities 
of a QF or EWG did not, by virtue of such ownership, become a ``holding 
company.'' \43\ BofA/JPMorgan and Industrial Consumers assert that, 
while Congress intended to impose section 203(a)(2) pre-approval 
requirements on entities that are ``holding companies'' in a ``holding 
company system that includes a transmitting utility or an electric 
utility,'' by a drafting oversight, it adopted the PUHCA 2005 
definition of ``holding company'' (which includes companies that own 10 
percent or more of the outstanding voting securities of EWGs and QFs) 
in section 203(a)(6). However, they state that there is no indication 
that Congress intended to apply section 203(a)(2) to QF/EWG-only 
holding companies or expand the scope of the ``holding company'' 
definition. BofA/JPMorgan and Industrial Consumers argue that the 
Commission's imposition of new burdens on owners of QFs and EWGs not 
associated with transmission-owning utilities misinterprets 
Congressional intent in EPAct 2005. Accordingly, BofA/JPMorgan and 
Industrial Consumers assert that the Commission should construe section 
203(a)(2) as not applying in these circumstances.
---------------------------------------------------------------------------

    \43\ BofA/JPMorgan Rehearing Request at 26-27; and Industrial 
Consumers Rehearing Request at 2. They explain that all qualifying 
cogeneration facilities and certain small power production 
facilities were previously exempt from status as ``electric utility 
companies'' and that EWGs were exempted by section 32(e) from being 
classified as ``electric utility companies'' or ``public-utility 
companies'' under PUHCA 1935.
---------------------------------------------------------------------------

    39. If the Commission decides to continue with that conclusion, 
then BofA/JPMorgan propose that the Commission provide blanket 
authorization subject to appropriate conditions and safeguards, such as 
a status report to the Commission within 30 days following the 
acquisition, where companies are only holding companies by virtue of 
owning QFs or EWGs.\44\ At a minimum, existing holdings in EWGs and QFs 
should be grandfathered. This would enable banks and their affiliates 
to adjust their future practices respecting EWGs and QFs to keep such 
acquisitions from affecting the core aspects of their business.
---------------------------------------------------------------------------

    \44\ BofA/JPMorgan Rehearing Request at 30; Industrial Consumers 
Rehearing Request at 8.
---------------------------------------------------------------------------

    40. Similarly, Morgan Stanley argues that the definitions in PUHCA 
2005, PUHCA 1935, and the PUHCA 2005 Final Rule demonstrate that EWGs 
are not ``electric utility companies'' and that

[[Page 28427]]

EWG owners are not ``holding companies'' under PUHCA 2005. Therefore, 
it says that the Commission should not have found that EWGs are 
``electric utility companies'' and that companies that own only EWGs 
are ``holding companies'' for purposes of section 203(a)(2).\45\ Morgan 
Stanley explains that, in PUHCA 2005, Congress adopted the meaning of 
EWG from PUHCA 1935, which it contends does not treat EWGs as 
``electric utility companies.'' \46\ Further, Morgan Stanley states 
that the PUHCA 2005 Final Rule reflects Congress' intent to continue to 
define ``holding company'' to exclude EWG owners, as well as companies 
that own power marketers, FUCOs, and QFs.\47\ However, it states, the 
Commission adopts a meaning of ``electric utility company'' for section 
203(a)(2) that includes EWGs, and therefore differs from the meaning 
given in PUHCA 2005. In doing so, Morgan Stanley asserts, the 
Commission creates two different definitions and types of holding 
companies, thereby nullifying section 203(a)(6), which states that the 
term holding company shall have the same meaning given in PUHCA 2005. 
Thus, Morgan Stanley argues, the Commission should amend its 
regulations to state that companies owning only EWGs, or some 
combinations of EWGs, QFs, FUCOs, and/or power marketers, are not 
``holding companies'' bound to obtain prior approval under section 
203(a)(2).
---------------------------------------------------------------------------

    \45\ Morgan Stanley Rehearing Request at 3-4.
    \46\ PUHCA 2005 at 1262(6); PUHCA 1935 at 32(e).
    \47\ Morgan Stanley Rehearing Request at 5 (citing PUHCA 2005 
Final Rule at 366.1 (to be codified at 18 CFR 366.1)).
---------------------------------------------------------------------------

d. Commission Determination
    41. We do not agree with those who argue that, because of the 
statutory language and/or policy concerns, the Commission may not 
assert jurisdiction under new section 203(a)(2) over transactions 
involving matters that are not under our traditional, pre-EPAct 2005 
jurisdiction. The Commission affirms its determination in Order No. 669 
that, in light of the ambiguity in section 203(a)(2), the most 
reasonable interpretation of the term ``electric utility company'' is 
the definition in PUHCA 2005. Several factors support this 
determination.
    42. First, the focus of new section 203(a)(2) is on acquisitions by 
public utility holding companies. The Commission did not previously 
have jurisdiction over holding companies, and this new authority was 
enacted as part of coordinated, comprehensive legislation along with 
the repeal of PUHCA 1935 and the enactment of PUHCA 2005.\48\ Section 
203(a)(6) states that the term ``holding company'' has the same meaning 
given the term in PUHCA 2005. PUHCA 2005 defines a ``holding company'' 
in terms of a ``public-utility company,'' which, under PUHCA 2005, 
includes an ``electric utility company.''
---------------------------------------------------------------------------

    \48\ There is no legislative history contained in the conference 
report accompanying the legislation. However, the evolution of the 
various versions of section 203(a)(2) proposed by members supports 
our conclusion that Congress purposely did not limit section 
203(a)(2) to holding companies that own ``public utilities'' but, 
rather, consciously used terminology that, for the most part, 
reflected terms used in PUHCA 2005. See Electricity Competition and 
Reliability Act, H.R. 2944, 106th Cong. section 410 (1998); 
Comprehensive Electricity Competition Act, H.R. 1828, 106th Cong. 
section 502 (1998); Comprehensive Electricity Competition Act, S. 
1047, 106th Cong. section 502 (1998); Electric Power To Choose Act 
of 1999, H.R. 2050, 106th Cong. section 110 (1998); Energy Policy 
Act of 2002, S. 1766 106th Cong. section 202 (2001); Energy Policy 
Act of 2003, S. 14, 108th Cong. (2003); Senate Amendment No. 1412 to 
S. 14, 149 Cong. Rec. S. 10163 (July 29, 2003); Senate Amendment No. 
1413 to S. 14, 149 Cong. Rec. S. 10116-24 (July 29, 2003), 149 Cong. 
Rec. S. 10204-14 (July 30, 2003); Senate Amendment No. 1537 Sec.  
202, 149 Cong. Rec. S. 10739-40 (July 31, 2003); H.R. Rep. No. 108-
375 at 302-03 (Nov. 18, 2003), 149 Cong. Rec. S. 15,220 (Nov. 20, 
2003); Energy Policy Act of 2005, H.R. 6; Energy Policy Act of 2005, 
S. 10; H. Rpt. 109-190 (2005), 149 Cong. Rec. S. 9258 (July 28, 
2005), 149 Cong. Rec. S. 9359 (July 29, 2005).
---------------------------------------------------------------------------

    43. Second, the term ``electric utility company'' is defined in 
both PUHCA 1935 and PUHCA 2005, but is not defined in the FPA or other 
statutes under which the Commission exercises authority. It is 
reasonable in the face of Congressional silence to adopt a definition 
that has been well understood in electric regulatory law for the past 
70 years, particularly when we are not aware of any other federal 
regulatory definition of the term.
    44. Third, had Congress intended to restrict section 203(a)(2) to 
holding company acquisitions involving only facilities that are 
traditionally jurisdictional under the FPA or to holding company 
acquisitions of companies that are ``public utilities'' under the FPA, 
it would have done so, just as it did in each part of section 
203(a)(1). The expressio unius principle cited by NARUC to support its 
position can also be cited to support Order No. 669; the fact that 
Congress specifically limited section 203(a)(1) to actions taken by 
public utilities, but did not so restrict section 203(a)(2), supports 
the position that Congress intended the latter provision to have a 
wider scope. Moreover, NARUC's application of expressio unius in this 
instance leads to a conclusion at odds with common usage. We elaborate 
further below.
    45. NARUC is correct that section 201(b)(1) of the FPA states that 
Part II applies to transmission in interstate commerce and the sale of 
electric energy at wholesale in interstate commerce, but (except as 
provided for in paragraph 2, which involves sections 203(a)(2), 206(e), 
210-212, and 215-222) not to other sales of electric energy. However, 
there is a qualifying phrase as well. Section 201(b)(1) states that the 
Commission shall not have jurisdiction, ``except as specifically 
provided in this Part and the Part next following'' over facilities 
used for the generation of electric energy, or over facilities used in 
local distribution or only for the transmission of electric energy in 
intrastate commerce or over facilities for the transmission of electric 
energy consumed wholly by the transmitter.
    46. NARUC ignores ``except as specifically provided.'' Congress, in 
amending section 203, specifically broadened the Commission's previous 
section 203 jurisdiction.\49\ In the new section 203(a)(6), Congress 
directed the Commission to use the definition of holding company from 
PUHCA 2005, and that definition includes entities that own ``electric 
utility companies'' as defined in PUHCA 2005. The new 203(a)(2) 
requires holding companies that include transmitting utilities (an FPA 
definition modified in EPAct 2005 to be limited to transmission in 
interstate commerce used for wholesale sales) or electric utilities 
(defined in the FPA as persons that sell electric energy--not limited 
to sales for resale or to sales in interstate commerce) to obtain 
Commission approval of certain securities transactions, including 
acquisitions of securities of an ``electric utility company.''
---------------------------------------------------------------------------

    \49\ For example, in section 203(a)(1)(D) Congress gave the 
Commission new jurisdiction over certain acquisitions of generation 
facilities. The Commission under section 201 has no jurisdiction 
over generation facilities, except as specifically provided.
---------------------------------------------------------------------------

    47. It is reasonable to conclude that, in repealing PUHCA 1935 and 
importing into the FPA these PUHCA terms--a statute and terms not 
limited to companies engaging in interstate sales, interstate 
transmission or wholesale transactions--Congress intended to transfer 
to this Commission certain corporate review authority that might 
involve intrastate/retail acquisitions that could affect interstate 
commerce and customers of Commission-regulated interstate utilities. 
Further, as discussed above, in other provisions of section 203 
Congress specifically limited the Commission's review to transactions 
involving ``facilities subject to the jurisdiction of

[[Page 28428]]

the Commission.'' It did not place this limitation in section 
203(a)(2).\50\
---------------------------------------------------------------------------

    \50\ We note that, in PUHCA 1935, which was not limited to 
facilities or companies operating in interstate commerce, Congress 
directed the Securities and Exchange Commission (SEC) in section 3 
to exempt predominantly intrastate holding companies and holding 
companies whose operations are confined to one state or contiguous 
states (because the states could adequately regulate these types of 
holding companies and their activities) unless the SEC found it 
detrimental to the public interest or the interests of investors or 
consumers. Although Congress did not give the Commission authority 
under section 203(a)(2) to actually exempt companies from the 
provision, our blanket waivers serve a similar purpose of deferring 
to the states, as the SEC did under the 1935 Act. If, however, we 
find harm to wholesale competition or customers, the Commission can 
take an appropriate action.
---------------------------------------------------------------------------

    48. NARUC cites the principle of expressio unius and argues that 
Congress' specific statement in section 203(a)(6) that three other 
terms have the same meaning as in PUHCA 2005 shows that Congress did 
not intend ``electric utility company'' to have the same meaning as in 
PUHCA 2005.\51\ One can just as convincingly argue that Congress 
inadvertently omitted the term from section 203(a)(6) or that if 
Congress had intended to require us to adopt a particular definition, 
it would have done so. The fact is that Congress left us with no 
express definition of the term and that we have exercised reasonable 
discretion in interpreting it.
---------------------------------------------------------------------------

    \51\ The three other terms are: associate company, holding 
company and holding company system.
---------------------------------------------------------------------------

    49. Several parties argue that the policy behind EPAct 2005 
requires us to define ``electric utility company'' to exclude companies 
that own only EWGs or QFs. We disagree. Congress specifically required, 
in section 203(a)(6) of the FPA, that the term ``holding company'' be 
given the same meaning that was given the term in PUHCA 2005. Under 
PUHCA 2005, as explained above, a company is a holding company if it 
acquires 10 percent or more of an electric utility company. EWGs, FUCOs 
\52\ and QFs fall within the definition of ``electric utility company'' 
under section 1262(5) of PUHCA 2005 because they own or operate 
facilities used for the generation, transmission or distribution of 
electric energy for sale. Moreover, including EWGs, FUCOs and QFs as 
electric utility companies is consistent with common usage, which 
supports defining electric utility companies as companies owning 
facilities (generation, transmission or distribution) for the sale of 
electric energy.
---------------------------------------------------------------------------

    \52\ The Commission explained in Order No. 669 that it 
interpreted section 203(a)(2) of the FPA as applying to foreign 
acquisitions and therefore interpreted ``electric utility company'' 
to include FUCOs.
---------------------------------------------------------------------------

    50. Further, as discussed in Order No. 669 and Order No. 667-A (the 
PUHCA 2005 rehearing order), while Congress expressly excluded from the 
definition of holding company certain banks and other institutions, it 
did not similarly exclude from the definition of holding company 
entities that only own QFs, EWGs or FUCOs. Rather, section 1266(a) of 
PUHCA 2005 specifically directs the Commission to exempt QF/EWG/FUCO 
holding companies from the federal access to books and records 
provision; thus, the very language of the provision recognizes that 
such entities are holding companies. It directs the Commission to issue 
a final rule to exempt ``any person that is a holding company, solely 
with respect to one or more [QFs, EWGs, or FUCOs].''
    51. Therefore, consistent with our determination in the PUHCA 2005 
rehearing order, we are giving full effect to the statutory language 
when we conclude that companies that acquire 10 percent or more of an 
EWG, FUCO or QF are holding companies as that term is used in PUHCA 
2005 as well as FPA section 203(a)(2).
    52. However, we also have provided an exemption from the PUHCA 
section 1264 books and records requirements, as required by section 
1266 of PUHCA 2005. Further, based on consideration of the rehearing 
comments filed, we will grant a blanket authorization under section 
203(a)(2) for holding companies that own or control only EWGs, QFs or 
FUCOs to acquire the securities of additional EWGs, FUCOs or QFs. Thus, 
our definition allows us to ensure that, for example, cross-
subsidization that affects matters under our traditional jurisdiction 
does not occur, while at the same time ensuring (through blanket 
authorizations) that investment in the electric industry is not 
hampered and that encouragement of QFs is not undermined.
    53. We recognize, however, parties' claims that there were 
inconsistencies because of certain statements in Order No. 667 that 
EWGs would not be considered ``electric utility companies.'' A similar 
statement was included with respect to QFs in our recent QF final 
rule.\53\ On rehearing of the Order No. 667, we are eliminating these 
statements with respect to EWGs and clarifying that we intend to 
eliminate a similar statement in the QF final rule rehearing.\54\ Thus, 
our interpretation under section 203(a)(2) is consistent with our 
interpretation under PUHCA 2005, and Morgan Stanley's claim that we are 
creating two different definitions is not correct.
---------------------------------------------------------------------------

