[Federal Register: December 20, 2005 (Volume 70, Number 243)]
[Rules and Regulations]
[Page 75591-75645]
[DOCID:fr20de05-22]

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Part III

Department of Energy

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Federal Energy Regulatory Commission

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18 CFR Parts 365 and 366

Repeal of the Public Utility Holding Company Act of 1935 and Enactment
of the Public Utility Holding Company Act of 2005; Final Rule

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 365 and 366

[Docket No. RM05-32-000, Order No. 667]

Repeal of the Public Utility Holding Company Act of 1935 and
Enactment of the Public Utility Holding Company Act of 2005

Issued December 8, 2005.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Final rule.

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SUMMARY: In this final rule, the Federal Energy Regulatory Commission
(Commission) is amending its regulations to implement the repeal of the
Public Utility Holding Company Act of 1935 and the enactment of the
Public Utility Holding Company Act of 2005, by adding a new subchapter
and part to its regulations and removing its exempt wholesale generator
rules as they are no longer necessary.

DATES: This final rule will become effective on February 8, 2006.

FOR FURTHER INFORMATION CONTACT:
Brandon Johnson (Legal Information), Federal Energy Regulatory
Commission, 888 First Street, NE., Washington, DC 20426, (202) 502-
6143.
Lawrence Greenfield (Legal Information), Federal Energy Regulatory
Commission, 888 First Street, NE., Washington, DC 20426, (202) 502-
6415.
James Guest (Technical Information), Federal Energy Regulatory
Commission, 888 First Street, NE., Washington, DC 20426, (202) 502-
6614.

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

Introduction

    1. On August 8, 2005, the Energy Policy Act of 2005 (EPAct 2005)
\1\ was signed into law. In relevant part, it repeals the Public
Utility Holding Company Act of 1935 (PUHCA 1935) \2\ and enacts the
Public Utility Holding Company Act of 2005 (PUHCA 2005),\3\ which, with
one exception not relevant here, will become effective six months from
the date of enactment (February 8, 2006).\4\ Sections 1266, 1272, and
1275 of EPAct 2005 direct the Commission to issue certain rules and to
provide detailed recommendations to Congress on technical and
conforming amendments to federal law within four months after the date
of enactment, i.e., by December 8, 2005.\5\ In addition, EPAct 2005
directs the Commission to issue a final rule exempting certain entities
from the federal access to books and records provisions of EPAct 2005
within 90 days of the effective date of Title XII, Subtitle F of EPAct
2005. This rulemaking addresses all mandatory rulemaking requirements
contained in PUHCA 2005.
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    \1\ Energy Policy Act of 2005, Public Law No. 109-58, 119 Stat.
594 (2005).
    \2\ 15 U.S.C. 79a et seq. (2000).
    \3\ EPAct 2005 at Sec.  1261 et seq.
    \4\ Id. at Sec.  1274(a).
    \5\ Id. at Sec. Sec.  1266, 1272, 1275.
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    2. On September 16, 2005, the Commission issued a notice of
proposed rulemaking (NOPR) \6\ in which it proposed to add a new
Subchapter U and Part 366 to Title 18 of the Code of Federal
Regulations to implement Title XII, Subtitle F of EPAct 2005 and to
remove Subchapter T and Part 365 of Title 18 of the Code of Federal
Regulations.
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    \6\ Repeal of the Public Utility Holding Company Act of 1935 and
Enactment of the Public Utility Holding Company Act of 2005, Notice
of Proposed Rulemaking, 70 Fed. Reg. 55,805 (2005), FERC Stats. &
Regs. ] 32,588 (2005).
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    3. Section 1264 of PUHCA 2005 concerns Commission access to the
books and records of holding companies and other companies in holding
company systems, and section 1275 of PUHCA 2005 addresses the
Commission's review and authorization of the allocation of costs for
non-power goods or administrative or management services when requested
by a holding company system or state commission. As we stated in the
NOPR, the federal books and records access provision, section 1264, and
the non-power goods and services provision, section 1275, of PUHCA 2005
supplement the Commission's existing authorities under the Federal
Power Act (FPA) \7\ and the Natural Gas Act (NGA) \8\ to protect
customers against improper cross-subsidization or encumbrances of
assets, including the Commission's broad authority under FPA section
301 and NGA section 8 to obtain the books and records of regulated
companies and any person that controls or is controlled by such
companies if relevant to jurisdictional activities.\9\
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    \7\ 16 U.S.C. 824d-e (2000).
    \8\ 15 U.S.C. 717c-d (2000).
    \9\ 16 U.S.C. 825 (2000); 15 U.S.C. 717g (2000).
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    4. In responding to the comments on the NOPR and in deciding
whether to adopt the proposals in the NOPR, our decisionmaking has been
guided by the clear intent of Congress to repeal the regulatory regime
established by PUHCA 1935 and to rely on state regulatory authorities
and the Commission to protect energy customers, by supplementing the
Commission's books and records authority under PUHCA 2005 and by
enhancing our already significant authority over public utility
mergers, acquisitions and dispositions of jurisdictional
facilities.\10\ As we recognized in the NOPR, PUHCA 2005 is primarily a
``books and records access'' statute and does not give the Commission
any new substantive authorities. In fact, the only substantive
requirement contained in the new law is that we address requests
involving certain allocations of costs of non-power goods and services.
Accordingly, as discussed in greater detail below, we are rejecting
requests that we re-impose particular requirements in PUHCA 1935 that
Congress chose not to include in PUHCA 2005.
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    \10\ EPAct 2005 at Sec.  1289.
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    5. Our primary means of protecting customers served by
jurisdictional companies that are members of holding company systems
continues to be the FPA and NGA. In particular, the Commission's rate
authorities and information access authorities under the FPA and NGA
enable the Commission to detect and disallow from jurisdictional rates
any imprudently-incurred, unjust or unreasonable, or unduly
discriminatory or preferential costs resulting from affiliate
transactions between companies in the same holding company system.\11\
This includes both power transactions and non-power goods or services
transactions between Commission-regulated companies that have captive
customers and their ``unregulated'' affiliates. The Commission
routinely places code of conduct restrictions on power sales at market-
based rates between regulated and non-regulated affiliates. In the
context of registered holding companies, we also have placed conditions
on non-power goods and services transactions involving public
utilities. Further, as discussed in greater detail infra, in the
context of individual rate cases involving public utilities that seek
to flow through in jurisdictional rates the costs of affiliate
purchases of non-power goods or services, the Commission has the
ability to protect customers by reviewing the prudence and the justness

and reasonableness of such costs. The Commission also has adopted rules
and policies regarding cash management practices or arrangements that
involve Commission-jurisdictional companies. Importantly, repeal of
PUHCA 1935 also does not repeal non-PUHCA securities laws and
accounting requirements for companies.
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    \11\ Since the vast majority of registered holding companies
have been electric public utility holding companies, our description
here focuses primarily on the FPA. However, except for merger and
corporate authority under the FPA, our authorities and processes
under the NGA are similar.
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    6. It is against this backdrop that we have determined not to
require in this final rule all of the filing requirements that we
originally proposed to adopt. In addition, in response to the numerous
comments filed, we have determined that it is appropriate to permit
certain exemptions from those requirements that are being adopted,
based upon an expedited notification process. An overview of the final
rule's requirements and exemptions is provided below. We emphasize,
however, that this final rule (including its exemptions) does not
affect the Commission's independent ability to obtain access to books
and records under the FPA and NGA. Further, to the extent additional
rulemakings or orders may be needed to protect customers, the
Commission will take appropriate actions in the future. The Commission
will hold a technical conference no later than one year from the
effective date of PUHCA 2005 to assess whether additional actions are
needed.

Overview of Final Rule

    7. In the NOPR, the Commission proposed to incorporate in part 366
of its regulations, largely without modification, the provisions of
PUHCA 2005, and we have adopted a number of those proposals in the
final rule. However, based on the very constructive comments received,
the final rule modifies or departs from the approach in the NOPR in
several respects, and we summarize the final rule below.
    8. In the NOPR, we proposed adopting several of the Securities and
Exchange Commission's (SEC) accounting and record-retention
requirements into our own regulations and stated that we did not intend
to broaden their applicability beyond the types of companies to which
they now apply. Specifically, the NOPR proposed to adopt the following
portions of the SEC's accounting and record-keeping requirements: 17
CFR 250.26 (financial statement and recordkeeping requirements for
registered holding companies and subsidiaries); 17 CFR 250.27
(classification of accounts prescribed for utility companies not
already subject thereto); 17 CFR 250.80 (definitions of terms used in
rules under section 13 of PUHCA 1935); 17 CFR 250.93 (accounts and
records of mutual and subsidiary service companies); 17 CFR 250.94
(annual reports by mutual and subsidiary service companies); 17 CFR
part 256 (uniform system of accounts for mutual and subsidiary service
companies) (SEC Uniform System of Accounts); and 17 CFR part 257
(preservation and destruction of records for registered holding
companies and of mutual and subsidiary service companies) (SEC record-
retention rules).
    9. Additionally, the NOPR proposed to require companies to file
certain SEC forms with the Commission, including: SEC Form U-13-60
(annual report for mutual and subsidiary service companies); SEC Form
U-5S (annual report for registered holding companies); and a version of
SEC Form U-5A (notification of registration status).
    10. As discussed further below, the Commission has concluded that
there is no statutory basis for continuing to apply the statutory
exemptions contained in PUHCA 1935, which Congress has repealed.\12\
Although, as also discussed below, we will provide certain exemptions
from PUHCA 2005, we will not re-create the PUHCA 1935 distinction
between ``exempt'' and ``registered'' holding companies. Accordingly,
we will apply the books and records requirements of PUHCA 2005 equally
to all holding companies. However, the Commission will give holding
companies until January 1, 2007, to comply with the Commission's
record-retention requirements; holding companies, in contrast to
traditional, centralized service companies (as distinguished from
service companies that are special-purpose companies such as a fuel
supply company or a construction company), will not be required to
comply with the Commission's Uniform System of Accounts.
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    \12\ Section 5(a) of PUHCA 1935 provides five statutory
exemptions for:
    (1) Predominantly intrastate holding companies;
    (2) Public-utility holding companies whose operations as such do
not extend beyond the State in which they are organized and states
contiguous thereto;
    (3) Holding companies that are only incidentally a holding
company;
    (4) Holding companies that are temporarily holding companies; or
    (5) Primarily foreign utility holding companies. 15 U.S.C.
79c(a)(1)-(5) (2000).

    11. The final rule adopts modified, streamlined versions of 17 CFR
250.1, 250.26, 250.80, 250.93, 250.94, and 259.313 in Part 366 of its
regulations. Section 366.4(a) of our regulations will be a modified and
simplified version of 17 CFR 250.1(a), which originally required
registered holding companies to file SEC Form U-5A, notification of
registration. Section 366.4 requires holding companies to file a FERC-
65 (Notification of Holding Company Status), and, if they wish to claim
an exemption from PUHCA 2005 or a waiver of the Commission's
regulations thereunder, FERC-65A (Exemption Notification) or FERC-65B
(Waiver Notification). The final rule does not adopt the 17 CFR
250.1(b) (registration statement) and 250.1(c) (annual report for
holding companies, to be filed on SEC Form U-5S). Section 366.21 of our
regulations instead contains a modified version of 17 CFR 250.26
(financial statement and recordkeeping requirements for holding
companies and subsidiaries), including subparagraph (a)(2) (requirement
to maintain books and records for auditing purposes), paragraphs (d)
and (f) (compliance with Commission and other agencies' record-
retention rules), and paragraph (e) (savings clause for previous
accounting orders). It does not adopt paragraphs (a)(1) (mandating
compliance with SEC Regulation S-X), (b) (information to be supplied
with form SEC Form U-5S), (c) (mandating use of the equity method of
accounting), or (g) (cross reference to section 250.26). In section
366.1, we adopt the definitions contained in 17 CFR 250.80 (definitions
of terms), i.e., ``services,'' ``goods,'' and ``construction'', and we
add a definition for service company. We also adopt streamlined
versions of 17 CFR 250.93 (accounts and records of service companies),
250.94 (annual reports for service companies), and 259.313 (SEC Form U-
13-60, for annual reports pursuant to 250.94), in sections 366.21,
366.22 and 366.23, which prescribe the Uniform System of Accounts and
annual reporting requirement for service companies. The final rule does
not adopt 17 CFR 259.5s, and it does not require the submission of SEC
Form U-5S. The Commission has determined that the information in these
eliminated provisions is not relevant to the costs incurred by
jurisdictional entities or is not necessary or appropriate for the
protection of utility customers with respect to jurisdictional rates.
    12. Specifically, the final rule also adopts the following
requirements:
    (1) Holding companies will file FERC-65 (Notification of Holding
Company Status), which will be treated as an informational filing.
    (2) Holding companies seeking to claim an exemption from PUHCA 2005
or waiver of the Commission's regulations thereunder may file FERC-65A
(Exemption Notification) or FERC-65B (Waiver Notification).

