[Federal Register: May 16, 2006 (Volume 71, Number 94)]
[Rules and Regulations]
[Page 28421-28446]
[DOCID:fr16my06-22]

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Part II

Department of Energy

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Federal Energy Regulatory Commission

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

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

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 2 and 33

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

Transactions Subject to FPA Section 203

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

ACTION: Final rule; order on rehearing.

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

EFFECTIVE DATE: June 15, 2006.

FOR FURTHER INFORMATION CONTACT:

Andrew P. Mosier, Jr. (Legal Information), Office of the General
Counsel, Federal Energy Regulatory Commission, 888 First Street, NE.,
Washington, DC 20426.<PHONE_NUMBER>.
Phillip Nicholson (Technical Information), Office of Energy, Markets,
and Reliability--West, Federal Energy Regulatory Commission, 888 First
Street, NE., Washington, DC 20426.<PHONE_NUMBER>.
Jan Macpherson (Legal Information), Office of the General Counsel,
Federal Energy Regulatory Commission, 888 First Street, NE.,
Washington, DC 20426.<PHONE_NUMBER>.
James Akers (Technical Information), Office of Energy, Markets, and
Reliability--West, Federal Energy Regulatory Commission, 888 First
Street, NE., Washington, DC 20426.<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Table of Contents

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

    Before Commissioners: Joseph T. Kelliher, Chairman; Nora Mead
Brownell, and Suedeen G. Kelly.

I. Introduction

    1. On August 8, 2005, the Energy Policy Act of 2005 (EPAct 2005)
\1\ was signed into law. Section 1289 (Merger Review Reform) of Title
XII, Subtitle G (Market Transparency, Enforcement, and Consumer
Protection),\2\ of EPAct 2005 amends section 203 of the Federal Power
Act (FPA).\3\ Amended section 203: (1) Increases (from $50,000 to $10
million) the value threshold above which certain transactions are
subject to section 203; (2) extends the scope of section 203 to include
transactions involving certain transfers of generation facilities and
certain public utility holding companies' transactions with a value in
excess of $10 million; (3) limits the Federal Energy Regulatory
Commission's (Commission) review of a public utility's acquisition of
securities of another public utility to transactions greater than $10
million; (4) requires that the Commission, when reviewing proposed
section 203 transactions, examine cross-subsidization and pledges or
encumbrances of utility assets; and (5) directs the Commission to
adopt, by rule, procedures for the expeditious consideration of
applications for the approval of transactions under section 203.
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    \1\ Energy Policy Act of 2005, Pub. L. 109-58, 119 Stat. 594
(2005).
    \2\ EPAct 2005 at 1281 et seq.
    \3\ 16 U.S.C. 824b (2000).
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    2. On October 3, 2005, the Commission issued a notice of proposed
rulemaking (NOPR) requesting comment on its proposal to amend its
regulations to implement amended section 203.\4\ As discussed below, on
December 23, 2005, the Commission issued a final rule (Order No. 669)
\5\ adopting certain modifications to 18 CFR 2.26 and 18 CFR part 33 to
implement amended section 203. Generally, Order No. 669:
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    \4\ Transactions Subject to FPA Section 203, 70 FR 58636 (Oct.
7, 2005), FERC Stats. & Regs. ] 32,589 (2005).
    \5\ Transactions Subject to FPA Section 203, Order No. 669, 71
FR 1348 (Jan. 6, 2006), FERC Stats. & Regs. ] 31,200 (2005). On
January 10, 2006, the Commission issued an errata notice to Order
No. 669 revising parts of the regulatory text to conform to the
version of the order that was issued in the Federal Register.
Transactions Subject to FPA Section 203, 114 FERC ] 61,018 (2006).
As relevant here, in instruction 7, at 18 CFR 33.11(b)(2), a
footnote was added after ``(2) transactions that do not require
Appendix A analysis,'' reading: ``Inquiry Concerning the
Commission's Merger Policy Under the FederalPower Act: Policy
Statement,'' Order No. 592, 61 FR 68595 (Dec. 30, 1996), FERC Stats.
& Regs. ] 31,044 (1996), reconsideration denied, Order No. 592-A, 62
FR 33340 (June 19, 1997), 79 FERC ] 61,321 (1997) (Merger Policy
Statement).

