[Federal Register Volume 78, Number 79 (Wednesday, April 24, 2013)]
[Rules and Regulations]
[Pages 24071-24073]
[FR Doc No: 2013-09609]

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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

33 CFR Part 165

[Docket Number USCG-2013-0259]
RIN 1625-AA00

Safety Zone; Pasquotank River; Elizabeth City, NC

AGENCY: Coast Guard, DHS.

ACTION: Temporary final rule.

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SUMMARY: The Coast Guard is establishing a safety zone on the navigable
waters of the Pasquotank River in Elizabeth City, NC in support of the
Fireworks display for the Potato Festival. This action is necessary to
protect the life and property of the maritime public and spectators
from the hazards posed by aerial fireworks displays. Entry into or
movement within this safety zone during the enforcement period is
prohibited without approval of the Captain of the Port.

DATES: This rule is effective on May 18, 2013 and enforced from 8 p.m.
to 11 p.m. on May 18, 2013.

ADDRESSES: Documents mentioned in this preamble are part of docket
[USCG-2013-0259]. To view documents mentioned in this preamble as being
available in the docket, go to http://www.regulations.gov, type the
docket number in the ``SEARCH'' box and click ``SEARCH.'' Click on Open
Docket Folder on the line associated with this rulemaking. You may also
visit the Docket Management Facility in Room W12-140 on the ground
floor of the Department of Transportation West Building, 1200 New
Jersey Avenue SE., Washington, DC 20590, between 9 a.m. and 5 p.m.,
Monday through Friday, except Federal holidays.

FOR FURTHER INFORMATION CONTACT: If you have questions on this rule,
call or email BOSN4 Joseph M. Edge, Coast Guard Sector North Carolina,
Coast Guard; telephone<PHONE_NUMBER>, email<EMAIL_ADDRESS>If
you have questions on viewing or submitting material to the docket,
call Barbara Hairston, Program Manager, Docket Operations, telephone
(202) 366-9826.

SUPPLEMENTARY INFORMATION:

Table of Acronyms

DHS Department of Homeland Security
FR Federal Register
NPRM Notice of Proposed Rulemaking

A. Regulatory History and Information

    The Coast Guard is issuing this temporary final rule without prior
notice and opportunity to comment pursuant to authority under section
4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This
provision authorizes an agency to issue a rule without prior notice and
opportunity to comment when the agency for good cause finds that those
procedures are ``impracticable, unnecessary, or contrary to the public
interest.'' Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good
cause exists for not publishing a notice of proposed rulemaking (NPRM)
with respect to this rule because the final details for this event were
not provided to the Coast Guard until April 10, 2013. As such, it is
impracticable to provide a full comment period due to lack of time.
Delaying the effective date for comment would be contrary to the public
interest, since immediate action is needed to ensure the safety of the
event participants, patrol vessels, spectator craft and other vessels
transiting the event area. The Coast Guard will provide advance

notifications to users of the effected waterways of the safety zone via
marine information broadcasts, local notice to mariners, commercial
radio stations and area newspapers.

B. Basis and Purpose

    On May 18, 2013, the NC Potato Festival will sponsor a fireworks
display from a barge anchored in the Pasquotank River at latitude
36[deg]17'47'' N longitude 076[deg]12'17'' W. The fireworks debris
fallout area will extend over the navigable waters of Cape Fear River.
Due to the need to protect mariners and spectators from the hazards
associated with the fireworks display, including accidental discharge
of fireworks, dangerous projectiles, and falling hot embers or other
debris, vessel traffic will be temporarily restricted from transiting
within fireworks launch and fallout area.

C. Discussion of the Final Rule

    The Coast Guard is establishing a safety zone on the navigable
waters of Pasquotank River in Elizabeth City, NC. The regulated area of
this safety zone includes all water of the Pasquotank River within a
300 yards radius of latitude 36[deg]17'47'' N longitude 076[deg]12'17''
W.
    This safety zone will be established and enforced from 8 p.m. to 11
p.m. on May 18, 2013. In the interest of public safety, general
navigation within the safety zone will be restricted during the
specified date and times. Except for participants and vessels
authorized by the Coast Guard Captain of the Port or his
representative, no person or vessel may enter or remain in the
regulated area.

D. Regulatory Analyses

    We developed this rule after considering numerous statutes and
executive orders related to rulemaking. Below we summarize our analyses
based on these statutes and executive orders.

1. Regulatory Planning and Review

    This rule is not a significant regulatory action under section 3(f)
of Executive Order 12866, Regulatory Planning and Review, as
supplemented by Executive Order 13563, Improving Regulation and
Regulatory Review, and does not require an assessment of potential
costs and benefits under section 6(a)(3) of Executive Order 12866 or
under section 1 of Executive Order 13563. The Office of Management and
Budget has not reviewed it under those Orders. Although this regulation
restricts access to a small segment of the Pasquotank River, the effect
of this rule will not be significant because: (i) The safety zone will
be in effect for a limited duration; (ii) the zone is of limited size;
and (iii) the Coast Guard will make notifications via maritime
advisories so mariners can adjust their plans accordingly. Impact on
Small Entities

2. Impact on Small Entities

    The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601-612, as
amended, requires federal agencies to consider the potential impact of
regulations on small entities during rulemaking. The term ``small
entities'' comprises small businesses, not-for-profit organizations
that are independently owned and operated and are not dominant in their
fields, and governmental jurisdictions with populations of less than
50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule
will not have a significant economic impact on a substantial number of
small entities. This rule would affect the following entities, some of
which might be small entities: The owners or operators of vessels
intending to transit or anchor in the Pasquotank River where fireworks
events are being held. This regulation will not have a significant
impact on a substantial number of small entities because it will be
enforced only during the fireworks display event that has been
permitted by the Coast Guard Captain of the Port. The Captain of the
Port will ensure that small entities are able to operate in the
regulated area when it is safe to do so. In some cases, vessels will be
able to safely transit around the regulated area at various times, and,
with the permission of the Patrol Commander, vessels may transit
through the regulated area. Before the enforcement period, the Coast
Guard will issue maritime advisories so mariners can adjust their plans
accordingly.

3. Assistance for Small Entities

    Under section 213(a) of the Small Business Regulatory Enforcement
Fairness Act of 1996 (Pub. L. 104-121), we want to assist small
entities in understanding this rule. If the rule would affect your
small business, organization, or governmental jurisdiction and you have
questions concerning its provisions or options for compliance, please
contact the person listed in the FOR FURTHER INFORMATION CONTACT,
above.
    Small businesses may send comments on the actions of Federal
employees who enforce, or otherwise determine compliance with, Federal
regulations to the Small Business and Agriculture Regulatory
Enforcement Ombudsman and the Regional Small Business Regulatory
Fairness Boards. The Ombudsman evaluates these actions annually and
rates each agency's responsiveness to small business. If you wish to
comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR
(1-888-734-3247). The Coast Guard will not retaliate against small
entities that question or complain about this rule or any policy or
action of the Coast Guard.

4. Collection of Information

    This rule will not call for a new collection of information under
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

5. Federalism

    A rule has implications for federalism under Executive Order 13132,
Federalism, if it has a substantial direct effect on the States, on the
relationship between the national government and the States, or on the
distribution of power and responsibilities among the various levels of
government. We have analyzed this rule under that Order and determined
that this rule does not have implications for federalism.

6. Protest Activities

    The Coast Guard respects the First Amendment rights of protesters.
Protesters are asked to contact the person listed in the FOR FURTHER
INFORMATION CONTACT section to coordinate protest activities so that
your message can be received without jeopardizing the safety or
security of people, places or vessels.

7. Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538)
requires Federal agencies to assess the effects of their discretionary
regulatory actions. In particular, the Act addresses actions that may
result in the expenditure by a State, local, or tribal government, in
the aggregate, or by the private sector of $100,000,000 (adjusted for
inflation) or more in any one year. Though this rule will not result in
such an expenditure, we do discuss the effects of this rule elsewhere
in this preamble.

8. Taking of Private Property

    This rule will not cause a taking of private property or otherwise
have taking implications under Executive Order 12630, Governmental
Actions and Interference with Constitutionally Protected Property
Rights.

9. Civil Justice Reform

    This rule meets applicable standards in sections 3(a) and 3(b)(2)
of Executive Order 12988, Civil Justice Reform, to

minimize litigation, eliminate ambiguity, and reduce burden.

10. Protection of Children

    We have analyzed this rule under Executive Order 13045, Protection
of Children from Environmental Health Risks and Safety Risks. This rule
is not an economically significant rule and does not create an
environmental risk to health or risk to safety that may
disproportionately affect children.

11. Indian Tribal Governments

    This rule does not have tribal implications under Executive Order
13175, Consultation and Coordination with Indian Tribal Governments,
because it does not have a substantial direct effect on one or more
Indian tribes, on the relationship between the Federal Government and
Indian tribes, or on the distribution of power and responsibilities
between the Federal Government and Indian tribes.

12. Energy Effects

    This action is not a ``significant energy action'' under Executive
Order 13211, Actions Concerning Regulations That Significantly Affect
Energy Supply, Distribution, or Use.

13. Technical Standards

    This rule does not use technical standards. Therefore, we did not
consider the use of voluntary consensus standards.

14. Environment

    We have analyzed this rule under Department of Homeland Security
Management Directive 023-01 and Commandant Instruction M16475.lD, which
guide the Coast Guard in complying with the National Environmental
Policy Act of 1969 (NEPA)(42 U.S.C. 4321-4370f), and have determined
that this action is one of a category of actions that do not
individually or cumulatively have a significant effect on the human
environment. This rule involves establishing a safety zone for a
fireworks display launch site and fallout area and is expected to have
no impact on the water or environment. This zone is designed to protect
mariners and spectators from the hazards associated with aerial
fireworks displays. This rule is categorically excluded from further
review under paragraph 34 (g) of Figure 2-1 of the Commandant
Instruction. An environmental analysis checklist supporting this
determination and a Categorical Exclusion Determination are available
in the docket where indicated under ADDRESSES. We seek any comments or
information that may lead to the discovery of a significant
environmental impact from this rule.