    \53\ Revised Regulations Governing Cogneration and Small Power 
Production, Order No. 671, 71 FR 7852 (Feb. 15, 2006), FERC Stats. & 
Regs. ] 31,203 (2006).
    \54\ Repeal of the Public Utility Holding Company Act of 1935 
and Enactment of the Public Utility Holding Company Act of 2005, 
Order No. 667-A, published elsewhere in this issue of the Federal 
Register, FERC Stats. & Regs. ] 31,213 at P 14 & n. 32 (2006).
---------------------------------------------------------------------------

    54. We also reject Morgan Stanley's argument as it relates to power 
marketers, but for a different reason. We decided in the PUHCA 2005 
Final Rule to treat power marketers in a manner consistent with SEC 
precedent for purposes of interpreting PUHCA 2005, and therefore, 
decided not to treat power marketers as ``electric utility companies.'' 
\55\ By extension, therefore, a company owning only a power marketer is 
not holding an ``electric utility company'' and is not a holding 
company. However, power marketers remain public utilities under the 
FPA.
---------------------------------------------------------------------------

    \55\ Order No. 667 at P 123.
---------------------------------------------------------------------------

3. Section 33.1(c)(1)--Blanket Authorizations: Intrastate Commerce, 
Local Distribution, and Internal Corporate Reorganizations
    55. Section 33.1(c)(1) provides that 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 FPA 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.
a. Section 33.1(c)(1)(i) and (ii)--Blanket Authorizations for 
Intrastate Commerce and Local Distribution
    56. In Order No. 669, the Commission stated that it was not 
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. However, we concluded that there 
would be no benefit from the Commission's case-by-

[[Page 28429]]

case evaluation of certain transactions under section 203(a)(2).\56\
---------------------------------------------------------------------------

    \56\ 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.
---------------------------------------------------------------------------

    57. The Commission explained that our core jurisdiction under Part 
II of the FPA continues to be transmission and sales for resale of 
electric energy in interstate commerce. 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.\57\ 
Accordingly, we concluded that it is consistent with the public 
interest to grant blanket authorizations for the following: (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.\58\
---------------------------------------------------------------------------

    \57\ 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).
    \58\ Order No. 669 at P 56.
---------------------------------------------------------------------------

    58. The Commission concluded that these blanket authorizations are 
consistent with the public interest because: (1) 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; (2) 
if these categories raise competitive issues in intrastate commerce, 
i.e., in ERCOT, Hawaii, and Alaska,\59\ those issues are within the 
expertise of, and more appropriately addressed by, state commissions; 
and (3) if competition and retail ratepayer protection issues are 
raised by a holding company's acquisition of local distribution or 
other retail facilities, these issues also are within the expertise of, 
and more appropriately addressed by, state commissions.\60\
---------------------------------------------------------------------------

    \59\ Similarly, although not raised by the parties, the blanket 
authorization would apply to any organized Territory of the United 
States.
    \60\ For these blanket authorizations, the Commission did not 
impose any type of filing requirement.
---------------------------------------------------------------------------

i. Rehearing Requests
    59. APPA/NRECA assert that the Commission erred in granting blanket 
authorization of acquisitions of ``intrastate'' utilities by holding 
companies. They state that in order for the Commission's justification 
to be true, i.e., that these transactions do not affect Commission-
regulated wholesale sales in interstate commerce or Commission-
regulated public utilities, the blanket authorization would have to be 
confined to acquisitions of such intrastate utilities by intrastate 
holding companies. However, APPA/NRECA argue that the regulation allows 
any holding company (including a holding company that owns a 
Commission-jurisdictional public utility operating in interstate 
commerce) to acquire an intrastate utility.\61\ They state that the 
regulation is overbroad, authorizes transactions that on their face 
would affect interstate commerce in electricity, and raises the 
possibility of cross-subsidization and pledge or encumbrance of utility 
assets for the benefit of the holding company at the expense of captive 
customers. However, APPA/NRECA assert that if the blanket authorization 
were limited to wholly intrastate transactions in accordance with the 
Commission's rationale, then the Commission would lack FPA jurisdiction 
over these transactions in the first place, so no blanket authorization 
should be required. Therefore, they state that the Commission should 
delete the section 33.1(c)(1)(i) blanket authorization from its 
regulations.
---------------------------------------------------------------------------

    \61\ APPA/NRECA Rehearing Request at 27.
---------------------------------------------------------------------------

    60. APPA/NRECA also assert that the Commission erred in granting 
blanket authorization of acquisitions of ``local-distribution-only'' or 
``retail-only'' utilities. They assert that the blanket authorization 
is broader than the Commission's rationale (which is that these 
transactions do not affect Commission-regulated wholesale sales in 
interstate commerce or Commission-regulated public utilities), 
authorizes transactions that would affect Commission-jurisdictional 
interstate commerce in electricity and creates opportunities for cross-
subsidization or pledge or encumbrance of utility assets for the 
benefit of the holding company and at the expense of captive 
customers.\62\ APPA/NRECA assert that, if, on the other hand, the 
holding company does not own any Commission-jurisdictional public 
utilities before the transaction, and it is acquiring a retail-only or 
local-distribution-only utility that also is not Commission-
jurisdictional, then the Commission would have no jurisdiction to act 
on the transaction in the first place. They argue that, if the 
Commission's rationale for this blanket authorization holds, the 
Commission's authority to grant the blanket authorization evaporates. 
Thus, APPA/NRECA state that section 33.1(c)(1)(ii) should be deleted 
from the regulations.
---------------------------------------------------------------------------

    \62\ Id. at 28-29.
---------------------------------------------------------------------------

    61. APPA/NRECA further argue that the Commission's own reasoning in 
Order No. 669 relating to distinctions between the uses of generating 
facilities for wholesale sales and retail sales undermines the basis 
for granting blanket authorizations for acquisition of securities of 
``retail-only'' utilities. They note that in connection with defining 
``existing generation facility,'' the Commission stated that utilities 
do not ordinarily separate the dispatch of their plants for retail 
sales and wholesale sales and thus adopted the rebuttable presumption 
that existing generation facilities are used for both wholesale sales 
and retail sales.\63\ APPA/NRECA assert that this premise also leads to 
the rebuttable presumption that a holding company that acquires a 
utility that owns generation is not acquiring a ``retail-only'' 
utility, thus eliminating the basis for granting a blanket 
authorization of such a transaction without evidence of that fact. In 
addition, they note that any ``retail-only'' utility that does not own 
any generation but meets its power needs through a portfolio of power 
contracts and ancillary services is likely to be selling excess 
wholesale power during some periods. As a consequence, they believe 
that there is no basis to presume that retail-only utilities exist or 
to provide a blanket authorization for such acquisitions.
---------------------------------------------------------------------------

    \63\ Order No. 669 at P 86.
---------------------------------------------------------------------------

ii. Commission Determination
    62. We reaffirm our decision to grant blanket authorization under 
section 203(a)(2) for acquisitions of companies that own, operate or 
control only facilities used solely for intrastate transmission or 
intrastate energy sales or for local distribution or retail energy 
sales regulated by a state commission. The energy sales or transmission 
transactions by electric utility companies that fall within this 
blanket authorization are relatively small compared to such 
transactions by other electric utility companies. These transactions 
are unlikely to adversely affect wholesale competition. With respect to 
possible adverse effects on rates of retail captive customers, this

[[Page 28430]]

can be addressed by the state commissions with jurisdiction over and 
expertise with these types of transactions. Adverse effects on rates of 
wholesale captive customers or customers receiving transmission service 
over jurisdictional transmission facilities are unlikely but, if they 
occur, we believe we can adequately address any concerns using our rate 
authority under FPA sections 205 and 206. Thus, while APPA/NRECA are 
correct that there may be some interstate effects as a result of such 
transactions, at this time we believe that such effects would not be 
significant and thus that individual pre-approval by this Commission 
under section 203 is not necessary. We disagree with APPA/NRECA's 
argument that the blanket authorization for acquisitions of ``retail-
only'' utility securities is inconsistent with the Commission's 
rebuttable presumption in Order No. 669 that all generating facilities 
are used for at least some wholesale sales. If a company engages in 
other than de minimis wholesale transactions, the blanket authorization 
will not apply. However, in response to APPA/NRECA's concern, we will 
require that if any public utility within the holding company system 
has captive customers or owns or provides transmission service over 
jurisdictional transmission facilities, the holding company must report 
the acquisition to the Commission, including any state actions and 
conditions related to the transaction, and provide an explanation of 
why the transaction does not result in cross-subsidization.\64\
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    \64\ In response to APPA's concerns regarding the protection of 
transmission customers, we believe it is appropriate, as discussed 
infra, at P 147, to apply this reporting requirement to holding 
companies that include public utilities that own or provide 
transmission service over jurisdictional transmission facilities. 
Similarly, where relevant for conditions or requirements applicable 
to blanket authorizations granted herein or to implementing 
standards for review of section 203 applications not receiving 
blanket authorizations, certain conditions and requirements will 
apply to holding company acquisitions where the holding company 
includes a public utility that has captive customers or owns or 
provides transmission service over jurisdictional transmission 
facilities.
---------------------------------------------------------------------------

    63. We clarify that the Commission is not asserting jurisdiction 
over intrastate facilities, local distribution facilities, or retail-
only companies under the blanket authorizations. Rather, we are 
asserting jurisdiction over holding company acquisitions of such 
companies or facilities for the purpose of ensuring that interstate 
interests are not adversely affected and we may consider eliminating 
these blanket authorizations if necessary to protect customers.\65\
---------------------------------------------------------------------------

    \65\ See our response to NARUC, supra PP 45-47.
---------------------------------------------------------------------------

b. Section 33.1(c)(1)(iii)--Blanket Authorizations for Internal 
Corporate Reorganizations
    64. Section 33.1(c)(1)(iii) provides that

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 * * * (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.

    65. In Order No. 669's preamble, the Commission explained that 
internal corporate reorganizations that do not present cross-
subsidization issues and do not involve captive customers are unlikely 
to cause anticompetitive effects.\66\
---------------------------------------------------------------------------

    \66\ Order No. 669 at P 192.
---------------------------------------------------------------------------

i. Rehearing Requests
    66. EEI, Entergy, and Duke/Cinergy request that the Commission 
grant blanket authorization for internal corporate reorganizations 
under section 203(a)(1) (which addresses public utilities) as well as 
under 203(a)(2) (which addresses holding companies).\67\ They note 
that, in the preamble of Order No. 669, the Commission stated that it 
``is granting 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,'' 
\68\ without drawing any distinction between section 203(a)(1) and 
section 203(a)(2). However, the actual regulatory text grants blanket 
authorization for internal corporate reorganizations only under section 
203(a)(2).
---------------------------------------------------------------------------

    \67\ EEI Rehearing Request at 6-7; Entergy Rehearing Request at 
4; and Duke/Cinergy Rehearing Request at 4.
    \68\ Order No. 669 at P 192.
---------------------------------------------------------------------------

    67. National Grid requests that the Commission grant blanket 
authorization for internal reorganizations involving intermediate 
holding companies and other non-utility associate companies (i.e. the 
consolidation or dissolution of such companies and the purchase of 
securities of one such company by another such company).\69\
---------------------------------------------------------------------------

    \69\ National Grid Rehearing Request at 7-8 (citing National 
Grid Transco, Order Authorizing Various Financing Transactions, 
Money Pool; Reservation of Jurisdiction, Holding Company Act Release 
No. 35-27898; 83 S.E.C. Docket 2653 (Sept. 30, 2004)).
---------------------------------------------------------------------------

    68. EEI, Entergy, Duke/Cinergy, and National Grid request that the 
Commission explain what it meant by a reorganization that does not 
``involve'' a traditional public utility with captive customers.\70\ 
They state that a broad reading could deny blanket authorizations for a 
reorganization of an intermediate holding company between the public 
utility and the ultimate parent holding company even in cases where the 
transaction does not affect the organization of the public utility 
itself. These parties suggest that the Commission revise the regulation 
to grant blanket authorization for internal reorganizations that do not 
``result in the reorganization of a traditional public utility with 
captive customers.'' \71\
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    \70\ EEI previously provided an example of such an internal 
corporate reorganization: ``* * * if a holding company that owns one 
or more traditional public utilities with captive customers also 
owns several EWGs, FUCOs, or other utilities without captive 
customers but seeks only to reorganize some of these non-traditional 
companies (e.g., by moving them under other intermediate holding 
companies), this transaction would not involve or affect the 
traditional utilities * * *'' November 7, 2005 rulemaking comment of 
EEI (at fn. 17) in Docket No. RM05-34-000.
    \71\ EEI Rehearing Request at 7, and Attachment A at 1; Entergy 
Rehearing Request at 5; Duke/Cinergy Rehearing Request at 4; and 
National Grid Rehearing Request at 9.
---------------------------------------------------------------------------

    69. In addition, EEI, Entergy, and Duke/Cinergy recommend that the 
Commission consider granting blanket authorization for certain internal 
corporate reorganizations that result in the reorganization of a 
traditional public utility company with captive customers, as long as 
an authorized corporate official verifies that the transaction will 
have no adverse effect on competition, rates, or regulation and makes 
additional verifications (similar to the verifications required for the 
blanket authorization in section 33.1(c)(5)(ii) for FUCOs with captive 
customers in the U.S.).\72\ They explain that the verifications would 
ensure that this automatic approval would apply only when the 
transaction cannot harm a traditional utility company with captive 
customers.
---------------------------------------------------------------------------

    \72\ EEI Rehearing Request at 7-8; Entergy Rehearing Request at 
5; and Duke/Cinergy Rehearing Request at 5. See also EEI Comments, 
Docket No. RM05-34-000, at 25.
---------------------------------------------------------------------------

    70. Similarly, Coral Power requests that the Commission grant a 
blanket authorization under section 203(a)(1) for internal corporate 
reorganizations that do not present cross-subsidization concerns and do 
not involve a traditional public utility with captive customers, 
provided that the reorganization is for a lawful objective within the 
company's corporate purposes, compatible with the public interest, and 
reasonably necessary or appropriate for such purposes.\73\
---------------------------------------------------------------------------

    \73\ Coral Power Rehearing Request at 6. Coral Power explains 
that the Commission does not currently require a competitive 
analysis under pre-EPAct 2005 section 203 for such internal 
corporate reorganizations because there are no competitive concerns 
or changes in the control of jurisdictional assets where the 
ultimate parent company remains the same and all intermediary 
holding companies remain under the same parent company.

