Rule: Electric Utilities (Federal Power Act) : Rehearing Order

Tuesday,
May 16, 2006
Part II
Department of
Energy
Federal Energy Regulatory Commission
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
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28422 Federal Register / Vol. 71, No. 94 / Tuesday, May 16, 2006 / Rules and Regulations
DEPARTMENT OF ENERGY 4. Blanket Authorizations for Cash to implement amended section 203.4 As
Management Programs, Money Pools, discussed below, on December 23, 2005,
Federal Energy Regulatory and Intra-Holding Company Financing the Commission issued a final rule
Commission Arrangements (Order No. 669) 5 adopting certain
5. Section 33.1(c)(2)–(c)(4)—Blanket
Authorizations: Purchases of Voting and modifications to 18 CFR 2.26 and 18
18 CFR Parts 2 and 33 Non-Voting Securities Under Section 203 CFR part 33 to implement amended
[Docket No. RM05–34–001; Order No. 669– 6. Other Requested Blanket section 203. Generally, Order No. 669:
A] Authorizations—Holding Company (1) Implemented the new applicability of
Purchasing Its Own Securities, Fiduciary amended section 203;
Transactions Subject to FPA Section Investments and Bank Underwriting/ (2) Granted blanket authorizations, in some
203 Hedging instances with conditions, for certain types of
7. Section 33.2(j)—General Information transactions, including acquisitions of
Issued April 24, 2006. Requirements Regarding Cross- foreign utilities by holding companies, intra-
AGENCY: Federal Energy Regulatory Subsidization holding company system financing and cash
Commission. 8. Section 33.11(b)—Commission management arrangements, certain internal
Procedures for Consideration of corporate reorganizations, and certain
ACTION: Final rule; order on rehearing. Applications Under Section 203 of the acquisitions of securities of transmitting
FPA utilities and electric utility companies;
SUMMARY: In this order on rehearing, the
B. Amendments to 18 CFR 2.26—The (3) Defined terms, including ‘‘electric
Federal Energy Regulatory Commission Merger Policy Statement utility company,’’ ‘‘holding company,’’ and
(Commission) reaffirms its 1. Rehearing Requests ‘‘non-utility associate company;’’
determinations in part and grants 2. Commission Determination (4) Defined ‘‘existing generation facility;’’
rehearing in part of Order No. 669, IV. Information Collection Statement (5) Adopted rules on the determination of
which revised 18 CFR 2.26 and 18 CFR V. Document Availability ‘‘value’’ as it applies to various section 203
part 33 to implement amended section VI. Effective Date transactions;
203 of the Federal Power Act (FPA). Before Commissioners: Joseph T. (6) Set forth a section 203 applicant’s
obligation to demonstrate that a proposed
EFFECTIVE DATE: June 15, 2006. Kelliher, Chairman; Nora Mead transaction will not result in cross-
FOR FURTHER INFORMATION CONTACT: Brownell, and Suedeen G. Kelly. subsidization of a non-utility associate
Andrew P. Mosier, Jr. (Legal I. Introduction company or the pledge or encumbrance of
Information), Office of the General utility assets for the benefit of an associate
Counsel, Federal Energy Regulatory 1. On August 8, 2005, the Energy company; and
Commission, 888 First Street, NE., Policy Act of 2005 (EPAct 2005) 1 was (7) Provided for expeditious consideration
Washington, DC 20426. (202) 502– signed into law. Section 1289 (Merger of completed applications for the approval of
Review Reform) of Title XII, Subtitle G transactions that are not contested, do not
6274. involve mergers, and are consistent with
Phillip Nicholson (Technical (Market Transparency, Enforcement,
and Consumer Protection),2 of EPAct Commission precedent.
Information), Office of Energy,
Markets, and Reliability—West, 2005 amends section 203 of the Federal 3. In Order No. 669, the Commission
Federal Energy Regulatory Power Act (FPA).3 Amended section also announced that, at a technical
Commission, 888 First Street, NE., 203: (1) Increases (from $50,000 to $10 conference on the Public Utility Holding
Washington, DC 20426. (202) 502– million) the value threshold above Company Act of 2005 (PUHCA 2005),6
8240. which certain transactions are subject to to be held within the next year,7 we will
Jan Macpherson (Legal Information), section 203; (2) extends the scope of
Office of the General Counsel, Federal section 203 to include transactions 4 Transactions Subject to FPA Section 203, 70 FR
involving certain transfers of generation 58636 (Oct. 7, 2005), FERC Stats. & Regs. ¶ 32,589
Energy Regulatory Commission, 888 (2005).
First Street, NE., Washington, DC facilities and certain public utility 5 Transactions Subject to FPA Section 203, Order
20426. (202) 502–8921. holding companies’ transactions with a No. 669, 71 FR 1348 (Jan. 6, 2006), FERC Stats. &
James Akers (Technical Information), value in excess of $10 million; (3) limits Regs. ¶ 31,200 (2005). On January 10, 2006, the
the Federal Energy Regulatory Commission issued an errata notice to Order No.
Office of Energy, Markets, and 669 revising parts of the regulatory text to conform
Reliability—West, Federal Energy Commission’s (Commission) review of a to the version of the order that was issued in the
Regulatory Commission, 888 First public utility’s acquisition of securities Federal Register. Transactions Subject to FPA
Street, NE., Washington, DC 20426. of another public utility to transactions Section 203, 114 FERC ¶ 61,018 (2006). As relevant
greater than $10 million; (4) requires here, in instruction 7, at 18 CFR 33.11(b)(2), a
(202) 502–8101. footnote was added after ‘‘(2) transactions that do
that the Commission, when reviewing
SUPPLEMENTARY INFORMATION: not require Appendix A analysis,’’ reading: ‘‘Inquiry
proposed section 203 transactions, Concerning the Commission’s Merger Policy Under
Table of Contents examine cross-subsidization and the FederalPower Act: Policy Statement,’’ Order No.
I. Introduction pledges or encumbrances of utility 592, 61 FR 68595 (Dec. 30, 1996), FERC Stats. &
Regs. ¶ 31,044 (1996), reconsideration denied,
II. Background assets; and (5) directs the Commission Order No. 592–A, 62 FR 33340 (June 19, 1997), 79
A. Pre-EPAct 2005 Standards to adopt, by rule, procedures for the FERC ¶ 61,321 (1997) (Merger Policy Statement).
B. EPAct Revisions to Section 203 and expeditious consideration of 6 EPAct 2005 at 1261 et seq. Repeal of the Public
Order No. 669 applications for the approval of Utility Holding Company Act of 1935 and
III. Discussion transactions under section 203. Enactment of the Public Utility Holding Company
A. 18 CFR Part 33 Act of 2005, Order No. 667, 70 FR 55805, FERC
1. Section 33.1(b)(3)—Definition of
2. On October 3, 2005, the Stats. & Regs. ¶ 31,197 (2005) (PUHCA 2005 Final
‘‘Value’’ Commission issued a notice of proposed Rule).
2. Section 33.1(b)(4)—Definitions of rulemaking (NOPR) requesting comment 7 PUHCA 2005 Final Rule at P 17. The
‘‘Electric Utility Company’’ and on its proposal to amend its regulations Commission stated that we intend to hold a
technical conference no later than one year after

‘‘Holding Company’’ PUHCA 2005 became effective to evaluate whether
3. Section 33.1(c)(1)—Blanket 1 Energy Policy Act of 2005, Pub. L. 109–58, 119
additional exemptions, different reporting
Authorizations: Intrastate Commerce, Stat. 594 (2005). requirements, or other regulatory actions need to be
Local Distribution, and Internal 2 EPAct 2005 at 1281 et seq.
considered. The PUHCA 2005 Final Rule took effect
Corporate Reorganizations 3 16 U.S.C. 824b (2000). on February 8, 2006.
Federal Register / Vol. 71, No. 94 / Tuesday, May 16, 2006 / Rules and Regulations 28423
also address certain issues raised in this 18 CFR part 33 of the Commission’s associate company, unless that cross-
proceeding. These include whether the regulations for section 203 applications. subsidization, pledge, or encumbrance
blanket authorizations granted in Order The Filing Requirements Rule will be consistent with the public
No. 669 should be revised and whether implements the Merger Policy interest.
additional protection against cross- Statement and provides detailed 10. Section 203(a)(5) adds the entirely
subsidization and pledges or guidance to applicants for preparing new requirement that the Commission
encumbrance of utility assets is applications. The revised filing shall adopt procedures for the
needed.8 requirements also assist the Commission expeditious consideration of
4. In this order, the Commission in determining whether section 203 applications for the approval of section
grants rehearing in part, grants transactions are consistent with the 203 transactions. Such rules shall
clarification in part, and denies public interest, provide more certainty, identify classes of transactions, or
rehearing in part of its Order No. 669. and provide for expedited review of specify criteria for transactions, that
Our actions here will necessitate further such applications. normally meet the section 203 standards
changes in the regulations. In light of for approval. The Commission shall
the number of regulatory text changes, B. EPAct Revisions to Section 203 and
Order No. 669 provide expedited review for such
the Commission is including the revised transactions. It further provides that the
regulations in their entirety. In addition, 7. Amended section 203(a)(1) states Commission must act on a proposed
for the convenience of interested that no public utility shall, without first section 203 transaction within 180 days
persons, we will include a version of the having secured an order of the of filing but may extend the time for not
revised regulations in their entirety that Commission authorizing it to do so: (A) more than an additional 180 days for
highlights the changes from Order No. Sell, lease, or otherwise dispose of the good cause.
669 as a separate attachment. (See whole of its facilities subject to the 11. Section 203(a)(6), which is also
Appendix B.) This attachment will not jurisdiction of the Commission, or any new, provides that for purposes of this
be published in the Federal Register. part thereof of a value in excess of $10 section, the terms ‘‘associate company,’’
million; (B) merge or consolidate, ‘‘holding company,’’ and ‘‘holding
II. Background directly or indirectly, such facilities or company system’’ have the meaning
5. The background to Order No. 669 any part thereof with those of any other given those terms in PUHCA 2005.10
is set forth in detail in that order. We person, by any means whatsoever; (C) 12. Order No. 669 became effective on
will summarize it here. purchase, acquire, or take any security February 8, 2006. The aspects of Order
A. Pre-EPAct 2005 Standards with a value in excess of $10 million of No. 669 on which rehearing were filed
any other public utility; or (D) purchase, are described in more detail below.11
6. Prior to EPAct 2005, section 203 lease, or otherwise acquire an existing
provided that generation facility: (i) That has a value III. Discussion
no public utility shall sell, lease or otherwise in excess of $10 million; and (ii) that is A. 18 CFR Part 33
dispose of the whole of its facilities subject used for interstate wholesale sales and
to the jurisdiction of the Commission, or any over which the Commission has 1. Section 33.1(b)(3)—Definition of
part thereof of a value in excess of $50,000, jurisdiction for ratemaking purposes. ‘‘Value’’
or by any means whatsoever, directly or 8. Section 203(a)(2) adds the entirely
indirectly, merge or consolidate such 13. Section 33.1(b)(3)(i) generally uses
new requirement that no holding market value as the appropriate measure
facilities or any part thereof with those of any
other person, or purchase, acquire, or take company in a holding company system of value for transfers of physical
any security of any other public utility, that includes a transmitting utility or an facilities (transmission facilities and
without first having secured an order of the electric utility shall purchase, acquire, generation facilities) for purposes of
Commission authorizing it do so. or take any security with a value in determining whether the $10 million
The Commission applied the ‘‘public excess of $10 million of, or, by any jurisdictional threshold is met.12 The
interest’’ standard in approving means whatsoever, directly or rule states that when a transaction
proposed transactions. The purpose of indirectly, merge or consolidate with, a occurs between non-affiliates, the
the Merger Policy Statement was to transmitting utility, an electric utility Commission will rebuttably presume
ensure that mergers are consistent with company, or a holding company in a that market value is the transaction
the public interest and to provide holding company system that includes a price. For transactions between
greater certainty and expedition in the transmitting utility, or an electric utility affiliated companies, value means
Commission’s analysis of merger company, with a value in excess of $10 original cost undepreciated, as defined
applications. The Merger Policy million without prior Commission in the Commission’s Uniform System of
Statement sets out three factors the authorization. Accounts, or original book cost,13 as
Commission generally considers when 9. Amended section 203(a)(4) states applicable.
analyzing whether a proposed section that, after notice and opportunity for 14. Section 33.1(b)(3)(ii) provides that
203 transaction is consistent with the hearing, the Commission shall approve value as applied to transfers of
public interest: Effect on competition; the proposed disposition, consolidation, wholesale contracts between non-
effect on rates; and effect on regulation. acquisition, or change in control if it affiliates also means the market value.
The Commission later issued the Filing finds that the transaction will be The Commission will rebuttably
Requirements Rule,9 a final rule consistent with the public interest. This presume that market value is the
updating the filing requirements under standard was contained in the pre-
EPAct 2005 section 203 as well. 10 EPAct 2005 at 1262.
8 Order No. 669 at P 4. Amended section 203(a)(4) also 11 The entities that filed requests for rehearing are
9 Revised Filing Requirements Under Part 33 of provides a new specific requirement listed in an appendix to this order.
the Commission’s Regulations, Order No. 642, 65 that the Commission must find that the 12 Order No. 669 at P 116. Section 33.1(b)(3)(iii)
FR 70984 (Nov. 28, 2000), FERC Stats. & Regs., July transaction will not result in cross- provides that for securities, value means market
1996–Dec. 2000 ¶ 31,111 (2000), order on reh’g, value, which is rebuttably presumed to be
Order No. 642–A, 66 FR 16121 (Mar. 23, 2001), 94
subsidization of a non-utility associate transaction price.
FERC ¶ 61,289 (2001) (codified at 18 CFR part 33 company or pledge or encumbrance of 13 Book cost, as used here, refers to original book
(2005)) (Filing Requirements Rule). utility assets for the benefit of an cost.
transaction price. For transfers of that ‘‘expected profit’’ has little meaning be reviewed based on a complaint or at
contracts between affiliates, value when the transaction is undertaken as the Commission’s discretion.
means total expected nominal revenues much for risk mitigation purposes as for 22. The Commission also confirms
over the remaining life of the contract.14 power supply. Using the same method that the use of the market value
15. The Commission noted that a to value contract transfers between non- standard for section 203 purposes does
complicating factor in relying on affiliates as for affiliates, i.e., expected not change the Commission’s
transaction price as a measure of market contract revenues, has the virtue of ratemaking policy, including the
value is that transactions will regulatory simplicity.18 Commission’s policy concerning
sometimes include assets whose transfer 19. NARUC argues that the record acquisition adjustments.23
is not subject to amended section 203 does not support using ‘‘original cost 23. The Commission denies APPA/
(non-jurisdictional assets) and the un-depreciated’’ as market value in NRECA’s request that value as applied
problem arises as to how to value the transactions between affiliates. NARUC to transfers of wholesale contracts
jurisdictional assets included in the says that net book value is a better way between non-affiliates be based on
transaction. In this situation, the to value the assets in affiliate expected contract revenues over the
Commission instructed applicants to transactions because it represents the remaining life of the contract, rather
rely on a valuation analysis of the remaining monetary value of an asset than market value. We acknowledge that
individual jurisdictional parts in that is ‘‘used and useful’’ at the time of using expected contract revenues for
deciding whether to file for section 203 the proposed transaction. Net book both non-affiliate transfers and affiliate
authorization. value, unlike original cost transfers would have a superficial
a. Rehearing Requests undepreciated, reflects changes in value consistency. However, we continue to
caused by wear and tear during use of believe that market value is the best way
16. APPA/NRECA argue that the the asset, obsolescence, the return of to value transactions between non-
Commission should require that capital through annual depreciation affiliates generally, and no party has
valuations of asset transactions between expense, and any improvements that presented a persuasive basis for treating
non-affiliates under section 203(a)(1)(A) have been made since the asset was wholesale contracts differently from
be consistent with generally accepted originally placed in service. These other kinds of assets.
accounting principles (GAAP), factors, particularly deterioration and 24. The Commission will also deny
particularly when the transaction also improvements, NARUC contends, are NARUC’s request that, for transactions
includes non-jurisdictional assets. They typically reflected in the prices between affiliates, value should be net
assert that, without such a requirement, negotiated by unaffiliated buyers and book value rather than original cost
parties will be able to value sellers.19 undepreciated. We note that almost all
jurisdictional assets or weight the value generation transactions of any
of non-jurisdictional assets to evade b. Commission Determination
significant size will be jurisdictional
Commission review, while maintaining 20. The Commission clarifies that under amended section 203, regardless
the same total purchase price for all GAAP must be used to value of the measure used. We recognize that
assets.15 jurisdictional physical assets for marginal cases may occur where the
17. APPA/NRECA are concerned purposes of amended section 203 when issue of jurisdiction might arise,
about a possible unintended ‘‘spillover they are included with non- particularly for older assets. We do not
effect’’ of using market value.16 They jurisdictional assets in a transaction dispute that the deterioration or use
request that the Commission confirm between non-affiliates.20 which net book value attempts to
that valuation for purposes of 21. Order No. 669 states that to place capture affects the price a buyer is
determining whether section 203 a value on wholesale contracts that are willing to pay for an asset. However, net
approval is required will not affect the part of a transfer that also includes book value does not reflect any
valuation placed on the assets for assets not subject to section 203, the appreciation of value of assets, as
purposes of applying cost-based parties should rely on valuation evident in the fact that generation
ratemaking standards, in particular, the analyses consistent with the value used facilities have often sold in recent years
Commission’s policy concerning in audited financial statements and with at prices significantly above net book
acquisition adjustments in cost-based GAAP requirements.21 A similar value. The Commission has long
jurisdictional rates.17 approach is required for the transfer of employed the use of original cost
18. APPA/NRECA lastly argue that the physical jurisdictional assets included undepreciated to measure value for
Commission should require that in a transaction with non-jurisdictional purposes of determining the need for a
valuations of wholesale contracts being facilities.22 We note that an entity’s section 203 application and finds its
transferred between non-affiliates be decision not to seek section 203 continued use appropriate in the
based on the expected contract revenues approval for a transaction based on its context of affiliate transactions. Original
rather than on market value. They determination of value of the assets, cost undepreciated is a simpler, less
contend that market value, which is whether physical or paper facilities, can ambiguous measure that will avoid
based on expected profits, cannot be debate as to the life of the facility,
reliably determined and will be prone to 18 APPA/NRECA Rehearing Request at 25. method of depreciation and other
abuse and manipulation. They suggest 19 NARUC Rehearing Request at 8. factors that are reflected in net book
20 As we held in Order No. 669 at P 117, if a
14 Order
value.
No. 669 at P 120–21. valuation analysis is not performed, the standard of
15 APPA/NRECA Rehearing Request at 24–25. original cost undepreciated is to be used in 2. Section 33.1(b)(4)—Definitions of
16 Id. at 26. determining whether section 203 applies to the ‘‘Electric Utility Company’’ and
17 Id. The Commission disallows acquisition transaction.
‘‘Holding Company’’
21 Order No. 669 at P 120.