List of Subjects in 33 CFR Part 165

    Harbors, Marine safety, Navigation (water), Reporting and
recordkeeping requirements, Security measures, and Waterways.

    For the reasons discussed in the preamble, the Coast Guard amends
33 CFR part 165 as follows:

PART 165--REGULATED NAVIGATION AREAS AND LIMITED ACCESS AREAS

0
1. The authority citation for part 165 continues to read as follows:

    Authority:  33 U.S.C. 1231; 46 U.S.C. Chapter 701, 3306, 3703;
50 U.S.C. 191, 195; 33 CFR 1.05-1, 6.04-1, 6.04-6, 160.5; Pub. L.
107-295, 116 Stat. 2064; Department of Homeland Security Delegation
No. 0170.1.

0
2. Add temporary Sec.  165.T05-0259 to read as follows:

Sec.  165.T05-0259   Safety Zone; Pasquotank River; Elizabeth City, NC.

    (a) Definitions. For the purposes of this section, Captain of the
Port means the Commander, Sector North Carolina.
    Representative means any Coast Guard commissioned, warrant, or
petty officer who has been authorized to act on the behalf of the
Captain of the Port.
    (b) Location. The following area is a safety zone: Specified waters
of the Captain of the Port, Sector North Carolina, as defined in 33 CFR
3.25-20, all waters of the Pasquotank River within a 300 yard radius of
the fireworks launch barge in approximate position latitude
36[deg]17'47'' N longitude 076[deg]12'17'', located near Machelhe
Island.
    (c) Regulations. (1) The general regulations contained in Sec.
165.23 of this part apply to the area described in paragraph (b) of
this section.
    (2) Persons or vessels requiring entry into or passage through any
portion of the safety zone must first request authorization from the
Captain of the Port, or a designated representative, unless the Captain
of the Port previously announced via Marine Safety Radio Broadcast on
VHF Marine Band Radio channel 22 (157.1 MHz) that this regulation will
not be enforced in that portion of the safety zone. The Captain of the
Port can be contacted at telephone number<PHONE_NUMBER> or by radio on
VHF Marine Band Radio, channels 13 and 16.
    (d) Enforcement. The U.S. Coast Guard may be assisted in the patrol
and enforcement of the zone by Federal, State, and local agencies.
    (e) Enforcement period. This section will be enforced on May 18,
2013 from 8 p.m. to 11 p.m. unless cancelled earlier by the Captain of
the Port.

    Dated: April 12, 2013.
A. Popiel,
Captain, U.S. Coast Guard, Captain of the Sector North Carolina.
[FR Doc. 2013-09609 Filed 4-23-13; 8:45 am]
BILLING CODE 9110-04-P


[Federal Register: July 24, 2008 (Volume 73, Number 143)]
[Rules and Regulations]
[Page 43072-43083]
[DOCID:fr24jy08-5]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM07-15-001; Order No. 707-A]

Cross-Subsidization Restrictions on Affiliate Transactions

Issued July 17, 2008.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Final rule; order on rehearing.

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SUMMARY: The Federal Energy Regulatory Commission is granting rehearing
and clarification, in part, of a final rule amending its regulations to
codify restrictions on affiliate transactions between franchised public
utilities that have captive customers, or that own or provide
transmission service over jurisdictional transmission facilities, and
their market-regulated power sales affiliates or non-utility
affiliates.

DATES: Effective Date: This Final Rule; order on rehearing will become
effective August 25, 2008.

FOR FURTHER INFORMATION CONTACT:
Carla Urquhart (Legal Information), Office of the General Counsel,
Federal Energy Regulatory Commission, 888 First Street, NE.,
Washington, DC 20426,<PHONE_NUMBER>,

Paul Silverman (Legal Information), Office of the General Counsel,
Federal Energy Regulatory Commission, 888 First Street, NE.,
Washington, DC 20426,<PHONE_NUMBER>,
Mosby Perrow (Legal Information), Office of the General Counsel,
Federal Energy Regulatory Commission, 888 First Street, NE.,
Washington, DC 20426,<PHONE_NUMBER>,
Valerie Gill (Technical Information), Office of Energy Market
Regulation, Federal Energy Regulatory Commission, 888 First Street,
NE., Washington, DC 20426,<PHONE_NUMBER>,
Stuart Fischer (Technical Information), Office of Enforcement, Federal
Energy Regulatory Commission, 888 First Street, NE., Washington, DC
20426,<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:
Before Commissioners: Joseph T. Kelliher, Chairman; Suedeen G.
Kelly, Marc Spitzer, Philip D. Moeller, and Jon Wellinghoff.

    Cross-Subsidization Restrictions on Affiliate; Docket No.
Transactions RM07-15-001:

Order on Rehearing

Order No. 707-A

Issued July 17, 2008.

    1. Order No. 707 \1\ amended the Federal Energy Regulatory
Commission's (Commission) regulations to codify restrictions on
affiliate transactions between franchised public utilities that have
captive customers or that own or provide transmission service over
jurisdictional transmission facilities, and their market-regulated
power sales affiliates or non-utility affiliates. These restrictions
supplemented other restrictions the Commission has in place that apply
to public utilities with market-based rates and to public utilities
seeking merger approvals. In this order, we deny, in part, and grant,
in part, the various requests for rehearing received by the Commission,
and amend part 35 of our regulations accordingly.
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    \1\ Cross-Subsidization Restrictions on Affiliate Transactions,
Order No. 707, 73 FR 11013 (Feb. 29, 2008), FERC Stats. & Regs. ]
31,264, granting extension of time, 122 FERC ] 61,280 (2008).
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I. Background

    2. In the Affiliate Transactions Notice of Proposed Rulemaking, the
Commission proposed to implement uniform affiliate restrictions that
would be applicable to all franchised public utilities with captive
customers and their market-regulated and non-utility affiliates and
would address both power and non-power goods and services transactions
between the utility and its affiliates.\2\ The proposed restrictions
were based on those already imposed by the Commission in the context of
certain section 203 and 205 approvals, but expanded the transactions
and entities to which they apply.
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    \2\ Cross-Subsidization Restrictions on Affiliate Transactions,
Notice of Proposed Rulemaking, 72 FR 41644 (July 31, 2007), FERC
Stats. & Regs. ] 32,618 (2007).
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    3. Specifically, the Commission proposed to: (1) Require the
Commission's approval of all wholesale power sales between a franchised
public utility with captive customers and a market-regulated power
sales affiliate; (2) require a franchised public utility with captive
customers to provide non-power goods and services to a market-regulated
power sales affiliate or a non-utility affiliate at a price that is the
higher of cost or market price; (3) prohibit a franchised public
utility with captive customers from purchasing non-power goods or
services from a market-regulated power sales affiliate or a non-utility
affiliate at a price above market price (with the exception of (4));
and (4) prohibit a franchised public utility with captive customers
from receiving non-power goods and services from a centralized service
company at a price above cost.
    4. The Commission stated that the restrictions would help it to
meet the requirement of amended section 203(a)(4) of the Federal Power
Act (FPA) \3\ that a transaction not result in the inappropriate cross-
subsidization of a non-utility associate company. The Commission
further stated that the restrictions would help assure just and
reasonable rates and the protection of captive customers for all public
utilities pursuant to sections 205 and 206 of the FPA,\4\ irrespective
of whether they needed approval of a section 203 transaction.
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    \3\ 16 U.S.C. 824b(a)(4).
    \4\ 16 U.S.C. 824d, 824e.
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    5. As the Commission stated in Order No. 707, its obligation to
ensure that the rates, terms, and conditions of jurisdictional service
are just, reasonable and not unduly discriminatory or preferential
requires that it ensure that wholesale rates do not reflect costs that
result from undue preferences granted to affiliates or that are
imprudent or unreasonable as a result of affiliate transactions. The
Commission described its long history of scrutinizing affiliate
transactions for potential cross-subsidization and how in recent
rulemakings and orders it has codified and expanded affiliate
restrictions, both under its FPA section 205 and 206 rate authority (in
the context of market-based rates) and under its FPA section 203 merger
authority. The Commission then extended similar restrictions to all
franchised public utilities that have captive customers, or that own or
provide transmission service over jurisdictional transmission
facilities.
    In particular, the Commission articulated restrictions on affiliate
sales of electric energy by prohibiting wholesale sales of electric
energy between a franchised public utility with captive customers and a
market-regulated power sales affiliate without prior Commission
authorization for the transaction under section 205 of the Federal
Power Act.\5\ The Commission also promulgated three pricing
restrictions on the sale of non-power goods and services.
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    \5\ 18 CFR 35.44(a).
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    6. First, the Commission provided that unless otherwise permitted
by Commission rule or order, sales of any non-power goods or services
by a franchised public utility that has captive customers or that owns
or provides transmission service over jurisdictional transmission
facilities, including sales made to or through its affiliated exempt
wholesale generators or qualifying facilities, to a market-regulated
power sales affiliate or non-utility affiliate must be at the higher of
cost or market price.
    7. Second, the Commission provided that unless otherwise permitted
by Commission rule or order, a franchised public utility that has
captive customers or that owns or provides transmission service over
jurisdictional transmission facilities, may not purchase or receive
non-power goods and services from a market-regulated power sales
affiliate or a non-utility affiliate at a price above market.
    8. Third, and as an exception to the restriction set forth
immediately above, the Commission provided that a franchised public
utility that has captive customers or that owns or provides
transmission service over jurisdictional transmission facilities, may
only purchase or receive non-power goods and services from a
centralized service company at cost.\6\
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    \6\ Id.
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    9. The Commission also stated in Order No. 707 that the pricing
rules would be prospective and would apply to any contracts, agreements
or arrangements entered into on or after the effective date of the
rule. The Commission explained that to the extent different pricing was
in effect for any contract, agreement, or arrangement entered into
prior to the effective date of Order No. 707, that pricing may

remain in effect, but the Commission may on its own motion, or upon
complaint, institute a section 206 proceeding to determine whether the
costs incurred by a public utility under pre-existing contracts,
agreements or arrangements are just, reasonable and not unduly
discriminatory or preferential.