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

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

also address certain issues raised in this proceeding. These include
whether the blanket authorizations granted in Order No. 669 should be
revised and whether additional protection against cross-subsidization
and pledges or encumbrance of utility assets is needed.\8\
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    \6\ EPAct 2005 at 1261 et seq. Repeal of the Public Utility
Holding Company Act of 1935 and Enactment of the Public Utility
Holding Company Act of 2005, Order No. 667, 70 FR 55805, FERC Stats.
& Regs. ] 31,197 (2005) (PUHCA 2005 Final Rule).
    \7\ PUHCA 2005 Final Rule at P 17. The Commission stated that we
intend to hold a technical conference no later than one year after
PUHCA 2005 became effective to evaluate whether additional
exemptions, different reporting requirements, or other regulatory
actions need to be considered. The PUHCA 2005 Final Rule took effect
on February 8, 2006.
    \8\ Order No. 669 at P 4.
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    4. In this order, the Commission grants rehearing in part, grants
clarification in part, and denies rehearing in part of its Order No.
669. Our actions here will necessitate further changes in the
regulations. In light of the number of regulatory text changes, the
Commission is including the revised regulations in their entirety. In
addition, for the convenience of interested persons, we will include a
version of the revised regulations in their entirety that highlights
the changes from Order No. 669 as a separate attachment. (See Appendix
B.) This attachment will not be published in the Federal Register.

II. Background

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

A. Pre-EPAct 2005 Standards

    6. Prior to EPAct 2005, section 203 provided that

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

    The Commission applied the ``public interest'' standard in
approving proposed transactions. The purpose of the Merger Policy
Statement was to ensure that mergers are consistent with the public
interest and to provide greater certainty and expedition in the
Commission's analysis of merger applications. The Merger Policy
Statement sets out three factors the Commission generally considers
when analyzing whether a proposed section 203 transaction is consistent
with the public interest: Effect on competition; effect on rates; and
effect on regulation. The Commission later issued the Filing
Requirements Rule,\9\ a final rule updating the filing requirements
under 18 CFR part 33 of the Commission's regulations for section 203
applications. The Filing Requirements Rule implements the Merger Policy
Statement and provides detailed guidance to applicants for preparing
applications. The revised filing requirements also assist the
Commission in determining whether section 203 transactions are
consistent with the public interest, provide more certainty, and
provide for expedited review of such applications.
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    \9\  Revised Filing Requirements Under Part 33 of the
Commission's Regulations, Order No. 642, 65 FR 70984 (Nov. 28,
2000), FERC Stats. & Regs., July 1996-Dec. 2000 ] 31,111 (2000),
order on reh'g, Order No. 642-A, 66 FR 16121 (Mar. 23, 2001), 94
FERC ] 61,289 (2001) (codified at 18 CFR part 33 (2005)) (Filing
Requirements Rule).
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B. EPAct Revisions to Section 203 and Order No. 669