adjustments in rates absent a showing of ratepayer
benefit. See PSEG Power Connecticut, LLC., 110 22 Consistent with our ruling in Order No. 669 (at
25. A number of parties raised
FERC ¶ 61,020 at P 32 (2005), citing Utilicorp P 116), if a transaction between non-affiliates arguments about the Commission’s
United, Inc., 56 FERC ¶ 61,031 at 61,120 and nn. involves only jurisdictional assets, the Commission
26–28, reh’g denied, 56 FERC ¶ 61,427, 62,528–29 will rebuttably presume that market value is the
(1991). transaction price. 23 See supra note 17.
interpretation of new FPA section federal electric utility regulatory foreign utility companies (FUCOs).29
203(a)(2). Section 203(a)(2) provides: terminology is the meaning of the term These commenters said that applying
No holding company in a holding company as used in PUHCA 1935 25 and in section 203(a)(2) in these circumstances
system that includes a transmitting utility or PUHCA 2005. Congress, in its revisions would impede investments in QFs and
an electric utility shall purchase, acquire, or to the FPA, relied on terms defined in EWGs or result in unnecessary
take any security with a value in excess of the two PUHCA statutes. Therefore, the regulation of upstream owners of QFs
$10,000,000 of, or, by any means whatsoever, Commission concluded that the most and EWGs.30 In response, we stated that
directly or indirectly, merge or consolidate reasonable interpretation of ‘‘electric the blanket authorizations granted in
with, a transmitting utility, an electric utility utility company,’’ as used in section Order No. 669 (for certain holding
company, or a holding company in a holding 203(a)(2) of the FPA (particularly in company acquisitions of non-voting
company system that includes a transmitting
utility, or an electric utility company, with a
light of the fact that section 203(a)(2) securities and up to 9.9 percent of
value in excess of $10,000,000 without first was enacted as part of coordinated, voting securities in electric utility
having secured an order of the Commission comprehensive legislation with the companies) will ensure that investment
authorizing it to do so. repeal of PUHCA 1935 and the will not be discouraged. The
enactment of PUHCA 2005) is the Commission also noted that we would
26. In particular, parties focus on the
meaning in PUHCA 2005. consider on a case-by-case basis
terms ‘‘electric utility company’’ and
29. The Commission rejected requests granting additional blanket
‘‘holding company’’ as used in section
that we explicitly exclude qualifying authorizations for holding company
203(a)(2). In Order No. 669, the
facilities (QFs) 26 and exempt wholesale acquisitions of securities of EWGs or
Commission concluded that the most
reasonable interpretation of the terms generators (EWGs) from the definition of QFs.
are the definitions contained in PUHCA ‘‘electric utility company.’’ We stated 31. In Order No. 669, the Commission
2005. Section 33.1(b)(4) provides that that: explained that this interpretation of
‘‘associate company,’’ ‘‘electric utility regardless of their status under PUHCA 2005, ‘‘electric utility company’’ includes
company,’’ ‘‘foreign utility company,’’ the exemptions set forth under PUHCA 2005 FUCOs, but we granted blanket
‘‘holding company,’’ and ‘‘holding are not dispositive as to the scope of the authorizations for certain foreign
Commission’s amended FPA section 203 acquisitions, with conditions to protect
company system’’ have the meaning
authority. These PUHCA 2005 exemptions U.S. customers.31 As discussed below,
given those terms in PUHCA 2005. It are set forth in the context of federal access
also provides that the term ‘‘holding the Commission also provided other
to books and records and, more importantly,
company’’ does not include: A state, any unlike PUHCA 2005, FPA section 203 does
blanket authorizations for transactions
political subdivision of a state, or any not give us any express authority to exempt that do not raise concerns about
agency, authority or instrumentality of a persons or classes of transactions.27 wholesale markets or protection of
state or political subdivision of a state; wholesale captive customers served by
or an electric power cooperative. Commission-regulated public utilities.
30. Further, the Commission stated
a. ‘‘Electric Utility Company’’ that were we to interpret ‘‘electric utility b. ‘‘Holding Company’’
company’’ for purposes of FPA section
27. Section 33.1(b)(4) provides that 32. As required by amended section
203(a)(2) not to include EWGs or QFs,
the term ‘‘electric utility company’’ has 203(a)(6), section 33.1(b)(4) provides
this could preclude review of certain
the same meaning given that term in that the term ‘‘holding company’’ has
acquisitions of securities of EWGs or
PUHCA 2005, which is ‘‘any company the meaning given that term in PUHCA
QFs by holding companies whose
that owns or operates facilities used for 2005.32
systems contain traditional public
the generation, transmission, or 33. The Commission rejected requests
utilities with transmission facilities
distribution of electric energy for that we state that only companies that
and/or captive customers that could be
sale.’’ 24 The definition thus is broader own traditional utilities, and not those
affected by the acquisitions. The
than the definition of ‘‘public utility’’ that own solely FUCOs, EWGs and/or
Commission stated that such
under the FPA; it is not limited to QFs, are ‘‘holding companies’’ under
transactions should not be excluded
entities that engage in wholesale or amended section 203.33 The
from review under section 203 and
interstate transactions. Commission noted that ‘‘holding
concluded that it was reasonable to
28. The Commission explained in company’’ in PUHCA 2005 means ‘‘any
interpret the statute not to exclude
Order No. 669 that the precise meaning company that directly or indirectly
them.28 We recognized the arguments of
of the term ‘‘electric utility company’’ is owns, controls, or holds, with the power
not clear because it is not defined in the some commenters that we should not
apply section 203(a)(2) to holding to vote, 10 percent or more of the
FPA. We pointed out that amended outstanding voting securities of a
section 203(a)(6) provides that certain company acquisitions of securities of
EWGs and QFs, or at a minimum should public-utility company or of a holding
other terms used in amended section company of any public-utility company;
203 (‘‘associate company,’’ ‘‘holding not apply it to such acquisitions by
company,’’ and ‘‘holding company holding companies that are holding
29 Id.
system’’) are to have the same meanings companies solely by virtue of owning or
30 Id.
given those terms in PUHCA 2005. controlling one or more EWGs, QFs or 31 See Section 33.1(c)(5). The regulation requires
However, section 203(a)(6) does not a company official to verify that the proposed
25 15 U.S.C. 79a et seq. (2000).
address ‘‘electric utility company.’’ transaction will not have an adverse effect on
26 Public Utility Regulatory Policies Act of 1978 competition, rates or regulation and that, now or in
Thus, there is Congressional silence in (PURPA), 16 U.S.C. 824a–3 (2000). the future, it will not result in the transfer of public
the FPA as to the meaning of the term. 27 Order No. 669 at P 59. The Commission also utility facilities to an associate company, issuance
In determining what Congress might noted that while QFs themselves currently are of public utility securities or pledge or
have meant by ‘‘electric utility exempt from section 203’s filing requirements by encumbrance of public utility assets for the benefit
our regulations promulgated under the Public of an associate company and will not result in
company,’’ the Commission stated that Utility Regulatory Policies Act of 1978, PURPA certain new affiliate contracts.
the only reference point we have in does not give us authority to exempt holding 32 Order No. 669 at P 69 (citing EPAct 2005 at
companies that own QFs. 1262(8)).

24 EPAct 2005 at 1262(5). 28 Order No. 669 at P 60. 33 Id. at P 70.
* * *’’ 34 PUHCA 2005 defines ‘‘public- argue that the Commission’s reliance on companies’’ solely by virtue of their
utility company’’ to include an ‘‘electric the simultaneous enactment of section ownership interests in QFs and EWGs.
utility company.’’ 35 We explained that 203 and PUHCA 2005 is invalid in the They explain that under PUHCA 1935,
the plain words of this definition simply face of this statutory language. a company that owned or controlled 10
do not exclude holding companies that 36. NARUC also asserts that using the percent or more of the outstanding
own or control only EWGs, FUCOs, or PUHCA 2005 definition of ‘‘electric voting securities of a QF or EWG did
QFs. Additionally, the Commission utility company’’ improperly extends not, by virtue of such ownership,
stated that: the Commission’s authority under become a ‘‘holding company.’’ 43 BofA/
even under PUHCA 2005, persons that own amended section 203 to include JPMorgan and Industrial Consumers
or control only EWGs, FUCOs, or QFs are facilities used for transmission or sales assert that, while Congress intended to
considered holding companies but are of electric energy in intrastate impose section 203(a)(2) pre-approval
explicitly exempted from PUHCA 2005 by commerce, facilities used for local requirements on entities that are
section 1266. There is no similar exemption distribution, and facilities used for ‘‘holding companies’’ in a ‘‘holding
in amended section 203 and we conclude making retail sales. It asserts that such company system that includes a
that it is reasonable to interpret section transmitting utility or an electric
203(a)(2) review to include acquisitions of facilities fall under exclusive state
generation or transmission facilities or commission jurisdiction and that the utility,’’ by a drafting oversight, it
companies by holding companies owning Commission’s regulations implementing adopted the PUHCA 2005 definition of
only FUCOs, QFs, and/or EWGs.36 FPA section 203 should apply to ‘‘holding company’’ (which includes
Commission-jurisdictional facilities companies that own 10 percent or more
34. The Commission also pointed out
only.39 of the outstanding voting securities of
that amended section 203(a)(6) requires
37. Occidental requests that the EWGs and QFs) in section 203(a)(6).
that we use the PUHCA 2005 definition
Commission reconsider its However, they state that there is no
of ‘‘holding company,’’ which, as
determination to subject parent indication that Congress intended to
explained above, includes the owner of
companies of QFs to the Commission’s apply section 203(a)(2) to QF/EWG-only
an ‘‘electric utility company’’ that is not
authority under section 203(a)(2) by holding companies or expand the scope
a public utility under the FPA and that
importing the definition of ‘‘electric of the ‘‘holding company’’ definition.
is not otherwise subject to Commission
utility company’’ from PUHCA 2005. It BofA/JPMorgan and Industrial
ratemaking jurisdiction under Part II of
argues that the Commission’s reliance Consumers argue that the Commission’s
the FPA. We noted that the definition of
solely on the ‘‘reference point’’ of the imposition of new burdens on owners of
‘‘electric utility company’’ is not limited
‘‘electric utility company’’ definition QFs and EWGs not associated with
to entities that engage in interstate
violates the Commission’s continuing transmission-owning utilities
commerce. Therefore, the Commission
duty to encourage cogeneration and misinterprets Congressional intent in
also concluded that holding companies
small power production under section EPAct 2005. Accordingly, BofA/
that own ‘‘electric utility companies’’
210(e) of PURPA 40 and without JPMorgan and Industrial Consumers
whose businesses are solely intrastate
addressing the statutory QF exemption assert that the Commission should
technically fall under section
in PUHCA 1935 and PUHCA 2005, is construe section 203(a)(2) as not
203(a)(2).37
arbitrary and capricious.41 It argues that applying in these circumstances.
c. Rehearing Requests nothing in amended section 203 39. If the Commission decides to
35. NARUC and Occidental assert that requires that QFs lose the long-standing continue with that conclusion, then
the Commission should not have used BofA/JPMorgan propose that the
exemption from section 203 that the
the PUHCA 2005 definition of ‘‘electric Commission provide blanket
Commission adopted in accordance
utility company’’ in its regulations authorization subject to appropriate
with PURPA section 210(e). Thus,
under section 203. They say that this is conditions and safeguards, such as a
Occidental argues the Commission
contrary to Congressional intent and status report to the Commission within
should adopt a blanket authorization
fundamental rules of statutory 30 days following the acquisition, where
under section 203, instead of using a
construction. They point out that companies are only holding companies
case-by-case approach, for companies
section 203(a)(6) specifically states that by virtue of owning QFs or EWGs.44 At
that are holding companies solely by
certain terms (‘‘associate company,’’ a minimum, existing holdings in EWGs
virtue of owning QFs.42
‘‘holding company,’’ and ‘‘holding and QFs should be grandfathered. This
38. Similarly, BofA/JPMorgan and would enable banks and their affiliates
company system’’) have the same Industrial Consumers assert that the
meaning in both section 203 and to adjust their future practices
Commission erred by requiring pre- respecting EWGs and QFs to keep such
PUHCA 2005; however, section acquisition approval under section
203(a)(6) does not refer to PUHCA acquisitions from affecting the core
203(a)(2) of utility interests by aspects of their business.
2005’s definition of ‘‘electric utility companies that qualify as ‘‘holding 40. Similarly, Morgan Stanley argues
company.’’ 38 NARUC and Occidental
39 NARUC Rehearing Request at 5–6 (citing New
that the definitions in PUHCA 2005,
34 EPAct 2005 at 1262(8). York v. FERC, 535 U.S. 1 (2002); Detroit Edison Co.
PUHCA 1935, and the PUHCA 2005
35 Id. at 1262(14). v. FERC, 334 F.3d 48 (D.C. Cir. 2003); 16 U.S.C. 824 Final Rule demonstrate that EWGs are
36 Order No. 669 at P 70. (2000)). not ‘‘electric utility companies’’ and that
37 However, as discussed below, we agreed in 40 16 U.S.C. 824a–3 (2000). Section 210(e) of
Order No. 669 that reviewing transactions involving PURPA provides that the Commission may grant 43 BofA/JPMorgan Rehearing Request at 26–27;
Hawaii, Alaska, and Electric Reliability Council of certain exemptions for cogeneration and small and Industrial Consumers Rehearing Request at 2.
Texas (ERCOT) would involve matters outside our power producers. They explain that all qualifying cogeneration
41 Occidental also points to the PUHCA 2005
expertise and the core focus of Part II of the FPA, facilities and certain small power production
and therefore we granted certain blanket Final Rule, where the Commission stated that ‘‘[a]s facilities were previously exempt from status as
authorizations. for QFs, QFs previously received an exemption ‘‘electric utility companies’’ and that EWGs were
38 NARUC Rehearing Request at 3–4; Occidental from PUHCA pursuant to the Commission’s exempted by section 32(e) from being classified as
Rehearing Request at 8–9. NARUC states the maxim regulations under [PURPA]. Nothing in PUHCA ‘‘electric utility companies’’ or ‘‘public-utility
expressio unius est exlusio alterius (the expression 2005 changes that.’’ Occidental Rehearing Request companies’’ under PUHCA 1935.
of one thing is the exclusion of another) supports at 10–11. 44 BofA/JPMorgan Rehearing Request at 30;
its argument. 42 Occidental Rehearing Request at 10–11. Industrial Consumers Rehearing Request at 8.
EWG owners are not ‘‘holding PUHCA 1935 and the enactment of applies to transmission in interstate
companies’’ under PUHCA 2005. PUHCA 2005.48 Section 203(a)(6) states commerce and the sale of electric energy
Therefore, it says that the Commission that the term ‘‘holding company’’ has at wholesale in interstate commerce, but
should not have found that EWGs are the same meaning given the term in (except as provided for in paragraph 2,
‘‘electric utility companies’’ and that PUHCA 2005. PUHCA 2005 defines a which involves sections 203(a)(2),
companies that own only EWGs are ‘‘holding company’’ in terms of a 206(e), 210–212, and 215–222) not to
‘‘holding companies’’ for purposes of ‘‘public-utility company,’’ which, under other sales of electric energy. However,
section 203(a)(2).45 Morgan Stanley PUHCA 2005, includes an ‘‘electric there is a qualifying phrase as well.
explains that, in PUHCA 2005, Congress utility company.’’ Section 201(b)(1) states that the
adopted the meaning of EWG from 43. Second, the term ‘‘electric utility Commission shall not have jurisdiction,
PUHCA 1935, which it contends does company’’ is defined in both PUHCA ‘‘except as specifically provided in this
not treat EWGs as ‘‘electric utility 1935 and PUHCA 2005, but is not Part and the Part next following’’ over
companies.’’ 46 Further, Morgan Stanley defined in the FPA or other statutes facilities used for the generation of
states that the PUHCA 2005 Final Rule under which the Commission exercises electric energy, or over facilities used in
reflects Congress’ intent to continue to authority. It is reasonable in the face of local distribution or only for the
define ‘‘holding company’’ to exclude Congressional silence to adopt a transmission of electric energy in
EWG owners, as well as companies that definition that has been well understood intrastate commerce or over facilities for
own power marketers, FUCOs, and in electric regulatory law for the past 70 the transmission of electric energy
QFs.47 However, it states, the years, particularly when we are not consumed wholly by the transmitter.
Commission adopts a meaning of aware of any other federal regulatory
definition of the term. 46. NARUC ignores ‘‘except as
‘‘electric utility company’’ for section
44. Third, had Congress intended to specifically provided.’’ Congress, in
203(a)(2) that includes EWGs, and
restrict section 203(a)(2) to holding amending section 203, specifically
therefore differs from the meaning given
company acquisitions involving only broadened the Commission’s previous
in PUHCA 2005. In doing so, Morgan
facilities that are traditionally section 203 jurisdiction.49 In the new
Stanley asserts, the Commission creates
two different definitions and types of jurisdictional under the FPA or to section 203(a)(6), Congress directed the
holding companies, thereby nullifying holding company acquisitions of Commission to use the definition of
section 203(a)(6), which states that the companies that are ‘‘public utilities’’ holding company from PUHCA 2005,
term holding company shall have the under the FPA, it would have done so, and that definition includes entities that
same meaning given in PUHCA 2005. just as it did in each part of section own ‘‘electric utility companies’’ as
Thus, Morgan Stanley argues, the 203(a)(1). The expressio unius principle defined in PUHCA 2005. The new
Commission should amend its cited by NARUC to support its position 203(a)(2) requires holding companies
can also be cited to support Order No. that include transmitting utilities (an
regulations to state that companies
669; the fact that Congress specifically FPA definition modified in EPAct 2005
owning only EWGs, or some
limited section 203(a)(1) to actions to be limited to transmission in
combinations of EWGs, QFs, FUCOs,
taken by public utilities, but did not so interstate commerce used for wholesale
and/or power marketers, are not
restrict section 203(a)(2), supports the sales) or electric utilities (defined in the
‘‘holding companies’’ bound to obtain
position that Congress intended the FPA as persons that sell electric
prior approval under section 203(a)(2).
latter provision to have a wider scope. energy—not limited to sales for resale or
d. Commission Determination Moreover, NARUC’s application of to sales in interstate commerce) to
41. We do not agree with those who expressio unius in this instance leads to obtain Commission approval of certain
argue that, because of the statutory a conclusion at odds with common securities transactions, including
usage. We elaborate further below. acquisitions of securities of an ‘‘electric
language and/or policy concerns, the
45. NARUC is correct that section utility company.’’
Commission may not assert jurisdiction
201(b)(1) of the FPA states that Part II
under new section 203(a)(2) over 47. It is reasonable to conclude that,
transactions involving matters that are 48 There is no legislative history contained in the in repealing PUHCA 1935 and
not under our traditional, pre-EPAct conference report accompanying the legislation. importing into the FPA these PUHCA
2005 jurisdiction. The Commission However, the evolution of the various versions of terms—a statute and terms not limited
affirms its determination in Order No. section 203(a)(2) proposed by members supports
our conclusion that Congress purposely did not to companies engaging in interstate
669 that, in light of the ambiguity in limit section 203(a)(2) to holding companies that sales, interstate transmission or
section 203(a)(2), the most reasonable own ‘‘public utilities’’ but, rather, consciously used wholesale transactions—Congress
interpretation of the term ‘‘electric terminology that, for the most part, reflected terms intended to transfer to this Commission
used in PUHCA 2005. See Electricity Competition
utility company’’ is the definition in and Reliability Act, H.R. 2944, 106th Cong. section certain corporate review authority that
PUHCA 2005. Several factors support 410 (1998); Comprehensive Electricity Competition might involve intrastate/retail
this determination. Act, H.R. 1828, 106th Cong. section 502 (1998); acquisitions that could affect interstate
42. First, the focus of new section Comprehensive Electricity Competition Act, S.
1047, 106th Cong. section 502 (1998); Electric commerce and customers of
203(a)(2) is on acquisitions by public Power To Choose Act of 1999, H.R. 2050, 106th Commission-regulated interstate
utility holding companies. The Cong. section 110 (1998); Energy Policy Act of 2002, utilities. Further, as discussed above, in
Commission did not previously have S. 1766 106th Cong. section 202 (2001); Energy other provisions of section 203 Congress
jurisdiction over holding companies, Policy Act of 2003, S. 14, 108th Cong. (2003);
Senate Amendment No. 1412 to S. 14, 149 Cong. specifically limited the Commission’s
and this new authority was enacted as Rec. S. 10163 (July 29, 2003); Senate Amendment review to transactions involving
part of coordinated, comprehensive No. 1413 to S. 14, 149 Cong. Rec. S. 10116–24 (July ‘‘facilities subject to the jurisdiction of
legislation along with the repeal of 29, 2003), 149 Cong. Rec. S. 10204–14 (July 30,
2003); Senate Amendment No. 1537 § 202, 149
49 For example, in section 203(a)(1)(D) Congress

