the Commission's approval immediately to retain the shares or risk
noncompliance. Thus, BofA/JPMorgan ask that the Commission issue
blanket authorization under section 203(a)(2) for failed underwritings
and hedging holdings on the same terms and conditions imposed in the
Commission's orders granting blanket authorization to bank power
marketers under section 203(a)(1).\102\ Further, they request that
Order No. 669 be clarified to authorize: (i) Underwriting holdings to
exceed 45 days and (ii) equity derivative hedging holdings, to the
extent permitted under the Commission's orders applicable to bank power
marketers.
---------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

hold an unlimited amount of covered securities for hedging purposes on
the condition that they do not vote the securities held to the extent
they are 10 percent or more of the outstanding securities in the class.
We will add regulatory text to reflect this.
    133. We have granted above certain blanket authorizations for
holding public utility securities as a fiduciary, for hedging purposes
or for purposes of loan collateralization or liquidation. All these
blanket authorizations require that such holdings occur in the normal
course of business of the company holding the securities. In response
to BofA/JP Morgan, we clarify that holdings that are exempt by virtue
of section 1262(8)(B) of PUHCA 2005 will not be counted for purposes of
determining whether the company holding such securities is a holding
company under section 1262(8) of PUHCA 2005; in other words, holdings
exempt by statute will not be aggregated with securities held in other
capacities. Holdings by companies as principal for derivatives hedging
purposes are not exempt under section 1262(8)(B) and, therefore, will
be counted for purposes of determining whether the company is a holding
company.
7. Section 33.2(j)--General Information Requirements Regarding Cross-
Subsidization
    134. Section 33.2(j) provides that a section 203 applicant must
provide an explanation, with appropriate evidentiary support (Exhibit M
to the application): (1) Of how it is providing assurance that the
proposed transaction will not result in cross-subsidization of a non-
utility associate company or the pledge or encumbrance of utility
assets for the benefit of an associate company; or (2) if no such
assurance can be provided, an explanation of how such cross-
subsidization, pledge, or encumbrance will be consistent with the
public interest.
    135. In Order No. 669, the Commission also stated that certain
protections may be necessary, on a case-by-case basis, in order to
protect against cross-subsidization, pledge or encumbrance of utility
assets, and affiliate abuse. The Commission stated that applicants
should proffer ratepayer protection mechanisms to assure that captive
customers are protected from the effects of cross-subsidization.\112\
Among the types of protection mechanisms that can be proposed by are: A
general hold harmless provision, which must be enforceable and
administratively manageable, where the applicant commits that it will
protect wholesale customers from any adverse rate effects resulting
from the transaction for a significant period of time following the
transaction; a moratorium on increases in base rates (rate freeze),
where the applicant commits to freezing its rates for wholesale
customers under a certain tariff for a significant period of time.\113\
The Commission stated that it will address the adequacy of the proposed
mechanisms on a case-by-case basis.
---------------------------------------------------------------------------

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

    136. Order No. 669 also stated that certain verifications provided
in an application could streamline the approval process by avoiding a
detailed examination of cross-subsidization and encumbrance
concerns.\114\ We stated that we may accept, along with any protection
mechanisms (discussed above), on a case-by-case basis, in lieu of or in
addition to any other explanation, the following four verifications
that the proposed transaction does not result in, at the time of the
transaction or in the future: (1) Transfers of facilities between a
traditional utility associate company with wholesale or retail
customers served under cost-based regulation and an associate company;
(2) new issuances of securities by traditional utility associate
companies with wholesale or retail customers served under cost-based
regulation for the benefit of an associate company; (3) new pledges or
encumbrances of assets of a traditional utility associate company with
wholesale or retail customers served under cost-based regulation for
the benefit of an associate company; and (4) new affiliate contracts
between non-utility associate companies and traditional utility
associate companies with wholesale or retail customers served under
cost-based regulation, other than non-power goods and services
agreements subject to review under sections 205 and 206 of the FPA.
a. Rehearing Requests
---------------------------------------------------------------------------