    7. Amended section 203(a)(1) states that no public utility shall,
without first having secured an order of the Commission authorizing it
to do so: (A) Sell, lease, or otherwise dispose of the whole of its
facilities subject to the jurisdiction of the Commission, or any part
thereof of a value in excess of $10 million; (B) merge or consolidate,
directly or indirectly, such facilities or any part thereof with those
of any other person, by any means whatsoever; (C) purchase, acquire, or
take any security with a value in excess of $10 million of any other
public utility; or (D) purchase, lease, or otherwise acquire an
existing generation facility: (i) That has a value in excess of $10
million; and (ii) that is used for interstate wholesale sales and over
which the Commission has jurisdiction for ratemaking purposes.
    8. Section 203(a)(2) adds the entirely new requirement that no
holding company in a holding company system that includes a
transmitting utility or an electric utility shall purchase, acquire, or
take any security with a value in excess of $10 million of, or, by any
means whatsoever, directly or indirectly, merge or consolidate with, a
transmitting utility, an electric utility company, or a holding company
in a holding company system that includes a transmitting utility, or an
electric utility company, with a value in excess of $10 million without
prior Commission authorization.
    9. Amended section 203(a)(4) states that, after notice and
opportunity for hearing, the Commission shall approve the proposed
disposition, consolidation, acquisition, or change in control if it
finds that the transaction will be consistent with the public interest.
This standard was contained in the pre-EPAct 2005 section 203 as well.
Amended section 203(a)(4) also provides a new specific requirement that
the Commission must find that the transaction will not result in cross-
subsidization of a non-utility associate company or pledge or
encumbrance of utility assets for the benefit of an associate company,
unless that cross-subsidization, pledge, or encumbrance will be
consistent with the public interest.
    10. Section 203(a)(5) adds the entirely new requirement that the
Commission shall adopt procedures for the expeditious consideration of
applications for the approval of section 203 transactions. Such rules
shall identify classes of transactions, or specify criteria for
transactions, that normally meet the section 203 standards for
approval. The Commission shall provide expedited review for such
transactions. It further provides that the Commission must act on a
proposed section 203 transaction within 180 days of filing but may
extend the time for not more than an additional 180 days for good
cause.
    11. Section 203(a)(6), which is also new, provides that for
purposes of this section, the terms ``associate company,'' ``holding
company,'' and ``holding company system'' have the meaning given those
terms in PUHCA 2005.\10\
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    \10\ EPAct 2005 at 1262.
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    12. Order No. 669 became effective on February 8, 2006. The aspects
of Order No. 669 on which rehearing were filed are described in more
detail below.\11\
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    \11\ The entities that filed requests for rehearing are listed
in an appendix to this order.
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III. Discussion

A. 18 CFR Part 33

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

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

interpretation of new FPA section 203(a)(2). Section 203(a)(2)
provides:

    No holding company in a holding company system that includes a
transmitting utility or an electric utility shall purchase, acquire,
or take any security with a value in excess of $10,000,000 of, or,
by any means whatsoever, directly or indirectly, merge or
consolidate with, a transmitting utility, an electric utility
company, or a holding company in a holding company system that
includes a transmitting utility, or an electric utility company,
with a value in excess of $10,000,000 without first having secured
an order of the Commission authorizing it to do so.

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

regardless of their status under PUHCA 2005, the exemptions set
forth under PUHCA 2005 are not dispositive as to the scope of the
Commission's amended FPA section 203 authority. These PUHCA 2005
exemptions are set forth in the context of federal access to books
and records and, more importantly, unlike PUHCA 2005, FPA section
203 does not give us any express authority to exempt persons or
classes of transactions.\27\
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    \27\ Order No. 669 at P 59. The Commission also noted that while
QFs themselves currently are exempt from section 203's filing
requirements by our regulations promulgated under the Public Utility
Regulatory Policies Act of 1978, PURPA does not give us authority to
exempt holding companies that own QFs.