Cong. Rec. S. 10739–40 (July 31, 2003); H.R. Rep.
45 Morgan Stanley Rehearing Request at 3–4. No. 108–375 at 302–03 (Nov. 18, 2003), 149 Cong. gave the Commission new jurisdiction over certain
46 PUHCA 2005 at 1262(6); PUHCA 1935 at 32(e).
Rec. S. 15,220 (Nov. 20, 2003); Energy Policy Act acquisitions of generation facilities. The
47 Morgan Stanley Rehearing Request at 5 (citing of 2005, H.R. 6; Energy Policy Act of 2005, S. 10; Commission under section 201 has no jurisdiction
PUHCA 2005 Final Rule at 366.1 (to be codified at H. Rpt. 109–190 (2005), 149 Cong. Rec. S. 9258 (July over generation facilities, except as specifically
18 CFR 366.1)). 28, 2005), 149 Cong. Rec. S. 9359 (July 29, 2005). provided.
the Commission.’’ It did not place this 50. Further, as discussed in Order No. under section 203(a)(2) is consistent
limitation in section 203(a)(2).50 669 and Order No. 667–A (the PUHCA with our interpretation under PUHCA
48. NARUC cites the principle of 2005 rehearing order), while Congress 2005, and Morgan Stanley’s claim that
expressio unius and argues that expressly excluded from the definition we are creating two different definitions
Congress’ specific statement in section of holding company certain banks and is not correct.
203(a)(6) that three other terms have the other institutions, it did not similarly
54. We also reject Morgan Stanley’s
same meaning as in PUHCA 2005 shows exclude from the definition of holding
argument as it relates to power
that Congress did not intend ‘‘electric company entities that only own QFs,
marketers, but for a different reason. We
utility company’’ to have the same EWGs or FUCOs. Rather, section 1266(a)
decided in the PUHCA 2005 Final Rule
meaning as in PUHCA 2005.51 One can of PUHCA 2005 specifically directs the
Commission to exempt QF/EWG/FUCO to treat power marketers in a manner
just as convincingly argue that Congress
holding companies from the federal consistent with SEC precedent for
inadvertently omitted the term from
access to books and records provision; purposes of interpreting PUHCA 2005,
section 203(a)(6) or that if Congress had
thus, the very language of the provision and therefore, decided not to treat
intended to require us to adopt a
particular definition, it would have recognizes that such entities are holding power marketers as ‘‘electric utility
done so. The fact is that Congress left us companies. It directs the Commission to companies.’’ 55 By extension, therefore,
with no express definition of the term issue a final rule to exempt ‘‘any person a company owning only a power
and that we have exercised reasonable that is a holding company, solely with marketer is not holding an ‘‘electric
discretion in interpreting it. respect to one or more [QFs, EWGs, or utility company’’ and is not a holding
49. Several parties argue that the FUCOs].’’ company. However, power marketers
policy behind EPAct 2005 requires us to 51. Therefore, consistent with our remain public utilities under the FPA.
define ‘‘electric utility company’’ to determination in the PUHCA 2005
3. Section 33.1(c)(1)—Blanket
exclude companies that own only EWGs rehearing order, we are giving full effect
Authorizations: Intrastate Commerce,
or QFs. We disagree. Congress to the statutory language when we
conclude that companies that acquire 10 Local Distribution, and Internal
specifically required, in section Corporate Reorganizations
203(a)(6) of the FPA, that the term percent or more of an EWG, FUCO or
‘‘holding company’’ be given the same QF are holding companies as that term 55. Section 33.1(c)(1) provides that
meaning that was given the term in is used in PUHCA 2005 as well as FPA any holding company in a holding
PUHCA 2005. Under PUHCA 2005, as section 203(a)(2). company system that includes a
explained above, a company is a 52. However, we also have provided transmitting utility or an electric utility
holding company if it acquires 10 an exemption from the PUHCA section is granted a blanket authorization under
percent or more of an electric utility 1264 books and records requirements, as
section 203(a)(2) of the FPA to purchase,
required by section 1266 of PUHCA
company. EWGs, FUCOs 52 and QFs fall acquire, or take any security of: (i) A
2005. Further, based on consideration of
within the definition of ‘‘electric utility transmitting utility or company that
the rehearing comments filed, we will
company’’ under section 1262(5) of owns, operates, or controls only
grant a blanket authorization under
PUHCA 2005 because they own or facilities used solely for transmission in
section 203(a)(2) for holding companies
operate facilities used for the intrastate commerce and/or sales of
that own or control only EWGs, QFs or
generation, transmission or distribution electric energy in intrastate commerce;
FUCOs to acquire the securities of
of electric energy for sale. Moreover, (ii) a transmitting utility or company
additional EWGs, FUCOs or QFs. Thus,
including EWGs, FUCOs and QFs as that owns, operates, or controls only
our definition allows us to ensure that,
electric utility companies is consistent facilities used solely for local
for example, cross-subsidization that
with common usage, which supports distribution and/or sales of electric
affects matters under our traditional
defining electric utility companies as energy at retail regulated by a state
jurisdiction does not occur, while at the
companies owning facilities (generation, commission; or (iii) a transmitting
same time ensuring (through blanket
transmission or distribution) for the sale utility or company if the transaction
authorizations) that investment in the
of electric energy. involves an internal corporate
electric industry is not hampered and
that encouragement of QFs is not reorganization that does not present
50 We note that, in PUHCA 1935, which was not
undermined. cross-subsidization issues and does not
limited to facilities or companies operating in
interstate commerce, Congress directed the 53. We recognize, however, parties’ involve a traditional public utility with
Securities and Exchange Commission (SEC) in claims that there were inconsistencies captive customers.
section 3 to exempt predominantly intrastate because of certain statements in Order
holding companies and holding companies whose a. Section 33.1(c)(1)(i) and (ii)—Blanket
operations are confined to one state or contiguous
No. 667 that EWGs would not be Authorizations for Intrastate Commerce
states (because the states could adequately regulate considered ‘‘electric utility companies.’’ and Local Distribution
these types of holding companies and their A similar statement was included with
activities) unless the SEC found it detrimental to respect to QFs in our recent QF final 56. In Order No. 669, the Commission
the public interest or the interests of investors or
consumers. Although Congress did not give the
rule.53 On rehearing of the Order No. stated that it was not reasonable to
Commission authority under section 203(a)(2) to 667, we are eliminating these statements interpret section 203(a)(2) as being
actually exempt companies from the provision, our with respect to EWGs and clarifying that limited solely to holding company
blanket waivers serve a similar purpose of deferring we intend to eliminate a similar
to the states, as the SEC did under the 1935 Act.
acquisitions and mergers involving
If, however, we find harm to wholesale competition
statement in the QF final rule wholesale sales or transmission in
or customers, the Commission can take an rehearing.54 Thus, our interpretation interstate commerce. However, we
appropriate action. concluded that there would be no
51 The three other terms are: associate company, 53 Revised Regulations Governing Cogneration
benefit from the Commission’s case-by-
holding company and holding company system. and Small Power Production, Order No. 671, 71 FR
52 The Commission explained in Order No. 669 7852 (Feb. 15, 2006), FERC Stats. & Regs. ¶ 31,203
that it interpreted section 203(a)(2) of the FPA as (2006). published elsewhere in this issue of the Federal
applying to foreign acquisitions and therefore 54 Repeal of the Public Utility Holding Company Register, FERC Stats. & Regs. ¶ 31,213 at P 14 & n.
interpreted ‘‘electric utility company’’ to include Act of 1935 and Enactment of the Public Utility 32 (2006).
FUCOs. Holding Company Act of 2005, Order No. 667–A, 55 Order No. 667 at P 123.
case evaluation of certain transactions i. Rehearing Requests distribution-only utility that also is not
under section 203(a)(2).56 59. APPA/NRECA assert that the Commission-jurisdictional, then the
57. The Commission explained that Commission erred in granting blanket Commission would have no jurisdiction
our core jurisdiction under Part II of the authorization of acquisitions of to act on the transaction in the first
FPA continues to be transmission and ‘‘intrastate’’ utilities by holding place. They argue that, if the
sales for resale of electric energy in Commission’s rationale for this blanket
companies. They state that in order for
authorization holds, the Commission’s
interstate commerce. A major impetus the Commission’s justification to be
authority to grant the blanket
behind section 203(a)(2) was to clarify true, i.e., that these transactions do not
authorization evaporates. Thus, APPA/
the Commission’s jurisdiction over affect Commission-regulated wholesale
NRECA state that section 33.1(c)(1)(ii)
mergers of holding companies that own sales in interstate commerce or
should be deleted from the regulations.
public utilities as defined in the FPA.57 Commission-regulated public utilities, 61. APPA/NRECA further argue that
Accordingly, we concluded that it is the blanket authorization would have to the Commission’s own reasoning in
consistent with the public interest to be confined to acquisitions of such Order No. 669 relating to distinctions
grant blanket authorizations for the intrastate utilities by intrastate holding between the uses of generating facilities
following: (1) Section 203(a)(2) companies. However, APPA/NRECA for wholesale sales and retail sales
purchases or acquisitions by holding argue that the regulation allows any undermines the basis for granting
companies of companies that own, holding company (including a holding blanket authorizations for acquisition of
operate, or control facilities used solely company that owns a Commission- securities of ‘‘retail-only’’ utilities. They
for transmission or sales of electric jurisdictional public utility operating in note that in connection with defining
energy in intrastate commerce; and (2) interstate commerce) to acquire an ‘‘existing generation facility,’’ the
section 203(a)(2) purchases or intrastate utility.61 They state that the Commission stated that utilities do not
acquisitions by holding companies of regulation is overbroad, authorizes ordinarily separate the dispatch of their
facilities used solely for local transactions that on their face would plants for retail sales and wholesale
distribution and/or sales at retail affect interstate commerce in electricity, sales and thus adopted the rebuttable
regulated by a state commission.58 and raises the possibility of cross- presumption that existing generation
subsidization and pledge or facilities are used for both wholesale
58. The Commission concluded that encumbrance of utility assets for the sales and retail sales.63 APPA/NRECA
these blanket authorizations are benefit of the holding company at the assert that this premise also leads to the
consistent with the public interest expense of captive customers. However, rebuttable presumption that a holding
because: (1) The identified categories do APPA/NRECA assert that if the blanket company that acquires a utility that
not raise concerns with respect to authorization were limited to wholly owns generation is not acquiring a
competitive wholesale markets for sales intrastate transactions in accordance ‘‘retail-only’’ utility, thus eliminating
in interstate commerce or protection of with the Commission’s rationale, then the basis for granting a blanket
wholesale captive customers served by the Commission would lack FPA authorization of such a transaction
Commission-regulated public utilities— jurisdiction over these transactions in without evidence of that fact. In
matters within this Commission’s core the first place, so no blanket addition, they note that any ‘‘retail-
responsibility and expertise; (2) if these authorization should be required. only’’ utility that does not own any
categories raise competitive issues in Therefore, they state that the generation but meets its power needs
intrastate commerce, i.e., in ERCOT, Commission should delete the section through a portfolio of power contracts
Hawaii, and Alaska,59 those issues are 33.1(c)(1)(i) blanket authorization from and ancillary services is likely to be
within the expertise of, and more its regulations. selling excess wholesale power during
appropriately addressed by, state 60. APPA/NRECA also assert that the some periods. As a consequence, they
commissions; and (3) if competition and Commission erred in granting blanket believe that there is no basis to presume
retail ratepayer protection issues are authorization of acquisitions of ‘‘local- that retail-only utilities exist or to
raised by a holding company’s distribution-only’’ or ‘‘retail-only’’ provide a blanket authorization for such
acquisition of local distribution or other utilities. They assert that the blanket acquisitions.
retail facilities, these issues also are authorization is broader than the
Commission’s rationale (which is that ii. Commission Determination
within the expertise of, and more
appropriately addressed by, state these transactions do not affect 62. We reaffirm our decision to grant
commissions.60 Commission-regulated wholesale sales blanket authorization under section
in interstate commerce or Commission- 203(a)(2) for acquisitions of companies
56 An acquisition or merger involving ‘‘any regulated public utilities), authorizes that own, operate or control only
company that owns or operates facilities used for transactions that would affect facilities used solely for intrastate
the generation, transmission, or distribution of Commission-jurisdictional interstate transmission or intrastate energy sales
electric energy for sale’’ is not on its face limited or for local distribution or retail energy
to interstate facilities.
commerce in electricity and creates
57 Illinois Power Co., 67 FERC ¶ 61,136 (1994) opportunities for cross-subsidization or sales regulated by a state commission.
(noting that the Commission does not have pledge or encumbrance of utility assets The energy sales or transmission
jurisdiction over public holding company mergers for the benefit of the holding company transactions by electric utility
or consolidations, but concluding that, ordinarily, and at the expense of captive companies that fall within this blanket
when public utility holding companies merge, an
indirect merger involving their public utility customers.62 APPA/NRECA assert that, authorization are relatively small
subsidiaries also takes place, and that Commission if, on the other hand, the holding compared to such transactions by other
approval under section 203 would be required). company does not own any electric utility companies. These
58 Order No. 669 at P 56.
Commission-jurisdictional public transactions are unlikely to adversely
59 Similarly, although not raised by the parties,