    (3) Traditional, centralized service companies will be required to
file a newly-created FERC Form No. 60 (Annual Report for Service
Companies), which is based on a streamlined version of SEC Form U-13-
60. The FERC Form No. 60 eliminates the following supporting schedules
originally contained in SEC Form U-13-60: Outside Services Employed--
Account 923; Employee Pensions and Benefits--Account 926; General
Advertising Expenses--Account 930.1; Rents--Account 931; Taxes Other
Than Income Taxes--Account 408; Donations--Account 426.1; and Other
Deductions--Account 426.5. The schedules were eliminated to remove
information that is either duplicative or that the Commission has
determined is not necessary to carry out its statutory responsibilities
under PUHCA 2005.
    (4) Unless otherwise exempted by Commission rule or order, all
holding companies and service companies must maintain and make
available to the Commission their books and records. In addition, all
holding companies and all service companies that do not currently
follow the Commission's record-retention requirements in Parts 125 and
225 of the Commission's regulations, as applicable, will be required to
transition to the Commission's requirements by January 1, 2007. Holding
companies registered under PUHCA 1935 that currently follow the SEC's
record-retention rules in 17 CFR Part 257, and their service companies,
have the option to follow either the Commission's or the SEC's record-
retention rules, as they exist on the day before the effective date of
PUHCA 2005, for calendar year 2006, but these entities must transition
to the Commission's record-retention rules by January 1, 2007. And, as
noted above, holding companies, unlike traditional, centralized service
companies, will not be required to comply with the Commission's Uniform
System of Accounts.
    13. The NOPR did not propose any specific exemptions from the books
and records requirements of PUHCA 2005, except as required by section
1266 (i.e., persons that are holding companies solely with respect to
one or more exempt wholesale generators (EWGs), foreign utility
companies (FUCOs), or qualifying facilities (QFs)), but sought comments
on whether passive investors and mutual funds should be exempted.
Rather, we proposed to rely on case-by-case petitions for declaratory
order to determine what additional waivers are appropriate. Based on
the extensive comments received, in the final rule we have modified our
original proposal to rely on declaratory order requests for exemptions
and we have determined that it is appropriate to use an expedited
notification process to either exempt from the books and records
requirements of PUHCA 2005 or waive the Commission's accounting,
record-retention and reporting regulations thereunder for the following
persons and classes of transactions:

    (1) Passive investors, including mutual funds and other financial
institutions;
    (2) Commission-jurisdictional utilities that have no captive
customers;
    (3) Certain holding company and affiliate transactions that will
not affect jurisdictional rates;
    (4) Electric power cooperatives;
    (5) Local distribution companies;
    (6) Single-state holding companies;
    (7) Holding companies that own 100 MW or less of generation used
fundamentally for their own load or for sales to affiliated end-
users;\13\ and
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    \13\ Holding companies that own more than 100 MW of generation
used fundamentally for their own load or for sales to affiliated end
users may seek waivers, and the Commission will consider them, on a
case-by-case basis.
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    (8) Investors in independent transmission companies.

Other exemptions and waivers will be considered through the declaratory
order process on a case-by-base basis.
    14. With respect to Commission review of service company cost
allocations in section 1275(b) and the exemption for single-state
holding companies in section 1275(d), the Commission sought comments as
to whether the Commission should require the formal filing of service
company cost-allocation agreements under the FPA and NGA, and whether
the Commission should apply its traditional ``market'' standard for the
pricing of non-power goods and services provided by system service
companies or instead adopt the SEC ``at-cost'' standard. We conclude
below that we will not require the formal filing of cost allocation
agreements and that we will not require any entities that are currently
using the SEC's ``at-cost'' standard for traditional centralized
service companies to switch to our ``market'' standard. With respect to
traditional, centralized service companies that use the ``at cost''
standard, we will apply a presumption that ``at cost'' pricing of the
non-power goods and services they provide to public utilities within
their holding company system is reasonable, but persons may file
complaints if they believe that use of at cost pricing results in costs
that are above market price. We will also retain the Commission's
existing ``market'' standard for non-power goods or services
transactions between special-purpose subsidiaries and public utilities.
    15. With respect to EWGs, we proposed to cease making case-by-case
determinations of exempt wholesale generator status in the future and
we proposed to delete our EWG regulations. In light of the comments
received, we have determined that it is reasonable to interpret PUHCA
2005 to permit new wholesale sellers to obtain EWG status. We will thus
establish procedures in section 366.7 of our regulations for both self-
certification of EWG and FUCO status, and Commission determinations of
EWG and FUCO status, similar to the options available for entities
seeking QF status.
    16. Additionally, for those definitions and other aspects of PUHCA
1935 that have been re-enacted as part of PUHCA 2005, we will, where
appropriate, follow the past practice and precedent of the SEC in
interpreting these provisions of PUHCA 2005 to the extent that they are
consistent with the statutory language adopted by Congress in PUHCA
2005.
    17. Finally, we do not view this final rule as the only opportunity
to address the books and records requirements and related reporting
requirements under PUHCA 2005, exemptions from and waivers of these
requirements, and any other issues that may arise as a result of the
repeal of PUHCA 1935 and the implementation of PUHCA 2005. We intend to
hold a technical conference no later than one year after PUHCA 2005
becomes effective to evaluate whether additional exemptions, different
reporting requirements, or other regulatory actions (under PUHCA 2005
or the FPA or NGA) need to be considered. The technical conference will
also address any needed changes or additions to accounting, cost
allocation, recordkeeping, cross-subsidization, encumbrances of utility
assets, and related rules, including any changes necessary to address
difficulties with compliance encountered by companies within
previously-exempt holding company systems during this transition
period. In addition, while we do not adopt the SEC Uniform System of
Accounts and record-retention rules in 17 CFR parts 256 and 257 into
the Commission's regulations at this time, we will initiate a separate
rulemaking proceeding to address how the Commission's Uniform System of
Accounts and record-retention rules in Parts 101, 125, 201, and 225 of
its regulations can be modified to adopt or otherwise integrate the
relevant parts of the SEC's Uniform System of Accounts and record-
retention rules. The

Commission intends to issue a final rule on any appropriate accounting
or record-retention rule modifications well in advance of January 1,
2007, so that service companies will be able to transition to the
Commission's Uniform System of Accounts and record-retention rules and
holding companies can transition to the Commission's record-retention
rules by the January 1, 2007 deadline.

1. Definitions

    18. The Commission proposed in the NOPR to largely incorporate in
section 366.1 of its regulations the text of section 1262 of EPAct
2005, which contains the definitions of relevant terms used in PUHCA
2005 and in our proposed regulations. Commenters suggested a number of
changes to these definitions. As these definitions are taken from
section 1262 of EPAct 2005, any modification would likely create
undesirable discrepancies between our regulations and the statutory
language. Accordingly, we will address these comments below under the
heading ``Additional Technical and Conforming Amendments,'' below.
However, to the extent that a given comment requesting clarifications
of the definitions proposed in section 366.1 of the Commission's
regulations can be addressed consistent with the statutory text, they
are addressed below.

Comments

    19. American Public Power Association and National Rural Electric
Cooperative Association (APPA/NRECA) note that section 1268 of EPACT
2005 expressly exempts States and any political subdivision of a state
from the provisions of PUHCA 2005, while the definition of ``electric
utility company'' in the proposed section 366.1 includes ``any company
that owns or operates facilities used for the generation, transmission,
or distribution of electric energy for sale,'' which appears to come
directly from section 1262(5) of EPACT 2005. According to APPA/NRECA,
this section, read standing alone, could be construed to state that the
regulations apply to all electric utilities. APPA/NRECA thus urge the
Commission to make explicit the exclusion of states and their political
subdivisions from the regulations by cross-referencing in its
regulations the exclusion in section 1268 of the statute.\14\
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    \14\ APPA/NRECA Comments at 42. See also City of Santa Clara
(Santa Clara) Comments at 23, Transmission Agency of Northern
California (TANC) Comments at 23.
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    20. Coral Power, L.L.C. and Shell WindEnergy, Inc. (Coral Power and
Shell WindEnergy) request that the Commission deem EWGs, FUCOs, and QFs
not to be ``electric utility companies'' under PUHCA 2005, so that
their upstream owners will not be ``holding companies'' under PUHCA
2005.\15\
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    \15\ Coral Power/Shell WindEnergy Comments at 9-10.
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    21. With respect to the definition of ``public-utility companies,''
the Edison Electric Institute (EEI) urges the Commission to clarify
that energy marketers are not ``public-utility companies'' under the
PUHCA 2005 definition. EEI notes that, under PUHCA 2005, a ``public-
utility company'' is either an ``electric utility company,'' which is
an entity that owns or operates facilities used for the generation,
transmission or distribution of electric energy for sale, or a ``gas
utility company,'' which is basically an entity that owns or operates
facilities used for distribution at retail of natural or manufactured
gas. EEI further asserts that the SEC has found that the ownership of
only contracts and related books and records are not facilities used
for the generation of electric energy, but that only physical
facilities are used for the generation of electric energy. According to
EEI, if power marketers are not electric utility companies, their
parent companies would not be considered utility holding companies
under PUHCA 2005 by reason of their ownership of such marketers. The
same logic would apply to gas marketers, and they too, therefore,
should not be considered gas utility companies, provided they own no
physical gas distribution assets and their gas retail sales are made
through contracts.\16\
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    \16\ EEI Comments at 19-20.
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    22. Goldman Sachs Group (Goldman Sachs) and Morgan Stanley Capital
Group (Morgan Stanley) urge the Commission to adopt a rule similar to
the SEC's 7(d) that excludes owner-lessor and owner participants in
lease financing transactions involving utility assets from the
definition of ``public-utility company'' and their parent companies
from the definition of ``holding company.'' \17\
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    \17\ Goldman Sachs Comments at 7, Morgan Stanley Comments at 5.
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    23. NiSource Inc. (NiSource) requests that the Commission clarify
that gas utility companies authorized to make sales for resale of
natural gas pursuant to a blanket certificate are not subject to new
part 366 of the Commission's regulations.\18\
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    \18\ NiSource Comments at 15.
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    24. Finally, a number of commenters urge the Commission to amend
certain definitions to exclude rural electric cooperatives from the
scope of PUHCA 2005. APPA/NRECA argue that the Commission should
recognize that, under longstanding SEC precedent, electric cooperatives
were not regulated as public utility holding companies under PUHCA 1935
because member interests in cooperatives do not constitute a ``voting
security'' interest.\19\ Cooperatives state that the Commission could,
alternatively, declare definitively that member interests in
cooperatives do not constitute a ``voting security'' interest for
purposes of PUHCA 2005.\20\ If the Commission does not adopt this
interpretation of ``voting securities,'' APPA/NRECA urge the Commission
to, at the very least, make clear that those cooperatives that have
received no-action letters or other assurances in the past from the SEC
can continue to rely on those assurances without any need to seek
additional confirmation or a no-action assurance or waiver from the
Commission.\21\ Arizona Electric Power Cooperative, Inc., Southwest
Transmission Cooperative, Inc., and Sierra Southwest Cooperative
Services, Inc. (Cooperatives) argue that, while the Commission could
grant the Cooperatives an individual waiver, the better course would be
for the Commission to create a class exemption from PUHCA 2005 for
cooperatives. According to Cooperatives, with the recent amendment of
FPA Sec.  201(f), cooperatives are unlikely to qualify as public
utilities, and cooperatives do not operate any NGA jurisdictional
pipelines.\22\
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    \19\ APPA/NRECA Comments at 42. See also Santa Clara Comments at
23, TANC Comments at 23.
    \20\ Cooperatives Comments at 8.
    \21\ APPA/NRECA Comments at 42-44. See also Tri-State Comments
at 3-7.
    \22\ Cooperatives Comments at 7. See also APPA/NRECA Comments at
44.
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Commission Determination
    25. We will grant the request of APPA/NRECA and others to clarify
that section 1268 exempts from PUHCA 2005 states and any political
subdivision of a state. Accordingly, we clarify in section 366.2(a)
that, for the purposes of this subchapter, no provision of PUHCA 2005
shall apply to or be deemed to include: (1) The United States; (2) a
state or political subdivision of a state; (3) any foreign governmental
authority not operating in the United States; (4) any agency,
authority, or instrumentality of any entity referred to in
subparagraphs (1), (2) or (3); or (5) any officer, agent, or employee
of any entity referred to in subparagraphs (1), (2), (3), or (4) as
such in the course of his or her official duty.