    30. Further, the Commission stated that were we to interpret
``electric utility company'' for purposes of FPA section 203(a)(2) not
to include EWGs or QFs, this could preclude review of certain
acquisitions of securities of EWGs or QFs by holding companies whose
systems contain traditional public utilities with transmission
facilities and/or captive customers that could be affected by the
acquisitions. The Commission stated that such transactions should not
be excluded from review under section 203 and concluded that it was
reasonable to interpret the statute not to exclude them.\28\ We
recognized the arguments of some commenters that we should not apply
section 203(a)(2) to holding company acquisitions of securities of EWGs
and QFs, or at a minimum should not apply it to such acquisitions by
holding companies that are holding companies solely by virtue of owning
or controlling one or more EWGs, QFs or foreign utility companies
(FUCOs).\29\ These commenters said that applying section 203(a)(2) in
these circumstances would impede investments in QFs and EWGs or result
in unnecessary regulation of upstream owners of QFs and EWGs.\30\ In
response, we stated that the blanket authorizations granted in Order
No. 669 (for certain holding company acquisitions of non-voting
securities and up to 9.9 percent of voting securities in electric
utility companies) will ensure that investment will not be discouraged.
The Commission also noted that we would consider on a case-by-case
basis granting additional blanket authorizations for holding company
acquisitions of securities of EWGs or QFs.
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    \28\ Order No. 669 at P 60.
    \29\ Id.
    \30\ Id.
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    31. In Order No. 669, the Commission explained that this
interpretation of ``electric utility company'' includes FUCOs, but we
granted blanket authorizations for certain foreign acquisitions, with
conditions to protect U.S. customers.\31\ As discussed below, the
Commission also provided other blanket authorizations for transactions
that do not raise concerns about wholesale markets or protection of
wholesale captive customers served by Commission-regulated public
utilities.
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    \31\ See Section 33.1(c)(5). The regulation requires a company
official to verify that the proposed transaction will not have an
adverse effect on competition, rates or regulation and that, now or
in the future, it will not result in the transfer of public utility
facilities to an associate company, issuance of public utility
securities or pledge or encumbrance of public utility assets for the
benefit of an associate company and will not result in certain new
affiliate contracts.
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b. ``Holding Company''
    32. As required by amended section 203(a)(6), section 33.1(b)(4)
provides that the term ``holding company'' has the meaning given that
term in PUHCA 2005.\32\
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    \32\ Order No. 669 at P 69 (citing EPAct 2005 at 1262(8)).
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    33. The Commission rejected requests that we state that only
companies that own traditional utilities, and not those that own solely
FUCOs, EWGs and/or QFs, are ``holding companies'' under amended section
203.\33\ The Commission noted that ``holding company'' in PUHCA 2005
means ``any company that directly or indirectly owns, controls, or
holds, with the power to vote, 10 percent or more of the outstanding
voting securities of a public-utility company or of a holding company
of any public-utility company;

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

even under PUHCA 2005, persons that own or control only EWGs, FUCOs,
or QFs are considered holding companies but are explicitly exempted
from PUHCA 2005 by section 1266. There is no similar exemption in
amended section 203 and we conclude that it is reasonable to
interpret section 203(a)(2) review to include acquisitions of
generation or transmission facilities or companies by holding
companies owning only FUCOs, QFs, and/or EWGs.\36\
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    \36\ Order No. 669 at P 70.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

3. Section 33.1(c)(1)--Blanket Authorizations: Intrastate Commerce,
Local Distribution, and Internal Corporate Reorganizations
    55. Section 33.1(c)(1) provides that any holding company in a
holding company system that includes a transmitting utility or an
electric utility is granted a blanket authorization under section
203(a)(2) of the FPA to purchase, acquire, or take any security of: (i)
A transmitting utility or company that owns, operates, or controls only
facilities used solely for transmission in intrastate commerce and/or
sales of electric energy in intrastate commerce; (ii) a transmitting
utility or company that owns, operates, or controls only facilities
used solely for local distribution and/or sales of electric energy at
retail regulated by a state commission; or (iii) a transmitting utility
or company if the transaction involves an internal corporate
reorganization that does not present cross-subsidization issues and
does not involve a traditional public utility with captive customers.
a. Section 33.1(c)(1)(i) and (ii)--Blanket Authorizations for
Intrastate Commerce and Local Distribution
    56. In Order No. 669, the Commission stated that it was not
reasonable to interpret section 203(a)(2) as being limited solely to
holding company acquisitions and mergers involving wholesale sales or
transmission in interstate commerce. However, we concluded that there
would be no benefit from the Commission's case-by-

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

    \56\ An acquisition or merger involving ``any company that owns
or operates facilities used for the generation, transmission, or
distribution of electric energy for sale'' is not on its face
limited to interstate facilities.
---------------------------------------------------------------------------

    57. The Commission explained that our core jurisdiction under Part
II of the FPA continues to be transmission and sales for resale of
electric energy in interstate commerce. A major impetus behind section
203(a)(2) was to clarify the Commission's jurisdiction over mergers of
holding companies that own public utilities as defined in the FPA.\57\
Accordingly, we concluded that it is consistent with the public
interest to grant blanket authorizations for the following: (1) Section
203(a)(2) purchases or acquisitions by holding companies of companies
that own, operate, or control facilities used solely for transmission
or sales of electric energy in intrastate commerce; and (2) section
203(a)(2) purchases or acquisitions by holding companies of facilities
used solely for local distribution and/or sales at retail regulated by
a state commission.\58\
---------------------------------------------------------------------------