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[[Page 28431]]

    71. If the Commission will not grant this blanket authority, EEI, 
Entergy, and Duke/Cinergy alternatively request that the Commission 
revise section 33.11(b) to provide for expeditious consideration of 
``internal corporate reorganizations that result in the reorganization 
of a traditional public utility with captive customers but do not 
present cross-subsidization issues.''
    72. APPA/NRECA note that Order No. 669 discussed the adoption of 
safeguards to prevent cross-subsidization involving certain cash-
management programs and intra-holding company financing arrangements. 
However, the Commission erred in granting blanket authorizations of 
holding company acquisitions involving internal corporate 
reorganizations without protective conditions similar to those imposed 
on blanket authorizations in section 33.1(c)(2) for certain securities 
purchases by holding companies.\74\
---------------------------------------------------------------------------

    \74\ APPA/NRECA Rehearing Request at 30-31. These blanket 
authorizations pertain to acquisitions of non-voting securities, 
voting securities of less than 10 percent and securities of a 
subsidiary company within the holding company system.
---------------------------------------------------------------------------

ii. Commission Determination
    73. The Commission finds no basis for distinguishing between 
section 203(a)(1) and section 203(a)(2) in determining that ``internal 
corporate reorganizations that do not present cross-subsidization 
issues are unlikely to cause anticompetitive effects.'' In contrast to 
other types of transactions, we see no need to require case-by-case 
filings under section 203(a)(1) for such transactions since, by their 
very nature, internal corporate reorganizations that do not affect the 
organization of the public utility itself cannot involve changes of 
ownership and ultimate control of the jurisdictional or generation 
facilities. Such transactions would not ordinarily result in a change 
in direct ownership or control of jurisdictional facilities. However, 
we emphasize that any internal reorganization that would result in a 
change of direct ownership of or control over jurisdictional facilities 
will require a filing under section 203(a)(1). Accordingly, we will 
grant blanket authorization under section 203(a)(1) for internal 
corporate reorganizations that do not present cross-subsidization 
issues and that do not involve (i.e, do not result in the 
reorganization of, as explained below) a traditional public utility 
with captive customers or that owns or provides transmission service 
over jurisdictional transmission facilities.
    74. EEI, Entergy, Duke/Cinergy, and National Grid are correct that 
the phrase ``does not involve a traditional public utility with captive 
customers'' could be interpreted to deny blanket authority in 
situations where the transaction does not affect the organization of 
the traditional public utility itself. Their suggestion to substitute 
the phrase ``result in the reorganization of a traditional public 
utility with captive customers'' is reasonable and we will modify the 
regulation accordingly. We also will expand the blanket authorization 
to cover reorganizations of intermediate holding companies, non-utility 
associate companies, and public utilities that are not traditional 
public utilities that have captive customers or that own or provide 
transmission service over jurisdictional transmission facilities, so 
long as the reorganization does not present cross-subsidization issues. 
As a result, we are revising section 33.1(c)(1)(iii) to address a 
different issue, as noted below and adding a new section 33.1(c)(6) to 
incorporate the blanket authorizations for internal corporate 
reorganizations, as discussed here.\75\
---------------------------------------------------------------------------

    \75\ Internal corporate reorganizations, as discussed here, are 
provided blanket authorization whether they are accomplished through 
the acquisition of securities or through a merger or consolidation.
---------------------------------------------------------------------------

    75. We will not grant herein a blanket authorization for internal 
corporate reorganizations that result in the reorganization of a 
traditional public utility with captive customers. To ensure that 
captive customers and customers receiving transmission service over 
jurisdictional transmission facilities are protected, we will continue 
to evaluate such internal corporate reorganizations on a case-by-case 
basis. However, we are revising section 33.11(b) to separately provide 
in new section 33.11(c)(3) for expeditious consideration of internal 
corporate reorganizations that result in the reorganization of a 
traditional public utility with captive customers or customers 
receiving transmission service over jurisdictional transmission 
facilities but that do not present cross-subsidization issues.
    76. We are not convinced by APPA/NRECA's argument that Order No. 
669 granted blanket authorizations involving internal corporate 
reorganizations without adequate protective conditions. The blanket 
authorization applies only if no cross-subsidization issues are present 
and only if there are no affected captive customers or customers 
receiving transmission service over jurisdictional transmission 
facilities. APPA/NRECA does not explain why additional conditions or 
requirements are necessary.
c. Requests for Additional Blanket Authorizations
i. Rehearing Request
    77. GS Group recommends that the Commission give blanket 
authorization under section 203(a)(2) for a holding company in a 
holding company system that includes a transmitting utility or electric 
utility to acquire securities of industrial self-generators. An 
industrial self-generator would be ``any company that owns generating 
facilities that total 100 MW or less in size and are used fundamentally 
for its own load or for sales to affiliated end-users.'' \76\
---------------------------------------------------------------------------

    \76\ GS Group Rehearing Request at 4.
---------------------------------------------------------------------------

    78. GS Group explains that its various non-utility subsidiaries 
engage in proprietary trading and merchant banking activities and, in 
the ordinary course of these business activities, regularly acquire 
utility securities. They acquire these securities for the purpose of 
distribution or resale, as broker/dealers in a fiduciary capacity, or 
for their own accounts (proprietary holdings). GS Group states it has 
requested blanket authorization under section 203(a)(2) for 
acquisitions of securities in excess of the $10 million threshold. Even 
if such authorizations were granted, GS Group states that its non-
utility subsidiaries would not be allowed to acquire in a proprietary 
capacity 10 percent or more of the voting securities of any electric 
utility company or holding company that includes an electric utility 
company without obtaining separate approval from the Commission.\77\
---------------------------------------------------------------------------

    \77\ The Commission granted blanket authorizations to GS Group 
that allow its non-utility subsidiaries to hold, in a proprietary 
capacity, up to 10 percent of the voting securities of electric 
utility companies, subject to certain reporting requirements. See 
The Goldman Sachs Group, Inc., 114 FERC ] 61,118 at P 22, 27 (2006).
---------------------------------------------------------------------------

    79. Furthermore, GS Group says that the blanket authorizations 
under section 33.1(c)(1)(i) and section 33.1(c)(1)(ii) do not allow its 
non-utility subsidiaries to acquire 10 percent or more of the voting 
securities of an electric utility company. While GS Group acknowledges 
that this may be reasonable for acquiring securities of a traditional 
utility with captive customers, it contends that such a limitation is 
unnecessary as applied to the acquisition of securities of an 
industrial company or manufacturer that generates power itself and 
consumes most of the generated power.

[[Page 28432]]

GS Group notes that many industrial self-generators sell only a small 
amount of surplus power at wholesale to the local interconnected 
utility. The same public policy considerations (the lack of effects on 
competitive wholesale markets for sale in interstate commerce or on 
wholesale captive customers) that underlie a blanket authorization 
covering acquisitions of such companies' securities (in section 
33.1(c)(1)(i)) apply to acquisitions of securities of industrial self-
generators. GS Group argues that the 100 MW size limit will assure that 
transactions involving the acquisition of securities of industrial 
self-generators will not have an effect on competition in wholesale 
power markets.
    80. Furthermore, GS Group argues that this modification would be 
consistent with the PUHCA 2005 Final Rule, 18 CFR 366.3(c), which 
waives the accounting, record-retention and filing requirements in Part 
366 for holding companies that own 100 MW of generation or less that is 
used ``fundamentally for their own load or for sales to affiliated end-
users.'' GS Group notes that the SEC exempted industrial self-
generators and their parent holding companies from regulation as 
electric utility companies or holding companies. It says that the SEC 
also exempted acquisitions of voting securities of such companies from 
the pre-approval requirements of PUHCA 1935.
    81. Coral Power requests that the Commission grant a blanket 
authorization under section 203(a)(1) (which regulates transactions 
involving public utilities) for transfers of wholesale market-based 
rate contracts between affiliates that have the same ultimate upstream 
ownership and that are not affiliated with traditional public utilities 
with captive ratepayers. It states that this would be consistent with 
the public interest because such transfers have no adverse effect on 
competition, rates, or regulation. Such transfers will not harm 
competition because they will not result in any change in ultimate 
control over the wholesale contracts, over any other electric 
generation, transmission, or distribution facilities, or over inputs to 
generation. Coral Power explains that following such transfers, the 
Commission will continue to have jurisdiction over the contracts. It 
states that such transfers have no effect on captive ratepayers (since 
customers under market-base rate contracts are not captive), and 
therefore will not raise any cross-subsidization issues.
ii. Commission Determination
    82. The Commission will grant a blanket authorization to allow any 
company in a holding company system that includes a transmitting 
utility or an electric utility to acquire the securities of an electric 
utility company that owns generating facilities that total 100 MW or 
less and are used fundamentally for the acquired company's own 
individual load or for sales to affiliated end-users (industrial self-
generators). Such transactions meet the standards of section 203. They 
are consistent with the public interest (because they will not harm 
competition, ratepayers, or regulation) and will not result in the 
cross-subsidization of a non-utility associate company or the pledge or 
encumbrance of utility assets for the benefit of an associate company. 
This blanket authorization will be reflected in section 
33.1(c)(1)(iii).
    83. The Commission also is persuaded by the rationale provided by 
Coral Power and will grant a blanket authorization for transfers of 
wholesale market-based rate contracts between affiliates that have the 
same ultimate upstream ownership and that are not affiliated with a 
traditional public utility with captive customers. Such transactions 
meet the standards of section 203. They will not harm competition 
because even if a contract confers control over a generating resource, 
the transfer of the contract does not result in a change in ultimate 
control. There also will be no effect on cost-based rates to captive 
customers or to customers that receive transmission service over 
jurisdictional transmission facilities, or on regulation. Further, 
since the affiliates are not affiliated with a public utility with 
captive ratepayers, the transaction will not result in the cross-
subsidization of a non-utility associate company or the pledge or 
encumbrance of utility assets for the benefit of an associate company. 
We note that the assignment or transfer of wholesale contracts is 
subject to section 205 filing requirements, which include, among other 
things, designation of the jurisdictional entity that will be the 
supplier under the contract.
4. Blanket Authorizations for Cash Management Programs, Money Pools, 
and Intra-Holding Company Financing Arrangements
    84. In Order No. 669, the Commission stated that cash management 
programs, money pools, and other intra-holding company financing 
arrangements \78\ 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 receive on their money.\79\ These transactions often 
involve issuances and acquisitions of securities that are subject to 
FPA sections 204 and 203.\80\ The Commission stated that it did not 
intend to make it more difficult for companies to take advantage of 
these types of transactions. Transfers of funds between such companies 
do not generally present competitive problems. Thus, we found that it 
was consistent with the public interest to grant blanket authorization 
under section 203(a)(2)for holding companies and their subsidiaries to 
take part in intra-system cash management-type programs.
---------------------------------------------------------------------------

    \78\ 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 40500 (July 8, 
2003), III FERC Stats. & Regs. ] 31,145 (June 26, 2003), Order No. 
634-A, 68 FR 61993 (Oct. 31, 2003), FERC Stats. & Regs. ] 31,152 
(Oct. 23, 2003) (Cash Management Rule).
    \79\ Order No. 669 at P 142.
    \80\ The Commission's authority under section 204 governing the 
issuance of securities by a public utility was often superseded by 
the authority of the SEC under section 318 of the FPA. Section 318 
of the FPA resolved conflicts of jurisdiction between the FPA and 
PUHCA 1935 regarding, among other things, the issuance of securities 
in favor of the SEC. Section 318 was repealed under section 1277 of 
PUHCA 2005.
---------------------------------------------------------------------------

a. Rehearing Requests
    85. EEI, Entergy, and Duke/Cinergy request that the Commission 
modify the regulatory text to also grant blanket authorization under 
FPA section 203(a)(1) for intra-system financial transactions between 
public utility affiliates. They point out that, while intra-system 
financings may be jurisdictional under section 203(a)(1) (which applies 
to acquisitions of securities by public utilities) and/or section 
203(a)(2) (which applies to acquisitions of securities by holding 
companies), section 33.1(c)(2) grants blanket authorization under 
section 203(a)(2) only. They explain that intra-system cash management 
or financing programs typically involve both: (i) ``Horizontal'' 
transactions between two public utility subsidiaries (e.g., one public 
utility lending money to an affiliated public utility), which may be 
jurisdictional under section 203(a)(1); and (ii) transactions between a 
holding company and its subsidiaries (e.g., a holding company lending 
money

[[Page 28433]]

``downward'' to a subsidiary public utility), which may be 
jurisdictional under section 203(a)(2).
    86. EEI, Entergy, and Duke/Cinergy assert that, based on the 
preamble discussion, the Commission apparently intended to cover both 
types of transactions, but the regulatory text did not incorporate 
them. In the preamble, we stated 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.'' \81\ EEI, Entergy, and Duke/Cinergy state 
that because these transactions among public utility affiliates are 
very frequent, it is impractical for them to file for section 203 
approval for such transactions. Thus, blanket authorization for intra-
system financings between public utility affiliates is necessary to 
allow companies to effectively manage their financial needs.\82\
---------------------------------------------------------------------------