utilities before the transaction, and it is affect wholesale competition. With
the blanket authorization would apply to any
organized Territory of the United States. acquiring a retail-only or local- respect to possible adverse effects on
60 For these blanket authorizations, the rates of retail captive customers, this
61 APPA/NRECA Rehearing Request at 27.
Commission did not impose any type of filing
requirement. 62 Id. at 28–29. 63 Order No. 669 at P 86.
can be addressed by the state b. Section 33.1(c)(1)(iii)—Blanket traditional public utility with captive
commissions with jurisdiction over and Authorizations for Internal Corporate customers.70 They state that a broad
expertise with these types of Reorganizations reading could deny blanket
transactions. Adverse effects on rates of 64. Section 33.1(c)(1)(iii) provides authorizations for a reorganization of an
wholesale captive customers or that intermediate holding company between
customers receiving transmission the public utility and the ultimate
service over jurisdictional transmission Any holding company in a holding company parent holding company even in cases
system that includes a transmitting utility or where the transaction does not affect the
facilities are unlikely but, if they occur,
an electric utility is granted a blanket
we believe we can adequately address authorization under section 203(a)(2) of the
organization of the public utility itself.
any concerns using our rate authority Federal Power Act to purchase, acquire, or These parties suggest that the
under FPA sections 205 and 206. Thus, take any security of * * * (iii) a transmitting Commission revise the regulation to
while APPA/NRECA are correct that utility or company if the transaction involves grant blanket authorization for internal
there may be some interstate effects as an internal corporate reorganization that does reorganizations that do not ‘‘result in
a result of such transactions, at this time not present cross-subsidization issues and the reorganization of a traditional public
we believe that such effects would not does not involve a traditional public utility utility with captive customers.’’ 71
be significant and thus that individual with captive customers. 69. In addition, EEI, Entergy, and
pre-approval by this Commission under 65. In Order No. 669’s preamble, the Duke/Cinergy recommend that the
section 203 is not necessary. We Commission explained that internal Commission consider granting blanket
disagree with APPA/NRECA’s argument corporate reorganizations that do not authorization for certain internal
that the blanket authorization for present cross-subsidization issues and corporate reorganizations that result in
acquisitions of ‘‘retail-only’’ utility do not involve captive customers are the reorganization of a traditional public
securities is inconsistent with the unlikely to cause anticompetitive utility company with captive customers,
Commission’s rebuttable presumption effects.66 as long as an authorized corporate
in Order No. 669 that all generating official verifies that the transaction will
i. Rehearing Requests have no adverse effect on competition,
facilities are used for at least some
wholesale sales. If a company engages in 66. EEI, Entergy, and Duke/Cinergy rates, or regulation and makes
other than de minimis wholesale request that the Commission grant additional verifications (similar to the
transactions, the blanket authorization blanket authorization for internal verifications required for the blanket
will not apply. However, in response to corporate reorganizations under section authorization in section 33.1(c)(5)(ii) for
APPA/NRECA’s concern, we will 203(a)(1) (which addresses public FUCOs with captive customers in the
require that if any public utility within utilities) as well as under 203(a)(2) U.S.).72 They explain that the
the holding company system has captive (which addresses holding companies).67 verifications would ensure that this
customers or owns or provides They note that, in the preamble of Order automatic approval would apply only
transmission service over jurisdictional No. 669, the Commission stated that it when the transaction cannot harm a
transmission facilities, the holding ‘‘is granting blanket authorization for traditional utility company with captive
company must report the acquisition to internal corporate reorganizations that customers.
do not present cross-subsidization 70. Similarly, Coral Power requests
the Commission, including any state
issues and that do not involve a that the Commission grant a blanket
actions and conditions related to the
traditional public utility with captive authorization under section 203(a)(1) for
transaction, and provide an explanation
customers,’’ 68 without drawing any internal corporate reorganizations that
of why the transaction does not result in
distinction between section 203(a)(1) do not present cross-subsidization
cross-subsidization.64
and section 203(a)(2). However, the concerns and do not involve a
63. We clarify that the Commission is traditional public utility with captive
not asserting jurisdiction over intrastate actual regulatory text grants blanket
authorization for internal corporate customers, provided that the
facilities, local distribution facilities, or reorganization is for a lawful objective
retail-only companies under the blanket reorganizations only under section
203(a)(2). within the company’s corporate
authorizations. Rather, we are asserting purposes, compatible with the public
jurisdiction over holding company 67. National Grid requests that the
Commission grant blanket authorization interest, and reasonably necessary or
acquisitions of such companies or appropriate for such purposes.73
facilities for the purpose of ensuring for internal reorganizations involving
that interstate interests are not adversely intermediate holding companies and 70 EEI previously provided an example of such an
affected and we may consider other non-utility associate companies internal corporate reorganization: ‘‘* * * if a
eliminating these blanket authorizations (i.e. the consolidation or dissolution of holding company that owns one or more traditional
if necessary to protect customers.65 such companies and the purchase of public utilities with captive customers also owns
securities of one such company by several EWGs, FUCOs, or other utilities without
captive customers but seeks only to reorganize some
64 In response to APPA’s concerns regarding the
another such company).69 of these non-traditional companies (e.g., by moving
protection of transmission customers, we believe it 68. EEI, Entergy, Duke/Cinergy, and them under other intermediate holding companies),
is appropriate, as discussed infra, at P 147, to apply National Grid request that the this transaction would not involve or affect the
this reporting requirement to holding companies Commission explain what it meant by a traditional utilities * * *’’ November 7, 2005
that include public utilities that own or provide rulemaking comment of EEI (at fn. 17) in Docket No.
reorganization that does not ‘‘involve’’ a RM05–34–000.
transmission service over jurisdictional
71 EEI Rehearing Request at 7, and Attachment A
transmission facilities. Similarly, where relevant for
66 Order No. 669 at P 192.
conditions or requirements applicable to blanket at 1; Entergy Rehearing Request at 5; Duke/Cinergy
67 EEI Rehearing Request at 6–7; Entergy Rehearing Request at 4; and National Grid
authorizations granted herein or to implementing
standards for review of section 203 applications not Rehearing Request at 4; and Duke/Cinergy Rehearing Request at 9.
receiving blanket authorizations, certain conditions Rehearing Request at 4. 72 EEI Rehearing Request at 7–8; Entergy
and requirements will apply to holding company 68 Order No. 669 at P 192. Rehearing Request at 5; and Duke/Cinergy
acquisitions where the holding company includes 69 National Grid Rehearing Request at 7–8 (citing Rehearing Request at 5. See also EEI Comments,
a public utility that has captive customers or owns National Grid Transco, Order Authorizing Various Docket No. RM05–34–000, at 25.
or provides transmission service over jurisdictional Financing Transactions, Money Pool; Reservation of 73 Coral Power Rehearing Request at 6. Coral
transmission facilities. Jurisdiction, Holding Company Act Release No. 35– Power explains that the Commission does not
65 See our response to NARUC, supra PP 45–47. 27898; 83 S.E.C. Docket 2653 (Sept. 30, 2004)). currently require a competitive analysis under pre-
71. If the Commission will not grant utility with captive customers or that captive customers or customers
this blanket authority, EEI, Entergy, and owns or provides transmission service receiving transmission service over
Duke/Cinergy alternatively request that over jurisdictional transmission jurisdictional transmission facilities.
the Commission revise section 33.11(b) facilities. APPA/NRECA does not explain why
to provide for expeditious consideration 74. EEI, Entergy, Duke/Cinergy, and additional conditions or requirements
of ‘‘internal corporate reorganizations National Grid are correct that the phrase are necessary.
that result in the reorganization of a ‘‘does not involve a traditional public
c. Requests for Additional Blanket
traditional public utility with captive utility with captive customers’’ could be
Authorizations
customers but do not present cross- interpreted to deny blanket authority in
subsidization issues.’’ situations where the transaction does i. Rehearing Request
72. APPA/NRECA note that Order No. not affect the organization of the 77. GS Group recommends that the
669 discussed the adoption of traditional public utility itself. Their Commission give blanket authorization
safeguards to prevent cross- suggestion to substitute the phrase under section 203(a)(2) for a holding
subsidization involving certain cash- ‘‘result in the reorganization of a company in a holding company system
management programs and intra- traditional public utility with captive that includes a transmitting utility or
holding company financing customers’’ is reasonable and we will electric utility to acquire securities of
arrangements. However, the modify the regulation accordingly. We industrial self-generators. An industrial
Commission erred in granting blanket also will expand the blanket self-generator would be ‘‘any company
authorizations of holding company authorization to cover reorganizations of that owns generating facilities that total
acquisitions involving internal intermediate holding companies, non- 100 MW or less in size and are used
corporate reorganizations without utility associate companies, and public fundamentally for its own load or for
protective conditions similar to those utilities that are not traditional public sales to affiliated end-users.’’ 76
imposed on blanket authorizations in utilities that have captive customers or 78. GS Group explains that its various
section 33.1(c)(2) for certain securities that own or provide transmission non-utility subsidiaries engage in
purchases by holding companies.74 service over jurisdictional transmission proprietary trading and merchant
ii. Commission Determination facilities, so long as the reorganization banking activities and, in the ordinary
does not present cross-subsidization course of these business activities,
73. The Commission finds no basis for regularly acquire utility securities. They
issues. As a result, we are revising
distinguishing between section 203(a)(1) acquire these securities for the purpose
section 33.1(c)(1)(iii) to address a
and section 203(a)(2) in determining of distribution or resale, as broker/
different issue, as noted below and
that ‘‘internal corporate reorganizations dealers in a fiduciary capacity, or for
adding a new section 33.1(c)(6) to
that do not present cross-subsidization their own accounts (proprietary
incorporate the blanket authorizations
issues are unlikely to cause holdings). GS Group states it has
for internal corporate reorganizations, as
anticompetitive effects.’’ In contrast to requested blanket authorization under
discussed here.75
other types of transactions, we see no section 203(a)(2) for acquisitions of
75. We will not grant herein a blanket
need to require case-by-case filings securities in excess of the $10 million
authorization for internal corporate
under section 203(a)(1) for such threshold. Even if such authorizations
reorganizations that result in the
transactions since, by their very nature, were granted, GS Group states that its
reorganization of a traditional public
internal corporate reorganizations that non-utility subsidiaries would not be
utility with captive customers. To
do not affect the organization of the allowed to acquire in a proprietary
ensure that captive customers and
public utility itself cannot involve capacity 10 percent or more of the
customers receiving transmission
changes of ownership and ultimate voting securities of any electric utility
control of the jurisdictional or service over jurisdictional transmission
facilities are protected, we will continue company or holding company that
generation facilities. Such transactions includes an electric utility company
would not ordinarily result in a change to evaluate such internal corporate
reorganizations on a case-by-case basis. without obtaining separate approval
in direct ownership or control of from the Commission.77
jurisdictional facilities. However, we However, we are revising section
33.11(b) to separately provide in new 79. Furthermore, GS Group says that
emphasize that any internal the blanket authorizations under section
reorganization that would result in a section 33.11(c)(3) for expeditious
consideration of internal corporate 33.1(c)(1)(i) and section 33.1(c)(1)(ii) do
change of direct ownership of or control not allow its non-utility subsidiaries to
over jurisdictional facilities will require reorganizations that result in the
reorganization of a traditional public acquire 10 percent or more of the voting
a filing under section 203(a)(1). securities of an electric utility company.
Accordingly, we will grant blanket utility with captive customers or
customers receiving transmission While GS Group acknowledges that this
authorization under section 203(a)(1) for may be reasonable for acquiring
internal corporate reorganizations that service over jurisdictional transmission
facilities but that do not present cross- securities of a traditional utility with
do not present cross-subsidization captive customers, it contends that such
issues and that do not involve (i.e, do subsidization issues.
76. We are not convinced by APPA/ a limitation is unnecessary as applied to
not result in the reorganization of, as the acquisition of securities of an
explained below) a traditional public NRECA’s argument that Order No. 669
granted blanket authorizations involving industrial company or manufacturer
internal corporate reorganizations that generates power itself and
EPAct 2005 section 203 for such internal corporate
reorganizations because there are no competitive without adequate protective conditions. consumes most of the generated power.
concerns or changes in the control of jurisdictional The blanket authorization applies only
assets where the ultimate parent company remains 76 GS Group Rehearing Request at 4.
the same and all intermediary holding companies
if no cross-subsidization issues are 77 The Commission granted blanket
present and only if there are no affected
remain under the same parent company. authorizations to GS Group that allow its non-
74 APPA/NRECA Rehearing Request at 30–31. utility subsidiaries to hold, in a proprietary
These blanket authorizations pertain to acquisitions 75 Internal corporate reorganizations, as discussed capacity, up to 10 percent of the voting securities
of non-voting securities, voting securities of less here, are provided blanket authorization whether of electric utility companies, subject to certain
than 10 percent and securities of a subsidiary they are accomplished through the acquisition of reporting requirements. See The Goldman Sachs
company within the holding company system. securities or through a merger or consolidation. Group, Inc., 114 FERC ¶ 61,118 at P 22, 27 (2006).
GS Group notes that many industrial ii. Commission Determination a routine and important tool used by
self-generators sell only a small amount 82. The Commission will grant a many large companies to lower the cost
of surplus power at wholesale to the blanket authorization to allow any of capital for their regulated subsidiaries
local interconnected utility. The same company in a holding company system and to improve the rate of return the
public policy considerations (the lack of that includes a transmitting utility or an holding company and its subsidiaries
effects on competitive wholesale electric utility to acquire the securities can receive on their money.79 These
markets for sale in interstate commerce of an electric utility company that owns transactions often involve issuances and
or on wholesale captive customers) that generating facilities that total 100 MW acquisitions of securities that are subject
underlie a blanket authorization or less and are used fundamentally for to FPA sections 204 and 203.80 The
covering acquisitions of such the acquired company’s own individual Commission stated that it did not intend
companies’ securities (in section load or for sales to affiliated end-users to make it more difficult for companies
33.1(c)(1)(i)) apply to acquisitions of (industrial self-generators). Such to take advantage of these types of
transactions meet the standards of transactions. Transfers of funds between
securities of industrial self-generators.
section 203. They are consistent with such companies do not generally
GS Group argues that the 100 MW size
the public interest (because they will present competitive problems. Thus, we
limit will assure that transactions found that it was consistent with the
involving the acquisition of securities of not harm competition, ratepayers, or
regulation) and will not result in the public interest to grant blanket
industrial self-generators will not have authorization under section 203(a)(2)for
an effect on competition in wholesale cross-subsidization of a non-utility
associate company or the pledge or holding companies and their
power markets. subsidiaries to take part in intra-system
encumbrance of utility assets for the
80. Furthermore, GS Group argues benefit of an associate company. This cash management-type programs.
that this modification would be blanket authorization will be reflected a. Rehearing Requests
consistent with the PUHCA 2005 Final in section 33.1(c)(1)(iii).
Rule, 18 CFR 366.3(c), which waives the 83. The Commission also is persuaded 85. EEI, Entergy, and Duke/Cinergy
accounting, record-retention and filing by the rationale provided by Coral request that the Commission modify the
requirements in Part 366 for holding Power and will grant a blanket regulatory text to also grant blanket
authorization for transfers of wholesale authorization under FPA section
companies that own 100 MW of
market-based rate contracts between 203(a)(1) for intra-system financial
generation or less that is used
affiliates that have the same ultimate transactions between public utility
‘‘fundamentally for their own load or for affiliates. They point out that, while
sales to affiliated end-users.’’ GS Group upstream ownership and that are not
affiliated with a traditional public intra-system financings may be
notes that the SEC exempted industrial jurisdictional under section 203(a)(1)
self-generators and their parent holding utility with captive customers. Such
transactions meet the standards of (which applies to acquisitions of
companies from regulation as electric securities by public utilities) and/or
utility companies or holding companies. section 203. They will not harm
competition because even if a contract section 203(a)(2) (which applies to
It says that the SEC also exempted acquisitions of securities by holding
acquisitions of voting securities of such confers control over a generating
resource, the transfer of the contract companies), section 33.1(c)(2) grants
companies from the pre-approval blanket authorization under section
requirements of PUHCA 1935. does not result in a change in ultimate
control. There also will be no effect on 203(a)(2) only. They explain that intra-
81. Coral Power requests that the cost-based rates to captive customers or system cash management or financing
Commission grant a blanket to customers that receive transmission programs typically involve both: (i)
authorization under section 203(a)(1) service over jurisdictional transmission ‘‘Horizontal’’ transactions between two
(which regulates transactions involving facilities, or on regulation. Further, public utility subsidiaries (e.g., one
public utilities) for transfers of since the affiliates are not affiliated with public utility lending money to an
wholesale market-based rate contracts a public utility with captive ratepayers, affiliated public utility), which may be
between affiliates that have the same the transaction will not result in the jurisdictional under section 203(a)(1);
ultimate upstream ownership and that cross-subsidization of a non-utility and (ii) transactions between a holding
are not affiliated with traditional public associate company or the pledge or company and its subsidiaries (e.g., a
utilities with captive ratepayers. It states encumbrance of utility assets for the holding company lending money
that this would be consistent with the benefit of an associate company. We
several affiliated companies into a ‘‘money pool.’’
public interest because such transfers note that the assignment or transfer of Affiliates can then borrow against the funds in the
have no adverse effect on competition, wholesale contracts is subject to section pool, often at below market rates. Additionally, the
rates, or regulation. Such transfers will 205 filing requirements, which include, parent company is often able to achieve a higher
not harm competition because they will among other things, designation of the rate of return on its money pool investments than
any single affiliate could on its own. For a more
not result in any change in ultimate jurisdictional entity that will be the detailed discussion of cash management programs,
control over the wholesale contracts, supplier under the contract. see Regulation of Cash Management Practices,
over any other electric generation, Order No. 634, 68 FR 40500 (July 8, 2003), III FERC
4. Blanket Authorizations for Cash Stats. & Regs. ¶ 31,145 (June 26, 2003), Order No.
transmission, or distribution facilities, Management Programs, Money Pools, 634–A, 68 FR 61993 (Oct. 31, 2003), FERC Stats. &
or over inputs to generation. Coral and Intra-Holding Company Financing Regs. ¶ 31,152 (Oct. 23, 2003) (Cash Management
Power explains that following such Arrangements Rule).
79 Order No. 669 at P 142.
transfers, the Commission will continue
to have jurisdiction over the contracts. 84. In Order No. 669, the Commission 80 The Commission’s authority under section 204
It states that such transfers have no stated that cash management programs, governing the issuance of securities by a public
money pools, and other intra-holding utility was often superseded by the authority of the
effect on captive ratepayers (since SEC under section 318 of the FPA. Section 318 of
customers under market-base rate company financing arrangements 78 are the FPA resolved conflicts of jurisdiction between
the FPA and PUHCA 1935 regarding, among other
contracts are not captive), and therefore 78 While there are several different types of cash things, the issuance of securities in favor of the
will not raise any cross-subsidization management programs, a cash management program SEC. Section 318 was repealed under section 1277
issues. generally involves pooling the cash resources of of PUHCA 2005.
‘‘downward’’ to a subsidiary public 88. APPA/NRECA assert that the with the SEC. Further, the new blanket
utility), which may be jurisdictional Commission granted blanket authorization in section 33.1(c)(7),
under section 203(a)(2). authorization for intra-holding company which applies to public utility
86. EEI, Entergy, and Duke/Cinergy financing transactions without adequate participation in intra-system cash
assert that, based on the preamble safeguards against cross-subsidization or management programs, is subject to
discussion, the Commission apparently pledges or encumbrances of utility safeguards to prevent cross-
intended to cover both types of assets. In discussing the blanket subsidization or encumbrances of utility
transactions, but the regulatory text did approval of these arrangements, Order assets. We also note that public utilities
not incorporate them. In the preamble, No. 669 states that applicants ‘‘must have filing requirements under the
we stated that ‘‘it is consistent with the adopt sufficient safeguards, including Commission’s Cash Management Rule.
public interest to grant a blanket any necessary cash management With respect to whether the
authorization to allow holding controls (such as restrictions on Commission should codify specific
companies and their subsidiaries to take upstream transfers of funds, ring safeguards that must be adopted for
part in intra-system cash management- fencing, etc.) to prevent any cross- money pool transactions, we will
type programs.’’ 81 EEI, Entergy, and subsidization between holding consider this issue at the technical
Duke/Cinergy state that because these companies and their new subsidiaries conference to be held later this year
transactions among public utility before receiving section 203 regarding PUHCA and certain FPA
affiliates are very frequent, it is approval.’’ 84 However, APPA/NRECA section 203 issues.
impractical for them to file for section point out that these requirements do not
203 approval for such transactions. appear in the Commission’s 5. Section 33.1(c)(2)–(c)(4)—Blanket
Thus, blanket authorization for intra- accompanying regulations. Authorizations: Purchases of Voting and
system financings between public utility Non-Voting Securities Under Section
b. Commission Determination
affiliates is necessary to allow 203
companies to effectively manage their 89. First, we clarify that the blanket
authorization granted for money pool 92. Section 33.1(c)(2) provides that
financial needs.82
transactions is intended to authorize any holding company in a holding
87. Similarly, National Grid asserts
‘‘horizontal’’ transactions between company system that includes a
that, while the Commission explicitly
public utility company subsidiaries as transmitting utility or an electric utility
stated in the preamble of Order No. 669
well as ‘‘downward’’ loans from the is granted a blanket authorization under
its intent to grant blanket pre-
holding company to its public utility section 203(a)(2) of the FPA to purchase,
authorization under FPA section 203 for
public utility participation in cash company subsidiaries and we will add acquire, or take: (i) Any non-voting
management programs, the Commission new regulatory text to reflect this. security (that does not convey sufficient
provided no regulatory text to allow for However, the blanket authorization does veto rights over management actions so
utilities and their associate companies not extend to acquisition of securities as to convey control) in a transmitting
(other than holding companies) to issued by entities outside the money utility, an electric utility company, or a
participate in cash management pool. holding company in a holding company
90. Rather than modify the regulatory system that includes a transmitting
programs. It asserts that to ensure that
text in the Final Rule, which addressed utility or an electric utility company; or
the blanket authority granted by the
only ‘‘vertical’’ transactions between (ii) any voting security in a transmitting
Commission in paragraph 142 of Order
public utility holding companies and utility, an electric utility company, or a
No. 669 enables cash management
their subsidiaries, in section 33.1(c)(7), holding company in a holding company
programs to continue, the Commission
we have adopted stand-alone regulatory system that includes a transmitting
should expand the regulatory text to
text addressing ‘‘horizontal’’ public utility or an electric utility company if,
allow all associate companies that
utility money pool transactions subject after the acquisition, the holding
participate as borrowers in cash
to FPA section 203(a)(1)(C). We note company will own less than 10 percent
management programs to continue to
that section 203(a)(1)(C) jurisdiction of the outstanding voting securities; or
‘‘acquire securities’’ in all other program
applies only to public utility (iii) any security of a subsidiary
participants. Specifically, it states that
acquisitions of securities of other public company within the holding company
the Commission should revise section
utilities. Such authorization is not system.
33.1(c)(2) to cover both holding
required under section 203(a)(1) for a 93. Section 33.1(c)(3) provides that
companies and any transmitting utility,
public utility to acquire securities of a the blanket authorizations granted
electric utility company, or public
non-public utility. Therefore, there is no under section (c)(2) are subject to the
utility within the holding company
need to broaden the regulatory text as conditions that the holding company
system.83 National Grid states that the
requested by National Grid to cover shall not: (i) Borrow from any electric
provision should also be revised to
public utility acquisitions of securities utility company subsidiary in
incorporate requisite blanket authority
of non-public utilities. connection with such acquisition; or (ii)
under FPA section 203(a)(1) for public 91. In response to APPA/NRECA, we
utilities to participate in cash pledge or encumber the assets of any
note that the blanket authorizations electric utility company subsidiary in
management programs. under section 203(a)(2) for holding connection with such acquisition.
81 EEI Rehearing Request at 4 (citing Order No.
company acquisitions of non-voting
securities, voting securities of less than 94. Section 33.1(c)(4) provides that a
669 at P 142 (emphasis added); Entergy Rehearing
Request at 2; and Duke/Cinergy Rehearing Request 10 percent of a company, and securities holding company granted blanket
at 2. of subsidiaries are all subject to the authorizations in section (c)(2) shall
82 See EEI Rehearing Request at Attachment A at
requirement that the holding company provide the Commission with the same
1–2, section 33.1(c)(3). Attachment A contains a