    \57\ Illinois Power Co., 67 FERC ] 61,136 (1994) (noting that
the Commission does not have jurisdiction over public holding
company mergers or consolidations, but concluding that, ordinarily,
when public utility holding companies merge, an indirect merger
involving their public utility subsidiaries also takes place, and
that Commission approval under section 203 would be required).
    \58\ Order No. 669 at P 56.
---------------------------------------------------------------------------

    58. The Commission concluded that these blanket authorizations are
consistent with the public interest because: (1) The identified
categories do not raise concerns with respect to competitive wholesale
markets for sales in interstate commerce or protection of wholesale
captive customers served by Commission-regulated public utilities--
matters within this Commission's core responsibility and expertise; (2)
if these categories raise competitive issues in intrastate commerce,
i.e., in ERCOT, Hawaii, and Alaska,\59\ those issues are within the
expertise of, and more appropriately addressed by, state commissions;
and (3) if competition and retail ratepayer protection issues are
raised by a holding company's acquisition of local distribution or
other retail facilities, these issues also are within the expertise of,
and more appropriately addressed by, state commissions.\60\
---------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

    \64\ In response to APPA's concerns regarding the protection of
transmission customers, we believe it is appropriate, as discussed
infra, at P 147, to apply this reporting requirement to holding
companies that include public utilities that own or provide
transmission service over jurisdictional transmission facilities.
Similarly, where relevant for conditions or requirements applicable
to blanket authorizations granted herein or to implementing
standards for review of section 203 applications not receiving
blanket authorizations, certain conditions and requirements will
apply to holding company acquisitions where the holding company
includes a public utility that has captive customers or owns or
provides transmission service over jurisdictional transmission
facilities.
---------------------------------------------------------------------------

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

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

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

Any holding company in a holding company system that includes a
transmitting utility or an electric utility is granted a blanket
authorization under section 203(a)(2) of the Federal Power Act to
purchase, acquire, or take any security of * * * (iii) a
transmitting utility or company if the transaction involves an
internal corporate reorganization that does not present cross-
subsidization issues and does not involve a traditional public
utility with captive customers.

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

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

i. Rehearing Requests
    66. EEI, Entergy, and Duke/Cinergy request that the Commission
grant blanket authorization for internal corporate reorganizations
under section 203(a)(1) (which addresses public utilities) as well as
under 203(a)(2) (which addresses holding companies).\67\ They note
that, in the preamble of Order No. 669, the Commission stated that it
``is granting blanket authorization for internal corporate
reorganizations that do not present cross-subsidization issues and that
do not involve a traditional public utility with captive customers,''
\68\ without drawing any distinction between section 203(a)(1) and
section 203(a)(2). However, the actual regulatory text grants blanket
authorization for internal corporate reorganizations only under section
203(a)(2).
---------------------------------------------------------------------------

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

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

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

    68. EEI, Entergy, Duke/Cinergy, and National Grid request that the
Commission explain what it meant by a reorganization that does not
``involve'' a traditional public utility with captive customers.\70\
They state that a broad reading could deny blanket authorizations for a
reorganization of an intermediate holding company between the public
utility and the ultimate parent holding company even in cases where the
transaction does not affect the organization of the public utility
itself. These parties suggest that the Commission revise the regulation
to grant blanket authorization for internal reorganizations that do not
``result in the reorganization of a traditional public utility with
captive customers.'' \71\
---------------------------------------------------------------------------