    26. In response to the request of Coral Power and ShellWindEnergy
that we consider EWGs, FUCOs, and QFs not to be ``electric utility
companies'' so that their upstream owners would not be holding
companies under PUHCA 2005, we note that Congress has exempted from
section 1264 of EPAct 2005 entities that are holding companies solely
with respect to EWGs, FUCOs, and QFs and that exemption is reflected in
the regulations we adopt herein. However, we clarify that EWGs
themselves are not considered ``electric utility companies'' under
PUHCA 2005. The purpose of creating ``exempt'' wholesale generators in
the amendments to section 32 of PUHCA 1935 made by the Energy Policy
Act of 1992 (EPAct 1992) \23\ was to exempt from PUHCA 1935 persons
that meet the definition of EWG. This was reflected in section 32(e) of
PUHCA 1935, which specifically provided that EWGs would not be
considered electric utility companies under PUHCA 1935 and would be
exempt. Here, we have determined to continue to allow generators to
obtain EWG status, so they will not be considered electric utility
companies subject to PUHCA 2005.
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    \23\ 79 U.S.C. 79z-5a (2000).
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    27. With respect to FUCOs and QFs, we clarify as follows. Section
1262(6) of PUHCA 2005 contains the term ``foreign utility company,''
and cross-references section 33 of PUHCA 1935. Section 33 of PUHCA
1935, as amended by EPAct 1992,\24\ provided that a FUCO would be
exempt from PUHCA 1935 and not deemed an electric utility company, but
the exemption would not apply or be effective unless the relevant state
commission(s) certified that they had the authority and resources to
protect ratepayers of public utility companies that are associated or
affiliated with the FUCO. As with EWGs, we will continue to allow
persons to obtain FUCO status. FUCOs will not be considered electric
utility companies subject to PUHCA 2005 and will be exempt from PUHCA
1935 if they can demonstrate that the relevant state commission(s) have
made the determination described in section 33 of PUHCA 1935. However,
even if FUCOs do not demonstrate that they should be totally exempted
from PUHCA 2005, we will waive the accounting, record-retention, and
reporting requirements thereunder.\25\ As for QFs, QFs previously
received an exemption from PUHCA pursuant to the Commission's
regulations under the Public Utility Regulatory Policies Act of 1978.
Nothing in PUHCA 2005 changes that.
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    \24\ 79 U.S.C. Sec.  79z-5b (2000).
    \25\ As discussed infra, we will waive our accounting, record-
retention, and reporting requirements for FUCOs, but we will not
exempt them from the general provision in section 1264 of PUHCA 2005
and repeated in section 366.2 of our regulations, which authorizes
access to their books and records as necessary, with respect to
jurisdictional rates.
---------------------------------------------------------------------------

    28. With respect to EEI's request that we clarify that power
marketers are not ``public-utility companies,'' we note that EEI's
reference to the ``Commission'' appears to be to the SEC rather than to
this Commission. While the SEC has not treated power marketers as
electric utility companies under PUHCA 1935, the Commission has
determined that electric marketers own facilities used for wholesale
sales, i.e., ``paper facilities,'' and therefore are public utilities
under the FPA. Similarly, we have treated natural gas marketers making
jurisdictional sales as natural gas companies under the NGA. In light
of long-standing SEC precedent in interpreting PUHCA 1935, we will
follow the same interpretation under PUHCA 2005 and will exempt power
and natural gas marketers from the definition of ``public-utility
company,'' as that term is used in PUHCA 2005. However, our
interpretation here does not change our long-standing precedent with
respect to these entities' jurisdictional status under the FPA and the
NGA.
    29. We will grant the request for clarification from Goldman Sachs
and Morgan Stanley that we not treat owner-lessors and owner
participants in lease financing transactions involving utility assets
as ``public-utility companies'' and their parents as ``holding
companies'' under PUHCA 2005, so long as the ownership arrangements are
passive.
    30. We find that, as discussed below, electric power cooperatives
should not be regulated as holding companies under PUHCA 2005.

2. Books and Records Requirements

    31. Sections 1264(a) and (b) of EPAct 2005 generally provide that
each holding company and each associate company of a holding company,
as well as each affiliate of a holding company or any subsidiary
company of a holding company, shall maintain, and shall make available
to the Commission, such books, accounts, memoranda, and other records
(books and records) as the Commission determines are relevant to the
costs incurred by a public utility or natural gas company that is an
associate company of such holding company and necessary or appropriate
for the protection of public utility or natural gas company customers
with respect to jurisdictional rates. Moreover, section 1264(c)
empowers the Commission to examine the books and records of any company
in a holding company system, or any affiliate thereof, that the
Commission determines are relevant to the costs incurred by a public
utility or natural gas company within such holding company system and
necessary or appropriate for the protection of public utility or
natural gas company customers with respect to jurisdictional rates.
Finally, section 1264(d) forbids any member, officer, or employee of
the Commission from divulging any fact or information that has come to
his or her knowledge during the course of the examination of such books
and records, except as may be directed by the Commission or a court of
competent jurisdiction.\26\ In the NOPR, the Commission proposed to
incorporate largely without modification the text of section 1264 by
adding section 366.2 to the Commission's regulations.
---------------------------------------------------------------------------

    \26\ There are comparable confidentiality provisions in the FPA
and the NGA for public utility books and records and natural gas
company books and records. 16 U.S.C. 825 (2000); 15 U.S.C. 717g
(2000).
---------------------------------------------------------------------------

    32. In the NOPR, the Commission also proposed to adopt certain
accounting, cost-allocation, recordkeeping, and related rules
promulgated by the SEC for holding companies and their service
companies, as they existed on the date of enactment of EPAct 2005,
specifically 17 CFR 250.1, 250.26, 250.27, 250.80, 250.93, 250.94,
259.5S, and 259.313 and 17 CFR parts 256 and 257. The Commission
invited comments on which SEC reporting requirements the Commission
should retain, which ones it should not retain, and whether the
Commission should adopt any additional accounting, cost-allocation,
recordkeeping and related rules to carry out its statutory duties under
PUHCA 2005. Finally, the Commission stated that it does not intend to
broaden the applicability of any adopted reporting requirements beyond
the types of companies to which they now apply and invited comments as
to whether the proposed scope of applicability is appropriate.
    33. The comments below focused primarily on the Commission's
proposal to adopt certain SEC regulations and are organized as follows:
(a) Scope of applicability, i.e., whether the books and records
requirements will apply to all holding companies equally or only to
holding companies registered under PUHCA 1935; (b) general comments on
the Commission's proposal to adopt certain SEC regulations, including
whether PUHCA 2005 grants the Commission the legal authority to adopt
them; (c) comments on particular provisions of the SEC regulations; (d)
other issues related to the adoption of

SEC regulations; and (e) other comments related to the books and
records requirements of section 1264.
a. Scope of Applicability
Comments
    34. The majority of commenters urged the Commission to apply any
SEC regulations adopted equally to all holding companies, without
regard to whether an entity was registered or exempt under PUHCA 1935,
primarily because PUHCA 2005 does not state that PUHCA 1935 exemptions
should continue in force.\27\ APPA/NRECA state that the Commission
should apply any rules to the full universe of companies because, post-
PUHCA 1935, there is no longer a statutory basis for distinguishing
between the former registered and exempt holding companies. APPA/NRECA
contend that the Commission cannot treat some holding companies
differently from others without a reasonable basis and that their legal
designations under a now-repealed statute are not a reasonable basis.
According to APPA/NRECA, the Commission should make distinctions based
on the complexity of each holding company's corporate structure, the
quantity and type of business risks in the corporate family, the
magnitude of potential for cross subsidization (e.g., due to the
presence of common costs between the public utility and non-utility
businesses), and the geographic reach of the holding company (which
could make state regulation more difficult). They argue that, to avoid
charges of undue discrimination, the Commission can apply the rules to
all holding companies initially, announce these factors as among those
it will consider in granting exemptions, and then invite requests for
exemption from some or all of the reporting companies.\28\ Similarly,
American Electric Power Service Corporation (AEP) and National Fuel Gas
argue that the statute mandates equal treatment of all holding
companies.\29\
---------------------------------------------------------------------------

    \27\ See, e.g., Allegheny Energy, Inc. (Allegheny) Comments at
2, American National Power, Inc. (American National Power) Comments
at 3, American Public Gas Association Comments at 3; Arkansas Public
Service Commission (Arkansas PSC) Comments at 19, E.ON AG and LG&E
Energy LLC (E.ON/LG&E Energy) Comments at 8, Missouri Public Service
Commission (Missouri PSC) Comments at 25, National Fuel Gas Company
(National Fuel Gas) Comments at 6, National Association of
Regulatory Utility Commissioners (NARUC) Comments at 7, Southern
Company Services Comments at 2-3. But see Detroit Edison Company
(Detroit Edison) Reply Comments at 1, PPL Companies (PPL) Reply
Comments at 3-4 (urging Commission to reject comments proposing to
apply SEC regulations to holding companies exempted from PUHCA
1935).
    \28\ APPA/NRECA Comments at 30-31.
    \29\ AEP Comments at 2-3, National Fuel Gas Reply Comments at 3-
4.
---------------------------------------------------------------------------

    35. However, a number of commenters argue that the Commission
should continue to exempt under PUHCA 2005 those holding companies
exempted under PUHCA 1935 and SEC precedent. MidAmerican Energy Company
(MidAmerican) states that the Commission should not impose a new set of
accounting and reporting requirements on entities that have been exempt
from the requirements developed by the SEC to enforce PUHCA 1935.
According to MidAmerican, the information required under the SEC rules
would require these entities to prepare and file reports that are
duplicative of information contained in reports already filed with the
Commission (e.g., FERC Forms 1 and 2 and the quarterly financial
reports) and reports filed with the SEC (e.g., Form 10-K and Form 10-Q)
and imposes an unnecessary burden and expense on such entities and
provides no significant additional information to the Commission.
Accordingly, MidAmerican states that the Commission should make it
perfectly clear that its proposal to adopt the accounting, cost-
allocation, recordkeeping and related rules promulgated by the SEC
applicable to registered holding companies and their service companies
does not extend to public utility holding companies that were not
registered under PUHCA 1935 and that, in addition, such rules should
not apply to any entities that may become public utility holding
companies after February 8, 2006, the effective date of repeal of PUHCA
1935.\30\
---------------------------------------------------------------------------

    \30\ MidAmerican Comments at 5-7. See also CEOB Comments (3)
(supports case-by-case exemptions), Chairman Barton Reply Comments
at 5, Detroit Edison Comments at 3-5, Questar Reply Comments at 2.
---------------------------------------------------------------------------

    36. FirstEnergy suggests that, if the Commission adopts this
proposal, it should clarify the regulatory text of proposed section
366.2(e) to delineate between those holding company systems to which
the rules apply and those that are exempt from such provisions, and
should explain the reasons justifying such distinction.\31\ Alcoa
states that, even if the Commission decides not to exempt from the
reach of proposed section 366.2 all companies that are currently exempt
holding companies under PUHCA 1935, consideration at least should be
given to blanket exemptions for holding companies having a section
3(a)(3) exemption which are, by definition and determination by SEC,
engaged in a business other than being a public utility holding
company.\32\
---------------------------------------------------------------------------

    \31\ FirstEnergy Comments at 9.
    \32\ Alcoa Comments at 5.
---------------------------------------------------------------------------

Commission Determination
    37. With respect to the general applicability of the federal access
to books and records requirements in section 1264 of EPAct 2005, there
is no basis in PUHCA 2005 for distinguishing between holding companies
based on their registered or exempt status under PUHCA 1935.
Accordingly, the Commission will subject all holding company systems,
whether previously exempt or registered, to the books and records
requirements that PUHCA 2005 imposes on holding companies and
affiliates, associate companies, and subsidiaries thereof, unless they
qualify for one of the statutory exemptions provided for under section
1266 of PUHCA 2005.\33\ We have also determined that, while we cannot
exempt certain persons from the statutory requirements of PUHCA 2005,
we can and should grant waivers of the accounting, record-retention,
and reporting requirements adopted herein for certain persons and
classes of transactions. Additionally, for entities that do have to
comply with our filing requirements, we will limit the filings that
have to be made and will delay until January 1, 2007, the compliance
deadline for companies not currently subject to the SEC rules. Finally,
throughout the following discussion, we will distinguish between
obligations that apply to all service companies and those that apply to
traditional, centralized service companies.\34\ Traditional,
centralized service companies are a subset of service companies that
holding companies have formed. They provide certain specialized
services \35\ to other

companies in the holding company system. They are to be distinguished
from other service companies that are special-purpose companies such as
a fuel supply company or a construction company.
---------------------------------------------------------------------------