    \114\ Order No. 669 at P 169. The Commission stated that such
verifications, considered on a case-by-case basis in light of the
given transaction, and explanations relating to those verifications,
as well as other explanations of how the transaction will not result
in cross-subsidization, pledge, or encumbrance of utility assets for
the benefit of an associate company--or if it does result in such,
an explanation of how such cross-subsidization, pledge, or
encumbrance will be consistent with the public interest--is to be
included as Exhibit M to the application.
---------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

the standards set forth in Order No. 2000 require extensive
information from RTO applicants that we believe will demonstrate
whether the proposal is in the public interest. It also has been our
experience that anticompetitive effects are unlikely to arise with
regard to internal corporate reorganizations or transactions that
only involve the disposition of transmission facilities \129\
---------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

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

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

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

    161. We also note that, consistent with amended section 203(a)(4),
we added new section 2.26(f) to our regulations. It provides that the
Commission will not approve a transaction that will result in cross-
subsidization of a non-utility associate company or pledge or
encumbrance of utility assets for the benefit of an associate company
unless that cross-subsidization, pledge, or encumbrance will be
consistent with the public interest. Thus, in Order No. 669, the
Commission properly updated its merger policy to address Congress'
specific concerns with respect to new section 203.
    162. However, the Commission commits to consider whether our
current merger policy should be revised as part of the technical
conference to be held within one year.\137\ That technical conference
will address issues raised both in this proceeding and the PUHCA 2005
Final Rule proceeding implementing PUHCA 2005.
---------------------------------------------------------------------------

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

IV. Information Collection Statement

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

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

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

transaction does not present cross-subsidization issues. The Commission
will also grant a blanket authorization for holding companies that own
or control only EWGs, QFs or FUCOs to acquire the securities of
additional EWGs, FUCOs or QFs. In addition, the Commission will grant a
blanket authorization allowing any company in the holding company
system to acquire the securities of an electric company that owns
generating facilities that total 100 MW or less and are primarily used
for the acquired company's own load or for sales to affiliated end-
users. The Commission will also grant a blanket authorization for
transfers of wholesale market-based rate contracts between public
utility affiliates that have the same upstream ownership and are not
affiliated with a traditional public utility with captive ratepayers.
For those entities that are subject to regulatory oversight of the
Federal Reserve Bank or the Comptroller of the Currency because of
their affiliation with banks or bank holding companies that are
regulated by the agencies identified above, the Commission will grant a
blanket authorization to acquire and hold an unlimited amount of
covered securities for fiduciaries, collateral for loans or for loan
liquidation, subject to certain reporting requirements. Further, the
Commission will grant a blanket authorization to the banks and their
subsidiaries to acquire and hold an unlimited amount of covered
securities in connection with failed underwritings, subject to certain
conditions. The Commission will also grant a blanket authorization for
certain non-banking financial institutions to acquire covered
securities in a fiduciary capacity or for hedging purposes, subject to
certain conditions and reporting requirements. In sum, taking into
account both the additional requirements and the additional blanket
authorizations, we believe that one offsets the other and will allow
the original projected burden estimates expressed in Order No. 669 to
stand. We will, however, adjust these burden estimates accordingly as
we receive filings and we will notify OMB of any changes that may be
necessary. The Commission did not receive any comments on burden
estimates in response to Order No. 669.
    166. Interested persons may obtain information on the information
requirements by contacting the following: The Federal Energy Regulatory
Commission, 888 First Street, NE., Washington, DC 20426 [Attention:
Michael Miller, Office of the Executive Director, ED-34, Phone: (202)
502-8415, Fax:<PHONE_NUMBER>, e-mail<EMAIL_ADDRESS>    167. To submit comments concerning the collection(s) of information
and provide estimates on the associated burden of these requirements,
please send your comments to the contact listed above and to the Office
of Management and Budget, Office of Information and Regulatory Affairs,
Washington, DC 20503 Attention: Desk Officer for the Federal Energy
Regulatory Commission, phone:<PHONE_NUMBER>. Comments should be e-
mailed to<EMAIL_ADDRESS>and reference the OMB Control
number listed above.