II. Discussion

A. Affiliate Transaction Pricing Standards

    10. In Order No. 707, the Commission denied requests to permit
franchised public utilities with captive customers to make sales of
non-power goods and services at cost to market-regulated power sales
affiliates or non-utility affiliates and instead required these sales
to be at the higher of cost or market price. It reasoned that to adopt
an at-cost pricing structure for these types of non-power transactions
``would require a franchised public utility to sell to an affiliate at
cost even when market prices are higher, thereby foregoing profits that
the utility otherwise could have obtained by selling to a non-affiliate
at a market price.'' \7\
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    \7\ Order No. 707, FERC Stats. & Regs. ] 31,264 at P 70.
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    11. The Commission also prohibited a franchised public utility with
captive customers from purchasing non-power goods or services from a
market-regulated power sales affiliate or a non-utility affiliate at a
price above market price, with the exception of purchases from
centralized service companies. In doing so, the Commission denied the
New York State Public Service Commission's (New York Commission)
request for a lower of cost or market standard for these types of
transactions, finding that captive customers are not harmed by the
franchised public utility paying above-cost charges if those charges
are no higher than what they would pay non-affiliates for the same non-
power goods and services. In this regard, the Commission noted that
nothing in the standard requiring that these purchases not be above
market prevents the franchised public utility from paying less than the
market price.\8\ The Commission further rejected requests that it defer
to state utility commissions that apply different standards to intra-
system transactions to avoid inconsistent standards.\9\
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    \8\ Id. P 71.
    \9\ Id. P 74.
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1. Shared Corporate General Management and Administrative Services
Requests for Rehearing or Clarification
    12. Florida Power & Light Company and FPL Energy, LLC (FPL),
Pacific Gas & Electric Company (PG&E), and Southern California Edison
Company (SoCal Edison) each argue that Order No. 707 does not
adequately address pricing for shared corporate general management and
administrative services that a utility provides to other companies in a
single-state holding company system without a centralized service
company but that it does not offer to non-affiliates. The services in
question are those akin to the services that a centralized service
company provides in multi-state systems. PG&E identifies them as
accounting, appraisal, call center, claims, computer, construction,
communications, equipment, fleet, janitorial, legal, legislative,
maintenance, payroll, personnel, realty, regulatory, supply, and
technical services. FPL notes that the services in question are similar
to those provided by a centralized service company, which the
Commission has defined as one ``that provides services such as
administrative, managerial, financial, accounting, recordkeeping, legal
or engineering services, which are sold, furnished, or otherwise
provided (typically for a charge) to other companies in the same
holding company system.'' \10\ FPL states that in its system, the
services in question are information technology and management;
corporate communications systems; engineering and construction; \11\
finance and accounting; legal; human resources; auditing; environmental
services; risk management; technical nuclear and power generation
support services; and federal government affairs. FPL, PG&E and SoCal
Edison maintain that intra-system sales of these services at cost
should be permitted even when the system has no centralized service
company.
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    \10\ The language cited is drawn from the definition of a
centralized service company found in 18 CFR 367.1(a)(7).
    \11\ FPL notes that in its case ``engineering and construction''
services do not refer to the intra-corporate provision of parts or
labor. It refers rather to oversight and planning functions
effectively as an owner's representative. Actual engineering and
construction services with respect to new plants are provided by
third-party engineering and construction companies at negotiated
rates.
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    13. FPL, PG&E and SoCal Edison first note that they do not make
sales of these services to non-affiliates, and as a result market
prices do not exist for them. SoCal Edison notes that the Commission
acknowledged in Order No. 707 that it has recognized that defining a
market price for these services is a ``speculative task'' when dealing
with a centralized service company, but the Commission fails to
recognize that the task is no less speculative where the system does
not have a centralized service company. FPL states that many of the
services at issue vary from location to location and provider to
provider. In a system like its own, these services have been provided
in-house for years, and the nature of the services as well as the
manner in which they are provided reflect both the culture and
technology choices made by the utility providing these services.
Because the nature of a service is driven and structured primarily to
meet the needs of the franchised public utility, it is virtually
impossible to establish a market or a market price for it.
    14. SoCal Edison challenges the reasoning underlying the
Commission's denial of at-cost pricing for general administrative
services a franchised public utility provides to system companies,
i.e., that this pricing standard would require a franchised public
utility to sell to an affiliate at cost even when market prices are
higher, thereby foregoing profits that the utility otherwise could have
obtained by selling to a non-affiliate at a market price. SoCal Edison
argues that where the utility is not making any market-based sales of
these services, it is not ``foregoing'' any profits. It suggests that
there is no evidence in the record for the Commission's assumption that
utilities would forego profits if the Commission did not adopt a higher
of cost or market standard, and thus, no basis for the Commission's
rejection of an at-cost pricing structure. SoCal Edison contends that
the Commission should acknowledge the distinction between goods and
services developed for sale on the open market (for which affiliates
should be charged the higher of cost or market price) and those
services that are not intended for sale and can be provided to
affiliates at their fully-loaded cost.\12\
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    \12\ SoCal Edison states that fully-loaded costs include the
direct cost of each employee's time plus adders to cover indirect
costs such as employee benefits and other overhead items.
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    15. FPL, PG&E and SoCal Edison argue that at-cost pricing in these
circumstances (i.e., where the franchised public utility is a member of
a single-state holding company and provides services only to
affiliates, but not on the open market, and operates in a single-state
context) leads to significant economies of scale. SoCal Edison states
that while Order No. 707

recognizes the efficiencies and economies of scale that benefit captive
customers when general administrative services are provided across an
enterprise, instead of being duplicated by each separate entity within
a holding company structure, the order fails to recognize similar
efficiencies and economies of scale in a single-state context where the
corporate structure does not include a formal centralized services
company, but where a franchised utility often may provide similar in-
house corporate administrative services to the rest of the corporate
enterprise.
    16. PG&E argues that at-cost provision of goods and services
promotes economies of scale, and as long as the non-utility companies
within a family are not charging more than the cost of the services,
and the utilities involved are recovering their costs of providing any
services they provide to others within the family, utility ratepayers
will receive the cost advantages of the economies of scale from in-
house services and will be insulated from cross subsidizing other
companies and their customers.
    17. FPL argues that customers will lose the benefit of established
efficiencies, expertise, and economies of scale, with no real
countervailing benefit if at-cost pricing cannot be used in these
circumstances. FP&L asks the Commission to clarify that when companies
in a holding company system supply to each other non-power goods or
services comparable to those provided by a centralized service company,
then those non-power goods and services may be provided at fully-loaded
cost as a reasonable proxy for market price. FPL argues that a fully-
loaded cost standard has avoided the time and expense of formal
requests for proposal procedures to ``market test'' in theory every
provision of regularized and ongoing support services. An at-cost
standard allows immediate use of shared corporate technical expertise
in the most efficient and cost-effective manner.
    18. These commenters also argue that customers of franchised public
utilities are protected from affiliate abuse when general
administrative services are shared at their fully-loaded costs, i.e.,
costs designed to reflect the total corporate costs of providing a
service. FP&L states that fully-loaded cost reflects the total cost to
provide a particular service, including corporate overhead and other
general expenses.\13\ Edison Electric Institute (EEI) argues that there
should at least be a strong presumption that the at-cost standard is
appropriate when dealing with services of this type, barring a
Commission or ratepayer concern, which can be explored on a case-by-
case basis. It states that otherwise the new rules could be read to
preclude even utility-to-centralized service company provision of such
services at cost, requiring the services to be priced higher than at
cost by one utility to the detriment of the customers of another
utility that is a client of the centralized service company.
---------------------------------------------------------------------------

    \13\ FPL states that these expenses include (1) salaries,
incentives, commissions, bonuses, rewards; (2) insurance; (3) paid
time off such as vacation, etc., (4) FICA and miscellaneous taxes;
(5) retirement planning/401k; (6) office infrastructure (office
space, furniture, utilities); (7) office equipment (computer,
software, FAX, Printer, UPS, Copier, etc.); (8) telecom & internet;
(9) operational/functional management and oversight; (10) human
resources and administration; (11) finance and payroll; (12)
miscellaneous fringe and welfare benefits; (13) training and
education; and (14) travel expenses. FP&L states that it organizes
costs into three categories: (a) ``direct costs,'' i.e., costs of
resources used exclusively to provide services that are readily
identifiable to an activity and used to indicate work that directly
benefits a business unit other than the provider; (b) ``assigned
costs'' or the costs of resources used jointly to provide both
regulated and non-regulated activities that are apportioned using
direct measures of cost causation; and (c) ``unattributable'' costs
or costs of resources shared by both regulated and non-regulated
activities for which no causal relationship exists. The costs in
this final category are accumulated and allocated to both regulated
and non-regulated activities using an affiliate management fee based
on the ``Massachusetts Formula,'' which FPL says is a long-
recognized regulatory methodology of cost allocation.
---------------------------------------------------------------------------