    \70\ EEI previously provided an example of such an internal
corporate reorganization: ``* * * if a holding company that owns one
or more traditional public utilities with captive customers also
owns several EWGs, FUCOs, or other utilities without captive
customers but seeks only to reorganize some of these non-traditional
companies (e.g., by moving them under other intermediate holding
companies), this transaction would not involve or affect the
traditional utilities * * *'' November 7, 2005 rulemaking comment of
EEI (at fn. 17) in Docket No. RM05-34-000.
    \71\ EEI Rehearing Request at 7, and Attachment A at 1; Entergy
Rehearing Request at 5; Duke/Cinergy Rehearing Request at 4; and
National Grid Rehearing Request at 9.
---------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    \78\ While there are several different types of cash management
programs, a cash management program generally involves pooling the
cash resources of several affiliated companies into a ``money
pool.'' Affiliates can then borrow against the funds in the pool,
often at below market rates. Additionally, the parent company is
often able to achieve a higher rate of return on its money pool
investments than any single affiliate could on its own. For a more
detailed discussion of cash management programs, see Regulation of
Cash Management Practices, Order No. 634, 68 FR 40500 (July 8,
2003), III FERC Stats. & Regs. ] 31,145 (June 26, 2003), Order No.
634-A, 68 FR 61993 (Oct. 31, 2003), FERC Stats. & Regs. ] 31,152
(Oct. 23, 2003) (Cash Management Rule).
    \79\ Order No. 669 at P 142.
    \80\ The Commission's authority under section 204 governing the
issuance of securities by a public utility was often superseded by
the authority of the SEC under section 318 of the FPA. Section 318
of the FPA resolved conflicts of jurisdiction between the FPA and
PUHCA 1935 regarding, among other things, the issuance of securities
in favor of the SEC. Section 318 was repealed under section 1277 of
PUHCA 2005.
---------------------------------------------------------------------------

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

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

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

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

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

    88. APPA/NRECA assert that the Commission granted blanket
authorization for intra-holding company financing transactions without
adequate safeguards against cross-subsidization or pledges or
encumbrances of utility assets. In discussing the blanket approval of
these arrangements, Order No. 669 states that applicants ``must adopt
sufficient safeguards, including any necessary cash management controls
(such as restrictions on upstream transfers of funds, ring fencing,
etc.) to prevent any cross-subsidization between holding companies and
their new subsidiaries before receiving section 203 approval.'' \84\
However, APPA/NRECA point out that these requirements do not appear in
the Commission's accompanying regulations.
b. Commission Determination
---------------------------------------------------------------------------

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

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

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

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

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

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

ii. Commission Determination
    97. APPA/NRECA has not persuaded us that customers will be harmed
by the blanket authority to acquire non-voting securities. An
acquisition of non-voting securities generally does not result in a
change of control because such securities generally lack mechanisms
like voting or veto rights necessary to influence or control management
of the company. Moreover, section 33.1(c)(3) specifically prohibits
holding companies that use the blanket authorization from borrowing
from any electric utility company subsidiary in connection with the
transaction or from pledging or encumbering assets of an electric
utility company subsidiary. In those instances where the security is
non-voting when issued or acquired but can be converted to voting at a
later date, we will treat the security as a voting security when it is
converted. This blanket authorization for acquisition of non-voting
securities by a holding company only relieves the holding company of
the requirement to file an application under section 203(a)(2) to
obtain prior authorization from the Commission in a specific situation
and with certain conditions.
b. Section 33.1(c)(2)--Holding Company Purchases of Less than 10
Percent of Outstanding Voting Securities
    98. The Commission granted blanket authorization for a holding
company in a holding company system to purchase less than 10 percent of
the outstanding voting securities of a public utility or a holding
company covered by section 203(a)(2). We conditioned the blanket
authorization ``by requiring the purchaser of such securities to
provide the Commission, not more than 45 days after the purchase, with
the same information on the same basis that the holding company now
provides to the SEC.'' \88\ The Commission stated that it would issue
notices of these filings for informational purposes only.
---------------------------------------------------------------------------