V. Document Availability

    168. In addition to publishing the full text of this document in
the Federal Register, the Commission provides all interested persons an
opportunity to view and/or print the contents of this document via the
Internet through Commission's Home Page (http://www.ferc.gov) and in

the Commission's Public Reference Room during normal business hours
(8:30 a.m. to 5 p.m. Eastern time) at 888 First Street, NE., Room 2A,
Washington, DC 20426.
    169. From the Commission's Home Page on the Internet, this
information is available in the Commission's document management
system, eLibrary. The full text of this document is available on
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or
downloading. To access this document in eLibrary, type ``RM05-34'' in
the docket number field.
    170. User assistance is available for eLibrary and the Commission's
Web site during normal business hours. For assistance, please contact
FERC Online Support at 1-866-208-3676 (toll free) or<PHONE_NUMBER> (e-
mail at FERCOnlineSupport@FERC.gov), or the Public Reference Room at
202-502-8371, TTY<PHONE_NUMBER> (e-mail at
public.referenceroom@ferc.gov).

VI. Effective Date

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

List of Subjects

18 CFR Part 2

    Administrative practice and procedure, Electric power, Natural gas,
Pipelines, Reporting and recordkeeping requirements.

18 CFR Part 33

    Electric utilities, Reporting and recordkeeping requirements,
Securities.

    By the Commission.
Magalie R. Salas,
Secretary.

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

PART 2--GENERAL POLICY AND INTERPRETATIONS

0
1. The authority citation for part 2 is revised to read as follows:

    Authority: 5 U.S.C. 601; 15 U.S.C. 717-717w, 3301-3432; 16
U.S.C. 792-825y, 2601-2645; 42 U.S.C. 4321-4361, 7101-7352; Pub. L.
No. 109-58, 119 Stat. 594.2.

0
2. Section 2.26 is amended by revising paragraphs (e) and (f) to read
as follows:

Sec.  2.26  Policies concerning review of applications under section
203.

* * * * *
    (e) Effect on regulation. (1) Where the affected state commissions
have authority to act on the transaction, the Commission will not set
for hearing whether the transaction would impair effective regulation
by the state commissions. The application should state whether the
state commissions have this authority.
    (2) Where the affected state commissions do not have authority to
act on the transaction, the Commission may set for hearing the issue of
whether the transaction would impair effective state regulation.
    (f) Under section 203(a)(4) of the Federal Power Act (16 U.S.C.
824b), in reviewing a proposed transaction subject to section 203, the
Commission will also consider whether the proposed transaction will
result in cross-subsidization of a non-utility associate company or
pledge or encumbrance of utility assets for the benefit of an associate
company, unless that cross-subsidization, pledge, or encumbrance will
be consistent with the public interest.

PART 33--APPLICATIONS UNDER FEDERAL POWER ACT SECTION 203

0
3. The authority citation for part 33 is revised to read as follows:

    Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42
7101-7352; Pub. L. No. 109-58, 119 Stat. 594.

0
4. The heading of part 33 is revised to read as set forth above.

0
5. Section 33.1 is revised to read as follows:

Sec.  33.1  Applicability, definitions, and blanket authorizations.