    19. SoCal Edison states that when affiliates are charged fully-
loaded cost for such services, the ability to leverage these services
and gain economies of scale ultimately benefits the utility's
customers.
    20. EEI states that there is an array of services that companies
within the family can provide to one another at a substantial savings
because of economies of scale and by keeping the services in-house
rather than having to obtain the services in the market, where
additional overhead and rates of return must be covered. EEI argues
that the at-cost provisions of Order No. 707 should apply broadly to
companies within a family of companies that provide services to each
other of the type provided by centralized service companies, even where
the system does not have a formal centralized service company. EEI
states that there should be no distinction between utility and non-
utility affiliates to this extent. It maintains that a market price
standard should apply only in cases where the seller makes external
sales of these non-power services.
    21. EEI and PG&E also argue that the Commission has failed to
address or to resolve the potential for conflict between the
Commission's rules and state affiliate transaction and cross subsidy
requirements that may apply to the same transactions.\14\ EEI argues
that many states already have affiliate transaction provisions in
place, and those provisions are specifically aimed at protecting
captive retail customers. It maintains that the Commission should more
fully accommodate the state provisions in this instance, as the
Commission's final rule is aimed at protecting the same customers that
state requirements seek to protect. EEI and PG&E argue that the states
have a special interest in, and responsibility for, overseeing costs
affecting these customers, and states have been fulfilling that role
for many years.
---------------------------------------------------------------------------

    \14\ National Grid USA (National Grid) makes a similar argument
which we discuss separately below.
---------------------------------------------------------------------------

    22. PG&E argues that the Commission should defer to state reviews
and approvals of affiliate transactions in order to avoid unnecessary
conflict. It argues that the Commission's approach to affiliate
transactions fails to address or to resolve the potential for conflict
between Commission requirements and state affiliate transaction and
cross subsidy requirements that may apply to the same transactions.
PG&E argues that to avoid conflict, the Commission should grant a
blanket waiver of the final rule's requirements applicable within any
state that already oversees affiliate transactions to protect against
cross-subsidization, and the waiver should apply to company operations
covered by the state provisions. PG&E maintains that waivers of this
type would be consistent with waivers the Commission has authorized for
single-state utilities in Order No. 667. EEI supports these waivers
also. National Grid argues that if the Commission does not defer to
state regulation, it should provide a process for public utilities to
get a waiver of the Commission's regulations' for certain transactions
based on a showing that those transactions are already subject to
adequate regulation at the state level.
Commission Determination
    23. As discussed further below, we find the arguments in favor of
permitting companies within a single-state holding company system that
does not have a centralized service company to provide each other
general administrative and management services at cost to be
persuasive, and we will therefore grant rehearing on this

issue. Accordingly, we are revising our rules to permit affiliates
within a single-state holding company system, as defined by our
rules,\15\ that does not have a centralized service company to provide
``at cost'' to other affiliates in the system the kinds of services
typically provided by centralized service companies and the goods to
support those services.\16\ We stress that this permission applies only
to internal general administrative and management services and only to
services in that category that are not provided to unaffiliated third
parties. While our grant of rehearing necessarily applies also to
charges for a limited set of goods in the form of supplies and
equipment acquired to support administrative and management functions,
as well as office space and other general overhead items, we note in
particular that it does not apply to inputs to utility operations such
as fuel supply, construction, or real estate \17\ that have a clearly
identifiable market price,\18\ nor does it apply to the implementation
of major projects that are easily susceptible to competitive bidding,
such as construction projects.
---------------------------------------------------------------------------

    \15\ 18 CFR 366.3(c)(1) (defining a single-state holding company
as a holding company that derives no more than 13 percent of its
public-utility company revenues from outside a single state). The
definition exempts revenues derived from exempt wholesale
generators, foreign utility companies, and qualifying facilities for
these purposes.
    \16\ Section 367.1(a)(7) of the Commission's regulations defines
a centralized service company as ``a service company that provides
services such as administrative, managerial, financial, accounting,
recordkeeping, legal or engineering services, which are sold,
furnished, or otherwise provided (typically for a charge) to other
companies in the same holding company system.'' This definition also
states that ``[c]entralized service companies are different from
other service companies that only provide a discrete good or
service.''
    \17\ See Order No. 707, FERC Stats. & Regs. ] 31,264 at P 62
n.57.
    \18\ We discuss the issue of fuel adjustment clauses further
below.
---------------------------------------------------------------------------

    24. There are several reasons why the Commission has concluded that
it is appropriate to expand the use of at-cost pricing beyond the
context of centralized service companies to also allow at-cost pricing
for the provision of general and administrative services and the goods
to support those services between members of a single-state holding
company system where those members do not sell such goods or services
to non-affiliates. First, as we stated in Order No. 707 with respect to
the same types of services being provided by centralized service
companies in multi-state systems, defining a market price for general
and administrative services is a speculative task.\19\ The task is no
more speculative in the context of a multi-state holding company with a
centralized service company than in the context of a single-state
holding company without a centralized service company. Thus, we agree
that, when dealing with general administrative and management services,
as a general matter the critical issue is the type of service involved,
not whether it is supplied through a centralized service company or
through a different type of system company.
---------------------------------------------------------------------------

    \19\ Order No. 707, FERC Stats. & Regs. ] 31,264 at P 72.
---------------------------------------------------------------------------

    25. Second, SoCal Edison points to our statement in Order No. 707
that at-cost pricing ``would require a franchised public utility to
sell to an affiliate at cost even when market prices are higher,
thereby foregoing profits that the utility otherwise could have
obtained by selling to a non-affiliate at a market price.'' \20\ We
recognize that this statement concerning foregone profits does not
apply where the utility does not provide those goods or services to
non-affiliates. We therefore agree with SoCal Edison that where a
utility is not making sales of a service to a non-affiliate, it cannot
be said with certainty to be foregoing any profit.
---------------------------------------------------------------------------

    \20\ Id. P 70.
---------------------------------------------------------------------------

    26. Third, we recognize that efficiencies and economies of scale
associated with providing these types of services and the goods to
support those services between members within the single-state holding
company system can benefit captive customers because the goods and
services often can be provided less expensively, at cost, than if they
were purchased from outside the system by individual system members. As
a related matter, we do not believe it would serve the public interest
to have rules that create an incentive for a single-state holding
company to incur additional costs to set up a separate centralized
service company (that would be allowed to use the at-cost pricing) to
provide the very same services and the goods to support those services
that could be provided more inexpensively, e.g., through the investor-
owned utility, without a centralized service company. While we believe
that centralized service companies can facilitate regulatory oversight
and generally favor their use, we also recognize that they may not be
the most efficient or least-cost structure for some holding companies.
    27. Finally, we give weight to the fact that where services are
provided within a single-state holding company context, there may be
greater state regulatory authority to oversee these types of services
transactions and the goods to support those services than in the multi-
state context, and this state oversight will serve to complement that
of the Commission in protecting customers against inappropriate cross-
subsidization. We recognize that one of the risks of at-cost pricing is
the potential for prices to be imposed that are substantially higher
than the market price.\21\ As we stated in Order Nos. 667 and 707, the
Commission will entertain complaints that at-cost pricing exceeds the
market price.
---------------------------------------------------------------------------

    \21\ See Order No. 707, FERC Stats. & Regs. ] 31,264 at P 73.
---------------------------------------------------------------------------

    28. We recognize that many of the above considerations would also
apply to general and administrative goods and services provided between
members in multi-state holding companies that do not have centralized
service companies. However, we are reluctant to grant a broad generic
exception for those circumstances. The detailed accounting and
reporting requirements applicable to centralized service companies
greatly assists the Commission in regulating those entities in a multi-
state context where individual states may have less authority to help
oversee affiliate transactions. We are willing, however, to consider
requests for waiver on a case-by-case basis for at-cost pricing in the
multi-state context, under the same circumstances as for single state
holding companies (i.e., only for general and administrative services
and the goods to support those services and only where members of the
holding company do not sell such goods and services outside the holding
company).\22\ This will allow the Commission to examine each situation
to ensure that adequate regulatory oversight and protections are in
place. The Commission acknowledges that many of the arrangements for
the intrasystem sharing of administrative and management services under
discussion here are long standing and, in part, have developed in
response to state regulatory requirements. The Commission agrees with
EEI, PG&E and others that the states have a special interest in these
matters, and, as discussed above, that it is appropriate to take into
account such state regulation in developing our policies in this area.
Accordingly, the existence of state oversight and the desire to avoid
conflict with state requirements is an important consideration in
granting

rehearing and revising our rules as described above and in our
willingness to consider case-by-case exceptions involving general and
administrative services and the goods to support those services
provided in the multi-state context. We do not want to require
significant changes to settled practices when these practices are
already subject to state oversight and where there is no showing that
suggests these practices are leading to improper cross-subsidization.
We believe that our grant of rehearing eliminates the potential for
conflict between the Commission's rules and state affiliate transaction
and cross subsidy requirements that may apply to the same transactions
involving general and administrative services and the goods to support
those services in a single-state holding company system. However, to
the extent that any conflicts do arise, companies or state regulatory
authorities may bring this to our attention on a case-by-case basis,
and we will determine whether case-specific waivers are appropriate.
---------------------------------------------------------------------------

    \22\ We do not anticipate that there would be very many multi-
state holding companies in this category since most, if not all, of
the current multi-state holding companies are former registered
holding companies under the Public Utility Holding Company Act of
1935 that had centralized services companies and still have them.
---------------------------------------------------------------------------