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

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

    \89\ Regional Transmission Organizations, Order No. 2000, 65 FR
809, 855 (Jan. 6, 2000), FERC Stats. & Regs. ] 31,089, at 31,108
(1999), order on reh'g, Order No. 2000-A, 65 FR 12088 (Mar. 8,
2000), FERC Stats. & Regs. ] 31,092 (2000), aff'd sub nom. Public
Utility District No. 1 of Snohomish County, Washington v. FERC, 272
F.3d 607 (D.C. Cir. 2001) (RTO Rule).
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    100. Coral Power asserts that the Commission should grant a blanket
authorization under FPA section 203(a)(1) for dispositions of less than
10 percent of the outstanding voting securities by a public utility to
match the blanket authorization granted to holding companies to acquire
such securities. It states that the Commission has long interpreted
section 203 to apply to changes in control over jurisdictional
facilities.\90\ New FPA section 203(a)(4) codifies this precedent and
gives the Commission express authority to review changes in control
under section 203. Coral Power asserts that the disposition of up to 10
percent of the outstanding voting securities of a public utility or any
of its upstream owners is not a change in control for purposes of FPA
section 203(a)(1), as long as the acquiring entity does not hold a
direct or indirect managing interest in the public utility. It states
that, where there is no change in control, there can be no harm to
competition or captive ratepayers as a result of such a transaction.
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    \90\ Coral Power Rehearing Request at 7.
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ii. Commission Determination
    101. APPA/NRECA advocate a reduction, from 10 percent to 5 percent,
in the level of outstanding voting securities in a public utility or a
public utility holding company that another holding company may acquire
under the blanket authorization the Commission granted in Order No.
669. They cite to the Commission's conclusion in the RTO Rule that
limited market participants to no more than a 5 percent active
ownership interest in an RTO. We will deny APPA/NRECA's request for
rehearing. In the RTO Rule, we reviewed various thresholds for
presuming a lack of independence, including those found in the
decisions of other agencies. We concluded that, because of particular
concerns with the independence of RTOs, a limitation of 5 percent was
appropriate. However, we noted that, in other contexts, we had
determined that holding 10 percent of a company's voting stock was the
level at which a rebuttable presumption of control applied for purposes
of determining whether a company was an affiliate.\91\
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    \91\ RTO Rule, FERC Stats. & Regs ] 31,089 at 31,070.
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    102. The fact that the Commission adopted a 5 percent ownership
interest as a measure of control for purposes of determining an RTO's
independence from market participants does not dictate the maximum
threshold for a blanket authorization under section 203(a)(2). The two
situations are quite different. For Order No. 2000, the Commission was
faced with the task of building confidence that the RTOs would not be
subject even to influences or the appearance of influences that would
favor one market participant over another. As a result, the Commission
set the threshold relatively low, prohibiting an ownership interest of
no more than 5 percent. Our decision here reflects a