    (a) Applicability. (1) The requirements of this part will apply to
any public utility seeking authorization under section 203 of the
Federal Power Act to:
    (i) Sell, lease, or otherwise dispose of the whole of its
facilities subject to the jurisdiction of the Commission, or any part
thereof of a value in excess of $10 million;
    (ii) Merge or consolidate, directly or indirectly, such facilities
or any part thereof with those of any other person, by any means
whatsoever;
    (iii) Purchase, acquire, or take any security with a value in
excess of $10 million of any other public utility; or
    (iv) Purchase, lease, or otherwise acquire an existing generation
facility:
    (A) That has a value in excess of $10 million; and
    (B) That is used in whole or in part for wholesale sales in
interstate commerce by a public utility.
    (2) The requirements of this part shall also apply to any holding
company in a holding company system that includes a transmitting
utility or an electric utility if such holding company seeks to
purchase, acquire, or take any security with a value in excess of $10
million of, or, by any means whatsoever, directly or indirectly, merge
or consolidate with, a transmitting utility, an electric utility
company, or a holding company in a holding company system that includes
a transmitting utility, or an electric utility company, with a value in
excess of $10 million.
    (b) Definitions. For the purposes of this part, as used in section
203 of the Federal Power Act (16 U.S.C. 824b).
    (1) Existing generation facility means a generation facility that
is operational at or before the time the section 203 transaction is
consummated. ``The time the transaction is consummated'' means the
point in time when the transaction actually closes and control of the
facility changes hands. ``Operational'' means a generation facility for
which construction is complete (i.e., it is capable of producing
power). The Commission will rebuttably presume that section 203(a)
applies to the transfer of any existing generation facility unless the
utility can demonstrate with substantial evidence that the generator is
used exclusively for retail sales.
    (2) Non-utility associate company means any associate company in a
holding company system other than a public utility or electric utility
company that has wholesale or retail customers served under cost-based
regulation.
    (3) Value when applied to:
    (i) Transmission facilities, generation facilities, transmitting
utilities, electric utility companies, and holding companies, means the
market value of the facilities or companies for transactions between
non-affiliated companies; the Commission will rebuttably presume that
the market value is the transaction price. For transactions between
affiliated companies, value means original cost undepreciated, as
defined in the Commission's Uniform System of Accounts prescribed for
public utilities and licensees in part 101 of this chapter, or original
book cost, as applicable;
    (ii) Wholesale contracts, means the market value for transactions
between non-affiliated companies; the Commission will rebuttably
presume that the market value is the transaction price. For
transactions between affiliated companies, value means total expected
nominal contract revenues over the remaining life of the contract; and
    (iii) Securities, means market value for transactions between non-
affiliated companies; the Commission will rebuttably presume that the
market value is the agreed-upon transaction price. For transactions
between affiliated companies, value means market value if the
securities are widely traded, in which case the Commission will
rebuttably presume that market value is the market price at which the
securities are being traded at the time the transaction occurs; if the
securities are not widely traded, market value is determined by:
    (A) Determining the value of the company that is the issuer of the
equity securities based on the total undepreciated book value of the
company's assets;
    (B) Determining the fraction of the securities at issue by dividing
the number of equity securities involved in the transaction by the
total number of outstanding equity securities for the company; and
    (C) Multiplying the value determined in paragraph (b)(3)(iii)(A) of
this section by the value determined in paragraph (b)(3)(iii)(B) of
this section (i.e., the value of the company multiplied by the fraction
of the equity securities at issue).
    (4) The terms associate company, electric utility company, foreign
utility company, holding company, and holding company system have the
meaning given those terms in the Public Utility Holding Company Act of
2005. The term holding company does not include: A State, any political
subdivision of a State, or any agency, authority or instrumentality of
a State or political subdivision of a State; or an electric power
cooperative.
    (5) For purposes of this part, the term captive customers means any
wholesale or retail electric energy customers served under cost-based
regulation.
    (c) Blanket Authorizations. (1) Any holding company in a holding
company system that includes a transmitting utility or an electric
utility is granted a blanket authorization under section 203(a)(2) of
the Federal Power Act to purchase, acquire, or take any security of:
    (i) A transmitting utility or company that owns, operates, or
controls only facilities used solely for transmission in intrastate
commerce and/or sales of electric energy in intrastate commerce,
provided that if any public utility within the holding company system
has captive customers, or owns or provides transmission service over
jurisdictional transmission facilities, the holding company must report
the acquisition to the Commission, including any state actions or
conditions related to the transaction, and shall provide an explanation
of why the transaction does not result in cross-subsidization;
    (ii) A transmitting utility or company that owns, operates, or
controls only facilities used solely for local distribution and/or
sales of electric energy at retail regulated by a state commission,
provided that if any public utility within the holding company system
has captive customers, or owns or provides transmission service over
jurisdictional transmission facilities, the holding company must report
the acquisition to the Commission, including any state actions or
conditions related to the transaction, and shall provide an explanation
of why the transaction does not result in cross-subsidization; or
    (iii) An electric utility company that owns generating facilities
that total 100 MW or less and are fundamentally used for its own
individual load or for sales to affiliated end-users.
    (2) Any holding company in a holding company system that includes a
transmitting utility or an electric utility is granted a blanket
authorization under section 203(a)(2) of the Federal Power Act to
purchase, acquire, or take:
    (i) Any non-voting security (that does not convey sufficient veto
rights over management actions so as to convey control) in a
transmitting utility, an electric utility company, or a holding company
in a holding company system that includes a transmitting utility or an
electric utility company; or
    (ii) Any voting security in a transmitting utility, an electric
utility company, or a holding company in a