    29. Commenters have described procedures they use to ensure that
customers of franchised public utilities are protected from affiliate
abuse when general administrative and management services are shared
among system companies. Our grant of rehearing is premised on the
assumption that the at-cost sharing of general administrative and
management services in single-state holding company systems will be
conducted using rigorous accounting and cost-allocation procedures. It
is also premised on the assumption that the at-cost standard will be
applied in conjunction with measures for the fair and reasonable
allocation of costs across system companies. In granting rehearing, we
note that when at-cost principles are applied (whether in the context
of multi-state holding companies or in the context of single-state
holding company systems), the Commission historically has acted, and
will continue to act, under sections 205 and 206, whether on an
application, a complaint, or on our own motion, to ensure that
inappropriate costs are not flowed through in jurisdictional rates.
    30. Accordingly, we will amend our regulations to provide that a
company in a single-state holding company system, as defined in 18 CFR
366.3(c)(1), may provide general administrative and management non-
power goods and services to, or receive such goods and services from,
other companies in the same holding company system, at cost, provided
that the only parties to transactions involving these non-power goods
and services are affiliate or associate companies, as defined in 18 CFR
366.1, of a holding company in the holding company system.
    31. We deny FPL's request for clarification that fully-loaded cost
is a reasonable proxy for market price. First of all, we see no need to
do so in light of our grant of rehearing above. Secondly, making fully-
loaded cost a proxy for market price unnecessarily clouds the
distinction between at-cost and market pricing embodied in our rules.
2. Pricing Standards for Particular Affiliate Arrangements Requests for
Rehearing or Clarification
    32. A number of requests for rehearing or clarification relate to
the treatment of specific transactions or arrangements under our rules.
    33. PG&E argues that a ``no higher than the market price'' standard
is inoperable for certain types of entities. It refers specifically to
bankruptcy-remote special-purpose entities used to raise funds through
a securitized financing. PG&E states that these entities are structured
to operate independently and at arm's length from their parent so that
their assets and liabilities would not be consolidated with those of
the parent in the event of the parent's or utility's bankruptcy. PG&E
argues that this approach lowers the cost of utility financing, but
that the special-purpose entities must be fully reimbursed for their
costs in order to secure a legal opinion in support of their bankruptcy
remote status. PG&E also believes that the use of special-purpose
entities to obtain accounts receivable financing might be inconsistent
with the Commission's rules. These entities also must be able to
recover their costs fully.
    34. Two holding companies with franchised public utility operations
in more than one state seek clarification or rehearing on transactions
specific to their individual operations. Xcel Energy Services Inc.
(Xcel) argues that Order No. 707 does not expressly deal with the
pricing for transactions between franchised public utilities. It states
that its franchised operating companies entered into an umbrella
agreement in 2000 that allows for incidental transactions in goods and
services between the operating companies, such as short-term leases of
coal rail cars done at cost. Xcel states that this at-cost arrangement
was consistent with that at-cost principle mandated by the Securities
and Exchange Commission (SEC) at the time. Xcel requests that its
operating companies be allowed to continue these incidental
transactions.
    35. Xcel and National Grid each argue that certain transactions
between their respective franchised public utilities that are
accomplished through their respective centralized service companies
should be subject to at-cost principles. Xcel notes that the
Commission's regulations do not account for non-power goods and
services that a utility operating company provides to its centralized
service company and whose costs may then be re-allocated to other
franchised public utility operating companies. Xcel states that its
franchised public utilities share certain information system assets in
this way at cost and were permitted to do so at cost by the SEC. Xcel
seeks clarification that it and its operating companies may request a
waiver from the Order No. 707 rules to continue at-cost arrangements
like this that pre-date EPAct 2005 and Order No. 707.
    36. National Grid argues that in Order No. 707 the Commission
mischaracterized its comments as supporting at-cost pricing for all
transactions among affiliates within a holding company system. National
Grid states that it only proposed symmetrical pricing between
franchised public utilities and centralized service companies--meaning
all transactions involving centralized service companies would be
priced at cost, no matter their direction. It contends that this
pricing structure would comply with the affiliate rules included in the
New York Commission's order on the merger between National Grid and
Keyspan.
    37. National Grid argues that the same rationale for justifying at-
cost pricing for centralized service companies selling non-power goods
and services to a franchised public utility should apply when a
franchised public utility sells non-power goods and services to the
centralized service company, i.e., economies of scale, difficulty
defining market value, and the Commission's authority to find at-cost
pricing unreasonable in specific instances. National Grid states that
the Commission's decision to treat centralized service companies like
other non-utility affiliates when purchasing goods or services from a
utility affiliate creates accounting requirements that are much more
difficult to implement than symmetrical pricing.
    38. National Grid maintains that while the Commission stated in
Order No. 707 that ``stricter'' state standards would apply to
affiliate transactions, the Commission's approach involves a narrow
reading of that term that focuses entirely on price levels.\23\
National Grid

argues that a state's restrictions on affiliate transactions may be
considered highly strict if they require all transactions involving
regulated affiliates to be settled at fully-loaded cost. National Grid
states that its operations currently are subject to strict at-cost
requirements at the state level that apply to all companies deemed
regulated, which includes service companies. It argues that inserting
Commission price standards into this situation will upset arrangements
made at the state level in merger proceedings and rate cases. National
Grid thus maintains that applying the Commission's rules to
transactions among regulated affiliates will depend on how the term
``strict'' is to be interpreted in this context.
---------------------------------------------------------------------------

    \23\ In Order No. 707, the Commission stated that ``to the
extent a state has affiliate-pricing standards that are `stricter'
than the Commission's then the stricter standard applies, as long as
there is no conflict in complying with both the state's pricing
standard and this Commission's pricing standard.'' Id. P 74.
---------------------------------------------------------------------------

    39. National Grid proposes that, because of the special status of
centralized service companies, it may be preferable to distinguish
between regulated and non-regulated companies rather than between
utilities and non-utilities, in that centralized service companies are
regulated at both the state and federal levels. National Grid maintains
that this would be consistent with the Commission's position that its
policies should not preempt state rules.
    40. FirstEnergy Service Company (FirstEnergy) argues that the
Commission should clarify that public utilities subject to regulation
under Order No. 707 are free to request a waiver of one or more, but
not all, of the Order No. 707 affiliate cross-subsidization
restrictions. It maintains that this clarification will provide
additional certainty when determining how best to comply with
Commission regulation of affiliate cross-subsidization restrictions.
Commission Determination
    41. The Commission will defer responding to the issues raised by
PG&E with respect to the implications of our affiliate pricing rules
for special-purpose entities created for financing purposes, such as
bankruptcy-remote entities. It appears from PG&E's brief discussion
that this is a generic issue and that there may be a lack of clarity
with respect to whether the Commission considers bankruptcy-remote
entities to be providing ``services'' covered by the Order No. 707
pricing restrictions. Accordingly, consistent with our goals of trying
to clarify areas of confusion with respect to our regulations and
providing greater regulatory certainty to the regulated community where
possible, the Commission intends to obtain additional input from
industry and others regarding the activities of bankruptcy-remote
entities and their relationship to franchised public utilities, and
thereafter to issue a guidance order with respect to whether the
Commission considers these entities to be providing services covered by
the rule and any related issues. In the interest of finalizing this
rule, however, we will undertake such inquiries outside the context of
this particular rulemaking.
    42. With respect to Xcel and National Grid's concerns, we will
address on a case-by-case basis issues regarding transactions between
affiliated franchised public utilities or between franchised public
utilities that include intermediate transactions with centralized
service companies. First, we will consider whether pricing or other
restrictions need to be imposed on transactions between two or more
franchised public utilities on a case-by-case basis. Such transactions
are not covered by this rule, which applies only to transactions
between franchised public utilities and either a market-regulated power
sales affiliate or a non-utility affiliate.\24\ Second, to the extent
that the requirements of this rule may be implicated because
transactions for goods and services between franchised public utilities
include intermediate transactions with a centralized service company,
we clarify in response to National Grid and Xcel that a holding company
and its operating companies may seek a waiver of the requirements of
this rule on a case-by-case basis.
---------------------------------------------------------------------------

    \24\ Transactions involving only two or more franchised public
utilities may raise a different type of cross-subsidization issue
(involving whether the customers of one franchised public utility
would be subsidized at the expense of the customers of the other
franchised public utility). The Commission will address such issues
on a case-by-case basis, as appropriate, in the context of a section
205 filing, a section 206 complaint, or a section 203 merger
application.
---------------------------------------------------------------------------

    43. In response to FirstEnergy, we clarify that public utilities
subject to regulation under Order No. 707 are free to request a waiver
of the Order No. 707 affiliate cross-subsidization restrictions.
3. Materiality Threshold
Request for Rehearing or Clarification
    44. EEI argues that, to avoid imposing an inappropriate burden
while achieving the Commission's policy and regulatory goals, Order No.
707 should incorporate materiality thresholds per class of transactions
per provider of either $1 million or 1 percent of utility gross
revenues, whichever is less, before the affiliate transaction
preapproval and pricing requirements apply. It notes that the
Commission recently proposed using thresholds in its notice of proposed
rulemaking on FERC Form 1, 1-F, and 3-Q, and their use here will allow
companies to avoid scrutinizing thousands of relatively minor
transactions.
Commission Determination
    45. We will deny EEI's request for a materiality threshold for the
application of the Order No. 707 rules. While we agree in principle
that a materiality threshold may be appropriate, EEI has not fully
explained how its proposal would function when applied. In particular,
EEI has not explained what it means by a ``class'' of transactions, and
the degree to which the threshold would apply in practice appears to
depend, in part, on how broadly or narrowly a category is drawn.
However, it may be appropriate for the Commission to revisit this issue
after gaining additional experience with these rules.