provide the Commission with copies of information, on the same basis, that the
black-lined version of regulation 33.1(c), revised to holding company provides to the SEC in
include a blanket authorization for intra-system certain information required to be filed
financial transactions between public utility connection with any securities
affiliates under section 203(a)(1). 84 APPA/NRECA Rehearing Request at 30 (citing purchased, acquired or taken pursuant
83 National Grid Rehearing Request at 5. Order No. 669 at P 143). to this section.
a. Section 33.1(c)(2)(i)—Purchases of non-voting when issued or acquired but jurisdictional facilities.90 New FPA
Non-Voting Securities by a Holding can be converted to voting at a later section 203(a)(4) codifies this precedent
Company date, we will treat the security as a and gives the Commission express
95. In Order No. 669, the Commission voting security when it is converted. authority to review changes in control
found that there is no need for case-by- This blanket authorization for under section 203. Coral Power asserts
case examination of a holding acquisition of non-voting securities by a that the disposition of up to 10 percent
company’s purchase of non-voting holding company only relieves the of the outstanding voting securities of a
securities. Such securities generally do holding company of the requirement to public utility or any of its upstream
not convey control and hence do not file an application under section owners is not a change in control for
give the holding company additional 203(a)(2) to obtain prior authorization purposes of FPA section 203(a)(1), as
from the Commission in a specific long as the acquiring entity does not
market power, harm competitive
situation and with certain conditions. hold a direct or indirect managing
markets, or otherwise harm captive
interest in the public utility. It states
customers.85 We did not impose any b. Section 33.1(c)(2)—Holding Company
that, where there is no change in
type of filing requirement with respect Purchases of Less than 10 Percent of
control, there can be no harm to
to such transactions.86 Outstanding Voting Securities
competition or captive ratepayers as a
i. Rehearing Request 98. The Commission granted blanket result of such a transaction.
authorization for a holding company in
96. APPA/NRECA assert that the a holding company system to purchase ii. Commission Determination
Commission should not have granted less than 10 percent of the outstanding 101. APPA/NRECA advocate a
this blanket authorization. They state voting securities of a public utility or a reduction, from 10 percent to 5 percent,
that the Commission cites no basis in holding company covered by section in the level of outstanding voting
the record for its finding that such 203(a)(2). We conditioned the blanket securities in a public utility or a public
transactions generally do not harm authorization ‘‘by requiring the utility holding company that another
competition or otherwise disadvantage purchaser of such securities to provide holding company may acquire under the
captive customers.87 According to the Commission, not more than 45 days blanket authorization the Commission
APPA/NRECA, non-voting securities after the purchase, with the same granted in Order No. 669. They cite to
may take many different forms, limited information on the same basis that the the Commission’s conclusion in the
only by the imagination of creative deal- holding company now provides to the RTO Rule that limited market
makers and lawyers. APPA/NRECA SEC.’’ 88 The Commission stated that it participants to no more than a 5 percent
assert, for instance, that securities that would issue notices of these filings for active ownership interest in an RTO. We
are non-voting can be important in the informational purposes only. will deny APPA/NRECA’s request for
overall financial structure of many rehearing. In the RTO Rule, we
corporations or may, in the future, i. Rehearing Requests
reviewed various thresholds for
accrue voting rights, such as in the case 99. APPA/NRECA assert that the presuming a lack of independence,
of convertible debt. Therefore, they Commission should not have granted including those found in the decisions
argue, the Commission should review this blanket authorization. They assert of other agencies. We concluded that,
such transactions on a case-by-case that the Commission should set the because of particular concerns with the
basis. If a party is uncertain whether a ownership threshold at less than 5 independence of RTOs, a limitation of 5
particular acquisition is a transfer of percent, as with the safe harbor percent was appropriate. However, we
control that warrants a section 203 provisions of the RTO Rule 89 governing noted that, in other contexts, we had
application, it can seek a declaratory active ownership interests by market determined that holding 10 percent of a
order. participants in regional transmission company’s voting stock was the level at
organizations (RTOs). APPA/NRECA which a rebuttable presumption of
ii. Commission Determination
assert that the Commission provides no control applied for purposes of
97. APPA/NRECA has not persuaded justification for using a higher
us that customers will be harmed by the determining whether a company was an
percentage threshold for blanket affiliate.91
blanket authority to acquire non-voting authorization here than it did in its RTO 102. The fact that the Commission
securities. An acquisition of non-voting rule. adopted a 5 percent ownership interest
securities generally does not result in a 100. Coral Power asserts that the as a measure of control for purposes of
change of control because such Commission should grant a blanket
determining an RTO’s independence
securities generally lack mechanisms authorization under FPA section
from market participants does not
like voting or veto rights necessary to 203(a)(1) for dispositions of less than 10
dictate the maximum threshold for a
influence or control management of the percent of the outstanding voting
blanket authorization under section
company. Moreover, section 33.1(c)(3) securities by a public utility to match
203(a)(2). The two situations are quite
specifically prohibits holding the blanket authorization granted to
different. For Order No. 2000, the
companies that use the blanket holding companies to acquire such
Commission was faced with the task of
authorization from borrowing from any securities. It states that the Commission
building confidence that the RTOs
electric utility company subsidiary in has long interpreted section 203 to
would not be subject even to influences
connection with the transaction or from apply to changes in control over
or the appearance of influences that
pledging or encumbering assets of an
would favor one market participant over
electric utility company subsidiary. In 88 Order No. 669 at P 145. This could include
Schedules 13D or 13G and Forms 8–K or 10–Q. another. As a result, the Commission set
those instances where the security is 89 Regional Transmission Organizations, Order the threshold relatively low, prohibiting
No. 2000, 65 FR 809, 855 (Jan. 6, 2000), FERC Stats. an ownership interest of no more than
85 See Cash Management Rule at 29 (discussing

& Regs. ¶ 31,089, at 31,108 (1999), order on reh’g, 5 percent. Our decision here reflects a
exception for non-voting interests that convey Order No. 2000-A, 65 FR 12088 (Mar. 8, 2000),
significant veto rights). FERC Stats. & Regs. ¶ 31,092 (2000), aff’d sub nom.
86 Order No. 669 at P 144. 90 Coral Power Rehearing Request at 7.
Public Utility District No. 1 of Snohomish County,
87 APPA/NRECA Rehearing Request at 31 (citing Washington v. FERC, 272 F.3d 607 (D.C. Cir. 2001) 91 RTO Rule, FERC Stats. & Regs ¶ 31,089 at
Order No. 669 at P 144). (RTO Rule). 31,070.
reasonable balance in determining what would issue notices of these filings for 108. MidAmerican seeks clarification
is consistent with the public interest informational purposes only. of the rule as it pertains to Schedule
under section 203, taking into account 13G only to the extent a Schedule 13G
i. Rehearing Requests
Congress’ intent in EPAct 2005 to is to be filed with respect to the
remove obstacles to much-needed 105. EEI, Entergy, Duke/Cinergy, and reporting of beneficial ownership
investment in the electric utility GS Group request that the Commission interests of less than 10 percent of
industry and to protect ratepayers. revise section 33.1(c)(4) to list the voting equity securities.
Nothing in the request for rehearing has specific SEC schedules and forms that 109. MidAmerican and GS Group also
convinced us that allowing blanket the Commission directed companies to request that the Commission clarify that,
approval for a holding company to file with the Commission, rather than if the submission to the SEC qualifies
acquire less than 10 percent of the just making the more general reference for confidential treatment, the
securities in a public utility or another to the ‘‘same information’’ provided to Commission also should give it
holding company will harm customers. the SEC.93 They state that this change confidential treatment. MidAmerican
Setting the level at the higher end of the would make the text of the rule explains that the investment strategies
rather short spectrum (the low consistent with the Commission’s of banks, brokers, investment managers,
considered by the Commission of 5 discussion in the preamble and in pension funds, and other investors often
percent and the high of 10 percent) footnote 107, which refers specifically involve proprietary and confidential
described by the Commission in the to SEC Schedules 13D and 13G and information and that release of this
RTO Rule will encourage increased Form 13F. GS Group is concerned that information could harm these entities.
investment because it lifts the burden of the general directive to provide the ii. Commission Determination
obtaining pre-authorization under FPA ‘‘same information’’ is overly broad,
section 203(2). creates uncertainty regarding the type of 110. In response to the many industry
information that must be filed with the requests on rehearing, we will specify
103. Coral Power suggests that the
Commission, and could be construed to that it is SEC Schedule 13D, Schedule
Commission give essentially the same
include oral communications with the 13G and Form 13F that the companies
blanket authorization to public utilities
SEC, correspondence, documents are directed to file. To ensure that this
under section 203(a)(1) that we gave to
produced in response to a data request, filing requirement imposes only a de
public utility holding companies under
and other investor disclosure minimis burden, copies of these SEC
section 203(a)(2). The Commission
documents that are only tangentially Schedules 13D and 13G and Form 13F
declines to do so and will continue to
related to an acquisition of securities must be filed with the Commission
review dispositions of jurisdictional
pursuant to section 33.1(c)(4). under the same filing deadlines
facilities by public utilities under FPA
106. Further, GS Group and provided in the SEC rules. We are
section 203(a)(1) on a case-by-case basis.
MidAmerican explain that, while the revising section 33.1(c)(4) accordingly.
Concerns with control, markets and 111. We clarify that, if the SEC
protection of captive customers or preamble indicates that the SEC filings
eliminates such reporting requirements,
customers receiving transmission must be provided to the Commission
the acquirer of securities under the
service over jurisdictional transmission not later than 45 days after the purchase
blanket authorization must continue to
facilities are closely linked with assets of securities being reported, the text of
provide the information required under
directly controlled by the public the rule merely indicates that copies of
the rescinded SEC rule to the
utilities. SEC filings must be provided to the
Commission no later than it would have
Commission ‘‘on the same basis’’
c. Section 33.1(c)(4)—SEC Information been required under the rescinded SEC
provided to the SEC.94 They state that
Provided to the Commission rule. MidAmerican’s request for
the 45-day deadline is inconsistent with
clarification of the reporting
104. As noted above, the Commission the filing deadlines for Schedule 13D,
requirement as it pertains to Schedule
conditioned the blanket authorization Schedule 13G and Form 13F.
13G is unclear, as is the specific change,
for holding companies under section 107. MidAmerican states that should
if any, that it proposes. As noted above,
33.1(c)(2) ‘‘by requiring the purchaser of the SEC eliminate such reporting
however, the Commission is revising the
such securities to provide the requirements, the acquirer of any
reporting requirement as it relates to the
Commission, not more than 45 days securities under the blanket
SEC schedules and form to make filing
after the purchase, with the same authorization should continue to
deadlines and content commensurate
information on the same basis that the provide the information that had been
with SEC requirements.
holding company now provides to the required under the rescinded SEC rule 112. Further, we clarify that requests
SEC.’’ 92 The Commission stated that it to the Commission no later than the for confidential treatment of copies of
time that would have been required the schedules must follow the
92 Accordingly, the Commission directed that the
under the rescinded SEC rule. established procedures for requests for
purchaser of such securities file with the
Commission copies of SEC Schedules 13D, 13G, special treatment of documents
and Form 13F. The Commission explained that SEC Institutional investment managers who exercise
investment discretion over $100 million or more
submitted to the Commission.95 Under
Schedule 13D is required to be filed by any entity
acquiring beneficial ownership of more than 5 must report their holdings on SEC Form 13F. We those procedures, any person submitting
percent of a class of a company’s securities. The noted that requiring this information should impose a document may request privileged
Schedule 13D filing requires, among other things, only a de minimis burden on the holding company, treatment by claiming that some or all
a statement of the purpose(s) of the acquisition of since we are merely requiring the same information
that was filed with the SEC. Further, the
of the information is exempt from the
the securities of the issuer and a description of any
plans or proposals the reporting person may have Commission stated that, should the SEC change its mandatory public disclosure
that relate to or would result in the acquisition of reporting requirements, this information must requirements of the Freedom of
additional securities of the issuer; any extraordinary continue to be filed with the Commission. Information Act (FOIA),96 and should be
93 See, e.g., EEI Rehearing Request at 6, and