    \81\ EEI Rehearing Request at 4 (citing Order No. 669 at P 142 
(emphasis added); Entergy Rehearing Request at 2; and Duke/Cinergy 
Rehearing Request at 2.
    \82\ See EEI Rehearing Request at Attachment A at 1-2, section 
33.1(c)(3). Attachment A contains a black-lined version of 
regulation 33.1(c), revised to include a blanket authorization for 
intra-system financial transactions between public utility 
affiliates under section 203(a)(1).
---------------------------------------------------------------------------

    87. Similarly, National Grid asserts that, while the Commission 
explicitly stated in the preamble of Order No. 669 its intent to grant 
blanket pre-authorization under FPA section 203 for public utility 
participation in cash management programs, the Commission provided no 
regulatory text to allow for utilities and their associate companies 
(other than holding companies) to participate in cash management 
programs. It asserts that to ensure that the blanket authority granted 
by the Commission in paragraph 142 of Order No. 669 enables cash 
management programs to continue, the Commission should expand the 
regulatory text to allow all associate companies that participate as 
borrowers in cash management programs to continue to ``acquire 
securities'' in all other program participants. Specifically, it states 
that the Commission should revise section 33.1(c)(2) to cover both 
holding companies and any transmitting utility, electric utility 
company, or public utility within the holding company system.\83\ 
National Grid states that the provision should also be revised to 
incorporate requisite blanket authority under FPA section 203(a)(1) for 
public utilities to participate in cash management programs.
---------------------------------------------------------------------------

    \83\ National Grid Rehearing Request at 5.
---------------------------------------------------------------------------

    88. APPA/NRECA assert that the Commission granted blanket 
authorization for intra-holding company financing transactions without 
adequate safeguards against cross-subsidization or pledges or 
encumbrances of utility assets. In discussing the blanket approval of 
these arrangements, Order No. 669 states that 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 before receiving section 203 approval.'' \84\ 
However, APPA/NRECA point out that these requirements do not appear in 
the Commission's accompanying regulations.
b. Commission Determination
---------------------------------------------------------------------------

    \84\ APPA/NRECA Rehearing Request at 30 (citing Order No. 669 at 
P 143).
---------------------------------------------------------------------------

    89. First, we clarify that the blanket authorization granted for 
money pool transactions is intended to authorize ``horizontal'' 
transactions between public utility company subsidiaries as well as 
``downward'' loans from the holding company to its public utility 
company subsidiaries and we will add new regulatory text to reflect 
this. However, the blanket authorization does not extend to acquisition 
of securities issued by entities outside the money pool.
    90. Rather than modify the regulatory text in the Final Rule, which 
addressed only ``vertical'' transactions between public utility holding 
companies and their subsidiaries, in section 33.1(c)(7), we have 
adopted stand-alone regulatory text addressing ``horizontal'' public 
utility money pool transactions subject to FPA section 203(a)(1)(C). We 
note that section 203(a)(1)(C) jurisdiction applies only to public 
utility acquisitions of securities of other public utilities. Such 
authorization is not required under section 203(a)(1) for a public 
utility to acquire securities of a non-public utility. Therefore, there 
is no need to broaden the regulatory text as requested by National Grid 
to cover public utility acquisitions of securities of non-public 
utilities.
    91. In response to APPA/NRECA, we note that the blanket 
authorizations under section 203(a)(2) for holding company acquisitions 
of non-voting securities, voting securities of less than 10 percent of 
a company, and securities of subsidiaries are all subject to the 
requirement that the holding company provide the Commission with copies 
of certain information required to be filed with the SEC. Further, the 
new blanket authorization in section 33.1(c)(7), which applies to 
public utility participation in intra-system cash management programs, 
is subject to safeguards to prevent cross-subsidization or encumbrances 
of utility assets. We also note that public utilities have filing 
requirements under the Commission's Cash Management Rule. With respect 
to whether the Commission should codify specific safeguards that must 
be adopted for money pool transactions, we will consider this issue at 
the technical conference to be held later this year regarding PUHCA and 
certain FPA section 203 issues.
5. Section 33.1(c)(2)-(c)(4)--Blanket Authorizations: Purchases of 
Voting and Non-Voting Securities Under Section 203
    92. Section 33.1(c)(2) provides that 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 FPA 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 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.
    93. Section 33.1(c)(3) provides that the blanket authorizations 
granted under section (c)(2) 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.
    94. Section 33.1(c)(4) provides that 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 SEC in connection with any securities purchased, 
acquired or taken pursuant to this section.

[[Page 28434]]

a. Section 33.1(c)(2)(i)--Purchases of Non-Voting Securities by a 
Holding Company
    95. In Order No. 669, the Commission found that there is no need 
for case-by-case examination of a holding company's purchase of non-
voting securities. Such securities generally do not convey control and 
hence do not give the holding company additional market power, harm 
competitive markets, or otherwise harm captive customers.\85\ We did 
not impose any type of filing requirement with respect to such 
transactions.\86\
---------------------------------------------------------------------------

    \85\ See Cash Management Rule at 29 (discussing exception for 
non-voting interests that convey significant veto rights).
    \86\ Order No. 669 at P 144.
---------------------------------------------------------------------------

i. Rehearing Request
    96. APPA/NRECA assert that the Commission should not have granted 
this blanket authorization. They state that the Commission cites no 
basis in the record for its finding that such transactions generally do 
not harm competition or otherwise disadvantage captive customers.\87\ 
According to APPA/NRECA, non-voting securities may take many different 
forms, limited only by the imagination of creative deal-makers and 
lawyers. APPA/NRECA assert, for instance, that securities that are non-
voting can be important in the overall financial structure of many 
corporations or may, in the future, accrue voting rights, such as in 
the case of convertible debt. Therefore, they argue, the Commission 
should review such transactions on a case-by-case basis. If a party is 
uncertain whether a particular acquisition is a transfer of control 
that warrants a section 203 application, it can seek a declaratory 
order.
---------------------------------------------------------------------------

    \87\ APPA/NRECA Rehearing Request at 31 (citing Order No. 669 at 
P 144).
---------------------------------------------------------------------------

ii. Commission Determination
    97. APPA/NRECA has not persuaded us that customers will be harmed 
by the blanket authority to acquire non-voting securities. An 
acquisition of non-voting securities generally does not result in a 
change of control because such securities generally lack mechanisms 
like voting or veto rights necessary to influence or control management 
of the company. Moreover, section 33.1(c)(3) specifically prohibits 
holding companies that use the blanket authorization from borrowing 
from any electric utility company subsidiary in connection with the 
transaction or from pledging or encumbering assets of an electric 
utility company subsidiary. In those instances where the security is 
non-voting when issued or acquired but can be converted to voting at a 
later date, we will treat the security as a voting security when it is 
converted. This blanket authorization for acquisition of non-voting 
securities by a holding company only relieves the holding company of 
the requirement to file an application under section 203(a)(2) to 
obtain prior authorization from the Commission in a specific situation 
and with certain conditions.
b. Section 33.1(c)(2)--Holding Company Purchases of Less than 10 
Percent of Outstanding Voting Securities
    98. The Commission granted blanket authorization for a holding 
company in a holding company system to purchase less than 10 percent of 
the outstanding voting securities of a public utility or a holding 
company covered by section 203(a)(2). We conditioned 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.'' \88\ The Commission stated that it would issue 
notices of these filings for informational purposes only.
---------------------------------------------------------------------------

    \88\ Order No. 669 at P 145. This could include Schedules 13D or 
13G and Forms 8-K or 10-Q.
---------------------------------------------------------------------------

i. Rehearing Requests
    99. APPA/NRECA assert that the Commission should not have granted 
this blanket authorization. They assert that the Commission should set 
the ownership threshold at less than 5 percent, as with the safe harbor 
provisions of the RTO Rule \89\ governing active ownership interests by 
market participants in regional transmission organizations (RTOs). 
APPA/NRECA assert that the Commission provides no justification for 
using a higher percentage threshold for blanket authorization here than 
it did in its RTO rule.
---------------------------------------------------------------------------

    \89\ Regional Transmission Organizations, Order No. 2000, 65 FR 
809, 855 (Jan. 6, 2000), FERC Stats. & Regs. ] 31,089, at 31,108 
(1999), order on reh'g, Order No. 2000-A, 65 FR 12088 (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 (D.C. Cir. 2001) (RTO Rule).
---------------------------------------------------------------------------

    100. Coral Power asserts that the Commission should grant a blanket 
authorization under FPA section 203(a)(1) for dispositions of less than 
10 percent of the outstanding voting securities by a public utility to 
match the blanket authorization granted to holding companies to acquire 
such securities. It states that the Commission has long interpreted 
section 203 to apply to changes in control over jurisdictional 
facilities.\90\ New FPA section 203(a)(4) codifies this precedent and 
gives the Commission express authority to review changes in control 
under section 203. Coral Power asserts that the disposition of up to 10 
percent of the outstanding voting securities of a public utility or any 
of its upstream owners is not a change in control for purposes of FPA 
section 203(a)(1), as long as the acquiring entity does not hold a 
direct or indirect managing interest in the public utility. It states 
that, where there is no change in control, there can be no harm to 
competition or captive ratepayers as a result of such a transaction.
---------------------------------------------------------------------------

    \90\ Coral Power Rehearing Request at 7.
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ii. Commission Determination
    101. APPA/NRECA advocate a reduction, from 10 percent to 5 percent, 
in the level of outstanding voting securities in a public utility or a 
public utility holding company that another holding company may acquire 
under the blanket authorization the Commission granted in Order No. 
669. They cite to the Commission's conclusion in the RTO Rule that 
limited market participants to no more than a 5 percent active 
ownership interest in an RTO. We will deny APPA/NRECA's request for 
rehearing. In the RTO Rule, we reviewed various thresholds for 
presuming a lack of independence, including those found in the 
decisions of other agencies. We concluded that, because of particular 
concerns with the independence of RTOs, a limitation of 5 percent was 
appropriate. However, we noted that, in other contexts, we had 
determined that holding 10 percent of a company's voting stock was the 
level at which a rebuttable presumption of control applied for purposes 
of determining whether a company was an affiliate.\91\
---------------------------------------------------------------------------

    \91\ RTO Rule, FERC Stats. & Regs ] 31,089 at 31,070.
---------------------------------------------------------------------------

    102. The fact that the Commission adopted a 5 percent ownership 
interest as a measure of control for purposes of determining an RTO's 
independence from market participants does not dictate the maximum 
threshold for a blanket authorization under section 203(a)(2). The two 
situations are quite different. For Order No. 2000, the Commission was 
faced with the task of building confidence that the RTOs would not be 
subject even to influences or the appearance of influences that would 
favor one market participant over another. As a result, the Commission 
set the threshold relatively low, prohibiting an ownership interest of 
no more than 5 percent. Our decision here reflects a

[[Page 28435]]

reasonable balance in determining what is consistent with the public 
interest under section 203, taking into account Congress' intent in 
EPAct 2005 to remove obstacles to much-needed investment in the 
electric utility industry and to protect ratepayers. Nothing in the 
request for rehearing has convinced us that allowing blanket approval 
for a holding company to acquire less than 10 percent of the securities 
in a public utility or another holding company will harm customers. 
Setting the level at the higher end of the rather short spectrum (the 
low considered by the Commission of 5 percent and the high of 10 
percent) described by the Commission in the RTO Rule will encourage 
increased investment because it lifts the burden of obtaining pre-
authorization under FPA section 203(2).
    103. Coral Power suggests that the Commission give essentially the 
same blanket authorization to public utilities under section 203(a)(1) 
that we gave to public utility holding companies under section 
203(a)(2). The Commission declines to do so and will continue to review 
dispositions of jurisdictional facilities by public utilities under FPA 
section 203(a)(1) on a case-by-case basis. Concerns with control, 
markets and protection of captive customers or customers receiving 
transmission service over jurisdictional transmission facilities are 
closely linked with assets directly controlled by the public utilities.
c. Section 33.1(c)(4)--SEC Information Provided to the Commission
    104. As noted above, the Commission conditioned the blanket 
authorization for holding companies under section 33.1(c)(2) ``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.'' \92\ 
The Commission stated that it would issue notices of these filings for 
informational purposes only.
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    \92\ Accordingly, the Commission directed that the purchaser of 
such securities file with the Commission copies of SEC Schedules 
13D, 13G, and Form 13F. The Commission explained that 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 Form 13F. We noted that requiring this information should impose 
only a de minimis burden on the holding company, since we are merely 
requiring the same information that was filed with the SEC. Further, 
the Commission stated that, should the SEC change its reporting 
requirements, this information must continue to be filed with the 
Commission.
---------------------------------------------------------------------------

i. Rehearing Requests
    105. EEI, Entergy, Duke/Cinergy, and GS Group request that the 
Commission revise section 33.1(c)(4) to list the specific SEC schedules 
and forms that the Commission directed companies to file with the 
Commission, rather than just making the more general reference to the 
``same information'' provided to the SEC.\93\ They state that this 
change would make the text of the rule consistent with the Commission's 
discussion in the preamble and in footnote 107, which refers 
specifically to SEC Schedules 13D and 13G and Form 13F. GS Group is 
concerned that the general directive to provide the ``same 
information'' is overly broad, creates uncertainty regarding the type 
of information that must be filed with the Commission, and could be 
construed to include oral communications with the SEC, correspondence, 
documents produced in response to a data request, and other investor 
disclosure documents that are only tangentially related to an 
acquisition of securities pursuant to section 33.1(c)(4).
---------------------------------------------------------------------------

    \93\ See, e.g., EEI Rehearing Request at 6, and Attachment A at 
2-3, section 33.1(c)(5); Entergy Rehearing Request at 3; Duke/
Cinergy Rehearing Request at 3-4; and GS Group Rehearing Request at 
7.
---------------------------------------------------------------------------

    106. Further, GS Group and MidAmerican explain that, while the 
preamble indicates that the SEC filings must be provided to the 
Commission not later than 45 days after the purchase of securities 
being reported, the text of the rule merely indicates that copies of 
SEC filings must be provided to the Commission ``on the same basis'' 
provided to the SEC.\94\ They state that the 45-day deadline is 
inconsistent with the filing deadlines for Schedule 13D, Schedule 13G 
and Form 13F.
---------------------------------------------------------------------------

    \94\ Id. at 8; MidAmerican Rehearing Request at 5.
---------------------------------------------------------------------------