B. Relationship of Pricing Restrictions to Other Commission Regulations

    46. A number of commenters argue that the rules adopted in Order
No. 707 may conflict with other Commission regulations. We address each
potential conflict raised by commenters.
1. PURPA Regulations
Request for Rehearing or Clarification
    47. EEI argues that the power transaction restrictions implemented
in Order No. 707 should not apply to mandatory purchase obligation
sales from qualifying facilities (QFs) under the Public Utility
Regulatory Policies Act of 1978 (PURPA).\25\ It maintains that
prohibiting affiliate power sales that are not first approved under FPA
section 205 \26\ could, if taken literally, require pre-authorization
for energy sales made by a QF with market-based rate authority to an
affiliated utility with captive customers. EEI asserts that this could
be the case even where the utility has a mandatory obligation under
PURPA to purchase the energy. EEI believes that the Commission did not
intend this result because there is no reason for additional review of
sales

under a mandatory purchase agreement that is subject to Commission
review.
---------------------------------------------------------------------------

    \25\ 16 U.S.C. 824a-3.
    \26\ 18 CFR 35.44(a) (``Restriction on affiliate sales of
electric energy. No wholesale sale of electric energy may be made
between a franchised public utility with captive customers and a
market-regulated power sales affiliate without first receiving
Commission authorization for the transaction under section 205 of
the Federal Power Act'').
---------------------------------------------------------------------------

Commission Determination
    48. The Commission agrees with EEI that it did not intend that the
pre-authorization requirement in question would apply to QF sales under
contracts based on a mandatory purchase obligation under PURPA where
the QF has market-based rate authority. Accordingly, we clarify that
the pre-authorization requirement does not apply to those sales.
2. Fuel Adjustment Clause Regulations
Request for Rehearing or Clarification
    49. EEI argues that to avoid conflicts, the non-power transaction
provisions in the regulations implemented by Order No. 707 should be
amended to exclude fuel purchases covered by the Commission's fuel
adjustment clause regulations at 18 CFR 35.14(a)(7). It asserts that
the new requirement could be read to apply to a purchase subject to the
fuel adjustment clause regulations regardless of prior approval of the
fuel price by a regulatory body. The new Sec.  35.44(b) applies a ``no
higher than market'' ceiling to purchases of goods and services that
may differ from fuel prices already authorized by a regulatory body and
currently allowed for use under Sec.  35.14(a)(7). EEI argues that if
Sec.  35.44(b) controls in such circumstances, it could require utility
fuel subsidiaries to accept a lower price even if a higher price has
been approved by a state regulatory body. EEI also argues that
determining the market price for a specific, delivered fuel can be very
difficult because differences in quality and transportation costs
affect the price.
Commission Determination
    50. The Commission clarifies that the regulations issued under
Order No. 707 pertaining to sales of non-power goods and services do
not apply to fuel purchases covered by the Commission's fuel adjustment
clause regulations. Those regulations incorporate extensive oversight
measures, including a provision that fuel charges by affiliated
companies that do not appear to be reasonable may result in the
suspension of the fuel adjustment clause or an investigation under FPA
section 206. Accordingly, we will amend our regulations to exempt from
our affiliate pricing restrictions transactions for fuel where the
price of fuel from a company-owned or controlled source is found or
presumed under 18 CFR 35.14 to be reasonable and includable in the
adjustment clause.
3. Market-Based Rate Regulations
Requests for Rehearing
    51. FirstEnergy notes that under Order No. 707, a public utility
that received a waiver of the market-based rate affiliate restrictions
based on a finding that it had no captive customers can be exempted
from the new affiliate cross-subsidization restrictions by making an
informational filing referencing that finding. FirstEnergy argues that
there is no need to impose on public utilities that have received
waivers of the market-based rate affiliate restrictions the additional
burden of making an informational filing in order to avoid the
application of duplicative Order No. 707 affiliate cross-subsidization
restrictions.
    52. FirstEnergy also notes that while the Commission may have
waived a public utility's market-based rate affiliate restrictions, the
Commission may not have made an express ``finding'' as to whether the
relevant public utility served captive customers, and it is thus
unclear whether those public utilities will be entitled to rely on the
Commission's waiver of market-based rate affiliate restrictions for
purposes of the Order No. 707 affiliate restrictions. FirstEnergy
maintains that the difficulty will be compounded by the unlikelihood of
a Commission order in response to the informational filing or some
other confirmation that the Commission has accepted or approved that
filing.
    53. FirstEnergy argues that to the extent that affiliate cross-
subsidization compliance issues arise, it will be unclear whether the
Commission's market-based rate affiliate restrictions, Order No. 707's
affiliate cross-subsidization restrictions, or both, apply to a given
transaction and to what effect. FirstEnergy argues that the Commission
should delete the new restriction on affiliate sales of electric energy
and rely instead on its existing market-based rate affiliate
regulations to govern relevant wholesale sales of electric energy at
market-based rates. In the alternative, FirstEnergy requests that the
Commission clarify the relation between these two requirements.
Commission Determination
    54. We disagree with FirstEnergy that it is unnecessary to require
public utilities that have received waivers of the market-based rate
affiliate restrictions to make informational filings referencing that
filing for purposes of the Order No. 707 regulations. The minimal
burden this requirement might create does not outweigh the benefit in
terms of administrative efficiency and transparency that would accrue
to the industry and the Commission through this procedure.
    55. FirstEnergy expresses general concerns about the effect a
Commission waiver of a public utility's market-based rate affiliate
restrictions would have for purposes of Order No. 707. As the
Commission explained in Order No. 697, ``where a seller demonstrates
and the Commission agrees that it has no captive customers, the
affiliate restrictions will not apply.'' \27\ We clarify that the
informational filing with respect to Order No. 707 need only consist of
a copy of, and a citation to, the Commission order finding that the
public utility does not serve captive customers.\28\ Further Commission
action on the issue thus would be unnecessary, absent any change in the
facts on which the Commission's finding was based. This clarification
that the informational filing consists of a copy of, and a citation to,
the Commission's finding should adequately address FirstEnergy's
concern that there might be an instance in which the Commission has not
made an express finding on whether the public utility serves captive
customers.
---------------------------------------------------------------------------

    \27\ Market-Based Rates for Wholesale Sales of Electric Energy,
Capacity and Ancillary Services by Public Utilities, Order No. 697,
72 FR 39,904 (July 20, 2007), FERC Stats. & Regs. ] 31,252, at P 552
(2007), clarified, 121 FERC ] 61,260 (2007), order on reh'g, Order
No. 697-A, 73 Fed. Reg. 25,832 (May 7, 2008), FERC Stats. & Regs. ]
31,268.
    \28\ The Commission does not intend to set these informational
filings for notice and comment, or issue orders on them.
---------------------------------------------------------------------------

    56. The Commission denies FirstEnergy's requests to delete the new
regulations and rely on existing pricing restrictions under its market-
based rate regulations. FirstEnergy has misinterpreted the scope and
applicability of the regulations adopted in Order No. 707. As the
Commission stated in Order No. 707, the restrictions imposed there are
prophylactic and based on restrictions already imposed by the
Commission in the context of certain section 203 and 205 approvals, but
expand the transactions and entities to which they apply. The
Commission recognized a regulatory gap and acted to expand the range of
entities and transactions to which those restrictions apply to ensure
that captive customers of franchised public utilities do not
inappropriately cross-subsidize the activities of non-utility
affiliates.
4. Order No. 667 Requirements
Requests for Rehearing
    57. FirstEnergy argues that Order No. 707 duplicates requirements
set forth in the rules on Commission review of affiliate transactions
and protection of

captive customers implemented in Order No. 667, which promulgates the
Commission's regulations under the Public Utility Holding Company Act
of 2005 (PUHCA 2005).\29\ It maintains that this could result in
confusion and uncertainty. It will, for example, be unclear whether the
new Order No. 707 regulations, the existing Order No. 667 pricing
policy, or both will apply to issues arising in connection with
centralized service companies. FirstEnergy also argues that it is
unclear whether the Commission's grant of waiver of the Order No. 707
regulations, including the regulation pertaining to service companies,
would affect the regulatory requirements set forth in Order No. 667.
---------------------------------------------------------------------------

    \29\ Energy Policy Act of 2005, Public Law No. 109-58, secs.
1261 et seq., 119 Stat. 594 (2005); Repeal of the Public Utility
Holding Company Act of 1935 and Enactment of the Public Utility
Holding Company Act of 2005, Order No. 667, FERC Stats. & Regs. ]
31,197 (2005), order on reh'g, Order No. 667-A, FERC Stats. & Regs.
] 31,213, order on reh'g, Order No. 667-B, FERC Stats. & Regs. ]
31,224 (2006), order on reh'g, Order No. 667-C, 118 FERC ] 61,133
(2007).
---------------------------------------------------------------------------

    58. FirstEnergy argues that to prevent confusion, the Commission
should delete centralized service company at-cost requirements set
forth in Order No. 707 and rely instead on its existing pricing policy
set forth in Order No. 667 to regulate transactions with centralized
service companies. Any codification of pricing policy for centralized
service companies should be done in the Commission's regulations under
PUHCA 2005. In the alternative, FirstEnergy requests that the
Commission clarify the relation between the policies set forth in Order
No. 667 and the regulations issued under Order No. 707 expressly
applicable to centralized service companies.
Commission Determination
    59. We deny FirstEnergy's request that we delete centralized
service company at-cost requirements set forth in Order No. 707 and
rely instead on the existing pricing policy set forth in Order No. 667
to regulate transactions with centralized service companies. While the
Commission discussed service company issues at length in Order No. 667
and Order No. 667-A, and stated that it would accept the use of an
``at-cost'' standard for centralized service company non-power goods
and services, it did not codify the standard in the PUHCA 2005
requirements themselves. While the Commission's PUHCA 2005 regulations
allow for Commission review of holding company system cost allocation
for non-power goods and services, which is highly relevant to the
general issue of cross-subsidization, those regulations do not codify
affiliate pricing standards. Moreover, to the extent there is overlap
between this rule and the pricing policy we announced in the preamble
of Order No. 667 and Order No. 667-A, our regulations here are
consistent because they apply the standard that was announced in Order
No. 667. We therefore do not agree that Order No. 707 and Order No. 667
are inappropriately duplicative, and we do not see the potential for
conflict to which FirstEnergy alludes.