corporate transactions, such as a merger, withheld from public disclosure. The
reorganization or liquidation of the issuer or its Attachment A at 2–3, section 33.1(c)(5); Entergy
affiliates; and any changes in the board of directors Rehearing Request at 3; Duke/Cinergy Rehearing Commission places documents for
or management of the issuer. Schedule 13G is the Request at 3–4; and GS Group Rehearing Request
same form, but is used when the person or entity at 7. 95 18 CFR 388.112 (2005).
is making the purchase for investment only. 94 Id. at 8; MidAmerican Rehearing Request at 5. 96 5 U.S.C. 552 (2000).
which privileged treatment is requested Commission authorization to repurchase 203(a)(2). Specifically, they assert that
in a non-public file. When a FOIA its own stock.97 the Commission has granted banks that
requester seeks a document for which function as power marketers relief from
b. Fiduciary Investments and Bank
privileged treatment has been claimed the ‘‘acquisition of securities’’ clause in
Underwriting and Hedging Activities
or when the Commission itself is section 203(a)(1).100 Such banks need
considering release of such information, i. Rehearing Requests not seek prior approval from the
the Commission official who will decide 116. BofA/JPMorgan ask that the Commission when they acquire utility
whether to release the information will Commission clarify that section securities in debt, fiduciary, trading, or
notify the person who submitted the 203(a)(2) does not apply to fiduciary hedging capacities. However, BofA/
document and give that person at least investments by non-bank financial JPMorgan explain that a number of
five calendar days in which to institutions in a Regulated Banking banks have recently become power
comment. Notice of a decision to deny Group.98 They explain that it would not marketers and when that happens, the
a claim of privilege will be given to any be feasible for non-bank fiduciaries to bank becomes a public utility for
person claiming that the information is obtain section 203(a)(2) approval before purposes of FPA section 203. They
privileged no less than five calendar making such investments because many assert that, under EPAct 2005, many
days before disclosure. In addition, Regulated Banking Groups have non- banks that are public utilities are now
when a FOIA requester brings suit in bank subsidiaries that routinely acquire also ‘‘holding companies.’’ Congress
Federal court to compel disclosure of and dispose of equity and debt positions provided that certain holdings of banks,
information for which a person has in utility securities in fiduciary bank operating subsidiaries, and broker-
claimed privileged treatment, the capacities. These fiduciary relationships dealers do not make them ‘‘holding
Commission will notify the person who include the function of trustee, agent, companies’’ in section 1262(8) of EPAct
submitted the document. executor, administrator, guardian, asset 2005. BofA/JP Morgan state that the
manager, and discretionary investment statutory exemption also specifically
6. Other Requested Blanket covers loan collateral, loan liquidation,
adviser.99 BofA/JPMorgan assert that
Authorizations—Holding Company and fiduciary holdings.
these passive investments are not made
Purchasing Its Own Securities, 118. However, BofA/JPMorgan
to permit the Regulated Banking Group
Fiduciary Investments and Bank explain that when banks act as
to exercise control over the operations
Underwriting/Hedging underwriters, they will not know at the
of the issuer. Further, they state that
a. Holding Company Purchasing Its such investments are already outset whether they will be successful
Own Securities comprehensively regulated under in disposing of a sufficient number of
federal and state regimes applicable to shares to assure that their holdings do
i. Rehearing Requests not exceed 5 percent of the issuer after
financial institutions. These regulatory
113. EEI, Entergy, and Duke/Cinergy regimes are designed to assure that the 45 days.101 To comply with section 203,
request that the Commission clarify that holdings by a Regulated Banking Group however, they would have to seek the
a holding company may buy its own in a fiduciary capacity are not used to Commission’s approval immediately to
securities under blanket authority and impermissibly support investments in a retain the shares or risk noncompliance.
need not make a filing under section public utility as principal, and do not Thus, BofA/JPMorgan ask that the
203. They state that, while it may seem provide a basis to exercise Commission issue blanket authorization
obvious that a holding company can impermissible control over a public under section 203(a)(2) for failed
acquire its own securities without utility issuer. For these reasons, BofA/ underwritings and hedging holdings on
section 203 authorization, there is some JPMorgan seek a determination that the same terms and conditions imposed
confusion created by the differing fiduciary investments by their non-bank in the Commission’s orders granting
statutory language of 203(a)(1)(C) and financial institutions do not require blanket authorization to bank power
203(a)(2). Before EPAct 2005, section approval under section 203(a)(2). In the marketers under section 203(a)(1).102
203(a) required prior approval for a alternative, they request blanket Further, they request that Order No. 669
public utility to acquire the security ‘‘of authorization for such fiduciary be clarified to authorize: (i)
any other public utility.’’ In contrast, investments. Underwriting holdings to exceed 45
new section 203(a)(2), requires prior 117. BofA/JPMorgan request that the days and (ii) equity derivative hedging
approval for a holding company to Commission confirm that relief from the holdings, to the extent permitted under
acquire ‘‘any security with a value in ‘‘acquisition of securities’’ clause under the Commission’s orders applicable to
excess of $10,000,000 of * * * a section 203(a)(1) applies under section bank power marketers.
holding company in a holding company 119. Similarly, Morgan Stanley
system that includes a transmitting 97 National Grid plc and National Grid USA, 114 requests that the Commission revise the
utility or an electric utility company.’’ FERC ¶ 61,115 at P 11 (2006).
98 By use of the term ‘‘Regulated Banking 100 See UBS AG and Bank of America, N.A., 101
114. National Grid raises similar Group,’’BofA/JPMorgan means: (i) banks chartered FERC ¶ 61,312 (2002), reh’g granted in part and
arguments and adds that repurchase and regulated under the laws of the United States denied in part, 103 FERC ¶ 61,284 (2003), reh’g
transactions are routine and serve a or a U.S. state, and (ii) bank holding companies granted, 105 FERC ¶ 61,078 (2003) (UBS/Bank of
registered as such with (and subject to supervision America); JPMorgan Chase Bank, N.A., Docket No.
variety of business needs, including ER05–283 (unpublished letter order dated March
and regulation by) the Federal Reserve Board under
facilitating stock issuances under the Bank Holding Company Act of 1956 (as 18, 2005).
legitimate stock plans and managing amended by the Gramm-Leach-Bliley Act of 1999, 101 BofA/JPMorgan Rehearing Request at 19. They
capital structure. in each case together with their subsidiaries. BofA/ explain that in a successful underwriting, the
JPMorgan also explain that the Commission’s underwriter purchases shares from the issuer and
ii. Commission Determination blanket authorization of the acquisition of up to 10 immediately resells those shares in the market. In
percent of voting equity of utilities does not provide a failed underwriting, the underwriter is not able
115. In an order issued after the final adequate relief, since on an aggregate basis all to resell those shares immediately and will attempt
rule, the Commission ruled that the holdings in a fiduciary and/or proprietary capacity to sell the unsold shares in an orderly manner over
most reasonable interpretation of under a large banking group may in the ordinary a period of time following the closing of the initial
course of business exceed the 10 percent threshold. purchase.
section 203(a)(2) is that a holding BofA/JPMorgan Rehearing Request at 13–14. 102 BofA/JPMorgan Rehearing Request at 20
company is not required to obtain 99 Id. at 13. (citing UBS/Bank of America, 103 FERC ¶ 61,284).
blanket authorizations adopted in Order companies or their affiliates will not either qualify for the statutory
No. 669 to permit certain additional result in control over a public utility exclusions in section 1262(8)(B) or have
securities acquisitions and to because the fiduciary has an obligation a blanket authorization to acquire and
differentiate between the acquisition of to manage those holdings in the interest hold covered securities in any amount
securities by a public utility and by non- of the persons on whose behalf such as fiduciaries in the normal course of
utility affiliates. It requests that the securities are held.105 It also explains their business. We cannot find that
Commission grant blanket that any utility securities held as part of these entities qualify for the statutory
authorizations to allow holding underwriting or dealer/trader activities exclusion. The statutory exclusion is
companies and their affiliates to hold: are transitory, so the underwriter or specific only to certain entities under
(1) Voting and non-voting securities, dealer/trader does not have the ability certain conditions.
without limitation, on behalf of or incentive to exercise control over the 124. However, we agree that entities
customers as fiduciaries; (2) voting and issuer.106 With respect to hedging holding covered securities in any
non-voting securities, without activities, Morgan Stanley asserts that, if amount as fiduciaries in the normal
limitation, in the ordinary course of the acquiring entity agrees not to vote an course of their business or as collateral
their business as underwriters or interest held as principal beyond the for loans or in connection with loan
dealers; 103 (3) up to the less than 10 authorized 10 percent limit, it will not liquidation and that are, in the course of
percent limit in section 33.1(c)(2)(ii) of exercise control over the public utility. that business, subject to the regulatory
voting securities as principal of each Finally, if the acquiring entity engages oversight of the Board of Governors of
class of voting securities issued by a in passive lease financing for public the Federal Reserve Bank, or the Office
utility or holding company, provided utilities, the Commission has held that of Comptroller of the Currency are likely
that such ownership interest does not it does not need to regulate such to be significantly constrained in their
include a right to control the activity.107 use of those securities so as to not affect
jurisdictional activities of the issuer; (4) 121. Morgan Stanley argues that its regulation, rates or competition under
utility securities in connection with requested blanket authorizations do not the FPA. Therefore, subject to certain
underwriting activities so that give the acquiring entity additional conditions and reporting requirements,
underwriting activities are not subject to market power or enable it to undermine the Commission will grant to entities
the 10 percent limit in section competition or disadvantage captive that are subject to the regulatory
33.1(c)(2), provided that the holding customers. Instead, the blanket oversight of the Federal Reserve Bank or
company or its affiliates file an authority would promote the public the Comptroller of the Currency because
application for section 203(a) approval interest by bringing more capital they are affiliated with banks or bank
within 45 days of any failed investment to the utility industry. If the holding companies regulated by the
underwriting to retain the securities and Commission finds that blanket Federal Reserve Bank under the Bank
commits while the applications remains authorizations should not apply to all Holding Company Act of 1956, as
pending not to vote the utility securities holding companies, Morgan Stanley amended by the Gramm-Leach-Bliley
held as a result of the failed requests that they apply to the activities Act of 1999, a blanket authorization
underwriting; (5) utility securities in of non-utility affiliates of financial under section 203(a)(2) to acquire and
connection with their trading activities institutions. hold as fiduciaries in the normal course
so that the dealer/trader activities are of their business or as collateral for
not subject to the 10 percent limit in ii. Commission Determination loans or in connection with loan
section 203(c)(2); (6) utility securities as 122. Section 1262(8)(B) of PUHCA liquidation an unlimited amount of
lenders so that the acquisitions of debt 2005 excludes from classification as covered securities of public utilities or
securities are not subject to the 10 ‘‘holding companies’’ certain entities public utility holding companies. The
percent limit in section 33.1(c)(2), that hold the securities of public conditions and reporting requirements
except that application under section utilities or public utility holding are: (1) The holding does not confer a
203 would be required before the companies under certain conditions. right to control, positively or negatively,
holding company or its affiliate could Among these entities are banks, savings the operations through debt covenants
take control by foreclosure, bankruptcy, associations and trust companies, or the or any other means, the operation or
or otherwise; (7) utility securities of any operating subsidiaries of these management of the public utility or
entity formed to acquire, finance, and institutions, holding, as fiduciaries, public utility holding company, except
lease utility assets to any public utility, these securities in the ordinary course of as to customary creditor’s rights or as
electric utility company, or transmitting their respective businesses, and broker- provided under the United States
utility under a long-term net lease; and dealers holding these securities under Bankruptcy Code; and (2) the parent
(8) utility securities in the course of certain conditions. The Commission holding company files with the
routine dealing and trading as recognizes that Order No. 669 does not Commission on a public basis and
principals for their own account so that apply in these situations. within 45 days of the close of each
utility securities acquired as principal 123. BofA/JPMorgan request calendar quarter, both its total holdings
for hedging purposes are excluded from clarification that entities that are not and its holdings as principal, each by
the 10 percent limit in section banks or operating subsidiaries of banks, class, unless the holdings within a class
33.1(c)(2), if the holding company or its but are subject to regulation as banks,108 are less than one percent of outstanding
affiliate commits not to vote such shares, irrespective of the capacity in
securities.104 105 Id. at 9 (citing UBS/Bank of America, 103 which they were held.
120. Morgan Stanley explains that FERC ¶ 61,284, at P 11). 125. Morgan Stanley requests a
fiduciary holdings by holding 106 Id. (citing UBS/Bank of America, 103 FERC blanket authorization under section
¶ 61,284, at P 13).
103 Morgan Stanley explains that any utility 107 Id. (citing Alliant Energy Corp., 111 FERC
Federal Reserve Board, together with the
securities held as part of underwriting or dealer/ ¶ 61,458 (2005)). subsidiaries of those holding companies, and
trader activities are transitory, so the underwriter or 108 Such regulation applies to: (i) Banks, and their subject to the supervision and regulation of the
dealer/trader does not have the ability or incentive subsidiaries, chartered and regulated under the Federal Reserve Board under the Bank Holding
to exercise control over the issuer. Id. at 13. laws of the United States or a U.S. state, and (ii) Company Act of 1956 (as amended by the Gramm-
104 Morgan Stanley Rehearing Request at 7–9. bank holding companies registered as such with the Leach-Bliley Act of 1999). 12 U.S.C 1843 (2000).
203(a)(2) of the FPA and section and holding public utility securities for in the Bank of America/UBS AG cases.
33.1(c)(2) of the Commission’s the acquisition and holding of an We will add regulatory text to reflect
regulations to acquire and hold up to unlimited amount of covered securities this.
the percentage limit under section as a result of failed underwritings, if 131. BofA/JPMorgan request
33.1(c)(2)(ii) on holdings of voting they are classified as holding companies clarification that the same blanket
securities. There is no need to grant the because they own EWGs or QFs. The authorization previously granted for
requested authorization. Section Commission in individual cases has banks to hold equity securities of public
33.1(c)(2)(ii) grants blanket granted conditional blanket utilities and public utility holding
authorization to acquire voting authorizations to certain banks and their companies as principal for derivatives
securities under the condition stated in subsidiaries to acquire and hold an hedging purposes continues to apply
the regulation notwithstanding that the unlimited amount of covered securities under section 203(a)(2). The
acquisition may exceed $10 million. in connection with failed underwritings. Commission has, for several years,
126. Morgan Stanley requests blanket These authorizations contained two granted blanket authority to certain
authorization under section 203(a)(2) of conditions. First, the authorization ends banks to hold covered securities for
the FPA and section 33.1(c)(2) of the 45 days after acquisition unless the hedging purposes incidental to the
Commission’s regulations to acquire and entity has, within that period, filed an business of banking.111 This has been
hold securities in connection with application for approval under section based in part on the fact that the banks
passive lease financing of public 203 to keep the securities. Second, the are subject to a supervisory standard
utilities. Such authority is already bank or subsidiary must commit, during that generally limits such holdings so
granted under section 33.1(c)(2)(i). the pendency of that application, not to that they typically do not exceed 5
Similarly, Morgan Stanley requests vote the securities. The Commission’s percent of the outstanding shares. The
blanket authorization to acquire and regulatory interests under section Commission, however, has specifically
hold as a lender without regard to the 203(a)(2) in holdings as a result of failed conditioned the blanket authorizations
percentage limitation under section underwritings are similar to its interests on a limitation of the banks’
33.1(c)(2)(ii). Authority to hold debt in such holdings under section authorization to vote the equity shares
instruments, which normally do not 203(a)(1). Therefore, with the two to 5 percent of the outstanding shares.
convey a right to control the public conditions above, we will grant blanket Under PUHCA 2005, a company is a
utility and which Morgan Stanley authorization under section 203(a)(2) to holding company if it owns 10 percent
implies is the case in its request, is banks and their subsidiaries to acquire or more of the securities of a public-
already provided under section and hold an unlimited amount of utility company or of a holding
33.1(c)(2)(i). covered securities in connection with company of any public-utility company.
127. Morgan Stanley requests failed underwritings. The Commission agrees that the holding
reconsideration of Order No. 669 or, in 129. Morgan Stanley also requests by banks of covered securities for
the alternative, blanket authorization blanket authorization to acquire and hedging purposes that are incidental to
under section 203(a)(2) of the FPA so hold an unlimited amount of covered the business of banking are an important
that it may, without the 10 percent or securities in connection with part of the transactions necessary to the
more limitation on outstanding underwriting activities. It is unclear financing of the utility business.
securities, acquire and hold as a whether Morgan Stanley is requesting Therefore, the Commission will grant
fiduciary any amount of covered authority only for failed underwritings. blanket authorization under section
securities. Morgan Stanley does not Of course, if Morgan Stanley or other 203(a)(2), subject to the condition that
claim exemption under section entities are excluded entities under the bank not vote more than 10 percent
1262(8)(B) of PUHCA 2005, nor does it PUHCA section 1262(8)(B), then they of the outstanding shares. We will add
claim that its holdings as a fiduciary are not holding companies; in that case, regulatory text to reflect this.
would be subject to regulatory oversight, blanket authorizations to hold covered 132. Morgan Stanley requests
such as that provided by the Federal securities in connection with a failed clarification that holding covered
Reserve Bank. Finally, while Morgan underwriting is not necessary. securities in connection with hedging
Stanley cites to UBS AG and Bank of 130. The blanket authorization that transactions is not subject to the
America, N.A,109 it does not explain the Commission has granted in limitation of up to 10 percent of
how the safeguards of banking connection with failed underwritings outstanding securities provided under
regulation relied upon by the relies more heavily on the two Order No. 669. It proposes that the
Commission in those cases regarding conditions described above than it does Commission condition the grant on the
holdings as a fiduciary apply to Morgan on the oversight of an alternative commitment of the entity holding the
Stanley’s situation. Therefore the regulatory body, such as the securities, as well as its affiliates, not to
Commission will not grant Morgan Comptroller of Currency or the Federal vote securities held in connection with
Stanley’s request to provide a blanket Reserve System in the Bank of America/ hedging transactions, to the extent that
authorization in our regulations. UBS AG series of decisions, to ensure its holdings are 10 percent or more of
However, we will not preclude that holdings resulting from failed the outstanding securities in that class.
companies from seeking a blanket underwritings are not used to exert A condition removing the holder’s
authorization on a case-by-case basis. control.110 Therefore, the Commission power to vote the securities held for
128. BofA/JPMorgan request will grant a blanket authorization under hedging purposes to the extent they are
confirmation that banks that are power section 203(a)(2) for a holding company 10 percent or more of the securities in
marketers and that have blanket to acquire and hold an unlimited the class outstanding, even though the
authorizations under section 203(a)(1) of amount of covered securities in amount held for hedging is not limited,
the FPA also have blanket connection with a failed underwriting will address the Commission’s concerns
authorizations under section 203(a)(2) of subject to the same conditions imposed with control. Therefore, the Commission
the FPA as holding companies acquiring will grant the blanket authorization
110 UBA AG and Bank of Amercia, N.A., 101 under section 203(a)(2) for companies to
109 MorganStanley Rehearing Request at 9 (citing FERC ¶ 61,312 (2002); 103 FERC ¶ 61,284 (2003);
UBS/Bank of America, 103 FERC ¶ 61,284 at P11). 105 FERC ¶ 61,078 (2003). 111 See supra note 110.
hold an unlimited amount of covered Among the types of protection services agreements subject to review
securities for hedging purposes on the mechanisms that can be proposed by under sections 205 and 206 of the FPA.
condition that they do not vote the are: A general hold harmless provision,
securities held to the extent they are 10 which must be enforceable and a. Rehearing Requests
percent or more of the outstanding administratively manageable, where the 137. APPA/NRECA argue that the
securities in the class. We will add applicant commits that it will protect Commission should have required
regulatory text to reflect this. wholesale customers from any adverse substantive structural protections to
133. We have granted above certain rate effects resulting from the
blanket authorizations for holding ensure that section 203 transactions do
transaction for a significant period of
public utility securities as a fiduciary, not result in cross-subsidization or
time following the transaction; a
for hedging purposes or for purposes of moratorium on increases in base rates pledges or encumbrances of utility
loan collateralization or liquidation. All (rate freeze), where the applicant assets. They request that the
these blanket authorizations require that commits to freezing its rates for Commission describe the specific issues
such holdings occur in the normal wholesale customers under a certain a section 203 application must address
course of business of the company tariff for a significant period of time.113 and the specific assurances and
holding the securities. In response to The Commission stated that it will protective conditions that must be
BofA/JP Morgan, we clarify that address the adequacy of the proposed included to demonstrate that the
holdings that are exempt by virtue of mechanisms on a case-by-case basis. proposed transaction meet the standards
section 1262(8)(B) of PUHCA 2005 will 136. Order No. 669 also stated that of amended FPA section 203(a)(4).115
not be counted for purposes of certain verifications provided in an 138. More fundamentally, however,
determining whether the company application could streamline the APPA/NRECA argue that the
holding such securities is a holding approval process by avoiding a detailed Commission improperly narrowed the
company under section 1262(8) of examination of cross-subsidization and scope of statutory concerns to be
PUHCA 2005; in other words, holdings encumbrance concerns.114 We stated
addressed under amended section 203.
exempt by statute will not be aggregated that we may accept, along with any
They say that ratepayer protection
with securities held in other capacities. protection mechanisms (discussed
conditions such as temporary hold
Holdings by companies as principal for above), on a case-by-case basis, in lieu
of or in addition to any other harmless commitments are not
derivatives hedging purposes are not
explanation, the following four sufficient because Congress was
exempt under section 1262(8)(B) and,
therefore, will be counted for purposes verifications that the proposed concerned about more than simply
of determining whether the company is transaction does not result in, at the ratepayer protection. APPA/NRECA
a holding company. time of the transaction or in the future: assert that the ratepayer protection
(1) Transfers of facilities between a conditions discussed in Order No. 669
7. Section 33.2(j)—General Information traditional utility associate company would be relevant, at most, to how
Requirements Regarding Cross- with wholesale or retail customers cross-subsidization might affect rates;
Subsidization served under cost-based regulation and the conditions do not address the more
134. Section 33.2(j) provides that a an associate company; (2) new issuances structural financial problems of asset
section 203 applicant must provide an of securities by traditional utility pledges or encumbrances.116 APPA/
explanation, with appropriate associate companies with wholesale or NRECA contend that the statute focuses
evidentiary support (Exhibit M to the retail customers served under cost-based not just on rate issues, but more broadly
application): (1) Of how it is providing regulation for the benefit of an associate on preventing the erosion of the
assurance that the proposed transaction company; (3) new pledges or financial viability of regulated utilities
will not result in cross-subsidization of encumbrances of assets of a traditional by draining off their resources into non-
a non-utility associate company or the utility associate company with utility businesses. They assert that
pledge or encumbrance of utility assets wholesale or retail customers served Order No. 669 elsewhere acknowledges
for the benefit of an associate company; under cost-based regulation for the this broader focus when it permits
or (2) if no such assurance can be benefit of an associate company; and (4) applicants seeking to avoid a hearing to
provided, an explanation of how such new affiliate contracts between non- make the four verifications described
cross-subsidization, pledge, or utility associate companies and above, which concern the financial
encumbrance will be consistent with the traditional utility associate companies viability of the regulated utility and
public interest. with wholesale or retail customers cross-subsidization, asset pledges and
135. In Order No. 669, the served under cost-based regulation, encumbrance issues.117 APPA/NRECA
Commission also stated that certain other than non-power goods and
protections may be necessary, on a case- also note that the Commission
by-case basis, in order to protect against 113 Order No. 669 at P 167. These protection
conditioned its grant of blanket
cross-subsidization, pledge or mechanisms are offered only as examples. Whether authorization for intra-holding company
encumbrance of utility assets, and these types of protection mechanisms are sufficient financing arrangements, including cash
in a particular case will depend on the management programs, by requiring
affiliate abuse. The Commission stated circumstances. See, e.g., Merger Policy Statement at