holding company system that includes a transmitting utility or an
electric utility company if, after the acquisition, the holding company
will own less than 10 percent of the outstanding voting securities; or
    (iii) Any security of a subsidiary company within the holding
company system.
    (3) The blanket authorizations granted under paragraph (c)(2) of
this section are subject to the conditions that the holding company
shall not:
    (i) Borrow from any electric utility company subsidiary in
connection with such acquisition; or
    (ii) Pledge or encumber the assets of any electric utility company
subsidiary in connection with such acquisition.
    (4) A holding company granted blanket authorizations in paragraph
(c)(2) of this section shall provide the Commission copies of any
Schedule 13D, Schedule 13G and Form 13F, at the same time and on the
same basis, as filed with the Securities and Exchange Commission in
connection with any securities purchased, acquired or taken pursuant to
this section.
    (5) Any holding company in a holding company system that includes a
transmitting utility or an electric utility is granted a blanket
authorization under section 203(a)(2) of the Federal Power Act to
acquire a foreign utility company. However, if such holding company or
any of its affiliates, its subsidiaries, or associate companies within
the holding company system has captive customers in the United States,
or owns or provides transmission service over jurisdictional
transmission facilities in the United States, the authorization is
conditioned on the holding company, consistent with 18 CFR 385.2005(b),
verifying by a duly authorized corporate official of the holding
company that the proposed transaction:
    (i) Will not have any adverse effect on competition, rates, or
regulation; and
    (ii) Will not result in, at the time of the transaction or in the
future:
    (A) Any transfer of facilities between a traditional public utility
associate company that has captive customers or that owns or provides
transmission service over jurisdictional transmission facilities, and
an associate company;
    (B) Any new issuance of securities by a traditional public utility
associate company that has captive customers or that owns or provides
transmission service over jurisdictional transmission facilities, for
the benefit of an associate company;
    (C) Any new pledge or encumbrance of assets of a traditional public
utility associate company that has captive customers or that owns or
provides transmission service over jurisdictional transmission
facilities, for the benefit of an associate company; or
    (D) Any new affiliate contracts between a non-utility associate
company and a traditional public utility associate company that has
captive customers or that owns or provides transmission service over
jurisdictional transmission facilities, other than non-power goods and
services agreements subject to review under sections 205 and 206 of the
Federal Power Act.
    (iii) A transaction by a holding company subject to the conditions
in paragraphs (c)(5)(i) and (ii) of this section will be deemed
approved only upon filing the information required in paragraphs
(c)(5)(i) and (ii) of this section.
    (6) Any public utility or any holding company in a holding company
system that includes a transmitting utility or an electric utility is
granted a blanket authorization under sections 203(a)(1) or 203(a)(2)
of the Federal Power Act, as relevant, for internal corporate
reorganizations that do not result in the reorganization of a
traditional public utility that has captive customers or that owns or
provides transmission service over jurisdictional transmission
facilities, and that do not present cross-subsidization issues.