    \33\ Section 1266, discussed infra, requires the Commission to
exempt any person that is a holding company solely with respect to
EWGs, FUCOs, and QFs. It also requires the Commission to exempt a
person or transaction if it finds that the books and records of a
person are not relevant to jurisdictional rates or a class of
transactions is not relevant to jurisdictional rates.
    \34\ ``Service companies'' are defined in section 366.1 as ``any
associate company within a holding company system organized
specifically for the purpose of providing non-power goods or
services or the sale of goods or construction work to any public
utility in the same holding company system.''
    \35\ These ``services,'' as defined in section 366.1, include
``any managerial, financial, legal, engineering, purchasing,
marketing, auditing, statistical, advertising, publicity, tax,
research, or any other service (including supervision or negotiation
of construction or of sales), information or data, which is sold or
furnished for a charge.''
---------------------------------------------------------------------------

    38. Specifically, the Commission will require the following for
entities that are not otherwise exempted from PUHCA 2005 requirements
or granted a waiver of the Commission's regulations thereunder:
    (1) Unless otherwise exempted by Commission rule or order or
granted a waiver, all holding companies and all service companies that
do not currently follow the Commission's record-retention requirements
in Parts 125 and 225 of the Commission's regulations must, effective
January 1, 2007, comply with the Commission's record-retention
requirements. Formerly-registered holding companies and service
companies in such holding company systems that currently follow the
SEC's record-retention rules in 17 CFR part 257 have the option, until
December 31, 2006, to follow either the Commission's or the SEC's
record-retention requirements. But these service companies must
transition to the Commission's rules by January 1, 2007. Formerly-
exempt holding companies and service companies within such holding
company systems, which currently do not follow either the SEC's or the
Commission's record-retention requirements will not be required to
comply with the Commission's record-retention requirements until
January 1, 2007.
    (2) Unless otherwise exempted by Commission rule or order or
granted a waiver, traditional, centralized service companies (i.e.,
those that are not special-purpose companies such as a fuel supply
company or a construction company) that do not currently follow the
Commission's Uniform System of Accounts in parts 101 and 201 of the
Commission's regulations, will be given until January 1, 2007, to
transition to the Commission's Uniform System of Accounts. Traditional,
centralized service companies in formerly-registered holding company
systems that currently follow the SEC's Uniform System of Accounts have
the option to follow either the Commission's or the SEC's Uniform
System of Accounts for calendar year 2006. But these service companies
must transition to the Commission's rules by January 1, 2007.
Traditional, centralized service companies within formerly-exempt
holding company systems, which currently do not follow either the SEC's
or the Commission's Uniform System of Accounts, will not be required to
comply with the Commission's Uniform System of Accounts until January
1, 2007. And, as noted above, holding companies, while they will be
required to comply with the Commission's record-retention requirements,
will not be required to comply with the Commission's Uniform System of
Accounts.
    (3) All entities that are currently or become holding companies
under PUHCA 2005, whether previously exempt or registered under PUHCA
1935, must file FERC-65 (Notification of Holding Company Status), which
will be treated as an informational filing, and holding companies
seeking to claim an exemption from PUHCA 2005 or waiver of the
Commission's regulations there under may file FERC-65A (Exemption
Notification) or FERC-65B (Waiver Notification). All persons that are
holding companies on the effective date of PUHCA 2005 must file FERC-65
within 30 days of the effective date of PUHCA 2005, and any person that
becomes a holding company thereafter must file FERC-65 within 30 days
after becoming a holding company; and
    (4) All traditional, centralized service companies will be required
to submit an annual report on FERC Form No. 60. Such service companies
in formerly-registered holding company systems must submit their first
annual report, for calendar year 2005, by May 1, 2006. Such service
companies in formerly-exempt holding company systems will be required
to submit their first FERC Form No. 60, for calendar year 2007, by May
1, 2008.
    39. The Commission will not require the filing of SEC Forms U-5A
(notification of registration status), U-5S (annual reports for
registered holding companies), U3A-2 (statement by holding company
claiming exemption), or U-5B (registration statement), as previously
proposed or suggested by some commenters. Information in these forms is
in many cases available elsewhere and/or was for the purpose of
monitoring activities or transactions that, with the repeal of PUHCA
1935, are no longer prohibited or no longer require prior approval.
Additionally, this information is either not relevant to the costs
incurred by jurisdictional entities or is not necessary or appropriate
for the protection of utility customers with respect to jurisdictional
rates. Further, information needed to protect against inappropriate
cross-subsidization will be contained in the accounting and record-
keeping requirements that we are adopting herein.
b. General Comments Concerning Adoption of SEC Regulations
Comments
    40. APPA/NRECA suggest that, rather than incorporate the SEC rules
by reference, the Commission should import the actual wording (with
appropriate revisions as discussed below) into its own regulations.
Merely cross-referencing existing SEC regulations (as proposed section
366.2(e) would do) would fail in its purpose if the SEC subsequently
revises its own regulations to eliminate its PUHCA 1935-related
regulations. Moreover, rather than adopt the SEC rules word-by-word,
APPA/NRECA urge the Commission to make certain wording adjustments and
offer rationales based on the current and likely future industry
structure. \36\
---------------------------------------------------------------------------

    \36\ APPA/NRECA Comments at 23-24. See also FirstEnergy Service
Company (FirstEnergy) Comments at 9.
---------------------------------------------------------------------------

    41. EEI urges the Commission to integrate whatever it adopts from
SEC practice into current Commission procedures and forms. According to
EEI, repeal of PUHCA 1935 was intended to reduce the level of holding
company regulation, but if current exempt holding companies suddenly
are required to contend with unfamiliar SEC practice, it would have
precisely the opposite effect. These formerly-exempt companies in
effect would become subject to a new level of complex regulation. To
avoid this unintended consequence of repealing PUHCA 1935, EEI believes
that the Commission should seek to integrate whatever it adopts from
SEC practice into current Commission procedures and forms, which would
involve simply including existing public filings, in particular a
holding company's SEC Form 10-K, as exhibits to the Commission's Form
1.\37\
---------------------------------------------------------------------------

    \37\ EEI Comments at 3-4.
---------------------------------------------------------------------------

    42. For the same reasons, EEI requests that the Commission provide
a reasonable period between the effective date of its new rules and the
date on which the initial filings will be due. EEI proposes that the
initial filings should be due in April 2007, giving companies time to
adopt any new recordkeeping and reporting requirements and to file
information starting with the next round of Form 1 for which the new
information would be available. The Commission also should specify the
format that will be required for filings under its new rules, and the
Commission should make clear when adopting the final rule, the date(s)
on which companies will first be required

to make any newly required filings under such rules.\38\
---------------------------------------------------------------------------

    \38\ Dominion Comments at 3, EEI Comments at 6.
---------------------------------------------------------------------------

    43. Georgia Public Service Commission (Georgia PSC) urges the
Commission to ensure that the rules to implement PUHCA 2005 provide
that the Commission will have access to all of the information and
documents previously provided to the SEC under PUHCA 1935. Georgia PSC
emphasizes that state commissions have relied upon the filings made by
holding companies with the SEC and on audits of holding companies
performed by the SEC as a crucial source of information necessary in
setting rates for the holding companies' subsidiaries that are
regulated by state commissions. Accordingly, the Commission should
adopt all provisions of the SEC rules and retain all SEC reporting
requirements.\39\ Similarly, the California Electricity Oversight Board
(CEOB) and Utility Workers Union of American (Utility Workers) supports
the Commission's adoption of the SEC accounting, cost-allocation,
recordkeeping, and related rules identified in the PUHCA NOPR.\40\
---------------------------------------------------------------------------

    \39\ Georgia PSC Comments at 1.
    \40\ CEOB Comments at 2-3, Utility Workers Comments at 3.
---------------------------------------------------------------------------

    44. Entergy Services, Inc. states that it agrees with the
Commission's proposal to adopt the SEC regulations, but that the
Commission should limit the applicability of these rules to those items
that are ``relevant to costs incurred by a public utility or natural
gas company'' and ``necessary or appropriate for the protection of
utility customers with respect to jurisdictional rates'' as required by
EPAct 2005 section 1264(a).\41\ Similarly, FirstEnergy argues that the
Commission should provide a clear explanation of why each category of
information that is to be maintained is within the statutory limits
above. To reflect these limits, FirstEnergy argues that, at a minimum,
the Commission should modify proposed section 366.2(e), consistent with
the other subsections of section 366.2, to add the following
qualification at the end of the paragraph: ``insofar as the Commission
determines that such accounting, cost-allocation and related rules are
relevant to costs incurred by a public utility or natural gas company
that is an associate company of such holding company and necessary or
appropriate for the protection of utility customers with respect to
jurisdictional rates.''\42\
---------------------------------------------------------------------------

    \41\ Entergy Comments at 3.
    \42\ FirstEnergy Comments at 6.
---------------------------------------------------------------------------

    45. Several commenters argued that the Commission lacks the
authority to adopt SEC regulations under PUHCA 2005\43\ or that PUHCA
2005 does not specifically authorize the imposition of reporting
requirements.\44\ AGL Resources, Inc. (AGL Resources) questions the
appropriateness of any requirement to file any reports at all,
emphasizing that the requirement in section 1264 to maintain records
does not amount to a requirement to file reports. AGL Resources
emphasizes that section 14 of PUHCA 1935, which permits the SEC to
require certain reports from companies subject to its jurisdiction, has
been repealed by EPAct 2005, and the EPAct did not grant the Commission
similar authority.\45\
---------------------------------------------------------------------------

    \43\ See, e.g., Energy East Comments at 4-7, National Fuel Gas
Comments at 2.
    \44\ See, e.g., E.ON/LG&E Energy Comments at 12.
    \45\ AGL Resources Comments at 5.
---------------------------------------------------------------------------

    46. Electric Power Supply Association (EPSA) argues that the
adoption of the SEC rules as a means of implementing PUHCA 2005 is
neither wise nor necessary or appropriate for the protection of utility
customers with respect to jurisdictional rates. According to EPSA, the
two statutory regimes are completely different and the PUHCA 1935
regulations are incompatible with the considerably more narrow scope of
PUHCA 2005, which the Commission itself notes is primarily a books and
records access statute and a statute that does not give the Commission
authority to pre-approve holding company activities.\46\ EPSA further
contends that the adoption of such rules would be contrary to Congress'
intent and exceed the authority granted to it under PUHCA 2005,
improperly and unnecessarily imposing PUHCA 1935-type regulation on all
PUHCA 2005 holding companies and their relevant affiliates, including a
large number of holding companies exempted from PUHCA 1935.\47\
Moreover, EPSA emphasizes that, while the Commission has the authority
to disallow a utility's recovery in its jurisdictional rates of
improper affiliate charges, the Commission does not have the authority
to regulate transactions among non-utility affiliates by requiring ``at
cost'' pricing, and, therefore, has no authority to impose financial
and complex accounting and reporting requirements to implement ``at
cost'' pricing.\48\
---------------------------------------------------------------------------

    \46\ EPSA Comments at 6-7.
    \47\ Id. at 7.
    \48\ Id. at 10.
---------------------------------------------------------------------------