that applicants should proffer ratepayer 30,121–24. applicants to adopt safeguards to
protection mechanisms to assure that 114 Order No. 669 at P 169. The Commission prevent any cross-subsidization between
captive customers are protected from stated that such verifications, considered on a case- holding companies and their new
by-case basis in light of the given transaction, and subsidiaries. They urge the Commission
the effects of cross-subsidization.112 explanations relating to those verifications, as well
as other explanations of how the transaction will to impose a similar requirement on all
112 The Commission also stated that the applicant not result in cross-subsidization, pledge, or section 203 applicants, not just those
bears the burden of proof to demonstrate that encumbrance of utility assets for the benefit of an seeking blanket approval of intra-
customers will be protected. See Central Vermont associate company—or if it does result in such, an
Pub. Serv. Corp., 39 FERC ¶ 61,295, at 61,960 (1987) explanation of how such cross-subsidization,
115 APPA/NRECA Rehearing Request at 13.
(finding of a potential for abuse, the Commission pledge, or encumbrance will be consistent with the
116 Id. at 17.
may disapprove the transaction or place conditions public interest—is to be included as Exhibit M to
on it). the application. 117 Id. at 18 (citing Order No. 669 at P 169).
holding company financing believe that, at a minimum, this term encumbrances of utility assets were to
arrangements.118 should include any public utility: (1) occur, how such cross-subsidization,
139. Rather than allowing applicants Selling electricity at wholesale under pledges or encumbrances would
to avoid a hearing by using the four cost-based rates; (2) selling electricity at nonetheless be consistent with the
verifications, APPA/NRECA assert that retail under cost-based rates; or (3) public interest.125 We believe this will
the Commission should require all owning or providing transmission assure better customer protection and
section 203 applicants to demonstrate service over jurisdictional transmission we will amend the regulatory text to
that cross-subsidization and facilities (which, at least today, also require this demonstration. We do not
encumbrance of utility assets cannot implies cost-based rates).122 APPA/ believe that requiring a detailed
occur or to adopt safeguards against NRECA also would include showing that all four conditions are met
such cross-subsidization or asset transmission customers, as well as retail imposes an unreasonable burden on
encumbrance. All section 203 customers and wholesale customers, as section 203 applicants.
applicants should be required to make ‘‘captive customers.’’ Furthermore, 145. However, not withstanding
a detailed showing that the four APPA/NRECA say that even a utility APPA/NRECA’s request, we do not find
conditions discussed in paragraph 169 with market-based rates can have it necessary to generally require, except
of Order No. 669 are satisfied or that a captive customers and, therefore, can be as noted below, section 203 applicants
transaction that fails any of these tests a traditional utility. The Commission to demonstrate that the transaction
is nonetheless ‘‘consistent with the should not assume that a utility with satisfies the Westar Energy conditions
public interest.’’ 119 This would add market-based rates does not have relating to the future issuance of secured
substance to 18 CFR § 33.2(j). captive customers, in light of and unsecured debt or to certify that
140. APPA/NRECA also argue that the impediments to wholesale competition they will comply with such conditions
Commission erred by not requiring generally in the industry and the in the future. However, if a public
section 203 applications to demonstrate Commission’s own actions in revising utility were to issue secured or
compliance with the Westar Energy 120 the tests for market power and then unsecured debt pursuant to a
conditions on public utility debt or to withdrawing market-based rate Commission section 204 authorization
explain why such requirement is authority in some cases. to finance a section 203 transaction
unnecessary. They explain that, in 143. Finally, TAPSG requests that the undertaken either by itself or its parent
Westar Energy, the Commission Commission clarify that it will consider or affiliate, the public utility would
announced restrictions on all future adverse competitive effects associated have to comply with the Westar Energy
issuances of secured and unsecured with cross-subsidization.123 TAPS conditions as a consequence of
debt by public utilities under section argues that cross-subsidization not only receiving section 204 authorization for
204 of the FPA. These conditions ‘‘were harms the ratepayers who bear its the issuance of debt.
designed to prevent investor-owned expense, but also can injure competition 146. The Commission also will
utilities’’ shareholders and management, in the market where the cross- require that applicants disclose all
whose interests may be different than subsidized company sells. TAPSG existing pledges or encumbrances of
the interests of utility customers, from contends that a commitment by a utility utility assets as part of the application.
taking actions which might jeopardize to hold captive customers harmless from However, contrary to TAPSG’ request,
the utility’s ability to perform its utility increased costs associated with a section we will not generally require the
function and adversely affect its 203 transaction will not address this continuing disclosure of future pledges
customers.’’ 121 APPA/NRECA contend concern.124 or encumbrances of utility assets as a
that the same cross-subsidization condition of authorization. On a case-
b. Commission Determination by-case basis, the Commission may
concerns underlie the express finding
144. On further consideration, the determine that such a condition is
that the Commission is now required to
Commission will grant APPA/NRECA’s necessary to ensure that the transaction
make under amended section 203(a)(4)
request for rehearing and will require all is consistent with the public interest.
before approving any section 203 section 203 applicants (which do not Moreover, section 203(b) authority will
application. include those who have blanket
141. In addition, APPA/NRECA assert allow the Commission to revisit its
authorization) to include, as part of authorization to determine if a further
that the Commission should have
Exhibit M of the application, a detailed condition requiring continuing
required section 203 applicants to
showing that either: (1) All four tests of disclosure is necessary.
disclose all existing pledges and
the four-part framework set forth in 147. In response to APPA/NRECA’s
encumbrances of utility assets. In the Order No. 669 (at P 169), as modified request for clarification regarding the
same vein, TAPSG contends that the herein, are met, thus demonstrating that meaning of ‘‘traditional utility with
Commission should have imposed an the transaction will not result in cross- captive customers,’’ although we will
ongoing requirement that applicants subsidization of a non-utility associate retain and clarify our original definition
disclose future pledges, encumbrances, company or the pledge or encumbrance of the term ‘‘captive customer,’’ as
or cross-subsidization involving the of utility assets for the benefit of an discussed below, we will also separately
assets or businesses that are the subject associate company; or (2) if cross- include APPA’s language to cover
of a section 203 application. subsidization or pledges or public utilities that own or provide
142. APPA/NRECA further request
that the Commission clarify the meaning 122 Id. at 20–21. 125 We will continue to require verifications,
of the term ‘‘traditional utility with 123 TAPSG Request for Rehearing at 3. rather than a showing or demonstration, as a
captive customers’’ in paragraphs 169, 124 APPA/NRECA, in response to footnote 118 in condition of the blanket authorization for holding
192, and 193 of Order No. 669. They Order No. 669, appear to share the same concern. company acquisitions of FUCOs, if the holding
They argue that a utility charging market-based company or its affiliates, subsidiaries, or associate
118 Id.
rates can subsidize those rates by inflating its retail companies within the holding company have
(citing Order No. 669 at P 143). and transmission rates, thereby unfairly eliminating captive customers or own or provide transmission
119 Id.
at 20. wholesale competitors and, in the long run, service over jurisdictional transmission facilities in
120 Westar Energy, 102 FERC ¶ 61,186, clarified,
lessening wholesale competition and raising the United States, as provided in section 33.1(c)(5).
104 FERC ¶ 61,018 (2003). wholesale rates. APPA/NRECA Rehearing Request The Commission’s verification requirements are set
121 APPA/NRECA Rehearing Request at 23. at 21, n. 25. forth in 18 CFR 385.2005(b).
transmission service over Commission- a. Rehearing Requests cause problems, and the Commission
jurisdictional transmission facilities. 150. APPA/NRECA assert that the will perform its review on an
Thus, various conditions or restrictions Commission provides no plausible unexpedited basis if justified.
will apply where a traditional public justification for providing expedited 155. The Commission will also take
utility has captive customers (defined as review for dispositions of only this opportunity to generally address
wholesale or retail electric energy transmission facilities. They argue that requests for expedited review. We often
customers served under cost-based because owning transmission facilities receive section 203 filings in which an
regulation) and also where the public applicant requests that the Commission
is one of the major means of exercising
utility owns or provides transmission expedite its review process and act on
market power, consolidations of control
service over Commission-jurisdictional the filing within a specified time period,
over transmission facilities should be
occasionally thirty days or less. In some
transmission facilities. However, carefully evaluated. They also argue that
of these instances, applicants also ask us
contrary to APPA/NRECA’s proposed the Commission’s regulation of
to give a notice period of less than 21
interpretation, a public utility selling transmission service does not mean that
days. Sometimes, applicants offer no
power only pursuant to market-based transactions involving only
reason for seeking expedited action, or
regulation will not be regarded as a transmission should be accomplished
when they do, the reason is simply that
‘‘traditional public utility with captive with minimal Commission scrutiny.
they wish to close the transaction as
customers’’ and, hence, customers 151. Alternatively, APPA/NRECA
soon as possible. The Commission notes
served at market-based rates will not be state that if the Commission retains
that applicants themselves are in the
regarded as ‘‘captive customers.’’ The section 33.11(b)(1), it should be clarified
best position to influence the timing of
fact that the Commission is revisiting its and revised. They state that the word
Commission action. In order to have the
tests for granting market-based rate ‘‘particularly’’ in section 33.11(b)(1)
authorization they require at the time
authority or that the authority of some either makes the regulation superfluous
they seek to close the transaction, they
utilities to sell at market-based rates has or makes its meaning unclear. If the
should file an application at the earliest
been withdrawn does not undermine a Commission intended for this clause to
possible time. The Commission (and its
be restrictive (in other words, a staff, for transactions that are acted on
conclusion that customers of utilities
disposition of only transmission under delegated authority) will try to act
with legitimate market-based rate
facilities does not generally warrant as quickly as possible on all
authority are not ‘‘captive customers.’’
expedited review unless the condition applications, but particularly on those
We do not approve market-based rates in the clause is met), then it should omit
unless we find that the utility does not that warrant expedited review.130
the word ‘‘particularly.’’ 128 However, the Commission and its staff
have market power. 152. Further, they say that the
take seriously the regulation that
148. TAPSG requests that the regulation should provide for expedited
provides for a 21-day notice period for
Commission clarify that we will review only if the transmission facilities applications that we deem qualify for
consider the effect of cross- will remain in the same RTO or ISO. expedited review. We believe that, in
subsidization on competition. They state that such transactions should most circumstances, 21 days is the
Intervenors can always argue that a receive special scrutiny, not expedited minimum period necessary for
particular transaction may result in review. interested persons to conduct an
cross-subsidization and that this may b. Commission Determination adequate review of the application.
affect competition. We will address Applicants that seek a lesser notice
153. We will delete the word
such arguments based on the facts in a period or that request action within a
‘‘particularly,’’ as it is confusing, from
particular case. specified time period must clearly
section 33.11(b)(1), newly restated as
section 33.11(c)(1). However, we will identify a significant harm to the public
8. Section 33.11(b)—Commission
interest, as opposed to a private
Procedures for Consideration of not require that to warrant expedited
commercial interest, that justifies action
Applications under Section 203 of the review, the transaction must maintain
within that time period. We remind
FPA the transmission facilities in the same
applicants that they must also provide
RTO or ISO. As we stated in Order No.
149. Section 33.11(b) states that the a fully completed application,
669:
Commission will expeditiously consider responsive to all of the regulations, to
the standards set forth in Order No. 2000 avoid the need for a deficiency letter,
completed section 203 applications that require extensive information from RTO which creates delay.131
are not contested, do not involve applicants that we believe will demonstrate
mergers, and are consistent with whether the proposal is in the public interest. B. Amendments to 18 CFR 2.26—The
Commission precedent.126 It provides It also has been our experience that Merger Policy Statement
that dispositions of only transmission anticompetitive effects are unlikely to arise
with regard to internal corporate 156. In response to the NOPR, APPA/
facilities, ‘‘particularly’’ those that both NRECA and TAPSG recommended that
reorganizations or transactions that only
before and after the transaction are involve the disposition of transmission
under the functional control of a facilities 129 130 By law, the Commission is required to take
Commission-approved RTO or ISO, will initial action on application no later than 180 days
154. Participation in any Commission- after filing.
generally receive expedited
approved RTO or ISO is pro- 131 On occasion, applicants hae no identified all
treatment.127 In Order No. 669, the of the entities that must have approval for the
competitive. We note that the regulation
Commission explained that ISOs and does not provide that such transactions transaction, have not adequately identified or
RTOs are pro-competitive and are described the facilities, the ownership, control or
will always qualify for expedited operation of which may be affected directly or
effective at preventing market power review. Intervenors may inform us in a indirectly by the transaction, or have not provided
abuse because they have market particular case if switching RTOs may the underlying transaction agreement and offered
monitoring and mitigation measures. little, if any, reason, for failing to do so. As a
consequence, unnecessary additional time is
128 APPA/NRECA Rehearing Request at 34. consumed in obtaining the information from
126 Order No. 669 at P 188. 129 Order
No. 669 at 190 (citing Filing applicants and in providing an opportunity for
127 Id. at P 190–91. Requirements Rule at 31,902). others to comment on the information.
the Commission rethink our current on Commission merger review. At a ‘‘Application under Federal Power Act
merger policy and what ‘‘consistent minimum, TAPSG asserts that the Section 203’’ (FERC–519).
with the public interest’’ means in light Commission should commit to review 164. This order on rehearing adopts a
of amended section 203 and the repeal its current merger policy as part of the number of changes in response to the
of PUHCA 1935. In particular, they technical conference that the requests for rehearing of Order No. 669.
suggested that the Commission’s Commission will hold within a year to Four of these are important with respect
Appendix A analysis, which focuses on address issues raised in this proceeding to information collection. First, as noted
the effect on competition in ‘‘common’’ and the PUHCA 2005 Final Rule above, we will require that for holding
markets in which applicants operate, proceeding.135 company acquisitions of securities of
will not be well suited to address the intrastate utilities or utilities that own
effects on competition from the ‘‘cross- 2. Commission Determination or control facilities used solely for local
country’’ mergers that the repeal of 160. We will not reevaluate our distribution or retail sales of electric
PUHCA 1935 will likely encourage. criteria for analyzing the competitive energy regulated by a state commission,
157. In response, in Order No. 669, effects of mergers as part of this if any public utility within the holding
the Commission stated that we are not rulemaking. In Order No. 669, we company system has captive customers,
persuaded to change our current explained that, after the Commission the holding company must report the
policies now. We said that our standard has gained more experience in acquisition to the Commission,
of review is sufficiently flexible to evaluating section 203 applications including any state actions and
consider changes in market structure under the new statute, we may conditions related to the acquisition and
that might result from EPAct 2005 and reevaluate our merger policy.136 We provide an explanation why the
the repeal of PUHCA 1935. However, we continue to believe that more transaction does not result in cross-
also stated that, as we gain experience experience with the new section 203 subsidization. Second, we will require
in evaluating mergers under the new will provide us with better guidance as that for certain holding company
statute, we may reevaluate our merger to whether to reevaluate our merger acquisitions of securities of electric
policy.132 policy. utility companies or transmitting
utilities, or of holding companies that
1. Rehearing Requests 161. We also note that, consistent
include such entities, the parent
158. APPA/NRECA continue to assert with amended section 203(a)(4), we
company file with the Commission, on
that the Commission should reevaluate added new section 2.26(f) to our a public basis and within 45 days of the
its criteria for analyzing mergers in regulations. It provides that the close of each calendar quarter, both its
order to address the likely market Commission will not approve a total holdings and its holdings as
response to the changed regulatory transaction that will result in cross- principal of the securities, each by class,
environment. They expect significant subsidization of a non-utility associate unless the holdings within a class are
merger activity, consolidation and company or pledge or encumbrance of less than one percent of outstanding
restructuring of the industry in the wake utility assets for the benefit of an shares. Third, with regard to the
of the repeal of PUHCA 1935. The associate company unless that cross- submission of Exhibit M of the
Commission should reconsider whether subsidization, pledge, or encumbrance application, all section 203 applicants
its existing merger policy, crafted when will be consistent with the public (excluding those whose transactions fall
PUHCA 1935’s ownership restrictions interest. Thus, in Order No. 669, the under blanket authorizations) must
were in place, addresses the dangers to Commission properly updated its demonstrate that they have met all four
competition and consumers presented merger policy to address Congress’ tests of a four-part framework, as
by new section 203 transactions. The specific concerns with respect to new elaborated herein and in Order No.669,
Commission should consider new section 203. showing that the transaction will not
approaches to analyzing the effect on 162. However, the Commission result in cross-subsidization of a non-
competition beyond those in the current commits to consider whether our utility associate company or the pledge
Appendix A approach. APPA/NRECA current merger policy should be revised or encumbrances of utility assets for the
state that they do not expect the as part of the technical conference to be benefit of an associate company, or if
Commission to develop a new policy for held within one year.137 That technical cross-subsidization or pledges or
evaluating mergers on rehearing of conference will address issues raised encumbrances of utility assets were to
Order No. 669. However, they urge the both in this proceeding and the PUHCA occur, that such results are nonetheless
Commission to set out the procedures 2005 Final Rule proceeding consistent with the public interest.
and timetable for a reexamination of its implementing PUHCA 2005. Fourth, also as part of Exhibit M to the
merger policy.133 IV. Information Collection Statement application, applicants are required to
159. TAPSG concurs with APPA/ disclose all existing pledges or
NRECA’s thoughts on the need to revise 163. The regulations of the Office of encumbrances as part of utility assets.
merger policy and also asserts that the Management and Budget (OMB) 138 We do not believe that this information
Commission should not wait to revise require that OMB approve certain requirement will impose an
its merger policy.134 TAPSG notes that information requirements imposed by unreasonable burden on section 203
the Commission adopted its current an agency. OMB has approved the applicants.
merger policy almost ten years ago and information requirements contained in 165. Any increases in burden will be
that much has changed since then, Order No. 669. Specifically, OMB offset by the additional blanket
including the development of RTOs approved the following information authorizations that the Commission is
with their complicated markets and collection and assigned the granting in this proceeding. Specifically,
locational marginal pricing, repeal of corresponding OMB control numbers: the Commission will grant a blanket
PUHCA 1935, and new time constraints authorization under section 203(a)(1) of
135 Order No. 669 at P 4. the Federal Power Act for certain
132 Order
No. 669 at P 202. 136 Id.at P 202. internal corporate reorganizations,
133 APPA/NRECA Rehearing Request at 38. 137 PUHCA 2005 Final Rule at P 17. provided that the public utility does not
134 TAPSG Rehearing Request at 2–3 and 18–30. 138 5 CFR 1320.12. have captive customers and the
transaction does not present cross- 502–8415, Fax: (202) 273–0873, e-mail: By the Commission.
subsidization issues. The Commission michael.miller@ferc.gov. Magalie R. Salas,
will also grant a blanket authorization 167. To submit comments concerning Secretary.
for holding companies that own or the collection(s) of information and
control only EWGs, QFs or FUCOs to provide estimates on the associated ■ In consideration of the foregoing,
acquire the securities of additional burden of these requirements, please under the authority of EPAct 2005, the
EWGs, FUCOs or QFs. In addition, the send your comments to the contact Commission is amending parts 2 and 33
Commission will grant a blanket listed above and to the Office of of Chapter I, Title 18, Code of Federal
authorization allowing any company in Management and Budget, Office of Regulations, as set forth below:
the holding company system to acquire Information and Regulatory Affairs, PART 2—GENERAL POLICY AND
the securities of an electric company Washington, DC 20503 Attention: Desk INTERPRETATIONS
that owns generating facilities that total Officer for the Federal Energy
100 MW or less and are primarily used Regulatory Commission, phone: (202) ■ 1. The authority citation for part 2 is
for the acquired company’s own load or 395–4650. Comments should be e- revised to read as follows:
for sales to affiliated end-users. The mailed to oira_submission@omb.eop.gov
Authority: 5 U.S.C. 601; 15 U.S.C. 717–
Commission will also grant a blanket and reference the OMB Control number
717w, 3301–3432; 16 U.S.C. 792–825y, 2601–
authorization for transfers of wholesale listed above. 2645; 42 U.S.C. 4321–4361, 7101–7352; Pub.
market-based rate contracts between V. Document Availability L. No. 109–58, 119 Stat. 594.2.
public utility affiliates that have the
same upstream ownership and are not 168. In addition to publishing the full ■ 2. Section 2.26 is amended by revising
affiliated with a traditional public text of this document in the Federal paragraphs (e) and (f) to read as follows:
utility with captive ratepayers. For those Register, the Commission provides all
§ 2.26 Policies concerning review of
entities that are subject to regulatory interested persons an opportunity to applications under section 203.
oversight of the Federal Reserve Bank or view and/or print the contents of this
document via the Internet through * * * * *
the Comptroller of the Currency because
of their affiliation with banks or bank Commission’s Home Page (http:// (e) Effect on regulation. (1) Where the
holding companies that are regulated by www.ferc.gov) and in the Commission’s affected state commissions have
the agencies identified above, the Public Reference Room during normal authority to act on the transaction, the
Commission will grant a blanket business hours (8:30 a.m. to 5 p.m. Commission will not set for hearing
authorization to acquire and hold an Eastern time) at 888 First Street, NE., whether the transaction would impair
unlimited amount of covered securities Room 2A, Washington, DC 20426. effective regulation by the state
for fiduciaries, collateral for loans or for 169. From the Commission’s Home commissions. The application should
loan liquidation, subject to certain Page on the Internet, this information is state whether the state commissions
reporting requirements. Further, the available in the Commission’s document have this authority.
Commission will grant a blanket management system, eLibrary. The full (2) Where the affected state
authorization to the banks and their text of this document is available on commissions do not have authority to
subsidiaries to acquire and hold an eLibrary in PDF and Microsoft Word act on the transaction, the Commission
unlimited amount of covered securities format for viewing, printing, and/or may set for hearing the issue of whether
in connection with failed underwritings, downloading. To access this document the transaction would impair effective
subject to certain conditions. The in eLibrary, type ‘‘RM05–34’’ in the state regulation.
Commission will also grant a blanket docket number field. (f) Under section 203(a)(4) of the
authorization for certain non-banking 170. User assistance is available for Federal Power Act (16 U.S.C. 824b), in
financial institutions to acquire covered eLibrary and the Commission’s Web site reviewing a proposed transaction
securities in a fiduciary capacity or for during normal business hours. For subject to section 203, the Commission
hedging purposes, subject to certain assistance, please contact FERC Online will also consider whether the proposed
conditions and reporting requirements. Support at 1–866–208–3676 (toll free) or transaction will result in cross-
In sum, taking into account both the 202–502–6652 (e-mail at subsidization of a non-utility associate
additional requirements and the FERCOnlineSupport@FERC.gov), or the company or pledge or encumbrance of
additional blanket authorizations, we Public Reference Room at 202–502– utility assets for the benefit of an
believe that one offsets the other and 8371, TTY 202–502–8659 (e-mail at associate company, unless that cross-
will allow the original projected burden public.referenceroom@ferc.gov). subsidization, pledge, or encumbrance
estimates expressed in Order No. 669 to VI. Effective Date will be consistent with the public
stand. We will, however, adjust these interest.
burden estimates accordingly as we 171. Changes to Order No. 669 made
receive filings and we will notify OMB in this order on rehearing will become PART 33—APPLICATIONS UNDER
of any changes that may be necessary. effective on June 15, 2006. FEDERAL POWER ACT SECTION 203
The Commission did not receive any List of Subjects
comments on burden estimates in ■ 3. The authority citation for part 33 is
response to Order No. 669. 18 CFR Part 2 revised to read as follows:
166. Interested persons may obtain Administrative practice and Authority: 16 U.S.C. 791a–825r, 2601–
information on the information procedure, Electric power, Natural gas, 2645; 31 U.S.C. 9701; 42 7101–7352; Pub. L.
requirements by contacting the Pipelines, Reporting and recordkeeping No. 109–58, 119 Stat. 594.
following: The Federal Energy requirements.