    (7) Any public utility in a holding company system that includes a
transmitting utility or an electric utility is granted a blanket
authorization under section 203(a)(1) of the Federal Power Act to
purchase, acquire, or take any security of a public utility in
connection with an intra-system cash management program, subject to
safeguards to prevent cross-subsidization or pledges or encumbrances of
utility assets.
    (8) A person that is a holding company solely with respect to one
or more exempt wholesale generators (EWGs), foreign utility companies
(FUCOs), or qualifying facilities (QFs) is granted a blanket
authorization under section 203(a)(2) of the Federal Power Act to
acquire the securities of additional EWGs, FUCOs, or QFs.
    (9) A holding company, or a subsidiary of that company, that is
regulated by the Board of Governors of the Federal Reserve Bank or by
the Office of the Comptroller of the Currency, under the Bank Holding
Company Act of 1956 as amended by the Gramm-Leach-Bliley Act of 1999,
is granted a blanket authorization under section 203(a)(2) of the
Federal Power Act to acquire and hold an unlimited amount of the
securities of holding companies that include a transmitting utility or
an electric utility company if such acquisitions and holdings are in
the normal course of its business and the securities are held:
    (i) As a fiduciary;
    (ii) As principal for derivatives hedging purposes incidental to
the business of banking and it commits not to vote such securities to
the extent they exceed 10 percent of the outstanding shares;
    (iii) As collateral for a loan; or
    (iv) Solely for purposes of liquidation and in connection with a
loan previously contracted for and owned beneficially for a period of
not more than two years, with the following conditions and reporting
requirement: The holding does not confer a right to control, positively
or negatively, through debt covenants or any other means, the operation
or management of the public utility or public utility holding company,
except as to customary creditors' rights or as provided under the
United States Bankruptcy Code; and the parent holding company files
with the Commission on a public basis and within 45 days of the close
of each calendar quarter, both its total holdings and its holdings as
principal, each by class, unless the holdings within a class are less
than one percent of outstanding shares, irrespective of the capacity in
which they were held.
    (10) Any holding company, or a subsidiary of that company, is
granted a blanket authorization under section 203(a)(2) of the Federal
Power Act to acquire any security of a public utility or a holding
company that includes a public utility:
    (i) For purposes of conducting underwriting activities, subject to
the condition that holdings that the holding company or its subsidiary
are unable to sell or otherwise dispose of within 45 days are to be
treated as holdings as principal and thus subject to a limitation of 10
percent of the stock of any class unless the holding company or its
subsidiary has within that period filed an application under section
203 of the Federal Power Act to retain the securities and has
undertaken not to vote the securities during the pendency of such
application; and the parent holding company files with the Commission
on a public basis and within 45 days of the close of each calendar
quarter, both its total holdings and its holdings as principal, each by
class, unless the holdings within a class are less than one percent of
outstanding shares, irrespective of the capacity in which they were
held;
    (ii) For purposes of engaging in hedging transactions, subject to
the condition that if such holdings are 10 percent or more of the
voting securities