C. Captive Customers

    60. The regulations issued in Order No. 707 apply to franchised
public utilities that have captive customers or that own or provide
transmission service over jurisdictional transmission facilities. These
regulations define captive customers as any wholesale or retail
electric energy customers served by a franchised public utility under
cost-based regulation.
Requests for Rehearing
    61. EEI argues that Order No. 707 should not treat wholesale
customers that purchase electricity under competitive conditions as
``captive customers.'' It states that the Commission's transmission
open access rules generally provide competitive choice. EEI argues that
given the widespread availability of choice at the wholesale level, it
should be unusual for a wholesale customer to be captive and require
the affiliate transaction pre-approval and pricing protections set out
in Order No. 707. EEI states that while the Commission may want to
allow individual wholesale customers to raise concerns in individual
rate proceedings, it encourages the Commission not to treat all
wholesale customers as presumptively captive, but instead to treat them
as presumptively non-captive.
Commission Determination
    62. We do not agree with EEI's request in this regard. As stated in
Order No. 707 and Order 697-A, wholesale customers may have choice, but
the Commission will ``err on the broad side of the definition of
captive customers.'' \30\ As the Commission noted, although we are
erring on the side of a broad definition of captive customers, we
recognize that there may be circumstances where customers fall within
our definition but nevertheless there are sufficient protections in
place to protect such customers against any risk of harm from
transactions between the franchised public utility and its affiliates.
We noted that it is possible that wholesale customers with fixed rate
contracts would be adequately protected, but we explained that we are
not prepared at this time to generically exclude such customers from
the definition of captive customers. Instead, we will allow franchised
public utilities, on a case-by-case basis, to seek a waiver of the
affiliate restrictions if they feel that adequate protections are in
place to protect any customers that fall under the ``captive customer''
definition. We see no reason to change this approach.
---------------------------------------------------------------------------

    \30\ Order No. 707, FERC Stats. & Regs. ] 31,264 at P 43; see
also Order No. 697-A, FERC Stats. & Regs. ] 31,268 at P 199.
---------------------------------------------------------------------------

D. Transmission Facilities

    63. In Order No. 707, the Commission made its restrictions on non-
power goods and services transactions applicable to franchised public
utilities that own or provide transmission service over transmission
facilities subject to the Commission's jurisdiction.
Requests for Rehearing
    64. National Grid and EEI argue Order No. 707 should not apply to
franchised public utility companies that do not have captive customers
simply because the utility companies own or provide service over
jurisdictional transmission facilities. They argue that this issue did
not receive proper notice and the Commission did not sufficiently
explain what EEI claims is a dramatic expansion in the scope of the
rule that was not discussed in the proposed rule. They also argue that
the Commission already has oversight of such companies under FPA
sections 205 and 206, and the expansion is therefore unnecessary.
    65. EEI encourages the Commission to delete the provision that
makes the new regulations applicable to public utilities that do not
have captive customers but simply own or provide service over
jurisdictional transmission facilities. EEI asserts that if the
Commission does not do this, it should discuss the reasons for not
doing so and invite further public comment.
    66. Similarly, EEI argues that franchised public utilities that
have received a waiver of the market-based rate affiliate restrictions
because they have no captive customers but that own, or provide service
over, jurisdictional transmission facilities should not have to seek a
waiver or make an informational filing to avoid Order No. 707 pricing
restrictions. EEI states if a further waiver or informational filing is
required, the Commission should clarify the showing required to secure
a waiver

or what the informational filing must contain.
Commission Determination
    67. We deny EEI's request to delete the provision. As a preliminary
matter, we disagree that there has been insufficient notice that these
rules would apply to franchised public utility companies providing
service over jurisdictional transmission facilities. While due process
and the Administrative Procedure Act impose an obligation on agencies
to provide adequate notice of issues to be considered,\31\ that
obligation is satisfied in this rulemaking by providing the terms or
substance of the proposed rule and a description of the subjects and
issues involved.\32\ The coverage in Order No. 707 of franchised public
utilities that provide service over jurisdictional transmission
facilities was a logical outgrowth of the Affiliate Transactions Notice
of Proposed Rulemaking and its purpose, i.e., to expand the coverage of
the affiliate restrictions established in the context of blanket
market-based rate authorizations and our merger proceedings and to
codify them in our regulations. Indeed, the American Public Power
Association (APPA) and the National Rural Electric Cooperative
Association (NRECA) specifically raised the issue in response to the
Affiliate Transactions Notice of Proposed Rulemaking, arguing that the
Commission should clarify the regulatory text in the final rule to
ensure that, consistent with existing Commission affiliate cross-
subsidization policy and the Commission's existing FPA section 203 and
PUHCA 2005 regulations, the new generic cross-subsidization regulation
explicitly protects transmission customers.\33\ The Administrative
Procedure Act ``does not require an agency to publish in advance every
precise proposal which it may ultimately adopt as a rule,'' and this is
particularly true when proposals are adopted in response to comments
from participants in the rulemaking proceeding.\34\ Order No. 707 thus
does not unduly change the scope of this proceeding. In any event, the
parties' ability to seek rehearing resolves any due process issues.
---------------------------------------------------------------------------

    \31\ Public Service Commission of the Commonwealth of Kentucky
v. FERC, 397 F.3d 1004 (DC Cir. 2005), citing Williston Basin
Interstate Pipeline Co. v. FERC, 165 F.3d 54 (DC Cir. 1999); see 5
U.S.C. 554(b)(3).
    \32\ See 5 U.S.C. 553(b)(3).
    \33\ APPA/NRECA Sept. 6, 2007 Comment at 5-7.
    \34\ Daniel Int'l Corp. v. OSHA, 656 F.2d 925, 932 (4th Cir.
1981).
---------------------------------------------------------------------------

    68. Regarding the substance of the commenters' arguments, as noted
in Order No. 707, some franchised public utilities do not have captive
customers, but own or provide transmission service over jurisdictional
transmission facilities,\35\ and customers of such franchised public
utilities are entitled to the same customer protection as those that
are considered captive customers. Transmission customers should not
have to bear the costs of inappropriate cross-subsidization. This
provision was added to the Exhibit M requirement in Order No. 669-A,
protecting customers of such franchised public utilities from cross-
subsidization in the merger context. The addition of the language here
allows for the continued protection of these customers beyond the
confines of our decisions under FPA section 203. Finally, while we
recognize that the Commission oversees transmission rates under
sections 205 and 206, the affiliate pricing rules are preventative in
nature, allowing for greater protection of such customers. Thus, in
order to grant waiver of the Order No. 707 regulations, the Commission
would need to be assured that the transmission customers of these
franchised public utilities that do not have captive customers do not
bear the costs of inappropriate cross-subsidization.
---------------------------------------------------------------------------

    \35\ Order No. 707, FERC Stats. & Regs. ] 31,264 at P 48.
---------------------------------------------------------------------------

    69. In response to EEI's request that we specify what further
action would be required to obtain a waiver, the public utility would
need to demonstrate that the transmission customers of a franchised
public utility that does not have captive customers do not bear the
costs of inappropriate cross-subsidization.

E. Reporting Requirements

    70. In the Affiliate Transactions Notice of Proposed Rulemaking,
the Commission asked whether it should adopt any after-the-fact
reporting requirements for transactions covered by the proposed
regulations. In Order No. 707, the Commission concluded that its
current reporting regulations are adequate to ensure compliance with
the new regulations. The Commission also noted that in addition to the
information gathered through Form No. 1, it already collects affiliate
power sales information from franchised public utilities through EQRs
and market-based rate requirements. In addition, the Commission's
existing record retention requirements in Parts 125 and 225 of its
regulations already apply to transactions involving non-power goods and
services.
Request for Rehearing
    71. APPA and NRECA maintain that Order No. 707 inappropriately
relies on existing record-retention requirements that do not mandate
any reporting. APPA and NRECA note that Order No. 667 requires
centralized service companies in holding company systems to file annual
reports on FERC Form No. 60 that contain certain information on
affiliate transactions. But they contend that neither Order No. 667 nor
new Order No. 707 requires filings by single-purpose service companies
or other associate companies. They argue that this leaves the
Commission, state regulators, wholesale and transmission customers, and
the public with a significant information gap when it comes to
evaluating whether cross-subsidization is in fact occurring.
Commission Determination
    72. The Commission continues to believe that no additional
reporting requirements are necessary at this time. We note that the
Commission's regulations already provide that, unless otherwise
exempted or granted a waiver, every service company in a holding
company system, including a special-purpose company (e.g., a fuel
supply company or a construction company), that does not file a FERC
Form No. 60 must instead file a narrative description of the service
company's functions during the prior calendar year.\36\ Moreover, the
Commission has a longstanding practice of relying on its section 205
and 206 ratemaking reviews to disallow passing non-power goods and
services costs through jurisdictional rates if those costs are not just
and reasonable or are inappropriately allocated. It relies on section
205 rate reviews and on its audit function to deter inappropriate
allocation of costs. This is the longstanding, traditional approach to
this issue and the reason why record retention requirements are
important. There is no evidence that existing practices are not
effective. Finally, given the potential scope of the information in
question, the Commission is not prepared to impose new reporting
requirements without a demonstrated need for such reporting and a
record to support a finding that a reporting system would not create
unnecessary burdens.
---------------------------------------------------------------------------