    107. MidAmerican states that should the SEC eliminate such 
reporting requirements, the acquirer of any securities under the 
blanket authorization should continue to provide the information that 
had been required under the rescinded SEC rule to the Commission no 
later than the time that would have been required under the rescinded 
SEC rule.
    108. MidAmerican seeks clarification of the rule as it pertains to 
Schedule 13G only to the extent a Schedule 13G is to be filed with 
respect to the reporting of beneficial ownership interests of less than 
10 percent of voting equity securities.
    109. MidAmerican and GS Group also request that the Commission 
clarify that, if the submission to the SEC qualifies for confidential 
treatment, the Commission also should give it confidential treatment. 
MidAmerican explains that the investment strategies of banks, brokers, 
investment managers, pension funds, and other investors often involve 
proprietary and confidential information and that release of this 
information could harm these entities.
ii. Commission Determination
    110. In response to the many industry requests on rehearing, we 
will specify that it is SEC Schedule 13D, Schedule 13G and Form 13F 
that the companies are directed to file. To ensure that this filing 
requirement imposes only a de minimis burden, copies of these SEC 
Schedules 13D and 13G and Form 13F must be filed with the Commission 
under the same filing deadlines provided in the SEC rules. We are 
revising section 33.1(c)(4) accordingly.
    111. We clarify that, if the SEC eliminates such reporting 
requirements, the acquirer of securities under the blanket 
authorization must continue to provide the information required under 
the rescinded SEC rule to the Commission no later than it would have 
been required under the rescinded SEC rule. MidAmerican's request for 
clarification of the reporting requirement as it pertains to Schedule 
13G is unclear, as is the specific change, if any, that it proposes. As 
noted above, however, the Commission is revising the reporting 
requirement as it relates to the SEC schedules and form to make filing 
deadlines and content commensurate with SEC requirements.
    112. Further, we clarify that requests for confidential treatment 
of copies of the schedules must follow the established procedures for 
requests for special treatment of documents submitted to the 
Commission.\95\ Under those procedures, any person submitting a 
document may request privileged treatment by claiming that some or all 
of the information is exempt from the mandatory public disclosure 
requirements of the Freedom of Information Act (FOIA),\96\ and should 
be withheld from public disclosure. The Commission places documents for

[[Page 28436]]

which privileged treatment is requested in a non-public file. When a 
FOIA requester seeks a document for which privileged treatment has been 
claimed or when the Commission itself is considering release of such 
information, the Commission official who will decide whether to release 
the information will notify the person who submitted the document and 
give that person at least five calendar days in which to comment. 
Notice of a decision to deny a claim of privilege will be given to any 
person claiming that the information is privileged no less than five 
calendar days before disclosure. In addition, when a FOIA requester 
brings suit in Federal court to compel disclosure of information for 
which a person has claimed privileged treatment, the Commission will 
notify the person who submitted the document.
---------------------------------------------------------------------------

    \95\ 18 CFR 388.112 (2005).
    \96\ 5 U.S.C. 552 (2000).
---------------------------------------------------------------------------

6. Other Requested Blanket Authorizations--Holding Company Purchasing 
Its Own Securities, Fiduciary Investments and Bank Underwriting/Hedging
a. Holding Company Purchasing Its Own Securities
i. Rehearing Requests
    113. EEI, Entergy, and Duke/Cinergy request that the Commission 
clarify that a holding company may buy its own securities under blanket 
authority and need not make a filing under section 203. They state 
that, while it may seem obvious that a holding company can acquire its 
own securities without section 203 authorization, there is some 
confusion created by the differing statutory language of 203(a)(1)(C) 
and 203(a)(2). Before EPAct 2005, section 203(a) required prior 
approval for a public utility to acquire the security ``of any other 
public utility.'' In contrast, new section 203(a)(2), requires prior 
approval for a holding company to acquire ``any security with a value 
in excess of $10,000,000 of * * * a holding company in a holding 
company system that includes a transmitting utility or an electric 
utility company.''
    114. National Grid raises similar arguments and adds that 
repurchase transactions are routine and serve a variety of business 
needs, including facilitating stock issuances under legitimate stock 
plans and managing capital structure.
ii. Commission Determination
    115. In an order issued after the final rule, the Commission ruled 
that the most reasonable interpretation of section 203(a)(2) is that a 
holding company is not required to obtain Commission authorization to 
repurchase its own stock.\97\
---------------------------------------------------------------------------

    \97\ National Grid plc and National Grid USA, 114 FERC ] 61,115 
at P 11 (2006).
---------------------------------------------------------------------------

b. Fiduciary Investments and Bank Underwriting and Hedging Activities
i. Rehearing Requests
    116. BofA/JPMorgan ask that the Commission clarify that section 
203(a)(2) does not apply to fiduciary investments by non-bank financial 
institutions in a Regulated Banking Group.\98\ They explain that it 
would not be feasible for non-bank fiduciaries to obtain section 
203(a)(2) approval before making such investments because many 
Regulated Banking Groups have non-bank subsidiaries that routinely 
acquire and dispose of equity and debt positions in utility securities 
in fiduciary capacities. These fiduciary relationships include the 
function of trustee, agent, executor, administrator, guardian, asset 
manager, and discretionary investment adviser.\99\ BofA/JPMorgan assert 
that these passive investments are not made to permit the Regulated 
Banking Group to exercise control over the operations of the issuer. 
Further, they state that such investments are already comprehensively 
regulated under federal and state regimes applicable to financial 
institutions. These regulatory regimes are designed to assure that the 
holdings by a Regulated Banking Group in a fiduciary capacity are not 
used to impermissibly support investments in a public utility as 
principal, and do not provide a basis to exercise impermissible control 
over a public utility issuer. For these reasons, BofA/JPMorgan seek a 
determination that fiduciary investments by their non-bank financial 
institutions do not require approval under section 203(a)(2). In the 
alternative, they request blanket authorization for such fiduciary 
investments.
---------------------------------------------------------------------------

    \98\ By use of the term ``Regulated Banking Group,''BofA/
JPMorgan means: (i) banks chartered and regulated under the laws of 
the United States or a U.S. state, and (ii) bank holding companies 
registered as such with (and subject to supervision and regulation 
by) the Federal Reserve Board under the Bank Holding Company Act of 
1956 (as amended by the Gramm-Leach-Bliley Act of 1999, in each case 
together with their subsidiaries. BofA/JPMorgan also explain that 
the Commission's blanket authorization of the acquisition of up to 
10 percent of voting equity of utilities does not provide adequate 
relief, since on an aggregate basis all holdings in a fiduciary and/
or proprietary capacity under a large banking group may in the 
ordinary course of business exceed the 10 percent threshold. BofA/
JPMorgan Rehearing Request at 13-14.
    \99\ Id. at 13.
---------------------------------------------------------------------------

    117. BofA/JPMorgan request that the Commission confirm that relief 
from the ``acquisition of securities'' clause under section 203(a)(1) 
applies under section 203(a)(2). Specifically, they assert that the 
Commission has granted banks that function as power marketers relief 
from the ``acquisition of securities'' clause in section 
203(a)(1).\100\ Such banks need not seek prior approval from the 
Commission when they acquire utility securities in debt, fiduciary, 
trading, or hedging capacities. However, BofA/JPMorgan explain that a 
number of banks have recently become power marketers and when that 
happens, the bank becomes a public utility for purposes of FPA section 
203. They assert that, under EPAct 2005, many banks that are public 
utilities are now also ``holding companies.'' Congress provided that 
certain holdings of banks, bank operating subsidiaries, and broker-
dealers do not make them ``holding companies'' in section 1262(8) of 
EPAct 2005. BofA/JP Morgan state that the statutory exemption also 
specifically covers loan collateral, loan liquidation, and fiduciary 
holdings.
---------------------------------------------------------------------------

    \100\ See UBS AG and Bank of America, N.A., 101 FERC ] 61,312 
(2002), reh'g granted in part and denied in part, 103 FERC ] 61,284 
(2003), reh'g granted, 105 FERC ] 61,078 (2003) (UBS/Bank of 
America); JPMorgan Chase Bank, N.A., Docket No. ER05-283 
(unpublished letter order dated March 18, 2005).
---------------------------------------------------------------------------

    118. However, BofA/JPMorgan explain that when banks act as 
underwriters, they will not know at the outset whether they will be 
successful in disposing of a sufficient number of shares to assure that 
their holdings do not exceed 5 percent of the issuer after 45 
days.\101\ To comply with section 203, however, they would have to seek 
the Commission's approval immediately to retain the shares or risk 
noncompliance. Thus, BofA/JPMorgan ask that the Commission issue 
blanket authorization under section 203(a)(2) for failed underwritings 
and hedging holdings on the same terms and conditions imposed in the 
Commission's orders granting blanket authorization to bank power 
marketers under section 203(a)(1).\102\ Further, they request that 
Order No. 669 be clarified to authorize: (i) Underwriting holdings to 
exceed 45 days and (ii) equity derivative hedging holdings, to the 
extent permitted under the Commission's orders applicable to bank power 
marketers.
---------------------------------------------------------------------------

    \101\ BofA/JPMorgan Rehearing Request at 19. They explain that 
in a successful underwriting, the underwriter purchases shares from 
the issuer and immediately resells those shares in the market. In a 
failed underwriting, the underwriter is not able to resell those 
shares immediately and will attempt to sell the unsold shares in an 
orderly manner over a period of time following the closing of the 
initial purchase.
    \102\ BofA/JPMorgan Rehearing Request at 20 (citing UBS/Bank of 
America, 103 FERC ] 61,284).
---------------------------------------------------------------------------

    119. Similarly, Morgan Stanley requests that the Commission revise 
the

[[Page 28437]]

blanket authorizations adopted in Order No. 669 to permit certain 
additional securities acquisitions and to differentiate between the 
acquisition of securities by a public utility and by non-utility 
affiliates. It requests that the Commission grant blanket 
authorizations to allow holding companies and their affiliates to hold: 
(1) Voting and non-voting securities, without limitation, on behalf of 
customers as fiduciaries; (2) voting and non-voting securities, without 
limitation, in the ordinary course of their business as underwriters or 
dealers; \103\ (3) up to the less than 10 percent limit in section 
33.1(c)(2)(ii) of voting securities as principal of each class of 
voting securities issued by a utility or holding company, provided that 
such ownership interest does not include a right to control the 
jurisdictional activities of the issuer; (4) utility securities in 
connection with underwriting activities so that underwriting activities 
are not subject to the 10 percent limit in section 33.1(c)(2), provided 
that the holding company or its affiliates file an application for 
section 203(a) approval within 45 days of any failed underwriting to 
retain the securities and commits while the applications remains 
pending not to vote the utility securities held as a result of the 
failed underwriting; (5) utility securities in connection with their 
trading activities so that the dealer/trader activities are not subject 
to the 10 percent limit in section 203(c)(2); (6) utility securities as 
lenders so that the acquisitions of debt securities are not subject to 
the 10 percent limit in section 33.1(c)(2), except that application 
under section 203 would be required before the holding company or its 
affiliate could take control by foreclosure, bankruptcy, or otherwise; 
(7) utility securities of any entity formed to acquire, finance, and 
lease utility assets to any public utility, electric utility company, 
or transmitting utility under a long-term net lease; and (8) utility 
securities in the course of routine dealing and trading as principals 
for their own account so that utility securities acquired as principal 
for hedging purposes are excluded from the 10 percent limit in section 
33.1(c)(2), if the holding company or its affiliate commits not to vote 
such securities.\104\
---------------------------------------------------------------------------

    \103\ Morgan Stanley explains that any utility securities held 
as part of underwriting or dealer/trader activities are transitory, 
so the underwriter or dealer/trader does not have the ability or 
incentive to exercise control over the issuer. Id. at 13.
    \104\ Morgan Stanley Rehearing Request at 7-9.
---------------------------------------------------------------------------

    120. Morgan Stanley explains that fiduciary holdings by holding 
companies or their affiliates will not result in control over a public 
utility because the fiduciary has an obligation to manage those 
holdings in the interest of the persons on whose behalf such securities 
are held.\105\ It also explains that any utility securities held as 
part of underwriting or dealer/trader activities are transitory, so the 
underwriter or dealer/trader does not have the ability or incentive to 
exercise control over the issuer.\106\ With respect to hedging 
activities, Morgan Stanley asserts that, if the acquiring entity agrees 
not to vote an interest held as principal beyond the authorized 10 
percent limit, it will not exercise control over the public utility. 
Finally, if the acquiring entity engages in passive lease financing for 
public utilities, the Commission has held that it does not need to 
regulate such activity.\107\
---------------------------------------------------------------------------

    \105\ Id. at 9 (citing UBS/Bank of America, 103 FERC ] 61,284, 
at P 11).11).
    \106\ Id. (citing UBS/Bank of America, 103 FERC ] 61,284, at P 
13).
    \107\ Id. (citing Alliant Energy Corp., 111 FERC ] 61,458 
(2005)).
---------------------------------------------------------------------------

    121. Morgan Stanley argues that its requested blanket 
authorizations do not give the acquiring entity additional market power 
or enable it to undermine competition or disadvantage captive 
customers. Instead, the blanket authority would promote the public 
interest by bringing more capital investment to the utility industry. 
If the Commission finds that blanket authorizations should not apply to 
all holding companies, Morgan Stanley requests that they apply to the 
activities of non-utility affiliates of financial institutions.
ii. Commission Determination
    122. Section 1262(8)(B) of PUHCA 2005 excludes from classification 
as ``holding companies'' certain entities that hold the securities of 
public utilities or public utility holding companies under certain 
conditions. Among these entities are banks, savings associations and 
trust companies, or the operating subsidiaries of these institutions, 
holding, as fiduciaries, these securities in the ordinary course of 
their respective businesses, and broker-dealers holding these 
securities under certain conditions. The Commission recognizes that 
Order No. 669 does not apply in these situations.
    123. BofA/JPMorgan request clarification that entities that are not 
banks or operating subsidiaries of banks, but are subject to regulation 
as banks,\108\ either qualify for the statutory exclusions in section 
1262(8)(B) or have a blanket authorization to acquire and hold covered 
securities in any amount as fiduciaries in the normal course of their 
business. We cannot find that these entities qualify for the statutory 
exclusion. The statutory exclusion is specific only to certain entities 
under certain conditions.
---------------------------------------------------------------------------