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

which privileged treatment is requested in a non-public file. When a
FOIA requester seeks a document for which privileged treatment has been
claimed or when the Commission itself is considering release of such
information, the Commission official who will decide whether to release
the information will notify the person who submitted the document and
give that person at least five calendar days in which to comment.
Notice of a decision to deny a claim of privilege will be given to any
person claiming that the information is privileged no less than five
calendar days before disclosure. In addition, when a FOIA requester
brings suit in Federal court to compel disclosure of information for
which a person has claimed privileged treatment, the Commission will
notify the person who submitted the document.
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    \95\ 18 CFR 388.112 (2005).
    \96\ 5 U.S.C. 552 (2000).
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6. Other Requested Blanket Authorizations--Holding Company Purchasing
Its Own Securities, Fiduciary Investments and Bank Underwriting/Hedging
a. Holding Company Purchasing Its Own Securities
i. Rehearing Requests
    113. EEI, Entergy, and Duke/Cinergy request that the Commission
clarify that a holding company may buy its own securities under blanket
authority and need not make a filing under section 203. They state
that, while it may seem obvious that a holding company can acquire its
own securities without section 203 authorization, there is some
confusion created by the differing statutory language of 203(a)(1)(C)
and 203(a)(2). Before EPAct 2005, section 203(a) required prior
approval for a public utility to acquire the security ``of any other
public utility.'' In contrast, new section 203(a)(2), requires prior
approval for a holding company to acquire ``any security with a value
in excess of $10,000,000 of * * * a holding company in a holding
company system that includes a transmitting utility or an electric
utility company.''
    114. National Grid raises similar arguments and adds that
repurchase transactions are routine and serve a variety of business
needs, including facilitating stock issuances under legitimate stock
plans and managing capital structure.
ii. Commission Determination
    115. In an order issued after the final rule, the Commission ruled
that the most reasonable interpretation of section 203(a)(2) is that a
holding company is not required to obtain Commission authorization to
repurchase its own stock.\97\
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    \97\ National Grid plc and National Grid USA, 114 FERC ] 61,115
at P 11 (2006).
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b. Fiduciary Investments and Bank Underwriting and Hedging Activities
i. Rehearing Requests
    116. BofA/JPMorgan ask that the Commission clarify that section
203(a)(2) does not apply to fiduciary investments by non-bank financial
institutions in a Regulated Banking Group.\98\ They explain that it
would not be feasible for non-bank fiduciaries to obtain section
203(a)(2) approval before making such investments because many
Regulated Banking Groups have non-bank subsidiaries that routinely
acquire and dispose of equity and debt positions in utility securities
in fiduciary capacities. These fiduciary relationships include the
function of trustee, agent, executor, administrator, guardian, asset
manager, and discretionary investment adviser.\99\ BofA/JPMorgan assert
that these passive investments are not made to permit the Regulated
Banking Group to exercise control over the operations of the issuer.
Further, they state that such investments are already comprehensively
regulated under federal and state regimes applicable to financial
institutions. These regulatory regimes are designed to assure that the
holdings by a Regulated Banking Group in a fiduciary capacity are not
used to impermissibly support investments in a public utility as
principal, and do not provide a basis to exercise impermissible control
over a public utility issuer. For these reasons, BofA/JPMorgan seek a
determination that fiduciary investments by their non-bank financial
institutions do not require approval under section 203(a)(2). In the
alternative, they request blanket authorization for such fiduciary
investments.
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    \98\ By use of the term ``Regulated Banking Group,''BofA/
JPMorgan means: (i) banks chartered and regulated under the laws of
the United States or a U.S. state, and (ii) bank holding companies
registered as such with (and subject to supervision and regulation
by) the Federal Reserve Board under the Bank Holding Company Act of
1956 (as amended by the Gramm-Leach-Bliley Act of 1999, in each case
together with their subsidiaries. BofA/JPMorgan also explain that
the Commission's blanket authorization of the acquisition of up to
10 percent of voting equity of utilities does not provide adequate
relief, since on an aggregate basis all holdings in a fiduciary and/
or proprietary capacity under a large banking group may in the
ordinary course of business exceed the 10 percent threshold. BofA/
JPMorgan Rehearing Request at 13-14.
    \99\ Id. at 13.
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    117. BofA/JPMorgan request that the Commission confirm that relief
from the ``acquisition of securities'' clause under section 203(a)(1)
applies under section 203(a)(2). Specifically, they assert that the
Commission has granted banks that function as power marketers relief
from the ``acquisition of securities'' clause in section
203(a)(1).\100\ Such banks need not seek prior approval from the
Commission when they acquire utility securities in debt, fiduciary,
trading, or hedging capacities. However, BofA/JPMorgan explain that a
number of banks have recently become power marketers and when that
happens, the bank becomes a public utility for purposes of FPA section
203. They assert that, under EPAct 2005, many banks that are public
utilities are now also ``holding companies.'' Congress provided that
certain holdings of banks, bank operating subsidiaries, and broker-
dealers do not make them ``holding companies'' in section 1262(8) of
EPAct 2005. BofA/JP Morgan state that the statutory exemption also
specifically covers loan collateral, loan liquidation, and fiduciary
holdings.
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    \100\ See UBS AG and Bank of America, N.A., 101 FERC ] 61,312
(2002), reh'g granted in part and denied in part, 103 FERC ] 61,284
(2003), reh'g granted, 105 FERC ] 61,078 (2003) (UBS/Bank of
America); JPMorgan Chase Bank, N.A., Docket No. ER05-283
(unpublished letter order dated March 18, 2005).
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    118. However, BofA/JPMorgan explain that when banks act as
underwriters, they will not know at the outset whether they will be
successful in disposing of a sufficient number of shares to assure that
their holdings do not exceed 5 percent of the issuer after 45
days.\101\ To comply with section 203, however, they would have to seek