    \36\ 18 CFR 366.23 (describing FERC-61).
---------------------------------------------------------------------------

F. Grandfathered Agreements

    73. The Commission clarified in Order No. 707 that the new pricing
rules are prospective and will apply to any contracts, agreements or
arrangements entered into on or after the effective date

of the order. To the extent different pricing was in effect for any
contract, agreement or arrangement entered into prior to the effective
date, the Commission stated it may remain in effect. But the Commission
also stated that it could on its own motion, or upon complaint,
institute a section 206 proceeding to determine in specific instances
whether costs incurred by a public utility under grandfathered
contracts, agreements or arrangements are just, reasonable and not
unduly discriminatory or preferential.
Request for Rehearing
    74. FPL asks the Commission to clarify that the Commission's
position on this issue covers all existing arrangements where
affiliates provide non-power goods and services equivalent to those
that would be provided by a centralized service company. FPL argues
that the Order No. 707 restrictions do not by their terms supersede the
Order No. 697 restrictions on affiliate transactions, and the
Commission should seek consistency in its regulations on these matters.
FPL argues that the Commission should clarify that the grandfathering
language in Order No. 707 also applies with respect to the requirements
of Order No. 697 where existing inter-affiliate transactions involving
non-power goods and services are comparable to those provided by a
centralized service company.
    75. APPA and NRECA contend that the new rules should be applied
prospectively to all transactions occurring after the effective date of
Order No. 707. They state that the Commission undermined the purpose
and effect of Order No. 707 by generically exempting all affiliate
transactions occurring under contracts, agreements, and arrangements
made before the rule's effective date. They argue that this will permit
transactions that violate the new regulations to continue for the
entire term of a long-term affiliate contract, delaying the rule's
effectiveness for years, in some cases. APPA and NRECA also maintain
that a public utility otherwise covered by the new restrictions can
move quickly to execute prior to the effective date a new long-term
agreement with its affiliates that violates the new restrictions.
    76. APPA and NRECA maintain that the Commission's sole
justification for its action was that it would be unjust and
detrimental to the financial integrity of holding companies to void
pricing arrangements retroactively. APPA and NRECA argue that the
Commission offered no evidence to support this claim, and this absence
of evidence stands in contrast to the extensive and explicit
justification of the need for pricing restrictions to protect the
captive customers and transmission customers of public utilities. They
thus argue that the Commission's action is arbitrary and capricious
because the Commission failed to provide a rational connection between
the facts found and the choice made.
    77. APPA and NRECA maintain that grandfathering existing agreements
violates the Commission's statutory mandate under section 206. They
argue that, to the extent the Commission's position rests on a finding
that pre-existing affiliate contacts are not ``unjust, unreasonable,
unduly discriminatory or preferential,'' Order No. 707 does not support
such a finding with any evidence, or explain how such a finding squares
with the Commission's basic findings on the need for the new rules.
Commission Determination
    78. In response to FPL's request that the Commission clarify that
the grandfathering language in Order No. 707 also applies with respect
to the requirements of Order No. 697, we do not believe that this
proceeding is the proper place to address the requirements of Order No.
697. We note that Order No. 697 establishes its own procedures seeking
waivers of its requirements. As the Commission stated in its order of
March 25, 2008 in this docket, the Commission's grandfathering of
preexisting contracts, agreements and arrangements was only for
purposes of compliance with this rule.\37\ The Commission noted that to
the extent public utilities were required to comply with the same or
similar pricing restrictions pursuant to a merger order or in
conjunction with a market-based rate authorization, our action to make
Order No. 707 compliance prospective only did not change any such
obligations under other orders or rules. In other words, pricing
restrictions imposed pursuant to a merger order, a market-based rate
authorization order or the Commission's market-based rate rules are not
within the scope of Order No. 707 and, consequently, the Order No. 707
grandfathering provision does not relieve a public utility of its
obligations under other orders and rules with respect to contracts,
agreements or arrangements entered into prior to March 31, 2008.
---------------------------------------------------------------------------

    \37\ Cross-Subsidization Restrictions on Affiliate Transactions,
122 FERC ] 61,280 at n.5 (2008).
---------------------------------------------------------------------------

    79. We disagree with APPA and NRECA that our new rules should be
applied prospectively to all transactions (as opposed to all
agreements) entered into after the effective date of Order No. 707.
Many or most of the agreements in question were approved or sanctioned
by the SEC and/or state commissions, and the Commission will not
lightly modify previously approved contracts or arrangements. To the
extent such action is appropriate, we will act pursuant to FPA section
206 on a case-by-case basis. We are not permitting improper cross-
subsidization by permitting existing contracts to remain in effect.
Issues that may arise under these contracts will always be subject to
our authority under FPA section 206. We reject the claim that the
continuing effect of these pre-existing contracts violates our mandate
under section 206. Nothing in the new rules limits or qualifies our
powers and duties under that section, and the Commission's position on
preexisting agreements in no way rests on a generic finding that these
agreements are not unjust, unreasonable, unduly discriminatory or
preferential.
    80. We also disagree that we are facilitating abuse by allowing
companies to enter into potentially abusive contracts before the
effective date of these regulations and that would remain in effect
after the effective date. Our powers with respect to these contracts
are no different than they are with respect to contracts that already
exist. As we stated in Order No. 707, the Commission on its own motion,
or upon complaint, may on a case-by-case basis institute a section 206
proceeding to determine whether the costs incurred by a public utility
under such pre-existing contracts, agreements or arrangements are just,
reasonable and not unduly discriminatory or preferential. As we further
noted in Order No. 707, many public utilities already have the same
pricing restrictions in effect as a result of Commission orders
approving mergers or market-based rates; these restrictions remain in
place.

III. Document Availability

    81. In addition to publishing the full text of this document in the
Federal Register, the Commission provides all interested persons an
opportunity to view and/or print the contents of this document via the
Internet through FERC's Home Page (http://www.ferc.gov) and in FERC's
Public Reference Room during normal business hours (8:30 a.m. to 5 p.m.
Eastern time) at 888 First

Street, NE., Room 2A, Washington DC 20426.
    82. From FERC's Home Page on the Internet, this information is
available on eLibrary. The full text of this document is available on
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or
downloading. To access this document in eLibrary, type the docket
number excluding the last three digits of this document in the docket
number field.
    83. User assistance is available for eLibrary and the FERC's Web
site during normal business hours from FERC Online Support at 202-502-
6652 (toll free at 1-866-208-3676) or e-mail at
<EMAIL_ADDRESS>or the Public Reference Room at (202) 502-
8371, TTY<PHONE_NUMBER>. E-mail the Public Reference Room at
<EMAIL_ADDRESS>
IV. Effective Date and Congressional Notification

    84. Changes to Order No. 707 adopted in this order on rehearing
will become effective August 25, 2008.

List of Subjects in 18 CFR Part 35

    Electric power rates, Electric utilities, Reporting and
recordkeeping requirements.

    By the Commission.
Kimberly D. Bose,
Secretary.

0
In consideration of the foregoing, the Commission amends part 35,
Chapter I, Title 18, Code of Federal Regulations, to read as follows:

PART 35--FILING OF RATE SCHEDULES AND TARIFFS

0
1. The authority citation for part 35 continues to read as follows:

    Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42
U.S.C. 7101-7352.

0
2. Amend Sec.  35.44 as follows:
0
A. Amend paragraph (a) to add a sentence at the end of the paragraph;
0
B. Revise paragraphs (b)(1) and (b)(2); and
0
C. Add paragraph (b)(4) and paragraph (c).

Sec.  35.44.  Protections against affiliate cross-subsidization.

    (a) * * * This requirement does not apply to energy sales from a
qualifying facility, as defined by 18 CFR 292.101, made under market-
based rate authority granted by the Commission.
    (b) * * *
    (b)(1) Unless otherwise permitted by Commission rule or order, and
except as permitted by paragraph (b)(4) of this section, sales of any
non-power goods or services by a franchised public utility that has
captive customers or that owns or provides transmission service over
jurisdictional transmission facilities, including sales made to or
through its affiliated exempt wholesale generators or qualifying
facilities, to a market-regulated power sales affiliate or non-utility
affiliate must be at the higher of cost or market price.
    (2) Unless otherwise permitted by Commission rule or order, and
except as permitted by paragraphs (b)(3) and (b)(4) of this section, a
franchised public utility that has captive customers or that owns or
provides transmission service over jurisdictional transmission
facilities, may not purchase or receive non-power goods and services
from a market-regulated power sales affiliate or a non-utility
affiliate at a price above market.
* * * * *
    (4) A company in a single-state holding company system, as defined
in Sec.  366.3(c)(1) of this chapter, may provide general
administrative and management non-power goods and services to, or
receive such goods and services from, other companies in the same
holding company system, at cost, provided that the only parties to
transactions involving these non-power goods and services are
affiliates or associate companies, as defined in Sec.  366.1 of this
chapter, of a holding company in the holding company system.
    (c) Exemption for price under fuel adjustment clause regulations.
Where the price of fuel from a company-owned or controlled source is
found or presumed under Sec.  35.14 to be reasonable and includable in
the adjustment clause, transactions involving that fuel shall be exempt
from the affiliate price restrictions in Sec.  35.44(b).

 [FR Doc. E8-16870 Filed 7-23-08; 8:45 am]

BILLING CODE 6717-01-P