Commission Determination
    47. We agree with the comments of APPA/NRECA and EEI that any SEC
regulations that the Commission adopts should be imported into and
integrated with the Commission's regulations, rather than, for example,
being incorporated by reference. However, the Commission does not find
it appropriate to incorporate all of the relevant SEC rules at this
time. Accordingly, the Commission will adopt in Part 366 of its
regulations certain provisions of 17 CFR parts 250 and 259, which are
discussed further below. We will not adopt the SEC Uniform System of
Accounts and record-retention rules in 17 CFR parts 256 and 257 into
the Commission's regulations at this time. Instead, the Commission will
initiate a separate rulemaking proceeding, which we intend to complete
well in advance of the January 1, 2007 deadline, to address how the
Commission's Uniform System of Accounts and record-retention rules in
parts 101, 125, 201, and 225 of its regulations can be modified to
adopt or otherwise integrate the relevant parts of the SEC's Uniform
System of Accounts and record-retention rules into the Commission's
regulations. As discussed above, unless otherwise exempted or granted a
waiver, both holding companies and service companies will be required
to comply with the Commission's record-retention requirements effective
January 1, 2007, but only traditional, centralized service companies
will be required to comply with the Commission's Uniform System of
Accounts. We will give holding companies registered under PUHCA 1935
and service companies within formerly-registered holding company
systems that currently follow the SEC's record-retention rules in 17
CFR part 257 the option to follow either the Commission's or the SEC's
record-retention rules, as they exist on the day before the effective
date of PUHCA 2005, for calendar year 2006. Similarly, traditional,
centralized service companies in formerly-registered holding company
systems that currently follow the SEC's Uniform System of Accounts in
17 CFR part 256 may follow either the SEC's or the Commission's Uniform
System of Accounts for calendar year 2006. But, as discussed above,
these entities must transition to the Commission's rules, by January 1,
2007.
    48. We also agree with the comments of EEI that it is appropriate
to provide a reasonable transition period between the effective date of
this Final Rule and the date on which the initial filings will be due.
As discussed above, we will give traditional, centralized service
companies until January 1, 2007 to conform their accounts and records
to the requirements of the Commission's Uniform System of Accounts and
record-retention rules. Similarly, we

will give holding companies and service companies until January 1, 2007
to conform to the requirements of the Commission's record-retention
rules.
    49. However, as discussed below, this transition period will not
apply to the filing of FERC-65 (Notification of Holding Company
status). Accordingly, all persons that are holding companies within the
meaning of PUHCA 2005 on the effective date of PUHCA 2005 will be
required to file FERC-65 within 30 days of the effective date of PUHCA
2005 to inform the Commission of their holding company status (and by
the same date, holding companies seeking exemption or waiver must file
a separate FERC-65A (Exemption Notification) or FERC-65B (Waiver
Notification) to assert their claims that they qualify for the
statutory exemptions contained in section 1266(a) of EPAct 2005 or the
other exemptions and waivers adopted in this Final Rule). Any entities
that become holding companies after the effective date of PUHCA 2005
will be required to file FERC-65 no later than 30 days after becoming a
holding company. FERC-65 is in lieu of the NOPR proposal to adopt SEC
Form U-5A, but will contain a subset of the information that the
Commission originally proposed to be filed. FERC-65 will be an
information-only filing. We find that it is appropriate to impose this
notification requirement on all holding companies equally because it
will permit the Commission to identify the companies that may have
books and records relevant to jurisdictional responsibilities under the
FPA and the NGA. This notification requirement, moreover, will impose
only a de minimis burden.
    50. We reject the recommendation of Georgia PSC that the Commission
retain all SEC regulations and ensure collection of the same
information as under PUHCA 1935. As we emphasized above, Congress
repealed PUHCA 1935 and nowhere in PUHCA 2005 did it give us the same
substantive regulatory authority that the SEC had under PUHCA 1935.
Accordingly, we will adopt only those SEC regulations that would be
consistent with Congress' intent in enacting PUHCA 2005, namely, those
that provide the Commission with access to books and records relevant
to the costs incurred by a public utility or natural gas company and
necessary or appropriate for the protection of public utility or
natural gas company customers with respect to jurisdictional rates.
    51. With respect to FirstEnergy's request that we amend section
366.2(e), we note that we are not adopting this paragraph in the Final
Rule. Instead, to avoid ambiguity, we have imported the text of these
SEC regulations that the Commission is adopting, with appropriate
modifications, into part 366 of the Commission's regulations.
Furthermore, as explained above, we will not adopt into the
Commission's regulations the SEC's Uniform System of Accounts and
record-retention rules at this time. Instead, we will initiate a
separate rulemaking proceeding to address how the Commission's Uniform
System of Accounts and record-retention rules in parts 101, 125, 201,
and 225 of its regulations can be modified to adopt or otherwise
integrate the relevant parts of the SEC's Uniform System of Accounts
and record-retention rules.
    52. We reject the contention submitted by EPSA and others that the
Commission lacks the authority under PUHCA 2005 to adopt SEC
regulations (or versions thereof) and that doing so is contrary to
Congress' intent in repealing PUHCA 1935. The accounting, record-
retention and filing requirements adopted herein impose no substantive
restrictions and prior approval requirements such as those contained in
PUHCA 1935. Moreover, sections 1264(a) and 1264(b) of EPAct 2005
expressly require each holding company and each associate company,
affiliate or subsidiary thereof to ``maintain'' and ``make available''
books and records as the Commission determines are relevant to costs
incurred by a public utility or natural gas company and necessary or
appropriate for the protection of utility customers with respect to
jurisdictional rates. In turn, section 1272(1) of EPAct 2005 directs
the Commission to issue such regulations as may be necessary or
appropriate to implement PUHCA 2005, including section 1264. In
addition, section 1270 of EPAct 2005 states that that the Commission
shall have the same powers as set forth in sections 306 through 317 of
the FPA to enforce the provisions of PUHCA 2005. In this regard, we
note that section 309 of the FPA grants the Commission the power to
perform any and all acts and to prescribe by order, rule or regulation,
as it may find necessary or appropriate to carry out the provisions of
the FPA, ``the form of all statements, declarations, applications, and
reports to be filed with the Commission.'' \49\ PUHCA 2005 did not
specify the manner in which books and records are to be made available
to the Commission, and, in the face of statutory silence on this
specific issue and the clear statements in sections 1272 and 1270 of
EPAct 2005, we find that Congress has granted the Commission the
discretion to prescribe the manner in which these entities are to
``make available'' their books and records to the Commission and ``the
form or forms of all statements, declarations, applications, and
reports to be filed with the Commission.''
---------------------------------------------------------------------------

    \49\ 16 U.S.C. 825h (2000); accord 15 U.S.C. 717o (2000).
---------------------------------------------------------------------------

    53. For the same reasons, we similarly reject the argument
submitted by AGL Resources, who notes that the SEC was empowered to
require the filing of reports by section 14 of PUHCA 1935, which has
been repealed, and concludes from the fact that Congress has not
enacted an identically-worded provision in PUHCA 2005 that the
Commission lacks the authority to require entities to file any reports
under PUHCA 2005. AGL Resources' interpretation appears to rest on the
erroneous assumption that, by using the terms ``maintain'' and ``make
available,'' Congress necessarily meant that entities were only
required to make these books and records available to the Commission on
the entities' premises, rather than in the form of a report filed with
the Commission. Had Congress meant to restrict the Commission's access
to books and records in this manner, it clearly could have done so, as
it did with respect to state commissions under section 1265; section
1265 provides that entities are to ``produce for inspection'' ``upon *
* * written request'' of a state commission a much more limited range
of documents. Here, in section 1264 (and sections 1272 and 1270),
Congress chose not to adopt such a restriction.
    54. Finally, we note that, where appropriate, we have removed from
the SEC regulations adopted herein all references to PUHCA 1935 and
related SEC regulations and, where appropriate, replaced them with
references to PUHCA 2005 or to the relevant Commission regulations.
Therefore, we will not further address in this Final Rule the various
comments received suggesting that we remove such references.
c. Comments on Particular SEC Regulations
17 CFR 250.1 and 259.5A (Form U-5A)
Comments
    55. SEC Form U-5A requires each non-exempt holding company to
submit a complete list of corporate affiliates and brief description of
the kind of business each affiliate transacts. APPA/NRECA support the
adoption of 17 CFR 250.1, which will require each public utility
holding company to inform the Commission of its status. As to
exemptions, APPA/NRECA argue that the Commission should distinguish

between the exemption available under section 1266(a) (for QFs, EWGs
and FUCOs) and 1266(b) (for persons and classes of transactions ``not
relevant to the jurisdictional rates of a public utility or natural gas
company''), so that the notification the Commission requests would be
limited to section 1266(a). According to APPA/NRECA, the ``relevance''
exemption of section 1266(b) requires more Commission attention, in the
form of general standards to be applied case by case.\50\
---------------------------------------------------------------------------

    \50\ APPA/NRECA Comments at 24.
---------------------------------------------------------------------------

    56. Energy East Corporation (Energy East) opposes the adoption of
this section because it contends that the notification requirement is
inconsistent with the statement in the NOPR indicating that the
Commission does not intend to reimpose the registration requirement.
Energy East states that the Commission could simply instead rely on
disclosure in FERC Forms 1 and 2 which require a public utility or
natural gas company to state the name of any controlling corporation,
the manner in which control is held and the extent of control.\51\
Similarly, Dominion Resources, Inc. (Dominion) and EEI state that the
Commission's intention to not reimpose the registration requirement is
inconsistent with the adoption of the three filing requirements set
forth in section 250.1 (i.e., SEC Forms U-5A, U-5B, and U-5S).\52\
---------------------------------------------------------------------------

    \51\ Energy East Comments at 4.
    \52\ Dominion Comments at 11-12, EEI Comments at 16.
---------------------------------------------------------------------------

    57. Dominion agrees with retention of the Form U-5A filing
requirement because this form is considerably less burdensome than
either Form U-5B or U-5S. Dominion also suggests that this form be
revised to provide for a claim of exemption under section 1266 of EPAct
2005.\53\ Scottish Power PLC (Scottish Power) also supports the
retention of Form U-5A and suggests that the Commission consider adding
a component to the Form U-5A to allow a holding company to make a claim
for an exemption from the books and records requirements of section
1264.\54\
---------------------------------------------------------------------------

    \53\ Dominion Comments at 12.
    \54\ Scottish Power Comments at 4.
---------------------------------------------------------------------------

Commission Determination
    58. The Commission will adopt in section 366.4(a) of its
regulations a provision analogous to that contained in paragraph (a) of
17 CFR 250.1. However, the Commission will not require holding
companies to submit a Commission-adopted version of SEC Form U-5A and
will instead require persons that are holding companies on the
effective date of PUHCA 2005 to submit FERC-65 (Notification of Holding
Company status) and, for companies seeking exemption or waiver, FERC-
65A (Exemption Notification) or FERC-65B (Waiver Notification) within
30 days of the effective date of PUHCA 2005, February 8, 2006.
Furthermore, any entity that becomes a holding company after the
effective date of PUHCA 2005 must submit FERC-65 (and, if appropriate,
FERC-65A or FERC-65B) within 30 days of the date on which such entity
becomes a holding company. This filing will be for informational
purposes and will not be noticed in the Federal Register, but will be
available on the Commission's website.
    59. As discussed above, entities seeking exemption or waiver may do
so by filing FERC-65A or FERC-65B, along with their FERC-65. All
notifications of exemption or waiver submitted on FERC-65A and FERC-65B
will be noticed in the Federal Register.
    60. However, we will limit the use of FERC-65A and FERC-65B to
those persons who claim that they qualify for one of the mandatory
statutory exemptions in section 1266(a) (i.e., that they are a holding
company solely with respect to one or more EWGs, FUCOs, or QFs) or for
one of the class exemptions or waivers that the Commission adopts in
this Final Rule, which are listed in section 366.3(b) and (c) of the
Commission's regulations, or in subsequent rules or orders. Persons
will be considered to have a temporary exemption or waiver upon a good
faith filing of FERC-65A or FERC-65B and the exemption or waiver will
be deemed granted after 60 days from the date of the filing, absent
Commission action to the contrary before that date. The Office of the
Secretary will periodically issue a notice listing the persons whose
notifications of exemption or waiver have gone into effect by operation
of the Commission's regulations, i.e., in the absence of Commission
action to the contrary within 60 days after the date of filing.
    61. Persons seeking any other type of exemption or waiver must file
a petition for declaratory order pursuant to section 385.207(a) of the
Commission's regulations, as required by section 366.3(d) of the
regulations adopted herein. These petitions for declaratory order will
be noticed in the Federal Register and no temporary exemption or waiver
will attach. Such requests for exemptions or waivers will be considered
case-by-case and deemed granted only upon order of the Commission.
    62. We reject the assertion of Energy East and others that the
adoption of a Commission analogue to 17 CFR 250.1(a) (i.e., the SEC's
registration requirement) is tantamount to re-imposing the registration
requirement under PUHCA 1935. First and foremost, the Commission in the
NOPR proposed to use a version of the SEC Form U-5A as a notification
requirement, not as a registration requirement. Moreover, in this Final
Rule, we are not adopting the proposal in the NOPR to require
submission of SEC Form U-5A and instead using what is called FERC-65
(Notification of Holding Company Status). This notification requirement
simply requires persons that are holding companies to inform the
Commission of their status as such and thus that they are subject to
the Commission's access to books and records under PUHCA 2005. As
commenters have noted, the registration system established by PUHCA
1935 was part of a pervasive regulatory regime addressing virtually all
aspects of a registered holding company's and its subsidiaries'
financial and corporate activities, while PUHCA 2005 is a narrower
statute intended to give the Commission access to books and records
relevant to costs incurred by a public utility or natural gas company
and necessary or appropriate for the protection of utility customers
with respect to jurisdictional rates. For the Commission to carry out
its jurisdictional rate responsibilities, it must be able to identify
the entities that are holding companies of jurisdictional public
utilities or natural gas companies. The requirement to notify the
Commission facilitates our ability to do so and is thus consistent with
Congress' intent in enacting PUHCA 2005, and, in any event, is hardly
burdensome.
17 CFR 250.26
Comments
    63. 17 CFR 250.26 directs registered holding companies and their
subsidiaries to comply with a number of SEC accounting and record-
keeping rules, including Regulation S-X, the equity accounting method,
and the record-retention rules in 17 CFR Part 257. E.ON and LG&E Energy
assert that section 250.26(c), which requires holding companies to use
the equity method of accounting for investments in subsidiaries, is
outside the jurisdiction of the Commission under section 1264 of EPAct
2005 and should not be adopted by the Commission.\55\ Dominion and EEI
argue that section 250.26(b), which deals with information to be
supplied with Form U-5S, should