■ 4. The heading of part 33 is revised to
Regulatory Commission, 888 First
18 CFR Part 33 read as set forth above.
Street, NE., Washington, DC 20426
[Attention: Michael Miller, Office of the Electric utilities, Reporting and ■ 5. Section 33.1 is revised to read as
Executive Director, ED–34, Phone: (202) recordkeeping requirements, Securities. follows:
§ 33.1 Applicability, definitions, and (i) Transmission facilities, generation political subdivision of a State; or an
blanket authorizations. facilities, transmitting utilities, electric electric power cooperative.
(a) Applicability. (1) The requirements utility companies, and holding (5) For purposes of this part, the term
of this part will apply to any public companies, means the market value of captive customers means any wholesale
utility seeking authorization under the facilities or companies for or retail electric energy customers
section 203 of the Federal Power Act to: transactions between non-affiliated served under cost-based regulation.
(i) Sell, lease, or otherwise dispose of companies; the Commission will (c) Blanket Authorizations. (1) Any
the whole of its facilities subject to the rebuttably presume that the market holding company in a holding company
jurisdiction of the Commission, or any value is the transaction price. For system that includes a transmitting
part thereof of a value in excess of $10 transactions between affiliated utility or an electric utility is granted a
million; companies, value means original cost blanket authorization under section
(ii) Merge or consolidate, directly or undepreciated, as defined in the 203(a)(2) of the Federal Power Act to
indirectly, such facilities or any part Commission’s Uniform System of purchase, acquire, or take any security
thereof with those of any other person, Accounts prescribed for public utilities of:
by any means whatsoever; and licensees in part 101 of this chapter, (i) A transmitting utility or company
(iii) Purchase, acquire, or take any or original book cost, as applicable; that owns, operates, or controls only
(ii) Wholesale contracts, means the facilities used solely for transmission in
security with a value in excess of $10
market value for transactions between intrastate commerce and/or sales of
million of any other public utility; or
non-affiliated companies; the electric energy in intrastate commerce,
(iv) Purchase, lease, or otherwise
Commission will rebuttably presume provided that if any public utility
acquire an existing generation facility:
that the market value is the transaction within the holding company system has
(A) That has a value in excess of $10
price. For transactions between captive customers, or owns or provides
million; and
affiliated companies, value means total transmission service over jurisdictional
(B) That is used in whole or in part
expected nominal contract revenues transmission facilities, the holding
for wholesale sales in interstate
over the remaining life of the contract; company must report the acquisition to
commerce by a public utility.
and the Commission, including any state
(2) The requirements of this part shall actions or conditions related to the
also apply to any holding company in (iii) Securities, means market value
transaction, and shall provide an
a holding company system that includes for transactions between non-affiliated
explanation of why the transaction does
a transmitting utility or an electric companies; the Commission will
not result in cross-subsidization;
utility if such holding company seeks to rebuttably presume that the market (ii) A transmitting utility or company
purchase, acquire, or take any security value is the agreed-upon transaction that owns, operates, or controls only
with a value in excess of $10 million of, price. For transactions between facilities used solely for local
or, by any means whatsoever, directly or affiliated companies, value means distribution and/or sales of electric
indirectly, merge or consolidate with, a market value if the securities are widely energy at retail regulated by a state
transmitting utility, an electric utility traded, in which case the Commission commission, provided that if any public
company, or a holding company in a will rebuttably presume that market utility within the holding company
holding company system that includes a value is the market price at which the system has captive customers, or owns
transmitting utility, or an electric utility securities are being traded at the time or provides transmission service over
company, with a value in excess of $10 the transaction occurs; if the securities jurisdictional transmission facilities, the
million. are not widely traded, market value is holding company must report the
(b) Definitions. For the purposes of determined by: acquisition to the Commission,
this part, as used in section 203 of the (A) Determining the value of the including any state actions or
Federal Power Act (16 U.S.C. 824b). company that is the issuer of the equity conditions related to the transaction,
(1) Existing generation facility means securities based on the total and shall provide an explanation of why
a generation facility that is operational undepreciated book value of the the transaction does not result in cross-
at or before the time the section 203 company’s assets; subsidization; or
transaction is consummated. ‘‘The time (B) Determining the fraction of the (iii) An electric utility company that
the transaction is consummated’’ means securities at issue by dividing the owns generating facilities that total 100
the point in time when the transaction number of equity securities involved in MW or less and are fundamentally used
actually closes and control of the facility the transaction by the total number of for its own individual load or for sales
changes hands. ‘‘Operational’’ means a outstanding equity securities for the to affiliated end-users.
generation facility for which company; and (2) Any holding company in a holding
construction is complete (i.e., it is (C) Multiplying the value determined company system that includes a
capable of producing power). The in paragraph (b)(3)(iii)(A) of this section transmitting utility or an electric utility
Commission will rebuttably presume by the value determined in paragraph is granted a blanket authorization under
that section 203(a) applies to the (b)(3)(iii)(B) of this section (i.e., the section 203(a)(2) of the Federal Power
transfer of any existing generation value of the company multiplied by the Act to purchase, acquire, or take:
facility unless the utility can fraction of the equity securities at issue). (i) Any non-voting security (that does
demonstrate with substantial evidence (4) The terms associate company, not convey sufficient veto rights over
that the generator is used exclusively for electric utility company, foreign utility management actions so as to convey
retail sales. company, holding company, and control) in a transmitting utility, an
(2) Non-utility associate company holding company system have the electric utility company, or a holding
means any associate company in a meaning given those terms in the Public company in a holding company system
holding company system other than a Utility Holding Company Act of 2005. that includes a transmitting utility or an
public utility or electric utility company The term holding company does not electric utility company; or
that has wholesale or retail customers include: A State, any political (ii) Any voting security in a
served under cost-based regulation. subdivision of a State, or any agency, transmitting utility, an electric utility
(3) Value when applied to: authority or instrumentality of a State or company, or a holding company in a
holding company system that includes a transmission service over jurisdictional the normal course of its business and
transmitting utility or an electric utility transmission facilities, for the benefit of the securities are held:
company if, after the acquisition, the an associate company; or (i) As a fiduciary;
holding company will own less than 10 (D) Any new affiliate contracts (ii) As principal for derivatives
percent of the outstanding voting between a non-utility associate hedging purposes incidental to the
securities; or company and a traditional public utility business of banking and it commits not
(iii) Any security of a subsidiary associate company that has captive to vote such securities to the extent they
company within the holding company customers or that owns or provides exceed 10 percent of the outstanding
system. transmission service over jurisdictional shares;
(3) The blanket authorizations granted transmission facilities, other than non- (iii) As collateral for a loan; or
under paragraph (c)(2) of this section are power goods and services agreements (iv) Solely for purposes of liquidation
subject to the conditions that the subject to review under sections 205 and in connection with a loan
holding company shall not: and 206 of the Federal Power Act. previously contracted for and owned
(i) Borrow from any electric utility (iii) A transaction by a holding beneficially for a period of not more
company subsidiary in connection with company subject to the conditions in than two years, with the following
such acquisition; or paragraphs (c)(5)(i) and (ii) of this conditions and reporting requirement:
(ii) Pledge or encumber the assets of section will be deemed approved only The holding does not confer a right to
any electric utility company subsidiary upon filing the information required in control, positively or negatively,
in connection with such acquisition. paragraphs (c)(5)(i) and (ii) of this through debt covenants or any other
(4) A holding company granted section. means, the operation or management of
blanket authorizations in paragraph (6) Any public utility or any holding the public utility or public utility
(c)(2) of this section shall provide the company in a holding company system holding company, except as to
Commission copies of any Schedule that includes a transmitting utility or an customary creditors’ rights or as
13D, Schedule 13G and Form 13F, at the electric utility is granted a blanket provided under the United States
same time and on the same basis, as authorization under sections 203(a)(1) Bankruptcy Code; and the parent
filed with the Securities and Exchange or 203(a)(2) of the Federal Power Act, as holding company files with the
Commission in connection with any relevant, for internal corporate Commission on a public basis and
securities purchased, acquired or taken reorganizations that do not result in the within 45 days of the close of each
pursuant to this section. reorganization of a traditional public calendar quarter, both its total holdings
(5) Any holding company in a holding utility that has captive customers or that and its holdings as principal, each by
company system that includes a owns or provides transmission service class, unless the holdings within a class
transmitting utility or an electric utility over jurisdictional transmission are less than one percent of outstanding
is granted a blanket authorization under facilities, and that do not present cross- shares, irrespective of the capacity in
section 203(a)(2) of the Federal Power subsidization issues. which they were held.
Act to acquire a foreign utility company. (7) Any public utility in a holding (10) Any holding company, or a
However, if such holding company or company system that includes a subsidiary of that company, is granted a
any of its affiliates, its subsidiaries, or transmitting utility or an electric utility blanket authorization under section
associate companies within the holding is granted a blanket authorization under 203(a)(2) of the Federal Power Act to
company system has captive customers section 203(a)(1) of the Federal Power acquire any security of a public utility
in the United States, or owns or Act to purchase, acquire, or take any or a holding company that includes a
provides transmission service over security of a public utility in connection public utility:
jurisdictional transmission facilities in with an intra-system cash management (i) For purposes of conducting
the United States, the authorization is program, subject to safeguards to underwriting activities, subject to the
conditioned on the holding company, prevent cross-subsidization or pledges condition that holdings that the holding
consistent with 18 CFR 385.2005(b), or encumbrances of utility assets. company or its subsidiary are unable to
verifying by a duly authorized corporate (8) A person that is a holding sell or otherwise dispose of within 45
official of the holding company that the company solely with respect to one or days are to be treated as holdings as
proposed transaction: more exempt wholesale generators principal and thus subject to a
(i) Will not have any adverse effect on (EWGs), foreign utility companies limitation of 10 percent of the stock of
competition, rates, or regulation; and (FUCOs), or qualifying facilities (QFs) is any class unless the holding company or
(ii) Will not result in, at the time of granted a blanket authorization under its subsidiary has within that period
the transaction or in the future: section 203(a)(2) of the Federal Power filed an application under section 203 of
(A) Any transfer of facilities between Act to acquire the securities of the Federal Power Act to retain the
a traditional public utility associate additional EWGs, FUCOs, or QFs. securities and has undertaken not to
company that has captive customers or (9) A holding company, or a vote the securities during the pendency
that owns or provides transmission subsidiary of that company, that is of such application; and the parent
service over jurisdictional transmission regulated by the Board of Governors of holding company files with the
facilities, and an associate company; the Federal Reserve Bank or by the Commission on a public basis and
(B) Any new issuance of securities by Office of the Comptroller of the within 45 days of the close of each
a traditional public utility associate Currency, under the Bank Holding calendar quarter, both its total holdings
company that has captive customers or Company Act of 1956 as amended by and its holdings as principal, each by
that owns or provides transmission the Gramm-Leach-Bliley Act of 1999, is class, unless the holdings within a class
service over jurisdictional transmission granted a blanket authorization under are less than one percent of outstanding
facilities, for the benefit of an associate section 203(a)(2) of the Federal Power shares, irrespective of the capacity in
company; Act to acquire and hold an unlimited which they were held;
(C) Any new pledge or encumbrance amount of the securities of holding (ii) For purposes of engaging in
of assets of a traditional public utility companies that include a transmitting hedging transactions, subject to the
associate company that has captive utility or an electric utility company if condition that if such holdings are 10
customers or that owns or provides such acquisitions and holdings are in percent or more of the voting securities
of a given class, the holding company or encumbrance will be consistent with the DEPARTMENT OF ENERGY
its subsidiary shall not vote such public interest.
holdings to the extent that they are 10 Federal Energy Regulatory
percent or more. ■ 7. Section 33.11 is revised to read as Commission
(11) Any public utility is granted a follows:
blanket authorization under section § 33.11 Commission procedures for the 18 CFR Parts 365 and 366
203(a)(1) of the Federal Power Act to consideration of applications under section [Docket No. RM05–32–001, Order No. 667–
transfer a wholesale market-based rate 203 of the FPA. A]
contract to any other public utility
affiliate that has the same ultimate (a) The Commission will act on a Repeal of the Public Utility Holding
upstream ownership, provided that completed application for approval of a Company Act of 1935 and Enactment
neither affiliate is affiliated with a transaction (i.e., one that is consistent of the Public Utility Holding Company
traditional public utility with captive with the requirements of this part) not Act of 2005
customers. later than 180 days after the completed
application is filed. If the Commission Issued April 24, 2006.
■ 6. Section 33.2 is amended by revising
does not act within 180 days, such AGENCY: Federal Energy Regulatory
paragraph (j) to read as follows:
application shall be deemed granted Commission, DOE.
§ 33.2 Contents of application—general unless the Commission finds, based on ACTION: Final Rule; Order on rehearing.
information requirements. good cause, that further consideration is
* * * * * SUMMARY: In this order on rehearing, the
required to determine whether the
(j) An explanation, with appropriate Federal Energy Regulatory Commission
proposed transaction meets the
evidentiary support for such (Commission) reaffirms its
standards of section 203(a)(4) of the FPA
explanation (to be identified as Exhibit determinations in part and grants
and issues, by the 180th day, an order rehearing in part of Order No. 667,
M to this application): tolling the time for acting on the
(1) Of how applicants are providing which amended the Commission’s
application for not more than 180 days, regulations to implement the repeal of
assurance that the proposed transaction at the end of which additional period
will not result in cross-subsidization of the Public Utility Holding Company Act
the Commission shall grant or deny the of 1935 and the enactment of the Public
a non-utility associate company or application.
pledge or encumbrance of utility assets Utility Holding Company Act of 2005.
for the benefit of an associate company, (b) The Commission will provide for DATES: Effective Date: The final rule and
including: the expeditious consideration of order on rehearing are effective June 15,
(i) Disclosure of existing pledges and/ completed applications for the approval 2006.
or encumbrances of utility assets; and of transactions that are not contested, do FOR FURTHER INFORMATION CONTACT:
(ii) A detailed showing that the not involve mergers, and are consistent Lawrence Greenfield (Legal
transaction will not result in: with Commission precedent. Information), Federal Energy
(A) Any transfer of facilities between (c) Transactions, provided that they Regulatory Commission, 888 First
a traditional public utility associate are not contested, do not involve Street, NE., Washington, DC 20426.
company that has captive customers or mergers and are consistent with (202) 502–6415.
that owns or provides transmission Commission precedent, that will Abraham Silverman (Legal Information),
service over jurisdictional transmission generally be subject to expedited review Federal Energy Regulatory
facilities, and an associate company; include: Commission, 888 First Street, NE.,
(B) Any new issuance of securities by Washington, DC 20426. (202) 502–
a traditional public utility associate (1) A disposition of only transmission 6444.
company that has captive customers or facilities, including, but not limited to, James Guest (Technical Information),
that owns or provides transmission those that both before and after the Federal Energy Regulatory
service over jurisdictional transmission transaction remain under the functional Commission, 888 First Street, NE.,
facilities, for the benefit of an associate control of a Commission-approved Washington, DC 20426. (202) 502–
company; regional transmission organization or 6614.
(C) Any new pledge or encumbrance independent system operator; and
SUPPLEMENTARY INFORMATION:
of assets of a traditional public utility (2) Transactions that do not require an Before Commissioners: Joseph T. Kelliher,
associate company that has captive Appendix A analysis; 1 and Chairman; Nora Mead Brownell, and
customers or that owns or provides Suedeen G. Kelly; Order on Rehearing
(3) Internal corporate reorganizations
transmission service over jurisdictional 1. On December 8, 2005, the Federal
that result in the reorganization of a
transmission facilities, for the benefit of Energy Regulatory Commission
traditional public utility that has captive
an associate company; or (Commission) issued Order No. 667,1 in
customers or owns or provides which the Commission amended its
(D) Any new affiliate contract
transmission service over jurisdictional regulations to implement the repeal of
between a non-utility associate
transmission facilities, but do not the Public Utility Holding Company Act
company and a traditional public utility
present cross-subsidization issues. of 1935 and the enactment of the Public
associate company that has captive
customers or that owns or provides [FR Doc. 06–4041 Filed 5–15–06; 8:45 am] Utility Holding Company Act of 2005,
transmission service over jurisdictional BILLING CODE 6717–01–P by adding Subchapter U and Part 366 to
transmission facilities, other than non- its regulations and removing its exempt
power goods and services agreements 1 Inquiry Concerning the Commission’s Merger wholesale generator rules previously
subject to review under sections 205 Policy Under the Federal Power Act; Policy
and 206 of the Federal Power Act; or Statement, Order No. 592, 61 FR 68,595 (Dec. 30, 1 Repeal of the Public Utility Holding Company
1996), FERC Stats. & Regs. ¶ 31,044 (1996), Act of 1935 and Enactment of the Public Utility
(2) If no such assurance can be reconsideration denied, Order No. 592–A, 62 FR Holding Company Act of 2005, Order No. 667, 70
provided, an explanation of how such 33,340 (June 19, 1977), 79 FERC ¶ 61,321 (1997) FR 75592 (Dec. 20, 2005), FERC Stats. & Regs.
cross-subsidization, pledge, or (Merger Policy Statement). ¶ 31,197 (2005).

Rule: Electric Utilities (Federal Power Act) : Rehearing Order

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Rule: Electric Utilities (Federal Power Act) : Rehearing Order

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Tuesday,

May 16, 2006

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

technical conference no later than one year after

21 Order No. 669 at P 120.

companies that own QFs. 1262(8)).

49 For example, in section 203(a)(1)(D) Congress

59 Similarly, although not raised by the parties,

1–2, section 33.1(c)(3). Attachment A contains a

85 See Cash Management Rule at 29 (discussing

93 See, e.g., EEI Rehearing Request at 6, and

following: The Federal Energy requirements.

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