    \108\ Such regulation applies to: (i) Banks, and their 
subsidiaries, chartered and regulated under the laws of the United 
States or a U.S. state, and (ii) bank holding companies registered 
as such with the Federal Reserve Board, together with the 
subsidiaries of those holding companies, and subject to the 
supervision and regulation of the Federal Reserve Board under the 
Bank Holding Company Act of 1956 (as amended by the Gramm-Leach-
Bliley Act of 1999). 12 U.S.C 1843 (2000).
---------------------------------------------------------------------------

    124. However, we agree that entities holding covered securities in 
any amount as fiduciaries in the normal course of their business or as 
collateral for loans or in connection with loan liquidation and that 
are, in the course of that business, subject to the regulatory 
oversight of the Board of Governors of the Federal Reserve Bank, or the 
Office of Comptroller of the Currency are likely to be significantly 
constrained in their use of those securities so as to not affect 
regulation, rates or competition under the FPA. Therefore, subject to 
certain conditions and reporting requirements, the Commission will 
grant to entities that are subject to the regulatory oversight of the 
Federal Reserve Bank or the Comptroller of the Currency because they 
are affiliated with banks or bank holding companies regulated by the 
Federal Reserve Bank under the Bank Holding Company Act of 1956, as 
amended by the Gramm-Leach-Bliley Act of 1999, a blanket authorization 
under section 203(a)(2) to acquire and hold as fiduciaries in the 
normal course of their business or as collateral for loans or in 
connection with loan liquidation an unlimited amount of covered 
securities of public utilities or public utility holding companies. The 
conditions and reporting requirements are: (1) The holding does not 
confer a right to control, positively or negatively, the operations 
through debt covenants or any other means, the operation or management 
of the public utility or public utility holding company, except as to 
customary creditor's rights or as provided under the United States 
Bankruptcy Code; and (2) the parent holding company files with the 
Commission on a public basis and within 45 days of the close of each 
calendar quarter, both its total holdings and its holdings as 
principal, each by class, unless the holdings within a class are less 
than one percent of outstanding shares, irrespective of the capacity in 
which they were held.
    125. Morgan Stanley requests a blanket authorization under section

[[Page 28438]]

203(a)(2) of the FPA and section 33.1(c)(2) of the Commission's 
regulations to acquire and hold up to the percentage limit under 
section 33.1(c)(2)(ii) on holdings of voting securities. There is no 
need to grant the requested authorization. Section 33.1(c)(2)(ii) 
grants blanket authorization to acquire voting securities under the 
condition stated in the regulation notwithstanding that the acquisition 
may exceed $10 million.
    126. Morgan Stanley requests blanket authorization under section 
203(a)(2) of the FPA and section 33.1(c)(2) of the Commission's 
regulations to acquire and hold securities in connection with passive 
lease financing of public utilities. Such authority is already granted 
under section 33.1(c)(2)(i). Similarly, Morgan Stanley requests blanket 
authorization to acquire and hold as a lender without regard to the 
percentage limitation under section 33.1(c)(2)(ii). Authority to hold 
debt instruments, which normally do not convey a right to control the 
public utility and which Morgan Stanley implies is the case in its 
request, is already provided under section 33.1(c)(2)(i).
    127. Morgan Stanley requests reconsideration of Order No. 669 or, 
in the alternative, blanket authorization under section 203(a)(2) of 
the FPA so that it may, without the 10 percent or more limitation on 
outstanding securities, acquire and hold as a fiduciary any amount of 
covered securities. Morgan Stanley does not claim exemption under 
section 1262(8)(B) of PUHCA 2005, nor does it claim that its holdings 
as a fiduciary would be subject to regulatory oversight, such as that 
provided by the Federal Reserve Bank. Finally, while Morgan Stanley 
cites to UBS AG and Bank of America, N.A,\109\ it does not explain how 
the safeguards of banking regulation relied upon by the Commission in 
those cases regarding holdings as a fiduciary apply to Morgan Stanley's 
situation. Therefore the Commission will not grant Morgan Stanley's 
request to provide a blanket authorization in our regulations. However, 
we will not preclude companies from seeking a blanket authorization on 
a case-by-case basis.
---------------------------------------------------------------------------

    \109\ Morgan Stanley Rehearing Request at 9 (citing UBS/Bank of 
America, 103 FERC ] 61,284 at P11).
---------------------------------------------------------------------------

    128. BofA/JPMorgan request confirmation that banks that are power 
marketers and that have blanket authorizations under section 203(a)(1) 
of the FPA also have blanket authorizations under section 203(a)(2) of 
the FPA as holding companies acquiring and holding public utility 
securities for the acquisition and holding of an unlimited amount of 
covered securities as a result of failed underwritings, if they are 
classified as holding companies because they own EWGs or QFs. The 
Commission in individual cases has granted conditional blanket 
authorizations to certain banks and their subsidiaries to acquire and 
hold an unlimited amount of covered securities in connection with 
failed underwritings. These authorizations contained two conditions. 
First, the authorization ends 45 days after acquisition unless the 
entity has, within that period, filed an application for approval under 
section 203 to keep the securities. Second, the bank or subsidiary must 
commit, during the pendency of that application, not to vote the 
securities. The Commission's regulatory interests under section 
203(a)(2) in holdings as a result of failed underwritings are similar 
to its interests in such holdings under section 203(a)(1). Therefore, 
with the two conditions above, we will grant blanket authorization 
under section 203(a)(2) to banks and their subsidiaries to acquire and 
hold an unlimited amount of covered securities in connection with 
failed underwritings.
    129. Morgan Stanley also requests blanket authorization to acquire 
and hold an unlimited amount of covered securities in connection with 
underwriting activities. It is unclear whether Morgan Stanley is 
requesting authority only for failed underwritings. Of course, if 
Morgan Stanley or other entities are excluded entities under PUHCA 
section 1262(8)(B), then they are not holding companies; in that case, 
blanket authorizations to hold covered securities in connection with a 
failed underwriting is not necessary.
    130. The blanket authorization that the Commission has granted in 
connection with failed underwritings relies more heavily on the two 
conditions described above than it does on the oversight of an 
alternative regulatory body, such as the Comptroller of Currency or the 
Federal Reserve System in the Bank of America/UBS AG series of 
decisions, to ensure that holdings resulting from failed underwritings 
are not used to exert control.\110\ Therefore, the Commission will 
grant a blanket authorization under section 203(a)(2) for a holding 
company to acquire and hold an unlimited amount of covered securities 
in connection with a failed underwriting subject to the same conditions 
imposed in the Bank of America/UBS AG cases. We will add regulatory 
text to reflect this.
---------------------------------------------------------------------------

    \110\ UBA AG and Bank of Amercia, N.A., 101 FERC ] 61,312 
(2002); 103 FERC ] 61,284 (2003); 105 FERC ] 61,078 (2003).
---------------------------------------------------------------------------

    131. BofA/JPMorgan request clarification that the same blanket 
authorization previously granted for banks to hold equity securities of 
public utilities and public utility holding companies as principal for 
derivatives hedging purposes continues to apply under section 
203(a)(2). The Commission has, for several years, granted blanket 
authority to certain banks to hold covered securities for hedging 
purposes incidental to the business of banking.\111\ This has been 
based in part on the fact that the banks are subject to a supervisory 
standard that generally limits such holdings so that they typically do 
not exceed 5 percent of the outstanding shares. The Commission, 
however, has specifically conditioned the blanket authorizations on a 
limitation of the banks' authorization to vote the equity shares to 5 
percent of the outstanding shares. Under PUHCA 2005, a company is a 
holding company if it owns 10 percent or more of the securities of a 
public-utility company or of a holding company of any public-utility 
company. The Commission agrees that the holding by banks of covered 
securities for hedging purposes that are incidental to the business of 
banking are an important part of the transactions necessary to the 
financing of the utility business. Therefore, the Commission will grant 
blanket authorization under section 203(a)(2), subject to the condition 
that the bank not vote more than 10 percent of the outstanding shares. 
We will add regulatory text to reflect this.
---------------------------------------------------------------------------

    \111\ See supra note 110.
---------------------------------------------------------------------------

    132. Morgan Stanley requests clarification that holding covered 
securities in connection with hedging transactions is not subject to 
the limitation of up to 10 percent of outstanding securities provided 
under Order No. 669. It proposes that the Commission condition the 
grant on the commitment of the entity holding the securities, as well 
as its affiliates, not to vote securities held in connection with 
hedging transactions, to the extent that its holdings are 10 percent or 
more of the outstanding securities in that class. A condition removing 
the holder's power to vote the securities held for hedging purposes to 
the extent they are 10 percent or more of the securities in the class 
outstanding, even though the amount held for hedging is not limited, 
will address the Commission's concerns with control. Therefore, the 
Commission will grant the blanket authorization under section 203(a)(2) 
for companies to

[[Page 28439]]

hold an unlimited amount of covered securities for hedging purposes on 
the condition that they do not vote the securities held to the extent 
they are 10 percent or more of the outstanding securities in the class. 
We will add regulatory text to reflect this.
    133. We have granted above certain blanket authorizations for 
holding public utility securities as a fiduciary, for hedging purposes 
or for purposes of loan collateralization or liquidation. All these 
blanket authorizations require that such holdings occur in the normal 
course of business of the company holding the securities. In response 
to BofA/JP Morgan, we clarify that holdings that are exempt by virtue 
of section 1262(8)(B) of PUHCA 2005 will not be counted for purposes of 
determining whether the company holding such securities is a holding 
company under section 1262(8) of PUHCA 2005; in other words, holdings 
exempt by statute will not be aggregated with securities held in other 
capacities. Holdings by companies as principal for derivatives hedging 
purposes are not exempt under section 1262(8)(B) and, therefore, will 
be counted for purposes of determining whether the company is a holding 
company.
7. Section 33.2(j)--General Information Requirements Regarding Cross-
Subsidization
    134. Section 33.2(j) provides that a section 203 applicant must 
provide an explanation, with appropriate evidentiary support (Exhibit M 
to the application): (1) Of how it is providing assurance that the 
proposed transaction will not result in cross-subsidization of a non-
utility associate company or the 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.
    135. In Order No. 669, the Commission also stated 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. The Commission stated that applicants 
should proffer ratepayer protection mechanisms to assure that captive 
customers are protected from the effects of cross-subsidization.\112\ 
Among the types of protection mechanisms that can be proposed by 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; 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.\113\ 
The Commission stated that it will address the adequacy of the proposed 
mechanisms on a case-by-case basis.
---------------------------------------------------------------------------

    \112\ The Commission also stated that the applicant bears the 
burden of proof to demonstrate that customers will be protected. See 
Central Vermont Pub. Serv. Corp., 39 FERC ] 61,295, at 61,960 (1987) 
(finding of a potential for abuse, the Commission may disapprove the 
transaction or place conditions on it).
    \113\ Order No. 669 at P 167. These protection mechanisms are 
offered only as examples. Whether these types of protection 
mechanisms are sufficient in a particular case will depend on the 
circumstances. See, e.g., Merger Policy Statement at 30,121-24.
---------------------------------------------------------------------------

    136. Order No. 669 also stated that certain verifications provided 
in an application could streamline the approval process by avoiding a 
detailed examination of cross-subsidization and encumbrance 
concerns.\114\ We stated that we may accept, along with any protection 
mechanisms (discussed above), on a case-by-case basis, in lieu of or in 
addition to any other explanation, the following four verifications 
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; and (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.
a. Rehearing Requests
---------------------------------------------------------------------------

    \114\ Order No. 669 at P 169. The Commission stated that 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.
---------------------------------------------------------------------------

    137. APPA/NRECA argue that the Commission should have required 
substantive structural protections to ensure that section 203 
transactions do not result in cross-subsidization or pledges or 
encumbrances of utility assets. They request that the Commission 
describe the specific issues a section 203 application must address and 
the specific assurances and protective conditions that must be included 
to demonstrate that the proposed transaction meet the standards of 
amended FPA section 203(a)(4).\115\
---------------------------------------------------------------------------

    \115\ APPA/NRECA Rehearing Request at 13.
---------------------------------------------------------------------------

    138. More fundamentally, however, APPA/NRECA argue that the 
Commission improperly narrowed the scope of statutory concerns to be 
addressed under amended section 203. They say that ratepayer protection 
conditions such as temporary hold harmless commitments are not 
sufficient because Congress was concerned about more than simply 
ratepayer protection. APPA/NRECA assert that the ratepayer protection 
conditions discussed in Order No. 669 would be relevant, at most, to 
how cross-subsidization might affect rates; the conditions do not 
address the more structural financial problems of asset pledges or 
encumbrances.\116\ APPA/NRECA contend that the statute focuses not just 
on rate issues, but more broadly on preventing the erosion of the 
financial viability of regulated utilities by draining off their 
resources into non-utility businesses. They assert that Order No. 669 
elsewhere acknowledges this broader focus when it permits applicants 
seeking to avoid a hearing to make the four verifications described 
above, which concern the financial viability of the regulated utility 
and cross-subsidization, asset pledges and encumbrance issues.\117\ 
APPA/NRECA also note that the Commission conditioned its grant of 
blanket authorization for intra-holding company financing arrangements, 
including cash management programs, by requiring applicants to adopt 
safeguards to prevent any cross-subsidization between holding companies 
and their new subsidiaries. They urge the Commission to impose a 
similar requirement on all section 203 applicants, not just those 
seeking blanket approval of intra-

[[Page 28440]]

holding company financing arrangements.\118\
---------------------------------------------------------------------------

    \116\ Id. at 17.
    \117\ Id. at 18 (citing Order No. 669 at P 169).
    \118\ Id. (citing Order No. 669 at P 143).
---------------------------------------------------------------------------

    139. Rather than allowing applicants to avoid a hearing by using 
the four verifications, APPA/NRECA assert that the Commission should 
require all section 203 applicants to demonstrate that cross-
subsidization and encumbrance of utility assets cannot occur or to 
adopt safeguards against such cross-subsidization or asset encumbrance. 
All section 203 applicants should be required to make a detailed 
showing that the four conditions discussed in paragraph 169 of Order 
No. 669 are satisfied or that a transaction that fails any of these 
tests is nonetheless ``consistent with the public interest.'' \119\ 
This would add substance to 18 CFR Sec.  33.2(j).
---------------------------------------------------------------------------

    \119\ Id. at 20.
---------------------------------------------------------------------------