be deleted and that sections 250.26(c) and (g) should not be adopted by
the Commission. Moreover, EEI and Dominion argue that, rather than
adopting section 250.26(d), which mandates the use of SEC record-
retention policy, holding companies should have the option of following
either SEC or Commission document retention requirements.\56\ EPSA
states that 17 CFR 250.26 pertains to financial recordkeeping
requirements that would conflict with accounting and reporting
requirements that many non-registered holding company systems are not
currently required to follow, i.e., Regulation S-X. Moreover, EPSA
notes that Rule 250.26 prohibits any company in a registered holding
company system to declare or pay dividends or reacquire its securities
absent SEC approval under section 12 of PUHCA 1935.\57\ Finally, Energy
East opposes the adoption of this rule because all top-tier registered
holding companies are public issuers and most large holding companies
subject to PUHCA 2005 are likely to be public issuers and are thus
already required to prepare financial statements in accordance with
Regulation S-X, unless exempted by other SEC rules or form
instructions.\58\
---------------------------------------------------------------------------

    \55\ E.ON/LG&E Energy Comments at 16.
    \56\ Dominion Comments at 12, EEI Comments at 17. See also
Southern Company Services, Inc. (Southern Company Services) Comments
at 5.
    \57\ EPSA Comments at 11.
    \58\ Energy East Comments at 7.
---------------------------------------------------------------------------

Commission Determination
    64. With respect to the concerns expressed by E.ON and LG&E Energy
on the use of the equity method of accounting for investments in
subsidiaries and Energy East and EPSA regarding SEC Regulation S-X, the
Commission is not adopting paragraph (a)(1) of 17 CFR 250.26 (a)(1),
which mandates compliance with this SEC Regulation S-X, or paragraph
(c), which mandates use of the equity method of accounting. In
addition, the Commission is not adopting paragraph (b), which requires
certain information to be supplied with the Form U-5S, or paragraph
(g), which is a cross reference to 17 CFR 250.26. Also, as recommended
by Dominion and EEI, the Commission will not adopt paragraph (d)
regarding the SEC rules on record retention in 17 CFR Part 257.
Instead, as discussed above, we will permit holding companies
registered under PUHCA 1935 and service companies within such holding
company systems that currently follow the SEC's record-retention rules
in 17 CFR Part 257 to follow either the Commission's or the SEC's
record-retention rules, as they exist on the day before the effective
date of PUHCA 2005, for calendar year 2006. These entities must
transition to the Commission's rules by January 1, 2007.
17 CFR 250.27
Comments
    65. 17 CFR 250.27 requires registered holding companies and public-
utility company subsidiaries thereof that are not subject to the
Commission's or a state commission's system of accounts to conform to a
classification of accounts prescribed by the Commission. If the public-
utility company subsidiary is a gas utility company, it must conform to
the system of accounts recommended by NARUC. According to Dominion and
EEI, it is questionable whether this rule currently applies to any
companies and whether there are any public utility companies under
PUHCA 1935 that would not be subject to the Commission's Uniform System
of Accounts or the requirements of a state utility commission. In
addition, Dominion and EEI assert that section 250.27 is potentially
inconsistent with the waiver of Part 101 of the Commission's
regulations commonly received in connection with an authorization to
sell power at market-based rates because this section would subject to
Part 101 any public utility under the FPA that is not required to
comply with it.\59\
---------------------------------------------------------------------------

    \59\ Dominion Comments at 12-13, EEI Comments at 18.
---------------------------------------------------------------------------

    66. APPA/NRECA oppose the adoption of this section because it does
not seem to add anything presently required by the Commission's Uniform
System of Accounts.\60\ Finally, Energy East opposes the adoption of
this section as unnecessary because there is no evidence that utilities
subject to the Commission's ratemaking jurisdiction lack a uniform
system of accounting standards.\61\
---------------------------------------------------------------------------

    \60\ APPA/NRECA Comments at 25.
    \61\ Energy East Comments at 9.
---------------------------------------------------------------------------

Commission Determination
    67. We agree with commenters that this provision should not be
adopted as part of the Commission's regulations because it does not add
anything to the Commission's Uniform System of Accounts. All public
utilities and natural gas companies, except those that have been
granted waiver of the Commission's accounting, record-retention, and
reporting requirements (e.g., power marketers), already maintain their
books and records in accordance with the Commission's Uniform System of
Accounts in Parts 101 and 201 of its regulations.
17 CFR 250.80
Comments
    68. Section 250.80 defines the terms ``construction,'' ``goods,''
and ``services,'' as used in the SEC regulations under PUHCA 1935.
APPA/NRECA support the adoption of section 250.80, but suggest that the
Commission should import the definitions of ``service,'' ``goods,'' and
``construction'' in this section into its own rules.\62\ EEI and
Dominion also support the adoption of this section.\63\ E.ON and LG&E
Energy also endorse the Commission's proposal to adopt section
250.80.\64\
---------------------------------------------------------------------------

    \62\ APPA/NRECA Comments at 25-26.
    \63\ Dominion Comments at 13, EEI Comments at 18.
    \64\ E.ON/LG&E Energy Comments at 14.
---------------------------------------------------------------------------

Commission Determination
    69. We agree with APPA/NRECA and other commenters, and as these
terms and their definitions are relevant under PUHCA 2005, we will
adopt the definitions contained in 17 CFR 250.80 in section 366.1 of
the Commission's regulations and thereby import the SEC's definitions
of these terms for the purposes of PUHCA 2005. In addition, we will
remove references to PUHCA 1935, where appropriate, as we have done
with the other regulations adopted in this final rule.
17 CFR 250.93 and 17 CFR Parts 256 and 257
Comments
    70. Section 250.93 requires service companies to adopt the SEC's
Uniform System of Accounts in 17 CFR Part 256 and its record-retention
rules in 17 CFR Part 257. Some commenters opposed the adoption of these
SEC regulations, while others supported their adoption or suggested
various ways in which their application could be limited, in
particular, by allowing holding companies and service companies to
adopt the Commission's Uniform System of Accounts in Part 101 of its
regulations and its record-retention rules under Part 125 of its
regulations.\65\
---------------------------------------------------------------------------

    \65\ But see APPA/NRECA Comments at 25-26.
---------------------------------------------------------------------------

    71. Dominion and EEI agree with the Commission's proposal to adopt
the SEC's Uniform System of Accounts. However, they state this system
of accounts closely tracks the requirements of SEC Form U-13-60 and
therefore includes a number of components that no longer will be
relevant following repeal of PUHCA 1935. They thus recommend that the
Commission adopt only those portions of 17 CFR Part 256 that correspond
to the information it

recommends be included with SEC Form U-13-60.\66\
---------------------------------------------------------------------------

    \66\ Dominion Comments at 16, EEI Comments at 20.
---------------------------------------------------------------------------

    72. Dominion and EEI also argue that holding company service
companies should have the option of adopting the Commission's Uniform
System of Accounts and record-retention rules instead of the SEC's.
They further contend that there is no reason that any company that
currently follows the Commission's record-retention regulations should
be required to adopt those found in 17 CFR part 257 and that the
Commission could reconcile the differences between the two sets of
requirements in a subsequent rulemaking.\67\
---------------------------------------------------------------------------

    \67\ Dominion Comments at 16-17, EEI Comments at 20-21.
According to Dominion and EEI, to the extent the coverage of the SEC
requirements is broader than the Commission's, the additional
requirements relate largely to securities matters that are no longer
relevant under PUHCA 2005.
---------------------------------------------------------------------------

    73. Entergy encourages the Commission to consider limiting the
applicability of these requirements to service companies and, in the
case of the record-retention requirements imposed under 17 CFR part
257, limiting the scope of these requirements to information that bears
a direct relationship to costs incurred by service companies or other
associate companies whose costs are reflected in the jurisdictional
rates or charges of public utilities.\68\
---------------------------------------------------------------------------

    \68\ Entergy Comments at 6.
---------------------------------------------------------------------------

    74. Energy East also opposes the adoption of 17 CFR part 257
because, it contends, some of the SEC's records retention requirements
are outdated, particularly as to the storage media specified, given
information storage and retrieval technologies that are now available
and in common use. The Commission's rules are more flexible because a
public utility or licensee may select its own storage media subject to
conditions related to life expectancy and internal control procedures
to assure data reliability. Energy East thus urges the Commission to
expand its Part 125 rules, making them applicable to public utilities,
service companies, and holding companies.\69\
---------------------------------------------------------------------------

    \69\ Energy East Comments at 9.
---------------------------------------------------------------------------

    75. Finally, APPA/NRECA suggest that the Commission adjust the
requirements of the SEC's Uniform System of Accounts to make them
consistent with the Commission's Uniform System of Accounts under the
FPA applicable to public utilities.\70\
---------------------------------------------------------------------------

    \70\ APPA/NRECA Comments at 25.
---------------------------------------------------------------------------

Commission Determination
    76. As discussed above, the requirements of section 1264 of EPAct
2005 to maintain and make available books and records apply equally to
all holding companies and affiliates, associate companies, and
subsidiaries thereof, regardless of their registered or exempt status
under PUHCA 1935, absent a prospective exemption or waiver.
Nevertheless, the Commission recognizes the long-standing differences
in the treatment of these classes of entities under PUHCA 1935 and SEC
regulations, namely, that companies in formerly-registered holding
companies systems were subject to PUHCA 1935 and the SEC's accounting
and other regulations thereunder, while companies in formerly-exempt
holding company systems were not. We will therefore provide all holding
companies and service companies with a reasonable period of time to
transition to the Commission's regulations under PUHCA 2005.
Specifically, all traditional, centralized service companies that do
not currently follow the Commission's Uniform System of Accounts (Parts
101 and 201) will have until January 1, 2007 to comply with the
Commission's Uniform System of Accounts, and all holding companies and
service companies that do not currently follow the Commission's record-
retention requirements (Parts 125 and 225) will have until January 1,
2007 to comply with the Commission's record-retention requirements.
Furthermore, traditional, centralized service companies within
registered holding company systems that currently follow the SEC's
Uniform System of Accounts in 17 CFR part 256 have the option to follow
either the Commission's or the SEC's Uniform System of Accounts, as
they exist on the day before the effective date of PUHCA 2005, for
calendar year 2006. Similarly, all holding companies and service
companies within registered holding company systems that currently
follow the SEC's record-retention rules in 17 CFR part 257 have the
option to follow either the Commission's or the SEC's record-retention
requirements, as they exist on the day before the effective date of
PUHCA 2005, for calendar year 2006. But, as discussed above, these
entities must transition to the Commission's rules by January 1, 2007.
    77. However, traditional, centralized service companies following
the Commission's Uniform System of Accounts must also comply with the
General Instructions and other requirements contained in the SEC's
Uniform System of Accounts. These instructions and requirements pertain
specifically to service company accounts and are not, at present,
adequately addressed in the Commission's Uniform System of Accounts.
17 CFR 250.94 and 259.313 (Form U-13-60)
Comments
    78. Service companies are required by 17 CFR 250.94 and 259.313 to
file SEC Form U-13-60, which is the annual report for service companies
in registered holding company systems. It requires the submission of
the service company's financial statements for each calendar year
prepared using the SEC's Uniform System of Accounts. It also contains
certain supporting schedules providing a more detailed analysis of
amounts recorded in individual accounts, an analysis of billings to
associated and non-associated companies, expense distribution by
service company department, and an accompanying statement of methods of
cost allocation.
    79. Several commenters support the adoption of 17 CFR 250.94 and
259.313. APPA/NRECA support the retention of 17 CFR 250.94 and Form U-
13-60.\71\ Energy East states that it is beneficial to have one form of
service company report that could be filed with the Commission and
state commissions that require affiliate transactions reporting and
thus supports the proposed SEC Form U-13-60 filing requirement, with
which the states are already familiar. Energy East further recommends
that the Commission focus the requirements of Form U-13-60, as
recommended by EEI, on the information that is most relevant to
allocations of costs.\72\
---------------------------------------------------------------------------