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

0
6. Section 33.2 is amended by revising paragraph (j) to read as
follows:

Sec.  33.2  Contents of application--general information requirements.

* * * * *
    (j) An explanation, with appropriate evidentiary support for such
explanation (to be identified as Exhibit M to this application):
    (1) Of how applicants are providing assurance that the proposed
transaction will not result in cross-subsidization of a non-utility
associate company or pledge or encumbrance of utility assets for the
benefit of an associate company, including:
    (i) Disclosure of existing pledges and/or encumbrances of utility
assets; and
    (ii) A detailed showing that the transaction will not result in:
    (A) Any transfer of facilities between a traditional public utility
associate company that has captive customers or that owns or provides
transmission service over jurisdictional transmission facilities, and
an associate company;
    (B) Any new issuance of securities by a traditional public utility
associate company that has captive customers or that owns or provides
transmission service over jurisdictional transmission facilities, for
the benefit of an associate company;
    (C) Any new pledge or encumbrance of assets of a traditional public
utility associate company that has captive customers or that owns or
provides transmission service over jurisdictional transmission
facilities, for the benefit of an associate company; or
    (D) Any new affiliate contract between a non-utility associate
company and a traditional public utility associate company that has
captive customers or that owns or provides transmission service over
jurisdictional transmission facilities, other than non-power goods and
services agreements subject to review under sections 205 and 206 of the
Federal Power Act; or
    (2) If no such assurance can be provided, an explanation of how
such cross-subsidization, pledge, or encumbrance will be consistent
with the public interest.

0
7. Section 33.11 is revised to read as follows:

Sec.  33.11  Commission procedures for the consideration of
applications under section 203 of the FPA.

    (a) The Commission will act on a completed application for approval
of a transaction (i.e., one that is consistent with the requirements of
this part) not later than 180 days after the completed application is
filed. If the Commission does not act within 180 days, such application
shall be deemed granted unless the Commission finds, based on good
cause, that further consideration is required to determine whether the
proposed transaction meets the standards of section 203(a)(4) of the
FPA and issues, by the 180th day, an order tolling the time for acting
on the application for not more than 180 days, at the end of which
additional period the Commission shall grant or deny the application.
    (b) The Commission will provide for the expeditious consideration
of completed applications for the approval of transactions that are not
contested, do not involve mergers, and are consistent with Commission
precedent.
    (c) Transactions, provided that they are not contested, do not
involve mergers and are consistent with Commission precedent, that will
generally be subject to expedited review include:
    (1) A disposition of only transmission facilities, including, but
not limited to, those that both before and after the transaction remain
under the functional control of a Commission-approved regional
transmission organization or independent system operator; and
    (2) Transactions that do not require an Appendix A analysis; \1\
and
---------------------------------------------------------------------------

    \1\ Inquiry Concerning the Commission's Merger Policy Under the
Federal Power Act; Policy Statement, Order No. 592, 61 FR 68,595
(Dec. 30, 1996), FERC Stats. & Regs. ] 31,044 (1996),
reconsideration denied, Order No. 592-A, 62 FR 33,340 (June 19,
1977), 79 FERC ] 61,321 (1997) (Merger Policy Statement).
---------------------------------------------------------------------------

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

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

BILLING CODE 6717-01-P


1 Assumes 25% of water is for cooling water use and the EG's Capacity Utilization Rate ( CUR) is 15%.

2 These facilities were already costed for controls for the facility's total intake flows including both manufacturing and electrical generation. Memo to Record Re: Co located Phase II and Phase III Facilities Date: October 22, 2004 From: Paul Shriner This memo clarifies whether co located facilities are subject to phase II, Phase III, or case by case best professional judgement ( BPJ).

Background The Final Phase II Preamble states " Section II [ Scope] also makes clear that a manufacturing facility is not covered by this final rule just because it is co located with another Phase II facility." ( 65 FR 41610). 40 CFR 125.90( b) provides that "[ e] xisting facilities that are not subject to requirements under this or another subpart of this part must meet requirements under section 316( b) of the CWA determined by the Director on a case by case, best professional judgment ( BPJ) basis."

Applicability of section 316( b) requirements to co located electric generators and manufacturers For Phase III, under the 50 MGD option, EPA proposed any co located facilities with a combined flow exceeding 50 MGD would be subject to the uniform national requirements. The following table combines the applicability of the final Phase II rule and scope of the proposed Phase III rule:

Design Intake Flow ( MGD) of Co located Facilities 1 Other Criteria Which section 316( b) phase applies?