    140. APPA/NRECA also argue that the Commission erred by not 
requiring section 203 applications to demonstrate compliance with the 
Westar Energy \120\ conditions on public utility debt or to explain why 
such requirement is unnecessary. They explain that, in Westar Energy, 
the Commission announced restrictions on all future issuances of 
secured and unsecured debt by public utilities under section 204 of the 
FPA. These conditions ``were designed to prevent investor-owned 
utilities'' shareholders and management, whose interests may be 
different than the interests of utility customers, from taking actions 
which might jeopardize the utility's ability to perform its utility 
function and adversely affect its customers.'' \121\ APPA/NRECA contend 
that the same cross-subsidization concerns underlie the express finding 
that the Commission is now required to make under amended section 
203(a)(4) before approving any section 203 application.
---------------------------------------------------------------------------

    \120\ Westar Energy, 102 FERC ] 61,186, clarified, 104 FERC ] 
61,018 (2003).
    \121\ APPA/NRECA Rehearing Request at 23.
---------------------------------------------------------------------------

    141. In addition, APPA/NRECA assert that the Commission should have 
required section 203 applicants to disclose all existing pledges and 
encumbrances of utility assets. In the same vein, TAPSG contends that 
the Commission should have imposed an ongoing requirement that 
applicants disclose future pledges, encumbrances, or cross-
subsidization involving the assets or businesses that are the subject 
of a section 203 application.
    142. APPA/NRECA further request that the Commission clarify the 
meaning of the term ``traditional utility with captive customers'' in 
paragraphs 169, 192, and 193 of Order No. 669. They believe that, at a 
minimum, this term should include any public utility: (1) Selling 
electricity at wholesale under cost-based rates; (2) selling 
electricity at retail under cost-based rates; or (3) owning or 
providing transmission service over jurisdictional transmission 
facilities (which, at least today, also implies cost-based rates).\122\ 
APPA/NRECA also would include transmission customers, as well as retail 
customers and wholesale customers, as ``captive customers.'' 
Furthermore, APPA/NRECA say that even a utility with market-based rates 
can have captive customers and, therefore, can be a traditional 
utility. The Commission should not assume that a utility with market-
based rates does not have captive customers, in light of impediments to 
wholesale competition generally in the industry and the Commission's 
own actions in revising the tests for market power and then withdrawing 
market-based rate authority in some cases.
---------------------------------------------------------------------------

    \122\ Id. at 20-21.
---------------------------------------------------------------------------

    143. Finally, TAPSG requests that the Commission clarify that it 
will consider adverse competitive effects associated with cross-
subsidization.\123\ TAPS argues that cross-subsidization not only harms 
the ratepayers who bear its expense, but also can injure competition in 
the market where the cross-subsidized company sells. TAPSG contends 
that a commitment by a utility to hold captive customers harmless from 
increased costs associated with a section 203 transaction will not 
address this concern.\124\
---------------------------------------------------------------------------

    \123\ TAPSG Request for Rehearing at 3.
    \124\ APPA/NRECA, in response to footnote 118 in Order No. 669, 
appear to share the same concern. They argue that a utility charging 
market-based rates can subsidize those rates by inflating its retail 
and transmission rates, thereby unfairly eliminating wholesale 
competitors and, in the long run, lessening wholesale competition 
and raising wholesale rates. APPA/NRECA Rehearing Request at 21, n. 
25.
---------------------------------------------------------------------------

b. Commission Determination
    144. On further consideration, the Commission will grant APPA/
NRECA's request for rehearing and will require all section 203 
applicants (which do not include those who have blanket authorization) 
to include, as part of Exhibit M of the application, a detailed showing 
that either: (1) All four tests of the four-part framework set forth in 
Order No. 669 (at P 169), as modified herein, are met, thus 
demonstrating that the transaction will not result in cross-
subsidization of a non-utility associate company or the pledge or 
encumbrance of utility assets for the benefit of an associate company; 
or (2) if cross-subsidization or pledges or encumbrances of utility 
assets were to occur, how such cross-subsidization, pledges or 
encumbrances would nonetheless be consistent with the public 
interest.\125\ We believe this will assure better customer protection 
and we will amend the regulatory text to require this demonstration. We 
do not believe that requiring a detailed showing that all four 
conditions are met imposes an unreasonable burden on section 203 
applicants.
---------------------------------------------------------------------------

    \125\ We will continue to require verifications, rather than a 
showing or demonstration, as a condition of the blanket 
authorization for holding company acquisitions of FUCOs, if the 
holding company or its affiliates, subsidiaries, or associate 
companies within the holding company have captive customers or own 
or provide transmission service over jurisdictional transmission 
facilities in the United States, as provided in section 33.1(c)(5). 
The Commission's verification requirements are set forth in 18 CFR 
385.2005(b).
---------------------------------------------------------------------------

    145. However, not withstanding APPA/NRECA's request, we do not find 
it necessary to generally require, except as noted below, section 203 
applicants to demonstrate that the transaction satisfies the Westar 
Energy conditions relating to the future issuance of secured and 
unsecured debt or to certify that they will comply with such conditions 
in the future. However, if a public utility were to issue secured or 
unsecured debt pursuant to a Commission section 204 authorization to 
finance a section 203 transaction undertaken either by itself or its 
parent or affiliate, the public utility would have to comply with the 
Westar Energy conditions as a consequence of receiving section 204 
authorization for the issuance of debt.
    146. The Commission also will require that applicants disclose all 
existing pledges or encumbrances of utility assets as part of the 
application. However, contrary to TAPSG' request, we will not generally 
require the continuing disclosure of future pledges or encumbrances of 
utility assets as a condition of authorization. On a case-by-case 
basis, the Commission may determine that such a condition is necessary 
to ensure that the transaction is consistent with the public interest. 
Moreover, section 203(b) authority will allow the Commission to revisit 
its authorization to determine if a further condition requiring 
continuing disclosure is necessary.
    147. In response to APPA/NRECA's request for clarification 
regarding the meaning of ``traditional utility with captive 
customers,'' although we will retain and clarify our original 
definition of the term ``captive customer,'' as discussed below, we 
will also separately include APPA's language to cover public utilities 
that own or provide

[[Page 28441]]

transmission service over Commission-jurisdictional transmission 
facilities. Thus, various conditions or restrictions will apply where a 
traditional public utility has captive customers (defined as wholesale 
or retail electric energy customers served under cost-based regulation) 
and also where the public utility owns or provides transmission service 
over Commission-jurisdictional transmission facilities. However, 
contrary to APPA/NRECA's proposed interpretation, a public utility 
selling power only pursuant to market-based regulation will not be 
regarded as a ``traditional public utility with captive customers'' 
and, hence, customers served at market-based rates will not be regarded 
as ``captive customers.'' The fact that the Commission is revisiting 
its tests for granting market-based rate authority or that the 
authority of some utilities to sell at market-based rates has been 
withdrawn does not undermine a conclusion that customers of utilities 
with legitimate market-based rate authority are not ``captive 
customers.'' We do not approve market-based rates unless we find that 
the utility does not have market power.
    148. TAPSG requests that the Commission clarify that we will 
consider the effect of cross-subsidization on competition. Intervenors 
can always argue that a particular transaction may result in cross-
subsidization and that this may affect competition. We will address 
such arguments based on the facts in a particular case.
8. Section 33.11(b)--Commission Procedures for Consideration of 
Applications under Section 203 of the FPA
    149. Section 33.11(b) states that the Commission will expeditiously 
consider completed section 203 applications that are not contested, do 
not involve mergers, and are consistent with Commission precedent.\126\ 
It provides that dispositions of only transmission facilities, 
``particularly'' those that both before and after the transaction are 
under the functional control of a Commission-approved RTO or ISO, will 
generally receive expedited treatment.\127\ In Order No. 669, the 
Commission explained that ISOs and RTOs are pro-competitive and are 
effective at preventing market power abuse because they have market 
monitoring and mitigation measures.
a. Rehearing Requests
---------------------------------------------------------------------------

    \126\ Order No. 669 at P 188.
    \127\ Id. at P 190-91.
---------------------------------------------------------------------------

    150. APPA/NRECA assert that the Commission provides no plausible 
justification for providing expedited review for dispositions of only 
transmission facilities. They argue that because owning transmission 
facilities is one of the major means of exercising market power, 
consolidations of control over transmission facilities should be 
carefully evaluated. They also argue that the Commission's regulation 
of transmission service does not mean that transactions involving only 
transmission should be accomplished with minimal Commission scrutiny.
    151. Alternatively, APPA/NRECA state that if the Commission retains 
section 33.11(b)(1), it should be clarified and revised. They state 
that the word ``particularly'' in section 33.11(b)(1) either makes the 
regulation superfluous or makes its meaning unclear. If the Commission 
intended for this clause to be restrictive (in other words, a 
disposition of only transmission facilities does not generally warrant 
expedited review unless the condition in the clause is met), then it 
should omit the word ``particularly.'' \128\
---------------------------------------------------------------------------

    \128\ APPA/NRECA Rehearing Request at 34.
---------------------------------------------------------------------------

    152. Further, they say that the regulation should provide for 
expedited review only if the transmission facilities will remain in the 
same RTO or ISO. They state that such transactions should receive 
special scrutiny, not expedited review.
b. Commission Determination
    153. We will delete the word ``particularly,'' as it is confusing, 
from section 33.11(b)(1), newly restated as section 33.11(c)(1). 
However, we will not require that to warrant expedited review, the 
transaction must maintain the transmission facilities in the same RTO 
or ISO. As we stated in Order No. 669:

the standards set forth in Order No. 2000 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 \129\
---------------------------------------------------------------------------

    \129\ Order No. 669 at 190 (citing Filing Requirements Rule at 
31,902).

    154. Participation in any Commission-approved RTO or ISO is pro-
competitive. We note that the regulation does not provide that such 
transactions will always qualify for expedited review. Intervenors may 
inform us in a particular case if switching RTOs may cause problems, 
and the Commission will perform its review on an unexpedited basis if 
justified.
    155. The Commission will also take this opportunity to generally 
address requests for expedited review. We often receive section 203 
filings in which an applicant requests that the Commission expedite its 
review process and act on the filing within a specified time period, 
occasionally thirty days or less. In some of these instances, 
applicants also ask us to give a notice period of less than 21 days. 
Sometimes, applicants offer no reason for seeking expedited action, or 
when they do, the reason is simply that they wish to close the 
transaction as soon as possible. The Commission notes that applicants 
themselves are in the best position to influence the timing of 
Commission action. In order to have the authorization they require at 
the time they seek to close the transaction, they should file an 
application at the earliest possible time. The Commission (and its 
staff, for transactions that are acted on under delegated authority) 
will try to act as quickly as possible on all applications, but 
particularly on those that warrant expedited review.\130\ However, the 
Commission and its staff take seriously the regulation that provides 
for a 21-day notice period for applications that we deem qualify for 
expedited review. We believe that, in most circumstances, 21 days is 
the minimum period necessary for interested persons to conduct an 
adequate review of the application. Applicants that seek a lesser 
notice period or that request action within a specified time period 
must clearly identify a significant harm to the public interest, as 
opposed to a private commercial interest, that justifies action within 
that time period. We remind applicants that they must also provide a 
fully completed application, responsive to all of the regulations, to 
avoid the need for a deficiency letter, which creates delay.\131\
---------------------------------------------------------------------------

    \130\ By law, the Commission is required to take initial action 
on application no later than 180 days after filing.
    \131\ On occasion, applicants hae no identified all of the 
entities that must have approval for the transaction, have not 
adequately identified or described the facilities, the ownership, 
control or operation of which may be affected directly or indirectly 
by the transaction, or have not provided the underlying transaction 
agreement and offered little, if any, reason, for failing to do so. 
As a consequence, unnecessary additional time is consumed in 
obtaining the information from applicants and in providing an 
opportunity for others to comment on the information.
---------------------------------------------------------------------------

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

    156. In response to the NOPR, APPA/NRECA and TAPSG recommended that

[[Page 28442]]

the Commission rethink our current merger policy and what ``consistent 
with the public interest'' means in light of amended section 203 and 
the repeal of PUHCA 1935. In particular, they suggested that the 
Commission's Appendix A analysis, which focuses on the effect on 
competition in ``common'' markets in which applicants operate, will not 
be well suited to address the effects on competition from the ``cross-
country'' mergers that the repeal of PUHCA 1935 will likely encourage.
    157. In response, in Order No. 669, the Commission stated that we 
are not persuaded to change our current policies now. We said that our 
standard of review is sufficiently flexible to consider changes in 
market structure that might result from EPAct 2005 and the repeal of 
PUHCA 1935. However, we also stated that, as we gain experience in 
evaluating mergers under the new statute, we may reevaluate our merger 
policy.\132\
---------------------------------------------------------------------------

    \132\ Order No. 669 at P 202.
---------------------------------------------------------------------------

1. Rehearing Requests
    158. APPA/NRECA continue to assert that the Commission should 
reevaluate its criteria for analyzing mergers in order to address the 
likely market response to the changed regulatory environment. They 
expect significant merger activity, consolidation and restructuring of 
the industry in the wake of the repeal of PUHCA 1935. The Commission 
should reconsider whether its existing merger policy, crafted when 
PUHCA 1935's ownership restrictions were in place, addresses the 
dangers to competition and consumers presented by new section 203 
transactions. The Commission should consider new approaches to 
analyzing the effect on competition beyond those in the current 
Appendix A approach. APPA/NRECA state that they do not expect the 
Commission to develop a new policy for evaluating mergers on rehearing 
of Order No. 669. However, they urge the Commission to set out the 
procedures and timetable for a reexamination of its merger policy.\133\
---------------------------------------------------------------------------

    \133\ APPA/NRECA Rehearing Request at 38.
---------------------------------------------------------------------------

    159. TAPSG concurs with APPA/NRECA's thoughts on the need to revise 
merger policy and also asserts that the Commission should not wait to 
revise its merger policy.\134\ TAPSG notes that the Commission adopted 
its current merger policy almost ten years ago and that much has 
changed since then, including the development of RTOs with their 
complicated markets and locational marginal pricing, repeal of PUHCA 
1935, and new time constraints on Commission merger review. At a 
minimum, TAPSG asserts that the Commission should commit to review its 
current merger policy as part of the technical conference that the 
Commission will hold within a year to address issues raised in this 
proceeding and the PUHCA 2005 Final Rule proceeding.\135\
---------------------------------------------------------------------------