    \71\ APPA/NRECA Comments at 25-26.
    \72\ Energy East Comments at 10.
---------------------------------------------------------------------------

    80. Dominion and EEI also note that the current Form U-13-60
requires companies to file a substantial amount of information that is
not relevant to the Commission's duties under PUHCA 2005. EEI therefore
proposes that the balance sheet and income statement portions of the
Form U-13-60 be retained, but that a number of accounts and schedules
not relevant to cost-allocation issues be eliminated, as these accounts
and schedules in question are extremely time consuming to prepare and
in some cases require invoice level detail to complete, and EEI offers
suggestions as to accounts and schedules that should be modified.\73\
Finally, EEI requests that the Commission clarify that the form applies
to system service companies and provide a definition of ``service
company'' in section 366.1 that tracks the language in section 1275(b)
of

PUHCA 2005, i.e., ``a company organized specifically for the purpose of
providing non-power goods and services to any public utility in the
same holding company system.'' \74\
---------------------------------------------------------------------------

    \73\ Id.
    \74\ Dominion Comments at 14, EEI Comments at 19.
---------------------------------------------------------------------------

    81. E.ON and LG&E Energy contend that the implementation of section
250.94 and Form U-13-60 is beyond the scope of the jurisdiction granted
to the Commission in section 1275 of EPAct 2005, which is much more
limited than that granted to the SEC to authorize the organization and
conduct of service companies under section 13 of PUHCA 1935. They
suggest that, if it is nonetheless appropriate for the Commission in
its administration of PUHCA 2005 to impose reporting requirements under
the FPA, the nature and extent of such reports should be limited to
those matters over which the Commission is granted jurisdiction. They
further contend that Form U-13-60 largely contains information which is
not relevant to the jurisdiction of the Commission and propose that the
Commission should instead require that FERC Form 1 be supplemented to
include the following information: (i) Annual filing of cost-allocation
methodology used by the service company to allocate costs; (ii) annual
filing of statement of receivables from and payables to associated
companies, identified by associate company name; and (iii) annual
filing of all charges received by associate companies from a services
company, identified by associate company and by FERC account.\75\
---------------------------------------------------------------------------

    \75\ E.ON/LG&E Energy Comments at 15-16. See also Entery
Comments at 6.
---------------------------------------------------------------------------

Commission Determination
    82. Based on the comments received, the Commission has decided not
to adopt SEC Form U-13-60, and the Commission will instead require
traditional, centralized service companies to file their annual reports
on FERC Form No. 60, attached as Appendix 2, which is based on a
streamlined version of SEC Form U-13-60. FERC Form No. 60 substantially
reduces the amount of information required by SEC Form U-13-60 by
deleting certain schedules not necessary to fulfill our jurisdictional
responsibilities. Section 366.23 of the Commission's regulations, which
are based on 17 CFR 250.94 and 259.313, will thus require all
traditional, centralized service companies to file with the Commission
FERC Form No. 60 by May 1 of the year following the calendar year that
is the subject of the report. Traditional, centralized service
companies in formerly-registered holding company systems must submit
their first FERC Form No. 60, for calendar year 2005, by May 1, 2006,
while traditional, centralized service companies in formerly-exempt
holding company systems will have until May 1, 2008, to submit their
first annual report, for calendar year 2007, on FERC Form No. 60.
    83. SEC Form U-13-60 contains a set of financial statements for
service companies, detailed supporting schedules, organizational
charts, a list of cost-allocation methods they use, and other
information. Prior to the repeal of PUHCA 1935, the companies to which
these reporting requirements applied were entities formed specifically
for the purpose of providing non-power goods and services to a public-
utility company, as defined in section 366.1 of the Commission's
regulations, of a holding company system. In 17 CFR 250.80, the SEC
defined the type of specialized services that these traditional,
centralized service companies provided to public-utility companies
within their holding company systems, and we have taken over this
definition in section 366.1 of our regulations.\76\ With the repeal of
PUHCA 1935 and its associated rules on cross-subsidization,
diversification, and requirements to obtain SEC approval for affiliate
transactions and the formation of service companies, these traditional,
centralized service companies may increasingly provide centralized
services not only for public utility affiliates, but also for non-
utility affiliates of financial institutions or other industrial
conglomerates, increasing the opportunity for cross-subsidization.
---------------------------------------------------------------------------

    \76\ Section 366.1 defines these ``services'' as ``any
managerial, financial, legal, engineering, purchasing, marketing,
auditing, statistical, advertising, publicity, tax, research, or any
other service (including supervision or negotiation of construction
or of sales), information or data, which is sold or furnished for a
charge.''
---------------------------------------------------------------------------

    84. The annual financial reporting requirement for service
companies in FERC Form No. 60, which is based on a truncated version of
SEC Form U-13-60, will provide transparency and will enable the
Commission and others to better monitor for cross-subsidization. Such
information will aid the Commission in carrying out its statutory
duties in a number of contexts, including in its assessment of whether
a given disposition of jurisdictional facilities under section 203 of
the FPA will result in cross-subsidization, in its ratemaking under
sections 205 and 206 of the FPA and sections 4 and 5 of the NGA, and in
its review and approval of cost-allocations under section 1275 of EPAct
2005. The accounting, record-retention, and reporting rules for service
companies that we are adopting in this Final Rule are a measured
response to the need for information about service company costs and
functions necessary for the Commission to carry out its statutory
responsibilities. Finally, in response to EEI's request that the
Commission provide a definition of service company that tracks the
language in section 1275(b), we note that we have added a definition of
service company in section 366.1 of the Commission's regulations.
    85. While we believe an annual reporting requirement for service
companies is an important tool to aid the Commission in carrying out
its responsibilities under the FPA and NGA, and its review of cost
allocations requested under section 1275 of PUHCA 2005, as noted above,
we have considered the comments received regarding the current content
of SEC Form U-13-60 and concluded that some, but not all,
recommendations for modifications and deletions of certain schedules
should be adopted. Specifically, there are a number of schedules
currently contained in the SEC Form U-13-60 that provide a greater
level of detail for some items than the Commission will require in FERC
Form No. 60 to carry out its statutory responsibilities. Therefore, we
will not carry over from SEC Form U-13-60 to FERC Form No. 60 the
requirement to submit supporting schedules for Outside Services
Employed, Employee Pensions and Benefits, General Advertising Expenses,
Rents, Taxes Other than Income Taxes, Donations, and Other Deductions.
    86. We will not, however, adopt EEI's request to delete Schedule
XIII--Current and Accrued Liabilities. This schedule contains
information about the outstanding balances of accounts and notes
payable to associated companies. We consider this information to be
integral to understanding inter-company transactions and cost
allocations within the holding company system.
    87. We also will not adopt requests to modify or delete the
Schedule of Expense by Department or Service Function or the
Departmental Analysis of Salaries. This information is relevant to
affiliate costs recovered in jurisdictional rates. Section 1275(b) of
EPAct 2005 specifically requires the Commission in certain
circumstances to review and authorize the allocation of costs for non-
power goods or services provided by service companies to public
utilities within the same holding

company system. The determination of proper cost allocation requires
knowledge of the total costs and how they are distributed within the
holding company system, particularly to the jurisdictional entity(ies).
The submission of the information in this schedule will facilitate the
Commission's understanding of cost allocations within the holding
company system.\77\ The Departmental Analysis of Salaries shows how
salary expenses are allocated to each parent company, associate
company, and non-associate company based on the department or service
function allocation methods. This schedule is a tool to determine
whether cost allocations are being made in accordance with the
authorized methods of cost allocation and whether inappropriate cross-
subsidization has occurred. The Schedule of Expense by Department or
Service Function similarly promotes this end.
---------------------------------------------------------------------------

    \77\ As discussed elsewhere in this Final Rule, although we have
the authority to require the filing of cost allocation agreements
pursuant to our ratemaking authority under sections 4 and 5 of the
NGA and sections 205 and 206 of the FPA, we will not do so because
the Commission believes that the submission of relevant cost-
allocation information on FERC Form No. 60 provides a less
burdensome method for collecting this information, for both services
companies and the Commission.
---------------------------------------------------------------------------

    88. Finally, the Commission will not adopt EEI's recommendation to
delete the supporting schedule for Account 930.2, Miscellaneous General
Expenses. Account 930.2 is a catch-all account for recording expenses
not provided for elsewhere. A single-sum total for this account simply
does not provide sufficient information about the nature of the items
included in the account or the associated amounts for each item. The
additional disclosure that this schedule provides therefore remains
important for understanding service company costs and functions.
Additionally, we note that a similar schedule is required for the FERC
Form No. 1 submitted by public utilities.
17 CFR 259.5S (Form U-5S)
Comments
    89. SEC Form U-5S is the annual report registered holding companies
must submit, which includes information about the company's corporate
structure, board of directors, acquisitions or sales of utility assets,
securities transactions, investments in companies outside the holding
company family, political contributions, contracts between the service
company and utility affiliates; relations between the holding company
and any EWG or FUCO, and a copy of the company's yearly financial
reports.
    90. APPA/NRECA support the retention of Form U-5S.\78\ Georgia PSC
also supports the adoption of this reporting requirement, and suggests
that the Commission should add cash flow statements to the Financial
Statement and Exhibits section of Form U-5S.\79\
---------------------------------------------------------------------------

    \78\ APPA/NRECA Comments at 25-26.
    \79\ Georgia PSC Comments at 2.
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    91. The majority of commenters, however, oppose the adoption of
Form U-5S. EEI argues that the Form U-5S filing requirement should not
be adopted because it imposes burdensome and duplicative information
collection requirements. EEI states that, although the Office of
Management and Budget estimates that companies need approximately 13
hours to complete Form U-5S, in the experience of EEI's registered
holding company members this form requires hundreds of hours to
complete and as a result imposes millions of dollars in costs on
ratepayers and shareholders. Much of the information required by Form
U-5S is contained in other public filings, including the Commission's
Form 1 and 3Q and the quarterly and annual reports that companies file
with the SEC on Forms 10-Q and 10-K. Other information included in the
Form U-5S relates to matters that repeal of PUHCA 1935 has made
irrelevant and that holding companies no longer should be required to
file.\80\
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    \80\ EEI Comments at 5. See also E.ON/LG&E Energy Comments at
14, PacifiCorp Comments at 5, Progress Energy Comments at 5.
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    92. Similarly, AGL Resources and Emera Incorporated (Emera) argue
that the information solicited by this SEC form is generally irrelevant
to the Commission's ratemaking jurisdiction. They further contend that
the Commission already obtains the information that it needs to
regulate public utilities and natural gas companies on FERC Forms 1 and
2 and that the Commission's need for holding company-level information
can be satisfied by reviewing regular SEC reports on Forms 10-K, 10-Q
and 8-K, and by soliciting targeted information on a case-by-case basis
should particular issues arise. Finally, they argue that the Commission
should delay the imposition of additional reporting requirements until
it has had sufficient time to evaluate the extent of its information
needs.\81\
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    \81\ AGL Resources Comments at 4, Emera Comments at 10.
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    93. FirstEnergy suggests that, to the extent that the Commission
desires to utilize information contained in those forms, it should
modify those forms so that the only information required to be
maintained is information that is deemed to be necessary or appropriate
for the protection of utility customers with respect to jurisdictional
rates. The Commission should also provide a clear explanation of why
each category of information that is to be maintained is within the
statutory limits.\82\ Finally, FirstEnergy notes that Item 10 of Form
U-5S contemplates that the annual report for each holding company
system include consolidating financial statements for the parent
holding company and each of its subsidiaries for the year of the
report, and will be accompanied by the opinion of the independent
accountants as to the consolidated financial statements. This
requirement for an accountant's opinion imposes additional costs of
obtaining an opinion of the independent accountants with respect to the
consolidated financial statements. Because the financial statements of
the individual subsidiaries would have been audited and opinions
prepared in anticipation of development of consolidated financial
statements, this need for an additional opinion with respect to the
consolidated financial statements is not necessary and should be
eliminated.\83\
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    \82\ FirstEnergy Comments at 5-6.
    \83\ Id. at 7. See also Emera Comments at 10.
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    94. Entergy submits that the proposed implementation of the
comprehensive reporting requirements of the Form U-5S is unduly
burdensome and unnecessary for the Commission to prevent cross-
subsidization or otherwise to achieve purposes within the scope of its
jurisdiction. Entergy asserts that, at a minimum, the Commission should
at least review the individual items in the rules and SEC Forms and
determine what, if any, additional information is really necessary for
it to discharge its statutory obligations under PUHCA 2005 or the
FPA.\84\
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    \84\ Entergy Comments at 6.
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Commission Determination
    95. We will not require entities that are holding companies under
PUHCA 2005 to continue to file SEC Form U-5S. We agree with commenters
that the information in this form is available in other Commission or
SEC filings and/or is not relevant to costs incurred by jurisdictional
entities and is not necessary or appropriate for the protection of
utility customers with respect to jurisdictional rates.
d. Other Issues Concerning Adoption of SEC Regulations
Comments
    96. NARUC submits that the Commission should retain the reporting
requirement set forth in 17 CFR