EG > 50 MGD Facility's primary activity is electric generator Phase II applies to EG, BPJ applies to MN MN > 50 MGD Facility's primary activity is manufacturing Phase III requirements apply to all intake flows2 EG < 50 MGD and MN < 50 Total combined flow is > 50 MGD Phase III requirements apply to all intake flows EG = electric generator MN = manufacturing Exhibit 1 provides details on 5 facilities where the SIC code suggests manufacturing is the primary activity. EPA did not find any manufacturing facility less than 50 MGD where, combined with any electric generating activities, the total combined flow was more than 50 MGD. All manufacturing facilities greater than 50 MGD were already costed for performance standards for their total reported intake flows.

SUMMARY OF SIC CODE, WATER USE, AND POWER GENERATION/ SALES FOR DETAILED SURVEY FACILITIES REPORTING SIC CODE 4911 ( ELECTRICAL SERVICES) OR 493X ALONG WITH MANUFACTURING SIC CODES Name Location SIC Codes Cooling Water Use ( Q4) Schematic Diagram Notes Power Sales ( Q18)

Name Withheld due to CBI claim 2911 ( petroleum Refining; 4911 ( Electric Services) 4( a) Electricity Generation 23% 4( d) Process Cooling 76% 4( e) Other 1% Diagram shows 79 mgd discharged from power plant out of 357 coming in ( 5 mgd is from wells and water Utility) 492 million KWh generated in 1998, 44 million KWh was sold. Total use was 656 million KWh indicating additional that power was purchased.

LTV Steel Mining Co Schroeder, Schroeder, MN 1011 ( Iron Ores) produces iron pellets; 4911 ( Electric Services) Not to exceed 10% of actual annual generation; 4011 ( Railroads, Line Haul Operating) 4( a) Electricity Generation: 100% All cooling water is used for power generation. Most power is used by the Hoyt Lakes plantsite with excess returned to MP& L Power Company to compensate for power borrowed at Dunka Mine near Babbitt ( from 1977 biological Monitoring report) 1,145.3 million KWh generated in 1998 About 2.5% to 7% of power is sold Name withheld due to CBI claim 3313 ( Electrometal urgical Products, Except Steel) 4911 ( Electric Services) 4( a) Electricity Generation 67% 4( c) AC < 1% 4( d) Process Cooling 32% 4( e) Other 1% 55.4 mgd discharged from electric generating station. A total of 27.11 mgd is discharged from furnaces 44 million KWh was generated in 1998. 0% was sold.

GF Weaton Power Station, Zinc Monoca, PA 4911 ( Electric Services) Note entered and whited out 3339 ( Primary Smelting & Refining of Non ferrous Metals, Except Copper) 4( a) Electricity Generation 100% Diagram is CBI  all water uses associated with power generation. 690 million KWh generated in 1998 6.5% of power generated was sold American Optical Corp; Southbridge, MA 4931 ( Electric & Other Service Combined; 3999 ( Manufacturi ng Industries, NEC) 4( a) Electricity Generation 94% 4( d) Process Cooling 3% 4( e) Other ( AC & toilets) 3% Total Pond Intake 8.46 mgd.  Boiler make up 0.55 mgd  Plastics parts washing 0.25 mgd  Powerhouse noncontact cooling 0.174 mgd  Steam turbine condensers 7.952 mgd  Non contact process chiller 0.195  Non contact AC 0.017 mgd  Facility Toilets 0.042 mgd Due to complexity of facility ( includes industrial, office, & commercial entities) did not complete Economic Section Occidental Chemical Corp; Convent, LA 2812 ( Alkalies & Chlorine); 2869 ( Industrial Organic Chemicals, NEC); 4939 ( Combined Utilities, NEC) 4( c) AC 1% 4( d) Process Cooling 99% 260 gpm goes to process water cooling tower make up 840 gpm goes to process areas Facility did not generate electricity per Q 15( a)