    \134\ TAPSG Rehearing Request at 2-3 and 18-30.
    \135\ Order No. 669 at P 4.
---------------------------------------------------------------------------

2. Commission Determination
    160. We will not reevaluate our criteria for analyzing the 
competitive effects of mergers as part of this rulemaking. In Order No. 
669, we explained that, after the Commission has gained more experience 
in evaluating section 203 applications under the new statute, we may 
reevaluate our merger policy.\136\ We continue to believe that more 
experience with the new section 203 will provide us with better 
guidance as to whether to reevaluate our merger policy.
---------------------------------------------------------------------------

    \136\ Id. at P 202.
---------------------------------------------------------------------------

    161. We also note that, consistent with amended section 203(a)(4), 
we added new section 2.26(f) to our regulations. It provides 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. Thus, in Order No. 669, the 
Commission properly updated its merger policy to address Congress' 
specific concerns with respect to new section 203.
    162. However, the Commission commits to consider whether our 
current merger policy should be revised as part of the technical 
conference to be held within one year.\137\ That technical conference 
will address issues raised both in this proceeding and the PUHCA 2005 
Final Rule proceeding implementing PUHCA 2005.
---------------------------------------------------------------------------

    \137\ PUHCA 2005 Final Rule at P 17.
---------------------------------------------------------------------------

IV. Information Collection Statement

    163. The regulations of the Office of Management and Budget (OMB) 
\138\ require that OMB approve certain information requirements imposed 
by an agency. OMB has approved the information requirements contained 
in Order No. 669. Specifically, OMB approved the following information 
collection and assigned the corresponding OMB control numbers: 
``Application under Federal Power Act Section 203'' (FERC-519).
---------------------------------------------------------------------------

    \138\ 5 CFR 1320.12.
---------------------------------------------------------------------------

    164. This order on rehearing adopts a number of changes in response 
to the requests for rehearing of Order No. 669. Four of these are 
important with respect to information collection. First, as noted 
above, we will require that for holding company acquisitions of 
securities of intrastate utilities or utilities that own or control 
facilities used solely for local distribution or retail sales of 
electric energy regulated by a state commission, if any public utility 
within the holding company system has captive customers, the holding 
company must report the acquisition to the Commission, including any 
state actions and conditions related to the acquisition and provide an 
explanation why the transaction does not result in cross-subsidization. 
Second, we will require that for certain holding company acquisitions 
of securities of electric utility companies or transmitting utilities, 
or of holding companies that include such entities, the parent company 
file with the Commission, on a public basis and within 45 days of the 
close of each calendar quarter, both its total holdings and its 
holdings as principal of the securities, each by class, unless the 
holdings within a class are less than one percent of outstanding 
shares. Third, with regard to the submission of Exhibit M of the 
application, all section 203 applicants (excluding those whose 
transactions fall under blanket authorizations) must demonstrate that 
they have met all four tests of a four-part framework, as elaborated 
herein and in Order No.669, showing that the transaction will not 
result in cross-subsidization of a non-utility associate company or the 
pledge or encumbrances of utility assets for the benefit of an 
associate company, or if cross-subsidization or pledges or encumbrances 
of utility assets were to occur, that such results are nonetheless 
consistent with the public interest. Fourth, also as part of Exhibit M 
to the application, applicants are required to disclose all existing 
pledges or encumbrances as part of utility assets. We do not believe 
that this information requirement will impose an unreasonable burden on 
section 203 applicants.
    165. Any increases in burden will be offset by the additional 
blanket authorizations that the Commission is granting in this 
proceeding. Specifically, the Commission will grant a blanket 
authorization under section 203(a)(1) of the Federal Power Act for 
certain internal corporate reorganizations, provided that the public 
utility does not have captive customers and the

[[Page 28443]]

transaction does not present cross-subsidization issues. The Commission 
will also grant a blanket authorization for holding companies that own 
or control only EWGs, QFs or FUCOs to acquire the securities of 
additional EWGs, FUCOs or QFs. In addition, the Commission will grant a 
blanket authorization allowing any company in the holding company 
system to acquire the securities of an electric company that owns 
generating facilities that total 100 MW or less and are primarily used 
for the acquired company's own load or for sales to affiliated end-
users. The Commission will also grant a blanket authorization for 
transfers of wholesale market-based rate contracts between public 
utility affiliates that have the same upstream ownership and are not 
affiliated with a traditional public utility with captive ratepayers. 
For those entities that are subject to regulatory oversight of the 
Federal Reserve Bank or the Comptroller of the Currency because of 
their affiliation with banks or bank holding companies that are 
regulated by the agencies identified above, the Commission will grant a 
blanket authorization to acquire and hold an unlimited amount of 
covered securities for fiduciaries, collateral for loans or for loan 
liquidation, subject to certain reporting requirements. Further, the 
Commission will grant a blanket authorization to the banks and their 
subsidiaries to acquire and hold an unlimited amount of covered 
securities in connection with failed underwritings, subject to certain 
conditions. The Commission will also grant a blanket authorization for 
certain non-banking financial institutions to acquire covered 
securities in a fiduciary capacity or for hedging purposes, subject to 
certain conditions and reporting requirements. In sum, taking into 
account both the additional requirements and the additional blanket 
authorizations, we believe that one offsets the other and will allow 
the original projected burden estimates expressed in Order No. 669 to 
stand. We will, however, adjust these burden estimates accordingly as 
we receive filings and we will notify OMB of any changes that may be 
necessary. The Commission did not receive any comments on burden 
estimates in response to Order No. 669.
    166. Interested persons may obtain information on the information 
requirements by contacting the following: The Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426 [Attention: 
Michael Miller, Office of the Executive Director, ED-34, Phone: (202) 
502-8415, Fax: (202) 273-0873, e-mail: michael.miller@ferc.gov.
    167. To submit comments concerning the collection(s) of information 
and provide estimates on the associated burden of these requirements, 
please send your comments to the contact listed above and 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. Comments should be e-
mailed to oira_submission@omb.eop.gov and reference the OMB Control 
number listed above.

V. Document Availability

    168. 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 Commission's Home Page (http://www.ferc.gov) and in 

the Commission'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.
    169. 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.
    170. User assistance is available for eLibrary and the Commission'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).


VI. Effective Date

    171. Changes to Order No. 669 made in this order on rehearing will 
become effective on June 15, 2006.

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 the Commission.
Magalie R. Salas,
Secretary.

0
In consideration of the foregoing, under the authority of EPAct 2005, 
the Commission is amending parts 2 and 33 of Chapter I, Title 18, Code 
of Federal Regulations, as set forth below:

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 paragraphs (e) and (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 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 
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:

[[Page 28444]]

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.
    (5) For purposes of this part, the term captive customers means any 
wholesale or retail electric energy customers served under cost-based 
regulation.
    (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, 
provided that if any public utility within the holding company system 
has captive customers, or owns or provides transmission service over 
jurisdictional transmission facilities, the holding company must report 
the acquisition to the Commission, including any state actions or 
conditions related to the transaction, and shall provide an explanation 
of why the transaction does not result in cross-subsidization;
    (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, 
provided that if any public utility within the holding company system 
has captive customers, or owns or provides transmission service over 
jurisdictional transmission facilities, the holding company must report 
the acquisition to the Commission, including any state actions or 
conditions related to the transaction, and shall provide an explanation 
of why the transaction does not result in cross-subsidization; or
    (iii) An electric utility company that owns generating facilities 
that total 100 MW or less and are fundamentally used for its own 
individual load or for sales to affiliated end-users.
    (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

[[Page 28445]]

holding company system that includes a 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 paragraph 
(c)(2) of this section shall provide the Commission copies of any 
Schedule 13D, Schedule 13G and Form 13F, at the same time and on the 
same basis, as filed with 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 has captive customers in the United States, 
or owns or provides transmission service over jurisdictional 
transmission facilities in the United States, the authorization is 
conditioned on the holding company, consistent with 18 CFR 385.2005(b), 
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 public utility 
associate company that has captive customers or that owns or provides 
transmission service over jurisdictional transmission facilities, and 
an associate company;
    (B) Any new issuance of securities by a traditional public utility 
associate company that has captive customers or that owns or provides 
transmission service over jurisdictional transmission facilities, for 
the benefit of an associate company;
    (C) Any new pledge or encumbrance of assets of a traditional public 
utility associate company that has captive customers or that owns or 
provides transmission service over jurisdictional transmission 
facilities, for the benefit of an associate company; or
    (D) Any new affiliate contracts between a non-utility associate 
company and a traditional public utility associate company that has 
captive customers or that owns or provides transmission service over 
jurisdictional transmission facilities, 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.
    (6) Any public utility or any holding company in a holding company 
system that includes a transmitting utility or an electric utility is 
granted a blanket authorization under sections 203(a)(1) or 203(a)(2) 
of the Federal Power Act, as relevant, for internal corporate 
reorganizations that do not result in the reorganization of a 
traditional public utility that has captive customers or that owns or 
provides transmission service over jurisdictional transmission 
facilities, and that do not present cross-subsidization issues.
    (7) Any public utility in a holding company system that includes a 
transmitting utility or an electric utility is granted a blanket 
authorization under section 203(a)(1) of the Federal Power Act to 
purchase, acquire, or take any security of a public utility in 
connection with an intra-system cash management program, subject to 
safeguards to prevent cross-subsidization or pledges or encumbrances of 
utility assets.
    (8) A person that is a holding company solely with respect to one 
or more exempt wholesale generators (EWGs), foreign utility companies 
(FUCOs), or qualifying facilities (QFs) is granted a blanket 
authorization under section 203(a)(2) of the Federal Power Act to 
acquire the securities of additional EWGs, FUCOs, or QFs.
    (9) A holding company, or a subsidiary of that company, that is 
regulated by the Board of Governors of the Federal Reserve Bank or by 
the Office of the Comptroller of the Currency, under the Bank Holding 
Company Act of 1956 as amended by the Gramm-Leach-Bliley Act of 1999, 
is granted a blanket authorization under section 203(a)(2) of the 
Federal Power Act to acquire and hold an unlimited amount of the 
securities of holding companies that include a transmitting utility or 
an electric utility company if such acquisitions and holdings are in 
the normal course of its business and the securities are held:
    (i) As a fiduciary;
    (ii) As principal for derivatives hedging purposes incidental to 
the business of banking and it commits not to vote such securities to 
the extent they exceed 10 percent of the outstanding shares;
    (iii) As collateral for a loan; or
    (iv) Solely for purposes of liquidation and in connection with a 
loan previously contracted for and owned beneficially for a period of 
not more than two years, with the following conditions and reporting 
requirement: The holding does not confer a right to control, positively 
or negatively, through debt covenants or any other means, the operation 
or management of the public utility or public utility holding company, 
except as to customary creditors' rights or as provided under the 
United States Bankruptcy Code; and the parent holding company files 
with the Commission on a public basis and within 45 days of the close 
of each calendar quarter, both its total holdings and its holdings as 
principal, each by class, unless the holdings within a class are less 
than one percent of outstanding shares, irrespective of the capacity in 
which they were held.
    (10) Any holding company, or a subsidiary of that company, is 
granted a blanket authorization under section 203(a)(2) of the Federal 
Power Act to acquire any security of a public utility or a holding 
company that includes a public utility:
    (i) For purposes of conducting underwriting activities, subject to 
the condition that holdings that the holding company or its subsidiary 
are unable to sell or otherwise dispose of within 45 days are to be 
treated as holdings as principal and thus subject to a limitation of 10 
percent of the stock of any class unless the holding company or its 
subsidiary has within that period filed an application under section 
203 of the Federal Power Act to retain the securities and has 
undertaken not to vote the securities during the pendency of such 
application; and the parent holding company files with the Commission 
on a public basis and within 45 days of the close of each calendar 
quarter, both its total holdings and its holdings as principal, each by 
class, unless the holdings within a class are less than one percent of 
outstanding shares, irrespective of the capacity in which they were 
held;
    (ii) For purposes of engaging in hedging transactions, subject to 
the condition that if such holdings are 10 percent or more of the 
voting securities

[[Page 28446]]

of a given class, the holding company or its subsidiary shall not vote 
such holdings to the extent that they are 10 percent or more.
    (11) Any public utility is granted a blanket authorization under 
section 203(a)(1) of the Federal Power Act to transfer a wholesale 
market-based rate contract to any other public utility affiliate that 
has the same ultimate upstream ownership, provided that neither 
affiliate is affiliated with a traditional public utility with captive 
customers.

0
6. Section 33.2 is amended by revising 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 this 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, including:
    (i) Disclosure of existing pledges and/or encumbrances of utility 
assets; and
    (ii) A detailed showing that the transaction will not result in:
    (A) Any transfer of facilities between a traditional public utility 
associate company that has captive customers or that owns or provides 
transmission service over jurisdictional transmission facilities, and 
an associate company;
    (B) Any new issuance of securities by a traditional public utility 
associate company that has captive customers or that owns or provides 
transmission service over jurisdictional transmission facilities, for 
the benefit of an associate company;
    (C) Any new pledge or encumbrance of assets of a traditional public 
utility associate company that has captive customers or that owns or 
provides transmission service over jurisdictional transmission 
facilities, for the benefit of an associate company; or
    (D) Any new affiliate contract between a non-utility associate 
company and a traditional public utility associate company that has 
captive customers or that owns or provides transmission service over 
jurisdictional transmission facilities, other than non-power goods and 
services agreements subject to review under sections 205 and 206 of the 
Federal Power Act; 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 revised 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.
    (c) Transactions, provided that they are not contested, do not 
involve mergers and are consistent with Commission precedent, that will 
generally be subject to expedited review include:
    (1) A disposition of only transmission facilities, including, but 
not limited to, 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\ 
and
---------------------------------------------------------------------------

    \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, 
1977), 79 FERC ] 61,321 (1997) (Merger Policy Statement).
---------------------------------------------------------------------------

    (3) Internal corporate reorganizations that result in the 
reorganization of a traditional public utility that has captive 
customers or owns or provides transmission service over jurisdictional 
transmission facilities, but do not present cross-subsidization issues.

[FR Doc. 06-4041 Filed 5-15-06; 8:45 am]

BILLING CODE 6717-01-P