250.58(c), Quarterly Report on Form U-9C-3 because this form contains
information that is not reflected in the Annual Report on Form U-13-
60.\85\ FPL Group, Inc. (FPL Group) suggests that the Commission adopt
a simplified annual filing requirement based solely on Part 3 of Form
U-3A-2, which requires the submission of certain quantifiable factors
upon which the exemption is based. Other provisions in Form U-3A-2
should not be adopted, as they are redundant to other required filings
under the books and records provisions (to which exempt holding
companies previously were not subject), or would not assist the
Commission in making the PUHCA 2005 exemption determination.\86\
PacifiCorp and Scottish Power argue that the Commission should not
adopt any rules similar to that of 17 CFR 250.24 which require holding
companies and their subsidiaries to file certificates of notifications
regarding terms and conditions to declarations and order issued by the
SEC prior to the enactment of PUHCA 2005.\87\
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    \85\ NARUC Comments at 2.
    \86\ FPL Group Comments at 4.
    \87\ PacifiCorp Comments at 6, Scottish Power Comments at 6.
---------------------------------------------------------------------------

    97. Detroit Edison requests that the Commission narrow the scope of
the rule by clarifying that the Commission will not require any holding
company (or its associate companies) to maintain books, records or
memoranda that are not used in preparing quarterly and annual filings
for the Commission.\88\
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    \88\ Detroit Edison Comments at 6.
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Commission Determination
    98. The FERC-65 (Notification of Holding Company Status) and FERC
Form No. 60 (Service Company Report) adopted above will provide us with
information to carry out our statutory rate responsibilities under
PUHCA 2005. It is neither necessary nor appropriate to require the
submission of additional forms at this time, though, in light of the
first year's submissions, the comments received at the technical
conference within the next year, and our day-to-day experience in
implementing PUHCA 2005, we do not foreclose the possibility that
additional filing requirements will later be found necessary.
    99. With respect to PacifiCorp and Scottish Power's concerns, we
will not adopt 17 CFR 250.24. However, as discussed below with respect
to previously authorized activities, we have concluded that filings
directed by prior SEC financing authorizations should continue to be
made, but should now be made with the Commission.
    100. We will not grant Detroit Edison's requested clarification
that the Commission will not require any holding company (or its
associate companies) to maintain books and records that are not used in
preparing quarterly and annual filings for the Commission. The
clarification Detroit Edison requests could produce loopholes in
holding company obligations to maintain and make available to the
Commission their books and records in sufficient detail to permit
examination, audit, and verification of the financial statements,
schedules, and reports they are required to file with the Commission or
that are issued to shareholders, as required by sections 366.21 and
366.22. For example, we will not carry over from SEC Form U-13-60 to
FERC Form No. 60 the requirement to submit a schedule that provides a
more detailed breakdown of outside services, but the removal of this
schedule does not relieve the traditional, centralized service company
of its obligation to provide this information upon request by the
Commission. If we were to adopt Detroit Edison's suggested clarifying
language, the traditional, centralized service company (which is an
associate company within the holding company system) could argue that
it does not have to provide the requested information because it was
not kept as it was not necessary to complete FERC Form No. 60.
e. Other Comments on the NOPR
Definition of ``Relevance''
Comments
    101. Several commenters urge the Commission to clarify its standard
for relevance under section 1264.\89\ For example, APPA/NRECA propose
that the Commission should consider the books and records relating to a
corporate relationship or transaction, and the parties thereto, are
``relevant'' if there is a reasonable possibility that the arrangement
will affect a public utility affiliate in any material way, including
increasing its costs; adversely impacting it financial rating or access
to capital; diminishing its sales opportunities; or adversely affecting
operations, planning or maintaining activities.\90\
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    \89\ Arkansas PSC Comments at 8-11, Black Hills Comments at 2-3,
National Association of State Consumer Advocates (NASUCA) Comments
at 7, Missouri PSC Comments at 16-18.
    \90\ APPA/NRECA Comments at 19. According to APPA/NRECA, the
following new corporate relationships and transactions are of
relevance to the Commission: (i) ownership by a holding company of
public utilities having no operational integration with each other;
(ii) ownership by multi-state holding companies (or their public
utility affiliates) of non-utility businesses having no functional
relationship to the public utility businesses; (iii) ownership of
multiple public utility companies by non-utility ventures; (iv)
financings by multi-state public utility companies that fall outside
standard debt-equity ratios, or that would fail the six criteria of
Section 7(d)(1) of PUHCA 1935; (v) public utility loans to, or
guarantees of indebtedness of, the holding company or any other
affiliate. Id. at 17-18.
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    102. Detroit Edison submits that section 366.2 as currently worded
is far too open-ended, and leaves holding companies in an untenable
state of uncertainty with respect to the relevance of any ``books,
accounts, memoranda'' or ``other records.'' \91\ PacifiCorp concurs and
urges that, at a minimum, the Commission clarify that it will provide a
notice-and-comment proceeding before expanding its current information
collection under this provision.\92\
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    \91\ Detroit Edison Comments at 5-6. See also Cinergy Comments
at 21, EEI Comments at 5.
    \92\ PacifiCorp Comments at 5.
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Commission Determination
    103. In PUHCA 2005, Congress left it to the Commission's discretion
to determine what books and records are relevant to the costs incurred
by a public utility or natural gas company and necessary or appropriate
for the protection of public utility or natural gas company customers
with respect to jurisdictional rates. We do not find it appropriate
here to follow APPA/NRECA's suggestion that we provide a general
definition of relevance. We have instead adopted the requirements in
Part 366 of the Commission's regulations. In particular, sections
366.21 and 366.22 require that holding companies and service companies
maintain books and records of their transactions in sufficient detail
to permit examination, audit, and verification of the financial
statements, schedules, and reports they are required to file with the
Commission or that are issued to shareholders. We will provide further
guidance as to what books and records are relevant at the technical
conference that we will convene within one year of the effective date
of PUHCA 2005 and in the separate rulemaking proceeding we will
institute to address changes in the Commission's Uniform System of
Accounts and record-retention requirements. We believe that these
provisions provide adequate certainty as to which books and records
that holding companies and service companies need to maintain and make
available to the Commission.

Preemption of State Laws
Comments
    104. Several commenters request that the Commission confirm that
its own access under section 1264 does not preempt rights to access
information by state commissions under section 1265. In order to
prevent future arguments that the federal access provisions of section
1264 preempt state commission access under section 1265, Santa Clara
urges the Commission to grant this clarification in the final rule.\93\
NARUC emphasizes that Congress expressly provided that states would
have access under section 1265; that this means of state access was
non-exclusive; and that Congress did not contemplate federal occupation
of this field.\94\ Moreover, according to NARUC, there is no inherent
conflict between state access under either section 1265 or state law
and federal access under section 1264.\95\ Finally, Indiana Utility
Regulatory Commission (IURC) requests that the final regulations
include language paralleling the language of sections 1265(d), 1267(b),
1269, and 1275(c) of EPAct 2005 that confirms that the new law (and
regulations promulgated under it) does not disturb historical state
authority in the identified areas.\96\
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    \93\ Santa Clara Comments at 23-24. See also Arkansas PSC
Comments at 21, Missouri PSC Comments at 26-27, TANC Comments at 23-
24.
    \94\ NARUC Reply Comments at 3.
    \95\ Id. at 3-4.
    \96\ IURC Comments at 6.
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Commission Determination
    105. We agree with NARUC that there is no inherent conflict between
state access under either section 1265 or state law and federal access
under section 1264. We find that our own access under section 1264 does
not preempt rights to access information by state commissions under
section 1265. With respect to IURC's argument, we do not find it
necessary to adopt regulatory text on this point, in light of the clear
statutory language.
Scope of Commission Authority and Access to Data
Comments
    106. APPA/NRECA urge the Commission to explicitly state in the
final rule that the data access granted under section 1264(a) of EPAct
2005 supplements, rather than supplants, the Commission's pre-EPAct
2005 access to books and records and that this pre-existing access
stems from the Commission's ratemaking authority and from the general
provisions of section 301 of the FPA and section 8 of the NGA.\97\
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    \97\ APPA/NRECA Comments at 21.
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Commission Determination
    107. The Commission grants APPA/NRECA's proposed clarification. The
Commission's pre-EPAct 2005 access to books and records pursuant to
section 301 of the FPA and section 8 of the NGA remains unchanged. As
provided in section 1271 of EPAct 2005, nothing in PUHCA 2005 limits
the Commission's authority under the FPA or the NGA.
State Access to Books and Records Obtained by the Commission
Comments
    108. Oklahoma Corporation Commission recommends that the Commission
consider language that would allow state commissions to continue to
receive notices of any investigations of regulated public utility
companies.\98\ Public Citizen notes that Congress has not given state
commissions in PUHCA 2005 the right to require holding companies or
their associate companies to maintain, keep or preserve any records
affecting retail rates, so that the state commission can only require
the maintenance of holding company/associate company books and records
that affect only retail rates if the Commission uses its existing
authorities under FPA section 301 to do so. Public Citizen thus urges
the Commission to explicitly state in the final rule that the
Commission has the authority under FPA section 301 to require holding
companies and their associates to maintain books and records that state
commissions determine affect their retail rates and provide a process
through which the states can request the maintenance and preservation
of such books and records.\99\
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    \98\ Oklahoma Corporation Commission Comments at 4.
    \99\ Public Citizen Comments at 4.
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Commission Determination
    109. In response to the request of Oklahoma Corporation Commission
that state commissions be apprised of any investigations of regulated
public utility companies, we believe our current practices regarding
the disclosure of investigations are appropriate and should not be
broadened at this time. We are open to further consideration on this
point at the technical conference. However, Congress set forth the
rights of state commissions to obtain access to the books and records
of companies within a holding company system in section 1265 of EPAct
2005, and they may seek to obtain access to the books and records of
holding companies in accordance with that provision. With respect to
Public Citizen's request that the Commission use section 301 of the FPA
to give states the opportunity to request the maintenance and
preservation of books and records that state commissions determine
affect their retail rates, we do not interpret section 301 to give the
Commission the authority to provide a process for states to request
maintenance of books and records for retail purposes. Congress has
addressed in section 1265 the issue of state access to books and
records of holding company systems and their members.

3. Exemption Authority

    110. Section 1266(a) of EPAct 2005 directs the Commission to issue
a final rule within 90 days after the effective date of Subtitle F
exempting from the requirements of section 1264 of EPAct 2005 any
person that is a holding company, solely with respect to one or more:
    (1) Qualifying facilities under the Public Utility Regulatory
Policies Act of 1978 (16 U.S.C. 2601 et seq. (2000));
    (2) Exempt wholesale generators; or
    (3) Foreign utility companies.
    111. Section 1266(b) further directs the Commission to exempt a
person or transaction from the requirements of section 1264 if, upon
application or sua sponte: